The court of origin which tried the suit for specific On September 12, 1984, judgment was rendered:
performance filed by private respondent on account of
the herein petitioners' reluctance to abide by the 1. Ordering the defendants — heirs of
covenant, ruled in favor of the vendee (p. 64, Rollo) Juan Galicia, to execute the Deed of
while respondent court practically agreed with the trial Sale of their undivided ONE HALF (1/2)
court except as to the amount to be paid to petitioners portion of Lot No. 1130, Guimba
and the refund to private respondent are concerned (p. Cadastre, covered by TCT No. NT-
46, Rollo). 120563, in favor of plaintiff Albrigido
Leyva, with an equal frontage facing the
There is no dispute that the sum of P3,000.00 listed as national road upon finality of judgment;
first installment was received by Juan Galicia, Sr. that, in their default, the Clerk of Court
According to petitioners, of the P10,000.00 to be paid II, is hereby ordered to execute the deed
within ten days from execution of the instrument, only of conveyance in line with the provisions
P9,707.00 was tendered to, and received by, them on of Section 10, Rule 39 of the Rules of
numerous occasions from May 29, 1975, up to Court;
November 3, 1979. Concerning private respondent's
assumption of the vendors' obligation to the Philippine 2. Ordering the defendants, heirs of
Veterans Bank, the vendee paid only the sum of Juan Galicia, jointly and severally to pay
P6,926.41 while the difference the indebtedness came attorney's fees of P6,000.00 and the
from Celerina Labuguin (p. 73, Rollo). Moreover, further sum of P3,000.00 for actual and
petitioners asserted that not a single centavo of the compensatory damages;
3. Ordering Celerina Labuguin and the excess of P1,629.48. Thus, when the
other defendants herein to surrender to heirs of Juan Galicia, Sr. (obligees)
the Court the owner's duplicate of TCT accepted the performance, knowing its
No. NT-120563, province of Nueva incompleteness or irregularity and
Ecija, for the use of plaintiff in without expressing any protest or
registering the portion, subject matter of objection, the obligation is deemed fully
the instant suit; complied with (Article 1235, Civil Code).
(p. 50, Rollo)
4. Ordering the withdrawal of the
amount of P18,520.00 now consigned Petitioners are of the impression that the decision
with the Court, and the amount of appealed from, which agreed with the conclusions of the
P17,204.75 be delivered to the heirs of trial court, is vulnerable to attack via the recourse before
Juan Galicia as payment of the balance Us on the principal supposition that the full consideration
of the sale of the lot in question, the of the agreement to sell was not paid by private
defendants herein after deducting the respondent and, therefore, the contract must be
amount of attorney's fees and damages rescinded.
awarded to the plaintiff hereof and the
delivery to the plaintiff of the further sum The suggestion of petitioners that the covenant must be
of P1,315.25 excess or over payment cancelled in the light of private respondent's so-called
and, defendants to pay the cost of the breach seems to overlook petitioners' demeanor who,
suit. (p. 69, Rollo) instead of immediately filing the case precisely to rescind
the instrument because of non-compliance, allowed
and following the appeal interposed with respondent private respondent to effect numerous payments
court, Justice Dayrit with whom Justices Purisima and posterior to the grace periods provided in the contract.
Aldecoa, Jr. concurred, modified the fourth paragraph of This apathy of petitioners who even permitted private
the decretal portion to read: respondent to take the initiative in filing the suit for
specific performance against them, is akin to waiver or
4. Ordering the withdrawal of the abandonment of the right to rescind normally conferred
amount of P18,500.00 now consigned by Article 1191 of the Civil Code. As aptly observed by
with the Court, and that the amount of Justice Gutierrez, Jr. in Angeles vs. Calasanz (135
P16,870.52 be delivered to the heirs of SCRA 323 [1985]; 4 Paras, Civil Code of the Philippines
Juan Galicia, Sr. as payment to the Annotated, Twelfth Ed. [1989], p. 203:
unpaid balance of the sale, including the
reimbursement of the amount paid to . . . We agree with the plaintiffs-
Philippine Veterans Bank, minus the appellees that when the defendants-
amount of attorney's fees and damages appellants, instead of availing of their
awarded in favor of plaintiff. The excess alleged right to rescind, have accepted
of P1,649.48 will be returned to plaintiff. and received delayed payments of
The costs against defendants. (p. installments, though the plaintiffs-
51, Rollo) appellees have been in arrears beyond
the grace period mentioned in
As to how the foregoing directive was arrived at, the paragraph 6 of the contract, the
appellate court declared: defendants-appellants have waived, and
are now estopped from exercising their
alleged right of rescission . . .
With respect to the fourth condition
stipulated in the contract, the period
indicated therein is deemed modified by In Development Bank of the Philippines vs. Sarandi (5
the parties when the heirs of Juan CAR (25) 811; 817-818; cited in 4 Padilla, Civil Code
Galicia, Sr. accepted payments without Annotated, Seventh Ed. [1987], pp. 212-213) a similar
objection up to November 3, 1979. On opinion was expressed to the effect that:
the basis of receipts presented by
appellee commencing from August 8, In a perfected contract of sale of land
1975 up to November 3, 1979, a total under an agreed schedule of payments,
amount of P13,908.25 has been paid, while the parties may mutually oblige
thereby leaving a balance of each other to compel the specific
P13,091.75. Said unpaid balance plus performance of the monthly amortization
the amount reimbursable to appellant in plan, and upon failure of the buyer to
the amount of P3,778.77 will leave an make the payment, the seller has the
unpaid total of P16,870.52. Since right to ask for a rescission of the
appellee consigned in court the sum of contract under Art. 1191 of the Civil
P18,500.00, he is entitled to get the
Code, this shall be deemed waived by obligors and also obligees (4 Padilla, supra, at p. 197),
acceptance of posterior payments. and any of the contracting parties may, upon non-
fulfillment by the other privy of his part of the prestation,
Both the trial and appellate courts were, therefore, rescind the contract or seek fulfillment (Article 1191, Civil
correct in sustaining the claim of private respondent Code). In short, it is puerile for petitioners to say that
anchored on estoppel or waiver by acceptance of they are the only obligees under the contract since they
delayed payments under Article 1235 of the Civil Code in are also bound as obligors to respect the stipulation in
that: permitting private respondent to assume the loan with
the Philippine Veterans Bank which petitioners impeded
when they paid the balance of said loan. As vendors,
When the obligee accepts the
they are supposed to execute the final deed of sale upon
performance, knowing its
full payment of the balance as determined hereafter.
incompleteness or irregularity, and
without expressing any protest or
objection, the obligation is deemed fully Lastly, petitioners argue that there was no valid tender of
complied with. payment nor consignation of the sum of P18,520.00
which they acknowledge to have been deposited in court
on January 22, 1981 five years after the amount of
considering that the heirs of Juan Galicia, Sr.
P27,000.00 had to be paid (p. 23, Memorandum for
accommodated private respondent by accepting the
Petitioners; p. 162, Rollo). Again this suggestion ignores
latter's delayed payments not only beyond the grace
periods but also during the pendency of the case for the fact that consignation alone produced the effect of
payment in the case at bar because it was established
specific performance (p. 27, Memorandum for
petitioners; p. 166, Rollo). Indeed, the right to rescind is below that two or more heirs of Juan Galicia, Sr. claimed
the same right to collect (Article 1256, (4), Civil Code;
not absolute and will not be granted where there has
pp. 4-5, Decision in Civil Case No. 681-G; pp. 67-
been substantial compliance by partial payments
(4 Caguioa, Comments and Cases on Civil Law, First 68, Rollo). Moreover, petitioners did not bother to refute
the evidence on hand that, aside from the P18,520.00
Ed. [1968] p. 132). By and large, petitioners' actuation is
(not P18,500.00 as computed by respondent court)
susceptible of but one construction — that they are now
which was consigned, private respondent also paid the
estopped from reneging from their commitment on
sum of P13,908.25 (Exhibits "F" to "CC"; p. 50, Rollo).
account of acceptance of benefits arising from overdue
accounts of private respondent. These two figures representing private respondent's
payment of the fourth condition amount to P32,428.25,
less the P3,778.77 paid by petitioners to the bank, will
Now, as to the issue of whether payments had in fact lead us to the sum of P28,649.48 or a refund of
been made, there is no doubt that the second installment P1,649.48 to private respondent as overpayment of the
was actually paid to the heirs of Juan Galicia, Sr. due to P27,000.00 balance.
Josefina Tayag's admission in judicio that the sum of
P10,000.00 was fully liquidated. It is thus erroneous for
WHEREFORE, the petition is hereby DISMISSED and
petitioners to suppose that "the evidence in the records
the decision appealed from is hereby AFFIRMED with
do not support this conclusion" (p. 18, Memorandum for
Petitioners; p. 157, Rollo). A contrario, when the court of the slight modification of Paragraph 4 of the dispositive
thereof which is thus amended to read:
origin, as well as the appellate court, emphasized the
frank representation along this line of Josefina Tayag
before the trial court (TSN, September l, 1983, pp. 3-4; 4. ordering the withdrawal of the sum of
p. 5, Decision in CA-G.R. CV No. 13339, p. 50, Rollo; p. P18,520.00 consigned with the Regional
3, Decision in Civil Case No. 681-G, p. 66, Rollo), Trial Court, and that the amount of
petitioners chose to remain completely mute even at this P16,870.52 be delivered by private
stage despite the opportunity accorded to them, for respondent with legal rate of interest
clarification. Consequently, the prejudicial aftermath of until fully paid to the heirs of Juan
Josefina Tayag's spontaneous reaction may no longer Galicia, Sr. as balance of the sale
be obliterated on the basis of estoppel (Article 1431, including reimbursement of the sum
Civil Code; Section 4, Rule 129; Section 2(a), Rule 131, paid to the Philippine Veterans Bank,
Revised Rules on Evidence). minus the attorney's fees and damages
awarded in favor of private respondent.
The excess of P1,649.48 shall be
Insofar as the third item of the contract is concerned, it
returned to private respondent also with
may be recalled that respondent court applied Article
legal interest until fully paid by
1186 of the Civil Code on constructive fulfillment which
petitioners. With costs against
petitioners claim should not have been appreciated
because they are the obligees while the proviso in point petitioners.
speaks of the obligor. But, petitioners must concede that
in a reciprocal obligation like a contract of purchase, SO ORDERED.
(Ang vs. Court of Appeals, 170 SCRA 286 [1989];
4 Paras, supra, at p. 201), both parties are mutually
CORONEL VS CA 1. Ramona will make a down payment
of Fifty Thousand (P50,000.00) Pesos
upon execution of the document
aforestated;
MELO, J.:p
2. The Coronels will cause the transfer
The petition before us has its roots in a complaint for in their names of the title of the property
specific performance to compel herein petitioners registered in the name of their deceased
(except the last named, Catalina Balais Mabanag) to father upon receipt of the Fifty
consummate the sale of a parcel of land with its Thousand (P50,000.00) Pesos down
improvements located along Roosevelt Avenue in payment;
Quezon City entered into by the parties sometime in
January 1985 for the price of P1,240,000.00. 3. Upon the transfer in their names of
the subject property, the Coronels will
The undisputed facts of the case were summarized by execute the deed of absolute sale in
respondent court in this wise: favor of Ramona and the latter will pay
the former the whole balance of One
On January 19, 1985, defendants- Million One Hundred Ninety Thousand
appellants Romulo Coronel, et al. (P1,190,000.00) Pesos.
(hereinafter referred to as Coronels)
executed a document entitled "Receipt On the same date (January 15, 1985),
of Down Payment" (Exh. "A") in favor of plaintiff-appellee Concepcion D. Alcaraz
plaintiff Ramona Patricia Alcaraz (hereinafter referred to as Concepcion),
(hereinafter referred to as Ramona) mother of Ramona, paid the down
which is reproduced hereunder: payment of Fifty Thousand (P50,000.00)
Pesos (Exh. "B", Exh. "2").
RECEIPT OF DOWN PAYMENT
On February 6, 1985, the property
P1,240,000.00 — Total amount originally registered in the name of the
Coronels' father was transferred in their
names under TCT
50,000 — Down payment
No. 327043 (Exh. "D"; Exh. "4")
———————————
P1,190,000.00 — Balance
On February 18, 1985, the Coronels
sold the property covered by TCT No.
Received from Miss Ramona Patricia
327043 to intervenor-appellant Catalina
Alcaraz of 146 Timog, Quezon City, the
B. Mabanag (hereinafter referred to as
sum of Fifty Thousand Pesos purchase
Catalina) for One Million Five Hundred
price of our inherited house and lot,
Eighty Thousand (P1,580,000.00)
covered by TCT No. 119627 of the
Pesos after the latter has paid Three
Registry of Deeds of Quezon City, in the
Hundred Thousand (P300,000.00)
total amount of P1,240,000.00.
Pesos (Exhs. "F-3"; Exh. "6-C")
We bind ourselves to effect the transfer
For this reason, Coronels canceled and
in our names from our deceased father,
rescinded the contract (Exh. "A") with
Constancio P. Coronel, the transfer
Ramona by depositing the down
certificate of title immediately upon
payment paid by Concepcion in the
receipt of the down payment above-
bank in trust for Ramona Patricia
stated.
Alcaraz.
On our presentation of the TCT already
On February 22, 1985, Concepcion, et
in or name, We will immediately execute
al., filed a complaint for specific
the deed of absolute sale of said
performance against the Coronels and
property and Miss Ramona Patricia
caused the annotation of a notice of lis
Alcaraz shall immediately pay the
pendens at the back of TCT No. 327403
balance of the P1,190,000.00.
(Exh. "E"; Exh. "5").
Clearly, the conditions appurtenant to
On April 2, 1985, Catalina caused the
the sale are the following:
annotation of a notice of adverse claim
covering the same property with the
Registry of Deeds of Quezon City (Exh. name of intervenor is hereby canceled
"F"; Exh. "6"). and declared to be without force and
effect. Defendants and intervenor and
On April 25, 1985, the Coronels all other persons claiming under them
executed a Deed of Absolute Sale over are hereby ordered to vacate the subject
the subject property in favor of Catalina property and deliver possession thereof
(Exh. "G"; Exh. "7"). to plaintiffs. Plaintiffs' claim for damages
and attorney's fees, as well as the
On June 5, 1985, a new title over the counterclaims of defendants and
intervenors are hereby dismissed.
subject property was issued in the name
of Catalina under TCT No. 351582 (Exh.
"H"; Exh. "8"). No pronouncement as to costs.
