1

G.R. No. 162523               November 25, 2009 offer having been accepted, both parties executed a
Memorandum of Agreement6 (MOA) on the same date.
NORTON RESOURCES AND DEVELOPMENT
CORPORATION, Petitioner, As guarantor, the Home Financing Corporation (HFC), a
vs. government entity tasked to encourage lending institutions to
ALL ASIA BANK CORPORATION,* Respondent. participate in the government's housing programs, extended
security coverage obligating itself to pay the said loan upon
DECISION default of petitioner. Out of the loan proceeds in the amount of
₱3,800,000.00, respondent deducted in advance the amount of
NACHURA, J.: ₱320,000.00 as commitment/service fee.

Before this Court is a Petition for Review on Certiorari1 under Unfortunately, petitioner was only able to construct 35 out of the
Rule 45 of the Rules of Civil Procedure, seeking the reversal of 160 housing units proposed to be constructed under the contract.
the Court of Appeals (CA) Decision2 dated November 28, 2002 In addition, petitioner defaulted in the payment of its loan
which set aside the Decision3 of the Regional Trial Court (RTC) of obligation. Thus, respondent made a call on the unconditional
Davao City, Branch 14, dated August 27, 1999. cash guarantee of HFC. In order to recover from HFC,
respondent assigned to HFC its interest over the mortgage by
virtue of a Deed of Assignment7 on August 28, 1983 coupled with
The Facts
the delivery of the Transfer Certificate of Title.
Petitioner Norton Resources and Development Corporation
As of August 2, 1983, the outstanding obligation of petitioner
(petitioner) is a domestic corporation engaged in the business of
amounted to ₱3,240,757.99. HFC paid only ₱2,990,757.99,
construction and development of housing subdivisions based in
withholding the amount of ₱250,000.00. Upon payment, HFC
Davao City, while respondent All Asia Bank Corporation
executed a Deed of Release of Mortgage8 on February 14, 1984,
(respondent), formerly known as Banco Davao-Davao City
thereby canceling the mortgage of all properties listed in the Deed
Development Bank, is a domestic banking corporation operating
of Assignment. Respondent made several demands from HFC for
in Davao City.
the payment of the amount of ₱250,000.00 but HFC continued to
withhold the same upon the request of petitioner. Thus,
On April 13, 1982, petitioner applied for and was granted a loan respondent filed an action to recover the ₱250,000.00 with the
by respondent in the amount of Three Million Eight Hundred RTC, Branch 15, of Davao City, docketed as Civil Case No.
Thousand Pesos (₱3,800,000.00) as evidenced by a Loan 17048.9 On April 13, 1987, said RTC rendered a Decision10 in
Agreement.4 The loan was intended for the construction of 160 favor of respondent, the dispositive portion thereof reads as
housing units on a 3.9 hectare property located in Matina Aplaya, follows:
Davao City which was subdivided by petitioner per Subdivision
Sketch Plan.5 To speed up the processing of all documents
IN VIEW WHEREOF, judgment is hereby rendered as follows:
necessary for the release of the funds, petitioner allegedly offered
respondent a service/commitment fee of ₱320,000.00 for the
construction of 160 housing units, or at ₱2,000.00 per unit. The
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1. The defendant shall return to the plaintiff the After trial on the merits, the RTC rendered a Decision14 on August
₱250,000.00 with legal interest to be computed from April 27, 1999 in favor of petitioner. It held that the amount of
12, 1984 until fully paid. ₱320,000.00, as commitment/service fee provided in the MOA,
was based on the 160 proposed housing units at ₱2,000.00 per
2. The defendant shall pay the plaintiff fifty thousand unit. Since petitioner was able to
pesos (₱50,000.00) as attorney’s fees and ₱7,174.82 as
collection expenses. construct only 35 units, there was overpayment to respondent in
the amount of ₱250,000.00. Thus, the RTC disposed of the case
3. The defendant shall pay the costs of this suit. in this wise:

SO ORDERED.11 THE FOREGOING CONSIDERED, judgment is hereby rendered

for the plaintiff and against the defendant ordering the said
HFC appealed to the CA which, in turn, sustained the decision of defendant:
the RTC. The CA decision became final and executory.
1. To pay the plaintiff the amount of TWO HUNDRED
However, on February 22, 1993, petitioner filed a Complaint  for
12 FIFTY THOUSAND PESOS (₱250,000.00) with interest
Sum of Money, Damages and Attorney’s Fees against at the legal rate reckoned from February 22, 1993, the
respondent with the RTC, docketed as Civil Case No. 21-880-93. date of the filing of the plaintiff’s complaint until the same
Petitioner alleged that the ₱320,000.00 commitment/service fee shall have been fully paid and satisfied;
mentioned in the MOA was to be paid on a per-unit basis at
₱2,000.00 per unit. Inasmuch as only 35 housing units were 2. To pay the plaintiff the sum of THIRTY THOUSAND
constructed, petitioner posited that it was only liable to pay PESOS (₱30,000.00) representing litigation expenses;
₱70,000.00 and not the whole amount of ₱320,000.00, which was
deducted in advance from the proceeds of the loan. As such, 3. To pay the plaintiff the sum of SIXTY TWO
petitioner demanded the return of ₱250,000.00, representing the THOUSAND FIVE HUNDRED PESOS (₱62,500.00) as
commitment fee for the 125 housing units left unconstructed and and for attorney’s fees; and
unduly collected by respondent.
4. To pay the costs.
In its Answer,13 respondent denied that the ₱320,000.00
commitment/service fee provided in the MOA was broken down SO ORDERED.15
into ₱2,000.00 per housing unit for 160 units. Moreover,
respondent averred that petitioner’s action was already barred by Aggrieved, respondent appealed to the CA.16
res judicata considering that the present controversy had already
been settled in a previous judgment rendered by RTC, Branch 15,
The CA's Ruling
of Davao City in Civil Case No. 17048.
On November 28, 2002, the CA reversed the ruling of the RTC.
The RTC's Ruling
The CA held that from the literal import of the MOA, nothing was
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mentioned about the arrangement that the payment of the Our ruling in Benguet Corporation, et al. v. Cesar Cabildo20 is
commitment/service fee of ₱320,000.00 was on a per unit basis instructive:
valued at ₱2,000.00 per housing unit and dependent upon the
actual construction or completion of said units. The CA opined The cardinal rule in the interpretation of contracts is embodied in
that the MOA duly contained all the terms agreed upon by the the first paragraph of Article 1370 of the Civil Code: "[i]f the terms
parties. of a contract are clear and leave no doubt upon the intention of
the contracting parties, the literal meaning of its stipulations shall
Undaunted, petitioner filed a Motion for Reconsideration17 which control." This provision is akin to the "plain meaning rule" applied
was, however, denied by the CA in its Resolution18 dated by Pennsylvania courts, which assumes that the intent of the
February 13, 2004. parties to an instrument is "embodied in the writing itself, and
when the words are clear and unambiguous the intent is to be
Hence, this Petition which raised the following issues: discovered only from the express language of the agreement." It
also resembles the "four corners" rule, a principle which allows
1. WHETHER OR NOT THE MEMORANDU[M] OF courts in some cases to search beneath the semantic surface for
AGREEMENT (MOA) REFLECTS THE TRUE clues to meaning. A court's purpose in examining a contract is to
INTENTION OF THE PARTIES[;] interpret the intent of the contracting parties, as objectively
manifested by them. The process of interpreting a contract
requires the court to make a preliminary inquiry as to whether the
2. WHETHER OR NOT HEREIN PETITIONER IS
contract before it is ambiguous. A contract provision is ambiguous
ENTITLED TO RECOVER THE AMOUNT OF TWO
if it is susceptible of two reasonable alternative interpretations.
HUNDRED [FIFTY] THOUSAND PESOS
Where the written terms of the contract are not ambiguous and
REPRESENTING THE ONE HUNDRED TWENTY FIVE
can only be read one way, the court will interpret the contract as a
(125) UNCONSTRUCTED HOUSING UNITS AT TWO
matter of law. If the contract is determined to be ambiguous, then
THOUSAND PESOS (PHP. 2,000.00) EACH AS
the interpretation of the contract is left to the court, to resolve the
AGREED [; AND]
ambiguity in the light of the intrinsic evidence.
3. WHETHER OR NOT VICTOR FACUNDO AS THE
In our jurisdiction, the rule is thoroughly discussed in Bautista v.
VICE PRESIDENT AND GENERAL MANAGER AT THE
Court of Appeals:
TIME THE AFOREMENTIONED MOA WAS EXECUTED,
WAS AUTHORIZED TO ENTER INTO [AN]
AGREEMENT AND TO NEGOTIATE THE TERMS AND The rule is that where the language of a contract is plain and
CONDITIONS THEREOF TO THEIR CLIENTELE.19 unambiguous, its meaning should be determined without
reference to extrinsic facts or aids. The intention of the parties
must be gathered from that language, and from that language
Our Ruling
alone. Stated differently, where the language of a written contract
is clear and unambiguous, the contract must be taken to mean
The instant Petition is bereft of merit. 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 cannot make for the
 4

parties better or more equitable agreements than they upon by the parties, varying the purport of the written contract.
themselves have been satisfied to make, or rewrite contracts When an agreement has been reduced to writing, the parties
because they operate harshly or inequitably as to one of the cannot be permitted to adduce evidence to prove alleged
parties, or alter them for the benefit of one party and to the practices which, to all purposes, would alter the terms of the
detriment of the other, or by construction, relieve one of the written agreement. Whatever is not found in the writing is
parties from the terms which he voluntarily consented to, or understood to have been waived and abandoned.22 None of the
impose on him those which he did not.21 above-cited exceptions finds application in this case, more
particularly the alleged failure of the MOA to express the true
Moreover, Section 9, Rule 130 of the Revised Rules of Court intent and agreement of the parties concerning the
clearly provides: commitment/service fee of ₱320,000.00.

SEC. 9. Evidence of written agreements. — When the terms of an In this case, paragraph 4 of the MOA plainly states:
agreement have been reduced to writing, it is considered as
containing all the terms agreed upon and there can be, between 4. That the CLIENT offers and agrees to pay a commitment and
the parties and their successors in interest, no evidence of such service fee of THREE HUNDRED TWENTY THOUSAND PESOS
terms other than the contents of the written agreement. (₱320,000.00), which shall be paid in two (2) equal installments,
on the same dates as the first and second partial releases of the
However, a party may present evidence to modify, explain or add proceeds of the loan.23
to the terms of the written agreement if he puts in issue in his
pleading: As such, we agree with the findings of the CA when it aptly and
judiciously held, to wit:
(a) An intrinsic ambiguity, mistake, or imperfection in the
written agreement; Unmistakably, the testimonies of Antonio Soriano and Victor
Facundo jibed in material points especially when they testified
(b) The failure of the written agreement to express the that the ₱320,000.00 commitment/service fee mentioned in
true intent and agreement of the parties thereto; Paragraph 4 of Exhibit "B" is not to be paid in lump sum but on a
per unit basis valued at ₱2,000.00 per housing unit. But a careful
(c) The validity of the written agreement; or scrutiny of such testimonies discloses that they are not in accord
with the documentary evidence on record. It must be stressed
that both Antonio Soriano and Victor Facundo testified that the
(d) The existence of other terms agreed to by the parties
₱320,000.00 commitment/service fee was arrived at by
or their successors in interest after the execution of the
multiplying ₱2,000.00, the cost per housing unit; by 160, the total
written agreement.
number of housing units proposed to be constructed by the
[petitioner] as evidenced by a certain subdivision survey plan of
The "parol evidence rule" forbids any addition to or contradiction [petitioner] marked as Exhibit "C."
of the terms of a written instrument by testimony or other
evidence purporting to show that, at or before the execution of the
xxxx
parties' written agreement, other or different terms were agreed
 5

Looking closely at Exhibit "C," noticeable are the date of survey of considered as containing all the terms agreed upon and there can
the subdivision which is May 15-31, 1982 and the date of its be no evidence of such terms other than the contents of the
approval which is June 25, 1982, which dates are unmistakably written agreement between the parties and their successors in
later than the execution of the Loan Agreement (Exhibit "A") and interest. 25 Time and again, we have stressed the rule that a
Exhibit "B" which was on April 13, 1982. With these dates, we contract is the law between the parties, and courts have no
cannot lose sight of the fact that it was impossible for Victor choice but to enforce such contract so long as it is not contrary to
Facundo to have considered Exhibit "C" as one of the documents law, morals, good customs or public policy. Otherwise, courts
presented by [petitioner] to support its proposal that the would be interfering with the freedom of contract of the parties.
commitment/service fee be paid on a per unit basis at ₱2,000.00 Simply put, courts cannot stipulate for the parties or amend the
a unit. x x x. 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
xxxx to give force and effect to the intention of the parties.26

To stress, there is not even a slim possibility that said blue print Finally, as correctly observed by respondent, petitioner's claim
(referring to Exhibit "C") was submitted to [respondent] bank that the MOA is a contract of adhesion was never raised by
during the negotiation of the terms of Exhibit "B" and was made petitioner before the lower courts. Settled is the rule that points of
the basis for the computation of ₱320,000.00 commitment/service law, theories, issues, and arguments not adequately brought to
fee. As seen on its face, Exhibit "C" was approved in a much later the attention of the trial court need not be, and ordinarily will not
date than the execution of Exhibit "B" which was on April 13, be, considered by a reviewing court. They cannot be raised for
1982. In addition, as viewed from the foregoing testimony, no less the first time on appeal. To allow this would be offensive to the
than Victor Facundo himself admitted that there were only 127 basic rules of fair play, justice and due process.27
proposed housing units instead of 160. Considering these factual
milieus, there is sufficient justification to discredit the stance of A contract of adhesion is defined as one in which one of the
[petitioner] that Exhibit "B" was not reflective of the true intention parties imposes a ready-made form of contract, which the other
or agreement of the parties. Paragraph 4 of Exhibit "B" is clear party may accept or reject, but which the latter cannot modify.
and explicit in its terms, leaving no room for different One party prepares the stipulation in the contract, while the other
interpretation. Considering the absence of any credible and party merely affixes his signature or his "adhesion" thereto, giving
competent evidence of the alleged true and real intention of the no room for negotiation and depriving the latter of the opportunity
parties, the terms of Paragraph 4 of Exhibit "B" remains as it was to bargain on equal footing.28 It must be borne in mind, however,
written. Therefore, the payment of ₱320,000.00 that contracts of adhesion are not invalid per se. Contracts of
commitment/service fee mentioned in Exhibit "B" must be paid in adhesion, where one party imposes a ready-made form of
lump sum and not on a per unit basis. Consequently, we rule that contract on the other, are not entirely prohibited. The one who
[petitioner] is not entitled to the return of ₱250,000.00.24
1avvphi1 adheres to the contract is, in reality, free to reject it entirely; if he
adheres, he gives his consent.29
The agreement or contract between the parties is the formal
expression of the parties' rights, duties and obligations. It is the All told, we find no reason to disturb, much less, to reverse the
best evidence of the intention of the parties. Thus, when the assailed CA Decision.
terms of an agreement have been reduced to writing, it is
 6

WHEREFORE, the instant Petition is DENIED and the assailed

Court of Appeals Decision is AFFIRMED. Costs against
petitioner.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice
 7

G.R. No. 171146               December 7, 2011 from the Nisperos spouses the subject land, and that they had
agreed to give the Nisperos spouses a period of ten (10) years
RODOLFO MORLA, Petitioner, within which to repurchase the subject land for the price of Two
vs. Hundred Seventy-Five Thousand Pesos (₱ 275,000.00). The
CORAZON NISPEROS BELMONTE, ABRAHAM U. NISPEROS, 1988 contract was written in Ilocano and executed at the Office of
PERLITA NISPEROS OCAMPO, ARMANDO U. NISPEROS, the Barangay Captain in the Municipality of Burgos, Province of
ALBERTO U. NISPEROS, HILARIO U. NISPEROS, Isabela.8
ARCHIMEDES U. NISPEROS, BUENAFE NISPEROS PEREZ,
ARTHUR U. NISPEROS, AND ESPERANZA URBANO On June 27, 1994, the Nisperos spouses filed a Complaint9 for
NISPEROS, Respondents. Repurchase and/or Recovery of Ownership Plus Damages
against the Morla brothers. They alleged that the deed of sale
DECISION was registered by the Morla brothers only when they had signified
their intention to repurchase their property.10 Thus, Transfer
LEONARDO-DE CASTRO, J.: Certificate of Title (TCT) No. 225544 for the subject land was
issued in favor of the Morla brothers, and TCT No. 225545,11 for
the remaining 30,870 square meters of Lot No. 4353, to the
This petition for review on certiorari1 seeks to annul and set aside
Nisperos spouses.
the March 9, 2005 Decision2 and December 29, 2005
Resolution3 of the Court of Appeals in CA-G.R. CV No. 53527,
which affirmed with modification the February 19, 1996 In response,12 the Morla brothers claimed that the Nisperos
Judgment4 of the Regional Trial Court (RTC) of Ilagan, Isabela, spouses had no cause of action, as the repurchase of the subject
Branch 17 in Civil Case No. 810. land was improper for being outside the five-year period provided
under Section 119 of Commonwealth Act No. 141.13
Spouses Alfredo Nisperos and Esperanza Urbano (the Nisperos
spouses) were the original homesteaders of an 80,873-square At the pre-trial conference held on June 19, 1995, the parties
meter tract of public land known and identified as Lot No. 4353 of settled that the only issue to be resolved by the RTC was whether
Pls. 62, situated in Caliguian, Burgos, Isabela,5 by virtue of the 1988 contract executed by the parties, wherein it was
Original Certificate of Title (OCT) No. P-1542, issued on May 4, stipulated that the Nisperos spouses may repurchase the land
1951.6 sold to the Morla brothers within a period of ten (10) years, was
valid or not.14
On June 8, 1988, the Nisperos spouses executed a Partial Deed
of Absolute Sale,7 wherein they sold a portion of Lot No. 4353 On July 28, 1995, the RTC issued an Order15 requiring the parties
with an area of 50,000 square meters (subject land) to the to submit their position papers or memoranda in light of their
brothers Ramon and Rodolfo Morla (the Morla brothers) for the agreement to submit the case for Summary Judgment on the
sum of Two Hundred Fifty Thousand Pesos (₱ 250,000.00). issue of the validity of the 1988 contract.

On August 2, 1988, the Morla brothers acknowledged and The Nisperos spouses then filed a Motion for Summary
confirmed in writing (the "1988 contract") that they had bought Judgment16 on the ground that there was no genuine issue of
 8

material facts in the case except for damages and attorney’s fees, alleged that such sale in favor of the Morla brothers’ close
which may be heard separately and independently. relatives was a last ditch attempt to win the case. The Nisperos
spouses pointed out that the Morla brothers never mentioned
On September 15, 1995, the Nisperos spouses deposited the such sale considering that it supposedly happened in May 1994,
amount of ₱ 275,000.00, with the clerk of court of the RTC for the before the case was instituted in June 1994.23
repurchase of the subject land.17
The RTC denied the Morla brothers’ motion for reconsideration in
The RTC rendered its Judgment dated February 19, 1996, the an Order24 dated July 19, 1996. The RTC noted how such
dispositive portion of which reads: purported sale was not mentioned by the Morla brothers in their
confrontations with the Nisperos spouses prior to the filing of the
WHEREFORE, for and in consideration of the foregoing, case, or in any of their pleadings filed before the RTC. The RTC
judgment is hereby rendered in favor of the plaintiffs and against agreed with the Nisperos spouses’ contention that if the sale
the defendants ordering the defendants to reconvey the portion of really did happen, then the Morla brothers should have brought it
five (5) hectares of plaintiff’s land covered by their original title, up at the earliest opportune time. Finally, the RTC said that the
Original Certificate of Title No. P-1542 unto the plaintiffs and to belated issue would not in any way affect the standing of the
receive and accept the ₱ 275,000.00 from the plaintiffs as parties.
repurchase; to pay attorney’s fees in the amount of ₱ 5,000.00
and to pay the costs of this suit.18 The Morla brothers timely25 appealed this decision to the Court of
Appeals and assigned the following errors in support thereof:
The RTC said that the only issue to be resolved was the validity
of the 1988 contract, which the Morla brothers neither attacked I
nor denied. The RTC held that it was clear from the 1988
contract, which the Morla brothers executed, that they had bound The TRIAL COURT GRAVELY ERRED IN HOLDING
themselves to its terms and conditions. The RTC further THAT APPELLANTS’ AUGUST 2, 1988 private writing,
proclaimed that what was prohibited was the shortening of the Exh. "A" WAS AN AGREEMENT BY PARTIES FOR
five-year redemption period under Section 119 of Commonwealth APPELLEES TO REPURCHASE WITHIN TEN (10)
Act No. 141, and not its prolongation.19 YEARS THEREFROM THE FIVE (5) HECTARES
PORTION OF THEIR HOMESTEAD THEY SOLD TO
On March 14, 1996, the Morla brothers moved for the THE FORMER AS PER JUNE 28, 1988 PARTIAL DEED
reconsideration20 of the RTC’s judgment on the ground that it OF ABSOLUTE SALE, EXH. "1" NOTWITHSTANDING
could not affect them since they were no longer the real parties- THE MANDATORY FIVE (5) YEARS REPURCHASE
in-interest as they had already sold the subject land to Rosie PERIOD FROM THE DATE OF SALE PROVIDED BY
Ocampo, married to Delfin Gragasin, and Hilario Bernardino, SECTION 119 OF THE PUBLIC LAND LAW
married to Manolita Morla, on May 2, 1994.21 (COMMONWEALTH ACT NO. 141).

