OBLICON CASES BY: HANNA DESEMBRANA

1. MARMONT HOTEL VS GUIANG (168 SCRA 373)

G.R. No. 79734 December 8, 1988

MARMONT RESORT HOTEL ENTERPRISES, petitioner,

vs.
FEDERICO GUIANG, AURORA GUIANG, and COURT OF APPEALS, respondents.

Isagani M. Jungco for petitioner.

FELICIANO, J.:

The present Petition for Review seeks to set aside the Decision dated 9 December 1986 of the Court of Appeals in CA-
G.R. CV 03299. The appellate court affirmed a Decision dated 31 May 1983 of Branch 83 of the Regional Trial Court of
Olongapo City dismissing the complaint in Civil Case No. 2896-C filed by petitioner company against private respondent
spouses.

On 2 May 1975, a Memorandum of Agreement was executed between Maris Trading and petitioner Marmont Resort
Hotel Enterprises, Inc. ("Marmont"), a corporation engaged in the hotel and resort business with office and
establishment at Olongapo City. Under the agreement, Maris Trading undertook to drill for water and to provide all
equipment necessary to install and complete a water supply facility to service the Marmont Resort Hotel in Olongapo,
for a stipulated fee of P40,000.00. In fulfillment of its contract, Maris Trading drilled a well and installed a water pump
on a portion of a parcel of land situated in Olongapo City, then occupied by respondent spouses Federico and Aurora
Guiang.

Five (5) months later, a second Memorandum of Agreement was executed between Maris Trading and Aurora Guiang,
with Federico Guiang signing as witness. This second agreement in essential part read: 1

That the First Party [Maris Trading] has dug, drilled and tapped water source for Marmont Resort, located at Bo.
Barretto, Olongapo City in accordance with their agreement executed on May 2, 1975 and notarized before Isagani M.
Jungco, Notary Public and entered as Doc. No. 166; Page No. 135; Book No. XV; Series of 1975.

That the First Party has erected, built and drilled for the water source of Marmont Resort on the land owned by the
Second Party [Aurora Guiang] at the corner of J. Montelibano Street and Maquinaya Drive (Provincial Road) with the
latter's permission.

That for and in consideration of the sum of P1,500.00 the Second Party hereby Sell, Transfer and Cede all possessory
rights, interest and claims over that portion of the lot wherein the water source of Marmont Resort is located unto and
in favor of Maris Trading.

After some time, the water supply of the Marmont Resort Hotel became inadequate to meet the hotel's water
requirements. Petitioner Marmont secured the services of another contractor (the name of which was not disclosed),
which suggested that in addition to the existing water pump, a submersible pump be installed to increase the pressure
and improve the flow of water to the hotel. Accordingly, Juan Montelibano, Jr., manager of the Marmont Resort Hotel,
sought permission from the Guiang spouses to inspect the water pump which had been installed on the portion of the
land previously occupied by the spouses and to make the necessary additional installations thereon. No such permission,
however, was granted.
On 13 May 1980, petitioner Marmont filed a Complaint 2 against the Guiang spouses for damages resulting from their
refusal to allow representatives of petitioner and the second contractor firm entry into the water facility site. The
claimed damages were broken down as follows: (a) P10,000.00 representing the amount advanced in payment to the
second contractor; (b) P40,000.00 representing the total project cost of the installation made by Maris Trading: (c)
P50,000.00 representing additional expenses incurred and incidental losses resulting from failure of the original pump to
cope with the water requirements of the Marmont Resort Hotel; and (d) P10,000.00 for Attorney's fees.

In their Answer, 3 the Guiang spouses (defendants below) denied having had any previous knowledge of the first
Memorandum of Agreement and asserted that the second Memorandum of Agreement was invalid for not having been
executed in accordance with law. The spouses added a counterclaim for damages in the amount of P200,000.00.

On 2 October 1980, at the pre-trial conference, the parties agreed on the following stipulation of facts and issues
embodied in a Pre-Trial Order: 4

III

In addition to the admission made elsewhere in their respective pleadings, the parties entered into the following
stipulation of facts:

1. Plaintiff is a corporation duly organized and existing under the laws of the Philippines with office at Montelibano
Street, Barrio Barretto, Olongapo City;

2. The contract referred to in paragraph 2 of the complaint between the plaintiff and Maris Trading is contained in a
document captioned Memorandum Agreement executed on May 2, 1975, a xerox copy of which is Annex 'A' of plaintiffs
complaint;

3. On October 7, 1975, the Maris Trading represented by Ceferino Cabral and defendant Aurora Guiang entered into a
memorandum agreement;

4. The portion sold under Annex 'A' is still a part of the public domain.

IV

The plaintiff marked the following exhibits in evidence:

Exhibit 'A'-Memorandum Agreement dated May 2, 1975

Exhibit 'B-Memorandum Agreement dated October 7, 1975

The issues left to be ventilated during the trial are the following:

1. Whether defendants has actually prohibited the plaintiff [from) making repairs, [on] the pump constructed by Maris
Trading for the plaintiff under the agreement Exhibit 'A,' if so;

2. Whether defendants [have] the right to prohibit the Maris Trading from performing the repairs and if not

3. Whether defendants are liable for damages under the human relations provision of the Civil Code.
On I January 1980, the Guiang spouses moved to dismiss the Complaint. 5 The spouses there assailed the validity of the
second Memorandum of Agreement, alleging that the subject matter thereof involved conjugal property alienated by
Aurora Guiang without the marital consent of her husband, Federico Guiang. Further, it was alleged that the land upon
which the hotel's water supply facility was installed-and which the Guiang spouses occupied-formed part of the public
domain and was then still the subject of a Miscellaneous Sales Application submitted by Federico Guiang. The Motion to
Dismiss, however, was denied by the trial court.

No evidence having been adduced by the Guiang spouses on their behalf, the case was submitted for derision. On 31
May 1983, the trial court rendered a decision, 6 dismissing the complaint. The trial court found that Aurora Guiang had
validly alienated her rights over the disputed portion of land to Maris Trading, but held that the evidence failed to show
that Maris Trading, in turn, had transferred such rights to petitioner Marmont.

Petitioner Marmont appealed to the Court of Appeals which affirmed the decision of the trial court and dismissed the
appeal for lack of merit. 7 The appellate court, citing Section 55, Rule 132 of the Revised Rules of Court, held that the
first and second Memoranda of Agreement could not legally be considered by the court as included in the body of
evidence of the case, as neither document had been formally offered in evidence by either party. It also held that, in any
event, neither document showed that Marmont had in fact acquired from Maris Trading whatever rights the latter had
over the land in dispute.

In the instant Petition for Review, petitioner assigns the following errors: 8

1. The Court of Appeals erred in not considering the Memorandum of Agreement of May 2, 1975 and 7 October 1975 as
the same were already admitted in the pre-trial order; and

2. The Court of Appeals erred in deciding that ownership belongs to Maris Trading hence, private respondent Guiang can
prohibit Marmont Resort from entering the land.

We find for the petitioner.

Both the trial and appellate courts held that the first and second Memoranda of Agreement are not properly considered
as forming part of the record of this case, because neither had been formally presented and offered in evidence at the
trial of Civil Case No. 2896-C. The record shows, however, as noted earlier, that at the pre-trial conference held on 2
October 1980, both petitioner Marmont and respondent spouses had agreed upon a stipulation of facts and issues
recognizing the existence of those same two (2) agreements. Such stipulation of facts constitutes a judicial admission,
the veracity of which requires no further proof and which may be controverted only upon a clear showing that such
stipulation had been entered into through "palpable mistake." On this point, Section 2, Rule 129 of the Revised Rules of
Court provides:

Section 2. Judicial Admissions.--Admission made by the parties in the pleadings, or in the course of the trial or other
proceedings do not require proof and cannot be contradicted unless previously shown to have been made through
palpable mistake. (emphasis supplied)

There has been no showing and respondent spouses do not claim that "palpable mistake" had intervened here, in
respect of the formulation of the facts stipulated by the parties at the pre-trial conference. Absent any such showing,
that stipulation of facts is incontrovertible, 9 and may be relied upon by the courts. 10 Respondent spouses are estopped
from raising as an issue in this case the existence and admissibility in evidence of both the first and second Memoranda
of Agreement which, having been marked as exhibits during pre-trial, properly form part of the record of this case, even
though not formally offered in evidence after trial. 11
We consider briefly respondent spouses' argument that the second Memorandum of Agreement was invalid for having
been executed by Aurora Guiang without the marital consent of Federico, contrary to Articles 165 and 172 of the Civil
Code.

Article 165 and 172 state the general principle under our civil law, that the wife may not validly bind the conjugal
partnership without the consent of the husband, who is legally the administrator of the conjugal partnership. In this
particular case, however, as noted earlier, the second Memorandum of Agreement, although ostensibly contracted
solely by Aurora Guiang with Maris Trading, was also signed by her husband Federico, as one of the witnesses thereto.
This circumstance indicates not only that Federico was present during the execution of the agreement but also that he
had, in fact, given his consent to the execution thereof by his wife Aurora. Otherwise, he should not have appended his
signature to the document as witness. Respondent spouses cannot now disown the second Memorandum of Agreement
as their effective consent thereto is sufficiently manifested in the document itself.

That the land in dispute was, at the time of execution of the second Memorandum of Agreement, public land, is of no
consequence here. Pending approval of Federico's Miscellaneous Sales Application over said land, respondent spouses
enjoyed possessory and other rights over the same which could validly be assigned or transferred in favor of third
persons. In this case, respondent spouses chose to transfer such rights (over the portion upon which the water pump
was installed) to Maris Trading, as evidenced by the fourth paragraph of the second Memorandum of Agreement,
quoted earlier. Furthermore, assuming (though only for the sake of argument) that the alienation to Maris Trading was
legally objectionable, respondent spouses are not the proper parties to raise the issue of invalidity, they and Maris
Trading being in pari delicto. Only the government may raise that issue.

Finally, respondent spouses allege that dismissal of the complaint by the trial court was not improper as petitioner
Marmont was not privy to the second Memorandum of Agreement, and that accordingly, petitioner had no valid cause
of action against respondents.

A closer scrutiny of the second and third paragraphs of the second Memorandum of Agreement discloses that the first
Memorandum of Agreement, including the obligations imposed thereunder upon Maris Trading, had been
acknowledged therein:

That the First Party (i.e., Maris Trading) has dug, drilled and tapped water source for Marmont Resort, located at Bo.
Barretto, Olongapo City in accordance with their agreement executed on May 2, 1975 and notarized before Isagani M.
Jungco, Notary Public and entered as Doc. No. 166; Page No. 135; Book No. XV; Series of 1975.

That the First Party has erected, built and drilled for the water source of Marmont Resort on the land owned by the
Second Party [respondent spouses] at the corner of J. Montelibano Street and Maquinaya Drive (Provincial Road) with
the latter's permission;... (Emphasis supplied)

The above paragraphs establish, among other things, that construction work had been performed by Maris Trading on
the land occupied by respondent spouses; that such construction work had been performed in accordance with terms
and conditions stipulated in the first Memorandum of Agreement and that the purpose of the work was to build a water
supply facility for petitioner Marmont. The same excerpts also show that the work so performed was with the
knowledge and consent of the Guiang spouses, who were then occupying the land.

It is clear from the foregoing stipulations that petitioner Marmont was to benefit from the second Memorandum of
Agreement. In fact, said stipulations appear to have been designed precisely to benefit petitioner and, thus, partake of
the nature of stipulations pour autrui, contemplated in Article 1311 of the Civil Code.
A stipulation pour autrui is a stipulation in favor of a third person conferring a clear and deliberate favor upon him,
which stipulation is found in a contract entered into by parties neither of whom acted as agent of the beneficiary. 12 We
believe and so hold that the purpose and intent of the stipulating parties (Maris Trading and respondent spouses) to
benefit the third person (petitioner Marmont) is sufficiently clear in the second Memorandum of Agreement. Marmont
was not of course a party to that second Agreement but, as correctly pointed out by the trial court and the appellate
court, the respondent spouses could not have prevented Maris Trading from entering the property possessory rights
over which had thus been acquired by Maris Trading. That respondent t spouses remained in physical possession of that
particular bit of land, is of no moment; they did so simply upon the sufferance of Maris Trading. Had Maris Trading, and
not the respondent spouses, been in physical possession, we believe that Marmont would have been similarly entitled
to compel Maris Trading to give it (Marmont) access to the site involved. The two (2) courts below failed to take
adequate account of the fact that the sole purpose of Maris Trading in acquiring possessory rights over that specific
portion of the land where well and pump and piping had been installed, was to supply the water requirements of
petitioner's hotel. That said purpose was known by respondent spouses, is made explicit by the second Memorandum of
Agreement. Maris Trading itself had no need for a water supply facility; neither did the respondent spouses. The water
facility was intended solely for Marmont Resort Hotel. The interest of Marmont cannot therefore be regarded as merely
"incidental ." 13 Finally, even if it be assumed (for purposes of argument merely) that the second Memorandum of
Agreement did not constitute a stipulation pour autrui, still respondent spouses, in the circumstances of this case, must
be regarded as having acted contrary to the principles of honesty, good faith and fair dealing embodied in Articles 19
and 21 of the Civil Code when they refused petitioner Marmont access to the water facility to inspect and repair the
same and to increase its capacity and thereby to benefit from it. In so doing, respondent spouses forced petitioner
Marmont to locate an alternative source of water for its hotel which of course involved expenditure of money and
perhaps loss of hotel revenues. We believe they should respond in damages.

The evidence on record, however, appears insufficient for determination of the amount of damages for which
respondent spouses should be liable. For this reason, the Court is compelled to remand this case to the trial court for
determination of such damages in appropriate further proceedings.

WHEREFORE, the Petition for Review on certiorari is hereby GRANTED. The Decision dated 9 December 1986 of the
Court of Appeals in C.A. — G.R. CV No. 03299, as well as the Decision dated 31 May 1983 of the Regional Trial Court of
Olongapo City in Civil Case No. 2896-C, are REVERSED. This case is REMANDED to the trial court for determination, in
further proceedings consistent with this decision, of the amount of petitioner is entitled to receive from respondent
spouses.

No pronouncement as to costs.

SO ORDERED.

2. CORPUS VS CA

G.R. No. L-40424 June 30, 1980

R. MARINO CORPUS, petitioner,

vs.
COURT OF APPEALS and JUAN T. DAVID, respondents

MAKASIAR, J.:
This is a petition for review on certiorari of the decision of the Court of Appeals promulgated on February 14, 1975 in
CA-G.R. No. 40583-R, affirming the decision of the court of Instance of Manila, Branch V. dated september 4, 1967, in
Civil Case no. 61802 entitled "Juan T. David,plaintiff, versus R. Mariano Corpus, defendant', for the recovery of attorneys
fees for professional services rendered by the plaintiff, private respondent herein, to defendant, petitioner herein.

Having been close friends, aside from being membres Civil Liberties Union, petitioner Corpus intimately calls respondent
David by his nickname "Juaning" and the latter addresses the former simply as "Marino".

The factual setting of this case is stated in the decision of the lower court, thus:

It appears that in March, 1958, the defendant was charged administratively by several employee of the Central Bank
Export Department of which the defendant is the director. The defendant was represented by Atty. Rosauro Alvarez.
Pending the investigation and effective March 18, 1958, he defendant was suspended from office. After the investigating
committee found the administrative charges to be without merit, and subsequently recommended the immediate
reinstatement of the defendant, the then Governor of Central Bank, Miguel Cuaderno, Sr., recommended that the
defendant be considered resigned as on the ground that he had lost confidence in him. The Monetary Board, by a
resolution of July 20, 1959, declared the defendant as resigned as of the date of suspension.

On August 18, 1959, the defendant, thru Atty. Alvarez, filed the Court of First Instance of Manila a petition for certiorari,
mandamus and quo warranto with preliminary mandatory injuction and damages against Miguel Cuaderno, Sr., the
Central Bank and Mario Marcos who was appointed to the position of the defendant, said case having been docketed as
Civil Case No. 41226 and assigned to Branch VII presided over by Judge Gregorio T. Lantin. On September 7, 1959, the
respondent filed a motion to dismiss the petition, alleging among other grounds, the failure of the defendant to exhaust,
available administrative remedies (Exh. X). On September 25, 1959, the defendant, thru Atty. Alvarez, filed his
opposition to the said motion. On March 17, 1960, during the course of the presentation of the evidence for the petition
for a writ of preliminary mandatory injunction, Atty. Alvarez manifested that the defendant was abandoning his prayer
for a writ of preliminary mandatory injunction and asked for a ruling on the motion to dismiss. On June 14, 1960, Judge
Lantin dismissed Civil Case No. 41226 for failure to exhaust she administrative remedies available to the herein
defendant.

On June 24, 1960, Atty. Alverez received a copy of the order of dismissal It was at this state that the plaintiff entered
into the case under circumstances about which the parties herein have given divergent versions.

According to the plaintiff, six or seven days prior to the expiration of the period for appeal from the order of dismissal,
he chanced to meet the late Rafael Corpus, father of the defendant, at the Taza de Oro coffee shop. After they talked
about the defendant's having lost his case before Judge Lantin, and knowing that the plaintiff and the defendant were
both members of the Civil Liberties Union, Rafael Corpus requested the plaintiff to go over the case and further said that
he would send his son, the herein defendant, to the plaintiff to find out what could be done about the case. The
defendant called up the plaintiff the following morning for an appointment, and the plaintiff agreed to am him in the
latter's office. At said conference, the defendant requested the plaintiff to handle the case because Atty. Alvarez had
already been disenchanted and wanted to give up the case. Although at first reluctant to handle the case, the plaintiff
finally agreed on condition that he and Atty. Alverez would collaborate in the case.

The defendant's version of how the plaintiff came into the case is as follows:

After the order of dismissal issued by Judge Lantin was published in the newspapers, the plaintiff sought a conference
with the defendant at Taza de Oro, but the defendant told him that he would rather meet the plaintiff at the Swiss Inn.
Even before the case was dismissed the plaintiff had shown interest in the same by being present during the hearings of
said case in the sala of Judge Lantin When the plaintiff and the defendant met at the Swiss Inn, the plaintiff handed the
defendant a memorandum prepared by him on how he can secure the reversal of the order of dismissal by means of a
formula stated in said memorandum. During the said occasion the plaintiff scribbled some notes on a paper napkin
(Exhibit 19). On June 28, 1960, the defendant wrote the plaintiff, sending with it a copy of the order of Judge Lantin
dated June 14, 1960 (Exhibit S Inasmuch as said letter, Exhibit S already mentions the 'memorandum' of the plaintiff, the
defendant contends that it was not six or seven days prior to the expiration of the period of appeal (which should be on
or about July 2 or 3, 1960) but on a date even earlier than June 28, 1960 that the plaintiff and the defendant met
together to discuss the latter's case.

