You are on page 1of 28

SECOND DIVISION

[G. R. No. 102377. July 5, 1996]


ALFREDO SAJONAS and CONCHITA SAJONAS, petitioners, vs. THE
COURT OF APPEALS, DOMINGO A. PILARES, SHERIFF
ROBERTO GARCIA OF QUEZON CITY and REGISTER OF DEEDS
OF MARIKINA,respondents.
D E C I S I O N
TORRES, JR., J .:
A word or group of words conveys intentions. When used truncatedly, its
meaning disappears and breeds conflict. Thus, it is written - By thy words
shalt thou be justified, and by thy words shalt thou be condemned. (Matthew,
12:37)
Construing the new words of a statute separately is the raison detre of
this appeal.
Essentially, the case before us is for cancellation of the inscription of a
Notice of Levy on Execution from a certificate of Title covering a parcel of real
property. The inscription was caused to be made by the private respondent
on Transfer Certificate of Title No. N-79073 of the Register of Deeds of
Marikina, issued in the name of the spouses Ernesto B. Uychocde and Lucita
Jarin, and was later carried over to and annotated on Transfer Certificate of
Title No. N-109417 of the same registry, issued in the name of the spouses
Alfredo Sajonas and Conchita R. Sajonas, who purchased the parcel of land
from the Uychocdes, and are now the petitioners in this case.
The facts are not disputed, and are hereby reproduced as follows:
On September 22, 1983, the spouses Ernesto Uychocde and Lucita Jarin agreed to
sell a parcel of residential land located in Antipolo, Rizal to the spouses Alfredo
Sajonas and Conchita R. Sajonas on installment basis as evidenced by a Contract to
Sell dated September 22, 1983. The property was registered in the names of the
Uychocde spouses under TCT No. N-79073 of the Register of Deeds of Marikina,
Rizal. On August 27, 1984, the Sajonas couple caused the annotation of an adverse
claim based on the said Contract to Sell on the title of the subject property, which was
inscribed as Entry No. 116017. Upon full payment of the purchase price, the
Uychocdes executed a Deed of Sale involving the property in question in favor of the
Sajonas couple on September 4, 1984. The deed of absolute sale was registered
almost a year after, or on August 28, 1985.
Meanwhile, it appears that Domingo Pilares (defendant-appellant) filed Civil Case
No. Q-28850 for collection of sum of money against Ernesto Uychocde. On June 25,
1980, a Compromise Agreement was entered into by the parties in the said case under
which Ernesto Uychocde acknowledged his monetary obligation to Domingo Pilares
amounting to P27,800 and agreed to pay the same in two years from June 25, 1980.
When Uychocde failed to comply with his undertaking in the compromise agreement,
defendant-appellant Pilares moved for the issuance of a writ of execution to enforce
the decision based on the compromise agreement, which the court granted in its order
dated August 3, 1982. Accordingly, a writ of execution was issued on August 12,
1982 by the CFI of Quezon City where the civil case was pending. Pursuant to the
order of execution dated August 3, 1982, a notice of levy on execution was issued on
February 12, 1985. On February 12, 1985, defendant sheriff Roberto Garcia of
Quezon City presented said notice of levy on execution before the Register of Deeds
of Marikina and the same was annotated at the back of TCT No. 79073 as Entry No.
123283.
When the deed of absolute sale dated September 4 1984 was registered on August 28,
1985, TCT No. N-79073 was cancelled and in lieu thereof, TCT No. N-109417 was
ssued in the name of the Sajonas couple. The notice of levy on execution annotated
by defendant sheriff was carried over to the new title. On October 21, 1985, the
Sajonas couple filed a Third Party Claim with the sheriff of Quezon City, hence the
auction sale of the subject property did not push through as scheduled.
On January 10, 1986, the Sajonas spouses demanded the cancellation of the notice of
levy on execution upon defendant-appellant Pilares, through a letter to their lawyer,
Atty. Melchor Flores. Despite said demand, defendant-appellant Pilares refused to
cause the cancellation of said annotation. In view thereof, plaintiffs-appellees filed
this complaint dated January 11, 1986 on February 5, 1986.
[1]

The Sajonases filed their complaint
[2]
in the Regional Trial Court of Rizal,
Branch 71, against Domingo Pilares, the judgment creditor of the
Uychocdes. The relevant portion of the complaint alleges:
7. That at the time the notice of levy was annotated by the defendant, the Uychocde
spouses, debtors of the defendant, have already transferred, conveyed and assigned all
their title, rights and interests to the plaintiffs and there was no more title, rights or
interests therein which the defendant could levy upon;
8. That the annotation of the levy on execution which was carried over to the title of
said plaintiffs is illegal and invalid and was made in utter bad faith, in view of the
existence of the Adverse Claim annotated by the plaintiffs on the corresponding title
of the Uychocde spouses;
9. That a demand was made by the plaintiffs upon the defendant Domingo A. Pilares,
to cause the cancellation of the said notice of levy but the latter, without justifiable
reason and with the sole purpose of harassing and embarrassing the plaintiffs ignored
and refused plaintiffs demand;
10. That in view of the neglect, failure and refusal of the defendant to cause the
cancellation of the notice of levy on execution, the plaintiffs were compelled to
litigate and engage the services of the undersigned counsel, to protect their rights and
interests, for which they agreed to pay attorneys fees in the amount of P10,000 and
appearance fees of P500 per day in court.
[3]

Pilares filed his answer with compulsory counterclaim
[4]
on March 8, 1986,
raising special and affirmative defenses, the relevant portions of which are as
follows:
10. Plaintiff has no cause of action against herein defendants;
11. Assuming, without however admitting that they filed an adverse claim against the
property covered by TCT No. 79073 registered under the name of spouses Ernesto
Uychocde on August 27, 1984, the same ceases to have any legal force and effect (30)
days thereafter pursuant to Section 70 of P.D. 1529;
12. The Notice of Levy annotated at the back of TCT No. 79073 being effected
pursuant to the Writ of Execution dated August 31, 1982, duly issued by the CFI (now
RTC) of Quezon City proceeding from a decision rendered in Civil Case No. 28859 in
favor of herein defendant against Ernesto Uychocde, is undoubtedly proper and
appropriate because the property is registered in the name of the judgment debtor and
is not among those exempted from execution;
13. Assuming without admitting that the property subject matter of this case was in
fact sold by the registered owner in favor of the herein plaintiffs, the sale is the null
and void (sic) and without any legal force and effect because it was done in fraud of a
judgment creditor, the defendant Pilares.
[5]

Pilares likewise sought moral and exemplary damages in a counterclaim
against the Sajonas spouses. The parties appeared at pre-trial proceedings
on January 21, 1987,
[6]
after which, trial on the merits ensued.
The trial court rendered its decision on February 15, 1989.
[7]
It found in
favor of the Sajonas couple, and ordered the cancellation of the Notice of
Levy from Transfer Certificate of Title No. N-109417.
The court a quo stated, thus:
After going over the evidence presented by the parties, the court finds that although
the title of the subject matter of the Notice of Levy on Execution was still in the name
of the Spouses Uychocde when the same was annotated on the said title, an earlier
Affidavit of Adverse Claim was annotated on the same title by the plaintiffs who
earlier bought said property from the Uychocdes.
It is a well settled rule in this jurisdiction (Guidote vs. Maravilla, 48 Phil. 442) that
actual notice of an adverse claim is equivalent to registration and the subsequent
registration of the Notice of Levy could not have any legal effect in any respect on
account of prior inscription of the adverse claim annotated on the title of the
Uychocdes.
xxx xxx xxx
On the issue of whether or not plaintiffs are buyers in good faith of the property of the
spouses Uychocde even notwithstanding the claim of the defendant that said sale
executed by the spouses was made in fraud of creditors, the Court finds that the
evidence in this instance is bare of any indication that said plaintiffs as purchasers had
notice beforehand of the claim of the defendant over said property or that the same is
involved in a litigation between said spouses and the defendant. Good faith is the
opposite of fraud and bad faith, and the existence of any bad faith must be established
by competent proof.
[8]
(Cai vs. Henson, 51 Phil 606)
xxx xxx xxx
In view of the foregoing, the Court renders judgment in favor of the plaintiffs and
against the defendant Pilares, as follows:
1. Ordering the cancellation of the Notice of Levy on Execution annotated on Transfer
Certificate of Title No. N-109417.
2. Ordering said defendant to pay the amount of P5,000 as attorneys fees.
3. Dismissing the Counterclaim interposed by said defendant.
Said defendant is likewise ordered to pay the costs.
Dissatisfied, Pilares appealed to the Court of Appeals
[9]
, assigning errors
on the part of the lower court. The appellate court reversed the lower courts
decision, and upheld the annotation of the levy on execution on the certificate
of title, thus:
WHEREFORE, the decision of the lower court dated February 15, 1989 is reversed
and set aside and this complaint is dismissed.
Costs against the plaintiffs-appellees."
[10]

