G.R. No. 184041               October 13, 2010 the sum of P1,599,126.

11 on 30 September 1999 as a prelude to restructuring

its loan for which it earnestly negotiated for a mutually acceptable agreement
ANICETO G. SALUDO, JR., Petitioner, 
until 5 July 2000, without knowing that SBC had already filed the collection
vs.
case.10
SECURITY BANK CORPORATION, Respondent.
In his Answer to the complaint, herein petitioner alleged that under the
DECISION
Continuing Suretyship, it was the parties’ understanding that his undertaking
PEREZ, J.: and liability was merely as an accommodation guarantor of Booklight. He
Before this Court is a petition for review on certiorari seeking the reversal of countered that he came to know that Booklight offered to pay SBC the partial
the Decision1 of the Court of Appeals in CA-G.R. CV No. 88079 dated 24 payment of the loan and proposed the restructuring of the obligation.
January 2008 which affirmed the Decision2 of Branch 149 of the Regional Trial Petitioner argued that said offer to pay constitutes a valid tender of payment
Court (RTC) of Makati City, finding petitioner Aniceto G. Saludo, Jr. and which discharged Booklight’s obligation to the extent of the offer. Petitioner
Booklight, Inc. (Booklight) jointly and severally liable to Security Bank also averred that the imposition of the penalty on the supposed due and
Corporation (SBC). unpaid principal obligation based on the penalty rate of 2% per month is
clearly unconscionable.11
The basic facts follow—
On 7 March 2005, Booklight was declared in default. Consequently, SBC
On 30 May 1996, Booklight was extended an omnibus line credit facility 3 by presented its evidence ex-parte. The case against petitioner, however,
SBC in the amount of P10,000,000.00. Said loan was covered by a Credit proceeded and the latter was able to present evidence on his behalf.
Agreement4 and a Continuing Suretyship5 with petitioner as surety, both
documents dated 1 August 1996, to secure full payment and performance of After trial, the RTC ruled that petitioner is jointly and solidarily liable with
the obligations arising from the credit accommodation. Booklight under the Continuing Suretyship Agreement. The dispositive
portion reads:
Booklight drew several availments of the approved credit facility from 1996
to 1997 and faithfully complied with the terms of the loan. On 30 October WHEREFORE, in view of the foregoing considerations, the Court hereby finds
1997, SBC approved the renewal of credit facility of Booklight in the amount in favor of the plaintiff against the defendants by ordering the defendants
of P10,000,000.00 under the prevailing security lending rate. 6 From August 3 Booklight, Inc. and Aniceto G. Saludo, Jr., jointly and severally liable (solidarily
to 14, 1998, Booklight executed nine (9) promissory notes7 in favor of SBC in liable) to plaintiff [sic], the following sums of Philippine Pesos:
the aggregate amount of P9,652,725.00. For failure to settle the loans upon
PN No. Amount Interest Rate (per Beginning—Until fu
maturity, demands8 were made on Booklight and petitioner for the payment
annum) paid
of the obligation but the duo failed to pay. As of 15 May 2000, the obligation
of Booklight stood at P10,487,875.41, inclusive of interest past due and
74/787/9 P1,927,000.00 20.189% November 2, 1998
penalty.9
8
On 16 June 2000, SBC filed against Booklight and herein petitioner an action
for collection of sum of money with the RTC. Booklight initially filed a motion 74/788/9 913,545.00 20.189% November 2, 1998
to dismiss, which was later on denied for lack of merit. In his Answer, 8
Booklight asserted that the amount demanded by SBC was not based on the
omnibus credit line facility of 30 May 1996, but rather on the amendment of 74/789/9 1,927,090.00 20.189% November 2, 1998
the credit facilities on 15 October 1996 increasing the loan line 8
from P8,000,000.00 to P10,000,000.00. Booklight denied executing the
promissory notes. It also claimed that it was not in default as in fact, it paid 74/791/9 500,000.00 20.178% November 4, 1998
 8 Suretyship that it was executed to serve as collateral to the nine (9)
promissory notes.
74/792/9 800,000.00 20.178% November 4, 1998 6. The Continuing Suretyship is a contract of adhesion and
8 petitioner’s participation to it is his signing of his contract.
7. The approval of the second credit facility is considered a novation
74/793/9 665,000.00 20.178% November 3, 1998
of the first sufficient to extinguish the Continuing Suretyship and
8
discharge petitioner.
74/808/9 970,000.00 20.178% November 9, 1998 8. The 20.178% interest rate imposed by the RTC is unconscionable. 15
8
The main derivative of these averments is the issue of whether or not
petitioner should be held solidarily liable for the second credit facility
74/822/9 975,000.00 20.178% November 12, 1998
extended to Booklight.
8
We rule in the affirmative.
74/823/9 975,000.00 20.178% November 12, 1998There is no doubt that Booklight was extended two (2) credit facilities, each
8 with a one-year term, by SBC. Booklight availed of these two (2) credit lines.
While Booklight was able to comply with its obligation under the first credit
with attorney’s fee of P100,000.00 plus cost of suit.12
line, it defaulted in the payment of the loan obligation amounting
The Court of Appeals affirmed in toto the ruling of the RTC. 13 Petitioner filed to P9,652,725.00 under the second credit line. There is likewise no dispute
a motion for reconsideration but it was denied by the Court of Appeals on 7 that the first credit line facility, with a term from 30 June 1996 to 30 June
August 2008.14 1997, was covered by a Continuing Suretyship with petitioner acting as the
Hence, the instant petition on the following arguments: surety. The dispute is on the coverage by the Continuing Suretyship of the
loan contracted under the second credit facility.
1. The first credit facility has a one-year term from 30 June 1996 to 30
June 1997 while the second credit facility runs from 30 October 1997 Under the Continuing Suretyship, petitioner undertook to guarantee the
to 30 October 1998. following obligations:

2. When the first credit facility expired, its accessory contract, the a) "Guaranteed Obligations" – the obligations of the Debtor arising from all
Continuing Surety agreement likewise expired. credit accommodations extended by the Bank to the Debtor, including
increases, renewals, roll-overs, extensions, restructurings, amendments or
3. The second credit facility is not covered by the Continuing novations thereof, as well as (i) all obligations of the Debtor presently or
Suretyship, thus, availments made in 1998 by Booklight are not hereafter owing to the Bank, as appears in the accounts, books and records
covered by the Continuing Suretyship. of the Bank, whether direct or indirect, and (ii) any and all expenses which the
4. The approval of the second credit facility necessitates the consent Bank may incur in enforcing any of its rights, powers and remedies under the
of petitioner for the latter’s Continuing Suretyship to be Credit Instruments as defined hereinbelow; 16 (Emphasis supplied.)
effective.1avvphi1 Whether the second credit facility is considered a renewal of the first or a
5. The nine (9) promissory notes executed and drawn by Booklight in brand new credit facility altogether was indirectly answered by the trial court
1998 did not specify that they were drawn against and subject to the when it invoked paragraph 10 of the Continuing Suretyship which provides:
Continuing Suretyship. Neither was it mentioned in the Continuing 10. Continuity of Suretyship. – This Suretyship shall remain in full force and
effect until full and due payment and performance of the Guaranteed
Obligations. This Suretyship shall not be terminated by the partial payment to position to enter into the projected series of transactions with its creditor;
the Bank of Guaranteed Obligations by any other surety or sureties of the with such suretyship agreement, there would be no need to execute a
Guaranteed Obligations, even if the particular surety or sureties are relieved separate surety contract or bond for each financing or credit accommodation
of further liabilities.17 extended to the principal debtor.201awphil
and concluded that the liability of petitioner did not expire upon the In Gateway Electronics Corporation v. Asianbank Corporation, 21 the Court
termination of the first credit facility. emphasized that "[b]y its nature, a continuing suretyship covers current and
future loans, provided that, with respect to future loan transactions, they are
It cannot be gainsaid that the second credit facility was renewed for another
x x x ‘within the description or contemplation of the contract of guaranty.’"
one-year term by SBC. The terms of renewal read:
Petitioner argues that the approval of the second credit facility necessitates
30 October 1997
his consent considering the onerous and solidary liability of a surety. This is
BOOKLIGHT, INC. contrary to the express waiver of his consent to such renewal, contained in
xxxx paragraph 12 of the Continuing Suretyship, which provides in part:

Gentlemen: 12. Waivers by the Surety. – The Surety hereby waives: x x x (v) notice or
consent to any modification, amendment, renewal, extension or grace period
We are pleased to advise you that the Bank has approved the renewal of your granted by the Bank to the Debtor with respect to the Credit Instruments. 22
credit facility subject to the terms and conditions set forth below:
Respondent, as last resort, harps on the novation of the first credit facility to
Facility : Loan Line exculpate itself from liability from the second credit facility.
Amount : P10,000,000.00 At the outset, it must be pointed out that the Credit Agreement is actually
Collateral : Existing JSS of Atty. Aniceto Saludo (marital consent waived) the principal contract and it covers "all credit facilities now or hereafter
extended by [SBC] to [Booklight];"23 and that the suretyship agreement was
Term : 180 day Promissory Notes executed precisely to guarantee these obligations, i.e., the credit facilities
Interest Rate : Prevailing SBC lending rate; subject to monthly setting and arising from the credit agreement. The principal contract is the credit
payment agreement covered by the Continuing Suretyship.