Laying aside for the moment the true circumstances under which the plaintiff started rendering professional services to
the defendant, the undisputed evidence shows that on July 7, 1960, the plaintiff filed a motion for reconsideration of the
order of dismissal under the joint signatures of the plaintiff and Atty. Alverez (Exhibit B). The plaintiff argued the said
motion during the hearing thereof On August 8, 1960, he file a 13-page 'Memorandum of Authorities in support of said
motion for reconsideration (Exhibit C). A 3-page supplemental memorandum of authorities was filed by the plaintiff on
September 6, 1960 (Exhibit D)

On November 15, 1960, Judge Lantin denied the motion for reconsideration. On November 19, 1960, the plaintiff
perfected the appeal from the order of dismissal dated June 14, 1960. For purposes of said appeal the plaintiff prepared
a 232-page brief and submitted the same before the Supreme Court in Baguio City on April 20, 1961. The plaintiff was
the one who orally argued the case before the Supreme Court. In connection with the trip to Baguio for the said oral
argument, the plaintiff used his car hich broke down and necessitated extensive repairs paid for by the plaintiff himself.

On March 30, 1962, the Supreme Court promulgated its decision reversing the order of dismissal and remanding the
case for further proceedings. On April 18, 1962, after the promulgation of the decision of the Supreme Court reversing
the dismissal of the case the defendant wrote the plaintiff the following letter, Exhibit 'Q'. .

xxxxxxxxx

Dear Juaning

Will you please accept the attached check in the amount of TWO THOUSAND P2,000.00) PESOS for legal services in the
handling of L-17860 recently decided by the Court? I wish I could give more but as y•u know we were banking on a SC
decision reinstating me and reimburse my backstage I had been wanting to offer some token of my appreciation of your
legal fight for and in my behalf, and it was only last week that I received something on account of a pending claim.

Looking forward to a continuation of the case in the lower court, I remain

Sincerely yours, Illegible

xxxxxxxxx

In a reply letter dated April 25, 1962, the plaintiff returned the check, explaining said act as follows:

April 25, 1962

My dear Marino:

Yesterday, I received your letter of April 18th with its enclosure. I wished thank you for your kind thoughts, however,
please don't take offense if I have to return the check. I will explain.
When I decided to render professional services in your case, I was motivated by the value to me of the very intimate
relations which you and I have enjoyed during the past many years. It was nor primarily, for a professional fee.

Although we were not fortunate to have obtained a decision in your case which should have put an end to it. I feel that
we have reason to be jubilant over the outcome, because, the final favorable outcome of the case seems certain
irrespective of the length of time required to terminate the same.

Your appreciation of the efforts I have invested in your case is enough compensation therefor, however, when you shall
have obtained a decision which would have finally resolved the case in your favor, remembering me then will make me
happy. In the meantime, you will make me happier by just keeping the check.

Sincerely yours,

JUANING

xxxxxxxxx

When the case was remanded for further proceedings before Judge Lantin, the evidence for the defendant was presented
by Atty. 'Alvarez with the plaintiff cooperating in the same-'On June 24, 1963, Judge Lantin rendered his decision in favor
of the defendant declaring illegal the resolution of the Monetary Board of July 20, 1959, and ordering the defendant's
reinstatement and the payment of his back salaries and allowances - The respondents in said Civil Case No. 41226 filed a
motion for reconsideration which was opposed by the herein plaintiff. The said decision was appealed by the
respondents, as well as by the herein defendant with respect to the award of P5, 000. 00 attorney's feed The plaintiff
prepared two briefs for submission to the Court of Appeals one as appellee (Exhibit H) and the other as appellant (Exhibit
H-1). The Court of Appeal however, certified the case to the Supreme Court in 1964.

On March 31, 1965, the Supreme Court rendered a decision affirming the judgment of the Court of first Instance of
Manila.

On April 19, 1965 the plaintiffs law office made a formal de command upon the defendant for collection of 50% of the
amount recovered by the defendant as back salaries and other emoluments from the Central Bank (Exhibit N). This letter
was written after the defendant failed to appear at an appointment with the plaintiff so that they could go together to
the Central Bank to claim the possession of the office to which the defendant was reinstated and after a confrontation in
the office of the plaintiff wherein the plaintiff was remanding 50% of the back salaries and other emoluments amounting
to P203,000.00 recoverable by the defendant. The defendant demurred to this demand inasmuch as he had plenty of
outstanding obligations and that his tax liability for said back salaries was around P90,000.00, and that he expected to
net only around P10,000.00 after deducting all expenses and taxes.

On the same date, April 19,1965 the plaintiff wrote the Governor for of Central Bank requesting that the amount
representing the sack salaries of the defendant be made out in two one in favor of the defendant and the other
representing the professional fees equivalent to 50% of the said back salaries being claimed by the plaintiff (Exhibit 8). F
to obtain the relief from the Governor of Central Bank, the plaintiff instituted this action before this Court on July 20,
1965 (Emphasis supplied).

As therein defendant, herein petitioner Marino Corpus filed in August 5, 1965 an answer with counter-claim. On August
30, 1965, private respondent Atty. Juan T. David, plaintiff therein, filed a reply with answer to the counterclaim of
petitioner.

After due trial, the lower court rendered judgment on September 4, 1967, the dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered, ordering the defendant to pay plaintiff the sum of P30,000.00 in the concept
of professional fees, and to pay the costs (pp. 112-113, CA Record on Appeal p. 54, rec.)

After receipt on September 7, 1967 of a copy of the aforequoted judgment, petitioner Marino Corpus, defendant
therein, filed on October 7, 1967 a notice of appeal from said judgment to the Court of Appeals. In his appeal, he alleged
that the lower court erred:

1. In not holding that the plaintiff's professional services were offered and rendered gratuitously;

2. Assuming that plaintiff is entitled to compensation — in holding that he was entitled to attorney's fees in the amount
of P30,000.00 when at most he would be entitled to only P2,500.00;

3. In not dismissing plaintiff's complaint; and

4. In not awarding damages and attorney's fees to the defendant (p. 2, CA Decision, p. 26, rec.)

Likewise, private respondent Atty. Juan T. David, plaintiff therein, appealed to the Court of Appeals on October 9, 1967
assigning one error, to wit:

The lower court erred in ordering the defendant to pay the plaintiff only the sum of P30,000.00 in the concept of
attorney's fees (p. 1, CA Decision, p. 25, rec.).

On February 14, 1975, respondent Court of Appeals promulgated its decision affirming in toto the decision of the lower
court, with costs against petitioner Marino Corpus (Annex A, Petition for Certiorari, p. 25, rec.)

Hence, the instant petition for review on certiorari, petitioner — contending that the respondent Court of Appeals erred
in finding that petitioner accepted private respondent's services "with the understanding of both that he (private
respondent) was to be compensated" in money; and that the fee of private respondent was contingent (pp. 3 & 5,
Petition for Certiorari, pp. 17 & 19, rec.).

On October 1, 1975, the case was deemed submitted for decision (p. 177, rec.), after the parties filed their respective
memoranda.

On January 31, 1978, private respondent Atty. Juan T. David filed a petition to remand the case to the court a quo for
execution of the latter's decision in Civil Case No. 61802, dated September 4, 1967, alleging that said decision is already
deemed affirmed pursuant to Section 11(2), Article X of the New Constitution by reason of the failure of this Tribunal to
decide the case within 18 months. Then on July 7, 1978, another petition to remand the case to the lower court to
execution was filed by herein private respondent.

Subsequently, private respondent Atty. Juan T. David filed with The court a quo a motion dated September 13, 1978 for
the issuance of a writ of execution of the lower court's decision in the aforesaid civil case, also invoking Section 11 (2),
Article X of the 1973 Constitution. In an order dated September 19, 1978, the lower court, through Judge Jose H. Tecson,
directed the issuance of a writ of execution. The writ of execution was issued on October 2, 1978 and a notice of
garnishment was also issued n October 13, 1978 to garnish the bank deposits of herein petitioner Marino Corpus in the
Commercial Bank and Trust Company, Makati Branch.

It appears that on October 13, 1978, herein petitioner filed a motion for reconsideration of the September 19, 1978
order. Private respondent Atty. Juan T. David filed on October 19, 1978 an opposition to said motion and herein
petitioner filed a reply on October 30, 1978. The lower court denied said motion for reconsideration in its over dated
November 7, 1978.

It appears also that in a letter dated October 18, 1978, herein petitioner Marino Corpus requested this Court to inquire
into what appears to be an irregularity in the issuance of the aforesaid garnishment notice to the Commercial Bank and
Trust Company, by virtue of which his bank deposits were garnished and he was prevented from making withdrawals
from his bank account.

In OUR resolution of November 3, 1978, WE required private respondent Atty. Juan T. David and the Commercial Bank
and Trust Company to comment on petitioner's letter, and for the bank to explain why it did not honor petitioner's
withdrawals from his bank deposits when no garnishment order has been issued by the Supreme Court. This Court
further inquired from the lower court whether it has issued any garnishment order during the pendency of the present
case.

On November 27, 1978, the Commercial Bank and Trust Company filed its comment which was noted in the Court's
resolution of December 4, 1978. In said resolution, the Court also required Judge Jose H. Tecson to comply with the
resolution of November 3, 1978, inquiring as to whether he had issued any garnishment order, and to explain why a writ
of execution was issued despite the pendency of the present case before the Supreme Court.

Further, WE required private respondent Atty. Juan T. David Lo explain his failure to file his comment, and to file the
same as directed by the resolution of the Court dated November 3, 1978. Private respondent's compliance came on
December 13, 1978, requesting to be excused from the filing of his comment because herein petitioner's letter was
unverified. Judge Tecson's compliance was filed on December 15, 1978, to which herein petitioner replied on January
11, 1979.

In OUR resolution dated January 3, 1979, WE set aside the order of Judge Jose H. Tecson dated September 19, 1978, the
writ of execution as well as the notice of garnishment, and required private respondent Atty. Juan T. David to show
cause why he should not be cited for contempt for his failure to file his comment as directed by the resolution of the
Court dated December 4, 1978, and for filing a motion for execution knowing that the case is pending appeal and review
before this Court Likewise, the Court required Judge Jose H. Tecson to show cause why he should not be cited for
contempt for issuing an order directing the issuance of a writ of execution and for issuing such writ despite the
pendency of the present case in the Supreme Court.

On January 12, 1979, Judge Jose H. Tecson filed his compliance explanation as directed by the aforesaid resolution of
January 3, 1979, while private respondent Atty. Juan T. David filed on January 30, 19 79 his compliance and motion for
reconsideration after the Court has granted him an extension of time to file his compliance.

Private respondent Atty. Juan T. David filed on February 28, 1979, a petition praying that the merits of his compliance be
resolved by the Court en banc. Subsequently, on March 26, 1979, another petition was filed by herein private
respondent asking the Chief

Justice and the members of the First Division to inhibit themselves from participating in the determination of the merits
of his compliance and for its merits to be resolved by the Court en banc.

The main thrust of this petition for review is whether or not private respondent Atty. Juan T. David is entitled to
attorney's fees.
Petitioner Marino Corpus contends that respondent David is not entitled to attorney's fees because there was no
contract to that effect. On the other hand, respondent David contends that the absence of a formal contract for the
payment of the attorney's fees will not negate the payment thereof because the contract may be express or implied,
and there was an implied understanding between the petitioner and private respondent that the former will pay the
latter attorney's fees when a final decision shall have been rendered in favor of the petitioner reinstating him to -his
former position in the Central Bank and paying his back salaries.

WE find respondent David's position meritorious. While there was express agreement between petitioner Corpus and
respondent David as regards attorney's fees, the facts of the case support the position of respondent David that there
was at least an implied agreement for the payment of attorney's fees.

Petitioner's act of giving the check for P2,000.00 through his aforestated April 18, 1962 letter to respondent David
indicates petitioner's commitment to pay the former attorney's fees, which is stressed by expressing that "I wish I could
give more but as you know we were banking on a SC decision reinstating me and reimbursing my back salaries This last
sentiment constitutes a promise to pay more upon his reinstatement and payment of his back salaries. Petitioner ended
his letter that he was "looking forward to a continuation of the case in the lower court, ... to which the certiorari-
mandamus-quo warranto case was remanded by the Supreme Court for further proceedings.

Moreover, respondent David's letter-reply of April 25, 1962 confirms the promise of petitioner Corpus to pay attorney's
fees upon his reinstatement and payment of back salaries. Said reply states that respondent David decided to be his
counsel in the case because of the value to him of their intimate relationship over the years and "not, primarily, for a
professional fee." It is patent then, that respondent David agreed to render professional services to petitioner Corpus
secondarily for a professional fee. This is stressed by the last paragraph of said reply which states that "however, when
you shall have obtained a decision which would have finally resolved the case in your favor, remembering me then will
make me happy. In the meantime, you will make me happier by just keeping the check." Thereafter, respondent David
continued to render legal services to petitioner Corpus, in collaboration with Atty. Alverez until he and Atty. Alvarez
secured the decision directing petitioner's reinstatement with back salaries, which legal services were undisputedly
accepted by, and benefited petitioner.

Moreover, there is no reason to doubt respondent David's assertion that Don Rafael Corpus, the late father of petitioner
Corpus, requested respondent to help his son, whose suit for reinstatement was dismissed by the lower court; that
pursuant to such request, respondent conferred in his office with petitioner, who requested respondent to handle the
case as his lawyer, Atty. Alvarez, was already disenchanted and wanted to give up the case; and that respondent agreed
on the case. It would have been unethical for respondent to even offer his services when petitioner had a competent
counsel in the person of Atty. Alvarez, who has been teaching political, constitutional and administrative law for over
twenty years.

Likewise, it appears that after the Supreme Court affirmed on March 31, 1965 the order of the lower court reinstating
petitioner Corpus with back salaries and awarding attorney's fees of P5,000.00, respondent David made a written
demand on April 19, 1965 upon petitioner Corpus for the payment of his attorney's fees in an amount equivalent to 50%
of what was paid as back salaries (Exh. N p. 75, Folder of Exhibits, Civil Case No. 61802). Petitioner Corpus, in his reply
dated May 7, 1965 to the aforesaid written demand, while disagreeing as to the amount of attorney's fees demanded,
did not categorically deny the right of respondent David to attorney's fees but on the contrary gave the latter the
amount of P2,500.00, which is one-half (½) of the court-awarded attorney's fees of P5,000.00, thus impliedly admitting
the right of respondent David to attorney's fees (Exh. K, p. 57, Folder of Exhibits, Civil Case No. 61802).
It is further shown by the records that in the motion filed on March 5, 1975 by petitioner Corpus before the Court of
Appeals for the reconsideration of its decision the order of the lower court granting P30,000.00 attorney's fee's to
respondent David, he admitted that he was the first to acknowledge that respondent David was entitled to tion for legal
services rendered when he sent the chock for P2,000.00 in his letter of April 18, 1962, and he is still to compensate the
respondent but only to the extent of P10,000.00 (p. 44, rec.). This admission serves only to further emphasize the fact
that petitioner Corpus was aware all the time that he was liable to pay attorney's fees to respondent David which is
therefore inconsistent with his position that the services of respondent David were gratuitous, which did not entitle said
respondent to compensation.

It may be advanced that respondent David may be faulted for not reducing the agreement for attorney's fees with
petitioner Corpus in writing. However, this should be viewed from their special relationship. It appears that both have
been friends for several years and were co-members of the Civil Liberties Union. In addition, respondent David and
petitioner's father, the late Rafael Corpus, were also close friends. Thus, the absence of an express contract for
attorney's fees between respondent David and petitioner Corpus is no argument against the payment of attorney's fees,
considering their close relationship which signifies mutual trust and confidence between them.

II

Moreover, the payment of attorney's fees to respondent David may also be justified by virtue of the innominate
contract of facio ut des (I do and you give which is based on the principle that "no one shall unjustly enrich himself at the
expense of another." innominate contracts have been elevated to a codal provision in the New Civil Code by providing
under Article 1307 that such contracts shall be regulated by the stipulations of the parties, by the general provisions or
principles of obligations and contracts, by the rules governing the most analogous nominate contracts, and by the
customs of the people. The rationale of this article was stated in the 1903 case of Perez vs. Pomar (2 Phil. 982). In that
case, the Court sustained the claim of plaintiff Perez for payment of services rendered against defendant Pomar despite
the absence of an express contract to that effect, thus:

It does not appear that any written contract was entered into between the parties for the employment of the plaintiff as
interpreter, or that any other innominate contract was entered into but
whethertheplaintiffsservicesweresolicitedorwhethertheywereoffered to the defendant for his assistance, inasmuch as
these services were accepted and made use of by the latter, we must consider that there was a tacit and mutual consent
as to the rendition of the services. This gives rise to the obligation upon the person benefited by the services to make
compensation therefor, since the bilateral obligation to render service as interpreter, on the one hand, and on the other
to pay for the service rendered, is thereby incurred. (Arts. 1088, 1089, and 1262 of the Civil Code).

xxxxxxxxx

... Whether the service was solicited or offered, the fact remains that Perez rendered to Pomar services as interpreter.
As it does not appear that he did this gratuitously, the duty is imposed upon the defendant, he having accepted the
benefit of the service, to pay a just compensation therefor, by virtue of the innominate contract of facio ut des implicitly
established.

xxxxxxxxx

... because it is a well-known principle of law that no one should permitted to enrich himself to the damage of another"
(emphasis supplied; see also Tolentino, Civil Code of the Philippines, p. 388, Vol. IV 119621, citing Estate of Reguera vs.
Tandra 81 Phil. 404 [1948]; Arroyo vs. Azur 76 Phil. 493119461; and Perez vs. Pomar. 2 Phil. 682 [1903]).
WE reiterated this rule in Pacific Merchandising Corp. vs. Consolacion Insurance & Surety Co., Inc. (73 SCRA 564 [1976])
citing the case of Perez v. Pomar, supra thus:

Where one has rendered services to another, and these services are accepted by the latter, in the absence of proof that
the service was rendered gratuitously, it is but just that he should pay a reasonable remuneration therefor because 'it is
a well-known principle of law, that no one should be permitted to enrich himself to the damage of another (emphasis
supplied).

Likewise, under American law, the same rule obtains (7 CJS 1079; FL Still & Co. v. Powell, 114 So 375).

III

There was no contract for contingent fee between Corpus and respondent David. Contingent fees depend on an express
contract therefor. Thus, "an attorney is not entitled to a percentage of the amount recovered by his client in the absence
of an express contract to that effect" (7 C.J.S. 1063 citing Thurston v. Travelers Ins. Co., 258 N.W. 66, 128 Neb. 141).

Where services were rendered without any agreement whatever as to the amount or terms of compensation, the
attorney is not acting under a contract for a contingent fee, and a letter by the attorney to the client stating that a
certain sum would be a reasonable amount to charge for his services and adding that a rate of not less than five percent
nor more than ten would be reasonable and customary does not convert the original agreement into a contract for a
contingent fee (7 C.J.S. 1063 citing Fleming v. Phinizy 134 S.E. 814).

While there was no express contract between the parties for the payment of attorney's fees, the fact remains that
respondent David rendered legal services to petitioner Corpus and therefore as aforestated, is entitled to compensation
under the innominate contract of facio lit des And such being the case, respondent David is entitled to a reasonable
compensation.