The Nisperos spouses, in their Opposition to the Motion for II

Reconsideration,22 attacked the validity of the purported sale and
 9

THE TRIAL COURT GRAVELY ERRED IN RELYING ON The Court of Appeals issued a Resolution29 on December 29,
THE PRECEDENT LAID IN THE CASES OF MENJE, ET 2005, denying the Morla brothers’ motion for reconsideration in
AL., VS. ANGELES, 101 PHIL. 563 AND MANUEL VS. this wise:
PHILIPPINE NATIONAL BANK, 101 PHIL. 568, WHICH
TREAT OF REDEMPTION OF FORECLOSED [The Morla brothers] assert a new theory on the basis of a
HOMESTEAD AFTER FORECLOSURE SALES handwritten "contract" dated June 28, 1978 – a private document
NOTWITHSTANDING THE CLEAR ISSUE IN THE CASE – allegedly executed by [the Nisperos spouses]. Said document is
AT BAR WHICH IS FOR REPURCHASE OF A PORTION being introduced for the first time on appeal. And it is settled that
OF A HOMESTEAD. 26 issues not raised in the court a quo cannot be raised for the first
time on appeal – in the case at bench, in a motion for
On March 9, 2005, the Court of Appeals affirmed the RTC’s reconsideration – for being offensive to the basic rules of fair play,
decision, with the deletion of the award of attorney’s fees for lack justice and due process x x x.30
of basis in the decision, as the only modification. While the Court
of Appeals agreed with the Morla brothers’ assertion that the As Ramon Morla died on March 5, 2001, single and without any
cases cited by the RTC were not applicable to their case, it descendants or ascendants, Rodolfo Morla (petitioner), by
declared that the RTC did not err in allowing the Nisperos himself, elevated the instant case before this Court with the
spouses to repurchase the subject land. The Court of Appeals Nisperos spouses as respondents. Alfredo Nisperos, however,
immediately noted that there clearly was no genuine issue as to also died on September 19, 2010.31 Consequently, Alfredo
any material fact, except for the claim of attorney’s fees. It upheld Nisperos’ legal heirs filed a motion32 to be substituted as
the validity of the 1988 contract and concurred with the RTC’s respondents, in lieu of their deceased father. This motion was
rationale that the arrangement to prolong the period for granted on October 3, 201133 thus, Corazon Nisperos Belmonte,
redemption of the subject land was not prohibited by law as it was Abraham U. Nisperos, Perlita Nisperos Ocampo, Armando U.
in line with the intent of Section 119 "to give the homesteader or Nisperos, Alberto U. Nisperos, Hilario U. Nisperos, Archimedes
patentee every chance to preserve for himself and his family the U. Nisperos, Buenafe Nisperos Perez, and Arthur U. Nisperos,
land that the State had gratuitously given to him as a reward for now join their mother Esperanza Urbano Nisperos as
his labor in cleaning and cultivating it." The Court of Appeals respondents in this case.
further held that the 1988 contract, contrary to the Morla brothers’
contention, was not unenforceable as the necessity to embody Issue
certain contracts in a public instrument was only for convenience
and not for its validity or enforceability.27
Petitioner, claiming that his petition is of transcendental
importance as it poses a novel question of law, is asking us to
The Morla brothers sought to have this decision reconsidered on resolve the following question:
the strength of a "newly discovered" Contract of Sale of farm land
dated June 28, 1978 (1978 contract). The Morla brothers alleged
[M]ay parties to a deed of sale of a land covered by a homestead
that this contract, which covered the subject land, was found only
patent extend or prolong the 5-year period of repurchase under
upon the prodding of their new lawyer; thus, even the ten-year
Section 119 of Act 141, under a private writing subsequently
period to repurchase the subject land under Article 1606 of the
executed by them?34
Civil Code had already expired.28
 10

The Court’s Ruling 2. That on August 2, 1988, at Caliguian, Burgos, Isabela,

in the presence of the Barangay Captain, an Ilocano
This Court would like to address the admissibility of the 1978 writing or contract was acknowledged and confirmed by
contract at the outset as petitioner posits that by virtue of this the defendants and the defendants admitted as to its
contract, the respondents’ claim had already prescribed, even if authenticity;
the redemption period under Section 119 of Commonwealth Act
No. 141 were extended to ten years. Petitioner claims that the 3. That the Transfer Certificate of Title No. T-225545 is
June 8, 1988 Partial Deed of Sale was actually the formal the remaining portion of Three (3) hectares or 30, 873
culmination of an earlier transaction between the Morla brothers square meters, which was only issued by the Register of
and the Nisperos spouses, as shown by the 1978 contract. Deeds of Isabela on March 11, 1994, and this remaining
Hence, more than ten years have already lapsed from the time portion was derived from the Original Certificate of Title of
such contract was executed to the time the right to repurchase Alfredo Nisperos, which is OCT No. P-1542 issued in
was sought to be exercised.35 1951;

Contrary to petitioner’s allegation in its Motion for 4. That on June 8, 1988, a Partial Deed of Absolute Sale
Reconsideration before the Court of Appeals, the 1978 contract was prepared, as per Doc. No. 419; Page 84; Book 17;
did not surface only after the appeal; it was actually attached to Series of 1988, entered into the Notarial Book of Notary
the Morla brothers’ Answer36 filed with the RTC on July 12, 1994. Public Severo Ladera;
Referencing this 1978 contract, the Morla brothers stated the
following in their Answer: 5. That Transfer Certificate of Title No. T-225544 was
registered in the name of the defendants, Rodolfo Morla
8. Since June 28, 1978 and continuously up to the present, the and Ramon Morla at the Office of the Registry of Deeds
defendants are in the open, continuous, exclusive, and notorious of Isabela on March 11, 1994. 38
actual physical possession, occupation, and cultivation of the
(50,000 SQUARE METERS) portion of Lot No. 4353, Pls-62, as The Morla brothers’ Position Paper/Memorandum39 likewise
evidenced by a private document, a xerox copy of which reiterated that the sale of the subject land happened on June 8,
document is hereto attached as Annex "2" to this answer.37 1988, and referred to the 1978 contract only to prove their long
possession of the subject land, just as they did in their Answer.
During the pre-trial, the Morla brothers and the Nisperos spouses
also agreed on only the following stipulation of facts, as stated in If it were true that the subject land’s ownership was ceded to the
the RTC’s June 19, 1995 Order: Morla brothers as early as 1978, then it is inconceivable that they
would forget to bring up this important fact and use it as their key
1. That the land is a Homestead originally applied for by defense when they filed their Answer to the Complaint on July 12,
the plaintiffs and a Homestead Patent and Original 1994. Even then, the Morla brothers had every opportunity to
Certificate of Title were issued to the plaintiffs; correct this lapse as they had always been aware and in
possession of the 1978 contract. They could have stipulated it
during the pre-trial conference, or at least stated it in their
 11

Position Paper. The theory advanced by the Morla brothers from Act.44 Section 119 thereof specifically speaks about
the very beginning is that they are entitled to the possession of repurchases of a homestead or free patent land:
the subject land as the owner thereof because the property was
sold to them by virtue of the Partial Deed of Sale executed on Sec. 119. Every conveyance of land acquired under the free
June 8, 1988. They presented the 1978 contract only to prove patent or homestead provisions, when proper, shall be subject to
that they had been in continuous and open possession since repurchase by the applicant, his widow, or legal heirs, within a
1978. The first time the Morla brothers claimed ownership, and period of five years from the date of the conveyance.
not mere possession, of the subject land by virtue of the 1978
contract, was in their motion for reconsideration, after they had The petitioner does not dispute the existence or validity of the
lost their appeal before the Court of Appeals. The Court of 1988 contract. He simply argues that the 10-year repurchase
Appeals was correct in not considering this argument for not period he and his brother Ramon Morla had agreed to grant the
having been raised at the earliest opportunity. It is a well-settled Nisperos spouses, as evidenced by the 1988 contract, was
rule that "a party who deliberately adopts a certain theory upon contrary to law and jurisprudence, viz:
which the case was decided by the lower court will not be
permitted to change [it] on appeal."40 "Petitioner is bound by the
In no uncertain terms can the statutory period of five (5) years,
statements and stipulations he made while the case was being
which is fixed and non-extendible, be prolonged or extended by
heard in the lower courts."41 In Manila Electric Company v.
agreement of the parties since it runs athwart with the express
Benamira,42 we said:
limitation of the right to repurchase provided for in Section 119,
Act 141. Spouses Nisperos cannot, therefore, use the August 2,
[I]t is a fundamental rule of procedure that higher courts are 1988 private writing to extend the already expired period granted
precluded from entertaining matters neither alleged in the under the law. To do so is to violate the law. The law must control
pleadings nor raised during the proceedings below, but ventilated over the revised intention of the parties.45 (Emphasis supplied.)
for the first time only in a motion for reconsideration or on appeal.
The individual respondents are bound by their submissions that
Elucidating on the purpose of the homestead laws, this Court held
AFSISI is their employer and they should not be permitted to
in Republic of the Philippines v. Court of Appeals46 :
change their theory. Such a change of theory cannot be tolerated
on appeal, not due to the strict application of procedural rules but
as a matter of fairness. A change of theory on appeal is It is well-known that the homestead laws were designed to
objectionable because it is contrary to the rules of fair play, justice distribute disposable agricultural lots of the State to land-destitute
and due process.43 citizens for their home and cultivation. Pursuant to such
benevolent intention the State prohibits the sale or encumbrance
of the homestead (Section 116) within five years after the grant of
Having settled the inadmissibility of the 1978 contract, we now go
the patent. After that five-year period the law impliedly permits
to the legality of the 1988 contract.
alienation of the homestead; but in line with the primordial
purpose to favor the homesteader and his family the statute
Since the subject land was acquired by the Nisperos provides that such alienation or conveyance (Section 117) shall
spouses pursuant to a homestead patent, the applicable law be subject to the right of repurchase by the homesteader, his
is Commonwealth Act No. 141, or the Public Land widow or heirs within five years. This section 117 is undoubtedly
 12

a complement of section 116. It aims to preserve and keep in the seeks to preserve."51 "This, in our opinion, is the only logical
family of the homesteader that portion of public land which the meaning to be given to the law, which must be liberally construed
State had gratuitously given to him. It would, therefore, be in in order to carry out its purpose."52
keeping with this fundamental idea to hold, as we hold, that the
right to repurchase exists not only when the original homesteader Petitioner does not dispute that the 1988 contract was executed
makes the conveyance, but also when it is made by his widow or freely and willingly between him and his late brother, and the
heirs. This construction is clearly deducible from the terms of the Nisperos spouses. "The freedom of contract is both a
statute.47 constitutional and statutory right,"53 and "the contracting parties
may establish such stipulations, clauses, terms and conditions as
In Fontanilla, Sr. v. Court of Appeals,48 we said: they may deem convenient, provided they are not contrary to law,
morals, good customs, public order, or public policy."54 The 1988
The applicant for a homestead is to be given all the inducement contract neither shortens the period provided under Section 119
that the law offers and is entitled to its full protection. Its nor does away with it. Instead, it gives the Nisperos spouses
blessings, however, do not stop with him. This is particularly so in more time to reacquire the land that the State gratuitously gave
this case as the appellee is the son of the deceased. There is no them. The 1988 contract therefore is not contrary to law; instead it
question then as to his status of being a legal heir. The policy of is merely in keeping with the purpose of the homestead law.
the law is not difficult to understand. The incentive for a pioneer to Since the 1988 contract is valid, it should be given full force and
venture into developing virgin land becomes more attractive if he effect. In Roxas v. De Zuzuarregui, Jr.,55 we held:
is assured that his effort will not go for naught should perchance
his life be cut short. This is merely a recognition of how closely It is basic that a contract is the law between the parties.
bound parents and children are in Filipino family. Logic, the sense Obligations arising from contracts have the force of law between
of fitness and of right, as well as pragmatic considerations thus the contracting parties and should be complied with in good faith.
call for continued adherence to the policy that not the individual Unless the stipulations in a contract are contrary to law, morals,
applicant alone but those so closely related to him as are entitled good customs, public order or public policy, the same are binding
to legal succession may take full advantage of the benefits the as between the parties.56
law confers.49
Petitioner, who freely signed the 1988 contract, cannot now be
We are in full accord with the clear findings and apt ruling of the allowed to renege on his obligation under it, simply because he
lower courts. Nowhere in Commonwealth Act No. 141 does it say changed his mind. Article 1308 of the Civil Code provides:
that the right to repurchase under Section 119 thereof could not
be extended by mutual agreement of the parties involved. Neither The contract must bind both contracting parties; its validity or
would extending the period in Section 119 be against public compliance cannot be left to the will of one of them. 1avvphi1

policy as "the evident purpose of the Public Land Act, especially

the provisions thereof in relation to homesteads, is to conserve Petitioner is thus bound by the terms of the 1988 Contract, and
ownership of lands acquired as homesteads in the homesteader must comply with it in good faith. Since the right to repurchase
or his heirs."50 "What cannot be bartered away is the was exercised by the Nisperos spouses before the expiration of
homesteader’s right to repurchase the homestead within five
years from its conveyance, as this is what public policy by law
 13

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.
 14

G.R. No. 183789               August 24, 2011 Respondent Pozzolanic Philippines Incorporated (Pozzolanic) is
the local subsidiary of Pozzolanic Australia Pty. Ltd. (Pozzolanic
POWER SECTOR ASSETS AND lIABILITIES MANAGEMENT Australia),6 an Australian corporation which claims to have
CORPORATION, Petitioner, perfected the techniques in the processing of fly ash for use in the
vs. making of cement.7
POZZOLANIC PHILIPPINES INCORPORATED, Respondent.
In 1986, Pozzolanic Australia won the public bidding for the
DECISION purchase of the fly ash generated by NPC’s power plant in
Batangas.8 Pozzolanic Australia then negotiated with NPC for a
PEREZ, J.: long-term contract for the purchase of all fly ash to be produced
by NPC’s future power plants. NPC accepted Pozzolanic
Australia’s offer and they entered into a long-term contract, dated
The Case
20 October 1987, denominated as "Contract for the Purchase of
Fly Ash of Batangas Coal-Fired Thermal Power Plant Luzon" (the
This petition1 for review on certiorari under Rule 45 of the 1997 Batangas Contract).9
Rules of Civil Procedure assails (1) the Decision2 dated 30 April
2008 of the Regional Trial Court of Quezon City, Branch 96,
Under Article I of the contract, NPC, referred to therein as the
upholding the validity of respondent’s right of first refusal and
"CORPORATION," granted Pozzolanic Australia, the
holding such right binding on petitioner, and (2) the Order3 dated
"PURCHASER," a right of first refusal to purchase the fly ash
27 June 2008 of the same court, denying petitioner’s Motion for
generated by the coal-fired plants that may be put up by NPC in
Reconsideration and Supplemental Motion for Reconsideration of
the future. The specific provision of the contract states:
the 30 April 2008 Decision of the trial court in Civil Case No. Q-
00-40731.
PURCHASER has first option to purchase Fly Ash under similar
terms and conditions as herein contained from the second unit of
The Antecedents
Batangas Coal-Fired Thermal Plant that the CORPORATION
may construct. PURCHASER may also exercise the right of first
Petitioner Power Sector Assets and Liabilities Management refusal to purchase fly ash from any new coal-fired plants which
Corporation (PSALM) is a government-owned and controlled will be put up by CORPORATION.10
corporation created by virtue of Republic Act No. 9136, otherwise
known as the Electric Power Industry Reform Act (EPIRA) of
In 1988, while the necessary clearances and approvals were
2001.4 Its principal purpose is to manage the orderly sale,
being obtained by Pozzolanic Australia in connection with the
disposition, and privatization of the National Power Corporation’s
operation of its fly ash business in the Philippines, its major
(NPC’s) generation assets, real estate and other disposable
stockholders decided that it would be more advantageous for the
assets, and Independent Power Producer (IPP) contracts, with
company to organize a Philippine corporation and to assign to
the objective of liquidating all NPC financial obligations and
such corporation Pozzolanic Australia’s rights to the commercial
stranded contract costs in an optimal manner.5
use of fly ash in the Philippines. Accordingly, in April 1989,
respondent Pozzolanic was formally incorporated to take over
Pozzolanic Australia’s business in the Philippines.11 Respondent
 15

then commenced to exercise its rights under the Batangas also demanded that any tender documents to be issued in
contract in June, 1989.12 connection with the bidding on the right to purchase the Masinloc
and Sual Plants’ fly ash include notices informing prospective
In 1998, the Masinloc Coal-Fired Thermal Power Plant (Masinloc bidders of respondent’s right of first refusal.
Plant) started operations to provide power for NPC. Late that
year, respondent began the installation of its fly ash processing In a letter dated 7 March 2000, NPC informed respondent that it
equipment in the Masinloc Plant and began off taking the fly ash had decided to defer indefinitely the bidding on the right to
produced therein. 13 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
Subsequently, on 15 February 1999, NPC and respondent, on an 7 April 2000, NPC released the tender documents for the bidding
interim basis and prior to the conduct of a public bidding for the on the Sual Plant’s fly ash, which tender documents made no
contract to purchase the Masinloc Plant’s fly ash, executed a reference to respondent’s right of first refusal.19
contract whereby respondent was given the right to purchase the
said fly ash for a period of one year.14 The fourth and fifth This prompted respondent to file a complaint20 (later amended21 )
"WHEREAS" clauses of the contract provide: with the trial court praying that NPC be ordered to allow
Pozzolanic to exercise its right of first refusal by permitting it to
WHEREAS, under the ‘Contract for the Purchase of the Fly Ash match the price and terms offered by the winning bidder and by
of Batangas Coal-Fired Thermal Power Plant’ dated 20 October awarding the contract for the purchase of the Sual Plant’s fly ash
1987, PURCHASER was granted the right of first refusal over any to Pozzolanic if it matches the price and terms offered by said
and all fly ash that may be produced by any of NPC’s coal-fired winning bidder.22
power plants in the Philippines;
While the case was pending before the lower court, NPC decided
WHEREAS, NPC intends to bid out the long term contract for the to also dispose of the fly ash from the Masinloc Plant through
Fly Ash that may be produced by the (Masinloc Coal Fired public bidding, without allowing respondent to exercise its right of
Thermal Power) Plant subject to the second paragraph of Article I first refusal. Thus, respondent filed a Supplementary Complaint23 ,
of the original contract between the parties which was signed on dated 8 August 2002, praying for the same reliefs as those
20 October 1987 giving PURCHASER the right of first refusal.15 prayed for in the amended complaint earlier filed, but as regards
the Masinloc Plant.24
In October 1999, the Sual Coal-Fired Power Plant started
providing electricity in the Luzon region.16 NPC thereafter caused Meanwhile, on 4 June 2001, Congress enacted the EPIRA (RA
to be published in the Philippine Star and the Manila Bulletin17 an 9136) which created PSALM. This resulted in the filing of a
"Invitation to Pre-Qualify and to Bid," inviting all interested buyers Second Supplementary Complaint, dated 5 March 2003,
to pre-qualify for the purchase of fly ash from the Masinloc and/or impleading petitioner PSALM as a necessary and indispensable
Sual Power Plants.18 party.25

As a result, respondent sent letters to NPC calling its attention to The litigation became more complicated when petitioner, NPC,
respondent’s right of first refusal under the Batangas Contract. It and the Department of Energy entered into a Memorandum of
 16

Agreement with the Provincial Government of Zambales and between respondent and the Provincial Government of Zambales
several local government units of Zambales, pursuant to which with respect to the fly ash of the Masinloc Plant.34
the Provincial Government of Zambales was awarded the
exclusive right to withdraw the fly ash from the Masinloc During the hearing on NPC’s Motion to Dismiss held on 7
Plant.26 With this development, respondent filed a Third February 2008, the trial court ordered herein petitioner PSALM
Supplementary Complaint seeking the annulment of the aforesaid and respondent Pozzolanic to comment on the Motion. Petitioner,
Memorandum of Agreement and other documents related through counsel, manifested that in addition to commenting on
thereto.27 This complaint was dismissed by the trial court on the the Motion to Dismiss, it would also like to challenge, through a
ground of forum shopping, it appearing that the Province of position paper, the validity of respondent’s right of first refusal.35
Zambales, et al. had previously filed a case against respondent
and NPC, claiming exclusive right to withdraw the fly ash of the Respondent herein interposed no objection to the Motion to
Masinloc Plant.28 Dismiss.36 On the other hand, in its Comment37 dated 14 February
2008, petitioner asserted that the following issues should first be
Respondent appealed the order of dismissal to the Court of resolved before a resolution on the Motion to Dismiss may be
Appeals. had:

On 18 July 2007, while the appeal was pending, respondent and 1. whether or not fly ash, which is/are [sic] not yet
the Provincial Government of Zambales executed an existing, can be considered assets of the government, the
"Agreement"29 (the Masinloc Contract) by virtue of which the disposition of which is subject to government rules
Province of Zambales awarded to respondent the exclusive right particularly public bidding;
to withdraw the fly ash from the Masinloc Power Plant.
Respondent then moved for the dismissal of its appeal in the 2. whether or not the alleged right of first refusal of
Court of Appeals. As a result, the assailed Order of the trial court plaintiff is not contrary to law; and
dismissing respondent’s Third Supplementary Complaint became
final.30
3. whether or not PSALM is bound by the said alleged
right.38
Also, previously, on 30 March 2005, respondent and NPC
entered into a "Purchase Agreement for the Purchase of Fly Ash
Petitioner thus prayed that resolution on the Motion to Dismiss be
of Sual Coal-Fired Thermal Power Plant"31 (the Sual Contract)
held in abeyance pending determination of the issues concerning
whereby NPC awarded to respondent the exclusive right to
respondent’s alleged right of first refusal.
withdraw the fly ash from the Sual Plant.32
Pursuant to its manifestation in open court during the 7 February
As a result, NPC filed, on 4 February 2008, a Motion to
2008 hearing on NPC’s Motion to Dismiss, petitioner submitted its
Dismiss33 the Complaint against it on the ground that the issues
Position Paper39 on 29 February 2008 raising the same issues as
between it and respondent had become moot and academic. This
those in its Comment to NPC’s Motion to Dismiss. Petitioner
is in view of the Purchase Agreement executed by NPC and
prayed that the complaint against it be dismissed and that
respondent for the fly ash of the Sual Plant and the Agreement
respondent’s right of first refusal contained in the second
 17

paragraph, Article 1 of the Batangas Contract be declared void ab The Court’s Ruling
initio for being contrary to law and public policy.
On whether or not the trial court
In an Order40 dated 17 March 2008, the trial court dismissed in
toto the Amended Complaint and the First Supplementary was divested of jurisdiction
Complaint. The Second Supplementary Complaint was
PARTIALLY DISMISSED insofar Petitioner contends that by virtue of the Order of the trial court
dated 17 March 2008, respondent’s Amended Complaint was
as it refers to herein respondent’s complaint against NPC only. dismissed with prejudice; and, since no motion for
Thus, on 30 April 2008, the trial court rendered the herein reconsideration or appeal was filed by any of the parties in the
assailed Decision declaring respondent’s right of first refusal valid lower court, the Order attained finality. Thus, petitioner argues,
and binding on petitioner. The Motion for Reconsideration and the trial court can no longer take any further action since it had
Supplemental Motion for Reconsideration filed by petitioner lost all power or authority over the case. The Order of dismissal
seeking a reversal of the decision of the trial court were both effectively deprived it of jurisdiction.42
denied for lack of merit.41
We cannot subscribe to petitioner’s argument. Petitioner is barred
Hence, this petition. by the doctrine of estoppel from challenging the lower court’s
authority to render the 30 April 2008 Decision since it was
The Issues petitioner itself which called for the exercise of such authority. In
its Comment to NPC’s Motion to Dismiss, it raised the following
Petitioner PSALM prays for the reversal of the challenged issues:
decision on the following grounds:
1. whether or not fly ash, which is/are [sic] not yet
1. THE TRIAL COURT WAS DIVESTED OF existing, can be considered assets of the government, the
JURISDICTION AFTER IT ISSUED THE ORDER DATED disposition of which is subject to government rules
17 MARCH 2008 DISMISSING WITH PREJUDICE THE particularly public bidding;
AMENDED COMPLAINT AND THE FIRST
SUPPLEMENTARY COMPLAINT. THUS, THE 2. whether or not the alleged right of first refusal of
"DECISION" DATED 30 APRIL 2008 RENDERED plaintiff is not contrary to law; and
SUBSEQUENT TO SUCH DISMISSAL IS NULL AND
VOID; AND 3. whether or not PSALM is bound by the said alleged
right.
2. EVEN ASSUMING THAT THE TRIAL COURT WAS
NOT DIVESTED OF JURISDICTION, THE RIGHT OF Then, again, in its Position Paper, it reiterated the aforesaid
FIRST REFUSAL IS NOT VALID, AND THEREFORE, issues and petitioned the trial court to dismiss herein
WITHOUT BINDING EFFECT, FOR BEING CONTRARY respondent’s complaint against it and to invalidate respondent’s
TO PUBLIC POLICY. right of first refusal as contained in the Batangas Contract.
 18

Clearly, petitioner invoked the court’s jurisdiction by seeking to If petitioner’s claim is to be accepted as true, it should have
obtain a definite pronouncement from it. Having thus called upon raised the issue regarding the trial court’s jurisdiction at the very
the court to settle the issues it has raised, petitioner cannot now first opportunity, which was, at the time of its receipt of the 17
repudiate that same jurisdiction it has invoked in the first place. March 2008 Order dismissing the Amended and First
Supplementary Complaints in toto and only partially dismissing
This Court has consistently held that "a party cannot invoke the the Second Supplementary Complaint wherein petitioner was
jurisdiction of a court to secure affirmative relief against his impleaded. At that point, petitioner should have been forewarned
opponent and after obtaining or failing to obtain such relief, that the proceedings, as against it, have not been terminated.
repudiate or question that same jurisdiction."43 The Supreme Then, too, as far as the issues it raised in its Comment and
Court frowns upon the undesirable practice of a party submitting Position Paper were concerned, no pronouncement had, as yet,
his case for decision and then accepting the judgment only if been made by the court at the time. Obviously, there were still
favorable, and attacking it for lack of jurisdiction if adverse.44 If a matters that needed to be resolved by the court. Thus, if
party invokes the jurisdiction of a court, he cannot thereafter petitioner truly believed that the court had lost its jurisdiction after
challenge the court’s jurisdiction in the same case. To rule it dismissed the Amended Complaint, it should have questioned
otherwise would amount to speculating on the fortune of litigation, the 17 March 2008 Order of the court which failed to completely
which is against the policy of the Court.45 dispose of the case. Instead, it waited for the court to issue the
questioned Decision, and only then did petitioner broach the
Petitioner maintains that it had tried to prevent the current subject. Clearly, under the circumstances, petitioner is estopped
situation wherein a decision was rendered by the trial court from questioning the court’s jurisdiction.
without a standing complaint. According to petitioner, in its
Comment to NPC’s Motion to Dismiss, it prayed for a deferral of On the validity of respondent’s
the court’s action on the Motion until after the resolution of the
issues it has raised. Thus, petitioner claims, it cannot be faulted right of first refusal
for the lower court’s own procedural lapse in dismissing the
Amended Complaint despite petitioner’s prayer.46 We hold the right of first refusal granted to respondent in the
Batangas Contract invalid for being contrary to public policy as
Again, we cannot sustain petitioner’s contention. the same violates the requirement of competitive public bidding in
the award of government contracts, for the following reasons:
It must be noted that petitioner did not raise the foregoing
argument in its Comment on NPC’s Motion to Dismiss. Neither One: The grant to respondent of the right of first refusal
was it mentioned in the Position Paper it filed before the trial constitutes an unauthorized provision in the contract that was
court. Not even in its Motion for Reconsideration of the herein entered into pursuant to the bidding.
challenged Decision did petitioner discuss the issue. The matter
was raised for the first time in its Supplemental Motion for By respondent’s own admission, the right of first refusal granted
Reconsideration, thereby giving credence to respondent’s to it was "contractually bargained for and acquired from
contention that the same was just an afterthought47 on the part of NPC"48 after it won the public bidding for the purchase of the fly
petitioner. ash produced by the Batangas Power Plant.49 This clearly
 19

indicates that the right of first refusal was not included in the bid contract for the reason that the same was done without public
documents presented to the other bidders who participated in the bidding. Citing the appealed decision, the Court held that:
bidding. As a result, the contract signed by NPC and respondent
is different from that which was bidded out. 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
It has been held that the three principles in public bidding are: (1) adversely affect the rights of third parties, x x x and of the public
the offer to the public; (2) an opportunity for competition; and (3) a in general. x x x the due execution of a contract after public
basis for the exact comparison of bids. A regulation of the matter bidding is a limitation upon the right of the contracting parties to
which excludes any of these factors destroys the distinctive alter or amend it without another public bidding, for otherwise
character of the system and thwarts the purpose of its adoption.50 what would a public bidding be good for if after the execution of a
contract after public bidding, the contracting parties may alter or
Thus, in the case of Agan, Jr. v. Philippine International Air amend the contract, or even cancel it, at their will? Public
Terminals Co., Inc.51 (PIATCO), the Supreme Court declared as biddings are held for the protection of the public, and to give the
null and void, for being contrary to public policy, the Concession public the best possible advantages by means of open
Agreement entered into by the government with PIATCO because competition between the bidders. He who bids or offers the best
it contained provisions that substantially departed from the draft terms is awarded the contract subject of the bid, and it is obvious
Concession Agreement included in the bid documents.52 that such protection and best possible advantages to the public
will disappear if the parties to a contract executed after public
Also, in Commission on Audit v. Link Worth International, bidding may alter or amend it without another previous public
Inc.,53 the Court affirmed the respective decisions of the trial court bidding.57
and the Court of Appeals annulling the award of a procurement
contract to a bidder whose technical proposal varied from the bid Finally, in Information Technology Foundation of the Philippines
specifications. It appears that during the post-qualification stage, v. Commission on Elections,58 the Court nullified the award by the
the Bids and Awards Committee of the Commission on Audit Commission on Elections (COMELEC) of a contract for the
considered some factors in the verification and validation of the automation of the counting and canvassing of the ballots in the
winning bidder’s proposal which were extraneous to and not 2004 elections on the ground, among others, that it permitted the
included in the bid documents.54 Thus, the Court emphasized that winning bidder to change and alter the subject of the contract, in
the function of post-qualification is to verify, inspect and test effect allowing a substantive amendment without public
whether the technical specifications of the goods offered comply bidding.59 Said the Supreme Court therein: "it is contrary to the
with the requirements of the contract and the bidding documents. very concept of public bidding to permit a variance between the
It does not give occasion for the procuring entity to arbitrarily conditions under which the bids are invited and those under
exercise its discretion and brush aside the very requirements it which proposals are submitted and approved; or, as in this case,
specified as vital components of the goods it bids out.55 the conditions under which the bid is won and those under which
the awarded contract will be complied with. The substantive
In Caltex (Philippines), Inc., et al. v. Delgado Brothers, Inc. et amendment of the contract bidded out, without any public bidding
al.,56 the Supreme Court likewise affirmed a decision of the trial – after the bidding process had been concluded – is violative of
court declaring as null and void the amendment to an arrastre the public policy on public biddings, x x x. The whole point in
going through the public bidding exercise was completely lost.
 20

