[G.R. No. 128703.

October 18, 2000]

TEODORO BAAS,* C. G. DIZON CONSTRUCTION,

INC., and CENEN DIZON, petitioners, vs. ASIA
PACIFIC FINANCE CORPORATION,[if !supportFootnotes][1][endif]
substituted by INTERNATIONAL CORPORATE BANK
now known as UNION BANK OF THE PHILIPPINES,
respondent.
DECISION
BELLOSILLO, J.:

C. G. DIZON CONSTRUCTION INC. and CENEN DIZON in

this petition for review seek the reversal of the 24 July 1996
Decision of the Court of Appeals dismissing their appeal for lack of
merit and affirming in toto the decision of the trial court holding them
liable to Asia Pacific Finance Corporation in the amount of
P87,637.50 at 14% interest per annum in addition to attorney's fees
and costs of suit, as well as its 21 March 1997 Resolution denying
reconsideration thereof.[if !supportFootnotes][2][endif]
On 20 March 1981 Asia Pacific Finance Corporation (ASIA
PACIFIC for short) filed a complaint for a sum of money with prayer
for a writ of replevin against Teodoro Baas, C. G. Dizon
Construction and Cenen Dizon. Sometime in August 1980 Teodoro
Baas executed a Promissory Note in favor of C. G. Dizon
Construction whereby for value received he promised to pay to the
order of C. G. Dizon Construction the sum of P390,000.00 in
installments of "P32,500.00 every 25th day of the month starting
from September 25, 1980 up to August 25, 1981."[if !supportFootnotes][3][endif]
Later, C. G. Dizon Construction endorsed with recourse the
Promissory Note to ASIA PACIFIC, and to secure payment thereof,
C. G. Dizon Construction, through its corporate officers, Cenen
Dizon, President, and Juliette B. Dizon, Vice President and
Treasurer, executed a Deed of Chattel Mortgage covering three (3)
heavy equipment units of Caterpillar Bulldozer Crawler Tractors with
Model Nos. D8-14A, D8-2U and D8H in favor of ASIA PACIFIC.[if !
supportFootnotes][4][endif] Moreover, Cenen Dizon executed on 25 August
1980 a Continuing Undertaking wherein he bound himself to pay
the obligation jointly and severally with C. G. Dizon Construction.[if !
supportFootnotes][5][endif]

In compliance with the provisions of the Promissory Note, C. G.

Dizon Construction made the following installment payments to

ASIA PACIFIC: P32,500.00 on 25 September 1980, P32,500.00 on

27 October 1980 and P65,000.00 on 27 February 1981, or a total of
P130,000.00. Thereafter, however, C. G. Dizon Construction
defaulted in the payment of the remaining installments, prompting
ASIA PACIFIC to send a Statement of Account to Cenen Dizon for
the unpaid balance of P267,737.50 inclusive of interests and
charges, and P66,909.38 representing attorney's fees. As the
demand was unheeded, ASIA PACIFIC sued Teodoro Baas, C. G.
Dizon Construction and Cenen Dizon.
While defendants (herein petitioners) admitted the genuineness
and due execution of the Promissory Note, the Deed of Chattel
Mortgage and the Continuing Undertaking, they nevertheless
maintained that these documents were never intended by the
parties to be legal, valid and binding but a mere subterfuge to
conceal the loan of P390,000.00 with usurious interests.
Defendants claimed that since ASIA PACIFIC could not directly
engage in banking business, it proposed to them a scheme wherein
plaintiff ASIA PACIFIC could extend a loan to them without violating
banking laws: first, Cenen Dizon would secure a promissory note
from Teodoro Baas with a face value of P390,000.00 payable in
installments; second, ASIA PACIFIC would then make it appear that
the promissory note was sold to it by Cenen Dizon with the 14%
usurious interest on the loan or P54,000.00 discounted and
collected in advance by ASIA PACIFIC; and, lastly, Cenen Dizon
would provide sufficient collateral to answer for the loan in case of
default in payment and execute a continuing guaranty to assure
continuous and prompt payment of the loan. Defendants also
alleged that out of the loan of P390,000.00 defendants actually
received only P329,185.00 after ASIA PACIFIC deducted the
discounted interest, service handling charges, insurance premium,
registration and notarial fees.
Sometime in October 1980 Cenen Dizon informed ASIA
PACIFIC that he would be delayed in meeting his monthly
amortization on account of business reverses and promised to pay
instead in February 1981. Cenen Dizon made good his promise and
tendered payment to ASIA PACIFIC in an amount equivalent to two
(2) monthly amortizations. But ASIA PACIFIC attempted to impose a
3% interest for every month of delay, which he flatly refused to pay
for being usurious.

Afterwards, ASIA PACIFIC allegedly made a verbal proposal to

Cenen Dizon to surrender to it the ownership of the two (2)
bulldozer crawler tractors and, in turn, the latter would treat the
former's account as closed and the loan fully paid. Cenen Dizon
supposedly agreed and accepted the offer. Defendants averred that
the value of the bulldozer crawler tractors was more than adequate
to cover their obligation to ASIA PACIFIC.
Meanwhile, on 21 April 1981 the trial court issued a writ of
replevin against defendant C. G. Dizon Construction for the
surrender of the bulldozer crawler tractors subject of the Deed of
Chattel Mortgage. Of the three (3) bulldozer crawler tractors, only
two (2) were actually turned over by defendants - D8-14A and
D8-2U - which units were subsequently foreclosed by ASIA
PACIFIC to satisfy the obligation. D8-14A was sold for P120,000.00
and D8-2U for P60,000.00 both to ASIA PACIFIC as the highest
bidder.
During the pendency of the case, defendant Teodoro Baas
passed away, and on motion of the remaining defendants, the trial
court dismissed the case against him. On the other hand, ASIA
PACIFIC was substituted as party plaintiff by International
Corporate Bank after the disputed Promissory Note was assigned
and/or transferred by ASIA PACIFIC to International Corporate
Bank. Later, International Corporate Bank merged with Union Bank
of the Philippines. As the surviving entity after the merger, and
having succeeded to all the rights and interests of International
Corporate Bank in this case, Union Bank of the Philippines was
substituted as a party in lieu of International Corporate Bank.[if !
supportFootnotes][6][endif]

