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1. G.R. No. L-24190

July 13, 1926

GEORGE L. PARKS, plaintiff-appellant, vs. PROVINCE OF TARLAC, MUNICIPALITY OF TARLAC, CONCEPCION CIRER, and JAMES HILL, her husband, defendants-appellees. Jos. N. Wolfson for appellant. Provincial Fiscal Lopez de Jesus for the Province and Municipality of Tarlac. No appearance for the other appellees. AVANCEA, C. J.: On October 18, 1910, Concepcion Cirer and James Hill, the owners of parcel of land No. 2 referred to in the complaint, donated it perpetually to the municipality of Tarlac, Province of Tarlac, under certain conditions specified in the public document in which they made this donation. The donation was accepted by Mr. Santiago de Jesus in the same document on behalf of the municipal council of Tarlac of which he was the municipal president. The parcel thus donated was later registered in the name of the donee, the municipality of Tarlac. On January 15, 1921, Concepcion Cirer and James Hill sold this parcel to the herein plaintiff George L. Parks. On August 24, 1923, the municipality of Tarlac transferred the parcel to the Province of Tarlac which, by reason of this transfer, applied for and obtained the registration thereof in its name, the corresponding certificate of title having been issued to it. The plaintiff, George L. Parks, alleging that the conditions of the donation had not been complied with and invoking the sale of this parcel of land made by Concepcion Cirer and James Hill in his favor, brought this action against the Province of Tarlac, the municipality of Tarlac, Concepcion Cirer and James Hill and prayed that he be declared the absolute owner entitled to the possession of this parcel, that the transfer of the same by the municipality of Tarlac to the Province of Tarlac be annulled, and the transfer certificate issued to the Province of Tarlac cancelled. The lower court dismissed the complaint. The plaintiff has no right of action. If he has any, it is only by virtue of the sale of this parcel made by Concepcion Cirer and James Hill in his favor on January 15, 1921, but that sale cannot have any effect. This parcel having been donated by Concepcion Cirer and James Hill to the municipality of Tarlac, which donation was accepted by the latter, the title to the property was transferred to the municipality of Tarlac. It is true that the donation might have been revoked for the causes, if any, provided by the law, but the fact is that it was not revoked when Concepcion Cirer and James Hill made the sale of this parcel to the plaintiff. Even supposing that causes existed for the revocation of this donation, still, it was necessary, in order to consider it revoked, either that the revocation had been consented to by the donee, the municipality of Tarlac, or that it had been judicially decreed. None of these circumstances existed when Concepcion Cirer and James Hill sold this parcel to the plaintiff. Consequently, when the sale was made Concepcion

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Cirer and James Hill were no longer the owners of this parcel and could not have sold it to the plaintiff, nor could the latter have acquired it from them. But the appellant contends that a condition precedent having been imposed in the donation and the same not having been complied with, the donation never became effective. We find no merit in this contention. The appellant refers to the condition imposed that one of the parcels donated was to be used absolutely and exclusively for the erection of a central school and the other for a public park, the work to commence in both cases within the period of six months from the date of the ratification by the partes of the document evidencing the donation. It is true that this condition has not been complied with. The allegation, however, that it is a condition precedent is erroneous. The characteristic of a condition precedent is that the acquisition of the right is not effected while said condition is not complied with or is not deemed complied with. Meanwhile nothing is acquired and there is only an expectancy of right. Consequently, when a condition is imposed, the compliance of which cannot be effected except when the right is deemed acquired, such condition cannot be a condition precedent. In the present case the condition that a public school be erected and a public park made of the donated land, work on the same to commence within six months from the date of the ratification of the donation by the parties, could not be complied with except after giving effect to the donation. The donee could not do any work on the donated land if the donation had not really been effected, because it would be an invasion of another's title, for the land would have continued to belong to the donor so long as the condition imposed was not complied with. The appellant also contends that, in any event, the condition not having been complied with, even supposing that it was not a condition precedent but subsequent, the non-compliance thereof is sufficient cause for the revocation of the donation. This is correct. But the period for bringing an action for the revocation of the donation has prescribed. That this action is prescriptible, there is no doubt. There is no legal provision which excludes this class of action from the statute of limitations. And not only this, the law itself recognizes the prescriptibility of the action for the revocation of a donation, providing a special period of five years for the revocation by the subsequent birth of children (art. 646, Civil Code), and one year for the revocation by reason of ingratitude. If no special period is provided for the prescription of the action for revocation for noncompliance of the conditions of the donation (art. 647, Civil Code), it is because in this respect the donation is considered onerous and is governed by the law of contracts and the general rules of prescription. Under the law in force (sec. 43, Code of Civ. Proc.) the period of prescription of this class of action is ten years. The action for the revocation of the donation for this cause arose on April 19, 1911, that is six months after the ratification of the instrument of donation of October 18, 1910. The complaint in this action was presented July 5, 1924, more than ten years after this cause accrued. By virtue of the foregoing, the judgment appealed from is affirmed, with the costs against the appellant. So ordered. Street, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.

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2. G.R. No. L-44428 September 30, 1977 AVELINO BALURAN, petitioner, vs. HON. RICARDO Y. NAVARRO, Presiding Judge, Court of First Instance of Ilocos Norte, Branch I and ANTONIO OBEDENCIO, respondents. Alipio V. Flores for petitioner. Rafael B. Ruiz for private respondent.

MUOZ PALMA, J.: Spouses Domingo Paraiso and Fidela Q. Paraiso were the owners of a residential lot of around 480 square meters located in Sarrat, Ilocos Norte. On or about February 2, 1964, the Paraisos executed an agreement entitled "BARTER" whereby as party of the first part they agreed to "barter and exchange" with spouses Avelino and Benilda Baluran their residential lot with the latter's unirrigated riceland situated in Sarrat, Ilocos Norte, of approximately 223 square meters without any permanent improvements, under the following conditions:
1. That both the Party of the First Part and the Party of the Second Part shall enjoy the material possession of their respective properties; the Party of the First Part shall reap the fruits of the unirrigated riceland and the Party of the Second Part shall have a right to build his own house in the residential lot. 2. Nevertheless, in the event any of the children of Natividad P. Obencio, daughter of the First Part, shall choose to reside in this municipality and build his own house in the residential lot, the Party of the Second Part shall be obliged to return the lot such children with damages to be incurred. 3. That neither the Party of the First Part nor the Party of the Second Part shall encumber, alienate or dispose of in any manner their respective properties as bartered without the consent of the other. 4. That inasmuch as the bartered properties are not yet accordance with Act No. 496 or under the Spanish Mortgage Law, they finally agreed and covenant that this deed be registered in the Office of the Register of Deeds of Ilocos Norte pursuant to the provisions of Act No. 3344 as amended. (p. 28, rollo)

On May 6, 1975 Antonio Obendencio filed with the Court of First Instance of Ilocos Norte the present complaint to recover the above-mentioned residential lot from Avelino Baluran claiming that he is the rightful owner of said residential lot having acquired the same from his mother, Natividad Paraiso Obedencio, and that he needed the property for Purposes Of constructing his house thereon inasmuch as he had taken residence in his native town, Sarrat. Obedencio accordingly prayed that he be declared owner of the

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residential lot and that defendant Baluran be ordered to vacate the same forfeiting his (Obedencio) favor the improvements defendant Baluran had built in bad faith. 1 Answering the complaint, Avelino Baluran alleged inter alia (1) that the "barter agreement" transferred to him the ownership of the residential lot in exchange for the unirrigated riceland conveyed to plaintiff's Predecessor-in-interest, Natividad Obedencio, who in fact is still in On thereof, and (2) that the plaintiff's cause of action if any had prescribed. 2 At the pre-trial, the parties agreed to submit the case for decision on the basis of their stipulation of facts. It was likewise admitted that the aforementioned residential lot was donated on October 4, 1974 by Natividad Obedencio to her son Antonio Obedencio, and that since the execution of the agreement of February 2, 1964 Avelino Baluran was in possession of the residential lot, paid the taxes of the property, and constructed a house thereon with an value of P250.00. 3 On November 8, 1975, the trial Judge Ricardo Y. Navarro rendered a decision the dispositive portion of which reads as follows:
Consequently, the plaintiff is hereby declared owner of the question, the defendant is hereby ordered to vacate the same with costs against defendant.

Avelino Baluran to whom We shall refer as petitioner, now seeks a review of that decision under the following assignment of errors:
I The lower Court erred in holding that the barter agreement did not transfer ownership of the lot in suit to the petitioner. II The lower Court erred in not holding that the right to re-barter or re- exchange of respondent Antonio Obedencio had been barred by the statute of limitation. (p. 14, Ibid.)

The resolution of this appeal revolves on the nature of the undertaking contract of February 2, 1964 which is entitled "Barter Agreement." It is a settled rule that to determine the nature of a contract courts are not bound by the name or title given to it by the contracting parties. 4 This Court has held that contracts are not what the parties may see fit to call them but what they really are as determined by the principles of law. 5 Thus, in the instant case, the use of the, term "barter" in describing the agreement of February 2, 1964, is not controlling. The stipulations in said document are clear enough to indicate that there was no intention at all on the part of the signatories thereto to convey the ownership of their respective properties; all that was intended, and it was so provided in the agreement, was to transfer the material possession thereof. (condition No. 1, see page I of this Decision) In fact, under condition No. 3 of the agreement, the parties retained the right to alienate their respective properties which right is an element of ownership. With the material ion being the only one transferred, all that the parties acquired was the right of usufruct which in essence is the right to enjoy the Property of another. 6 Under

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the document in question, spouses Paraiso would harvest the crop of the unirrigated riceland while the other party, Avelino Baluran, could build a house on the residential lot, subject, however, to the condition, that when any of the children of Natividad Paraiso Obedencio, daughter of spouses Paraiso, shall choose to reside in the municipality and build his house on the residential lot, Avelino Baluran shall be obliged to return the lot to said children "With damages to be incurred." (Condition No. 2 of the Agreement) Thus, the mutual agreement each party enjoying "material possession" of the other's property was subject to a resolutory condition the happening of which would terminate the right of possession and use. A resolutory condition is one which extinguishes rights and obligations already existing. 7 The right of "material possession" granted in the agreement of February 2, 1964, ends if and when any of the children of Natividad Paraiso, Obedencio (daughter of spouses Paraiso, Party of the First Part) would reside in the municipality and build his house on the property. Inasmuch as the condition opposed is not dependent solely on the will of one of the parties to the contract the spouses Paraiso but is Part dependent on the will of third persons Natividad Obedencio and any of her children the same is valid. 8 When there is nothing contrary to law, morals, and good customs Or Public Policy in the stipulations of a contract, the agreement constitutes the law between the parties and the latter are bound by the terms thereof. 9 Art. 1306 of the Civil Code states:
Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, Morals, good customs, public order, or public policy. Contracts which are the private laws of the contracting parties, should be fulfilled according to the literal sense of their stipulations, if their terms are clear and leave no room for doubt as to the intention of the contracting parties, for contracts are obligatory, no matter what their form may be, whenever the essential requisites for their validity are present. (Philippine American General Insurance Co., Inc. vs. Mutuc, 61 SCRA 22)

The trial court therefore correctly adjudged that Antonio Obedencio is entitled to recover the possession of the residential lot Pursuant to the agreement of February 2, 1964. Petitioner submits under the second assigned error that the causa, of action if any of respondent Obedencio had Prescribed after the lapse of four years from the date of execution of the document of February 2, 1964. It is argued that the remedy of plaintiff, now respondent, Was to ask for re-barter or re-exchange of the properties subject of the agreement which could be exercised only within four years from the date of the contract under Art. 1606 of the Civil Code. The submission of petitioner is untenable. Art. 1606 of the Civil Code refers to conventional redemption which petitioner would want to apply to the present situation. However, as We stated above, the agreement of the parties of February 2, 1964, is not

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one of barter, exchange or even sale with right to repurchase, but is one of or akin the other is the use or material ion or enjoyment of each other's real property. Usufruct may be constituted by the parties for any period of time and under such conditions as they may deem convenient and beneficial subject to the provisions of the Civil Code, Book II, Title VI on Usufruct. The manner of terminating or extinguishing the right of usufruct is primarily determined by the stipulations of the parties which in this case now before Us is the happening of the event agreed upon. Necessarily, the plaintiff or respondent Obedencio could not demand for the recovery of possession of the residential lot in question, not until he acquired that right from his mother, Natividad Obedencio, and which he did acquire when his mother donated to him the residential lot on October 4, 1974. Even if We were to go along with petitioner in his argument that the fulfillment of the condition cannot be left to an indefinite, uncertain period, nonetheless, in the case at bar, the respondent, in whose favor the resolutory condition was constituted, took immediate steps to terminate the right of petitioner herein to the use of the lot. Obedencio's present complaint was filed in May of 1975, barely several months after the property was donated to him. One last point raised by petitioner is his alleged right to recover damages under the agreement of February 2, 1964. In the absence of evidence, considering that the parties agreed to submit the case for decision on a stipulation of facts, We have no basis for awarding damages to petitioner. However, We apply Art. 579 of the Civil Code and hold that petitioner will not forfeit the improvement he built on the lot but may remove the same without causing damage to the property.
Art. 579. The usufructuary may make on the property held in usufruct such useful improvements or expenses for mere pleasure as he may deem proper, provided he does not alter its form or substance; but he shall have no right to be indemnified therefor. He may, however. He may, however, removed such improvements, should it be possible to do so without damage to the property. (Emphasis supplied)

Finally, We cannot close this case without touching on the unirrigated riceland which admittedly is in the possession of Natividad Obedencio. In view of our ruling that the "barter agreement" of February 2, 1964, did not transfer the ownership of the respective properties mentioned therein, it follows that petitioner Baluran remains the owner of the unirrigated riceland and is now entitled to its Possession. With the happening of the resolutory condition provided for in the agreement, the right of usufruct of the parties is extinguished and each is entitled to a return of his property. it is true that Natividad Obedencio who is now in possession of the property and who has been made a party to this case cannot be ordered in this proceeding to surrender the riceland. But inasmuch as reciprocal rights and obligations have arisen between the parties to the so-called "barter agreement", We hold that the parties and for their successors-in-interest are duty bound to effect a simultaneous transfer of the respective properties if substance at justice is to be effected.

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WHEREFORE, Judgment is hereby rendered: 1) declaring the petitioner Avelino Baluran and respondent Antonio Obedencio the respective owners the unirrigated riceland and residential lot mentioned in the "Barter Agreement" of February 2, 1964; 2) ordering Avelino Baluran to vacate the residential lot and removed improvements built by thereon, provided, however that he shall not be compelled to do so unless the unirrigated riceland shall five been restored to his possession either on volition of the party concerned or through judicial proceedings which he may institute for the purpose. Without pronouncement as to costs. So Ordered. Teehankee (Chairman), Makasiar, Martin, Fernandez and Guerrero, JJ., concur.

Footnotes
1 pp. 21-22, rollo 2 p. 23, Ibid. 3 pp. 26-27, Ibid. 4 Shell Co. of the Philippines Ltd. vs. Firemen's Insurance Co. of Newark, N. J., et al., 100 Phil. 757,764 (1957) 5 Borromeo vs. Court of Appeals, et al., 47 SCRA 65 (1972) 6 Art. 562 of the Civil Code provides: "ART. 562 Usufruct gives a right to enjoy the property of another with the obligation of preserving its form and substance, unless the title constituting it or the law otherwise provides." 7 Tolentino, Commentaries on the Civil Code of the Philippines, Vol. IV, pp. 140, 143 19-13 ed. 8 Ibid., pp. 148-149 9 Iigo vs. National Abaca & Other Fibers Corp., 95 Phil. 875; Ramos vs. Central Bank of the Phil. 41 SCRA 565; Rodrigo Enriquez et al., vs. Socorro A. Ramos, L-23616, September 30, 1976, 73 SCRA 116.

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3. G.R. No. 4437

September 9, 1909

TOMAS OSMEA, plaintiff-appellee, vs. CENONA RAMA, defendant-appellant. Filemon Sotto for appellant. J. H. Junquera for appellee. JOHNSON, J.: It appears from the record that upon the 15th day of November, 1890, the defendant herein executed and delivered to Victoriano Osmea the following contract: EXHIBIT A. P200.00. CEBU, November 15, 1890. I, Doa Cenona Rama, a resident of this city, and of legal age, have received from Don Victoriano Osmea the sum of two hundred pesos in cash which I will pay in sugar in the month of January or February of the coming year, at the price ruling on the day of delivering the sugar into his warehouse, and I will pay him interest at the rate of half a cuartillo per month on each peso, beginning on this date until the day of the settlement; and if I can not pay in full, a balance shall be struck, showing the amount outstanding at the end of each June, including interest, and such as may be outstanding against me shall be considered as capital which I will always pay in sugar, together with the interest mentioned above. I further promise that I will sell to the said Seor Osmea all the sugar that I may harvest, and as a guarantee, pledge as security all of my present and future property, and as special security the house with tile roof and ground floor of stone in which I live in Pagina; in proof whereof, I sign this document, and he shall be entitled to make claim against me at the expiration of the term stated in this document. (Signed) CENON RAMA. Witnesses: FAUSTO PEALOSA. FRANCISCO MEDALLE. On the 27th day of October, 1891, the defendant executed and delivered to the said Victoriano Osmea the following contract:

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EXHIBIT B. CEBU, October 27, 1891. On this date I have asked for further loan and have received from Don Victoriano Osmea the sum of seventy pesos in cash, fifty pesos of which I have loaned to Don Evaristo Peares, which we will pay in sugar in the month of January of the coming year according to the former conditions. (Signed) CENONA RAMA. From Don Evaristo Peares Doa Cenona Rama P50 20 P70 Received Evaristo Peares. Some time after the execution and delivery of the above contracts, the said Victoriano Osmea died. In the settlement and division of the property of his estate the above contracts became the property of one of his estate the above contracts became the property of one of his heirs, Agustina Rafols. Later, the date does not appear, the said Agustina Rafols ceded to the present plaintiff all of her right and interest in said contracts. On the 15th day of March, 1902 the plaintiff presented the contracts to the defendant for payment and she acknowledged her responsibility upon said contracts by an indorsement upon them in the following language: EXHIBIT C. CEBU, March 15, 1902. On this date I hereby promise, in the presence of two witness, that if the house of strong materials in which I live in Pagina is sold, I will pay my indebtedness to Don Tomas Osmea as set forth in this document. (Signed) CENONA RAMA. The defendant not having paid the amount due on said contracts; the plaintiff, upon the 26th day of June, 1906, commenced the present action in the Court of First Instance of the Province of Cebu. The complaint filed in said cause alleged the execution and delivery of the above contracts, the demand for payment, and the failure to pay on the part of the defendant, and the prayer for a judgment for the amount due on the said contracts. The defendant answered by filing a general denial and setting up the special defense of prescription.

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The case was finally brought on to trial in the Court of First Instance, and the only witness produced during the trial was the plaintiff himself. The defendant did not offer any proof whatever in the lower court. After hearing the evidence adduced during the trial, the lower court rendered a judgment in favor of the plaintiff and against the defendant for the sum of P200 with interest at the rate of 18 3/4 per cent per annum, from the 15th day of November, 1890, and for the sum of P20 with interest at the rate of 18 3/4 per cent per annum, from the 27th day of October, 1891, until the said sums were paid. From this judgment the defendant appealed. The lower court found that P50 of the P70 mentioned in Exhibit B had been borrowed by the defendant, but by one Evaristo Peares; therefore the defendant had no responsibility for the payment of the said P50. The only questions raised by the appellant were questions of fact. The appellant alleges that the proof adduced during the trial of the cause was not sufficient to support the findings of the lower court. It was suggested during the discussion of the case in this court that, in the acknowledgment above quoted of the indebtedness made by the defendant, she imposed the condition that she would pay the obligation if she sold her house. If that statement found in her acknowledgment of the indebtedness should be regarded as a condition, it was a condition which depended upon her exclusive will, and is therefore, void. (Art. 1115, Civil Code.) The acknowledgment, therefore, was an absolute acknowledgment of the obligation and was sufficient to prevent the statute of limitation from barring the action upon the original contract. We are satisfied, from all of the evidence adduced during the trial, that the judgment of the lower court should be affirmed. So ordered. Arellano, C. J., Torres, Carson, and Moreland, JJ., concur.

