Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No.

182963 June 3, 2013

SPOUSES DEO AGNER and MARICON AGNER, Petitioners, vs. BPI FAMILY SAVINGS BANK, INC., Respondent. DECISION PERALTA, J.: This is a petition for review on certiorari assailing the April 30, 2007 Decision1 and May 19, 2008 Resolution2of the Court of Appeals in CAG.R. CV No. 86021, which affirmed the August 11, 2005 Decision3 of the Regional Trial Court, Branch 33, Manila City. On February 15, 2001, petitioners spouses Deo Agner and Maricon Agner executed a Promissory Note with Chattel Mortgage in favor of Citimotors, Inc. The contract provides, among others, that: for receiving the amount of Php834, 768.00, petitioners shall pay Php 17,391.00 every 15th day of each succeeding month until fully paid; the loan is secured by a 2001 Mitsubishi Adventure Super Sport; and an interest of 6% per month shall be imposed for failure to pay each installment on or before the stated due date.4 On the same day, Citimotors, Inc. assigned all its rights, title and interests in the Promissory Note with Chattel Mortgage to ABN AMRO Savings Bank, Inc. (ABN AMRO), which, on May 31, 2002, likewise assigned the same to respondent BPI Family Savings Bank, Inc.5 For failure to pay four successive installments from May 15, 2002 to August 15, 2002, respondent, through counsel, sent to petitioners a demand letter dated August 29, 2002, declaring the entire obligation as due and demandable and requiring to pay Php576,664.04, or surrender the mortgaged vehicle immediately upon receiving the letter.6 As the demand was left unheeded, respondent filed on October 4, 2002 an action for Replevin and Damages before the Manila Regional Trial Court (RTC). A writ of replevin was issued.7 Despite this, the subject vehicle was not seized.8 Trial on the merits ensued. On August 11, 2005, the Manila RTC Br. 33 ruled for the respondent and ordered petitioners to jointly and severally pay the amount of Php576,664.04 plus interest at the rate of 72% per annum from August 20, 2002 until fully paid, and the costs of suit.

Petitioners appealed the decision to the Court of Appeals (CA), but the CA affirmed the lower courts decision and, subsequently, denied the motion for reconsideration; hence, this petition. Before this Court, petitioners argue that: (1) respondent has no cause of action, because the Deed of Assignment executed in its favor did not specifically mention ABN AMROs account receivable from petitioners; (2) petitioners cannot be considered to have defaulted in payment for lack of competent proof that they received the demand letter; and (3) respondents remedy of resorting to both actions of replevin and collection of sum of money is contrary to the provision of Article 14849 of the Civil Code and the Elisco Tool Manufacturing Corporation v. Court of Appeals10 ruling. The contentions are untenable. With respect to the first issue, it would be sufficient to state that the matter surrounding the Deed of Assignment had already been considered by the trial court and the CA. Likewise, it is an issue of fact that is not a proper subject of a petition for review under Rule 45. An issue is factual when the doubt or difference arises as to the truth or falsehood of alleged facts, or when the query invites calibration of the whole evidence, considering mainly the credibility of witnesses, existence and relevancy of specific surrounding circumstances, their relation to each other and to the whole, and the probabilities of the situation.11 Time and again, We stress that this Court is not a trier of facts and generally does not weigh anew evidence which lower courts have passed upon. As to the second issue, records bear that both verbal and written demands were in fact made by respondent prior to the institution of the case against petitioners.12 Even assuming, for arguments sake, that no demand letter was sent by respondent, there is really no need for it because petitioners legally waived the necessity of notice or demand in the Promissory Note with Chattel Mortgage, which they voluntarily and knowingly signed in favor of respondents predecessor-in-interest. Said contract expressly stipulates: In case of my/our failure to pay when due and payable, any sum which I/We are obliged to pay under this note and/or any other obligation which I/We or any of us may now or in the future owe to the holder of this note or to any other party whether as principal or guarantor x x x then the entire sum outstanding under this note shall, without prior notice or demand, immediately become due and payable. (Emphasis and underscoring supplied) A provision on waiver of notice or demand has been recognized as legal and valid in Bank of the Philippine Islands v. Court of Appeals,13 wherein We held: The Civil Code in Article 1169 provides that one incurs in delay or is in default from the time the obligor demands the fulfillment of the obligation from the obligee. However, the law expressly provides that demand is not necessary under certain circumstances, and one of these circumstances is when the parties expressly waive demand. Hence, since the co-signors expressly waived demand in the promissory notes, demand was unnecessary for them to be in default.14

Further, the Court even ruled in Navarro v. Escobido15 that prior demand is not a condition precedent to an action for a writ of replevin, since there is nothing in Section 2, Rule 60 of the Rules of Court that requires the applicant to make a demand on the possessor of the property before an action for a writ of replevin could be filed. Also, petitioners representation that they have not received a demand letter is completely inconsequential as the mere act of sending it would suffice. Again, We look into the Promissory Note with Chattel Mortgage, which provides: All correspondence relative to this mortgage, including demand letters, summonses, subpoenas, or notifications of any judicial or extrajudicial action shall be sent to the MORTGAGOR at the address indicated on this promissory note with chattel mortgage or at the address that may hereafter be given in writing by the MORTGAGOR to the MORTGAGEE or his/its assignee. The mere act of sending any correspondence by mail or by personal delivery to the said address shall be valid and effective notice to the mortgagor for all legal purposes and the fact that any communication is not actually received by the MORTGAGOR or that it has been returned unclaimed to the MORTGAGEE or that no person was found at the address given, or that the address is fictitious or cannot be located shall not excuse or relieve the MORTGAGOR from the effects of such notice.16 (Emphasis and underscoring supplied) The Court cannot yield to petitioners denial in receiving respondents demand letter. To note, their postal address evidently remained unchanged from the time they executed the Promissory Note with Chattel Mortgage up to time the case was filed against them. Thus, the presumption that "a letter duly directed and mailed was received in the regular course of the mail"17 stands in the absence of satisfactory proof to the contrary. Petitioners cannot find succour from Ting v. Court of Appeals18 simply because it pertained to violation of Batas Pambansa Blg. 22 or the Bouncing Checks Law. As a higher quantum of proof that is, proof beyond reasonable doubt is required in view of the criminal nature of the case, We found insufficient the mere presentation of a copy of the demand letter allegedly sent through registered mail and its corresponding registry receipt as proof of receiving the notice of dishonor. Perusing over the records, what is clear is that petitioners did not take advantage of all the opportunities to present their evidence in the proceedings before the courts below. They miserably failed to produce the original cash deposit slips proving payment of the monthly amortizations in question. Not even a photocopy of the alleged proof of payment was appended to their Answer or shown during the trial. Neither have they demonstrated any written requests to respondent to furnish them with official receipts or a statement of account. Worse, petitioners were not able to make a formal offer of evidence considering that they have not marked any documentary evidence during the presentation of Deo Agners testimony.19 Jurisprudence abounds that, in civil cases, one who pleads payment has the burden of proving it; the burden rests on the defendant to prove payment, rather than on the plaintiff to prove non-payment.20 When the creditor is in possession of the document of credit, proof of non-payment is not needed for it is presumed.21 Respondent's possession of the Promissory Note with Chattel Mortgage strongly buttresses its claim

that the obligation has not been extinguished. As held in Bank of the Philippine Islands v. Spouses Royeca:22 x x x The creditor's possession of the evidence of debt is proof that the debt has not been discharged by payment. A promissory note in the hands of the creditor is a proof of indebtedness rather than proof of payment. In an action for replevin by a mortgagee, it is prima facie evidence that the promissory note has not been paid. Likewise, an uncanceled mortgage in the possession of the mortgagee gives rise to the presumption that the mortgage debt is unpaid.23 Indeed, when the existence of a debt is fully established by the evidence contained in the record, the burden of proving that it has been extinguished by payment devolves upon the debtor who offers such defense to the claim of the creditor.24 The debtor has the burden of showing with legal certainty that the obligation has been discharged by payment.25 Lastly, there is no violation of Article 1484 of the Civil Code and the Courts decision in Elisco Tool Manufacturing Corporation v. Court of Appeals.26 In Elisco, petitioner's complaint contained the following prayer: WHEREFORE, plaintiffs pray that judgment be rendered as follows: ON THE FIRST CAUSE OF ACTION Ordering defendant Rolando Lantan to pay the plaintiff the sum of P39,054.86 plus legal interest from the date of demand until the whole obligation is fully paid; ON THE SECOND CAUSE OF ACTION To forthwith issue a Writ of Replevin ordering the seizure of the motor vehicle more particularly described in paragraph 3 of the Complaint, from defendant Rolando Lantan and/or defendants Rina Lantan, John Doe, Susan Doe and other person or persons in whose possession the said motor vehicle may be found, complete with accessories and equipment, and direct deliver thereof to plaintiff in accordance with law, and after due hearing to confirm said seizure and plaintiff's possession over the same; PRAYER COMMON TO ALL CAUSES OF ACTION 1. Ordering the defendant Rolando Lantan to pay the plaintiff an amount equivalent to twenty-five percent (25%) of his outstanding obligation, for and as attorney's fees; 2. Ordering defendants to pay the cost or expenses of collection, repossession, bonding fees and other incidental expenses to be proved during the trial; and 3. Ordering defendants to pay the costs of suit.

Plaintiff also prays for such further reliefs as this Honorable Court may deem just and equitable under the premises.27 The Court therein ruled: The remedies provided for in Art. 1484 are alternative, not cumulative. The exercise of one bars the exercise of the others. This limitation applies to contracts purporting to be leases of personal property with option to buy by virtue of Art. 1485. The condition that the lessor has deprived the lessee of possession or enjoyment of the thing for the purpose of applying Art. 1485 was fulfilled in this case by the filing by petitioner of the complaint for replevin to recover possession of movable property. By virtue of the writ of seizure issued by the trial court, the deputy sheriff seized the vehicle on August 6, 1986 and thereby deprived private respondents of its use. The car was not returned to private respondent until April 16, 1989, after two (2) years and eight (8) months, upon issuance by the Court of Appeals of a writ of execution. Petitioner prayed that private respondents be made to pay the sum of P39,054.86, the amount that they were supposed to pay as of May 1986, plus interest at the legal rate. At the same time, it prayed for the issuance of a writ of replevin or the delivery to it of the motor vehicle "complete with accessories and equipment." In the event the car could not be delivered to petitioner, it was prayed that private respondent Rolando Lantan be made to pay petitioner the amount of P60,000.00, the "estimated actual value" of the car, "plus accrued monthly rentals thereof with interests at the rate of fourteen percent (14%) per annum until fully paid." This prayer of course cannot be granted, even assuming that private respondents have defaulted in the payment of their obligation. This led the trial court to say that petitioner wanted to eat its cake and have it too.28 In contrast, respondent in this case prayed: (a) Before trial, and upon filing and approval of the bond, to forthwith issue a Writ of Replevin ordering the seizure of the motor vehicle above-described, complete with all its accessories and equipments, together with the Registration Certificate thereof, and direct the delivery thereof to plaintiff in accordance with law and after due hearing, to confirm the said seizure; (b) Or, in the event that manual delivery of the said motor vehicle cannot be effected to render judgment in favor of plaintiff and against defendant(s) ordering them to pay to plaintiff, jointly and severally, the sum ofP576,664.04 plus interest and/or late payment charges thereon at the rate of 72% per annum from August 20, 2002 until fully paid; (c) In either case, to order defendant(s) to pay jointly and severally: (1) the sum of P297,857.54 as attorneys fees, liquidated damages, bonding fees and other expenses incurred in the seizure of the said motor vehicle; and

(2) the costs of suit. Plaintiff further prays for such other relief as this Honorable Court may deem just and equitable in the premises.29 Compared with Elisco, the vehicle subject matter of this case was never recovered and delivered to respondent despite the issuance of a writ of replevin. As there was no seizure that transpired, it cannot be said that petitioners were deprived of the use and enjoyment of the mortgaged vehicle or that respondent pursued, commenced or concluded its actual foreclosure. The trial court, therefore, rightfully granted the alternative prayer for sum of money, which is equivalent to the remedy of "exacting fulfillment of the obligation." Certainly, there is no double recovery or unjust enrichment30 to speak of.1wphi1 All the foregoing notwithstanding, We are of the opinion that the interest of 6% per month should be equitably reduced to one percent (1%) per month or twelve percent (12%) per annum, to be reckoned from May 16, 2002 until full payment and with the remaining outstanding balance of their car loan as of May 15, 2002 as the base amount. Settled is the principle which this Court has affirmed in a number of cases that stipulated interest rates of three percent (3%) per month and higher are excessive, iniquitous, unconscionable, and exorbitant.31 While Central Bank Circular No. 905-82, which took effect on January 1, 1983, effectively removed the ceiling on interest rates for both secured and unsecured loans, regardless of maturity, nothing in the said circular could possibly be read as granting carte blanche authority to lenders to raise interest rates to levels which would either enslave their borrowers or lead to a hemorrhaging of their assets.32 Since the stipulation on the interest rate is void for being contrary to morals, if not against the law, it is as if there was no express contract on said interest rate; thus, the interest rate may be reduced as reason and equity demand.33 WHEREFORE, the petition is DENIED and the Court AFFIRMS WITH MODIFICATION the April 30, 2007 Decision and May 19, 2008 Resolution of the Court of Appeals in CA-G.R. CV No. 86021. Petitioners spouses Deo Agner and Maricon Agner are ORDERED to pay, jointly and severally, respondent BPI Family Savings Bank, Inc. ( 1) the remaining outstanding balance of their auto loan obligation as of May 15, 2002 with interest at one percent ( 1 o/o) per month from May 16, 2002 until fully paid; and (2) costs of suit. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No.171692 June 3, 2013

