THIRD DIVISION guarantee of HFC.

In order to recover from HFC, respondent assigned to HFC its interest

[ G.R. No. 162523, November 25, 2009 ] over the mortgage by virtue of a Deed of Assignment[7] on August 28, 1983 coupled with
NORTON RESOURCES AND DEVELOPMENT CORPORATION, PETITIONER, VS. the delivery of the Transfer Certificate of Title.
ALL ASIA BANK CORPORATION,* RESPONDENT.
As of August 2, 1983, the outstanding obligation of petitioner amounted to P3,240,757.99.
DECISION HFC paid only P2,990,757.99, withholding the amount of P250,000.00. Upon payment,
NACHURA, J.: HFC executed a Deed of Release of Mortgage[8] on February 14, 1984, thereby canceling
the mortgage of all properties listed in the Deed of Assignment. Respondent made several
Before this Court is a Petition for Review on Certiorari[1] under Rule 45 of the Rules of demands from HFC for the payment of the amount of P250,000.00 but HFC continued to
Civil Procedure, seeking the reversal of the Court of Appeals (CA) Decision[2] dated withhold the same upon the request of petitioner. Thus, respondent filed an action to
November 28, 2002 which set aside the Decision[3] of the Regional Trial Court (RTC) of recover the P250,000.00 with the RTC, Branch 15, of Davao City, docketed as Civil Case
Davao City, Branch 14, dated August 27, 1999. No. 17048.[9] On April 13, 1987, said RTC rendered a Decision[10] in favor of
respondent, the dispositive portion thereof reads as follows:
The Facts
IN VIEW WHEREOF, judgment is hereby rendered as follows:
Petitioner Norton Resources and Development Corporation (petitioner) is a domestic
corporation engaged in the business of construction and development of housing 1. The defendant shall return to the plaintiff the P250,000.00 with legal interest to be
subdivisions based in Davao City, while respondent All Asia Bank Corporation computed from April 12, 1984 until fully paid.
(respondent), formerly known as Banco Davao-Davao City Development Bank, is a
domestic banking corporation operating in Davao City. 2. The defendant shall pay the plaintiff fifty thousand pesos (P50,000.00) as attorney's fees
and P7,174.82 as collection expenses.
On April 13, 1982, petitioner applied for and was granted a loan by respondent in the
amount of Three Million Eight Hundred Thousand Pesos (P3,800,000.00) as evidenced by 3. The defendant shall pay the costs of this suit.
a Loan Agreement.[4] The loan was intended for the construction of 160 housing units on a
3.9 hectare property located in Matina Aplaya, Davao City which was subdivided by SO ORDERED.[11]
petitioner per Subdivision Sketch Plan.[5] To speed up the processing of all documents
necessary for the release of the funds, petitioner allegedly offered respondent a HFC appealed to the CA which, in turn, sustained the decision of the RTC. The CA
service/commitment fee of P320,000.00 for the construction of 160 housing units, or at decision became final and executory.
P2,000.00 per unit. The offer having been accepted, both parties executed a Memorandum
of Agreement[6] (MOA) on the same date. However, on February 22, 1993, petitioner filed a Complaint[12] for Sum of Money,
Damages and Attorney's Fees against respondent with the RTC, docketed as Civil Case No.
As guarantor, the Home Financing Corporation (HFC), a government entity tasked to 21-880-93. Petitioner alleged that the P320,000.00 commitment/service fee mentioned in
encourage lending institutions to participate in the government's housing programs, the MOA was to be paid on a per-unit basis at P2,000.00 per unit. Inasmuch as only 35
extended security coverage obligating itself to pay the said loan upon default of petitioner. housing units were constructed, petitioner posited that it was only liable to pay P70,000.00
Out of the loan proceeds in the amount of P3,800,000.00, respondent deducted in advance and not the whole amount of P320,000.00, which was deducted in advance from the
the amount of P320,000.00 as commitment/service fee. proceeds of the loan. As such, petitioner demanded the return of P250,000.00, representing
the commitment fee for the 125 housing units left unconstructed and unduly collected by
Unfortunately, petitioner was only able to construct 35 out of the 160 housing units respondent.
proposed to be constructed under the contract. In addition, petitioner defaulted in the
payment of its loan obligation. Thus, respondent made a call on the unconditional cash
In its Answer,[13] respondent denied that the P320,000.00 commitment/service fee
provided in the MOA was broken down into P2,000.00 per housing unit for 160 units.
Moreover, respondent averred that petitioner's action was already barred by res judicata
considering that the present controversy had already been settled in a previous judgment Undaunted, petitioner filed a Motion for Reconsideration[17] which was, however, denied
rendered by RTC, Branch 15, of Davao City in Civil Case No. 17048. by the CA in its Resolution[18] dated February 13, 2004.

The RTC's Ruling Hence, this Petition which raised the following issues:
WHETHER OR NOT THE MEMORANDU[M] OF AGREEMENT (MOA) REFLECTS
After trial on the merits, the RTC rendered a Decision[14] on August 27, 1999 in favor of THE TRUE INTENTION OF THE PARTIES[;]
petitioner. It held that the amount of P320,000.00, as commitment/service fee provided in
the MOA, was based on the 160 proposed housing units at P2,000.00 per unit. Since WHETHER OR NOT HEREIN PETITIONER IS ENTITLED TO RECOVER THE
petitioner was able to construct only 35 units, there was overpayment to respondent in the AMOUNT OF TWO HUNDRED [FIFTY] THOUSAND PESOS REPRESENTING THE
amount of P250,000.00. Thus, the RTC disposed of the case in this wise: ONE HUNDRED TWENTY FIVE (125) UNCONSTRUCTED HOUSING UNITS AT
TWO THOUSAND PESOS (PHP. 2,000.00) EACH AS AGREED [; AND]
THE FOREGOING CONSIDERED, judgment is hereby rendered for the plaintiff and
against the defendant ordering the said defendant: WHETHER OR NOT VICTOR FACUNDO AS THE VICE PRESIDENT AND
GENERAL MANAGER AT THE TIME THE AFOREMENTIONED MOA WAS
1. To pay the plaintiff the amount of TWO HUNDRED FIFTY THOUSAND PESOS EXECUTED, WAS AUTHORIZED TO ENTER INTO [AN] AGREEMENT AND TO
(P250,000.00) with interest at the legal rate reckoned from February 22, 1993, the date of NEGOTIATE THE TERMS AND CONDITIONS THEREOF TO THEIR CLIENTELE.
the filing of the plaintiff's complaint until the same shall have been fully paid and satisfied; [19]

2. To pay the plaintiff the sum of THIRTY THOUSAND PESOS (P30,000.00) Our Ruling
representing litigation expenses;
The instant Petition is bereft of merit.
3. To pay the plaintiff the sum of SIXTY TWO THOUSAND FIVE HUNDRED PESOS
(P62,500.00) as and for attorney's fees; and Our ruling in Benguet Corporation, et al. v. Cesar Cabildo[20] is instructive:

4. To pay the costs. The cardinal rule in the interpretation of contracts is embodied in the first paragraph of
Article 1370 of the Civil Code: "[i]f the terms of a contract are clear and leave no doubt
SO ORDERED.[15] upon the intention of the contracting parties, the literal meaning of its stipulations shall
Aggrieved, respondent appealed to the CA.[16] control." This provision is akin to the "plain meaning rule" applied by Pennsylvania courts,
which assumes that the intent of the parties to an instrument is "embodied in the writing
The CA's Ruling itself, and when the words are clear and unambiguous the intent is to be discovered only
from the express language of the agreement." It also resembles the "four corners" rule, a
On November 28, 2002, the CA reversed the ruling of the RTC. The CA held that from the principle which allows courts in some cases to search beneath the semantic surface for
literal import of the MOA, nothing was mentioned about the arrangement that the payment clues to meaning. A court's purpose in examining a contract is to interpret the intent of the
of the commitment/service fee of P320,000.00 was on a per unit basis valued at P2,000.00 contracting parties, as objectively manifested by them. The process of interpreting a
per housing unit and dependent upon the actual construction or completion of said units. contract requires the court to make a preliminary inquiry as to whether the contract before
The CA opined that the MOA duly contained all the terms agreed upon by the parties. it is ambiguous. A contract provision is ambiguous if it is susceptible of two reasonable
alternative interpretations. Where the written terms of the contract are not ambiguous and
can only be read one way, the court will interpret the contract as a matter of law. If the execution of the parties' written agreement, other or different terms were agreed upon by
contract is determined to be ambiguous, then the interpretation of the contract is left to the the parties, varying the purport of the written contract. When an agreement has been
court, to resolve the ambiguity in the light of the intrinsic evidence. reduced to writing, the parties cannot be permitted to adduce evidence to prove alleged
practices which, to all purposes, would alter the terms of the written agreement. Whatever
In our jurisdiction, the rule is thoroughly discussed in Bautista v. Court of Appeals: is not found in the writing is understood to have been waived and abandoned.[22] None of
the above-cited exceptions finds application in this case, more particularly the alleged
The rule is that where the language of a contract is plain and unambiguous, its meaning failure of the MOA to express the true intent and agreement of the parties concerning the
should be determined without reference to extrinsic facts or aids. The intention of the commitment/service fee of P320,000.00.
parties must be gathered from that language, and from that language alone. Stated
differently, where the language of a written contract is clear and unambiguous, the contract In this case, paragraph 4 of the MOA plainly states:
must be taken to mean that which, on its face, it purports to mean, unless some good reason
can be assigned to show that the words should be understood in a different sense. Courts 4. That the CLIENT offers and agrees to pay a commitment and service fee of THREE
cannot make for the parties better or more equitable agreements than they themselves have HUNDRED TWENTY THOUSAND PESOS (P320,000.00), which shall be paid in two
been satisfied to make, or rewrite contracts because they operate harshly or inequitably as (2) equal installments, on the same dates as the first and second partial releases of the
to one of the parties, or alter them for the benefit of one party and to the detriment of the proceeds of the loan.[23]
other, or by construction, relieve one of the parties from the terms which he voluntarily
consented to, or impose on him those which he did not.[21] As such, we agree with the findings of the CA when it aptly and judiciously held, to wit:

Moreover, Section 9, Rule 130 of the Revised Rules of Court clearly provides: Unmistakably, the testimonies of Antonio Soriano and Victor Facundo jibed in material
points especially when they testified that the P320,000.00 commitment/service fee
SEC. 9. Evidence of written agreements. -- When the terms of an agreement have been mentioned in Paragraph 4 of Exhibit "B" is not to be paid in lump sum but on a per unit
reduced to writing, it is considered as containing all the terms agreed upon and there can basis valued at P2,000.00 per housing unit. But a careful scrutiny of such testimonies
be, between the parties and their successors in interest, no evidence of such terms other discloses that they are not in accord with the documentary evidence on record. It must be
than the contents of the written agreement. stressed that both Antonio Soriano and Victor Facundo testified that the P320,000.00
commitment/service fee was arrived at by multiplying P2,000.00, the cost per housing unit;
However, a party may present evidence to modify, explain or add to the terms of the by 160, the total number of housing units proposed to be constructed by the [petitioner] as
written agreement if he puts in issue in his pleading: evidenced by a certain subdivision survey plan of [petitioner] marked as Exhibit "C."

(a) An intrinsic ambiguity, mistake, or imperfection in the written agreement; xxxx

(b) The failure of the written agreement to express the true intent and agreement of the Looking closely at Exhibit "C," noticeable are the date of survey of the subdivision which
parties thereto; is May 15-31, 1982 and the date of its approval which is June 25, 1982, which dates are
unmistakably later than the execution of the Loan Agreement (Exhibit "A") and Exhibit
(c) The validity of the written agreement; or "B" which was on April 13, 1982. With these dates, we cannot lose sight of the fact that it
was impossible for Victor Facundo to have considered Exhibit "C" as one of the documents
(d) The existence of other terms agreed to by the parties or their successors in interest after presented by [petitioner] to support its proposal that the commitment/service fee be paid on
the execution of the written agreement. a per unit basis at P2,000.00 a unit. x x x.

The "parol evidence rule" forbids any addition to or contradiction of the terms of a written xxxx
instrument by testimony or other evidence purporting to show that, at or before the
To stress, there is not even a slim possibility that said blue print (referring to Exhibit "C") depriving the latter of the opportunity to bargain on equal footing.[28] It must be borne in
was submitted to [respondent] bank during the negotiation of the terms of Exhibit "B" and mind, however, that contracts of adhesion are not invalid per se. Contracts of adhesion,
was made the basis for the computation of P320,000.00 commitment/service fee. As seen where one party imposes a ready-made form of contract on the other, are not entirely
on its face, Exhibit "C" was approved in a much later date than the execution of Exhibit prohibited. The one who adheres to the contract is, in reality, free to reject it entirely; if he
"B" which was on April 13, 1982. In addition, as viewed from the foregoing testimony, no adheres, he gives his consent.[29]
less than Victor Facundo himself admitted that there were only 127 proposed housing units
instead of 160. Considering these factual milieus, there is sufficient justification to discredit All told, we find no reason to disturb, much less, to reverse the assailed CA Decision.
the stance of [petitioner] that Exhibit "B" was not reflective of the true intention or
agreement of the parties. Paragraph 4 of Exhibit "B" is clear and explicit in its terms, WHEREFORE, the instant Petition is DENIED and the assailed Court of Appeals Decision
leaving no room for different interpretation. Considering the absence of any credible and is AFFIRMED. Costs against petitioner.
competent evidence of the alleged true and real intention of the parties, the terms of
Paragraph 4 of Exhibit "B" remains as it was written. Therefore, the payment of SO ORDERED.
P320,000.00 commitment/service fee mentioned in Exhibit "B" must be paid in lump sum
and not on a per unit basis. Consequently, we rule that [petitioner] is not entitled to the
return of P250,000.00.[24]

The agreement or contract between the parties is the formal expression of the parties' rights,
duties and obligations. It is the best evidence of the intention of the parties. Thus, when the
terms of an agreement have been reduced to writing, it is considered as containing all the
terms agreed upon and there can be no evidence of such terms other than the contents of the
written agreement between the parties and their successors in interest. [25] Time and again,
we have stressed the rule that a contract is the law between the parties, and courts have no
choice but to enforce such contract so long as it is not contrary to law, morals, good
customs or public policy. Otherwise, courts would be interfering with the freedom of
contract of the parties. Simply put, courts cannot stipulate for the parties or amend the
latter's agreement, for to do so would be to alter the real intention of the contracting parties
when the contrary function of courts is to give force and effect to the intention of the
parties.[26]

Finally, as correctly observed by respondent, petitioner's claim that the MOA is a contract
of adhesion was never raised by petitioner before the lower courts. Settled is the rule that
points of law, theories, issues, and arguments not adequately brought to the attention of the
trial court need not be, and ordinarily will not be, considered by a reviewing court. They
cannot be raised for the first time on appeal. To allow this would be offensive to the basic
rules of fair play, justice and due process.[27]

A contract of adhesion is defined as one in which one of the parties imposes a ready-made
form of contract, which the other party may accept or reject, but which the latter cannot
modify. One party prepares the stipulation in the contract, while the other party merely
affixes his signature or his "adhesion" thereto, giving no room for negotiation and
DIVISION In response,[12] the Morla brothers claimed that the Nisperos spouses had no cause of
[ GR No. 171146, Dec 07, 2011 ] action, as the repurchase of the subject land was improper for being outside the five-year
RODOLFO MORLA v. CORAZON NISPEROS BELMONTE + period provided under Section 119 of Commonwealth Act No. 141.[13]
DECISION
678 Phil. 102 At the pre-trial conference held on June 19, 1995, the parties settled that the only issue to
be resolved by the RTC was whether the 1988 contract executed by the parties, wherein it
LEONARDO-DE CASTRO, J.: was stipulated that the Nisperos spouses may repurchase the land sold to the Morla brothers
within a period of ten (10) years, was valid or not.[14]
This petition for review on certiorari[1] seeks to annul and set aside the March 9, 2005
Decision[2] and December 29, 2005 Resolution[3] of the Court of Appeals in CA-G.R. CV On July 28, 1995, the RTC issued an Order[15] requiring the parties to submit their
No. 53527, which affirmed with modification the February 19, 1996 Judgment[4] of the position papers or memoranda in light of their agreement to submit the case for Summary
Regional Trial Court (RTC) of Ilagan, Isabela, Branch 17 in Civil Case No. 810. Judgment on the issue of the validity of the 1988 contract.

Spouses Alfredo Nisperos and Esperanza Urbano (the Nisperos spouses) were the original The Nisperos spouses then filed a Motion for Summary Judgment[16] on the ground that
homesteaders of an 80,873-square meter tract of public land known and identified as Lot there was no genuine issue of material facts in the case except for damages and attorney's
No. 4353 of Pls. 62, situated in Caliguian, Burgos, Isabela,[5] by virtue of Original fees, which may be heard separately and independently.
Certificate of Title (OCT) No. P-1542, issued on May 4, 1951.[6]
On September 15, 1995, the Nisperos spouses deposited the amount of ?275,000.00, with
On June 8, 1988, the Nisperos spouses executed a Partial Deed of Absolute Sale,[7] the clerk of court of the RTC for the repurchase of the subject land.[17]
wherein they sold a portion of Lot No. 4353 with an area of 50,000 square meters (subject
land) to the brothers Ramon and Rodolfo Morla (the Morla brothers) for the sum of Two The RTC rendered its Judgment dated February 19, 1996, the dispositive portion of which
Hundred Fifty Thousand Pesos (?250,000.00). reads:

On August 2, 1988, the Morla brothers acknowledged and confirmed in writing (the "1988 WHEREFORE, for and in consideration of the foregoing, judgment is hereby rendered in
contract") that they had bought from the Nisperos spouses the subject land, and that they favor of the plaintiffs and against the defendants ordering the defendants to reconvey the
had agreed to give the Nisperos spouses a period of ten (10) years within which to portion of five (5) hectares of plaintiff's land covered by their original title, Original
repurchase the subject land for the price of Two Hundred Seventy-Five Thousand Pesos (? Certificate of Title No. P-1542 unto the plaintiffs and to receive and accept the
275,000.00). The 1988 contract was written in Ilocano and executed at the Office of the P275,000.00 from the plaintiffs as repurchase; to pay attorney's fees in the amount of
Barangay Captain in the Municipality of Burgos, Province of Isabela.[8] P5,000.00 and to pay the costs of this suit.[18]

On June 27, 1994, the Nisperos spouses filed a Complaint[9] for Repurchase and/or The RTC said that the only issue to be resolved was the validity of the 1988 contract, which
Recovery of Ownership Plus Damages against the Morla brothers. They alleged that the the Morla brothers neither attacked nor denied. The RTC held that it was clear from the
deed of sale was registered by the Morla brothers only when they had signified their 1988 contract, which the Morla brothers executed, that they had bound themselves to its
intention to repurchase their property.[10] Thus, Transfer Certificate of Title (TCT) No. terms and conditions. The RTC further proclaimed that what was prohibited was the
225544 for the subject land was issued in favor of the Morla brothers, and TCT No. shortening of the five-year redemption period under Section 119 of Commonwealth Act
225545,[11] for the remaining 30,870 square meters of Lot No. 4353, to the Nisperos No. 141, and not its prolongation.[19]
spouses.
On March 14, 1996, the Morla brothers moved for the reconsideration[20] of the RTC's
judgment on the ground that it could not affect them since they were no longer the real
parties-in-interest as they had already sold the subject land to Rosie Ocampo, married to On March 9, 2005, the Court of Appeals affirmed the RTC's decision, with the deletion of
Delfin Gragasin, and Hilario Bernardino, married to Manolita Morla, on May 2, 1994.[21] the award of attorney's fees for lack of basis in the decision, as the only modification.
While the Court of Appeals agreed with the Morla brothers' assertion that the cases cited by
The Nisperos spouses, in their Opposition to the Motion for Reconsideration,[22] attacked the RTC were not applicable to their case, it declared that the RTC did not err in allowing
the validity of the purported sale and alleged that such sale in favor of the Morla brothers' the Nisperos spouses to repurchase the subject land. The Court of Appeals immediately
close relatives was a last ditch attempt to win the case. The Nisperos spouses pointed out noted that there clearly was no genuine issue as to any material fact, except for the claim of
that the Morla brothers never mentioned such sale considering that it supposedly happened attorney's fees. It upheld the validity of the 1988 contract and concurred with the RTC's
in May 1994, before the case was instituted in June 1994.[23] rationale that the arrangement to prolong the period for redemption of the subject land was
not prohibited by law as it was in line with the intent of Section 119 "to give the
The RTC denied the Morla brothers' motion for reconsideration in an Order[24] dated July homesteader or patentee every chance to preserve for himself and his family the land that
19, 1996. The RTC noted how such purported sale was not mentioned by the Morla the State had gratuitously given to him as a reward for his labor in cleaning and cultivating
brothers in their confrontations with the Nisperos spouses prior to the filing of the case, or it." The Court of Appeals further held that the 1988 contract, contrary to the Morla
in any of their pleadings filed before the RTC. The RTC agreed with the Nisperos spouses' brothers' contention, was not unenforceable as the necessity to embody certain contracts in
contention that if the sale really did happen, then the Morla brothers should have brought it a public instrument was only for convenience and not for its validity or enforceability.[27]
up at the earliest opportune time. Finally, the RTC said that the belated issue would not in
any way affect the standing of the parties. The Morla brothers sought to have this decision reconsidered on the strength of a "newly
discovered" Contract of Sale of farm land dated June 28, 1978 (1978 contract). The Morla
The Morla brothers timely[25] appealed this decision to the Court of Appeals and assigned brothers alleged that this contract, which covered the subject land, was found only upon the
the following errors in support thereof: prodding of their new lawyer; thus, even the ten-year period to repurchase the subject land
under Article 1606 of the Civil Code had already expired.[28]
I
The Court of Appeals issued a Resolution[29] on December 29, 2005, denying the Morla
The TRIAL COURT GRAVELY ERRED IN HOLDING THAT APPELLANTS' brothers' motion for reconsideration in this wise:
AUGUST 2, 1988 private writing, Exh. "A" WAS AN AGREEMENT BY PARTIES FOR
APPELLEES TO REPURCHASE WITHIN TEN (10) YEARS THEREFROM THE FIVE [The Morla brothers] assert a new theory on the basis of a handwritten "contract" dated
(5) HECTARES PORTION OF THEIR HOMESTEAD THEY SOLD TO THE FORMER June 28, 1978 - a private document - allegedly executed by [the Nisperos spouses]. Said
AS PER JUNE 28, 1988 PARTIAL DEED OF ABSOLUTE SALE, EXH. "1" document is being introduced for the first time on appeal. And it is settled that issues not
NOTWITHSTANDING THE MANDATORY FIVE (5) YEARS REPURCHASE PERIOD raised in the court a quo cannot be raised for the first time on appeal - in the case at bench,
FROM THE DATE OF SALE PROVIDED BY SECTION 119 OF THE PUBLIC LAND in a motion for reconsideration - for being offensive to the basic rules of fair play, justice
LAW (COMMONWEALTH ACT NO. 141). and due process x x x.[30]

II As Ramon Morla died on March 5, 2001, single and without any descendants or
ascendants, Rodolfo Morla (petitioner), by himself, elevated the instant case before this
THE TRIAL COURT GRAVELY ERRED IN RELYING ON THE PRECEDENT LAID Court with the Nisperos spouses as respondents. Alfredo Nisperos, however, also died on
IN THE CASES OF MENJE, ET AL., VS. ANGELES, 101 PHIL. 563 AND MANUEL September 19, 2010.[31] Consequently, Alfredo Nisperos' legal heirs filed a motion[32] to
VS. PHILIPPINE NATIONAL BANK, 101 PHIL. 568, WHICH TREAT OF be substituted as respondents, in lieu of their deceased father. This motion was granted on
REDEMPTION OF FORECLOSED HOMESTEAD AFTER FORECLOSURE SALES October 3, 2011[33] thus, Corazon Nisperos Belmonte, Abraham U. Nisperos, Perlita
NOTWITHSTANDING THE CLEAR ISSUE IN THE CASE AT BAR WHICH IS FOR Nisperos Ocampo, Armando U. Nisperos, Alberto U. Nisperos, Hilario U. Nisperos,
REPURCHASE OF A PORTION OF A HOMESTEAD. [26] Archimedes U. Nisperos, Buenafe Nisperos Perez, and Arthur U. Nisperos, now join their
mother Esperanza Urbano Nisperos as respondents in this case.
 That on August 2, 1988, at Caliguian, Burgos, Isabela, in the presence of the Barangay
Issue Captain, an Ilocano writing or contract was acknowledged and confirmed by the defendants
and the defendants admitted as to its authenticity;
Petitioner, claiming that his petition is of transcendental importance as it poses a novel
question of law, is asking us to resolve the following question: That the Transfer Certificate of Title No. T-225545 is the remaining portion of Three (3)
hectares or 30, 873 square meters, which was only issued by the Register of Deeds of
[M]ay parties to a deed of sale of a land covered by a homestead patent extend or prolong Isabela on March 11, 1994, and this remaining portion was derived from the Original
the 5-year period of repurchase under Section 119 of Act 141, under a private writing Certificate of Title of Alfredo Nisperos, which is OCT No. P-1542 issued in 1951;
subsequently executed by them?[34]
That on June 8, 1988, a Partial Deed of Absolute Sale was prepared, as per Doc. No. 419;
The Court's Ruling Page 84; Book 17; Series of 1988, entered into the Notarial Book of Notary Public Severo
Ladera;
This Court would like to address the admissibility of the 1978 contract at the outset as
petitioner posits that by virtue of this contract, the respondents' claim had already That Transfer Certificate of Title No. T-225544 was registered in the name of the
prescribed, even if the redemption period under Section 119 of Commonwealth Act No. defendants, Rodolfo Morla and Ramon Morla at the Office of the Registry of Deeds of
141 were extended to ten years. Petitioner claims that the June 8, 1988 Partial Deed of Sale Isabela on March 11, 1994. [38]
was actually the formal culmination of an earlier transaction between the Morla brothers
and the Nisperos spouses, as shown by the 1978 contract. Hence, more than ten years have The Morla brothers' Position Paper/Memorandum[39] likewise reiterated that the sale of
already lapsed from the time such contract was executed to the time the right to repurchase the subject land happened on June 8, 1988, and referred to the 1978 contract only to prove
was sought to be exercised.[35] their long possession of the subject land, just as they did in their Answer.

Contrary to petitioner's allegation in its Motion for Reconsideration before the Court of If it were true that the subject land's ownership was ceded to the Morla brothers as early as
Appeals, the 1978 contract did not surface only after the appeal; it was actually attached to 1978, then it is inconceivable that they would forget to bring up this important fact and use
the Morla brothers' Answer[36] filed with the RTC on July 12, 1994. Referencing this 1978 it as their key defense when they filed their Answer to the Complaint on July 12, 1994.
contract, the Morla brothers stated the following in their Answer: Even then, the Morla brothers had every opportunity to correct this lapse as they had
always been aware and in possession of the 1978 contract. They could have stipulated it
8. Since June 28, 1978 and continuously up to the present, the defendants are in the open, during the pre-trial conference, or at least stated it in their Position Paper. The theory
continuous, exclusive, and notorious actual physical possession, occupation, and cultivation advanced by the Morla brothers from the very beginning is that they are entitled to the
of the (50,000 SQUARE METERS) portion of Lot No. 4353, Pls-62, as evidenced by a possession of the subject land as the owner thereof because the property was sold to them
private document, a xerox copy of which document is hereto attached as Annex "2" to this by virtue of the Partial Deed of Sale executed on June 8, 1988. They presented the 1978
answer.[37] contract only to prove that they had been in continuous and open possession since 1978.
The first time the Morla brothers claimed ownership, and not mere possession, of the
During the pre-trial, the Morla brothers and the Nisperos spouses also agreed on only the subject land by virtue of the 1978 contract, was in their motion for reconsideration, after
following stipulation of facts, as stated in the RTC's June 19, 1995 Order: they had lost their appeal before the Court of Appeals. The Court of Appeals was correct in
not considering this argument for not having been raised at the earliest opportunity. It is a
That the land is a Homestead originally applied for by the plaintiffs and a Homestead well-settled rule that "a party who deliberately adopts a certain theory upon which the case
Patent and Original Certificate of Title were issued to the plaintiffs; was decided by the lower court will not be permitted to change [it] on appeal."[40]
"Petitioner is bound by the statements and stipulations he made while the case was being
heard in the lower courts."[41] In Manila Electric Company v. Benamira,[42] we said:
[I]t is a fundamental rule of procedure that higher courts are precluded from entertaining impliedly permits alienation of the homestead; but in line with the primordial purpose to
matters neither alleged in the pleadings nor raised during the proceedings below, but favor the homesteader and his family the statute provides that such alienation or
ventilated for the first time only in a motion for reconsideration or on appeal. The conveyance (Section 117) shall be subject to the right of repurchase by the homesteader,
individual respondents are bound by their submissions that AFSISI is their employer and his widow or heirs within five years. This section 117 is undoubtedly a complement of
they should not be permitted to change their theory. Such a change of theory cannot be section 116. It aims to preserve and keep in the family of the homesteader that portion of
tolerated on appeal, not due to the strict application of procedural rules but as a matter of public land which the State had gratuitously given to him. It would, therefore, be in
fairness. A change of theory on appeal is objectionable because it is contrary to the rules of keeping with this fundamental idea to hold, as we hold, that the right to repurchase exists
fair play, justice and due process.[43] not only when the original homesteader makes the conveyance, but also when it is made by
his widow or heirs. This construction is clearly deducible from the terms of the statute.[47]
Having settled the inadmissibility of the 1978 contract, we now go to the legality of the
1988 contract. In Fontanilla, Sr. v. Court of Appeals,[48] we said:

Since the subject land was acquired by the Nisperos spouses pursuant to a homestead The applicant for a homestead is to be given all the inducement that the law offers and is
patent, the applicable law is Commonwealth Act No. 141, or the Public Land Act. [44] entitled to its full protection. Its blessings, however, do not stop with him. This is
Section 119 thereof specifically speaks about repurchases of a homestead or free patent particularly so in this case as the appellee is the son of the deceased. There is no question
land: then as to his status of being a legal heir. The policy of the law is not difficult to
understand. The incentive for a pioneer to venture into developing virgin land becomes
Sec. 119. Every conveyance of land acquired under the free patent or homestead more attractive if he is assured that his effort will not go for naught should perchance his
provisions, when proper, shall be subject to repurchase by the applicant, his widow, or legal life be cut short. This is merely a recognition of how closely bound parents and children
heirs, within a period of five years from the date of the conveyance. are in Filipino family. Logic, the sense of fitness and of right, as well as pragmatic
considerations thus call for continued adherence to the policy that not the individual
The petitioner does not dispute the existence or validity of the 1988 contract. He simply applicant alone but those so closely related to him as are entitled to legal succession may
argues that the 10-year repurchase period he and his brother Ramon Morla had agreed to take full advantage of the benefits the law confers.[49]
grant the Nisperos spouses, as evidenced by the 1988 contract, was contrary to law and
jurisprudence, viz: We are in full accord with the clear findings and apt ruling of the lower courts. Nowhere in
Commonwealth Act No. 141 does it say that the right to repurchase under Section 119
In no uncertain terms can the statutory period of five (5) years, which is fixed and non- thereof could not be extended by mutual agreement of the parties involved. Neither would
extendible, be prolonged or extended by agreement of the parties since it runs athwart with extending the period in Section 119 be against public policy as "the evident purpose of the
the express limitation of the right to repurchase provided for in Section 119, Act 141. Public Land Act, especially the provisions thereof in relation to homesteads, is to conserve
Spouses Nisperos cannot, therefore, use the August 2, 1988 private writing to extend the ownership of lands acquired as homesteads in the homesteader or his heirs."[50] "What
already expired period granted under the law. To do so is to violate the law. The law must cannot be bartered away is the homesteader's right to repurchase the homestead within five
control over the revised intention of the parties.[45] (Emphasis supplied.) years from its conveyance, as this is what public policy by law seeks to preserve."[51]
"This, in our opinion, is the only logical meaning to be given to the law, which must be
Elucidating on the purpose of the homestead laws, this Court held in Republic of the liberally construed in order to carry out its purpose."[52]
Philippines v. Court of Appeals[46]:
Petitioner does not dispute that the 1988 contract was executed freely and willingly
It is well-known that the homestead laws were designed to distribute disposable agricultural between him and his late brother, and the Nisperos spouses. "The freedom of contract is
lots of the State to land-destitute citizens for their home and cultivation. Pursuant to such both a constitutional and statutory right,"[53] and "the contracting parties may establish
benevolent intention the State prohibits the sale or encumbrance of the homestead (Section such stipulations, clauses, terms and conditions as they may deem convenient, provided
116) within five years after the grant of the patent. After that five-year period the law they are not contrary to law, morals, good customs, public order, or public policy."[54]
The 1988 contract neither shortens the period provided under Section 119 nor does away
with it. Instead, it gives the Nisperos spouses more time to reacquire the land that the State
gratuitously gave them. The 1988 contract therefore is not contrary to law; instead it is
merely in keeping with the purpose of the homestead law. Since the 1988 contract is valid,
it should be given full force and effect. In Roxas v. De Zuzuarregui, Jr.,[55] we held:

It is basic that a contract is the law between the parties. Obligations arising from contracts
have the force of law between the contracting parties and should be complied with in good
faith. Unless the stipulations in a contract are contrary to law, morals, good customs, public
order or public policy, the same are binding as between the parties.[56]

Petitioner, who freely signed the 1988 contract, cannot now be allowed to renege on his
obligation under it, simply because he changed his mind. Article 1308 of the Civil Code
provides:

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

Petitioner is thus bound by the terms of the 1988 Contract, and must comply with it in good
faith. Since the right to repurchase was exercised by the Nisperos spouses before the
expiration of the time given to them by the Morla brothers, the lower courts correctly ruled
in their favor.

WHEREFORE, the Petition is hereby DENIED and the March 9, 2005 Decision and
December 29, 2005 Resolution of the Court of Appeals in CA-G.R. CV No. 53527, are
AFFIRMED.

SO ORDERED.
SECOND DIVISION Under Article I of the contract, NPC, referred to therein as the "CORPORATION," granted
[ G.R. No. 183789, August 24, 2011 ] Pozzolanic Australia, the "PURCHASER," a right of first refusal to purchase the fly ash
POWER SECTOR ASSETS AND LIABILITIES MANAGEMENT CORPORATION, generated by the coal-fired plants that may be put up by NPC in the future. The specific
PETITIONER, VS. POZZOLANIC PHILIPPINES INCORPORATED, RESPONDENT. provision of the contract states:

DECISION PURCHASER has first option to purchase Fly Ash under similar terms and conditions as
PEREZ, J.: herein contained from the second unit of Batangas Coal-Fired Thermal Plant that the
CORPORATION may construct. PURCHASER may also exercise the right of first refusal
The Case to purchase fly ash from any new coal-fired plants which will be put up by
CORPORATION.[10]
This petition[1] for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure
assails (1) the Decision[2] dated 30 April 2008 of the Regional Trial Court of Quezon City, In 1988, while the necessary clearances and approvals were being obtained by Pozzolanic
Branch 96, upholding the validity of respondent's right of first refusal and holding such Australia in connection with the operation of its fly ash business in the Philippines, its
right binding on petitioner, and (2) the Order[3] dated 27 June 2008 of the same court, major stockholders decided that it would be more advantageous for the company to
denying petitioner's Motion for Reconsideration and Supplemental Motion for organize a Philippine corporation and to assign to such corporation Pozzolanic Australia's
Reconsideration of the 30 April 2008 Decision of the trial court in Civil Case No. Q-00- rights to the commercial use of fly ash in the Philippines. Accordingly, in April 1989,
40731. respondent Pozzolanic was formally incorporated to take over Pozzolanic Australia's
business in the Philippines.[11] Respondent then commenced to exercise its rights under
The Antecedents the Batangas contract in June, 1989.[12]

Petitioner Power Sector Assets and Liabilities Management Corporation (PSALM) is a In 1998, the Masinloc Coal-Fired Thermal Power Plant (Masinloc Plant) started operations
government-owned and controlled corporation created by virtue of Republic Act No. 9136, to provide power for NPC. Late that year, respondent began the installation of its fly ash
otherwise known as the Electric Power Industry Reform Act (EPIRA) of 2001.[4] Its processing equipment in the Masinloc Plant and began off taking the fly ash produced
principal purpose is to manage the orderly sale, disposition, and privatization of the therein. [13]
National Power Corporation's (NPC's) generation assets, real estate and other disposable
assets, and Independent Power Producer (IPP) contracts, with the objective of liquidating Subsequently, on 15 February 1999, NPC and respondent, on an interim basis and prior to
all NPC financial obligations and stranded contract costs in an optimal manner.[5] the conduct of a public bidding for the contract to purchase the Masinloc Plant's fly ash,
executed a contract whereby respondent was given the right to purchase the said fly ash for
Respondent Pozzolanic Philippines Incorporated (Pozzolanic) is the local subsidiary of a period of one year.[14] The fourth and fifth "WHEREAS" clauses of the contract provide:
Pozzolanic Australia Pty. Ltd. (Pozzolanic Australia),[6] an Australian corporation which
claims to have perfected the techniques in the processing of fly ash for use in the making of WHEREAS, under the `Contract for the Purchase of the Fly Ash of Batangas Coal-Fired
cement.[7] Thermal Power Plant' dated 20 October 1987, PURCHASER was granted the right of first
refusal over any and all fly ash that may be produced by any of NPC's coal-fired power
In 1986, Pozzolanic Australia won the public bidding for the purchase of the fly ash plants in the Philippines;
generated by NPC's power plant in Batangas.[8] Pozzolanic Australia then negotiated with
NPC for a long-term contract for the purchase of all fly ash to be produced by NPC's future WHEREAS, NPC intends to bid out the long term contract for the Fly Ash that may be
power plants. NPC accepted Pozzolanic Australia's offer and they entered into a long-term produced by the (Masinloc Coal Fired Thermal Power) Plant subject to the second
contract, dated 20 October 1987, denominated as "Contract for the Purchase of Fly Ash of paragraph of Article I of the original contract between the parties which was signed on 20
Batangas Coal-Fired Thermal Power Plant Luzon" (the Batangas Contract).[9] October 1987 giving PURCHASER the right of first refusal.[15]
In October 1999, the Sual Coal-Fired Power Plant started providing electricity in the Luzon al. had previously filed a case against respondent and NPC, claiming exclusive right to
region.[16] NPC thereafter caused to be published in the Philippine Star and the Manila withdraw the fly ash of the Masinloc Plant.[28]
Bulletin[17] an "Invitation to Pre-Qualify and to Bid," inviting all interested buyers to pre-
qualify for the purchase of fly ash from the Masinloc and/or Sual Power Plants.[18] Respondent appealed the order of dismissal to the Court of Appeals.