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4. G.R. No. L-16570

March 9, 1922

SMITH, BELL & CO., LTD., plaintiff-appellant, vs. VICENTE SOTELO MATTI, defendant-appellant. Ross and Lawrence and Ewald E. Selph for plaintiff-appellant. Ramon Sotelo for defendant-appellant. ROMUALDEZ, J.: In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente Sotelo, entered into contracts whereby the former obligated itself to sell, and the latter to purchase from it, two steel tanks, for the total price of twenty-one thousand pesos (P21,000), the same to be shipped from New York and delivered at Manila "within three or four months;" two expellers at the price of twenty five thousand pesos (P25,000) each, which were to be shipped from San Francisco in the month of September, 1918, or as soon as possible; and two electric motors at the price of two thousand pesos (P2,000) each, as to the delivery of which stipulation was made, couched in these words: "Approximate delivery within ninety days. This is not guaranteed." The tanks arrived at Manila on the 27th of April, 1919: the expellers on the 26th of October, 1918; and the motors on the 27th of February, 1919. The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival of these goods, but Mr. Sotelo refused to receive them and to pay the prices stipulated. The plaintiff brought suit against the defendant, based on four separate causes of action, alleging, among other facts, that it immediately notified the defendant of the arrival of the goods, and asked instructions from him as to the delivery thereof, and that the defendant refused to receive any of them and to pay their price. The plaintiff, further, alleged that the expellers and the motors were in good condition. (Amended complaint, pages 16-30, Bill of Exceptions.) In their answer, the defendant, Mr. Sotelo, and the intervenor, the Manila Oil Refining and ByProducts Co., Inc., denied the plaintiff's allegations as to the shipment of these goods and their arrival at Manila, the notification to the defendant, Mr. Sotelo, the latter's refusal to receive them and pay their price, and the good condition of the expellers and the motors, alleging as special defense that Mr. Sotelo had made the contracts in question as manager of the intervenor, the Manila Oil Refining and By-Products Co., Inc which fact was known to the plaintiff, and that "it was only in May, 1919, that it notified the intervenor that said tanks had arrived, the motors and the expellers having arrived incomplete and long after the date stipulated." As a counterclaim or set-off, they also allege that, as a consequence of the plaintiff's delay in making delivery of the goods, which the intervenor intended to use in the manufacture of cocoanut oil, the intervenor suffered damages in the sums of one hundred sixteen thousand seven hundred eighty-three pesos and ninety-one centavos (P116,783.91) for the nondelivery of the tanks, and twenty-one thousand two hundred and fifty pesos (P21,250) on account of the expellers and the motors not having arrived in due time.

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The case having been tried, the court below absolved the defendants from the complaint insofar as the tanks and the electric motors were concerned, but rendered judgment against them, ordering them to "receive the aforesaid expellers and pay the plaintiff the sum of fifty thousand pesos (P50,00), the price of the said goods, with legal interest thereon from July 26, 1919, and costs." Both parties appeal from this judgment, each assigning several errors in the findings of the lower court. The principal point at issue in this case is whether or not, under the contracts entered into and the circumstances established in the record, the plaintiff has fulfilled, in due time, its obligation to bring the goods in question to Manila. If it has, then it is entitled to the relief prayed for; otherwise, it must be held guilty of delay and liable for the consequences thereof. To solve this question, it is necessary to determine what period was fixed for the delivery of the goods. As regards the tanks, the contracts A and B (pages 61 and 62 of the record) are similar, and in both of them we find this clause: To be delivered within 3 or 4 months The promise or indication of shipment carries with it absolutely no obligation on our part Government regulations, railroad embargoes, lack of vessel space, the exigencies of the requirement of the United States Government, or a number of causes may act to entirely vitiate the indication of shipment as stated. In other words, the order is accepted on the basis of shipment at Mill's convenience, time of shipment being merely an indication of what we hope to accomplish. In the contract Exhibit C (page 63 of the record), with reference to the expellers, the following stipulation appears: The following articles, hereinbelow more particularly described, to be shipped at San Francisco within the month of September /18, or as soon as possible. Two Anderson oil expellers . . . . And in the contract relative to the motors (Exhibit D, page 64, rec.) the following appears: Approximate delivery within ninety days. This is not guaranteed. This sale is subject to our being able to obtain Priority Certificate, subject to the United States Government requirements and also subject to confirmation of manufactures. In all these contracts, there is a final clause as follows: The sellers are not responsible for delays caused by fires, riots on land or on the sea, strikes or other causes known as "Force Majeure" entirely beyond the control of the sellers or their representatives.

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Under these stipulations, it cannot be said that any definite date was fixed for the delivery of the goods. As to the tanks, the agreement was that the delivery was to be made "within 3 or 4 months," but that period was subject to the contingencies referred to in a subsequent clause. With regard to the expellers, the contract says "within the month of September, 1918," but to this is added "or as soon as possible." And with reference to the motors, the contract contains this expression, "Approximate delivery within ninety days," but right after this, it is noted that "this is not guaranteed." The oral evidence falls short of fixing such period. From the record it appears that these contracts were executed at the time of the world war when there existed rigid restrictions on the export from the United States of articles like the machinery in question, and maritime, as well as railroad, transportation was difficult, which fact was known to the parties; hence clauses were inserted in the contracts, regarding "Government regulations, railroad embargoes, lack of vessel space, the exigencies of the requirements of the United States Government," in connection with the tanks and "Priority Certificate, subject to the United State Government requirements," with respect to the motors. At the time of the execution of the contracts, the parties were not unmindful of the contingency of the United States Government not allowing the export of the goods, nor of the fact that the other foreseen circumstances therein stated might prevent it. Considering these contracts in the light of the civil law, we cannot but conclude that the term which the parties attempted to fix is so uncertain that one cannot tell just whether, as a matter of fact, those articles could be brought to Manila or not. If that is the case, as we think it is, the obligations must be regarded as conditional. Obligations for the performance of which a day certain has been fixed shall be demandable only when the day arrives. A day certain is understood to be one which must necessarily arrive, even though its date be unknown. If the uncertainty should consist in the arrival or non-arrival of the day, the obligation is conditional and shall be governed by the rules of the next preceding section. (referring to pure and conditional obligations). (Art. 1125, Civ. Code.) And as the export of the machinery in question was, as stated in the contract, contingent upon the sellers obtaining certificate of priority and permission of the United States Government, subject to the rules and regulations, as well as to railroad embargoes, then the delivery was subject to a condition the fulfillment of which depended not only upon the effort of the herein plaintiff, but upon the will of third persons who could in no way be compelled to fulfill the condition. In cases like this, which are not expressly provided for, but impliedly covered, by the Civil Code, the obligor will be deemed to have sufficiently performed his part of the obligation, if he has done all that was in his power, even if the condition has not been fulfilled in reality.

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In such cases, the decisions prior to the Civil Code have held that the obligee having done all that was in his power, was entitled to enforce performance of the obligation. This performance, which is fictitious not real is not expressly authorized by the Code, which limits itself only to declare valid those conditions and the obligation thereby affected; but it is neither disallowed, and the Code being thus silent, the old view can be maintained as a doctrine. (Manresa's commentaries on the Civil Code [1907], vol. 8, page 132.) The decisions referred to by Mr. Manresa are those rendered by the supreme court of Spain on November 19, 1896, and February 23, 1871. In the former it is held: First. That when the fulfillment of the conditions does not depend on the will of the obligor, but on that of a third person who can in no way be compelled to carry it out, and it is found by the lower court that the obligor has done all in his power to comply with the obligation, the judgment of the said court, ordering the other party to comply with his part of the contract, is not contrary to the law of contracts, or to Law 1, Tit. I, Book 10, of the "Novsima Recopilacin," or Law 12, Tit. 11, of Partida 5, when in the said finding of the lower court, no law or precedent is alleged to have been violated. (Jurisprudencia Civil published by the directors of the Revista General de Legislacion y Jurisprudencia [1866], vol. 14, page 656.) In the second decision, the following doctrine is laid down: Second. That when the fulfillment of the condition does not depend on the will of the obligor, but on that of a third person, who can in no way be compelled to carry it out, the obligor's part of the contract is complied withalf Belisario not having exercised his right of repurchase reserved in the sale of Basilio Borja mentioned in paragraph (13) hereof, the affidavit of Basilio Borja for the consolidacion de dominio was presented for record in the registry of deeds and recorded in the registry on the same date. (32) The Maximo Belisario left a widow, the opponent Adelina Ferrer and three minor children, Vitaliana, Eugenio, and Aureno Belisario as his only heirs. (33) That in the execution and sales thereunder, in which C. H. McClure appears as the judgment creditor, he was represented by the opponent Peter W. Addison, who prepared and had charge of publication of the notices of the various sales and that in none of the sales was the notice published more than twice in a newspaper. The claims of the opponent-appellant Addison have been very fully and ably argued by his counsel but may, we think, be disposed of in comparatively few words. As will be seen from the foregoing statement of facts, he rest his title (1) on the sales under the executions issued in cases Nos. 435, 450, 454, and 499 of the court of the justice of the peace of Dagupan with the priority of inscription of the last two sales in the registry of

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deeds, and (2) on a purchase from the Director of Lands after the land in question had been forfeited to the Government for non-payment of taxes under Act No. 1791. The sheriff's sales under the execution mentioned are fatally defective for what of sufficient publication of the notice of sale. Section 454 of the Code of civil Procedure reads in part as follows: SEC. 454. Before the sale of property on execution, notice thereof must be given, as follows: 1. In case of perishable property, by posing written notice of the time and place of the sale in three public places of the municipality or city where the sale is to take place, for such time as may be reasonable, considering the character and condition of the property; 2. * * * * * * *

3. In cases of real property, by posting a similar notice particularly describing the property, for twenty days in three public places of the municipality or city where the property is situated, and also where the property is to be sold, and publishing a copy thereof once a week, for the same period, in some newspaper published or having general circulation in the province, if there be one. If there are newspaper published in the province in both the Spanish and English languages, then a like publication for a like period shall be made in one newspaper published in the Spanish language, and in one published in the English language: Provided, however, That such publication in a newspaper will not be required when the assessed valuation of the property does not exceed four hundred pesos; 4. * * * * * * *

Examining the record, we find that in cases Nos. 435 and 450 the sales took place on October 14, 1916; the notice first published gave the date of the sale as October 15th, but upon discovering that October 15th was a Sunday, the date was changed to October 14th. The correct notice was published twice in a local newspaper, the first publication was made on October 7th and the second and last on October 14th, the date of the sale itself. The newspaper is a weekly periodical published every Saturday afternoon. In case No. 454 there were only two publications of the notice in a newspaper, the first publication being made only fourteen days before the date of the sale. In case No. 499, there were also only two publications, the first of which was made thirteen days before the sale. In the last case the sale was advertised for the hours of from 8:30 in the morning until 4:30 in the afternoon, in violation of section 457 of the Code of Civil Procedure. In cases Nos. 435 and 450 the hours advertised were from 9:00 in the morning until 4.30 in the afternoon. In all of the cases the notices of the sale were prepared by the judgment creditor or his agent, who also took charged of the publication of such notices.

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In the case of Campomanes vs. Bartolome and Germann & Co. (38 Phil., 808), this court held that if a sheriff sells without the notice prescribe by the Code of Civil Procedure induced thereto by the judgment creditor and the purchaser at the sale is the judgment creditor, the sale is absolutely void and not title passes. This must now be regarded as the settled doctrine in this jurisdiction whatever the rule may be elsewhere. It appears affirmatively from the evidence in the present case that there is a newspaper published in the province where the sale in question took place and that the assessed valuation of the property disposed of at each sale exceeded P400. Comparing the requirements of section 454, supra, with what was actually done, it is self-evident that notices of the sales mentioned were not given as prescribed by the statute and taking into consideration that in connection with these sales the appellant Addison was either the judgment creditor or else occupied a position analogous to that of a judgment creditor, the sales must be held invalid. The conveyance or reconveyance of the land from the Director of Lands is equally invalid. The provisions of Act No. 1791 pertinent to the purchase or repurchase of land confiscated for nonpayment of taxes are found in section 19 of the Act and read: . . . In case such redemption be not made within the time above specified the Government of the Philippine Islands shall have an absolute, indefeasible title to said real property. Upon the expiration of the said ninety days, if redemption be not made, the provincial treasurer shall immediately notify the Director of Lands of the forfeiture and furnish him with a description of the property, and said Director of Lands shall have full control and custody thereof to lease or sell the same or any portion thereof in the same manner as other public lands are leased or sold: Provided, That the original owner, or his legal representative, shall have the right to repurchase the entire amount of his said real property, at any time before a sale or contract of sale has been made by the director of Lands to a third party, by paying therefore the whole sum due thereon at the time of ejectment together with a penalty of ten per centum . . . . The appellant Addison repurchased under the final proviso of the section quoted and was allowed to do so as the successor in interest of the original owner under the execution sale above discussed. As we have seen, he acquired no rights under these sales, was therefore not the successor of the original owner and could only have obtained a valid conveyance of such titles as the Government might have by following the procedure prescribed by the Public Land Act for the sale of public lands. he is entitled to reimbursement for the money paid for the redemption of the land, with interest, but has acquired no title through the redemption. The question of the priority of the record of the sheriff's sales over that of the sale from Belisario to Borja is extensively argued in the briefs, but from our point of view is of no importance; void sheriff's or execution sales cannot be validated through inscription in the Mortgage Law registry. The opposition of Adelina Ferrer must also be overruled. She maintained that the land in question was community property of the marriage of Eulalio Belisario and Paula Ira: that upon the death of Paula Ira inealed from is modified, and the defendant Mr. Vicente Sotelo Matti, sentenced to accept and receive from the plaintiff the tanks, the expellers and the motors in

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question, and to pay the plaintiff the sum of ninety-six thousand pesos (P96,000), with legal interest thereon from July 17, 1919, the date of the filing of the complaint, until fully paid, and the costs of both instances. So ordered. Araullo, C.J., Johnson, Street, Malcolm, Avancea, Villamor, Ostrand, and Johns, JJ., concur.

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5. G.R. No. L-5003

June 27, 1953

NAZARIO TRILLANA, administrator-appellee, vs. QUEZON COLLEGE, INC., claimant-appellant. Singson, Barnes, Yap and Blanco for appellant. Delgado, Flores & Macapagal for appellee. PARAS, J.: Damasa Crisostomo sent the following letter to the Board of Trustees of the Quezon College: June 1, 1948 The BOARD OF TRUSTEES Quezon College Manila Gentlemen: Please enter my subscription to dalawang daan (200) shares of your capital stock with a par value of P100 each. Enclosed you will find (Babayaran kong lahat pagkatapos na ako ay makapag-pahuli ng isda) pesos as my initial payment and the balance payable in accordance with law and the rules and regulations of the Quezon College. I hereby agree to shoulder the expenses connected with said shares of stock. I further submit myself to all lawful demands, decisions or directives of the Board of Trustees of the Quezon College and all its duly constituted officers or authorities (ang nasa itaas ay binasa at ipinaliwanag sa akin sa wikang tagalog na aking nalalaman). Very respectfully, (Sgd.) DAMASA CRISOSTOMO Signature of subscriber Nilagdaan sa aming harapan: JOSE CRISOSTOMO EDUARDO CRISOSTOMO
Damasa Crisostomo died on October 26, 1948. As no payment appears to have been made on the subscription mentioned in the foregoing letter, the Quezon College, Inc. presented a claim before the Court of First Instance of Bulacan in her testate proceeding, for the collection of the sum of P20,000, representing the value of the subscription to the capital stock of the Quezon College, Inc. This claim was opposed by the administrator of the estate, and the Court of First Instance of Bulacan, after

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hearing issued an order dismissing the claim of the Quezon College, Inc. on the ground that the subscription in question was neither registered in nor authorized by the Securities and Exchange Commission. From this order the Quezon College, Inc. has appealed. It is not necessary for us to discuss at length appellant's various assignments of error relating to the propriety of the ground relief upon by the trial court, since, as pointed out in the brief for the administrator and appellee, there are other decisive considerations which, though not touched by the lower court, amply sustained the appealed order. It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc. was written on a general form indicating that an applicant will enclose an amount as initial payment and will pay the balance in accordance with law and the regulations of the College. On the other hand, in the letter actually sent by Damasa Crisostomo, the latter (who requested that her subscription for 200 shares be entered) not only did not enclose any initial payment but stated that "babayaran kong lahat pagkatapos na ako ay makapagpahuli ng isda." There is nothing in the record to show that the Quezon College, Inc. accepted the term of payment suggested by Damasa Crisostomo, or that if there was any acceptance the same came to her knowledge during her lifetime. As the application of Damasa Crisostomo is obviously at variance with the terms evidenced in the form letter issued by the Quezon College, Inc., there was absolute necessity on the part of the College to express its agreement to Damasa's offer in order to bind the latter. Conversely, said acceptance was essential, because it would be unfair to immediately obligate the Quezon College, Inc. under Damasa's promise to pay the price of the subscription after she had caused fish to be caught. In other words, the relation between Damasa Crisostomo and the Quezon College, Inc. had only thus reached the preliminary stage whereby the latter offered its stock for subscription on the terms stated in the form letter, and Damasa applied for subscription fixing her own plan of payment, a relation, in the absence as in the present case of acceptance by the Quezon College, Inc. of the counter offer of Damasa Crisostomo, that had not ripened into an enforceable contract. Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more imperative, in view of the proposal of Damasa Crisostomo to pay the value of the subscription after she has harvested fish, a condition obviously dependent upon her sole will and, therefore, facultative in nature, rendering the obligation void, under article 1115 of the old Civil Code which provides as follows: "If the fulfillment of the condition should depend upon the exclusive will of the debtor, the conditional obligation shall be void. If it should depend upon chance, or upon the will of a third person, the obligation shall produce all its effects in accordance with the provisions of this code." It cannot be argued that the condition solely is void, because it would have served to create the obligation to pay, unlike a case, exemplified by Osmea vs. Rama (14 Phil., 99), wherein only the potestative condition was held void because it referred merely to the fulfillment of an already existing indebtedness. In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this Court already held that "a condition, facultative as to the debtor, is obnoxious to the first sentence contained in article 1115 and renders the whole obligation void." Wherefore, the appealed order is affirmed, and it is so ordered with costs against appellant. Tuason, Padilla and Reyes, JJ., concur in the result.

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6. G.R. No. L-33493

March 6, 1931

ENRIQUE MARTIN, plaintiff-appellant, vs. FRANCISCO BOYERO, defendant-appellee. William E. Greenbaum, Antonio M. Opisso and Luis G. Hofilena for appellant. Tirol and Segovia for appellee. ROMUALDEZ, J.: Setting up rights derived from Pedro Zorrilla, of whom he is successor-in-interest, the plaintiff has brought this suit upon the ground that the sale price of the undivided two-fifths of the Espaa Estate has become demandable because the defendant has violated the terms of said contract of sale, praying judgment for said price which amounts to P20,000, plus interest, costs, and any other proper, legal, and equitable remedy, including the rendering of an account of said estate. The defendant answered with a general denial of the allegations in the complaint, and a special defense that the action is premature and contrary to law, for the defendant had not violated the said contract of sale. The complaint is also alleged to be vague and ambiguous. On March 13, 1929, during the pendency of the case in the Court of First Instance, the court ordered the defendant to render an accounting of the products of said estate received by him from December 21, 1925, when the sale took place, as well as of the obligations then attached to the estate, how they were met, and, lastly, of the loans obtained by the defendant upon the estate, together with their application. The account was rendered, objections thereto taken by the plaintiff, and the defendant answered said objections; and on October 22, 1929, the court issued an order requiring the defendant to furnish certain data, and a summary of the state of the accounts. This was done and the plaintiff again filed objections thereto, after which the case was tried on January 17, 1930, and judgment entered on February 26, 1030, absolving the defendant upon the following grounds: (a) That the conditional obligation stated in the contract Exhibit A is void, being subject to a condition which is void under article 1115 of the Civil Code, the fulfillment depending upon the exclusive will of the debtor, that is, lying wholly with him; (b) That even if the condition were valid, the defendant has not violated the terms of the contract Exhibit A, and the lease Exhibit B is not an infringement of the agreement contained in Exhibit A; (c) That even supposing that the condition were valid, it could not be complied with inasmuch as the obligor has never voluntarily prevented its fulfillment, but, on the contrary, has endeavored to comply therewith, reducing as much as possible the debts of the Espaa Estate within the narrow margin allowed by the price of sugar within the last few years:

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(d) That since the plaintiff has failed to show that the debts of the Espaa Estate have been fully satisfied, he has no right at present to demand the fulfillment of the conditional obligation, supposing the latter to be valid, and therefore his alleged grounds of action are not well taken. (Pp. 95 and 96, Bill of Exceptions.) The plaintiff has appealed from this judgment, assigning the following alleged errors as committed by the lower court: 1. In holding that inasmuch as the plaintiff has not shown that all the debts appertaining to the estate have been fully satisfied, he is not entitled to demand the fulfillment of the obligation contracted in Exhibit A. 2. In holding that Exhibit A leaves the plaintiff such a wide and open field that under it he is permitted to do what he has done and even more; for it is equivalent to authorizing him to impose further obligations upon the estate so as, in effect, to delay the fulfillment of the obligation at will. 3. In holding that the contract of lease, Exhibit B, does not violate the conditions stipulated in Exhibit A. 4. In failing to hold that article 1119 of the Civil Code is not applicable to the case at bar. 5. In dismissing the complaint. In the deed of sale conveying two-fifths (2/5) of the Espaa Estate to the plaintiff's predecessorin-interest, the following stipulation appears regarding the payment of the price of P20,000: (a) As soon as Francisco Boyero has paid the amounts of his debt to Hogar Filipino and Messrs. Hijos de I. de la Rama, or to any other person or entity to whom Mr. Boyero is in debt at present, or shall in future become indebted on account of the exploitation of the Espaa Estate, Francisco Boyero shall pay to Pedro Zorilla the amount of P20,000 according to the following terms: Ten thousand pesos upon the date when the aforesaid estate becomes free of all incumbrances, and the remaining P10,000 within the following year: Provided, That the latter sum shall earn interest at ten per centum per annum computed from the date when the estate becomes free of all encumbrances until it is fully paid; (b) Should the circumstances be such that Mr. Boyero deems it best to sell the Espaa Estate or should the same be sold under a judgment, and after the payment of the debts which encumber said estate, there should be a balance less than P50,000, Pedro Zorilla shall only be entitled to receive from Mr. Boyero a sum equal to 2/5 of said balance, deducting therefrom, however, such sums as Mr. Boyero may have paid to Mr. Zorrilla from this date until the voluntary or involuntary sale mentioned above;

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(c) It is hereby agreed and stipulated by and between the parties that if on account of some mishap in exploiting the Espaa Estate or for any other reason whatever Mr. Boyero should lose the estate, whether by attachment and judicial auction or otherwise, Mr. Zorrilla shall not be entitled to claim of Mr. Boyero either the total or any portion of the P20,000 mentioned heretofore, or any other amount. (Pp. 8 and 9, Bill of Exceptions.) Counsel for the appellant contends that these conditions of the sale are void unless a term is fixed for the payment of the P20,000, which according to said conditions is left entirely with the defendant, and that, at any rate, even supposing said conditions are valid, the obligation has become demandable under the provisions of article 1119 of the Civil Code from the time the contract of lease, Exhibit B, was executed and the defendant prevented the fulfillment of the condition. Considering the circumstances of the estate at the time said deed of sale was executed, we do not think the stipulation void which makes the payment of the P20,000 to the vendor Zorrilla depend upon the full satisfaction of the debts encumbering the estate. We must not lose sight of the fact that these debts were then so numerous and pressing that all of them almost exceeded the value of the property itself with all its improvements, making it for the moment practically worthless. Of course, the stipulation implied that the defendant herein was under the obligation to liquidate those debts as soon as possible, applying all the products from the estate which could be disposed of to such payment. Taking the stipulation in this sense, it cannot be said that the duty of paying the P20,000 depended exclusively upon the defendant's will. With these obligations upon him, and his own good intentions and earnest desire to meet them, which must be presumed in the absence of evidence to the contrary, there are still other factors determining the payment of the aforementioned debts, factors as essential as they are independent of the defendant's will, and subject to those difficulties and hindrances which attend the exploitation of a sugar plantation in the circumstances as shown by the record. Therefore, article 1117 of the Civil Code is not applicable to this case. Whether or not the stipulation in the contract, Exhibit A, authorizing the defendant to sell the estate, either voluntarily or by judicial process, has any bearing on the resolutions of the questions raised in this case, is immaterial, because the defendant has not sold the estate voluntarily or by judicial process, and it has neither been alleged nor proved that he intended to do so. Furthermore, in view of the circumstances of the estate at the time of the execution of said contract, the stipulation in question is perfectly clear and an adequate measure of protection for the interests of the contracting parties. With reference to the period for the payment of P20,000 which the court must fix, according to the appellant, such a period has already been fixed in the contract, which, according to the judgment appealed from, is after the debts of the estate are paid. This period, as we have indicated above, does not depend exclusively upon the defendant's will. Therefore, article 1128 of the Civil Code is not applicable to this case.