The Sajonas couple are now before us, on a Petition for Review
on Certiorari
[11]
, praying inter alia to set aside the Court of Appeals decision,
and to reinstate that of the Regional Trial Court.
Private respondent filed his Comment
[12]
on March 5, 1992, after which, the
parties were ordered to file their respective Memoranda. Private respondent
complied thereto on April 27, 1994
[13]
, while petitioners were able to submit
their Memorandum on September 29, 1992.
[14]

Petitioner assigns the following as errors of the appellate court, to wit:
I
THE LOWER COURT ERRED IN HOLDING THAT THE RULE ON THE 30-DAY
PERIOD FOR ADVERSE CLAIM UNDER SECTION 70 OF P.D. NO. 1529 IS
ABSOLUTE INASMUCH AS IT FAILED TO READ OR CONSTRUE THE
PROVISION IN ITS ENTIRETY AND TO RECONCILE THE APPARENT
INCONSISTENCY WITHIN THE PROVISION IN ORDER TO GIVE EFFECT TO
IT AS A WHOLE.
II
THE LOWER COURT ERRED IN INTERPRETING SECTION 70 OF P.D. NO.
1529 IN SUCH WISE ON THE GROUND THAT IT VIOLATES PETITIONERS
SUBSTANTIAL RIGHT TO DUE PROCESS.
Primarily, we are being asked to ascertain who among the parties in suit
has a better right over the property in question. The petitioners derive their
claim from the right of ownership arising from a perfected contract of absolute
sale between them and the registered owners of the property, such right being
attested to by the notice of adverse claim
[15]
annotated on TCT No. N-79073 as
early as August 27, 1984. Private respondent on the other hand, claims the
right to levy on the property, and have it sold on execution to satisfy his
judgment credit, arising from Civil Case No. Q-28850
[16]
against the
Uychocdes, from whose title, petitioners derived their own.
Concededly, annotation of an adverse claim is a measure designed to
protect the interest of a person over a piece of real property where the
registration of such interest or right is not otherwise provided for by the Land
Registration Act or Act 496 (now P.D. 1529 or the Property Registration
Decree), and serves a warning to third parties dealing with said property that
someone is claiming an interest on the same or a better right than that of the
registered owner thereof. Such notice is registered by filing a sworn
statement with the Register of Deeds of the province where the property is
located, setting forth the basis of the claimed right together with other dates
pertinent thereto.
[17]

The registration of an adverse claim is expressly recognized under Section
70 of P.D. No. 1529.
*

Noting the changes made in the terminology of the provisions of the law,
private respondent interpreted this to mean that a Notice of Adverse Claim
remains effective only for a period of 30 days from its annotation, and does
not automatically lose its force afterwards. Private respondent further
maintains that the notice of adverse claim was annotated on August 27, 1984,
hence, it will be effective only up to September 26, 1984, after which it will no
longer have any binding force and effect pursuant to Section 70 of P.D. No.
1529. Thus, the sale in favor of the petitioners by the Uychocdes was made
in order to defraud their creditor (Pilares), as the same was executed
subsequent to their having defaulted in the payment of their obligation based
on a compromise agreement.
[18]

The respondent appellate court upheld private respondents theory when it
ruled:
The above stated conclusion of the lower court is based on the premise that the
adverse claim filed by plaintiffs-appellees is still effective despite the lapse of 30 days
from the date of registration. However, under the provisions of Section 70 of P.D.
1529, an adverse claim shall be effective only for a period of 30 days from the date of
its registration. The provision of this Decree is clear and specific.
xxx xxx xxx
It should be noted that the adverse claim provision in Section 110 of the Land
Registration Act (Act 496) does not provide for a period of effectivity of the
annotation of an adverse claim. P.D. No. 1529, however, now specifically provides
for only 30 days. If the intention of the law was for the adverse claim to remain
effective until cancelled by petition of the interested party, then the aforecited
provision in P.D. No. 1529 stating the period of effectivity would not have been
inserted in the law.
Since the adverse claim was annotated On August 27, 1984, it was effective only until
September 26, 1984. Hence, when the defendant sheriff annotated the notice of levy
on execution on February 12, 1985, said adverse claim was already ineffective. It
cannot be said that actual or prior knowledge of the existence of the adverse claim on
the Uychocdes title is equivalent to registration inasmuch as the adverse claim was
already ineffective when the notice of levy on execution was annotated. Thus, the act
of defendant sheriff in annotating the notice of levy on execution was proper and
justified.
The appellate court relied on the rule of statutory construction that Section
70 is specific and unambiguous and hence, needs no interpretation nor
construction.
[19]
Perforce, the appellate court stated, the provision was clear
enough to warrant immediate enforcement, and no interpretation was needed
to give it force and effect. A fortiori, an adverse claim shall be effective only
for a period of thirty (30) days from the date of its registration, after which it
shall be without force and effect. Continuing, the court further stated;
. . . clearly, the issue now has been reduced to one of preference- which should be
preferred between the notice of levy on execution and the deed of absolute sale. The
Deed of Absolute Sale was executed on September 4, 1984, but was registered only
on August 28, 1985, while the notice of levy on execution was annotated six (6)
months prior to the registration of the sale on February 12, 1985.
In the case of Landig vs. U.S. Commercial Co., 89 Phil 638 it was held that where a
sale is recorded later than an attachment, although the former is of an earlier date, the
sale must give way to the attachment on the ground that the act of registration is the
operative act to affect the land. A similar ruling was restated inCampillo vs. Court of
Appeals (129 SCRA 513).
xxx xxx xxx
The reason for these rulings may be found in Section 51 of P.D. 1529, otherwise
known as the Property Registration Decree, which provides as follows:
Section 51. Conveyance and other dealings by the registered owner.- An owner of
registered land may convey, mortgage, lease, charge, or otherwise deal with the same
in accordance with existing laws. He may use such forms of deeds, mortgages, leases
or other voluntary instruments as are sufficient in law. But no deed, mortgage, lease
or other voluntary instrument, except a will purporting to convey or affect registered
land shall take effect as a conveyance or bind the land, but shall operate only as a
contract between the parties and as evidence of authority to the Register of Deeds to
make registration.
The act of registration shall be the operative act to convey or affect the land in so far
as third persons are concerned, and in all cases under the Decree, the registration
shall be made in the office of the Register of Deeds for the province or city where the
land lies. (Italics supplied by the lower court.)
Under the Torrens system, registration is the operative act which gives
validity to the transfer or creates a lien upon the land. A person dealing with
registered land is not required to go behind the register to determine the
condition of the property. He is only charged with notice of the burdens on the
property which are noted on the face of the register or certificate of title.
[20]

Although we have relied on the foregoing rule, in many cases coming
before us, the same, however, does not fit in the case at bar. While it is the
act of registration which is the operative act which conveys or affects the land
insofar as third persons are concerned, it is likewise true, that the subsequent
sale of property covered by a Certificate of Title cannot prevail over an
adverse claim, duly sworn to and annotated on the certificate of title previous
to the sale.
[21]
While it is true that under the provisions of the Property
Registration Decree, deeds of conveyance of property registered under the
system, or any interest therein only take effect as a conveyance to bind the
land upon its registration, and that a purchaser is not required to explore
further than what the Torrens title, upon its face, indicates in quest for any
hidden defect or inchoate right that may subsequently defeat his right thereto,
nonetheless, this rule is not absolute. Thus, one who buys from the registered
owner need not have to look behind the certificate of title, he is, nevertheless,
bound by the liens and encumbrances annotated thereon. One who buys
without checking the vendors title takes all the risks and losses consequent to
such failure.
[22]

In PNB vs. Court of Appeals, we held that the subsequent sale of the
property to the De Castro spouses cannot prevail over the adverse claim of
Perez, which was inscribed on the banks certificate of title on October 6,
1958. That should have put said spouses on notice, and they can claim no
better legal right over and above that of Perez. The TCT issued in the
spouses names on July, 1959 also carried the said annotation of adverse
claim. Consequently, they are not entitled to any interest on the price they
paid for the property.
[23]