As a result, respondent sent letters to NPC calling its attention to respondent's right of first On 18 July 2007, while the appeal was pending, respondent and the Provincial Government
refusal under the Batangas Contract. It also demanded that any tender documents to be of Zambales executed an "Agreement"[29] (the Masinloc Contract) by virtue of which the
issued in connection with the bidding on the right to purchase the Masinloc and Sual Plants' Province of Zambales awarded to respondent the exclusive right to withdraw the fly ash
fly ash include notices informing prospective bidders of respondent's right of first refusal. from the Masinloc Power Plant. Respondent then moved for the dismissal of its appeal in
the Court of Appeals. As a result, the assailed Order of the trial court dismissing
In a letter dated 7 March 2000, NPC informed respondent that it had decided to defer respondent's Third Supplementary Complaint became final.[30]
indefinitely the bidding on the right to purchase the Masinloc Plant's fly ash and to proceed
first with the bidding on the right to purchase the Sual Plant's fly ash. Thus, on 7 April Also, previously, on 30 March 2005, respondent and NPC entered into a "Purchase
2000, NPC released the tender documents for the bidding on the Sual Plant's fly ash, which Agreement for the Purchase of Fly Ash of Sual Coal-Fired Thermal Power Plant"[31] (the
tender documents made no reference to respondent's right of first refusal.[19] Sual Contract) whereby NPC awarded to respondent the exclusive right to withdraw the fly
ash from the Sual Plant.[32]
This prompted respondent to file a complaint[20] (later amended[21]) with the trial court
praying that NPC be ordered to allow Pozzolanic to exercise its right of first refusal by As a result, NPC filed, on 4 February 2008, a Motion to Dismiss[33] the Complaint against
permitting it to match the price and terms offered by the winning bidder and by awarding it on the ground that the issues between it and respondent had become moot and academic.
the contract for the purchase of the Sual Plant's fly ash to Pozzolanic if it matches the price This is in view of the Purchase Agreement executed by NPC and respondent for the fly ash
and terms offered by said winning bidder.[22] of the Sual Plant and the Agreement between respondent and the Provincial Government of
Zambales with respect to the fly ash of the Masinloc Plant.[34]
While the case was pending before the lower court, NPC decided to also dispose of the fly
ash from the Masinloc Plant through public bidding, without allowing respondent to During the hearing on NPC's Motion to Dismiss held on 7 February 2008, the trial court
exercise its right of first refusal. Thus, respondent filed a Supplementary Complaint[23], ordered herein petitioner PSALM and respondent Pozzolanic to comment on the Motion.
dated 8 August 2002, praying for the same reliefs as those prayed for in the amended Petitioner, through counsel, manifested that in addition to commenting on the Motion to
complaint earlier filed, but as regards the Masinloc Plant.[24] Dismiss, it would also like to challenge, through a position paper, the validity of
respondent's right of first refusal.[35]
Meanwhile, on 4 June 2001, Congress enacted the EPIRA (RA 9136) which created
PSALM. This resulted in the filing of a Second Supplementary Complaint, dated 5 March Respondent herein interposed no objection to the Motion to Dismiss.[36] On the other
2003, impleading petitioner PSALM as a necessary and indispensable party.[25] hand, in its Comment[37] dated 14 February 2008, petitioner asserted that the following
issues should first be resolved before a resolution on the Motion to Dismiss may be had:
The litigation became more complicated when petitioner, NPC, and the Department of
Energy entered into a Memorandum of Agreement with the Provincial Government of whether or not fly ash, which is/are [sic] not yet existing, can be considered assets of the
Zambales and several local government units of Zambales, pursuant to which the government, the disposition of which is subject to government rules particularly public
Provincial Government of Zambales was awarded the exclusive right to withdraw the fly bidding;
ash from the Masinloc Plant.[26] With this development, respondent filed a Third
Supplementary Complaint seeking the annulment of the aforesaid Memorandum of whether or not the alleged right of first refusal of plaintiff is not contrary to law; and
Agreement and other documents related thereto.[27] This complaint was dismissed by the
trial court on the ground of forum shopping, it appearing that the Province of Zambales, et whether or not PSALM is bound by the said alleged right.[38]
Petitioner thus prayed that resolution on the Motion to Dismiss be held in abeyance On whether or not the trial court
pending determination of the issues concerning respondent's alleged right of first refusal. was divested of jurisdiction

Pursuant to its manifestation in open court during the 7 February 2008 hearing on NPC's Petitioner contends that by virtue of the Order of the trial court dated 17 March 2008,
Motion to Dismiss, petitioner submitted its Position Paper[39] on 29 February 2008 raising respondent's Amended Complaint was dismissed with prejudice; and, since no motion for
the same issues as those in its Comment to NPC's Motion to Dismiss. Petitioner prayed that reconsideration or appeal was filed by any of the parties in the lower court, the Order
the complaint against it be dismissed and that respondent's right of first refusal contained in attained finality. Thus, petitioner argues, the trial court can no longer take any further
the second paragraph, Article 1 of the Batangas Contract be declared void ab initio for action since it had lost all power or authority over the case. The Order of dismissal
being contrary to law and public policy. effectively deprived it of jurisdiction.[42]

In an Order[40] dated 17 March 2008, the trial court dismissed in toto the Amended We cannot subscribe to petitioner's argument. Petitioner is barred by the doctrine of
Complaint and the First Supplementary Complaint. The Second Supplementary Complaint estoppel from challenging the lower court's authority to render the 30 April 2008 Decision
was PARTIALLY DISMISSED insofar since it was petitioner itself which called for the exercise of such authority. In its Comment
to NPC's Motion to Dismiss, it raised the following issues:
as it refers to herein respondent's complaint against NPC only. Thus, on 30 April 2008, the
trial court rendered the herein assailed Decision declaring respondent's right of first refusal whether or not fly ash, which is/are [sic] not yet existing, can be considered assets of the
valid and binding on petitioner. The Motion for Reconsideration and Supplemental Motion government, the disposition of which is subject to government rules particularly public
for Reconsideration filed by petitioner seeking a reversal of the decision of the trial court bidding;
were both denied for lack of merit.[41]
whether or not the alleged right of first refusal of plaintiff is not contrary to law; and
Hence, this petition.
whether or not PSALM is bound by the said alleged right.
The Issues
Then, again, in its Position Paper, it reiterated the aforesaid issues and petitioned the trial
Petitioner PSALM prays for the reversal of the challenged decision on the following court to dismiss herein respondent's complaint against it and to invalidate respondent's right
grounds: of first refusal as contained in the Batangas Contract. Clearly, petitioner invoked the court's
jurisdiction by seeking to obtain a definite pronouncement from it. Having thus called upon
THE TRIAL COURT WAS DIVESTED OF JURISDICTION AFTER IT ISSUED THE the court to settle the issues it has raised, petitioner cannot now repudiate that same
ORDER DATED 17 MARCH 2008 DISMISSING WITH PREJUDICE THE AMENDED jurisdiction it has invoked in the first place.
COMPLAINT AND THE FIRST SUPPLEMENTARY COMPLAINT. THUS, THE
"DECISION" DATED 30 APRIL 2008 RENDERED SUBSEQUENT TO SUCH This Court has consistently held that "a party cannot invoke the jurisdiction of a court to
DISMISSAL IS NULL AND VOID; AND secure affirmative relief against his opponent and after obtaining or failing to obtain such
relief, repudiate or question that same jurisdiction."[43] The Supreme Court frowns upon
EVEN ASSUMING THAT THE TRIAL COURT WAS NOT DIVESTED OF the undesirable practice of a party submitting his case for decision and then accepting the
JURISDICTION, THE RIGHT OF FIRST REFUSAL IS NOT VALID, AND judgment only if favorable, and attacking it for lack of jurisdiction if adverse.[44] If a party
THEREFORE, WITHOUT BINDING EFFECT, FOR BEING CONTRARY TO PUBLIC invokes the jurisdiction of a court, he cannot thereafter challenge the court's jurisdiction in
POLICY. the same case. To rule otherwise would amount to speculating on the fortune of litigation,
which is against the policy of the Court.[45]
The Court's Ruling
Petitioner maintains that it had tried to prevent the current situation wherein a decision was By respondent's own admission, the right of first refusal granted to it was "contractually
rendered by the trial court without a standing complaint. According to petitioner, in its bargained for and acquired from NPC"[48] after it won the public bidding for the purchase
Comment to NPC's Motion to Dismiss, it prayed for a deferral of the court's action on the of the fly ash produced by the Batangas Power Plant.[49] This clearly indicates that the
Motion until after the resolution of the issues it has raised. Thus, petitioner claims, it cannot right of first refusal was not included in the bid documents presented to the other bidders
be faulted for the lower court's own procedural lapse in dismissing the Amended Complaint who participated in the bidding. As a result, the contract signed by NPC and respondent is
despite petitioner's prayer.[46] different from that which was bidded out.

Again, we cannot sustain petitioner's contention. It has been held that the three principles in public bidding are: (1) the offer to the public;
(2) an opportunity for competition; and (3) a basis for the exact comparison of bids. A
It must be noted that petitioner did not raise the foregoing argument in its Comment on regulation of the matter which excludes any of these factors destroys the distinctive
NPC's Motion to Dismiss. Neither was it mentioned in the Position Paper it filed before the character of the system and thwarts the purpose of its adoption.[50]
trial court. Not even in its Motion for Reconsideration of the herein challenged Decision
did petitioner discuss the issue. The matter was raised for the first time in its Supplemental Thus, in the case of Agan, Jr. v. Philippine International Air Terminals Co., Inc.[51]
Motion for Reconsideration, thereby giving credence to respondent's contention that the (PIATCO), the Supreme Court declared as null and void, for being contrary to public
same was just an afterthought[47] on the part of petitioner. policy, the Concession Agreement entered into by the government with PIATCO because it
contained provisions that substantially departed from the draft Concession Agreement
If petitioner's claim is to be accepted as true, it should have raised the issue regarding the included in the bid documents.[52]
trial court's jurisdiction at the very first opportunity, which was, at the time of its receipt of
the 17 March 2008 Order dismissing the Amended and First Supplementary Complaints in Also, in Commission on Audit v. Link Worth International, Inc.,[53] the Court affirmed the
toto and only partially dismissing the Second Supplementary Complaint wherein petitioner respective decisions of the trial court and the Court of Appeals annulling the award of a
was impleaded. At that point, petitioner should have been forewarned that the proceedings, procurement contract to a bidder whose technical proposal varied from the bid
as against it, have not been terminated. Then, too, as far as the issues it raised in its specifications. It appears that during the post-qualification stage, the Bids and Awards
Comment and Position Paper were concerned, no pronouncement had, as yet, been made by Committee of the Commission on Audit considered some factors in the verification and
the court at the time. Obviously, there were still matters that needed to be resolved by the validation of the winning bidder's proposal which were extraneous to and not included in
court. Thus, if petitioner truly believed that the court had lost its jurisdiction after it the bid documents.[54] Thus, the Court emphasized that the function of post-qualification
dismissed the Amended Complaint, it should have questioned the 17 March 2008 Order of is to verify, inspect and test whether the technical specifications of the goods offered
the court which failed to completely dispose of the case. Instead, it waited for the court to comply with the requirements of the contract and the bidding documents. It does not give
issue the questioned Decision, and only then did petitioner broach the subject. Clearly, occasion for the procuring entity to arbitrarily exercise its discretion and brush aside the
under the circumstances, petitioner is estopped from questioning the court's jurisdiction. very requirements it specified as vital components of the goods it bids out.[55]

On the validity of respondent's In Caltex (Philippines), Inc., et al. v. Delgado Brothers, Inc. et al.,[56] the Supreme Court
right of first refusal likewise affirmed a decision of the trial court declaring as null and void the amendment to
an arrastre contract for the reason that the same was done without public bidding. Citing the
We hold the right of first refusal granted to respondent in the Batangas Contract invalid for appealed decision, the Court held that:
being contrary to public policy as the same violates the requirement of competitive public
bidding in the award of government contracts, for the following reasons: x x x the said agreement of June 1, 1951 executed and entered into without previous public
bidding, is null and void, and can not adversely affect the rights of third parties, x x x and
One: The grant to respondent of the right of first refusal constitutes an unauthorized of the public in general. x x x the due execution of a contract after public bidding is a
provision in the contract that was entered into pursuant to the bidding. limitation upon the right of the contracting parties to alter or amend it without another
public bidding, for otherwise what would a public bidding be good for if after the execution
of a contract after public bidding, the contracting parties may alter or amend the contract, contract with the highest bidder and incorporate substantial provisions beneficial to him,
or even cancel it, at their will? Public biddings are held for the protection of the public, and not included or contemplated in the terms and specifications upon which the bids were
to give the public the best possible advantages by means of open competition between the invited.[64]
bidders. He who bids or offers the best terms is awarded the contract subject of the bid, and
it is obvious that such protection and best possible advantages to the public will disappear Aside from protecting public interest by giving the public the best possible advantages
if the parties to a contract executed after public bidding may alter or amend it without through open competition, "[a]nother self-evident purpose of public bidding is to avoid or
another previous public bidding.[57] preclude suspicion of favoritism and anomalies in the execution of public contracts."[65]
Such bias or partiality and irregularities may be validly presumed if, as in this case, after a
Finally, in Information Technology Foundation of the Philippines v. Commission on contract has been awarded, the parties carry out changes or make amendments thereto
Elections,[58] the Court nullified the award by the Commission on Elections (COMELEC) which gives the winning bidder an edge or advantage over the other bidders who
of a contract for the automation of the counting and canvassing of the ballots in the 2004 participated in the bidding, or which makes the signed contract unfavorable to the
elections on the ground, among others, that it permitted the winning bidder to change and government. Thus, there can be no substantial or material change to the parameters of the
alter the subject of the contract, in effect allowing a substantive amendment without public project, including the essential terms and conditions of the contract bidded upon, after the
bidding.[59] Said the Supreme Court therein: "it is contrary to the very concept of public contract award.[66]
bidding to permit a variance between the conditions under which the bids are invited and
those under which proposals are submitted and approved; or, as in this case, the conditions The Court acknowledges that a winning bidder is not precluded from modifying or
under which the bid is won and those under which the awarded contract will be complied amending certain provisions of the contract bidded upon. However, such changes must not
with. The substantive amendment of the contract bidded out, without any public bidding - constitute substantial or material amendments that would alter the basic parameters of the
after the bidding process had been concluded - is violative of the public policy on public contract and would constitute a denial to the other bidders of the opportunity to bid on the
biddings, x x x. The whole point in going through the public bidding exercise was same terms. Hence, the determination of whether or not a modification or amendment of a
completely lost. The very rationale of public bidding was totally subverted by the contract bidded out constitutes a substantial amendment rests on whether the contract,
Commission."[60] when taken as a whole, would contain substantially different terms and conditions that
would have the effect of altering the technical and/or financial proposals previously
By its very nature, public bidding aims to protect public interest by giving the public the submitted by other bidders. The alteration and modifications in the contract executed
best possible advantages through open competition. Thus, competition must be legitimate, between the government and the winning bidder must be such as to render such executed
fair and honest. In the field of government contract law, competition requires not only contract to be an entirely different contract from the one that was bidded upon.[67]
bidding upon a common standard, a common basis, upon the same thing, the same subject
matter, and the same undertaking, but also that it be legitimate, fair and honest and not The grant of the right of first refusal in this case did not only substantially amend the terms
designed to injure or defraud the government.[61] An essential element of a publicly of the contract bidded upon, so that resultantly, the other bidders thereto were deprived of
bidded contract is that "all bidders must be on equal footing, not simply in terms of the terms and opportunities granted to respondent after it won the public auction, it so
application of the procedural rules and regulations imposed by the relevant government altered the bid terms - the very admission by all parties that the disposal of fly ash must be
agency, but more importantly, on the contract bidded upon. Each bidder must be able to bid through public bidding - by effectively barring any and all true biddings in the future. The
on the same thing."[62] grant of first refusal was a grant to respondent of the right to buy fly ash in all coal-fired
plants of NPC. Proceeding from the afore-cited jurisprudence, the Batangas Contract is,
As pointed out by the Court in Agan, if the winning bidder is allowed to later include or consequently, a nullity.
modify certain provisions in the contract awarded such that the contract is altered in any
material respect, then the essence of fair competition in the public bidding is destroyed. A Two: The right to buy fly ash precedes and is the basis of the right of first refusal, and the
public bidding would be a farce if, after the contract is awarded, the winning bidder may consequent right cannot be acquired together with and at the same time as the precedent
modify the contract and include provisions which are favorable to it that were not right.
previously made available to the other bidders.[63] The government cannot enter into a
The right of first refusal has long been recognized, both legally and jurisprudentially, as right of first refusal to the corporation's shares of stock - later exchanged for the right to top
valid in our jurisdiction. It is significant to note, however, that in those cases where the - granted to KAWASAKI was based on the fact that it was a shareholder in the joint
right of refusal is upheld by both law and jurisprudence, the party in whose favor the right venture for the construction, operation, and management of the Philippine Shipyard and
is granted has an interest on the object over which the right of first refusal is to be Engineering Corporation (PHILSECO).
exercised. In those instances, the grant of the right of first refusal is a means to protect such
interest. In the case at bar, however, there is no basis whatsoever for the grant to respondent of the
right of first refusal with respect to the fly ash of NPC power plants since the right to
Thus, Presidential Decree (P.D.) No. 1517,[68] as amended by P.D. No. 2016,[69] grants to purchase at the time of bidding is that which is precisely the bidding subject, not yet
qualified tenants of land in areas declared as urban land reform zones, the right of first existent much more vested in respondent.
refusal to purchase the same within a reasonable time and at a reasonable price.[70] The
same right is accorded by Republic Act No. 7279[71] (Urban Development and Housing KAWASAKI's situation is different from that of respondent in that the former has an
Act of 1992) to qualified beneficiaries of socialized housing, with respect to the land they established interest in the shares subject of the right of first refusal. In the words of the
are occupying. Accordingly, in Valderama v. Macalde,[72] Parañaque Kings Enterprises, Court in that case: "KAWASAKI is not a mere non-bidder. It is a PARTNER in the joint
Inc. v. Court of Appeals,[73] and Conculada v. Court of Appeals,[74] the Supreme Court venture x x x."[82] (Emphasis supplied).
sustained the tenant's right of first refusal pursuant to P.D. 1517.
Further, in the JG Summit Case,[83] what was involved was not merely a right to match but
In Polytechnic University of the Philippines v. Court of Appeals[75] and Polytechnic a right to top by five percent (5%) the highest bid for the shares subject of the public
University of the Philippines v. Golden Horizon Realty Corporation[76], this Court upheld bidding.[84] Undoubtedly, such an arrangement is truly advantageous to the government.
the right of refusal of therein respondent private corporations concerning lots they are Here, aside from respondent not having a vested interest in the subject matter of the public
leasing from the government. bidding, its right of first refusal allows it to merely match the highest bid offered at the
public auction. This agreement clearly makes a farce of the bidding process, as the
In the case of Republic v. Sandiganbayan, [77] the Presidential Commission on Good government will merely go through the motion of holding a public bidding and declaring a
Government (PCGG) sought to exercise its right of first refusal as a stockholder of Eastern highest bidder only to award the contract to respondent, who did not even participate in the
Telecommunications Philippines, Inc. (ETPI), a corporation sequestered by the PCGG, to bidding.
purchase ETPI shares being sold by another stockholder to a non-stockholder. While the
Court recognized that PCGG had a right of first refusal with respect to ETPI's shares,[78] it It is significant to note that, in the tender documents for the bidding of the fly ash of the
nevertheless did not sustain such right on the ground that the same was not seasonably Masinloc Power Plant, NPC gave respondent the opportunity to top the highest bid by
exercised.[79] fifteen percent (15%). Respondent protested this, however, as an infringement upon its
alleged right of first refusal to purchase the Masinloc fly ash, as supposedly guaranteed by
Finally, in Litonjua v. L & R Corporation,[80] the Supreme Court recognized the validity the Batangas Contract.[85]
and enforceability of a stipulation in a mortgage contract granting the mortgagee the right
of first refusal should the mortgagor decide to sell the property subject of the mortgage. In effect, therefore, in asserting its right of first refusal, what respondent is asking is that it
be given undue advantage over any other party interested to purchase the fly ash of NPC's
In all the foregoing cases, the party seeking to exercise the right has a vested interest in, if power plants. Obviously, this cannot be countenanced. It is inherent in public biddings that
not a right to, the subject of the right of first refusal. Thus, on account of such interest, a there shall be a fair competition among the bidders. The specifications in such biddings
tenant (with respect to the land occupied), a lessee (vis-à-vis the property leased), a provide the common ground or basis for the bidders. The specifications should,
stockholder (as regards shares of stock), and a mortgagor (in relation to the subject of the accordingly, operate equally or indiscriminately upon all bidders.[86]
mortgage), are all granted first priority to buy the property over which they have an interest
in the event of its sale. Even in the JG Summit Case,[81] which case was heavily relied It should also be pointed out that while respondent maintains that it never sought to
upon by the lower court in its decision and by respondent in support of its arguments, the disallow the public bidding of the fly ash in question, the records of this case, nevertheless,
disclose that the right to withdraw the fly ash of the Sual and Masinloc Plants was awarded corruption and temptations to abuse discretion on the part of government authorities in
to respondent without the benefit of a public auction.[87] Thus, the grant to respondent of awarding contracts.[89]
the right of first refusal in the Batangas Contract paved the way for respondent to obtain the
right to withdraw fly ash from the aforementioned power plants without public bidding. Based on the afore-quoted "WHEREAS" clauses of the Sual Contract, the right to purchase
The second and third "WHEREAS" clauses of the Sual Contract are particularly telling on the fly ash from the Sual Plant was granted to respondent, without having to undergo a
this score: public auction, on the basis of its right of first refusal embodied in the Batangas Contract.
This negates respondent's claim that the right of first refusal granted to it does not preclude
WHEREAS, in the Contract for the Purchase of Fly Ash of BCFTPP provides for the a public bidding. The right of first refusal provision was used to subvert the rule that all
"Right of First Refusal" to PURCHASER to purchase fly ash from any new coal-fired government contracts should be awarded after competitive public bidding. This
plants which will be put up by NPC; demonstrates the iniquity of allowing the provision to prevail over requirements of public
policy. Thus, the evil precisely sought to be prevented by the requirement of public bidding
WHEREAS, NPC owns the fly ash generated by the two (2) units of 1,200 MW Sual Coal- came to pass in this case: the Sual and Masinloc Contracts were awarded to respondent
Fired Thermal Power Plant (SCFTPP) located at Barangay Pangascasan, Sual, Pangasinan, without any public bidding having been conducted.
hereinafter referred to as the Plant;[88]
Three: The right of first refusal is against the public policy that contracts must be awarded
With respect to the Masinloc Plant, it will be recalled that the right to through public bidding.

withdraw the fly ash from the same was the subject of the Third Supplementary Complaint, Respondent would have us sustain its right of first refusal on the ground that Article 1159
filed by respondent before the trial court to enforce the right of first refusal provision in the of the New Civil Code provides that "obligations arising from contracts have the force of
Batangas Contract, which complaint was, however, dismissed on the ground of forum law between the contracting parties and should be complied with in good faith." Hence,
shopping. Nevertheless, while the order of dismissal was on appeal in the Court of Appeals, respondent argues, the Batangas Contract is binding upon NPC and respondent and their
the right to withdraw the fly ash of the Masinloc Plant was granted to respondent by the respective successors-in-interest.[90]
Provincial Government of Zambales, by virtue of which, respondent moved for the
dismissal of its appeal, thereby resulting in the finality of the order of dismissal of the trial True, it is a fundamental rule that contracts, once perfected, bind both contracting parties
court. and a contract freely entered into should be respected since a contract is the law between
the parties.[91] However, it must be understood that contracts are not the only source of
It can be easily deduced from the foregoing that the Masinloc Contract was likewise law that govern the rights and obligations between parties. More specifically, no
sourced from respondent's supposed right of first refusal, thereby giving respondent contractual stipulation may contradict law, morals, good customs, public order or public
preferential right to the fly ash of the Masinloc Plant and allowing it to withdraw the Plant's policy.[92]
fly ash without having to go through a public bidding. Had the Masinloc Contract not been
drafted, it is clear that respondent's complaint for the enforcement of the provision granting The principle of party autonomy in contracts is not an absolute principle. The rule in
it the right of first refusal would have continued. The Masinloc Contract, then, is a virtual Article 1306 of our Civil Code is that the contracting parties may establish such stipulations
recognition of respondent's alleged right of first refusal. as they may deem convenient provided they are not contrary to law, morals, good customs,
public order or public policy. Thus, counter-balancing the principle of autonomy of
The rationale behind the requirement of a public bidding, as a mode of awarding contracting parties is the equally general rule that provisions of applicable laws, especially
government contracts, is to ensure that the people get maximum benefits and quality provisions relating to matters affected with public policy, are deemed written into the
services from the contracts. More significantly, strict compliance with the requirement of contract. Put a little differently, the governing principle is that parties may not contract
public bidding echoes the call for transparency in government transactions and away applicable provisions of law, especially peremptory provisions dealing with matters
accountability of public officers. Public biddings are intended to minimize occasions for heavily impressed with public interest.[93]
In this jurisdiction, public bidding is the established procedure in the grant of government interest of society, violates some public statute, is against good morals, tends to interfere
contracts. The award of public contracts through public bidding is a matter of public policy. with the public welfare or safety, or, as it is sometimes put, if it is at war with the interests
[94] of society and is in conflict with the morals of the time.[104]

Public policy has been defined as that principle under which freedom of contract or private Thus, respondent's right of first refusal cannot take precedence over the dictates of public
dealing is restricted for the good of the community.[95] Under the principles relating to the policy.
doctrine of public policy, as applied to the law of contracts, courts of justice will not
recognize or uphold a transaction when its object, operation, or tendency is calculated to be The right of first refusal of respondent being invalid, it follows that it has no binding effect.
prejudicial to the public welfare, to sound morality or to civic honesty.[96] It does not create an obligation on the part of petitioner to acknowledge the same. Neither
does it confer a preferential right upon respondent to the fly ash of NPC's power plants.
Consistent with the principle that public auction in the conferment of government contract
involves public policy, Congress enacted various laws governing the procedure in the How, then, does the invalidation of respondent's right of first refusal affect the Sual and
conduct of public bidding and prescribing policies and guidelines therefor. With respect to Masinloc Contracts which were executed pursuant to such right?
the disposal of government assets and property, of particular application in this case are
Circular Nos. 86-264[97] and 89-296[98] of the Commission on Audit, dated 16 October As discussed above, the right of first refusal granted to respondent in the Batangas Contract
1986 and 27 January 1989, respectively. Both circulars provide that the divestment or paved the way for the award to respondent of the Sual Contract without any public bidding
disposal of government property shall be undertaken primarily through public auction.[99] having been conducted therefor. In a long line of cases, this Court has pronounced that
government contracts shall not be entered into or renewed without public bidding.[105]
Respondent puts forth the argument that fly ash is a waste product[100] and therefore Thus, the Supreme Court has struck down contracts and agreements entered into in
cannot be considered as an asset of the government within the contemplation of the laws violation of this requirement.
governing disposal of government property.
In the case of National Food Authority v. Court of Appeals,[106] the Court ruled against
The peculiarity of fly ash as property of the government is that, from its inception, it is the legality of negotiated security contracts awarded by the National Food Authority (NFA)
already a residual product. Unlike the government properties subject of P.D. 1445[101] and to several private security agencies in default of a public bidding. According to the Court,
the Government Auditing and Accounting Manual, fly ash is not property previously the NFA's manifest reluctance to hold a public bidding and award a contract to the winning
utilized by the government in its operations which has become unserviceable. Justifiably, bidder smacks of favoritism and partiality toward the security agencies to whom it awarded
the government did not foresee the possibility of any use for and, much less, of deriving the negotiated contracts and cannot be countenanced.[107]
profit from it. Hence, the lack of a specific law governing its disposal and its non-inclusion
in existing laws on the divestment of government property. There is no doubt, however that Likewise, in Manila International Airport Authority v. Mabunay,[108] the Supreme Court
fly ash is property - and more importantly, asset - of the government. Fly ash is produced dismissed a petition for review seeking the annulment of a decision of the lower court
by power plants owned by the government and both the government and respondent derive declaring that under the laws and regulations, it is necessary for the Manila International
profit from it. Besides, the fact that respondent is fighting tooth and nail for the right to Airport Authority to contract for security services through public bidding. The Court
withdraw the same from NPC's power plants is indubitable proof of its value. Its sale is, reiterated the basic principle that in the execution of all government contracts, public
therefore, subject to the rules on the disposal of government assets and property. bidding is the accepted method for arriving at a fair and reasonable price. [I]t ensures that
Applicable laws form part of, and are read into, contracts without need for any express overpricing and favoritism, and other anomalous practices are eliminated or minimized.
reference thereto; more so, to a government contract which is imbued with public interest. [109]
[102]
In Chavez v. Public Estates Authority,[110] the Amended Joint Venture Agreement (JVA)
In the case of Ongsiako v. Gamboa,[103] this Court declared that an agreement is against entered into between the Public Estates Authority and the Amari Coastal Bay and
public policy if it is injurious to the interests of the public, contravenes some established Development Corporation (AMARI) was declared null and void ab initio because it, among
others, sought to convey to AMARI, a private entity, reclaimed public lands without the and Contract for the Purchase of Fly Ash of Masinloc Coal Fired Thermal Power Plant
benefit of a public bidding. The Court cited Section 79 of Presidential Decree (P.D.) No. (MCFTPP) dated February 10, 1999;
1445, otherwise known as the Government Auditing Code, which requires the government
to sell valuable government property through public bidding.[111] The Court stated further WHEREAS, in the Contract for the Purchase of Fly Ash of BCFTPP provided for the
that the Commission on Audit implements Section 79 of the Government Auditing Code `Right of First Refusal' to PURCHASER to purchase fly ash from any new coal-fired plants
through Circular No. 89-296[112] dated 27 January 1989. This circular emphasizes that which will be put up by NPC;
government assets must be disposed of only through public auction.[113] In denying
respondents' Second Motions for Reconsideration and sustaining the invalidity of the WHEREAS, NPC owns the fly ash generated by the two (2) units of 1,200 MW Sual Coal-
Amended JVA, this Court reiterated that the JVA is a negotiated contract which clearly Fired Thermal Power Plant (SCFTPP) located at Barangay Pangascasan, Sual, Pangasinan,
contravenes Section 79 of P.D. 1445.[114] hereinafter referred to as the Plant;

Section 79 of P.D. 1445 and COA Circular No. 89-296, among others, were also relied XXX
upon by the Supreme Court in declaring as inexistent and void ab initio the Compromise
Agreement between the Philippine National Construction Corporation and Radstock WHEREAS, PURCHASER filed a case for Specific Performance with Injunction under
Securities Limited in the case of Strategic Alliance Development Corporation v. Radstock Civil Case No. Q-00-40731 before the Branch 90 of the Regional Trial Court of Quezon
Securities Limited.[115] Under the Compromise Agreement in that case, the PNCC shall City and which Court issued a Preliminary Injunction against NPC on the public bidding
dispose of substantial parcels of land, by way of dacion en pago, in favor of Radstock, a and sale of Fly Ash of MCFTPP and Sual Coal Fired Thermal Power Plant (SCFTPP);
private corporation incorporated in the British Virgin Islands.[116] Citing the
aforementioned case of Chavez v. Public Estates Authority,[117] the Court echoed the WHEREAS, in a letter dated December 2, 2004, NPC and PURCHASER have agreed that
necessity of a public bidding for the disposal of government properties.[118] in order to settle the issue, NPC fully recognizes and honors the `Right of First Refusal' of
PURCHASER to the fly ash produced at SCFTPP in lieu of the fly ash produced at
Finally, in Gana v. Triple Crown Services Inc.,[119] the Supreme Court declared as null MCFTPP;
and void the negotiated contract for janitorial and maintenance services between the Manila
International Airport Authority (MIAA) and Goodline Staffers & Allied Services, Inc. WHEREAS, in consideration of NPC's recognition of the `Right of First Refusal' in said
According to the Supreme Court, the constitutional right of Olongapo Maintenance letter dated 2 December 2004 and the execution of this Purchase Agreement,
Services, Inc. (OMSI) and Triple Crown Services, Inc. (TCSI), the incumbent service PURCHASER waives any and all claims to the fly ash produced at MCFTPP and arising
contractors, to equal protection of the law was violated by MIAA and its general manager out of its rights under the `Contract for the Purchase of Fly Ash of the Masinloc Coal-Fired
when no public bidding was called precisely because the latter were going to award the Thermal Power Plant' dated February 10, 1999;
subject service contracts through negotiation. Worse, the Court continued, the acts of
MIAA and Gana smack of arbitrariness and discrimination as they not only did not call for XXX
the required public bidding but also did not even accord OMSI and TCSI the opportunity to
submit their proposals in a public bidding.[120] ARTICLE VI
WAIVER
By the very language of the Sual Contract, the same was entered pursuant to respondent's NPC hereby fully recognizes and honors the `Right of First Refusal' of PURCHASER to
right of first refusal and in consideration of respondent's conformity to withdraw its the fly ash produced at SCFTPP in lieu of the fly ash produced at the Masinloc Plant.
complaint against NPC. The pertinent provisions of the Sual Contract are herein below
quoted: XXX

WHEREAS, NPC and PURCHASER [Pozzolanic] entered into a Contract for the Purchase It is agreed that within thirty (30) days from and after execution of this Agreement, NPC
of Fly Ash of Batangas Coal Fired Thermal Power Plant (BCFTPP) on October 20, 1987 and PURCHASER will jointly, together with PSALM Corporation move for the dismissal,
with prejudice of Civil Case No. Q-00-40731 at the Regional Trial Court, Branch 90 of WHEREFORE, we GRANT the petition for review on certiorari. The Decision dated 30
Quezon City. April 2008 and Order dated 27 June 2008 of the Regional Trial Court of Quezon City,
Branch 96 in Civil Case No. Q-00-40731 are hereby REVERSED AND SET ASIDE.
The pertinent `Motion' for the dismissal of Civil Case No. Q-00-40731, to be filed in Further, the Batangas, Sual and Masinloc Contracts are hereby declared NULL AND VOID
Branch 90 of the Regional Trial Court of Quezon City, or before any other Court who may for being contrary to law and public policy. Petitioner is hereby ordered to conduct a
then be hearing the above case, shall include therein a complete textual copy of this bidding of the right to purchase the fly ash produced by the Batangas, Masinloc and Sual
Purchase Agreement, duly signed by all the parties hereto, which shall become an integral Power Plants within thirty (30) days from the finality of this Decision.
part of the compromise, for the dismissal of the said case, to be approved by the Trial
Court. SO ORDERED.

X X X[121] (Emphases supplied).

Based on the foregoing, the Sual Contract is clearly a negotiated contract by virtue of
which, NPC awards to respondent the right to withdraw the fly ash of the Sual Plant -
without public bidding - in exchange for which, respondent (1) waives its rights to the fly
ash of the Masinloc Plant and (2) consents to withdraw its case against NPC. As a result,
the Sual Contract is invalid for failure to comply with the rules on public bidding.

The foregoing principles on the necessity of a public bidding for all government contracts
obviously apply to the Masinloc Contract as well, the same being a public contract since
one of the parties thereto is a government entity. While its terms do not expressly provide
that the same was executed pursuant to the right of first refusal granted to respondent under
the Batangas Contract, the circumstances under which it was drafted, as narrated above,
clearly indicate that the Masinloc Contract is a recognition of the challenged right of first
refusal. The case filed by respondent for the recognition and enforcement of its right of first
refusal was settled only after the execution of the Masinloc Contract, pursuant to which,
respondent was awarded the exclusive right to withdraw the fly ash of the Masinloc Power
Plant without the benefit of a public bidding.

As adverted to above, the disposal of NPC power plants' fly ash is governed by COA
Circular Nos. 86-264 and 89-296.[122] These circulars direct that public auction shall be
the primary mode of disposal of assets of the government and sale through negotiation shall
be resorted to only in case of failure of public auction.[123] For failure to abide by the
requirement of a public bidding in the disposal of government assets, this Court is left with
no option but to likewise declare the Sual and Masinloc Contracts null and void.

In conclusion, this Court stresses that although a right of first refusal is a contractual
prerogative recognized by both law and jurisprudence, the grant of such right in this case is
invalid for being contrary to public policy.
DIVISION
[ GR No. 158622, Jan 27, 2016 ] The principal obligation in the restructured agreement totalled P1.067 billion. This included
SPS. ROBERT ALAN L. AND NANCY LEE LIMSO v. PHILIPPINE NATIONAL P217.15 million unpaid interest.[8]
BANK +
DECISION The restructured loan was divided into two (2) parts. Loan I was for the principal amount of
P5 83.18 million, while Loan II was for the principal amount of P483.78 million.[9] The
restructured loan was secured by the same real estate mortgage over four (4) parcels of land
LEONEN, J.: in the original loan agreement. All the properties were registered in the name of Davao
Sunrise.[10]
There is no mutuality of contract when the interest rate in a loan agreement is set at the sole
discretion of one party. Nor is there any mutuality when there is no reasonable means by The terms of the restructured loan agreement state:
which the other party can determine the applicable interest rate. These types of interest
rates stipulated in the loan agreement are null and void. However, the nullity of the SECTION 1. TERMS OF THE CONVERSION,
stipulated interest rate does not automatically nullify the provision requiring payment of RESTRUCTURING AND EXTENSION
interest. Certainly, it does not nullify the obligation to pay the principal loan obligation.

These consolidated cases arose from three related actions filed before the trial courts of 1.01 The Conversion/Restructuring/Extension. Upon compliance by the Borrowers with the
Davao City. conditions precedent provided herein, the Obligations shall be converted, restructured
and/or its term extended effective January 1, 1999 (the "Effectivity Date") in the form of
In 1993, Spouses Robert Alan L. Limso and Nancy Lee Limso (Spouses Limso)[1] and term loans (the "Loans") as follows:
Davao Sunrise Investment and Development Corporation (Davao Sunrise) took out a loan (a) The Credit Line portion of the Obligations is hereby converted and restructured into a
secured by real estate mortgages from Philippine National Bank.[2] Seven-Year Long Term Loan (the "Loan I") in the principal amount of P583.18 Million;

The loan was in the total amount of P700 million, divided into two (2) kinds of loan (b) The original term of the Loan is hereby extended for another four (4) years (from
accommodations: a revolving credit line of P300 million, and a seven-year long-term loan September 1, 2001 to December 31, 2005), and interest portion of the Obligations
of P400 million.[3] (including the interest accruing on the Credit Line and Loan up to December 31, 1998
estimated at P49.83 Million) are hereby capitalized. Accordingly, both the Loan and
To secure the loan, real estate mortgages were constituted on four (4) parcels of land Interest portions of the Obligations are hereby consolidated into a Term Loan (the "Loan
registered with the Registry of Deeds of Davao City.[4] The parcels of land covered by II") in the aggregate principal amount of P483.78 Million;
TCT Nos. T-147820, T-151138, and T-147821 were registered in the name of Davao
Sunrise, while the parcel of land covered by TCT No. T-140122 was registered in the name SECTION 2. TERMS OF LOAN I
of Spouses Limso.[5]
2.01 Amount of Loan I. Loan I shall be in the principal amount not exceeding PESOS:
In 1995, Spouses Limso sold the parcel of land covered by TCT No. T-140122 to Davao FIVE HUNDRED EIGHTY THREE MILLION ONE HUNDRED EIGHTY THOUSAND
Sunrise.[6] (P583,180,000.00).

Spouses Limso and Davao Sunrise had difficulty in paying their loan. In 1999, they 2.02 Promissory Note. Loan I shall be evidenced by a promissory note (the "Note I") to be
requested that their loan be restructured. After negotiations, Spouses Limso, Davao issued by the Borrowers in favor of the Bank in form and substance satisfactory to the
Sunrise, and Philippine National Bank executed a Conversion, Restructuring and Extension Bank.
Agreement.[7]
2.03 Principal Repayment. The Borrowers agree to repay Loan I within a period of seven WHEREAS, the Borrowers acknowledge that they have outstanding obligations (the
(7) years (inclusive of a one (1) year grace period) in monthly amortizations with the first "Obligations") with the Bank broken down as follows:
amortization to commence on January 2000 and a balloon payment on or before the end of
the 7th year on December 2005. (i) Credit Line - P583.18 Million (as of September 30, 1998);
(ii) Loan - P266.67 Million (as of September 30, 1998); and
2.04 Interest, (a) The Borrowers agree to pay the Bank interest on Loan I from the Effective (iii) Interest - P217.15 Million (as of December 31, 1998)[.][13]
Date, until the date of full payment thereof at the rate per annum to be set by the Bank. The
interest rate shall be reset by the Bank every month. Spouses Limso and Davao Sunrise encountered financial difficulties. Despite the
restructuring of their loan, they were still unable to pay.[14] Philippine National Bank sent
(b) The interest provided in clause (a) above shall be payable monthly in arrears to demand letters. Still, Spouses Limso and Davao Sunrise failed to pay.[15]
commence on January, 1999.
On August 21, 2000, Philippine National Bank filed a Petition for Extrajudicial Foreclosure
SECTION 3. TERMS OF LOAN II of Real Estate Mortgage before the Sheriff's Office in Davao City.[16] The Notice of
Foreclosure was published. The bank allegedly complied with all the other legal
3.01 Amount of Loan II. Loan II shall be in the principal amount not exceeding PESOS: requirements under Act No. 3135.[17] The auction sale was held on October 26, 2000. Ball
FOUR HUNDRED EIGHTY THREE MILLION SEVEN HUNDRED EIGHTY Park Realty Corporation, through its representative Samson G. To, submitted its bid in the
THOUSAND (P483,780,00.00). amount of P1,521,045,331.49.[18] Philippine National Bank's bid was in the amount of
P1,521,055,331.49. Thus, it was declared the highest bidder.[19]
3.02 Promissory Note. Loan II shall be evidenced by a promissory note (the "Note II") to
be issued by the Borrowers in favor of the Bank in form and substance satisfactory to the After the foreclosure sale, but before the Sheriff could issue the Provisional Certificate of
Bank. Sale,[20] Spouses Limso and Davao Sunrise filed a Complaint for Reformation or
Annulment of contract against Philippine National Bank, Arty. Marilou D. Aldevera, in her
3.03 Principal Repayment. The Borrowers agree to repay Loan II within a period of seven capacity as Ex-Officio Provincial Sheriff of Davao City, and the Register of Deeds of
(7) years (inclusive of a one (1) year grace period) in monthly amortizations with the first Davao City.[21] The Complaint was filed on October 30, 2000, raffled to Branch 17 of the
amortization to commence on January 2000 and a balloon payment on or before December Regional Trial Court of Davao City, and docketed as Civil Case No. 28,170-2000.[22] It
2005. prayed for:

3.04 Interest, (a) The Borrowers agree to pay the Bank interest on Loan II from the [the] declaration of nullity of unilateral imposition and increases of interest rates, crediting
Effective Date, until the date of full payment thereof at the rate per annum to be set by the of illegal interests collected to [Spouses Limso and Davao Sunrise's] account; elimination
Bank. The interest rate shall be reset by the Bank every month. of all uncollected illegal interests; reimposition of new interest rates at 12% per annum only
from date of filing of Complaint, total elimination of penalties; elimination also of
(b) The interest provided in clause (a) above shall be payable monthly in arrears to attorney's fees or its reduction; declaration of nullity of auction sale and the foreclosure
commence on January 1999.[11] (Emphasis provided) proceedings; reduction of both loan accounts; reformation or annulment of contract,
reconveyance, damages and injunction and restraining order.[23]
Spouses Limso and Davao Sunrise executed promissory notes, both dated January 5, 1999,
in Philippine National Bank's favor. The promissory notes bore the amounts of Immediately after the Complaint was filed, the Executive Judge[24] of the Regional Trial
P583,183,333.34 and P483,811,798.93.[12] The promissory note for Loan II includes Court of Davao City issued a 72-hour restraining order preventing Philippine National
interest charges because one of the preambular clauses of the Conversion, Restructuring Bank from taking possession and selling the foreclosed properties.[25]
and Extension Agreement states that:
Spouses Limso subsequently filed an amended Complaint.[26] The prayer in the amended 8. That subsequent thereto, ordering a complete reformation of the loan agreement and Real
Complaint stated: Estate Mortgage which will now embody the lawful terms and conditions adjudicated by
this Honorable Court, or in the alternative, ordering its annulment, as may be warranted
PRAYER under the provision of Article 1359 of the New Civil Code;

WHEREFORE, it is respectfully prayed that judgment issue in favor of plaintiffs and 9. Ordering the defendant Register of Deeds to refrain from issuing a new title in favor of
against the defendants: third parties, and to execute the necessary documents necessary for the reconveyance of the
properties now covered by TCT Nos. T-147820, T-147821, T-246386 and T-247012 from
ON THE TEMPORARY the defendant bank in favor of the plaintiffs upon payment of the recomputed loan
RESTRAINING ORDER accounts;

1. That, upon the filing of the above-entitled case, a TEMPORARY RESTRAINING 10. Ordering also the defendant bank to pay to the plaintiffs the sum of at least P500,000.00
ORDER be maintained enjoining the defendants from executing the provisional Certificate representing business losses and loss of income by the later [sic] arising from the
of Sale and final Deed of Absolute Sale; confirmation of such sale; taking immediate improvident and premature institution of extrajudicial foreclosure proceedings against the
possession thereof and from selling to third parties those properties covered by TCT Nos. plaintiffs;
T-147820, T-147821/T-246386 and T-247012 and its improvements nor to mortgage or
pledge the same prior to the final outcome of the above-entitled case, including other 11. Ordering again the defendant bank to pay to the plaintiffs the sum of P400,000.00 as
additional acts of foreclosure;. attorney's fees and the additional sum of P100,000.00 for expenses incident to litigation;
and
2. That, plaintiffs' application for the issuance of the [Writ of Preliminary Injunction] be
concluded within the 20 days lifetime period of the [Temporary Restraining Order], and 12. To pay the costs and for such other reliefs just and proper

AFTER TRIAL ON THE MERITS under the circumstances.[27] (Underscoring in the original)

3. To declare the injunction as final; Through the Order[28] dated November 20, 2000, Branch 17 of the Regional Trial Court of
Davao City denied Spouses Limso's application for the issuance of a writ of preliminary
4. Declaring that the unilateral increases of interest rates imposed by the defendant bank injunction.[29]
over and above the stipulated interest rates provided for in the Promissory Notes, be also
considered as null and void and thereafter lowering the same to 12% per annum only, from Spouses Limso moved for reconsideration. On December 4, 2000, Branch 17 of the
the date of the filing of the Complaint; Regional Trial Court of Davao City set aside its November 20, 2000 Order and issued a
writ of preliminary injunction.[30]
5. Declaring also that all illegally imposed interest rates and penalty charges be considered
eliminated and/or deducted from any account balance of plaintiffs; Philippine National Bank then moved for reconsideration of the trial court's December 4,
2000 Order. The bank's Motion was denied on December 21, 2000. Hence, Philippine
6. Declaring also either the complete elimination of attorney's fees, or in the alternative, National Bank filed before the Court of Appeals a Petition for Certiorari assailing the
reducing the same to P500,000.00 only; December 4, 2000 and December 21, 2000 Orders of the trial court. This was docketed as
CA G.R. SP. No. 63351.[31]
7. Declaring the reduction of the loan account balance to P827,012,149.50 only;
In the meantime, Branch 17 continued with the trial of the Complaint for Reformation or
Annulment of Contract with Damages.[32]
On January 10, 2002, the Court of Appeals issued the Decision[33] in CA G.R. SP. No. The Petition for Declaratory Relief was filed while the Complaint for Reformation or
63351 setting aside and annulling the Orders dated December 4, 2000 and December 21, Annulment with Damages was still pending before Branch 17 of the Regional Trial Court
2000 and dissolving the writ of preliminary injunction.[34] of Davao City.