IV

In determining a reasonable fee to be paid to respondent David as compensation for his services, on a quantum meruit
basis, it is proper to consider all the facts and circumstances obtaining in this case particularly the following:

The extent of the services rendered by respondent David should be considered together with the extent of the services
of Petitioner's other counsel, Atty. Rosauro Alvarez, It is undisputed that Atty. Rosauro Alvarez had rendered legal
services as principal counsel for more shall six (6) years while respondent David has rendered legal services as
collaborating counsel for almost four (4) years. It appears that Atty. Alvarez started to render legal services after the
administrative case was filed on March 7, 1958 against petitioner Corpus. He represented petitioner Corpus in the
hearing of said case which was conducted from May 5, 1958 to October 8, 1958, involving 56 sessions, and this resulted
in the complete exoneration by the Investigating Committee of all the charges against the petitioner. It appears further
that after the Monetary Board, in its resolution of July 20, 1959, declared petitioner Corpus as being considered resigned
from the service, Atty. Alvarez instituted on August 18, 1958 Civil Case No. 41126 in the Court of First Instance of Manila
for the setting aside of the aforestated resolution and for the reinstatement of petitioner Corpus. Atty. Alvarez actively
participated in the proceedings.

On the other hand, respondent David entered his appearance as counsel for petitioner Corpus sometime after the
dismissal on June 14, 1960 of the aforesaid civil case. From the time he entered his appearance, both he and Atty.
Alvarez rendered legal services to petitioner Corpus in connection with the appeals of the aforementioned civil case to
the Court of Appeals and to the Supreme Court. The records disclose that in connection with the appeal from the June
14, 1960 order of dismissal, respondent David prepared and signed pleadings although the same were made for and on
behalf of Atty. Alvarez and himself And it is not far-fetched to conclude that all appearances were made by both
counsels considering that Atty. Alverez was the principal counsel and respondent David was the collaborating counsel.
Thus, when the case was called for oral argument on April 20, 1961 before the Supreme Court, respondent David and
Atty. Alverez appeared for petitioner Corpus although it was David who orally argued the case.

When the Supreme Court, in its decision of March 30, 1962, remanded the case to the lower court for further it was
Atty. Alverez who conducted the presentation of evidence while respondent David assisted him The records also review
that respondent David prepared and signed for Atty. Alverez and himself. certain pleadings, including a memorandum.
Moreover, after the lower court rendered judgment on June 2 4, 1963 ordering the reinstatement and payment of back
salaries to petitioner Corpus and awarding him P5,000.00 by way of attorney's fees, both petitioner Corpus and the
respondents in said case appealed the judgment. At that stage, respondent David again prepared and signed for Atty.
Alvarez and himself, the necessary pleadings, including two appeal briefs. And in addition, he made oral arguments in
the hearings of motions filed in the lower court before the records of the case were forwarded to the appellate court.
Furthermore, while it appears that it was Atty. Alvarez who laid down the basic theory and foundation of the case of
petitioner Corpus in the administrative case and later in the civil case, respondent David also advanced legal
propositions. Petitioner Corpus contends that said legal propositions were invariably rejected by the courts. This is,
however, of no moment because the fact remains that respondent David faithfully rendered legal services for the
success of petitioner's case.

The benefits secured for petitioner Corpus may also be considered in ascertaining what should be the compensation of
respondent David. It cannot be denied that both Atty. Alvarez and respondent David were instrumental in obtaining
substantial benefits for petitioner Corpus which consisted primarily of his reinstatement, recovery of back salaries and
the vindication of his honor and reputation. But, note should also be taken of the fact that respondent David came at
the crucial stage when the case of petitioner Corpus was dismissed by the lower court.

Atty. Rosauro Alvarez admittedly was paid by petitioner Corpus the sum of P20,000.00 or at most P22,500.00 (T.s.n., Jan.
11, 1967, pp. 34-35; T.s.n., Feb. 10, 1967, pp. 48-49). On the other hand, petitioner Corpus, after WE suggested on
August 15, 1975 that they settle the case amicably has, in his September 15, 1975 pleading filed before this Court (p.
166, rec.), manifested his willingness to pay P10,000.00 for the services of respondent David. However, respondent
David has not manifested his intention to accept the offer.

In his complaint in the instant case, he asked for P75,000.00 as his attorney's fees. The records reveal that petitioner
Corpus actually received only P150,158.50 as back salaries and emoluments after deducting taxes as well as retirement
and life insurance premiums due to the GSIS. The amount thus claimed by respondent David represents 50% of the
amount actually received by petitioner Corpus. The lower court, however, awarded only P30,000.00 and it was affirmed
by the Court of Appeals.

Considering the aforestated circumstances, WE are of the opinion that the reasonable compensation of respondent
David should be P20,000.00.

WE find private respondent Juan T. David and Judge Jose H. Tecson, Presiding Judge of the Court of First Instance of
Manila, Branch V, guilty of contempt of court.

Respondent David filed on or about September 13, 1978 a motion with the court a quo for the issuance of a writ of
execution to enforce its decision in Civil Case No 61802, subject of the present petition, knowing fully well that it was
then still pending appeal before this Court. In addition, no certification that the aforesaid decision is already deemed
affirmed had as yet been issued by the Chief Justice pursuant to Section 11, paragraph 2, Article X of the New
Constitution; because respondent David's petitions filed with the Supreme Court on January 31, 1978 and on July 7,
1978 to remand the case to the trial court for execution and for the issuance of such certification had not yet been acted
upon as the same were still pending consideration by this Court. In fact, this Court has not as of this time made any
pronouncement on the aforesaid provision of the New Constitution.

This act of respondent David constitutes disrespect to, as well as disregard of, the authority of this Court as the final
arbiter of all cases duly appealed to it, especially constitutional questions. It must be emphasized that as a member of
the Philippine Bar he is required "to observe and maintain the respect due to the court of justice and judicial officers"
(Section 20 (b), 138 of the Revised Rules of Court). Likewise, Canon 1 of. the Canons of Professional Ethic expressly
provide that: "It is the duty of the lawyer to maintain towards the Courts a respectful attitude, not for the sake of the
temporary incumbent of the judgement office, but for the maintenance of its supreme importance." And this Court had
stressed that "the duty of an attorney to the courts 'can only be maintained by rendering no service involving any
disrespect to the judicial office which he is bound to uphold'" (Rheem of the Philippines v. Ferrer, 20 SCRA 441, 444
[1967] citing the case of Lualhati v. Albert, 67 Phil. 86, 92 [1932]).

Moreover, this Court takes judicial notice of the fact that herein respondent David, in the previous case of Integrated
Construction Services, Inc. and Engineering Construction, Inc. v. Relova (65 SCRA 638 [1975]), had sent letters addressed
to the then Chief Justice Querube C. Makalintal and later to the late Chief Justice Fred Ruiz Castro, requesting for the
issuance of certification on the basis of the aforementioned provision of the New Constitution which were not given due
consideration. And knowing this, respondent David should have been more prudent and cautious in g with the court a
quo any motion for execution.

Furthermore, there was even a taint of arrogance and defiance on the part of respondent David in not filing his
comment to the letter- complaint dated October 18, 1978 of petitioner Corpus, as required by this Court in its
November 3, 1978 and December 4,1978 resolutions which were duly received by him, and instead, he sent on
December 13, 1978 a letter requesting to be excused from the filing of his comment on the lame excuse that petitioner's
letter-complaint was not verified.

On the part of Judge Jose H. Tecson, his presumptuous and precipitate act of granting the motion for execution of dent
David likewise constitutes disrespect to, as well as of, the authority of this Court because he know for a that the case
was still pending apply as the had not yet been remanded to it and that no certification has been issued by this Court. As
a judicial officer, Judge Tecson is charged with the knowledge of the fact that this Court has yet to make a definite
pronouncement on Section 11, paragraph 2, Article X of the New Constitution. Judge Tecson should know that only the
Supreme Court can authoritatively interpret Section 11 (2) of Article X of the 1973 Constitution. Yet, Judge Tecson
assumed the role of the Highest Court of the Land. He should be reminded of what Justice Laurel speaking for the Court,
has said in People v. Vera (65 Phil 56, 82 [1937]):

A becoming modesty of inferior courts demands conscious realization of the position that they occupy in the
interrelation and operation of the integrated judged system of the nation.

It may also be added that the improvident act of respondent David in firing the motion for execution and the precipitate
act of Judge Tecson in issuing the writ of execution are intriguing as they invite suspicion that there was connivance
between the two. Respondent David would seem to imply that his claim for attorney's fees should be given preference
over the other cams now pending in this Court. Certainly, such should not be the case because there are cases which by
their nature require immediate or preferential attention by this Tribunal like habeas corpus cases, labor cases and c
cases involving death sentence, let alone cases involving properties and property rights of poor litigants pending
decision or resolution long before the New Constitution of 1973. Nobility and exempt forbearance were expected of
Atty. David, who is old and experienced in the practice of the legal profession, from which he has derived a great
measure. of economic well-being and independence

Consequently, the filing of the motion for immediate tion and the issuance of the writ of execution constitute a defiance
and usurpation of the jurisdiction of the Supreme Court. As a disciplinary measure for the preservation and vindication
of the dignity of this Supreme Tribunal respondent Atty. Juan T. David should be REPRIMANDED for his precipitate action
of filing a motion for execution as well as Judge Jose H. Tecson for his improvident issuance of a writ of execution while
the case is pending appeal before the Supreme Court, and a repetition of said acts would be dealt with more severely.

WHEREFORE, PETITIONER R. MARINO CORPUS IS HEREBY DIRECTED TO PAY RESPONDENT ATTY. JUAN T. DAVID THE
SUM OF TWENTY THOUSAND (P20,000.00) PESOS AS ATTORNEY'S FEES.

RESPONDENT ATTY. JUAN T. DAVID AND JUDGE JOSE H. TECSON OF THE COURT OF FIRST INSTANCE OF MANILA,
BRANCH V, ARE HEREBY DECLARED GUILTY OF CONTEMPT AND ARE HEREBY REPRIMANDED, WITH A WARNING THAT
REPETITION TION OF THE SAME OR SIMILAR ACTS WILL BE DEALT WITH MORE SEVERELY.

COSTS AGAINST PETITIONER.

SO ORDERED.

3. SERRA VS CA (229 SCRA 60)

G.R. No. 103338 January 4, 1994

FEDERICO SERRA, petitioner,

vs.
THE HON. COURT OF APPEALS AND RIZAL COMMERCIAL BANKING CORPORATION, respondents.

Andres R. Amante, Jr. for petitioner.

R.C. Domingo, Jr. & Associates for private respondent.

NOCON, J.:

A promise to buy and sell a determinate thing for a price certain is reciprocally demandable. An accepted unilateral
promise to buy and sell a determinate thing for a price certain is binding upon the promisor if the promise is supported
by a consideration distinct from the price. (Article 1479, New Civil Code) The first is the mutual promise and each has the
right to demand from the other the fulfillment of the obligation. While the second is merely an offer of one to another,
which if accepted, would create an obligation to the offeror to make good his promise, provided the acceptance is
supported by a consideration distinct from the price.

Disputed in the present case is the efficacy of a "Contract of Lease with Option to Buy", entered into between petitioner
Federico Serra and private respondent Rizal Commercial Banking Corporation. (RCBC).

Petitioner is the owner of a 374 square meter parcel of land located at Quezon St., Masbate, Masbate. Sometime in
1975, respondent bank, in its desire to put up a branch in Masbate, Masbate, negotiated with petitioner for the
purchase of the then unregistered property. On May 20, 1975, a contract of LEASE WITH OPTION TO BUY was instead
forged by the parties, the pertinent portion of which reads:

1. The LESSOR leases unto the LESSEE, an the LESSEE hereby accepts in lease, the parcel of land described in the first
WHEREAS clause, to have and to hold the same for a period of twenty-five (25) years commencing from June 1, 1975 to
June 1, 2000. The LESSEE, however, shall have the option to purchase said parcel of land within a period of ten (10) years
from the date of the signing of this Contract at a price not greater than TWO HUNDRED TEN PESOS (P210.00) per square
meter. For this purpose, the LESSOR undertakes, within such ten-year period, to register said parcel of land under the
TORRENS SYSTEM and all expenses appurtenant thereto shall be for his sole account.

If, for any reason, said parcel of land is not registered under the TORRENS SYSTEM within the aforementioned ten-year
period, the LESSEE shall have the right, upon termination of the lease to be paid by the LESSOR the market value of the
building and improvements constructed on said parcel of land.

The LESSEE is hereby appointed attorney-in-fact for the LESSOR to register said parcel of land under the TORRENS
SYSTEM in case the LESSOR, for any reason, fails to comply with his obligation to effect said registration within
reasonable time after the signing of this Agreement, and all expenses appurtenant to such registration shall be charged
by the LESSEE against the rentals due to the LESSOR.

2. During the period of the lease, the LESSEE covenants to pay the LESSOR, at the latter's residence, a monthly rental of
SEVEN HUNDRED PESOS (P700.00), Philippine Currency, payable in advance on or before the fifth (5th) day of every
calendar month, provided that the rentals for the first four (4) months shall be paid by the LESSEE in advance upon the
signing of this Contract.

3. The LESSEE is hereby authorized to construct as its sole expense a building and such other improvements on said
parcel of land, which it may need in pursuance of its business and/or operations; provided, that if for any reason the
LESSEE shall fail to exercise its option mentioned in paragraph (1) above in case the parcel of land is registered under the
TORRENS SYSTEM within the ten-year period mentioned therein, said building and/or improvements, shall become the
property of the LESSOR after the expiration of the 25-year lease period without the right of reimbursement on the part
of the LESSEE. The authority herein granted does not, however, extend to the making or allowing any unlawful,
improper or offensive used of the leased premises, or any use thereof, other than banking and office purposes. The
maintenance and upkeep of such building, structure and improvements shall likewise be for the sole account of the
LESSEE. 1

The foregoing agreement was subscribed before Notary Public Romeo F. Natividad.

Pursuant to said contract, a building and other improvements were constructed on the land which housed the branch
office of RCBC in Masbate, Masbate. Within three years from the signing of the contract, petitioner complied with his
part of the agreement by having the property registered and
placed under the TORRENS SYSTEM, for which Original Certificate of Title No. 0-232 was issued by the Register of Deeds
of the Province of Masbate.

Petitioner alleges that as soon as he had the property registered, he kept on pursuing the manager of the branch to
effect the sale of the lot as per their agreement. It was not until September 4, 1984, however, when the respondent
bank decided to exercise its option and informed petitioner, through a letter, 2 of its intention to buy the property at the
agreed price of not greater than P210.00 per square meter or a total of P78,430.00. But much to the surprise of the
respondent, petitioner replied that he is no longer selling the property. 3

Hence, on March 14, 1985, a complaint for specific performance and damages were filed by respondent against
petitioner. In the complaint, respondent alleged that during the negotiations it made clear to petitioner that it intends to
stay permanently on property once its branch office is opened unless the exigencies of the business requires otherwise.
Aside from its prayer for specific performance, it likewise asked for an award of P50,000.00 for attorney's fees
P100,000.00 as exemplary damages and the cost of the suit. 4
A special and affirmative defenses, petitioner contended:

1. That the contract having been prepared and drawn by RCBC, it took undue advantage on him when it set in lopsided
terms.

2. That the option was not supported by any consideration distinct from the price and hence not binding upon him.

3. That as a condition for the validity and/or efficacy of the option, it should have been exercised within the reasonable
time after the registration of the land under the Torrens System; that its delayed action on the option have forfeited
whatever its claim to the same.

4. That extraordinary inflation supervened resulting in the unusual decrease in the purchasing power of the currency
that could not reasonably be forseen or was manifestly beyond the contemplation of the parties at the time of the
establishment of the obligation, thus, rendering the terms of the contract unenforceable, inequitable and to the undue
enrichment of RCBC. 5

and as counterclaim petitioner alleged that:

1. The rental of P700.00 has become unrealistic and unreasonable, that justice and equity will require its adjustment.

2. By the institution of the complaint he suffered moral damages which may be assessed at P100,000.00 and award of
attorney's fee of P25,000.00 and exemplary damages at P100,000.00. 6

Initially, after trial on the merits, the court dismissed the complaint. Although it found the contract to be valid, the court
nonetheless ruled that the option to buy in unenforceable because it lacked a consideration distinct from the price and
RCBC did not exercise its option within reasonable time. The prayer for readjustment of rental was denied, as well as
that for moral and exemplary damages. 7

Nevertheless, upon motion for reconsideration of respondent, the court in the order of January 9, 1989, reversed itself,
the dispositive portion reads:

WHEREFORE, the Court reconsiders its decision dated June 6, 1988, and hereby renders judgment as follows:

1. The defendant is hereby ordered to execute and deliver the proper deed of sale in favor of plaintiff selling,
transferring and
conveying the property covered by and described in the Original Certificate of Title 0-232 of the Registry of Deeds of
Masbate for the sum of Seventy Eight Thousand Five Hundred Forty Pesos (P78,540,00), Philippine Currency;

2. Defendant is ordered to pay plaintiff the sum of Five Thousand (P5,000.00) Pesos as attorney's fees;

3. The counter claim of defendant is hereby dismissed; and

4. Defendants shall pay the costs of suit. 8

In a decision promulgated on September 19, 1991, 9 the Court of Appeals affirmed the findings of the trial court that:

1. The contract is valid and that the parties perfectly understood the contents thereof;

2. The option is supported by a distinct and separate consideration as embodied in the agreement;

3. There is no basis in granting an adjustment in rental.

Assailing the judgment of the appellate court, petitioner would like us to consider mainly the following:

1. The disputed contract is a contract of adhesion.

2. There was no consideration to support the option, distinct from the price, hence the option cannot be exercised.

3. Respondent court gravely abused its discretion in not granting currency adjustment on the already eroded value of
the stipulated rentals for twenty-five years.

The petition is devoid of merit.

There is no dispute that the contract is valid and existing between the parties, as found by both the trial court and the
appellate court. Neither do we find the terms of the contract unfairly lopsided to have it ignored.

A contract of adhesion is one wherein a party, usually a corporation, prepares the stipulations in the contract, while the
other party merely affixes his signature or his "adhesion" thereto. These types of contracts are as binding as ordinary
contracts. Because in reality, the party who adheres to the contract is free to reject it entirely. Although, this Court will
not hesitate to rule out blind adherence to terms where facts and circumstances will show that it is basically one-sided.
10

We do not find the situation in the present case to be inequitable. Petitioner is a highly educated man, who, at the time
of the trial was already a CPA-Lawyer, and when he entered into the contract, was already a CPA, holding a respectable
position with the Metropolitan Manila Commission. It is evident that a man of his stature should have been more
cautious in transactions he enters into, particularly where it concerns valuable properties. He is amply equipped to drive
a hard bargain if he would be so minded to.

Petitioner contends that the doctrines laid down in the cases of

Atkins Kroll v. Cua Hian Tek, 11 Sanchez v. Rigos, 12 and Vda. de Quirino v. Palarca 13 were misapplied in the present case,
because 1) the option given to the respondent bank was not supported by a consideration distinct from the price; and 2)
that the stipulated price of "not greater than P210.00 per square meter" is not certain or definite.