SPOUSES DELFIN O. TUMIBAY and AURORA T. TUMIBAY-deceased; GRACE JULIE ANN TUMIBAY MANUEL, legal representative, Petitioners, vs. SPOUSES MELVIN A. LOPEZ and ROWENA GAY T. VISITACION LOPEZ, Respondents. DECISION DEL CASTILLO, J.: In a contract to sell, the seller retains ownership of the property until the buyer has paid the price in full. A -buyer who covertly usurps the seller's ownership of the property prior to the full payment of the price is in breach of the contract and the seller is entitled to rescission because the breach is substantial and fundamental as it defeats the very object of the parties in entering into the contract to sell. The Petition for Review on Certiorari1 assails the May 19, 2005 Decision2 of the Court of Appeals (CA) in CA-G.R. CV No. 79029, which reversed the January 6, 2003 Decision3 of the Regional Trial Court (RTC) of Malaybalay City, Branch 9 in Civil Case No. 2759-98, and the February 10, 2006 Resolution4 denying petitioner-spouses Delfin O. Tumibay and Aurora5 T. Tumibays Motion for Reconsideration.6 Factual Antecedents On March 23, 1998, petitioners filed a Complaint7 for declaration of nullity ab initio of sale, and recovery of ownership and possession of land with the RTC of Malaybalay City. The case was raffled to Branch 9 and docketed as Civil Case No. 2759-98. In their Complaint, petitioners alleged that they are the owners of a parcel of land located in Sumpong, Malaybalay, Bukidnon covered by Transfer Certificate of Title (TCT) No. T-253348 (subject land) in the name of petitioner Aurora; that they are natural born Filipino citizens but petitioner Delfin acquired American citizenship while his wife, petitioner Aurora, remained a Filipino citizen; that petitioner Aurora is the sister of Reynalda Visitacion (Reynalda);9 that on July 23, 1997, Reynalda sold the subject land to her daughter, Rowena Gay T. Visitacion Lopez (respondent Rowena), through a deed of sale10 for an unconscionable amount of P95,000.00 although said property had a market value of more than P2,000,000.00; that the subject sale was done without the knowledge and consent of petitioners; and that, for these fraudulent

acts, respondents should be held liable for damages. Petitioners prayed that (1) the deed of sale dated July 23, 1997 be declared void ab initio, (2) the subject land be reconveyed to petitioners, and (3) respondents be ordered to pay damages. On May 19, 1998, respondents filed their Answer11 with counterclaim. Respondents averred that on December 12, 1990, petitioners executed a special power of attorney (SPA)12 in favor of Reynalda granting the latter the power to offer for sale the subject land; that sometime in 1994, respondent Rowena and petitioners agreed that the former would buy the subject land for the price of P800,000.00 to be paid on installment; that on January 25, 1995, respondent Rowena paid in cash to petitioners the sum of $1,000.00; that from 1995 to 1997, respondent Rowena paid the monthly installments thereon as evidenced by money orders; that, in furtherance of the agreement, a deed of sale was executed and the corresponding title was issued in favor of respondent Rowena; that the subject sale was done with the knowledge and consent of the petitioners as evidenced by the receipt of payment by petitioners; and that petitioners should be held liable for damages for filing the subject Complaint in bad faith. Respondents prayed that the Complaint be dismissed and that petitioners be ordered to pay damages. On May 25, 1998, petitioners filed an Answer to Counterclaim.13 Petitioners admitted the existence of the SPA but claimed that Reynalda violated the terms thereof when she (Reynalda) sold the subject land without seeking the approval of petitioners as to the selling price. Petitioners also claimed that the monthly payments from 1995 to 1997 were mere deposits as requested by respondent Rowena so that she (Rowena) would not spend the same pending their agreement as to the purchase price; and that Reynalda, acting with evident bad faith, executed the deed of sale in her favor but placed it in the name of her daughter, respondent Rowena, which sale is null and void because an agent cannot purchase for herself the property subject of the agency. Ruling of the Regional Trial Court On January 6, 2003, the RTC rendered a Decision in favor of petitioners, viz: WHEREFORE, Decision is hereby rendered, as follows; (1) Ordering the petitioners, jointly and severally, to return the said amount of $12,000.00 at the present rate of exchange less the expenses to be incurred for the transfer of the property in question under the name of the petitioners; (2) Ordering the Register of Deeds of Bukidnon to cancel TCT No. T-62674 in the name of the respondent Rowena Gay T. Visitacion-Lopez and to issue a new TCT in the name of the petitioners; (3) Ordering respondents, spouses Melvin and Rowena Gay Lopez, to execute a Deed of Reconveyance in favor of the petitioners, or if said respondents should refuse to do so or are unable to do so, the Clerk of Court of the RTC and ex-officio Provincial Sheriff to execute such Deed of Reconveyance;

(4) No x x x damages are awarded. The respective parties must bear their own expenses except that respondents, jointly and severally, must pay the costs of this suit. SO ORDERED.14 In ruling in favor of petitioners, the trial court held: (1) the SPA merely authorized Reynalda to offer for sale the subject land for a price subject to the approval of the petitioners; (2) Reynalda violated the terms of the SPA when she sold the subject land to her daughter, respondent Rowena, without first seeking the approval of petitioners as to the selling price thereof; (3) the SPA does not sufficiently confer on Reynalda the authority to sell the subject land; (4) Reynalda, through fraud and with bad faith, connived with her daughter, respondent Rowena, to sell the subject land to the latter; and, (5) the sale contravenes Article 1491, paragraph 2, of the Civil Code which prohibits the agent from acquiring the property subject of the agency unless the consent of the principal has been given. The trial court held that Reynalda, as agent, acted outside the scope of her authority under the SPA. Thus, the sale is null and void and the subject land should be reconveyed to petitioners. The trial court further ruled that petitioners are not entirely free from liability because they received from respondent Rowena deposits totaling $12,000.00. Under the principle of unjust enrichment, petitioners should, thus, be ordered to reimburse the same without interest. Petitioners filed a partial motion for reconsideration15 praying for the award of attorneys fees. In its January 14, 2003 Order16 denying the aforesaid motion, the trial court clarified that the reimbursement of $12,000.00 in favor of respondents was without interest because there was also no award of rental income in favor of petitioners. Both parties are deemed mutually compensated and must bear their own expenses. From this Decision, respondents appealed to the CA. Ruling of the Court of Appeals On May 19, 2005, the CA rendered the assailed Decision reversing the judgment of the trial court, viz: WHEREFORE, premises considered, the appealed Decision of the Court a quo is hereby REVERSED and SET ASIDE. Accordingly, title to the subject property shall remain in the name of the Appellant ROWENA GAY VISITACION-LOPEZ. The latter and her spouse MELVIN LOPEZ are directed to pay the balance of Four Hundred Eighty Eight Thousand Pesos (P488,000.00) to the petitioners effective within 30 days from receipt of this Decision and in case of delay, to pay the legal rate of interests [sic] at 12% per annum until fully paid. SO ORDERED.17 In reversing the trial courts Decision, the appellate court ruled that: (1) the SPA sufficiently conferred on Reynalda the authority to sell the subject land; (2) although there is no direct evidence of petitioners approval of the selling price of the subject land,

petitioner Auroras acts of receiving two money orders and several dollar checks from respondent Rowena over the span of three years amount to the ratification of any defect in the authority of Reynalda under the SPA; (3) petitioners are estopped from repudiating the sale after they had received the deposits totaling $12,000.00; (4) the sale is not contrary to public policy because there is no rule or law which prohibits the sale of property subject of the agency between the agent and his children unless it would be in fraud of creditors which is not the case here; (5) petitioners impliedly ratified the subject SPA and contract of sale as well as its effects; and, (6) the selling price of P800,000.00 for the subject land is deemed reasonable based on the testimony of respondent Rowena as this was the selling price agreed upon by her and petitioner Delfin. Considering that respondent Rowena proved that she remitted a total of $12,000.00 to petitioners and pegging the exchange rate at that time at P26.00 per dollar, the appellate court ruled that P312,000.00 of the P800,000.00 selling price was already received by petitioners. Thus, respondents are only liable for the balance ofP488,000.00. Hence, this Petition. Issues Petitioners raise the following issues for our resolution: I. Whether the CA erred in resolving the issue in the case at bar. II. Whether under the SPA Reynalda had the power to sell the subject land. III. Whether the actuations of petitioner Aurora in receiving money from respondent Rowena amounted to the ratification of the breach in the exercise of the SPA. IV. Whether the CA erred in not declaring the sale void on grounds of public policy. V. Whether the CA erred in adopting the testimony of respondent Rowena as to the P800,000.00 selling price of the subject land.18 Petitioners Arguments Petitioners argue that the appellate court went beyond the issues of this case when it ruled that there was a contract of sale between respondent Rowena and petitioner Aurora because the issues before the trial court were limited to the validity of the deed of sale dated July 23, 1997 for being executed by Reynalda beyond the scope of her authority under the SPA. Further, the existence of the alleged contract of sale was not proven because the parties failed to agree on the purchase price as stated by petitioner Aurora in her testimony. The money, in cash and checks, given to petitioners from 1995 to 1997 were mere deposits until the parties could agree to the purchase price. Moreover, Reynalda acted beyond the scope of her authority under the SPA because she was merely authorized to look for prospective buyers of the subject land. Even assuming that she had the power to sell the subject land under the SPA, she did not secure the

approval as to the price from petitioners before executing the subject deed of sale, hence, the sale is null and void. Petitioners also contend that there was no ratification of the subject sale through petitioners acceptance of the monthly checks from respondent Rowena because the sale occurred subsequent to the receipt of the aforesaid checks. They further claim that the sale was void because it was not only simulated but violates Article 1491 of the Civil Code which prohibits the agent from acquiring the property subject of the agency. Here, Reynalda merely used her daughter, respondent Rowena, as a dummy to acquire the subject land. Finally, petitioners question the determination by the appellate court that the fair market value of the subject land is P800,000.00 for lack of any factual and legal basis. Respondents Arguments Respondents counter that the issue as to whether there was a perfected contract of sale between petitioners and respondent Rowena is inextricably related to the issue of whether the deed of sale dated July 23, 1997 is valid, hence, the appellate court properly ruled on the former. Furthermore, they reiterate the findings of the appellate court that the receipt of monthly installments constitutes an implied ratification of any defect in the SPA and deed of sale dated July 23, 1997. They emphasize that petitioners received a total of $12,000.00 as consideration for the subject land. Our Ruling The Petition is meritorious. As a general rule, we do not disturb the factual findings of the appellate court. However, this case falls under one of the recognized exceptions thereto because the factual findings of the trial court and appellate court are conflicting.19 Our review of the records leads us to conclude that the following are the relevant factual antecedents of this case. Petitioners were the owners of the subject land covered by TCT No. T-25334 in the name of petitioner Aurora. On December 12, 1990, petitioners, as principals and sellers, executed an SPA in favor of Reynalda, as agent, to, among others, offer for sale the subject land provided that the purchase price thereof should be approved by the former. Sometime in 1994, petitioners and respondent Rowena agreed to enter into an oral contract to sell over the subject land for the price of P800,000.00 to be paid in 10 years through monthly installments. On January 25, 1995, respondent Rowena paid the first monthly installment of $1,000.00 to petitioner Aurora which was followed by 22 intermittent monthly installments of $500.00 spanning almost three years. Sometime in 1997, after having paid a total of $10,000.00, respondent Rowena called her mother, Reynalda, claiming that she had already bought the subject land from petitioners. Using the aforesaid SPA, Reynalda then transferred the title to the subject land in respondent Rowenas name through a deed of sale dated July 23, 1997 without the knowledge and consent of petitioners. In the aforesaid deed, Reynalda appeared and signed as attorney-in-fact of petitioner Aurora, as seller, while respondent Rowena appeared as buyer. After which, a new title, i.e., TCT No. 62674,20 to thesubject land was issued in the name of respondent Rowena.