The very rationale of public bidding was totally subverted by the over the other bidders who participated in the bidding, or which
Commission."60 makes the signed contract unfavorable to the government. Thus,
there can be no substantial or material change to the parameters
By its very nature, public bidding aims to protect public interest by of the project, including the essential terms and conditions of the
giving the public the best possible advantages through open contract bidded upon, after the contract award.66
competition. Thus, competition must be legitimate, fair and
honest. In the field of government contract law, competition The Court acknowledges that a winning bidder is not precluded
requires not only bidding upon a common standard, a common from modifying or amending certain provisions of the contract
basis, upon the same thing, the same subject matter, and the bidded upon. However, such changes must not constitute
same undertaking, but also that it be legitimate, fair and honest substantial or material amendments that would alter the basic
and not designed to injure or defraud the government.61 An parameters of the contract and would constitute a denial to the
essential element of a publicly bidded contract is that "all bidders other bidders of the opportunity to bid on the same terms. Hence,
must be on equal footing, not simply in terms of application of the the determination of whether or not a modification or amendment
procedural rules and regulations imposed by the relevant of a contract bidded out constitutes a substantial amendment
government agency, but more importantly, on the contract bidded rests on whether the contract, when taken as a whole, would
upon. Each bidder must be able to bid on the same thing."62 contain substantially different terms and conditions that would
have the effect of altering the technical and/or financial proposals
As pointed out by the Court in Agan, if the winning bidder is previously submitted by other bidders. The alteration and
allowed to later include or modify certain provisions in the modifications in the contract executed between the government
contract awarded such that the contract is altered in any material and the winning bidder must be such as to render such executed
respect, then the essence of fair competition in the public bidding contract to be an entirely different contract from the one that was
is destroyed. A public bidding would be a farce if, after the bidded upon.67
contract is awarded, the winning bidder may modify the contract
and include provisions which are favorable to it that were not The grant of the right of first refusal in this case did not only
previously made available to the other bidders.63 The government substantially amend the terms of the contract bidded upon, so
cannot enter into a contract with the highest bidder and that resultantly, the other bidders thereto were deprived of the
incorporate substantial provisions beneficial to him, not included terms and opportunities granted to respondent after it won the
or contemplated in the terms and specifications upon which the public auction, it so altered the bid terms – the very admission by
bids were invited.64 all parties that the disposal of fly ash must be through public
bidding – by effectively barring any and all true biddings in the
Aside from protecting public interest by giving the public the best future. The grant of first refusal was a grant to respondent of the
possible advantages through open competition, "[a]nother self- right to buy fly ash in all coal-fired plants of NPC. Proceeding
evident purpose of public bidding is to avoid or preclude suspicion from the afore-cited jurisprudence, the Batangas Contract is,
of favoritism and anomalies in the execution of public consequently, a nullity.
contracts."65 Such bias or partiality and irregularities may be
validly presumed if, as in this case, after a contract has been Two: The right to buy fly ash precedes and is the basis of the
awarded, the parties carry out changes or make amendments right of first refusal, and the consequent right cannot be acquired
thereto which gives the winning bidder an edge or advantage together with and at the same time as the precedent right.
 21

The right of first refusal has long been recognized, both legally Finally, in Litonjua v. L & R Corporation,80 the Supreme Court
and jurisprudentially, as valid in our jurisdiction. It is significant to recognized the validity and enforceability of a stipulation in a
note, however, that in those cases where the right of refusal is mortgage contract granting the mortgagee the right of first refusal
upheld by both law and jurisprudence, the party in whose favor should the mortgagor decide to sell the property subject of the
the right is granted has an interest on the object over which the mortgage.
right of first refusal is to be exercised. In those instances, the
grant of the right of first refusal is a means to protect such In all the foregoing cases, the party seeking to exercise the right
interest. has a vested interest in, if not a right to, the subject of the right of
first refusal. Thus, on account of such interest, a tenant (with
Thus, Presidential Decree (P.D.) No. 1517,68 as amended by respect to the land occupied), a lessee (vis-à-vis the property
P.D. No. 2016,69 grants to qualified tenants of land in areas leased), a stockholder (as regards shares of stock), and a
declared as urban land reform zones, the right of first mortgagor (in relation to the subject of the mortgage), are all
refusal to purchase the same within a reasonable time and at a granted first priority to buy the property over which they have an
reasonable price.70 The same right is accorded by Republic Act interest in the event of its sale. Even in the JG Summit
No. 727971 (Urban Development and Housing Act of 1992) to Case,81 which case was heavily relied upon by the lower court in
qualified beneficiaries of socialized housing, with respect to the its decision and by respondent in support of its arguments, the
land they are occupying. Accordingly, in Valderama v. right of first refusal to the corporation’s shares of stock – later
Macalde,72 Parañaque Kings Enterprises, Inc. v. Court of exchanged for the right to top – granted to KAWASAKI was
Appeals,73 and Conculada v. Court of Appeals,74 the Supreme based on the fact that it was a shareholder in the joint venture for
Court sustained the tenant’s right of first refusal pursuant to P.D. the construction, operation, and management of the Philippine
1517. Shipyard and Engineering Corporation (PHILSECO).

In Polytechnic University of the Philippines v. Court of In the case at bar, however, there is no basis whatsoever for the
Appeals75 and Polytechnic University of the Philippines v. Golden grant to respondent of the right of first refusal with respect to the
Horizon Realty Corporation76 , this Court upheld the right of fly ash of NPC power plants since the right to purchase at the
refusal of therein respondent private corporations concerning lots time of bidding is that which is precisely the bidding subject, not
they are leasing from the government. yet existent much more vested in respondent.

In the case of Republic v. Sandiganbayan, 77 the Presidential KAWASAKI’s situation is different from that of respondent in that
Commission on Good Government (PCGG) sought to exercise its the former has an established interest in the shares subject of the
right of first refusal as a stockholder of Eastern right of first refusal. In the words of the Court in that case:
Telecommunications Philippines, Inc. (ETPI), a corporation "KAWASAKI is not a mere non-bidder. It is a PARTNER in the
sequestered by the PCGG, to purchase ETPI shares being sold joint venture x x x."82 (Emphasis supplied).
by another stockholder to a non-stockholder. While the Court
recognized that PCGG had a right of first refusal with respect to Further, in the JG Summit Case,83 what was involved was not
ETPI’s shares,78 it nevertheless did not sustain such right on the merely a right to match but a right to top by five percent (5%) the
ground that the same was not seasonably exercised.79 highest bid for the shares subject of the public
bidding.84 Undoubtedly, such an arrangement is truly
 22

advantageous to the government. Here, aside from respondent WHEREAS, in the Contract for the Purchase of Fly Ash of
not having a vested interest in the subject matter of the public BCFTPP provides for the "Right of First Refusal" to PURCHASER
bidding, its right of first refusal allows it to merely match the to purchase fly ash from any new coal-fired plants which will be
highest bid offered at the public auction. This agreement clearly put up by NPC;
makes a farce of the bidding process, as the government will
merely go through the motion of holding a public bidding and WHEREAS, NPC owns the fly ash generated by the two (2) units
declaring a highest bidder only to award the contract to of 1,200 MW Sual Coal-Fired Thermal Power Plant (SCFTPP)
respondent, who did not even participate in the bidding. located at Barangay Pangascasan, Sual, Pangasinan, hereinafter
referred to as the Plant;88
It is significant to note that, in the tender documents for the
bidding of the fly ash of the Masinloc Power Plant, NPC gave With respect to the Masinloc Plant, it will be recalled that the right
respondent the opportunity to top the highest bid by fifteen to
percent (15%). Respondent protested this, however, as an
infringement upon its alleged right of first refusal to purchase the withdraw the fly ash from the same was the subject of the Third
Masinloc fly ash, as supposedly guaranteed by the Batangas Supplementary Complaint, filed by respondent before the trial
Contract.85 court to enforce the right of first refusal provision in the Batangas
Contract, which complaint was, however, dismissed on the
In effect, therefore, in asserting its right of first refusal, what ground of forum shopping. Nevertheless, while the order of
respondent is asking is that it be given undue advantage over any dismissal was on appeal in the Court of Appeals, the right to
other party interested to purchase the fly ash of NPC’s power withdraw the fly ash of the Masinloc Plant was granted to
plants. Obviously, this cannot be countenanced. It is inherent in respondent by the Provincial Government of Zambales, by virtue
public biddings that there shall be a fair competition among the of which, respondent moved for the dismissal of its appeal,
bidders. The specifications in such biddings provide the common thereby resulting in the finality of the order of dismissal of the trial
ground or basis for the bidders. The specifications should, court.
accordingly, operate equally or indiscriminately upon all bidders.86
It can be easily deduced from the foregoing that the Masinloc
It should also be pointed out that while respondent maintains that Contract was likewise sourced from respondent’s supposed right
it never sought to disallow the public bidding of the fly ash in of first refusal, thereby giving respondent preferential right to the
question, the records of this case, nevertheless, disclose that the fly ash of the Masinloc Plant and allowing it to withdraw the
right to withdraw the fly ash of the Sual and Masinloc Plants was Plant’s fly ash without having to go through a public bidding. Had
awarded to respondent without the benefit of a public the Masinloc Contract not been drafted, it is clear that
auction.87 Thus, the grant to respondent of the right of first refusal respondent’s complaint for the enforcement of the provision
in the Batangas Contract paved the way for respondent to obtain granting it the right of first refusal would have continued. The
the right to withdraw fly ash from the aforementioned power Masinloc Contract, then, is a virtual recognition of respondent’s
plants without public bidding. The second and third "WHEREAS" alleged right of first refusal.
clauses of the Sual Contract are particularly telling on this score:
 23

The rationale behind the requirement of a public bidding, as a be respected since a contract is the law between the
mode of awarding government contracts, is to ensure that the parties.91 However, it must be understood that contracts are not
people get maximum benefits and quality services from the the only source of law that govern the rights and obligations
contracts. More significantly, strict compliance with the between parties. More specifically, no contractual stipulation may
requirement of public bidding echoes the call for transparency in contradict law, morals, good customs, public order or public
government transactions and accountability of public officers. policy.92
Public biddings are intended to minimize occasions for corruption
and temptations to abuse discretion on the part of government The principle of party autonomy in contracts is not an absolute
authorities in awarding contracts.89 principle. The rule in Article 1306 of our Civil Code is that the
contracting parties may establish such stipulations as they may
Based on the afore-quoted "WHEREAS" clauses of the Sual deem convenient provided they are not contrary to law, morals,
Contract, the right to purchase the fly ash from the Sual Plant was good customs, public order or public policy. Thus, counter-
granted to respondent, without having to undergo a public balancing the principle of autonomy of contracting parties is the
auction, on the basis of its right of first refusal embodied in the equally general rule that provisions of applicable laws, especially
Batangas Contract. This negates respondent’s claim that the right provisions relating to matters affected with public policy, are
of first refusal granted to it does not preclude a public bidding. deemed written into the contract. Put a little differently, the
The right of first refusal provision was used to subvert the rule governing principle is that parties may not contract away
that all government contracts should be awarded after applicable provisions of law, especially peremptory provisions
competitive public bidding. This demonstrates the iniquity of dealing with matters heavily impressed with public interest.93
allowing the provision to prevail over requirements of public
policy. Thus, the evil precisely sought to be prevented by the In this jurisdiction, public bidding is the established procedure in
requirement of public bidding came to pass in this case: the Sual the grant of government contracts. The award of public contracts
and Masinloc Contracts were awarded to respondent without any through public bidding is a matter of public policy.94
public bidding having been conducted.
Public policy has been defined as that principle under which
Three: The right of first refusal is against the public policy that freedom of contract or private dealing is restricted for the good of
contracts must be awarded through public bidding. the community.95 Under the principles relating to the doctrine of
public policy, as applied to the law of contracts, courts of justice
Respondent would have us sustain its right of first refusal on the will not recognize or uphold a transaction when its object,
ground that Article 1159 of the New Civil Code provides that operation, or tendency is calculated to be prejudicial to the public
"obligations arising from contracts have the force of law between welfare, to sound morality or to civic honesty.96
the contracting parties and should be complied with in good faith."
Hence, respondent argues, the Batangas Contract is binding Consistent with the principle that public auction in the conferment
upon NPC and respondent and their respective successors-in- of government contract involves public policy, Congress enacted
interest.90 various laws governing the procedure in the conduct of public
bidding and prescribing policies and guidelines therefor. With
True, it is a fundamental rule that contracts, once perfected, bind respect to the disposal of government assets and property, of
both contracting parties and a contract freely entered into should particular application in this case are Circular Nos. 86-26497 and
 24

89-29698 of the Commission on Audit, dated 16 October 1986 and put, if it is at war with the interests of society and is in conflict with
27 January 1989, respectively. Both circulars provide that the the morals of the time.104
divestment or disposal of government property shall be
undertaken primarily through public auction.99 Thus, respondent’s right of first refusal cannot take precedence
over the dictates of public policy.
Respondent puts forth the argument that fly ash is a waste
product100 and therefore cannot be considered as an asset of the The right of first refusal of respondent being invalid, it follows that
government within the contemplation of the laws governing it has no binding effect. It does not create an obligation on the
disposal of government property. part of petitioner to acknowledge the same. Neither does it confer
a preferential right upon respondent to the fly ash of NPC’s power
The peculiarity of fly ash as property of the government is that, plants.
from its inception, it is already a residual product. Unlike the
government properties subject of P.D. 1445101 and the How, then, does the invalidation of respondent’s right of first
Government Auditing and Accounting Manual, fly ash is not refusal affect the Sual and Masinloc Contracts which were
property previously utilized by the government in its operations executed pursuant to such right?
which has become unserviceable. Justifiably, the government did
not foresee the possibility of any use for and, much less, of As discussed above, the right of first refusal granted to
deriving profit from it. Hence, the lack of a specific law governing respondent in the Batangas Contract paved the way for the award
its disposal and its non-inclusion in existing laws on the to respondent of the Sual Contract without any public bidding
divestment of government property. There is no doubt, however having been conducted therefor. In a long line of cases, this Court
that fly ash is property – and more importantly, asset – of the has pronounced that government contracts shall not be entered
government. Fly ash is produced by power plants owned by the into or renewed without public bidding.105 Thus, the Supreme
government and both the government and respondent derive Court has struck down contracts and agreements entered into in
profit from it. Besides, the fact that respondent is fighting tooth violation of this requirement.
and nail for the right to withdraw the same from NPC’s power
plants is indubitable proof of its value. Its sale is, therefore,
In the case of National Food Authority v. Court of Appeals,106 the
subject to the rules on the disposal of government assets and
Court ruled against the legality of negotiated security contracts
property. Applicable laws form part of, and are read into,
awarded by the National Food Authority (NFA) to several private
contracts without need for any express reference thereto; more
security agencies in default of a public bidding. According to the
so, to a government contract which is imbued with public
Court, the NFA’s manifest reluctance to hold a public bidding and
interest.102
award a contract to the winning bidder smacks of favoritism and
partiality toward the security agencies to whom it awarded the
In the case of Ongsiako v. Gamboa,103 this Court declared that an negotiated contracts and cannot be countenanced.107
agreement is against public policy if it is injurious to the interests
of the public, contravenes some established interest of society,
Likewise, in Manila International Airport Authority v.
violates some public statute, is against good morals, tends to
Mabunay,108 the Supreme Court dismissed a petition for review
interfere with the public welfare or safety, or, as it is sometimes
seeking the annulment of a decision of the lower court declaring
 25

that under the laws and regulations, it is necessary for the Manila Court echoed the necessity of a public bidding for the disposal of
International Airport Authority to contract for security services government properties.118
through public bidding. The Court reiterated the basic principle
that in the execution of all government contracts, public bidding is Finally, in Gana v. Triple Crown Services Inc.,119 the Supreme
the accepted method for arriving at a fair and reasonable price. Court declared as null and void the negotiated contract for
[I]t ensures that overpricing and favoritism, and other anomalous janitorial and maintenance services between the Manila
practices are eliminated or minimized.109 International Airport Authority (MIAA) and Goodline Staffers &
Allied Services, Inc. According to the Supreme Court, the
In Chavez v. Public Estates Authority,110 the Amended Joint constitutional right of Olongapo Maintenance Services, Inc.
Venture Agreement (JVA) entered into between the Public (OMSI) and Triple Crown Services, Inc. (TCSI), the incumbent
Estates Authority and the Amari Coastal Bay and Development service contractors, to equal protection of the law was violated by
Corporation (AMARI) was declared null and void ab initio MIAA and its general manager when no public bidding was called
because it, among others, sought to convey to AMARI, a private precisely because the latter were going to award the subject
entity, reclaimed public lands without the benefit of a public service contracts through negotiation. Worse, the Court
bidding. The Court cited Section 79 of Presidential Decree (P.D.) continued, the acts of MIAA and Gana smack of arbitrariness and
No. 1445, otherwise known as the Government Auditing Code, discrimination as they not only did not call for the required public
which requires the government to sell valuable government bidding but also did not even accord OMSI and TCSI the
property through public bidding.111 The Court stated further that opportunity to submit their proposals in a public bidding.120 
1avvphi1

the Commission on Audit implements Section 79 of the

Government Auditing Code through Circular No. 89-296112 dated By the very language of the Sual Contract, the same was entered
27 January 1989. This circular emphasizes that government pursuant to respondent’s right of first refusal and in consideration
assets must be disposed of only through public auction.113 In of respondent’s conformity to withdraw its complaint against NPC.
denying respondents’ Second Motions for Reconsideration and The pertinent provisions of the Sual Contract are herein below
sustaining the invalidity of the Amended JVA, this Court reiterated quoted:
that the JVA is a negotiated contract which clearly contravenes
Section 79 of P.D. 1445.114 WHEREAS, NPC and PURCHASER [Pozzolanic] entered into a
Contract for the Purchase of Fly Ash of Batangas Coal Fired
Section 79 of P.D. 1445 and COA Circular No. 89-296, among Thermal Power Plant (BCFTPP) on October 20, 1987 and
others, were also relied upon by the Supreme Court in declaring Contract for the Purchase of Fly Ash of Masinloc Coal Fired
as inexistent and void ab initio the Compromise Agreement Thermal Power Plant (MCFTPP) dated February 10, 1999;
between the Philippine National Construction Corporation and
Radstock Securities Limited in the case of Strategic Alliance WHEREAS, in the Contract for the Purchase of Fly Ash of
Development Corporation v. Radstock Securities BCFTPP provided for the ‘Right of First Refusal’ to PURCHASER
Limited.115 Under the Compromise Agreement in that case, the to purchase fly ash from any new coal-fired plants which will be
PNCC shall dispose of substantial parcels of land, by way of put up by NPC;
dacion en pago, in favor of Radstock, a private corporation
incorporated in the British Virgin Islands.116 Citing the
aforementioned case of Chavez v. Public Estates Authority,117 the
 26

WHEREAS, NPC owns the fly ash generated by the two (2) units XXX
of 1,200 MW Sual Coal-Fired Thermal Power Plant (SCFTPP)
located at Barangay Pangascasan, Sual, Pangasinan, hereinafter It is agreed that within thirty (30) days from and after execution of
referred to as the Plant; this Agreement, NPC and PURCHASER will jointly, together with
PSALM Corporation move for the dismissal, with prejudice of Civil
XXX Case No. Q-00-40731 at the Regional Trial Court, Branch 90 of
Quezon City.
WHEREAS, PURCHASER filed a case for Specific Performance
with Injunction under Civil Case No. Q-00-40731 before the The pertinent ‘Motion’ for the dismissal of Civil Case No. Q-00-
Branch 90 of the Regional Trial Court of Quezon City and which 40731, to be filed in Branch 90 of the Regional Trial Court of
Court issued a Preliminary Injunction against NPC on the public Quezon City, or before any other Court who may then be hearing
bidding and sale of Fly Ash of MCFTPP and Sual Coal Fired the above case, shall include therein a complete textual copy of
Thermal Power Plant (SCFTPP); this Purchase Agreement, duly signed by all the parties hereto,
which shall become an integral part of the compromise, for the
WHEREAS, in a letter dated December 2, 2004, NPC and dismissal of the said case, to be approved by the Trial Court.
PURCHASER have agreed that in order to settle the issue, NPC
fully recognizes and honors the ‘Right of First Refusal’ of X X X121 (Emphases supplied).
PURCHASER to the fly ash produced at SCFTPP in lieu of the fly
ash produced at MCFTPP; Based on the foregoing, the Sual Contract is clearly a negotiated
contract by virtue of which, NPC awards to respondent the right to
WHEREAS, in consideration of NPC’s recognition of the ‘Right of withdraw the fly ash of the Sual Plant – without public bidding – in
First Refusal’ in said letter dated 2 December 2004 and the exchange for which, respondent (1) waives its rights to the fly ash
execution of this Purchase Agreement, PURCHASER waives any of the Masinloc Plant and (2) consents to withdraw its case
and all claims to the fly ash produced at MCFTPP and arising out against NPC. As a result, the Sual Contract is invalid for failure to
of its rights under the ‘Contract for the Purchase of Fly Ash of the comply with the rules on public bidding.
Masinloc Coal-Fired Thermal Power Plant’ dated February 10,
1999; The foregoing principles on the necessity of a public bidding for
all government contracts obviously apply to the Masinloc Contract
XXX as well, the same being a public contract since one of the parties
thereto is a government entity. While its terms do not expressly
ARTICLE VI provide that the same was executed pursuant to the right of first
WAIVER refusal granted to respondent under the Batangas Contract, the
circumstances under which it was drafted, as narrated above,
NPC hereby fully recognizes and honors the ‘Right of First clearly indicate that the Masinloc Contract is a recognition of the
Refusal’ of PURCHASER to the fly ash produced at SCFTPP in challenged right of first refusal. The case filed by respondent for
lieu of the fly ash produced at the Masinloc Plant. the recognition and enforcement of its right of first refusal was
settled only after the execution of the Masinloc Contract, pursuant
 27

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.lawphi1

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.

WHEREFORE, we GRANT the petition for review on certiorari.

The Decision dated 30 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.
Further, the Batangas, Sual and Masinloc Contracts are hereby
declared NULL AND VOID for being contrary to law and public
policy. Petitioner is hereby ordered to conduct a bidding of the
right to purchase the fly ash produced by the Batangas, Masinloc
and Sual Power Plants within thirty (30) days from the finality of
this Decision.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice
 28

G.R. No. 124290 January 16, 1998 transferred to the lessors upon the expiration of the original term
of the lease.
ALLIED BANKING CORPORATION, petitioner,
vs. Sometime in February 1988 the Tanqueco spouses executed a
COURT OF APPEALS , HON. JOSE C. DE GUZMAN, OSCAR deed of donation over the subject property in favor of their four (4)
D. TAN-QUECO, LUCIA D. TANQUECO-MATIAS, RUBEN D. children, namely, private respondents herein Oscar D. Tanqueco,
TANQUECO and NESTOR D. TANQUECO, respondents. Lucia Tanqueco-Matias, Ruben D. Tanqueco and Nestor D.
Tanqueco, who accepted the donation in the same public
instrument.