Spouses Limso and Davao Sunrise moved for reconsideration of the Court of Appeals' Spouses Limso subsequently filed an Amended Petition for Declaratory Relief, alleging:
January 2, 2002 Resolution in CA G.R. SP No. 63351 but the motion was denied.[35] They
then filed a Petition for Review on Certiorari before this court.[36] Their Petition was 6. That Petitioners with the continuing crisis and the unstable interest rates imposed by
docketed as G.R. No. 152812, which was denied on procedural grounds.[37] respondent PNB admittedly failed to pay their loan, the demand letters were sent to both
debtors-mortgagors separately, one addressed to the Petitioners and another addressed to
In view of the dissolution of the writ of preliminary injunction, Acting Clerk of Court and DSIDC, the last of which was dated April 12, 2000 xxx;
Ex-officio Provincial Sheriff Rosemarie T. Cabaguio issued the Sheriff's Provisional
Certificate of Sale dated February 4, 2002 in the amount of P1,521,055,331.49.[38] 7. That on August 21, 200(0), respondent PNB filed a Petition for Extrajudicial Foreclosure
However, the Sheriff's Provisional Certificate of Sale[39] did not state the applicable of the mortgaged properties against the petitioners-mortgagors-debtors and DSIDC;
redemption period and the redemption price payable by the mortgagor or redemptioner.[40]
8. That on October 26, 2000, the mortgaged properties were auctioned with the respondent
On the same date, Philippine National Bank presented the Sheriff's Provisional Certificate PNB as the highest bidder;
of Sale to the Register of Deeds of Davao City in order that the title to the foreclosed
properties could be consolidated and registered in Philippine National Bank's name. The 9. That on February 4, 2002, a Sheriff's Provisional Certificate of Sale was issued by
presentation was recorded in the Primary Entry Book of Davao City's Registry of Deeds respondent Sheriff who certified xxxx
under Act No. 496 and entered as Entry Nos. 4762 to 4765.[41]
10. That the said Sheriff's Provisional Certificate of Sale did not contain a provision usually
On February 5, 2002, the registration of the Certificate of Sale was elevated en consulta by contained in a regular Sheriff's Provisional Certificate of Sale as regards the period of
Atty. Florenda T. Patriarca (Atty. Patriarca) , Acting Register of Deeds of Davao City, to redemption and the redemption price to be raised within the ONE (1) YEAR redemption
the Land Registration Authority in Manila. This was docketed as Consulta No. 3405.[42] period in accordance with Act 3135, under which same law the extrajudicial petition for
sale was conducted as mentioned in the Certificate;
Acting on the consulta, the Land Registration Authority issued the Resolution dated May
21, 2002, which states:[43] 11. That the Sheriff's Provisional Certificate of Sale has not yet been registered with the
office of respondent Register of Deeds yet; that petitioners and DSIDC are still in actual
"WHEREFORE, in view of the foregoing, the Sheriff's Provisional Certificate of Sale dated possession of the subject properties;
February 4, 2002 is registrable on TCT Nos. T-147820, T-147386, T-247012 provided all
other registration requirements are complied with."[44] 12. That sometime in the middle part of year 2000, Republic Act No. 8791 otherwise
known as General Banking Laws of 2000 was approved and finally passed on April 12,
Meanwhile, on March 25, 2002, the Spouses Limso filed a Petition for Declaratory Relief 2000 and took effect sometime thereafter;
with Prayer for Temporary Restraining Order/Injunction on March 25, 2002 against
Philippine National Bank, Atty. Rosemarie T. Cabaguio, in her capacity as Ex-Officio 13. That among the provisions of the said law particularly, Section 47 dealt with
Provincial Sheriff, and the Register of Deeds of Davao City (Petition for Declaratory Foreclosure of Real Estate Mortgage, quoted verbatim hereunder as follows:
Relief). The Sheriff's Provisional Certificate of Sale allegedly did not state any redemption "Sec. 47. Foreclosure of Real Estate Mortgage. - In the event of foreclosure, whether
price and period for redemption. This case was raffled to Branch 14 of the Regional Trial judicially or extra-judicially, or any mortgage on real estate which is security for any loan
Court of Davao City and docketed as Civil Case No. 29,036-2002.[45] or other credit accommodation granted, the mortgagor or debtor whose real property has
been sold for the full or partial payment of his obligation shall have the right within one WHEREFORE, it is respectfully prayed that judgment in favor of petitioners and against
year after the sale of the real estate, to redeem the property by paying the amount due under the respondent-PNB;
the mortgage deed, with interest thereon at rate specified in the mortgage, and all the costs
and expenses incurred by the bank or institution from the sale and custody of said property 1. That upon the filing of the above-entitled case, a TEMPORARY RESTRAINING
less the income derived therefrom. However, the purchaser at the auction sale concerned INJUNCTION be issued immediately ordering a status quo, enjoining the Register of
whether in a judicial or extra-judicial foreclosure shall have the right to enter upon and take Deeds and defendant-PNB from registering the subject Provisional Certificate of Sale from
possession of such property immediately after the date of the confirmation of the auction consolidating the title of the property covered by Transfer Certificate of Title Nos. T-
sale and administer the same in accordance with law. Any petition in court to enjoin or 147820, T-147821, T-246386, T-24712 and Land Improvement, Etc.
restrain the conduct of foreclosure proceedings instituted pursuant to this provision shall be
given due course only upon the filing by the petitioner of a bond in an amount fixed by the 2. That petitioners' application of the issuance of the Writ of Preliminary Injunctions be
court conditioned that he will pay all the damages which the bank may suffer by the considered and granted within 20 days lifetime period of the TRO.
enjoining or the restraint of the foreclosure proceeding.
AFTER TRIAL ON THE MERITS
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an
extrajudicial foreclosure, shall have the right to redeem the property in accordance with this 3. To declare the injunction as final;
provision until, but not after, the registration of the certificate of foreclosure sale with the
applicable Register of Deeds which in no case shall be more than three (3) months after 4. Ordering the Register of Deeds to refrain from registering the Sheriff's Certificate of Sale
foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure and further from consolidating the titles of the said properties in its name and offering to
sale prior to the effectivity of this Act shall retain their redemption rights until their sell the same to interested buyers during the pendency of the above entitled case, while
expiration." setting the date of hearing on the propriety of the issuance of such Writ of Preliminary
14. That it is clear and evident that the absence of provisions as to redemption period and Injunction.
price in the Sheriff's Provisional Certificate of Sale issued by respondent Sheriff, that
respondent PNB and Sheriff intended to apply the provisions of Section 47 of Republic Act ON THE MAIN CASE
No. 8791 which reduced the period of redemption of a juridical person whose property is
being sold pursuant to an extrajudicial foreclosure sale until but not after the registration of 5. To declare the petitioners' right as principal mortgagors/owner jointly with a juridical
the Certificate of Sale with the applicable Register of Deeds which in no case shall be more person to redeem within a period of 1 year the properties foreclosed by respondent PNB
than three (3) months after foreclosure, whichever is earlier; still protected and covered by Act 3135.

15. That Petitioners in this subject mortgage are Natural Persons who are principal 6. To declare the provisions on Foreclosure of Real Estate Mortgage under Republic Act
mortgagors-debtors and at the same time registered owners of some properties at the time 8791 or General Banking Laws of 2000 discriminating and therefore unconstitutional.
of the mortgage;
OTHER RELIEFS AND REMEDIES are likewise prayed for.[46]
16. That the provisions of Republic Act No. 8791 do not make mention nor exceptions to
this situation where the Real Estate Mortgage is executed by both Juridical and Natural Branch 14 of the Regional Trial Court of Davao City issued a temporary restraining
Persons; hence, the need to file this instant case of Declaratory Relief under Rule 63 of the order[47] on April 10, 2002. This temporary restraining order enjoined the Register of
Revised Rules of Court of the Philippines; Deeds from registering the Sheriff's Provisional Certificate of Sale.[48]
....
The temporary restraining order was issued without first hearing the parties to the case.
PRAYER Hence, the temporary restraining order was recalled by the same trial court in the Order[49]
dated April 16, 2002.
 If Section 7 of Republic Act 8791 were made to apply to the petitioners, the latter would
During the hearing for the issuance of a temporary restraining order in the Petition for have a shorter period of three (3) months to exercise the right of redemption after the
Declaratory Relief, Spouses Limso presented several exhibits, which included: Philippine registration of the Certificate of Sale, hence, the registration of the Sheriff's Provisional
National Bank's demand letter dated April 12, 2000; Philippine National Bank's letter to the Certificate of Sale would cause great and irreparable injury to them as their rights to the
Acting Register of Deeds of Davao City dated February 4, 2002 requesting the immediate properties sold at public auction would be lost forever if the registration of the same is not
registration of the Sheriff's Provisional Certificate of Sale; and the Notice of Foreclosure enjoined.[53]
dated September 5, 2000.[50]
Spouses Limso posted an injunction bond that was approved by the trial court in the Order
Counsel for Philippine National Bank objected to the purpose of the presentation of the dated May 6, 2002. Thus, the writ of preliminary prohibitory injunction was issued.[54]
exhibits and argued that since Spouses Limso were Davao Sunrise's co-debtors, they "were
notified as a matter of formality[.]"[51] Philippine National Bank moved for reconsideration of the Orders dated May 3, 2002 and
May 6, 2002.[55]
On May 3, 2002, Branch 14 granted the prayer for the issuance of the writ of preliminary
injunction enjoining the registration of the Sheriff's Provisional Certificate of Sale.[52] Around this time, Judge William M. Layague (Judge Layague), Presiding Judge of Branch
14, was on leave.[56] Philippine National Bank's Motion for Reconsideration was granted
Branch 14 reasoned as follows: by the Pairing Judge, Judge Jesus V. Quitain (Judge Quitain),[57] and the writ of
preliminary prohibitory injunction was dissolved in the Order dated May 23, 2002.[58]
This Court finds no merit in the claims advanced by private respondent Bank for the
following reasons: On May 30, 2002, Philippine National Bank's lawyers went to the Register of Deeds of
Davao City "to inquire on the status of the registration of the Sheriff's Provisional
1. That the primary ground why the Court of Appeals dissolved the preliminary injunction Certificate of Sale."[59]
granted by Branch 17 of this Court was because the ground upon which the same was
issued was based on a pleading which was not verified; Philippine National Bank's lawyers were informed that the documents they needed "could
not be found and that the person in charge thereof, Deputy Register of Deeds Jorlyn
2. That Civil Case No. 28,170-2000 and Civil Case No. 29,036- 2002 while involving Paralisan, was absent."[60]
substantially the same parties, the same do not involved [sic] the same issues as the former
involves nullity of unilateral imposition and increases of interest rates, etc. nullity of Philippine National Bank contacted Jorlyn Paralisan at her residence. She informed
foreclosure proceedings, reduction of both loan accounts, reformation or annulment of Philippine National Bank that the documents they were looking for were all inside Atty.
contract, reconveyance and damages, whereas the issues raised in the instant petition before Patriarca's office.[61]
this Court is the right and duty of the petitioners under the last paragraph of Sec. 47,
Republic Act No. 8791 and whether the said section of said law is applicable to the Subsequently, Atty. Patriarca informed the representatives of Philippine National Bank that
petitioners considering that the mortgage contract was executed when Act No. 3135 was the Register of Deeds "would not honor certified copies of [Land Registration Authority]
the controlling law and was in fact made part of the contract; resolutions even if an official copy of the [Land Registration Authority] Resolution was
already received by that Office through mail."[62]
3. That the petition, contrary to the claim of private respondent Bank, clearly states a cause
of action; and On May 31, 2002, Philippine National Bank's representatives returned to the Register of
Deeds of Davao City and learned that Atty. Patriarca, the Acting Register of Deeds, had not
4. That since petitioners are parties to the mortgage contract they, therefore, have locus affixed her signature, which was necessary to complete the registration of the Sheriff's
standi to file the instant petition. Certificate of Sale.[63]
Subsequently, Judge Layague reinstated the writ of preliminary prohibitory injunction in The Court of Appeals granted Philippine National Bank's Petition for Certiorari in the
the Order[64] dated June 24, 2002. Decision[76] dated December 11, 2002. The dispositive portion of the Decision states:

Aggrieved, Philippine National Bank filed before the Court of Appeals a Petition for WHEREFORE, premises considered, the writ prayed for in the herein petition is
Certiorari, Prohibition and Mandamus with Prayer for Temporary Restraining Order and GRANTED and the assailed Orders of respondent judge dated May 3 and June 24, 2002
Writ of Preliminary Injunction, both Prohibitory and Mandatory, docketed as CA G.R. SP granting the writ of preliminary injunction are SET ASIDE. Civil Case No. 29,036-2002 is
No. 71527. The Petition assailed the June 24, 2002 Order of Branch 14 of the Regional hereby ordered DISMISSED and respondent Register of Deeds of Davao City is hereby
Trial Court, which reinstated the writ of preliminary prohibitory injunction.[65] ordered to register petitioner PNB's Sheriff's Provisional Certificate of Sale and cause its
annotation on TCTNos. T-147820, T-147821, T-246386 andT-247012.[77]
On July 3, 2002, Philippine National Bank inspected the titles and found that correction
fluid had been applied over Atty. Patriarca's signature on the titles.[66] Spouses Limso filed a Motion to Reconsider Decision and To Call Case For Hearing on
Oral Argument, which was opposed by Philippine National Bank.[78] Oral arguments were
Also on July 3, 2002, Philippine National Bank filed before the Regional Trial Court of conducted on March 19, 2003.[79]
Davao City a Petition for Issuance of the Writ of Possession under Act No. 3135, as
amended, and Section 47 of Republic Act No. 8791.[67] This was docketed as Other Case On June 10, 2003, the Court of Appeals denied Spouses Limso's Motion for
No. 124-2002 and raffled to Branch 15 of the Regional Trial Court of Davao City, presided Reconsideration.[80]
by Judge Quitain.[68]
Spouses Limso then filed a Petition for Review on Certiorari[81] before this court,
Davao Sunrise filed a Motion to Expunge and/or Dismiss Petition for Issuance of Writ of questioning the Decision in CA G.R. SP No. 71527, which ordered the Register of Deeds to
Possession dated July 12, 2002.[69] In the Motion to Expunge, Davao Sunrise pointed out register the Sheriff's Provisional Certificate of Sale. This was docketed as G.R. No.
that Branch 14[70] (in the Petition for Declaratory Relief docketed as Civil Case No. 158622.[82]
29,036-2002) issued a writ of preliminary injunction "enjoining the Provincial Sheriff, the
Register of Deeds of Davao City[,] and [Philippine National Bank] from registering the With regard to the Complaint for Reformation or Annulment of Contract with Damages,
Sheriff's Provisional Certificate of Sale and, if registered, enjoining [Philippine National Branch 17 of the Regional Trial Court of Davao City promulgated its Decision[83] on June
Bank] to refrain from consolidating the title of the said property in its name and/or offering 19, 2002.
to sell the same to interested buyers during the pendency of the case."[71]
Branch 17 ruled in favor of Spouses Limso and Davao Sunrise. It found the interest rate
On July 18, 2002, Spouses Limso filed a Motion to Intervene[72] in Other Case No. 124- provisions in the loan agreement to be unreasonable and unjust because the imposable
2002.[73] interest rates were to be solely determined by Philippine National Bank. The arbitrary
imposition of interest rates also had the effect of increasing the total loan obligation of
In the Resolution dated August 13, 2002, the Court of Appeals granted the temporary Spouses Limso and Davao Sunrise to an amount that would be beyond their capacity to
restraining order prayed for by Philippine National Bank (in CA G.R. SP No. 71527) pay.[84]
enjoining the implementation of Judge Layague's Orders dated May 3, 2002 and June 24,
2002. These Orders pertained to the writ of preliminary injunction enjoining the The dispositive portion of the Decision in the Complaint for Reformation or Annulment
registration of the Sheriff's Provisional Certificate of Sale.[74] with Damages states:

Spouses Limso filed a Motion for Reconsideration with Prayers for the Dissolution of WHEREFORE, finding the evidence of plaintiffs corporation through counsel, more than
Temporary Restraining Order and to Post Counter Bond.[75] sufficient, to constitute a preponderance to prove the various unilateral impositions of
increased interest rates by defendant bank, such usurious, unreasonable, arbitrary, unilateral
imposition of interest rates, are declared, null and void.
 Branch 17 of the Regional Trial Court of Davao City subsequently issued the Order[87]
Accordingly, decision is issued in favor of the defendant bank, in a reduced amount based dated August 13, 2002 clarifying the correct amount of Spouses Limso and Davao Sunrise's
on the following: obligation, thus:
The amount of One Hundred Twenty Seven Million, One Hundred Fifty Thousand
(P127,150,000.00) Pesos, representing illegal interest rate, the amount of One Hundred WHEREFORE, finding the motion for reconsideration of defendant bank through counsel,
Seventy Six Million, Ninety Eight Thousand, Forty Five and 95/100 (P176,098,045.95) to the decision of the court, grossly bereft of merit, merely a reiteration and rehash of the
Pesos, representing illegal penalty charges and the amount of One Hundred Thirty Six arguments already set forth during the hearing, including therein matters not proved during
Million, Nine Hundred Thousand, Nine Hundred Twenty Eight and 85/100 the trial on the merits, and considered admitted, is denied.
(P136,900,928.85) Pesos, as unreasonable 10% Attorney's fees or in the total amount of
Four Hundred Forty Million, One Hundred Forty Eight Thousand, Nine Hundred Seventy To provide a clarification of the decision of this court, relative to plaintiffs motion for
Four and 79/100 (P440,148,974.79) Pesos, are declared null and void, rescending [sic] partial clarification with comment of defendant bank through counsel, the correct
and/or altering the loan agreement of parties, on the ground of fraud, collusion, mutual remaining balance of plaintiffs account with defendant bank, pursuant to the decision of
mistake, breach of trust, misconduct, resulting to gross inadequacy of consideration, in this court, in pages 17 and 18, dated June 19, 2002, is Two Hundred Five Million Eighty
favor of plaintiffs corporation, whose total reduced and remaining principal loan obligation Four Thousand Six Hundred Eighty Two Pesos & 61/100 (P205,084,682.61), as above-
with defendant bank, shall only be the amount of Eight Hundred Eighty Two Million, clarified.
Twelve Thousand, One Hundred Forty Nine and 50/100 (P882,012,149.50) Pesos, as
outstanding remaining loan obligation of plaintiffs corporation, with defendant bank, to be SO ORDERED.[88]
deducted from the total payments so far paid by plaintiffs corporation with defendant bank
as already stated in this decision. Philippine National Bank appealed the Decision and Order in the Complaint for
Reconstruction or Annulment with Damages by filing a Notice of Appeal on August 16,
That thereafter, the above-amount as ordered reduced, shall earn an interest of 12% per 2002.[89] The Notice of Appeal was approved by the trial court in the Order dated
annum, the lawful rate of interest that should legitimately be imposed by defendant bank to September 25, 2002.[90] The appeal was docketed as CA-G.R. CV No. 79732.[91]
the outstanding remaining reduced principal loan obligation of plaintiffs corporation.
On August 20, 2002,[92] Spouses Limso and Davao Sunrise filed, in Other Case No. 124-
Notwithstanding, defendant bank, is entitled to a reduced Attorney's fees of Five Hundred 2002 (Petition for Issuance of Writ of Possession), a Motion to Inhibit the Presiding Judge
Thousand (P500,000.00) Pesos, as a reasonable Attorney's fees, subject to subsequent (referring to Judge Quitain, before whom the Petition for Issuance of Writ of Possession
pronouncement as to the real status of defendant bank, on whether or not, said institution is was pending) because his wife, Gladys Isla Quitain, was a long-time Philippine National
now a private agency or still a government instrumentality in its capacity to be entitled or Bank employee who had retired.[93] Spouses Limso and Davao Sunrise also heard rumors
not of the said Attorney's fees. that Gladys Isla Quitain had been serving as consultant for Philippine National Bank even
after retirement.[94] Davao Sunrise also filed a Motion to Expunge and/or Dismiss Petition
The prayer of defendant bank for award of moral damages and exemplary damages, are and argued that the person who signed for Philippine National Bank was not authorized
denied, for lack of factual and legal basis. because no Board Resolution was attached to the Verification and Certification against
Forum Shopping.
SO ORDERED.[85] (Emphasis in the original)
In the Order[95] dated March 21, 2003, Judge Quitain denied three motions:
Philippine National Bank moved for reconsideration of the Decision, while Spouses Limso
and Davao Sunrise filed a Motion for partial clarification of the Decision.[86] (1) The Motion to Intervene filed by Spouses Robert Alan Limso and Nancy Limso;

(2) The Motion to Expunge and/or Dismiss Petition for the Issuance of Writ of Possession
filed by Davao Sunrise Investment and Development Corporation; and
 On December 12, 2003, Judge Quitain issued the Order allowing Philippine National Bank
(3) The Motion for Voluntary Inhibition filed by Davao Sunrise Investment and to present evidence ex-parte on December 18, 2003 despite the pendency of other incidents
Development Corporation.[96] to be resolved.[107]

Judge Quitain denied the Motion to Inhibit on the ground that the allegations against him Spouses Limso and Davao Sunrise filed an Urgent Motion for Cancellation of the
were mere suspicions and conjectures.[97] The Motion to Intervene was denied on the December 18, 2003 hearing due to the pendency of CA G.R. SPNo. 79500.[108]
ground that Spouses Limso have no interest in the case, not being the owners of the
property.[98] Judge Quitain reset the hearing for Other Case No. 124-2002 to January 23, 2004. The
hearing was subsequently reset to January 30, 2004. In the January 30, 2004 hearing, Judge
The Motion to Expunge and/or Dismiss filed by Davao Sunrise was also denied for lack of Quitain heard the arguments of parties regarding the Urgent Motion to Cancel Hearing.
merit. Judge Quitain ruled that "PNB Vice President Leopoldo is clearly clothed with [109]
authority to represent and sign in behalf of the petitioner [referring to Philippine National
Bank] as shown by the Verification and Certification of the said petition as well as the In the Order dated March 12, 2004, Judge Quitain "resolved the pending Urgent Motion to
Secretary's Certificate."[99] Cancel Hearing and [Davao Sunrise's] Motion to Re-schedule Newly Scheduled Hearing
Date."[110]
Spouses Limso and Davao Sunrise filed a Motion for Reconsideration[100] of the Order
dated March 21, 2003. Judge Quitain denied the Motion for Reconsideration in an Order The March 12, 2004 Order also stated that "the Spouses Limso have no right to intervene
dated September 1, 2003, only with regard to the Motion to Intervene and Motion for because they are no longer owners of the subject foreclosed property."[111]
Voluntary Inhibition. The Motion to Expunge and/or Dismiss was not mentioned in the
September 1,2003 Order.[101] Spouses Limso treated the March 12, 2004 Order as a denial of their Motion for
Reconsideration regarding their Motion to Intervene. Thus, they, together with Davao
Spouses Limso and Davao Sunrise questioned the denial of the Motion for Inhibition by Sunrise, filed a Petition for Certiorari before the Court of Appeals, which was docketed as
filing a Petition for Certiorari before the Court of Appeals on September 26, 2003. This CA G.R. SP No. 84279.[112]
was docketed as CA G.R. SP No. 79500.[102] Spouses Limso and Davao Sunrise
subsequently filed a Supplemental Petition for Certiorari before the Court of Appeals on CA G.R. SP No. 84279 was denied by the Court of Appeals in the Decision[113] dated
October 3, 2003.[103] September 20, 2004.

In the meantime, Other Case No. 124-2002 (Petition for Issuance of Writ of Possession) Spouses Limso and Davao Sunrise filed a Motion for Reconsideration[114] dated
was set for an ex-parte hearing on October 10, 2003.[104] September 13, 2004, which was denied in the Resolution[115] dated July 8, 2005.

However, on October 8, 2003, the Court of Appeals granted the prayer for the issuance of a Spouses Limso and Davao Sunrise then filed a Petition for Review on Certiorari dated July
temporary restraining order in CA G.R. SP No. 79500 "enjoining public respondent Judge 26, 2005 before this court. This was docketed as G.R. No. 168947.[116]
Quitain from proceeding with Other Case No. 124-2002 for a period of sixty (60) days
from receipt by respondents thereof."[105] Despite the pendency of Spouses Limso and Davao Sunrise's Motion for Reconsideration
of the Order denying Davao Sunrise's Motion to Expunge and/or Dismiss, Philippine
The temporary restraining order was effective from October 10, 2003 to December 9, 2003. National Bank filed a Motion for Reception of Evidence and/or Resume Hearing dated
[106] March 30, 2004 in Other Case No. 124-2002.[117]

Judge Quitain granted the Motion "and set the hearing for reception of petitioner's evidence
on 06 April 2004 at 2:00 p.m."[118]
 reset the hearing to August 11, 2004, and "impressed upon the parties that he would be able
Spouses Limso and Davao Sunrise filed an Extremely Urgent Manifestation and Motion to resolve all pending incidents by that time."[127]
dated April 5, 2004. They prayed for the cancellation of the hearing for the reason that the
March 12, 2004 Order was not yet final and that Davao Sunrise had a pending Motion for Spouses Limso and Davao Sunrise alleged that the pending incidents were hastily acted
Reconsideration of the Order denying its Motion to Expunge and/or Dismiss.[119] upon by Judge Quitain, as follows:

Judge Quitain cancelled the April 6, 2004 hearing due to the Manifestation and Motion [O]n 11 August 2004, at around 11:45 a.m., petitioners' counsel was furnished a copy of
filed by Spouses Limso and Davao Sunrise.[120] public respondent's Order allegedly dated 06 August 2004 which declared as submitted for
resolution the following incidents, to wit: (a) petitioner DSIDC's Motion to Transfer the
Spouses Limso filed a Motion for Reconsideration of the March 12, 2004 Order because it Case to Branch 17; (b) Petitioner DSIDC's Motion to Postpone Hearing; (c) Motion for
addressed issues other than those raised in the Motion for Intervention.[121] Intervention filed by a certain Karlan Lou Ong; (d) petitioners' (DSIDC and Spouses
Limso) Extremely Urgent Manifestation and Motion; and (e) Petitioner DSIDC's
On April 20, 2004, Judge Quitain issued the Order and reset the case for hearing to May 7, Manifestation.
2004, even though the Motion for Reconsideration of the Order denying the Motion to
Expunge and/or Dismiss had not been acted upon.[122] . . . And then, at around 2:10 p.m. of the same day, 11 August 2004, when petitioners'
counsel was already in court for the said hearing, he was furnished by a staff of public
During the May 7, 2004 hearing, counsel for Spouses Limso and Davao Sunrise pointed out respondent Judge Quitain a copy of an Order dated 11 August 2004 and consisting of two
to Judge Quitain the pendency of the Motion for Reconsideration of the Order denying the (2) pages, the dispositive portion of which reads as follows:
Motion to Expunge and/or Dismiss.[123]
"WHEREFOREM(sic), the Court hereby resolves the following motions: 1) DSIDC's
Judge Quitain issued the Order dated July 5, 2004 denying Spouses Limso and Davao motion to transfer case to Branch 17 or dismiss the same is denied for lack of merit. 2)
Sunrise's Motion for Reconsideration to the March 12, 2004 Order (referring to the denial DSIDC's (sic) motion to postpone the hearing is denied for lack of merit. 3) The motion of
of Spouses Limso's Motion to Intervene). Judge Quitain also set hearing dates on August 4 Karla Ong to intervene is denied for lack of merit. 4) The August 5 manifestation of
and 5, 2004 for the reception of Philippine National Bank's evidence. Once again, the DSIDC is noted."[128] (Emphasis in the original)
hearings were scheduled even though the Motion to Expunge and/or Dismiss had yet to be
resolved.[124] Spouses Limso and Davao Sunrise also claimed that the Order dated August 11, 2004 was
done hastily so that Philippine National Bank would be able to present its evidence without
Davao Sunrise then filed a Motion to Transfer Case or in the Alternative to Dismiss the objection.[129]
Same on July 30, 2004. Davao Sunrise reiterated the arguments in its Motion to Expunge
and/or Dismiss.[125] Spouses Limso and Davao Sunrise alleged that the August 11, 2004 Order contained
factual findings not supported by the record. When counsel for Spouses Limso and Davao
Subsequently, Spouses Limso and Davao Sunrise filed an Extremely Urgent Manifestation Sunrise pointed out the errors, Judge Quitain acknowledged the mistake and reset the
and Motion dated August 3, 2004 asking that the hearings scheduled for August 4 and 5, August 11, 2004 hearing to August 27, 2004.[130]
2004 be cancelled, considering that Davao Sunrise's Motion to Dismiss/Expunge the
Petition was still unresolved.[126] Because of Judge Quitain's actions, Spouses Limso and Davao Sunrise filed a Motion for
Compulsory Disqualification on the ground that Judge Quitain was biased in Philippine
On August 4, 2004, Judge Quitain took cognizance of the Extremely Urgent Manifestation National Bank's favor.[131]
and Motion dated August 3, 2004 and a Very Urgent Motion for Intervention filed by a
third party. Thus, Judge Quitain cancelled the hearings scheduled on August 4 and 5, 2004, In the Order[132] dated March 10, 2005, Judge Quitain denied the Motion for Compulsory
Disqualification.
 The registration of these documents became complete when respondent affixed her
Spouses Limso and Davao Sunrise moved for reconsideration of the March 10, 2005 Order, signature below these annotations. Whatever information belatedly gathered thereafter
while Philippine National Bank filed an Opposition to the Motion for Reconsideration. relative to the circumstances as to the registrability of these documents, respondent cannot
[133] unilaterally take judicial notice thereof and proceed to lift at her whims and caprices what
has already been officially in force and effective, by erasing thereon her signature. With her
The August 11, 2004 Order also denied Davao Sunrise's Motion to Transfer Case to Branch years of experience in the Registry, not to mention her being a lawyer, respondent should
17 or Dismiss the Same. Since the Motion to Transfer is a rehash of Davao Sunrise's have taken the appropriate steps in filing a query to this Authority regarding the matter or
Motion to Expunge and/or Dismiss Petition, the denial of the Motion to Transfer is should have consulted Section 117 of PD 1529 in relation to Section 12 of Rule 43. The
tantamount to the denial of Davao Sunrise's Motion to Expunge and/or Dismiss.[134] The deplorable act of Respondent was fraught with partiality to favor the DSIDC and Sps.
August 11, 2004 Order did not specifically state that Spouses Limso and Davao Sunrise's Limso.[150]
Motion for Reconsideration dated March 28, 2003 was denied, but since the issues raised in
the Motion to Reconsideration were also raised in the Motion to Expunge, the August 11, Atty. Asteria E. Cruzabra (Atty. Cruzabra) replaced Atty. Patriarca as Register of Deeds of
2004 Order also effectively denied the Motion for Reconsideration.[135] Davao City.[151] Philippine National Bank wrote a letter to Atty. Cruzabra, arguing "that
the Sheriff's Provisional Certificate of Sale was already validly registered[,]"[152] and the
Thus, Spouses Limso and Davao Sunrise filed a Petition[136] for Certiorari before the unauthorized application of correction fluid[153] to cover the original signature of the
Court of Appeals, which was docketed as CA G.R. SP No. 85847.[137] Spouses Limso and Acting Register of Deeds "did not deprive the Bank of its rights under the registered
Davao Sunrise assailed the March 21, 2003 Order denying Davao Sunrise's Motion to documents."[154]
Expunge and/or Dismiss Petition for Issuance of Writ of Possession, as well as the August
11, 2004 Order denying Davao Sunrise's Motion to Dismiss.[138] Meanwhile, on February 10, 2005, as CA-G.R. CV No. 79732, which was an appeal from
Civil Case No. 28,170-2000 (Petition for Reformation and Annulment of Contract with
On September 1, 2004, the Court of Appeals promulgated its Decision[139] in CA G.R. Damages), was still pending, Philippine National Bank filed the following applications
No. 79500[140] denying Spouses Limso and Davao Sunrise's Petition, which assailed before the Court of Appeals Nineteenth Division:[155]
Judge Quitain's denial of their Motion to Inhibit.[141] The Court of Appeals ruled that
Judge Quitain's reversal of Judge Layague's Orders "may constitute an error of Application to Hold Davao Sunrise Investment and Development Corporation, the Spouses
judgment . . . but it is not necessarily an evidence of bias and partiality."[142] Robert Alan L. Limso and Nancy Lee Limso and Wellington Insurance Company, Inc.
Jointly and Severally liable for Damages on the Injunction Bond; and
Spouses Limso and Davao Sunrise moved for reconsideration on September 23, 2004. The
Motion was denied in the Resolution[143] dated August 11, 2005.[144] Application for the Appointment of PNB as Receiver[.][156]

While the cases between Spouses Limso, Davao Sunrise, and Philippine National Bank Spouses Limso and Davao Sunrise filed their opposition to Philippine National Bank's
were pending, Philippine National Bank, through counsel, filed administrative[145] and application on March 29, 2005.[157] Philippine National Bank filed its Reply to the
criminal complaints[146] against Atty. Patriarca. Opposition on May 5, 2005.[158]

The administrative case against Atty. Patriarca was docketed as Administrative Case No. On March 2, 2006, the Court of Appeals denied Philippine National Bank's applications,
02-13.[147] reasoning that:

In the Resolution[148] dated January 12, 2005, the Land Registration Authority found Atty. It is a settled rule that the procedure for claiming damages on account of an injunction
Patriarca guilty of grave misconduct and dismissed her from the service.[149] Included in wrongfully issued shall be the same as that prescribed in Section 20 of Rule 57 of the
the Resolution are the following pronouncements: Revised Rules of Court. Section 20 provides:
Sec. 20. Claim for damages on account of improper, irregular or excessive attachment. - An Appeals noted that Philippine National Bank was not an impartial and disinterested party,
application for damages on account of improper, irregular or excessive attachment must be and Davao Sunrise objected to Philippine National Bank's appointment as receiver.[162]
filed before the trial or before appeal is perfected or before the judgment becomes
executory, with due notice to the attaching obligee or his surety or sureties, setting forth the In addition, Rule 59, Section l(a)[163] of the 1997 Rules of Court requires that the
facts showing his right to damages and the amount thereof. Such damages may be awarded "property or fund involved is in danger of being lost, removed, or materially injured." The
only after proper hearing and shall be included in the judgment on the main case. Court of Appeals found that the properties involved were "not in danger of being lost,
removed[,] or materially injured."[164] Further, Philippine National Bank's application was
If the judgment of the appellate court be favorable to the party against whom the premature since the loan agreement was still pending appeal and "a receiver should not be
attachment was issued, he must claim damages sustained during the pendency of the appeal appointed to deprive a party who is in possession of the property in litigation."[165]
by filing an application in the appellate court with notice to the party in whose favor the
attachment was issued or his surety or sureties, before the judgment of the appellate court The dispositive portion of the Court of Appeals Resolution[166] states:
becomes executory. The appellate court may allow the application to be heard and decided
by the trial court. WHEREFORE, above premises considered, the Philippine National Bank's Application to
Hold Davao Sunrise Investment and Development Corporation, the Spouses Robert Alan L.
Nothing herein contained shall prevent the party against whom the attachment was issued Limso and Nancy Lee Limso and Wellington Insurance Company, Inc. Jointly and
from recovering in the same action the damages awarded to him from any property of the Severally Liable for Damages on the Injunction Bond and its Application for the
attaching obligee not exempt from execution should the bond or deposit given by the latter Appointment of PNB as Receiver are hereby both DENIED. And, for the reasons above set
be insufficient or fail to fully satisfy the award. forth, the Plaintiff-Appellees' Motion to Dismiss is likewise DENIED.
Records show that when this Court annulled the RTC's order of injunction, Davao Sunrise
thereafter elevated the matter to the Supreme Court. On July 24, 2002, the Supreme Court With the filing of the Appellants' and the Appellees' respective Brief(s), this case is
denied its petition for having been filed out of time and an Entry of Judgment was issued considered SUBMITTED for Decision and ORDERED re-raffled to another justice for
on Sept. 11, 2002. study and report.