We explain these factual findings and the consequences thereof below. Petitioners and respondent Rowena entered into a contract to sell over the subject land. Petitioners deny that they agreed to sell the subject land to respondent Rowena for the price of P800,000.00 payable in 10 years through monthly installments. They claim that the payments received from respondent Rowena were for safekeeping purposes only pending the final agreement as to the purchase price of the subject land. We are inclined to give credence to the claim of the respondents for the following reasons. First, the payment of monthly installments was duly established by the evidence on record consisting of money orders21 and checks22 payable to petitioner Aurora. Petitioners do not deny that they received 23 monthly installments over the span of almost three years. As of November 30, 1997 (i.e., the date of the last monthly installment), the payments already totaled $12,000.00, to wit: Date January 25, 1995 February 21, 1995 March 27, 1995 April 25, 1995 June 1, 1995 June 30, 1995 July 31, 1995 May 29, 1996 June 30, 1996 July 31, 1996 August 31, 1996 October 29, 1996 December 31, 1996 January 31, 1997 February 28, 1997 March 31, 1997 Amount Paid (in dollars) 1,000.0023 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00

September 30, 1996 500.00

May 31, 1997 July 19, 1997 August 31, 1997 October 31, 1997 Total

500.00 500.00 500.00 500.00 12,000.00

September 30, 1997 500.00 November 30, 1997 500.00

Second, in her testimony, petitioner Aurora claimed that the $1,000.00 in cash that she received from respondent Rowena on January 25, 1995 was a mere deposit until the purchase price of the subject land would have been finally agreed upon by both parties.24 However, petitioner Aurora failed to explain why, after receiving this initial sum of $1,000.00, she thereafter accepted from respondent Rowena 22 intermittent monthly installments in the amount of $500.00. No attempt was made on the part of petitioners to return these amounts and it is fair to assume that petitioners benefited therefrom. Third, it strains credulity that respondent Rowena would make such monthly installments for a substantial amount of money and for a long period of time had there been no agreement between the parties as to the purchase price of the subject land. We are, thus, inclined to rule that there was, indeed, a contractual agreement between the parties for the purchase of the subject land and that this agreement partook of an oral contract to sell for the sum ofP800,000.00. A contract to sell has been defined as "a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price."25 In a contract to sell, "ownership is retained by the seller and is not to pass until the full payment of the price x x x."26 It is "commonly entered into so as to protect the seller against a buyer who intends to buy the property in installments by withholding ownership over the property until the buyer effects full payment therefor."27 In the case at bar, while there was no written agreement evincing the intention of the parties to enter into a contract to sell, its existence and partial execution were sufficiently established by, and may be reasonably inferred from the actuations of the parties, to wit: (1) the title to the subject land was not immediately transferred, through a formal deed of conveyance, in the name of respondent Rowena prior to or at the time of the first payment of $1,000.00 by respondent Rowena to petitioner Aurora on January 25, 1995;28 (2) after this initial payment, petitioners received 22 intermittent monthly installments from respondent Rowena in the sum of $500.00; and, (3) in her testimony, respondent Rowena admitted that she had the title to the subject land transferred in her name only later on or on July 23, 1997, through a deed of sale, because she believed that she had substantially paid the purchase price thereof,29 and that she was entitled thereto as a form of security for the installments she had already paid.30

Respondent Rowena was in breach of the contract to sell. Although we rule that there was a contract to sell over the subject land between petitioners and respondent Rowena, we find that respondent Rowena was in breach thereof because, at the time the aforesaid deed of sale was executed on July 23, 1997, the full price of the subject land was yet to be paid. In arriving at this conclusion, we take judicial notice31 of the prevailing exchange rates at the time, as published by the Bangko Sentral ng Pilipinas,32 and multiply the same with the monthly installments respondent Rowena paid to petitioners, as supported by the evidence on record, to wit: Date January 25, 1995 February 21, 1995 March 27, 1995 April 25, 1995 June 1, 1995 June 30, 1995 July 31, 1995 May 29, 1996 June 30, 1996 July 31, 1996 August 31, 1996 September 30, 1996 October 29, 1996 December 31, 1996 January 31, 1997 February 28, 1997 March 31, 1997 May 31, 1997 July 19, 1997 Amount Paid (in dollars) 1,000.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 Exchange Rate (peso per dollar) 24.7700 25.1140 25.9670 26.0270 25.8040 25.5750 25.5850 26.1880 26.203033 26.2280 26.202034 26.2570 26.2830 26.288035 26.3440 26.3330 26.3670 26.374036 28.574037 Total Peso Equivalent 24,770.00 12,557.00 12,983.50 13,013.50 12,902.00 12,787.50 12,792.50 13,094.00 13,101.50 13,114.00 13,101.00 13,128.50 13,141.50 13,144.00 13,172.00 13,166.50 13,183.50 13,187.00 14,287.00 260,626.50

Thus, as of July 19, 1997 or prior to the execution of the deed of sale dated July 23, 1997, the total amount of monthly installments paid by respondent Rowena to petitioners was only P260,626.50 or 32.58%38 of theP800,000.00 purchase price. That the full price was yet to be paid at the time of the subject transfer of title was admitted by respondent Rowena on cross-examination, viz:

ATTY. OKIT: Q - Let us make this clear. You now admit that x x x you agreed to buy the lot at eight hundred thousand, to which the Plaintiff x x x agreed. Now based on the dollar rate, your total payment did not reach x x x eight hundred thousand pesos? Is that correct? [sic] A - Yes. Q - Since notwithstanding the fact this eight hundred thousand which you have agreed is not fully paid why did your mother finalize the deed of sale? A - My mother is equipped with the SPA to transfer the lot to me only for security purposes but actually there is no full payment.39 (Emphasis supplied) Respondent Rowena tried to justify the premature transfer of title by stating that she had substantially paid the full amount of the purchase price and that this was necessary as a security for the installments she had already paid. However, her own evidence clearly showed that she had, by that time, paid only 32.58% thereof. Neither can we accept her justification that the premature transfer of title was necessary as a security for the installments she had already paid absent proof that petitioners agreed to this new arrangement. Verily, she failed to prove that petitioners agreed to amend or novate the contract to sell in order to allow her to acquire title over the subject land even if she had not paid the price in full. Significantly, the evidence on record indicates that the premature transfer of title in the name of respondent Rowena was done without the knowledge and consent of petitioners. In particular, respondent Rowenas narration of the events leading to the transfer of title showed that she and her mother, Reynalda, never sought the consent of petitioners prior to said transfer of title, viz: COURT: Q- Why is this check (in the amount of $1,000.00) in your possession now? A- This is the check I paid to her (referring to petitioner Aurora) which is in cash. [sic] ATTY. BARROSO: Q - Now did you continue x x x paying the $500.00 dollar to him (referring to petitioner Delfin)? A - Yes. xxxx Q - Now having stated substantially paid, what did you do with the land subject of this case? [sic]

A - I called my mother who has equipped with SPA to my Uncle that I have already bought the land. [sic] Q - And you called your mother? A - Yes. xxxx Q - Then what transpired next? A - After two years my mother called me if how much I have paid the land and being equipped with SPA, so she transferred the land to me. [sic]40 (Emphases supplied) Respondent Rowenas reliance on the SPA as the authority or consent to effect the premature transfer of title in her name is plainly misplaced. The terms of the SPA are clear. It merely authorized Reynalda to sell the subject land at a price approved by petitioners. The SPA could not have amended or novated the contract to sell to allow respondent Rowena to acquire the title over the subject land despite non-payment of the price in full for the reason that the SPA was executed four years prior to the contract to sell. In fine, the tenor of her testimony indicates that respondent Rowena made a unilateral determination that she had substantially paid the purchase price and that she is entitled to the transfer of title as a form of security for the installments she had already paid, reasons, we previously noted, as unjustified. The contract to sell is rescissible. Article 1191 of the Civil Code provides: Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. x x x As a general rule, "rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches as are substantial and fundamental as to defeat the object of the parties in making the agreement."41 In the case at bar, we find that respondent Rowenas act of transferring the title to the subject land in her name, without the knowledge and consent of petitioners and despite non-payment of the full price thereof, constitutes a substantial and fundamental breach of the contract to sell. As previously noted, the main object or purpose of a seller in entering into a contract to sell is to protect himself against a buyer who intends to buy the property in installments by withholding ownership over the property until the buyer

effects full payment therefor.42 As a result, the sellers obligation to convey and the buyers right toconveyance of the property arise only upon full payment of the price. Thus, a buyer who willfully contravenes this fundamental object or purpose of the contract, by covertly transferring the ownership of the property in his name at a time when the full purchase price has yet to be paid, commits a substantial and fundamental breach which entitles the seller to rescission of the contract.43 Indeed, it would be highly iniquitous for us to rule that petitioners, as sellers, should continue with the contract to sell even after the discovery of the aforesaid breach committed by respondent Rowena, as buyer, considering that these acts betrayed in no small measure the trust reposed by petitioners in her and her mother, Reynalda. Put simply, respondent Rowena took advantage of the SPA, in the name of her mother and executed four years prior to the contract to sell, to effect the transfer of title to the subject land in her (Rowenas) name without the knowledge and consent of petitioners and despite non-payment of the full price. We, thus, rule that petitioners are entitled to the rescission of the subject contract to sell. Petitioners are entitled to moral damages and attorneys fees while respondent Rowena is entitled to the reimbursement of the monthly installments with legal interest. Article 1170 of the Civil Code provides: 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. Fraud or malice (dolo) has been defined as a "conscious and intentional design to evade the normal fulfillment of existing obligations" and is, thus, incompatible with good faith.44 In the case at bar, we find that respondent Rowena was guilty of fraud in the performance of her obligation under the subject contract to sell because (1) she knew that she had not yet paid the full price (having paid only 32.58% thereof) when she had the title to the subject land transferred to her name, and (2) she orchestrated the aforesaid transfer of title without the knowledge and consent of petitioners. Her own testimony and documentary evidence established this fact. Where fraud and bad faith have been established, the award of moral damages is proper.45 Further, under Article 2208(2)46 of the Civil Code, the award of attorneys fees is proper where the plaintiff is compelled to litigate with third persons or incur expenses to protect his interest because of the defendants act or omission. Here, respondent Rowenas aforesaid acts caused petitioners to incur expenses in litigating their just claims. We, thus, find respondent Rowena liable for moral damages and attorneys fees which we fix at P100,000.00 and P50,000.00, respectively.47 Anent the monthly installments respondent Rowena paid to petitioners, our review of the records leads us to conclude that respondent Rowena is entitled to the reimbursement of the same with legal interest. Although respondent Rowena was clearly unjustified in prematurely and covertly transferring the title to the subject land in her name, we deplore petitioners lack of candor in prosecuting their claims before the trial

court and intent to evade recognition of the monthly installments that they received from respondent Rowena. The records indicate that, in their Complaint, petitioners made no mention of the fact that they had entered into a contract to sell with respondent Rowena and that they had received 23 monthly installments from the latter. The Complaint merely alleged that the subject sale was done without the knowledge and consent of petitioners. It was only later on, when respondent Rowena presented the proof of payment of the monthly installments in her Answer to the Complaint, that this was brought to light to which petitioners readily admitted. Further, no evidence was presented to prove that respondent Rowena occupied the subject land or benefited from the use thereof upon commencement of the contract to sell which would have justified the setting off of rental income against the monthly installments paid by respondent Rowena to petitioners. In view of the foregoing, the sums paid by respondent Rowena as monthly installments to petitioners should, thus, be returned to her with legal interest. The total amount to be reimbursed by petitioners to respondent Rowena is computed as follows: Date January 25, 1995 February 21, 1995 March 27, 1995 April 25, 1995 June 1, 1995 June 30, 1995 July 31, 1995 May 29, 1996 June 30, 1996 July 31, 1996 August 31, 1996 September 30, 1996 October 29, 1996 December 31, 1996 January 31, 1997 February 28, 1997 March 31, 1997 May 31, 1997 July 19, 1997 Amount Paid (in dollars) 1,000.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 500.00 Exchange Rate (peso per dollar) 24.7700 25.1140 25.9670 26.0270 25.8040 25.5750 25.5850 26.1880 26.2030 26.2280 26.2020 26.2570 26.2830 26.2880 26.3440 26.3330 26.3670 26.3740 28.5740 Peso Equivalent 24,770.00 12,557.00 12,983.50 13,013.50 12,902.00 12,787.50 12,792.50 13,094.00 13,101.50 13,114.00 13,101.00 13,128.50 13,141.50 13,144.00 13,172.00 13,166.50 13,183.50 13,187.00 14,287.00

August 31, 1997 September 30, 1997 October 31, 1997 November 30, 1997

500.00 500.00 500.00 500.00

30.1650 33.8730 34.9380 34.6550 Total

15,082.50 16,936.50 17,469.00 17,327.50 327,442.00

Since this amount is neither a loan nor forbearance of money, we set the interest rate at 6% per annum computed from the time of the filing of the Answer48 to the Complaint on May 19, 199849 until finality of judgement and thereafter at 12% per annum until fully paid in accordance with our ruling in Eastern Shipping Lines, Inc. v. Court of Appeals.50 Petitioners are, thus, ordered to pay respondent Rowena the sum of P327,442.00 with an interest of 6% per annum computed from May 19, 1998 until finality of judgment and thereafter of 12% per annum until fully paid. The sale of the subject land, effected through the deed of sale dated July 23, 1997, is void. Having ruled that respondent Rowena was in substantial breach of the contract to sell because she had the title to the subject land transferred in her name without the knowledge and consent of petitioners and despite lack of full payment of the purchase price, we now rule on the validity of the deed of sale dated July 23, 1997 which was used to effect the aforesaid transfer of ownership. It will be recalled that on December 12, 1990, petitioners, as principals and sellers, executed an SPA in favor of Reynalda, as agent. The SPA stated in part: That we spouses, AURORA TUMIBAY and DELFIN TUMIBAY, of legal age and presently residing at 36 Armstrong Drive, Clark, New Jersey, 07066 name, constitute and appoint REYNALDA VISITACION, widow, of legal age and residing at Don Carlos, Bukidnon, Philippines, to be our true and lawful Attorney-in-fact, for us and in our name, place and stead and for our use and benefit to do and perform the following acts and deed: To administer our real property located in the Province of Bikidnon, Town of Malaybalay, Barrio of Bantaunon, Towns of Maramag, Paradise, Maramag and Barrio of Kiburiao, Town of Quezon. To offer for sale said properties, the selling price of which will be subject to our approval. xxxx To sign all papers and documents on our behalf in a contract of sale x x x.51. As can be seen, the SPA gave Reynalda the power and duty to, among others, (1) offer for sale the subject land to prospective buyers, (2) seek the approval of petitioners as to the selling price thereof, and (3) sign the contract of sale on behalf of petitioners upon