Expiry : October 31, 1998 The two loan facilities availed by Booklight under the credit agreement are
the Omnibus Line amounting to P10,000,000.00 granted to Booklight in 1996
x x x x.18
and the other one is the Loan Line of the same amount in 1997. Petitioner
This very renewal is explicitly covered by the guaranteed obligations of the however seeks to muddle the issue by insisting that these two availments
Continuing Suretyship. were two separate principal contracts, conveniently ignoring the fact that it is
the credit agreement which constitutes the principal contract signed by
The essence of a continuing surety has been highlighted in the case of
Booklight in order to avail of SBC’s credit facilities. The two credit facilities are
Totanes v. China Banking Corporation19 in this wise:
but loans made available to Booklight pursuant to the credit agreement.
Comprehensive or continuing surety agreements are, in fact, quite
On these facts the novation argument advanced by petitioner must fail.
commonplace in present day financial and commercial practice. A bank or
financing company which anticipates entering into a series of credit There is no novation to speak of. It is the first credit facility that expired and
transactions with a particular company, normally requires the projected not the Credit Agreement. There was a second loan pursuant to the same
principal debtor to execute a continuing surety agreement along with its credit agreement. The terms and conditions under the Credit Agreement
sureties. By executing such an agreement, the principal places itself in a
continue to apply and the Continuing Suretyship continues to guarantee the
Credit Agreement.
The lameness of petitioner’s stand is pointed up by his attempt to escape
from liability by labelling the Continuing Suretyship as a contract of adhesion.
A contract of adhesion is defined as one in which one of the parties imposes
a ready-made form of contract, which the other party may accept or reject,
but which the latter cannot modify. One party prepares the stipulation in the
contract, while the other party merely affixes his signature or his ‘adhesion’
thereto, giving no room for negotiation and depriving the latter of the
opportunity to bargain on equal footing.24
A contract of adhesion presupposes that the party adhering to the contract is
a weaker party. That cannot be said of petitioner. He is a lawyer. He is
deemed knowledgeable of the legal implications of the contract that he is
signing.
It must be borne in mind, however, that contracts of adhesion are not invalid
per se. Contracts of adhesion, where one party imposes a ready-made form
of contract on the other, are not entirely prohibited. The one who adheres to
the contract is, in reality, free to reject it entirely; if he adheres, he gives his
consent.25
Finally, petitioner challenges the imposition of 20.189% interest rate as
unconscionable. We rule otherwise. In Development Bank of the Philippines v.
Family Foods Manufacturing Co. Ltd.,26 this Court upheld the validity of the
imposition of 18% and 22% stipulated rates of interest in the two (2)
promissory notes. Likewise in Spouses Bacolor v. Banco Filipino Savings and
Mortgage Bank,27 the 24% interest rate agreed upon by parties was held as
not violative of the Usury Law, as amended by Presidential Decree No. 116.
WHEREFORE, the petition is DENIED. The Decision dated 24 January 2008 of
the Court of Appeals in CA-G.R. CV No. 88079 is AFFIRMED in toto.
SO ORDERED.
G.R. No. 164538               August 9, 2010 the drawee bank for the reason "Account Closed"; and, that respondents
acted with fraud, deceit, and abuse of confidence.
METROPOLITAN BANK and TRUST COMPANY, Petitioner, 
vs. In their defense, respondents denied responsibility in the anomalous
ROGELIO REYNADO and JOSE C. ADRANDEA,** Respondents. transactions with Universal and claimed that they only intended to help the
Port Area branch solicit and increase its deposit accounts and daily
DECISION
transactions.
DEL CASTILLO, J.:
Meanwhile, on February 26, 1997, petitioner and Universal entered into a
"It is a hornbook doctrine in our criminal law that the criminal liability for Debt Settlement Agreement7 whereby the latter acknowledged its
estafa is not affected by a compromise, for it is a public offense which must indebtedness to the former in the total amount of P50,990,976.278 as of
be prosecuted and punished by the government on its own motion, even February 4, 1997 and undertook to pay the same in bi-monthly amortizations
though complete reparation [has] been made of the damage suffered by the in the sum of P300,000.00 starting January 15, 1997, covered by postdated
private offended party. Since a criminal offense like estafa is committed checks, "plus balloon payment of the remaining principal balance and
against the State, the private offended party may not waive or extinguish the interest and other charges, if any, on December 31, 2001." 9
criminal liability that the law imposes for the commission of the crime." 1
Findings of the Prosecutor
This Petition for Review on Certiorari under Rule 45 of the Rules of Court
Following the requisite preliminary investigation, Assistant City Prosecutor
seeks the reversal of the Court of Appeals’ (CA’s) Decision 2 dated October 21,
Winnie M. Edad (Prosecutor Edad) in her Resolution 10 dated July 10, 1997
2002 in CA-G.R. SP No. 58548 and its further Resolution 3 dated July 12, 2004
found petitioner’s evidence insufficient to hold respondents liable for estafa.
denying petitioner’s Motion for Reconsideration. 4
According to Prosecutor Edad:
Factual Antecedents
The execution of the Debt Settlement Agreement puts complainant bank in
On January 31, 1997, petitioner Metropolitan Bank and Trust Company estoppel to argue that the liability is criminal. Since the agreement was made
charged respondents before the Office of the City Prosecutor of Manila with even before the filing of this case, the relations between the parties [have]
the crime of estafa under Article 315, paragraph 1(b) of the Revised Penal change[d], novation has set in and prevented the incipience of any criminal
Code. In the affidavit5 of petitioner’s audit officer, Antonio Ivan S. Aguirre, it liability on the part of respondents.11
was alleged that the special audit conducted on the cash and lending
Thus, Prosecutor Edad recommended the dismissal of the case:
operations of its Port Area branch uncovered anomalous/fraudulent
transactions perpetrated by respondents in connivance with client Universal WHEREFORE, for insufficiency of evidence, it is respectfully recommended
Converter Philippines, Inc. (Universal); that respondents were the only voting that the case be dismissed.12
members of the branch’s credit committee authorized to extend credit
On December 9, 1997, petitioner appealed the Resolution of Prosecutor Edad
accommodation to clients up to P200,000.00; that through the so-called Bills
to the Department of Justice (DOJ) by means of a Petition for Review. 13
Purchase Transaction, Universal, which has a paid-up capital of
only P125,000.00 and actual maintaining balance of P5,000.00, was able to Ruling of the Department of Justice
make withdrawals totaling P81,652,000.006 against uncleared regional checks On June 22, 1998, the DOJ dismissed the petition ratiocinating that:
deposited in its account at petitioner’s Port Area branch; that, consequently,
Universal was able to utilize petitioner’s funds even before the seven-day It is evident that your client based on the same transaction chose to file
clearing period for regional checks expired; that Universal’s withdrawals estafa only against its employees and treat with kid gloves its big time client
against uncleared regional check deposits were without prior approval of Universal who was the one who benefited from this transaction and instead,
petitioner’s head office; that the uncleared checks were later dishonored by agreed that it should be paid on installment basis.
To allow your client to make the choice is to make an unwarranted warrant its dismissal, suggesting that the proper remedy is to cause their
classification under the law which will result in grave injustice against herein inclusion in the information.25 This notwithstanding, however, the CA
respondents. Thus, if your client agreed that no estafa was committed in this disposed of the petition as follows:
transaction with Universal who was the principal player and beneficiary of this
WHEREFORE, the petition is DENIED due course and, accordingly, DISMISSED.
transaction[,] more so with herein respondents whose liabilities are based
Consequently, the resolutions dated June 22, 1998 and March 1, 2000 of the
only on conspiracy with Universal.
Secretary of Justice are AFFIRMED.
Equivocally, there is no estafa in the instant case as it was not clearly shown
SO ORDERED.26
how respondents misappropriated the P53,873,500.00 which Universal owed
your client after its checks deposited with Metrobank were dishonored. Hence, this instant petition before the Court.
Moreover, fraud is not present considering that the Executive Committee and On November 8, 2004, we required27 respondents to file Comment, not a
the Credit Committee of Metrobank were duly notified of these transactions motion to dismiss, on the petition within 10 days from notice. The OSG filed a
which they approved. Further, no damage was caused to your client as it Manifestation and Motion in Lieu of Comment28 while respondent Jose C.
agreed [to] the settlement [with] Universal.14 Adraneda (Adraneda) submitted his Comment29 on the petition. The
A Motion for Reconsideration15 was filed by petitioner, but the same was Secretary of Justice failed to file the required comment on the OSG’s
denied on March 1, 2000 by then Acting Secretary of Justice Artemio G. Manifestation and Motion in Lieu of Comment and respondent Rogelio
Tuquero.16 Reynado (Reynado) did not submit any. For which reason, we issued a show
cause order30 on July 19, 2006. Their persistent non-compliance with our
Aggrieved, petitioner went to the CA by filing a Petition for Certiorari &
directives constrained us to resolve that they had waived the filing of
Mandamus.17
comment and to impose a fine of P1,000.00 on Reynado. Upon submission of
Ruling of the Court of Appeals the required memorandum by petitioner and Adraneda, the instant petition
was submitted for resolution.
By Decision18 of October 21, 2002, the CA affirmed the twin resolutions of the
Secretary of Justice. Citing jurisprudence19 wherein we ruled that while Issues
novation does not extinguish criminal liability, it may prevent the rise of such
Petitioner presented the following main arguments for our consideration:
liability as long as it occurs prior to the filing of the criminal information in
court.20 Hence, according to the CA, "[j]ust as Universal cannot be held 1. Novation and undertaking to pay the amount embezzled do not
responsible under the bills purchase transactions on account of novation, extinguish criminal liability.
private respondents, who acted in complicity with the former, cannot be 2. It is the duty of the public prosecutor to implead all persons who
made liable [for] the same transactions."21 The CA added that "[s]ince the appear criminally liable for the offense charged.
dismissal of the complaint is founded on legal ground, public respondents
may not be compelled by mandamus to file an information in court." 22 Petitioner persistently insists that the execution of the Debt Settlement
Agreement with Universal did not absolve private respondents from criminal
Incidentally, the CA totally ignored the Comment23 of the Office of the liability for estafa. Petitioner submits that the settlement affects only the civil
Solicitor General (OSG) where the latter, despite being the statutory counsel obligation of Universal but did not extinguish the criminal liability of the
of public respondent DOJ, agreed with petitioner that the DOJ erred in respondents. Petitioner thus faults the CA in sustaining the DOJ which in turn
dismissing the complaint. It alleged that where novation does not extinguish affirmed the finding of Prosecutor Edad for committing apparent error in the
criminal liability for estafa neither does restitution negate the offense already appreciation and the application of the law on novation. By petitioner’s claim,
committed.24 citing Metropolitan Bank and Trust Co. v. Tonda,31 the "negotiations pertain
Additionally, the OSG, in sharing the views of petitioner contended that [to] and affect only the civil aspect of the case but [do] not preclude
failure to implead other responsible individuals in the complaint does not prosecution for the offense already committed." 32
In his Comment, Adraneda denies being a privy to the anomalous Thus, the doctrine that evolved from the aforecited cases is that a
transactions and passes on the sole responsibility to his co-respondent compromise or settlement entered into after the commission of the crime
Reynado as the latter was able to conceal the pertinent documents being the does not extinguish accused’s liability for estafa. Neither will the same bar the
head of petitioner’s Port Area branch. Nonetheless, he contends that because prosecution of said crime. Accordingly, in such a situation, as in this case, the
of the Debt Settlement Agreement, they cannot be held liable for estafa. complaint for estafa against respondents should not be dismissed just
because petitioner entered into a Debt Settlement Agreement with Universal.
The OSG, for its part, instead of contesting the arguments of petitioner, even
Even the OSG arrived at the same conclusion:
prayed before the CA to give due course to the petition contending that DOJ
indeed erred in dismissing the complaint for estafa. Contrary to the conclusion of public respondent, the Debt Settlement
Agreement entered into between petitioner and Universal Converter
Given the facts of the case, the basic issue presented before this Court is
Philippines extinguishes merely the civil aspect of the latter’s liability as a
whether the execution of the Debt Settlement Agreement precluded
corporate entity but not the criminal liability of the persons who actually
petitioner from holding respondents liable to stand trial for estafa under Art.
committed the crime of estafa against petitioner Metrobank. x x x40
315 (1)(b) of the Revised Penal Code.33
Unfortunately for petitioner, the above observation of the OSG was wittingly
Our Ruling
glossed over in the body of the assailed Decision of the CA.
We find the petition highly meritorious.
Execution of the Debt Settlement Agreement did not prevent the incipience of
Novation not a mode of extinguishing criminal liability.
criminal liability for estafa; Criminal liability for estafa not affected by Even if the instant case is viewed from the standpoint of the law on contracts,
compromise or novation of contract. the disposition absolving the respondents from criminal liability because of
Initially, it is best to emphasize that "novation is not one of the grounds novation is still erroneous.
prescribed by the Revised Penal Code for the extinguishment of criminal Under Article 1311 of the Civil Code, "contracts take effect only between the
liability."34 parties, their assigns and heirs, except in case where the rights and
In a catena of cases, it was ruled that criminal liability for estafa is not obligations arising from the contract are not transmissible by their nature, or
affected by a compromise or novation of contract. In Firaza v. People 35 and by stipulation or by provision of law." The civil law principle of relativity of
Recuerdo v. People,36 this Court ruled that in a crime of estafa, contracts provides that "contracts can only bind the parties who entered into
reimbursement or belated payment to the offended party of the money it, and it cannot favor or prejudice a third person, even if he is aware of such
swindled by the accused does not extinguish the criminal liability of the contract and has acted with knowledge thereof."41
latter. We also held in People v. Moreno37 and in People v. Ladera38 that In the case at bar, it is beyond cavil that respondents are not parties to the
"criminal liability for estafa is not affected by compromise or novation of agreement. The intention of the parties thereto not to include them is
contract, for it is a public offense which must be prosecuted and punished by evident either in the onerous or in the beneficent provisions of said
the Government on its own motion even though complete reparation should agreement. They are not assigns or heirs of either of the parties. Not being
have been made of the damage suffered by the offended party." Similarly in parties to the agreement, respondents cannot take refuge therefrom to bar
the case of Metropolitan Bank and Trust Company v. Tonda 39 cited by their anticipated trial for the crime they committed. It may do well for
petitioner, we held that in a crime of estafa, reimbursement of or respondents to remember that the criminal action commenced by petitioner
compromise as to the amount misappropriated, after the commission of the had its genesis from the alleged fraud, unfaithfulness, and abuse of
crime, affects only the civil liability of the offender, and not his criminal confidence perpetrated by them in relation to their positions as responsible
liability. bank officers. It did not arise from a contractual dispute or matters strictly
between petitioner and Universal. This being so, respondents cannot rely on
subject settlement agreement to preclude prosecution of the offense already Equivocally, there is no estafa in the instant case as it was not clearly shown
committed to the end of extinguishing their criminal liability or prevent the how respondents misappropriated the P53,873,500.00 which Universal owed
incipience of any liability that may arise from the criminal offense. This only your client after its checks deposited with Metrobank were dishonored.
demonstrates that the execution of the agreement between petitioner and Moreover, fraud is not present considering that the Executive Committee and
Universal has no bearing on the innocence or guilt of the respondents. the Credit Committee of Metrobank were duly notified of these transactions
which they approved. Further, no damage was caused to your client as it
Determination of the probable cause, a function belonging to the public
agreed [to] the settlement [with] Universal.46
prosecutor; judicial review allowed where it has been clearly established that
the prosecutor committed grave abuse of discretion. The findings of the Secretary of Justice in sustaining the dismissal of the
Complaint are matters of defense best left to the trial court’s deliberation and
In a preliminary investigation, a public prosecutor determines whether a
contemplation after conducting the trial of the criminal case. To emphasize, a
crime has been committed and whether there is probable cause that the
preliminary investigation for the purpose of determining the existence of
accused is guilty thereof.42 The Secretary of Justice, however, may review or
probable cause is "not a part of the trial. A full and exhaustive presentation of
modify the resolution of the prosecutor.
the parties’ evidence is not required, but only such as may engender a well-
"Probable cause is defined as such facts and circumstances that will engender grounded belief that an offense has been committed and that the accused is
a well-founded belief that a crime has been committed and that the probably guilty thereof."47 A "finding of probable cause does not require an
respondent is probably guilty thereof and should be held for inquiry into whether there is sufficient evidence to procure a conviction. It is
trial."43 Generally, a public prosecutor is afforded a wide latitude of discretion enough that it is believed that the act or omission complained of constitutes
in the conduct of a preliminary investigation. By way of exception, however, the offense charged."48 So we held in Balangauan v. Court of Appeals:49
judicial review is allowed where respondent has clearly established that the
Applying the foregoing disquisition to the present petition, the reasons of
prosecutor committed grave abuse of discretion that is, when he has
DOJ for affirming the dismissal of the criminal complaints for estafa and/or
exercised his discretion "in an arbitrary, capricious, whimsical or despotic
qualified estafa are determinative of whether or not it committed grave
manner by reason of passion or personal hostility, patent and gross enough
abuse of discretion amounting to lack or excess of jurisdiction. In requiring
as to amount to an evasion of a positive duty or virtual refusal to perform a
"hard facts and solid evidence" as the basis for a finding of probable cause to
duty enjoined by law."44 Tested against these guidelines, we find that this
hold petitioners Bernyl and Katherene liable to stand trial for the crime
case falls under the exception rather than the general rule.
complained of, the DOJ disregards the definition of probable cause – that it is
A close scrutiny of the substance of Prosecutor Edad’s Resolution dated July a reasonable ground of presumption that a matter is, or may be, well-
10, 1997 readily reveals that were it not for the Debt Settlement Agreement, founded, such a state of facts in the mind of the prosecutor as would lead a
there was indeed probable cause to indict respondents for the crime person of ordinary caution and prudence to believe, or entertain an honest or
charged. From her own assessment of the Complaint-Affidavit of petitioner’s strong suspicion, that a thing is so. The term does not mean "actual and
auditor, her preliminary finding is that "Ordinarily, the offense of estafa has positive cause" nor does it import absolute certainty. It is merely based on
been sufficiently established."45 Interestingly, she suddenly changed tack and opinion and reasonable belief; that is, the belief that the act or omission
declared that the agreement altered the relation of the parties and that complained of constitutes the offense charged. While probable cause
novation had set in preventing the incipience of any criminal liability on demands more than "bare suspicion," it requires "less than evidence which
respondents. In light of the jurisprudence herein earlier discussed, the would justify conviction." Herein, the DOJ reasoned as if no evidence was
prosecutor should not have gone that far and executed an apparent actually presented by respondent HSBC when in fact the records of the case
somersault. Compounding further the error, the DOJ in dismissing were teeming; or it discounted the value of such substantiation when in fact
petitioner’s petition, ruled out estafa contrary to the findings of the the evidence presented was adequate to excite in a reasonable mind the
prosecutor. Pertinent portion of the ruling reads: probability that petitioners Bernyl and Katherene committed the crime/s
complained of. In so doing, the DOJ whimsically and capriciously exercised its
discretion, amounting to grave abuse of discretion, which rendered its prosecutors, not the private complainant, are the ones obliged to bring forth
resolutions amenable to correction and annulment by the extraordinary before the law those who have transgressed it.
remedy of certiorari.
Section 2, Rule 110 of the Rules of Court53 mandates that all criminal actions
In the case at bar, as analyzed by the prosecutor, a prima facie case of estafa must be commenced either by complaint or information in the name of the
exists against respondents. As perused by her, the facts as presented in the People of the Philippines against all persons who appear to be responsible
Complaint-Affidavit of the auditor are reasonable enough to excite her belief therefor. Thus the law makes it a legal duty for prosecuting officers to file the
that respondents are guilty of the crime complained of. In Andres v. Justice charges against whomsoever the evidence may show to be responsible for
Secretary Cuevas50 we had occasion to rule that the "presence or absence of the offense. The proper remedy under the circumstances where persons who
the elements of the crime is evidentiary in nature and is a matter of defense ought to be charged were not included in the complaint of the private
that may be passed upon after a full-blown trial on the merits." 51 complainant is definitely not to dismiss the complaint but to include them in
the information. As the OSG correctly suggested, the proper remedy should
Thus confronted with the issue on whether the public prosecutor and the
have been the inclusion of certain employees of Universal who were found to
Secretary of Justice committed grave abuse of discretion in disposing of the
have been in cahoots with respondents in defrauding petitioner. The DOJ,
case of petitioner, given the sufficiency of evidence on hand, we do not
therefore, cannot seriously argue that because the officers of Universal were
hesitate to rule in the affirmative. We have previously ruled that grave abuse
not indicted, respondents themselves should not likewise be charged. Their
of discretion may arise when a lower court or tribunal violates and
non-inclusion cannot be perversely used to justify desistance by the public
contravenes the Constitution, the law or existing jurisprudence.
prosecutor from prosecution of the criminal case just because not all of those
Non-inclusion of officers of Universal not a ground for the dismissal of the who are probably guilty thereof were charged.
complaint.
Mandamus a proper remedy when resolution of public respondent is tainted
The DOJ in resolving to deny petitioner’s appeal from the resolution of the with grave abuse of discretion.
prosecutor gave another ground – failure to implead the officers of Universal.
Mandamus is a remedial measure for parties aggrieved. It shall issue when
It explained:
"any tribunal, corporation, board, officer or person unlawfully neglects the
To allow your client to make the choice is to make an unwarranted performance of an act which the law specifically enjoins as a duty resulting
classification under the law which will result in grave injustice against herein from an office, trust or station."54 The writ of mandamus is not available to
respondents. Thus, if your client agreed that no estafa was committed in this control discretion neither may it be issued to compel the exercise of
transaction with Universal who was the principal player and beneficiary of this discretion. Truly, it is a matter of discretion on the part of the prosecutor to
transaction[,] more so with herein respondents whose liabilities are based determine which persons appear responsible for the commission of a crime.
only on conspiracy with Universal. 521avvphi1 However, the moment he finds one to be so liable it becomes his inescapable
The ratiocination of the Secretary of Justice conveys the idea that if the duty to charge him therewith and to prosecute him for the same. In such a
charge against respondents rests upon the same evidence used to charge co- situation, the rule loses its discretionary character and becomes mandatory.
accused (officers of Universal) based on the latter’s conspiratorial Thus, where, as in this case, despite the sufficiency of the evidence before the
participation, the non-inclusion of said co-accused in the charge should prosecutor, he refuses to file the corresponding information against the
benefit the respondents. person responsible, he abuses his discretion. His act is tantamount to a
deliberate refusal to perform a duty enjoined by law. The Secretary of Justice,
The reasoning of the DOJ is flawed. on the other hand, gravely abused his discretion when, despite the existence
Suffice it to say that it is indubitably within the discretion of the prosecutor to of sufficient evidence for the crime of estafa as acknowledged by the
determine who must be charged with what crime or for what offense. Public investigating prosecutor, he completely ignored the latter’s finding and
proceeded with the questioned resolution anchored on purely evidentiary
matters in utter disregard of the concept of probable cause as pointed out
in Balangauan. To be sure, findings of the Secretary of Justice are not subject
to review unless shown to have been made with grave abuse. 55 The present
case calls for the application of the exception. Given the facts of this case,
petitioner has clearly established that the public prosecutor and the Secretary
of Justice committed grave abuse of discretion.
WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of
Appeals in CA-G.R. SP No. 58548 promulgated on October 21, 2002 affirming
the Resolutions dated June 22, 1998 and March 1, 2000 of the Secretary of
Justice, and its Resolution dated July 12, 2004 denying reconsideration
thereon are hereby REVERSED and SET ASIDE. The public prosecutor is
ordered to file the necessary information for estafa against the respondents.
SO ORDERED.
G.R. No. 186738               September 27, 2010 request for a bank guarantee, the PBTC released the proceeds of the loan to
Corazon.
PRUDENTIAL BANK AND TRUST COMPANY (now BANK OF THE
PHILIPPINE ISLANDS,1) Petitioner,  Respondent later got wind of the approval of Corazon’s loan application and
vs. the release of its proceeds to Corazon who, despite repeated demands, failed
LIWAYWAY ABASOLO, Respondent. to pay the purchase price of the properties.
DECISION Respondent eventually accepted from Corazon partial payment in kind
consisting of one owner type jeepney and four passenger jeepneys, 3 plus
CARPIO MORALES, J.:
installment payments, which, by the trial court’s computation,
Leonor Valenzuela-Rosales inherited two parcels of land situated in Palanan, totaled P665,000.
Sta. Cruz, Laguna (the properties), registered as Original Certificates of Title
In view of Corazon’s failure to fully pay the purchase price, respondent filed a
Nos. RO-527 and RO-528. After she passed away, her heirs executed on June
complaint for collection of sum of money and annulment of sale and
14, 1993 a Special Power of Attorney (SPA) in favor of Liwayway Abasolo
mortgage with damages, against Corazon and PBTC (hereafter petitioner),
(respondent) empowering her to sell the properties. 2
before the Regional Trial Court (RTC) of Sta. Cruz, Laguna. 4
Sometime in 1995, Corazon Marasigan (Corazon) wanted to buy the
In her Answer,5 Corazon denied that there was an agreement that the
properties which were being sold for P2,448,960, but as she had no available
proceeds of the loan would be paid directly to respondent. And she claimed
cash, she broached the idea of first mortgaging the properties to petitioner
that the vehicles represented full payment of the properties, and had in fact
Prudential Bank and Trust Company (PBTC), the proceeds of which would be
overpaid P76,040.
paid directly to respondent. Respondent agreed to the proposal.
Petitioner also denied that there was any arrangement between it and
On Corazon and respondent’s consultation with PBTC’s Head Office, its
respondent that the proceeds of the loan would be released to her. 6 It
employee, Norberto Mendiola (Mendiola), allegedly advised respondent to
claimed that it "may process a loan application of the registered owner of the
issue an authorization for Corazon to mortgage the properties, and for her
real property who requests that proceeds of the loan or part thereof be
(respondent) to act as one of the co-makers so that the proceeds could be
payable directly to a third party [but] the applicant must submit a letter
released to both of them.
request to the Bank."7
To guarantee the payment of the property, Corazon executed on August 25,
On pre-trial, the parties stipulated that petitioner was not a party to the
1995 a Promissory Note for P2,448,960 in favor of respondent.
contract of sale between respondent and Corazon; that there was no written
By respondent’s claim, in October 1995, Mendiola advised her to transfer the request that the proceeds of the loan should be paid to respondent; and that
properties first to Corazon for the immediate processing of Corazon’s loan respondent received five vehicles as partial payment of the properties. 8
application with assurance that the proceeds thereof would be paid directly
Despite notice, Corazon failed to appear during the trial to substantiate her
to her (respondent), and the obligation would be reflected in a bank
claims.
guarantee.
By Decision of March 12, 2004,9 Branch 91 of the Sta. Cruz, Laguna RTC
Heeding Mendiola’s advice, respondent executed a Deed of Absolute Sale
rendered judgment in favor of respondent and against Corazon who was
over the properties in favor of Corazon following which or on December 4,
made directly liable to respondent, and against petitioner who was made
1995, Transfer Certificates of Title Nos. 164159 and 164160 were issued in the
subsidiarily liable in the event that Corazon fails to pay. Thus the trial court
name of Corazon.
disposed:
Corazon’s application for a loan with PBTC’s Tondo Branch was approved on
WHEREFORE, premises considered, finding the plaintiff has established her
December 1995. She thereupon executed a real estate mortgage covering
claim against the defendants, Corazon Marasigan and Prudential Bank and
the properties to secure the payment of the loan. In the absence of a written
Trust Company, judgment is hereby rendered in favor of the plaintiff Mendiola that the proceeds of the loan would be directly paid to
ordering: her. 11 (emphasis underscoring supplied)
Defendant Corazon Marasigan to pay the plaintiff the amount of On appeal, the Court of Appeals¸ by Decision of January 14,
P1,783,960.00 plus three percent (3%) monthly interest per month from 200812, affirmed the trial court’s decision with modification on the amount of
August 25, 1995 until fully paid. Further, to pay the plaintiff the sum the balance of the purchase price which was reduced from P1,783,960
equivalent to twenty percent five [sic] (25%) of P1,783,960.00 as attorney’s to P1,753,960. It disposed:
fees.
WHEREFORE, premises considered, the assailed Decision dated March 12,
Defendant Prudential Bank and Trust Company to pay the plaintiff  the 2004 of the Regional Trial Court of Sta. Cruz, Laguna, Branch 91,
amount of P1,783,960.00 or a portion thereof plus the legal rate of interest is AFFIRMED WITH MODIFICATION as to the amount to be paid which
per annum until fully paid in the event that Defendant Corazon Marasigan is P1,753,960.00.
fails to pay the said amount or a portion thereof.
SO ORDERED.13 (emphasis in the original; underscoring supplied)
Other damages claimed not duly proved are hereby dismissed.
Petitioner’s motion for reconsideration having been denied by the appellate
So Ordered.10 (emphasis in the original; underscoring partly in the original, court by Resolution of February 23, 2009, the present petition for review was
partly supplied) filed.
In finding petitioner subsidiarily liable, the trial court held that petitioner The only issue petitioner raises is whether it is subsidiarily liable.
breached its understanding to release the proceeds of the loan to
The petition is meritorious.
respondent:
In the absence of a lender-borrower relationship between petitioner and
Liwayway claims that the bank should also be held responsible for breach of
Liwayway, there is no inherent obligation of petitioner to release the
its obligation to directly release to her the proceeds of the loan or part
proceeds of the loan to her.
thereof as payment for the subject lots. The evidence shows that her claim is
valid. The Bank had such an obligation as proven by evidence. It failed to To a banking institution, well-defined lending policies and sound lending
rebut the credible testimony of Liwayway which was given in a frank, practices are essential to perform its lending function effectively and
spontaneous, and straightforward manner and withstood the test of rigorous minimize the risk inherent in any extension of credit.
cross-examination conducted by the counsel of the Bank. Her credibility is Thus, Section X302 of the Manual of Regulations for Banks provides:
further strengthened by the corroborative testimony of Miguela delos Reyes
who testified that she went with Liwayway to the bank for several times. In X-302. To ensure that timely and adequate management action is taken to
her presence, Norberto Mendiola, the head of the loan department, maintain the quality of the loan portfolio and other risk assets and that
instructed Liwayway to transfer the title over the subject lots to Corazon to adequate loss reserves are set up and maintained at a level sufficient to
facilitate the release of the loan with the guarantee that Liwayway will be paid absorb the loss inherent in the loan portfolio and other risk assets, each bank
upon the release of the proceeds. shall establish a system of identifying and monitoring existing or potential
problem loans and other risk assets and of evaluating credit policies vis-à-vis
Further, Liwayway would not have executed the deed of sale in favor of prevailing circumstances and emerging portfolio trends. Management must
Corazon had Norberto Mendiola did not promise and guarantee that the also recognize that loss reserve is a stabilizing factor and that failure to
proceeds of the loan would be directly paid to her. Based on ordinary human account appropriately for losses or make adequate provisions for estimated
experience, she would not have readily transferred the title over the subject future losses may result in misrepresentation of the bank’s financial
lots had there been no strong and reliable guarantee. In this case, what condition.
caused her to transfer title is the promise and guarantee made by Norberto
In order to identify and monitor loans that a bank has extended, a system of promissory note first before I could execute a deed of absolute sale, for
documentation is necessary. Under this fold falls the issuance by a bank of a assurance that she really pay me, sir.14 (emphasis and underscoring supplied)
guarantee which is essentially a promise to repay the liabilities of a debtor, in
That it was on Corazon’s execution of a promissory note that prompted
this case Corazon. It would be contrary to established banking practice if
Liwayway to finally execute the Deed of Sale is thus clear.
Mendiola issued a bank guarantee, even if no request to that effect was
made. The trial Court’s reliance on the doctrine of apparent authority – that the
principal, in this case petitioner, is liable for the obligations contracted by its
The principle of relativity of contracts in Article 1311 of the Civil Code
agent, in this case Mendiola, – does not lie. Prudential Bank v. Court of
supports petitioner’s cause:
Appeals15instructs:
Art. 1311. Contracts take effect only between the parties, their assigns and
[A] banking corporation is liable to innocent third persons where the
heirs, except in case where the rights and obligations arising from the
representation is made in the course of its business by an agent acting within
contract are not transmissible by their nature, or by stipulation or by
the general scope of his authority even though, in the particular case, the
provision of law. The heir is not liable beyond the value of the property he
agent is secretly abusing his authority and attempting to perpetuate fraud
received from the decedent.
upon his principal or some person, for his own ultimate
If a contract should contain some stipulation in favor of a third person, he benefit.16 (underscoring supplied)
may demand its fulfillment provided he communicated his acceptance to the
The onus probandi that attempt to commit fraud attended petitioner’s
obligor before its revocation. A mere incidental benefit or interest of a person
employee Mendiola’s acts and that he abused his authority lies on Liwayway.
is not sufficient. The contracting parties must have clearly and deliberately
She, however, failed to discharge the onus. It bears noting that Mendiola was
conferred a favor upon a third person. (underscoring supplied)
not privy to the approval or disallowance of Corazon’s application for a loan
For Liwayway to prove her claim against petitioner, a clear and deliberate act nor that he would benefit by the approval thereof.
of conferring a favor upon her must be present. A written request would have
Aside from Liwayway’s bare allegations, evidence is wanting to show that
sufficed to prove this, given the nature of a banking business, not to mention
there was collusion between Corazon and Mendiola to defraud her. Even in
the amount involved.
Liwayway’s Complaint, the allegation of fraud is specifically directed against
Since it has not been established that petitioner had an obligation to Corazon.17
Liwayway, there is no breach to speak of. Liwayway’s claim should only be
IN FINE, Liwayway’s cause of action lies against only Corazon.
directed against Corazon. Petitioner cannot thus be held subisidiarily liable.
WHEREFORE, the Decision of January 14, 2008 of the Court of Appeals, in so
To the Court, Liwayway did not rely on Mendiola’s representations, even if he
far as it holds petitioner, Prudential Bank and Trust Company (now Bank of
indeed made them. The contract for Liwayway to sell to Corazon was
the Philippine Islands), subsidiary liable in case its co-defendant Corazon
perfected from the moment there was a meeting of minds upon the
Marasigan, who did not appeal the trial court’s decision, fails to pay the
properties-object of the contract and upon the price. Only the source of the
judgment debt, is REVERSED and SET ASIDE. The complaint against
funds to pay the purchase price was yet to be resolved at the time the two
petitioner is accordingly DISMISSED.
inquired from Mendiola. Consider Liwayway’s testimony:
SO ORDERED.
Q: We are referring to the promissory note which you aforementioned a
while ago, why did this promissory note come about?
A: Because the negotiation was already completed, sir, and the deed of sale
will have to be executed, I asked the defendant (Corazon) to execute the
G.R. No. 186550               July 5, 2010 Respondents added that ACFLC violated Republic Act No. 3765, or the Truth
in Lending Act, in the disclosure statement that should be issued to the
ASIAN CATHAY FINANCE AND LEASING CORPORATION, Petitioner, 
borrower. Respondents, thus, claimed that ACFLC’s petition for foreclosure
vs.
lacked factual and legal basis, and prayed that the promissory note, real
SPOUSES CESARIO GRAVADOR and NORMA DE VERA and SPOUSES
estate mortgage, and any certificate of sale that might be issued in
EMMA CONCEPCION G. DUMIGPI and FEDERICO L.
connection with ACFLC’s petition for extrajudicial foreclosure be declared null
DUMIGPI, Respondents.
and void. In the alternative, respondents prayed that the court fix their
DECISION obligation at P800,000.00 if the mortgage could not be annulled, and declare
NACHURA, J.: as null and void the provisions on the waiver of mortgagor’s right of
redemption and imposition of the liquidated damages. Respondents further
On appeal is the June 10, 2008 Decision 1 of the Court of Appeals (CA) in CA- prayed for moral and exemplary damages, as well as attorney’s fees, and for
G.R. CV No. 83197, setting aside the April 5, 2004 decision 2 of the Regional the issuance of a TRO to enjoin ACFLC from foreclosing their property.
Trial Court (RTC), Branch 9, Bulacan, as well as its subsequent
Resolution3dated February 11, 2009, denying petitioner’s motion for On April 12, 2000, the RTC issued an Order,7 denying respondents’
reconsideration. application for TRO, as the acts sought to be enjoined were already fait
accompli.
On October 22, 1999, petitioner Asian Cathay Finance and Leasing
Corporation (ACFLC) extended a loan of Eight Hundred Thousand Pesos On May 12, 2000, ACFLC filed its Answer, denying the material allegations in
(P800,000.00)4 to respondent Cesario Gravador, with respondents Norma de the complaint and averring failure to state a cause of action and lack of cause
Vera and Emma Concepcion Dumigpi as co-makers. The loan was payable in of action, as defenses. ACFLC claimed that it was merely exercising its right as
sixty (60) monthly installments of P24,400.00 each. To secure the loan, mortgagor; hence, it prayed for the dismissal of the complaint.
respondent Cesario executed a real estate mortgage5 over his property in Sta. After trial, the RTC rendered a decision, dismissing the complaint for lack of
Maria, Bulacan, covered by Transfer Certificate of Title No. T-29234. 6 cause of action. Sustaining the validity of the promissory note and the real
Respondents paid the initial installment due in November 1999. However, estate mortgage, the RTC held that respondents are well-educated
they were unable to pay the subsequent ones. Consequently, on February 1, individuals who could not feign naiveté in the execution of the loan
2000, respondents received a letter demanding payment of P1,871,480.00 documents. It, therefore, rejected respondents’ claim that ACFLC deceived
within five (5) days from receipt thereof. Respondents requested for an them into signing the promissory note, disclosure statement, and deed of
additional period to settle their account, but ACFLC denied the request. real estate mortgage. The RTC further held that the alleged defects in the
Petitioner filed a petition for extrajudicial foreclosure of mortgage with the promissory note and in the deed of real estate mortgage are too
Office of the Deputy Sheriff of Malolos, Bulacan. insubstantial to warrant the nullification of the mortgage. It added that a
promissory note is not one of the essential elements of a mortgage; thus,
On April 7, 2000, respondents filed a suit for annulment of real estate reference to a promissory note is neither indispensable nor imperative for the
mortgage and promissory note with damages and prayer for issuance of a validity of the mortgage. The RTC also upheld the interest rate and the
temporary restraining order (TRO) and writ of preliminary injunction. penalty charge imposed by ACFLC, and the waiver of respondents’ right of
Respondents claimed that the real estate mortgage is null and void. They redemption provided in the deed of real estate mortgage.
pointed out that the mortgage does not make reference to the promissory
note dated October 22, 1999. The promissory note does not specify the The RTC disposed thus:
maturity date of the loan, the interest rate, and the mode of payment; and it WHEREFORE, on the basis of the evidence on record and the
illegally imposed liquidated damages. The real estate mortgage, on the other laws/jurisprudence applicable thereto, judgment is hereby rendered
hand, contains a provision on the waiver of the mortgagor’s right of DISMISSING the complaint in the above-entitled case for want of cause of
redemption, a provision that is contrary to law and public policy. action as well as the counterclaim of [petitioner] Asian Cathay Finance &
Leasing Corporation for moral and exemplary damages and attorney’s fees ACFLC is now before us, faulting the CA for reversing the dismissal of
for abject lack of proof to justify the same. respondents’ complaint. It points out that respondents are well-educated
persons who are familiar with the execution of loan documents. Thus, they
SO ORDERED.8
cannot be deceived into signing a document containing provisions that they
Aggrieved, respondents appealed to the CA. On June 10, 2008, the CA are not amenable to. ACFLC ascribes error on the part of the CA for
rendered the assailed Decision, reversing the RTC. It held that the amount invalidating the interest rates imposed on respondents’ loan, and the waiver
of P1,871,480.00 demanded by ACFLC from respondents is unconscionable of the right of redemption.
and excessive. Thus, it declared respondents’ principal loan to
The appeal lacks merit.
be P800,000.00, and fixed the interest rate at 12% per annum and reduced
the penalty charge to 1% per month. It explained that ACFLC could not insist It is true that parties to a loan agreement have a wide latitude to stipulate on
on the interest rate provided on the note because it failed to provide any interest rate in view of Central Bank Circular No. 905, series of 1982,
respondents with the disclosure statement prior to the consummation of the which suspended the Usury Law ceiling on interest rate effective January 1,
loan transaction. Finally, the CA invalidated the waiver of respondents’ right 1983. However, interest rates, whenever unconscionable, may be equitably
of redemption for reasons of public policy. Thus, the CA ordered: reduced or even invalidated. In several cases, 10 this Court had declared as null
and void stipulations on interest and charges that were found excessive,
WHEREFORE, premises considered, the appealed decision is REVERSED AND
iniquitous and unconscionable.
SET ASIDE. Judgment is hereby rendered as follows:
Records show that the amount of loan obtained by respondents on October
1) Affirming the amount of the principal loan under the REM and
22, 1999 was P800,000.00. Respondents paid the installment for November
Disclosure Statement both dated October 22, 1999 to
1999, but failed to pay the subsequent ones. On February 1, 2000, ACFLC
be P800,000.00, subject to:
demanded payment of P1,871,480.00. In a span of three months,
a. 1% interest per month (12% per annum) on the principal respondents’ obligation ballooned by more than P1,000,000.00. ACFLC failed
from November 23, 1999 until the date of the foreclosure to show any computation on how much interest was imposed and on the
sale, less P24,000.00 paid by [respondents] as first month penalties charged. Thus, we fully agree with the CA that the amount claimed
amortization[;] by ACFLC is unconscionable.
b. 1% penalty charge per month on the principal from In Spouses Isagani and Diosdada Castro v. Angelina de Leon Tan, Sps.
December 23, 1999 until the date of the foreclosure sale. Concepcion T. Clemente and Alexander C. Clemente, Sps. Elizabeth T. Carpio
2) Declaring par. 14 of the REM as null and void by reason of public and Alvin Carpio, Sps. Marie Rose T. Soliman and Arvin Soliman and Julius
policy, and granting mortgagors a period of one year from the Amiel Tan,11 this Court held:
finality of this Decision within which to redeem the subject property The imposition of an unconscionable rate of interest on a money debt, even
by paying the redemption price as computed under paragraph 1 if knowingly and voluntarily assumed, is immoral and unjust. It is tantamount
hereof, plus one percent (1%) interest thereon from the time of to a repugnant spoliation and an iniquitous deprivation of property, repulsive
foreclosure up to the time of the actual redemption pursuant to to the common sense of man. It has no support in law, in principles of justice,
Section 28, Rule 39 of the 1997 Rules on Civil Procedure. or in the human conscience nor is there any reason whatsoever which may
The claim of the [respondents] for moral and exemplary damages and justify such imposition as righteous and as one that may be sustained within
attorney’s fees is dismissed for lack of merit. the sphere of public or private morals.

SO ORDERED.9 Stipulations authorizing the imposition of iniquitous or unconscionable

interest are contrary to morals, if not against the law. Under Article 1409 of
ACFLC filed a motion for reconsideration, but the CA denied it on February the Civil Code, these contracts are inexistent and void from the beginning.
11, 2009.
They cannot be ratified nor the right to set up their illegality as a defense be down as void and unenforceable for being subversive to public policy, when
waived. The nullity of the stipulation on the usurious interest does not, the weaker party is completely deprived of the opportunity to bargain on
however, affect the lender’s right to recover the principal of the loan. Nor equal footing.14
would it affect the terms of the real estate mortgage. The right to foreclose
In fine, when the redemptioner chooses to exercise his right of redemption, it
the mortgage remains with the creditors, and said right can be exercised
is the policy of the law to aid rather than to defeat his right. 15 Thus, we affirm
upon the failure of the debtors to pay the debt due. The debt due is to be
the CA in nullifying the waiver of the right of redemption provided in the real
considered without the stipulation of the excessive interest. A legal interest of
estate mortgage.
12% per annum will be added in place of the excessive interest formerly
imposed.12 The nullification by the CA of the interest rate and the penalty Finally, ACFLC claims that respondents’ complaint for annulment of mortgage
charge and the consequent imposition of an interest rate of 12% and penalty is a collateral attack on its certificate of title. The argument is specious.
charge of 1% per month cannot, therefore, be considered a reversible error. The instant complaint for annulment of mortgage was filed on April 7, 2000,
ACFLC next faults the CA for invalidating paragraph 14 of the real estate long before the consolidation of ACFLC’s title over the property. In fact, when
mortgage which provides for the waiver of the mortgagor’s right of respondents filed this suit at the first instance, the title to the property was
redemption. It argues that the right of redemption is a privilege; hence, still in the name of respondent Cesario. The instant case was pending with
respondents are at liberty to waive their right of redemption, as they did in the RTC when ACFLC filed a petition for foreclosure of mortgage and even
this case. when a writ of possession was issued. Clearly, ACFLC’s title is subject to the
final outcome of the present case.1avvphi1
Settled is the rule that for a waiver to be valid and effective, it must, in the
first place, be couched in clear and unequivocal terms which will leave no WHEREFORE, the petition is DENIED. The assailed Decision and Resolution of
doubt as to the intention of a party to give up a right or benefit which legally the Court of Appeals in CA-G.R. CV No. 83197 are AFFIRMED. Costs against
pertains to him. Additionally, the intention to waive a right or an advantage petitioner.
must be shown clearly and convincingly. 13 Unfortunately, ACFLC failed to SO ORDERED.
convince us that respondents waived their right of redemption voluntarily.
As the CA had taken pains to demonstrate:
The supposed waiver by the mortgagors was contained in a statement made
in fine print in the REM. It was made in the form and language prepared by
[petitioner]ACFLC while the [respondents] merely affixed their signatures or
adhesion thereto. It thus partakes of the nature of a contract of adhesion. It is
settled that doubts in the interpretation of stipulations in contracts of
adhesion should be resolved against the party that prepared them. This
principle especially holds true with regard to waivers, which are not
presumed, but which must be clearly and convincingly shown. [Petitioner]
ACFLC presented no evidence hence it failed to show the efficacy of this
waiver.
Moreover, to say that the mortgagor’s right of redemption may be waived
through a fine print in a mortgage contract is, in the last analysis, tantamount
to placing at the mortgagee’s absolute disposal the property foreclosed. It
would render practically nugatory this right that is provided by law for the
mortgagor for reasons of public policy. A contract of adhesion may be struck
G.R. No. L-47544 January 28, 1980
PEPITO VELASCO, AMABLE LUMANLAN, RAMON GALANG, FELIPE LUMBANG and APOLONIO DE LOS SANTOS, petitioners, 
vs.
COURT OF APPEALS and GOVERNMENT SERVICE INSURANCE SYSTEM, respondents.
Ocampo, Velasco, Sicat & Associate for petitioners.
Manuel M. Lazaro for respondent GSIS.
 
BARREDO, J.:
Petition for certiorari, erroneously citing Section I of Rule 65, for the review of the decision of the Special Division of Five of the Court of Appeals dated December
6, 1977 in CA .G.R. No. 06152 declaring, by a vote of four to one, null and void the order of the Court of First Instance of Pampanga in Civil Case No. 4260 dated
December 2, 1976, which had declared the judgment of said court in said case final and executory, directing in consequence, said trial court to approve the record
on appeal of herein respondent Government Service Insurance System (GSIS for short) and to give due course to its appeal, setting aside correspondingly the
restraining order it had previously issued in the same case, the Court of Appeals holding that, contrary to the ruling of the trial court, the motion for new trial of the
GSIS admittedly filed on time is not pro-forma  and, therefore, the period to appeal the trial court's decision in question had been suspended by said motion,
hence, said decision was still appealable.
From the foregoing brief statement of the nature of the instant case, it would appear that Our sole function in this proceeding should be to resolve the single issue
of whether or not the Court of Appeals erred in ruling that the motion for new trial of the GSIS in question should indeed be deemed pro-forma. But going over the
extended pleadings of both parties, the Court is immediately impressed that substantial justice may not be timely achieved, if We should decide this case upon
such a technical ground alone. We have carefully read all the allegations and arguments of the parties, very ably and comprehensively expounded by evidently
knowledgeable and unusually competent counsel, and We feel We can better serve the interests of justice by broadening the scope of Our inquiry, for as the
record before Us stands, We see that there is enough basis for Us to end the basic controversy between the parties here and now, dispensing, however, with
procedural steps which would not anyway affect substantially the merits of their respective claims.
As a matter of fact, after our first study of this case, We already announced Our intention in this direction at the hearing held on February 21, 1979, where Attys.
Celestino T. Ocampo, Vicente Sicat and Victoriano David appeared and argued for the petitioners and Justice Manuel Lazaro and Atty. Antonio F. Navarrete, for the
GSIS. We reiterated said intention in Our resolution of said date by requiring the parties "to INFORM the Court ... whether or not there are any issues of fact that
the purported appeal of private respondent would involve and whether or not petitioners controvert the same, with the end in view of enabling this Court to take
the necessary steps to convert this proceeding into an appeal ... (under) Republic Act 5440". To be sure, in its compliance dated April 10, 1979 with said resolution,
GSIS does enumerate certain allegedly "pivotal factual issues" its appeal "would involve." However, as will be explained anon even the "pivotal factual issues"
referred to may be justly resolved here without the need of returning this case to the trial court. The exact position of the parties in respect to said issues and the
allegations of fact in their pleadings here and in the court below as well as the undisputed evidence related thereto are so clearly stated and comprehensively
discussed by the parties in their said pleadings that to conduct further proceedings or to await any other briefs from them would be superfluous and a waste of
time and effort. Accordingly, We now deem this case as submitted for Our decision as a duly made appeal under Republic Act 5440.
According to GSIS:
A Detailed Statement of Facts and of the Case
 It is not without reason to state that the ambience of a particular case has much to contribute to the resolution thereof. So it is with the instant
case. And for a better appreciation of the antecedents which led to the decision of the Court of First Instance of Pampanga and subsequently the
questioned decision of the respondent Court of Appeals, the environmental facts which spawned them should thus be laid bare before this
Honorable Court, the better to appreciate their factual significance and legal consequences.
1. Sometime on November 10, 1965, Alta Farms secured from the GSIS a Three Million Two Hundred Fifty Five Thousand Pesos (P3,255,000.00)
loan and an additional loan of Five Million Sixty-Two Thousand Pesos (P5,062,000.00) on October 5, 1967, to finance a piggery project. These loans
were secured by two mortgage (Exh. "B").
2. Alta Farms defaulted in the payment of its amortizations. it is presumably because of this that Alta Farms executed a Deed of Sale With
Assumption of Mortgage with Asian Engineering Corporation on July 10, 1969 (Exh. "C"), but without the previous consent or approval of the GSIS
and in direct violation of the provisions of the mortgage contracts.
3. Even without the approval of the Deed of Sale With Assumption of Mortgage by the GSIS, Asian Engineering Corporation executed an Exclusive
Sales Agency, Management and Administration Contract in favor of Laigo Realty Corporation, with the intention of converting the piggery farm
into a subdivision (Exh. "D"). And on October 20, 1969, Asian Engineering executed another contract with Laigo, whereby Laigo was to undertake
the development of the property into a subdivision (Exh. "E"). Conformably with the two contracts (Exh "D" and "E"), Laigo started the development
of the lot into a subdivision.
Contract of Petitioner
Lumanlan and his admission
4. After developing the area, on December 4, 1969, Laigo entered into a contract (Exh. "GG") with Amable Lumanlan, one of the petitioners, to
construct for the home buyers, 20 houses on the subdivision. The contract provided that Laigo shall secure the agreement and signature of the
home buyers (Paragraph 6 of Agreement, Exh. "GG") and that Laigo "shall pay for the houses on a "turn-key" bases" (Paragraph 5 of Agreement,
Exh. "GG"). The parties to the agreement are, stated by the agreement itself, as follows:
This Agreement, executed this 29th day of November, 1969, in the City of Manila, by and between
LAIGO REALTY CORPORATION, ...
represented by its President,
RHODY E. LAIGO, ... hereinafter referred to as the FIRST PARTY
- and -
... AMABLE G. LUMANLAN ... hereinafter referred to as the SECOND PARTY.
And the signatories are -
IN WITNESS WHEREOF, the parties hereunto affixed their signatures this 4th day of Dec. 1969 at Manila, Philippines.