PNB's instant application however was filed only on February 17, 2005 and/or in the course SO ORDERED.[167]
of its appeal on the main case - about two (2) years and five (5) months after the judgment
annulling the injunction order attained finality. Philippine National Bank filed a Motion for Reconsideration on March 28, 2006, which
was denied in the Resolution168 dated May 26, 2006.[169]
Clearly, despite that it already obtained a favorable judgment on the injunction matter, PNB
failed to file (before the court a quo) an application for damages against the bond before Thus, on July 21, 2006, Philippine National Bank filed before this court a Petition for
judgment was rendered in the main case by the court a quo. Thus, even for this reason Review[170] on Certiorari questioning the Court of Appeals' denial of its applications.
alone, Davao Sunrise and its bondsman are relieved of further liability thereunder.[159] [171] This was docketed as G.R. No. 173194.[172]
(Citations omitted)
On February 16, 2007, Philippine National Bank's Ex-Parte Petition for Issuance of a Writ
The Court of Appeals also denied Philippine National Bank's application to be appointed as of Possession docketed as Other Case No. 124-200 was dismissed[173] based on the
receiver for failure to fulfill the requirements to be appointed as receiver and for failure to following grounds:
prove the grounds for receivership.[160] It discussed that to appoint Philippine National
Bank as receiver would violate the rule that "neither party to a litigation should be (1) For purposes of the issuance of the writ of possession, Petitioner should complete the
appointed as receiver without the consent of the other because a receiver should be a person entire process in extrajudicial foreclosure ...
indifferent to the parties and should be impartial and disinterested."[161] The Court of
(2) The records disclose the [sic] contrary to petitioner's claim, the Certificate of Sale bank unilaterally increased the interest rates. Further aggravating the matter, appellant bank
covering the subject properties has not been registered with the Registry of Deeds of Davao did not increase the interest rate only once but on numerous occasions. Appellant bank
City as the Court finds no annotation thereof. As such, the sale is not considered perfected unilaterally and arbitrarily increased the already arbitrarily imposed interest rate within
to entitled petitioner to the writ of possession as a matter of rights [sic].[174] intervals of only seven (7) days and/or one (1) month.
....
Philippine National Bank filed a Motion for Reconsideration with Motion for Evidentiary The interests imposed under the Conversion, Restructuring and Extension Agreement, is
Hearing.[175] not a valid imposition. DSIDC and Spouses Limso have no choice except to assent to the
conditions therein as they are heavily indebted to PNB. In fact, the possibility of the
Acting on the Motion for Reconsideration, the trial court required the Registry of Deeds to foreclosure of their mortgage securities is right in their doorsteps. Thus it cannot be
comment on the matter.[176] considered "contracts'" between the parties, as the borrower's participation thereat has been
reduced to an unreasonable alternative that is to "take it or leave it." It has been used by
The trial court eventually denied the Motion for Reconsideration.[177] PNB to raise interest rates to levels which have enslaved appellees or have led to a
hemorrhaging of the latter's assets. Hence, for being an exploitation of the weaker party, the
Philippine National Bank appealed the trial court Decision dismissing the Petition for borrower, the alleged letter-contracts should also be struck down for being violative of the
Issuance of a Writ of Possession by filing a Rule 41 Petition before the Court of Appeals, principle of mutuality of contracts under Article 1308.[188] (Emphasis in the original)
which was docketed as CA-G.R. CV No. 01464-MIN.[178]
Thus, the Court of Appeals nullified the interest rates imposed by Philippine National
Meanwhile, when CA-G.R. CV No. 79732 was re-raffled,[179] it was re-docketed as CA- Bank:
G.R. CVNo. 79732-MIN.[180]
We reiterate that since the unilateral imposition of rates of interest by appellant bank is not
In CA-G.R. CV No. 79732-MIN, the Court of Appeals resolved the issue of "whether or only violative of the principle of mutuality of contracts, but also were found to be
not there has been mutuality between the parties, based on their essential equality, on the unconscionable, iniquitous and unreasonable, it is as if there was no express contract
subject imposition of interest rates on plaintiffs-appellees' loan obligation, i.e., the original thereon. Thus, the interest provisions on the (a) revolving credit line in the amount of three
loan and the restructured loan."[181] hundred (300) million pesos, (b) seven-year long term loan in the amount of four hundred
(400) million pesos; and (c) Conversions, Restructuring and Extension Agreement, Real
On August 13, 2009, the Court of Appeals promulgated its Decision[182] in CA-G.R. CV Estate Mortgage, promissory notes, and all other loan documents executed
No. 79732-MIN. It held that there was no mutuality between the parties because the interest contemporaneous with or subsequent to the execution of the said agreements are hereby
rates were unilaterally determined and imposed by Philippine National Bank.[183] declared null and void.

The Court of Appeals further explained that the contracts between Spouses Limso and Such being the case, We apply the ruling of the Supreme Court in the case of United
Davao Sunrise, on one hand, and Philippine National Bank, on the other, did not specify Coconut Planters Bank vs. Spouses Samuel and Odette Beluso which stated:
the applicable interest rates. The contracts merely stated the interest rate to be "at a rate per
annum that is determined by the bank[;]"[184] "at the rate that is determined by the Bank to "We see, however, sufficient basis to impose a 12% legal interest in favor of petitioner in
be the Bank's prime rate in effect at the Date of Drawdown[;]"[185] and "at the rate per the case at bar, as what we have voided is merely the stipulated rate of interest and not the
annum to be set by the Bank. The interest rate shall be reset by the Bank every stipulation that the loan shall earn interest."[189] (Citation omitted)
month."[186] In addition, the interest rate would depend on the prime rate, which was "to
be determined by the bank[.]"[187] It was also discussed that: As to the trial court's reduction of the penalty charges and attorney's fees, the Court of
Appeals affirmed the trial court's ruling and stated that Article 1229[190] of the Civil Code
But it even gets worse. After appellant bank had unilaterally determined the imposable allows for the reduction of penalty charges that are unconscionable.[191] The Court of
interest on plaintiffs-appellees loans and after the latter had been notified thereof, appellant Appeals discussed that:
 Both Motions were denied by the Court of Appeals in the Resolution[200] dated May 18,
The penalties imposed by PNB are clearly unconscionable. Any doubt as to this fact can be 2011.
removed by simply glancing at the penalties charged by defendant-appellant which . . .
already amounted to an incredibly huge amount of P176,098,045.94 despite payments that The Court of Appeals held that Philippine National Bank's Motion for Reconsideration
already exceeded the amount of the loan as of 1998. raised issues that were a mere rehash of the issues already ruled upon.[201]

With respect to attorney's fees, the Supreme Court had consistently and invariably ruled With regard to Spouses Limso and Davao Sunrise's Motion for Partial Reconsideration, the
that even with the presence of an agreement between the parties, the court may nevertheless Court of Appeals ruled that:
reduce attorney's fees though fixed in the contract when the amount thereof appears to be
unconscionable or unreasonable. Again, the fact that the attorney's fees imposed by PNB Since the appellees did not appeal from the decision of the lower court, they are not entitled
are unconscionable and unreasonable can clearly be seen. The attorney's fees imposed to any award of affirmative relief. It is well settled that an appellee who has not himself
similarly points to an incredibly huge sum of P136,900,928.85 as of October 30, 2000. appealed cannot obtain from the appellate court any affirmative relief other than those
Therefore, its reduction in the assailed decision is well-grounded.[192] (Citation omitted) granted in the decision of the court below. The appellee can only advance any argument
that he may deem necessary to defeat the appellant's claim or to uphold the decision that is
The dispositive portion of the Court of Appeals Decision states: being disputed. . . . Thus, the lower court's finding that the appellees have an unpaid
obligation with PNB, and not the other way around, should stand. It bears stressing that
WHEREFORE, the assailed Decision dated June 19, 2002 and Order dated August 13, appellees even acknowledged their outstanding indebtedness with the PNB when they filed
2002 of the Regional Trial Court of Davao City, Branch 17 in Civil Case No. 28,170-2000 their "Urgent Motion for Execution Pending Appeal" of the August 13, 2002 Order of the
declaring the unilateral imposition of interest rates by defendant-appellant PNB as null and lower court decreeing that appellees' remaining obligation with PNB is P205,084,682.61.
void appealed from are AFFIRMED with the MODIFICATION that the obligation of They cannot now claim that PNB is the one indebted to them in the amount of
plaintiffs-appellees arising from the Loan and Revolving Credit Line and subsequent P15,915,588.89.[202]
Conversion, Restructuring and Extension Agreement as Loan I and Loan II shall earn
interest at the legal rate of twelve percent (12%) per annum computed from September 1, Philippine National Bank filed a Petition for Review on Certiorari[203] assailing the
1993, until fully paid and satisfied. Decision in CA-G.R. CV No. 79732-MIN. Philippine National Bank argues that there was
mutuality of contracts between the parties, and that the interest rates imposed were valid in
SO ORDERED.[193] (Emphasis in the original) view of the escalation clauses in their contract.[204] Philippine National Bank's Petition for
Review was docketed as G.R. No. 196958.[205]
Philippine National Bank moved for reconsideration on September 3, 2009,[194] arguing
that the interest rates were "mutually agreed upon[;]"[195] that Spouses Limso and Davao Spouses Limso and Davao Sunrise also filed a Petition for Review[206] on Certiorari
Sunrise "never questioned the . . . interest rates[;]"[196] and that they "acknowledged the questioning the ruling of the Court of Appeals in CA-G.R. CV No. 79732-MIN that their
total amount of their debt (inclusive of loan principal and accrued interest) to [Philippine outstanding obligation was P803,185,411.11.[207] Spouses Limso and Davao Sunrise
National Bank] in the Conversion, Restructuring and Extension Agreement which argue that they "made overpayments in the amount of P15,915,588.89."[208] This was
restructured their obligation to [Philippine National Bank] in the amount of P1.067 docketed as G.R. No. 197120.[209]
Billion[.]"[197]
On January 21, 2013, the Court of Appeals dismissed Philippine National Bank's appeal
Spouses Limso and Davao Sunrise moved for partial reconsideration on September 9, 2009, docketed as CA-G.R. CV No. 01464-MIN (referring to the Petition for the Issuance of a
[198] pointing, out that their obligation to Philippine National Bank was only Writ of Possession) on the ground that Philippine National Bank availed itself of the wrong
P205,084,682.61, as stated in the trial court's Order dated August 13, 2002 in Civil Case remedy.[210] What the Philippine National Bank should have filed was a "petition for
No. 28,170-2000.[199] review under Rule 45 and not an appeal under Rule 41[.]"[211]
On March 15, 2013, the Philippine National Bank filed a Petition for Review on The Petition for Certiorari and Prohibition filed by Spouses Limso and Davao Sunrise
Certiorari[212] before this court, assailing the dismissal of its appeal before the Court of assailed two Orders of Judge Quitain, which denied their Motion to Expunge and/or
Appeals and praying that the Decision of the trial court— that the Sheriffs Provisional Dismiss Petition for Issuance of Writ of Possession.[229]
Certificate of Sale was not signed by the Register of Deeds and was not registered—be
reversed and set aside. The Petition was docketed as G.R. No. 205463.[213] G.R. No. 173194
Petition for Reformation or Annulment of Contract with Damages filed by Spouses Limso
G.R. No. 158622 was filed on July 1, 2003;[214] G.R. No. 169441 was filed on September and Davao Sunrise[230]
14, 2005;[215] G.R. No. 172958 was filed on June 26, 2006;[216] G.R. No. 173194 was Court of Appeals Resolution[231] dated March 2, 2006, which denied Philippine National
filed on July 21, 2006;[217] G.R. No. 196958 was filed on June 17, 2011;[218] G.R. No. Bank's (1) Application to Hold [Spouses Limso and Davao Sunrise] and the Surety Bond
197120 was filed on June 22, 2011;[219] and G.R. No. 205463 was filed on March 15, Company Jointly and Severally Liable for Damages on the Injunction Bond, and (2)
2013.[220] Application for the Appointment of [Philippine National Bank] as Receiver.

Docket Also assailed was the Court of Appeals Resolution[232] dated May 26, 2006, which denied
Number the Motion for Reconsideration filed by Philippine National Bank.
Original Case
Assailed Order/Decision G.R. No. 196958
G.R. No. 158622 Petition for Reformation or Annulment of Contract with Damages filed by Davao Sunrise
Petition for Declaratory Relief with Prayer for the Issuance of Preliminary Injunction and and Spouses Limso[233]
Application for Temporary Restraining Order[221] Court of Appeals Decision[234] dated August 13, 2009 and Court of Appeals
Court of Appeals Decision dated December 11, 2002 dismissing the Petition for Certiorari Resolution[235] dated May 18, 2011 docketed as CA-G.R. CV No. 79732-Min.
filed by Philippine National Bank. The Petition for Certiorari questioned the issuance of a
writ of preliminary injunction in favor of Spouses Limso and Davao Sunrise.[222] The decision dated August 13, 2009 affirmed with modification the decision of the trial
G.R. No.169441 court in Civil Case No. 28,170-2000.[236]
Ex-Parte Petition[223] for Issuance of Writ of Possession under Act No. 3135 filed by
Philippine National Bank, praying that it be granted possession over four (4) parcels of land The Resolution dated May 18,2011 in CA-G.R. CV No. 79732-Min denied the Motion for
owned by Davao Sunrise Reconsideration filed by Philippine National Bank and also denied the Motion for Partial
Court of Appeals Decision dated September 1, 2004 and Resolution dated August 11, 2005. Reconsideration filed by Spouses Limso and Davao Sunrise.[237]
[224]
The Rule 41 appeal was filed by Philippine National Bank.[238]
Spouses Limso and Davao Sunrise filed a Motion to Inhibit Judge Quitain, which was
denied by Judge Quitain. Thus, Spouses Limso and Davao Sunrise questioned the denial of G.R. No. 197120
their Motion before the Court of Appeals.[225] Petition[239] for Reformation or Annulment of Contract with Damages filed by Spouses
Limso and Davao Sunrise
G.R. No. 172958 Court of Appeals Decision[240] dated August 13, 2009 and Court of Appeals
Ex-Parte Petition[226] for" Issuance of the Writ of Possession under Act No. 3135 filed by Resolution[241] dated May 18, 2011.
Philippine National Bank, praying that it be granted possession over four (4) parcels of land
owned by Davao Sunrise Spouses Limso and Davao Sunrise assailed the portion of the Court of Appeals Decision
Court of Appeals Decision[227] dated September 1, 2005 and Resolution[228] dated May stating that their outstanding obligation was P803,185,411.11.[242]
26, 2006.
G.R. No. 205463
Ex-Parte Petition for Issuance of the Writ of Possession under Act No. 3135 filed by It is clear, however, that the ruling of the Regional Trial Court of Davao City in Civil Case
Philippine National Bank, praying that it be granted possession over four parcels of land No. 28,170-2000 and the Court of Appeals in CA G.R. No. 79732 already rendered Civil
owned by Davao Sunrise[243] Case No. 29,036-2002 moot and academic. Under the premises, there is no need for this
Court of Appeals Decision[244] dated January 21, 2013 dismissing the appeal under Rule Honorable Court to rule on the propriety of the dismissal of the said action for Declaratory
41 filed by Philippine National Bank for being the wrong remedy Relief as the loan agreements — from which the entire case stemmed — had already been
declared NULL AND VOID.[257] (Emphasis in the original)

In the Manifestation and Motion[245] dated May 26, 2006, Davao Sunrise prayed that it be In the Resolution[258] dated March 12, 2014, this court granted the Motion to Withdraw
allowed to withdraw G.R. No. 169441 since the issues in the Petition had become moot and Petitions with regard to G.R. Nos. 172958 and 158622. The prayer for the withdrawal of
academic. G.R. No. 169441 was noted without action since G.R. No. 169441 was deemed closed and
terminated in this court's Resolution dated October 16, 2006.[259]
In the Resolution[246] dated August 7, 2006, this court consolidated G.R. Nos. 172958,
173194, and 169441, with G.R. No. 158622 as the lowest-numbered case. On April 2, 2014, Spouses Limso and Davao Sunrise filed an "Omnibus Motion for Leave
[1] To Intervene; [2] To File/ Admit Herein Attached Comment-in-Intervention; and [3] To
Davao Sunrise's Manifestation and Motion dated May 26, 2006, which prayed that it be Consolidate Cases"[260] in G.R. No. 205463.
allowed to withdraw G.R. No. 169441, was granted in the Resolution[247] dated October
16, 2006. Thus, G.R. No. 169441 was deemed closed and terminated as of October 16, Spouses Limso and Davao Sunrise argue that they were allowed to participate in Other
2006.[248] Case No. 124-2002, and that Philippine National Bank was in bad faith when it did not
furnish Nancy Limso and Davao Sunrise copies of the Petition for Review it had filed.[261]
In the Resolution[249] dated March 7, 2007 in G.R. No. 173194, this court required
respondents Spouses Limso and Davao Sunrise to file their comment. In the Resolution[262] dated April 2, 2014, this court gave due course to the Petition and
required the parties to submit their memoranda.
In the Resolution[250] dated July 4, 2011, G.R. No. 197120 was consolidated with G.R.
No. 196958. On April 15, 2014, Spouses Limso and Davao Sunrise filed a Motion to Dismiss the
Petition in G.R. No. 173194 on the ground that the issues raised by Philippine National
On May 17, 2012, counsel for Spouses Limso and Davao Sunrise notified this court of the Bank are moot and academic. Spouses Limso and Davao Sunrise also reiterated that
death of Robert Alan L. Limso.[251] Philippine National Bank availed of the wrong remedy.[263]

On October 9, 2013, Spouses Limso and Davao Sunrise filed a Motion to Withdraw In the Resolution[264] dated July 9, 2014, this court recommended the consolidation of
Petitions in G.R. Nos. 172958, 169441 and 158622.[252] Davao Sunrise and Spouses G.R. No. 205463 with G.R. Nos. 158622, 169441, 172958, 173194, 196958, and 197120.
Limso, through counsel, explained that G.R. No. 169441 had been mooted by Judge
Quitain's voluntary inhibition from hearing and deciding Other Case No. 124-2002.[253] In the Resolution[265] dated October 13, 2014, this court noted and granted the Omnibus
Motion for Leave to Intervene filed by counsel for Nancy Limso and Davao Sunrise.[266]
After Judge Quitain had inhibited, Other Case No. 124-2002 was re-raffled to Branch 16 of This court also noted the memoranda filed by counsel for Philippine National Bank, the
the Regional Trial Court of Davao City.[254] Other Case No. 124-2002 was dismissed in Office of the Solicitor General, and counsel for Spouses Limso and Davao Sunrise.[267]
the Order[255] dated February 16, 2007. Since Other Case No. 124-2002 was dismissed,
G.R. No. 172958 was mooted as well.[256] The remaining issues for resolution are those raised in G.R. Nos. 173194, 196958, 197120,
and 205463, which are:
With regard to G.R. No. 158622, counsel for Spouses Limso and Davao Sunrise explained:
First, whether the Philippine National Bank's Petition for Review on Certiorari in G.R. No. SECTION 1. Subject of Appeal. —An appeal may be taken from a judgment or final order
173194 is the wrong remedy to assail the March 2, 2006 Court of Appeals Resolution,[268] that completely disposes of the case, or of a particular matter therein when declared by
which denied Philippine National Bank's (1) Application to Hold [Spouses Limso and these Rules to be appealable.
Davao Sunrise ] and the Surety Bond Company Jointly and Severally Liable for Damages
on the Injunction Bond, and (2) Application for the Appointment of [Philippine National No appeal may be taken from:
Bank] as Receiver; ....
(b) An interlocutory order;
Second, whether Philippine National Bank committed forum shopping when it filed an ex- ....
parte Petition for the Issuance of a Writ of Possession and an Application to be Appointed
as Receiver; In any of the foregoing circumstances, the aggrieved party may file an appropriate special
civil action as provided in Rule 65.
Third, whether the Court of Appeals erred in ruling that the interest rates imposed by
Philippine National Bank were usurious and unconscionable; In addition, Rule 45, Section 1 of the Rules of Court provides:

Fourth, whether the Conversion, Restructuring and Extension Agreement executed in 1999 SECTION 1. Filing of Petition with Supreme Court. — A party desiring to appeal by
novated the original Loan and Credit Agreement executed in 1993; certiorari from a judgment, final order or resolution of the Court of Appeals, the
Sandiganbayan, the Court of Tax Appeals, the Regional Trial Court or other courts,
Fifth, whether the Court of Appeals erred in dismissing the appeal under Rule 41 filed by whenever authorized by law, may file with the Supreme Court a verified petition for review
Philippine National Bank, which assailed the Court of Appeals Decision dated January 21, on certiorari[.] (Emphasis supplied)
2013 in CA-G.R. CV No. 01464-MIN, for being the wrong remedy;
The difference between an interlocutory order and a final order was discussed in United
Sixth, whether the Sheriff's Provisional Certificate of Sale should be considered registered Overseas Bank v. Judge Ros:[271]
in view of the entry made by the Register of Deeds in the Primary Entry Book; and
The word interlocutory refers to something intervening between the commencement and
Lastly, whether Philippine National Bank is entitled to a writ of possession. the end of the suit which decides some point or matter but is not a final decision of the
whole controversy. This Court had the occasion to distinguish a final order or resolution
I from an interlocutory one in the case of Investments, Inc. v. Court of Appeals, thus:
x x x A "final" judgment or order is one that finally disposes of a case, leaving nothing
The Petition for Review in G.R. No. 173194 should be denied. more to be done by the Court in respect thereto, e.g., an adjudication on the merits which,
on the basis of the evidence presented on the trial, declares categorically what the rights
The Petition docketed as G.R. No. 173194, filed by Philippine National Bank, questions the and obligations of the parties are and which party is in the right; or a judgment or order that
Court of Appeals Resolutions in CA-G.R. CV No. 79732-MIN dated March 2, 2006 and dismisses an action on the ground, for instance, of res judicata or prescription. Once
May 26, 2006, which denied Philippine National Bank's applications for damages on the rendered, the task of the Court is ended, as far as deciding the controversy or determining
injunction bond and to be appointed as receiver.[269] the rights and liabilities of the litigants is concerned. Nothing more remains to be done by
the Court except to await the parties' next move (which among others, may consist of the
The assailed Resolutions in G.R. No. 173194 are interlocutory orders and are not filing of a motion for new trial or reconsideration, or the taking of an appeal) and
appealable. ultimately, of course, to cause the execution of the judgment once it becomes "final" or, to
use the established and more distinctive term, "final and executory."
Rule 41, Section 1[270] of the Rules of Court provides:
xxx xxx xxx
 Spouses Limso and Davao Sunrise filed their Comment,[277] countering that the Court of
Conversely, an order that does not finally dispose of the case, and does not end the Court's Appeals did not err in denying Philippine National Bank's applications to hold the
task of adjudicating the parties' contentions and determining their rights and liabilities as injunction bond liable for damages and to be appointed as receiver.[278] They cite San
regards each other, but obviously indicates that other things remain to be done by the Beda College v. Social Security System,[279] where this court ruled that "the claim for
Court, is "interlocutory" e.g., an order denying motion to dismiss under Rule 16 of the damages for wrongful issuance of injunction must be filed before the finality of the decree
Rules, or granting of motion on extension of time to file a pleading, or authorizing dissolving the questioned writ."[280]
amendment thereof, or granting or denying applications for postponement, or production or
inspection of documents or things, etc. Unlike a "final" judgment or order, which is They highlight Philippine National Bank's admission that the writ of preliminary injunction
appealable, as above pointed out, an "interlocutory" order may not be questioned on appeal was dissolved in January 2002, and that^the Decision[281] dissolving the writ attained
except only as part of an appeal that may eventually be taken from the final judgment finality on September 11, 2002.[282]
rendered in the case.[272] (Citations omitted)
Spouses Limso and Davao Sunrise further point out that while CA-G.R. CV No. 79732 was
The Resolutions denying Philippine National Bank's applications were interlocutory orders still pending before the Court of Appeals, "the decree dissolving the questioned Writ of
since the Resolutions did not dispose of the merits of the main case. Preliminary Injunction had already become final."[283] Thus, Philippine National Bank
filed its application out of time.[284]
CA-G.R. CV No. 79732-MIN originated from Civil Case No. 28,170-2000, which involved
the issues regarding the interest rates imposed by Philippine National Bank. Hence, the They argue that in any case, Philippine National Bank cannot claim damages on the
denial of Philippine National Bank's applications did not determine the issues on the injunction bond since it was unable to secure a judgment in its favor in Civil Case No.
interest rates imposed by Philippine National Bank. 28,170-2000.[285]

The proper remedy for Philippine National Bank would have been to file a petition for They further argue that the Court of Appeals was correct in denying Philippine National
certiorari under Rule 65 or, in the alternative, to await the outcome of the main case and Bank's application to be appointed as receiver on the ground that Philippine National Bank
file an appeal, raising the denial of its applications as an assignment of error. is a party to the case and hence, it cannot be appointed as receiver.[286]

In any case, we continue to resolve the arguments raised in G.R. No. 173194. Spouses Limso and Davao Sunrise then allege that Philippine National Bank is guilty of
forum shopping. They argue that Philippine National Bank's ex-parte Petition for the
Philippine National Bank argues in its Petition for Review docketed as G.R. No. 173194 issuance of a writ of possession, docketed as Other Case No. 124-2002, and the application
that its application to hold the injunction bond liable for damages was filed on time. It to be appointed as receiver have the same purpose: to obtain possession of the properties.
points out that the phrase "before the judgment becomes executory" found in Section [287]
20[273] of Rule 57 refers to the judgment in the main case, which, in this case, refers to
CA-G.R. CV No. 79732.[274] Philippine National Bank, through counsel, filed its Reply, countering that San Beda
College was decided when the 1964 Rules of Court was still in effect.[288] It argues that
Philippine National Bank also argues that the Court of Appeals erred in denying its the cited case is no longer applicable because the 1964 Rules was superseded by the 1997
application to be appointed as receiver because although the Sheriff's Provisional Rules of Civil Procedure.[289] The applicable case is Hanil Development Co., Ltd. v.
Certificate of Sale was not registered, the Certificate of Sale "provides the basis for Intermediate Appellate Court[290] where this court ruled that "the judgment against the
[Philippine National Bank] to claim ownership over the foreclosed properties."[275] As the attachment bond could be included in the final judgment of the main case."[291]
highest bidder, Philippine National Bank had the right to receive the rental income of the
foreclosed properties.[276] Philippine National Bank also argued that under the 1997 Rules of Civil Procedure, the
applicant for damages does not have to be the winning party.[292]
Philippine National Bank further argues that it did not commit forum shopping since "there
is no identity of parties between CA G.R. CV No. 79732 ... and Other Case No. 124- In the case at bar, respondents' claim to a right to preliminary injunction based on PNB's
2002."[293] The causes of action and reliefs sought in the two cases are different.[294] It purported unilateral imposition of interest rates and subsequent increases thereof, is not a
points out that its application to be appointed as receiver is a provisional remedy under right warranting the issuance of an injunction to halt the foreclosure proceedings. On the
Rule 59 of the 1997 Rules of Civil Procedure, while its prayer for the issuance of a writ of contrary, it is petitioner bank which has proven its right to foreclose respondents'
possession in Other Case No. 124-2002 is based on its right to possess the properties mortgaged properties, especially since respondents have admitted their indebtedness to
involved.[295] PNB and merely questioning the interest rates imposed by the bank. . . .
....
We rule that the Court of Appeals properly denied Philippine National Bank's application
to hold the injunction bond liable for damages and be appointed as receiver. We also rule Above all, the core and ultimate issue raised in the main case below is the interest
that no forum shopping was committed by Philippine National Bank. However, the Court stipulation in the loan agreements between the petitioner and private respondents, the
of Appeals erred in ruling that Philippine National Bank filed its application to hold the validity of which is still to be determined by the lower court. Injunctive relief cannot be
injunction bond liable for damages out of time. made to rest on the assumption that said interest stipulation is void as it would preempt the
merits of the main case.
The Court of Appeals, in its Resolution dated March 2, 2006, explained:
WHEREFORE, premises considered, the assailed Orders of respondent judge dated
Records show that when this Court annulled the RTC's order of injunction, Davao Sunrise December 4 and 21, 2000 are hereby ANNULLED and SET ASIDE, and the Order dated
thereafter elevated the matter to the Supreme Court. On July 24, 2002, the Supreme Court November 20, 2000 denying private respondents prayer for the issuance of a writ of
denied its petition for having been filed out of time and an Entry of Judgment was issued preliminary injunction is REINSTATED.
on Sept[ember] 11,2002.
SO ORDERED.[301]
PNB's instant application however was filed only on February 17, 2005 and/or in the course
of its appeal on the main case - about two (2) years and five (5) months after the judgment Spouses Limso and Davao Sunrise assailed the Decision in CA-G.R. SP No. 63351 and
annulling the injunction order attained finality. filed before this court a Petition for Review, docketed as GR. No. 152812. However, the
Petition for Review was denied in the Resolution[302] dated July 24, 2002 for being filed
Clearly, despite that it already obtained a favorable judgment on the injunction matter, PNB out of time, and Entry of Judgment[303] was made on September 11, 2002.
failed to file (before the court a quo) an application for damages against the bond before
judgment was rendered in the main case by the court a quo. Thus, even for this reason The issuance of the writ of preliminary injunction in Civil Case No. 28,170-2000 was an
alone, Davao Sunrise and its bondsman are relieved of further liability thereunder.[296] interlocutory order, and was properly questioned by Philippine National Bank through a
(Citations omitted) Petition for Certiorari.

The Petition referred to by the Court of Appeals in the quoted Resolution was docketed as However, the Court of Appeals erred in ruling that Philippine National Bank's application
G.R. No. 152812 and was entitled Davao Sunrise Investment and Development was filed out of time.
Corporation, et al. v. Court of Appeals, et al.[297] G.R. No. 152812 originated from CA
G.R. SP No. 63351.[298] CA G.R. SP No. 63351 was a Petition for Certiorari filed by Section 20 of Rule 57 of the Rules of Civil Procedure provides:
Philippine National Bank, which questioned the issuance of a writ of preliminary injunction
in Civil Case No. 28,170-2000.[299] SECTION 20. Claim for Damages on Account of Improper, Irregular or Excessive
Attachment. — An application for damages on account of improper, irregular or excessive
In the Decision[300] dated January 10, 2002, the Court of Appeals granted Philippine attachment must be filed before the trial or before appeal is perfected or before the
National Bank's Petition for Certiorari and held that: judgment becomes executory, with due notice to the attaching party and his surety or
sureties, setting forth the facts showing his right to damages and the amount thereof. Such where the action is pending, or by the Court of Appeals or by the Supreme Court, or a
damages may be awarded only after proper hearing and shall be included in the judgment member thereof, in the following cases:
on the main case.
(a)
If the judgment of the appellate court be favorable to the party against whom the When it appears from the verified application, and such other proof as the court may
attachment was issued, he must claim damages sustained during the pendency of the appeal require, that the party applying for the appointment of a receiver has an interest in the
by filing an application in the appellate court, with notice to the party in whose favor the property or fund which is the subject of the action or proceeding, and that such property or
attachment was issued or his surety or sureties, before the judgment of the appellate court fund is in danger of being lost, removed, or materially injured unless a receiver be
becomes executory. The appellate court may allow the application to be heard and decided appointed to administer and preserve it;
by the trial court. (b)
When it appears in an action by the mortgagee for the foreclosure of a mortgage that the
Nothing herein contained shall prevent the party against whom the attachment was issued property is in danger of being wasted or dissipated or materially injured, and that its value
from recovering in the same action the damages awarded to him from any property of the is probably insufficient to discharge the mortgage debt, or that the parties have so stipulated
attaching party not exempt from execution should the bond or deposit given by the latter be in the contract of mortgage;
insufficient or fail to fully satisfy the award. (c)
After judgment, to preserve the property during the pendency of an appeal, or to dispose of
The judgment referred to in Section 20 of Rule 57 should mean the judgment in the main it according to the judgment, or to aid execution when the execution has been returned
case. In Carlos v. Sandoval:[304] unsatisfied or the judgment obligor refuses to apply his property in satisfaction of the
judgment, or otherwise to carry the judgment into effect;
Section 20 essentially allows the application to be filed at any time before the judgment (d)
becomes executory. It should be filed in the same case that is the main action, and cannot Whenever in other cases it appears that the appointment of a receiver is the most
be instituted separately. It should be filed with the court having jurisdiction over the case at convenient and feasible means of preserving, administering, or disposing of the property in
the time of the application. The remedy provided by law is exclusive and by failing to file a litigation.
motion for the determination of the damages on time and while the judgment is still under
the control of the court, the claimant loses his right to damages.[305] (Citations omitted) During the pendency of an appeal, the appellate court may allow an application for the
appointment of a receiver to be filed in and decided by the court of origin and the receiver
In this case, Philippine National Bank filed its application[306] during the pendency of the appointed to be subject to the control of said court.
appeal before the Court of Appeals. The application was dated January 12, 2005,[307]
while the appeal in the main case, docketed as CA-G.R. CV No. 79732-MIN, was decided In Commodities Storage & Ice Plant Corporation v. Court of Appeals:[309]
on August 13, 2009.[308] Hence, Philippine National Bank's application to hold the
injunction bond liable for damages was filed on time. The general rule is that neither party to a litigation should be appointed as receiver without
the consent of the other because a receiver should be a person indifferent to the parties and
The Court of Appeals properly denied Philippine National Bank's application to be should be impartial and disinterested. The receiver is not the representative of any of the
appointed as a receiver. parties but of all of them to the end that their interests may be equally protected with the
least possible inconvenience and expense.[310] (Citations omitted)
Rule 59, Section 1 provides the grounds when a receiver may be appointed:
The Court of Appeals cited Spouses Limso and Davao Sunrise's objection to Philippine
SECTION 1. Appointment of Receiver. — Upon a verified application, one or more National Bank's application to be appointed as receiver as one of the grounds why the
receivers of the property subject of the action or proceeding may be appointed by the court application should fail.[311]
Also, the Court of Appeals found that the mortgaged properties of Spouses Limso and void when they allow the creditor to unilaterally adjust the interest rates without the
Davao Sunrise were earning approximately P12,000,000.00 per month. This proves that the consent of the debtor.
properties were being administered properly and did not require the appointment of a
receiver. Also, to appoint Philippine National Bank as receiver would be premature since The Petitions docketed as G.R. Nos. 196958 and 197120 assail the Decision in CA-G.R.
the trial court's Decision was pending appeal.[312] CV No. 79732-MIN.[316]

Philippine National Bank did not commit forum shopping when it filed an ex-parte Petition Philippine National Bank argues that the principle of mutuality of contracts was not
for the issuance of a writ of possession and an application for appointment as receiver. violated because Spouses Limso and Davao Sunrise were notified as to the applicable
interest rates, and their consent was obtained before the effectivity of the agreement.[317]
The elements of forum shopping are: There was no unilateral imposition of interest rates since the rates were dependent on the
prevailing market rates.[318]
(a) identity of parties, or at least such parties as represent the same interests in both actions;
Philippine National Bank also argues that Spouses Limso and Davao Sunrise were
(b) identity of rights asserted and relief prayed for, the relief being founded on the same regularly informed by Philippine National Bank of the interest rates imposed on their loan,
facts; and as shown by Robert Alan L. Limso's signatures on the letters sent by Philippine National
Bank.[319]
(c) the identity of the two preceding particulars, such that any judgment rendered in the
other action will, regardless of which party is successful, amount to res judicata in the Philippine National Bank further argues that loan agreements with escalation clauses, by
action under consideration.[313] (Citation omitted) their nature, "would not indicate the exact rate of interest applicable to a loan precisely
because it is made to depend by the parties to external factors such as market indicators
There is no identity of parties because the party to the Petition for Issuance of Writ of and/or government regulations affecting the cost of money."[320]
Possession is Philippine National Bank only, while there are two parties to application for
appointment as receiver: Philippine National Bank on one hand, and Spouses Limso and Philippine National Bank cites Solidbank Corp., (now Metropolitan Bank and Trust
Davao Sunrise on the other. Company) v. Permanent Homes, Incorporated,[321] where this court held that "contracts
with escalation clause do not violate the principle of mutuality of contracts."[322]
The causes of action are also different. In the Petition for Issuance of Writ of Possession,
Philippine National Bank prays that it be granted a writ of possession over the foreclosed Philippine National Bank contends that the Conversion, Restructuring and Extension
properties because it is the winning bidder in the foreclosure sale.[314] On the other hand, Agreement novated the previous contracts with Spouses Limso and Davao Sunrise. In
Philippine National Bank's application to be appointed as receiver is for the purpose of addition, the alleged infirmities in the previous contracts were set aside upon the execution
preserving these properties pending the resolution of CA-G.R. CV No. 79732.[315] While of the Conversion, Restructuring and Extension Agreement.[323]
the issuance of a writ of possession or the appointment as receiver would have the same
result of granting possession of the foreclosed properties to Philippine National Bank, On the other hand, Spouses Limso and Davao Sunrise argue that the Court of Appeals did
Philippine National Bank's right to possess these properties as the winning bidder in the not err in ruling that the interest rates were imposed unilaterally. Spouses Limso and Davao
foreclosure sale is different from its interest as creditor to preserve these properties. Sunrise allege that the interest rates were not stipulated in writing, in violation of Article
1956 of the Civil Code.[324] Also, the Court of Appeals did not err in reducing the
II penalties and attorney's fees since Article 2227 of the Civil Code states:[325]

There is no mutuality of contracts when the determination or imposition of interest rates is Article 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be
at the sole discretion of a party to the contract. Further, escalation clauses in contracts are equitably reduced if they are iniquitous or unconscionable.
Spouses Limso and Davao Sunrise add that the letters sent by Philippine National Bank to
Davao Sunrise were not agreements but mere notices that the interest rates were increased Article 1308. The contract must bind both contracting parties; its validity or compliance
by Philippine National Bank.[326] Moreover, the letters were received by Davao Sunrise's cannot be left to the will of one of them.
employees who were not authorized to receive such letters.[327] Some of the letters did not
even appear to have been received by anyone at all.[328] The importance of the principle of mutuality of contracts was discussed in Juico v. China
Banking Corporation:[335]
Spouses Limso and Davao Sunrise allege that Philippine National Bank admitted that the
penalties stated in the agreements were in the nature of liquidated damages.[329] The binding effect of any agreement between parties to a contract is premised on two
Nevertheless, Spouses Limso and Davao Sunrise question the Court of Appeals' ruling settled principles: (1) that any obligation arising from contract has the force of law between
insofar as it held that their remaining obligation to Philippine National Bank is the parties; and (2) that there must be mutuality between the parties based on their essential
P803,185,411.11 as of September 1, 2008. According to Spouses Limso and Davao equality. Any contract which appears to be heavily weighed in favor of one of the parties so
Sunrise, they have overpaid Philippine National Bank in the amount of P15,915,588.89. as to lead to an unconscionable result is void. Any stipulation regarding the validity or
[330] compliance of the contract which is left solely to the will of one of the parties, is likewise,
invalid.[336] (Citation omitted)
Philippine National Bank counters that Davao Sunrise and Spouses Limso's promissory
notes had a provision stating: When there is no mutuality between the parties to a contract, it means that the parties were
not on equal footing when the terms of the contract were negotiated. Thus, the principle of
[T]he rate of interest shall be set at the start of every Interest Period. For this purpose, I/We mutuality of contracts dictates that a contract must be rendered void when the execution of
agree that the rate of interest herein stipulated may be increased or decreased for the its terms is skewed in favor of one party.[337]
subsequent Interest Periods, with PRIOR NOTICE TO THE BORROWER in the event of
changes in the interest rate prescribed by law or the Monetary Board of Central Bank of the The Court of Appeals also noted that since the interest rates imposed were at the sole
Philippines or in the Bank's overall cost of funds. I/We hereby agree that IN THE EVENT discretion of Philippine National Bank, and that Spouses Limso and Davao Sunrise were
I/WE ARE NOT AGREEABLE TO THE INTEREST RATE FIXED FOR ANY merely notified when there were changes in the interest rates, Philippine National Bank
INTEREST PERIOD, I/WE HAVE THE OPTION TO PREPAY THE LOAN OR violated the principle of mutuality of contracts.[338] The Court of Appeals ruled that:
CREDIT FACILITY WITHOUT PENALTY within ten (10) calendar days from the
Interest Setting Date.[331] (Emphasis in the original) We cannot subscribe to appellant bank's allegation that plaintiffs-appellees agreed to these
interest rates by receiving various letters from PNB. Those letters cannot be construed as
As to the letters sent by Philippine National Bank, these letters were received by the Chief agreements as a simple reading of those letters would show that they are mere notices
Finance Officer, Chairman, and President of Davao Sunrise. In addition, assuming that the informing plaintiffs-appellees that the bank, through its top management, had already
employees who allegedly received the letters were not authorized to do so, the unauthorized imposed interest rates on their loan. The uniform wordings of the said letters go this way:
acts were ratified by Spouses Limso and Davao Sunrise when they used the proceeds of the This refers to your existing credit facility in the principal amount of P850.0 MM granted by
loan.[332] the Philippine National Bank by and under the terms and conditions of that Credit
Agreement dated 12.2.97 (Renewal of Credit Facility).
We rule that there was no mutuality of contract between the parties since the interest rates
imposed were based on the sole discretion of Philippine National Bank.[333] Further, the We wish to advise you that the top management has approved an interest rate of 20.756%
escalation clauses in the real estate mortgage "[did] not specify a fixed or base which will be used in computing the interest due on your existing peso and redenominated
interest[.]"[334] Thus, the interest rates are invalid. availments against the credit facility for the period July 20 to August 19, 1998.