BELLOSILLO, J.: On 13 February 1991, a year before the expiration of the contract

of lease, the Tanquecos notified petitioner ALLIED that they were
There are two (2) main issues in this petition for review: namely, no longer interested in renewing the lease.   ALLIED replied that it
2

(a) whether a stipulation in a contract of lease to the effect that was exercising its option to renew their lease under the same
the contract "may be renewed for a like term at the option of the terms with additional proposals.   Respondent Ruben D.
3

lessee" is void for being potestative or violative of the principle of Tanqueco, acting in behalf of all the donee-lessors, made a
mutuality of contracts under Art. 1308 of the Civil Code and, counter-proposal.  ALLIED however rejected the counter-proposal
4

corollarily, what is the meaning of the clause "may be renewed for and insisted on Provision No. 1 of their lease contract.
a like term at the option of the lessee;" and, (b) whether a lessee
has the legal personality to assail the validity of a deed of When the lease contract expired in 1992 private respondents
donation executed by the lessor over the leased premises. demanded that ALLIED vacate the premises. But the latter
asserted its sole option to renew the lease and enclosed in its
Spouses Filemon Tanqueco and Lucia Domingo-Tanqueco reply letter a cashier's check in the amount of P68,400.00
owned a 512-square meter lot located at No. 2 Sarmiento Street representing the advance rental payments for six (6) months
corner Quirino Highway, Novaliches, Quezon City, covered by taking into account the escalation clause. Private respondents
TCT No. 136779 in their name. On 30 June 1978 they leased the however returned the check to ALLIED, prompting the latter to
property to petitioner Allied Banking Corporation (ALLIED) for a consign the amount in court.
monthly rental of P1,000.00 for the first three (3) years, adjustable
by 25% every three (3) years thereafter.   The lease contract
1 An action for ejectment was commenced before the Metropolitan
specifically states in its Provision No. 1 that "the term of this lease Trial Court of Quezon City. After trial, the MeTC-Br. 33 declared
shall be fourteen (14) years commencing from April 1, 1978 and Provision No. 1 of the lease contract void for being violative of
may be renewed for a like term at the option of the lessee." Art. 1308 of the Civil Code thus —

Pursuant to their lease agreement, ALLIED introduced an . . . but such provision [in the lease contract], to
improvement on the property consisting of a concrete building the mind of the Court, does not add luster to
with a floor area of 340-square meters which it used as a branch defendant's cause nor constitutes as an unbridled
office. As stipulated, the ownership of the building would be or unlimited license or sanctuary of the
 29

defendants to perpetuate its occupancy on the We agree with petitioner. Article 1308 of the Civil Code expresses
subject property. The basic intention of the law in what is known in law as the principle of mutuality of contracts. It
any contract is mutuality and equality. In other provides that "the contract must bind both the contracting parties;
words, the validity of a contract cannot be left at its validity or compliance cannot be left to the will of one of them."
(sic) the will of one of the contracting parties. This binding effect of a contract on both parties is based on the
Otherwise, it infringes (upon) Article 1308 of the principle that the obligations arising from the contracts have the
New Civil Code, which provides: The contract force of law between the contracting parties, and there must be
must bind both contracting parties; its validity or mutuality between them based essentially on their equality under
compliance cannot be left to the will of one of which it is repugnant to have one party bound by the contract
them . . . Using the principle laid down in the case while leaving the other free therefrom. The ultimate purpose is to
of Garcia v. Legarda as cornerstone, it is evident render void a contract containing a condition which makes its
that the renewal of the lease in this case cannot fulfillment dependent solely upon the uncontrolled will of one of
be left at the sole option or will of the defendant the contracting parties.
notwithstanding provision no. 1 of their expired
contract. For that would amount to a situation An express agreement which gives the lessee the sole option to
where the continuance and effectivity of a contract renew the lease is frequent and subject to statutory restrictions,
will depend only upon the sole will or power of the valid and binding on the parties. This option, which is provided in
lessee, which is repugnant to the very spirit the same lease agreement, is fundamentally part of the
envisioned under Article 1308 of the New Civil consideration in the contract and is no different from any other
Code . . . . the theory adopted by this Court in the provision of the lease carrying an undertaking on the part of the
case at bar finds ample affirmation from the lessor to act conditioned on the performance by the lessee. It is a
principle echoed by the Supreme Court in the purely executory contract and at most confers a right to obtain a
case of Lao Lim v. CA, 191 SCRA 150, 154, 155. renewal if there is compliance with the conditions on which the
rights is made to depend. The right of renewal constitutes a part
On appeal to the Regional Trial Court, and later to the Court of of the lessee's interest in the land and forms a substantial and
Appeals, the assailed decision was affirmed. 5
integral part of the agreement.

On 20 February 1993, while the case was pending in the Court of The fact that such option is binding only on the lessor and can be
Appeals ALLIED vacated the leased premises by reason of the exercised only by the lessee does not render it void for lack of
controversy.6
mutuality. After all, the lessor is free to give or not to give the
option to the lessee. And while the lessee has a right to elect
ALLIED insists before us that Provision No. 1 of the lease whether to continue with the lease or not, once he exercises his
contract was mutually agreed upon hence valid and binding on option to continue and the lessor accepts, both parties are
both parties, and the exercise by petitioner of its option to renew thereafter bound by the new lease agreement. Their rights and
the contract was part of their agreement and in pursuance obligations become mutually fixed, and the lessee is entitled to
thereof. retain possession of the property for the duration of the new
lease, and the lessor may hold him liable for the rent therefor.
The lessee cannot thereafter escape liability even if he should
 30

subsequently decide to abandon the premises. Mutuality obtains original contract, or shall it be under the terms and conditions as
in such a contract and equality exists between the lessor and the may be mutually agreed upon by the parties after the expiration of
lessee since they remain with the same faculties in respect to the existing lease?
fulfillment.
7

In Ledesma v. Javellana   this Court was confronted with a

10

The case of Lao Lim v. Court of Appeals   relied upon by the trial
8
similar problem. In the case the lessee was given the sole option
court is not applicable here. In that case, the stipulation in the to renew the lease, but the contract failed to specify the terms
disputed compromise agreement was to the effect that the lessee and conditions that would govern the new contract. When the
would be allowed to stay in the premises "as long as he needs it lease expired, the lessee demanded an extension under the
and can pay the rents." In the present case, the questioned same terms and conditions. The lessor expressed conformity to
provision states that the lease "may be renewed for a like term at the renewal of the contract but refused to accede to the claim of
the option of the lessee." The lessor is bound by the option he the lessee that the renewal should be under the same terms and
has conceded to the lessee. The lessee likewise becomes bound conditions as the original contract. In sustaining the lessee, this
only when he exercises his option and the lessor cannot Court made the following pronouncement:
thereafter be executed from performing his part of the agreement.
. . . in the case of Hicks v. Manila Hotel Company,
Likewise, reliance by the trial court on the 1967 case of Garcia a similar issue was resolved by this Court. It was
v. Rita Legarda, Inc.,   is misplaced. In that case, what was
9
held that "such a clause relates to the very
involved was a contract to sell involving residential lots, which contract in which it is placed, and does not permit
gave the vendor the right to declare the contract called and of no the defendant upon the renewal of the contract in
effect upon the failure of the vendee to fulfill any of the conditions which the clause is found, to insist upon different
therein set forth. In the instant case, we are dealing with a terms and those embraced in the contract to be
contract of lease which gives the lessee the right to renew the renewed;" and that "a stipulation to renew always
same. relates to the contract in which it is found and the
rights granted thereunder, unless it expressly
With respect to the meaning of the clause "may be renewed for a provides for variations in the terms of the contract
like term at the option of the lessee," we sustain petitioner's to be renewed."
contention that its exercise of the option resulted in the automatic
extension of the contract of lease under the same terms and The same principle is upheld in American Law
conditions. The subject contract simply provides that "the term of regarding the renewal of lease contracts. In 50
this lease shall be fourteen (14) years and may be renewed for a Am. Jur. 2d, Sec. 1159, at p. 45, we find the
like term at the option of the lessee." As we see it, the only term following citations: "The rule is well-established
on which there has been a clear agreement is the period of the that a general covenant to renew or extend a
new contract, i.e., fourteen (14) years, which is evident from the lease which makes no provision as to the terms of
clause "may be renewed for a like term at the option of the a renewal or extension implies a renewal or
lessee," the phrase "for a like term" referring to the period. It is extension upon the same terms as provided in the
silent as to what the specific terms and conditions of the renewed original lease."
lease shall be. Shall it be the same terms and conditions as in the
 31

In the lease contract under consideration, there is could easily defeat the lessee's right of renewal by simply
no provision to indicate that the renewal will be imposing unreasonable and onerous conditions to prevent the
subject to new terms and conditions that the parties from reaching an agreement, as in the case at bar. As in a
parties may yet agree upon. It is to renewal statute no word, clause, sentence, provision or part of a contract
provisions of lease contracts of the kind presently shall be considered surplusage or superfluous, meaningless,
considered that the principles stated above void, insignificant or nugatory, if that can be reasonably avoided.
squarely apply. We do not agree with the To this end, a construction which will render every word operative
contention of the appellants that if it was intended is to be preferred over that which would make some words idle
by the parties to renew the contract under the and nugatory. 11

same terms and conditions stipulated in the

contract of lease, such should have expressly so Fortunately for respondent lessors, ALLIED vacated the premises
stated in the contract itself. The same argument on 20 February 1993 indicating its abandonment of whatever
could easily be interposed by the appellee who rights it had under the renewal clause. Consequently, what
could likewise contend that if the intention was to remains to be done is for ALLIED to pay rentals for the continued
renew the contract of lease under such new terms use of premises until it vacated the same, computed from the
and conditions that the parties may agree upon, expiration of the original term of the contract on 31 March 1992 to
the contract should have so specified. Between the time it actually left the premises on 20 February 1993,
the two assertions, there is more logic in the deducting therefrom the amount of P68,400.00 consigned in court
latter. by ALLIED and any other amount which it may have deposited or
advanced in connection with the lease. Since the old lease
The settled rule is that in case of uncertainty as to contract was deemed renewed under the same terms and
the meaning of a provision granting extension to a conditions upon the exercise by ALLIED of its option, the basis of
contract of lease, the tenant is the one favored the computation of rentals should be the rental rate provided for
and not the landlord. "As a general rule, in in the existing contract.
construing provisions relating to renewals or
extensions, where there is any uncertainty, the Finally, ALLIED cannot assail the validity of the deed of donation,
tenants is favored, and not the landlord, because not being a party thereto. A person who is not principally or
the latter, having the power of stipulating in his subsidiarily bound has no legal capacity to challenge the validity
own favor, has neglected to do so; and also upon of the contract.   He must first have an interest in it. "Interest"
12

the principle that every man's grant is to be taken within the meaning of the term means material interest, an
most strongly against himself (50 Am Jur. 2d, interest to be affected by the deed, as distinguished from a mere
Sec. 1162, p. 48; see also 51 C.J.S. 599). incidental interest. Hence, a person who is not a party to a
contract and for whose benefit it was not expressly made cannot
Besides, if we were to adopt the contrary theory that the terms maintain an action on it, even if the contract, if performed by the
and conditions to be embodied in the renewed contract were still parties thereto would incidentally affect him,   except when he is
13

subject to mutual agreement by and between the parties, then the prejudiced in his rights with respect to one of the contracting
option — which is an integral part of the consideration for the parties and can show the detriment which could positively result
contract — would be rendered worthless. For then, the lessor
 32

to him from the contract in which he had no intervention.   We

14

find none in the instant case.

WHEREFORE, the Decision of the Court of Appeals is

REVERSED and SET ASIDE. Considering that petitioner ALLIED
BANKING CORPORATION already vacated the leased premises
as of 20 February 1993, the renewed lease contract is deemed
terminated as of that date. However, petitioner is required to pay
rentals to respondent lessors at the rate provided in their existing
contract, subject to computation in view of the consignment in
court of P68,400.00 by petitioner, and of such other amounts it
may have deposited or advanced in connection with the lease.

SO ORDERED.
 33

G.R. No. 164349             January 31, 2006 where she was confined from January 30, 1991 to March 21,
1991.
RADIO COMMUNICATIONS OF THE PHILIPPINES, INC.
(RCPI),Petitioner, The telegram was finally delivered to Zenaida 25 days later or on
vs. February 15, 1991.4 On inquiry from RCPI why it took that long to
ALFONSO VERCHEZ, GRACE VERCHEZ-INFANTE, deliver it, a messenger of RCPI replied that he had nothing to do
MARDONIO INFANTE, ZENAIDA VERCHEZ-CATIBOG, AND with the delivery thereof as it was another messenger who
FORTUNATO CATIBOG, Respondents. previously was assigned to deliver the same but the address
could not be located, hence, the telegram was resent on February
DECISION 2, 1991, and the second messenger finally found the address on
February 15, 1991.
CARPIO MORALES, J.:
Editha’s husband Alfonso Verchez (Verchez), by letter of March
On January 21, 1991, Editha Hebron Verchez (Editha) was 5, 1991,5 demanded an explanation from the manager of the
confined at the Sorsogon Provincial Hospital due to an ailment. Service Quality Control Department of the RCPI, Mrs. Lorna D.
On even date, her daughter Grace Verchez-Infante (Grace) Fabian, who replied, by letter of March 13, 1991,6 as follows:
immediately hied to the Sorsogon Branch of the Radio
Communications of the Philippines, Inc. (RCPI) whose services Our investigation on this matter disclosed that subject telegram
she engaged to send a telegram to her sister Zenaida Verchez- was duly processed in accordance with our standard operating
Catibog (Zenaida) who was residing at 18 Legal St., GSIS procedure. However, delivery was not immediately effected due
Village, Quezon City1 reading: "Send check money Mommy to the occurrence of circumstances which were beyond the
hospital." For RCPI’s services, Grace paid P10.502 for which she control and foresight of RCPI. Among others, during the
was issued a receipt.3 transmission process, the radio link connecting the points of
communication involved encountered radio noise and
As three days after RCPI was engaged to send the telegram to interferences such that subject telegram did not initially
Zenaida no response was received from her, Grace sent a letter registered (sic) in the receiving teleprinter machine.
to Zenaida, this time thru JRS Delivery Service, reprimanding her
for not sending any financial aid. Our internal message monitoring led to the discovery of the
above. Thus, a repeat transmission was made and subsequent
Immediately after she received Grace’s letter, Zenaida, along with delivery was effected. (Underscoring supplied)
her husband Fortunato Catibog, left on January 26, 1991 for
Sorsogon. On her arrival at Sorsogon, she disclaimed having Verchez’s lawyer thereupon wrote RCPI’s manager Fabian, by
received any telegram. letter of July 23, 1991,7 requesting for a conference on a specified
date and time, but no representative of RCPI showed up at said
In the meantime, Zenaida and her husband, together with her date and time.
mother Editha left for Quezon City on January 28, 1991 and
brought Editha to the Veterans Memorial Hospital in Quezon City On April 17, 1992, Editha died.
 34

On September 8, 1993, Verchez, along with his daughters Grace Article 2176 – Whoever by act or omission causes damage to
and Zenaida and their respective spouses, filed a complaint another, there being at fault or negligence, is obliged to pay for
against RCPI before the Regional Trial Court (RTC) of Sorsogon the damage done. Such fault or negligence if there is no pre-
for damages. In their complaint, the plaintiffs alleged that, inter existing contractual relation between the parties, is called quasi-
alia, the delay in delivering the telegram contributed to the early delict and is governed by the provisions of this Chapter.
demise of the late Editha to their damage and prejudice,8 for
which they prayed for the award of moral and exemplary Article 1173 defines the fault of (sic) negligence of the obligor as
damages9 and attorney’s fees.10 the "omission of the diligence which is required by the nature of
the obligation and corresponds with the circumstances of the
After its motion to dismiss the complaint for improper venue11 was person, of the time, or the place."
denied12 by Branch 5 of the RTC of Sorsogon, RCPI filed its
answer, alleging that except with respect to Grace,13 the other In the instant case, the obligation of the defendant to deliver the
plaintiffs had no privity of contract with it; any delay in the sending telegram to the addressee is of an urgent nature. Its essence is
of the telegram was due to force majeure, "specifically, but not the early delivery of the telegram to the concerned person. Yet,
limited to, radio noise and interferences which adversely affected due to the negligence of its employees, the defendant failed to
the transmission and/or reception of the telegraphic discharge of its obligation on time making it liable for damages
message";14 the clause in the Telegram Transmission Form under Article 2176.
signed by Grace absolved it from liability for any damage arising
from the transmission other than the refund of telegram tolls;15 it The negligence on the part of the employees gives rise to
observed due diligence in the selection and supervision of its the presumption of negligence on the part of the
employees; and at all events, any cause of action had been employer.17 (Underscoring supplied),
barred by laches.16
rendered judgment against RCPI. Accordingly, it disposed:
The trial court, observing that "although the delayed delivery of
the questioned telegram was not apparently the proximate cause
WHEREFORE, in the light of the foregoing premises, judgment is
of the death of Editha," ruled out the presence of force majeure.
hereby rendered in favor of the plaintiffs and against the
Respecting the clause in the telegram relied upon by RCPI, the
defendant, to wit:
trial court held that it partakes of the nature of a contract of
adhesion.
Ordering the defendant to pay the plaintiffs the following amount:
Finding that the nature of RCPI’s business obligated it to dispatch
the telegram to the addressee at the earliest possible time but 1. The amount of One Hundred Thousand (P100,000.00)
that it did not in view of the negligence of its employees to repair Pesos as moral damages;
its radio transmitter and the concomitant delay in delivering the
telegram on time, the trial court, upon the following provisions of 2. The amount of Twenty Thousand (P20,000.00) Pesos
the Civil Code, to wit: as attorney’s fees; and

3. To pay the costs.

 35

SO ORDERED.18 remedy serves to preserve the interests of the promissee that

may include his "expectation interest," which is his interest in
On appeal, the Court of Appeals, by Decision of February 27, having the benefit of his bargain by being put in as good a
2004,19 affirmed the trial court’s decision. position as he would have been in had the contract been
performed, or his "reliance interest," which is his interest in
Hence, RCPI’s present petition for review on certiorari, it raising being reimbursed for loss caused by reliance on the contract by
the following questions: (1) "Is the award of moral damages being put in as good a position as he would have been in had the
proper even if the trial court found that there was no direct contract not been made; or his "restitution interest," which is
connection between the injury and the alleged negligent his interest in having restored to him any benefit that he has
acts?"20 and (2) "Are the stipulations in the ‘Telegram conferred on the other party. Indeed, agreements can accomplish
Transmission Form,’ in the nature "contracts of adhesion" (sic)?21 little, either for their makers or for society, unless they are made
the basis for action. The effect of every infraction is to create a
new duty, that is, to make recompense to the one who has been
RCPI insists that respondents failed to prove any causal
injured by the failure of another to observe his contractual
connection between its delay in transmitting the telegram and
obligation unless he can show extenuating circumstances,
Editha’s death.22
like proof of his exercise of due diligence x x x or of
the attendance of fortuitous event, to excuse him from his
RCPI’s stand fails. It bears noting that its liability is anchored ensuing liability.23 (Emphasis and underscoring supplied)
on culpa contractual or breach of contract with regard to Grace,
and on tort with regard to her co-plaintiffs-herein-co-respondents.
In the case at bar, RCPI bound itself to deliver the telegram within
the shortest possible time. It took 25 days, however, for RCPI to
Article 1170 of the Civil Code provides: deliver it.

Those who in the performance of their obligations are guilty of RCPI invokes force majeure, specifically, the alleged radio noise
fraud, negligence, or delay, and those who in any manner and interferences which adversely affected the transmission
contravene the tenor thereof, are liable for damages. and/or reception of the telegraphic message. Additionally, its
(Underscoring supplied) messenger claimed he could not locate the address of Zenaida
and it was only on the third attempt that he was able to deliver the
Passing on this codal provision, this Court explained: telegram.

In culpa contractual x x x the mere proof of the existence of the For the defense of force majeure to prosper,
contract and the failure of its compliance justify, prima facie, a
corresponding right of relief. The law, recognizing the obligatory x x x it is necessary that one has committed no negligence or
force of contracts, will not permit a party to be set free from misconduct that may have occasioned the loss. An act of God
liability for any kind of misperformance of the contractual cannot be invoked to protect a person who has failed to take
undertaking or a contravention of the tenor thereof. A breach steps to forestall the possible adverse consequences of such a
upon the contract confers upon the injured party a valid cause for loss. One’s negligence may have concurred with an act of God in
recovering that which may have been lost or suffered. The producing damage and injury to another; nonetheless, showing
 36

that the immediate or proximate cause of the damage or injury ones, births or marriages in a family, important business
was a fortuitous event would not exempt one from liability. When transactions, and notices of conferences or meetings as in this
the effect is found to be partly the result of a person’s case, are coursed through the petitioner and similar
participation – whether by active intervention, neglect or corporations, it is incumbent upon them to exercise a greater
failure to act – the whole occurrence is humanized and amount of care and concern than that shown in this case. Every
removed from the rules applicable to acts of God. reasonable effort to inform senders of the non-delivery of
messages should be undertaken.26
xxxx
(Emphasis and underscoring supplied)
Article 1174 of the Civil Code states that no person shall be
responsible for a fortuitous event that could not be foreseen or, RCPI argues, however, against the presence of urgency in the
though foreseen, was inevitable. In other words, there must be delivery of the telegram, as well as the basis for the award of
an exclusion of human intervention from the cause of injury moral damages, thus:27
or loss.24 (Emphasis and underscoring supplied)
The request to send check as written in the telegraphic text
Assuming arguendo that fortuitous circumstances prevented negates the existence of urgency that private respondents’
RCPI from delivering the telegram at the soonest possible time, it allegations that ‘time was of the essence’ imports. A check drawn
should have at least informed Grace of the non-transmission and against a Manila Bank and transmitted to Sorsogon, Sorsogon
the non-delivery so that she could have taken steps to remedy will have to be deposited in a bank in Sorsogon and pass thru a
the situation. But it did not. There lies the fault or negligence. minimum clearing period of 5 days before it may be encashed or
withdrawn. If the transmittal of the requested check to Sorsogon
In an earlier case also involving RCPI, this Court held: took 1 day – private respondents could therefore still wait for 6
days before the same may be withdrawn. Requesting a check
Considering the public utility of RCPI’s business and its that would take 6 days before it could be withdrawn therefore
contractual obligation to transmit messages, it should exercise contradicts plaintiff’s claim of urgency or need.28
due diligence to ascertain that messages are delivered to the
persons at the given address and should provide a system At any rate, any sense of urgency of the situation was met when
whereby in cases of undelivered messages the sender is given Grace Verchez was able to communicate to Manila via a
notice of non-delivery. Messages sent by cable or wireless letter that she sent to the same addressee in Manila thru JRS.29
means are usually more important and urgent than those which
can wait for the mail.25 xxxx

xxxx As far as the respondent court’s award for moral damages is

concerned, the same has no basis whatsoever since private
People depend on telecommunications companies in times respondent Alfonso Verchez did not accompany his late wife
of deep emotional stress or pressing financial needs. when the latter went to Manila by bus. He stayed behind in
Knowing that messages about the illnesses or deaths of loved Sorsogon for almost 1 week before he proceeded to Manila. 30
 37

