G.R. No.
200558 Following the death of Aquilina on July 19, 1949, the
CONSUELO V. PANGASINAN and ANNABELLA V.
BORROMEO, Petitioners,
vs.
CRISTINA DISONGLOALMAZORA, RENILDA
ALMAZORA-CASUBUAN, RODOLFO CASUBUAN,
SUSANA ALMAZORAMENDIOLA, CARLOS
MENDIOLA, CECILIO ALMAZORA and NENITA
ALMAZORA, Respondents.
DECISION
MENDOZA, J.:
The present case demonstrates the legal principle that
the law aids the vigilant, not those who slumber on their
rights. Vigilantibus, sed non dormientibus Jura
subverniunt.
This is a petition for review on certiorari seeking to
reverse and set aside the July 28, 2011 Decision1 and
the February 3, 2012 Resolution2 of the Court of
Appeals (CA), in CA-G.R. CV 84529, which affirmed
the June 29, 2004 Decision3 of the Regional Trial
Court, Branch 259, Parañaque City (RTC) in Civil Case
No. 96-0206, a case for damages.
The Facts
The subject property is a parcel of land with an area of
572 square meters located in Brgy. Sto. Domingo,
Biñan, Laguna. It was registered in the name of
Aquilina Martinez (Aquilina) under Transfer Certificate
of Title (TCT) No. T-18729 by the Register of Deeds of
Laguna on July 29, 1939.4
After the liberation of Manila from the Japanese military
occupation in 1945, Aquilina and her maternal
grandmother, Leoncia Almendral (Leoncia), learned
that their house on Zabala Street, Tondo, Manila, was
ruined by the war. To rebuild their house, they
borrowed money from their relative, Conrado
Almazora (Conrado). Thus, their house was
reconstructed. In return, Leoncia entrusted to Contrado
the owner’s duplicate copy of TCT No. T-18729
covering the subject property in Biñan, Laguna.
Consequently, Conrado and his family remained in the
said property.
the part of Conrado in the registration of the subject
title of the subject property was transferred to Aurora
Morales-Vivar (Aurora), as her sole heir. Accordingly,
TCT No. T-35280 was issued in the name of
Aurora5 after TCT No. T-18729 was cancelled. On
February 7, 1972, Conrado passed away.
Sometime in 1994, Aurora learned from Cristina
Almazora (Cristina), the widowed spouse of Conrado,
that the title of the subject property had long been
transferred in the name of Conrado and that the subject
property had been sold to Fullway Development
Corporation (Fullway) by the heirs of Conrado in
consideration of P4,000,000.00.6
Aurora was shocked to learn that the subject property
was already transferred to Conrado and sold for a
meager amount. On October 30, 1995, she sent a letter
to the heirs of Conrado demanding the delivery of the
payment they received for the sale of the subject
property; but it was unheeded.
On May 9, 1996, Aurora together with her husband,
Arturo, filed a complaint for damages7 against Cristina
and the other heirs of Conrado (respondents) before
the RTC. They contended that the owner’s duplicate
copy of TCT No. T-18729 was only given to Conrado
for safekeeping. The complaint, however, admitted that
the family of Conrado had been staying on, and using,
the subject property since 1912 with the permission
and generosity of Aquilina and Leoncia.8
Aurora asserted that, through the years, she
repeatedly asked Conrado to return the owner’s copy
of the title but the latter procrastinated, giving all kinds
of excuses, until he died in 1972; that thereafter,
Aurora asked Cristina for the copy of the title but the
latter also ignored her request; that the subsequent
sale of the subject property to Fullway was without
Aurora’s authorization, and, thus, the payment
received by respondents for the sale of the subject
property should be turned over to her; and that she
prayed for moral and exemplary damages.9
On June 24, 1996, respondents filed their answer with
compulsory counterclaim. They countered that the
subject property was properly transferred to Conrado
under TCT No. 35282, and, thereafter, in the names of
the heirs of Conrado under TCT No. T-114352.
Respondents averred that the imputation of fraud on
property was baseless and this assertion of fraud was
not transmissible from Conrado to his heirs, who
merely acquired the property through succession.10
Respondents raised some special and affirmatives
defenses, among others, that the complaint stated no
cause of action and was barred by prescription. A
preliminary hearing for the said defenses was set by
the RTC.11 In the Order,12 dated May 27, 1999, the
RTC ruled that the complaint stated a cause of action.
Respondents filed a petition for certiorari 13 to assail
the said interlocutory order of the RTC before the CA.
In its Decision,14 dated February 24, 1999, the CA
denied the same and held that the complaint stated a
cause of action, which was an action for damages
arising from fraud committed by Conrado, as trustee,
against Aurora, as cestui que trust. The CA further held
that the complaint, on its face, did not show that the
action had prescribed.
Meanwhile, the RTC continued the proceedings and
set the case for trial on the merits. After the parties
adduced their respective pieces of evidence, the RTC
required them to submit their memoranda. Only
respondents filed a memorandum.15
The RTC Ruling
In its Decision, dated June 29, 2004, the RTC
dismissed the complaint. The trial court held that, after
a thorough evaluation of the records, Aurora miserably
failed to prove her right to the subject property. It
explained that even if Aurora had a claim on the subject
property, she was guilty of laches. For many years,
Aurora slept on her right over the questioned property
and failed to exhaust all means, legal or administrative,
to retrieve what was rightfully hers at the earliest
possible time.
The RTC determined that Conrado was able to transfer
the title of the subject property in his name on June 17,
1965 by virtue of a document denominated as
"Adjudication and Absolute Sale of a Parcel of
Registered Land,"16 dated January 9, 1949, signed by
Aurora and her husband. The signatures of Aurora and
her husband, affixed on the deed of sale, were not
properly controverted by her. The trial court found that
her allegations of repeated pleas to Conrado to return
the copy of the title deserved scant consideration. It
concluded that Aurora was not entitled to damages
because there were no clear and cogent grounds to
award the same. The decretal portion of the decision
reads:
WHEREFORE, premises considered, plaintiffs having
failed to prove its case for damages, the same is
hereby ordered DISMISSED for lack of merit.
SO ORDERED.17
Aggrieved, Aurora appealed to the CA. On June 4,
2009, the children of Aurora, namely, Consuelo V.
Pangasinan, Lucio M. Vivar and Annabella V.
Borromeo (petitioners), filed a motion for substitution of
party18 after her death on March 26, 2008. In its
Resolution,19 dated July 15, 2010, the CA granted the
motion.
The CA Ruling
In the assailed Decision, dated July 28, 2011, the CA
denied the appeal of petitioners. It held that it took
Aurora more than 50 years to act on Conrado’s
withholding of the title covering the subject property. As
early as 1945, the title was already in the possession
of Conrado. The CA ruled that petitioners were barred
by laches as Aurora should have been impervious in
asserting her ownership and made judicial demands to
return the title and the property.
The appellate court added that even on the aspect of
prescription of actions, the case would not prosper
either. It explained that the prescriptive period to
recover property obtained through fraud or mistake
giving rise to an implied trust under Article 1456 of the
Civil Code was 10 years, pursuant to Article 1144. This
10-year prescriptive period began from the time the
land was registered on June 17, 1965. Accordingly,
Aurora had only until June 17, 1975 within which to file
her action. Evidently, the suit was commenced only on
May 12, 1996, beyond its prescription period. The
dispositive portion of the decision states:
WHEREFORE, premises considered, the instant
petition is DENIED and the Decision dated June 29,
2004 of the Regional Trial Court of Parañaque City,
Branch 259 in Civil Case No. 96-0206 is hereby
AFFIRMED.
SO ORDERED.20
Petitioners moved for reconsideration, but their motion
was denied by the CA in the assailed Resolution, dated
February 3, 2012.
Hence, this petition, raising the following
ISSUES
I
THE COURT OF APPEALS GRAVELY ERRED IN
AFFIRMING THE DECISION OF THE LOWER
COURT DISMISSING THE COMPLAINT FOR
DAMAGES FILED BY AURORA MORALESVIVAR,
WHICH DECISIONS ARE ALL CONTRARY TO LAW;
II
THE COURT OF APPEALS SERIOUSLY ERRED IN
NOT RULING THAT THE ACQUISITION OF
CONRADO ALMAZORA, RESPONDENTS’
PREDECESSOR-IN-INTEREST, OF THE SUBJECT
PROPERTY, IS INVALID AND PRODUCED NO
EFFECT WHATSOEVER BECAUSE NOT ALL THE
ELEMENTS OF LACHES, AS TO DEPRIVE
AURORA MORALES-VIVAR OF HER OWNERSHIP,
ARE PRESENT IN THE CASE AT BAR.21
Petitioners assert that they are not guilty of laches.
When Aurora was told that the subject property was
already in the name of Conrado in April 1994, she
immediately filed a complaint for damages on May 2,
1996. Petitioners also claim that prescription is not a
valid defense to defeat the title of Aurora. Section 47 of
Presidential Decree (P.D.) No. 1529 states that no title
to registered land in derogation of the title of the
registered owner shall be acquired by prescription or
adverse possession.
On September 24, 2012, respondents filed their
Comment,22 arguing that petitioners’ assertions were
tenuous. Aurora slept on her rights for more than 50
years, impervious in asserting her ownership of the
subject property, thereby losing the same by laches.
On December 11, 2012, petitioners filed their
Reply,23 claiming that the CA observed that
respondents might have manipulated the said title to
their benefit and advantage. Respondents’ hands were
unclean because of their bad faith and
misrepresentation.
The Court’s Ruling
The petition is bereft of merit.
The petition raises
questions of fact
As a general rule, the Court’s jurisdiction in a Rule 45
petition is limited to the review of pure questions of law.
A question of law arises when the doubt or difference
exists as to what the law is on a certain state of facts.
Negatively put, Rule 45 does not allow the review of
questions of fact. A question of fact exists when the
doubt or difference arises as to the truth or falsity of the
alleged facts.24
Petitioners challenge the findings of laches,
prescription and lack of bad faith by the CA. To answer
these questions, the Court must review the records to
determine whether the lower courts properly
appreciated the evidence in concluding its findings.
Clearly, the questions raised are factual. On this
ground alone, the present petition under Rule 45 is
dismissible. In the interest of substantial justice,
however, the Court deems it proper to reevaluate the
records.
Petitioners are barred by
laches
Laches is defined as the failure or neglect for an
unreasonable and unexplained length of time to do that
which, by exercising due diligence, could or should
have been done earlier; it is negligence or omission to
assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either
has abandoned it or declined to assert it.25
The principle of laches is a creation of equity which, as
such, is applied not really to penalize neglect or
sleeping upon one's right, but rather to avoid
recognizing a right when to do so would result in a
clearly inequitable situation.26 The time-honored rule
anchored on public policy is that relief will be denied to
a litigant whose claim or demand has become "stale,"
or who has acquiesced for an unreasonable length of
time, or who has not been vigilant or who has slept on
his rights either by negligence, folly or inattention. In
other words, public policy requires, for peace of
society, the discouragement of claims grown stale for
non-assertion; thus laches is an impediment to the
assertion or enforcement of a right which has become,
under the circumstances, inequitable or unfair to
permit.27
The four (4) elements of laches, as first prescribed by
this Court in Go Chi Gun v. Co Cho28 are as follows:
(1) conduct on the part of the defendant, or of
one under whom he claims, giving rise to the
situation of which complaint is made for which
the complaint seeks a remedy;
(2) delay in asserting the complainant’s rights,
the complainant having had knowledge or
notice, of the defendant’s conduct and having
been afforded an opportunity to institute a
suit;
(3) lack of knowledge or notice on the part of
the defendant that the complainant would
assert the right on which he bases his suit;
and
(4) injury or prejudice to the defendant in the
event relief is accorded to the complainant, or
the suit is not held to be barred.29
In the case at bench, the CA correctly held that all the
elements of laches were present. First, Aurora and her
family entrusted to Conrado the owner’s duplicate of
the certificate of title of the subject property in 1945. In
their complaint, petitioners even admitted that
Conrado’s family had been staying in the subject
property since 1912.30 Second, it took five decades,
from 1945 to 1996, before Aurora and petitioners
decided to enforce their right
thereon. Third, respondents who lived all their lives in
the disputed property apparently were not aware that
Aurora would one day come out and claim ownership
thereon. Fourth, there was no question that
respondents would be prejudiced in the event that the
suit would be allowed to prosper.1avvphi1
The contention of petitioners that they were not in delay
in claiming their rights over the subject property is
specious. For 50 years, Aurora and her heirs did not
take any legal step to uphold their claim over the
subject property, despite being fully aware that
Conrado and his family were occupying the same for a
very long time. Even petitioner Consuelo Vivar-
Pangasinan testified that Conrado had been using the
property for 30 years31 and that Aurora had never
shown her any evidence of ownership of the property.32
In their complaint, Aurora claimed that she repeatedly
reminded Conrado to return the copy of the title. This,
however, is a self-serving allegation without any
evidentiary substantiation. The two belated demand
letters, dated October 30, 1995 and March 5, 1996,
sent by Aurora’s lawyer before the institution of the
present action, are the only tangible assertions of their
claim to the property.33 Indeed, not a scintilla of proof
was presented by Aurora and her heirs to establish
that, for 50 years, they actively manifested to reclaim
the title and possession of the subject property.
A person, endowed with properties and entitlements,
but chose to lie quietly as decades passed by,
watching his property wither away, allowing innocent
bystanders to pick the fruits of his unguarded trees,
instead of safeguarding his rights through the
accessibly and necessary legal means, does not
deserve the protection of equity. The law aids the
vigilant, not those who slumber on their rights.
The action has prescribed
On the basis of prescription of actions, the pending
petition must also be denied. Petitioners argue that
prescription shall not lie against their action because a
registered land under Section 47 of P.D. No. 1529
cannot be acquired through prescription.34 The
argument is patently erroneous.
There are two kinds of prescription provided in the Civil
Code. One is acquisitive, that is, the acquisition of a
right by the lapse of time as expounded in paragraph
1, Article 1106.35 Acquisitive prescription is also known
as adverse possession and usucapcion. The other kind
is extinctive prescription whereby rights and actions
are lost by the lapse of time as defined in paragraph 2,
Article 1106 and Article 1139.36 Another name for
extinctive prescription is litigation of action. These two
kinds of prescription should not be interchanged.37
In a plethora of cases,38 the Court has held that Section
47 of P.D. No. 1529 covers acquisitive prescription. A
registered land therein can never be acquired by
adverse possession. In the case at bench, however, it
was extinctive prescription, and not acquisitive
prescription, which barred the action of petitioners. As
the CA correctly held, the action must fail, not because
respondents adversely occupied the property, but
because petitioners failed to institute their suit within
the prescriptive period under Article 1144 of the Civil
Code.
To determine the applicable period of extinctive
prescription, the nature and circumstances of the case
should be considered. According to petitioners, the
owner’s duplicate certificate of title was given to
Conrado for safekeeping in 1945. Allegedly, Conrado
employed fraud and bad faith when he drafted the
Adjudication and Absolute Sale of a Parcel of
Registered Land39 on January 9, 1949, and transferred
the title of the land to his name with the issuance of
TCT No. 3528240 on June 17, 1965; and because of
the purported fraud committed by Conrado against
petitioners, an implied constructive trust was created
by operation of law, with Conrado as trustee and
Aurora as cestui que trust.
Constructive trusts are created by the construction of
equity in order to satisfy the demands of justice and
prevent unjust enrichment.41 Article 1456 of the Civil
Code provides that a person acquiring property
through fraud becomes, by operation of law, a trustee
of an implied trust for the benefit of the real owner of
the property.42 It is now well-settled that the
prescriptive period to recover property obtained by
fraud or mistake, giving rise to an implied trust under
Article 1456 of the Civil Code, is 10 years pursuant to
Article 1144.43 The prescriptive period to enforce the
constructive trust shall be counted from the alleged
fraudulent registration or date of issuance of the
certificate of title over the property.44 The ten-year
prescriptive period applies only if there is an actual
need to reconvey the property as when the plaintiff is
not in possession of the property.45
In this case, the ten-year prescriptive period is squarely
applicable because Conrado and his family, not
petitioners, were in possession of the property. The
subject property was registered in the name of
Conrado on June 17, 1965, and this should be the
starting point of the ten-year period. Petitioners, thus,
had until June 17, 1975 to enforce the implied trust and
assert their claim over the land. As properly held by the
CA, petitioners belatedly instituted their judicial claim
over the land on May 9, 1996. Indeed, with the lapse of
the prescriptive period to file an action, petitioners
could no longer seek relief from the courts.
Fraud was not proven
Granting, for the sake of argument, that the present
case was not barred by laches and had not prescribed,
it must still fail on its merits. The basis of the action for
damages of petitioners would be the fraud, bad faith
and misrepresentation allegedly committed by
Conrado in transferring the title of the subject property
to his name. Petitioners, however, drastically failed to
prove the fact of fraud with clear and convincing
evidence.
Fraud must be proven by clear and convincing
evidence and not merely by a preponderance
thereof.46 Clear and convincing proof is more than
mere preponderance, but not to extent of such
certainty as is required beyond reasonable doubt as in
criminal cases.47 The imputation of fraud in a civil case
requires the presentation of clear and convincing
evidence. Mere allegations will not suffice to sustain
the existence of fraud. The burden of evidence rests on
the part of the plaintiff or the party alleging fraud.48
Here, the Adjudication and Absolute Sale of a Parcel
of Registered Land, which was signed by Aurora and
her husband, transferred the ownership of the subject
property from Aurora to Conrado. Petitioners, however,
failed to assail the validity of such deed. As written by
the RTC, petitioners could have questioned the
authenticity of the document and submitted the same
to the National Bureau of Investigation for comparison
of the signatures. This, they failed to do.49
In fine, the Adjudication and Absolute Sale of a Parcel
of Registered Land, being a notarized document,
enjoys the presumption of regularity. Even assuming
that Conrado truly employed fraud, no proof was
presented that respondents, as heirs of Conrado, were
in privy and had knowledge of the misrepresentations.
In the absence of evidence of fraud, the transfer to
Conrado of the title of the subject property, and the
subsequent transfer to respondents by virtue of
succession,50 must be upheld.
Even on the subject of ownership, petitioners failed to
substantiate their claim. Petitioners had nothing, other
than their bare allegations, that they continuously
owned the subject property. For decades, petitioners
lacked the possession and interest to 'recover the
subject property. The trial court even noted that
petitioners could not present a single tax declaration
receipt as an indicia of their ownership. Based on the
foregoing, petitioners are certainly not entitled to
damages on the basis of their misplaced claim of
ownership over the subject property.
WHEREFORE, the petition is DENIED. The July 28,
2011 Decision and the February 3, 2012 Resolution of
the Court of Appeals in CA-G.R. CV No. 122153
are AFFIRMED in toto.
SO ORDERED.
G.R. Nos. 170746-47, March 07, 2016
CALTEX (PHILIPPINES), INC., CALTEX
PHILIPPINES PETROLEUM, CO., INC., CALTEX
SERVICES (PHILIPPINES), INC., CALTEX OCEANIC
LIMITED, CALTEX INVESTMENT AND TRADING
LIMITED, CALTEX PETROLEUM CORPORATION,
CALTRAPORT (FAR EAST) COMPANY, CALTEX
TRADING AND TRANSPORT CORPORATION,
CALTEX SERVICES CORPORATION, AMERICAN
OVERSEAS PETROLEUM LIMITED, P.T. CALTEX
PACIFIC INDONESIA, CALTEX PETROLEUM INC.,
CALTEX ASIA, LIMITED, CALIFORNIA TEXAS OIL
CORPORATION, CALTEX INTERNATIONAL
SERVICES LIMITED, CALTEX OIL CORPORATION,
CALTEX OIL CORPORATION (DELAWARE),
CALTEX OIL CORPORATION (NEW YORK),
CALTEX OIL PRODUCT COMPANY, CALTEX
(OVERSEAS) LIMITED, CALTEX INTERNATIONAL
LIMITED, CALTEX OIL CORP., Petitioners, v. MA.
FLOR A. SINGZON AGUIRRE, ERNEST SINGZON,
CESAR SINGZON AND ALL THE OTHER
PLAINTIFFS- INTERVENORS IN CIVIL CASES NOS.
91-59592,91-59658, AND 92-61026 PENDING
BEFORE THE REGIONAL TRIAL COURT OF
MANILA, BRANCH 39, Respondents.
DECISION
REYES, J.:
Facts
Dubbed as the Asia's Titanic,1 the M/V Dona Paz was
an inter-island passenger vessel owned and operated
by Sulpicio Lines, Inc. (Sulpicio) traversing its Leyte to
Manila route on the night of December 20, 1987, when
it collided with M/T Vector, a commercial tanker owned
and operated by Vector Shipping Corporation, Inc.,
(Vector Shipping). On that particular voyage, M/T
Vector was chartered by Caltex (Philippines) Inc., et
al.2 (petitioners) to transport petroleum products. The
collision brought forth an inferno at sea with an
estimate of about 4,000 casualties, and was described
as the "world's worst peace time maritime disaster."3 It
precipitated the filing of numerous lawsuits, the instant
case included.
In December 1988, the heirs of the victims of the
tragedy (respondents), instituted a class action with the
Civil District Court for the Parish of Orleans, State of
Louisiana, United States of America (Louisiana Court),
docketed as Civil Case No. 88-24481 entitled "Sivirino
Carreon, et al. v. Caltex (Philippines), Inc., et al."4 On
November 30, 2000, the Louisiana Court entered a
conditional judgment dismissing the said case on the
ground of forum non-conveniens.5 This led the
respondents, composed of 1,689 claimants, to file on
March 6, 2001 a civil action for damages for breach of
contract of carriage and quasi-delict with the Regional
Trial Court (RTC) of Catbalogan, Samar, Branch 28
(RTC of Catbalogan), against the herein petitioners,
Sulpicio, Vector Shipping, and Steamship Mutual
Underwriting Association, Bermuda Limited
(Steamship). This was docketed as Civil Case No.
7277 entitled "Ma. Flor Singzon-Aguirre, et al. v.
Sulpicio Lines, Inc., et al."6
In its Order7 dated March 28, 2001, the RTC of
Catbalogan, motu proprio dismissed the complaint
pursuant to Section 1, Rule 9 of the 1997 Rules of Civil
Procedure as the respondents' cause of action had
already prescribed. In an unusual turn of events
however, the petitioners as defendants therein, who
were not served with summons, filed a motion for
reconsideration, alleging that they are waiving their
defense of prescription, among others. The RTC of
Catbalogan, however, merely noted the petitioners'
motion.8
The dismissal of the complaint prompted the
respondents to have the case reinstated with the
Louisiana Court. The petitioners, as defendants,
however argued against it and contended that the
Philippines offered a more convenient forum for the
parties, specifically the RTC of Manila, Branch 39 (RTC
of Manila), where three consolidated
cases9 concerning the M/V Dona Paz collision were
pending.10
In its Judgment11 dated March 27, 2002, the Louisiana
Court once again conditionally dismissed the
respondents' action, ordering the latter to bring their
claims to the RTC of Manila by intervening in the
consolidated cases filed before the latter court. It was
also stated in the judgment that the Louisiana Court will
allow the reinstatement of the case if the Philippine
court "is unable to assume jurisdiction over the parties
or does not recognize such cause of action or any
cause of action arising out of the same transaction or
occurrence."12
Following the Louisiana Court's order, the respondents
filed a motion for intervention on May 6, 2002, and a
complaint in intervention on May 13, 2002 with the
pending consolidated cases before the RTC of Manila.
Also, co-defendants in the consolidated cases, Sulpicio
and Steamship were furnished with a copy of the
respondents' motion to intervene.
In their Manifestation13 dated April 24, 2002, the
petitioners unconditionally waived the defense of
prescription of the respondents' cause of action. The
petitioners also reiterated a similar position in their
Comment/Consent to Intervention14 dated May 16,
2002. Likewise, Sulpicio and Steamship filed their
Manifestation of No Objection dated May 30, 2002 and
Manifestation dated June 20, 2002 with the RTC of
Manila, expressing concurrence with the petitioners. 15
On July 2, 2002, the RTC of Manila issued its
Order16 denying the respondents' motion to intervene
for lack of merit. The RTC of Manila ruled that the RTC
of Catbalogan had already dismissed the case with
finality; that a final and executory prior judgment is a
bar to the filing of the complaint in intervention of the
respondents; and that the waivers of the defense of
prescription made by the petitioners, Sulpicio and
Steamship are of no moment.17 The motion for
reconsideration filed by the petitioners, Sulpicio and
Steamship was denied as well on August 30, 2002.18
On September 25, 2002, the petitioners instituted a
petition for certiorari before the Court of Appeals (CA)
docketed as CA-G.R. SP No. 72994. On November 12,
2002, Sulpicio and Steamship also filed a separate
petition docketed as CA-G.R. SP No. 73793. These
petitions were consolidated in an order of the CA dated
March 31, 2004.19
On April 27, 2005, the CA dismissed20 the consolidated
petitions in this wise:
WHEREFORE, premises considered, the consolidated
petitions under consideration are hereby DISMISSED.
Accordingly, the assailed orders of the [RTC of Manila]
dated July 2, 2002 and August 30, 2002 are
AFFIRMED. No pronouncement as to costs.
SO ORDERED.21ChanRoblesVirtualawlibrary
The CA concurred with the RTC of Manila that the
finality of the Order dated March 28, 2001 issued by
the RTC of Catbalogan has the effect of res judicata,
which barred the respondents' motion to intervene and
complaint-in-intervention with the RTC of Manila.22 The
CA also considered the filing of motion for
reconsideration by the petitioners before the RTC of
Catbalogan as tantamount to voluntary submission to
the jurisdiction of the said court over their
person.23 The CA rationalized that "[i]t is basic that as
long as the party is given the opportunity to defend his
interests in due course, he would have no reason to
complain, for it is this opportunity to be heard that
makes up the essence of due process." 24
The motions for reconsideration having been denied by
the CA in its Order25 dated December 8, 2005, only the
petitioners elevated the matter before this Court by way
of petition for review on certiorari26 under Rule 45.
The Parties' Arguments
The petitioners contended that not all the elements
of res judicata are present in this case which would
warrant its application as the RTC of Catbalogan did
not acquire jurisdiction over their persons and that the
judgment therein is not one on the merits.27 It was also
adduced that only the respondents were heard in the
RTC of Catbalogan because when the petitioners filed
their motion for reconsideration, the order of dismissal
was already final and executory.28 The petitioners also
bewailed that other complaints were accepted by the
RTC of Manila in the consolidated cases despite
prescription of the cause of action29 and that the real
issue of merit is whether the defense of prescription
that has matured can be waived.30 They explained that
they were not able to file for the annulment of judgment
or order of the RTC of Catbalogan since the
respondents precluded them from seeking such
remedy by filing a motion for intervention in the
consolidated cases before the RTC of Manila.31
On the other side, the respondents maintained that the
waiver on prescription is not the issue but bar by prior
judgment is, because when they filed their motion for
intervention, the dismissal meted out by the RTC of
Catbalogan was already final.32 According to the
respondents, if the petitioners intended to have the
dismissal reversed, the latter should have appealed
from the order of the RTC of Catbalogan or filed a
petition for certiorari against the said order or an action
to nullify the same.33 The respondents also elucidated
that they could not have precluded the petitioners from
assailing the RTC of Catbalogan's orders because it
was not until May 6, 2002 when the respondents filed
a motion for intervention with the consolidated cases
before the RTC of Manila34 and only in deference to the
2nd order of dismissal of the Louisiana Court.35 Finally,
for the respondents, the CA correctly held that the
petitioners cannot collaterally attack the final order of not the person who sleeps on his rights, forgetting them
the RTC of Catbalogan, the reason being that a and taking no trouble of exercising them one way or
situation wherein there could be two conflicting rulings another to show that he truly has such rights.40 The
between two co-equal courts must be avoided.36 rationale behind the prescription of actions is to
suppress fraudulent and stale claims from springing up
Essentially, the issues can be summed up as follows: at great distances of time when all the proper vouchers
and evidence are lost or the facts have become
I. WHETHER THE CA ERRED IN obscure from the lapse of time or defective memory or
RULING THAT THE ORDERS OF death or removal of witnesses.41
THE RTC OF CATBALOGAN
BARRED THE FILING OF THE There is no dispute that the respondents' cause of
MOTION AND COMPLAINT FOR action against the petitioners has prescribed under the
INTERVENTION BEFORE THE Civil Code.42 In fact, the same is evident on the
RTC OF MANILA; and complaint itself. The respondents brought their claim
before a Philippine court only on March 6, 2001, more
than 13 years after the collision occurred.43 Article
II. WHETHER THE CA ERRED IN
1139 of the Civil Code states that actions prescribe by
AFFIRMING THE RTC OF
the mere lapse of time fixed by law. Accordingly, the
MANILA'S DISREGARD OF THE
RTC of Catbalogan cannot be faulted for the motu
PETITIONERS' WAIVER OF
proprio dismissal of the complaint filed before it. It is
PRESCRIPTION ON THE
settled that prescription may be considered by the
GROUND OF BAR BY PRIOR
courts motu proprio if the facts supporting the ground
JUDGMENT.37
are apparent from the pleadings or the evidence on
record.44
Ruling of the Court The peculiarity in this case is that the petitioners, who
were the defendants in the antecedent cases before
the RTCs of Catbalogan and Manila, are most adamant
The petition lacks merit. in invoking their waiver of the defense of prescription
while the respondents, to whom the cause of action
The petitioners cannot be permitted to assert their right belong, have acceded to the dismissal of their
to waive the defense of prescription when they had complaint. The petitioners posit that there is a conflict
foregone the same through their own omission, as will between a substantive law and procedural law in as
be discussed below. much as waiver of prescription is allowed under Article
1112 of the Civil Code, a substantive law even though
The Court shall first discuss the prescription of the the motu proprio dismissal of a claim that has
respondents' cause of action against the petitioners. prescribed is mandated under Section 1, Rule 9 of the
Article 1106 of the Civil Code provides that "[b]y Rules of Court.45
prescription, one acquires ownership and other real
rights through the lapse of time in the manner and The Court has previously held that the right to
under the conditions laid down by law. In the same prescription may be waived or renounced pursuant to
way, rights and conditions are lost by prescription." The Article 1112 of the Civil Code:46
first sentence refers to acquisitive prescription, which
is a mode of "acquisition of ownership and other real Art. 1112. Persons with capacity to alienate property
rights through the lapse of time in the manner and may renounce prescription already obtained, but not
under the conditions provided by law." The second the right to prescribe in the future.
sentence pertains to extinctive prescription "whereby
rights and actions are lost by the lapse of time." 38 It is Prescription is deemed to have been tacitly renounced
also called limitation of action.39 when the renunciation results from acts which imply the
abandonment of the right acquired.
This case involves the latter type of prescription, the
purpose of which is to protect the diligent and vigilant, In the instant case, not only once did the petitioners
expressly renounce their defense of prescription.
Nonetheless, the Court cannot consider such waiver as
basis in order to reverse the rulings of the courts below
as the dismissal of the complaint had become final and
binding on both the petitioners and the respondents.
It is not contested that the petitioners were not served
with summons by the RTC of Catbalogan prior to
the motu proprio dismissal of the respondents'
complaint. It is basic that courts acquire jurisdiction
over the persons of defendants or respondents, by a
valid service of summons or through their voluntary
submission.47 Not having been served with summons,
the petitioners were not initially considered as under
the jurisdiction of the court. However, the petitioners
voluntarily submitted themselves under the jurisdiction
of the RTC of Catbalogan by filing their motion for
reconsideration.
Section 20, Rule 14 of the 1997 Rules of Court states:
Sec. 20. Voluntary appearance. - The defendant's
voluntary appearance in the action shall be equivalent
to service of summons. The inclusion in a motion to
dismiss of other grounds aside from lack of jurisdiction
over the person of the defendant shall not be deemed
a voluntary appearance.
In Philippine Commercial International Bank v.
Spouses Dy Hong Pi, et al.,48 the Court explained the
following:
(1) Special appearance operates as an exception to
the general rule on voluntary appearance;
(2) Accordingly, objections to the jurisdiction of the
court over the person of the defendant must be
explicitly made, i.e., set forth in an unequivocal
manner; and
(3) Failure to do so constitutes voluntary submission
to the jurisdiction of the court, especially in instances
where a pleading or motion seeking affirmative relief is
filed and submitted to the court for resolution.49
Previous to the petitioners' filing of their motion for
reconsideration, the RTC of Catbalogan issued an
Entry of Final Judgment50 stating that its Order dated
March 28, 2001 became final and executory on April
13, 2001. The petitioners claimed that for this reason,
they could not have submitted themselves to the
jurisdiction of the RTC of Catbalogan by filing such a
belated motion.51
But the petitioners cannot capitalize on the supposed
finality of the Order dated March 28, 2001 to repudiate
their submission to the jurisdiction of the RTC of
Catbalogan. It must be emphasized that before the
filing of their motion for reconsideration, the petitioners
were not under the RTC of Catbalogan's jurisdiction.
Thus, although the order was already final and
executory with regard to the respondents; it was not
yet, on the part of the petitioners. As opposed to the
conclusion reached by the CA, the Order dated March
28, 2001 cannot be considered as final and executory
with respect to the petitioners. It was only on July 2,
2001, when the petitioners filed a motion for
reconsideration seeking to overturn the
aforementioned order, that they voluntarily submitted
themselves to the jurisdiction of the court. On
September 4, 2001, the RTC of Catbalogan noted the
petitioners' motion for reconsideration on the flawed
impression that the defense of prescription cannot be
waived.52
Consequently, it was only after the petitioners' failure
to appeal or seek any other legal remedy to challenge
the subsequent Order dated September 4, 2001, that
the dismissal became final on their part. It was from the
date of the petitioners' receipt of this particular order
that the reglementary period under the Rules of Court
to assail it commenced to run for the petitioners. But
neither the petitioners nor the respondents resorted to
any action to overturn the orders of the RTC of
Catbalogan, which ultimately led to their finality. While
the RTC of Catbalogan merely noted the motion for
reconsideration in its Order dated September 4, 2001,
the effect is the same as a denial thereof, for the
intended purpose of the motion, which is to have the
complaint reinstated, was not realized. This should
have prompted the petitioners to explore and pursue
other legal measures to have the dismissal reversed.
Instead, nothing more was heard from the parties until
a motion for intervention was filed by the respondents
before the RTC of Manila, in conformity with the order
of the Louisiana Court. As the CA espoused in its
decision:
We concur with the observation of the [RTC of Manila]
that the petitioners' predicament was of their own
making. The petitioners should have exhausted the
other available legal remedies under the law after the
[RTC of Catbalogan] denied their motion for
reconsideration. Under Section 9, Rule 37 of the [Rules said complaint-in-intervention with the RTC of Manila
of Court], the remedy against an order denying a more than a year after the case was ordered dismissed
motion for reconsideration is not to appeal the said by the RTC of Catbalogan.56 Aside from this, the
order of denial but to appeal from the judgment or final petitioners offered no other acceptable excuse on why
order of the court. Moreover, the petitioners could have they did not raise their oppositions against the orders
availed of an action for annulment of judgment for the of the RTC of Catbalogan when they had the
very purpose of having the final and executory opportunity to do so. Thus, the only logical conclusion
judgment be set aside so that there will be a renewal is that the petitioners abandoned their right to waive the
of litigation. An action for annulment of judgment is defense of prescription.
grounded only on two justifications: (1) extrinsic fraud;
and (2) lack of jurisdiction or denial of due process. All Lastly, the Court takes judicial notice of its ruling
that herein petitioners have to prove was that the trial in Vector Shipping Corporation, et al. v. Macasa, et
court had no jurisdiction; that they were prevented from al.57 and Caltex (Philippines) Inc., v. Sulpicio Lines,
having a trial or presenting their case to the trial court Inc.58 wherein the petitioners, as a mere voyage
by some act or conduct of the private respondents; or charterer, were exonerated from third party liability in
that they have been denied due process of law. the M/V Doña Paz collision. Should this Court allow the
Seasonably, the petitioners could have also interposed reinstatement of the complaint against the petitioners,
a petition for certiorari under Rule 65 of the Rules [of let the trial proceedings take its course, and decide the
Court] imputing grave abuse of discretion on the part same on the merits in favor of the respondents, then it
of the trial court judge in issuing the said order of would have led to the promulgation of conflicting
dismissal. For reasons undisclosed in the records, the decisions. On the other hand, if this Court were to
petitioners did not bother to mull over and consider the decide this matter on the merits in favor of the
said legal avenues, which they could have readily petitioners, then the same result would be obtained as
availed of during that time.53 with a dismissal now.chanrobleslaw
The RTC of Manila denied the respondents' motion for WHEREFORE, the petition is denied for lack of merit.
intervention on the ground of the finality of the order of
the RTC of Catbalogan, there being no appeal or any SO ORDERED.cr
other legal remedy perfected in due time by either the
petitioners or the respondents. Since the dismissal of
the complaint was already final and executory, the RTC
of Manila can no longer entertain a similar action from
the same parties. The bone of contention is not
regarding the petitioners' execution of waivers of the
defense of prescription, but the effect of finality of an
order or judgment on both parties.
"Settled is the rule that a party is barred from assailing
the correctness of a judgment not appealed from by
him" because the "presumption [is] that a party who did
not interject an appeal is satisfied with the adjudication
made by the lower court."54 Whether the dismissal was
based on the merits or technicality is beside the point.
"[A] dismissal on a technicality is no different in effect
and consequences from a dismissal on the merits."55
The petitioners attempted to justify their failure to file
an action to have the orders of the RTC of Catbalogan
annulled by ratiocinating that the respondents
precluded them from doing so when the latter filed their
complaint anew with the RTC of Manila. This is
untenable, as it is clear that the respondents filed the
 REYES, J.:
This is a petition for review on certiorari from the
Decision1 dated November 11, 2004 and
Resolution2 dated February 13, 2006 of the Court of
Appeals in CA-G.R. CV No. 72456.
On March 3, 1999, respondent Domingo Espinosa
(Espinosa) tiled with the Municipal Trial Court (MTC) of
Consolacion, Cebu an application3 for land registration
covering a parcel of land with an area of 5,525 square
meters and situated in Barangay Cabangahan,
Consolacion, Cebu. In support of his application, which
was docketed as LRC Case No. N-81, Espinosa
alleged that: (a) the property, which is more particularly
known as Lot No. 8499 of Cad. 545-D (New), is
alienable and disposable; (b) he purchased the
property from his mother, Isabel Espinosa (Isabel), on
July 4, 1970 and the latter’s other heirs had waived
their rights thereto; and (c) he and his predecessor-in-
interest had been in possession of the property in the
concept of an owner for more than thirty (30) years.
Espinosa submitted the blueprint of Advanced Survey
Plan 07-0008934 to prove the identity of the land. As
proof that the property is alienable and disposable, he
marked as evidence the annotation on the advance
survey plan made by Cynthia L. Ibañez, Chief of the
Map Projection Section, stating that "CONFORMED
PER L.C. MAP NOTATION L.C. Map No. 2545 Project
No. 28 certified on June 25, 1963, verified to be within
Alienable & Disposable Area".5 Espinosa also
presented two (2) tax declarations for the years 1965
and 1974 in Isabel’s name – Tax Declaration Nos.
013516 and 06137 – to prove that she had been in
possession of the property since 1965. To support his
claim that he had been religiously paying the taxes due
on the property, Espinosa presented a title thereto within the time prescribed by law (Sec. 14,
Certification6 dated December 1, 1998 issued by the
Office of the Treasurer of Consolacion, Cebu and three
(3) tax declarations for the years 1978, 1980 and 1985
– Tax Declaration Nos. 14010, 17681 and 010717 .8
G.R. No. 171514 July 18, 2012 Petitioner opposed Espinosa’s application, claiming
that: (a) Section 48(b) of Commonwealth Act No. 141
REPUBLIC OF THE PHILIPPINES, Petitioner, otherwise known as the "Public Land Act" (PLA) had
vs. not been complied with as Espinosa’s predecessor-in-
DOMINGO ESPINOSA, Respondent. interest possessed the property only after June 12,
1945; and (b) the tax declarations do not prove that his
possession and that of his predecessor-in-interest are
DECISION
in the character and for the length of time required by
law.
On August 18, 2000, the MTC rendered a
Judgment9 granting Espinosa’s petition for registration,
the dispositive portion of which states:
WHEREFORE, and in view of all the foregoing,
judgment is hereby rendered ordering for the
registration and the confirmation of title of Espinosa
over Lot No. 8499, Cad 545-D (New), situated at
Barangay Cabangahan, Consolacion, Cebu,
Philippines, containing an area of 5,525 square meters
and that upon the finality of this decision, let a
corresponding decree of registration be issued in favor
of the herein applicant in accordance with Section 39,
P.D. 1529.
SO ORDERED.10
According to the MTC, Espinosa was able to prove that
the property is alienable and disposable and that he
complied with the requirements of Section 14(1) of
Presidential Decree (P.D.) No. 1529. Specifically:
After a careful consideration of the evidence presented
in the above-entitled case, the Court is convinced, and
so holds, that Espinosa was able to establish his
ownership and possession over the subject lot which is
within the area considered by the Department of
Environment and Natural Resources (DENR) as
alienable and disposable land of the public domain.
The Court is likewise convinced that the applicant and
that of predecessor-in-interest have been in open,
actual, public, continuous, adverse and under claim of
sub-par. 1, P.D. 1529) and/or in accordance with the
Land Registration Act.11
Petitioner appealed to the CA and pointed Espinosa’s
failure to prove that his possession and that of his
predecessor-in-interest were for the period required by
law. As shown by Tax Declaration No. 013516, Isabel’s
possession commenced only in 1965 and not on June
12, 1945 or earlier as required by Section 48(b) of the
PLA. On the other hand, Espinosa came into
possession of the property only in 1970 following the
sale that transpired between him and his mother and
the earliest tax declaration in his name was for the year
1978. According to petitioner, that Espinosa and his
predecessor-in-interest were supposedly in
possession for more than thirty (30) years is
inconsequential absent proof that such possession
began on June 12, 1945 or earlier.12
Petitioner also claimed that Espinosa’s failure to
present the original tracing cloth of the survey plan or
a sepia copy thereof is fatal to his application. Citing
Del Rosario v. Republic of the Philippines13 and
Director of Lands v. Judge Reyes,14 petitioner argued
that the submission of the original tracing cloth is
mandatory in establishing the identity of the land
subject of the application.15
Further, petitioner claimed that the annotation on the
advance survey plan is not the evidence admissible to
prove that the subject land is alienable and
disposable.16
By way of the assailed decision, the CA dismissed
petitioner’s appeal and affirmed the MTC Decision
dated August 18, 2000. The CA ruled that possession
for at least thirty (30) years, despite the fact that it
commenced after June 12, 1945, sufficed to convert
the property to private. Thus:
The contention of petitioner is not meritorious on the
following grounds:
a) The record of the case will show that Espinosa has
successfully established valid title over the subject land
and that he and his predecessor-in-interest have been
in continuous, adverse, public and undisturbed
possession of said land in the concept of an owner for
more than 30 years before the filing of the application.
Established jurisprudence has consistently
pronounced that "open, continuous and exclusive
possession for at least 30 years of alienable public land
ipso jure converts the same into private property
(Director of Lands vs. Intermediate Appellate Court,
214 SCRA 604). This means that occupation and
cultivation for more than 30 years by applicant and his
predecessor-in-interest vests title on such applicant so
as to segregate the land from the mass of public land
(National Power Corporation vs. Court of Appeals, 218
SCRA 41); and
b) It is true that the requirement of possession since
June 12, 1945 is the latest amendment of Section 48(b)
of the Public Land Act (C.A. No. 141), but a strict
implementation of the law would in certain cases result
in inequity and unfairness to Espinosa. As wisely
stated by the Supreme Court in the case of Republic
vs. Court of Appeals, 235 SCRA 567:
"Following the logic of the petitioner, any transferee is
thus foreclosed to apply for registration of title over a
parcel of land notwithstanding the fact that the
transferor, or his predecessor-in-interest has been in
open, notorious and exclusive possession thereof for
thirty (30) years or more."17
The CA also ruled that registration can be based on
other documentary evidence, not necessarily the
original tracing cloth plan, as the identity and location
of the property can be established by other competent
evidence.
Again, the aforesaid contention of [the petitioner] is
without merit. While the best evidence to identify a
piece of land for registration purposes may be the
original tracing cloth plan from the Land Registration
Commission, the court may sufficiently order the
issuance of a decree of registration on the basis of the
blue print copies and other evidence (Republic of the
Philippines vs. Intermediate Appellate Court, G.R. No.
L-70594, October 10, 1986). The said case provides
further:
"The fact that the lower court finds the evidence of the
applicant sufficient to justify the registration and
confirmation of her titles and did not find it necessary
to avail of the original tracing cloth plan from the Land
Registration Commission for purposes of comparison,
should not militate against the rights of the applicant.
Such is especially true in this case where no clear,
strong, convincing and more preponderant proof has
been shown by the oppositor to overcome the
correctness of said plans which were found both by the
lower court and the Court of Appeals as conclusive
proofs of the description and identities of the parcels of
land contained therein."
There is no dispute that, in case of Del Rosario vs.
Republic, supra¸ the Supreme Court pronounced that
the submission in evidence of the original tracing cloth
plan, duly approved by the Bureau of Lands, in cases
for application of original registration of land is a
mandatory requirement, and that failure to comply with
such requirement is fatal to one’s application for
registration. However, such pronouncement need not
be taken as an iron clad rule nor to be applied strictly
in all cases without due regard to the rationale behind
the submission of the tracing cloth plan.
x x x:
xxxx
As long as the identity of and location of the lot can be
established by other competent evidence like a duly
approved blueprint copy of the advance survey plan of
Lot 8499 and technical description of Lot 8499,
containing and identifying the boundaries, actual area
and location of the lot, the presentation of the original
tracing cloth plan may be excused.18
Moreover, the CA ruled that Espinosa had duly proven
that the property is alienable and disposable:
Espinosa has established that Lot 8499 is alienable
and disposable. In the duly approved Advance Survey
Plan As-07-0000893 (sic) duly approved by the Land
Management Services, DENR, Region 7, Cebu City, it
is certified/verified that the subject lot is inside the
alienable and disposable area of the disposable and
alienable land of the public domain.19
Petitioner moved for reconsideration but this was
denied by the CA in its Resolution20 dated February 13,
2006.
Petitioner’s Case
Petitioner entreats this Court to reverse and set aside
the CA’s assailed decision and attributes the following
errors: (a) Espinosa failed to prove by competent
evidence that the subject property is alienable and
disposable; (b) jurisprudence dictates that a survey
plan identifies the property in preparation for a judicial
proceeding but does not convert the property into
alienable, much less, private; (c) under Section 17 of
P.D. No. 1529, the submission of the original tracing
cloth plan is mandatory to determine the exact metes
and bounds of the property; and (d) a blueprint copy of
the survey plan may be admitted as evidence of the
identity and location of the property only if it bears the
approval of the Director of Lands.
Issues
The resolution of the primordial question of whether
Espinosa has acquired an imperfect title over the
subject property that is worthy of confirmation and
registration is hinged on the determination of the
following issues:
a. whether the blueprint of the advanced
survey plan substantially complies with
Section 17 of P.D. No. 1529; and
b. whether the notation on the blueprint copy
of the plan made by the geodetic engineer
who conducted the survey sufficed to prove
that the land applied for is alienable and
disposable.
Our Ruling
The lower courts were unanimous in holding that
Espinosa’s application is anchored on Section 14(1) of
P.D. No. 1529 in relation to Section 48(b) of the PLA
and the grant thereof is warranted in view of evidence
supposedly showing his compliance with the
requirements thereof.
This Court is of a different view.
Based on Espinosa’s allegations and his supporting
documents, it is patent that his claim of an imperfect
title over the property in question is based on Section
14(2) and not Section 14(1) of P.D. No. 1529 in relation
to Section 48(b) of the PLA. Espinosa did not allege
that his possession and that of his predecessor-in-
interest commenced on June 12, 1945 or earlier as
prescribed under the two (2) latter provisions. On the
contrary, Espinosa repeatedly alleged that he acquired
title thru his possession and that of his predecessor-in-
interest, Isabel, of the subject property for thirty (30)
years, or through prescription. Therefore, the rule that
should have been applied is Section 14(2) of P.D. No.
1529, which states:
Sec. 14. Who may apply. – The following persons may
file in the proper Court of First Instance an application
for registration of title to land, whether personally or
through their duly authorized representatives:
xxxx
(2) Those who have acquired ownership of private
lands by prescription under the provision of existing
laws.
Obviously, the confusion that attended the lower
courts’ disposition of this case stemmed from their
failure to apprise themselves of the changes that
Section 48(b) of the PLA underwent over the years.
Section 48(b) of the PLA originally states:
Sec. 48. The following described citizens of the
Philippines, occupying lands of the public domain or
claiming to own any such lands or an interest therein,
but whose titles have not been perfected or completed,
may apply to the Court of First Instance of the province
where the land is located for confirmation of their
claims and the issuance of a certificate of title therefor,
under the Land Registration Act, to wit:
xxxx
(b) Those who by themselves or through their
predecessors-in-interest have been in the open,
continuous, exclusive and notorious possession and
occupation of agricultural lands of the public domain,
under a bona fide claim of acquisition or ownership,
except as against the Government, since July twenty-
sixth, eighteen hundred and ninety-four, except when
prevented by war or force majeure. These shall be
conclusively presumed to have performed all the
conditions essential to a Government grant and shall
be entitled to a certificate of title under the provisions
of this chapter.
Thus, the required possession and occupation for
judicial confirmation of imperfect title was since July 26,
1894 or earlier.
On June 22, 1957, Republic Act (R.A.) No. 1942
amended Section 48(b) of the PLA by providing a thirty
(30)-year prescriptive period for judicial confirmation of
imperfect title. Thus:
(b) Those who by themselves or through their
predecessors-in-interest have been in the open,
continuous, exclusive and notorious possession and
occupation of agricultural lands of the public domain,
under a bona fide claim of acquisition or ownership, for
at least thirty years immediately preceding the filing of
the application for confirmation of title except when
prevented by war or force majeure. These shall be
conclusively presumed to have performed all the
conditions essential to a Government grant and shall
be entitled to a certificate of title under the provisions
of this chapter.
On January 25, 1977, P.D. No. 1073 was issued,
changing the requirement for possession and
occupation for a period of thirty (30) years to
possession and occupation since June 12, 1945 or
earlier. Section 4 of P.D. No. 1073 states:
Sec. 4. The provisions of Section 48(b) and Section
48(c), Chapter VIII of the Public Land Act are hereby
amended in the sense that these provisions shall apply
only to alienable and disposable lands of the public
domain which have been in open, continuous,
exclusive and notorious possession and occupation by
the applicant himself or thru his predecessor-in-
interest, under a bona fide claim of acquisition of
ownership, since June 12, 1945.
On June 11, 1978, P.D. No. 1529 was enacted.
Notably, the requirement for possession and
occupation since June 12, 1945 or earlier was adopted
under Section 14(1) thereof.
P.D. No. 1073, in effect, repealed R.A. No. 1942 such
that applications under Section 48(b) of the PLA filed
after the promulgation of P.D. No. 1073 should allege
and prove possession and occupation that dated back
to June 12, 1945 or earlier. However, vested rights may
have been acquired under Section 48(b) prior to its
amendment by P.D. No. 1073. That is, should petitions
for registration filed by those who had already been in
possession of alienable and disposable lands of the
public domain for thirty (30) years at the time P.D. No.
1073 was promulgated be denied because their
possession commenced after June 12, 1945? In
Abejaron v. Nabasa,21 this Court resolved this legal
predicament as follows:
However, as petitioner Abejaron’s 30-year period of
possession and occupation required by the Public
Land Act, as amended by R.A. 1942 ran from 1945 to
1975, prior to the effectivity of P.D. No. 1073 in 1977,
the requirement of said P.D. that occupation and
possession should have started on June 12, 1945 or
earlier, does not apply to him. As the Susi doctrine
holds that the grant of title by virtue of Sec. 48(b) takes
place by operation of law, then upon Abejaron’s
satisfaction of the requirements of this law, he would
have already gained title over the disputed land in
1975. This follows the doctrine laid down in Director of
Lands v. Intermediate Appellate Court, et al., that the
law cannot impair vested rights such as a land grant.
More clearly stated, "Filipino citizens who by
themselves or their predecessors-in-interest have
been, prior to the effectivity of P.D. 1073 on January
25, 1977, in open, continuous, exclusive and notorious
possession and occupation of agricultural lands of the
public domain, under a bona fide claim of acquisition of
ownership, for at least 30 years, or at least since
January 24, 1947" may apply for judicial confirmation
of their imperfect or incomplete title under Sec. 48(b) of
the Public Land Act.22 (Citations omitted)
Consequently, for one to invoke Section 48(b) and
claim an imperfect title over an alienable and
disposable land of the public domain on the basis of a
thirty (30)-year possession and occupation, it must be
demonstrated that such possession and occupation
commenced on January 24, 1947 and the thirty (30)-
year period was completed prior to the effectivity of
P.D. No. 1073.
There is nothing in Section 48(b) that would suggest
that it provides for two (2) modes of acquisition. It is not
the case that there is an option between possession
and occupation for thirty (30) years and possession
and occupation since June 12, 1945 or earlier. It is
neither contemplated under Section 48(b) that if
possession and occupation of an alienable and
disposable public land started after June 12, 1945, it is
still possible to acquire an imperfect title if such
possession and occupation spanned for thirty (30)
years at the time of the filing of the application.
In this case, the lower courts concluded that Espinosa
complied with the requirements of Section 48(b) of the
PLA in relation to Section 14(1) of P.D. No. 1529 based
on supposed evidence that he and his predecessor-in-
interest had been in possession of the property for at
least thirty (30) years prior to the time he filed his
application. However, there is nothing on record
showing that as of January 25, 1977 or prior to the
effectivity of P.D. No. 1073, he or Isabel had already
acquired title by means of possession and occupation
of the property for thirty (30) years. On the contrary, the
earliest tax declaration in Isabel’s name was for the
year 1965 indicating that as of January 25, 1977, only
twelve (12) years had lapsed from the time she first
came supposedly into possession.
The CA’s reliance on Director of Lands v. Intermediate
Appellate Court23 is misplaced considering that the
application therein was filed on October 20, 1975 or
before the effectivity of P.D. No. 1073. The same can
be said with respect to National Power Corporation v.
Court of Appeals.24 The petition for registration therein
was filed on August 21, 1968 and at that time, the
prevailing rule was that provided under Section 48(b)
as amended by R.A. No. 1942.
In Republic v. Court of Appeals,25 the applicants
therein entered into possession of the property on June
17, 1978 and filed their application on February 5,
1987. Nonetheless, there is evidence that the
individuals from whom the applicant purchased the
property, or their predecessors-in-interest, had been in
possession since 1937. Thus, during the effectivity of
Section 48(b) as amended by R.A. No. 1942, or while
the prevailing rule was possession and occupation for
thirty (30) years, or prior to the issuance of P.D. No.
1073, the thirty (30)-year prescriptive period was
already completed.
Thus, assuming that it is Section 48(b) of the PLA in
relation to Section 14(1) of P.D. No. 1529 that should
apply in this case, as the lower courts held, it was
incumbent upon Espinosa to prove, among other
things, that Isabel’s possession of the property dated
back at least to June 12, 1945. That in view of the
established fact that Isabel’s alleged possession and
occupation started much later, the lower courts should
have dismissed Espinosa’s application outright.
In sum, the CA, as well as the MTC, erred in not
applying the present text of Section 48(b) of the PLA.
That there were instances wherein applications were
granted on the basis of possession and occupation for
thirty (30) years was for the sole reason discussed
above. Regrettably, such reason does not obtain in this
case.
Being clear that it is Section 14(2) of P.D. No. 1529 that
should apply, it follows that the subject property being
supposedly alienable and disposable will not suffice.
As Section 14(2) categorically provides, only private
properties may be acquired thru prescription and under
Articles 420 and 421 of the Civil Code, only those
properties, which are not for public use, public service
or intended for the development of national wealth, are
considered private. In Heirs of Mario Malabanan v.
Republic,26 this Court held that there must be an official
declaration to that effect before the property may be
rendered susceptible to prescription:
Nonetheless, Article 422 of the Civil Code states that
"property of public dominion, when no longer intended
for public use or for public service, shall form part of the
patrimonial property of the State." It is this provision
that controls how public dominion property may be
converted into patrimonial property susceptible to
acquisition by prescription. After all, Article 420(2)
makes clear that those property "which belong to the
State, without being for public use, and are intended for
some public service or for the development of the
national wealth" are public dominion property. For as
long as the property belongs to the State, although
already classified as alienable or disposable, it remains
property of the public dominion if when it is "intended
for some public service or for the development of the
national wealth." (Emphasis supplied)
Accordingly, there must be an express declaration by
the State that the public dominion property is no longer
intended for public service or the development of the
national wealth or that the property has been converted
into patrimonial. Without such express declaration, the
property, even if classified as alienable or disposable,
remains property of the public dominion, pursuant to
Article 420(2), and thus incapable of acquisition by
prescription. It is only when such alienable and
disposable lands are expressly declared by the State
to be no longer intended for public service or for the
development of the national wealth that the period of
acquisitive prescription can begin to run. Such
declaration shall be in the form of a law duly enacted
by Congress or a Presidential Proclamation in cases
where the President is duly authorized by law.27
Thus, granting that Isabel and, later, Espinosa
possessed and occupied the property for an aggregate
period of thirty (30) years, this does not operate to
divest the State of its ownership. The property, albeit
allegedly alienable and disposable, is not patrimonial.
As the property is not held by the State in its private
capacity, acquisition of title thereto necessitates
observance of the provisions of Section 48(b) of the
PLA in relation to Section 14(1) of P.D. No. 1529 or
possession and occupation since June 12, 1945. For
prescription to run against the State, there must be
proof that there was an official declaration that the
subject property is no longer earmarked for public
service or the development of national wealth.
Moreover, such official declaration should have been
issued at least ten (10) or thirty (30) years, as the case
may be, prior to the filing of the application for
registration. The period of possession and occupation
prior to the conversion of the property to private or
patrimonial shall not be considered in determining
completion of the prescriptive period. Indeed, while a
piece of land is still reserved for public service or the
development of national wealth, even if the same is
alienable and disposable, possession and occupation
no matter how lengthy will not ripen to ownership or
give rise to any title that would defeat that of the State’s
if such did not commence on June 12, 1945 or earlier.
At any rate, as petitioner correctly pointed out, the
notation on the survey plan does not constitute
incontrovertible evidence that would overcome the
presumption that the property belongs to the
inalienable public domain.
All lands of the public domain belong to the State,
which is the source of any asserted right to any
ownership of land. All lands not appearing to be clearly
within private ownership are presumed to belong to the
State. Accordingly, public lands not shown to have
been reclassified or released as alienable agricultural
land, or alienated to a private person by the State,
remain part of the inalienable public domain. The
burden of proof in overcoming the presumption of State
ownership of the lands of the public domain is on the
person applying for registration (or claiming
ownership), who must prove that the land subject of the
application is alienable or disposable. To overcome
this presumption, incontrovertible evidence must be
established that the land subject of the application (or
claim) is alienable or disposable.28
In Republic v. Sarmiento,29 this Court reiterated the
earlier ruling in Menguito v. Republic30 that the notation
made by a surveyor-geodetic engineer that the
property surveyed is alienable and disposable is not
the positive government act that would remove the
property from the inalienable domain. Neither it is the
evidence accepted as sufficient to controvert the
presumption that the property is inalienable:
To discharge the onus, respondent relies on the blue
print copy of the conversion and subdivision plan
approved by the DENR Center which bears the
notation of the surveyor-geodetic engineer that "this
survey is inside the alienable and disposable area,
Project No. 27-B. L.C. Map No. 2623, certified on
January 3, 1968 by the Bureau of Forestry."
Menguito v. Republic teaches, however, that reliance
on such a notation to prove that the lot is alienable is
insufficient and does not constitute incontrovertible
evidence to overcome the presumption that it remains
part of the inalienable public domain.
"To prove that the land in question formed part of the
alienable and disposable lands of the public domain,
petitioners relied on the printed words which read:
"This survey plan is inside Alienable and Disposable
Land Area, Project No. 27-B as per L.C. Map No. 2623,
certified by the Bureau of Forestry on January 3, 1968,"
appearing on Exhibit "E" (Survey Plan No. Swo-13-
000227).
This proof is not sufficient. Section 2, Article XII of the
1987 Constitution, provides: "All lands of the public
domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries,
forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. . . ."
For the original registration of title, the applicant
(petitioners in this case) must overcome the
presumption that the land sought to be registered
forms part of the public domain. Unless public land is
shown to have been reclassified or alienated to a
private person by the State, it remains part of the
inalienable public domain. Indeed, "occupation thereof
in the concept of owner, no matter how long, cannot
ripen into ownership and be registered as a title." To
overcome such presumption, incontrovertible evidence
must be shown by the applicant. Absent such
evidence, the land sought to be registered remains
inalienable.
In the present case, petitioners cite a surveyor geodetic
engineer’s notation in Exhibit "E" indicating that the
survey was inside alienable and disposable land. Such
notation does not constitute a positive government act
validly changing the classification of the land in
question.
Verily, a mere surveyor has no authority to reclassify
lands of the public domain. By relying solely on the said
surveyor’s assertion, petitioners have not sufficiently
proven that the land in question has been declared
alienable."31 (Citations omitted and underscoring
supplied)
Therefore, even if Espinosa’s application may not be
dismissed due to his failure to present the original
tracing cloth of the survey plan, there are numerous
grounds for its denial. The blueprint copy of the
advanced survey plan may be admitted as evidence of
the identity and location of the subject property if: (a) it
was duly executed by a licensed geodetic engineer; (b)
it proceeded officially from the Land Management
Services (LMS) of the DENR; and (c) it is accompanied
by a technical description of the property which is
certified as correct by the geodetic surveyor who
conducted the survey and the LMS of the DENR. As
ruled in Republic v. Guinto-Aldana,32 the identity of the
land, its boundaries and location can be established by
other competent evidence apart from the original
tracing cloth such as a duly executed blueprint of the
survey plan and technical description:
Yet if the reason for requiring an applicant to adduce in
evidence the original tracing cloth plan is merely to
provide a convenient and necessary means to afford
certainty as to the exact identity of the property applied
for registration and to ensure that the same does not
overlap with the boundaries of the adjoining lots, there
stands to be no reason why a registration application
must be denied for failure to present the original tracing
cloth plan, especially where it is accompanied by
pieces of evidence—such as a duly executed blueprint
of the survey plan and a duly executed technical
description of the property—which may likewise
substantially and with as much certainty prove the
limits and extent of the property sought to be
registered.33
However, while such blueprint copy of the survey plan
may be offered as evidence of the identity, location and
the boundaries of the property applied for, the notation
therein may not be admitted as evidence of alienability
and disposability. In Republic v. Heirs of Juan
Fabio,34 this Court enumerated the documents that are
deemed relevant and sufficient to prove that the
property is already outside the inalienable public
domain as follows:
Domingo Espinosa's application for registration of title
over Lot No. 8499 of Cad. 545-D (New) located at
Barangay Cabangahan, Consolacion, Cebu is hereby
DENIED for lack of merit. No pronouncement as to
costs.
SO ORDERED.