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In executing the contract of lease, Exhibit B, the defendant has not, in our opinion, violated the contract of sale, Exhibit A. By virtue of said lease, Claudio Aldecoa assumed the obligation to the Hijos de I. de la Rama, paying them P11,000 on account of said debt, and giving promissory notes for the balance, thereby securing a reduction of the obligation and a postponement of its maturity. Furthermore, Claudio Aldecoa, according to the contract of lease, agreed to pay the rents to El Hogar Filipino, which held a first mortgage on the land in question. Claudio Aldecoa also took charge, under the terms of the lease, of paying the debt to the Philippine National Bank subrogating the latter in its rights to the crop then existing on the plantation. Not one of these terms nor any other in the lease violates the contract Exhibit A. As to the agreement of delivering to the defendant Francisco Boyero P2,000 each year during the first three years, there is no prohibition against it in the contract Exhibit A, and the defendant, as owner of the plantation, had a right to reserve that amount for his own personal necessities. At all events, the P6,000 which the defendant would or may have received by virtue of that agreement would not have been sufficient to satisfy the debts of the estate, and much less fulfill the terms of the obligation of the defendant in delivering to the predecessor-in-interest of the plaintiff, or to the latter his share in the Espaa Estate. The plaintiff alleges that it would have been more advantageous for the estate if the defendant had continued to till it personally instead of leasing it out. As a matter of fact, had the estate not been leased, it would not have been free from the attachment by the creditors Hijos de I. de la Rama, whose credit, amounting to P40,000, was already due. The contract of lease, no doubt, brought about a substantial reduction in the original amount of the obligations encumbering the estate. We are convinced from an examination of the record that the defendant has made efforts to satisfy the debts of the estate in question as soon as the circumstances have permitted; and consequently, as the lower court rightly declared, there is no reason for holding him responsible for the fact that the debts are not yet entirely paid. Inasmuch as the record does not show that all the debts of the Espaa Estate have been paid, or that the defendant is responsible for their not being paid, the plaintiff has no cause of action to ask for the relief prayed for in his complaint. Wherefore, the judgment appealed from is affirmed in so far as it holds that the complaint is without a cause of action, and absolves the defendant therefrom. The plaintiff shall pay the costs of this instance. Avancea, C.J., Johnson, Street, Malcolm, Villamor, Ostrand and Johns, JJ., concur.

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7. REYNALDO LABAYEN, ET AL., plaintiffs. REYNALDO LABAYEN, appellant, vs. TALISAY-SILAY MILLING CO., INC., defendant-appellee. Angel S. Gamboa for appellant. R. Nolan for appellee. MALCOLM, J.: This is an action for damage in the amount of P28,620 for the alleged breach of a contract to grind sugar cane in 1920-1921. After a rehearing, the defendant was absolved from the complaint, andthe plaintiff was condemned, on the cross-complaint, to pay the defendant the sum of P12,114, without special pronouncement as to costs. An examination of the record on appeal discloses that the exhibits are missing. Still this is not in this instance of great importance. The facts as found by the trial judge are not seriously disputed from the facts which worry the parties. The plaintiff, along with another, possesses the hacienda known as Dos Hermanos of Talisay, Occidental Negros. The defendant is a corporation dedicated to the milling of sugar cane. On August 27, 1919, the plaintiff and the defendant entered into a contract similar to contracts entered into by the defendant and other planters. It is this contract which is the basis of plaintiffs cause of action. Among the clauses in the contract are the following: COVENANTS OF LA CENTRAL Third: That it shall build and after building it shall do or cause to be done all that is necessary for its preservation in good condition, and shall, during the period of this agreement, without charge to the Procedure or Procedures, operate a permanent railroad run by steam or motor, or both, for the use of the plantation or plantations in the transportation of sugar cane, sugar, fertilizer, and all such articles as the procedure may need for his estate, his use and that of his family and employees, and shall cause the main line or a branch thereof, as the case may be, to reach the point of the plantation to be hereafter described not farther than one mile from ay of the boundaries of said plantation, whenever the contour of the land, the curves, and elevations permit the same; it shall provide said railroad with locomotives or motors and wagons in a number sufficient to make the transportation of sugar cane, sugar, fertilizer, and the above mentioned articles, and shall likewise build a branch of said railroad in such a way that from the main line, mill and warehouses, it shall reach the wharf above mentioned, and it shall also cause the yard of the factory near the sugar mill to be available for use with switches or otherwise. All the steam locomotives shall be provided with safety spark devices. The railroad shall consist of a road or path conveniently and duly designated so that, so far as possible, all the producers may derive equal benefit from said railroad. The right-of way for the main line of the railroad shall be three and a half (3-?) meters wide measured from the center of the road to each side, and the branches, switches, or curves shall have more if necessary.

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OBLIGATIONS OF THE PRODUCER Fifth: That he shall accept the provisions of clauses 7, 8, and 9 of the covenants of La Central and shall deliver the cane as therein provided; hereby binding himself to plant each year according to the usage and custom of a good agriculturist not less than one-half of his own lands devoted to sugar cane subject to the approval of the Committee of Producers leaving the remainder uncultivated. MUTUAL OBLIGATIONS 10. In case of . . . inability to secure, under reasonable conditions such rights-of-way as La Central may require, . . . La Central shall notify the Committee of Producers and without incurring any liability for the non-fulfillment of the terms of this contract, its effects shall be suspended in part or in whole during such period of incapacity. . . . (Emphasis inserted.) With particular reference to the third paragraph of the clauses obligating the central, it is admitted that the central has not continued its railroad through to the Hacienda Dos Hermanos. The railroad comes to the Hacienda Esmeralda No. 2 and there stops. For the railroad to extend to the HaciendaDos Hermanos, a distance of four kilometers would require a gradual elevation of 4.84 per cent to 7 per cent, would make necessary the providing of twentysix curves, and would cost about P80,000. The witness H. W. Corp, a civil engeneer employed in the construction work of the Manila Railroad Company, the Pampanga Sugar Milling Co., and the Binalbagan Central, testified that it was possible to construct a railroad to the Hacienda Dos Hermanos but that to do so would be very dangerous. Recalling that the contract provided for the construction of a railroad whenever the contour of the land, the curves, and elevations permit the same, and that such construction is possible but very dangerous, the question then arises if the defendant can excuse itself on this ground, or if the plaintiff can recover from the defendant for damages for breach of contract, through inability to mill cane. It is elemental that the law requires parties to do what they have agreed to do. If a party charges himself with an obligation possible to be performed, he must abide by it unless performance is rendered impossible by the act of God, the law, or the other party. A showing of mere inconvenience, unexpected impediments, or increased expenses is not enough. Equity cannot relieve from bad bargains simply because they are such. So one must answer in damages where the impossibility is only so in fact. (Thornborow vs. Whitacre, 2 Ld. Raym. [1164], 92 E. R., 270; Reid vs. Alaska Packing Co. [1903], 43 Or., 429; Columbus Ry. & Power Co. vs. Columbus [1919], 249 U.S. 399.) The foregoing are familiar principles to be found in the American and English law of contracts. The civil law on the subject of obligations is not essentially different. Article 1272 of the Civil Code provides: Impossible things of services cannot be the subject-matter of contracts. And article 1184 of the same Code provides: The debtor shall also be relieved from obligations

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which consist in the performance of a act if fulfillment of the undertaking becomes legally or physically impossible. May one obligate himself to do something which, when accomplished, will prove to be dangerous to life and property? We doubt it. Take the contract in question as an example. It was a general contract of the form used by the central and various proprietors of sugar-cane fields. It was intended to be limited in particular application to haciendas where not impeded by physical impossibility. The contract was qualified by an implied condition which, if given practical effect, results in absolving the central from its promise. Not to sanction an exception to the general rule would run counter to public policy and the law by forcing the performance of a contract undesirable and harmful. (8 Manresas Codigo Civil Espanol, p. 355.) There is another aspect to the case which has to do with the tenth paragraph of the mutual obligations of the contract and which concerned the securing of the right- of-way for the proposed railroad. To get from the Hacienda Esmeralda No. 2 to the Hacienda Dos Hermanos, the railroad would have to pass through the haciendas of Esteban de la Rama. But he would not grant permission to use his land for this purpose in 1920, and only consented to do so in 1924. Here then was a clear case of such a condition of affairs as was contemplated by the contract. The foregoing points being admitted, it logically follows that the defendant can recover on its cross-complaint. The defense to the cross-complaint is identical with the theory of the complaint. For the same reasons that the plaintiff cannot recover must be make good for his debt to the defendant. Accepting, therefore, the facts as found by the trial judge, and nothing no reversible error on any legal question, the judgment appealed from must be as it is hereby affirmed, with the costs of this instance against the appellant. Avancea, C.J. Johnson, Street, Villamor, Ostrand, Johns and Romualdez, JJ., concur.

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8. Generoso V. Villanueva et al vs Estate of Gerardo L. Gonzaga DECISION PUNO, J.: Before us is a petition for review on certiorari assailing the Decision dated January 16, 2003 of the Court of Appeals in CA-G.R. CV No. 46865 which affirmed with modification the Decision dated December 29, 1993[2] of the Regional Trial Court (RTC) of Bacolod City in Civil Case No. 6552. The RTC-Bacolod City declared the Memorandum of Agreement (MOA) between petitioners and respondents as rescinded, and ordered petitioners to pay moral damages and
[1]

attorneys fees to respondents. The Court of Appeals deleted the award for moral damages. The antecedent facts are as follows: On January 15, 1990, petitioners Generoso Villanueva and Raul Villanueva, Jr., business entrepreneurs engaged in the operation of transloading stations and sugar trading, and respondent Estate of Gerardo L. Gonzaga, represented by its JudicialAdministratrix, respondent Ma. Villa J. Gonzaga, executed a MOA[3] which reads: KNOW ALL MEN BY THESE PRESENTS: This Memorandum made and entered into by and between: THE ESTATE OF GERARDO L. GONZAGA represented in the act by its Administratrix, MA. VILLA J. GONZAGA, Filipino, of legal age, widow and resident of Bacolod City, hereinafter referred to as the FIRST PARTY, -andRAUL VILLANUEVA, JR. and GENEROSO V. VILLANUEVA, Filipinos, of legal age, married and residents of Bacolod City, hereinafter jointly referred to as the SECOND PARTY. W I T N E S S E T H: 1. WHEREAS, the FIRST PARTY is the true and lawful owner of a parcel of land, Lot No. 1362, covered by TCT No. T-131872 situated at Brgy. Granada, Bacolod City and known as Hda. San Dionisio Norte; 2. WHEREAS, the aforesaid property is presently mortgaged with the Philippine National Bank (PNB) as collateral for a loan; 3. WHEREAS, the aforesaid property is already subdivided into sub-lots although separate titles for each lot is not yet issued;

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4. WHEREAS, the herein SECOND PARTY agrees to purchase portions of the aforesaid property equivalent to 3,240 sq. meters which portions are designated as Lots Nos. 28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38 & 39 in phase 11 of the subdivision plan; 5. WHEREAS, the SECOND PARTY agrees to purchase the aforesaid lots at the price of ONE HUNDRED FIFTY (P150.00) PESOS per sq. meter or for a total price of FOUR HUNDRED EIGHTY SIX THOUSAND (P486,000.00) PESOS subject to the following conditions: A.) That the FIRST PARTY shall cause the release of the aforementioned lots from the Philippine National Bank (PNB) at the earliest possible time. B.) That the SECOND PARTY agrees to pay the amount of P486,000.00 as follows: P100,000.00 - upon the signing of this agreement. P191,600.00 - on or before January 10, 1990. P194,400.00 - upon the approval by the PNB of the release of the lots. C.) That it is hereby agreed that the ONE HUNDRED THOUSAND (P100,000.00) PESOS down payment shall at the same time be considered as earnest money which shall be forfeited in the event the SECOND PARTY withdraws from this agreement. D.) That upon payment of 60% of the purchase price, the SECOND PARTY may start to introduce improvements in the area if they so desire. E.) That upon the release by the Philippine National Bank (PNB) of the lots subject of this agreement, the FIRST PARTY shall immediately execute a Deed of Sale in favor of the SECOND PARTY. All expenses for documentation and capital gains shall be borne by the FIRST PARTY, while expenses for transfer of title to the SECOND PARTY shall be borne by the latter. IN WITNESS WHEREOF, the parties have hereunto set their hands this 15th day of January, 1990 in this City of Bacolod, Philippines. [emphases added] As stipulated in the agreement, petitioners introduced improvements after paying P291,600.00 constituting sixty (60%) percent of the total purchase price of the lots. Petitioners then requested permission from respondent Administratrix to use the premises for the next milling season. Respondent refused on the ground that petitioners cannot use the premises until full payment of the purchase price. Petitioners informed respondent that their immediate use of the premises was absolutely necessary and that any delay will cause them

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substantial damages. Respondent remained firm in her refusal, and demanded that petitioners stop using the lots as atransloading station to service the Victorias Milling Company unless they pay the full purchase price. In a letter-reply dated April 5, 1991, petitioners assured respondent of their readiness to pay the balance but reminded respondent of her obligation to redeem the lots from mortgage with the Philippine National Bank (PNB).[4] Petitioners gave respondent ten (10) days within which to do so.[5] On April 10, 1991, respondent Administratrix wrote petitioners informing them that the PNB had agreed to release the lots from mortgage. She demanded payment of the balance of the purchase price. Enclosed with the demand letter was the PNBs letter of approval dated April 8, 1991,[6] marked as Exhibit 3-B, which reads Mrs. Ma. Villa J. Gonzaga Judicial Administratrix Int. Est. of Gerardo L. Gonzaga La Salle Subdivision Bacolod City Dear Mrs. Gonzaga: We are pleased to inform you that your request for the partial release of securities, particularly the 3,240 sq. m. agricultural land x x xcovered by TCT No. T-31113 has been approved by our Senior Management Credit Committee I on April 1, 1991 subject to the following conditions: 1. The sale be approved by the Court insofar as the interest of the estate is concerned; 2. Payment of two (2) annual amortizations of the restructured accounts in addition to P50,000.00 to be derived from sale of lot sought to be released; 3. Such terms and conditions that our Legal Dept. may impose to protect the interest of the Bank. Please see us for the preparation of the covering documents. [emphases added] Very truly yours, (signed) CECILIA S. GAYENALO Asst. Manager In their letter-reply dated April 18, 1991,[7] petitioners demanded that respondent show the clean titles to the lots first before they pay the balance of the purchase price. Respondent merely reiterated the demand for payment. Petitioners stood pat on their demand.

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On May 28, 1991, respondent Administratrix executed a Deed of Rescission rescinding the MOA on two grounds: (1) petitioners failed to pay the balance of the purchase price despite notice of the lots release from mortgage, and (2) petitioners violated the MOA by using the lots as a transloading station without permission from the respondents. In their Letter dated June 13, 1991, petitioners, through counsel, formally demanded the production of the titles to the lots before they pay the balance of the purchase price. The demand was ignored. Consequently, on June 19, 1991, petitioners filed a complaint against respondents for breach of contract, specific performance and damages before the RTCBacolod City, docketed as Civil Case No. 6552. Petitioners alleged that respondents delayed performance of their obligation by unreasonably failing to secure the release of the lots from mortgage with the PNB within the earliest possible time, as stipulated in the MOA. Petitioners prayed that respondents be ordered to produce the clean titles to the lots before they pay the balance of the purchase price. The trial court decided the case in favor of respondents. The dispositive portion of the decision reads (1) Declaring the Memorandum of Agreement, Exh. C rescinded; consequently ownership and possession of Lots 28 to 39, inclusive, of Phase II of the subdivision plan covered by TCT No. T-31113 are hereby restored to defendants, and defendants (sic) are thereby ordered to vacate the premises of said lots; (2) Ordering plaintiffs to jointly and severally pay defendants: P20,000.00 as moral damages; and P15,000.00 as attorneys fees; (3) Ordering defendants to solidarily pay or refund plaintiffs: the sum of P100,000.00 paid by the latter as down payment on the aforesaid Memorandum of Agreement on December 18, 1989, with legal interest at 6% per annum from said date up to and until the amount is fully paid or refunded; and another sum of P191,600.00 paid by the latter to the former in connection with the said Memorandum of Agreement on January 10, 1990, with the same rate of interest at 6% per annum from said date up to and until the amount is fully paid or refunded; and (4) Condemning plaintiffs to pay the cost of suit.[8] Petitioners filed a petition for review before the Court of Appeals. On January 16, 2003, the Court of Appeals affirmed the trial courts decision but deleted the award for moral damages on the ground that petitioners were not guilty of bad faith in refusing to pay the balance of the purchase price.[9] Hence, this petition.

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Petitioners raise the following issues: 1. Whether x x x respondents failed to comply with their reciprocal obligation of securing the release of the subject lots from mortgage indebtedness with the Philippine National Bank. 2. Whether x x x the delivery of the titles corresponding to the twelve (12) lots subject of the Memorandum of Agreement is a precondition to the payment by the petitioners of the balance of the consideration. 3. Whether x x x petitioners did incur (sic) delay in the performance of their reciprocal obligation under the Memorandum of Agreement. 4. Whether x x x there is legal, or even a factual, ground for the rescission of the Memorandum of Agreement.[10] We will resolve first the procedural objections raised by the respondents. Respondents contend that the petition should be dismissed for late filing, and irregular execution of the affidavit of service attached to the petition. Respondents allege that the petition was filed late as there was no evidence to show that petitioners motion for extension of time to file the petition has been granted by the Court. Petitioners allegedly received a copy of the assailed Court of Appeals decision on January 28, 2003 but filed the petition for review on March 12, 2003 only, contrary to Section 2, Rule 45 of the1997 Rules of Civil Procedure.[11] In addition, the Affidavit of Service attached to the petition was irregularly executed on March 13, 2003, a day after the petition has been filed in Court. Respondents contentions are not meritorious. The records show that petitioners motion for 30 days extension of time to file the petition for review has been granted in our Resolution dated March 26, 2003. Petitioners were given thirty (30) days from the expiration of the original period, or until March 13, 2003, within which to file the petition for review. Although our resolution is dated after the extension prayed for has already expired, we specifically conditioned the grant of extension upon the timeliness of the filing of the petition and payment by petitioners of the correct docket and other filing fees. Petitioners did so. The petition for review was posted by registered mail on March 13, 2003, as shown by the date appearing on the first page of the original copy of the petition filed with the Court. [12] The Affidavit of Service was thus regularly executed on March 13, 2003, the same day that the petition was posted by registered mail. No reason exists therefore for the dismissal of the petition on technical grounds, as respondents erroneously contend.

