CIVIL LAW CASES
G.R. No. 139442 December 6, 2006
LOURDES DELA CRUZ, petitioner,
vs.
HON. COURT OF APPEALS and MELBA TAN TE,
respondents.
DECISION
VELASCO, JR., J.:
For unto every one that hath shall be given, and he shall
have abundance: but from him that hath not shall be
taken away even that which he hath.
—Holy Bible, Matthew 25:29
The Case
This petition for review seeks to nullify the April 30,
1999 Decision and the July 16, 1999 Resolution of the
Court of Appeals in CA-G.R. SP No. 49097, which
reversed the Decision of the Manila Regional Trial Court
(RTC), Branch 35, in Civil Case No. 98-89174, and
reinstated the Decision of the Manila Metropolitan Trial
Court (MeTC), Branch 20, which ordered petitioner Dela
Cruz to vacate the subject lot in favor of respondent Tan
Te.1
The Facts
The Reyes family, represented by Mr. Lino Reyes,
owned the lot located at No. 1332 Lacson Street
(formerly Gov. Forbes Street), Sampaloc, Manila.
Petitioner Lourdes Dela Cruz was one of their lessees,
and she religiously paid rent over a portion of the lot for
well over 40 years. Sometime in 1989, a fire struck the
premises and destroyed, among others, petitioner’s
dwelling. After the fire, petitioner and some tenants
returned to the said lot and rebuilt their respective
houses; simultaneously, the Reyes family made several
verbal demands on the remaining lessees, including
petitioner, to vacate the lot but the latter did not
comply. On February 21, 1994, petitioner was served a
written demand to vacate said lot but refused to leave.
Despite the setback, the Reyes family did not initiate
court proceedings against any of the lessees.
On November 26, 1996, the disputed lot was sold by the
Reyeses to respondent Melba Tan Te by virtue of the
November 26, 1996 Deed of Absolute Sale. Respondent
bought the lot in question for residential purposes.
Despite the sale, petitioner Dela Cruz did not give up
the lot.
On January 14, 1997, petitioner was sent a written
demand to relinquish the premises which she ignored,
prompting respondent Tan Te to initiate conciliation
proceedings at the barangay level. While respondent
attempted to settle the dispute by offering financial
assistance, petitioner countered by asking PhP
500,000.00 for her house. Respondent rejected the
counter offer which she considered unconscionable. As
a result, a certificate to file action was issued to Tan Te.
On September 8, 1997, respondent Tan Te filed an
ejectment complaint with damages before the Manila
MeTC, entitled Melba Tan Te v. Lourdes Dela Cruz and
docketed as Civil Case No. 156730-CV. The complaint
averred that: (1) the previous owners, the Reyeses were
in possession and control of the contested lot; (2) on
November 26, 1996, the lot was sold to Tan Te; (3) prior
to the sale, Dela Cruz forcibly entered the property with
strategy and/or stealth; (4) the petitioner unlawfully
deprived the respondent of physical possession of the
property and continues to do so; and, (5) the
respondent sent several written demands to petitioner
to vacate the premises but refused to do so.
On October 24, 1997, petitioner filed her answer and
alleged that: (1) the MeTC had no jurisdiction over the
case because it falls within the jurisdiction of the RTC as
more than one year had elapsed from petitioner’s
forcible entry; (2) she was a rent-paying tenant
protected by PD 20;2 (3) her lease constituted a legal
encumbrance upon the property; and (4) the lot was
subject of expropriation.
The Ruling of the Manila MeTC
On April 3, 1998, the MeTC decided as follows:
WHEREFORE, judgment is hereby rendered in favor of
the plaintiff as follows:
1. Ordering the defendant and all persons claiming right
under her to vacate the premises situated at 1332
Lacson Street (formerly Gov. Forbes Street), Sampaloc,
Manila and peacefully return possession thereof to
plaintiff;
2. Ordering the defendant to pay the plaintiff the
amount of P360.00 a month from December 1996 to
November 1997; P432.00 a month from December 1997
to November 1998, plus 20% for each subsequent year
until the premises shall have been vacated and turned
over to the plaintiff;
3. Ordering the defendant to pay the plaintiff the
amount of P10,000.00 as attorney’s fees; and, the costs
of the suit.
SO ORDERED.3
The Ruling of the Regional Trial Court
Unconvinced, petitioner Dela Cruz appealed the
Decision of the MeTC in the Manila RTC and the appeal
was docketed as Civil Case No. 98-89174. On September
1, 1998, the RTC rendered its judgment setting aside the
April 3, 1998 Decision of the Manila MeTC and
dismissed respondent Tan Te’s Complaint on the ground
that it was the RTC and not the MeTC which had
jurisdiction over the subject matter of the case. The RTC
believed that since Tan Te’s predecessor-in-interest
learned of petitioner’s intrusion into the lot as early as
February 21, 1994, the ejectment suit should have been
filed within the one-year prescriptive period which
expired on February 21, 1995. Since the Reyes did not
file the ejectment suit and respondent Tan Te filed the
action only on September 8, 1997, then the suit had
become an accion publiciana cognizable by the RTC.
The Ruling of the Court of Appeals
Disappointed at the turn of events, respondent Tan Te
appealed the adverse Decision to the Court of Appeals
(CA) which was docketed as CA-G.R. SP No. 49097. This
time, the CA rendered a Decision in favor of respondent
Tan Te reversing the Manila RTC September 1, 1998
Decision and reinstated the Manila MeTC April 3, 1998
Decision.
Petitioner tried to have the CA reconsider its Decision
but was rebutted in its July 16, 1999 Resolution.
Unyielding to the CA Decision and the denial of her
request for reconsideration, petitioner Dela Cruz now
seeks legal remedy through the instant Petition for
Review on Certiorari before the Court.
The Issues
Petitioner Dela Cruz claims two (2) reversible errors on
the part of the appellate court, to wit:
A pass only because there is a need to entertain the
THE HON. COURT OF APPEALS, WITH DUE RESPECT,
WENT BEYOND THE ISSUES OF THE CASE AND
CONTRARY TO THOSE OF THE TRIAL COURT.
B
THE HON. COURT OF APPEALS, WITH DUE RESPECT,
ERRED IN REVERSING THE DECISION OF THE RTC AND IN
EFFECT, REINSTATING THE DECISION OF THE [MeTC]
WHICH IS CONTRADICTED BY THE EVIDENCE ON
RECORD.4
The Court’s Ruling
Discussion on Rule 45
Before we dwell on the principal issues, a few
procedural matters must first be resolved.
Petitioner Dela Cruz asks the Court to review the
findings of facts of the CA, a course of action proscribed
by Section 1, Rule 45. Firm is the rule that findings of
fact of the CA are final and conclusive and cannot be
reviewed on appeal to this Court provided they are
supported by evidence on record or substantial
evidence. Fortunately for petitioner, we will be liberal
with her petition considering that the CA’s factual
findings contradict those of the RTC, and there was an
asseveration that the court a quo went beyond the
issues of the case. Indeed, these grounds were
considered exceptions to the factual issue bar rule.
Secondly, the petition unnecessarily impleaded the CA
in violation of Section 4, Rule 45. We will let this breach
petition due to the conflicting rulings between the
lower courts; however, a repetition may result to
sanctions.
The actual threshold issue is which court, the Manila
RTC or the Manila MeTC, has jurisdiction over the Tan
Te ejectment suit. Once the jurisdictional issue is
settled, the heart of the dispute is whether or not
respondent is entitled to the ejectment of petitioner
Dela Cruz from the premises.
However, the petition is bereft of merit.
On the Issue of Jurisdiction
Jurisdiction is the power or capacity given by the law to
a court or tribunal to entertain, hear and determine
certain controversies.5 Jurisdiction over the subject
matter is conferred by law.
Section 33 of Chapter III -- on Metropolitan Trial Courts,
Municipal Trial Courts, and Municipal Circuit Trial Courts
of B. P. No. 1296 provides:
Section 33. Jurisdiction of Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial Courts
in civil cases.—Metropolitan Trial Courts, Municipal Trial
Courts, and Municipal Circuit Trial Courts shall exercise:
xxxx
(2) Exclusive original jurisdiction over cases of forcible
entry and unlawful detainer: Provided, That when, in
such cases, the defendant raises the question of
ownership in his pleadings and the question of
possession cannot be resolved without deciding the
issue of ownership, the issue of ownership shall be
resolved only to determine the issue of possession.
Thus exclusive, original jurisdiction over ejectment
proceedings (accion interdictal) is lodged with the first
level courts. This is clarified in Section 1, Rule 70 of the
1997 Rules of Civil Procedure that embraces an action
for forcible entry (detentacion), where one is deprived
of physical possession of any land or building by means
of force, intimidation, threat, strategy, or stealth. In
actions for forcible entry, three (3) requisites have to be
met for the municipal trial court to acquire jurisdiction.
First, the plaintiffs must allege their prior physical
possession of the property. Second, they must also
assert that they were deprived of possession either by
force, intimidation, threat, strategy, or stealth. Third,
the action must be filed within one (1) year from the
time the owners or legal possessors learned of their
deprivation of physical possession of the land or
building.
The other kind of ejectment proceeding is unlawful
detainer (desahucio), where one unlawfully withholds
possession of the subject property after the expiration
or termination of the right to possess. Here, the issue of
rightful possession is the one decisive; for in such
action, the defendant is the party in actual possession
and the plaintiff’s cause of action is the termination of
the defendant’s right to continue in possession.7 The
essential requisites of unlawful detainer are: (1) the fact
of lease by virtue of a contract express or implied; (2)
the expiration or termination of the possessor’s right to
hold possession; (3) withholding by the lessee of the
possession of the land or building after expiration or
termination of the right to possession; (4) letter of
demand upon lessee to pay the rental or comply with
the terms of the lease and vacate the premises; and (5)
the action must be filed within one (1) year from date of
last demand received by the defendant.
A person who wants to recover physical possession of
his real property will prefer an ejectment suit because it
is governed by the Rule on Summary Procedure which
allows immediate execution of the judgment under
Section 19, Rule 70 unless the defendant perfects an
appeal in the RTC and complies with the requirements
to stay execution; all of which are nevertheless
beneficial to the interests of the lot owner or the holder
of the right of possession.
On the other hand, Section 19, of Chapter II of B.P. No.
129 on Regional Trial Courts provides:
Section 19. Jurisdiction in civil cases.—Regional Trial
Courts shall exercise exclusive original jurisdiction:
xxxx
(2) In all civil actions which involve the title to, or
possession of, real property, or any interest therein,
except actions for forcible entry into and unlawful
detainer of lands or buildings, original jurisdiction over
which is conferred upon Metropolitan Trial Courts,
Municipal Trial Courts and Municipal Circuit Trial Courts.