Article 1324 of the Civil Code provides that when an offeror has allowed the offeree a certain period to accept, the offer
maybe withdrawn at anytime before acceptance by communicating such withdrawal, except when the option is founded
upon consideration, as something paid or promised. On the other hand, Article 1479 of the Code provides that an
accepted unilateral promise to buy and sell a determinate thing for a price certain is binding upon the promisor if the
promise is supported by a consideration distinct from the price.

In a unilateral promise to sell, where the debtor fails to withdraw the promise before the acceptance by the creditor, the
transaction becomes a bilateral contract to sell and to buy, because upon acceptance by the creditor of the offer to sell
by the debtor, there is already a meeting of the minds of the parties as to the thing which is determinate and the price
which is certain. 14 In which case, the parties may then reciprocally demand performance.

Jurisprudence has taught us that an optional contract is a privilege existing only in one party — the buyer. For a separate
consideration paid, he is given the right to decide to purchase or not, a certain merchandise or property, at any time
within the agreed period, at a fixed price. This being his prerogative, he may not be compelled to exercise the option to
buy before the time
expires. 15

On the other hand, what may be regarded as a consideration separate from the price is discussed in the case of Vda. de
Quirino v. Palarca 16 wherein the facts are almost on all fours with the case at bar. The said case also involved a lease
contract with option to buy where we had occasion to say that "the consideration for the lessor's obligation to sell the
leased premises to the lessee, should he choose to exercise his option to purchase the same, is the obligation of the
lessee to sell to the lessor the building and/or improvements constructed and/or made by the former, if he fails to
exercise his option to buy leased premises." 17

In the present case, the consideration is even more onerous on the part of the lessee since it entails transferring of the
building and/or improvements on the property to petitioner, should respondent bank fail to exercise its option within
the period stipulated. 18

The bugging question then is whether the price "not greater than TWO HUNDRED PESOS" is certain or definite. A price is
considered certain if it is so with reference to another thing certain or when the determination thereof is left to the
judgment of a specified person or persons. 19 And generally, gross inadequacy of price does not affect a contract of sale.
20

Contracts are to be construed according to the sense and meaning of the terms which the parties themselves have used.
In the present dispute, there is evidence to show that the intention of the parties is to peg the price at P210 per square
meter. This was confirmed by petitioner himself in his testimony, as follows:

Q. Will you please tell this Court what was the offer?

A. It was an offer to buy the property that I have in Quezon City (sic).

Q. And did they give you a specific amount?

xxx xxx xxx

A. Well, there was an offer to buy the property at P210 per square meters (sic).

Q. And that was in what year?

A . 1975, sir.

Q. And did you accept the offer?

A. Yes, sir. 21

Moreover, by his subsequent acts of having the land titled under the Torrens System, and in pursuing the bank manager
to effect the sale immediately, means that he understood perfectly the terms of the contract. He even had the same
property mortgaged to the respondent bank sometime in 1979, without the slightest hint of wanting to abandon his
offer to sell the property at the agreed price of P210 per square meter. 22

Finally, we agree with the courts a quo that there is no basis, legal or factual, in adjusting the amount of the rent. The
contract is the law between the parties and if there is indeed reason to adjust the rent, the parties could by themselves
negotiate for the amendment of the contract. Neither could we consider the decline of the purchasing power of the
Philippine peso from 1983 to the time of the commencement of the present case in 1985, to be so great as to result in
an extraordinary inflation. Extraordinary inflation exists when there in an unimaginable increase or decrease of the
purchasing power of the Philippine currency, or fluctuation in the value of pesos manifestly beyond the contemplation
of the parties at the time of the establishment of the obligation. 23
Premises considered, we find that the contract of "LEASE WITH OPTION TO BUY" between petitioner and respondent
bank is valid, effective and enforceable, the price being certain and that there was consideration distinct from the price
to support the option given to the lessee.

WHEREFORE, this petition is hereby DISMISSED, and the decision of the appellate court is hereby AFFIRMED.

SO ORDERED.

4. INTEGRATED PACKAGING COMPANY VS CA (333 SCRA 170)

SECOND DIVISION

[G.R. No. 115117. June 8, 2000]

INTEGRATED PACKAGING CORP., petitioner, vs. COURT OF APPEALS and FIL-ANCHOR PAPER CO., INC. respondents.

DECISION

QUISUMBING, J.:

This is a petition to review the decision of the Court of Appeals rendered on April 20, 1994 reversing the judgment of the
Regional Trial Court of Caloocan City in an action for recovery of sum of money filed by private respondent against
petitioner. In said decision, the appellate court decreed:

"WHEREFORE, in view of all the foregoing, the appealed judgment is hereby REVERSED and SET ASIDE. Appellee
[petitioner herein] is hereby ordered to pay appellant [private respondent herein] the sum of P763,101.70, with legal
interest thereon, from the date of the filing of the Complaint, until fully paid.

SO ORDERED."1[1]

The RTC judgment reversed by the Court of Appeals had disposed of the complaint as follows:

"WHEREFORE, judgment is hereby rendered:

Ordering plaintiff [herein private respondent] to pay defendant [herein petitioner] the sum of P27,222.60 as
compensatory and actual damages after deducting P763,101.70 (value of materials received by defendant) from
P790,324.30 representing compensatory damages as defendants unrealized profits;

Ordering plaintiff to pay defendant the sum of P100,000.00 as moral damages;

Ordering plaintiff to pay the sum of P30,000.00 for attorneys fees; and to pay the costs of suit.

SO ORDERED."2[2]
The facts, as culled from the records, are as follows:

Petitioner and private respondent executed on May 5, 1978, an order agreement whereby private respondent bound
itself to deliver to petitioner 3,450 reams of printing paper, coated, 2 sides basis, 80 lbs., 38" x 23", short grain, worth
P1,040,060.00 under the following schedule: May and June 1978450 reams at P290.00/ream; August and September
1978700 reams at P290/ream; January 1979575 reams at P307.20/ream; March 1979575 reams at P307.20/ream; July
1979575 reams at P307.20/ream; and October 1979575 reams at P307.20/ream. In accordance with the standard
operating practice of the parties, the materials were to be paid within a minimum of thirty days and maximum of ninety
days from delivery.

Later, on June 7, 1978, petitioner entered into a contract with Philippine Appliance Corporation (Philacor) to print three
volumes of "Philacor Cultural Books" for delivery on the following dates: Book VI, on or before November 1978; Book VII,
on or before November 1979 and; Book VIII, on or before November 1980, with a minimum of 300,000 copies at a price
of P10.00 per copy or a total cost of P3,000,000.00.

As of July 30, 1979, private respondent had delivered to petitioner 1,097 reams of printing paper out of the total 3,450
reams stated in the agreement. Petitioner alleged it wrote private respondent to immediately deliver the balance
because further delay would greatly prejudice petitioner. From June 5, 1980 and until July 23, 1981, private respondent
delivered again to petitioner various quantities of printing paper amounting to P766,101.70. However, petitioner
encountered difficulties paying private respondent said amount. Accordingly, private respondent made a formal demand
upon petitioner to settle the outstanding account. On July 23 and 31, 1981 and August 27, 1981, petitioner made partial
payments totalling P97,200.00 which was applied to its back accounts covered by delivery invoices dated September 29-
30, 1980 and October 1-2, 1980.3[3]

Meanwhile, petitioner entered into an additional printing contract with Philacor. Unfortunately, petitioner failed to fully
comply with its contract with Philacor for the printing of books VIII, IX, X and XI. Thus, Philacor demanded compensation
from petitioner for the delay and damage it suffered on account of petitioners failure.

On August 14, 1981, private respondent filed with the Regional Trial Court of Caloocan City a collection suit against
petitioner for the sum of P766,101.70, representing the unpaid purchase price of printing paper bought by petitioner on
credit.

In its answer, petitioner denied the material allegations of the complaint. By way of counterclaim, petitioner alleged that
private respondent was able to deliver only 1,097 reams of printing paper which was short of 2,875 reams, in total
disregard of their agreement; that private respondent failed to deliver the balance of the printing paper despite demand
therefor, hence, petitioner suffered actual damages and failed to realize expected profits; and that petitioners complaint
was prematurely filed.

After filing its reply and answer to the counterclaim, private respondent moved for admission of its supplemental
complaint, which was granted. In said supplemental complaint, private respondent alleged that subsequent to the
enumerated purchase invoices in the original complaint, petitioner made additional purchases of printing paper on
credit amounting to P94,200.00. Private respondent also averred that petitioner failed and refused to pay its
outstanding obligation although it made partial payments in the amount of P97,200.00 which was applied to back
accounts, thus, reducing petitioners indebtedness to P763,101.70.
On July 5, 1990, the trial court rendered judgment declaring that petitioner should pay private respondent the sum of
P763,101.70 representing the value of printing paper delivered by private respondent from June 5, 1980 to July 23,
1981. However, the lower court also found petitioners counterclaim meritorious. It ruled that were it not for the failure
or delay of private respondent to deliver printing paper, petitioner could have sold books to Philacor and realized profit
of P790,324.30 from the sale. It further ruled that petitioner suffered a dislocation of business on account of loss of
contracts and goodwill as a result of private respondents violation of its obligation, for which the award of moral
damages was justified.

On appeal, the respondent Court of Appeals reversed and set aside the judgment of the trial court. The appellate court
ordered petitioner to pay private respondent the sum of P763,101.70 representing the amount of unpaid printing paper
delivered by private respondent to petitioner, with legal interest thereon from the date of the filing of the complaint
until fully paid.4[4] However, the appellate court deleted the award of P790,324.30 as compensatory damages as well as
the award of moral damages and attorneys fees, for lack of factual and legal basis.

Expectedly, petitioner filed this instant petition contending that the appellate courts judgment is based on erroneous
conclusions of facts and law. In this recourse, petitioner assigns the following errors:

[I]

"THE COURT OF APPEALS ERRED IN CONCLUDING THAT PRIVATE RESPONDENT DID NOT VIOLATE THE ORDER
AGREEMENT.

[II]

THE COURT OF APPEALS ERRED IN CONCLUDING THAT RESPONDENT IS NOT LIABLE FOR PETITIONERS BREACH OF
CONTRACT WITH PHILACOR.

[III]

THE COURT OF APPEALS ERRED IN CONCLUDING THAT PETITIONER IS NOT ENTITLED TO DAMAGES AGAINST PRIVATE
RESPONDENT."5[5]

In our view, the crucial issues for resolution in this case are as follows:

(1)....Whether or not private respondent violated the order agreement, and;

(2)....Whether or not private respondent is liable for petitioners breach of contract with Philacor.

Petitioners contention lacks factual and legal basis, hence, bereft of merit.

Petitioner contends, firstly, that private respondent violated the order agreement when the latter failed to deliver the
balance of the printing paper on the dates agreed upon.
The transaction between the parties is a contract of sale whereby private respondent (seller) obligates itself to deliver
printing paper to petitioner (buyer) which, in turn, binds itself to pay therefor a sum of money or its equivalent
(price).6[6] Both parties concede that the order agreement gives rise to a reciprocal obligations7[7] such that the
obligation of one is dependent upon the obligation of the other. Reciprocal obligations are to be performed
simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other.8[8] Thus,
private respondent undertakes to deliver printing paper of various quantities subject to petitioners corresponding
obligation to pay, on a maximum 90-day credit, for these materials. Note that in the contract, petitioner is not even
required to make any deposit, down payment or advance payment, hence, the undertaking of private respondent to
deliver the materials is conditional upon payment by petitioner within the prescribed period. Clearly, petitioner did not
fulfill its side of the contract as its last payment in August 1981 could cover only materials covered by delivery invoices
dated September and October 1980.

There is no dispute that the agreement provides for the delivery of printing paper on different dates and a separate
price has been agreed upon for each delivery. It is also admitted that it is the standard practice of the parties that the
materials be paid within a minimum period of thirty (30) days and a maximum of ninety (90) days from each
delivery.9[9] Accordingly, the private respondents suspension of its deliveries to petitioner whenever the latter failed to
pay on time, as in this case, is legally justified under the second paragraph of Article 1583 of the Civil Code which
provides that:

"When there is a contract of sale of goods to be delivered by stated installments, which are to be separately paid for,
and the seller makes defective deliveries in respect of one or more installments, or the buyer neglects or refuses without
just cause to take delivery of or pay for one or more installments, it depends in each case on the terms of the contract
and the circumstances of the case, whether the breach of contract is so material as to justify the injured party in refusing
to proceed further and suing for damages for breach of the entire contract, or whether the breach is severable, giving
rise to a claim for compensation but not to a right to treat the whole contract as broken." (Emphasis supplied)

In this case, as found a quo petitioners evidence failed to establish that it had paid for the printing paper covered by the
delivery invoices on time. Consequently, private respondent has the right to cease making further delivery, hence the
private respondent did not violate the order agreement. On the contrary, it was petitioner which breached the
agreement as it failed to pay on time the materials delivered by private respondent. Respondent appellate court
correctly ruled that private respondent did not violate the order agreement.
On the second assigned error, petitioner contends that private respondent should be held liable for petitioners breach
of contract with Philacor. This claim is manifestly devoid of merit.

As correctly held by the appellate court, private respondent cannot be held liable under the contracts entered into by
petitioner with Philacor. Private respondent is not a party to said agreements. It is also not a contract pour autrui.
Aforesaid contracts could not affect third persons like private respondent because of the basic civil law principle of
relativity of contracts which provides that contracts can only bind the parties who entered into it, and it cannot favor or
prejudice a third person,10[10] even if he is aware of such contract and has acted with knowledge thereof.11[11]

Indeed, the order agreement entered into by petitioner and private respondent has not been shown as having a direct
bearing on the contracts of petitioner with Philacor. As pointed out by private respondent and not refuted by petitioner,
the paper specified in the order agreement between petitioner and private respondent are markedly different from the
paper involved in the contracts of petitioner with Philacor.12[12] Furthermore, the demand made by Philacor upon
petitioner for the latter to comply with its printing contract is dated February 15, 1984, which is clearly made long after
private respondent had filed its complaint on August 14, 1981. This demand relates to contracts with Philacor dated
April 12, 1983 and May 13, 1983, which were entered into by petitioner after private respondent filed the instant case.

To recapitulate, private respondent did not violate the order agreement it had with petitioner. Likewise, private
respondent could not be held liable for petitioners breach of contract with Philacor. It follows that there is no basis to
hold private respondent liable for damages. Accordingly, the appellate court did not err in deleting the damages
awarded by the trial court to petitioner.

The rule on compensatory damages is well established. True, indemnification for damages comprehends not only the
loss suffered, that is to say actual damages (damnum emergens), but also profits which the obligee failed to obtain,
referred to as compensatory damages (lucrum cessans). However, to justify a grant of actual or compensatory damages,
it is necessary to prove with a reasonable degree of certainty, premised upon competent proof and on the best evidence
obtainable by the injured party, the actual amount of loss.13[13] In the case at bar, the trial court erroneously
concluded that petitioner could have sold books to Philacor at the quoted selling price of P1,850,750.55 and by
deducting the production cost of P1,060,426.20, petitioner could have earned profit of P790,324.30. Admittedly, the
evidence relied upon by the trial court in arriving at the amount are mere estimates prepared by petitioner.14[14] Said
evidence is highly speculative and manifestly hypothetical. It could not provide sufficient legal and factual basis for the
award of P790,324.30 as compensatory damages representing petitioners self-serving claim of unrealized profit.

Further, the deletion of the award of moral damages is proper, since private respondent could not be held liable for
breach of contract. Moral damages may be awarded when in a breach of contract the defendant acted in bad faith, or
was guilty of gross negligence amounting to bad faith, or in wanton disregard of his contractual obligation.15[15] Finally,
since the award of moral damages is eliminated, so must the award for attorneys fees be also deleted.16[16]

WHEREFORE, the instant petition is DENIED. The decision of the Court of Appeals is AFFIRMED. Costs against petitioner.

SO ORDERED.

5. CATHAY PACIFIC VS SPOUSES VASQUEZ (GR 150843)

CATHAY PACIFIC AIRWAYS, LTD., petitioner, vs. SPOUSES DANIEL VAZQUEZ and MARIA LUISA MADRIGAL VAZQUEZ,
respondents.

DECISION

DAVIDE, JR., C.J.:

Is an involuntary upgrading of an airline passengers accommodation from one class to a more superior class at no extra
cost a breach of contract of carriage that would entitle the passenger to an award of damages? This is a novel question
that has to be resolved in this case.

The facts in this case, as found by the Court of Appeals and adopted by petitioner Cathay Pacific Airways, Ltd.,
(hereinafter Cathay) are as follows:

Cathay is a common carrier engaged in the business of transporting passengers and goods by air. Among the many
routes it services is the Manila-Hongkong-Manila course. As part of its marketing strategy, Cathay accords its frequent
flyers membership in its Marco Polo Club. The members enjoy several privileges, such as priority for upgrading of
booking without any extra charge whenever an opportunity arises. Thus, a frequent flyer booked in the Business Class
has priority for upgrading to First Class if the Business Class Section is fully booked.

Respondents-spouses Dr. Daniel Earnshaw Vazquez and Maria Luisa Madrigal Vazquez are frequent flyers of Cathay and
are Gold Card members of its Marco Polo Club. On 24 September 1996, the Vazquezes, together with their maid and two
friends Pacita Cruz and Josefina Vergel de Dios, went to Hongkong for pleasure and business.

For their return flight to Manila on 28 September 1996, they were booked on Cathays Flight CX-905, with departure time
at 9:20 p.m. Two hours before their time of departure, the Vazquezes and their companions checked in their luggage at
Cathays check-in counter at Kai Tak Airport and were given their respective boarding passes, to wit, Business Class
boarding passes for the Vazquezes and their two friends, and Economy Class for their maid. They then proceeded to the
Business Class passenger lounge.

When boarding time was announced, the Vazquezes and their two friends went to Departure Gate No. 28, which was
designated for Business Class passengers. Dr. Vazquez presented his boarding pass to the ground stewardess, who in
turn inserted it into an electronic machine reader or computer at the gate. The ground stewardess was assisted by a
ground attendant by the name of Clara Lai Han Chiu. When Ms. Chiu glanced at the computer monitor, she saw a
message that there was a seat change from Business Class to First Class for the Vazquezes.

Ms. Chiu approached Dr. Vazquez and told him that the Vazquezes accommodations were upgraded to First Class. Dr.
Vazquez refused the upgrade, reasoning that it would not look nice for them as hosts to travel in First Class and their
guests, in the Business Class; and moreover, they were going to discuss business matters during the flight. He also told
Ms. Chiu that she could have other passengers instead transferred to the First Class Section. Taken aback by the refusal
for upgrading, Ms. Chiu consulted her supervisor, who told her to handle the situation and convince the Vazquezes to
accept the upgrading. Ms. Chiu informed the latter that the Business Class was fully booked, and that since they were
Marco Polo Club members they had the priority to be upgraded to the First Class. Dr. Vazquez continued to refuse, so
Ms. Chiu told them that if they would not avail themselves of the privilege, they would not be allowed to take the flight.
Eventually, after talking to his two friends, Dr. Vazquez gave in. He and Mrs. Vazquez then proceeded to the First Class
Cabin.