Then again, in Gardner vs. Court of Appeals, we said that the statement
of respondent court in its resolution of reversal that until the validity of an
adverse claim is determined judicially, it cannot be considered a flaw in the
vendors title contradicts the very object of adverse claims. As stated earlier,
the annotation of an adverse claim is a measure designed to protect the
interest of a person over a piece of real property, and serves as a notice and
warning to third parties dealing with said property that someone is claiming an
interest on the same or has a better right than the registered owner thereof. A
subsequent sale cannot prevail over the adverse claim which was previously
annotated in the certificate of title over the property.
[24]

The question may be posed, was the adverse claim inscribed in the
Transfer Certificate of Title No. N-109417 still in force when private
respondent caused the notice of levy on execution to be registered and
annotated in the said title, considering that more than thirty days had already
lapsed since it was annotated? This is a decisive factor in the resolution of
this instant case.
If the adverse claim was still in effect, then respondents are charged with
knowledge of pre-existing interest over the subject property, and thus,
petitioners are entitled to the cancellation of the notice of levy attached to the
certificate of title.
For a definitive answer to this query, we refer to the law itself. Section 110
of Act 496 or the Land Registration Act reads:
Sec. 110. Whoever claims any part or interest in registered lands adverse to the
registered owner, arising subsequent to the date of the original registration, may, if no
other provision is made in this Act for registering the same, make a statement in
writing setting forth fully his alleged right or interest, and how or under whom
acquired, and a reference to the volume and page of the certificate of title of the
registered owner, and a description of the land in which the right or interest is
claimed.
The statement shall be signed and sworn to, and shall state the adverse claimants
residence, and designate a place at which all notices may be served upon him. The
statement shall be entitled to registration as an adverse claim, and the court, upon a
petition of any party in interest, shall grant a speedy hearing upon the question of the
validity of such adverse claim and shall enter such decree therein as justice and equity
may require. If the claim is adjudged to be invalid, the registration shall be
cancelled. If in any case, the court after notice and hearing shall find that a claim thus
registered was frivolous or vexatious, it may tax the adverse claimant double or treble
the costs in its discretion.
The validity of the above-mentioned rules on adverse claims has to be
reexamined in the light of the changes introduced by P.D. 1529, which
provides:
Sec. 70 Adverse Claim- Whoever claims any part or interest in registered land
adverse to the registered owner, arising subsequent to the date of the original
registration, may, if no other provision is made in this decree for registering the same,
make a statement in writing setting forth fully his alleged right or interest, and how or
under whom acquired, a reference to the number of certificate of title of the registered
owner, the name of the registered owner, and a description of the land in which the
right or interest is claimed.
The statement shall be signed and sworn to, and shall state the adverse claimants
residence, and a place at which all notices may be served upon him. This statement
shall be entitled to registration as an adverse claim on the certificate of title. The
adverse claim shall be effective for a period of thirty days from the date of
registration. After the lapse of said period, the annotation of adverse claim may be
cancelled upon filing of a verified petition therefor by the party in interest: Provided,
however, that after cancellation, no second adverse claim based on the same ground
shall be registered by the same claimant.
Before the lapse of thirty days aforesaid, any party in interest may file a petition in the
Court of First Instance where the land is situated for the cancellation of the adverse
claim, and the court shall grant a speedy hearing upon the question of the validity of
such adverse claim, and shall render judgment as may be just and equitable. If the
adverse claim is adjudged to be invalid, the registration thereof shall be ordered
cancelled. If, in any case, the court, after notice and hearing shall find that the adverse
claim thus registered was frivolous, it may fine the claimant in an amount not less
than one thousand pesos, nor more than five thousand pesos, in its discretion. Before
the lapse of thirty days, the claimant may withdraw his adverse claim by filing with
the Register of Deeds a sworn petition to that effect. (Italics ours)
In construing the law aforesaid, care should be taken that every part
thereof be given effect and a construction that could render a provision
inoperative should be avoided, and inconsistent provisions should be
reconciled whenever possible as parts of a harmonious whole.
[25]
For taken in
solitude, a word or phrase might easily convey a meaning quite different from
the one actually intended and evident when a word or phrase is considered
with those with which it is associated.
[26]
In ascertaining the period of effectivity
of an inscription of adverse claim, we must read the law in its
entirety. Sentence three, paragraph two of Section 70 of P.D. 1529 provides:
The adverse claim shall be effective for a period of thirty days from the date of
registration.
At first blush, the provision in question would seem to restrict the effectivity
of the adverse claim to thirty days. But the above provision cannot and should
not be treated separately, but should be read in relation to the sentence
following, which reads:
After the lapse of said period, the annotation of adverse claim may be cancelled upon
filing of a verified petition therefor by the party in interest.
If the rationale of the law was for the adverse claim to ipso facto lose force
and effect after the lapse of thirty days, then it would not have been necessary
to include the foregoing caveat to clarify and complete the rule. For then, no
adverse claim need be cancelled. If it has been automatically terminated by
mere lapse of time, the law would not have required the party in interest to do
a useless act.
A statutes clauses and phrases must not be taken separately, but in its
relation to the statutes totality. Each statute must, in fact, be construed as to
harmonize it with the pre-existing body of laws. Unless clearly repugnant,
provisions of statutes must be reconciled. The printed pages of the published
Act, its history, origin, and its purposes may be examined by the courts in their
construction.
[27]
An eminent authority on the subject matter states the rule
candidly:
A statute is passed as a whole and not in parts or sections, and is animated by one
general purpose and intent. Consequently, each part or section should be construed in
connection with every other part or section so as to produce a harmonious whole. It is
not proper to confine its intention to the one section construed. It is always an unsafe
way of construing a statute or contract to divide it by a process of etymological
dissection, into separate words, and then apply to each, thus separated from the
context, some particular meaning to be attached to any word or phrase usually to be
ascertained from the context.
[28]

Construing the provision as a whole would reconcile the apparent
inconsistency between the portions of the law such that the provision on
cancellation of adverse claim by verified petition would serve to qualify the
provision on the effectivity period. The law, taken together, simply means that
the cancellation of the adverse claim is still necessary to render it ineffective,
otherwise, the inscription will remain annotated and shall continue as a lien
upon the property. For if the adverse claim has already ceased to be effective
upon the lapse of said period, its cancellation is no longer necessary and the
process of cancellation would be a useless ceremony.
[29]

It should be noted that the law employs the phrase may be cancelled,
which obviously indicates, as inherent in its decision making power, that the
court may or may not order the cancellation of an adverse claim,
notwithstanding such provision limiting the effectivity of an adverse claim for
thirty days from the date of registration. The court cannot be bound by such
period as it would be inconsistent with the very authority vested in it. A fortiori,
the limitation on the period of effectivity is immaterial in determining the
validity or invalidity of an adverse claim which is the principal issue to be
decided in the court hearing. It will therefore depend upon the evidence at a
proper hearing for the court to determine whether it will order the cancellation
of the adverse claim or not.
[30]

To interpret the effectivity period of the adverse claim as absolute and
without qualification limited to thirty days defeats the very purpose for which
the statute provides for the remedy of an inscription of adverse claim, as the
annotation of an adverse claim is a measure designed to protect the interest
of a person over a piece of real property where the registration of such
interest or right is not otherwise provided for by the Land Registration Act or
Act 496 (now P.D. 1529 or the Property Registration Decree), and serves as a
warning to third parties dealing with said property that someone is claiming an
interest or the same or a better right than the registered owner thereof.
[31]

The reason why the law provides for a hearing where the validity of the
adverse claim is to be threshed out is to afford the adverse claimant an
opportunity to be heard, providing a venue where the propriety of his claimed
interest can be established or revoked, all for the purpose of determining at
last the existence of any encumbrance on the title arising from such adverse
claim. This is in line with the provision immediately following:
Provided, however, that after cancellation, no second adverse claim shall be
registered by the same claimant.
Should the adverse claimant fail to sustain his interest in the property, the
adverse claimant will be precluded from registering a second adverse claim
based on the same ground.
It was held that validity or efficaciousness of the claim may only be
determined by the Court upon petition by an interested party, in which event,
the Court shall order the immediate hearing thereof and make the proper
adjudication as justice and equity may warrant. And it is only when such claim
is found unmeritorious that the registration of the adverse claim may be
cancelled, thereby protecting the interest of the adverse claimant and giving
notice and warning to third parties.
[32]