Two (2) kinds of action to recover possession of real
property which fall under the jurisdiction of the RTC
are: (1) the plenary action for the recovery of the real
right of possession (accion publiciana) when the
dispossession has lasted for more than one year or
when the action was filed more than one (1) year from
date of the last demand received by the lessee or
defendant; and (2) an action for the recovery of
ownership (accion reivindicatoria) which includes the
recovery of possession.
These actions are governed by the regular rules of
procedure and adjudication takes a longer period than
the summary ejectment suit.
To determine whether a complaint for recovery of
possession falls under the jurisdiction of the MeTC (first
level court) or the RTC (second level court), we are
compelled to go over the allegations of the complaint.
The general rule is that what determines the nature of
the action and the court that has jurisdiction over the
case are the allegations in the complaint. These cannot
be made to depend upon the defenses set up in the
answer or pleadings filed by the defendant.8
This general rule however admits exceptions. In Ignacio
v. CFI of Bulacan, it was held "that while the allegations
in the complaint make out a case for forcible entry,
where tenancy is averred by way of defense and is
proved to be the real issue, the case should be
dismissed for lack of jurisdiction as the case should
properly be filed with the then Court of Agrarian
Relations."9
The cause of action in a complaint is not what the
designation of the complaint states, but what the
allegations in the body of the complaint define and
describe. The designation or caption is not controlling,
more than the allegations in the complaint themselves
are, for it is not even an indispensable part of the
complaint.10
Let us refer to the allegations of the complaint filed in
the Manila MeTC in Civil Case No. 98-89174, which we
quote verbatim:
3. That plaintiff is the absolute and registered owner of
a parcel of land located at No. 1332, Lacson Street,
Sampaloc, Manila now being occupied by defendant;
4. That plaintiff purchased the above-said parcel of land
together with its improvements from the legal heirs of
the late EMERLINDA DIMAYUGA REYES on November
26, 1996, under and by virtue of a Deed of Absolute Sale
x x x;
5. That pursuant to the said deed of sale, the title to the
land and all its improvements was transferred in
plaintiff’s name as evidenced by Transfer Certificate of
Title No. 233273 issued by the Register of Deeds of
Manila on April 22, 1997 x x x;
6. That prior to said sale, the previous owners,
represented by Mr. Lino Reyes, husband of the said
deceased Emerlinda D. Reyes and the administrator of
her estate, was in possession and control of the
property subject of this complaint;
7. That also prior to said sale, defendant, without the
knowledge and consent of Mr. Lino Reyes,
surreptitiously and by means of stealth and strategy
entered, used and occupied the said premises thus
depriving the former of rightful possession thereof;
8. That on February 21, 1994, Mr. Lino Reyes, through
Atty. Alejo Sedico, his lawyer, furnished the defendants
a letter formally demanding that defendant vacate the
premises x x x;
9. That, however, defendant failed and refused to
vacate despite just and legal demand by Mr. Lino Reyes;
10. That after the sale to plaintiff of said premises,
plaintiff has several times demanded of defendants to
vacate the premises, the last demand having been
made on them personally and in writing on January 14,
1997 x x x;
11. That defendant failed and refused and still fails and
refuses to vacate the premises without legal cause or
justifiable reason whatsoever;11
The answer of petitioner averred:
4. The Court has no jurisdiction over the case, having
been filed by plaintiff more than the reglementary one
year period to commence forcible entry case, which is
reckoned from the date of the alleged unlawful entry of
defendant by the use of stealth and strategy into the
premises;
5. For more than four decades now, defendant has been
and still is a rent-paying tenant of the subject land
occupied by their residential house, dating back to the
original owner-lessor, the Dimayuga family. Her lease
with no definite duration, commenced with a rent at
P60.00 per month until it was gradually increased in the
ensuing years. As of November 1996, it stood at
P300.00 a month;
6. In this circumstances [sic], defendant enjoys the
protective mantle of P.D. 20 and the subsequent rental
control status against dispossession. She cannot be
ejected other than for causes prescribed under B.P. Blg.
25. Further, in case of sale of the land, she has the right
of first refusal under the express provision of P.D. 1571;
7. Throughout the years of her tenancy, defendant has
been updated in her rental payment until the collector
of the original owner-lessor no longer came around as
she has done theretofore;
7.1. As a result, she was compelled to file a petition for
consignation of rent before the Metropolitan Trial Court
of Manila;
8. A bona fide tenant within the ambit if [sic] P.D. 20
and the subsequent rental control status, including B.P.
Blg. 25, under its terms, cannot be ousted on a plea of
expiration of her monthly lease;
9. Her lease constitutes a legal encumbrance upon the
property of the lessor/owner and binds the latter’s
successor-in-interest who is under obligation to respect
it;
10. The land at bench is the subject of a pending
expropriation proceedings;
11. Plaintiff being a married woman cannot sue or be
sued without being joined by her husband;12
Undeniably, the aforequoted allegations of the
complaint are vague and iffy in revealing the nature of
the action for ejectment.
The allegations in the complaint show that prior to the
sale by Lino Reyes, representing the estate of his wife
Emerlinda Reyes, he was in possession and control of
the subject lot but were deprived of said possession
when petitioner, by means of stealth and strategy,
entered and occupied the same lot. These
circumstances imply that he had prior physical
possession of the subject lot and can make up a forcible
entry complaint.
On the other hand, the allegation that petitioner Dela
Cruz was served several demands to leave the premises
but refused to do so would seem to indicate an action
for unlawful detainer since a written demand is not
necessary in an action for forcible entry. It is a fact that
the MeTC complaint was filed on September 8, 1997
within one (1) year from the date of the last written
demand upon petitioner Dela Cruz on January 14, 1997.
As previously discussed, the settled rule is jurisdiction is
based on the allegations in the initiatory pleading and
the defenses in the answer are deemed irrelevant and
immaterial in its determination. However, we relax the
rule and consider the complaint at bar as an exception
in view of the special and unique circumstances
present. First, as in Ignacio v. CFI of Bulacan,13 the
defense of lack of jurisdiction was raised in the answer
wherein there was an admission that petitioner Dela
Cruz was a lessee of the former owners of the lot, the
Reyeses, prior to the sale to respondent Tan Te. The
fact that petitioner was a tenant of the predecessors-in-
interest of respondent Tan Te is material to the
determination of jurisdiction. Since this is a judicial
admission against the interest of petitioner, such
admission can be considered in determining
jurisdiction. Second, the ejectment suit was filed with
the Manila MeTC on September 8, 1997 or more than
nine (9) years ago. To dismiss the complaint would be a
serious blow to the effective dispensation of justice as
the parties will start anew and incur additional legal
expenses after having litigated for a long time. Equitable
justice dictates that allegations in the answer should be
considered to aid in arriving at the real nature of the
action. Lastly, Section 6, Rule 1 of the Rules of Court
clearly empowers the Court to construe Rule 70 and
other pertinent procedural issuances "in a liberal
manner to promote just, speedy, and inexpensive
disposition of every action and proceeding."
Based on the complaint and the answer, it is apparent
that the Tan Te ejectment complaint is after all a
complaint for unlawful detainer. It was admitted that
petitioner Dela Cruz was a lessee of the Reyeses for
around four (4) decades. Thus, initially petitioner as
lessee is the legal possessor of the subject lot by virtue
of a contract of lease. When fire destroyed her house,
the Reyeses considered the lease terminated; but
petitioner Dela Cruz persisted in returning to the lot and
occupied it by strategy and stealth without the consent
of the owners. The Reyeses however tolerated the
continued occupancy of the lot by petitioner. Thus,
when the lot was sold to respondent Tan Te, the rights
of the Reyeses, with respect to the lot, were transferred
to their subrogee, respondent Tan Te, who for a time
also tolerated the stay of petitioner until she decided to
eject the latter by sending several demands, the last
being the January 14, 1997 letter of demand. Since the
action was filed with the MeTC on September 8, 1997,
the action was instituted well within the one (1) year
period reckoned from January 14, 1997. Hence, the
nature of the complaint is one of unlawful detainer and
the Manila MeTC had jurisdiction over the complaint.
Thus, an ejectment complaint based on possession by
tolerance of the owner, like the Tan Te complaint, is a
specie of unlawful detainer cases.
As early as 1913, case law introduced the concept of
possession by tolerance in ejectment cases as follows:
It is true that the landlord might, upon the failure of the
tenant to pay the stipulated rents, consider the contract
broken and demand immediate possession of the
rented property, thus converting a legal possession into
illegal possession. Upon the other hand, however, the
landlord might conclude to give the tenant credit for
the payment of the rents and allow him to continue
indefinitely in the possession of the property. In other
words, the landlord might choose to give the tenant
credit from month to month or from year to year for
the payment of their rent, relying upon his honesty of
his financial ability to pay the same. During such period
the tenant would not be in illegal possession of the
property and the landlord could not maintain an action
of desahucio until after he had taken steps to convert
the legal possession into illegal possession. A mere
failure to pay the rent in accordance with the contract
would justify the landlord, after the legal notice, in
bringing an action of desahucio. The landlord might,
however, elect to recognize the contract as still in force
and sue for the sums due under it. It would seem to be
clear that the landlord might sue for the rents due and
[unpaid, without electing to terminate the contract of
tenancy;] [w]hether he can declare the contract of
tenancy broken and sue in an action desahucio for the
possession of the property and in a separate actions for
the rents due and damages, etc.14
The concept of possession by tolerance in unlawful
detainer cases was further refined and applied in
pertinent cases submitted for decision by 1966. The rule
was articulated as follows:
Where despite the lessee’s failure to pay rent after the
first demand, the lessor did not choose to bring an
action in court but suffered the lessee to continue
occupying the land for nearly two years, after which the
lessor made a second demand, the one-year period for
bringing the detainer case in the justice of the peace
court should be counted not from the day the lessee
refused the first demand for payment of rent but from
the time the second demand for rents and surrender of
possession was not complied with.15
In Calubayan v. Pascual, a case usually cited in
subsequent decisions on ejectment, the concept of
possession by tolerance was further elucidated as
follows:
In allowing several years to pass without requiring the
occupant to vacate the premises nor filing an action to
eject him, plaintiffs have acquiesced to defendant’s
possession and use of the premises. It has been held
that a person who occupies the land of another at the
latter’s tolerance or permission, without any contract
between them, is necessarily bound by an implied
promise that he will vacate upon demand, failing which
a summary action for ejectment is the proper remedy
against them. The status of the defendant is analogous
to that of a lessee or tenant whose term of lease has
expired but whose occupancy continued by tolerance of
the owner. In such a case, the unlawful deprivation or
withholding of possession is to be counted from the
date of the demand to vacate.16 (Emphasis supplied.)
From the foregoing jurisprudence, it is unequivocal that
petitioner’s possession after she intruded into the lot
after the fire—was by tolerance or leniency of the
Reyeses and hence, the action is properly an unlawful
detainer case falling under the jurisdiction of the Manila
MeTC.
Even if we concede that it is the RTC and not the MeTC
that has jurisdiction over the Tan Te complaint,
following the reasoning that neither respondent nor her
predecessor-in-interest filed an ejectment suit within
one (1) year from February 21, 1994 when the Reyeses
knew of the unlawful entry of petitioner, and hence, the
complaint is transformed into an accion publiciana, the
Court deems it fair and just to suspend its rules in order
to render efficient, effective, and expeditious justice
considering the nine (9) year pendency of the ejectment
suit. More importantly, if there was uncertainty on the
issue of jurisdiction that arose from the averments of
the complaint, the same cannot be attributed to
respondent Tan Te but to her counsel who could have
been confused as to the actual nature of the ejectment
suit. The lawyer’s apparent imprecise language used in
the preparation of the complaint without any
participation on the part of Tan Te is sufficient special or
compelling reason for the grant of relief.
The case of Barnes v. Padilla17 elucidates the rationale
behind the exercise by this Court of the power to relax,
or even suspend, the application of the rules of
procedure:
Let it be emphasized that the rules of procedure should
be viewed as mere tools designed to facilitate the
attainment of justice. Their strict and rigid application,
which would result in technicalities that tend to
frustrate rather than promote substantial justice, must
always be eschewed. Even the Rules of Court reflect this
principle. The power to suspend or even disregard rules
can be so pervasive and compelling as to alter even that
which this Court itself has already declared to be final x
x x.
The emerging trend in the rulings of this Court is to
afford every party litigant the amplest opportunity for
the proper and just determination of his cause, free
from the constraints of technicalities. Time and again,
this Court has consistently held that rules must not be
applied rigidly so as not to override substantial
justice.18
Moreover, Section 8, Rule 40 authorizes the RTC—in
case of affirmance of an order of the municipal trial
court dismissing a case without trial on the merits and
the ground of dismissal is lack of jurisdiction over the
subject matter—to try the case on the merits as if the
case was originally filed with it if the RTC has jurisdiction
over the case. In the same vein, this Court, in the
exercise of its rule-making power, can suspend its rules
with respect to this particular case (pro hac vice), even
if initially, the MeTC did not have jurisdiction over the
ejectment suit, and decide to assume jurisdiction over it
in order to promptly resolve the dispute.
The issue of jurisdiction settled, we now scrutinize the
main issue.
At the heart of every ejectment suit is the issue of who
is entitled to physical possession of the lot or possession
de facto.
We rule in favor of respondent Tan Te for the following
reasons:
1. Petitioner admitted in her Answer that she was a
rent-paying tenant of the Reyeses, predecessors-in-
interest of respondent Tan Te. As such, she recognized
the ownership of the lot by respondent, which includes
the right of possession.
2. After the fire raged over the structures on the subject
lot in late 1989 the contracts of lease expired, as a
result of which Lino Reyes demanded that all occupants,
including petitioner, vacate the lot but the latter
refused to abandon the premises. During the duration
of the lease, petitioner’s possession was legal but it
became unlawful after the fire when the lease contracts
were deemed terminated and demands were made for
the tenants to return possession of the lot.
3. Petitioner’s possession is one by the Reyeses’
tolerance and generosity and later by respondent Tan
Te’s.
Petitioner fully knows that her stay in the subject lot is
at the leniency and magnanimity of Mr. Lino Reyes and
later of respondent Tan Te; and her acquiescence to
such use of the lot carries with it an implicit and
assumed commitment that she would leave the
premises the moment it is needed by the owner. When
respondent Tan Te made a last, written demand on
January 14, 1997 and petitioner breached her promise
to leave upon demand, she lost her right to the physical
possession of the lot. Thus, respondent Tan Te should
now be allowed to occupy her lot for residential
purposes, a dream that will finally be realized after nine
(9) years of litigation.
 No. 156730-CV and the July 16, 1999 Resolution in CA-
G.R. SP No. 49097 are hereby AFFIRMED IN TOTO.
Petitioner raises the ancillary issue that on March 15,
1998, the Manila City Council passed and approved
Ordinance No. 7951:

DEPARTMENT OF HEALTH,
[a]uthorizing the Manila City Mayor to acquire either by
negotiation or expropriation certain parcels of land Petitioner,
covered by Transfer Certificates of Title Nos. 233273,
175106 and 140471, containing an area of One
Thousand Four Hundred Twenty Five (1,425) square
meters, located at Maria Clara and Governor Forbes
Streets, Sta. Cruz, Manila, for low cost housing and
award to actual bonafide residents thereat and further
authorizing the City Mayor to avail for that purpose any
available funds of the city and other existing funding - versus -
facilities from other government agencies x x x.19

It readily appears that this issue was not presented

before the Court of Appeals in CA-G.R. SP No. 49097
despite the fact that the respondent’s petition was filed
on September 25, 1998, six months after the ordinance
was passed. Thus, this issue is proscribed as are all HTMC ENGINEERS COMPANY,
issues raised for the first time before the Court are
Respondent.
proscribed.

G.R. No. 146120

Even granting for the sake of argument that we
entertain the issue, we rule that the intended
expropriation of respondent’s lot (TCT No. 233273) by
the city government of Manila will not affect the Present:
resolution of this petition. For one thing, the issue can
be raised by petitioner in the appropriate legal
proceeding. Secondly, the intended expropriation might PANGANIBAN,* C.J.
not even be implemented since it is clear from the
ordinance that the City Mayor will still locate available Chairperson,
funds for project, meaning the said expense is not a
YNARES-SANTIAGO,
regular item in the budget.
AUSTRIA-MARTINEZ,

CALLEJO, SR., and

WHEREFORE, this petition is DENIED for lack of merit.
The April 30, 1999 Decision of the Court of Appeals CHICO-NAZARIO, JJ.
reinstating the April 3, 1998 MeTC Decision in Civil Case
Promulgated:
January 27, 2006
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
- - - - - - - - -x
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari under
Rule 45 of the Rules of Civil Procedure assailing the
Court of Appeals Decision[1] denying petitioners
petition for review of the Decision[2] of the
Construction Industry Arbitration Commission (CIAC)
awarding respondents claim against petitioner in the
total amount of P4,430,174.00 with interest, as well as
the Resolution dated 20 November 2000 denying
petitioners Motion for Reconsideration.
On various dates in May 1996, petitioner Department of
Health (DOH) entered into four OwnerConsultant
Agreements with respondent HTMC Engineers Company
(HTMC) involving various infrastructure projects for East
Avenue Medical Center, Rizal Medical Center, Amang
Rodriguez Medical Center, and Tondo Medical Center.
All four consultancy agreements for the above-named
hospitals were similarly-worded, indicating therein that
said contracts were intended for the preparation of
architectural and engineering (A & E) design plans and
bid documents/requirements, and for construction
supervision (CS). Moreover, Under Article 5.1 of the
consultancy contracts, the professional fee of HTMC is
7.5% of the project fund allocation.
Sometime in July and August 1996, respondent was able
to complete the A & E services for all four hospitals and
the necessary documents were submitted to petitioner
in accordance with the consultancy agreements. Thus,
on 07 October 1996, DOH Undersecretary Milagros L.
Fernandez issued a Memorandum Circular to the Chiefs
of Hospital of the four hospitals advising them to
facilitate the payment for the Consultancy Service
Contract of the 1995 various infrastructure projects of
their respective hospitals once the copy of the approved
contract has been forwarded to their office. Thereafter,
Arch. Ma. Rebecca Penafiel, Director III, Health
Infrastructure Services, DOH, on 15 October 1996,
wrote to the Chiefs of Hospital advising the latter that
respondent had submitted the required contract
documents and were therefore requested to facilitate
the corresponding payment of 70% of the consultancy
fee as stipulated in the contracts.
On 29 November 1996, petitioner requested the
following amendments to the consultancy agreements
pursuant to the guidelines issued by the National
Economic Development Authority (NEDA):
1. To divide the scope of works under the
original contracts into two (2) separate contracts:
a. Preparation of Detailed Architecture and
Engineering Plans, Technical Specifications and Detailed
Estimates; and
b. Full time construction supervision.
2. To breakdown the original professional
fee of 7.5% based on the project fund allocation into
two and to change the basis of payment, thus:
a. 6% based on the project contract cost (PCC)
shall be paid to the claimant for the 1st scope of work
(A & E service); and
b. 1.5% based on the project contract cost
shall be paid to the claimant for the 2nd scope of work
(CS services).
3. To define the project contract cost as to
the cost of the winning bid price.
In response to the proposed amendments, on 24
January 1997, HTMC sent the DOH a position paper
expressing their opinion on the matter. Among the
contents of said position paper are the following:
1. In order that the intent of the TOR (Terms
of Reference), being the basis of the award will not be
disturbed, the 7.5% consultants fee for the Regular A&E
and CS shall be retained, splitting this to 6% for Regular
A&E and 1.5% for CS is acceptable, on certain qualifying
breakdown and schedules, to wit:
a) The 7.5% shall be based on the a [sic] Project
Contract Cost which includes any adjustments (negative
or positive variations);
b) The 6% A&E Consultants fee shall be paid in
accordance with the following payment schedule:
10% - of Project Allotment Fund, upon signing of
contract
30% - to complete all payments to 40% of the roughly
estimated Project Construction Cost, upon 50%
completion of design works
45% - to complete all payments to 85% of the detailed
estimated Project Construction Cost, upon completion
and submission of the contract documents
15% - to complete the payments to 100% of the Project
Contact Cost, upon periodic inspection during the
construction of the project, further broken to 10% upon
50% completion and 5% upon owners acceptance of
substantial completion
xxx
e) The 1.5% for CS shall be paid in accordance with the
following terms of payment as per industry practice:
15% - of the Project Contract Cost; upon signing of the
contract.
Remaining balance shall be paid on an equal monthly
installments [sic] and within the original construction
contract schedule
xxx
h) The combined 6% A&E and 1.5% CS or a total of 7.5%
of the Project Contract Cost shall be paid in accordance
with the following:
10% - of the Project Allotment Fund (temporary basis),
upon signing of the contract
60% - to complete all payments to 70% of the detailed
estimated Project Construction Cost, upon completion
and submission of the contract documents
30% - to complete all payments to 100% of the Project
Contract Cost, upon completion of the construction of
the project, further broken down to 10% upon 50%
completion and 20% upon owners acceptance of
substantial completion
Meanwhile, in compliance with the Memorandum
Circular issued by DOH Undersecretary Fernandez, the
Amang Rodriguez Medical Center paid HTMC the
amount of P1,870,312.00 on 19 December 1996, while
the Rizal Medical Center paid HTMC P498,400.00 on 26
December 1996. Thereafter, the Tondo Medical Center
paid respondent the amount of P2,119,687.00 on 10
February 1997, and the East Avenue Medical Center,
the amount of P249,131.00 on 18 June 1997.
It would seem, however, that no clear settlement had
been reached by the parties in connection with
petitioners proposed amendments to the consultancy
agreements, thus, the DOH refused to issue the
necessary notices to proceed with the construction
supervision in favor of HTMC.
On 22 April 1998, respondents counsel sent a letter to
the DOH stating that:
In the stated Owner-Consultant Agreements, my client
had completed the Detailed Architectural and
Engineering Plans, Technical Specifications and Detailed
Estimates, and was paid 10% and 60% of the
Construction Contract Cost as downpayment and for
the completed documents, respectively.
The above-referred projects had already been awarded
to different Contractors and construction works are on-
going, but my client is not allowed to undertake the
Construction Supervision, inspite [sic] of repeated
inquiry and request for the Notice to Proceed from the
DOH Infrastructure Service Office and the DOH PEAC.
The Owner-Consultant Agreement, in its Article 5,
provides that the Consultants Fee is based on the
project fund allocation which should have been the
basis of the percentages of payments as partially done.
The documents (plans, specifications, estimates, etc.),
which my client had undertaken for the East Avenue
Medical Center, include the complete Cold Water
Supply Rehabilitation, Standard Fire Protection, New
Hot Water Supply and Distribution, and Improvement of
Storm Drainage System with a total estimated
construction cost in 1996 of P44M. The documents,
which my client had undertaken for the Rizal Medical
Center, include Phase I and Phase II with a total
estimated construction cost in 1996 of P30.68M.
The project fund allocation for the above-referred
projects had a total of P91,200,000.00 with a total
Consultants Fee of P6,840,000.00 based on Article 5 of
the Owner-Consultant Agreement. However, only the
gross amount of P4,737,530.72 had been paid.
In spite of my clients various demands, you did not issue
any Notice to Proceed for the Construction Supervision
of the above-referred projects, and that you insisted to
pay on the percentage basis of the construction
contract cost in violation of the Owner-Consultant
Agreement.
In view of all the above, it is hereby requested that the
balance of the Consultants Fee for the above four (4)
referred projects in the amount of P2,102,469.28 be
paid in full to my client.
Further, it is requested that the Consultants Fee in the
amount of P4,461,000.00 for the other works
undertaken by my client for the East Avenue and the
Rizal Medical Centers, which are awaiting project fund
allocations, be likewise paid in full to my client.
Should you fail to settle with my client, the above-
requested amounts within ten (10) days from receipt
hereof, we will be constrained to resort to Arbitration in
pursuance to Article 12 of the Owner-Consultant
Agreement.[3]
For petitioners continued refusal to heed respondents
demand for payment and issuance of notices to
proceed, on 26 October 1998, HTMC filed a claim
against DOH and requested for arbitration with the
CIAC.
On 30 March 1999, Arbitrator Custodio Parlade issued
the assailed Decision in favor of HTMC, the dispositive
portion of which states:
AWARD
In summary, award is hereby made in favor of the
claimant ordering the respondent to pay claimant the
amount of P3,543,630 due for A&E services, to
reimburse claimant for its expenses for salaries to the
three engineers who were engaged by HTMC to
perform construction supervision work in the amount of
P576,000.00, and to pay as damages unrealized profit as
a result of the non-performance of the this [sic] work in
the amount of P310,544.00 or the total amount of
P4,430,174.00 with interest at the rate of 6% per
annum from the time of the promulgation of this
decision and 12% per annum on the amount due
[principal plus accrued interest] from the date this
decision becomes final.
All other claims are hereby denied.[4]
On 27 April 2000, petitioner filed a petition for review
on certiorari with the Court of Appeals, which petition
was subsequently denied for lack of merit by the
appellate court on 28 September 2000. According to the
Court of Appeals:
The instant petition is without merit.
Anent the issue of jurisdiction, respondent arbitrator
correctly assumed jurisdiction over CIAC Case No. 33-
98. The owner-consultant agreement provides in
paragraphs 12.1 and 12.2:
12.1 Disputes
Any dispute concerning any question arising under this
Agreement which is not disposed of by agreement
between the parties, shall be decided by the Secretary
of Health who shall furnish the CONSULTANT a written
copy of his decision.
12.2 Arbitration
The decision of the Secretary of Health shall be final and
conclusive unless within thirty (30) days from the date
of receipt thereof, the CONSULTANT shall deliver to
OWNER a written notice addressed to the Secretary of
Health stating its desire to submit the controversy to
arbitration. In such event, the dispute shall be decided
in accordance with the provisions of the Rules of
Procedure in the Construction Industry Arbitration Law
under EO 1008.
Thus, when petitioner continued not to act on HTMCs
request for the observance of the provisions of the
agreement, private respondent HTMC properly
submitted the claim with the CIAC for arbitration.