The principle of mutuality of contracts is stated in Article 1308 of the Civil Code as If you are amenable to this arrangement, please signify your conformity on the space
follows: provided below and return to us the original copy of the document. If we receive no written
objection by the end of 10 days from date of receipt of this letter, we will take it to mean be increased or decreased for the subsequent Interest Periods, with prior notice to the
that you agree to the new interest rate we quote. On the other hand, if you disagree with the Borrower in the event of changes in interest rate prescribed by law or the Monetary Board
quoted rate, you will have to pay the loan in full within the same ten-day period otherwise, of the Central Bank of the Philippines, or in the Bank's overall cost of funds. I/We hereby
the entire loan will be considered due and demandable.[339] (Citation omitted) agree that in the event I/We are not agreeable to the interest rate fixed for any Interest
Period, I/we shall have the option to prepay the loan or credit facility without penalty
The contents of the letter quoted by the Court of Appeals show that there was no room for within ten (10) calendar days from the Interest Setting Date.[342]
negotiation among Philippine National Bank, Spouses Limso, and Davao Sunrise when it
came to the applicable interest rate. Since there was no room for negotiations between the Promissory Note No. 0015138516350116[343] contained the same provisions, differing
parties with regard to the increases of the rates of interest, the principle of mutuality of only as to the amount of the obligation.
contracts was violated. There was no meeting of the minds between Spouses Limso, Davao
Sunrise, and Philippine National Bank because the increases in the interest rates were Assuming that Davao Sunrise and Spouses Limso agreed to the increase in interest rates,
imposed on them unilaterally. the interest rates are still null and void for being unreasonable.[344]

Meeting of the minds between parties to a contract is manifested when the elements of a This court has held that while the Usury Law was suspended by Central Bank Circular No.
valid contract are all present.[340] Article 1318 of the Civil Code provides: 905, Series of 1982, unconscionable interest rates may be declared illegal.[345] The
suspension of the Usury Law did not give creditors an unbridled right to impose arbitrary
Article 1318. There is no contract unless the following requisites concur: interest rates. To determine whether an interest rate is unconscionable, we are guided by the
(1) Consent of the contracting parties; following pronouncement:

(2) Object certain which is the subject matter of the contract; In determining whether the rate of interest is unconscionable, the mechanical application of
pre-established floors would be wanting. The lowest rates that have previously been
(3) Cause of the obligation which is established. considered unconscionable need not be an impenetrable minimum. What is more crucial is
a consideration of the parties' contexts. Moreover, interest rates must be appreciated in light
When one of the elements is wanting, no contract can be perfected.[341] In this case, no of the fundamental nature of interest as compensation to the creditor for money lent to
consent was given by Spouses Limso and Davao Sunrise as to the increase in the interest another, which he or she could otherwise have used for his or her own purposes at the time
rates. Consequently, the increases in the interest rates are not valid. it was lent. It is not the default vehicle for predatory gain. As such, interest need only be
reasonable. It ought not be a supine mechanism for the creditor's unjust enrichment at the
Even the promissory notes contained provisions granting Philippine National Bank the sole expense of another.[346]
discretion to set the interest rate:
A reading of the interest provisions in the original agreement and the Conversion,
[Promissory Note] NO. 0015138516350115 . .. Restructuring and Extension Agreement shows that the interest rates imposed by Philippine
National Bank were usurious and unconscionable.
. . . I/We, jointly and severally, promise to pay to the order of the Philippine National Bank
(the 'Bank') at its office in cm recto avenue davao city [sic], Philippines, the sum of In the original credit and loan agreements executed in 1993, the interest provisions provide:
PHILIPPINE PESOS: 583.183.333.34 (P583383.333.34) together with interest thereon for
the current Interest Period at a rate of to be set by mzt. [management]. Interest Period shall CREDIT AGREEMENT
mean the period commencing on the date hereof and having a duration not exceeding ....
monthly (____ ) days and each similar period thereafter commencing upon the expiry of the 1.04 Interest on Availments. (a) The Borrowers agree to pay interest on each availment
immediately preceding Interest Period. The rate of interest shall be set at the start of every from date of each availment up to, but not including the date of full payment thereof at a
Interest Period. For this purpose, I/We agree that the rate of interest herein stipulated may rate per annum that is determined by the Bank to be equivalent to the Bank's prime rate less
1.0% in effect as of the date of the relevant Availment, subject to quarterly review and to
maintenance of deposits with ADB of at least 5% of the amount availed in its savings and As found by the Court of Appeals, the loan agreements merely stated that interest rates
current account. Non compliance of ADB requirement shall subject the credit line to would be imposed. However, the specific interest rates were not stipulated, and the
regular interest rate which is the prime rate plus applicable spread.[347] subsequent increases in the interest rates were all at the discretion of Philippine National
Bank.[350]
LOAN AGREEMENT
Also invalid are the escalation clauses in the real estate mortgage and promissory notes.
1.03 Interest, (a) The Borrowers hereby agree to pay interest on the loan from the date of The escalation clause in the real estate mortgage states:
Drawdown up to Repayment Date at the rate that is determined by the Bank to be the
Bank's prime rate in effect at the Date of Drawdown less 1.0% and which shall be reset "(k) INCREASE OF INTEREST RATE:
every 90 days to coincide with interest payments.
"The rate of interest charged on the obligation secured by this mortgage as well as the
(b) The determination by the Bank of the amount of interest due and payable hereunder interest on the amount which may have been advanced by the mortgagee, in accordance
shall be conclusive and binding on the borrower in the absence of manifest error in the with the provisions hereof shall be subject during the life of this contract to A such an
computation.[348] (Emphasis supplied, underscoring in the original) increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE
may prescribe for its debtors."[351]
In the Conversion, Restructuring and Extension Agreement, the interest provisions state:
The escalation clause in the promissory notes[352] states:
SECTION 2. TERMS OF LOAN I
For this purpose, I/We agree that the rate of interest herein stipulated may be increased or
.... decreased for the subsequent Interest Periods, with prior notice to the Borrower in the event
2.04 Interest, (a) The Borrowers agree to pay the Bank interest on Loan I from the Effective of changes in interest rate prescribed by law or the Monetary Board or the Central Bank of
Date, until the date of full payment thereof at the rate per annum to be set by the Bank. The the Philippines, or in the Bank's overall cost of funds.[353]
interest rate shall be reset by the Bank every month.
.... Banco Filipino Savings and Mortgage Bank v. Judge Navarro[354] defined an escalation
clause as "one which the contract fixes a base price but contains a provision that in the
SECTION 3. TERMS OF LOAN II event of specified cost increases, the seller or contractor may raise the price up to a fixed
percentage of the base."[355]
....
3.04 Interest, (a) The Borrowers agree to pay the Bank interest on Loan II from the This court has held that escalation clauses are not always void since they serve "to maintain
Effective Date, until the date of full payment thereof at the rate per annum to be set by the fiscal stability and to retain the value of money in long term contracts."[356] However:
Bank. The interest rate shall be reset by the Bank every month.[349] (Emphasis supplied,
underscoring in the original) [A]n escalation clause "which grants the creditor an unbridled right to adjust the interest
independently and upwardly, completely depriving the debtor of the right to assent to an
From the terms of the loan agreements, there was no way for Spouses Limso and Davao important modification in the agreement" is void. A stipulation of such nature violates the
Sunrise to determine the interest rate imposed on their loan because it was always at the principle of mutuality of contracts. Thus, this Court has previously nullified the unilateral
discretion of Philippine National Bank. determination and imposition by creditor banks of increases in the rate of interest provided
in loan contracts.
Nor could Spouses Limso and Davao Sunrise determine the exact amount of their
obligation because of the frequent changes in the interest rates imposed.
. . . [W]e hold that the escalation clause is ... void because it grants respondent the power to The Real Estate Mortgage contract likewise provided that—
impose an increased rate of interest without a written notice to petitioners and their written
consent. Respondent's monthly telephone calls to petitioners advising them of the '(k) INCREASE OF INTEREST RATE: The rate of interest charged on the obligation
prevailing interest rates would not suffice. A detailed billing statement based on the new secured by this mortgage as well as the interest on the amount which may have been
imposed interest with corresponding computation of the total debt should have been advanced by the MORTGAGEE, in accordance with the provision hereof, shall be subject
provided by the respondent to enable petitioners to make an informed decision. An during the life of this contract to such an increase within the rate allowed by law, as the
appropriate form must also be signed by the petitioners to indicate their conformity to the Board of Directors of the MORTGAGEE may prescribe for its debtors.'[362]
new rates. Compliance with these requisites is essential to preserve the mutuality of
contracts. For indeed, one-sided impositions do not have the force of law between the This court explained that:
parties, because such impositions are not based on the parties' essential equality.[357]
(Citations omitted) Similarly, contract changes must be made with the consent of the contracting parties. The
minds of all the parties must meet as to the proposed modification, especially when it
The interest rate provisions in Philippine National Bank's loan agreements and real estate affects an important aspect of the agreement. In the case of loan contracts, it cannot be
mortgage contracts have been nullified by this court in several cases. Even the escalation gainsaid that the rate of interest is always a vital component, for it can make or break a
clauses in Philippine National Bank's contracts were noted to be violative of the principle capital venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of
of mutuality of contracts.[358] any binding effect.[363]

The original loan agreement in this case was executed in 1993. Prior to the execution of the In a subsequent case[364] also involving Philippine National Bank, this court likewise
original loan agreement, this court promulgated a Decision in 1991 ruling that "the nullified the interest rate provisions of Philippine National Bank and discussed:
unilateral action of the [Philippine National Bank] in increasing the interest rate on the
private respondent's loan, violated the mutuality of contracts ordained in Article 1308 of In this case no attempt was made by PNB to secure the conformity of private respondents
the Civil Code[.]"[359] to the successive increases in the interest rate. Private respondents' assent to the increases
cannot be implied from their lack of response to the letters sent by PNB, informing them of
In Philippine National Bank v. Court of Appeals[360] the interest rate provisions were the increases. For as stated in one case, no one receiving a proposal to change a contract is
nullified because these allowed Philippine National Bank to unilaterally increase the obliged to answer the proposal.[365] (Citation omitted)
interest rate.[361] The nullified interest rate provisions were worded as follows:
However, only the interest rate imposed is nullified; hence, it is deemed not written in the
"The Credit Agreement provided inter alia, that— contract. The agreement on payment of interest on the principal loan obligation remains. It
is a basic rule that a contract is the law between contracting parties.[366] In the original
'(a) The BANK reserves the right to increase the interest rate within the limits allowed by loan agreement and the Conversion, Restructuring and Extension Agreement, Spouses
law at any time depending on whatever policy it may adopt in the future: Provided, that the Limso and Davao Sunrise agreed to pay interest on the loan they obtained from Philippine
interest rate on this accommodation shall be correspondingly decreased in the event that the National Bank. Such obligation was not nullified by this court. Thus, their obligation to pay
applicable maximum interest is reduced by law or by the Monetary Board. In either case, interest in their loan obligation subsists.[367]
the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the
increase or decrease in the maximum interest rate.' Spouses Abella v. Spouses Abella[368] involved a simple loan with an agreement to pay
interest. Unfortunately, the applicable interest rate was not stipulated by the parties. This
"The Promissory Note, in turn, authorized the PNB to raise the rate of interest, at any time court discussed that in cases where the parties fail to specify the applicable interest rate, the
without notice, beyond the stipulated rate of 12% but only 'within the limits allowed by legal rate of interest applies. This court also discussed that the applicable legal rate of
law.' interest shall be the prevailing rate at the time when the agreement was entered into:[369]
This is so because interest in this respect is used as a surrogate for the parties' intent, as Article 1292. In order that an obligation may be extinguished by another which substitutes
expressed as of the time of the execution of their contract. In this sense, the legal rate of the same, it is imperative that it be so declared in unequivocal terms, or that the old and the
interest is an affirmation of the contracting parties' intent; that is, by their contract's silence new obligations be on every point incompatible with each other.
on a specific rate, the then prevailing legal rate of interest shall be the cost of borrowing
money. This rate, which by their contract the parties have settled on, is deemed to persist Novation has been defined as:
regardless of shifts in the legal rate of interest. Stated otherwise, the legal rate of interest,
when applied as conventional interest, shall always be the legal rate at the time the Novation may either be express, when the new obligation declares in unequivocal terms
agreement was executed and shall not be susceptible to shifts in rate.[370] that the old obligation is extinguished, or implied, when the new obligation is on every
point incompatible with the old one. The test of incompatibility lies on whether the two
Further, Spouses Abella cited Article 2212[371] of the Civil Code and the ruling in Nacar obligations can stand together, each one with its own independent existence.
v. Gallery Frames[372] which both state that "interest due shall itself earn legal interest
from the time it is judicially demanded:"[373] For novation, as a mode of extinguishing or modifying an obligation, to apply, the
following requisites must concur:
[T]he interest due on conventional interest shall be at the rate of 12% per annum from [date
of judicial demand] to June 30, 2013. Thereafter, or starting July 1, 2013, this shall be at 1) There must be a previous valid obligation.
the rate of 6% per annum.[374]
2) The parties concerned must agree to a new contract.
In this case, the Conversion, Restructuring and Extension Agreement was executed on
January 28, 1999. Thus, the applicable interest rate on the principal loan obligation 3) The old contract must be extinguished.
(conventional interest) is at 12% per annum. With regard to the interest due on the
conventional interest, judicial demand was made on August 21, 2000 when Philippine 4) There must be a valid new contract.[378] (Citations omitted)
National Bank filed a Petition[375] for Extrajudicial Foreclosure of Real Estate Mortgage.
[376] Thus, from August 21, 2000 to June 30, 2013, the interest rate on conventional The original Credit Agreement[379] was executed on September 1, 1993,[380] while the
interest shall be at 12%. From July 1, 2013 until full payment, the applicable interest rate Conversion, Restructuring and Extension Agreement[381] was executed on January 28,
on conventional interest shall be at 6%. 1999.[382]

III Pertinent portions of the Conversion, Restructuring and Extension Agreement state:

The Conversion, Restructuring and Extension Agreement novated the original agreement WITNESSETH: That -
executed in 1993. However, the nullified interest rate provisions in the original loan
agreement cannot be deemed as having been legitimized, ratified, or set aside. ....
WHEREAS, the Borrowers [referring to DSIDC and spouses Limso] acknowledge that
Philippine National Bank argues that the Conversion, Restructuring and Extension they have outstanding obligations (the "Obligations") with the Bank broken down as
Agreement novated the original loan agreement and that the novation effectively set aside follows:
the infirmities in the original loan agreement.[377]
(i ) Credit Line - P583.18 Million (as of September 30, 1998);
The Civil Code provides that: (i i) Loan - P266.67 Million (as of September 30, 1998); and
(i i i) Interest -P217.15 Million (as of December 31, 1998);
WHEREAS, at the request of the Borrowers, the Bank has approved (a) the conversion and (d) The consolidation of the accrued interest and the outstanding obligation of the original
restructuring of the Credit Line portion of the Obligations into a term loan, (b) the Long Term Loan to form "Loan 2" with the total principal amount of P483.82 Million;
extension of the term of the Loan for another four (4) years, (c) the capitalization on
accrued interest (up to December 31,1998) on the Obligations, (d) the waiver of the (e) Waiver of penalty charges;
penalties charges (if any) accruing on the Obligations, and (e) the partial release of chattel
mortgage on stock inventories, subject to the terms and conditions hereinafter set forth; (f) Partial release of chattel mortgage on the stock inventories;
....
(g) Both "Loan I" and "Loan II" were made payable within seven (7) years in monthly
SECTION 2. TERMS OF LOAN I amortization and a balloon payment on or before December 2005.[385]

2.01 Amount of Loan I. Loan I shall be in the principal amount not exceeding PESOS: When the loan agreement was restructured, the principal obligation of Spouses Limso and
FIVE HUNDRED EIGHTY THREE MILLION ONE HUNDRED EIGHTY THOUSAND Davao Sunrise became P1.067 billion.
(P583,180,000.00)
.... The Conversion, Restructuring and Extension Agreement novated the original credit
agreement because the principal obligation itself changed.
SECTION 3. TERMS OF LOAN II
Important provisions of the original agreement were altered. For example, the penalty
charges were waived and the terms of payment were extended.
3.01 Amount of Loan II. Loan II shall be in the principal amount not exceeding PESOS:
FOUR HUNDRED EIGHTY THREE MILLION SEVEN HUNDRED EIGHTY Further, the preambular clauses of the Conversion, Restructuring and Extension Agreement
THOUSAND (P483,780,000.00).[383] show that Spouses Limso and Davao Sunrise sought to change the terms of the original
agreement and that they themselves acknowledged their obligation to be P1.067 billion.
In this case, the previous valid obligation of Spouses Limso and Davao Sunrise was the They are now estopped from claiming that their obligation should be based on the original
payment of a loan in the total amount of P700 million, plus interest. agreement when it was through their own actions that the loan was restructured.

Upon the request of Spouses Limso and Davao Sunrise, Philippine National Bank agreed to Thus, the Court of Appeals in CA-G.R. CV No. 79732-MIN erred in not declaring that the
restructure the original loan agreement.[384] Conversion, Restructuring and Extension Agreement novated the original agreement and in
computing Spouses Limso and Davao Sunrise's obligation based on the original agreement.
Philippine National Bank summarized the Conversion, Restructuring and Extension
Agreement as follows: Since the Conversion, Restructuring and Extension Agreement novated the original credit
agreement, we modify the Court of Appeals Decision in that the outstanding obligation of
(a) The conversion of the Revolving Credit Line into a Term Loan in the principal amount Spouses Limso and Davao Sunrise should be computed on the basis of the Conversion,
of 583.18 Million and denominated as "Loan I". Restructuring and Extension Agreement.

(b) The Extension for another four (4) years of the original long term loan (from 01 In the Court of Appeals Decision dated August 13, 2009:
September 2001 to 31 December 2005);
Computing the interest at 12% per annum on the principal amount of 700 Million Pesos,
(c) The capitalization of the accrued interest on both the Revolving Credit Line and the the interest should be 84 Million Pesos per annum. Multiplying 84 Million Pesos by 15
Long Term Loan up to 31 December 1998; years from September 1, 1993 to September 1, 2008, the interest for the 15-year period
would be One Billion Two Hundred Sixty Million Pesos (P1,260,000,000.00). Then, by
adding the interest of P1,260,000,000.00 to the principal amount of 700 Million Pesos, the
total obligation of plaintiffs-appellees would be One Billion Nine Hundred Sixty Million Article 1409[388] of the Civil Code provides that void contracts cannot be ratified. Hence,
Pesos (P1,960,000,000.00) by September 1, 2008. And since plaintiffs-appellees has paid a the void interest rate provisions in the original loan agreement could not have been ratified
total amount of One Billion One Hundred Fifty Six Million Eight Hundred Fourteen by the execution of the Conversion, Restructuring and Extension Agreement.
Thousand Five Hundred Eighty Eight Pesos and 89/100 (P1,156,814,588.89) to appellant
PNB as of December 5, 1998, as per PNB's official computation of payments per official IV
receipts, then, plaintiffs-appellees would still have an outstanding balance of about Eight
Hundred Three Million One Hundred Eighty Five Thousand Four Hundred Eleven and The proper remedy to assail a decision on pure questions of law is to file a petition for
11/100 Pesos (P 803,185,411.11) as of September 1, 2008. The amount of P review on certiorari under Rule 45, not an appeal under Rule 41 of the 1997 Rules of Civil
803,185,411.11 will earn interest at the legal rate of 12% per annum from September 1, Procedure.
2008 until fully paid.
.... One of the issues raised by Philippine National Bank in G.R. No. 205463 is the dismissal of
its appeal under Rule 41 by the Court of Appeals in its Decision dated January 21, 2013.
WHEREFORE, the assailed Decision dated June 19, 2002 and Order dated August 13, [389]
2002 of the Regional Trial Court of Davao City, Branch 17 in Civil Case No. 28,170-2000
declaring the unilateral imposition of interest rates by defendant-appellant PNB as null and Philippine National Bank, through counsel, argues that Rule 41 is the proper remedy
void appealed from are AFFIRMED with the MODIFICATION that the obligation of because its Petition raises questions of fact and of law.[390] For example, the issue of
plaintiffs-appellees arising from the Loan and Revolving Credit Line and subsequent whether there is an annotation of encumbrance on the titles of the mortgaged properties is a
Conversion, Restructuring and Extension Agreement as Loan I and Loan II shall earn question of fact.[391]
interest at the legal rate of twelve percent (12%) per annum computed from September 1,
1993, until fully paid and satisfied. Denying Philippine National Bank's appeal under Rule 41, the Court of Appeals stated that:

SO ORDERED.[386] [Philippine National Bank] simply takes issue against the conclusions made by the court a
quo which pertains to the matter of whether mere entry in the Primary Entry Book, sans the
Notably, in the body of the Court of Appeals Decision, Spouses Limso and Davao Sunrise's signature of the registrar, already completes registration. It does not question the weight
obligation was computed on the basis of the original loan agreement, while in the and probative value of the fact that the signature of Atty. Patriarcha [sic] was previously
dispositive portion, the Court of Appeals cited both the original loan agreement and the entered in the records then revoked by her. What PNB seeks, therefore, is a review of the
Conversion, Restructuring and Extension Agreement. decision of the court a quo dismissing its petition, without delving into the weight of the
evidence, but on the correctness of the court a quo's conclusions based on the evidence
The general rule is that: presented before it. This is clearly a question of law.
....
Where there is a conflict between the dispositive part and the opinion of the court contained
in the text or body of the decision, the former must prevail over the latter on the theory that To the mind of this Court, PNB seeks to harp repeatedly on the issue of the court a quo's
the dispositive portion is the final order, while the opinion is merely a statement ordering failure to consider that the certificate of sale has been duly registered on February 4, 2002
nothing.[387] (Citation omitted) upon mere entry in the Primary Entry Book, even without the signature of the then register
of deeds. Though couched in different creative presentations, all the errors assigned by
To avoid confusion, we also rule that the interest rate provisions and the escalation clauses PNB point to one vital question: What completes registration? To answer it, this Court is
in the Conversion, Restructuring and Extension Agreement are nullified insofar as they not asked to calibrate the evidence presented, or gauge the truth or falsity, but to apply the
allow Philippine National Bank to unilaterally determine and increase the imposable appropriate law to the situation. This is clearly a question of law.[392] (Emphasis in the
interest rates. original)
 Philippine National Bank adds that though the annotation of a certificate of sale at the back
In Land Bank of the Philippines v. Yatco Agricultural Enterprises,[393] this court; of the certificates of title is immaterial in the perfection of registration, the evidence shows
discussed the difference between questions of law and questions of fact: that the Certificate of Sale was annotated.[398]

As a general rule, the Court's jurisdiction in a Rule 45 petition is limited to the review of Philippine National Bank alleges that registration was completed because Atty. Patriarca,
pure questions of law. A question of law arises when the doubt or difference exists as to the Register of Deeds at that time, affixed her signature but would later erase it.[399]
what the law is on a certain state of facts. Negatively put, Rule 45 does not allow the
review of questions of fact. A question of fact exists when the doubt or difference arises as Philippine National Bank cites Atty. Cruzabra's Comment, which alleges that the Sheriffs
to the truth or falsity of the alleged facts. Provisional Certificate of Sale and other documents relative to the sale were registered in
the Primary Entry Book of the Registry of Deeds of Davao City.[400] The Comment also
The test in determining whether a question is one of law or of fact is "whether the appellate states that:
court can determine the issue raised without reviewing or evaluating the evidence, in which
case, it is a question of law[.]" Any question that invites calibration of the whole evidence, 3. The Sheriffs Provisional Certificate of Sale was annotated at the back of the
as well as their relation to each other and to the whole, is a question of fact and thus aforementioned titles but it does not bear the signature of the former Registrar of Deeds.
proscribed in a Rule 45 petition.[394] (Citations omitted) Noted however is that the portion below the annotation of the Provisional Sheriffs [sic]
Certificate of Sale there appears to be erasures ("snowpake"), and [Atty. Cruzabra] is not in
Based on the foregoing, there was no error on the part of the Court of Appeals when it a position to conclude as to the circumstances [relative to said erasures], for lack of
dismissed Philippine National Bank's Petition for being the wrong remedy. Indeed, personal knowledge as to what transpired at that time.[401] (Citation omitted)
Philippine National Bank was not questioning the probative value of the evidence. Instead,
it was questioning the conclusion of the trial court that registration had not been perfected Philippine National Bank also cites the Decision in Administrative Case No. 02-13 dated
based on the evidence presented. January 12, 2005, which was the case against Atty. Patriarca for Grave Misconduct and
Conduct Unbecoming of a Public Official. In the Decision, the Land Registration Authority
V found that:

The registration of the Sheriffs Provisional Certificate of Sale was completed. Respondent herein likewise admits that she finally signed the PNB transaction annotated on
the subject titles when she was informed that the motion for reconsideration was denied by
Philippine National Bank argues that the registration was completed, and restates the this Authority, but she subsequently erased her signature when she subsequently found out
doctrine in National Housing Authority v. Basa, Jr., et al.:[395] that an appeal was filed by the Limso spouses.
....
Once the Certificate of Sale is entered in the Primary Book of Entry of the Registry of
Deeds with the registrant having paid all the required fees and accomplished all that is The registration of these documents became complete when respondent affixed her
required of him under the law to cause registration, the registration is complete.[396] signature below these annotations. Whatever information belatedly gathered thereafter
relative to the circumstances as to the registrability of these documents, respondent can not
Philippine National Bank further argues that "[t]he records of all the transactions are unilaterally take judicial notice thereof and proceed to lift at her whims and caprices what
recorded in the Primary Entry Book and the annotation on the titles of the transaction do has already been officially in force and effective, by erasing thereon her signature.[402]
not control registration. It is the recording in the Primary Entry Book which controls
registration."[397] In addition, Philippine National Bank argues that the erasure of Atty. Patriarca's signature
using correction fluid could not have revoked, cancelled, or annulled the registration since
under Section 108 of Presidential Decree 1529, only a court order can revoke registration.
[403]
 Further, Philippine National Bank's argument that "entry ... in the Primary Entry Book is
Philippine National Bank alleges that it has complied with the requirements under Section equivalent to registration"[420] is not in accordance with Section 56[421] of Presidential
7 of Act No. 3135 and Section 47 of Republic Act No. 8791.[404] Thus, it is entitled to a Decree No. 1529.[422] Moreover, "[t]he signature of the Register of Deeds is crucial to the
writ of possession.[405] completeness of the registration process."[423]

The Office of the Solicitor General filed its Comment,[406] quoting the dispositive portion Spouses Limso and Davao Sunrise posit that Philippine National Bank admitted that the
of the Land Registration Authority's Consulta No. 3405 dated May 21, 2002:[407] Certificate of Sale is not registered in various hearings. These admissions are judicial
admissions that should be binding on Philippine National Bank.[425]
WHEREFORE, in view of the foregoing, the Sheriff's Provisional Certificate of Sale dated
February 04, 2002 is registerable on TCT Nos. T-147820, T-147386, and T-247012, Spouses Limso and Davao Sunrise allege that during the oral arguments held on March 19,
provided all other registration requirements are complied with.[408] (Emphasis supplied) 2003 at the Court of Appeals in CA G.R. SP No. 71527, counsel for Philippine National
Bank stated:[426]
The Office of the Solicitor General also quotes the dispositive portion of the Land
Registration Authority's Resolution in the Motion for Reconsideration:[409] ATTY. [BENILDA A.] TEJADA:

WHEREFORE, in view of the foregoing[J the Sheriff's Provisional Certificate of Sale Yes, we can show the documents which we are going to file your Honors.
dated February 4, 2002 is registrable on TCT Nos. T-147820, T-147821, T-147386 and T-
247012, provided all other registration requirements are complied with.[410] (Emphasis We would like to state also your Honors the fact of why no registration was ever made in
supplied) this case. Counsel forgot to mention that the fact of no registration is simply because the
Register of Deeds refused to register our Certificate of Sale. We have a pending case
The Office of the Solicitor General then cites National Housing Authority and Autocorp against them Sir before the LRA and before the Ombudsman fore [sic] refusal to register
Group and Autographies, Inc. v. Court of Appeals[411] and discusses that when all the our Certificate of Sale. Now, we have filed this case because inspite [sic] of the fact the
requirements for registration of annotation has been complied with, it is ministerial upon Register of Deeds addressed a consulta to the Land Registration Authority on the registerity
the Register of Deeds to register the annotation.[412] The Register of Deeds is not of the Certificate of Sale your Honors [,] [i]t was at their instance that there was a consulta.
authorized "to make an appraisal of proofs outside of the documents sought to be
registered."[413] And then, the Land Registration Authority has already rendered its opinion that the
document is registrable. Despite that your Honors, the document has never been registered.
For the Office of the Solicitor General, the Register of Deeds' refusal to affix the annotation So that was the subject of our case against them. We do not understand the intransigencies
on the foreclosed properties' titles "should not preclude the completion of the registration of we do not understand the refusal.[427]
any applicant who has complied with the requirements of the law to register its right or
interest in registered lands."[414] In addition, the Court of Appeals correctly dismissed Philippine National Bank's appeal
because the issue raised involved a question of law, specifically "whether or not mere entry
Spouses Limso and Davao Sunrise, as intervenors-oppositors, filed a Memorandum.[415] in the Primary Entry Book is considered as registration of the subject Certificate of
They cite Section 117[416] of Presidential Decree No. 1529[417] and argue that Sale."[428]
registration of the Certificate of Sale in the Primary Entry Book is a preliminary step in
registration.[418] Since Philippine National Bank withdrew the documents it submitted to Section 56 of Presidential Decree No. 1529 states:
the Register of Deeds of Davao City, the Sheriff's Provisional Certificate of Sale was not
registered.[419] SECTION 56. Primary Entry Book; Fees; Certified Copies. — Each Register of Deeds
shall keep a primary entry book in which, upon payment of the entry fee, he shall enter, in
the order of their reception, all instruments including copies of writs and processes filed
with him relating to registered land. He shall, as a preliminary process in registration, note Based on the records of this case, the Sheriffs Certificate of Sale filed by Philippine
in such book the date, hour and minute of reception of all instruments, in the order in which National Bank was already recorded in the Primary Entry Book.
they were received. They shall be regarded as registered from the time so noted, and the
memorandum of each instrument, when made on the certificate of title to which it refers, The refusal of the Register of Deeds to annotate the registration on the titles of the
shall bear the same date: Provided, that the national government as well as the provincial properties should not affect Philippine National Bank's right to possess the properties.
and city governments shall be exempt from the payment of such fees in advance in order to
be entitled to entry and registration. (Emphasis supplied) As to the argument that Philippine National Bank admitted in open court that the Certificate
of Sale was not registered, it is evident from Spouses Limso and Davao Sunrise's
In this case, Philippine National Bank filed the Sheriffs Provisional Certificate of Sale, Memorandum that Philippine National Bank immediately explained that the non-
which was duly approved by the Executive Judge, before the Registry of Deeds of Davao registration was due to the Register of Deeds' refusal. Thus, the alleged non-registration
City. Entries were made in the Primary Entry Book. Hence, the Sheriffs Provisional was not due to Philippine National Bank's fault.
Certificate of Sale should be considered registered.
It appears on record that Philippine National Bank already complied with the requirements
Autocorp Group and Autographies, Inc. involved an extrajudicial foreclosure of mortgaged for registration. Thus, there was no reason for the Register of Deeds to persistently refuse
property and the registration of a Sheriffs Certificate of Sale. Autocorp sought the issuance the registration of the Certificate of Sale.
of a writ of injunction "to prevent the register of deeds from registering the subject
certificate of sale[.]"[429] At any rate, the Land Registration Authority stated in its Resolution in Administrative Case
No. 02-13 that Atty. Patriarca herself admitted that she already affixed her signature on the
This court explained that a Sheriffs Certificate of Sale is an involuntary instrument and that annotation at the back of the certificate of titles, and that she subsequently erased her
a writ of injunction will no longer lie because of the following reasons: signature.[431] This finding of fact in the administrative case supports the argument of
Philippine National Bank and the opinion of the Office of the Solicitor General that the
[F]or the registration of an involuntary instrument, the law does not require the presentation Certificate of Sale should be considered registered.
of the owner's duplicate certificate of title and considers the annotation of such instrument
upon the entry book, as sufficient to affect the real estate to which it relates. With regard to the issue of whether Philippine National Bank is entitled to a writ of
... possession, the trial court in Other Case No. 124-2002 denied the application for the writ of
.... possession and explained:

It is a ministerial duty on the part of the Register of Deeds to annotate the instrument on the Portion of Sec. 47 of RANo. 8791 is quoted:
certificate of sale after a valid entry in the primary entry book. P.D. No. 1524 provides: xxx the purchaser at the auction sale concerned whether in a judicial or extra-judicial
SEC. 63. Foreclosure of Mortgage. — x x x foreclosure shall have the right to enter upon and take possession of such property
immediately after the date of the confirmation of the auction sale and administer the same
(b) If the mortgage was foreclosed extrajudicially, a certificate of sale executed by the in accordance with law xxx.
officer who conducted the sale shall be filed with the Register of Deeds who shall make a From the quoted provision, one can readily conclude that before the sale is confirmed, it is
brief memorandum thereof on the certificate of title. not considered final or perfected to entitle the purchaser at the auction sale to the writ of
possession as a matter of right....
In fine, petitioner's prayer for the issuance of a writ of injunction, to prevent the register of
deeds from registering the subject certificate of sale, had been rendered moot and academic In extra-judicial foreclosure, there is technically no confirmation of the auction sale in the
by the valid entry of the instrument in the primary entry book. Such entry is equivalent to manner provided for by Sec. 7 of Rule 68. The process though involves an application,
registration.[430] (Emphasis supplied, citation omitted) preparation of the notice of extra-judicial sale, the extra-judicial foreclosure sale, issuance
of the certificate of sale, approval of the Executive Judge or in the latter's absence, the
Vice-Executive Judge and the registration of the certificate of sale with the Register of given due course only upon the filing by the petitioner of a bond in an amount fixed by the
Deeds. court conditioned that he will pay all the damages which the bank may suffer by the
enjoining or the restraint of the foreclosure proceeding.
While it may be true that as found by the CA in the case earlier cited that DSIDC had only
until January 24, 2001 to redeem its properties and that the registration of the certificate of Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an
foreclosure sale is no longer relevant in the reckoning of the redemption period, for extrajudicial foreclosure, shall have the right to redeem the property in accordance with this
purposes of the issuance of the writ of possession, petitioner to this Court's belief should provision until, but not after, the registration of the certificate of foreclosure sale with the
complete the entire process in extra-judicial foreclosure. Otherwise the sale may not be applicable Register of Deeds which in no case shall be more than three (3) months after
considered perfected and the application for writ of possession may be denied. foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure
sale prior to the effectivity of this Act shall retain their redemption rights until their
The records disclose that contrary to petitioner's claim, the Certificate of Sale covering the expiration. (Emphasis supplied)
subject properties has not been registered with the Registry of Deeds of Davao City as the
Court finds no annotation thereof. As such, the sale is not considered perfected to entitle Section 7 of Act No. 3135 provides:
petitioner to the writ of possession as a matter of right.
SECTION 7. In any sale made under the provisions of this Act, the purchaser may petition
Accordingly, for reason stated, the petition is DISMISSED. With the dismissal of the the Court of First Instance of the province or place where the property or any part thereof is
petition, PNB's Motion for Reception and Admission of PNB's Ex-parte Testimonial and situated, to give him possession thereof during the redemption period, furnishing bond in
Documentary Evidence is DENIED. an amount equivalent to the use of the property for a period of twelve months, to indemnify
the debtor in case it be shown that the sale was made without violating the mortgage or
SO ORDERED.[432] without complying with the requirements of this Act. Such petition shall be made under
oath and filed in form of an ex parte motion in the registration or cadastral proceedings if
However, Philippine National Bank is applying for the writ of possession on the ground the property is registered, or in special proceedings in the case of property registered under
that it is the winning bidder during the auction sale, and not because it consolidated titles in the Mortgage Law or under section one hundred and ninety-four of the Administrative
its name. As such, the applicable provisions of law are Section 47 of Republic Act No. Code, or of any other real property encumbered with a mortgage duly registered in the
8791[433] and Section 7 of Act No. 3135.[434] office of any register of deeds in accordance with any existing law, and in each case the
clerk of the court shall, upon the filing of such petition, collect the fees specified in
Section 47 of Republic Act No. 8791 provides: paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred and
ninety-six, as amended by Act Numbered Twenty-eight hundred and sixty-six, and the
SECTION 47. Foreclosure of Real Estate Mortgage. — In the event of foreclosure, whether court shall, upon approval of the bond, order that a writ of possession issue, addressed to
judicially or extrajudicially, of any mortgage on real estate which is security for any loan or the sheriff of the province in which the property is situated, who shall execute said order
other credit accommodation granted, the mortgagor or debtor whose real property has been immediately.
sold for the full or partial payment of his obligation shall have the right within one year
after the sale of the real estate, to redeem the property by paying the amount due under the The rule under Section 7 of Act No. 3135 was restated in Nagtalon v. United Coconut
mortgage deed, with interest thereon at the rate specified in the mortgage, and all the costs Planters Bank:[435]
and expenses incurred by the bank or institution from the sale and custody of said property
less the income derived therefrom. However, the purchaser at the auction sale concerned During the one-year redemption period, as contemplated by Section 7 of the above-
whether in a judicial or extrajudicial foreclosure shall have the right to enter upon and take mentioned law, a purchaser may apply for a writ of possession by filing an ex parte motion
possession of such property immediately after the date of the confirmation of the auction under oath in the registration or cadastral proceedings if the property is registered, or in
sale and administer the same in accordance with law. Any petition in court to enjoin or special proceedings in case the property is registered under the Mortgage Law. In this case,
restrain the conduct of foreclosure proceedings instituted pursuant to this provision shall be a bond is required before the court may issue a writ of possession.[436]
 these acquired assets. It must be underscored that the General Banking Law of 2000,
On the other hand, a writ of possession may be issued as a matter of right when the title has crafted in the aftermath of the 1997 Southeast Asian financial crisis, sought to reform the
been consolidated in the buyer's name due to nonredemption by the mortgagor. Under this General Banking Act of 1949 by fashioning a legal framework for maintaining a safe and
situation, the basis for the writ of possession is ownership of the property.[437] sound banking system. In this context, the amendment introduced by Section 47 embodied
one of such safe and sound practices aimed at ensuring the solvency and liquidity of our
The Sheriffs Provisional Certificate of Sale should be deemed registered. However, banks.[442] (Citation omitted)
Philippine National Bank must still file a bond before the writ of possession may be issued.
To grant a longer period of redemption on the ground that a co-debtor is a natural person
VI defeats the purpose of Republic Act No. 8791. In addition, the real properties mortgaged by
Davao Sunrise appear to be used for commercial purposes.[443]
To fully dispose of all the issues in these consolidated cases, this court shall also rule on
one of the issues raised in G.R. No. 158622. WHEREFORE, the Petition for Review on Certiorari in G.R. No. 173194 is DENIED.

In G.R. No. 158622, Spouses Limso and Davao Sunrise allege that the Sheriffs Provisional The Petition docketed as G.R. No. 196958 is PARTIALLY GRANTED, while the Petition
Certificate of Sale does not state the appropriate redemption period; thus, they filed a docketed as G.R. No. 197120 is DENIED. The Decision of the Court of Appeals in CA-
Petition for Declaratory Relief, which was docketed as Civil Case No. 29,036-2002.[438] G.R. CV No. 79732-MIN is AFFIRMED with MODIFICATION.

In the loan agreement, natural and juridical persons are co-debtors, while the properties The Conversion, Restructuring and Extension Agreement executed in 1999 is deemed to
mortgaged to secure the loan are owned by Davao Sunrise. have novated the Credit Agreement and Loan Agreement executed in 1993. Thus, the
principal loan obligation of Davao Sunrise Investment and Development Corporation and
Act No. 3135 provides that the period of redemption is one (1) year after the sale.[439] On Spouses Robert Alan and Nancy Limso shall be computed on the basis of the amounts
the other hand, Republic Act No. 8791 provides a shorter period of three (3) months to indicated in the Conversion, Restructuring and Extension Agreement.
redeem in cases involving juridical persons.[440]
Interest on the principal loan obligation shall be at the rate of 12% per annum and
We rule that the period of redemption for this case should be not more than three (3) computed from January 28, 1999, the date of the execution of the Conversion,
months in accordance with Section 47 of Republic Act No. 8791. The mortgaged properties Restructuring and Extension Agreement. Interest rate on the conventional interest shall be
are all owned by Davao Sunrise. Section 47 of Republic Act No. 8791 states: "the at the rate of 12% per annum from August 21, 2000, the date of judicial demand, to June
mortgagor or debtor whose real property has been sold" and "juridical persons whose 30, 2013. From July 1, 2013 until full satisfaction, the interest rate on the conventional
property is being sold[.]" Clearly, the law itself provides that the right to redeem belongs to interest shall be computed at 6% per annum in view of this court's ruling in Nacar v.
the owner of the property mortgaged. As the mortgaged properties all belong to Davao Gallery Frames.[444]
Sunrise, the shorter period of three (3) months is the applicable redemption period.
This case is ordered REMANDED to Branch 17 of the Regional Trial Court of Davao City
The policy behind the shorter redemption period was explained in Goldenway for the computation of the total amount of Davao Sunrise Investment and Development
Merchandising Corporation v. Equitable PCI Bank:[441] Corporation and Spouses Robert Alan and Nancy Limso's remaining obligation.

The difference in the treatment of juridical persons and natural persons was based on the The Petition docketed as G.R. No. 205463 is PARTIALLY GRANTED. The Sheriffs
nature of the properties foreclosed—whether these are used as residence, for which the Provisional Certificate of Sale is deemed to have been registered. In view of the facts of
more liberal one-year redemption period is retained, or used for industrial or commercial this case, the applicable period of redemption shall be three (3) months as provided under
purposes, in which case a shorter term is deemed necessary to reduce the period of Republic Act No. 8791.
uncertainty in the ownership of property and enable mortgagee-banks to dispose sooner of
In case the final computation shows that Davao Sunrise Investment and Development
Corporation and Spouses Robert Alan and Nancy Limso overpaid Philippine National
Bank, Philippine National Bank must return the excess amount.

The writ of possession prayed for by Philippine National Bank may only be issued after all
the requirements for the issuance of a writ of possession are complied with.