  (Sgd) Illegible

LAIGO REALTY CORPORATION ALEJANDRO Y. DE

 JESUS

BY: By:

(Sgd) RHODY E. LAIGO (Sgd) Illegible

(t) RHODY E. LAIGO AMABLE G. LUMANLAN

- President -  

  (Sgd) Illegible

  ANASTACIO F. DANAN

(See Exh. "GG")

5. Petitioner Lumanlan allegedly constructed 20 houses for the home buyers and for which he claims a balance of P309,187.76 from the home
buyers and Laigo. This is reflected in Exhibit "X" of petitioners. However, in the letter of Lumanlan to the GSIS on January 7, 1972, he was collecting
only P216,500.00 (Exh. "W" evidence of Lumanlan). Thus, even the evidence of Lumanlan on what is due him is conflicting.
6. Out of his claim, petitioner Lumanlan admits that Mrs. Rhody Laigo paid him in several checks totalling P124,855.00 but which checks were all
dishonored when presented for payment. This is Exhibit "X" of petitioners.
7. Thus, on November 7, 1970, petitioner Lumanlan wrote a letter to Laigo Realty Corporation (Exh. "Y", evidence of Lumanlan) which reads —
I wish to inform you that I have received from Mrs. Rhody E. Laigo several bank checks which were either dishonored by the bank
or were cancelled at the request of Mrs. Rhody E. Laigo for reasons of insufficient funds.
The following are the checks:

DATE SER. AMOUNT BANK

NO.

May 6463 P36,000.0 Prudential

20,19 71 0 Bank
70

June 6599 9,000.00 "

10,19 07
70
 June 6463 20,000.00 "
30, 97
1970

July 6463 19,800.00 "

6, 98
1970

July 4643 11,250.00 "

3, 99
1970

Aug. 6599 16,200.00 "

7,197 13
0

Aug. 6599 12,605.00 "

14,19 14
70

  Total P124,855.  
00

8. In the same letter, Exh, "Y", Lumanlan admits that the checks of Laigo that were dishonored were intended to pay 8 houses occupied by home
buyers, who caused the construction in accordance with the Agreement of Laigo and Lumanlan (Exh. "GG"). The letter of Lumanlan also admits -
This amount was intended to pay for eight (8) houses occupied by the following home buyers:

1
P
. 1
8
L ,
i 0
b 0
o 0
r .
i 0
o 0
Y
a
l
u
n
g

2 1
. 3
,
C 5
a 0
r 0
i .
d 0
a 0
d

P
a
s
c
u
a

3 1
. 5
,
A 3
n 0
t 0
o .
n 0
i 0
o

C
a
n
d
e
l
a
r
i
a

4 1
. 1
,
A 8
l 0
b 0
e .
r 0
t 0
o

R
a
r
e
l
a

5 1
. 6
,
F 2
e 0
l 0
o .
m 0
e 0
n
a

G
o
n
z
a
l
e
s

6 1
. 6
,
E 2
s 0
t 0
e .
l 0
i 0
t
a

M
a
n
a
l
a
n
g

7 1
. 6
,
R 2
o 0
g 0
e .
l 0
i 0
o
 Z
a
b
a
l
a

8 1
. 6
,
W 2
i 0
l 0
h .
e 0
l 0
m
i
n
a

P
a
r
a
s

  P
1
2
3
,
4
0
0
.
0
 0

R  
e
f
u
n
d

f
o
r

e
x
p
e
n
s
e
s

i  
n

t
h
e

e
x
e
c
u
t
i
o
n
o
f

h 1
o ,
u 4
s 5
i 5
n .
g 0
0
p
l
a
n
s

f
o
r

t
h
e
 a P
b
o 1
v 2
e 4
,
h 8
o 5
u 5
s .
e 0
s 0
.

It is significant to note that Exhibits "GG", "W" "X" and "Y" are part of the evidence of petitioners.
9. On December 17, 1970, Laigo acknowledged its dishonored checks and promised to make good the same. This is reflected in Exhibit "Y-l" of
petitioners. The dishonored checks were all presented by petitioners and marked Exhibits "II-l" to "II-6".
Contract of Petitioner
Velasco and his admissions
10. On December 29, 1969, Laigo entered into a contract with petitioner Pepito Velasco to construct houses for the home buyers who agreed with
Velasco on the prices and the downpayment. Exhibits "HH" and "HH-l" for petitioners. The parties to the contract are -
LAIGO REALTY CORPORATION, ... as the FIRST PARTY
- and -
... PEPITO VELASCO, ... jointly known as the SECOND PARTY;
11. Petitioner Velasco constructed houses for various home buyers, who individually agreed with Velasco, as to the prices and the downpayment to
be paid by the individual home buyers.
When neither Laigo nor the individual home buyers paid for the home constructed, Velasco wrote the GSIS to intercede for the unpaid accounts of
the home buyers (Exh. "AA" for petitioners). Exhibit "AA" admits that Pepito Velasco is one of the building contractors contracted by Laigo to
construct houses for home buyers. it states the names of the home buyers, the cost of houses agreed upon, the downpayment made by the buyers
and their respective balance to Velasco. Since the letter of Velasco, Exh. "AA", is a written admission that is highly revealing and illuminating we feel
it important and material to quote therefrom as follows.
May I inform your good offices that the undersigned is one of the building contractors contracted by the Laigo Realty Corporation to
construct residential houses of lot buyers therein For your further information the following are the names of the lot owners for whom
the undersigned have constructed houses for, including the respective balances payable to me as of this date.
 Name of Cost of Down Balances
Buyer House

1. Benjamin P19,500.00 P1,950.00 17,550.00

Cristobal

2. Nehemiah 23,000.00 2,300.00 20,700.00

Quipot

3. Alberto 18,000.00 1,800.00 16,200.00

Villalon

4. Luis Jacob 20,000.00 2,000.00 18,000.00

5. Jose 20,000.00 2,000.00 18,000.00

Salonga

6. Antonio 12,500.00 1,200.00 11,300.00

Jontillano

      P101,750.00

xxx xxx xxx

Very respectfully yours,
(Sgd) Pepito Velasco
(t) PEPITO VELASCO Contractor'
This is the evidence of Velasco.
12. Velasco admits that Laigo paid him in five (5) checks with the total amount of P35,000.00 but which all bounched or were dishonored (Exh. "BB"
of petitioners). It is interesting to note that in the same letter of Velasco to his lawyer, Velasco also named the buyers of the houses for whom he
constructed the houses and the balance due from the home buyers (See Exh. "BB" of petitioners).
Con tract of Petitioner
de los Santos and his
admissions
13. On March 4, 1970, Laigo entered into a contract with petitioner Apolonio de los Santos whereby the latter agreed to construct houses for the
home buyers and Laigo agreed to pay the full purchase price of every house constructed ... based on a "turn- key arrangement". (Vide Exh. "A") The
parties to the contract are shown as follows:
If these conditions above are acceptable to your good self, kindly signify your conformity below.
Truly yours,
(Sgd) Rhody E. Laigo
(t) RHODY E. LAIGO
CONFORME
(Sgd) APOLONIO DE LOS SANTOS
(Date) March 4, 1970
(Vide Exhibit "A" of petitioners)
Contract of Petitioner
Galang and his admissions
14. Petitioner Ramon Galang also constructed a house for Victor Coquilla for an agreed price of P14,000.00. Coquilla paid a downpayment of
P1,400.00, thereby leaving a balance of P12,600.00, which he wanted the GSIS to pay. Thus, in his letter to the GSIS (Exh "CC" for Petitioners) he
admits -
In connection with your Palos Verdes Estate Subdivision located in Talipapa, Caloocan City and which was era d Realty Corporation I
wish to inform you that I have the Laigo Realty Corporation constructed in the subdivision the following house, its owner and cost of
construction

Name Of Cost of Amount Balance

Owner House Paid

1. Victor P14,000.00 P1,400.00 P12,600.00

Coquilla

May I inform your good Offices further that the amount of P12,600.00 referred to above as the 'balance 'is payable to the undersigned, Payment of
which has been delayed for almost one and a half years now.
Trusting that you give this letter your usual Prompt attention, I beg to remain
Very respectfully yours,
(Sgd.) Ramon R. Galang
(t) RAMON R. GALANG
Contractor,
(Vide Exh. "KK" for petitioners; emphasis supplied)
Contract of Petitioner
Lumbang
15. Petitioner Felipe Lumbang also claims to have constructed for the home buyers upon the instance of Laigo, four (4) houses with the balance of
P82,705.00. Lumanlan admits that he constructed the four houses for the home buyers who paid him a downpayment but who still have
outstanding balances Vide Exh. "LL" for the petitioners).
16. The Deed of Sale With Assumption of Mortgage between Alta Farms and Asian Engineering, for one reason or another, was not approved by
the GSIS. And when Alta Farms failed to liquidate its accounts, GSIS foreclosed the properties including all improvements (the house in 1970. In
November and December 1971, the Certificate of Sale in favor of the GSIS were issued.
17. While the properties were under foreclosure and even pending the consolidation of titles, certain lots were sold on installment basis, for which
Laigo received P985,000.00, and 63 houses in various stages were constructed, among which are the houses allegedly constructed by the
petitioners.
xxx xxx xxx
21. An along, from the time the contracts were entered into by Laigo Realty Corporation, the petitioners had always directed their claims against
Laigo Realty Corporation as may be shown by Exhibits "Z", "X", "Y" and "I-1"; Laigo would pay by checks to the contractors; and when the checks
were dishonored they would always file a protest with Laigo Realty Corporation. Originally, an claims were addressed to Laigo Realty Corporation,
being the party who executed the contracts
22. When the petitioners could not collect from Laigo and the home buyers and after the GSIS foreclosed the subdivision including the
improvements (the houses constructed), the petitioners sent a letter of demand on August 3, 1974 (Exhibit "EE") for GSIS to pay for the
indebtedness of Laigo Realty Corporation. It is enlightening and interesting to note that the annexes to the letter specifies who are the home
buyers who caused the construction the agreed price of the construction between the home buyers and the contractors, the downpayment made
by the home buyers to the contractors, and the balance of the home buyers due the contractors by reason of the contracts (Exhibits "EE-l" and "EE-
2"). It is crystal clear from the letter of the lawyer of the petitioners that the ones who caused the construction are home buyers through Laigo
Realty Corporation, that the home buyers made downpayments to the contractors, and that the latter agreed to the price and the balance that
were not paid by the home buyers This is certainly indubitable proof that the GSIS had nothing to do whatsoever in the construction of the houses
by the petitioners.
23. On August 12. 1974, the Assistant General Manager on A legal affairs - he GSIS categorically and specifically denied the an the firm and clear
legal ground, among others, that the has no privity of contract  with the petitioners (Exhibit "FF"). This denial of the claim of the negates, rebukes
and belies any and all or on the other inter-office the GSIS.
24. On April 14, 1975, the petitioners filed a case against the GSIS for the on of mm of money representing labor and materials used in the
construction of houses caused by home buyers the intercession of Laigo Realty Corporation in the principal sum of P607,328.27. The complaint,
docketed as Civil Case No. 4260 of the Court of First Instance of Pampanga, prayed for -
(1) The sum of SIX HUNDRED SEVEN THOUSAND THREE HUNDRED TWENTY EIGHT & 271100 PESOS (P607,328.27) in its current
value due to inflation with legal interest from the date of extrajudicial demand;
(2) the sum of FIFTY THOUSAND (P50,000.00) PESOS as attorney's fees;
 (3) such sum for exemplary damages as may be assess by this Honorable Court against the defendant; and
(4) the costs of this suit (Vide pp. 91-95 of the instant Amended Petition)
25. On July 30, 1975, and within the extensions of time granted, the GSIS filed its Answer traversing the claims and alleging, among others, that the
petitioners have no privity of contract with the GSIS; that the petitioners have no cause of action; and that Laigo Realty Corporation which entered
into the contracts with the petitioners is a necessary and indispensable party who should be included as a party to properly ventilate the issues and
to avoid multiplicity of suits (pp. 96-101 of the instant Amended Petition).
26. After pre-trial was terminated the petitioners presented their evidence, and thereafter, under date of December 16, 1975, they filed their
Plaintiffs' Formal Offer of Evidence (pp. 103-113 of the instant Amended Petition).
27. On February 20, 1976, the petitioners and the GSIS filed their "Joint Manifestation" which in substance is a stipulation of facts (pp. 114-116 of
the instant Amended Petition). The petitioners agreed that the witnesses of the GSIS to be presented would testify on the following-
a. The execution of the Deed of Quitclaim dated May 7, 1970, executed in favor of defendant GSIS by Laigo Realty notwithstanding
the followed ownership." GSIS if they were presented evidence." (Pp. 379-391, Record. Corporation freeing said defendant from
any and all claims arising out of the suppliers, contractors and house such as plaintiffs in the Palos Verdes Estate which now
constitutes the GSIS Hills Subdivision
b. At the time of the Extra-Judicial Foreclosure of the Estate Mortgage on November, 1971, conducted by defendant or Laigo
properties, plaintiff's claims are not registered;
c. Plaintiffs' services were contracted by Laigo Corporation and not by the defendant GSIS;
d That defendant up to the present has not collected the house owner of the 63 houses built by the plaintiffs proceedings and
consolidation of ownership
The petitioners thus did not choose to cross-examine or dispute what they had agreed upon as the testimonies of the witnesses of the to testify;
hence, they stand as uncontroverted  evidence. 1
Significantly, the trial court's conclusions of fact are substantially as alleged by the GSIS above, except as to certain details which We deem immaterial in the light
of the legal provisions and principles upon which We believe the resolution of this controversy should be based. It may be stated in this connection, however, that
the trial court made the following findings and conclusions as regards the amount petitioners are entitled to recover:
The next issue that would then necessarily follow is: - How much are the plaintiffs entitled to be paid?
Again, an examination of the plaintiffs' uncontroverted evidence disclose that as of the time they were ordered to 'cease and desist' from
introducing any further improvement on the property, they had already constructed several houses valued (in common to them) in the total of
P609,328.27 and for which amount representing the actual cost of construction of the houses (materials and labor already considered) as of those
years of construction (1969-1970), they had not yet been fully paid; that upon consolidation of ownership of the entire Palos Verdes Estate
Subdivision where said plaintiffs had introduced the improvements aforesaid in the GSIS, they made written request for payment of what was
already then due them on the defendant GSIS - new owner of the premises but that their said request had fallen on deaf ears. Consequently, for
having been compelled to litigate and to incur unnecessary expenses instead of given the opportunity of making use of the proceeds of their
investment and labor in further investments and work, said plaintiffs are here now further invoking justice and equity on their side and praying that
they be paid their afore-stated entitlement in the amount of P607,328.27 in the equivalent or present value of our Pesos as devaluated. Thus,
through testimonial evidence now also standing on record unrebutted, said plaintiffs proceeded to show to the Court the effect of such
devaluation of the currency on the prices of materials, as well as on their rights and claims, as follow:

  1969-1970 1975

MATERIAL Cost Cost

1. White Sand P9.00 per cu. m. P30.00 per cu. m.

Porac

2. Crashed Gravel- 15.00 per cu. m. 30.00 per cu. m.

Baliwag

3. Cement 3.90 per bag 14.00 per bag

4. Lumber .36 to .42 per 1. 70 to 1.80 per

  board foot board ft.

5. Nails . 75 per kilo 4.20 per kilo

6. GI Sheets 1.00 per linear 4.20 to 4.50 per

  foot linear foot

7. Paint 10.50 to 1 1.00 per 38.00 to 40.00

  gallon per gallon

8. Iron bars 2.7 5 to 3. 00 15.00

9. Toilet materials 110.00 to 120.00 410. 00 to 420. 00

Water closet, Phil.    

Standard with seat    

 cover

And indeed, this Court can take judicial notice of the fact that a house costing, say P10,000.00 in 1969-1970, would now cost no less than
P40,000.00. So that, considering that the generally accepted standard or ratio in the determination of the costs of materials and labor supplied and
put in the construction by the builder-contractors that the latter (labor) is 30% of that of the former (cost of materials), a computation of plaintiffs
dues as is, or P607,328,27, would give this:

a. —
Cost of 467,175.5
materials

b. — 140,152 .
Cost of
labor

Total 607,328.0

In effect, by considering the aforesaid four times increase in said materials costing P467,175.50, the same materials would now cost P1,868,702.00.
By adding 30% of said amount of P1,868.702.00, or P560,610.60 for the cost of labor, to the said cost of materials, the total amount to which
plaintiffs would therefore, be justly and equitably entitled is the sum of P2,429,312.60. And the facts and circumstances as proven, in the honest
opinion of this Court as a court of law and equity, truly warrant that this said amount be awarded to the plaintiffs. (pp. 193-195, Record.)
Parenthetically, the following reprobation by the Court of Appeals of the foregoing posture of the trial court reveals how much the same had evidently influenced
said appellate court to rule in favor of allowing respondent's appeal:
This Court finds no compelling reason to bar appellate review of the unprecedented judgment, mentioned at the outset, which revalued  upwards
four-fold to repeat, four times — the amount of plaintiffs' claim (as alleged in their complaint) representing actual costs  of houses built by them for
the former owner-mortgagor of the subdivision that, eventually, was acquired by the GSIS as highest bidder at the foreclosure sale.
It bears emphasis that "unjust enrichment", which was invoked by plaintiffs in suing the GSIS instead of the former owner  and/or
the developer  (which contracted with plaintiff in regard to the houses in question), is manifest in the judgment sought to be elevated to this
appellate court. For, under that judgment, plaintiffs stand to receive, from and at the expense of the GSIS, as new owner, and to keep for
themselves as additional increment more than P 1.8 million  OVER and ABOVE actual costs  of materials and labor that went into the building of said
houses, according to their own allegations and evidence. Whether or not the trial court can, by the simple expedient of taking "judicial notice" of
inflation, quadruple the plaintiffs' claim, in the light of the Civil Code provision (Art. 1250) authorizing revaluation only upon proof
of "extraordinary  inflation or deflation of the currency" and of Republic Act No. 524 providing that obligation shall be discharged in the currency
that is legal tender at the time  of payment, is an important and far-reaching legal question that deserves further examination or review not only by
this court but also, if need be, by the Supreme Court." (Pp. 31-32, Record.)
Truth to tell however, contrary to the contention of GSIS, the trial court's four-fold award may not be said to be entirely baseless and arbitrary, much less based on
no more than the judicial notice taken by His Honor that "a house costing, say P10,000 in 1969-1970, would now cost no less than P40,000." That the trial court did
not award more than what petitioners had demanded in their complaint is clearly evidenced by their allegation in Paragraph 5 of their complaint regarding the
effects of inflation as wen as by their prayer that they be paid "the sum of Six Hundred Seven Thousand Three Hundred Twenty-Eight and 27/100 Pesos
(P607,328.27) in its current value due to inflation", as well as by the testimonial evidence referred to in detail in the decision in question, as can be seen in the
portions thereof We have quoted above.
Thus, We find and hold that the material facts in this case are beyond dispute and the only issues We have to resolve are legal ones. It is clear to Us that petitioners
did construct, furnishing the materials and labor needed for the purpose the 63 houses that now belong to or are owned by respondent GSIS. It is alleged in
Paragraphs 5 and 8 of petitioners' complaint that:
5. That during the period of the joint venture agreement being negotiated by the Government Service Insurance System and the Laigo Realty
Corporation, the plaintiffs herein constructed residential house and other improvements at the said GSIS His Subdivision, furnishing materials,
supplies, labor and miscellaneous services at their own expense, which costs of mass labor and miscellaneous services total the amount of
P607,328.27, and which is broken down or itemized as follows:

Amable P309,187.7
C. 6
Lumanla
n
----------
--

Pepito 142,510.00
Velasco
----------
----------

Apoloni 60,325.51
o de los
Santos
--------

Felipe 82,705.00
Lumban
g
----------
--------

Ramon 12,600.00
Galang
----------
 ----------

That the foregoing expenditures and- claims are computed on the basis of actual costs of ma and labor as of the time of the construction;
That owing to the inflation which is a matter of judicial notice, such costs of materials and labor is now reasonably assessed at very much more
than the above-mentioned amount
xxx xxx xxx
8. That the construction of houses and improvements has greatly increased the value of the aforesaid defendant's property. (Pp. 71-72, Record.)
The answer of GSIS to the foregoing allegations is as follows:
5. It specifically denies the allegations in paragraph 5, the truth being defendant is not liable for any of the materials, supplies and labor allegedly
furnished and supplied by plaintiffs to Palos Verdes Estate Subdivision as the same pertain exclusively to Laigo Realty Corporation, since on 7 May
1970, Laigo Realty Corporation executed a Deed of Quitclaim and Undertaking, xerox copy of which is hereto attached as Annex "1" and made an
integral part hereof, holding free and harmless defendant from claims of materialmen, contractor or any other person arising out of or having
connection with the development of the said subdivision. Thus the "NOW, THEREFORE" clause of said Deed of Quitclaim and Undertaking
provides:
NO THEREFORE, for and in consideration of the above premises; and in the event of disapproval by the GSIS of its proposal to
develop- the aforesaid property of ALTA FARMS, INC. into a subdivision, REALTY CORPORATION hereby forever quitclaims,
releases and waives in favor of the GSIS its rights and interests in the aforesaid property of ALTA FARMS, INC. arising out of the
development of the aforesaid property into a subdivision, and further shall answer and pay for any claim of or liability to any
contractor, material furnisher, lot buyer, or any other person arising out of or having connection with said subdivision
development. If the GSIS, for any reason, shall be held liable on any such claims or liabilities or otherwise its mortgage hen be
diminished, LAIGO REALTY CORPORATION further binds itself to indemnify the GSIS such sums corresponding to such claims or
diminution.
xxx xxx xxx
8. It admits the allegations in paragraph 8.(Pp. 76-77, Record.)
In other words, apart from- admitting expressly that "the constructions of houses and improvements has greatly increased the value" of the subdivision it now
owns, nowhere in its statement of the material facts in Paragraph 5 of its answer relative to the allegations of the petitioners regarding the construction by them of
the houses in dispute and the cost thereof to each of them does respondent deny said facts as not true. What GSIS limitedly alleged in its answer is the legal
proposition that it is not liable therefor because of lack of contractual privity between it and petitioners. It may be safely said then that it does not now lie in the
lips of GSIS to maintain that petitioners did not build the houses in question and that the cost thereof is different from what petitioners have stated in their
complaint.
What is more, the reliance of GSIS on the Deed of Quitclaim of May 7, 1970 is to Our mind misplaced. We have analyzed this document carefully, and We are of the
considered view that it is actually evidence against GSIS. Even if what is unnatural in ordinary business or industrial experience were assumed, that is, that GSIS was
unaware all along during the period of their construction of the work then being done by petitioners - albeit it is possible there was no express consent given to -
by and thru the aforementioned deed of quitclaim, GSIS agreed to receive and did actually receive the benefits of what petitioners had accomplished or would
accomplish under their contracts with Laigo., So much so, that the dispositive portion of the quitclaim dead does not really relieve GSIS from liability to petitioners.
Properly viewed, GSIS virtually assumed under said deed, liability in regard to claims like those of petitioners who might not be paid by Laigo albeit said liability has
been made subject to the reservation that it could seek indemnity from Laigo.
GSIS received Alta Farms' proposal about the conversion of their piggery project into a subdivision (in which Laigo Realty's participation was mentioned) as early as
February 5, 1970. It was only in November, 1970 that it issued its "cease and desist" order. From all indications, the jobs of petitioners were already practically
finished then. Thus, in Paragraph 17 of its Comment on the petition herein, GSIS states:
17. While the properties were under foreclosure and even pending the consolidation of titles, certain lots were sold to installment basis, for which
Laigo received P985,000.00, and 63 houses in various stages were constructed, among which are the houses allegedly constructed by the
petitioners. (P. 387, Record.)
And in the Joint Manifestation filed by the parties with the trial court as late as February 20, 1976, GSIS made it clear that "defendant (GSIS) up to the present has
not collected from the house owners of the 63 houses built by the plaintiffs  notwithstanding the foreclosure proceedings and consolidation 6f ownership." Again, it
is thus obvious that GSIS assumed ownership of the houses built by petitioners and was benefited by the same, and the fact that it has not collected any payment
from the "house owners" or the construction of the houses respectively occupied by them is of no moment insofar as its liability to petitioners is concerned. Surely,
it is not pretended that those "house owners" would be allowed to enrich themselves at the expense of petitioners. Indeed, the term "house owners" is
inappropriate, if only because in Paragraph 16 of its Comment on the petition herein, GSIS unequivocally state that "GSIS foreclosed the properties including all
improvements (the houses in 1970" and, thereby, became the owner of said houses.
Upon the foregoing factual premises, the legal issue that arises is whether or not GSIS is liable to the petitioners for the cost of the materials and labor furnished by
them in construction of the 63 houses now owned by the GSIS and for the construction of which no payment has been made on the balance due petitioners. Our
considered view is and We so hold that even in equity alone, GSIS should pay the petitioners. After all, it admits it has not collected from the ones who appear to
be the buyers thereof, albeit it must be collecting the installments on the lots. All it has to do then is to pass on to them what it has to pay petitioners. In law, GSIS
is, under the peculiar circumstances of this case, the owner of said houses. Pursuant to Article 1729 of the Civil Code:
Those who put their labor upon or furnish materials for a piece of work undertaken by the contractor have an action against the owner up to the
amount owing from the latter to the contractor at the time the claim is made. However, the following shall not prejudice the laborers, employees
and furnishers of materials:
1) Payments made by the owner to the contractor before they are due;
2) Renunciation by the contractor of any amount due him from the owner.
This article is subject to the provisions of special laws. (1597a)
Laigo admittedly has not paid petitioners. The "bouncing" checks issued by it in their favor is mentioned by GSIS itself in its statement of the facts. We hold that
upon this premise it is a fair construction of the Deed of Quitclaim aforementioned, that GSIS can be held liable to petitioners, without prejudice to its securing
corresponding indemnity from Laigo. It is obvious from the terms of said deed that GSIS contemplated the possibility of its being liable for Laigo's account,
otherwise, there was no need for the reservation. This is one such liability. In this connection while, indeed, Article 1729 refers to the laborers and materialmen
themselves, under the peculiar circumstances of this case, it is but fair and just that petitioners be deemed as suing for the reimbursement of what they have
already paid the laborers and materialmen, as otherwise they (petitioners) would be unduly prejudiced while either Laigo, GSIS or the occupants of the houses
would enrich themselves at their expense. It is a bad law that would allow such a result.
At this juncture, We need to add only that Article 1311 of the Civil Code which GSIS invokes is not applicable where the situation contemplated in Article 1729
obtains. The intention of the latter provision is to protect the laborers and the materialmen from being taken advantage of by unscrupulous contractors and from
possible connivance between owners and contractors. Thus, a constructive vinculum or contractual privity is created by this provision, by way of exception to the
principle underlying Article 1311 between the owner, on the one hand, and those who furnish labor and/or materials, on the other. As a matter of fact, insofar as
the laborers are concerned, by a special law, Act No. 3959, they are given added protection by requiring contractors to file bonds guaranteeing payment to them.
And under Article 2242 of the Civil Code, paragraphs (3) and (4), claims of laborers and materialmen, respectively, enjoy preference among the creditors of the
owner in regard to specific immovable property.
As regards Article 525 of the Civil Code also invoked by GSIS, suffice it to say that this provision refers particularly to instances where the bad faith or the good
faith of the builder is the decisive factor in determining liability. In the case at bar, there is no necessity to pass on the question of whether petitioners acted in
good faith or bad faith, for the simple reason that under the Deed of Quitclaim, GSIS freely accepted the benefits of what they have accomplished.
GSIS contends that Laigo should have been joined as defendant in this case. While petitioners could have done so, they were not under such obligation
mandatorily. Under the circumstances of this case, Laigo is only a necessary party, not an indispensable one. And to allay GSIS, its right to secure reimbursement
from Laigo is hereby reserved.
Coming now to the amount for which GSIS is liable, We reiterate that, to be sure, there is evidence in the record, uncontradicted at that, regarding the lower value
of money at the time the demand upon GSIS was made compared to that when petitioners furnished the labor and materials in question. We are not, however,
inclined to go along with the trial court that the amount demanded should be multiplied four times. We believe that it being a matter of judicial notice that the
prices of labor and material have substantially risen since 1970, it would be fair enough to make respondent liable for interest on the amount of the demand, which
is supported by evidence and not effectively disputed by GSIS in its answer, at the rate of 12% per annum from the time petitioners filed their complaint below on
April 14,1975.
In addition, We hold that our award to petitioners of attorney's fees in the amount of Fifty Thousand (P50,00.00) Pesos would only be just and proper. As We view
the position taken by GSIS in this case, petitioners were compelled to litigate over a matter that could have been justly and equitably settled without having to go
to court, particularly, when it is considered that under the Deed of Quitclaim several times mentioned earlier, GSIS freely accepted from Laigo the benefits of the
expenses for labor and material incurred by petitioners in the houses in question, hence, as We have said above, GSIS had no legal basis for insisting that Article
1729 of the Civil Code does not apply to this case, it being indisputably the owner of said houses already. Besides, it must be borne in mind that the claims of
petitioners are in the nature of claims of the laborers and materialmen themselves. Accordingly, Article 2208, paragraphs 2, 7 and 11, are applicable hereto. Indeed,
the "house owners " or occupants who have not paid either petitioners or Laigo, or even the GSIS should not be allowed to enrich themselves at the expense of
petitioners, and the most feasible way of avoiding such a result is for GSIS to Pay Petitioners and then pass on to said "house owners" what it would have to pay
under this judgment.
IN VIEW OF ALL THE FOREGOING, judgment is hereby rendered affirming the decision appealed from, with the modification that respondent GSIS shall pay
petitioners the total amount of SIX HUNDRED SEVEN THOUSAND THREE HUNDRED TWENTY EIGHT AND 27/100 PESOS (P607,328.27), plus interest at 8% per
annum from April 14, 1975 (which is less than that allowed by Circular No. 416 of the Central Bank dated July 29, 1974) until fully paid, the said sum to correspond
separately to petitioners as follows:

Amable C. P309,187.76
Lumanlan plus interest

Pepito Velasco 142,510.00

Apolonio de log 60,325.51

Santos
 Felipe Lumbang 82,705.00 and

Ramon Galang 12,600.00

plus Fifty Thousand (P50,000) Pesos as attorney's fees for an of them and the costs.
G.R. No. 16454           September 29, 1921 Foreign             Amount                 Rate
$45,000.            3/8 %             P90,337.50
GEORGE A. KAUFFMAN, plaintiff-appellee, 
vs. Payable through Philippine National Bank, New York. To G. A.
THE PHILIPPINE NATIONAL BANK, defendant-appellant. Kauffman, New York. Total P90,355.50. Account of Philippine Fiber
and Produce Company. Sold to Messrs. Philippine Fiber and Produce
Roman J. Lacson for appellant. 
Company, Manila.
Ross and Lawrence for appellee.
STREET, J.:         (Sgd.) Y LERMA, 
Manager, Foreign Department.
At the time of the transaction which gave rise to this litigation the plaintiff,
George A. Kauffman, was the president of a domestic corporation engaged On the same day the Philippine National Bank dispatched to its New York
chiefly in the exportation of hemp from the Philippine Islands and known as agency a cablegram to the following effect:
the Philippine Fiber and Produce Company, of which company the plaintiff
apparently held in his own right nearly the entire issue of capital stock. On Pay George A. Kauffman, New York, account Philippine Fiber Produce
February 5, 1918, the board of directors of said company, declared a dividend Co., $45,000. (Sgd.) PHILIPPINE NATIONAL BANK, Manila.
of P100,000 from its surplus earnings for the year 1917, of which the plaintiff Upon receiving this telegraphic message, the bank's representative in New
was entitled to the sum of P98,000. This amount was accordingly placed to York sent a cable message in reply suggesting the advisability of withholding
his credit on the books of the company, and so remained until in October of this money from Kauffman, in view of his reluctance to accept certain bills of
the same year when an unsuccessful effort was made to transmit the whole, the Philippine Fiber and Produce Company. The Philippine National Bank
or a greater part thereof, to the plaintiff in New York City. acquiesced in this and on October 11 dispatched to its New York agency
In this connection it appears that on October 9, 1918, George B. Wicks, another message to withhold the Kauffman payment as suggested.
treasurer of the Philippine Fiber and Produce Company, presented himself in Meanwhile Wicks, the treasurer of the Philippine Fiber and Produce
the exchange department of the Philippine National Bank in Manila and Company, cabled to Kauffman in New York, advising him that $45,000 had
requested that a telegraphic transfer of $45,000 should be made to the been placed to his credit in the New York agency of the Philippine National
plaintiff in New York City, upon account of the Philippine Fiber and Produce Bank; and in response to this advice Kauffman presented himself at the office
Company. He was informed that the total cost of said transfer, including of the Philippine National Bank in New York City on October 15, 1918, and
exchange and cost of message, would be P90,355.50. Accordingly, Wicks, as demanded the money. By this time, however, the message from the
treasurer of the Philippine Fiber and Produce Company, thereupon drew and Philippine National Bank of October 11, directing the withholding of payment
delivered a check for that amount on the Philippine National Bank; and the had been received in New York, and payment was therefore refused.
same was accepted by the officer selling the exchange in payment of the
transfer in question. As evidence of this transaction a document was made In view of these facts, the plaintiff Kauffman instituted the present action in
out and delivered to Wicks, which is referred to by the bank's assistant the Court of First Instance of the city of Manila to recover said sum, with
cashier as its official receipt. This memorandum receipt is in the following interest and costs; and judgment having been there entered favorably to the
language: plaintiff, the defendant appealed.
Among additional facts pertinent to the case we note the circumstance that
October 9th, 1918. at the time of the transaction above-mentioned, the Philippines Fiber and
Produce Company did not have on deposit in the Philippine National Bank
CABLE TRANSFER BOUGHT FROM
money adequate to pay the check for P90,355.50, which was delivered in
            PHILIPPINE NATIONAL BANK,
payment of the telegraphic order; but the company did have credit to that
           Manila, P.I.                       Stamp P18
extent, or more, for overdraft in current account, and the check in question
was charged as an overdraft against the Philippine Fiber and Produce negotiable instrument, although it affords complete proof of the obligation
Company and has remained on the books of the bank as an interest-bearing actually assumed by the bank.
item in the account of said company.
Stated in bare simplicity the admitted facts show that the defendant bank for
It is furthermore noteworthy that no evidence has been introduced tending a valuable consideration paid by the Philippine Fiber and Produce Company
to show failure of consideration with respect to the amount paid for said agreed on October 9, 1918, to cause a sum of money to be paid to the
telegraphic order. It is true that in the defendant's answer it is suggested that plaintiff in New York City; and the question is whether the plaintiff can
the failure of the bank to pay over the amount of this remittance to the maintain an action against the bank for the nonperformance of said
plaintiff in New York City, pursuant to its agreement, was due to a desire to undertaking. In other words, is the lack of privity with the contract on the part
protect the bank in its relations with the Philippine Fiber and Produce of the plaintiff fatal to the maintenance of an action by him?
Company, whose credit was secured at the bank by warehouse receipts on
The only express provision of law that has been cited as bearing directly on
Philippine products; and it is alleged that after the exchange in question was
this question is the second paragraph of article 1257 of the Civil Code; and
sold the bank found that it did not have sufficient to warrant payment of the
unless the present action can be maintained under the provision, the plaintiff
remittance. In view, however, of the failure of the bank to substantiate these
admittedly has no case. This provision states an exception to the more
allegations, or to offer any other proof showing failure of consideration, it
general rule expressed in the first paragraph of the same article to the effect
must be assumed that the obligation of the bank was supported by adequate
that contracts are productive of effects only between the parties who execute
consideration.
them; and in harmony with this general rule are numerous decisions of this
In this court the defense is mainly, if not exclusively, based upon the court (Wolfson vs. Estate of Martinez, 20 Phil., 340; Ibañez de
proposition that, inasmuch as the plaintiff Kauffman was not a party to the Aldecoa vs. Hongkong and Shanghai Banking Corporation, 22 Phil., 572, 584;
contract with the bank for the transmission of this credit, no right of action Manila Railroad Co. vs. Compañia Trasatlantica and Atlantic, Gulf and Pacific
can be vested in him for the breach thereof. "In this situation," — we here Co., 38 Phil., 873, 894.)
quote the words of the appellant's brief, — "if there exists a cause of action
The paragraph introducing the exception which we are now to consider is in
against the defendant, it would not be in favor of the plaintiff who had taken
these words:
no part at all in the transaction nor had entered into any contract with the
plaintiff, but in favor of the Philippine Fiber and Produce Company, the party Should the contract contain any stipulation in favor of a third person,
which contracted in its own name with the defendant." he may demand its fulfillment, provided he has given notice of his
acceptance to the person bound before the stipulation has been
The question thus placed before us is one purely of law; and at the very
revoked. (Art. 1257, par. 2, Civ. Code.)
threshold of the discussion it can be stated that the provisions of the
Negotiable Instruments Law can come into operation there must be a In the case of Uy Tam and Uy Yet vs. Leonard (30 Phil., 471), is found an
document in existence of the character described in section 1 of the Law; and elaborate dissertation upon the history and interpretation of the paragraph
no rights properly speaking arise in respect to said instrument until it is above quoted and so complete is the discussion contained in that opinion
delivered. In the case before us there was an order, it is true, transmitted by that it would be idle for us here to go over the same matter. Suffice it to say
the defendant bank to its New York branch, for the payment of a specified that Justice Trent, speaking for the court in that case, sums up its conclusions
sum of money to George A. Kauffman. But this order was not made payable upon the conditions governing the right of the person for whose benefit a
"to order or "to bearer," as required in subsection (d) of that Act; and contract is made to maintain an action for the breach thereof in the following
inasmuch as it never left the possession of the bank, or its representative in words:
New York City, there was no delivery in the sense intended in section 16 of So, we believe the fairest test, in this jurisdiction at least, whereby to
the same Law. In this connection it is unnecessary to point out that the determine whether the interest of a third person in a contract is a
official receipt delivered by the bank to the purchaser of the telegraphic
order, and already set out above, cannot itself be viewed in the light of a
 stipulation  pour autrui, or merely an incidental interest, is to rely selling a cable transfer of funds on a foreign country in ordinary course, a
upon the intention of the parties as disclosed by their contract. bank incurs a simple contractual obligation, and cannot be considered as
holding the money which was paid for the transfer in the character of a
If a third person claims an enforcible interest in the contract, the
specific trust. Thus, it was said, "Cable transfers, therefore, mean a method of
question must be settled by determining whether the contracting
transmitting money by cable wherein the seller engages that he has the
parties desired to tender him such an interest. Did they deliberately
balance at the point on which the payment is ordered and that on receipt of
insert terms in their agreement with the avowed purpose of
the cable directing the transfer his correspondent at such point will make
conferring a favor upon such third person? In resolving this question,
payment to the beneficiary described in the cable. All these transaction are
of course, the ordinary rules of construction and interpretation of
matters of purchase and sale create no trust relationship."
writings must be observed. (Uy Tam and Uy Yet vs. Leonard, supra.)
As we view it there is nothing in the decision referred to decisive of the
Further on in the same opinion he adds: "In applying this test to a
question now before us, wish is merely that of the right of the beneficiary to
stipulation  pour autrui, it matters not whether the stipulation is in the nature
maintain an action against the bank selling the transfer.
of a gift or whether there is an obligation owing from the promise to the
third person. That no such obligation exists may in some degree assist in Upon the considerations already stated, we are of the opinion that the right
determining whether the parties intended to benefit a third person, whether of action exists, and the judgment must be affirmed. It is so ordered, with
they stipulated for him." (Uy Tam and Uy Yet vs. Leonard, supra.) costs against the appellant. Interest will be computed as prescribed in section
510 of the Code of Civil Procedure.
In the light of the conclusion thus stated, the right of the plaintiff to maintain
the present action is clear enough; for it is undeniable that the bank's
promise to cause a definite sum of money to be paid to the plaintiff in New
York City is a stipulation in his favor within the meaning of the paragraph
above quoted; and the circumstances under which that promise was given
disclose an evident intention on the part of the contracting parties that the
plaintiff should have the money upon demand in New York City. The
recognition of this unqualified right in the plaintiff to receive the money
implies in our opinion the right in him to maintain an action to recover it; and
indeed if the provision in question were not applicable to the facts now
before us, it would be difficult to conceive of a case arising under it.
It will be noted that under the paragraph cited a third person seeking to
enforce compliance with a stipulation in his favor must signify his acceptance
before it has been revoked. In this case the plaintiff clearly signified his
acceptance to the bank by demanding payment; and although the Philippine
National Bank had already directed its New York agency to withhold payment
when this demand was made, the rights of the plaintiff cannot be considered
to as there used, must be understood to imply revocation by the mutual
consent of the contracting parties, or at least by direction of the party
purchasing he exchange.
In the course of the argument attention was directed to the case of
Legniti vs. Mechanics, etc. Bank (130 N.E. Rep., 597), decided by the Court of
Appeals of the State of New York on March 1, 1921, wherein it is held that, by
G.R. No. L-20853             May 29, 1967 4. The Insured may authorize the repair of the Motor Vehicle
necessitated by damage for which the Company may be liable under
BONIFACIO BROS., INC., ET AL., plaintiffs-appellants, 
this Policy provided that: — (a) The estimated cost of such repair
vs.
does not exceed the Authorized Repair Limit, (b) A detailed estimate
ENRIQUE MORA, ET AL., defendants-appellees.
of the cost is forwarded to the Company without delay, subject to
G. Magsaysay for plaintiffs-appellants. the condition that "Loss, if any is payable to H.S. Reyes, Inc.," by
Abad Santos and Pablo for defendant-appellee H. E. Reyes, Inc. virtue of the fact that said Oldsmobile sedan was mortgaged in favor
J. P. Santilla and A. D. Hidalgo, Jr. for other defendant-appellee. of the said H.S. Reyes, Inc. and that under a clause in said insurance
CASTRO, J.: policy, any loss was made payable to the H.S. Reyes, Inc. as
Mortgagee;
This is an appeal from the decision of the Court of First Instance of Manila,
Branch XV, in civil case 48823, affirming the decision of the Municipal Court xxx     xxx     xxx
of Manila, declaring the H.S. Reyes, Inc. as having a better right than the During the effectivity of the insurance contract, the car met with an accident.
Bonifacio Bros., Inc. and the Ayala Auto Parts Company, appellants herein, to The insurance company then assigned the accident to the Bayne Adjustment
the proceeds of motor insurance policy A-0615, in the sum of P2,002.73, Co. for investigation and appraisal of the damage. Enrique Mora, without the
issued by the State Bonding & Insurance Co. Inc., and directing payment of knowledge and consent of the H.S. Reyes, Inc., authorized the Bonifacio Bros.
the said amount to the H. Reyes, Inc. Inc. to furnish the labor and materials, some of which were supplied by the
Enrique Mora, owner of Oldsmobile sedan model 1956, bearing plate No. Ayala Auto Parts Co. For the cost of labor and materials, Enrique Mora was
QC- mortgaged the same to the H.S. Reyes, Inc., with the condition that the billed at P2,102.73 through the H.H. Bayne Adjustment Co. The insurance
former would insure the automobile with the latter as beneficiary. The company after claiming a franchise in the amount of P100, drew a check in
automobile was thereafter insured on June 23, 1959 with the State Bonding the amount of P2,002.73, as proceeds of the insurance policy, payable to the
& Insurance Co., Inc., and motor car insurance policy A-0615 was issued to order of Enrique Mora or H.S. Reyes,. Inc., and entrusted the check to the H.H.
Enrique Mora, the pertinent provisions of which read: Bayne Adjustment Co. for disposition and delivery to the proper party. In the
meantime, the car was delivered to Enrique Mora without the consent of the
1. The Company (referring to the State Bonding & Insurance Co., Inc.) H.S. Reyes, Inc., and without payment to the Bonifacio Bros. Inc. and the
will, subject to the Limits of Liability, indemnify the Insured against Ayala Auto Parts Co. of the cost of repairs and materials.
loss of or damages to the Motor Vehicle and its accessories and
spare parts whilst thereon; (a) by accidental collision or overturning Upon the theory that the insurance proceeds should be paid directly to them,
or collision or overturning consequent upon mechanical breakdown the Bonifacio Bros. Inc. and the Ayala Auto Parts Co. filed on May 8, 1961 a
or consequent upon wear and tear, complaint with the Municipal Court of Manila against Enrique Mora and the
State Bonding & Insurance Co., Inc. for the collection of the sum of P2,002.73
xxx     xxx     xxx The insurance company filed its answer with a counterclaim for interpleader,
2. At its own option the Company may pay in cash the amount of the requiring the Bonifacio Bros. Inc. and the H.S. Reyes, Inc. to interplead in
loss or damage or may repair, reinstate, or replace the Motor Vehicle order to determine who has better right to the insurance proceeds in
or any part thereof or its accessories or spare parts. The liability of question. Enrique Mora was declared in default for failure to appear at the
the Company shall not exceed the value of the parts whichever is the hearing, and evidence against him was received ex parte. However, the
less. The Insured's estimate of value stated in the schedule will be the counsel for the Bonifacio Bros. Inc., Ayala Auto Parts Co. and State Bonding &
maximum amount payable by the Company in respect of any claim Insurance Co. Inc. submitted a stipulation of facts, on the basis of which are
for loss or damage.1äwphï1.ñët Municipal Court rendered a decision declaring the H.S. Reyes, Inc. as having a
better right to the disputed amount and ordering State Bonding & Insurance
xxx     xxx     xxx Co. Inc. to pay to the H. S. Reyes, Inc. the said sum of P2,002.73. From this
decision, the appellants elevated the case to the Court of First Instance of generally demand the enforcement of the same. 3 The question of whether a
Manila which the stipulation of facts was reproduced. On October 19, 1962 third person has an enforcible interest in a contract, must be settled by
the latter court rendered a decision, affirming the decision of the Municipal determining whether the contracting parties intended to tender him such an
Court. The Bonifacio Bros. Inc. and the Ayala Auto Parts Co. moved for interest by deliberately inserting terms in their agreement with the avowed
reconsideration of the decision, but the trial court denied the motion. Hence, purpose of conferring a favor upon such third person. In this connection, this
this appeal. Court has laid down the rule that the fairest test to determine whether the
interest of a third person in a contract is a stipulation pour autrui  or merely
The main issue raised is whether there is privity of contract between the
an incidental interest, is to rely upon the intention of the parties as disclosed
Bonifacio Bros. Inc. and the Ayala Auto Parts Co. on the one hand and the
by their contract.4 In the instant case the insurance contract does not contain
insurance company on the other. The appellants argue that the insurance
any words or clauses to disclose an intent to give any benefit to any
company and Enrique Mora are parties to the repair of the car as well as the
repairmen or materialmen in case of repair of the car in question. The parties
towage thereof performed. The authority for this assertion is to be found, it is
to the insurance contract omitted such stipulation, which is a circumstance
alleged, in paragraph 4 of the insurance contract which provides that "the
that supports the said conclusion. On the other hand, the "loss payable"
insured may authorize the repair of the Motor Vehicle necessitated by
clause of the insurance policy stipulates that "Loss, if any, is payable to H.S.
damage for which the company may be liable under the policy provided that
Reyes, Inc." indicating that it was only the H.S. Reyes, Inc. which they
(a) the estimated cost of such repair does not exceed the Authorized Repair
intended to benefit.
Limit, and (b) a detailed estimate of the cost is forwarded to the company
without delay." It is stressed that the H.H. Bayne Adjustment Company's We likewise observe from the brief of the State Bonding & Insurance
recommendation of payment of the appellants' bill for materials and repairs Company that it has vehemently opposed the assertion or pretension of the
for which the latter drew a check for P2,002.73 indicates that Mora and the appellants that they are privy to the contract. If it were the intention of the
H.H. Bayne Adjustment Co. acted for and in representation of the insurance insurance company to make itself liable to the repair shop or materialmen, it
company. could have easily inserted in the contract a stipulation to that effect. To hold
now that the original parties to the insurance contract intended to confer
This argument is, in our view, beside the point, because from the undisputed
upon the appellants the benefit claimed by them would require us to ignore
facts and from the pleadings it will be seen that the appellants' alleged cause
the indespensable requisite that a stipulation pour autrui  must be clearly
of action rests exclusively upon the terms of the insurance contract. The
expressed by the parties, which we cannot do.
appellants seek to recover the insurance proceeds, and for this purpose, they
rely upon paragraph 4 of the insurance contract document executed by and As regards paragraph 4 of the insurance contract, a perusal thereof would
between the State Bonding & Insurance Company, Inc. and Enrique Mora. show that instead of establishing privity between  the appellants and the
The appellants are not mentioned in the contract as parties thereto nor is insurance company, such stipulation merely establishes the procedure that
there any clause or provision thereof from which we can infer that there is an the insured has to follow in order to be entitled to indemnity for repair. This
obligation on the part of the insurance company to pay the cost of repairs paragraph therefore should not be construed as bringing into existence in
directly to them. It is fundamental that contracts take effect only between the favor of the appellants a right of action against the insurance company as
parties thereto, except in some specific instances provided by law where the such intention can never be inferred therefrom.
contract contains some stipulation in favor of a third person. 1 Such
Another cogent reason for not recognizing a right of action by the appellants
stipulation is known as stipulation pour autrui  or a provision in favor of a
against the insurance company is that "a policy of insurance is a distinct and
third person not a pay to the contract. Under this doctrine, a third person is
independent contract between the insured and insurer, and third persons
allowed to avail himself of a benefit granted to him by the terms of the
have no right either in a court of equity, or in a court of law, to the proceeds
contract, provided that the contracting parties have clearly and deliberately
of it, unless there be some contract of trust, expressed or implied between
conferred a favor upon such person.2Consequently, a third person not a party
the insured and third person."5 In this case, no contract of trust, expressed or
to the contract has no action against the parties thereto, and cannot
implied exists. We, therefore, agree with the trial court that no cause of
action exists in favor of the appellants in so far as the proceeds of insurance
are concerned. The appellants' claim, if at all, is merely equitable in nature
and must be made effective through Enrique Mora who entered into a
contract with the Bonifacio Bros. Inc. This conclusion is deducible not only
from the principle governing the operation and effect of insurance contracts
in general, but is clearly covered by the express provisions of section 50 of
the Insurance Act which read:
The insurance shall be applied exclusively to the proper interests of
the person in whose name it is made unless otherwise specified in
the policy.
The policy in question has been so framed that "Loss, if any, is payable to H.S.
Reyes, Inc.," which unmistakably shows the intention of the parties.
The final contention of the appellants is that the right of the H.S. Reyes, Inc.
to the insurance proceeds arises only if there was loss and not where there is
mere damage as in the instant case. Suffice it to say that any attempt to draw
a distinction between "loss" and "damage" is uncalled for, because the word
"loss" in insurance law embraces injury or damage.
Loss in insurance, defined. — The injury or damage sustained by the
insured in consequence of the happening of one or more of the
accidents or misfortune against which the insurer, in consideration of
the premium, has undertaken to indemnify the insured. (1 Bouv. Ins.
No. 1215; Black's Law Dictionary; Cyclopedic Law Dictionary, cited in
Martin's Phil. Commercial Laws, Vol. 1, 1961 ed. p. 608).
Indeed, according to sec. 120 of the Insurance Act, a loss may be either total
or partial.
Accordingly, the judgment appealed from is hereby affirmed, at appellants'
cost.
G.R. No. L-27696 September 30, 1977 After due notice and publication, the Court set the application for hearing.
No Opposition whatsoever was filed except that of the Director of Lands
MIGUEL FLORENTINO, ROSARIO ENCARNACION de FLORENTINO,
which was later withdrawn, thereby leaving the option unopposed.
MANUEL ARCE, JOSE FLORENTINO, VICTORINO FLORENTINO, ANTONIO
Thereupon, an order of general default was withdrawn against the whole
FLORENTINO, REMEDION ENCARNACION and SEVERINA
world. Upon application of the asets the Clerk Of court was commission will
ENCARNACION, petitioners-appellants, 
and to have the evidence of the agents and or to submit the for the Court's
vs.
for resolution.
SALVADOR ENCARNACION, SR., SALVADOR ENCARNACION, JR., and
ANGEL ENCARNACION, oppositors to encumbrance-petitioners-appelles. The crucial point in controversy in this registration case is centered in the
stipulation marked Exhibit O-1 embodied in the deed of extrajudicial
Jose F. Singson and Miguel Florentino for appellants.
partition (Exhibit O) dated August 24, 1947 which states:
Pedro Singson for appellees.
Los productos de esta parcela de terreno situada en el Barrio
  Lubong Dacquel Cabugao Ilocos Sur, se destination para
GUERRERO, J.: costear los tos de procesio de la Tercera Caida celebration y
sermon de Siete Palbras Seis Estaciones de Cuaresma,
Appeal from the decision of the Court of First Instance of Ilocos Sur, acting as procesion del Nino Jesus, tilaracion y conservacion de los
a land registration court, in Land Registration case No. N-310. mismos, construction le union camarin en conde se
On May 22, 1964, the petitioners-appellants Miguel Florentino, Remedios depositan los carros mesas y otras cosas que seven para lot
Encarnacion de Florentino, Manuel Arce, Jose Florentino, Victorino Florentino, leiracion de Siete Palabras y otras cosas mas Lo que sobra de
Antonio Florentino, Remedior, Encarnacion and Severina Encamacion, and lihos productos despues de descontados todos los gastos se
the Petitiners-appellees Salvador Encamacion, Sr., Salvador Encamacion, Jr. repartira nosotros los herederos.
and Angel Encarnacion filed with the Court of First Instance of ilocos Sur an In his testimony during the trial, applicant Miguel Florentino asked the court
application for the registration under Act 496 of a parcel of agricultural land to include the said stipulation (Exhibit O-1) as an encumbrance on the land
located at Barrio Lubong Dacquel Cabugao Ilocos Sur. sought to be registered, and cause the entry of the same on the face of the
The application alleged among other things that the applicants are the title that will finally be issued. Opposing its entry on the title as an
common and pro-indiviso owners in fee simple of the said land with the encumbrance, petitionersappellee Salvador Encamacion, Sr., Salvador
improvements existing thereon; that to the best of their knowledge and Encarnaciori, Jr. and Angel Encarriacion filed on October 3, 1966 a
belief, there is no mortgage, lien or encumbrance of any kind whatever manifestation seeking to withdraw their application on their respective shares
affecting said land, nor any other person having any estate or interest of the land sought to be registered. The withdrawal was opposed by the
thereon, legal or equitable, remainder, reservation or in expectancy; that said petitioners-appellants.
applicants had acquired the aforesaid land thru and by inheritance from their The Court after hearing the motion for withdrawal and the opposition thereto
predecessors in interest, lately from their aunt, Doña Encarnacion Florentino issued on November 17, 1966 an order and for the purpose of ascertaining
who died in Vigan, Ilocos Sur in 1941, and for which the said land was and implifying the issues therein stated that all the applicants admit the truth
adjudicated to them by virtue of the deed of extrajudicial partition dated of the following;
August 24, 1947; that applicants Salvador Encarnacion, Jr. and Angel
Encarnacion acquired their respective shares of the land thru purchase from (1) That just after the death of Encarnacion FIorentino in
the original heirs, Jesus, Caridad, Lourdes and Dolores surnamed Singson one 1941 up to last year and as had always been the case since
hand and from Asuncion Florentino on the other. time immomorial the products of the land made subiect
matter of this land has been used in answering for the
payment for the religious functions specified in the Deed Victorino Florentino, of legal age, Filipino, married to
Extrajudicial Partition belated August 24, 1947: Mercedes L. Encarnacion and resident of Vigan, Ilocos Sur,
consisting of an undivided 17.5/297 portion;
(2) That this arrangement about the products answering for
the comment of experisence for religions functions as Antonio Florentino, of legal age, Filipino, single and resident
mentioned above was not registered in the office of the of Vigan, Ilocos Sur, consisting of an undivided 17.5/297;
Register of Deeds under Act No 3344, Act 496 or and, other
Salvador Encarnacion, Sr., of legal age, Filipino, married to
system of registration;
Dolores Singson, consisting of an undivided 8.25/297;
(3) That all the herein applicants know of the existence of his
Remedios Encarnacion, of legal age, Filipino, single and
arrangement as specified in the Deed of Extra judicial
resident of Vigan, Ilocos Sur, consisting of an undivided
Partition of A adjust 24, 1947;
8.25/297 portion; and
(4) That the Deed of Extrajudicial Partition of August 24,
Severina Encarnacion, of legal age, Filipino, single and
194-, not signed by Angel Encarnacion or Salvador
resident of Vigan, Ilocos Sur, consisting of 8.25/297
Encarnacion, Jr,.
undivided portion.
The court denied the petitioners-appellee motion to
The court, after ruling "that the contention of the proponents of
withdraw for lack of merit, and rendered a decision under
encumbrance is without merit bemuse, taking the self-imposed arrangement
date of November 29, 1966 confirming the title of the
in favor of the Church as a pure and simple donation, the same is void for the
property in favor of the f appoints with their respective
that the donee here has riot accepted the donation (Art. 745, Civil Code) and
shares as follows:
for the further that, in the case of Salvador Encarnacion, Jr. and Angel
Spouses Miguel Florentino and Rosario Encarnacion de Encarnacion, they had made no oral or written grant at all (Art. 748) as in fact
Florentino, both of legal age, Filipinos, and residents of they are even opposed to it," 1 held in the Positive portion, as follows:
Vigan, Ilocos Sur, consisting of an undivided 31/297 and
In view of all these, therefore, and insofar as the question of
8.25/297 portions, respectively;
encumbrance is concerned, let the religious expenses as
Manuel Arce, of legal age, Filipino, married to Remedios herein specified be made and entered on the undivided
Pichay and resident of Vigan, Ilocos Sur, consisting of an shares, interests and participations of all the applicants in
undivided 66/297 portion; this case, except that of Salvador Encarnacion, Sr., Salvador
Encarnacion, Jr. and Angel Encarnacion.
Salvador Encarnacion, Jr., of legal age, Filipino, married to
Angelita Nagar and resident of Vigan, Ilocos Sur, consisting On January 3, 1967, petitioners-appellants filed their Reply to the Opposition
of an undivided 66/297; Jose Florentino, of legal age, Filipino, reiterating their previous arguments, and also attacking the junction of the
married to Salvacion Florendo and resident of 16 South registration court to pass upon the validity or invalidity of the agreement
Ninth Diliman, Quezon City, consisting of an undivided Exhibit O-1, alleging that such is specified only in an ordinary action and not
33/297 portion; proper in a land registration proceeding.
Angel Encarnacion, of legal age, Filipino, single and resident The Motion for Reconsideration and of New Trial was denied on January 14,
of 1514 Milagros St., Sta. Cruz, Manila, consisting of an 1967 for lack of merit, but the court modified its earlier decision of
undivided 33/297 portion; November 29, 1966, to wit:
This Court believes, and so holds, that the contention of the
movants (proponents of the encumbrance) is without merit
because the arrangement, stipulation or grant as embodied present issue; and Fourth, the movants having once alleged
in Exhibit O (Escritura de Particion Extrajudicial), by whatever in their application for registration that the land is without
name it may be (called, whether donation, usufruct or encumbrance (par. 3 thereof), cannot now be alloted by the
ellemosynary gift, can be revoked as in fact the oppositors rules of pleading to contradict said allegation of theirs.
Salvador Encarnacion, Sr., who is the only one of the three (McDaniel v. Apacible, 44 Phil. 248)
oppositors who is a party to said Exhibit O (the two others,
SO ORDERED. 2
Salvador Encarnacion, Jr. and Angel Encarnacion no parties
to it) did revoke it as shown by acts accompanying his refusal After Motions for Reconsideration were denied by the court, the petitioners-
to have the same appear as an encumbrance on the title to appellants appealed directly to this Court pursuant to Rule 4 1, Rules of
be issued. In fact, legally, the same can also be ignored or Court, raising the following assign of error:
discararded by will the three oppositors. The reasons are: I. The lower court erred in concluding that the stipulation
First, if the said stipulation is pour bodies in Exhibit O-1 is to embodied in Exhibit O on religious expenses is just an
be viewed as a stipulation pour autrui  the same cannot now arrangement stipulation, or grant revocable at the unilateral
be enforced because the Church in whose favor it was made option of the coowners.
has not communicated its acceptance to the oppositors
before the latter revoked it. Says the 2nd par. of Art. 1311 of II. The lower court erred in finding and concluding that the
the New Civil Code: encumbrance or religious expenses embodied in Exhibit O,
the extrajudicial partition between the co-heirs, is binding
"If a contract should contain some stipulation in favor of a only on the appoints Miguel Florentino, Rosario Encarnacion
third person he may demand its fulfillment provided he de Florentino, Manuel Arce, Jose Florentino, Antonio
communicated his acceptance to the obligor before its Florentino, Victorino Florentino, Remedios Encarnacion and
revocation. A mere incidental benefit or interest of a person Severina Encarnacion.
is not sufficient. The contracting parties must have clearly
and deliberately conferred a favor upon a third person." No III. The lower court as a registration court erred in passing
evide nee has ever been submitted by the Church to show its upon the merits of the encumbrance (Exhibit O-1) as the
clear acceptance of the grant before its revocation by the sanie was never put to issue and as the question involved is
oppositor Salvador Encarnacion, Sr. (or of the two other an adjudication of rights of the parties.
oppositors, Salvador Encarnacion, Jr. and Angel Encarnacion, We find the first and second assignments of error impressed with merit and,
who didn't even make any giant, in the first place), and so therefore, tenable. The stipulation embodied in Exhibit O-1 on religious
not even the movants who have officiously taken into expenses is not revocable at the unilateral option of the co-owners and
themselves the right to enforce the grant cannot now neither is it binding only on the petitioners-appellants Miguel Florentino,
maintain any action to compel compliance with it. (Bank of Rosario Encarnacion de Florentino Manuel Arce, Jose Florentino, Victorino
the P.I. v. Concepcion y Hijos, Inc., 53 Phil. 806). Second, the Florentino Antonio Florentino, Remedios Encarnacion and Severina E It is also
Church in whose favor the stipulation or grant had binding on the oppositors-appellees Angel Encarnacion,
apparently been made ought to be the proper party to
compel the herein three oppositors to abide with the The stipulation (Exhibit 411) in pan of an extrajudicial partition (Exh. O) duly
stipulation. But it has not made any appearance nor agreed and signed by the parties, hence the sanie must bind the contracting
registered its opposition to the application even before Oct. parties thereto and its validity or compliance cannot be left to the with of one
18, 1965 when an order of general default was issued. Third, of them (Art. 1308, N.C.C.). Under Art 1311 of the New Civil Code, this
the movants are not, in the contemplation of Section 2, Rule stipulation takes effect between the parties, their assign and heirs. The article
3 of the Rules of Court, the real party in interest to raise the provides:
 Art. 1311. — Contracts take effect only between the parties, with respect to the land situated in Barrio Lubong Dacquel Cabugao Ilocos
their assigns and heirs, except in cases where the rights and Sur, the fruits thereof shall serve to defray the religious expenses specified in
obligations arising from the contract are not transmissible by Exhibit O-1. The evidence on record shows that the true intent of the parties
their nature, or by stipulation or by provision of law. The heir is to confer a direct and material benefit upon the Church. The fruits of the
is not liable beyond the value of the property he received aforesaid land were used thenceforth to defray the expenses of the Church in
from the decedent. the preparation and celebration of the Holy Week, an annual Church
function. Suffice it to say that were it not for Exhibit O-1, the Church would
If a contract should contain a stipulation in favor of a third
have necessarily expended for this religious occasion, the annual relisgious
person, he may demand its fulfillment provided he
procession during the Holy Wock and also for the repair and preservation of
communicated his acceptance to the obligor before its
all the statutes, for the celebration of the Seven Last Word.
revocation. A mere incidental benefit or interest of a person
is not sufficient. The contracting parties must have clearly We find that the trial court erred in holding that the stipulation, arrangement
and deliberately conferred a favor upon a third person. or grant (Exhibit O-1) is revocable at the option of the co-owners. While a
stipulation in favor of a third person has no binding effect in itself before its
The second paragraph of Article 1311 above-quoted states the law on
acceptance by the party favored, the law does not provide when the third
stipulations pour autrui.  Consent the nature and purpose of the motion (Exh.
person must make his acceptance. As a rule, there is no time at such third
O-1), We hold that said stipulation is a station pour autrui. A stipulation
person has after the time until the stipulation is revoked. Here, We find that
pour autrui  is a stipulation in favor of a third person conferring a clear and
the Church accepted the stipulation in its favor before it is sought to be
deliberate favor upon him, and which stipulation is merely a part of a
revoked by some of the co-owners, namely the petitioners-appellants herein.
contract entered into by the parties, neither of whom acted as agent of the
It is not disputed that from the time of the with of Doña Encarnacion
third person, and such third person and demand its fulfillment provoked that
Florentino in 1941, as had always been the case since time immemorial up to
he communicates his to the obligor before it is revoked. 3 The requisites are:
a year before the firing of their application in May 1964, the Church had been
(1) that the stipulation in favor of a third person should be a part, not the
enjoying the benefits of the stipulation. The enjoyment of benefits flowing
whole, of the contract; (2) that the favorable stipulation should not be
therefrom for almost seventeen years without question from any quarters can
conditioned or compensated by any kind of obligation whatever; and (3)
only be construed as an implied acceptance by the Church of the
neither of the contracting bears the legal represented or authorization of
stipulation pour autrui  before its revocation.
third person.
The acceptance does not have to be in any particular form,
To constitute a valid stipulation pour autrui it must be the purpose and intent
even when the stipulation is for the third person an act of
of the stipulating parties to benefit the third and it is not sufficient that the
liberality or generosity on the part of the promisor or
third person may be incidentally benefited by the stipulation. The fairest test
promise. 5
to determine whether the interest of third person in a contract is a
stipulation pour autrui  or merely an incidental interest, is to rely upon the It need not be made expressly and formally. Notification of
intention of the parties as disclosed by their contract. In applying this test, it acceptance, other than such as is involved in the making of
meters not whether the stipulation is in the nature of a gift or whether there demand, is unnecessary. 6
is an obligation owing from the promisee to the third person. That no such
A trust constituted between two contracting parties for the
obsorption exists may in some degree assist in determining whether the
benefit of a third person is not subject to the rules governing
parties intended to benefit a third person.4
donation of real property. The beneficiary of a trust may
In the case at bar, the determining point is whether the co-owners intended demand performance of the obligation without having
to benefit the Church when in their extrajudicial partition of several parcels of formally accepted the benefit of the this in a public
land inherited by them from Doña Encarnacion Florendo they agreed that document, upon mere acquiescence in the formation of the
 trust and acceptance under the second paragraph of Art. Petitioners-appellants' third assignment of error is not well-taken. Firstly, the
1257 of the Civil Code. 7 otherwise rigid rule that the jurisdiction of the Land Registration Court, being
special and limited in character and proceedings thereon summary in nature,
Hence, the stipulation (Exhibit O-1) cannot now be revoked by any of the
does not extend to cases involving issues properly litigable in other
stipulators at their own option. This must be so because of Article 1257, Civil
independent suits or ordinary civil actions, has time and again been relaxed
Code and the cardinal rule of contracts that it has the force of law between
in special and exceptional circumstances. (See Government of the Phil. Islands
the parties. 8 Thus, this Court ruled in Garcia v. Rita Legarda, Inc., 9 "Article
v. Serafica, 61 Phil. 93 (1934); Caoibes v. Sison, 102 Phil. 19 (1957); Luna v.
1309 is a virtual reproduction of Article 1256 of the Civil Code, so phrased to
Santos, 102 Phil. 588 (1957); Cruz v. Tan, 93 Phil. 348 (1953); Gurbax Singh
emphasize that the contract must bind both parties, based on the principles
Pabla & Co. v. Reyes, 92 Phil. 177 (1952). From these cases, it may be gleaned
(1) that obligation arising from contracts have the force of law between the
and gathered that the peculiarity of the exceptions is based not only on the
contracting parties; and (2) that there must be mutuality between the parties
fact that Land Registration Courts are likewise the same Courts of First
based on their principle equality, to which is repugnant to have one party
Instance, but also the following premises (1) Mutual consent of the parties or
bound by the contract leaving the other free therefrom."
their acquired in submitting the at aforesaid determination by the court in
Consequently, Salvador Encarnacion, Sr. must bear with Exhibit O-1, being a the registration; (2) Full opportunity given to the parties in the presentation
signatory to the Deed of Extrajudicial Partition embodying such beneficial of their respective skies of the issues and of the evidence in support thereto;
stipualtion. Likewise, with regards to Salvador, Jr. and Angel Encarnacion, (3) Consideration by the court that the evidence already of record is sufficient
they too are bound to the agreement. Being subsequent purchasers, they are and adequate for rendering a decision upon these issues. 12 In the case at bar,
privies or successors in interest; it is axiomatic that contracts are enforceable the records clearly show that the second and third premism enumerated
against the parties and their privies. 10 Furthermore, they are shown to have abow are fully mt. With regards to first premise, the petioners-appellants
given their conformity to such agreement when they kept their peace in 1962 cannot claim that the issues anent Exhibit O-1 were not put in issue because
and 1963, having already bought their respective shares of the subject land this is contrary to their stand before the lower court where they took the
but did not question the enforcement of the agreement as against them. initial step in praying for the court's determination of the merits of Exhibit O-
They are also shown to have knowledge of Exhibit O-1 as they had admitted 1 as an encumbrance to be annotated on the title to be issued by such court.
in a Deed of Real Mortgage executed by them on March 8, 1962 involving On the other hand, the petitioners-appellees who had the right to invoke the
their shares of the subject land that, "This parcel of land is encumbered as limited jurisdiction of the registration court failed to do so but met the issues
evidenced by the document No. 420, page 94, Book 1, series 1947, executed head-on.
by the heirs of the late Encarnacion Florentino, on August 26, 1947, before M.
Secondly, for this very special reason, We win uphold the actuation of the
Francisco Ante, Notwy Public of Vigan, Ilocos Sur, in its page 10 of the said
lower court in determining the conflicting interests of the parties in the
document of partition, and also by other documents."
registration proceedings before it. This case has been languishing in our
The annotation of Exhibit O-1 on the face of the title to be issued in this case courts for thirteen tong years. To require that it be remanded to the lower
is merely a guarantee of the continued enforcement and fulfillment of the court for another proceeding under its general jurisdiction is not in
beneficial stipulation. It is error for the lower court to rule that the consonance with our avowed policy of speedy justice. It would not be amiss
petitioners-appellants are not the real parties in interest, but the Church. That to note that if this case be remanded to the lower court, and should appeal
one of the parties to a contract pour autrui  is entitled to bring an action for again be made, the name issues will once more be raised before us hence,
its enforcement or to prevent its breach is too clear to need any extensive Our decision to resolve at once the issues in the instant petition.
discussion. Upon the other hand, that the contract involved contained a
IN VIEW OF THE FOREGOING, the decision of the Court of First Instance of
stipulation pour autrui amplifies this settled rule only in the sense that the
Ilocos Sur in Land Registration Case No. N-310 is affirmed but modified to
third person for whose benefit the contract was entered into may also
allow the annotation of Exhibit O-1 as an encumbrance on the face of the
demand its fulfillment provoked he had communicated his acceptance
thereof to the obligor before the stipulation in his favor is revoked. 11
title to be finally issued in favor of all the applications (herein appellants and
herein appellees) in the registration proceedings below.
No pronouncement as to cost.
SO ORDERED.
G.R. No. 74521 November 11, 1986 Kyowa Bank of Japan (KYOWA) and Petitioner (BANKAMERICA) that, from
time to time, KYOWA can ask BANKAMERICA to pay amounts to a third party
BANK OF AMERICA NT & SA, petitioner, 
(beneficiary) with BANKAMERICA afterwards billing KYOWA the indicated
vs.
amount given to the beneficiary. To assure itself that an Order received from
THE HON. FIRST CIVIL CASES DIVISION, INTERMEDIATE APPELLATE
KYOWA really comes from KYOWA, it is usually agreed that KYOWA's
COURT and AIR CARGO AND TRAVEL CORPORATION, respondents.
signature will be in accordance with a confidential code.
Agcaoili & Associates for petitioner.
According to ACTC in its Comment, in the early part of 1981, it was Tokyo
Marcelo P. Villanuea for respondents. Tourist Corporation in Japan which applied with Kyowa Bank, Ltd. also based
  in Tokyo, Japan, for telegraphic transfer of the sum of US$23,595.00 payable
to ACTC's account with BANKAMERICA, Manila.
MELENCIO-HERRERA, J.:
When the tested telex was received on May 10, 1981, employees of
As the Petition and the Comment submitted by private respondent Air Cargo BANKAMERICA noted its patent ambiguity. Notwithstanding, on the
and Travel Corporation (ACTC) have sufficiently argued the legal question following day, BANKAMERICA credited the amount of US$23,595.00 to the
involved in this case, the Court has resolved to give due course to the account of Minami. ACTC claimed that the amount should have been
Petition, with private respondent's Comment being its Answer, and to credited to its account and demanded restitution, but BANKAMERICA
consider this case submitted for decision. refused.
The basic  relevant  facts have been stated by respondent Appellate Court as On February 18, 1982, ACTC filed suit for damages against BANKAMERICA
follows: and Minami before the Trial Court in Pasig for the failure of BANKAMERICA
Shorn of non-essentials, the facts are: Plaintiff Air Cargo and to restitute. Minami was declared in default. Thereafter, judgment was
Travel Corporation is the owner of Account Number 19842- rendered with the following dispositive part:
01-2 with defendant Bank of America. Defendant Toshiyuki IN VIEW OF THE FOREGOING CONSIDERATIONS, the Court
Minami, President of plaintiff corporation in Japan, is the upon a judicious and fair assessment of the testimonial and
owner of Account Number 24506-01-7 with defendant Bank. documentary evidences submitted by the parties is of the
On March 10, 1981, the Bank received a tested telex opinion and so holds that defendant Bank and defendant
advise  from Kyowa Bank of Japan stating, Minami must pay plaintiff, jointly and severally the following.