Upon their return to Manila, the Vazquezes, in a letter of 2 October 1996 addressed to Cathays Country Manager,
demanded that they be indemnified in the amount of P1million for the humiliation and embarrassment caused by its
employees. They also demanded a written apology from the management of Cathay, preferably a responsible person
with a rank of no less than the Country Manager, as well as the apology from Ms. Chiu within fifteen days from receipt
of the letter.

In his reply of 14 October 1996, Mr. Larry Yuen, the assistant to Cathays Country Manager Argus Guy Robson, informed
the Vazquezes that Cathay would investigate the incident and get back to them within a weeks time.

On 8 November 1996, after Cathays failure to give them any feedback within its self-imposed deadline, the Vazquezes
instituted before the Regional Trial Court of Makati City an action for damages against Cathay, praying for the payment
to each of them the amounts of P250,000 as temperate damages; P500,000 as moral damages; P500,000 as exemplary
or corrective damages; and P250,000 as attorneys fees.

In their complaint, the Vazquezes alleged that when they informed Ms. Chiu that they preferred to stay in Business
Class, Ms. Chiu obstinately, uncompromisingly and in a loud, discourteous and harsh voice threatened that they could
not board and leave with the flight unless they go to First Class, since the Business Class was overbooked. Ms. Chius loud
and stringent shouting annoyed, embarrassed, and humiliated them because the incident was witnessed by all the other
passengers waiting for boarding. They also claimed that they were unjustifiably delayed to board the plane, and when
they were finally permitted to get into the aircraft, the forward storage compartment was already full. A flight
stewardess instructed Dr. Vazquez to put his roll-on luggage in the overhead storage compartment. Because he was not
assisted by any of the crew in putting up his luggage, his bilateral carpal tunnel syndrome was aggravated, causing him
extreme pain on his arm and wrist. The Vazquezes also averred that they belong to the uppermost and absolutely top
elite of both Philippine Society and the Philippine financial community, [and that] they were among the wealthiest
persons in the Philippine[s].

In its answer, Cathay alleged that it is a practice among commercial airlines to upgrade passengers to the next better
class of accommodation, whenever an opportunity arises, such as when a certain section is fully booked. Priority in
upgrading is given to its frequent flyers, who are considered favored passengers like the Vazquezes. Thus, when the
Business Class Section of Flight CX-905 was fully booked, Cathays computer sorted out the names of favored passengers
for involuntary upgrading to First Class. When Ms. Chiu informed the Vazquezes that they were upgraded to First Class,
Dr. Vazquez refused. He then stood at the entrance of the boarding apron, blocking the queue of passengers from
boarding the plane, which inconvenienced other passengers. He shouted that it was impossible for him and his wife to
be upgraded without his two friends who were traveling with them. Because of Dr. Vazquezs outburst, Ms. Chiu thought
of upgrading the traveling companions of the Vazquezes. But when she checked the computer, she learned that the
Vazquezes companions did not have priority for upgrading. She then tried to book the Vazquezes again to their original
seats. However, since the Business Class Section was already fully booked, she politely informed Dr. Vazquez of such fact
and explained that the upgrading was in recognition of their status as Cathays valued passengers. Finally, after talking to
their guests, the Vazquezes eventually decided to take the First Class accommodation.

Cathay also asserted that its employees at the Hong Kong airport acted in good faith in dealing with the Vazquezes; none
of them shouted, humiliated, embarrassed, or committed any act of disrespect against them (the Vazquezes). Assuming
that there was indeed a breach of contractual obligation, Cathay acted in good faith, which negates any basis for their
claim for temperate, moral, and exemplary damages and attorneys fees. Hence, it prayed for the dismissal of the
complaint and for payment of P100,000 for exemplary damages and P300,000 as attorneys fees and litigation expenses.

During the trial, Dr. Vazquez testified to support the allegations in the complaint. His testimony was corroborated by his
two friends who were with him at the time of the incident, namely, Pacita G. Cruz and Josefina Vergel de Dios.

For its part, Cathay presented documentary evidence and the testimonies of Mr. Yuen; Ms. Chiu; Norma Barrientos,
Comptroller of its retained counsel; and Mr. Robson. Yuen and Robson testified on Cathays policy of upgrading the seat
accommodation of its Marco Polo Club members when an opportunity arises. The upgrading of the Vazquezes to First
Class was done in good faith; in fact, the First Class Section is definitely much better than the Business Class in terms of
comfort, quality of food, and service from the cabin crew. They also testified that overbooking is a widely accepted
practice in the airline industry and is in accordance with the International Air Transport Association (IATA) regulations.
Airlines overbook because a lot of passengers do not show up for their flight. With respect to Flight CX-905, there was
no overall overbooking to a degree that a passenger was bumped off or downgraded. Yuen and Robson also stated that
the demand letter of the Vazquezes was immediately acted upon. Reports were gathered from their office in Hong Kong
and immediately forwarded to their counsel Atty. Remollo for legal advice. However, Atty. Remollo begged off because
his services were likewise retained by the Vazquezes; nonetheless, he undertook to solve the problem in behalf of
Cathay. But nothing happened until Cathay received a copy of the complaint in this case. For her part, Ms. Chiu denied
that she shouted or used foul or impolite language against the Vazquezes. Ms. Barrientos testified on the amount of
attorneys fees and other litigation expenses, such as those for the taking of the depositions of Yuen and Chiu.

In its decision17[1] of 19 October 1998, the trial court found for the Vazquezes and decreed as follows:

WHEREFORE, finding preponderance of evidence to sustain the instant complaint, judgment is hereby rendered in favor
of plaintiffs Vazquez spouses and against defendant Cathay Pacific Airways, Ltd., ordering the latter to pay each plaintiff
the following:

a) Nominal damages in the amount of P100,000.00 for each plaintiff;

b) Moral damages in the amount of P2,000,000.00 for each plaintiff;

c) Exemplary damages in the amount of P5,000,000.00 for each plaintiff;

d) Attorneys fees and expenses of litigation in the amount of P1,000,000.00 for each plaintiff; and

e) Costs of suit.

SO ORDERED.

According to the trial court, Cathay offers various classes of seats from which passengers are allowed to choose
regardless of their reasons or motives, whether it be due to budgetary constraints or whim. The choice imposes a clear
obligation on Cathay to transport the passengers in the class chosen by them. The carrier cannot, without exposing itself
to liability, force a passenger to involuntarily change his choice. The upgrading of the Vazquezes accommodation over
and above their vehement objections was due to the overbooking of the Business Class. It was a pretext to pack as many
passengers as possible into the plane to maximize Cathays revenues. Cathays actuations in this case displayed deceit,
gross negligence, and bad faith, which entitled the Vazquezes to awards for damages.

On appeal by the petitioners, the Court of Appeals, in its decision of 24 July 2001,18[2] deleted the award for exemplary
damages; and it reduced the awards for moral and nominal damages for each of the Vazquezes to P250,000 and
P50,000, respectively, and the attorneys fees and litigation expenses to P50,000 for both of them.

The Court of Appeals ratiocinated that by upgrading the Vazquezes to First Class, Cathay novated the contract of
carriage without the formers consent. There was a breach of contract not because Cathay overbooked the Business
Class Section of Flight CX-905 but because the latter pushed through with the upgrading despite the objections of the
Vazquezes.

However, the Court of Appeals was not convinced that Ms. Chiu shouted at, or meant to be discourteous to, Dr.
Vazquez, although it might seemed that way to the latter, who was a member of the elite in Philippine society and was
not therefore used to being harangued by anybody. Ms. Chiu was a Hong Kong Chinese whose fractured Chinese was
difficult to understand and whose manner of speaking might sound harsh or shrill to Filipinos because of cultural
differences. But the Court of Appeals did not find her to have acted with deliberate malice, deceit, gross negligence, or
bad faith. If at all, she was negligent in not offering the First Class accommodations to other passengers. Neither can the
flight stewardess in the First Class Cabin be said to have been in bad faith when she failed to assist Dr. Vazquez in lifting
his baggage into the overhead storage bin. There is no proof that he asked for help and was refused even after saying
that he was suffering from bilateral carpal tunnel syndrome. Anent the delay of Yuen in responding to the demand letter
of the Vazquezes, the Court of Appeals found it to have been sufficiently explained.

The Vazquezes and Cathay separately filed motions for a reconsideration of the decision, both of which were denied by
the Court of Appeals.

Cathay seasonably filed with us this petition in this case. Cathay maintains that the award for moral damages has no
basis, since the Court of Appeals found that there was no wanton, fraudulent, reckless and oppressive display of
manners on the part of its personnel; and that the breach of contract was not attended by fraud, malice, or bad faith. If
any damage had been suffered by the Vazquezes, it was damnum absque injuria, which is damage without injury,
damage or injury inflicted without injustice, loss or damage without violation of a legal right, or a wrong done to a man
for which the law provides no remedy. Cathay also invokes our decision in United Airlines, Inc. v. Court of Appeals19[3]
where we recognized that, in accordance with the Civil Aeronautics Boards Economic Regulation No. 7, as amended, an
overbooking that does not exceed ten percent cannot be considered deliberate and done in bad faith. We thus deleted
in that case the awards for moral and exemplary damages, as well as attorneys fees, for lack of proof of overbooking
exceeding ten percent or of bad faith on the part of the airline carrier.

On the other hand, the Vazquezes assert that the Court of Appeals was correct in granting awards for moral and nominal
damages and attorneys fees in view of the breach of contract committed by Cathay for transferring them from the
Business Class to First Class Section without prior notice or consent and over their vigorous objection. They likewise
argue that the issuance of passenger tickets more than the seating capacity of each section of the plane is in itself
fraudulent, malicious and tainted with bad faith.

The key issues for our consideration are whether (1) by upgrading the seat accommodation of the Vazquezes from
Business Class to First Class Cathay breached its contract of carriage with the Vazquezes; (2) the upgrading was tainted
with fraud or bad faith; and (3) the Vazquezes are entitled to damages.

We resolve the first issue in the affirmative.

A contract is a meeting of minds between two persons whereby one agrees to give something or render some service to
another for a consideration. There is no contract unless the following requisites concur: (1) consent of the contracting
parties; (2) an object certain which is the subject of the contract; and (3) the cause of the obligation which is
established.20[4] Undoubtedly, a contract of carriage existed between Cathay and the Vazquezes. They voluntarily and
freely gave their consent to an agreement whose object was the transportation of the Vazquezes from Manila to Hong
Kong and back to Manila, with seats in the Business Class Section of the aircraft, and whose cause or consideration was
the fare paid by the Vazquezes to Cathay.

The only problem is the legal effect of the upgrading of the seat accommodation of the Vazquezes. Did it constitute a
breach of contract?

Breach of contract is defined as the failure without legal reason to comply with the terms of a contract.21[5] It is also
defined as the [f]ailure, without legal excuse, to perform any promise which forms the whole or part of the
contract.22[6]
In previous cases, the breach of contract of carriage consisted in either the bumping off of a passenger with confirmed
reservation or the downgrading of a passengers seat accommodation from one class to a lower class. In this case, what
happened was the reverse. The contract between the parties was for Cathay to transport the Vazquezes to Manila on a
Business Class accommodation in Flight CX-905. After checking-in their luggage at the Kai Tak Airport in Hong Kong, the
Vazquezes were given boarding cards indicating their seat assignments in the Business Class Section. However, during
the boarding time, when the Vazquezes presented their boarding passes, they were informed that they had a seat
change from Business Class to First Class. It turned out that the Business Class was overbooked in that there were more
passengers than the number of seats. Thus, the seat assignments of the Vazquezes were given to waitlisted passengers,
and the Vazquezes, being members of the Marco Polo Club, were upgraded from Business Class to First Class.

We note that in all their pleadings, the Vazquezes never denied that they were members of Cathays Marco Polo Club.
They knew that as members of the Club, they had priority for upgrading of their seat accommodation at no extra cost
when an opportunity arises. But, just like other privileges, such priority could be waived. The Vazquezes should have
been consulted first whether they wanted to avail themselves of the privilege or would consent to a change of seat
accommodation before their seat assignments were given to other passengers. Normally, one would appreciate and
accept an upgrading, for it would mean a better accommodation. But, whatever their reason was and however odd it
might be, the Vazquezes had every right to decline the upgrade and insist on the Business Class accommodation they
had booked for and which was designated in their boarding passes. They clearly waived their priority or preference
when they asked that other passengers be given the upgrade. It should not have been imposed on them over their
vehement objection. By insisting on the upgrade, Cathay breached its contract of carriage with the Vazquezes.

We are not, however, convinced that the upgrading or the breach of contract was attended by fraud or bad faith. Thus,
we resolve the second issue in the negative.

Bad faith and fraud are allegations of fact that demand clear and convincing proof. They are serious accusations that can
be so conveniently and casually invoked, and that is why they are never presumed. They amount to mere slogans or
mudslinging unless convincingly substantiated by whoever is alleging them.

Fraud has been defined to include an inducement through insidious machination. Insidious machination refers to a
deceitful scheme or plot with an evil or devious purpose. Deceit exists where the party, with intent to deceive, conceals
or omits to state material facts and, by reason of such omission or concealment, the other party was induced to give
consent that would not otherwise have been given.23[7]

Bad faith does not simply connote bad judgment or negligence; it imports a dishonest purpose or some moral obliquity
and conscious doing of a wrong, a breach of a known duty through some motive or interest or ill will that partakes of the
nature of fraud.24[8]

We find no persuasive proof of fraud or bad faith in this case. The Vazquezes were not induced to agree to the
upgrading through insidious words or deceitful machination or through willful concealment of material facts. Upon
boarding, Ms. Chiu told the Vazquezes that their accommodations were upgraded to First Class in view of their being
Gold Card members of Cathays Marco Polo Club. She was honest in telling them that their seats were already given to
other passengers and the Business Class Section was fully booked. Ms. Chiu might have failed to consider the remedy of
offering the First Class seats to other passengers. But, we find no bad faith in her failure to do so, even if that amounted
to an exercise of poor judgment.

Neither was the transfer of the Vazquezes effected for some evil or devious purpose. As testified to by Mr. Robson, the
First Class Section is better than the Business Class Section in terms of comfort, quality of food, and service from the
cabin crew; thus, the difference in fare between the First Class and Business Class at that time was $250.25[9] Needless
to state, an upgrading is for the better condition and, definitely, for the benefit of the passenger.

We are not persuaded by the Vazquezes argument that the overbooking of the Business Class Section constituted bad
faith on the part of Cathay. Section 3 of the Economic Regulation No. 7 of the Civil Aeronautics Board, as amended,
provides:

Sec 3. Scope. This regulation shall apply to every Philippine and foreign air carrier with respect to its operation of flights
or portions of flights originating from or terminating at, or serving a point within the territory of the Republic of the
Philippines insofar as it denies boarding to a passenger on a flight, or portion of a flight inside or outside the Philippines,
for which he holds confirmed reserved space. Furthermore, this Regulation is designed to cover only honest mistakes on
the part of the carriers and excludes deliberate and willful acts of non-accommodation. Provided, however, that
overbooking not exceeding 10% of the seating capacity of the aircraft shall not be considered as a deliberate and willful
act of non-accommodation.

It is clear from this section that an overbooking that does not exceed ten percent is not considered deliberate and
therefore does not amount to bad faith.26[10] Here, while there was admittedly an overbooking of the Business Class,
there was no evidence of overbooking of the plane beyond ten percent, and no passenger was ever bumped off or was
refused to board the aircraft.

Now we come to the third issue on damages.

The Court of Appeals awarded each of the Vazquezes moral damages in the amount of P250,000. Article 2220 of the Civil
Code provides:

Article 2220. Willful injury to property may be a legal ground for awarding moral damages if the court should find that,
under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the
defendant acted fraudulently or in bad faith.

Moral damages include physical suffering, mental anguish, fright, serious anxiety, besmirched reputation, wounded
feelings, moral shock, social humiliation, and similar injury. Although incapable of pecuniary computation, moral
damages may be recovered if they are the proximate result of the defendants wrongful act or omission.27[11] Thus,
case law establishes the following requisites for the award of moral damages: (1) there must be an injury clearly
sustained by the claimant, whether physical, mental or psychological; (2) there must be a culpable act or omission
factually established; (3) the wrongful act or omission of the defendant is the proximate cause of the injury sustained by
the claimant; and (4) the award for damages is predicated on any of the cases stated in Article 2219 of the Civil
Code.28[12]

Moral damages predicated upon a breach of contract of carriage may only be recoverable in instances where the carrier
is guilty of fraud or bad faith or where the mishap resulted in the death of a passenger.29[13] Where in breaching the
contract of carriage the airline is not shown to have acted fraudulently or in bad faith, liability for damages is limited to
the natural and probable consequences of the breach of the obligation which the parties had foreseen or could have
reasonably foreseen. In such a case the liability does not include moral and exemplary damages.30[14]

In this case, we have ruled that the breach of contract of carriage, which consisted in the involuntary upgrading of the
Vazquezes seat accommodation, was not attended by fraud or bad faith. The Court of Appeals award of moral damages
has, therefore, no leg to stand on.

The deletion of the award for exemplary damages by the Court of Appeals is correct. It is a requisite in the grant of
exemplary damages that the act of the offender must be accompanied by bad faith or done in wanton, fraudulent or
malevolent manner.31[15] Such requisite is absent in this case. Moreover, to be entitled thereto the claimant must first
establish his right to moral, temperate, or compensatory damages.32[16] Since the Vazquezes are not entitled to any of
these damages, the award for exemplary damages has no legal basis. And where the awards for moral and exemplary
damages are eliminated, so must the award for attorneys fees.33[17]

The most that can be adjudged in favor of the Vazquezes for Cathays breach of contract is an award for nominal
damages under Article 2221 of the Civil Code, which reads as follows:
Article 2221 of the Civil Code provides:

Article 2221. Nominal damages are adjudicated in order that a right of the plaintiff, which has been violated or invaded
by the defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff for any loss
suffered by him.

Worth noting is the fact that in Cathays Memorandum filed with this Court, it prayed only for the deletion of the award
for moral damages. It deferred to the Court of Appeals discretion in awarding nominal damages; thus:

As far as the award of nominal damages is concerned, petitioner respectfully defers to the Honorable Court of Appeals
discretion. Aware as it is that somehow, due to the resistance of respondents-spouses to the normally-appreciated
gesture of petitioner to upgrade their accommodations, petitioner may have disturbed the respondents-spouses wish to
be with their companions (who traveled to Hong Kong with them) at the Business Class on their flight to Manila.
Petitioner regrets that in its desire to provide the respondents-spouses with additional amenities for the one and one-
half (1 1/2) hour flight to Manila, unintended tension ensued.34[18]

Nonetheless, considering that the breach was intended to give more benefit and advantage to the Vazquezes by
upgrading their Business Class accommodation to First Class because of their valued status as Marco Polo members, we
reduce the award for nominal damages to P5,000.

