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ROBERTO C. SICAM and AGENCIA G.R. NO.

159617
de R.C. SICAM, INC.,
Petitioners,
Present:

YNARES-SANTIAGO, J.,
Chairperson,
- versus - AUSTRIA-MARTINEZ,
CHICO-NAZARIO, and
NACHURA, JJ.

LULU V. JORGE and CESAR


JORGE, Promulgated:
Respondents. August 8, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a Petition for Review on Certiorari filed by Roberto C.


Sicam, Jr. (petitioner Sicam) and Agencia de R.C. Sicam, Inc. (petitioner
corporation) seeking to annul the Decision1[1] of the Court of Appeals dated

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March 31, 2003, and its Resolution2[2] dated August 8, 2003, in CA G.R. CV
No. 56633.

It appears that on different dates from September to October 1987,


Lulu V. Jorge (respondent Lulu) pawned several pieces of jewelry with
Agencia de R. C. Sicam located at No. 17 Aguirre Ave., BF Homes
Parañaque, Metro Manila, to secure a loan in the total amount of
P59,500.00.

On October 19, 1987, two armed men entered the pawnshop and took
away whatever cash and jewelry were found inside the pawnshop vault. The
incident was entered in the police blotter of the Southern Police District,
Parañaque Police Station as follows:

Investigation shows that at above TDPO, while victims were inside


the office, two (2) male unidentified persons entered into the said office
with guns drawn. Suspects(sic) (1) went straight inside and poked his gun
toward Romeo Sicam and thereby tied him with an electric wire while
suspects (sic) (2) poked his gun toward Divina Mata and Isabelita
Rodriguez and ordered them to lay (sic) face flat on the floor. Suspects
asked forcibly the case and assorted pawned jewelries items mentioned
above.

Suspects after taking the money and jewelries fled on board a


Marson Toyota unidentified plate number.3[3]

Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987
informing her of the loss of her jewelry due to the robbery incident in the
pawnshop. On November 2, 1987, respondent Lulu then wrote a letter4[4] to
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petitioner Sicam expressing disbelief stating that when the robbery
happened, all jewelry pawned were deposited with Far East Bank near the
pawnshop since it had been the practice that before they could withdraw,
advance notice must be given to the pawnshop so it could withdraw the
jewelry from the bank. Respondent Lulu then requested petitioner Sicam to
prepare the pawned jewelry for withdrawal on November 6, 1987 but
petitioner Sicam failed to return the jewelry.

On September 28, 1988, respondent Lulu joined by her husband,


Cesar Jorge, filed a complaint against petitioner Sicam with the Regional
Trial Court of Makati seeking indemnification for the loss of pawned
jewelry and payment of actual, moral and exemplary damages as well as
attorney's fees. The case was docketed as Civil Case No. 88-2035.

Petitioner Sicam filed his Answer contending that he is not the real
party-in-interest as the pawnshop was incorporated on April 20, 1987 and
known as Agencia de R.C. Sicam, Inc; that petitioner corporation had
exercised due care and diligence in the safekeeping of the articles pledged
with it and could not be made liable for an event that is fortuitous.

Respondents subsequently filed an Amended Complaint to include


petitioner corporation.

Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is


concerned considering that he is not the real party-in-interest. Respondents
opposed the same. The RTC denied the motion in an Order dated November
8, 1989.5[5]

After trial on the merits, the RTC rendered its Decision6[6] dated
January 12, 1993, dismissing respondents’ complaint as well as petitioners’
counterclaim. The RTC held that petitioner Sicam could not be made
personally liable for a claim arising out of a corporate transaction; that in
the Amended Complaint of respondents, they asserted that “plaintiff pawned
assorted jewelries in defendants' pawnshop”; and that as a consequence of
the separate juridical personality of a corporation, the corporate debt or
credit is not the debt or credit of a stockholder.

The RTC further ruled that petitioner corporation could not be held
liable for the loss of the pawned jewelry since it had not been rebutted by
respondents that the loss of the pledged pieces of jewelry in the possession
of the corporation was occasioned by armed robbery; that robbery is a
fortuitous event which exempts the victim from liability for the loss, citing
the case of Austria v. Court of Appeals;7[7] and that the parties’ transaction
was that of a pledgor and pledgee and under Art. 1174 of the Civil Code,
the pawnshop as a pledgee is not responsible for those events which could
not be foreseen.

Respondents appealed the RTC Decision to the CA. In a Decision


dated March 31, 2003, the CA reversed the RTC, the dispositive portion of
which reads as follows:

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6
7
WHEREFORE, premises considered, the instant Appeal is
GRANTED, and the Decision dated January 12, 1993,of the Regional Trial
Court of Makati, Branch 62, is hereby REVERSED and SET ASIDE,
ordering the appellees to pay appellants the actual value of the lost jewelry
amounting to P272,000.00, and attorney' fees of P27,200.00.8[8]

In finding petitioner Sicam liable together with petitioner corporation,


the CA applied the doctrine of piercing the veil of corporate entity reasoning
that respondents were misled into thinking that they were dealing with the
pawnshop owned by petitioner Sicam as all the pawnshop tickets issued to
them bear the words “Agencia de R.C. Sicam”; and that there was no
indication on the pawnshop tickets that it was the petitioner corporation that
owned the pawnshop which explained why respondents had to amend their
complaint impleading petitioner corporation.

The CA further held that the corresponding diligence required of a


pawnshop is that it should take steps to secure and protect the pledged items
and should take steps to insure itself against the loss of articles which are
entrusted to its custody as it derives earnings from the pawnshop trade which
petitioners failed to do; that Austria is not applicable to this case since the
robbery incident happened in 1961 when the criminality had not as yet
reached the levels attained in the present day; that they are at least guilty of
contributory negligence and should be held liable for the loss of jewelries;
and that robberies and hold-ups are foreseeable risks in that those engaged in
the pawnshop business are expected to foresee.

The CA concluded that both petitioners should be jointly and


severally held liable to respondents for the loss of the pawned jewelry.
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Petitioners’ motion for reconsideration was denied in a Resolution
dated August 8, 2003.

Hence, the instant petition for review with the following assignment
of errors:

THE COURT OF APPEALS ERRED AND WHEN IT DID, IT


OPENED ITSELF TO REVERSAL, WHEN IT ADOPTED
UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN
WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT THE
RESPONDENTS ARGUED IN THEIR BRIEF, WHICH ARGUMENT
WAS PALPABLY UNSUSTAINABLE.

THE COURT OF APPEALS ERRED, AND WHEN IT DID, IT


OPENED ITSELF TO REVERSAL BY THIS HONORABLE COURT,
WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT WITHOUT
ACKNOWLEDGING IT) THE SUBMISSIONS OF THE
RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING
MORE THERETO DESPITE THE FACT THAT THE SAID
ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN
SUSTAINED IN VIEW OF UNREBUTTED EVIDENCE ON RECORD.9
[9]

Anent the first assigned error, petitioners point out that the CA’s
finding that petitioner Sicam is personally liable for the loss of the pawned
jewelries is “a virtual and uncritical reproduction of the arguments set out on
pp. 5-6 of the Appellants’ brief.”10[10]

Petitioners argue that the reproduced arguments of respondents in


their Appellants’ Brief suffer from infirmities, as follows:

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(1) Respondents conclusively asserted in paragraph 2 of their
Amended Complaint that Agencia de R.C. Sicam, Inc. is the present
owner of Agencia de R.C. Sicam Pawnshop, and therefore, the CA cannot
rule against said conclusive assertion of respondents;

(2) The issue resolved against petitioner Sicam was not among
those raised and litigated in the trial court; and

(3) By reason of the above infirmities, it was error for the CA to


have pierced the corporate veil since a corporation has a personality
distinct and separate from its individual stockholders or members.

Anent the second error, petitioners point out that the CA finding on
their negligence is likewise an unedited reproduction of respondents’ brief
which had the following defects:

(1) There were unrebutted evidence on record that petitioners


had observed the diligence required of them, i.e, they wanted to open a
vault with a nearby bank for purposes of safekeeping the pawned articles
but was discouraged by the Central Bank (CB) since CB rules provide that
they can only store the pawned articles in a vault inside the pawnshop
premises and no other place;

(2) Petitioners were adjudged negligent as they did not take


insurance against the loss of the pledged jelweries, but it is judicial notice
that due to high incidence of crimes, insurance companies refused to
cover pawnshops and banks because of high probability of losses due to
robberies;

(3) In Hernandez v. Chairman, Commission on Audit (179


SCRA 39, 45-46), the victim of robbery was exonerated from liability for
the sum of money belonging to others and lost by him to robbers.

Respondents filed their Comment and petitioners filed their Reply


thereto. The parties subsequently submitted their respective Memoranda.

We find no merit in the petition.


To begin with, although it is true that indeed the CA findings were
exact reproductions of the arguments raised in respondents’ (appellants’)
brief filed with the CA, we find the same to be not fatally infirmed. Upon
examination of the Decision, we find that it expressed clearly and distinctly
the facts and the law on which it is based as required by Section 8, Article
VIII of the Constitution. The discretion to decide a case one way or another
is broad enough to justify the adoption of the arguments put forth by one of
the parties, as long as these are legally tenable and supported by law and the
facts on records.11[11]

Our jurisdiction under Rule 45 of the Rules of Court is limited to the


review of errors of law committed by the appellate court. Generally, the
findings of fact of the appellate court are deemed conclusive and we are not
duty-bound to analyze and calibrate all over again the evidence adduced by
the parties in the court a quo.12[12] This rule, however, is not without
exceptions, such as where the factual findings of the Court of Appeals and
the trial court are conflicting or contradictory13[13] as is obtaining in the
instant case.

However, after a careful examination of the records, we find no


justification to absolve petitioner Sicam from liability.

The CA correctly pierced the veil of the corporate fiction and


adjudged petitioner Sicam liable together with petitioner corporation. The
rule is that the veil of corporate fiction may be pierced when made as a
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13
shield to perpetrate fraud and/or confuse legitimate issues. 14[14] The theory of
corporate entity was not meant to promote unfair objectives or otherwise to
shield them.15[15]

Notably, the evidence on record shows that at the time respondent


Lulu pawned her jewelry, the pawnshop was owned by petitioner Sicam
himself. As correctly observed by the CA, in all the pawnshop receipts
issued to respondent Lulu in September 1987, all bear the words “Agencia
de R. C. Sicam,” notwithstanding that the pawnshop was allegedly
incorporated in April 1987. The receipts issued after such alleged
incorporation were still in the name of “Agencia de R. C. Sicam,” thus
inevitably misleading, or at the very least, creating the wrong impression to
respondents and the public as well, that the pawnshop was owned solely by
petitioner Sicam and not by a corporation.

Even petitioners’ counsel, Atty. Marcial T. Balgos, in his letter16[16]


dated October 15, 1987 addressed to the Central Bank, expressly referred to
petitioner Sicam as the proprietor of the pawnshop notwithstanding the
alleged incorporation in April 1987.

We also find no merit in petitioners' argument that since respondents


had alleged in their Amended Complaint that petitioner corporation is the
present owner of the pawnshop, the CA is bound to decide the case on that
basis.

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Section 4 Rule 129 of the Rules of Court provides that an admission,
verbal or written, made by a party in the course of the proceedings in the
same case, does not require proof. The admission may be contradicted only
by showing that it was made through palpable mistake or that no such
admission was made.
Thus, the general rule that a judicial admission is conclusive upon the
party making it and does not require proof, admits of two exceptions, to wit:
(1) when it is shown that such admission was made through palpable
mistake, and (2) when it is shown that no such admission was in fact made.
The latter exception allows one to contradict an admission by denying
that he made such an admission.17[17]

The Committee on the Revision of the Rules of Court explained the


second exception in this wise:

x x x if a party invokes an “admission” by an adverse party, but cites the


admission “out of context,” then the one making the “admission” may
show that he made no “such” admission, or that his admission was taken
out of context.

x x x that the party can also show that he made no “such admission”,
i.e., not in the sense in which the admission is made to appear.

That is the reason for the modifier “such” because if the rule simply states
that the admission may be contradicted by showing that “no admission
was made,” the rule would not really be providing for a contradiction of
the admission but just a denial.18[18] (Emphasis supplied).

While it is true that respondents alleged in their Amended Complaint


that petitioner corporation is the present owner of the pawnshop, they did so
only because petitioner Sicam alleged in his Answer to the original
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complaint filed against him that he was not the real party-in-interest as the
pawnshop was incorporated in April 1987. Moreover, a reading of the
Amended Complaint in its entirety shows that respondents referred to both
petitioner Sicam and petitioner corporation where they (respondents)
pawned their assorted pieces of jewelry and ascribed to both the failure to
observe due diligence commensurate with the business which resulted in the
loss of their pawned jewelry.

Markedly, respondents, in their Opposition to petitioners’ Motion to


Dismiss Amended Complaint, insofar as petitioner Sicam is concerned,
averred as follows:

Roberto C. Sicam was named the defendant in the original complaint


because the pawnshop tickets involved in this case did not show that the
R.C. Sicam Pawnshop was a corporation. In paragraph 1 of his Answer, he
admitted the allegations in paragraph 1 and 2 of the Complaint. He merely
added “that defendant is not now the real party in interest in this case.”

It was defendant Sicam's omission to correct the pawnshop tickets used in


the subject transactions in this case which was the cause of the instant
action. He cannot now ask for the dismissal of the complaint against him
simply on the mere allegation that his pawnshop business is now
incorporated. It is a matter of defense, the merit of which can only be
reached after consideration of the evidence to be presented in due course.19
[19]

Unmistakably, the alleged admission made in respondents' Amended


Complaint was taken “out of context” by petitioner Sicam to suit his own
purpose. Ineluctably, the fact that petitioner Sicam continued to issue
pawnshop receipts under his name and not under the corporation's name
militates for the piercing of the corporate veil.
19
We likewise find no merit in petitioners' contention that the CA erred
in piercing the veil of corporate fiction of petitioner corporation, as it was
not an issue raised and litigated before the RTC.

Petitioner Sicam had alleged in his Answer filed with the trial court
that he was not the real party-in-interest because since April 20, 1987, the
pawnshop business initiated by him was incorporated and known as Agencia
de R.C. Sicam. In the pre-trial brief filed by petitioner Sicam, he submitted
that as far as he was concerned, the basic issue was whether he is the real
party in interest against whom the complaint should be directed.20[20] In fact,
he subsequently moved for the dismissal of the complaint as to him but was
not favorably acted upon by the trial court. Moreover, the issue was squarely
passed upon, although erroneously, by the trial court in its Decision in this
manner:

x x x The defendant Roberto Sicam, Jr likewise denies liability as


far as he is concerned for the reason that he cannot be made personally
liable for a claim arising from a corporate transaction.

This Court sustains the contention of the defendant Roberto C.


Sicam, Jr. The amended complaint itself asserts that “plaintiff pawned
assorted jewelries in defendant's pawnshop.” It has been held that “ as a
consequence of the separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of the stockholder, nor is
the stockholder's debt or credit that of a corporation.21[21]

Clearly, in view of the alleged incorporation of the pawnshop, the


issue of whether petitioner Sicam is personally liable is inextricably
connected with the determination of the question whether the doctrine of
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piercing the corporate veil should or should not apply to the case.

The next question is whether petitioners are liable for the loss of the
pawned articles in their possession.

Petitioners insist that they are not liable since robbery is a fortuitous
event and they are not negligent at all.

We are not persuaded.

Article 1174 of the Civil Code provides:

Art. 1174. Except in cases expressly specified by the law, or when


it is otherwise declared by stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be responsible for those
events which could not be foreseen or which, though foreseen, were
inevitable.

Fortuitous events by definition are extraordinary events not


foreseeable or avoidable. It is therefore, not enough that the event should not
have been foreseen or anticipated, as is commonly believed but it must be
one impossible to foresee or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same. 22[22]

To constitute a fortuitous event, the following elements must concur:


(a) the cause of the unforeseen and unexpected occurrence or of the failure
of the debtor to comply with obligations must be independent of human will;
(b) it must be impossible to foresee the event that constitutes the caso

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fortuito or, if it can be foreseen, it must be impossible to avoid; (c) the
occurrence must be such as to render it impossible for the debtor to fulfill
obligations in a normal manner; and, (d) the obligor must be free from any
23[23]
participation in the aggravation of the injury or loss.

The burden of proving that the loss was due to a fortuitous event rests
on him who invokes it.24[24] And, in order for a fortuitous event to exempt
one from liability, it is necessary that one has committed no negligence or
misconduct that may have occasioned the loss. 25[25]

It has been held that an act of God cannot be invoked to protect a


person who has failed to take steps to forestall the possible adverse
consequences of such a loss. One's negligence may have concurred with an
act of God in producing damage and injury to another; nonetheless, showing
that the immediate or proximate cause of the damage or injury was a
fortuitous event would not exempt one from liability. When the effect is
found to be partly the result of a person's participation -- whether by active
intervention, neglect or failure to act -- the whole occurrence is humanized
and removed from the rules applicable to acts of God. 26[26]

Petitioner Sicam had testified that there was a security guard in their
pawnshop at the time of the robbery. He likewise testified that when he
started the pawnshop business in 1983, he thought of opening a vault with
the nearby bank for the purpose of safekeeping the valuables but was

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discouraged by the Central Bank since pawned articles should only be stored
in a vault inside the pawnshop. The very measures which petitioners had
allegedly adopted show that to them the possibility of robbery was not only
foreseeable, but actually foreseen and anticipated. Petitioner Sicam’s
testimony, in effect, contradicts petitioners’ defense of fortuitous event.

Moreover, petitioners failed to show that they were free from any
negligence by which the loss of the pawned jewelry may have been
occasioned.

Robbery per se, just like carnapping, is not a fortuitous event. It does
not foreclose the possibility of negligence on the part of herein petitioners.
In Co v. Court of Appeals,27[27] the Court held:

It is not a defense for a repair shop of motor vehicles to escape


liability simply because the damage or loss of a thing lawfully placed in
its possession was due to carnapping. Carnapping per se cannot be
considered as a fortuitous event. The fact that a thing was unlawfully
and forcefully taken from another's rightful possession, as in cases of
carnapping, does not automatically give rise to a fortuitous event. To
be considered as such, carnapping entails more than the mere
forceful taking of another's property. It must be proved and
established that the event was an act of God or was done solely by
third parties and that neither the claimant nor the person alleged to
be negligent has any participation. In accordance with the Rules of
Evidence, the burden of proving that the loss was due to a fortuitous
event rests on him who invokes it — which in this case is the private
respondent. However, other than the police report of the alleged
carnapping incident, no other evidence was presented by private
respondent to the effect that the incident was not due to its fault. A police
report of an alleged crime, to which only private respondent is privy, does
not suffice to establish the carnapping. Neither does it prove that there
was no fault on the part of private respondent notwithstanding the parties'
agreement at the pre-trial that the car was carnapped. Carnapping does
not foreclose the possibility of fault or negligence on the part of private

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respondent.28[28]
Just like in Co, petitioners merely presented the police report of the
Parañaque Police Station on the robbery committed based on the report of
petitioners' employees which is not sufficient to establish robbery. Such
report also does not prove that petitioners were not at fault.

On the contrary, by the very evidence of petitioners, the CA did not


err in finding that petitioners are guilty of concurrent or contributory
negligence as provided in Article 1170 of the Civil Code, to wit:

Art. 1170. Those who in the performance of their obligations are


guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.29[29]

Article 2123 of the Civil Code provides that with regard to pawnshops
and other establishments which are engaged in making loans secured by
pledges, the special laws and regulations concerning them shall be observed,
and subsidiarily, the provisions on pledge, mortgage and antichresis.

The provision on pledge, particularly Article 2099 of the Civil Code,


provides that the creditor shall take care of the thing pledged with the
diligence of a good father of a family. This means that petitioners must take
care of the pawns the way a prudent person would as to his own property.

In this connection, Article 1173 of the Civil Code further provides:

Art. 1173. The fault or negligence of the obligor consists in the


omission of that diligence which is required by the nature of the obligation
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and corresponds with the circumstances of the persons, of time and of the
place. When negligence shows bad faith, the provisions of Articles 1171
and 2201, paragraph 2 shall apply.

If the law or contract does not state the diligence which is to be


observed in the performance, that which is expected of a good father of a
family shall be required.
We expounded in Cruz v. Gangan30[30] that negligence is the omission
to do something which a reasonable man, guided by those considerations
which ordinarily regulate the conduct of human affairs, would do; or the
doing of something which a prudent and reasonable man would not do.31[31] It
is want of care required by the circumstances.

A review of the records clearly shows that petitioners failed to


exercise reasonable care and caution that an ordinarily prudent person would
have used in the same situation. Petitioners were guilty of negligence in the
operation of their pawnshop business. Petitioner Sicam testified, thus:

Court:

Q. Do you have security guards in your pawnshop?


A. Yes, your honor.

Q. Then how come that the robbers were able to enter the premises when
according to you there was a security guard?
A. Sir, if these robbers can rob a bank, how much more a pawnshop.

Q. I am asking you how were the robbers able to enter despite the fact that
there was a security guard?
A. At the time of the incident which happened about 1:00 and 2:00 o'clock
in the afternoon and it happened on a Saturday and everything was quiet
in the area BF Homes Parañaque they pretended to pawn an article in
the pawnshop, so one of my employees allowed him to come in and it
was only when it was announced that it was a hold up.