When pressed on cross-examination, private respondent Alfonso RCPI’s liability as an employer could of course be avoided if it
Verchez could not give any plausible reason as to the reason why could prove that it observed the diligence of a good father of a
he did not accompany his ailing wife to Manila.31 family to prevent damage. Article 2180 of the Civil Code so
provides:
xxxx
The obligation imposed by Article 2176 is demandable not only
It is also important to consider in resolving private respondents’ for one’s own acts or omissions, but also for those of persons for
claim for moral damages that private respondent Grace Verchez whom one is responsible.
did not accompany her ailing mother to Manila.32
xxxx
xxxx
The owners and managers of an establishment or enterprise are
It is the common reaction of a husband to be at his ailing wife’s likewise responsible for damages caused by their employees in
side as much as possible. The fact that private respondent the service of the branches in which the latter are employed or on
Alfonso Verchez stayed behind in Sorsogon for almost 1 week the occasion of their functions.
convincingly demonstrates that he himself knew that his wife was
not in critical condition.33 Employers shall be liable for the damages caused by their
employees and household helpers acting within the scope of their
(Emphasis and underscoring supplied) assigned tasks, even though the former are not engaged in any
business or industry.
RCPI’s arguments fail. For it is its breach of contract upon which
its liability is, it bears repeating, anchored. Since RCPI breached xxxx
its contract, the presumption is that it was at fault or negligent. It,
however, failed to rebut this presumption. The responsibility treated of in this article shall cease when the
persons herein mentioned prove that they observed all the
For breach of contract then, RCPI is liable to Grace for damages. diligence of a good father of a family to prevent damage.
(Underscoring supplied)
And for quasi-delict, RCPI is liable to Grace’s co-respondents
following Article 2176 of the Civil Code which provides: RCPI failed, however, to prove that it observed all the diligence of
a good father of a family to prevent damage.
Whoever by act or omission causes damage to another, there
being fault or negligence, is obliged to pay for the damage done. Respecting the assailed award of moral damages, a
Such fault or negligence, if there is no pre-existing contractual determination of the presence of the following requisites to justify
relation between the parties, is called a quasi-delict and is the award is in order:
governed by the provisions of this Chapter. (Underscoring
supplied) x x x firstly, evidence of besmirched reputation or physical, mental
or psychological suffering sustained by the claimant; secondly, a
 38

culpable act or omission factually established; thirdly, proof that In applying the above-quoted Article 2220, this Court has
the wrongful act or omission of the defendant is the proximate awarded moral damages in cases of breach of contract where the
cause of damages sustained by the claimant; and fourthly, that defendant was guilty of gross negligence amounting to bad faith,
the case is predicated on any of the instances expressed or or in wanton disregard of his contractual obligation.36
envisioned by Article 2219 and Article 2220 of the Civil Code.34
As for RCPI’s tort-based liability, Article 2219 of the Civil Code
Respecting the first requisite, evidence of suffering by the provides:
plaintiffs-herein respondents was correctly appreciated by the CA
in this wise: Moral damages may be recovered in the following
and analogous cases:
The failure of RCPI to deliver the telegram containing the
message of appellees on time, disturbed their filial tranquillity. xxxx
Family members blamed each other for failing to respond swiftly
to an emergency that involved the life of the late Mrs. Verchez, (10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30,
who suffered from diabetes.35 32, 34, and 35. (Emphasis supplied)

As reflected in the foregoing discussions, the second and third Article 26 of the Civil Code, in turn, provides:
requisites are present.
Every person shall respect the dignity, personality, privacy
On the fourth requisite, Article 2220 of the Civil Code provides: and peace of mind of his neighbors and other persons. The
following and similar acts, though they may not constitute a
Willful injury to property may be a legal ground for awarding moral criminal offense, shall produce a cause of action for damages,
damages if the court should find that, under the circumstances, prevention, and other relief:
such damages are justly due. The same rule applies
to breaches of contract where the defendant acted xxxx
fraudulently or in bad faith. (Emphasis and underscoring
supplied)
(2) Meddling with or disturbing the private life or family
relations of another. (Emphasis supplied)
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
RCPI’s negligence in not promptly performing its obligation
before trying to deliver it again, knowing – as it should know –
undoubtedly disturbed the peace of mind not only of Grace but
that time is of the essence in the delivery of telegrams. When its
also her co-respondents. As observed by the appellate court, it
second long-delayed attempt to deliver the telegram again failed,
disrupted the "filial tranquillity" among them as they blamed each
it, again, waited for another 12 days before making a third
other "for failing to respond swiftly to an emergency." The tortious
attempt. Such nonchalance in performing its urgent obligation
acts and/or omissions complained of in this case are, therefore,
indicates gross negligence amounting to bad faith. The fourth
analogous to acts mentioned under Article 26 of the Civil Code,
requisite is thus also present.
 39

which are among the instances of quasi-delict when courts may latter of the opportunity to bargain on equal
award moral damages under Article 2219 of the Civil Code. footing.38 (Emphasis and underscoring supplied)

In fine, the award to the plaintiffs-herein respondents of moral While a contract of adhesion is not necessarily void and
damages is in order, as is the award of attorney’s fees, unenforceable, since it is construed strictly against the party who
respondents having been compelled to litigate to protect their drafted it or gave rise to any ambiguity therein, it is stricken down
rights. as void and unenforceable or subversive of public policy when the
weaker party is imposed upon in dealing with the dominant
Clutching at straws, RCPI insists that the limited liability clause in bargaining party and is reduced to the alternative of taking it or
the "Telegram Transmission Form" is not a contract of adhesion. leaving it, completely deprived of the opportunity to bargain on
Thus it argues: equal footing.39

Neither can the Telegram Transmission Form be considered a This Court holds that the Court of Appeals’ finding that the
contract of adhesion as held by the respondent court. The said parties’ contract is one of adhesion which is void is, given the
stipulations were all written in bold letters right in front of the facts and circumstances of the case, thus well-taken.
Telegram Transmission Form. As a matter of fact they were
beside the space where the telegram senders write their WHEREFORE, the petition is DENIED, and the challenged
telegraphic messages. It would have been different if the decision of the Court of Appeals is AFFIRMED.
stipulations were written at the back for surely there is no way the
sender will easily notice them. The fact that the stipulations were Costs against petitioner.
located in a particular space where they can easily be seen, is
sufficient notice to any sender (like Grace Verchez-Infante) where SO ORDERED.
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
 40

G. R. No. 156966             May 7, 2004 Petitioner PILTEL filed a motion for the reconsideration, through
registered mail, of the order of the trial court. In its subsequent
PILIPINO TELEPHONE CORPORATION, petitioner, order, dated 08 October 2001, the trial court denied the motion for
vs. reconsideration.
DELFINO TECSON, respondent.
Petitioner filed a petition for certiorari under Rule 65 of the
DECISION Revised Rules of Civil Procedure before the Court of Appeals.

VITUG, J.: The Court of Appeals, in its decision of 30 April 2002, saw no

merit in the petition and affirmed the assailed orders of the trial
The facts, by and large, are undisputed. court. Petitioner moved for a reconsideration, but the appellate
court, in its order of 21 January 2003, denied the motion.
On various dates in 1996, Delfino C. Tecson applied for six (6)
cellular phone subscriptions with petitioner Pilipino Telephone There is merit in the instant petition.
Corporation (PILTEL), a company engaged in the
telecommunications business, which applications were each Section 4, Rule 4, of the Revised Rules of Civil Procedure2 allows
approved and covered, respectively, by six mobiline service the parties to agree and stipulate in writing, before the filing of an
agreements. action, on the exclusive venue of any litigation between them.
Such an agreement would be valid and binding provided that the
On 05 April 2001, respondent filed with the Regional Trial Court stipulation on the chosen venue is exclusive in nature or in intent,
of Iligan City, Lanao Del Norte, a complaint against petitioner for that it is expressed in writing by the parties thereto, and that it is
a "Sum of Money and Damages." Petitioner moved for the entered into before the filing of the suit. The provision contained
dismissal of the complaint on the ground of improper venue, citing in paragraph 22 of the "Mobile Service Agreement," a standard
a common provision in the mobiline service agreements to the contract made out by petitioner PILTEL to its subscribers,
effect that - apparently accepted and signed by respondent, states that the
venue of all suits arising from the agreement, or any other suit
directly or indirectly arising from the relationship between PILTEL
"Venue of all suits arising from this Agreement or any
and subscriber, "shall be in the proper courts of Makati, Metro
other suit directly or indirectly arising from the relationship
Manila." The added stipulation that the subscriber "expressly
between PILTEL and subscriber shall be in the proper
waives any other venue"3 should indicate, clearly enough, the
courts of Makati, Metro Manila. Subscriber hereby
intent of the parties to consider the venue stipulation as being
expressly waives any other venues."1
preclusive in character.
In an order, dated 15 August 2001, the Regional Trial Court of
The appellate court, however, would appear to anchor its decision
Iligan City, Lanao del Norte, denied petitioner’s motion to dismiss
on the thesis that the subscription agreement, being a mere
and required it to file an answer within 15 days from receipt
contract of adhesion, does not bind respondent on the venue
thereof.
stipulation.
 41

Indeed, the contract herein involved is a contract of adhesion. But and congested counters. Hardly, therefore, were the passengers
such an agreement is not per se inefficacious. The rule instead is accorded a real opportunity to examine the fine prints contained
that, should there be ambiguities in a contract of adhesion, such in the tickets, let alone reject them.
ambiguities are to be construed against the party that prepared it.
If, however, the stipulations are not obscure, but are clear and A contract duly executed is the law between the parties, and they
leave no doubt on the intention of the parties, the literal meaning are obliged to comply fully and not selectively with its terms. A
of its stipulations must be held controlling.4 contract of adhesion is no exception.7

A contract of adhesion is just as binding as ordinary contracts. It WHEREFORE, the instant petition is GRANTED, and the
is true that this Court has, on occasion, struck down such questioned decision and resolution of the Court of Appeals in CA-
contracts as being assailable when the weaker party is left with G.R. SP No. 68104 are REVERSED and SET ASIDE. Civil Case
no choice by the dominant bargaining party and is thus No. 5572 pending before the Regional Trial Court of Iligan City,
completely deprived of an opportunity to bargain effectively. Branch 4, is DISMISSED without prejudice to the filing of an
Nevertheless, contracts of adhesion are not prohibited even as appropriate complaint by respondent against petitioner with the
the courts remain careful in scrutinizing the factual circumstances court of proper venue. No costs.
underlying each case to determine the respective claims of
contending parties on their efficacy. SO ORDERED.

In the case at bar, respondent secured six (6) subscription Sandoval-Gutierrez, Corona, and Morales, JJ., concur.
contracts for cellular phones on 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 agreements. Respondent continued,
in fact, to acquire in the pursuit of his business subsequent
subscriptions and remained a subscriber of petitioner for quite
sometime.

In Development Bank of the Philippines vs. National

Merchandising Corporation,5 the 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
 42

G.R. No. 174433               February 24, 2014 The additional security was registered in the names of
respondents Arnold, Arnel, Anthony, and Arma, all surnamed
PHILIPPINE NATIONAL BANK, Petitioner, Manalo, who were their children. 2

vs.
SPOUSES ENRIQUE MANALO & ROSALINDA JACINTO, It was agreed upon that the Spouses Manalo would make
ARNOLD J. MANALO, ARNEL J. MANALO, and ARMA J. monthly payments on the interest. However, PNB claimed that
MANALO, Respondents. their last recorded payment was made on December, 1997. Thus,
PNB sent a demand letter to them on their overdue account and
DECISION required them to settle the account. PNB sent another demand
letter because they failed to heed the first demand. 3

BERSAMIN, J.:
After the Spouses Manalo still failed to settle their unpaid account
Although banks are free to determine the rate of interest they despite the two demand letters, PNB foreclose the mortgage.
could impose on their borrowers, they can do so only reasonably, During the foreclosure sale, PNB was the highest bidder for
not arbitrarily. They may not take advantage of the ordinary ₱15,127,000.00 of the mortgaged properties of the Spouses
borrowers' lack of familiarity with banking procedures and jargon. Manalo. The sheriff issued to PNB the Certificate of Sale dated
Hence, any stipulation on interest unilaterally imposed and November 13, 2000. 4

increased by them shall be struck down as violative of the

principle of mutuality of contracts. After more than a year after the Certificate of Sale had been
issued to PNB, the Spouses Manalo instituted this action for the
Antecedents nullification of the foreclosure proceedings and damages. They
alleged that they had obtained a loan for ₱1,000,000.00 from a
certain Benito Tan upon arrangements made by Antoninus
Respondent Spouses Enrique Manalo and Rosalinda Jacinto
Yuvienco, then the General Manager of PNB’s Bangkal Branch
(Spouses Manalo) applied for an All-Purpose Credit Facility in the
where they had transacted; that they had been made to
amount of ₱1,000,000.00 with Philippine National Bank (PNB) to
understand and had been assured that the ₱1,000,000.00 would
finance the construction of their house. After PNB granted their
be used to update their account, and that their loan would be
application, they executed a Real Estate Mortgage on November
restructured and converted into a long-term loan;  that they had
5

3, 1993 in favor of PNB over their property covered by Transfer

been surprised to learn, therefore, that had been declared in
Certificate of Title No. S- 23191 as security for the loan.  The
1

default of their obligations, and that the mortgage on their

credit facility was renewed and increased several times over the
property had been foreclosed and their property had been sold;
years. On September 20, 1996, the credit facility was again
and that PNB did not comply with Section 3 of Act No. 3135, as
renewed for ₱7,000,000.00. As a consequence, the parties
amended. 6

executed a Supplement to and Amendment of Existing Real

Estate Mortgage whereby the property covered by TCT No.
171859 was added as security for the loan. PNB and Antoninus Yuvienco countered that the ₱1,000,000.00
loan obtained by the Spouses Manalo from Benito Tan had been
credited to their account; that they did not make any assurances
on the restructuring and conversion of the Spouses Manalo’s loan
 43

into a long-term one;  that PNB’s right to foreclose the mortgage

7
issues, the court must necessarily include these matters in the
had been clear especially because the Spouses Manalo had not resolution of the present case.9

assailed the validity of the loans and of the mortgage; and that
the Spouses Manalo did not allege having fully paid their The RTC held, however, that the Spouses Manalo’s "contract of
indebtedness. 8
adhesion" argument was unfounded because they had still
accepted the terms and conditions of their credit agreement with
Ruling ofthe RTC PNB and had exerted efforts to pay their obligation;  that the
10

Spouses Manalo were now estopped from questioning the

After trial, the RTC rendered its decision in favor of PNB, holding interest rates unilaterally imposed by PNB because they had paid
thusly: at those rates for three years without protest;  and that their
11

allegation about PNB violating the notice and publication

In resolving this present case, one of the most significant matters requirements during the foreclosure proceedings was untenable
the court has noted is that while during the pre-trial held on 8 because personal notice to the mortgagee was not required
September 2003, plaintiff-spouses Manalo with the assistance under Act No. 3135. 12

counsel had agreed to stipulate that defendants had the right to

foreclose upon the subject properties and that the plaintiffs[‘] main The Spouses Manalo appealed to the CA by assigning a singular
thrust was to prove that the foreclosure proceedings were invalid, error, as follows:
in the course of the presentation of their evidence, they modified
their position and claimed [that] the loan document executed were THE COURT A QUO SERIOUSLY ERRED IN DISMISSING
contracts of adhesion which were null and void because they PLAINTIFF-APPELLANTS’ COMPLAINT FOR BEING (sic) LACK
were prepared entirely under the defendant bank’s supervision. OF MERIT NOTWITHSTANDING THE FACT THAT IT WAS
They also questioned the interest rates and penalty charges CLEARLY SHOWN THAT THE FORECLOSURE
imposed arguing that these were iniquitous, unconscionable and PROCEEDINGS WAS INVALID AND ILLEGAL. 13

therefore likewise void.

The Spouses Manalo reiterated their arguments, insisting that: (1)
Not having raised the foregoing matters as issues during the pre- the credit agreements they entered into with PNB were contracts
trial, plaintiff-spouses are presumably estopped from allowing of adhesion;  (2) no interest was due from them because their
14

these matters to serve as part of their evidence, more so because credit agreements with PNB did not specify the interest rate, and
at the pre-trial they expressly recognized the defendant bank’s PNB could not unilaterally increase the interest rate without first
right to foreclose upon the subject property (See Order, pp. 193- informing them;  and (3) PNB did not comply with the notice and
15

195). publication requirements under Section 3 of Act 3135.  On the

16

other hand, PNB and Yuvienco did not file their briefs despite
However, considering that the defendant bank did not interpose notice.
17

any objection to these matters being made part of plaintiff’s

evidence so much so that their memorandum contained Ruling ofthe CA
discussions rebutting plaintiff spouses arguments on these
 44

In its decision promulgated on March 28, 2006,  the CA affirmed

18
The CA deemed to be untenable the Spouses Manalo’s allegation
the decision of the RTC insofar as it upheld the validity of the that PNB had failed to comply with the requirements for notice
foreclosure proceedings initiated by PNB, but modified the and posting under Section 3 of Act 3135. The CA stated that
Spouses Manalo’s liability for interest. It directed the RTC to see Sheriff Norberto Magsajo’s testimony was sufficient proof of his
to the recomputation of their indebtedness, and ordered that posting of the required Notice of Sheriff’s Sale in three public
should the recomputed amount be less than the winning bid in the places; that the notarized Affidavit of Publication presented by
foreclosure sale, the difference should be immediately returned to Sheriff Magsajo was prima facie proof of the publication of the
the Spouses Manalo. notice; and that the Affidavit of Publication enjoyed the
presumption of regularity, such that the Spouses Manalo’s bare
The CA found it necessary to pass upon the issues of PNB’s allegation of non-publication without other proof did not overcome
failure to specify the applicable interest and the lack of mutuality the presumption.
in the execution of the credit agreements considering the earlier
cited observation made by the trial court in its decision. Applying On August 29, 2006, the CA denied the Spouses Manalo’s
Article 1956 of the Civil Code, the CA held that PNB’s failure to Motion for Reconsideration and PNB’s Partial Motion for
indicate the rate of interest in the credit agreements would not Reconsideration. 20

excuse the Spouses Manalo from their contractual obligation to

pay interest to PNB because of the express agreement to pay Issues
interest in the credit agreements. Nevertheless, the CA ruled that
PNB’s inadvertence to specify the interest rate should be In its Memorandum,  PNB raises the following issues:
21

construed against it because the credit agreements were clearly

contracts of adhesion due to their having been prepared solely by
I
PNB.
WHETHER OR NOT THE COURT OF APPEALS WAS
The CA further held that PNB could not unilaterally increase the
CORRECT IN NULLIFYING THE INTEREST RATES IMPOSED
rate of interest considering that the credit agreements specifically
ON RESPONDENT SPOUSES’ LOAN AND IN FIXING THE
provided that prior notice was required before an increase in
SAME AT TWELVE PERCENT (12%) FROM DEFAULT,
interest rate could be effected. It found that PNB did not adduce
DESPITE THE FACT THAT (i) THE SAME WAS RAISED BY
proof showing that the Spouses Manalo had been notified before
THE RESPONDENTS ONLY FOR THE FIRST TIME ON
the increased interest rates were imposed; and that PNB’s
APPEAL (ii) IT WAS NEVER PART OF THEIR COMPLAINT (iii)
unilateral imposition of the increased interest rate was null and
WAS EXLUDED AS AN ISSUE DURING PRE-TRIAL, AND
void for being violative of the principle of mutuality of contracts
WORSE, (iv) THERE WAS NO FORMALLY OFFERED
enshrined in Article 1308 of the Civil Code. Reinforcing its
PERTAINING TO THE SAME DURING TRIAL.
"contract of adhesion" conclusion, it added that the 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 II
Eastern Shipping Lines, v. Court of Appeals,  fixed the interest
19

rate to be paid by the Spouses Manalo at 12% per annum, WHETHER OR NOT THE COURT OF APPEALS CORRECTLY
computed from their default. RULED THAT THERE WAS NO MUTUALITY OF CONSENT IN
 45

THE IMPOSITION OF INTEREST RATES ON THE Contrary to PNB’s argument, the validity of the interest rates and
RESPONDENT SPOUSES’ LOAN DESPITE THE EXISTENCE of the increases, and on the lack of mutuality between the parties
OF FACTS AND CIRCUMSTANCES CLEARLY SHOWING were not raised by the Spouses Manalo’s for the first time on
RESPONDENTS’ ASSENT TO THE RATES OF INTEREST SO appeal. Rather, the issues were impliedly raised during the trial
IMPOSED BY PNB ON THE LOAN. itself, and PNB’s lack of vigilance in voicing out a timely objection
made that possible.
Anent the first issue, PNB argues that by passing upon the issue
of the validity of the interest rates, and in nullifying the rates It appears that Enrique Manalo’s Judicial Affidavit introduced the
imposed on the Spouses Manalo, the CA decided the case in a issues of the validity of the interest rates and the increases, and
manner not in accord with Section 15, Rule 44 of the Rules of the lack of mutuality between the parties in the following manner,
Court, which states that only questions of law or fact raised in the to wit:
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 5. True to his words, defendant Yuvienco, after several
would "offend the basic rules of fair play, justice and due days, sent us a document through a personnel of
process;"  that the resolution of the CA was limited to the issues
22
defendant PNB, Bangkal, Makati City Branch, who
agreed upon by the parties during pre-trial;  that the CA erred in
23
required me and my wife to affix our signature on the said
passing upon the validity of the interest rates inasmuch as the document;
Spouses Manalo did not present evidence thereon; and that the
Judicial Affidavit of Enrique Manalo, on which the CA relied for its 6. When the document was handed over me, I was able
finding, was not offered to prove the invalidity of the interest rates to know that it was a Promissory Note which was in ready
and was, therefore, inadmissible for that purpose. 24
made form and prepared solely by the defendant PNB;

As to the substantive issues, PNB claims that the Spouses xxxx

Manalo’s continuous payment of interest without protest indicated
their assent to the interest rates imposed, as well as to the
21. As above-noted, the rates of interest imposed by the
subsequent increases of the rates; and that the CA erred in
defendant bank were never the subject of any stipulation
declaring that the interest rates and subsequent increases were
between us mortgagors and the defendant PNB as
invalid for lack of mutuality between the contracting parties.
mortgagee;
Ruling
22. The truth of the matter is that defendant bank
imposed rate of interest which ranges from 19% to as
The appeal lacks merit. high as 28% and which changes from time to time;

1. 23. The irregularity, much less the invalidity of the

Procedural Issue imposition of iniquitous rates of interest was aggravated
by the fact that we were not informed, notified, nor the
 46

same had our prior consent and acquiescence therefor. x The RTC did not need to direct the amendment of the complaint
xx 25
by the Spouses Manalo. Section 5, Rule 10 of the Rules of Court
specifically declares that the "failure to amend does not affect the
PNB cross-examined Enrique Manalo upon his Judicial Affidavit. result of the trial of these issues." According to Talisay-Silay
There is no showing that PNB raised any objection in the course Milling Co., Inc. v. Asociacion de Agricultores de Talisay-Silay,
of the cross examination.  Consequently, the RTC rightly passed
26 Inc.:
28

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, The failure of a party to amend a pleading to conform to the
which states: evidence adduced during trial does not preclude an adjudication
by the court on the basis of such evidence which may embody
Section 5. Amendment to conform to or authorize presentation of new issues not raised in the pleadings, or serve as a basis for a
evidence. – When issues not raised by the pleadings are tried higher award of damages. Although the pleading may not have
with the express or implied consent of the parties, they shall be been amended to conform to the evidence submitted during trial,
treated in all respects as if they had been raised in the pleadings. judgment may nonetheless be rendered, not simply on the basis
Such amendment of the pleadings as may be necessary to cause of the issues alleged but also on the basis of issues discussed
them to conform to the evidence and to raise these issues may and the assertions of fact proved in the course of trial.  The court
1âwphi1

be made upon motion of any party at any time, even after may treat the pleading as if it had been amended to conform to
judgment; but failure to amend does not affect the result of the the evidence, although it had not been actually so amended.
trial of these issues. If evidence is objected to at the trial on the Former Chief Justice Moran put the matter in this way:
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 When evidence is presented by one party, with the expressed or
with liberality if the presentation of the merits of the action and the implied consent of the adverse party, as to issues not alleged in
ends of substantial justice will be subserved thereby. The court the pleadings, judgment may be rendered validly as regards
may grant a continuance to enable the amendment to be made. those issues, which shall be considered as if they have been
raised in the pleadings. There is implied, consent to the evidence
In Bernardo Sr. v. Court of Appeals,  we held that:
27 thus presented when the adverse party fails to object thereto."
(Emphasis supplied)
It is settled that even if the complaint be defective, but the parties
go to trial thereon, and the plaintiff, without objection, introduces Clearly, a court may rule and render judgment on the basis of the
sufficient evidence to constitute the particular cause of action evidence before it even though the relevant pleading had not
which it intended to allege in the original complaint, and the been previously amended, so long as no surprise or prejudice is
defendant voluntarily produces witnesses to meet the cause of thereby caused to the adverse party. Put a little differently, so
action thus established, an issue is joined as fully and as long as the basic requirements of fair play had been met, as
effectively as if it had been previously joined by the most perfect where litigants were given full opportunity to support their
pleadings. Likewise, when issues not raised by the pleadings are respective contentions and to object to or refute each other's
tried by express or implied consent of the parties, they shall be evidence, the court may validly treat the pleadings as if they had
treated in all respects as if they had been raised in the pleadings. been amended to conform to the evidence and proceed to
adjudicate on the basis of all the evidence before it.
 47