In the course of the proceedings before the trial court Macabebe, Pampanga for Quezon City,
(Branch 83, RTC, Quezon City) the parties agreed to March 1, 1989.
submit the case for decision solely on the basis of
documentary exhibits. Thus, plaintiffs therein (now (Rollo, p. 106)
private respondents) proffered their documentary
evidence accordingly marked as Exhibits "A" through "J", A motion for reconsideration was filed by petitioner
inclusive of their corresponding submarkings. Adopting before the new presiding judge of the Quezon City RTC
these same exhibits as their own, then defendants (now but the same was denied by Judge Estrella T. Estrada,
petitioners) accordingly offered and marked them as thusly:
Exhibits "1" through "10", likewise inclusive of their
corresponding submarkings. Upon motion of the parties,
The prayer contained in the instant
the trial court gave them thirty (30) days within which to motion, i.e., to annul the decision and to
simultaneously submit their respective memoranda, and render anew decision by the
an additional 15 days within which to submit their
undersigned Presiding Judge should be
corresponding comment or reply thereof, after which, the
denied for the following reasons: (1) The
case would be deemed submitted for resolution.
instant case became submitted for
decision as of April 14, 1988 when the
On April 14, 1988, the case was submitted for resolution parties terminated the presentation of
before Judge Reynaldo Roura, who was then their respective documentary evidence
temporarily detailed to preside over Branch 82 of the and when the Presiding Judge at that
RTC of Quezon City. On March 1, 1989, judgment was time was Judge Reynaldo Roura. The
handed down by Judge Roura from his regular bench at fact that they were allowed to file
Macabebe, Pampanga for the Quezon City branch, memoranda at some future date did not
disposing as follows: change the fact that the hearing of the
case was terminated before Judge
WHEREFORE, judgment for specific Roura and therefore the same should be
performance is hereby rendered submitted to him for decision; (2) When
ordering defendant to execute in favor of the defendants and intervenor did not
plaintiffs a deed of absolute sale object to the authority of Judge
covering that parcel of land embraced in Reynaldo Roura to decide the case prior
and covered by Transfer Certificate of to the rendition of the decision, when
Title No. 327403 (now TCT No. 331582) they met for the first time before the
of the Registry of Deeds for Quezon undersigned Presiding Judge at the
City, together with all the improvements hearing of a pending incident in Civil
existing thereon free from all liens and Case No. Q-46145 on November 11,
encumbrances, and once accomplished, 1988, they were deemed to have
to immediately deliver the said acquiesced thereto and they are now
document of sale to plaintiffs and upon estopped from questioning said
receipt thereof, the said document of authority of Judge Roura after they
sale to plaintiffs and upon receipt received the decision in question which
thereof, the plaintiffs are ordered to pay happens to be adverse to them; (3)
defendants the whole balance of the While it is true that Judge Reynaldo
purchase price amounting to Roura was merely a Judge-on-detail at
P1,190,000.00 in cash. Transfer this Branch of the Court, he was in all
Certificate of Title No. 331582 of the respects the Presiding Judge with full
Registry of Deeds for Quezon City in the authority to act on any pending incident
submitted before this Court during his The heart of the controversy which is the ultimate key in
incumbency. When he returned to his the resolution of the other issues in the case at bar is the
Official Station at Macabebe, precise determination of the legal significance of the
Pampanga, he did not lose his authority document entitled "Receipt of Down Payment" which
to decide or resolve such cases was offered in evidence by both parties. There is no
submitted to him for decision or dispute as to the fact that said document embodied the
resolution because he continued as binding contract between Ramona Patricia Alcaraz on
Judge of the Regional Trial Court and is the one hand, and the heirs of Constancio P. Coronel on
of co-equal rank with the undersigned the other, pertaining to a particular house and lot
Presiding Judge. The standing rule and covered by TCT No. 119627, as defined in Article 1305
supported by jurisprudence is that a of the Civil Code of the Philippines which reads as
Judge to whom a case is submitted for follows:
decision has the authority to decide the
case notwithstanding his transfer to Art. 1305. A contract is a meeting of
another branch or region of the same minds between two persons whereby
court (Sec. 9, Rule 135, Rule of Court). one binds himself, with respect to the
other, to give something or to render
Coming now to the twin prayer for some service.
reconsideration of the Decision dated
March 1, 1989 rendered in the instant While, it is the position of private respondents that the
case, resolution of which now pertains "Receipt of Down Payment" embodied a perfected
to the undersigned Presiding Judge, contract of sale, which perforce, they seek to enforce by
after a meticulous examination of the means of an action for specific performance, petitioners
documentary evidence presented by the on their part insist that what the document signified was
parties, she is convinced that the a mere executory contract to sell, subject to certain
Decision of March 1, 1989 is supported suspensive conditions, and because of the absence of
by evidence and, therefore, should not Ramona P. Alcaraz, who left for the United States of
be disturbed. America, said contract could not possibly ripen into a
contract absolute sale.
IN VIEW OF THE FOREGOING, the
"Motion for Reconsideration and/or to Plainly, such variance in the contending parties'
Annul Decision and Render Anew contentions is brought about by the way each interprets
Decision by the Incumbent Presiding the terms and/or conditions set forth in said private
Judge" dated March 20, 1989 is hereby instrument. Withal, based on whatever relevant and
DENIED. admissible evidence may be available on record, this,
Court, as were the courts below, is now called upon to
SO ORDERED. adjudge what the real intent of the parties was at the
time the said document was executed.
Quezon City, Philippines, July 12, 1989.
The Civil Code defines a contract of sale, thus:
(Rollo, pp. 108-109)
Art. 1458. By the contract of sale one of
Petitioners thereupon interposed an appeal, but on the contracting parties obligates himself
December 16, 1991, the Court of Appeals (Buena, to transfer the ownership of and to
Gonzaga-Reyes, Abad Santos (P), JJ.) rendered its deliver a determinate thing, and the
decision fully agreeing with the trial court. other to pay therefor a price certain in
money or its equivalent.
Hence, the instant petition which was filed on March 5,
1992. The last pleading, private respondents' Reply Sale, by its very nature, is a consensual contract
Memorandum, was filed on September 15, 1993. The because it is perfected by mere consent. The essential
case was, however, re-raffled to elements of a contract of sale are the following:
undersigned ponente only on August 28, 1996, due to
the voluntary inhibition of the Justice to whom the case a) Consent or meeting of the minds, that
was last assigned. is, consent to transfer ownership in
exchange for the price;
While we deem it necessary to introduce certain
refinements in the disquisition of respondent court in the b) Determinate subject matter; and
affirmance of the trial court's decision, we definitely find
the instant petition bereft of merit. c) Price certain in money or its
equivalent.
Under this definition, a Contract to Sell may not be subject of the sale until the fulfillment of a suspensive
considered as a Contract of Sale because the first condition, because in a conditional contract of sale, the
essential element is lacking. In a contract to sell, the first element of consent is present, although it is
prospective seller explicity reserves the transfer of title to conditioned upon the happening of a contingent event
the prospective buyer, meaning, the prospective seller which may or may not occur. If the suspensive condition
does not as yet agree or consent to transfer ownership is not fulfilled, the perfection of the contract of sale is
of the property subject of the contract to sell until the completely abated (cf. Homesite and housing Corp. vs.
happening of an event, which for present purposes we Court of Appeals, 133 SCRA 777 [1984]). However, if
shall take as the full payment of the purchase price. the suspensive condition is fulfilled, the contract of sale
What the seller agrees or obliges himself to do is to fulfill is thereby perfected, such that if there had already been
is promise to sell the subject property when the entire previous delivery of the property subject of the sale to
amount of the purchase price is delivered to him. In the buyer, ownership thereto automatically transfers to
other words the full payment of the purchase price the buyer by operation of law without any further act
partakes of a suspensive condition, the non-fulfillment of having to be performed by the seller.
which prevents the obligation to sell from arising and
thus, ownership is retained by the prospective seller In a contract to sell, upon the fulfillment of the
without further remedies by the prospective buyer. suspensive condition which is the full payment of the
In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court purchase price, ownership will not automatically transfer
had occasion to rule: to the buyer although the property may have been
previously delivered to him. The prospective seller still
Hence, We hold that the contract has to convey title to the prospective buyer by entering
between the petitioner and the into a contract of absolute sale.
respondent was a contract to sell where
the ownership or title is retained by the It is essential to distinguish between a contract to sell
seller and is not to pass until the full and a conditional contract of sale specially in cases
payment of the price, such payment where the subject property is sold by the owner not to
being a positive suspensive condition the party the seller contracted with, but to a third person,
and failure of which is not a breach, as in the case at bench. In a contract to sell, there being
casual or serious, but simply an event no previous sale of the property, a third person buying
that prevented the obligation of the such property despite the fulfillment of the suspensive
vendor to convey title from acquiring condition such as the full payment of the purchase price,
binding force. for instance, cannot be deemed a buyer in bad faith and
the prospective buyer cannot seek the relief of
Stated positively, upon the fulfillment of the suspensive reconveyance of the property. There is no double sale in
condition which is the full payment of the purchase price, such case. Title to the property will transfer to the buyer
the prospective seller's obligation to sell the subject after registration because there is no defect in the
property by entering into a contract of sale with the owner-seller's title per se, but the latter, of course, may
prospective buyer becomes demandable as provided in be used for damages by the intending buyer.
Article 1479 of the Civil Code which states:
In a conditional contract of sale, however, upon the
Art. 1479. A promise to buy and sell a fulfillment of the suspensive condition, the sale becomes
determinate thing for a price certain is absolute and this will definitely affect the seller's title
reciprocally demandable. thereto. In fact, if there had been previous delivery of the
subject property, the seller's ownership or title to the
An accepted unilateral promise to buy or property is automatically transferred to the buyer such
to sell a determinate thing for a price that, the seller will no longer have any title to transfer to
certain is binding upon the promissor if any third person. Applying Article 1544 of the Civil Code,
the promise is supported by a such second buyer of the property who may have had
consideration distinct from the price. actual or constructive knowledge of such defect in the
seller's title, or at least was charged with the obligation
A contract to sell may thus be defined as a bilateral to discover such defect, cannot be a registrant in good
contract whereby the prospective seller, while expressly faith. Such second buyer cannot defeat the first buyer's
title. In case a title is issued to the second buyer, the first
reserving the ownership of the subject property despite
buyer may seek reconveyance of the property subject of
delivery thereof to the prospective buyer, binds himself
the sale.
to sell the said property exclusively to the prospective
buyer upon fulfillment of the condition agreed upon, that
is, full payment of the purchase price. With the above postulates as guidelines, we now
proceed to the task of deciphering the real nature of the
contract entered into by petitioners and private
A contract to sell as defined hereinabove, may not even
respondents.
be considered as a conditional contract of sale where
the seller may likewise reserve title to the property
It is a canon in the interpretation of contracts that the Thus, the parties did not merely enter into a contract to
words used therein should be given their natural and sell where the sellers, after compliance by the buyer with
ordinary meaning unless a technical meaning was certain terms and conditions, promised to sell the
intended (Tan vs. Court of Appeals, 212 SCRA 586 property to the latter. What may be perceived from the
[1992]). Thus, when petitioners declared in the said respective undertakings of the parties to the contract is
"Receipt of Down Payment" that they — that petitioners had already agreed to sell the house and
lot they inherited from their father, completely willing to
Received from Miss Ramona Patricia transfer full ownership of the subject house and lot to the
Alcaraz of 146 Timog, Quezon City, the buyer if the documents were then in order. It just
sum of Fifty Thousand Pesos purchase happened, however, that the transfer certificate of title
price of our inherited house and lot, was then still in the name of their father. It was more
covered by TCT No. 1199627 of the expedient to first effect the change in the certificate of
Registry of Deeds of Quezon City, in the title so as to bear their names. That is why they
total amount of P1,240,000.00. undertook to cause the issuance of a new transfer of the
certificate of title in their names upon receipt of the down
payment in the amount of P50,000.00. As soon as the
without any reservation of title until full payment
new certificate of title is issued in their names,
of the entire purchase price, the natural and
petitioners were committed to immediately execute the
ordinary idea conveyed is that they sold their
deed of absolute sale. Only then will the obligation of the
property.
buyer to pay the remainder of the purchase price arise.
When the "Receipt of Down Payment" is considered in
There is no doubt that unlike in a contract to sell which is
its entirety, it becomes more manifest that there was a
most commonly entered into so as to protect the seller
clear intent on the part of petitioners to transfer title to
against a buyer who intends to buy the property in
the buyer, but since the transfer certificate of title was
still in the name of petitioner's father, they could not fully installment by withholding ownership over the property
until the buyer effects full payment therefor, in the
effect such transfer although the buyer was then willing
contract entered into in the case at bar, the sellers were
and able to immediately pay the purchase price.
the one who were unable to enter into a contract of
Therefore, petitioners-sellers undertook upon receipt of
absolute sale by reason of the fact that the certificate of
the down payment from private respondent Ramona P.
Alcaraz, to cause the issuance of a new certificate of title title to the property was still in the name of their father. It
in their names from that of their father, after which, they was the sellers in this case who, as it were, had the
impediment which prevented, so to speak, the execution
promised to present said title, now in their names, to the
of an contract of absolute sale.
latter and to execute the deed of absolute sale
whereupon, the latter shall, in turn, pay the entire
balance of the purchase price. What is clearly established by the plain language of the
subject document is that when the said "Receipt of
Down Payment" was prepared and signed by petitioners
The agreement could not have been a contract to sell
because the sellers herein made no express reservation Romeo A. Coronel, et al., the parties had agreed to a
of ownership or title to the subject parcel of land. conditional contract of sale, consummation of which is
subject only to the successful transfer of the certificate of
Furthermore, the circumstance which prevented the
parties from entering into an absolute contract of sale title from the name of petitioners' father, Constancio P.
pertained to the sellers themselves (the certificate of title Coronel, to their names.
was not in their names) and not the full payment of the
purchase price. Under the established facts and The Court significantly notes this suspensive condition
circumstances of the case, the Court may safely was, in fact, fulfilled on February 6, 1985 (Exh. "D"; Exh.
presume that, had the certificate of title been in the "4"). Thus, on said date, the conditional contract of sale
names of petitioners-sellers at that time, there would between petitioners and private respondent Ramona P.
have been no reason why an absolute contract of sale Alcaraz became obligatory, the only act required for the
could not have been executed and consummated right consummation thereof being the delivery of the property
there and then. by means of the execution of the deed of absolute sale
in a public instrument, which petitioners unequivocally
Moreover, unlike in a contract to sell, petitioners in the committed themselves to do as evidenced by the
"Receipt of Down Payment."
case at bar did not merely promise to sell the properly to
private respondent upon the fulfillment of the suspensive
condition. On the contrary, having already agreed to sell Article 1475, in correlation with Article 1181, both of the
the subject property, they undertook to have the Civil Code, plainly applies to the case at bench. Thus,
certificate of title changed to their names and
immediately thereafter, to execute the written deed of Art. 1475. The contract of sale is
absolute sale. perfected at the moment there is a
meeting of minds upon the thing which
is the object of the contract and upon Art. 1186. The condition shall be
the price. deemed fulfilled when the obligor
voluntarily prevents its fulfillment.
From the moment, the parties may
reciprocally demand performance, Besides, it should be stressed and emphasized that
subject to the provisions of the law what is more controlling than these mere hypothetical
governing the form of contracts. arguments is the fact that the condition herein referred to
was actually and indisputably fulfilled on February 6,
Art. 1181. In conditional obligations, the 1985, when a new title was issued in the names of
acquisition of rights, as well as the petitioners as evidenced by TCT No. 327403 (Exh. "D";
extinguishment or loss of those already Exh. "4").
acquired, shall depend upon the
happening of the event which The inevitable conclusion is that on January 19, 1985, as
constitutes the condition. evidenced by the document denominated as "Receipt of
Down Payment" (Exh. "A"; Exh. "1"), the parties entered
Since the condition contemplated by the parties which is into a contract of sale subject only to the suspensive
the issuance of a certificate of title in petitioners' names condition that the sellers shall effect the issuance of new
was fulfilled on February 6, 1985, the respective certificate title from that of their father's name to their
obligations of the parties under the contract of sale names and that, on February 6, 1985, this condition was
became mutually demandable, that is, petitioners, as fulfilled (Exh. "D"; Exh. "4").
sellers, were obliged to present the transfer certificate of
title already in their names to private respondent We, therefore, hold that, in accordance with Article 1187
Ramona P. Alcaraz, the buyer, and to immediately which pertinently provides —
execute the deed of absolute sale, while the buyer on
her part, was obliged to forthwith pay the balance of the Art. 1187. The effects of conditional
purchase price amounting to P1,190,000.00. obligation to give, once the condition
has been fulfilled, shall retroact to the
It is also significant to note that in the first paragraph in day of the constitution of the obligation .
page 9 of their petition, petitioners conclusively admitted ..
that:
In obligation to do or not to do, the
3. The petitioners-sellers Coronel bound courts shall determine, in each case, the
themselves "to effect the transfer in our retroactive effect of the condition that
names from our deceased father has been complied with.
Constancio P. Coronel, the transfer
certificate of title immediately upon the rights and obligations of the parties with
receipt of the downpayment above- respect to the perfected contract of sale became
stated". The sale was still subject to this mutually due and demandable as of the time of
suspensive condition. (Emphasis fulfillment or occurrence of the suspensive
supplied.) condition on February 6, 1985. As of that point in
time, reciprocal obligations of both seller and
(Rollo, p. 16) buyer arose.
Petitioners themselves recognized that they entered into Petitioners also argue there could been no perfected
a contract of sale subject to a suspensive condition. contract on January 19, 1985 because they were then
Only, they contend, continuing in the same paragraph, not yet the absolute owners of the inherited property.
that:
We cannot sustain this argument.
. . . Had petitioners-sellers not
complied with this condition of first Article 774 of the Civil Code defines Succession as a
transferring the title to the property mode of transferring ownership as follows:
under their names, there could be no
perfected contract of sale. (Emphasis Art. 774. Succession is a mode of
supplied.)
acquisition by virtue of which the
property, rights and obligations to be
(Ibid.) extent and value of the inheritance of a
person are transmitted through his
not aware that they set their own trap for death to another or others by his will or
themselves, for Article 1186 of the Civil Code by operation of law.
expressly provides that:
Petitioners-sellers in the case at bar being the allegations must be proven by sufficient evidence (Ng
sons and daughters of the decedent Constancio Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs.