In sum, the disputed inscription of adverse claim on the Transfer
Certificate of Title No. N-79073 was still in effect on February 12, 1985 when
Quezon City Sheriff Roberto Garcia annotated the notice of levy on execution
thereto. Consequently, he is charged with knowledge that the property sought
to be levied upon on execution was encumbered by an interest the same as or
better than that of the registered owner thereof. Such notice of levy cannot
prevail over the existing adverse claim inscribed on the certificate of title in
favor of the petitioners. This can be deduced from the pertinent provision of
the Rules of Court, to wit:
Section 16. Effect of levy on execution as to third persons- The levy on execution
shall create a lien in favor of the judgment creditor over the right, title and interest of
the judgment debtor in such property at the time of the levy, subject to
liens or encumbrances then existing. (Italics supplied)
To hold otherwise would be to deprive petitioners of their property, who
waited a long time to complete payments on their property, convinced that
their interest was amply protected by the inscribed adverse claim.
As lucidly observed by the trial court in the challenged decision:
True, the foregoing section provides that an adverse claim shall be effective for a
period of thirty days from the date of registration. Does this mean however, that the
plaintiffs thereby lost their right over the property in question? Stated in another, did
the lapse of the thirty day period automatically nullify the contract to sell between the
plaintiffs and the Uychocdes thereby depriving the former of their vested right over
the property?
It is respectfully submitted that it did not.
[33]

As to whether or not the petitioners are buyers in good faith of the subject
property, the same should be made to rest on the findings of the trial
court. As pointedly observed by the appellate court, there is no question that
plaintiffs-appellees were not aware of the pending case filed by Pilares
against Uychocde at the time of the sale of the property by the latter in their
favor. This was clearly elicited from the testimony of Conchita Sajonas, wife of
plaintiff, during cross-examination on April 21, 1988.
[34]

ATTY. REYES
Q - Madam Witness, when Engr. Uychocde and his wife offered to you and your
husband the property subject matter of this case, they showed you the owners
transfer certificate, is it not?
A - Yes, sir.
Q - That was shown to you the very first time that this lot was offered to you for sale?
A - Yes.
Q - After you were shown a copy of the title and after you were informed that they are
desirous in selling the same, did you and your husband decide to buy the same?
A - No, we did not decide right after seeing the title. Of course, we visited...
Q - No, you just answer my question. You did not immediately decide?
A - Yes.
Q - When did you finally decide to buy the same?
A - After seeing the site and after verifying from the Register of Deeds in Marikina that
it is free from encumbrances, that was the time we decided.
Q - How soon after you were offered this lot did you verify the exact location and the
genuineness of the title, as soon after this was offered to you?
A - I think its one week after they were offered.
[35]

A purchaser in good faith and for value is one who buys property of
another without notice that some other person has a right to or interest in such
property and pays a full and fair price for the same, at the time of such
purchase, or before he has notice of the claims or interest of some other
person in the property.
[36]
Good faith consists in an honest intention to abstain
from taking any unconscientious advantage of another.
[37]
Thus, the claim of the
private respondent that the sale executed by the spouses was made in fraud
of creditors has no basis in fact, there being no evidence that the petitioners
had any knowledge or notice of the debt of the Uychocdes in favor of the
private respondents, nor of any claim by the latter over the Uychocdes
properties or that the same was involved in any litigation between said
spouses and the private respondent. While it may be stated that good faith is
presumed, conversely, bad faith must be established by competent proof by
the party alleging the same. Sanssuch proof, the petitioners are deemed to
be purchasers in good faith, and their interest in the subject property must not
be disturbed.
At any rate, the Land Registration Act (Property Registration Decree)
guarantees to every purchaser of registered land in good faith that they can
take and hold the same free from any and all prior claims, liens and
encumbrances except those set forth on the Certificate of Title and those
expressly mentioned in the ACT as having been preserved against
it. Otherwise, the efficacy of the conclusiveness of the Certificate of Title
which the Torrens system seeks to insure would be futile and nugatory.
[38]

ACCORDINGLY, the assailed decision of the respondent Court of
Appeals dated October 17, 1991 is hereby REVERSED and SET ASIDE. The
decision of the Regional Trial Court dated February 15, 1989 finding for the
cancellation of the notice of levy on execution from Transfer Certificate of Title
No. N-109417 is hereby REINSTATED.
The inscription of the notice of levy on execution on TCT No. N-109417 is
hereby CANCELLED.
Costs against private respondent.

Republic of the Philippines
SUPREME COURT
Baguio City
THIRD DIVISION
G.R. No. 167022 April 4, 2011
LICOMCEN INCORPORATED, Petitioner,
vs.
FOUNDATION SPECIALISTS, INC., Respondent.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 169678
FOUNDATION SPECIALISTS, INC., Petitioner,
vs.
LICOMCEN INCORPORATED, Respondent.
D E C I S I O N
BRION, J .:
THE FACTS
The petitioner, LICOMCEN Incorporated (LICOMCEN), is a domestic corporation engaged in the
business of operating shopping malls in the country.
In March 1997, the City Government of Legaspi awarded to LICOMCEN, after a public bidding, a
lease contract over a lot located in the central business district of the city. Under the contract,
LICOMCEN was obliged to finance the construction of a commercial complex/mall to be known as
the LCC Citimall (Citimall). It was also granted the right to operate and manage Citimall for 50 years,
and was, thereafter, required to turn over the ownership and operation to the City Government.
1

For the Citimall project, LICOMCEN hired E.S. de Castro and Associates (ESCA) to act as its
engineering consultant. Since the Citimall was envisioned to be a high-rise structure, LICOMCEN
contracted respondent Foundation Specialists, Inc. (FSI) to do initial construction works, specifically,
the construction and installation of bored piles foundation.
2
LICOMCEN and FSI signed the
Construction Agreement,
3
and the accompanying Bid Documents
4
and General Conditions of
Contract
5
(GCC) on September 1, 1997. Immediately thereafter, FSI purchased the materials
needed for the Citimall
6
project and began working in order to meet the 90-day deadline set by
LICOMCEN.
On December 16, 1997, LICOMCEN sent word to FSI that it was considering major design revisions
and the suspension of work on the Citimall project. FSI replied on December 18, 1997, expressing
concern over the revisions and the suspension, as it had fully mobilized its manpower and
equipment, and had ordered the delivery of steel bars. FSI also asked for the payment of
accomplished work amounting to P3,627,818.00.
7
A series of correspondence between LICOMCEN
and FSI then followed.
ESCA wrote FSI on January 6, 1998, stating that the revised design necessitated a change in the
bored piles requirement and a substantial reduction in the number of piles. Thus, ESCA proposed to
FSI that only 50% of the steel bars be delivered to the jobsite and the rest be shipped back to
Manila.
8
Notwithstanding this instruction, all the ordered steel bars arrived in Legaspi City on January
14, 1998.
9

On January 15, 1998, LICOMCEN instructed FSI to "hold all construction activities on the
project,"
10
in view of a pending administrative case against the officials of the City Government of
Legaspi and LICOMCEN filed before the Ombudsman (OMB-ADM-1-97-0622).
11
On January 19,
1998, ESCA formalized the suspension of construction activities and ordered the constructions
demobilization until the case was resolved.
12
In response, FSI sent ESCA a letter, dated February 3,
1998, requesting payment of costs incurred on account of the suspension which
totaledP22,667,026.97.
13
FSI repeated its demand for payment on March 3, 1998.
14

ESCA replied to FSIs demands for payment on March 24, 1998, objecting to some of the claims.
15
It
denied the claim for the cost of the steel bars that were delivered, since the delivery was done in
complete disregard of its instructions. It further disclaimed liability for the other FSI claims based on
the suspension, as its cause was not due to LICOMCENs fault. FSI rejected ESCAs evaluation of
its claims in its April 15, 1998 letter.
16