SO ORDERED.
DIVISION donee-lessors, made a counter-proposal.[4] ALLIED however rejected the counter-
[ GR No. 124290, Jan 16, 1998 ] proposal and insisted on Provision No. 1 of their lease contract.
ALLIED BANKING CORPORATION v. CA +
DECISION When the lease contract expired in 1992 private respondents demanded that ALLIED
348 Phil. 382 vacate the premises. But the latter asserted its sole option to renew the lease and enclosed
in its reply letter a cashier's check in the amount of P68,400.00 representing the advance
BELLOSILLO, J .: rental payments for six (6) months taking into account the escalation clause. Private
respondents however returned the check to ALLIED, prompting the latter to consign the
There are two (2) main issues in this petition for review: namely, (a) whether a stipulation amount in court.
in a contract of lease to the effect that the contract "may be renewed for a like term at the
option of the lessee" is void for being potestative or violative of the principle of mutuality An action for ejectment was commenced before the Metropolitan Trial Court of Quezon
of contracts under Art. 1308 of the Civil Code and, corollarily, what is the meaning of the City. After trial, the MeTC-Br. 33 declared Provision No. 1 of the lease contract void for
clause "may be renewed for a like term at the option of the lessee;" and, (b) whether a being violative of Art. 1308 of the Civil Code thus -
lessee has the legal personality to assail the validity of a deed of donation executed by the x x x but such provision [in the lease contract], to the mind of the Court, does not add luster
lessor over the leased premises. to defendant's cause nor constitutes as an unbridled or unlimited license or sanctuary of the
defendant to perpetuate its occupancy on the subject property. The basic intention of the
Spouses Filemon Tanqueco and Lucia Domingo-Tanqueco owned a 512-square meter lot law in any contract is mutuality and equality. In other words, the validity of a contract
located at No. 2 Sarmiento Street corner Quirino Highway, Novaliches, Quezon City, cannot be left at (sic) the will of one of the contracting parties. Otherwise, it infringes
covered by TCT No. 136779 in their name. On 30 June 1978 they leased the property to (upon) Article 1308 of the New Civil Code, which provides: The contract must bind both
petitioner Allied Banking Corporation (ALLIED) for a monthly rental of P1,000.00 for the contracting parties; its validity or compliance cannot be left to the will of one of them x x x
first three (3) years, adjustable by 25% every three (3) years thereafter.[1] The lease x Using the principle laid down in the case of Garcia v. Legarda as cornerstone, it is
contract specifically states in its Provision No. 1 that "the term of this lease shall be evident that the renewal of the lease in this case cannot be left at the sole option or will of
fourteen (14) years commencing from April 1, 1978 and may be renewed for a like term at the defendant notwithstanding provision no. 1 of their expired contract. For that would
the option of the lessee." amount to a situation where the continuance and effectivity of a contract will depend only
upon the sole will or power of the lessee, which is repugnant to the very spirit envisioned
Pursuant to their lease agreement, ALLIED introduced an improvement on the property under Article 1308 of the New Civil Code x x x x the theory adopted by this Court in the
consisting of a concrete building with a floor area of 340-square meters which it used as a case at bar finds ample affirmation from the principle echoed by the Supreme Court in the
branch office. As stipulated, the ownership of the building would be transferred to the case of Lao Lim v. CA, 191 SCRA 150, 154, 155.
lessors upon the expiration of the original term of the lease. On appeal to the Regional Trial Court, and later to the Court of Appeals, the assailed
decision was affirmed.[5]
Sometime in February 1988 the Tanqueco spouses executed a deed of donation over the
subject property in favor of their four (4) children, namely, private respondents herein On 20 February 1993, while the case was pending in the Court of Appeals, ALLIED
Oscar D. Tanqueco, Lucia Tanqueco-Matias, Ruben D. Tanqueco and Nestor D. Tanqueco, vacated the leased premises by reason of the controversy.[6]
who accepted the donation in the same public instrument.
ALLIED insists before us that Provision No. 1 of the lease contract was mutually agreed
On 13 February 1991, a year before the expiration of the contract of lease, the Tanquecos upon hence valid and binding on both parties, and the exercise by petitioner of its option to
notified petitioner ALLIED that they were no longer interested in renewing the lease.[2] renew the contract was part of their agreement and in pursuance thereof.
ALLIED replied that it was exercising its option to renew their lease under the same terms
with additional proposals.[3] Respondent Ruben D. Tanqueco, acting in behalf of all the We agree with petitioner. Article 1308 of the Civil Code expresses what is known in law as
the principle of mutuality of contracts. It provides that "the contract must bind both the
contracting parties; its validity or compliance cannot be left to the will of one of them." Likewise, reliance by the trial court on the 1967 case of Garcia v. Rita Legarda, Inc.,[9] is
This binding effect of a contract on both parties is based on the principle that the misplaced. In that case, what was involved was a contract to sell involving residential lots,
obligations arising from contracts have the force of law between the contracting parties, which gave the vendor the right to declare the contract cancelled and of no effect upon the
and there must be mutuality between them based essentially on their equality under which failure of the vendee to fulfill any of the conditions therein set forth. In the instant case, we
it is repugnant to have one party bound by the contract while leaving the other free are dealing with a contract of lease which gives the lessee the right to renew the same.
therefrom. The ultimate purpose is to render void a contract containing a condition which
makes its fulfillment dependent solely upon the uncontrolled will of one of the contracting With respect to the meaning of the clause "may be renewed for a like term at the option of
parties. the lessee," we sustain petitioner's contention that its exercise of the option resulted in the
automatic extension of the contract of lease under the same terms and conditions. The
An express agreement which gives the lessee the sole option to renew the lease is frequent subject contract simply provides that "the term of this lease shall be fourteen (14) years and
and subject to statutory restrictions, valid and binding on the parties. This option, which is may be renewed for a like term at the option of the lessee." As we see it, the only term on
provided in the same lease agreement, is fundamentally part of the consideration in the which there has been a clear agreement is the period of the new contract, i.e., fourteen (14)
contract and is no different from any other provision of the lease carrying an undertaking years, which is evident from the clause "may be renewed for a like term at the option of the
on the part of the lessor to act conditioned on the performance by the lessee. It is a purely lessee," the phrase "for a like term" referring to the period. It is silent as to what the specific
executory contract and at most confers a right to obtain a renewal if there is compliance terms and conditions of the renewed lease shall be. Shall it be the same terms and
with the conditions on which the right is made to depend. The right of renewal constitutes a conditions as in the original contract, or shall it be under the terms and conditions as may
part of the lessee's interest in the land and forms a substantial and integral part of the be mutually agreed upon by the parties after the expiration of the existing lease?
agreement.
In Ledesma v. Javellana[10] this Court was confronted with a similar problem. In that case
The fact that such option is binding only on the lessor and can be exercised only by the the lessee was given the sole option to renew the lease, but the contract failed to specify the
lessee does not render it void for lack of mutuality. After all, the lessor is free to give or not terms and conditions that would govern the new contract. When the lease expired, the
to give the option to the lessee. And while the lessee has a right to elect whether to continue lessee demanded an extension under the same terms and conditions. The lessor expressed
with the lease or not, once he exercises his option to continue and the lessor accepts, both conformity to the renewal of the contract but refused to accede to the claim of the lessee
parties are thereafter bound by the new lease agreement. Their rights and obligations that the renewal should be under the same terms and conditions as the original contract. In
become mutually fixed, and the lessee is entitled to retain possession of the property for the sustaining the lessee, this Court made the following pronouncement:
duration of the new lease, and the lessor may hold him liable for the rent therefor. The x x x in the case of Hicks v. Manila Hotel Company, a similar issue was resolved by this
lessee cannot thereafter escape liability even if he should subsequently decide to abandon Court. It was held that 'such a clause relates to the very contract in which it is placed, and
the premises. Mutuality obtains in such a contract and equality exists between the lessor does not permit the defendant upon the renewal of the contract in which the clause is found,
and the lessee since they remain with the same faculties in respect to fulfillment.[7] to insist upon different terms than those embraced in the contract to be renewed;' and that 'a
stipulation to renew always relates to the contract in which it is found and the rights granted
The case of Lao Lim v. Court of Appeals[8] relied upon by the trial court is not applicable thereunder, unless it expressly provides for variations in the terms of the contract to be
here. In that case, the stipulation in the disputed compromise agreement was to the effect renewed.'
that the lessee would be allowed to stay in the premises "as long as he needs it and can pay
the rents." In the present case, the questioned provision states that the lease "may be The same principle is upheld in American Law regarding the renewal of lease contracts. In
renewed for a like term at the option of the lessee." The lessor is bound by the option he 50 Am. Jur. 2d, Sec. 1159, at p. 45, we find the following citations: 'The rule is well-
has conceded to the lessee. The lessee likewise becomes bound only when he exercises his established that a general covenant to renew or extend a lease which makes no provision as
option and the lessor cannot thereafter be excused from performing his part of the to the terms of a renewal or extension implies a renewal or extension upon the same terms
agreement. as provided in the original lease.'
In the lease contract under consideration, there is no provision to indicate that the renewal Finally, ALLIED cannot assail the validity of the deed of donation, not being a party
will be subject to new terms and conditions that the parties may yet agree upon. It is to thereto. A person who is not principally or subsidiarily bound has no legal capacity to
renewal provisions of lease contracts of the kind presently considered that the principles challenge the validity of the contract.[12] He must first have an interest in it. "Interest"
stated above squarely apply. We do not agree with the contention of the appellants that if it within the meaning of the term means material interest, an interest to be affected by the
was intended by the parties to renew the contract under the same terms and conditions deed, as distinguished from a mere incidental interest. Hence, a person who is not a party to
stipulated in the contract of lease, such should have expressly so stated in the contract a contract and for whose benefit it was not expressly made cannot maintain an action on it,
itself. The same argument could easily be interposed by the appellee who could likewise even if the contract, if performed by the parties thereto would incidentally affect him,[13]
contend that if the intention was to renew the contract of lease under such new terms and except when he is prejudiced in his rights with respect to one of the contracting parties and
conditions that the parties may agree upon, the contract should have so specified. Between can show the detriment which could positively result to him from the contract in which he
the two assertions, there is more logic in the latter. had no intervention.[14] We find none in the instant case.

The settled rule is that in case of uncertainty as to the meaning of a provision granting WHEREFORE, the Decision of the Court of Appeals is REVERSED and SET ASIDE.
extension to a contract of lease, the tenant is the one favored and not the landlord. 'As a Considering that petitioner ALLIED BANKING CORPORATION already vacated the
general rule, in construing provisions relating to renewals or extensions, where there is any leased premises as of 20 February 1993, the renewed lease contract is deemed terminated
uncertainty, the tenant is favored, and not the landlord, because the latter, having the power as of that date. However, petitioner is required to pay rentals to respondent lessors at the
of stipulating in his own favor, has neglected to do so; and also upon the principle that rate provided in their existing contract, subject to computation in view of the consignment
every man's grant is to be taken most strongly against himself (50 Am Jur. 2d, Sec. 1162, p. in court of P68,400.00 by petitioner, and of such other amounts it may have deposited or
48; see also 51 C.J.S. 599).' advanced in connection with the lease.
Besides, if we were to adopt the contrary theory that the terms and conditions to be
embodied in the renewed contract were still subject to mutual agreement by and between SO ORDERED.
the parties, then the option - which is an integral part of the consideration for the contract -
would be rendered worthless. For then, the lessor could easily defeat the lessee's right of
renewal by simply imposing unreasonable and onerous conditions to prevent the parties
from reaching an agreement, as in the case at bar. As in a statute no word, clause, sentence,
provision or part of a contract shall be considered surplusage or superfluous, meaningless,
void, insignificant or nugatory, if that can be reasonably avoided. To this end, a
construction which will render every word operative is to be preferred over that which
would make some words idle and nugatory.[11]

Fortunately for respondent lessors, ALLIED vacated the premises on 20 February 1993
indicating its abandonment of whatever rights it had under the renewal clause.
Consequently, what remains to be done is for ALLIED to pay rentals for the continued use
of the premises until it vacated the same, computed from the expiration of the original term
of the contract on 31 March 1992 to the time it actually left the premises on 20 February
1993, deducting therefrom the amount of P68,400.00 consigned in court by ALLIED and
any other amount which it may have deposited or advanced in conection with the lease.
Since the old lease contract was deemed renewed under the same terms and conditions
upon the exercise by ALLIED of its option, the basis of the computation of rentals should
be the rental rate provided for in the existing contract.
DIVISION effected due to the occurrence of circumstances which were beyond the control and
[ GR NO. 164349, Jan 31, 2006 ] foresight of RCPI. Among others, during the transmission process, the radio link
RADIO COMMUNICATIONS OF PHILIPPINES v. ALFONSO VERCHEZ + connecting the points of communication involved encountered radio noise and interferences
DECISION such that subject telegram did not initially registered (sic) in the receiving teleprinter
516 Phil. 725 machine.

CARPIO MORALES, J.: Our internal message monitoring led to the discovery of the above. Thus, a repeat
transmission was made and subsequent delivery was effected. (Underscoring supplied)
On January 21, 1991, Editha Hebron Verchez (Editha) was confined at the Sorsogon Verchez's lawyer thereupon wrote RCPI's manager Fabian, by letter of July 23, 1991,[7]
Provincial Hospital due to an ailment. On even date, her daughter Grace Verchez-Infante requesting for a conference on a specified date and time, but no representative of RCPI
(Grace) immediately hied to the Sorsogon Branch of the Radio Communications of the showed up at said date and time.
Philippines, Inc. (RCPI) whose services she engaged to send a telegram to her sister
Zenaida Verchez-Catibog (Zenaida) who was residing at 18 Legal St., GSIS Village, On April 17, 1992, Editha died.
Quezon City[1] reading: "Send check money Mommy hospital." For RCPI's services,
Grace paid P10.50[2] for which she was issued a receipt.[3] On September 8, 1993, Verchez, along with his daughters Grace and Zenaida and their
respective spouses, filed a complaint against RCPI before the Regional Trial Court (RTC)
As three days after RCPI was engaged to send the telegram to Zenaida no response was of Sorsogon for damages. In their complaint, the plaintiffs alleged that, inter alia, the delay
received from her, Grace sent a letter to Zenaida, this time thru JRS Delivery Service, in delivering the telegram contributed to the early demise of the late Editha to their damage
reprimanding her for not sending any financial aid. and prejudice,[8] for which they prayed for the award of moral and exemplary damages[9]
and attorney's fees.[10]
Immediately after she received Grace's letter, Zenaida, along with her husband Fortunato
Catibog, left on January 26, 1991 for Sorsogon. On her arrival at Sorsogon, she disclaimed After its motion to dismiss the complaint for improper venue[11] was denied[12] by
having received any telegram. Branch 5 of the RTC of Sorsogon, RCPI filed its answer, alleging that except with respect
to Grace,[13] the other plaintiffs had no privity of contract with it; any delay in the sending
In the meantime, Zenaida and her husband, together with her mother Editha left for Quezon of the telegram was due to force majeure, "specifically, but not limited to, radio noise and
City on January 28, 1991 and brought Editha to the Veterans Memorial Hospital in Quezon interferences which adversely affected the transmission and/or reception of the telegraphic
City where she was confined from January 30, 1991 to March 21, 1991. message";[14] the clause in the Telegram Transmission Form signed by Grace absolved it
from liability for any damage arising from the transmission other than the refund of
The telegram was finally delivered to Zenaida 25 days later or on February 15, 1991.[4] On telegram tolls;[15] it observed due diligence in the selection and supervision of its
inquiry from RCPI why it took that long to deliver it, a messenger of RCPI replied that he employees; and at all events, any cause of action had been barred by laches.[16]
had nothing to do with the delivery thereof as it was another messenger who previously
was assigned to deliver the same but the address could not be located, hence, the telegram The trial court, observing that "although the delayed delivery of the questioned telegram
was resent on February 2, 1991, and the second messenger finally found the address on was not apparently the proximate cause of the death of Editha," ruled out the presence of
February 15, 1991. force majeure. Respecting the clause in the telegram relied upon by RCPI, the trial court
held that it partakes of the nature of a contract of adhesion.
Editha's husband Alfonso Verchez (Verchez), by letter of March 5, 1991,[5] demanded an
explanation from the manager of the Service Quality Control Department of the RCPI, Mrs. Finding that the nature of RCPI's business obligated it to dispatch the telegram to the
Lorna D. Fabian, who replied, by letter of March 13, 1991,[6] as follows: addressee at the earliest possible time but that it did not in view of the negligence of its
Our investigation on this matter disclosed that subject telegram was duly processed in employees to repair its radio transmitter and the concomitant delay in delivering the
accordance with our standard operating procedure. However, delivery was not immediately telegram on time, the trial court, upon the following provisions of the Civil Code, to wit:
Article 2176 Whoever by act or omission causes damage to another, there being at fault or
negligence, is obliged to pay for the damage done. Such fault or negligence if there is no RCPI's stand fails. It bears noting that its liability is anchored on culpa contractual or
pre-existing contractual relation between the parties, is called quasi-delict and is governed breach of contract with regard to Grace, and on tort with regard to her co-plaintiffs-herein-
by the provisions of this Chapter. co-respondents.

Article 1173 defines the fault of (sic) negligence of the obligor as the "omission of the Article 1170 of the Civil Code provides:
diligence which is required by the nature of the obligation and corresponds with the Those who in the performance of their obligations are guilty of fraud, negligence, or delay,
circumstances of the person, of the time, or the place." and those who in any manner contravene the tenor thereof, are liable for damages.
(Underscoring supplied)
In the instant case, the obligation of the defendant to deliver the telegram to the addressee Passing on this codal provision, this Court explained:
is of an urgent nature. Its essence is the early delivery of the telegram to the concerned In culpa contractual x x x the mere proof of the existence of the contract and the failure of
person. Yet, due to the negligence of its employees, the defendant failed to discharge of its its compliance justify, prima facie, a corresponding right of relief. The law, recognizing the
obligation on time making it liable for damages under Article 2176. obligatory force of contracts, will not permit a party to be set free from liability for any
kind of misperformance of the contractual undertaking or a contravention of the tenor
The negligence on the part of the employees gives rise to the presumption of negligence on thereof. A breach upon the contract confers upon the injured party a valid cause for
the part of the employer.[17] (Underscoring supplied), recovering that which may have been lost or suffered. The remedy serves to preserve the
rendered judgment against RCPI. Accordingly, it disposed: interests of the promissee that may include his "expectation interest," which is his interest
WHEREFORE, in the light of the foregoing premises, judgment is hereby rendered in favor in having the benefit of his bargain by being put in as good a position as he would have
of the plaintiffs and against the defendant, to wit: been in had the contract been performed, or his "reliance interest," which is his interest in
being reimbursed for loss caused by reliance on the contract by being put in as good a
Ordering the defendant to pay the plaintiffs the following amount: position as he would have been in had the contract not been made; or his "restitution
interest," which is his interest in having restored to him any benefit that he has conferred on
The amount of One Hundred Thousand (P100,000.00) Pesos as moral damages; the other party. Indeed, agreements can accomplish little, either for their makers or for
society, unless they are made the basis for action. The effect of every infraction is to create
The amount of Twenty Thousand (P20,000.00) Pesos as attorney's fees; and a new duty, that is, to make recompense to the one who has been injured by the failure of
another to observe his contractual obligation unless he can show extenuating
To pay the costs. circumstances, like proof of his exercise of due diligence x x x or of the attendance of
fortuitous event, to excuse him from his ensuing liability.[23] (Emphasis and underscoring
SO ORDERED.[18] supplied)
On appeal, the Court of Appeals, by Decision of February 27, 2004,[19] affirmed the trial In the case at bar, RCPI bound itself to deliver the telegram within the shortest possible
court's decision. time. It took 25 days, however, for RCPI to deliver it.

Hence, RCPI's present petition for review on certiorari, it raising the following questions: RCPI invokes force majeure, specifically, the alleged radio noise and interferences which
(1) "Is the award of moral damages proper even if the trial court found that there was no adversely affected the transmission and/or reception of the telegraphic message.
direct connection between the injury and the alleged negligent acts?"[20] and (2) "Are the Additionally, its messenger claimed he could not locate the address of Zenaida and it was
stipulations in the 'Telegram Transmission Form,' in the nature "contracts of adhesion" only on the third attempt that he was able to deliver the telegram.
(sic)? [21]
For the defense of force majeure to prosper,
RCPI insists that respondents failed to prove any causal connection between its delay in x x x it is necessary that one has committed no negligence or misconduct that may have
transmitting the telegram and Editha's death.[22] occasioned the loss. An act of God cannot be invoked to protect a person who has failed to
take steps to forestall the possible adverse consequences of such a loss. One's negligence against a Manila Bank and transmitted to Sorsogon, Sorsogon will have to be deposited in a
may have concurred with an act of God in producing damage and injury to another; bank in Sorsogon and pass thru a minimum clearing period of 5 days before it may be
nonetheless, showing that the immediate or proximate cause of the damage or injury was a encashed or withdrawn. If the transmittal of the requested check to Sorsogon took 1 day
fortuitous event would not exempt one from liability. When the effect is found to be partly private respondents could therefore still wait for 6 days before the same may be withdrawn.
the result of a person's participation whether by active intervention, neglect or failure to act Requesting a check that would take 6 days before it could be withdrawn therefore
the whole occurrence is humanized and removed from the rules applicable to acts of God. contradicts plaintiff's claim of urgency or need.[28]

xxxx At any rate, any sense of urgency of the situation was met when Grace Verchez was able to
communicate to Manila via a letter that she sent to the same addressee in Manila thru JRS.
Article 1174 of the Civil Code states that no person shall be responsible for a fortuitous [29]
event that could not be foreseen or, though foreseen, was inevitable. In other words, there
must be an exclusion of human intervention from the cause of injury or loss.[24] (Emphasis xxxx
and underscoring supplied)
Assuming arguendo that fortuitous circumstances prevented RCPI from delivering the As far as the respondent court's award for moral damages is concerned, the same has no
telegram at the soonest possible time, it should have at least informed Grace of the non- basis whatsoever since private respondent Alfonso Verchez did not accompany his late
transmission and the non-delivery so that she could have taken steps to remedy the wife when the latter went to Manila by bus. He stayed behind in Sorsogon for almost 1
situation. But it did not. There lies the fault or negligence. week before he proceeded to Manila. [30]

In an earlier case also involving RCPI, this Court held: When pressed on cross-examination, private respondent Alfonso Verchez could not give
Considering the public utility of RCPI's business and its contractual obligation to transmit any plausible reason as to the reason why he did not accompany his ailing wife to Manila.
messages, it should exercise due diligence to ascertain that messages are delivered to the [31]
persons at the given address and should provide a system whereby in cases of undelivered
messages the sender is given notice of non-delivery. Messages sent by cable or wireless xxxx
means are usually more important and urgent than those which can wait for the mail.[25]
It is also important to consider in resolving private respondents' claim for moral damages
xxxx that private respondent Grace Verchez did not accompany her ailing mother to Manila.[32]

People depend on telecommunications companies in times of deep emotional stress or xxxx

pressing financial needs. Knowing that messages about the illnesses or deaths of loved
ones, births or marriages in a family, important business transactions, and notices of It is the common reaction of a husband to be at his ailing wife's side as much as possible.
conferences or meetings as in this case, are coursed through the petitioner and similar The fact that private respondent Alfonso Verchez stayed behind in Sorsogon for almost 1
corporations, it is incumbent upon them to exercise a greater amount of care and concern week convincingly demonstrates that he himself knew that his wife was not in critical
than that shown in this case. Every reasonable effort to inform senders of the non-delivery condition.[33]
of messages should be undertaken.[26]
(Emphasis and underscoring supplied)
(Emphasis and underscoring supplied)
RCPI argues, however, against the presence of urgency in the delivery of the telegram, as
well as the basis for the award of moral damages, thus:[27] RCPI's arguments fail. For it is its breach of contract upon which its liability is, it bears
The request to send check as written in the telegraphic text negates the existence of urgency repeating, anchored. Since RCPI breached its contract, the presumption is that it was at
that private respondents' allegations that "time was of the essence" imports. A check drawn fault or negligent. It, however, failed to rebut this presumption.
 predicated on any of the instances expressed or envisioned by Article 2219 and Article
For breach of contract then, RCPI is liable to Grace for damages. 2220 of the Civil Code.[34]
Respecting the first requisite, evidence of suffering by the plaintiffs-herein respondents was
And for quasi-delict, RCPI is liable to Grace's co-respondents following Article 2176 of the correctly appreciated by the CA in this wise:
Civil Code which provides: The failure of RCPI to deliver the telegram containing the message of appellees on time,
Whoever by act or omission causes damage to another, there being fault or negligence, is disturbed their filial tranquillity. Family members blamed each other for failing to respond
obliged to pay for the damage done. Such fault or negligence, if there is no pre-existing swiftly to an emergency that involved the life of the late Mrs. Verchez, who suffered from
contractual relation between the parties, is called a quasi-delict and is governed by the diabetes.[35]
provisions of this Chapter. (Underscoring supplied) As reflected in the foregoing discussions, the second and third requisites are present.
RCPI's liability as an employer could of course be avoided if it could prove that it observed
the diligence of a good father of a family to prevent damage. Article 2180 of the Civil Code On the fourth requisite, Article 2220 of the Civil Code provides:
so provides: Willful injury to property may be a legal ground for awarding moral damages if the court
The obligation imposed by Article 2176 is demandable not only for one's own acts or should find that, under the circumstances, such damages are justly due. The same rule
omissions, but also for those of persons for whom one is responsible. applies to breaches of contract where the defendant acted fraudulently or in bad faith.
(Emphasis and underscoring supplied)
xxxx After RCPI's first attempt to deliver the telegram failed, it did not inform Grace of the non-
delivery thereof and waited for 12 days before trying to deliver it again, knowing as it
The owners and managers of an establishment or enterprise are likewise responsible for should know that time is of the essence in the delivery of telegrams. When its second long-
damages caused by their employees in the service of the branches in which the latter are delayed attempt to deliver the telegram again failed, it, again, waited for another 12 days
employed or on the occasion of their functions. before making a third attempt. Such nonchalance in performing its urgent obligation
indicates gross negligence amounting to bad faith. The fourth requisite is thus also present.
Employers shall be liable for the damages caused by their employees and household
helpers acting within the scope of their assigned tasks, even though the former are not In applying the above-quoted Article 2220, this Court has awarded moral damages in cases
engaged in any business or industry. of breach of contract where the defendant was guilty of gross negligence amounting to bad
faith, or in wanton disregard of his contractual obligation.[36]
xxxx
As for RCPI's tort-based liability, Article 2219 of the Civil Code provides:
The responsibility treated of in this article shall cease when the persons herein mentioned Moral damages may be recovered in the following and analogous cases:
prove that they observed all the diligence of a good father of a family to prevent damage.
(Underscoring supplied) xxxx
RCPI failed, however, to prove that it observed all the diligence of a good father of a
family to prevent damage. (10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
(Emphasis supplied)
Respecting the assailed award of moral damages, a determination of the presence of the Article 26 of the Civil Code, in turn, provides:
following requisites to justify the award is in order: Every person shall respect the dignity, personality, privacy and peace of mind of his
x x x firstly, evidence of besmirched reputation or physical, mental or psychological neighbors and other persons. The following and similar acts, though they may not
suffering sustained by the claimant; secondly, a culpable act or omission factually constitute a criminal offense, shall produce a cause of action for damages, prevention, and
established; thirdly, proof that the wrongful act or omission of the defendant is the other relief:
proximate cause of damages sustained by the claimant; and fourthly, that the case is
xxxx
 alternative of taking it or leaving it, completely deprived of the opportunity to bargain on
(2) Meddling with or disturbing the private life or family relations of another. (Emphasis equal footing.[39]
supplied)
RCPI's negligence in not promptly performing its obligation undoubtedly disturbed the This Court holds that the Court of Appeals' finding that the parties' contract is one of
peace of mind not only of Grace but also her co-respondents. As observed by the appellate adhesion which is void is, given the facts and circumstances of the case, thus well-taken.
court, it disrupted the "filial tranquillity" among them as they blamed each other "for failing
to respond swiftly to an emergency." The tortious acts and/or omissions complained of in WHEREFORE, the petition is DENIED, and the challenged decision of the Court of
this case are, therefore, analogous to acts mentioned under Article 26 of the Civil Code, Appeals is AFFIRMED.
which are among the instances of quasi-delict when courts may award moral damages
under Article 2219 of the Civil Code. Costs against petitioner.

In fine, the award to the plaintiffs-herein respondents of moral damages is in order, as is the SO ORDERED.
award of attorney's fees, respondents having been compelled to litigate to protect their
rights.

Clutching at straws, RCPI insists that the limited liability clause in the "Telegram
Transmission Form" is not a contract of adhesion. Thus it argues:
Neither can the Telegram Transmission Form be considered a contract of adhesion as held
by the respondent court. The said stipulations were all written in bold letters right in front
of the Telegram Transmission Form. As a matter of fact they were beside the space where
the telegram senders write their telegraphic messages. It would have been different if the
stipulations were written at the back for surely there is no way the sender will easily notice
them. The fact that the stipulations were located in a particular space where they can easily
be seen, is sufficient notice to any sender (like Grace Verchez-Infante) where she could
manifest her disapproval, leave the RCPI station and avail of the services of the other
telegram operators.[37] (Underscoring supplied)
RCPI misunderstands the nature of a contract of adhesion. Neither the readability of the
stipulations nor their physical location in the contract determines whether it is one of
adhesion.
A contract of adhesion is defined as one in which one of the parties imposes a ready-made
form of contract, which the other party may accept or reject, but which the latter cannot
modify. One party prepares the stipulation in the contract, while the other party merely
affixes his signature or his "adhesion" thereto, giving no room for negotiation and
depriving the latter of the opportunity to bargain on equal footing.[38] (Emphasis and
underscoring supplied)
While a contract of adhesion is not necessarily void and unenforceable, since it is construed
strictly against the party who drafted it or gave rise to any ambiguity therein, it is stricken
down as void and unenforceable or subversive of public policy when the weaker party is
imposed upon in dealing with the dominant bargaining party and is reduced to the
THIRD DIVISION Section 4, Rule 4, of the Revised Rules of Civil Procedure[2] allows the parties to agree
[ G.R. No. 156966, May 07, 2004 ] and stipulate in writing, before the filing of an action, on the exclusive venue of any
PILIPINO TELEPHONE CORPORATION, petitioner, vs. DELFINO TECSON, litigation between them. Such an agreement would be valid and binding provided that the
respondent. stipulation on the chosen venue is exclusive in nature or in intent, that it is expressed in
writing by the parties thereto, and that it is entered into before the filing of the suit. The
DECISION provision contained in paragraph 22 of the "Mobile Service Agreement," a standard
VITUG, J.: contract made out by petitioner PILTEL to its subscribers, apparently accepted and signed
by respondent, states that the venue of all suits arising from the agreement, or any other suit
The facts, by and large, are undisputed. directly or indirectly arising from the relationship between PILTEL and subscriber, "shall
be in the proper courts of Makati, Metro Manila." The added stipulation that the subscriber
On various dates in 1996, Delfino C. Tecson applied for six (6) cellular phone subscriptions "expressly waives any other venue"[3] should indicate, clearly enough, the intent of the
with petitioner Pilipino Telephone Corporation (PILTEL), a company engaged in the parties to consider the venue stipulation as being preclusive in character.
telecommunications business, which applications were each approved and covered,
respectively, by six mobiline service agreements. The appellate court, however, would appear to anchor its decision on the thesis that the
subscription agreement, being a mere contract of adhesion, does not bind respondent on the
On 05 April 2001, respondent filed with the Regional Trial Court of Iligan City, Lanao Del venue stipulation.
Norte, a complaint against petitioner for a "Sum of Money and Damages." Petitioner
moved for the dismissal of the complaint on the ground of improper venue, citing a Indeed, the contract herein involved is a contract of adhesion. But such an agreement is not
common provision in the mobiline service agreements to the effect that - per se inefficacious. The rule instead is that, should there be ambiguities in a contract of
"Venue of all suits arising from this Agreement or any other suit directly or indirectly adhesion, such ambiguities are to be construed against the party that prepared it. If,
arising from the relationship between PILTEL and subscriber shall be in the proper courts however, the stipulations are not obscure, but are clear and leave no doubt on the intention
of Makati, Metro Manila. Subscriber hereby expressly waives any other venues."[1] of the parties, the literal meaning of its stipulations must be held controlling.[4]
In an order, dated 15 August 2001, the Regional Trial Court of Iligan City, Lanao del
Norte, denied petitioner's motion to dismiss and required it to file an answer within 15 days A contract of adhesion is just as binding as ordinary contracts. It is true that this Court has,
from receipt thereof. on occasion, struck down such contracts as being assailable when the weaker party is left
with no choice by the dominant bargaining party and is thus completely deprived of an
Petitioner PILTEL filed a motion for the reconsideration, through registered mail, of the opportunity to bargain effectively. Nevertheless, contracts of adhesion are not prohibited
order of the trial court. In its subsequent order, dated 08 October 2001, the trial court even as the courts remain careful in scrutinizing the factual circumstances underlying each
denied the motion for reconsideration. case to determine the respective claims of contending parties on their efficacy.

Petitioner filed a petition for certiorari under Rule 65 of the Revised Rules of Civil In the case at bar, respondent secured six (6) subscription contracts for cellular phones on
Procedure before the Court of Appeals. various dates. It would be difficult to assume that, during each of those times, respondent
had no sufficient opportunity to read and go over the terms and conditions embodied in the
The Court of Appeals, in its decision of 30 April 2002, saw no merit in the petition and agreements. Respondent continued, in fact, to acquire in the pursuit of his business
affirmed the assailed orders of the trial court. Petitioner moved for a reconsideration, but subsequent subscriptions and remained a subscriber of petitioner for quite sometime.
the appellate court, in its order of 21 January 2003, denied the motion.
In Development Bank of the Philippines vs. National Merchandising Corporation,[5] the
There is merit in the instant petition. contracting parties, being of age and businessmen of experience, were presumed to have
acted with due care and to have signed the assailed documents with full knowledge of their
import. The situation would be no less true than that which obtains in the instant suit. The
circumstances in Sweet Lines, Inc. vs. Teves,[6] wherein this Court invalidated the venue
stipulation contained in the passage ticket, would appear to be rather peculiar to that case.
There, the Court took note of an acute shortage in inter-island vessels that left passengers
literally scrambling to secure accommodations and tickets from crowded and congested
counters. Hardly, therefore, were the passengers accorded a real opportunity to examine the
fine prints contained in the tickets, let alone reject them.

A contract duly executed is the law between the parties, and they are obliged to comply
fully and not selectively with its terms. A contract of adhesion is no exception.[7]

WHEREFORE, the instant petition is GRANTED, and the questioned decision and
resolution of the Court of Appeals in CA-G.R. SP No. 68104 are REVERSED and SET
ASIDE. Civil Case No. 5572 pending before the Regional Trial Court of Iligan City,
Branch 4, is DISMISSED without prejudice to the filing of an appropriate complaint by
respondent against petitioner with the court of proper venue. No costs.

SO ORDERED.
FIRST DIVISION After more than a year after the Certificate of Sale had been issued to PNB, the Spouses
[ G.R. No. 174433, February 24, 2014 ] Manalo instituted this action for the nullification of the foreclosure proceedings and
PHILIPPPINE NATIONAL BANK, PETITIONER, VS. SPOUSES ENRIQUE MANALO damages. They alleged that they had obtained a loan for P1,000,000.00 from a certain
& ROSALINDA JACINTO, ARNOLD J. MANALO, ARNEL J. MANALO, AND ARMA Benito Tan upon arrangements made by Antoninus Yuvienco, then the General Manager of
J. MANALO, RESPONDENTS. PNB's Bangkal Branch where they had transacted; that they had been made to understand
and had been assured that the P1,000,000.00 would be used to update their account, and
DECISION that their loan would be restructured and converted into a long-term loan;[5] that they had
BERSAMIN, J.: been surprised to learn, therefore, that had been declared in default of their obligations, and
that the mortgage on their property had been foreclosed and their property had been sold;
Although banks are free to determine the rate of interest they could impose on their and that PNB did not comply with Section 3 of Act No. 3135, as amended.[6]
borrowers, they can do so only reasonably, not arbitrarily. They may not take advantage of
the ordinary borrowers' lack of familiarity with banking procedures and jargon. Hence, any PNB and Antoninus Yuvienco countered that the P1,000,000.00 loan obtained by the
stipulation on interest unilaterally imposed and increased by them shall be struck down as Spouses Manalo from Benito Tan had been credited to their account; that they did not make
violative of the principle of mutuality of contracts. any assurances on the restructuring and conversion of the Spouses Manalo's loan into a
long-term one;[7] that PNB's right to foreclose the mortgage had been clear especially
Antecedents because the Spouses Manalo had not assailed the validity of the loans and of the mortgage;
and that the Spouses Manalo did not allege having fully paid their indebtedness.[8]
Respondent Spouses Enrique Manalo and Rosalinda Jacinto (Spouses Manalo) applied for
an All-Purpose Credit Facility in the amount of P1,000,000.00 with Philippine National Ruling of the RTC
Bank (PNB) to finance the construction of their house. After PNB granted their application,
they executed a Real Estate Mortgage on November 3, 1993 in favor of PNB over their After trial, the RTC rendered its decision in favor of PNB, holding thusly:
property covered by Transfer Certificate of Title No. S- 23191 as security for the loan.[1] In resolving this present case, one of the most significant matters the court has noted is that
The credit facility was renewed and increased several times over the years. On September while during the pre-trial held on 8 September 2003, plaintiff-spouses Manalo with the
20, 1996, the credit facility was again renewed for P7,000,000.00. As a consequence, the assistance counsel had agreed to stipulate that defendants had the right to foreclose upon
parties executed a Supplement to and Amendment of Existing Real Estate Mortgage the subject properties and that the plaintiffs['] main thrust was to prove that the foreclosure
whereby the property covered by TCT No. 171859 was added as security for the loan. The proceedings were invalid, in the course of the presentation of their evidence, they modified
additional security was registered in the names of respondents Arnold, Arnel, Anthony, and their position and claimed [that] the loan document executed were contracts of adhesion
Arma, all surnamed Manalo, who were their children.[2] which were null and void because they were prepared entirely under the defendant bank's
supervision. They also questioned the interest rates and penalty charges imposed arguing
It was agreed upon that the Spouses Manalo would make monthly payments on the interest. that these were iniquitous, unconscionable and therefore likewise void.
However, PNB claimed that their last recorded payment was made on December, 1997.
Thus, PNB sent a demand letter to them on their overdue account and required them to Not having raised the foregoing matters as issues during the pre-trial, plaintiff-spouses are
settle the account. PNB sent another demand letter because they failed to heed the first presumably estopped from allowing these matters to serve as part of their evidence, more
demand.[3] so because at the pre-trial they expressly recognized the defendant bank's right to foreclose
upon the subject property (See Order, pp. 193-195).
After the Spouses Manalo still failed to settle their unpaid account despite the two demand
letters, PNB foreclose the mortgage. During the foreclosure sale, PNB was the highest However, considering that the defendant bank did not interpose any objection to these
bidder for P15,127,000.00 of the mortgaged properties of the Spouses Manalo. The sheriff matters being made part of plaintiff's evidence so much so that their memorandum
issued to PNB the Certificate of Sale dated November 13, 2000.[4] contained discussions rebutting plaintiff spouses arguments on these issues, the court must
necessarily include these matters in the resolution of the present case.[9]
The RTC held, however, that the Spouses Manalo's "contract of adhesion" argument was The CA further held that PNB could not unilaterally increase the rate of interest
unfounded because they had still accepted the terms and conditions of their credit considering that the credit agreements specifically provided that prior notice was required
agreement with PNB and had exerted efforts to pay their obligation;[10] that the Spouses before an increase in interest rate could be effected. It found that PNB did not adduce proof
Manalo were now estopped from questioning the interest rates unilaterally imposed by showing that the Spouses Manalo had been notified before the increased interest rates were
PNB because they had paid at those rates for three years without protest;[11] and that their imposed; and that PNB's unilateral imposition of the increased interest rate was null and
allegation about PNB violating the notice and publication requirements during the void for being violative of the principle of mutuality of contracts enshrined in Article 1308
foreclosure proceedings was untenable because personal notice to the mortgagee was not of the Civil Code. Reinforcing its "contract of adhesion" conclusion, it added that the
required under Act No. 3135.[12] Spouses Manalo's being in dire need of money rendered them to be not on an equal footing
with PNB. Consequently, the CA, relying on Eastern Shipping Lines, v. Court of Appeals,
The Spouses Manalo appealed to the CA by assigning a singular error, as follows: [19] fixed the interest rate to be paid by the Spouses Manalo at 12% per annum, computed
THE COURT A QUO SERIOUSLY ERRED IN DISMISSING PLAINTIFF- from their default.
APPELLANTS' COMPLAINT FOR BEING (sic) LACK OF MERIT
NOTWITHSTANDING THE FACT THAT IT WAS CLEARLY SHOWN THAT THE The CA deemed to be untenable the Spouses Manalo's allegation that PNB had failed to
FORECLOSURE PROCEEDINGS WAS INVALID AND ILLEGAL.[13] comply with the requirements for notice and posting under Section 3 of Act 3135. The CA
The Spouses Manalo reiterated their arguments, insisting that: (1) the credit agreements stated that Sheriff Norberto Magsajo's testimony was sufficient proof of his posting of the
they entered into with PNB were contracts of adhesion;[14] (2) no interest was due from required Notice of Sheriff's Sale in three public places; that the notarized Affidavit of
them because their credit agreements with PNB did not specify the interest rate, and PNB Publication presented by Sheriff Magsajo was prima facie proof of the publication of the
could not unilaterally increase the interest rate without first informing them;[15] and (3) notice; and that the Affidavit of Publication enjoyed the presumption of regularity, such
PNB did not comply with the notice and publication requirements under Section 3 of Act that the Spouses Manalo's bare allegation of non-publication without other proof did not
3135.[16] On the other hand, PNB and Yuvienco did not file their briefs despite notice.[17] overcome the presumption.