locating a buyer willing and able to purchase the subject land at the price approved by petitioners. Although the SPA was executed four years prior to the contract to sell, there would have been no obstacle to its use by Reynalda had the ensuing sale been consummated according to its terms. However, as previously discussed, when Reynalda, as attorney-in-fact of petitioner Aurora, signed the subject deed of sale dated July 23, 1997, the agreed price of P800,000.00 (which may be treated as the approved price) was not yet fully paid because respondent Rowena at the time had paid only P260,262.50.52 Reynalda, therefore, acted beyond the scope of her authority because she signed the subject deed of sale, on behalf of petitioners, at a price of P95,000.00 which was not approved by the latter. For her part, respondent Rowena cannot deny that she was aware of the limits of Reynaldas power under the SPA because she (Rowena) was the one who testified that the agreed price for the subject land was P800,000.00. Article 1898 of the Civil Code provides: Art. 1898. If the agent contracts in the name of the principal, exceeding the scope of his authority, and the principal does not ratify the contract, it shall be void if the party with whom the agent contracted is aware of the limits of the powers granted by the principal. In this case, however, the agent is liable if he undertook to secure the principals ratification. It should be noted that, under Article 1898 of the Civil Code, the principals ratification of the acts of the agent, done beyond the scope of the latters authority, may cure the defect in the contract entered into between the agent and a third person. This seems to be the line of reasoning adopted by the appellate court in upholding the validity of the subject sale. The appellate court conceded that there was no evidence that respondents sought the approval of petitioners for the subject sale but it, nonetheless, ruled that whatever defect attended the sale of the subject land should be deemed impliedly ratified by petitioners acceptance of the monthly installments paid by respondent Rowena. Though not clearly stated in its Decision, the appellate court seemed to rely on the four monthly installments (i.e., August 31, September 30, October 31, and November 30, 1997) respondent Rowena paid to petitioners which the latter presumably received and accepted even after the execution of the deed of sale dated July 23, 1997. We disagree. That petitioners continued to receive four monthly installments even after the premature titling of the subject land in the name of respondent Rowena, through the deed of sale dated July 23, 1997, did not, by itself, establish that petitioners ratified such sale. On the contrary, the fact that petitioners continued to receive the aforesaid monthly installments tended to establish that they had yet to discover the covert transfer of title in the name of respondent Rowena. As stated earlier, the evidence on record established that the subject sale was done without petitioners knowledge and consent which would explain why receipt or acceptance by petitioners of the aforementioned four monthly installments still occurred. Further, it runs contrary to common human experience and reason that petitioners, as sellers, would forego the reservation or retention of the ownership over the subject land, which was intended to guarantee the full payment of the price under the contract to sell, especially so in this case where respondent Rowena, as buyer, had paid only 32.58% of the purchase price.

In a contract to sell, it would be unusual for the seller to consent to the transfer of ownership of the property to the buyer prior to the full payment of the purchase price because the reservation of the ownership in the seller is precisely intended to protect the seller from the buyer. We, therefore, find that petitioners claim that they did not ratify the subject sale, which was done without their knowledge and consent, and that the subsequent discovery of the aforesaid fraudulent sale led them to promptly file this case with the courts to be more credible and in accord with the evidence on record. To rule otherwise would be to reward respondent Rowena for the fraud that she committed on petitioners. Based on the foregoing, we rule that (1) Reynalda, as agent, acted beyond the scope of her authority under the SPA when she executed the deed of sale dated July 23, 1997 in favor of respondent Rowena, as buyer, without the knowledge and consent of petitioners, and conveyed the subject land to respondent Rowena at a price not approved by petitioners, as principals and sellers, (2) respondent Rowena was aware of the limits of the authority of Reynalda under the SPA, and (3) petitioners did not ratify, impliedly or expressly, the acts of Reynalda. Under Article 1898 of the Civil Code, the sale is void and petitioners are, thus, entitled to the reconveyance of the subject land. WHEREFORE, the Petition is GRANTED. The May 19, 2005 Decision and February 10, 2006 Resolution of the Court of Appeals in CA-G.R. CV No. 79029 are ANNULLED and SET ASIDE. The January 6, 2003 Decision of the Regional Trial Court of Malaybalay City, Branch 9 in Civil Case No. 2759-98 is REINSTATED and MODIFIED to read as follows: 1. The deed of sale dated July 23, 1997 over the subject land, covered by TCT No. T-62674, between petitioner Aurora, represented by Reynalda as her attorney-infact, and respondent Rowena is declared void. 2. The contract to sell over the subject land, covered by TCT No. T-25334, between petitioners, as sellers, and respondent Rowena, as buyer, is declared rescinded.1wphi1 3. The Register of Deeds of Malaybalay City is ordered to cancel TCT No. T-62674 in the name of respondent Rowena and to reinstate TCT No. T-25334 in the name of petitioner Aurora. 4. Respondent Rowena is ordered to pay petitioners the sum of P100,000.00 as moral damages andP50,000.00 as attorneys fees. 5. Petitioners are ordered to pay respondent Rowena the sum of P327,442.00 with legal interest of 6% per annum from May 19, 1998 until finality of this Decision. In case petitioners fail to pay the amount due upon finality of this Decision, they shall pay legal interest thereon at the rate of 12% per annum until fully paid. No costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 197861 June 5, 2013

SPOUSES FLORENTINO T. MALLARI and AUREA V. MALLARI, Petitioners, vs. PRUDENTIAL BANK (now BANK OF THE PHILIPPINE ISLANDS), Respondent. DECISION PERALTA, J.: Before us is a Petition for Review on Certiorari under Rule 45, assailing the Decision1 dated June 17, 2010 and the Resolution2 dated July 20, 2011 of the Court of Appeals (CA) in CA-G.R. CV No. 65993. The antecedent facts are as follows: On December 11, 1984, petitioner Florentino T. Mallari (Florentino) obtained from respondent Prudential Bank-Tarlac Branch (respondent bank), a loan in the amount of P300,000.00 as evidenced by Promissory Note (PN) No. BD 84-055.3 Under the promissory note, the loan was subject to an interest rate of 21% per annum (p.a.), attorney's fees equivalent to 15% of the total amount due but not less than P200.00 and, in case of default, a penalty and collection charges of 12% p.a. of the total amount due. The loan had a maturity date of January 10, 1985, but was renewed up to February 17, 1985. Petitioner Florentino executed a Deed of Assignment4 wherein he authorized the respondent bank to pay his loan with his time deposit with the latter in the amount ofP300,000.00. On December 22, 1989, petitioners spouses Florentino and Aurea Mallari (petitioners) obtained again from respondent bank another loan of P1.7 million as evidenced by PN No. BDS 606-895 with a maturity date of March 22, 1990. They stipulated that the loan will bear 23% interest p.a., attorney's fees equivalent to 15% p.a. of the total amount due, but not less than P200.00, and penalty and collection charges of 12% p.a. Petitioners executed a Deed of Real Estate Mortgage6 in favor of respondent bank covering petitioners' property under Transfer Certificate of Title (TCT) No. T-215175 of the Register of Deeds of Tarlac to answer for the said loan. Petitioners failed to settle their loan obligations with respondent bank, thus, the latter, through its lawyer, sent a demand letter to the former for them to pay their obligations, which when computed up to January 31, 1992, amounted to P571,218.54 for PN No. BD 84-055 and P2,991,294.82 for PN No. BDS 606-89.

On February 25, 1992, respondent bank filed with the Regional Trial Court (RTC) of Tarlac, a petition for the extrajudicial foreclosure of petitioners' mortgaged property for the satisfaction of the latter's obligation ofP1,700,000.00 secured by such mortgage, thus, the auction sale was set by the Provincial Sheriff on April 23, 1992.7 On April 10, 1992, respondent bank's Assistant Manager sent petitioners two (2) separate Statements of Account as of April 23, 1992, i.e., the loan of P300,000.00 was increased to P594,043.54, while the P1,700,000.00 loan was already P3,171,836.18. On April 20, 1992, petitioners filed a complaint for annulment of mortgage, deeds, injunction, preliminary injunction, temporary restraining order and damages claiming, among others, that: (1) the P300,000.00 loan obligation should have been considered paid, because the time deposit with the same amount under Certificate of Time Deposit No. 284051 had already been assigned to respondent bank; (2) respondent bank still added theP300,000.00 loan to the P1.7 million loan obligation for purposes of applying the proceeds of the auction sale; and (3) they realized that there were onerous terms and conditions imposed by respondent bank when it tried to unilaterally increase the charges and interest over and above those stipulated. Petitioners asked the court to restrain respondent bank from proceeding with the scheduled foreclosure sale. Respondent bank filed its Answer with counterclaim arguing that: (1) the interest rates were clearly provided in the promissory notes, which were used in computing for interest charges; (2) as early as January 1986, petitioners' time deposit was made to apply for the payment of interest of their P300,000.00 loan; and (3) the statement of account as of April 10, 1992 provided for a computation of interest and penalty charges only from May 26, 1989, since the proceeds of petitioners' time deposit was applied to the payment of interest and penalty charges for the preceding period. Respondent bank also claimed that petitioners were fully apprised of the bank's terms and conditions; and that the extrajudicial foreclosure was sought for the satisfaction of the second loan in the amount of P1.7 million covered by PN No. BDS 606-89 and the real estate mortgage, and not the P300,000.00 loan covered by another PN No. 84-055. In an Order8 dated November 10, 1992, the RTC denied the Application for a Writ of Preliminary Injunction. However, in petitioners' Supplemental Motion for Issuance of a Restraining Order and/or Preliminary Injunction to enjoin respondent bank and the Provincial Sheriff from effecting or conducting the auction sale, the RTC reversed itself and issued the restraining order in its Order9 dated January 14, 1993. Respondent bank filed its Motion to Lift Restraining Order, which the RTC granted in its Order10 dated March 9, 1993. Respondent bank then proceeded with the extrajudicial foreclosure of the mortgaged property. On July 7, 1993, a Certificate of Sale was issued to respondent bank being the highest bidder in the amount ofP3,500,000.00. Subsequently, respondent bank filed a Motion to Dismiss Complaint11 for failure to prosecute action for unreasonable length of time to which petitioners filed their Opposition.12 On November 19, 1998, the RTC issued its Order13 denying respondent bank's Motion to Dismiss Complaint.

Trial thereafter ensued. Petitioner Florentino was presented as the lone witness for the plaintiffs. Subsequently, respondent bank filed a Demurrer to Evidence. On November 15, 1999, the RTC issued its Order14 granting respondent's demurrer to evidence, the dispositive portion of which reads: WHEREFORE, this case is hereby ordered DISMISSED. Considering there is no evidence of bad faith, the Court need not order the plaintiffs to pay damages under the general concept that there should be no premium on the right to litigate. NO COSTS. SO ORDERED.15 The RTC found that as to the P300,000.00 loan, petitioners had assigned petitioner Florentino's time deposit in the amount of P300,000.00 in favor of respondent bank, which maturity coincided with petitioners' loan maturity. Thus, if the loan was unpaid, which was later extended to February 17, 1985, respondent bank should had just applied the time deposit to the loan. However, respondent bank did not, and allowed the loan interest to accumulate reaching the amount of P594,043.54 as of April 10, 1992, hence, the amount of P292,600.00 as penalty charges was unjust and without basis. As to the P1.7 million loan which petitioners obtained from respondent bank after the P300,000.00 loan, it had reached the amount of P3,171,836.18 per Statement of Account dated April 27, 1993, which was computed based on the 23% interest rate and 12% penalty charge agreed upon by the parties; and that contrary to petitioners' claim, respondent bank did not add the P300,000.00 loan to the P1.7 million loan obligation for purposes of applying the proceeds of the auction sale. The RTC found no legal basis for petitioners' claim that since the total obligation was P1.7 million and respondent bank's bid price was P3.5 million, the latter should return to petitioners the difference of P1.8 million. It found that since petitioners' obligation had reached P2,991,294.82 as of January 31, 1992, but the certificate of sale was executed by the sheriff only on July 7, 1993, after the restraining order was lifted, the stipulated interest and penalty charges from January 31, 1992 to July 7, 1993 added to the loan already amounted to P3.5 million as of the auction sale. The RTC found that the 23% interest rate p.a., which was then the prevailing loan rate of interest could not be considered unconscionable, since banks are not hospitable or equitable institutions but are entities formed primarily for profit. It also found that Article 1229 of the Civil Code invoked by petitioners for the reduction of the interest was not applicable, since petitioners had not paid any single centavo of the P1.7 million loan which showed they had not complied with any part of the obligation. Petitioners appealed the RTC decision to the CA. A Comment was filed by respondent bank and petitioners filed their Reply thereto. On June 17, 2010, the CA issued its assailed Decision, the dispositive portion of which reads:

WHEREFORE, the instant appeal is hereby DENIED. The Order dated November 15, 1999 issued by the Regional Trial Court (RTC), Branch 64, Tarlac City, in Civil Case No. 7550 is hereby AFFIRMED.16 The CA found that the time deposit of P300,000.00 was equivalent only to the principal amount of the loan ofP300,000.00 and would not be sufficient to cover the interest, penalty, collection charges and attorney's fees agreed upon, thus, in the Statement of Account dated April 10, 1992, the outstanding balance of petitioners' loan was P594,043.54. It also found not persuasive petitioners' claim that the P300,000.00 loan was added to the P1.7 million loan. The CA, likewise, found that the interest rates and penalty charges imposed were not unconscionable and adopted in toto the findings of the RTC on the matter. Petitioners filed their Motion for Reconsideration, which the CA denied in a Resolution dated July 20, 2011. Hence, petitioners filed this petition for review arguing that: THE HON. COURT OF APPEALS ERRED IN AFFIRMING THE ORDER OF THE RTCBRANCH 64, TARLAC CITY, DATED NOVEMBER 15, 1999, DESPITE THE FACT THAT THE SAME IS CONTRARY TO SETTLED JURISPRUDENCE ON THE MATTER.17 The issue for resolution is whether the 23% p.a. interest rate and the 12% p.a. penalty charge on petitioners'P1,700,000.00 loan to which they agreed upon is excessive or unconscionable under the circumstances. Parties are free to enter into agreements and stipulate as to the terms and conditions of their contract, but such freedom is not absolute. As Article 1306 of the Civil Code provides, "The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy." Hence, if the stipulations in the contract are valid, the parties thereto are bound to comply with them, since such contract is the law between the parties. In this case, petitioners and respondent bank agreed upon on a 23% p.a. interest rate on the P1.7 million loan. However, petitioners now contend that the interest rate of 23% p.a. imposed by respondent bank is excessive or unconscionable, invoking our ruling in Medel v. Court of Appeals,18 Toring v. Spouses Ganzon-Olan,19 and Chua v. Timan.20 We are not persuaded. In Medel v. Court of Appeals,21 we found the stipulated interest rate of 66% p.a. or a 5.5% per month on aP500,000.00 loan excessive, unconscionable and exorbitant, hence, contrary to morals if not against the law and declared such stipulation void. In Toring v. Spouses Ganzon-Olan,22 the stipulated interest rates involved were 3% and 3.81% per month on a P10 million loan, which we find under the circumstances excessive and reduced the same to 1% per month. While in Chua v. Timan,23 where the stipulated interest rates were 7% and 5% a month, which are equivalent to 84% and 60% p.a., respectively, we had reduced the same to 1% per month or 12% p.a. We said that we

need not unsettle the principle we had affirmed in a plethora of cases that stipulated interest rates of 3% per month and higher are excessive, unconscionable and exorbitant, hence, the stipulation was void for being contrary to morals.24 In this case, the interest rate agreed upon by the parties was only 23% p.a., or less than 2% per month, which are much lower than those interest rates agreed upon by the parties in the above-mentioned cases. Thus, there is no similarity of factual milieu for the application of those cases. We do not consider the interest rate of 23% p.a. agreed upon by petitioners and respondent bank to be unconscionable. In Villanueva v. Court of Appeals,25 where the issue raised was whether the 24% p.a. stipulated interest rate is unreasonable under the circumstances, we answered in the negative and held: In Spouses Zacarias Bacolor and Catherine Bacolor v. Banco Filipino Savings and Mortgage Bank, Dagupan City Branch, this Court held that the interest rate of 24% per annum on a loan of P244,000.00, agreed upon by the parties, may not be considered as unconscionable and excessive. As such, the Court ruled that the borrowers cannot renege on their obligation to comply with what is incumbent upon them under the contract of loan as the said contract is the law between the parties and they are bound by its stipulations. Also, in Garcia v. Court of Appeals, this Court sustained the agreement of the parties to a 24% per annum interest on an P8,649,250.00 loan finding the same to be reasonable and clearly evidenced by the amended credit line agreement entered into by the parties as well as two promissory notes executed by the borrower in favor of the lender. Based on the above jurisprudence, the Court finds that the 24% per annum interest rate, provided for in the subject mortgage contracts for a loan of P225,000.00, may not be considered unconscionable. Moreover, considering that the mortgage agreement was freely entered into by both parties, the same is the law between them and they are bound to comply with the provisions contained therein.26 Clearly, jurisprudence establish that the 24% p.a. stipulated interest rate was not considered unconscionable, thus, the 23% p.a. interest rate imposed on petitioners' loan in this case can by no means be considered excessive or unconscionable. We also do not find the stipulated 12% p.a. penalty charge excessive or unconscionable. In Ruiz v. CA,27 we held: The 1% surcharge on the principal loan for every month of default is valid.1wphi1 This surcharge or penalty stipulated in a loan agreement in case of default partakes of the nature of liquidated damages under Art. 2227 of the New Civil Code, and is separate and distinct from interest payment. Also referred to as a penalty clause, it is expressly recognized by law. It is an accessory undertaking to assume greater liability on the part of an obligor in case of breach of an obligation. The obligor would then be bound to pay

the stipulated amount of indemnity without the necessity of proof on the existence and on the measure of damages caused by the breach. x x x28 And in Development Bank of the Philippines v. Family Foods Manufacturing Co., Ltd.,29 we held that: x x x The enforcement of the penalty can be demanded by the creditor only when the non-performance is due to the fault or fraud of the debtor. The non-performance gives rise to the presumption of fault; in order to avoid the payment of the penalty, the debtor has the burden of proving an excuse - the failure of the performance was due to either force majeure or the acts of the creditor himself.30 Here, petitioners defaulted in the payment of their loan obligation with respondent bank and their contract provided for the payment of 12% p.a. penalty charge, and since there was no showing that petitioners' failure to perform their obligation was due to force majeure or to respondent bank's acts, petitioners cannot now back out on their obligation to pay the penalty charge. A contract is the law between the parties and they are bound by the stipulations therein. WHEREFORE, the petition for review is DENIED. The Decision dated June 17, 2010 and the Resolution dated July 20, 2011 of the Court of Appeals are hereby AFFIRMED. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 202690 June 5, 2013

HENRY L. SY, Petitioner, vs. LOCAL GOVERNMENT OF QUEZON CITY, Respondent. DECISION PERLAS-BERNABE, J.: Assailed in this petition for review on certiorari1 are the January 20, 2012 Decision2 and July 16, 2012 Resolution3of the Court of Appeals (CA) in CA-G.R. CV No. 91964 which affirmed with modification the August 22, 2008 Order4 of the Regional Trial Court of Quezon City, Branch 80 (RTC) in Civil Case No. Q-96-29352, ordering respondent Local Government of Quezon City (the City) to pay petitioner Henry L. Sy (Sy) just compensation set as P5,500.00 per square meter (sq. m.), including P200,000.00 as exemplary damages and attorneys fees equivalent to one percent (1%) of the total amount due. The Facts On November 7, 1996, the City, through then Mayor Ismael Mathay, Jr., filed a complaint for expropriation with the RTC in order to acquire a 1,000 sq. m. parcel of land, owned and registered under the name of Sy (subject property),5 which was intended to be used as a site for a multi-purpose barangay hall, day-care center, playground and community activity center for the benefit of the residents of Barangay Balingasa, Balintawak, Quezon City.6 The requisite ordinance to undertake the aforesaid expropriation namely, Ordinance No. Sp-181, s-94, was enacted on April 12, 1994.7 On March 18, 1997, pursuant to Section 198 of Republic Act No. 7160 (RA 7160), otherwise known as the "Local Government Code of 1991," the City deposited the amount of P241,090.00 with the Office of the Clerk of Court, representing 15% of the fair market value of the subject property based on its tax declaration.9 During the preliminary conference on November 8, 2006, Sy did not question the Citys right to expropriate the subject property. Thus, only the amount of just compensation remained at issue.10 On July 6, 2006, the RTC appointed Edgardo Ostaco (Commissioner Ostaco), Engr. Victor Salinas (Commissioner Salinas) and Atty. Carlo Alcantara (Commissioner Alcantara) as commissioners to determine the proper amount of just compensation to be paid by the City for the subject property. Subsequently, Commissioners Ostaco and Alcantara, in a Report dated February 11, 2008, recommended the payment

of P5,500.00 per sq. m., to be computed from the date of the filing of the expropriation complaint, or on November 7, 1996. On the other hand, Commissioner Salinas filed a separate Report dated March 7, 2008, recommending the higher amount ofP13,500.00 per sq. m. as just compensation.11 The RTC Ruling In the Order dated August 22, 2008,12 the RTC, citing the principle that just compensation must be fair not only to the owner but to the expropriator as well, adopted the findings of Commissioners Ostaco and Alcantara and thus, held that the just compensation for the subject property should be set at P5,500.00 per sq. m.13 Further, it found no basis for the award of damages and back rentals in favor of Sy.14 Finally, while legal interest was not claimed, for equity considerations, it awarded six percent (6%) legal interest, computed from November 7, 1996 until full payment of just compensation.15 Dissatisfied, Sy filed an appeal with the CA.16 The CA Ruling In the Decision dated January 20, 2012,17 the CA affirmed the RTCs ruling but modified the same, ordering the City to pay Sy the amount of P200,000.00 as exemplary damages and attorneys fees equivalent to one percent (1%) of the total amount due. It found the appraisal of Commissioners Ostaco and Alcantara for the subject property to be more believable than the P13,000.00 per sq. m. valuation made by independent appraisers Cuervo and Asian Appraisers in 1995 and 1996, respectively, considering that it was arrived at after taking into account: (a) the fair market value of the subject property in the amount of P4,000.00 per sq. m. based on the September 4, 1996 recommendation of the City Appraisal Committee;18 (b) the market value of the subject lot in the amount of P2,000.00 per sq. m. based on several sworn statements made by Sy himself;19 and (c) Sys own tax declaration for 1996,20 stating that the subject property has a total market value of P2,272,050.00. Accordingly, it held that the fair market value ofP5,500.00 per sq. m., or P5,500,000.00 in total, for the 1,000 sq. m. subject property arrived at by Commissioners Ostaco and Alcantara was more than fair and reasonable.21 The CA also denied Sys assertion that he should be entitled to damages on account of the purported shelving of his housing project, finding no sufficient evidence to support the same. Likewise, it observed that the expropriation would not leave the rest of Sys properties useless as they would still be accessible through a certain Lot 8 based on the Property Identification Map.22 Nonetheless, citing the case of Manila International Airport Authority v. Rodriguez (MIAA),23 it awarded exemplary damages in the amount of P200,000.00 and attorneys fees equivalent to one percent (1%) of the amount due because of the Citys taking of the subject property without even initiating expropriation proceedings.24 It, however, denied Sys claim of back rentals considering that the RTC had already granted legal interest in his favor.25

Aggrieved, Sy moved for reconsideration which was denied in the Resolution dated July 16, 201226 for being filed out of time.27 The City also filed a motion for reconsideration which was equally denied for lack of merit.28 Hence, this petition. Issues Before The Court The present controversy revolves around the issue of whether the CA correctly: (a) dismissed Sys motion for reconsideration for being filed out of time; (b) upheld the amount of just compensation as determined by the RTC as well as its grant of six percent (6%) legal interest; and (c) awarded exemplary damages and attorneys fees. The Courts Ruling The petition is partly meritorious. A. Failure to seasonably move for reconsideration; excusable negligence; relaxation of procedural rules At the outset, the Court observes that Sys motion for reconsideration was filed out of time and thus, was properly dismissed by the CA. Records show that, as per the Postmasters Certification, the CAs January 20, 2012 Decision was received by Sy on January 26, 2012 and as such, any motion for reconsideration therefrom should have been filed not later than fifteen (15) days from receipt,29 or on February 10, 2012.30 However, Sy filed his motion for reconsideration (subject motion) a day late, or on February 13, 2012,31 which thus, renders the CA decision final and executory.32 In this regard, it is apt to mention that Sys counsel, Atty. Tranquilino F. Meris (Atty. Meris), claims that his secretarys inadvertent placing of the date January 27, 2012, instead of January 26, 2012, on the Notice of Decision33 constitutes excusable negligence which should therefore, justify a relaxation of the rules. The assertion is untenable. A claim of excusable negligence does not loosely warrant a relaxation of the rules. Verily, the party invoking such should be able to show that the procedural oversight or lapse is attended by a genuine miscalculation or unforeseen fortuitousness which ordinary prudence could not have guarded against so as to justify the relief sought.34 The standard of carerequired is that which an ordinarily prudent man bestows upon his important business.35 In this accord, the duty rests on every counsel to see to adopt and strictly maintain a system that will efficiently take into account all court notices sent to him.36 Applying these principles, the Court cannot excuse Atty. Meris misstep based on his proffered reasons. Evidently, the erroneous stamping of the Notice of Decision could have been averted if only he had instituted a credible filing system in his office to

account for oversights such as that committed by his secretary. Indeed, ordinary prudence could have prevented such mistake. Be that as it may, procedural rules may, nonetheless, be relaxed for the most persuasive of reasons in order to relieve a litigant of an injustice not commensurate with the degree of his thoughtlessness in not complying with the procedure prescribed.37 Corollarily, the rule, which states that the mistakes of counsel bind the client, may not be strictly followed where observance of it would result in the outright deprivation of the clients liberty or property, or where the interest of justice so requires.38 As applied in this case, the Court finds that the procedural consequence of the abovediscussed one-day delay in the filing of the subject motion which, as a matter of course, should render the CAs January 20, 2012 Decision already final and executory and hence, bar the instant petition is incommensurate to the injustice which Sy may suffer. This is in line with the Courts observation that the amount of just compensation, the rate of legal interest, as well as the time of its accrual, were incorrectly adjudged by both the RTC and the CA, contrary to existing jurisprudence. In this respect, the Court deems it proper to relax the rules of procedure and thus, proceed to resolve these substantive issues. B. Rate of legal interest and time of accrual Based on a judicious review of the records and application of jurisprudential rulings, the Court holds that the correct rate of legal interest to be applied is twelve percent (12%) and not six percent (6%) per annum, owing to the nature of the Citys obligation as an effective forbearance. In the case of Republic v. CA,39 the Court ruled that the debt incurred by the government on account of the taking of the property subject of an expropriation constitutes an effective forbearance which therefore, warrants the application of the 12% legal interest rate, viz: The constitutional limitation of "just compensation" is considered to be the sum equivalent to the market value of the property, broadly described to be the price fixed by the seller in open market in the usual and ordinary course of legal action and competition or the fair value of the property as between one who receives, and one who desires to sell, it fixed at the time of the actual taking by the government. Thus, if property is taken for public use before compensation is deposited with the court having jurisdiction over the case, the final compensation must include interests on its just value to be computed from the time the property is taken to the time when compensation is actually paid or deposited with the court. In fine, between the taking of the property and the actual payment, legal interests accrue in order to place the owner in a position as good as (but not better than) the position he was in before the taking occurred. The Bulacan trial court, in its 1979 decision, was correct in imposing interests on the zonal value of the property to be computed from the time petitioner instituted condemnation proceedings and "took" the property in September 1969. This allowance of interest on the amount found to be the value of the property as of the time of the taking computed, being an effective forbearance, at 12% per annum should help