P. Coronel are compulsory heirs who were Embisan, 2 SCRA 598 [1961]. Mere allegation is not an
called to succession by operation of law. Thus, evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
at the point their father drew his last breath,
petitioners stepped into his shoes insofar as the Even assuming arguendo that Ramona P. Alcaraz was
subject property is concerned, such that any in the United States of America on February 6, 1985, we
rights or obligations pertaining thereto became cannot justify petitioner-sellers' act of unilaterally and
binding and enforceable upon them. It is extradicially rescinding the contract of sale, there being
expressly provided that rights to the succession no express stipulation authorizing the sellers to
are transmitted from the moment of death of the extarjudicially rescind the contract of sale. (cf. Dignos vs.
decedent (Article 777, Civil Code; Cuison vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon,
Villanueva, 90 Phil. 850 [1952]). 132 SCRA 722 [1984])
Be it also noted that petitioners' claim that succession Moreover, petitioners are estopped from raising the
may not be declared unless the creditors have been paid alleged absence of Ramona P. Alcaraz because
is rendered moot by the fact that they were able to effect although the evidence on record shows that the sale was
the transfer of the title to the property from the in the name of Ramona P. Alcaraz as the buyer, the
decedent's name to their names on February 6, 1985. sellers had been dealing with Concepcion D. Alcaraz,
Ramona's mother, who had acted for and in behalf of
Aside from this, petitioners are precluded from raising her daughter, if not also in her own behalf. Indeed, the
their supposed lack of capacity to enter into an down payment was made by Concepcion D. Alcaraz with
agreement at that time and they cannot be allowed to her own personal check (Exh. "B"; Exh. "2") for and in
now take a posture contrary to that which they took behalf of Ramona P. Alcaraz. There is no evidence
when they entered into the agreement with private showing that petitioners ever questioned Concepcion's
respondent Ramona P. Alcaraz. The Civil Code authority to represent Ramona P. Alcaraz when they
expressly states that: accepted her personal check. Neither did they raise any
objection as regards payment being effected by a third
Art. 1431. Through estoppel an person. Accordingly, as far as petitioners are concerned,
admission or representation is rendered the physical absence of Ramona P. Alcaraz is not a
conclusive upon the person making it, ground to rescind the contract of sale.
and cannot be denied or disproved as
against the person relying thereon. Corollarily, Ramona P. Alcaraz cannot even be deemed
to be in default, insofar as her obligation to pay the full
Having represented themselves as the true purchase price is concerned. Petitioners who are
owners of the subject property at the time of precluded from setting up the defense of the physical
sale, petitioners cannot claim now that they were absence of Ramona P. Alcaraz as above-explained
not yet the absolute owners thereof at that time. offered no proof whatsoever to show that they actually
presented the new transfer certificate of title in their
Petitioners also contend that although there was in fact a names and signified their willingness and readiness to
perfected contract of sale between them and Ramona P. execute the deed of absolute sale in accordance with
their agreement. Ramona's corresponding obligation to
Alcaraz, the latter breached her reciprocal obligation
pay the balance of the purchase price in the amount of
when she rendered impossible the consummation
P1,190,000.00 (as buyer) never became due and
thereof by going to the United States of America, without
demandable and, therefore, she cannot be deemed to
leaving her address, telephone number, and Special
Power of Attorney (Paragraphs 14 and 15, Answer with have been in default.
Compulsory Counterclaim to the Amended Complaint, p.
2; Rollo, p. 43), for which reason, so petitioners Article 1169 of the Civil Code defines when a party in a
conclude, they were correct in unilaterally rescinding contract involving reciprocal obligations may be
rescinding the contract of sale. considered in default, to wit:
We do not agree with petitioners that there was a valid Art. 1169. Those obliged to deliver or to
rescission of the contract of sale in the instant case. We do something, incur in delay from the
note that these supposed grounds for petitioners' time the obligee judicially or
rescission, are mere allegations found only in their extrajudicially demands from them the
responsive pleadings, which by express provision of the fulfillment of their obligation.
rules, are deemed controverted even if no reply is filed
by the plaintiffs (Sec. 11, Rule 6, Revised Rules of xxx xxx xxx
Court). The records are absolutely bereft of any
supporting evidence to substantiate petitioners' In reciprocal obligations, neither party
allegations. We have stressed time and again that incurs in delay if the other does not
comply or is not ready to comply in a the first buyer's rights except when the
proper manner with what is incumbent second buyer first registers in good faith
upon him. From the moment one of the the second sale (Olivares vs. Gonzales,
parties fulfill his obligation, delay by the 159 SCRA 33). Conversely, knowledge
other begins. (Emphasis supplied.) gained by the second buyer of the first
sale defeats his rights even if he is first
There is thus neither factual nor legal basis to rescind to register, since knowledge taints his
the contract of sale between petitioners and registration with bad faith (see also
respondents. Astorga vs. Court of Appeals, G.R. No.
58530, 26 December 1984). In Cruz
vs. Cabana (G.R. No. 56232, 22 June
With the foregoing conclusions, the sale to the other
1984, 129 SCRA 656), it has held that it
petitioner, Catalina B. Mabanag, gave rise to a case of
is essential, to merit the protection of
double sale where Article 1544 of the Civil Code will
apply, to wit: Art. 1544, second paragraph, that the
second realty buyer must act in good
faith in registering his deed of sale
Art. 1544. If the same thing should have (citing Carbonell vs. Court of Appeals,
been sold to different vendees, the 69 SCRA 99, Crisostomo vs. CA, G.R.
ownership shall be transferred to the No. 95843, 02 September 1992).
person who may have first taken (J. Vitug Compendium of Civil Law and
possession thereof in good faith, if it Jurisprudence, 1993 Edition, p. 604).
should be movable property.
Petitioner point out that the notice of lis pendens in the
Should if be immovable property, the case at bar was annoted on the title of the subject
ownership shall belong to the person property only on February 22, 1985, whereas, the
acquiring it who in good faith first second sale between petitioners Coronels and petitioner
recorded it in Registry of Property. Mabanag was supposedly perfected prior thereto or on
February 18, 1985. The idea conveyed is that at the time
Should there be no inscription, the petitioner Mabanag, the second buyer, bought the
ownership shall pertain to the person property under a clean title, she was unaware of any
who in good faith was first in the adverse claim or previous sale, for which reason she is
possession; and, in the absence thereof buyer in good faith.
to the person who presents the oldest
title, provided there is good faith. We are not persuaded by such argument.
The record of the case shows that the Deed of Absolute In a case of double sale, what finds relevance and
Sale dated April 25, 1985 as proof of the second materiality is not whether or not the second buyer was a
contract of sale was registered with the Registry of buyer in good faith but whether or not said second buyer
Deeds of Quezon City giving rise to the issuance of a registers such second sale in good faith, that is, without
new certificate of title in the name of Catalina B. knowledge of any defect in the title of the property sold.
Mabanag on June 5, 1985. Thus, the second paragraph
of Article 1544 shall apply.
As clearly borne out by the evidence in this case,
petitioner Mabanag could not have in good faith,
The above-cited provision on double sale presumes title registered the sale entered into on February 18, 1985
or ownership to pass to the first buyer, the exceptions because as early as February 22, 1985, a notice of lis
being: (a) when the second buyer, in good faith, pendens had been annotated on the transfer certificate
registers the sale ahead of the first buyer, and (b) should of title in the names of petitioners, whereas petitioner
there be no inscription by either of the two buyers, when Mabanag registered the said sale sometime in April,
the second buyer, in good faith, acquires possession of 1985. At the time of registration, therefore, petitioner
the property ahead of the first buyer. Unless, the second Mabanag knew that the same property had already been
buyer satisfies these requirements, title or ownership will previously sold to private respondents, or, at least, she
not transfer to him to the prejudice of the first buyer. was charged with knowledge that a previous buyer is
claiming title to the same property. Petitioner Mabanag
In his commentaries on the Civil Code, an accepted cannot close her eyes to the defect in petitioners' title to
authority on the subject, now a distinguished member of the property at the time of the registration of the
the Court, Justice Jose C. Vitug, explains: property.
The governing principle is prius This Court had occasions to rule that:
tempore, potior jure (first in time,
stronger in right). Knowledge by the first If a vendee in a double sale registers
buyer of the second sale cannot defeat that sale after he has acquired
knowledge that there was a previous appellant Joaquin ₱700,000.00 and plaintiff-appellant
sale of the same property to a third party Suarez ₱200,000.00, both to be paid in cash.
or that another person claims said
property in a pervious sale, the SO ORDERED.
registration will constitute a registration
in bad faith and will not confer upon him Antecedents
any right. (Salvoro vs. Tanega, 87
SCRA 349 [1978]; citing Palarca vs.
Director of Land, 43 Phil. 146; Cagaoan On February 1, 1969, respondent Francisco B. Joaquin,
vs. Cagaoan, 43 Phil. 554; Fernandez Jr. submitted a proposal to the Board of Directors of the
vs. Mercader, 43 Phil. 581.) International Hotel Corporation (IHC) for him to render
technical assistance in securing a foreign loan for the
construction of a hotel, to be guaranteed by the
Thus, the sale of the subject parcel of land between Development Bank of the Philippines (DBP).2 The
petitioners and Ramona P. Alcaraz, perfected on proposal encompassed nine phases, namely: (1) the
February 6, 1985, prior to that between petitioners and
preparation of a new project study; (2) the settlement of
Catalina B. Mabanag on February 18, 1985, was
the unregistered mortgage prior to the submission of the
correctly upheld by both the courts below.
application for guaranty for processing by DBP; (3) the
preparation of papers necessary to the application for
Although there may be ample indications that there was guaranty; (4) the securing of a foreign financier for the
in fact an agency between Ramona as principal and project; (5) the securing of the approval of the DBP
Concepcion, her mother, as agent insofar as the subject Board of Governors; (6) the actual follow up of the
contract of sale is concerned, the issue of whether or not application with DBP3; (7) the overall coordination in
Concepcion was also acting in her own behalf as a co- implementing the projections of the project study; (8) the
buyer is not squarely raised in the instant petition, nor in preparation of the staff for actual hotel operations; and
such assumption disputed between mother and (9) the actual hotel operations.4
daughter. Thus, We will not touch this issue and no
longer disturb the lower courts' ruling on this point.
The IHC Board of Directors approved phase one to
phase six of the proposal during the special board
WHEREFORE, premises considered, the instant petition meeting on February 11, 1969, and earmarked
is hereby DISMISSED and the appealed judgment ₱2,000,000.00 for the project.5 Anent the financing, IHC
AFFIRMED. applied with DBP for a foreign loan guaranty. DBP
processed the application,6 and approved it on October
SO ORDERED. 24, 1969 subject to several conditions.7
This Court does not subscribe to plaintiffs-appellants’ In this appeal, the IHC raises as issues for our
view that defendant-appellant IHC agreed to pay them consideration and resolution the following:
₱2,000,000.00. Plaintiff-appellant Joaquin’s letter to
defendant-appellee F.A. Bautista, quoting defendant- I
appellant IHC’s board resolutions which supposedly
authorized the payment of such amount cannot be WHETHER OR NOT THE COURT OF APPEALS IS
sustained. The resolutions are quite clear and when CORRECT IN AWARDING COMPENSATION AND
taken together show that said amount was only the EVEN MODIFYING THE PAYMENT TO HEREIN
"estimated maximum expenses" which defendant- RESPONDENTS DESPITE NON-FULFILLMENT OF
appellant IHC expected to incur in accomplishing phases THEIR OBLIGATION TO HEREIN PETITIONER
1 to 6, not exclusively to plaintiffs-appellants’
compensation.This conclusion finds support in an II
unnumbered board resolution of defendant-appellant
IHC dated July 11, 1969:
WHETHER OR NOT THE COURT OF APPEALS IS
CORRECT IN AWARDING ATTORNEY’S FEES TO
"Incidentally, it was also taken up the necessity of giving RESPONDENTS26
the Technical Group a portion of the compensation that
was authorized by this corporation in its Resolution of
February 11, 1969 considering that the assistance so far IHC maintains that Article 1186 of the Civil Code was
given the corporation by said Technical Group in erroneously applied; that it had no intention of preventing
continuing our project with the DBP and its request for Joaquin from complying with his obligations when it
guaranty for a foreign loan is 70% completed leaving adopted his recommendation to negotiate with Barnes;
only some details which are now being processed. It is that Article 1234 of the Civil Code applied only if there
estimated that ₱400,000.00 worth of Common Stock was a merely slight deviation from the obligation, and the
would be reasonable for the present accomplishments omission or defect was technical and unimportant; that
and to this effect, the President is authorized to issue the substantial compliance was unacceptable because the
same in the name of the Technical Group, as follows: foreign loan was material and was, in fact, the ultimate
goal of its contract with Joaquin and Suarez; that
because the obligation was indivisible and subject to a
₱200,000.00 in common stock to Rafael Suarez, as
suspensive condition, Article 1181 of the Civil
associate in the Technical Group, and ₱200,000.00 in
Code27 applied, under which a partial performance was
common stock to Francisco G. Joaquin, Jr., also a
equivalent to non-performance; and that the award of
member of the Technical Group. attorney’s fees should be deleted for lack of legal and
factual bases.
On the part of respondents, only Joaquin filed a to prevent the happening of the condition, or to place
comment,28 arguing that the petition was fatally defective ineffective obstacles to its compliance, without actually
for raising questions of fact; that the obligation was preventing the fulfillment, is insufficient.33
divisible and capable of partial performance; and that the
suspensive condition was deemed fulfilled through IHC’s The error lies in the CA’s failure to determine IHC’s
own actions.29 intent to pre-empt Joaquin from meeting his obligations.
The June 20, 1970 minutes of IHC’s special board
Ruling meeting discloses that Joaquin impressed upon the
members of the Board that Materials Handling was
We deny the petition for review on certiorari subject to offering more favorable terms for IHC, to wit:
the ensuing disquisitions.
xxxx
1.
At the meeting all the members of the Board of Directors
IHC raises questions of law of the International Hotel Corporation were present with
the exception of Directors Benjamin J. Bautista and
We first consider and resolve whether IHC’s petition Sergio O. Rustia who asked to be excused because of
improperly raised questions of fact. previous engagements. In that meeting, the President
called on Mr. Francisco G. Joaquin, Jr. to explain the
different negotiations he had conducted relative to
A question of law exists when there is doubt as to what obtaining the needed financing for the hotel project in
the law is on a certain state of facts, but, in contrast, a keeping with the authority given to him in a resolution
question of fact exists when the doubt arises as to the approved by the Board of Directors.
truth or falsity of the facts alleged. A question of law
does not involve an examination of the probative value
Mr. Joaquin presently explained that he contacted
of the evidence presented by the litigants or by any of
several local and foreign financiers through different
them; the resolution of the issue must rest solely on what
brokers and after examining the different offers he
the law provides on the given set of
circumstances.30 When there is no dispute as to the narrowed down his choice to two (2), to wit: the foreign
financier recommended by George Wright of the Roger
facts, the question of whether or not the conclusion
Dunn & Company and the offer made by the Materials
drawn from the facts is correct is a question of law.31
Handling Corporation.
Considering that what IHC seeks to review is the CA’s
application of the law on the facts presented therein, After explaining the advantages and disadvantages to
our corporation of the two (2) offers specifically with
there is no doubt that IHC raises questions of law. The
regard to the terms and repayment of the loan and the
basic issue posed here is whether the conclusions
rate of interest requested by them, he concluded that the
drawn by the CA were correct under the pertinent laws.
offer made by the Materials Handling Corporation is
much more advantageous because the terms and
2. conditions of payment as well as the rate of interest are
much more reasonable and would be much less onerous
Article 1186 and Article 1234 of the Civil Code cannot be to our corporation. However, he explained that the
the source of IHC’s obligation to pay respondents IHC corporation accepted, in principle, the offer of Roger
argues that it should not be held liable because: (a) it Dunn, per the corporation’s telegrams to Mr. Rudolph
was Joaquin who had recommended Barnes; and (b) Meir of the Private Bank of Zurich, Switzerland, and until
IHC’s negotiation with Barnes had been neither such time as the corporation’s negotiations with Roger
intentional nor willfully intended to prevent Joaquin from Dunn is terminated, we are committed, on one way or
complying with his obligations. the other, to their financing.
IHC’s argument is meritorious. It was decided by the Directors that, should the
negotiations with Roger Dunn materialize, at the same
Article 1186 of the Civil Code reads: time as the offer of Materials Handling Corporation, that
the funds committed by Roger Dunn may be diverted to
Article 1186. The condition shall be deemed fulfilled other borrowers of the Development Bank of the
when the obligor voluntarily prevents its fulfillment. Philippines. With this condition, Director Joaquin showed
the advantages of the offer of Materials Handling
Corporation. Mr. Joaquin also informed the corporation
This provision refers to the constructive fulfillment of a
that, as of this date, the bank confirmation of Roger
suspensive condition,32 whose application calls for two
Dunn & Company has not been received. In view of the
requisites, namely: (a) the intent of the obligor to prevent
fact that the corporation is racing against time in
the fulfillment of the condition, and (b) the actual
securing its financing, he recommended that the
prevention of the fulfillment. Mere intention of the debtor
corporation entertain other offers.
