EN BANC

G.R. No. 109125 December 2, 1994

ANG YU ASUNCION, ARTHUR GO AND KEH TIONG, petitioners, vs. THE HON. COURT OF APPEALS and BUEN REALTY DEVELOPMENT CORPORATION, respondents. Antonio M. Albano for petitioners. Umali, Soriano & Associates for private respondent. VITUG, J.: Assailed, in this petition for review, is the decision of the Court of Appeals, dated 04 December 1991, in CA-G.R. SP No. 26345 setting aside and declaring without force and effect the orders of execution of the trial court, dated 30 August 1991 and 27 September 1991, in Civil Case No. 87-41058. The antecedents are recited in good detail by the appellate court thusly: On July 29, 1987 a Second Amended Complaint for Specific Performance was filed by Ang Yu Asuncion and Keh Tiong, et al., against Bobby Cu Unjieng, Rose Cu Unjieng and Jose Tan before the Regional Trial Court, Branch 31, Manila in Civil Case No. 8741058, alleging, among others, that plaintiffs are tenants or lessees of residential and commercial spaces owned by defendants described as Nos. 630-638 Ongpin Street, Binondo, Manila; that they have occupied said spaces since 1935 and have been religiously paying the rental and complying with all the conditions of the lease contract; that on several occasions before October 9, 1986, defendants informed plaintiffs that they are offering to sell the premises and are giving them priority to acquire the same; that during the negotiations, Bobby Cu Unjieng offered a price of P6-million while plaintiffs made a counter offer of P5-million; that plaintiffs thereafter asked the defendants to put their offer in writing to which request defendants acceded; that in reply to defendant's letter, plaintiffs wrote them on October 24, 1986 asking that they specify the terms and conditions of the offer to sell; that when plaintiffs did not receive any reply, they sent another letter dated January 28, 1987 with the same request; that since defendants failed to specify the terms and conditions of the offer to sell and because of information received that defendants were about to sell the property, plaintiffs were compelled to file the complaint to compel defendants to sell the property to them. Defendants filed their answer denying the material allegations of the complaint and interposing a special defense of lack of cause of action. After the issues were joined, defendants filed a motion for summary judgment which was granted by the lower court. The trial court found that defendants' offer to sell was never accepted by the plaintiffs for the reason that the parties did not agree upon

the terms and conditions of the proposed sale, hence, there was no contract of sale at all. Nonetheless, the lower court ruled that should the defendants subsequently offer their property for sale at a price of P11-million or below, plaintiffs will have the right of first refusal. Thus the dispositive portion of the decision states: WHEREFORE, judgment is hereby rendered in favor of the defendants and against the plaintiffs summarily dismissing the complaint subject to the aforementioned condition that if the defendants subsequently decide to offer their property for sale for a purchase price of Eleven Million Pesos or lower, then the plaintiffs has the option to purchase the property or of first refusal, otherwise, defendants need not offer the property to the plaintiffs if the purchase price is higher than Eleven Million Pesos. SO ORDERED. Aggrieved by the decision, plaintiffs appealed to this Court in CA-G.R. CV No. 21123. In a decision promulgated on September 21, 1990 (penned by Justice Segundino G. Chua and concurred in by Justices Vicente V. Mendoza and Fernando A. Santiago), this Court affirmed with modification the lower court's judgment, holding: In resume, there was no meeting of the minds between the parties concerning the sale of the property. Absent such requirement, the claim for specific performance will not lie. Appellants' demand for actual, moral and exemplary damages will likewise fail as there exists no justifiable ground for its award. Summary judgment for defendants was properly granted. Courts may render summary judgment when there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law (Garcia vs. Court of Appeals, 176 SCRA 815). All requisites obtaining, the decision of the court a quo is legally justifiable. WHEREFORE, finding the appeal unmeritorious, the judgment appealed from is hereby AFFIRMED, but subject to the following modification: The court a quo in the aforestated decision gave the plaintiffs-appellants the right of first refusal only if the property is sold for a purchase price of Eleven Million pesos or lower; however, considering the mercurial and uncertain forces in our market economy today. We find no reason not to grant the same right of first refusal to herein appellants in the event that the subject property is sold for a price in

excess of Eleven Million pesos. No pronouncement as to costs. SO ORDERED. The decision of this Court was brought to the Supreme Court by petition for review on certiorari. The Supreme Court denied the appeal on May 6, 1991 "for insufficiency in form and substances" (Annex H, Petition). On November 15, 1990, while CA-G.R. CV No. 21123 was pending consideration by this Court, the Cu Unjieng spouses executed a Deed of Sale (Annex D, Petition) transferring the property in question to herein petitioner Buen Realty and Development Corporation, subject to the following terms and conditions: 1. That for and in consideration of the sum of FIFTEEN MILLION PESOS (P15,000,000.00), receipt of which in full is hereby acknowledged, the VENDORS hereby sells, transfers and conveys for and in favor of the VENDEE, his heirs, executors, administrators or assigns, the above-described property with all the improvements found therein including all the rights and interest in the said property free from all liens and encumbrances of whatever nature, except the pending ejectment proceeding; 2. That the VENDEE shall pay the Documentary Stamp Tax, registration fees for the transfer of title in his favor and other expenses incidental to the sale of above-described property including capital gains tax and accrued real estate taxes. As a consequence of the sale, TCT No. 105254/T-881 in the name of the Cu Unjieng spouses was cancelled and, in lieu thereof, TCT No. 195816 was issued in the name of petitioner on December 3, 1990. On July 1, 1991, petitioner as the new owner of the subject property wrote a letter to the lessees demanding that the latter vacate the premises. On July 16, 1991, the lessees wrote a reply to petitioner stating that petitioner brought the property subject to the notice of lis pendens regarding Civil Case No. 87-41058 annotated on TCT No. 105254/T-881 in the name of the Cu Unjiengs. The lessees filed a Motion for Execution dated August 27, 1991 of the Decision in Civil Case No. 87-41058 as modified by the Court of Appeals in CA-G.R. CV No. 21123.

On August 30, 1991, respondent Judge issued an order (Annex A, Petition) quoted as follows: Presented before the Court is a Motion for Execution filed by plaintiff represented by Atty. Antonio Albano. Both defendants Bobby Cu Unjieng and Rose Cu Unjieng represented by Atty. Vicente Sison and Atty. Anacleto Magno respectively were duly notified in today's consideration of the motion as evidenced by the rubber stamp and signatures upon the copy of the Motion for Execution. The gist of the motion is that the Decision of the Court dated September 21, 1990 as modified by the Court of Appeals in its decision in CA G.R. CV-21123, and elevated to the Supreme Court upon the petition for review and that the same was denied by the highest tribunal in its resolution dated May 6, 1991 in G.R. No. L-97276, had now become final and executory. As a consequence, there was an Entry of Judgment by the Supreme Court as of June 6, 1991, stating that the aforesaid modified decision had already become final and executory. It is the observation of the Court that this property in dispute was the subject of theNotice of Lis Pendens and that the modified decision of this Court promulgated by the Court of Appeals which had become final to the effect that should the defendants decide to offer the property for sale for a price of P11 Million or lower, and considering the mercurial and uncertain forces in our market economy today, the same right of first refusal to herein plaintiffs/appellants in the event that the subject property is sold for a price in excess of Eleven Million pesos or more. WHEREFORE, defendants are hereby ordered to execute the necessary Deed of Sale of the property in litigation in favor of plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15 Million pesos in recognition of plaintiffs' right of first refusal and that a new Transfer Certificate of Title be issued in favor of the buyer. All previous transactions involving the same property notwithstanding the issuance of another title to Buen Realty Corporation, is hereby set aside as having been executed in bad faith.

SO ORDERED. On September 22, 1991 respondent Judge issued another order, the dispositive portion of which reads: WHEREFORE, let there be Writ of Execution issue in the above-entitled case directing the Deputy Sheriff Ramon Enriquez of this Court to implement said Writ of Execution ordering the defendants among others to comply with the aforesaid Order of this Court within a period of one (1) week from receipt of this Order and for defendants to execute the necessary Deed of Sale of the property in litigation in favor of the plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go for the consideration of P15,000,000.00 and ordering the Register of Deeds of the City of Manila, to cancel and set aside the title already issued in favor of Buen Realty Corporation which was previously executed between the latter and defendants and to register the new title in favor of the aforesaid plaintiffs Ang Yu Asuncion, Keh Tiong and Arthur Go. SO ORDERED. On the same day, September 27, 1991 the corresponding writ of execution (Annex C, Petition) was issued. 1 On 04 December 1991, the appellate court, on appeal to it by private respondent, set aside and declared without force and effect the above questioned orders of the court a quo. In this petition for review on certiorari, petitioners contend that Buen Realty can be held bound by the writ of execution by virtue of the notice of lis pendens, carried over on TCT No. 195816 issued in the name of Buen Realty, at the time of the latter's purchase of the property on 15 November 1991 from the Cu Unjiengs. We affirm the decision of the appellate court. A not too recent development in real estate transactions is the adoption of such arrangements as the right of first refusal, a purchase option and a contract to sell. For ready reference, we might point out some fundamental precepts that may find some relevance to this discussion. An obligation is a juridical necessity to give, to do or not to do (Art. 1156, Civil Code). The obligation is constituted upon the concurrence of the essential elements thereof, viz: (a) The vinculum juris or juridical tie which is the efficient cause established by the various sources of obligations (law, contracts, quasi-contracts, delicts and quasi-delicts); (b) the object which is the prestation or conduct; required to be observed (to give, to do or not to do); and (c) the subject-persons who, viewed from the demandability of the obligation, are the active (obligee) and the passive (obligor) subjects.

Among the sources of an obligation is a contract (Art. 1157, Civil Code), which is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service (Art. 1305, Civil Code). A contract undergoes various stages that include its negotiation or preparation, its perfection and, finally, its consummation. Negotiation covers the period from the time the prospective contracting parties indicate interest in the contract to the time the contract is concluded (perfected). The perfection of the contract takes place upon the concurrence of the essential elements thereof. A contract which is consensual as to perfection is so established upon a mere meeting of minds, i.e., the concurrence of offer and acceptance, on the object and on the cause thereof. A contract which requires, in addition to the above, the delivery of the object of the agreement, as in a pledge or commodatum, is commonly referred to as a real contract. In a solemn contract, compliance with certain formalities prescribed by law, such as in a donation of real property, is essential in order to make the act valid, the prescribed form being thereby an essential element thereof. The stage of consummationbegins when the parties perform their respective undertakings under the contract culminating in the extinguishment thereof. Until the contract is perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation. In sales, particularly, to which the topic for discussion about the case at bench belongs, the contract is perfected when a person, called the seller, obligates himself, for a price certain, to deliver and to transfer ownership of a thing or right to another, called the buyer, over which the latter agrees. Article 1458 of the Civil Code provides: Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent. A contract of sale may be absolute or conditional. When the sale is not absolute but conditional, such as in a "Contract to Sell" where invariably the ownership of the thing sold is retained until the fulfillment of a positive suspensive condition (normally, the full payment of the purchase price), the breach of the condition will prevent the obligation to convey title from acquiring an obligatory force. 2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said that, although denominated a "Deed of Conditional Sale," a sale is still absolute where the contract is devoid of any proviso that title is reserved or the right to unilaterally rescind is stipulated, e.g., until or unless the price is paid. Ownership will then be transferred to the buyer upon actual or constructive delivery (e.g., by the execution of a public document) of the property sold. Where the condition is imposed upon the perfection of the contract itself, the failure of the condition would prevent such perfection. 3 If the condition is imposed on the obligation of a party which is not fulfilled, the other party may either waive the condition or refuse to proceed with the sale (Art. 1545, Civil Code). 4 An unconditional mutual promise to buy and sell, as long as the object is made determinate and the price is fixed, can be obligatory on the parties, and compliance therewith may accordingly be exacted. 5 An accepted unilateral promise which specifies the thing to be sold and the price to be paid, when coupled with a valuable consideration distinct and separate from the price, is what may properly be termed a perfected contract ofoption. This contract is

legally binding, and in sales, it conforms with the second paragraph of Article 1479 of the Civil Code, viz: Art. 1479. . . . An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price. (1451a) 6 Observe, however, that the option is not the contract of sale itself. 7 The optionee has the right, but not the obligation, to buy. Once the option is exercised timely, i.e., the offer is accepted before a breach of the option, a bilateral promise to sell and to buy ensues and both parties are then reciprocally bound to comply with their respective undertakings. 8 Let us elucidate a little. A negotiation is formally initiated by an offer. An imperfect promise (policitacion) is merely an offer. Public advertisements or solicitations and the like are ordinarily construed as mere invitations to make offers or only as proposals. These relations, until a contract is perfected, are not considered binding commitments. Thus, at any time prior to the perfection of the contract, either negotiating party may stop the negotiation. The offer, at this stage, may be withdrawn; the withdrawal is effective immediately after its manifestation, such as by its mailing and not necessarily when the offeree learns of the withdrawal (Laudico vs. Arias, 43 Phil. 270). Where a period is given to the offeree within which to accept the offer, the following rules generally govern: (1) If the period is not itself founded upon or supported by a consideration, the offeror is still free and has the right to withdraw the offer before its acceptance, or, if an acceptance has been made, before the offeror's coming to know of such fact, by communicating that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins, Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to a unilateral promise to sell under Art. 1479, modifying the previous decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see also Art. 1319, Civil Code; Rural Bank of Paraaque, Inc., vs. Remolado, 135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to withdraw, however, must not be exercised whimsically or arbitrarily; otherwise, it could give rise to a damage claim under Article 19 of the Civil Code which ordains that "every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." (2) If the period has a separate consideration, a contract of "option" is deemed perfected, and it would be a breach of that contract to withdraw the offer during the agreed period. The option, however, is an independent contract by itself, and it is to be distinguished from the projected main agreement (subject matter of the option) which is obviously yet to be concluded. If, in fact, the optionerofferor withdraws the offer before its acceptance(exercise of the option) by the optionee-offeree, the latter may not sue for specific performance on the proposed contract ("object" of the option) since it has failed to reach its own stage of perfection. The optioner-offeror, however, renders himself liable for damages for breach of the option. In these cases, care should be taken of the real nature of the consideration given, for if, in fact, it has been intended to be part of the consideration for the main contract with a right of withdrawal on the part of the optionee, the main contract could be deemed perfected; a similar instance would be

an "earnest money" in a contract of sale that can evidence its perfection (Art. 1482, Civil Code). In the law on sales, the so-called "right of first refusal" is an innovative juridical relation. Needless to point out, it cannot be deemed a perfected contract of sale under Article 1458 of the Civil Code. Neither can the right of first refusal, understood in its normal concept, per se be brought within the purview of an option under the second paragraph of Article 1479, aforequoted, or possibly of an offer under Article 1319 9 of the same Code. An option or an offer would require, among other things, 10 a clear certainty on both the object and the cause or consideration of the envisioned contract. In a right of first refusal, while the object might be made determinate, the exercise of the right, however, would be dependent not only on the grantor's eventual intention to enter into a binding juridical relation with another but also on terms, including the price, that obviously are yet to be later firmed up. Prior thereto, it can at best be so described as merely belonging to a class of preparatory juridical relations governed not by contracts (since the essential elements to establish the vinculum juris would still be indefinite and inconclusive) but by, among other laws of general application, the pertinent scattered provisions of the Civil Code on human conduct. Even on the premise that such right of first refusal has been decreed under a final judgment, like here, its breach cannot justify correspondingly an issuance of a writ of execution under a judgment that merely recognizes its existence, nor would it sanction an action for specific performance without thereby negating the indispensable element of consensuality in the perfection of contracts. 11 It is not to say, however, that the right of first refusal would be inconsequential for, such as already intimated above, an unjustified disregard thereof, given, for instance, the circumstances expressed in Article 19 12 of the Civil Code, can warrant a recovery for damages. The final judgment in Civil Case No. 87-41058, it must be stressed, has merely accorded a "right of first refusal" in favor of petitioners. The consequence of such a declaration entails no more than what has heretofore been said. In fine, if, as it is here so conveyed to us, petitioners are aggrieved by the failure of private respondents to honor the right of first refusal, the remedy is not a writ of execution on the judgment, since there is none to execute, but an action for damages in a proper forum for the purpose. Furthermore, whether private respondent Buen Realty Development Corporation, the alleged purchaser of the property, has acted in good faith or bad faith and whether or not it should, in any case, be considered bound to respect the registration of the lis pendens in Civil Case No. 87-41058 are matters that must be independently addressed in appropriate proceedings. Buen Realty, not having been impleaded in Civil Case No. 87-41058, cannot be held subject to the writ of execution issued by respondent Judge, let alone ousted from the ownership and possession of the property, without first being duly afforded its day in court. We are also unable to agree with petitioners that the Court of Appeals has erred in holding that the writ of execution varies the terms of the judgment in Civil Case No. 87-41058, later affirmed in CA-G.R. CV-21123. The Court of Appeals, in this regard, has observed: Finally, the questioned writ of execution is in variance with the decision of the trial court as modified by this Court. As already stated, there was nothing in said decision 13 that decreed the

execution of a deed of sale between the Cu Unjiengs and respondent lessees, or the fixing of the price of the sale, or the cancellation of title in the name of petitioner (Limpin vs. IAC, 147 SCRA 516; Pamantasan ng Lungsod ng Maynila vs. IAC, 143 SCRA 311; De Guzman vs. CA, 137 SCRA 730; Pastor vs. CA, 122 SCRA 885). It is likewise quite obvious to us that the decision in Civil Case No. 87-41058 could not have decreed at the time the execution of any deed of sale between the Cu Unjiengs and petitioners. WHEREFORE, we UPHOLD the Court of Appeals in ultimately setting aside the questioned Orders, dated 30 August 1991 and 27 September 1991, of the court a quo. Costs against petitioners. SO ORDERED. Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Mendoza, JJ., concur. Kapunan, J., took no part. Feliciano, J., is on leave.

ROBERTO S. BENEDICTO, petitioner, vs. THE BOARD OF ADMINISTRATORS OF TELEVISION STATIONS RPN, BBC AND IBC, respondents. G.R. No. 96087 March 31, 1992 TEOFISTO T. GUINGONA, JR., petitioner, vs. PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT, respondents. GRIO-AQUINO, J.: These two cases were consolidated for the reason that they involve the sequestered television and broadcast stations of Roberto S. Benedicto, well-known friend and classmate of the late President Ferdinand E. Marcos. G.R. No. 87710 Roberto S. Benedicto vs. Board of Administrators of Television Stations RPN, BBC and IBC A petition for prohibition and mandamus with prayer for preliminary injunction and/or restraining order, was filed by Benedicto in 1989 to prohibit the respondent Board of Administrators from exercising management, operation, and control of three (3) television stations, namely; (1) the Inter-Continental Broadcasting Corporation (IBC-13), (2) Radio Philippines Network (RPN-9), and (3) Banahaw Broadcasting Corporation (BBC-2), collectively called "Broadcast City," and to compel the respondent Board to turn them over to their respective Boards of Directors, asprovided in an Agreement between the petitioner and the Presidential Commission on Good Government (PCGG). After the February Revolution in 1986, the properties, assets, and business of Broadcast City were abandoned, leaving no one to look after them. When the PCGG was created in February 1986, its chairman, now Senator, Jovito Salonga, requested the Ministry of National Defense and the Ministry of Information, in the interest of national security, to sequester Broadcast City pending clarification of its uncertain financial condition, as well as its legal and beneficial ownership. In compliance with the PCGG' s recommendation, the Ministry of National Defense on March 6, 1986, requested the Minister of Information to immediately undertake the management and administration of the sequestered facilities. On April 8, 1986, President Corazon C. Aquino issued Executive Order No. 11 creating a Board of Administrators "to manage and operate the business and affairs of Broadcast City." Executive Order No. 11 provided that the Board of Administrators shall "function in all respects like a board of directors of a corporation under the Corporation Code," exercise "all the powers imposed on trustees under the principles of the general law on trust and officious managers under the law on extracontractual obligations" (Sec. 3), and fixed its term of existence to be "coterminous with the investigation of the seized assets by the Presidential Commission on Good Government and until final disposition of the seized assets in accordance with the findings of the Commission." (Sec. 7.) The members of the board were to hold office "at the pleasure of the President."