On March 14, 2001, FSI sent a final demand letter to LICOMCEN for payment
of P29,232,672.83.
17
Since LICOMCEN took no positive action on FSIs demand for payment,
18
FSI
filed a petition for arbitration with the Construction Industry Arbitration Commission (CIAC) on
October 2, 2002, docketed as CIAC Case No. 37-2002.
19
In the arbitration petition, FSI demanded
payment of the following amounts:
a. Unpaid accomplished work billings. P 1,264,404.12
b. Material costs at site.. 15,143,638.51
c. Equipment and labor standby costs.. 3,058,984.34
d. Unrealized gross profit.. 9,023,575.29
e. Attorneys fees.. 300,000.00
f. Interest expenses ... equivalent to 15%
of the total claim
LICOMCEN again denied liability for the amounts claimed by FSI. It justified its decision to
indefinitely suspend the Citimall project due to the cases filed against it involving its Lease Contract
with the City Government of Legaspi. LICOMCEN also assailed the CIACs jurisdiction, contending
that FSIs claims were matters not subject to arbitration under GC-61 of the GCC, but one that
should have been filed before the regular courts of Legaspi City pursuant to GC-05.
20

During the preliminary conference of January 28, 2003, LICOMCEN reiterated its objections to the
CIACs jurisdiction, which the arbitrators simply noted. Both FSI and LICOMCEN then proceeded to
draft the Terms of Reference.
21

On February 4, 2003, LICOMCEN, through a collaborating counsel, filed its Ex Abundati Ad Cautela
Omnibus Motion, insisting that FSIs petition before the CIAC should be dismissed for lack of
jurisdiction; thus, it prayed for the suspension of the arbitration proceedings until the issue of
jurisdiction was finally settled. The CIAC denied LICOMCENs motion in its February 20, 2003
order,
22
finding that the question of jurisdiction depends on certain factual conditions that have yet to
be established by ample evidence. As the CIACs February 20, 2003 order stood uncontested, the
arbitration proceedings continued, with both parties actively participating.
The CIAC issued its decision on July 7, 2003,
23
ruling in favor of FSI and awarding the following
amounts:
a. Unpaid accomplished work billings. P 1,264,404.12
b. Material costs at site 14,643,638.51
c. Equipment and labor standby costs 2,957,989.94
d. Unrealized gross profit 5,120,000.00
LICOMCEN was also required to bear the costs of arbitration in the total amount of P474,407.95.
LICOMCEN appealed the CIACs decision before the Court of Appeals (CA). On November 23,
2004, the CA upheld the CIACs decision, modifying only the amounts awarded by (a) reducing
LICOMCENs liability for material costs at site to P5,694,939.87, and (b) deleting its liability for
equipment and labor standby costs and unrealized gross profit; all the other awards were
affirmed.
24
Both parties moved for the reconsideration of the CAs Decision; LICOMCENs motion
was denied in the CAs February 4, 2005 Resolution, while FSIs motion was denied in the CAs
September 13, 2005 Resolution. Hence, the parties filed their own petition for review on certiorari
before the Court.
25

LICOMCENs Arguments
LICOMCEM principally raises the question of the CIACs jurisdiction, insisting that FSIs claims are
non-arbitrable. In support of its position, LICOMCEN cites GC-61 of the GCC:
GC-61. DISPUTES AND ARBITRATION
Should any dispute of any kind arise between the LICOMCEN INCORPORATED and the Contractor
[referring to FSI] or the Engineer [referring to ESCA] and the Contractor in connection with, or arising
out of the execution of the Works, such dispute shall first be referred to and settled by the
LICOMCEN, INCORPORATED who shall within a period of thirty (30) days after being formally
requested by either party to resolve the dispute, issue a written decision to the Engineer and
Contractor.
Such decision shall be final and binding upon the parties and the Contractor shall proceed with the
execution of the Works with due diligence notwithstanding any Contractor's objection to the decision
of the Engineer. If within a period of thirty (30) days from receipt of the LICOMCEN,
INCORPORATED's decision on the dispute, either party does not officially give notice to contest
such decision through arbitration, the said decision shall remain final and binding. However, should
any party, within thirty (30) days from receipt of the LICOMCEN, INCORPORATED's decision,
contest said decision, the dispute shall be submitted for arbitration under the Construction Industry
Arbitration Law, Executive Order 1008. The arbitrators appointed under said rules and regulations
shall have full power to open up, revise and review any decision, opinion, direction, certificate or
valuation of the LICOMCEN, INCORPORATED. Neither party shall be limited to the evidence or
arguments put before the LICOMCEN, INCORPORATED for the purpose of obtaining his said
decision. No decision given by the LICOMCEN, INCORPORATED shall disqualify him from being
called as a witness and giving evidence in the arbitration. It is understood that the obligations of the
LICOMCEN, INCORPORATED, the Engineer and the Contractor shall not be altered by reason of
the arbitration being conducted during the progress of the Works.
26

LICOMCEN posits that only disputes "in connection with or arising out of the execution of the Works"
are subject to arbitration. LICOMCEN construes the phrase "execution of the Works" as referring to
the physical construction activities, since "Works" under the GCC specifically refer to the "structures
and facilities" required to be constructed and completed for the Citimall project.
27
It considers FSIs
claims as mere contractual monetary claims that should be litigated before the courts of Legaspi
City, as provided in GC-05 of the GCC:
GC-05. JURISDICTION
Any question between the contracting parties that may arise out of or in connection with the
Contract, or breach thereof, shall be litigated in the courts of Legaspi City except where otherwise
specifically stated or except when such question is submitted for settlement thru arbitration as
provided herein.
28

LICOMCEN also contends that FSI failed to comply with the condition precedent for arbitration laid
down in GC-61 of the GCC. An arbitrable dispute under GC-61 must first be referred to and settled
by LICOMCEN, which has 30 days to resolve it. If within a period of 30 days from receipt of
LICOMCENs decision on the dispute, either party does not officially give notice to contest such
decision through arbitration, the said decision shall remain final and binding. However, should any
party, within 30 days from receipt of LICOMCENs decision, contest said decision, the dispute shall
be submitted for arbitration under the Construction Industry Arbitration Law.
LICOMCEN considers its March 24, 1998 letter as its final decision on FSIs claims, but declares that
FSIs reply letter of April 15, 1998 is not the "notice to contest" required by GC-61 that authorizes
resort to arbitration before the CIAC. It posits that nothing in FSIs April 15, 1998 letter states that
FSI will avail of arbitration as a mode to settle its dispute with LICOMCEN. While FSIs final demand
letter of March 14, 2001 mentioned its intention to refer the matter to arbitration, LICOMCEN
declares that the letter was made three years after its March 24, 1998 letter, hence, long after the
30-day period provided in GC-61. Indeed, FSI filed the petition for arbitration with the CIAC only on
October 2, 2002.
29
Considering FSIs delays in asserting its claims, LICOMCEN also contends that
FSIs action is barred by laches.
With respect to the monetary claims of FSI, LICOMCEM alleges that the CA erred in upholding its
liability for material costs at site for the reinforcing steel bars in the amount of P5,694,939.87,
computed as follows
30
:
2nd initial rebar requirements purchased from Pag-Asa Steel Works,
Inc.. P 799,506.83
Reinforcing steel bars purchased from ARCA Industrial Sales (total net
weight of 744,197.66 kilograms) 50% of net amount due. 5,395,433.04
Subtotal.

6,194,939.87
Less
Purchase cost of steel bars by Ramon
Quinquileria.. (500,000.00)
TOTAL LIABILITY OF LICOMCEN TO FSI FOR MATERIAL COSTS AT
SITE...

5,694,939.87
Citing GC-42(2) of the GCC, LICOMCEN says it shall be liable to pay FSI "[t]he cost of materials or
goods reasonably ordered for the Permanent or Temporary Works which have been delivered to the
Contractor but not yet used, and which delivery has been certified by the Engineer."
31
None of these
requisites were allegedly complied with. It contends that FSI failed to establish that the steel bars
delivered in Legaspi City, on January 14, 1998, were for the Citimall project. In fact, the steel bars
were delivered not at the site of the Citimall project, but at FSIs batching plant called Tuanzon
compound, a few hundred meters from the site. Even if delivery to Tuanzon was allowed, the
delivery was done in violation of ESCAs instruction to ship only 50% of the materials. Advised as
early as December 1997 to suspend the works, FSI proceeded with the delivery of the steel bars in
January 1998. LICOMCEN declared that it should not be made to pay for costs that FSI willingly
incurred for itself.
32

Assuming that LICOMCEN is liable for the costs of the steel bars, it argues that its liability should be
minimized by the fact that FSI incurred no actual damage from the purchase and delivery of the steel
bars. During the suspension of the works, FSI sold 125,000 kg of steel bars for P500,000.00 to a
third person (a certain Ramon Quinquileria). LICOMCEN alleges that FSI sold the steel bars for a
ridiculously low price of P 4.00/kilo, when the prevailing rate was P20.00/kilo. The sale could have
garnered a higher price that would offset LICOMCENs liability. LICOMCEN also wants FSI to
account for and deliver to it the remaining 744 metric tons of steel bars not sold. Otherwise, FSI
would be unjustly enriched at LICOMCENs expense, receiving payment for materials not delivered
to LICOMCEN.
33