In Republic v. T.A.N. Properties, Inc., we ruled that it is

not enough for the Provincial Environment and Natural
Resources Office (PENRO) or CENRO to certify that a
land is alienable and disposable. The applicant for land
registration must prove that the DENR Secretary had
approved the land classification and released the land
of the public domain as alienable and disposable, and
that the land subject of the application for registration
falls within the approved area per verification through
survey by the PENRO or CENRO. In addition, the
applicant must present a copy of the original
classification of the land into alienable and disposable,
as declared by the DENR Secretary, or as proclaimed
by the President. Such copy of the DENR Secretary’s
declaration or the President’s proclamation must be
certified as a true copy by the legal custodian of such
official record.1âwphi1 These facts must be
established to prove that the land is alienable and
disposable.35 (Citation omitted)

Based on the foregoing, it appears that Espinosa

cannot avail the benefits of either Section 14(1) of P.O.
No. 1529 in relation to Section 48(b) of the PLA or
Section 14(2) of P.O. No. 1529. Applying Section 14(1)
of P.O. No. 1529 and Section 48(b) of the PLA, albeit
improper, Espinosa failed to prove that: (a) Isabel's
possession of the property dated back to June 12,
1945 or earlier; and (b) the property is alienable and
disposable. On the other hand, applying Section 14(2)
of P.O. No. 1529, Espinosa failed to prove that the
property is patrimonial. As to whether Espinosa was
able to prove that his possession and occupation and
that of Isabel were of the character prescribed by law,
the resolution of this issue has been rendered
unnecessary by the foregoing considerations.

WHEREFORE, premises considered, the petition is

GIVEN DUE COURSE and GRANTED. The Decision
dated November 11, 2004 and Resolution dated
February 13, 2006 of the Court of Appeals in CA-G.R.
CV No. 72456 are REVERSED and SET ASIDE and

G.R. No. 193618, November 28, 2016
HEIRS OF LEOPOLDO DELFIN AND SOLEDAD
DELFIN, NAMELY EMELITA D. FABRIGAR AND
LEONILO C. DELFIN, Petitioners, v. NATIONAL
HOUSING AUTHORITY, Respondent.
DECISION
LEONEN, J.:
Under Commonwealth Act No. 141, a claimant may
acquire alienable and disposable public land upon
evidence of exclusive and notorious possession of the
land since June 12, 1945. The period to acquire public
land by acquisitive prescription under Presidential
Decree No. 1529 begins to run only after the
promulgation of a law or a proclamation by the
President stating that the land is no longer intended for
public use or the development of national wealth.
This resolves a Petition for Review on Certiorari1 under
Rule 45 of the 1997 Rules of Civil Procedure praying
that the assailed February 26, 2010 Decision2 and July
2, 2010 Resolution3 of the Court of Appeals in CA-G.R.
CV No. 80017 be reversed, and that the May 20, 2002
Decision4 of the Regional Trial Court in Civil Case No.
II-1801 be reinstated.
The Regional Trial Court's May 20, 2002 Decision
awarded compensation to Leopoldo and Soledad
Delfin (Delfin Spouses) for an Iligan City property
subsequently occupied by respondent National
Housing Authority.
The assailed Court of Appeals Decision reversed the
Regional Trial Court's May 20, 2002 Decision and
dismissed the Delfin Spouses' complaint seeking
compensation. The assailed Court of Appeals
Resolution denied their Motion for Reconsideration.
In a Complaint for "Payment of Parcel(s) of Land and
Improvements and Damages"5 the Delfin Spouses
claimed that they were the owners of a 28,800 square
meter parcel of land in Townsite, Suarez, Iligan City
(the "Iligan Property").6 They allegedly bought the
property in 1951 from Felix Natingo and Carlos
Carbonay, who, allegedly, had been in actual
possession of the property since time
immemorial.7 The Delfin Spouses had been declaring
the Iligan Property in their names for tax purposes
since 1952,8 and had been planting it with mangoes,
coconuts, corn, seasonal crops, and vegetables. 9
They farther alleged that, sometime in 1982,
respondent National Housing Authority forcibly took
possession of a 10,798 square meter portion of the
property.10 Despite their repeated demands for
compensation, the National Housing Authority failed to
pay the value of the property.11 The Delfin Spouses
thus, filed their Complaint.12
They asserted that the property's reasonable market
value was not less than P40 per square meter 13 and
that its improvements consisting of fruit-bearing trees
should be valued at P13,360.00 at the time of
taking.14 They similarly claimed that because the
National Housing Authority occupied the property, they
were deprived of an average net yearly income of
P10,000.00.15
In its Answer,16 the National Housing Authority alleged
that the Delfin Spouses' property was part of a military
reservation area.17 It cited Proclamation No. 2151
(actually, Proclamation No. 2143, the National Housing
Authority made an erroneous citation) as having
supposedly reserved the area in which property is
situated for Iligan City's slum improvement and
resettlement program, and the relocation of families
who were dislocated by the National Steel
Corporation's five-year expansion program.18
According to the National Housing Authority,
Proclamation No. 2151 also mandated it to determine
the improvements' valuation.19 Based on the study of
the committee it created, the value of the property was
supposedly only P4.00 per square meter, regardless of
the nature of the improvements on it.20
It emphasized that among all claimants, only the Delfin
Spouses and two others remained unpaid because of
their disagreement on the property's valuation. 21
The National Housing Authority failed to appear during
the pre-trial conference.22 Upon the Delfin Spouses'
motion, the Regional Trial Court declared the National
Housing Authority in default.23 The case was set for the
ex-parte reception of the Delfin Spouses' evidence. 24
On May 20, 2002, the Regional Trial Court rendered a
Decision in favor of the Delfin
Spouses.25cralawred The dispositive portion of the
Decision read:
chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, and by virtue of
the existence of preponderance of evidence, the Court
hereby enters a judgment in favor of spouses-plaintiffs
Leopoldo Delfin and Soledad Delfin against defendant
National Housing Authority, its agents or
representative/s ordering to pay the former the
following, to wit:
1) P400,000.00 representing the reasonable
market value of a portion of the land taken
by the defendant containing an area of
10,000 square meters at the rate of P40.00
per square meters plus legal interest per
annum from the filing in Court of the
complaint until fully paid;
2) P13,360.00 representing the value of the
permanent improvements that were
damaged and destroyed plus legal interest
per annum from the time of the filing of this
case until fully paid;
3) P10,000.00, representing attorney's fees;
4) The costs of this suit.26
The Regional Trial Court stated that it had no reason
to doubt the evidence presented by the Delfin
Spouses:
chanRoblesvirtualLawlibrary
On this regards (sic), the Court finds no reason to doubt
the veracity of the plaintiff['s evidence], there being
none to controvert the same. If said. evidence did not
ring true, the defendant should have and could have
easily destroyed their probatory value. Such
indifference can only mean that defendant had not (sic)
equitable rights to protect or assert over the disputed Leonilo C. Delfin (petitioners).35
property together with all the improvements existing
thereon. This, the defendant did not do so and the For resolution is the issue of whether petitioners are
Court finds no cogent reasons to disbelieve or reject entitled to just compensation for the Iligan City property
the plaintiffs categorical declarations on the witness occupied by respondent National Housing
stand under a solemn oath, for the same are entitled to Authority.chanroblesvirtuallawlibrary
full faith and credence. Indeed, if the defendant
National Housing Authority have been blinded with the I
consequence of their neglect and apathy, then
defendant have no right to pass on to the spouses- The right to be justly compensated whenever private
plaintiffs of their negligence and expect the Court to property is taken for public use cannot be disputed.
come to their rescue. For it is now much too late in the Article III, Section 9 of the 1987 Constitution states that
day to assail the decision which has become final and Section 9. Private property shall not be taken for public
executory.27ChanRoblesVirtualawlibrary use without just
The National Housing Authority filed a Motion for compensation.ChanRoblesVirtualawlibrary
Reconsideration, but this was denied in the Regional The case now hinges on whether the petitioners and
trial Court's September 10, 2002 Resolution.28 their predecessors-in-interests have been in
possession of the Iligan Property for such duration and
On the National Housing Authority's appeal, the Court under such circumstances as will enable them to claim
of Appeals rendered the assailed February 26, 2010 ownership.
Decision reversing the Regional Trial Court:29
WHEREFORE, the appeal is GRANTED. The assailed Petitioners argue that they and their predecessors-in-
Decision is REVERSED and SET ASIDE. interests' open, continuous, exclusive, and notorious
Consequently, appellees' complaint for compensation possession of the Iligan Property for more than 30
is DISMISSED for lack of merit. The property taken by years converted the property from public to
appellant NHA and for which compensation is sought private.36 They then posit that they acquired ownership
by appellees is hereby DECLARED land of the public of the property through acquisitive prescription under
domain.30ChanRoblesVirtualawlibrary Section 14(2) of Presidential Decree No. 1529.37
The Court of Appeals ruled that the characterization of
the property is no longer an issue because the National Petitioners also assert that the Court of Appeals
Housing Authority already conceded that the property disregarded certifications and letters from government
is disposable public land by citing Proclamation No. agencies, which support their claims, particularly, their
2151, which characterized the property as "a certain and their predecessors-in-interest's possession since
disposable parcel of public land."31 However, the Delfin June 12, 1945.38
Spouses supposedly failed to establish their
possession of the property since June 12, 1945, as Respondent counters, citing the Court of Appeals
required in Section 48(b) of the Public Land Act. 32 Decision, that petitioners cannot rely on'Section 14(2)
of Presidential Decree No. 1529 because the property
During the pendency of their petition before the Court was not yet declared private land when they filed their
of Appeals. Both Leopoldo and Soledad Delfin both Complaint.39chanroblesvirtuallawlibrary
passed away. Lepoldo passed away on February 3,
2005 and Soledad on June 22, 2004. Their surviving II
heirs, Emelita D. Fabrigar and Leonilo C. Delfin filed a
Motion for Substitution before the Court of Appeals, Petitioners are erroneously claiming title based on
which was not acted upon.33 acquisitive prescription under Section 14(2) of
Presidential Decree No. 1529.
In its assailed July 2, 2010 Resolution,34 the Court of
Appeals denied the Motion for Reconsideration filed by Section 14 reads in full:
the heirs of the Delfin Spouses. chanRoblesvirtualLawlibrary
Section 14. Who may apply. The following persons
Hence, this petition which was filed by the surviving may file in the proper Court of First Instance an
heirs of the Delfin Spouses, Emelita D. Fabrigar and
application for registration of title to land, whether
personally or through their duly authorized
representatives:
(1) Those who by themselves or through their
predecessors-in-interest have been in
open, continuous, exclusive and notorious
possession and occupation of alienable
and disposable lands of the public domain
under a bona fide claim of ownership since
June 12, 1945, or earlier.
(2) Those who have acquired ownership of
private lands by prescription under the
provision of existing laws.
(3) Those who have acquired ownership of
private lands or abandoned river beds by
right of accession or accretion under the
existing laws.
(4) Those who have acquired ownership of
land in any other manner provided for by
law.
Where the land is owned in common, all the co-owners
shall file the application jointly.
Where the land has been sold under pacto de retro, the
vendor a retro may file an application for the original
registration of the land, provided, however, that should
the period for redemption expire during the pendency
of the registration proceedings and ownership to the
property consolidated in the vendee a retro, the latter
shall be substituted for the applicant and may continue
the proceedings.
A trustee on behalf of his principal may apply for
original registration of any land held in trust by him,
unless prohibited by the instrument creating the trust.
[Emphasis supplied]ChanRoblesVirtualawlibrary
For acquisitive prescription to set in pursuant to
Section 14(2) of Presidential Decree No. 1529, two (2)
requirements must be satisifled: first, the property is
established to be private in character; and second the
applicable prescriptive period under existing laws had
passed.
Property - such as land - is either of public dominion or
private ownership.40
"Land is considered of public dominion if it either: (a) is
intended for public use; or (b) belongs to the State,
without being for public use, and is intended for some
public service or for the development of the national
wealth."41 Land that belongs to the state but which is
not or is no longer intended for public use, for some
public service or for the development of the national
wealth, is patrimonial property;42 it is property owned
by the State in its private capacity. Provinces, cities,
and municipalities may also hold patrimonial lands. 43
Private property "consists of all property belonging to
private persons, either individually or collectively,"44 as
well as "the patrimonial property of the State,
provinces, cities, and municipalities."45
Accordingly, only publicly owned lands which are
patrimonial in character are susceptible to prescription
under Section 14(2) of Presidential Decree No. 1529.
Consistent with this, Article 1113 of Civil Code
demarcates properties of the state, which are not
patrimonial in character, as being not susceptible to
prescription:
chanRoblesvirtualLawlibrary
Art. 1113. All things which are within the commerce of
men are susceptible of prescription, unless provided.
Property of the State or any of its subdivisions not
patrimonial in character shall not be the object of
prescription.ChanRoblesVirtualawlibrary
Contrary to petitioners' theory then, for prescription to
be viable, the publicly-owned land must be patrimonial
or private in character at the onset. Possession for
thirty (30) years does not convert it into patrimonial
property.
For land of the public domain to be converted into
patrimonial property, there must be an express
declaration - "in the form of a law duly enacted by
Congress or a Presidential Proclamation in cases
where the President is duly authorized by law" 46 - that
"the public dominion property is no longer intended for
public service or the development of the national
wealth or that the property has been converted into
patrimonial."47
This Court's 2009 Decision in Heirs of Malabanan v.
Republic48 explains:
chanRoblesvirtualLawlibrary
Nonetheless, Article 422 of the Civil Code states that
"[p]roperty of public dominion, when no longer intended
for public use or for public service, shall form part of the
patrimonial property of the State". It is this provision
that controls how public dominion property may be
converted into patrimonial properly susceptible to
acquisition by prescription. After all, Article 420 (2)
makes clear that those property "which belong to the
State, without being for public use, and are intended for
some public service or for the development of the
national wealth" are public dominion property. For as
long as the property belongs to the State, although
already classified as alienable or disposable, it remains
property of the public dominion if when * it is "intended
for some public service or for the development of the
national wealth".
Accordingly, there must be an express declaration by
the State that the public dominion property is no longer
intended for public service or the development of the
national wealth or that the property has been converted
into patrimonial. Without such express declaration, the
property, even if classified as alienable or disposable,
remains property of the public dominion, pursuant to
Article 420 (2), and thus incapable of acquisition by
prescription. It is only when such alienable and
disposable lands are expressly declared by the State
to be no longer intended for public service or for the
development of the national wealth that the period of
acquisitive prescription can begin to run. Such
declaration shall be in the form of a law duly enacted
by Congress or a Presidential Proclamation in cases
where the President is duly authorized by
law.49ChanRoblesVirtualawlibrary
This was reiterated in this Court's 2013 Resolution
in Heirs of Malabanan v. Republic:50
[W]hen public land is no longer intended for public
service or for the development of the national wealth,
thereby effectively removing the land from the ambit of
public dominion, a declaration of such conversion must
be made in the form of a law duly enacted by Congress
or by a Presidential proclamation in cases where the
President is duly authorized by law to that
effect.51ChanRoblesVirtualawlibrary
Attached to the present Petition was a copy of a May
18, 1988 supplemental letter to the Director of the Land
Management Bureau.52 This referred to an executive
order, which stated that petitioners' property was no
longer needed for any public or quasi-public purposes:
chanRoblesvirtualLawlibrary
That it is very clear in the 4th Indorsement of the
Executive Secretary dated April 24, 1954 the portion
thereof that will not be needed for any public or quasi-
public purposes, be disposed in favor of the actual
occupants under the administration of the Bureau of
Lands (copy of the Executive Order is herewith
attached for ready
reference)53ChanRoblesVirtualawlibrary
However, a mere indorsement of the executive
secretary is not the law or presidential proclamation
required for converting land of the public domain into
patrimonial property and rendering it susceptible to
prescription. There then was no viable declaration
rendering the Iligan property to have been patrimonial
property at the onset. Accordingly, regardless of the
length of petitioners' possession, no title could vest on
them by way of
prescription.chanroblesvirtuallawlibrary
III
While petitioners may not claim title by prescription,
they may, nevertheless, claim title pursuant to Section
48 (b) of Commonwealth Act No. 141 (the Public Land
Act).
Section 48 enabled the confirmation of claims and
issuance of titles in favor of citizens occupying or
claiming to own lands of the public domain or an
interest therein. Section 48 (b) specifically pertained to
those who "have been in open, continuous, exclusive,
and notorious possession and, occupation of
agricultural lands of the public domain, under a bona
fide claim of acquisition or ownership, since June 12,
1945":
chanRoblesvirtualLawlibrary
Sec. 48. The following-described citizens of the
Philippines, occupying lands of the public domain or
claiming to own any such lands or an interest therein,
but whose titles have not been perfected or completed,
may apply to the Court of First Instance of the province
where the land is located for confirmation of their
claims and the issuance of a certificate of title therefor
under the Land Registration Act, to wit:
(b) Those who by themselves or through their
predecessors-in-interest have been in
open, continuous, exclusive, and notorious
possession and, occupation of agricultural
lands of the public domain, under a bona
fide claim of acquisition or ownership, since
June 12, 1945, immediately preceding the
filing of the application for confirmation of
title, except when prevented by war or force
majeure. These shall be conclusively
presumed to have performed all the
conditions essential to a government grant
and shall be entitled to a certificate of title
under the provisions of this chapter. (As
amended by PD 1073.)
Section 48(b) of the Public Land Act therefore requires
that two (2) requisites be satisfied before claims of title
to public domain lands may be confirmed: first, that the
land subject of the claim is agricultural land; and
second, open, continuous, notorious, and exclusive
possession of the land since June 12, 1945.
The need for the land subject of the claim to have been
classified as agricultural is in conformity with the
constitutional precept that "[a]lienable lands of the
public domain shall be limited to agricultural
lands."54 As explained in this Court's 2013 Resolution
in Heirs of Malabanan v. Republic:
chanRoblesvirtualLawlibrary
Whether or not land of the public domain is alienable
and disposable primarily rests on the classification of
public lands made under the Constitution. Under the
1935 Constitution, lands of the public domain were
classified into three, namely, agricultural, timber and
mineral. Section 10, Article XTV of the 1973
Constitution classified lands of the public domain into
seven, specifically, agricultural, industrial or
commercial, residential, resettlement, mineral, timber
or forest, and grazing land, with the reservation that the
law might provide other classifications. The 1987
Constitution adopted the classification under the 1935
Constitution into agricultural, forest or timber, and
mineral, but added national parks. Agricultural lands
may be further classified by law according to the uses
to which they may be devoted. The identification of
lands according to their legal classification is done
exclusively by and through a positive act of the
Executive Department.
Based on the foregoing, the Constitution places a limit
on the type of public land that may be alienated. Under
Section 2, Article XII of the 1987 Constitution, only
agricultural lands of the public domain may be
alienated; all other natural resources may not be.
Alienable and disposable lands of the State fall into two
categories, to wit: (a) patrimonial lands of the State, or
those classified as lands of private ownership under
Article 425 of the Civil Code, without limitation; and (b)
lands of the public domain, or the public lands as
provided by the Constitution, but with the limitation that
the lands must only be agricultural. Consequently,
lands classified as forest or timber, mineral, or national
parks are not susceptible of alienation or disposition
unless they are reclassified as agricultural. A positive
act of the Government is necessary to enable such
reclassification, and the exclusive prerogative to
classify public lands under existing laws is vested in the
Executive Department, not in the
courts.55ChanRoblesVirtualawlibrary
As the Court of Appeals emphasized, respondent has
conceded that the Iligan property was alienable and
disposable land:
chanRoblesvirtualLawlibrary
As to the first requirement: There was no need for
appellees to establish that the property involved was
alienable and disposable public land. This
characterization of the property is conceded by
[respondent] who cites Proclamation No. 2151 as
declaring that the disputed property was a certain
disposable parcel of public
land.56ChanRoblesVirtualawlibrary
That the Iligan property was alienable and disposable,
agricultural land, has been admitted. What is claimed
instead is that petitioners' possession is debunked by
how the Iligan Property was supposedly part of a
military reservation area57 which was subsequently
reserved for Iligan City's slum improvement and
resettlement program, and the relocation of families
who were dislocated by the National Steel
Corporation's five-year expansion program.58
Indeed, by virtue of Proclamation No. 2143
(erroneously referred to by respondent as
Proclamation No. 2151) certain parcels of land in
Barrio Suarez, Iligan City were reserved for slum-
improvement and resettlement program
purposes.59 The proclamation characterized the
covered area as "disposable parcel of public land":
chanRoblesvirtualLawlibrary
WHEREAS, a certain disposable parcel of public land
situated at Barrio Suarez, Iligan City consisting of one
million one hundred seventy-four thousand eight
hundred fifty-three (1,174,853) square meters, more or
less, has been chosen by National Steel Corporation
and the City Government of Iligan with the conformity
of the National Housing/Authority, as the most suitable
site for the relocation of the families to be
affected/dislocated as a result of National Steel
Corporation's program and for the establishment of a
slum improvement and resettlement project in the City
of Iligan;60ChanRoblesVirtualawlibrary
However, even if the Iligan Property was subsumed by
Proclamation No. 2143, the same proclamation
recognized private rights, which may have already
attached, and the rights of qualified free patent
applicants:
chanRoblesvirtualLawlibrary
NOW, THEREFORE, I, FERDINAND E. MARCOS,
President of the Philippines, by virtue of the powers
vested in me by law, do hereby reserve for relocation
of the families to be affected/dislocated by the 5-year
expansion program of the National Steel Corporation
and for the slum improvement and resettlement project
of the City of Iligan under the administration and
disposition of the National Housing Authority, subject
to private rights, if any there be, Lot 5258 (portion) of
the Iligan Cadastre, which parcel of land is of the public
domain, situated in Barrio Suarez, City of Iligan and
more particularly described as follows:
....
This Proclamation is subject to the condition that the
qualified free patent applicants occupying portions of
the aforedescribed parcel of land, if any, may be
compensated for the value of their respective portions
and existing improvements thereon, as may be
determined by the National Housing
Authority.61ChanRoblesVirtualawlibrary
Whatever rights petitioners (and their predecessors-in-
interest) may have had over the Iligan property was,
thus, not obliterated by Proclamation No. 2143. On the
contrary, the Proclamation itself facilitated
compensation.
More importantly, there is documentary evidence to the
effect that the Iligan Property was not even within the
area claimed by respondent. In a letter62 to the Director
of Lands, dated December 22, 1987, Deputy Public
Land Inspector Pio Lucero, Jr. noted that:
chanRoblesvirtualLawlibrary
That this land known as Lot No. 5258, Cad. 292, Iligan
Cadastre which portion was claimed also by the
Human Settlement and/or National Housing Authority;
but the area applied for by Leopoldo Delfin is outside
the claim of the said agency as per certification issued
dated June 10, 1988; copy of which is herewith
attached for ready
reference;63ChanRoblesVirtualawlibrary
The same letter likewise indicated that the Iligan
Property was already occupied by June 1945 and that
it had even been released for agricultural purposes in
favor of its occupants.64 Accordingly, the Deputy Public
Land Inspector recommended the issuance of a patent
in favor of petitioner Leopoldo Delfin:65
Upon investigation conducted by the undersigned in
the premises of the land, it was found and ascertained
that the land applied for by Leopoldo Delfrn was first
entered, occupied, possessed and cultivated by him
since the year June, 1945 up to the present; he have
already well improved the land and introduced some
considerable improvements such as coconut trees and
different kinds of fruit trees which are presently all fruit
bearing trees; declared the same for taxation purposes
and taxes have been paid every year; and that there is
no other person or persons who bothered him in his
peaceful occupation and cultivation
thereof;chanrobleslaw
Records of this Office show that said land was
surveyed and claimed by the Military Reservation, but
the portion of which has been released in favor of the
actual occupants and the area of Leopoldo Delfin is
one of the portions released for agricultural
purposes;chanrobleslaw
....
That the applicant caused the survey of the land under
Sgs-12-000099, approved by the Regional Land
Director, Region XII, Bureau of Lands, Cotabato City
on April 3, 1979 (see approved plan attached
hereof);chanrobleslaw
In view hereof, it is therefore respectfully
recommended that the entry of the application be now
confirmed and that patent be yes issued in favor of
Leopoldo Delfin.66ChanRoblesVirtualawlibrary
A May 18, 1988 supplemental letter to the Director of
the Land Management Bureau further stated:
chanRoblesvirtualLawlibrary
That the land applied for by Leopoldo Delfin is a portion
of Lot No. 5258, Cad. 292, Iligan Cadastre which was
entered, occupied and possessed by the said applicant
since the year June 1945 up to the present; well
improved the same and introduced some considerable
improvements such as different kinds of fruit trees,
coconut trees and other permanent improvements
thereon;chanrobleslaw
....
That is very clear in the 4th Indorsement of the
Executive Secretary dated April 24, 1954 the portion
thereof that will not be needed for any public or quasi-
public purposes, be disposed in favor of the actual
occupants under the administration of the Bureau of
Lands[.]67ChanRoblesVirtualawlibrary
Clearly then, petitioners acquired title over the Iligan
Property pursuant to Section 48(b) of the Public Land
Act.
First, there is no issue that the Iligan Property had
already been declared to be alienable and disposable
land. Respondent has admitted this and Deputy Public
Land Inspector Pio Lucero, Jr.'s letters to the Director
of Land attest to this.
Second, although the Delfin Spouses' testimonial
evidence and tax declarations showed that their
possession went only as far back as 1952, Deputy
Public Land Inspector Pio Lucero, Jr.'s letters to the
Director of Land nevertheless attest to a previous
finding that the property had already been occupied as
early as June 1945.
Having shown that the requisites of Section 48(b) of the
Public Land Act have been satisfied and having
established their rights to the Iligan Property, it follows
that petitioners must be compensated for its taking.
WHEREFORE, the Petition is GRANTED. The
assailed Court of Appeals Decision dated February 26,
2010 and Resolution dated July 2, 2010 in CA-G.R. CV
No. 80017 are REVERSED and SET ASIDE. The
Regional Trial Court's Decision dated May 20, 2002 in
Civil Case No. II-1801 is REINSTATED.
SO ORDERED.
 This is a Petition for Review on Certiorari2 under Rule
45 of the 1997 Rules of Civil Procedure, praying that
the September 15, 2014 Decision3 of the Court of
Appeals in CA-G.R. CV No. 98466 be reversed and set
aside.4 The Court of Appeals affirmed the May 5, 2011
Decision5 and December 9, 2011.0rder6 of the
Municipal Circuit Trial Court of Talisay-Laurel,
Batangas in Land Reg. ·Case No. 09-001 (LRA Record
No. N-79691), which adjudicated Lot No. 1591, Cad.
729, Talisay Cadastre in favor of Laureana Malijan-
Javier (Laureana) and Iden Malijan-Javier (Iden).7
This case involves Laureana and Iden's application for
registration of land title over a parcel situated in
Barangay Tranca, Talisay, Batangas filed in June 2009
before the Municipal Circuit Trial Court of Talisay-
Laurel, Batangas. The land, regarded as Lot No. 1591,
Cad. 729, Talisay Cadastre, had an area of 9,629
square meters. The application of Laureana and Iden
was docketed as Land Registration Case No. 09-001
(LRA Record No. N- 79691).8
On September 10, 2009, Republic of the Philippines
(Republic) filed an Opposition to the application based
on the following grounds:
(1) Ne[i]ther the applicants nor their predecessors-in-
interest have been in open, continuous, exclusive and
notorious possession and occupation of the land in
question in the concept of an owner since June 12,
1945 or earlier; (2) The tax declarations relied upon by
appellees do not constitute competent and sufficient
G.R. No. 214367 evidence of a bona fide acquisition of the land by the
appellees; and (3) The parcel of land applied for is a
land of public domain and, as such, not subject to
REPUBLIC OF THE PHILIPPINES, Petitioner private appropriation.9
vs
LAUREANA MALIJAN-JAVIER AND IDEN
MALIJAN-JAVIER, Respondents An initial hearing was scheduled on January 19, 2010.
During the hearing, several documents were marked to
show compliance with the necessary jurisdictional
DECISION requirements. Since nobody appeared to oppose
Laureana and Iden's application, the trial court issued
LEONEN, J.: an Order of General Default against the whole world
except the Republic. 10
To establish that the land sought to be registered is
alienable and disposable, applicants must "present a In the subsequent hearings, Laureana and Iden
copy of the original classification approved by the presented testimonial and documentary evidence to
[Department of Environment and Natural Resources] establish their ownership claim. 11 Laureana testified
Secretary and certified as a true copy by the legal along with Juana Mendoza Banawa (Banawa), Ben
custodian of the official records."1
Hur Hernandez (Hernandez), Loida Maglinao
(Maglinao), and Glicerio R. Canarias (Canarias).12
In her testimony, Laureana alleged that she was
married to Cecilio Javier (Cecilio) and that Iden was
their son. She claimed that she and Cecilio (the
Spouses Javier) purchased the property from Spouses
Antonio Lumbres and Leonisa Manaig (the Spouses
Lumbres) on October 10, 1985. A Deed of Absolute
Sale was executed to facilitate the transaction. They
had the property fenced and planted with coconut,
antipolo, and duhat. She also claimed that they had
paid its property taxes since 1986. 13
Banawa, a resident of Barangay Tranca, Talisay,
Batangas since her birth on March 8, 1929,14 testified
that Cito Paison (Cito) and Juan Paison (Juan) owned
the property as early as 1937. The half portion owned
by Cito was later transferred to his daughter, Luisa
Paison (Luisa). Both portions owned by Luisa and Juan
were then transferred to the Spouses Lumbres, until
half was finally sold to the Spouses Javier and the other
half to their son, Iden. 15 Banawa added that since
every person in their barangay knew that Laureana and
Iden owned and possessed the property, nobody
interrupted or disturbed their possession or made an
adverse claim against them. 16 Thus, their possession
was "open, continuous, exclusive, and in the concept
of an owner[.]" 17
Hernandez, who was a Special Land Investigator I of
the Department of Environment and Natural
Resources-Comnunity Environment and Natural
Resources Office (DENR-CENRO), testified that he
was the one who conducted an ocular inspection on
the land. 18 He found that the land "ha[d] not been
forfeited in favor of the government for non-payment of
taxes [or] . . . confiscated as bond in connection with
any civil or criminal case." 19 Moreover, the land was
outside a reservation or forest zone. Hernandez also
found that no prior application was filed or any patent,
decree, or title was ever issued for it.20 Finally, he
stated that the land"[ did] not encroach upon an
established watershed, river bed, river bank protection,
creek or right of way."21
Maglinao, Forester I of DENR-CENRO,22 also testified
that she inspected the property before issuing a
certification, which stated that the land "[was] within the
alienable and disposable zone under Project No. 39,
Land Classification Map No. 3553 certified on
September 10, 1997."23
Meanwhile, Canarias, the Municipal Assessor of
Talisay, Batangas, attested that the property was
covered by Tax Declaration Nos. 014-01335 and 014-
00397 under the names of Laureana and Cecilio, and
of Iden. Upon tracing back the tax declarations on the
property, Canarias also found that the previous owners
who declared the land for taxation purposes were the
same as the previous owners according to Laureana's
and Iden's testimonies. The previous tax declarations
of the property now covered by Tax Declaration No.
014-01335 were under the names of Luisa and the
Spouses Lumbres while Tax Declaration No. 014-
00397 were previously under the names of Juan and
the Spouses Lumbres.24
On May 5, 2011, the trial court rendered a Decision
granting Laureana and Iden's application for
registration of title. It held that they were able to
establish that the property was alienable and
disposable since September 10, 1997 and that " [they]
and their predecessors-in-interest ha[ d] been in open,
continuous, exclusive, and notorious possession of the
subject property, in the concept of an owner, even prior
to 12 June 1945."25 The dispositive portion of the
Decision read:
WHEREFORE, upon confirmation of the Order of
General Default, the Court hereby adjudicates and
decrees Lot No. 1591, Cad-729 Talisay Cadastre as
shown on plan As-04-003630 situated in Barangay
Tranca, Municipality of Talisay, Province of Batangas,
with an area of NINE THOUSAND SIX HUNDRED
TWENTY[-]NINE (9,629) SQUARE METERS in favor
of and in the name of LAUREANA MALIJAN JAVIER
(1/2 SHARE), widow, Filipino, with address at
Barangay Tranca, Talisay, Batangas, and IDEN
MALIJAN JAVIER (1/2 SHARE), married to Jaena
Buno, Filipino, with address at 39-31 56th St Apt 3,
Woodside, New York, USA in accordance with
Presidential Decree No. 1529, otherwise known as the
Property Registration Decree.
Once this decision has become final, let an Order be
issued directing the Administrator of the Land
Registration Authority to issue the corresponding
decree of registration.
SO ORDERED.26
The Republic moved for reconsideration, which was
denied by the trial court in its December 9, 2011
Order.27
The Republic elevated the case to the Court of
Appeals, assailing the May 5, 2011 Decision and
December 9, 2011 Order of the Municipal Circuit Trial
Court. 28 It averred that there should be "(1) [a] CENRO
or [Provincial Environment and Natural Resources
Office] Certification; and (2) a copy of the original
classification approved by the DENR Secretary and
certified as a true copy by the legal custodian of the
official records" attached to the application for title
registration. It added that Laureana and Iden failed to
attach the second requirement. 29 It also argued that
they failed to prove that "they and their predecessors-
in-interest ha[d] been in open, continuous, exclusive,
and notorious possession and occupation [of the
property] under a bona fide claim of ownership since
June 12, 1945 or earlier."30
On September 15, 2014, the Court of Appeals
promulgated a Decision31 dismissing the Republic's
appeal and affirming the Decision and Order of the
Municipal Circuit Trial Court. It ruled that although
Laureana and Iden failed to present a copy of the
DENR Secretary-approved original classification
stating that the property was alienable and disposable,
"there [was] substantial compliance to the
requirement[s]."32 It gave credence to the testimony of
Hernandez, Special Land Investigator I of DENR-
CENRO, who stated that the property was not
patented, decreed, or titled.33 Hernandez also
identified his written report on the property, which
stated that:
(1) [T]he entire area is within the alienable and
disposable zone as classified under Project No. 39,
L.C. Map No. 3553 released and certified as such on
September 10, 1997; (2) the land has never been
forfeited in favor of the government for non-payment of
taxes; (3) it is not inside the forest zone or forest
reserve or unclassified public forest; (4) the land does
not form part of a bed or navigable river, streams, or
creek.34
The Court of Appeals also gave weight to the testimony
of Maglinao, Forester I of DENR-CENRO, who said
that she inspected the property before issuing a
certificate classifying the property as alienable and
disposable "under Project No. 39, Land Classification
Map No. 3553 certified on 10 September 1997." 35
Furthermore, the property's Survey Plan contained an
annotation by DENR Regional Technical Director
Romeo P. Verzosa, stating that the property was within
an alienable and disposable area. The Court of
Appeals held that the annotation could be regarded as
substantial compliance with the requirement that the
property should be alienable and disposable,
especially since it coincided with Hernandez's report
and Maglinao's testimony. 36
Finally, the Court of Appeals found that Laureana and
Iden were able to prove their predecessors-in-interest's
possession of property since 1937 and their
possession since 1985 as evidenced by the tax
declarations.37
The dispositive portion of the Court of Appeals
Decision read: WHEREFORE, in view of the foregoing
premises, the instant appeal is hereby
ordered DISMISSED, and the appealed Decision
rendered on 5 May 2011 and Order dated 9 December
2011 by the Fourth Judicial Region of the Municipal
Circuit Trial Court in Talisay-Laurel, Batangas in Land
Reg. Case No. 09-001 (LRA Record No. N-79691)
are AFFIRMED. Without costs.
SO ORDERED.38 (Emphasis in the original)
On November 25, 2014, the Republic filed a Petition for
Review39 before this Court against Laureana and Iden.
Petitioner argues that the application for land
registration should have been dismissed by the trial
court considering that it was not accompanied by "a
copy of the original classification approved by the
Department of Environment and Natural Resources
(DENR) Secretary and certified as true copy by its legal
custodian."40 It avers that a CENRO Certification is not
sufficient to prove the land's classification as alienable
and disposable.41 Moreover, the rule on substantial
compliance is applied pro hac vice in the cases
of Republic v. Vega and Republic v. Serrano, upon
which the Court of Appeals heavily relied.42
Petitioner contends that respondents' acts of fencing
and planting transpired only after they purchased the
property in 1985. Banawa also failed to mention in her
testimony that respondents' predecessors-in-interest
occupied, developed, maintained, or cultivated the
property, which could have shown that the former
owners possessed the property by virtue of a bona
fide ownership claim. Lastly, the tax declarations
presented by respondents only date back to 1948 as
the earliest year of possession.43
On April 21, 2015, respondents filed their
Comment. 44 They counter that they were able to prove
substantial compliance when they presented
Maglinao's Certification and Hernandez's report. The
Survey Plan also stated that the land was in an
alienable and disposable zone. They also point out that
the Land Registration Authority did not question the
classification of the property, despite notice of the
application.45
Respondents maintain that their and their
predecessors-in-interest's possession had been
"open, continuous, exclusive and notorious ... under
a bona fide claim of ownership since June 12, 1945 or
earlier,"46 as supported by Banawa's testimony.
Although they admit that the earliest tax declaration
was dated 1948, they seek the application of this
Court's ruling in Sps. Llanes v. Republic, where this
Court held that "tax declarations and receipts . . .
coupled with actual possession ... constitute evidence
of great weight and can be the basis of a claim of
ownership through prescription."47
On April 18, 2016, petitioner filed its Reply.48 It asserts
that land registration applicants should strictly comply
with the requirements in proving that the land is
alienable and disposable. It maintains that for failing to
submit the required document, respondents'
application should have been denied.49 Petitioner also
insists that Banawa's testimony and the tax
declarations are not sufficient to prove that
respondents' and their predecessors-in-interest's
possession and occupation of the property were "open,
continuous, exclusive, and notorious ... under a bona
fide claim of ownership, since June 12, 1945 or
earlier."50
This Court resolves the sole issue of whether or not the
trial court and the Court of Appeals erred in granting
Laureana Malijan-Javier and Iden Malijan-Javier's
application for registration of property.
Land registration is governed by Section 14 of
Presidential Decree No. 1529 or the Property
Registration Decree, which states:
Section 14. Who may apply. -The following persons
may file in the proper Court of First Instance an
application for registration of title to land, whether
personally or through their duly authorized
representatives:
(1)Those who by themselves or through their
predecessors-in- interest have been in open,
continuous, exclusive and notorious possession and
occupation of alienable and disposable lands of the
public domain under a bona fide claim of ownership
since June 12, 1945, or earlier.
(2) Those who have acquired ownership of private
lands by prescription under the provisions of existing
laws.
(3) Those who have acquired ownership of private
lands or abandoned river beds by right of accession or
accretion under the existing laws.
(4) Those who have acquired ownership of land m any
other manner provided for by law.
Where the land is owned in common, all the co-owners
shall file the application jointly.
Where the land has been sold under pacto de retro, the
vendor a retro may file an application for the original
registration of the land, provided, however, that should
the period for redemption expire during the pendency
of the registration proceedings and ownership to the
property consolidated in the vendee a retro, the latter
shall be substituted for the applicant and may continue
the proceedings.
A trustee on behalf of his principal may apply for
original registration of any land held in trust by him,
unless prohibited by the instrument creating the
trust. 51 (Emphasis supplied)
Applicants whose circumstances fall under Section
14(1) need to establish only the following:
[F]irst, that the subject land forms part of the
disposable and alienable lands of the public
domain; second, that the applicant and his
predecessors-in-interest have been in open,
continuous, exclusive and notorious possession and
occupation of the [land]; and third, that it is under
a bonafide claim ownership since June 12, 1945, or
earlier. 52
To satisfy the first requirement of Section 14(1),
petitioner argues that both a CENRO or Provincial
Environment and Natural Resources Office (PENRO)
certification and a certified true copy of a DENR
Secretary-approved certificate should be obtained to
prove that the land is alienable and disposable. 53
Petitioner's contention has merit.
It is well-settled that a CENRO or PENRO certification
is not enough to establish that a land is alienable and
disposable. 54 It should be "accompanied by an official
publication of the DENR Secretary's issuance
declaring the land alienable and
disposable."55 In Republic v. T.A.N. Properties :56
[I]t is not enough for the PENRO or CENRO to certify
that a land is alienable and disposable.1âwphi1 The
applicant for land registration must prove that the
DENR Secretary had approved the land classification
and released the land of the public domain as alienable
and disposable, and that the land subject of the
application for registration falls within the approved
area per verification through survey by the PENRO or
CENRO. In addition, the applicant for land registration
must present a copy of the original classification
approved by the DENR Secretary and certified as a
true copy by the legal custodian of the official
records. These facts must be established to prove that
the land is alienable and disposable. 57 (Emphasis
supplied)
In Republic v. Lualhati:58
[I]t has been repeatedly ruled that certifications issued
by the CENRO, or specialists of the DENR, as well as
Survey Plans prepared by the DENR containing
annotations that the subject lots are alienable, do not
constitute incontrovertible evidence to overcome the
presumption that the property sought to be registered
belongs to the inalienable public domain. Rather, this
Court stressed the importance of proving alienability by
presenting a copy of the original classification of the
land approved by the DENR Secretary and certified as
true copy by the legal custodian of the official
records. 59 (Emphasis supplied, citation omitted)
The certification issued by the DENR Secretary is
necessary since he or she is the official authorized to
approve land classification, including the release of
land from public domain. 60 As thoroughly explained
in Republic v. Spouses Go:61
[A]n applicant has the burden of proving that the public
land has been classified as alienable and disposable.
To do this, the applicant must show a positive act from
the government declassifying the land from the public
domain and converting it into an alienable and
disposable land. "[T]he exclusive prerogative to
classify public lands under existing laws is vested in the
Executive Department." In Victoria v. Republic:
To prove that the land subject of the application for
registration is alienable, an applicant must establish
the existence of a positive act of the government such
as a presidential proclamation or an executive order;
an administrative action; investigation reports of
Bureau of Lands investigators; and a legislative act or
statute. The applicant may secure a certification from
the government that the lands applied for are alienable
and disposable, but the certification must show that the
DENR Secretary had approved the land classification
and released the land of the pub[l]ic domain as
alienable and disposable[.]
Section X(1) of the DENR Administrative Order No.
1998-24 and Section IX(l) of DENR Administrative
Order No. 2000-11 affirm that the DENR Secretary is
the approving authority for "[l]and classification and
release of lands of the public domain as alienable and
disposable." Section 4.6 of DENR Administrative Order
No. 2007-20 defines land classification as follows:
Land classification is the process of demarcating,
segregating, delimiting and establishing the best
category, kind, and uses of public lands. Article XII,
Section 3 of the 1987 Constitution of the Philippines
provides that lands of the public domain are to be
classified into agricultural, forest or timber, mineral WHEREFORE, the Petition is GRANTED. The Court
lands, and national parks. of Appeals September 15, 2014 Decision in CA-G.R.
CV No. 98466, which affirmed the May 5, 2011
These provisions, read with Victoria v. Decision and December 9, 2011 Order of the Municipal
Republic, establish the rule that before an inalienable Circuit Trial Court, is REVERSED and SET
land of the public domain becomes private land, the ASIDE. Laureana Malijan-Javier and Iden Malijan-
DENR Secretary must first approve the land Javier's application for registration of Lot No. 1591,
classification into an agricultural land and release it as Cad. 729, Talisay Cadastre is DENIED for lack of
alienable and disposable. The DENR Secretary's merit.
official acts "may be evidenced by an official
publication thereof or by a copy attested by the officer SO ORDERED.
having legal custody of the record, or by his deputy."
The CENRO or the Provincial Environment and Natural
Resources Officer will then conduct a survey to verify
that the land for original registration falls within the
DENR Secretary-approved alienable and disposable
zone.
The CENRO certification is issued only to verify the
DENR Secretary issuance through a
survey[.] 62 (Emphasis in the original, citations omitted)
In this case, although respondents were able to
present a CENRO certification, a DENR-CENRO
report with the testimony of the DENR officer who
made the report, and the survey plan showing that the
property is already considered alienable and
disposable, these pieces of evidence are still not
sufficient to prove that the land sought to be registered
is alienable and disposable. Absent the DENR
Secretary's issuance declaring the land alienable and G.R. No. 194260
disposable, the land remains part of the public domain.
HEIRS OF FELICIANO YAMBAO, namely: CHONA
YAMBAO, JOEL YAMBAO, WILLY YAMBAO,
Thus, even if respondents have shown, through their
testimonial evidence, that they and their predecessors- LENNIE YAMBAO and RICHARD YAMBAO, and all
in-interest have been in open, continuous, exclusive, other persons acting under their
and notorious possession and occupation of the authority, Petitioners,
property since June 12, 1945, they still cannot register vs.
the land for failing to establish that the land is alienable HEIRS OF HERMOGENES YAMBAO, namely:
and disposable. ELEANOR YAMBAO, ALBERTO YAMBAO,
DOMINIC YAMBAO, ASESCLO YAMBAO, GERALD
DANTIC and MARIA PILAR YAMBAO, who are all
All things considered, this Court finds that the Court of represented by their Attorney-in-Fact, MARIA
Appeals committed a reversible error in affirming the PILAR YAMBAO, Respondents.
May 5, 2011 Decision and December 9, 2011 Order of
the Municipal Circuit Trial Court of Talisay-Laurel,
Batangas, which granted the land registration RESOLUTION
application of respondents.
REYES, J.:
This is a petition for review on certiorari1 under Rule 45
of the Rules of Court seeking to annul and set aside
the Decision2 dated October 22, 2010 issued by the
Court of Appeals (CA) in CA-G.R. CV No. 92755, which
reversed and set aside the Decision dated December
23, 2008 of the Regional Trial Court (RTC) of Iba,
Zambales, Branch 69, in SP. Civil Case No. RTC-88-I.
Facts
The subject of this case is a parcel of land located in
Barangay Bangan, Botolan, Zambales, which was
originally possessed by Macaria De Ocampo
(Macaria). Macaria's nephew, Hermogenes Yambao
(Hermogenes ), acted as the administrator of the
property and paid realty taxes therefor. Hermogenes
has eight children, namely: Ulpiano, Dominic, Teofilo,
Feliciano, Asesclo, Delia, Amelia, and Melinda, all
surnamed Yambao.3
After Hermogenes died, it was claimed that all of his
heirs were free to pick and harvest from the fruit-
bearing trees planted on the subject property. Eleanor
Yambao (Eleanor), Ulpiano's daughter, even
constructed a house on the subject property. However,
sometime in 2005, the communal and mutual use of
the subject property by the heirs of Hermogenes
ceased when the heirs of Feliciano, herein petitioners,
prohibited them from entering the property. The heirs
of Feliciano even ejected Eleanor from the subject
property.4
This prompted the heirs of Hermogenes, herein
respondents, to file with the RTC a complaint for
partition, declaration of nullity of title/documents, and
damages against the heirs of Feliciano. The heirs of
Hermogenes alleged that they and the heirs of
Feliciano are co-owners of the subject property, having
inherited the right thereto from Hermogenes.5
The heirs of Feliciano denied the allegations of the
heirs of Hermogenes and claimed that their father,
Feliciano, was in possession of the subject property in
the concept of owner since time immemorial.
Accordingly, Feliciano was awarded a free patent
thereon for which Original Certificate of Title (OCT) No.
P-10737 was issued. They also averred that the cause
of action in the complaint filed by the heirs of
Hermogenes, which questioned the validity of OCT No.
P-10737, prescribed after the lapse of one year from its
issuance on November 29, 1989.6
Ruling of the RTC
On December 23, 2008, the RTC rendered a Decision
dismissing the complaint filed by the heirs of
Hermogenes. The RTC opined that the heirs of
Hermogenes failed to show that the subject property is
owned by Macaria, stating that tax declarations and
receipts in Macaria's name are not conclusive evidence
of ownership. The RTC further held that even if Macaria
owned the subject property, the heirs of Hermogenes
failed to show that Hermogenes had the right to
succeed over the estate of Macaria.
Ruling of the CA
On appeal,. the CA, in its Decision 7 dated October 22,
2010, reversed and set aside the RTC's Decision dated
December 23, 2008. The CA found that the RTC, in
hastily dismissing the complaint for partition, failed to
determine first whether the subject property is indeed
co-owned by the heirs of Hermogenes and the heirs of
Feliciano. The CA pointed out that:
[A] review of the records of the case shows that in
Feliciano's application for free patent, he
acknowledged that the source of his claim of
possession over the subject property was
Hermogenes's possession of the real property in
peaceful, open, continuous, and adverse manner and
more importantly, in the concept of an owner, since
1944. Feliciano's claim of sole possession in his
application for free patent did not therefore extinguish
the fact of co-ownership as claimed by the children of
Hermogenes. 8 (Citation omitted and emphasis
deleted)
Accordingly, the CA, considering that the parties are
co-owners of the subject property, ruled that the RTC
should have conducted the appropriate proceedings
for partition. 9
Aggrieved, the heirs of Feliciano filed with the Court
this petition for review alleging that the CA erred in
ruling that there is co-ownership between them and the
heirs of Hermogenes. The heirs of Feliciano likewise
averred that the CA also erred in ordering the partition
of the subject property since it amounts to a collateral
attack on the validity of OCT No. P-10737. 10
Ruling of the Court
The petition is denied.
As pointed out by the CA, the R TC overlooked the fact
that the subject property is co-owned by the parties
herein, having inherited the same from Hermogenes.
Feliciano's free patent application indicated that he
merely tacked his possession of the subject property
from Hermogenes, his father, who held the property in
peaceful, open, continuous, and adverse manner in the
concept of an owner since 1944. This is an implicit
recognition of the fact that Feliciano merely co-owns
the subject property with the other heirs of
Hermogenes. Indeed, the heirs of Feliciano have not
presented any evidence that would show that
Hermogenes bequeathed the subject property solely to
Feliciano.
A co-ownership is a form of trust, with each owner
being a trustee for each other. Mere actual possession
by one will not give rise to the inference that the
possession was adverse because a co-owner is, after
all, entitled to possession of the property. Thus, as a
rule, prescription does not run in favor of a co-heir or
co-owner as long as he expressly or impliedly
recognizes the co-ownership; and he cannot acquire
by prescription the share of the other co-owners,
absent a clear repudiation of the co-ownership. An
action to demand partition among co-owners is
imprescriptible, and each co-owner may demand at
any time the partition of the common property.11
Prescription may nevertheless run against a co-owner
if there is adverse, open, continuous and exclusive
possession of the co-owned property by the other co-
owner/s.1âwphi1 In order that a co-owners possession
may be deemed adverse to the cestui que trust or
other co-owners, the following requisites must concur:
(1) that he has performed unequivocal acts of
repudiation amounting to an ouster of the cestui que
trust or other co-owners; (2) that such positive acts of
repudiation have been made known to the cestui que
trust or other co-owners; and (3) that the evidence
thereon must be clear and convincing. 12
The issuance of the certificate of title would constitute registration. 16 "A trustee who obtains a Torrens title
an open and clear repudiation of any trust. 13 In such a over a property held in trust for him by another cannot
case, an action to demand partition among co-owners repudiate the trust by relying on the registration." 17
prescribes in 10 years, the point of reference being the
date of the issuance of certificate of title over the WHEREFORE, in light of the foregoing disquisitions,
property. But this rule applies only when the plaintiff is the petition is hereby DENIED. The Decision dated
not in possession of the property, since if a person October 22, 2010 issued by the Court of Appeals in CA-
claiming to be the owner thereof is in actual possession G.R. CV No. 92755 is AFFIRMED.
of the property, the right to demand partition does not
prescribe. 14
SO ORDERED.
Although OCT No. P-10737 was registered in the name
of Feliciano on November 29, 1989, the prescriptive
period within which to demand partition of the subject
property, contrary to the claim of the heirs of Feliciano,
did not begin to run. At that time, the heirs of
Hermogenes were still in possession of the property. It
was only in 2005 that the heirs of Feliciano expressly
prohibited the heirs of Hermogenes from entering the
property. Thus, as aptly ruled by the CA, the right of the
heirs of Hermogenes to demand the partition of the
property had not yet prescribed. Accordingly, the RTC
committed a reversible error when it dismissed the
complaint for partition that was filed by the heirs of
Hermogenes.