Q. Did you come to know how the vault was opened?


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31
A. When the pawnshop is official (sic) open your honor the pawnshop is
partly open. The combination is off.

Q. No one open (sic) the vault for the robbers?


A. No one your honor it was open at the time of the robbery.

Q. It is clear now that at the time of the robbery the vault was open the
reason why the robbers were able to get all the items pawned to you
inside the vault.
A. Yes sir.32[32]

revealing that there were no security measures adopted by petitioners in the


operation of the pawnshop. Evidently, no sufficient precaution and
vigilance were adopted by petitioners to protect the pawnshop from unlawful
intrusion. There was no clear showing that there was any security guard at
all. Or if there was one, that he had sufficient training in securing a
pawnshop. Further, there is no showing that the alleged security guard
exercised all that was necessary to prevent any untoward incident or to
ensure that no suspicious individuals were allowed to enter the premises. In
fact, it is even doubtful that there was a security guard, since it is quite
impossible that he would not have noticed that the robbers were armed with
caliber .45 pistols each, which were allegedly poked at the employees.33[33]
Significantly, the alleged security guard was not presented at all to
corroborate petitioner Sicam's claim; not one of petitioners' employees who
were present during the robbery incident testified in court.

Furthermore, petitioner Sicam's admission that the vault was open at


the time of robbery is clearly a proof of petitioners' failure to observe the

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care, precaution and vigilance that the circumstances justly demanded.
Petitioner Sicam testified that once the pawnshop was open, the combination
was already off. Considering petitioner Sicam's testimony that the robbery
took place on a Saturday afternoon and the area in BF Homes Parañaque at
that time was quiet, there was more reason for petitioners to have exercised
reasonable foresight and diligence in protecting the pawned jewelries.
Instead of taking the precaution to protect them, they let open the vault,
providing no difficulty for the robbers to cart away the pawned articles.

We, however, do not agree with the CA when it found petitioners


negligent for not taking steps to insure themselves against loss of the
pawned jewelries.

Under Section 17 of Central Bank Circular No. 374, Rules and


Regulations for Pawnshops, which took effect on July 13, 1973,
and which was issued pursuant to Presidential Decree No. 114, Pawnshop
Regulation Act, it is provided that pawns pledged must be insured, to wit:

Sec. 17. Insurance of Office Building and Pawns- The place of


business of a pawnshop and the pawns pledged to it must be insured
against fire and against burglary as well as for the latter(sic), by an
insurance company accredited by the Insurance Commissioner.

However, this Section was subsequently amended by CB Circular No.


764 which took effect on October 1, 1980, to wit:

Sec. 17 Insurance of Office Building and Pawns – The office


building/premises and pawns of a pawnshop must be insured against fire.
(emphasis supplied).
where the requirement that insurance against burglary was deleted.
Obviously, the Central Bank considered it not feasible to require insurance
of pawned articles against burglary.

The robbery in the pawnshop happened in 1987, and considering the


above-quoted amendment, there is no statutory duty imposed on petitioners
to insure the pawned jewelry in which case it was error for the CA to
consider it as a factor in concluding that petitioners were negligent.

Nevertheless, the preponderance of evidence shows that petitioners


failed to exercise the diligence required of them under the Civil Code.

The diligence with which the law requires the individual at all times to
govern his conduct varies with the nature of the situation in which he is
placed and the importance of the act which he is to perform.34[34] Thus, the
cases of Austria v. Court of Appeals,35[35] Hernandez v. Chairman,
Commission on Audit36[36] and Cruz v. Gangan37[37] cited by petitioners in
their pleadings, where the victims of robbery were exonerated from liability,
find no application to the present case.

In Austria, Maria Abad received from Guillermo Austria a pendant


with diamonds to be sold on commission basis, but which Abad failed to
subsequently return because of a robbery committed upon her in 1961. The
incident became the subject of a criminal case filed against several persons.
Austria filed an action against Abad and her husband (Abads) for recovery
34
35
36
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of the pendant or its value, but the Abads set up the defense that the robbery
extinguished their obligation. The RTC ruled in favor of Austria, as the
Abads failed to prove robbery; or, if committed, that Maria Abad was guilty
of negligence. The CA, however, reversed the RTC decision holding that the
fact of robbery was duly established and declared the Abads not responsible
for the loss of the jewelry on account of a fortuitous event. We held that for
the Abads to be relieved from the civil liability of returning the pendant
under Art. 1174 of the Civil Code, it would only be sufficient that the
unforeseen event, the robbery, took place without any concurrent fault on the
debtor’s part, and this can be done by preponderance of evidence; that to be
free from liability for reason of fortuitous event, the debtor must, in addition
to the casus itself, be free of any concurrent or contributory fault or
negligence.38[38]

We found in Austria that under the circumstances prevailing at the


time the Decision was promulgated in 1971, the City of Manila and its
suburbs had a high incidence of crimes against persons and property that
rendered travel after nightfall a matter to be sedulously avoided without
suitable precaution and protection; that the conduct of Maria Abad in
returning alone to her house in the evening carrying jewelry of considerable
value would have been negligence per se and would not exempt her from
responsibility in the case of robbery. However we did not hold Abad liable
for negligence since, the robbery happened ten years previously; i.e., 1961,
when criminality had not reached the level of incidence obtaining in 1971.

In contrast, the robbery in this case took place in 1987 when robbery
38
was already prevalent and petitioners in fact had already foreseen it as they
wanted to deposit the pawn with a nearby bank for safekeeping. Moreover,
unlike in Austria, where no negligence was committed, we found petitioners
negligent in securing their pawnshop as earlier discussed.

In Hernandez, Teodoro Hernandez was the OIC and special


disbursing officer of the Ternate Beach Project of the Philippine Tourism in
Cavite. In the morning of July 1, 1983, a Friday, he went to Manila to
encash two checks covering the wages of the employees and the operating
expenses of the project. However for some reason, the processing of the
check was delayed and was completed at about 3 p.m. Nevertheless, he
decided to encash the check because the project employees would be waiting
for their pay the following day; otherwise, the workers would have to wait
until July 5, the earliest time, when the main office would open. At that time,
he had two choices: (1) return to Ternate, Cavite that same afternoon and
arrive early evening; or (2) take the money with him to his house in Marilao,
Bulacan, spend the night there, and leave for Ternate the following day. He
chose the second option, thinking it was the safer one. Thus, a little past 3
p.m., he took a passenger jeep bound for Bulacan. While the jeep was on
Epifanio de los Santos Avenue, the jeep was held up and the money kept by
Hernandez was taken, and the robbers jumped out of the jeep and ran.
Hernandez chased the robbers and caught up with one robber who was
subsequently charged with robbery and pleaded guilty. The other robber who
held the stolen money escaped. The Commission on Audit found Hernandez
negligent because he had not brought the cash proceeds of the checks to his
office in Ternate, Cavite for safekeeping, which is the normal procedure in
the handling of funds. We held that Hernandez was not negligent in deciding
to encash the check and bringing it home to Marilao, Bulacan instead of
Ternate, Cavite due to the lateness of the hour for the following reasons: (1)
he was moved by unselfish motive for his co-employees to collect their
wages and salaries the following day, a Saturday, a non-working, because to
encash the check on July 5, the next working day after July 1, would have
caused discomfort to laborers who were dependent on their wages for
sustenance; and (2) that choosing Marilao as a safer destination, being
nearer, and in view of the comparative hazards in the trips to the two places,
said decision seemed logical at that time. We further held that the fact that
two robbers attacked him in broad daylight in the jeep while it was on a busy
highway and in the presence of other passengers could not be said to be a
result of his imprudence and negligence.

Unlike in Hernandez where the robbery happened in a public utility,


the robbery in this case took place in the pawnshop which is under the
control of petitioners. Petitioners had the means to screen the persons who
were allowed entrance to the premises and to protect itself from unlawful
intrusion. Petitioners had failed to exercise precautionary measures in
ensuring that the robbers were prevented from entering the pawnshop and
for keeping the vault open for the day, which paved the way for the robbers
to easily cart away the pawned articles.

In Cruz, Dr. Filonila O. Cruz, Camanava District Director of


Technological Education and Skills Development Authority (TESDA),
boarded the Light Rail Transit (LRT) from Sen. Puyat Avenue to
Monumento when her handbag was slashed and the contents were stolen by
an unidentified person. Among those stolen were her wallet and the
government-issued cellular phone. She then reported the incident to the
police authorities; however, the thief was not located, and the cellphone
was not recovered. She also reported the loss to the Regional Director of
TESDA, and she requested that she be freed from accountability for the
cellphone. The Resident Auditor denied her request on the ground that she
lacked the diligence required in the custody of government property and was
ordered to pay the purchase value in the total amount of P4,238.00. The
COA found no sufficient justification to grant the request for relief from
accountability. We reversed the ruling and found that riding the LRT cannot
per se be denounced as a negligent act more so because Cruz’s mode of
transit was influenced by time and money considerations; that she boarded
the LRT to be able to arrive in Caloocan in time for her 3 pm meeting; that
any prudent and rational person under similar circumstance can reasonably
be expected to do the same; that possession of a cellphone should not hinder
one from boarding the LRT coach as Cruz did considering that whether she
rode a jeep or bus, the risk of theft would have also been present; that
because of her relatively low position and pay, she was not expected to have
her own vehicle or to ride a taxicab; she did not have a government assigned
vehicle; that placing the cellphone in a bag away from covetous eyes and
holding on to that bag as she did is ordinarily sufficient care of a cellphone
while traveling on board the LRT; that the records did not show any specific
act of negligence on her part and negligence can never be presumed.

Unlike in the Cruz case, the robbery in this case happened in


petitioners' pawnshop and they were negligent in not exercising the
precautions justly demanded of a pawnshop.
WHEREFORE, except for the insurance aspect, the Decision of the
Court of Appeals dated March 31, 2003 and its Resolution dated August 8,
2003, are AFFIRMED.

Costs against petitioners.

SO ORDERED.

SPOUSES ELVIRA AND CESAR G.R. No. 131491


DUMLAO,
Petitioners, Present:

PUNO, C.J., Chairperson,


SANDOVAL-GUTIERREZ,
CORONA,
-versus- AZCUNA, and
GARCIA, JJ.

Promulgated:
MARLON REALTY CORPORATION,
Respondent. August 17, 2007

x-----------------------------------------------------------------------------------------x

DECISION

SANDOVAL-GUTIERREZ, J.:

For our resolution is the instant Petition for Review on Certiorari


under Rule 45 of the 1997 Rules of Civil Procedure, as amended, assailing
the Decision39[1] dated August 25, 1997 and Resolution40[2] dated November
13, 1997 rendered by the Court of Appeals in CA-G.R. SP No. 43366,
entitled “MARLON REALTY CORPORATION, petitioner, v. HON. JUDGE
REGIONAL TRIAL COURT OF PARAÑAQUE, BRANCH 258 and ELVIRA
D. DUMLAO, ET AL., respondents.”

The following facts are undisputed:

On November 26, 1991, spouses Elvira and Cesar Dumlao,


petitioners, and Marlon Realty Corporation, respondent, entered into a
Contract to Sell41[3] involving a 109 square meter lot in Welcome Village,
Parañaque City. The terms of payment are:

1. Petitioners shall pay respondent P218,000.00 as cost


of the lot;

2. The sum of P61,000.00 shall be paid upon the signing


of the contract; and

3. The balance of P157,000.00 shall be paid with interest


at 24% per annum within six (6) months.

Petitioners paid P61,000.00 as downpayment upon the signing of the


contract. In the meantime, interest began to accrue on the P157,000.00
balance of the purchase price.

39
40
41
On November 4, 1992, the Urban Bank informed respondent
corporation that petitioners’ loan of P148,000.00, intended as payment for
their obligation, was approved. However, the bank imposed the following
conditions: the amount shall be released only after its mortgage lien shall
have been registered in the Registry of Deeds and annotated on petitioners’
land title; and that respondent must first execute a deed of absolute sale in
favor of petitioners.

On November 26, 1992, the parties entered into a Compromise


Agreement42[4] whereby petitioners agreed to pay respondent, on or before
March 26, 1993, the amount of P38,203.33 representing the accrued interest
as of that date on the P157,000.00 balance of the purchase price; and that
respondent shall execute a Deed of Sale to facilitate the transfer of title to
petitioners. On the same day, petitioners paid the buyer’s equity of
P9,000.00.

On December 1, 1992, respondent, pursuant to the Compromise


Agreement, executed a Deed of Sale43[5] in favor of petitioners. But they
refused to pay the interest agreed upon despite respondent’s repeated
demand.

On January 26, 1995, respondent filed with the Metropolitan Trial


Court (MTC), Branch 78, Parañaque City a complaint for a sum of money
against petitioners. The MTC, in its Decision44[6] dated June 17, 1996,
42
43
44
dismissed the complaint, holding that it is for specific performance
cognizable by the Regional Trial Court (RTC).

On appeal by respondent, the RTC, Branch 258, Parañaque City


rendered its Decision dated November 19, 1996 affirming the MTC
judgment dismissing the complaint “not on the ground of lack of
jurisdiction, but for lack of cause of action.” 45[7]

Petitioners filed a motion for reconsideration but it was denied by the


RTC in its Order of February 04, 1997.

On February 28, 1997, respondent filed with the Court of Appeals a


petition for review. In its Decision dated August 25, 1997, the appellate
court held that respondent’s complaint is for a sum of money, the Contract
to Sell being a “unilateral acknowledgment of an existing debt” on
petitioners’ part. The dispositive portion of the Decision reads:

WHEREFORE, premises considered, the petition is hereby given


DUE COURSE and the assailed Decision dated November 19, 1996 of the
RTC of Parañaque, Branch 258, and its Order dated February 4, 1997
denying therein plaintiff’s Motion for Reconsideration, as well as the
Decision dated June 17, 1996 of the Metropolitan Trial Court of
Parañaque, Branch 78, are REVERSED and SET ASIDE.

A new judgment is hereby entered ordering defendant spouses


Cesar and Elvira Dumlao to pay the sum of P109,929.79 representing the
accumulated interests as of January 6, 1995 with interest at 2% per
month computed from January 6, 1995.

SO ORDERED.46[8]
45
46
Petitioners filed a motion for reconsideration but it was denied by the
Court of Appeals in its Resolution dated November 13, 1997.

Hence, this petition.

The issue for our resolution is whether petitioners are liable to pay
interest on the balance of the purchase price.

Petitioners insist that they are not liable to pay interest since the loan
proceeds were released, not to petitioners, but directly to respondent; and
that pending the release, no interest should accrue.

Petitioners’ arguments are misplaced.

Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith.47[9] We must
look into the terms of the contract to determine the respective obligations of
the parties thereto. If the terms of a contract are clear and leave no doubt
upon the contracting parties’ intention, then such terms should be applied in
their literal meaning.48[10]

47
48
In this case, there is no question that the parties voluntarily entered
into a Contract to Sell a parcel of land. The terms of payment of the
purchase price are clear and unambiguous, thus:

SECOND – That in consideration of the agreement to sell the


above described property, the VENDEE obligates himself/herself to pay
the VENDOR the sum of TWO HUNDRED EIGHTEEN THOUSAND
(P218,000.00) PESOS, Philippine Currency from the date of execution of
this contract until paid as follows:

a) The amount of SIXTY ONE THOUSAND xxx (P61,000.00)


PESOS when this contract is signed, and
b) The balance of ONE HUNDRED FIFTY SEVEN THOUSAND
(P157,000.00) PESOS shall be paid with interest at 24% per annum to be
computed based on the outstanding and payable balance, as of the date of
downpayment, within a period of SIX (6) MONTHS x x x. Any installment not
paid on or before the due date, or within the grace period of five (5) days
thereafter, shall bear a penalty of 2% per month based on the remaining unpaid
monthly installments. Note: As per agreement, the amount of P148,000.00 is
receivable thru an URBAN BANK Letter of Guaranty (Pag-ibig Loan)

THIRD – That demand for payment by the VENDOR is not


necessary to make the VENDEE incur delay (default). Note: Buyer’s
equity is P9,000.00.

Pursuant to the above agreement, it is clear that a 24% interest per


annum on the balance of P157,000.00 shall be paid to respondent by
petitioners. Having signed the contract, petitioners are bound to comply
with its terms and conditions in good faith. We reiterate that the contract is
the law between them.

We observe that respondent, faithful to its part of the bargain,


executed a deed of sale in favor of petitioners. In fact, a Transfer Certificate
of Title was already issued in their names. Fairness demands that petitioners
also fulfill their obligation to pay interest on the balance of the purchase
price.

WHEREFORE, we DENY the petition. The assailed Decision and


Resolution of the Court of Appeals in CA-G.R. SP No. 43366 are
AFFIRMED.

Costs against petitioners.

SO ORDERED.

UNITED COCONUT G.R. No. 159912


PLANTERS BANK,
Petitioner,
Present:

YNARES-SANTIAGO, J.,
Chairperson,
AUSTRIA-MARTINEZ,
- versus -
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.

SPOUSES SAMUEL and


Promulgated:
ODETTE BELUSO,
Respondents.
August 17, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules


of Court, which seeks to annul the Court of Appeals Decision49[1] dated 21
January 2003 and its Resolution50[2] dated 9 September 2003 in CA-G.R. CV
No. 67318. The assailed Court of Appeals Decision and Resolution
affirmed in turn the Decision51[3] dated 23 March 2000 and Order52[4] dated 8
May 2000 of the Regional Trial Court (RTC), Branch 65 of Makati City, in
Civil Case No. 99-314, declaring void the interest rate provided in the
promissory notes executed by the respondents Spouses Samuel and Odette
Beluso (spouses Beluso) in favor of petitioner United Coconut Planters Bank
(UCPB).

The procedural and factual antecedents of this case are as follows:

On 16 April 1996, UCPB granted the spouses Beluso a Promissory


Notes Line under a Credit Agreement whereby the latter could avail from
the former credit of up to a maximum amount of P1.2 Million pesos for a
term ending on 30 April 1997. The spouses Beluso constituted, other than
their promissory notes, a real estate mortgage over parcels of land in Roxas
City, covered by Transfer Certificates of Title No. T-31539 and T-27828, as
additional security for the obligation. The Credit Agreement was
49
50
51
52
subsequently amended to increase the amount of the Promissory Notes Line
to a maximum of P2.35 Million pesos and to extend the term thereof to 28
February 1998.

The spouses Beluso availed themselves of the credit line under the
following Promissory Notes:

PN # Date of PN Maturity Date Amount Secured


8314-96-00083-3 29 April 1996 27 August 1996 P 700,000
8314-96-00085-0 2 May 1996 30 August 1996 P 500,000
8314-96-000292-2 20 November 1996 20 March 1997 P 800,000

The three promissory notes were renewed several times. On 30 April


1997, the payment of the principal and interest of the latter two promissory
notes were debited from the spouses Beluso’s account with UCPB; yet, a
consolidated loan for P1.3 Million was again released to the spouses Beluso
under one promissory note with a due date of 28 February 1998.

To completely avail themselves of the P2.35 Million credit line


extended to them by UCPB, the spouses Beluso executed two more
promissory notes for a total of P350,000.00:

PN # Date of PN Maturity Date Amount Secured


97-00363-1 11 December 1997 28 February 1998 P 200,000
98-00002-4 2 January 1998 28 February 1998 P 150,000

However, the spouses Beluso alleged that the amounts covered by these last
two promissory notes were never released or credited to their account and,
thus, claimed that the principal indebtedness was only P2 Million.
In any case, UCPB applied interest rates on the different promissory
notes ranging from 18% to 34%. From 1996 to February 1998 the spouses
Beluso were able to pay the total sum of P763,692.03.

From 28 February 1998 to 10 June 1998, UCPB continued to charge


interest and penalty on the obligations of the spouses Beluso, as follows:

PN # Amount Secured Interest Penalty Total


97-00363-1 P 200,000 31% 36% P 225,313.24
97-00366-6 P 700,000 30.17% 32.786% P 795,294.72
(7 days) (102 days)
97-00368-2 P 1,300,000 28% 30.41% P 1,462,124.54
(2 days) (102 days)
98-00002-4 P 150,000 33% 36% P 170,034.71
(102 days)

The spouses Beluso, however, failed to make any payment of the


foregoing amounts.

On 2 September 1998, UCPB demanded that the spouses Beluso pay


their total obligation of P2,932,543.00 plus 25% attorney’s fees, but the
spouses Beluso failed to comply therewith. On 28 December 1998, UCPB
foreclosed the properties mortgaged by the spouses Beluso to secure their
credit line, which, by that time, already ballooned to P3,784,603.00.