LICOMCEN also disagrees with the CA ruling that declared it solely liable to pay the costs of
arbitration. The ruling was apparently based on the finding that LICOMCENs "failure or refusal to
meet its obligations, legal, financial, and moral, caused FSI to bring the dispute to
arbitration."
34
LICOMCEN asserts that it was FSIs decision to proceed with the delivery of the steel
bars that actually caused the dispute; it insists that it is not the party at fault which should bear the
arbitration costs.
35

FSIs Arguments
FSI takes exception to the CA ruling that modified the amount for material costs at site, and deleted
the awards for equipment and labor standby costs and unrealized profits.
Proof of damage to FSI is not required for LICOMCEN to be liable for the material costs of the steel
bars. Under GC-42, it is enough that the materials were delivered to the contractor, although not
used. FSI said that the 744 metric tons of steel bars were ordered and paid for by it for the Citimall
project as early as November 1997. If LICOMCEN contends that these were procured for other
projects FSI also had in Legaspi City, it should have presented proof of this claim, but it failed to do
so.
36

ESCAs January 6, 1998 letter simply suggested that only 50% of the steel bars be shipped to
Legaspi City; it was not a clear and specific directive. Even if it was, the steel bars were ordered and
paid for long before the notice to suspend was given; by then, it was too late to stop the delivery. FSI
also claims that since it believed in good faith that the Citimall project was simply suspended, it
expected work to resume soon after and decided to proceed with the shipment.
37

Contrary to LICOMCENs arguments, GC-42 of the GCC does not require delivery of the materials at
the site of the Citimall project; it only requires delivery to the contractor, which is FSI. Moreover, the
Tuanzon compound, where the steel bars were actually delivered, is very close to the Citimall project
site. FSI contends that it is a normal construction practice for contractors to set up a "staging site," to
prepare the materials and equipment to be used, rather than stock them in the crowded job/project
site. FSI also asserts that it was useless to have the delivery certified by ESCA because by then the
Citimall project had been suspended. It would be unfair to demand FSI to perform an act that ESCA
and LICOMCEN themselves had prevented from happening.
38

The CA deleted the awards for equipment and labor standby costs on the ground that FSIs
documentary evidence was inadequate. FSI finds the ruling erroneous, since LICOMCEN never
questioned the list of employees and equipments employed and rented by FSI for the duration of the
suspension.
39

FSI also alleges that LICOMCEN maliciously and unlawfully suspended the Citimall project. While
LICOMCEN cited several other cases in its petition for review on certiorari as grounds for
suspending the works, its letters/notices of suspension only referred to one case, OMB-ADM-1-97-
0622, an administrative case before the Ombudsman that was dismissed as early as October 12,
1998. LICOMCEN never notified FSI of the dismissal of this case. More importantly, no restraining
order or injunction was issued in any of these cases to justify the suspension of the Citimall
project.
40
FSI posits that LICOMCENs true intent was to terminate its contract with it, but, to avoid
paying damages for breach of contract, simply declared it as "indefinitely suspended." That
LICOMCEN conducted another public bidding for the "new designs" is a telling indication of
LICOMCENs intent to ease out FSI.
41
Thus, FSI states that LICOMCENs bad faith in indefinitely
suspending the Citimall project entitles it to claim unrealized profit. The restriction under GC-41 that
"[t]he contractor shall have no claim for anticipated profits on the work thus terminated,"
42
will not
apply because the stipulation refers to a contract lawfully and properly terminated. FSI seeks to
recover unrealized profits under Articles 1170 and 2201 of the Civil Code.
THE COURTS RULING
The jurisdiction of the CIAC
The CIAC was created through Executive Order No. 1008 (E.O. 1008), in recognition of the need to
establish an arbitral machinery that would expeditiously settle construction industry disputes. The
prompt resolution of problems arising from or connected with the construction industry was
considered of necessary and vital for the fulfillment of national development goals, as the
construction industry provides employment to a large segment of the national labor force and is a
leading contributor to the gross national product.
43
Section 4 of E.O. 1008 states:
Sec. 4. Jurisdiction. The CIAC shall have original and exclusive jurisdiction over disputes arising
from, or connected with, contracts entered into by parties involved in construction in the Philippines,
whether the dispute arises before or after the completion of the contract, or after the abandonment
or breach thereof. These disputes may involve government or private contracts. For the Board to
acquire jurisdiction, the parties to a dispute must agree to submit the same to voluntary arbitration.
The jurisdiction of the CIAC may include but is not limited to violation of specifications for materials
and workmanship; violation of the terms of agreement; interpretation and/or application of
contractual time and delays; maintenance and defects; payment, default of employer or contractor
and changes in contract cost.
Excluded from the coverage of this law are disputes arising from employer-employee relationships
which shall continue to be covered by the Labor Code of the Philippines.
The jurisdiction of courts and quasi-judicial bodies is determined by the Constitution and the law.
44
It
cannot be fixed by the will of the parties to a dispute;
45
the parties can neither expand nor diminish a
tribunals jurisdiction by stipulation or agreement. The text of Section 4 of E.O. 1008 is broad enough
to cover any dispute arising from, or connected with construction contracts, whether these involve
mere contractual money claims or execution of the works.
46
Considering the intent behind the law
and the broad language adopted, LICOMCEN erred in insisting on its restrictive interpretation of GC-
61. The CIACs jurisdiction cannot be limited by the parties stipulation that only disputes in
connection with or arising out of the physical construction activities (execution of the works) are
arbitrable before it.
In fact, all that is required for the CIAC to acquire jurisdiction is for the parties to a construction
contract to agree to submit their dispute to arbitration. Section 1, Article III of the 1988 CIAC Rules of
Procedure (as amended by CIAC Resolution Nos. 2-91 and 3-93) states:
Section 1. Submission to CIAC Jurisdiction. An arbitration clause in a construction contract or a
submission to arbitration of a construction dispute shall be deemed an agreement to submit an
existing or future controversy to CIAC jurisdiction, notwithstanding the reference to a different
arbitration institution or arbitral body in such contract or submission. When a contract contains a
clause for the submission of a future controversy to arbitration, it is not necessary for the parties to
enter into a submission agreement before the claimant may invoke the jurisdiction of CIAC.
An arbitration agreement or a submission to arbitration shall be in writing, but it need not be signed
by the parties, as long as the intent is clear that the parties agree to submit a present or future
controversy arising from a construction contract to arbitration.
In HUTAMA-RSEA Joint Operations, Inc. v. Citra Metro Manila Tollways Corporation,
47
the Court
declared that "the bare fact that the parties x x x incorporated an arbitration clause in [their contract]
is sufficient to vest the CIAC with jurisdiction over any construction controversy or claim between the
parties. The arbitration clause in the construction contract ipso facto vested the CIAC with
jurisdiction."
Under GC-61 and GC-05 of the GCC, read singly and in relation with one another, the Court sees no
intent to limit resort to arbitration only to disputes relating to the physical construction activities.
First, consistent with the intent of the law, an arbitration clause pursuant to E.O. 1008 should be
interpreted at its widest signification. Under GC-61, the voluntary arbitration clause covers any
dispute of any kind, not only arising of out the execution of the works but also in connection
therewith. The payments, demand and disputed issues in this case namely, work billings, material
costs, equipment and labor standby costs, unrealized profits all arose because of the construction
activities and/or are connected or related to these activities. In other words, they are there because
of the construction activities. Attorneys fees and interests payment, on the other hand, are costs
directly incidental to the dispute. Hence, the scope of the arbitration clause, as worded, covers all
the disputed items.
Second and more importantly, in insisting that contractual money claims can be resolved only
through court action, LICOMCEN deliberately ignores one of the exceptions to the general rule
stated in GC-05:
GC-05. JURISDICTION
Any question between the contracting parties that may arise out of or in connection with the
Contract, or breach thereof, shall be litigated in the courts of Legaspi City except where otherwise
specifically stated or except when such question is submitted for settlement thru arbitration as
provided herein.
The second exception clause authorizes the submission to arbitration of any dispute between
LICOMCEM and FSI, even if the dispute does not directly involve the execution of physical
construction works. This was precisely the avenue taken by FSI when it filed its petition for
arbitration with the CIAC.
If the CIACs jurisdiction can neither be enlarged nor diminished by the parties, it also cannot be
subjected to a condition precedent. GC-61 requires a party disagreeing with LICOMCENs decision
to "officially give notice to contest such decision through arbitration" within 30 days from receipt of
the decision. However, FSIs April 15, 1998 letter is not the notice contemplated by GC-61; it never
mentioned FSIs plan to submit the dispute to arbitration and instead requested LICOMCEN to
reevaluate its claims. Notwithstanding FSIs failure to make a proper and timely notice, LICOMCENs
decision (embodied in its March 24, 1998 letter) cannot become "final and binding" so as to preclude
resort to the CIAC arbitration. To reiterate, all that is required for the CIAC to acquire jurisdiction is
for the parties to agree to submit their dispute to voluntary arbitration:
[T]he mere existence of an arbitration clause in the construction contract is considered by law as an
agreement by the parties to submit existing or future controversies between them to CIAC
jurisdiction, without any qualification or condition precedent. To affirm a condition precedent in the
construction contract, which would effectively suspend the jurisdiction of the CIAC until compliance
therewith, would be in conflict with the recognized intention of the law and rules to automatically vest
CIAC with jurisdiction over a dispute should the construction contract contain an arbitration clause.
48