Petitioners posture that the referral of the case to the
CIAC is premature deserves scant consideration.
Respondent had demanded that petitioner comply with
the agreement. The latter, through the Secretary of
Health, failed to act on the request. Later, a demand
letter was sent to petitioner. Still, it did not comply.
Thus, in order to protect its right, HTMC properly
submitted its claim with the CIAC, it being the eventual
forum of their agreement as mandated by E.O. No.
1008.
scales of justice. The regularity in the conduct of official
duties must therefore be continued to be presumed, as
no act of irregularity much less partiality has been
shown. The insinuations against respondent arbitrator
[are] without basis.
In view of the foregoing, this Court finds it unnecessary
to have the present case consolidated with CA G.R. SP
No. 58994, as this would unnecessarily delay the
decision in this case.

Petitioners reliance and interpretation of the Supreme WHEREFORE, the instant petition is hereby DENIED due
Courts ruling in Jesco Services Incorporated vs. Vera is course for lack of merit.[5]
misplaced. The same was clarified in a subsequent
resolution of the Third Division of the Supreme Court
dated September 30, 1996 in G.R. No. 125706 entitled
China Chang Jiang Energy Corporation (Philippines)
Petitioners Motion for Reconsideration was also denied
versus Rosal Infrastructure Builders, represented by its
in a Resolution issued by the appellate court on 20
General Manager, Alberto S. Surla, Construction
November 2000.
Industry Arbitration Commission, Prudencio F. Baranda,
and the Court of Appeals. In effect, the owner-
consultant agreement entered into by petitioner and
private respondents did not divest CIAC of jurisdiction Hence, the instant petition containing two issues for
over the case. For even if they elected another forum, consideration of this Court, to wit:
their agreement will remain to be within the jurisdiction
of CIAC. In so doing, they may not unilaterally divest
CIAC of its jurisdiction as provided for by law. I. Whether or not the Court of Appeals erred
in stating that the Construction Industry Arbitration
Commission (CIAC) had jurisdiction over the claim;
Coming now to the monetary award made by
respondent arbitrator. We find the same to be in accord
with the tenor of the agreement of the parties. The II. Whether or not the Court of Appeals erred
agreement being the law between them, the Court will in stating that the monetary award by the CIAC
leave it as it is. Absent any abuse in the mathematical arbitrator was in accord with the tenor of the
computation of the monetary award, the same should consultancy agreements.
be respected. In the present case, the computation is
based on the provisions of the agreement entered into
by the parties.

We find no merit in the instant petition.

Anent the allegation of partiality on the part of
respondent arbitrator, there is nothing on record that
would show that respondent arbitrator had tilted the
Contrary to the claim of the DOH, CIAC has jurisdiction
over the claim of HTMC. As stated in Section 4 of
Executive Order No. 1008, also known as the
Construction Industry Arbitration Law:
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
disputes 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.
Furthermore, Article III, Section 1 of the CIAC Rules of
Procedure Governing Construction Arbitration provides:
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.
It is undisputed that Article 12 of the four similarly-
worded consultancy agreements provides for
submission to arbitration of any dispute arising from
said agreements. Said Article states:
ARTICLE 12. DISPUTES, ARBITRATION, AND
TERMINATION
12.1 Disputes
Any dispute concerning any question arising under this
Agreement which is not disposed of by agreement
between the parties, shall be decided by the Secretary
of Health who shall furnish the CONSULTANT a written
copy of his decision.
12.2 Arbitration
The decision of the Secretary of Health shall be final and
conclusive unless within thirty (30) days from the date
of receipt thereof, the CONSULTANT shall deliver to
OWNER a written notice addressed to the Secretary of
Health stating its desire to submit the controversy to
arbitration. In such event, the dispute shall be decided
in accordance with the provisions of the Rules of
Procedure in the Construction Industry Arbitration Law
under EO 1008.
Therefore, upon the signing of said agreements in May
1996 by DOH and HTMC, both parties have explicitly
agreed that after a dispute arising from said agreements
has been passed upon by the Health Secretary, said
controversy involving the consultancy agreements shall
be submitted to voluntary arbitration, jurisdiction over
which is granted by law to the CIAC.
From the facts of the case, it is clear that prior to the
filing of the controversy for arbitration before the CIAC,
HTMC, through counsel, had repeatedly appealed the
matter before the DOH, through the Department
Secretary, but the latter failed to act upon HTMCs
request. In the letter sent to the DOH by HTMC dated
22 April 1998, it was even made clear that should the
DOH fail to address HTMCs requests, the latter shall
resort to arbitration in pursuance to the provisions of
the consultancy agreements.[6] Thus, We agree in the
conclusion of the appellate court that when petitioner
continued not to act on HTMCs request for the
observance of the provisions of the agreement,
respondent HTMC properly submitted the claim with
the CIAC for arbitration. As correctly stated by the Court
of Appeals, petitioners posture that the referral of the
case to the CIAC is premature deserves scant
consideration. Respondent had demanded that
petitioner comply with the agreement. The latter,
through the Secretary of Health, failed to act on the
request. Later, a demand letter was sent to petitioner.
Still, it did not comply. Thus, in order to protect its right,
HTMC properly submitted its claim with the CIAC, it
being the eventual forum of their agreement as
mandated by E.O. No. 1008.[7]
From the argument espoused by the DOH in its petition
that there was no basis for the continuation of the
agreement as respondent failed to signify its intention
to agree with the amended contract,[8] it seems that
petitioner is belaboring under the mistaken notion that
HTMCs refusal to accede to the formers request for
amendment of the consultancy contracts resulted in the
rescission of the original agreements, and that such
rescission gave the DOH and its personnel the right to
take over the construction supervision of the projects
and to refuse the payment of any amount due HTMC
under the agreements.
It must be stressed at this point that HTMCs failure to
accept the amendment proposed by the DOH did not, in
any way, affect the validity and the subsistence of the
four consultancy contracts which bound both parties
upon its perfection as early as May 1996. A contract
properly executed between parties continue to be the
law between said parties and should be complied with
in good faith.[9] There being a perfected contract, DOH
cannot revoke or renounce the same without the
consent of the other party. Just as nobody can be forced
to enter into a contract, in the same manner, once a
contract is entered into, no party can renounce it
unilaterally or without the consent of the other.[10] It is
a general principle of law that no one may be permitted
to change his mind or disavow and go back upon his
own acts, or to proceed contrary thereto, to the
prejudice of the other party.[11] As no revision to the
original agreement was ever arrived at, the terms of the
original contract shall continue to govern over both the
HTMC and the DOH with respect to the infrastructure
projects as if no amendments were ever initiated. In the
absence of a new perfected contract between HTMC
and DOH, both parties shall continue to be bound by
the stipulations of the original contract and all its
natural effects.[12]
Based on the preceding discussion, We have established
that the perfected consultancy agreements between
DOH and HTMC are valid, and therefore, under the
stipulations contained therein, DOH is under obligation
to pay HTMC the unpaid sum of its consultancy fees
which according to the findings of the CIAC, as affirmed
by the appellate court, amounts to P3, 543, 630.00.
Furthermore, as has been stressed earlier, from the
moment of perfection, the parties are bound not only
to the fulfillment of what has been expressly stipulated,
but also to all the consequences which, according to
their nature may be in keeping with good faith, usage,
and law,[13] thus, for the refusal of the DOH to issue
the necessary notices to proceed, effectively preventing
HTMC from performing the construction supervision on
the infrastructure projects, DOH must be held liable for
any damages or expense incurred by HTMC as a natural
result of any breach of the consultancy contract.
Therefore, we agree in the findings of both the CIAC and
the appellate court in awarding damages in the form of
unrealized profit as a result of the non-performance of
the construction supervision and in granting
reimbursement for the expenses for salaries of the
three engineers engaged by HTMC for the supposed
construction supervision.
Lastly, in its Memorandum, petitioner assails, for the
first time, the validity of the consultancy agreements for
the alleged failure of respondent to include in the
contracts a certification of availability of funds as
required under existing laws. However, at this late a
stage in the proceedings, said issue not having been
raised before the CIAC nor the Court of Appeals, fair
play, justice and due process dictate that this Court
cannot now, for the first time on appeal, pass upon this
question.[14] They must be raised seasonably in the
proceedings before the lower court.[15] Questions
raised on appeal must be within the issues framed by
the parties; consequently, issues not raised before the
trial court cannot be raised for the first time on
appeal.[16]
WHEREFORE, premises considered, the petition is
hereby DENIED. The Decision of the Court of Appeals in
CA-G.R. SP No. 52539 affirming the decision of the
Construction Industry Arbitration Commission in CIAC
Case No. 33-98 awarding respondent HTMC its claim for
payment of A & E services in the amount of
P3,543,630.00, reimbursement for the salaries of the
three engineers engaged by HTMC to perform
construction supervision in the amount of P576,000.00,
and damages in the form of unrealized profit in the
amount of P310,544.00, or the total amount of
P4,430,174.00 with interest, is hereby AFFIRMED. No
Costs.
Sebastian Siga-an, petitioner, vs. Alicia Villanueva,
respondent.
Facts: Respondent filed a complaint for sum of money
against petitioner. Respondent claimed that petitioner
approached her inside the PNO and offered to loan her
the amount of P540,000.00 of which the loan
agreement was not reduced in writing and there was no
stipulation as to the payment of interest for the loan.
Respondent issued a check worth P500,000.00 to
petitioner as partial payment of the loan. She then
issued another check in the amount of P200,000.00 to
petitioner as payment of the remaining balance of the
loan of which the excess amount of P160,000.00 would
be applied as interest for the loan. Not satisfied with
the amount applied as interest, petitioner pestered her
to pay additional interest and threatened to block or
disapprove her transactions with the PNO if she would
not comply with his demand. Thus, she paid additional
amounts in cash and checks as interests for the loan.
She asked petitioner for receipt for the payments but
was told that it was not necessary as there was mutual
trust and confidence between them. According to her
computation, the total amount she paid to petitioner
for the loan and interest accumulated to P1,200,000.00.
The RTC rendered a Decision holding that respondent
made an overpayment of her loan obligation to
petitioner and that the latter should refund the excess
amount to the former. It ratiocinated that respondent’s
obligation was only to pay the loaned amount of
P540,000.00, and that the alleged interests due should
not be included in the computation of respondent’s
total monetary debt because there was no agreement
between them regarding payment of interest. It
concluded that since respondent made an excess
payment to petitioner in the amount of P660,000.00
through mistake, petitioner should return the said
amount to respondent pursuant to the principle of
solutio indebiti. Also, petitioner should pay moral
damages for the sleepless nights and wounded feelings
experienced by respondent. Further, petitioner should
pay exemplary damages by way of example or
correction for the public good, plus attorney’s fees and
costs of suit.
Issue: (1) Whether or not interest was due to petitioner;
and (2) whether the principle of solutio indebiti applies
to the case at bar.
Ruling: (1) No. Compensatory interest is not chargeable
in the instant case because it was not duly proven that
respondent defaulted in paying the loan and no interest
was due on the loan because there was no written
agreement as regards payment of interest. Article 1956
of the Civil Code, which refers to monetary interest,
specifically mandates that no interest shall be due
unless it has been expressly stipulated in writing. As
can be gleaned from the foregoing provision, payment
of monetary interest is allowed only if: (1) there was an
express stipulation for the payment of interest; and (2)
the agreement for the payment of interest was reduced
in writing. The concurrence of the two conditions is
required for the payment of monetary interest. Thus,
we have held that collection of interest without any
stipulation therefor in writing is prohibited by law.
manner. Petitioner acted oppressively when he
pestered respondent to pay interest and threatened to
block her transactions with the PNO if she would not
pay interest. This forced respondent to pay interest
despite lack of agreement thereto. Thus, the award of
exemplary damages is appropriate so as to deter
petitioner and other lenders from committing similar
and other serious wrongdoings.
INTERNATIONAL FINANCE G.R. No. 160324
CORPORATION,
Petitioner, Present:

Panganiban, J.,

(2) Petitioner cannot be compelled to return the alleged Chairman,

excess amount paid by respondent as interest. Under
- versus - Sandoval-Gutierrez,*
Article 1960 of the Civil Code, if the borrower of loan
pays interest when there has been no stipulation Corona,
therefor, the provisions of the Civil Code concerning
solutio indebiti shall be applied. Article 2154 of the Civil Carpio Morales, and
Code explains the principle of solutio indebiti. Said
Garcia, JJ
provision provides that if something is received when
there is no right to demand it, and it was unduly IMPERIAL TEXTILE MILLS, Promulgated:
delivered through mistake, the obligation to return it
arises. In such a case, a creditor-debtor relationship is INC.,**
created under a quasi-contract whereby the payor
Respondent. November 15, 2005
becomes the creditor who then has the right to demand
the return of payment made by mistake, and the person x -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- -
who has no right to receive such payment becomes - -- x
obligated to return the same. The quasi-contract of
solutio indebiti harks back to the ancient principle that
no one shall enrich himself unjustly at the expense of
DECISION
another. The principle of solutio indebiti applies where
(1) a payment is made when there exists no binding
relation between the payor, who has no duty to pay,
and the person who received the payment; and (2) the
payment is made through mistake, and not through
PANGANIBAN, J.:
liberality or some other cause. We have held that the
principle of solutio indebiti applies in case of erroneous
payment of undue interest.