Ruling of the CA On August 29, 2006, the CA denied the Spouses Manalo's Motion for Reconsideration and
PNB's Partial Motion for Reconsideration.[20]
In its decision promulgated on March 28, 2006,[18] the CA affirmed the decision of the
RTC insofar as it upheld the validity of the foreclosure proceedings initiated by PNB, but Issues
modified the Spouses Manalo's liability for interest. It directed the RTC to see to the
recomputation of their indebtedness, and ordered that should the recomputed amount be In its Memorandum,[21] PNB raises the following issues:
less than the winning bid in the foreclosure sale, the difference should be immediately I
returned to the Spouses Manalo.
WHETHER OR NOT THE COURT OF APPEALS WAS CORRECT IN NULLIFYING
The CA found it necessary to pass upon the issues of PNB's failure to specify the THE INTEREST RATES IMPOSED ON RESPONDENT SPOUSES' LOAN AND IN
applicable interest and the lack of mutuality in the execution of the credit agreements FIXING THE SAME AT TWELVE PERCENT (12%) FROM DEFAULT, DESPITE THE
considering the earlier cited observation made by the trial court in its decision. Applying FACT THAT (i) THE SAME WAS RAISED BY THE RESPONDENTS ONLY FOR
Article 1956 of the Civil Code, the CA held that PNB's failure to indicate the rate of THE FIRST TIME ON APPEAL (ii) IT WAS NEVER PART OF THEIR COMPLAINT
interest in the credit agreements would not excuse the Spouses Manalo from their (iii) WAS EXLUDED AS AN ISSUE DURING PRE-TRIAL, AND WORSE, (iv) THERE
contractual obligation to pay interest to PNB because of the express agreement to pay WAS NO FORMALLY OFFERED PERTAINING TO THE SAME DURING TRIAL.
interest in the credit agreements. Nevertheless, the CA ruled that PNB's inadvertence to
specify the interest rate should be construed against it because the credit agreements were II
clearly contracts of adhesion due to their having been prepared solely by PNB.
WHETHER OR NOT THE COURT OF APPEALS CORRECTLY RULED THAT 5. True to his words, defendant Yuvienco, after several days, sent us a document through a
THERE WAS NO MUTUALITY OF CONSENT IN THE IMPOSITION OF INTEREST personnel of defendant PNB, Bangkal, Makati City Branch, who required me and my wife
RATES ON THE RESPONDENT SPOUSES' LOAN DESPITE THE EXISTENCE OF to affix our signature on the said document;
FACTS AND CIRCUMSTANCES CLEARLY SHOWING RESPONDENTS' ASSENT
TO THE RATES OF INTEREST SO IMPOSED BY PNB ON THE LOAN. 6. When the document was handed over me, I was able to know that it was a Promissory
Anent the first issue, PNB argues that by passing upon the issue of the validity of the Note which was in ready made form and prepared solely by the defendant PNB;
interest rates, and in nullifying the rates imposed on the Spouses Manalo, the CA decided
the case in a manner not in accord with Section 15, Rule 44 of the Rules of Court, which xxxx
states that only questions of law or fact raised in the trial court could be assigned as errors
on appeal; that to allow the Spouses Manalo to raise an issue for the first time on appeal 21. As above-noted, the rates of interest imposed by the defendant bank were never the
would "offend the basic rules of fair play, justice and due process;"[22] that the resolution subject of any stipulation between us mortgagors and the defendant PNB as mortgagee;
of the CA was limited to the issues agreed upon by the parties during pre-trial;[23] that the
CA erred in passing upon the validity of the interest rates inasmuch as the Spouses Manalo 22. The truth of the matter is that defendant bank imposed rate of interest which ranges
did not present evidence thereon; and that the Judicial Affidavit of Enrique Manalo, on from 19% to as high as 28% and which changes from time to time;
which the CA relied for its finding, was not offered to prove the invalidity of the interest
rates and was, therefore, inadmissible for that purpose.[24] 23. The irregularity, much less the invalidity of the imposition of iniquitous rates of interest
was aggravated by the fact that we were not informed, notified, nor the same had our prior
As to the substantive issues, PNB claims that the Spouses Manalo's continuous payment of consent and acquiescence therefor. x x x[25]
interest without protest indicated their assent to the interest rates imposed, as well as to the PNB cross-examined Enrique Manalo upon his Judicial Affidavit. There is no showing that
subsequent increases of the rates; and that the CA erred in declaring that the interest rates PNB raised any objection in the course of the cross examination.[26] Consequently, the
and subsequent increases were invalid for lack of mutuality between the contracting parties. RTC rightly passed upon such issues in deciding the case, and its having done so was in
total accord with Section 5, Rule 10 of the Rules of Court, which states:
Ruling Section 5. Amendment to conform to or authorize presentation of evidence. When issues
not raised by the pleadings are tried with the express or implied consent of the parties, they
The appeal lacks merit. shall be treated in all respects as if they had been raised in the pleadings. Such amendment
of the pleadings as may be necessary to cause them to conform to the evidence and to raise
1. these issues may be made upon motion of any party at any time, even after judgment; but
failure to amend does not affect the result of the trial of these issues. If evidence is objected
Procedural Issue to at the trial on the ground that it is not within the issues made by the pleadings, the court
may allow the pleadings to be amended and shall do so with liberality if the presentation of
Contrary to PNB's argument, the validity of the interest rates and of the increases, and on the merits of the action and the ends of substantial justice will be subserved thereby. The
the lack of mutuality between the parties were not raised by the Spouses Manalo's for the court may grant a continuance to enable the amendment to be made.
first time on appeal. Rather, the issues were impliedly raised during the trial itself, and In Bernardo Sr. v. Court of Appeals,[27] we held that:
PNB's lack of vigilance in voicing out a timely objection made that possible. It is settled that even if the complaint be defective, but the parties go to trial thereon, and
the plaintiff, without objection, introduces sufficient evidence to constitute the particular
It appears that Enrique Manalo's Judicial Affidavit introduced the issues of the validity of cause of action which it intended to allege in the original complaint, and the defendant
the interest rates and the increases, and the lack of mutuality between the parties in the voluntarily produces witnesses to meet the cause of action thus established, an issue is
following manner, to wit: joined as fully and as effectively as if it had been previously joined by the most perfect
pleadings. Likewise, when issues not raised by the pleadings are tried by express or implied
consent of the parties, they shall be treated in all respects as if they had been raised in the issues that PNB is now assailing. The question of whether the evidence on such issues was
pleadings. admissible to prove the nullity of the interest rates is an entirely different matter. The RTC
The RTC did not need to direct the amendment of the complaint by the Spouses Manalo. accorded credence to PNB's evidence showing that the Spouses Manalo had been paying
Section 5, Rule 10 of the Rules of Court specifically declares that the "failure to amend the interest imposed upon them without protest. On the other hand, the CA's nullification of
does not affect the result of the trial of these issues." According to Talisay-Silay Milling the interest rates was based on the credit agreements that the Spouses Manalo and PNB had
Co., Inc. v. Asociacion de Agricultores de Talisay-Silay, Inc.:[28] themselves submitted.
The failure of a party to amend a pleading to conform to the evidence adduced during trial
does not preclude an adjudication by the court on the basis of such evidence which may Based on the foregoing, the validity of the interest rates and their increases, and the lack of
embody new issues not raised in the pleadings, or serve as a basis for a higher award of mutuality between the parties were issues validly raised in the RTC, giving the Spouses
damages. Although the pleading may not have been amended to conform to the evidence Manalo every right to raise them in their appeal to the CA. PNB's contention was based on
submitted during trial, judgment may nonetheless be rendered, not simply on the basis of its wrong appreciation of what transpired during the trial. It is also interesting to note that
the issues alleged but also on the basis of issues discussed and the assertions of fact proved PNB did not itself assail the RTC's ruling on the issues obviously because the RTC had
in the course of trial. The court may treat the pleading as if it had been amended to conform decided in its favor. In fact, PNB did not even submit its appellee's brief despite notice
to the evidence, although it had not been actually so amended. Former Chief Justice Moran from the CA.
put the matter in this way:
When evidence is presented by one party, with the expressed or implied consent of the 2.
adverse party, as to issues not alleged in the pleadings, judgment may be rendered validly
as regards those issues, which shall be considered as if they have been raised in the Substantive Issue
pleadings. There is implied, consent to the evidence thus presented when the adverse party
fails to object thereto." (Emphasis supplied) The credit agreement executed succinctly stipulated that the loan would be subjected to
Clearly, a court may rule and render judgment on the basis of the evidence before it even interest at a rate "determined by the Bank to be its prime rate plus applicable spread,
though the relevant pleading had not been previously amended, so long as no surprise or prevailing at the current month."[31] This stipulation was carried over to or adopted by the
prejudice is thereby caused to the adverse party. Put a little differently, so long as the basic subsequent renewals of the credit agreement. PNB thereby arrogated unto itself the sole
requirements of fair play had been met, as where litigants were given full opportunity to prerogative to determine and increase the interest rates imposed on the Spouses Manalo.
support their respective contentions and to object to or refute each other's evidence, the Such a unilateral determination of the interest rates contravened the principle of mutuality
court may validly treat the pleadings as if they had been amended to conform to the of contracts embodied in Article 1308 of the Civil Code.[32]
evidence and proceed to adjudicate on the basis of all the evidence before it.
There is also no merit in PNB's contention that the CA should not have considered and The Court has declared that a contract where there is no mutuality between the parties
ruled on the issue of the validity of the interest rates because the Judicial Affidavit of partakes of the nature of a contract of adhesion,[33] and any obscurity will be construed
Enrique Manalo had not been offered to prove the same but only "for the purpose of against the party who prepared the contract, the latter being presumed the stronger party to
identifying his affidavit."[29] As such, the affidavit was inadmissible to prove the nullity of the agreement, and who caused the obscurity.[34] PNB should then suffer the consequences
the interest rates. of its failure to specifically indicate the rates of interest in the credit agreement. We spoke
clearly on this in Philippine Savings Bank v. Castillo,[35] to wit:
We do not agree. The unilateral determination and imposition of the increased rates is violative of the
principle of mutuality of contracts under Article 1308 of the Civil Code, which provides
Section 5, Rule 10 of the Rules of Court is applicable in two situations. The first is when that '[t]he contract must bind both contracting parties; its validity or compliance cannot be
evidence is introduced on an issue not alleged in the pleadings and no objection is left to the will of one of them.' A perusal of the Promissory Note will readily show that the
interposed by the adverse party. The second is when evidence is offered on an issue not increase or decrease of interest rates hinges solely on the discretion of petitioner. It does not
alleged in the pleadings but an objection is raised against the offer.[30] This case comes require the conformity of the maker before a new interest rate could be enforced. Any
under the first situation. Enrique Manalo's Judicial Affidavit would introduce the very contract which appears to be heavily weighed in favor of one of the parties so as to lead to
an unconscionable result, thus partaking of the nature of a contract of adhesion, is void.
Any stipulation regarding the validity or compliance of the contract left solely to the will of Anent the correct rates of interest to be applied on the amount to be refunded by PNB, the
one of the parties is likewise invalid. (Emphasis supplied) Court, in Nacar v. Gallery Frames[45] and S.C. Megaworld Construction v. Parada,[46]
PNB could not also justify the increases it had effected on the interest rates by citing the already applied Monetary Board Circular No. 799 by reducing the interest rates allowed in
fact that the Spouses Manalo had paid the interests without protest, and had renewed the judgments from 12% per annum to 6% per annum.[47] According to Nacar v. Gallery
loan several times. We rule that the CA, citing Philippine National Bank v. Court of Frames, MB Circular No. 799 is applied prospectively, and judgments that became final
Appeals,[36] rightly concluded that "a borrower is not estopped from assailing the and executory prior to its effectivity on July 1, 2013 are not to be disturbed but continue to
unilateral increase in the interest made by the lender since no one who receives a proposal be implemented applying the old legal rate of 12% per annum. Hence, the old legal rate of
to change a contract, to which he is a party, is obliged to answer the same and said party's 12% per annum applied to judgments becoming final and executory prior to July 1, 2013,
silence cannot be construed as an acceptance thereof."[37] but the new rate of 6% per annum applies to judgments becoming final and executory after
said dater.
Lastly, the CA observed, and properly so, that the credit agreements had explicitly provided
that prior notice would be necessary before PNB could increase the interest rates. In failing Conformably with Nacar v. Gallery Frames and S.C. Megaworld Construction v. Parada,
to notify the Spouses Manalo before imposing the increased rates of interest, therefore, therefore, the proper interest rates to be imposed in the present case are as follows:
PNB violated the stipulations of the very contract that it had prepared. Hence, the varying Any amount to be refunded to the Spouses Manalo shall bear interest of 12% per annum
interest rates imposed by PNB have to be vacated and declared null and void, and in their computed from March 28, 2006, the date of the promulgation of the CA decision, until June
place an interest rate of 12% per annum computed from their default is fixed pursuant to 30, 2013; and 6% per annum computed from July 1, 2013 until finality of this decision; and
the ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.[38]
The amount to be refunded and its accrued interest shall earn interest of 6% per annum
The CA's directive to PNB (a) to recompute the Spouses Manalo's indebtedness under the until full refund.
oversight of the RTC; and (b) to refund to them any excess of the winning bid submitted WHEREFORE, the Court AFFIRMS the decision promulgated by the Court of Appeals on
during the foreclosure sale over their recomputed indebtedness was warranted and March 28, 2006 in CA-G.R. CV No. 84396, subject to the MODIFICATION that any
equitable. Equally warranted and equitable was to make the amount to be refunded, if any, amount to be refunded to the respondents shall bear interest of 12% per annum computed
bear legal interest, to be reckoned from the promulgation of the CA's decision on March 28, from March 28, 2006 until June 30, 2013, and 6% per annum computed from July 1, 2013
2006.[39] Indeed, the Court said in Eastern Shipping Lines, Inc. v. Court of Appeals[40] until finality hereof; that the amount to be refunded and its accrued interest shall earn
that interest should be computed from the time of the judicial or extrajudicial demand. interest at 6% per annum until full refund; and DIRECTS the petitioner to pay the costs of
However, this case presents a peculiar situation, the peculiarity being that the Spouses suit.
Manalo did not demand interest either judicially or extrajudicially. In the RTC, they
specifically sought as the main reliefs the nullification of the foreclosure proceedings
brought by PNB, accounting of the payments they had made to PNB, and the conversion of SO ORDERED.
their loan into a long term one.[41] In its judgment, the RTC even upheld the validity of the
interest rates imposed by PNB.[42] In their appellant's brief, the Spouses Manalo again
sought the nullification of the foreclosure proceedings as the main relief.[43] It is evident,
therefore, that the Spouses Manalo made no judicial or extrajudicial demand from which to
reckon the interest on any amount to be refunded to them. Such demand could only be
reckoned from the promulgation of the CA's decision because it was there that the right to
the refund was first judicially recognized. Nevertheless, pursuant to Eastern Shipping
Lines, Inc. v. Court of Appeals,[44] the amount to be refunded and the interest thereon
should earn interest to be computed from the finality of the judgment until the full refund
has been made.
DIVISION March 1979--575 reams at P307.20/ream; July 1979--575 reams at P307.20/ream; and
[ GR No. 115117, Jun 08, 2000 ] October 1979--575 reams at P307.20/ream. In accordance with the standard operating
INTEGRATED PACKAGING CORP. v. CA + practice of the parties, the materials were to be paid within a minimum of thirty days and
DECISION maximum of ninety days from delivery.
388 Phil. 835
Later, on June 7, 1978, petitioner entered into a contract with Philippine Appliance
QUISUMBING, J.: Corporation (Philacor) to print three volumes of "Philacor Cultural Books" for delivery on
the following dates: Book VI, on or before November 1978; Book VII, on or before
This is a petition to review the decision of the Court of Appeals rendered on April 20, 1994 November 1979 and; Book VIII, on or before November 1980, with a minimum of 300,000
reversing the judgment of the Regional Trial Court of Caloocan City in an action for copies at a price of P10.00 per copy or a total cost of P3,000,000.00.
recovery of sum of money filed by private respondent against petitioner. In said decision,
the appellate court decreed: As of July 30, 1979, private respondent had delivered to petitioner 1,097 reams of printing
"WHEREFORE, in view of all the foregoing, the appealed judgment is hereby paper out of the total 3,450 reams stated in the agreement. Petitioner alleged it wrote
REVERSED and SET ASIDE. Appellee [petitioner herein] is hereby ordered to pay private respondent to immediately deliver the balance because further delay would greatly
appellant [private respondent herein] the sum of P763,101.70, with legal interest thereon, prejudice petitioner. From June 5, 1980 and until July 23, 1981, private respondent
from the date of the filing of the Complaint, until fully paid. delivered again to petitioner various quantities of printing paper amounting to P766,101.70.
However, petitioner encountered difficulties paying private respondent said amount.
SO ORDERED."[1] Accordingly, private respondent made a formal demand upon petitioner to settle the
The RTC judgment reversed by the Court of Appeals had disposed of the complaint as outstanding account. On July 23 and 31, 1981 and August 27, 1981, petitioner made partial
follows: payments totalling P97,200.00 which was applied to its back accounts covered by delivery
"WHEREFORE, judgment is hereby rendered: invoices dated September 29-30, 1980 and October 1-2, 1980.[3]

Ordering plaintiff [herein private respondent] to pay defendant [herein petitioner] the sum Meanwhile, petitioner entered into an additional printing contract with Philacor.
of P27,222.60 as compensatory and actual damages after deducting P763,101.70 (value of Unfortunately, petitioner failed to fully comply with its contract with Philacor for the
materials received by defendant) from P790,324.30 representing compensatory damages as printing of books VIII, IX, X and XI. Thus, Philacor demanded compensation from
defendant's unrealized profits; petitioner for the delay and damage it suffered on account of petitioner's failure.

Ordering plaintiff to pay defendant the sum of P100,000.00 as moral damages; On August 14, 1981, private respondent filed with the Regional Trial Court of Caloocan
City a collection suit against petitioner for the sum of P766,101.70, representing the unpaid
Ordering plaintiff to pay the sum of P30,000.00 for attorney's fees; and to pay the costs of purchase price of printing paper bought by petitioner on credit.
suit.
In its answer, petitioner denied the material allegations of the complaint. By way of
SO ORDERED."[2] counterclaim, petitioner alleged that private respondent was able to deliver only 1,097
The facts, as culled from the records, are as follows: reams of printing paper which was short of 2,875 reams, in total disregard of their
agreement; that private respondent failed to deliver the balance of the printing paper despite
Petitioner and private respondent executed on May 5, 1978, an order agreement whereby demand therefor, hence, petitioner suffered actual damages and failed to realize expected
private respondent bound itself to deliver to petitioner 3,450 reams of printing paper, profits; and that petitioner's complaint was prematurely filed.
coated, 2 sides basis, 80 lbs., 38" x 23", short grain, worth P1,040,060.00 under the
following schedule: May and June 1978--450 reams at P290.00/ream; August and After filing its reply and answer to the counterclaim, private respondent moved for
September 1978--700 reams at P290/ream; January 1979--575 reams at P307.20/ream; admission of its supplemental complaint, which was granted. In said supplemental
complaint, private respondent alleged that subsequent to the enumerated purchase invoices
in the original complaint, petitioner made additional purchases of printing paper on credit In our view, the crucial issues for resolution in this case are as follows:
amounting to P94,200.00. Private respondent also averred that petitioner failed and refused
to pay its outstanding obligation although it made partial payments in the amount of (1) Whether or not private respondent violated the order agreement, and;
P97,200.00 which was applied to back accounts, thus, reducing petitioner's indebtedness to
P763,101.70. (2) Whether or not private respondent is liable for petitioner's breach of contract with
Philacor.
On July 5, 1990, the trial court rendered judgment declaring that petitioner should pay
private respondent the sum of P763,101.70 representing the value of printing paper Petitioner's contention lacks factual and legal basis, hence, bereft of merit.
delivered by private respondent from June 5, 1980 to July 23, 1981. However, the lower
court also found petitioner's counterclaim meritorious. It ruled that were it not for the Petitioner contends, firstly, that private respondent violated the order agreement when the
failure or delay of private respondent to deliver printing paper, petitioner could have sold latter failed to deliver the balance of the printing paper on the dates agreed upon.
books to Philacor and realized profit of P790,324.30 from the sale. It further ruled that
petitioner suffered a dislocation of business on account of loss of contracts and goodwill as The transaction between the parties is a contract of sale whereby private respondent (seller)
a result of private respondent's violation of its obligation, for which the award of moral obligates itself to deliver printing paper to petitioner (buyer) which, in turn, binds itself to
damages was justified. pay therefor a sum of money or its equivalent (price).[6] Both parties concede that the order
agreement gives rise to a reciprocal obligations[7] such that the obligation of one is
On appeal, the respondent Court of Appeals reversed and set aside the judgment of the trial dependent upon the obligation of the other. Reciprocal obligations are to be performed
court. The appellate court ordered petitioner to pay private respondent the sum of simultaneously, so that the performance of one is conditioned upon the simultaneous
P763,101.70 representing the amount of unpaid printing paper delivered by private fulfillment of the other.[8] Thus, private respondent undertakes to deliver printing paper of
respondent to petitioner, with legal interest thereon from the date of the filing of the various quantities subject to petitioner's corresponding obligation to pay, on a maximum
complaint until fully paid.[4] However, the appellate court deleted the award of 90-day credit, for these materials. Note that in the contract, petitioner is not even required
P790,324.30 as compensatory damages as well as the award of moral damages and to make any deposit, down payment or advance payment, hence, the undertaking of private
attorney's fees, for lack of factual and legal basis. respondent to deliver the materials is conditional upon payment by petitioner within the
prescribed period. Clearly, petitioner did not fulfill its side of the contract as its last
Expectedly, petitioner filed this instant petition contending that the appellate court's payment in August 1981 could cover only materials covered by delivery invoices dated
judgment is based on erroneous conclusions of facts and law. In this recourse, petitioner September and October 1980.
assigns the following errors:
There is no dispute that the agreement provides for the delivery of printing paper on
[I] different dates and a separate price has been agreed upon for each delivery. It is also
"THE COURT OF APPEALS ERRED IN CONCLUDING THAT PRIVATE admitted that it is the standard practice of the parties that the materials be paid within a
RESPONDENT DID NOT VIOLATE THE ORDER AGREEMENT. minimum period of thirty (30) days and a maximum of ninety (90) days from each delivery.
[9] Accordingly, the private respondent's suspension of its deliveries to petitioner whenever
[II] the latter failed to pay on time, as in this case, is legally justified under the second
THE COURT OF APPEALS ERRED IN CONCLUDING THAT RESPONDENT IS NOT paragraph of Article 1583 of the Civil Code which provides that:
LIABLE FOR PETITIONER'S BREACH OF CONTRACT WITH PHILACOR. "When there is a contract of sale of goods to be delivered by stated installments, which are
to be separately paid for, and the seller makes defective deliveries in respect of one or more
[III] installments, or the buyer neglects or refuses without just cause to take delivery of or pay
THE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER IS NOT for one or more installments, it depends in each case on the terms of the contract and the
ENTITLED TO DAMAGES AGAINST PRIVATE RESPONDENT."[5] circumstances of the case, whether the breach of contract is so material as to justify the
injured party in refusing to proceed further and suing for damages for breach of the entire The rule on compensatory damages is well established. True, indemnification for damages
contract, or whether the breach is severable, giving rise to a claim for compensation but not comprehends not only the loss suffered, that is to say actual damages (damnum emergens),
to a right to treat the whole contract as broken." (Emphasis supplied) but also profits which the obligee failed to obtain, referred to as compensatory damages
In this case, as found a quo petitioner's evidence failed to establish that it had paid for the (lucrum cessans). However, to justify a grant of actual or compensatory damages, it is
printing paper covered by the delivery invoices on time. Consequently, private respondent necessary to prove with a reasonable degree of certainty, premised upon competent proof
has the right to cease making further delivery, hence the private respondent did not violate and on the best evidence obtainable by the injured party, the actual amount of loss.[13] In
the order agreement. On the contrary, it was petitioner which breached the agreement as it the case at bar, the trial court erroneously concluded that petitioner could have sold books
failed to pay on time the materials delivered by private respondent. Respondent appellate to Philacor at the quoted selling price of P1,850,750.55 and by deducting the production
court correctly ruled that private respondent did not violate the order agreement. cost of P1,060,426.20, petitioner could have earned profit of P790,324.30. Admittedly, the
evidence relied upon by the trial court in arriving at the amount are mere estimates
On the second assigned error, petitioner contends that private respondent should be held prepared by petitioner.[14] Said evidence is highly speculative and manifestly hypothetical.
liable for petitioner's breach of contract with Philacor. This claim is manifestly devoid of It could not provide sufficient legal and factual basis for the award of P790,324.30 as
merit. compensatory damages representing petitioner's self-serving claim of unrealized profit.

As correctly held by the appellate court, private respondent cannot be held liable under the Further, the deletion of the award of moral damages is proper, since private respondent
contracts entered into by petitioner with Philacor. Private respondent is not a party to said could not be held liable for breach of contract. Moral damages may be awarded when in a
agreements. It is also not a contract pour autrui. Aforesaid contracts could not affect third breach of contract the defendant acted in bad faith, or was guilty of gross negligence
persons like private respondent because of the basic civil law principle of relativity of amounting to bad faith, or in wanton disregard of his contractual obligation.[15] Finally,
contracts which provides that contracts can only bind the parties who entered into it, and it since the award of moral damages is eliminated, so must the award for attorney's fees be
cannot favor or prejudice a third person,[10] even if he is aware of such contract and has also deleted.[16]
acted with knowledge thereof.[11]
WHEREFORE, the instant petition is DENIED. The decision of the Court of Appeals is
Indeed, the order agreement entered into by petitioner and private respondent has not been AFFIRMED. Costs against petitioner.
shown as having a direct bearing on the contracts of petitioner with Philacor. As pointed
out by private respondent and not refuted by petitioner, the paper specified in the order SO ORDERED.
agreement between petitioner and private respondent are markedly different from the paper
involved in the contracts of petitioner with Philacor.[12] Furthermore, the demand made by
Philacor upon petitioner for the latter to comply with its printing contract is dated February
15, 1984, which is clearly made long after private respondent had filed its complaint on
August 14, 1981. This demand relates to contracts with Philacor dated April 12, 1983 and
May 13, 1983, which were entered into by petitioner after private respondent filed the
instant case.

To recapitulate, private respondent did not violate the order agreement it had with
petitioner. Likewise, private respondent could not be held liable for petitioner's breach of
contract with Philacor. It follows that there is no basis to hold private respondent liable for
damages. Accordingly, the appellate court did not err in deleting the damages awarded by
the trial court to petitioner.
SECOND DIVISION support thereof, Sps. Mamaril averred that the loss of the subject vehicle was due to the
[ G.R. No. 179382, January 14, 2013 ] gross negligence of the above-named security guards on-duty who allowed the subject
SPOUSES BENJAMIN C. MAMARIL AND SONIA P. MAMARIL, PETITIONERS, VS. vehicle to be driven out by a stranger despite their agreement that only authorized drivers
THE BOY SCOUT OF THE PHILIPPINES, AIB SECURITY AGENCY, INC., CESARIO duly endorsed by the owners could do so. Peña and Gaddi even admitted their negligence
PEÑA,* AND VICENTE GADDI. RESPONDENTS. during the ensuing investigation. Notwithstanding, BSP and AIB did not heed Sps.
Mamaril's demands for a conference to settle the matter. They therefore prayed that Peña
DECISION and Gaddi, together with AIB and BSP, be held liable for: (a) the value of the subject
PERLAS-BERNABE, J.: vehicle and its accessories in the aggregate amount of P300,000.00; (b) P275.00
representing daily loss of income/boundary reckoned from the day the vehicle was lost; (c)
This is a Petition for Review on Certiorari assailing the May 31, 2007 Decision[1] and exemplary damages; (d) moral damages; (e) attorney's fees; and (f) cost of suit.
August 16, 2007 Resolution[2] of the Court of Appeals (CA) in CA-G.R. CV No. 75978.
The dispositive portion of the said Decision reads: In its Answer, [7] BSP denied any liability contending that not only did Sps. Mamaril
directly deal with AIB with respect to the manner by which the parked vehicles would be
WHEREFORE, the Decision dated November 28, 2001 and the Order dated June 11, 2002 handled, but the parking ticket[8] itself expressly stated that the "Management shall not be
rendered by the Regional Trial Court of Manila, Branch 39 is hereby MODIFIED to the responsible for loss of vehicle or any of its accessories or article left therein." It also
effect that only defendants AIB Security Agency, Inc., Cesario Peña and Vicente Gaddi are claimed that Sps. Mamaril erroneously relied on the Guard Service Contract. Apart from
held jointly and severally liable to pay plaintiffs-appellees Spouses Benjamin C. Mamaril not being parties thereto, its provisions cover only the protection of BSP's properties, its
and Sonia [P.] Mamaril the amount of Two Hundred Thousand Pesos (P200,000.00) officers, and employees.
representing the cost of the lost vehicle, and to pay the cost of suit. The other monetary
awards are DELETED for lack of merit and/or basis. In addition to the foregoing defenses, AIB alleged that it has observed due diligence in the
selection, training and supervision of its security guards while Peña and Gaddi claimed that
Defendant-Appellant Boy Scout of the Philippines is absolved from any liability. the person who drove out the lost vehicle from the BSP compound represented himself as
the owners' authorized driver and had with him a key to the subject vehicle. Thus, they
SO ORDERED.[3] contended that Sps. Mamaril have no cause of action against them.

The Antecedent Facts The RTC Ruling

Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps. Mamaril) are jeepney operators After due proceedings, the RTC rendered a Decision[9] dated November 28, 2001 in favor
since 1971. They would park their six (6) passenger jeepneys every night at the Boy Scout of Sps. Mamaril. The dispositive portion of the RTC decision reads:
of the Philippines' (BSP) compound located at 181 Concepcion Street, Malate, Manila for a
fee of P300.00 per month for each unit. On May 26, 1995 at 8 o'clock in the evening, all WHEREFORE, judgment is hereby rendered ordering the defendants Boy Scout of the
these vehicles were parked inside the BSP compound. The following morning, however, Philippines and AIB Security Agency, with security guards Cesario Pena and Vicente
one of the vehicles with Plate No. DCG 392 was missing and was never recovered.[4] Gaddi: -
According to the security guards Cesario Peña (Peña) and Vicente Gaddi (Gaddi) of AIB To pay the plaintiffs jointly and severally the cost of the vehicle which is P250,000.00 plus
Security Agency, Inc. (AIB) with whom BSP had contracted[5] for its security and accessories of P50,000.00;
protection, a male person who looked familiar to them took the subject vehicle out of the
compound. To pay jointly and severally to the plaintiffs the daily [loss] of the income/boundary of the
said jeepney to be reckoned [from] its loss up to the final adjudication of the case, which is
On November 20, 1996, Sps. Mamaril filed a complaint[6] for damages before the P275.00 a day;
Regional Trial Court (RTC) of Manila, Branch 39, against BSP, AIB, Peña and Gaddi. In
To pay jointly and severally to the plaintiffs moral damages in the amount of P50,000.00;
On the matter of damages, the CA deleted the award of P50,000.00 representing the value
To pay jointly and severally to the plaintiffs exemplary damages in the amount of of the accessories inside the lost vehicle and the P275.00 a day for loss of income in the
P50,000.00; absence of proof to support them. It also deleted the award of moral and exemplary
damages and attorney's fees for lack of factual and legal bases.
To pay jointly and severally the attorney's fees of P50,000.00 and appearances in court the
amount of P1,500.00 per appearance; and Sps. Mamaril's motion for reconsideration thereof was denied in the August 16, 2007
Resolution.[13]
To pay cost.
SO ORDERED.[10] Issues Before the Court

The RTC found that the act of Peña and Gaddi in allowing the entry of an unidentified Hence, the instant petition based on the following assignment of errors, to wit:
person and letting him drive out the subject vehicle in violation of their internal agreement
with Sps. Mamaril constituted gross negligence, rendering AIB and its security guards I.
liable for the former's loss. BSP was also adjudged liable because the Guard Service
Contract it entered into with AIB offered protection to all properties inside the BSP THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN ABSOLVING
premises, which necessarily included Sps. Mamaril's vehicles. Moreover, the said contract RESPONDENT BOY SCOUT OF THE PHILIPPINES FROM ANY LIABILITY.
stipulated AIB's obligation to indemnify BSP for all losses or damages that may be caused
by any act or negligence of its security guards. Accordingly, the BSP, AIB, and security II.
guards Peña and Gaddi were held jointly and severally liable for the loss suffered by Sps.
Mamaril. THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS MISTAKE
WHEN IT RULED THAT THE GUARD SERVICE CONTRACT IS PURELY
On June 11, 2002, the RTC modified its decision reducing the cost of the stolen vehicle BETWEEN BOY SCOUT OF THE PHILIPPINES AND AIB SECURITY AGENCY,
from P250,000.00 to P200,000.00.[11] INC., AND IN HOLDING THAT THERE IS ABSOLUTELY NOTHING IN THE SAID
CONTRACT THAT WOULD INDICATE ANY OBLIGATION AND/OR LIABILITY
Only BSP appealed the foregoing disquisition before the CA. ON THE PART OF THE PARTIES THEREIN IN FAVOR OF THIRD PERSONS, SUCH
AS PETITIONERS HEREIN.
The CA Ruling
III.
In its assailed Decision,[12] the CA affirmed the finding of negligence on the part of
security guards Peña and Gaddi. However, it absolved BSP from any liability, holding that THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS ERROR IN THE
the Guard Service Contract is purely between BSP and AIB and that there was nothing INTERPRETATION OF LAW WHEN IT CONSIDERED THE AGREEMENT
therein that would indicate any obligation and/or liability on the part of BSP in favor of BETWEEN BOY SCOUT OF THE PHILIPPINES AND PETITIONERS A CONTRACT
third persons, such as Sps. Mamaril. Nor was there evidence sufficient to establish that BSP OF LEASE, WHEREBY THE BOY SCOUT IS NOT DUTY BOUND TO PROTECT OR
was negligent. TAKE CARE OF [PETITIONERS'] VEHICLES.

It further ruled that the agreement between Sps. Mamaril and BSP was substantially a IV.
contract of lease whereby the former paid parking fees to the latter for the lease of parking
slots. As such, the lessor, BSP, was not an insurer nor bound to take care and/or protect the
lessees' vehicles.
THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED WHEN IT RULED In the case of Soliman, Jr. v. Tuazon,[19] the Court enunciated thus:
THAT PETITIONERS ARE NOT ENTITLED TO DAMAGES AND ATTORNEY'S
FEES.[14] It is settled that where the security agency, as here, recruits, hires and assigns the work of
its watchmen or security guards, the agency is the employer of such guards and watchmen.
In fine, Sps. Mamaril maintain that: (1) BSP should be held liable for the loss of their Liability for illegal or harmful acts committed by the security guards attaches to the
vehicle based on the Guard Service Contract and the parking ticket it issued; and (2) the employer agency, and not to the clients or customers of such agency. As a general rule, a
CA erred in deleting the RTC awards of damages and attorney's fees. client or customer of a security agency has no hand in selecting who among the pool of
security guards or watchmen employed by the agency shall be assigned to it; the duty to
The Court's Ruling observe the diligence of a good father of a family in the selection of the guards cannot, in
the ordinary course of events, be demanded from the client whose premises or property are
The petition lacks merit. protected by the security guards. The fact that a client company may give instructions or
directions to the security guards assigned to it, does not, by itself, render the client
Article 20 of the Civil Code provides that every person, who, contrary to law, willfully or responsible as an employer of the security guards concerned and liable for their wrongful
negligently causes damage to another, shall indemnify the latter for the same. Similarly, acts or omissions. Those instructions or directions are ordinarily no more than requests
Article 2176 of the Civil Code states: commonly envisaged in the contract for services entered into with the security agency.[20]

Art. 2176. Whoever by act or omission causes damage to another, there being fault or Nor can it be said that a principal-agent relationship existed between BSP and the security
negligence, is obliged to pay for the damage done. Such fault or negligence, if there is no guards Peña and Gaddi as to make the former liable for the latter's complained act. Article
preexisting contractual relation between the parties, is called a quasi-delict and is governed 1868 of the Civil Code states that "[b]y the contract of agency, a person binds himself to
by the provisions of this Chapter. render some service or to do something in representation or on behalf of another, with the
consent or authority of the latter." The basis for agency therefore is representation,[21]
In this case, it is undisputed that the proximate cause of the loss of Sps. Mamaril's vehicle which element is absent in the instant case. Records show that BSP merely hired the
was the negligent act of security guards Peña and Gaddi in allowing an unidentified person services of AIB, which, in turn, assigned security guards, solely for the protection of its
to drive out the subject vehicle. Proximate cause has been defined as that cause, which, in properties and premises. Nowhere can it be inferred in the Guard Service Contract that AIB
natural and continuous sequence, unbroken by any efficient intervening cause, produces the was appointed as an agent of BSP. Instead, what the parties intended was a pure principal-
injury or loss, and without which the result would not have occurred.[15] Moreover, Peña client relationship whereby for a consideration, AIB rendered its security services to BSP.
and Gaddi failed to refute Sps. Mamaril's contention[16] that they readily admitted being at
fault during the investigation that ensued. Notwithstanding, however, Sps. Mamaril insist that BSP should be held liable for their loss
on the basis of the Guard Service Contract that the latter entered into with AIB and their
On the other hand, the records are bereft of any finding of negligence on the part of BSP. parking agreement with BSP.
Hence, no reversible error was committed by the CA in absolving it from any liability for
the loss of the subject vehicle based on fault or negligence. Such contention cannot be sustained.

Neither will the vicarious liability of an employer under Article 2180[17] of the Civil Code Article 1311 of the Civil Code states:
apply in this case. It is uncontested that Peña and Gaddi were assigned as security guards
by AIB to BSP pursuant to the Guard Service Contract. Clearly, therefore, no employer- Art. 1311. Contracts take effect only between the parties, their assigns and heirs, except in
employee relationship existed between BSP and the security guards assigned in its case where the rights and obligations arising from the contract are not transmissible by their
premises. Consequently, the latter's negligence cannot be imputed against BSP but should nature, or by stipulation or by provision of law. The heir is not liable beyond the value of
be attributed to AIB, the true employer of Peña and Gaddi.[18] the property he received from the decedent.
If a contract should contain some stipulation in favor of a third person, he may demand its has been held that the act of parking a vehicle in a garage, upon payment of a fixed amount,
fulfillment provided he communicated his acceptance to the obligor before its revocation. is a lease. [27] Even in a majority of American cases, it has been ruled that where a
A mere incidental benefit or interest of a person is not sufficient. The contracting parties customer simply pays a fee, parks his car in any available space in the lot, locks the car and
must have clearly and deliberately conferred a favor upon a third person. takes the key with him, the possession and control of the car, necessary elements in
bailment, do not pass to the parking lot operator, hence, the contractual relationship
Thus, in order that a third person benefited by the second paragraph of Article 1311, between the parties is one of lease. [28]
referred to as a stipulation pour autrui, may demand its fulfillment, the following requisites
must concur: (1) There is a stipulation in favor of a third person; (2) The stipulation is a In the instant case, the owners parked their six (6) passenger jeepneys inside the BSP
part, not the whole, of the contract; (3) The contracting parties clearly and deliberately compound for a monthly fee of P300.00 for each unit and took the keys home with them.
conferred a favor to the third person the favor is not merely incidental; (4) The favor is Hence, a lessor-lessee relationship indubitably existed between them and BSP. On this
unconditional and uncompensated; (5) The third person communicated his or her score, Article 1654 of the Civil Code provides that "[t]he lessor (BSP) is obliged: (1) to
acceptance of the favor before its revocation; and (6) The contracting parties do not deliver the thing which is the object of the contract in such a condition as to render it fit for
represent, or are not authorized, by the third party.[22] However, none of the foregoing the use intended; (2) to make on the same during the lease all the necessary repairs in order
elements obtains in this case. to keep it suitable for the use to which it has been devoted, unless there is a stipulation to
the contrary; and (3) to maintain the lessee in the peaceful and adequate enjoyment of the
It is undisputed that Sps. Mamaril are not parties to the Guard Service Contract. Neither did lease for the entire duration of the contract." In relation thereto, Article 1664 of the same
the subject agreement contain any stipulation pour autrui. And even if there was, Sps. Code states that "[t]he lessor is not obliged to answer for a mere act of trespass which a
Mamaril did not convey any acceptance thereof. Thus, under the principle of relativity of third person may cause on the use of the thing leased; but the lessee shall have a direct
contracts, they cannot validly claim any rights or favor under the said agreement.[23] As action against the intruder." Here, BSP was not remiss in its obligation to provide Sps.
correctly found by the CA: Mamaril a suitable parking space for their jeepneys as it even hired security guards to
secure the premises; hence, it should not be held liable for the loss suffered by Sps.
First, the Guard Service Contract between defendant-appellant BSP and defendant AIB Mamaril.
Security Agency is purely between the parties therein. It may be observed that although the
whereas clause of the said agreement provides that defendant-appellant desires security and It bears to reiterate that the subject loss was caused by the negligence of the security guards
protection for its compound and all properties therein, as well as for its officers and in allowing a stranger to drive out plaintiffs-appellants' vehicle despite the latter's
employees, while inside the premises, the same should be correlated with paragraph 3(a) instructions that only their authorized drivers may do so. Moreover, the agreement with
thereof which provides that the security agency shall indemnify defendant-appellant for all respect to the ingress and egress of Sps. Mamaril's vehicles were coordinated only with
losses and damages suffered by it attributable to any act or negligence of the former's AIB and its security guards,[29] without the knowledge and consent of BSP. Accordingly,
guards. the mishandling of the parked vehicles that resulted in herein complained loss should be
recovered only from the tort feasors (Peña and Gaddi) and their employer, AIB; and not
Otherwise stated, defendant-appellant sought the services of defendant AIB Security against the lessor, BSP. [30]
Agency for the purpose of the security and protection of its properties, as well as that of its
officers and employees, so much so that in case of loss of [sic] damage suffered by it as a Anent Sps. Mamaril's claim that the exculpatory clause: "Management shall not be
result of any act or negligence of the guards, the security agency would then be held responsible for loss of vehicle or any of its accessories or article left therein" [31] contained
responsible therefor. There is absolutely nothing in the said contract that would indicate in the BSP issued parking ticket was void for being a contract of adhesion and against
any obligation and/or liability on the part of the parties therein in favor of third persons public policy, suffice it to state that contracts of adhesion are not void per se. It is binding
such as herein plaintiffs-appellees.[24] as any other ordinary contract and a party who enters into it is free to reject the stipulations
in its entirety. If the terms thereof are accepted without objection, as in this case, where
Moreover, the Court concurs with the finding of the CA that the contract between the plaintiffs-appellants have been leasing BSP's parking space for more or less 20 years,[32]
parties herein was one of lease[25] as defined under Article 1643[26] of the Civil Code. It then the contract serves as the law between them.[33] Besides, the parking fee of P300.00
per month or P10.00 a day for each unit is too minimal an amount to even create an
inference that BSP undertook to be an insurer of the safety of plaintiffs-appellants' vehicles.