EN BANC

G.R. No. 87710 March 31, 1992

Pursuant to Section 1 of Executive Order No. 11, the Minister of Information appointed the members of the Board of Administrators on April 11, 1986. The petitioner filed in the Supreme Court an action against the PCGG to annul the sequestration, and to recover the management, of Broadcast City (G.R. No. 74974 entitled, "Roberto S. Benedicto vs. PCGG, et al."). This case was transferred to, and is now pending in, the Sandiganbayan. On December 18, 1986, the petitioner and the PCGG allegedly entered into an agreement to reorganize and reinstate the Boards of Directors of RPN, BBC, IBC and other related media corporations. Two-thirds (2/3) of the members of the reorganized Boards of Directors would be nominees of the PCGG and one-third (1/3) would be nominees of the petitioner. Said boards of directors would "exercise all powers of administration and management of the sequestered companies." Pursuant to that agreement, a reorganized Board of Directors was elected for each of the Broadcast City corporations. However, the respondent Board of Administrators refused to relinquish the management, operation, and control of Broadcast City to the reorganized Boards of Directors. This petition for prohibition and mandamus was filed against the Board of Administrators by Benedicto, as controlling stockholder of the "Broadcast City" corporations. G.R. No. 96087 Teofisto T. Guingona, Jr. vs. Presidential Commission on Good Government On June 30, 1987, the PCGG filed in the Sandiganbayan Civil Case No. 0034, entitled "Republic of the Philippines vs. Roberto S. Benedicto. Spouses Ferdinand and Imelda Marcos, et al." to recover from the defendants (including Roberto s. Benedicto) their ill-gotten wealth consisting of funds and other property which they amassed through breach of trust and abuse of the prerogatives of public office, and in violation of the Constitution and the laws of the land. On November 3, 1990, the PCGG, through its chairman, David M. Castro, executed a Compromise Agreement with Roberto S. Benedicto ceding to the latter a substantial part of his ill-gotten assets and granting him immunity from further prosecution. On November 25, 1990, the compromise agreement was submitted by the parties to the Sandiganbayan for approval. By this petition for certiorari and prohibition with prayer for a preliminary injunction and/or restraining order, the petitioner. Senator Teofisto Guingona, Jr., seeks to invalidate the compromise agreement on the grounds that: 1. The PCGG has no power and authority to cede and release, by compromise or otherwise, any ill-gotten assets of the past discredited dictator, his family, relatives and political and business cronies. Its charter tasks it to recover all ill-gotten wealth. 2. The immunity-authority vested in the PCGG under Executive Order No. 14, as amended, is limited granting immunity

from criminal prosecution under the conditions set forth thereunder. 3. Previous compromise agreements entered into by the PCGG adhered to the statutory norm of totalrecovery of ill-gotten wealth, with zero-retention by the Marcos cronies, and ceded to the latter only those assets which had been substantiated and verified as legitimately and lawfully acquired by them. 4. The Benedicto Compromise Agreement requires for its validity an amendment by Congress of the PCGG's mandate by authorizing it to settle for less than total recovery of ill-gotten wealth. 5. Being a settlement of the Government's claim exceeding P100,000 against Benedicto, the Compromise Agreement requires for its validity prior approval of Congress upon the recommendation of the Commission on Audit and the President, pursuant to Section 20, Chapter 4, Subtitle B, Title I, Book V of the Revised Administrative Code 1987, Executive Order No. 292. 6. The Compromise Agreement grants Benedicto immunity from criminal prosecution without requiring compliance with the conditions enumerated in Executive Order No. 14, as amended, in relation to Executive Order No. 2. On November 29, 1990, the court directed the PCGG to comment on the petition and issued a Temporary Restraining Order to cease and desist from implementing and enforcing the assailed Compromise Agreement. Commenting on the petition, the PCGG alleged that the rationale for the Compromise Agreement was the Government's desire to immediately accomplish its recovery mission and Mr. Benedicto's desire to lead a peaceful and normal life. Toward this end, the parties decided to withdraw and/or dismiss their mutual claims and counterclaims in the cases pending in the Philippines. The PCGG's authority to enter into compromises involving ill-gotten wealth and to grant immunity in civil and criminal cases had been challenged before, but it was sustained by this Court in "Republic of the Philippines and Jose Campos, Jr. vs. Sandiganbayan, et al.," G.R. No. 84895, May 4, 1989, 173 SCRA 72). On January 15, 1991, this Court granted the PCGG's motion to suspend consideration by the Sandiganbayan of the "Joint Motion to Approve Compromise Agreement" filed in that court by the PCGG and Benedicto. The petitioner filed a reply to the comment stating that the issue in this case is not the basic authority of the Commission to enter into a compromise settlement of the liabilities and accountabilities of the Marcoses, but the legality of the Compromise Agreement with Benedicto which, according to the petitioner, was entered into by the Commission without and beyond its lawful authority and with grave abuse of discretion, for its grants Benedicto final, total, and irrevocable immunity from criminal prosecution, sans compliance with the specific conditions imposed therefor by Section 5 of Executive Order No. 14, as amended, in relation to Executive Order No. 2, to wit:

(a) that Benedicto should make a "full disclosure" of all "ill-gotten assets" or properties, whether located in the Philippines or abroad, in [his] name as nominee, agent or trustee . . . (b) that Benedicto should disclose information "establish[ing] the unlawful manner in which [former President Marcos and his family have] acquired or accumulated the property or properties in question; and (c) that Benedicto should promise to testify before the Sandiganbayan when so required. (pp. 181-183, Rollo.) After considering the petition in G.R. No. 87710 "Benedicto vs. Board of Administrators of Television Stations RPN, BBC and IBC," and the comments of the Solicitor General, the Court, following its earlier rulings in Bataan Shipyard and Engineering Co. (BASECO) vs. PCGG (150 SCRA 181), and succeeding cases, including the more recent rulings in Cojuangco, et al. vs. Roxas, et al. and Conjuangco, et al. vs. Azcuna, et al. (195 SCRA 797), andPCGG vs. Sandiganbayan and Olivares (G.R. No. 92376, August 12, 1991), resolved to grant the petition for prohibition and mandamus. In Baseco vs. PCGG, 150 SCRA 181, 236, this Court ruled that the PCGG is a conservator, not an owner. Hence, it behooves the PCGG exercise "the least possible interference with business operations or activities" of sequestered, frozen or provisionally taken over property so that if it is not proven that the business enterprise was "ill-gotten," it may be returned to its rightful owner as far as possible in the same condition as it was at the time of sequestration. The PCGG may thus exercise only powers administration over the property or business sequestered or provisionally taken over, much like a court-appointed receiver, such as to bring and defend actions in its own name; receive rents; collect debts due; pay outstanding debts; and generally do such other acts and things as may be necessary to fulfill its mission as conservator and administrator. . . . In the case of sequestered businesses generally (i.e., going concerns, businesses in current operation), as in the case of sequestered objects, its essential role, as already discussed, is that of conservator, caretaker, "watchdog" or overseer. It is not that of manager, or innovator, much less an owner. Now, in the special instance of a business enterprise shown by evidence to have been "taken over by the government of the Marcos Administration or by entitles or persons close to former President Marcos," the PCGG is given power and authority, as already adverted to, to "provisionally take [it] over in the public interest or to prevent [its] disposal or dissipation;" and since the term is obviously employed in reference to going concerns, or business enterprises in operation, something more than mere physical custody is connotated; the PCGG may in this case exercise some measure of control in the operation, running, or management of the business itself. But even in this special situation, the intrusion into management should be restricted to the minimum degree necessary to accomplished the legislative

will, which is "to prevent the disposal or dissipation" of the business enterprise." (150 SCRA 181, 236-237.) In the light of this ruling, which we reiterated in the Conjuangco cases, and in view of the reorganization of the Boards of Directors of the RPN, IBC and BBC television stations to administer and manage those sequestered Broadcast City companies, the authority of the Board of Administrators as "trustee and officious manager" of the same corporations, has become functus oficio. In negotiorum gestio, the authority of the officious manager of a property or business is extinguished when the owner demands the return of the same (Art. 2153, Civil Code). With the reorganization of the respective Boards of Directors of the Broadcast City companies, where PCGG controls 2/3 of the board membership, the Board of Administrators has become a supernumerary. The reason for its existence has ceased. This view is bolstered by the fact that Broadcast City is not a purely commercial venture but a media enterprise covered by the freedom of the press provision of the Constitution, and that under our ruling inLiwayway Publishing, Inc., et al. vs. PCGG, et al. (160 SCRA 716), the Government, through the PCGG, may not lawfully intervene and participate in the management and operations of a private mass media maintain its freedom and independence as guaranteed by the Constitution (Art. XVI, Sec. 11, 1987 Constitution). The petition in G.R. No. 96087 has no merit. The right of parties in a civil action to enter into a compromise for the purpose of avoiding litigation or putting an end to are already commenced is indisputable. The settlement of civil cases in court is authorized and even encouraged by law (Arts. 2028 and 2029, Civil Code). Although there is no similar general rule in criminal prosecutions, this Court held in Republic vs. Sandiganbayan 173 SCRA 72 (1989) that "in the absence of an express prohibition, the rule on amicable settlements and/or compromises on civil cases under the Civil Code is applicable to PCGG cases." There is no basis for comparison between the compromise agreements which the PCGG made with Campos and Floirendo and is agreement with Benedicto. As pointed out by the PCGG, the Campos/Floirendo agreements were made in May, 1986 and March, 1987 when no case had been filed yet against Campos and Floirendo in the Sandiganbayan, but Floirendo was one of the defendants in the U.S. case in New York against the Marcoses. Since there was as yet no case against Campos and Floirendo in the Philippines, no Philippine court had acquired jurisdiction to review and approve the PCGG's compromise agreements with them. The compromise agreement with Benedicto was submitted to the Sandiganbayan for approval for the simple reason that the PCGG had filed a civil case against him in the Sandiganbayan. Prior congressional approval is not required for the PCGG to enter into a compromise agreement with persons against whom it has filed actions for recovery of ill-gotten wealth. Section 20, Chapter 4, Subtitle B, Title I, Book V. of the Revised Administrative Code of 1987 (E.O. No. 292) cited by Senator Guingona is inapplicable as it refers to a settled claim or liability. The provision reads: Sec. 20. Power to Compromise Claims. (1) When the interest of the Government so requires, the Commission may compromise or release in whole or in part, any settled claim or liability to any government agency not exceeding ten thousand pesos arising out of any matter or case before it our within its jurisdiction, and with the written approval of the President, it may likewise compromise or release any similar claim or liability not exceeding one hundred

thousand pesos, in case the claim or liability exceeds one hundred thousand pesos, the application for relief therefrom shall be submitted, through the Commission and the President, with their recommendation, to the Congress; xxx xxx xxx (Emphasis supplied.) The Government's claim against Benedicto is not yet settled, and the ownership of the alleged ill-gotten assets is still being litigated in the Sandiganbayan, hence, the PCGG's Compromise Agreement with Benedicto need not be submitted to the Congress for approval. Settled is the rule that the writ of the prohibition will issue only when it is shown that a tribunal, corporation, board or person whether exercising functions judicial or ministerial, has acted without or in excess of its or his jurisdiction, or with grave abuse of discretion, and there is no appeal nor other plain, speedy, and adequate remedy in the ordinary course of the law (Sec. 2, Rule 65 of the Rule of Court). Since the PCGG's compromise agreement with Benedicto has been submitted to the Sandiganbayan for approval and is still pending determination therein, this petition to prohibit its implementation and enforcement is premature. WHEREFORE, the petition for prohibition and mandamus in G.R. No. 87710 is granted. The respondent Board of Administrators is ordered to cease and desist from further exercising management, operation and control of Broadcast City and is hereby directed to surrender the management, operation and control of Broadcast City to the reorganized Board of Directors of each of the Broadcast City television stations. The petition for prohibition against the PCGG in G.R. No. 96087 is hereby dismissed. The temporary restraining order which this Court issued on November 29, 1990 in G.R. No. 96087 is hereby set aside. No costs in both cases. SO ORDERED. Narvasa, C.J., Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Padilla, Bidin, Medialdea, Regalado, Davide, Jr., Romero and Nocon, JJ., concur. Feliciano, J., is on leave.

EN BANC

G.R. No. 168338

February 15, 2008

FRANCISCO CHAVEZ, petitioner, vs. RAUL M. GONZALES, in his capacity as the Secretary of the Department of Justice; and NATIONAL TELECOMMUNICATIONS COMMISSION (NTC), respondents. SEPARATE CONCURRING OPINION CARPIO, J.: The Case This is a petition for the writs of certiorari and prohibition to set aside "acts, issuances, and orders" of respondents Secretary of Justice Raul M. Gonzalez (respondent Gonzales) and the National Telecommunications Commission (NTC), particularly an NTC "press release" dated 11 June 2005, warning radio and television stations against airing taped conversations allegedly between President Gloria Macapagal-Arroyo and Commission on Elections (COMELEC) Commissioner Virgilio Garcillano (Garcillano)1 under pain of suspension or revocation of their airwave licenses. The Facts

On 24 June 2004, Congress, acting as national board of canvassers, proclaimed President Arroyo winner in the 2004 presidential elections.2 President Arroyo received a total of 12,905,808 votes, 1,123,576 more than the votes of her nearest rival, Fernando Poe, Jr. Sometime before 6 June 2005, the radio station dzMM aired the Garci Tapes where the parties to the conversation discussed "rigging" the results of the 2004 elections to favor President Arroyo. On 6 June 2005, Presidential spokesperson Ignacio Bunye (Bunye) held a press conference in Malacaang Palace, where he played before the presidential press corps two compact disc recordings of conversations between a woman and a man. Bunye identified the woman in both recordings as President Arroyo but claimed that the contents of the second compact disc had been "spliced" to make it appear that President Arroyo was talking to Garcillano. However, on 9 June 2005, Bunye backtracked and stated that the woman's voice in the compact discs was not President Arroyos after all.3 Meanwhile, other individuals went public, claiming possession of the genuine copy of the Garci Tapes.4 Respondent Gonzalez ordered the National Bureau of Investigation to investigate media organizations which aired the Garci Tapes for possible violation of Republic Act No. 4200 or the Anti-Wiretapping Law. On 11 June 2005, the NTC issued a press release warning radio and television stations that airing the Garci Tapes is a "cause for the suspension, revocation and/or cancellation of the licenses or authorizations" issued to them.5 On 14 June 2005, NTC officers met with officers of the broadcasters group, Kapisanan ng mga Broadcasters sa Pilipinas (KBP), to dispel fears of censorship. The NTC and KBP issued a joint press statement expressing commitment to press freedom.6 On 21 June 2005, petitioner Francisco I. Chavez (petitioner), as citizen, filed this petition to nullify the "acts, issuances, and orders" of the NTC and respondent Gonzalez (respondents) on the following grounds: (1) respondents conduct violated freedom of expression and the right of the people to information on matters of public concern under Section 7, Article III of the Constitution, and (2) the NTC acted ultra vires when it warned radio and television stations against airing the Garci Tapes. In their Comment to the petition, respondents raised threshold objections that (1) petitioner has no standing to litigate and (2) the petition fails to meet the case or controversy requirement in constitutional adjudication. On the merits, respondents claim that (1) the NTC's press release of 11 June 2005 is a mere "fair warning," not censorship, cautioning radio and television networks on the lack of authentication of the Garci Tapes and of the consequences of airing false or fraudulent material, and (2) the NTC did not act ultra vires in issuing the warning to radio and television stations. In his Reply, petitioner belied respondents' claim on his lack of standing to litigate, contending that his status as a citizen asserting the enforcement of a public right vested him with sufficient interest to maintain this suit. Petitioner also contests respondents' claim that the NTC press release of 11 June 2005 is a mere warning as it already prejudged the Garci Tapes as inauthentic and violative of the AntiWiretapping Law, making it a "cleverly disguised x x x gag order." ISSUE

The principal issue for resolution is whether the NTC warning embodied in the press release of 11 June 2005 constitutes an impermissible prior restraint on freedom of expression. I vote to (1) grant the petition, (2) declare the NTC warning, embodied in its press release dated 11 June 2005, an unconstitutional prior restraint on protected expression, and (3) enjoin the NTC from enforcing the same. 1. Standing to File Petition Petitioner has standing to file this petition. When the issue involves freedom of expression, as in the present case, any citizen has the right to bring suit to question the constitutionality of a government action in violation of freedom of expression, whether or not the government action is directed at such citizen. The government action may chill into silence those to whom the action is directed. Any citizen must be allowed to take up the cudgels for those who have been cowed into inaction because freedom of expression is a vital public right that must be defended by everyone and anyone. Freedom of expression, being fundamental to the preservation of a free, open and democratic society, is oftranscendental importance that must be defended by every patriotic citizen at the earliest opportunity. We have held that any concerned citizen has standing to raise an issue of transcendental importance to the nation,7 and petitioner in this present petition raises such issue. 2. Overview of Freedom of Expression, Prior Restraint and Subsequent Punishment Freedom of expression is the foundation of a free, open and democratic society. Freedom of expression is an indispensable condition8 to the exercise of almost all other civil and political rights. No society can remain free, open and democratic without freedom of expression. Freedom of expression guarantees full, spirited, and even contentious discussion of all social, economic and political issues. To survive, a free and democratic society must zealously safeguard freedom of expression. Freedom of expression allows citizens to expose and check abuses of public officials. Freedom of expression allows citizens to make informed choices of candidates for public office. Freedom of expression crystallizes important public policy issues, and allows citizens to participate in the discussion and resolution of such issues. Freedom of expression allows the competition of ideas, the clash of claims and counterclaims, from which the truth will likely emerge. Freedom of expression allows the airing of social grievances, mitigating sudden eruptions of violence from marginalized groups who otherwise would not be heard by government. Freedom of expression provides a civilized way of engagement among political, ideological, religious or ethnic opponents for if one cannot use his tongue to argue, he might use his fist instead. Freedom of expression is the freedom to disseminate ideas and beliefs, whether competing, conforming or otherwise. It is the freedom to express to others what one likes or dislikes, as it is the freedom of others to express to one and all what they favor or disfavor. It is the free expression for the ideas we love, as well as the free expression for the ideas we hate.9 Indeed, the function of freedom of expression is to stir disputes:

[I]t may indeed best serve its high purpose when it induces a condition of unrest, creates dissatisfaction with conditions as they are, or even stirs people to anger. Speech is often provocative and challenging. It may strike at prejudices and preconceptions and have profound unsettling effects as it presses for acceptance of an idea.10 Section 4, Article III of the Constitution prohibits the enactment of any law curtailing freedom of expression: No law shall be passed abridging the freedom of speech, of expression, or the press, or the right of the people peaceably to assemble and petition the government for redress of grievances. Thus, the rule is that expression is not subject to any prior restraint or censorship because the Constitution commands that freedom of expression shall not be abridged. Over time, however, courts have carved out narrow and well defined exceptions to this rule out of necessity. The exceptions, when expression may be subject to prior restraint, apply in this jurisdiction to only four categories of expression, namely: pornography,11 false or misleading advertisement,12 advocacy of imminent lawless action,13 and danger to national security.14 All other expression is not subject to prior restraint. As stated in Turner Broadcasting System v. Federal Communication Commission, "[T]he First Amendment (Free Speech Clause), subject only to narrow and well understood exceptions, does not countenance governmental control over the content of messages expressed by private individuals."15 Expression not subject to prior restraint is protected expression or high-value expression. Any content-based prior restraint on protected expression is unconstitutional without exception. A protected expression means what it says it is absolutely protected from censorship. Thus, there can be no prior restraint on public debates on the amendment or repeal of existing laws, on the ratification of treaties, on the imposition of new tax measures, or on proposed amendments to the Constitution. Prior restraint on expression is content-based if the restraint is aimed at the message or idea of the expression. Courts will subject to strict scrutiny contentbased restraint. If the content-based prior restraint is directed at protected expression, courts will strike down the restraint as unconstitutional because there can be no content-based prior restraint on protected expression. The analysis thus turns on whether the prior restraint is content-based, and if so, whether such restraint is directed at protected expression, that is, those not falling under any of the recognized categories of unprotected expression. If the prior restraint is not aimed at the message or idea of the expression, it is content-neutral even if it burdens expression. A content-neutral restraint is a restraint which regulates the time, place or manner of the expression in public places16 without any restraint on the content of the expression. Courts will subject content-neutral restraints to intermediate scrutiny.17 An example of a content-neutral restraint is a permit specifying the date, time and route of a rally passing through busy public streets. A content-neutral prior restraint on protected expression which does not touch on the content of the expression enjoys the presumption of validity and is thus enforceable subject to appeal to the

courts.18Courts will uphold time, place or manner restraints if they are contentneutral, narrowly tailored to serve a significant government interest, and leave open ample alternative channels of expression.19 In content-neutral prior restraint on protected speech, there should be no prior restraint on the content of the expression itself. Thus, submission of movies or pretaped television programs to a government review board is constitutional only if the review is for classification and not for censoring any part of the content of the submitted materials.20 However, failure to submit such materials to the review board may be penalized without regard to the content of the materials.21 The review board has no power to reject the airing of the submitted materials. The review boards power is only to classify the materials, whether for general patronage, for adults only, or for some other classification. The power to classify expressions applies only to movies and pre-taped television programs22but not to live television programs. Any classification of live television programs necessarily entails prior restraint on expression. Expression that may be subject to prior restraint is unprotected expression or low-value expression. By definition, prior restraint on unprotected expression is content-based23 since the restraint is imposed because of the content itself. In this jurisdiction, there are currently only four categories of unprotected expression that may be subject to prior restraint. This Court recognized false or misleading advertisement as unprotected expression only in October 2007.24 Only unprotected expression may be subject to prior restraint. However, any such prior restraint on unprotected expression must hurdle a high barrier. First, such prior restraint is presumed unconstitutional.Second, the government bears a heavy burden of proving the constitutionality of the prior restraint.25 Courts will subject to strict scrutiny any government action imposing prior restraint on unprotected expression.26The government action will be sustained if there is a compelling State interest, and prior restraint is necessary to protect such State interest. In such a case, the prior restraint shall be narrowly drawn - only to the extent necessary to protect or attain the compelling State interest. Prior restraint is a more severe restriction on freedom of expression than subsequent punishment. Although subsequent punishment also deters expression, still the ideas are disseminated to the public. Prior restraint prevents even the dissemination of ideas to the public. While there can be no prior restraint on protected expression, such expression may be subject to subsequent punishment,27 either civilly or criminally. Thus, the publication of election surveys cannot be subject to prior restraint,28 but an aggrieved person can sue for redress of injury if the survey turns out to be fabricated. Also, while Article 201 (2)(b)(3) of the Revised Penal Code punishing "shows which offend any race or religion" cannot be used to justify prior restraint on religious expression, this provision can be invoked to justify subsequent punishment of the perpetrator of such offensive shows.29 Similarly, if the unprotected expression does not warrant prior restraint, the same expression may still be subject to subsequent punishment, civilly or criminally. Libel falls under this class of unprotected expression. However, if the expression cannot be subject to the lesser restriction of subsequent punishment, logically it cannot also

be subject to the more severe restriction of prior restraint. Thus, since profane language or "hate speech" against a religious minority is not subject to subsequent punishment in this jurisdiction,30 such expression cannot be subject to prior restraint. If the unprotected expression warrants prior restraint, necessarily the same expression is subject to subsequent punishment. There must be a law punishing criminally the unprotected expression before prior restraint on such expression can be justified. The legislature must punish the unprotected expression because it creates a substantive evil that the State must prevent. Otherwise, there will be no legal basis for imposing a prior restraint on such expression. The prevailing test in this jurisdiction to determine the constitutionality of government action imposing prior restraint on three categories of unprotected expression pornography,31 advocacy of imminent lawless action, and danger to national security - is the clear and present danger test.32 The expression restrained must present a clear and present danger of bringing about a substantive evil that the State has a right and duty to prevent, and such danger must be grave and imminent.33 Prior restraint on unprotected expression takes many forms - it may be a law, administrative regulation, or impermissible pressures like threats of revoking licenses or withholding of benefits.34 The impermissible pressures need not be embodied in a government agency regulation, but may emanate from policies, advisories or conduct of officials of government agencies. 3. Government Action in the Present Case The government action in the present case is a warning by the NTC that the airing or broadcasting of the Garci Tapes by radio and television stations is a "cause for the suspension, revocation and/or cancellation of the licenses or authorizations" issued to radio and television stations. The NTC warning, embodied in a press release, relies on two grounds. First, the airing of the Garci Tapes "is a continuing violation of the Anti-Wiretapping Law and the conditions of the Provisional Authority and/or Certificate of Authority issued to radio and TV stations." Second, the Garci Tapes have not been authenticated, and subsequent investigation may establish that the tapes contain false information or willful misrepresentation. Specifically, the NTC press release contains the following categorical warning: Taking into consideration the countrys unusual situation, and in order not to unnecessarily aggravate the same, the NTC warns all radio stations and television networks owners/operators that the conditions of the authorizations and permits issued to them by Government like the Provisional Authority and/or Certificate of Authority explicitly provides that said companies shall not use its stations for the broadcasting or telecasting of false information or willful misrepresentation. Relative thereto, it has come to the attention of the Commission that certain personalities are in possession of alleged taped conversation which they claim, (sic) involve the President of the Philippines and a Commissioner of the COMELEC regarding their supposed violation of election laws. These personalities have admitted that the taped conversations are product of illegal wiretapping operations.