T
Article 2232 of the Civil Code states that in a quasi-
contract, such as solutio indebiti, exemplary damages he terms of a contract govern the rights and obligations
may be imposed if the defendant acted in an oppressive of the contracting parties. When the obligor undertakes
to be jointly and severally liable, it means that the (b) Interest of 12% per annum on accrued interest,
obligation is solidary. which shall be counted from the date of filing of the
instant action up to the actual payment;
If solidary liability was instituted to guarantee a
principal obligation, the law deems the contract to be
one of suretyship.
(c) P73,340.00 as attorneys fees;

The creditor in the present Petition was able to show

convincingly that, although denominated as a
Guarantee Agreement, the Contract was actually a
surety. Notwithstanding the use of the words guarantee
and guarantor, the subject Contract was indeed a
surety, because its terms were clear and left no doubt
as to the intention of the parties.
(d) Costs of suit.
2. The guarantor Imperial Textile Mills, Inc. together
with Grandtex is HELD secondarily liable to pay the
amount herein adjudged to [Petitioner] International
Finance Corporation.[4]

The Case
The assailed Resolution denied both parties respective
Motions for Reconsideration.
Before us is a Petition for Review[1] under Rule 45 of
the Rules of Court, assailing the February 28, 2002
Decision[2] and September 30, 2003 Resolution[3] of
the Court of Appeals (CA) in CA-GR CV No. 58471. The
The Facts
challenged Decision disposed as follows:

The facts are narrated by the appellate court as follows:

WHEREFORE, the appeal is PARTIALLY GRANTED. The
decision of the trial court is MODIFIED to read as
follows:
1. Philippine Polyamide Industrial Corporation is
ORDERED to pay [Petitioner] International Finance
Corporation, the following amounts:
(a) US$2,833,967.00 with accrued interests as provided
in the Loan Agreement;
On December 17, 1974, [Petitioner] International
Finance Corporation (IFC) and [Respondent] Philippine
Polyamide Industrial Corporation (PPIC) entered into a
loan agreement wherein IFC extended to PPIC a loan of
US$7,000,000.00, payable in sixteen (16) semi-annual
installments of US$437,500.00 each, beginning June 1,
1977 to December 1, 1984, with interest at the rate of
10% per annum on the principal amount of the loan
advanced and outstanding from time to time. The
interest shall be paid in US dollars semi-annually on
June 1 and December 1 in each year and interest for any
period less than a year shall accrue and be pro-rated on
the basis of a 360-day year of twelve 30-day months.
 of the outstanding balance plus interests and attorneys
fees.
On December 17, 1974, a Guarantee Agreement was
executed with x x x Imperial Textile Mills, Inc. (ITM),
Grand Textile Manufacturing Corporation (Grandtex)
and IFC as parties thereto. ITM and Grandtex agreed to The trial court held PPIC liable for the payment of the
outstanding loan plus interests. It also ordered PPIC to
guarantee PPICs obligations under the loan agreement.
pay IFC its claimed attorneys fees. However, the trial
court relieved ITM of its obligation as guarantor. Hence,
the trial court dismissed IFCs complaint against ITM.
PPIC paid the installments due on June 1, 1977,
December 1, 1977 and June 1, 1978. The payments due
on December 1, 1978, June 1, 1979 and December 1,
1979 were rescheduled as requested by PPIC. Despite xxxxxxxxx
the rescheduling of the installment payments, however,
PPIC defaulted. Hence, on April 1, 1985, IFC served a
written notice of default to PPIC demanding the latter Thus, apropos the decision dismissing the complaint
to pay the outstanding principal loan and all its accrued against ITM, IFC appealed [to the CA].[5]
interests. Despite such notice, PPIC failed to pay the
loan and its interests.

By virtue of PPICs failure to pay, IFC, together with DBP,

applied for the extrajudicial foreclosure of mortgages Ruling of the Court of Appeals
on the real estate, buildings, machinery, equipment
plant and all improvements owned by PPIC, located at
Calamba, Laguna, with the regional sheriff of Calamba,
The CA reversed the Decision of the trial court, insofar
Laguna. On July 30, 1985, the deputy sheriff of Calamba,
as the latter exonerated ITM from any obligation to IFC.
Laguna issued a notice of extrajudicial sale. IFC and DBP
According to the appellate court, ITM bound itself
were the only bidders during the auction sale. IFCs bid
under the Guarantee Agreement to pay PPICs obligation
was for P99,269,100.00 which was equivalent to
upon default.[6] ITM was not discharged from its
US$5,250,000.00 (at the prevailing exchange rate of
obligation as guarantor when PPIC mortgaged the
P18.9084 = US$1.00). The outstanding loan, however,
latters properties to IFC.[7] The CA, however, held that
amounted to US$8,083,967.00 thus leaving a balance of
ITMs liability as a guarantor would arise only if and
US$2,833,967.00. PPIC failed to pay the remaining
when PPIC could not pay. Since PPICs inability to comply
balance.
with its obligation was not sufficiently established, ITM
could not immediately be made to assume the
liability.[8]
Consequently, IFC demanded ITM and Grandtex, as
guarantors of PPIC, to pay the outstanding balance.
However, despite the demand made by IFC, the
The September 30, 2003 Resolution of the CA denied
outstanding balance remained unpaid.
reconsideration.[9] Hence, this Petition.[10]

The Issues
Thereafter, on May 20, 1988, IFC filed a complaint with
the RTC of Manila against PPIC and ITM for the payment
Petitioner states the issues in this wise:
I. Whether or not ITM and Grandtex[11] are sureties
and therefore, jointly and severally liable with PPIC, for
the payment of the loan.
II. Whether or not the Petition raises a question of law.
III. Whether or not the Petition raises a theory not
raised in the lower court.[12]
The main issue is whether ITM is a surety, and thus
solidarily liable with PPIC for the payment of the loan.
The Courts Ruling
The Petition is meritorious.
Main Issue:
Liability of Respondent Under
the Guarantee Agreement
The present controversy arose from the following
Contracts: (1) the Loan Agreement dated December 17,
1974, between IFC and PPIC;[13] and (2) the Guarantee
Agreement dated December 17, 1974, between ITM
and Grandtex, on the one hand, and IFC on the
other.[14]
IFC claims that, under the Guarantee Agreement, ITM
bound itself as a surety to PPICs obligations proceeding
from the Loan Agreement.[15] For its part, ITM asserts
that, by the terms of the Guarantee Agreement, it was
merely a guarantor[16] and not a surety. Moreover, any
ambiguity in the Agreement should be construed
against IFC -- the party that drafted it.[17]
Language of the
Contract
The premise of the Guarantee Agreement is found in its
preambular clause, which reads:
Whereas,
(A) By an Agreement of even date herewith between
IFC and PHILIPPINE POLYAMIDE INDUSTRIAL
CORPORATION (herein called the Company), which
agreement is herein called the Loan Agreement, IFC
agrees to extend to the Company a loan (herein called
the Loan) of seven million dollars ($7,000,000) on the
terms therein set forth, including a provision that all or
part of the Loan may be disbursed in a currency other
than dollars, but only on condition that the Guarantors
agree to guarantee the obligations of the Company in
respect of the Loan as hereinafter provided.

(B) The Guarantors, in order to induce IFC to enter into
the Loan Agreement, and in consideration of IFC
entering into said Agreement, have agreed so to
guarantee such obligations of the Company.[18]
The obligations of the guarantors are meticulously
expressed in the following provision:
Section 2.01. The Guarantors jointly and severally,
irrevocably, absolutely and unconditionally guarantee,
as primary obligors and not as sureties merely, the due
and punctual payment of the principal of, and interest
and commitment charge on, the Loan, and the principal
of, and interest on, the Notes, whether at stated
maturity or upon prematuring, all as set forth in the
Loan Agreement and in the Notes.[19]
The Agreement uses guarantee and guarantors,
prompting ITM to base its argument on those
words.[20] This Court is not convinced that the use of
the two words limits the Contract to a mere guaranty.
The specific stipulations in the Contract show
otherwise.
Solidary Liability
Agreed to by ITM
While referring to ITM as a guarantor, the Agreement
specifically stated that the corporation was jointly and
severally liable. To put emphasis on the nature of that
liability, the Contract further stated that ITM was a
primary obligor, not a mere surety. Those stipulations
meant only one thing: that at bottom, and to all legal
intents and purposes, it was a surety.
Indubitably therefore, ITM bound itself to be
solidarily[21] liable with PPIC for the latters obligations
under the Loan Agreement with IFC. ITM thereby
brought itself to the level of PPIC and could not be
deemed merely secondarily liable.
Initially, ITM was a stranger to the Loan Agreement
between PPIC and IFC. ITMs liability commenced only
when it guaranteed PPICs obligation. It became a surety
when it bound itself solidarily with the principal obligor.
Thus, the applicable law is as follows:
Article 2047. By guaranty, a person, called the
guarantor binds himself to the creditor to fulfill the
obligation of the principal in case the latter should fail
to do so.
If a person binds himself solidarily with the principal
debtor, the provisions of Section 4, Chapter 3, Title I of
this Book shall be observed. In such case the contract
shall be called suretyship.[22]
The aforementioned provisions refer to Articles 1207 to
1222 of the Civil Code on Joint and Solidary Obligations.
Relevant to this case is Article 1216, which states:
The creditor may proceed against any one of the
solidary debtors or some or all of them simultaneously.
The demand made against one of them shall not be an
obstacle to those which may subsequently be directed
against the others, so long as the debt has not been
fully collected.

Pursuant to this provision, petitioner (as creditor) was
justified in taking action directly against respondent.
No Ambiguity in the
Undertaking
The Court does not find any ambiguity in the provisions
of the Guarantee Agreement. When qualified by the
term jointly and severally, the use of the word
guarantor to refer to a surety does not violate the
law.[23] As Article 2047 provides, a suretyship is
created when a guarantor binds itself solidarily with the
principal obligor. Likewise, the phrase in the Agreement
-- as primary obligor and not merely as surety -- stresses
that ITM is being placed on the same level as PPIC.
Those words emphasize the nature of their liability,
which the law characterizes as a suretyship.
The use of the word guarantee does not ipso facto
make the contract one of guaranty.[24] This Court has
recognized that the word is frequently employed in
business transactions to describe the intention to be
bound by a primary or an independent obligation.[25]
The very terms of a contract govern the obligations of
the parties or the extent of the obligors liability. Thus,
this Court has ruled in favor of suretyship, even though
contracts were denominated as a Guarantors
Undertaking [26] or a Continuing Guaranty.[27]
Contracts have the force of law between the
parties,[28] who are free to stipulate any matter not
contrary to law, morals, good customs, public order or
public policy.[29] None of these circumstances are
present, much less alleged by respondent. Hence, this
Court cannot give a different meaning to the plain
language of the Guarantee Agreement.
Indeed, the finding of solidary liability is in line with the
premise provided in the Whereas clause of the
Guarantee Agreement. The execution of the Agreement
was a condition precedent for the approval of PPICs
loan from IFC. Consistent with the position of IFC as
creditor was its requirement of a higher degree of
liability from ITM in case PPIC committed a breach. ITM
agreed with the stipulation in Section 2.01 and is now
estopped from feigning ignorance of its solidary liability.
The literal meaning of the stipulations control when the
terms of the contract are clear and there is no doubt as
to the intention of the parties.[30]
We note that the CA denied solidary liability, on the
theory that the parties would not have executed a
Guarantee Agreement if they had intended to name
ITM as a primary obligor.[31] The appellate court
opined that ITMs undertaking was collateral to and
distinct from the Loan Agreement. On this point, the
Court stresses that a suretyship is merely an accessory
or a collateral to a principal obligation.[32] Although a
surety contract is secondary to the principal obligation,
the liability of the surety is direct, primary and absolute;
or equivalent to that of a regular party to the
undertaking.[33] A surety becomes liable to the debt
and duty of the principal obligor even without
possessing a direct or personal interest in the
obligations constituted by the latter.[34]
ITMs Liability as Surety
With the present finding that ITM is a surety, it is clear
that the CA erred in declaring the former secondarily
liable.[35] A surety is considered in law to be on the
same footing as the principal debtor in relation to
whatever is adjudged against the latter.[36] Evidently, those in the CA. Bare allegations without proof deserve
the dispositive portion of the assailed Decision should no credence.
be modified to require ITM to pay the amount adjudged
in favor of IFC.

Peripheral Issues
Review of Factual

In addition to the main issue, ITM raised procedural Findings Necessary

infirmities allegedly justifying the denial of the present
Petition. Before the trial court and the CA, IFC had
allegedly instituted different arguments that effectively
changed the corporations theory on appeal, in violation
As to the issue that only questions of law may be raised
of this Courts previous pronouncements.[37] ITM
in a Petition for Review,[39] the Court has recognized
further
exceptions,[40] one of which applies to the present
claims that the main issue in the present case is a case. The assailed Decision was based on a
question of fact that is not cognizable by this Court.[38] misapprehension of facts,[41] which particularly related
to certain stipulations in the Guarantee Agreement --
stipulations that had not been disputed by the parties.
This circumstance compelled the Court to review the
These contentions deserve little consideration.
Contract firsthand and to make its own findings and
conclusions accordingly.

Alleged Change of WHEREFORE, the Petition is hereby GRANTED, and the

assailed Decision and Resolution MODIFIED in the sense
Theory on Appeal that Imperial Textile Mills, Inc. is declared a surety to
Philippine Polyamide Industrial Corporation. ITM is
ORDERED to pay International Finance Corporation the
same amounts adjudged against PPIC in the assailed
Decision. No costs.

MAKATI STOCK EXCHANGE, INC., MA. VIVIAN

Petitioners arguments before the trial court (that ITM
YUCHENGCO, ADOLFO M. DUARTE, MYRON C. PAPA,
was a primary obligor) and before the CA (that ITM was
NORBERTO C. NAZARENO, GEORGE UY-TIOCO,
a surety) were related and intertwined in the action to
ANTONIO A. LOPA, RAMON B. ARNAIZ, LUIS J.L. VIRATA,
enforce the solidary liability of ITM under the
and ANTONIO GARCIA, JR.
Guarantee Agreement. We emphasize that the terms
primary obligor and surety were premised on the same Petitioners,
stipulations in Section 2.01 of the Agreement. Besides,
both terms had the same legal consequences. There
was therefore effectively no change of theory on
appeal. At any rate, ITM failed to show to this Court a
disparity between IFCs allegations in the trial court and - versus -
MIGUEL V. CAMPOS, substituted by JULIA ORTIGAS CHICO-NAZARIO, J.:
VDA. DE CAMPOS,[1]

Respondent.
This is a Petition for Review on Certiorari under Rule 45
seeking the reversal of the Decision[2] dated 11
February 1997 and Resolution dated 18 May 1999 of
G.R. No. 138814 the Court of Appeals in CA-G.R. SP No. 38455.