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On the merits of the case, we agree with the petitioners that the Court of Appeals erred in ruling that respondents had already fulfilled their obligation to cause the release of the lots from mortgage with the PNB at the time they demanded payment of the balance of the purchase price. The finding of the appellate court is refuted by Exh. 3-B and by the testimonial evidence on record. A reading of Exhibit 3-B,[13] which is the PNBs letter of approval dated April 8, 1991, clearly shows that the approval was conditional. Three (3) conditions were laid down by the bank before the lots could be finally released from mortgage. The three conditions were: (1) that respondents secure approval of the sale from the intestate court insofar as the interest of the estate is concerned; (2) that respondents pay two annual amortizations of their restructured accounts with the PNB plus P50,000.00 to be derived from the sale of the lots sought to be released; and (3) that respondents comply with such other terms and conditions as thePNBs Legal Department may impose. Cecilia S. Gayenalo, the Assistant Manager of PNB Bacolod City Branch, herself testified that it was in July 1991 that the final release papers were prepared by the bank because it was only at that time that respondents complied with the three conditions.[14] It was therefore premature for respondents to demand payment of the balance of the purchase price from the petitioners in April 1991 and, failing in that, to rescind the MOA in May 1991. Moreover, there is no legal basis for the rescission. The remedy of rescission under Art. 1191 of the Civil Code[15] is predicated on a breach of faith by the other party that violates the reciprocity between them.[16] We have held in numerous cases that the remedy does not apply to contracts to sell.[17] We explained the reason in Santos v. Court of Appeals,[18] viz x x x [I]n a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive suspensive condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. This is entirely different from the situation in a contract of sale, where non-payment of the price is a negative resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover it, unless the contract of sale is rescinded and set aside. In a contract to sell, however, the vendor remains the owner for as long as the vendee has not

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complied fully with the condition of paying the purchase price. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. x x x x Article 1592 speaks of nonpayment of the purchase price as a resolutory condition. It does not apply to a contract to sell. As to Article 1191, it is subordinated to the provisions of Article 1592 when applied to sales of immovable property. Neither provision is applicable [to a contract to sell]. (emphasis added) The MOA between petitioners and respondents is a conditional contract to sell. Ownership over the lots is not to pass to the petitioners until full payment of the purchase price. Petitioners obligation to pay, in turn, is conditioned upon the release of the lots from mortgage with the PNB to be secured by the respondents. Although there was no express provision regarding reserved ownership until full payment of the purchase price, the intent of the parties in this regard is evident from the provision that a deed of absolute sale shall be executed only when the lots have been released from mortgage and the balance paid by petitioners. Since ownership has not been transferred, no further legal action need have been taken by the respondents, except an action to recover possession in case petitioners refuse to voluntarily surrender the lots.[19] The records show that the lots were finally released from mortgage in July 1991. Petitioners have always expressed readiness to pay the balance of the purchase price once that is achieved. Hence, petitioners should be allowed to pay the balance now, if they so desire, since it is established that respondents demand for them to pay in April 1991 was premature. However, petitioners may not demand production by the respondents of the titles to the lots as a condition for their payment. It was not required under the MOA. The MOA merely states that petitioners shall pay the balance upon approval by the PNB of the release of the lots from mortgage. Petitioners may not add further conditions now. Obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith.[20] IN VIEW WHEREOF, the petition is GRANTED. The assailed Decision dated January 16, 2003 of the Court of Appeals in CA-G.R. CV No. 46865 is REVERSED and SET ASIDE. Petitioners and respondents are restored to the status quo ante before the execution of the Deed of Rescission dated May 28, 1991which is declared of no legal effect. SO ORDERED.

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9. G.R. No. L-4679 December 22, 1908 MANUEL GUEVARA, plaintiff-appellant, vs. CARMEN DE PASCUAL, ET AL., defendants-appellees. Leodegario Azarraga, for appellant. Gibbs and Gale, for appellees.

WILLARD, J.: On the 20th of November, 1906, the plaintiff sold to the defendant, Carmen de Pascual, who made the purchase with the consent of her husband, C.R. Duffin, the "New Coin Cafe," a bar or drinking saloon situated in the city of Manila. By the terms of the contract the purchaser agreed to pay the owner of the property where the bar was located the sum of P1,200 in monthly installments of P100 each, rent due for the occupation of the building; to pay a debt due from the seller to Macke, Chandler and Co. amounting to P112, and to pay to the plaintiff P600 on the 28th of February, 1907, and P588 on the 28th of February, 1908. The contract contained also the following conditions: IV. That both contracting parties bind themselves to a strict compliance with the present contract, which, in case of non-fulfillment of any of its clauses by either of the parties, shall be rescinded. V. That in the case the purchaser, Carmen de Pascual de Duffin, should infringe any of the clauses or provisions of this contract, the same shall be rescinded in accordance with the preceding clause, and said purchaser will immediately return to the vendor the bar with all its appurtenances, furniture and any other improvements made therein, without the right, on the part of the said purchaser, to any remuneration for such improvements. The purchaser took possession of the bar but did not pay the rent in the month of December nor did she pay the whole of the sum due the defendants Macke, Chandler and Co. She became the debtor of Macke, Chandler and Co. for other merchandise sold to her by them; on the 8th of January they commenced an action against her to recover the amount due them and on the 9th of January caused the personal property in the bar to be attached by the sheriff of his right in regard to the bar. The sheriff secured a bond from Macke, Chandler and Co., disregarded the notice, and on the 18th of January, 1907, sold the personal property therein for the sum of P410.90. The plaintiff commenced this action on the 26th of January, 1907, against Carmen de Pascual, her husband, C.R. Duffin, Macke, Chandler and Co., and the sheriff of the city of Manila. Judgment was rendered in the court below in favor of the plaintiff and against Carmen de Pascual and her husband by default in the sum of P4,000. From this judgment these defendants have not appealed.

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Judgment was rendered in the court below in favor of Macke, Chandler and Co., and the sheriff, acquitting them of the complaint. From this part of the judgment the plaintiff has appealed. By the express terms of the contract, which have been above quoted, the plaintiff had a right to rescind it in case the purchaser failed to comply with the terms thereof. That the purchaser did fail so to comply, is admitted; and that the plaintiff had a perfect right to rescind the contract as against the purchaser, can not be questioned, and is not questioned, they having not appealed from the judgment against them. But the question is, what rights has the plaintiff against third persons, namely, Macke, Chandler and Co. and the sheriff? It is evident that article 1290 and following articles of the Civil Code do not refer to the rescission of contracts such as the one is question. (Judgment of the supreme court of Spain, April 24, 1901.) The rights of the parties to this action are rather governed by articles 1506 and 1124 of that code. Article 1124 is as follows: The right to rescind the obligations is considered as implied and mutual ones, in case of the obligated persons does not comply with what is incumbent upon him. The person prejudiced may choose between exacting the fulfillment of the obligation or its rescission, with indemnity for damages and payment of interest in either case. He may also demand the rescission, even after having requested its fulfillment, should the latter appear impossible. The court shall order the rescission demanded, unless third acquirers, in accordance with articles 1295 and 1298, and the provisions of the Mortgage Law. It is true that this article does not directly refer to contracts which expressly give the right to rescind. But, that it was intended to apply to them, we think is evident. Article 1295 referred to in article 1124 is as follows: lawphil.net Rescission obliges the return of the things which were the objects of the contract, with their fruits and the sum with interests; therefore it can only be carried into effect when the person who may have claimed it can return that which, on his part, he is bound to do. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who have not acted in bad faith. In such cases the indemnity for damages may be claimed from the person who caused the lesion.
The only question in the case is whether or not the plaintiff has the right to rescind this contract against Macke, Chandler and Co. and the sheriff, who are third parties, and that question depends upon whether they are legally in possession of the property and have acted in good faith.

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The mere failure to fulfill the contract did not operate as a rescission thereof. It was necessary that the plaintiff take some affirmative action indicating his intention to rescind it. (Judgment [supreme court of Spain] of the 19th of January, 1904.) As to the defendant, Macke, Chandler and Co., we do not think that the evidence shows that any such action was taken by the plaintiff prior to the sale on the 18th day of January, 1907. The plaintiff alleged that on the 16th day of January he notified the sheriff in writing that he was the owner of the property. This allegation is denied in the answer of the defendants, Macke, Chandler and Co., and, while one of the witnesses testified that a notice was given, he did not testify what the contents of that notice were and the notice itself was apparently not introduced in evidence. So far as Macke, Chandler and Co. are concerned, the judgment in their favor must be affirmed. But as to the sheriff, different facts appear. Instead of denying the allegations of the complaint in respect to the notice, the sheriff in his answer expressly admitted those allegations and affirmatively alleged the following: That on the 16th day of January, 1907, the plaintiff in this case presented an affidavit to this defendant, claiming to be the owner of the aforesaid property, and according to that notice this defendant required and obtained from the said B.H. Macke and W.N. Chandler, a bond to indemnify this defendant for whatever damages he might suffer by reason of the sale of said property in order to satisfy the above referred execution. It thus appears that the sheriff had a copy of the contract in his possession before he made the sale; that he knew that the plaintiff have a right to rescind it, and the he knew from the affidavit made that the plaintiff claimed to be the owner of the property and therefore had rescinded it. Under this circumstances it can not be said that the sheriff, when he had possession of the goods for the purpose of selling them on execution, was in possession of them in good faith, within the meaning of that phrase as it is used in article 1295. This action, in which the plaintiff asked expressly that the contract be declared rescinded, was commenced on the 26th day of January, ten days after the notice was given to the sheriff and eight days from the sale. The plaintiff had the right to have the contract rescinded not only against the original parties thereto but also against the sheriff. The plaintiff presented no evidence to show what the value of the property actually sold by the sheriff was. He presented evidence to show that the value of certain improvements made by Carmen de Pascual was, but these improvements to a large extent were not susceptible of sale on execution and were not sold. The only evidence to show what the value of the property sold by the sheriff was, is what it brought, namely, P410.90, and as against the sheriff this must be taken as its value. The judgment of the court below in favor of Macke, Chandler and Co. is affirmed.itc_alf The judgment in favor of the sheriff is reversed, and judgment is entered against him and in favor of the plaintiff for the sum of P410.90, with interest thereon from the 26th day of January, 1907, and the costs of the Court of First Instance. No costs will be allowed either party in this court. So ordered. Arellano, C.J., Torres, Mapa, Carson, and Tracey, JJ., concur.

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10. G.R. No. L-12611

August 7, 1918

FELIPE AGONCILLO, and his wife, MARCELA MARIO, plaintiff-appellees, vs. CRISANTO JAVIER, administrator of the estate of the late Anastasio Alano. FLORENCIO ALANO and JOSE ALANO, defendants-appellants. Basilio Aromin for appellants. Felipe Agoncillo for appellees. FISHER, J.: On the twenty-seventh day of February, 1904, Anastasio Alano, Jose Alano, and Florencio Alano executed in favor of the plaintiff, Da. Marcela Mario, a document of the following tenor: We, the undersigned, Jose Alano and Florencio Alano (on our own behalf), and Anastasio Alano (on behalf of his children Leonila, Anastasio and Leocadio), the former and the latter testamentary heirs of the Rev. Anastasio C. Cruz, deceased, hereby solemnly promise under oath: 1. We will pay to Da. Marcela Mario within one year from this date together with interest thereon at the rate of 12 per cent per annum, the sum of P2,730.50, Philippine currency, this being the present amount of indebtedness incurred in favor of that lady on the 20th of April 1897, by our testator, the Rev. Anastasio C. Cruz; 2. To secure the payment of this debt we mortgage to the said Da. Marcela Mario the house and lot bequeathed to us by the deceased, situated in this town, on calle Evangelista, formerly Asturias, recorded in the register of deeds on the twenty-second of April, 1895, under number 730; 3. In case of insolvency on our part, we cede by virtue of these presents the said house and lot to Da. Marcela Mario, transferring to her all our rights to the ownership and possession of the lot; and if the said property upon appraisal at the time of the maturity of this obligation should not be of sufficient value to cover the total amount of this indebtedness, I, Anastasio Alano, also mortgage to the said lady my four parcels of land situated in the barrio of San Isidro, to secure the balance, if any; the title deeds of said property, as well as the title deeds of the said house and lot are this day delivered to Sr. Vicente Ilustre, general attorney-in-fact of Da. Marcela Mario. In witness whereof we have signed these presents in Batangas, this twenty-seventh day of February, 1904.
(Sgd.) JOSE ALANO. (Sgd.) ANASTASIO ALANO. (Sgd.) FLORENCIO ALANO.

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No part of the interest or of the principal due upon this undertaking has been paid, except the sum of P200 paid in the year 1908 by the late Anastasio Alano. In 1912, Anastasio Alano died intestate. At the instance of one of his creditors, proceedings upon the administration of his estate were had in the Court of First Instance of Batangas. By order dated August 8, 1914, the court appointed an administrator and a committee to hear claims. Notices were published, as required, in a newspaper of general circulation, to inform the creditors of the time and place at which they might appear to present their claims against the estate of the deceased (Exhibit No. 1). The time designated in the notice for the presentation of claims expired on March 24, 1915. It appears that no claims whatever were presented to the committee, and it having been shown to the court, by the statement of the administrator, that the claim of the creditor at whose instance the administration proceeding was commenced, had been settled by the heirs, the administrator was discharged and the proceeding terminated by order dated November 8, 1915. On April 27, 1916, at the instance of the plaintiff, Da. Marcela Mario, and upon the statement, made on her behalf, that she was a creditor of the deceased and that her claim was secured by mortgage upon real estate belonging to the said deceased, the court reopened the intestate proceeding, and appointed one Javier to be administrator of the estate. No request was made for a renewal of the commission of the committee on claims. The appellants Jose and Florencio Alano objected to the appointment of Javier, but their objection was overruled by the court. On March 17, 1916, the plaintiffs filed the complaint in this action against Javier, as administrator of the estate of Anastasio Alano and against Florencio Alano and Jose Alano personally. The action is based upon the execution of the document of February 27, 1904, above set forth, which is transcribed literally in the complaint. It is averred that defendants have paid no part of the indebtedness therein acknowledged, with the exception of the P200 paid on account in 1908. It is further averred that on April 22, 1910, the debtors promised in writing that they would pay the debt in 1911, but that they had failed to do so. The prayer of the complaint is that, unless defendants pay the debt for the recovery of which the action was brought, they be required to convey to plaintiffs the house and lot described in paragraph two of the said document; that this property be appraised; and that if its value is found to be less than the amount of the debt, with the accrued interest at the stipulated rate, judgment be rendered in favor of the plaintiffs for the balance. No relief is requested with respect to the undertaking of Anastasio Alano expressed in the third paragraph of the document in suit, as guarantor for the payment of the difference, if any, between the value of the said house and lot and the total amount of the indebtedness. The defendants answered denying generally the facts alleged in the complaint, and setting up, as special defenses that (1) any cause of action which plaintiff might have had against the estate of Anastasio Alano has been barred by failure of the plaintiff to present her claim to the committee on claims for allowance; (2) that the document upon which plaintiff relies does not constitute a valid mortgage; and (3) that as to all of the defendants, the action is barred by the general statute of limitations.

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The findings of the trial court upon the evidence were substantially as follows: 1. That the document set forth in paragraph two of plaintiffs' complaint was executed by the deceased, Anastasio Alano, and by the defendants Javier and Jose Alano, as alleged; 2. That one year after the execution of the document, plaintiffs made a demand upon Anastasio Alano, deceased, and the other two defendants herein, to comply with the terms of the agreement by the execution of the conveyance of the house and lot, but that they requested an extension of time for the payment of the debt, which was granted them; 3. That on March 27, 1908, the defendants paid P200 on account of the debt. Upon these findings the court below gave judgment for plaintiffs, and from that judgment the defendants have appealed to his court upon the law and the facts. The question raised by the appellants require us to analyze the document upon which this action is based, and to determine its legal effect. Appellants contend that the contract evidenced by that instrument is merely a loan coupled with an ineffectual attempt to create a mortgage to effect the payment of debt. The court below regarded it as a conveyance of the house and lot described in the contract, which took effect upon the failure of the debtors to pay the debt. The principal undertaking evidenced by the document is, obviously, the payment of money. The attempt to create a mortgage upon the house and lot described in the second clause of the contract is, of course, invalid, as it is admitted that the so-called mortgage was never recorded. Equally inefficacious, and for the same reasons, is the purported mortgage by Anastasio Alano of his land in the barrio of San Isidro described in the third paragraph of the document. (Compaia General de Tabacos vs. Jeanjaquet, 12 Phil. Rep., 195.) The agreement to convey the house and lot at an appraised valuation in the event of failure to pay the debt in money a t its maturity is, however, in our opinion, perfectly valid. It is simply an undertaking that if the debt is not paid in money, it will be paid in another way. As we read the contract, the agreement is not open to the objection that the stipulation is a pacto comisorio. It is not an attempt to permit the creditor to declare a forfeiture of the security upon the failure of the debtor to pay the debt at maturity. It is simply provided that if the debt is not paid in money it shall be paid in another specific was by the transfer of property at a valuation. Of course, such an agreement, unrecorded, creates no right in rem; but as between the parties it is perfectly valid, and specific performance of its terms may be enforced, unless prevented by the creation of superior rights in favor of third persons. The contract now under consideration is not susceptible of the interpretation that the title to the house and lot in question was to be transferred to the creditor ipso facto upon the mere failure of the debtors to pay the debt at its maturity. The obligations assumed by the debtors were alternative, and they had the right to elect which they would perform (Civil Code, art. 1132). The conduct of the parties (Civil Code, art. 1782) shows that it was not their understanding that the right to discharge the obligation by the payment of money was lost to the debtors by their failure to pay the debt at its maturity. The plaintiff accepted a partial payment from Anastasio Alano in

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1908, several years after the debt matured. The prayer of the complaint is that the defendants be required to execute a conveyance of the house and lot, after its appraisal, "unless the defendants pay the plaintiff the debt which is the subject of this action." It is quite clear, therefore, that under the terms of the contract, as we read it, and as the parties themselves have interpreted it, the liability of the defendants as to the conveyance of the house and lot is subsidiary and conditional, being dependent upon their failure to pay the debt in money. It must follow, therefore, that if the action to recover the debt has prescribed, the action to compel a conveyance of the house and lot is likewise barred, as the agreement to make such conveyance was not an independent principal undertaking, but merely a subsidiary alternative pact relating to the method by which the debt might be paid. The undertaking to pay the debt, acknowledged by the contract in suit, is indisputably conjoint (mancomunada). The concurrence of two or more debtors does not in itself create a solidary liability. Obligations in solido arise only when it is expressly stipulated that they shall have this character (Civil Code, art. 1137). That being so, the debt must be regarded as divided into as many equal parts as there are debtors, each part constituting a debt distinct from the others. (Civil Code, art. 1138.) The result of this principle is that the extinction of the debt of one of the various debtors does not necessarily affect the debts of the others. It is contended on behalf of the administrator of the estate of Anastasio Alano that the failure of the plaintiff to present her claim for allowance to the committee on claims is a bar to her action so far as this defendant is concerned. We are of the opinion that this objection is well-taken. Section 695 of the Code of Civil Procedure expressly requires that a claim of this kind be presented for allowance to the committee, and declares that the failure to do so operates to extinguish the claim. The operation of this statute and the absolute nature of the bar which it interposes against the subsequent assertion of claims not presented in accordance with its requirements have frequently been considered by this court, and the doctrines announced need not be here repeated. (Estate of De Dios, 24 Phil. Rep., 573; Santos vs. Manarang, 27 Phil. Rep., 209). While it is true that under certain circumstances and within the statutory limits (sec. 690 of the Code of Civil Procedure) the probate court may renew the commission of the committee on claims, and permit the presentation of belated demands, in no case may a claim proper to be allowed by the committee, such as is the one now under consideration, be enforced by an original action against the executor or administrator of the state. Our opinion is, therefore, that the objection to the action interposed on behalf of the administrator of the estate of Anastasio Alano was well-taken and that the court erred in rejecting it. This conclusion makes it unnecessary to consider the effect of the payment made by Anastasio Alano in 1908 as regards the interruption of the period of prescription with respect to him. In this connection, however, we feel constrained to remark that a careful reading of the document makes it extremely doubtful whether Anastasio Alano was ever personally bound by its terms. It will be noted that he purports to have signed it only as the representative of his children, Leonina, Anastasio, and Leocadio, who are not parties to this suit. With respect to the defendants Florencio and Jose Alano, their original liability admits of no dispute and the only question open for consideration is that presented by their plea of

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prescription. The debt matured February 27, 1905, and as the complaint was not filed within ten years from that date (Code of Civil Procedure, sec. 43), it is obvious that the plea of prescription is well-taken, unless the running of the statute was interrupted. While it appears that some verbal and written demands for payment were made upon these defendants, it has been recently decided, upon mature consideration, that an extrajudicial demand is not sufficient, under the law as it now stands, to stop the running of the statute. (Pelaez vs. Abreu, 26 Phil. Rep., 415). There must be either (1) a partial payment, (2) a written acknowledgment or (3) a written promise to pay the debt. It is not contended that there has been any written acknowledgment or promise on the part of the defendants Jose and Florencio Alano, or either of them plaintiff relies solely upon the payment made in 1908 by Anastasio Alano. But there is not the slightest foundation in the evidence for the belief that the payment made by Anastasio was for the benefit of Jose or Florencio or that it was authorized by either of them. Bearing in mind the express declaration of article 1138 of the Civil Code that joint (mancomunada) obligations are, as regard each of the debtors, to be reputed as separate debts with respect to each of the debtors, it follows of necessity that a payment or acknowledgment by one of such joint debtors will not stop the running of the period of prescription as to the others. That such is the law may be demonstrated by ample authority. In his commentaries on article 1138 and 1139 of the Civil Code, Manresa says that one of the effects of the rule established by the code that the debt is to be regarded as "divided into as many parts . . . as there are debtors" is that "the interruption of prescription by the claim of a creditor addressed to a single debtor or by an acknowledgment made by one of the debtors in favor of one or more of the creditors is not to be understood as prejudicial to or in favor of the other debtors or creditors." (Manresa, Commentaries on the Civil Code, vol. 8, p. 182.) The same doctrine is recognized in the Italian Civil Law, as stated by Giorgi in his work on Obligations as follows: The obligation appears to be one, when as a matter of fact it is an aggregate of as many separate and independent obligations as there are creditors and debtors. Each creditor cannot demand more than his part; each debtor cannot be required to pay more than his share. Prescription, novation, merger, and any other cause of modification or extinction does not extinguish or modify the obligation except with respect to the creditor or debtor affected, without extending its operation to any other part of the debt or of the credit. The obligation is, in a word, pro rata, or in partes viriles. (Giorgi on Obligations, vol. 1, p. 83, Spanish translation.) The same view is taken by the French law writers. In the article on obligations in Dalloz' Encyclopedia (Jurisprudence Generale) vol. 33, p. 297, the author says: The conjoint (pro rata) obligation is divided by operation of law among the non-solidary co-debtors. It is as though there were many debts as there are persons bound. Hence it follows that if one of the debtors is insolvent the loss falls upon the creditor and not upon the other debtors, and that if prescription is interrupted with respect to one of the debtors, it is not interrupted with respect to the others.