On 9 February 1999, the spouses Beluso filed a Petition for


Annulment, Accounting and Damages against UCPB with the RTC of
Makati City.
On 23 March 2000, the RTC ruled in favor of the spouses Beluso,
disposing of the case as follows:

PREMISES CONSIDERED, judgment is hereby rendered


declaring the interest rate used by [UCPB] void and the foreclosure and
Sheriff’s Certificate of Sale void. [UCPB] is hereby ordered to return to
[the spouses Beluso] the properties subject of the foreclosure; to pay [the
spouses Beluso] the amount of P50,000.00 by way of attorney’s fees; and
to pay the costs of suit. [The spouses Beluso] are hereby ordered to pay
[UCPB] the sum of P1,560,308.00.53[5]

On 8 May 2000, the RTC denied UCPB’s Motion for


Reconsideration,54[6] prompting UCPB to appeal the RTC Decision with the
Court of Appeals. The Court of Appeals affirmed the RTC Decision, to wit:

WHEREFORE, premises considered, the decision dated March 23,


2000 of the Regional Trial Court, Branch 65, Makati City in Civil Case
No. 99-314 is hereby AFFIRMED subject to the modification that
defendant-appellant UCPB is not liable for attorney’s fees or the costs of
suit.55[7]

On 9 September 2003, the Court of Appeals denied UCPB’s Motion


for Reconsideration for lack of merit. UCPB thus filed the present petition,
submitting the following issues for our resolution:

WHETHER OR NOT THE HONORABLE COURT OF APPEALS


COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT
AFFIRMED THE DECISION OF THE TRIAL COURT WHICH
DECLARED VOID THE PROVISION ON INTEREST RATE AGREED
UPON BETWEEN PETITIONER AND RESPONDENTS

53
54
55
II

WHETHER OR NOT THE HONORABLE COURT OF APPEALS


COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT
AFFIRMED THE COMPUTATION BY THE TRIAL COURT OF
RESPONDENTS’ INDEBTEDNESS AND ORDERED RESPONDENTS
TO PAY PETITIONER THE AMOUNT OF ONLY ONE MILLION FIVE
HUNDRED SIXTY THOUSAND THREE HUNDRED EIGHT PESOS
(P1,560,308.00)

III

WHETHER OR NOT THE HONORABLE COURT OF APPEALS


COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT
AFFIRMED THE DECISION OF THE TRIAL COURT WHICH
ANNULLED THE FORECLOSURE BY PETITIONER OF THE
SUBJECT PROPERTIES DUE TO AN ALLEGED “INCORRECT
COMPUTATION” OF RESPONDENTS’ INDEBTEDNESS

IV

WHETHER OR NOT THE HONORABLE COURT OF APPEALS


COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT
AFFIRMED THE DECISION OF THE TRIAL COURT WHICH FOUND
PETITIONER LIABLE FOR VIOLATION OF THE TRUTH IN
LENDING ACT

WHETHER OR NOT THE HONORABLE COURT OF APPEALS


COMMITTED SERIOUS AND REVERSIBLE ERROR WHEN IT
FAILED TO ORDER THE DISMISSAL OF THE CASE BECAUSE THE
RESPONDENTS ARE GUILTY OF FORUM SHOPPING56[8]

Validity of the Interest Rates

The Court of Appeals held that the imposition of interest in the


following provision found in the promissory notes of the spouses Beluso is
void, as the interest rates and the bases therefor were determined solely by
petitioner UCPB:
56
FOR VALUE RECEIVED, I, and/or We, on or before due date,
SPS. SAMUEL AND ODETTE BELUSO (BORROWER), jointly and
severally promise to pay to UNITED COCONUT PLANTERS BANK
(LENDER) or order at UCPB Bldg., Makati Avenue, Makati City,
Philippines, the sum of ______________ PESOS, (P_____), Philippine
Currency, with interest thereon at the rate indicative of DBD retail rate or
as determined by the Branch Head.57[9]

UCPB asserts that this is a reversible error, and claims that while the
interest rate was not numerically quantified in the face of the promissory
notes, it was nonetheless categorically fixed, at the time of execution
thereof, at the “rate indicative of the DBD retail rate.” UCPB contends that
said provision must be read with another stipulation in the promissory notes
subjecting to review the interest rate as fixed:

The interest rate shall be subject to review and may be increased or


decreased by the LENDER considering among others the prevailing
financial and monetary conditions; or the rate of interest and charges
which other banks or financial institutions charge or offer to charge for
similar accommodations; and/or the resulting profitability to the LENDER
after due consideration of all dealings with the BORROWER.58[10]

In this regard, UCPB avers that these are valid reference rates akin to
a “prevailing rate” or “prime rate” allowed by this Court in Polotan v. Court
of Appeals.59[11] Furthermore, UCPB argues that even if the proviso “as
determined by the branch head” is considered void, such a declaration would
not ipso facto render the connecting clause “indicative of DBD retail rate”
void in view of the separability clause of the Credit Agreement, which reads:

57
58
59
Section 9.08 Separability Clause. If any one or more of the
provisions contained in this AGREEMENT, or documents executed in
connection herewith shall be declared invalid, illegal or unenforceable in
any respect, the validity, legality and enforceability of the remaining
provisions hereof shall not in any way be affected or impaired.60[12]

According to UCPB, the imposition of the questioned interest rates


did not infringe on the principle of mutuality of contracts, because the
spouses Beluso had the liberty to choose whether or not to renew their credit
line at the new interest rates pegged by petitioner.61[13] UCPB also claims
that assuming there was any defect in the mutuality of the contract at the
time of its inception, such defect was cured by the subsequent conduct of the
spouses Beluso in availing themselves of the credit line from April 1996 to
February 1998 without airing any protest with respect to the interest rates
imposed by UCPB. According to UCPB, therefore, the spouses Beluso are
in estoppel.62[14]

We agree with the Court of Appeals, and find no merit in the


contentions of UCPB.

Article 1308 of the Civil Code provides:

Art. 1308. The contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them.

We applied this provision in Philippine National Bank v. Court of


Appeals,63[15] where we held:

60
61
62
63
In order that obligations arising from contracts may have the force
of law between the parties, there must be mutuality between the parties
based on their essential equality. A contract containing a condition which
makes its fulfillment dependent exclusively upon the uncontrolled will of
one of the contracting parties, is void (Garcia vs. Rita Legarda, Inc., 21
SCRA 555). Hence, even assuming that the P1.8 million loan agreement
between the PNB and the private respondent gave the PNB a license
(although in fact there was none) to increase the interest rate at will during
the term of the loan, that license would have been null and void for being
violative of the principle of mutuality essential in contracts. It would have
invested the loan agreement with the character of a contract of adhesion,
where the parties do not bargain on equal footing, the weaker party's (the
debtor) participation being reduced to the alternative "to take it or leave it"
(Qua vs. Law Union & Rock Insurance Co., 95 Phil. 85). Such a contract is
a veritable trap for the weaker party whom the courts of justice must
protect against abuse and imposition.

The provision stating that the interest shall be at the “rate indicative of
DBD retail rate or as determined by the Branch Head” is indeed dependent
solely on the will of petitioner UCPB. Under such provision, petitioner
UCPB has two choices on what the interest rate shall be: (1) a rate indicative
of the DBD retail rate; or (2) a rate as determined by the Branch Head. As
UCPB is given this choice, the rate should be categorically determinable in
both choices. If either of these two choices presents an opportunity for
UCPB to fix the rate at will, the bank can easily choose such an option, thus
making the entire interest rate provision violative of the principle of
mutuality of contracts.

Not just one, but rather both, of these choices are dependent solely on
the will of UCPB. Clearly, a rate “as determined by the Branch Head” gives
the latter unfettered discretion on what the rate may be. The Branch Head
may choose any rate he or she desires. As regards the rate “indicative of the
DBD retail rate,” the same cannot be considered as valid for being akin to a
“prevailing rate” or “prime rate” allowed by this Court in Polotan. The
interest rate in Polotan reads:

The Cardholder agrees to pay interest per annum at 3% plus the prime rate
of Security Bank and Trust Company. x x x.64[16]

In this provision in Polotan, there is a fixed margin over the reference rate:
3%. Thus, the parties can easily determine the interest rate by applying
simple arithmetic. On the other hand, the provision in the case at bar does
not specify any margin above or below the DBD retail rate. UCPB can peg
the interest at any percentage above or below the DBD retail rate, again
giving it unfettered discretion in determining the interest rate.

The stipulation in the promissory notes subjecting the interest rate to


review does not render the imposition by UCPB of interest rates on the
obligations of the spouses Beluso valid. According to said stipulation:

The interest rate shall be subject to review and may be increased or


decreased by the LENDER considering among others the prevailing
financial and monetary conditions; or the rate of interest and charges
which other banks or financial institutions charge or offer to charge for
similar accommodations; and/or the resulting profitability to the LENDER
after due consideration of all dealings with the BORROWER.65[17]

It should be pointed out that the authority to review the interest rate was
given UCPB alone as the lender. Moreover, UCPB may apply the
considerations enumerated in this provision as it wishes. As worded in the
above provision, UCPB may give as much weight as it desires to each of the
64
65
following considerations: (1) the prevailing financial and monetary
condition; (2) the rate of interest and charges which other banks or financial
institutions charge or offer to charge for similar accommodations; and/or (3)
the resulting profitability to the LENDER (UCPB) after due consideration of
all dealings with the BORROWER (the spouses Beluso). Again, as in the
case of the interest rate provision, there is no fixed margin above or below
these considerations.

In view of the foregoing, the Separability Clause cannot save either of


the two options of UCPB as to the interest to be imposed, as both options
violate the principle of mutuality of contracts.

UCPB likewise failed to convince us that the spouses Beluso were in


estoppel.

Estoppel cannot be predicated on an illegal act. As between the


parties to a contract, validity cannot be given to it by estoppel if it is
prohibited by law or is against public policy.66[18]

The interest rate provisions in the case at bar are illegal not only
because of the provisions of the Civil Code on mutuality of contracts, but
also, as shall be discussed later, because they violate the Truth in Lending
Act. Not disclosing the true finance charges in connection with the
extensions of credit is, furthermore, a form of deception which we cannot
countenance. It is against the policy of the State as stated in the Truth in
Lending Act:
66
Sec. 2. Declaration of Policy. – It is hereby declared to be the
policy of the State to protect its citizens from a lack of awareness of the
true cost of credit to the user by assuring a full disclosure of such cost with
a view of preventing the uninformed use of credit to the detriment of the
national economy.67[19]

Moreover, while the spouses Beluso indeed agreed to renew the credit
line, the offending provisions are found in the promissory notes themselves,
not in the credit line. In fixing the interest rates in the promissory notes to
cover the renewed credit line, UCPB still reserved to itself the same two
options – (1) a rate indicative of the DBD retail rate; or (2) a rate as
determined by the Branch Head.

Error in Computation

UCPB asserts that while both the RTC and the Court of Appeals
voided the interest rates imposed by UCPB, both failed to include in their
computation of the outstanding obligation of the spouses Beluso the legal
rate of interest of 12% per annum. Furthermore, the penalty charges were
also deleted in the decisions of the RTC and the Court of Appeals. Section
2.04, Article II on “Interest and other Bank Charges” of the subject Credit
Agreement, provides:

Section 2.04 Penalty Charges. In addition to the interest provided


for in Section 2.01 of this ARTICLE, any principal obligation of the
CLIENT hereunder which is not paid when due shall be subject to a
penalty charge of one percent (1%) of the amount of such obligation per
month computed from due date until the obligation is paid in full. If the
bank accelerates teh (sic) payment of availments hereunder pursuant to
ARTICLE VIII hereof, the penalty charge shall be used on the total
67
principal amount outstanding and unpaid computed from the date of
acceleration until the obligation is paid in full.68[20]

Paragraph 4 of the promissory notes also states:

In case of non-payment of this Promissory Note (Note) at


maturity, I/We, jointly and severally, agree to pay an additional sum
equivalent to twenty-five percent (25%) of the total due on the Note as
attorney’s fee, aside from the expenses and costs of collection whether
actually incurred or not, and a penalty charge of one percent (1%) per
month on the total amount due and unpaid from date of default until fully
paid.69[21]

Petitioner further claims that it is likewise entitled to attorney’s fees,


pursuant to Section 9.06 of the Credit Agreement, thus:

If the BANK shall require the services of counsel for the


enforcement of its rights under this AGREEMENT, the Note(s), the
collaterals and other related documents, the BANK shall be entitled to
recover attorney’s fees equivalent to not less than twenty-five percent
(25%) of the total amounts due and outstanding exclusive of costs and
other expenses.70[22]

Another alleged computational error pointed out by UCPB is the


negation of the Compounding Interest agreed upon by the parties under
Section 2.02 of the Credit Agreement:

Section 2.02 Compounding Interest. Interest not paid when due shall
form part of the principal and shall be subject to the same interest rate as
herein stipulated.71[23]

and paragraph 3 of the subject promissory notes:


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69
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Interest not paid when due shall be added to, and become part of the
principal and shall likewise bear interest at the same rate.72[24]

UCPB lastly avers that the application of the spouses Beluso’s


payments in the disputed computation does not reflect the parties’
agreement. The RTC deducted the payment made by the spouses Beluso
amounting to P763,693.00 from the principal of P2,350,000.00. This was
allegedly inconsistent with the Credit Agreement, as well as with the
agreement of the parties as to the facts of the case. In paragraph 7 of the
spouses Beluso’s Manifestation and Motion on Proposed Stipulation of
Facts and Issues vis-à-vis UCPB’s Manifestation, the parties agreed that the
amount of P763,693.00 was applied to the interest and not to the principal,
in accord with Section 3.03, Article II of the Credit Agreement on “Order of
the Application of Payments,” which provides:

Section 3.03 Application of Payment. Payments made by the


CLIENT shall be applied in accordance with the following order of
preference:

1. Accounts receivable and other out-of-pocket expenses


2. Front-end Fee, Origination Fee, Attorney’s Fee and other
expenses of collection;
3. Penalty charges;
4. Past due interest;
5. Principal amortization/Payment in arrears;
6. Advance interest;
7. Outstanding balance; and
8. All other obligations of CLIENT to the BANK, if any.73[25]

Thus, according to UCPB, the interest charges, penalty charges, and


attorney’s fees had been erroneously excluded by the RTC and the Court of
72
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Appeals from the computation of the total amount due and demandable from
spouses Beluso.

The spouses Beluso’s defense as to all these issues is that the demand
made by UCPB is for a considerably bigger amount and, therefore, the
demand should be considered void. There being no valid demand, according
to the spouses Beluso, there would be no default, and therefore the interests
and penalties would not commence to run. As it was likewise improper to
foreclose the mortgaged properties or file a case against the spouses Beluso,
attorney’s fees were not warranted.

We agree with UCPB on this score. Default commences upon


judicial or extrajudicial demand.74[26] The excess amount in such a demand
does not nullify the demand itself, which is valid with respect to the proper
amount. A contrary ruling would put commercial transactions in disarray, as
validity of demands would be dependent on the exactness of the
computations thereof, which are too often contested.

There being a valid demand on the part of UCPB, albeit excessive, the
spouses Beluso are considered in default with respect to the proper amount
and, therefore, the interests and the penalties began to run at that point.

As regards the award of 12% legal interest in favor of petitioner, the


RTC actually recognized that said legal interest should be imposed, thus:
“There being no valid stipulation as to interest, the legal rate of interest shall

74
be charged.”75[27] It seems that the RTC inadvertently overlooked its non-
inclusion in its computation.

The spouses Beluso had even originally asked for the RTC to impose
this legal rate of interest in both the body and the prayer of its petition with
the RTC:

12. Since the provision on the fixing of the rate of interest by the
sole will of the respondent Bank is null and void, only the legal rate of
interest which is 12% per annum can be legally charged and imposed by
the bank, which would amount to only about P599,000.00 since 1996 up
to August 31, 1998.

xxxx

WHEREFORE, in view of the foregoing, petiitoners pray for


judgment or order:

xxxx

2. By way of example for the public good against the Bank’s taking
unfair advantage of the weaker party to their contract, declaring the legal
rate of 12% per annum, as the imposable rate of interest up to February 28,
1999 on the loan of 2.350 million.76[28]

All these show that the spouses Beluso had acknowledged before the RTC
their obligation to pay a 12% legal interest on their loans. When the RTC
failed to include the 12% legal interest in its computation, however, the
spouses Beluso merely defended in the appellate courts this non-inclusion,
as the same was beneficial to them. We see, however, sufficient basis to
impose a 12% legal interest in favor of petitioner in the case at bar, as what

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we have voided is merely the stipulated rate of interest and not the
stipulation that the loan shall earn interest.

We must likewise uphold the contract stipulation providing the


compounding of interest. The provisions in the Credit Agreement and in the
promissory notes providing for the compounding of interest were neither
nullified by the RTC or the Court of Appeals, nor assailed by the spouses
Beluso in their petition with the RTC. The compounding of interests has
furthermore been declared by this Court to be legal. We have held in Tan v.
Court of Appeals,77[29] that:

Without prejudice to the provisions of Article 2212, interest due


and unpaid shall not earn interest. However, the contracting parties
may by stipulation capitalize the interest due and unpaid, which as
added principal, shall earn new interest.

As regards the imposition of penalties, however, although we are


likewise upholding the imposition thereof in the contract, we find the rate
iniquitous. Like in the case of grossly excessive interests, the penalty
stipulated in the contract may also be reduced by the courts if it is iniquitous
or unconscionable.78[30]

We find the penalty imposed by UCPB, ranging from 30.41% to 36%,


to be iniquitous considering the fact that this penalty is already over and
above the compounded interest likewise imposed in the contract. If a 36%
interest in itself has been declared unconscionable by this Court,79[31] what

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more a 30.41% to 36% penalty, over and above the payment of compounded
interest? UCPB itself must have realized this, as it gave us a sample
computation of the spouses Beluso’s obligation if both the interest and the
penalty charge are reduced to 12%.

As regards the attorney’s fees, the spouses Beluso can actually be


liable therefor even if there had been no demand. Filing a case in court is
the judicial demand referred to in Article 116980[32] of the Civil Code, which
would put the obligor in delay.

The RTC, however, also held UCPB liable for attorney’s fees in this
case, as the spouses Beluso were forced to litigate the issue on the illegality
of the interest rate provision of the promissory notes. The award of
attorney’s fees, it must be recalled, falls under the sound discretion of the
court.81[33] Since both parties were forced to litigate to protect their
respective rights, and both are entitled to the award of attorney’s fees from
the other, practical reasons dictate that we set off or compensate both
parties’ liabilities for attorney’s fees. Therefore, instead of awarding
attorney’s fees in favor of petitioner, we shall merely affirm the deletion of
the award of attorney’s fees to the spouses Beluso.

In sum, we hold that spouses Beluso should still be held liable for a
compounded legal interest of 12% per annum and a penalty charge of 12%
per annum. We also hold that, instead of awarding attorney’s fees in favor

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81
of petitioner, we shall merely affirm the deletion of the award of attorney’s
fees to the spouses Beluso.

Annulment of the Foreclosure Sale

Properties of spouses Beluso had been foreclosed, titles to which had


already been consolidated on 19 February 2001 and 20 March 2001 in the
name of UCPB, as the spouses Beluso failed to exercise their right of
redemption which expired on 25 March 2000. The RTC, however, annulled
the foreclosure of mortgage based on an alleged incorrect computation of the
spouses Beluso’s indebtedness.

UCPB alleges that none of the grounds for the annulment of a


foreclosure sale are present in the case at bar. Furthermore, the annulment of
the foreclosure proceedings and the certificates of sale were mooted by the
subsequent issuance of new certificates of title in the name of said bank.
UCPB claims that the spouses Beluso’s action for annulment of foreclosure
constitutes a collateral attack on its certificates of title, an act proscribed by
Section 48 of Presidential Decree No. 1529, otherwise known as the Property
Registration Decree, which provides:

Section 48. Certificate not subject to collateral attack. – A


certificate of title shall not be subject to collateral attack. It cannot be
altered, modified or cancelled except in a direct proceeding in accordance
with law.

The spouses Beluso retort that since they had the right to refuse
payment of an excessive demand on their account, they cannot be said to be
in default for refusing to pay the same. Consequently, according to the
spouses Beluso, the “enforcement of such illegal and overcharged demand
through foreclosure of mortgage” should be voided.

We agree with UCPB and affirm the validity of the foreclosure


proceedings. Since we already found that a valid demand was made by
UCPB upon the spouses Beluso, despite being excessive, the spouses Beluso
are considered in default with respect to the proper amount of their
obligation to UCPB and, thus, the property they mortgaged to secure such
amounts may be foreclosed. Consequently, proceeds of the foreclosure sale
should be applied to the extent of the amounts to which UCPB is rightfully
entitled.

As argued by UCPB, none of the grounds for the annulment of a


foreclosure sale are present in this case. The grounds for the proper
annulment of the foreclosure sale are the following: (1) that there was fraud,
collusion, accident, mutual mistake, breach of trust or misconduct by the
purchaser; (2) that the sale had not been fairly and regularly conducted; or
(3) that the price was inadequate and the inadequacy was so great as to
shock the conscience of the court.82[34]

Liability for Violation of Truth in Lending Act

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The RTC, affirmed by the Court of Appeals, imposed a fine of
P26,000.00 for UCPB’s alleged violation of Republic Act No. 3765,
otherwise known as the Truth in Lending Act.

UCPB challenges this imposition, on the argument that Section 6(a) of


the Truth in Lending Act which mandates the filing of an action to recover
such penalty must be made under the following circumstances:

Section 6. (a) Any creditor who in connection with any credit


transaction fails to disclose to any person any information in violation of
this Act or any regulation issued thereunder shall be liable to such person
in the amount of P100 or in an amount equal to twice the finance charge
required by such creditor in connection with such transaction, whichever
is greater, except that such liability shall not exceed P2,000 on any credit
transaction. Action to recover such penalty may be brought by such
person within one year from the date of the occurrence of the
violation, in any court of competent jurisdiction. x x x (Emphasis
ours.)