The facts of the case are as follows:

Present:

SEC Case No. 02-94-4678 was instituted on 10 February

1994 by respondent Miguel V. Campos, who filed with
the Securities, Investigation and Clearing Department
YNARES-SANTIAGO, J., (SICD) of the Securities and Exchange Commission (SEC),
a Petition against herein petitioners Makati Stock
Chairperson,
Exchange, Inc. (MKSE) and MKSE directors, Ma. Vivian
AUSTRIA-MARTINEZ, Yuchengco, Adolfo M. Duarte, Myron C. Papa, Norberto
C. Nazareno, George Uy-Tioco, Antonio A, Lopa, Ramon
CHICO-NAZARIO, B. Arnaiz, Luis J.L. Virata, and Antonio Garcia, Jr.
Respondent, in said Petition, sought: (1) the nullification
NACHURA, and
of the Resolution dated 3 June 1993 of the MKSE Board
PERALTA, JJ. of Directors, which allegedly deprived him of his right to
participate equally in the allocation of Initial Public
Offerings (IPO) of corporations registered with MKSE;
(2) the delivery of the IPO shares he was allegedly
deprived of, for which he would pay IPO prices; and (3)
the payment of P2 million as moral damages, P1 million
as exemplary damages, and P500,000.00 as attorneys
fees and litigation expenses.
Promulgated:

On 14 February 1994, the SICD issued an Order granting

respondents prayer for the issuance of a Temporary
April 16, 2009
Restraining Order to enjoin petitioners from
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - implementing or enforcing the 3 June 1993 Resolution
- - - - - - - - -x of the MKSE Board of Directors.

The SICD subsequently issued another Order on 10

March 1994 granting respondents application for a Writ
DECISION of Preliminary Injunction, to continuously enjoin, during
the pendency of SEC Case No. 02-94-4678, the
implementation or enforcement of the MKSE Board
Resolution in question. Petitioners assailed this SICD
Order dated 10 March 1994 in a Petition for Certiorari
filed with the SEC en banc, docketed as SEC-EB No. 393.
WHEREFORE, the petition in so far as it prays for
annulment of the Orders dated May 31, 1995 and
August 14, 1995 in SEC-EB Case Nos. 393 and 403 is
GRANTED. The said orders are hereby rendered null and
void and set aside.

On 11 March 1994, petitioners filed a Motion to Dismiss

respondents Petition in SEC Case No. 02-94-4678, based
on the following grounds: (1) the Petition became moot
due to the cancellation of the license of MKSE; (2) the
SICD had no jurisdiction over the Petition; and (3) the
Petition failed to state a cause of action.
Petitioners filed a Motion for Reconsideration of the
foregoing Decision but it was denied by the Court of
Appeals in a Resolution dated 18 May 1999.

The SICD denied petitioners Motion to Dismiss in an Hence, the present Petition for Review raising the
Order dated 4 May 1994. Petitioners again challenged following arguments:
the 4 May 1994 Order of SICD before the SEC en banc
through another Petition for Certiorari, docketed as
SEC-EB No. 403.
I.

In an Order dated 31 May 1995 in SEC-EB No. 393, the

THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF
SEC en banc nullified the 10 March 1994 Order of SICD
DISCRETION AMOUNTING TO LACK OR EXCESS OF
in SEC Case No. 02-94-4678 granting a Writ of
JURISDICTION WHEN IT DISMISSED THE PETITION FILED
Preliminary Injunction in favor of respondent. Likewise,
BY RESPONDENT BECAUSE ON ITS FACE, IT FAILED TO
in an Order dated 14 August 1995 in SEC-EB No. 403,
STATE A CAUSE OF ACTION.
the SEC en banc annulled the 4 May 1994 Order of SICD
in SEC Case No. 02-94-4678 denying petitioners Motion
to Dismiss, and accordingly ordered the dismissal of
respondents Petition before the SICD. II.

Respondent filed a Petition for Certiorari with the Court
of Appeals assailing the Orders of the SEC en banc dated
31 May 1995 and 14 August 1995 in SEC-EB No. 393 and
SEC-EB No. 403, respectively. Respondents Petition
before the appellate court was docketed as CA-G.R. SP
No. 38455.
THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF
RESPONDENT WAS A MERE ACCOMMODATION GIVEN
TO HIM BY THE BOARD OF [DIRECTORS] OF THE MAKATI
STOCK EXCHANGE, INC.
III.

On 11 February 1997, the Court of Appeals promulgated

its Decision in CA-G.R. SP No. 38455, granting THE COURT OF APPEALS ERRED IN HOLDING THAT THE
respondents Petition for Certiorari, thus: SEC EN BANC COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION WHEN IT MADE AN EXTENDED INQUIRY
AND PROCEEDED TO MAKE A DETERMINATION AS TO
THE TRUTH OF RESPONDENTS ALLEGATIONS IN HIS
PETITION AND USED AS BASIS THE EVIDENCE ADDUCED
DURING THE HEARING ON THE APPLICATION FOR THE
WRIT OF PRELIMINARY INJUNCTION TO DETERMINE
THE EXISTENCE OR VALIDITY OF A STATED CAUSE OF
ACTION.
IV.
IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO
BE BOUGHT BY THE BROKERS FOR THEMSELVES BUT
ARE TO BE DISTRIBUTED TO THE INVESTING PUBLIC.
HENCE, RESPONDENTS CLAIM FOR DAMAGES IS
ILLUSORY AND HIS PETITION A NUISANCE SUIT.[3]
On 18 September 2001, counsel for respondent
manifested to this Court that his client died on 7 May
2001. In a Resolution dated 24 October 2001, the Court
directed the substitution of respondent by his surviving
spouse, Julia Ortigas vda. de Campos.
Petitioners want this Court to affirm the dismissal by
the SEC en banc of respondents Petition in SEC Case No.
02-94-4678 for failure to state a cause of action. On the
other hand, respondent insists on the sufficiency of his
Petition and seeks the continuation of the proceedings
before the SICD.
A cause of action is the act or omission by which a party
violates a right of another.[4] A complaint states a cause
of action where it contains three essential elements of a
cause of action, namely: (1) the legal right of the
plaintiff, (2) the correlative obligation of the defendant,
and (3) the act or omission of the defendant in violation
of said legal right. If these elements are absent, the
complaint becomes vulnerable to dismissal on the
ground of failure to state a cause of action.
If a defendant moves to dismiss the complaint on the
ground of lack of cause of action, he is regarded as
having hypothetically admitted all the averments
thereof. The test of sufficiency of the facts found in a
complaint as constituting a cause of action is whether
or not admitting the facts alleged, the court can render
a valid judgment upon the same in accordance with the
prayer thereof. The hypothetical admission extends to
the relevant and material facts well pleaded in the
complaint and inferences fairly deducible therefrom.
Hence, if the allegations in the complaint furnish
sufficient basis by which the complaint can be
maintained, the same should not be dismissed
regardless of the defense that may be assessed by the
defendant.[5]
Given the foregoing, the issue of whether respondents
Petition in SEC Case No. 02-94-4678 sufficiently states a
cause of action may be alternatively stated as whether,
hypothetically admitting to be true the allegations in
respondents Petition in SEC Case No. 02-94-4678, the
SICD may render a valid judgment in accordance with
the prayer of said Petition.
A reading of the exact text of respondents Petition in
SEC Case No. 02-94-4678 is, therefore, unavoidable.
Pertinent portions of the said Petition reads:
7. In recognition of petitioners invaluable services, the
general membership of respondent corporation [MKSE]
passed a resolution sometime in 1989 amending its
Articles of Incorporation, to include the following
provision therein:
ELEVENTH WHEREAS, Mr. Miguel Campos is the only
surviving incorporator of the Makati Stock Exchange,
Inc. who has maintained his membership;
WHEREAS, he has unselfishly served the Exchange in
various capacities, as governor from 1977 to the
present and as President from 1972 to 1976 and again
as President from 1988 to the present;
WHEREAS, such dedicated service and leadership which
has contributed to the advancement and well being not
only of the Exchange and its members but also to the
Securities industry, needs to be recognized and
appreciated;
WHEREAS, as such, the Board of Governors in its
meeting held on February 09, 1989 has correspondingly
adopted a resolution recognizing his valuable service to
the Exchange, reward the same, and preserve for
posterity such recognition by proposing a resolution to
the membership body which would make him as
Chairman Emeritus for life and install in the Exchange
premises a commemorative bronze plaque in his honor;
NOW, THEREFORE, for and in consideration of the
above premises, the position of the Chairman Emeritus
to be occupied by Mr. Miguel Campos during his
lifetime and irregardless of his continued membership
in the Exchange with the Privilege to attend all
membership meetings as well as the meetings of the
Board of Governors of the Exchange, is hereby created.
8. Hence, to this day, petitioner is not only an active
member of the respondent corporation, but its
Chairman Emeritus as well.
9. Correspondingly, at all times material to this petition,
as an active member and Chairman Emeritus of
respondent corporation, petitioner has always enjoyed
the right given to all the other members to participate
equally in the Initial Public Offerings (IPOs for brevity) of
corporations.
10. IPOs are shares of corporations offered for sale to
the public, prior to the listing in the trading floor of the
countrys two stock exchanges. Normally, Twenty Five
Percent (25%) of these shares are divided equally
between the two stock exchanges which in turn divide
these equally among their members, who pay therefor
at the offering price.
11. However, on June 3, 1993, during a meeting of the
Board of Directors of respondent-corporation,
individual respondents passed a resolution to stop
giving petitioner the IPOs he is entitled to, based on the
ground that these shares were allegedly benefiting
Gerardo O. Lanuza, Jr., who these individual
respondents wanted to get even with, for having filed
cases before the Securities and Exchange (SEC) for their
disqualification as member of the Board of Directors of
respondent corporation.
12. Hence, from June 3, 1993 up to the present time,
petitioner has been deprived of his right to subscribe to
the IPOs of corporations listing in the stock market at
their offering prices.
13. The collective act of the individual respondents in
depriving petitioner of his right to a share in the IPOs
for the aforementioned reason, is unjust, dishonest and
done in bad faith, causing petitioner substantial
financial damage.[6]
There is no question that the Petition in SEC Case No.
02-94-4678 asserts a right in favor of respondent,
particularly, respondents alleged right to subscribe to
the IPOs of corporations listed in the stock market at
their offering prices; and stipulates the correlative
obligation of petitioners to respect respondents right,
specifically, by continuing to allow respondent to
subscribe to the IPOs of corporations listed in the stock
market at their offering prices.
However, the terms right and obligation in respondents
Petition are not magic words that would automatically
lead to the conclusion that such Petition sufficiently
states a cause of action. Right and obligation are legal
terms with specific legal meaning. A right is a claim or
title to an interest in anything whatsoever that is
enforceable by law.[7] An obligation is defined in the
Civil Code as a juridical necessity to give, to do or not to
do.[8] For every right enjoyed by any person, there is a
corresponding obligation on the part of another person
to respect such right. Thus, Justice J.B.L. Reyes offers[9]
the definition given by Arias Ramos as a more complete
definition:
An obligation is a juridical relation whereby a person
(called the creditor) may demand from another (called
the debtor) the observance of a determinative conduct
(the giving, doing or not doing), and in case of breach,
may demand satisfaction from the assets of the latter.
The Civil Code enumerates the sources of obligations:
Art. 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.
Therefore, an obligation imposed on a person, and the
corresponding right granted to another, must be rooted
in at least one of these five sources. The mere assertion
of a right and claim of an obligation in an initiatory
pleading, whether a Complaint or Petition, without
identifying the basis or source thereof, is merely a
conclusion of fact and law. A pleading should state the
ultimate facts essential to the rights of action or
defense asserted, as distinguished from mere
conclusions of fact or conclusions of law.[10] Thus, a
Complaint or Petition filed by a person claiming a right
to the Office of the President of this Republic, but
without stating the source of his purported right,
cannot be said to have sufficiently stated a cause of
action. Also, a person claiming to be the owner of a
parcel of land cannot merely state that he has a right to
the ownership thereof, but must likewise assert in the
Complaint either a mode of acquisition of ownership or
at least a certificate of title in his name.
In the case at bar, although the Petition in SEC Case No.
02-94-4678 does allege respondents right to subscribe
to the IPOs of corporations listed in the stock market at
their offering prices, and petitioners obligation to
continue respecting and observing such right, the
Petition utterly failed to lay down the source or basis of
respondents right and/or petitioners obligation.
Respondent merely quoted in his Petition the MKSE
Board Resolution, passed sometime in 1989, granting
him the position of Chairman Emeritus of MKSE for life.
However, there is nothing in the said Petition from
which the Court can deduce that respondent, by virtue
of his position as Chairman Emeritus of MKSE, was
granted by law, contract, or any other legal source, the
right to subscribe to the IPOs of corporations listed in
the stock market at their offering prices.
A meticulous review of the Petition reveals that the
allocation of IPO shares was merely alleged to have
been done in accord with a practice normally observed
by the members of the stock exchange, to wit:
IPOs are shares of corporations offered for sale to the
public, prior to their listing in the trading floor of the
countrys two stock exchanges. Normally, Twenty-Five
Percent (25%) of these shares are divided equally
between the two stock exchanges which in turn divide
these equally among their members, who pay therefor
at the offering price.[11] (Emphasis supplied)

A practice or custom is, as a general rule, not a source
of a legally demandable or enforceable right.[12]
Indeed, in labor cases, benefits which were voluntarily
given by the employer, and which have ripened into
company practice, are considered as rights that cannot
be diminished by the employer.[13] Nevertheless, even
in such cases, the source of the employees right is not
custom, but ultimately, the law, since Article 100 of the
Labor Code explicitly prohibits elimination or diminution
of benefits.
There is no such law in this case that converts the
practice of allocating IPO shares to MKSE members, for
subscription at their offering prices, into an enforceable
or demandable right. Thus, even if it is hypothetically
admitted that normally, twenty five percent (25%) of
the IPOs are divided equally between the two stock
exchanges -- which, in turn, divide their respective
allocation equally among their members, including the
Chairman Emeritus, who pay for IPO shares at the
offering price -- the Court cannot grant respondents
prayer for damages which allegedly resulted from the
MKSE Board Resolution dated 3 June 1993 deviating
from said practice by no longer allocating any shares to
respondent.
Accordingly, the instant Petition should be granted. The
Petition in SEC Case No. 02-94-4678 should be
dismissed for failure to state a cause of action. It does
not matter that the SEC en banc, in its Order dated 14
August 1995 in SEC-EB No. 403, overstepped its bounds
by not limiting itself to the issue of whether
respondents Petition before the SICD sufficiently stated
a cause of action. The SEC en banc may have been
mistaken in considering extraneous evidence in granting
petitioners Motion to Dismiss, but its discussion thereof
are merely superfluous and obiter dictum. In the main,
the SEC en banc did correctly dismiss the Petition in SEC
Case No. 02-94-4678 for its failure to state the basis for
respondents alleged right, to wit:
Private respondent Campos has failed to establish the
basis or authority for his alleged right to participate
equally in the IPO allocations of the Exchange. He cited
paragraph 11 of the amended articles of incorporation
of the Exchange in support of his position but a careful
reading of the said provision shows nothing therein that
would bear out his claim. The provision merely created
the position of chairman emeritus of the Exchange but
it mentioned nothing about conferring upon the
occupant thereof the right to receive IPO
allocations.[14]
With the dismissal of respondents Petition in SEC Case
No. 02-94-4678, there is no more need for this Court to
resolve the propriety of the issuance by SCID of a writ of
preliminary injunction in said case.
WHEREFORE, the Petition is GRANTED. The Decision of
the Court of Appeals dated 11 February 1997 and its
Resolution dated 18 May 1999 in CA-G.R. SP No. 38455
are REVERSED and SET ASIDE. The Orders dated 31 May
1995 and 14 August 1995 of the Securities and
Exchange Commission en banc in SEC-EB Case No. 393
and No. 403, respectively, are hereby reinstated. No
pronouncement as to costs.
SPOUSES PATRICIO and MYRNA BERNALES vs. HEIRS OF
JULIAN SAMBAAN G.R.No. 163271, January 15, 2010 Del
Castillo, J.:
Facts: Spouses Julian and Guillerma Sambaan were the
registered owner of a property located in Bulua,
Cagayan de oro City. The respondents and the
petitioner Myrna Bernales are the children of Julian and
Guillerma. Myrna, who is the eldest of the siblings, is
the present owner and possessor of the property in
question.
Julian died in an ambush in 1975. Before he died, he
requested that the property in question be redeemed
from Myrna and her husband Patricio Bernales. Thus, in
1982 one of Julian’s siblings offered to redeem the
property but the petitioners refused because they were
allegedly using the property as tethering place for their
cattle.
In January 1991, respondents received an information
that the subject property was already transferred to
Myrna Bernales. The Deed of Absolute Sale dated
December 7, 1970 bore the forged signatures of their
parents, Julian and Guillerma.
On April 1993, the respondents, together with their
mother Guillerma, filed a complaint for Annulment of
Deed of Absolute Sale and cancellation of TCT No. T-
14204 alleging that their parent’s signatures were
forged. The trial court rendered a decision on August 2,
2001 cancelling the TCT and ordering another title to be
issued in the name of the late Julian Sambaan.
Petitioners went to the CA and appealed the decision.
The CA affirmed the decision of the lower court. A
motion for reconsideration of the decision was,
likewise, denied in 2004. Hence, this petition for
certiorari.
Issue: Whether or not the Deed of Absolute Sale is
authentic as to prove the ownership of the petitioners
over the subject property.
Held: It is a question of fact rather than of law. Well-
settled is the rule that the Supreme Court is not a trier
of facts. Factual findings of the lower courts are
entitled to great weight and respect on appeal, and in
fact accorded finality when supported by substantial
evidence on the record. Substantial evidence is more
than a mere scintilla of evidence. It is that amount of
relevant evidence that a reasonable mind might accept
as adequate to support a conclusion, even if other
minds, equally reasonable, might conceivably opine
otherwise. But to erase any doubt on the correctness of
the assailed ruling, we have carefully perused the
records and, nonetheless, arrived at the same
conclusion. We find that there is substantial evidence
on record to support the Court of Appeals and trial
court’s conclusion that the signatures of Julian and
Guillerma in the Deed of Absolute Sale were forged.
Conclusions and findings of fact by the trial court are
entitled to great weight on appeal and should not be
disturbed unless for strong and cogent reasons because
the trial court is in a better position to examine real
evidence, as well as to observe the demeanor of the
witnesses while testifying in the case. The fact that the
CA adopted the findings of fact of the trial court makes
the same binding upon this court.
Thus, we hold that with the presentation of the forged
deed, even if accompanied by the owner’s duplicate
certificate of title, the registered owner did not thereby
lose his title, and neither does the assignee in the
forged deed acquire any right or title to the said
property.
G.R. No. 181560 November 15, 2010
VITARICH CORPORATION, Petitioner,
vs.
CHONA LOSIN, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review under Rule 45 of the Rules
of Court seeking to reverse and set aside the November
26, 2007 Decision1 of the Court of Appeals, Cagayan de
Oro (CA-CDO), in CA G.R. CV No.73726,2 which reversed
the August 9, 2001 Decision of the Regional Trial Court,
Branch 23, General Santos City (RTC), in Civil Case No. fact to Vitarich and further informed the latter that
6287, in favor of petitioner Vitarich Corporation checks were issued and the same were collected by
(Vitarich). Directo.6