There is also no merit in PNB’s contention that the CA should not The credit agreement executed succinctly stipulated that the loan
have considered and ruled on the issue of the validity of the would be subjected to interest at a rate "determined by the Bank
interest rates because the Judicial Affidavit of Enrique Manalo to be its prime rate plus applicable spread, prevailing at the
had not been offered to prove the same but only "for the purpose current month."  This stipulation was carried over to or adopted
31

of identifying his affidavit."  As such, the affidavit was

29
by the subsequent renewals of the credit agreement. PNB
inadmissible to prove the nullity of the interest rates. thereby arrogated unto itself the sole prerogative to determine
and increase the interest rates imposed on the Spouses Manalo.
We do not agree. Such a unilateral determination of the interest rates contravened
the principle of mutuality of contracts embodied in Article 1308 of
Section 5, Rule 10 of the Rules of Court is applicable in two the Civil Code. 32

situations.  The first is when evidence is introduced on an issue

1âwphi1

not alleged in the pleadings and no objection is interposed by the The Court has declared that a contract where there is no
adverse party. The second is when evidence is offered on an mutuality between the parties partakes of the nature of a contract
issue not alleged in the pleadings but an objection is raised of adhesion,  and any obscurity will be construed against the
33

against the offer.  This case comes under the first situation.
30 party who prepared the contract, the latter being presumed the
Enrique Manalo’s Judicial Affidavit would introduce the very stronger party to the agreement, and who caused the
issues that PNB is now assailing. The question of whether the obscurity.  PNB should then suffer the consequences of its failure
34

evidence on such issues was admissible to prove the nullity of the to specifically indicate the rates of interest in the credit
interest rates is an entirely different matter. The RTC accorded agreement. We spoke clearly on this in Philippine Savings Bank
credence to PNB’s evidence showing that the Spouses Manalo v. Castillo,  to wit:
35

had been paying the interest imposed upon them without protest.
On the other hand, the CA’s nullification of the interest rates was The unilateral determination and imposition of the increased rates
based on the credit agreements that the Spouses Manalo and is violative of the principle of mutuality of contracts under Article
PNB had themselves submitted. 1308 of the Civil Code, which provides that ‘[t]he contract must
bind both contracting parties; its validity or compliance cannot be
Based on the foregoing, the validity of the interest rates and their left to the will of one of them.’ A perusal of the Promissory Note
increases, and the lack of mutuality between the parties were will readily show that the increase or decrease of interest rates
issues validly raised in the RTC, giving the Spouses Manalo hinges solely on the discretion of petitioner. It does not require
every right to raise them in their appeal to the CA. PNB’s the conformity of the maker before a new interest rate could be
contention was based on its wrong appreciation of what enforced. Any contract which appears to be heavily weighed in
transpired during the trial. It is also interesting to note that PNB favor of one of the parties so as to lead to an unconscionable
did not itself assail the RTC’s ruling on the issues obviously result, thus partaking of the nature of a contract of adhesion, is
because the RTC had decided in its favor. In fact, PNB did not void. Any stipulation regarding the validity or compliance of the
even submit its appellee’s brief despite notice from the CA. contract left solely to the will of one of the parties is likewise
invalid. (Emphasis supplied)
2.
Substantive Issue PNB could not also justify the increases it had effected on the
interest rates by citing the fact that the Spouses Manalo had paid
 48

the interests without protest, and had renewed the loan several the nullification of the foreclosure proceedings as the main
times. We rule that the CA, citing Philippine National Bank v. relief.  It is evident, therefore, that the Spouses Manalo made no
43

Court of Appeals,  rightly concluded that "a borrower is not

36
judicial or extrajudicial demand from which to reckon the interest
estopped from assailing the unilateral increase in the interest on any amount to be refunded to them. Such demand could only
made by the lender since no one who receives a proposal to be reckoned from the promulgation of the CA’s decision because
change a contract, to which he is a party, is obliged to answer the it was there that the right to the refund was first judicially
same and said party’s silence cannot be construed as an recognized. Nevertheless, pursuant to Eastern Shipping Lines,
acceptance thereof." 37
Inc. v. Court of Appeals,  the amount to be refunded and the
44

interest thereon should earn interest to be computed from the

Lastly, the CA observed, and properly so, that the credit finality of the judgment until the full refund has been made.
agreements had explicitly provided that prior notice would be
necessary before PNB could increase the interest rates. In failing Anent the correct rates of interest to be applied on the amount to
to notify the Spouses Manalo before imposing the increased rates be refunded by PNB, the Court, in Nacar v. Gallery Frames  and 45

of interest, therefore, PNB violated the stipulations of the very S.C. Megaworld Construction v. Parada,  already applied
46

contract that it had prepared. Hence, the varying interest rates Monetary Board Circular No. 799 by reducing the interest rates
imposed by PNB have to be vacated and declared null and void, allowed in judgments from 12% per annum to 6% per
and in their place an interest rate of 12% per annum computed annum.  According to Nacar v. Gallery Frames, MB Circular No.
47

from their default is fixed pursuant to the ruling in Eastern 799 is applied prospectively, and judgments that became final
Shipping Lines, Inc. v. Court of Appeals.38
and executory prior to its effectivity on July 1, 2013 are not to be
disturbed but continue to be implemented applying the old legal
The CA’s directive to PNB (a) to recompute the Spouses rate of 12% per annum. Hence, the old legal rate of 12% per
Manalo’s indebtedness under the oversight of the RTC; and (b) to annum applied to judgments becoming final and executory prior
refund to them any excess of the winning bid submitted during the to July 1, 2013, but the new rate of 6% per annum applies to
foreclosure sale over their recomputed indebtedness was judgments becoming final and executory after said dater.
warranted and equitable. Equally warranted and equitable was to
make the amount to be refunded, if any, bear legal interest, to be Conformably with Nacar v. Gallery Frames and S.C. Megaworld
reckoned from the promulgation of the CA’s decision on March Construction v. Parada, therefore, the proper interest rates to be
28, 2006.  Indeed, the Court said in Eastern Shipping Lines, Inc.
39
imposed in the present case are as follows:
v. Court of Appeals  that interest should be computed from the
40

time of the judicial or extrajudicial demand. However, this case 1. Any amount to be refunded to the Spouses Manalo
presents a peculiar situation, the peculiarity being that the shall bear interest of 12% per annum computed from
Spouses Manalo did not demand interest either judicially or March 28, 2006, the date of the promulgation of the CA
extrajudicially. In the RTC, they specifically sought as the main decision, until June 30, 2013; and 6% per annum
reliefs the nullification of the foreclosure proceedings brought by computed from July 1, 2013 until finality of this decision;
PNB, accounting of the payments they had made to PNB, and the and
conversion of their loan into a long term one.  In its judgment, the
41

RTC even upheld the validity of the interest rates imposed by 2. The amount to be refunded and its accrued interest
PNB.  In their appellant’s brief, the Spouses Manalo again sought
42
shall earn interest of 6% per annum until full refund.
 49

WHEREFORE, the Court AFFIRMS the decision promulgated by

the Court of Appeals on March 28, 2006 in CA-G.R. CV No.
84396, subject to the MODIFICATION that any amount to be
refunded to the respondents shall bear interest of 12% per annum
computed from March 28, 2006 until June 30, 2013, and 6% per
annum computed from July 1, 2013 until finality hereof; that the
amount to be refunded and its accrued interest shall earn interest
at 6o/o per annum until full refund; and DIRECTS the petitioner to
pay the costs of suit.

SO ORDERED.
 50

G.R. No. 115117               June 8, 2000 Ordering plaintiff to pay defendant the sum of
P100,000.00 as moral damages;
INTEGRATED PACKAGING CORP., petitioner,
vs. Ordering plaintiff to pay the sum of P30,000.00 for
COURT OF APPEALS and FIL-ANCHOR PAPER CO., attorney's fees; and to pay the costs of suit.
INC., respondents.
SO ORDERED. 2

QUISUMBING, J.:
The facts, as culled from the records, are as follows:
This is a petition to review the decision of the Court of Appeals
rendered on April 20, 1994 reversing the judgment of the Petitioner and private respondent executed on May 5, 1978, an
Regional Trial Court of Caloocan City in an action for recovery of order agreement whereby private respondent bound itself to
sum of money filed by private respondent against petitioner. In deliver to petitioner 3,450 reams of printing paper, coated, 2 sides
said decision, the appellate court decreed: basis, 80 lbs., 38" x 23", short grain, worth P1,040,060.00 under
the following schedule: May and June 1978 — 450 reams at
WHEREFORE, in view of all the foregoing, the appealed P290.00/ream; August and September 1978 — 700 reams at
judgment is hereby REVERSED and SET ASIDE. P290/ream; January 1979 — 575 reams at P307.20/ream; March
Appellee [petitioner herein] is hereby ordered to pay 1979 — 575 reams at P307.20/ream; July 1979 — 575 reams at
appellant [private respondent herein] the sum of 307.20/ream; and October 1979 — 575 reams at P307.20/ream.
P763,101.70, with legal interest thereon, from the date of In accordance with the standard operating practice of the parties,
the filing of the Complaint, until fully paid. the materials were to be paid within a minimum of thirty days and
maximum of ninety days from delivery.
SO ORDERED. 1

Later, on June 7, 1978, petitioner entered into a contract with

The RTC judgment reversed by the Court of Appeals had Philippine Appliance Corporation (Philacor) to print three volumes
disposed of the complain as follows: of "Philacor Cultural Books" for delivery on the following dates:
Book VI, on or before November 1978; Book VII, on or before
WHEREFORE, judgment is hereby rendered: November 1979 and; Book VIII, on or before November 1980,
with a minimum of 300,000 copies at a price of P10.00 per copy
or a total cost of P3,000,000.00.
Ordering plaintiff [herein private respondent] to pay
defendant [herein petitioner] the sum of P27,222.60 as
compensatory and actual damages after deducting As of July 30, 1979, private respondent had delivered to petitioner
P763,101.70 (value of materials received by defendant) 1,097 reams of printing paper out of the total 3,450 reams stated
from P790,324.30 representing compensatory damages in the agreement. Petitioner alleged it wrote private respondent to
as defendant's unrealized profits; immediately deliver the balance because further delay would
greatly prejudice petitioner. From June 5, 1980 and until July 23,
1981, private respondent delivered again to petitioner various
 51

quantities of printing paper amounting to P766,101.70. However, payments in the amount of P97,200.00 which was applied to back
petitioner encountered difficulties paying private respondent said accounts, thus, reducing petitioner's indebtedness to
amount. Accordingly, private respondent made a formal demand P763,101.70.
upon petitioner to settle the outstanding account. On July 23 and
31, 1981 and August 27, 1981, petitioner made partial payments On July 5, 1990, the trial court rendered judgment declaring that
totalling P97,200.00 which was applied to its back accounts petitioner should pay private respondent the sum of P763,101.70
covered by delivery invoices dated September 29-30, 1980 and representing the value of printing paper delivered by private
October 1-2, 1980. 3
respondent from June 5, 1980 to July 23, 1981. However, the
lower court also found petitioner's counterclaim meritorious. It
Meanwhile, petitioner entered into an additional printing contract ruled that were it not for the failure or delay of private respondent
with Philacor. Unfortunately, petitioner failed to fully comply with to deliver printing paper, petitioner could have sold books to
its contract with Philacor for the printing of books VIII, IX, X and Philacor and realized profit of P790,324.30 from the sale. It
XI. Thus, Philacor demanded compensation from petitioner for further ruled that petitioner suffered a dislocation of business on
the delay and damage it suffered on account of petitioner's account of loss of contracts and goodwill as a result of private
failure. respondent's violation of its obligation, for which the award of
moral damages was justified.
On August 14, 1981, private respondent filed with the Regional
Trial Court of Caloocan City a collection suit against petitioner for On appeal, the respondent Court of Appeals reversed and set
the sum of P766,101.70, representing the unpaid purchase price aside the judgment of the trial court. The appellate court ordered
of printing paper bought by petitioner on credit. petitioner to pay private respondent the sum of P763,101.70
representing the amount of unpaid printing paper delivered by
In its answer, petitioner denied the material allegations of the private respondent to petitioner, with legal interest thereon from
complaint. By way of counterclaim, petitioner alleged that private the date of the filing of the complaint until fully paid. However, the
4 

respondent was able to deliver only 1,097 reams of printing paper appellate court deleted the award of P790,324.30 as
which was short of 2,875 reams, in total disregard of their compensatory damages as well as the award of moral damages
agreement; that private respondent failed to deliver the balance of and attorney's fees, for lack of factual and legal basis.
the printing paper despite demand therefor, hence, petitioner
suffered actual damages and failed to realize expected profits; Expectedly, petitioner filed this instant petition contending that the
and that petitioner's complaint was prematurely filed. appellate court's judgment is based on erroneous conclusions of
facts and law. In this recourse, petitioner assigns the following
After filing its reply and answer to the counterclaim, private errors:
respondent moved for admission of its supplemental complaint,
which was granted. In said supplemental complaint, private [I]
respondent alleged that subsequent to the enumerated purchase
invoices in the original complaint, petitioner made additional THE COURT OF APPEALS ERRED IN CONCLUDING
purchases of printing paper on credit amounting to P94,200.00. THAT PRIVATE RESPONDENT DID NOT VIOLATE THE
Private respondent also averred that petitioner failed and refused ORDER AGREEMENT.
to pay its outstanding obligation although it made partial
 52

[II] simultaneous fulfillment of the other. Thus, private respondent

8 

undertakes to deliver printing paper of various quantities subject

THE COURT OF APPEALS ERRED IN CONCLUDING to petitioner's corresponding obligation to pay, on a maximum 90-
THAT RESPONDENT IS NOT LIABLE FOR day credit, for these materials. Note that in the contract, petitioner
PETITIONER'S BREACH OF CONTRACT WITH is not even required to make any deposit, down payment or
PHILACOR. advance payment, hence, the undertaking of private respondent
to deliver the materials is conditional upon payment by petitioner
[III] within the prescribed period. Clearly, petitioner did not fulfill its
side of the contract as its last payment in August 1981 could
cover only materials covered by delivery invoices dated
THE COURT OF APPEALS ERRED IN CONCLUDING
September and October 1980.
THAT PETITIONER IS NOT ENTITLED TO DAMAGES
AGAINST PRIVATE RESPONDENT.  5

There is no dispute that the agreement provides for the delivery

of printing paper on different dates and a separate price has been
In our view, the crucial issues for resolution in this case are as
agreed upon for each delivery. It is also admitted that it is the
follows:
standard practice of the parties that the materials be paid within a
minimum period of thirty (30) days and a maximum of ninety (90)
(1) Whether or not private respondent violated the order days from each delivery. Accordingly, the private respondent's
9 

agreement, and; suspension of its deliveries to petitioner whenever the latter failed
to pay on time, as in this case, is legally justified under the
(2) Whether or not private respondent is liable for second paragraph of Article 1583 of the Civil Code which
petitioner's breach of contract with Philacor. provides that:

Petitioner's contention lacks factual and legal basis, hence, bereft When there is a contract of sale of goods to be delivered
of merit. by stated installments, which are to be separately paid
for, and the seller makes defective deliveries in respect of
Petitioner contends, firstly, that private respondent violated the one or more installments, or the buyer neglects or refuses
order agreement when the latter failed to deliver the balance of without just cause to take delivery of or pay for one or
the printing paper on the dates agreed upon. more installments, it depends in each case on the terms
of the contract and the circumstances of the case,
The transaction between the parties is a contract of sale whereby whether the breach of contract is so material as to justify
private respondent (seller) obligates itself to deliver printing paper the injured party in refusing to proceed further and suing
to petitioner (buyer) which, in turn, binds itself to pay therefor a for damages for breach of the entire contract, or whether
sum of money or its equivalent (price). Both parties concede that
6  the breach is severable, giving rise to a claim for
the order agreement gives rise to a reciprocal obligations such
7  compensation but not to a right to treat the whole contract
that the obligation of one is dependent upon the obligation of the as broken. (Emphasis supplied)
other. Reciprocal obligations are to be performed simultaneously,
so that the performance of one is conditioned upon the
 53

In this case, as found a quo petitioner's evidence failed to To recapitulate, private respondent did not violate the order
establish that it had paid for the printing paper covered by the agreement it had with petitioner. Likewise, private respondent
delivery invoices on time. Consequently, private respondent has could not be held liable for petitioner's breach of contract with
the right to cease making further delivery, hence the private Philacor. It follows that there is no basis to hold private
respondent did not violate the order agreement. On the contrary, respondent liable for damages. Accordingly, the appellate court
it was petitioner which breached the agreement as it failed to pay did not err in deleting the damages awarded by the trial court to
on time the materials delivered by private respondent. petitioner.
Respondent appellate court correctly ruled that private
respondent did not violate the order agreement. The rule on compensatory damages is well established. True,
indemnification for damages comprehends not only the loss
On the second assigned error, petitioner contends that private suffered, that is to say actual damages (damnum emergens), but
respondent should be held liable for petitioner's breach of also profits which the obligee failed to obtain, referred to as
contract with Philacor. This claim is manifestly devoid of merit. compensatory damages (lucrum cessans). However, to justify a
grant of actual or compensatory damages, it is necessary to
As correctly held by the appellate court, private respondent prove with a reasonable degree of certainty, premised upon
cannot be held liable under the contracts entered into by competent proof and on the best evidence obtainable by the
petitioner with Philacor. Private respondent is not a party to said injured party, the actual amount of loss.  In the case at bar, the
13 

agreements. It is also not a contract pour autrui. Aforesaid trial court erroneously concluded that petitioner could have sold
contracts could not affect third persons like private respondent books to Philacor at the quoted selling price of P1,850,750.55
because of the basic civil law principle of relativity of contracts and by deducting the production cost of P1,060,426.20, petitioner
which provides that contracts can only bind the parties who could have earned profit of P790,324.30. Admittedly, the
entered into it, and it cannot favor or prejudice a third evidence relied upon by the trial court in arriving at the amount
person,  even if he is aware of such contract and has acted with
10  are mere estimates prepared by petitioner.  Said evidence is
14 

knowledge thereof.  11 highly speculative and manifestly hypothetical. It could not

provide sufficient legal and factual basis for the award of
Indeed, the order agreement entered into by petitioner and P790,324.30 as compensatory damages representing petitioner's
private respondent has not been shown as having a direct self-serving claim of unrealized profit.
bearing on the contracts of petitioner with Philacor. As pointed out
by private respondent and not refuted by petitioner, the paper Further, the deletion of the award of moral damages is proper,
specified in the order agreement between petitioner and private since private respondent could not be held liable for breach of
respondent are markedly different from the paper involved in the contract. Moral damages may be awarded when in a breach of
contracts of petitioner with Philacor.  Furthermore, the demand
12  contract the defendant acted in bad faith, or was guilty of gross
made by Philacor upon petitioner for the latter to comply with its negligence amounting to bad faith, or in wanton disregard of his
printing contract is dated February 15, 1984, which is clearly contractual obligation.  Finally, since the award of moral
15 

made long after private respondent had filed its complaint on damages is eliminated, so must the award for attorney's fees be
August 14, 1981. This demand relates to contracts with Philacor also deleted. 
16

dated April 12, 1983 and May 13, 1983, which were entered into
by petitioner after private respondent filed the instant case.
lawphi1
 54

WHEREFORE, the instant petition is DENIED. The decision of

the Court of Appeals is AFFIRMED. Costs against petitioner.

SO ORDERED.

Bellosillo, Mendoza, Buena and De Leon, Jr., JJ., concur.

 55

G.R. No. 179382               January 14, 2013 Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps.
Mamaril) are jeepney operators since 1971. They would park their
SPOUSES BENJAMIN C. MAMARIL AND SONIA P. six (6) passenger jeepneys every night at the Boy Scout of the
MAMARIL, Petitioners, Philippines' (BSP) compound located at 181 Concepcion Street,
vs. Malate, Manila for a fee of ₱300.00 per month for each unit. On
THE BOY SCOUT OF THE PHILIPPINES, AIB SECURITY May 26, 1995 at 8 o'clock in the evening, all these vehicles were
AGENCY, INC., CESARIO PEÑA,* AND VICENTE parked inside the BSP compound. The following morning,
GADDI, Respondents. however, one of the vehicles with Plate No. DCG 392 was
missing and was never recovered.4 According to the security
DECISION guards Cesario Peña (Peña) and Vicente Gaddi (Gaddi) of AIB
Security Agency, Inc. (AIB) with whom BSP had contracted5 for its
security and protection, a male person who looked familiar to
PERLAS-BERNABE, J.:
them took the subject vehicle out of the compound.
This is a Petition for Review on Certiorari assailing the May 31,
On November 20, 1996, Sps. Mamaril filed a complaint6 for
2007 Decision1 and August 16, 2007 Resolution2 of the Court of
damages before the Regional Trial Court (RTC) of Manila, Branch
Appeals (CA) in CA-G.R. CV No. 75978. The dispositive portion
39, against BSP, AIB, Peña and Gaddi. In support thereof, Sps.
of the said Decision reads:
Mamaril averred that the loss of the subject vehicle was due to
the gross negligence of the above-named security guards on-duty
WHEREFORE, the Decision dated November 28, 2001 and the who allowed the subject vehicle to be driven out by a stranger
Order dated June 11, 2002 rendered by the Regional Trial Court despite their agreement that only authorized drivers duly
of Manila, Branch 39 is hereby MODIFIED to the effect that only endorsed by the owners could do so. Peña and Gaddi even
defendants AIB Security Agency, Inc., Cesario Peña and Vicente admitted their negligence during the ensuing investigation.
Gaddi are held jointly and severally liable to pay plaintiffs- Notwithstanding, BSP and AIB did not heed Sps. Mamaril's
appellees Spouses Benjamin C. Mamaril and Sonia P. Mamaril demands for a conference to settle the matter. They therefore
the amount of Two Hundred Thousand Pesos (₱200,000.00) prayed that Peña and Gaddi, together with AIB and BSP, be held
representing the cost of the lost vehicle, and to pay the cost of liable for: (a) the value of the subject vehicle and its accessories
suit. The other monetary awards are DELETED for lack of merit in the aggregate amount of ₱300,000.00; (b) ₱275.00
and/or basis. representing daily loss of income/boundary reckoned from the
day the vehicle was lost; (c) exemplary damages; (d) moral
Defendant-Appellant Boy Scout of the Philippines is absolved damages; (e) attorney's fees; and (f) cost of suit.
from any liability.
In its Answer,7 BSP denied any liability contending that not only
SO ORDERED.3 did Sps. Mamaril directly deal with AIB with respect to the manner
by which the parked vehicles would be handled, but the parking
The Antecedent Facts ticket8 itself expressly stated that the "Management shall not be
responsible for loss of vehicle or any of its accessories or article
left therein." It also claimed that Sps. Mamaril erroneously relied
 56

on the Guard Service Contract. Apart from not being parties 5. To pay jointly and severally the attorney's fees of
thereto, its provisions cover only the protection of BSP's ₱50,000.00 and appearances in court the amount of
properties, its officers, and employees. ₱1,500.00 per appearance; and

In addition to the foregoing defenses, AIB alleged that it has 6. To pay cost.
observed due diligence in the selection, training and supervision
of its security guards while Peña and Gaddi claimed that the SO ORDERED.10
person who drove out the lost vehicle from the BSP compound
represented himself as the owners' authorized driver and had The RTC found that the act of Peña and Gaddi in allowing the
with him a key to the subject vehicle. Thus, they contended that entry of an unidentified person and letting him drive out the
Sps. Mamaril have no cause of action against them. subject vehicle in violation of their internal agreement with Sps.
Mamaril constituted gross negligence, rendering AIB and its
The RTC Ruling security guards liable for the former's loss. BSP was also
adjudged liable because the Guard Service Contract it entered
After due proceedings, the RTC rendered a Decision9 dated into with AIB offered protection to all properties inside the BSP
November 28, 2001 in favor of Sps. Mamaril. The dispositive premises, which necessarily included Sps. Mamaril's vehicles.
portion of the RTC decision reads: Moreover, the said contract stipulated AIB's obligation to
indemnify BSP for all losses or damages that may be caused by
WHEREFORE, judgment is hereby rendered ordering the any act or negligence of its security guards. Accordingly, the
defendants Boy Scout of the Philippines and AIB Security BSP, AIB, and security guards Peña and Gaddi were held jointly
Agency, with security guards Cesario Pena and Vicente Gaddi: - and severally liable for the loss suffered by Sps. Mamaril.

1. To pay the plaintiffs jointly and severally the cost of the On June 11, 2002, the RTC modified its decision reducing the
vehicle which is ₱250,000.00 plus accessories of cost of the stolen vehicle from ₱250,000.00 to ₱200,000.00.11
₱50,000.00;
Only BSP appealed the foregoing disquisition before the CA.
2. To pay jointly and severally to the plaintiffs the daily
loss of the income/boundary of the said jeepney to be The CA Ruling
reckoned fromits loss up to the final adjudication of the
case, which is ₱275.00 a day; In its assailed Decision,12 the CA affirmed the finding of
negligence on the part of security guards Peña and Gaddi.
3. To pay jointly and severally to the plaintiffs moral However, it absolved BSP from any liability, holding that the
damages in the amount of ₱50,000.00; Guard Service Contract is purely between BSP and AIB and that
there was nothing therein that would indicate any obligation
4. To pay jointly and severally to the plaintiffs exemplary and/or liability on the part of BSP in favor of third persons, such
damages in the amount of ₱50,000.00; as Sps. Mamaril. Nor was there evidence sufficient to establish
that BSP was negligent.
 57

It further ruled that the agreement between Sps. Mamaril and ANY OBLIGATION AND/OR LIABILITY ON THE PART
BSP was substantially a contract of lease whereby the former OF THE PARTIES THEREIN IN FAVOR OF THIRD
paid parking fees to the latter for the lease of parking slots. As PERSONS, SUCH AS PETITIONERS HEREIN.
such, the lessor, BSP, was not an insurer nor bound to take care
and/or protect the lessees' vehicles. III.