Considering that these taped conversations have not been duly authenticated nor could it be said at this time that the tapes contain an accurate or truthful representation of what was recorded therein, (sic) it is the position of the Commission that the continuous airing or broadcast of the said taped conversations by radio and television stations is a continuing violation of the Anti-Wiretapping Law and the conditions of the Provisional Authority and/or Certificate of Authority issued to these radio and television stations. If it has been (sic) subsequently established that the said tapes are false and/or fraudulent after a prosecution or appropriate investigation, the concerned radio and television companies are hereby warned that their broadcast/airing of such false information and/or willful misrepresentation shall be just cause for the suspension, revocation and/or cancellation of the licenses or authorizations issued to the said companies. (Boldfacing and underscoring supplied) The NTC does not claim that the public airing of the Garci Tapes constitutes unprotected expression that may be subject to prior restraint. The NTC does not specify what substantive evil the State seeks to prevent in imposing prior restraint on the airing of the Garci Tapes. The NTC does not claim that the public airing of the Garci Tapes constitutes a clear and present danger of a substantive evil, of grave and imminent character, that the State has a right and duty to prevent. The NTC did not conduct any hearing in reaching its conclusion that the airing of the Garci Tapes constitutes a continuing violation of the Anti-Wiretapping Law. At the time of issuance of the NTC press release, and even up to now, the parties to the conversations in the Garci Tapes have not complained that the wire-tapping was without their consent, an essential element for violation of the Anti-Wiretapping Law.35 It was even the Office of the President, through the Press Secretary, that played and released to media the Garci Tapes containing the alleged "spliced" conversation between President Arroyo and Commissioner Garcillano. There is also the issue of whether a wireless cellular phone conversation is covered by the AntiWiretapping Law. Clearly, the NTC has no factual or legal basis in claiming that the airing of the Garci Tapes constitutes a violation of the Anti-Wiretapping Law. The radio and television stations were not even given an opportunity to be heard by the NTC. The NTC did not observe basic due process as mandated in Ang Tibay v. Court of Industrial Relations.36 The NTC claims that the Garci Tapes, "after a prosecution or the appropriate investigation," may constitute "false information and/or willful misrepresentation." However, the NTC does not claim that such possible false information or willful misrepresentation constitutes misleading commercial advertisement. In the United States, false or deceptive commercial speech is categorized as unprotected expression that may be subject to prior restraint. Recently, this Court upheld the constitutionality of Section 6 of the Milk Code requiring the submission to a government screening committee of advertising materials for infant formula milk to prevent false or deceptive claims to the public.37 There is, however, no claim here by respondents that the Garci Tapes constitute false or misleading commercial advertisement. The NTC concedes that the Garci Tapes have not been authenticated as accurate or truthful. The NTC also concedes that only "after a prosecution or appropriate

investigation" can it be established that the Garci Tapes constitute "false information and/or willful misrepresentation." Clearly, the NTC admits that it does not even know if the Garci Tapes contain false information or willful misrepresentation. 4. Nature of Prior Restraint in the Present Case The NTC action restraining the airing of the Garci Tapes is a content-based prior restraint because it is directed at the message of the Garci Tapes. The NTCs claim that the Garci Tapes might contain "false information and/or willful misrepresentation," and thus should not be publicly aired, is an admission that the restraint is content-based. 5. Nature of Expression in the Present Case The public airing of the Garci Tapes is a protected expression because it does not fall under any of the four existing categories of unprotected expression recognized in this jurisdiction. The airing of the Garci Tapes is essentially a political expression because it exposes that a presidential candidate had allegedly improper conversations with a COMELEC Commissioner right after the close of voting in the last presidential elections. Obviously, the content of the Garci Tapes affects gravely the sanctity of the ballot. Public discussion on the sanctity of the ballot is indisputably a protected expression that cannot be subject to prior restraint. Public discussion on the credibility of the electoral process is one of the highest political expressions of any electorate, and thus deserves the utmost protection. If ever there is a hierarchy of protected expressions, political expression would occupy the highest rank,38 and among different kinds of political expression, the subject of fair and honest elections would be at the top. In any event, public discussion on all political issues should always remain uninhibited, robust and wide open. The rule, which recognizes no exception, is that there can be no contentbased prior restraint on protected expression. On this ground alone, the NTC press release is unconstitutional. Of course, if the courts determine that the subject matter of a wiretapping, illegal or not, endangers the security of the State, the public airing of the tape becomes unprotected expression that may be subject to prior restraint. However, there is no claim here by respondents that the subject matter of the Garci Tapes involves national security and publicly airing the tapes would endanger the security of the State.39 The alleged violation of the Anti-Wiretapping Law is not in itself a ground to impose a prior restraint on the airing of the Garci Tapes because the Constitution expressly prohibits the enactment of any law, and that includes anti-wiretapping laws, curtailing freedom of expression.40 The only exceptions to this rule are the four recognized categories of unprotected expression. However, the content of the Garci Tapes does not fall under any of these categories of unprotected expression. The airing of the Garci Tapes does not violate the right to privacy because the content of the Garci Tapes is a matter of important public concern. The Constitution guarantees the peoples right to information on matters of public concern.41 The remedy of any person aggrieved by the public airing of the Garci Tapes is to file a complaint for violation of the Anti-Wiretapping Law after the commission of the

crime. Subsequent punishment,absent a lawful defense, is the remedy available in case of violation of the Anti-Wiretapping Law. The present case involves a prior restraint on protected expression. Prior restraint on protected expression differs significantly from subsequent punishment of protected expression. While there can be no prior restraint on protected expression, there can be subsequent punishment for protected expression under libel, tort or other laws. In the present case, the NTC action seeks prior restraint on the airing of the Garci Tapes, not punishment of personnel of radio and television stations for actual violation of the Anti-Wiretapping Law. 6. Only the Courts May Impose Content-Based Prior Restraint The NTC has no power to impose content-based prior restraint on expression. The charter of the NTC does not vest NTC with any content-based censorship power over radio and television stations. In the present case, the airing of the Garci Tapes is a protected expression that can never be subject to prior restraint. However, even assuming for the sake of argument that the airing of the Garci Tapes constitutes unprotected expression, only the courts have the power to adjudicate on the factual and legal issue of whether the airing of the Garci Tapes presents a clear and present danger of bringing about a substantive evil that the State has a right and duty to prevent, so as to justify the prior restraint. Any order imposing prior restraint on unprotected expression requires prior adjudication by the courts on whether the prior restraint is constitutional. This is a necessary consequence from the presumption of invalidity of any prior restraint on unprotected expression. Unless ruled by the courts as a valid prior restraint, government agencies cannot implement outright such prior restraint because such restraint is presumed unconstitutional at inception. As an agency that allocates frequencies or airwaves, the NTC may regulate the bandwidth position, transmitter wattage, and location of radio and television stations, but not the content of the broadcasts. Such content-neutral prior restraint may make operating radio and television stations more costly. However, such content-neutral restraint does not restrict the content of the broadcast. 7. Government Failed to Overcome Presumption of Invalidity Assuming that the airing of the Garci Tapes constitutes unprotected expression, the NTC action imposing prior restraint on the airing is presumed unconstitutional. The Government bears a heavy burden to prove that the NTC action is constitutional. The Government has failed to meet this burden. In their Comment, respondents did not invoke any compelling State interest to impose prior restraint on the public airing of the Garci Tapes. The respondents claim that they merely "fairly warned" radio and television stations to observe the AntiWiretapping Law and pertinent NTC circulars on program standards. Respondents have not explained how and why the observance by radio and television stations of the Anti-Wiretapping Law and pertinent NTC circulars constitutes a compelling State interest justifying prior restraint on the public airing of the Garci Tapes.

Violation of the Anti-Wiretapping Law, like the violation of any criminal statute, can always be subject to criminal prosecution after the violation is committed. Respondents have not explained why there is a need in the present case to impose prior restraint just to prevent a possible future violation of the Anti-Wiretapping Law. Respondents have not explained how the violation of the Anti-Wiretapping Law, or of the pertinent NTC circulars, can incite imminent lawless behavior or endanger the security of the State. To allow such restraint is to allow prior restraint on all future broadcasts that may possibly violate any of the existing criminal statutes. That would be the dawn of sweeping and endless censorship on broadcast media. 8. The NTC Warning is a Classic Form of Prior Restraint The NTC press release threatening to suspend or cancel the airwave permits of radio and television stations constitutes impermissible pressure amounting to prior restraint on protected expression. Whether the threat is made in an order, regulation, advisory or press release, the chilling effect is the same: the threat freezes radio and television stations into deafening silence. Radio and television stations that have invested substantial sums in capital equipment and market development suddenly face suspension or cancellation of their permits. The NTC threat is thus real and potent. In Burgos v. Chief of Staff,42 this Court ruled that the closure of the We Forum newspapers under a general warrant "is in the nature of a previous restraint or censorship abhorrent to the freedom of the press guaranteed under the fundamental law." The NTC warning to radio and television stations not to air the Garci Tapes or else their permits will be suspended or cancelled has the same effect a prior restraint on constitutionally protected expression. In the recent case of David v. Macapagal-Arroyo,43 this Court declared unconstitutional government threats to close down mass media establishments that refused to comply with government prescribed "standards" on news reporting following the declaration of a State of National Emergency by President Arroyo on 24 February 2006. The Court described these threats in this manner: Thereafter, a wave of warning[s] came from government officials. Presidential Chief of Staff Michael Defensor was quoted as saying that such raid was "meant to show a 'strong presence,' to tell media outlets not to connive or do anything that would help the rebels in bringing down this government." Director General Lomibao further stated that "if they do not follow the standards and the standards are if they would contribute to instability in the government, or if they do not subscribe to what is in General Order No. 5 and Proc. No. 1017 we will recommend a 'takeover.'" National Telecommunications Commissioner Ronald Solis urged television and radio networks to "cooperate" with the government for the duration of the state of national emergency. He warned that his agency will not hesitate to recommend the closure of any broadcast outfit that violates rules set out for media coverage during times when the national security is threatened.44 (Emphasis supplied) The Court struck down this "wave of warning[s]" as impermissible restraint on freedom of expression. The Court ruled that "the imposition of standards on media or any form of prior restraint on the press, as well as the warrantless search of the Tribune offices and whimsical seizure of its articles for publication and other materials, are declared UNCONSTITUTIONAL."45

The history of press freedom has been a constant struggle against the censor whose weapon is the suspension or cancellation of licenses to publish or broadcast. The NTC warning resurrects the weapon of the censor. The NTC warning is a classic form of prior restraint on protected expression, which in the words of Near v. Minnesota is "the essence of censorship."46 Long before the American Declaration of Independence in 1776, William Blackstone had already written in his Commentaries on the Law of England, "The liberty of the press x x x consists in laying no previous restraints upon publication x x x."47 Although couched in a press release and not in an administrative regulation, the NTC threat to suspend or cancel permits remains real and effective, for without airwaves or frequencies, radio and television stations will fall silent and die. The NTC press release does not seek to advance a legitimate regulatory objective, but to suppress through coercion information on a matter of vital public concern. 9. Conclusion In sum, the NTC press release constitutes an unconstitutional prior restraint on protected expression. There can be no content-based prior restraint on protected expression. This rule has no exception. I therefore vote to (1) grant the petition, (2) declare the NTC warning, embodied in its press release dated 11 June 2005, an unconstitutional prior restraint on protected expression, and (3) enjoin the NTC from enforcing the same. ANTONIO T. CARPIO Associate Justice

SYLLABUS 1. CIVIL LAW; OBLIGATIONS; PENAL DEFINED. A penal clause has been defined as "an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing on the debtor a special presentation (generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled" (3 Castan 8th Ed. p. 118). 2. ID.; ID.; ACCESSORY OBLIGATION, DEFINED. An accessory obligation has been defined as that attached to a principal obligation in order to complete the same or take its place in the case of breach (4 Puig Pea Part 1 p. 76). Note therefore that an accessory obligation is dependent for its existence on the existence of a principal obligation. A principal obligation may exist without an accessory obligation but an accessory obligation cannot exist without a principal obligation. For example, the contract of mortgage is an accessory obligation to enforce the performance of the main obligation of indebtedness. An indebtedness can exist without the mortgage but a mortgage cannot exist without the indebtedness, which is the principal obligation. In the present case, the principal obligation is the loan between the parties. The accessory obligation of a penal clause is to enforce the main obligation of payment of the loan. If therefore the principal obligation does not exist the penalty being accessory cannot exist. 3. ID.; ID.; PENALTY; WHEN DEMANDABLE. A penalty is demandable in case of non performance or late performance of the main obligation. In other words in order that the penalty may arise there must be a breach of the obligation either by total or partial non fulfillment or there is non fulfillment in point of time which is called mora or delay. The debtor therefore violates the obligation in point of time if there is mora or delay. Now, there is no mora or delay unless there is a demand. It is noteworthy that in the present case during all the period when the principal obligation was still subsisting, although there were late amortizations there was no demand made by the creditor, plaintiff-appellant for the payment of the penalty. Therefore up to the time of the letter of plaintiff-appellant there was no demand for the payment of the penalty, hence the debtor was no in mora in the payment of the penalty. 4. ID.; ID.; ID.; DUAL FUNCTION OF A PENAL CLAUSE. A penal clause is an accessory undertaking to assume greater liability in case of breach. 6 It has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach. From the foregoing, it is clear that a penal clause is intended to prevent the obligor from defaulting in the performance of his obligation. Thus, if there should be default, the penalty may be enforced. One commentator of the Civil Code wrote; "Now when is the penalty deemed demandable in accordance with the provisions of the Civil Code? We must make a distinction between a positive and a negative obligation. With regard to obligations which are positive (to give and to do), the penalty is demandable when the debtor is in mora; hence, the necessity of demand by the debtor unless the same is excused . . ." 4 E.P. Caguioa, Comments and Cases on Civil Law 280 (1983 ed.) 5. ID.; ID.; DEFAULT, WHEN INCURRED; WHEN DEMAND NOT NECESSARY; NOT APPLICABLE IN CASE AT BAR. Under the Civil Code, delay begins from the time the obligee judicially or extrajudicially demands from the obligor the performance of the obligation. There are only three instances when demand is not necessary to render the obligor in default. These are the following: "(1) When the obligation or the law expressly so declares; (2) When from the nature and the circumstances of

SECOND DIVISION

G.R. No. 73345. April 7, 1993.

SOCIAL SECURITY SYSTEM, petitioner, vs. MOONWALK DEVELOPMENT & HOUSING CORPORATION, ROSITA U. ALBERTO, ROSITA U. ALBERTO, JMA HOUSE, INC., MILAGROS SANCHEZ SANTIAGO, in her capacity as Register of Deeds for the Province of Cavite, ARTURO SOLITO, in his capacity as Register of Deeds for Metro Manila District IV, Makati, Metro Manila and the INTERMEDIATE APPELLATE COURT, respondents. The Solicitor General for petitioner. K.V. Faylona & Associates for private respondents.

the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When the demand would be useless, as when the obligor has rendered it beyond his power to perform." (Civil Code, Art. 1169) This case does not fall within any of the established exceptions. Hence, despite the provision in the promissory note that "(a)ll amortization payments shall be made every first five (5) days of the calendar month until the principal and interest on the loan or any portion thereof actually released has been fully paid," petitioner is not excused from making a demand. It has been established that at the time of payment of the full obligation, private respondent Moonwalk has long been delinquent in meeting its monthly arrears and in paying the full amount of the loan itself as the obligation matured sometime in January, 1977. But mere delinquency in payment does not necessarily mean delay in the legal concept. 6. ID.; ID.; ID.; REQUISITES; NOT PRESENT IN CASE AT BAR. To be in default ". . . is different from mere delay in the grammatical sense, because it involves the beginning of a special condition or status which has its own peculiar effects or results." In order that the debtor may be in default it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially and extrajudicially. Default generally begins from the moment the creditor demands the performance of the obligation. Nowhere in this case did it appear that SSS demanded from Moonwalk the payment of its monthly amortizations. Neither did it show that petitioner demanded the payment of the stipulated penalty upon the failure of Moonwalk to meet its monthly amortization. What the complaint itself showed was that SSS tried to enforce the obligation sometime in September, 1977 by foreclosing the real estate mortgages executed by Moonwalk in favor of SSS. But this foreclosure did not push through upon Moonwalk's requests and promises to pay in full. The next demand for payment happened on October 1, 1979 when SSS issued a Statement of Account to Moonwalk. And in accordance with said statement, Moonwalk paid its loan in full. What is clear, therefore, is that Moonwalk was never in default because SSS never compelled performance. Though it tried to foreclose the mortgages, SSS itself desisted from doing so upon the entreaties of Moonwalk. If the Statement of Account could properly be considered as demand for payment, the demand was complied with on time. Hence, no delay occurred and there was, therefore, no occasion when the penalty became demandable and enforceable. Since there was no default in the performance of the main obligation payment of the loan SSS was never entitled to recover any penalty, not at the time it made the Statement of Account and certainly, not after the extinguishment of the principal obligation because then, all the more that SSS had no reason to ask for the penalties. Thus, there could never be any occasion for waiver or even mistake in the application for payment because there was nothing for SSS to waive as its right to enforce the penalty did not arise. DECISION CAMPOS, JR., J p: Before Us is a petition for review on certiorari of decision 1 of the then Intermediate Appellate Court affirming in toto the decision of the former Court of First Instance of Rizal, Seventh Judicial District, Branch XXIX, Pasay City. The facts as found by the Appellate Court are as follows:

"On February 20, 1980, the Social Security System, SSS for brevity, filed a complaint in the Court of First Instance of Rizal against Moonwalk Development & Housing Corporation, Moonwalk for short, alleging that the former had committed an error in failing to compute the 12% interest due on delayed payments on the loan of Moonwalk resulting in a chain of errors in the application of payments made by Moonwalk and, in an unpaid balance on the principal loan agreement in the amount of P7,053.77 and, also in not reflecting in its statement or account an unpaid balance on the said penalties for delayed payments in the amount of P7,517,178.21 as of October 10, 1979. Moonwalk answered denying SSS' claims and asserting that SSS had the opportunity to ascertain the truth but failed to do so. The trial court set the case for pre-trial at which pre-trial conference, the court issued an order giving both parties thirty (30) days within which to submit a stipulation of facts. The Order of October 6, 1980 dismissing the complaint followed the submission by the parties on September 19, 1980 of the following stipulation of Facts: "1. On October 6, 1971, plaintiff approved the application of defendant Moonwalk for an interim loan in the amount of THIRTY MILLION PESOS (P30,000,000.00) for the purpose of developing and constructing a housing project in the provinces of Rizal and Cavite; "2. Out of the approved loan of THIRTY MILLION PESOS (P30,000,000.00), the sum of P9,595,000.00 was released to defendant Moonwalk as of November 28, 1973; "3. A third Amended Deed of First Mortgage was executed on December 18, 1973 Annex `D' providing for restructuring of the payment of the released amount of P9,595,000.00. "4. Defendants Rosita U. Alberto and Rosita U. Alberto, mother and daughter respectively, under paragraph 5 of the aforesaid Third Amended Deed of First Mortgage substituted Associated Construction and Surveys Corporation, Philippine Model Homes Development Corporation, Mariano Z. Velarde and Eusebio T. Ramos, as solidary obligors; "5. On July 23, 1974, after considering additional releases in the amount of P2,659,700.00, made to defendant Moonwalk, defendant Moonwalk delivered to the plaintiff a promissory note for TWELVE MILLION TWO HUNDRED FIFTY FOUR THOUSAND SEVEN HUNDRED PESOS (P12,254,700.00) Annex `E', signed by Eusebio T. Ramos, and the said Rosita U. Alberto and Rosita U. Alberto; "6. Moonwalk made a total payment of P23,657,901.84 to SSS for the loan principal of P12,254,700.00 released to it. The last payment made by Moonwalk in the amount of P15,004,905.74 were based on the Statement of Account, Annex "F" prepared by plaintiff SSS for defendant; "7. After settlement of the account stated in Annex 'F' plaintiff issued to defendant Moonwalk the Release of Mortgage for Moonwalk's mortgaged properties in Cavite and Rizal, Annexes 'G' and 'H' on October 9, 1979 and October 11, 1979 respectively.

"8. In letters to defendant Moonwalk, dated November 28, 1979 and followed up by another letter dated December 17, 1979, plaintiff alleged that it committed an honest mistake in releasing defendant. "9. In a letter dated December 21, 1979, defendant's counsel told plaintiff that it had completely paid its obligations to SSS; "10. The genuineness and due execution of the documents marked as Annex (sic) 'A' to 'O' inclusive, of the Complaint and the letter dated December 21, 1979 of the defendant's counsel to the plaintiff are admitted. "Manila for Pasay City, September 2, 1980." 2 On October 6, 1990, the trial court issued an order dismissing the complaint on the ground that the obligation was already extinguished by the payment by Moonwalk of its indebtedness to SSS and by the latter's act of cancelling the real estate mortgages executed in its favor by defendant Moonwalk. The Motion for Reconsideration filed by SSS with the trial court was likewise dismissed by the latter. These orders were appealed to the Intermediate Appellate Court. Respondent Court reduced the errors assigned by the SSS into this issue: ". . . are defendantsappellees, namely, Moonwalk Development and Housing Corporation, Rosita U. Alberto, Rosita U. Alberto, JMA House, Inc. still liable for the unpaid penalties as claimed by plaintiff-appellant or is their obligation extinguished?" 3 As We have stated earlier, the respondent Court held that Moonwalk's obligation was extinguished and affirmed the trial court. Hence, this Petition wherein SSS raises the following grounds for review: "First, in concluding that the penalties due from Moonwalk are "deemed waived and/or barred," the appellate court disregarded the basic tenet that waiver of a right must be express, made in a clear and unequivocal manner. There is no evidence in the case at bar to show that SSS made a clear, positive waiver of the penalties, made with full knowledge of the circumstances. Second, it misconstrued the ruling that SSS funds are trust funds, and SSS, being a mere trustee, cannot perform acts affecting the same, including condonation of penalties, that would diminish property rights of the owners and beneficiaries thereof. (United Christian Missionary Society v. Social Security Commission, 30 SCRA 982, 988 [1969]). Third, it ignored the fact that penalty at the rate of 12% p.a. is not inequitable. Fourth, it ignored the principle that equity will cancel a release on the ground of mistake of fact." 4 The same problem which confronted the respondent court is presented before Us: Is the penalty demandable even after the extinguishment of the principal obligation? The former Intermediate Appellate Court, through Justice Eduard P. Caguioa, held in the negative. It reasoned, thus:

"2. As we have explained under No. 1, contrary to what the plaintiff-appellant states in its Brief, what is sought to be recovered in this case is not the 12% interest on the loan but the 12% penalty for failure to pay on time the amortization. What is sought to be enforced therefore is the penal clause of the contract entered into between the parties. Now, what is a penal clause. A penal clause has been defined as "an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by imposing on the debtor a special presentation (generally consisting in the payment of a sum of money) in case the obligation is not fulfilled or is irregularly or inadequately fulfilled" (3 Castan 8th Ed. p. 118). Now an accessory obligation has been defined as that attached to a principal obligation in order to complete the same or take its place in the case of breach (4 Puig Pea Part 1 p. 76). Note therefore that an accessory obligation is dependent for its existence on the existence of a principal obligation. A principal obligation may exist without an accessory obligation but an accessory obligation cannot exist without a principal obligation. For example, the contract of mortgage is an accessory obligation to enforce the performance of the main obligation of indebtedness. An indebtedness can exist without the mortgage but a mortgage cannot exist without the indebtedness, which is the principal obligation. In the present case, the principal obligation is the loan between the parties. The accessory obligation of a penal clause is to enforce the main obligation of payment of the loan. If therefore the principal obligation does not exist the penalty being accessory cannot exist. Now then when is the penalty demandable? A penalty is demandable in case of non performance or late performance of the main obligation. In other words in order that the penalty may arise there must be a breach of the obligation either by total or partial non fulfillment or there is non fulfillment in point of time which is called mora or delay. The debtor therefore violates the obligation in point of time if there is mora or delay. Now, there is no mora or delay unless there is a demand. It is noteworthy that in the present case during all the period when the principal obligation was still subsisting, although there were late amortizations there was no demand made by the creditor, plaintiff-appellant for the payment of the penalty. Therefore up to the time of the letter of plaintiff-appellant there was no demand for the payment of the penalty, hence the debtor was no in mora in the payment of the penalty. However, on October 1, 1979, plaintiff-appellant issued its statement of account (Exhibit F) showing the total obligation of Moonwalk as P15,004,905.74, and forthwith demanded payment from defendant-appellee. Because of the demand for payment, Moonwalk made several payments on September 29, October 9 and 19, 1979 respectively, all in all totalling P15,004,905.74 which was a complete payment of its obligation as stated in Exhibit F. Because of this payment the obligation of Moonwalk was considered extinguished, and pursuant to said extinguishment, the real estate mortgages given by Moonwalk were released on October 9, 1979 and October 10, 1979 (Exhibits G and H). For all purposes therefore the principal obligation of defendant-appellee was deemed extinguished as well as the accessory obligation of real estate mortgage; and that is the reason for the release of all the Real Estate Mortgages on October 9 and 10, 1979 respectively. Now, besides the Real Estate Mortgages, the penal clause which is also an accessory obligation must also be deemed extinguished considering that the principal obligation was considered extinguished, and the penal clause being an accessory

obligation. That being the case, the demand for payment of the penal clause made by plaintiff-appellant in its demand letter dated November 28, 1979 and its follow up letter dated December 17, 1979 (which parenthetically are the only demands for payment of the penalties) are therefore ineffective as there was nothing to demand. It would be otherwise, if the demand for the payment of the penalty was made prior to the extinguishment of the obligation because then the obligation of Moonwalk would consist of: 1) the principal obligation 2) the interest of 12% on the principal obligation and 3) the penalty of 12% for late payment for after demand, Moonwalk would be in mora and therefore liable for the penalty. Let it be emphasized that at the time of the demand made in the letters of November 28, 1979 and December 17, 1979 as far as the penalty is concerned, the defendant-appellee was not in default since there was no mora prior to the demand. That being the case, therefore, the demand made after the extinguishment of the principal obligation which carried with it the extinguishment of the penal clause being merely an accessory obligation, was an exercise in futility. 3. At the time of the payment made of the full obligation on October 10, 1979 together with the 12% interest by defendant-appellee Moonwalk, its obligation was extinguished. It being extinguished, there was no more need for the penal clause. Now, it is to be noted that penalty at anytime can be modified by the Court. Even substantial performance under Art. 1234 authorizes the Court to consider it as complete performance minus damages. Now, Art, 1229 Civil Code of the Philippines provides: "ART. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable." If the penalty can be reduced after the principal obligation has been partly or irregularly complied with by the debtor, which is nonetheless a breach of the obligation, with more reason the penal clause is not demandable when full obligation has been complied with since in that case there is no breach of the obligation. In the present case, there has been as yet no demand for payment of the penalty at the time of the extinguishment of the obligation, hence there was likewise an extinguishment of the penalty. Let Us emphasize that the obligation of defendant-appellee was fully complied with by the debtor, that is, the amount loaned together with the 12% interest has been fully paid by the appellee. That being so, there is no basis for demanding the penal clause since the obligation has been extinguished. Here there has been a waiver of the penal clause as it was not demanded before the full obligation was fully paid and extinguished. Again, emphasis must be made on the fact that plaintiff-appellant has not lost anything under the contract since in got back in full the amount loan (sic) as well as the interest thereof. The same thing would have happened if the obligation was paid on time, for then the penal clause, under the terms of the contract would not apply. Payment of the penalty does not mean gain or loss of plaintiff-appellant since it is merely for the purpose of enforcing the performance of the main obligation has been fully complied with and extinguished, the penal clause has lost its raison d' entre." 5 We find no reason to depart from the appellate court's decision. We, however, advance the following reasons for the denial of this petition.