On 25 September 1992 the Regional Trial Court ruled in favor

of ASIA PACIFIC holding the defendants jointly and severally liable
for the unpaid balance of the obligation under the Promissory Note
in the amount of P87,637.50 at 14% interest per annum, and
attorney's fees equivalent to 25% of the monetary award.[if !
supportFootnotes][7][endif]

On 24 July 1996 the Court of Appeals affirmed in toto the

decision of the trial court thus Defendant-appellants' contention that the instruments were executed
merely as a subterfuge to skirt banking laws is an untenable defense. If that
were so then they too were parties to the illegal scheme. Why should they

now be allowed to take advantage of their own knavery to escape the

liabilities that their own chicanery created?
Defendant-appellants also want us to believe their story that there was an
agreement between them and the plaintiff-appellee that if the former would
deliver their 2 bulldozer crawler tractors to the latter, the defendantappellants' obligation would fully be extinguished. Again, nothing but the
word that comes out between the teeth supports such story. Why did they
not write down such an important agreement? Is it believable that seasoned
businessmen such as the defendant-appellant Cenen G. Dizon and the
other officers of the appellant corporation would deliver the bulldozers
without a receipt of acquittance from the plaintiff-appellee x x x x In our
book, that is not credible.
The pivotal issues raised are: (a) Whether the disputed
transaction between petitioners and ASIA PACIFIC violated banking
laws, hence, null and void; and (b) Whether the surrender of the
bulldozer crawler tractors to respondent resulted in the
extinguishment of petitioners' obligation.
On the first issue, petitioners insist that ASIA PACIFIC was
organized as an investment house which could not engage in the
lending of funds obtained from the public through receipt of
deposits. The disputed Promissory Note, Deed of Chattel Mortgage
and Continuing Undertaking were not intended to be valid and
binding on the parties as they were merely devices to conceal their
real intention which was to enter into a contract of loan in violation
of banking laws.
We reject the argument. An investment company refers to any
issuer which is or holds itself out as being engaged or proposes to
engage primarily in the business of investing, reinvesting or trading
in securities.[if !supportFootnotes][8][endif] As defined in Sec. 2, par. (a), of the
Revised Securities Act,[if !supportFootnotes][9][endif] securities "shall include x x
x x commercial papers evidencing indebtedness of any person,
financial or non-financial entity, irrespective of maturity, issued,
endorsed, sold, transferred or in any manner conveyed to another
with or without recourse, such as promissory notes x x x x" Clearly,
the transaction between petitioners and respondent was one
involving not a loan but purchase of receivables at a discount,
well within the purview of "investing, reinvesting or trading in
securities" which an investment company, like ASIA PACIFIC, is
authorized to perform and does not constitute a violation of the

General Banking Act.[if !supportFootnotes][10][endif] Moreover, Sec. 2 of the

General Banking Act provides in part Sec. 2. Only entities duly authorized by the Monetary Board of the Central
Bank may engage in the lending of funds obtained from the public through
the receipt of deposits of any kind, and all entities regularly conducting
such operations shall be considered as banking institutions and shall be
subject to the provisions of this Act, of the Central Bank Act, and of other
pertinent laws (underscoring supplied).
Indubitably, what is prohibited by law is for investment
companies to lend funds obtained from the public through receipts
of deposit, which is a function of banking institutions. But here, the
funds supposedly "lent" to petitioners have not been shown to have
been obtained from the public by way of deposits, hence, the
inapplicability of banking laws.
On petitioners' submission that the true intention of the parties
was to enter into a contract of loan, we have examined the
Promissory Note and failed to discern anything therein that would
support such theory. On the contrary, we find the terms and
conditions of the instrument clear, free from any ambiguity, and
expressive of the real intent and agreement of the parties. We quote
the pertinent portions of the Promissory Note FOR VALUE RECEIVED, I/We, hereby promise to pay to the order of
C.G. Dizon Construction, Inc. the sum of THREE HUNDRED NINETY
THOUSAND ONLY (P390,000.00), Philippine Currency in the following
manner:
P32,500.00 due every 25th of the month starting from September 25, 1980
up to August 25, 1981.
I/We agree that if any of the said installments is not paid as and when it
respectively falls due, all the installments covered hereby and not paid as
yet shall forthwith become due and payable at the option of the holder of
this note with interest at the rate of 14% per annum on each unpaid
installment until fully paid.
If any amount due on this note is not paid at its maturity and this note is
placed in the hands of an attorney for collection, I/We agree to pay in
addition to the aggregate of the principal amount and interest due, a sum
equivalent to TEN PERCENT (10%) thereof as Attorney's fees, in case no
action is filed, otherwise, the sum will be equivalent to TWENTY FIVE
(25%) of the said principal amount and interest due x x x x
Makati, Metro Manila, August 25, 1980.