On the matter of damages, the CA deleted the award of THE HONORABLE COURT OF APPEALS COMMITTED
₱50,000.00 representing the value of the accessories inside the SERIOUS ERROR IN THE INTERPRETATION OF LAW
lost vehicle and the ₱275.00 a day for loss of income in the WHEN IT CONSIDERED THE AGREEMENT BETWEEN
absence of proof to support them. It also deleted the award of BOY SCOUT OF THE PHILIPPINES AND PETITIONERS
moral and exemplary damages and attorney's fees for lack of A CONTRACT OF LEASE, WHEREBY THE BOY
factual and legal bases. SCOUT IS NOT DUTY BOUND TO PROTECT OR TAKE
CARE OF PETITIONERS' VEHICLES.
Sps. Mamaril's motion for reconsideration thereof was denied in
the August 16, 2007 Resolution.13 IV.

Issues Before the Court THE HONORABLE COURT OF APPEALS SERIOUSLY

ERRED WHEN IT RULED THAT PETITIONERS ARE
Hence, the instant petition based on the following assignment of NOT ENTITLED TO DAMAGES AND ATTORNEY'S
errors, to wit: FEES.14

I. In fine, Sps. Mamaril maintain that: (1) BSP should be held liable
for the loss of their vehicle based on the Guard Service Contract
THE HONORABLE COURT OF APPEALS SERIOUSLY and the parking ticket it issued; and (2) the CA erred in deleting
ERRED IN ABSOLVING RESPONDENT BOY SCOUT the RTC awards of damages and attorney's fees.
OF THE PHILIPPINES FROM ANY LIABILITY.
The Court's Ruling
II.
The petition lacks merit.
THE HONORABLE COURT OF APPEALS COMMITTED
SERIOUS MISTAKE WHEN IT RULED THAT THE Article 20 of the Civil Code provides that every person, who,
GUARD SERVICE CONTRACT IS PURELY BETWEEN contrary to law, willfully or negligently causes damage to another,
BOY SCOUT OF THE shall indemnify the latter for the same. Similarly, Article 2176 of
the Civil Code states:
PHILIPPINES AND AIB SECURITY AGENCY, INC., AND
IN HOLDING THAT THERE IS ABSOLUTELY NOTHING Art. 2176. Whoever by act or omission causes damage to
IN THE SAID CONTRACT THAT WOULD INDICATE another, there being fault or negligence, is obliged to pay for the
 58

damage done. Such fault or negligence, if there is no preexisting customers of such agency. As a general rule, a client or customer
contractual relation between the parties, is called a quasi-delict of a security agency has no hand in selecting who among the
and is governed by the provisions of this Chapter. pool of security guards or watchmen employed by the agency
shall be assigned to it; the duty to observe the diligence of a good
In this case, it is undisputed that the proximate cause of the loss father of a family in the selection of the guards cannot, in the
of Sps. Mamaril's vehicle was the negligent act of security guards ordinary course of events, be demanded from the client whose
Peña and Gaddi in allowing an unidentified person to drive out premises or property are protected by the security guards. The
the subject vehicle. Proximate cause has been defined as that fact that a client company may give instructions or directions to
cause, which, in natural and continuous sequence, unbroken by the security guards assigned to it, does not, by itself, render the
any efficient intervening cause, produces the injury or loss, and client responsible as an employer of the security guards
without which the result would not have occurred.15 concerned and liable for their wrongful acts or omissions. Those
instructions or directions are ordinarily no more than requests
Moreover, Peña and Gaddi failed to refute Sps. Mamaril's commonly envisaged in the contract for services entered into with
contention16 that they readily admitted being at fault during the the security agency.20
investigation that ensued.
Nor can it be said that a principal-agent relationship existed
On the other hand, the records are bereft of any finding of between BSP and the security guards Peña and Gaddi as to
negligence on the part of BSP. Hence, no reversible error was make the former liable for the latter's complained act. Article 1868
committed by the CA in absolving it from any liability for the loss of the Civil Code states that "by the contract of agency, a person
of the subject vehicle based on fault or negligence. binds himself to 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
Neither will the vicarious liability of an employer under Article
representation,21 which element is absent in the instant case.
218017 of the Civil Code apply in this case. It is uncontested that
Records show that BSP merely hired the services of AIB, which,
Peña and Gaddi were assigned as security guards by AIB to BSP
in turn, assigned security guards, solely for the protection of its
pursuant to the Guard Service Contract. Clearly, therefore, no
properties and premises. Nowhere can it be inferred in the Guard
employer-employee relationship existed between BSP and the
Service Contract that AIB was appointed as an agent of BSP.
security guards assigned in its premises. Consequently, the
Instead, what the parties intended was a pure principal-client
latter's negligence cannot be imputed against BSP but should be
relationship whereby for a consideration, AIB rendered its security
attributed to AIB, the true employer of Peña and Gaddi.18
services to BSP.
In the case of Soliman, Jr. v. Tuazon,19 the Court enunciated thus:
Notwithstanding, however, Sps. Mamaril insist that BSP should
be held liable for their loss on the basis of the Guard Service
It is settled that where the security agency, as here, recruits, hires Contract that the latter entered into with AIB and their parking
and assigns the work of its watchmen or security guards, the agreement with BSP.
agency is the employer of such guards and watchmen. Liability
for illegal or harmful acts committed by the security guards
Such contention cannot be sustained.
attaches to the employer agency, and not to the clients or
 59

Article 1311 of the Civil Code states: parties therein. It may be observed that although the whereas
clause of the said agreement provides that defendant-appellant
Art. 1311. Contracts take effect only between the parties, their desires security and protection for its compound and all
assigns and heirs, except in case where the rights and obligations properties therein, as well as for its officers and employees, while
arising from the contract are not transmissible by their nature, or inside the premises, the same should be correlated with
by stipulation or by provision of law. The heir is not liable beyond paragraph 3(a) thereof which provides that the security agency
the value of the property he received from the decedent. shall indemnify defendant-appellant for all losses and damages
suffered by it attributable to any act or negligence of the former's
If a contract should contain some stipulation in favor of a third guards.
person, he may demand its fulfillment provided he communicated
his acceptance to the obligor before its revocation. A mere Otherwise stated, defendant-appellant sought the services of
incidental benefit or interest of a person is not sufficient. The defendant AIB Security Agency for the purpose of the security
contracting parties must have clearly and deliberately conferred a and protection of its properties, as well as that of its officers and
favor upon a third person. employees, so much so that in case of loss of [sic] damage
suffered by it as a result of any act or negligence of the guards,
Thus, in order that a third person benefited by the second the security agency would then be held responsible therefor.
paragraph of Article 1311, referred to as a stipulation pour autrui, There is absolutely nothing in the said contract that would
may demand its fulfillment, the following requisites must concur: indicate any obligation and/or liability on the part of the parties
(1) There is a stipulation in favor of a third person; (2) The therein in favor of third persons such as herein plaintiffs-
stipulation is a part, not the whole, of the contract; (3) The appellees.24
contracting parties clearly and deliberately conferred a favor to
the third person - the favor is not merely incidental; (4) The favor Moreover, the Court concurs with the finding of the CA that the
is unconditional and uncompensated; (5) The third person contract between the parties herein was one of lease25 as defined
communicated his or her acceptance of the favor before its under Article 164326 of the Civil Code. It has been held that the
revocation; and (6) The contracting parties do not represent, or act of parking a vehicle in a garage, upon payment of a fixed
are not authorized, by the third party.22 However, none of the amount, is a lease.27 Even in a majority of American cases, it has
foregoing elements obtains in this case. been ruled that where a customer simply pays a fee, parks his car
in any available space in the lot, locks the car and takes the key
It is undisputed that Sps. Mamaril are not parties to the Guard with him, the possession and control of the car, necessary
Service Contract.  Neither did the subject agreement contain any elements in bailment, do not pass to the parking lot operator,
hence, the contractual relationship between the parties is one of
1âwphi1

stipulation pour autrui. And even if there was, Sps. Mamaril did
not convey any acceptance thereof. Thus, under the principle of lease.28
relativity of contracts, they cannot validly claim any rights or favor
under the said agreement.23 As correctly found by the CA: In the instant case, the owners parked their six (6) passenger
jeepneys inside the BSP compound for a monthly fee of ₱300.00
First, the Guard Service Contract between defendant-appellant for each unit and took the keys home with them. Hence, a lessor-
BSP and defendant AIB Security Agency is purely between the lessee relationship indubitably existed between them and BSP.
On this score, Article 1654 of the Civil Code provides that "the
 60

lessor (BSP) is obliged: (1) to deliver the thing which is the object years,32 then the contract serves as the law between
of the contract in such a condition as to render it fit for the use them.33 Besides, the parking fee of ₱300.00 per month or ₱10.00
intended; (2) to make on the same during the lease all the a day for each unit is too minimal an amount to even create an
necessary repairs in order to keep it suitable for the use to which inference that BSP undertook to be an insurer of the safety of
it has been devoted, unless there is a stipulation to the contrary; plaintiffs-appellants' vehicles.
and (3) to maintain the lessee in the peaceful and adequate
enjoyment of the lease for the entire duration of the contract." In On the matter of damages, the Court noted that while Sonia P.
relation thereto, Article 1664 of the same Code states that "the Mamaril testified that the subject vehicle had accessories worth
lessor is not obliged to answer for a mere act of trespass which a around !J50,000.00, she failed to present any receipt to
third person may cause on the use of the thing leased; but the substantiate her claim.34 Neither did she submit any record or
lessee shall have a direct action against the intruder." Here, BSP journal that would have established the purported ₱275.0035 daily
was not remiss in its obligation to provide Sps. Mamaril a suitable earnings of their jeepney. It is axiomatic that actual damages
parking space for their jeepneys as it even hired security guards must be proved with reasonable degree of certainty and a party is
to secure the premises; hence, it should not be held liable for the entitled only to such compensation for the pecuniary loss that was
loss suffered by Sps. Mamaril. duly proven. Thus, absent any competent proof of the amount of
damages sustained, the CA properly deleted the said awards.36
It bears to reiterate that the subject loss was caused by the
negligence of the security guards in allowing a stranger to drive Similarly, the awards of moral and exemplary damages and
out plaintiffs-appellants' vehicle despite the latter's instructions attorney's fees were properly disallowed by the CA for lack of
that only their authorized drivers may do so. Moreover, the factual and legal bases. While the RTC granted these awards in
agreement with respect to the ingress and egress of Sps. the dispositive portion of its November 28, 2001 decision, it failed
Mamaril's vehicles were coordinated only with AIB and its security to provide sufficient justification therefor.37
guards,29 without the knowledge and consent of BSP.
Accordingly, the mishandling of the parked vehicles that resulted WHEREFORE premises considered, the instant petition is
in herein complained loss should be recovered only from the tort DENIED. The May 31, 2007 Decision and August 16, 2007
feasors (Peña and Gaddi) and their employer, AIB; and not Resolution of the Court of Appeals in CA-G.R. CV No. 75978 are
against the lessor, BSP.30 AFFIRMFED.

Anent Sps. Mamaril's claim that the exculpatory clause: SO ORDERED.

"Management shall not be responsible for loss of vehicle or any
of its accessories or article left therein"31 contained in the BSP
ESTELA M. PERLAS-BERNABE
issued parking ticket was void for being a contract of adhesion
Associate Justice
and against public policy, suffice it to state that contracts of
adhesion are not void per se. It is binding 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 plaintiffs-appellants have
been leasing BSP's parking space for more or less 20
 61

G.R. No. 179469               February 15, 2012 After a month, respondents were yet to be deployed prompting
them to request for the release of the documents they had
C.F. SHARP & CO. INC. and JOHN J. ROCHA, Petitioners, submitted to C.F. Sharp. C.F. Sharp allegedly refused to
vs. surrender the documents which led to the filing of a complaint by
PIONEER INSURANCE & SURETY CORPORATION, respondents before the Philippine Overseas Employment
WILFREDO C. AGUSTIN and HERNANDO G. Administration (POEA) on 21 January 1991.
MINIMO, Respondents.
On 30 October 1991, POEA issued an Order finding C.F. Sharp
DECISION guilty of violation of Article 34(k) of the Labor Code, which makes
it unlawful for any entity "to withhold or deny travel documents
PEREZ, J.: from applicant workers before departure for monetary or financial
considerations other than those authorized under this Code and
its implementing rules and regulations." Consequently, C.F.
Whether a local private employment agency may be held liable
Sharp’s license was suspended until the return of the disputed
for breach of contract for failure to deploy a seafarer, is the bone
documents to respondents. POEA likewise declared that it has no
of contention in this case.
jurisdiction to adjudicate the monetary claims of respondents.
Assailed in this petition for review are the Decision dated 30
1 

On 10 March 1995, respondents filed a Complaint for breach of

October 2003 and the 29 August 2007 Resolution of the Court of
contract and damages against C.F. Sharp and its surety, Pioneer
Appeals in CA-G.R. CV No. 53336 finding petitioners C.F. Sharp
Insurance and Surety Corporation (Pioneer Insurance), before the
Co. Inc. (C.F. Sharp) and John J. Rocha (Rocha) liable for
Regional Trial Court (RTC) of Pasay City. Respondents claimed
damages.
that C.F. Sharp falsely assured them of deployment and that its
refusal to release the disputed documents on the ground that they
Responding to a newspaper advertisement of a job opening for were already bound by reason of the Contract of Employment,
sandblasters and painters in Libya, respondents Wilfredo C. denied respondents of employment opportunities abroad and a
Agustin and Hernando G. Minimo applied with C.F. Sharp guaranteed income. Respondents also prayed for damages.
sometime in August 1990. After passing the interview, they were Pioneer Insurance filed a cross claim against C.F. Sharp and
required to submit their passports, seaman’s book, National John J. Rocha, the executive vice-president of C.F. Sharp, based
Bureau of Investigation clearance, employment certificates, on an Indemnity Agreement which substantially provides that the
certificates of seminars attended, and results of medical duo shall jointly and severally indemnify Pioneer Insurance for
examination. Upon submission of the requirements, a Contract of damages, losses, and costs which the latter may incur as surety.
Employment was executed between respondents and C.F. Sharp. The RTC rendered judgment on 27 June 1996 favoring
Thereafter, respondents were required to attend various respondents, to wit:
seminars, open a bank account with the corresponding allotment
slips, and attend a pre-departure orientation. They were then
WHEREFORE, plaintiffs’ causes of action having been proved
advised to prepare for immediate deployment and to report to
with a preponderance of evidence, judgment is hereby ordered as
C.F. Sharp to ascertain the schedule of their deployment.
follows:
 62

a. Declaring the non-deployment of plaintiffs and the The Court of Appeals upheld the jurisdiction of the trial court by
refusal to release documents as breach of contract; ruling that petitioners are now estopped from raising such
question because they have actively participated in the
b. By way of compensatory damages, awarding $450 per proceedings before the trial court. The Court of Appeals further
month and $439 overtime per month, which should have held that since there is no perfected employment contract
been received by plaintiffs from other employers, making between the parties, it is the RTC and not the POEA, whose
a joint and solidary obligation on the part of the two jurisdiction pertains only to claims arising from contracts involving
defendants – C.F. Sharp and Pioneer for the period Filipino seamen, which has jurisdiction over the instant case.
covered by the employment contracts;
Despite the finding that no contract was perfected between the
c. Ordering each defendant to pay each plaintiff parties, the Court of Appeals adjudged C.F. Sharp and Rocha
₱50,000.00 as moral damages and another ₱50,000.00 liable for damages, to wit:
each as exemplary damages;
WHEREFORE, the Appeal of C.F. Sharp Co Inc. and John J.
d. Ordering defendants to share in the payment to Rocha is PARTIALLY GRANTED only insofar as We declare that
plaintiffs of ₱50,000.00 attorney’s fees; there is no breach of contract because no contract of employment
was perfected. However, We find appellants C.F. Sharp Co. Inc.
e. Defendants to pay litigation expenses and costs of and John J. Rocha liable to plaintiff-appellees for damages
suit.
2 pursuant to Article 21 of the Civil Code and award each plaintiff-
appellees temperate damages amounting to ₱100,000.00, and
moral damages in the increased amount of ₱100,000.00. The
The trial court ruled that there was a violation of the contract
award of exemplary damages and attorney’s fees amounting to
when C.F. Sharp failed to deploy and release the papers and
₱50,000.00, respectively, is hereby affirmed. 3

documents of respondents, hence, they are entitled to damages.

The trial court likewise upheld the cause of action of respondents
against Pioneer Insurance, the former being the actual The Court of Appeals limited the liability of Pioneer Insurance to
beneficiaries of the surety bond. the amount of ₱150,000.00 pursuant to the Contract of
Suretyship between C.F. Sharp and Pioneer Insurance.
On appeal, C.F. Sharp and Rocha raise a jurisdictional issue —
that the RTC has no jurisdiction over the instant case pursuant to Rocha filed the instant petition on the submission that there is no
Section 4(a) of Executive Order No. 797 which vests upon the basis to hold him liable for damages under Article 21 of the Civil
POEA the jurisdiction over all cases, including money claims, Code because C.F. Sharp has signified its intention to return the
arising out of or by virtue of any contract involving workers for documents and had in fact informed respondents that they may,
overseas employment. C.F. Sharp and Rocha refuted the findings at any time of the business day, withdraw their documents.
of the trial court and maintained that the perfection and effectivity Further, respondents failed to establish the basis for which they
of the Contract of Employment depend upon the actual are entitled to moral damages. Rocha refuted the award of
deployment of respondents. exemplary damages because the act of requiring respondents to
sign a quitclaim prior to the release of their documents could not
be considered bad faith. Rocha also questions the award of
 63

temperate damages on the ground that the act of withholding Appeals essentially questioning the declaration of the trial court
respondents’ documents could not be considered "chronic and that non-deployment is tantamount to breach of contract and the
continuing."4
award of damages. The Court of Appeals found them both liable
for damages. Both C.F. Sharp and Rocha sought recourse before
Right off, insofar as Pioneer Insurance is concerned, the petition this Court via a Motion for Extension of Time (To File a Petition
should be dismissed against it because the ruling of the Court of for Review) on 19 September 2007. In the Petition for Review,
6 

Appeals limited its liability to ₱150,000.00 was not assailed by however, C.F. Sharp was noticeably dropped as petitioner. Rocha
Rocha, hence the same has now attained finality. maintains essentially the same argument that he and C.F. Sharp
were wrongfully adjudged liable for damages.
Before us, respondents maintain that they are entitled to
damages under Article 21 of the Civil Code for C.F. Sharp’s It was only in its Reply dated 25 March 2008 that Rocha, through
unjustified refusal to release the documents to them and for a new representation, suddenly forwarded the argument that he
requiring them to sign a quitclaim which would effectively bar should not be held liable as an officer of C.F. Sharp. It is too late
them from seeking redress against petitioners. Respondents in the day for Rocha to change his theory. It is doctrinal that
justify the award of other damages as they suffered pecuniary defenses not pleaded in the answer may not be raised for the first
losses attributable to petitioner’s malice and bad faith. time on appeal. A party cannot, on appeal, change fundamentally
the nature of the issue in the case. When a party deliberately
In his Reply, Rocha introduced a new argument, i.e., that he adopts a certain theory and the case is decided upon that theory
should not be held jointly liable with C.F. Sharp considering that in the court below, he will not be permitted to change the same on
the company has a separate personality. Rocha argues that there appeal, because to permit him to do so would be unfair to the
is no showing in the Complaint that he had participated in the adverse party. More so in this case, where Rocha introduced a
7 

malicious act complained. He adds that his liability only stems new theory at the Reply stage. Disingenuousness may even be
from the Indemnity Agreement with Pioneer Insurance and does indicated by the sudden exclusion of the name of C.F. Sharp from
not extend to respondents. the main petition even as Rocha posited arguments not just for
himself and also in behalf of C.F. Sharp.
Records disclose that Rocha was first impleaded in the case by
Pioneer Insurance. Pioneer Insurance, as surety, was sued by The core issue pertains to damages.
respondents together with C.F. Sharp. Pioneer Insurance in turn
filed a third party complaint against Rocha on the basis of an The bases of the lower courts’ award of damages differ. In
Indemnity Agreement whereby he bound himself to indemnify and upholding the perfection of contract between respondents and
hold harmless Pioneer Insurance from and against any and all C.F. Sharp, the trial court stated that the unjustified failure to
damages which the latter may incur in consequence of having deploy and subsequently release the documents of respondents
become a surety. The third party complaint partakes the nature of
5  entitled them to compensatory damages, among others.
a cross-claim. Differently, the appellate court found that no contract was
perfected between the parties that will give rise to a breach of
C.F. Sharp, as defendant-appellant and Rocha, as third-party contract. Thus, the appellate court deleted the award of actual
defendant-appellant, filed only one brief before the Court of damages. However, it adjudged other damages against C.F.
 64

Sharp for its unlawful withholding of documents from Negotiation begins from the time the prospective contracting
respondents. parties manifest their interest in the contract and ends at the
moment of agreement of the parties. Perfection or birth of the
We sustain the trial court’s ruling. contract takes place when the parties agree upon the essential
elements of the contract. Consummation occurs when the parties
On the issue of whether respondents are entitled to relief for fulfill or perform the terms agreed upon in the contract,
failure to deploy them, the RTC ruled in this wise: culminating in the extinguishment thereof. 9

The contract of employment entered into by the plaintiffs and the Under Article 1315 of the Civil Code, a contract is perfected by
defendant C.F. Sharp is an actionable document, the same mere consent and from that moment the parties are bound not
contract having the essential requisites for its validity. It is worthy only to the fulfillment of what has been expressly stipulated but
to note that there are three stages of a contract: (1) preparation, also to all the consequences which, according to their nature,
conception, or generation which is the period of negotiation and may be in keeping with good faith, usage and law. 10

bargaining ending at the moment of agreement of the parties. (2)

Perfection or birth of the contract, which is the moment when the An employment contract, like any other contract, is perfected at
parties come to agree on the terms of the contract. (3) the moment (1) the parties come to agree upon its terms; and (2)
Consummation or death, which is the fulfillment or performance of concur in the essential elements thereof: (a) consent of the
the terms agreed upon in the contract. contracting parties, (b) object certain which is the subject matter
of the contract and (c) cause of the obligation.
11

Hence, it is imperative to know the stage reached by the contract

entered into by the plaintiffs and C.F. sharp. Based on the We have scoured through the Contract of Employment and we
testimonies of the witnesses presented in this Court, there was hold that it is a perfected contract of employment. We reproduce
already a perfected contract between plaintiffs and defendant below the terms of the Contract of Employment for easy
C.F. Sharp. Under Article 1315 of the New Civil Code of the reference:
Philippines, it states that:
WITNESSETH
xxxx
That the Seafarer shall be employed on board under the following
Thus, when plaintiffs signed the contract of employment with C.F. terms and conditions:
Sharp (as agent of the principal WB Slough) consequently, the
latter is under obligation to deploy the plaintiffs, which is the 1.1 Duration of Contract: 3 month/s
natural effect and consequence of the contract agreed by them. 8

1.2 Position: SANDBLASTER/PAINTER

We agree.
1.3 Basic Monthly Salary: $450.00 per month
As correctly ruled at the trial, contracts undergo three distinct
stages, to wit: negotiation; perfection or birth; and consummation. 1.4 Living Allowances: $0.00 per month
 65

1.5 Hours of Work: 48 per week terms and conditions including those in the POEA Employment
Contract, the CBA and this contract which constitute his entire
1.6 Overtime Rate: $439.00 per month agreement with the employer.

1.7 Vacation Leave with Pay: 30.00 day/s per month on The Employee also confirms that no verbal or other written
board promises other than the terms and conditions of this Contract as
well as the POEA Revised Employment Contract, the CBA and/or
The terms and conditions of the Revised Employment Contract company terms and conditions had been given to the Employee.
for seafarers governing the employment of all Filipino seafarers Therefore, the Employee cannot claim any additional benefits or
approved by the POEA/DOLE on July 14, 1989 under wages of any kind except those which have been provided in this
Memorandum Circular No. 41 series of 1989 and amending Contract Agreement. 12

circulars relative thereto shall be strictly and faithfully observed.