After a brief exchange of views on the part of the trend of the more recent decisions is to hold that the
Directors present and after hearing the clarification and percentage of omitted or irregular performance may in
explanation made by Mr. C. M. Javier who was present and of itself be sufficient to show that there had not been
and who represented the Materials Handling a substantial performance.37
Corporation, the Directors present approved
unanimously the recommendation of Mr. Joaquin to By reason of the inconsequential nature of the breach or
entertain the offer of Materials Handling Corporation. 34 omission, the law deems the performance as substantial,
making it the obligee’s duty to pay.38 The compulsion of
Evidently, IHC only relied on the opinion of its consultant payment is predicated on the substantial benefit derived
in deciding to transact with Materials Handling and, later by the obligee from the partial performance. Although
on, with Barnes. In negotiating with Barnes, IHC had no compelled to pay, the obligee is nonetheless entitled to
intention, willful or otherwise, to prevent Joaquin and an allowance for the sum required to remedy omissions
Suarez from meeting their undertaking. Such absence of or defects and to complete the work agreed upon.39
any intention negated the basis for the CA’s reliance on
Article 1186 of the Civil Code. Conversely, the principle of substantial performance is
inappropriate when the incomplete performance
Nor do we agree with the CA’s upholding of IHC’s constitutes a material breach of the contract. A
liability by virtue of Joaquin and Suarez’s substantial contractual breach is material if it will adversely affect
performance. In so ruling, the CA applied Article 1234 of the nature of the obligation that the obligor promised to
the Civil Code, which states: deliver, the benefits that the obligee expects to receive
after full compliance, and the extent that the non-
Article 1234. If the obligation has been substantially performance defeated the purposes of the
performed in good faith, the obligor may recover as contract.40 Accordingly, for the principle embodied in
though there had been a strict and complete fulfillment, Article 1234 to apply, the failure of Joaquin and Suarez
less damages suffered by the obligee. to comply with their commitment should not defeat the
ultimate purpose of the contract.
It is well to note that Article 1234 applies only when an
obligor admits breaching the contract35 after honestly The primary objective of the parties in entering into the
and faithfully performing all the material elements thereof services agreement was to obtain a foreign loan to
except for some technical aspects that cause no serious finance the construction of IHC’s hotel project. This
harm to the obligee.36 IHC correctly submits that the objective could be inferred from IHC’s approval of phase
provision refers to an omission or deviation that is slight, 1 to phase 6 of the proposal. Phase 1 and phase 2,
or technical and unimportant, and does not affect the respectively the preparation of a new project study and
real purpose of the contract. the settlement of the unregistered mortgage, would pave
the way for Joaquin and Suarez to render assistance to
IHC in applying for the DBP guaranty and thereafter to
Tolentino explains the character of the obligor’s breach
look for an able and willing foreign financial institution
under Article 1234 in the following manner, to wit:
acceptable to DBP. All the steps that Joaquin and
Suarez undertook to accomplish had a single objective –
In order that there may be substantial performance of an to secure a loan to fund the construction and eventual
obligation, there must have been an attempt in good operations of the hotel of IHC. In that regard, Joaquin
faith to perform, without any willful or intentional himself admitted that his assistance was specifically
departure therefrom. The deviation from the obligation sought to seek financing for IHC’s hotel project.41
must be slight, and the omission or defect must be
technical and unimportant, and must not pervade the
whole or be so material that the object which the parties Needless to say, finding the foreign financier that DBP
would guarantee was the essence of the parties’
intended to accomplish in a particular manner is not
contract, so that the failure to completely satisfy such
attained. The non-performance of a material part of a
obligation could not be characterized as slight and
contract will prevent the performance from amounting to
unimportant as to have resulted in Joaquin and Suarez’s
a substantial compliance.
substantial performance that consequentially benefitted
IHC. Whatever benefits IHC gained from their services
The party claiming substantial performance must show could only be minimal, and were even probably
that he has attempted in good faith to perform his outweighed by whatever losses IHC suffered from the
contract, but has through oversight, misunderstanding or delayed construction of its hotel. Consequently, Article
any excusable neglect failed to completely perform in 1234 did not apply.
certain negligible respects, for which the other party may
be adequately indemnified by an allowance and
3.
deduction from the contract price or by an award of
damages. But a party who knowingly and wilfully fails to
perform his contract in any respect, or omits to perform a IHC is nonetheless liable to pay under the rule on
material part of it, cannot be permitted, under the constructive fulfillment of a mixed conditional
protection of this rule, to compel the other party, and the obligation
Notwithstanding the inapplicability of Article 1186 and ₱500,000.00 as payment for his services. The RTC
Article 1234 of the Civil Code, IHC was liable based on declared that he and Suarez were entitled to
the nature of the obligation. ₱200,000.00 each, but the CA revised the amounts to
₱700,000.00 for Joaquin and ₱200,000.00 for Suarez.
Considering that the agreement between the parties was
not circumscribed by a definite period, its termination Anent the ₱2,000,000.00, the CA rightly concluded that
was subject to a condition – the happening of a future the full amount of ₱2,000,000.00 could not be awarded
and uncertain event.42 The prevailing rule in conditional to respondents because such amount was not allocated
obligations is that the acquisition of rights, as well as the exclusively to compensate respondents, but was
extinguishment or loss of those already acquired, shall intended to be the estimated maximum to fund the
depend upon the happening of the event that constitutes expenses in undertaking phase 6 of the scope of
the condition.43 services. Its conclusion was unquestionably borne out by
the minutes of the February 11, 1969 meeting, viz:
To recall, both the RTC and the CA held that Joaquin
and Suarez’s obligation was subject to the suspensive xxxx
condition of successfully securing a foreign loan
guaranteed by DBP. IHC agrees with both lower courts, II
and even argues that the obligation with a suspensive
condition did not arise when the event or occurrence did The preparation of the necessary papers for the DBP
not happen. In that instance, partial performance of the
including the preparation of the application, the
contract subject to the suspensive condition was
presentation of the mechanics of financing, the actual
tantamount to no performance at all. As such, the
follow up with the different departments of the DBP
respondents were not entitled to any compensation.
which includes the explanation of the feasibility studies
up to the approval of the loan, conditioned on the DBP’s
We have to disagree with IHC’s argument. acceptance of the project as feasible. The estimated
expenses for this particular phase would be contingent,
To secure a DBP-guaranteed foreign loan did not solely i.e. upon DBP’s approval of the plan now being studied
depend on the diligence or the sole will of the and prepared, is somewhere around ₱2,000,000.00.
respondents because it required the action and
discretion of third persons – an able and willing foreign After a brief discussion on the matter, the Board on
financial institution to provide the needed funds, and the motion duly made and seconded, unanimously adopted
DBP Board of Governors to guarantee the loan. Such a resolution of the following tenor:
third persons could not be legally compelled to act in a
manner favorable to IHC. There is no question that when RESOLUTION NO. ______
the fulfillment of a condition is dependent partly on the
(Series of 1969)
will of one of the contracting parties,44 or of the obligor,
and partly on chance, hazard or the will of a third person,
the obligation is mixed.45 The existing rule in a mixed "RESOLVED, as it is hereby RESOLVED, that if the
conditional obligation is that when the condition was not Reparations allocation and the plan being negotiated
fulfilled but the obligor did all in his power to comply with with the DBP is realized the estimated maximum
the obligation, the condition should be deemed expenses of ₱2,000,000.00 for this phase is hereby
satisfied.46 authorized subject to the sound discretion of the
committee composed of Justice Felix Angelo Bautista,
Jose N. Valero and Ephraim G.
Considering that the respondents were able to secure an Gochangco."47 (Emphasis supplied)
agreement with Weston, and subsequently tried to
reverse the prior cancellation of the guaranty by DBP,
we rule that they thereby constructively fulfilled their Joaquin’s claim for the additional sum of ₱500,000.00
obligation. was similarly without factual and legal bases. He had
requested the payment of that amount to cover services
rendered and still to be rendered to IHC separately from
4.
those covered by the first six phases of the scope of
work. However, there is no reason to hold IHC liable for
Quantum meruit should apply in the absence of an that amount due to his failure to present sufficient proof
express agreement on the fees of the services rendered towards that end. Furthermore,
his July 11, 1969 letter revealed that the additional
The next issue to resolve is the amount of the fees that services that he had supposedly rendered were identical
IHC should pay to Joaquin and Suarez. to those enumerated in the technical proposal, thus:
Joaquin claimed that aside from the approved The Board of Directors
₱2,000,000.00 fee to implement phase 1 to phase 6, the
IHC Board of Directors had approved an additional International Hotel Corporation
Thru: Justice Felix Angelo Bautista an additional ₱19,000,000.00 in equity from the
President & Chairman of the Board corporation became unnecessary.
Inasmuch as my fees are contingent on the successful 8. We have secured the approval of the DBP to
implementation of this project, I request that my fees be process the loan application of this corporation
based on a percentage of the total project cost. The fees as per its letter July 2, 1969.
which I consider reasonable for the services that I have
rendered to the project up to the completion of its 9. We have performed other services for the
construction is ₱500,000.00. I believe said amount is corporation which led to the cooperation and
reasonable since this is approximately only ¾ of 1% of understanding of the different factions of this
the total project cost. corporation.
So far, I have accomplished Phases 1-5 of my report I have rendered services to your corporation for the past
dated February 1, 1969 and which you authorized us to 6 months with no clear understanding as to the
do under Board Resolution of February 11, 1969. It is compensation of my services. All I have drawn from the
only Phase 6 which now remains to be implemented. For corporation is the amount of ₱500.00 dated May 12,
my appointment as Consultant dated May 12, 1969 and 1969 and personal payment advanced by Justice Felix
the Board Resolution dated June 23, 1969 wherein I was Angelo Bautista in the amount of ₱1,000.00.
appointed to the Technical Committee, it now follows
that I have been also authorized to implement part of
I am, therefore, requesting this Body for their approval of
Phases 7 & 8.
my fees. I have shown my good faith and willingness to
render services to your corporation which is evidenced
A brief summary of my accomplished work has been as by my continued services in the past 6 months as well as
follows: the accomplishments above mentioned. I believe that
the final completion of this hotel, at least for the
1. I have revised and made the new Project processing of the DBP up to the completion of the
Study of your hotel project, making it bankable construction, will take approximately another 2 ½ years.
and feasible. In view of the above, I again reiterate my request for
your approval of my fees. When the corporation is in a
2. I have reduced the total cost of your project better financial position, I will request for a withdrawal of
by approximately ₱24,735,000.00. a monthly allowance, said amount to be determined by
this Body.
3. I have seen to it that a registered mortgage
with the Reparations Commission did not affect Very truly yours,
the application with the IBP for approval to
processing. (Sgd.)
Francisco G., Joaquin, Jr.48
4. I have prepared the application papers (Emphasis supplied)
acceptable to the DBP by means of an advance
analysis and the presentation of the financial Joaquin could not even rest his claim on the approval by
mechanics, which was accepted by the DBP. IHC’s Board of Directors. The approval apparently arose
from the confusion between the supposedly separate
5. I have presented the financial mechanics of services that Joaquin had rendered and those to be
the loan wherein the requirement of the DBP for done under the technical proposal. The minutes of the
July 11, 1969 board meeting (when the Board of
Directors allowed the payment for Joaquin’s past contractor is allowed to recover the reasonable value of
services and for the 70% project completion by the the services rendered despite the lack of a written
technical group) showed as follows: contract.51 The measure of recovery under the principle
should relate to the reasonable value of the services
III performed.52 The principle prevents undue enrichment
based on the equitable postulate that it is unjust for a
person to retain any benefit without paying for it. Being
The Third order of business is the compensation of Mr.
Francisco G. Joaquin, Jr. for his services in the predicated on equity, the principle should only be applied
corporation. if no express contract was entered into, and no specific
statutory provision was applicable.53
After a brief discussion that ensued, upon motion duly
Under the established circumstances, we deem the total
made and seconded, the stockholders unanimously
approved a resolution of the following tenor: amount of ₱200,000.00 to be reasonable compensation
for respondents’ services under the principle of quantum
meruit.
RESOLUTION NO. ___
(Series of 1969)
Finally, we sustain IHC’s position that the grant of
attorney’s fees lacked factual or legal basis. Attorney’s
"RESOLVED that Mr. Francisco G. Joaquin, Jr. be fees are not awarded every time a party prevails in a suit
granted a compensation in the amount of Five Hundred because of the policy that no premium should be placed
Thousand (₱500,000.00) Pesos for his past services and on the right to litigate. There should be factual or legal
services still to be rendered in the future to the support in the records before the award of such fees is
corporation up to the completion of the sustained. It is not enough justification for the award
Project.1âwphi1 The President is given full discretion to simply because respondents were compelled to protect
discuss with Mr. Joaquin the manner of payment of said their rights.54
compensation, authorizing him to pay part in stock and
part in cash."
ACCORDINGLY, the Court DENIES the petition for
review on certiorari; and AFFIRMS the decision of the
Incidentally, it was also taken up the necessity of giving Court of Appeals promulgated on November 8, 2002 in
the Technical Group a portion of the compensation that C.A.-G.R. No. 47094 subject to the MODIFICATIONS
was authorized by this corporation in its Resolution of that: (a) International Hotel Corporation is ordered to.
February 11, 1969 considering that the assistance so far pay Francisco G. Joaquin, Jr. and Rafael Suarez
given the corporation by said Technical Group in ₱100,000.00 each as compensation for their services,
continuing our project with the DBP and its request for and (b) the award of ₱20,000.00 as attorney's fees is
guaranty for a foreign loan is 70% completed leaving deleted.
only some details which are now being processed. It is
estimated that ₱400,000.00 worth of Common Stock
No costs of suit.
would be reasonable for the present accomplishments
and to this effect, the President is authorized to issue the
same in the name of the Technical Group, as follows: SO ORDERED
Sometime in 1977, National Galleon Shipping WHEREAS, it is a policy to have a Philippine national
Corporation (Galleon), "formerly known as Galleon flag liner service to compete with other heavily
Shipping Corporation, was organized to operate a liner subsidized national shipping companies of other
service between the Philippines and its ... trading countries;
partners."8 Galleon's major stockholders were
respondents Sta. Ines Melale Forest Products NOW, THEREFORE, I, FERDINAND E. MARCOS,
Corporation (Sta. Ines), Cuenca Investment Corporation President of the Philippines, do hereby direct the
(Cuenca Investment), Universal Holdings Corporation following:
(Universal Holdings), Galleon's President Rodolfo M.
Cuenca (Cuenca), Manuel I. Tinio (Tinio), and the 1. NDC shall acquire 100% of the shareholdings
Philippine National Construction Corporation (PNCC).9
of Galleon Shipping Corporation from its present
owners for the amount of P46. 7 million which is
Galleon experienced financial difficulties and had to take the amount originally contributed by the present
out several loans from different sources such as foreign shareholders, payable after five years with no
financial institutions, its shareholders (Sta. Ines, Cuenca interest cost.
Investment, Universal Holdings, Cuenca, and Tinio), and
other entities "with whom it had ongoing commercial
2. NDC to immediately infuse P30 million into
relationships."10
Galleon Shipping Corporation in lieu of its
previously approved subscription to Philippine
DBP guaranteed Galleon's foreign loans.11 In return, National Lines. In addition, NDC is to provide
Galleon and its stockholders Sta. Ines, Cuenca additional equity to Galleon as may be required.