THE FACTS:
Respondent Chona Losin (Losin) was in the fastfood and
catering services business named Glamours Chicken
House, with address at Parang Road, Cotabato City.
Since 1993, Vitarich, particularly its Davao Branch, had
been her supplier of poultry meat.3 In 1995, however,
her account was transferred to the newly opened
Vitarich branch in General Santos City.
It appears that Losin had issued three (3) checks
amounting to P288,463.30 which were dishonored
either for reasons - Drawn Against Insufficient Funds
(DAIF) or Stop Payment.7
On March 2, 1998, Vitarich filed a complaint for Sum of
Money against Losin, Directo, Rosa, and Baybay before
the RTC.

On August 9, 2001, the RTC rendered its Decision8 in

In the months of July to November 1996, Losin’s orders favor of Vitarich, the dispositive portion of which reads:
of dressed chicken and other meat products allegedly
amounted to P921,083.10. During this said period,
Losin’s poultry meat needs for her business were WHEREFORE, judgment is hereby rendered in favor of
serviced by Rodrigo Directo (Directo) and Allan Rosa plaintiff, ordering defendant Chona Losin to pay plaintiff
(Rosa), both salesmen and authorized collectors of the following:
Vitarich, and Arnold Baybay (Baybay), a supervisor of
said corporation. Unfortunately, it was also during the
same period that her account started to experience
1. P297,462.50 representing the three checks which had
problems because of the fact that Directo delivered
been stopped payment with interest at 12% per annum
stocks to her even without prior booking which is the
from the date of this Decision until the whole amount is
customary process of doing business with her.4
fully paid;

On August 24, 1996, Directo’s services were terminated

2. P101,450.20 representing the unpaid sales (Exhibits
by Vitarich without Losin’s knowledge. He left without
‘L’ and ‘M’) with interest at 12% from date of this
turning over some supporting invoices covering the
Decision until the whole amount is fully paid;
orders of Losin. Rosa and Baybay, on the other hand,
resigned on November 30, 1996 and December 30,
1996, respectively. Just like Directo, they did not also
turn over pertinent invoices covering Losin’s account.5 3. P20,000.00 in concept of attorney’s fees; and

On February 12, 1997, demand letters were sent to
Losin covering her alleged unpaid account amounting to
P921,083.10. Because of said demands, she checked her
records and discovered that she had an overpayment to
Vitarich in the amount of P500,000.00. She relayed this
4. The cost of suit.
As to the complaint against defendant Allan Rosa and
Arnold Baybay, the same is dismissed. The complaint
against Rodrigo Directo still remains and is hereby
ordered archived until he could be served with
summons.
SO ORDERED.9
Not satisfied with the RTC decision, Losin appealed to
the CA presenting the following:
ASSIGNMENT OF ERRORS:
I. THE LOWER COURT ERRED IN NOT APPRECIATING THE
OVERPAYMENT MADE BY DEFENDANT-APPELLANT TO
VITARICH CORPORATION;
II. THE LOWER COURT ERRED IN ORDERING THE
PAYMENT OF THE THREE (3) CHECKS WITH STOP
PAYMENT ORDERS AND WITHOUT ANY ANTECEDENT
DOCUMENTARY EVIDENCES FOR THE TWO (2) CHECKS,
NAMELY: RCBC CHECK NO. CX 046324 AND RCBC CHECK
NO. CX 046327 ; AND
III. THE LOWER COURT ERRED IN NOT FINDING
VITARICH CORPORATION NEGLIGENT IN THE SELECTION
OF ITS EMPLOYEES AND NEITHER FINDING THE
CORPORATION LIABLE FOR DAMAGES A CLEAR
VIOLATION OF ARTICLE 2180 OF THE CIVIL CODE.10
On November 26, 2007, the CA rendered the assailed
decision in favor of Losin. Pertinently, the said decision
reads:
It is axiomatic that we should not interfere with the
judgment of the trial court in determining the credibility
of witnesses, unless there appears in the record some
fact or circumstances of weight and influence which has
been overlooked or the significance of which has been
misinterpreted. The reason is that the trial court is in a
better position to determine questions involving
credibility having heard the witnesses and having
observed their deportment and manner of testifying
during the trial unless there is showing that the findings
of the lower court are totally devoid of support or
glaringly erroneous as to constitute palpable error or
grave abuse of discretion. This is such an instance.
By the contract of agency, a person binds himself to
render some service or to do something in
representation or on behalf of another, with the
consent or authority of the latter. Thus, the elements of
agency are (i) consent, express or implied, of the parties
to establish the relationship; (ii) the object is the
execution of a juridical act in relation to a third person;
(iii) the agent acts as a representative and not for
himself; and (iv) the agent acts within the scope of his
authority.
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency, a person binds
himself to render some service or to do something in
representation or on behalf of another, with the
consent or authority of the latter."
As far as Losin is concerned, Directo was a duly
authorized agent of Vitarich Corporation. As such, it fell
upon Directo to place her orders of dressed chicken and
other related products to their General Santos City
branch. All such orders were taken from the Vitarich
bodega by Directo as testified by Alona Calinawan, then
bookkeeper of Vitarich from March 1995 to September
1998, who was responsible for all the customers’
accounts, receivables and withdrawals of dressed
chicken from their bodega.
A perusal of the records would show that Vitarich
included in their list of collectibles from Losin several
amounts that were not supported by their Charge Sales
Invoices such as P44,987.70, P3,300.00; P28,855.40;
P98,166.20; P73,806.00; and P93,888.80 and which
form part of their total claim of P912,083.10.
Furthermore, Vitarich also submitted Charge Sales
Invoices showing the amount of P70,000.00,
P41,792.40, P104,137.40 and P158,522.80 as part of
their exhibits but which amounts are not included in its
summary statement of collectibles against Losin.
It is noted that the dressed chicken and other related
products as manifested by the Charge Sales Invoices,
were taken out of the bodega and received by Directo,
who is now ‘at large.’ There was no evidence presented
by Vitarich to prove that aforesaid stocks were
delivered to Losin. Contrary to what Vitarich claimed
that Directo resigned on August 24, 1996, exhibit ‘X’
shows that he was ‘terminated.’ The fact can not be put
aside that Directo was the salesman and authorized
collector and by law, the agent of Vitarich. Criminal acts
committed by Directo by his non-remittance of the
proceeds of the checks given by Losin, is his separate
accountability with Vitarich and should not be imputed
to their client, Losin. In fact, defendant Directo
absconded when plaintiff-appellee started to question
his ‘collectibles.’ The totality of Directo’s acts clearly
indicated a deliberate attempt to escape liability.
The Civil Code provides:
"Art. 1921. If the agency has been entrusted for the
purpose of contracting with specified persons, its
revocation shall not prejudice the latter if they were not
given notice thereof."
"Art. 1922. If the agent had general powers, revocation
of the agency does not prejudice third persons who
acted in good faith and without knowledge of the
revocation. Notice of the revocation in a newspaper of
general circulation is a sufficient warning to third
persons." (Emphasis Ours)
The reason for the law is obvious. Since the third
persons have been made to believe by the principal that
the agent is authorized to deal with them, they have the
right to presume that the representation continues to
exist in the absence of notification by the principal.
Nowhere in the records can it be found that Losin was
notified of the fact that Directo was no longer
representing the interest of Vitarich and that the latter
has terminated Directo’s services. There is also an
absence of any proof to show that Directo’s termination
has been published in a newspaper of general
circulation.
It is well settled that a question of fact is to be
determined by the evidence offered to support the
particular contention. In defendant-appellant’s
‘Statement of Payments Made to Vitarich,’ prepared
and signed by Losin’s bookkeeper, Imelda S. Cinco, all
the checks enumerated therein coincides with the bank
statements submitted by RCBC, thus corroborating
Losin’s claim that she has paid Vitarich. Vitarich’s
contention that ‘defendant Baybay tried very hard to
hide his accountabilities to the plaintiff x x x but failed
to explain why the account remained unpaid,’ confirms
its belief that their own agents as such, are accountable
for transactions made with third persons. "As a Sales
Supervisor, he is principally liable for the behavior of his
subordinates (Directo & Rosa) and for the enforcement
of company rules" which may have gone beyond their
authority to do such acts.
Anent the third assigned error that the lower court
erred in not finding Vitarich negligent in the selection of
its employees thereby making the former liable for
damages under Article 2180 of the Civil Code, We find
the same to be without basis as said article explicitly
holds that:

"‘ART. 2180. The obligation imposed by Article 2176 is
demandable not only for one’s own acts or omissions,
but also for those of persons for whom one is
responsible.
xxx xxx xxx
xxx xxx xxx
xxx xxx xxx
Employers shall be liable for the damages caused by
their employees and household helpers acting within
the scope of their assigned tasks, even though the
former are not engaged in any business or industry.
xxx xxx x x x."
Pursuant to Article 2180 of the Civil Code, that vicarious
liability attaches only to an employer when the tortuous
conduct of the employee relates to, or is in the course
of, his employment. The question to ask should be
whether at the time of the damage or injury, the
employee is engaged in the affairs or concerns of the
employer or, independently, in that of his own? Vitarich
incurred no liability when Directo’s conduct, act or
omission went beyond the range of his employment.
Section 1, Rule 133 of the Rules of Court provides:
"‘SECTION 1. Preponderance of evidence, how
determined. - In civil cases, the party having the burden
of proof must establish his case by a preponderance of
evidence. In determining where the preponderance or
superior weight of evidence on the issues involved lies,
the court may consider all the facts and circumstances
of the case, the witnesses’ manner of testifying, their
intelligence, their means and opportunity of knowing
the facts to which they are testifying, the nature of the
facts to which they testify, the probability or
improbability of their testimony, their interest or want
of interest, and also their personal credibility so far as
the same may legitimately appear upon the trial. The
court may also consider the number of witnesses,
though the preponderance is not necessarily with the
greater number."
"Preponderance of evidence’ is the weight, credit, and
value of the aggregate evidence on either side and is
usually considered to be synonymous with the term
‘greater weight of the evidence’ or greater weight of
the credible evidence." It is evidence which is more
convincing to the court as worthy of belief than that
which is offered in opposition thereto.
xxx xxx xxx
We reviewed the factual and legal issues of this case in
light of the general rules of evidence and the burden of
proof in civil cases, as explained by the Supreme Court
in Jison v. Court of Appeals:
"xxx Simply put, he who alleges the affirmative of the
issue has the burden of proof, and upon the plaintiff in
a civil case, the burden of proof never parts. However,
in the course of trial in a civil case, once plaintiff makes
out a prima facie case in his favour, the duty or the
burden of evidence shifts to defendant to controvert
plaintiff’s prima facie case, otherwise, a verdict must be
returned in favour of plaintiff. Moreover, in civil cases,
the party having the burden of proof must produce a
preponderance of evidence thereon, with plaintiff
having to rely on the strength of his own evidence and
not upon the weakness of the defendants. The concept
of ‘preponderance of evidence’ refers to evidence
which is of greater weight, or more convincing, that
which is offered in opposition to it; at bottom, it means
probability of truth."
Hence, Vitarich who has the burden of proof must
produce such quantum of evidence, with the former
having to rely on the strength of its own evidence and
not on the weakness of the defendant-appellant Losin’s.
In this light, we have meticulously perused the records
of this case and [found] that the court a quo had erred
in appreciating the evidence presented.
In deciding this appeal, the Court relies on the rule that
a party who has the burden of proof in a civil case must
establish his cause of action by a preponderance of
evidence. When the evidence of the parties is in
equipoise, or when there is a doubt as to where the
preponderance of evidence lies, the party with the
burden of proof fails and the petition/complaint must
thus be denied. We find that plaintiff-appellee Vitarich
failed to prove that the goods were ever delivered and
received by Losin, said charge sales invoices being
undated and unsigned by Losin being the consignee of
the goods.
On the other hand, Losin could not also prove that she
has overpaid Vitarich. Hence, her contention that she
has overpaid Vitarich and her prayer for refund of the
alleged overpaid amount, must necessarily fail.
ACCORDINGLY, the instant appeal is hereby GRANTED
and the appealed judgment is hereby SET ASIDE and
VACATED. No pronouncement as to cost.
SO ORDERED.11
Hence, this petition for review alleging that---
AS THE FINDINGS OF FACTS OF THE COURT OF APPEALS
SQUARELY CONTRADICTS THAT OF THE TRIAL COURT,
PETITIONER HUMBLY REQUESTS THE SUPREME COURT
TO INQUIRE INTO THE ERRONEOUS CONCLUSIONS OF
FACTS MADE BY THE COURT OF APPEALS.12
As a general rule, a petition for review under Rule 45 of
the Rules of Court covers questions of law only.
Questions of fact are not reviewable and passed upon
by this Court in its exercise of judicial review. The
distinction between questions of law and questions of
fact has been well defined. A question of law exists
when the doubt or difference centers on what the law is
on a certain state of facts. A question of fact, on the
other hand, exists if the doubt centers on the truth or
falsity of the alleged facts.13
The rule, however, admits of exceptions, namely: (1)
when the findings are grounded entirely on
speculations, surmises, or conjectures; (2) when the
inference made is manifestly mistaken, absurd, or
impossible; (3) when there is a grave abuse of
discretion; (4) when the judgment is based on
misappreciation of facts; (5) when the findings of fact
are conflicting; (6) when in making its findings, the same
are contrary to the admissions of both appellant and
appellee; (7) when the findings are contrary to those of
the trial court; (8) when the findings are conclusions
without citation of specific evidence on which they are
based; (9) when the facts set forth in the petition as
well as in the petitioner’s main and reply briefs are not
disputed by the respondent; and (10) when the findings
of fact are premised on the supposed absence of
evidence and contradicted by the evidence on record.14
The aforementioned exceptions, particularly the
seventh exception, finds relevance in the case at bench
since the findings of the CA are clearly in conflict with
that of the trial court. For this reason, the Court is
constrained to reevaluate the evidence adduced by
both parties to resolve the issues which boil down to
whether or not Losin is liable to Vitarich and, if so, to
what extent.
The Court resolves the issues partly in favor of Vitarich.
Initially, Vitarich claims a total of P921,083.10 from
respondent Losin, Directo, Rosa and Baybay
(defendants in Civil Case No. 6287 for Sum of Money).
According to Vitarich, "[t]he successive and sudden
resignations of defendants Directo, Baybay and Rosa
and the sudden change of mind of defendant Losin after
previously acknowledging her accounts are part of an
elaborate and sinister scheme of defendants, acting
singly or collectively, in conspiracy or not, in defrauding
plaintiff corporation xxx."15
The RTC ruled in favor of Vitarich, ordering Losin to pay
the following: (1) P297,462.50 representing the three
(3) checks, the payment for which was stopped, with
corresponding interest at 12% per annum from the date
of the RTC decision until fully paid; (2) P101,450.20 for
the unpaid sales also with interest at 12% per annum
from the date of the RTC decision until fully paid; (3)
P20,000.00 for attorney’s fees; and (4) cost of suit.16 It
appears that Vitarich did not challenge this part of the
RTC decision anymore.17
After Losin obtained a favorable RTC decision, Vitarich
now seeks relief from this Court through this petition
for review.
After an assessment of the evidentiary records, the
Court opines and so holds that the CA erred in reversing
the RTC decision. Losin is clearly liable to Vitarich.
Records bear out that Losin transacted with Vitarich’s
representative Directo.18 Vitarich presented several
charge sales invoices19 and statement of account20 to
support Losin’s accountability for the products
delivered to her. A total of P921,083.10 was initially
charged to her. Losin, on the other hand, presented a
copy of the list of checks allegedly issued to Vitarich
through its agent Directo,21 and a Statement of
Payments Made to Vitarich22 to support her allegation
of payment.
It is worth noting that both Vitarich and Losin failed to
make a proper recording and documentation of their
transactions making it difficult to reconcile the evidence
presented by the parties to establish their respective
claims.
As a general rule, one who pleads payment has the
burden of proving it. In Jimenez v. NLRC,23 the Court
ruled that the burden rests on the debtor to prove
payment, rather than on the creditor to prove non-
payment. The debtor has the burden of showing with
legal certainty that the obligation has been discharged
by payment.
True, the law requires in civil cases that the party who
alleges a fact has the burden of proving it. Section 1,
Rule 131 of the Rules of Court24 provides that the
burden of proof is the duty of a party to prove the truth
of his claim or defense, or any fact in issue by the
amount of evidence required by law. In this case,
however, the burden of proof is on Losin because she
alleges an affirmative defense, namely, payment. Losin
failed to discharge that burden.
After examination of the evidence presented, this Court
is of the opinion that Losin failed to present a single
official receipt to prove payment.25 This is contrary to
the well-settled rule that a receipt, which is a written
and signed acknowledgment that money and goods
have been delivered, is the best evidence of the fact of
payment although not exclusive.26 All she presented
were copies of the list of checks allegedly issued to
Vitarich through its agent Directo,27 a Statement of
Payments Made to Vitarich,28 and apparently copies of
the pertinent history of her checking account with Rizal
Commercial Banking Corporation (RCBC). At best, these
may only serve as documentary records of her business
dealings with Vitarich to keep track of the payments
made but these are not enough to prove payment.
Article 1249, paragraph 2 of the Civil Code provides:
The delivery of promissory notes payable to order, or
bills of exchange or other mercantile documents shall
produce the effect of payment only when they have
been cashed, or when through the fault of the creditor
they have been impaired. [Emphasis supplied]
In the case at bar, no cash payment was proved. It was
neither confirmed that the checks issued by Losin were
actually encashed by Vitarich. Thus, the Court cannot
consider that payment, much less overpayment, made
by Losin.
Now, the Court ascertains the extent of Losin’s liability.
A perusal of the records shows that Vitarich included in
its list of collectibles,29 several amounts that were not
properly supported by Charge Sales Invoice, to wit, (1)
P44,987.70; (2) P3,300.00; (3) P28,855.40; (4)
P98,166.20; (5) P73,806.00; and (6) P93,888.80.30 It
bears noting that the Charge Sales Invoices presented
for the amounts listed as collectibles were undated and
unsigned by Losin, the supposed consignee of the goods
(except Exh. L). Of the six amounts, the Court
particularly considered the P93,888.80 as it was the
amount of one of the checks issued by Losin. Indeed,
the Court cannot disregard the fact that Losin issued a
corresponding check for the following amounts: (1)
P93,888.96 (dated August 27, 1996);31 (2) P50,265.00
(dated August 30, 1996);32 and (3) P144,309.50 (dated
August 31, 1996).33 The Court believes that Losin would
not have issued those checks had she not received the
goods so delivered to her. The first two (2) checks were
apparently received by the Vitarich but were not
encashed because of Losin’s instruction to RCBC. Thus,
Losin is liable to Vitarich but not for the total amount of
the three (3) mentioned checks but only for the amount
of P93,888.96 and P50,265.00 corresponding to the first
two (2) checks. Losin cannot be held liable for the
amount of the third check P144,309.50 because Vitarich
did not claim for this amount. The amount of
P144,309.50 for some reason, was not among those
listed in the list of collectibles of Vitarich.341avvphi1
Aside from the earlier mentioned liabilities¸the Court
also holds Losin liable for the amount of P78,281.00
which was also among those listed as collectible by
Vitarich. Although the Charge Sales Invoice35 bearing
this amount was undated, it nevertheless, appears that
the goods corresponding to this amount were actually
received by Losin’s mother. This was even testified to by
Rosa36 and confirmed by Losin herself.37 With the
exception of the amounts corresponding to the two (2)
checks discussed above and the amount of P18,281.00
as appearing in Exh. L, the other amounts appearing on
the rest of the Charge Sales Invoice and on the
Statement of Account presented by Vitarich cannot be
charged on Losin for failure of Vitarich to prove that
these amounts are chargeable to her. Vitarich even
failed to prove that the rest of the goods as appearing
on the other Charge Sales Invoices were actually
delivered and received by her or her representative
since these Charge Sales Invoices were undated and
unsigned. Thus, Losin is liable to pay Vitarich the
amounts of P93,888.96, P50,265.00 and P78,281.00 or a
total of P222,434.96 only.
Inasmuch as the case at bar involves an obligation not
arising from a loan or forbearance of money, but
consists in the payment of a sum of money, the legal
rate of interest is 6% per annum of the amount
demanded.38 Interest shall continue to run from
February 12, 1997, the date when Vitarich demanded
payment of the sum amounting to P921,083.10 from
Losin (and not from the time of the filing of the
Complaint) until finality of the Decision (not until fully
paid). The rate of interest shall increase to 12% per
annum only from such finality until its satisfaction, the
interim period being deemed to be equivalent to a
forbearance of credit.391avvphi1
when Vitarich demanded payment of the sum
amounting to P921,083.10 from Losin until finality of
the Decision. The rate of interest shall increase to 12%
per annum only from such finality until its satisfaction,
the interim period being deemed to be equivalent to a
forbearance of credit;

Regarding the grant of attorney’s fees, the Court agrees

with the RTC that said award is justified. Losin refused (2) P10,000.00 representing attorney’s fees; and
to pay Vitarich despite the latter’s repeated demands. It
was left with no recourse but to litigate and protect its
interest. We, however, opt to reduce the same to (3) Cost of suit.
P10,000.00 from P20,000.00.

The complaint against Allan Rosa and Arnold Baybay is

The claims against Rosa and Baybay who allegedly did dismissed. The complaint against Rodrigo Directo is
not fully account for their sales transactions have not ordered archived until he could be served with
been substantially proven by evidence. In fact, it summons.
appears that Rosa and Baybay resigned. Resignation
would not have been possible unless accountabilities
with Vitarich had been settled first. It was only the
SO ORDERED
services of Directo that was apparently terminated by
Vitarich.40 Summons, however, was not served on him, CBK POWER COMPANY LIMITED, Petitioner,
so he could not be made to account for the shortages of
collection. vs.

COMMISSIONER OF INTERNAL REVENUE, Respondent.

WHEREFORE, the November 26, 2007 Decision of the

Court of Appeals is REVERSED and SET ASIDE. The
x-----------------------x
August 9, 2001 Decision of the Regional Trial Court of
General Santos City, Branch 23, is REINSTATED subject
to MODIFICATIONS. Thus, the dispositive portion should
read as follows: G.R. Nos. 193407-08

WHEREFORE, judgment is hereby rendered ordering COMMISSIONER OF INTERNAL REVENUE, Petitioner,

Chona Losin to pay Vitarich Corporation the following:
vs.

CBK POWER COMPANY LIMITED, Respondent.