By the contract, C.F. Sharp, on behalf of its principal,
Any alterations or changes, in any part of this Contract shall be International Shipping Management, Inc., hired respondents as
evaluated, verified, processed and approved by the Philippine Sandblaster/Painter for a 3-month contract, with a basic monthly
Overseas Employment Administration (POEA). Upon approval, salary of US$450.00. Thus, the object of the contract is the
the same shall be deemed an integral part of the Standard service to be rendered by respondents on board the vessel while
Employment Contract (SEC) for seafarers. the cause of the contract is the monthly compensation they
expect to receive. These terms were embodied in the Contract of
Employment which was executed by the parties. The agreement
All claims, complaints or controversies relative to the
upon the terms of the contract was manifested by the consent
implementation and interpretation of this overseas employment
freely given by both parties through their signatures in the
contract shall be exclusively resolved through the established
contract. Neither parties disavow the consent they both voluntarily
Grievance Machinery in the Revised Employment Contract for
gave. Thus, there is a perfected contract of employment.
seafarers, the adjudication procedures of the Philippine Overseas
Employment Administration and the Philippine Courts of Justice,
in that order. 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 respondents. It based its
Violations of the terms and conditions of this Contract with its
conclusion that there was no perfected contract based on the
approved addendum shall warrant the imposition of appropriate
following rationale:
disciplinary or administrative sanctions against the erring party.
The commencement of the employer-employee relationship
The Employee hereby certifies that he had received, read or has
between plaintiffs-appellees and the foreign employer, as
had explained to him and fully understood this contract as well as
correctly represented by C.F. Sharp requires that conditions
the POEA revised Employment Contract of 1989 and the
under Sec. D be met. The Contract of Employment was duly
Collective Bargaining Agreement (CBA) and/or company terms
"Verified and approved by the POEA." Regrettably, We have
and conditions of employment covering this vessel and that he is
painfully scrutinized the Records and find no evidence that
fully aware of and has head or has had explained to him the
plaintiffs-appellees were cleared for travel and departure to their
 66

port of embarkation overseas by government authorities. Contract of Employment, such as the right to demand
Consequently, non-fulfillment of this condition negates the performance by C.F. Sharp of its obligation under the contract.
commencement and existence of employer-employee relationship
between the plaintiffs-appellees and C.F. Sharp. Accordingly, no The right to demand performance was a categorical
contract between them was perfected that will give rise to pronouncement in Santiago which ruled that failure to deploy
plaintiffs-appellees’ right of action. There can be no breach of constitutes breach of contract, thereby entitling the seafarer to
contract when in the first place, there is no effective contract to damages:
speak of. For the same reason, and finding that the award of
actual damages has no basis, the same is hereby deleted. 13
Respondent’s act of preventing petitioner from departing the port
of Manila and boarding "MSV Seaspread" constitutes a breach of
The Court of Appeals erred. contract, giving rise to petitioner’s cause of action. Respondent
unilaterally and unreasonably reneged on its obligation to deploy
The commencement of an employer-employee relationship must petitioner and must therefore answer for the actual damages he
be treated separately from the perfection of an employment suffered.
contract. Santiago v. CF Sharp Crew Management, Inc., which
14 

was promulgated on 10 July 2007, is an instructive precedent on We take exception to the Court of Appeals’ conclusion that
this point. In said case, petitioner was hired by respondent on damages are not recoverable by a worker who was not deployed
board "MSV Seaspread" for US$515.00 per month for nine (9) by his agency. The fact that the POEA Rules are silent as to the
months, plus overtime pay. Respondent failed to deploy petitioner payment of damages to the affected seafarer does not mean that
from the port of Manila to Canada. We made a distinction the seafarer is precluded from claiming the same. The sanctions
between the perfection of the employment contract and the provided for non-deployment do not end with the suspension or
commencement of the employer-employee relationship, thus: cancellation of license or fine and the return of all documents at
no cost to the worker. They do not forfend a seafarer from
The perfection of the contract, which in this case coincided with instituting an action for damages against the employer or agency
the date of execution thereof, occurred when petitioner and which has failed to deploy him. 16

respondent agreed on the object and the cause, as well as the

rest of the terms and conditions therein. The commencement of The appellate court could not be faulted for its failure to adhere to
the employer-employee relationship, as earlier discussed, would Santiago considering that the Court of Appeals Decision was
have taken place had petitioner been actually deployed from the promulgated way back in 2003 while Santiago was decided in
point of hire. Thus, even before the start of any employer- 2007. We now reiterate Santiago and, accordingly, decide the
employee relationship, contemporaneous with the perfection of case at hand.
the employment contract was the birth of certain rights and
obligations, the breach of which may give rise to a cause of action We respect the lower courts’ findings that C.F. Sharp unjustifiably
against the erring party.
15
refused to return the documents submitted by respondent. The
finding was that C.F. Sharp would only release the documents if
Despite the fact that the employer-employee relationship has not respondent would sign a quitclaim. On this point, the trial court
commenced due to the failure to deploy respondents in this case, was affirmed by the Court of Appeals. As a consequence, the
respondents are entitled to rights arising from the perfected
 67

award by the trial court of moral damages must likewise be WHEREFORE, the petition is DENIED. The Decision dated 27
affirmed. June 1996 of the Regional Trial Court of Pasay City is
REINSTATED. Accordingly, the Decision dated 30 October 2003
Moral damages may be recovered under Article 2219 of the Civil of the Court of Appeals is MODIFIED.
Code in relation to Article 21.  The pertinent provisions read:
1âwphi1

SO ORDERED.
Art. 2219. Moral damages may be recovered in the following and
analogous cases: JOSE PORTUGAL PEREZ
Associate Justice
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.

Furthermore, we affirm the award of exemplary damages and

attorney’s fees. Exemplary damages may be awarded when a
wrongful act is accompanied by bad faith or when the defendant
acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner which would justify an award of exemplary damages
under Article 2232 of the Civil Code. Since the award of
exemplary damages is proper in this case, attorney’s fees and
cost of the suit may also be recovered as provided under Article
2208 of the Civil Code. 17
 68

G.R. No. 177783               January 23, 2013 to respondent bank was registered with the Registry of Deeds of
Calamba, Laguna. With the failure of petitioner to redeem the
HEIRS OF FAUSTO C. IGNACIO, namely MARFEL D. foreclosed properties within one year from such registration, title
IGNACIO-MANALO, MILFA D. IGNACIO-MANALO AND to the properties were consolidated in favor of respondent bank.
FAUSTINO D. IGNACIO, Petitioners, Consequently, TCT Nos. T-8595 and T-8350 were cancelled and
vs. TCT Nos. 111058 and 111059 were issued in the name of
HOME BANKERS SAVINGS AND TRUST COMPANY, respondent bank.5
SPOUSES PHILLIP AND THELMA RODRIGUEZ, CATHERINE,
REYNOLD & JEANETTE, all surnamed ZUNIGA, Respondents. Despite the lapse of the redemption period and consolidation of
title in respondent bank, petitioner offered to repurchase the
DECISION properties. While the respondent bank considered petitioner's
offer to repurchase, there was no repurchase contract executed.
VILLARAMA, JR., J.: The present controversy was fuelled by petitioner's stance that a
verbal repurchase/compromise agreement was actually reached
and implemented by the parties.
Before the Court is a Petition for Review on Certiorari under Rule
45 assailing the Decision1 dated July 18, 2006 and
Resolution2 dated May 2, 2007 of the Court of Appeals (CA) in In the meantime, respondent bank made the following
CA-G.R. CV No. 73551. The CA reversed the Decision3 dated dispositions of the foreclosed properties already titled in its name:
June 15, 1999 of the Regional Trial Court (RTC) of Pasig City,
Branch 151 in Civil Case No. 58980. TCT No. 111059 (Subdivided into six lots with individual titles -
TCT Nos. 117771, 117772, 117773, 117774, 117775 and
The factual antecedents: 117776)

In August 1981, petitioner Fausto C. Ignacio mortgaged two A. TCT No. 117771 (16,350 sq.ms.) - Sold to Fermin
parcels of land to Home Savings Bank and Trust Company, the Salvador and Bella Salvador under Deed of Absolute Sale
predecessor of respondent Home Bankers Savings and Trust dated May 23, 1984 for the price of ₱150,000.00
Company, as security for the ₱500,000.00 loan extended to him
by said bank. These properties which are located in Cabuyao, B. TCT No. 11772 (82,569 sq.ms. subdivided into 2
Laguna are covered by Transfer Certificate of Title Nos. (T- portions
40380) T-8595 and (T-45804) T-8350 containing an area of
83,303 square meters and 120,110 square meters, respectively.4 1) Lot 3-B-1 (35,447 sq.ms.) - Sold to Dr. Oscar
Remulla and Natividad Pagtakhan, Dr. Edilberto
When petitioner defaulted in the payment of his loan obligation, Torres and Dra. Rebecca Amores under Deed of
respondent bank proceeded to foreclose the real estate Absolute Sale dated April 17, 1985 for the price of
mortgage. At the foreclosure sale held on January 26, 1983, ₱150,000.00
respondent bank was the highest bidder for the sum of
₱764,984.67. On February 8, 1983, the Certificate of Sale issued
 69

2) Lot 3-B-2 covered by separate title TCT No. bank to respondent spouses Phillip and Thelma Rodriguez,
124660 (Subdivided into 3 portions - without informing the petitioner. On October 6, 1989, again
without petitioner's knowledge, respondent bank sold the property
Lot 3-B-2-A (15,000 sq.ms.) - Sold to Dr. covered by TCT No T-111058 to respondents Phillip and Thelma
Myrna del Carmen Reyes under Deed of Rodriguez, Catherine M. Zuñiga, Reynold M. Zuñiga and
Absolute Sale dated March 23, 1987 for Jeannette M. Zuñiga.9
the price of ₱150,000.00
On December 27, 1989, petitioner filed an action for specific
Lot 3-B-2-B (15,000 sq.ms.) - Sold to Dr. performance and damages in the RTC against the respondent
Rodito Boquiren under Deed of Absolute bank. As principal relief, petitioner sought in his original complaint
Sale dated March 23, 1987 for the price of the reconveyance of the subject properties after his payment of
₱150,000.00 ₱600,000.00.10 Respondent bank filed its Answer denying the
allegations of petitioner and asserting that it was merely
Lot 3-B-2-C (17,122 sq.ms.) covered by exercising its right as owner of the subject properties when the
TCT No. T-154568 - same were sold to third parties.

C. TCT No.117773 (17,232 sq.ms.) - Sold to Rizalina For failure of respondent bank to appear during the pre-trial
Pedrosa under Deed of Absolute Sale dated June 4, 1984 conference, it was declared as in default and petitioner was
for the price of ₱150,000.00 allowed to present his evidence ex parte on the same date
(September 3, 1990). Petitioner simultaneously filed an "Ex-Parte
Consignation" tendering the amount of ₱235,000.00 as balance
The expenses for the subdivision of lots covered by TCT No.
of the repurchase price.11 On September 7, 1990, the trial court
111059 and TCT No. 117772 were shouldered by petitioner who
rendered judgment in favor of petitioner. Said decision, as well as
likewise negotiated the above-mentioned sale transactions. The
the order of default, were subsequently set aside by the trial court
properties covered by TCT Nos. T-117774 to 117776 are still
upon the filing of a motion for reconsideration by the respondent
registered in the name of respondent bank.6
bank.12
In a letter addressed to respondent bank dated July 25, 1989,
In its Order dated November 19, 1990, the trial court granted the
petitioner expressed his willingness to pay the amount of
motion for intervention filed by respondents Phillip and Thelma
₱600,000.00 in full, as balance of the repurchase price, and
Rodriguez, Catherine Zuñiga, Reynold Zuñiga and Jeannette
requested respondent bank to release to him the remaining
Zuñiga. Said intervenors asserted their status as innocent
parcels of land covered by TCT Nos. 111058 and T-154658
purchasers for value who had no notice or knowledge of the claim
("subject properties").7 Respondent bank however, turned down
or interest of petitioner when they bought the properties already
his request. This prompted petitioner to cause the annotation of
registered in the name of respondent bank. Aside from a
an adverse claim on the said titles on September 18, 1989.8
counterclaim for damages against the petitioner, intervenors also
prayed that in the event respondent bank is ordered to reconvey
Prior to the annotation of the adverse claim, on August 24, 1989, the properties, respondent bank should be adjudged liable to the
the property covered by TCT No. 154658 was sold by respondent intervenors and return all amounts paid to it.13
 70

On July 8, 1991, petitioner amended his complaint to include as Costs against the defendant.
alternative relief under the prayer for reconveyance the payment
by respondent bank of the prevailing market value of the subject SO ORDERED.15
properties "less whatever remaining obligation due the bank by
reason of the mortgage under the terms of the compromise The trial court found that respondent bank deliberately
agreement.14 disregarded petitioner's substantial payments on the total
repurchase consideration. Reference was made to the letter
On June 15, 1999, the trial court rendered its Decision, the dated March 22, 1984 (Exhibit "I")16 as the authority for petitioner
dispositive portion of which reads: in making the installment payments directly to the Universal
Properties, Inc. (UPI), respondent bank's collecting agent. Said
WHEREFORE, findings [sic] the facts aver[r]ed in the complaint court concluded that the compromise agreement amounts to a
supported by preponderance of evidences adduced, judgment is valid contract of sale between petitioner, as Buyer, and
hereby rendered in favor of the plaintiff and against the defendant respondent bank, as Seller. Hence, in entertaining other buyers
and intervenors by: for the same properties already sold to petitioner with intention to
increase its revenues, respondent bank acted in bad faith and is
1. Declaring the two Deeds of Sale executed by the thus liable for damages to the petitioner. Intervenors were
defendant in favor of the intervenors as null and void and likewise found liable for damages as they failed to exercise due
the Register of Deeds in Calamba, Laguna is ordered to diligence before buying the subject properties.
cancel and/or annul the two Transfer Certificate of Titles
No. T-154658 and TCT No. T-111058 issued to the Respondent bank appealed to the CA which reversed the trial
intervenors. court's ruling, as follows:

2. Ordering the defendant to refund the amount of WHEREFORE, the foregoing premises considered, the instant
₱1,004,250.00 to the intervenors as the consideration of appeal is hereby GRANTED. Accordingly, the assailed decision is
the sale of the two properties. hereby REVERSED and SET ASIDE.

3. Ordering the defendant to execute the appropriate SO ORDERED.17

Deed of Reconveyance of the two (2) properties in favor
of the plaintiff after the plaintiff pays in full the amount of The CA held that by modifying the terms of the offer contained in
₱600,000.00 as balance of the repurchase price. the March 22, 1984 letter of respondent bank, petitioner
effectively rejected the original offer with his counter-offer. There
4. Ordering the defendant bank to pay plaintiff the sum of was also no written conformity by respondent bank's officers to
₱50,000.00 as attorney's fees. the amended conditions for repurchase which were unilaterally
inserted by petitioner. Consequently, no contract of repurchase
5. Dismissing the counterclaim of the defendant and was perfected and respondent bank acted well within its rights
intervenors against the plaintiff. when it sold the subject properties to herein respondents-
intervenors.
 71

As to the receipts presented by petitioner allegedly proving the FINDING OF THE TRIAL COURT THAT PETITIONER
installment payments he had completed, the CA said that these DID NOT ACT AS BROKER IN THE SALE OF THE
were not payments of the repurchase price but were actually FORECLOSED PROPERTIES AND THUS FAILED TO
remittances of the payments made by petitioner's buyers for the CONSIDER THE EXISTENCE OF OFFICIAL RECEIPTS
purchase of the foreclosed properties already titled in the name of ISSUED IN THE NAME OF THE PETITIONER THAT
respondent bank. It was noted that two of these receipts (Exhibits ARE DULY NOTED FOR HIS ACCOUNT.
"K" and "K-1")18 were issued to Fermin Salvador and Rizalina
Pedrosa, the vendees of two subdivided lots under separate C.
Deeds of Absolute Sale executed in their favor by the respondent
bank. In view of the attendant circumstances, the CA concluded THE HONORABLE COURT OF APPEALS COMMITTED
that petitioner acted merely as a broker or middleman in the sales GRAVE ABUSE OF DISCRETION IN REVERSING THE
transactions involving the foreclosed properties. Lastly, the FINDING OF THE TRIAL COURT THAT RESPONDENT-
respondents-intervenors were found to be purchasers who BANK DID NOT HAVE THE RIGHT TO DISPOSE THE
bought the properties in good faith without notice of petitioner's SUBJECT PROPERTIES.
interest or claim. Nonetheless, since there was no repurchase
contract perfected, the sale of the subject properties to
D.
respondents-intervenors remains valid and binding, and the issue
of whether the latter were innocent purchasers for value would be
of no consequence. THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT
Petitioner's motion for reconsideration was likewise denied by the
RESPONDENTS-INTERVENORS ARE NOT INNOCENT
appellate court.
PURCHASERS FOR VALUE IN GOOD FAITH.19
Hence, this petition alleging that:
It is to be noted that the above issues raised by petitioner alleged
grave abuse of discretion committed by the CA, which is proper in
A. a petition for certiorari under Rule 65 of the 1997 Rules of Civil
Procedure, as amended, but not in the present petition for review
THE HONORABLE COURT OF APPEALS COMMITTED on certiorari under Rule 45.
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT THERE WAS A The core issue for resolution is whether a contract for the
PERFECTED CONTRACT TO REPURCHASE repurchase of the foreclosed properties was perfected between
BETWEEN PETITIONER AND RESPONDENT-BANK. petitioner and respondent bank.

B. The Court sustains the decision of the CA.

THE HONORABLE COURT OF APPEALS COMMITTED Contracts are perfected by mere consent, which is manifested by
GRAVE ABUSE OF DISCRETION IN REVERSING THE the meeting of the offer and the acceptance upon the thing and
 72

the cause which are to constitute the contract.20 The requisite …While it is impossible to expect the acceptance to echo every
acceptance of the offer is expressed in Article 1319 of the Civil nuance of the offer, it is imperative that it assents to those points
Code which states: in the offer which, under the operative facts of each contract, are
not only material but motivating as well. Anything short of that
ART. 1319. Consent is manifested by the meeting of the offer and level of mutuality produces not a contract but a mere counter-
the acceptance upon the thing and the cause which are to offer awaiting acceptance. More particularly on the matter of the
constitute the contract. The offer must be certain and the consideration of the contract, the offer and its acceptance must
acceptance absolute. A qualified acceptance constitutes a be unanimous both on the rate of the payment and on its term. An
counter-offer. acceptance of an offer which agrees to the rate but varies the
term is ineffective.26 (Emphasis supplied)
In Palattao v. Court of Appeals,21 this Court held that if the
acceptance of the offer was not absolute, such acceptance is Petitioner submitted as evidence of a perfected contract of
insufficient to generate consent that would perfect a contract. repurchase the March 22, 1984 letter (Exhibit "I")27 from Rita B.
Thus: Manuel, then President of UPI, a corporation formed by
respondent bank to dispose of its acquired assets, with notations
Contracts that are consensual in nature, like a contract of sale, handwritten by petitioner himself. Said letter reads:
are perfected upon mere meeting of the minds. Once there is
concurrence between the offer and the acceptance upon the March 22, 1984
subject matter, consideration, and terms of payment, a contract is
produced. The offer must be certain. To convert the offer into a Honorable Judge Fausto Ignacio
contract, the acceptance must be absolute and must not qualify 412 Bagumbayan Street, Pateros
the terms of the offer; it must be plain, unequivocal, unconditional, Metro Manila
and without variance of any sort from the proposal. A qualified
acceptance, or one that involves a new proposal, constitutes a Dear Judge Ignacio:
counter-offer and is a rejection of the original offer. Consequently,
when something is desired which is not exactly what is proposed Your proposal to repurchase your foreclosed properties located at
in the offer, such acceptance is not sufficient to generate consent Cabuyao, Laguna consisting of a total area of 203,413 square
because any modification or variation from the terms of the offer meters has been favorably considered subject to the following
annuls the offer.22 terms and conditions:

The acceptance must be identical in all respects with that of the 1) Total Selling Price shall be ₱950,000.00
offer so as to produce consent or meeting of the minds.23 Where a
party sets a different purchase price than the amount of the offer,
2) Downpayment of ₱150,00000 with the balance
such acceptance was qualified which can be at most considered
Payable in Three (3) equal installments
as a counter-offer; a perfected contract would have arisen only if
as follows:
the other party had accepted this counter-offer.24 In Villanueva v.
Philippine National Bank25 this Court further elucidated on the
meaning of unqualified acceptance, as follows:
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1st Installment - P 266,667 - on or before May 31, authority of petitioner; (4) the petitioner shall continue in
'84 possession of the properties and whatever portion still remaining,
and attending to the needs of its tenants; and (5) payments shall
2nd Installment - P 266,667 - on or before Sept. be made directly to UPI.29
31, '84
The foregoing clearly shows that petitioner's acceptance of the
3rd Installment - P 266,666 - on or before Jan. 30, respondent bank's terms and conditions for the repurchase of the
'85 foreclosed properties was not absolute. Petitioner set a different
repurchase price and also modified the terms of payment, which
TOTAL - P 800,000.00 even contained a unilateral condition for payment of the balance
(₱600,000), that is, depending on petitioner's "financial position."
The CA thus considered the qualified acceptance by petitioner as
3) All expenses pertinent to the subdivision of the parcel
a counter-proposal which must be accepted by respondent bank.
of land consisting of 120,110 square meters shall be for
However, there was no evidence of any document or writing
your account.
showing the conformity of respondent bank's officers to this
counter-proposal.
Thank you,
Petitioner contends that the receipts issued by UPI on his
Very truly yours, installment payments are concrete proof -- despite denials to the
contrary by respondent bank -- that there was an implied
RITA B. MANUEL acceptance of his counter-proposal and that he did not merely act
President as a broker for the sale of the subdivided portions of the
foreclosed properties to third parties. Since all these receipts,
According to petitioner, he wrote the notations in the presence of except for two receipts issued in the name of Fermin Salvador
a certain Mr. Lazaro, the representative of Mrs. Manuel and Rizalina Pedrosa, were issued in the name of petitioner
(President), and a certain Mr. Fajardo, which notations instead of the buyers themselves, petitioner emphasizes that the
supposedly represent their "compromise agreement."28 These payments were made for his account. Moreover, petitioner
notations indicate that the repurchase price would be asserts that the execution of the separate deeds of sale directly to
₱900,000.00 which shall be paid as follows: ₱150,000 - end of the buyers was in pursuance of the perfected repurchase
May '84; ₱150,000 - end of June '84; Balance - "Depending on agreement with respondent bank, such an arrangement being "an
financial position". Petitioner further alleged the following accepted practice to save on taxes and shortcut paper works."
conditions of the verbal agreement: (1) respondent bank shall
release the equivalent land area for payments made by petitioner The Court is unconvinced.
who shall shoulder the expenses for subdivision of the land; (2) in
case any portion of the subdivided land is sold by petitioner, a In Adelfa Properties, Inc. v. CA,30 the Court ruled that:
separate document of sale would be executed directly to the
buyer; (3) the remaining portion of the properties shall not be
subject of respondent bank's transaction without the consent and
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x x x The rule is that except where a formal acceptance is so Thus, a corporation can only execute its powers and transact its
required, although the acceptance must be affirmatively and business through its Board of Directors and through its officers
clearly made and must be evidenced by some acts or conduct and agents when authorized by a board resolution or its by-laws.34
communicated to the offeror, it may be made either in a formal or
an informal manner, and may be shown by acts, conduct, or In the absence of conformity or acceptance by properly
words of the accepting party that clearly manifest a present authorized bank officers of petitioner's counter-proposal, no
intention or determination to accept the offer to buy or sell. Thus, perfected repurchase contract was born out of the talks or
acceptance may be shown by the acts, conduct, or words of a negotiations between petitioner and Mr. Lazaro and Mr. Fajardo.
party recognizing the existence of the contract of sale.31 Petitioner therefore had no legal right to compel respondent bank
to accept the ₱600,000 being tendered by him as payment for the
Even assuming that the bank officer or employee whom petitioner supposed balance of repurchase price.
claimed he had talked to regarding the March 22, 1984 letter had
acceded to his own modified terms for the repurchase, their A contract of sale is consensual in nature and is perfected upon
supposed verbal exchange did not bind respondent bank in view mere meeting of the minds. When there is merely an offer by one
of its corporate nature. There was no evidence that said Mr. party without acceptance of the other, there is no
Lazaro or Mr. Fajardo was authorized by respondent bank's contract.35 When the contract of sale is not perfected, it cannot, as
Board of Directors to accept petitioner's counter-proposal to an independent source of obligation, serve as a binding juridical
repurchase the foreclosed properties at the price and terms other relation between the parties.36
than those communicated in the March 22, 1984 letter. As this
Court ruled in AF Realty & Development, Inc. v. Dieselman In sum, we find the ruling of the CA more in accord with the
Freight Services, Co.32 established facts and applicable law and jurisprudence.
Petitioner's claim of utmost accommodation by respondent bank
Section 23 of the Corporation Code expressly provides that the of his own terms for the repurchase of his foreclosed properties
corporate powers of all corporations shall be exercised by the are simply contrary to normal business practice. As aptly
board of directors. Just as a natural person may authorize observed by the appellate court:
another to do certain acts in his behalf, so may the board of
directors of a corporation validly The submission of the plaintiff-appellee is unimpressive.

delegate some of its functions to individual officers or agents First, if the counter-proposal was mutually agreed upon by both
appointed by it.  Thus, contracts or acts of a corporation must be
1âwphi1

the plaintiff-appellee and defendant-appellant, how come not a

made either by the board of directors or by a corporate agent duly single signature of the representative of the defendant-appellant
authorized by the board. Absent such valid was affixed thereto. Second, it is inconceivable that an agreement
delegation/authorization, the rule is that the declarations of an of such great importance, involving two personalities who are
individual director relating to the affairs of the corporation, but not both aware and familiar of the practical and legal necessity of
in the course of, or connected with, the performance of authorized reducing agreements into writing, the plaintiff-appellee, being a
duties of such director, are held not binding on the corporation.33 lawyer and the defendant-appellant, a banking institution, not to
formalize their repurchase agreement. Third, it is quite absurd
 75

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.

MARTIN S. VILLARAMA, JR.

Associate Justice
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