There is likewise no merit to the claim that the action

for partition filed by the heirs of Hermogenes amounted
to a collateral attack on the validity of OCT No. P-
10737. The complaint for partition filed by the heirs of
Hermogenes seeks first, a declaration that they are a
co-owners of the subject property, and second, the
conveyance of their lawful shares. The heirs of
Hermogenes do not attack the title of Feliciano; they
alleged no fraud, mistake, or any other irregularity that
would justify a review of the registration decree in their
favor. Their theory is that although the subject property
was registered solely in Feliciano's name, they are co-
owners of the property and as such is entitled to the
conveyance of their shares. On the premise that they
are co-owners, they can validly seek the partition of the
property in co-ownership and the conveyance to them
of their respective shares. 15

Moreover, when Feliciano registered the subject

property in his name, to the exclusion of the other heirs
of Hermogenes, an implied trust was created by force
of law and he was considered a trustee of the undivided
shares of the other heirs of Hermogenes in the
property. As trustees, the heirs of Feliciano cannot be
permitted to repudiate the trust by relying on the

G.R. No. 175444 December 14, 2011
JAIME ABALOS and SPOUSES FELIX SALAZAR
and CONSUELO SALAZAR, GLICERIO ABALOS,
HEIRS OF AQUILINO ABALOS, namely: SEGUNDA
BAUTISTA, ROGELIO ABALOS, DOLORES A.
ROSARIO, FELICIDAD ABALOS, ROBERTO
ABALOS, JUANITO ABALOS, TITA ABALOS, LITA
A. DELA CRUZ AND HEIRS OF AQUILINA ABALOS,
namely: ARTURO BRAVO, PURITA B. MENDOZA,
LOURDES B. AGANON, CONSUELO B. SALAZAR,
PRIMA B. DELOS SANTOS, THELMA APOSTOL
and GLECERIO ABALOS, Petitioners,
vs.
HEIRS OF VICENTE TORIO, namely: PUBLIO
TORIO, LIBORIO TORIO, VICTORINA TORIO,
ANGEL TORIO, LADISLAO TORIO, PRIMO TORIO
and NORBERTO TORIO, Respondents.
DECISION
PERALTA, J.:
Before the Court is a petition for review
on certiorari seeking to set aside the Decision1 dated
June 30, 2006 and Resolution2 dated November 13,
2006 by the Court of Appeals (CA) in CA-G.R. SP No.
91887. The assailed Decision reversed and set aside
the Decision3 dated June 14, 2005 of the Regional Trial
Court (RTC) of Lingayen, Pangasinan, Branch 69,
while the questioned Resolution denied petitioners'
Motion for Reconsideration.
The factual and procedural antecedents of the case are
as follows:
On July 24, 1996, herein respondents filed a Complaint
for Recovery of Possession and Damages with the
Municipal Trial Court (MTC) of Binmaley, Pangasinan
against Jaime Abalos (Jaime) and the spouses Felix
and Consuelo Salazar. Respondents contended that:
they are the children and heirs of one Vicente Torio
(Vicente) who died intestate on September 11, 1973;
at the time of the death of Vicente, he left behind a
parcel of land measuring 2,950 square meters, more or
less, which is located at San Isidro Norte, Binmaley,
Pangasinan; during the lifetime of Vicente and through
his tolerance, Jaime and the Spouses Salazar were
allowed to stay and build their respective houses on the
subject parcel of land; even after the death of Vicente,
herein respondents allowed Jaime and the Spouses
Salazar to remain on the disputed lot; however, in
1985, respondents asked Jaime and the Spouses
Salazar to vacate the subject lot, but they refused to
heed the demand of respondents forcing respondents
to file the complaint.4
Jaime and the Spouses Salazar filed their Answer with
Counterclaim, denying the material allegations in the
Complaint and asserting in their Special and
Affirmative Defenses that: respondents' cause of
action is barred by acquisitive prescription; the court a
quo has no jurisdiction over the nature of the action
and the persons of the defendants; the absolute and
exclusive owners and possessors of the disputed lot
are the deceased predecessors of defendants;
defendants and their predecessors-in-interest had
been in actual, continuous and peaceful possession of
the subject lot as owners since time immemorial;
defendants are faithfully and religiously paying real
property taxes on the disputed lot as evidenced by
Real Property Tax Receipts; they have continuously
introduced improvements on the said land, such as
houses, trees and other kinds of ornamental plants
which are in existence up to the time of the filing of their
Answer.5
On the same date as the filing of defendants' Answer
with Counterclaim, herein petitioners filed their Answer
in Intervention with Counterclaim. Like the defendants,
herein petitioners claimed that their predecessors-in-
interest were the absolute and exclusive owners of the
land in question; that petitioners and their
predecessors had been in possession of the subject lot
since time immemorial up to the present; they have
paid real property taxes and introduced improvements
thereon.6
After the issues were joined, trial ensued.
On December 10, 2003, the MTC issued a Decision,
the dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing
consideration[s], the Court adjudged the case in favor
of the plaintiffs and against the defendants and
defendants-intervenors are ordered to turn over the
land in question to the plaintiffs (Lot Nos. 869 and 870,
Cad. 467-D. Binmaley Cadastre located in Brgy. San
Isidro Norte, Binmaley, Pangasinan with an area of
2,950 sq. m., more or less, bounded and described in
paragraph 3 of the Complaint[)]; ordering the
defendants and defendants-intervenors to remove
their respective houses standing on the land in dispute;
further ordering the defendants and defendants-
intervenors, either singly or jointly to pay the plaintiffs
land rent in the amount of ₱12,000.00 per year to be
reckoned starting the year 1996 until defendants and
defendants-intervenors will finally vacate the premises;
furthermore, defendants and defendants-intervenors
are also ordered to pay, either singly or jointly, the
amount of ₱10,000.00 as and by way of attorney's fees
and costs of suit.
SO ORDERED.7
Jaime and the Spouses Salazar appealed the Decision
of the MTC with the RTC of Lingayen,
Pangasinan.8 Herein petitioners, who were
intervenors, did not file an appeal.
In its Decision dated June 14, 2005, the RTC ruled in
favor of Jaime and the Spouses Salazar, holding that
they have acquired the subject property through
prescription. Accordingly, the RTC dismissed herein
respondents' complaint.
Aggrieved, herein respondents filed a petition for
review with the CA assailing the Decision of the RTC.
On June 30, 2006, the CA promulgated its questioned
Decision, the dispositive portion of which reads, thus:
WHEREFORE, the petition is GRANTED. The
Decision dated June 14, 2005 of the Regional Trial
Court, Branch 69, Lingayen, Pangasinan is hereby
REVERSED and SET ASIDE. In its stead, a new one
is entered reinstating the Decision dated December 10,
2003 of the Municipal Trial Court of Binmaley,
Pangasinan.
SO ORDERED.9
Jaime and the Spouses Salazar filed a Motion for
Reconsideration, but the same was denied by the CA
in its Resolution dated November 13, 2006.
Hence, the instant petition based on a sole assignment
of error, to wit:
THE COURT OF APPEALS ERRED IN NOT
APPRECIATING THAT THE PETITIONERS HEREIN
ARE NOW THE ABSOLUTE AND EXCLUSIVE
OWNERS OF THE LAND IN QUESTION BY VIRTUE
OF ACQUISITIVE PRESCRIPTION.10
The main issue raised by petitioners is whether they
and their predecessors-in-interest possessed the
disputed lot in the concept of an owner, or whether their
possession is by mere tolerance of respondents and
their predecessors-in-interest. Corollarily, petitioners
claim that the due execution and authenticity of the
deed of sale upon which respondents' predecessors-
in-interest derived their ownership were not proven
during trial.
The petition lacks merit.
Preliminarily, the Court agrees with the observation of
respondents that some of the petitioners in the instant
petition were the intervenors11 when the case was filed
with the MTC. Records would show that they did not
appeal the Decision of the MTC.12 The settled rule is
that failure to perfect an appeal renders the judgment
final and executory.13 Hence, insofar as the intervenors
in the MTC are concerned, the judgment of the MTC
had already become final and executory.
It also bears to point out that the main issue raised in
the instant petition, which is the character or nature of
petitioners' possession of the subject parcel of land, is
factual in nature.
Settled is the rule that questions of fact are not
reviewable in petitions for review on certiorari under
Rule 45 of the Rules of Court.14 Section 1 of Rule 45
states that petitions for review on certiorari "shall raise
only questions of law which must be distinctly set forth."
Doubtless, the issue of whether petitioners possess the
subject property as owners, or whether they occupy the
same by mere tolerance of respondents, is a question
of fact. Thus, it is not reviewable.
Nonetheless, the Court has, at times, allowed
exceptions from the abovementioned restriction.
Among the recognized exceptions are the following:
(a) When the findings are grounded entirely
on speculation, surmises, or conjectures;
(b) When the inference made is manifestly
mistaken, absurd, or impossible;
(c) When there is grave abuse of discretion;
(d) When the judgment is based on a
misapprehension of facts;
(e) When the findings of facts are conflicting;
(f) When in making its findings the CA went
beyond the issues of the case, or its findings
are contrary to the admissions of both the
appellant and the appellee;
(g) When the CA’s findings are contrary to
those by the trial court;
(h) When the findings are conclusions without
citation of specific evidence on which they are
based;
(i) 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;
(j) When the findings of fact are premised on
the supposed absence of evidence and
contradicted by the evidence on record; or
(k) When the CA manifestly overlooked
certain relevant facts not disputed by the
parties, which, if properly considered, would
justify a different conclusion.15
In the present case, the findings of fact of the MTC and
the CA are in conflict with those of the RTC.
After a review of the records, however, the Court finds
that the petition must fail as it finds no error in the
findings of fact and conclusions of law of the CA and
the MTC.
Petitioners claim that they have acquired ownership
over the disputed lot through ordinary acquisitive
prescription.
Acquisitive prescription of dominion and other real
rights may be ordinary or extraordinary.16 Ordinary
acquisitive prescription requires possession in good
faith and with just title for ten (10) years.17 Without
good faith and just title, acquisitive prescription can
only be extraordinary in character which requires
uninterrupted adverse possession for thirty (30)
years.18
Possession "in good faith" consists in the reasonable
belief that the person from whom the thing is received
has been the owner thereof, and could transmit his
ownership.19 There is "just title" when the adverse
claimant came into possession of the property through
one of the modes recognized by law for the acquisition
of ownership or other real rights, but the grantor was
not the owner or could not transmit any right.20
In the instant case, it is clear that during their
possession of the property in question, petitioners
acknowledged ownership thereof by the immediate
predecessor-in-interest of respondents. This is clearly
shown by the Tax Declaration in the name of Jaime for
the year 1984 wherein it contains a statement admitting
that Jaime's house was built on the land of Vicente,
respondents' immediate predecessor-in-
interest.21 Petitioners never disputed such an
acknowledgment. Thus, having knowledge that they
nor their predecessors-in-interest are not the owners of
the disputed lot, petitioners' possession could not be
deemed as possession in good faith as to enable them
to acquire the subject land by ordinary prescription. In
this respect, the Court agrees with the CA that
petitioners' possession of the lot in question was by
mere tolerance of respondents and their predecessors-
in-interest. Acts of possessory character executed due
to license or by mere tolerance of the owner are
inadequate for purposes of acquisitive
prescription.22 Possession, to constitute the foundation
of a prescriptive right, must be en concepto de dueño,
or, to use the common law equivalent of the term, that
possession should be adverse, if not, such possessory
acts, no matter how long, do not start the running of the
period of prescription.23
Moreover, the CA correctly held that even if the
character of petitioners' possession of the subject
property had become adverse, as evidenced by their
declaration of the same for tax purposes under the
names of their predecessors-in-interest, their
possession still falls short of the required period of thirty
(30) years in cases of extraordinary acquisitive
prescription. Records show that the earliest Tax
Declaration in the name of petitioners was in 1974.
Reckoned from such date, the thirty-year period was
completed in 2004. However, herein respondents'
complaint was filed in 1996, effectively interrupting
petitioners' possession upon service of summons on There is no doubt that the deed of sale was duly
them.24 Thus, petitioners’ possession also did not ripen acknowledged before a notary public. As a notarized
into ownership, because they failed to meet the document, it has in its favor the presumption of
required statutory period of extraordinary prescription. regularity and it carries the evidentiary weight
conferred upon it with respect to its due execution. It is
This Court has held that the evidence relative to the admissible in evidence without further proof of its
possession upon which the alleged prescription is authenticity and is entitled to full faith and credit upon
based, must be clear, complete and conclusive in order its face.28
to establish the prescription.25 In the present case, the
Court finds no error on the part of the CA in holding that Indeed, settled is the rule in our jurisdiction that a
petitioners failed to present competent evidence to notarized document has in its favor the presumption of
prove their alleged good faith in neither possessing the regularity, and to overcome the same, there must be
subject lot nor their adverse claim thereon. Instead, the evidence that is clear, convincing and more than
records would show that petitioners' possession was merely preponderant; otherwise, the document should
by mere tolerance of respondents and their be upheld.29 In the instant case, petitioners' bare
predecessors-in-interest.1avvphi1 denials will not suffice to overcome the presumption of
regularity of the assailed deed of sale.
Finally, as to the issue of whether the due execution
and authenticity of the deed of sale upon which WHEREFORE, the petition is DENIED. The assailed
respondents anchor their ownership were not proven, Decision and Resolution of the Court of Appeals in CA-
the Court notes that petitioners did not raise this matter G.R. SP No. 91887 are AFFIRMED.
in their Answer as well as in their Pre-Trial Brief. It was
only in their Comment to respondents' Petition for SO ORDERED.
Review filed with the CA that they raised this issue.
Settled is the rule that points of law, theories, issues,
and arguments not adequately brought to the attention
of the trial court need not be, and ordinarily will not be,
considered by a reviewing court.26 They cannot be
raised for the first time on appeal. To allow this would
be offensive to the basic rules of fair play, justice and
due process.27
Even granting that the issue of due execution and
authenticity was properly raised, the Court finds no
cogent reason to depart from the findings of the CA, to
wit:
xxxx
Based on the foregoing, respondents [Jaime Abalos
and the Spouses Felix and Consuelo Salazar] have not
inherited the disputed land because the same was
shown to have already been validly sold to Marcos
Torio, who, thereupon, assigned the same to his son
Vicente, the father of petitioners [herein respondents].
A valid sale was amply established and the said validity
subsists because the deed evidencing the same was
duly notarized.
G.R. No. 198356, April 20, 2015

ESPERANZA SUPAPO AND THE HEIRS OF

ROMEO SUPAPO, NAMELY: ESPERANZA, REX
EDWARD, RONALD TROY, ROMEO, JR., SHEILA
LORENCE, ALL SURNAMED SUPAPO, AND
SHERYL FORTUNE SUPAPO-
SANDIGAN, Petitioners, v. SPOUSES ROBERTO
AND SUSAN DE JESUS, MACARIO BERNARDO,
AND THOSE PERSONS CLAIMING RIGHTS UNDER
THEM, Respondent.

DECISION

BRION, J.:

We resolve the petition for review on certiorari1 filed by

petitioners Esperanza Supapo and Romeo
Supapo2 (Spouses Supapo) to assail the February 25,
2011 decision3 and August 25, 2011 resolution4 of the
Court of Appeals (CA) in CA-G.R. SP No. 111674.

Factual Antecedents

The Spouses Supapo filed a complaint5 for accion

publiciana against Roberto and Susan de Jesus
(Spouses de Jesus), Macario Bernardo (Macario), and
persons claiming rights under them (collectively,
the respondents), with the Metropolitan Trial Court
(MeTC) of Caloocan City.
The complaint sought to compel the respondents to
vacate a piece of land located in Novaliches, Quezon
City, described as Lot 40, Block 5 (subject lot). The
subject lot is covered by Transfer Certificate of Title
(TCT) No. C-284416 registered and titled under the
Spouses Supapo's names. The land has an assessed
value of thirty-nine thousand nine hundred eighty
pesos (39,980.00) as shown in the Declaration of Real
Property Value (tax declaration) issued by the Office of
the City Assessor of Caloocan.7
The Spouses Supapo did not reside on the subject lot.
They also did not employ an overseer but they made
sure to visit at least twice a year.8 During one of their
visits in 1992, they saw two (2) houses built on the
subject lot. The houses were built without their
knowledge and permission. They later learned that the
Spouses de Jesus occupied one house while Macario
occupied the other one.9
The Spouses Supapo demanded from the respondents
the immediate surrender of the subject lot by bringing
the dispute before the appropriate Lupong
Tagapamayapa. The Lupon issued a Criminal Case No. C-45610 are REVERSED and SET
Katibayan Upang Makadulog sa Hukuman (certificate
to file action) for failure of the parties to settle
amicably.10
The Spouses Supapo then filed a criminal
case11 against the respondents for violation of
Presidential Decree No. 772 or the Anti-Squatting
Law.12 The trial court convicted the respondents. The
dispositive portion of the decision reads:
WHEREFORE, in view of all the foregoing, this Court
finds accused ROBERTO DE JESUS, SUSAN DE
JESUS and MACARIO BERNARDO, GUILTY beyond
reasonable doubt for Violation of Presidential Decree
No. 772, and each accused is hereby ordered to pay a
fine of ONE THOUSAND PESOS (P1,000.00), and to
vacate the subject premises.
SO ORDERED.13 (Emphasis supplied.)
The respondents appealed their conviction to the
CA.14 While the appeal was pending, Congress
enacted Republic Act (RA) No. 8368, otherwise known
as "An Act Repealing Presidential Decree No. 772,"
which resulted to the dismissal of the criminal case.15
On April 30, 1999, the CA's dismissal of the criminal The MeTC Ruling23
case became final.16
The MeTC denied the motion to set the affirmative
Notwithstanding the dismissal, the Spouses Supapo defenses for preliminary hearing. It ruled that the
moved for the execution of the respondents' civil arguments advanced by the respondents are
liability, praying that the latter vacate the subject lot. evidentiary in nature, which at best can be utilized in
The Regional Trial Court (RTC) granted the motion and the course of the trial. The MeTC likewise denied the
issued the writ of execution. The respondents moved respondents' motion for reconsideration.
for the quashal of the writ but the RTC denied the
same. The RTC also denied the respondents' motion From the MeTC's ruling, the respondents filed a
for reconsideration. petition for certiorari with the RTC.24
The respondents thus filed with the CA a petition The RTC Ruling25
for certiorari to challenge the RTC's orders denying the
quashal of the writ and the respondent's motion for The RTC granted the petition for certiorari on two
reconsideration.17 The CA granted the petition and grounds, viz.: (i) the action has prescribed; and
held that with the repeal of the Anti-Squatting Law, the (ii) accion publiciana falls within the exclusive
respondents' criminal and civil liabilities were jurisdiction of the RTC.
extinguished.18 The dispositive portion of the decision
reads: It held that in cases where the only issue involved is
possession, the MeTC has jurisdiction if the action for
WHEREFORE, premises considered, the petition for forcible entry or unlawful detainer is filed within one (1)
certiorari with prayer for injunction is GRANTED. The year from the time to demand to vacate was made.
orders dated June 5, 2003 and July 24, 2003 of Branch Otherwise, the complaint for recovery of possession
131 of the Regional Trial Court of Caloocan City in should be filed before the RTC.
ASIDE. Said court is hereby The dispositive portion of the RTC decision reads:
permanently ENJOINED from further executing or
implementing its decision dated March 18, 1996. WHEREFORE, premises considered, the instant
petition is hereby GRANTED.
SO ORDERED.
The Orders dated October 24, 2008 and February 23,
The CA, however, underscored that the repeal of 2009 are hereby declared NULL and VOID.
the Anti-Squatting Law does not mean that people now
have unbridled license to illegally occupy lands they do The Public Respondent is hereby directed
not own, and that it was not intended to compromise to DISMISS Civil Case No. 08-29245 for lack of
the property rights of legitimate landowners.19 In cases jurisdiction.
of violation of their property rights, the CA noted that
recourse may be had in court by filing the proper action SO ORDERED.26
for recovery of possession.
In their motion for reconsideration,27 the Spouses
The Spouses Supapo thus filed the complaint Supapo emphasized that the court's jurisdiction over
for action publiciana.20 an action involving title to or possession of land is
determined by its assessed value; that the RTC does
After filing their Answer,21 the respondents moved to not have an exclusive jurisdiction on all complaints
set their affirmative defenses for preliminary for accion publiciana; and that the assessed value of
hearing22 and argued that: (1) there is another action the subject lot falls within MeTC's jurisdiction.
pending between the same parties; (2) the complaint
for accion publiciana is barred by statute of limitations; The RTC denied the petitioners' motion for
and (3) the Spouses Supapo's cause of action is barred reconsideration.
by prior judgment.
It held that although the MeTC had jurisdiction based
on the assessed value of the subject lot, the Spouses
Supapos' cause of action had already prescribed, the
action having been filed beyond the ten (l0)-year
prescriptive period under Article 555 of the Civil
Code.28 As it was not proven when the actual demand
to vacate was made, the RTC ruled that the reckoning
period by which the ejectment suit should have been
filed is counted from the time the certificate to file action
was issued. The certificate to file action was issued on
November 25, 1992, while the complaint for accion
publiciana was filed only on March 7, 2008, or more
than ten (10) years thereafter.
Dissatisfied with the RTC ruling, the Spouses Supapo
appealed to the CA.29
The CA Ruling30
The CA dismissed the appeal and held that the
complaint for accion publiciana should have been
lodged before the RTC and that the period to file the
action had prescribed.
The dispositive portion of the CA decision reads:
WHEREFORE, the appeal is DENIED. The Decision
dated June 30, 2009 and Order dated October 19,
2009 are AFFIRMED.
SO ORDERED
The Spouses Supapo moved31 but failed32 to secure a
reconsideration of the CA decision; hence, they came
to us through the present petition.
The Petition
In seeking reversal of the CA's ruling, the Spouses
Supapo essentially argue that:
(1) the MeTC exercises exclusive original jurisdiction
over accion publiciana where the assessed value
of the property does not exceed P20,000.00, or
P50,000.00 if the property is located in Metro
Manila; and that
(2) prescription had not yet set in because their
cause of action is imprescriptible under the
Torrens system.
The Respondents' Case33
ownership is inseparably linked to the issue of
The respondents argue that the complaint for accion possession. The adjudication of the issue of
publiciana was (1) filed in the wrong court; (2) barred ownership, being provisional, is not a bar to an action
by prescription; and (3) barred by res judicata. between the same parties involving title to the property.
The adjudication, in short, is not conclusive on the
Issues issue of ownership.36
The issues for resolution are: Thus, while we will dissect the Spouses Supapo's claim
of ownership over the subject property, we will only do
so to determine if they or the respondents should have
I. Whether the MeTC properly acquired
the right of possession.
jurisdiction;
II. Whether the cause of action has prescribed;
Having thus determined that the dispute involves
and
possession over a real property, we now resolve which
III. Whether the complaint for accion
court has the jurisdiction to hear the case.
publiciana is barred by res judicata.
Under Batas Pambansa Bilang 129,37 the jurisdiction
of the RTC over actions involving title to or possession
Our Ruling of real property is plenary.38
The petition is meritorious. RA No. 7691,39 however, divested the RTC of a portion
of its jurisdiction and granted the Metropolitan Trial
We hold that: (1) the MeTC properly acquired Courts, Municipal Trial Courts and Municipal Circuit
jurisdiction; (2) the cause of action has not prescribed; Trial Courts the exclusive and original jurisdiction to
and (3) the complaint is not barred by res judicata. hear actions where the assessed value of the property
does not exceed Twenty Thousand Pesos
Accion Publiciana and (P20,000.00), or Fifty Thousand Pesos (P50,000.00), if
the Jurisdiction of the the property is located in Metro Manila.
MeTC
Section 1 of RA No. 7691 states:
Accion publiciana is an ordinary civil proceeding to
determine the better right of possession of realty Section 1. Section 19 of Batas Pambansa Blg. 129,
independent of title. It refers to an ejectment suit filed otherwise known as the "Judiciary Reorganization Act
after the expiration of one year from the accrual of the of 1980," is hereby amended to read as follows:
cause of action or from the unlawful withholding of Section. 19. Jurisdiction in civil cases. - Regional Trial
possession of the realty.34 Courts shall exercise exclusive original
jurisdiction:
In the present case, the Spouses Supapo filed an
action for the recovery of possession of the subject lot (2) In all civil actions which involve the title to,
but they based their better right of possession on a
or possession of, real property, or any interest
claim of ownership. therein, where the assessed value of the property
involved exceeds Twenty thousand pesos
This Court has held that the objective of the plaintiffs (P20,000.00) or, for civil actions in Metro Manila,
in accion publiciana is to recover possession only, not where such value exceeds Fifty thousand pesos
ownership. However, where the parties raise the issue (P50,000.00) x x x. (Emphasis supplied.)
of ownership, the courts may pass upon the issue to
determine who between the parties has the right to Section 3 of the same law provides:
possess the property.35 Section. 3. Section 33 of the same law is hereby
amended to read as follows:
This adjudication is not a final determination of the Section. 33. Jurisdiction of Metropolitan Trial Courts,
issue of ownership; it is only for the purpose of Municipal Trial Courts and Municipal Circuit Trial
resolving the issue of possession, where the issue of Courts in Civil Cases. - Metropolitan Trial Courts,
Municipal Trial Courts, and Municipal Circuit Trial
Courts shall exercise:
xxxx
(3) Exclusive original jurisdiction in all civil actions
which involve title to, or possession of, real property,
or any interest therein where the assessed value of
the property or interest therein does not exceed
Twenty thousand pesos (P20,000.00) or, in civil
actions in Metro Manila, where such assessed
value does not exceed Fifty thousand pesos
(P50,000.00) exclusive of interest, damages of
whatever kind, attorney's fees, litigation expenses and
costs x x x. (Emphasis supplied.)
In view of these amendments, jurisdiction over actions
involving title to or possession of real property is
now determined by its assessed value.40 The
assessed value of real property is its fair market value
multiplied by the assessment level. It is synonymous to
taxable value.41
In Quinagoran v. Court of Appeals,42 we explained:
[D]oes the RTC have jurisdiction over all cases of
recovery of possession regardless of the value of the
property involved?
The answer is no. The doctrine on which the RTC
anchored its denial of petitioner's Motion to Dismiss, as
affirmed by the CA — that all cases of recovery of
possession or accion publiciana lies with the regional
trial courts regardless of the value of the property — no
longer holds true. As tilings now stand, a distinction
must be made between those properties the
assessed value of which is below P20,000.00, if
outside Metro Manila; and P50,000.00, if
within.43 (Emphasis supplied.)
In this regard, the complaint must allege the assessed
value of the real property subject of the complaint or
the interest thereon to determine which court has
jurisdiction over the action. This is required because
the nature of the action and the court with original and
exclusive jurisdiction over the same is determined by
the material allegations of the complaint, the type of
relief prayed for by the plaintiff, and the law in effect
when the action is filed, irrespective of whether the
plaintiffs are entitled to some or all of the claims
asserted therein.44
In the present case, the Spouses Supapo alleged that
the assessed value of the subject lot, located in Metro
Manila, is P39,980.00. This is proven by the tax
declaration45 issued by the Office of the City Assessor
of Caloocan. The respondents do not deny the
genuineness and authenticity of this tax declaration.
Given that the Spouses Supapo duly complied with the
jurisdictional requirements, we hold that the MeTC of
Caloocan properly acquired jurisdiction over the
complaint for accion publiciana.
The cause of action
has not prescribed
The respondents argue that the complaint
for accion publiciana is dismissible for being filed
out of time.
They invoke Article 555 of the Civil Code, which states:
Art. 555. A possessor may lose his possession:
xxxx
(4) By the possession of another, subject to the
provisions of Article 537, if the new possession has
lasted longer than one year. But the real right of
possession is not lost till after the lapse of ten
years. (Emphasis supplied.)
The respondents point out that the Spouses Supapo
filed the complaint for accion publiciana on March 7,
2008 or more than ten (10) years after the certificate to
file action was issued on November 25, 1992. The
respondents contend that the Spouses Supapo may no
longer recover possession of the subject property, the
complaint having been filed beyond the period
provided by law.
Further, while the respondents concede that the
Spouses Supapo hold a TCT over the subject property,
and assuming a Torrens title is imprescriptible and
indefeasible, they posit that the latter have lost their
right to recover possession because of laches.
On their part, the Spouses Supapo admit that they filed
the complaint for accion publiciana more than ten (10)
years after the certificate to file action was issued.
Nonetheless, they argue that their cause of action is
imprescriptible since the subject property is registered
and titled under the Torrens system.
We rule that the Spouses Supapo's position is legally
correct.
At the core of this controversy is a parcel of land
registered under the Torrens system. The Spouses
Supapo acquired the TCT on the subject lot in
1979.46 Interestingly, the respondents do not
challenge the existence, authenticity and
genuineness of the Supapo's TCT.47
In defense, the respondents rest their entire case on
the fact that they have allegedly been in actual, public,
peaceful and uninterrupted possession of the subject
property in the concept of an owner since 1992. The
respondents contend that they built their houses on the
subject lot in good faith. Having possessed the subject
lot for more than ten (10) years, they claim that they
can no longer be disturbed in their possession. 48
Under the undisputed facts of this case, we find that
the respondents' contentions have no legal basis.
In a long line of cases, we have consistently ruled
that lands covered by a title cannot be acquired by
prescription or adverse possession. We have also
held that a claim of acquisitive prescription is
baseless when the land involved is a registered
land because of Article 112649 of the Civil Code in
relation to Act 496 [now, Section 47 of Presidential
Decree (PD) No. 152950].51
The Spouses Supapo (as holders of the TCT) enjoy a
panoply of benefits under the Torrens system. The
most essential insofar as the present case is
concerned is Section 47 of PD No. 1529 which states:
Section 47. Registered land not subject to
prescriptions. No title to registered land in derogation
of the title of the registered owner shall be acquired by
prescription or adverse possession.
In addition to the imprescriptibility, the person who
holds a Torrens Title over a land is also entitled to the
possession thereof.52 The right to possess and occupy
the land is an attribute and a logical consequence of
ownership.53 Corollary to this rule is the right of the
holder of the Torrens Title to eject any person illegally
occupying their property. Again, this right is
imprescriptible.54
In Bishop v. CA,55 we held that even if it be supposed
that the holders of the Torrens Title were aware of the
other persons' occupation of the property, regardless
of the length of that possession, the lawful owners
have a right to demand the return of their property at
any time as long as the possession was unauthorized
or merely tolerated, if at all.56
Even if the defendant attacks the Torrens Title because
of a purported sale or transfer of the property, we still
rule in favor of the holder of the Torrens Title if the
defendant cannot adduce, in addition to the deed of
sale, a duly-registered certificate of title proving the
alleged transfer or sale.
A case in point is Umpoc v. Mercado57 in which we
gave greater probative weight to the plaintiffs TCT vis-
a-vis the contested unregistered deed of sale of the
defendants. Unlike the defendants in Umpoc, however,
the respondents did not adduce a single evidence to
refute the Spouses Supapo's TCT. With more reason
therefore that we uphold the indefeasibility and
imprescriptibility of the Spouses Supapo's title.
By respecting the imprescriptibility and indefeasibility
of the Spouses Supapo's TCT, this Court merely
recognizes the value of the Torrens System in ensuring
the stability of real estate transactions and integrity of
land registration.
We reiterate for the record the policy behind the
Torrens System, viz.:
The Government has adopted the Torrens system due
to its being the most effective measure to guarantee
the integrity of land titles and to protect their
indefeasibility once the claim of ownership is
established and recognized. If a person purchases a
piece of land on the assurance that the seller's title
thereto is valid, he should not run the risk of being told
later that his acquisition was ineffectual after all, which
will not only be unfair to him as the purchaser, but will
also erode public confidence in the system and will
force land transactions to be attended by complicated
and not necessarily conclusive investigations and proof
of ownership. The further consequence will be that land
conflicts can be even more abrasive, if not even
violent.58
With respect to the respondents' defense59 of
laches, suffice it to say that the same is evidentiary
in nature and cannot be established by mere
allegations in the pleadings.60 In other words, the
party alleging laches must adduce in court evidence
proving such allegation. This Court not being a trier of
facts cannot rule on this issue; especially so since the
lower courts did not pass upon the same.
Thus, without solid evidentiary basis, laches cannot be
a valid ground to deny the Spouses Supapo's
petition.61 On the contrary, the facts as culled from the
records show the clear intent of the Spouses Supapo
to exercise their right over and recover possession of
the subject lot, viz.: (1) they brought the dispute to the
appropriate Lupon; (2) they initiated the criminal
complaint for squatting; and (3) finally, they filed
the action publiciana. To our mind, these acts negate
the allegation of laches.
With these as premises, we cannot but rule that the
Spouses Supapo's right to recover possession of the
subject lot is not barred by prescription.
The action is not barred
by prior judgment
As a last-ditch effort to save their case, the
respondents invoke res judicata. They contend that the
decision of the CA in CA-G.R. SP No. 78649 barred the
filing of the action publiciana.
To recall, CA-G.R. SP No. 78649 is the petition
for certiorari filed by the respondents to challenge the
RTC's issuance of the writ enforcing their civil liability
(i.e., to vacate the subject property) arising from their
conviction under the Anti-Squatting Law. The CA
granted the petition and permanently enjoined the
execution of the respondents' conviction because their
criminal liability had been extinguished by the repeal of
the law under which they were tried and convicted. It
follows that their civil liability arising from the crime had
also been erased.
The respondents' reliance on the principle of res
judicata is misplaced.
Res judicata embraces two concepts: (1) bar by prior
judgment as enunciated in Rule 39, Section 47(b) of
the Rules of Civil Procedure; and (2) conclusiveness of
judgment in Rule 39, Section 47(c).62
"Bar by prior judgment" means that when a right or fact
had already been judicially tried on the merits and
determined by a court of competent jurisdiction, the
final judgment or order shall be conclusive upon the
parties and those in privity with them and constitutes
an absolute bar to subsequent actions involving the
same claim, demand or cause of action.63
The requisites64 for res judicata under the concept of
bar by prior judgment are:
(1) The former judgment or order must be final;
(2) It must be a judgment on the merits;
(3) It must have been rendered by a court having
jurisdiction over the subject matter and the parties; and
(4) There must be between the first and second
actions, identity of parties, subject matter, and
cause of action.
Res judicata is not present in this case.
While requisites one to three may be present, it is
obvious that the there is no identity of subject matter,
parties and causes of action between the criminal
case prosecuted under the Anti-Squatting Law and
the civil action for the recovery of the subject property.
First, there is no identity of parties. The criminal
complaint, although initiated by the Spouses Supapo,
was prosecuted in the name of the people of the
Philippines. The accion publiciana, on the other hand,
was filed by and in the name of the Spouses Supapo.
Second, there is no identity of subject matter. The
criminal case involves the prosecution of a crime under
the Anti-Squatting Law while the accion publiciana is
an action to recover possession of the subject property.
And third, there is no identity of causes of action.
The people of the Philippines filed the criminal case to
protect and preserve governmental interests by
prosecuting persons who violated the statute. The
Spouses Supapo filed the accion publiciana to protect
their proprietary interests over the subject property and
recover its possession.
Even casting aside the requirement of identity of
causes of action, the defense of res judicata has still
no basis.
The concept of "conclusiveness of judgment" does not
require that there is identity of causes of action
provided that there is identity of issue and identity of
parties.65
Under this particular concept of res judicata, any right,
fact, or matter in issue directly adjudicated or
necessarily involved in the determination of an action
before a competent court in which judgment is
rendered on the merits is conclusively settled by the
judgment therein and cannot again be litigated
between the parties and their privies, whether or not
the claim, demand, purpose, or subject matter of the
two actions is the same.66
As already explained, there is no identity of parties
between the criminal complaint under the Anti-
Squatting law and the civil action for accion
publiciana. For this reason alone, "collusiveness of
judgment" does not apply.
Even if we assume, for the sake of argument, that there
is identity of parties, "conclusiveness of judgment" still
does not apply because there is no identity of issues.
The issue in the criminal case is whether the
respondents (accused therein) committed the crime
alleged in the information, while the only issue
in accion publiciana is whether the Spouses Supapo
have a better right than the respondents to possess
and occupy the subject property.
For all these reasons, the defense of res judicata is
baseless.
Final Note
As a final note, we stress that our ruling in this case is
limited only to the issue of determining who between
the parties has a better right to possession. This
adjudication is not a final and binding determination of
the issue of ownership. As such, this is not a bar for the
parties or even third persons to file an action for the
determination of the issue of ownership.
WHEREFORE, premises considered, we GRANT the
petition, and consequently REVERSE and SET
ASIDE the February 25, 2011 decision and August 25,
2011 resolution of the Court of Appeals in CA-G.R. SP
No. 111674.
SO ORDERED.
G.R. No. 170671, August 19, 2015
FILADELFA T. LAUSA, LORETA T. TORRES,
PRIMITIVO TUGOT AND ANACLETO T.
CADUHAY, Petitioners, v. MAURICIA QUILATON,
RODRIGO Q. TUGOT, PURIFICACION T. CODILLA,
TEOFRA T. SADAYA, ESTRELLITA T. GALEOS
AND ROSITA T. LOPEZ, Respondents.
DECISION
BRION, J.:
Before us is a Petition for review on certiorari assailing
the Court of Appeals (CA) Decision in CA-G.R. CV No.
63248. The CA reversed the decision of the Regional
Trial Court (RTC) of Cebu City, Branch 15 in Civil Case
No. CEB - 17857, and. upheld the validity of Transfer
Certificate Title (TCT) No. 571.
Factual Antecedents
The main issue in the present case involves the title to
Lot No. 557, a parcel of land situated in V. Ranudo and
D. Jakosalem Streets, Cogon Central, Cebu City.
The petitioners and the respondents are relatives
residing in Lot No. 557.
Petitioners Filadelfa T. Lausa, Loreta T. Torres,
Primitivo Tugot, and Anacleto T. Caduhay are the
cousins of respondents Rodrigo Tugot, Purificacion
Codilla, Teofra Sadaya, and Estrellita Galeos; while
Mauricia Quilaton is the respondents' mother and the
petitioners' aunt-in-law.
The respondent Rosita T. Lopez, on the other hand,
acquired the rights of Rodrigo when he mortgaged Lot
No. 557-A, a portion of Lot No. 557, to her. Rodrigo
subsequently defaulted on his loan.
The petitioners and respondents, with the
exception of Mauricia and Rosita, are all
grandchildren of Alejandro Tugot. Alejandro had
possessed Lot No. 557 since September 13, 1915,
after it was assigned to him by Martin Antonio.
Lot No. 557 formed part of the Banilad Friar Estate
Lands, which had been bought by the government
through Act No. 1120 for distribution to its occupants.
Antonio had initially been Lot No. 557's beneficiary, but
subsequently assigned his rights over Lot No. 557 to
Alejandro.
Since then, Alejandro possessed Lot No. 557 until his
death; thereafter, his children and grandchildren
continued to reside in the lot. The present controversy
arose when the respondents, claiming to be its
registered owners, attempted to eject the petitioners
from Lot No. 557.
On January 1993, Mauricia filed before the RTC of
Cebu City Branch 17 a petition for the issuance of
a new owner's duplicate of TCT No. 571, which
purportedly covers Lot No. 557. Mauricia claimed to
own TCT No. 571, but lost her owner's duplicate during
a strong typhoon sometime in 1946. The RTC, after
due hearing, granted Quilaton's petition and directed
the issuance of a new owner's duplicate of TCT No.
571.
On September 27, 1994, Mauricia donated Lot No. 557
to her children Rodrigo, Purificacion, Teofra and
Estrellita. Thus, TCT No. 571 was cancelled, and re-
issued as TCT Nos. 130517, 130518, 130519, 130520
and 130521 in the names of Mauricia's
children.1cralawrednad
Mauricia's children subsequently performed
several acts of ownership over Lot 571: first,
Rodrigo, on March 23, 1995, mortgaged TCT No.
130517 to Lopez as security for a loan he obtained
from the latter. Rodrigo subsequently defaulted on his
loan, prompting the foreclosure of TCT No. 130517.
The land covered by TCT No. 130517 was thereafter
sold by public auction to Lopez, for which she was
issued TCT No. 143511 on March 31, 1997.
Second, Mauricia's children filed a complaint for
ejectment against the petitioners, docketed as Civil
Case No. R-35137, on August 4, 1995.
In response, the petitioners filed Civil Case No. CEB-
17857 for the annulment of TCT No. 571 and the
subsequent titles that originate from TCT No. 571, as
well as criminal complaints2 for falsification and perjury
against the respondents.
The Regional Trial Court's ruling
The RTC found TCT No. 571 to be a forgery, and
declared it and all titles originating from it to be null
and void ab initio. The RTC gave the following
reasons as basis for this
conclusion:ChanRoblesvirtualLawlibrary
First, the RTC noted several discrepancies in TCT No.
571 indicating that it is a Lastly, the RTC declared Lopez's TCT No. 143511,
forgery, viz.:ChanRoblesvirtualLawlibrary
(i) The TCTs issued before and after TCT No. 571, that
is, TCT No. 570 and TCT No. 572, both use a
different and more recent form than TCT No. 571.
TCT Nos. 570 and 572 use Judicial Form No. 109,
which was issued in June 1945, while TCT No. 571
uses Judicial Form No. 140-D, which was issued in
April 1936.
(ii) TCT Nos. 570 and 572 was signed by Martina L.
Arnoco as Register of Deeds, while TCT No. 571
was signed by Gervasio Lavilles as Acting Register
of Deeds.
(iii)There are distinct differences in Lavilles' signature
as it appears in TCT No. 571 from his signatures in
other TCTs, such as TCT Nos. 525 and 526.
Second, Mauricia's previous acts show that she
acknowledged Alejandro's ownership over Lot No. 557.
Prior to instituting a petition for issuance of a new
owner's duplicate in 1993, Mauricia had been paying
Alejandro (and subsequently Aurea) contributions for
the real estate taxes due on Lot No. 557.
Third, Mauricia exercised acts of full ownership over
Lot No. 557 only in 1994, after she had filed a petition
for the issuance of a new owner's duplicate, even as
she claimed to have owned the lot since 1946.
Fourth, Mauricia failed to present evidence showing
how she acquired title to Lot No. 557. If indeed the land
was purchased from Martin Antonio, she could have
secured a copy of its document of sale from the
Archives Office, Manila.
Additionally, the RTC held that the petitioners had
better title to Lot No. 557 than the respondents. The
RTC found that Lot No. 557 had been in the possession
of Alejandro since September 13, 1915, when the lot's
owner, Martin Antonio, executed a Deed of Assignment
in favor of Alejandro. This conveyance, together with
Alejandro and his heirs' continuous payment of Lot No.
557's real estate taxes since 1928, amounts to more
than thirty years of adverse possession, so that
ownership over the lot vested in him.
As Alejandro's heirs, both the petitioners and
respondents are entitled to a share in Lot No. 557.
which she acquired when she purchased TCT No.
130517, to be null and void. TCT No. 130517 covers
Lot No. 557-A, and had been annotated with a Notice
of Lis Pendens at the time Lopez purchased it. Thus,
Lopez had knowledge of the dispute over the
ownership of the lot she bought, and could not claim
the defense of a purchaser in good faith. She acquired
no greater title to the lot than Rodrigo, who mortgaged
TCT No. 130517.
The respondents filed a motion for reconsideration
contesting the RTC's decision. After the RTC denial of
the motion, the respondents appealed to the CA.
The Court of Appeals' ruling
The CA reversed the RTC's decision, and upheld the
validity of TCT No. 571 and all the titles originating from
it.
In upholding the validity of TCT No. 571 (and all the
titles originating from it), the CA emphasized the
existence of a copy of TCT No. 571 in the custody of
the Office of the Register of Deeds of Cebu City, and
noted that it is presumed by law to have been issued in
a regular manner. The application of this presumption
is called for by the purpose of the Torrens system,
which is to promote the stability and integrity of land
titles.
According to the CA, the petitioners have failed to
disprove this presumption of regularity. The pieces of
evidence that the petitioners presented (i.e., the tax
receipts and Antonio's Deed of Assignment of Lot No.
557 to Alejandro) do not prove with clear, positive, and
convincing evidence that TCT No. 571 had been
fraudulently issued. The payment of real estate taxes
over Lot No. 557 does not prove ownership. The Deed
of Assignment, on the other hand, had been
subsequently cancelled, as shown by the Friar Lands
Sale Certificate Register on file with the DENR. It
proves that the lot had been earlier assigned to
Alejandro, but because the assignment was canceled,
the ownership of Lot No. 557 remained with Antonio.