ADVISE PAY USDLS 23,595. — TO YOUR A/C NBR 24506-01- 1. The sum of US$23,595.00 or in Philippine Currency at the
7 OF A. C. TRAVEL CORPORATION MR. TOSHIYUKO MINAMI. current guiding rate of exchange which is P14.00 to the
dollar, as and by way of actual damages with interest at the
and the Bank Credited the amount of US$23,595.00 to rate of twelve (12%) per cent per annum from the filing of
Account Number 24506-07-1 (should be 24506-01-7) the complaint until fully paid;
owned, as aforesaid, by Minami.
2. The sum of P50,000.00 as temperate and exemplary
On March 12, 1981, Minami withdrew the sum of damages;
P180,000.00 the equivalent in Philippine Pesos of the sum of
US$23,595.00 from the Bank on his Account Number 24506- 3. The sum of P10,000.00 as attorney's fees;;
07-1 (should be 24506-01-7) 4. The costs of this suit.
It may be explained that the "tested"  telex advice is a message signed SO ORDERED.
in "code". Evidently, there was a previous contractual agreement between
Upon appeal taken by BANKAMERICA, Respondent Court "affirmed in toto,  " BANKAMERICA could not have very well disregarded that account number. It
except that the dollar-peso rate of ex-change would be that "at the time of could also be that the mention of ACTC's name was a further identification of
payment." Said respondent Court: Minami, to prevent payment to a possible another "Toshiyuko Minami" who
may not be connected with ACTC. On the other hand, it should be difficult to
We must say that the Bank personnel were in fact confused
concede that, in the tested telex, Account No. 24506-01-7 was erroneously
or in doubts as to the real payee.
written and should be substituted by Account No. 19842-01-2 in the name of
The Senior Clerk who initially received the tested telex had ACTC.
called up Mr. Colegado, Mr. Ichiban, Miss Mayagama and
In Vargas Plow Factory, Inc. vs. Central Bank, it was held that "the opening of
Atty. Villanueva, all of plaintiff-appellee, but he received "no
a letter of credit in favor of the exporter becomes ultimately but the result of
answer."(Exh. 3; pp. 9-10, t.s.n., Dec. 2, 1982).
a stipulation pour autrui" (27 SCRA 84 [1969]). Similarly, when KYOWA asked
Thereupon, the processor checked the alphabetical listings BANK-AMERICA to pay an amount to a beneficiary (either ACTC or Minami),
and he saw that the payee, Account Number 24506-01-7, the contract was between KYOWA and BANK-AMERICA and it had a
matched the name appearing in the tested telex advise (p. stipulation pour autrui.
10, t.s.n., Dec. 2, 1981).
It should be recalled that the tested telex originated from KYOWA at the
The gross negligence then of appellant Bank may be sum behest of Tokyo Tourist Corporation with whom ACTC had business dealings.
(sic) up as follows; The words "A.C. TRAVEL CORPORATION Minami, on the other hand, was the liaison officer of ACTC in Japan. As the
MR. TOSHIYUKO MINAMI" engendered or cast doubt entity responsible for the tested telex was Tokyo Tourist Corporation, it can
on the part of the Senior Clerk as to the real reasonably be concluded that if it had intended that the US$23,595.00 should
payee despite the "A.C. NBR 24506-01-7" be credited to ACTC, upon learning that the amount was credited to Minami,
and it should have gone, together with the representatives of ACTC, in protest to
KYOWA and lodged a protest. Since that was not done, it could well be that
should have consulted higher officials of plaintiff before Tokyo Tourist Corporation had really intended its remittance to be credited
giving the advise to the processor who sent the same to the to Minami. The identity of the beneficiary should be in accordance with the
computer center for ultimate processing (p. 11, Appellant's identification made by KYOWA, and ACTC cannot question that identification
Brief). as it is not a party to the arrangement between KYOWA and BANKAMERICA
The processor verified that Account Number 24506-01-7 (see Manila Railroad Co. vs. Compañia Trasatlantica, 38 Phil. 875 [1918]).
belonged to TOSHIYUKO MINAMI' only and not to "A.C. WHEREFORE, the Decision of Respondent Court, in its case AC-G.R. CV No.
TRAVEL CORPORATION MR. TOSHIYUKO MINAMI" and this 03985, is hereby reversed in so far as Bank of America, NT & SA is concerned.
circumstance should have moved the processor to be more
prudent and to consult higher officials instead of sending the Without pronouncement as to costs.
advise to the computer center for processing or crediting the SO ORDERED.
remittance to the account of Toshiyuko Minami, (Emphasis
supplied)
We are constrained to reverse.
It is our considered opinion that, in the tested telex, considered either as a
patent ambiguity or as a latent ambiguity, the beneficiary is Minami. The
mention of Account No. 24506-01-7, as well as the name of Minami, has to
be given more weight than the mention of the name of ACTC.
G.R. No. L-40234 December 14, 1987 The facts of the case as gathered from the amended decision of the lower
court (Amended Record on Appeal, p. 352), are as follows:
MARIMPERIO COMPAÑIA NAVIERA, S.A., petitioner, 
vs. In 1964 Philippine Traders Corporation and Union Import and Export
COURT OF APPEALS and UNION IMPORT & EXPORT CORPORATION and Corporation entered into a joint business venture for the purchase of copra
PHILIPPINES TRADERS CORPORATION, respondents. from Indonesia for sale in Europe. James Liu President and General Manager
of the Union took charge of the European market and the chartering of a
 
vessel to take the copra to Europe. Peter Yap of Philippine on the other hand,
PARAS, J.: found one P.T. Karkam in Dumai Sumatra who had around 4,000 tons of
This is a petition for certiorari under Section 1, Rule 65 of the Rules of Court copra for sale. Exequiel Toeg of Interocean was commissioned to look for a
seeking the annulment and setting aside of the decision of the Court of vessel and he found the vessel "SS Paxoi" of Marimperio available. Philippine
Appeals * and promulgated on September 2, 1974 in CA-G.R. No. 48521-R and Union authorized Toeg to negotiate for its charter but with instructions
entitled "Union Import and Export Corporation, et al., Plaintiffs-Appellees v. to keep confidential the fact that they are the real charterers.
Marimperio Compañia Naviera, S.A., Defendant-Appellant", ordering Consequently on March 21, 1965, in London England, a "Uniform Time
petitioner to pay respondent the total sum of US $265,482.72 plus attorney's Charter" for the hire of vessel "Paxoi" was entered into by the owner,
fees of US$100,000.00 and (b) the resolution of the said Court of Appeals in Marimperio Compania Naviera, S.A. through its agents N. & J. Vlassopulos
the same case, dated February 17, 1975 fixing the amount of attorney, s fees Ltd. and Matthews Wrightson, Burbridge, Ltd. to be referred to simply as
to Pl00,000.00 instead of $100,000.00 as erroneously stated in the decision Matthews, representing Interocean Shipping Corporation, which was made to
but denying petitioner's motion for reconsideration and/or new trial. appear as charterer, although it merely acted in behalf of the real charterers,
The dispositive portion of the decision sought to be annulled (Rollo, p. 215) private respondents herein.
reads as follows: The pertinent provisions or clauses of the Charter Party read:
For all the foregoing, and in accordance therewith, let 1. The owners let, and the Charterers hire the Vessel for a
judgment be entered (a) affirming the decision appealed period of 1 (one) trip via safe port or ports Hong Kong,
from insofar as it directs the defendant-appellant: (1) to pay Philippine Islands and/or INDONESIA from the time the
plaintiffs the sum of US $22,500.00 representing the Vessel is delivered and placed at the disposal of the
remittance of plaintiffs to said defendant for the first 15-day Charterers on sailing HSINKANG ... .
hire of the vessel "SS PAXOI" including overtime and an
4. The Charterers are to provide and pay for oil-fuel, water
overpayment of US $254.00; (2) to pay plaintiffs the sum of
for boilers, port charges, pilotages ... .
US $16,000.00, corresponding to the remittance of plaintiffs
to defendant for the second 15-day hire of the aforesaid 6. The Charterers to pay as hire s.21 (Twenty-one Shillings
vessel; (3) to pay plaintiffs the sum of US $6,982.72, per deadweights ton per 30 days or pro rata commencing in
representing the cost of bunker oil, survey and watering of accordance with Clause 1 until her redelivery to the owners.
the said vessel; (4) to pay plaintiffs the sum of US
Payment of hire to be made in cash as per Clause 40 without
$100,000.00 as and for attorney's fees; and, (b) reversing the
discount, every 15 days in advance.
portion granting commission to the intervenor-appellee and
hereby dismissing the complaint-in-intervention. The order In default of payment of the Owners to have the right of
of the court a quo denying the plaintiffs' Motion for Partial withdrawing the vessel from the services of the Charterers,
Reconsideration, is likewise, affirmed, without any special without noting any protest and without interference by any
pronouncement as to costs. court or any formality whatsoever and without prejudice the
 Owners may otherwise have on the Charterers under the The Charterer was however twice in default in its payments which were
Charter. supposed to have been done in advance. The first 15-day hire comprising the
period from March 27 to April 1-1, 1965 was paid despite follow-ups only on
7. The Vessel to be redelivered on the expiration of the
April 6, 1965 and the second 15-day hire for the period from April 12 to April
Charter in the same good order as when delivered to the
27, 1965 was paid also despite follow-ups only on April 26, 1965. On April 14,
Charterers (fair wear and tear expected) in the Charterer's
1965 upon representation of Toeg, the Esso Standard Oil (Hongkong)
option in ANTWERP HAMBURG RANGE.
Company supplied the vessel with 400 tons of bunker oil at a cost of US
20. The Charterers to have the option of subletting the $6,982.73.
Vessel, giving due notice to the Owners, but the original
Although the late payments for the charter of the vessel were received and
Charterers always to remain responsible to the Owners for
acknowledged by Vlassopulos without comment or protest, said agent
due performance of the Charter.
notified Matthews, by telex on April 23, 1965 that the shipowners in
29. Export and/or import permits for Charterers'cargo to the accordance with Clause 6 of the Charter Party were withdrawing the vessel
Charterers'risk and expense. Charterers to obtain and be from Charterer's service and holding said Charterer responsible for unpaid
responsible for all the necessary permits to enter and/or hirings and all legal claims.
trade in and out of all ports during the currency of the
On April 29, 1965, the shipowners entered into another charter agreement
Charter at their risk and expense. ...
with another Charterer, the Nederlansche Stoomvart of Amsterdam, the
33. Charterers to pay as overtime, bonus and premiums to delivery date of which was around May 3, 1965 for a trip via Indonesia to
Master, Officers and crew, the sum of 200 (Two Hundred Antwep/Hamburg at an increase charter cost.
Pounds) per month to be paid together with hire.
Meanwhile, the original Charterer again remitted on April 30, 1965, the
37. Bunkers on delivery as on board. Bunkers on redelivery amount corresponding to the 3rd 15-day hire of the vessel "PAXOI" but this
maximum 110 tons. Prices of bunkers at 107' per long ton at time the remittance was refused.
both ends.
On May 3,1965, respondents Union Import and Export Corporation and
38. Upon sailing from each loading port, Master to cable Philippine Traders Corporation filed a complaint with the Court of First
SEASHIPS MANILA advising the quantity loaded and the time Instance of Manila, Branch VIII, against the Unknown Owners of the Vessel
of completion. "SS Paxoi" for specific performance with prayer for preliminary attachment,
40. The hire shall be payable in external sterling or at alleging, among other things, that the defendants (unknown owners) through
Charterers' option in U.S. dollars in London; - Williams their duly authorized agent in London, the N & J Vlassopulos Ltd., ship
Deacon's Vlassopulos Ltd., Account No. 861769. brokers, entered into a contract of Uniform Time-Charter with the Interocean
Shipping Company of Manila through the latter's duly authorized broker, the
In view of the aforesaid Charter, on March 30, 1965 plaintiff Charterer cabled Overseas Steamship Co., Inc., for the Charter of the vessel SS PAXOI' under
a firm offer to P.T. Karkam to buy the 4,000 tons of copra for U.S.$180.00 per the terms and conditions appearing therein ...; that, immediately thereafter,
ton, the same to be loaded either in April or May, 1965. The offer was the Interocean Shipping Company sublet,the said vessel to the plaintiff Union
accepted and plaintiffs opened two irrevocable letters of Credit in favor of Import & Export, Corporation which in turn sublet the same to the other
P.T. Karkam plaintiff, the Philippine Traders Corporation (Amended Record on Appeal, p.
On March 29, 1965, the Charterer was notified by letter by Vlassopulos 17). Respondents as plaintiffs in the complaint obtained a writ of preliminary
through Matthews that the vessel "PAXOI" had sailed from Hsinkang at attachment of vessel PAXOI' " which was anchored at Davao on May 5, 1969,
noontime on March 27, 196-5 and that it had left on hire at that time and upon the filing of the corresponding bond of P1,663,030.00 (Amended
date under the Uniform Time-Charter. Record on Appeal, p. 27). However, the attachment was lifted on May 15,
1969 upon defendant's motion and filing of a counterbond for P1,663,030 alleged commission of 2 1/2 and not become due for the reason, among
(Amended Record on Appeal, p. 62). others, that the charterer violated the contract, and the full hiring fee due the
shipowner was not paid in accordance with the terms and conditions of the
On May 11, 1965, the complaint was amended to Identify the defendant as
charter party. By way of counterclaim defendant shipowner charged the
Marimperio Compania Naviera S.A., petitioner herein (Amended Record on
plaintiff-in-intervention attorney's fees and expenses of litigation in the sum
Appeal, p. 38). In answer to the amended complaint, by way of special
of P10,000.00 (Amended Record on Appeal, p. 123).
defenses defendant (petitioner herein) alleged among others that the Charter
Party covering its vessel "SS PAXOI" was entered into by defendant with On November 22, 1969 the Court of First Instance of Manila, Branch VIII
Interocean Shipping Co. which is not a party in the complaint; that defendant rendered its decision ** in favor of defendant Marimperio Compania Naviera,
has no agreement or relationship whatsoever with the plaintiffs; that plaintiffs S.A., petitioner herein, and against plaintiffs Union Import and Export
are unknown to defendant; that the charter party entered into by defendant Corporation and Philippine Traders Corporation, respondents herein,
with the Interocean Shipping Co. over the vessel "SS PAXOI" does not dismissing the amended complaint, and ordering said plaintiff on the
authorize a sub-charter of said vessel to other parties; and that at any rate, counterclaim to pay defendant, jointly and severally, the amount of f 8,011.38
any such sub-charter was without the knowledge or consent of defendant or or its equivalent in Philippine currency of P75,303.40, at the exchange rate of
defendant's agent, and therefore, has no effect and/or is not binding upon P9.40 to 1 for the unearned charter hire due to the attachment of the vessel
defendant. By way of counterclaim, defendant prayed that plaintiffs be "PAXOI" in Davao, plus premiums paid on the counterbond as of April 22,
ordered to pay defendant (1) the sum of 5,085.133d or its equivalent, in 1968 plus the telex and cable charges and the sum of P10,000.00 as
Philippine currency of P54,929.60, which the defendant failed to realize under attorney's fees and costs. The trial court dismissed the complaint-in-
the substitute charter, from May 3, 1965 to May 16, 1965, while the vessel intervention, ordering the intervenor, on the counterclaim, to pay defendant
was under attachment; (2) the sum of E68.7.10 or its equivalent of P7,132.83, the sum of P10,000.00 as attorney's fees, and the costs (Amended Record on
Philippine currency, as premium for defendant's counterbond for the first Appeal, p. 315).
year, and such other additional premiums that will have to be paid by
Plaintiffs filed a Motion for Reconsideration and/or new trial of the decision
defendant for additional premiums while the case is pending; and (3) a sum
of the trial court on December 23, 1969 (Amended Record on Appeal, p. 286);
of not less than P200,000.00 for and as attomey's fees and expenses of
the intervenor filed its motion for reconsideration and/or new trial on January
litigations (Amended Record on Appeal, p. 64).
7, 1970 (Amended Record on Appeal, p. 315).
On March 16, 1966, respondent Interocean Shipping Corporation filed a
Acting on the two motions for reconsideration, the trial court reversed its
complaint-in-intervention to collect what it claims to be its loss of income by
stand in its amended decision dated January 24, 1978. The dispositive portion
way of commission and expenses in the amount of P15,000.00 and the sum
of the amended decision states:
of P2,000.00 for attorney's fees (Amended Record on Appeal, p. 87). In its
amended answer to the complaint-in-intervention petitioner, by way of FOR ALL THE FOREGOING CONSIDERATIONS, the Court
special defenses alleged that (1) the plaintiff-in-intervention, being the renders judgment for the plaintiffs Union Import & Export
charterer, did not notify the defendant shipowner, petitioner, herein, about Corporation and Philin Traders Corporation, and plaintiff-in-
any alleged sub-charter of the vessel "SS PAXOI" to the plaintiffs; intervention, Interocean Shipping Corporation, and
consequently, there is no privity of contract between defendant and plaintiffs consequently orders the defendant, Marimperio Compania
and it follows that plaintiff-in-intervention, as charterer, is responsible for Naveria S.A.:
defendant shipowner for the proper performance of the charter party; (2) that (1) To pay plaintiffs the sum of US$22,500.00
the charter party provides that any dispute arising from the charter party representing the remittance of plaintiffs to
should be referred to arbitration in London; that Charterer plaintiff-in- said defendant for the first 15-day hire of
intervention has not complied with this provision of the charter party; the vessel "SS PAXOI" including overtime
consequently its complaint-in intervention is premature; and (3) that the and an overpayment of US$254.00;
 (2) To pay plaintiffs the sum of US$16,000.00 issued its order of September 10, 1970 *** denying defendant's motion for
corresponding to the remittance of plaintiffs reconsideration (Amended Record on Appeal, p. 583).
to defendant for the second 15-day hire of
On Appeal, the Court of Appeals affirmed the amended decision of the lower
the aforesaid vessel;
court except the portion granting commission to the intervenor- appellee,
(3) To pay plaintiffs the sum of US$6,982.72 which it reversed thereby dismissing the complaint-in- intervention. Its two
representing the cost of bunker oil, survey motions (1) for reconsideration and/or new trial and (2) for new trial having
and watering of the said vessel; been denied by the Court of Appeals in its Resolution of February 17, 1975
which, however, fixed the amount of attorney's fees at P100,000.00 instead of
(4) To pay plaintiffs the sum of
$100,000.00 (Rollo, p. 81), petitioner filed with this Court its petition for
US$220,0,00.00 representing the unrealized
review on certiorari on March 19, 197 5 (Rollo, p. 86).
profits; and
After deliberating on the petition, the Court resolved to require the
(5) To pay plaintiffs the sum of P100,000.00,
respondents to comment thereon, in its resolution dated April 2, 1975 (rollo,
as and for attorney's fees (Moran,
p. 225).
Comments on the Rules of Court, Vol. III,
1957 5d 644, citing Haussermann vs. The comment on petition for review by certiorari was filed by respondents on
Rahmayer, 12 Phil. 350; and others)" April 21, 1975, praying that the petition for review by certiorari dated March
(Francisco vs. Matias, G.R. No. L-16349, 18, 1975 be dismissed for lack of merit Rollo p. 226). The reply to comment
January 31, 1964; Sison vs. Suntay, G.R. No. was filed on May 8, 1975 (Rollo, p. 259). The rejoinder to reply to comment
L-1000 . December 28, 1957). was filed on May 13, 197 5 (Rollo, p. 264).
The Court further orders defendant to pay On October 20, 1975, the Court resolved (a) to give due course to the
plaintiff-in-intervention the amount of petition; (b) to treat the petition for review as a special civil action; and (c) to
P15,450.44, representing the latter's require both parties to submit their respective memoranda within thirty (30)
commission as broker, with interest thereon days from notice hereof (Rollo, p. 27).
at 6% per annum from the date of the filing
Respondents filed their memoranda on January 27, 1976 (Rollo, p. 290);
of the complaint-in-intervention, until fully
petitioner, on February 26, 1976 (Rollo, p. 338). Respondents' reply
paid, plus the sum of P2,000.00 as attorney's
memorandum was filed on April 14, 1976 (Rollo, p. 413) and Rejoinder to
fees.
respondents' reply memorandum was filed on May 28, 1976 (Rollo, p. 460).
The Court finally orders the defendant to
On June 11, 1976, the Court resolved to admit petitioner's rejoinder to
pay the costs.
respondents' reply memorandum and to declare this case submitted for
In view of the above conclusion, the Court orders the decision (Rollo, p. 489).
dismissal of the counterclaims filed by defendant against the
The main issues raised by petitioner are:
plaintiffs and plaintiff-in- intervention, as wen as its motion
for the award of damages in connection with the issuance of 1. Whether or not respondents have the legal capacity to
the writ of preliminary attachment. bring the suit for specific performance against petitioner
based on the charter party, and
Defendant (petitioner herein), filed a motion for reconsideration and/or new
trial of the amended decision on February 19, 1970 (Amended Record on 2. Whether or not the default of Charterer in the payment of
Appeal, p. 382). Meanwhile a new Judge was assigned to the Trial Court the charter hire within the time agreed upon gives petitioner
(Amended Record on Appeal, p. 541). On September 10, 1970 the trial court a right to rescind the charter party extra judicially.
I. assignment of lease, where the lessee transmits absolutely his right, and his
personality disappears; there only remains in the juridical relation two
According to Article 1311 of the Civil Code, a contract takes effect between
persons, the lessor and the assignee who is converted into a lessee (Moreno,
the parties who made it, and also their assigns and heirs, except in cases
Philippine Law Dictionary, 2nd ed., p. 594). In other words, in a contract of
where the rights and obligations arising from the contract are not
sub-lease, the personality of the lessee does not disappear; he does not
transmissible by their nature, or by stipulation or by provision of law. Since a
transmit absolutely his rights and obligations to the sub-lessee; and the sub-
contract may be violated only by the parties, thereto as against each other, in
lessee generally does not have any direct action against the owner of the
an action upon that contract, the real parties in interest, either as plaintiff or
premises as lessor, to require the compliance of the obligations contracted
as defendant, must be parties to said contract. Therefore, a party who has not
with the plaintiff as lessee, or vice versa (10 Manresa, Spanish Civil Code, 438).
taken part in it cannot sue or be sued for performance or for cancellation
thereof, unless he shows that he has a real interest affected thereby (Macias However, there are at least two instances in the Civil Code which allow the
& Co. v. Warner Barners & Co., 43 Phil. 155 [1922] and Salonga v. Warner lessor to bring an action directly (accion directa) against the sub-lessee (use
Barnes & Co., Ltd., 88 Phil. 125 [1951]; Coquia v. Fieldmen's Insurance Co., and preservation of the premises under Art. 1651, and rentals under Article
Inc., 26 SCRA 178 [1968]). 1652).
It is undisputed that the charter party, basis of the complaint, was entered Art. 1651 reads:
into between petitioner Marimperio Compañia Naviera, S.A., through its duly
Without prejudice to his obligation toward the sub-lessor,
authorized agent in London, the N & J Vlassopulos Ltd., and the Interocean
the sub-lessee is bound to the lessor for all acts which refer
Shipping Company of Manila through the latter's duly authorized broker, the
to the use and preservation of the thing leased in the
Overseas Steamship Co., Inc., represented by Matthews, Wrightson Burbridge
manner stipulated between the lessor and the lessee.
Ltd., for the Charter of the 'SS PAXOI' (Amended Complaint, Amended
Record on Appeal, p. 33; Complaint-in-Intervention, Amended Record on Article 1652 reads:
Appeal, p. 87). It is also alleged in both the Complaint (Amended Record on The sub-lessee is subsidiarily liable to the lessor for any rent
Appeal 18) and the Amended Complaint (Amended Record on Appeal, p. 39) due from the lessee. However, the sub-lessee shall not be
that the Interocean Shipping Company sublet the said vessel to respondent responsible beyond the amount of rent due from him, in
Union Import and Export Corporation which in turn sublet the same to accordance with the terms of the sub-lease, at the time of
respondent Philippine Traders Corporation. It is admitted by respondents the extra-judicial demand by the lessor.
that the charterer is the Interocean Shipping Company. Even paragraph 3 of
the complaint-in-intervention alleges that respondents were given the use of Payments of rent in advance by the sub-lessee shall be
the vessel "pursuant to paragraph 20 of the Uniform Time Charter ..." which deemed not to have been made, so far as the lessor's claim
precisely provides for the subletting of the vessel by the charterer (Rollo, p. is concerned, unless said payments were effected in virtue of
24). Furthermore, Article 652 of the Code of Commerce provides that the the custom of the place.
charter party shall contain, among others, the name, surname, and domicile It will be noted however that in said two Articles it is not the sub-lessee, but
of the charterer, and if he states that he is acting by commission, that of the the lessor, who can bring the action. In the instant case, it is clear that the
person for whose account he makes the contract. It is obvious from the sub-lessee as such cannot maintain the suit they filed with the trial court (See
disclosure made in the charter party by the authorized broker, the Overseas A. Maluenda and Co. v. Enriquez, 46 Phil. 916).
Steamship Co., Inc., that the real charterer is the Interocean Shipping
Company (which sublet the vessel to Union Import and Export Corporation In the law of agency "with an undisclosed principal, the Civil Code in Article
which in turn sublet it to Philippine Traders Corporation). 1883 reads:

In a sub-lease, there are two leases and two distinct judicial relations
although intimately connected and related to each other, unlike in a case of
 If an agent acts in his own name, the principal has no right of On April 8, 1965, Vlassopulos acknowledged receipt of the payment, again
action against the persons with whom the agent has with a debit note for the second 15-day hire and overtime which was due on
contracted; neither have such persons against the principal. April 11, 1965. On April 23, 1965, Vlassopulos notified Matthews by telex that
charterers were in default and in accordance with Clause 6 of the charter
In such case the agent is the one directly bound in favor of
party, the vessel was being withdrawn from charterer's service, holding them
the person with whom he has contracted, as if the
responsible for unpaid hire and all other legal claims of the owner.
transaction were his own, except when the contract involves
Respondents remitted the sum of US$6,000.00 and US$10,000.00 to the bank
things belonging to the principal.
only on April 26, 1965 representing payment for the second 15-day hire from
The provisions of this article shag be understood to be April 12 to April 27, 1965, received and accepted by the payee, Vlassopulos
without prejudice to the actions between the principal and without any comment or protest.
agent.
Unquestionably, as of April 23, 1965, when Vlassopulos notified Matthews of
While in the instant case, the true charterers of the vessel were the private the withdrawal of the vessel from the Charterers' service, the latter was
respondents herein and they chartered the vessel through an intermediary already in default. Accordingly, under Clause 6 of the charter party the
which upon instructions from them did not disclose their names. Article 1883 owners had the right to withdraw " SS PAXO I " from the service of charterers,
cannot help the private respondents, because although they were the actual which withdrawal they did.
principals in the charter of the vessel, the law does not allow them to bring
The question that now arises is whether or not petitioner can rescind the
any action against the adverse party and vice, versa.
charter party extra-judicially. The answer is also in the affirmative. A contract
II. is the law between the contracting parties, and when there is nothing in it
The answer to the question of whether or not the default of charterer in the which is contrary to law, morals, good customs, public policy or public order,
payment of the charter hire within the time agreed upon gives petitioner a the validity of the contract must be sustained (Consolidated Textile Mills, Inc.
right to rescind the charter party extrajudicially, is undoubtedly in the v. Reparations Commission, 22 SCRA 674 [19681; Lazo v. Republic Surety &
affirmative. Insurance Co., Inc., 31 SCRA 329 [1970]; Castro v. Court of Appeals, 99 SCRA
722 [1980]; Escano v. Court of Appeals, 100 SCRA 197 [1980]). A judicial
Clause 6 of the Charter party specifically provides that the petitioner has the action for the rescission of a contract is not necessary where the contract
right to withdraw the vessel fromthe service of the charterers, without noting provides that it may be revoked and cancelled for violation of any of its terms
any protest and without interference of any court or any formality in the and conditions (Enrile v. Court of Appeals, 29 SCRA 504 [1969]; University of
event that the charterer defaults in the payment of hire. The payment of hire the Philippines v. De los Angeles, 35 SCRA 102 [1970]; Palay, Inc. v. Clave, 124
was to be made every fifteen (1 5) days in advance. SCRA 638 [1983]).
It is undisputed that the vessel "SS PAXOI" came on hire on March 27, 1965. PREMISES CONSIDERED, (1) the decision of the Court of Appeals affirming
On March 29, Vlassopulos notified by letter the charterer through Matthews the amended decision of the Court of First Instance of Manila, Branch VIII, is
of that fact, enclosing therein owner's debit note for a 15-day hire payable in hereby REVERSED and SET ASIDE except for that portion of the decision
advance. On March 30, 1965 the shipowner again notified Matthews that the dismissing the complaint-in-intervention; and (2) the original decision of the
payment for the first 15-day hire was overdue. Again on April 2 the trial court is hereby REINSTATED.
shipowner telexed Matthews insisting on the payment, but it was only on
April 7 that the amount of US $22,500.00 was remitted to Williams Deacons SO ORDERED.
Bank, Ltd. through the Rizal Commercial Banking Corporation for the account
of Vlassopulos, agent of petitioner, corresponding to the first 15-day hire
from March 27 to April 11, 1965.
G.R. No. L-13505            February 4, 1919 to transfer the whole tract to the purchaser, asserting that she never intended
to sell so large an amount of land and that she had been misinformed as to
GEO. W. DAYWALT, plaintiff-appellant, 
its area.
vs.
LA CORPORACION DE LOS PADRES AGUSTINOS RECOLETOS, ET This attitude of hers led to litigation in which Daywalt finally succeeded, upon
AL., defendants-appellees. appeal to the Supreme Court, in obtaining a decree for specific performance;
and Teodorica Endencia was ordered to convey the entire tract of land to
C. C. Cohn and Thos. D. Aitken for appellant.
Daywalt pursuant to the contract of October 3, 1908, which contract was
Crossfield & O'Brien for appellee.
declared to be in full force and effect. This decree appears to have become
STREET, J.: finally effective in the early part of the year 1914. 1
In the year 1902, Teodorica Endencia, an unmarried woman, resident in the The defendant, La Corporacion de los Padres Recoletos, is a religious
Province of Mindoro, executed a contract whereby she obligated herself to corporation, with its domicile in the city of Manila. Said corporation was
convey to Geo. W. Daywalt, a tract of land situated in the barrio of Mangarin, formerly the owner of a large tract of land, known as the San Jose Estate, on
municipality of Bulalacao, now San Jose, in said province. It was agreed that a the island of Mindoro, which was sold to the Government of the Philippine
deed should be executed as soon as the title to the land should be perfected Islands in the year 1909. The same corporation was at this time also the
by proceedings in the Court of Land Registration and a Torrens certificate owner of another estate on the same island immediately adjacent to the land
should be produced therefore in the name of Teodorica Endencia. A decree which Teodorica Endencia had sold to Geo. W. Daywalt; and for many years
recognizing the right of Teodorica as owner was entered in said court in the Recoletos Fathers had maintained large herds of cattle on the farms
August 1906, but the Torrens certificate was not issued until later. The parties, referred to. Their representative, charged with management of these farms,
however, met immediately upon the entering of this decree and made a new was father Isidoro Sanz, himself a members of the order. Father Sanz had
contract with a view to carrying their original agreement into effect. This new long been well acquainted with Teodorica Endencia and exerted over her an
contract was executed in the form of a deed of conveyance and bears date of influence and ascendency due to his religious character as well as to the
August 16, 1906. The stipulated price was fixed at P4,000, and the area of the personal friendship which existed between them. Teodorica appears to be a
land enclosed in the boundaries defined in the contract was stated to be 452 woman of little personal force, easily subject to influence, and upon all the
hectares and a fraction. important matters of business was accustomed to seek, and was given, the
The second contract was not immediately carried into effect for the reason advice of father Sanz and other members of his order with whom she came in
that the Torrens certificate was not yet obtainable and in fact said certificate contact.
was not issued until the period of performance contemplated in the contract Father Sanz was fully aware of the existence of the contract of 1902 by which
had expired. Accordingly, upon October 3, 1908, the parties entered into still Teodorica Endencia agreed to sell her land to the plaintiff as well as of the
another agreement, superseding the old, by which Teodorica Endencia later important developments connected with the history of that contract and
agreed upon receiving the Torrens title to the land in question, to deliver the the contract substituted successively for it; and in particular Father Sanz, as
same to the Hongkong and Shanghai Bank in Manila, to be forwarded to the well as other members of the defendant corporation, knew of the existence
Crocker National Bank in San Francisco, where it was to be delivered to the of the contract of October 3, 1908, which, as we have already seen finally
plaintiff upon payment of a balance of P3,100. fixed the rights of the parties to the property in question. When the Torrens
The Torrens certificate was in time issued to Teodorica Endencia, but in the certificate was finally issued in 1909 in favor of Teodorica Endencia, she
course of the proceedings relative to the registration of the land, it was found delivered it for safekeeping to the defendant corporation, and it was then
by official survey that the area of the tract inclosed in the boundaries stated taken to Manila where it remained in the custody and under the control of P.
in the contract was about 1.248 hectares of 452 hectares as stated in the Juan Labarga the procurador and chief official of the defendant corporation,
contract. In view of this development Teodorica Endencia became reluctant until the deliver thereof to the plaintiff was made compulsory by reason of
the decree of the Supreme Court in 1914.
When the defendant corporation sold the San Jose Estate, it was necessary to hectares of wild Mindoro land would furnish sufficient pasturage for
bring the cattle off of that property; and, in the first half of 1909, some 2,368 one thousand head of cattle during the entire year, and, considering
head were removed to the estate of the corporation immediately adjacent to the locality, the rate of forty centavos per head monthly seems too
the property which the plaintiff had purchased from Teodorica Endencia. As high. The evidence shows that after having recovered possession of
Teodorica still retained possession of said property Father Sanz entered into the land the plaintiff rented it to the defendant corporation for fifty
an arrangement with her whereby large numbers of cattle belonging to the centavos per hectares annually, the tenant to pay the taxes on the
defendant corporation were pastured upon said land during a period land, and this appears to be a reasonable rent. There is no reason to
extending from June 1, 1909, to May 1, 1914. suppose that the land was worth more for grazing purposes during
the period from 1909 to 1913, than it was at the later period. Upon
Under the first cause stated in the complaint in the present action the
this basis the plaintiff is entitled to damages in the sum of p2,497,
plaintiff seeks to recover from the defendant corporation the sum of P24,000,
and is under no obligation to reimburse the defendants for the land
as damages for the use and occupation of the land in question by reason of
taxes paid by either of them during the period the land was occupied
the pasturing of cattle thereon during the period stated. The trial court came
by the defendant corporation. It may be mentioned in this
to the conclusion that the defendant corporation was liable for damages by
connection that the Lontok tract adjoining the land in question and
reason of the use and occupation of the premises in the manner stated; and
containing over three thousand hectares appears to have been
fixed the amount to be recovered at P2,497. The plaintiff appealed and has
leased for only P1,000 a year, plus the taxes.
assigned error to this part of the judgment of the court below, insisting that
damages should have been awarded in a much larger sum and at least to the From this it will be seen that the trial court estimated the rental value of the
full extent of P24,000, the amount claimed in the complaint. land for grazing purposes at 50 centavos per hectare per annum, and roughly
adopted the period of four years as the time for which compensation at that
As the defendant did not appeal, the property of allowing damages for the
rate should be made. As the court had already found that the defendant was
use and occupation of the land to the extent o P2,497, the amount awarded,
liable for these damages from June, 1, 1909, to May 1, 1914, or a period of
is not now in question an the only thing here to be considered, in connection
four years and eleven months, there seems some ground for the contention
with this branch of the case, is whether the damages allowed under this head
made in the appellant's first assignment of error that the court's computation
should be increased. The trial court rightly ignored the fact that the
was erroneous, even accepting the rule upon which the damages were
defendant corporation had paid Teodorica Endencia of ruse and occupation
assessed, as it is manifest that at the rate of 50 centavos per hectare per
of the same land during the period in question at the rate of P425 per
annum, the damages for four years and eleven months would be P3,090.
annum, inasmuch as the final decree of this court in the action for specific
performance is conclusive against her right, and as the defendant Notwithstanding this circumstance, we are of the opinion that the damages
corporation had notice of the rights of the plaintiff under this contract of assessed are sufficient to compensate the plaintiff for the use and occupation
purchase, it can not be permitted that the corporation should escape liability of the land during the whole time it was used. There is evidence in the record
in this action by proving payment of rent to a person other than the true strongly tending to show that the wrongful use of the land by the defendant
owner. was not continuous throughout the year but was confined mostly to the
reason when the forage obtainable on the land of the defendant corporation
With reference to the rate of which compensation should be estimated the
was not sufficient to maintain its cattle, for which reason it became necessary
trial court came to the following conclusion:
to allow them to go over to pasture on the land in question; and it is not
As to the rate of the compensation, the plaintiff contends that the clear that the whole of the land was used for pasturage at any time.
defendant corporation maintained at leas one thousand head of Considerations of this character probably led the trial court to adopt four
cattle on the land and that the pasturage was of the value of forty years as roughly being the period during which compensation should be
centavos per head monthly, or P4,800 annually, for the whole tract. allowed. But whether this was advertently done or not, we see no sufficient
The court can not accept this view. It is rather improbable that 1,248 reason, in the uncertainty of the record with reference to the number of the
cattle grazed and the period when the land was used, for substituting our recover under this head are too remote and speculative to be the subject of
guess for the estimate made by the trial court. recovery.
In the second cause of action stated in the complaint the plaintiff seeks to As preliminary to a consideration of the first of these questions, we deem it
recover from the defendant corporation the sum of P500,000, as damages, well it dispose of the contention that the members of the defendants
on the ground that said corporation, for its own selfish purposes, unlawfully corporation, in advising and prompting Teodorica Endencia not to comply
induced Teodorica Endencia to refrain from the performance of her contract with the contract of sale, were actuated by improper and malicious motives.
for the sale of the land in question and to withhold delivery to the plaintiff of The trial court found that this contention was not sustained, observing that
the Torrens title, and further, maliciously and without reasonable cause, while it was true that the circumstances pointed to an entire sympathy on the
maintained her in her defense to the action of specific performance which part of the defendant corporation with the efforts of Teodorica Endencia to
was finally decided in favor of the plaintiff in this court. The cause of action defeat the plaintiff's claim to the land, the fact that its officials may have
here stated is based on liability derived from the wrongful interference of the advised her not to carry the contract into effect would not constitute
defendant in the performance of the contract between the plaintiff and actionable interference with such contract. It may be added that when one
Teodorica Endencia; and the large damages laid in the complaint were, considers the hardship that the ultimate performance of that contract
according to the proof submitted by the plaintiff, incurred as a result of a entailed on the vendor, and the doubt in which the issue was involved — to
combination of circumstances of the following nature: In 1911, it appears, the the extent that the decision of the Court of the First Instance was unfavorable
plaintiff, as the owner of the land which he had bought from Teodorica to the plaintiff and the Supreme Court itself was divided — the attitude of
Endencia entered into a contract (Exhibit C) with S. B. Wakefield, of San the defendant corporation, as exhibited in the conduct of its  procurador, Juan
Francisco, for the sale and disposal of said lands to a sugar growing and Labarga, and other members of the order of the Recollect Fathers, is not
milling enterprise, the successful launching of which depended on the ability difficult to understand. To our mind a fair conclusion on this feature of the
of Daywalt to get possession of the land and the Torrens certificate of title. In case is that father Juan Labarga and his associates believed in good faith that
order to accomplish this end, the plaintiff returned to the Philippine Islands, the contract cold not be enforced and that Teodorica would be wronged if it
communicated his arrangement to the defendant,, and made repeated efforts should be carried into effect. Any advice or assistance which they may have
to secure the registered title for delivery in compliance with said agreement given was, therefore, prompted by no mean or improper motive. It is not, in
with Wakefield. Teodorica Endencia seems to have yielded her consent to the our opinion, to be denied that Teodorica would have surrendered the
consummation of her contract, but the Torrens title was then in the documents of title and given possession of the land but for the influence and
possession of Padre Juan Labarga in Manila, who refused to deliver the promptings of members of the defendants corporation. But we do not credit
document. Teodorica also was in the end contract with the plaintiff, with the the idea that they were in any degree influenced to the giving of such advice
result that the plaintiff was kept out of possession until the Wakefield project by the desire to secure to themselves the paltry privilege of grazing their
for the establishment of a large sugar growing and milling enterprise fell cattle upon the land in question to the prejudice of the just rights of the
through. In the light of what has happened in recent years in the sugar plaintiff.
industry, we feel justified in saying that the project above referred to, if
The attorney for the plaintiff maintains that, by interfering in the performance
carried into effect, must inevitably have proved a great success.
of the contract in question and obstructing the plaintiff in his efforts to
The determination of the issue presented in this second cause of action secure the certificate of tittle to the land, the defendant corporation made
requires a consideration of two points. The first is whether a person who is itself a co-participant with Teodorica Endencia in the breach of said contract;
not a party to a contract for the sale of land makes himself liable for damages and inasmuch as father Juan Labarga, at the time of said unlawful
to the vendee, beyond the value of the use and occupation, by colluding with intervention between the contracting parties, was fully aware of the existence
the vendor and maintaining him in the effort to resist an action for specific of the contract (Exhibit C) which the plaintiff had made with S. B. Wakefield,
performance. The second is whether the damages which the plaintiff seeks to of San Francisco, it is insisted that the defendant corporation is liable for the
loss consequent upon the failure of the project outlined in said contract.
In this connection reliance is placed by the plaintiff upon certain American relations, in bad faith sets about to break it up. Whether his motive is to
and English decisions in which it is held that a person who is a stranger to benefit himself or gratify his spite by working mischief to the employer is
contract may, by an unjustifiable interference in the performance thereof, immaterial. Malice in the sense of ill-will or spite is not essential.
render himself liable for the damages consequent upon non-performance. It
Upon the question as to what constitutes legal justification, a good
is said that the doctrine of these cases was recognized by this court in
illustration was put in the leading case. If a party enters into contract to go
Gilchrist vs. Cuddy (29 Phil. Rep., 542); and we have been earnestly pressed to
for another upon a journey to a remote and unhealthful climate, and a third
extend the rule there enunciated to the situation here presente.
person, with a bona fide purpose of benefiting the one who is under contract
Somewhat more than half a century ago the English Court of the Queen's to go, dissuades him from the step, no action will lie. But if the advice is not
Bench saw its way clear to permit an action for damages to be maintained disinterested and the persuasion is used for "the indirect purpose of
against a stranger to a contract wrongfully interfering in its performance. The benefiting the defendant at the expense of the plaintiff," the intermedler is
leading case on this subject is Lumley vs. Gye ([1853], 2 El. & Bl., 216). It there liable if his advice is taken and the contract broken.
appeared that the plaintiff, as manager of a theatre, had entered into a
The doctrine embodied in the cases just cited has sometimes been found
contract with Miss Johanna Wagner, an opera singer,, whereby she bound
useful, in the complicated relations of modern industry, as a means of
herself for a period to sing in the plaintiff's theatre and nowhere else. The
restraining the activities of labor unions and industrial societies when
defendant, knowing of the existence of this contract, and, as the declaration
improperly engaged in the promotion of strikes. An illustration of the
alleged, "maliciously intending to injure the plaintiff," enticed and produced
application of the doctrine in question in a case of this kind is found in South
Miss Wagner to leave the plaintiff's employment. It was held that the plaintiff
Wales Miners Federation vs. Glamorgan Coal Co. ([1905]), A. C., 239). It there
was entitled to recover damages. The right which was here recognized had its
appeared that certain miners employed in the plaintiff's collieries, acting
origin in a rule, long familiar to the courts of the common law, to the effect
under the order of the executive council of the defendant federation, violated
that any person who entices a servant from his employment is liable in
their contract with the plaintiff by abstaining from work on certain days. The
damages to the master. The master's interest in the service rendered by his
federation and council acted without any actual malice or ill-will towards the
employee is here considered as a distinct subject of juridical right. It being
plaintiff, and the only object of the order in question was that the price of
thus accepted that it is a legal wrong to break up a relation of personal
coal might thereby be kept up, a factor which affected the miner's wage
service, the question now arose whether it is illegal for one person to
scale. It was held that no sufficient justification was shown and that the
interfere with any contract relation subsisting between others. Prior to the
federation was liable.
decision of Lumley vs. Gye [supra] it had been supposed that the liability here
under consideration was limited to the cases of the enticement of menial In the United States, the rule established in England by Lumley vs. Gye [supra]
servants, apprentices, and others to whom the English Statutes of Laborers and subsequent cases is commonly accepted, though in a few of the States
were applicable. But in the case cited the majority of the judges concurred in the broad idea that a stranger to a contract can be held liable upon its is
the opinion that the principle extended to all cases of hiring. This doctrine rejected, and in these jurisdictions the doctrine, if accepted at all, is limited to
was followed by the Court of Appeal in Bowen vs. Hall ([1881], 6 Q. B., Div., the situation where the contract is strictly for personal service.
333); and in Temperton vs. Russell ([1893], Q. B., 715), it was held that the (Boyson vs. Thorn, 98 Cal., 578; Chambers & Marshall vs. Baldwin 91 Ky., 121;
right of action for maliciously procuring a breach of contract is not confined Bourlier vs. Macauley, 91 Ky., 135; Glencoe Land & Gravel Co. vs. Hudson
to contracts for personal services, but extends to contracts in general. In that Bros. Com. Co., 138 Mo., 439.)
case the contract which the defendant had procured to be breached was a It should be observed in this connection that, according to the English and
contract for the supply of building material. American authorities, no question can be made as to the liability to one who
Malice in some form is generally supposed to be an essential ingredient in interferes with a contract existing between others by means which, under
cases of interference with contract relations. But upon the authorities it is known legal cannons, can be denominated an unlawful means. Thus, if
enough if the wrong-doer, having knowledge of the existence of the contract performance is prevented by force, intimidation, coercion, or threats, or by
false or defamatory statements, or by nuisance or riot, the person using such Article 1902 of the Civil Code declares that any person who by an act or
unlawful means is, under all the authorities, liable for the damage which omission, characterized by fault or negligence, causes damage to another
ensues. And in jurisdictions where the doctrine of Lumley vs. Gye [supra] is shall be liable for the damage so done. Ignoring so much of this article as
rejected, no liability can arise from a meddlesome and malicious interference relates to liability for negligence, we take the rule to be that a person is liable
with a contract relation unless some such unlawful means as those just for damage done to another by any culpable act; and by "culpable act" we
indicated are used. (See cases last above cited.) mean any act which is blameworthy when judged by accepted legal
standards. The idea thus expressed is undoubtedly broad enough to include
This brings us to the decision made by this court in Gilchrist vs. Cuddy (29
any rational conception of liability for the tortious acts likely to be developed
Phil. Rep., 542). It there appeared that one Cuddy, the owner of a
in any society. Thus considered, it cannot be said that the doctrine of
cinematographic film, let it under a rental contract to the plaintiff Gilchrist for
Lumley vs. Gye [supra] and related cases is repugnant to the principles of the
a specified period of time. In violation of the terms of this agreement, Cuddy
civil law.
proceeded to turn over the film also under a rental contract, to the
defendants Espejo and Zaldarriaga. Gilchrist thereupon restored to the Court Nevertheless, it must be admitted that the codes and jurisprudence of the
of First Instance and produced an injunction restraining the defendants from civil law furnish a somewhat uncongenial field in which to propagate the idea
exhibiting the film in question in their theater during the period specified in that a stranger to a contract may sued for the breach thereof. Article 1257 of
the contract of Cuddy with Gilchrist. Upon appeal to this court it was in effect the Civil Code declares that contracts are binding only between the parties
held that the injunction was not improperly granted, although the defendants and their privies. In conformity with this it has been held that a stranger to a
did not, at the time their contract was made, know the identity of the plaintiff contract has no right of action for the nonfulfillment of the contract except in
as the person holding the prior contract but did know of the existence of a the case especially contemplated in the second paragraph of the same article.
contract in favor of someone. It was also said arguendo, that the defendants (Uy Tam and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) As observed by this court
would have been liable in damages under article 1902 of the Civil Code, if the in Manila Railroad Co. vs. Compañia Transatlantica, R. G. No. 11318 (38 Phil.
action had been brought by the plaintiff to recover damages. The force of the Rep., 875), a contract, when effectually entered into between certain parties,
opinion is, we think, somewhat weakened by the criticism contain in the determines not only the character and extent of the liability of the
concurring opinion, where it is said that the question of breach of contract by contracting parties but also the person or entity by whom the obligation is
inducement was not really involved in the case. Taking the decision upon the exigible. The same idea should apparently be applicable with respect to the
point which was rally decided, it is authority for the proposition that one who person against whom the obligation of the contract may be enforced; for it is
buys something which he knows has been sold to some other person can be evident that there must be a certain mutuality in the obligation, and if the
restrained from using that thing to the prejudice of the person having the stranger to a contract is not permitted to sue to enforce it, he cannot
prior and better right. consistently be held liable upon it.
Translated into terms applicable to the case at bar, the decision in If the two antagonistic ideas which we have just brought into juxtaposition
Gilchrist vs. Cuddy (29 Phil. Rep., 542), indicates that the defendant are capable of reconciliation, the process must be accomplished by
corporation, having notice of the sale of the land in question to Daywalt, distinguishing clearly between the right of action arising from the improper
might have been enjoined by the latter from using the property for grazing interference with the contract by a stranger thereto, considered as an
its cattle thereon. That the defendant corporation is also liable in this action independent act generate of civil liability, and the right of action ex
for the damage resulting to the plaintiff from the wrongful use and contractu  against a party to the contract resulting from the breach thereof.
occupation of the property has also been already determined. But it will be However, we do not propose here to pursue the matter further, inasmuch as,
observed that in order to sustain this liability it is not necessary to resort to for reasons presently to be stated, we are of the opinion that neither the
any subtle exegesis relative to the liability of a stranger to a contract for doctrine of Lumley vs. Gye [supra] nor the application made of it by this court
unlawful interference in the performance thereof. It is enough that defendant in Gilchrist vs. Cuddy (29 Phil. Rep., 542), affords any basis for the recovery of
use the property with notice that the plaintiff had a prior and better right.
the damages which the plaintiff is supposed to have suffered by reason of his the measure of damages for the wrongful detention of real property by the
inability to comply with the terms of the Wakefield contract. vender after the time has come for him to place the purchaser in possession?
Whatever may be the character of the liability which a stranger to a contract The damages ordinarily and normally recoverable against a vendor for failure
may incur by advising or assisting one of the parties to evade performance, to deliver land which he has contracted to deliver is the value of the use and
there is one proposition upon which all must agree. This is, that the stranger occupation of the land for the time during which it is wrongfully withheld.
cannot become more extensively liable in damages for the nonperformance And of course where the purchaser has not paid the purchaser money, a
of the contract than the party in whose behalf he intermeddles. To hold the deduction may be made in respect to the interest on the money which
stranger liable for damages in excess of those that could be recovered constitutes the purchase price. Substantially the same rule holds with respect
against the immediate party to the contract would lead to results at once to the liability of a landlord who fails to put his tenant in possession pursuant
grotesque and unjust. In the case at bar, as Teodorica Endencia was the party to contract of lease. The measure of damages is the value of the leasehold
directly bound by the contract, it is obvious that the liability of the defendant interest, or use and occupation, less the stipulated rent, where this has not
corporation, even admitting that it has made itself coparticipant in the breach been paid. The rule that the measure of damages for the wrongful detention
of the contract, can in no even exceed hers. This leads us to consider at this of land is normally to be found in the value of use and occupation is, we
point the extent of the liability of Teodorica Endencia to the plaintiff by believe, one of the things that may be considered certain in the law (39 cyc.,
reason of her failure to surrender the certificate of title and to place the 1630; 24 Cyc., 1052 Sedgewick on Damages, Ninth ed., sec. 185.) — almost as
plaintiff in possession. wellsettled, indeed, as the rule that the measure of damages for the wrongful
detention of money is to be found in the interest.
It should in the first place be noted that the liability of Teodorica Endencia for
damages resulting from the breach of her contract with Daywalt was a proper We recognize the possibility that more extensive damages may be recovered
subject for adjudication in the action for specific performance which Daywalt where, at the time of the creation of the contractual obligation, the vendor,
instituted against her in 1909 and which was litigated by him to a successful or lessor, is aware of the use to which the purchaser or lessee desires to put
conclusion in this court, but without obtaining any special adjudication with the property which is the subject of the contract, and the contract is made
reference to damages. Indemnification for damages resulting from the with the eyes of the vendor or lessor open to the possibility of the damage
breach of a contract is a right inseparably annexed to every action for the which may result to the other party from his own failure to give possession.
fulfillment of the obligation (art. 1124, Civil Code); and its is clear that if The case before us is not this character, inasmuch as at the time when the
damages are not sought or recovered in the action to enforce performance rights of the parties under the contract were determined, nothing was known
they cannot be recovered in an independent action. As to Teodorica to any to them about the San Francisco capitalist who would be willing to
Endencia, therefore, it should be considered that the right of action to back the project portrayed in Exhibit C.
recover damages for the breach of the contract in question was exhausted in
The extent of the liability for the breach of a contract must be determined in
the prior suit. However, her attorneys have not seen fit to interpose the
the light of the situation in existence at the time the contract is made; and
defense of res judicata  in her behalf; and as the defendant corporation was
the damages ordinarily recoverable are in all events limited to such as might
not a party to that action, and such defense could not in any event be of any
be reasonable are in all events limited to such as might be reasonably
avail to it, we proceed to consider the question of the liability of Teodorica
foreseen in the light of the facts then known to the contracting parties.
Endencia for damages without refernce to this point.