Article 1226 of the Civil Code provides: "Art. 1226. In obligations with a penal clause, he penalty shall substitute the indemnity for damages and the payment of interests in case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the penalty or is guilty of fraud in the fulfillment of the obligation. The penalty may be enforced only when it is demandable in accordance with the provisions of this Code." (Emphasis Ours.) A penal clause is an accessory undertaking to assume greater liability in case of breach. 6 It has a double function: (1) to provide for liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of breach. 7 From the foregoing, it is clear that a penal clause is intended to prevent the obligor from defaulting in the performance of his obligation. Thus, if there should be default, the penalty may be enforced. One commentator of the Civil Code wrote: "Now when is the penalty deemed demandable in accordance with the provisions of the Civil Code? We must make a distinction between a positive and a negative obligation. With regard to obligations which are positive (to give and to do), the penalty is demandable when the debtor is in mora; hence, the necessity of demand by the debtor unless the same is excused . . ." 8 When does delay arise? Under the Civil Code, delay begins from the time the obligee judicially or extrajudicially demands from the obligor the performance of the obligation. "Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation." There are only three instances when demand is not necessary to render the obligor in default. These are the following: "(1) When the obligation or the law expressly so declares; (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or (3) When the demand would be useless, as when the obligor has rendered it beyond his power to perform." 9 This case does not fall within any of the established exceptions. Hence, despite the provision in the promissory note that "(a)ll amortization payments shall be made every first five (5) days of the calendar month until the principal and interest on the loan or any portion thereof actually released has been fully paid," 10 petitioner is not excused from making a demand. It has been established that at the time of payment of the full obligation, private respondent Moonwalk has long been delinquent in meeting its monthly arrears and in paying the full amount of the loan

itself as the obligation matured sometime in January, 1977. But mere delinquency in payment does not necessarily mean delay in the legal concept. To be in default ". . . is different from mere delay in the grammatical sense, because it involves the beginning of a special condition or status which has its own peculiar effects or results." 11 In order that the debtor may be in default it is necessary that the following requisites be present: (1) that the obligation be demandable and already liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially and extrajudicially. 12 Default generally begins from the moment the creditor demands the performance of the obligation. 13 Nowhere in this case did it appear that SSS demanded from Moonwalk the payment of its monthly amortizations. Neither did it show that petitioner demanded the payment of the stipulated penalty upon the failure of Moonwalk to meet its monthly amortization. What the complaint itself showed was that SSS tried to enforce the obligation sometime in September, 1977 by foreclosing the real estate mortgages executed by Moonwalk in favor of SSS. But this foreclosure did not push through upon Moonwalk's requests and promises to pay in full. The next demand for payment happened on October 1, 1979 when SSS issued a Statement of Account to Moonwalk. And in accordance with said statement, Moonwalk paid its loan in full. What is clear, therefore, is that Moonwalk was never in default because SSS never compelled performance. Though it tried to foreclose the mortgages, SSS itself desisted from doing so upon the entreaties of Moonwalk. If the Statement of Account could properly be considered as demand for payment, the demand was complied with on time. Hence, no delay occurred and there was, therefore, no occasion when the penalty became demandable and enforceable. Since there was no default in the performance of the main obligation payment of the loan SSS was never entitled to recover any penalty, not at the time it made the Statement of Account and certainly, not after the extinguishment of the principal obligation because then, all the more that SSS had no reason to ask for the penalties. Thus, there could never be any occasion for waiver or even mistake in the application for payment because there was nothing for SSS to waive as its right to enforce the penalty did not arise. SSS, however, in buttressing its claim that it never waived the penalties, argued that the funds it held were trust funds and as trustee, the petitioner could not perform acts affecting the funds that would diminish property rights of the owners and beneficiaries thereof. To support its claim, SSS cited the case of United Christian Missionary Society v. Social Security Commission. 14 We looked into the case and found out that it is not applicable to the present case as it dealt not with the right of the SSS to collect penalties which were provided for in contracts which it entered into but with its right to collect premiums and its duty to collect the penalty for delayed payment or non-payment of premiums. The Supreme Court, in that case, stated: "No discretion or alternative is granted respondent Commission in the enforcement of the law's mandate that the employer who fails to comply with his legal obligation to remit the premiums to the System within the prescribed period shall pay a penalty of three (3%) per month. The prescribed penalty is evidently of a punitive character, provided by the legislature to assure that employers do not take lightly the State's exercise of the police power in the implementation of the Republic's declared policy "to develop, establish gradually and perfect a social security system which shall be suitable to the needs of the people throughout the Philippines and (to) provide protection to employers against the hazards of disability, sickness, old age and death . . ."

Thus, We agree with the decision of the respondent court on the matter which We quote, to wit: "Note that the above case refers to the condonation of the penalty for the non remittance of the premium which is provided for by Section 22(a) of the Social Security Act . . . In other words, what was sought to be condoned was the penalty provided for by law for non remittance of premium for coverage under the Social Security Act. The case at bar does not refer to any penalty provided for by law nor does it refer to the non remittance of premium. The case at bar refers to a contract of loan entered into between plaintiff and defendant Moonwalk Development and Housing Corporation. Note, therefore, that no provision of law is involved in this case, nor is there any penalty imposed by law nor a case about non-remittance of premium required by law. The present case refers to a contract of loan payable in installments not provided for by law but by agreement of the parties. Therefore, the ratio decidendi of the case of United Christian Missionary Society vs. Social Security Commission which plaintiff-appellant relies is not applicable in this case; clearly, the Social Security Commission, which is a creature of the Social Security Act cannot condone a mandatory provision of law providing for the payment of premiums and for penalties for non remittance. The life of the Social Security Act is in the premiums because these are the funds from which the Social Security Act gets the money for its purposes and the non-remittance of the premiums is penalized not by the Social Security Commission but by law. xxx xxx xxx It is admitted that when a government created corporation enters into a contract with private party concerning a loan, it descends to the level of a private person. Hence, the rules on contract applicable to private parties are applicable to it. The argument therefore that the Social Security Commission cannot waive or condone the penalties which was applied in the United Christian Missionary Society cannot apply in this case. First, because what was not paid were installments on a loan but premiums required by law to be paid by the parties covered by the Social Security Act. Secondly, what is sought to be condoned or waived are penalties not imposed by law for failure to remit premiums required by law, but a penalty for non payment provided for by the agreement of the parties in the contract between them . . ." 15 WHEREFORE, in view of the foregoing, the petition is DISMISSED and the decision of the respondent court is AFFIRMED. LLpr SO ORDERED. EN BANC G.R. No. L-10801 February 28, 1961

MARIANO RODRIGUEZ and MARINA RODRIGUEZ, plaintiffs-appellees, vs. PORFIRIO BELGICA and EMMA BELGICA, defendants-appellants. Ignacio M. Orendain for plaintiffs-appellees. Arsenio M. Cabrera and Jose S. Fineza for defendants-appellants. PAREDES, J.: This was originally a partition case, instituted in the Court of First Instance of Rizal, Quezon City Branch. After a series of pleadings filed by the parties, and on one of the hearings held, the defendants made a verbal offer to compromise. Pursuant to

the said offer, the plaintiffs, on August 27, 1955, filed a "Motion re Offer to Compromise." What transpired afterwards is best depicted in the following judgment of the lower court: . "The above-entitled case was scheduled in the calendar of this Court today to consider the "Motion re Offer of Compromise" as a result of the pre-trial held by the parties and their respective Attorneys in this case. The parties have discussed and considered the terms and conditions set forth in said Offer of Compromise submitted by the attorney for the plaintiffs and as a result thereof they have arrived at an amicable settlement, the terms of which were dictated in open court by the attorneys of both parties in the presence of their clients, with the exception of plaintiffs Mariano Rodriguez and his wife Marina Rodriguez who were represented by their son, Atty. Jose Rodriguez. The terms and conditions of said Compromise Agreement are as follows: . Atty. Fineza: If your Honor please, as regards the Motion Re Offer of Compromise presented by the plaintiffs dated August 26, 1955, we wish to inform this Honorable Court that with regards to paragraph 1-A wherein the length of time given to the defendants to pay the plaintiffs of P35,000.00 is thirty (30) days, we request that said period be seventy (70) days counted from today, August 30, 1955. With regard to Paragraphs 1-B and 1-C, we are agreeable to the terms and conditions therein stated: Court: . Any objection to the said counter proposal of the defendants? . Atty. Orendain: . We have no objection, Your Honor. Court: - (To defendant Mr. Porfirio Belgica). Mr. Porfirio Belgica, have you heard what Atty. Fineza, your lawyer, have proposed to the Court and are you agreeable to the same? . Defendant Porfirio Belgica: . Yes, Your Honor. Atty. Fineza: . Inasmuch as defendant Porfirio Belgica will have to negotiate a portion of the part pertaining to him to raise the amount of P35,000.00 with which he will pay the plaintiffs, we request that the plaintiffs make new selection of the portion they desire as per plan Exhibit E. Atty. Orendain:.

According to my clients, Your Honor, I was instructed to choose the portion which is nearest to Quezon City, in other words, the portion in the bigger lot which is the Southern portion as appears in Exhibit E and which is encircled in red pencil, subject to relocation or readjustment after a survey is made. That the plaintiffs will sign the necessary transfer of the 36% in favor of the defendants upon payment of the P35,000.00. That the plaintiffs agree to grant authority to defendant Porfirio Belgica to negotiate the sale or mortgage of the 36% which is proposed to be conveyed to him, for the purpose of raising the P35,000.00 to be paid to the plaintiffs. That the Motion re Offer of Compromise is hereby made a part and parcel of the Compromise Agreement, as modified. Parties agree that in the event the defendants fail to pay to the plaintiffs said amount of P35,000.00 within the period above fixed or stipulated, the plaintiffs will automatically be the owners of the 36% of the two parcels of land, and that the 14% pertaining to the defendants will be taken from the portion towards Caloocan, or more particularly in the portion encircled in blue pencil, subject to the survey and relocation of a surveyor. Court: . Make of record that this Compromise Agreement was made in open court in the presence of Atty. Jose Rodriguez, who is the son of the plaintiff Mariano Rodriguez, their attorney Mr. Ignacio M. Orendain, the defendant Mr. Porfirio Belgica and his counsel Atty. Jose S. Fineza. Parties respectfully pray this Honorable Court to render judgment in accordance therewith without costs. The transcript of the notes taken by the Stenographer of the proceedings taken by the parties before they arrived at an amicable settlement was signed by the parties and their respective attorneys and submitted to this Court for corresponding decision. IN VIEW OF THE FOREGOING, judgment is hereby rendered approving en toto the foregoing Compromise Agreement and the parties are hereby ordered to abide by and comply with the terms and conditions contained in said Compromise Agreement, without pronouncement as to costs. On September 3, 1955, the defendants filed a Motion for Withdrawal of Exhibits, particularly the Certificates of Titles covering the lands, subject matter of the present controversy. Among the reasons given in the motion was "the defendants have already taken steps to effect that partition of the property for the purpose of delimiting the respectively portion which would appertain to each, which delimitation has to be effected in order that defendants may have the opportunity of negotiating their half or any portion thereof to raise the P35,000.00 which he undertook to pay to plaintiffs. The above motion bore the conformity of counsel for the plaintiffs. On November 19, 1955, after the lapse of the seventy (70) day period stipulated in the compromise agreement, and upon the failure of the defendants to pay, the

plaintiffs presented a motion praying that the defendants be ordered to deliver to the plaintiffs the Certificates of the Titles so that 14% of the property pertaining to the defendant could be segregated. An opposition was registered by the defendants, contending that the inability to meet the obligation to pay the P35,000.00 was due to the deliberate refusal of the plaintiffs to grant the authority to defendant Porfirio Belgica to negotiate the sale or mortgage of the 36%; and that since the decision had created reciprocal obligations, the refusal or failure on the part of one to comply did not make the other in default. In the opposition, the defendants prayed that the plaintiffs be ordered to grant defendant Porfirio Belgica the authority to negotiate the sale or mortgage of the 36%. the lower court, On November 26, 1955, ordered the defendants to surrender to the Court the TCT's they withdrew, not latter than December 1, 1955. On this date the defendants filed a "Motion to Compel Plaintiffs to Comply with the Conditions of the Judgment", reiterating in substance, the reason they invoked in their previous oppositions. On December 15, 1955, the trial court acting on the motion of the defendants, handed down the following order, to wit: "defendant Belgica's contention is that the plaintiffs Mariano Rodriguez has refused to grant the authority adverted to. Said defendant, however, has not done anything, nor has filed any petition with the Court regarding the alleged refusal of the plaintiff Rodriguez to grant such authority before the expiration of the 70-day period fixed by the parties within which to pay the said amount of P35,000.00. The petition to compel the plaintiffs to comply with the conditions of the judgment, namely to command said plaintiffs to grant the authority above referred to was only filed on December 1, 1955, or after the expiration of 90 days. In the opinion of the Court, the decision rendered in this case has already become final and executory under the terms and conditions stipulated by the parties and upon which said decision was based. IN VIEW OF THE FOREGOING, the said motion to compel the plaintiffs to comply with the condition embodied in the judgment is hereby DENIED.". The above ordered is now the subject to the present appeal, appellants contending in their lone assignment of error that the lower court erred "in denying the motion of December 1, 1955 (to compel the plaintiffs to grant the authority), on the ground that because of the failure of defendants-appelants to pay the plaintiffs-appelees the amount P35,000.00 within the period of seventy days, the judgment of August 30,1955, has already become due and executory.". Whether the denial of the motion of compel the plaintiffs to grant the authority is proper and legal, would seem to be the dominant issue.. On the plaintiffs-appellees was impose the obligation of granting to defendantsappellants the requisite authority to negotiate either the sale or mortgage of the 36% interest in the property. This is understandable, because on the face of the two certificates of the title covering the properties, defendants owned only 14%, while plaintiffs owned 86%. Without such authority executed by plaintiffs in favor of the defendants, it was difficult, not to say impossible for the latter to affect a negotiation. This the plaintiffs the fully knew, because in the compromise, they acknowledged that the amount of P35,000.00 due to them would be paid within 70 days from the August 30, 1953, with money to be delivered from the sale of mortgage of the property. It was, therefore, incumbent upon the plaintiffs "to grant authority" to defendants to negotiate the sale or mortgage of the 36% of the property. Considering that the reciprocal obligation has been established by the compromise agreement, the sequence in which the reciprocal obligations of the

parties are to be performed, is quite clear. The giving of the authority to sell or mortgage precedes the obligation of the defendants to pay P35,000.00(Martinez vs. Cavives, 25 Phil. 581). Until this authority is granted by the plaintiff, the 70 day period for payment will not commence to run. The plaintiffs insinuated that defendant did not ask for the authority. There was, however the statement or allegation by the defendants to the effects that they made verbal request for such authority but plaintiffs refused to give, a statement or allegation discredited by the lower court. But even without a request, from the very nature of the obligation assumed by plaintiffs, demand by defendants that it be performed, was not necessary (Article 1169, par. 2, Civil Code). It is true that defendants' petition to compel the plaintiffs to grant the authority repeatedly mentioned, was only filed on December 1, 1955, after the expiration of the 70-day period. It should, however, be observed that the actuations or acts of the defendants have always been lulled by a sense of an honest but insecure misunderstanding, as to the scope and extent of the terms and conditions of the compromise. To show that defendants had not abandoned their obligation to pay the sum of P35,000.00, on September 3, 1955, within the 70-day period which expired on November 8, 1955, they filed a motion to withdraw documents and certificates of title to delimit the respective portions, in order that they (defendants) might have an opportunity of negotiating one-half or any portion to raise P35,000.00 to which motion the plaintiffs agreed. While waiting for the grant of authority to descend, like manna from Heaven, the defendants were surprised to receive, on November 19, 1955, plaintiffs' motion to have the titles returned so that the defendants' 14% could be segregated, as they (plaintiffs) wanted to remain with the 86% of the properties. The lower court and with it, the plaintiffs-appellees had indulged in fine technicalities which in this particular case, would work injustice to the defendantsappellants, more than anything else. The compromise agreement being onerous the doubt should be settled in favor of the greatest reciprocity of interests. Without the authority in question the obligation of the defendants to pay the plaintiffs the sum of P35,000.00 cannot be considered as having matured, and the lapse of the 70-day period fixed in the decision can not be adjudged as having resulted in the forfeiture of their right to repurchase their 36% interest in the properties (Price, Inc. v. Rilloraza, et al.. No. L-8253, May 25, 1955). The claim of the appellees that the appellants failed to comply with their initial obligation to delimit the property, as stated by them in their motion to withdraw, is not supported by the evidence. The delimitation or segregation of the property to be sold or mortgaged which appellants should have done first so that the authority could have been granted, had long been accomplished. This is clear from the words of appellees' counsel when he said, "According to my clients, Your Honor, I was instructed to choose the portion which is nearest to Quezon City . . .". In view hereof, the resolution of the lower court dated December 15, 1955, is reversed, and another entered, ordering the plaintiffs-appellees to execute in favor of the defendants-appellants the proper authority to sell or mortgage 36% of the properties in litigation within 30 days from notice of this decision and further directing the defendants-appellants to pay unto the plaintiffs-appellees the sum of P35,000.00 within 30 days from the date such authority is granted. Without special pronouncement as to costs. Bengzon, Actg. C.J., Padilla, Bautista Angelo, Concepcion, Reyes, J.B.L., Barrera and Dizon, JJ., concur.

plaintiff was not yet in a position to execute a deed conveying the entire interest in the property, as no steps had been taken to get judicial approval for the sale of the shares belonging to the minors. However, as these heirs reached majority the plaintiff successively acquired their respective interests by purchase, and before the action in this case was instituted she had become the possessor of all their shares. EN BANC G.R. No. L-11328 January 15, 1918 The property meanwhile increased in value-a circumstance possibly due in part to improvements which the defendant claims to have made on property. In view of the changed conditions, the plaintiff appears to have become desirous of rescinding the contract, and accordingly brought this suit to annul the contract and recover the property, together with the sum of P3,850 alleged to be due as damages for the use and occupation of the land by the defendant during the time he has been in possession. The plaintiff also prayed for general relief. At the hearing the court below dismissed the action in so far as it sought the recovery of the land and damages for use and occupation, but gave judgment in plaintiff's favor for P600 with interest at 6 per cent from August 14, 1910, until paid. From this action of the court the plaintiff has appealed. We can see no valid reason why the plaintiff should be permitted to rescind this contract, It is evidently a case where the contract entailed mutual obligation, and if either party can be said to have been in default it was the plaintiff, Rufina Causing, rather than the defendant, Bencer. In article 1100 of the Civil Code it is declared that in mutual obligations neither party shall be deemed to be in default if the other does not fulfill, or offer to fulfill his own obligation, and that from the time one person obligated fulfills his obligation the default begins for the other party. We find that the contract contemplated a conveyance of the entire interest in the land; and the plaintiff clearly obligated herself to that extent. She was therefore not in a position to compel the defendant to pay until she could offer to him a deed sufficient to pass the whole legal estate; and for the same reason, she cannot now be permitted to rescind the contract on the ground that the defendant has heretofore failed to pay the purchase price. At the time the plaintiff accepted the payment of P800 in 1909, from an agent of the defendant, she executed a receipt in which it was said that this was an advance payment for the land in case the sale that should be effected (anticipo del terreno en caso se effective la venta); and from this it is argued that it was understood that the negotiations were merely provisional and that the sale could be abandoned. We do not so interpret the transaction; and it was evidently not so interpreted by the defendant Bencer, who has been continuously in possession claiming as owner by virtue of the original contract. Reduced to its simplest terms the case presented is this. One of several owners of a piece of property pro indiviso has made a valid contract for the sale thereof with the understanding that she should convey the interest of her coowners or procure the same to be conveyed. Since the contract was executed she has acquired the interest of the coowners by purchase and is now in a position fully to perform the contract. It results that she is, in our opinion, under a legal obligation to transfer the estate, and is not entitled to rescind the contract and recover the property from the person to whom she contracted to convey it. In this situation either party is entitled to enforce performance, and neither will be relieved from his obligation without the consent of the other. There can be no question of the power of a person to bind himself to sell something which he does not yet possess; acquiring title to the thing sold. The most reasonable interpretation of the action of