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In the State of Louisiana, whose Civil Code, like ours, is largely taken from the Code of Napoleon, the Supreme Court has established the same doctrine on the subject of the interruption of prescription. In the case of Buard vs. Lemee, Syndic (12 Robinson's Reports, 243), the Supreme Court of Louisiana said: It results . . . that when the acknowledgment of a debt is made by a joint debtor, such acknowledgment does not interrupt the prescription with regard to the others. Each is bound for his virile share of the debt; and, therefore, each is at liberty to act for himself, and the effect of his acts cannot be extended to the benefit or prejudice of his co-debtors; so true is this that the law has never intended that a suit brought against one of the several debtors should interrupt prescription with regard to all, unless they be debtors in solido. This doctrine was recognized and applied by the Supreme Court of Louisiana in the subsequent cases of Succession of Cornelius Voorhies (21 La. Ann., 659) and Smith vs. Coon (22 La. Ann., 445). There is no presumption that one conjoint ( pro-rata) debtor is authorized to perform any act having the effect of stopping the running of the statute of limitations as to the others. When the act relied upon is performed by some person other than the debtor, the burden rests upon the plaintiff to show that it was expressly authorized. (17 R.C.L., 911 and the cases there cited.) In this case there is no such evidence. The statement in the letter of Da. Maria Lontok, to whom the P200 payment was made, is that it was a payment made on account of "the debt of Anastasio Alano." (Plaintiffs' Exhibit D.) Da. Maria Lontok in her testimony does not attempt to say that the payment was made for the account of any one but Anastasio Alano, from whom she received it. The statement that Florencio Alano was with Anastasio at the time is not in itself sufficient to constitute proof that the payment was made for his benefit. (Lichauco vs. Limjuco and Gonzalo, 19 Phil. Rep., 12.) Plaintiff argues that the undertaking to convey the house and lot constitutes an indivisible obligation, and that even where the promise is not in solidum, the concurrence of two or more debtors in an obligation whose performance is indivisible creates such a relation between them that the interruption of prescription as to one of necessity interrupts it as to all. The distinction is one which is well-established, although the authorities cited do not fully support plaintiffs' contentions, but in this particular case the question is academic, for the undertaking is in the alternative to pay a sum of money an essentially divisible obligation or to convey the house. As the alternative indivisible obligation is imposed only in the event that the debtors fail to pay the money, it is subject to a suspensive condition, and the prescription of the obligation whose non-performance constitutes the condition effectively prevents the condition from taking place. We are, therefore, constrained to hold with defendants and to reverse the decision of the lower court. We do this most regretfully, as the evidence in this case shows that plaintiff has been extremely lenient with defendants and has refrained from pressing her claim against them when it fell due, and for a long period of years thereafter, purely out of consideration for them. The

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defense of prescription interposed, particularly as regards Jose and Florencio Alano, is an indefensible from the standpoint of fair dealing and honesty as it is unassailable from the standpoint of legal technicality. However, the law, as we see it, is clear and it is our duty to enforce it. The judgment of the lower court is reversed and the action is dismissed as to all the defendants. No costs will be allowed. So ordered. Torres, Johnson, Street and Avancea, JJ., concur. Malcolm, J., dissents.

RESOLUTION September 20, 1918. FISHER, J.: Plaintiff seeks a consideration of the decision of this court rendered herein. With respect to plaintiff's contention concerning the action against the estate of Anastasio Alano, we have nothing to add to what was said in the former decision. As regards the defendants, Florencio Alano and Jose Alano, the principal argument advanced by plaintiff is that those defendants, as testamentary heirs of the late Anastasio C. Cruz, are liable, in solidum, for the debt in suit, which is evidenced by the document signed by these defendants on February 27, 1904, set forth at length in our decision. Plaintiff argues that he obligation being solidary, by reason of its hereditary origin (Fabie vs. Yulo, 24 Phil. Rep., 240) the running of the statute of limitations was interrupted with respect to all the debtors, by the payment of P200 made by the late Anastasio Alano in 1908. The whole argument rests upon article 1084 of the Civil Code and the statement contained in the document of February 27, 1904, that the Alano brothers are the "testamentary heirs" of the original debtor, and the assumption that the latter died, and that his inheritance was accepted, before the present Code of Civil Procedure was enacted. There is nothing in the record to indicate, even remotely, when the Reverend Cruz died. If he died after the new Code took effect, the acceptance of his inheritance did not impose upon his testamentary heirs any personal obligation to respond to the payment of the debts of the deceased. (Pavia vs. De la Rosa, 8 Phil. Rep., 70.) There having been neither allegation nor proof with respect to the date of the death of the original debtor, we cannot presume, to the prejudice of the defendants, that he died and that his succession was opened under the old regime. But even had it been proved that the late Reverend Cruz died before Act No. 190 took effect, and that the debt, by reason of its hereditary origin, imposed upon the five Alano brothers the solidary obligation of paying it, as the evidence does not show that the payment made by Anastasio Alano in 1908 was authorized by any one of the solidary debtors, it cannot have the effect of interrupting the prescription. It must be kept in mind that Anastasio Alano was in no sense a solidary debtor of the plaintiff, either with respect to the origin of the obligation or by his

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participation in the execution of the document by which the indebtedness was acknowledged. it is unquestionable that payment made by any one of the several solidary debtors interrupts the running of the statute of limitations with respect to the others, and that a third person may make a payment without the knowledge and even against the will of the debtor, but payments so made by a stranger to the debt do not interrupt the operation of the statute of limitations. The general rule is that an acknowledgment or new promise to pay must, in order to take a case out of the statute, be made by the person to be charged or by some person legally authorized by him so to act. (17 Ruling Case Law, p. 911.) In the case of a part payment by a stranger, or by a person not authorized to represent the debtor, it is obvious that there is no ground for assuming any admission of an existing liability on his part or for inferring a new promise by him to pay the balance of the debt. (17 Ruling Case Law, p. 935.) Furthermore, it is to be observed that in accordance with the express terms of article 50 of the Code of Civil Procedure, payment in order to have the effect of interrupting the running of the statute, must be made by the person to be charged. Independently of these considerations, it is obvious that this action was not brought as though based upon an obligation which had accrued under the provisions of the Civil Code, formerly in force, relating to the acceptance of an estate without benefit of inventory. The action has been brought solely and exclusively for the enforcement of the obligation created by the execution of the document of credit of 1904. This is the reason, no doubt, why plaintiff made no effort to prove the date of the death of Reverend Cruz; whether his heirs accepted the inheritance with or without the benefit of inventory; if they were all adults at the time of the death of the testator; whether they inherited in equal parts or in some proportion. It is natural that she should have made no effort to produce evidence upon these points, as there is nothing in the allegations of the complaint to support its admission. If the defendants had replied admitting the facts alleged, it is evident that it would have been necessary to decide the case in accordance with the law in force in 1904, considering the execution of the document in question as the act from which the obligation in suit originated, although it appears from the document that the consideration for its execution was the debt of a third person. When the plaintiff deliberately adopts a certain theory with respect to the basis of his right of action, and the case is tried and decided in the court below and in this court upon that theory, plaintiff will not be permitted to change the theory of his action upon a motion for rehearing. (Molina vs. Somes, 24 Phil. Rep., 49.) To do so would be to deprive the defendant of an opportunity to defend. The defendant naturally produces evidence relating to the evidence offered on behalf of plaintiff. If the issue of the liability of Florencio and Jose Alano upon the theory now advanced by plaintiff had been presented in the court below, it is possible that these defendants might have been able to prove that their testator died after the enactment of the new code or, if he died before, that they were minors at that time; that the inheritance was accepted by their guardian without the intervention of the family council (Civil Code, art. 992), or that it was expressly accepted with benefit of inventory, and that the value of the property inherited is less than the amount of the debt (Civil Code, art. 1023), or that the effect of the execution of the

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document of 1904 was a novation of the obligation by which the latter was converted into a simple joint indebtedness. The defendants Florencio and Jose Alano having had no opportunity to invoke any of these defenses, which might have been available to them, it would be unjust to give judgment against them upon the theory of their obligation now invoked by plaintiff. The motion for a rehearing is denied. Torres, Johnson, Street, and Avancea, JJ., concur. Malcolm, J., dissents.

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11. G.R. No. L-22738

December 2, 1924

ONG GUAN CAN and THE BANK OF THE PHILIPPINE ISLANDS, plaintiffs-appellees, vs. THE CENTURY INSURANCE CO., LTD., defendant-appellant. Eiguren & Razon for appellant. Aurelio Montinola and Jose M. Hontiverso for appellees.

VILLAMOR, J.: On April 19, 1924, the Court of First Instance of Iloilo rendered a judgment in favor of the plaintiff, sentencing the defendant company to pay him the sum of P45,000, the value of certain policies of fire insurance, with legal interest thereon from February 28, 1923, until payment, with the costs. The defendant company appealed from this judgment, and now insists that the same must be modified and that it must be permitted to rebuild the house burnt, subject to the alignment of the street where the building was erected, and that the appellant be relieved from the payment of the sum in which said building was insured. A building of the plaintiff was insured against fire by the defendant in the sum of P30,000, as well as the goods and merchandise therein contained in the sum of P15,000. The house and merchandise insured were burnt early in the morning of February 28, 1923, while the policies issued by the defendant in favor of the plaintiff were in force. The appellant contends that under clause 14 of the conditions of the policies, it may rebuild the house burnt, and although the house may be smaller, yet it would be sufficient indemnity to the insured for the actual loss suffered by him. The clause cites by the appellant is as follows:lawphi1.net The Company may at its option reinstate or replace the property damaged or destroyed, or any part thereof, instead of paying the amount of the loss of damages, or may join with any other Company or insurers in so doing, but the Company shall not be bound to reinstate exactly or completely, but only as circumstances permit and in reasonable sufficient manner, and in no case shall the Company be bound to expend more in reinstatement that it would have cost to reinstate such property as it was at the time of the occurrence of such loss or damage, nor more than the sum insured by the Company thereon. If this clause of the policies is valid, its effect is to make the obligation of the insurance company an alternative one, that is to say, that it may either pay the insured value of house, or rebuild it. It must be noted that in alternative obligations, the debtor, the insurance company in this case, must notify the creditor of his election, stating which of the two prestations he is disposed to fulfill, in accordance with article 1133 of the Civil Code. The object of this notice is to give the creditor,

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that is, the plaintiff in the instant case, opportunity to express his consent, or to impugn the election made by the debtor, and only after said notice shall the election take legal effect when consented by the creditor, or if impugned by the latter, when declared proper by a competent court. In the instance case, the record shows that the appellant company did not give a formal notice of its election to rebuild, and while the witnesses, Cedrun and Cacho, speak of the proposed reconstruction of the house destroyed, yet the plaintiff did not give his assent to the proposition, for the reason that the new house would be smaller and of materials of lower kind than those employed in the construction of the house destroyed. Upon this point the trial judge very aptly says in his decision: "It would be an imposition unequitable, as well as unjust, to compel the plaintiff to accept the rebuilding of a smaller house than the one burnt, with a lower kind of materials than those of said house, without offering him an additional indemnity for the difference in size between the two house, which circumstances were taken into account when the insurance applied for by the plaintiff was accepted by the defendant." And we may add: Without tendering either the insured value of the merchandise contained in the house destroyed, which amounts to the sum of P15,000.itc@alf We find in the record nothing to justify the reversal of the finding of the trial judge, holding that the election alleged by the appellant to rebuild the house burnt instead of paying the value of the insurance is improper. To our mind, the judgment appealed from is in accordance with the merits of the case and the law, and must be, as is hereby, affirmed with the cost against the appellant. So ordered. Johnson, Street, Malcolm, Avancea, Ostrand, Johns and Romualdez, JJ., concur.

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12. G.R. No. L-6648

July 25, 1955

VICTORIAS PLANTERS ASSOCIATION, INC., NORTH NEGROS PLANTERS ASSOCIATION, INC., FERNANDO GONZAGA, JOSE GASTON and CESAR L. LOPEZ, on their own behalf and on behalf of other sugar cane planters in Manapla, Cadiz and Victorias Districts, petitioners-appellees, vs. VICTORIAS MILLING CO., INC., respondent-appellant. Ross, Selph, Carrascoso and Janda for appellant. Taada, Pelaez and Teehankee for appellees. PADILLA, J.: This is an action for declaratory judgment under Rule 66. The relief prayed for calls for an interpretation of contracts entered into by and between the sugar cane planters in the districts of Manapla, Cadiz and Victorias, Occidental Negros, and the Victorias Milling Company, Inc. After issues had been joined the parties submitted the case for judgment upon the testimony of Jesus Jose Ossorio and the following stipulation of facts: 1. That petitioners Victorias Planters Association, Inc. and North Negros Planters Association, Inc. are non-stock corporations duly established and existing under and by virtue of the laws of the Philippines, with main offices at Victorias, Negros Occidental, and Manapla, Negros Occidental, respectively, and were organized by, and are composed of, sugar cane planters in the districts of Victorias, Manapla and Cadiz, respectively, having been established principally as the representative entities of the numerous sugar cane planters in said districts whose sugar cane productions are milled by the respondent corporation, with the main object of safeguarding their interests and of taking up with the latter problems and questions which from time to time, may come up between the said respondent corporation the said sugar cane planters; the other petitioners are Filipinos, of legal age, and together with numerous other sugar cane planters who own sugar cane producing properties at Victorias, Manapla, and Cadiz Districts, Negros Occidental, are bona fide officials and members of either one of the two petitioner associations; that petitioner Fernando Gonzaga is a resident of Victorias, Negros Occidental, petitioner Jose Gaston is a resident of Victorias, Negros Occidental, and petitioner Cesar L. Lopez is a resident of Bacolod City, Negros Occidental; and that said petitioners bring this action for the benefit and on behalf of all their fellow sugar cane planters, owners of sugar cane producing lands in the said districts of Victorias, Manapla, and Cadiz, whose sugar cane productions are milled by respondent corporation, and who are so numerous that it would be impractical to include them all as parties herein; 2. That respondent Victorias Milling Co., Inc. is a corporation likewise duly organized and established under and by virtue of the laws of the Philippines, with main offices at Ayala Building Manila, where it may be served with summons;

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3. That at various dates, from the year 1917 to 1934, the sugar cane planters pertaining to the districts of Manapla and Cadiz, Negros Occidental, executed identical milling contracts, setting forth the terms and conditions under which the sugar central "North Negros Sugar Co. Inc." would mill the sugar produced by the sugar cane planters of the Manapla and Cadiz districts; A copy of the standard form of said milling contracts with North Negros Sugar Co., Inc. is hereto attached and made an integral part hereof as Annex "A. As may be seen from the said standard form of milling contract, Annex "A," the sugar cane planters of Manapla and Cadiz, Negros Occidental had executed on November 17, 1916 with Miguel J. Ossorio, a contract entitled "Contrato de la Central Azucarrera de 300 Toneladas," whereby said Miguel J. Ossorio was given a period up to December 31, 1916 within which to make a study of and decide whether he would construct a sugar central or mill with a capacity of milling 300 tons of sugar cane every 24 hours and setting forth the mutual obligations and undertakings of such central and the planters and the terms and conditions under which the sugar cane produced by said sugar can planters would be milled in the event of the construction of such sugar central by said Miguel J. Ossorio. Such central was in fact constructed by said Miguel J. Ossorio in Manapla, Negros Occidental, through the North Negros Sugar Co., Inc., where after the standard form of milling contracts (Annex "A") were executed, as above stated. The parties cannot stipulate as to the milling contracts executed by the planters by Victorias, Negros Occidental, other than as follows; a number of them executed such milling contracts with the North Negros Sugar Co., Inc., as per the standard forms hereto attached and made an integral part as Annexes "B" and "B-1," while a number of them executed milling contracts with the Victorias Milling Co., Inc., which was likewise organized by Miguel J. Ossorio and which had constructed another Central at Victorias, Negros Occidental, as per the standard form hereto attached and made an integral part hereof as Annex "C". 4. The North Negros Sugar Co., Inc. had its first molienda or milling during the 19181919 crop year, and the Victorias Milling Co., had its first molienda or milling during the 1921-1922 crop year. Subsequent moliendas or millings took place every successive crop year thereafter, except the 6-year period, comprising 4 years of the last World War II and 2 years of postwar reconstruction of respondent's central at Victorias, Negros Occidental. 5. That after the liberation, the North Negros Sugar Co., Inc. did not reconstruct its destroyed central at Manapla, Negros Occidental, and in 1946, it advised the North Negros Planters Association, Inc. that it had made arrangements with the respondent Victorias Milling Co., Inc. for said respondent corporation to mill the sugar cane produced by the planters of Manapla and Cadiz holding milling contracts with it. Thus, after the war, all the sugar cane produced by the planters of petitioner associations, in

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Manapla, Cadiz, as well as in Victorias, who held milling contracts, were milled in only one central, that of the respondent corporation at Victorias; 6. Beginning with the year 1948, and in the following years, when the planters-members of the North Negros Planters Association, Inc. considered that the stipulated 30-year period of their milling contracts executed in the year 1918 had already expired and terminated in the crop year 1947-1948, and the planters-members of the Victorias Planters Association, Inc. likewise considered the stipulated 30-year period of their milling contracts, as having likewise expired and terminated in the crop year 1948-1949, under the pertinent provisions of the standard milling contract (Annex "A") on the duration thereof, which provided in Par. 21 thereof as follows: (a) Que entregaran a la Central de la `North Negros Sugar Co., Inc.' o a la que se construya en Victorias por Don Miguel J. Ossorio o sus cesionarios por espacio de treinta (30) aos desde la primera molienda, la caa que produzcan sus respectivas haciendas, obligandose ademas a sembrar anualmente con caadulce por lo menos en tres quintas partes de su extension total apropiado para caa, incluyendo en esta denominacion tanto la siembra con puntas nuevas como el cultivo del retoo o cala-anan y sujetando la siembra a las epocas convenientes designadas por el comite de hacenderos a fin de poder proporcionar caa a la Central de conformidad con las clausulas 17 y 18 de esta escritura. xxx xxx xxx

(i) Los hacenderos' imponen sobre sus haciendas mencionadas y citadas en esta escritura servidumbres voluntarias a favor de Don Miguel J. Ossorio de sembrar caa por lo menos en tres quintas partes (3/5) de su extension superficial y entregar la caa que produzcan a Don Miguel J. Ossorio, de acuerdo con este contrato, por espacio de treinta (30) aos, a contar un (1) ao desde la fecha de la primera molienda. repeated representation were made with respondent corporation for negotiations regarding the execution of new milling contracts which would take into consideration the charged circumstances presently prevailing in the sugar industry as compared with those prevailing over 30 years ago and would provide for an increased participation in the milled sugar for the benefit of the planters and their workers. 7. That notwithstanding these repeated representations made by the herein petitioners with the respondent corporation for the negotiation and execution of new milling contracts, the herein respondent has refused and still refuses to accede to the same, contending that under the provisions of the mining contract (Annex "A".) "It is the view of the majority of the stockholder-investors, that our contracts with the planters call for 30 years of milling not 30 years in time" and that "as there was no milling during 4 years of the recent war and two years of reconstruction, when these six years are added on to the earliest of our contracts in Manapla, the contracts by this view terminate in the autumn of 1952," and the "the contracts for the Victorias Planters would terminate in 1957, and still later for those in the Cadiz districts," and that "apart from the contractual agreements, the Company believes these war and reconstruction years accrue to it in equity.