(Sgd) Teodoro Baas

ENDORSED TO ASIA PACIFIC FINANCE CORPORATION WITH
RECOURSE, C.G. DIZON CONSTRUCTION, INC.
By: (Sgd.) Cenen Dizon (Sgd.) Juliette B. Dizon
President VP/Treasurer
Likewise, the Deed of Chattel Mortgage and Continuing
Undertaking were duly acknowledged before a notary public and, as
such, have in their favor the presumption of regularity. To contradict
them there must be clear, convincing and more than merely
preponderant evidence. In the instant case, the records do not
show even a preponderance of evidence in favor of petitioners'
claim that the Deed of Chattel Mortgage and Continuing
Undertaking were never intended by the parties to be legal, valid
and binding. Notarial documents are evidence of the facts in clear
and unequivocal manner therein expressed.[if !supportFootnotes][11][endif]
Interestingly, petitioners' assertions were based mainly on the
self-serving testimony of Cenen Dizon, and not on any other
independent evidence. His testimony is not only unconvincing, as
found by the trial court and the Court of Appeals, but also selfdefeating in light of the documents presented by respondent, i.e.,
Promissory Note, Deed of Chattel Mortgage and Continuing
Undertaking, the accuracy, correctness and due execution of which
were admitted by petitioners. Oral evidence certainly cannot prevail
over the written agreements of the parties. The courts need only
rely on the faces of the written contracts to determine their true
intention on the principle that when the parties have reduced their
agreements in writing, it is presumed that they have made the
writings the only repositories and memorials of their true
agreement.
The second issue deals with a question of fact. We have ruled
often enough that it is not the function of this Court to analyze and
weigh the evidence all over again, its jurisdiction being limited to
reviewing errors of law that might have been committed by the
lower court.[if !supportFootnotes][12][endif] At any rate, while we are not a trier of
facts, hence, not required as a rule to look into the factual bases of
the assailed decision of the Court of Appeals, we did so just the
same in this case if only to satisfy petitioners that we have carefully
studied and evaluated the case, all too mindful of the tenacity and
vigor with which the parties, through their respective counsel, have
pursued this case for nineteen (19) years.

Petitioners contend that the parties already had a verbal

understanding wherein ASIA PACIFIC actually agreed to consider
petitioners' account closed and the principal obligation fully paid in
exchange for the ownership of the two (2) bulldozer crawler
tractors.
We are not persuaded. Again, other than the bare allegations of
petitioners, the records are bereft of any evidence of the supposed
agreement. As correctly observed by the Court of Appeals, it is
unbelievable that the parties entirely neglected to write down such
an important agreement. Equally incredulous is the fact that
petitioner Cenen Dizon, a seasoned businessman, readily
consented to deliver the bulldozers to respondent without a
corresponding receipt of acquittance. Indeed, even the testimony of
petitioner Cenen Dizon himself negates the supposed verbal
understanding between the parties Q: You said and is it not a fact that you surrendered the bulldozers to
APCOR by virtue of the seizure order?
A: There was no seizure order. Atty. Carag during that time said if I
surrender the two equipment, we might finally close a deal if the
equipment would come up to the balance of the loan. So I voluntarily
surrendered, I pulled them from the job site and returned them to
APCOR x x x x
Q: You mentioned a certain Atty. Carag, who is he?
A: He was the former legal counsel of APCOR. They were handling
cases. In fact, I talked with Atty. Carag, we have a verbal agreement if I
surrender the equipment it might suffice to pay off the debt so I did just
that (underscoring ours).[if !supportFootnotes][13][endif]

In other words, there was no binding and perfected contract

between petitioners and respondent regarding the settlement of the
obligation, but only a conditional one, a mere conjecture in fact,
depending on whether the value of the tractors to be surrendered
would equal the balance of the loan plus interests. And since the
bulldozer crawler tractors were sold at the foreclosure sale for only
P180,000.00,[if !supportFootnotes][14][endif] which was not enough to cover the
unpaid balance of P267,637.50, petitioners are still liable for the
deficiency.
Barring therefore a showing that the findings complained of are
totally devoid of support in the records, or that they are so glaringly
erroneous as to constitute serious abuse of discretion, we see no
valid reason to discard them. More so in this case where the

findings of both the trial court and the appellate court coincide with
each other on the matter.
With regard to the computation of petitioners' liability, the
records show that petitioners actually paid to respondent a total
sum of P130,000.00 in addition to the P180,000.00 proceeds
realized from the sale of the bulldozer crawler tractors at public
auction. Deducting these amounts from the principal obligation of
P390,000.00 leaves a balance of P80,000.00, to which must be
added P7,637.50 accrued interests and charges as of 20 March
1981, or a total unpaid balance of P87,637.50 for which petitioners
are jointly and severally liable. Furthermore, the unpaid balance
should earn 14% interest per annum as stipulated in the Promissory
Note, computed from 20 March 1981 until fully paid.
On the amount of attorney's fees which under the Promissory
Note is equivalent to 25% of the principal obligation and interests
due, it is not, strictly speaking, the attorney's fees recoverable as
between the attorney and his client regulated by the Rules of Court.
Rather, the attorney's fees here are in the nature of liquidated
damages and the stipulation therefor is aptly called a penal clause.
It has been said that so long as such stipulation does not
contravene the law, morals and public order, it is strictly binding
upon the obligor. It is the litigant, not the counsel, who is the
judgment creditor entitled to enforce the judgment by execution.[if !
supportFootnotes][15][endif]