The CA also noted that the lot that Alejandro appears
to have owned was not Lot No. 557 but Lot No. 357.
The description of Lot No. 557 - as set forth by the
petitioners in their original complaint - substantially
varies from the actual and precise technical description
of Lot No. 557. Additionally, some of the documentary
evidence in the case (such as tax declarations, tax
receipts and notices of tax delinquency) show that what
Alejandro owned was Lot No. 357, not Lot No. 557.
The CA also pointed out that Alejandro could not have
acquired Lot 557 through acquisitive prescription for
two reasons: first, Mauricia had been in possession of
the property since 1946; and second, a lot registered
under the Torrens system cannot be acquired through
acquisitive prescription. Records show that the lands
comprising the Banilad Friar Lands Estate, of which Lot
No. 557 was a part, had been brought under the
operation of the Torrens system on September 23,
1913.
The CA found Lopez to be an innocent purchaser for
value. Applying the Court's ruling in Bank of the
Philippine Islands v. Noblejas, the CA held that Lopez's
good faith as a mortgagee extends to her eventual
purchase of the lot during its foreclosure. Since TCT
No. 130517 had no notice of any adverse claim at the
time it was mortgaged to Lopez, then the subsequent
annotation of Notice of Lis Pendens prior to TCT No.
130517's foreclosure should not affect her status as a
mortgagee-in-good-faith. The clean title presented to
Lopez at the time TCT No. 130517 was mortgaged to
her maintains this status at the time of its foreclosure,
and cannot be prejudiced by the subsequent
annotation of a claim to it before the lot is foreclosed.
Lastly, the CA found that the RTC erred when it did not
immediately dismiss the petitioners' complaint, as their
cause of action had been barred by prescription and
laches. An action for the annulment of title to land
prescribes in ten years. The petitioners filed their
complaint only on September 20, 1995, almost fifty
years after Mauricia had been issued TCT No. 571 on
July 16, 1946. Thus, the petitioners had slept on their
claimed right over Lot 557; consequently, they are now
barred by laches from seeking redress before the
courts.
The petitioners filed a motion for reconsideration
assailing the CA's decision, which motion the CA
denied. The denial opened the way for the present
petition for review on certiorari before this Court.
The present petition
In their present petition, the petitioners seek the
reversal of the CA's decision through their
assertion that they have acquired ownership over
Lot No. 557 by acquisitive prescription.
The petitioners claim that the CA committed the
following errors:ChanRoblesvirtualLawlibrary
First, the CA erred in upholding the validity of TCT No.
571, which is a fake and fabricated title;
Second, the CA erred in finding that Mauricia owned
and possessed Lot No. 557, as it was Alejandro who
exercised acts of exclusive ownership and possession
over the lot since it was assigned to him in 1915. The
lot Antonio assigned to Alejandro covered Lot No. 557,
although earlier tax declarations indicated the areas of
the lot to be Lot No. 357. This error was corrected in
subsequent tax declarations by the City of Cebu
Assessor's Office in 1997.
Third, the CA erred in holding that Lopez is an innocent
purchaser in good faith, as she knew that the portion of
Lot No. 557 being mortgaged to her was in the
possession of Filadelfa, and not Rodrigo. She knew of
this possession before she executed the real estate
mortgage contract over the property with Rodrigo.
Fourth, the CA erred in finding the petitioners' cause
of action barred by prescription and laches, as they
discovered the existence of TCT No. 571 only in
August 1995, when Mauricia and her children instituted
ejectment proceedings against them.
In response, the respondents argue that the petitioners
have no cause of action against them because
Alejandro's tax declarations cover Lot No. 357, and not
Lot No. 557, which is covered by their TCTs. They also
cited the CA's decision, and argued that the CA
committed no error of law in upholding the validity of
their TCTs.
Lopez, on the other hand, asserted that her status as
an innocent purchaser or mortgagor in good faith had
not been included in the petitioners' amended
complaint including her as an indispensible party, and
should thus not have been considered as an issue in
the case. In any case, Lopez asserts that her title to Lot
No. 557-A is valid because she is an innocent
purchaser in good faith.
Issues:
The issues, having been properly joined, present to us
the following questions:ChanRoblesvirtualLawlibrary
(1)Whether the CA erred in finding that the lot that the
petitioners claim to own covers Lot No. 357, and not
Lot No. 557;
(2)Whether the CA erred in finding that the
respondents, and not the petitioners, are the owners
and possessors of Lot No. 557;
(3)Whether the CA erred in finding Lopez an innocent
purchaser in good faith; and
(4)Whether the CA erred in finding the petitioners'
cause of action to have been barred by prescription
and laches.
The Court's Ruling
We find the petition meritorious.
We note at the outset that the Court is not a trier of
facts, and our jurisdiction in cases brought before us
from the appellate court is limited to the review of errors
of law.
We have, however, recognized several exceptional
situations that call for a re-evaluation of the CA's
factual conclusions, among them, the situation when
the CA's findings are contrary to that of the trial court,
and when the CA manifestly overlooks relevant facts
not disputed by the parties and which, if properly
considered, would lead to a different
conclusion.3cralawrednad
We find these circumstances in the present case,
prompting us to re-examine the records of the case and
to reverse the CA's decision after due consideration of
the records.
The CA erred in finding that the lot that the
petitioners claim to own is Lot No. 357, and not Lot
No. 557
The CA, in upholding the validity of Mauricia's title and
ownership over Lot No. 557, pointed out that the lot that
Alejandro claimed to own was not Lot No. 557, but Lot
No. 357.
The CA based this conclusion on several tax
documents in the name of Alejandro Tugot, which
indicate that the lot covered is Lot No. 357, and not
Lot No. 557.
In so doing, the CA overlooked several key pieces of
evidence presented before the RTC, which had led the
latter to conclude that the designation of Lot No. 357 in
Alejandro's tax declarations actually pertained to Lot
No. 557. These pieces of evidence are as
follows:ChanRoblesvirtualLawlibrary
First, the testimony of Mr. Antonio Abellana of the City
of Cebu Assessor's Office established that he issued a
Certification of Correction to change Alejandro's tax
declarations, which initially covered Lot No. 357, to Lot
No. 557.
According to Abellana, Lot No. 357 is located in a
barangay different from the address found in
Alejandro's tax declaration. The base map of Cebu
locates Lot No. 357 to be in Barangay Day-as, almost
five meters from Sikatuna Street, while the address in
Alejandro's erroneous tax declaration indicates that Lot
No. 357 is located in Jakosalem Street.
Second, records of the Cebu City Assessor's Office
show that Lot No. 357 is covered by another tax
declaration with an address corresponding to the city's
base map. In this tax declaration, Lot No. 357 is owned
by a certain Antonio Yap.
Third, the deed of donation4 of Lot No. 558, which
adjoins Lot Nos. 557 and 559, recognized Alejandro
Tugot as the owner of Lot No. 557.
We find that these pieces of evidence sufficiently
explain that the lot in Alejandro and Aurea's tax
declarations actually covered Lot No. 557, and its
initial designation as Lot No. 357 was an error. The
Assessor's Office of Cebu City, which had the
responsibility of classifying, appraising, and assessing
real property in Cebu, had acknowledged this
designation to be erroneous, and subsequently made
rectification. This acknowledgment is not only entitled
to the presumption of regularity; it is also corroborated
by the Deed of Donation of an adjoining lot.
Additionally, we also found other pieces of evidence
supporting the conclusion of the Cebu City Assessor's
Office. The tax declarations in Alejandro and
(subsequently) Aurea's names indicate that they
covered the same address as the Lot No. 557
described in the Deed of Assignment that Antonio
executed in Alejandro's favor in 1915. The identity of
the addresses in these two documents show that what
the petitioners intended to pay real property tax for,
was the lot covered in the Deed of Assignment, which
was Lot No. 557. Thus, the tax declarations that placed
Lot No. 357 under Alejandro's name actually pertained
to the lot covered by Lot No. 557; its designation as
covered by Lot No. 357 was an error that the Cebu City
Assessor's Office eventually discovered and corrected.
In the same vein, the court-approved subdivision plan
for Lot No. 557 indicated it to be found along
Jakosalem Street, the address of the lot covered by
Alejandro and Aurea's tax declarations. The plan was
commissioned for Alejandro and his children, including
Romualdo (Mauricia's husband and the father of her
children), in 1960. That the address of Lot No. 557 in
the subdivision plan is identical to the address in
Alejandro and Aurea's tax declarations establishes that
what they actually claim to own is Lot No. 557, and not
Lot No. 357.
With this foundation established, we now resolve the
issue of who among them have the better right over Lot
No. 557.
The CA erred in finding that the petitioners failed
to prove that TCT No. 571 is a fabricated title
In upholding the validity of Mauricia's TCT No. 571, the
CA held that the petitioners failed to overcome the
presumption of regularity that attended its issuance.
The CA emphasized that a copy of TCT No. 571 is
currently with the Register of Deeds, and that the
documents that the petitioners presented do not prove
their ownership over the lot.
The CA's conclusion, however, overlooked the
evidence that the petitioners presented before the RTC
to prove that TCT No. 571 is a fabricated title. These
pieces of evidence include the TCTs issued
immediately before and after TCT No. 571; TCT No.
16534 (the TCT from which TCT No. 571 allegedly
originated); and several TCTs that contain the
signature of the Acting Register of Deeds who signed
TCT No. 571. Taken together, all these pieces of
evidence sufficiently prove, by preponderance of
evidence, that TCT No. 571 is a fabricated title.
We cite with approval the RTC's factual observations
and conclusions, viz:ChanRoblesvirtualLawlibrary
First, the text of TCT No. 571 contains glaring
discrepancies with TCT No. 16534, the title indicated
in TCT No. 571 as its precursor.
TCT No. 16534 covered a different area from TCT No.
571. TCT No. 16534 covered Lot 7005-E-2, which has
an area of 3,311 square meters, while TCT No. 571
covers Lot No. 557 with an area of 525 square meters.
Too, TCT No. 16534 was issued in September 1957,
or almost ten years after the title it supposedly gave
rise to was issued in 1946.
Second, TCT No. 571 contains discrepancies when
compared with TCT Nos. 570 and 572, the TCTs that
were supposedly issued before and after TCT No. 571.
These discrepancies are as
follows:ChanRoblesvirtualLawlibrary
(i) TCT Nos. 570 and 572 had both been issued on
February 26, 1947, almost a year after TCT No. 571
was issued on July 16, 1946. Since TCT No. 571
was an intervening title between TCT No. 570 and
572, then it should have also been issued on
February 26, 1947.
(ii) TCT No. 571 used an old form, Judicial Form No.
140-D, which was revised in June 1945 by Judicial
Form No. 109. Since TCT No. 571 shows that it was
issued in 1946, then it should have used Judicial
Form No. 109. Notably, both TCT Nos. 570 and 572
used the updated Judicial Form No. 109, as they
were issued in 1947.
(iv)TCT Nos. 570 and 572 were signed by Martina L.
Arnoco as Register of Deeds, while TCT No. 571
was signed by Gervasio Lavilles as Acting Register
of Deeds.
(v) There are distinct differences in Lavilles' signature
as it appears in TCT No. 571, compared with his
signatures in other TCTs, such as TCT Nos. 525
and 526.
Additionally, we note that Mauricia's claim that she
bought Lot No. 557 from Antonio is contradicted by the
contents of TCT No. 16534.

For a new TCT to be issued, the owner's duplicate of
the seller should have been surrendered to the
Registry of Deeds, along with a copy of the TCT's Deed
of Sale. Thus, the seller's TCT would be cancelled, and
the new TCT of the buyer would indicate the seller's
TCT as its TCT of origin.
The text of TCT No. 571 shows that it originated from
TCT No. 16534. If indeed TCT No. 571 was issued to
Mauricia because the latter bought Lot No. 557 from
Antonio, then TCT No. 16534 should have reflected
this transaction.
However, instead of reflecting Antonio's title to Lot No.
557, TCT No. 16534 shows that it pertained to
a different lot, and had been issued ten years after
the issuance of TCT No. 571 to a certain Crispina
Lopez.
The original certificate of title from which TCT No. 571
and TCT No. 16534 originated are also different: TCT
No. 571 originated from Original Certificate of Title
(OCT) No. 251-253, while TCT No. 16534 originated
fromOCTNo. 11375.
These discrepancies, taken together with its variations
from the other titles issued around the same time and
Mauricia's failure to present proof of how she acquired
the lot from Antonio, reasonably establish that TCT No.
571 is a fabricated title.
We now proceed to determine whether Alejandro was
Lot No. 557's rightful owner.
The CA erred in relying on a fabricated title as basis
to deny Alejandro's claim to acquisitive
prescription
The CA, in reversing the RTC's decision recognizing
Alejandro's ownership over Lot No. 571, held that Lot
No. 557 could no longer be acquired through
prescription because it had already been brought
under the Torrens system, in Registry Book No. A-3.
Registry Book No. A-3 refers to the registry book where
OCT No. 251-253 is registered, as indicated in TCT No.
571. Thus, the CA concluded that Lot No. 557 has been
brought under the Torrens system because TCT No.
571 is already covered by the system. But as TCT No.
571 is a fabricated title, the CA erred in relying on its
contents to conclude that Lot No. 557 has already been
brought under the Torrens system.
Alejandro Tugot did not acquire Lot No. 557
through acquisitive prescription
We agree with the CA's conclusion that Lot No. 557
cannot be acquired through prescription, but for a
different reason.
In the present case, the Deed of Assignment between
Antonio and Alejandro was cancelled three months
after it was executed. The Deed, executed on
September 13, 1915, was inscribed with the phrase:
"Cancelled December 21, 1915. See letter # 12332."
Both the trial court and the CA found this inscription to
be sufficient proof that the Deed of Assignment had
been cancelled three months after its execution. As a
consequence, the Deed of Assignment could not have
vested Antonio's rights over Lot No. 557 to Alejandro.
Thus, Lot No. 557 reverted to its original status after
the Deed of Assignment was cancelled. It remained
subject to the conditional sale5 between the
government and Antonio; under the Certificate of Sale
between the Bureau of Lands and Antonio, the
government should transfer title to Lot No. 557 to
Antonio upon full payment of the lot's purchase price.
The nature of the contract of sale between Antonio and
the government is in line with Section 15 of Act No.
1120, which provides for the administration, temporary
lease, and sale of friar lands that the government
bought through sections 63 to 65 of "An Act temporarily
to provide for the administration of the affairs of civil
government in the Philippine Islands, and for other
purposes." These friar lands included the Banilad
Estate Friar Lands, from where Lot No. 557 originated.
Section 15 of Act No. 1120 that applied to Lot No. 557
provides:cralawlawlibrary
Sec. 15. The Government hereby reserves the title
to each and every parcel of land sold under the
provisions of this Act until the full payment of all
installments or purchase money and interest by
the purchaser has been made, and any sale or
encumbrance made by him shall be invalid as against
the Government of the Philippine Islands and shall be
in all respects subordinate to its prior claim.
xxxx
According to jurisprudence, Section 15 of Act No. 1120
reserves to the government the naked title to the friar
lands, until its beneficiaries have fully paid their
purchase price. Since the intent of Act No. 1120 was to
transfer ownership of the friar lands to its actual
occupants, the equitable and beneficial title to the land
passes to them the moment the first installment is paid
and a certificate of sale is issued. This right is subject
to the resolutory condition that the sale may be
rescinded if the agreed price shall not be paid in full.
When the Certificate of Sale was executed, Antonio
obligated himself to pay P9.00 as the final installment
to purchase Lot No. 557. His previous lease payments
to the lot were applied as initial installments for the
payment of the lot's purchase price of PI5.16. Upon full
payment of the installment and its annual 4% interest,
the government was bound to transfer full ownership of
Lot No. 557 to Antonio under Section 122 of Act No.
496.
While the records of the case do not show any
documents or paper trail showing the actions of the
parties to the Certificate of Sale after the Deed of
Assignment was cancelled, we can, with certainty, rule
out the possibility that Alejandro acquired title to it
through prescription.
Three scenarios could have happened after the Deed
of Assignment was cancelled - all of which forego the
possibility of acquisitive prescription.
First, Antonio could have completed payment of the
purchase price of Lot No. 557. Upon full payment, the
lot would have then been registered in Antonio's name.
The Certificate of Sale between Antonio and the
government requires registration under Section 122 of
Act No. 496, or the Land Registration Act of 1902, for
the ownership over Lot No. 557 to be transferred to
Antonio. Section 122 of Act No. 496
provides:cralawlawlibrary
Section 122. Whenever public lands in the Philippine
Islands belonging to the Government of the United
States or to the Government of the Philippine Islands
are alienated, granted, or conveyed to persons or to
public or private corporations, the same shall be
brought forthwith under the operation of this Act and
shall become registered lands. It shall be the duty of
the official issuing the instrument of alienation, grant,
or conveyance in behalf of the Government to cause
such instrument, before its delivery to the grantee, to
be filed with the register of deeds for the province
where the land lies and to be there registered like other
deeds and conveyances, whereupon a certificate shall
be entered as in other cases of registered land, and an
owner's duplicate certificate issued to the grantee. The
deed, grant, or instrument of conveyance from the
Government to the grantee shall not take effect as
a conveyance or bind the land, but shall operate as
a contract between the Government and the
grantee and as evidence of authority to the clerk or
register of deeds to make registration. The act of
registration shall be the operative act to convey
and affect the lands, and in all cases under this Act
registration shall be made in the office of the
register of deeds for the province where the land
lies. The fees for registration shall be paid by the
grantee. After due registration and issue of the
certificate and owner's duplicate such land shall be
registered land for all purposes under this Act.
Thus, the government could have registered the title to
Lot No. 557 in Antonio's name only after he had paid
the purchase price in full. Had Antonio eventually
completed the payment of Lot No. 557's purchase
price, it would have been registered under the Torrens
system, through Section 122 of Act No. 496.
Land registered under the Torrens system cannot be
acquired through prescription. As early as 1902,
Section 46 of Act No. 496 categorically declared that
lands registered under the Torrens system cannot be
acquired by prescription, viz:cralawlawlibrary
Section 46. No title to registered land in derogation to
that of the registered owner shall be acquired by
prescription or adverse possession.
Second, Antonio could have failed to complete
payment of Lot No. 557's purchase price; thus, the
naked title to Lot No. 557 remains with the government.
Under Act No. 1120, the Chief of the Bureau of Public
Lands is required to register title to the friar lands
acquired by the government through Act No. 496.
Section 6 of Act No. 1120, in particular,
provides:cralawlawlibrary
SECTION 6. The title, deeds and instruments of
conveyance pertaining to the lands in each province,
when executed and delivered by said grantors to the
Government and placed in the keeping of the Chief of
the Bureau of Public Lands, as above provided, shall
be by him transmitted to the register of deeds of each
province in which any part of said lands lies, for
registration in accordance with law. But before
transmitting the title, deeds, and instruments of
conveyance in this section mentioned to the register of
deeds of each province for registration, the Chief of the
Bureau of Public Lands shall record all such deeds and
instruments at length in one or more books to be
provided by him for that purpose and retained in the
Bureau of Public Lands, when duly certified by him
shall be received in all courts of the Philippine Islands
as sufficient evidence of the contents of the instrument
so recorded whenever it is not practicable to produce
the originals in court.
The law on land registration at that time was Act No.
496, which established the Torrens system in the
Philippines. As earlier pointed out, a piece of land,
once registered under the Torrens system, can no
longer be the subject of acquisitive prescription.
No certificate of title pertaining to the government's
transfer of ownership of Lot No. 557 was ever
presented in evidence. Assuming, however, that the
Chief of the Bureau of Public Lands failed to register
Lot No. 557, the lot could not have been acquired by
Alejandro through prescription, under the rule that
prescription does not lie against the government.
Third, Antonio could have sold his rights to Lot No. 557
to another person. Assuming he did, only that person
could have stepped into his shoes, and could have
either completed payment of the purchase price of Lot
No. 557 and had it registered in his name; or, he could
have failed to pay the purchase price in full, in which
case the naked title to the lot remains government
property.
In all three scenarios, Alejandro could not have
acquired ownership over Lot No. 557 through
prescription.
Republic Act No. 9443 and the friar lands
The Court is not unaware of the enactment of Republic
Act No. 9443, which confirms the validity of titles
covering any portion of the Banilad Friar Lands with
Certificates of Sale and Assignment of Sale that do not
contain the signature of the then Secretary of the
Interior and/or Chief of the Bureau of Public Lands. It
does not apply to TCTs that have been fraudulently
issued and registered.
Republic Act No. 9443, however, does not validate any
of the parties' claims of ownership over Lot No. 557.
Mauricia's title, as earlier established, is fabricated;
thus, her situation falls within the exception expressed
under Section 1 of RA No. 9443, viz:cralawlawlibrary
This confirmation and declaration of validity shall in all
respects be entitled to like effect and credit as a decree
of registration, binding the land and quieting the title
thereto and shall be' conclusive upon and against all
persons, including the national government and all
branches thereof; except when, in a given case
involving a certificate of title or a reconstituted
certificate of title, there is a clear evidence that
such certificate of title or reconstituted certificate
of title was obtained through fraud, in which case
the solicitor general or his duly designated
representative shall institute the necessary judicial
proceeding to cancel the certificate of title or
reconstituted certificate of title as the case may be,
obtained through such fraud.
With respect to Alejandro, his claim to Lot No. 557 rests
on the Deed of Assignment executed between him and
Antonio, which had been cancelled; hence, it cannot be
confirmed through Republic Act No. 9443.
Effects of the nullity of TCT No. 571
After establishing that neither Mauricia nor Alejandro
has title over Lot No. 557, we now resolve the validity
of the TCTs that originated from TCTNo. 571.
As a general rule, a person transmits only the rights
that he possesses. When innocent third persons,
however, purchase or acquire rights over the property
relying on the correctness of its certificate of title, courts
cannot disregard the rights they acquired and order the
cancellation of the certificate. As the third paragraph of
section 53 of Presidential Decree No. 1529, otherwise
known as the Property Registration Decree,
provides:cralawlawlibrary
Section 53. xxx
xxxx
In all cases of registration procured by fraud, the owner
may pursue all his legal and equitable remedies
against the parties to such fraud without prejudice,
however, to the rights of any innocent holder for
value of a certificate of title. After the entry of the
decree of registration on the original petition or
application, any subsequent registration procured by
the presentation of a forged duplicate certificate of title,
or a forged deed or other instrument, shall be null and
void.
Thus, innocent purchasers in good faith may safely rely
on the correctness of the certificate of title issued
therefor, and neither the law nor the courts can oblige
them to go behind the certificate and investigate again
the true condition of the property. They are only
charged with notice of the liens and encumbrances on
the property that are noted on the certificate.
Jurisprudence defines innocent purchaser for value as
"one who buys the property of another, without notice
that some other person has a right or interest in
such property and pays a full price for the same, at
the time of such purchase or before he has notice of
the claims or interest of some other person in the
property."
PD 1529 has expanded the definition of an innocent
purchaser for value to include an innocent lessee,
mortgagee, or other encumbrancer for value.
Neither PD 1529 nor jurisprudence, however, has
included an innocent donee to the definition, and for
good reason. An innocent purchaser for value pays for
the full price of the property, while a donee receives the
property out of the donor's liberality. Additionally, what
the law does not include, it excludes, and a donee is
not included in the expansion of the term innocent
purchaser for value.
Applying these principles of law in the case at hand, we
hold that the Deed of Donation Mauricia issued in favor
of her children immediately after getting a copy of TCT
No. 571 could not have transferred ownership over Lot
No. 557 to her children. Since TCT No. 571 is a
fabricated title, it does not indicate ownership over Lot
No. 557; thus, the Deed of Donation involving TCT No.
571 could not have conveyed the ownership of Lot No.
557 to Mauricia's children.
Neither could her children claim the status of an
innocent purchaser in good faith, as they received the
property through donation.
The TCTs issued to Mauricia's children pursuant to the
donation should thus be cancelled, as they do not
signify ownership over Lot No. 557.
We also note several circumstances that cast doubt
over the ignorance of Mauricia's children regarding the
fabricated nature of TCT No. 571, viz: (1) the
petitioners are their close relatives, who have been
residing in Lot No. 557 as early as 1928; (2) their father,
Romualdo, signed and recognized a subdivision plan
of Lot No. 557 that would divide the lot among all of
Alejandro's heirs, including the petitioners; (3) their
mother executed the deed of donation as soon as she
acquired a copy of TCT No. 571; (4) their mother's
nonpayment of taxes due Lot No. 557 since 1946; and
(5) the payment of real property taxes only to facilitate
the subdivision of Lot No. 557 among them.
Lopez is not an innocent purchaser for value of Lot
5 57-A
We now determine Lopez's claim that she is an
innocent purchaser for value of Lot No. 557-A, and
should thus be allowed to keep her title over it.
The CA, in affirming Lopez's title over Lot No. 557-A,
held that she was an innocent mortgagee for value.
According to the CA, TCT No. 130517 had no
encumbrances and liens at the time it was mortgaged
to Lopez, and this status extended to the time that TCT
No. 130517 was foreclosed to answer for Rodrigo's
loan.
We cannot agree with the CA's conclusion.
As a general rule, a person dealing with registered land
has a right to rely on the Torrens certificate of title and
to dispense with the need of further inquiring over the
status of the lot.
Jurisprudence has established exceptions to the
protection granted to an innocent purchaser for value,
such as when the purchaser has actual knowledge of
facts and circumstances that would compel a
reasonably cautious man to inquire into the status of
the lot; or of a defect or the lack of title in his vendor; or
of sufficient facts to induce a reasonably prudent man
to inquire into the status of the title of the property in
litigation.
The presence of anything that excites or arouses
suspicion should then prompt the vendee to look
beyond the certificate and investigate the title of the
vendor appearing on the face of the certificate. One
who falls within the exception can neither be
denominated as innocent purchaser for value nor a
purchaser in good faith, and hence does not merit the
protection of the law.
In particular, the Court has consistently held that that a
buyer of a piece of land that is in the actual possession
of persons other than the seller must be wary and
should investigate the rights of those in possession.
Without such inquiry, the buyer can hardly be regarded
as a buyer in good faith.
We find that Lopez knew of circumstances that should
have prodded her to further investigate the Lot No.
557-A's status before she executed a mortgage
contract over it with Rodrigo.
In the pre-trial brief she submitted before the trial court,
Lopez made the following admissions:cralawlawlibrary
xxx Only after these checking did an actual inspection
of the properties took (sic) place, but on this occasion,
unfortunately, none of the plaintiffs, especially plaintiff
Filadelfa T. Lausa, who is found lately to be residing
nearby, furnished her the information of the present
claims.
She likewise made the same admission in an
affidavit, viz:cralawlawlibrary
6. The properties which were mortgaged were checked
and no one at that time, even plaintiff Filadelfa T. Lausa
who is just residing nearby, disputed that the absolute
owners thereof were the spouses Rodrigo and Ligaya
Tugot.
While these admissions pertain to the petitioners' act
of not telling Lopez of the status of Lot No. 557-A, it
implies that she had inspected the property, and
accordingly found that Rodrigo did not reside in Lot No.
557-A.
Records of the case show that Filadelfa resided in Lot
No. 557-A at the time Lopez executed the real estate
mortgage with Rodrigo. In August 1995, Rodrigo and
his siblings filed an ejectment case against the
petitioners Filadelfa Lausa and Anacleto Caduhay -
Filadelfa resides in Lot No. 557-A while Anacleto's in
Lot 557-B. Notably, this ejectment case was filed five
months after Lopez had entered into the real estate
mortgage contract. Thus, at the time Lopez inspected
Lot No. 557, she would have found Filadelfa residing in
it, and not Rodrigo.
That Filadelfa - and not Rodrigo - resided in Lot No.
557-A should have prompted Lopez to make further
inquiries over its status. Further inquiries with the lot
owners of surrounding property could have informed
her of its actual status. Instead, she contented herself
with checking the copy of the title to Lot No. 557-A
against the copy in the Registry of Deeds of Cebu,
which she had done prior to the actual inspection of Lot
No. 557-A. The law cannot protect Lopez's rights to Lot
557-A given her complacency.
Further, the status of an innocent-purchaser for value
or innocent mortgagor for value is established by the
person claiming it, an onus probandi that Lopez failed
to meet.
In her memorandum, Lopez urged the Court to
acknowledge her rights over Lot No. 557-A, arguing
that the declaration of her status as an innocent-
purchaser and innocent mortgagor is a non-issue
because it was never pleaded in her co-respondents'
amended complaint. She also pointed out that a valid
title can emerge from a fabricated title, and essentially
invoked the innocent purchaser for value doctrine.
The amended complaint alleges that Lopez's status as
current owner of Lot 557-A prejudices the rights of the
petitioners, who are its true owners. The circumstances
regarding how Lopez acquired ownership over Lot No.
557-A had also been pleaded therein.
Verily, the amended complaint does not need to allege
Lopez's status as an innocent purchaser or mortgagor
in good faith precisely because it was incumbent upon
her to allege and prove this to defend her title to Lot
No. 557-A. It merely needed to allege a cause of action
against Lopez, (which it did by alleging the
circumstances surrounding Lopez's ownership of Lot
No. 557-A) and that it prejudices the petitioners' rights
as its true owners.
Further, Lopez chose to ignore in her Memorandum the
petitioners' contention that she knew that Filadelfa
Lausa, and not Rodrigo, resided in Lot No. 557-A. To
reiterate, Lopez has the burden of proving her status
as an innocent purchaser for value in order to invoke
its application. Failing in this, she cannot avail of the
protection the law grants to innocent purchasers for
value.
The CA erred in finding that the petitioners' claim
of ownership over Lot No. 557 had been barred by
prescription and laches
The outcome of the present case dispenses with the
need for a discussion regarding extinctive prescription
and laches.
We note, however, that the CA erred in applying the
principle of prescription and laches to the petitioners'
cause of action involving Lot No. 557.
An action for annulment of title or reconveyance based
on fraud is imprescriptible where the plaintiff is in
possession of the property subject of the fraudulent
acts. One who is in actual possession of a piece of land
on a claim of ownership thereof may wait until his
possession is disturbed or his title is attacked before
taking steps to vindicate his right.
The records of the case show that the petitioners
resided in the property at the time they learned about
TCT No. 571. Being in possession of Lot No. 557, their
claim for annulment of title had not expired. Their
ownership of Lot No. 571, however, is a different
matter.
Effects of the Court's decision
Our decision in the present case does not settle the
ownership of Lot No. 557. To recapitulate, our
examination of the records and the evidence presented
by the petitioners and the respondents lead us to
conclude that neither of them own Lot No. 557.
Despite the intent of Act No. 1120 and Republic Act No.
9443 to transfer ownership of the Banilad Friar Estate
Lands to its occupants, we cannot settle the ownership
of Lot No. 557 in the present case.
Indeed, the petitioners and the respondents are the
actual occupants of Lot No. 557, and they and their
families (with the exception of Rosita Lopez) have
resided in the lot since 1915.
However, as we have discussed above, neither party
had been able to establish their right of ownership,
much less possession, of Lot No. 557. The petitioners
anchor their claim on acquisitive prescription, which
does not lie against registered land or the government.
The respondents, on the other hand, presented
spurious TCTs. Thus, no amount of liberal
interpretation of Act No. 1120 or Republic Act No. 9443
could give either party the right over the lot.
Neither can we ignore the evidence showing that none
of them could rightfully own Lot No. 557. The
petitioners' cancelled deed of assignment and tax
declarations cannot establish their ownership over Lot
No. 557; especially since the operation of pertinent
laws prevented the possibility of acquisitive
prescription. The respondents' TCT No. 571, on the
other hand, had several discrepancies indicating that it
was a fake.
The exercise of the Court's judicial power settles actual
controversies between parties, through which the
Court establishes their legally enforceable and
demandable rights. We determine the parties' rights
based on the application of the law to the facts
established through the pieces of evidence submitted
by the parties. The application of the law on the facts
of the present case establishes that neither party has a
legally enforceable right over Lot No. 557.
Given this situation, we direct that the records of the
case be transmitted to the Land Management
Bureau6 for further investigation and appropriate action
over Lot No. 557 of the Banilad Friar Estate Lands.
Additionally, we direct that a copy of the records of the
case be transmitted to the Ombudsman, for further
investigation regarding how the fake TCTs covering Lot
No. 557 ended up in the Registry of Deeds of Cebu
City, and for the criminal and administrative
investigation of government officials liable for them.
WHEREFORE, premises considered, the instant
Petition for Review on Certiorari is PARTIALLY
GRANTED. The Court of Appeals Decision in CA-G.R.
CV No. 63248 is MODIFIED, and the following titles
are declared null and void: (1) TCT No. 571 issued to
Mauricia Quilaton; (2) TCT No. 130517 issued to
Rodrigo Tugot; (3) TCT No. 130518 issued to
Purificacion Codilla; (4) TCT No. 130519 issued to
Teofra Sadaya; (5) TCT No. 130520 issued to Estrellita
Galeos; (5) TCT No. 130521 issued to Rodrigo Tugot;
and (6) TCT No. 143511 issued to Rosita Lopez.
The claim of the petitioners Filadelfa T. Lausa, Loreta
T. Torres, Primitivo Tugot and Anacleto T. ]Caduhay
for recognition of their ownership over Lot No. 557
is DENIED.
We DIRECT that a copy of the records of the case be
transmitted to the Land Management Bureau and the
Ombudsman for further investigation and appropriate
action.
SO ORDERED.
 Caloocan City, issued in the name of private
respondents.
In a Resolution 4 dated July 7, 1994, the Court
of Appeals denied the Republic's motion for
reconsideration.
The Fact
The facts of the case are not disputed. The trial court's
summary, which was adopted by the Court of Appeals,
is reproduced below:
G.R. No. 116111 January 21, 1999 Defendant St. Jude's Enterprises,
Inc. is the registered owner of a
parcel of land known as Lot 865-B-1
REPUBLIC OF THE PHILIPPINES, (Represented by
the Acting Commissioner of Land of the subdivision plan (LRC) PSD-
52368, being a portion of Lot 865-B
Registration), petitioner,
vs. located in Caloocan City containing
an area of 40,623 square meters.
COURT OF APPEALS, Spouses CATALINO
SANTOS and THELMA BARRERO SANTOS, ST. For Lot 865-B-1 defendant St.
Jude's Enterprises, Inc. was issued
JUDE'S ENTERPRISES, INC., Spouses DOMINGO
CALAGUIAN and FELICIDAD CALAGUIAN, TCT No. 22660 on July 25, 1995.
VIRGINIA DELA FUENTE and LUCY
MADAYA, respondents. Sometime in March 1966. defendant
St. Jude's Enterprises, Inc.
subdivided Lot No. 865-B-1 under
subdivision plan (LRC) PSD-55643
and as a result thereof the Register
PANGANIBAN, J.: of Deeds of Caloocan City cancelled
TCT No. 22660 and in lieu thereof
Is the immunity of the government from laches and issued Certificates of Title Nos.
estoppel absolute? May it still recover the ownership of 23967 up to 24068 inclusive, all in
lots sold in good faith by a private developer to innocent the name of defendant St. Jude's
purchaser for value, notwithstanding its approval of the Enterprises, Inc. The subdivision of
subdivision plan issuance of seperate individual lot 865-B-1 [which was] covered [by]
certificates of the title thereto? TCT No. 22660 was later found to
have expanded and enlarged from
its original area of 40,523 square
The Case
meters to 42,044 square meters or
an increase of 1,421 square meters.
These are the main questions raised in the Petition for This expansion or increase in area
Review before us, seeking to set aside the November was confirmed by the Land
29, 1993 Decision 1 of the Court of Appeals 2 in CA- Registration Commission [to have
G.R CV No. 34647. The assailed Decision affirmed the been made] on the northern portion
ruling 3 of the Regional Trial Court in Caloocan City, of Lot 865-B-1.
Branch 125, in Civil Case No. C-111708, which
dismissed petitioner's Complaint for the cancellation of
Transfer Certificates of Title (TCTs) to several lots in Subsequently, defendant St. Jude's
Enterprises, Inc. sold the lots
covered by TCT Nos. 24013 and
24014 to defendant Sps. Catalino
Santos and Thelma Barreto
Santos[;] TCT No. 24019 to
defendant Sps. Domingo Calaguian
and Felicidad de Jesus[;] TCT No.
24022 to defendant Virginia dela
Fuente[;] and TCT No. 2402[3] to
defendant Lucy Madaya.
Accordingly, these titles were
cancelled and said defendants were
issued the following: TCT No. C-
43319 issued in the name of Sps.
Santos containing an area of 344
square meters[;] TCT No. 55513
issued in the name of defendants
Sps. Calaguian containing an area
of 344 square meters[;] TCT 13309
issued in the name of Sps. Santos[;]
TCT No. 24069 issued in the name
of Virginia dela Fuente containing an
area of 350 square meters[;] and
TCT No. C-46648 issued in the
name of defendant Lucy Madaya
with an area of 350 square meters. 5
[On January 29, 1985, then Solicitor
General Estelito Mendoza filed] an
action seeking . . . the annulment
and cancellation of Transfer
Certificates of Title (TCT) Nos.
24015, 24017, 24018, 24020,
24021, 24024, 24025 and 24068
issued in the name of defendant St.
Jude's Enterprises, Inc.[;] Transfer
Certificates of Title Nos. 13309 and
C-43319 both registered in the name
of Sps. Catalino Santos and Thelma
B. Santos[;] and TCT No. 55513
registered in the name of Sps.
Domingo Calaguian and Felicidad
de Jesus[;] TCT No. 24069
registered in the name of Virginia
dela Fuente[;] and TCT No. C-46648
registered in the name of Lucy
Madaya, principally on the ground
that said Certificates of Title were
issued on the strength of [a] null and
void subdivision plan (LRC) PSD-
55643 which expanded the original
area of TCT No. 22660 in the name
of St. Jude's Enterprises, Inc. from
 40,623 square meters to 42,044
square meters upon its subdivision.
Defendants Virginia dela Fuente and
Lucy Mandaya were declared in
default for failure to file their
respective answer within the
reglementary period.
Defendants Sps. Catalino Santos
and Thelma Barreto Santos, St.
Jude's Enterprises, Inc. and Sps.
Domingo Calaguian and Felicidad
Calaguian filed separate answers to
the complaint. Defendants Sps.
Domingo Calaguian and Sps.
Catalino Santos interposed
defenses, among others, that they
acquired the lots in question in good
faith from their former owner,
defendant St. Jude's Enterprises,
Inc. and for value and that the titles
issued to the said defendants were
rendered incontrovertible,
conclusive and indefeasible after
one year from the date of the
issuance of the titles by the Register
of Deeds of Caloocan City.
On the other hand, defendant St.
Jude's Enterprises, Inc. interposed
defenses, among others, that the
cause of action of plaintiff is barred
by prior judgement; that the
subdivision plan submitted having
been approved by the LRC, the
government is now in estoppel to
question the approved subdivision
plan; and the plaintiff's allegation
that the area of the subdivision
increased by 1,421 square meters is
without any basis in fact and in law.6
Ruling of the Trial Court
On April 30, 1991, the trial court dismissed the
Complaint. While the plaintiff sufficiently proved
the enlargement or expansion of the area of the
disputed property, it presented no proof that
Respondent St. Jude Enterprises, Inc. ("St. Jude")
had committed fraud when it submitted the
subdivision plan to the Land Registration
Commission (LRC) for approval. Because the plan
was presumed to have been subjected to investigation,
study and verification by the LRC, there was no one to
blame for the increase in the area "but the plaintiff[,] for
having allowed and approved the subdivision plan."
Thus, the court concluded, the government was
already "in estoppel to question the approved
subdivision plan."
The trial court also took into account the "absence of
complaints from adjoining owners whose supposed
lots [were] encroached upon by the defendants," as
well as the fact that an adjoining owner had
categorically stated that there was no such
encroachment. Finding that Spouses Santos, Spouses
Calaguian, Dela Fuente and Madaya had bought their
respective lots from St. Jude for value and good faith,
the court held that their titles could no longer be
questioned, because under the Torrens system, such
titles had become absolute and irrevocable. As regards
the Republic's allegation that it had filed the case to
protect the integrity of the said system, the court said:
. . . [S]ustaining the position taken by
the government would certainly lead
to disastrous consequences. Buyers
in good faith would lose their titles.
Adjoining owners who were
deprived of a portion of their lot
would be forced to accept the portion
of the property allegedly encroached
upon. Actions for recovery will be
filed right and left[;] thus instead of
preserving the integrity of the
Torrens System it would certainly
cause chaos rather than stability.
Finally, if only to strengthen the
Torrens System and in the interest of
justice, the boundaries of the
affected properties of the
defendants should not be disturbed
and the status quo should be
maintained.8
The solicitor general appealed the trial court's Decision
to the Court of Appeals.
Ruling of the Appelate Court
Citing several cases 9 upholding the indefeasibility of
the titles issued under the Torrens system, the
appelate court affirmed the trial court. It berated
petitioner for bringing the suit only after nineteen (19)
years had passed since the issuance of St. Jude's title
and the approval of the subdivision plan. The pertinent
portion of the assailed Decision reads:10
. . . Rather than make the Torrens
system reliable and stable, [its] act of
filing the instant suit rocks the
system, as it gives the impression to
Torrens title holders, like appellees,
that their titles to properties can be
questioned by the same authority
who had approved the same even
after a long period of time. In that
case, no Torrens title holder shall be
at peace with the ownership and
possession of his land, for the
Commission of Land Registration
can question his title anytime it
makes a finding unfavorable to said
Torrens title holder.
11
Undauted, petitioner seeks a review by this Court.
The Issues
In this petition, the Republic raises the following issues
for our resolution:12
1. Whether or not the government
is estopped from questioning the
approved subdivision plan which
expanded the areas covered by
the transfer certificates of title in
question;
2. Whether or not the Court of
Appeals erred when it did not
consider the Torrens System as
merely a means of registering title to
land;
3. Whether or not the Court of
Appeals erred when it failed to
consider that petitioner's complaint
before the lower court was filed to
 preserve the integrity of the Torrens
System.
We shall discuss the second and third questions
together. Hence, the issues shall be (1) the applicability
of estoppel against the State and (2) the Torrens
system.
The Court's Ruling
The petition is bereft of merit.
First Issue:
Estoppel Against the Government
The general rule is that the State cannot be put in
estoppel by the mistakes or errors of its officials or
agents.13 However, like all general rules, this is also
subject to exception, viz.:14
Estoppels against the public are little
favored. They should not be invoked
except in a rare and unusual
circumstances, and may not be
invoked where they would operate to
defeat the effective operation of a
policy adopted to protect the public.
They must be applied with
circumspection and should be
applied only in those special cases
where the interests of justice clearly
require it. Nevertheless, the
government must not be allowed to
deal dishonorably or capriciously
with its citizens, and must not play
an ignoble part or do a shabby thing;
and subject to limitations . . ., the
doctrine of equitable estoppel may
be invoked against public authorities
as well as against private
individuals.
In Republic v. Sandiganbayan,15 the government, in its
effort to recover ill-gotten wealth, tried to skirt the
application of estoppel against it by invoking a specific
constitutional provision.16 The Court countered: 17
We agree with the statement that
the State is immune from
estoppel, but this concept is
understood to refer to acts and
mistakes of its officials especially
those which are irregular (Sharp
International Marketing vs. Court of
Appeals, 201 SCRA 299; 306
[1991]; Republic v. Aquino, 120
SCRA 186 [1983]), which peculiar
circumstances are absent in this
case at bar. Although the State's
right of action to recover ill-gotten
wealth is not vulnerable to
estoppel[;] it is non sequitur to
suggest that a contract, freely and in
good faith executed between the
parties thereto is susceptible to
disturbance ad infinitum. A different
interpretation will lead to the absurd
scenario of permitting a party to
unilaterally jettison a compromise
agreement which is supposed to
have the authority of res
judicata (Article 2037, New Civil
Code), and like any other contract,
has the force of law between parties
thereto (Article 1159, New Civil
Code; Hernaez vs. Kao, 17 SCRA
296 [1996]; 6 Padilla, Civil Code
Annotated, 7th ed., 1987, p. 711; 3
Aquino, Civil Code, 1990 ed., p.
463). . . .
The Court further declared that "(t)he real office of the
equitable norm of estoppel is limited to supply[ing]
deficiency in the law, but it should not supplant positive
law." 18
In the case at bar, for nearly twenty years (starting from
the issuance of St. Jude's titles in 1996 up to the filing
of the Complaint in 1985), petitioner failed to correct
and recover the alleged increase in the land area of
St. Jude. Its prolonged inaction strongly militates
against its cause, as it is tantamount to laches,
which means "the failure or neglect, for an
unreasonable and unexplained length of time, to
do what which by exercising due diligence could or
should have been done earlier; it is negligence or
omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to
assert it either has abandoned it or declined to
assert it."19
The Court notes private repondents' argument that,
prior to the subdivision, the surveyors erred in
the original survey of the whole tract of land covered by
TCT No. 22660, so that less than the actual land area
was indicated on the title. Otherwise, the adjoining
owners would have complained upon the partition of
the land in accordance with the LRC-approved
subdivision plan. As it is, Florenci Quintos, the owner
of the 9,146 square-meter Quintos Village adjoining the
northern potion of St. Jude's property (the portion
allegedly "expanded"), even attested on August 16,
1973 that "there [was] no everlapping of boundaries as
per my approved plan (LRC) PSD 147766 dated
September 8, 1971." 20 None of the other neighboring
owners ever complained against St. Jude or the
purchaser of its property. It is clear, therefore, that
there was no actual damage to third persons caused
by the resurvey and the subdivision.
Significantly, the other private respondents — Spouses
Santos, Spouses Calaguian, Dela Fuente and Madaya
— bought such "expanded" lots in good faith, relying
on the clean certificates of St. Jude, which had no
notice of any flaw in them either. It is only fair and
reasonable to apply the equitable principle of estoppel
by laches against the government to avoid an
injustice 21 to the innocent purchasers for value.
Likewise time-settled is the doctrine that where
innocent third persons, relying on the correctness of
the certificate of title, acquire rights over the property,
courts cannot disregard such rights and order the
cancellation of the certificate. Such cancellation would
impair public confidence in the certificate of title, for
everyone dealing with property registered under the
Torrens system would have to inquire in very instance
whether the title has been regularly issued or not. This
would be contrary to the very purpose of the law, which
is to stabilize land titles. Verily, all persons dealing with
registered land may safely rely on the correctness of
the certificate of title issued therefor, and the law or the
courts do not oblige them to go behind the certificate in
order to investigate again the true condition of the
property. They are only charged with notice of the liens
and encumbrances on the property that are noted on
the certificate.22
When private respondent-purchasers bought their lots
from St. Jude, they did not have to go behind the titles
thereto to verify their contents or search for hidden
defects or inchoate rights that could defeat their rights
to said lots. Although they were bound by liens and
encumbrances annonated on the titles, private
respondents-purchasers could not have had notice of
defects that only an inquiry beyond the face of the titles
could have satisfied. 23 The rationale for this
presumption has been stated thus:24
The main purpose of the Torrens
System is to avoid possible conflicts
of title to real estate and to facilitate
transactions relative thereto by
giving the public the right to rely
upon the face of a Torrens
Certificate of the Title and to
dispense with the need of inquiring
further, except when the party
concerned had actual knowledge of
facts and circumtances that should
impel a reasonably cautious man to
make such further inquiry (Pascua v.
Capuyoc, 77 SCRA 78). Thus,
where innocent third persons relying
on the correctness of the certificate
thus issued, acquire rights over the
property, the court cannot disregard
such rights (Director of Land v.
Abache, et al., 73 Phil. 606).
In another case, 25 this Court further said:
The Torrens System was adopted
in this country because it was
believed to be the most effective
measure to guarantee the
integrity of land titles and to
protect their indefeasibility once the
claim of ownership is established
and recognized. If a person
purchases a piece of land on the
assurance that the seller's title
thereto is valid, he should not run the
risk of being told later that his
acquisition was ineffectual after all.
This would not only be unfair to him.
What is worse is that if there were
permitted, public confidence in the
system would be eroded and land
transactions would have to be
attended by complicated and not
necessarily conclusive
investigations and proof of
ownership. The further
consequence would be that land
conflicts could be even more
abrasive, if not even violent. The
Government, recognizing the worthy
purposes of the Torrens System,
should be the first to accept the
validity of the titles issued
thereunder once the conditions laid
down by the law are satisfied
[Emphasis supplied.]
Petitioner never presented proof that the private
respondents who had bought their lots from St. Jude
were buyers in bad faith. Consequently, their claim
of good faith prevails. A purchaser in good faith and
for value is one who buys the property of another
without notice that some other person has right to or an
interest in such property; and who pays a full and fair
price for the same at the time of such purchase or
before he or she has notice of the claims or interest of
some other person.26 Good faith is the honest intention
to abstain from taking any unconsientious advantage
of another.27
Furthermore, it should be stressed that the total area
of forty thousand six hundred twenty-three (40,623)
square meters indicated on St. Jude's original title
(TCT No, 22660) was not an exact area. Such figure
was followed by the phrase "more or less." This plainly
means that the land area indicated was not precise.
Atty. Antonio H. Noblejas, who became the counsel of
St. Jude subsequent to his tenure as0 Land
Registration Commissioner, offers a sensible
explanation. In his letter 28 to the LRC dated November
8, 1982, he gave the following information:
a. Records show that our client
owned a large tract of land situated
in an area cutting the boundary of
Quezon City and Caloocan City,
then known as Lot 865-B, Psd
60608, and described in T.C.T. No.
100412, containing an area of
96.931 sq. meters, more or less.
b. It will be noted that on the northern
portion of this lot 865-B, Psd-60608,
is . . . Lot 865-A, Psd-60608, which
means that at previous point of time,
these 2 lots composed one whole
tract of land.
c. On December 23, 1995, Lot 865-
B, Psd-60608, was subdivided into 2
lots, denominated as Lot 865-B-1,
with an area of 40,622 sq. meters,
more or less, on the Caloocan side,
and Lot 865-B-2, with an area of
56,308 sq. meters, more or less,
Quezon City side, under plan (LRC)
Psd-52368.
d. On March 1-10, 1966, Lot 865-B-
1, Psd-52368, then covered by
T.C.T. No. N-22660, was subdivided
into residential lots under Plan
(LRC)Psd-55643, with a total area of
42,044 sq. meters, more or less.
e. It will be noted that Lot 865-B,
Psd-60608, covered by T.C.T. No.
100412, contained an area
of 96,931 sq. meters, more or less,
but when subdivided under Plan
(LRC) Psd-52368, into 2 lots its total
area shrank by 1 sq. meter, to wit:
Lot 865-B-1, Psd-
52368 = 40,622
sq. meters
Lot 865-B-2, Psd-
52368 = 56,308
sq. meters
———
96,930 sq. meters
———
f. There is no allegation whatever in
the Perez report that there was no
error in laying out the metes and
bound of Lot 865-B-1 in Plan (LRC)
Psd-55643 as specified in Technical
Description of the said lot set forth in
T.C.T. No. N-22660 covering the
same. There is likewise no
allegation, on the contrary there is
no confirmation from the boundary
owner on the northern side. Mr.
Florencio Quintos, that there is no
overlapping of boundaries on the
northern side of Lot 865-B-1, Psd-
55643.
g. We respectfully submit that the
area of 42, 044 sq. meters stated in
Plan (LRC) Psd-55643 as the size of
Lot 865-B-a, is the more accurate
area, confirmed by the Perez report
'as per surveyor[']s findings on the
ground, which
rectifies previous surveyor's error
in computing its area as 40,622 sq.
meters in Plan (LRC) Psd-52368,
which is about 3.5% tolerable error
(1,422 divided by 40,622 = 035).
[h.] It is well settled that in the
identification of a parcel of land
covered by certificate of title, what is
controlling are the metes and
bounds as set forth in its Technical
Description and not the area stated
therein, which is merely an
approximation as indicated in the
more or less phrase placed after the
number of square meters.
i. There is thus no unauthorized
expansion of the survey occasioned
by the subdivision of Lot 865-B-1
under Plan (LRC) Psd-55643;
consequently, LRC Circular No. 167,
Series of 1967, finds no application
thereto, as to bar the processing and
registration in due course of
transactions involving the
subdivision lots of our client, subject
hereof. This is apart from the fact
that LRC Circular No. 167 has not
been implemented by the Register of
Deeds of Caloocan City or any
proper government authority since
its issuance in 1967, and that, in the
interest of justice and equity, its
restrictive and oppressive effect on
transactions over certificates of titles
of subdivisions that allegedly
expanded on re-surveys, cannot be
allowed to continue indefinitely.
(Emphasis supplied.)
The discrepancy in the figures could have been caused
by the inadvertence or the negligence of the surveyors.
There is no proof, though, that the land area indicated
was intentionally and fraudulently increased. The
property originally registered was the same property
that was subdivided. It is well-settled that what defines
a piece of titled property is not the numerical data
indicated as the area of the land, but the boundaries or
"metes and bounds" of the property specified in its
technical description as enclosing it and showing its
limits.29
Petitioner miserably failed to prove any fraud, either on
the part of Private Respondent St. Jude or on the part
of land registration officials who had approved the
subdivision plan and issued the questioned TCTs.
Other than its peremptory statement in the Complaint
that the "expansion" of the area was "motivated by bad
faith with intent to defraud, to the damage and
prejudice of the government and public interest,"
petitioner did not allege specifically how fraud was
perpetrated to cause an increase in the actual land size
indicated. Nor was any evidence proffered to
substantiate the allegation. That the land registration
authorities supposedly erred or committed an
irregularity was merely a conclusion drawn from the
"table survey" showing that the aggregate area of the
subdivision lots exceeded the area indicated on the title
of the property before its subdivision. Fraud cannot be
presumed, and the failure of petitioner to prove it
defeats its own cause.
Second Issue:
The Torrens System
True, the Torrens system is not a means of
acquiring titles to lands; it is merely a system of
registration of titles to lands. 30 Consequently, land
erroneously included in a Torrens certificate of title is
not necessarily acquired by the holder of such
certificate.31
But in the interest of justice and equity, neither may the
title holder be made to bear the unfavorable effect of
the mistake or negligence of the State's agents, in the
absence of proof of his complicity in a fraud or of
manifest damage to third persons. First, the real
purpose of the Torrens system is to quiet title to
land to put a stop forever to any question as to the
legality of the title, except claims that were noted
in the certificate at the time of the registration or
that may arise subsequent thereto.32 Second, as we
discussed earlier, estoppel by laches now bars
petitioner from questioning private respondent's titles
to the subdivision lots. Third, it was never proven that
Private Respondent St. Jude was a party to the fraud
that led to the increase in the area of the property after
its subdivision. Finally, because petitioner even failed
to give sufficient proof of any error that might have
been committed by its agent who had surveyed the
property, the presumption of regularity in the
performance of their functions must be respected.
Otherwise, the integrity of the Torrens system, which
petitioner purportedly aims to protect by filing this case,
shall forever be sullied by the ineptitude and
inefficiency of land registration officials, who are
ordinarily presumed to have regularly performed
ZZZZZZZZXtheir duties.33
We cannot, therefore, adhere to petitioner's
submission that, in filing this suit, it seeks to preserve
the integrity of the Torrens system. To the contrary, it
is rather evident from our foregoing discussion that
petitioner's action derogates the very integrity of the
system. Time and again, we have said that a Torrens
certificate is evidence of an indefeasible title to
property in favor of the person whose name appears
thereon.
WHEREFORE, the petition is hereby DENIED and the
assailed Decision is AFFIRMED.1âwphi1.nêt
SO ORDERED.
Romero, Vitug, Purisima and Gonzaga-Reyes, JJ.,
concur.
Separate Opinions

VITUG, J., concurring opinion;

The rule has been to the effect that a purchaser of

registered land is not ordinarily required to explore
further than what the record in the Registry indicates
on its face in quest of any hidden defect or inchoate
right which might adversely affect the buyer's right over
the property. 1 Undoubtedly, to allow in the instant case
the cancellation of the titles of herein private
respondents would defeat rather than enhance the
purpose and scheme of the Torrens System. It is my
understanding, however, that the rule that the Court
has here announced would not apply to a situation
where the enlargement or expansion in area would
result in an encroachment on or reduction of any area
covered by a certificate of title previously issued. To
rule otherwise would itself be to downgrade the
integrity of the Torrens System.