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The trial court rendered judgment the dispositive part of which is Wherefore, the Court renders judgment in favor of the petitioners and against the respondent and declares that the milling contracts executed between the sugar cane planters of Victorias, Manapla and Cadiz, Negros Occidental, and the respondent corporation or its predecessors-in-interest, the North Negros Sugar Co., Inc., expired and terminated upon the lapse of the therein stipulated 30-year period, and that respondent corporation is not entitled to claim any extension of or addition to the said 30-year term or period of said milling contracts by virtue of an equivalent to 6 years of the last war and reconstruction of its central, during which there was no planting and/or milling. From this judgment the respondent corporation has appealed. The appellant contends that the term stipulated in the contracts is thirty milling years and not thirty calendar years and postulates that the planters fulfill their obligation the six installments of their indebtedness--which they failed to perform during the six milling years from 1941-42 to 1946-47. The reason the planters failed to deliver the sugar cane was the war or a fortuitious event. The appellant ceased to run its mill due to the same cause. Fortuitious event relieves the obligor from fulfilling a contractual obligation.1 The fact that the contracts make reference to "first milling" does not make the period of thirty years one of thirty milling years. The term "first milling" used in the contracts under consideration was for the purpose of reckoning the thirty-year period stipulated therein. Even if the thirty-year period provided for in the contracts be construed as milling years, the deduction or extension of six years would not be justified. At most on the last year of the thirty-year period stipulated in the contracts the delivery of sugar cane could be extended up to a time when all the amount of sugar cane raised and harvested should have been delivered to the appellant's mill as agreed upon. The seventh paragraph of Annex "C", not found in the earlier contracts (Annexes "A", "B", and "B1"), quoted by the appellant in its brief, where the parties stipulated that in the event of flood, typhoon, earthquake, or other force majeure, war, insurrection, civil commotion, organized strike, etc., the contract shall be deemed suspended during said period, does not mean that the happening of any of those events stops the running of the period agreed upon. It only relieves the parties from the fulfillment of their respective obligations during that time the planters from delivering sugar cane and the central from milling it. In order that the central, the herein appellant, may be entitled to demand from the other parties the fulfillment of their part in the contracts, the latter must have been able to perform it but failed or refused to do so and not when they were prevented by force majeure such as war. To require the planters to deliver the sugar cane which they failed to deliver during the four years of the Japanese occupation and the two years after liberation when the mill was being rebuilt is to demand from the obligors the fulfillment of an obligation which was impossible of performance at the time it became due. Nemo tenetur ad impossibilia. The obligee not being entitled to demand from the obligors the performance of the latters' part of the contracts under those circumstances cannot later on demand its fulfillment. The performance of what the law has written off cannot be demanded and required. The prayer that the plaintiffs be compelled to deliver sugar cane to the appellant for six more years to make up for what they failed to deliver during those trying years, the fulfillment of

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which was impossible, if granted, would in effect be an extension of the term of the contracts entered into by and between the parties. In accord with the rule laid down in the case of Lacson vs. Diaz, 47 Off. Gaz., Supp. No. 12, p. 337, where despite the fact that the lease contract stipulated seven sugar crops and not seven crop years as the term thereof, we held that such stipulation contemplated seven consecutive agricultural years and affirmed the judgment which declared that the leasee was not entitled to an extension of the term of the lease for the number of years the country was occupied by the Japanese Army during which no sugar cane was planted2 we are of the opinion and so hold that the thirty-year period stipulated in the contracts expired on the thirtieth agricultural year. The period of six years four during the Japanese occupation when the appellant did not operate its mill and the last two during which the appellant reconstructed its mill cannot be deducted from the thirty-year period stipulated in the contracts. The judgment appealed from is affirmed, with costs against the appellant. Bengzon, Acting C. J., Montemayor, Reyes, A., Jugo, Bautista Angelo, Labrador, Concepcion, and Reyes, J. B. L., JJ., concur.

Footnotes
1

Article 1105, old Civil Code; article 1174, new Civil Code.

Cf. Lo Ching vs. Court of Appeals, 46 Off. Gaz., Supp. No. 1, p. 399, 81 Phil., 601 and American Far Eastern School of Aviation vs. Ayala y Cia., 89 Phil., 292.

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13. G.R. No. L-55480 June 30, 1987 PACIFICA MILLARE, petitioner, vs. HON. HAROLD M. HERNANDO, In his capacity as Presiding Judge, Court of Instance of Abra, Second Judicial District, Branch I, ANTONIO CO and ELSA CO, respondents.

FELICIANO, J.: On 17 June 1975, a five-year Contract of Lease 1 was executed between petitioner Pacifica Millare as lessor and private respondent Elsa Co, married to Antonio Co, as lessee. Under the written agreement, which was scheduled to expire on 31 May 1980, the lessor-petitioner agreed to rent out to thelessee at a monthly rate of P350.00 the "People's Restaurant", a commercial establishment located at the corner of McKinley and Pratt Streets in Bangued, Abra. The present dispute arose from events which transpired during the months of May and July in 1980. According to the Co spouses, sometime during the last week of May 1980, the lessor informed them that they could continue leasing the People's Restaurant so long as they were amenable to paying creased rentals of P1,200.00 a month. In response, a counteroffer of P700.00 a month was made by the Co spouses. At this point, the lessor allegedly stated that the amount of monthly rentals could be resolved at a later time since "the matter is simple among us", which alleged remark was supposedly taken by the spouses Co to mean that the Contract of Lease had been renewed, prompting them to continue occupying the subject premises and to forego their search for a substitute place to rent. 2 In contrast, the lessor flatly denied ever having considered, much less offered, a renewal of the Contract of Lease. The variance in versions notwithstanding, the record shows that on 22 July 1980, Mrs. Millare wrote the Co spouses requesting them to vacate the leased premises as she had no intention of renewing the Contract of Lease which had, in the meantime, already expirecl. 3 In reply, the Co spouses reiterated their unwillingness to pay the Pl,200.00 monthly rentals supposedly sought bv Mrs. Millare which they considered "highly excessive, oppressive and contrary to existing laws". They also signified their intention to deposit the amount of rentals in court, in view of Mrs. Millare's refusal to accept their counter-offer. 4 Another letter of demand from Mrs. Millare was received on 28 July 1980 by the Co spouses, who responded by depositing the rentals for June and July (at 700.00 a month) in court. On 30 August 1980, a Saturday, the Co spouses jumped the gun, as it were, and filed a Complaint 5 (docketed as Civil Case No. 1434) with the then Court of First Instance of Abra against Mrs. Millare and seeking judgment (a) ordering the renewal of the Contract of Lease at a rental rate of P700.00 a nionth and for a period of ten years, (b) ordering

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the defendant to collect the sum of P1,400.00 deposited by plaintiffs with the court, and (c) ordering the defendant to pay damages in the amount of P50,000.00. The following Monday, on 1 September 1980, Mrs. Millare filed an ejectment case against the Co spouses in the Municipal Court of Bangued, Abra, docketed as Civil Case No. 661. The spouses Co, defendants therein, sut)sequently set up lis pendens as a Civil Case No. 661. The spouses Co, defendants therein, subsequently set up lis pendens as a defense against the complaint for ejectment. Mrs. Millare, defendant in Civil Case No. 1434, countered with an Omnibus Motion to Dismiss 6 rounded on (a) lack of cause of action due to plaintiffs' failure to establish a valid renewal of the Contract of Lease, and (b) lack of jurisdiction by the trial court over the complaint for failure of plaintiffs to secure a certification from the Lupong Tagapayapa of the barangay wherein both disputants reside attesting that no amicable settlement between them had been reached despite efforts to arrive at one, as required by Section 6 of Presidential Decree No. 1508. The Co spouses opposed the motion to dismiss. 7 In an Order dated 15 October 1980, respondent judge denied the motion to dismiss and ordered the renewal of the Contract of Lease. Furthermore plaintiffs were allowed to deposit all accruing monthly rentals in court, while defendant Millare was directed to submit her answer to the complaint. 8 A motion for reconsideration 9 was subsequently filed which, however, was likewise denied. 10 Hence, on 13 November 1980, Mrs. Millare filed the instant Petition for Certiorari, Prohibition and Mandamus, seeking injunctive relief from the abovementioned orders. This Court issued a temporary restraining order on 21 November 1980 enjoining respondent, judge from conducting further proceedings in Civil Case No. 1434. 11 Apparently, before the temporary restraining order could be served on the respondent judge, he rendered a "Judgment by Default" dated 26 November 1980 ordering the renewal of the lease contract for a term of 5 years counted from the expiration date of the original lease contract, and fixing monthly rentals thereunder at P700.00 a month, payable in arrears. On18 March 1981, this Court gave due course to the Petition for Certiorari, Prohibition and Mandamus. 12 Two issues are presented for resolution: (1) whether or not the trial court acquired jurisdiction over Civil Case No. 1434; and (2) whether or not private respondents have a valid cause of action against petitioner. Turning to the first issue, petitioner's attack on the jurisdiction of the trial court must fail, though for reasons different from those cited by the respondent judge. 13 We would note firstly that the conciliation procedure required under P.D. 1508 is not a jurisdictional requirement in the sense that failure to have prior recourse to such procedure would not deprive a court of its jurisdiction either over the subject matter or over the person of the defendant.14 Secondly, the acord shows that two complaints were submitted to the barangay authorities for conciliation one by petitioner for ejectment and the other by private respondents for renewal of the Contract of Lease. It appears further that both complaints were, in fact, heard by the Lupong Tagapayapa in the afternoon of 30 August 1980. After attempts at conciliation had proven fruitless, Certifications to File

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Action authorizing the parties to pursue their respective claims in court were then issued at 5:20 p.m. of that same aftemoon, as attested to by the Barangay Captain in a Certification presented in evidence by petitioner herself. 15 Petitioner would, nonetheless, assail the proceedings in the trial court on a technicaety, i.e., private respondents allegedly filed their complaint at 4:00 p.m. of 30 August 1980, or one hour and twenty minutes before the issuance of the requisite certification by the Lupng Tagapayapa. The defect in procedure admittedly initially present at that particular moment when private respondents first filed the complaint in the trial court, was cured by the subsequent issuance of the Certifications to File Action by the barangay Lupong Tagapayapa Such certifications in any event constituted substantial comphance with the requirement of P.D. 1508. We turn to the second issue, that is, whether or not the complaint in Civil Case No. 1434 filed by the respondent Co spouses claiming renewal of the contract of lease stated a valid cause of action. Paragraph 13 of the Contract of Lease reads as follows:
13. This contract of lease is subject to the laws and regulations ofthe goverrunent; and that this contract of lease may be renewed after a period of five (5) years under the terms and conditions as will be mutually agreed upon by the parties at the time of renewal; ... (Emphasis supplied.)

The respondent judge, in his Answer and Comment to the Petition, urges that under paragraph 13 quoted above.
there was already a consummated and finished mutual agreement of the parties to renew the contract of lease after five years; what is only left unsettled between the parties to the contract of lease is the amount of the monthly rental; the lessor insists Pl,200 a month, while the lessee is begging P700 a month which doubled the P350 monthly rental under the original contract .... In short, the lease contract has never expired because paragraph 13 thereof had expressly mandated that it is renewable. ... 16

In the "Judgment by Default" he rendered, the respondent Judge elaborated his views obviously highly emotional in character in the following extraordinary tatements:
However, it is now the negative posture of the defendant-lessor to block, reject and refuse to renew said lease contract. It is the defendant-lessor's assertion and position that she can at the mere click of her fingers, just throw-out the plaintiffs-lessees from the leased premises and any time after the original term of the lease contract had already expired; This negative position of the defendantlessor, to the mind of this Court does not conform to the principles and correct application of the philosophy underlying the law of lease; for indeed, the law of lease is impressed with public interest, social justice and equity; reason for which, this Court cannot sanction lot owner's business and commercial speculations by allowing them with "unbridled discretion" to raise rentals even to the extent of "extraordinary gargantuan proportions, and calculated to unreasonably and unjustly eject the helpless lessee because he cannot afford said inflated monthly rental and thereby said lessee is placed without any alternative, except to surrender and vacate the premises mediately,-" Many business establishments would be closed and the public would directly suffer the direct consequences; Nonetheless, this is not the correct concept or perspective the law of lease, that is, to place the lessee always at the mercy of the lessor's "Merchant of Venice" and to agit the latter's personal whims and caprices;

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the defendant-lessor's hostile attitude by imposing upon the lessee herein an "unreasonable and extraordinary gargantuan monthly rental of P1,200.00", to the mind of this Court, is "fly-by night unjust enrichment" at the expense of said lessees; but, no Man should unjustly enrich himself at the expense of another; under these facts and circumstances surrounding this case, the action therefore to renew the lease contract! is "tenable" because it falls squarely within the coverage and command of Articles 1197 and 1670 of the New Civil Code, to wit: xxx xxx xxx The term "to be renewed" as expressly stipulated by the herein parties in the original contract of lease means that the lease may be renewed for another term of five (5) years; its equivalent to a promise made by the lessor to the lessee, and as a unilateral stipulation, obliges the lessor to fulfill her promise; of course the lessor is free to comply and honor her commitment or back-out from her promise to renew the lease contract; but, once expressly stipulated, the lessor shall not be allowed to evade or violate the obligation to renew the lease because, certainly, the lessor may be held hable for damages caused to the lessee as a consequence of the unjustifiable termination of the lease or renewal of the same; In other words, the lessor is guilty of breach of contract: Since the original lease was fixed for five (5) years, it follows, therefore, that the lease contract is renewable for another five (5) years and the lessee is not required before hand to give express notice of this fact to the lessor because it was expressly stipulated in the original lease contract to be renewed; Wherefore, the bare refusal of the lessor to renew the lease contract unless the monthly rental is P1,200.00 is contrary to law, morals, good customs, public policy, justice and equity because no one should unjustly enrich herself at the expense of another. Article 1197 and 1670 of the New Civil Code must therefore govern the case at bar and whereby this Court is authorized to fix the period thereof by ordering the renewal of the lease contract to another fixed term of five (5) years. 17

Clearly, the respondent judge's grasp of both the law and the Enghsh language is tenuous at best. We are otherwise unable to comprehend how he arrived at the reading set forth above. Paragraph 13 of the Contract of Lease can only mean that the lessor and lessee may agree to renew the contract upon their reaching agreement on the terms and conditions to be embodied in such renewal contract. Failure to reach agreement on the terms and conditions of the renewal contract will of course prevent the contract from being renewed at all. In the instant case, the lessor and the lessee conspicuously failed to reach agreement both on the amount of the rental to be payable during the renewal term, and on the term of the renewed contract. The respondent judge cited Articles 1197 and 1670 of the Civil Code to sustain the "Judgment by Default" by which he ordered the renewal of the lease for another term of five years and fixed monthly rentals thereunder at P700.00 a month. Article 1197 of the Civil Code provides as follows:
If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends upon the will of the debtor.

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In every case, the courts shall determine such period as may, under the circumstances, have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. (Emphasis supplied.)

The first paragraph of Article 1197 is clearly inapplicable, since the Contract of Lease did in fact fix an original period of five years, which had expired. It is also clear from paragraph 13 of the Contract of Lease that the parties reserved to themselves the faculty of agreeing upon the period of the renewal contract. The second paragraph of Article 1197 is equally clearly inapplicable since the duration of the renewal period was not left to the wiu of the lessee alone, but rather to the will of both the lessor and the lessee. Most importantly, Article 1197 applies only where a contract of lease clearly exists. Here, the contract was not renewed at all, there was in fact no contract at all the period of which could have been fixed. Article 1670 of the Civil Code reads thus:
If at the end of the contract the lessee should continue enjoying the thing left for 15 days with the acquiescence of the lessor and unless a notice to the contrary by either party has previously been given. It is understood that there is an implied new lease, not for the period of the original contract but for the time established in Articles 1682 and 1687. The ther terms of the original contract shall be revived. (Emphasis suplied.)

The respondents themselves, public and private, do not pretend that the continued occupancy of the leased premises after 31 May 1980, the date of expiration of the contract, was with the acquiescence of the lessor. Even if it be assumed that tacite reconduccion had occurred, the implied new lease could not possibly have a period of five years, but rather would have been a month-to-month lease since the rentals (under the original contract) were payable on a monthly basis. At the latest, an implied new lease (had one arisen) would have expired as of the end of July 1980 in view of the written demands served by the petitioner upon the private respondents to vacate the previously leased premises. It follows that the respondent judge's decision requiring renewal of the lease has no basis in law or in fact. Save in the limited and exceptional situations envisaged inArticles ll97 and 1670 of the Civil Code, which do not obtain here, courts have no authority to prescribe the terms and conditions of a contract for the parties. As pointed out by Mr. Justice J.B.L. Reyes in Republic vs. Philippine Long Distance Telephone,Co., 18
[P]arties cannot be coerced to enter into a contract where no agreement is had between them as to the principal terms and conditions of the contract. Freedom to stipulate such terms and conditions is of the essence of our contractual system, and by express provision of the statute, a contract may be annulled if tainted by violence, intimidation or undue influence (Article 1306, 1336, 1337, Civil Code of the Philippines).

Contractual terms and conditions created by a court for two parties are a contradiction in terms. If they are imposed by a judge who draws upon his own private notions of what morals, good customs, justice, equity and public policy" demand, the resulting "agreement" cannot, by definition, be consensual or contractual in nature. It would also follow that such coerced terms and conditions cannot be the law as between the parties

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themselves. Contracts spring from the volition of the parties. That volition cannot be supplied by a judge and a judge who pretends to do so, acts tyrannically, arbitrarily and in excess of his jurisdiction. 19 WHEREFORE, the Petition for Certiorari, Prohibition and mandamus is granted. The Orders of the respondent judge in Civil Case No. 1434 dated 26 September 1980 (denying petitioner's motion to dismiss) and 4 November 1980 (denying petitioner's motion for reconsideration), and the "Judgment by Default" rendered by the respondent judge dated 26 November 1980, are hereby annulled and set aside and Civil Case No. 1434 is hereby dismissed. The temporary restraining order dated 21 November 1980 issued by this ourt, is hereby made permanent. No pronouncement as to costs. SO ORDERED. Yap (Chairman), Narvasa, Melencio-Herrera, Cruz, Gancayco and Sarmiento, JJ., concur. Footnotes
1 Rollo, p. 48, Annex "1" of Answer and Comment. 2 Id., pp. 14-17, complaint, Annex "A" of Petition. 3 Id., 66, Annex "A" of Comment. 4 Id., p. 67, Annex "B" of Comment. 5 Id., pp. 14-17, Annex "A" of Petition. 6 Id., pp. 18-23, Annex "B" of Petition. 7 Id., pp. 24-26, Annex "C" of Petition. 8 Id., p. 29, Annex "F" of Petition. 9 Id., pp. 30-33, Annex "G" of Petition. 10 Id.,, pp. 38-39, Annex "I" of Petition. 11 Id., p. 40. 12 Id., p. 93. 13 On the issue of jurisdiction, respondent judge denied the motion of dismiss on the erroneous assumption that barangay conciliation proceedings need not have been undertaken since the complaint was "coupled with the provisional remedy of making monthly deposits or consignment (sic) of the due and acruing rentals (with) this Court". Consignment is not of course a provisional remedy, the Revised Rules of Court enumerating only five such remedies, namely: attachment, preliminary injuction, receivership, replevin and support pendente lite. 14 Ebol vs. Amin, 135 SCRA 438 (1985); see also Royales vs. Intermediate Appellate Court, 127 SCRA 438 (1984). 15 Rollo, p. 35, Annex "G-1" of Petition. 16 Id., pp. 43-47, at 45. 17 Id., pp. 120-122; underscoring in the original. 18 26 SCRA 620 at 628 (1969). 19 The respondent judge ceased to be a judge in 1983; he was not re-appointed in connection with the 1983 reorganization of hte judiciary, under B.P.Blg.129.

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14. G.R. No. 96405 June 26, 1996 BALDOMERO INCIONG, JR., petitioner, vs. COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.

ROMERO, J.:p This is a petition for review on certiorari of the decision of the Court of Appeals affirming that of the Regional Trial Court of Misamis Oriental, Branch 18, 1 which disposed of Civil Case No. 10507 for collection of a sum of money and damages, as follows:
WHEREFORE, defendant BALDOMERO L. INCIONG, JR. is adjudged solidarily liable and ordered to pay to the plaintiff Philippine Bank of Communications, Cagayan de Oro City, the amount of FIFTY THOUSAND PESOS (P50,000.00), with interest thereon from May 5, 1983 at 16% per annum until fully paid; and 6% per annum on the total amount due, as liquidated damages or penalty from May 5, 1983 until fully paid; plus 10% of the total amount due for expenses of litigation and attorney's fees; and to pay the costs. The counterclaim, as well as the cross claim, are dismissed for lack of merit. SO ORDERED.