Nevertheless, it appears that petitioners' failure to fully comply

with their part of the bargain was not motivated by ill will or malice,
but due to financial distress occasioned by legitimate business
reverses. Petitioners in fact paid a total of P130,000.00 in three (3)
installments, and even went to the extent of voluntarily turning over
to respondent their heavy equipment consisting of two (2) bulldozer
crawler tractors, all in a bona fide effort to settle their indebtedness
in full. Article 1229 of the New Civil Code specifically empowers the
judge to equitably reduce the civil penalty when the principal
obligation has been partly or irregularly complied with. Upon the
foregoing premise, we hold that the reduction of the attorney's fees
from 25% to 15% of the unpaid principal plus interests is in order.
Finally, while we empathize with petitioners, we cannot close
our eyes to the overriding considerations of the law on obligations
and contracts which must be upheld and honored at all times.
Petitioners have undoubtedly benefited from the transaction; they

cannot now be allowed to impugn its validity and legality to escape

the fulfillment of a valid and binding obligation.
WHEREFORE, no reversible error having been committed by the
Court of Appeals, its assailed Decision of 24 July 1996 and its
Resolution of 21 March 1997 are AFFIRMED. Accordingly,
petitioners C.G. Construction Inc. and Cenen Dizon are ordered
jointly and severally to pay respondent Asia Pacific Finance
Corporation, substituted by International Corporate Bank (now
known as Union Bank of the Philippines), P87,637.50 representing
the unpaid balance on the Promissory Note, with interest at
fourteen percent (14%) per annum computed from 20 March 1981
until fully paid, and fifteen percent (15%) of the principal obligation
and interests due by way of attorney's fees. Costs against
petitioners.
SO ORDERED.
G.R. No. L-39778 September 13, 1985
VIRGILIO SIY, petitioner,
vs.
COURT OF APPEALS, SERGIO VALDEZ, AND VIRGINIA VALDEZ,
respondents.
Quintin C. Pardes for petitioner.
Romeo L. Mendoza & Assoc. Law Office for private respondent.
GUTIERREZ, JR., J.:
This is a petition for review which seeks to annul and set aside the decision of
the Court of Appeals, now Intermediate Appellate Court affirming the trial
court's decision, ordering, among others, the rescission of the contract of sale
entered into between the petitioner and the private respondents.
The private respondents, spouses Valdez are the owners of a parcel of land
containing an area of 155 square meters, more or less, and the house
constructed thereon, situated at No. 333 Jefferson Street, Makati, and
covered by Transfer Certificate of Title No. 32718 of the Registry of Deeds of
Rizal. There is no dispute that the petitioner and private respondents entered
into a contract of sale regarding the said property. The controversy, however,
stemmed from subsequent agreements executed by the parties.
The first agreement entered into by the petitioner and private respondents
was the Deed of Conditional Sale (Exh. A) whereby for and in consideration
of P22,000.00, the private respondents as vendors agreed to sell to the
petitioner as vendee the lot covered by TCT No. 32718 with all the
improvements thereon. The sale was subject to the condition that
immediately upon the approval of the petitioner's loan with the Social Security

System (SSS) and its payment to the respondents, the vendor shall execute
the deed of absolute sale in favor of the vendee. The petitioner applied for a
loan with the SSS, through the Home Financing Commission (HFC). Since
the property in question was mortgaged to the Government Service Insurance
System (GSIS), the HFC requested both parties to execute a Deed of Sale
with Assumption of Mortgage (Exh. G) which they did, stating among others
that the respondents sell, transfer, and convey to the petitioner the property
for and in consideration of the sum of P22,000.00, of which P6,400.00
(representing the amount allegedly incurred by the petitioners for
improvements on said property) had been paid and the balance of P15,600.
00 payable upon approval of the petitioners loan with the SSS. In reality,
however, the respondents had not received a single centavo from the
petitioner at the time. Subsequently, the parties executed three more
contracts. The first contract (Exh. I) which was executed more than one
month after Exhibit A provided that the respondents agreed to sell the
property to the petitioner at P14,000.00 while the latter must negotiate a loan
with the SSS in order to settle the amount within a period of thirty days from
March 17, 1963. The contract also provided for the payment of rentals by the
petitioner at P50.00 a month from March 1, 1963 until the date of final
settlement and damages at the rate of P30.00 a day for each day of delay.
The next day, another contract was executed by the parties which was
essentially the same as Exh. "1". Respondent Virginia Valdez explained that
she did not agree with the granting of another thirty-day extension to the
petitioner and so Exh. "1" was torn up. However, the respondents changed
their minds after the mother of the petitioner pleaded with them for another
extension. Thus, Exh. "2" came into being. It provided that the full amount of
P14,000.00 would be paid on or before the 30th day from the date of the
execution of the contract and that failure of the petitioner to settle his
obligation within that period shall make him liable for damages at P30.00 for
every day of delay.
The last agreement entered into by the parties, (Exh. 5), provided among
others, that the respondents agreed to receive the partial amount of
P12,000.00 on the condition that the balance of P4,376.00 is completely paid
forty-five days after the date fixed by them and that failure of the petitioner to
pay the said balance on the agreed time will entitle the respondents to
damages at P20.00 for every day of delay until said balance shall have been
fully paid.
Within the forty-five (45) days deadline, however, the petitioner failed to pay
both the P12,000.00 which was supposed to be received by the respondents
upon the execution of the agreement, (Exh. 5) and the balance of P4,376.00.
Thus, when the petitioner's loan with the SSS was finally ready for release,
he requested the respondents to sign the deed of absolute sale and other
papers required by the SSS but the latter refused on the ground that the
petitioner had already breached their latest agreement (Exh. 5). The
petitioner filed an action for specific performance with writ of preliminary