Where the purchaser desires to protect himself, in the contingency of the
The most that can be said with refernce to the conduct of Teodorica Endencia failure of the vendor promptly to give possession, from the possibility of
is that she refused to carry out a contract for the sale of certain land and incurring other damages than such as the incident to the normal value of the
resisted to the last an action for specific performance in court. The result was use and occupation, he should cause to be inserted in the contract a clause
that the plaintiff was prevented during a period of several years from exerting providing for stipulated amount to the paid upon failure of the vendor to
that control over the property which he was entitled to exert and was give possession; and not case has been called to our attention where, in the
meanwhile unable to dispose of the property advantageously. Now, what is absence of such a stipulation, damages have been held to be recoverable by
the purchaser in excess of the normal value of use and occupation. On the conclusively presumed from the immediateness and inevitableness of the
contrary, the most fundamental conceptions of the law relative to the damage, and the recovery of such damage follows as a necessary legal
assessment of damages are inconsistent with such idea. consequence of the breach. Ordinary damage is assumed as a matter of law
to be within the contemplation of the parties.
The principles governing this branch of the law were profoundly considered
in the case Hadley vs. Baxendale (9 Exch., 341), decided in the English Court Special damage, on the other hand, is such as follows less directly from the
of Exchequer in 1854; and a few words relative to the principles governing breach than ordinary damage. It is only found in case where some external
will here be found instructive. The decision in that case is considered a condition, apart from the actual terms to the contract exists or intervenes, as
leading authority in the jurisprudence of the common law. The plaintiffs in it were, to give a turn to affairs and to increase damage in a way that the
that case were proprietors of a mill in Gloucester, which was propelled by promisor, without actual notice of that external condition, could not
steam, and which was engaged in grinding and supplying meal and flour to reasonably be expected to foresee. Concerning this sort of damage,
customers. The shaft of the engine got broken, and it became necessarily that Hadley vs. Baxendale (1854) [supra] lays down the definite and just rule that
the broken shaft be sent to an engineer or foundry man at Greenwich, to before such damage can be recovered the plaintiff must show that the
serve as a model for casting or manufacturing another that would fit into the particular condition which made the damage a possible and likely
machinery. The broken shaft could be delivered at Greenwich on the second consequence of the breach was known to the defendant at the time the
day after its receipts by the carrier it. It was delivered to the defendants, who contract was made.
were common carriers engaged in that business between these points, and
The statement that special damages may be recovered where the likelihood
who had told plaintiffs it would be delivered at Greenwich on the second day
of such damages flowing from the breach of the contract is contemplated
after its delivery to them, if delivered at a given hour. The carriers were
and foreseen by the parties needs to be supplemented by a proposition
informed that the mill was stopped, but were not informed of the special
which, though not enunciated in Hadley vs. Baxendale, is yet clearly to be
purpose for which the broken shaft was desired to forwarded, They were not
drawn from subsequent cases. This is that where the damage which a plaintiff
told the mill would remain idle until the new shaft would be returned, or that
seeks to recover as special damage is so far speculative as to be in
the new shaft could not be manufactured at Greenwich until the broken one
contemplation of law remote, notification of the special conditions which
arrived to serve as a model. There was delay beyond the two days in
make that damage possible cannot render the defendant liable therefor. To
delivering the broken shaft at Greenwich, and a corresponding delay in
bring damages which would ordinarily be treated as remote within the
starting the mill. No explanation of the delay was offered by the carriers. The
category of recoverable special damages, it is necessary that the condition
suit was brought to recover damages for the lost profits of the mill, cause by
should be made the subject of contract in such sense as to become an
the delay in delivering the broken shaft. It was held that the plaintiff could
express or implied term of the engagement. Horne vs. Midland R. Co. (L. R., 8
not recover.
C. P., 131) is a case where the damage which was sought to be recovered as
The discussion contained in the opinion of the court in that case leads to the special damage was really remote, and some of the judges rightly places the
conclusion that the damages recoverable in case of the breach of a contract disallowance of the damage on the ground that to make such damage
are two sorts, namely, (1) the ordinary, natural, and in a sense necessary recoverable, it must so far have been within the contemplation of the parties
damage; and (2) special damages. as to form at least an implied term of the contract. But others proceeded on
the idea that the notice given to the defendant was not sufficiently full and
Ordinary damages is found in all breaches of contract where the are no
definite. The result was the same in either view. The facts in that case were as
special circumstances to distinguish the case specially from other contracts.
follows: The plaintiffs, shoe manufacturers at K, were under contract to supply
The consideration paid for an unperformed promise is an instance of this sort
by a certain day shoes to a firm in London for the French government. They
of damage. In all such cases the damages recoverable are such as naturally
delivered the shoes to a carrier in sufficient time for the goods to reach
and generally would result from such a breach, "according to the usual
London at the time stipulated in the contract and informed the railroad agent
course of things." In case involving only ordinary damage no discussion is
that the shoes would be thrown back upon their hands if they did not reach
ever indulged as to whether that damage was contemplated or not. This is
the destination in time. The defendants negligently failed to forward the
good in due season. The sale was therefore lost, and the market having
fallen, the plaintiffs had to sell at a loss.
In the preceding discussion we have considered the plaintiff's right chiefly
against Teodorica Endencia; and what has been said suffices in our opinion to
demonstrate that the damages laid under the second cause of action in the
complaint could not be recovered from her, first, because the damages laid
under the second cause of action in the complaint could not be recovered
from her, first, because the damages in question are special damages which
were not within contemplation of the parties when the contract was made,
and secondly, because said damages are too remote to be the subject of
recovery. This conclusion is also necessarily fatal to the right of the plaintiff to
recover such damages from the defendant corporation, for, as already
suggested, by advising Teodorica not to perform the contract, said
corporation could in no event render itself more extensively liable than the
principle in the contract.
Our conclusion is that the judgment of the trial court should be affirmed, and
it is so ordered, with costs against the appellant.
G.R. No. L-9356             February 18, 1915 Gilchrist against these parties from showing it for the week
beginning the 26th of May.
C. S. GILCHRIST, plaintiff-appellee, 
vs. It appears from the testimony in this case, conclusively, that Cuddy
E. A. CUDDY, ET AL., defendants.  willfully violated his contract, he being the owner of the picture, with
JOSE FERNANDEZ ESPEJO and MARIANO ZALDARRIAGA, appellants. Gilchrist because the defendants had offered him more for the same
period. Mr. Espejo at the trial on the permanent injunction on the
C. Lozano for appellants. 
26th of May admitted that he knew that Cuddy was the owner of the
Bruce, Lawrence, Ross and Block for appellee.
film. He was trying to get it through his agents Pathe Brothers in
TRENT, J.: Manila. He is the agent of the same concern in Iloilo. There is in
An appeal by the defendants, Jose Fernandez Espejo and Mariano evidence in this case on the trial today as well as on the 26th of May,
Zaldarriaga, from a judgment of the Court of First Instance of Iloilo, letters showing that the Pathe Brothers in Manila advised this man
dismissing their cross-complaint upon the merits for damages against the on two different occasions not to contend for this film Zigomar
plaintiff for the alleged wrongful issuance of a mandatory and a preliminary because the rental price was prohibitive and assured him also that he
injunction. could not get the film for about six weeks. The last of these letters was
written on the 26th of April, which showed conclusively that he knew
Upon the application of the appellee an ex parte mandatory injunction was they had to get this film from Cuddy and from this letter that the
issued on the 22d of May, 1913, directing the defendant, E. A. Cuddy, to send agent in Manila could not get it, but he made Cuddy an offer himself
to the appellee a certain cinematograph film called "Zigomar" in compliance and Cuddy accepted it because he was paying about three times as
with an alleged contract which had been entered into between these two much as he had contracted with Gilchrist for. Therefore, in the
parties, and at the time an ex parte preliminary injunction was issued opinion of this court, the defendants failed signally to show the
restraining the appellants from receiving and exhibiting in their theater the injunction against the defendant was wrongfully procured.
Zigomar until further orders of the court. On the 26th of that month the
appellants appeared and moved the court to dissolve the preliminary The appellants duly excepted to the order of the court denying their motion
injunction. When the case was called for trial on August 6, the appellee for new trial on the ground that the evidence was insufficient to justify the
moved for the dismissal of the complaint "for the reason that there is no decision rendered. There is lacking from the record before us the deposition
further necessity for the maintenance of the injunction." The motion was of the defendant Cuddy, which apparently throws light upon a contract
granted without objection as to Cuddy and denied as to the appellants in entered into between him and the plaintiff Gilchrist. The contents of this
order to give them an opportunity to prove that the injunction were deposition are discussed at length in the brief of the appellants and an
wrongfully issued and the amount of damages suffered by reason thereof. endeavor is made to show that no such contract was entered into. The trial
court, which had this deposition before it, found that there was a contract
The pertinent part of the trial court's findings of fact in this case is as follows: between Cuddy and Gilchrist. Not having the deposition in question before
It appears in this case that Cuddy was the owner of the film Zigomar us, it is impossible to say how strongly it militates against this findings of fact.
and that on the 24th of April he rented it to C. S. Gilchrist for a week By a series of decisions we have construed section 143 and 497 (2) of the
for P125, and it was to be delivered on the 26th of May, the week Code of Civil Procedure to require the production of all  the evidence in this
beginning that day. A few days prior to this Cuddy sent the money court. This is the duty of the appellant and, upon his failure to perform it, we
back to Gilchrist, which he had forwarded to him in Manila, saying decline to proceed with a review of the evidence. In such cases we rely
that he had made other arrangements with his film. The other entirely upon the pleadings and the findings of fact of the trial court and
arrangements was the rental to these defendants Espejo and his examine only such assigned errors as raise questions of law. (Ferrer vs. Neri
partner for P350 for the week and the injunction was asked by Abejuela, 9 Phil. Rep., 324; Valle vs. Galera, 10 Phil. Rep., 619;
Salvacion vs. Salvacion, 13 Phil. Rep., 366; Breta vs. Smith, Bell & Co., 15 Phil.
Rep., 446; Arroyo vs. Yulo, 18 Phil. Rep., 236; Olsen & Co. vs. Matson, Lord & appellants for the exhibition of the film by the latter on the 26th of May were
Belser Co., 19 Phil. Rep., 102; Blum vs. Barretto, 19 Phil. Rep., 161; perfected after April 26, so that the six weeks would include and extend
Cuyugan vs. Aguas, 19 Phil. Rep., 379; Mapa vs. Chaves, 20 Phil. Rep., 147; beyond May 26. The appellants must necessarily have known at the time they
Mans vs. Garry, 20 Phil. Rep., 134.) It is true that some of the more recent of made their offer to Cuddy that the latter had booked or contracted the film
these cases make exceptions to the general rule. Thus, in Olsen & for six weeks from April 26. Therefore, the inevitable conclusion is that the
Co. vs. Matson, Lord & Belser Co., (19 Phil. Rep., 102), that portion of the appellants knowingly induced Cuddy to violate his contract with another
evidence before us tended to show that grave injustice might result from a person. But there is no specific finding that the appellants knew the identity
strict reliance upon the findings of fact contained in the judgment appealed of the other party. So we must assume that they did not know that Gilchrist
from. We, therefore, gave the appellant an opportunity to explain the was the person who had contracted for the film.
omission. But we required that such explanation must show a satisfactory
The appellants take the position that if the preliminary injunction had not
reason for the omission, and that the missing portion of the evidence must
been issued against them they could have exhibited the film in their theater
be submitted within sixty days or cause shown for failing to do so. The other
for a number of days beginning May 26, and could have also subleased it to
cases making exceptions to the rule are based upon peculiar circumstances
other theater owners in the nearby towns and, by so doing, could have
which will seldom arise in practice and need not here be set forth, for the
cleared, during the life of their contract with Cuddy, the amount claimed as
reason that they are wholly inapplicable to the present case. The appellants
damages. Taking this view of the case, it will be unnecessary for us to inquire
would be entitled to indulgence only under the doctrine of the Olsen case.
whether the mandatory injunction against Cuddy was properly issued or not.
But from that portion of the record before us, we are not inclined to believe
No question is raised with reference to the issuance of that injunction.
that the missing deposition would be sufficient to justify us in reversing the
findings of fact of the trial court that the contract in question had been The right on the part of Gilchrist to enter into a contract with Cuddy for the
made. There is in the record not only the positive and detailed testimony of lease of the film must be fully recognized and admitted by all. That Cuddy
Gilchrist to this effect, but there is also a letter of apology from Cuddy to was liable in an action for damages for the breach of that contract, there can
Gilchrist in which the former enters into a lengthy explanation of his reasons be no doubt. Were the appellants likewise liable for interfering with the
for leasing the film to another party. The latter could only have been called contract between Gilchrist and Cuddy, they not knowing at the time the
forth by a broken contract with Gilchrist to lease the film to him. We, identity of one of the contracting parties? The appellants claim that they had
therefore, fail to find any reason for overlooking the omission of the a right to do what they did. The ground upon which the appellants base this
defendants to bring up the missing portion of the evidence and, adhering to contention is, that there was no valid and binding contract between Cuddy
the general rule above referred to, proceed to examine the questions of law and Gilchrist and that, therefore, they had a right to compete with Gilchrist
raised by the appellants. for the lease of the film, the right to compete being a justification for their
acts. If there had been no contract between Cuddy and Gilchrist this defense
From the above-quoted findings of fact it is clear that Cuddy, a resident of
would be tenable, but the mere right to compete could not justify the
Manila, was the owner of the "Zigomar;" that Gilchrist was the owner of a
appellants in intentionally inducing Cuddy to take away the appellee's
cinematograph theater in Iloilo; that in accordance with the terms of the
contractual rights.
contract entered into between Cuddy and Gilchrist the former leased to the
latter the "Zigomar" for exhibition in his (Gilchrist's) theater for the week Chief Justice Wells in Walker vs. Cronin (107 Mass., 555), said: "Everyone has a
beginning May 26, 1913; and that Cuddy willfully violate his contract in order right to enjoy the fruits and advantages of his own enterprise, industry, skill
that he might accept the appellant's offer of P350 for the film for the same and credit. He has no right to be free from malicious and wanton
period. Did the appellants know that they were inducing Cuddy to violate his interference, disturbance or annoyance. If disturbance or loss come as a
contract with a third party when they induced him to accept the P350? Espejo result of competition, or the exercise of like rights by others, it is damnum
admitted that he knew that Cuddy was the owner of the film. He received a absque injuria, unless some superior right by contract or otherwise is
letter from his agents in Manila dated April 26, assuring him that he could not interfered with."
get the film for about six weeks. The arrangement between Cuddy and the
In Read vs. Friendly Society of Operative Stonemasons ([1902] 2 K. B., 88), feasor that he must know the identity of a person to whom he causes
Darling, J., said: "I think the plaintiff has a cause of action against the damages. In fact, the chapter wherein this article is found clearly shows that
defendants, unless the court is satisfied that, when they interfered with the no such knowledge is required in order that the injured party may recover for
contractual rights of plaintiff, the defendants had a sufficient justification for the damage suffered.
their interference; . . . for it is not a justification that `they acted bona fide  in
But the fact that the appellants' interference with the Gilchrist contract was
the best interests of the society of masons,' i. e., in their own interests. Nor is
actionable did not of itself entitle Gilchrist to sue out an injunction against
it enough that `they were not actuated by improper motives.' I think their
them. The allowance of this remedy must be justified under section 164 of
sufficient justification for interference with plaintiff's right must be an equal
the Code of Civil Procedure, which specifies the circumstance under which an
or superior right in themselves, and that no one can legally excuse himself to
injunction may issue. Upon the general doctrine of injunction we said in
a man, of whose contract he has procured the breach, on the ground that he
Devesa vs. Arbes (13 Phil. Rep., 273):
acted on a wrong understanding of his own rights, or without malice, or bona
fide, or in the best interests of himself, or even that he acted as an altruist, An injunction is a "special remedy" adopted in that code (Act No.
seeking only good of another and careless of his own advantage." (Quoted 190) from American practice, and originally borrowed from English
with approval in Beekman vs. Marsters, 195 Mass., 205.) legal procedure, which was there issued by the authority and under
the seal of a court of equity, and limited, as in order cases where
It is said that the ground on which the liability of a third party for interfering
equitable relief is sought, to cases where there is no "plain, adequate,
with a contract between others rests, is that the interference was malicious.
and complete remedy at law," which "will not be granted while the
The contrary view, however, is taken by the Supreme Court of the United
rights between the parties are undetermined, except in extraordinary
States in the case of Angle vs. Railway Co. (151 U. S., 1). The only motive for
cases where material and irreparable injury will be done," which
interference by the third party in that case was the desire to make a profit to
cannot be compensated in damages, and where there will be no
the injury of one of the parties of the contract. There was no malice in the
adequate remedy, and which will not, as a rule, be granted, to take
case beyond the desire to make an unlawful gain to the detriment of one of
property out of the possession of one party and put it into that of
the contracting parties.
another  whose title has not been established by law.
In the case at bar the only motive for the interference with the Gilchrist —
We subsequently affirmed the doctrine of the Devesa case in
Cuddy contract on the part of the appellants was a desire to make a profit by
Palafox vs. Madamba (19 Phil., Rep., 444), and we take this occasion of again
exhibiting the film in their theater. There was no malice beyond this desire;
affirming it, believing, as we do, that the indiscriminate use of injunctions
but this fact does not relieve them of the legal liability for interfering with
should be discouraged.
that contract and causing its breach. It is, therefore, clear, under the above
authorities, that they were liable to Gilchrist for the damages caused by their Does the fact that the appellants did not know at the time the identity of the
acts, unless they are relieved from such liability by reason of the fact that original lessee of the film militate against Gilchrist's right to a preliminary
they did not know at the time the identity of the original lessee (Gilchrist) of injunction, although the appellant's incurred civil liability for damages for
the film. such interference? In the examination of the adjudicated cases, where in
injunctions have been issued to restrain wrongful interference with contracts
The liability of the appellants arises from unlawful acts and not from
by strangers to such contracts, we have been unable to find any case where
contractual obligations, as they were under no such obligations to induce
this precise question was involved, as in all of those cases which we have
Cuddy to violate his contract with Gilchrist. So that if the action of Gilchrist
examined, the identity of both of the contracting parties was known to the
had been one for damages, it would be governed by chapter 2, title 16, book
tort-feasors. We might say, however, that this fact does not seem to have a
4 of the Civil Code. Article 1902 of that code provides that a person who, by
controlling feature in those cases. There is nothing in section 164 of the Code
act or omission, causes damages to another when there is fault or
of Civil Procedure which indicates, even remotely, that before an injunction
negligence, shall be obliged to repair the damage do done. There is nothing
may issue restraining the wrongful interference with contrast by strangers,
in this article which requires as a condition precedent to the liability of a tort-
the strangers must know the identity of both parties. It would seem that this are given. The attendance, and, consequently, the receipts, at one of these
is not essential, as injunctions frequently issue against municipal cinematograph or motion-picture theaters depends in no small degree upon
corporations, public service corporations, public officers, and others to the excellence of the photographs, and it is quite common for the proprietor
restrain the commission of acts which would tend to injuriously affect the of the theater to secure an especially attractive exhibit as his "feature film"
rights of person whose identity the respondents could not possibly have and advertise it as such in order to attract the public. This feature film is
known beforehand. This court has held that in a proper case injunction will depended upon to secure a larger attendance that if its place on the program
issue at the instance of a private citizen to restrain ultra vires  acts of public were filled by other films of mediocre quality. It is evident that the failure to
officials. (Severino vs. Governor-General, 16 Phil. Rep., 366.) So we proceed to exhibit the feature film will reduce the receipts of the theater.
the determination of the main question of whether or not the preliminary
Hence, Gilchrist was facing the immediate prospect of diminished profits by
injunction ought to have been issued in this case.
reason of the fact that the appellants had induced Cuddy to rent to them the
As a rule, injunctions are denied to those who have an adequate remedy at film Gilchrist had counted upon as his feature film. It is quite apparent that to
law. Where the choice is between the ordinary and the extraordinary estimate with any decree of accuracy the damages which Gilchrist would
processes of law, and the former are sufficient, the rule will not permit the likely suffer from such an event would be quite difficult if not impossible. If
use of the latter. (In re  Debs, 158 U. S., 564.) If the injury is irreparable, the he allowed the appellants to exhibit the film in Iloilo, it would be useless for
ordinary process is inadequate. In Wahle vs. Reinbach (76 Ill., 322), the him to exhibit it again, as the desire of the public to witness the production
supreme court of Illinois approved a definition of the term "irreparable injury" would have been already satisfied. In this extremity, the appellee applied for
in the following language: "By `irreparable injury' is not meant such injury as and was granted, as we have indicated, a mandatory injunction against
is beyond the possibility of repair, or beyond possible compensation in Cuddy requiring him to deliver the Zigomar to Gilchrist, and a preliminary
damages, nor necessarily great injury or great damage, but that species of injunction against the appellants restraining them from exhibiting that film in
injury, whether great or small, that ought not to be submitted to on the one their theater during the weeks he (Gilchrist) had a right to exhibit it. These
hand or inflicted on the other; and, because it is so large on the one hand, or injunction saved the plaintiff harmless from damages due to the unwarranted
so small on the other, is of such constant and frequent recurrence that no fair interference of the defendants, as well as the difficult task which would have
or reasonable redress can be had therefor in a court of law." (Quoted with been set for the court of estimating them in case the appellants had been
approval in Nashville R. R. Co. vs. McConnell, 82 Fed., 65.) allowed to carry out their illegal plans. As to whether or not the mandatory
injunction should have been issued, we are not, as we have said, called upon
The case at bar is somewhat novel, as the only contract which was broken
to determine. So far as the preliminary injunction issued against the
was that between Cuddy and Gilchrist, and the profits of the appellee
appellants is concerned, which prohibited them from exhibiting the Zigomar
depended upon the patronage of the public, for which it is conceded the
during the week which Gilchrist desired to exhibit it, we are of the opinion
appellants were at liberty to complete by all fair does not deter the
that the circumstances justified the issuance of that injunction in the
application of remarked in the case of the "ticket scalpers" (82 Fed., 65), the
discretion of the court.
novelty of the facts does not deter the application of equitable principles.
This court takes judicial notice of the general character of a cinematograph or We are not lacking in authority to support our conclusion that the court was
motion-picture theater. It is a quite modern form of the play house, wherein, justified in issuing the preliminary injunction against the appellants. Upon the
by means of an apparatus known as a cinematograph or cinematograph, a precise question as to whether injunction will issue to restrain wrongful
series of views representing closely successive phases of a moving object, are interference with contracts by strangers to such contracts, it may be said that
exhibited in rapid sequence, giving a picture which, owing to the persistence courts in the United States have usually granted such relief where the profits
of vision, appears to the observer to be in continuous motion. (The of the injured person are derived from his contractual relations with a large
Encyclopedia Britanica, vol. 6, p. 374.) The subjects which have lent and indefinite number of individuals, thus reducing him to the necessity of
themselves to the art of the photographer in this manner have increased proving in an action against the tort-feasor that the latter was responsible in
enormously in recent years, as well as have the places where such exhibition each case for the broken contract, or else obliging him to institute individual
suits against each contracting party and so exposing him to a multiplicity of 55; Martens vs. Reilly, 109 Wis., 464, 84 N. W., 840; Rice vs. Manley, 66
suits. Sperry & Hutchinson Co. vs. Mechanics' Clothing Co. (128 Fed., 800); N. Y., 82; 23 Am. Rep., 30; Bitterman vs. L. & N. R. R. Co., 207 U. S.,
Sperry & Hutchinson Co. vs. Louis Weber & Co. (161 Fed., 219); Sperry & 205; 28 Sup. Ct., 91; 52 L. Ed., 171; Beekman vs. Marsters, 195 Mass.,
Hutchinson Co. vs. Pommer (199 Fed., 309); were all cases wherein the 205; 80 N. E., 817; 11 L. R. A. [N. S.] 201; 122 Am. St. Rep., 232; South
respondents were inducing retail merchants to break their contracts with the Wales Miners' Fed. vs. Glamorgan Coal Co., Appeal Cases, 1905, p.
company for the sale of the latters' trading stamps. Injunction issued in each 239.)
case restraining the respondents from interfering with such contracts.
See also Nims on Unfair Business Competition, pp. 351- 371.
In the case of the Nashville R. R. Co. vs. McConnell (82 Fed., 65), the court,
In 3 Elliot on Contracts, section 2511, it is said: "Injunction is the proper
among other things, said: "One who wrongfully interferes in a contract
remedy to prevent a wrongful interference with contract by strangers to such
between others, and, for the purpose of gain to himself induces one of the
contracts where the legal remedy is insufficient and the resulting injury is
parties to break it, is liable to the party injured thereby; and his continued
irreparable. And where there is a malicious interference with lawful and valid
interference may be ground for an injunction where the injuries resulting will
contracts a permanent injunction will ordinarily issue without proof of
be irreparable."
express malice. So, an injunction may be issued where the complainant to
In Hamby & Toomer vs. Georgia Iron & Coal Co. (127 Ga., 792), it appears break their contracts with him by agreeing to indemnify who breaks his
that the respondents were interfering in a contract for prison labor, and the contracts of employment may be adjoined from including other employees
result would be, if they were successful, the shutting down of the petitioner's to break their contracts and enter into new contracts with a new employer of
plant for an indefinite time. The court held that although there was no the servant who first broke his contract. But the remedy by injunction cannot
contention that the respondents were insolvent, the trial court did not abuse be used to restrain a legitimate competition, though such competition would
its discretion in granting a preliminary injunction against the respondents. involve the violation of a contract. Nor will equity ordinarily enjoin employees
who have quit the service of their employer from attempting by proper
In Beekman vs. Marsters (195 Mass., 205), the plaintiff had obtained from the
argument to persuade others from taking their places so long as they do not
Jamestown Hotel Corporation, conducting a hotel within the grounds of the
resort to force or intimidations on obstruct the public thoroughfares."
Jamestown Exposition, a contract whereby he was made their exclusive agent
for the New England States to solicit patronage for the hotel. The defendant Beekman vs. Marster, supra, is practically on all fours with the case at bar in
induced the hotel corporation to break their contract with the plaintiff in that there was only one contract in question and the profits of the injured
order to allow him to act also as their agent in the New England States. The person depended upon the patronage of the public. Hamby &
court held that an action for damages would not have afforded the plaintiff Toomer vs. Georgia Iron & Coal Co., supra, is also similar to the case at bar in
adequate relief, and that an injunction was proper compelling the defendant that there was only one contract, the interference of which was stopped by
to desist from further interference with the plaintiff's exclusive contract with injunction.
the hotel company.
For the foregoing reasons the judgment is affirmed, with costs, against the
In Citizens' Light, Heat & Power Co. vs. Montgomery Light & Water Power Co. appellants.
(171 Fed., 553), the court, while admitting that there are some authorities to
the contrary, held that the current authority in the United States and England
is that:
The violation of a legal right committed knowingly is a cause of
action, and that it is a violation of a legal right to interfere with
contractual relations recognized by law, if there be no sufficient
justification for the interference. (Quinn vs. Leatham, supra, 510;
Angle vs. Chicago, etc., Ry. Co., 151 U. S., 1; 14 Sup. Ct., 240; 38 L. Ed.,
[G.R. No. L-8437. November 28, 1956.] penalties, charges, and expenses of whatsoever kind and nature which the
COMPANY shall or may, at any time sustain or incur in consequence of
having become surety upon this bond or any extension, renewal, substitution
ESTATE OF K. H. HEMADY, deceased, vs. LUZON SURETY CO., INC., claimant- or alteration thereof made at the instance of the undersigned or any of them
Appellant. or any order executed on behalf of the undersigned or any of them; chan
roblesvirtualawlibraryand to pay, reimburse and make good to the
COMPANY, its successors and assigns, all sums and amount of money which
it or its representatives shall pay or cause to be paid, or become liable to pay,
on account of the undersigned or any of them, of whatsoever kind and
nature, including 15% of the amount involved in the litigation or other
DECISION matters growing out of or connected therewith for counsel or attorney’s fees,
but in no case less than P25. It is hereby further agreed that in case of
extension or renewal of this ________ we equally bind ourselves for the
REYES, J. B. L., J.: payment thereof under the same terms and conditions as above mentioned
without the necessity of executing another indemnity agreement for the
purpose and that we hereby equally waive our right to be notified of any
Appeal by Luzon Surety Co., Inc., from an order of the Court of First Instance
renewal or extension of this ________ which may be granted under this
of Rizal, presided by Judge Hermogenes Caluag, dismissing its claim against
indemnity agreement.
the Estate of K. H. Hemady (Special Proceeding No. Q-293) for failure to state
a cause of action.
Interest on amount paid by the Company. — Any and all sums of money so
paid by the company shall bear interest at the rate of 12% per annum which
The Luzon Surety Co. had filed a claim against the Estate based on twenty
interest, if not paid, will be accummulated and added to the capital quarterly
different indemnity agreements, or counter bonds, each subscribed by a
order to earn the same interests as the capital and the total sum thereof, the
distinct principal and by the deceased K. H. Hemady, a surety solidary
capital and interest, shall be paid to the COMPANY as soon as the COMPANY
guarantor) in all of them, in consideration of the Luzon Surety Co.’s of having
shall have become liable therefore, whether it shall have paid out such sums
guaranteed, the various principals in favor of different creditors. The twenty
of money or any part thereof or not.
counterbonds, or indemnity agreements, all contained the following
stipulations:chanroblesvirtuallawlibrary
xxx xxx xxx