RUFINA CAUSING, plaintiff-appellant, vs. ALFONSO BENCER, defendant-appellee. Perfecto J. Salas Rodriguez for appellant. De leon and Magalona and J. M.a Arroyo for appellee. STREET, J.: This action was instituted by Rufina Causing upon November 14, 1914, in the Court of First Instance of Iloilo, to annul a contract for the sale of a parcel of land and to recover the property itself from Alfonso Bencer as follows: A parcel of land for rice and sugar cane in the barrio of Bokbokay, Vista Alegre, district of Barotac Viejo municipality of Banate, Province of Iloilo, P. I., having an area of about 70 hectares, bounded on the North by lands belonging to Pacifico Bencer, Maria Salome Causing, and that of Alfonso Balleza; on the South by those of Esteban Navarro, Maria Salome Causing, and the heirs of Jorge Lachica; on the East by the Barotac Viejo River; and on the West by those of Alfonso Bencer, Ignacio Balleza, Alfonso Balleza, and Maria Salome Causing. It appears that in years gone by this land had been owned by the plaintiff, a single woman of full legal age, in common with certain nieces of hers who were then minors and over whom she seems to have exercised an informal guardianship. In the year 1909 negotiations were begun between her and the defendant with a view to the sale of this land to him; and an agreement was effected by which she undertook to convey the property to him for the sum of P1,200. Needing legal assistance in order to get the conveyance drawn up properly, the parties repaired to the office of her relative, Casiano Causing, attorney, but when he learned that the minors had an interest in the property, he informed them that the conveyance could not be legalized without judicial sanction. The efforts to effect the transfer of title by deed was then abandoned for the time being; but Bencer paid her P800 of the purchase price upon August 14, 1909, and took possession of the land, with the understanding that he was to pay the balance later and that meanwhile she would take steps to procure judicial approval of the sale as regards the interests of the minors. In 1910 a new engagement was made in regard to the price to be paid, which was to the effect that Bencer should pay P600 in addition to what he had already paid or P1,400 in all, provided the plaintiff would give him an extension of time to May, 1911, within which to pay the balance. Time went on and neither party performed the engagement. Bencer's failure to pay may have been due in part, as the plaintiff alleges, to his lack of ready money; or it may have been due as he claims, to the fact that the plaintiff had become reluctant to carry out the engagement and did not appear to collect the money at the place stipulated as the place of payment. However this may be, it is evident that the

the plaintiff in buying out the minor heirs as they reached majority was that she thereby intended to place herself in a position to comply with the contract which she had made with the defendant Bencer. Of course if she had never acquired these interests an action for damages would have been Bencer's only remedy. Under the prayer for general relief the court gave judgment in favor of the plaintiff for the sum of P600 the unpaid balance of the purchase money. This was proper. The court also allowed interest on this sum from August 14, 1910. The right of the plaintiff to recover interest for the period prior to the institution of the suit is questionable in point of law, but the justice of allowing it is evident, in view of the fact that the defendant has had continuous use of the property. As the defendant has not appealed, or complained of the action of the court, the judgment will be affirmed in all respects, with costs against the appellant. So ordered. Arellano, C. J., Torres, Johnson, Carson, Araullo, and Malcolm, JJ., concur. FIRST DIVISION G.R. No. 115129 February 12, 1997

this assurance, Barzaga purchased the materials and paid in full the amount of P2,110.00. Thereafter he joined his workers at the cemetery, which was only a kilometer away, to await the delivery. The construction materials did not arrive at eight o'clock as promised. At nine o'clock, the delivery was still nowhere in sight. Barzaga returned to the hardware store to inquire about the delay. Boncales assured him that although the delivery truck was not yet around it had already left the garage and that as soon as it arrived the materials would be brought over to the cemetery in no time at all. That left petitioner no choice but to rejoin his workers at the memorial park and wait for the materials. By ten o'clock, there was still no delivery. This prompted petitioner to return to the store to inquire about the materials. But he received the same answer from respondent's employees who even cajoled him to go back to the burial place as they would just follow with his construction materials. After hours of waiting which seemed interminable to him Barzaga became extremely upset. He decided to dismiss his laborers for the day. He proceeded to the police station, which was just nearby, and lodged a complaint against Alviar. He had his complaint entered in the police blotter. When he returned again to the store he saw the delivery truck already there but the materials he purchased were not yet ready for loading. Distressed that Alviar's employees were not the least concerned, despite his impassioned pleas, Barzaga decided to cancel his transaction with the store and look for construction materials elsewhere. In the afternoon of that day, petitioner was able to buy from another store. But since darkness was already setting in and his workers had left, he made up his mind to start his project the following morning, 23 December. But he knew that the niche would not be finish in time for the scheduled burial the following day. His laborers had to take a break on Christmas Day and they could only resume in the morning of the twenty-sixth. The niche was completed in the afternoon and Barzaga's wife was finally laid to rest. However, it was two-and-a-half (2-1/2) days behind schedule. On 21 January 1991, tormented perhaps by his inability to fulfill his wife's dying wish, Barzaga wrote private respondent Alviar demanding recompense for the damage he suffered. Alviar did not respond. Consequently, petitioner sued him before the Regional Trial Court. 1 Resisting petitioner's claim, private respondent contended that legal delay could not be validly ascribed to him because no specific time of delivery was agreed upon between them. He pointed out that the invoices evidencing the sale did not contain any stipulation as to the exact time of delivery and that assuming that the materials were not delivered within the period desired by petitioner, the delivery truck suffered a flat tire on the way to the store to pick up the materials. Besides, his men were ready to make the delivery by ten-thirty in the morning of 22 December but petitioner refused to accept them. According to Alviar, it was this obstinate refusal of petitioner to accept delivery that caused the delay in the construction of the niche and the consequent failure of the family to inter their loved one on the twenty-fourth of December, and that, if at all, it was petitioner and no other who brought about all his personal woes. Upholding the proposition that respondent incurred in delay in the delivery of the construction materials resulting in undue prejudice to petitioner, the trial court

IGNACIO BARZAGA, petitioner, vs. COURT OF APPEALS and ANGELITO ALVIAR, respondents. BELLOSILLO, J.: The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his family. On the nineteenth of December Ignacio's wife succumbed to a debilitating ailment after prolonged pain and suffering. Forewarned by her attending physicians of her impending death, she expressed her wish to be laid to rest before Christmas day to spare her family from keeping lonely vigil over her remains while the whole of Christendom celebrate the Nativity of their Redeemer. Drained to the bone from the tragedy that befell his family yet preoccupied with overseeing the wake for his departed wife, Ignacio Barzaga set out to arrange for her interment on the twenty-fourth of December in obediencesemper fidelis to her dying wish. But her final entreaty, unfortunately, could not be carried out. Dire events conspired to block his plans that forthwith gave him and his family their gloomiest Christmas ever. This is Barzaga's story. On 21 December 1990, at about three o'clock in the afternoon, he went to the hardware store of respondent Angelito Alviar to inquire about the availability of certain materials to be used in the construction of a niche for his wife. He also asked if the materials could be delivered at once. Marina Boncales, Alviar's storekeeper, replied that she had yet to verify if the store had pending deliveries that afternoon because if there were then all subsequent purchases would have to be delivered the following day. With that reply petitioner left. At seven o'clock the following morning, 22 December, Barzaga returned to Alviar's hardware store to follow up his purchase of construction materials. He told the store employees that the materials he was buying would have to be delivered at the Memorial Cemetery in Dasmarinas, Cavite, by eight o'clock that morning since his hired workers were already at the burial site and time was of the essence. Marina Boncales agreed to deliver the items at the designated time, date and place. With

ordered respondent Alviar to pay petitioner (a) P2,110.00 as refund for the purchase price of the materials with interest per annum computed at the legal rate from the date of the filing of the complaint, (b) P5,000.00 as temperate damages, (c) P20,000.00 as moral damages, (d) P5,000.00 as litigation expenses, and (e) P5,000.00 as attorney's fees. On appeal, respondent Court of Appeals reversed the lower court and ruled that there was no contractual commitment as to the exact time of delivery since this was not indicated in the invoice receipts covering the sale. 2 The arrangement to deliver the materials merely implied that delivery should be made within a reasonable time but that the conclusion that since petitioner's workers were already at the graveyard the delivery had to be made at that precise moment, is non-sequitur. The Court of Appeals also held that assuming that there was delay, petitioner still had sufficient time to construct the tomb and hold his wife's burial as she wished. We sustain the trial court. An assiduous scrutiny of the record convinces us that respondent Angelito Alviar was negligent and incurred in delay in the performance of his contractual obligation. This sufficiently entitles petitioner Ignacio Barzaga to be indemnified for the damage he suffered as a consequence of delay or a contractual breach. The law expressly provides that those who in the performance of their obligation are guilty of fraud, negligence, or delay and those who in any manner contravene the tenor thereof, are liable for damages. 3 Contrary to the appellate court's factual determination, there was a specific time agreed upon for the delivery of the materials to the cemetery. Petitioner went to private respondent's store on 21 December precisely to inquire if the materials he intended to purchase could be delivered immediately. But he was told by the storekeeper that if there were still deliveries to be made that afternoon his order would be delivered the following day. With this in mind Barzaga decided to buy the construction materials the following morning after he was assured of immediate delivery according to his time frame. The argument that the invoices never indicated a specific delivery time must fall in the face of the positive verbal commitment of respondent's storekeeper. Consequently it was no longer necessary to indicate in the invoices the exact time the purchased items were to be brought to the cemetery. In fact, storekeeper Boncales admitted that it was her custom not to indicate the time of delivery whenever she prepared invoices. 4 Private respondent invokes fortuitous event as his handy excuse for that "bit of delay" in the delivery of petitioner's purchases. He maintains that Barzaga should have allowed his delivery men a little more time to bring the construction materials over to the cemetery since a few hours more would not really matter and considering that his truck had a flat tire. Besides, according to him, Barzaga still had sufficient time to build the tomb for his wife. This is a gratuitous assertion that borders on callousness. Private respondent had no right to manipulate petitioner's timetable and substitute it with his own. Petitioner had a deadline to meet. A few hours of delay was no piddling matter to him who in his bereavement had yet to attend to other pressing family concerns. Despite this, respondent's employees still made light of his earnest importunings for an immediate delivery. As petitioner bitterly declared in court " . . . they (respondent's employees) were making a fool out of me." 5

We also find unacceptable respondent's justification that his truck had a flat tire, for this event, if indeed it happened, was forseeable according to the trial court, and as such should have been reasonably guarded against. The nature of private respondent's business requires that he should be ready at all times to meet contingencies of this kind. One piece of testimony by respondent's witness Marina Boncales has caught our attention - that the delivery truck arrived a little late than usual because it came from a delivery of materials in Langcaan, Dasmarinas, Cavite. 6 Significantly, this information was withheld by Boncales from petitioner when the latter was negotiating with her for the purchase of construction materials. Consequently, it is not unreasonable to suppose that had she told petitioner of this fact and that the delivery of the materials would consequently be delayed, petitioner would not have bought the materials from respondent's hardware store but elsewhere which could meet his time requirement. The deliberate suppression of this information by itself manifests a certain degree of bad faith on the part of respondent's storekeeper. The appellate court appears to have belittled petitioner's submission that under the prevailing circumstances time was of the essence in the delivery of the materials to the grave site. However, we find petitioner's assertion to be anchored on solid ground. The niche had to be constructed at the very least on the twenty-second of December considering that it would take about two (2) days to finish the job if the interment was to take place on the twenty-fourth of the month. Respondent's delay in the delivery of the construction materials wasted so much time that construction of the tomb could start only on the twenty-third. It could not be ready for the scheduled burial of petitioner's wife. This undoubtedly prolonged the wake, in addition to the fact that work at the cemetery had to be put off on Christmas day. This case is clearly one of non-performance of a reciprocal obligation. 7 In their contract of purchase and sale, petitioner had already complied fully with what was required of him as purchaser, i.e., the payment of the purchase price of P2,110.00. It was incumbent upon respondent to immediately fulfill his obligation to deliver the goods otherwise delay would attach. We therefore sustain the award of moral damages. It cannot be denied that petitioner and his family suffered wounded feelings, mental anguish and serious anxiety while keeping watch on Christmas day over the remains of their loved one who could not be laid to rest on the date she herself had chosen. There is no gainsaying the inexpressible pain and sorrow Ignacio Barzaga and his family bore at that moment caused no less by the ineptitude, cavalier behavior and bad faith of respondent and his employees in the performance of an obligation voluntarily entered into. We also affirm the grant of exemplary damages. The lackadaisical and feckless attitude of the employees of respondent over which he exercised supervisory authority indicates gross negligence in the fulfillment of his business obligations. Respondent Alviar and his employees should have exercised fairness and good judgment in dealing with petitioner who was then grieving over the loss of his wife. Instead of commiserating with him, respondent and his employees contributed to petitioner's anguish by causing him to bear the agony resulting from his inability to fulfill his wife's dying wish. We delete however the award of temperate damages. Under Art. 2224 of the Civil Code, temperate damages are more than nominal but less than compensatory, and may be recovered when the court finds that some pecuniary loss has been suffered but the amount cannot, from the nature of the case, be proved with certainty. In this

case, the trial court found that plaintiff suffered damages in the form of wages for the hired workers for 22 December 1990 and expenses incurred during the extra two (2) days of the wake. The record however does not show that petitioner presented proof of the actual amount of expenses he incurred which seems to be the reason the trial court awarded to him temperate damages instead. This is an erroneous application of the concept of temperate damages. While petitioner may have indeed suffered pecuniary losses, these by their very nature could be established with certainty by means of payment receipts. As such, the claim falls unequivocally within the realm of actual or compensatory damages. Petitioner's failure to prove actual expenditure consequently conduces to a failure of his claim. For in determining actual damages, the court cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evidence obtainable regarding the actual amount of loss. 8 We affirm the award of attorney's fees and litigation expenses. Award of damages, attorney's fees and litigation costs is left to the sound discretion of the court, and if such discretion be well exercised, as in this case, it will not be disturbed on appeal. 9 WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE except insofar as it GRANTED on a motion for reconsideration the refund by private respondent of the amount of P2,110.00 paid by petitioner for the construction materials. Consequently, except for the award of P5,000.00 as temperate damages which we delete, the decision of the Regional Trial Court granting petitioner (a) P2,110.00 as refund for the value of materials with interest computed at the legal rate per annum from the date of the filing of the case; (b) P20,000.00 as moral damages; (c) P10,000.00 as exemplary damages; (d) P5,000.00 as litigation expenses; and (4) P5,000.00 as attorney's fees, is AFFIRMED. No costs. SO ORDERED. Padilla, Vitug, Kapunan and Hermosisima, Jr., JJ., concur.

(P8,000,000.00) for actual damages, plus ten per cent (10%) thereof by way of attorney's fees, for having delivered water-contaminated bunker fuel oil to the serious prejudice and damage of the cement firm. Sometime in May 1982, petitioner Mobil Oil Philippines, Inc. ("MOPI"), a firm engaged in the marketing of petroleum products to industrial users, entered into a supply agreement with private respondent Continental Cement Corporation ("CCC"), a cement producer, under which the former would supply the latter's industrial fuel oil ("IFO") or bunker fuel oil ("BFO") requirements. MOPI extended to CCC an unsecured credit line of P2,000,000.00 against which CCC's purchases of oil could initially be charged. MOPI had a "hauling contract" with Century Freight Services ("CFS") whereby CFS undertook the delivery of Mobil products to designated consignees of MOPI. During the period starting from 12 July to 07 October 1982, MOPI made a total of sixty-seven deliveries of BFO, each delivery consisting of 20,000 liters, to CCC's cement factory in Norzagaray, Bulacan. On 08 October 1982, CCC discovered that what should have been MOPI's 20,000 BFO delivery to CCC's Norzagaray plant, through CFS's lorry truck, was, in fact, pure water. CCC at once informed MOPI of this anomaly and of its intention to meanwhile hold in abeyance all payments due to MOPI on its previous deliveries until such time as the parties would have ascertained that those deliveries were not themselves adulterated. CCC suggested that MOPI's storage tank in the Norzagaray plant be likewise investigated for possible contamination. MOPI and CCC agreed to conduct an actual water content test. The water draining activity conducted on 22 October 1982 in the presence of representatives of both MOPI and CCC yielded the following findings: JOINT UNDERTAKING WE, MOBIL OIL PHILS., INC. and CONTINENTAL CEMENT CORPORATION, on this 22nd day of October, 1982 at CCC Plantsite, Norzagaray, Bulacan, represented in this act by MESSRS. R. d. J. AGUIRRE, E.R. PAMARAN, U.A. TESORO and RICARDO S. DE SILVA, EDITH M. YAO, CORNELIO A. PAZ, III respectively, hereby undertake detailed verification of water contained on all BFO delivered by MOBIL OIL PHILS., INC., except those that have been already used in cement operation by CCC; as a consequence of the water anomaly (sic) delivered by MOBIL instead of BFO dated October 8, 1982 of Mobil lorry (Truck Plate No. 794) as follows: WATER CONTENT STORAGE TANK MARKED MOBIL DELIVERIES NO. OF DRUMS LTS/DRUM TOTAL QUANTITY IN LITERS 39 210 8,190 NOTE: Drums No. 1 to 35 pure water while Drums No. 36-39 a mixture of BFO and water, with corresponding sample taken.

FIRST DIVISION

G.R. No. 103052 May 23, 1997

MOBIL OIL PHILIPPINES, INC., and CALTEX (PHILS.), INC., petitioners, vs. HON. COURT OF APPEALS and CONTINENTAL CEMENT CORPORATION, respondents. VITUG, J.: The petition for review on certiorari in the case at bar seeks the reversal of the decision of the Court of Appeals, 1affirming that 2 of the Regional Trial Court ("RTC"), Branch 101, of Quezon City, which found herein petitioners Mobil Oil Philippines, Inc., and Caltex Philippines, Inc., jointly and severally liable to private respondent Continental Cement Corporation in the amount of eight million pesos

WE, MOBIL PHILS., INC. and CONTINENTAL CEMENT CORPORATION duly represented by the above-mentioned authorized representative jointly subscribed and manifested to the accuracy and correctness of the counting in terms of liters water content of all BFO delivered by MOBIL OIL PHILS., INC. to CCC, except those that have been already used in cement operation by CCC. Further, we agreed that the drum/s used in counting the water content has the net capacity of 210 liters. MOBIL OIL PHILS, INC. CONTINENTAL CEMENT CORPORATION By: By: xxx xxx xxx.
3

NO. OF DRUMS LTS/DRUM TOTAL QUANTITY IN LITERS 1 210 210 a mixture of 30% Bunker Oil and 70% Water. B. MOBIL LORRY (TRUCK PLATE NO. 794) NO. OF DRUMS LTS/DRUM TOTAL QUANTITY IN LITERS Back Compartment 45 210 9,450 Front Compartment 40 210 8,400 Total 85 17,850 WE, FEDERICO D. MEMBREBE, Head, Quality Control; CORNELIO A. PAZ, III Plant Accountant; MRS. EDITH YAO, Warehouse Supervisor, representing CONTINENTAL CEMENT CORPORATION in this act, and CIS TEODORO CARREON, Camp Olivas, San Fernando, Pampanga and DALMACIO LAPIG, Brgy. Captain of Brgy. Bigte, Norzagaray, Bulacan, jointly subscribed and attested to the accuracy and correctness of the second and final counting in terms of liters water content of all bunker oil delivered by Mobil Oil Phils., Inc. to CONTINENTAL CEMENT CORPORATION, except those that have been already used in the cement operation by said Continental Cement Corporation. FURTHER, we certify that the drums used in counting the water content has a net capacity of 210 liters. This joint undertaking has been executed for all legal purposes it will be used. 5 Like the first "joint undertaking," this document was notarized. Alleging in the complaint it ultimately filed with the RTC that its factory equipment broke down from 19 to 22 September 1982 due to the utilization of the watercontaminated BFO supplied by MOPI; that on 23 September 1982, its plant operations had to be stopped completely; and that it was able to resume operations only after essential repairs had been undertaken on 02 October 1982; CCC sought to recover consequential damages from MOPI. In answer, MOPI averred that CCC had accepted each delivery of BFO in accordance with the procedure for testing and acceptance of BFO deliveries; that it was only on 08 October 1982 that CCC brought to its attention the alleged anomalous delivery of 20,000 liters of BFO under invoice No. 47587 through Mariano Rivera's lorry truck; that when the delivery was being inspected by CCC's representatives, the truck driver and helper fled; that Rivera acknowledged full liability for such delivery; that Rivera promised to pay the amount of P42,730.00 for the 20,000 liters of BFO delivered; and that MOPI agreed to the water draining activity solely for the purpose of maintaining good business relations with CCC but not to admit any liability therefor. 6 In its compulsory counterclaim, MOPI claimed that CCC had an outstanding obligation to it, as of 30 November 1982, in the amount of P1,096,238.51, and that as a consequence of the "frivolous and

This "joint undertaking" was signed by representatives of MOPI and CCC in the presence of P/Cpl. Jose S. Sison of the Norzagaray police and Alfonso D. Chua, AVP of CCC, and duly notarized. 4 Another testing of the BFO delivered by MOPI was undertaken by CCC. MOPI, this time, did not send any representative in the draining activity, conducted on 19 November 1982, but in attendance were a representative from the Criminal Investigation Service (CIS) of Camp Olivas, Pampanga, and the local barangay captain. The draining activity came out with the following results; viz: JOINT UNDERTAKING Continuation and Final Counting of Water Content delivered by Mobil Oil Phils. Inc. Instead of Bunker Fuel Oil WE, CONTINENTAL CEMENT CORPORATION, on this 19th day of November 1982, represented in this act by MESSRS. FEDERICO D. MEMBREBE, CORNELIO A. PAZ III, EDITH M. YAO in the presence of CIS TEODORO CARREON of Camp Olivas, San Fernando, Pampanga and Brgy. Captain DALMACIO LAPIG of Brgy. Bigte, Norzagaray, Bulacan, hereby undertake the continuation and final counting of water content on all bunker fuel oil delivered by Mobil Oil Phils., Inc. except those that have been already used in cement operation by Continental Cement Corporation; as a consequence of the water delivered by Mobil Oil Phils., Inc. lorry (Truck Plate No. 794) instead of bunker fuel oil dated October 8, 1982. That this continuation and final counting was made in the presence of the aforecited national and local authority in the absence of Mobil Oil Phils., Inc. representative who continuously and wantonly refused to continue on witnessing and attesting to their water deliveries instead of bunker fuel oil inspite of the three (3) letters advising them of the counting dated October 26, 1982 duly receipted by Mobil Oil Phils., Inc. on October 27, 1982; October 30, 1982 duly receipted November 2, 1982 and November 11, 1982 duly receipted November 12, 1982 with the following results as follows: A. STORAGE TANK ASSIGNED TO MOBIL

malicious suit" which besmirched MOPI's reputation, it suffered moral damages of not less than P10,000,000.00, exemplary damages of the same amount, and the incurrence of attorney's fees. On 23 August 1983, Caltex (Philippines) Inc., through its president, Amaury R. Gutierrez, informed CCC that it would be the new owner of MOPI, effective 01 September 1983, and that Caltex would "assume all the rights and obligations of MOPI under all its existing contracts with its consumers and dealers." 7 Disturbed somehow by the news, CCC filed an ex-parte urgent motion for the issuance of a writ of attachment 8 The RTC issued the writ on 13 September 1983 conditioned on the filing by CCC of a bond in the amount of P5,000,000.00. 9 Considering that, prior to the transfer of MOPI's controlling interest to Caltex, a subsidiary of MOPI, named International Filters Corporation, was renamed Mobil Philippines, Inc. ("MPI"), with MOPI's officers as incorporators, CCC filed a motion to amend the complaint as to so implead both Caltex and MPI party-defendants. 10 The amended complaint was filed with the motion. 11 MOPI, MPI and Caltex thereupon filed an amended answer. 12 On 28 November 1984, upon motion of defendants, the RTC lifted the writ of attachment it had issued on condition that MPI would keep and maintain on deposit with the Security Bank and Trust Company, an amount of P10,000,000.00. 13 The depository bank was later changed to Citibank NT & SA. 14 In due course, the RTC rendered a decision resolving the following issues agreed upon by the parties at the pre-trial conference; to wit: 1. Whether or not there were deliveries of BFO (or IFO) mixed with water before October 8, 1982; 2. Whether or not the defendants were liable for the contamination of the IFO notwithstanding that, although defendant MOPI contracted the carrier of the IFO, both MOPI and CCC had agreed upon the personnel of the carrier; and 3. Whether or not the BFO mixed with water resulted in damage to CCC's machinery and loss of production/income. The RTC found that there were deliveries of adulterated IFO even prior to 08 October 1982 based on the results of the draining activity conducted on 22 October 1982 and on 19 November 1982. 15 The findings showed that the adulteration of the IFO was "well over the tolerable water contents as stated in the Petron Basic Line (Exhibit 'V') which should only be 0.1% (Exhibit 'V3-a')." 16 Although the tests did not include deliveries before October 1982, it was safe to say, the court observed, that the residue in the storage tank would be "plain water which would be in big volume" considering that the draining pipe in CCC's storage tank for MOPI's IFO was eight (8) inches above the bottom of the huge storage tank. 17 Relative to the second issue, the RTC held that the allegation of the defendants that the carrier was chosen by CCC was a lame excuse. It noted that it was MOPI itself which entered into the hauling contract with CFS, and that there was, in fact, a "tacit