mandatory injunction seeking to compel the respondents to execute the deed

of absolute sale of the property and other such documents required by the
SSS for the immediate release of the approved loan.
In its first decision, the trial court rendered judgment in favor of the petitioner
making the following findings:
xxx xxx xxx
Apparently, the defendants are of the impression that the provision in the
agreement that 'failure of the plaintiff to settle said balance on or before the
stipulated date will entitle the defendants to collect P20.00 for every day of
delay until balance is fully paid' and just because plaintiff so failed to comply
with it this will release them from compliance with the condition mentioned in
Exhibits 'A' and 'G'. The court agrees with the defendant that plaintiff
committed a breach granting that plaintiff failed to comply with the stated
proviso, but this is not the breach contemplated by law and cannot be
considered a sufficient cause for them to depart from their unfulfilled
obligation to the plaintiff because as the provision clearly states, defendants'
rights are adequately protected and compensated in the form of damages
recoverable from the plaintiff in case of non-compliance by the plaintiff.
Under the law (Article 119, New Civil Code), in reciprocal obligations, in case
one of the obligors should not comply with what is incumbent upon him, the
injured party may choose between the fulfillment and the rescission of the
obligation with the payment of damages in either case. In the instant case,
plaintiff seeks not rescission but fulfillment of the obligation. It is obvious
when the parties herein agreed that the consideration mentioned in Exhibits
'A' & 'G ' that will be paid upon the approval of the loan, they mean approval
and release of the loan. Weighing the evidence presented both by the plaintiff
and defendants, it is the opinion of the court that the defendants by virtue of
their contracts Exhibits 'A' and 'G', the defendants can be compelled to fulfill
the condition agreed thereon.
In due time, the private respondents filed a motion for reconsideration stating,
among others, that the decision of the lower court failed to consider the other
contracts executed by the parties. Among them was the agreement marked
as Exhibit "5" which would clearly show that there was a limited period within
which the petitioner was given time to secure a loan from the SSS and pay
P14,000.00, the real consideration for the property agreed upon by the
parties.
The petitioner filed his opposition to the respondents' motion for
reconsideration. The respondents in turn asked the lower court for five (5)
days within which to submit a rejoinder. The extension was granted in open
court. However, even before the end of the five-day period, the court already
issued an order denying the respondents' motion for reconsideration. Another
motion to reconsider was, therefore, filed by the respondents praying that
their rejoinder be taken into account since the same was filed within the fiveday period granted by the court.

Realizing its error, another decision was consequently rendered by the trial
court, this time, in favor of the private respondents, stating the following:
This Court observes that Exhibit '5' is an implementation or confirmation of
the provisions of both Exhibits '1' and '2' which are supplementary contracts
providing for a definite period of payment of the agreed purchase price of the
property involved herein. This period of payment is not provided for in
Exhibits 'A' and 'G' thereby modifying the later contracts in this regard. Article
1374 of the new Civil Code of the Philippines, the Court believes, is also
applicable to the instant case wherein it is provided that the various
stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken together.
Exhibits 'A', 'G', '1', '2' and '5' being complementary contracts, they should be
construed to correctly arrive at the true intention of the parties.
xxx xxx xxx
The wordings of Exhibit '5' when it states that the defendants-spouses agreed
to receive the partial amount of P12,000.00 only show that when Exhibit '5'
was executed, defendants did not yet receive said amount. It is still to be
received, and evidence of the plaintiff is wanting to show that he paid this
amount of P12,000.00. Neither is there any showing that the balance of
P4,763.00 agreed upon in Exhibit '5' had been paid by the plaintiff within
forty-five days from July 9, 1963. This clearly constitutes a breach of their last
agreement Exhibit '5'. Article 1191 of the New Civil Code provides that the
power to rescind obligations is implied in reciprocal ones in case one of the
obligors should not comply with what is incumbent upon him. The injured
party may choose between the fulfillment and the rescission of the obligation,
with the payment of damages in either case. There is no dispute that all the
contracts entered into by the parties herein are reciprocal ones. There is,
likewise, no question that the plaintiff is guilty of delay and the defendantsspouses are entitled to damages occasioned by it in the light of the provisions
of Article 1170 of the New Civil Code providing that those who, in the
performance of their obligations, are guilty of delay and those who, in any
manner, contravene the tenor thereof, are liable for damages. The
defendants-spouses elected rescission of their agreement of purchase and
sale with damages.
The petitioner filed a motion for reconsideration which the trial court denied.
On appeal, the Court of Appeals affirmed the decision in toto. Hence, this
petition.
The issues raised are:
I
WHETHER OR NOT THE COURT OF APPEALS ERRED IN RULING THAT
THE FIRST DECISION OF THE TRIAL COURT WAS NOT FINAL WHEN
THE SAME WAS SET ASIDE AND SUPERSEDED BY THE SECOND
DECISION AND THUS, THE TRIAL COURT HAD NO MORE JURISDICTION
TO RENDER SAID SECOND DECISION, AND
II