The CIAC is given the original and exclusive jurisdiction over disputes arising from, or connected
with, contracts entered into by parties involved in construction in the Philippines.
49
This jurisdiction
cannot be altered by stipulations restricting the nature of construction disputes, appointing another
arbitral body, or making that bodys decision final and binding.
The jurisdiction of the CIAC to resolve the dispute between LICOMCEN and FSI is, therefore,
affirmed.
The validity of the indefinite
suspension of the works on the
Citimall project
Before the Court rules on each of FSIs contractual monetary claims, we deem it important to
discuss the validity of LICOMCENs indefinite suspension of the works on the Citimall project. We
quote below two contractual stipulations relevant to this issue:
GC-38. SUSPENSION OF WORKS
The Engineer [ESCA] through the LICOMCEN, INCORPORATED shall have the authority to
suspend the Works wholly or partly by written order for such period as may be deemed necessary,
due to unfavorable weather or other conditions considered unfavorable for the prosecution of the
Works, or for failure on the part of the Contractor to correct work conditions which are unsafe for
workers or the general public, or failure or refusal to carry out valid orders, or due to change of plans
to suit field conditions as found necessary during construction, or to other factors or causes which, in
the opinion of the Engineer, is necessary in the interest of the Works and to the LICOMCEN,
INCORPORATED. The Contractor [FSI] shall immediately comply with such order to suspend the
work wholly or partly directed.
In case of total suspension or suspension of activities along the critical path of the approved
PERT/CPM network and the cause of which is not due to any fault of the Contractor, the elapsed
time between the effective order for suspending work and the order to resume work shall be allowed
the Contractor by adjusting the time allowed for his execution of the Contract Works.
The Engineer through LICOMCEN, INCORPORATED shall issue the order lifting the suspension of
work when conditions to resume work shall have become favorable or the reasons for the
suspension have been duly corrected.
50

GC-41 LICOMCEN, INCORPORATED's RIGHT TO SUSPEND WORK OR TERMINATE THE
CONTRACT
x x x x
2. For Convenience of LICOMCEN, INCORPORATED
If any time before completion of work under the Contract it shall be found by the LICOMCEN,
INCORPORATED that reasons beyond the control of the parties render it impossible or against the
interest of the LICOMCEN, INCORPORATED to complete the work, the LICOMCEN,
INCORPORATED at any time, by written notice to the Contractor, may discontinue the work and
terminate the Contract in whole or in part. Upon the issuance of such notice of termination, the
Contractor shall discontinue to work in such manner, sequence and at such time as the LICOMCEN,
INCORPORATED/Engineer may direct, continuing and doing after said notice only such work and
only until such time or times as the LICOMCEN, INCORPORATED/Engineer may direct.
51

Under these stipulations, we consider LICOMCENs initial suspension of the works valid. GC-38
authorizes the suspension of the works for factors or causes which ESCA deems necessary in the
interests of the works and LICOMCEN. The factors or causes of suspension may pertain to a
change or revision of works, as cited in the December 16, 1997 and January 6, 1998 letters of
ESCA, or to the pendency of a case before the Ombudsman (OMB-ADM-1-97-0622), as cited in
LICOMCENs January 15, 1998 letter and ESCAs January 19, 1998 and February 17, 1998 letters.
It was not necessary for ESCA/LICOMCEN to wait for a restraining or injunctive order to be issued in
any of the cases filed against LICOMCEN before it can suspend the works. The language of GC-38
gives ESCA/LICOMCEN sufficient discretion to determine whether the existence of a particular
situation or condition necessitates the suspension of the works and serves the interests of
LICOMCEN.1avvphi 1
Although we consider the initial suspension of the works as valid, we find that LICOMCEN wrongfully
prolonged the suspension of the works (or "indefinite suspension" as LICOMCEN calls it). GC-38
requires ESCA/LICOMCEN to "issue an order lifting the suspension of work when conditions to
resume work shall have become favorable or the reasons for the suspension have been duly
corrected." The Ombudsman case (OMB-ADM-1-97-0622), which ESCA and LICOMCEN cited in
their letters to FSI as a ground for the suspension, was dismissed as early as October 12, 1998, but
neither ESCA nor LICOMCEN informed FSI of this development. The pendency of the other
cases
52
may justify the continued suspension of the works, but LICOMCEN never bothered to inform
FSI of the existence of these cases until the arbitration proceedings commenced. By May 28, 2002,
the City Government of Legaspi sent LICOMCEN a notice instructing it to proceed with the Citimall
project;
53
again, LICOMCEN failed to relay this information to FSI. Instead, LICOMCEN conducted a
rebidding of the Citimall project based on the new design.
54
LICOMCENs claim that the rebidding
was conducted merely to get cost estimates for the new design goes against the established
practice in the construction industry. We find the CIACs discussion on this matter relevant:
But what is more appalling and disgusting is the allegation x x x that the x x x invitation to bid was
issued x x x solely to gather cost estimates on the redesigned [Citimall project] x x x. This Arbitral
Tribunal finds said act of asking for bids, without any intention of awarding the project to the lowest
and qualified bidder, if true, to be extremely irresponsible and highly unprofessional. It might even be
branded as fraudulent x x x [since] the invited bidders [were required] to pay P2,000.00 each for a
set of the new plans, which amount was non-refundable. The presence of x x x deceit makes the
whole story repugnant and unacceptable.
55

LICOMCENs omissions and the imprudent rebidding of the Citimall project are telling indications of
LICOMCENs intent to ease out FSI and terminate their contract. As with GC-31, GC-42(2) grants
LICOMCEN ample discretion to determine what reasons render it against its interest to complete the
work in this case, the pendency of the other cases and the revised designs for the Citimall project.
Given this authority, the Court fails to the see the logic why LICOMCEN had to resort to an
"indefinite suspension" of the works, instead of outrightly terminating the contract in exercise of its
rights under GC-42(2).
We now proceed to discuss the effects of these findings with regard to FSIs monetary claims
against LICOMCEN.
The claim for material costs at site
GC-42 of the GCC states:
GC-42 PAYMENT FOR TERMINATED CONTRACT
If the Contract is terminated as aforesaid, the Contractor will be paid for all items of work executed,
satisfactorily completed and accepted by the LICOMCEN, INCORPORATED up to the date of
termination, at the rates and prices provided for in the Contract and in addition:
1. The cost of partially accomplished items of additional or extra work agreed upon by the
LICOMCEN, INCORPORATED and the Contractor.
2. The cost of materials or goods reasonably ordered for the Permanent or Temporary Works
which have been delivered to the Contractor but not yet used and which delivery has been
certified by the Engineer.
3. The reasonable cost of demobilization
For any payment due the Contractor under the above conditions, the LICOMCEN,
INCORPORATED, however, shall deduct any outstanding balance due from the Contractor for
advances in respect to mobilization and materials, and any other sum the LICOMCEN,
INCORPORATED is entitled to be credited.
56