admission" of liability on the part of the oil companies when they replaced the 20,000 liters of "mostly water" delivered on 08 October 1982 by an "agent or surrogate" of defendants. No fraud on the part of defendants, nevertheless, was seen to have attended the deliveries of contaminated oil which could warrant an award of damages outside of actual damages. On the third issue, the lower court, noting the testimonies of the plant manager, Ricardo de Silva, and of Engineer Filomeno L. Villaluz, concluded that the lowered temperature resulting from the water-contaminated BFO caused the loosening of the magneton bricks lining the rotary kiln used in the clinkering process in cement production. The actual damage caused amounted, as prayed for and as testified to by CCC's vice-resident Urbano Cruz, to P8,000,000.00. The defendants appealed to the Court of Appeals. On 19 September 1991, the appellate court rendered judgment affirming the decision of the RTC. On the contention that the RTC erred in finding that BFO deliveries prior to 08 October 1982 were contaminated with water and that no Mobil BFO deliveries remained unused as of 22 October 1982 when the first water-draining was conducted, the Court of Appeals held that appellants hardly could espouse this view considering that MOPI had participated in the water-draining activity on 22 October 1982 and that the "joint undertaking" of even date attested to the presence of a substantial amount of unused BFO. The appellate court agreed with the RTC that appellants aptly should be accountable for the water-contaminated deliveries. As the seller, MOPI so warranted that the BFO it had sold was adulteration-free IFO. The appellants, held the appellate court, were in no position to evade liability by instead pointing to the carrier since it was Mobil which contracted for the hauler's services and there was no evidence that CCC had any direct involvement in the hauling agreement. The Court of Appeals upheld the findings of the trial court that the watercontaminated BFO delivered by MOPI indeed caused damage to CCC's rotary kiln. It said: The fact remains that 7,350 liters of pure water and 1,050 liters of adulterated BFO were found inside Mobil's storage tank, not including that which have already been used in plaintiff-appellee's operations. This also does not include that amount of water which was not drained out of the same storage tank, considering the trial court's observation during its ocular inspection, that the pipe used in draining out the water content of said tank is located about 8 inches from the bottom of the tank. It can therefore be logically concluded that such substantial amount of adulterated BFO did in fact generate less heat and thereby caused the unstable temperature of plaintiff-appellee's rotary kiln. Neither can we give credence to the testimonies of defendantsappellants' expert witnesses, citing several factors which may have caused the unstable temperature inside the rotary kiln. This is in the light of the fact that no evidence was presented showing the presence of any of these factors in the instant case. These witnesses even admitted that they never had any occasion to conduct an investigation of the subject machinery. "Expert

opinions are not ordinarily conclusive in the sense that they must be accepted as true on the subject of their testimony, but are generally regarded as purely advisory in character; the courts may place whatever weight they choose upon such testimony and may accept it, if they find that it is consistent with the facts of the case or otherwise reasonable. (Francisco, Revised Rules of Court in the Philippines. Volume VII, Part I, pp. 596-597) 18 The appellate court gave little value to the claim that CCC's financial difficulties motivated the latter to file the case. It upheld the award of attorney's fees, the same having been so stipulated not only in the credit agreement between the parties but also in the invoices issued by MOPI. Petitioners, in the instant petition for review on certiorari, so craft the issues as to lend credence to their thesis that the appeal involves questions of law rather than of fact, thus: 1. Whether or not Petitioner Mobil is estopped from claiming that no Mobil BFO remained unused by Continental on 22 October 1982; and that the deliveries of BFO made by Mobil to Continental before8 October 1982 were not contaminated with water? 2. Whether or not Petitioners can be held liable for the contaminated BFO delivered on 8 October 1982 on the ground that Country Freight Service, as carrier-hauler, was an agent of Mobil? 19 While petitioners do not dispute that the 07th October 1982 delivery of IFO has been found on 08 October 1982 to be adulterated or contaminated, they, however, insist that the shipments prior to that delivery date has been "used up and/or not contaminated with water." 20 This matter is clearly a question of fact that may not be freely taken up anew by this Court. 21 The claim that the Court of Appeals "conveniently made an inference that the subject Continental storage tank contained Mobil BFO deliveries only because Mobil and Continental agreed to jointly examine the same," 22 and that the appellate court had so misapprehended the facts, is unacceptable. The factual finding that deliveries previous to 08 October 1982 were adulterated BFO was supported by the 22 October 1982 "joint undertaking." This document, witnessed and signed by representatives of both MOPI and CCC, clearly showed that a "detailed verification of water contained on all BFO delivered by MOBIL OIL PHILS., INC., except those that have already been used in cement operation by CCC," was undertaken. Implicit from this statement was that there still was at the time an availability of BFO in the storage tank designated by CCC for past Mobil deliveries. The same could be said of the second water draining process, evidenced by the second "joint undertaking." Although done without the participation of MOPI, the latter, nonetheless, was notified of the "counting" thrice, the last of which had indicated that failure on MOPI's part to send a representative would be tantamount to a waiver of its right to participate therein. 23 The appellate court may not thus be faulted for holding that petitioners are barred from questioning the results of water draining processes conducted on the MOPI

tank in the CCC plantsite, in the same manner that MOPI may not belatedly question the testing procedure theretofore adopted. MOPI cannot be allowed to turn its back to its own acts (or inactions) to the prejudice of CCC, which, in good faith, relied upon MOPI's conduct. The unrebutted testimony of CCC's plant manager, Engineer De Silva, has clearly established that BFO from MOPI was used from 19 to 21 September 1982, and that such use directly caused damage to CCC's rotary kiln; thus: Q: You mentioned that under the bunker fuel oil supply agreement between the Mobil Oil Philippines and Continental Cement Corporation, Mobil Oil delivered bunker fuel oil to the premises of Continental Cement and that this bunker fuel oil is stored in one of the tank(s) within the premises of Continental Cement to which you previously identified in Exhibit "DD". Now when did the Continental Cement first use the bunker fuel oil supplied by Mobil Oil under the same bunker fuel oil agreement? A: On September 19, 1982, sir. Q: Now, what happened to the operation with the use of the bunker fuel oil supplied by Mobil Oil? A: It was found out that during the introduction of the Mobil Oil bunker fuel oil we observed that the flame is very different from the normal behavior when we are using other fuel oil. So, on that first day we have difficulty on how to balance the flame. On the second day, we tried to resume the normal flame but still coating cannot be developed and clinkering process is very abnormal in the sense that it resulted to under burning of clinker and poor quality of clinker coming out from the rotary kiln. Then on the third day, which is the 21st, we found out that there are some red spots that occurred on the kiln shale (sic). Q: By the way, for clarification. When you used this bunker oil from the defendant delivery on September 19, 1982 and as you have said, and the Court have seen that there were panels indicating the conditions of the rotary kiln, did it register a particular heat? A: Yes, your Honor. Q: What was your reading then?

A: For the inlet chamber temperature the ideal temperature kiln in order to have clinkering process is from 950 to 1,000'C. Q: And on that day, did you come to know what was the heat for the inlet chamber? A: It is in our logsheet, sir. It is very behind the normal. xxx xxx xxx Q: Now, for how many days did you continue using that bunker fuel oil supplied by Mobil Oil Philippines? A: We used that oil from September 19 up to September 22. Q: After that, what happened? A: Then after the 22, we decided to stop the plant. Q: Why did you decide to stop the operation of the plant? A: Because we are encountering difficulty in our operation, sir. We cannot attain the production target of 1,200 metric tons a day. Likewise, we have seen red spots, which occurred on the 21st of September, so since these red spots cannot be developed, cannot be cured anymore, to avoid further damages on the equipment, we decided to stop. Q: What are these red spots? A: These red spots, sir are sign that the brick lining inside the kiln already fall down (sic). So when the red sport (sic) are present, meaning to say that there is no more brick lining. COURT: Q: Where does these appear, outside the cylindrical kiln or where? A: Outside the cylindrical kiln shale (sic), sir.

ATTY. RACHO: Q: What is the reason why the brick-lining is no longer there? A: Sir, I would like to inform you that the life of the brick-lining is purely dependent on the temperature inside the kiln. Once, this is heated up to about 1,400'C, this has to be maintained most of the time. Any fluctuation in the temperature inside the kiln will result to contraction and expansion of the kiln shell likewise, on the brick. So this contraction and expansion during that time will result to lossening (sic) of the bricks, which is installed inside. And if this is not properly coated, there is no coating as I previously mentioned, this will fall down. Since this is installed in circumferential manner, one or two pieces of bricks that full (sic) down, all the rest will continue then the second ring will get loose, so this will fall down also. Q: Now, on what day did these red spots developed since you first used the bunker fuel oil supplied by Mobil Oil Philippines ? A: On the second and third day which is on the 20th and 21st of September, sir, 1982. 24 Urbano Cruz, vice-president of CCC, corroborating Engineer De Silva, testified that CCC started using BFO from MOPI only on 19 September 1982 and that such use had to be stopped on 22 September 1982 because of the abnormality in the heat it generated in the rotary kiln. 25 Petitioners, in a bid to still avoid liability, would argue that CCC waived its right to claim damages by failing to observe the Procedures Manual handed to it by MOPI, and that it was private respondent's "strict legal duty to inspect the deliveries prior to acceptance." 26 CCC hardly could be blamed, however, for relying on the goodwill, reputation and business stature of petitioners. It was enough that CCC, as a precautionary measure, so conducted random checking and added supervisors to oversee the BFO deliveries. 27 The Court of Appeals, anent the second issue, correctly ruled that MOPI could be held accountable for the acts of CFS. The hauling contract 28 executed by and between MOPI and CFS (to which CCC was not a party) laid out the responsibilities of CFS (the contractor); thus: 1. The CONTRACTOR, in consideration of payments to be made by MOBIL in accordance with the rates specified by the BOE (BOE Resolution 81-07) hereby undertakes and binds itself to haul and transport any and all outgoing and incoming products of MOBIL on a non-exclusive basis from the latter's Manila Terminal and/or from any other specified point or points to the various shipping points

or destinations in the area of Luzon, Philippines. PROVIDED, that the CONTRACTOR may be required by MOBIL to render hauling services outside of the specified points at the rate prevailing in the area. 2. The CONTRACTOR hereby binds and obligates itself to deliver to the consignees any and all cargoes within twenty-four (24) hours upon receipt of MOBIL'S written instruction or the corresponding invoice/documents pertaining to said cargoes. It shall be the CONTRACTOR's responsibility to insist that receipt of goods by consignee or his authorized representative is acknowledged in writing on the Delivery Receipt and/or TOAs and these receipts shall be surrendered to MOBIL's Bulk Plant immediately after delivery. xxx xxx xxx 7. MOBIL binds and obligates itself to pay all hauling fees due to the CONTRACTOR, computed in accordance with the government specified rates within reasonable time from presentation of the hauling bills but in no case shall such bills be rendered oftener than once a week but preferably twice a month. MOBIL is hereby authorized by the CONTRACTOR to withhold from the hauling fees any amount to satisfy CONTRACTOR's liability to MOBIL. That bills should be supported by Hauler's Copy of Invoices and TOAs duly authenticated by MOBIL's authorized personnel. 29 CFS was the contractor of MOPI, not CCC, and the contracted price of the BFO that CCC paid to MOPI included hauling charges. 30 The presumption laid down under Article 1523 of the Civil Code that delivery to the carrier should be deemed to be delivery to the buyer would have no application where, such as in this case, the sale itself specifically called for delivery by the seller to the buyer at the latter's place of business. WHEREFORE, the herein questioned decision of the Court of Appeals is AFFIRMED in toto. Costs against petitioners. EN BANC SO ORDERED. Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur. Padilla, J., is on leave. REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, vs. LUZON STEVEDORING CORPORATION, defendant-appellant. Office of the Solicitor General for plaintiff-appellee. H. San Luis and L.V. Simbulan for defendant-appellant. REYES, J.B.L., J.: The present case comes by direct appeal from a decision of the Court of First Instance of Manila (Case No. 44572) adjudging the defendant-appellant, Luzon G.R. No. L-21749 September 29, 1967

Stevedoring Corporation, liable in damages to the plaintiff-appellee Republic of the Philippines. In the early afternoon of August 17, 1960, barge L-1892, owned by the Luzon Stevedoring Corporation was being towed down the Pasig river by tugboats "Bangus" and "Barbero"1 also belonging to the same corporation, when the barge rammed against one of the wooden piles of the Nagtahan bailey bridge, smashing the posts and causing the bridge to list. The river, at the time, was swollen and the current swift, on account of the heavy downpour of Manila and the surrounding provinces on August 15 and 16, 1960. Sued by the Republic of the Philippines for actual and consequential damage caused by its employees, amounting to P200,000 (Civil Case No. 44562, CFI of Manila), defendant Luzon Stevedoring Corporation disclaimed liability therefor, on the grounds that it had exercised due diligence in the selection and supervision of its employees; that the damages to the bridge were caused by force majeure; that plaintiff has no capacity to sue; and that the Nagtahan bailey bridge is an obstruction to navigation. After due trial, the court rendered judgment on June 11, 1963, holding the defendant liable for the damage caused by its employees and ordering it to pay to plaintiff the actual cost of the repair of the Nagtahan bailey bridge which amounted to P192,561.72, with legal interest thereon from the date of the filing of the complaint. Defendant appealed directly to this Court assigning the following errors allegedly committed by the court a quo, to wit: I The lower court erred in not holding that the herein defendantappellant had exercised the diligence required of it in the selection and supervision of its personnel to prevent damage or injury to others.1awphl.nt II The lower court erred in not holding that the ramming of the Nagtahan bailey bridge by barge L-1892 was caused by force majeure. III The lower court erred in not holding that the Nagtahan bailey bridge is an obstruction, if not a menace, to navigation in the Pasig river. IV The lower court erred in not blaming the damage sustained by the Nagtahan bailey bridge to the improper placement of the dolphins. V The lower court erred in granting plaintiff's motion to adduce further evidence in chief after it has rested its case. VI The lower court erred in finding the plaintiff entitled to the amount of P192,561.72 for damages which is clearly exorbitant and without any factual basis. However, it must be recalled that the established rule in this jurisdiction is that when a party appeals directly to the Supreme Court, and submits his case there for decision, he is deemed to have waived the right to dispute any finding of fact

made by the trial Court. The only questions that may be raised are those of law (Savellano vs. Diaz, L-17441, July 31, 1963; Aballe vs. Santiago, L-16307, April 30, 1963; G.S.I.S. vs. Cloribel, L-22236, June 22, 1965). A converso, a party who resorts to the Court of Appeals, and submits his case for decision there, is barred from contending later that his claim was beyond the jurisdiction of the aforesaid Court. The reason is that a contrary rule would encourage the undesirable practice of appellants' submitting their cases for decision to either court in expectation of favorable judgment, but with intent of attacking its jurisdiction should the decision be unfavorable (Tyson Tan, et al. vs. Filipinas Compaia de Seguros) et al., L-10096, Res. on Motion to Reconsider, March 23, 1966). Consequently, we are limited in this appeal to the issues of law raised in the appellant's brief. Taking the aforesaid rules into account, it can be seen that the only reviewable issues in this appeal are reduced to two: 1) Whether or not the collision of appellant's barge with the supports or piers of the Nagtahan bridge was in law caused by fortuitous event or force majeure, and 2) Whether or not it was error for the Court to have permitted the plaintiffappellee to introduce additional evidence of damages after said party had rested its case. As to the first question, considering that the Nagtahan bridge was an immovable and stationary object and uncontrovertedly provided with adequate openings for the passage of water craft, including barges like of appellant's, it is undeniable that the unusual event that the barge, exclusively controlled by appellant, rammed the bridge supports raises a presumption of negligence on the part of appellant or its employees manning the barge or the tugs that towed it. For in the ordinary course of events, such a thing does not happen if proper care is used. In Anglo American Jurisprudence, the inference arises by what is known as the "res ipsa loquitur" rule (Scott vs. London Docks Co., 2 H & C 596; San Juan Light & Transit Co. vs. Requena, 224 U.S. 89, 56 L. Ed., 680; Whitwell vs. Wolf, 127 Minn. 529, 149 N.W. 299; Bryne vs. Great Atlantic & Pacific Tea Co., 269 Mass. 130; 168 N.E. 540; Gribsby vs. Smith, 146 S.W. 2d 719). The appellant strongly stresses the precautions taken by it on the day in question: that it assigned two of its most powerful tugboats to tow down river its barge L-1892; that it assigned to the task the more competent and experienced among its patrons, had the towlines, engines and equipment double-checked and inspected; that it instructed its patrons to take extra precautions; and concludes that it had done all it was called to do, and that the accident, therefore, should be held due to force majeure or fortuitous event. These very precautions, however, completely destroy the appellant's defense. For caso fortuito or force majeure (which in law are identical in so far as they exempt an obligor from liability)2 by definition, are extraordinary events not foreseeable or avoidable, "events that could not be foreseen, or which, though foreseen, were inevitable" (Art. 1174, Civ. Code of the Philippines). It is, therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed, but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same: "un hecho no constituye caso fortuito por la sola circunstancia de que su existencia haga mas dificil o mas onerosa la accion diligente del presento ofensor" (Peirano Facio, Responsibilidad Extra-contractual, p. 465; Mazeaud Trait de la Responsibilite

Civil, Vol. 2, sec. 1569). The very measures adopted by appellant prove that the possibility of danger was not only foreseeable, but actually foreseen, and was not caso fortuito. Otherwise stated, the appellant, Luzon Stevedoring Corporation, knowing and appreciating the perils posed by the swollen stream and its swift current, voluntarily entered into a situation involving obvious danger; it therefore assured the risk, and can not shed responsibility merely because the precautions it adopted turned out to be insufficient. Hence, the lower Court committed no error in holding it negligent in not suspending operations and in holding it liable for the damages caused. It avails the appellant naught to argue that the dolphins, like the bridge, were improperly located. Even if true, these circumstances would merely emphasize the need of even higher degree of care on appellant's part in the situation involved in the present case. The appellant, whose barges and tugs travel up and down the river everyday, could not safely ignore the danger posed by these allegedly improper constructions that had been erected, and in place, for years. On the second point: appellant charges the lower court with having abused its discretion in the admission of plaintiff's additional evidence after the latter had rested its case. There is an insinuation that the delay was deliberate to enable the manipulation of evidence to prejudice defendant-appellant. We find no merit in the contention. Whether or not further evidence will be allowed after a party offering the evidence has rested his case, lies within the sound discretion of the trial Judge, and this discretion will not be reviewed except in clear case of abuse.3 In the present case, no abuse of that discretion is shown. What was allowed to be introduced, after plaintiff had rested its evidence in chief, were vouchers and papers to support an item of P1,558.00 allegedly spent for the reinforcement of the panel of the bailey bridge, and which item already appeared in Exhibit GG. Appellant, in fact, has no reason to charge the trial court of being unfair, because it was also able to secure, upon written motion, a similar order dated November 24, 1962, allowing reception of additional evidence for the said defendant-appellant.4 WHEREFORE, finding no error in the decision of the lower Court appealed from, the same is hereby affirmed. Costs against the defendant-appellant. Concepcion, C.J., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Angeles and Fernando, JJ., concur. Bengzon, J.P. J., on leave, took no part.

EN BANC

G.R. No. 97412 July 12, 1994

EASTERN SHIPPING LINES, INC., petitioner, vs. HON. COURT OF APPEALS AND MERCANTILE INSURANCE COMPANY, INC., respondents. Alojada & Garcia and Jimenea, Dala & Zaragoza for petitoner. Zapa Law Office for private respondent. VITUG, J.: The issues, albeit not completely novel, are: (a) whether or not a claim for damage sustained on a shipment of goods can be a solidary, or joint and several, liability of the common carrier, the arrastre operator and the customs broker; (b) whether the payment of legal interest on an award for loss or damage is to be computed from the time the complaint is filed or from the date the decision appealed from is rendered; and (c) whether the applicable rate of interest, referred to above, is twelve percent (12%) or six percent (6%). The findings of the court a quo, adopted by the Court of Appeals, on the antecedent and undisputed facts that have led to the controversy are hereunder reproduced: This is an action against defendants shipping company, arrastre operator and broker-forwarder for damages sustained by a shipment while in defendants' custody, filed by the insurersubrogee who paid the consignee the value of such losses/damages. On December 4, 1981, two fiber drums of riboflavin were shipped from Yokohama, Japan for delivery vessel "SS EASTERN COMET" owned by defendant Eastern Shipping Lines under Bill of Lading No. YMA-8 (Exh. B). The shipment was insured under plaintiff's Marine Insurance Policy No. 81/01177 for P36,382,466.38. Upon arrival of the shipment in Manila on December 12, 1981, it was discharged unto the custody of defendant Metro Port Service, Inc. The latter excepted to one drum, said to be in bad order, which damage was unknown to plaintiff. On January 7, 1982 defendant Allied Brokerage Corporation received the shipment from defendant Metro Port Service, Inc., one drum opened and without seal (per "Request for Bad Order Survey." Exh. D). On January 8 and 14, 1982, defendant Allied Brokerage Corporation made deliveries of the shipment to the consignee's warehouse. The latter excepted to one drum which contained spillages, while the rest of the contents was adulterated/fake (per "Bad Order Waybill" No. 10649, Exh. E).