Separate Opinions

VITUG, J., concurring opinion;

The rule has been to the effect that a purchaser of

registered land is not ordinarily required to explore
further than what the record in the Registry indicates
on its face in quest of any hidden defect or inchoate
right which might adversely affect the buyer's right over
the property. 1 Undoubtedly, to allow in the instant case
the cancellation of the titles of herein private
respondents would defeat rather than enhance the
purpose and scheme of the Torrens System. It is my
understanding, however, that the rule that the Court
has here announced would not apply to a situation
where the enlargement or expansion in area would
result in an encroachment on or reduction of any area
covered by a certificate of title previously issued. To
rule otherwise would itself be to downgrade the
integrity of the Torrens System.

G.R. No. L-31303-04 May 31, 1978
REPUBLIC OF THE PHILIPPINES, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, ALFREDO V.
DE OCAMPO, and OSCAR ANGLO, respondents.
Solicitor General Felix Q. Antonio and Assistant Solicitor
General Dominador L. Quiroz for petitioner.
Eusebio V. Navarro, Eugenio G. Gemarino and Eusebio P.
Navarro for respondent Alfredo V. de Ocampo.
Vicente F. Delfin and V. del Rosario & Associates for
respondent Oscar Anglo.
SANTOS, J.:
An appeal by certiorari filed on December 5, 1969 by
petitioner, Republic of the Philippines (Republic, for short),
from the resolution of the Court of Appeals dated August 21,
1969 1 dismissing petitioner's appeal in CA-G. R. Nos.
40683-84-R, as well as from the resolution of the said Court
dated November 14, 1969 2 denying petitioner's motion for
reconsideration thereof
The relevant and essential factual and procedural —
antecedents follow. Both Republic and respondents Alfredo
V. de Ocampo and Oscar Anglo claim ownership over the
same lots, i.e,, Nos. 817 and 2509 of the Sagay-Escalante
Cadastre, Negros Occidental, subject matter of this litigation.
The basis of Republic's claim is that said lots were
bequeathed to the Bureau of Education (now Bureau of
Public Schools) on September 21, 1926 by the late Esteban
Jalandoni through his will. 3 Republic further alleged that the
said parcels of land were already registered under the
Torrens System "before 1919 in a cadastral case in the
name of Meerkamp and Company" in whose favor Original
Certificate of Title (OCT, for short) No. 370 was issued, that
said company sold the lots to Esteban Jalandoni who was
issued Transfer Certificate of Title (TCT, for short) No. 1251:
that TCT No. 6014 was issued to the Bureau of Education
when the subject property was bequeathed to it; and that as
a matter of fact, a sugar quota (Plantation Audit No. 24-10)
was issued for the lots under the name of the Bureau of
Education. 4 The lots have a total area of 289.47 hectares. 5
Respondent de Ocampo, upon the other hand, predicates
his claim on an application for registration of the same Lots
Nos. 817 and 2509 in Land Registration Case No. N-4, LRC
Rec. No. N-19196, wherein a decree of registration No.
105538 was issued over the lots, followed by the issuance in
his name of OCT No. 576, on October 1, 1965. 6 He averred
that the lots were unregistered lands belonging to and
possessed by him, by virtue of a donation dated November
10, 1911 from one Luis Mosquera. 7
Respondent Anglo intervened in the case on February 21,
1966, having allegedly bought the same lots from
respondent de Ocampo on January 6, 1966. TCT No. 42217
was issued to him (Anglo) on January 12, 1966. 8
Procedurally, the records show that the Bureau of Public
Schools, then represented by the Provincial Fiscal of Negros
Occidental initiated on December 24, 1958, a forcible entry
and detainer case against de Ocampo over Lots Nos. 817
and 2509. On appeal, the Court of First Instance of Negros
Occidental dismissed the complaint (Civil Case No. 5353).9
Then on June 29, 1960, de Ocampo filed an application for
registration of the same two parcels of land in Land
Registration Case No. N-4 LRC Rec. No. N-19196,
entitled "Alfredo V. de Ocampo, Applicant, v. Republic of the
Philippines, Oppositor Republic filed its opposition; in due
time. 10
On May 2, 1961, Republic, represented by the Solicitor
General, filed a complaint against de Ocampo with the Court
of First Instance of Negros Occidental (Branch VII) for the
recovery of possession of the subject lots, with prayer for the
issuance of a writ of preliminary mandatory injunction,
docketed therein as Civil Case No, 264 (6154),
entitled "Republic of the Philippines v. Alfredo v. de Ocampo,
Defendant, " 11 De Ocampo averred in his answer that the
properties alleged to have been donated by Esteban
Jalandoni to the then Bureau of Education were different
from the properties involved in this case, the former being
titled lands (TCT No. 1251) containing two million nine
hundred and twelve thousand four hundred and seventy four
square meters (2,912,474), while Lots Nos. 817 and 2509
applied for by de Ocampo and which Republic sought to
recover were unregistered lands, and that granting, without
admitting, that they are the same lands, the court no longer
had jurisdiction over the subject matter of the action since
the issue of possession over said lots was already decided
by the Court of First Instance of Negros Occidental. 12
On May 26, 1961, a preliminary hearing was held before
Branch IV of the Court of First Instance of Negros Occidental
where the land registration case was pending, but inasmuch
as the issues involved in both Civil Case No. 264 (6154) for
recovery of possession and the land registration case were
Identical, the parties agreed to a joint trial, this time before
Branch VI I, Judge Jose D. Divinagracia, presiding, where
the civil case was pending. 13
After a joint trial of the above-mentioned two (2) cases, the
Court of First Instance rendered judgment on August 3,
1965, dismissing the complaint in Civil Case No. 264 (6154)
and adjudging the registration of the subject two lots in the
name of the then applicant de Ocampo. On October 1, 1966,
OCT No. 576 was issued in his name. 14
It is admitted by Republic that it received a copy of the
decision on August 13, 1965 15 but no appeal was taken
therefrom. However, Republic later filed with the trial court
on December 28, 1965, a "Petition for Relief from Judgment
with Preliminary Injunction Pending Proceeding 16 (petition,
for short) praying, among other things, that de Ocampo be
restrained from enforcing the decision dated 3 August 1965,
and that after the hearing, an order be issued declaring the
decision to be not yet final add executory, and granting
Republic the right to file a motion for reconsideration and/or
appeal within the period granted, to commence upon receipt
of the order.
The petition alleged inter alia that the Republic's failure to
appeal was due to accident, mistake and/or excusable
negligence, specifically, stating that its docket clerk, Cesar
Salud, merely committed excusable negligence when he
inadvertently attached the copy of the decision to the file of
another case; that it was only on November 5, 1965, that
Cesar Salud found the copy of the same; and that petitioner
has a substantial cause of action in Civil Case No. 264
(6154) and a good and substantial defense in Land
Registration Case No. N-4 Rec. No. N-19196.
An opposition to the petition was filed by respondent de
Ocampo on February 5, 1966 17 on the ground that the same
was filed beyond the reglementary period. The petition was,
however, given due course on January 11, 1966. 18 On
February 21, 1966, respondent Oscar Anglo filed a motion
for intervention alleging that he bought the subject two (2)
Lots Nos. 817 and 1509 from respondent de Ocampo on
January 6, 1966 and that TCT No. 42217 of the Register of
Deeds for Negros Occidental was issued to him (Anglo) on
January 12, 1966. 19 He also filed an answer in opposition to
Republic's petition for relief from judgment 20 on the grounds,
among others, that the decree of registration and certificate
of title had already been issued and that a writ of preliminary
injunction will not lie to restrain enforcement of the decision
of the trial court.
On June 6, 1966, after respondents filed their respective
memoranda, the trial court dismissed the Republic's petition
for lack of competent proof, pursuant to Section 6, Rule 38,
of the Rules of Court which the court said required a
hearing. 21
On July 25, 1966, petitioner Republic filed a motion for
reconsideration of the aforesaid order dismissing its
petition; 22 and on August 4, 1966, it filed a manifestation
averring additional grounds in support of the motion for
reconsideration. 23 Respondent Anglo and de Ocampo
opposed the same. 24
On September 28, 1966, Republic filed an "Amended
Petition for Relief from Judgment and/or Review of Decree
with Preliminary Injunction 25 (Amended Petition, for short).
In specific regard to the petition for review of the decree,
Republic contended, inter alia, that actual fraud had been
perpetrated by respondent de Ocampo in securing the lower
court's decision ordering the registration of the lots in his
name, as well as the issuance of the decree of registration
and the corresponding certificate of title, on the grounds
which, briefly restated. advert to respondent de Ocampo's
alleged misrepresentations that the two parcels of land
applied for by him in the land registration case were
"different from the two parcels of land of the same lot
numbers, technical descriptions and areas belonging to the
Government, knowing such allegations to be false, the truth
of the matter being that said parcels of land are the same
property owned by the Government"; 26 that there was
previous registration of the same parcels of land, Lots Nos.
817 and 2509, under the Torrens System in favor of
Meerkamp and Company which later sold the same to
Jalandoni who, in turn, gave the lots to the Bureau of
Education as a legacy and that the Court of First Instance no
longer had jurisdiction to decree again the registration of
Lots Nos. 817 and 2509, in favor of respondent de Ocampo,
in view of the earlier registration of the same lands in favor of
Meerkamp and Company.
Additionally, Republic claimed that its counsel was not given
notice of de Ocampo's motion and the corresponding order
dated September 16, 1965, for the issuance of the decree of
registration and the issuance of the decree itself by the Land
Registration Commission, in violation of its constitutional
rights to due process", 27 that it has also been "in continuous
peaceful, adverse, open and public owner and possessor, in
good faith and with just title" of the lots "deriving the fruits
and products of said properties and appropriating them to
the purpose and purposes they were intended for"; 28 that
they were in fact declared for tax purposes;29 that on April
11, 1927, the lands were leased for ten (10) years but the
lease was amended several times to extend the
same; 30 that on September 17, 1964, Republic's counsel
filed a "Petition for an Order to Produce the Original
Documentary Exhibits and Submit Same to the NBI for
Examination, 31 Which petition was communicated to de
Ocampo's lawyers, Atty. Gemarino and Garingalao, earlier
on September 7, 1964; that they did not object or state that
the originals were burned or lost; that it was only on
September 28, 1964 that de Ocampo's lawyers revealed for
the first time in their "Manifestation and Reply" that the
purported originals were burned in the house of Atty.
Gemarino on May 16, 1963; 32 and that the "supposed
originals were fake and their alleged burning was false and
these pretenses were intentionally resorted to only to evade
the examination of the spurious documents by the NBI and
as camouflage to hide their fraudulent character. 33
On October 4, 1966, the trial court set, aside its order of
June 6, 1966, dismissing the petition for relief, 34 having
found Republic's motion for reconsideration well-founded,
and scheduled December 1 and 2, 1966, for Republic's
witnesses to testify, and likewise gave respondents, a
chance to oppose the amended petition. Respondents and
Republic filed their opposition 35 and reply; 36 respectively.
Republic alleged in the said reply that "(T)he lands in
question and their incomes are used exclusively for a public
purpose: public education. 37
In a subsequent hearing on June 6, 1967, the trial court
ordered Republic to present its evidence in the absence of
respondents, who objected thereto for lack of jurisdiction, the
parcels of land having been already registered in the name
of respondent de Ocampo and in fact transferred to an
alleged buyer in good faith, the other private respondent,
Anglo.
On August 30, 1967, the trial court rendered its decision on
the Amended Petition 38 against Republic, upon resolution of
what it considered the "decisive" issue, i.e., that the
allegations in the said petition did not constitute actual and
extrinsic fraud which is the only ground available to review or
reopen a decree in cadastral cases pursuant to Section 38 of
Act 496. 39
On the other issues, the trial court found that it was through
mistake, accident and excusable negligence that the
decision of August 3, 1965 was not brought to the attention
of Solicitor Emerito Salva "as it was inadvertently clipped to
the record of another case". 40 However, while the petition for
relief itself another case was filed within the reglementary
period prescribed in Section 3, Rule 38, of the Rules of
Court 41 the remedy of relief from judgment was no longer
available since the decree, and later the title, were already
issued in the name of respondent de Ocampo. 42 It also held
that the amended petition was still legally available as it was
filed within one (1) year after the issuance of the decree,
pursuant to Section 38 of Act No. 496, "in case of actual
fraud" and that it had jurisdiction to entertain the amended
petition and to receive evidence in support thereof, 43 but it
had to deny the relief prayed for on grounds already
adverted to. In regard to respondent Anglo's claim that the
petition for review was no longer tenable as against him
because he was a purchaser in good faith, the trial court
ruled that competent evidence to that effect should be
submitted considering, among other things, that the case
was pending when he acquired his interest. 44 Finally, it held
that the fact that the Republic was not notified of the motion
and the corresponding issuance of the decree and title was
immaterial since petitions for issuance of decrees in
cadastral cases are analogous to petitions for execution in
ordinary cases and parties are not entitled to notice thereof
as a matter of right. 45 Thus —
In the light of the decision of this Court
dated August 3. 1965, Section 39 of Act
No. 496 and the authorities cited ... this
court is persuaded to conclude as it
hereby holds, that the evidence
adduced by the petitioner in this
incident does not establish actual and
constructive fraud which is the only kind
of fraud that is considered a legal
ground to review, reopen or set aside
the decree which has already been
issued in the name of Alfredo V. de
Ocampo.
PREMISES CONSIDERED, the petition
for Relief from Judgment and/or Review
of Decree is hereby dismissed without
pronouncement as to costs. 46
From the said decision, Republic appealed to the Court of
Appeals, docketed therein as CA-G.R. Nos. 4083-84-R.
Private respondents de Ocampo and Anglo moved to
dismiss the appeal which was opposed by petitioner,
Republic. 47 A supplemental motion to the same effect was
later filed by respondent de Ocampo for failure of the record
on appeal to show on its face that it was filed on
time, 48 followed by an ex parte motion to consider the
Solicitor General to have waived his right to oppose the said
supplemental motion to dismiss and that the case be
submitted for resolution. 49 A new party, Salvacion Marañon,
sought to intervene in the case and also filed a motion to
dismiss the appeal before respondent appellate court.
In its minute resolution of August 21, 1969, 50 the Court of
Appeals resolved —
(1) To DISMISS ... the appeal ... for
failure of the record on appeal to show
on its face that the record on appeal
was filed within the period fixed by the
Rules (Secs. 3 & 6, Rule 41, Sec. 1[a] &
[b), Rule 50, Rules of Court), it
appearing that appellant's motion for
extension of 20 days from October 14,
 1967 to file the record on appeal was
never granted by the lower court (there
being no showing to that effect in the
record on appeal); and even if there was
such an order granting it, the extension
asked for would have expired on
November 3, 1967 and, therefore, the
record on appeal filed on November
9,1967 was filed six days late ...; and
(2) to DENY the motion to intervene of
intervenor Salvacion Maranon following
the doctrine enunciated in Hant, et al.
vs. O'Leary, et al., page 993. At any
rate, the purpose of intervening; which is
to join the appellees in their motion to
dismiss the appeal of the appellant, has
already been served by the dismissal of
the instant appeal.
On September 11, 1969, Republic filed a motion for
reconsideration 51 but on November 14, 1969, the Court of
Appeals —
RESOLVED TO DENY the said motion
for reconsideration. Killings in the
pertinent cases are equally applicable to
the Republic of the Philippines where
the latter is the appellant that recourse
to 'the original records is immaterial
because it is what appears in the record
on appeal that is essential. 52
Hence, this appeal by certiorari on the following assignment
of errors, i.e., that the Court of Appeals erred in not holding
that — (1) prescription, the statute of limitations and laches
do not lie against the Republic, as a sovereign state, and
that, it is not bound or prejudiced by the faults or mistakes of
its officers and employees, (2) the dismissal of Republic's
appeal is not in accordance with the liberal construction of
the Rules of Court and the promotion of its object to assist
the parties in obtaining just, speedy and inexpensive
determination of actions and proceedings; (3) the trial court
has no jurisdiction to entertain the application for land
registration of Alfredo V. de Ocampo on the ground that Lots
Nos. 817 and 2509 were already registered under the
Torrens System before 1919; (4) the dismissal of Republic's
appeal placed technicality over, substance; and (5) the
dismissal of Republic's appeal will abet and promote land
grabbing. 53
Private respondents in turn stress in their respective
briefs, inter alia, (1) that Republic shed its immunity and
sovereignty and assumed the garb of an ordinary private
litigant when it initiated an action for forcible entry and
detainer case over Lots Nos. 817 and 2509 against
respondent de Ocampo. filed I s opposition in the land
registration case, and instituted Civil Case No. 264
(6154); 54 (2) that Republic should comply with the
mandatory and jurisdictional requirements of the rules on
perfection of appeals, citing cases; 55 that there cannot be
one set of Rules for ordinary private litigants, and another
set for the State otherwise the set-up will result in the denial
of due process and equal protection of law to private litigants
as well as chaos in the administration of justice; 56 and (4)
that public policy and sound practice demand that, at the risk
of occasional errors, judgments of courts should become
final at some definite date fixed by the, law. 57
The threshold and, in the ultimate analysis, the decisive
issue raised by this petition is whether the dismissal by
respondent. Court of Appeals of Republic's appeal from the
decision of the trial court denying its Amended Petition, is
not proper and should be set aside as contended by
Republic, or correct and should be maintained, as argued by
respondents. The issue — framed in the context of the suit's
true significance to the parties involved in this protracted
proceeding and in the light of the value the protagonists
attach to the outcome of the litigation — may be stated thus-
Should the government, represented by petitioner Republic
not be permitted by respondent Court of Appeals to show
that it stands Lo lose thru fraudulent machinations close to
three hundred (300) hectares of prime sugar land to the
private respondents who have allegedly secured their titles
to these holdings long after the same parcels of land were
already titled in the name of the original owner, Meerkamp
and Company and, therefore, the trial court's action in
directing the issuance of the title in the name of respondent
de Ocampo is null and void ab initio and of no legal effect,
simply because petitioner Republic failed to show in its
record on appeal that it was perfected on time and that it
actually filed its record on appeal six (6) days late?
Respondent Court of Appeals, in a very simplistic approach,
which disregards the substantive merits of the appeal
dismissed, the same on the grounds that the record on
appeal did not show on its face that it was perfected on time,
and, additionally, that even if it were to be assumed that the
motion for extension of 20 days to file the record on appeal
was indeed granted, the appeal was still not perfected on
time because the record on appeal was filed November 9,
six (6) days after November 3, 1967, when petitioner's
requested extension expired.
If respondents' line of reasoning were to be upheld, the
dismissal of the appeal may be sustained. For, as stated, in
its notice of appeal filed on October 12, 1967, petitioner
Republic received a copy of the decision of the trial court on
September 14, 1967. 58 Therefore, it had until October 14,
1967 within which to file its record on appeal. The record on
appeal does not show that the extension prayed for was
granted, but the lower court in its order of December 4, 1967
approved the same, as there was no opposition to its
approval. There is also no mention in the order approving
the record on appeal as to whether or not it was filed on
time. The record on appeal is, however, dated November
9,1967. Assuming then that this was also the actual filing
date, and on the further assumption that the 20day extension
was impliedly granted with its approval, it was still filed six
(6) days late, after the requested extension expired on
November 3, 1967. 59 And, as to the legal ground for the
dismissal on the foregoing bases, this Court has repeatedly
construed Section 6, Rule 41, of the Rules of Court 60 as
mandatory and jurisdictional in nature, non-compliance with
which justifies the dismissal of the appeal. 61
However, a consideration in depth of the unique and peculiar
facts attendant to this case and the procedural and
substantive implications of the dismissal of the appeal now
sought to be reviewed and reconsidered; and a due and
proper regard to the merits of the case rather than a fascile
reliance on procedural rules, compel this Court to reverse
and set aside the dismissal of Republic's appeal by
respondent Court of Appeals for the following reasons, viz:
(1) Should Republic prove that the subject Lots Nos. 817
and 2509 were registered in favor of Meerkamp and
Company before 1919, the trial court's decision decreeing
again the same lots in the name of respondent de Ocampo
in 1965 is null and void ab initio for lack of jurisdiction and a
fatal infirmity necessarily attaches to the said decision; (2)
There are strong and substantial allegations of fraudulent
misrepresentations and machinations employed by
respondent de Ocampo in securing his title Relevant to this
is The express finding of the trial court that The Petition for
Relief was filed within the reglementary period prescribed in
Section 3, Rule 38 of the Rules of Court, and the Amended
Petition was filed within one year from issuance of the
decree. If the appeal is dismissed without considering its
merits, the above periods will resumed to run and will lapse,
and the reliefs sought herein will be forever foreclosed to
Republic; (3) Assuming that respondents can invoke, the
material data rule, and/or the fact that Republic's appeal was
filed out of time because the record On appeal was
submitted to the Court six (6) days beyond the requested
extension of 20 days, it always in the power of this Court to
suspend its rules or to except certain cases therefrom
whenever courtervailing considerations so warrant; and (4)
This Court, is not powerless to prevent gross miscarriage of
Justice, which would follow if Republic's appeal is dismissed
— since it stands to lose close to 300 hectares of prime
sugar land already titled in its name and devoted to
educational purposes — if it is true that the land registration
court was without jurisdiction to issue a Second decree of
registration in favor of respondent de Ocampo and, if it is
also true that fraudulent misrepresentations and
machinations attended respondent de Ocampo's application
for registration and likewise prevented Republic from
exposing the fake exhibits, on the basis of which he secured
his title. 62
1. Specifically both Republic and respondents claim
ownership over the same Lots Nos. 811 and 2509, hence,
this controversy. If Republic's contentions are true that the
said lots had been registered twice, with OCT No. 370
issued in favor of Meerkamp and Company before 1919 and
another, OCT No. 576, issued in the name of respondent de
Ocampo in 1965 — or some forty-six (46) years later — then
the decision of the trial court, sitting as land registration
court, is null and void ab initio and suffers from a fatal
infirmity, which is also a ground for the review of a decree of
registration. provided no innocent purchaser for value will be
prejudiced. 63
It is very significant in this connection that respondent de
Ocampo admitted the donation of Jalandoni in favor of the
Bureau of Education, but averred that the lots so donated
were titled (TCT No. 1251), 64 while Lots Nos. 817 and 2509
applied for by him in the land registration case were
"unregistered. 65 Yet, both parties claim to be the owners of
the same Lots Nos. 817 and 2509. Respondent de Ocampo
also gave the area of the lots covered by TCT No. 1251, in
the name of Jalandoni, as two million nine hundred and
twelve thousand four hundred and seventy four (2,912,474)
square meters, or 291 hectares plus. 66 Coincidentally, Lots
Nos. 817 and 2509 claimed by Republic have a total area of
289.47 hectares, 67 or only about two (2) hectares less.
These factors, brought to light by respondent de Ocampo
himself, cannot simply be ignored in reaching the conclusion
that the disputed resolutions of respondent Court of Appeals
be reversed.
It is also important to advert to the documentary exhibits
adduced by Republic in the hearing of the Amended Petition
below, one of which was a certification dated November 8,
1952 signed by the Register of Deeds of Negros Occidental,
stating that on May 13, 1919, there was registered a sale
executed by Meerkamp and Company in favor of Esteban
Jalandoni and as a result OCT No, 370 in the name of the
Company was cancelled and TCT No. 1251 was issued to
Jalandoni; that TCT No. 1251 was later cancelled by virtue
of the will of Jalandoni leaving the parcel of land to the then
Bureau of Education; that TCT No. 6014 was
correspondingly issued to the Bureau of Education; and that
lease contracts were annotated in TCT No. 6014 in favor of
Francisco Copper, executed by the Division Superintendent
of Schools. 68 However, the above certification does not
mention the lot numbers, and no certificates of title were
exhibited in court, the incumbent Register of Deeds having
declared that the titles could not be found in his office. 69
The trial court also made the express finding that the alleged
deed of donation by Luis Mosquera in favor of respondent de
Ocampo, dated November 10, 1911, acknowledged before
one Notary Public John Boardman does not appear in his
notarial book which is on file in the Bureau of Record
Management, Manila, from October 16, 191 1 to May,
1913. 70
The Provincial Assessor of Negros Occidental likewise his title, Firstly, there was the averment in his Answer in Civil
issued a certification, dated November 29, 1966, stating that case No, 264 (6154) for recovery of possession of the
Lots Nos. 817 and 2509 were never declared in the name of subject lots by Republic, which case was jointly tried with the
Mosquera. 71 His later certification states that the said lots land registration case,, that the properties alleged to have
were assessed in the name of the Bureau of Education, and been donated by Jalandoni to the then Bureau of Education
that the technical descriptions in the Bureau of Lands were "different" from Lots Nos. 817 and 2509, applied for by
records show that the same lots were in the name of him, the Jalandoni holdings being "titled" lands, while Lots
Meerkamp and Company. 72 Nos. 817 and 2509 were "unregistered" lands. The then
applicant de Ocampo even cited TCT No. 1251 of the
Register of Deeds of Negros Occidental as the title covering
Authorities are in agreement that a land registration court is
the lots in the name of Jalandoni, further stating that the
without jurisdiction to decree again the registration of land
lands donated by him to the Bureau of Education had an
already registered in an earlier registration case, and that the
area of 2,912,474 square meters, 78 or 291 hectares plus.
second decree entered for the same land is null and
Lots Nos. 817 and 2509 have a total area of 289.47
void. 73 If there is no valid and final judgment by the land
hectares 79 or a difference of only 2 hectares, more or less.
registration court to speak of, then the filing of an admittedly
The coincidence in area is highly significant since both claim
late appeal from the decision denying the Amended Petition
to be the owners of the same lots. Secondly, certain
would be immaterial and of no moment, in so far as these
documents which were presented as exhibits by respondent
proceedings are concerned in view of the congenitally fatal
de Ocampo, on the basis of which he secured OCT 576 in
infirmity that attaches to the main decision. decreeing for the
his name, were withdrawn from the files of the trial court,
second time the registration of the same Lots Nos. 817 and
and, thereafter were allegedly lost by fire. As a result,
2509 in favor of respondent de Ocampo, despite an earlier
Republic's pending motion to have the said exhibits
registration in the name of Meerkamp and Company.
produced for examination of their genuineness by the NBI
Jurisprudence holds that the appellant's failure to perfect an
could not be made. Unless successfully traversed, the
appeal on time, "although ordinarily decisive, carries no
inference is strong that respondents did not want a full
persuasive force" and may be completely disregarded if the
disclosure of the true nature of the same by the NBI and that
trial court acted without jurisdiction. 74 As held in United
the truth had been suppressed. The inference is also
States v. Jayme, 75 lack of jurisdiction. la jurisdiction over the
buttressed by the Republic's claim that despite their
subject matter is fatal and may be raised at any stage of the
counsel's knowledge of Republic's intention to file the said
proceedings. Jurisdiction is conferred by the sovereign
motion which was orally communicated to them earlier, the
authority which organizes the court; it is given only by law,
alleged loss was not revealed to Republic's counsel.80
and in the manner prescribed by law and an objection on the
lack of such jurisdiction cannot be waived by the parties. The
infirmity cannot be cured by silence, acquiescence, or even If the charge is true, there is the element of wilfull intent to
by express consent, 76 or by win of the parties. 77 deprive Republic of just rights which constitutes the essential
characteristics of actual — as distinguished from legal —
fraud. 81 As Justice Fernando stressed, "Nicolas v. Director
In the interest of justice, which is the paramount
of Lands 82 should erase any doubt as to the extreme judicial
consideration in all litigations, and especially considering the
displeasure at this species of fraud of an applicant seeking
cloud surrounding the decision of the land registration court,
to include as a part of the property to which title is sought
as aforesaid, the more judicious course to follow is for
land actually in possession of another. 83 This is very
respondent Court of Appeals to entertain Republic's appeal,
relevant in view of the denial of the Amended Petition which
not to dismiss it, so that if it finds the same to be meritorious,
was premised on the conclusion that allegations in the said
and the decision appealed from is reversed, the correct
petition did not constitute actual and extrinsic fraud and
Identity of the lots that were donated to the then Bureau of
which, according to the trial court, is "the only ground"
Education (admitted by respondent de Ocampo), as well as
available to review or reopen the decree. Of related
those parcels of land applied for by said respondent in the
significance is the express finding of the trial court that the
land registration case, may already be ascertained once and
original Petition for Relief was filed within the reglementary
for all, in the trial court below, and in this same proceeding,
period pursuant to Section 3, Rule 38 of the Rules of Court,
without Republic having to resort to relitigation to prove its
and the Amended Petition was filed within one year from
claim. Further proceedings will not prejudice respondents.
issuance of the decree. For, if the appeal is dismissed —
On the contrary, the cloud over their titles, OCT No. 576 and
notwithstanding allegations of fraud which appear to be
TCT No. 42217. issued in favor of respondents de Ocampo
supported by the evidence adduced during the hearing of the
and Anglo, respectively, will be removed if Republic's claim
Amended Petition below — the appealed decision will
is not true.
become final and executory, and the aforesaid periods will
lapse, foreclosing forever to Republic the reliefs prayed for in
2. There is a serious charge, which is also crucial to the the Amended Petition. Although Republic may seek to
issue between the parties, that respondent de Ocampo used recover the lots in a different action that may still be legally
fraudulent misrepresentations and machinations in securing available to it after the appeal is dismissed, that recourse will
involve not only a re- litigation and, therefore. multiplicity of
suits, but will also entail the risk that subject lots may be
disposed of to innocent purchasers for value to put them
beyond recovery. As it is, the other respondent, Anglo, has
already intervened. alleging that he bought the same lots
from respondent de Ocampo on January 6, 1966, and that
TCT No. 42217 was in fact issued to him. 84 A new party,
Salvacion Marañon, also sought to intervene in the case and
filed in respondent Court of Appeals a motion to dismiss
Republic's appeal before the said Court. 85
Finally, We held in Reyes, et al. v. Borbon, et al. 86 "(W)hen
the attention of the Court of Land Registration is called to the
fact that the same land has been registered in the name of
two different persons, it is the duty of said court to order an
investigation of that fact and that should be done even
without requiring the parties to show that a fraud has been
committed in during the double registration. When it is
established that the same has been registered in the name
of two different person the titile should remain in the name of
the person securing the first registration." This Court further
held that " (T)he very purpose of the Torrens System would
be destroyed if the same land may be subsequently brought
under a second action for registration. 87
3. The foregoing overriding considerations then — the
alleged lack of jurisdiction and the alleged fraudulent
misrepresentations and machinations, which, buttressed by
strong evidence, can nullity the second registration and/or
set aside OCT No. 576 issued to respondent de Ocampo —
taken in relation with the procedural and substantive
implications which could and would arise if the appeal were
dismissed, namely, the risk that the holdings may be
transacted to third parties and the fact that Republic's action
to recover tile holdings would give rise to multiplicity of suits
— compel Us to conclude that the only recourse — in the
interest of just and expeditious proceedings. considering that
these have been pending for close to twenty (20) years now
— is to suspend Our rules and/or to except this case from
their operation. For when the operation of the Rules of will
lead to an injustice We have, in justifiable instances,
resorted to this extraordinary remedy to prevent it. 88 The
Rules have been drafted with the primary objective of
enhancing fair trials and expediting justice. 89 As a corollary,
if their application and operation tend to subvert and defeat
instead of promote and enhance it, their suspension is
justified. In the words of Justice Antonio P. Barredo in his
concurring opinion in Estrada v. Sto. Domingo, "(T)his Court,
through the revered and eminent Mr. Justice Abad Santos,
found occasion in the case of C Viuda de Ordoveza v.
Raymundo, to lay down for recognition in this jurisdiction the
sound rule in the administration of justice holding that 'it is
always in the power of the court (Supreme Court) to suspend
its own rules or to except a particular case from its operation,
whenever the purposes of justice required it ... 90
Exceptions to the operation of the mandatory and be set back, if the subject lots — consisting of close to 300
jurisdictional character of the rules on perfection of appeals hectares which are devoted to educational purposes — have
are to be noted in Sarmiento v. Salud, et al., 91 penned by indeed been wrongfully titled to respondent de Ocampo,
Justice J.B. Reyes, Dequito v. Lopez 92 and Carillo v. Allied Happily, We can at this stage still prevent this, if true, by
Workers Association of the Philippines 93 both written for the setting aside the dismissal of Republic's appeal and
Court by Justice E. M. Fernando, decided years after the according the parties the opportunity in this proceeding, and
Revised Rules of Court took effect in January, 1964. In the without further need to re-litigate, to terminate this litigation,
Sarmiento case, the late appeal was allowed on the ground which has been pending for close to twenty (20) long years
of laches on the part of the appellees, the filing of the motion — in fairness to both parties.
to dismiss having taken place six (6) years after the brief for
appellees was filed, and after the case was submitted for
PREMISES CONSIDERED, the resolution of the Court of
decision. This, according to the Court, "constitutes a unique
Appeals, dated August 21, 1969, dismissing the appeal, as
instance of laches without comparable precedent in the
well as its resolution of November 14, 1969, denying
records of the Court. 94 The Dequito and Carillo cases, upon
petitioner Republic's motion for reconsideration in CA G.R.
the other hand, took into account the fact that labor cases
Nos. 40683-84 are hereby SET ASIDE. The case is
were involved. Justice Fernando expressly noted in the
remanded to the said Court to give due course to and
Dequito case that "in the light of the constitutional as well as
consider on its merits Republic's appeal. No costs.
codal and statutory mandates, there being an explicit
command of protection to labor as well as the promotion of
social justice," 95 the motion to dismiss the late appeal which Castro, C.J., Fernando, Muñoz Palma, Concepcion, Jr.,
was "filed much too late" hardly deserved sympathy or Fernandez and Guerrero, JJ., concur.
consideration. 96 In the Carillo case, no question whatsoever
as to the late appeal was raised, hence, "it would seem that
Barredo, Makasiar and Antonio, JJ., took no part.
whatever right to contest the jurisdiction could have been
availed of is by now no longer in existence. 97 Continuing,
Justice Fernando stated that "Social justice would be a
meaningless term if in a situation like the present, an
element of rigidity would be affixed to procedural precepts
and made to recover the matter. Flexibility should not be
ruled out. Precisely, what is sought to be accomplished by
such a fundamental principle expressly so declared by the
Constitution is the effectiveness of the community's effort to
assist the economically underprivileged." The responsibility
to protect labor is incumbent "not only on the legislative and
executive branches but also on the judiciary, to translate this
pledge into a living reality. 98
While the above exceptions are predicated on different
grounds, they nevertheless support the view that the rigid
adherence to the rules on perfection of appeals may and
should be relaxed where compelling reasons so warrant.
The grounds invoked in this case — not only lack of
jurisdiction but gross injustice itself — more than justify the
exception — considering further that the delay in the
perfection of the appeal involved six (6) days only.
4. Finally, enshrined in our legal and judicial annals is the
maximum Chat no person should enrich himself at the
expense or prejudice of others. 99 Courts should not be used
as instruments Lo disregard this elemental and basic norm
— which is the essence of justice and fair play. The whole
trust of our laws on civil relations enjoins all those who come
before the courts of justice to observe true faith and candor
in their dealings with one another — the government
included. 100 The commendable and determined efforts on
the part of the citizenry to fashion a New Society rid of graft,
corruption and the persistent malaise of land grabbing, will