On the matter of damages, the Court noted that while Sonia P. Mamaril testified that the
subject vehicle had accessories worth around P50,000.00, she failed to present any receipt
to substantiate her claim.[34] Neither did she submit any record or journal that would have
established the purported P275.00[35] daily earnings of their jeepney. It is axiomatic that
actual damages must be proved with reasonable degree of certainty and a party is entitled
only to such compensation for the pecuniary loss that was duly proven. Thus, absent any
competent proof of the amount of damages sustained, the CA properly deleted the said
awards.[36]

Similarly, the awards of moral and exemplary damages and attorney's fees were properly
disallowed by the CA for lack of factual and legal bases. While the RTC granted these
awards in the dispositive portion of its November 28, 2001 decision, it failed to provide
sufficient justification therefor. [37]

WHEREFORE, premises considered, the instant petition is DENIED.The May 31, 2007
Decision and August 16, 2007 Resolution of the Court of Appeals in CA-G.R. CV No.
75978 are AFFIRMED.

SO ORDERED.
DIVISION On 10 March 1995, respondents filed a Complaint for breach of contract and damages
[ GR No. 179469, Feb 15, 2012 ] against C.F. Sharp and its surety, Pioneer Insurance and Surety Corporation (Pioneer
C.F. SHARP v. PIONEER INSURANCE + Insurance), before the Regional Trial Court (RTC) of Pasay City. Respondents claimed that
DECISION C.F. Sharp falsely assured them of deployment and that its refusal to release the disputed
G.R. No. 179469 documents on the ground that they were already bound by reason of the Contract of
Employment, denied respondents of employment opportunities abroad and a guaranteed
PEREZ, J.: income. Respondents also prayed for damages. Pioneer Insurance filed a cross claim
against C.F. Sharp and John J. Rocha, the executive vice-president of C.F. Sharp, based on
Whether a local private employment agency may be held liable for breach of contract for an Indemnity Agreement which substantially provides that the duo shall jointly and
failure to deploy a seafarer, is the bone of contention in this case. severally indemnify Pioneer Insurance for damages, losses, and costs which the latter may
incur as surety. The RTC rendered judgment on 27 June 1996 favoring respondents, to wit:
Assailed in this petition for review are the Decision[1] dated 30 October 2003 and the 29
August 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 53336 finding WHEREFORE, plaintiffs' causes of action having been proved with a preponderance of
petitioners C.F. Sharp Co. Inc. (C.F. Sharp) and John J. Rocha (Rocha) liable for damages. evidence, judgment is hereby ordered as follows:

Responding to a newspaper advertisement of a job opening for sandblasters and painters in Declaring the non-deployment of plaintiffs and the refusal to release documents as breach
Libya, respondents Wilfredo C. Agustin and Hernando G. Minimo applied with C.F. Sharp of contract;
sometime in August 1990. After passing the interview, they were required to submit their By way of compensatory damages, awarding $450 per month and $439 overtime per
passports, seaman's book, National Bureau of Investigation clearance, employment month, which should have been received by plaintiffs from other employers, making a joint
certificates, certificates of seminars attended, and results of medical examination. Upon and solidary obligation on the part of the two defendants C.F. Sharp and Pioneer for the
submission of the requirements, a Contract of Employment was executed between period covered by the employment contracts;
respondents and C.F. Sharp. Thereafter, respondents were required to attend various Ordering each defendant to pay each plaintiff P50,000.00 as moral damages and another
seminars, open a bank account with the corresponding allotment slips, and attend a pre- P50,000.00 each as exemplary damages;
departure orientation. They were then advised to prepare for immediate deployment and to Ordering defendants to share in the payment to plaintiffs of P50,000.00 attorney's fees;
report to C.F. Sharp to ascertain the schedule of their deployment. Defendants to pay litigation expenses and costs of suit.[2]

After a month, respondents were yet to be deployed prompting them to request for the The trial court ruled that there was a violation of the contract when C.F. Sharp failed to
release of the documents they had submitted to C.F. Sharp. C.F. Sharp allegedly refused to deploy and release the papers and documents of respondents, hence, they are entitled to
surrender the documents which led to the filing of a complaint by respondents before the damages. The trial court likewise upheld the cause of action of respondents against Pioneer
Philippine Overseas Employment Administration (POEA) on 21 January 1991. Insurance, the former being the actual beneficiaries of the surety bond.

On 30 October 1991, POEA issued an Order finding C.F. Sharp guilty of violation of On appeal, C.F. Sharp and Rocha raise a jurisdictional issue that the RTC has no
Article 34(k) of the Labor Code, which makes it unlawful for any entity "to withhold or jurisdiction over the instant case pursuant to Section 4(a) of Executive Order No. 797
deny travel documents from applicant workers before departure for monetary or financial which vests upon the POEA the jurisdiction over all cases, including money claims, arising
considerations other than those authorized under this Code and its implementing rules and out of or by virtue of any contract involving workers for overseas employment. C.F. Sharp
regulations." Consequently, C.F. Sharp's license was suspended until the return of the and Rocha refuted the findings of the trial court and maintained that the perfection and
disputed documents to respondents. POEA likewise declared that it has no jurisdiction to effectivity of the Contract of Employment depend upon the actual deployment of
adjudicate the monetary claims of respondents. respondents.
The Court of Appeals upheld the jurisdiction of the trial court by ruling that petitioners are against petitioners. Respondents justify the award of other damages as they suffered
now estopped from raising such question because they have actively participated in the pecuniary losses attributable to petitioner's malice and bad faith.
proceedings before the trial court. The Court of Appeals further held that since there is no
perfected employment contract between the parties, it is the RTC and not the POEA, whose In his Reply, Rocha introduced a new argument, i.e., that he should not be held jointly
jurisdiction pertains only to claims arising from contracts involving Filipino seamen, which liable with C.F. Sharp considering that the company has a separate personality. Rocha
has jurisdiction over the instant case. argues that there is no showing in the Complaint that he had participated in the malicious
act complained. He adds that his liability only stems from the Indemnity Agreement with
Despite the finding that no contract was perfected between the parties, the Court of Appeals Pioneer Insurance and does not extend to respondents.
adjudged C.F. Sharp and Rocha liable for damages, to wit:
Records disclose that Rocha was first impleaded in the case by Pioneer Insurance. Pioneer
WHEREFORE, the Appeal of C.F. Sharp Co Inc. and John J. Rocha is PARTIALLY Insurance, as surety, was sued by respondents together with C.F. Sharp. Pioneer Insurance
GRANTED only insofar as We declare that there is no breach of contract because no in turn filed a third party complaint against Rocha on the basis of an Indemnity Agreement
contract of employment was perfected. However, We find appellants C.F. Sharp Co. Inc. whereby he bound himself to indemnify and hold harmless Pioneer Insurance from and
and John J. Rocha liable to plaintiff-appellees for damages pursuant to Article 21 of the against any and all damages which the latter may incur in consequence of having become a
Civil Code and award each plaintiff-appellees temperate damages amounting to surety.[5] The third party complaint partakes the nature of a cross-claim.
P100,000.00, and moral damages in the increased amount of P100,000.00. The award of
exemplary damages and attorney's fees amounting to P50,000.00, respectively, is hereby C.F. Sharp, as defendant-appellant and Rocha, as third-party defendant-appellant, filed only
affirmed.[3] one brief before the Court of Appeals essentially questioning the declaration of the trial
court that non-deployment is tantamount to breach of contract and the award of damages.
The Court of Appeals limited the liability of Pioneer Insurance to the amount of The Court of Appeals found them both liable for damages. Both C.F. Sharp and Rocha
P150,000.00 pursuant to the Contract of Suretyship between C.F. Sharp and Pioneer sought recourse before this Court via a Motion for Extension of Time (To File a Petition for
Insurance. Review) on 19 September 2007.[6] In the Petition for Review, however, C.F. Sharp was
noticeably dropped as petitioner. Rocha maintains essentially the same argument that he
Rocha filed the instant petition on the submission that there is no basis to hold him liable and C.F. Sharp were wrongfully adjudged liable for damages.
for damages under Article 21 of the Civil Code because C.F. Sharp has signified its
intention to return the documents and had in fact informed respondents that they may, at It was only in its Reply dated 25 March 2008 that Rocha, through a new representation,
any time of the business day, withdraw their documents. Further, respondents failed to suddenly forwarded the argument that he should not be held liable as an officer of C.F.
establish the basis for which they are entitled to moral damages. Rocha refuted the award of Sharp. It is too late in the day for Rocha to change his theory. It is doctrinal that defenses
exemplary damages because the act of requiring respondents to sign a quitclaim prior to the not pleaded in the answer may not be raised for the first time on appeal. A party cannot, on
release of their documents could not be considered bad faith. Rocha also questions the appeal, change fundamentally the nature of the issue in the case. When a party deliberately
award of temperate damages on the ground that the act of withholding respondents' adopts a certain theory and the case is decided upon that theory in the court below, he will
documents could not be considered "chronic and continuing."[4] not be permitted to change the same on appeal, because to permit him to do so would be
unfair to the adverse party.[7] More so in this case, where Rocha introduced a new theory
Right off, insofar as Pioneer Insurance is concerned, the petition should be dismissed at the Reply stage. Disingenuousness may even be indicated by the sudden exclusion of the
against it because the ruling of the Court of Appeals limited its liability to P150,000.00 was name of C.F. Sharp from the main petition even as Rocha posited arguments not just for
not assailed by Rocha, hence the same has now attained finality. himself and also in behalf of C.F. Sharp.

Before us, respondents maintain that they are entitled to damages under Article 21 of the The core issue pertains to damages.
Civil Code for C.F. Sharp's unjustified refusal to release the documents to them and for
requiring them to sign a quitclaim which would effectively bar them from seeking redress
The bases of the lower courts' award of damages differ. In upholding the perfection of fulfill or perform the terms agreed upon in the contract, culminating in the extinguishment
contract between respondents and C.F. Sharp, the trial court stated that the unjustified thereof.[9]
failure to deploy and subsequently release the documents of respondents entitled them to
compensatory damages, among others. Differently, the appellate court found that no Under Article 1315 of the Civil Code, a contract is perfected by mere consent and from that
contract was perfected between the parties that will give rise to a breach of contract. Thus, moment the parties are bound not only to the fulfillment of what has been expressly
the appellate court deleted the award of actual damages. However, it adjudged other stipulated but also to all the consequences which, according to their nature, may be in
damages against C.F. Sharp for its unlawful withholding of documents from respondents. keeping with good faith, usage and law.[10]

We sustain the trial court's ruling. An employment contract, like any other contract, is perfected at the moment (1) the parties
come to agree upon its terms; and (2) concur in the essential elements thereof: (a) consent
On the issue of whether respondents are entitled to relief for failure to deploy them, the of the contracting parties, (b) object certain which is the subject matter of the contract and
RTC ruled in this wise: (c) cause of the obligation.[11]

The contract of employment entered into by the plaintiffs and the defendant C.F. Sharp is We have scoured through the Contract of Employment and we hold that it is a perfected
an actionable document, the same contract having the essential requisites for its validity. It contract of employment. We reproduce below the terms of the Contract of Employment for
is worthy to note that there are three stages of a contract: (1) preparation, conception, or easy reference:
generation which is the period of negotiation and bargaining ending at the moment of
agreement of the parties. (2) Perfection or birth of the contract, which is the moment when WITNESSETH
the parties come to agree on the terms of the contract. (3) Consummation or death, which is
the fulfillment or performance of the terms agreed upon in the contract. That the Seafarer shall be employed on board under the following terms and conditions:
1.1 Duration of Contract: 3 month/s
Hence, it is imperative to know the stage reached by the contract entered into by the 1.2 Position: SANDBLASTER/PAINTER
plaintiffs and C.F. sharp. Based on the testimonies of the witnesses presented in this Court, 1.3 Basic Monthly Salary: $450.00 per month
there was already a perfected contract between plaintiffs and defendant C.F. Sharp. Under 1.4 Living Allowances: $0.00 per month
Article 1315 of the New Civil Code of the Philippines, it states that: 1.5 Hours of Work: 48 per week
1.6 Overtime Rate: $439.00 per month
xxxx 1.7 Vacation Leave with Pay: 30.00 day/s per month on board
The terms and conditions of the Revised Employment Contract for seafarers governing the
Thus, when plaintiffs signed the contract of employment with C.F. Sharp (as agent of the employment of all Filipino seafarers approved by the POEA/DOLE on July 14, 1989 under
principal WB Slough) consequently, the latter is under obligation to deploy the plaintiffs, Memorandum Circular No. 41 series of 1989 and amending circulars relative thereto shall
which is the natural effect and consequence of the contract agreed by them.[8] be strictly and faithfully observed.

We agree. Any alterations or changes, in any part of this Contract shall be evaluated, verified,
processed and approved by the Philippine Overseas Employment Administration (POEA).
As correctly ruled at the trial, contracts undergo three distinct stages, to wit: negotiation; Upon approval, the same shall be deemed an integral part of the Standard Employment
perfection or birth; and consummation. Negotiation begins from the time the prospective Contract (SEC) for seafarers.
contracting parties manifest their interest in the contract and ends at the moment of
agreement of the parties. Perfection or birth of the contract takes place when the parties All claims, complaints or controversies relative to the implementation and interpretation of
agree upon the essential elements of the contract. Consummation occurs when the parties this overseas employment contract shall be exclusively resolved through the established
Grievance Machinery in the Revised Employment Contract for seafarers, the adjudication
procedures of the Philippine Overseas Employment Administration and the Philippine plaintiffs-appellees were cleared for travel and departure to their port of embarkation
Courts of Justice, in that order. overseas by government authorities. Consequently, non-fulfillment of this condition
negates the commencement and existence of employer-employee relationship between the
Violations of the terms and conditions of this Contract with its approved addendum shall plaintiffs-appellees and C.F. Sharp. Accordingly, no contract between them was perfected
warrant the imposition of appropriate disciplinary or administrative sanctions against the that will give rise to plaintiffs-appellees' right of action. There can be no breach of contract
erring party. when in the first place, there is no effective contract to speak of. For the same reason, and
finding that the award of actual damages has no basis, the same is hereby deleted.[13]
The Employee hereby certifies that he had received, read or has had explained to him and
fully understood this contract as well as the POEA revised Employment Contract of 1989 The Court of Appeals erred.
and the Collective Bargaining Agreement (CBA) and/or company terms and conditions of
employment covering this vessel and that he is fully aware of and has head or has had The commencement of an employer-employee relationship must be treated separately from
explained to him the terms and conditions including those in the POEA Employment the perfection of an employment contract. Santiago v. CF Sharp Crew Management, Inc.,
Contract, the CBA and this contract which constitute his entire agreement with the [14] which was promulgated on 10 July 2007, is an instructive precedent on this point. In
employer. said case, petitioner was hired by respondent on board "MSV Seaspread" for US$515.00
per month for nine (9) months, plus overtime pay. Respondent failed to deploy petitioner
The Employee also confirms that no verbal or other written promises other than the terms from the port of Manila to Canada. We made a distinction between the perfection of the
and conditions of this Contract as well as the POEA Revised Employment Contract, the employment contract and the commencement of the employer-employee relationship, thus:
CBA and/or company terms and conditions had been given to the Employee. Therefore, the
Employee cannot claim any additional benefits or wages of any kind except those which The perfection of the contract, which in this case coincided with the date of execution
have been provided in this Contract Agreement.[12] thereof, occurred when petitioner and respondent agreed on the object and the cause, as
well as the rest of the terms and conditions therein. The commencement of the employer-
By the contract, C.F. Sharp, on behalf of its principal, International Shipping Management, employee relationship, as earlier discussed, would have taken place had petitioner been
Inc., hired respondents as Sandblaster/Painter for a 3-month contract, with a basic monthly actually deployed from the point of hire. Thus, even before the start of any employer-
salary of US$450.00. Thus, the object of the contract is the service to be rendered by employee relationship, contemporaneous with the perfection of the employment contract
respondents on board the vessel while the cause of the contract is the monthly was the birth of certain rights and obligations, the breach of which may give rise to a cause
compensation they expect to receive. These terms were embodied in the Contract of of action against the erring party.[15]
Employment which was executed by the parties. The agreement upon the terms of the
contract was manifested by the consent freely given by both parties through their signatures Despite the fact that the employer-employee relationship has not commenced due to the
in the contract. Neither parties disavow the consent they both voluntarily gave. Thus, there failure to deploy respondents in this case, respondents are entitled to rights arising from the
is a perfected contract of employment. perfected Contract of Employment, such as the right to demand performance by C.F. Sharp
of its obligation under the contract.
The Court of Appeals agreed with the submission of C.F. Sharp that the perfection and
effectivity of the Contract of Employment depend upon the actual deployment of The right to demand performance was a categorical pronouncement in Santiago which
respondents. It based its conclusion that there was no perfected contract based on the ruled that failure to deploy constitutes breach of contract, thereby entitling the seafarer to
following rationale: damages:

The commencement of the employer-employee relationship between plaintiffs-appellees Respondent's act of preventing petitioner from departing the port of Manila and boarding
and the foreign employer, as correctly represented by C.F. Sharp requires that conditions "MSV Seaspread" constitutes a breach of contract, giving rise to petitioner's cause of
under Sec. D be met. The Contract of Employment was duly "Verified and approved by the action. Respondent unilaterally and unreasonably reneged on its obligation to deploy
POEA." Regrettably, We have painfully scrutinized the Records and find no evidence that petitioner and must therefore answer for the actual damages he suffered.
 Furthermore, we affirm the award of exemplary damages and attorney's fees. Exemplary
We take exception to the Court of Appeals' conclusion that damages are not recoverable by damages may be awarded when a wrongful act is accompanied by bad faith or when the
a worker who was not deployed by his agency. The fact that the POEA Rules are silent as defendant acted in a wanton, fraudulent, reckless, oppressive, or malevolent manner which
to the payment of damages to the affected seafarer does not mean that the seafarer is would justify an award of exemplary damages under Article 2232 of the Civil Code. Since
precluded from claiming the same. The sanctions provided for non-deployment do not end the award of exemplary damages is proper in this case, attorney's fees and cost of the suit
with the suspension or cancellation of license or fine and the return of all documents at no may also be recovered as provided under Article 2208 of the Civil Code.[17]
cost to the worker. They do not forfend a seafarer from instituting an action for damages
against the employer or agency which has failed to deploy him.[16] WHEREFORE, the petition is DENIED. The Decision dated 27 June 1996 of the Regional
Trial Court of Pasay City is REINSTATED. Accordingly, the Decision dated 30 October
The appellate court could not be faulted for its failure to adhere to Santiago considering 2003 of the Court of Appeals is MODIFIED.
that the Court of Appeals Decision was promulgated way back in 2003 while Santiago was
decided in 2007. We now reiterate Santiago and, accordingly, decide the case at hand. SO ORDERED.

We respect the lower courts' findings that C.F. Sharp unjustifiably refused to return the
documents submitted by respondent. The finding was that C.F. Sharp would only release
the documents if respondent would sign a quitclaim. On this point, the trial court was
affirmed by the Court of Appeals. As a consequence, the award by the trial court of moral
damages must likewise be affirmed.

Moral damages may be recovered under Article 2219 of the Civil Code in relation to
Article 21. The pertinent provisions read:

Art. 2219. Moral damages may be recovered in the following and analogous cases:

xxxx

(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.

xxxx

Art. 21. Any person who wilfully causes loss or injury to another in a manner that is
contrary to morals, good customs or public policy shall compensate the latter for the
damage.

We agree with the appellate court that C.F. Sharp committed an actionable wrong when it
unreasonably withheld documents, thus preventing respondents from seeking lucrative
employment elsewhere. That C.F. Sharp arbitrarily imposed a condition that the documents
would only be released upon signing of a quitclaim is tantamount to bad faith because it
effectively deprived respondents of resort to legal remedies.
DIVISION
[ GR No. 177783, Jan 23, 2013 ] TCT No. 111059 (Subdivided into six lots with individual titles TCT Nos. 117771, 117772,
HEIRS OF FAUSTO C. IGNACIO v. ZUNIGA + 117773, 117774, 117775 and 117776)
DECISION
G.R. No. 177783 TCT No. 117771 (16,350 sq.ms.) - Sold to Fermin Salvador and Bella Salvador under
Deed of Absolute Sale dated May 23, 1984 for the price of P150,000.00
VILLARAMA, JR., J.:
TCT No. 11772 (82,569 sq.ms. subdivided into 2 portions
Before the Court is a Petition for Review on Certiorari under Rule 45 assailing the
Decision[1] dated July 18, 2006 and Resolution[2] dated May 2, 2007 of the Court of 1)
Appeals (CA) in CA-G.R. CV No. 73551. The CA reversed the Decision[3] dated June 15, Lot 3-B-1 (35,447 sq.ms.) - Sold to Dr. Oscar Remulla and Natividad Pagtakhan, Dr.
1999 of the Regional Trial Court (RTC) of Pasig City, Branch 151 in Civil Case No. Edilberto Torres and Dra. Rebecca Amores under Deed of Absolute Sale dated April 17,
58980. 1985 for the price of P150,000.00

The factual antecedents:

In August 1981, petitioner Fausto C. Ignacio mortgaged two parcels of land to Home 2)
Savings Bank and Trust Company, the predecessor of respondent Home Bankers Savings Lot 3-B-2 covered by separate title TCT No. 124660 (Subdivided into 3 portions
and Trust Company, as security for the P500,000.00 loan extended to him by said bank.
These properties which are located in Cabuyao, Laguna are covered by Transfer Certificate Lot 3-B-2-A (15,000 sq.ms.) - Sold to Dr. Myrna del Carmen Reyes under Deed of
of Title Nos. (T-40380) T-8595 and (T-45804) T-8350 containing an area of 83,303 square Absolute Sale dated March 23, 1987 for the price of P150,000.00
meters and 120,110 square meters, respectively.[4] Lot 3-B-2-B (15,000 sq.ms.) - Sold to Dr. Rodito Boquiren under Deed of Absolute Sale
dated March 23, 1987 for the price of P150,000.00
When petitioner defaulted in the payment of his loan obligation, respondent bank Lot 3-B-2-C (17,122 sq.ms.) covered by TCT No. T-154568 -
proceeded to foreclose the real estate mortgage. At the foreclosure sale held on January 26,
1983, respondent bank was the highest bidder for the sum of P764,984.67. On February 8,
1983, the Certificate of Sale issued to respondent bank was registered with the Registry of TCT No.117773 (17,232 sq.ms.) - Sold to Rizalina Pedrosa under Deed of Absolute Sale
Deeds of Calamba, Laguna. With the failure of petitioner to redeem the foreclosed dated June 4, 1984 for the price of P150,000.00
properties within one year from such registration, title to the properties were consolidated
in favor of respondent bank. Consequently, TCT Nos. T-8595 and T-8350 were cancelled The expenses for the subdivision of lots covered by TCT No. 111059 and TCT No. 117772
and TCT Nos. 111058 and 111059 were issued in the name of respondent bank.[5] were shouldered by petitioner who likewise negotiated the above-mentioned sale
transactions. The properties covered by TCT Nos. T-117774 to 117776 are still registered
Despite the lapse of the redemption period and consolidation of title in respondent bank, in the name of respondent bank.[6]
petitioner offered to repurchase the properties. While the respondent bank considered
petitioner's offer to repurchase, there was no repurchase contract executed. The present In a letter addressed to respondent bank dated July 25, 1989, petitioner expressed his
controversy was fuelled by petitioner's stance that a verbal repurchase/compromise willingness to pay the amount of P600,000.00 in full, as balance of the repurchase price,
agreement was actually reached and implemented by the parties. and requested respondent bank to release to him the remaining parcels of land covered by
TCT Nos. 111058 and T-154658 ("subject properties").[7] Respondent bank however,
In the meantime, respondent bank made the following dispositions of the foreclosed turned down his request. This prompted petitioner to cause the annotation of an adverse
properties already titled in its name: claim on the said titles on September 18, 1989.[8]
 WHEREFORE, findings [sic] the facts aver[r]ed in the complaint supported by
Prior to the annotation of the adverse claim, on August 24, 1989, the property covered by preponderance of evidences adduced, judgment is hereby rendered in favor of the plaintiff
TCT No. 154658 was sold by respondent bank to respondent spouses Phillip and Thelma and against the defendant and intervenors by:
Rodriguez, without informing the petitioner. On October 6, 1989, again without petitioner's
knowledge, respondent bank sold the property covered by TCT No T-111058 to Declaring the two Deeds of Sale executed by the defendant in favor of the intervenors as
respondents Phillip and Thelma Rodriguez, Catherine M. Zuñiga, Reynold M. Zuñiga and null and void and the Register of Deeds in Calamba, Laguna is ordered to cancel and/or
Jeannette M. Zuñiga.[9] annul the two Transfer Certificate of Titles No. T-154658 and TCT No. T-111058 issued to
the intervenors.
On December 27, 1989, petitioner filed an action for specific performance and damages in
the RTC against the respondent bank. As principal relief, petitioner sought in his original Ordering the defendant to refund the amount of P1,004,250.00 to the intervenors as the
complaint the reconveyance of the subject properties after his payment of P600,000.00.[10] consideration of the sale of the two properties.
Respondent bank filed its Answer denying the allegations of petitioner and asserting that it
was merely exercising its right as owner of the subject properties when the same were sold Ordering the defendant to execute the appropriate Deed of Reconveyance of the two (2)
to third parties. properties in favor of the plaintiff after the plaintiff pays in full the amount of P600,000.00
as balance of the [re]purchase price.
For failure of respondent bank to appear during the pre-trial conference, it was declared as
in default and petitioner was allowed to present his evidence ex parte on the same date Ordering the defendant bank to pay plaintiff the sum of P50,000.00 as attorney's fees
(September 3, 1990). Petitioner simultaneously filed an "Ex-Parte Consignation" tendering
the amount of P235,000.00 as balance of the repurchase price.[11] On September 7, 1990, Dismissing the counterclaim of the defendant and intervenors against the plaintiff. Costs
the trial court rendered judgment in favor of petitioner. Said decision, as well as the order against the defendant.
of default, were subsequently set aside by the trial court upon the filing of a motion for SO ORDERED.[15]
reconsideration by the respondent bank.[12]
The trial court found that respondent bank deliberately disregarded petitioner's substantial
In its Order dated November 19, 1990, the trial court granted the motion for intervention payments on the total repurchase consideration. Reference was made to the letter dated
filed by respondents Phillip and Thelma Rodriguez, Catherine Zuñiga, Reynold Zuñiga and March 22, 1984 (Exhibit "I")[16] as the authority for petitioner in making the installment
Jeannette Zuñiga. Said intervenors asserted their status as innocent purchasers for value payments directly to the Universal Properties, Inc. (UPI), respondent bank's collecting
who had no notice or knowledge of the claim or interest of petitioner when they bought the agent. Said court concluded that the compromise agreement amounts to a valid contract of
properties already registered in the name of respondent bank. Aside from a counterclaim sale between petitioner, as Buyer, and respondent bank, as Seller. Hence, in entertaining
for damages against the petitioner, intervenors also prayed that in the event respondent other buyers for the same properties already sold to petitioner with intention to increase its
bank is ordered to reconvey the properties, respondent bank should be adjudged liable to revenues, respondent bank acted in bad faith and is thus liable for damages to the
the intervenors and return all amounts paid to it.[13] petitioner. Intervenors were likewise found liable for damages as they failed to exercise due
diligence before buying the subject properties.
On July 8, 1991, petitioner amended his complaint to include as alternative relief under the
prayer for reconveyance the payment by respondent bank of the prevailing market value of Respondent bank appealed to the CA which reversed the trial court's ruling, as follows:
the subject properties "less whatever remaining obligation due the bank by reason of the
mortgage under the terms of the compromise agreement.[14] WHEREFORE, the foregoing premises considered, the instant appeal is hereby
GRANTED. Accordingly, the assailed decision is hereby REVERSED and SET ASIDE.
On June 15, 1999, the trial court rendered its Decision, the dispositive portion of which
reads: SO ORDERED.[17]
The CA held that by modifying the terms of the offer contained in the March 22, 1984 RECEIPTS ISSUED IN THE NAME OF THE PETITIONER THAT ARE DULY NOTED
letter of respondent bank, petitioner effectively rejected the original offer with his counter- FOR HIS ACCOUNT.
offer. There was also no written conformity by respondent bank's officers to the amended
conditions for repurchase which were unilaterally inserted by petitioner. Consequently, no C.
contract of repurchase was perfected and respondent bank acted well within its rights when
it sold the subject properties to herein respondents-intervenors. THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF
DISCRETION IN REVERSING THE FINDING OF THE TRIAL COURT THAT
As to the receipts presented by petitioner allegedly proving the installment payments he RESPONDENT-BANK DID NOT HAVE THE RIGHT TO DISPOSE THE SUBJECT
had completed, the CA said that these were not payments of the repurchase price but were PROPERTIES.
actually remittances of the payments made by petitioner's buyers for the purchase of the
foreclosed properties already titled in the name of respondent bank. It was noted that two of D.
these receipts (Exhibits "K" and "K-1")[18] were issued to Fermin Salvador and Rizalina
Pedrosa, the vendees of two subdivided lots under separate Deeds of Absolute Sale THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF
executed in their favor by the respondent bank. In view of the attendant circumstances, the DISCRETION IN REVERSING THE FINDING OF THE TRIAL COURT THAT
CA concluded that petitioner acted merely as a broker or middleman in the sales RESPONDENTS-INTERVENORS ARE NOT INNOCENT PURCHASERS FOR
transactions involving the foreclosed properties. Lastly, the respondents-intervenors were VALUE IN GOOD FAITH.[19]
found to be purchasers who bought the properties in good faith without notice of
petitioner's interest or claim. Nonetheless, since there was no repurchase contract perfected, It is to be noted that the above issues raised by petitioner alleged grave abuse of discretion
the sale of the subject properties to respondents-intervenors remains valid and binding, and committed by the CA, which is proper in a petition for certiorari under Rule 65 of the 1997
the issue of whether the latter were innocent purchasers for value would be of no Rules of Civil Procedure, as amended, but not in the present petition for review on
consequence. certiorari under Rule 45.

Petitioner's motion for reconsideration was likewise denied by the appellate court. The core issue for resolution is whether a contract for the repurchase of the foreclosed
properties was perfected between petitioner and respondent bank.
Hence, this petition alleging that:
The Court sustains the decision of the CA.
A.
Contracts are perfected by mere consent, which is manifested by the meeting of the offer
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF and the acceptance upon the thing and the cause which are to constitute the contract.[20]
DISCRETION IN REVERSING THE FINDING OF THE TRIAL COURT THAT THERE The requisite acceptance of the offer is expressed in Article 1319 of the Civil Code which
WAS A PERFECTED CONTRACT TO REPURCHASE BETWEEN PETITIONER AND states:
RESPONDENT- BANK.
ART. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the
B. thing and the cause which are to constitute the contract. The offer must be certain and the
acceptance absolute. A qualified acceptance constitutes a counter-offer.
THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF
DISCRETION IN REVERSING THE FINDING OF THE TRIAL COURT THAT In Palattao v. Court of Appeals,[21] this Court held that if the acceptance of the offer was
PETITIONER DID NOT ACT AS BROKER IN THE SALE OF THE FORECLOSED not absolute, such acceptance is insufficient to generate consent that would perfect a
PROPERTIES AND THUS FAILED TO CONSIDER THE EXISTENCE OF OFFICIAL contract. Thus:
Contracts that are consensual in nature, like a contract of sale, are perfected upon mere Your proposal to repurchase your foreclosed properties located at Cabuyao, Laguna
meeting of the minds. Once there is concurrence between the offer and the acceptance upon consisting of a total area of 203,413 square meters has been favorably considered subject to
the subject matter, consideration, and terms of payment, a contract is produced. The offer the following terms and conditions:
must be certain. To convert the offer into a contract, the acceptance must be absolute and
must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and 1) Total Selling Price shall be P950,000.00
without variance of any sort from the proposal. A qualified acceptance, or one that involves
a new proposal, constitutes a counter-offer and is a rejection of the original offer. 2) Downpayment of P150,00000 with the balance Payable in Three (3) equal installments
Consequently, when something is desired which is not exactly what is proposed in the as follows:
offer, such acceptance is not sufficient to generate consent because any modification or
variation from the terms of the offer annuls the offer.[22] 1st Installment P 266,667 - on or before May 31, '84
2nd Installment P 266,667 on or before Sept. 31, '84
The acceptance must be identical in all respects with that of the offer so as to produce 3rd Installment P 266,666 - on or before Jan. 30, '85
consent or meeting of the minds.[23] Where a party sets a different purchase price than the
amount of the offer, such acceptance was qualified which can be at most considered as a TOTAL - P 800,000.00
counter-offer; a perfected contract would have arisen only if the other party had accepted
this counter-offer.[24] In Villanueva v. Philippine National Bank[25] this Court further 3) All expenses pertinent to the subdivision of the parcel of land consisting of 120,110
elucidated on the meaning of unqualified acceptance, as follows: square meters shall be for your account.

…While it is impossible to expect the acceptance to echo every nuance of the offer, it is Thank you,
imperative that it assents to those points in the offer which, under the operative facts of
each contract, are not only material but motivating as well. Anything short of that level of Very truly yours,
mutuality produces not a contract but a mere counter-offer awaiting acceptance. More
particularly on the matter of the consideration of the contract, the offer and its acceptance RITA B. MANUEL
must be unanimous both on the rate of the payment and on its term. An acceptance of an President
offer which agrees to the rate but varies the term is ineffective.[26] (Emphasis supplied)
According to petitioner, he wrote the notations in the presence of a certain Mr. Lazaro, the
Petitioner submitted as evidence of a perfected contract of repurchase the March 22, 1984 representative of Mrs. Manuel (President), and a certain Mr. Fajardo, which notations
letter (Exhibit "I")[27] from Rita B. Manuel, then President of UPI, a corporation formed supposedly represent their "compromise agreement."[28] These notations indicate that the
by respondent bank to dispose of its acquired assets, with notations handwritten by repurchase price would be P900,000.00 which shall be paid as follows: P150,000 end of
petitioner himself. Said letter reads: May '84; P150,000 end of June '84; Balance "Depending on financial position". Petitioner
further alleged the following conditions of the verbal agreement: (1) respondent bank shall
March 22, 1984 release the equivalent land area for payments made by petitioner who shall shoulder the
expenses for subdivision of the land; (2) in case any portion of the subdivided land is sold
Honorable Judge Fausto Ignacio by petitioner, a separate document of sale would be executed directly to the buyer; (3) the
412 Bagumbayan Street, Pateros remaining portion of the properties shall not be subject of respondent bank's transaction
Metro Manila without the consent and authority of petitioner; (4) the petitioner shall continue in
possession of the properties and whatever portion still remaining, and attending to the
Dear Judge Ignacio: needs of its tenants; and (5) payments shall be made directly to UPI.[29]
The foregoing clearly shows that petitioner's acceptance of the respondent bank's terms and
conditions for the repurchase of the foreclosed properties was not absolute. Petitioner set a Section 23 of the Corporation Code expressly provides that the corporate powers of all
different repurchase price and also modified the terms of payment, which even contained a corporations shall be exercised by the board of directors. Just as a natural person may
unilateral condition for payment of the balance (P600,000), that is, depending on authorize another to do certain acts in his behalf, so may the board of directors of a
petitioner's "financial position." The CA thus considered the qualified acceptance by corporation validly delegate some of its functions to individual officers or agents appointed
petitioner as a counter-proposal which must be accepted by respondent bank. However, by it. Thus, contracts or acts of a corporation must be made either by the board of directors
there was no evidence of any document or writing showing the conformity of respondent or by a corporate agent duly authorized by the board. Absent such valid
bank's officers to this counter-proposal. delegation/authorization, the rule is that the declarations of an individual director relating to
the affairs of the corporation, but not in the course of, or connected with, the performance
Petitioner contends that the receipts issued by UPI on his installment payments are concrete of authorized duties of such director, are held not binding on the corporation.[33]
proof -- despite denials to the contrary by respondent bank -- that there was an implied
acceptance of his counter-proposal and that he did not merely act as a broker for the sale of Thus, a corporation can only execute its powers and transact its business through its Board
the subdivided portions of the foreclosed properties to third parties. Since all these receipts, of Directors and through its officers and agents when authorized by a board resolution or its
except for two receipts issued in the name of Fermin Salvador and Rizalina Pedrosa, were by-laws.[34]
issued in the name of petitioner instead of the buyers themselves, petitioner emphasizes that
the payments were made for his account. Moreover, petitioner asserts that the execution of In the absence of conformity or acceptance by properly authorized bank officers of
the separate deeds of sale directly to the buyers was in pursuance of the perfected petitioner's counter-proposal, no perfected repurchase contract was born out of the talks or
repurchase agreement with respondent bank, such an arrangement being "an accepted negotiations between petitioner and Mr. Lazaro and Mr. Fajardo. Petitioner therefore had
practice to save on taxes and shortcut paper works." no legal right to compel respondent bank to accept the P600,000 being tendered by him as
payment for the supposed balance of repurchase price.
The Court is unconvinced.
A contract of sale is consensual in nature and is perfected upon mere meeting of the minds.
In Adelfa Properties, Inc. v. CA,[30] the Court ruled that: When there is merely an offer by one party without acceptance of the other, there is no
contract.[35] When the contract of sale is not perfected, it cannot, as an independent source
x x x The rule is that except where a formal acceptance is so required, although the of obligation, serve as a binding juridical relation between the parties.[36]
acceptance must be affirmatively and clearly made and must be evidenced by some acts or
conduct communicated to the offeror, it may be made either in a formal or an informal In sum, we find the ruling of the CA more in accord with the established facts and
manner, and may be shown by acts, conduct, or words of the accepting party that clearly applicable law and jurisprudence. Petitioner's claim of utmost accommodation by
manifest a present intention or determination to accept the offer to buy or sell. Thus, respondent bank of his own terms for the repurchase of his foreclosed properties are simply
acceptance may be shown by the acts, conduct, or words of a party recognizing the contrary to normal business practice. As aptly observed by the appellate court:
existence of the contract of sale.[31]
The submission of the plaintiff-appellee is unimpressive.
Even assuming that the bank officer or employee whom petitioner claimed he had talked to
regarding the March 22, 1984 letter had acceded to his own modified terms for the First, if the counter-proposal was mutually agreed upon by both the plaintiff-appellee and
repurchase, their supposed verbal exchange did not bind respondent bank in view of its defendant-appellant, how come not a single signature of the representative of the
corporate nature. There was no evidence that said Mr. Lazaro or Mr. Fajardo was defendant-appellant was affixed thereto. Second, it is inconceivable that an agreement of
authorized by respondent bank's Board of Directors to accept petitioner's counter-proposal such great importance, involving two personalities who are both aware and familiar of the
to repurchase the foreclosed properties at the price and terms other than those practical and legal necessity of reducing agreements into writing, the plaintiff-appellee,
communicated in the `March 22, 1984 letter. As this Court ruled in AF Realty & being a lawyer and the defendant-appellant, a banking institution, not to formalize their
Development, Inc. v. Dieselman Freight Services, Co.[32] repurchase agreement. Third, it is quite absurd and unusual that the defendant-appellant
could have acceded to the condition that the balance of the payment of the repurchase price
would depend upon the financial position of the plaintiff-appellee. Such open[-]ended and
indefinite period for payment is hardly acceptable to a banking institution like the
defendant-appellant whose core existence fundamentally depends upon its financial
arrangements and transactions which, most, if not all the times are intended to bear
favorable outcome to its business. Last, had there been a repurchase agreement, then, there
should have been titles or deeds of conveyance issued in favor of the plaintiff-appellee.
But as it turned out, the plaintiff-appellee never had any land deeded or titled in his name as
a result of the alleged repurchase agreement. All these, reinforce the conclusion that the
counter-proposal was unilaterally made and inserted by the plaintiff-appellee in Exhibit "I"
and could not have been accepted by the defendant-appellant, and that a different
agreement other than a repurchase agreement was perfected between them.37

Petitioner Fausto C. Ignacio passed away on November 11, 2008 and was substituted by his
heirs, namely: Marfel D. Ignacio-Manalo, Milfa D. Ignacio-Manalo and Faustino D.
Ignacio.

WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated July
18, 2006 and Resolution dated May 2, 2007 of the Court of Appeals in CA-G.R. CV No.
73551 are hereby AFFIRMED.

With costs against the petitioners.

SO ORDERED.