For LICOMCEN to be liable for the cost of materials or goods, item two of GC-42 requires that
a. the materials or goods were reasonably ordered for the Permanent or Temporary Works;
b. the materials or goods were delivered to the Contractor but not yet used; and
c. the delivery was certified by the Engineer.
Both the CIAC and the CA agreed that these requisites were met by FSI to make LICOMCEN liable
for the cost of the steel bars ordered for the Citimall project; the two tribunals differed only to the
extent of LICOMCENs liability because the CA opined that it should be limited only to 50% of the
cost of the steel bars. A review of the records compels us to uphold the CAs finding.
Prior to the delivery of the steel bars, ESCA informed FSI of the suspension of the works; ESCAs
January 6, 1998 letter reads:
As per our information to you on December 16, 1997, a major revision in the design of the Legaspi
Citimall necessitated a change in the bored piles requirement of the project. The change involved a
substantial reduction in the number and length of piles.
We expected that you would have suspended the deliveries of the steel bars until the new design
has been approved.
According to you[,] the steel bars had already been paid and loaded and out of Manila on said date.
In order to avoid double handling, storage, security problems, we suggest that only 50% of the total
requirement of steel bars be delivered at jobsite. The balance should be returned to Manila where
storage and security is better.
In order for us to consider additional cost due to the shipping of the excess steel bars, we need to
know the actual dates of purchase, payments and loading of the steel bars. Obviously, we cannot
consider the additional cost if you have had the chance to delay the shipping of the steel bars.
57

From the above, it appears that FSI was informed of the necessity of suspending the works as early
as December 16, 1997. Pursuant to GC-38 of the GCC, FSI was expected to immediately comply
with the order to suspend the work.
58
Though ESCAs December 16, 1997 notice may not have been
categorical in ordering the suspension of the works, FSIs reply letter of December 18, 1997
indicated that it actually complied with the notice to suspend, as it said, "We hope for the early
resolution of the new foundation plan and the resumption of work."
59
Despite the suspension, FSI
claimed that it could not stop the delivery of the steel bars (nor found the need to do so) because (a)
the steel bars were ordered as early as November 1997 and were already loaded in Manila and
expected to arrive in Legaspi City by December 23, 1997, and (b) it expected immediate resumption
of work to meet the 90-day deadline.
60

Records, however, disclose that these claims are not entirely accurate. The memorandum of
agreement and sale covering the steel bars specifically stated that these would be withdrawn from
the Cagayan de Oro depot, not Manila
61
; indeed, the bill of lading stated that the steel bars were
loaded in Cagayan de Oro on January 11, 1998, and arrived in Legaspi City within three days, on
January 14, 1998.
62
The loading and delivery of the steel bar thus happened after FSI received
ESCAs December 16, 1997 and January 6, 1998 letters days after the instruction to suspend the
works. Also, the same stipulation that authorizes LICOMCEN to suspend the works allows the
extension of the period to complete the works. The relevant portion of
GC-38 states:
In case of total suspension x x x and the cause of which is not due to any fault of the Contractor
[FSI], the elapsed time between the effective order for suspending work and the order to resume
work shall be allowed the Contractor by adjusting the time allowed for his execution of the Contract
Works.
63

The above stipulation, coupled with the short period it took to ship the steel bars from Cagayan de
Oro to Legaspi City, thus negates both FSIs
argument and the CIACs ruling
64
that there was no necessity to stop the shipment so as to meet the
90-day deadline. These circumstances prove that FSI acted imprudently in proceeding with the
delivery, contrary to LICOMCENs instructions. The CA was correct in holding LICOMCEN liable for
only 50% of the costs of the steel bars delivered.
The claim for equipment and
labor standby costs
The Court upholds the CAs ruling deleting the award for equipment and labor standby costs. We
quote in agreement pertinent portions of the CA decision:
The CIAC relied solely on the list of 37 pieces of equipment respondent allegedly rented and
maintained at the construction site during the suspension of the project with the prorated rentals
incurred x x x. To the mind of this Court, these lists are not sufficient to establish the fact that indeed
[FSI] incurred the said expenses. Reliance on said lists is purely speculative x x x the list of
equipments is a mere index or catalog of the equipments, which may be utilized at the construction
site. It is not the best evidence to prove that said equipment were in fact rented and maintained at
the construction site during the suspension of the work. x x x [FSI] should have presented the lease
contracts or any similar documents such as receipts of payments x x x. Likewise, the list of
employees does not in anyway prove that those employees in the list were indeed at the
construction site or were required to be on call should their services be needed and were being paid
their salaries during the suspension of the project. Thus, in the absence of sufficient evidence, We
deny the claim for equipment and labor standby costs.
65

The claim for unrealized profit
FSI contends that it is not barred from recovering unrealized profit under GC-41(2), which states:
GC-41. LICOMCEN, INCORPORATEDs RIGHT TO SUSPEND WORK OR TERMINATE THE
CONTRACT
x x x x
2. For Convenience of the LICOMCEN, INCORPORATED
x x x. The Contractor [FSI] shall not claim damages for such discontinuance or termination of the
Contract, but the Contractor shall receive compensation for reasonable expenses incurred in good
faith for the performance of the Contract and for reasonable expenses associated with termination of
the Contract. The LICOMCEN, INCORPORATED will determine the reasonableness of such
expenses. The Contractor [FSI] shall have no claim for anticipated profits on the work thus
terminated, nor any other claim, except for the work actually performed at the time of complete
discontinuance, including any variations authorized by the LICOMCEN, INCORPORATED/Engineer
to be done.
The prohibition, FSI posits, applies only where the contract was properly and lawfully terminated,
which was not the case at bar. FSI also took pains in differentiating its claim for "unrealized profit"
from the prohibited claim for "anticipated profits"; supposedly, unrealized profit is "one that is built-in
in the contract price, while anticipated profit is not." We fail to see the distinction, considering that the
contract itself neither defined nor differentiated the two terms. [A] contract must be interpreted from
the language of the contract itself, according to its plain and ordinary meaning."
66
If the terms of a
contract are clear and leave no doubt upon the intention of the contracting parties, the literal
meaning of the stipulations shall control.
67

Nonetheless, on account of our earlier discussion of LICOMCENs failure to observe the proper
procedure in terminating the contract by declaring that it was merely indefinitely suspended, we
deem that FSI is entitled to the payment of nominal damages. Nominal damages may be awarded to
a plaintiff whose right has been violated or invaded by the defendant, for the purpose of vindicating
or recognizing that right, and not for indemnifying the plaintiff for any loss suffered by him.
68
Its award
is, thus, not for the purpose of indemnification for a loss but for the recognition and vindication of a
right. A violation of the plaintiffs right, even if only technical, is sufficient to support an award of
nominal damages.
69
FSI is entitled to recover the amount of P100,000.00 as nominal damages.
The liability for costs of arbitration
Under the parties Terms of Reference, executed before the CIAC, the costs of arbitration shall be
equally divided between them, subject to the CIACs determination of which of the parties shall
eventually shoulder the amount.
70
The CIAC eventually ruled that since LICOMCEN was the party at
fault, it should bear the costs. As the CA did, we agree with this finding. Ultimately, it was
LICOMCENs imprudent declaration of indefinitely suspending the works that caused the dispute
between it and FSI. LICOMCEN should bear the costs of arbitration.
WHEREFORE, premises considered, the petition for review on certiorari of LICOMCEN
INCORPORATED, docketed as G.R. No. 167022, and the petition for review on certiorari of
FOUNDATION SPECIALISTS, INC., docketed as G.R. No. 169678, are DENIED. The November 23,
2004 Decision of the Court of Appeals in CA-G.R. SP No. 78218 is MODIFIED to include the award
of nominal damages in favor of FOUNDATION SPECIALISTS, INC. Thus, LICOMCEN
INCORPORATED is ordered to pay FOUNDATION SPECIALISTS, INC. the following amounts:
a. P1,264,404.12 for unpaid balance on FOUNDATION SPECIALISTS, INC. billings;
b. P5,694,939.87 for material costs at site; and
c. P100,000.00 for nominal damages.
LICOMCEN INCORPORATED is also ordered to pay the costs of arbitration. No costs.
SO ORDERED.
ARTURO D. BRION
Associate Justice
WE CONCUR:
CONCHITA CARPIO MORALES
Associate Justice
LUCAS P. BERSAMIN
Associate Justice
MARTIN S. VILLARAMA, JR.
Associate Justice
MA. LOURDES P.A. SERENO
Associate Justice
A T T E S T A T I O N
I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.
CONCHITA CARPIO MORALES
Associate Justice
Chairperson