Investment, Universal Holdings, Cuenca, and Tinio,
executed a Deed of Undertaking12 on October 10, 1979
3. DBP to advance for a period of three years
and obligated themselves to guarantee DBP's potential from date hereof both the principal and the
liabilities.13 interest on Galleon's obligations falling due and
to convert such advances into 12% preferred
To secure DBP's guarantee, Galleon undertook to shares in Galleon Shipping Corporation.
secure a first mortgage on its five new vessels and two
second-hand vessels.14 However, despite the loans 4. DBP and NDC to negotiate a restructuring of
extended to it, "[Galleon's] financial condition did not loans extended by foreign creditors of
improve."15 Galleon.1avvphi1
"WHEREFORE, judgment is hereby rendered (1) On September 16, 2010, NDC appealed the Court of
ordering defendants National Development Corporation Appeals Decision to this Court. In its Petition for
and National Galleon Shipping Corporation jointly and Review,60NDC maintains that the Memorandum of
severally, to pay plaintiffs Sta. Ines Melale Forest Agreement does not bind it, since Ongpin was not
Products Corporation, Rodolfo M. Cuenca, Manuel I. equipped with authority from the NDC Board to sign the
Tinio, Cuenca Investment Corporation and Universal Memorandum of Agreement on NDC's behalf.61 NDC
Holdings Corporation, the amount of ₱15,150,000.00 also denies that it took over the control and management
representing the amount of advances made by plaintiffs of Galleon or that it "prevented the execution of the
in behalf of defendant NGSC, plus interest at the rate of [s]hare [p]urchase [a]greement[.]"62
twelve percent (12%) per annum from the date of filing of
this case on 22 April 1985 until instant Decision NDC asserts that even assuming that the Memorandum
becomes final and executory, thereafter the said amount of Agreement was binding, what was agreed upon was
shall earn an interest at the rate of twelve (12%) that the parties shall execute a share purchase
percent per annum from such finality until its satisfaction; agreement within a certain period of time.63 The
Memorandum of Agreement was only a preliminary
(2) ordering the defendants National Development agreement between Cuenca and Ongpin for NDC's
Corporation and National Galleon Shipping "intended purchase of Galleon's equity[,] pursuant to
[C]orporation, jointly and severally, to pay plaintiffs Sta. [Letter of Instructions No.] 1155."64 The Memorandum of
Ines Melale Forest Products Corporation, Rodolfo M. Agreement cannot "be considered as the executing
Cuenca, Manuel I. Tinio, Cuenca Investment agreement or document for the purchase of the
Corporation and Universal Holdings Corporation, the shares."65
amount of ₱46,740,755.00, representing the price of the
shares of stock of plaintiffs and defendant PNCC in On September 13, 2010, DBP filed its Petition for
defendant NGSC, plus interest at the rate of twelve Review66 before this Court. DBP insisted that novation
percent (12%) per annum from the date of filing of this did not take place because: (a) there was no second
case on 22 April 1985 until instant Decision becomes binding contract designed to replace the Deed of
final and executory, thereafter the said amount shall Undertaking; (b) it did not give its consent to the
earn an interest at the rate of twelve percent (12%) per substitution of debtors under the Memorandum of
annum from such finality until its satisfaction; Agreement; and (c) there was no agreement that
unequivocally declared novation by substitution of
(3) ordering the defendants National Development debtors.67
Corporation and National Galleon Shipping Corporation,
jointly and severally, to pay plaintiffs Sta. Ines Melale The issues raised for the resolution of this Court are as
Forest Products Corporation, Rodolfo M. Cuenca, follows:
Manuel I. Tinio, Cuenca Investment Corporation and
Universal Holdings Corporation, attorney's fees a) Whether the Memorandum of Agreement
equivalent to 10% of the amount due; and costs of suit; obligates NDC to purchase Galleon's shares of
stocks and pay the advances made by
(4) ordering the defendants National Development respondents in Galleon's favor;68
Corporation and National Galleon Shipping Corporation,
jointly and severally, to pay to each plaintiffs and b) Whether the Memorandum of Agreement
defendant Philippine National Construction Corporation, novated the Deed of Undertaking executed
₱10,000.00 as moral damages; and ₱10,000.00 as between DBP and respondents;69 and
exemplary damages; and
c) Whether the computation of legal interest
(5) declaring plaintiffs Sta. Ines Melale Forest Products should be at the rate of 6% per annum, instead
Corporation, Rodolfo M. Cuenca, Manuel I. Tinio,
Cuenca Investment Corporation and Universal Holdings
of the 12% per annum pegged by the Court of fifth annual anniversary of the share purchase
Appeals.70 agreement;
It is not disputed that NDC and respondents Sta. Ines, e) deliver to NDC, upon signing of the share
Cuenca, Tinio, Cuenca Investment, and Universal
purchase agreement, 10,000,000 common
Holdings executed a Memorandum of Agreement
shares of Galleon, duly and validly endorsed for
pursuant to the directives of Letter of Instructions No.
transfer, free from any and all liens and
1155.
encumbrances whatsoever; and
The Court of Appeals found that the Memorandum of 7. The stock purchase agreement to be prepared and
Agreement between NDC and Galleon was a perfected signed by the parties within sixty (60) days from date
contract for NDC to purchase 100% of Galleon's hereof shall contain, among other things:
shareholdings. However, a careful reading of the
Memorandum of Agreement shows that what the parties (a) standard warranties of seller including, but not limited
agreed to was the execution of a share purchase to, warranties pertaining to the accuracy of financial and
agreement to effect the transfer of 100% of Galleon's other statements of GSC; disclosure of liabilities;
shareholdings to NDC, as seen in clause 3: payment of all taxes, duties, licenses and fees; non-
encumbrance of corporate assets; valid contracts with
3. As soon as possible, but not more than 60 days after third parties, etc. including an indemnity clause covering
the signing hereof, the parties shall endeavor to prepare any breach thereof.
and sign a share purchase agreement covering 100% of
the shareholdings of Sellers in GSC to be transferred to (b) provisions that Buyer shall retain 2 representatives of
Buyer, i.e. 10,000,000 fully paid common shares of the Sellers in the board of GSC only for as long as Sellers
par value of ₱1.00 per share and subscription of an have not been paid, or have not negotiated or
additional 100,000,000 common shares of the par value discounted any of the promissory notes referred to in
of ₱1.00 per share of which ₱36,740,755.00 has been clause 5 above.
paid, but not yet issued.
(c) provisions whereby Construction Development
The second paragraph of clause 4 likewise makes the Corporation of the Philippines, Sta. Ines Melale Forest
execution of a share purchase agreement a condition Products Corporation, Mr. Rodolfo M. Cuenca and Mr.
before the purchase price can be paid to respondents, Manuel I. Tinio shall be released from counter-
since the payment of the purchase price becomes due guarantees they have issued in favor of DBP and other
only after five years from the date of execution of the financial institutions in connection with GSC's various
share purchase agreement: credit accommodations.
4. Sellers hereby warrant that ₱46,740,755[.00] had (d) provisions for arbitration as a means of settling
been actually paid to Galleon Shipping Corporation, disputes and differences of opinion regarding the stock
which amount represents payment of Sellers for purchase agreement.
46,740,755 common shares of said Corporation. This
warranty shall be verified by Buyer, the results of which
Under clause 7 of the Memorandum of Agreement, NDC
will determine the final purchase price to be paid to and respondents agreed to include in the still-to-be-
Sellers. executed share purchase agreement, provisions on: (a)
standard warranties, including warranties on the
The purchase price directed by LOI 1155 to be paid to accuracy of Galleon's financials, disclosure of liabilities,
Sellers shall be paid after five (5) years from date of the etc; (b) the retention of Galleon's representatives in
share purchase agreement with no interest cost to Galleon's board of directors prior to the payment of the
buyer. (Emphasis supplied) share purchase price; (c) the release of respondents
from the counter-guarantees they made in favor of DBP
NDC asserts that the Memorandum of Agreement was and other financial institutions in connection with
only a preliminary agreement between Galleon, Galleon's various credit accommodations; and (d)
represented by Cuenca, and NDC, represented by arbitration as a means of settling disputes and
Ongpin, for the intended purchase of Galleon's equity differences of opinion regarding the stock purchase
pursuant to Letter of Instructions No. 1155,77 thus: agreement.
It merely prescribed the manner, terms and conditions of Taking the provisions of the Memorandum of Agreement
said purchase. In fact, the [Memorandum of Agreement] as a whole, it is clear that while there was an intention to
provided for a time frame for the execution of the share follow the directives of Letter of Instructions No. 1155,
purchase agreement which is within sixty (60) days from the transfer of shares from respondents to NDC was to
the signing thereof. By no means can it be considered as be effected only with the execution of the share
the executing agreement or document for the purchase purchase agreement, the terms and conditions of which
of the shares.78 were laid out in the Memorandum of Agreement.
NDC and the respondents undertook to prepare and sign which provides that "the condition shall be deemed
a share purchase agreement over 100% of respondents' fulfilled when the obligor voluntarily prevents its
shares in Galleon not more than sixty days after the fulfillment." Plaintiff Cuenca, as representative of the
signing of the Memorandum of Agreement: former shareholders of defendant Galleon, in order to
clear up the accounts preparatory to the execution of the
3. As soon as possible, but not more than 60 days after share purchase agreement, created a team to prepare a
the signing hereof, the parties shall endeavor to prepare statement of defendant Galleon's outstanding accounts
and sign a share purchase agreement covering 100% of which statement of account was intended to be included
the shareholdings of Sellers in GSC to be transferred to as part of the annexes of the said share purchase
Buyer, i.e. 10,000,000 fully paid common shares of the agreement. Another team with representatives from both
par value of ₱1.00 per share and subscription of an parties, that is, the former stockholders of defendant
additional 100,000,000 common shares of the par value Galleon and defendant NDC, had to be created for a
of ₱1.00 per share of which ₱36,740,755.00 has been smoother turnover. However, despite said efforts done
paid, but not yet issued. by plaintiff Cuenca the share purchase agreement was
not formally executed.81 (Emphasis in the original)
The execution of a share purchase agreement was a
condition precedent to the transfer of Galleon's shares to NDC denies that it caused the delay in the execution of
NDC. However, the Court of Appeals found that the NDC the share purchase agreement and argues that it was
prevented its execution by deliberately delaying its Cuenca who caused the delay for insisting on the
review of Galleon's financial accounts: payment first of the advances made in Galleon's favor
before executing the share purchase agreement and
relinquishing control over Galleon.82
From the foregoing, it is evident that the period for the
payment of the purchase price is entirely dependent on
the execution of a share purchase agreement by the NDC's bare denials cannot succeed in light of the
parties. The evidence on record, however, show that preponderance of evidence submitted by respondents.
the defendant-appellant NDC itself voluntarily prevented
the execution of a share purchase agreement when it In his Affidavit83 dated June 17, 1999, Cuenca narrated
reneged on its various obligations under the the preparations the Galleon stockholders undertook for
Memorandum of Agreement. The evidence on record the execution of the share purchase agreement with
show that the share purchase agreement was not NDC:
formally executed because then Minister Roberto
Ongpin claimed that the accounts of defendant Galleon 168. Q: What happened to the share purchase
had to be reviewed and cleared up before the share agreement referred to in the Memorandum of Agreement
purchase agreement is signed. While defendant Galleon dated August 1981 (Exhibit "J")?
made its financial records available to defendant-
appellant NDC for their review, the latter never made
A: The share purchase agreement was never drawn up
any serious effort to review the financial accounts of the
despite persistent attempts by myself to see it prepared
defendant Galleon, hence, effectively preventing the
and executed. In fact, we continually negotiated with
execution of the share purchase agreement.
NDC and DBP throughout 1982 and 1983 on the matter.
Consequently, the condition for the running of the period
for the payment of the purchase price of the shares of
stocks in defendant Galleon by the defendant-appellant 169. Q: Why was it never executed?
NDC, i.e., the execution of the Share Purchase
Agreement, was deemed fulfilled as it was the A: Minister Ongpin kept claiming that the accounts had
defendant-appellant NDC itself which prevented it from to be cleared up before any formal agreement could be
happening. Under Article 1186 of the Civil Code, a signed.
"condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfilment." This applies in the 170. Q: What steps, if any, did the parties take to clear
instant case.79 (Emphasis supplied) up the accounts preparatory to the signing of the share
purchase agreement?
The Regional Trial Court likewise found that respondent
Cuenca, as Galleon's representative, initiated moves for A: During the transition period, prior to the signing of the
the preparation and execution of the share purchase share purchase agreement, I created a team to prepare
agreement and NDC's takeover of a statement of Galleon's outstanding accounts which we
Galleon.80 Nonetheless, despite Cuenca's efforts, the intended to include as part of the annexes of the share
share purchase agreement was never formally executed: purchase agreement. Another team with representatives
from both parties, i.e., the former stockholders of
Assuming that the share purchase agreement was a Galleon and NDC, had to be created for a smoother
condition for the effectivity of the Memorandum of turn-over. In short, we did all that was possible and
Agreement (dated 10 August 1981 ), said condition is required of us under the Memorandum of
deemed fulfilled by virtue of Art. 1186 of the Civil Code, Agreement. We negotiated with NDC in good faith for
years but NDC kept stonewalling the execution of the (1) When after the obligation has been contracted, he
share purchase agreement.84 (Emphasis supplied) becomes insolvent, unless he gives a guaranty or
security for the debt;
On April 26, 1982, Antonio L. Carpio, NDC's General
Manager,85 sent Ongpin a Memorandum,86 where Carpio (2) When he does not furnish to the creditor the
acknowledged reviewing Galleon's outstanding accounts guaranties or securities which he has promised;
submitted by Cuenca.87 This supports Cuenca's
statement that they submitted a statement of Galleon's (3) When by his own acts he has impaired said
outstanding accounts for NDC's review, as per Ongpin's guaranties or securities after their establishment, and
request, a fact not denied by NDC. when through a fortuitous event they disappear, unless
he immediately gives new ones equally satisfactory;
Upon receiving Galleon's outstanding accounts, NDC
and Sta. Ines, Cuenca, Tinio, Cuenca Investment and (4) When the debtor violates any undertaking, in
Universal Holdings should have initiated the execution of consideration of which the creditor agreed to the period;
the share purchase agreement. However, the share
purchase agreement was never executed, through no
(5) When the debtor attempts to abscond. (Emphasis
fault of Galleon's stockholders.
supplied)
We see no reason to disturb the findings of the lower Otherwise formulated, the norm to be followed in the
courts. future on the rates and application thereof is:
However, on the issue of compensatory interest as I. When an obligation, regardless of its source, is
damages, where the Regional Trial Court imposed an breached, the contravenor can be held liable for
interest rate of six percent (6%) per annum on the damages. The provisions under Title XVIII on
advances made and the payment due for the shares of "Damages" of the Civil Code govern in determining the
stock,105 the Court of Appeals modified the Regional measure of recoverable damages.
Trial Court's ruling insofar as the interest rate to be
imposed was concemed.106The Court of Appeals ruled II. With regard particularly to an award of interest in the
that the advances made by Sta. Ines, Cuenca, Tinio, concept of actual and compensatory damages, the rate
Cuenca Investment, and Universal Holdings and the of interest, as well as the accrual thereof, is imposed, as
payment due them for the Galleon shares of stocks were follows:
loans or forbearances of money that should earn interest
of 12% from the date the case was filed.107 Furthermore,
1. When the obligation breached consists in the payment
the Court of Appeals held that these amounts should of a sum of money, i.e., a loan or forbearance of money,
likewise earn an additional 12% interest per annum from
the interest due should be that which may have been
finality until its satisfaction.108
stipulated in writing. Furthermore, the interest due shall
itself earn legal interest from the time it is judicially
Estores v. Spouses Supangan109 defined forbearance as demanded. In the absence of stipulation, the rate of
an arrangement other than a loan where a person interest shall be 12% per annum to be computed from
agrees to the temporary use of his money, goods, or default, i.e., from judicial or extrajudicial demand under
credits subject to the fulfilment of certain conditions.110 and subject to the provisions of Article 1169 of the Civil
Code.
In this case, Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings advanced money in ....
Galleon's favor and agreed to turn over management
and control of Galleon to NDC even before receiving
3. When the judgment of the court awarding a sum of
payment for their shares of stocks. They were deprived
money becomes final and executory, the rate of legal
of the use of their money in both cases for the periods
interest, whether the case falls under paragraph 1 or
pending fulfillment of the agreed conditions. When those paragraph 2, above, shall be 12% per annum from such
conditions were not met, they became entitled not only finality until its satisfaction, this interim period being
to the return of their advances and payment of their deemed to be by then an equivalent to a forbearance of
shares of stocks, but also to the compensation for the
credit.113 (Emphasis supplied, citations omitted)
use of their money and property. The unwarranted
withholding of the money, which rightfully pertains to Sta.
Ines, Cuenca, Tinio, Cuenca Investment, and Universal On May 16, 2013, the Monetary Board of the Bangko
Holdings, amounts to forbearance of money. Sentral ng Pilipinas issued Resolution No. 796, which
revised the interest rate to be imposed for the loan or
forbearance of any money, goods, or credits. This was
Sunga-Chan v. Court of Appeals,111 citing Eastern
implemented by Bangko Sentral ng Pilipinas Circular No.
Shipping Lines, Inc. v. Court of Appeals,112 reiterated the
799,114 Series of 2013, which reads:
rule on application of interest:
The Monetary Board, in its Resolution No. 796 dated 16
Eastern Shipping Lines, Inc. synthesized the rules on the
May 2013, approved the following revisions governing
imposition of interest, if proper, and the applicable rate,
the rate of interest in the absence of stipulation in loan
as follows: The 12% per annum rate under CB Circular
contracts, thereby amending Section 2 of Circular No.
No. 416 shall apply only to loans or forbearance of 905, Series of 1982:
money, goods, or credits, as well as to judgments
involving such loan or forbearance of money, goods, or
credit, while the 6% per annum under Art. 2209 of the Section 1. The rate of interest for the loan or forbearance
Civil Code applies "when the transaction involves the of any money, goods or credits and the rate allowed in
payment of indemnities in the concept of damage arising judgments, in the absence of an express contract as to
from the breach or a delay in the performance of such rate of interest, shall be six percent (6%) per
obligations in general," with the application of both rates annum.