WHETHER OR NOT THE COURT OF APPEALS ERRED IN SUSTAINING

THE TRIAL COURT IN ORDERING THE RESCISSION OF THE
AGREEMENT (EXHIBIT 5) AND THE PAYMENT OF DAMAGES AND
ATTORNEY'S FEES.
The petitioner maintains that the motions for reconsideration filed by the
respondents are both pro forma because they presented issues which the
trial court had already considered and ruled upon and that the second motion
for reconsideration merely asked the court to consider two documents which
were already submitted by respondents in evidence. The petitioner argues
that the said motion did not interrupt the running of the period to appeal and
thus, when the second decision was rendered the trial court had already lost
its jurisdiction over the case, making such decision null and void.
The above contentions are untenable.
In the first place, the very purpose of a motion for reconsideration is to point
out the findings and conclusions of the decision which in the movant's view,
are not supported by law or the evidence. The movant is, therefore, very often
confined to the amplification or further discussion of the same issues already
passed upon by the court. Otherwise, his remedy would not be a
reconsideration of the decision but a new trial or some other remedy. In the
case of Vina v. Court of Appeals (126 SCRA 381-382), we emphasized the
nature of a motion for reconsideration. We ruled:
Contrary to petitioner's contention, REPUBLIC's Motion for Reconsideration
dated January 10, 1973 was not pro forma, even if we were to concede that it
was a reiteration of its previous Motion for suspension of the proceedings.
... Among the ends to which a motion for reconsideration is addressed, one is
precisely to convince the court that its ruling is erroneous and improper,
contrary to the law or the evidence (Rule 37, Section 1, subsection [c]; and in
doing so, the movant has to dwell of necessity upon the issues passed upon
by the court. If a motion for reconsideration may not discuss these issues, the
consequence would be that after a decision is rendered, the losing party
would be confined to filing only motions for reopening and new trial. We find
in the Rules of Court no warrant for ruling to that effect, a ruling that would, in
effect eliminate subsection (c) of Section I of Rule 37. (Guerra Enterprises
Co., Inc. v. Court of First Instance of Lanao del Sur, 32 SCRA 317 [1970]).
Secondly, as far as the second motion of respondents is concerned, the same
should not be strictly construed as a motion for reconsideration although
captioned as such because in reality, it is merely a supplementary pleading
aimed to call the court's attention to the fact that it had given the respondents
five days to file their rejoinder, with which they complied and, therefore, said
rejoinder should have been considered before the court acted upon the
respondents' first motion for reconsideration. Supplemental pleadings are
meant to supply deficiencies in aid of original pleadings, not to entirely
substitute the latter (See Pasay City Government v. CFI of Manila, 132 SCRA
169), and neither should they be considered independently nor separately
from such original pleadings.

We, therefore, hold that the appellate court did not commit grave abuse of
discretion in upholding the trial court's jurisdiction when it rendered the
second decision.
In the second assignment of error, the petitioner contends that the Court of
Appeals committed a reversible error in affirming the rescission of the
contract when the respondents did not pray for rescission and in ordering the
payment of damages and attorney's fees notwithstanding the fact that the
complaint for specific performance was not instituted in bad faith.
It is noteworthy to mention that in their answer to the petitioner's complaint,
the respondents prayed for the annulment of both the Deed of Conditional
Sale (Exh. 'A') and the Deed of Sale with Assumption of Mortgage (Exh. 'G')
which are the very bases of the supplemental agreements (Exhs. '1', '2' and
'5') executed between the petitioner and the respondent. The technical
argument that the respondents never prayed for the rescission of the
contracts and that the trial court and the appellate court should never have
rescinded the same has no merit. Furthermore, by failing to pay the amount
of P12,000.00 and the balance of P4,376.00 as stipulated in the contract
within the forty-five (45) days period, the petitioner clearly committed a breach
of contract which sufficiently and justly entitled the respondents to ask for the
rescission of the contracts. In the case of Nagarmull v. Binalbagan-Isabel
Sugar Co., Inc. (33 SCRA 52), we ruled that " ... The Breach of contract
committed by appellee gave appellant, under the law and even under general
principles of fairness, the right to rescind the contract or to ask for its specific
performance, in either case with right to demand damages ... It is evident, in
the case at bar, that the respondents chose to rescind the contracts after the
petitioner repeatedly failed to pay not only the balance but the initial amount
as downpayment in consideration of which the contracts or agreements were
executed. As a matter of fact, the petitioner later asked the SSS to cancel his
loan application. He thereby abandoned his own claim for specific
performance. Therefore, the appellate court correctly affirmed the rescission
of the above-mentioned contracts. It also correctly affirmed the payment of
attorney's fees. While the petitioner may not have acted in bad faith in filing
his complaint, still the payment of attorney's fees is warranted in this case
because of the environmental circumstances which compelled the
respondents to litigate for the protection of their interests. (See Bert Osmena
& Associates v. Court of Appeals, 120 SCRA 401 and Article 2208 (2) New
Civil Code).
We, however, find the award of damages in the amount of P4,376.00
unwarranted. In their motion for reconsideration, the respondents explained
how they arrived at this amount
Plaintiff obliged himself to pay P30.00 for everyday of delay after the lapse of
thirty days from the execution of the document of March 17, 1963 (Exh. 1Defendants). Thirty days from March 17, 1963 would be April 18, which will
mark the beginning of the counting of the days of delays. From April 18, 1963
to July 9, 1963, the number of days of delay was 82 days. Plaintiff requested