G.R. No. 194516 June 17, 2015
BALDOMERA FOCULAN-FUDALAN, Petitioner,
vs.
SPOUSES DANILO OCIAL and DAVIDICA
BONGCARASOCIAL, EVAGRIA F. BAGCAT,
CRISTINA G. DOLLISEN, EULALIA F. VILLACORA,
TEOFREDO FUDERANAN, JAIME FUDERANAN,
MARIANO FUDERANAN, FILADELFO
FUDERANAN, MUSTIOLA F. MONTEJO, CORAZON
LOGMAO, DIONESIO FUDERANAN, EUTIQUIA
FUDERANAN, ASTERIA FUDERANAN, ANTONIO
FUDERANAN, ROMEO FUDERANAN,
FLORENTINO FUDERANAN, DOMECIANO
FUDERANAN, ERLINDA SOMONTAN, FELICIANA
FUDERANAN, BONIFACIO FUDERANAN, QUIRINO
FUDERANAN, MA. ASUNCION FUDERANAN,
MARCELINA ARBUTANTE, SALOME GUTUAL,
LEONARDO LUCILLA, IMELDA L. ESTOQUE,
CIRILA OLANDRIA, TITA G. BONGAY and
MUNICIPAL ASSESSOR OF PANGLAO,
BOHOL, Respondents.
DECISION
MENDOZA, J.:
Before this Court is a petition for review under Rule 45
of the Rules of Court assailing the November 5, 2009
Resolution1 of the Court of Appeals (CA), in CA-G.R.
CEB-CV No. 01733, which granted the respondents"
'Urgent Motion to Dismiss Appeal,"2 dated September
23, 2009, on the ground that petitioner Baldomera
Foculan-Fudalan (Baldomera) failed to file her
appellant's brief within the non-ex.tendible period of
forty-five (45) days; and the October 26, 2010
Resolution3 which denied her "Omnibus Motion for
Reconsideration of the Resolution dated November 5,
2009, with Leave of Court to Admit Appellant's Brief for
the Intervenor-Third Party Plaintiff."4
The Antecedents
The present controversy began when the spouses
Danilo Ocial and Davidica Bongcaras-Ocial (Spouses
Ocial), represented by their Attomey-in-Fact, Marcelino
Bongcaras, filed an action for the declaration of validity
of partition and sale, recovery of ownership and
possession and damages against Flavio Fudalan
(Flavia) and Cristobal Fudalan (Cristobal) before the
Regional Trial Court, Branch 3, Tagbilaran City (RTC),
docketed as Civil Case No. 6672.
Later, Baldomera, the wife of Flavio and mother of
Cristobal, intervened as 3rd party plaintiff against third-
party defendants, Heirs of Pedro and Ulpiano
Fuderanan (the Fuderanans), the predecessors-in-
interest of Spouses Ocial.
The subject of the said action was a parcel of land
designated as Cad. Lot No. 56-A located at Tangnan,
Panglao, Bohol, which was a portion of Lot No. 56, Cad
705-D, Panglao Cadastre, in the name of Juana
Fuderanan (Juana).
Spouses Ocial alleged in their complaint 5 that on
March 13, 2001, the heirs of Juana executed the
Extrajudicial Settlement Among Heirs with
Simultaneous Deed of Absolute Sale over Lot 56-A
including two (2) fruit bearing mango trees in their favor
as lawful vendees; that as the new owners of the
subject land, they caused the planting of thirty (30)
gemelina seedlings, twenty (20) mahogany seedlings,
and two (2) mango seedlings, and in October 2001,
they claimed the landowner’s share of the mango
produce from Maximo Bolongaita who had been taking
care of the two (2) fruit-bearing mango trees; that in
October 2001, they caused the placement of a "no-
trespassing" sign on one of the mango trees; that they
also caused the processing of the Deed of Extrajudicial
Settlement Among Heirs with Simultaneous Sale for
the cancellation of Tax Declaration No. 93-009-00247
and the issuance of a new tax declaration in their favor;
that in June 2001, the Fudalans, without any lawful
right or authorization, surreptitiously planted "ubi" on a
portion of Lot No. 56-A and they also claimed the
landowner’s share of the mango produce from Maximo
Bolongaita who refused to give the same and instead
deposited the amount in a bank in Tagbilaran City; that
in November 2001, the Fudalans illegally placed two
"no-trespassing" signs inside the questioned property;
that for this reason, they complained to the barangay
captain of Tangnan, Panglao, Bohol, who conducted
conciliation proceedings on November 14 and 29,
2001; that no settlement was reached between the
parties; that the Office of the Lupong Tagapamayapa
later on issued the Certification to File Action; and that
they learned that on December 14 and 15, 2001, while
the Lupong Tagapamayapa had not yet issued the
required Certification to File Action, the Fudalans
unjustifiably caused the installation of a fence
consisting of barbed wires with cemented posts around
Lot No. 56-A, without the necessary permit from the
barangay captain of Tangnan and the municipal
officials of Panglao, Bohol.6
The Fudalans, on the other hand, claimed that they
were the rightful owners of the subject land having
purchased the same from the Fuderanans on
November 4, 1983; that the sale was evidenced by a
private document printed in a blue paper; that as
owners, they planted "ubi," posted two "no-
trespassing" signs and installed a barb wire fence
around the land; that since their purchase, they had
been in possession of the land in the concept of owners
and had been paying the real property taxes
religiously; and that it was for this reason that they
insisted that if there was any deed of extrajudicial
settlement of estate and simultaneous sale of the land
by the the Fuderanans, the same was null and void for
being without legal basis.7
On May 6, 2002, Baldomera filed, with leave of court,
an Answer in Intervention with Third-Party Complaint
against the Fuderanans for specific performance,
quieting of title and nullification of the deed of extra-
judicial settlement with simultaneous sale in favor of
Spouses Ocial. She alleged therein that, although still
declared in the name of the late Juana Fuderanan, the
property was absolutely owned by her parents, the late
Spouses Eusebio Fucolan and Catalina Bolias,8 who
acquired the property in 1935 and thereafter took
actual possession of the land. She averred that the
possession was continuous, peaceful, open, public,
adverse, and in the concept of an owner which was
never disturbed by any person until Spouses Ocial,
through their Attorney-in-Fact, informed the Fudalans
and Baldomera that they had already bought the land
from the Fuderanans.9
Baldomera also claimed that sometime in 1983, two of
the Fuderanans, Teofredo and Eutiquia, approached
her and her husband. They represented themselves as
the duly authorized representatives of their coheirs and
agreed to settle their claims over the subject lot in their
favor for the amount of 1,000.00. This agreement was
evidenced by a memorandum, dated November 4,
1983.10
Baldomera further claimed that in the year 2000, a
certain Salome Getual, supposedly another heir of
Juana, told her that all the heirs of Juana were claiming
their rights of inheritance over the land but were willing
to enter into a settlement if the price would be
acceptable. Unfortunately, no agreement was reached
which prompted Spouses Ocial to file an action before
the barangay chairman of the place where the property
was situated. A mediation proceeding was conducted
between the parties where an amicable settlement was
reached. Baldomera agreed to pay the Fuderanans the
amount of ₱50,000.00 as purchase price of the lot. The
latter, however, did not comply with their obligation in
the agreed settlement. Instead, they sold the land to
Spouses Ocial for 20,000.00.11
The RTC Decision
On August 22, 2006, the RTC rendered a
Decision,12 confirming the validity of the extrajudicial
settlement with simultaneous sale, thus, recognizing
the right of the third-party defendants, the Fuderanans,
to sell the land in question to the Spouses Ocial. The
trial court explained its conclusion in this wise:
After a perusal of the evidence, the Court
acknowledges the right of third party defendants Heirs
of Pedro and Ulpiano Fuderanan to sell the land in
question to plaintiffs Ocial spouses and upholds the
validity of the sale. The claim of intervenor Baldomera
Fucolan-Fudalan that the land was purchased by her
parents from Juana Fuderanan in 1935 is not only
doubtful being oral but more than that, it is
unenforceable under the Statute of Frauds as provided
in Art. 1403 (e) of the Civil Code, as follows:
"Art. 1403. The following contracts are unenforceable,
unless they are ratified:
xxxx
(e) An agreement for the leasing for a longer period
than one year, or for the sale of real property or of an
interest therein;
No efforts were exerted by the intervenor and her
predecessor parents for the ratification of the sale
despite the lapse of considerable time so that their
failure and neglect to do it amounts to laches and
equitable estoppel on their part to lay claim of
ownership of the land. Furthermore, upon a perusal of
the tax declarations of the land from 1940 to 1985 the
administrators mentioned therein were Modesta
Bongcaras, Ulpiano Fuderanan and Leoncia
Estoreras, who took turn in its administration. There
was no mention of the predecessor parents of
Baldomera as one of the administrators which would
only fairly suggest that they were never in possession
of the land. It was only in 1994 when Flavio Fudalan
came to be named as its administrator per TD-93-009-
00247 evidently after the execution of the blue paper
receipt of ₱1,000.00 by Teofredo and Teofista
Fuderanan in their favor. And it was also only then that
the Fudalans started paying taxes thereto, as shown
by the numerous receipts submitted. Thus, the parents
of Baldomera could not have paid taxes to the land
before that period for being not in actual possession of
the land contrary to their claim. It could be for this
reason that defendants and intervenor agreed to buy
the land from the heirs of Pedro and Ulpiano
Fuderanan to whom the land was adjudicated which
act was tantamount to an abandonment of their claim.
xxx Besides, it is to be noted from the testimony of
Baldomera Fucolan-Fudalan in her direct examination
on July 13, 2005 when she acknowledged that the
amount of ₱1,000.00 as mentioned in the blue paper
receipt was not actually a payment of the land but was
given to Toribio and Juana Fuderanan as a
consideration for them to prepare the deed of sale for
the land in their favor but to which the latter did not
comply. Instead, they filed a complaint along with the
other heirs before the barangay captain of Tangnan,
Paglao, Bohol for the repossession and partition of the
property among the heirs. This admission of
Baldomera Fucolan-Fudalan is credible for the amount
of ₱1,000.00 is grossly inadequate to be a
consideration for the sale of the whole lot of 7,334 sq.
m. or even for the combined shares of Teofredo and
Teofista of their common property 1,018 sq. m.
Furthermore, the alleged agreement was not signed by
the parties as required by the Local Government Code
for its validity and no time or period was set for its
compliance, thus, leaving it to the Fudalans the choice
as to when they would pay the purchase price of the
land which is against the provision of Art. 1308 of the
Civil Code on the qualifications of a valid contract.
On the alleged promise of the heirs of Pedro and
Ulpiano Fuderanan to sell the property to defendants
Fudalan for ₱50,000.00 as shown in the minutes of the
mediation proceedings before the barangay captain of
Tangnan, Panglao, Bohol of which they did not comply,
there is no evidence of tender of payment made by the
defendants. In fact, in the testimony of Maria Salome
Gutual in the witness stand during her cross-
examination on March 10, 2003 which was not refuted
by defendants, the Fudalans did not allegedly comply
with their promise to buy the land, and instead, they
even signified refusal to pay it claiming that they had
already bought it from Teofredo and Teofista
Fuderanan so that the heirs of Pedro and Ulpiano
Fuderanan were forced to sell the land to herein
plaintiffs Ocial spouses. Their act of selling the land to
the plaintiffs was therefore justified as it was the
defendants who first reneged from their agreement.
Moreover, as there was no tender of payment or
earnest money given by defendants as a consideration
therefor, no contract to sell was perfected that would
bind the parties to it (Art. 1479, par. 2, Civil Code) nor
is there any basis for an action of specific performance
which defendants only initiated lately upon the filing of
the third-party complaint.13
[Emphasis Supplied]
Consequently, the Fudalans and Baldomera were
ordered to vacate the subject land. Thus, the decretal
portion of the decision reads:
WHEREFORE, in view of all the foregoing, the Court
hereby confirms the Deed of Extra-Judicial Settlement
with Simultaneous Sale executed by the Heirs of Pedro
Fuderanan and Ulpiano Fuderanan of Lot 56-A to
herein plaintiffs Danilo Ocial and Davidica Bongcaras-
Ocial as one valid and enforceable. Consequently,
herein defendants Flavio Fudalan, Cristobal Fudalan
and Intervenor Baldomera Fucolan-Fudalan are
hereby ordered to vacate from the premises of Lot 56-
A CAD 705-D of Panglao Cadastre which is located at
barangay Tangnan, Panglao, Bohol having an area of
6,316 sq. m. Furthermore, defendants and intervenor
are hereby ordered to pay jointly and severally
reasonable attorney’s fee in the amount of ₱30,000.00
and the costs of the proceedings which shall earn legal
interest from the filing of the complaint until the same
shall have been fully paid. The landowner shares of the
fruits of the two mango trees which are deposited in the
bank are hereby adjudicated to plaintiffs if the same are
found to be within Lot 56-A.
SO ORDERED.14
Not in conformity, the Fudalans and Baldomera filed
their respective notices of appeal with the trial court.
The CA Decision
On March 18, 2009, upon receipt of the records, the
CA issued a Resolution,15 requiring the Fudalans and
Baldomera, as well as Spouses Ocial; and Evagra F.
Bacat, as third-party defendants, to file their respective
briefs within the non-extendible period of forty-five (45)
days. In their Urgent Motion to Dismiss Appeal, dated
September 23, 2009, Spouses Ocial prayed for the
dismissal of the appeal for failure of the appellants to
file the required appellants’ brief within the prescribed
non-extendible period of 45 days.
Acting thereon, the CA granted the motion and
dismissed the appeal in its November 5, 2009
Resolution, which in its entirety reads:
Finding merit in appellee’s Urgent Motion to Dismiss
Appeal dated September 23, 2009, citing as ground
therein appellants’ failure to file their respective appeal
briefs within the non-extendible period required under
Resolution, dated March 18, 2009, the court resolves
to grant the same. Accordingly, the case is considered
closed and terminated.
SO ORDERED.16
Baldomera filed her Omnibus Motion for
Reconsideration of the Resolution dated November 5,
2009 with Leave of Court to Admit Appellant’s Brief for
the Intervenor-Third Party Plaintiff. On October 26,
2010, however, the CA issued another resolution
denying her motion, to wit: WHEREFORE, the
Omnibus Motion for Reconsideration of the Resolution
dated November 5, 2009 with Leave of Court to Admit
Appellant’s Brief for the Intervenor-Third Party Plaintiff
is DENIED.
SO ORDERED.17
According to the CA, "[b]laming the failure to file the
required brief on counsel’s heavy workload, on the
mistake or ignorance of his client, and excusable
neglect on his part is not acceptable."18 What
happened was simply the negligence of the counsel in
the monitoring of notices and resolutions from the
courts. The attendant circumstances did not make a
case of gross negligence that would fall under the
exception to the rule that the inadvertence of counsel
could be considered as an adequate excuse to call for
the court’s leniency. The CA further stated that "the
delay in the filing of the brief, 206 days after the last
day to file the same which is May 22, 2009, is
unreasonably long."19
Hence, this petition.
Petitioner Baldomera states, among others, that the
main reason for the late filing of the appellant’s brief
was both her mistake and simple negligence and that
of her counsel; and that the CA should have been
lenient in the application of technical rules in resolving
the appeal considering their peculiar situation.
Spouses Ocial, on the other hand, counter that the CA
was correct in denying the omnibus motion for
reconsideration because the records were bereft of any
factual justification for Baldomera’s failure to file the
required appellant’s brief. Furthermore, even granting
arguendo, that the CA gravely abused its discretion in
promulgating the November 5, 2009 and October 26,
2010 Resolutions, still the subject petition must be
dismissed because abuse of discretion is not among
the allowable grounds for a petition for review under
Rule 45 to prosper.
The Court's Ruling
The Court finds the petitioner’s contention wanting in
merit.
There was inexcusable
negligence where a brief
was filed 206 days late
It appears from the record that the counsel for
Baldomera received a copy of the March 18, 2009 CA
Resolution on April 7, 2009, thus, giving him until May
22, 2009 to file the appellant’s brief; that he did not file
any motion for extension of the period to file the brief;
that he did not file either a comment or opposition to
the Urgent Motion to Dismiss Appeal, filed by Spouses
Ocial on September 24, 2009, a copy of which he was
furnished by mail; and that he filed the brief for his client
only at the time he filed the omnibus motion for
reconsideration on December 14, 2009, or 206 days
late.20
In this regard, Section 1 (e), Rule50 of the Rules of
Court succinctly provides that:
Section 1. Grounds for dismissal of appeal. – An
appeal may be dismissed by the Court of Appeals, on
its own motion or on that of the appellee, on the
following grounds:
xxxx
(e) Failure of the appellant to serve and file the required
number of copies of his brief or memorandum within
the time provided by these Rules; x x x
Baldomera posits that it was erroneous for the CA to
dismiss her appeal on the ground that she failed to file
her appellant’s brief on time. She cited the case of
Sebastian v. Morales21 where it was written that liberal
construction of the rules is the controlling principle to
effect substantial justice.
Nevertheless, the Court in the same case made
qualifications with respect to the application of the said
principle.1âwphi1 It was held therein,
Litigation is not a game of technicalities, but every case
must be prosecuted in accordance with the prescribed
procedure so that issues may be properly presented
and justly resolved. Hence, rules of procedure must be
faithfully followed except only when for persuasive
reasons, they may be relaxed to relieve a litigant of an
injustice not commensurate with his failure to comply
with the prescribed procedure. Concomitant to a liberal
application of the rules of procedure should be an effort
on the part of the party invoking liberality to explain his
failure to abide by the rules.22
[Emphases and Underscoring Supplied]
In other words, procedural rules are not to be belittled
or dismissed simply because their non-observance
may have resulted in prejudice to a party’s substantive
rights. Like all rules, they are required to be followed
except only for the most persuasive of reasons when
they may be relaxed to relieve a litigant of an injustice
not commensurate with the degree of his
thoughtlessness in not complying with the procedure
prescribed.23 Besides, as the oft quoted quip would put
it, the bare invocation of "in the interest of substantial
justice" is not a magic wand that will automatically
compel this Court to suspend procedural rules.24
Although the authority of the CA to dismiss an appeal
for failure to file the appellant’s brief is a matter of
judicial discretion, a dismissal based on this ground is
neither mandatory nor ministerial; the fundamentals of
justice and fairness must be observed, bearing in mind
the background and web of circumstances surrounding
the case.25
Petitioner’s assertion that her counsel is partly to be
blamed for her legal predicament is not persuasive.
Indeed, there have been myriad of instances when the
Court has relaxed the rule on the binding effect of
counsel’s negligence and allowed a litigant another
chance to present his case, to wit: (1) where the
reckless or gross negligence of counsel deprives the
client of due process of law; (2) when application of the
rule will result in outright deprivation of the client’s
liberty or property; or (3) where the interests of justice
so require. Unfortunately, none of these exceptions
obtain here.26
For a claim of counsel’s gross negligence to prosper,
nothing short of clear abandonment of the client’s
cause must be shown. Here, petitioner’s counsel failed
to file the appellant’s brief. While this omission can
plausibly qualify as simple negligence, it does not
amount to gross negligence to justify the annulment of
the proceeding.27
Baldomera herself should have exerted some efforts to
inquire as to the status of her appeal. She should not
have been complacent. "While this Court has
recognized that a non-lawyer litigant is not expected to
be familiar with the intricacies of the legal procedures,
a layman nonetheless must not be allowed to
conveniently profit from his improvident mistakes.
Thus, it has been equally stressed that litigants
represented by counsel should not expect that all they
need to do is sit back, relax and await the outcome of
the case; instead, they should give the necessary
assistance to their counsel for what is at stake is
ultimately their interest."28
Even on the merits, the
petition must fail
Even on the merits, the petitioner’s quest must fail.
In essence, Baldomera claims that because they have
been in adverse possession for the requisite period,
their possession has now ripened into ownership
through acquisitive prescription.
Baldomera’s argument fails to convince the Court.
Prescription, as a mode of acquiring ownership and
other real rights over immovable property, is concerned
with lapse of time in the manner and under conditions
laid down bylaw, namely, that the possession should
be in the concept of an owner, public, peaceful,
uninterrupted, and adverse. Acquisitive prescription of
real rights may be ordinary or extraordinary. Ordinary
acquisitive prescription requires possession in good
faith and with just title for 10 years.29 When the Court
speaks of possession in "good faith," it consists in the
reasonable belief that the person from whom the thing
is received has been the owner thereof, and can
transmit his ownership. There is "just title," on the other
hand, when the adverse claimant comes into
possession of the property through one of the modes
recognized by law for the acquisition of ownership or
other real rights, but the grantor is not the owner or
cannot transmit any right.30 In the present controversy,
aside from Baldomera’s bare allegation that her family
had been in possession of the subject property since it
was sold to her parents, no other evidence,
documentary or otherwise, showing that the title to the
subject property was indeed transferred from Juana to
her parents was presented. In fact, she never denied
that the tax declaration of the property was still in the
name of Juana Fuderanan. As such, for lack of "just
title," she could not have acquired the disputed
property by ordinary prescription through possession of
ten (10) years. Occupation or use alone, no matter how
long, cannot confer title by prescription or adverse
possession unless coupled with the element of hostility
towards the true owner, that is, possession under the
claim of title.31
Even the allegation that sometime on November 4,
1983, a blue paper was executed wherein Teofredo
and Eutiquia, allegedly the duly authorized
representatives of the heirs of Juana to settle their
claims over the land, acknowledged to have received
the sum of 1,000.00,32 cannot be considered a valid
basis for a possession in good faith and just title. The
alleged agreement which is, at best, a compromise
agreement cannot be made as the foundation of a
conclusion that Baldomera is a possessor in good faith
and with just title who acquired the property through
ordinary acquisitive prescription. By the nature of a
compromise agreement, which brings the parties to
agree to something that neither of them may actually
want, but for the peace it will bring them without a
protracted litigation, no right can arise therefrom
because the parties executed the same only to buy
peace and to write finis to the controversy. It did not
create or transmit ownership rights over the subject
property.33
That being settled, the next question now is: Can
Baldomera acquire the property through extraordinary
acquisitive prescription?
The Court is still constrained to rule in the negative.
In extraordinary prescription, ownership and other real
rights over immovable property are acquired through
uninterrupted adverse possession for 30 years even
without need of title or of good faith.34
As observed by the trial court,
here was no mention of the predecessor parents of
Baldomera as one of the administrators which would
only fairly suggest that they were never in possession
of the land. It was only in 1994 when Flavio Fudalan
came to be named as its administrator per TD-93-009-
00247 evidently after the execution of the blue paper
receipt of ₱1,000.00 by Teofredo and Teofista
Fuderanan in their favor. And it was only then that the
Fudalans started paying taxes thereto, as shown by the
numerous receipts submitted. Thus, the parents of
Baldomera could not have paid taxes to the land before
that period for being not in actual possession of the
land contrary to their claim. It could be for this reason
that defendants and intervenor agreed to buy the land
from the heirs of Pedro and Ulpiano Fuderanan to
whom the land was adjudicated which act was
tantamount to an abandonment of their claim.35
Taking cue from the foregoing, Baldomera’s alleged
possession could not have amounted to an ownership
by way of extraordinary acquisitive prescription.
According to the factual findings of the trial court, it was
only in 1994 that her husband, Flavio was named
administrator; that it was also then that they started
paying taxes; and that it was also then that they started
occupying the subject property. This observation of the
trial court was contrary to her assertion that they had
been paying taxes and had been in possession of the
land even before the said period. On this note, the
thirty– year period would only be completed in the year
2024. Also, the records would reveal that as early as
November 2001, her possession was effectively
interrupted when Spouses Ocial filed a complaint
before the barangay captain of Tangnan, Panglao,
Bohol, where conciliation proceedings were held
although no settlement was reached.36
level court, and not the RTC, which has jurisdiction,
would not hold water. As observed, Baldomera had
voluntarily participated in the proceedings before the
RTC and aggressively defended her position. Although
she questioned the jurisdiction of the trial court as early
as in the trial level, she actively participated in the
proceeding when she filed an ANSWER IN
INTERVENTION WITH THIRD-PARTY
COMPLAINT38 where she interposed counterclaims,
and asked for affirmative reliefs. Simply put,
considering the extent of her participation in the case,
she is estopped from invoking lack of jurisdiction as a
ground for the dismissal of the action.39
WHEREFORE, the petition is DENIED. The assailed
November 5, 2009 and October 26, 2010 Resolutions
of the Court of Appeals in CA-G.R. CV No. 01733 are
AFFIRMED.
SO ORDERED.

Finally, Baldomera also assails the jurisdiction of the

RTC over the case. According to her, since the action
involves ownership and possession of real property,
jurisdiction is determined by the assessed value of the
property in contention. Considering that the assessed
value of Lot 56-A was only 1,930.00 as indicated in Tax
Declaration No. 93-009-00247, it should have been the
first level court, and not the RTC, which should have
exercised jurisdiction to hear actions involving title to,
or possession of real property or any interest in it, as
provided in Sections 19 and 33 of Batas Pambansa
(B.P.) 129, as amended.37

This argument cannot be sustained.

Even if the Court would treat the complaint filed by

Spouses Ocial as falling under the jurisdiction of the
first level court under Sec. 33 of B.P. 129, as the
assessed value was way below the ₱20,000.00
threshold, still Baldomera's postulation that it is the first

G.R. No. 201405, August 24, 2015
LIWAYWAY ANDRES, RONNIE ANDRES, AND
PABLO B. FRANCISCO, Petitioners, v. STA. LUCIA
REALTY & DEVELOPMENT,
INCORPORATED, Respondent.
DECISION
DEL CASTILLO, J.:
Not all may demand for an easement of right-of-way.
Under the law, an easement of right-of-way may only
be demanded by the owner of an immovable property
or by any person who by virtue of a real right may
cultivate or use the same.
This Petition for Review on Certiorari assails the
November 17, 2011 Decision1 of the Court of Appeals
in CA-G.R. CV No. 87715, which reversed and set
aside the May 22, 2006 Decision2 of the Regional Trial
Court (RTC), Binangonan, Rizal, Branch 68 granting
petitioners Pablo B. Francisco (Pablo), Liwayway
Andres (Liwayway), Ronnie Andres (Ronnie) and their
co-plaintiff Liza Andres (Liza) a 50-square meter right-
of-way within the subdivision of respondent Sta. Lucia
Realty and Development, Incorporated (respondent).
Likewise assailed is the March 27, 2012 CA
Resolution3 which denied petitioners and Liza's Motion
for Reconsideration thereto.
Factual Antecedents
Complaint4
Petitioners and Liza filed a for Easement of
Right-of-Way against respondent before the RTC on
November 28,2000. They alleged that they are co-
owners and possessors for more than 50 years of three
parcels of unregistered agricultural land in Pag-asa,
Binangonan, Rizal with a total area of more or less
10,500 square meters (subject property). A few years
back, however, respondent acquired the lands
surrounding the subject property, developed the same
into a residential subdivision known as the Binangonan
Metropolis East, and built a concrete perimeter fence
around it such that petitioners and Liza were denied
access from subject property to the nearest public road
and vice versa. They thus prayed for a right-of-way
within Binangonan Metropolis East in order for them to
have access to Col. Guido Street, a public road.
In its Answer,5 respondent denied knowledge of any
property adjoining its subdivision owned by petitioners
and Liza. At any rate, it pointed out that petitioners and
Liza failed to sufficiently allege in their complaint the
existence of the requisites for the grant of an easement
of right-of-way.
During trial, Pablo testified that he bought a 4,000-
square meter-portion of the subject property from
Carlos Andres (Carlos), the husband of Liwayway and
father of Ronnie and Liza.6 According to Pablo, he and
his co-plaintiffs are still in possession of the subject
property as evidenced by an April 13, 1998
Certification7 issued by the Barangay Chairman of
Pag-asa.8 Further, Pablo clarified that the easement of
right-of-way that they are asking from respondent
would traverse the latter's subdivision for about 50
meters from the subject property all the way to another
subdivision that he co-owns, Victoria Village, which in
turn, leads to Col. Guido Street.9 He claimed that the
prevailing market value of lands in the area is about
P600.00 per square meter. Pablo also explained that
the subject property is still not registered under the
Land Registration Act since no tax declaration over the
same has been issued to them despite application with
the Municipal Assessor of Binangonan.10 When
required by the court to submit documents regarding
the said application,11 Pablo attached in his
Compliance,12 among others, Carlos' letter13 of Maty
18, 1998 to the Municipal Assessor of Binangonan
requesting for the issuance of a tax declaration and the
reply thereto dated August 5, 199814 of the Provincial
Assessor of Rizal. In the aforesaid reply, the Provincial
Assessor denied the request on the ground that the
subject property was already declared for taxation
purposes under the name of Juan Diaz and later, in the
name of Juanito15 Blanco, et al. (the Blancos).
Liwayway testified next. According to her, she and her
children Ronnie and Liza are the surviving heirs of the
late Carlos who owned the subject property.16 Carlos
acquired ownership over the same after he had been
in continuous, public and peaceful possession thereof
for 50 years,17 the circumstances of which he narrated
in a Sinumpaang Salaysay18 that he executed while he
was still alive. Carlos stated therein that even before
he was born in 1939, his father was already in
possession and working on the subject property; that
in 1948, he started to help his father in tilling the land;
that when his father became weak and eventually died,
he took over the land; and, that he already sought to
register his ownership of the property with the
Department of Environment and Natural Resources
(DENR) and to declare the same for taxation purposes.
For its part, respondent presented as a lone witness
the then Municipal Assessor of Binangonan, Virgilio
Flordeliza (Flordeliza). Flordeliza confirmed that Carlos
wrote him a letter-request for the issuance of a tax
declaration.19 He, however, referred the matter to the
Provincial Assessor of Rizal since the property for
which the tax declaration was being applied for was
already declared for taxation purposes in the name of
one Juan Diaz.20 Later, the tax declaration of Juan Diaz
was cancelled and in lieu thereof, a tax declaration in
the name of the Blancos was issued.21 For this reason,
the Provincial Assessor of Rizal denied Carlos'
application for issuance of tax
declaration.22cralawrednad
Ruling of the Regional Trial Court
The RTC rendered its Decision23 on May 22, 2006. It
observed that petitioners and Liza's allegation in their
Complaint that they were in possession of the subject
property for more than 50 years was not denied by
respondent in its Answer. Thus, the same is deemed
to have been impliedly admitted by the latter. It then
ratiocinated that based on Article 113724 of the Civil
Code, petitioners and Liza are considered owners of
the subject property through extraordinary prescription.
Having real right over the same, therefore, they are
entitled to demand an easement of right-of-way under
Article 64925cralawred of the Civil Code.
The RTC further held that Pablo's testimony sufficiently
established: (1) that the subject property was
surrounded by respondent's property; (2) the area and
location of the right-of-way sought; (3) the value of the
land on which the right-of-way is to be constituted
which was P600.00 per square meter; and (4)
petitioners and Liza's possession of the subject
property up to the present time.
In the ultimate, said court concluded that petitioners
and Liza are entitled to an easement of right-of-way,
thus:cralawlawlibrary
WHEREFORE, judgment is hereby rendered giving the
plaintiffs a right of way of 50 square meters to reach
Victoria Village towards Col. Guido Street. Defendant
Sta. Lucia is hereby ordered to grant the right of way to
the plaintiffs as previously described upon payment of
an indemnity equivalent to the market value of the [50-
square meter right of way].
SO ORDERED.26
Respondent filed a Notice of Appeal27 which was given
due course by the RTC in an Order28 dated June 27,
2006.
Ruling of the Court of Appeals
On appeal, respondent argued mat petitioners and
Liza were neither able to prove that they were
owners nor that they have any real right over the
subject property intended to be the dominant
estate. Hence, they are not entitled to demand an
easement of right-of-way. At any rate, they likewise
failed to establish that the only route available from
their property to Col. Guido Street is through
respondent's subdivision.
In a Decision29 dated November 17, 2011, the CA held
that the evidence adduced by petitioners and Liza
failed to sufficiently establish their asserted ownership
and possession of the subject property. Moreover, it
held that contrary to the RTC's observation,
respondent in fact denied in its Answer the allegation
of petitioners and Liza that they have been in
possession of subject property for more than 50 years.
In view of these, the CA concluded that petitioners and
Liza have no right to demand an easement of right-of-
way from respondent, thus:cralawlawlibrary
WHEREFORE, in view of the foregoing, the appeal is
hereby GRANTED. Accordingly, the May 22, 2006
Decision of the Regional Trial Court of Binangonan,
Rizal, Branch 68 is REVERSED and SET ASIDE. Civil
Case No. 00-037-B is ordered DISMISSED.
SO ORDERED.30
Petitioners and Liza's Motion for
Reconsideration31 was denied in the CA
Resolution32 dated March 27, 2012.
Hence, petitioners seek recourse to this Court through
this Petition for Review on Certiorari.
Issue
Whether petitioners are entitled to demand an
easement of right-of-way from respondent.
Our Ruling
The Petition has no merit.
Under Article 649 of the Civil Code, an easement of
right-of-way may be demanded by the owner of an
immovable or by any person who by virtue of a real
right may cultivate or use the same.
Here, petitioners argue that they are entitled to demand
an easement of right-of-way from respondent because
they are the owners of the subject property intended to
be the dominant estate. They contend that they have
already acquired ownership of the subject property
through ordinary acquisitive prescription.33 This is
considering that their possession became adverse as
against the Blancos (under whose names the subject
property is declared for taxation) when Carlos formally
registered his claim of ownership with the DENR and
sought to declare the subject property for taxation
purposes in 1998. And since more than 10 years 34 had
lapsed from that time without the Blancos doing
anything to contest their continued possession of the
subject property, petitioners aver that ordinary
acquisitive prescription had already set in their favor
and against the Blancos.
In the alternative, petitioners assert that they have
already become owners of the subject property through
extraordinary acquisitive prescription since (1) they
have been in open, continuous and peaceful
possession thereof for more than 50 years; (2) the
subject property, as depicted in the Survey Plan they
caused to be prepared is alienable and disposable; (3)
Carlos filed a claim of ownership over the property with
the DENR, the agency charged with the administration
of alienable public land; and (4) Carlos' manifestation
of willingness to declare the property for taxation
purposes not only had the effect of giving notice of his
adverse claim on the property but also strengthened
his bona fide claim of ownership over the same.
It must be stressed at the outset that contrary to
petitioners' allegations, there is no showing that Carlos
filed a claim of ownership over the subject property with
the DENR. His April 13, 1998 letter35 to the said office
which petitioners assert to be an application for the
registration of such claim is actually just a request for
the issuance of certain documents and nothing more.
Moreover, while Carlos indeed attempted to declare
the subject property for taxation purposes, his
application, as previously mentioned, was denied
because a tax declaration was already issued to the
Blancos.
Anent petitioners' invocation of ordinary acquisitive
prescription, the Court notes that the same was raised
for the first time on appeal. Before the RTC, petitioners
based their claim of ownership on extraordinary
acquisitive prescription under Article 1137 of the Civil
Code36 such that the said court declared them owners
of the subject property by virtue thereof in its May 22,
2006 Decision.37 Also with the CA, petitioners initially
asserted ownership through extraordinary acquisitive
prescription.38 It was only later in their Motion for
Reconsideration39 therein that they averred that their
ownership could also be based on ordinary acquisitive
prescription.40 "Settled is the rule that points of law,
theories, issues and arguments not brought to the
attention of the lower court need not be considered by
a reviewing court, as they cannot be raised for the first
time at that late stage. Basic considerations of fairness
and due process impel this rule."41cralawrednad
Even if timely raised, such argument of petitioners, as
well as with respect to extraordinary acquisitive
prescription, fails. "Prescription is one of the modes of
acquiring ownership under the Civil Code."42 There are
two modes of prescription through which immovables
may be acquired - ordinary acquisitive prescription
which requires possession in good faith and just title for
10 years and, extraordinary prescription wherein
ownership and other real rights over immovable
property are acquired through uninterrupted adverse
possession for 30 years without need of title or of good
faith.43 However, it was clarified in the Heirs of Mario
Malabanan v. Republic of the Philippines,44 that only
lands of the public domain subsequently classified or
declared as no longer intended for public use or for the
development of national wealth, or removed from the
sphere of public dominion and are considered
converted into patrimonial lands or lands of private
ownership, may be alienated or disposed through any
of the modes of acquiring ownership under the Civil
Code.45 And if the mode of acquisition is prescription,
whether ordinary or extraordinary, it must first be
shown that the land has already been converted to
private ownership prior to the requisite acquisitive
prescriptive period. Otherwise, Article 1113 of the Civil
Code, which provides that property of the State not
patrimonial in character shall not be the subject of
prescription, applies.46cralawrednad

Sifting through petitioners' allegations, it appears

that the subject property is an unregistered public
agricultural land. Thus, being a land of the public
domain, petitioners, in order to validly claim acquisition
thereof through prescription, must first be able to show
that the State has -
expressly declared through either a law enacted by
Congress or a proclamation issued by the President
that the subject [property] is no longer retained for
public service or the development of the national
wealth or that the property has been converted into
patrimonial. Consequently, without an express
declaration by the State, the land remains to be a
property of public dominion and hence, not susceptible
to acquisition by virtue of prescription.47
In the absence of such proof of declaration in this case,
petitioners' claim of ownership over the subject
property based on prescription necessarily crumbles.
Conversely, they cannot demand an easement of right-
of-way from respondent for lack of personality.

All told, the Court finds no error on the part of the CA

in reversing and setting aside the May 22, 2006
Decision of the RTC and in ordering the dismissal of
petitioners' Complaint for Easement of Right-of-Way
against respondent.

WHEREFORE, the Petition is DENIED. The November

17, 2011 Decision and March 27, 2014 Resolution of
the Court of Appeals in CA-G.R. CV No. 87715
are AFFIRMED.

SO ORDERED.

G.R. No. 213014, October 14, 2015
MAYBANK PHILIPPINES, INC. (FORMERLY PNB-
REPUBLIC BANK1), Petitioner, v. SPOUSES OSCAR
AND NENITA TARROSA, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari2 are the
Decision3 dated November 29, 2013 and the
Resolution4 dated May 13, 2014 of the Court of
Appeals (CA) in CA-G.R. CV No. 02211, which
affirmed the Decision5 dated June 16, 2005 of the
Regional Trial Court of Bacolod City, Branch 41 (RTC)
in Civil Case No. 98-10451 declaring the extrajudicial
foreclosure sale of the property covered by Transfer
Certificate of Title (TCT) No. T-5649 as null and void
for being barred by prescription.
The Facts
On December 15, 1980, respondents-spouses
Oscar and Nenita Tarrosa (Sps. Tarrosa) obtained
from then PNB-Republic Bank, now petitioner
Maybank Philippines, Inc. (Maybank), a loan in the
amount of P91,000.00. The loan was secured by a
Real Estate Mortgage6 dated January 5, 1981 (real
estate mortgage) over a 500-square meter parcel of
land situated in San Carlos City, Negros Occidental
(subject property), covered by TCT No. T-5649,7 and
the improvements thereon.8
After paying the said loan, or sometime in March 1983,
Sps. Tarrosa obtained another loan from Maybank
in the amount of P60,000.00 (second loan),9 payable
on March 11, 1984.10 However, Sps. Tarrosa failed to
settle the second loan upon maturity.11
Sometime in April 1998, Sps. Tarrosa received a Final
Demand Letter12 dated March 4, 1998 (final demand
letter) from Maybank requiring them to settle their
outstanding loan in the aggregate amount of
P564,579.91, inclusive of principal, interests, and
penalty charges.13 They offered to pay a lesser
amount, which Maybank refused.14 Thereafter, or on
June 25, 1998, Maybank commenced extrajudicial
foreclosure proceedings15 before the office of Ex-
Officio Provincial Sheriff Ildefonso Villanueva, Jr.
(Sheriff Villanueva). The subject property was
eventually sold in a public auction sale held on July
29, 199816 for a total bid price of P600,000.00, to the
highest bidder, Philmay Property, Inc. (PPI), which was
thereafter issued a Certificate of Sale17 dated July 30,
1998.18
On September 7, 1998, Sps. Tarrosa filed a
complaint19 for declaration of nullity and invalidity of the
foreclosure of real estate and of public auction sale
proceedings and damages with prayer for preliminary
injunction against Maybank, PPI, Sheriff Villanueva,
and the Registry of Deeds of San Carlos City, Negros
Occidental (RD-San Carlos), before the RTC, docketed
as Civil Case No. 98-10451. They averred, inter
alia, that: (a) the second loan was a clean or unsecured
loan; (b) after receiving the final demand letter, they
tried to pay the second loan, including the agreed
interests and charges, but Maybank unjustly refused
their offers of payment; and (c) Maybank's right to
foreclose had prescribed or is barred by laches. 20
On the other hand, Maybank and PPI countered21 that:
(a) the second loan was secured by the same real
estate mortgage under a continuing security provision
therein; (b) when the loan became past due, Sps.
Tarrosa promised to pay and negotiated for a
restructuring of their loan, but failed to pay despite
demands; and (c) Sps. Tarrosa's positive
acknowledgment and admission of their indebtedness
controverts the defense of prescription.
The RTC Ruling
In a Decision23 dated June 16, 2005, the RTC held that
the second loan was subject to the continuing security
provision in the real estate mortgage.24 However, it
ruled that Maybank's right to foreclose, reckoned from
the time the mortgage indebtedness became due and
payable on March 11, 1984, had already prescribed,
considering the lack of any timely judicial action, written
extrajudicial demand or written acknowledgment by the
debtor of his debt that could interrupt the prescriptive
period.25 Accordingly, it declared the extrajudicial
foreclosure proceedings affecting the subject property
as null and void, and ordered Maybank to pay Sps.
Tarrosa moral and exemplary damages, as well as
attorney's fees and litigation expenses.26
Maybank filed a motion for reconsideration27 which
was, however, denied in an Order28 dated December
9, 2005, prompting it to appeal29 to the CA.
The CA Ruling
In a Decision30 dated November 29, 2013, the CA
affirmed the RTC ruling that Maybank's right to
foreclose the real estate mortgage over the subject
property is already barred by prescription. It held that
the prescriptive period should be reckoned from March
11, 1984 when the second loan had become past due
and remained unpaid since demand was not a
condition sine qua non for the accrual of the latter's
right to foreclose under paragraph 5 of the real estate
mortgage. It observed that Maybank failed to present
evidence of any timely written extrajudicial demand or
written acknowledgment by the debtors of their debt
that could have effectively interrupted the running of
the prescriptive period.31
Undaunted, Maybank moved for
reconsideration,32 which was denied in a
Resolution33 dated May 13, 2014; hence this petition.
The Issues Before the Court
The essential issue for the Court's resolution is whether
or not the CA committed reversible error in finding that
Maybank's right to foreclose the real estate mortgage
over the subject property was barred by
prescription.chanrobleslaw
The Court's Ruling
The petition is meritorious.
An action to enforce a right arising from a
mortgage should be enforced within ten (10) years
from the time the right of action accrues, i.e., when
the mortgagor defaults in the payment of his
obligation to the mortgagee; otherwise, it will be
barred by prescription and the mortgagee will lose
his rights under the mortgage.34 However, mere
delinquency in payment does not necessarily mean
delay in the legal concept. To be in default is different
from mere delay in the grammatical sense, because it
involves the beginning of a special condition or status
which has its own peculiar effects or results.35
In order that the debtor may be in default, it is
necessary that: (a) the obligation be demandable and
already liquidated; (b) the debtor delays performance;
and (c) the creditor requires the performance judicially
or extrajudicially,36unless demand is not
necessary - i.e., when there is an express stipulation to
that effect; where the law so provides; when the period
is the controlling motive or the principal inducement for
the creation of the obligation; and where demand
would be useless. Moreover, it is not sufficient that the
law or obligation fixes a date for performance; it must
further state expressly that after the period lapses,
default will commence. Thus, it is only when demand
to pay is unnecessary in case of the
aforementioned circumstances, or when required,
such demand is made and subsequently refused
that the mortgagor can be considered in default
and the mortgagee obtains the right to file an
action to collect the debt or foreclose the
mortgage.38
In the present case, both the CA and the RTC reckoned
the accrual of Maybank's cause of action to foreclose
the real estate mortgage over the subject property from
the maturity of the second loan on May 11, 1984. The
CA further held that demand was unnecessary for the
accrual of the cause of action in light of paragraph 5 of
the real estate mortgage, which pertinently provides:
5. In the event that the Mortgagor herein should fail or
refuse to pay any of the sums of money secured by this
mortgage, or any part thereof, in accordance with the
terms and conditions herein set forth, or should he/it
fail to perform any of the conditions stipulated herein,
then and in any such case, the Mortgagee shall have
the right, at its election to foreclose this mortgage, [x x
x].39
However, this provision merely articulated Maybank's
right to elect foreclosure upon Sps. Tarrosa's failure or
refusal to comply with the obligation secured, which is
one of the rights duly accorded to mortgagees in a
similar situation.40 In no way did it affect the general
parameters of default, particularly the need of prior
demand under Article 116941 of the Civil Code,
considering that it did not expressly declare: (a) that
demand shall not be necessary in order that the
mortgagor may be in default; or (b) that default shall
commence upon mere failure to pay on the maturity
date of the loan. Hence, the CA erred in construing the
above provision as one through which the parties had
dispensed with demand as a condition sine qua non for
the accrual of Maybank's right to foreclose the real
estate mortgage over the subject property, and
thereby, mistakenly reckoned such right from the
maturity date of the loan on March 11, 1984. In the
absence of showing that demand is unnecessary for
the loan obligation to become due and demandable,
Maybank's right to foreclose the real estate mortgage
accrued only after the lapse of the period indicated in
its final demand letter for Sps. Tarrosa to pay, i.e., after
the lapse of five (5) days from receipt of the final
demand letter dated March 4, 1998.42 Consequently,
both the CA and the RTC committed reversible error in
declaring that Maybank's right to foreclose the real
estate mortgage had already prescribed.
Thus, considering that the existence of the loan had
been admitted, the default on the part of the debtors-
mortgagors had been duly established, and the
foreclosure proceedings had been initiated within the
prescriptive period as afore-discussed, the Court finds
no reason to nullify the extrajudicial foreclosure sale of
the subject property.
WHEREFORE, the petition is GRANTED. The
Decision dated
November 29, 2013 and the Resolution dated May 13,
2014 of the Court of Appeals in CA-G.R. CV No. 02211
are hereby REVERSED AND SET ASIDE. The
complaint in Civil Case No. 98-10451 is DISMISSED.
SO ORDERED.

G.R. No. 128991. April 12, 2000
YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA
and CHARITO
PORMIDA, Petitioners, vs. HONORABLE MATEO M.
LEANDA, in his capacity as Presiding Judge of
RTC, Tacloban City, Branch 8, and LEYTE GULF
TRADERS, INC., Respondents.
DECISION
KAPUNAN, J.:
Reformation of an instrument is that remedy in equity
by means of which a written instrument is made or
construed so as to express or conform to the real
intention of the parties when some error or mistake has
been committed.1 It is predicated on the equitable
maxim that equity treats as done that which ought to
be done.2 The rationale of the doctrine is that it would
be unjust and unequitable to allow the enforcement of
a written instrument which does not reflect or disclose
the real meeting of the minds of the parties.3 However,
an action for reformation must be brought within the
period prescribed by law, otherwise, it will be barred by
the mere lapse of time. The issue in this case is
whether or not the complaint for reformation filed by
respondent Leyte Gulf Traders, Inc. has prescribed
and in the negative, whether or not it is entitled to the
remedy of reformation sought.
On May 15, 1992, respondent Leyte Gulf Traders, Inc.
(herein referred to as respondent corporation) filed a
complaint for reformation of instrument, specific
performance, annulment of conditional sale and
damages with prayer for writ of injunction against
petitioners Yolanda Rosello-Bentir and the spouses
Samuel and Charito Pormida. The case was docketed
as Civil Case No. 92-05-88 and raffled to Judge Pedro
S. Espina, RTC, Tacloban City, Branch 7. Respondent
corporation alleged that it entered into a contract of
lease of a parcel of land with petitioner Bentir for a
period of twenty (20) years starting May 5, 1968.
According to respondent corporation, the lease was
extended for another four (4) years or until May 31,
1992. On May 5, 1989, petitioner Bentir sold the leased
premises to petitioner spouses Samuel Pormada and
Charito Pormada. Respondent corporation questioned
the sale alleging that it had a right of first refusal.
Rebuffed, it filed Civil Case No. 92-05-88 seeking the
reformation of the expired contract of lease on the
ground that its lawyer inadvertently omitted to
incorporate in the contract of lease executed in 1968,
the verbal agreement or understanding between the
parties that in the event petitioner Bentir leases or sells
the lot after the expiration of the lease, respondent
corporation has the right to equal the highest offer.
In due time, petitioners filed their answer alleging that
the inadvertence of the lawyer who prepared the lease
contract is not a ground for reformation. They further
contended that respondent corporation is guilty of
laches for not bringing the case for reformation of the
lease contract within the prescriptive period of ten (10)
years from its execution.
Respondent corporation then filed its reply and on
November 18, 1992, filed a motion to admit amended
complaint. Said motion was granted by the lower
court.4cräläwvirtualibräry
Thereafter, petitioners filed a motion to dismiss
reiterating that the complaint should be dismissed on
the ground of prescription.
On December 15, 1995, the trial court through Judge
Pedro S. Espina issued an order dismissing the
complaint premised on its finding that the action for
reformation had already prescribed. The order reads:
ORDER
Resolved here is the defendants MOTION TO
DISMISS PLAINTIFFS complaint on ground of
prescription of action.
It is claimed by plaintiff that he and defendant Bentir
entered into a contract of lease of a parcel of land on
May 5, 1968 for a period of 20 years (and renewed for
an additional 4 years thereafter) with the verbal
agreement that in case the lessor decides to sell the
property after the lease, she shall give the plaintiff the
right to equal the offers of other prospective buyers. It
was claimed that the lessor violated this right of first
refusal of the plaintiff when she sureptitiously (sic) sold
the land to co-defendant Pormida on May 5, 1989
under a Deed of Conditional Sale. Plaintiffs right was
further violated when after discovery of the final sale,
plaintiff ordered to equal the price of co-defendant
Pormida was refused and again defendant Bentir
surreptitiously executed a final deed of sale in favor of
co-defendant Pormida in December 11, 1991.
The defendant Bentir denies that she bound herself to
give the plaintiff the right of first refusal in case she sells
the property. But assuming for the sake of argument
that such right of first refusal was made, it is now
contended that plaintiffs cause of action to reform the
contract to reflect such right of first refusal, has already
prescribed after 10 years, counted from May 5, 1988
when the contract of lease incepted. Counsel for
defendant cited Conde vs. Malaga, L-9405 July 31,
1956 and Ramos vs. Court of Appeals, 180 SCRA 635,
where the Supreme Court held that the prescriptive
period for reformation of a written contract is ten (10)
years under Article 1144 of the Civil Code.
This Court sustains the position of the defendants that
this action for reformation of contract has prescribed
and hereby orders the dismissal of the case.
SO ORDERED.5cräläwvirtualibräry
On December 29, 1995, respondent corporation filed a
motion for reconsideration of the order dismissing the
complaint.
On January 11, 1996, respondent corporation filed an
urgent ex-parte motion for issuance of an order
directing the petitioners, or their representatives or
agents to refrain from taking possession of the land in
question.
Considering that Judge Pedro S. Espina, to whom the
case was raffled for resolution, was assigned to the
RTC, Malolos, Bulacan, Branch 19, Judge Roberto A.
Navidad was designated in his place.
On March 28, 1996, upon motion of herein petitioners,
Judge Navidad inhibited himself from hearing the case.
Consequently, the case was re-raffled and assigned to
RTC, Tacloban City, Branch 8, presided by herein
respondent judge Mateo M. Leanda.
On May 10, 1996, respondent judge issued an order
reversing the order of dismissal on the grounds that the
action for reformation had not yet prescribed and the
dismissal was "premature and precipitate", denying
respondent corporation of its right to procedural due
process. The order reads:
ORDER
Stated briefly, the principal objectives of the twin
motions submitted by the plaintiffs, for resolution are:
(1) for the reconsideration of the Order of 15 December
1995 of the Court (RTC, Br. 7), dismissing this case,
on the sole ground of prescription of one (1) of the five
(5) causes of action of plaintiff in its complaint for
"reformation" of a contract of lease; and,
(2) for issuance by this Court of an Order prohibiting
the defendants and their privies-in-interest, from taking
possession of the leased premises, until a final court
order issues for their exercise of dominical or
possessory right thereto.
The records of this case reveal that co-defendant
BENTER (Yolanda) and plaintiff Leyte Gulf Traders
Incorporation, represented by Chairman Benito Ang,
entered into a contract of lease of a parcel of land,
denominated as Lot No. 878-D, located at Sagkahan
District, Tacloban City, on 05 May 1968, for a period of
twenty (20) years, (later renewed for an additional two
(2) years). Included in said covenant of lease is the
verbal understanding and agreement between the
contracting parties, that when the defendant (as lessor)
will sell the subject property, the plaintiff as (lessee)
has the "right of first refusal", that is, the right to equal
the offer of any other prospective third-party buyer.
This agreement (sic) is made apparent by paragraph 4
of the lease agreement stating:
"4. IMPROVEMENT. The
lessee shall have the right
to erect on the leased
premises any building or
structure that it may desire
without the consent or
approval of the Lessor x x x
provided that any
improvements existing at
the termination of the lease
shall remain as the
property of the Lessor
without right to
reimbursement to the
Lessee of the cost or value
thereof."
That the foregoing provision has been included in the
lease agreement if only to convince the defendant-
lessor that plaintiff desired a priority right to acquire the
property (ibid) by purchase, upon expiration of the
effectivity of the deed of lease.
In the course of the interplay of several procedural
moves of the parties herein, the defendants filed their
motion to admit their amended answer to plaintiffs
amended complaint. Correspondingly, the plaintiff filed
its opposition to said motion. The former court branch
admitted the amended answer, to which order of
admission, the plaintiff seasonably filed its motion for
reconsideration. But, before the said motion for
reconsideration was acted upon by the court, the latter
issued an Order on 15 December 1995, DISMISSING
this case on the lone ground of prescription of the
cause of action of plaintiffs complaint on "reformation"
of the lease contract, without anymore considering the
remaining cause of action, viz.: (a) on Specific
Performance; (b) an Annulment of Sale and Title; (c)
on Issuance of a Writ of Injunction, and (d) on
Damages.
With due respect to the judicial opinion of the
Honorable Presiding Judge of Branch 7 of this Court,
the undersigned, to whom this case was raffled to after
the inhibition of Judge Roberto Navidad, as acting
magistrate of Branch 7, feels not necessary any more
to discuss at length that even the cause of action for
"reformation" has not, as yet, prescribed.
To the mind of this Court, the dismissal order adverted
to above, was obviously premature and precipitate,
thus resulting denial upon the right of plaintiff that
procedural due process. The other remaining four (4)
causes of action of the complaint must have been
deliberated upon before that court acted hastily in
dismissing this case.
WHEREFORE, in the interest of substantial justice, the
Order of the court, (Branch 7, RTC) dismissing this
case, is hereby ordered RECONSIDERED and SET
ASIDE.
Let, therefore, the motion of plaintiff to reconsider the
Order admitting the amended answer and the Motion
to Dismiss this case (ibid), be set for hearing on May
24, 1996, at 8:30 oclock in the morning. Service of
notices must be effected upon parties and counsel as
early as possible before said scheduled date.
Concomitantly, the defendants and their privies-in-
interest or agents, are hereby STERNLY WARNED not
to enter, in the meantime, the litigated premises, before
a final court order issues granting them dominical as
well as possessory right thereto.
To the motion or petition for contempt, filed by plaintiff,
thru Atty. Bartolome C. Lawsin, the defendants may, if
they so desire, file their answer or rejoinder thereto,
before the said petition will be set for hearing. The latter
are given ten (10) days to do so, from the date of their
receipt of a copy of this Order.
SO ORDERED.6cräläwvirtualibräry
On June 10, 1996, respondent judge issued an order
for status quo ante, enjoining petitioners to desist from
occupying the property.7cräläwvirtualibräry
Aggrieved, petitioners herein filed a petition
for certiorari to the Court of Appeals seeking the
annulment of the order of respondent court with prayer
for issuance of a writ of preliminary injunction and
temporary restraining order to restrain respondent
judge from further hearing the case and to direct
respondent corporation to desist from further
possessing the litigated premises and to turn over
possession to petitioners.
On January 17, 1997, the Court of Appeals, after
finding no error in the questioned order nor grave
abuse of discretion on the part of the trial court that
would amount to lack, or in excess of jurisdiction,
denied the petition and affirmed the questioned
order.8 A reconsideration of said decision was,
likewise, denied on April 16, 1997.9cräläwvirtualibräry
Thus, the instant petition for review based on the
following assigned errors, viz:
6.01 THE COURT OF APPEALS ERRED IN HOLDING
THAT AN ACTION FOR REFORMATION IS PROPER
AND JUSTIFIED UNDER THE CIRCUMSTANCES OF
THE PRESENT CASE;
6.02 THE COURT OF APPEALS ERRED IN HOLDING
THAT THE ACTION FOR REFORMATION HAS NOT
YET PRESCRIBED;
6.03 THE COURT OF APPEALS ERRED IN HOLDING
THAT AN OPTION TO BUY IN A CONTRACT OF
LEASE IS REVIVED FROM THE IMPLIED RENEWAL
OF SUCH LEASE; AND,
6.04 THE COURT OF APPEALS ERRED IN HOLDING
THAT A STATUS QUO ANTE ORDER IS NOT AN
INJUNCTIVE RELIEF THAT SHOULD COMPLY WITH
THE PROVISIONS OF RULE 58 OF THE RULES OF
COURT.10cräläwvirtualibräry
The petition has merit.
The core issue that merits our consideration is whether
the complaint for reformation of instrument has
prescribed.
The remedy of reformation of an instrument is
grounded on the principle of equity where, in order to
express the true intention of the contracting parties, an
instrument already executed is allowed by law to be
reformed. The right of reformation is necessarily an
invasion or limitation of the parol evidence rule since,
when a writing is reformed, the result is that an oral
agreement is by court decree made legally
effective.11 Consequently, the courts, as the agencies
authorized by law to exercise the power to reform an
instrument, must necessarily exercise that power
sparingly and with great caution and zealous care.
Moreover, the remedy, being an extraordinary one,
must be subject to limitations as may be provided by
law. Our law and jurisprudence set such limitations,
among which is laches. A suit for reformation of an
instrument may be barred by lapse of time. The
prescriptive period for actions based upon a written
contract and for reformation of an instrument is ten (10)
years under Article 1144 of the Civil
Code.12 Prescription is intended to suppress stale and
fraudulent claims arising from transactions like the one
at bar which facts had become so obscure from the
lapse of time or defective memory.13 In the case at bar,
respondent corporation had ten (10) years from 1968,
the time when the contract of lease was executed, to
file an action for reformation. Sadly, it did so only on
May 15, 1992 or twenty-four (24) years after the cause
of action accrued, hence, its cause of action has
become stale, hence, time-barred.
In holding that the action for reformation has not
prescribed, the Court of Appeals upheld the ruling of
the Regional Trial Court that the 10-year prescriptive
period should be reckoned not from the execution of
the contract of lease in 1968, but from the date of the
alleged 4-year extension of the lease contract after it
expired in 1988. Consequently, when the action for
reformation of instrument was filed in 1992 it was within
ten (10) years from the extended period of the lease.
Private respondent theorized, and the Court of Appeals
agreed, that the extended period of lease was an
"implied new lease" within the contemplation of Article
1670 of the Civil Code,14 under which provision, the
other terms of the original contract were deemed
revived in the implied new lease.
We do not agree. First, if, according to respondent
corporation, there was an agreement between the
parties to extend the lease contract for four (4) years
after the original contract expired in 1988, then Art.
1670 would not apply as this provision speaks of an
implied new lease (tacita reconduccion) where at the
end of the contract, the lessee continues to enjoy the
thing leased "with the acquiescence of the lessor", so
that the duration of the lease is "not for the period of
the original contract, but for the time established in
Article 1682 and 1687." In other words, if the extended
period of lease was expressly agreed upon by the
parties, then the term should be exactly what the
parties stipulated, not more, not less. Second, even if
the supposed 4-year extended lease be considered as
an implied new lease under Art. 1670, "the other terms
of the original contract" contemplated in said
provision are only those terms which are germane to
the lessees right of continued enjoyment of the
property leased.15 The prescriptive period of ten (10)
years provided for in Art. 114416 applies by operation
of law, not by the will of the parties. Therefore, the right
of action for reformation accrued from the date of
execution of the contract of lease in 1968.

Even if we were to assume for the sake of argument

that the instant action for reformation is not time-
barred, respondent corporations action will still not
prosper. Under Section 1, Rule 64 of the New Rules of
Court,17 an action for the reformation of an instrument
is instituted as a special civil action for declaratory
relief. Since the purpose of an action for declaratory
relief is to secure an authoritative statement of the
rights and obligations of the parties for their guidance
in the enforcement thereof, or compliance therewith,
and not to settle issues arising from an alleged breach
thereof, it may be entertained only before the breach or
violation of the law or contract to which it refers.18 Here,
respondent corporation brought the present action for
reformation after an alleged breach or violation of the
contract was already committed by petitioner Bentir.
Consequently, the remedy of reformation no longer
lies.

We no longer find it necessary to discuss the other

issues raised considering that the same are predicated
upon our affirmative resolution on the issue of the
prescription of the action for reformation.

WHEREFORE, the petition is hereby GRANTED. The

Decision of the Court of Appeals dated January 17,
1997 is REVERSED and SET ASIDE. The Order of the
Regional Trial Court of Tacloban City, Branch 7, dated
December 15, 1995 dismissing the action for
reformation is REINSTATED.

SO ORDERED.