Section 2. In view of the above, Subsection X305.l of the deemed to be by then an equivalent to a forbearance of
Manual of Regulations for Banks and Sections 4305Q.1, credit.
4305S.3 and 4303P. l of the Manual of Regulations for
Non-Bank Financial Institutions are hereby amended And, in addition to the above, judgments that have
accordingly. become final and executory prior to July 1, 2013, shall
not be disturbed and shall continue to be implemented
This Circular shall take effect on 1 July 2013. applying the rate of interest fixed therein.116
Nacar v. Gallery Frames, et al.115 then modified the Applying these guidelines, the Court of Appeals' ruling
guidelines laid down in Eastern Shipping Lines to must be modified to reflect the ruling in Nacar. The
embody Bangko Sentral ng Pilipinas Circular No. 799, award of the advances made by Sta. Ines, Cuenca,
thus: Tinio, Cuenca Investment, and Universal Holdings in
Galleon's favor and payment for their shares of stocks in
I. When an obligation, regardless of its source, i.e., law, Galleon shall earn an interest rate of l 2% per
contracts, quasicontracts, delicts or quasi-delicts is annum from the date of filing of this case on April 22,
breached, the contravenor can be held liable for 1985117 until June 30, 2013. After June 30, 2013, these
damages. The provisions under Title XVIII on amounts shall earn interest at six percent (6%) per
"Damages" of the Civil Code govern in determining the annum until the Decision becomes final and executory.
measure of recoverable damages. An interest of six percent (6%) per annumshall be
imposed on such amounts from the finality of the
Decision until its satisfaction.
II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate
of interest, as well as the accrual thereof, is imposed, as Finally, DBP's claims for damages are denied since it
follows: failed to support its claims of malicious prosecution and
a deliberate act of Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings to cause loss or
1. When the obligation is breached, and it consists in the
payment of a sum of money, i.e., a loan or forbearance injury to DBP.
of money, the interest due should be that which may
have been stipulated in writing. Furthermore, the interest WHEREFORE, the March 24, 2010 Decision and July
due shall itself earn legal interest from the time it is 21, 2010 Resolution of the Court of Appeals in CA-G.R.
judicially demanded. In the absence of stipulation, the CV No. 85385 are AFFIRMED with the
rate of interest shall be 6% per annum to be computed following MODIFICATIONS:
from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the (1) Sta. Ines Melale Forest Products
Civil Code. Corporation, Rodolfo M. Cuenca, Manuel I.
Tinio, Cuenca Investment Corporation, Universal
2. When an obligation, not constituting a loan or Holdings Corporation, and the Philippine
forbearance of money, is breached, an interest on the National Construction Corporation are
amount of damages awarded may be imposed at the declared LIABLE to the National Development
discretion of the court at the rate of 6% per annum. No Corporation, the Development Bank of the
interest, however, shall be adjudged on unliquidated Philippines, and the Asset Privatization Trust
claims or damages, except when or until the demand under the deed of undertaking, pledge,
can be established with reasonable certainty. mortgages, and other accessory contracts
Accordingly, where the demand is established with among the parties; and
reasonable certainty, the interest shall begin to run from
the time the claim is made judicially or extrajudicially (2) The award of the advances made by Sta.
(Art. 1169, Civil Code), but when such certainty cannot Ines Melale Forest Products Corporation,
be so reasonably established at the time the demand is Rodolfo M. Cuenca, Manuel L. Tinio, Cuenca
made, the interest shall begin to run only from the date Investment Corporation, and Universal Holdings
the judgment of the court is made (at which time the Corporation in Galleon's favour, as well as the
quantification of damages may be deemed to have been award of the payment for their shares of stocks
reasonably ascertained). The actual base for the in Galleon, shall earn an interest rate of 12% per
computation of legal interest shall, in any case, be on the annum from the date of the filing of this case on
amount finally adjudged. April 22, 1985 until June 30, 2013, after which,
they shall earn interest at the rate of 6% per
3. When the judgment of the court awarding a sum of annum until the Decision becomes final and
money becomes final and executory, the rate of legal executory.
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from such These amounts shall earn interest at the rate of 6% per
finality until its satisfaction, this interim period being annum from the finality of this Decision until its
satisfaction.
SO ORDERED. (e) TCT No. T-7014 x x x in the name of
Edmundo Lim;
LIM VS DBP
(f) TCT No. T-7016 x x x in the name of Carlito
Lim;
This Petition for Review on Certiorari2 under Rule 45 of (j) TCT No. T-25018 x x x in the name of
the Rules of Court assails the February 22, 2007 Trinidad D. Chua’s deceased husband Juan
Decision3of the Court of Appeals (CA) in CA-G.R. CV Chua.12
No. 59275.
Due to violent confrontations between government
Factual Antecedents troops and Muslim rebels in Mindanao from 1972 to
1977, petitioners were forced to abandon their cattle
On November 24, 1969, petitioners Carlos, Consolacion, ranch.13 As a result, their business collapsed and they
and Carlito, all surnamed Lim, obtained a loan of failed to pay the loan amortizations.14
₱40,000.00 (Lim Account) from respondent
Development Bank of the Philippines (DBP) to finance In 1978, petitioners made a partial payment in the
their cattle raising business.4 On the same day, they amount of ₱902,800.00,15 leaving an outstanding loan
executed a Promissory Note5 undertaking to pay the balance of ₱610,498.30, inclusive of charges and unpaid
annual amortization with an interest rate of 9% per interest, as of September 30, 1978.16
annum and penalty charge of 11% per annum.
In 1989, petitioners, represented by Edmundo Lim
On December 30, 1970, petitioners Carlos, Consolacion, (Edmundo), requested from DBP Statements of Account
Carlito, and Edmundo, all surnamed Lim; Shirley for the "Lim Account" and the "Diamond L Ranch
Leodadia Dizon, Arleen Lim Fernandez, Juan S. Account."17 Quoted below are the computations in the
Chua,6 and Trinidad D. Chua7 obtained another loan Statements of Account, as of January 31, 1989 which
from DBP8 in the amount of ₱960,000.00 (Diamond L were stamped with the words "Errors & Omissions
Ranch Account).9 They also executed a Promissory Excepted/Subject to Audit:"
Note,10 promising to pay the loan annually from August
22, 1973 until August 22, 1982 with an interest rate of
12% per annum and a penalty charge of 1/3% per month 1âwphi1
on the overdue amortization. Diamond L Ranch Account:
On April 30, 1991, Edmundo again signified petitioners’ On November 20, 1992, Tamayo informed Edmundo
intention to settle the Diamond L Ranch that the proposal was accepted with some minor
Account.27 Again, no reply was made.28 adjustments and that an initial payment should be made
by November 27, 1992.47
On February 21, 1992, Edmundo received a Notice of
Foreclosure scheduled the following day.29 To stop the On December 15, 1992, Edmundo paid the
foreclosure, he was advised by the bank’s Chief Legal downpayment of ₱362,271.7548 and was asked to wait
Counsel to pay an interest covering a 60-days period or for the draft Restructuring Agreement.49
the amount of ₱60,000.00 to postpone the foreclosure
for 60 days.30 He was also advised to submit a written However, on March 16, 1993, Edmundo received a
proposal for the settlement of the loan accounts.31 letter50 from Tamayo informing him that the Regional
Credit Committee rejected the proposed Restructuring
In a letter32 dated March 20, 1992, Edmundo proposed Agreement; that it required downpayment of 50% of the
the settlement of the accounts through dacion en pago, total obligation; that the remaining balance should be
with the balance to be paid in equal quarterly payments paid within one year; that the interest rate should be non
over five years. prime or 18.5%, whichever is higher; and that the
proposal is effective only for 90 days from March 5, 1993
to June 2, 1993.51
In a reply-letter33 dated May 29, 1992, DBP rejected the
proposal and informed Edmundo that unless the
accounts are fully settled as soon as possible, the bank Edmundo, in a letter52 dated May 28, 1993, asked for the
will pursue foreclosure proceedings. restoration of their previous agreement.53 On June 5,
1993, the bank replied,54 viz:
DBP then sent Edmundo the Statements of Account34 as
of June 15, 1992 which were stamped with the words This has reference to your letter dated May 28, 1993,
"Errors & Omissions Excepted/Subject to Audit" which has connection to your desire to restructure the
indicating the following amounts: (1) Diamond L Ranch: Diamond L Ranch/Carlos Lim Accounts.
₱7,210,990.27 and (2) Lim Account: ₱187,494.40.
We wish to clarify that what have been agreed between
On June 11, 1992, Edmundo proposed to pay the you and the Branch are not final until [the] same has
principal and the regular interest of the loans in 36 equal been approved by higher authorities of the Bank. We did
monthly installments.35 [tell] you during our discussion that we will be
recommending the restructuring of your accounts with 1) This will be the last and final extension to be
the terms and conditions as agreed. Unfortunately, our granted your accounts; and
Regional Credit Committee did not agree to the terms
and conditions as recommended, hence, the subject of 2) That all amortizations due from March 1993 to
our letter to you on March 15, 1993. November 1993 shall be paid including the
additional interest computed at straight 18.5%
Please be informed further, that the Branch cannot do from date of your receipt of notice of approval,
otherwise but to comply with the conditions imposed by viz:
the Regional Credit Committee. More so, the time frame
given had already lapsed on June 2, 1993. xxxx
Unless we will receive a favorable action on your part Failure on your part to comply with these conditions, the
soonest, the Branch will be constrained to do Bank will undertake appropriate legal measures to
appropriate action to protect the interest of the Bank."55 protect its interest.
On July 28, 1993, Edmundo wrote a letter56 of appeal to Please give this matter your preferential attention.61
the Regional Credit Committee.
On November 8, 1993, Edmundo sent Tamayo a
In a letter57 dated August 16, 1993, Tamayo informed telegram, which reads:
Edmundo that the previous Restructuring Agreement
was reconsidered and approved by the Regional Credit
Acknowledge receipt of your Sept. 27 letter. I would like
Committee subject to the following additional conditions, to finalize documentation of restructuring Diamond L
to wit: Ranch and Carlos Lim Accounts. However, we would
need clarification on amortizations due on NTFI means
1) Submission of Board Resolution and [sic]. I will call x x x your Legal Department at DBP Head
Secretary’s Certificate designating you as Office by Nov. 11. Pls. advise who[m] I should contact.
authorized representative in behalf of Diamond L Thank you.62
Ranch;
Receiving no response, Edmundo scheduled a meeting
2) Payment of March 15 and June 15, 1993 with Tamayo in Manila.63 During their meeting, Tamayo
amortizations within 30 days from date hereof; told Edmundo that he would send the draft of the
and Restructuring Agreement by courier on November 15,
1993 to the Main Office of DBP in Makati, and that
3) Submission of SEC registration. Diamond L Ranch need not submit the Board
Resolution, the Secretary’s Certificate, and the SEC
In this connection, please call immediately x x x our Registration since it is a single proprietorship.64
Legal Division to guide you for the early documentation
of your approved restructuring. On November 24, 1993 and December 3, 1993,
Edmundo sent telegrams to Tamayo asking for the draft
Likewise, please be reminded that upon failure on your of the Restructuring Agreement.65
part to sign and perfect the documents and comply [with]
other conditions within (30) days from date of receipt, On November 29, 1993, the documents were forwarded
your approved recommendation shall be deemed to the Legal Services Department of DBP in Makati for
CANCELLED and your deposit of ₱362,271.75 shall be the parties’ signatures. At the same time, Edmundo was
applied to your account. required to pay the amount of ₱1,300,672.75, plus a
daily interest of ₱632.15 starting November 16, 1993 up
No compliance was made by Edmundo.58 to the date of actual payment of the said amount.66
On September 21, 1993, Edmundo received Notice that On December 19, 1993, Edmundo received the draft of
the mortgaged properties were scheduled to be the Restructuring Agreement.67
auctioned on that day.59 To stop the auction sale,
Edmundo asked for an extension until November 15, In a letter68 dated January 6, 1994, Tamayo informed
199360 which was approved subject to additional Edmundo that the bank cancelled the Restructuring
conditions: Agreement due to his failure to comply with the
conditions within a reasonable time.
Your request for extension is hereby granted with the
conditions that: On January 10, 1994, DBP sent Edmundo a Final
Demand Letter asking that he pay the outstanding
amount of ₱6,404,412.92, as of November 16, 1993,
exclusive of interest and penalty charges.69
Edmundo, in a letter70 dated January 18, 1994, On June 8, 1994, the Office of the Clerk of Court and Ex-
explained that his lawyer was not able to review the Officio Provincial Sheriff of the RTC of General Santos
agreement due to the Christmas holidays. He also said City issued a Notice77 resetting the public auction sale of
that his lawyer was requesting clarification on the the mortgaged properties on July 11, 1994. Said Notice
following points: was published for three consecutive weeks in a
newspaper of general circulation in General Santos
Can the existing obligations of the Mortgagors, if any, be City.78
specified in the Restructuring Agreement already?
On July 11, 1994, the Ex-Officio Sheriff conducted a
Is there a statement showing all the accrued interest and public auction sale of the mortgaged properties for the
advances that shall first be paid before the restructuring satisfaction of petitioners’ total obligations in the amount
shall be implemented? of ₱5,902,476.34. DBP was the highest bidder in the
amount of ₱3,310,176.55.79
Should Mr. Jun Sarenas Chua and his wife Mrs. Trinidad
Chua be required to sign as Mortgagors considering that On July 13, 1994, the Ex-Officio Sheriff issued the
Mr. Chua is deceased and the pasture lease which he Sheriff’s Certificate of Extra-Judicial Sale in favor of DBP
used to hold has already expired?71 covering 11 parcels of land.80
Edmundo also indicated that he was prepared to pay the In a letter81 dated September 16, 1994, DBP informed
first quarterly amortization on March 15, 1994 based on Edmundo that their right of redemption over the
the total obligations of ₱3,260,445.71, as of December foreclosed properties would expire on July 28, 1995, to
15, 1992, plus interest.72 wit:
On January 28, 1994, Edmundo received from the bank This is to inform you that your right of redemption over
a telegram73 which reads: your former property/ies acquired by the Bank on July
13, 1994, thru Extra-Judicial Foreclosure under Act 3135
will lapse on July 28, 1995.
We refer to your cattle ranch loan carried at our DBP
General Santos City Branch.
In view thereof, to entitle you of the maximum
condonable amount (Penal Clause, AI on Interest,
Please coordinate immediately with our Branch Head not
PC/Default Charges) allowed by the Bank, we are urging
later than 29 January 1994, to forestall the impending
foreclosure action on your account. you to exercise your right within six (6) months from the
date of auction sale on or before January 12, 1995.
Please give the matter your utmost attention.
Further, failure on your part to exercise your redemption
right by July 28, 1995 will constrain us to offer your
The bank also answered Edmundo’s queries, viz: former property/ies in a public bidding.
In view of the extended leave of absence of AVP Please give this matter your preferential attention. Thank
Bonifacio A. Tamayo, Jr. due to the untimely demise of you.82
his father, we regret [that] he cannot personally respond
to your letter of January 18, 1994. However, he gave us
the instruction to answer your letter on direct to the point On July 28, 1995, petitioners filed before the RTC of
General Santos City, a Complaint83 against DBP for
basis as follows:
Annulment of Foreclosure and Damages with Prayer for
Issuance of a Writ of Preliminary Injunction and/or
- Yes to Items No. 1 and 2, Temporary Restraining Order. Petitioners alleged that
DBP’s acts and omissions prevented them from fulfilling
- No longer needed on Item No. 3 their obligation; thus, they prayed that they be
discharged from their obligation and that the foreclosure
AVP Tamayo would like us also to convey to you to of the mortgaged properties be declared void. They
hurry up with your move to settle the obligation, while the likewise prayed for actual damages for loss of business
foreclosure action is still pending with the legal division. opportunities, moral and exemplary damages, attorney’s
He is afraid you might miss your last chance to settle the fees, and expenses of litigation.84
account of your parents.74
On same date, the RTC issued a Temporary Restraining
Edmundo then asked about the status of the Order85 directing DBP to cease and desist from
Restructuring Agreement as well as the computation of consolidating the titles over petitioners’ foreclosed
the accrued interest and advances75 but the bank could properties and from disposing the same.
not provide any definite answer.76
In an Order86 dated August 18, 1995, the RTC granted [Respondent] Bank is likewise ordered to pay
the Writ of Preliminary Injunction and directed petitioners the costs of suit.
to post a bond in the amount of ₱3,000,000.00.