eliminate the issue of the constant fluctuation and inflation of the value of the currency over time. x x x (Emphasis and underscoring supplied) In similar regard, the Court, in Land Bank of the Philippines v. Rivera,40 pronounced that: In many cases decided by this Court,41 it has been repeated time and again that the award of 12% interest is imposed in the nature of damages for delay in payment which in effect makes the obligation on the part of the government one of forbearance. This is to ensure prompt payment of the value of the land and limit the opportunity loss of the owner that can drag from days to decades. (Emphasis and underscoring supplied) As to the reckoning point on which the legal interest should accrue, the same should be computed from the time of the taking of the subject property in 1986 and not from the filing of the complaint for expropriation on November 7, 1996. Records show that the City itself admitted in its Appellees Brief filed before the CA that as early as 1986, "a burden was already imposed upon the owner of the subject property x x x, considering that the expropriated property was already being used as Barangay day care and office."42 Thus, the property was actually taken during that time and from thereon, legal interest should have already accrued. In this light, the Court has held that:43 x x x [T]he final compensation must include interests on its just value to be computed from the time the property is taken to the time when compensation is actually paid or deposited with the court. x x x (Emphasis supplied) This is based on the principle that interest "runs as a matter of law and follows from the right of the landowner to be placed in as good position as money can accomplish, as of the date of the taking."44 Notably, the lack of proper authorization, i.e., resolution to effect expropriation,45 did not affect the character of the Citys taking of the subject property in 1986 as the CA, in its January 20, 2012 Decision, suggests. Case law dictates that there is "taking" when the owner is actually deprived or dispossessed of his property; when there is a practical destruction or a material impairment of the value of his property or when he is deprived of the ordinary use thereof.46 Therefore, notwithstanding the lack of proper authorization, the legal character of the Citys action as one of "taking" did not change. In this relation, the CA noted that the City enacted Ordinance No. Sp-181, s-94, only on April 12, 1994 and filed its expropriation complaint on November 7, 1996. However, as it previously admitted, it already commenced with the taking of the subject property as early as 1986. Accordingly, interest must run from such time. This irregularity does not, however, proceed without any consequence.1wphi1 As correctly observed by the CA, citing as basis the MIAA case, exemplary damages and attorneys fees should be awarded to the landowner if the government takes possession of the property for a prolonged period of time without properly initiating expropriation proceedings. The MIAA ruling was applied in the more recent case of City of Iloilo v. Judge Lolita Contreras-Besana ,47 wherein the Court said:

We stress, however, that the City of Iloilo should be held liable for damages for taking private respondents property without payment of just compensation. In Manila International Airport Authority v. Rodriguez, the Court held that a government agencys prolonged occupation of private property without the benefit of expropriation proceedings undoubtedly entitled the landowner to damages: Such pecuniary loss entitles him to adequate compensation in the form of actual or compensatory damages, which in this case should be the legal interest (6%) on the value of the land at the time of taking, from said point up to full payment by the MIAA. This is based on the principle that interest "runs as a matter of law and follows from the right of the landowner to be placed in as good position as money can accomplish, as of the date of the taking x x x. xxxx For more than twenty (20) years, the MIAA occupied the subject lot without the benefit of expropriation proceedings and without the MIAA exerting efforts to ascertain ownership of the lot and negotiating with any of the owners of the property. To our mind, these are wanton and irresponsible acts which should be suppressed and corrected. Hence, the award of exemplary damages and attorneys fees is in order. x x x. (Emphasis and underscoring supplied; citations omitted) All told, the Court finds the grant of exemplary damages in the amount of P200,000.00 as well as attorneys fees equivalent to 1% of the total amount due amply justified, square as it is with existing jurisprudence. C. Amount of just compensation Finally, the Court cannot sustain the amount of P5,500.00/sq. m. as just compensation which was set by the RTC and upheld by the CA. The said valuation was actually arrived at after considering: (a) the September 4, 1996 recommendation of the City Appraisal Committee; (b) several sworn statements made by Sy himself; and (c) Sys own tax declaration for 1996.48 It is well-settled that the amount of just compensation is to be ascertained as of the time of the taking.49 However, the above-stated documents do not reflect the value of the subject property at the time of its taking in 1986 but rather, its valuation in 1996. Consequently, the case must be remanded to the RTC in order to properly determine the amount of just compensation during such time the subject property was actually taken. WHEREFORE, the petition is PARTLY GRANTED. The January 20, 2012 Decision and July 16, 2012 Resolution of the Court of Appeals in CA-G.R. CV No. 91964 are hereby SET ASIDE. Accordingly, the case is REMANDED to the trial court for the proper determination of the amount of just compensation in accordance with this Decision. To forestall any further delay in the resolution of this case, the trial court is hereby ordered to fix the just compensation for petitioner Henry L. Sy's property with dispatch and report to the Court its compliance. Finally, respondent Local Government of Quezon City is ordered to PAY exemplary damages in the amount ofP200,000.00 and attorney's

fees equivalent to one percent (1%) of the amount due, after final determination of the amount of just compensation. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 190957 June 5, 2013

PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, Petitioner, vs. APAC MARKETING CORPORATION, represented by CESAR M. ONG, JR., Respondents. DECISION SERRENO, CJ.: In this Petition for Review on Certiorari under Rule 45 of the Revised Rules on Civil Procedures, the primordial issue to be resolved is whether the Court of Appeals (CA)1 correctly affirmed the court a quo2 in holding petitioner liable to respondent for attorneys fees. The Antecedent Facts Considering that there are no factual issues involved, as the Court of Appeals (CA) adopted the findings of fact of the Regional Trial Court (RTC) of Quezon City, Branch 96, we hereby adopt the CAs findings, as follows: The present case involves a simple purchase transaction between defendant-appellant Philippine National Construction Corporation (PNCC), represented by defendantsappellants Rogelio Espiritu and Rolando Macasaet, and plaintiff-appellee APAC, represented by Cesar M. Ong, Jr., involving crushed basalt rock delivered by plaintiffappellee to defendant-appellant PNCC. On August 17, 1999, plaintiff-appellee filed with the trial court a complaint against defendants-appellees for collection of sum of money with damages, alleging that (i) in March 1998, defendants-appellants engaged the services of plaintiff-appellee by buying aggregates materials from plaintiff-appellee, for which the latter had delivered and supplied good quality crushed basalt rock; (ii) the parties had initially agreed on the terms of payment, whereby defendants-appellants would issue the check corresponding to the value of the materials to be delivered, or "Check Before Delivery," but prior to the implementation of the said payment agreement, defendants-appellants requested from plaintiff-appellee a 30-day term from the delivery date within which to pay, which plaintiff-appellee accepted; and (iii) after making deliveries pursuant to the purchase orders and despite demands by plaintiff-appellee, defendants appellants failed and refused to pay and settle their overdue accounts. The complaint prayed for payment of the amount of P782,296.80 "plus legal interest at the rate of not less than 6% monthly, to start in April, 1999 until the full obligation is completely settled and paid," among others.

On November 16, 1999, defendants-appellants filed a motion to dismiss, alleging that the complaint was premature considering that defendant-appellant PNCC had been faithfully paying its obligations to plaintiff-appellee, as can be seen from the substantial reduction of its overdue account as of August 1999. In an Order dated January 17, 2000, the trial court denied the motion to dismiss. Thus, defendants-appellants filed their answer, alleging that the obligation of defendantappellant PNCC was only with respect to the balance of the principal obligation that had not been fully paid which, based on the latest liquidation report, amounted to onlyP474,095.92. After the submission of the respective pre-trial briefs of the parties, trial was held. However, only plaintiff-appellee presented its evidence. For their repeated failure to attend the hearings, defendants-appellants were deemed to have waived the presentation of their evidence. On July 10, 2006, the trial court rendered a Decision, the dispositive portion of which reads: WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering defendants jointly and solidarily to pay: 1. P782,296.80 as actual damages; 2. P50,000.00 as attorneys fees, plus P3,000.00 per court appearance; 3. Cost of suit. SO ORDERED. Defendants-appellants filed a motion for reconsideration, alleging that during the pendency of the case, the principal obligation was fully paid and hence, the award by the trial court of actual damages in the amount ofP782,269.80 was without factual and legal bases. In an Order dated October 6, 2006, the trial court considered defendants-appellants claim of full payment of the principal obligation, but still it ordered them to pay legal interest of twelve per cent (12%) per annum. Thus: "WHEREFORE, the decision dated July 10, 2006 is hereby modified, by ordering defendants jointly and solidarily to pay plaintiff as follows, to wit: 1. P220,234.083 2. P50,000.00 as attorneys fees, plus P3,000.00 per court appearance; 3. Cost of Suit. SO ORDERED."

Defendants-appellants filed the present appeal which is premised on the following assignment of errors: I. THE REGIONAL TRIAL COURT GRAVELY ERRED IN AWARDING INTEREST AT THE RATE OF 12% PER ANNUM AMOUNTING TO P220,234.083 AND ATTORNEYS FEES IN FAVOR OF PLAINTIFF-APPELLEE. II. THE REGIONAL TRIAL COURT GRAVELY ERRED IN HOLDING DEFENDANTS ROGELIO ESPIRITU AND ROLANDO MACASAET JOINTLY AND SOLIDARILY LIABLE WITH DEFENDANT PNCC. THE RULING OF THE COURT OF APPEALS On 9 July 2009, the Special Fourth Division of the CA promulgated a Decision3 in CAG.R. CV No. 88827, affirming with modification the assailed Decision of the court a quo. The dispositive portion of the CA Decision reads as follows: WHEREFORE, the appealed Order dated October 6, 2006 is affirmed, subject to the modification that defendant-appellant PNCC is ordered to pay legal interest at six per cent (6%) per annum on the principal obligation, computed from January 8, 1999 until its full payment in January 2001. Defendants-appellants Rogelio Espiritu and Rolando Macasaet are absolved from liability. The Order dated October 6, 2006 is affirmed in all other respects. On 29 July 2009, herein petitioner filed a Motion for Reconsideration, which raised the lone issue of the propriety of the award of attorneys fees in favor of respondent.4 It should be noted that in said motion, petitioner fully agreed with the CA Decision imposing 6% legal interest per annum on the principal obligation and absolving Rogelio Espiritu and Rolando Macasaet from any liability as members of the board of directors of PNCC. Thus, the main focus of the Motion for Reconsideration was on the CAs affirmation of the court a quos Decision awarding attorneys fees in favor of respondent. However, the appellate courts Former Special Fourth Division denied petitioners Motion for Reconsideration in a Resolution dated 18 January 2010.6 THE SOLE ISSUE Aggrieved, petitioner now assails before us the 9 July 2009 Decision of the CA by raising the sole issue of whether the CA gravely erred in awarding attorneys fees to respondent. THE COURTS RULING The Petition is impressed with merit. Article 2208 of the New Civil Code of the Philippines states the policy that should guide the courts when awarding attorneys fees to a litigant. As a general rule, the parties may stipulate the recovery of attorneys fees. In the absence on such stipulation, this article restrictively enumerates the instances when these fees may be recovered, to wit:

Art. 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered, except: (1) When exemplary damages are awarded; (2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interest; (3) In criminal cases of malicious prosecution against the plaintiff; (4) In case of a clearly unfounded civil action or proceeding against the plaintiff; (5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's plainly valid, just and demandable claim; (6) In actions for legal support; (7) In actions for the recovery of wages of household helpers, laborers and skilled workers; (8) In actions for indemnity under workmen's compensation and employer's liability laws; (9) In a separate civil action to recover civil liability arising from a crime; (10) When at least double judicial costs are awarded; (11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered. In all cases, the attorney's fees and expenses of litigation must be reasonable. In ABS-CBN Broadcasting Corp. v. CA,7 this Court had the occasion to expound on the policy behind the grant of attorneys fees as actual or compensatory damages: (T)he law is clear that in the absence of stipulation, attorneys fees may be recovered as actual or compensatory damages under any of the circumstances provided for in Article 2208 of the Civil Code. The general rule is that attorneys fees cannot be recovered as part of damages because of the policy that no premium should be placed on the right to litigate. They are not to be awarded every time a party wins a suit. The power of the court to award attorneys fees under Article 2208 demands factual, legal, and equitable justification. Even when a claimant is compelled to litigate with third persons or to incur expenses to protect his rights, still attorneys fees may not be awarded where no sufficient showing of bad faith could be reflected in a partys persistence in a case other than an erroneous conviction of the righteousness of his cause.