According to UCPB, the Court of Appeals even stated that


“[a]dmittedly the original complaint did not explicitly allege a violation of
the ‘Truth in Lending Act’ and no action to formally admit the amended
petition [which expressly alleges violation of the Truth in Lending Act] was
made either by [respondents] spouses Beluso and the lower court. x x
x.”83[35]

UCPB further claims that the action to recover the penalty for the
violation of the Truth in Lending Act had been barred by the one-year
prescriptive period provided for in the Act. UCPB asserts that per the
records of the case, the latest of the subject promissory notes had been

83
executed on 2 January 1998, but the original petition of the spouses Beluso
was filed before the RTC on 9 February 1999, which was after the expiration
of the period to file the same on 2 January 1999.

On the matter of allegation of the violation of the Truth in Lending


Act, the Court of Appeals ruled:

Admittedly the original complaint did not explicitly allege a


violation of the ‘Truth in Lending Act’ and no action to formally admit the
amended petition was made either by [respondents] spouses Beluso and
the lower court. In such transactions, the debtor and the lending
institutions do not deal on an equal footing and this law was intended to
protect the public from hidden or undisclosed charges on their loan
obligations, requiring a full disclosure thereof by the lender. We find that
its infringement may be inferred or implied from allegations that when
[respondents] spouses Beluso executed the promissory notes, the interest
rate chargeable thereon were left blank. Thus, [petitioner] UCPB failed to
discharge its duty to disclose in full to [respondents] Spouses Beluso the
charges applicable on their loans.84[36]

We agree with the Court of Appeals. The allegations in the


complaint, much more than the title thereof, are controlling. Other than that
stated by the Court of Appeals, we find that the allegation of violation of the
Truth in Lending Act can also be inferred from the same allegation in the
complaint we discussed earlier:

b.) In unilaterally imposing an increased interest rates (sic)


respondent bank has relied on the provision of their promissory note
granting respondent bank the power to unilaterally fix the interest rates,
which rate was not determined in the promissory note but was left solely
to the will of the Branch Head of the respondent Bank, x x x.85[37]

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The allegation that the promissory notes grant UCPB the power to
unilaterally fix the interest rates certainly also means that the promissory
notes do not contain a “clear statement in writing” of “(6) the finance charge
expressed in terms of pesos and centavos; and (7) the percentage that the
finance charge bears to the amount to be financed expressed as a simple
annual rate on the outstanding unpaid balance of the obligation.”86[38]
Furthermore, the spouses Beluso’s prayer “for such other reliefs just and
equitable in the premises” should be deemed to include the civil penalty
provided for in Section 6(a) of the Truth in Lending Act.

UCPB’s contention that this action to recover the penalty for the
violation of the Truth in Lending Act has already prescribed is likewise
without merit. The penalty for the violation of the act is P100 or an amount
equal to twice the finance charge required by such creditor in connection
with such transaction, whichever is greater, except that such liability shall
not exceed P2,000.00 on any credit transaction.87[39] As this penalty depends
on the finance charge required of the borrower, the borrower’s cause of
action would only accrue when such finance charge is required. In the case
at bar, the date of the demand for payment of the finance charge is 2
September 1998, while the foreclosure was made on 28 December 1998.
The filing of the case on 9 February 1999 is therefore within the one-year
prescriptive period.

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UCPB argues that a violation of the Truth in Lending Act, being a
criminal offense, cannot be inferred nor implied from the allegations made
in the complaint.88[40] Pertinent provisions of the Act read:

Sec. 6. (a) Any creditor who in connection with any credit


transaction fails to disclose to any person any information in violation of
this Act or any regulation issued thereunder shall be liable to such person
in the amount of P100 or in an amount equal to twice the finance charge
required by such creditor in connection with such transaction, whichever
is the greater, except that such liability shall not exceed P2,000 on any
credit transaction. Action to recover such penalty may be brought by such
person within one year from the date of the occurrence of the violation, in
any court of competent jurisdiction. In any action under this subsection in
which any person is entitled to a recovery, the creditor shall be liable for
reasonable attorney’s fees and court costs as determined by the court.

xxxx

(c) Any person who willfully violates any


provision of this Act or any regulation issued thereunder shall be fined by
not less than P1,000 or more than P5,000 or imprisonment for not less than
6 months, nor more than one year or both.

As can be gleaned from Section 6(a) and (c) of the Truth in Lending Act, the
violation of the said Act gives rise to both criminal and civil liabilities.
Section 6(c) considers a criminal offense the willful violation of the Act,
imposing the penalty therefor of fine, imprisonment or both. Section 6(a),
on the other hand, clearly provides for a civil cause of action for failure to
disclose any information of the required information to any person in
violation of the Act. The penalty therefor is an amount of P100 or in an
amount equal to twice the finance charge required by the creditor in
connection with such transaction, whichever is greater, except that the
liability shall not exceed P2,000.00 on any credit transaction. The action to

88
recover such penalty may be instituted by the aggrieved private person
separately and independently from the criminal case for the same offense.

In the case at bar, therefore, the civil action to recover the penalty
under Section 6(a) of the Truth in Lending Act had been jointly instituted
with (1) the action to declare the interests in the promissory notes void, and
(2) the action to declare the foreclosure void. This joinder is allowed under
Rule 2, Section 5 of the Rules of Court, which provides:

SEC. 5. Joinder of causes of action.—A party may in one pleading


assert, in the alternative or otherwise, as many causes of action as he may
have against an opposing party, subject to the following conditions:
(a) The party joining the causes of action shall comply with the
rules on joinder of parties;
(b) The joinder shall not include special civil actions or actions
governed by special rules;
(c) Where the causes of action are between the same parties but
pertain to different venues or jurisdictions, the joinder may be allowed in
the Regional Trial Court provided one of the causes of action falls within
the jurisdiction of said court and the venue lies therein; and
(d) Where the claims in all the causes of action are principally
for recovery of money, the aggregate amount claimed shall be the test of
jurisdiction.

In attacking the RTC’s disposition on the violation of the Truth in


Lending Act since the same was not alleged in the complaint, UCPB is
actually asserting a violation of due process. Indeed, due process mandates
that a defendant should be sufficiently apprised of the matters he or she
would be defending himself or herself against. However, in the 1 July 1999
pre-trial brief filed by the spouses Beluso before the RTC, the claim for civil
sanctions for violation of the Truth in Lending Act was expressly alleged,
thus:

Moreover, since from the start, respondent bank violated the Truth in
Lending Act in not informing the borrower in writing before the execution
of the Promissory Notes of the interest rate expressed as a percentage of
the total loan, the respondent bank instead is liable to pay petitioners
double the amount the bank is charging petitioners by way of sanction for
its violation.89[41]

In the same pre-trial brief, the spouses Beluso also expressly raised
the following issue:

b.) Does the expression indicative rate of DBD retail (sic) comply
with the Truth in Lending Act provision to express the interest rate as a
simple annual percentage of the loan?90[42]

These assertions are so clear and unequivocal that any attempt of


UCPB to feign ignorance of the assertion of this issue in this case as to
prevent it from putting up a defense thereto is plainly hogwash.

Petitioner further posits that it is the Metropolitan Trial Court which


has jurisdiction to try and adjudicate the alleged violation of the Truth in
Lending Act, considering that the present action allegedly involved a single
credit transaction as there was only one Promissory Note Line.

We disagree. We have already ruled that the action to recover the


penalty under Section 6(a) of the Truth in Lending Act had been jointly
instituted with (1) the action to declare the interests in the promissory notes
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90
void, and (2) the action to declare the foreclosure void. There had been no
question that the above actions belong to the jurisdiction of the RTC.
Subsection (c) of the above-quoted Section 5 of the Rules of Court on
Joinder of Causes of Action provides:

(c) Where the causes of action are between the same parties but
pertain to different venues or jurisdictions, the joinder may be allowed in
the Regional Trial Court provided one of the causes of action falls within
the jurisdiction of said court and the venue lies therein.

Furthermore, opening a credit line does not create a credit transaction


of loan or mutuum, since the former is merely a preparatory contract to the
contract of loan or mutuum. Under such credit line, the bank is merely
obliged, for the considerations specified therefor, to lend to the other party
amounts not exceeding the limit provided. The credit transaction thus
occurred not when the credit line was opened, but rather when the credit line
was availed of. In the case at bar, the violation of the Truth in Lending Act
allegedly occurred not when the parties executed the Credit Agreement,
where no interest rate was mentioned, but when the parties executed the
promissory notes, where the allegedly offending interest rate was stipulated.

UCPB further argues that since the spouses Beluso were duly given
copies of the subject promissory notes after their execution, then they were
duly notified of the terms thereof, in substantial compliance with the Truth
in Lending Act.
Once more, we disagree. Section 4 of the Truth in Lending Act
clearly provides that the disclosure statement must be furnished prior to the
consummation of the transaction:

SEC. 4. Any creditor shall furnish to each person to whom credit is


extended, prior to the consummation of the transaction, a clear
statement in writing setting forth, to the extent applicable and in
accordance with rules and regulations prescribed by the Board, the
following information:

(1) the cash price or delivered price of the property or service to be


acquired;

(2) the amounts, if any, to be credited as down payment and/or


trade-in;

(3) the difference between the amounts set forth under clauses (1)
and (2)

(4) the charges, individually itemized, which are paid or to be paid


by such person in connection with the transaction but which are
not incident to the extension of credit;

(5) the total amount to be financed;

(6) the finance charge expressed in terms of pesos and centavos;


and

(7) the percentage that the finance bears to the total amount to be
financed expressed as a simple annual rate on the outstanding
unpaid balance of the obligation.

The rationale of this provision is to protect users of credit from a lack


of awareness of the true cost thereof, proceeding from the experience that
banks are able to conceal such true cost by hidden charges, uncertainty of
interest rates, deduction of interests from the loaned amount, and the like.
The law thereby seeks to protect debtors by permitting them to fully
appreciate the true cost of their loan, to enable them to give full consent to
the contract, and to properly evaluate their options in arriving at business
decisions. Upholding UCPB’s claim of substantial compliance would defeat
these purposes of the Truth in Lending Act. The belated discovery of the
true cost of credit will too often not be able to reverse the ill effects of an
already consummated business decision.

In addition, the promissory notes, the copies of which were presented


to the spouses Beluso after execution, are not sufficient notification from
UCPB. As earlier discussed, the interest rate provision therein does not
sufficiently indicate with particularity the interest rate to be applied to the
loan covered by said promissory notes.

Forum Shopping

UCPB had earlier moved to dismiss the petition (originally Case No.
99-314 in RTC, Makati City) on the ground that the spouses Beluso
instituted another case (Civil Case No. V-7227) before the RTC of Roxas
City, involving the same parties and issues. UCPB claims that while Civil
Case No. V-7227 initially appears to be a different action, as it prayed for
the issuance of a temporary restraining order and/or injunction to stop
foreclosure of spouses Beluso’s properties, it poses issues which are similar
to those of the present case.91[43] To prove its point, UCPB cited the spouses
Beluso’s Amended Petition in Civil Case No. V-7227, which contains
similar allegations as those in the present case. The RTC of Makati denied
UCPB’s Motion to Dismiss Case No. 99-314 for lack of merit. Petitioner

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UCPB raised the same issue with the Court of Appeals, and is raising the
same issue with us now.

The spouses Beluso claim that the issue in Civil Case No. V-7227
before the RTC of Roxas City, a Petition for Injunction Against Foreclosure,
is the propriety of the foreclosure before the true account of spouses Beluso
is determined. On the other hand, the issue in Case No. 99-314 before the
RTC of Makati City is the validity of the interest rate provision. The
spouses Beluso claim that Civil Case No. V-7227 has become moot because,
before the RTC of Roxas City could act on the restraining order, UCPB
proceeded with the foreclosure and auction sale. As the act sought to be
restrained by Civil Case No. V-7227 has already been accomplished, the
spouses Beluso had to file a different action, that of Annulment of the
Foreclosure Sale, Case No. 99-314 with the RTC, Makati City.

Even if we assume for the sake of argument, however, that only one
cause of action is involved in the two civil actions, namely, the violation of
the right of the spouses Beluso not to have their property foreclosed for an
amount they do not owe, the Rules of Court nevertheless allows the filing of
the second action. Civil Case No. V-7227 was dismissed by the RTC of
Roxas City before the filing of Case No. 99-314 with the RTC of Makati
City, since the venue of litigation as provided for in the Credit Agreement is
in Makati City.

Rule 16, Section 5 bars the refiling of an action previously dismissed


only in the following instances:
SEC. 5. Effect of dismissal.—Subject to the right of appeal, an
order granting a motion to dismiss based on paragraphs (f), (h) and (i) of
section 1 hereof shall bar the refiling of the same action or claim. (n)

Improper venue as a ground for the dismissal of an action is found in


paragraph (c) of Section 1, not in paragraphs (f), (h) and (i):

SECTION 1. Grounds.—Within the time for but before filing the


answer to the complaint or pleading asserting a claim, a motion to dismiss
may be made on any of the following grounds:

(a) That the court has no jurisdiction over the person of the
defending party;

(b) That the court has no jurisdiction over the subject matter of the
claim;

(c) That venue is improperly laid;

(d) That the plaintiff has no legal capacity to sue;

(e) That there is another action pending between the same parties
for the same cause;

(f) That the cause of action is barred by a prior judgment or by


the statute of limitations;

(g) That the pleading asserting the claim states no cause of action;

(h) That the claim or demand set forth in the plaintiff’s pleading
has been paid, waived, abandoned, or otherwise extinguished;

(i) That the claim on which the action is founded is


unenforceable under the provisions of the statute of frauds; and

(j) That a condition precedent for filing the claim has not been
complied with.92[44] (Emphases supplied.)

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When an action is dismissed on the motion of the other party, it is
only when the ground for the dismissal of an action is found in paragraphs
(f), (h) and (i) that the action cannot be refiled. As regards all the other
grounds, the complainant is allowed to file same action, but should take care
that, this time, it is filed with the proper court or after the accomplishment of
the erstwhile absent condition precedent, as the case may be.

UCPB, however, brings to the attention of this Court a Motion for


Reconsideration filed by the spouses Beluso on 15 January 1999 with the
RTC of Roxas City, which Motion had not yet been ruled upon when the
spouses Beluso filed Civil Case No. 99-314 with the RTC of Makati.
Hence, there were allegedly two pending actions between the same parties
on the same issue at the time of the filing of Civil Case No. 99-314 on 9
February 1999 with the RTC of Makati. This will still not change our
findings. It is indeed the general rule that in cases where there are two
pending actions between the same parties on the same issue, it should be the
later case that should be dismissed. However, this rule is not absolute.
According to this Court in Allied Banking Corporation v. Court of
Appeals93[45]:

In these cases, it is evident that the first action was filed in


anticipation of the filing of the later action and the purpose is to preempt
the later suit or provide a basis for seeking the dismissal of the second
action.

Even if this is not the purpose for the filing of the first action, it
may nevertheless be dismissed if the later action is the more
appropriate vehicle for the ventilation of the issues between the
parties. Thus, in Ramos v. Peralta, it was held:

93
[T]he rule on litis pendentia does not require that the
later case should yield to the earlier case. What is required
merely is that there be another pending action, not a prior
pending action. Considering the broader scope of inquiry
involved in Civil Case No. 4102 and the location of the
property involved, no error was committed by the lower
court in deferring to the Bataan court's jurisdiction.

Given, therefore, the pendency of two actions, the following are the
relevant considerations in determining which action should be dismissed:
(1) the date of filing, with preference generally given to the first action
filed to be retained; (2) whether the action sought to be dismissed was
filed merely to preempt the later action or to anticipate its filing and lay
the basis for its dismissal; and (3) whether the action is the appropriate
vehicle for litigating the issues between the parties.

In the case at bar, Civil Case No. V-7227 before the RTC of Roxas
City was an action for injunction against a foreclosure sale that has already
been held, while Civil Case No. 99-314 before the RTC of Makati City
includes an action for the annulment of said foreclosure, an action certainly
more proper in view of the execution of the foreclosure sale. The former
case was improperly filed in Roxas City, while the latter was filed in Makati
City, the proper venue of the action as mandated by the Credit Agreement.
It is evident, therefore, that Civil Case No. 99-314 is the more appropriate
vehicle for litigating the issues between the parties, as compared to Civil
Case No. V-7227. Thus, we rule that the RTC of Makati City was not in
error in not dismissing Civil Case No. 99-314.

WHEREFORE, the Decision of the Court of Appeals is hereby


AFFIRMED with the following MODIFICATIONS:
1. In addition to the sum of P2,350,000.00 as determined by the
courts a quo, respondent spouses Samuel and Odette Beluso are
also liable for the following amounts:
a. Penalty of 12% per annum on the amount due94[46] from the
date of demand; and
b. Compounded legal interest of 12% per annum on the amount
due95[47] from date of demand;
2. The following amounts shall be deducted from the liability of
the spouses Samuel and Odette Beluso:
a. Payments made by the spouses in the amount of
P763,692.00. These payments shall be applied to the date
of actual payment of the following in the order that they
are listed, to wit:
i. penalty charges due and demandable as of the time of
payment;
ii. interest due and demandable as of the time of
payment;
iii. principal amortization/payment in arrears as of the
time of payment;
iv. outstanding balance.
b. Penalty under Republic Act No. 3765 in the amount of

P26,000.00. This amount shall be deducted from the


liability of the spouses Samuel and Odette Beluso on 9
February 1999 to the following in the order that they are
listed, to wit:

94
95
i. penalty charges due and demandable as of time of
payment;
ii. interest due and demandable as of the time of
payment;
iii. principal amortization/payment in arrears as of the
time of payment;
iv. outstanding balance.
2. The foreclosure of mortgage is hereby declared VALID.
Consequently, the amounts which the Regional Trial Court and
the Court of Appeals ordered respondents to pay, as modified in
this Decision, shall be deducted from the proceeds of the
foreclosure sale.

SO ORDERED.

DIVISION

FIL-ESTATE PROPERTIES, INC.,


Petitioner, G.R. No. 165164
Present:

QUISUMBING, J., Chairperson,


CARPIO,
- versus - CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
SPOUSES GONZALO and Promulgated:
CONSUELO GO,
Respondents. August 17, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

RESOLUTION

QUISUMBING, J.:

For review on certiorari are the Decision96[1] dated June 9, 2004 of the
Court of Appeals in CA-G.R. SP No. 79624, and its Resolution97[2] dated
August 3, 2004, denying the motion for reconsideration.

The basic facts in this case are undisputed.

On December 29, 1995, petitioner Fil-Estate Properties, Inc. (Fil-Estate)


entered into a contract to sell a condominium unit to respondent spouses
Gonzalo and Consuelo Go at “Eight Sto. Domingo Place,” a condominium
project of petitioner located on Sto. Domingo Avenue, Quezon City. The
spouses paid a total of P3,439,000.07 of the full contract price set at
P3,620,000.00.

Because petitioner failed to develop the condominium project, on


August 4, 1999, the spouses demanded the refund of the amount they paid,
plus interest. When petitioner did not refund the spouses, the latter filed a
complaint against petitioner for reimbursement of P3,620,000 representing
the lump sum price of the condominium unit, plus interest, P100,000

96
97
attorney’s fees, and expenses of litigation before the Housing and Land Use
Regulatory Board (HLURB).

In answer, petitioner claimed that respondents had no cause of action


since the delay in the construction of the condominium was caused by the
financial crisis that hit the Asian region, a fortuitous event over which
petitioner had no control.

On July 18, 2000, the HLURB Regional Director approved the


decision of the Housing and Land Use Arbiter in favor of the spouses Go.
The HLURB ratiocinated that the Asian financial crisis that resulted in the
depreciation of the peso is not a fortuitous event as any fluctuation in the
value of the peso is a daily occurrence which is foreseeable and its
deleterious effects avoided by economic measures. The HLURB went on to
say that when petitioner discontinued the development of its condominium
project, it failed to fulfill its contractual obligations to the spouses. And
following Article 147598[3] of the Civil Code, upon perfection of the contract,
the parties, here the spouses Go, may demand performance. And under
Article 119199[4] of the same code, should one of the parties, in this instance
Fil-Estate, fail to comply with the obligation, the aggrieved party may
choose between fulfillment or rescission of the obligation, with damages in
either case. Inasmuch as Fil-Estate could no longer fulfill its obligation, the
spouses Go may ask for rescission of the contract with damages. The
dispositive portion of the decision reads:

98
99
WHEREFORE, the foregoing considered, judgment is hereby
rendered as follows:

1. Ordering the respondent, Fil-Estate Properties, Inc., to refund to


the complainants, P3,439,000.07 (the amount proved) plus 12% interest thereon
reckoned from 09 August 1999 (the date the respondent received the demand
letter) until the same is fully paid.

2. Ordering the respondent to pay to the complainants P25,000.00


attorney’s fees as and by way of damages.

All other claims and counterclaims are dismissed.