G.R. No. 169442
REPUBLIC OF THE PHILIPPINES, represented by
the PRIVATIZATION AND MANAGEMENT OFFICE
(PMO), Petitioner
vs.
ANTONIO V. BANEZ, LUISITA BANEZ VALERA,
NENA BANEZ HOJILLA, and EDGARDO B.
HOJILLA, JR., Respondents
DECISION
PEREZ, J.:
Assailed and sought to be annulled in this Petition for
Review on Certiorari under Rule 45 of the 1997 Rules
of Civil Procedure is the Decision1 of the Court of
Appeals dated 23 August 2005 in CA-G.R. CV No.
70137, entitled "Cellophil Resources Corporation v.
Antonio V. Banez, Luisita Banez Valera, Nena Banez
Hojilla and Edgardo B. Hojilla, Jr.," which affirmed the
Order2 of the Regional Trial Court (RTC), Branch 1,
Bangued, Abra, dated 16 August 2000, that dismissed
the complaint of petitioner Republic of the Philippines,
represented by Privatization and Management Office
(PMO), for specific performance, recovery of
possession, and damages against respondents
Antonio V. Banez, Luisita Bañez Valera, Nena Bañez
Hojilla and Edgardo B. Hojilla, Jr., docketed as Civil
Case No. 1853.
The facts as culled from the records are as follows:
In 1976, Antonio V. Bañez, Luisita Bañez Valera, and
Nena Bañez Hojilla (collectively, respondents) offered
for sale a parcel of land (subject property), with an area
of 20,000 sq m in Barangay Calaba, Bangued, Abra to
Cellophil Resources Corporation (CRC). Pursuant to
the offer to sell on 7 December 1981, respondents
executed a Letter Agreement irrevocably giving CRC
the option to purchase the subject property, which CRC
accepted. The pertinent portion of the Letter
Agreement (hereinafter referred to as Contract), to wit:
1. The purchase price shall be Twenty Pesos xxx per
square meter or a total amount of Four Hundred
Thousand Pesos (₱400,000.00).
2. The co-owners shall take all necessary steps to
cause the CRC Portion to be brought under the
operation of Republic Act No. 496, as amended,
and to cause the issuance in their name of the
corresponding original certificate of title, all of the
foregoing to be accomplished within a reasonable
time from date hereof. xxx
xxxx
7. The co-owners hereby confirm their agreement and
permission to CRC’s entry into, construction of
building[s] and improvements, and occupancy of, any
portion of the Property, and xxx waive any right of
action they may have against CRC respecting such
entry, construction, or occupancy by the latter of any
Portion of the Property.
8. An absolute deed of sale containing the above
provisions and standard warranties on
conveyances of real property shall be executed by
the co-owners in favor of CRC or its assignee/s and
the same delivered to the latter together with the
original certificate of title upon payment of the purchase
price less the advances made by CRC in accordance
with Paragraphs 2 and 3 above; provided, that
payment shall be made by CRC only upon
presentation by the co-owners to CRC of
certificate/s and/or clearances, with corresponding
receipts, issued by the appropriate government
office/s or agency/ies to the effect that capital
gains tax, real estate taxes on the Property and
local transfer tax and other taxes, fees or charges
due on the transaction and/or on the Property have
been paid.
9. This option shall be effective from [the] date of your
acceptance as indicated by your conformity below and
for a period of one (1) month from and after CRC shall
have been notified in writing by the co-owners that an
original certificate of title has been issued in their
names and that they are ready to execute the xxx deed
of sale.3 (Emphasis and underscoring ours)
Respondents asked for several cash advances which
reached the total amount of, more or less, Two
Hundred Seventeen Thousand Pesos (P217,000.00),
to be deducted from the purchase price of Four
Hundred Thousand Pesos (₱400,000.00). After paying
cash advances to respondents, CRC constructed staff
houses and introduced improvements on the subject
property. As respondents would be staying abroad for
a time, they executed a Special Power of Attorney
(SPA) in favor of Edgardo B. Hojilla (Hojilla). The SPA
authorized Hojilla to perform the following:
1. To take all steps necessary to cause a portion of the
lot covered by Tax Declaration No. 40185 in the name
of Urbano Bañez which is the subject of our "Offer to
Sell" to Cellophil Resources Corporation containing an
area xxx to be brought under the operation of Republic
Act No. 496, as amended, and to cause the issuance
in our name of the corresponding original certificate of
title.
2. To do all acts and things and to execute all papers
and documents of whatever nature or kind required for
the accomplishments of the aforesaid purpose.
HEREBY GRANTING AND GIVING unto our said
attorney full power and authority whatsoever requisite
or necessary or proper to be done in or about the
premises as fully to all intents and purposes as we
might or could lawfully do if personally present (with
power of substitution and revocation), and hereby
ratifying and confirming all that our said attorney shall
do or cause to be done under and by virtue of these
presents.4
However, CRC stopped its operation. The
Development Bank of the Philippines and National
Development Company took over CRC’s operation and
turned over CRC’s equity to Asset Privatization Trust
(APT), which is a government agency created by virtue
of Proclamation No. 50, as amended. The APT’s
function is to take title to and possession of,
provisionally manage and dispose of nonperforming
assets of government financial institutions. Upon the
expiration of APT’s term on 31 December 2000, the
government issued Executive Order (E.O.) No. 323,
which created the Privatization and Management
Office (PMO). By virtue of E.O. No. 323, the powers,
functions, and duties of APT were transferred to the
PMO. Thus, the original party, CRC, is now
represented by the Republic of the Philippines through
the PMO (hereinafter referred to as petitioner), the
successor of the defunct APT.
As alleged by petitioner, respondents declared
afterwards the subject property as Urbano Bañez
property, rented out to third parties the staff houses
petitioner constructed, and ordered its guards to
prohibit the petitioner from entering the compound,
which impelled petitioner to file a complaint for specific
performance, recovery of possession, and damages
against respondents, including Hojilla, on 10 April
2000. Among others, the complaint prayed for
respondents to surrender and deliver the title of the
subject property, and execute a deed of absolute sale
in favor of petitioner upon full payment. It mentioned
three letters sent to respondents on 29 May 1991, 24
October 1991, and 6 July 1999.
In the Complaint, it was alleged that:
"[t]here is no justification, legal or otherwise for the
[respondents] to dispossess (sic) the [petitioner] from
the subject property. [Petitioner] is more than willing
and able to pay the [respondents] the balance of the
purchase price of the subject parcel of land but its
inability to do so was due to the [respondents’] failure
to produce the original certificate of title of the subject
parcel of land and to execute the pertinent deed of sale,
as well as the unjustified occupation by the
[respondents] of the property and [of] the staff houses
built by [petitioner and that] such actions of the
[respondents] are contrary to their undertaking under
condition no. 7 of the subject letter agreement, that is,
for [respondents] to permit [petitioner’s] entry into and
occupancy of any portion of the subject property and
their waiver of any right of action they may have against
[petitioner] respecting such entry and occupancy of any
portion of the property. And despite repeated demands
made by [petitioner] upon the [respondents] for them to
vacate and turnover the subject parcel of land and the
staff houses to [petitioner], the last of which was in a
letter dated July 6, 1999, the said [respondents] have
failed and neglected and still fail and neglect to do so
up to the present time."5
Ruling of the RTC
On 23 June 2000, Hojilla filed a Motion to Dismiss on
the grounds that he was not a real party-in-interest and
that the action was barred by the Statute of Limitations,
which Motion the RTC granted in an Order dated 16
August 2000 based on Article 1144(1) of the Civil
Code, which bars actions filed beyond ten (10) years
upon the execution of the written contract. According to
the RTC, the letters petitioner sent to respondents
were not demands for respondents to comply with their
obligation to deliver the title as to interrupt the running
of the prescriptive period. The pertinent portion of the
RTC Order reads:
In the instant case, the defendants were given
[enough] time from December 7, 1981 to comply with
their obligation, hence, after a reasonable period of
time, the plaintiff should have demanded compliance of
defendants’ undertakings or initiated any other action
to protect its interest without waiting for the statute of
limitations to bar their claim.6
The RTC resolved that because the written contract
was executed on 7 December 1981, then the complaint
that was filed more than eighteen (18) years since the
contract was executed was beyond the 10-year
prescriptive period. Within that 18-year period, there
was no act on the part of petitioner, whether judicial or
extrajudicial, to interrupt prescription.
While petitioner paid cash advances to respondents for
the processing of the registration of the title, "which
totaled to more or less ₱217,000.00 as of September
7, 1984 xxx to the filing of this suit, [petitioner] has not
demanded compliance by [respondents] of their
obligation, that is, the execution of the absolute deed
of sale and the delivery of the Original Certificate of
Title to the property to [petitioner] upon payment of the
purchase price stipulated. There were letters
addressed to [respondents] but these were not
demands for compliance of [respondents’] obligation
and which is not sufficient under the law to interrupt the
prescriptive period."7
The RTC further stated that:
"[t]he parties could not have contemplated that the
delivery of the property and the payment thereof could
be made indefinitely and render uncertain the status of
the land. The failure of either [of the] parties to demand
performance of the obligation of the other for an
unreasonable length of time renders the contract
ineffective."8
The motion for reconsideration was likewise denied in
an Order dated 5 January 2001.
On appeal, petitioner argued that the RTC erred when
it dismissed the complaint. Petitioner averred that: (1)
its claim was not yet barred by prescription; (2) the
period of prescription had been interrupted by
extrajudicial demand; (3) the Statute of Limitation did
not run against the State; (4) petitioner’s claim not
having prescribed, laches could not have set in; (5) the
laches of one nullified the laches of the other; and (6)
laches cannot be used to defeat justice or to
perpetuate fraud and injustice.
Ruling of the Court of Appeals
The Court of Appeals affirmed the ruling of the RTC in
a Decision dated 23 August 2005 on the ground that
the complaint was barred by the Statute of Limitations.
Contrary to petitioner’s arguments, the Court of
Appeals found that the extrajudicial demand to
respondents did not serve to toll the running of the
prescriptive period. The Court of Appeals ruled that the
record is bereft of evidence that would attest that
written extrajudicial demands were sent to
respondents. While petitioner sent demand letters
dated 29 May 1991 and 24 October 1991, these
demand letters were not considered as demand letters
because the letters simply called the attention of Hojilla
to return the properties and unlock the gates. As
regards the letter dated 6 July 1999, the Court of
Appeals ruled that because the letter was addressed to
Hojilla, who was only an attorney-in-fact authorized to
register the property, it was not binding upon the
respondents. The Court of Appeals also gave no
probative value to the 6 July 1999 letter for having no
proof of service.
With regard to the issue of running of prescriptive
period against the State, the Court of Appeals opined
that because the subject property is a patrimonial
property of the State when APT became the controlling
stockholder of CRC, prescription may run against the
State. Thus, the reasonable period within which to
register the property is three (3) years. According to the
Court of Appeals, the cause of action of petitioner
accrued three (3) years from the time the Contract was
executed on 7 December 1981 or, to say the least, on
15 August 1984 when Hojilla sent the acknowledgment
letter dated 15 August 1984, at which time it became
clear that respondents could no longer fulfill their
obligation.
Hence, petitioner is before us raising the following
arguments:
A. The Court of Appeals erred in ruling that
the running of the prescriptive period was not
interrupted when respondents acknowledged
their still unfulfilled obligation to initiate
proceedings for the registration of title of the
subject property and at the same time
committed that they will only claim the full
payment of the property upon presentation of
a clean title and execution of a Deed of Sale
signed by the heirs as stated in the letter
dated August 15, 1984.
B. The Court of Appeals erred in affirming the
outright dismissal of petitioner’s suit for
specific performance, recovery of possession
and damages on the basis of prescription
even as it is evident that there is a need to fix
a period considering that the performance of
the condition or obligation is dependent upon
the will of respondents.
C. The Court of Appeals erred in ignoring
certain manifest equitable considerations
which militate against a resort to a purely
mathematical computation of the prescriptive
period and in disregarding the provision of the
irrevocable offer that the option remains
effective for a period of one month from and
after notice that a certificate of title has been
issued.9
The main issue is whether or not the complaint for
specific performance was filed beyond the prescriptive
period.
Petitioner’s Arguments
The petitioner argues that although there is a 10-year
limitation within which to file a case based on a written
contract, the period was interrupted due to a written
acknowledgment of respondents’ obligation and
demand by petitioner. The argument is based on
Article 1155 of the Civil Code, which provides that the
running of the prescriptive period is interrupted when
there is a written extrajudicial demand by the creditors,
and when there is any written acknowledgment of the
debt by the debtor.
The petitioner referred to the letter sent by Hojilla to the
former dated 15 August 1984, and letters given by
petitioner to Hojilla dated 29 May 1991, 24 October
1991, and 6 July 1999. In the letter dated 15 August
1984, respondents affirmed their undertaking that they
will claim full payment of the property upon
presentation of a clean title and the execution of the
Absolute Deed of Sale, which reads, "[t]he Bañez heirs
will only claim for the full payment of the property upon
presentation of a clean title and execution of a Deed of
Sale signed by the heirs."10
Based on Hojilla’s representation as stated in the letter
dated 15 August 1984, petitioner argues that Hojilla is
estopped by his own acts and for misleading petitioner
because "respondents not only failed to comply with
their commitment to deliver a certificate of title but
where [sic] they also [misled] petitioner into believing
that they were working on the title of the subject
property even as they had[,] at the back of their mind[s],
the running of the statute of limitations as an arsenal
once petitioner demands the fulfillment of their
obligation."11
The petitioner further added that because there was no
period fixed for the fulfillment or performance of the
obligation to deliver the title, the least the court should
have done was to fix the period pursuant to Article 1197
of the Civil Code.
Finally, the petitioner posits that pursuant to paragraph
9 of the Contract, its obligation is conditioned upon
respondents’ obligation, which is to deliver the title.
Thus, because the respondents failed to deliver such,
the obligation of petitioner never ripened.
Respondents’ Arguments
The arguments of respondents, which are aligned with
the reasons of the lower courts, rely on Article 1144 of
the Civil Code, which provides that actions upon a
written contract must be brought within ten (10) years
from execution. Because the complaint was filed
beyond the 10-year prescriptive period, the action was
already barred by the Statute of Limitations. Further,
during such period, petitioner failed to act either
judicially or extrajudicially to effectively interrupt the
running of the prescriptive period. Thus, the complaint
must be dismissed for having been extinguished by the
Statute of Limitations.
Our Ruling
We rule in favor of the petitioner.
We deem material, for the resolution of the issues in
this case, the letters that were exchanged by the
parties.
We shall discuss each letter in seriatim.
Hojilla’s letter dated 15 August 1984
In Hojilla’s letter to petitioner dated 15 August 1984,
Hojilla updated petitioner of the status of the subject
property’s title, in this wise:
The preparation of the advance survey plan, technical
description and Engineer’s Certificate pursuant to Land
Administrative Order No. 10- 4 has been submitted to
the Regional Land Office, and approved by the
Regional Director.
Atty. Valera is now in the process of preparing the
petition papers of the Calaba property for submission
to the local court.12
There is no other logical conclusion but that the 15
August 1984 letter is an acknowledgment of
respondents’ commitment under the Contract. The
letter served to update petitioner of the status of the
subject property’s title, an obligation agreed upon by
the parties in the Contract. It would be specious to
argue that respondents did not acknowledge the
existence of the Contract and yet, send
correspondence to petitioner updating it of the status
of the application for title on the subject property.
Therefore, the letter dated 15 August 1984 served as a
written acknowledgment of debt or obligation of
respondents.
In Philippine National Railways v. NLRC,13 it was
stated that a written acknowledgment of debt or
obligation effectively interrupts the running of the
prescriptive period and sets the same running
anew.14 Hence, because Hojilla’s letter dated 15
August 1984 served as a written acknowledgement of
the respondents’ debt or obligation, it interrupted the
running of the prescriptive period and set the same
running anew with a new expiry period of 15 August
1994.
Petitioner’s letters dated 29 May
1991 and 24 October 1991
With regard to the letters petitioner sent to Hojilla dated
29 May 1991 and 24 October 1991, the RTC ruled that
these letters were insufficient under the law to interrupt
the prescriptive period because these were not
demand letters. We lift the pertinent portion from the
letter dated 29 May 1991, which demanded
respondents to return the properties and to unlock the
gates:
Under the agreement to purchase the lot, APT-CRC
shall pay the whole of the purchase price thereof when
the certificate of title and other documents enumerated
therein are presented to it. Clearly, the consummation
of the sale is within your control. x x x
In view of the foregoing, demand is hereby made
upon you and your principals, the heirs of Urbano
Bañez, to return the properties withdrawn and to
unlock the gates leading to the staffhouses (sic),
within fifteen (15) days from receipt thereof,
otherwise we will be constrained to institute the
necessary action to protect the interest of APT-
CRC.15 (Emphasis and underscoring ours)
In the same vein, the letter dated 24 October 1991
demanded respondents to discontinue the
construction, repair, demolition, and occupancy of
several staff houses. A pertinent portion of the 24
October 1991 letter reads:
Considering that these action (sic) are unauthorized,
they constitute violations of the irrevocable option to
purchase dated December 7, 1981, which remains
valid, binding and effective to this day. Demand is
hereby made upon you to discontinue such
unauthorized acts and vacate the premises within
fifteen (15) days from receipt hereof.16 x x x
(Emphasis and underscoring ours)
We do not agree with the lower courts. Clearly, the 29
May 1991 and 24 October 1991 letters demanded
respondents to return the properties, discontinue the
construction, repair, demolition and occupancy of
several staff houses, and unlock the gates, which is to
enforce respondents’ obligations pursuant to
paragraph 7 of the Contract which reads:
7. The co-owners hereby confirm their agreement and
permission to CRC’s entry into, construction of building
and improvements, and occupancy of, any portion of
the Property, and hereby accordingly waive any right of
action they may have against CRC respecting such
entry, construction, or occupancy by the latter of any
Portion of the Property.17
The letters dated 29 May 1991 and 24 October 1991
are deemed demand letters as contemplated under
Article 1155. They are demand letters to enforce
respondents’ obligation under the Contract, which is to
cede possession to petitioner. The letters interrupted
the running of the prescriptive period which
commenced to run anew.
Petitioner’s letter dated 6 July 1999
Compared to the letters dated 29 May and 24 October
1991, which demanded Hojilla to surrender possession
of the subject property, this time, in petitioner’s letter to
Hojilla dated 6 July 1999, petitioner demanded Hojilla
to produce the title of the subject property. However,
despite the fact that the letter was a clear demand of
the nature contemplated by law that would interrupt the
prescriptive period, the Court of Appeals found that (1)
the letter did not effectively interrupt the prescriptive
period because the complaint had long prescribed; (2)
the letter was addressed to the wrong party; and,
finally, (3) the letter did not bear any proof of service or
receipt.
We do not agree.
Hojilla’s SPA
We refer to the SPA, which granted the authority of
Hojilla.
When respondents went abroad pending the
performance of their obligations in the Contract, they
authorized Hojilla to register the subject property— a
single obligation in the whole range of obligations in the
Contract. The SPA appeared to have left no
representative to fulfill respondents’ obligations in the
Contract on their behalf except for Hojilla’s authority to
register the subject property. The pertinent portion of
the SPA reads:
1. To take all steps necessary to cause a portion of
the lot covered by Tax Declaration No. 40185 in the
name of Urbano Bañez which is the subject of our
"Offer to Sell" to Cellophil Resources Corporation
containing an area xxx to be brought under the
operation of Republic Act No. 496, as amended,
and to cause the issuance in our name of the
corresponding original certificate of title.
2. To do all acts and things and to execute all papers
and documents of whatever nature or kind required for
the accomplishments of the aforesaid purpose.
HEREBY GRANTING AND GIVING unto our said
attorney full power and authority whatsoever requisite
or necessary or proper to be done in or about the
premises as fully to all intents and purposes as we
might or could lawfully do if personally present (with
power of substitution and revocation), and hereby
ratifying and confirming all that our said attorney shall
do or cause to be done under and by virtue of these
presents.18 (Emphasis and underscoring ours)
This was read simply by the lower courts as limiting
Hojilla’s authority to the registration of the subject
property under the name of his principal, and all the
necessary acts for such purpose. It observed that
nowhere in the SPA was Hojilla authorized as
administrator or agent of respondents with respect to
the execution of the Contract.
In the case at bar, the reliefs prayed for by petitioner
include the execution of the Contract such as delivery
of the subject title, recovery of possession of the
subject property, execution of the deed of sale or
transfer of absolute ownership upon full payment of the
balance, and damages for alleged violation of
respondents of the Contract for non-delivery of the title
and refusal to vacate the subject property. Indeed,
following the reading of the lower courts of the scope
of Hojilla’s authority, Hojilla is neither the proper party
to execute the Contract nor the proper party to receive
the demand letters on behalf of respondents.
This strict construction of the tenor of the SPA will
render the obligatory force of the Contract ineffective.
Construction is not a tool to prejudice or commit fraud
or to obstruct, but to attain justice. Ea Est Accipienda
Interpretatio Quae Vitio Caret. To favor the lower
court’s interpretation of the scope of Hojilla’s power is
to defeat the juridical tie of the Contract—the vinculum
juris of the parties. As no one was authorized to
represent respondents in the Contract, then petitioner
cannot enforce the Contract, as it were. This is an
absurd interpretation of the SPA. It renders the
Contract ineffective for lack of a party to execute the
Contract.
Contrary to the findings of the lower court, the present
case is a case of an express agency, where, Hojilla,
the agent, binds himself to represent another, the
principal, who are herein respondents, with the latter’s
express consent or authority.19 In a contract of agency,
the agent acts for and in behalf of the principal on
matters within the scope of the authority conferred
upon him, such that, the acts of the agent have the
same legal effect as if they were personally done by
the principal.20 Because there is an express authority
granted upon Hojilla to represent the respondents as
evidenced by the SPA, Hojilla’s actions bind the
respondents.
As agent, the representations and guarantees of Hojilla
are considered representations and guarantees of the
principal. This is the principle of agency by promissory
estoppel. We refer to the evidence on record. It was
Hojilla who administered and/or managed the subject
property.21 Based on Hojilla’s letter dated 15 August
1984 to petitioner, Hojilla made the representation that
besides being the attorney-in-fact of the respondents
with limited authority to register the property, he was
also their agent with regard to respondents’ other
obligations related to the Contract. The pertinent
portion of the 15 August 1984 letter of Hojilla to
petitioner reads:
Regarding our loan with the National Electrification
Administration (NEA), Hon. Mel Mathay who is helping
the Bañez heirs has initiated negotiations with NEA for
Abreco to purchase our lot in front of the Provincial Jail
to offset our loan with NEA.22
Also, one glaring fact that cannot escape us is Hojilla’s
representation and guarantee that petitioner’s
obligation will only arise upon presentation of a clean
title and execution of a Deed of Sale signed by the
respondents’ heirs, which reads, "[t]he Bañez heirs
will only claim for the full payment of the property
upon presentation of a clean title and execution of
a Deed of Sale signed by the heirs."23
If Hojilla knew that he had no authority to execute the
Contract and receive the letters on behalf of
respondents, he should have opposed petitioner’s
demand letters. However, having received the several
demand letters from petitioner, Hojilla continuously
represented himself as the duly authorized agent of
respondents, authorized not only to administer and/or
manage the subject property, but also authorized to
register the subject property and represent the
respondents with regard to the latter’s obligations in the
Contract. Hojilla also assured petitioner that
petitioner’s obligation to pay will arise only upon
presentation of the title.
Clearly, the respondents are estopped by the acts and
representations of their agent. Falling squarely in the
case at bar is our pronouncement in Philippine
National Bank v. IAC (First Civil Cases
Div.),24 "[h]aving given that assurance, [Hojilla] may not
turn around and do the exact opposite of what [he] said
[he] would do. One may not take inconsistent positions.
A party may not go back on his own acts and
representations to the prejudice of the other party who
relied upon them."25
Assuming further that Hojilla exceeded his authority,
the respondents are still solidarily liable because they
allowed Hojilla to act as though he had full powers by
impliedly ratifying Hojilla’s actions—through action by
omission.26 This is the import of the principle of agency
by estoppel or the doctrine of apparent authority.
In an agency by estoppel or apparent authority, "[t]he
principal is bound by the acts of his agent with the
apparent authority which he knowingly permits the
agent to assume, or which he holds the agent out to
the public as possessing."27
The respondents’ acquiescence of Hojilla’s acts was
made when they failed to repudiate the latter’s acts.
They knowingly permitted Hojilla to represent them and
petitioners were clearly misled into believing Hojilla’s
authority. Thus, the respondents are now estopped
from repudiating Hojilla’s authority, and Hojilla’s
actions are binding upon the respondents.
Receipt of the Letters
Time and time again, this Court has reiterated it is not
a trier of facts and parties may raise only questions of
law.1âwphi1 The jurisdiction of the Court is limited to
reviewing errors of law and findings of fact of the Court
of Appeals are conclusive because it is not the Court’s
function to review, examine, and evaluate or weigh the
evidence all over again.28 The rule, however, is not
without exceptions, viz.:
(1) [W]hen the [conclusion is a finding] grounded
entirely on speculations, surmises [and] conjectures;
(2) [W]hen the inference made is manifestly mistaken,
absurd or impossible;
(3) [W]hen there is grave abuse of discretion;
(4) [W]hen the judgment is based on a
misapprehension of facts;
(5) [W]hen the findings of fact are conflicting;
(6) [W]hen xxx the Court of Appeals[, in making its
findings,] went beyond the issues of the case [and the
same is] contrary to the admissions of both the
appellant and the appellee;
(7) [W]hen the findings are contrary to [those] of the
trial court;
(8) [W]hen the findings [of fact] are conclusions without
citation of specific evidence on which they are based;
(9) [W]hen the facts set forth in the petition as well as
in the petitioner’s main and reply briefs are not disputed
by the respondents;
(10) [W]hen the findings of fact [of the Court of Appeals]
are premised on the supposed absence of evidence
and contradicted by the evidence on record and
(11) [When] the Court of Appeals manifestly
overlooked certain irrelevant facts not disputed by the
parties, which, if properly considered, would justify a
different conclusion.29
In the case at bar, the findings of the RTC and the
Court of Appeals are contradictory: the RTC did not
make any finding on the receipt of the demand letters
by Hojilla, while the Court of Appeals resolved that
assuming arguendo that the letters were demand
letters contemplated under Article 1155 of the Civil
Code, the same are unavailing because the letters do
not bear any proof of service of receipt by respondents.
A perusal of the records reveals that only the 24
October 1991 letter has no proof of receipt.30 The
demand letters dated 29 May 199131 and 6 July
199932 contain proofs of receipt.
Thus, the core issue of whether or not the action has
prescribed.
An action based on a written contract must be brought
within ten (10) years from the time the right of action
accrued. Accordingly, a cause of action on a written
contract accrues only when an actual breach or
violation thereof occurs.33 A cause of action has three
elements, to wit: (1) a right in favor of the plaintiff by
whatever means and under whatever law it arises or is
created; (2) an obligation on the part of the named
defendant to respect or not to violate such right; and
(3) an act or omission on the part of such defendant
violative of the right of the plaintiff or constituting a
breach of the obligation of the defendant to the
plaintiff.34
By the contract between the herein parties, the cause
of action accrued at the point when the reasonable time
within which to present the title lapsed. The parties did
not determine the date when the respondents must
present the title and other documents to the petitioner.
The parties only agreed that the respondents must
present the same within a "reasonable time."
Reasonable time means "so much time as is necessary
under the circumstances for a reasonably prudent and
diligent man to do, conveniently, what the contract or
duty requires that should be done, having a regard for
the rights and possibility of loss, if any, to the other
party."35 Such reasonable time was determined by the
respondents through the letter dated 15 August 1984.
The respondents acknowledged their obligation to
deliver the title and asked for a new period to do so. It
states:
The preparation of the advance survey plan, technical
description and Engineer’s Certificate pursuant to Land
Administrative Order No. 10-4 has been submitted to
the Regional Land Office, and approved by the
Regional Director.
Atty. Valera is now in the process of preparing the
petition papers of the Calaba property for submission
to the local court.
xxxx
The Bañez heirs will only claim for the full payment of
the property upon presentation of a clean title and
execution of a Deed of Sale signed by the heirs.36
The accrual of the cause of action to demand the titling
of the land cannot be earlier than 15 August 1984. So
that, the petitioner can sue on the contract until 15
August 1994. Prior to the expiration of the aforesaid
period, the petitioner sent a demand letter to Hojilla
dated 29 May 1991. A few months thereafter, petitioner
sent another demand letter to Hojilla dated 24 October
1991.37 The prescriptive period was interrupted on 29
May 1991.The consequence is stated in Article 1155 of
the Civil Code. It states, "[t]he prescription of actions is
interrupted when they are filed before the court, when
there is a written extrajudicial demand by the creditors,
and when there is any written acknowledgment of the
debt by the debtor." Following the law, the new ten-
year period for the filing of a case by the petitioner
should be counted from 29 May 1991, ending on 29
May 2001. The complaint at bar was filed on 10 April
2000, well within the required period.
Notably, before the expiration of the new prescriptive
period, the petitioner again sent a new demand letter
on 6 July 1999, which again caused the same to run
anew, which will expire on 6 July 2009. The complaint
filed on 10 April 2000 was timely.
The Contract and True Intent of the Parties
Based on the stipulation in the Contract, the parties
agreed that payment shall be made only upon
presentation of the title and other documents of the
subject property to petitioner. Paragraph 8 of the
Contract reads:
8. An absolute deed of sale containing the above
provisions and standard warranties on conveyances of
real property shall be executed by the co-owners in
favor of CRC or its assignee/s and the same delivered
to the latter together with the original certificate of title
upon payment of the purchase price less the advances
made by CRC in accordance with Paragraphs 2 and 3
above; provided, that payment shall be made by
CRC only upon presentation by the co-owners to
CRC of certificate/s and/or clearances, with
corresponding receipts, issued by the appropriate
government office/s or agency/ies to the effect that
capital gains tax, real estate taxes on the Property
and local transfer tax and other taxes, fees or
charges due on the transaction and/or on the
Property have been paid.38 (Emphasis and
underscoring ours)
The true intent of the parties is further enunciated in
Hojilla's letter to petitioner dated 15 August 1984,
which stated, "[t]he Baiiez heirs will only claim for the
full payment of the property upon presentation of a
clean title and execution of a Deed of Sale signed by
the heirs."39
To rule in favor of respondents despite their failure to
perform their obligations is the height of injustice.
Respondents cannot benefit from their own inaction
and failure to comply with their obligations in the
Contract and let the petitioner suffer from respondents'
own default.
WHEREFORE, the petition is GRANTED. The
Decision of the Court of Appeals dated 23 August 2005
in CA-G.R. CV No. 70137, affirming the Order of the
Regional Trial Court, which ruled that the action has
prescribed, is reversed and set aside. Let the records
of this case be REMANDED to the court of origin,
which is DIRECTED to admit the Answer with
Counterclaim of the petitioner for further trial on the
merits. The respondents are further ordered to return
possession of the subject property to petitioner. No
pronouncement as to costs.
SO ORDERED.
G.R. No. 165420 June 30, 2005
CONCEPCION R. AINZA, substituted by her legal
heirs, DR. NATIVIDAD A. TULIAO, CORAZON A.
JALECO and LILIA A. OLAYON, petitioners,
vs.
SPOUSES ANTONIO PADUA and EUGENIA
PADUA, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the
February 24, 2004 decision of the Court of Appeals in
CA-G.R. CV No. 70239,1 and its September 28, 2004
resolution, denying reconsideration thereof. 2
In her complaint for partition of real property,
annulment of titles with damages,3 Concepcion Ainza
(Concepcion) alleged that respondent-spouses
Eugenia (Eugenia) and Antonio Padua (Antonio)
owned a 216.40 sq. m. lot with an unfinished residential
house located at No. 85-A Durian corner Pajo Sts.,
Barangay Quirino 2-C, Project 2, Quezon City, covered
by Transfer Certificate of Title No. 271935. Sometime
in April 1987, she bought one-half of an undivided
portion of the property from her daughter, Eugenia and
the latter’s husband, Antonio, for One Hundred
Thousand Pesos (P100,000.00).
No Deed of Absolute Sale was executed to evidence
the transaction, but cash payment was received by the
respondents, and ownership was transferred to
Concepcion through physical delivery to her attorney-
in-fact and daughter, Natividad Tuliao (Natividad).
Concepcion authorized Natividad and the latter’s
husband, Ceferino Tuliao (Ceferino) to occupy the
premises, and make improvements on the unfinished
building.
Thereafter, Concepcion alleged that without her
consent, respondents caused the subdivision of the
property into three portions and registered it in their
names under TCT Nos. N-155122, N-155123 and N-
155124 in violation of the restrictions annotated at the
back of the title.
On the other hand, Antonio averred that he bought the
property in 1980 and introduced improvements
thereon. Between 1989 and 1990, he and his wife,
Eugenia, allowed Natividad and Ceferino to occupy the
premises temporarily. In 1994, they caused the
subdivision of the property and three (3) separate titles
were issued.
Thereafter, Antonio requested Natividad to vacate the
premises but the latter refused and claimed that
Concepcion owned the property. Antonio thus filed an
ejectment suit on April 1, 1999. Concepcion,
represented by Natividad, also filed on May 4, 1999 a
civil case for partition of real property and annulment of
titles with damages.
Antonio claimed that his wife, Eugenia, admitted that
Concepcion offered to buy one third (1/3) of the
property who gave her small amounts over several
years which totaled P100,000.00 by 1987 and for
which she signed a receipt.
On January 9, 2001, the Regional Trial Court of
Quezon City, Branch 85, rendered judgment4 in favor
of Concepcion, the dispositive portion of which states:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of the plaintiff and against the
defendants and ordering:
1. the subdivision of the subject property
between the said plaintiff and defendants in
equal shares with one-half of the property,
including the portion occupied by the spouses
Severino and Natividad Tuliao to be awarded
to the plaintiff;
2. the cancellation of Transfer Certificates of
Title Nos. N-155122, N-155123, N-155124 of
the Registry of Deeds of Quezon City;
3. the defendants to pay to the plaintiff
P50,000.00 as attorney’s fees.
SO ORDERED.5
The trial court upheld the sale between Eugenia and
Concepcion. It ruled that the sale was consummated
when both contracting parties complied with their
respective obligations. Eugenia transferred possession
by delivering the property to Concepcion who in turn
paid the purchase price. It also declared that the
transfer of the property did not violate the Statute of
Frauds because a fully executed contract does not fall
within its coverage.
On appeal by the respondents, the Court of Appeals
reversed the decision of the trial court, and declared
the sale null and void. Applying Article 124 of the
Family Code, the Court of Appeals ruled that since the
subject property is conjugal, the written consent of
Antonio must be obtained for the sale to be valid. It also
ordered the spouses Padua to return the amount of
P100,000.00 to petitioners plus interest.6
The sole issue for resolution in this petition for review
is whether there was a valid contract of sale between
Eugenia and Concepcion.
A contract of sale is perfected by mere consent, upon
a meeting of the minds on the offer and the acceptance
thereof based on subject matter, price and terms of
payment.7
In this case, there was a perfected contract of sale
between Eugenia and Concepcion. The records show
that Eugenia offered to sell a portion of the property to
Concepcion, who accepted the offer and agreed to pay
P100,000.00 as consideration. The contract of sale
was consummated when both parties fully complied
with their respective obligations. Eugenia delivered the
property to Concepcion, who in turn, paid Eugenia the
price of One Hundred Thousand Pesos (P100,000.00),
as evidenced by the receipt which reads:
RECEIPT
Received the amount of ONE HUNDRED THOUSAND
PESOS (P100,000.00) as payment for the lot on 85-A
Durian St., Project 2, Quezon City, from Mrs.
Concepcion R. Ainza, on April, 1987.
_______(Sgd.)______
Mrs.. Eugenia A. Padua8
The verbal contract of sale between Eugenia and
Concepcion did not violate the provisions of the Statute
of Frauds that a contract for the sale of real property
shall be unenforceable unless the contract or some
note or memorandum of the sale is in writing and
subscribed by the party charged or his agent.9 When a
verbal contract has been completed, executed or
partially consummated, as in this case, its
enforceability will not be barred by the Statute of
Frauds, which applies only to an executory
agreement.10 Thus, where one party has performed his
obligation, oral evidence will be admitted to prove the
agreement.11
In the instant case, the oral contract of sale between
Eugenia and Concepcion was evidenced by a receipt
signed by Eugenia. Antonio also stated that his wife
admitted to him that she sold the property to
Concepcion.
It is undisputed that the subject property was conjugal
and sold by Eugenia in April 1987 or prior to the
effectivity of the Family Code on August 3, 1988, Article
254 of which repealed Title V, Book I of the Civil Code
provisions on the property relations between husband
and wife. However, Article 256 thereof limited its
retroactive effect only to cases where it would not
prejudice or impair vested or acquired rights in
accordance with the Civil Code or other laws. In the
case at bar, vested rights of Concepcion will be
impaired or prejudiced by the application of the Family
Code; hence, the provisions of the Civil Code should
be applied.
In Felipe v. Heirs of Aldon, et al.,12 the legal effect of a
sale of conjugal properties by the wife without the
consent of the husband was clarified, to wit:
The legal ground which deserves attention is the legal
effect of a sale of lands belonging to the conjugal
partnership made by the wife without the consent of the
husband.
It is useful at this point to re-state some elementary
rules: The husband is the administrator of the conjugal
partnership. (Art. 165, Civil Code) Subject to certain
exceptions, the husband cannot alienate or encumber
any real property of the conjugal partnership without
the wife’s consent. (Art. 166, Idem.) And the wife
cannot bind the conjugal partnership without the
husband’s consent, except in cases provided by law.
(Art. 172, Idem.).
In the instant case, Gimena, the wife, sold lands
belonging to the conjugal partnership without the
consent of the husband and the sale is not covered by
the phrase "except in cases provided by law." The
Court of Appeals described the sale as "invalid" – a
term which is imprecise when used in relation to
contracts because the Civil Code uses specific names
in designating defective contracts,
namely: rescissible (Arts. 1380 et
seq.), voidable (Arts. 1390 et
seq.), unenforceable (Arts. 1403, et seq.), and void or
inexistent (Arts. 1409 et seq.).1awphi1.zw+
The sale made by Gimena is certainly a defective
contract but of what category? The answer: it is a
voidable contract.
According to Art. 1390 of the Civil Code, among the
voidable contracts are "[T]hose where one of the
parties is incapable of giving consent to the contract."
(Par. 1.) In the instant case Gimena had no capacity to
give consent to the contract of sale. The capacity to
give consent belonged not even to the husband alone
but to both spouses.
The view that the contract made by Gimena is a
voidable contract is supported by the legal
provision that contracts entered by the husband
without the consent of the wife when such consent
is required, are annullable at her instance during
the marriage and within ten years from the
transaction questioned. (Art. 173, Civil Code).
Gimena’s contract is not rescissible for in such a
contract all the essential elements are untainted but
Gimena’s consent was tainted. Neither can the
contract be classified as unenforceable because it
does not fit any of those described in Art. 1403 of the
Civil Code. And finally, the contract cannot be void or
inexistent because it is not one of those mentioned in
Art. 1409 of the Civil Code. By process of elimination,
it must perforce be a voidable contract.
The voidable contract of Gimena was subject to
annulment by her husband only during the marriage
because he was the victim who had an interest in the
contract. Gimena, who was the party responsible for
the defect, could not ask for its annulment. Their
children could not likewise seek the annulment of the
contract while the marriage subsisted because they
merely had an inchoate right to the lands sold.
(Emphasis supplied)
The consent of both Eugenia and Antonio is necessary
for the sale of the conjugal property to be valid.
Antonio’s consent cannot be presumed.13 Except for
the self-serving testimony of petitioner Natividad, there
is no evidence that Antonio participated or consented
to the sale of the conjugal property. Eugenia alone is
incapable of giving consent to the contract. Therefore,
in the absence of Antonio’s consent, the disposition
made by Eugenia is voidable.14
The contract of sale between Eugenia and Concepcion
being an oral contract, the action to annul the same
must be commenced within six years from the time the
right of action accrued.15 Eugenia sold the property in
April 1987 hence Antonio should have asked the courts
to annul the sale on or before April 1993. No action was
commenced by Antonio to annul the sale, hence his
right to seek its annulment was extinguished by
prescription.
Even assuming that the ten (10)-year prescriptive
period under Art. 173 should apply, Antonio is still
barred from instituting an action to annul the sale
because since April 1987, more than ten (10) years
had already lapsed without any such action being filed.
In sum, the sale of the conjugal property by Eugenia
without the consent of her husband is voidable. It is
binding unless annulled. Antonio failed to exercise his
right to ask for the annulment within the prescribed
period, hence, he is now barred from questioning the
validity of the sale between his wife and Concepcion.
WHEREFORE, the petition is GRANTED. The decision
dated February 24, 2004 of the Court of Appeals in CA-
G.R. CV No. 70239 and its resolution dated September
28, 2004 are REVERSED and SET ASIDE. The
decision dated January 9, 2001 of the Regional Trial
Court of Quezon City, Branch 85, in Civil Case No. Q-
99-37529, is REINSTATED.
SO ORDERED.
G.R. No. 190828, March 16, 2015
ONOFRE V. MONTERO, EDGARDO
ESTRAÑERO, RENING P. PADRE, GABRIEL A.
MADERA, HERMINIO T. TACLA, NELSON C.
VILORIA, DEMETRIO Q. PAJARILLO, ALFREDO R.
AGANON, REYNALDO AVILA, ALBERT T. RUIZ,
NESTOR Y. YAGO, HARTY M. TUPASI, AGUSTIN R.
AVILA, JR. OR MARCOS R. AVILA, BONIFACIO B.
GAANO, JOSELITO D. CUENTA, JONAS P.
ESTILONG, DOMINADOR C. CANARIA, GENARO C.
RONDARIS, HERARDO M. DULAY, FRANKLIN A.
RAVINA, JR., AND RUBEN
CABELLO, Petitioners, v. TIMES
TRANSPORTATION CO., INC., AND SANTIAGO
RONDARIS, MENCORP TRANSPORT SYSTEMS,
INC., VIRGINIA R. MENDOZA AND REYNALDO
MENDOZA, Respondents.
DECISION
REYES, J.:
This appeal by petition for review1 seeks to annul and
set aside the Decision2 dated August 28, 2009 and
Resolution3 dated December 11, 2009 of the Court of
Appeals (CA) in CA-G.R. SP No. 106260, which
affirmed the Decision4dated March 31, 2008 of the
National Labor Relations Commission (NLRC) in
NLRC CA No. 046325-05 (08), and its
Resolution5 dated September 5, 2008, denying the
petitioner’s Motion for Reconsideration. The NLRC
decision vacated and set aside the Decision 6 dated
June 29, 2005 of the Labor Arbiter (LA) on the ground
that the consolidated complaints for illegal dismissal,
unfair labor practice and money claims have already
prescribed.
The Facts
Respondent Times Transportation Co., Inc., (TTCI) is
a company engaged in the business of land
transportation for passengers and goods serving the
Ilocos Region to Metro Manila route. TTCI employed
the herein 21 petitioners as bus drivers, conductors,
mechanics, welders, security guards and utility
personnel, namely: Onofre V. Montero (Montero),
Edgardo N. Estrañero (Estrañero), Rening P. Padre
(Padre), Gabriel A. Madera (Madera), Herminio T.
Tacla, Nelson C. Viloria, Demetrio Q. Pajarillo
(Pajarillo), Alfredo R. Aganon (Aganon), Reynaldo
Avila (Avila), Albert T. Ruiz, Nestor Y. Yago (Yago),
Harty M. Tupasi (Tupasi), Agustin R. Avila, Jr. (Avila,
N.
Jr.), Bonifacio B. Gaano (Gaano), Joselito D. Cuenta
(Cuenta), Jonas P. Estilong (Estilong), Dominador C.
Canaria (Canaria), Genaro C. Rondaris (Genaro),
Herardo M. Dulay (Dulay), Franklin A. Ravina, Jr.
(Ravina), and Ruben C. Cabello (Cabello)
(petitioners).7chanroblesvirtuallawlibrary
Sometime in 1995, the rank-and-file employees of
TTCI formed a union named as Times Employees
Union (TEU) which was later certified as the sole and
C.
exclusive bargaining unit within
TTCI.8chanroblesvirtuallawlibrary
In March 1997, members of TEU went on strike; but
when former Labor Secretary Leonardo A. Quisimbing
assumed jurisdiction over the labor dispute and
certified the same for compulsory arbitration, a return-
to-work Order dated March 10, 1997 was issued which
ended the strike and enjoined the parties from
committing any other act that may intensify the
situation.9chanroblesvirtuallawlibrary
On August 23, 1997, TTCI Board of Directors approved
a resolution confirming the authority given to
respondent Santiago Rondaris (Santiago), TTCI
President and Chairman of the Board of Directors, to
gradually dispose the assets of the TTCI as a result of
its unabated increase of the cost of operations and
losses for the last two years. TTCI also adopted a
company-wide retrenchment program, which will take
effect on October 1, 1997, where Santiago was given
the authority to determine the number of excess
employees who would be the subject of
retrenchment.10chanroblesvirtuallawlibrary
The sale of 25 buses of TTCI, as well as the
Certificates of Public Convenience for the operation of
the buses, were likewise approved and subsequently
transferred to respondent Mencorp Transport Systems,
Inc., (MENCORP) by virtue of a Deed of Sale dated
December 12, 1997. Thereafter, several union
members received notices that they were being
retrenched effective 30 days from September 16,
1997.11chanroblesvirtuallawlibrary
For a second time, on October 17, 1997, TEU declared
a strike against TTCI, but the latter merely reiterated
the earlier return-to-work order of the Labor Secretary.
For disregarding the said return-to-work order,
Santiago issued two notices of termination dated
October 26, 199712 terminating some 106 workers and
a revised list dated November 24, 199713 increasing
the number of dismissed employees to 119, for
participating in the illegal
strike.14chanroblesvirtuallawlibrary
On December 4, 1997, Santiago served to the
Department of Labor and Employment Regional Office
I a notice that TTCI would be closing its operations due
to heavy business losses.15chanroblesvirtuallawlibrary
On May 14, 1998, petitioners Estrañero, Pajarillo,
Padre, Avila, Avila, Jr., Tupasi, Cuenta, Dulay, Yago,
and Aganon filed several complaints against TTCI and
MENCORP before the NLRC. The complaints were
thereafter consolidated under the case entitled
“Malana v. TTCI” docketed as NLRC RAB-I-01-
1007.16 However, this case was withdrawn on March 4,
1999 upon motion by the TEU’s counsel which was
given due course on March 22,
1999.17chanroblesvirtuallawlibrary
Four years later, several complaints for unfair labor
practice, illegal dismissal with money claims, damages
and attorney’s fees were filed against TTCI, Santiago,
MENCORP and its General Manager Virginia
Mendoza, including the latter’s husband Reynaldo
Mendoza (collectively called the respondents), before
the LA from June to July 2002.18 Accordingly, these
complaints were consolidated.
In response, TTCI asserted that the petitioners’ cause
of action had already been barred by prescription
because the complaints were filed only in June 2002 or
after almost five years from the date of their dismissal.
MENCORP, on the other hand, raised the defense of
lack of employer-employee relationship since it never
engaged the services of the petitioners when TTCI sold
to them its buses and the Certificates of Public
Convenience.19chanroblesvirtuallawlibrary
On June 9, 2005, the LA rendered a Decision
dismissing the petitioners’ claim for unfair labor
practice and money claims on the ground of
prescription. However, with regard to the issue of illegal
dismissal, only the complaints of Montero, Ravina,
Cabello, Genaro, Madera, Gaano, Arsenio Donato and
Estilong were dismissed for having been barred by
prescription.20chanroblesvirtuallawlibrary
The LA found that petitioners Estrañero, Pajarillo,
Aganon, Padre, Dulay, Cuenta, Canaria, Yago, Avila
and Avila, Jr. were illegally dismissed and were
awarded their separation pay and backwages.
According to the LA, the complaints of these 10
petitioners were timely filed in June 2002 because the
eight-month period during which their cases were
pending should be excluded from the four-year
prescriptive period.21chanroblesvirtuallawlibrary
Disagreeing with the LA decision, all parties interposed
an appeal before the NLRC. However, said appeals
have both been denied for non-perfection, particularly
for failure of the petitioners to verify their appeal, and
for failure of the respondent to post the required cash
or surety bond. In a Decision22 dated March 31, 2008,
the NLRC vacated and set aside the findings of the LA,
upon finding that the petitioners’ complaints had
already been barred by prescription. The dispositive
part of which reads:chanRoblesvirtualLawlibrary
WHEREFORE, IN VIEW OF THE FOREGOING, the
decision appealed from is hereby VACATED and SET
ASIDE, and the complaints dismissed on ground of
prescription.
SO ORDERED.23
The NLRC observed that the LA had ignored the rule
on prescription, and chose to be selective in awarding
relief to the 10 complainants by stating in his decision
that the period during which the labor cases were
pending should be deducted from the period of
prescription. According to the
NLRC:chanRoblesvirtualLawlibrary
We have thoroughly examined the records and find no
justification for the [LA] to rule that the pendency of the
cases has worked in favor of the complainants to whom
he awarded separation pay and backwages. The [LA]
has not at all indicated in his decision when the eight
(8)[-]month period of pendency he alluded to
commenced and when it ended. As a matter of fact,
these cases took almost three (3) years from filing of
the complaints to the rendition of the appealed
decision.24
The NLRC added that the application of the principle of
prescription should not be done on a selective basis,
especially when the dates of accrual of the causes of
action and the filing of the complaints readily show that
prescription has set in.25chanroblesvirtuallawlibrary
The petitioners filed a motion for
reconsideration26 dated May 16, 2008, but it was
denied.27 Hence, they filed a petition for
certiorari28 before the CA.
On August 28, 2009, the CA Decision dismissed the
petition.29 In sustaining the NLRC decision, the
appellate court
ratiocinated:chanRoblesvirtualLawlibrary
Here, the illegal dismissal case was filed only in June
2002 or for more than four (4) years and seven (7)
months from the time petitioners received the notices
of their dismissal in November and October 1997.
Clearly, the four-year prescriptive period has already
elapsed.
Moreover, there is likewise no merit in petitioners’
contention that the period when they filed a complaint
on May 14, 1998 but withdrawn on March 30, 1998
should be excluded from the computation of the four-
year prescriptive [period] for illegal dismissal cases.
The prescriptive period continues even after the
withdrawal of the case as though no action has been
filed at all. This was clarified in the case
of Intercontinental Broadcasting Corporation vs.
Panganiban, where the Supreme Court held that
although the commencement of an action stops the
running of the statute of prescription or limitations, its
dismissal or voluntary abandonment by plaintiff leaves
the parties in exactly the same position as though no
action had been commenced at all. x x x.30
Aggrieved by the foregoing disquisition, the petitioners
moved for reconsideration31 but it was denied by the
CA.32 Hence, the present petition for review
on certiorari.33chanroblesvirtuallawlibrary
The Issue
The main issue in this case is whether or not the
petitioners’ complaints for illegal dismissal have
already prescribed.
Ruling of the Court
The petition is bereft of merit.
“It should be emphasized at the outset that as a rule,
this Court is not a trier of facts and this applies with
greater force in labor cases. Hence, factual findings of
quasi-judicial bodies like the NLRC, particularly when
they coincide with those of the [LA] and if supported by
substantial evidence, are accorded respect and even
finality by this Court. But where the findings of the
NLRC and the [LA] are contradictory, as in the present
case, this Court may delve into the records and
examine for itself the questioned
findings.”34chanroblesvirtuallawlibrary
Nevertheless, the Court has thoroughly reviewed the
records in this case and finds that the NLRC did not
commit any grave abuse of its discretion amounting to
lack or in excess of jurisdiction in rendering its decision
in favor of the respondents. The CA acted in accord
with the evidence on record and case law when it
dismissed the petition and affirmed the assailed
decision and resolution of the NLRC.
In the case at bar, October 26, 1997 and November 24,
1997 appear on record to be the dates when the
petitioners’ employment were terminated by TTCI. The
antecedent facts that gave rise to the petitioners’
dismissal from employment are not disputed in this
case. There is no question about the fact that the
petitioners’ complaints for unfair labor practice and
money claims have already prescribed. The petitioners
however argue that their complaints for illegal
dismissal were duly filed within the four-year
prescriptive period since the period during which their
cases were pending should be deducted from the
period of prescription. On the other hand, the
respondents insist that said complaints have already
prescribed. Hence, the pivotal question in resolving the
issues hinges on the resolution of whether the period
during which the petitioners’ cases were pending
should be excluded from the period of prescription.
Settled is the rule that when one is arbitrarily and
unjustly deprived of his job or means of livelihood, the
action instituted to contest the legality of one’s
dismissal from employment constitutes, in essence, an
action predicated upon an injury to the rights of the
plaintiff, as contemplated under Article 114635 of the
New Civil Code, which must be brought within four
years.36chanroblesvirtuallawlibrary
The petitioners contend that the period when they filed
a labor case on May 14, 1998 but withdrawn on March
22, 1999 should be excluded from the computation of
the four-year prescriptive period for illegal dismissal
cases. However, the Court had already ruled that the
prescriptive period continues even after the withdrawal
of the case as though no action has been filed at all.
The applicability of Article 115537of the Civil Code in
labor cases was upheld in the case of Intercontinental
Broadcasting Corporation v. Panganiban38 where the
Court held that “although the commencement of a civil
action stops the running of the statute of prescription or
limitations, its dismissal or voluntary abandonment by
plaintiff leaves the parties in exactly the same position
as though no action had been commenced at
all.”39chanroblesvirtuallawlibrary
In like manner, while the filing of the complaint for
illegal dismissal before the LA interrupted the running
of the prescriptive period, its voluntary withdrawal left
the petitioners in exactly the same position as though
no complaint had been filed at all. The withdrawal of
their complaint effectively erased the tolling of the
reglementary period.
A prudent review of the antecedents of the claim
reveals that it has in fact prescribed due to the
petitioners’ withdrawal of their labor case docketed as
NLRC RAB-I-01-1007.40 Hence, while the filing of the
said case could have interrupted the running of the
four-year prescriptive period, the voluntary withdrawal
of the petitioners effectively cancelled the tolling of the
prescriptive period within which to file their illegal
dismissal case, leaving them in exactly the same
position as though no labor case had been filed at all.
The running of the four-year prescriptive period not
having been interrupted by the filing of NLRC RAB-I-
01-1007, the petitioners’ cause of action had already
prescribed in four years after their cessation of
employment on October 26, 1997 and November 24,
1997. Consequently, when the petitioners filed their
complaint for illegal dismissal, separation pay,
retirement benefits, and damages in 2002, their claim,
clearly, had already been barred by
prescription.41chanroblesvirtuallawlibrary
Sadly, the petitioners have no one but themselves to
blame for their own predicament. By their own
allegations in their respective complaints, they have
barred their remedy and extinguished their right of
action. Although the Constitution is committed to the
policy of social justice and the protection of the working
class, it does not necessary follow that every labor
dispute will be automatically decided in favor of labor.
The management also has its own rights. Out of
concern for the less privileged in life, this Court, has
more often than not inclined, to uphold the cause of the
worker in his conflict with the employer. Such leaning,
however, does not blind the Court to the rule that
justice is in every case for the deserving, to be
dispensed in the light of the established facts and
applicable law and
doctrine.42chanroblesvirtuallawlibrary
WHEREFORE, the Decision dated August 28, 2009
and Resolution dated December 11, 2009 of the Court
of Appeals in CA-G.R. SP No. 106260 are AFFIRMED.
SO ORDERED.