In Benedicto v. Villaflores,8 we explained the reason behind the need for the courts to arrive upon an actual finding to serve as basis for a grant of attorneys fees, considering the dual concept of these fees as ordinary and extraordinary: It is settled that the award of attorney's fees is the exception rather than the general rule; counsel's fees are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. Attorney's fees, as part of damages, are not necessarily equated to the amount paid by a litigant to a lawyer. In the ordinary sense, attorney's fees represent the reasonable compensation paid to a lawyer by his client for the legal services he has rendered to the latter; while in its extraordinary concept, they may be awarded by the court as indemnity for damages to be paid by the losing party to the prevailing party. Attorney's fees as part of damages are awarded only in the instances specified in Article 2208 of the Civil Code. As such, it is necessary for the court to make findings of fact and law that would bring the case within the ambit of these enumerated instances to justify the grant of such award, and in all cases it must be reasonable. We can glean from the above ruling that attorneys fees are not awarded as a matter of course every time a party wins. We do not put a premium on the right to litigate. On occasions that those fees are awarded, the basis for the grant must be clearly expressed in the decision of the court.1wphi1 Petitioner contends that the RTCs Decision has no finding that would fall under any of the exceptions enumerated in Article 2208 of the new Civil Code. Further, it alleges that the court a quo has not given any factual, legal, or equitable justification for applying paragraph 11 of Article 2208 as basis the latters exercise of discretion in holding petitioner liable for attorneys fees.9 We agree with petitioner on these points. We have consistently held that an award of attorneys fees under Article 2208 demands factual, legal, and equitable justification to avoid speculation and conjecture surrounding the grant thereof.10 Due to the special nature of the award of attorneys fees, a rigid standard is imposed on the courts before these fees could be granted. Hence, it is imperative that they clearly and distinctly set forth in their decisions the basis for the award thereof. It is not enough that they merely state the amount of the grant in the dispositive portion of their decisions.11 It bears reiteration that the award of attorneys fees is an exception rather than the general rule; thus, there must be compelling legal reason to bring the case within the exceptions provided under Article 2208 of the Civil Code to justify the award.12 We have perused the assailed CAs Decision, but cannot find any factual, legal, or equitable justification for the award of attorneys fees in favor of respondent. The appellate court simply quoted the portion of the RTC Decision that granted the award as basis for the affirmation thereof. There was no elaboration on the basis. There is therefore an absence of an independent CA finding of the factual circumstances and legal or equitable basis to justify the grant of attorneys fees. The CA merely adopted the RTCs rational for the award, which in this case we find to be sorely inadequate.

The RTC found as follows: x x x since it is clear that plaintiff was compelled to hire the services of a counsel, to litigate and to protect his interest by reason of an unjustified act of the other party, plaintiff is entitled to recover attorneys fees in the amount of P50,000.00 which it paid as acceptance fee and P3,000.00 as appearance fee.13 The only discernible reason proffered by the trial court in granting the award was that respondent, as complainant in the civil case, was forced to litigate to protect the latters interest. Thus, we find that there is an obvious lack of a compelling legal reason to consider the present case as one that falls within the exception provided under Article 2208 of the Civil Code. Absent such finding, we hold that the award of attorneys fees by the court a quo, as sustained by the appellate court, was improper and must be deleted. WHEREFORE, the foregoing Petition is GRANTED. The assailed Decision dated 9 July 2009 of the Court of Appeals in CA-G.R. CV No. 88827 is MODIFIED, in that the award of attorneys fees in the amount of P50,000 as acceptance fee and P3,000 as appearance fee, in favor of respondent APAC Marketing Incorporated, is hereby DELETED. No pronouncement as to costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila

SECOND DIVISION G.R. No. 202079 June 10, 2013

FIL-ESTATE GOLF AND DEVELOPMENT, INC. and FILESTATE LAND, INC., Petitioners, vs. VERTEX SALES AND TRADING, INC., Respondent. DECISION BRION, J.: Before the Court is the petition for review on certiorari1 under Rule 45 of the Rules of Court, filed by petitioners Fil-Estate Golf and Development, Inc. (FEGDI) and Fil-Estate Land, Inc. (FELl), assailing the decision2 dated February 22, 2012 and the resolution3 dated May 31, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 89296. The assailed CA rulings reversed the decision dated March 1, 2007 of the Regional Trial Court (RTC) of Pasig City, Branch 161, in Civil Case No. 68791.4 THE FACTS FEGDI is a stock corporation whose primary business is the development of golf courses. FELI is also a stock corporation, but is engaged in real estate development. FEGDI was the developer of the Forest Hills Golf and Country Club (Forest Hills) and, in consideration for its financing support and construction efforts, was issued several shares of stock of Forest Hills. Sometime in August 1997, FEGDI sold, on installment, to RS Asuncion Construction Corporation (RSACC) one Class "C" Common Share of Forest Hills for P1,100,000.00. Prior to the full payment of the purchase price, RSACC sold, on February 11, 1999,5 the Class "C" Common Share to respondent Vertex Sales and Trading, Inc. (Vertex). RSACC advised FEGDI of the sale to Vertex and FEGDI, in turn, instructed Forest Hills to recognize Vertex as a shareholder. For this reason, Vertex enjoyed membership privileges in Forest Hills. Despite Vertexs full payment, the share remained in the name of FEGDI. Seventeen (17) months after the sale (or on July 28, 2000), Vertex wrote FEDGI a letter demanding the issuance of a stock certificate in its name. FELI replied, initially requested Vertex to first pay the necessary fees for the transfer. Although Vertex complied with the request, no certificate was issued. This prompted Vertex to make a final demand on March 17, 2001. As the demand went unheeded, Vertex filed on January 7, 2002 a Complaint for Rescission with Damages and Attachment against FEGDI, FELI and Forest Hills. It averred that the petitioners defaulted in their obligation as sellers when they failed and refused to issue the stock certificate covering the subject share despite repeated demands. On the basis of its rights under Article 1191 of the Civil Code, Vertex prayed for the rescission of the sale and demanded the reimbursement of the amount it paid (or P1,100,000.00), plus interest. During the pendency of the rescission action (or on

January 23, 2002), a certificate of stock was issued in Vertexs name, but Vertex refused to accept it. RULING OF THE RTC The RTC dismissed the complaint for insufficiency of evidence. It ruled that delay in the issuance of stock certificates does not warrant rescission of the contract as this constituted a mere casual or slight breach. It also observed that notwithstanding the delay in the issuance of the stock certificate, the sale had already been consummated; the issuance of the stock certificate is just a collateral matter to the sale and the stock certificate is not essential to "the creation of the relation of shareholder."6 RULING OF THE CA Vertex appealed the dismissal of its complaint. In its decision, the CA reversed the RTC and rescinded the sale of the share. Citing Section 63 of the Corporation Code, the CA held that there can be no valid transfer of shares where there is no delivery of the stock certificate. It considered the prolonged issuance of the stock certificate a substantial breach that served as basis for Vertex to rescind the sale. 7 The CA ordered the petitioners to return the amounts paid by Vertex by reason of the sale. THE PARTIES ARGUMENTS FEGDI and FELI filed the present petition for review on certiorari to assail the CA rulings. They contend that the CA erred when it reversed the RTCs dismissal of Vertexs complaint, declaring that the delay in the issuance of a stock certificate constituted as substantial breach that warranted a rescission. FEGDI argued that the delay cannot be considered a substantial breach because Vertex was unequivocally recognized as a shareholder of Forest Hills. In fact, Vertexs nominees became members of Forest Hills and fully enjoyed and utilized all its facilities. It added that RSACC also used its shareholder rights and eventually sold its share to Vertex despite the absence of a stock certificate. In light of these circumstances, delay in the issuance of a stock certificate cannot be considered a substantial breach. For its part, FELI stated that it is not a party to the contract sought to be rescinded. It argued that it was just recklessly dragged into the action due to a mistake committed by FEGDIs staff on two instances. The first was when their counsel used the letterhead of FELI instead of FEGDI in its reply-letter to Vertex; the second was when they used the receipt of FELI for receipt of the documentary stamp tax paid by Vertex. In its comment to the petition,8 Vertex alleged that the fulfillment of its obligation to pay the purchase price called into action the petitioners reciprocal obligation to deliver the stock certificate. Since there was delay in the issuance of a certificate for more than three years, then it should be considered a substantial breach warranting the rescission of the sale. Vertex further alleged that its use and enjoyment of Forest Hills facilities cannot be considered delivery and transfer of ownership. THE ISSUE

Given the parties arguments, the sole issue for the Court to resolve is whether the delay in the issuance of a stock certificate can be considered a substantial breach as to warrant rescission of the contract of sale. THE COURTS RULING The petition lacks merit. Physical delivery is necessary to transfer ownership of stocks The factual backdrop of this case is similar to that of Raquel-Santos v. Court of Appeals,9 where the Court held that in "a sale of shares of stock, physical delivery of a stock certificate is one of the essential requisites for the transfer of ownership of the stocks purchased." In that case, Trans-Phil Marine Ent., Inc. (Trans-Phil) and Roland Garcia bought Piltel shares from Finvest Securities Co., Inc. (Finvest Securities) in February 1997. Since Finvest Securities failed to deliver the stock certificates, Trans-Phil and Garcia filed an action first for specific performance, which was later on amended to an action for rescission. The Court ruled that Finvest Securities failure to deliver the shares of stock constituted substantial breach of their contract which gave rise to a right on the part of Trans-Phil and Garcia to rescind the sale. Section 63 of the Corporation Code provides: SEC. 63. Certificate of stock and transfer of shares. The capital stock of stock corporations shall be divided into shares for which certificates signed by the president or vice-president, countersigned by the secretary or assistant secretary, and sealed with the seal of the corporation shall be issued in accordance with the by-laws. Shares of stock so issued are personal property and may be transferred by delivery of the certificate or certificates indorsed by the owner or his attorney-in-fact or other person legally authorized to make the transfer.1wphi1 No transfer, however, shall be valid, except as between the parties, until the transfer is recorded in the books of the corporation showing the names of the parties to the transaction, the date of the transfer, the number of the certificate or certificates and the number of shares transferred. No shares of stock against which the corporation holds any unpaid claim shall be transferable in the books of the corporation. In this case, Vertex fully paid the purchase price by February 11, 1999 but the stock certificate was only delivered on January 23, 2002 after Vertex filed an action for rescission against FEGDI. Under these facts, considered in relation to the governing law, FEGDI clearly failed to deliver the stock certificates, representing the shares of stock purchased by Vertex, within a reasonable time from the point the shares should have been delivered. This was a substantial breach of their contract that entitles Vertex the right to rescind the sale under Article 1191 of the Civil Code. It is not entirely correct to say that a sale had

already been consummated as Vertex already enjoyed the rights a shareholder can exercise. The enjoyment of these rights cannot suffice where the law, by its express terms, requires a specific form to transfer ownership. "Mutual restitution is required in cases involving rescission under Article 1191" of the Civil Code; such restitution is necessary to bring back the parties to their original situation prior to the inception of the contract.10 Accordingly, the amount paid to FEGDI by reason of the sale should be returned to Vertex. On the amount of damages, the CA is correct in not awarding damages since Vertex failed to prove by sufficient evidence that it suffered actual damage due to the delay in the issuance of the certificate of stock. Regarding the involvement of FELI in this case, no privity of contract exists between Vertex and FELI. "As a general rule, a contract is a meeting of minds between two persons.1wphi1 The Civil Code upholds the spirit over the form; thus, it deems an agreement to exist, provided the essential requisites are present. A contract is upheld as long as there is proof of consent, subject matter and cause. Moreover, it is generally obligatory in whatever form it may have been entered into. From the moment there is a meeting of minds between the parties, [the contract] is perfected."11 In the sale of the Class "C" Common Share, the parties are only FEGDI, as seller, and Vertex, as buyer. As can be seen from the records, FELl was only dragged into the action when its staff used the wrong letterhead in replying to Vertex and issued the wrong receipt for the payment of transfer taxes. Thus FELl should be absolved from any liability. WHEREFORE, we hereby DENY the petition. The decision dated February 22, 2012 and the resolution dated May 31, 2012 of the Court of Appeals in CA-G.R. CV No. 89296 are AFFIRMED with the MODIFICATION that Fil-Estate Land, Inc. is ABSOLVED from any liability. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 202247 June 19, 2013