Before writing finis to this decision, we find it well-worth to quote the apt observation of the Court of Appeals regarding
the awards adjudged by the trial court:

We are not amused but alarmed at the lower courts unbelievable alacrity, bordering on the scandalous, to award
excessive amounts as damages. In their complaint, appellees asked for P1 million as moral damages but the lower court
awarded P4 million; they asked for P500,000.00 as exemplary damages but the lower court cavalierly awarded a
whooping P10 million; they asked for P250,000.00 as attorneys fees but were awarded P2 million; they did not ask for
nominal damages but were awarded P200,000.00. It is as if the lower court went on a rampage, and why it acted that
way is beyond all tests of reason. In fact the excessiveness of the total award invites the suspicion that it was the result
of prejudice or corruption on the part of the trial court.

The presiding judge of the lower court is enjoined to hearken to the Supreme Courts admonition in Singson vs. CA (282
SCRA 149 [1997]), where it said:

The well-entrenched principle is that the grant of moral damages depends upon the discretion of the court based on the
circumstances of each case. This discretion is limited by the principle that the amount awarded should not be palpably
and scandalously excessive as to indicate that it was the result of prejudice or corruption on the part of the trial court.

and in Alitalia Airways vs. CA (187 SCRA 763 [1990], where it was held:

Nonetheless, we agree with the injunction expressed by the Court of Appeals that passengers must not prey on
international airlines for damage awards, like trophies in a safari. After all neither the social standing nor prestige of the
passenger should determine the extent to which he would suffer because of a wrong done, since the dignity affronted in
the individual is a quality inherent in him and not conferred by these social indicators. 35[19]

We adopt as our own this observation of the Court of Appeals.

WHEREFORE, the instant petition is hereby partly GRANTED. The Decision of the Court of Appeals of 24 July 2001 in CA-
G.R. CV No. 63339 is hereby MODIFIED, and as modified, the awards for moral damages and attorneys fees are set aside
and deleted, and the award for nominal damages is reduced to P5,000.

No pronouncement on costs.

SO ORDERED.

6. JARDINE DAVIES VS CA (333 SCRA 684) // RE: 2 KINDS OF CONDITION

G.R. No. 128066 June 19, 2000

JARDINE DAVIES INC., petitioner,

vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

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

G.R. No. 128069

PURE FOODS CORPORATION, petitioner,

vs.
COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents.

BELLOSILLO, J.:

This is rather a simple case for specific performance with damages which could have been resolved through mediation
and conciliation during its infancy stage had the parties been earnest in expediting the disposal of this case. They opted
however to resort to full court proceedings and denied themselves the benefits of alternative dispute resolution, thus
making the process more arduous and long-drawn.

The controversy started in 1992 at the height of the power crisis which the country was then experiencing. To remedy
and curtail further losses due to the series of power failures, petitioner PURE FOODS CORPORATION (hereafter
PUREFOODS) decided to install two (2) 1500 KW generators in its food processing plant in San Roque, Marikina City.

Sometime in November 1992 a bidding for the supply and installation of the generators was held. Several suppliers and
dealers were invited to attend a pre-bidding conference to discuss the conditions, propose scheme and specifications
that would best suit the needs of PUREFOODS. Out of the eight (8) prospective bidders who attended the pre-bidding
conference, only three (3) bidders, namely, respondent FAR EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO),
MONARK and ADVANCE POWER submitted bid proposals and gave bid bonds equivalent to 5% of their respective bids,
as required.
Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO President Alfonso Po, PUREFOODS confirmed the
award of the contract to FEMSCO —

Gentlemen:

This will confirm that Pure Foods Corporation has awarded to your firm the project: Supply and Installation of two (2)
units of 1500 KW/unit Generator Sets at the Processed Meats Plant, Bo. San Roque, Marikina, based on your proposal
number PC 28-92 dated November 20, 1992, subject to the following basic terms and conditions:

1. Lump sum contract of P6,137,293.00 (VAT included), for the supply of materials and labor for the local portion and the
labor for the imported materials, payable by progress billing twice a month, with ten percent (10%) retention. The
retained amount shall be released thirty (30) days after acceptance of the completed project and upon posting of
Guarantee Bond in an amount equivalent to twenty percent (20%) of the contract price. The Guarantee Bond shall be
valid for one (1) year from completion and acceptance of project. The contract price includes future increase/s in costs
of materials and labor;

2. The projects shall be undertaken pursuant to the attached specifications. It is understood that any item required to
complete the project, and those not included in the list of items shall be deemed included and covered and shall be
performed;

3. All materials shall be brand new;

4. The project shall commence immediately and must be completed within twenty (20) working days after the delivery
of Generator Set to Marikina Plant, penalty equivalent to 1/10 of 1% of the purchase price for every day of delay;

5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the contract price, and shall procure All
Risk Insurance equivalent to the contract price upon commencement of the project. The All Risk Insurance Policy shall be
endorsed in favor of and shall be delivered to Pure Foods Corporation;

6. Warranty of one (1) year against defective material and/or workmanship.

Once finalized, we shall ask you to sign the formal contract embodying the foregoing terms and conditions.

Immediately, FEMSCO submitted the required performance bond in the amount of P1,841,187.90 and contractor's all-
risk insurance policy in the amount of P6,137,293.00 which PUREFOODS through its Vice President Benedicto G. Tope
acknowledged in a letter dated 18 December 1992. FEMSCO also made arrangements with its principal and started the
PUREFOODS project by purchasing the necessary materials. PUREFOODS on the other hand returned FEMSCO's Bidder's
Bond in the amount of P1,000,000.00, as requested.

Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President Teodoro L. Dimayuga
unilaterally canceled the award as "significant factors were uncovered and brought to (their) attention which dictate
(the) cancellation and warrant a total review and re-bid of (the) project." Consequently, FEMSCO protested the
cancellation of the award and sought a meeting with PUREFOODS. However, on 26 March 1993, before the matter could
be resolved, PUREFOODS already awarded the project and entered into a contract with JARDINE NELL, a division of
Jardine Davies, Inc. (hereafter JARDINE), which incidentally was not one of the bidders.1âwphi1.nêt

FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and desist from
delivering and installing the two (2) generators at PUREFOODS. Its demand letters unheeded, FEMSCO sued both
PUREFOODS and JARDINE: PUREFOODS for reneging on its contract, and JARDINE for its unwarranted interference and
inducement. Trial ensued. After FEMSCO presented its evidence, JARDINE filed a Demurrer to Evidence.
On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, 1 granted JARDINE's Demurrer to Evidence. The trial court
concluded that "[w]hile it may seem to the plaintiff that by the actions of the two defendants there is something
underhanded going on, this is all a matter of perception, and unsupported by hard evidence, mere suspicions and
suppositions would not stand up very well in a court of law." 2 Meanwhile trial proceeded as regards the case against
PUREFOODS.

On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the sum of
P2,300,000.00 representing the value of engineering services it rendered; (b) to pay FEMSCO the sum of US$14,000.00
or its peso equivalent, and P900,000.00 representing contractor's mark-up on installation work, considering that it
would be impossible to compel PUREFOODS to honor, perform and fulfill its contractual obligations in view of
PUREFOOD's contract with JARDINE and noting that construction had already started thereon; (c) to pay attorney's fees
in an amount equivalent to 20% of the total amount due; and, (d) to pay the costs. The trial court dismissed the
counterclaim filed by PUREFOODS for lack of factual and legal basis.

Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994 Resolution of the
trial court which granted the Demurrer to Evidence filed by JARDINE resulting in the dismissal of the complaint against it,
while PUREFOODS appealed the 28 July 1994 Decision of the same court which ordered it to pay FEMSCO.

On 14 August 1996 the Court of Appeals affirmed in toto the 28 July 1994 Decision of the trial court. 3 It also reversed
the 27 June 1994 Resolution of the lower court and ordered JARDINE to pay FEMSCO damages for inducing PUREFOODS
to violate the latter's contract with FEMSCO. As such, JARDINE was ordered to pay FEMSCO P2,000,000.00 for moral
damages. In addition, PUREFOODS was also directed to pay FEMSCO P2,000,000.00 as moral damages and
P1,000,000.00 as exemplary damages as well as 20% of the total amount due as attorney's fees.

On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for reconsideration filed by
PUREFOODS and JARDINE. Hence, these two (2) petitions for review filed by PUREFOODS and JARDINE which were
subsequently consolidated.

PUREFOODS maintains that the conclusions of both the trial court and the appellate court are premised on a
misapprehension of facts. It argues that its 12 December 1992 letter to FEMSCO was not an acceptance of the latter's
bid proposal and award of the project but more of a qualified acceptance constituting a counter-offer which required
FEMSCO's express conforme. Since PUREFOODS never received FEMSCO's conforme, PUREFOODS was very well within
reason to revoke its qualified acceptance or counter-offer. Hence, no contract was perfected between PUREFOODS and
FEMSCO. PUREFOODS also contends that it was never in bad faith when it dealt with FEMSCO. Hence moral and
exemplary damages should not have been awarded.

Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior knowledge of the supposed
contract between PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the latter's alleged contract with
FEMSCO. Moreover, JARDINE reasons that FEMSCO, an artificial person, is not entitled to moral damages. But granting
arguendo that the award of moral damages is proper, P2,000,000.00 is extremely excessive.

In the main, these consolidated cases present two (2) issues: first, whether there existed a perfected contract between
PUREFOODS and FEMSCO; and second, granting there existed a perfected contract, whether there is any showing that
JARDINE induced or connived with PUREFOODS to violate the latter's contract with FEMSCO.

A contract is defined as "a juridical convention manifested in legal form, by virtue of which one or more persons bind
themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to give, to do, or not to do." 4
There can be no contract unless the following requisites concur: (a) consent of the contracting parties; (b) object certain
which is the subject matter of the contract; and, (c) cause of the obligation which is established. 5 A contract binds both
contracting parties and has the force of law between them.

Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From
that moment, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in keeping with good faith, usage and law. 6 To produce a
contract, the acceptance must not qualify the terms of the offer. However, the acceptance may be express or implied. 7
For a contract to arise, the acceptance must be made known to the offeror. Accordingly, the acceptance can be
withdrawn or revoked before it is made known to the offeror.

In the instant case, there is no issue as regards the subject matter of the contract and the cause of the obligation. The
controversy lies in the consent — whether there was an acceptance of the offer, and if so, if it was communicated,
thereby perfecting the contract.

To resolve the dispute, there is a need to determine what constituted the offer and the acceptance. Since petitioner
PUREFOODS started the process of entering into the contract by conducting a bidding, Art. 1326 of the Civil Code, which
provides that "[a]dvertisements for bidders are simply invitations to make proposals," applies. Accordingly, the Terms
and Conditions of the Bidding disseminated by petitioner PUREFOODS constitutes the "advertisement" to bid on the
project. The bid proposals or quotations submitted by the prospective suppliers including respondent FEMSCO, are the
offers. And, the reply of petitioner PUREFOODS, the acceptance or rejection of the respective offers.

Quite obviously, the 12 December 1992 letter of petitioner. PUREFOODS to FEMSCO constituted acceptance of
respondent FEMSCO's offer as contemplated by law. The tenor of the letter, i.e., "This will confirm that Pure Foods has
awarded to your firm (FEMSCO) the project," could not be more categorical. While the same letter enumerated certain
"basic terms and conditions," these conditions were imposed on the performance of the obligation rather than on the
perfection of the contract. Thus, the first "condition" was merely a reiteration of the contract price and billing scheme
based on the Terms and Conditions of Bidding and the bid or previous offer of respondent FEMSCO. The second and
third "conditions" were nothing more than general statements that all items and materials including those excluded in
the list but necessary to complete the project shall be deemed included and should be brand new. The fourth
"condition" concerned the completion of the work to be done, i.e., within twenty (20) days from the delivery of the
generator set, the purchase of which was part of the contract. The fifth "condition" had to do with the putting up of a
performance bond and an all-risk insurance, both of which should be given upon commencement of the project. The
sixth "condition" related to the standard warranty of one (1) year. In fine, the enumerated "basic terms and conditions"
were prescriptions on how the obligation was to be performed and implemented. They were far from being conditions
imposed on the perfection of the contract.

In Babasa v. Court of Appeals 8 we distinguished between a condition imposed on the perfection of a contract and a
condition imposed merely on the performance of an obligation. While failure to comply with the first condition results in
the failure of a contract, failure to comply with the second merely gives the other party options and/or remedies to
protect his interests.

We thus agree with the conclusion of respondent appellate court which affirmed the trial court —

As can be inferred from the actual phrase used in the first portion of the letter, the decision to award the contract has
already been made. The letter only serves as a confirmation of such decision. Hence, to the Court's mind, there is
already an acceptance made of the offer received by Purefoods. Notwithstanding the terms and conditions enumerated
therein, the offer has been accepted and/or amplified the details of the terms and conditions contained in the Terms
and Conditions of Bidding given out by Purefoods to prospective bidders. 9
But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted a "conditional
counter-offer," respondent FEMCO's submission of the performance bond and contractor's all-risk insurance was an
implied acceptance, if not a clear indication of its acquiescence to, the "conditional counter-offer," which expressly
stated that the performance bond and the contractor's all-risk insurance should be given upon the commencement of
the contract. Corollarily, the acknowledgment thereof by petitioner PUREFOODS, not to mention its return of FEMSCO's
bidder's bond, was a concrete manifestation of its knowledge that respondent FEMSCO indeed consented to the
"conditional counter-offer." After all, as earlier adverted to, an acceptance may either be express or implied, 10 and this
can be inferred from the contemporaneous and subsequent acts of the contracting parties.

Accordingly, for all intents and purposes, the contract at that point has been perfected, and respondent FEMSCO's
conforme would only be a mere surplusage. The discussion of the price of the project two (2) months after the 12
December 1992 letter can be deemed as nothing more than a pressure being exerted by petitioner PUREFOODS on
respondent FEMSCO to lower the price even after the contract had been perfected. Indeed from the facts, it can easily
be surmised that petitioner PUREFOODS was haggling for a lower price even after agreeing to the earlier quotation, and
was threatening to unilaterally cancel the contract, which it eventually did. Petitioner PUREFOODS also makes an issue
out of the absence of a purchase order (PO). Suffice it to say that purchase orders or POs do not make or break a
contract. Thus, even the tenor of the subsequent letter of petitioner PUREFOODS, i.e., "Pure Foods Corporation is
hereby canceling the award to your company of the project," presupposes that the contract has been perfected. For,
there can be no cancellation if the contract was not perfected in the first place.

Petitioner PUREFOODS also argues that it was never in bad faith.1avvphi1 On the contrary, it believed in good faith that
no such contract was perfected. We are not convinced. We subscribe to the factual findings and conclusions of the trial
court which were affirmed by the appellate court —

Hence, by the unilateral cancellation of the contract, the defendant (petitioner PURE FOODS) has acted with bad faith
and this was further aggravated by the subsequent inking of a contract between defendant Purefoods and erstwhile co-
defendant Jardine. It is very evident that Purefoods thought that by the expedient means of merely writing a letter
would automatically cancel or nullify the existing contract entered into by both parties after a process of bidding. This,
to the Court's mind, is a flagrant violation of the express provisions of the law and is contrary to fair and just dealings to
which every man is due. 11

This Court has awarded in the past moral damages to a corporation whose reputation has been besmirched. 12 In the
instant case, respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered
equipment from its suppliers on account of the urgency of the project, only to be canceled later. We thus sustain
respondent appellate court's award of moral damages. We however reduce the award from P2,000,000.00 to
P1,000,000.00, as moral damages are never intended to enrich the recipient. Likewise, the award of exemplary damages
by way of example for the public good is excessive and should be reduced to P100,000.00.

Petitioner JARDINE maintains on the other hand that respondent appellate court erred in ordering it to pay moral
damages to respondent FEMSCO as it supposedly induced PUREFOODS to violate the contract with FEMSCO. We agree.
While it may seem that petitioners PUREFOODS and JARDINE connived to deceive respondent FEMSCO, we find no
specific evidence on record to support such perception. Likewise, there is no showing whatsoever that petitioner
JARDINE induced petitioner PUREFOODS. The similarity in the design submitted to petitioner PUREFOODS by both
petitioner JARDINE and respondent FEMSCO, and the tender of a lower quotation by petitioner JARDINE are insufficient
to show that petitioner JARDINE indeed induced petitioner PUREFOODS to violate its contract with respondent FEMSCO.

WHEREFORE, judgment is hereby rendered as follows:

(a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of Appeals reversing the 27 June 1994
resolution of the trial court and ordering petitioner JARDINE DAVIES, INC., to pay private respondent FAR EAST MILLS
SUPPLY CORPORATION P2,000,000.00 as moral damages is REVERSED and SET ASIDE for insufficiency of evidence; and

(b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of Appeals ordering petitioner
PUREFOODS CORPORATION to pay private respondent FAR EAST MILLS SUPPLY CORPORATION the sum of P2,300,000.00
representing the value of engineering services it rendered, US$14,000.00 or its peso equivalent, and P900,000.00
representing the contractor's mark-up on installation work, as well as attorney's fees equivalent to twenty percent (20%)
of the total amount due, is AFFIRMED. In addition, petitioner PURE FOODS CORPORATION is ordered to pay private
respondent FAR EAST MILLS SUPPLY CORPORATION moral damages in the amount of P1,000,000.00 and exemplary
damages in the amount of P1,000,000.00. Costs against petitioner.

SO ORDERED.

DIGEST:

Facts: Petitioner PURE FOODS CORPORATION decided to install two generators in its food processing plant in San
Roque, Marikina City to recover from losses due to the series of power failures. Consequently, bidding for the supply and
installation of the generators was held. Several suppliers and dealers were invited to attend a pre-bidding conference to
discuss the conditions, propose scheme and specifications that would best suit the needs of PUREFOODS. Out of the
eight (8) prospective bidders who attended the pre-bidding conference, only three (3) bidders, namely, respondent FAR
EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO. FEMSCO started the PUREFOODS project and bought the
necessary materials. However, PUREFOODS unilaterally canceled the award because significant factors were uncovered
which dictates the cancellation and warrant a total review and re-bid of the said project. Consequently, FEMSCO
protested the cancellation of the award and sought a meeting with PUREFOODS. However, on 26 March 1993, before
the matter could be resolved, PUREFOODS already awarded the project and entered into a contract with JARDINE NELL,
a division of Jardine Davies, Inc. which incidentally was not one of the bidders. FEMSCO sued PUREFOODS for reneging
on its contract and JARDINE for its unwarranted interference and inducement.

Issues: Whether or not there existed a perfected contract between PUREFOODS and FEMSCO. And granting there
existed a perfected contract, whether there is any showing that JARDINE induced or connived with PUREFOODS to
violate the latter's contract with FEMSCO.

Held: The Supreme Court held that there was no issue as regards the subject matter of the contract and the cause of the
obligation. The controversy lies in the consent — whether there was an acceptance of the offer, and if so, if it was
communicated, thereby perfecting the contract. Since petitioner PUREFOODS started the process of entering into the
contract by conducting bidding, Art. 1326 of the Civil Code, which provides that advertisements for bidders are simply
invitations to make proposals applies. The Supreme Court also re-stated the distinguishment between a condition
imposed on the perfection of a contract and a condition imposed merely on the performance of an obligation. While
failure to comply with the first condition results in the failure of a contract, failure to comply with the second merely
gives the other party options and/or remedies to protect his interests.