IT IS SO ORDERED.100[5]

The Board of Commissioners of the HLURB denied petitioner’s


petition for review and consequent motion for reconsideration.101[6] The
Office of the President dismissed petitioner’s appeal and denied its motion
for reconsideration.102[7]

On appeal, asserting that both the HLURB and the Office of the
President committed reversible errors, Fil-Estate asked the Court of Appeals
to set aside the orders it is appealing.

The Court of Appeals affirmed the actions taken by the HLURB and
the Office of the President and declared that the Asian financial crisis could
not be considered a fortuitous event and that respondents’ right is provided
for in Section 23103[8] of Presidential Decree (P.D.) No. 957, otherwise
known as “The Subdivision and Condominium Buyers’ Protective Decree.”
The appellate court also noted that there was yet no crisis in 1995 and 1996
when the project should have been started, and petitioner cannot blame the
100
101
102
103
1997 crisis for failure of the project, nor for even not starting it, because the
project should have been completed by 1997.

The appellate court denied petitioner’s motion for reconsideration.

Hence, this petition raising two issues for our resolution as follows:

I.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING


THAT THE ASIAN FINANCIAL CRISIS IS NOT A FORTUITOUS
EVENT THAT WOULD EXCUSE THE DELIVERY BY PETITIONER
OF THE SUBJECT CONDOMINIUM UNIT TO RESPONDENTS.

II.

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING


PETITIONER LIABLE FOR THE PAYMENT OF ATTORNEY’S
FEES.104[9]

On the first issue, did the Court of Appeals err in ruling that the Asian
financial crisis was not a fortuitous event?

Petitioner, citing Article 1174105[10] of the Civil Code, argues that the
Asian financial crisis was a fortuitous event being unforeseen or inevitable.
Petitioner likewise cites Servando v. Philippine Steam Navigation Co.,106[11]
to bolster its case. Petitioner explains that the extreme economic exigency
and extraordinary currency fluctuations could not have been reasonably
foreseen and were beyond the contemplation of both parties when they
entered the contract. Petitioner further asserts that the resultant economic
collapse of the real estate industry was unforeseen by the whole Asia and if
104
105
106
it was indeed foreseeable, then all those engaged in the real estate business
should have foreseen the impending fiasco. Petitioner adds that it had not
committed any fraud; that it had all the required government permits; and
that it had not abandoned the project but only suspended the work. It also
admits its obligation to complete the project. It says that it had in fact asked
the HLURB for extension to complete it.107[12]

In their Comment, respondents submit that the instant petition be


rejected outright for the reason that petitioner has not raised any question of
law in the instant petition. The questions of whether or not the Asian
financial crisis is a fortuitous event, and whether or not attorney’s fees
should be granted, are questions of facts which the Court of Appeals
recognized as such.

Respondent spouses reiterate that contrary to what petitioner avers,


the delay in the construction of the building was not attributable to the Asian
financial crisis which happened in 1997108[13] because petitioner did not even
start the project in 1995 when it should have done, so that it could have
finished it in 1997, as stipulated in the contract.

Preliminarily, respondents bring to the attention of this Court the


strange discrepancy in the dates of notarization of the Certification of Non-
Forum Shopping and the Affidavit of Service both notarized on September
24, 2004, while the Secretary’s Certification was notarized a day earlier on
September 23, 2004. However, we shall not delve into technicalities, but we
shall proceed with the resolution of the issues raised on the merits.

107
108
Indeed, the question of whether or not an event is fortuitous is a
question of fact. As a general rule, questions of fact may not be raised in a
petition for review for as long as there is no variance between the findings of
the lower court and the appellate court, as in this case where the HLURB,
the Office of the President, and the Court of Appeals were agreed on the
fact.

Worthy of note, in a previous case, Asian Construction and


Development Corporation v. Philippine Commercial International Bank,109
[14]
the Court had said that the 1997 financial crisis that ensued in Asia did
not constitute a valid justification to renege on obligations. We emphatically
stressed the same view in Mondragon Leisure and Resorts Corporation v.
Court of Appeals,110[15] that the Asian financial crisis in 1997 is not among
the fortuitous events contemplated under Article 1174 of the Civil Code.

Also, we cannot generalize that the Asian financial crisis in 1997 was
unforeseeable and beyond the control of a business corporation. It is
unfortunate that petitioner apparently met with considerable difficulty e.g.
increase cost of materials and labor, even before the scheduled
commencement of its real estate project as early as 1995. However, a real
estate enterprise engaged in the pre-selling of condominium units is
concededly a master in projections on commodities and currency movements
and business risks. The fluctuating movement of the Philippine peso in the
foreign exchange market is an everyday occurrence, and fluctuations in
currency exchange rates happen everyday, thus, not an instance of caso
fortuito.
109
110
Are respondents entitled to reimbursement of the amount paid, plus
interest and attorney’s fees?

Yes. Section 23 of P.D. No. 957 is clear on this point.

It will be noted that respondents sent a demand letter dated August 4,


1999 to Fil-Estate asking for the return of “the total amount paid including
amortization interests” and “legal interest due thereon.”111[16] The latter did
not respond favorably, and so the spouses filed a complaint demanding the
reimbursement of P3,620,000 representing the lump sum price of the
condominium unit with interest at the legal rate, and P100,000 attorney’s
fees. But the respondents actually sought the refund of P3,620,000.00, the
lump sum cost of the condominium, more than their actual payment of
P3,439,000.07. We are thus constrained to award only P3,439,000.07,
representing the sum of their actual payments plus amortization interests and
interest at legal rate which is 6% per annum from the date of demand on
August 4, 1999. We are not unaware that the appellate court pegged the
interest rate at 12% on the basis of Resolution No. R-421, Series of 1988 of
the HLURB. But, conformably with our ruling in Eastern Shipping Lines,
Inc. v. Court of Appeals,112[17] the award of 12% interest on the amount of
refund must be reduced to 6%.

Moreover, we are constrained to modify the Court of Appeals’ grant


of attorney’s fees from P25,000 to P100,000 as just and equitable since
respondents were compelled to secure the services of counsel over eight

111
112
years to protect their interest due to petitioner’s delay in the performance of
their clear obligation.

WHEREFORE, the petition is DENIED for lack of merit. Petitioner


is hereby ordered (1) to reimburse respondents P3,439,000.07 at 6% interest
starting August 4, 1999 until full payment, and (2) to pay respondents
P100,000.00 attorney’s fees. Costs against petitioner.

SO ORDERED.

UNIWIDE SALES, INC., G.R. No. 172454


Petitioner,
Present:

QUISUMBING, J., Chairperson,


CARPIO,
-versus-
CARPIO MORALES,
TINGA, and
VELASCO, JR., JJ.
MIRAFUENTE & NG, INC.,
Respondent.
Promulgated:

August 17, 2007

x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- - - - - - - - - - x

DECISION

CARPIO MORALES, J.:


Uniwide Sales, Inc. (petitioner) and Mirafuente and Ng, Inc.
(respondent), represented by Architect Robert Mirafuente, forged on
December 13, 1993 a “DESIGN SERVICES: ARCHITECTURAL
SERVICES AGREEMENT”113[1] (the agreement) whereby petitioner
engaged respondent “to plan and design the proposed UNIWIDE SALES
MALL” located at a 10-hectare lot along Roxas Boulevard, Parañaque for a
consideration of Two Million Five Hundred Thousand (P2,500,000) Pesos
“for Architectural Design Service only.” The pertinent portions of the
agreement read:

ARTICLE 1 SCOPE OF WORK

That the scope of work to be done by the Architect, as herein authorized


by the Owner, for the subject Project herein referred to consist of
professional services for the preparation, planning, design and
documentation for architectural drawings of the project. The work is
deemed ninety five percent (95%) complete upon submission of complete
working drawings and documents for construction. The last five percent
(5%) consist of task required during the construction phase as stipulated in
this contract.

xxxx

ARTICLE 2 ARCHITECT FEES AND MANNER OF PAYMENTS

• The Owner shall pay the Architect TWO MILLION FIVE


HUNDRED THOUSAND PESOS (P2,500,000.00) as compensation for the
Architectural Design Service only.

xxxx

• Payments of the Architectural Design Fee shall be made in


accordance with the following schedule:
113
Signing of this Agreement Ten percent (10%)

Schematic Design Phase Fifteen percent (15%)


Pro-rata to completed phase

Design Development Phase Thirty Five Percent (35%)


Pro-rata to completed phase

Construction Document Phase Thirty Five Percent (35%)


Pro-rata to completed phase

Construction Phase Five Percent (5%)


Pro-rata to contractor’s payment
_____________________________________________________
TOTAL One Hundred Percent 100%

• The Owner agrees to make partial payments during each of the various
stages of the Design Architect’s work upon his request, provided it is within the
framework of the schedule of payments outlined above.

xxxx

xxxx

ARTICLE 5 OTHER EXPENSES CHARGEABLE TO OWNER

xxxx

• Work Suspended or abandoned: If the work of the Architect is


abandoned or suspended, in whole or in part, due to causes not attributable to the
Architect, the Architect is to be paid by the Owner for services rendered
corresponding to the fees due on the stage of suspension or abandonment of work.

• Change Order by Owner: If changes occur after the final design has
been approved and confirmed, or changes and additions during construction, then
the Architect is to be paid by the Owner for additional services rendered
equivalent to six (6) percent of revised construction cost of the affected design
submitted by the Contractor concerned.

x x x x114[2] (Emphasis in the original; italics and underscoring supplied)

114
The agreement contained no provision within which respondent was
to accomplish its services.

By letter of August 16, 1995 signed by respondent’s Production


Manager Architect Leo Villamor and noted by Architect Mirafuente,
respondent submitted to petitioner, “Attn. Mr. Jimmy Gow, Chairman,”

xxxx

. . . copies of the Master Plans (e.g. Ground, Second and Third) of the
latest plans of above project showing all the changes we have agreed
including the changes made from last meeting with your interior design
group at City Garden Restaurants.115[3]

In the same letter, respondent informed that it had “submitted the


same plans together with the complete package of all Architectural plans (1
set) to Arch. Rene De Guzman on August 9, 1995 (TR# BS 00183) to cover
our Change Order.”

Petitioner, however, through its consultant Asian Technicon Managers


& Consultants, Inc., by letter of August 22, 1995 which was received on
August 23, 1995 by respondent, terminated the latter’s services. The notice
of termination reads:

Subject: THE COASTAL MALL PROJECT


NOTICE OF CONTRACT TERMINATION

1. Further to our verbal instruction given to you on 08 August 1995


that all your works be put on-hold, the Owner has finally decided to
115
stop all the works immediately and terminate your Consultancy
Services for the preparation, planning, design and documentation for
Architectural drawings of the Project.

2. We hereby serve this Notice of Termination with immediate effect


and the Owner will be very grateful to receive from you (if any) all
documents and data that have been developed for this project.

3. To properly close the contract, you are requested to submit your


final statement of account relative to this project. Your usual
cooperation is appreciated.116[4] (Emphasis and underscoring supplied )

Respondent thereafter sent petitioner a letter of September 18, 1995


following up its “billing amounting to FOUR HUNDRED THOUSAND
PESOS (P400,000.00) representing full payment for the Change Order
requested by Owner.” It also sent another letter of even date following up its
“billing amounting to FOUR HUNDRED THIRTY SEVEN THOUSAND
FIVE HUNDRED PESOS (P437,500.00) representing full payment for the
Construction Document Phase-Architectural Design Fee.”117[5] These letters
were telefaxed to petitioner on October 19, 1995.

As respondent’s demands were not acted upon by petitioner,


respondent, by letter of December 15, 1995, again demanded payment for its
services, particularly for the “Construction Document Phase” and for the
“Change Order,” in the amounts of P437,500 and P400,000, respectively.
Through its Chairman of the Board Jimmy Gow, petitioner replied by letter
of December 20, 1995 reading:

Dear Arch. Mirafuente:

116
117
I refer to your letter of December 15, 1995 demanding payment
from our firm of the amount of Eight Hundred Thirty Seven Thousand
Five Hundred Pesos (Php 837,500.00) for the Uniwide Coastal Mall
Project.
Please be advised that we are still in the process of reconciling
our records. We would, therefore, appreciate it if you can provide us with
the supporting documents for said amount.

We will revert to you as soon as we receive your inputs and our


records have been reconciled.

Thank you and may you have a Merry Christmas!118[6] (Emphasis


and underscoring supplied)

Its demands for the payment of its services having remained


unheeded, respondent filed on February 27, 1996 with the Regional Trial
Court (RTC) of Pasig a complaint for sum of money – P437,500
representing payment due on the “Construction Document Phase” of the
project, and P400,000 representing payment due on the “Change Order,”
plus interest thereon at the rate of 24% per annum from August 9, 1995 until
petitioner pays its obligation; attorney’s fees equivalent to 25% of the
amounts due and demandable; and costs of suit.119[7]

Branch 155 of the Pasig RTC found for respondent by Decision of


June 19, 2001, ordering petitioner to pay it the following:

1. PhP837,500.00 representing the total amount of unpaid architectural


fees owing to the plaintiff, plus legal interest of 6% per annum from the date of
extra-judicial demand until the finality of the herein Decision;

2. Peso equivalent of 25% of the amount due and collectible as and by


way of attorney’s fees; and,

118
119
3. The costs of suit.120[8]

On appeal, the Court of Appeals, by Decision of November 14,


2005,121[9] affirmed the trial court’s decision.

In affirming the trial court’s decision, the appellate court found that
respondent submitted to petitioner the complete and final set of architectural
designs, plans and specifications prior to the termination of its services,122[10]
but the termination appeared to be a mere ploy of petitioner to avoid its
obligation to pay respondent’s fees.123[11]

The appellate court went on to note that petitioner never presented any
proof showing that it was dissatisfied with respondent’s services,124[12] for if
it was, it could have, early on, terminated the same without waiting for
respondent to complete its undertakings under the agreement.

The appellate court even noted that at the time petitioner terminated
respondent’s services, the construction of the mall had already begun.125[13]

Hence, the present petition, petitioner faulting the appellate court:

1. . . . IN HOLDING THAT THE PETITIONER WAS NOT ABLE TO


SUFFICIENTLY PROVE ITS DEFENSE AGAINST THE CLAIM
OF THE RESPONDENT.
120
121
122
123
124
125
2. . . . IN HOLDING THAT THE RESPONDENT WAS ABLE TO
SUBMIT TO THE PETITIONER THE COMPLETE AND FINAL
SET OF ARCHITECTURAL DESIGNS, PLANS AND
SPECIFICATIONS PRIOR TO THE TERMINATION OF ITS
SERVICES BY THE PETITIONER.

3. . . . [IN] DECID[ING] THE CASE IN A WAY NOT IN ACCORD


WITH LAW AND THE APPLICABLE DECISIONS OF THE
SUPREME COURT.126[14]

Petitioner urges this Court to take exception to the rule that in a


petition filed under Rule 45, such as the one at bar, only questions of law are
allowed for, so petitioner contends, the inference made by the Court of
Appeals from its findings of fact is manifestly erroneous or absurd.127[15]

Petitioner insists that respondent failed to fulfill its obligations under


the agreement, hence, it is justified in refusing to heed respondent’s
monetary claims.128[16]

Specifically, petitioner alleges that despite its verbal agreement with


respondent that the plans should be submitted within six (6) months from the
signing of the agreement,129[17] respondent complied with it only after a year
and a half. And petitioner emphasizes that when respondent transmitted the
architectural design and plans on August 9, 1995 (to petitioner’s Architect
de Guzman) and August 16, 1995 (to petitioner’s Chairman Jimmy Gow), its
Chairman Jimmy Gow had in June 1995 verbally terminated respondent’s
services.
126
127
128
129
The petition fails.

The resolution of the petition hinges on a determination of whether


the termination of the agreement by petitioner was made prior to
respondent’s compliance with its undertakings thereunder.

By petitioner’s own admission, the petition raises a factual issue


which is beyond the ambit of the present petition under Rule 45.

Both the trial and appellate courts found that the architectural design
prepared by respondent was delivered to petitioner before the termination of
the agreement. Absent any sufficient and convincing evidence to the
contrary, such finding binds this Court as it is supported by sufficient
evidence.
Albeit this Court entertains factual determination of a case brought to
it via Rule 45 under certain circumstances, e.g. (a) where there is grave
abuse of discretion; (b) when the finding is grounded entirely on
speculations, surmises or conjectures; (c) when the inference made is
manifestly mistaken, absurd or impossible; (d) when the judgment of the
Court of Appeals was based on a misapprehension of facts; (e) when the
factual findings are themselves conflicting; (f) when the Court of Appeals, in
making its findings, went beyond the issues of the case and the same are
contrary to the admissions of both appellant and appellee; (g) when the
Court of Appeals manifestly overlooked certain relevant facts not disputed
by the parties and which, if properly considered, would justify a different
conclusion; (h) where the findings of fact of the Court of Appeals are
contrary to those of the trial court; (i) where the findings of fact are mere
conclusions without citation of specific evidence on which they are based;
and (j) where the findings of fact of the Court of Appeals are premised on
the absence of evidence and are contradicted by the evidence on record,130[18]
the petition at bar does not present any similar or analogous circumstance.

As noted earlier, the agreement forged by the parties does not provide
for a period within which respondent has to accomplish its undertakings
thereunder. Petitioner claims, however, that there was a verbal agreement
with respondent that the architectural design should be finalized and
approved by petitioner within six (6) months from signing of their written
agreement. Why the parties did not incorporate in the agreement this
alleged period within which respondent had to accomplish its services
escapes comprehension.

At any rate, if indeed the parties verbally agreed to a period of six


months for respondent to comply with its undertakings, why did not
petitioner immediately seek the enforcement of such alleged verbal
agreement when the period expired on June 13, 1994 or, in the alternative,
terminate respondent’s services? Why did not petitioner reject the
documents sent by respondent on August 9, 1995? Why did not petitioner,
in its earlier-quoted December 20, 1995 reply-letter to respondent, complain
of respondent’s alleged delay in complying with its undertakings within the
alleged verbally agreed six-month period? Such glaring omissions negate
petitioner’s claim of having verbally agreed with respondent delimiting the
latter’s period of compliance with its undertakings to six months.
130
But even assuming that there was indeed such verbal agreement,
petitioner is estopped from enforcing the same, it having continued to deal
with petitioner on the project even after the expiration of the six-month
period by, inter alia, recommending revisions of the design and paying
respondent’s services for the first two phases of the project schedule.131[19]

As for petitioner’s claim that it had, in June 1995, verbally ordered


respondent to stop and cease all its activities relating to the design132[20] of the
mall, albeit it sent the formal notice of termination on August 22, 1995
which was received by respondent the following day, August 23, 1995, the
same fails. The notice of termination does not refer to a verbal advice of
termination in June 1995. Instead, it refers to an August 8, 1995 advice to
respondent for it to “put on hold [respondent’s] works.” “[P]ut[ting] on
hold” is not equivalent to termination.

In fact, the August 22, 1995 notice of termination of services did not
specify the ground behind such termination.
Petitioner was to later claim that it terminated the services of
respondent due to “material deficiencies in the architectural design
proposals” submitted on August 9, 1995. But did it not earlier claim that it
had priorly terminated respondent’s services in June 1995 or on August 8,
1995?

131
132
Additionally, if indeed petitioner verbally terminated the agreement as
early as June 1995, why did it still send a representative to attend the
meeting with respondent’s representatives on July 18, 1995 at City Garden
Restaurant to discuss revisions of the design, which revisions were
subsequently incorporated in the architectural drawing package transmitted
to petitioner on August 9, 1995?133[21]

Even petitioner’s witness Jaime Rioflorido of Asian Technicon, the


project manager for the mall, admitted that at the time said company took
over as project manager in July 1995, “[he] saw that the substructure works,
meaning the bored piles [sic], were substantially completed.”134[22] Such
admission shows that the mall project had been started by petitioner using
the plan prepared by respondent for, as said witness declared, the new
architect was appointed only in November 1995.135[23]

Without doubt, respondent had discharged its obligation under the


agreement prior to the termination of its services by petitioner on August 22,
1995.

For petitioner to terminate the agreement after respondent had


complied with its obligation under the agreement violates Article 1159 of
the New Civil Code which provides that “[o]bligations arising from
contracts have the force of law between the contracting parties and should be
complied with in good faith.”

133
134
135
WHEREFORE, the Court of Appeals Decision of November 14,
2005 is AFFIRMED.

Costs against petitioner.

SO ORDERED.

LICOMCEN INCORPORATED,
Petitioner, G.R. No. 167022

- versus -

FOUNDATION SPECIALISTS, INC.,


Respondent.
x ------------------------------------------x
FOUNDATION SPECIALISTS, INC.,
Petitioner,
G.R. No. 169678

Present:

- versus - YNARES-SANTIAGO, J.,


Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA, and
LICOMCEN INCORPORATED and REYES, JJ.
COURT OF APPEALS,
Respondents. Promulgated:

August 31, 2007


x------------------------------------------------------------------------------------x

DECISION

NACHURA, J.:

For review in these consolidated petitions is the November 23, 2004


Decision136[1] of the Court of Appeals (CA) in CA-G.R. SP. No. 78218, as
well as the Resolutions dated February 4, 2005137[2] and September 13,
2005,138[3] denying the motions for its reconsideration.