SIME DARBY PILIPINAS, INC., Petitioner, vs. JESUS B. MENDOZA, Respondent. DECISION CARPIO, J.: The Case Before us is a petition for review on certiorari1 assailing the Decision2 dated 30 March 2012 and Resolution3dated 6 June 2012 of the Court of Appeals in CA-G.R. CV No. 89178. The Facts Petitioner Sime Darby Pilipinas, Inc. (Sime Darby) employed Jesus B. Mendoza (Mendoza) as sales manager to handle sales, marketing, and distribution of the company's tires and rubber products. On 3 July 1987, Sime Darby bought a Class "A" club share4 in Alabang Country Club (ACC) from Margarita de Araneta as evidenced by a Deed of Absolute Sale.5 The share, however, was placed under the name of Mendoza in trust for Sime Darby since the By-Laws6 of ACC state that only natural persons may own a club share.7 As part of the arrangement, Mendoza endorsed the Club Share Certificate8 in blank and executed a Deed of Assignment,9 also in blank, and handed over the documents to Sime Darby. From the time of purchase in 1987, Sime Darby paid for the monthly dues and other assessments on the club share. When Mendoza retired in April 1995, Sime Darby fully paid Mendoza his separation pay amounting to more thanP3,000,000. Nine years later, or sometime in July 2004, Sime Darby found an interested buyer of the club share for P1,101,363.64. Before the sale could push through, the broker required Sime Darby to secure an authorization to sell from Mendoza since the club share was still registered in Mendozas name. However, Mendoza refused to sign the required authority to sell or special power of attorney unless Sime Darby paid him the amount ofP300,000, claiming that this represented his unpaid separation benefits. As a result, the sale did not push through and Sime Darby was compelled to return the payment to the prospective buyer. On 13 September 2005, Sime Darby filed a complaint10 for damages with writ of preliminary injunction against Mendoza with the Regional Trial Court (RTC) of Makati City, Branch 132. Sime Darby claimed that it was the practice of the company to extend to its senior managers and executives the privilege of using and enjoying the facilities of

various club memberships, i.e. Manila Golf and Country Club, Quezon City Sports Club, Makati Sports Club, Wack Wack Golf Club, and Baguio Golf and Country Club. Sime Darby added that during Mendozas employment with the company until his retirement in April 1995, Sime Darby regularly paid for the monthly dues and other assessments on the ACC Class "A" club share. Further, Sime Darby alleged that Mendoza sent a letter11 dated 9 August 2004 to ACC and requested all billings effective September 2004 be sent to his personal address. Despite having retired from Sime Darby for less than 10 years and long after the employment contract of Mendoza with the company has been severed, Mendoza resumed using the facilities and privileges of ACC, to the damage and prejudice of Sime Darby. Thus, Sime Darby prayed that a restraining order be issued, pending the hearing on the issuance of a writ of preliminary injunction, enjoining Mendoza from availing of the clubs facilities and privileges as if he is the owner of the club share. On 15 November 2005, Mendoza filed an Answer alleging ownership of the club share. Mendoza stated that Sime Darby purchased the Class "A" club share and placed it under his name as part of his employee benefits and bonus for past exemplary service. Mendoza admitted endorsing in blank the stock certificate covering the club share and signing a blank assignment of rights only for the purpose of securing Sime Darbys right of first refusal in case he decides to sell the club share. Mendoza also alleged that when he retired in 1995, Sime Darby failed to give some of his retirement benefits amounting to P300,000. Mendoza filed a separate Opposition to Sime Darbys application for restraining order and preliminary injunction stating that there was no showing of grave and irreparable injury warranting the relief demanded. On 3 January 2006, the RTC denied Sime Darbys prayer for restraining order and preliminary injunction. Sime Darby then filed a Motion for Summary Judgment explaining that a trial was no longer necessary since there was no issue as to any material fact. On 13 March 2006, the trial court denied the motion. Thereafter, trial on the merits ensued. Sime Darby presented three witnesses: (1) Atty. Ronald E. Javier, Sime Darbys VicePresident for Legal Affairs and Corporate Secretary, who testified that Mendoza refused to give Sime Darby his authorization to sell the club share unless he was paid P300,000 as additional retirement benefit and that Sime Darby was compelled to institute the case and incurred legal expenses of P200,000; (2) Ranel A. Villar, ACCs Membership Department Supervisor, who testified that the club share was registered under the name of Mendoza since ACCs By-Laws prohibits juridical persons from acquiring a club share and attested that Sime Darby paid for the monthly dues of the share since it was purchased in 1987; and (3) Ira F. Cascon, Sime Darbys Treasurer since 1998, who testified that she asked Mendoza to endorse ACC Stock Certificate No. A-1880 at the back and to sign the assignment of rights, as required by Sime Darby. On the other hand, Mendoza presented two witnesses: (1) himself; and (2) Ranel Villar, the same employee of ACC who also testified for Sime Darby, who confirmed that the club share could not be sold to a corporation like Sime Darby. In his testimony, Mendoza testified that (1) he owns the disputed club share; (2) Sime Darby allowed him to personally choose the share that he liked as part of his benefits; (3) as a condition for membership in ACC, he had to personally undergo an interview with regard to his background and not the companys; (4) though he retired in 1995, he only started paying

the club share dues in 2004 because after his retirement, he migrated to the United States until he came back in 1999 and since then he had been going back and forth to the United States; (5) in May 2004, he met with Atty. Ronald E. Javier, Sime Darbys representative, to discuss the supposed selling of the club share which he refused since there were still unpaid retirement benefits due him; and (6) ACC recognizes him as the owner of the club share. On 30 April 2007, the trial court rendered a Decision in favor of Sime Darby. The dispositive portion states: WHEREFORE, premises considered, judgment is hereby rendered enjoining defendant Jesus B. Mendoza, from making use of Stock Certificate No. 1880 of the Alabang Golf and Country Club, Inc., and ordering defendant Jesus B. Mendoza to pay the plaintiff P100,000.00 as temperate damages, and P250,000.00 as attorneys fees and litigation expenses. SO ORDERED.12 Mendoza filed an appeal with the Court of Appeals. On 30 March 2012, the appellate court reversed the ruling of the trial court.13 The appellate court ruled that Sime Darby failed to prove that it has a clear and unmistakable right over the club share of ACC. The dispositive portion of the Decision states: WHEREFORE, in view of all the foregoing, the appealed decision of the Regional Trial Court is REVERSED and SET ASIDE. Resultantly, the Complaint in Civil Case No. 05821, is hereby DISMISSED. SO ORDERED.14 Sime Darby filed a Motion for Reconsideration which the Court of Appeals denied in a Resolution15 dated 6 June 2012. Hence, the instant petition. The Issues The issues for our resolution are: (1) whether Sime Darby is entitled to damages and injunctive relief against Mendoza, its former employee; and (2) whether the appellate court erred in declaring that Mendoza is the owner of the club share. The Courts Ruling The petition has merit. Section 3, Rule 58 of the Rules of Court, which provides for the grounds for the issuance of a preliminary injunction, states: SEC. 3. Grounds for issuance of preliminary injunction. A preliminary injunction may be granted when it is established:

(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in restraining the commission or continuance of the act or acts complained of, or in requiring the performance of an act or acts, either for a limited period or perpetually; (b) That the commission, continuance or non-performance of the act or acts complained of during the litigation would probably work injustice to the applicant; or (c) That a party, court, agency or a person is doing, threatening or is attempting to do, or is procuring or suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the subject of the action or proceeding, and tending to render the judgment ineffectual. In Medina v. Greenfield Development Corp.,16 we held that the purpose of a preliminary injunction is to prevent threatened or continuous irremediable injury to some of the parties before their claims can be thoroughly studied and adjudicated. Its sole aim is to preserve the status quo until the merits of the case can be heard fully. Thus, to be entitled to an injunctive writ, Sime Darby has the burden of establishing the following requisites: (1) a right in esse or a clear and unmistakable right to be protected; (2) a violation of that right; (3) that there is an urgent and permanent act and urgent necessity for the writ to prevent serious damage. In the present case, petitioner Sime Darby has sufficiently established its right over the subject club share. Sime Darby presented evidence that it acquired the Class "A" club share of ACC in 1987 through a Deed of Sale. Being a corporation which is expressly disallowed by ACCs By-Laws to acquire and register the club share under its name, Sime Darby had the share registered under the name of respondent Mendoza, Sime Darbys former sales manager, under a trust arrangement. Such fact was clearly proved when in the application form17 dated 17 July 1987 of the ACC for the purchase of the club share, Sime Darby placed its name in full as the owner of the share and Mendoza as the assignee of the club share. Also, in connection with the application for membership, Sime Darby sent a letter18 dated 17 September 1987 addressed to ACC confirming that "Mendoza, as Sime Darbys Sales Manager, is entitled to club membership benefit of the Company." Even during the trial, at Mendozas cross-examination, Mendoza identified his signature over the printed words "name of assignee" as his own and when confronted with his Reply-Affidavit, he did not refute Sime Darbys ownership of the club share as well as Sime Darbys payment of the monthly billings from the time the share was purchased.19 Further, Mendoza admitted signing the club share certificate and the assignment of rights, both in blank, and turning it over to Sime Darby. Clearly, these circumstances show that there existed a trust relationship between the parties.

While the share was bought by Sime Darby and placed under the name of Mendoza, his title is only limited to the usufruct, or the use and enjoyment of the clubs facilities and privileges while employed with the company. In Thomson v. Court of Appeals,20 we held that a trust arises in favor of one who pays the purchase price of a property in the name of another, because of the presumption that he who pays for a thing intends a beneficial interest for himself. While Sime Darby paid for the purchase price of the club share, Mendoza was given the legal title. Thus, a resulting trust is presumed as a matter of law. The burden then shifts to the transferee to show otherwise. Mendoza, as the transferee, claimed that he only signed the assignment of rights in blank in order to give Sime Darby the right of first refusal in case he decides to sell the share later on. A right of first refusal, in this case, would mean that Sime Darby has a right to match the purchase price offer of Mendozas prospective buyer of the club share and Sime Darby may buy back the share at that price. However, Mendozas contention of the right of first refusal is a self-serving statement. He did not present any document to show that there was such an agreement between him and the company, not even an acknowledgment from Sime Darby that it actually intended the club share to be given to him as a reward for his performance and past service. In fact, the circumstances which occurred after the purchase of the club share point to the opposite. First, Mendoza signed the share certificate and assignment of rights both in blank. Second, Mendoza turned over possession of the documents to Sime Darby. Third, from the time the share was purchased in 1987 until 1995, Sime Darby paid for the monthly bills pertaining to the share. Last, since 1987, the monthly bills were regularly sent to Sime Darbys business address until Mendoza requested in August 2004, long after he retired from the employ of the company, that such bills be forwarded to his personal address starting September 2004. It can be gathered then that Sime Darby did not intend to give up its beneficial interest and right over the share. The company merely wanted Mendoza to hold the share in trust since Sime Darby, as a corporation, cannot register a club share in its own name under the rules of the ACC.1wphi1 At the same time, Mendoza, as a senior manager of the company, was extended the privilege of availing a club membership, as generously practiced by Sime Darby. However, Mendoza violated Sime Darbys beneficial interest and right over the club share after he was informed by Atty. Ronald E. Javier of Sime Darbys plan to sell the share to an interested buyer. Mendoza refused to give an authorization to sell the club share unless he was paid P300,000 allegedly representing his unpaid retirement benefit. In August 2004, Mendoza tried to appropriate the club share and demanded from ACC that he be recognized as the true owner of the share as the named member in the stock certificate as well as in the annual report issued by ACC. Despite being informed by Sime Darby to stop using the facilities and privileges of the club share, Mendoza continued to do so. Thus, in order to prevent further damage and prejudice to itself, Sime Darby properly sought injunction in this case. As correctly observed by the RTC in its Decision dated 30 April 2007: In order for a writ of preliminary injunction to issue, the following requisites must be present: (a) invasion of the right sought to be protected is material and substantial; (b)

the right of the complainant is clear and unmistakable, and (c) there is an urgent and paramount necessity for the writ to prevent serious damage. The twin requirements of a valid injunction are the existence of a right and its actual or threatened violations. All the elements are present in the instant case. Plaintiff bought the subject share in 1987. As the purchaser of the share, it has interest and right over it. There is a presumption that the share was bought for the use of the defendant while the latter is still connected with the plaintiff. This is because when the share was registered under the name of defendant, the latter signed the stock certificate in blank as well as the deed of assignment and placed the certificate under the possession of the plaintiff. Hence, plaintiff did not intend to relinquish its interest and right over the subject, rather it intended to have the share held in trust by defendant, until a new grantee is named. This can be inferred from plaintiffs witness testimony that plaintiff required the defendant to sign the said documents so that the plaintiff can be assured that its ownership of the property is properly documented. Thirdly, plaintiffs payments of monthly billings of the subject share bolster defendant possession in trust rather than his ownership over the share. With this, the right of plaintiff over the share is clear and unmistakable. With defendants continued use of the subject share despite that he is not anymore connected with plaintiff, and with plaintiffs demand upon the defendant to desist from making use of the club facilities having been ignored, clearly defendant violated plaintiffs right over the use and enjoyment thereof. Hence, plaintiff is entitled to its prayer for injunction. xxxx As to the second issue, plaintiff claimed for temperate or moderate damages. xxxx In the present case, it was established that sometime in July 2004, plaintiff tried to sell the share but defendant refused to give the authority. Thus, plaintiff was forced to return the amount of P1,100,000 to the buyer. Additionally, plaintiff cannot make use of the facilities of the club because defendant insists on enjoying it despite the fact that he is no longer connected with the plaintiff. With this, the Court deems it proper to impose upon the defendant P100,000 as temperate damages. Further, plaintiff having established its right to the relief being claimed and inasmuch as it was constrained to litigate in order to protect its interest as well as incurred litigation expenses, attorney's fees are hereby awarded in the amount of P250,000.21 In sum, we grant the damages and injunctive relief sought by Sime Darby, as the true owner of the ACC Class "A" club share. Sime Darby has the right to be protected from Mendoza's act of using the facilities and privileges of ACC. Since the records show that Sime Darby was dissolved on 31 December 2011, it has three years to convey its property and close its affairs as a body corporate under the Corporation Code.22 Thus, Sime Darby may choose to dispose of the club share in any manner it sees fit without undue interference from Mendoza, who lost his right to use the club share when he retired from the company.

WHEREFORE, we GRANT the petition. We SET ASIDE the 30 March 20 I 2 Decision and 6 June 2012 Resolution of the Court of Appeals in CA-G.R. CV No. 89178. We REINSTATE the 30 April 2007 Decision of the Regional Trial Court of Makati City, Branch 132 in Civil Case No. 05-821. SO ORDERED.