SO ORDERED.96
DBP filed itsAnswer,87 arguing that petitioners have no
cause of action;88 that petitioners failed to pay their loan Ruling of the Court of Appeals
obligation;89 that as mandated by Presidential Decree
No. 385, initial foreclosure proceedings were undertaken On appeal, the CA reversed and set aside the RTC
in 1977 but were aborted because petitioners were able
Decision. Thus:
to obtain a restraining order;90 that on December 18,
1990, DBP revived its application for foreclosure but it
was again held in abeyance upon petitioners’ WHEREFORE, in view of the foregoing, the instant
request;91 that DBP gave petitioners written and verbal appeal is hereby GRANTED. The assailed Decision
demands as well as sufficient time to settle their dated 10 December 1996 is hereby REVERSED and
obligations;92 and that under Act 3135,93 DBP has the SET ASIDE. A new judgment is hereby rendered. It shall
right to foreclose the properties.94 now read as follows:
In the Promissory Note, Exhibit "A," for the principal (6) penalty charges on principal in the amount of
amount of ₱960,000.00, only the following interest and ₱1,639,331.15;
penalty charges were stipulated:
(7) penalty charges on regular interest in the amount of
(1) interest at the rate of twelve percent (12%) ₱1,146,622.55;
per annum;
(8) penalty charges on advances in the amount of
(2) penalty charge of one-third percent (1/3%) ₱40,520.53.
per month on overdue amortization;
Again, the Court finds no basis in the Promissory Note,
(3) attorney’s fees equivalent to ten percent Exhibit "A," for the imposition of additional interest on
(10%) of the total indebtedness then unpaid; and principal in the amount of ₱1,233,893.79, additional
interest on regular interest in the amount of
(4) advances and interest thereon at one ₱859,966.83, penalty charges on regular interest in the
percent (1%) per month. amount of ₱1,146,622.55 and penalty charges on
advances in the amount of ₱40,520.53.
[Respondent] bank, however, charged [petitioners] the
following items as shown in its Statement of Account for In the Promissory Note, Exhibit "C," for the principal
the period as of 31 January 1989, Exhibit "D:" amount of ₱40,000.00, only the following charges were
stipulated:
(1) regular interest in the amount of
₱561,037.14; (1) interest at the rate of nine percent (9%) per
annum;
(2) advances in the amount of ₱34,589.45;
(2) all unpaid amortization[s] shall bear interest
at the rate of eleven percent (11%) per annum;
(3) additional interest in the amount of
and,
₱2,590,786.26; and
The Court finds no basis under the Promissory Note, In its statement of account x x x as of 31 January 1989,
Exhibit "E," [respondent] bank charged [petitioners] with
Exhibit "A," for charging the additional interest in the
the following items:
amount of ₱2,590,786.26. Moreover, it is
incomprehensible how the penalty charge of 1/3% per
month on the overdue amortization could amount to (1) regular interest in the amount of ₱5,046.97
₱1,086,147.19 while the regular interest, which was
stipulated at the higher rate of 12% per annum, (2) additional interest in the amount of
amounted to only ₱561,037.14 or about half of the ₱92,113.56; and
amount allegedly due as penalties.
(3) penalty charges in the amount of
In Exhibit "N," which is the statement of account x x x as ₱39,915.46.
of 15 June 1992, [respondent] bank charged plaintiffs
the following items: There was nothing in the Promissory Note, Exhibit "C,"
which authorized the imposition of additional interest.
(1) regular interest in the amount of ₱561,037.14; Again, this Court notes that the additional interest in the
amount of ₱92,113.56 is even larger than the regular
(2) advances in the amount of ₱106,893.93; interest in the amount of ₱5,046.97. Moreover, based on
the Promissory Note, Exhibit "C," if the 11% interest on
unpaid amortization is considered an "additional
(3) additional interest on principal in the amount of
₱1,233,893.79; interest," then there is no basis for [respondent] bank to
add penalty charges as there is no other provision
providing for this charge. If, on the other hand, the 11%
(4) additional interest on regular interest in the amount of interest on unpaid amortization is considered the penalty
₱859,966.83; charge, then there is no basis to separately charge
plaintiffs additional interest. The same provision cannot You also imposed penalty which is on the principal in the
be used to charge plaintiffs both interest and penalties. amount of ₱40,000.00 in the amount of ₱47,493.33 in
addition to regular interest of ₱5,486.96. Can you point
In Exhibit "O," which is the statement of account x x x as what portion of Exhibit 3 gives DBP the right to impose
of 15 June 1992, [respondent] charged [petitioners] with such penalty?
the following:
A:
(1) regular interest in the amount of ₱4,621.25;
The same paragraph as stated.
(2) additional interest on principal in the amount
of ₱65,303.33; Q:
(3) additional interest on regular interest in the Can you please read the portion referring to penalty?
amount of ₱7,544.58;
A:
(4) penalty charges on principal in the amount of
₱47,493.33; All unpaid amortization shall bear interest at the rate of
11% per annum.
(5) penalty charges on regular interest in the
amount of ₱5,486.97; Q:
(6) penalty charges on advances in the amount The additional interest is based on 11% per annum and
of ₱40,520.53. the penalty is likewise based on the same rate?
Q: Q:
Respondent assumed the office of Administrative Officer The CA found that respondent possessed all the
II on June 19, 2003. Thereafter, however, she received a qualifications and none of the disqualifications for the
letter from Ma. Teresa U. Diaz, Human Resource position of Administrative Officer II; that due to the
Management Officer I of the City Schools Division of respondent’s valid appointment, no other appointment to
Tabaco City, Albay, informing her that her appointment the same position could be made without the position
could not be forwarded to the Civil Service Commission being first vacated; that the petitioner’s appointment to
(CSC) because of her failure to submit the position the position was thus void; and that, contrary to the
description form (PDF) duly signed by Gonzales. argument of petitioner that he had been deprived of his
right to due process when he was not allowed to
participate in the proceedings in the CSC, it was
Respondent tried to obtain Gozales’ signature but the
petitioner who failed to exercise his right by failing to
latter refused despite repeated requests. When
respondent informed Oyardo of the situation, she was submit a single pleading despite being furnished with
instead advised to return to her former teaching position copies of the pleadings in the proceedings in the CSC.
of Teacher I. Respondent followed the advice.
The CA opined that Diaz unreasonably refused to affix
her signature on respondent’s PDF and to submit
Meanwhile, on August 25, 2003, Oyardo appointed
petitioner Arlin B. Obiasca to the same position of respondent’s appointment to the CSC on the ground of
non-submission of respondent’s PDF. The CA ruled that
Administrative Officer II. The appointment was sent to
the PDF was not even required to be submitted and
and was properly attested by the CSC.4 Upon learning
forwarded to the CSC.
this, respondent filed a complaint with the Office of the
Deputy Ombudsman for Luzon against Oyardo,
Gonzales and Diaz. Petitioner filed a motion for reconsideration but his
motion was denied on February 8, 2007.11
In its decision, the Ombudsman found Oyardo and
Gonzales administratively liable for withholding Hence, this petition.12
information from respondent on the status of her
appointment, and suspended them from the service for Petitioner maintains that respondent was not validly
three months. Diaz was absolved of any wrongdoing.5 appointed to the position of Administrative Officer II
because her appointment was never attested by the violation of existing laws or rules: Provided, finally, That
CSC. According to petitioner, without the CSC the [CSC] shall keep a record of appointments of all
attestation, respondent’s appointment as Administrative officers and employees in the civil service. All
Officer II was never completed and never vested her a appointments requiring the approval of the [CSC] as
permanent title. As such, respondent’s appointment herein provided, shall be submitted to it by the
could still be recalled or withdrawn by the appointing appointing authority within thirty days from
authority. Petitioner further argues that, under the issuance, otherwise the appointment becomes
Omnibus Rules Implementing Book V of Executive Order ineffective thirty days thereafter. (Emphasis supplied)
(EO) No. 292,13 every appointment is required to be
submitted to the CSC within 30 days from the date of This provision is implemented in Section 11, Rule V of
issuance; otherwise, the appointment becomes the Omnibus Rules Implementing Book V of EO 292
ineffective.14 Thus, respondent’s appointment issued on (Omnibus Rules):
May 23, 2003 should have been transmitted to the CSC
not later than June 22, 2003 for proper attestation. Section 11. An appointment not submitted to the [CSC]
However, because respondent’s appointment was not within thirty (30) days from the date of issuance which
sent to the CSC within the proper period, her
shall be the date appearing on the fact of the
appointment ceased to be effective and the position of
appointment, shall be ineffective. xxx
Administrative Officer II was already vacant when
petitioner was appointed to it.
Based on the foregoing provisions, petitioner argues that
respondent’s appointment became effective on the day
In her comment,15 respondent points out that her
of her appointment but it subsequently ceased to be so
appointment was wrongfully not submitted by the proper
when the appointing authority did not submit her
persons to the CSC for attestation. The reason given by
appointment to the CSC for attestation within 30 days.
Oyardo for the non-submission of respondent’s
appointment papers to the CSC — the alleged failure of
respondent to have her PDF duly signed by Gonzales — Petitioner is wrong.
was not a valid reason because the PDF was not even
required for the attestation of respondent’s appointment The real issue in this case is whether the deliberate
by the CSC. failure of the appointing authority (or other responsible
officials) to submit respondent’s appointment paper to
After due consideration of the respective arguments of the CSC within 30 days from its issuance made her
the parties, we deny the petition. appointment ineffective and incomplete. Substantial
reasons dictate that it did not.
The law on the matter is clear. The problem is
petitioner’s insistence that the law be applied in a Before discussing this issue, however, it must be
manner that is unjust and unreasonable. brought to mind that CSC resolution dated November
29, 2005 recalling petitioner’s appointment and
approving that of respondent has long become final and
Petitioner relies on an overly restrictive reading of
executory.
Section 9(h) of PD 80716 which states, in part, that an
appointment must be submitted by the appointing
authority to the CSC within 30 days from issuance, Remedy to Assail CSC Decision or Resolution
otherwise, the appointment becomes ineffective:
Sections 16 and 18, Rule VI of the Omnibus Rules
Sec. 9. Powers and Functions of the Commission. — provide the proper remedy to assail a CSC decision or
The [CSC] shall administer the Civil Service and shall resolution:
have the following powers and functions:
Section 16. An employee who is still not satisfied with
xxx xxx xxx the decision of the [Merit System Protection Board] may
appeal to the [CSC] within fifteen days from receipt of
the decision.
(h) Approve all appointments, whether original or
promotional, to positions in the civil service, except those
of presidential appointees, members of the Armed The decision of the [CSC] is final and executory if no
Forces of the Philippines, police forces, firemen and petition for reconsideration is filed within fifteen
jailguards, and disapprove those where the appointees days from receipt thereof.
do not possess the appropriate eligibility or required
qualifications. An appointment shall take effect xxx xxx xxx
immediately upon issue by the appointing authority if the
appointee assumes his duties immediately and shall Section 18. Failure to file a protest, appeal, petition for
remain effective until it is disapproved by the [CSC], if reconsideration or petition for review within the
this should take place, without prejudice to the liability of prescribed period shall be deemed a waiver of such
the appointing authority for appointments issued in
right and shall render the subject action/decision subject to certain exceptions,25 these are not present in
final and executory. (Emphasis supplied) this case.
In this case, petitioner did not file a petition for Thus, absent any definitive ruling that the second
reconsideration of the CSC resolution dated November paragraph of Section 16 is not mandatory and the filing
29, 2005 before filing a petition for review in the CA. of a petition for reconsideration may be dispensed with,
Such fatal procedural lapse on petitioner’s part allowed then the Court must adhere to the dictates of Section 16
the CSC resolution dated November 29, 2005 to become of the Omnibus Rules.
final and executory.17 Hence, for all intents and
purposes, the CSC resolution dated November 29, 2005 Moreover, even in its substantive aspect, the petition is
has become immutable and can no longer be amended bereft of merit.
or modified.18 A final and definitive judgment can no
longer be changed, revised, amended or Section 9(h) of PD 807 Already Amended by Section
reversed.19 Thus, in praying for the reversal of the 12 Book V of EO 292
assailed Court of Appeals decision which affirmed the
final and executory CSC resolution dated November 29,
2005, petitioner would want the Court to reverse a final It is incorrect to interpret Section 9(h) of Presidential
and executory judgment and disregard the doctrine of Decree (PD) 807 as requiring that an appointment must
immutability of final judgments. be submitted by the appointing authority to the CSC
within 30 days from issuance, otherwise, the
appointment would become ineffective. Such
True, a dissatisfied employee of the civil service is not
interpretation fails to appreciate the relevant part of
preempted from availing of remedies other than those Section 9(h) which states that "an appointment shall
provided in Section 18 of the Omnibus Rules. This is take effect immediately upon issue by the appointing
precisely the purpose of Rule 43 of the Rules of Court, authority if the appointee assumes his duties
which provides for the filing of a petition for review as a immediately and shall remain effective until it is
remedy to challenge the decisions of the CSC. disapproved by the [CSC]." This provision is reinforced
by Section 1, Rule IV of the Revised Omnibus Rules on
While Section 18 of the Omnibus Rules does not Appointments and Other Personnel Actions, which
supplant the mode of appeal under Rule 43, we cannot reads:
disregard Section 16 of the Omnibus Rules, which
requires that a petition for reconsideration should be Section 1. An appointment issued in accordance with
filed, otherwise, the CSC decision will become final and pertinent laws and rules shall take effect
executory, viz.:
immediately upon its issuance by the appointing
authority, and if the appointee has assumed the duties
The decision of the [CSC] is final and executory if no of the position, he shall be entitled to receive his salary
petition for reconsideration is filed within fifteen at once without awaiting the approval of his appointment
days from receipt thereof. 1avvphi1 by the Commission. The appointment shall remain
effective until disapproved by the Commission. x x x
Note that the foregoing provision is a specific remedy as (Emphasis supplied)
against CSC decisions involving
its administrativefunction, that is, on matters involving More importantly, Section 12, Book V of EO 292
"appointments, whether original or promotional, to amended Section 9(h) of PD 807 by deleting the
positions in the civil service,"20 as opposed to its quasi- requirement that all appointments subject to CSC
judicial function where it adjudicates the rights of approval be submitted to it within 30 days. Section 12 of
persons before it, in accordance with the standards laid EO 292 provides:
down by the law.21
Sec. 12. Powers and Functions. - The Commission shall
The doctrine of exhaustion of administrative remedies have the following powers and functions:
requires that, for reasons of law, comity and
convenience, where the enabling statute indicates a
xxx xxx xxx
procedure for administrative review and provides a
system of administrative appeal or reconsideration, the
courts will not entertain a case unless the available (14) Take appropriate action on all appointments and
administrative remedies have been resorted to and the other personnel matters in the Civil Service, including
appropriate authorities have been given an opportunity extension of Service beyond retirement age;
to act and correct the errors committed in the
administrative forum.22 In Orosa v. Roa,23 the Court ruled (15) Inspect and audit the personnel actions and
that if an appeal or remedy obtains or is available within programs of the departments, agencies, bureaus,
the administrative machinery, this should be resorted to offices, local government units and other
before resort can be made to the courts.24While the instrumentalities of the government including
doctrine of exhaustion of administrative remedies is government -owned or controlled corporations; conduct
periodic review of the decisions and actions of offices or if within 180 days after receipt of said appointments, the
officials to whom authority has been delegated by the CSC shall not have made any correction or revision,
Commission as well as the conduct of the officials and then such appointments shall be deemed to have been
the employees in these offices and apply appropriate properly made. Consequently, it was only under PD 807
sanctions whenever necessary. that submission of appointments for approval by the
CSC was subjected to a 30-day period. That, however,
As a rule, an amendment by the deletion of certain has been lifted and abandoned by EO 292.
words or phrases indicates an intention to change its
meaning.26It is presumed that the deletion would not There being no requirement in EO 292 that
have been made had there been no intention to effect a appointments should be submitted to the CSC for
change in the meaning of the law or rule.27 The word, attestation within 30 days from issuance, it is doubtful by
phrase or sentence excised should accordingly be what authority the CSC imposed such condition under
considered inoperative.28 Section 11, Rule V of the Omnibus Rules. It certainly
cannot restore what EO 292 itself already and
The dissent refuses to recognize the amendment of deliberately removed. At the very least, that requirement
Section 9(h) of PD 807 by EO 292 but rather finds the cannot be used as basis to unjustly prejudice
requirement of submission of appointments within 30 respondent.
days not inconsistent with the authority of the CSC to
take appropriate action on all appointments and other Under the facts obtaining in this case, respondent
personnel matters. However, the intention to amend by promptly assumed her duties as Administrative Officer II
deletion is unmistakable not only in the operational when her appointment was issued by the appointing
meaning of EO 292 but in its legislative history as well. authority. Thus, her appointment took effect immediately
and remained effective until disapproved by the
PD 807 and EO 292 are not inconsistent insofar as they CSC.34 Respondent’s appointment was never
require CSC action on appointments to the civil service. disapproved by the CSC. In fact, the CSC was deprived
This is evident from the recognition accorded by EO 292, of the opportunity to act promptly as it was wrongly
specifically under Section 12 (14) and (15) thereof, to the prevented from doing so. More importantly, the CSC
involvement of the CSC in all personnel actions and subsequently approved respondent’s
programs of the government. However, while a appointment and recalled that of petitioner, which recall
restrictive period of 30 days within which appointments has already become final and immutable.