Petitioner's liability resulted from the promissory note in the amount of P50,000.00 which he signed with Rene C. Naybe and Gregorio D. Pantanosas on February 3, 1983, holding themselves jointly and severally liable to private respondent Philippine Bank of Communications, Cagayan de Oro City branch. The promissory note was due on May 5, 1983. Said due date expired without the promissors having paid their obligation. Consequently, on November 14, 1983 and on June 8, 1984, private respondent sent petitioner telegrams demanding payment thereof. 2 On December 11, 1984 private respondent also sent by registered mail a final letter of demand to Rene C. Naybe. Since both obligors did not respond to the demands made, private respondent filed on January 24, 1986 a complaint for collection of the sum of P50,000.00 against the three obligors. On November 25, 1986, the complaint was dismissed for failure of the plaintiff to prosecute the case. However, on January 9, 1987, the lower court reconsidered the dismissal order and required the sheriff to serve the summonses. On January 27, 1987, the lower court dismissed the case against defendant Pantanosas as prayed for by the private respondent herein. Meanwhile, only the summons addressed to petitioner was served as the sheriff learned that defendant Naybe had gone to Saudi Arabia. In his answer, petitioner alleged that sometime in January 1983, he was approached by his friend, Rudy Campos, who told him that he was a partner of Pio Tio, the branch

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manager of private respondent in Cagayan de Oro City, in the falcata logs operation business. Campos also intimated to him that Rene C. Naybe was interested in the business and would contribute a chainsaw to the venture. He added that, although Naybe had no money to buy the equipment, Pio Tio had assured Naybe of the approval of a loan he would make with private respondent. Campos then persuaded petitioner to act as a "co-maker" in the said loan. Petitioner allegedly acceded but with the understanding that he would only be a co-maker for the loan of P50,000.00. Petitioner alleged further that five (5) copies of a blank promissory note were brought to him by Campos at his office. He affixed his signature thereto but in one copy, he indicated that he bound himself only for the amount of P5,000.00. Thus, it was by trickery, fraud and misrepresentation that he was made liable for the amount of P50,000.00. In the aforementioned decision of the lower court, it noted that the typewritten figure "-50,000 --" clearly appears directly below the admitted signature of the petitioner in the promissory note. 3 Hence, the latter's uncorroborated testimony on his limited liability cannot prevail over the presumed regularity and fairness of the transaction, under Sec. 5 (q) of Rule 131. The lower court added that it was "rather odd" for petitioner to have indicated in a copy and not in the original, of the promissory note, his supposed obligation in the amount of P5,000.00 only. Finally, the lower court held that, even granting that said limited amount had actually been agreed upon, the same would have been merely collateral between him and Naybe and, therefore, not binding upon the private respondent as creditor-bank. The lower court also noted that petitioner was a holder of a Bachelor of Laws degree and a labor consultant who was supposed to take due care of his concerns, and that, on the witness stand, Pio Tio denied having participated in the alleged business venture although he knew for a fact that the falcata logs operation was encouraged by the bank for its export potential. Petitioner appealed the said decision to the Court of Appeals which, in its decision of August 31, 1990, affirmed that of the lower court. His motion for reconsideration of the said decision having been denied, he filed the instant petition for review on certiorari. On February 6, 1991, the Court denied the petition for failure of petitioner to comply with the Rules of Court and paragraph 2 of Circular No. 1-88, and to sufficiently show that respondent court had committed any reversible error in its questioned decision. 4 His motion for the reconsideration of the denial of his petition was likewise denied with finality in the Resolution of April 24, 1991. 5 Thereafter, petitioner filed a motion for leave to file a second motion for reconsideration which, in the Resolution of May 27, 1991, the Court denied. In the same Resolution, the Court ordered the entry of judgment in this case. 6 Unfazed, petitioner filed a notion for leave to file a motion for clarification. In the latter motion, he asserted that he had attached Registry Receipt No. 3268 to page 14 of the

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petition in compliance with Circular No. 1-88. Thus, on August 7, 1991, the Court granted his prayer that his petition be given due course and reinstated the same. 7 Nonetheless, we find the petition unmeritorious. Annexed to the petition is a copy of an affidavit executed on May 3, 1988, or after the rendition of the decision of the lower court, by Gregorio Pantanosas, Jr., an MTCC judge and petitioner's co-maker in the promissory note. It supports petitioner's allegation that they were induced to sign the promissory note on the belief that it was only for P5,000.00, adding that it was Campos who caused the amount of the loan to be increased to P50,000.00. The affidavit is clearly intended to buttress petitioner's contention in the instant petition that the Court of Appeals should have declared the promissory note null and void on the following grounds: (a) the promissory note was signed in the office of Judge Pantanosas, outside the premises of the bank; (b) the loan was incurred for the purpose of buying a second-hand chainsaw which cost only P5,000.00; (c) even a new chainsaw would cost only P27,500.00; (d) the loan was not approved by the board or credit committee which was the practice, as it exceeded P5,000.00; (e) the loan had no collateral; (f) petitioner and Judge Pantanosas were not present at the time the loan was released in contravention of the bank practice, and (g) notices of default are sent simultaneously and separately but no notice was validly sent to him. 8 Finally, petitioner contends that in signing the promissory note, his consent was vitiated by fraud as, contrary to their agreement that the loan was only for the amount of P5,000.00, the promissory note stated the amount of P50,000.00. The above-stated points are clearly factual. Petitioner is to be reminded of the basic rule that this Court is not a trier of facts. Having lost the chance to fully ventilate his factual claims below, petitioner may no longer be accorded the same opportunity in the absence of grave abuse of discretion on the part of the court below. Had he presented Judge Pantanosas affidavit before the lower court, it would have strengthened his claim that the promissory note did not reflect the correct amount of the loan. Nor is there merit in petitioner's assertion that since the promissory note "is not a public deed with the formalities prescribed by law but . . . a mere commercial paper which does not bear the signature of . . . attesting witnesses," parol evidence may "overcome" the contents of the promissory note. 9 The first paragraph of the parol evidence rule 10 states:
When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the contents of the written agreement.

Clearly, the rule does not specify that the written agreement be a public document.

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What is required is that the agreement be in writing as the rule is in fact founded on "long experience that written evidence is so much more certain and accurate than that which rests in fleeting memory only, that it would be unsafe, when parties have expressed the terms of their contract in writing, to admit weaker evidence to control and vary the stronger and to show that the parties intended a different contract from that expressed in the writing signed by them." 11 Thus, for the parol evidence rule to apply, a written contract need not be in any particular form, or be signed by both parties. 12 As a general rule, bills, notes and other instruments of a similar nature are not subject to be varied or contradicted by parol or extrinsic evidence. 13 By alleging fraud in his answer, 14 petitioner was actually in the right direction towards proving that he and his co-makers agreed to a loan of P5,000.00 only considering that, where a parol contemporaneous agreement was the inducing and moving cause of the written contract, it may be shown by parol evidence. 15 However, fraud must be established by clear and convincing evidence, mere preponderance of evidence, not even being adequate. 16 Petitioner's attempt to prove fraud must, therefore, fail as it was evidenced only by his own uncorroborated and, expectedly, self-serving testimony. Petitioner also argues that the dismissal of the complaint against Naybe, the principal debtor, and against Pantanosas, his co-maker, constituted a release of his obligation, especially because the dismissal of the case against Pantanosas was upon the motion of private respondent itself. He cites as basis for his argument, Article 2080 of the Civil Code which provides that:
The guarantors, even though they be solidary, are released from their obligation whenever by some act of the creditor, they cannot be subrogated to the rights, mortgages, and preferences of the latter.

It is to be noted, however, that petitioner signed the promissory note as a solidary comaker and not as a guarantor. This is patent even from the first sentence of the promissory note which states as follows:
Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together with interest . . . at the rate of SIXTEEN (16) per cent per annum until fully paid.

A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation. 17 on the other hand, Article 2047 of the Civil Code states:
By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such a case the contract is called a suretyship. (Emphasis supplied.)

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While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is different from that of a solidary debtor. Thus, Tolentino explains:
A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference between a solidary co-debtor and a fiador in solidum (surety). The latter, outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary co-debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, Title I, Book IV of the Civil 18 Code.

Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations. Under Art. 1207 thereof, when there are two or more debtors in one and the same obligation, the presumption is that the obligation is joint so that each of the debtors is liable only for a proportionate part of the debt. There is a solidary liability only when the obligation expressly so states, when the law so provides or when the nature of the obligation so requires. 19 Because the promissory note involved in this case expressly states that the three signatories therein are jointly and severally liable, any one, some or all of them may be proceeded against for the entire obligation. 20 The choice is left to the solidary creditor to determine against whom he will enforce collection. 21 Consequently, the dismissal of the case against Judge Pontanosas may not be deemed as having discharged petitioner from liability as well. As regards Naybe, suffice it to say that the court never acquired jurisdiction over him. Petitioner, therefore, may only have recourse against his comakers, as provided by law. WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned decision of the Court of Appeals is AFFIRMED. Costs against petitioner. SO ORDERED. Regalado, Puno, Mendoza and Torres, Jr., JJ., concur.

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15. G.R. No. L-12471

April 13, 1959

ROSARIO L. DE BRAGANZA, ET AL., petitioners, vs. FERNANDO F. DE VILLA ABRILLE, respondent. Oscar M. Herrera for petitioners. R. P. Sarandi and F. Valdez Anama for respondents. BENGZON, J.: Rosario L. de Braganza and her sons Rodolfo and Guillermo petition for review of the Court of Appeal's decision whereby they were required solidarily to pay Fernando F. de Villa Abrille the sum of P10,000 plus 2 % interest from October 30, 1944. The above petitioners, it appears, received from Villa Abrille, as a loan, on October 30, 1944 P70,000 in Japanese war notes and in consideration thereof, promised in writing (Exhibit A) to pay him P10,000 "in legal currency of the P. I. two years after the cessation of the present hostilities or as soon as International Exchange has been established in the Philippines", plus 2 % per annum. Because payment had not been made, Villa Abrille sued them in March 1949. In their answer before the Manila court of first Instance, defendants claimed to have received P40,000 only instead of P70,000 as plaintiff asserted. They also averred that Guillermo and Rodolfo were minors when they signed the promissory note Exhibit A. After hearing the parties and their evidence, said court rendered judgment, which the appellate court affirmed, in the terms above described. There can be no question about the responsibility of Mrs. Rosario L. Braganza because the minority of her consigners note release her from liability; since it is a personal defense of the minors. However, such defense will benefit her to the extent of the shares for which such minors may be responsible, (Art. 1148, Civil Code). It is not denied that at the time of signing Exhibit A, Guillermo and Rodolfo Braganza were minors-16 and 18 respectively. However, the Court of Appeals found them liable pursuant to the following reasoning: . . . . These two appellants did not make it appears in the promissory note that they were not yet of legal age. If they were really to their creditor, they should have appraised him on their incapacity, and if the former, in spite of the information relative to their age, parted with his money, then he should be contended with the consequence of his act. But, that was not the case. Perhaps defendants in their desire to acquire much needed money, they readily and willingly signed the promissory note, without disclosing the legal impediment with respect to Guillermo and Rodolfo. When minor, like in the instant case, pretended to be of legal age, in fact they were not, they will not later on be permitted to excuse themselves from the fulfillment of the obligation contracted by them or to have it annulled. (Mercado, et al. vs. Espiritu, 37 Phil., 215.) [Emphasis Ours.]

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We cannot agree to above conclusion. From the minors' failure to disclose their minority in the same promissory note they signed, it does not follow as a legal proposition, that they will not be permitted thereafter to assert it. They had no juridical duty to disclose their inability. In fact, according to Corpuz Juris Secundum, 43 p. 206; . . . . Some authorities consider that a false representation as to age including a contract as part of the contract and accordingly hold that it cannot be the basis of an action in tort. Other authorities hold that such misrepresentation may be the basis of such an action, on the theory that such misrepresentation is not a part of, and does not grow out of, the contract, or that the enforcement of liability for such misrepresentation as tort does not constitute an indirect of enforcing liability on the contract. In order to hold infant liable, however, the fraud must be actual and not constructure. It has been held that his mere silence when making a contract as to age does not constitute a fraud which can be made the basis of an action of decit. (Emphasis Ours.) The fraud of which an infant may be held liable to one who contracts with him in the belief that he is of full age must be actual not constructive, and mere failure of the infant to disclose his age is not sufficient. (27 American Jurisprudence, p. 819.) The Mecado case1 cited in the decision under review is different because the document signed therein by the minor specifically stated he was of age; here Exhibit A contained no such statement. In other words, in the Mercado case, the minor was guilty of active misrepresentation; whereas in this case, if the minors were guilty at all, which we doubt it is of passive (or constructive) misrepresentation. Indeed, there is a growing sentiment in favor of limiting the scope of the application of the Mercado ruling, what with the consideration that the very minority which incapacitated from contracting should likewise exempt them from the results of misrepresentation. We hold, on this point, that being minors, Rodolfo and Guillermo Braganza could not be legally bound by their signatures in Exhibit A. It is argued, nevertheless, by respondent that inasmuch as this defense was interposed only in 1951, and inasmuch as Rodolfo reached the age of majority in 1947, it was too late to invoke it because more than 4 years had elapsed after he had become emancipated upon reaching the age of majority. The provisions of Article 1301 of the Civil Code are quoted to the effect that "an action to annul a contract by reason of majority must be filed within 4 years" after the minor has reached majority age. The parties do not specify the exact date of Rodolfo's birth. It is undenied, however, that in October 1944, he was 18 years old. On the basis of such datum, it should be held that in October 1947, he was 21 years old, and in October 1951, he was 25 years old. So that when this defense was interposed in June 1951, four years had not yet completely elapsed from October 1947. Furthermore, there is reason to doubt the pertinency of the 4-years period fixed by Article 1301 of the Civil Code where minority is set up only as a defense to an action, without the minors asking for any positive relief from the contract. For one thing, they have not filed in this case an action for annulment.2 They merely interposed an excuse from liability.

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Upon the other hand, these minors may not be entirely absolved from monetary responsibility. In accordance with the provisions of Civil Code, even if their written contact is unenforceable because of non-age, they shall make restitution to the extent that they have profited by the money they received. (Art. 1340) There is testimony that the funds delivered to them by Villa Abrille were used for their support during the Japanese occupation. Such being the case, it is but fair to hold that they had profited to the extent of the value of such money, which value has been authoritatively established in the so-called Ballantine Schedule: in October 1944, P40.00 Japanese notes were equivalent to P1 of current Philippine money. Wherefore, as the share of these minors was 2/3 of P70,000 of P46,666.66, they should now return P1,166.67.3 Their promise to pay P10,000 in Philippine currency, (Exhibit A) can not be enforced, as already stated, since they were minors incapable of binding themselves. Their liability, to repeat, is presently declared without regard of said Exhibit A, but solely in pursuance of Article 1304 of the Civil Code. Accordingly, the appealed decision should be modified in the sense that Rosario Braganza shall pay 1/3 of P10,000 i.e., P3,333.334 plus 2% interest from October 1944; and Rodolfo and Guillermo Braganza shall pay jointly5 to the same creditor the total amount of P1,166.67 plus 6% interest beginning March 7, 1949, when the complaint was filed. No costs in this instance. Paras, C.J., Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion and Endencia, JJ., concur.

Footnotes
1

Mercado vs. Espiritu, 37 Phil., 215.

It would be observed in this connection, that the new Civil Code does not govern the contract executed in 1944.
3

P46,666.00 divided by 40.

She says peso for peso, in view of the terms of Exhibit A. She is, indeed, willing to pay as much.
5

Arts. 1137, 1138, Civil Code. Debtors presumed to be bound jointly not severally. Un Pak Leung vs. Negora, 9 Phil., 381; Flaviano vs. Delgado, 11 Phil., 154; Compania General vs. Obed, 13 Phil., 391.

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16. G.R. No. 126490 March 31, 1998 ESTRELLA PALMARES, petitioner, vs. COURT OF APPEALS and M.B. LENDING CORPORATION, respondents.

REGALADO, J.: Where a party signs a promissory note as a co-maker and binds herself to be jointly and severally liable with the principal debtor in case the latter defaults in the payment of the loan, is such undertaking of the former deemed to be that of a surety as an insurer of the debt, or of a guarantor who warrants the solvency of the debtor? Pursuant to a promissory note dated March 13, 1990, private respondent M.B. Lending Corporation extended a loan to the spouses Osmea and Merlyn Azarraga, together with petitioner Estrella Palmares, in the amount of P30,000.00 payable on or before May 12, 1990, with compounded interest at the rate of 6% per annum to be computed every 30 days from the date thereof. 1 On four occasions after the execution of the promissory note and even after the loan matured, petitioner and the Azarraga spouses were able to pay a total of P16,300.00, thereby leaving a balance of P13,700.00. No payments were made after the last payment on September 26, 1991. 2 Consequently, on the basis of petitioner's solidary liability under the promissory note, respondent corporation filed a complaint 3 against petitioner Palmares as the lone partydefendant, to the exclusion of the principal debtors, allegedly by reason of the insolvency of the latter. In her Amended Answer with Counterclaim, 4 petitioner alleged that sometime in August 1990, immediately after the loan matured, she offered to settle the obligation with respondent corporation but the latter informed her that they would try to collect from the spouses Azarraga and that she need not worry about it; that there has already been a partial payment in the amount of P17,010.00; that the interest of 6% per month compounded at the same rate per month, as well as the penalty charges of 3% per month, are usurious and unconscionable; and that while she agrees to be liable on the note but only upon default of the principal debtor, respondent corporation acted in bad faith in suing her alone without including the Azarragas when they were the only ones who benefited from the proceeds of the loan. During the pre-trial conference, the parties submitted the following issues for the resolution of the trial court: (1) what the rate of interest, penalty and damages should be; (2) whether the liability of the defendant (herein petitioner) is primary or subsidiary; and (3) whether the defendant Estrella Palmares is only a guarantor with a subsidiary liability and not a co-maker with primary liability. 5

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Thereafter, the parties agreed to submit the case for decision based on the pleadings filed and the memoranda to be submitted by them. On November 26, 1992, the Regional Trial Court of Iloilo City, Branch 23, rendered judgment dismissing the complaint without prejudice to the filing of a separate action for a sum of money against the spouses Osmea and Merlyn Azarraga who are primarily liable on the instrument. 6 This was based on the findings of the court a quo that the filing of the complaint against herein petitioner Estrella Palmares, to the exclusion of the Azarraga spouses, amounted to a discharge of a prior party; that the offer made by petitioner to pay the obligation is considered a valid tender of payment sufficient to discharge a person's secondary liability on the instrument; as co-maker, is only secondarily liable on the instrument; and that the promissory note is a contract of adhesion. Respondent Court of Appeals, however, reversed the decision of the trial court, and rendered judgment declaring herein petitioner Palmares liable to pay respondent corporation:
1. The sum of P13,700.00 representing the outstanding balance still due and owing with interest at six percent (6%) per month computed from the date the loan was contracted until fully paid; 2. The sum equivalent to the stipulated penalty of three percent (3%) per month, of the outstanding balance; 3. Attorney's fees at 25% of the total amount due per stipulations; 4. Plus costs of suit.
7

Contrary to the findings of the trial court, respondent appellate court declared that petitioner Palmares is a surety since she bound herself to be jointly and severally or solidarily liable with the principal debtors, the Azarraga spouses, when she signed as a co-maker. As such, petitioner is primarily liable on the note and hence may be sued by the creditor corporation for the entire obligation. It also adverted to the fact that petitioner admitted her liability in her Answer although she claims that the Azarraga spouses should have been impleaded. Respondent court ordered the imposition of the stipulated 6% interest and 3% penalty charges on the ground that the Usury Law is no longer enforceable pursuant to Central Bank Circular No. 905. Finally, it rationalized that even if the promissory note were to be considered as a contract of adhesion, the same is not entirely prohibited because the one who adheres to the contract is free to reject it entirely; if he adheres, he gives his consent. Hence this petition for review on certiorari wherein it is asserted that:
A. The Court of Appeals erred in ruling that Palmares acted as surety and is therefore solidarily liable to pay the promissory note. 1. The terms of the promissory note are vague. Its conflicting provisions do not establish Palmares' solidary liability.

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2. The promissory note contains provisions which establish the co-maker's liability as that of a guarantor. 3. There is no sufficient basis for concluding that Palmares' liability is solidary. 4. The promissory note is a contract of adhesion and should be construed against M. B. Lending Corporation. 5. Palmares cannot be compelled to pay the loan at this point. B. Assuming that Palmares' liability is solidary, the Court of Appeals erred in strictly imposing the interests and penalty charges on the outstanding balance of the promissory note.

The foregoing contentions of petitioner are denied and contradicted in their material points by respondent corporation. They are further refuted by accepted doctrines in the American jurisdiction after which we patterned our statutory law on surety and guaranty. This case then affords us the opportunity to make an extended exposition on the ramifications of these two specialized contracts, for such guidance as may be taken therefrom in similar local controversies in the future. The basis of petitioner Palmares' liability under the promissory note is expressed in this wise: ATTENTION TO CO-MAKERS: PLEASE READ WELL
I, Mrs. Estrella Palmares, as the Co-maker of the above-quoted loan, have fully understood the contents of this Promissory Note for Short-Term Loan: That as Co-maker, I am fully aware that I shall be jointly and severally or solidarily liable with the above principal maker of this note; That in fact, I hereby agree that M.B. LENDING CORPORATION may demand payment of the above loan from me in case the principal maker, Mrs. Merlyn Azarraga defaults in the payment of 8 the note subject to the same conditions above-contained.