7. VILLANUEVA VS CA (GR 114870)

G.R. No. 114870 May 26, 1995

MIGUELA R. VILLANUEVA, RICHARD R. VILLANUEVA, and MERCEDITA VILLANUEVA-TIRADOS, petitioners,
vs.
COURT OF APPEALS, CENTRAL BANK OF THE PHILIPPINES, ILDEFONSO C. ONG, and PHILIPPINE VETERANS BANK,
respondents.

DAVIDE, JR., J.:

Do petitioners have a better right than private respondent Ildefonso Ong to purchase from the Philippine Veterans Bank
(PVB) the two parcels of land described as Lot No. 210-D-1 and Lot No. 210-D-2 situated at Muntinglupa, Metro Manila,
containing an area of 529 and 300 square meters, respectively? This is the principal legal issue raised in this petition.

In its decision of 27 January 1994 in CA-G.R. CV No. 35890, 1 the Court of Appeals held for Ong, while the trial court,
Branch 39 of the Regional Trial Court (RTC) of Manila, ruled for the petitioners in its joint decision of 31 October 1991 in
Civil Case No. 87-42550 2 and Sp. Proc. No. 85-32311. 3

The operative antecedent facts are set forth in the challenged decision as follows:

The disputed lots were originally owned by the spouses Celestino Villanueva and Miguela Villanueva, acquired by the
latter during her husband's sojourn in the United States since 1968. Sometime in 1975, Miguela Villanueva sought the
help of one Jose Viudez, the then Officer-in-Charge of the PVB branch in Makati if she could obtain a loan from said
bank. Jose Viudez told Miguela Villanueva to surrender the titles of said lots as collaterals. And to further facilitate a
bigger loan, Viudez, in connivance with one Andres Sebastian, swayed Miguela Villanueva to execute a deed of sale
covering the two (2) disputed lots, which she did but without the signature of her husband Celestino. Miguela
Villanueva, however, never got the loan she was expecting. Subsequent attempts to contact Jose Viudez proved futile,
until Miguela Villanueva thereafter found out that new titles over the two (2) lots were already issued in the name of the
PVB. It appeared upon inquiry from the Registry of Deeds that the original titles of these lots were canceled and new
ones were issued to Jose Viudez, which in turn were again canceled and new titles issued in favor of Andres Sebastian,
until finally new titles were issued in the name of PNB [should be PVB] after the lots were foreclosed for failure to pay
the loan granted in the name of Andres Sebastian.

Miguela Villanueva sought to repurchase the lots from the PVB after being informed that the lots were about to be sold
at auction. The PVB told her that she can redeem the lots for the price of P110,416.00. Negotiations for the repurchase
of the lots nevertheless were stalled by the filing of liquidation proceedings against the PVB on August of 1985.

Plaintiff-appellant [Ong] on the other hand expounds on his claim over the disputed lots in this manner:

In October 1984, plaintiff-appellant offered to purchase two pieces of Land that had been acquired by PVB through
foreclosure. To back-up plaintiff-appellant's offer he deposited the sum of P10,000.00.

In 23 November 1984, while appellant was still abroad, PVB approved his subject offer under Board Resolution No.
10901-84. Among the conditions imposed by PVB is that: "The purchase price shall be P110,000.00 (Less deposit of
P10,000.00) payable in cash within fifteen (15) days from receipt of approval of the offer."

In mid-April 1985, appellant returned to the country. He immediately verified the status of his offer with the PVB, now
under the control of CB, where he was informed that the same had already been approved. On 16 April 1985, appellant
formally informed CB of his desire to pay the subject balance provided the bank should execute in his favor the
corresponding deed of conveyance. The letter was not answered.
Plaintiff-appellant sent follow-up Letters that went unheeded, the last of which was on 21 May 1987. On 26 May 1987,
appellant's payment for the balance of the subject properties were accepted by CB under Official Receipt #0816.

On 17 September 1987, plaintiff-appellant through his counsel, sent a letter to CB demanding for the latter to execute
the corresponding deed of conveyance in favor of appellant. CB did not bother to answer the same. Hence, the instant
case.

While appellant's action for specific performance against CB was pending, Miguela Villanueva and her children filed their
claims with the Liquidation court. (Appellant's Brief, pp. 3-4). 4

From the pleadings, the following additional or amplificatory facts are established:

The efforts of Miguela Villanueva to reacquire the property began on 8 June 1983 when she offered to purchase the lots
for P60,000.00 with a 20%
downpayment and the balance payable in five years on a quarterly amortization basis. 5

Her offer not having been accepted, 6 Miguela Villanueva increased her bid to P70,000.00. It was only at this time that
she disclosed to the bank her private transactions with Jose Viudez. 7

After this and her subsequent offers were rejected, 8 Miguela sent her sealed bid of P110,417.00 pursuant to the written
advice of the vice president of the PVB. 9

The PVB was placed under receivership pursuant to Monetary Board (MB) Resolution No. 334 dated 3 April 1985 and
later, under liquidation pursuant to MB Resolution No. 612 dated 7 June 1985. Afterwards, a petition for liquidation was
filed with the RTC of Manila, which was docketed as Sp. Proc. No. 85-32311 and assigned to Branch 39 of the said court.

On 26 May 1987, Ong tendered the sum of P100,000.00 representing the balance of the purchase price of the litigated
lots. 10 An employee of the PVB received the amount conditioned upon approval by the Central Bank
liquidator. 11 Ong's demand for a deed of conveyance having gone unheeded, he filed on 23 October 1987 with the RTC
of Manila an action for specific performance against the Central Bank. 12 It was raffled to Branch 47 thereof. Upon
learning that the PVB had been placed under liquidation, the presiding judge of Branch 47 ordered the transfer of the
case to Branch 39, the liquidation court. 13

On 15 June 1989, then Presiding Judge Enrique B. Inting issued an order allowing the purchase of the two lots at the
price of P150,000.00. 14 The Central Bank liquidator of the PVB moved for the reconsideration of the order asserting that
it is contrary to law as the disposal of the lots should be made through public auction. 15

On 26 July 1989, Miguela Villanueva filed her claim with the liquidation court. She averred, among others, that she is the
lawful and registered owner of the subject lots which were mortgaged in favor of the PVB thru the falsification
committed by Jose Viudez, the manager of the PVB Makati Branch, in collusion with Andres Sebastian; that upon
discovering this fraudulent transaction, she offered to purchase the property from the bank; and that she reported the
matter to the PC/INP Criminal Investigation Service Command, Camp Crame, and after investigation, the CIS officer
recommended the filing of a complaint for estafa through falsification of public documents against Jose Viudez and
Andres Sebastian. She then asked that the lots be excluded from the assets of the PVB and be conveyed back to her. 16
Later, in view of the death of her husband, she amended her claim to include her children, herein petitioners Mercedita
Villanueva-Tirados and Richard Villanueva. 17

On 31 October 1991, the trial court rendered judgment 18 holding that while the board resolution approving Ong's offer
may have created in his favor a vested right which may be enforced against the PVB at the time or against the liquidator
after the bank was placed under liquidation proceedings, the said right was no longer enforceable, as he failed to
exercise it within the prescribed 15-day period. As to Miguela's claim, the court ruled that the principle of estoppel bars
her from questioning the transaction with Viudez and the subsequent transactions because she was a co-participant
thereto, though only with respect to her undivided one-half (1/2) conjugal share in the disputed lots and her one-third
(1/3) hereditary share in the estate of her husband.

Nevertheless, the trial court allowed her to purchase the lots if only to restore their status as conjugal properties. It
further held that by reason of estoppel, the transactions having been perpetrated by a responsible officer of the PVB,
and for reasons of equity, the PVB should not be allowed to charge interest on the price of the lots; hence, the purchase
price should be the PVB's claim as of 29 August 1984 when it considered the sealed bids, i.e., P110,416.20, which should
be borne by Miguela Villanueva alone.

The dispositive portion of the decision of the trial court reads as follows:

WHEREFORE, judgment is hereby rendered as follows:

1. Setting aside the order of this court issued on June 15, 1989 under the caption Civil Case No. 87-42550 entitled
"Ildefonso Ong vs. Central Bank of the Phils., et al.;

2. Dismissing the claim of Ildefonso Ong over the two parcels of land originally covered by TCT No. 438073 and 366364 in
the names of Miguela Villanueva and Celestino Villanueva, respectively which are now covered by TCT No. 115631 and
115632 in the name of the PVB;

3. Declaring the Deed of Absolute Sale bearing the signature of Miguela Villanueva and the falsified signature of
Celestino [sic] Viudez under date May 6, 1975 and all transactions and related documents executed thereafter referring
to the two lots covered by the above stated titles as null and void;

4. Ordering the Register of Deeds of Makati which has jurisdiction over the two parcels of land in question to re-instate
in his land records, TCT No. 438073 in the name of Miguela Villanueva and TCT No. 366364 in the name of Celestino
Villanueva who were the registered owners thereof, and to cancel all subsequent titles emanating therefrom; and

5. Ordering the Liquidator to reconvey the two lots described in TCT No. 115631 and 115632 and executing the
corresponding deed of conveyance of the said lots upon the payment of One Hundred Ten Thousand Four Hundred
Sixteen and 20/100 (P110,416.20) Pesos without interest and less the amount deposited by the claimant, Miguela
Villanueva in connection with the bidding where she had participated and conducted by the PVB on August 29, 1984.

Cost against Ildefonso Ong and the PVB.

SO ORDERED. 19

Only Ong appealed the decision to the Court of Appeals. The appeal was docketed as CA-G.R. CV No. 35890. In its
decision of 27 January 1994, the Court of Appeals reversed the decision of the trial court and ruled as follows:

WHEREFORE, premises considered, the assailed decision is hereby REVERSED and SET ASIDE, and a new one entered
ordering the disputed-lots be awarded in favor of plaintiff-appellant Ildefonso Ong upon defendant-appellee Central
Bank's execution of the corresponding deed of sale in his favor. 20

In support thereof, the Court of Appeals declared that Ong's failure to pay the balance within the prescribed period was
excusable because the PVB neither notified him of the approval of his bid nor answered his letters manifesting his
readiness to pay the balance, for which reason he could not have known when to reckon the 15-day period prescribed
under its resolution. It went further to suggest that the Central Bank was in estoppel because it accepted Ong's late-
payment of the balance. As to the petitioners' claim, the Court of Appeals stated:

The conclusion reached by the lower court favorable to Miguela Villanueva is, as aptly pointed out by plaintiff-appellant,
indeed confusing. While the lower court's decision declared Miguela Villanueva as estopped from recovering her
proportionate share and interest in the two (2) disputed lots for being a "co-participant" in the fraudulent scheme
perpetrated by Jose Viudez and Andres Sebastian — a factual finding which We conform to and which Miguela
Villanueva does not controvert in this appeal by not filing her appellee's brief, yet it ordered the reconveyance of the
disputed lots to Miguela Villanueva as the victorious party upon her payment of P110,416.20. Would not estoppel
defeat the claim of the party estopped? If so, which in fact must be so, would it not then be absurd or even defiant for
the lower court to finally entitle Miguela Villanueva to the disputed lots after having been precluded from assailing their
subsequent conveyance in favor of Jose Viudez by reason of her own negligence and/or complicity therein? The
intended punitive effect of estoppel would merely be a dud if this Court leaves the lower court's conclusion unrectified.
21

Their motion for reconsideration 22 having been denied, 23 the petitioners filed this petition for review on certiorari. 24

Subsequently, the respondent Central Bank apprised this Court that the PVB was no longer under receivership or
liquidation and that the PVB has been back in operation since 3 August 1992. It then prayed that it be dropped from this
case or at least be substituted by the PVB, which is the real party in interest. 25

In its Manifestation and Entry of Appearance, the PVB declared that it submits to the jurisdiction of this Court and that it
has no objection to its inclusion as a party respondent in this case in lieu of the Central Bank. 26 The petitioners did not
object to the substitution. 27

Later, in its Comment dated 10 October 1994, the PVB stated that it "submits to and shall abide by whatever judgment
this Honorable Supreme Tribunal may announce as to whom said lands may be awarded without any touch of
preference in favor of one or the other party litigant in the instant
case." 28

In support of their contention that the Court of Appeals gravely erred in holding that Ong is better entitled to purchase
the disputed lots, the petitioners maintain that Ong is a disqualified bidder, his bid of P110,000.00 being lower than the
starting price of P110,417.00 and his deposit of P10,000.00 being less than the required 10% of the bid price; that Ong
failed to pay the balance of the price within the 15-day period from notice of the approval of his bid; and that his offer of
payment is ineffective since it was conditioned on PVB's execution of the deed of absolute sale in his favor.

On the other hand, Ong submits that his offer, though lower than Miguela ViIlanueva's bid by P417.00, is much better,
as the same is payable in cash, while Villanueva's bid is payable in installment; that his payment could not be said to
have been made after the expiration of the 15-day period because this period has not even started to run, there being
no notice yet of the approval of his offer; and that he has a legal right to compel the PVB or its liquidator to execute the
corresponding deed of conveyance.

There is no doubt that the approval of Ong's offer constitutes an acceptance, the effect of which is to perfect the
contract of sale upon notice thereof to Ong. 29 The peculiar circumstances in this case, however, pose a legal obstacle to
his claim of a better right and deny support to the conclusion of the Court of Appeals.

Ong did not receive any notice of the approval of his offer. It was only sometime in mid-April 1985 when he returned
from the United States and inquired about the status of his bid that he came to know of the approval.
It must be recalled that the PVB was placed under receivership pursuant to the MB Resolution of 3 April 1985 after a
finding that it was insolvent, illiquid, and could not operate profitably, and that its continuance in business would involve
probable loss to its depositors and creditors. The PVB was then prohibited from doing business in the Philippines, and
the receiver appointed was directed to "immediately take charge of its assets and liabilities, as expeditiously as possible
collect and gather all the assets and administer the same for the benefit of its creditors, exercising all the powers
necessary for these purposes."

Under Article 1323 of the Civil Code, an offer becomes ineffective upon the death, civil interdiction, insanity, or
insolvency of either party before acceptance is conveyed. The reason for this is that:

[T]he contract is not perfected except by the concurrence of two wills which exist and continue until the moment that
they occur. The contract is not yet perfected at any time before acceptance is conveyed; hence, the disappearance of
either party or his loss of capacity before perfection prevents the contractual tie from being formed. 30

It has been said that where upon the insolvency of a bank a receiver therefor is appointed, the assets of the bank pass
beyond its control into the possession and control of the receiver whose duty it is to administer the assets for the
benefit of the creditors of the bank. 31 Thus, the appointment of a receiver operates to suspend the authority of the bank
and of its directors and officers over its property and effects, such authority being reposed in the receiver, and in this
respect, the receivership is equivalent to an injunction to restrain the bank officers from intermeddling with the
property of the bank in any way. 32

Section 29 of the Central Bank Act, as amended, provides thus:

Sec. 29. Proceedings upon insolvency. — Whenever, upon examination by the head of the appropriate supervising or
examining department or his examiners or agents into the condition of any bank or non-bank financial intermediary
performing quasi-banking functions, it shall be disclosed that the condition of the same is one of insolvency, or that its
continuance in business would involve probable loss to its depositors or creditors, shall be the duty of the department
head concerned forthwith, in writing, to inform the Monetary Board of the facts. The Board may, upon finding the
statements of the department head to be true, forbid the institution to do business in the Philippines and designate an
official of the Central Bank or a person of recognized competence in banking or finance as receiver to immediately take
charge of its assets and liabilities, as expeditiously as possible collect and gather all the assets and administer the same
for the benefit of its creditors . . . exercising all the powers necessary for these purposes. . . .

xxx xxx xxx

The assets of an institution under receivership or liquidation shall be deemed in custodia legis in the hands of the
receiver or liquidator and shall, from the moment of such receivership or liquidation, be exemp from any order of
garnishment, levy, attachment, or execution.

In a nutshell, the insolvency of a bank and the consequent appointment of a receiver restrict the bank's capacity to act,
especially in relation to its property, Applying Article 1323 of the Civil Code, Ong's offer to purchase the subject lots
became ineffective because the PVB became insolvent before the bank's acceptance of the offer came to his knowledge.
Hence, the purported contract of sale between them did not reach the stage of perfection. Corollarily, he cannot invoke
the resolution of the bank approving his bid as basis for his alleged right to buy the disputed properties.

Nor may the acceptance by an employee of the PVB of Ong's payment of P100,000.00 benefit him since the receipt of
the payment was made subject to the approval by the Central Bank liquidator of the PVB thus:
Payment for the purchase price of the former property of Andres Sebastian per approved BR No. 10902-84 dated
11/13/84, subject to the approval of CB liquidator. 33

This payment was disapproved on the ground that the subject property was already in custodia legis, and hence,
disposable only by public auction and subject to the approval of the liquidation court. 34

The Court of Appeals therefore erred when it held that Ong had a better right than the petitioners to the purchase of
the disputed lots.

Considering then that only Ong appealed the decision of the trial court, the PVB and the Central Bank, as well as the
petitioners, are deemed to have fully and unqualifiedly accepted the judgment, which thus became final as to them for
their failure to appeal.

WHEREFORE, the instant petition is GRANTED and the challenged decision of the Court of Appeals of 27 January 1994 in
CA-G.R. CV No. 35890 is hereby SET ASIDE. The decision of Branch 39 of the Regional Trial Court of Manila of 31 October
1991 in Civil Case No. 87-42550 and Sp. Proc. No. 85-32311 is hereby REINSTATED.

Respondent Philippine Veterans Bank is further directed to return to private respondent Ildefonso C. Ong the amount of
P100,000.00.

No pronouncement as to costs.

SO ORDERED.

8. BLANCO VS QUASHA (GR 133148) // SIMULATION OF CONTRACTS

G.R. No. 133148 November 17, 1999

J.R. BLANCO, as the Administrator of the Intestate Estate of MARY RUTH C. ELIZALDE, petitioner,
vs.
WILLIAM H. QUASHA, CIRILO F. ASPERILLA, JR., SYLVIA E. MARCOS, DELFIN A. MANUEL, JR., CIRILO E. DORONILA and
PAREX REALTY CORPORATION, respondents.