Liberty Commercial Center, Inc. (LICOMCEN) is a corporation


engaged in the business of operating shopping malls. In March 1997, the
City Government of Legaspi leased its lot in the Central District of Legaspi
to LICOMCEN. The Lease Contract was based on the Build-Operate-
Transfer Scheme under which LICOMCEN will finance, develop and
construct the LCC City Mall (CITIMALL). LICOMCEN engaged E.S. De
Castro and Associates (ESCA) as its engineering consultant for the project.

On September 1, 1997, LICOMCEN and Foundation Specialist, Inc.


(FSI) signed a Construction Agreement for the bored pile foundation of
CITIMALL.139[4] Forming part of the agreement were the Bid Documents
and the General Conditions of Contract (GCC)140[5] prepared by ESCA. A
salient provision of the GCC is the authority granted the engineering

136
137
138
139
140
consultant to suspend the work, wholly or partly. LICOMCEN was also
given the right to suspend the work or terminate the contract. Among other
caveats, GC-05 provided that questions arising out or in connection with the
contract or its breach should be litigated in the courts of Legaspi, except
where otherwise stated, or when such question is submitted for settlement
through arbitration. GC-61 also provided that disputes arising out of the
execution of the work should first be submitted to LICOMCEN for
resolution, whose decision shall be final and binding, if not contested within
thirty (30) days from receipt. Otherwise, the dispute shall be submitted to
the Construction Industry Arbitration Commission (CIAC) for arbitration.

Upon receipt of the notice to proceed, FSI commenced work and


undertook to complete it within ninety (90) days, all in accordance with the
approved drawing, plans, and specifications.

In the course of the construction, LICOMCEN revised the design for


the CITIMALL involving changes in the bored piles and substantial
reduction in number and length of the piles. ESCA, thus, informed FSI of
the major revision on December 16, 1997141[6] and ordered the non-delivery
of the steel bars, pending approval of the new design. FSI, however,
responded that the steel bars had already been loaded and shipped out of
Manila. ESCA then suggested the delivery of 50% of the steel bars to the
jobsite and the return of the other 50% to Manila, where storage and security
were better.142[7]

141
142
On January 15, 1998, LICOMCEN sent another letter to FSI ordering
all the construction activities suspended, because Albay Accredited
Constructions Association (AACA) had contested the award of the Contract
of Lease to LICOMCEN and filed criminal complaints with the Office of the
Ombudsman for violation of the Anti-Graft and Corrupt Practices Act
against LICOMCEN and the City Government of Legaspi. Thus, pending a
clear resolution of the case, LICOMCEN decided to suspend all construction
activities. It also requested FSI not to unload the steel bars.143[8]

On January 17, 1998, the steel bars for the CITIMALL arrived at the
Legaspi port, and despite LICOMCEN’s previous request, these were
unloaded and delivered to the jobsite and some to Tuanzon compound,144[9]
FSI’s batching site. Then, on January 19, 1998, LICOMCEN reiterated its
decision to suspend construction, and ordered demobilization of the
materials and equipment for the project.145[10] Finally, on February 17, 1998,
LICOMCEN indefinitely suspended the project, due to the pending cases in
the Ombudsman.146[11]

FSI demanded payment for its work accomplishments, material costs,


and standby off equipment, as well as other expenses amounting to
P22,667,026.97,147[12] but LICOMCEN took no heed.

On October 12, 1998, the Ombudsman dismissed the cases filed


against the City Government and LICOMCEN. The dismissal was affirmed
143
144
145
146
147
by this Court148[13] and attained finality on September 20, 2000.149[14] This
notwithstanding, LICOMCEN did not lift the suspension of the construction
that it previously ordered. It then hired Designtech Consultants and
Management System (Designtech) as its new project consultant, which, in
turn, invited contractors, including FSI, to bid for the bored piling works for
CITIMALL.150[15]

FSI reiterated its demand for payment from LICOMCEN, but the
latter failed and refused to pay, prompting FSI to file a petition for
arbitration with the CIAC, docketed as CIAC Case No. 37-2002.

LICOMCEN denied the claim of FSI, arguing that it lacks factual and
legal basis. It also assailed the jurisdiction of the CIAC to take cognizance
of the suit, claiming that jurisdiction over the controversy was vested in the
regular courts, and that arbitration under the GC-61 of the GCC may only be
resorted to if the dispute concerns the execution of works, not if it concerns
breach of contract.

During the preliminary conference, the parties agreed to submit the


controversy to the Arbitral Tribunal and signed the Terms of Reference
(TOR).151[16] But on February 4, 2003, LICOMCEN, through a collaborating
counsel, filed an Ex Abundati Ad Cautela Omnibus Motion.152[17] It
reiterated the claim that the arbitration clause in the contract does not cover
claims for payment of unrealized profits and damages, and FSI did not
148
149
150
151
152
comply with the condition precedent for the filing of the suit, thus, the CIAC
cannot take cognizance of the suit. LICOMCEN further averred that FSI has
no cause of action against it because the claim for material costs has no
factual basis and because the contract is clear that FSI cannot claim damages
beyond the actual work accomplishments, but only reasonable expenses for
the suspension or termination of the contract. LICOMCEN also alleged that
the expenses incurred by FSI, if there be any, cannot be considered
reasonable, because there was no showing that the materials were ordered
and actually delivered to the job site. Finally, it prayed for the suspension of
the proceedings, pending the resolution of its omnibus motion.

On February 20, 2003, the CIAC issued an Order153[18] denying


LICOMCEN’s omnibus motion on the ground that it runs counter to the
stipulations in the TOR. Trial, thereafter, ensued. FSI and LICOMCEN
presented witnesses in support of their respective claims.

After due proceedings, the CIAC rendered a Decision154[19] in favor of


FSI, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby


rendered in favor of Claimant FOUNDATION SPECIALIST, INC. and
against Respondent LICOMCEN, INCORPORATED, ordering the
latter to pay to the former the following amounts:

1. P14,643,638. 51 representing material costs at site;


2. P2,957,989.94 representing payment for equipment and labor
standby costs;
3. P5,120,000.00 representing unrealized profit; and
4. P1,264,404.12 representing the unpaid balance of FSI's billing.

153
154
FURTHER, the said Respondent is ordered to solely and
exclusively bear the entire cost of arbitration proceedings in the total
amount of P474,407.95 as indicated in the TOR, and to reimburse the
herein Claimant of any amount thereof which it had advanced and paid
pursuant to TOR.

All the above-awarded amounts shall bear interest of 6% per


annum from the date of the formal demand on February 3, 1998 (Par. 10,
Admitted Facts, TOR) until the date this Decision/Award becomes final
and executory and 12% per annum from the date this Decision/Award
becomes final and executory until fully paid.

SO ORDERED.155[20]

LICOMCEN elevated the CIAC Decision to the CA. It faulted the


CIAC for taking cognizance of the case, arguing that it has no jurisdiction
over the suit. It also assailed the award and the ruling that the contract had
been terminated, allegedly for lack of factual and legal basis.

On November 23, 2004, the CA rendered the assailed Decision,


modifying the CIAC Decision, viz.:

WHEREFORE, the foregoing considered, the assailed Decision is


hereby MODIFIED to the extent that paragraph 1 of the dispositive
portion is amended and accordingly, petitioner is ordered to pay only the
amount of P5,694,939.865 representing the material costs at site; and
paragraphs 2 and 3 on equipment and labor standby costs and unrealized
profit of the same dispositive portion are deleted. The rest is AFFIRMED
in all respects. No costs.

SO ORDERED.156[21]

155
156
Both LICOMCEN and FSI filed motions for partial reconsideration, but
these were denied by the CA in its Resolutions dated February 4, 2005157[22]
and September 13, 2005.158[23]

LICOMCEN and FSI reacted with the instant petitions. Considering


that the cases involve the same parties, issues and assailed decision, this
Court ordered the consolidation of G.R. No. 167022 and G.R. No. 169678 in
its Resolution dated November 20, 2006.

LICOMCEN raised the following issues:

1.

WHETHER OR NOT THE PROJECT WAS MERELY SUSPENDED


AND NOT TERMINATED.

2.

WHETHER OR NOT THE TRIBUNAL HAD JURISDICTION OVER


THE DISPUTE.

3.

WHETHER OR NOT FSI IS ENTITLED TO CLAIM ANY AMOUNT


OF DAMAGES.

4.

WHETHER OR NOT LICOMCEN IS THE PARTY AT FAULT.159[24]

157
158
159
FSI, on the other hand, interposes the following:

1. THE COURT OF APPEALS ERRED IN NOT AWARDING TO


PETITIONER THE FULL AMOUNT OF MATERIAL COSTS AT THE
SITE.

2. THE COURT OF APPEALS ERRED IN DENYING PETITIONER'S


CLAIM FOR EQUIPMENT AND LABOR STANDBY COSTS.

3. THE COURT OF APPEALS ERRED IN DENYING PETITIONER'S


CLAIM FOR UNREALIZED PROFIT.

4. THE COURT OF APPEALS ERRED IN RENDERING A MERE


MINUTE RESOLUTION IN RESOLVING PETITIONER'S MOTION
FOR PARTIAL RECONSIDERATION.160[25]

First, we resolve the issue of the CIAC’s jurisdiction.

LICOMCEN insists that the CIAC had no jurisdiction over the suit.
Citing GC-05 and GC-61 of the GCC, it posits that jurisdiction over the
dispute rests with the regular courts of Legaspi City.

The argument is misplaced.

The power and authority of a court to hear, try, and decide a case is
defined as jurisdiction. Elementary is the distinction between jurisdiction
over the subject matter and jurisdiction over the person. The former is
conferred by the Constitution or by law, while the latter is acquired by virtue
of the party's voluntary submission to the authority of the court through the
exercise of its coercive process.161[26]

160
161
Section 4 of Executive Order (E.O.) No. 1008, or the Construction
Industry Arbitration Law, provides:

SECTION 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
provisions; amount of damages and penalties; commencement 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. (Emphasis supplied)

Corollarily, Section 1, Article III of the Rules of Procedure Governing


Construction Arbitration provides that recourse to the CIAC may be availed
of whenever a contract contains a clause for the submission of a future
controversy to arbitration, thus:

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.
Clearly then, the CIAC has original and exclusive jurisdiction over disputes
arising from or connected with construction contracts entered into by parties
that have agreed to submit their dispute to voluntary arbitration.162[27]

The GCC signed by LICOMCEN and FSI had the following arbitral
clause:

GC-61 DISPUTES AND ARBITRATION

Should any dispute of any kind arise between the LICOMCEN,


INCORPORATED and the Contractor or the Engineer 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.163[28]

162
163
LICOMCEN theorizes that this arbitration clause cannot vest
jurisdiction in the CIAC, because it covers only disputes arising out of or in
connection with the execution of works, whether permanent or temporary. It
argues that since the claim of FSI was not connected to or did not arise out
of the execution of the works as contemplated in GC-61, but is based
on alleged breach of contract, under GC-05164[29] of the GCC, the dispute can
only be taken cognizance of by the regular courts. Furthermore, FSI failed
to comply with the condition precedent for arbitration. Thus, according to
LICOMCEN, the CIAC erred in assuming jurisdiction over the case.

Contrary to what LICOMCEN wants to portray, the CIAC validly


acquired jurisdiction over the dispute. Firstly, LICOMCEN submitted itself
to the jurisdiction of the CIAC when its president Antonio S. Tan signed the
TOR165[30] during the preliminary conference. The TOR states:

V. MODE OF ARBITRATION

The parties agree that their differences be settled by an Arbitral


Tribunal who were appointed in accordance with the provision of Article
V, Section 2 of the CIAC Rules of Procedure Governing Construction
Arbitration, as follows:

SALVADOR C. CEGUERA
Chairman

FELISBERTO G.L. REYES


Member

SALVADOR P. CASTRO, JR.


Member

The case shall be decided in accordance with the Contract of the


parties and the Construction Industry Arbitration Law (Executive Order
No. 1008) and on the basis of evidence submitted, applicable laws, and
industry practices where applicable under the law.166[31]

Secondly, we agree with the CA that the suit arose from the execution of
works defined in the contract. As it aptly ratiocinated:

164
165
166
[T]he dispute between [FSI] and [LICOMCEN] arose out of or in
connection with the execution of works. [LICOMCEN] has gone quite far
in interpreting “disputes arising out of or in connection with the execution
of work” as separate and distinct from “disputes arising out of or in
connection with the contract” citing the various provisions of the
Construction Agreement and Bid Documents to preclude CIAC from
taking cognizance of the case. To the mind of this Court, such
differentiation is immaterial. Article 1374 of the Civil Code on the
interpretation of contracts ordains that “the various stipulations of a
contract shall be interpreted together, attributing to the doubtful ones that
sense which may result from all of them taken jointly.” Essentially, while
we agree that [FSI’s] money claims against [LICOMCEN] arose out of or
in connection with the contract, the same necessarily arose from the work
it accomplished or sought to accomplish pursuant thereto. Thus, said
monetary claims can be categorized as a dispute arising out of or in
connection with the execution of work.167[32]

Thirdly, FSI complied with the condition precedent provided in GC-


61. Record shows that FSI referred the claim to ESCA on February 3, 1998,
and then to LICOMCEN on March 3, 1998,168[33] but it was disallowed on
March 24, 1998.169[34] Then, on April 15, 1998, FSI rejected the evaluation
of the billings made by ESCA and LICOMCEN and further informed the
latter of its intention to turn over the project.170[35] FSI exerted efforts to
have the claim settled amicably, but no settlement was arrived at. Hence, on
March 14, 2001, FSI through counsel made a final demand to pay.171[36]
LICOMCEN, however, adamantly refused to pay, prompting FSI to file suit
with the CIAC. Clearly, FSI substantially complied with the condition
precedent laid down in GC-61. Finally, the arbitral clause in the agreement,
considering that the requisites for its application are present, is a
167
168
169
170
171
commitment by the parties to submit to arbitration the disputes covered
therein. Because that clause is binding, they are expected to abide by it in
good faith.172[37]

Just as meaningful, the issue of jurisdiction was rendered moot by


LICOMCEN's active participation in the proceedings before the CIAC. It is
true that LICOMCEN initially assailed the jurisdiction of the CIAC. But
when the CIAC asserted its jurisdiction in its February 20, 2003 Order,173[38]
LICOMCEN did not seek relief from the CIAC ruling. Instead, LICOMCEN
took part in the discussion on the merits of the case, even going to the extent
of seeking affirmative relief. The active involvement of a party in the
proceedings is tantamount to an invocation of, or at least an acquiescence to,
the court's jurisdiction. Such participation indicates a willingness to abide
by the resolution of the case, and will bar said party from later on impugning
the court or body's jurisdiction.174[39] The Court will not countenance the
effort of any party to subvert or defeat the objective of voluntary arbitration
for its own private motives.175[40] After submitting itself to arbitration
proceedings and actively participating therein, LICOMCEN is estopped
from assailing the jurisdiction of the CIAC, merely because the latter
rendered an adverse decision.

Having resolved the issue of jurisdiction, we proceed to the merits of


the case.

172
173
174
175
LICOMCEN faults the CIAC and the CA for ruling that the contract
had been terminated, insisting that it was merely indefinitely suspended. To
bolster its position, LICOMCEN cited GC-41 of the GCC which reads:

GC-41 LICOMCEN, INCORPORATED’S RIGHT TO SUSPEND


WORK OR TERMINATE THE CONTRACT

xxxx

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 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
issuance of such notice of termination, the Contractor shall discontinue the
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. x x x176[41]
(Emphasis supplied)

Unfortunately for LICOMCEN, this provision does not support but


enervates its theory of indefinite suspension. The cited provision may be
invoked only in cases of termination of contract, as clearly inferred from the
phrase “discontinue the work and terminate the contract.” And in statutory
construction implies conjunction, joinder or union.177[42] Thus, by invoking
GC-41, LICOMCEN, in effect, admitted that the contract had already been
terminated.

176
177
The termination of the contract was made obvious and unmistakable
when LICOMCEN’s new project consultant rebidded the contract for the
bored piling works for the CITIMALL.178[43] The claim that the rebidding
was conducted for purposes of getting cost estimates for a possible new
design179[44] taxes our credulity. It impresses us as nothing more than a lame
attempt of LICOMCEN to avoid liability under the contract. As the CIAC
had taken pains to demonstrate:

Suspension of work is ordinarily understood to mean a temporary


work stoppage or a cessation of work for the time being. It may be
assumed that, at least initially, LCC had a valid reason to suspend the
Works on December 16, 1997 pursuant to GC-38 above-quoted. The
evidence show, however, that it has not ordered a resumption of work up
to the present despite the lapse of more than four years, and despite the
dismissal of the case filed with the Office of the Ombudsman which it
gave as reason for the suspension in the first place. As such, LCC’s
suspension of the Works had already lost its essential characteristic of
being merely temporary or only for the time being. To still consider it a
“suspension” at this point is to do violence to reason and logic.

Perhaps because of this LCC came up with the assertion that what
we have is an “indefinite suspension.” There is no such term in the
Construction Agreement or the Contract Documents. In fact, it is
unknown in the construction industry. Construction work may either be
suspended or terminated, but never indefinitely suspended. Since it is not
sanctioned by practice and not mentioned in the herein Construction
Agreement and the Contract Documents, “indefinite suspension” is
irregular and invalid. Due to the apparent incongruity of an “indefinite
suspension,” LCC changed the term to “continued suspension” in its
Memorandum. Unfortunately for it, the factual situation remains
unchanged. The Works stay suspended for an indefinite period of time. 180
[45]

Accordingly, the CA did not err in affirming the CIAC ruling that the
contract had already been terminated.
178
179
180
Neither can LICOMCEN find refuge in the principle of laches to steer
clear of liability. It is not just the lapse of time or delay that constitutes
laches. The essence of laches is the failure or neglect, for an unreasonable
and unexplained length of time, to do that which, through due diligence,
could or should have been done earlier, thus giving rise to a presumption
that the party entitled to assert it had either abandoned or declined to assert
it. 181[46]

Indeed, FSI filed its petition for arbitration only on October 8, 2002,
or after the lapse of more than four years since the project was “indefinitely
suspended.” But we agree with the CIAC and the CA that such delay can
hardly be considered unreasonable to give rise to the conclusion that FSI
already abandoned its claim. On the contrary, the delay was due to the fact
that FSI exerted efforts to have the claim settled extra-judicially which
LICOMCEN rebuffed. Besides, except for LICOMCEN’s allegation that the
filing of the suit is already barred by laches, no proof was offered to show
that the filing of the suit was iniquitous or unfair to LICOMCEN. We
reiterate that, unless reasons of inequitable proportions are adduced, a delay
within the prescriptive period is sanctioned by law and is not to be
considered delay that would bar relief.182[47] In the instant case, FSI filed its
claim well within the ten-year prescriptive period provided for in Article
1144 of the Civil Code.183[48] Therefore, laches cannot be invoked to bar FSI
from instituting this suit.

181
182
183
The doctrine of laches is based upon grounds of public policy which
require, for the peace of society, discouraging stale claims. It is principally a
question of the inequity or unfairness of permitting a right or claim to be
enforced or asserted. There is no absolute rule as to what constitutes laches;
each case is to be determined according to its particular circumstances. The
question of laches is addressed to the sound discretion of the court, and since
it is an equitable doctrine, its application is controlled by equitable
considerations. It cannot be worked to defeat justice or to perpetrate fraud
and injustice. 184[49]

We now come to the monetary awards granted to FSI. LICOMCEN

avers that the award lacked factual and legal basis. FSI, on the other hand,
posits otherwise, and cries foul on the modification made by the CA. It
asserts that the CA erred in disregarding the pieces of evidence that it
submitted in support of the claim despite the lack of objection and
opposition from LICOMCEN. It insists entitlement to the full amount of
material costs at site, for equipment and labor standard costs, as well as
unrealized profits.

In this connection, we must emphasize the distinction between


admissibility of evidence and its probative value. Just because a piece of
evidence is not objected to does not ipso facto mean that it conclusively
proves the fact in dispute. The admissibility of evidence should not be
confused with its probative value. Admissibility refers to the question of
whether certain pieces of evidence are to be considered at all, while
probative value refers to the question of whether the admitted evidence
184
proves an issue. Thus, a particular item of evidence may be admissible, but
its evidentiary weight depends on judicial evaluation within the guidelines
provided by the rules of evidence.185[50]

We have carefully gone over the records and are satisfied that the
findings of the CA are well supported by evidence. As mentioned above, the
contract between LICOMCEN and FSI had already been terminated and, in
such case, the GCC expressly provides that:

GC-42 PAYMENT FOR TERMINATED CONTRACT

If the Contract is terminated as aforesaid, the Contractor will be paid for


all items of work executed, and 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.186[51]

We agree with the Court of Appeals that the liability of LICOMCEN


for the cost of materials on site is only P5,694,939.85. The said award
represents the materials reasonably ordered for the project and which were
185
186
delivered to the job site. FSI cannot demand full payment of the steel bars
under Purchase Order No. 6035.187[52] As shown by the records, the steel
bars were loaded at M/V Alberto only on January 12, 1998188[53] and reached
Legaspi City on January 16, 1998.189[54] But as early as December 16, 1997,
LICOMCEN already informed FSI of the major revision of the design and
ordered the non-delivery to the jobsite of the 50% of the steel bars.
Inexplicably, FSI continued the delivery. Worse, it unloaded all the steel
bars and delivered them to the jobsite and some to the Tuanzon batching
plant on January 17, 1998,190[55] despite LICOMCEN’s order not to do so.
FSI cannot now claim payment of the cost of all these materials.