“Premiums. — As consideration for this suretyship, the undersigned jointly

and severally, agree to pay the COMPANY the sum of ________________ Waiver. — It is hereby agreed upon by and between the undersigned that
(P______) pesos, Philippines Currency, in advance as premium there of for any question which may arise between them by reason of this document and
every __________ months or fractions thereof, this ________ or any renewal or which has to be submitted for decision to Courts of Justice shall be brought
substitution thereof is in effect. before the Court of competent jurisdiction in the City of Manila, waiving for
this purpose any other venue. Our right to be notified of the acceptance and
approval of this indemnity agreement is hereby likewise waived.
Indemnity. — The undersigned, jointly and severally, agree at all times to
indemnify the COMPANY and keep it indemnified and hold and save it
harmless from and against any and all damages, losses, costs, stamps, taxes,
xxx xxx xxx successors. Whatever loss therefore, may occur after Hemady’s death, are not
chargeable to his estate because upon his death he ceased to be a guarantor.

Our Liability Hereunder. — It shall not be necessary for the COMPANY to

bring suit against the principal upon his default, or to exhaust the property of Another clear and strong indication that the surety company has exclusively
the principal, but the liability hereunder of the undersigned indemnitor shall relied on the personality, character, honesty and integrity of the now
be jointly and severally, a primary one, the same as that of the principal, and deceased K. H. Hemady, was the fact that in the printed form of the
shall be exigible immediately upon the occurrence of such default.” (Rec. indemnity agreement there is a paragraph entitled ‘Security by way of first
App. pp. 98- 102.) mortgage, which was expressly waived and renounced by the security
company. The security company has not demanded from K. H. Hemady to
comply with this requirement of giving security by way of first mortgage. In
The Luzon Surety Co., prayed for allowance, as a contingent claim, of the the supporting papers of the claim presented by Luzon Surety Company, no
value of the twenty bonds it had executed in consideration of the real property was mentioned in the list of properties mortgaged which
counterbonds, and further asked for judgment for the unpaid premiums and appears at the back of the indemnity agreement.” (Rec. App., pp. 407-408).
documentary stamps affixed to the bonds, with 12 per cent interest thereon.

We find this reasoning untenable. Under the present Civil Code (Article 1311),
Before answer was filed, and upon motion of the administratrix of Hemady’s as well as under the Civil Code of 1889 (Article 1257), the rule is that —
estate, the lower court, by order of September 23, 1953, dismissed the claims
of Luzon Surety Co., on two grounds:chanroblesvirtuallawlibrary (1) that the
premiums due and cost of documentary stamps were not contemplated “Contracts take effect only as between the parties, their assigns and heirs,
under the indemnity agreements to be a part of the undertaking of the except in the case where the rights and obligations arising from the contract
guarantor (Hemady), since they were not liabilities incurred after the are not transmissible by their nature, or by stipulation or by provision of law.”
execution of the counterbonds; chan roblesvirtualawlibraryand (2) that
“whatever losses may occur after Hemady’s death, are not chargeable to his
estate, because upon his death he ceased to be guarantor.” While in our successional system the responsibility of the heirs for the debts
of their decedent cannot exceed the value of the inheritance they receive
from him, the principle remains intact that these heirs succeed not only to
Taking up the latter point first, since it is the one more far reaching in effects, the rights of the deceased but also to his obligations. Articles 774 and 776 of
the reasoning of the court below ran as follows:chanroblesvirtuallawlibrary the New Civil Code (and Articles 659 and 661 of the preceding one) expressly
so provide, thereby confirming Article 1311 already quoted.

“The administratrix further contends that upon the death of Hemady, his
liability as a guarantor terminated, and therefore, in the absence of a showing “ART. 774. — Succession is a mode of acquisition by virtue of which the
that a loss or damage was suffered, the claim cannot be considered property, rights and obligations to the extent of the value of the inheritance,
contingent. This Court believes that there is merit in this contention and finds of a person are transmitted through his death to another or others either by
support in Article 2046 of the new Civil Code. It should be noted that a new his will or by operation of law.”
requirement has been added for a person to qualify as a guarantor, that
is:chanroblesvirtuallawlibrary integrity. As correctly pointed out by the
Administratrix, integrity is something purely personal and is not transmissible. “ART. 776. — The inheritance includes all the property, rights and obligations
Upon the death of Hemady, his integrity was not transmitted to his estate or of a person which are not extinguished by his death.”
 as observed by Victorio Polacco, has characterized the history of these
institutions. From the Roman concept of a relation from person to person,
In Mojica vs. Fernandez, 9 Phil. 403, this Supreme Court
the obligation has evolved into a relation from patrimony to patrimony, with
ruled:chanroblesvirtuallawlibrary
the persons occupying only a representative position, barring those rare
cases where the obligation is strictly personal, i.e., is contracted intuitu
“Under the Civil Code the heirs, by virtue of the rights of succession are personae, in consideration of its performance by a specific person and by no
subrogated to all the rights and obligations of the deceased (Article 661) and other. The transition is marked by the disappearance of the imprisonment for
cannot be regarded as third parties with respect to a contract to which the debt.
deceased was a party, touching the estate of the deceased (Barrios vs. Dolor,
2 Phil. 44).
Of the three exceptions fixed by Article 1311, the nature of the obligation of
the surety or guarantor does not warrant the conclusion that his peculiar
xxx xxx xxx individual qualities are contemplated as a principal inducement for the
contract. What did the creditor Luzon Surety Co. expect of K. H. Hemady
when it accepted the latter as surety in the counterbonds? Nothing but the
“The principle on which these decisions rest is not affected by the provisions reimbursement of the moneys that the Luzon Surety Co. might have to
of the new Code of Civil Procedure, and, in accordance with that principle, disburse on account of the obligations of the principal debtors. This
the heirs of a deceased person cannot be held to be “third persons” in reimbursement is a payment of a sum of money, resulting from an obligation
relation to any contracts touching the real estate of their decedent which to give; chan roblesvirtualawlibraryand to the Luzon Surety Co., it was
comes in to their hands by right of inheritance; chan indifferent that the reimbursement should be made by Hemady himself or by
roblesvirtualawlibrarythey take such property subject to all the obligations some one else in his behalf, so long as the money was paid to it.
resting thereon in the hands of him from whom they derive their rights.”

The second exception of Article 1311, p. 1, is intransmissibility by stipulation

(See also Galasinao vs. Austria, 51 Off. Gaz. (No. 6) p. 2874 and de Guzman vs. of the parties. Being exceptional and contrary to the general rule, this
Salak, 91 Phil., 265). intransmissibility should not be easily implied, but must be expressly
established, or at the very least, clearly inferable from the provisions of the
contract itself, and the text of the agreements sued upon nowhere indicate
The binding effect of contracts upon the heirs of the deceased party is not that they are non-transferable.
altered by the provision in our Rules of Court that money debts of a
deceased must be liquidated and paid from his estate before the residue is
distributed among said heirs (Rule 89). The reason is that whatever payment “(b) Intransmisibilidad por pacto. — Lo general es la transmisibilidad de
is thus made from the estate is ultimately a payment by the heirs and darechos y obligaciones; chan roblesvirtualawlibraryle excepcion, la
distributees, since the amount of the paid claim in fact diminishes or reduces intransmisibilidad. Mientras nada se diga en contrario impera el principio de
the shares that the heirs would have been entitled to receive. la transmision, como elemento natural a toda relacion juridica, salvo las
personalisimas. Asi, para la no transmision, es menester el pacto expreso,
porque si no, lo convenido entre partes trasciende a sus herederos.
Under our law, therefore, the general rule is that a party’s contractual rights
and obligations are transmissible to the successors. The rule is a consequence
of the progressive “depersonalization” of patrimonial rights and duties that,
Siendo estos los continuadores de la personalidad del causante, sobre ellos that the law requires these qualities to be present only at the time of the
recaen los efectos de los vinculos juridicos creados por sus antecesores, y perfection of the contract of guaranty. It is self-evident that once the contract
para evitarlo, si asi se quiere, es indespensable convension terminante en tal has become perfected and binding, the supervening incapacity of the
sentido. guarantor would not operate to exonerate him of the eventual liability he has
contracted; chan roblesvirtualawlibraryand if that be true of his capacity to
bind himself, it should also be true of his integrity, which is a quality
Por su esencia, el derecho y la obligacion tienden a ir más allá de las mentioned in the article alongside the capacity.
personas que les dieron vida, y a ejercer presion sobre los sucesores de esa
persona; chan roblesvirtualawlibrarycuando no se quiera esto, se impone una
estipulacion limitativa expresamente de la transmisibilidad o de cuyos The foregoing concept is confirmed by the next Article 2057, that runs as
tirminos claramente se deduzca la concresion del concreto a las mismas follows:chanroblesvirtuallawlibrary
personas que lo otorgon.” (Scaevola, Codigo Civil, Tomo XX, p. 541-542)
(Emphasis supplied.)
“ART. 2057. — If the guarantor should be convicted in first instance of a
crime involving dishonesty or should become insolvent, the creditor may
Because under the law (Article 1311), a person who enters into a contract is demand another who has all the qualifications required in the preceding
deemed to have contracted for himself and his heirs and assigns, it is article. The case is excepted where the creditor has required and stipulated
unnecessary for him to expressly stipulate to that effect; chan that a specified person should be guarantor.”
roblesvirtualawlibraryhence, his failure to do so is no sign that he intended
his bargain to terminate upon his death. Similarly, that the Luzon Surety Co.,
did not require bondsman Hemady to execute a mortgage indicates nothing From this article it should be immediately apparent that the supervening
more than the company’s faith and confidence in the financial stability of the dishonesty of the guarantor (that is to say, the disappearance of his integrity
surety, but not that his obligation was strictly personal. after he has become bound) does not terminate the contract but merely
entitles the creditor to demand a replacement of the guarantor. But the step
remains optional in the creditor:chanroblesvirtuallawlibrary it is his right, not
The third exception to the transmissibility of obligations under Article 1311 his duty; chan roblesvirtualawlibraryhe may waive it if he chooses, and hold
exists when they are “not transmissible by operation of law”. The provision the guarantor to his bargain. Hence Article 2057 of the present Civil Code is
makes reference to those cases where the law expresses that the rights or incompatible with the trial court’s stand that the requirement of integrity in
obligations are extinguished by death, as is the case in legal support (Article the guarantor or surety makes the latter’s undertaking strictly personal, so
300), parental authority (Article 327), usufruct (Article 603), contracts for a linked to his individuality that the guaranty automatically terminates upon his
piece of work (Article 1726), partnership (Article 1830 and agency (Article death.
1919). By contract, the articles of the Civil Code that regulate guaranty or
suretyship (Articles 2047 to 2084) contain no provision that the guaranty is
extinguished upon the death of the guarantor or the surety. The contracts of suretyship entered into by K. H. Hemady in favor of Luzon
Surety Co. not being rendered intransmissible due to the nature of the
undertaking, nor by the stipulations of the contracts themselves, nor by
The lower court sought to infer such a limitation from Art. 2056, to the effect provision of law, his eventual liability thereunder necessarily passed upon his
that “one who is obliged to furnish a guarantor must present a person who death to his heirs. The contracts, therefore, give rise to contingent claims
possesses integrity, capacity to bind himself, and sufficient property to provable against his estate under section 5, Rule 87 (2 Moran, 1952 ed., p.
answer for the obligation which he guarantees”. It will be noted, however, 437; chan roblesvirtualawlibraryGaskell & Co. vs. Tan Sit, 43 Phil. 810, 814).
 unnecessary now to discuss the estate’s liability for premiums and stamp
taxes, because irrespective of the solution to this question, the Luzon Surety’s
“The most common example of the contigent claim is that which arises when
claim did state a cause of action, and its dismissal was erroneous.
a person is bound as surety or guarantor for a principal who is insolvent or
dead. Under the ordinary contract of suretyship the surety has no claim
whatever against his principal until he himself pays something by way of
Wherefore, the order appealed from is reversed, and the records are ordered
satisfaction upon the obligation which is secured. When he does this, there
remanded to the court of origin, with instructions to proceed in accordance
instantly arises in favor of the surety the right to compel the principal to
with law. Costs against the Administratrix- Appellee. SO ORDERED.
exonerate the surety. But until the surety has contributed something to the
payment of the debt, or has performed the secured obligation in whole or in
part, he has no right of action against anybody — no claim that could be
reduced to judgment. (May vs. Vann, 15 Pla., 553; chan
roblesvirtualawlibraryGibson vs. Mithell, 16 Pla., 519; chan
roblesvirtualawlibraryMaxey vs. Carter, 10 Yarg. [Tenn.], 521 Reeves vs.
Pulliam, 7 Baxt. [Tenn.], 119; chan roblesvirtualawlibraryErnst vs. Nou, 63 Wis.,
134.)”

For Defendant administratrix it is averred that the above doctrine refers to a

case where the surety files claims against the estate of the principal debtor;
chan roblesvirtualawlibraryand it is urged that the rule does not apply to the
case before us, where the late Hemady was a surety, not a principal debtor.
The argument evinces a superficial view of the relations between parties. If
under the Gaskell ruling, the Luzon Surety Co., as guarantor, could file a
contingent claim against the estate of the principal debtors if the latter
should die, there is absolutely no reason why it could not file such a claim
against the estate of Hemady, since Hemady is a solidary co-debtor of his
principals. What the Luzon Surety Co. may claim from the estate of a principal
debtor it may equally claim from the estate of Hemady, since, in view of the
existing solidarity, the latter does not even enjoy the benefit of exhaustion of
the assets of the principal debtor.

The foregoing ruling is of course without prejudice to the remedies of the

administratrix against the principal debtors under Articles 2071 and 2067 of
the New Civil Code.

Our conclusion is that the solidary guarantor’s liability is not extinguished by

his death, and that in such event, the Luzon Surety Co., had the right to file
against the estate a contingent claim for reimbursement. It becomes
G.R. No. 120554 September 21, 1999 January 1, 1990, upon other lessees' demand. Again on December 1, 1990,
the lessor implemented a 30% rent increase. Enclosed in these letters were
SO PING BUN, petitioner, 
new lease contracts for signing. DCCSI warned that failure of the lessee to
vs.
accomplish the contracts shall be deemed as lack of interest on the lessee's
COURT OF APPEALS, TEK HUA ENTERPRISES CORP. and MANUEL C.
part, and agreement to the termination of the lease. Private respondents did
TIONG, respondents.
not answer any of these letters. Still, the lease contracts were not rescinded.
 
On March 1, 1991, private respondent Tiong sent a letter to petitioner which
QUISUMBING, J.: reads as follows:
This petition for certiorari challenges the Decision 1 of the Court of Appeals March 1, 1991
dated October 10, 1994, and the Resolution 2dated June 5, 1995, in CA-G.R.
Mr. So Ping Bun
CV No. 38784. The appellate court affirmed the decision of the Regional Trial
Court of Manila, Branch 35, except for the award of attorney's fees, as follows: 930 Soler Street
WHEREFORE, foregoing considered, the appeal of Binondo, Manila
respondent-appellant So Ping Bun for lack of merit is
Dear Mr. So,
DISMISSED. The appealed decision dated April 20, 1992 of
the court a quo is modified by reducing the attorney's fees Due to my closed (sic) business associate (sic) for three
awarded to plaintiff Tek Hua Enterprising Corporation from decades with your late grandfather Mr. So Pek Giok and late
P500,000.00 to P200,000.00. 3 father, Mr. So Chong Bon, I allowed you temporarily to use
the warehouse of Tek Hua Enterprising Corp. for several
The facts are as follows:
years to generate your personal business.
In 1963, Tek Hua Trading Co, through its managing partner, So Pek Giok,
Since I decided to go back into textile business, I need a
entered into lease agreements with lessor Dee C. Chuan & Sons Inc. (DCCSI).
warehouse immediately for my stocks. Therefore, please be
Subjects of four (4) lease contracts were premises located at Nos. 930, 930-
advised to vacate all your stocks in Tek Hua Enterprising
Int., 924-B and 924-C, Soler Street, Binondo, Manila. Tek Hua used the areas
Corp. Warehouse. You are hereby given 14 days to vacate
to store its textiles. The contracts each had a one-year term. They provided
the premises unless you have good reasons that you have
that should the lessee continue to occupy the premises after the term, the
the right to stay. Otherwise, I will be constrained to take
lease shall be on a month-to-month basis.
measure to protect my interest.
When the contracts expired, the parties did not renew the contracts, but Tek
Please give this urgent matter your preferential attention to
Hua continued to occupy the premises. In 1976, Tek Hua Trading Co. was
avoid inconvenience on your part.
dissolved. Later, the original members of Tek Hua Trading Co. including
Manuel C. Tiong, formed Tek Hua Enterprising Corp., herein respondent Very truly yours,
corporation. (Sgd) Manuel C. Tiong
So Pek Giok, managing partner of Tek Hua Trading, died in 1986. So Pek MANUEL C. TIONG
Giok's grandson, petitioner So Ping Bun, occupied the warehouse for his own
textile business, Trendsetter Marketing. President 4

On August 1, 1989, lessor DCCSI sent letters addressed to Tek Hua Petitioner refused to vacate. On March 4, 1992, petitioner requested formal
Enterprises, informing the latter of the 25% increase in rent effective contracts of lease with DCCSI in favor Trendsetter Marketing. So Ping Bun
September 1, 1989. The rent increase was later on reduced to 20% effective claimed that after the death of his grandfather, So Pek Giok, he had been
occupying the premises for his textile business and religiously paid rent. respective counterclaims of
DCCSI acceded to petitioner's request. The lease contracts in favor of the defendant;
Trendsetter were executed.
5. Ordering defendant So
In the suit for injunction, private respondents pressed for the nullification of Ping Bun to pay the costs of
the lease contracts between DCCSI and petitioner. They also claimed this lawsuit;
damages.
This judgment is without prejudice to the rights of plaintiff
After trial, the trial court ruled: Tek Hua Enterprising Corporation and defendant Dee C.
Chuan & Sons, Inc. to negotiate for the renewal of their lease
WHEREFORE, judgment is rendered:
contracts over the premises located at Nos. 930, 930-Int.,
1. Annulling the four 924-B and 924-C Soler Street, Binondo, Manila, under such
Contracts of Lease (Exhibits terms and conditions as they agree upon, provided they are
A, A-1 to A-3, inclusive) all not contrary to law, public policy, public order, and morals.
dated March 11, 1991,
SO ORDERED. 5
between defendant So Ping
Bun, doing business under Petitioner's motion for reconsideration of the above decision was denied.
the name and style of
On appeal by So Ping Bun, the Court of Appeals upheld the trial court. On
"Trendsetter Marketing",
motion for reconsideration, the appellate court modified the decision by
and defendant Dee C.
reducing the award of attorney's fees from five hundred thousand
Chuan & Sons, Inc. over the
(P500,000.00) pesos to two hundred thousand (P200,000.00) pesos.
premises located at Nos.
924-B, 924-C, 930 and 930, Petitioner is now before the Court raising the following issues:
Int., respectively, Soler I. WHETHER THE APPELLATE COURT
Street, Binondo Manila; ERRED IN AFFIRMING THE TRIAL
2. Making permanent the COURT'S DECISION FINDING SO
writ of preliminary PING BUN GUILTY OF TORTUOUS
injunction issued by this INTERFERENCE OF CONTRACT?
Court on June 21, 1991; II. WHETHER THE APPELLATE COURT
3. Ordering defendant So ERRED IN AWARDING ATTORNEY'S
Ping Bun to pay the FEES OF P200,000.00 IN FAVOR OF
aggrieved party, plaintiff Tek PRIVATE RESPONDENTS.
Hua Enterprising The foregoing issues involve, essentially, the correct interpretation of the
Corporation, the sum of applicable law on tortuous conduct, particularly unlawful interference with
P500,000.00, for attorney's contract. We have to begin, obviously, with certain fundamental principles on
fees; torts and damages.
4. Dismissing the complaint, Damage is the loss, hurt, or harm which results from injury, and damages are
insofar as plaintiff Manuel C. the recompense or compensation awarded for the damage suffered. 6 One
Tiong is concerned, and the becomes liable in an action for damages for a nontrespassory invasion of
another's interest in the private use and enjoyment of asset if (a) the other
has property rights and privileges with respect to the use or enjoyment In the instant case, it is clear that petitioner So Ping Bun prevailed upon
interfered with, (b) the invasion is substantial, (c) the defendant's conduct is a DCCSI to lease the warehouse to his enterprise at the expense of respondent
legal cause of the invasion, and (d) the invasion is either intentional and corporation. Though petitioner took interest in the property of respondent
unreasonable or unintentional and actionable under general negligence corporation and benefited from it, nothing on record imputes deliberate
rules. 7 wrongful motives or malice on him.
The elements of tort interference are: (1) existence of a valid contract; (2) Sec. 1314 of the Civil Code categorically provides also that, "Any third person
knowledge on the part of the third person of the existence of contract; and who induces another to violate his contract shall be liable for damages to the
(3) interference of the third person is without legal justification or excuse. 8 other contracting party." Petitioner argues that damage is an essential
element of tort interference, and since the trial court and the appellate court
A duty which the law of torts is concerned with is respect for the property of
ruled that private respondents were not entitled to actual, moral or
others, and a cause of action ex delicto may be predicated upon an unlawful
exemplary damages, it follows that he ought to be absolved of any liability,
interference by one person of the enjoyment by the other of his private
including attorney's fees.
property. 9 This may pertain to a situation where a third person induces a
party to renege on or violate his undertaking under a contract. In the case It is true that the lower courts did not award damages, but this was only
before us, petitioner's Trendsetter Marketing asked DCCSI to execute lease because the extent of damages was not quantifiable. We had a similar
contracts in its favor, and as a result petitioner deprived respondent situation in Gilchrist, where it was difficult or impossible to determine the
corporation of the latter's property right. Clearly, and as correctly viewed by extent of damage and there was nothing on record to serve as basis thereof.
the appellate court, the three elements of tort interference above-mentioned In that case we refrained from awarding damages. We believe the same
are present in the instant case. conclusion applies in this case.
Authorities debate on whether interference may be justified where the While we do not encourage tort interferers seeking their economic interest to
defendant acts for the sole purpose of furthering his own financial or intrude into existing contracts at the expense of others, however, we find that
economic interest. 10 One view is that, as a general rule, justification for the conduct herein complained of did not transcend the limits forbidding an
interfering with the business relations of another exists where the actor's obligatory award for damages in the absence of any malice. The business
motive is to benefit himself. Such justification does not exist where his sole desire is there to make some gain to the detriment of the contracting parties.
motive is to cause harm to the other. Added to this, some authorities believe Lack of malice, however, precludes damages. But it does not relieve
that it is not necessary that the interferer's interest outweigh that of the party petitioner of the legal liability for entering into contracts and causing breach
whose rights are invaded, and that an individual acts under an economic of existing ones. The respondent appellate court correctly confirmed the
interest that is substantial, not merely de minimis, such that wrongful and permanent injunction and nullification of the lease contracts between DCCSI
malicious motives are negatived, for he acts in self-protection. 11Moreover and Trendsetter Marketing, without awarding damages. The injunction saved
justification for protecting one's financial position should not be made to the respondents from further damage or injury caused by petitioner's
depend on a comparison of his economic interest in the subject matter with interference.
that of others. 12 It is sufficient if the impetus of his conduct lies in a proper
Lastly, the recovery of attorney's fees in the concept of actual or
business interest rather than in wrongful motives. 13
compensatory damages, is allowed under the circumstances provided for in
As early as Gilchrist vs. Cuddy, 14 we held that where there was no malice in Article 2208 of the Civil Code. 16 One such occasion is when the defendant's
the interference of a contract, and the impulse behind one's conduct lies in a act or omission has compelled the plaintiff to litigate with third persons or to
proper business interest rather than in wrongful motives, a party cannot be a incur expenses to protect his interest. 17 But we have consistently held that
malicious interferer. Where the alleged interferer is financially interested, and the award of considerable damages should have clear factual and legal
such interest motivates his conduct, it cannot be said that he is an officious bases. 18 In connection with attorney's fees, the award should be
or malicious intermeddler. 15 commensurate to the benefits that would have been derived from a
favorable judgment. Settled is the rule that fairness of the award of damages
by the trial court calls for appellate review such that the award if far too
excessive can be reduced. 19 This ruling applies with equal force on the award
of attorney's fees. In a long line of cases we said, "It is not sound policy to
place in penalty on the right to litigate. To compel the defeated party to pay
the fees of counsel for his successful opponent would throw wide open the
door of temptation to the opposing party and his counsel to swell the fees to
undue proportions." 20
Considering that the respondent corporation's lease contract, at the time
when the cause of action accrued, ran only on a month-to-month basis
whence before it was on a yearly basis, we find even the reduced amount of
attorney's fees ordered by the Court of Appeals still exorbitant in the light of
prevailing jurisprudence. 21 Consequently, the amount of two hundred
thousand (P200,000.00) awarded by respondent appellate court should be
reduced to one hundred thousand (P100,000.00) pesos as the reasonable
award or attorney's fees in favor of private respondent corporation.
WHEREFORE, the petition is hereby DENIED. The assailed Decision and
Resolution of the Court of Appeals in CA-G.R. CV No. 38784 are hereby
AFFIRMED, with MODIFICATION that the award of attorney's fees is reduced
from two hundred thousand (P200,000.00) to one hundred thousand
(P100,000.00) pesos. No pronouncement as to costs.1âwphi1.nêt
SO ORDERED.