that this be reduced to 70 days and defendants agreed. At P30.00 per day of
delay the amount in 70 days will be P2,100.00. The rental as provided for in
the same exhibit 1 for defendants was P50.00 per month. From March 1,
1963 to June 20, 1963, 4 months elapsed. At P50.00 per month the rental
would be P200.00. Plaintiff got or utilized adobe stones belonging to
defendant which he found in the premises when he and his parents
transferred to the lot in question in March 1963 the value of which was
P76.00. Adding this to the P2,100.00 which is the amount to be paid for the
delay in making payments and the P200.00 for 4 months rental, the total will
be P2,376.00. The agreed purchase price was Pl4,000.00 but Pl2,000.00 was
the amount of loan the Social Security System was then willing to give to
plaintiff so that there will be a shortage of P2,000.00 more to complete the
payment of the purchase price. This shortage of P2,000.00 was added to the
P2,376.00 and the sum will be P4,376.00. Hence, in the agreement of July 9,
1963, this amount of P4,376.00 was to be paid within 45 days from the date
thereof and the P12,000.00 which was the loan then approved by the Social
Security System was to be paid to defendants on the day of the execution of
the said agreement.
xxx xxx xxx
It is evident from the motion that the amount of P4,376.00 awarded by the
appellate court as damages is mainly based on "P30.00 per day of delay"
penalty clause embodied in the agreement marked Exhibit "1". Enforcement
of the clause on daily penalties now would result in excessive damages
considering that the agreement was entered into way back in 1963. Moreover,
the P2,000.00 represents part of the purchase price of the sale which was
already rescinded.
Under Article 1191 of the Civil Code, "the injured party may choose between
the fulfillment and rescission of the obligation, with the payment of damages
in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible ... ." The law, however, does
not authorize the injured party to rescind the obligation and at the same time
seek its partial fulfillment under the guise of recovering damages.
The appellate court, therefore, erred in including both the penalty clause and
the part of the purchase price in the computation of damages. There is no
question that the petitioner must pay damages for the use of the house and
lot until he vacates the premises. The petitioner and his family have lived in
the respondents' house all these years without paying either the price he
obligated himself to pay or the monthly rentals he agreed to pay as early as
1963. At the very least, the petitioner should pay P50.00 monthly rentals with
legal interest from March, 1963.
WHEREFORE, the decision appealed from is MODIFIED in that the award of
damages in the amount of P4,376.00 is set aside. The petitioner is ordered to
vacate the disputed property and to pay FIFTY PESOS (P50.00) as monthly
rentals with interest at the legal rate from March, 1963 up to the time he and

G.R. No. L-7991

January 29, 1914
LEON J. LAMBERT, plaintiff-appellant,
vs.
T. J. FOX, defendant-appellee.
O'Brien and DeWitt and C. W. Ney, for appellant.
J. C. Hixon, for appellee.
MORELAND, J.:
This is an action brought to recover a penalty prescribed on a contract as
punishment for the breach thereof.
Early in 1911 the firm known as John R. Edgar & Co., engaged in the retail
book and stationery business, found itself in such condition financially that its
creditors, including the plaintiff and the defendant, together with many others,
agreed to take over the business, incorporate it and accept stock therein in
payment of their respective credits. This was done, the plaintiff and the
defendant becoming the two largest stockholders in the new corporation
called John R. Edgar & Co., Incorporated. A few days after the incorporation
was completed plaintiff and defendant entered into the following agreement:
Whereas the undersigned are, respectively, owners of large amounts of stock
in John R. Edgar and Co, Inc; and,
Whereas it is recognized that the success of said corporation depends, now
and for at least one year next following, in the larger stockholders retaining
their respective interests in the business of said corporation:
Therefore, the undersigned mutually and reciprocally agree not to sell,
transfer, or otherwise dispose of any part of their present holdings of stock in
said John R. Edgar & Co. Inc., till after one year from the date hereof.
Either party violating this agreement shall pay to the other the sum of one
thousand (P1,000) pesos as liquidated damages, unless previous consent in
writing to such sale, transfer, or other disposition be obtained.
Notwithstanding this contract the defendant Fox on October 19, 1911, sold his
stock in the said corporation to E. C. McCullough of the firm of E. C.
McCullough & Co. of Manila, a strong competitor of the said John R. Edgar &
Co., Inc.
This sale was made by the defendant against the protest of the plaintiff and
with the warning that he would be held liable under the contract hereinabove
set forth and in accordance with its terms. In fact, the defendant Foz offered
to sell his shares of stock to the plaintiff for the same sum that McCullough
was paying them less P1,000, the penalty specified in the contract.
The learned trial court decided the case in favor of the defendant upon the
ground that the intention of the parties as it appeared from the contract in
question was to the effect that the agreement should be good and continue
only until the corporation reached a sound financial basis, and that that event
having occurred some time before the expiration of the year mentioned in the
contract, the purpose for which the contract was made and had been fulfilled
and the defendant accordingly discharged of his obligation thereunder. The
complaint was dismissed upon the merits.