must be submitted to the CSC is imposed under the last
sentence of Section 9(h) of PD 807, none was adopted Second, it is undisputed that respondent’s appointment
by Section 12 (14) and (15) of EO 292. Rather, was not submitted to the CSC, not through her own fault
provisions subsequent to Section 12 merely state that but because of Human Resource Management Officer I
the CSC (and its liaison staff in various departments and Ma. Teresa U. Diaz’s unjustified refusal to sign it on the
agencies) shall periodically monitor, inspect and audit feigned and fallacious ground that respondent’s position
personnel actions.29 Moreover, under Section 9(h) of PD description form had not been duly signed by School
807, appointments not submitted within 30 days to the Principal Dr. Leticia B. Gonzales.35 Indeed, the CSC
CSC become ineffective, no such specific adverse effect even sanctioned Diaz for her failure to act in the required
is contemplated under Section 12 (14) and (15) of EO manner.36Similarly, the Ombudsman found both City
292. Certainly, the two provisions are materially Schools Division Superintendent Ma. Amy O. Oyardo
inconsistent with each other. And to insist on reconciling and Gonzales administratively liable and suspended
them by restoring the restrictive period and punitive them for three months for willfully withholding information
effect of Section 9(h) of PD 807, which EO 292 from respondent on the status of her appointment.
deliberately discarded, would be to rewrite the law by
mere judicial interpretation.30 xxx xxx xxx
Not even the historical development of civil service laws All along, [respondent] was made to believe that her
can justify the retention of such restrictive provisions. appointment was in order. During the same period,
Public Law No. 5,31 the law formally establishing a civil respondent Gonzales, with respondent Oyardo’s
service system, merely directed that all heads of offices knowledge, indifferently allowed [respondent] to plea for
notify the Philippine Civil Service Board "in writing the signing of her [position description form], when they
without delay of all appointments x x x made in the could have easily apprised [respondent] about the
classified service."32The Revised Administrative Code of revocation/withdrawal of her appointment. Worse, when
1917 was even less stringent as approval by the Director [respondent] informed Oyardo on 25 June 2003 about
of the Civil Service of appointments of temporary and her assumption of office as [Administrative Officer II], the
emergency employees was required only when latter directed [respondent] to go back to her post as
practicable. Finally, Republic Act (RA) 226033 imposed Teacher I on the ground that [respondent] had not been
no period within which appointments were attested to by issued an attested appointment as [Administrative
local government treasurers to whom the CSC delegated Officer II], even when [Oyardo] knew very well that
its authority to act on personnel actions but provided that [respondent’s] appointment could not be processed with
the CSC because of her order to re-evaluate the There is no dispute that the approval of the CSC is a
applicants. This act by [Oyardo] is a mockery of the trust legal requirement to complete the appointment. Under
reposed upon her by [respondent], who, then in the state settled jurisprudence, the appointee acquires a vested
of quandary, specifically sought [Oyardo’s] advice on legal right to the position or office pursuant to this
what to do with her appointment, in the belief that her completed appointment.39 Respondent’s appointment
superior could enlighten her on the matter. was in fact already approved by the CSC with finality.
It was only on 02 July 2003 when [Gonzales], in her The purpose of the requirement to submit the
letter, first made reference to a re-ranking of the appointment to the CSC is for the latter to approve or
applicants when [respondent] learned about the recall by disapprove such appointment depending on whether the
[Oyardo] of her appointment. At that time, the thirty-day appointee possesses the appropriate eligibility or
period within which to submit her appointment to the required qualifications and whether the laws and rules
CSC has lapsed. [Oyardo’s] and Gonzales’ act of pertinent to the process of appointment have been
withholding information about the real status of followed.40 With this in mind, respondent’s appointment
[respondent’s] appointment unjustly deprived her of should all the more be deemed valid.
pursuing whatever legal remedies available to her at that
time to protect her interest.37 Respondent’s papers were in order. What was sought
from her (the position description form duly signed by
Considering these willful and deliberate acts of the co- Gonzales) was not even a prerequisite before her
conspirators Diaz, Oyardo and Gonzales that caused appointment papers could be forwarded to the CSC.
undue prejudice to respondent, the Court cannot look More significantly, respondent was qualified for the
the other way and make respondent suffer the malicious position. Thus, as stated by the CA:
consequences of Gonzales’s and Oyardo’s
malfeasance. Otherwise, the Court would be recognizing The evidence also reveals compliance with the
a result that is unconscionable and unjust by effectively procedures that should be observed in the selection
validating the following inequities: respondent, who was process for the vacant position of Administrative Officer
vigilantly following up her appointment paper, was left to II and the issuance of the appointment to the
hang and dry; to add insult to injury, not long after respondent: the vacancy for the said position was
Oyardo advised her to return to her teaching position, published on February 28, 2003; the Personnel
she (Oyardo) appointed petitioner in respondent’s stead. Selection Board of Dep-Ed Division of Tabaco City
conducted a screening of the applicants, which included
The obvious misgiving that comes to mind is why the respondent and the petitioner; the respondent’s
Gonzales and Oyardo were able to promptly process qualifications met the minimum qualifications for the
petitioner’s appointment and transmit the same to the position of Administrative Officer II provided by the CSC.
CSC for attestation when they could not do so for She therefore qualified for permanent appointment.41
respondent. There is no doubt that office politics was
moving behind the scenes. There is no doubt that, had the appointing authority only
submitted respondent’s appointment to the CSC within
In effect, Gonzales’ and Oyardo’s scheming and plotting the said 30 days from its issuance, the CSC would (and
unduly deprived respondent of the professional could ) have approved it. In fact, when the CSC was
advancement she deserved. While public office is not later apprised of respondent’s prior appointment when
property to which one may acquire a vested right, it is she protested petitioner’s subsequent appointment, it
nevertheless a protected right.38 was respondent’s appointment which the CSC approved.
Petitioner’s appointment was recalled. These points
It cannot be overemphasized that respondent’s were never rebutted as petitioner gave undue emphasis
appointment became effective upon its issuance by the to the non-attestation by the CSC of respondent’s
appointing authority and it remained effective until appointment, without any regard for the fact that the
disapproved by the CSC (if at all it ever was). CSC actually approved respondent’s appointment.
Disregarding this rule and putting undue importance on
the provision requiring the submission of the Third, the Court is urged to overlook the injustice done to
appointment to the CSC within 30 days will reward respondent by citing Favis v. Rupisan42 and Tomali v.
wrongdoing in the appointment process of public officials Civil Service Commission.43
and employees. It will open the door for scheming
officials to block the completion and implementation of However, reliance on Favis is misplaced. In Favis, the
an appointment and render it ineffective by the simple issue pertains to the necessity of the CSC approval, not
expedient of not submitting the appointment paper to the the submission of the appointment to the CSC within 30
CSC. As indubitably shown in this case, even days from issuance. Moreover, unlike Favis where there
respondent’s vigilance could not guard against the was an apparent lack of effort to procure the approval of
malice and grave abuse of discretion of her superiors. the CSC, respondent in this case was resolute in
following up her appointment papers. Thus, despite
Favis’ having assumed the responsibilities of PVTA
Assistant General Manager for almost two years, the Therefore, the lack of CSC approval
Court affirmed her removal, ruling that: in Favis and Tomali should be taken only in that light and
not overly stretched to cover any and all similar cases
The tolerance, acquiescence or mistake of the proper involving the 30-day rule. Certainly, the CSC approval
officials, resulting in the non-observance of the pertinent cannot be done away with. However, an innocent
rules on the matter does not render the legal appointee like the respondent should not be penalized if
requirement, on the necessity of approval by the her papers (which were in the custody and control of
Commissioner of Civil Service of appointments, others who, it turned out, were all scheming against her)
ineffective and unenforceable.44 (Emphasis supplied) did not reach the CSC on time. After all, her appointment
was subsequently approved by the CSC anyway.
Taken in its entirety, this case shows that the lack of
CSC approval was not due to any negligence on Under Article 1186 of the Civil Code, "[t]he condition
respondent’s part. Neither was it due to the shall be deemed fulfilled when the obligor voluntarily
"tolerance, acquiescence or mistake of the proper prevents its fulfillment." Applying this to the appointment
officials." Rather, the underhanded machinations of process in the civil service, unless the appointee himself
Gonzales and Oyardo, as well as the gullibility of is negligent in following up the submission of his
Diaz, were the major reasons why respondent’s appointment to the CSC for approval, he should not be
appointment was not even forwarded to the CSC. prejudiced by any willful act done in bad faith by the
appointing authority to prevent the timely submission of
Tomali, likewise, is not applicable. The facts are his appointment to the CSC. While it may be argued that
completely different. In Tomali, petitioner Tomali’s the submission of respondent’s appointment to the CSC
within 30 days was one of the conditions for the approval
appointment was not approved by the CSC due to the
of respondent’s appointment, however, deliberately and
belated transmittal thereof to the latter. The Court,
citing Favis, ruled that the appointee’s failure to secure with bad faith, the officials responsible for the
the CSC’s approval within the 30-day period rendered submission of respondent’s appointment to the CSC
prevented the fulfillment of the said condition. Thus, the
her appointment ineffective. It quoted the Merit Systems
said condition should be deemed fulfilled.
Protection Board’s finding that "there is no showing that
the non-submission was motivated by bad faith, spite,
malice or at least attributed to the fault of the newly The Court has already had the occasion to rule that an
installed [Office of Muslim Affairs] Executive Director." appointment remains valid in certain instances despite
The Court observed: non-compliance of the proper officials with the pertinent
CSC rules. In Civil Service Commission v. Joson,
Jr.,47 the CSC challenged the validity of the appointment
Petitioner herself would not appear to be all that
of Ong on the ground that, among others, it was not
blameless. She assumed the position four months after
her appointment was issued or months after that reported in the July 1995 Report of Personnel Action
appointment had already lapsed or had become (ROPA), thus making such appointment ineffective. The
subject rule provided that an "appointment issued within
ineffective by operation of law. Petitioner's appointment
the month but not listed in the ROPA for the said month
was issued on 01 July 1990, but it was only on 31 May
shall become ineffective thirty days from issuance."
1991 that it was submitted to the CSC, a fact which she
Rejecting the CSC’s contention, the Court held that there
knew, should have known or should have at least
verified considering the relatively long interval of time was a legitimate justification for such delayed
between the date of her appointment and the date of her observance of the rule:
assumption to office.45
We find the respondent's justification for the failure of the
POEA to include Ong's appointment in its ROPA for July
The Court also found that "[t]here (was) nothing on
record to convince us that the new OMA Director (had) 1995 as required by CSC Memorandum Circular No. 27,
Series of 1994 to be in order. The records show that the
unjustly favored private respondent nor (had) exercised
[Philippine Overseas Employment Administration
his power of appointment in an arbitrary, whimsical or
(POEA)] did not include the contractual appointment of
despotic manner."46
Ong in its July ROPA because its request for exemption
from the educational requisite for confidential staff
The peculiar circumstances in Tomali are definitely not members provided in [Memorandum Circular] No. 38
present here. As a matter of fact, the situation was had yet been resolved by the CSC. The resolution of the
exactly the opposite. As we have repeatedly stressed, petitioner granting such request was received only in
respondent was not remiss in zealously following up the November, 1995. The POEA, thereafter, reported the
status of her appointment. It cannot be reasonably appointment in its November, 1995 ROPA.48
claimed that the failure to submit respondent’s
appointment to the CSC was due to her own fault. The
The Court reached the same conclusion in the recent
culpability lay in the manner the appointing officials
case of Chavez v. Ronidel49 where there was a similar
exercised their power with arbitrariness, whim and
inaction from the responsible officials which resulted in
despotism. The whole scheme was intended to favor
non-compliance with the requirement:
another applicant.
Lastly, we agree with the appellate court that the part of PCUP which obviously was the own making
respondent's appointment could not be invalidated solely of herein [petitioner]. (Emphasis supplied)
because of [Presidential Commission for the Urban
Poors (PCUP’s)] failure to submit two copies of the Respondent deserves the same sympathy from the
ROPA as required by CSC Resolution No. 97368. xxxx Court because there was also a telling reason behind
the non-submission of her appointment paper within the
xxx xxx xxx 30-day period.
We quote with approval the appellate court's The relevance of Joson and Chavez to this case cannot
ratiocination in this wise: be simply glossed over. While the agencies concerned in
those cases were accredited agencies of the CSC which
To our minds, however, the invalidation of the could take final action on the appointments, that is not
[respondent's] appointment based on this sole the case here. Thus, any such differentiation is
technical ground is unwarranted, if not harsh and unnecessary. It did not even factor in the Court’s
arbitrary, considering the factual milieu of this case. disposition of the issue in Joson and Chavez. What is
For one, it is not the [respondent's] duty to comply crucial is that, in those cases, the Court upheld the
with the requirement of the submission of the ROPA appointment despite the non-compliance with a CSC
and the certified true copies of her appointment to [the rule because (1) there were valid justifications for the
Civil Service Commission Field Office or] CSCFO within lapse; (2) the non-compliance was beyond the control of
the period stated in the aforequoted CSC Resolution. the appointee and (3) the appointee was not negligent.
The said resolution categorically provides that it is the All these reasons are present in this case, thus, there is
PCUP, and not the appointee as in the case of the no basis in saying that the afore-cited cases are not
[respondent] here, which is required to comply with the applicable here. Similar things merit similar
said reportorial requirements. treatment.1avvphi1
Moreover, it bears pointing out that only a few days after Fourth, in appointing petitioner, the appointing authority
the [petitioner] assumed his new post as PCUP effectively revoked the previous appointment of
Chairman, he directed the PCUP to hold the processing respondent and usurped the power of the CSC to
of [respondent's] appointment papers in abeyance, until withdraw or revoke an appointment that had already
such time that an assessment thereto is officially been accepted by the appointee. It is the CSC, not the
released from his office. Unfortunately, up to this very appointing authority, which has this power.50 This is
day, the [respondent] is still defending her right to enjoy clearly provided in Section 9, Rule V of the Omnibus
her promotional appointment as DMO V. Naturally, her Rules:
appointment failed to comply with the PCUP's
reportorial requirements under CSC Resolution No. Section 9. An appointment accepted by the appointee
97-3685 precisely because of the [petitioner's] cannot be withdrawn or revoked by the appointing
inaction to the same. authority and shall remain in force and effect until
disapproved by the [CSC]. xxxx (Emphasis supplied)
We believe that the factual circumstances of this case
calls for the application of equity. To our minds, the Thus, the Court ruled in De Rama v. Court of
invalidation of the [respondent's] appointment due Appeals51 that it is the CSC which is authorized to recall
to a procedural lapse which is undoubtedly beyond an appointment initially approved when such
her control, and certainly not of her own making but appointment and approval are proven to be in disregard
that of the [petitioner], justifies the relaxation of the of applicable provisions of the civil service law and
provisions of CSC Board Resolution No. 97-3685, pars. regulations.
6,7 and 8. Hence, her appointment must be upheld
based on equitable considerations, and that the non- Petitioner seeks to inflexibly impose the condition of
submission of the ROPA and the certified true copies of submission of the appointment to the CSC by the
her appointment to the CSCFO within the period stated appointing authority within 30 days from issuance, that
in the aforequoted CSC Resolution should not work to is, regardless of the negligence/diligence of the
her damage and prejudice. Besides, the [respondent] appointee and the bad faith/good faith of the appointing
could not at all be faulted for negligence as she authority to ensure compliance with the
exerted all the necessary vigilance and efforts to reap condition. However, such stance would place the
the blessings of a work promotion. Thus, We cannot appointee at the mercy and whim of the appointing
simply ignore her plight. She has fought hard enough authority even after a valid appointment has been
to claim what is rightfully hers and, as a matter of simple made. For although the appointing authority may not
justice, good conscience, and equity, We should not recall an appointment accepted by the appointee, he or
allow Ourselves to prolong her agony. she can still achieve the same result through
underhanded machinations that impedes or prevents the
All told, We hold that the [respondent's] appointment is transmittal of the appointment to the CSC. In other
valid, notwithstanding the aforecited procedural lapse on words, the insistence on a strict application of the
condition regarding the submission of the appointment to
the CSC within 30 days, would give the appointing
authority the power to do indirectly what he or she
cannot do directly. An administrative rule that is of
doubtful basis will not only produce unjust consequences
but also corrupt the appointment process. Obviously,
such undesirable end result could not have been the
intention of the law.
SO ORDERED.