Plaintiff contended that due to the losses/damage sustained by said drum, the consignee suffered losses totaling P19,032.95, due to the fault and negligence of defendants. Claims were presented against defendants who failed and refused to pay the same (Exhs. H, I, J, K, L). As a consequence of the losses sustained, plaintiff was compelled to pay the consignee P19,032.95 under the aforestated marine insurance policy, so that it became subrogated to all the rights of action of said consignee against defendants (per "Form of Subrogation", "Release" and Philbanking check, Exhs. M, N, and O). (pp. 85-86, Rollo.) There were, to be sure, other factual issues that confronted both courts. Here, the appellate court said: Defendants filed their respective answers, traversing the material allegations of the complaint contending that: As for defendant Eastern Shipping it alleged that the shipment was discharged in good order from the vessel unto the custody of Metro Port Service so that any damage/losses incurred after the shipment was incurred after the shipment was turned over to the latter, is no longer its liability (p. 17, Record); Metroport averred that although subject shipment was discharged unto its custody, portion of the same was already in bad order (p. 11, Record); Allied Brokerage alleged that plaintiff has no cause of action against it, not having negligent or at fault for the shipment was already in damage and bad order condition when received by it, but nonetheless, it still exercised extra ordinary care and diligence in the handling/delivery of the cargo to consignee in the same condition shipment was received by it. From the evidence the court found the following: The issues are: 1. Whether or not the shipment sustained losses/damages; 2. Whether or not these losses/damages were sustained while in the custody of defendants (in whose respective custody, if determinable); 3. Whether or not defendant(s) should be held liable for the losses/damages (see plaintiff's preTrial Brief, Records, p. 34; Allied's pre-Trial Brief, adopting plaintiff's Records, p. 38). As to the first issue, there can be no doubt that the shipment sustained losses/damages. The two drums were shipped in good order and condition, as clearly shown by the Bill of Lading and Commercial Invoice which do not indicate

any damages drum that was shipped (Exhs. B and C). But when on December 12, 1981 the shipment was delivered to defendant Metro Port Service, Inc., it excepted to one drum in bad order. Correspondingly, as to the second issue, it follows that the losses/damages were sustained while in the respective and/or successive custody and possession of defendants carrier (Eastern), arrastre operator (Metro Port) and broker (Allied Brokerage). This becomes evident when the Marine Cargo Survey Report (Exh. G), with its "Additional Survey Notes", are considered. In the latter notes, it is stated that when the shipment was "landed on vessel" to dock of Pier # 15, South Harbor, Manila on December 12, 1981, it was observed that "one (1) fiber drum (was) in damaged condition, covered by the vessel's Agent's Bad Order Tally Sheet No. 86427." The report further states that when defendant Allied Brokerage withdrew the shipment from defendant arrastre operator's custody on January 7, 1982, one drum was found opened without seal, cello bag partly torn but contents intact. Net unrecovered spillages was 15 kgs. The report went on to state that when the drums reached the consignee, one drum was found with adulterated/faked contents. It is obvious, therefore, that these losses/damages occurred before the shipment reached the consignee while under the successive custodies of defendants. Under Art. 1737 of the New Civil Code, the common carrier's duty to observe extraordinary diligence in the vigilance of goods remains in full force and effect even if the goods are temporarily unloaded and stored in transit in the warehouse of the carrier at the place of destination, until the consignee has been advised and has had reasonable opportunity to remove or dispose of the goods (Art. 1738, NCC). Defendant Eastern Shipping's own exhibit, the "Turn-Over Survey of Bad Order Cargoes" (Exhs. 3-Eastern) states that on December 12, 1981 one drum was found "open". and thus held: WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered: A. Ordering defendants to pay plaintiff, jointly and severally: 1. The amount of P19,032.95, with the present legal interest of 12% per annum from October 1,

1982, the date of filing of this complaints, until fully paid (the liability of defendant Eastern Shipping, Inc. shall not exceed US$500 per case or the CIF value of the loss, whichever is lesser, while the liability of defendant Metro Port Service, Inc. shall be to the extent of the actual invoice value of each package, crate box or container in no case to exceed P5,000.00 each, pursuant to Section 6.01 of the Management Contract); 2. P3,000.00 as attorney's fees, and 3. Costs. B. Dismissing the counterclaims and crossclaim of defendant/cross-claimant Allied Brokerage Corporation. SO ORDERED. (p. 207, Record). Dissatisfied, defendant's recourse to US. The appeal is devoid of merit. After a careful scrutiny of the evidence on record. We find that the conclusion drawn therefrom is correct. As there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants, and therefore they are liable to the appellee, as subrogee for the amount it paid to the consignee. (pp. 87-89, Rollo.) The Court of Appeals thus affirmed in toto the judgment of the court a quo. In this petition, Eastern Shipping Lines, Inc., the common carrier, attributes error and grave abuse of discretion on the part of the appellate court when I. IT HELD PETITIONER CARRIER JOINTLY AND SEVERALLY LIABLE WITH THE ARRASTRE OPERATOR AND CUSTOMS BROKER FOR THE CLAIM OF PRIVATE RESPONDENT AS GRANTED IN THE QUESTIONED DECISION; II. IT HELD THAT THE GRANT OF INTEREST ON THE CLAIM OF PRIVATE RESPONDENT SHOULD COMMENCE FROM THE DATE OF THE FILING OF THE COMPLAINT AT THE RATE OF TWELVE PERCENT PER ANNUM INSTEAD OF FROM THE DATE OF THE DECISION OF THE TRIAL COURT AND ONLY AT THE RATE OF SIX PERCENT PER ANNUM, PRIVATE RESPONDENT'S CLAIM BEING INDISPUTABLY UNLIQUIDATED.

The petition is, in part, granted. In this decision, we have begun by saying that the questions raised by petitioner carrier are not all that novel. Indeed, we do have a fairly good number of previous decisions this Court can merely tack to. The common carrier's duty to observe the requisite diligence in the shipment of goods lasts from the time the articles are surrendered to or unconditionally placed in the possession of, and received by, the carrier for transportation until delivered to, or until the lapse of a reasonable time for their acceptance by, the person entitled to receive them (Arts. 1736-1738, Civil Code; Ganzon vs. Court of Appeals, 161 SCRA 646; Kui Bai vs. Dollar Steamship Lines, 52 Phil. 863). When the goods shipped either are lost or arrive in damaged condition, a presumption arises against the carrier of its failure to observe that diligence, and there need not be an express finding of negligence to hold it liable (Art. 1735, Civil Code; Philippine National Railways vs. Court of Appeals, 139 SCRA 87; Metro Port Service vs. Court of Appeals, 131 SCRA 365). There are, of course, exceptional cases when such presumption of fault is not observed but these cases, enumerated in Article 1734 1 of the Civil Code, are exclusive, not one of which can be applied to this case. The question of charging both the carrier and the arrastre operator with the obligation of properly delivering the goods to the consignee has, too, been passed upon by the Court. In Fireman's Fund Insurance vs. Metro Port Services (182 SCRA 455), we have explained, in holding the carrier and the arrastre operator liable in solidum,thus: The legal relationship between the consignee and the arrastre operator is akin to that of a depositor and warehouseman (Lua Kian v. Manila Railroad Co., 19 SCRA 5 [1967]. The relationship between the consignee and the common carrier is similar to that of the consignee and the arrastre operator (Northern Motors, Inc. v. Prince Line, et al., 107 Phil. 253 [1960]). Since it is the duty of the ARRASTRE to take good care of the goods that are in its custody and to deliver them in good condition to the consignee, such responsibility also devolves upon the CARRIER. Both the ARRASTRE and the CARRIER are therefore charged with the obligation to deliver the goods in good condition to the consignee. We do not, of course, imply by the above pronouncement that the arrastre operator and the customs broker are themselves always and necessarily liable solidarily with the carrier, or vice-versa, nor that attendant facts in a given case may not vary the rule. The instant petition has been brought solely by Eastern Shipping Lines, which, being the carrier and not having been able to rebut the presumption of fault, is, in any event, to be held liable in this particular case. A factual finding of both the court a quo and the appellate court, we take note, is that "there is sufficient evidence that the shipment sustained damage while in the successive possession of appellants" (the herein petitioner among them). Accordingly, the liability imposed on Eastern Shipping Lines, Inc., the sole petitioner in this case, is inevitable regardless of whether there are others solidarily liable with it. It is over the issue of legal interest adjudged by the appellate court that deserves more than just a passing remark. Let us first see a chronological recitation of the major rulings of this Court:

The early case of Malayan Insurance Co., Inc., vs. Manila Port Service, 2 decided 3 on 15 May 1969, involved a suit for recovery of money arising out of short deliveries and pilferage of goods. In this case, appellee Malayan Insurance (the plaintiff in the lower court) averred in its complaint that the total amount of its claim for the value of the undelivered goods amounted to P3,947.20. This demand, however, was neither established in its totality nor definitely ascertained. In the stipulation of facts later entered into by the parties, in lieu of proof, the amount of P1,447.51 was agreed upon. The trial court rendered judgment ordering the appellants (defendants) Manila Port Service and Manila Railroad Company to pay appellee Malayan Insurance the sum of P1,447.51 with legal interest thereon from the date the complaint was filed on 28 December 1962 until full payment thereof. The appellants then assailed, inter alia, the award of legal interest. In sustaining the appellants, this Court ruled: Interest upon an obligation which calls for the payment of money, absent a stipulation, is the legal rate. Such interest normally is allowable from the date of demand, judicial or extrajudicial. The trial court opted for judicial demand as the starting point. But then upon the provisions of Article 2213 of the Civil Code, interest "cannot be recovered upon unliquidated claims or damages, except when the demand can be established with reasonable certainty." And as was held by this Court in Rivera vs. Perez, 4 L-6998, February 29, 1956, if the suit were for damages, "unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof (Montilla c.Corporacion de P.P. Agustinos, 25 Phil. 447; Lichauco v. Guzman, 38 Phil. 302)," then, interest "should be from the date of the decision." (Emphasis supplied) The case of Reformina vs. Tomol, 5 rendered on 11 October 1985, was for "Recovery of Damages for Injury to Person and Loss of Property." After trial, the lower court decreed: WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and third party defendants and against the defendants and third party plaintiffs as follows: Ordering defendants and third party plaintiffs Shell and Michael, Incorporated to pay jointly and severally the following persons: xxx xxx xxx (g) Plaintiffs Pacita F. Reformina and Francisco Reformina the sum of P131,084.00 which is the value of the boat F B Pacita III together with its accessories, fishing gear and equipment minus P80,000.00 which is the value of the insurance recovered and the amount of P10,000.00 a month as the estimated monthly loss suffered by them as a result of the fire of May 6, 1969 up to the time they are actually paid or already the total sum of P370,000.00 as of June 4, 1972 with legal interest from the filing of the complaint until paid and to pay attorney's fees of P5,000.00

with costs against defendants and third party plaintiffs. (Emphasis supplied.) On appeal to the Court of Appeals, the latter modified the amount of damages awarded but sustained the trial court in adjudging legal interest from the filing of the complaint until fully paid. When the appellate court's decision became final, the case was remanded to the lower court for execution, and this was when the trial court issued its assailed resolution which applied the 6% interest per annum prescribed in Article 2209 of the Civil Code. In their petition for review on certiorari, the petitioners contended that Central Bank Circular No. 416, providing thus By virtue of the authority granted to it under Section 1 of Act 2655, as amended, Monetary Board in its Resolution No. 1622 dated July 29, 1974, has prescribed that the rate of interest for the loan, or forbearance of any money, goods, or credits and the rate allowed in judgments, in the absence of express contract as to such rate of interest, shall be twelve (12%) percent per annum. This Circular shall take effect immediately. (Emphasis found in the text) should have, instead, been applied. This Court 6 ruled: The judgments spoken of and referred to are judgments in litigations involving loans or forbearance of any money, goods or credits. Any other kind of monetary judgment which has nothing to do with, nor involving loans or forbearance of any money, goods or credits does not fall within the coverage of the said law for it is not within the ambit of the authority granted to the Central Bank. xxx xxx xxx Coming to the case at bar, the decision herein sought to be executed is one rendered in an Action for Damages for injury to persons and loss of property and does not involve any loan, much less forbearances of any money, goods or credits. As correctly argued by the private respondents, the law applicable to the said case is Article 2209 of the New Civil Code which reads Art. 2209. If the obligation consists in the payment of a sum of money, and the debtor incurs in delay, the indemnity for damages, there being no stipulation to the contrary, shall be the payment of interest agreed upon, and in the absence of stipulation, the legal interest which is six percent per annum. The above rule was reiterated in Philippine Rabbit Bus Lines, Inc., v. Cruz, 7 promulgated on 28 July 1986. The case was for damages occasioned by an injury to person and loss of property. The trial court awarded private respondent Pedro Manabat actual and compensatory damages in the amount of P72,500.00 with legal interest thereon from the filing of the complaint until fully paid. Relying on the Reformina v. Tomol case, this Court 8modified the interest award from 12% to

6% interest per annum but sustained the time computation thereof, i.e., from the filing of the complaint until fully paid. In Nakpil and Sons vs. Court of Appeals, 9 the trial court, in an action for the recovery of damages arising from the collapse of a building, ordered, inter alia, the "defendant United Construction Co., Inc. (one of the petitioners) . . . to pay the plaintiff, . . . , the sum of P989,335.68 with interest at the legal rate from November 29, 1968, the date of the filing of the complaint until full payment . . . ." Save from the modification of the amount granted by the lower court, the Court of Appeals sustained the trial court's decision. When taken to this Court for review, the case, on 03 October 1986, was decided, thus: WHEREFORE, the decision appealed from is hereby MODIFIED and considering the special and environmental circumstances of this case, we deem it reasonable to render a decision imposing, as We do hereby impose, upon the defendant and the third-party defendants (with the exception of Roman Ozaeta) a solidary (Art. 1723, Civil Code, Supra. p. 10) indemnity in favor of the Philippine Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover all damages (with the exception to attorney's fees) occasioned by the loss of the building (including interest charges and lost rentals) and an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos as and for attorney's fees, the total sum being payable upon the finality of this decision. Upon failure to pay on such finality, twelve (12%) per cent interest per annum shall be imposed upon aforementioned amounts from finality until paid. Solidary costs against the defendant and third-party defendants (Except Roman Ozaeta). (Emphasis supplied) A motion for reconsideration was filed by United Construction, contending that "the interest of twelve (12%) per cent per annum imposed on the total amount of the monetary award was in contravention of law." The Court 10 ruled out the applicability of the Reformina and Philippine Rabbit Bus Lines cases and, in its resolution of 15 April 1988, it explained: There should be no dispute that the imposition of 12% interest pursuant to Central Bank Circular No. 416 . . . is applicable only in the following: (1) loans; (2) forbearance of any money, goods or credit; and (3) rate allowed in judgments (judgments spoken of refer to judgments involving loans or forbearance of any money, goods or credits. (Philippine Rabbit Bus Lines Inc. v. Cruz, 143 SCRA 160161 [1986]; Reformina v. Tomol, Jr., 139 SCRA 260 [1985]). It is true that in the instant case, there is neither a loan or a forbearance, but then no interest is actually imposed provided the sums referred to in the judgment are paid upon the finality of the judgment. It is delay in the payment of such final judgment, that will cause the imposition of the interest. It will be noted that in the cases already adverted to, the rate of interest is imposed on the total sum, from the filing of the complaint until paid; in other words, as part of the judgment for damages. Clearly, they are not applicable to the instant case. (Emphasis supplied.)

The subsequent case of American Express International, Inc., vs. Intermediate Appellate Court 11 was a petition for review on certiorari from the decision, dated 27 February 1985, of the then Intermediate Appellate Court reducing the amount of moral and exemplary damages awarded by the trial court, to P240,000.00 and P100,000.00, respectively, and its resolution, dated 29 April 1985, restoring the amount of damages awarded by the trial court, i.e., P2,000,000.00 as moral damages and P400,000.00 as exemplary damages with interest thereon at 12% per annum from notice of judgment, plus costs of suit. In a decision of 09 November 1988, this Court, while recognizing the right of the private respondent to recover damages, held the award, however, for moral damages by the trial court, later sustained by the IAC, to be inconceivably large. The Court 12 thus set aside the decision of the appellate court and rendered a new one, "ordering the petitioner to pay private respondent the sum of One Hundred Thousand (P100,000.00) Pesos as moral damages, with six (6%) percent interest thereon computed from the finality of this decision until paid. (Emphasis supplied) Reformina came into fore again in the 21 February 1989 case of Florendo v. Ruiz 13 which arose from a breach of employment contract. For having been illegally dismissed, the petitioner was awarded by the trial court moral and exemplary damages without, however, providing any legal interest thereon. When the decision was appealed to the Court of Appeals, the latter held: WHEREFORE, except as modified hereinabove the decision of the CFI of Negros Oriental dated October 31, 1972 is affirmed in all respects, with the modification that defendants-appellants, except defendant-appellant Merton Munn, are ordered to pay, jointly and severally, the amounts stated in the dispositive portion of the decision, including the sum of P1,400.00 in concept of compensatory damages, with interest at the legal rate from the date of the filing of the complaint until fully paid(Emphasis supplied.) The petition for review to this Court was denied. The records were thereupon transmitted to the trial court, and an entry of judgment was made. The writ of execution issued by the trial court directed that only compensatory damages should earn interest at 6% per annum from the date of the filing of the complaint. Ascribing grave abuse of discretion on the part of the trial judge, a petition for certiorari assailed the said order. This Court said: . . . , it is to be noted that the Court of Appeals ordered the payment of interest "at the legal rate" from the time of the filing of the complaint. . . Said circular [Central Bank Circular No. 416] does not apply to actions based on a breach of employment contract like the case at bar. (Emphasis supplied) The Court reiterated that the 6% interest per annum on the damages should be computed from the time the complaint was filed until the amount is fully paid. Quite recently, the Court had another occasion to rule on the matter. National Power Corporation vs. Angas, 14decided on 08 May 1992, involved the expropriation of certain parcels of land. After conducting a hearing on the complaints for eminent domain, the trial court ordered the petitioner to pay the private respondents certain

sums of money as just compensation for their lands so expropriated "with legal interest thereon . . . until fully paid." Again, in applying the 6% legal interest per annum under the Civil Code, the Court 15 declared: . . . , (T)he transaction involved is clearly not a loan or forbearance of money, goods or credits but expropriation of certain parcels of land for a public purpose, the payment of which is without stipulation regarding interest, and the interest adjudged by the trial court is in the nature of indemnity for damages. The legal interest required to be paid on the amount of just compensation for the properties expropriated is manifestly in the form of indemnity for damages for the delay in the payment thereof. Therefore, since the kind of interest involved in the joint judgment of the lower court sought to be enforced in this case is interest by way of damages, and not by way of earnings from loans, etc. Art. 2209 of the Civil Code shall apply. Concededly, there have been seeming variances in the above holdings. The cases can perhaps be classified into two groups according to the similarity of the issues involved and the corresponding rulings rendered by the court. The "first group" would consist of the cases of Reformina v. Tomol (1985), Philippine Rabbit Bus Lines v. Cruz(1986), Florendo v. Ruiz (1989) and National Power Corporation v. Angas (1992). In the "second group" would be Malayan Insurance Company v.Manila Port Service (1969), Nakpil and Sons v. Court of Appeals (1988), and American Express International v.Intermediate Appellate Court (1988). In the "first group", the basic issue focuses on the application of either the 6% (under the Civil Code) or 12% (under the Central Bank Circular) interest per annum. It is easily discernible in these cases that there has been a consistent holding that the Central Bank Circular imposing the 12% interest per annum applies only to loans or forbearance 16 of money, goods or credits, as well as to judgments involving such loan or forbearance of money, goods or credits, and that the 6% interest under the Civil Code governs when the transaction involves the payment of indemnities in the concept of damage arising from the breach or a delay in the performance of obligations in general. Observe, too, that in these cases, a common time frame in the computation of the 6% interest per annum has been applied, i.e., from the time the complaint is filed until the adjudged amount is fully paid. The "second group", did not alter the pronounced rule on the application of the 6% or 12% interest per annum, 17depending on whether or not the amount involved is a loan or forbearance, on the one hand, or one of indemnity for damage, on the other hand. Unlike, however, the "first group" which remained consistent in holding that the running of the legal interest should be from the time of the filing of the complaint until fully paid, the "second group" varied on the commencement of the running of the legal interest. Malayan held that the amount awarded should bear legal interest from the date of the decision of the court a quo,explaining that "if the suit were for damages, 'unliquidated and not known until definitely ascertained, assessed and determined by the courts after proof,' then, interest 'should be from the date of the decision.'" American Express International v. IAC, introduced a different time frame for reckoning the 6% interest by ordering it to be "computed from the finality of (the) decision until paid." The Nakpil and Sons case ruled that 12% interest per

annum should be imposed from the finality of the decision until the judgment amount is paid. The ostensible discord is not difficult to explain. The factual circumstances may have called for different applications, guided by the rule that the courts are vested with discretion, depending on the equities of each case, on the award of interest. Nonetheless, it may not be unwise, by way of clarification and reconciliation, to suggest the following rules of thumb for future guidance. I. When an obligation, regardless of its source, i.e., law, contracts, quasi-contracts, delicts or quasi-delicts 18 is breached, the contravenor can be held liable for damages. 19 The provisions under Title XVIII on "Damages" of the Civil Code govern in determining the measure of recoverable damages. 20 II. With regard particularly to an award of interest in the concept of actual and compensatory damages, the rate of interest, as well as the accrual thereof, is imposed, as follows: 1. When the obligation is breached, and it consists in the payment of a sum of money, i.e., a loan or forbearance of money, the interest due should be that which may have been stipulated in writing. 21 Furthermore, the interest due shall itself earn legal interest from the time it is judicially demanded. 22 In the absence of stipulation, the rate of interest shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial demand under and subject to the provisions of Article 1169 23 of the Civil Code. 2. When an obligation, not constituting a loan or forbearance of money, is breached, an interest on the amount of damages awarded may be imposed at the discretion of the court 24 at the rate of 6% per annum. 25 No interest, however, shall be adjudged on unliquidated claims or damages except when or until the demand can be established with reasonable certainty. 26 Accordingly, where the demand is established with reasonable certainty, the interest shall begin to run from the time the claim is made judicially or extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at the time the demand is made, the interest shall begin to run only from the date the judgment of the court is made (at which time the quantification of damages may be deemed to have been reasonably ascertained). The actual base for the computation of legal interest shall, in any case, be on the amount finally adjudged. 3. When the judgment of the court awarding a sum of money becomes final and executory, the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above, shall be 12% per annum from such finality until its satisfaction, this interim period being deemed to be by then an equivalent to a forbearance of credit. WHEREFORE, the petition is partly GRANTED. The appealed decision is AFFIRMED with the MODIFICATION that the legal interest to be paid is SIX PERCENT (6%) on the amount due computed from the decision, dated 03 February 1988, of the court a quo. A TWELVE PERCENT (12%) interest, in lieu of SIX PERCENT (6%), shall be imposed on such amount upon finality of this decision until the payment thereof. SO ORDERED.

Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo, Melo, Quiason, Puno and Kapunan, JJ., concur. Mendoza, J., took no part.

THIRD DIVISIONG.R. No. 159617

August 8, 2007

ROBERTO C. SICAM and AGENCIA de R.C. SICAM, INC., petitioners, vs. LULU V. JORGE and CESAR JORGE, respondents. DECISION AUSTRIA-MARTINEZ, J.: Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr. (petitioner Sicam) and Agencia deR.C. Sicam, Inc. (petitioner corporation) seeking to annul the Decision1 of the Court of Appeals dated March 31, 2003, and its Resolution2 dated August 8, 2003, in CA G.R. CV No. 56633. It appears that on different dates from September to October 1987, Lulu V. Jorge (respondent Lulu) pawned several pieces of jewelry with Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes Paraaque, Metro Manila, to secure a loan in the total amount of P59,500.00. On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the pawnshop vault. The incident was entered in the police blotter of the Southern Police District, Paraaque Police Station as follows: Investigation shows that at above TDPO, while victims were inside the office, two (2) male unidentified persons entered into the said office with guns drawn. Suspects(sic) (1) went straight inside and poked his gun toward Romeo Sicam and thereby tied him with an electric wire while suspects (sic) (2) poked his gun toward Divina Mata and Isabelita Rodriguez and ordered them to lay (sic) face flat on the floor. Suspects asked forcibly the case and assorted pawned jewelries items mentioned above. Suspects after taking the money and jewelries fled on board a Marson Toyota unidentified plate number.3 Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her jewelry due to the robbery incident in the pawnshop. On November 2, 1987, respondent Lulu then wrote a letter4 to petitioner Sicam expressing disbelief stating that when the robbery happened, all jewelry pawned were deposited with Far East Bank near the pawnshop since it had been the practice that before they could withdraw, advance notice must be given to the pawnshop so it could withdraw the jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal on November 6, 1987 but petitioner Sicam failed to return the jewelry.