It is argued here that the court erred in its construction of the contract. We are
of the opinion that the contention is sound. The intention of parties to a
contract must be determined, in the first instance, from the words of the
contract itself. It is to be presumed that persons mean what they say when
they speak plain English. Interpretation and construction should by the
instruments last resorted to by a court in determining what the parties agreed
to. Where the language used by the parties is plain, then construction and
interpretation are unnecessary and, if used, result in making a contract for the
parties. (Lizarraga Hermanos vs. Yap Tico, 24 Phil. Rep., 504.)
In the case cited the court said with reference to the construction and
interpretation of statutes: "As for us, we do not construe or interpret this law. It
does not need it. We apply it. By applying the law, we conserve both
provisions for the benefit of litigants. The first and fundamental duty of courts,
in our judgment, is to apply the law. Construction and interpretation come only
after it has been demonstrated that application is impossible or inadequate
without them. They are the very last functions which a court should exercise.
The majority of the law need no interpretation or construction. They require
only application, and if there were more application and less construction,
there would be more stability in the law, and more people would know what
the law is."
What we said in that case is equally applicable to contracts between persons.
In the case at bar the parties expressly stipulated that the contract should last
one year. No reason is shown for saying that it shall last only nine months.
Whatever the object was in specifying the year, it was their agreement that
the contract should last a year and it was their judgment and conviction that
their purposes would not be subversed in any less time. What reason can
give for refusing to follow the plain words of the men who made the contract?
We see none.
The appellee urges that the plaintiff cannot recover for the reason that he did
not prove damages, and cites numerous American authorities to the effect
that because stipulations for liquidated damages are generally in excess of
actual damages and so work a hardship upon the party in default, courts are
strongly inclined to treat all such agreements as imposing a penalty and to
allow a recovery for actual damages only. He also cites authorities holding
that a penalty, as such, will not be enforced and that the party suing, in spite
of the penalty assigned, will be put to his proof to demonstrate the damages
actually suffered by reason of defendants wrongful act or omission.
In this jurisdiction penalties provided in contracts of this character are
enforced . It is the rule that parties who are competent to contract may make
such agreements within the limitations of the law and public policy as they
desire, and that the courts will enforce them according to their terms. (Civil
Code, articles 1152, 1153, 1154, and 1155; Fornow vs. Hoffmeister, 6 Phil.
Rep., 33; Palacios vs. Municipality of Cavite, 12 Phil. Rep., 140; Gsell vs.
Koch, 16 Phil. Rep., 1.) The only case recognized by the Civil Code in which
the court is authorized to intervene for the purpose of reducing a penalty

stipulated in the contract is when the principal obligation has been partly or
irregularly fulfilled and the court can see that the person demanding the
penalty has received the benefit of such or irregular performance. In such
case the court is authorized to reduce the penalty to the extent of the benefits
received by the party enforcing the penalty.
In this jurisdiction, there is no difference between a penalty and liquidated
damages, so far as legal results are concerned. Whatever differences exists
between them as a matter of language, they are treated the same legally. In
either case the party to whom payment is to be made is entitled to recover the
sum stipulated without the necessity of proving damages. Indeed one of the
primary purposes in fixing a penalty or in liquidating damages, is to avoid
such necessity.
It is also urged by the appelle in this case that the stipulation in the contract
suspending the power to sell the stock referred to therein is an illegal
stipulation, is in restraint of trade and, therefore, offends public policy. We do
not so regard it. The suspension of the power to sell has a beneficial purpose,
results in the protection of the corporation as well as of the individual parties
to the contract, and is reasonable as to the length of time of the suspension.
We do not here undertake to discuss the limitations to the power to suspend
the right of alienation of stock, limiting ourselves to the statement that the
suspension in this particular case is legal and valid.
The judgment is reversed, the case remanded with instructions to enter a
judgment in favor of the plaintiff and against the defendant for P1,000, with
interest; without costs in this instance.
Arellano, C.J., Trent and Araullo, JJ., concur.
his successors-in-interest vacate the property in question. In all other
respects, the decision is AFFIRMED.
SO ORDERED.

Jison vs. CA
GR No. 124853, February 24, 1998
FACTS:
Private respondent, Monina Jison, instituted a complaint against petitioner,
Francisco Jison, for recognition as illegitimate child of the latter. The case was
filed 20 years after her mothers death and when she was already 39 years of
age.
Petitioner was married to Lilia Lopez Jison since 1940 and sometime in 1945,
he impregnated Esperanza Amolar, Moninas mother. Monina alleged that since

childhood, she had enjoyed the continuous, implied recognition as the

illegitimate child of petitioner by his acts and that of his family. It was likewise
alleged that petitioner supported her and spent for her education such that she
became a CPA and eventually a Central Bank Examiner. Monina was able to
present total of 11 witnesses.
ISSUE:WON Monina should be declared as illegitimate child of Francisco
Jison.
HELD:
Under Article 175 of the Family Code, illegitimate filiation may be established
in the same way and on the same evidence as that of legitimate children.
Article 172 thereof provides the various forms of evidence by which legitimate
filiation is established.
To prove open and continuous possession of the status of an illegitimate child,
there must be evidence of the manifestation of the permanent intention of the
supposed father to consider the child as his, by continuous and clear
manifestations of parental affection and care, which cannot be attributed to pure
charity. Such acts must be of such a nature that they reveal not only the
conviction of paternity, but also the apparent desire to have and treat the child
as such in all relations in society and in life, not accidentally, but continuously.

The following facts was established based on the testimonial evidences offered
by Monina:
1. That Francisco was her father and she was conceived at the time when her
mother was employed by the former;
2. That Francisco recognized Monina as his child through his overt acts and
conduct.
SC ruled that a certificate of live birth purportedly identifying the putative
father is not competence evidence as to the issue of paternity. Franciscos lack
of participation in the preparation of baptismal certificates and school records
render the documents showed as incompetent to prove paternity. With regard to
the affidavit signed by Monina when she was 25 years of age attesting that
Francisco was not her father, SC was in the position that if Monina were truly
not Franciscos illegitimate child, it would be unnecessary for him to have gone
to such great lengths in order that Monina denounce her filiation. Moninas

evidence hurdles the high standard of proof required for the success of an
action to establish ones illegitimate filiation in relying upon the provision on
open and continuous possession. Hence, Monina proved her filiation by more
than mere preponderance of evidence.

Since the instant case involves paternity and filiation, even if illegitimate,
Monina filed her action well within the period granted her by a positive
provision of law. A denial then of her action on ground of laches would clearly
be inequitable and unjust. Petition was denied.