LICOMCEN, however, cannot deny liability for 50% of the steel bars
because, as mentioned, it ordered their delivery to the jobsite. The steel bars
had in fact been delivered to the jobsite and inventoried by Cesar Cortez of
ESCA,191[56] contrary to LICOMCEN’s claim. The payment of these
materials is, therefore, in order, pursuant to GC-41:

The Contractor shall receive compensation for reasonable expenses


incurred in good faith for the performance of the Contract and for
reasonable expenses associated with the termination of the Contract. x x
x.192[57]

We also uphold the denial of FSI’s claim for equipment and labor
standard costs, as no convincing evidence was presented to prove it. The list

187
188
189
190
191
192
of rented equipment193[58] and the list of workers194[59] offered by FSI and
which were admitted by CIAC, are far from being clear and convincing
proof that FSI actually incurred the expenses stated therein.

As aptly said by the CA, FSI should have presented convincing pieces
of documentary evidence, such as the lease contract or the receipts of
payment issued by the owners of the rented equipment, to establish the
claim. As to its claimed labor expenses, the list of employees does not
categorically prove that these listed employees were actually employed at
the construction site during the suspension. Hence, even assuming that
LICOMCEN failed to submit evidence to rebut these lists, they do not ipso
facto translate into duly proven facts. FSI still had the burden of proving its
cause of action, because it is the one asserting entitlement to an affirmative
relief.195[60] On this score, FSI failed. The CA, therefore, committed no
reversible error in denying the claim.

FSI’s claim for unrealized profit has to be rejected too. GC-41


specifically provided that:

x x x The Contractor shall have no claim for anticipated profits on the


work thus terminated, nor any other claim, except for work actually
performed at the time of complete discontinuance, including any variations
authorized by the LICOMCEN, INCORPORATED/Engineer to be done
under the section dealing with variation, after the date of said order, and
for any claims for variations accruing up to the date of said notice of
termination.196[61] (Emphasis supplied)

193
194
195
196
The provision was agreed upon by the parties freely, and significantly, FSI
did not question this. It is not for the Court to change the stipulations in the
contract when they are not illegal. Article 1306 of the Civil Code provides
that 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.197[62] Besides,
no convincing proof was offered to prove the claim. In light of the
foregoing, the CA, therefore, correctly denied the claim for unrealized profit.

Similarly, we agree with the CIAC and the CA that LICOMCEN


should bear the cost of arbitration as it adamantly refused to pay FSI’s just
and valid claim, prompting the latter to institute a petition for arbitration.

In sum, we find no reason to disturb the decision of the CA. It cannot


be faulted for denying FSI’s motion for reconsideration through a mere
Minute Resolution, for as we held in Ortigas and Company Limited
Partnership v. Velasco:198[63]

The filing of a motion for reconsideration, authorized by Rule 52


of the Rules of Court, does not impose on the Court the obligation to deal
individually and specifically with the grounds relied upon therefor, in
much the same way that the Court does in its judgment or final order as
regards the issues raised and submitted for decision. This would be a
useless formality or ritual invariably involving merely a reiteration of the
reasons already set forth in the judgment or final order for rejecting the
arguments advanced by the movant; and it would be a needless act, too,
with respect to issues raised for the first time, these being, x x x deemed
waived because not asserted at the first opportunity. It suffices for the
Court to deal generally and summarily with the motion for
reconsideration, and merely state a legal ground for its denial (Sec. 14,
Art. VIII, Constitution); i.e., the motion contains merely a reiteration or
197
198
rehash of arguments already submitted to and pronounced without merit
by the Court in its judgment, or the basic issues have already been passed
upon, or the motion discloses no substantial argument or cogent reason to
warrant reconsideration or modification of the judgment or final order; or
the arguments in the motion are too unsubstantial to require consideration,
etc.

WHEREFORE, the herein petitions for review are DENIED, and the
assailed Decision and Resolutions of the Court of Appeals are AFFIRMED.

SO ORDERED.

ANTONIO CHIENG, G.R. No. 169647


substituted by WILLIAM
CHIENG, Present:
Petitioner,
YNARES-SANTIAGO,
Chairperson,
AUSTRIA-MARTINEZ,
CHICO-NAZARIO,
NACHURA,* and
-versus –
REYES, JJ.

Promulgated:

August 31, 2007


SPOUSES EULOGIO and
TERESITA SANTOS,
Respondents
.
x - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

*
DECISION

CHICO-NAZARIO, J.:

Before this Court is a Petition for Review on Certiorari under Rule 45


of the Rules of Court,199[1] praying that the Decision, dated 13 September
2005 of the Court of Appeals in CA-G.R. CV No. 79971200[2] be set aside and
the Decision201[3] and Order202[4] of the Olongapo City Regional Trial Court
(RTC), Branch 74, in Civil Case No. 239-0-93, dated 23 October 2001 and
11 January 2002, respectively, which were reversed by the appellate court,
be reinstated.

Stripped of the non-essentials, the facts are as follows:

On 17 August 1989, petitioner Antonio Chieng203[5] extended a loan in


favor of respondent spouses Eulogio and Teresita Santos. As security for
such loan, the respondents executed in favor of petitioner a Deed of Real
Estate Mortgage over a piece of land, consisting of 613 square meters,
situated at West Bajac-Bajac, Olongapo City, and covered by Transfer
Certificate of Title (TCT) No. T-2570 issued by the Registry of Deeds of
Olongapo City in the name of respondents. On even date, the Deed of Real
Estate Mortgage was registered with the Registry of Deeds of Olongapo City
and was duly annotated on TCT No. T-2570.

199
200
201
202
203
Thereafter, respondent Eulogio issued several checks in favor of
petitioner as payment for the loan. Some of these checks were dishonored,
prompting the petitioner to file a criminal case against respondent Eulogio
for violation of Batas Pambansa Blg. 22 before the Olongapo City RTC,
Branch 72, docketed as Criminal Cases No. 612-90 to No. 615-90. During
the pre-trial conference of these cases, petitioner and respondent Eulogio
entered into a compromise agreement, which was contained in the Order of
the court, to wit:

ORDER

When this case was called for pre-trial conference in the presence
of the Honorable Prosecutor, accused Eulogio Santos and private
complainant Antonio Chieng came to an agreement that the total
indebtedness of Mr. Santos as of today, July 15, 1991 amounts to Two
Hundred Thousand (P200,000.00) Pesos including interest since the
beginning and excluding those already paid for. It is understood that at a
payment of P20,000.00 each month starting on or before July 31, 1991
and upon the completion of the amount of P200,000.00 without any
interest, the indebtedness of Mr. Santos shall/have been discharged and
upon payment of P20,000.00 on or before July 31 1991, the next payment
on or before August 31 1991, these cases will be considered terminated.

Prosecutor Martinez, Accused Eulogio Santos and complainant


Antonio Chieng are notified of this assignment.204[6]

Respondent Eulogio failed to comply with his obligation in the


compromise agreement.

On 17 June 1993, petitioner filed with the Olongapo City RTC,


Branch 74, an action for foreclosure of mortgage constituted on respondents’

204
real property docketed as Civil Case No. 239-0-93. Petitioner alleged that
he extended a loan of P600,000.00 in favor of respondents for which
respondents executed the Deed of Real Estate Mortgage dated 17 August
1987 in his favor. Despite his repeated demands, respondents failed to pay
the loan.

Respondents sought the dismissal of the case on the ground of lack of


cause of action claiming that the Deed of Real Estate Mortgage did not
reflect the parties’ true intention or agreement because the total amount of
their indebtedness was only around P200,000.00, not P600,000.00 as stated
in the Deed. Respondents and petitioner supposedly agreed to make it
appear that respondents’ loan amounted to P600,000.00 to protect the latter
from the claims of their other creditors who were trying to attach or levy
their property. Respondents further averred that they had partly paid their
loan but petitioner refused to issue them receipts and to render an accounting
of their remaining obligation.

On 10 February 1994, petitioner made his formal offer of evidence.


Upon submission by respondents of their Comment/Objections to
petitioner’s formal offer of evidence, the court issued an Order dated 1
September 1994, admitting petitioner’s offer of evidence, and set the hearing
for the reception of respondents’ evidence on 28 September 1994. However,
hearings were successively postponed upon the motions of respondents. On
14 January 1997, the court issued an Order declaring that (1) the respondents
were deemed to have waived their right to present evidence; and (2) the case
was considered submitted for decision. Respondents filed a Motion for
Reconsideration of the said RTC Order dated 14 January 1997, but this was
denied.205[7]

On 9 July 1997, the Olongapo City RTC, Branch 74, rendered a


Decision206[8] ordering the respondents to pay petitioner their loan obligation
amounting to P600,000.00, plus interests and attorney’s fees, thus:

WHEREFORE, judgment is hereby rendered ordering the [ herein


respondents] to pay [herein petitioner] within 90 days from receipt of this
Decision the sum of P600,000.00 with legal rate of interest of 12% per
annum from August 13, 1992 until the amount is fully paid; to pay
[petitioner] the amount of P60,000.00 as attorney’s fees; and the costs of
this suit.

In default of such payment, the Sheriff of this Court is ordered to


sell at public auction the property described in the Deed of Real Estate
Mortgage x x x together with the improvements thereon and apply the
proceeds thereof to the principal obligation, interests, attorney’s fees and
the costs of this suit.

Respondents filed a Motion for Reconsideration207[9] arguing:

[C]onsidering that another branch of this Honorable Court, particularly


Branch 72 through Judge Esther Nobles Bans had issued an order fixing
the actual obligation of the [herein respondents] to [herein petitioner] in
the sum of P200,000.00 with the conformity of both the herein parties, a
copy of the said order is hereto attached as Annex “I” of this motion for
the ready reference and guidance of this Honorable Court.

In effect, the said order is in the nature of a judicial compromise or


judgment that should be strictly complied with and/or honored by the
herein parties, unless the same was entered into through palpable mistake.

Besides, it would be the height of injustice to compel the herein


[respondents] to pay more than P200,000.00 when the herein parties had

205
206
207
already pegged the obligation of the herein [respondents] to the said
[petitioner] in the sum of P200,000.00.

On 6 October 1997, the court issued an Order setting aside its earlier
Decision dated 9 July 1997.208[10]

Respondent Eulogio explained that he issued several checks


amounting to P107,000.00 in favor of petitioner as partial payment of the
loan as evidenced by a memorandum. He added that some of the checks he
issued bounced; thus, he and his wife failed to fully discharge their loan.
Instead of foreclosing the mortgage on their property, petitioner chose to
institute criminal cases against respondent Eulogio for issuing bouncing
checks in violation of Batas Pambansa Blg. 22, docketed as Criminal Cases
No. 612-90 to No. 615-90 before the Olongapo City RTC, Branch 72. He
bared that the P200,000.00 which he was directed to pay petitioner by the
Olongapo City RTC, Branch 72 in its Order dated 15 July 1991 in Criminal
Cases No. 612-90 to No. 615-90 was the same subject of Civil Case No.
239-0-93 pending with the Olongapo City RTC, Branch 74.

On 23 September 1998, petitioner passed away.209[11] Thereafter, his


heirs filed a motion to substitute him in Civil Case No. 239-0-93.210[12] In its
Order dated 12 January 1999, the Olongapo City RTC, Branch 74 granted
the motion and directed the substitution of petitioner by his son, William
Chieng.211[13]

208
209
210
211
On 23 October 2001, the Olongapo City RTC, Branch 74 rendered a
Decision in Civil Case No. 239-0-93 directing the respondents to pay
petitioner the amount of P377,000.00 with interest, plus attorney’s fees and
costs.212[14] The decretal portion of the decision reads:

WHEREFORE, finding [herein respondents] Eulogio Santos and


Teresita Santos liable to [herein petitioner] Antonio Chieng (substituted
herein by William Cheng) in the sum of P377,000,00 including interest;

- judgment is hereby rendered directing Eulogio Santos and


Teresita Santos, to jointly and severally pay to the Court:

1. the sum of Three Hundred Seventy Seven Thousand Pesos


(P377,000.00) within a period of not less than ninety (90) days from notice
of this judgment;

2. the sum of P25,000.00 to pay for the attorney’s fees of


[petitioner’s] counsel;

3. the sum of P3,210.00 costs/filing fees.

In default of such payment, the property to be sold by the Court’s


Deputy Sheriff, to realize the mortgage debt and costs.213[15]

It agreed with respondents that the Deed of Real Estate Mortgage was
simulated and that the loan obligation was only P200,000.00. It also found
that respondents made payments amounting to P107,000.00. Respondent’s
liability was arrived at in this manner:

Since the mortgage debt of P200,000.00 was contracted on August


17, 1989, when judicially demanded on June 23, 1993, the mortgage debt
of P200,000.00 at 12% per annum (without compounding since there is no
written agreement to that effect) earned an interest of P92,000.00 on June
17, 1993. From 1993 up to the present, a total of P192,000,00 in interest
again accrued and adding the same to the interest due from August 17,
212
213
1989, an overall total interest of P284,000.00 at 12% per annum without
compounding, is due from the [herein respondents].

Accordingly, [respondents] have paid a total of P107,000.00 to


[herein petitioner], hence, deducting that amount from the total interest
due, would leave an unpaid interest of P177,000,00. Adding this to the
uncontroverted principal debt of P200,000.00, the [respondents] owe
[petitioner] the total sum of P377,000.00.214[16]

Respondents filed a Motion for Reconsideration asserting that the


charging of interest on the loan obligation was unwarranted because no
payment of interest was agreed upon.215[17] In its Order dated 11 January
2002, the court denied the Motion for Reconsideration, reasoning that
respondents were the ones who presented as evidence the supposed
compromise agreement between petitioner and respondent Eulogio, as stated
in the Order dated 15 July 1991 of the Olongapo City RTC, Branch 72, in
Criminal Cases No. 612-90 to No. 615-90.216[18] According to the court, it
used the very same compromise agreement as its basis for imposing the 12%
per annum interest rate, and that respondents were precluded from
disclaiming the said agreement.

Unsatisfied, respondents filed an appeal with the Court of Appeals,


docketed as CA-G.R. CV No. 79971. In a decision dated 13 September
2005, the appellate court reversed the Decision dated 23 October 2001 and
Order dated 11 January 2002 of the Olongapo City RTC, Branch 74, and
dismissed Civil Case No. 239-0-93.217[19] Citing our ruling in Bank of

214
215
216
217
America v. American Realty Corporation,218[20] it held that a mortgagor-
creditor has two choices of action: he may either file an ordinary action to
recover the indebtedness or foreclose the mortgage. In short, once a
collection suit is filed, the action to foreclose the mortgage is barred.

It ratiocinated that although Criminal Cases No. 612-90 to No. 615-90


for Violation of Batas Pambansa Blg. 22 before the Olongapo City RTC,
Branch 72, were not strictly in the nature of ordinary actions for
collection/payment of debts or loans, the resulting compromise agreement in
the said cases between petitioner and respondent Eulogio, on the matter of
payment of the loan, had the effect of settling respondents’ indebtedness to
petitioner. This is pursuant to Section 1, Rule 111 of the 1985 Rules on
Criminal Procedure which provides that the civil action for the recovery of
civil liability is impliedly instituted in the criminal actions. Having been
impliedly instituted in the criminal cases, any separate civil action for the
collection or payment of the loan, like the action for foreclosure of real
estate mortgage, can no longer be availed of by petitioner. Thus, it
pronounced that the issue of the payment of the loan, having been the
subject of the Order dated 15 July 1991 of the Olongapo City RTC, Branch
72, in Criminal Cases No. 612-90 to No. 615-90, cannot be re-litigated and
that the proper course of action for petitioner was to seek the execution of
the said order. In closing, the Court of Appeals decreed:

Having made the foregoing pronouncement, the Court finds no


necessity to discuss the second assignment of error because there being no
loan obligation which can be enforced, no interest could be likewise
granted in favor of [herein petitioner].

218
WHEREFORE, in view of the foregoing, the Decision of the
Regional Trial Court of Olangapo, Branch 74, in Civil Case No. 239-0-93
is hereby REVERSED and a new one entered DISMISSING the
complaint.219[21]

Petitioner thus filed the instant Petition before us challenging the


Decision dated 13 September 2005 of the Court of Appeals. In our
Resolution dated 5 December 2005, we denied the Petition due to
petitioner’s failure to submit the duplicate original or certified true copy of
the assailed decision pursuant to Sections 4(d) and 5, Rule 45 in relation to
Section 5(d), Rule 56 of the Rules of Court.220[22] Petitioner filed a Motion
for Reconsideration praying that his submission of one certified true copy of
the questioned decision be considered as substantial compliance with the
Rules.221[23] Finding the Motion meritorious, we issued a Resolution dated
19 April 2006 reinstating the present Petition.222[24]

The sole issue to be resolved is: whether petitioner, by filing Criminal


Cases No. 612-90 to No. 615-90 for violation of Batas Pambansa Blg. 22
against respondent Eulogio, was already barred or precluded from availing
himself of the other civil remedy of the foreclosure of the real estate
mortgage.223[25]

Petitioner maintains that, in filing Criminal Cases No. 612-90 to No.


615-90 for violation of Batas Pambansa Blg. 22 against respondent Eulogio,
he should not be deemed to have impliedly instituted therein an ordinary

219
220
221
222
223
action for collection of the loan which will preclude him from pursuing the
remedy of foreclosure of real estate mortgage.224[26] He asserts that no
evidence was adduced proving that the obligation for which the checks were
issued in Criminal Cases No. 612-90 to No. 615-90 was the same loan
obligation secured by the Deed of Real Estate Mortgage in Civil Case No.
239-0-93. Petitioner’s complaint-affidavit and the informations filed against
respondent Eulogio in the said criminal cases, which could have shed light
on the rights of the parties therein, were not presented during the trial before
the Olongapo City RTC, Branch 74 in Civil Case No. 239-0-93. Petitioner
argues that, if indeed the obligation for which the checks were issued in said
criminal cases is the same as the obligation secured by the Deed of Real
Estate Mortgage, the Olongapo City RTC, Branch 72 would have mentioned
in its Order dated 15 July 1991 in Criminal Cases No. 612-90 to No. 615-90
that the consideration in the Deed of Real Estate Mortgage was being
reduced to only P200,000.00.225[27]

Moreover, petitioner claims that respondents did not pay a single


centavo under the compromise agreement in Criminal Cases No. 612-90 to
No. 615-90. The compromise agreement was thus deemed abandoned, with
no more force and effect. Petitioner further asseverates that 14 years had
already lapsed from the time the Order dated 15 July 1991 of the Olongapo
City RTC, Branch 72 in Criminal Cases No. 612-90 to No. 615-90 became
final, so that he can no longer file a Motion for Execution thereof or an
Action to Revive Judgment. It was for this very reason why petitioner was
constrained to file an action for judicial foreclosure of mortgage. To enjoin

224
225
his action to foreclose the real estate mortgage would be an injustice since he
would be left with no other recourse in recovering the loan balance from
respondents.226[28]

For reasons of justice and equity, we rule in favor of petitioner.

At the threshold, the following discussion merits equal attention. A


mortgage-creditor may, in the recovery of a debt secured by a real estate
mortgage, institute against the mortgage-debtor either a personal action for
debt or a real action to foreclose the mortgage. These remedies available to
the mortgage-creditor are deemed alternative and not cumulative. An
election of one remedy operates as a waiver of the other. In sustaining the
rule that prohibits a mortgage-creditor from pursuing both remedies of a
personal action for debt or a real action to foreclose the mortgage, we held in
Bachrach Motor Co., Inc. v. Icarangal,227[29] that a rule which would
authorize the mortgage-creditor to bring a personal action against the
mortgage-debtor and simultaneously or successively another action against
the mortgaged property, would result not only in multiplicity of suits so
offensive to justice and obnoxious to law and equity, but would also subject
the mortgage-debtor to the vexation of being sued in the place of his
residence or of the residence of the mortgage-creditor, and then again in the
place where the property lies. Hence, a remedy is deemed chosen upon the
filing by the mortgage-creditor of the suit for collection or upon his filing of
the complaint in an action for foreclosure of mortgage, pursuant to the
provisions of Rule 68 of the Rules of Court.228[30]
226
227
228
Proceeding therefrom, we shall now determine whether petitioner’s
filing of Criminal Cases No. 612-90 to 615-90 is equivalent to the filing of a
collection suit for the recovery of the mortgage-loan which, pursuant to the
aforesaid rule on the alternative remedies of collection and foreclosure,
precludes the petitioner from subsequently availing himself of the action to
foreclose the mortgaged property.

When petitioner filed Criminal Cases No. 612-90 to No. 615-90 for
violation of Batas Pambansa Blg. 22 against respondent Eulogio, petitioner’s
civil action for the recovery of the amount of the dishonored checks was
impliedly instituted therein pursuant to Section 1(b) of Rule 111 of the 2000
Rules on Criminal Procedure. In the case of Hyatt Industrial Manufacturing
Corporation v. Asia Dynamic Electrix Corporation,229[31] we elucidated thus:

We agree with the ruling of the Court of Appeals that upon filing
of the criminal cases for violation of B.P. 22, the civil action for the
recovery of the amount of the checks was also impliedly instituted under
Section 1(b) of Rule 111 of the 2000 Rules on Criminal Procedure. Under
the present revised Rules, the criminal action for violation of B.P. 22 shall
be deemed to include the corresponding civil action. The reservation to
file a separate civil action is no longer needed. The Rules provide:

Section 1. Institution of criminal and civil actions.