On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint against petitioner Sicam with the Regional Trial Court of Makati seeking indemnification for the loss of pawned jewelry and payment of actual, moral and exemplary damages as well as attorney's fees. The case was docketed as Civil Case No. 88-2035. Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the pawnshop was incorporated on April 20, 1987 and known as Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due care and diligence in the safekeeping of the articles pledged with it and could not be made liable for an event that is fortuitous. Respondents subsequently filed an Amended Complaint to include petitioner corporation. Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering that he is not the real party-in-interest. Respondents opposed the same. The RTC denied the motion in an Order dated November 8, 1989.5 After trial on the merits, the RTC rendered its Decision6 dated January 12, 1993, dismissing respondents complaint as well as petitioners counterclaim. The RTC held that petitioner Sicam could not be made personally liable for a claim arising out of a corporate transaction; that in the Amended Complaint of respondents, they asserted that "plaintiff pawned assorted jewelries in defendants' pawnshop"; and that as a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of a stockholder. The RTC further ruled that petitioner corporation could not be held liable for the loss of the pawned jewelry since it had not been rebutted by respondents that the loss of the pledged pieces of jewelry in the possession of the corporation was occasioned by armed robbery; that robbery is a fortuitous event which exempts the victim from liability for the loss, citing the case of Austria v. Court of Appeals;7 and that the parties transaction was that of a pledgor and pledgee and under Art. 1174 of the Civil Code, the pawnshop as a pledgee is not responsible for those events which could not be foreseen. Respondents appealed the RTC Decision to the CA. In a Decision dated March 31, 2003, the CA reversed the RTC, the dispositive portion of which reads as follows: WHEREFORE, premises considered, the instant Appeal is GRANTED, and the Decision dated January 12, 1993,of the Regional Trial Court of Makati, Branch 62, is hereby REVERSED and SET ASIDE, ordering the appellees to pay appellants the actual value of the lost jewelry amounting to P272,000.00, and attorney' fees of P27,200.00.8 In finding petitioner Sicam liable together with petitioner corporation, the CA applied the doctrine of piercing the veil of corporate entity reasoning that respondents were misled into thinking that they were dealing with the pawnshop owned by petitioner Sicam as all the pawnshop tickets issued to them bear the words "Agencia de R.C. Sicam"; and that there was no indication on the pawnshop tickets that it was the petitioner corporation that owned the pawnshop which explained why respondents had to amend their complaint impleading petitioner corporation.

The CA further held that the corresponding diligence required of a pawnshop is that it should take steps to secure and protect the pledged items and should take steps to insure itself against the loss of articles which are entrusted to its custody as it derives earnings from the pawnshop trade which petitioners failed to do; that Austria is not applicable to this case since the robbery incident happened in 1961 when the criminality had not as yet reached the levels attained in the present day; that they are at least guilty of contributory negligence and should be held liable for the loss of jewelries; and that robberies and hold-ups are foreseeable risks in that those engaged in the pawnshop business are expected to foresee. The CA concluded that both petitioners should be jointly and severally held liable to respondents for the loss of the pawned jewelry. Petitioners motion for reconsideration was denied in a Resolution dated August 8, 2003. Hence, the instant petition for review with the following assignment of errors: THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL, WHEN IT ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT THE RESPONDENTS ARGUED IN THEIR BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE. THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL BY THIS HONORABLE COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING MORE THERETO DESPITE THE FACT THAT THE SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD.9 Anent the first assigned error, petitioners point out that the CAs finding that petitioner Sicam is personally liable for the loss of the pawned jewelries is "a virtual and uncritical reproduction of the arguments set out on pp. 5-6 of the Appellants brief."10 Petitioners argue that the reproduced arguments of respondents in their Appellants Brief suffer from infirmities, as follows: (1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint that Agencia de R.C. Sicam, Inc. is the present owner of Agencia de R.C. Sicam Pawnshop, and therefore, the CA cannot rule against said conclusive assertion of respondents; (2) The issue resolved against petitioner Sicam was not among those raised and litigated in the trial court; and (3) By reason of the above infirmities, it was error for the CA to have pierced the corporate veil since a corporation has a personality distinct and separate from its individual stockholders or members.

Anent the second error, petitioners point out that the CA finding on their negligence is likewise an unedited reproduction of respondents brief which had the following defects: (1) There were unrebutted evidence on record that petitioners had observed the diligence required of them, i.e, they wanted to open a vault with a nearby bank for purposes of safekeeping the pawned articles but was discouraged by the Central Bank (CB) since CB rules provide that they can only store the pawned articles in a vault inside the pawnshop premises and no other place; (2) Petitioners were adjudged negligent as they did not take insurance against the loss of the pledged jelweries, but it is judicial notice that due to high incidence of crimes, insurance companies refused to cover pawnshops and banks because of high probability of losses due to robberies; (3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 39, 45-46), the victim of robbery was exonerated from liability for the sum of money belonging to others and lost by him to robbers. Respondents filed their Comment and petitioners filed their Reply thereto. The parties subsequently submitted their respective Memoranda. We find no merit in the petition. To begin with, although it is true that indeed the CA findings were exact reproductions of the arguments raised in respondents (appellants) brief filed with the CA, we find the same to be not fatally infirmed. Upon examination of the Decision, we find that it expressed clearly and distinctly the facts and the law on which it is based as required by Section 8, Article VIII of the Constitution. The discretion to decide a case one way or another is broad enough to justify the adoption of the arguments put forth by one of the parties, as long as these are legally tenable and supported by law and the facts on records.11 Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of law committed by the appellate court. Generally, the findings of fact of the appellate court are deemed conclusive and we are not duty-bound to analyze and calibrate all over again the evidence adduced by the parties in the court a quo.12 This rule, however, is not without exceptions, such as where the factual findings of the Court of Appeals and the trial court are conflicting or contradictory13 as is obtaining in the instant case. However, after a careful examination of the records, we find no justification to absolve petitioner Sicam from liability. The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable together with petitioner corporation. The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuse legitimate issues. 14 The theory of corporate entity was not meant to promote unfair objectives or otherwise to shield them.15 Notably, the evidence on record shows that at the time respondent Lulu pawned her jewelry, the pawnshop was owned by petitioner Sicam himself. As correctly

observed by the CA, in all the pawnshop receipts issued to respondent Lulu in September 1987, all bear the words "Agencia de R. C. Sicam," notwithstanding that the pawnshop was allegedly incorporated in April 1987. The receipts issued after such alleged incorporation were still in the name of "Agencia de R. C. Sicam," thus inevitably misleading, or at the very least, creating the wrong impression to respondents and the public as well, that the pawnshop was owned solely by petitioner Sicam and not by a corporation. Even petitioners counsel, Atty. Marcial T. Balgos, in his letter16 dated October 15, 1987 addressed to the Central Bank, expressly referred to petitioner Sicam as the proprietor of the pawnshop notwithstanding the alleged incorporation in April 1987. We also find no merit in petitioners' argument that since respondents had alleged in their Amended Complaint that petitioner corporation is the present owner of the pawnshop, the CA is bound to decide the case on that basis. Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or written, made by a party in the course of the proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made through palpable mistake or that no such admission was made. Thus, the general rule that a judicial admission is conclusive upon the party making it and does not require proof, admits of two exceptions, to wit: (1) when it is shown that such admission was made through palpable mistake, and (2) when it is shown that no such admission was in fact made. The latter exception allows one to contradict an admission by denying that he made such an admission.17 The Committee on the Revision of the Rules of Court explained the second exception in this wise: x x x if a party invokes an "admission" by an adverse party, but cites the admission "out of context," then the one making the "admission" may show that he made no "such" admission, or that his admission was taken out of context. x x x that the party can also show that he made no "such admission", i.e., not in the sense in which the admission is made to appear. That is the reason for the modifier "such" because if the rule simply states that the admission may be contradicted by showing that "no admission was made," the rule would not really be providing for a contradiction of the admission but just a denial.18 (Emphasis supplied). While it is true that respondents alleged in their Amended Complaint that petitioner corporation is the present owner of the pawnshop, they did so only because petitioner Sicam alleged in his Answer to the original complaint filed against him that he was not the real party-in-interest as the pawnshop was incorporated in April 1987. Moreover, a reading of the Amended Complaint in its entirety shows that respondents referred to both petitioner Sicam and petitioner corporation where they (respondents) pawned their assorted pieces of jewelry and ascribed to both the failure to observe due diligence commensurate with the business which resulted in the loss of their pawned jewelry.

Markedly, respondents, in their Opposition to petitioners Motion to Dismiss Amended Complaint, insofar as petitioner Sicam is concerned, averred as follows: Roberto C. Sicam was named the defendant in the original complaint because the pawnshop tickets involved in this case did not show that the R.C. Sicam Pawnshop was a corporation. In paragraph 1 of his Answer, he admitted the allegations in paragraph 1 and 2 of the Complaint. He merely added "that defendant is not now the real party in interest in this case." It was defendant Sicam's omission to correct the pawnshop tickets used in the subject transactions in this case which was the cause of the instant action. He cannot now ask for the dismissal of the complaint against him simply on the mere allegation that his pawnshop business is now incorporated. It is a matter of defense, the merit of which can only be reached after consideration of the evidence to be presented in due course.19 Unmistakably, the alleged admission made in respondents' Amended Complaint was taken "out of context" by petitioner Sicam to suit his own purpose. Ineluctably, the fact that petitioner Sicam continued to issue pawnshop receipts under his name and not under the corporation's name militates for the piercing of the corporate veil. We likewise find no merit in petitioners' contention that the CA erred in piercing the veil of corporate fiction of petitioner corporation, as it was not an issue raised and litigated before the RTC. Petitioner Sicam had alleged in his Answer filed with the trial court that he was not the real party-in-interest because since April 20, 1987, the pawnshop business initiated by him was incorporated and known as Agencia deR.C. Sicam. In the pretrial brief filed by petitioner Sicam, he submitted that as far as he was concerned, the basic issue was whether he is the real party in interest against whom the complaint should be directed.20 In fact, he subsequently moved for the dismissal of the complaint as to him but was not favorably acted upon by the trial court. Moreover, the issue was squarely passed upon, although erroneously, by the trial court in its Decision in this manner: x x x The defendant Roberto Sicam, Jr likewise denies liability as far as he is concerned for the reason that he cannot be made personally liable for a claim arising from a corporate transaction. This Court sustains the contention of the defendant Roberto C. Sicam, Jr. The amended complaint itself asserts that "plaintiff pawned assorted jewelries in defendant's pawnshop." It has been held that " as a consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the debt or credit of the stockholder, nor is the stockholder's debt or credit that of a corporation.21 Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether petitioner Sicam is personally liable is inextricably connected with the determination of the question whether the doctrine of piercing the corporate veil should or should not apply to the case.

The next question is whether petitioners are liable for the loss of the pawned articles in their possession. Petitioners insist that they are not liable since robbery is a fortuitous event and they are not negligent at all. We are not persuaded. Article 1174 of the Civil Code provides: Art. 1174. Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be responsible for those events which could not be foreseen or which, though foreseen, were inevitable. Fortuitous events by definition are extraordinary events not foreseeable or avoidable. It is therefore, not enough that the event should not have been foreseen or anticipated, as is commonly believed but it must be one impossible to foresee or to avoid. The mere difficulty to foresee the happening is not impossibility to foresee the same. 22 To constitute a fortuitous event, the following elements must concur: (a) the cause of the unforeseen and unexpected occurrence or of the failure of the debtor to comply with obligations must be independent of human will; (b) it must be impossible to foresee the event that constitutes the caso fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the occurrence must be such as to render it impossible for the debtor to fulfill obligations in a normal manner; and, (d) the obligor must be free from any participation in the aggravation of the injury or loss. 23 The burden of proving that the loss was due to a fortuitous event rests on him who invokes it.24 And, in order for a fortuitous event to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have occasioned the loss. 25 It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and injury to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would not exempt one from liability. When the effect is found to be partly the result of a person's participation -- whether by active intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules applicable to acts of God. 26 Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery. He likewise testified that when he started the pawnshop business in 1983, he thought of opening a vault with the nearby bank for the purpose of safekeeping the valuables but was discouraged by the Central Bank since pawned articles should only be stored in a vault inside the pawnshop. The very measures which petitioners had allegedly adopted show that to them the possibility of robbery was not only foreseeable, but actually foreseen and anticipated.

Petitioner Sicams testimony, in effect, contradicts petitioners defense of fortuitous event. Moreover, petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may have been occasioned. Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part of herein petitioners. In Co v. Court of Appeals,27 the Court held: It is not a defense for a repair shop of motor vehicles to escape liability simply because the damage or loss of a thing lawfully placed in its possession was due to carnapping. Carnapping per se cannot be considered as a fortuitous event. The fact that a thing was unlawfully and forcefully taken from another's rightful possession, as in cases of carnapping, does not automatically give rise to a fortuitous event. To be considered as such, carnapping entails more than the mere forceful taking of another's property. It must be proved and established that the event was an act of God or was done solely by third parties and that neither the claimant nor the person alleged to be negligent has any participation. In accordance with the Rules of Evidence, the burden of proving that the loss was due to a fortuitous event rests on him who invokes it which in this case is the private respondent. However, other than the police report of the alleged carnapping incident, no other evidence was presented by private respondent to the effect that the incident was not due to its fault. A police report of an alleged crime, to which only private respondent is privy, does not suffice to establish the carnapping. Neither does it prove that there was no fault on the part of private respondent notwithstanding the parties' agreement at the pre-trial that the car was carnapped. Carnapping does not foreclose the possibility of fault or negligence on the part of private respondent.28 Just like in Co, petitioners merely presented the police report of the Paraaque Police Station on the robbery committed based on the report of petitioners' employees which is not sufficient to establish robbery. Such report also does not prove that petitioners were not at fault. On the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners are guilty of concurrent or contributory negligence as provided in Article 1170 of the Civil Code, to wit: Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages.29 Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments which are engaged in making loans secured by pledges, the special laws and regulations concerning them shall be observed, and subsidiarily, the provisions on pledge, mortgage and antichresis. The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor shall take care of the thing pledged with the diligence of a good father of a

family. This means that petitioners must take care of the pawns the way a prudent person would as to his own property. In this connection, Article 1173 of the Civil Code further provides: Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by the nature of the obligation and corresponds with the circumstances of the persons, of time and of the place. When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2 shall apply. If the law or contract does not state the diligence which is to be observed in the performance, that which is expected of a good father of a family shall be required. We expounded in Cruz v. Gangan30 that negligence is the omission to do something which a reasonable man, guided by those considerations which ordinarily regulate the conduct of human affairs, would do; or the doing of something which a prudent and reasonable man would not do.31 It is want of care required by the circumstances. A review of the records clearly shows that petitioners failed to exercise reasonable care and caution that an ordinarily prudent person would have used in the same situation. Petitioners were guilty of negligence in the operation of their pawnshop business. Petitioner Sicam testified, thus: Court: Q. Do you have security guards in your pawnshop? A. Yes, your honor. Q. Then how come that the robbers were able to enter the premises when according to you there was a security guard? A. Sir, if these robbers can rob a bank, how much more a pawnshop. Q. I am asking you how were the robbers able to enter despite the fact that there was a security guard? A. At the time of the incident which happened about 1:00 and 2:00 o'clock in the afternoon and it happened on a Saturday and everything was quiet in the area BF Homes Paraaque they pretended to pawn an article in the pawnshop, so one of my employees allowed him to come in and it was only when it was announced that it was a hold up. Q. Did you come to know how the vault was opened? A. When the pawnshop is official (sic) open your honor the pawnshop is partly open. The combination is off.

Q. No one open (sic) the vault for the robbers? A. No one your honor it was open at the time of the robbery. Q. It is clear now that at the time of the robbery the vault was open the reason why the robbers were able to get all the items pawned to you inside the vault. A. Yes sir.32 revealing that there were no security measures adopted by petitioners in the operation of the pawnshop. Evidently, no sufficient precaution and vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion. There was no clear showing that there was any security guard at all. Or if there was one, that he had sufficient training in securing a pawnshop. Further, there is no showing that the alleged security guard exercised all that was necessary to prevent any untoward incident or to ensure that no suspicious individuals were allowed to enter the premises. In fact, it is even doubtful that there was a security guard, since it is quite impossible that he would not have noticed that the robbers were armed with caliber .45 pistols each, which were allegedly poked at the employees.33 Significantly, the alleged security guard was not presented at all to corroborate petitioner Sicam's claim; not one of petitioners' employees who were present during the robbery incident testified in court. Furthermore, petitioner Sicam's admission that the vault was open at the time of robbery is clearly a proof of petitioners' failure to observe the care, precaution and vigilance that the circumstances justly demanded. Petitioner Sicam testified that once the pawnshop was open, the combination was already off. Considering petitioner Sicam's testimony that the robbery took place on a Saturday afternoon and the area in BF Homes Paraaque at that time was quiet, there was more reason for petitioners to have exercised reasonable foresight and diligence in protecting the pawned jewelries. Instead of taking the precaution to protect them, they let open the vault, providing no difficulty for the robbers to cart away the pawned articles. We, however, do not agree with the CA when it found petitioners negligent for not taking steps to insure themselves against loss of the pawned jewelries. Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for Pawnshops, which took effect on July 13, 1973, and which was issued pursuant to Presidential Decree No. 114, Pawnshop Regulation Act, it is provided that pawns pledged must be insured, to wit: Sec. 17. Insurance of Office Building and Pawns- The place of business of a pawnshop and the pawns pledged to it must be insured against fire and against burglary as well as for the latter(sic), by an insurance company accredited by the Insurance Commissioner. However, this Section was subsequently amended by CB Circular No. 764 which took effect on October 1, 1980, to wit: Sec. 17 Insurance of Office Building and Pawns The office building/premises and pawns of a pawnshop must be insured against fire. (emphasis supplied).

where the requirement that insurance against burglary was deleted. Obviously, the Central Bank considered it not feasible to require insurance of pawned articles against burglary. The robbery in the pawnshop happened in 1987, and considering the above-quoted amendment, there is no statutory duty imposed on petitioners to insure the pawned jewelry in which case it was error for the CA to consider it as a factor in concluding that petitioners were negligent. Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the diligence required of them under the Civil Code. The diligence with which the law requires the individual at all times to govern his conduct varies with the nature of the situation in which he is placed and the importance of the act which he is to perform.34 Thus, the cases ofAustria v. Court of Appeals,35 Hernandez v. Chairman, Commission on Audit36 and Cruz v. Gangan37 cited by petitioners in their pleadings, where the victims of robbery were exonerated from liability, find no application to the present case. In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on commission basis, but which Abad failed to subsequently return because of a robbery committed upon her in 1961. The incident became the subject of a criminal case filed against several persons. Austria filed an action against Abad and her husband (Abads) for recovery of the pendant or its value, but the Abads set up the defense that the robbery extinguished their obligation. The RTC ruled in favor of Austria, as the Abads failed to prove robbery; or, if committed, that Maria Abad was guilty of negligence. The CA, however, reversed the RTC decision holding that the fact of robbery was duly established and declared the Abads not responsible for the loss of the jewelry on account of a fortuitous event. We held that for the Abads to be relieved from the civil liability of returning the pendant under Art. 1174 of the Civil Code, it would only be sufficient that the unforeseen event, the robbery, took place without any concurrent fault on the debtors part, and this can be done by preponderance of evidence; that to be free from liability for reason of fortuitous event, the debtor must, in addition to the casus itself, be free of any concurrent or contributory fault or negligence.38 We found in Austria that under the circumstances prevailing at the time the Decision was promulgated in 1971, the City of Manila and its suburbs had a high incidence of crimes against persons and property that rendered travel after nightfall a matter to be sedulously avoided without suitable precaution and protection; that the conduct of Maria Abad in returning alone to her house in the evening carrying jewelry of considerable value would have been negligence per se and would not exempt her from responsibility in the case of robbery. However we did not hold Abad liable for negligence since, the robbery happened ten years previously; i.e., 1961, when criminality had not reached the level of incidence obtaining in 1971. In contrast, the robbery in this case took place in 1987 when robbery was already prevalent and petitioners in fact had already foreseen it as they wanted to deposit the pawn with a nearby bank for safekeeping. Moreover, unlike in Austria, where no negligence was committed, we found petitioners negligent in securing their pawnshop as earlier discussed. In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the Ternate Beach Project of the Philippine Tourism in Cavite. In the morning of July 1,

1983, a Friday, he went to Manila to encash two checks covering the wages of the employees and the operating expenses of the project. However for some reason, the processing of the check was delayed and was completed at about 3 p.m. Nevertheless, he decided to encash the check because the project employees would be waiting for their pay the following day; otherwise, the workers would have to wait until July 5, the earliest time, when the main office would open. At that time, he had two choices: (1) return to Ternate, Cavite that same afternoon and arrive early evening; or (2) take the money with him to his house in Marilao, Bulacan, spend the night there, and leave for Ternate the following day. He chose the second option, thinking it was the safer one. Thus, a little past 3 p.m., he took a passenger jeep bound for Bulacan. While the jeep was on Epifanio de los Santos Avenue, the jeep was held up and the money kept by Hernandez was taken, and the robbers jumped out of the jeep and ran. Hernandez chased the robbers and caught up with one robber who was subsequently charged with robbery and pleaded guilty. The other robber who held the stolen money escaped. The Commission on Audit found Hernandez negligent because he had not brought the cash proceeds of the checks to his office in Ternate, Cavite for safekeeping, which is the normal procedure in the handling of funds. We held that Hernandez was not negligent in deciding to encash the check and bringing it home to Marilao, Bulacan instead of Ternate, Cavite due to the lateness of the hour for the following reasons: (1) he was moved by unselfish motive for his co-employees to collect their wages and salaries the following day, a Saturday, a non-working, because to encash the check on July 5, the next working day after July 1, would have caused discomfort to laborers who were dependent on their wages for sustenance; and (2) that choosing Marilao as a safer destination, being nearer, and in view of the comparative hazards in the trips to the two places, said decision seemed logical at that time. We further held that the fact that two robbers attacked him in broad daylight in the jeep while it was on a busy highway and in the presence of other passengers could not be said to be a result of his imprudence and negligence. Unlike in Hernandez where the robbery happened in a public utility, the robbery in this case took place in the pawnshop which is under the control of petitioners. Petitioners had the means to screen the persons who were allowed entrance to the premises and to protect itself from unlawful intrusion. Petitioners had failed to exercise precautionary measures in ensuring that the robbers were prevented from entering the pawnshop and for keeping the vault open for the day, which paved the way for the robbers to easily cart away the pawned articles. In Cruz, Dr. Filonila O. Cruz, Camanava District Director of Technological Education and Skills Development Authority (TESDA), boarded the Light Rail Transit (LRT) from Sen. Puyat Avenue to Monumento when her handbag was slashed and the contents were stolen by an unidentified person. Among those stolen were her wallet and the government-issued cellular phone. She then reported the incident to the police authorities; however, the thief was not located, and the cellphone was not recovered. She also reported the loss to the Regional Director of TESDA, and she requested that she be freed from accountability for the cellphone. The Resident Auditor denied her request on the ground that she lacked the diligence required in the custody of government property and was ordered to pay the purchase value in the total amount of P4,238.00. The COA found no sufficient justification to grant the request for relief from accountability. We reversed the ruling and found that riding the LRT cannot per se be denounced as a negligent act more so because Cruzs mode of transit was influenced by time and money considerations; that she boarded the LRT to be able to arrive in Caloocan in time for her 3 pm meeting; that any prudent and rational person under similar circumstance can reasonably be expected to do the same; that possession of a cellphone should not hinder one from boarding the LRT coach as Cruz did considering that whether she rode a jeep or bus, the risk of theft would have also been present; that because of her relatively low position

and pay, she was not expected to have her own vehicle or to ride a taxicab; she did not have a government assigned vehicle; that placing the cellphone in a bag away from covetous eyes and holding on to that bag as she did is ordinarily sufficient care of a cellphone while traveling on board the LRT; that the records did not show any specific act of negligence on her part and negligence can never be presumed. Unlike in the Cruz case, the robbery in this case happened in petitioners' pawnshop and they were negligent in not exercising the precautions justly demanded of a pawnshop. WHEREFORE, except for the insurance aspect, the Decision of the Court of Appeals dated March 31, 2003 and its Resolution dated August 8, 2003, are AFFIRMED. Costs against petitioners. SO ORDERED. Ynares-Santiago, Chairperson, Chico-Nazario, Nachura, JJ., concur.