Petitioner contends that the provisions of the second and third paragraph are conflicting in that while the second paragraph seems to define her liability as that of a surety which is joint and solidary with the principal maker, on the other hand, under the third paragraph her liability is actually that of a mere guarantor because she bound herself to fulfill the obligation only in case the principal debtor should fail to do so, which is the essence of a contract of guaranty. More simply stated, although the second paragraph says that she is liable as a surety, the third paragraph defines the nature of her liability as that of a guarantor. According to petitioner, these are two conflicting provisions in the promissory note and the rule is that clauses in the contract should be interpreted in relation to one another and not by parts. In other words, the second paragraph should not be taken in isolation, but should be read in relation to the third paragraph. In an attempt to reconcile the supposed conflict between the two provisions, petitioner avers that she could be held liable only as a guarantor for several reasons. First, the

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words "jointly and severally or solidarily liable" used in the second paragraph are technical and legal terms which are not fully appreciated by an ordinary layman like herein petitioner, a 65-year old housewife who is likely to enter into such transactions without fully realizing the nature and extent of her liability. On the contrary, the wordings used in the third paragraph are easier to comprehend. Second, the law looks upon the contract of suretyship with a jealous eye and the rule is that the obligation of the surety cannot be extended by implication beyond specified limits, taking into consideration the peculiar nature of a surety agreement which holds the surety liable despite the absence of any direct consideration received from either the principal obligor or the creditor. Third, the promissory note is a contract of adhesion since it was prepared by respondent M.B. Lending Corporation. The note was brought to petitioner partially filled up, the contents thereof were never explained to her, and her only participation was to sign thereon. Thus, any apparent ambiguity in the contract should be strictly construed against private respondent pursuant to Art. 1377 of the Civil Code. 9 Petitioner accordingly concludes that her liability should be deemed restricted by the clause in the third paragraph of the promissory note to be that of a guarantor. Moreover, petitioner submits that she cannot as yet be compelled to pay the loan because the principal debtors cannot be considered in default in the absence of a judicial or extrajudicial demand. It is true that the complaint alleges the fact of demand, but the purported demand letters were never attached to the pleadings filed by private respondent before the trial court. And, while petitioner may have admitted in her Amended Answer that she received a demand letter from respondent corporation sometime in 1990, the same did not effectively put her or the principal debtors in default for the simple reason that the latter subsequently made a partial payment on the loan in September, 1991, a fact which was never controverted by herein private respondent. Finally, it is argued that the Court of Appeals gravely erred in awarding the amount of P2,745,483.39 in favor of private respondent when, in truth and in fact, the outstanding balance of the loan is only P13,700.00. Where the interest charged on the loan is exorbitant, iniquitous or unconscionable, and the obligation has been partially complied with, the court may equitably reduce the penalty 10 on grounds of substantial justice. More importantly, respondent corporation never refuted petitioner's allegation that immediately after the loan matured, she informed said respondent of her desire to settle the obligation. The court should, therefore, mitigate the damages to be paid since petitioner has shown a sincere desire for a compromise. 11 After a judicious evaluation of the arguments of the parties, we are constrained to dismiss the petition for lack of merit, but to except therefrom the issue anent the propriety of the monetary award adjudged to herein respondent corporation. At the outset, let it here be stressed that even assuming arguendo that the promissory note executed between the parties is a contract of adhesion, it has been the consistent holding of the Court that contracts of adhesion are not invalid per se and that on numerous occasions the binding effects thereof have been upheld. The peculiar nature

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of such contracts necessitate a close scrutiny of the factual milieu to which the provisions are intended to apply. Hence, just as consistently and unhesitatingly, but without categorically invalidating such contracts, the Court has construed obscurities and ambiguities in the restrictive provisions of contracts of adhesion strictly albeit not unreasonably against the drafter thereof when justified in light of the operative facts and surrounding circumstances. 12 The factual scenario obtaining in the case before us warrants a liberal application of the rule in favor of respondent corporation. The Civil Code pertinently provides:
Art. 2047. By guaranty, a person called the guarantor binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed. In such case the contract is called a suretyship.

It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulation shall control. 13 In the case at bar, petitioner expressly bound herself to be jointly and severally or solidarily liable with the principal maker of the note. The terms of the contract are clear, explicit and unequivocal that petitioner's liability is that of a surety. Her pretension that the terms "jointly and severally or solidarily liable" contained in the second paragraph of her contract are technical and legal terms which could not be easily understood by an ordinary layman like her is diametrically opposed to her manifestation in the contract that she "fully understood the contents" of the promissory note and that she is "fully aware" of her solidary liability with the principal maker. Petitioner admits that she voluntarily affixed her signature thereto; ergo, she cannot now be heard to claim otherwise. Any reference to the existence of fraud is unavailing. Fraud must be established by clear and convincing evidence, mere preponderance of evidence not even being adequate. Petitioner's attempt to prove fraud must, therefore, fail as it was evidenced only by her own uncorroborated and, expectedly, self-serving allegations. 14 Having entered into the contract with full knowledge of its terms and conditions, petitioner is estopped to assert that she did so under a misapprehension or in ignorance of their legal effect, or as to the legal effect of the undertaking. 15 The rule that ignorance of the contents of an instrument does not ordinarily affect the liability of one who signs it also applies to contracts of suretyship. And the mistake of a surety as to the legal effect of her obligation is ordinarily no reason for relieving her of liability. 16 Petitioner would like to make capital of the fact that although she obligated herself to be jointly and severally liable with the principal maker, her liability is deemed restricted by the provisions of the third paragraph of her contract wherein she agreed "that M.B. Lending Corporation may demand payment of the above loan from me in case the principal maker, Mrs. Merlyn Azarraga defaults in the payment of the note," which

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makes her contract one of guaranty and not suretyship. The purported discordance is more apparent than real. A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor. 17 A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the debtor shall pay. 18 Stated differently, a surety promises to pay the principal's debt if the principal will not pay, while a guarantor agrees that the creditor, after proceeding against the principal, may proceed against the guarantor if the principal is unable to pay. 19 A surety binds himself to perform if the principal does not, without regard to his ability to do so. A guarantor, on the other hand, does not contract that the principal will pay, but simply that he is able to do so. 20 In other words, a surety undertakes directly for the payment and is so responsible at once if the principal debtor makes default, while a guarantor contracts to pay if, by the use of due diligence, the debt cannot be made out of the principal debtor. 21 Quintessentially, the undertaking to pay upon default of the principal debtor does not automatically remove it from the ambit of a contract of suretyship. The second and third paragraphs of the aforequoted portion of the promissory note do not contain any other condition for the enforcement of respondent corporation's right against petitioner. It has not been shown, either in the contract or the pleadings, that respondent corporation agreed to proceed against herein petitioner only if and when the defaulting principal has become insolvent. A contract of suretyship, to repeat, is that wherein one lends his credit by joining in the principal debtor's obligation, so as to render himself directly and primarily responsible with him, and without reference to the solvency of the principal. 22 In a desperate effort to exonerate herself from liability, petitioner erroneously invokes the rule on strictissimi juris, which holds that when the meaning of a contract of indemnity or guaranty has once been judicially determined under the rule of reasonable construction applicable to all written contracts, then the liability of the surety, under his contract, as thus interpreted and construed, is not to be extended beyond its strict meaning. 23 The rule, however, will apply only after it has been definitely ascertained that the contract is one of suretyship and not a contract of guaranty. It cannot be used as an aid in determining whether a party's undertaking is that of a surety or a guarantor. Prescinding from these jurisprudential authorities, there can be no doubt that the stipulation contained in the third paragraph of the controverted suretyship contract merely elucidated on and made more specific the obligation of petitioner as generally defined in the second paragraph thereof. Resultantly, the theory advanced by petitioner, that she is merely a guarantor because her liability attaches only upon default of the principal debtor, must necessarily fail for being incongruent with the judicial pronouncements adverted to above. It is a well-entrenched rule that in order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall also be principally considered. 24 Several attendant factors in that genre lend support to our finding that petitioner is a surety. For one, when petitioner was informed about the failure of the principal debtor to

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pay the loan, she immediately offered to settle the account with respondent corporation. Obviously, in her mind, she knew that she was directly and primarily liable upon default of her principal. For another, and this is most revealing, petitioner presented the receipts of the payments already made, from the time of initial payment up to the last, which were all issued in her name and of the Azarraga spouses. 25 This can only be construed to mean that the payments made by the principal debtors were considered by respondent corporation as creditable directly upon the account and inuring to the benefit of petitioner. The concomitant and simultaneous compliance of petitioner's obligation with that of her principals only goes to show that, from the very start, petitioner considered herself equally bound by the contract of the principal makers. In this regard, we need only to reiterate the rule that a surety is bound equally and absolutely with the principal, 26 and as such is deemed an original promisor and debtor from the beginning. 27 This is because in suretyship there is but one contract, and the surety is bound by the same agreement which binds the principal. 28 In essence, the contract of a surety starts with the agreement, 29 which is precisely the situation obtaining in this case before the Court. It will further be observed that petitioner's undertaking as co-maker immediately follows the terms and conditions stipulated between respondent corporation, as creditor, and the principal obligors. A surety is usually bound with his principal by the same instrument, executed at the same time and upon the same consideration; he is an original debtor, and his liability is immediate and direct. 30 Thus, it has been held that where a written agreement on the same sheet of paper with and immediately following the principal contract between the buyer and seller is executed simultaneously therewith, providing that the signers of the agreement agreed to the terms of the principal contract, the signers were "sureties" jointly liable with the buyer. 31 A surety usually enters into the same obligation as that of his principal, and the signatures of both usually appear upon the same instrument, and the same consideration usually supports the obligation for both the principal and the surety. 32 There is no merit in petitioner's contention that the complaint was prematurely filed because the principal debtors cannot as yet be considered in default, there having been no judicial or extrajudicial demand made by respondent corporation. Petitioner has agreed that respondent corporation may demand payment of the loan from her in case the principal maker defaults, subject to the same conditions expressed in the promissory note. Significantly, paragraph (G) of the note states that "should I fail to pay in accordance with the above schedule of payment, I hereby waive my right to notice and demand." Hence, demand by the creditor is no longer necessary in order that delay may exist since the contract itself already expressly so declares. 33 As a surety, petitioner is equally bound by such waiver. Even if it were otherwise, demand on the sureties is not necessary before bringing suit against them, since the commencement of the suit is a sufficient demand. 34 On this point, it may be worth mentioning that a surety is not even entitled, as a matter of right, to be given notice of the principal's default. Inasmuch as the creditor owes no duty of

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active diligence to take care of the interest of the surety, his mere failure to voluntarily give information to the surety of the default of the principal cannot have the effect of discharging the surety. The surety is bound to take notice of the principal's default and to perform the obligation. He cannot complain that the creditor has not notified him in the absence of a special agreement to that effect in the contract of suretyship. 35 The alleged failure of respondent corporation to prove the fact of demand on the principal debtors, by not attaching copies thereof to its pleadings, is likewise immaterial. In the absence of a statutory or contractual requirement, it is not necessary that payment or performance of his obligation be first demanded of the principal, especially where demand would have been useless; nor is it a requisite, before proceeding against the sureties, that the principal be called on to account. 36 The underlying principle therefor is that a suretyship is a direct contract to pay the debt of another. A surety is liable as much as his principal is liable, and absolutely liable as soon as default is made, without any demand upon the principal whatsoever or any notice of default. 37 As an original promisor and debtor from the beginning, he is held ordinarily to know every default of his principal. 38 Petitioner questions the propriety of the filing of a complaint solely against her to the exclusion of the principal debtors who allegedly were the only ones who benefited from the proceeds of the loan. What petitioner is trying to imply is that the creditor, herein respondent corporation, should have proceeded first against the principal before suing on her obligation as surety. We disagree. A creditor's right to proceed against the surety exists independently of his right to proceed against the principal. 39 Under Article 1216 of the Civil Code, the creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The rule, therefore, is that if the obligation is joint and several, the creditor has the right to proceed even against the surety alone. 40 Since, generally, it is not necessary for the creditor to proceed against a principal in order to hold the surety liable, where, by the terms of the contract, the obligation of the surety is the same that of the principal, then soon as the principal is in default, the surety is likewise in default, and may be sued immediately and before any proceedings are had against the principal. 41 Perforce, in accordance with the rule that, in the absence of statute or agreement otherwise, a surety is primarily liable, and with the rule that his proper remedy is to pay the debt and pursue the principal for reimbursement, the surety cannot at law, unless permitted by statute and in the absence of any agreement limiting the application of the security, require the creditor or obligee, before proceeding against the surety, to resort to and exhaust his remedies against the principal, particularly where both principal and surety are equally bound. 42 We agree with respondent corporation that its mere failure to immediately sue petitioner on her obligation does not release her from liability. Where a creditor refrains from proceeding against the principal, the surety is not exonerated. In other words, mere want of diligence or forbearance does not affect the creditor's rights vis-a-vis the surety, unless the surety requires him by appropriate notice to sue on the obligation. Such

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gratuitous indulgence of the principal does not discharge the surety whether given at the principal's request or without it, and whether it is yielded by the creditor through sympathy or from an inclination to favor the principal, or is only the result of passiveness. The neglect of the creditor to sue the principal at the time the debt falls due does not discharge the surety, even if such delay continues until the principal becomes insolvent. 43 And, in the absence of proof of resultant injury, a surety is not discharged by the creditor's mere statement that the creditor will not look to the surety, 44 or that he need not trouble himself. 45 The consequences of the delay, such as the subsequent insolvency of the principal, 46 or the fact that the remedies against the principal may be lost by lapse of time, are immaterial. 47 The raison d'tre for the rule is that there is nothing to prevent the creditor from proceeding against the principal at any time. 48 At any rate, if the surety is dissatisfied with the degree of activity displayed by the creditor in the pursuit of his principal, he may pay the debt himself and become subrogated to all the rights and remedies of the creditor. 49 It may not be amiss to add that leniency shown to a debtor in default, by delay permitted by the creditor without change in the time when the debt might be demanded, does not constitute an extension of the time of payment, which would release the surety. 50 In order to constitute an extension discharging the surety, it should appear that the extension was for a definite period, pursuant to an enforceable agreement between the principal and the creditor, and that it was made without the consent of the surety or with a reservation of rights with respect to him. The contract must be one which precludes the creditor from, or at least hinders him in, enforcing the principal contract within the period during which he could otherwise have enforced it, and which precludes the surety from paying the debt. 51 None of these elements are present in the instant case. Verily, the mere fact that respondent corporation gave the principal debtors an extended period of time within which to comply with their obligation did not effectively absolve here in petitioner from the consequences of her undertaking. Besides, the burden is on the surety, herein petitioner, to show that she has been discharged by some act of the creditor, 52 herein respondent corporation, failing in which we cannot grant the relief prayed for. As a final issue, petitioner claims that assuming that her liability is solidary, the interests and penalty charges on the outstanding balance of the loan cannot be imposed for being illegal and unconscionable. Petitioner additionally theorizes that respondent corporation intentionally delayed the collection of the loan in order that the interests and penalty charges would accumulate. The statement, likewise traversed by said respondent, is misleading. In an affidavit 53 executed by petitioner, which was attached to her petition, she stated, among others, that:
8. During the latter part of 1990, I was surprised to learn that Merlyn Azarraga's loan has been released and that she has not paid the same upon its maturity. I received a telephone call from

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Mr. Augusto Banusing of MB Lending informing me of this fact and of my liability arising from the promissory note which I signed. 9. I requested Mr. Banusing to try to collect first from Merlyn and Osmea Azarraga. At the same time, I offered to pay MB Lending the outstanding balance of the principal obligation should he fail to collect from Merlyn and Osmea Azarraga. Mr. Banusing advised me not to worry because he will try to collect first from Merlyn and Osmea Azarraga. 10. A year thereafter, I received a telephone call from the secretary of Mr. Banusing who reminded that the loan of Merlyn and Osmea Azarraga, together with interest and penalties thereon, has not been paid. Since I had no available funds at that time, I offered to pay MB Lending by delivering to them a parcel of land which I own. Mr. Banusing's secretary, however, refused my offer for the reason that they are not interested in real estate. 11. In March 1992, I received a copy of the summons and of the complaint filed against me by MB Lending before the RTC-Iloilo. After learning that a complaint was filed against me, I instructed Sheila Gatia to go to MB Lending and reiterate my first offer to pay the outstanding balance of the principal obligation of Merlyn Azarraga in the amount of P30,000.00. 12. Ms. Gatia talked to the secretary of Mr. Banusing who referred her to Atty. Venus, counsel of MB Lending. 13. Atty. Venus informed Ms. Gatia that he will consult Mr. Banusing if my offer to pay the outstanding balance of the principal obligation loan (sic) of Merlyn and Osmea Azarraga is acceptable. Later, Atty. Venus informed Ms. Gatia that my offer is not acceptable to Mr. Banusing.

The purported offer to pay made by petitioner can not be deemed sufficient and substantial in order to effectively discharge her from liability. There are a number of circumstances which conjointly inveigh against her aforesaid theory. 1. Respondent corporation cannot be faulted for not immediately demanding payment from petitioner. It was petitioner who initially requested that the creditor try to collect from her principal first, and she offered to pay only in case the creditor fails to collect. The delay, if any, was occasioned by the fact that respondent corporation merely acquiesced to the request of petitioner. At any rate, there was here no actual offer of payment to speak of but only a commitment to pay if the principal does not pay. 2. Petitioner made a second attempt to settle the obligation by offering a parcel of land which she owned. Respondent corporation was acting well within its rights when it refused to accept the offer. The debtor of a thing cannot compel the creditor to receive a different one, although the latter may be of the same value, or more valuable than that which is due. 54 The obligee is entitled to demand fulfillment of the obligation or performance as stipulated. A change of the object of the obligation would constitute novation requiring the express consent of the parties. 55 3. After the complaint was filed against her, petitioner reiterated her offer to pay the outstanding balance of the obligation in the amount of P30,000.00 but the same was likewise rejected. Again, respondent corporation cannot be blamed for refusing the amount being offered because it fell way below the amount it had computed, based on

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the stipulated interests and penalty charges, as owing and due from herein petitioner. A debt shall not be understood to have been paid unless the thing or service in which the obligation consists has been completely delivered or rendered, as the case may be. 56 In other words, the prestation must be fulfilled completely. A person entering into a contract has a right to insist on its performance in all particulars. 57 Petitioner cannot compel respondent corporation to accept the amount she is willing to pay because the moment the latter accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, then the obligation shall be deemed fully complied with. 58 Precisely, this is what respondent corporation wanted to avoid when it continually refused to settle with petitioner at less than what was actually due under their contract. This notwithstanding, however, we find and so hold that the penalty charge of 3% per month and attorney's fees equivalent to 25% of the total amount due are highly inequitable and unreasonable. It must be remembered that from the principal loan of P30,000.00, the amount of P16,300.00 had already been paid even before the filing of the present case. Article 1229 of the Civil Code provides that the court shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. And, even if there has been no performance, the penalty may also be reduced if it is iniquitous or leonine. In a case previously decided by this Court which likewise involved private respondent M.B. Lending Corporation, and which is substantially on all fours with the one at bar, we decided to eliminate altogether the penalty interest for being excessive and unwarranted under the following rationalization:
Upon the matter of penalty interest, we agree with the Court of Appeals that the economic impact of the penalty interest of three percent (3 %) per month on total amount due but unpaid should be equitably reduced. The purpose for which the penalty interest is intended that is, to punish the obligor will have been sufficiently served by the effects of compounded interest. Under the exceptional circumstances in the case at bar, e.g., the original amount loaned was only P15,000.00; partial payment of P8,600.00 was made on due date; and the heavy (albeit still lawful) regular compensatory interest, the penalty interest stipulated in the parties' promissory note is iniquitous and unconscionable and may be equitably reduced further by eliminating such 59 penalty interest altogether.

Accordingly, the penalty interest of 3% per month being imposed on petitioner should similarly be eliminated. Finally, with respect to the award of attorney's fees, this Court has previously ruled that even with an agreement thereon between the parties, the court may nevertheless reduce such attorney's fees fixed in the contract when the amount thereof appears to be unconscionable or unreasonable. 60 To that end, it is not even necessary to show, as in other contracts, that it is contrary to morals or public policy. 61 The grant of attorney's fees equivalent to 25% of the total amount due is, in our opinion, unreasonable and

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immoderate, considering the minimal unpaid amount involved and the extent of the work involved in this simple action for collection of a sum of money. We, therefore, hold that the amount of P10,000.00 as and for attorney's fee would be sufficient in this case. 62 WHEREFORE, the judgment appealed from is hereby AFFIRMED, subject to the MODIFICATION that the penalty interest of 3% per month is hereby deleted and the award of attorney's fees is reduced to P10,000.00. SO ORDERED. Melo, Puno, Mendoza and Martinez, JJ., concur. Footnotes
1 Annex C, Petition; Rollo, 49. 2 Rollo, 38. 3 Annex D, id., ibid., 51. 4 Annex H, id., ibid., 69. 5 Rollo, 76. 6 Annex I, Petition; Rollo, 73; penned by Presiding Judge Tito G. Gustilo. 7 Annex A, id., ibid., 36; Associate Justice Jose C. de la Rama, ponente, with Associate Justices Emeterio C. Cui and Eduardo G. Montenegro, concurring. 8 Rollo, 50. 9 Art. 1377. The interpretation of obscure words or stipulations in a contract shall not favor the party who caused the obscurity.