(1) P222,434.96 representing the two checks, with
Check Nos. CX 046324 dated August 27, 1996 and CX
046325 dated August 30, 1996 which had been stopped DECISION
payment and the amount as appearing in Charge Sales
Invoice marked as Exhibit ‘L’ subject to an interest rate
of 6% per annum from February 12, 1997, the date
PERLAS-BERNABE, J.:
Assailed in these consolidated petitions for review on
certiorari1 are the Decision2 dated March 29, 2010 and
the Resolution3 dated August 16, 2010 of the Court
ofTax Appeals (CTA) En Bancin C.T.A. E.B. Nos. 469 and
494, which affirmed the Decision4 dated August 28,
2008, the Amended Decision5 dated February 12, 2009,
and the Resolution6 dated May 7, 2009 of the CTA First
Division in CTA Case Nos. 6699, 6884,and 7166 granting
CBK Power Company Limited (CBK Power) a refund of
its excess final withholding tax for the taxable years
2001 to 2003.
The Facts
CBK Power is a limited partnership duly organized and
existing under the laws of the Philippines, and primarily
engaged in the development and operation of the
Caliraya, Botocan, and Kalayaan hydro electric power
generating plants in Laguna (CBK Project). It is
registered with the Board of Investments (BOI) as
engaged in a preferred pioneer area of investment
under the Omnibus Investment Code of 1987.7
To finance the CBK Project, CBK Power obtained in
August 2000 a syndicated loan from several foreign
banks,8 i.e., BNP Paribas, Dai-ichi Kangyo Bank, Limited,
Industrial Bank of Japan, Limited, and Societe General
(original lenders), acting through an Inter-Creditor
Agent, Dai-ichi Kangyo Bank, a Japanesebank that
subsequently merged with the Industrial Bank of Japan,
Limited (Industrial Bank of Japan) and the Fuji Bank,
Limited (Fuji Bank), with the mergedentity being named
as Mizuho Corporate Bank (Mizuho Bank). One of the
merged banks, Fuji Bank, had a branch in the
Philippines, which became a branch of Mizuho Bank as a
result of the merger. The Industrial Bank of Japan and
Mizuho Bank are residents of Japan for purposes of
income taxation, and recognized as such under the
relevant provisions of the income tax treaties between
the Philippines and Japan.9
Certain portions of the loan were subsequently assigned
by the original lenders to various other banks, including
Fortis Bank (Nederland) N.V. (Fortis-Netherlands) and
Raiffesen Zentral Bank Osterreich AG (Raiffesen Bank).
Fortis-Netherlands, in turn, assigned its portion of the
loan to Fortis Bank S.A./N.V. (Fortis-Belgium), a resident
of Belgium. Fortis Netherlands and Raiffesen Bank, on
the other hand, are residents of Netherlands and
Austria, respectively.10
In February 2001, CBK Power borrowed money from
Industrial Bank of Japan, Fortis-Netherlands, Raiffesen
Bank, Fortis-Belgium, and Mizuho Bank for which it
remitted interest payments from May 2001 to May
2003.11 It allegedly withheld final taxes from said
payments based on the following rates, and paid the
same to the Revenue District Office No. 55 of the
Bureau of Internal Revenue (BIR): (a) fifteen percent
(15%) for Fortis-Belgium, Fortis-Netherlands, and
Raiffesen Bank; and (b) twenty percent (20%) for
Industrial Bank of Japan and Mizuho Bank.12
However, according to CBK Power, under the relevant
tax treaties between the Philippines and the respective
countries in which each of the banks is a resident, the
interest income derived by the aforementioned banks
are subject only to a preferential tax rate of 10%, viz.:13
1âwphi1
BANK COUNTRY OF
RESIDENCE PREFERENTIAL RATE
UNDER THE RELEVANT TAX TREATY
Fortis Bank S.A./N.V. Belgium 10% (Article
11[1], RP-Belgium
Tax Treaty)
Industrial Bank of
Japan Japan 10% (Article 11[3], RP-Japan Tax Treaty)
Raiffesen Zentral Bank
Osterreich AG Austria 10% (Article 11[3], RP-Austria
Tax Treaty)
Mizuho Corporate Bank Japan 10% (Article 11[3], RP-
Japan Tax Treaty)
Accordingly, on April 14, 2003, CBK Power filed a claim
for refund of its excess final withholding taxes allegedly
erroneously withheld and collected for the years 2001
and 2002 with the BIR Revenue Region No. 9. The claim
for refund of excess final withholding taxes in 2003 was
subsequently filed on March 4, 2005.14
The Commissioner of Internal Revenue’s
(Commissioner) inaction on said claims prompted CBK
Power to file petitions for review before the CTA, viz.:15
(1) CTA Case No. 6699 was filed by CBK Power on June
6, 2003 seeking the refund of excess final withholding
tax in the total amount of P6,393,267.20 covering the
year 2001 with respect to interest income derived by
[Fortis-Belgium], Industrial Bank of Japan, and
[Raiffesen Bank]. An Answer was filed by the
Commissioner on July 25, 2003.
(2) CTA Case No. 6884was filed by CBK Power on March
5, 2004 seeking for the refund of the amount of
8,136,174.31 covering [the] year 2002 with respect to
interest income derived by [Fortis- Belgium], Industrial
Bank of Japan, [Mizuho Bank], and [Raiffesen Bank]. The
Commissioner filed his Answer on May 7, 2004.
xxxx
(3) CTA Case No. 7166was filed by CBK [Power] on
March 9, 2005 seeking for the refund of [the amount of]
P1,143,517.21covering [the] year 2003 with respect to
interest income derived by [Fortis Belgium], and
[Raiffesen Bank]. The Commissioner filed his Answer on
May 9, 2005. (Emphases supplied)
CTA Case Nos. 6699 and 6884 were consolidated first on
June 18, 2004. Subsequently, however, all three cases –
CTA Case Nos. 6699, 6884, and 7166 – were
consolidated in a Resolution dated August 3, 2005.16
The CTA First Division Rulings
In a Decision17 dated August 28, 2008, the CTA First
Division granted the petitions and ordered the refund of
the amount of 15,672,958.42 upon a finding that the
relevant tax treaties were applicable to the case.18 It
cited DA-ITAD Ruling No. 099-0319 dated July 16, 2003,
issued by the BIR, confirming CBK Power’s claim that
the interest payments it made to Industrial Bank of
Japan and Raiffesen Bank were subject to a final
withholding tax rate of only 10%of the gross amount of
interest, pursuant to Article 11 of the Republic of the
Philippines (RP)-Austria and RP-Japan tax treaties.
However, in DA-ITAD Ruling No. 126-0320 dated August
18, 2003, also issued by the BIR, interest payments to
Fortis-Belgium were likewise subjected to the same rate
pursuant to the Protocol Amending the RP-Belgium Tax
Treaty, the provisions of which apply on income derived
or which accrued beginning January 1, 2000. With
respect to interest payments made to Fortis-
Netherlands before it assigned its portion of the loan to
Fortis-Belgium, the CTA First Division likewise granted
the preferential rate.21
The CTA First Division categorically declared in the
August 28, 2008 Decision that the required
International Tax Affairs Division (ITAD) ruling was not a
condition sine qua non for the entitlement of the tax
relief sought by CBK Power,22 however, upon motion
for reconsideration23 filed by the Commissioner, the
CTA First Division amendedits earlier decision by
reducing the amount of the refund from
P15,672,958.42 to P14,835,720.39 on the ground that
CBK Power failed to obtain an ITAD ruling with respect
to its transactions with Fortis-Netherlands.24 In its
Amended Decision25 dated February 12, 2009, the CTA
First Division adopted26 the ruling in the case of Mirant
(Philippines) Operations Corporation (formerly:
Southern Energy Asia-Pacific Operations [Phils.], Inc.) v.
Commissioner of Internal Revenue (Mirant),27 cited by
the Commissioner in his motion for reconsideration,
where the Court categorically pronounced in its
Resolution dated February 18, 2008 that an ITAD ruling
must be obtained prior to availing a preferential tax
rate.
CBK Power moved for the reconsideration28 of the
Amended Decision dated February 12, 2009, arguing in
the main that the Mirantcase, which was resolved in a
minute resolution, did not establish a legal precedent.
The motion was denied, however, in a Resolution29
dated May 7, 2009 for lack of merit.
Undaunted, CBK Power elevated the matter to the CTA
En Bancon petition for review,30 docketed as C.T.A E.B.
No. 494. The Commissioner likewise filed his own
petition for review,31 which was docketed as C.T.A. E.B.
No. 469. Said petitions were subsequently
consolidated.32
CBK Power raised the lone issue of whether or not an
ITAD ruling is required before it can avail of the
preferential tax rate. On the other hand, the
Commissioner claimed that CBK Power failed to exhaust
administrative remedies when it filed its petitions
before the CTA First Division, and that said petitions
were not filed within the two-year prescriptive period
for initiating judicial claims for refund.33
The CTA En Banc Ruling
In a Decision34 dated March 29, 2010, the CTA En Banc
affirmed the ruling of the CTA First Division that a prior
application with the ITAD is indeed required by Revenue
Memorandum Order (RMO) 1-2000,35 which
administrative issuance has the force and effect of law
and is just as binding as a tax treaty. The CTA En Banc
declared the Mirant case as without any binding effect
on CBK Power, having been resolved by this Court
merely through minute resolutions, and relied instead
on the mandatory wording of RMO 1-2000, as
follows:36
III. Policies:
xxxx
2. Any availment of the tax treaty relief shall be
preceded by an application by filing BIR Form No. 0901
(Application for Relief from Double Taxation) with ITAD
at least 15 days before the transaction i.e. payment of
dividends, royalties, etc., accompanied by supporting
documents justifying the relief. x x x.
The CTA En Banc further held that CBK Power’s petitions
for review were filed within the two-year prescriptive
period provided under Section 22937 of the National
Internal Revenue Code of 199738 (NIRC), and that it was
proper for CBK Power to have filed said petitions
without awaiting the final resolution of its
administrative claims for refund before the BIR;
otherwise, it would have completely lost its right to
seek judicial recourse if the two-year prescriptive period
lapsed with no judicial claim filed.
CBK Power’s motion for partial reconsideration and the
Commissioner’s motion for reconsideration of the
foregoing Decision were both deniedin a Resolution39
dated August 16, 2010 for lack of merit; hence, the
present consolidated petitions.
The Issues Before the Court
In G.R. Nos. 193383-84, CBK Power submits the sole
legal issue of whether the BIR may add a requirement–
prior application for an ITAD ruling – that is not found in
the income tax treaties signed by the Philippines before
a taxpayer can avail of preferential tax rates under said
treaties.40
On the other hand, in G.R. Nos. 193407-08, the
Commissioner maintains that CBK Power is not entitled
to a refund in the amount of P1,143,517.21 for the
period covering taxable year 2003 as it allegedly failed
to exhaust administrative remedies before seeking
judicial redress.41
The Court’s Ruling
The Court resolves the foregoing in seriatim.
A. G.R. Nos. 193383-84
The Philippine Constitution provides for adherence to
the general principles of international law as part of the
law of the land. The time honored international
principle of pacta sunt servanda demands the
performance in good faith of treaty obligations on the
part of the states that enter into the agreement. In this
jurisdiction, treaties have the force and effect of law.42
The issue of whether the failure to strictly comply with
RMO No. 1-2000 will deprive persons or corporations of
the benefit of a tax treaty was squarely addressed in the
recent case of Deutsche Bank AG Manila Branch v.
Commissioner of Internal Revenue43 (Deutsche Bank),
where the Court emphasized that the obligation to
comply with a tax treaty must take precedence over the
objective of RMO No. 1-2000, viz.:
We recognize the clear intention of the BIR in
implementing RMO No. 1-2000, but the CTA’s outright
denial of a tax treaty relief for failure to strictly comply
with the prescribed period is not in harmony with the
objectives of the contracting state to ensure that the
benefits granted under tax treaties are enjoyed by duly
entitled persons or corporations.
Bearing in mind the rationale of tax treaties, the period
of application for the availment of tax treaty relief as
required by RMO No. 1-2000 should not operate to
divestentitlement to the reliefas it would constitute a
violation of the duty required by good faith in
complying with a tax treaty. The denial of the availment
of tax relief for the failure of a taxpayer to apply within
the prescribed period under the administrative issuance
would impair the value of the tax treaty. At most, the
application for a tax treaty relief from the BIR should
merely operate to confirm the entitlement of the
taxpayer to the relief.
The obligation to comply with a tax treaty must take
precedence over the objective of RMO No. 1-2000.
Logically, noncompliance with tax treaties has negative
implications on international relations, and unduly
discourages foreign investors. While the consequences
sought to be prevented by RMO No. 1-2000 involve an
administrative procedure, these may be remedied
through other system management processes, e.g., the
imposition of a fine or penalty. But we cannot totally
deprive those who are entitled to the benefit of a treaty
for failure to strictly comply with an administrative
issuance requiring prior application for tax treaty
relief.44 (Emphases and underscoring supplied)
The objective of RMO No. 1-2000 inrequiring the
application for treaty relief with the ITAD before a
party’s availment of the preferential rate under a tax
treaty is to avert the consequences of any erroneous
interpretation and/or application of treaty provisions,
such as claims for refund/credit for overpayment of
taxes, or deficiency tax liabilities for underpayment.45
However, as pointed out in Deutsche Bank, the
underlying principle of prior application with the BIR
becomes moot in refund cases– as in the present case –
where the very basis of the claim is erroneous or there
is excessive payment arising from the non-availment of
a tax treaty relief at the first instance.Just as Deutsche
Bank was not faulted by the Court for not complying
with RMO No. 1-2000 prior to the transaction,46 so
should CBK Power. In parallel, CBK Power could not
have applied for a tax treaty relief 15 days prior to its
payment of the final withholding tax on the interest
paid to its lenders precisely because it erroneously paid
said tax on the basis of the regular rate as prescribed by
the NIRC, and not on the preferential tax rate provided
under the different treaties. As stressed by the Court,
the prior application requirement under RMO No. 1-
2000 then becomes illogical.47
Not only is the requirement illogical, butit is also an
imposition that is not found at all in the applicable tax
treaties. In Deutsche Bank, the Court categorically held
that the BIR should not impose additional requirements
that would negate the availment of the reliefs provided
for under international agreements, especially since
said tax treaties do not provide for any prerequisite at
all for the availment of the benefits under said
agreements.48
It bears reiterating that the application for a tax treaty
relief from the BIR should merely operate to confirm
the entitlement of the taxpayer to the relief.49 Since
CBK Power had requested for confirmation from the
ITAD on June 8, 2001 and October 28, 200250 before it
filed on April 14, 2003 its administrative claim for
refund of its excess final withholding taxes, the same
should be deemed substantial compliance with RMO
No. 1-2000, as in Deutsche Bank. To rule otherwise
would defeat the purpose of Section 229 of the NIRC in
providing the taxpayer a remedy for erroneously paid
tax solely on the ground of failure to make prior
application for tax treaty relief.51 As the Court exhorted
in Republic v. GST Philippines, Inc.,52 while the taxpayer
has an obligation to honestly pay the right taxes, the
government has a corollary duty to implement tax laws
in good faith; to discharge its duty to collect what is due
to it; and to justly return what has been erroneously
and excessively given to it.53
In view of the foregoing, the Court holds that the CTA
En Banc committed reversible error in affirming the
reduction of the amount of refund to CBK Power from
15,672,958.42 to P14,835,720.39 to exclude its
transactions with Fortis-Netherlands for which no ITAD
ruling was obtained.54 CBK Power’s petition in G.R.
Nos. 193383-84 is therefore granted.
The opposite conclusion is, however, reached with
respect to the Commissioner’s petition in G.R. Nos.
193407-08.
B. G.R. Nos. 193407-08
The Commissioner laments55 that he was deprived of
the opportunity to act on the administrative claim for
refund of excess final withholding taxes covering
taxable year 2003 which CBK Power filed on March 4,
2005, a Friday, then the following Wednesday, March 9,
2005, the latter hastily elevated the case on petition for
review before the CTA. He argues56 that the failure on
the part of CBK Power to give him a reasonable timeto
act on said claim is violative of the doctrines of
exhaustion of administrative remedies and of primary
jurisdiction.
For its part, CBK Power maintains57 that it would be
prejudicial to wait for the Commissioner’s ruling
beforeit files its judicial claim since it only has 2 years
from the payment of the tax within which to file both its
administrative and judicial claims.
The Court rules for CBK Power.

Sections 204 and 229 of the NIRC pertain to the refund
of erroneously or illegally collected taxes. Section 204
applies to administrative claims for refund, while
Section 229 to judicial claims for refund. In both
instances, the taxpayer’s claim must be filed within two
(2) years from the date of payment of the tax or
penalty. However, Section 229 of the NIRC further
states the condition that a judicial claim for refund may
not be maintained until a claim for refund or credit has
been duly filed with the Commissioner. These provisions
respectively read:
SEC. 204. Authority of the Commissioner to
Compromise, Abate and Refund or Credit Taxes. – The
Commissioner may -
xxxx
(C) Credit or refund taxes erroneously or illegally
received or penalties imposed without authority, refund
the value of internal revenue stamps when they are
returned in good condition by the purchaser, and, in his
discretion, redeem or change unused stamps that have
been rendered unfit for use and refund their value upon
proof of destruction. No credit or refund of taxes or
penalties shall be allowed unless the taxpayer files in
writing with the Commissioner a claim for credit or
refund within two (2) years after the payment of the tax
or penalty: Provided, however, That a return filed
showing an overpayment shall be considered as a
written claim for credit or refund.
xxxx
SEC. 229. Recovery of Tax Erroneously or Illegally
Collected. – No suit or proceeding shall be maintained
in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously
or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, of
any sum alleged to have been excessively or in any
manner wrongfully collected without authority, or of
any sum alleged to have been excessively orin any
manner wrongfully collected, until a claim for refund or
credit has been duly filed with the Commissioner; but
such suit or proceeding may be maintained, whether or
not such tax, penalty, or sum has been paid under
protest or duress.
In any case, no such suit or proceeding shall be filed
after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any
supervening cause that may arise after payment: x x x.
(Emphases and underscoring supplied)
Indubitably, CBK Power’s administrative and judicial
claims for refund of its excess final withholding taxes
covering taxable year 2003 were filed within the two-
year prescriptive period, as shown by the table
below:58
WHEN FINAL
INCOME
TAXES WERE
WITHHELD WHEN
REMITTANCE
RETURN
FILED LAST DAY OF
THE 2-YEAR
PRESCRIPTIVE
PERIOD WHEN
ADMINISTRATIVE
CLAIM WAS FILED WHEN PETITION
FOR REVIEW
WAS FILED
February 2003 03/10/03 03/10/05 March
4, 2005 03/09/05
May 2003 06/10/03 06/10/05 March
4, 2005 03/09/05
With respect to the remittance filed on March 10, 2003,
the Court agrees with the ratiocination of the CTA En
Banc in debunking the alleged failure to exhaust
administrative remedies. Had CBK Power awaited the
action of the Commissioner on its claim for refund prior
to taking court action knowing fully well that the
prescriptive period was about to end, it would have lost
not only its right to seek judicial recourse but its right to
recover the final withholding taxes it erroneously paid
to the government thereby suffering irreparable
damage.59
Also, while it may be argued that, for the remittance
filed on June 10, 2003 that was to prescribe on June
10,2005, CBK Power could have waited for, at the most,
three (3) months from the filing of the administrative
claim on March 4, 2005 until the last day of the two-
year prescriptive period ending June 10, 2005, that is, if
only togive the BIR at the administrative level an
opportunity to act on said claim, the Court cannot, on
that basis alone, deny a legitimate claim that was, for all
intents and purposes, timely filed in accordance with
Section 229 of the NIRC. There was no violation of
Section 229 since the law, as worded, only requires that
an administrative claim be priorly filed.
In the foregoing instances, attention must be drawn to
the Court’s ruling in P.J. Kiener Co., Ltd. v. David60
(Kiener), wherein it was held that in no wise does the
law, i.e., Section 306 of the old Tax Code (now, Section
229 of the NIRC), imply that the Collector of Internal
Revenue first act upon the taxpayer’s claim, and that
the taxpayer shall not go to court before he is notified
of the Collector’s action. In Kiener, the Court went on to
say that the claim with the Collector of Internal
Revenue was intended primarily as a notice of warning
that unless the tax or penalty alleged to have been
collected erroneously or illegally is refunded, court
action will follow, viz.: The controversy centers on the
construction of the aforementioned section of the Tax
Code which reads:
SEC. 306. Recovery of tax erroneously or illegally
collected. — No suit or proceeding shall be maintained
in any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously
or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, or of
any sum alleged to have been excessive or in any
manner wrongfully collected, until a claim for refund or
credit has been duly filed with the Collector of Internal
Revenue; but such suit or proceeding may be
maintained, whether or not such tax, penalty, or sum
has been paid under protest or duress. In any case, no
such suit or proceeding shall be begun after the
expiration of two years from the date of payment of the
tax or penalty. The preceding provisions seem at first
blush conflicting. It will be noticed that, whereas the
first sentence requires a claim to be filed with the
Collector of Internal Revenue before any suit is
commenced, the last makes imperative the bringing of
such suit within two years from the date of collection.
But the conflict is only apparent and the two provisions
easily yield to reconciliation, which it is the office of
statutory construction to effectuate, where possible, to
give effect to the entire enactment.
To this end, and bearing in mind that the Legislature is
presumed to have understood the language it used and
to have acted with full idea of what it wanted to
accomplish, it is fair and reasonable to say without
doing violence to the context or either of the two
provisions, that by the first is meant simply that the
Collector of Internal Revenue shall be given an
opportunity to consider his mistake, if mistake has been
committed, before he is sued, but not, as the appellant
contends that pending consideration of the claim, the
period of two years provided in the last clause shall be
deemed interrupted. Nowhere and in no wise does the
law imply that the Collector of Internal Revenue must
act upon the claim, or that the taxpayer shall not go to
court before he is notified of the Collector’s action. x x
x. We understand the filing of the claim with the
Collector of Internal Revenue to be intended primarily
as a notice of warning that unless the tax or penalty
alleged to have been collected erroneously or illegally is
refunded, court action will follow. x x x.61 (Emphases
supplied)

That being said, the foregoing refund claims of CBK

Power should all be granted, and, the petition of the
Commissioner in G.R. Nos. 193407-08 be denied for lack
of merit.

WHEREFORE, the petition in G.R. Nos. 193383-84 is

GRANTED. The Decision dated March 29, 2010 and the
Resolution dated August 16, 2010 of the Court of Tax
Appeals (CTA) En Banc in C.T.A. E.B. Nos. 469 and 494
are hereby REVERSED and SET ASIDE and a new one
entered REINSTATING the Decision of the CTA First
Division dated August 28, 2008 ordering the refund in
favor of CBK Power Company Limited the amount of
PlS,672,958.42 representing its excess final withholding
taxes for the taxable years 2001 to 2003. On the other
hand, the petition in G.R. Nos. 193407-08 is DENIED for
lack of merit.

SO ORDERED.