YNARES-SANTIAGO, J.:

Mary Ruth C. Elizalde was an American national who owned a house and lot situated on a 2,500 square-meter parcel of
land at 515 Buendia Extension, Forbes Park, Makati, covered by Transfer Certificate of Title No. 106110 of the Register of
Deeds for the Province of Rizal. 1 During her lifetime, on May 22, 1975, she, through attorney-in-fact Don Manuel
Elizalde, entered into a Deed of Sale 2 over the property in favor of Parex Realty Corporation (hereinafter, "Parex"), for
and in consideration of the amount of P625,000.00 payable in twenty-five (25) equal annual installments of P25,000.00
commencing on May 22, 1975 and ending on May 22, 1999. The vendee, Parex, was registered with the Securities and
Exchange Commission on May 10, 1974 with the following incorporators, namely, Cirilo F. Asperilla, Jr., Alonzo Q.
Ancheta, William H. Quasha, Delfin A. Manuel, Jr. and Edgardo F. Sundiam. 3

Also on May 22, 1975, simultaneously with the execution of the Deed of Sale, Parex executed a Contract of Lease 4 with
Mary Ruth C. Elizalde, whereby the same parcel of land was leased to the latter for a term of twenty five (25) years for a
monthly rental of P2,083.34, or P25,000.08 a year. The rental payments shall be credited to and applied in reduction of
the agreed yearly installments of the purchase price of the property.
By virtue of the sale, TCT No. 106110 was cancelled and TCT No. S-6798 was issued in the name of Parex Realty
Corporation on May 27, 1975. 5 On October 17, 1975, Mary Ruth Elizalde executed a Confirmation and Ratification 6 of
the Deed of Sale executed in her behalf by her attorney-in-fact, Don Manuel Elizalde. Despite the transfer of title,
however, Mary Ruth Elizalde continued to pay the Forbes Park Association dues and garbage fees until her demise in
1990. 7 Likewise, she undertook to pay the realty taxes on the property during the term of the lease, pursuant to Section
4 of the Contract of Lease. 8

Mary Ruth C. Elizalde passed away on March 1, 1990. On March 26, 1990, Atty. Daisy P. Arce of the law firm of Quasha,
Asperilla, Ancheta, Peña and Nolasco, on behalf of some heirs of Mary Ruth Elizalde, sent a letter 9 to Peter Wohlfeiler,
Esq., who was handling the legal affairs of the other heirs, informing him that Elizalde left property situated at 515
Buendia Avenue, Forbes Park, Makati, i.e., the land subject of this case.

Petitioner J.R. Blanco, special administrator of the estate of Mary Ruth Elizalde, by letter dated June 13, 1990, 10
demanded from respondents, the individual stockholders and directors of Parex, the reconveyance of the title to the
property to the estate of Mary Ruth Elizalde or, in the alternative, to assign all shares of Parex to said estate.

Respondents ignored petitioner's demand. On July 10, 1990, petitioner, in his capacity as special administrator of the
intestate estate of Mary Ruth Elizalde, brought an action against private respondents William H. Quasha, Cirilo F.
Asperilla, Jr., Sylvia E. Marcos, Delfin A. Manuel, Jr., Cirilo E. Doronilla and Parex, for reconveyance of the parcel of land
subject of the aforesaid sale. 11 Petitioner alleged that the sale of the property by Elizalde to Parex was absolutely
simulated and fictitious and, therefore, null and void. According to petitioner, the alleged sale was executed upon advice
of Elizalde’s lawyers, namely, the individual respondents herein, in order to circumvent the effects of this Court's ruling
in Republic v. Quasha 12 which held that —

FOR THE FOREGOING REASONS, the appealed decision of the Court of First Instance of Rizal is hereby reversed and set
aside; and judgment is rendered declaring that, under the "Parity Amendment" to our Constitution, citizens of the
United States and corporations and business enterprises owned or controlled by them can not acquire and own, save in
cases of hereditary succession, private agricultural lands in the Philippines and that all other rights acquired by them
under said amendment will expire on 3 July 1974. 13

Petitioner further alleges that a few months before July 3, 1974, or specifically on May 10, 1974, respondents rushed the
organization and incorporation of Parex Realty Corporation with the Securities and Exchange Commission. Sometime
later, however, then President Ferdinand E. Marcos declared a one-year moratorium from the Parity Amendment's
expiry on July 3, 1974 until May 27, 1975 for the Government not to take action for the reversion of illegally acquired
land by Americans during the effectivity of the Parity Amendment. On May 24, 1974, Presidential Decree No. 471 was
issued limiting the duration of leases of private lands to aliens to 25 years renewable for another 25 years. Hence,
petitioner posits that the Quasha law firm caused Elizalde to simulate a sale of her land to Parex Realty Corporation,
excluding the house thereon, payable in twenty-five (25) equal annual installments of P25,000.00 each. Simultaneously
with the execution of the contract of sale, Parex and Elizalde entered into a lease contract whereby Parex leased back to
Elizalde the same land for a period of twenty-five (25) years at a monthly rental of P2,083.34 which, when computed,
totals P25,000.00 in a year. Hence, petitioner prayed that the land be reconveyed to the estate of Elizalde, arguing that
she did not receive a single centavo from the transactions.

On December 20, 1994, the Regional Trial Court of Makati, Branch 147, rendered judgment as follows:

WHEREFORE, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and against the
defendants:
a) Declaring the sale executed by Mary Ruth Elizalde in favor of Parex Realty Corporation to be fictitious and simulated;

b) Declaring the estate of Mary Ruth Elizalde to be the true and lawful owner of the parcel of land presently covered by
TCT No. S-6798 of the Registry of Deeds of Rizal;

c) Ordering the defendants to reconvey the legal title over the parcel of land in question in favor of the estate of Mary
Ruth Elizalde;

d) Ordering the defendants to pay attorney's fees in the amount of P500,000.00. With costs.

SO ORDERED. 14

On appeal by respondents, the Court of Appeals, on February 18, 1998, set aside the appealed judgment and dismissed
petitioner's action for reconveyance. 15 The dispositive portion of the Court of Appeals' decision reads:

WHEREFORE, the appealed decision dated December 20, 1994 rendered by court a quo is hereby SET ASIDE. The
complaint for reconveyance filed on July 10, 1990 is hereby DISMISSED.

SO ORDERED.

Petitioner filed a motion for reconsideration with motion for the inhibition of all three members of the appellate court's
Fourth Division, namely, Justices Ramon A. Barcelona, Minerva Gonzaga-Reyes and Demetrio G. Demetria, pleading
circumstances which allegedly show attempts on the part of the Quasha Law Firm to influence Mr. Justice Barcelona.

On April 1, 1998, the Court of Appeals denied petitioner's Motion for Reconsideration with Motion to Inhibit for being
patently groundless and without basis in fact and law. 16

In his motion for the inhibition of the above-named Court of Appeals Justices, petitioner alleges the following
circumstances:

1. The petitioner wrote on 20 December 1997 the Clerk of the Court of Appeals as to why there was still no ponente to
adjudicate the case notwithstanding that one was ordered re-raffled two years before.

2. A clerk of the Court of Appeals handwrote thereon as follows:

J. Galvez — for completion of records

J. R. Barcelona — for decision

(raffled on 7-16-96)

and promised a formal written reply.

3. The petitioner's curiosity was thereby aroused because after "7-16-96" (for 16 July 1996) there was a non-
adjudicatory Resolution dated 20 November 1996 of Justice Ricardo P. Galvez with none of the two concurring Justices
being Barcelona.

4. Consequently, the petitioner caused his messenger to follow-up the said promised formal written reply, at one such
on 20 January 1998 said messenger was informed by a clerk of Justice Barcelona's Office that Atty. Fernando F. Viloria of
the private respondents' Quasha law firm in the company of Manuel Barcelona who is the brother of Justice Barcelona
was in the office of Justice Barcelona on 16 January 1998.
5. Same prompted the petitioner to on 21 January 1998 write Atty. Lorna Patajo-Kapunan as the counsel for the majority
of the heirs of Mary Ruth to "neutralize the Quasha Law Firm's attempt at influencing Justice Barcelona." 17

Petitioner further alleges that the parties, through their respective counsel, have entered into a compromise agreement
and that petitioner had moved that the Court of Appeals call the parties to a preliminary conference. However, on April
1, 1998, one day after respondents filed their opposition, the Court of Appeals through Justice Barcelona promulgated
the assailed Resolution denying the Motion for Reconsideration with Motion to Inhibit. Petitioner states that Division
Chair Justice Minerva Gonzaga-Reyes did not participate in the deliberations, thereby constituting Justice Barcelona as
the Acting Chairman, and surmises that the reason for this was that Justice Gonzaga-Reyes must have realized that the
questioned Decision was obtained through fraud.

Respondents filed their Comment arguing that the petition must be dismissed because it raises questions of fact and not
of law. Respondents deny that Atty. Fernando Viloria went to Justice Barcelona's office, and claims that petitioner's
allegations to this effect are double hearsay — having been obtained from information supposedly relayed first by a
Court of Appeals clerk to petitioner's messenger, then by the messenger to petitioner. Respondents also maintain that
the sale-lease-back agreement was valid, and deny the existence of any compromise agreement between the parties.

Considering that the parties have exhaustively discussed their arguments and counter-arguments on the issues herein,
this Court resolves to dispense with the submission by the parties of memoranda and forthwith decides the same on the
basis of the pleadings thus filed.

Hub of petitioner's grievance is the alleged simulated or fictitious nature of the sale-lease-back agreement between
Mary Ruth Elizalde, on the one hand, and Parex Realty Corporation, on the other hand.

Simulation of a contract may be absolute or relative. The former takes place when the parties do not intend to be bound
at all; the latter, when the parties conceal their true agreement. 18 An absolutely simulated or fictitious contract is void.
A relative simulation, when it does not prejudice a third person and is not intended for any purpose contrary to law,
morals, good customs, public order or public policy binds the parties to their real agreement. 19

The characteristic of simulation is the fact that the apparent contract is not really desired nor intended to produce legal
effects nor in any way alter the juridical situation of the parties. Thus, where a person, in order to place his property
beyond the reach of his creditors, simulates a transfer of it to another, he does not really intend to divest himself of his
title and control of the property; hence, the deed of transfer is but a sham. This characteristic of simulation was defined
by this Court in the case of Rodriguez vs. Rodriguez, No. L-23002, July 31, 1967, 20 SCRA 908. 20

In order to determine whether or not the sale-lease-back agreement is simulated, there is a need to look into the true
intent or agreement of the parties. To do so, however, is to pass upon a factual issue, a function that is not within the
province of this Court.

To begin with, this Court is not a trier of facts. It is not its function to examine and determine the weight of the evidence
supporting the assailed decision. In Philippine Airlines, Inc. vs. Court of Appeals (275 SCRA 621 [1997]), the Court held
that factual findings of the Court of Appeals which are supported by substantial evidence are binding, final and
conclusive upon the Supreme Court. So also, well-established is the rule that "factual findings of the Court of Appeals
are conclusive on the parties and carry even more weight when the said court affirms the factual findings of the trial
court." Moreover, well entrenched is the prevailing jurisprudence that only errors of law and not of facts are reviewable
by this Court in a petition for review on certiorari under Rule 45 of the Revised Rules of Court, which applies with greater
force to the Petition under consideration because the factual findings by the Court of Appeals are in full agreement with
what the trial court found. 21
While in this case the Court of Appeals reversed the decision of the trial court, the former's findings are nonetheless
binding and conclusive on us. Especially, the conclusion of the appellate court is more in accord with the documents on
record. Thus, we affirm the Court of Appeals' decision holding that the requisites of a contract of sale provided for in
Article 1458 of the Civil Code have been complied with, and that the parties intended to be bound by the deed of sale
and for it to produce legal effects. 22 More specifically, the Court of Appeals based its ruling on the following factual
findings which it culled from the records:

First, Mary Ruth Elizalde, through her attorney-in-fact, being disqualified to own real property decided to transfer, as in
fact she did, the ownership of the subject property then covered by Transfer Certificate of Title No. 106110 in her name
(Exhibit G, supra). Said property was delivered to the vendee Parex Realty Corporation when the deed of sale dated May
22, 1975 was executed in accordance with Article 1498 of the New Civil code (Exhibit E, supra). Moreover, the transfer of
ownership over the property to the vendee was implemented by the cancellation of Certificate of Title No. 106110, and
in lieu thereof, a new title in the name of Parex Realty Corporation was issued on May 27, 1975 (Exhibit H, supra).

Second, the vendee, Parex Realty Corporation obligated itself to pay a price certain for the property, that is to pay the
amount of P625,000.00, payable in installments of P25,000.00 per annum for the next 25 years (Exhibit E, supra). And
the vendee not only obligated itself to pay said amount in installments, but actually paid the annual P25,000.00
installments. Although no actual exchange of money was made, yet payment was effected between the vendee and the
vendor by mutual arrangement whereby the monthly rentals of P2,083.34 which was due the vendor, the late Mary
Ruth Elizalde, was paid from the annual installment of P25,000.00 due from the vendee pursuant to the lease contract
executed between them (Exhibit I, supra). The Court finds nothing wrong with this arrangement for the same is not
contrary to law, morals, good customs, public order, or public policy, but rather, for the convenience of both parties
(Article 1306, New Civil Code). And the vendee continues to pay the installments on the property because of the
continued use and possession of the same by the estate of the late Mary Ruth Elizalde.

Third, Mary Ruth Elizalde never contested the sale of the property made in her behalf by her attorney-in-fact Don
Manuel Elizalde. For that matter, she even confirmed and ratified the sale through an instrument acknowledged before
a notary public (Exhibit F, supra).

Fourth, Mary Ruth Elizalde, during her lifetime, never contested the cancellation of Certificate of Title No. 106110 in her
name nor the issuance of Transfer Certificate of Title No. S-6798 in the name of Parex Realty Corporation in lieu thereof.
Consequently, Transfer Certificate of Title No. S-6798 issued in the name of Parex Realty Corporation which covers the
property it bought from Mary Ruth Elizalde, has become indefeasible, thereby confirming the former's ownership of the
property (Heirs of George Bofill v. Court of Appeals, 237 SCRA 451, 458; pp. 208-211, Noblejas and Noblejas;
"Registration of Land Titles and Deeds" 1992 Rev. Ed.).

The fact that Mary Ruth Elizalde continued to pay the realty taxes and the subdivision dues on the property does not
necessarily mean that she did not intend to transfer ownership thereof to Parex Realty Corporation via the deed of sale
dated May 22, 1975 (Exhibit E, supra). This is so because such payment of taxes and subdivision dues, as stipulated in
the contract of lease, forms part of the rental for the use of the land of Parex Realty Corporation (Exhibit I, supra). This
conclusion is fortified by the fact that her obligation to pay the realty taxes and dues is co-terminus with the lifetime of
the lease contract (paragraph 4 of Exhibit I, pp. 99, Record).

By preponderance of evidence, therefore, the defendants were able to prove that the deed of sale executed by Mary
Ruth Elizalde in favor of Parex Realty Corporation is a valid and binding contract which transferred ownership of the
property to the said corporation. As a consequence of this valid sale, the complaint instituted by the plaintiff must
therefore fail, and it goes without saying that the exemplary damages prayed for in this appeal must be denied. 23
The foregoing factual findings of the Court of Appeals are well supported by the evidence on record. Furthermore, the
conclusions reached are consistent not only with law and jurisprudence but also with sound logic. As such, there is no
cogent reason to disturb the findings of the Court of Appeals, more specifically on the validity of the deed of sale
between Elizalde and Parex.

Indeed, petitioner cannot correctly claim that there was no consideration for the contracts of sale and lease, only
because the amount of the annual installments of the purchase price dovetails with the rate of rentals stipulated in the
lease contract. Petitioner argues that Mary Ruth Elizalde did not receive money in the sale of her property. While that
may be true, her continued occupancy of the premises even after she sold it to Parex constitutes valuable consideration
which she received as compensation for the sale.

For the same reason, we do not subscribe to the trial court's conclusion that literally nothing is paid to Mary Ruth
Elizalde as purchase price for the land.

We are not prepared to delve into the motive of Elizalde in transferring the land only and not the house thereon,
inasmuch as that involves a factual question. In this connection, petitioner, in his Reply, 24 contends that the principal
issue in this case, i.e., whether the sale-lease-back was simulated, is a question of law since it involves the interpretation
of the terms of the sale-lease-back agreement. We disagree. As stated above, to resolve the issue of whether or not the
sale-lease-back was simulated, it is imperative that we look into the true intention of the parties, rather than the correct
interpretation of the written stipulations in the contracts. That, again, is a question of fact.

Anent petitioner's charge of influence peddling, we find that it is purely speculative and unfounded. Moreover, it is
anchored on evidence that can only be characterized as double hearsay. As respondents correctly point out, the
allegation that Atty. Fernando F. Viloria of the Quasha law firm was with Mr. Manuel Barcelona in Justice Ramon
Barcelona's office on January 16, 1998 is based on information relayed to petitioner by his messenger who, in turn,
heard it from a clerk assigned in Justice Barcelona's office. Being based on incompetent evidence, the charge does not
merit the attention of this Court.

To recapitulate, therefore, we find that the Court of Appeals committed no reversible error to warrant this appeal.
Accordingly, we affirm the appealed decision of the Court of Appeals in toto and dismiss the instant petition.

WHEREFORE, the petition is DISMISSED.

SO ORDERED.

DIGEST:

BLANCO VS. QUASHA

G.R. No. 133148. November 17, 1999

FACTS
Mary Ruth C. Elizalde was an American national who owned a
house and lot situated at 515 Buendia Extension, Forbes Park,
Makati. During her lifetime, she through attorney-in-fact Don
Manuel Elizalde, entered into a Deed of Sale over the property in
favor of Parex Realty Corporation. Simultaneously with the
execution of the Deed of Sale, Parex executed a Contract of Lease
with Mary Ruth C. Elizalde, whereby the same parcel of land was
leased to the latter. Mary Ruth Elizalde executed a Confirmation
and Ratification of the Deed of Sale executed in her behalf by her
attorney-in-fact. Mary Ruth C. Elizalde passed away on March 1,
1990. On March 26, 1990, Atty. Daisy P. Arce of the law firm of
Quasha, on behalf of some heirs of Mary Ruth Elizalde, sent a letter
to Peter Wohlfeiler, who was handling the legal affairs of the other
heirs, informing him that Elizalde left property situated at 515
Buendia Avenue, Forbes Park, Makati, the land subject of this case.
Petitioner J.R. Blanco, special administrator of the estate of Mary
Ruth Elizalde, by letter demanded from respondents, the reconveyance
of the title to the property to the estate of Mary Ruth Elizalde or,
to assign all shares of Parex to said estate.

ISSUE
Whether or not the sale of the property of Elizalde to Parex
was absolutely simulated and fictitious.

HELD
The Supreme Court held that simulation of a contract may be
absolute or relative. The former takes place when the parties do
not intend to be bound at all; the latter, when the parties conceal
their true agreement. An absolutely simulated or fictitious
contract is void. A relative simulation, when it does not prejudice
a third person and is not intended for any purpose contrary to law,
morals, good customs, public order or public policy binds the
parties to their real agreement. By preponderance of evidence,
therefore, the defendants were able to prove that the deed of sale
executed by Mary Ruth Elizalde in favor of Parex Realty Corporation
is a valid and binding contract which transferred ownership of the
property to the said corporation. As a consequence of this valid
sale, the complaint instituted by the plaintiff must therefore fail,
and it goes without saying that the exemplary damages prayed for in
this appeal must be denied. Petitioner cannot correctly claim that
there was no consideration for the contracts of sale and lease, only
because the amount of the annual installments of the purchase price
dovetails with the rate of rentals stipulated in the lease
contract. Petitioner argues that Mary Ruth Elizalde did not receive
money in the sale of her property. While that may be true, her
continued occupancy of the premises even after she sold it to Parex
constitutes valuable consideration which she received as
compensation for the sale.