(a) xxxx

(b) The criminal action for violation of Batas


Pambansa Blg. 22 shall be deemed to include the
corresponding civil action. No reservation to file such civil
action separately shall be allowed.

229
Upon filing of the aforesaid joint criminal and civil actions, the
offended party shall pay in full the filing fees based on the amount of the
check involved, which shall be considered as the actual damages claimed.
Where the complaint or information also seeks to recover liquidated,
moral, nominal, temperate or exemplary damages, the offended party shall
pay additional filing fees based on the amounts alleged therein. If the
amounts are not so alleged but any of these damages are subsequently
awarded by the court, the filing fees based on the amount awarded shall
constitute a first lien on the judgment.

Where the civil action has been filed separately and trial thereof
has not yet commenced, it may be consolidated with the criminal action
upon application with the court trying the latter case. If the application is
granted, the trial of both actions shall proceed in accordance with section 2
of this Rule governing consolidation of the civil and criminal actions.

The foregoing rule was adopted from Circular No. 57-97 of this
Court. It specifically states that the criminal action for violation of B.P. 22
shall be deemed to include the corresponding civil action. It also requires
the complainant to pay in full the filing fees based on the amount of the
check involved. Generally, no filing fees are required for criminal cases,
but because of the inclusion of the civil action in complaints for violation
of B.P. 22, the Rules require the payment of docket fees upon the filing of
the complaint. This rule was enacted to help declog court dockets which
are filled with B.P. 22 cases as creditors actually use the courts as
collectors. Because ordinarily no filing fee is charged in criminal cases
for actual damages, the payee uses the intimidating effect of a criminal
charge to collect his credit gratis and sometimes, upon being paid, the trial
court is not even informed thereof. The inclusion of the civil action in the
criminal case is expected to significantly lower the number of cases filed
before the courts for collection based on dishonored checks. It is also
expected to expedite the disposition of these cases. Instead of instituting
two separate cases, one for criminal and another for civil, only a single
suit shall be filed and tried. It should be stressed that the policy laid down
by the Rules is to discourage the separate filing of the civil action. The
Rules even prohibit the reservation of a separate civil action, which means
that one can no longer file a separate civil case after the criminal
complaint is filed in court. The only instance when separate proceedings
are allowed is when the civil action is filed ahead of the criminal case.
Even then, the Rules encourage the consolidation of the civil and criminal
cases. We have previously observed that a separate civil action for the
purpose of recovering the amount of the dishonored checks would only
prove to be costly, burdensome and time-consuming for both parties and
would further delay the final disposition of the case. This multiplicity of
suits must be avoided. Where petitioners’ rights may be fully adjudicated
in the proceedings before the trial court, resort to a separate action to
recover civil liability is clearly unwarranted. x x x.

The impliedly instituted civil action in Criminal Cases No. 612-90 to


No. 615-90 for violation of Batas Pambansa Blg. 22 was, in effect, a
collection suit or suit for the recovery of the mortgage-debt since the
dishonored checks involved in the said criminal cases were issued by
respondent Eulogio to petitioner for the payment of the same loan secured
by the Deed of Real Estate Mortgage. As correctly found by the Olongapo
City RTC, Branch 74, in its Decision dated 23 October 2001 in Civil Case
No. 239-0-93:

After a careful scrutiny of the evidence adduced by the parties, this


Court will not hesitate to state that –

- it is convinced that the parties had one and only transaction,


the one constituted on August 17, 1989;

xxxx

- the bouncing checks for which defendant was criminally


charged with, were part of the checks issued to plaintiff in
consideration of the mortgage debt secured on August 17, 1989;

- defendant’s payment for those checks should appropriately


be considered as payment of the mortgage debt, defendant’s only
obligation in favor of the plaintiff;

xxxx

The Court has likewise taken note of the fact that plaintiff is a
businessman by his admission, and the fact that the purpose of the
defendants’ seeing him on August 17, 1989 is in order to borrow money.
The testimony of plaintiff that defendants are known to him cannot be
related to any special occasion or event of meeting and later becoming
friends, otherwise plaintiff could have stated so. His having known the
defendants refer to only one occasion, that is, when the defendants came to
his business office to obtain a loan. Anyone can do that. That person
would then be his debtor. And so, defendants on August 17, 1989 became
debtors of the plaintiff.

Why would defendants come to plaintiff if not for that purpose?


Plaintiff is known in Olongapo City as a money lender. His business at
1670 Rizal Avenue, West Bajac-bajac is a money lending business.

As a lender, plaintiff’s prime concern is profit. In order to attain


this, he has to impose double measures to protect his interest. First, to ask
the borrower to produce the title to the property intended as collateral. On
this, the lender asks the borrower to execute a deed of mortgage. Plaintiff
does not operate as a commercial bank neither as a rural bank, hence, he
belongs to the group that allows a borrower to repay within a shorter
period. Secondly, to facilitate collection of the monthly repayments,
the lender requires the borrower to issue checks for each month
ensuing all in equal amounts. Usually, the checks so issued would also
include the interest due each month, but in this case, there is no
testimony to that effect. However, it can be assumed considering the
subsequent acts of the parties.

As soon as the borrower is able to satisfy the two conditions, he


gets the desired loan. The lender then has the borrower’s head, as well as
his tail, in his hands, and that is the predicament where the defendants
found themselves in. Defendants were, however, confronted with a
problem. Someone else is after their property, a third person in whose
favor they owe a demandable obligation. This person is hot on pursuing
the property to satisfy what defendants owe her. And defendants opened
up and relayed their predicament to the plaintiff and the latter agreed.

Anxious that the defendants’ property will eventually be attached


or levied, leaving the loan he will give without any collateral, plaintiff
agreed to simulate the amount in the Deed, to an amount higher that the
third persons claim against the defendants but at the same time he required
from the defendants checks to cover the P200,000.00 loan. Defendant
Eulogio testified that he issued the checks for the amount of
P200,000.00 and plaintiff did not deny this. x x x.230[32]

Consequently, when petitioner filed Criminal Cases No. 612-90 to No.


615-90, he was deemed to have already availed himself of the remedy of
collection suit. Following the rule on the alternative remedies of a mortgage-

230
creditor, petitioner is barred from subsequently resorting to an action for
foreclosure.

However, it should be stressed that respondents have not yet fully


paid the loan. In fact, respondents themselves admitted that they still
owe petitioner the balance of the loan.231[33]

To allow respondents to benefit from the loan without paying its


whole amount to petitioner, and to preclude the petitioner from recovering
the remaining balance of the loan, would constitute unjust enrichment at the
expense of petitioner. The principle that no person may unjustly enrich
himself at the expense of another (Nemo cum alterius detrimento locupletari
potest) is embodied in Article 22 of the New Civil Code, to wit:

ART. 22. Every person who through an act of performance by


another, or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal ground, shall
return the same to him.

As can be gleaned from the foregoing, there is unjust enrichment


when (1) a person is unjustly benefited, and (2) such benefit is derived at the
expense of or with damages to another.232[34] The main objective of the
principle of unjust enrichment is to prevent one from enriching oneself at the
expense of another.233[35] It is commonly accepted that this doctrine simply
means that a person shall not be allowed to profit or enrich himself
inequitably at another’s expense.234[36] One condition for invoking this
231
232
233
234
principle is that the aggrieved party has no other action based on contract,
quasi-contract, crime, quasi-delict or any other provision of law.235[37]

The principle of unjust enrichment obliges the respondents to pay the


remaining balance of the loan plus interest. Relieving the respondents of
their obligation to pay the balance of the loan would, indeed, be to sanction
unjust enrichment in favor of respondents and cause unjust poverty to
petitioner.

In the exercise of our mandate as a court of justice and equity,236[38] we


hold, pro hac vice, that respondents are still liable to pay the remaining
balance of the loan.

We, nonetheless, do not subscribe to the computations made by the


RTC. In Eastern Shipping Lines, Inc. v. Court of Appeals,237[39] we ruled that
when the obligation is breached and it consists in the payment of a sum of
money such as a loan, the interest due should be that which may have been
stipulated in writing. We also held that the interest due shall itself earn legal
interest from the time it is demanded, and that in the absence of stipulation
as to the payment of interest, the rate of interest shall be 12% per annum to
be computed from default, i.e., from judicial or extra-judicial demand.
We further declared that when the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal interest, regardless of
whether it is a loan/forbearance of money case or not, shall be 12% per

235
236
237
annum from such finality until its satisfaction, this interim period being
deemed to be then equivalent to a forbearance of credit.

In the instant case, there was no written agreement as to the payment


of interest on the mortgage-loan between petitioner and respondents. The
rate of interest, therefore, is 12% per annum, to be computed from the time
an extra-judicial demand was made by the petitioner on 30 July 1992.238[40]

We also found that an amount of P107,000.00 out of the total loan of


P200,000.00 was already paid by the respondents. Thus, only the balance of
P93,000.00 should earn a legal interest of 12% per annum from the time of
the extra-judicial demand on 30 July 1992. In addition, a legal interest of
12% per annum should also be imposed to be computed from the finality of
this Decision up to its satisfaction.

WHEREFORE, the instant Petition is hereby GRANTED. The


Decision of the Court of Appeals dated 13 September 2005 in CA-G.R. CV
No. 79971 is hereby REVERSED and SET ASIDE. Respondents Eulogio
and Teresita Santos are hereby ORDERED to pay petitioner Antonio
Chieng, substituted by William Chieng, the balance of the loan amounting to
P93,000.00, plus legal interest of 12% per annum from 30 July 1992 up to
the finality of this Decision, and an additional legal interest of 12% per
annum from the finality of this Decision up to its satisfaction. No costs.

SO ORDERED.

238
REMINGTON INDUSTRIAL G.R. No. 171858
SALES CORPORATION,
Petitioner, Present:

Ynares-Santiago, J. (Chairperson),
- versus - Austria-Martinez,
Chico-Nazario,
Nachura, and
Reyes, JJ.
CHINESE YOUNG MEN’S
CHRISTIAN ASSOCIATION OF
THE PHIL. ISLANDS, doing Promulgated:
business under the name MANILA
DOWNTOWN YMCA,
Respondent. August 31, 2007

x ---------------------------------------------------------------------------------------- x

RESOLUTION
YNARES-SANTIAGO, J.:

For resolution is the motion for reconsideration filed by respondent


Chinese Young Men’s Christian Association of the Philippine Islands
(YMCA) of the Decision dated January 22, 2007, the dispositive portion of
which states:

WHEREFORE, the instant petition is GRANTED. The Decision


and Resolution of the Court of Appeals in CA-G.R. SP No. 88599 are SET
ASIDE. The Decision of the Regional Trial Court of Manila, Branch 25,
in Civil Case No. 03-107655, dismissing the unlawful detainer case for
lack of merit, is hereby REINSTATED and AFFIRMED.

SO ORDERED.239[1]
239
Respondent YMCA owns a two storey-building in Binondo, Manila.
It leased Unit No. 963 located at the second floor to petitioner RISC from
December 1, 1993 to November 30, 1995. It also leased to petitioner RISC
Unit No. 966 located at the ground floor from December 1, 1995 to
November 30, 1997, while the adjoining unit or Unit 964 was leased to
petitioner’s sister company RSC. Petitioner removed the partition between
Units 964 and 966 and used the combined areas as its office, hardware store
and display shop for steel products. It was also used as a passageway to
Unit 963, which was utilized by petitioner as its staff room.

On February 27, 1997, respondent formally terminated the lease over


the second floor unit and gave RISC until March 31, 1997 to vacate the
premises. Before the said period ended, RISC filed an action for the Fixing
of Lease Period over the said unit.240[2] Subsequently, YMCA filed an action
for Ejectment241[3] against petitioner. The two cases were consolidated before
Branch 26 of the Metropolitan Trial Court of Manila (MeTC-Manila).

Meanwhile, petitioner filed a Petition for Consignation of Rentals242[4]


alleging that respondent refused to receive payments of the rentals for the
ground floor units without just cause. During the hearing, petitioner filed a
Formal Surrender of the Leased Premises243[5] to which respondent
manifested that it does not object to the turn over or the surrender of the
leased premises.244[6] On July 9, 1998, after petitioner delivered two checks
240
241
242
243
244
covering the rents for the ground floor units, the trial court issued an Order
declaring the consignation case closed. However, petitioner continued to
use the premises as passageway since it is the only means of ingress and
egress to the second floor unit it occupies. RISC kept the premises
padlocked allegedly as a security measure and failed to give YMCA the keys
to the premises.

On August 11, 1998, the trial court hearing the consolidated cases
rendered a Decision extending the lease period for three years from finality
of the Decision and dismissed YMCA’s complaint for ejectment. Petitioner
filed a Motion to Constitute Passageway alleging that it has no means of
ingress or egress to its second floor Unit. An ocular inspection was
conducted on February 5, 1999. The Commissioner’s Report revealed that
petitioner is still in possession of the keys to the two ground floor units
because YMCA failed to provide an adequate passageway to the second
floor.245[7] Thereafter, YMCA manifested its willingness to constitute a
passageway provided Remington will surrender possession of the ground
floor unit.246[8]

Since respondent was never in actual possession of the premises at the


ground floor, it demanded payment from the respective lessees rentals in
arrears. Respondent sent Statements of Account dated September 7, 1999
and December 31, 1999 which petitioner repudiated. Finally, on January 18,
2000, respondent sent petitioner a Notice of Termination of Lease with
demand to vacate and pay rents from July 1998 to December 1999. This

245
246
was followed by Statements of Account dated July 28, 2000 and August 7,
2000 according to which the rental arrears amounted to P571,153.85.

On October 26, 2000, respondent filed two ejectment cases against


petitioner before the MeTC of Manila. The ejectment case against RSC over
ground floor Unit No. 964 was raffled to Branch 20 of the MeTC-Manila
which rendered its Decision on November 5, 2001 ordering RSC to vacate
the premises and to pay back rents. However, upon appeal, the RTC
reversed the Decision of the MeTC and dismissed the complaint. YMCA
appealed to the Court of Appeals which dismissed the case on technical
grounds and is now pending appeal before this Court.

The ejectment case against petitioner RSIC over ground floor Unit
No. 966, the subject matter of the case at bar, was raffled to Branch 17 of the
MeTC-Manila.247[9] In its Decision dated June 20, 2003, it ordered petitioner
RSIC to vacate the premises and to pay back rents.248[10] Consequently,
petitioner appealed to the RTC which ruled in its favor dismissing the
complaint for ejectment for lack of cause of action.249[11] Thereafter, YMCA
appealed to the Court of Appeals which reversed the RTC and reinstated the
Decision of the MeTC.

The Court of Appeals decided in favor of respondent YMCA ruling


that it was effectively deprived of possession of the subject units since RISC
failed to surrender possession despite manifesting its willingness to do so, by
padlocking the subject premises. It did not lend credence to petitioner’s
247
248
249
claim that the padlocking of the premises was for self-preservation and that
it is the only means of ingress and egress to its second floor unit since RISC
continued to exercise control over the subject premises. The appellate court
also rejected the RTC’s observation that YMCA was not prevented from
taking control of the disputed units for it could have easily forced open the
padlocks. It maintained that ejectment is the legal alternative as against the
use of force and breaches of the peace.

RISC thus filed the instant petition for review on certiorari assailing
the Decision of the Court of Appeals. In the assailed Decision, we ruled
that petitioner has effectively surrendered possession of Units 964 and 966;
that the filing of petitioner’s Formal Surrender of the Leased Premises
constitute constructive delivery of the said premises effective July 1, 1998 as
it thereafter emptied and vacated the premises; and that respondent could
have easily removed the padlock and take legal and actual possession of the
premises.

In the instant motion for reconsideration, respondent argues that


petitioner has not constructively delivered the possession of the ground floor
units despite the filing in the consignation case of the Formal Surrender of
the Leased Premises and after it has emptied and vacated the leased
premises on July 1, 1998. Respondent contends that petitioner’s use of the
premises as passageway, the continued padlocking of the gates and non-
turnover of keys constitute unlawful withholding of the possession of the
subject premises for which petitioner should be liable.

We grant the motion.


A case for Unlawful Detainer is an action against one who unlawfully
withholds possession after the expiration or termination of his right to hold
possession by virtue of any contract, express or implied, brought within one
year from the date of the last demand.250[12] From the allegations of the
respondent, the case for unlawful detainer is grounded on three acts of
petitioner, i.e., using the premises as passageway, the continued padlocking
of the premises and non-turnover of keys.

In a contract of lease, the lessor binds himself to give the enjoyment


or use of a thing to the lessee for a price certain, and for a period which may
be definite or indefinite.251[13] The lessor is obliged to deliver the thing which
is the object of the contract in such condition as to render it fit for the use
intended252[14] and upon its termination, the lessee shall return the thing just
as he received it, save what has been lost or impaired by the lapse of time, or
by ordinary wear and tear, or from an inevitable cause.253[15]

The filing of the Formal Surrender of Leased Premises and the actual
emptying of the premises constitute constructive delivery of possession.
Hence, the contract of lease was terminated on July 1, 1998 and it is
incumbent upon petitioner, as lessee, to comply with its obligation to return
the thing leased to the lessor and vacate the premises.

250
251
252
253
However, petitioner failed to comply with its obligation to return the
premises to respondent. In order to return the thing leased to the lessor, it is
not enough that the lessee vacates it. It is necessary that he places the thing
at the disposal of the lessor, so that the latter can receive it without any
obstacle. He must return the keys and leave no sub-lessees or other persons
in the property; otherwise he shall continue to be liable for rents.254[16]

Petitioner’s constructive delivery of the premises did not produce the


effect of actual delivery to the respondent. To be effective, it is necessary
that the person to whom the delivery is made must be able to take control of
it without impediment especially from the person who supposedly made
such delivery.255[17] In the case at bar, records show that despite the
termination of the lease, respondent was never in possession of the premises
because it was padlocked. Respondent was not given the key to the
premises hence it was deprived to use the same as it pleases.

Although the use of the premises as passageway was justified,


petitioner cannot deprive respondent the use of the said premises by having
it padlocked. Other than simply repudiating the demand for back rentals,
petitioner should have given respondent a set of keys so it can enter the
premises without exposing the property to security risks. Prudence dictates
the delivery of the keys to respondent to dispel any doubt that petitioner is
using the premises other than as a mere passageway and that it has never
withheld possession of the same to the respondent. Petitioner had several
opportunities to give respondent access to the premises starting from the

254
255
time it sent its first demand to pay back rentals until the complaint for
ejectment was filed but it never availed of these opportunities.

From the foregoing, it is apparent that petitioner’s constructive


delivery did not effectively transfer possession of the leased premises to
respondent. From the time the lease was terminated, petitioner unlawfully
withheld possession of the leased premises from respondent.256[18] However,
it appears that petitioner had moved out from respondent’s building on
March 12, 2004, as stated in its Manifestation257[19] before Branch 25 of the
RTC-Manila. Respondent is entitled to a reasonable compensation for
petitioner’s continued occupancy of the premises despite termination of the
lease from July 1, 1998 to March 12, 2004.

Under Section 17, Rule 70 of the Rules of Court, the trial court may
award reasonable compensation for the use and occupation of the leased
premises after the same is duly proved. In Asian Transmission Corporation
v. Canlubang Sugar Estates,258[20] the Court ruled that the reasonable
compensation contemplated under said Rule partakes of the nature of actual
damages based on the evidence adduced by the parties. The Court also ruled
that “fair rental value is defined as the amount at which a willing lessee
would pay and a willing lessor would receive for the use of a certain
property, neither being under compulsion and both parties having a
reasonable knowledge of all facts, such as the extent, character and utility of

256
257
258
the property, sales and holding prices of similar land and the highest and
best use of the property.”259[21]

The reasonable compensation for the leased premises fixed by the trial
court based on the stipulated rent under the lease contract which is
P22,531.00, must be equitably reduced in view of the circumstances
attendant in the case at bar. First, it should be noted that the premises was
used only as a means of passageway caused by respondent’s failure to
provide sufficient passageway towards the second floor unit it also occupies.
Second, respondent was negligent because it waited for more than a year
before it actually demanded payment for back rentals as reflected in its
Statement of Accounts dated September 7, 1999. When both parties to a
transaction are mutually negligent in the performance of their obligations,
the fault of one cancels the negligence of the other and, as in this case, their
rights and obligations may be determined equitably under the law
proscribing unjust enrichment.260[22] From the foregoing, we find the amount
of P11,000.00 a month equitable and reasonable compensation for
petitioner’s continued use of the premises.

WHEREFORE, the motion for reconsideration is GRANTED. The


Decision dated January 22, 2007 is VACATED and a new judgment is
entered REINSTATING and AFFIRMING the Decision of the
Metropolitan Trial Court of Manila in Civil Case No. 168628-CV with the
MODIFICATION that petitioner is ordered to PAY respondent

259
260
P11,000.00 a month from July 1, 1998 until March 12, 2004 as reasonable
compensation for the use of the premises.

SO ORDERED.