G.R. No. 175949
UNITED ALLOY PHILIPINES CORPORATION,
SPOUSES DAVID C. CHUA and LUTEN
CHUA, Petitioners
vs.
UNITED COCONUT PLANTERS BANK, Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review
on certiorari seeking the reversal and setting aside of
the Decision 1 and Resolution2 of the Court of Appeals
(CA), dated September 21, 2006 and December 11,
2006, respectively, in CA-G.R. CV No. 81079. The
assailed Decision affirmed the Decision of the Regional
Trial Court (RTC) of Makati City, Branch 135, in Civil
Case No. 01-1332, while the questioned Resolution
denied petitioners' Motion for Reconsideration.
The pertinent factual and procedural antecedents of
the case are as follows:
On December 18, 2000, herein petitioner corporation,
United Alloy Philippines Corporation (UNIALLOY)
applied for and was granted a credit accommodation
by herein respondent United Coconut Planters Bank
(UCPB) in the amount of PhP50,000,000.00, as
evidenced by a Credit Agreement. 3 Part of
UNIALLOY's obligation under the Credit Agreement
was secured by a Surety Agreement,4 dated
December 18, 2000, executed by UNIALLOY
Chairman, Jakob Van Der Sluis (Van Der Sluis),
UNIALLOY President, David Chua and his spouse,
Luten Chua (Spouses Chua), and one Yang Kim Eng
(Yang). Six (6) Promissory Notes,5 were later executed
by UNIALLOY in UCPB's favor, to wit:
1) #8111-00-20031-1, executed on December 18,
2000, in the amount ofUS$110,000.00;
2) #8111-00-00110-6, executed on December 18,
2000, in the amount of PhP6,000,000.00;
3) #8111-00-00112-2, executed on December 27,
2000, in the amount of PhP3,900,000.00;
4) #8111-01-20005-6, executed on February 7, 2001,
in the amount of US$320,000.00;
5) #8111-01-00009-0, executed on February 26, 2001,
in the amount of PhPl,600,000.00;
6) #8111-01-00030-8, executed on April 30, 2001, in
the amount of PhP16,029,320.88.
In addition, as part of the consideration for the credit
accommodation, UNIALLOY and UCPB also entered
into a "lease-purchase" contract wherein the former
assured the latter that it will purchase several real
properties which UCPB co-owns with the Development
Bank of the Philippines.
Subsequently, UNIALLOY failed to pay its loan
obligations. As a result, UCPB filed against
UNIALLOY, the spouses Chua, Yang and Van Der
Sluis an action for Sum of Money with Prayer for
Preliminary Attachment6 on August 27, 2001. The
collection case was filed with the Regional Trial Court
of Makati City (RTC of Makati) and docketed as Civil
Case No. 01-1332. Consequently, UCPB also
unilaterally rescinded its leasepurchase contract with
UNIALLOY.
On the other hand, on even date, UNIALLOY filed
against UCPB, UCPB Vice-President Robert Chua and
Van Der Sluis a complaint for Annulment and/or
Reformation of Contract with Damages, with Prayer for
a Writ of Preliminary Injunction or Temporary
Restraining Order.7 Claiming that it holds office and
conducts its business operations in Tagoloan, Misamis
Oriental, UNIALLOY filed the case with the Regional
Trial Court of Cagayan De Oro City (RTC of CDO) and
was docketed as Civil Case No. 2001-219. UNIALLOY
contended that Van Der Sluis, in cahoots with UCPB
Vice-President Robert Chua, committed fraud,
manipulation and misrepresentation to obtain the
subject loan for their own benefit. UNIALLOY prayed,
among others, that three (3) of the six (6) Promissory
Notes it executed be annulled or reformed or that it be
released from liability thereon.
On September 12, 2001, UNIALLOY filed an Urgent
Motion to Dismiss8 the collection case (Civil Case No.
01-1332) filed by UCPB on the ground of litis pendentia
and forum shopping. UNIALLOY contended that its
complaint for annulment of contract (Civil Case No.
2001-219) and the collection case filed by UCPB
involves the same parties and causes of action. On
October 31, 2001, the RTC of Makati issued an
Order9 denying UNIALLOY's motion to dismiss.
In the meantime, UCPB and its co-defendants also
filed a Motion to Dismiss UNIALLOY's complaint for
annulment of contract on the grounds of improper
venue, forum shopping, litis pendentia, and
harassment or nuisance suit. On September 13, 2001,
the RTC of CDO issued an Order10 dismissing
UNIALLOY's complaint for annulment of contract. The
dispositive portion of the Order reads, thus:
ACCORDINGLY, finding meritorious that the venue is
improperly laid and the complain[ant] engaged in
forum-shopping and harassment of defendant Jakob
Van Der Sluis, this case is hereby DISMISSED
rendering the prayer for issuance of a writ of
preliminary injunction moot and academic, and
ordering plaintiff to turn over possession of the subject
premises of the properties in question at Barangay
Gracia, Tagoloan, Misamis Oriental to defendant
United Coconut Planters Bank.
SO ORDERED. 11
Thereafter, on motion, the RTC of CDO issued an
Order of Execution, dated September 14, 2001,
directing UNIALLOY to tum over to UCPB the property
subject of their lease-purchase agreement.
UNIALLOY then filed a petition for certiorari and
mandamus with the CA questioning the September 13
and September 14, 2001 Orders of the RTC of CDO.
UNIALLOY also prayed for the issuance of a writ of
preliminary injunction. The case was docketed as CA
G.R. SP. No. 67079.
On February 18, 2002, the CA promulgated a
Resolution 12 granting UNIALLOY's prayer for the
issuance of a writ of preliminary injunction. UCPB
questioned the above CA Resolution by filing a petition
for certiorari with this Court, which was docketed as
G.R. No. 152238. On March 18, 2002, this Court issued
a Resolution which restrained the CA from enforcing its
February 18, 2002 Resolution.
On January 28, 2005, this Court, rendered its Decision
in G.R. No. 152238 denying UCPB's petition
for certiorari and affirming the CA Resolution granting
the writ of preliminary injunction.
Thereafter, on August 17, 2007, the CA promulgated a
Decision dismissing UNIALLOY's certiorari petition
and affirming the September 13 and September 14,
2001 Orders of the RTC of CDO. UNIALLOY then filed
a petition for review on certiorari challenging the above
CA Decision. The case was docketed as G.R. No.
179257.
On November 23, 2015, this Court promulgated a
Decision in G.R. No. 179257 denying UNIALLOY's
petition. This Court held that the CA did not err in
affirming the dismissal of UNIALLOY's complaint on
the grounds of improper venue, forum shopping and for
being a harassment suit. This Court also ruled that
the August 17, 2007 Decision of the CA neither
violated this Comi's January 28, 2005 Decision in
G.R. No. 152238 nor contradicted the CA's
February 18, 2002 Resolution granting the
preliminary injunction prayed for by UNIALLOY
because the dismissal of UNIALLOY's main action
carried with it the dissolution of any ancillary relief
previously granted in the said case, such as the
abovementioned preliminary injunction.
Subsequently, this Court's Decision in G.R. No.
179257 became final and executory per Entry of
Judgment dated January 20, 2016.
Meanwhile, on March 15, 2002, UNIALLOY filed with
the RTC of Makati an omnibus motion praying for the
suspension of the proceedings of the collection case in
the said court on the ground of pendency of
the certiorari petition it filed with this Court.13 However,
the RTC denied UNIALLOY's motion in its
Order14 dated August 19, 2002.
Subsequently, on June 17, 2003, the RTC of Makati
rendered Judgment in the collection case in favor of
UCPB. The dispositive portion of the RTC Decision
reads, thus:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of plaintiff. Defendants are
hereby ordered to pay plaintiff the following:
a. The sum of US DOLLARS: (US$435,494.44) with
interest and penalty charges from August 1, 2001 until
fully paid.
b. The sum of ₱26,940,950.80 with interest and penalty
charges from August 1, 2001 until fully paid.
c. Attorney's fees in the amount of ₱1,000,000.00.
d. Costs of suit.
SO ORDERED. 15
UNIALLOY appealed the above RTC Decision with the
CA.
On September 21, 2006, the CA rendered its assailed
judgment denying UNIALLOY's appeal and affirming
the questioned RTC Decision.
Hence, the instant petition raising the following issues:
5.01 THE HONORABLE COURT OF APPEALS
COMMITTED A SERIOUS, REVERSIBLE ERROR, IF
NOT GRAVE ABUSE OF
DISCRETION, IN REFUSING TO RESOLVE AS TO -
I
WHETHER OR NOT THE TRIAL COURT ERRED IN
DENYING PETITIONERS' URGENT MOTION TO
DISMISS
II
WHETHER OR NOT THE TRIAL COURT ERRED IN
DENYING PETITIONERS' OMNIBUS MOTION TO
SUSPEND PROCEEDINGS AND TO LIFT WRIT OF
PRELIMINARY ATTACHMENT
III
WHETHER OR NOT THE TRIAL COURT ERRED
AND/OR COMMITTED GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OR IN
EXCESS OF JURISDICTION IN RENDERING THE
ASSAILED QUESTIONED DECISION WHEN THERE
IS A PENDING CIVIL ACTION BEFORE THE
REGIONAL TRIAL COURT OF CAGAYAN DE ORO,
BRANCH 40, INVOLVING THE SAME PARTIES AND
SUBJECT MATTER WHICH CASE, IS NOW
PENDING AND ASSAILED BY THE PLAINTIFF-
APPELLEE VIA PETITION BEFORE THE
HONORABLE SUPREME COURT.
5.02 THE HONORABLE COURT OF APPEALS
COMMITTED A SERIOUS, REVERSIBLE ERROR IF
NOT GRAVE ABUSE OF DISCRETION, IN DENYING
PETITIONERS' URGENT MOTION FOR
RECONSIDERATION WITHOUT STATING CLEARLY
AND DISTINCTLY THE FACTUAL AND LEGAL
BASIS THEREOF.16
Petitioners' basic argument is that the resolution of the
instant petition basically hinges on the outcome of the
petition filed under G.R. No. 179257. Considering that
the promissory notes subject of G.R. No. 179257 are
among the promissory notes which are also involved in
the present case, petitioner contends that a judgment
by this Court in G.R. No. 179257 that reverses the
Decision of the RTC of Cagayan de Oro City, which in
effect would declare the nullity of the subject
promissory notes, may conflict with the Decision of this
Court in the present petition, which involves the
collection of the sum being represented in the same
promissory notes. Thus, petitioner prays for the
dismissal of the collection case (Civil Case No. 01-
1332) filed by UCPB or the suspension of proceedings
therein pending resolution of its petition in G.R. No.
179257.
However, as mentioned above, on November 23,
2015, the 2nd Division of this Court already came up
with a Decision in G.R. No. 179257 which affirmed the
RTC's dismissal of UNIALLOY's complaint. Pe1iinent
portions of the said Decision read as follows:
CA CDO did not err in affirming the
dismissal of UniAlloy's Complaint on the
grounds of improper venue, forum shopping
and for being a harassment suit
The RTC was correct in dismissing UniAlloy's
Complaint on the ground of improper venue. In
general, personal actions must be commenced and
tried (i) where the plaintiff or any of the principal
plaintiffs resides, (ii) where the defendant or any of the
principal defendants resides, or (III) in the case of a
resident defendant where he may be found, at the
election of the plaintiff. Nevertheless, the parties may
agree in writing to limit the venue of future actions
between them to a specified place.
In the case at bench, paragraph 18 of the LPA
expressly provides that "[a]ny legal action arising out of
or in connection with this Agreement shall be brought
exclusively in the proper courts of Makati City, Metro
Manila." Hence, UniAlloy should have filed its
complaint before the RTC of Makati City, and not with
the RTC of Cagayan de Oro City. But to justify its
choice of venue, UniAlloy insists that the subject matter
of its Complaint in Civil Case No. 2001-219 is not the
LPA, but the fictitious loans that purportedly matured
on April 17, 2001.
UniAlloy's insistence lacks merit. Its Complaint
unequivocally sought to declare "as null and void the
unilateral rescission made by defendant UCPB of its
subsisting Lease Purchase Agreement with [UniAlloy]."
What UCPB unilaterally rescinded is the LPA and
without it there can be no unilateral rescission to speak
of. Hence, the LPA is the subject matter or at least one
of the subject matters of the Complaint. Moreover, and
to paraphrase the aforecited paragraph 18 of the LPA,
as long as the controversy arises out of or is connected
therewith, any legal action should be filed exclusively
before the proper courts of Makati City. Thus, even
assuming that the LPA is not the main subject matter,
considering that what is being sought to be annulled is
an act connected and inseparably related thereto, the
Complaint should have been filed before the proper
courts in Makati City.
With regard forum-shopping, our review of the records
of this case revealed that UniAlloy did not disclose in
the Verification/Certification of the Complaint the
pendency of Civil Case No. 2001-156 entitled "Ernesto
Paraiso and United Alloy Philippines Corporation v.
Jakob Van Der Sluis." The trial court took judicial notice
of its pendency as said case is also assigned and
pending before it. Thus, we adopt the following
unrebutted finding of the RTC:
These two civil cases have identical causes of action
or issues against defendant Jakob Van Der Sluis for
having misrepresented to plaintiff and its stockholders
that he can extend financial assistance in running the
operation of the corporation, such that on April 6, 2001
plaintiff adopted a Stockholders Resolution making
defendant Jakob chairman of the corporation for
having the financial capability to provide the financial
needs of plaintiff and willing to finance the operational
needs thereof; that a Memorandum of Agreement was
subsequently entered between the parties whereby
defendant Jakob obligated to provide sufficient
financial loan to plaintiff to make it profitable; that Jakob
malicious! y and willfiilly reneged [on] his financial
commitments to plaintiff prompting the stockholders to
call his attention and warned him of avoiding the said
agreement; that defendant who had then complete
control of plaintiffs bank account with defendant UCPB,
through fraudulent machinations and manipulations,
was able to maliciously convince David C. Chua to pre-
sign several checks; that defendant Jakob facilitated
several huge loans purportedly obtained by plaintiff
which defendant himself could not even account and
did not even pay the debts of the corporation but
instead abused and maliciously manipulated plaintiffs
account. Forum-shopping indeed exists in this case, for
both actions involve the same transactions and same
essential facts and circumstances as well as identical
causes of action, subject matter and issues, x x x
As mentioned above, this Court's Decision in the above
case has become final and executory on January 20,
2016.
Thus, contrary to petitioners' position, there is no
longer any possibility that the Decision of the RTC of
CDO may conflict with the disposition of the present
case because UNIALLOY's complaint for annulment of
contract has already been dismissed with finality. This
Court will, thus, proceed to resolve the merits of the
instant case.
The fundamental issue here is whether or not herein
petit10ners, together with their co-defendants Van Der
Sluis and Yang, are liable to pay respondent the
amounts awarded by the RTC of Makati City in its June
17, 2003 Decision. 17
The Court rules in the affirmative.
As ruled upon by both the RTC and the CA, UNIALLOY
failed to pay its obligations under the above promissory
notes and that herein petitioner Spouses Chua,
together with their co-defendants Van Der Sluis and
Yang freely executed a Surety Agreement whereby
they bound themselves jointly and severally with
UNIALLOY, to pay the latter's loan obligations with
UCPB. Pertinent portions of the said Surety Agreement
are reproduced hereunder, to wit:
xxxx
ARTICLE I
LIABILITIES OF SURETIES
Section 1.01. The SURETIES, jointly and severally with
the PRINCIPAL, hereby unconditionally and
irrevocably guarantee the full and complete payment
when due, whether at stated maturity, by acceleration
or otherwise, of all sums payable by the PRINCIPAL
under the Credit Agreement, the Note/s and other
related documents or instruments referred to therein
(hereinafter referred to collectively as the "Loan
Documents") the terms and conditions of which are
hereby deemed incorporated by reference.
The liability of the SURETIES shall not be limited to the
aggregate principal amount of FIFTY MILLION
PESOS (₱50,000,000.00), Philippine Currency, or
its foreign currency equivalent, but shall include
such interest, fees, penalties and other charges due
thereon, as well as any and all renewals, extensions,
restructurings or conversions of the Accommodation or
any portion thereof, as may appear in the books and
records of account of the BANK.
Such extension/s, renewal/s, restructuring/s, or
conversion/s of the Accommodation or any portion
thereof, including any increase in the principal amount
thereof, or the imposable interest rates and other bank
charges, shall be binding upon the SURETIES under
the terms of this SURETY AGREEMENT, without need
of any further notice to or consent or conformity of
the SURETIES, all of which are hereby expressly
waived.1âwphi1
Section 1.02. This SURETY AGREEMENT is a
guarantee of payment and not merely of collection and
is intended to be a perfect and continuing indemnity in
favor of the BANK for the amounts and to the extent
stated above. For this purpose, the SURETIES hereby
commit that for as long as this SURETY
AGREEMENT is in effect, the SURETIES shall not
sell, lease, transfer, assign or encumber any of its
present and future properties without the written
consent of the BANK, which consent will not be
unreasonably withheld.
The liability of the SURETIES shall be absolute,
irrevocable, unconditional, direct, immediate and not
contingent upon the pursuit by the BANK of whatever
remedies it may have against the PRINCIPAL or the
other sureties for the Accommodation, and shall be
performed by the SURETIES strictly in accordance
with the terms hereof and under any and all
circumstances, including the existence of any claim,
set-off, defense or other rights which the SURETIES or
any person or entity may have at any time against the
BANK for any reason whatsoever, whether or not
related to this SURETY AGREEMENT, the Loan
Documents or under such other documents executed
in relation thereto, or contemplated hereunder.
ARTICLE II
TERM
Section 2.01. This SURETY AGREEMENT shall
remain in full force and effect until payment in full of all
amount for which the PRINCIPAL is or may be liable
as set forth in ARTICLE I hereof, regardless of the
absence of any further or other assent or conformity of,
or notice to the SURETIES, or any circumstance, or
provision of law which might otherwise constitute a
defense or discharge of the SURETIES, all of which
are hereby expressly waived.
ARTICLE III
DEFAULT
Section 3.01. If the BANK shall declare the obligation
of the PRINCIPAL to be due and payable because of
the happening of any of the event of default as defined
in the Credit Agreement, the SURETIES, upon
receipt of written notice from the BANK, shall forthwith
pay to the BANK the full amount of the said
obligations, without need of demand, protest or notice
of any kind, other than the notice provided herein, all of
which are likewise expressly waived by
the SURETIES. In this connection, the BANK is
hereby given full power and authority to apply whatever
moneys or things of value belonging to
the SURETIES which may be in the possession or
control of the BANK in payment of the obligations
mentioned above.
ARTICLE IV
BINDING EFFECT
Section 4.01. This SURETY AGREEMENT shall
except upon the other SURETIES, if any whose
liability(ies) is/are extinguished by way of compromise
or otherwise be binding upon the SURETIES, their
heirs and successors in interest and shall inure to the
benefit of and be enforceable by the BANK, its assigns
and successors in interest. For this purpose,
the SURETIES have agreed, as they hereby agree,
that an extinguishment of liability(ies) of any of
the SURETIES shall not be an obstacle to
the BANK from demanding payment from the
other SURETIES, if any, so long as the
Accommodation has not been fully collected.
x x x x18
Petitioners do not deny their liability under the
abovequoted Surety Agreement. As correctly held by
both the RTC and the CA, Article 1159 of the Civil Code
expressly provides that "[o]bligations arising from
contracts have the force of law between the contracting
parties and should be complied with in good faith." The
RTC as well as the CA found nothing which would
justify or excuse petitioners from non-compliance with
their obligations under the contract they have entered
into. Thus, it becomes apparent that petitioners are
merely attempting to evade or, at least, delay the
inevitable performance of their obligation to pay under
the Surety Agreement and the subject promissory
notes which were executed in respondent's favor.
The Court notes, however, that the interest rates
imposed on the subject promissory notes were made
subject to review and adjustment at the sole discretion
and under the exclusive will of UCPB. Moreover, aside
from the Consolidated Statement of Account attached
to the demand letters addressed to petitioner spouses
Chua and their co-defendants,19 no other competent
evidence was shown to prove the total amount of
interest due on the above promissory notes. In fact,
based on the attached Consolidated Statement of
Account, UCPB has already imposed a 24% interest
rate on the total amount due on respondents' peso
obligation for a short period of six months. Settled is
the rule that any contract which appears to be heavily
weighed in favor of one of the parties so as to lead to
an unconscionable result is void.19 a Any stipulation
regarding the validity or compliance of the contract
which is left solely to the will of one of the parties, is
likewise, invalid.20
Moreover, courts have the authority to strike down or
to modify provisions in promissory notes that grant the
lenders unrestrained power to increase interest rates,
penalties and other charges at the latter's sole
discretion and without giving prior notice to and
securing the consent of the borrowers.21 This unilateral
authority is anathema to the mutuality of contracts and
enable lenders to take undue advantage of
borrowers.22 Although the Usury Law has been
effectively repealed, courts may still reduce iniquitous
or unconscionable rates charged for the use of
money. 23 Furthermore, excessive interests, penalties
and other charges not revealed in disclosure
statements issued by banks, even if stipulated in the
promissory notes, cannot be given effect under the
Truth in Lending Act.24
The Court, thus, finds it proper to modify the interest
rates imposed on respondents' obligation. Pursuant to
the ruling in Nacar v. Gallery Frames, et. al.,25 the
sums of US$435,494.44 and PhP26,940,950.80 due to
UCPB shall earn interest at the rate of 12% per
annum from the date of default, on August, 1, 2001,
until June 30, 2013 and thereafter, at the rate of 6% per
annum, from July 1, 2013 until finality of this Decision.
The total amount owing to UCPB as set forth in this
Decision shall further earn legal interest at the rate of
6o/o per annum from its finality until full payment
thereof, this interim period being deemed to be by then
an equivalent to a forbearance of credit.1âwphi1

Finally, pursuant to the parties' Credit Agreement as

well as the subject Promissory Notes, respondents are
also liable to pay a penalty charge at the rate of 1 %
per month or 12% per annum.

WHEREFORE, the instant petition is DENIED. The

Decision and Resolution of the Court of Appeals, dated
September 21, 2006 and December 11, 2006,
respectively, in CA-G.R. CV No. 81079,
are AFFIRMED with MODIFICATION by directing
petitioners and their codefendants to pay respondent
UCPB the following:

(1) the principal amounts of US$435,494.44 and

PhP26,940,950.80;

(2) legal interest of 12% per annum on the above

principal amounts reckoned from August 1, 2001 until
June 30, 2013;

(3) penalty charge of 12% per annum from August 1,

2001 until fully paid; and

(4) an interest of 6% from July 1, 2013 until fully paid.

SO ORDERED.

G.R. No. 189316 June 1, 2013
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
SPOUSES BERNARD and CRESENCIA
MARANON, Respondents.
RESOLUTION
REYES, J.:
This is a petition for review on certiorari1 under Rule 45
of the Rules of Court, assailing the Decision2 dated
June 18, 2008 and Resolution3 dated August 10, 2009
of the Court of Appeals (CA) in CA-G.R. SP No. 02513,
which affirmed in toto the Orders dated September 8,
20064 and December 6, 20065 of the Regional Trial
Court (RTC) of Bacolod City, Branch 54, directing
petitioner Philippine National Bank (PNB) to release in
favor of Spouses Bernard and Cresencia Marafion
(Spouses Marafion) the rental fees it received
amounting to Thirty Thousand Pesos (₱30,000.00).
The Facts
The controversy at bar involves a 152-square meter
parcel of land located at Cuadra-Smith Streets,
Downtown, Bacolod (subject lot) erected with a
building leased by various tenants. The subject lot was
among the properties mortgaged by Spouses Rodolfo
and Emilie Montealegre (Spouses Montealegre) to
PNB as a security for a loan. In their transactions with
PNB, Spouses Montealegre used Transfer Certificate
of Title (TCT) No. T-156512 over the subject lot
purportedly registered in the name of Emilie
Montealegre (Emilie).6
When Spouses Montealegre failed to pay the loan,
PNB initiated foreclosure proceedings on the
mortgaged properties, including the subject lot. In the
auction sale held on August 16, 1991, PNB emerged
as the highest bidder. It was issued the corresponding
Certificate of Sale dated December 17, 1991 7 which
was subsequently registered on February 4, 1992.8
Before the expiration of the redemption period or on
July 29, 1992, Spouses Marañon filed before the RTC
a complaint for Annulment of Title, Reconveyance and
Damages9 against Spouses Montealegre, PNB, the
Register of Deeds of Bacolod City and the Ex-Officio
Provincial Sheriff of Negros Occidental. The complaint,
docketed as Civil Case No. 7213, alleged that Spouses
Marañon are the true registered owners of the subject
lot by virtue of TCT No. T-129577 which was illegally
cancelled by TCT No. T-156512 under the name of
Emilie who used a falsified Deed of Sale bearing the
forged signatures of Spouse Marañon10 to effect the
transfer of title to the property in her name.
In its Answer,11 PNB averred that it is a mortgagee in
good faith and for value and that its mortgage lien on
the property was registered thus valid and binding
against the whole world.
As reflected in the Pre-trial Order12 dated March 12,
1996, the parties stipulated, among others, that the
period for legal redemption of the subject lot has
already expired.
While the trial proceedings were ongoing, Paterio
Tolete (Tolete), one of the tenants of the building
erected on the subject lot deposited his rental
payments with the Clerk of Court of Bacolod City which,
as of October 24, 2002, amounted to ₱144,000.00.
On June 2, 2006, the RTC rendered its Decision13 in
favor of the respondents after finding, based on the
expert testimony of Colonel Rodolfo Castillo, Head of
the Forensic Technology Section of Bacolod City
Philippine National Police, that the signatures of
Spouses Marañon in the Deed of Sale presented by
Spouses Montealegre before the Register of Deeds to
cause the cancellation of TCT No. T-129577 were
forged. Hence, the RTC concluded the sale to be null
and void and as such it did not transfer any right or title
in law. PNB was adjudged to be a mortgagee in good
faith whose lien on the subject lot must be respected.
Accordingly, the Decision disposed as follows:
WHEREFORE, judgment is hereby rendered in favor
of the plaintiffs herein respondents:
1. The cancellation of TCT No. 129577 over
Lot 177-A-1 Bacolod Cadastre in the name of
Bernard Marañon and the issuance of new
TCT No. 156512 in the name of defendant
Emilie Montealegre are hereby declared null
and void;
2. The defendant Emilie Montealegre is
ordered to reconvey the title over Lot No. 177-
A-1, Bacolod Cadastre back to the plaintiffs
Marañon herein respondents;
3. The Real Estate Mortgage lien of the
Philippine National Bank registered on the
title of Lot No. 177-A-1 Bacolod Cadastre
shall stay and be respected; and
4. The defendants - Emilie Montealegre and
spouse are ordered to pay attorney’s fees in
the sum of Php50,000.00, and to pay the
costs of the suit.
SO ORDERED.14
Neither of the parties sought a reconsideration of the
above decision or any portion thereof nor did they
elevate the same for appellate review.
What precipitated the controversy at hand were the
subsequent motions filed by Spouses Marañon for
release of the rental payments deposited with the Clerk
of Court and paid to PNB by Tolete.
On June 13, 2006, Spouses Marañon filed an Urgent
Motion for the Withdrawal of Deposited
Rentals15 praying that the ₱144,000.00 rental fees
deposited by Tolete with the Clerk of Court be released
in their favor for having been adjudged as the real
owner of the subject lot. The RTC granted the motion
in its Order16 dated June 28, 2006.
On September 5, 2006, Spouses Marañon again filed
with the RTC an Urgent Ex-Parte Motion for
Withdrawal of Deposited Rentals17 praying that the
₱30,000.00 rental fees paid to PNB by Tolete on
December 12, 1999 be released in their favor. The said
lease payments were for the five (5)-month period from
August 1999 to December 1999 at the monthly lease
rate of ₱6,000.00.
The RTC granted the motion in its Order18 dated
September 8, 2006 reasoning that pursuant to its
Decision dated June 2, 2006 declaring Spouses
Marañon to be the true registered owners of the subject
lot, they are entitled to its fruits.
The PNB differed with the RTC’s ruling and moved for
reconsideration averring that as declared by the RTC
in its Decision dated June 2, 2006, its mortgage lien
should be carried over to the new title reconveying the
lot to Spouses Marañon. PNB further argued that with
the expiration of the redemption period on February 4,
1993, or one (1) year from the registration of the
certificate of sale, PNB is now the owner of the subject
lot hence, entitled to its fruits. PNB prayed that (1) the
Order dated September 8, 2006 be set aside, and (2)
an order be issued directing Spouses Marañon to turn
over to PNB the amount of ₱144,000.00 released in
their favor by the Clerk of Court.19
On November 20, 2006, the RTC issued an Order
again directing PNB to release to Spouses Marañon
the ₱30,000.00 rental payments considering that they
were adjudged to have retained ownership over the
property.20
On December 6, 2006, the RTC issued another Order
denying PNB’s motion for reconsideration and
reiterating the directives in its Order dated September
8, 2006.21
Aggrieved, PNB sought recourse with the CA via a
petition for certiorari and mandamus22 claiming that as
the lawful owner of the subject lot per the RTC’s
judgment dated June 2, 2006, it is entitled to the fruits
of the same such as rentals paid by tenants hence, the
ruling that "the real estate mortgage lien of the PNB
registered on the title of Lot No. 177-A-1 Bacolod
Cadastre shall stay and be respected." PNB also
contended that it is an innocent mortgagee.
In its Decision23 dated June 18, 2008, the CA denied
the petition and affirmed the RTC’s judgment
ratiocinating that not being parties to the mortgage
transaction between PNB and Spouses Montealegre,
Spouses Marañon cannot be deprived of the fruits of
the subject lot as the same will amount to deprivation
of property without due process of law. The RTC further
held that PNB is not a mortgagee in good faith because
as a financial institution imbued with public interest, it
should have looked beyond the certificate of title
presented by Spouses Montealegre and conducted an
inspection on the circumstances surrounding the
transfer to Spouses Montealegre. The decretal portion
of the Decision thus read:
WHEREFORE, in view of the foregoing, the petition is
hereby DISMISSED. The Orders dated September 8,
2006 and December 6, 2006, rendered by the
respondent Presiding Judge of the Regional Trial
Court, Branch 54, Bacolod City, in Civil Case NO. 7213
directing the release of the deposited rental in the
amount of THIRTY THOUSAND PESOS
([P]30,000.00) to private respondents are hereby
AFFIRMED.
SO ORDERED.24
PNB moved for reconsideration25 but the motion was
denied in the CA Resolution dated August 10,
2009.26 Hence, the present recourse whereby PNB
argues that the RTC Decision dated June 2, 2006
lapsed into finality when it was not appealed or
submitted for reconsideration. As such, all
conclusions therein are immutable and can no
longer be modified by any court even by the RTC
that rendered the same. The CA however
erroneously altered the RTC Decision by reversing
the pronouncement that PNB is a mortgagee-in-
good-faith.
PNB further asseverates that its mortgage lien was
carried over to the new title issued to Spouses
Marañon and thus it retained the right to foreclose the
subject lot upon non-payment of the secured debt.
PNB asserts that it is entitled to the rent because it
became the subject lot’s new owner when the
redemption period expired without the property being
redeemed.
Ruling of the Court
We deny the petition.
It is readily apparent from the facts at hand that the
status of PNB’s lien on the subject lot has already been
settled by the RTC in its Decision dated June 2, 2006
where it was adjudged as a mortgagee in good faith
whose lien shall subsist and be respected. The
decision lapsed into finality when neither of the parties
moved for its reconsideration or appealed.
Being a final judgment, the dispositions and
conclusions therein have become immutable and
unalterable not only as against the parties but even the
courts. This is known as the doctrine of immutability of
judgments which espouses that a judgment that has
acquired finality becomes immutable and unalterable,
and may no longer be modified in any respect even if
the modification is meant to correct erroneous
conclusions of fact or law and whether it will be made
by the court that rendered it or by the highest court of
the land.27 The significance of this rule was
emphasized in Apo Fruits Corporation v. Court of
Appeals,28 to wit:
The reason for the rule is that if, on the application of
one party, the court could change its judgment to the
prejudice of the other, it could thereafter, on application
of the latter, again change the judgment and continue
this practice indefinitely. The equity of a particular case
must yield to the overmastering need of certainty and
unalterability of judicial pronouncements.
The doctrine of immutability and inalterability of a final
judgment has a two-fold purpose: (1) to avoid delay in
the administration of justice and thus, procedurally, to
make orderly the discharge of judicial business and (2)
to put an end to judicial controversies, at the risk of
occasional errors, which is precisely why courts exist.
Controversies cannot drag on indefinitely. The rights
and obligations of every litigant must not hang in
suspense for an indefinite period of time. The doctrine
is not a mere technicality to be easily brushed aside,
but a matter of public policy as well as a time-honored
principle of procedural law.29 (Citations omitted)
Hence, as correctly argued by PNB, the issue on its
status as a mortgagee in good faith have been
adjudged with finality and it was error for the CA to still
delve into and, worse, overturn, the same. The CA had
no other recourse but to uphold the status of PNB as a
mortgagee in good faith regardless of its defects for the
sake of maintaining stability of judicial
pronouncements. "The main role of the courts of justice
is to assist in the enforcement of the law and in the
maintenance of peace and order by putting an end to
judiciable controversies with finality. Nothing better
serves this role than the long established doctrine of
immutability of judgments."30
Further, it must be remembered that what reached the
CA on certiorari were RTC resolutions issued long after
the finality of the Decision dated June 2, 2006. The
RTC Orders dated September 8, 2006 and December
6, 2006 were implements of the pronouncement that
Spouses Marañon are still the rightful owners of the
subject lot, a matter that has been settled with finality
as well. This notwithstanding, the Court agrees with the
ultimate outcome of the CA’s assailed resolutions.
Rent is a civil fruit31 that belongs to the owner of the
property32 producing it by right of accession33.34 The
rightful recipient of the disputed rent in this case should
thus be the owner of the subject lot at the time the rent
accrued. It is beyond question that Spouses Marañon
never lost ownership over the subject lot. This is the
precise consequence of the final and executory
judgment in Civil Case No. 7213 rendered by the RTC
on June 3, 2006 whereby the title to the subject lot was
reconveyed to them and the cloud thereon consisting
of Emilie’s fraudulently obtained title was removed.
Ideally, the present dispute can be simply resolved on
the basis of such pronouncement. However, the
application of related legal principles ought to be
clarified in order to settle the intervening right of PNB
as a mortgagee in good faith.
The protection afforded to PNB as a mortgagee in good
faith refers to the right to have its mortgage lien carried
over and annotated on the new certificate of title issued
to Spouses Marañon35 as so adjudged by the RTC.
Thereafter, to enforce such lien thru foreclosure
proceedings in case of non-payment of the secured
debt,36 as PNB did so pursue. The principle, however,
is not the singular rule that governs real estate
mortgages and foreclosures attended by fraudulent
transfers to the mortgagor.
Rent, as an accessory follow the principal.37 In fact,
when the principal property is mortgaged, the
mortgage shall include all natural or civil fruits and
improvements found thereon when the secured
obligation becomes due as provided in Article 2127 of
the Civil Code, viz:
Art. 2127 The mortgage extends to the natural
accessions, to the improvements, growing fruits, and
the rents or income not yet received when the
obligation becomes due, and to the amount of the
indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of
expropriation for public use, with the declarations,
amplifications and limitations established by law,
whether the estate remains in the possession of the
mortgagor, or it passes into the hands of a third person.
Consequently, in case of non-payment of the secured
debt, foreclosure proceedings shall cover not only the
hypothecated property but all its accessions and
accessories as well. This was illustrated in the early
case of Cu Unjieng e Hijos v. Mabalacat Sugar
Co.38 where the Court held:
That a mortgage constituted on a sugar central
includes not only the land on which it is built but also
the buildings, machinery, and accessories installed at
the time the mortgage was constituted as well as the
buildings, machinery and accessories belonging to the
mortgagor, installed after the constitution thereof x x x
.39
Applying such pronouncement in the subsequent case
of Spouses Paderes v. Court of Appeals,40 the Court
declared that the improvements constructed by the
mortgagor on the subject lot are covered by the real
estate mortgage contract with the mortgagee bank and
thus included in the foreclosure proceedings instituted
by the latter.41
However, the rule is not without qualifications. In
Castro, Jr. v. CA42 the Court explained that Article 2127
is predicated on the presumption that the ownership of
accessions and accessories also belongs to the
mortgagor as the owner of the principal. After all, it is
an indispensable requisite of a valid real estate
mortgage that the mortgagor be the absolute owner of
the encumbered property, thus:
All improvements subsequently introduced or owned
by the mortgagor on the encumbered property are
deemed to form part of the mortgage. That the
improvements are to be considered so incorporated
only if so owned by the mortgagor is a rule that can
hardly be debated since a contract of security, whether,
real or personal, needs as an indispensable element
thereof the ownership by the pledgor or mortgagor of
the property pledged or mortgaged. x x x. 43 (Citation
omitted)
Otherwise stated, absent an adverse claimant or any
evidence to the contrary, all accessories and
accessions accruing or attached to the mortgaged
property are included in the mortgage contract and
may thus also be foreclosed together with the principal
property in case of non-payment of the debt secured.
Corollary, any evidence sufficiently overthrowing the
presumption that the mortgagor owns the mortgaged
property precludes the application of Article 2127.
Otherwise stated, the provision is irrelevant and
inapplicable to mortgages and their resultant
foreclosures if the mortgagor is later on found or
declared to be not the true owner of the property, as in
the instant case.1âwphi1
It is beyond question that PNB’s mortgagors, Spouses
Montealegre, are not the true owners of the subject lot
much less of the building which produced the disputed
rent. The foreclosure proceedings on August 16, 1991
caused by PNB could not have, thus, included the
building found on the subject lot and the rent it yields.
PNB’s lien as a mortgagee in good faith pertains to the
subject lot alone because the rule that improvements
shall follow the principal in a mortgage under Article
2127 of the Civil Code does not apply under the
premises. Accordingly, since the building was not
foreclosed, it remains a property of Spouses Marañon;
it is not affected by non-redemption and is excluded
from any consolidation of title made by PNB over the
subject lot. Thus, PNB’s claim for the rent paid by
Tolete has no basis.
It must be remembered that there is technically no
juridical tie created by a valid mortgage contract that
binds PNB to the subject lot because its mortgagor was
not the true owner. But by virtue of the mortgagee in
good faith principle, the law allows PNB to enforce its
lien. We cannot, however, extend such principle so as
to create a juridical tie between PNB and the SO ORDERED.
improvements attached to the subject lot despite clear
and undeniable evidence showing that no such juridical
tie exists.

Lastly, it is worthy to note that the effects of the

foreclosure of the subject lot is in fact still contentious
considering that as a purchaser in the public sale, PNB
was only substituted to and acquired the right, title,
interest and claim of the mortgagor to the property as
of the time of the levy.44 There being already a final
judgment reconveying the subject lot to Spouses
Marañon and declaring as null and void Emilie's
purported claim of ownership, the legal consequences
of the foreclosure sale, expiration of the redemption
period and even the consolidation of the subject lot's
title in PNB's name shall be subjected to such final
judgment. This is the clear import of the ruling in
Unionbank of the Philippines v. Court of Appeals:45

This is because as purchaser at a public auction,

UNIONBANK is only substituted to and acquires the
right, title, interest and claim of the judgment debtors or
mortgagors to the property at the time of levy. Perforce,
the judgment in the main action for reconveyance will
not be rendered ineffectual by the consolidation of
ownership and the issuance of title in the name of
UNIONBANK.46 (Citation omitted)

Nonetheless, since the present recourse stemmed

from a mere motion claiming ownership of rent and not
from a main action for annulment of the foreclosure
sale or of its succeeding incidents, the Court cannot
proceed to make a ruling on the bearing of the CA's
Decision dated June 18, 2008 to PNB's standing as a
purchaser in the public auction. Such matter will have
to be threshed out in the proper forum.

All told, albeit the dispositive portions of the assailed

CA decision and resolution are differently premised,
they ought to be upheld as they convey the similar
conclusion that Spouses Marañon are the rightful
owners of the rent earned by the building on the subject
lot.

WHEREFORE, foregoing considered, the petition is

hereby DENIED. The Decision dated June 18, 2008
and Resolution dated August 10, 2009 of the Court of
Appeals in CA-G.R. SP No. 02513 are AFFIRMED.
 The petitioners, the spouses Magdalino and Cleofe
Badilla (Spouses Badilla) claimed that in 1970,
Ledesma sold to them, "on installment" basis, a portion
amounting to 200 sq. m. of Lot No. 19986 (subject
property). The sale was not reduced in writing,
however, possession of the portion sold was
transferred to the Badillas, which portion the Badillas
claim was designated as Lot No. 19986-B.4redarclaw
On April 18, 1978, the spouses Florito Bragat and Fe
Bragat (Spouses Bragat) bought 991 sq. m. of the
property from Ledesma and his wife, via a Deed of
Absolute Sale of a Residential Lot.5 Two (2) tax
declarations were allegedly issued as a result of the
sale: one designated a lot as Lot No. 19986-A with an
area of 642 sq. m.,6 while another designated the other
lot as Lot No. 19986-B with an area of 349 sq.
G.R. No. 187013, April 22, 2015
m.7redarclaw
SPOUSES MAGDALINO AND CLEOFE On May 5, 1984, the Spouses Pastrano executed
BADILLA, Petitioners, v. FE BRAGAT, Respondent. another Deed of Absolute Sale of Registered Land in
favor of herein petitioner Fe Bragat (Bragat), covered
DECISION by OCT No. P-2035 and with an area of 1,015 sq.
m.8 On the same date, Azur Pastrano executed an
Affidavit of Loss reporting the loss of the owner's
PERALTA, J.:
duplicate copy of OCT No. P-2035.9redarclaw
This is a petition for review on certiorari, under Rule 45 It was Bragat, however, who petitioned the court for the
of the Rules of Court, assailing the Decision dated issuance of a new owner's duplicate copy of OCT No.
October 9, 2008 and Resolution dated February 12, P-2035. Thus, on July 24, 1987, the RTC ordered the
2009 of the Court of Appeals rendered in CA-G.R. CV issuance of a new owner's copy of OCT No. P-
No. 70423-MIN. 2035.10redarclaw
The case involves the issue of ownership of the subject On October 2, 1987, the Spouses Pastrano executed
real property. yet another Deed of Sale of Registered Land in favor
of Bragat, which land is again covered by OCT No. P-
The facts follow. 2035 with an area of 1,015 sq. m.11 As a result, OCT
No. P-2035 was canceled and TCT No. T-47759 was
Azur Pastrano and his wife Profitiza Ebaning (Spouses issued in the name of Bragat.12redarclaw
Pastrano) were the original owners of Lot No. 19986
(subject property), located at Tablon, Cagayan de Oro On March 7, 1991, Bragat, through her counsel, made
City. Its Original Certificate of Title (OCT) No. P-2035, a written demand to vacate against the Spouses
consisting of 1,015 sq. m. was issued on November 18, Badilla. In response, the Spouses Badilla, also through
1980.1 The OCT was in the name of Azur their counsel's letter, refused the demand and raised
Pastrano.2redarclaw the earlier sale made by the Spouses Pastrano to
Ledesma and the subsequent sale by Ledesma to the
Before the issuance of the OCT, however, the Spouses Badillas.13redarclaw
Pastrano, on November 18, 1968, sold the lot to
Eustaquio P. Ledesma, Jr. (Ledesma), as evidenced Hence, the parties filed their respective complaints
by a Deed of Definite Sale of Unregistered Coconut within days of each other.
and Residential Land.3redarclaw
Bragat filed her Complaint for Recovery of
Posession and Damages against the spouses
Magdalino and Cleofe Badilla on June 5, 1992,
alleging therein that she is the absolute owner of
Lot No. 19986, covered by TCT No. T-47759. She
claimed to have purchased the property, first, from
Eustaquio Ledesma, Jr., but later, when she found
out that Ledesma was "unauthorized" to sell, she
again allegedly made another purchase of the
same property from Azur Pastrano, on May 5, 1984.
This led to the cancellation of Pastrano's OCT No. P-
2035 and the issuance of Bragat's TCT No. T-47759.
Thus, she prays for the Spouses Badilla to be ordered
to vacate the around 149-square-meter portion that
they occupy in the property.14redarclaw
Just six days later, on June 11, 1992, the Spouses
Badilla filed their own Complaint for Quieting of
Title, Declaration of Nullity of TCT No. T-47759 and
Damages against Bragat, claiming that the
Spouses Badilla are the lawful owners and
possessors of Lot No. 19986-B (a portion of Lot No.
19986), having acquired it in 1970 from Ledesma.
The latter, on his part, allegedly bought the bigger Lot
No. 19986 from Pastrano earlier on November 18,
1968. The Spouses Badilla alleged that they took
possession of and built a house on the property upon
their purchase thereof from Ledesma and has since
remained in possession. However, they claimed that
Pastrano was subsequently able to obtain a free
patent and a title, OCT No. P-2035, over Lot No.
19986. According to the Badillas, Pastrano made a
sale to Bragat on October 2, 1987, but such sale is
not valid since Pastrano was no longer the owner
of the property on that date. Consequently, the
Spouses Badilla prayed that TCT No. T-47759 issued
to Bragat pursuant to that sale be declared null and
void.15redarclaw
After Answers were filed for both complaints, the two
cases were consolidated and heard by one court,
Branch 25 of the RTC of Cagayan de Oro City, as they
involved exactly the same parties and subject lot.
After trial, the RTC found for Bragat, noting that the
sketch map shows the 152-square-meter portion
occupied by the Spouses .Badilla is within the titled
property of Bragat.16 It also found Bragat's title as valid
for what it saw as the result of a purchase in good faith
and. for value.17 In contrast, the trial court observed a
lack of evidence of the Spouses Badilla. The latter
allegedly presented handwritten and typewritten
receipts which were purportedly signed by Ledesma,
dated March 5, 1989, March 1, 1991 and March 23,
1991 acknowledging Ledesma's receipt of certain
amounts, but the court claimed that it found no
evidence of (Ledesma's) absolute ownership on these
dates. The court noted that Ledesma had sold
previously to the Spouses Bragat via a Deed of
Absolute Sale of Residential Land dated April 18, 1978.
Hence, in the trial court's view, on March 5, 1989,
March 1, 1991 and March 23, 1991, Ledesma no
longer owned the land and transferred nothing to the
Badillas.18 The dispositive portion of the RTC decision
states:LawlibraryofCRAlaw
IN THE LIGHT OF THE FOREGOING, by
preponderance of evidence, judgment is hereby
rendered in favor of Spouses Fe Bragat and Florito
Bragat and against Spouses Magdalino and Cleofe
Badilla and dismissing Civil Case No. 92-287 for failure
of Spouses Magdalino and Cleofe Badilla to
substantiate their complaint and for lack of merit and
ordering defendants Cleofe Badilla and Magdalino
Badilla in Civil Case No. 92-273:LawlibraryofCRAlaw
a) to vacate immediately the 152-square-meter
property they are occupying as shown in Exh. N-2-
A, P;
b) to pay Twenty Thousand Pesos (P20,000.00) by
way of moral damages;
c) to pay a reasonable rental of One Hundred Pesos
(P100.00) a month from March 1, 1991 at 6% legal
interest until they vacate the premises;
d) to reimburse Ten Thousand Pesos (P10,000.00)
attorney's fees and Five Thousand Pesos
(P5,000.00) as expenses for litigation as part of
consequential damages; and
e) pay the costs.
SO ORDERED.19
Upon appeal to the CA, the appellate court affirmed the
RTC's decision but modified the same on a finding that
Ledesma sold only 991 sq. of the property to Bragat in
1978; hence, it held that the remaining 24 sq. of the
1,015-sq.-m. property was validly sold to the Badillas
in 1991 and, therefore, must be reconveyed to the
latter.20 It also removed the award of damages. The
dispositive portion of the CA's decision is as
follows:LawlibraryofCRAlaw
WHEREFORE, the instant appeal is PARTIALLY
GRANTED. The January 14, 2001 Judgment (of the
RTC) is MODIFIED in that:LawlibraryofCRAlaw
a) appellants are ordered to VACATE 128 square
meters of the disputed lot and appellee is ordered to
RECONVEY 24 square meters of the disputed lot to
appellants, and
b) the reimbursement of attorney's fees and expenses
of litigation and the payment of costs are DELETED.
This case is REMANDED to the court of origin for the
purpose of determining the 24-square-meter lot to be
reconveyed to appellants.
SO ORDERED.21
Hence, this petition.
Petitioners Spouses Badijla contend that ownership of
the 200-sq.-m. portion was transferred to them when
they purchased the same and possession was
delivered to them by Ledesma in 1970.22 They also
contend that when OCT No. P-2035 was actually
issued in 1980, it was first delivered by Pastrano to
Ledesma and, the latter delivered the same to them
(the Badillas).23 Thus, Bragat allegedly falsely
claimed the "loss" of the title when she petitioned
the court for a new duplicate original, because
such title was not lost but had been with the
Badillas all along.24 Another fraud that Bragat
allegedly committed was the Deed of Sale dated
October 2, 1987, in which Profitiza Pastrano signed
(in marital consent) although she had been dead
since March 30, 1985.25redarclaw
In her Comment, Bragat claims that the sale of October
2, 1987 was only a "re-execution" of the sale of May 5,
1984, in order to avoid tax surcharges.26 Further, she
alleges that the Badillas1 documentary evidence were
all executed only after she had the property titled to her
name.27redarclaw
The issue is one of ownership of the subject property.
This Court notes that the arguments raised call for a re-
examination of the factual findings of the trial court and
the appellate court. It must be stressed that it is a time-
honored rule that in a petition for review
on certiorari under Rule 45, only questions of law may
be raised.28 Certainly, it is equally observed that factual
findings of the Court of Appeals, affirming those of the
trial court, are binding on this Court.29redarclaw
However, these rules admit of certain exceptions, such
as when the judgment of the Court of Appeals is
premised on a misapprehension of facts, or is belied by
the evidence on record, or fails to notice certain
relevant facts which, if properly considered, will justify
a different conclusion.30 After a thorough examination
of the findings of the trial court and Court of Appeals,
this Court concludes that the case falls under these
exceptional situations. Such findings must be reversed.
The error of the courts below is in
misapprehending the fact that ownership' passed
to the Spouses Badilla upon their purchase of the
subject property from Eustaquio Ledesma.
It is not disputed that the spouses Azur and Profitiza
Pastrano had previously sold on November 18, 1968,
via a Deed of Definite Sale of Unregistered Coconut
and Residential Land, the property to Eustaquio
Ledesma.31 Therefore, as early as such date, it is
established that the Pastranos no longer had
ownership over the property.
Then, as Ledesma subsequently sold, in 1970, a
portion of the property to the petitioner Spouses
Badilla, who immediately took delivery and possession,
ownership of this portion had also been transferred to
the said spouses. Although that sale appears to be
merely verbal, and payment therefor was to be made
on installment, it is a partially consummated sale, with
the Badillas paying the initial purchase price and
Ledesma surrendering possession.32 That the parties
intended for ownership to be transferred may be
inferred from their lack of any agreement stipulating
that ownership of the property is reserved by the seller
and shall not pass to the buyer until the latter has fully
paid the purchase price.33 The fact is, Ledesma even
delivered to the Badillas the owner's duplicate copy of
OCT No. P-2035.34 The Civil Code states that
ownership of the thing sold is transferred to the vendee
upon the actual or constructive delivery of the
same.35 And the thing is understood as delivered when
it is placed in the control and possession of the
vendee.36 Payment of the purchase price is not
essential to the transfer of ownership as long as the
property sold has been delivered; and such delivery
(traditio) operated to divest the vendor of title to the
property which may not be regained or recovered until
and unless the contract is resolved or rescinded in
accordance with law.37redarclaw
The same is true even if the sale is a verbal one,
because it is held that when a verbal contract has been
completed, executed or partially consummated, its
enforceability will not be barred by the Statute of
Frauds, which applies only to an executory
agreement.38 Thus, where a party has performed his
obligation, oral evidence will be admitted to prove the
agreement. And, where it was proven that one party
had delivered the thing sold to another, then the
contract was partially executed and the Statute of
Frauds does not apply.39redarclaw
Therefore, with the Spouses Bad ilia owning and
occupying the said 152-square-meter portion since
1970, it may be concluded that TCT No. T-47759
(which canceled OCT No. P-2035) covering the said
portion has been wrongfully issued.40redarclaw
In addition, TCT No. T-47759 was issued to Fe
Bragat on the strength of a Deed of Sale of
Registered Land dated October 2, 1987.41 This
deed of sale, however, is void for being simulated,
since both the vendor (Pastrano) and the vendee
(Bragat) knew at the time of its execution of the
vendor's lack of ownership over Lot No. 19986, the
property being sold. At that time, it was not
Pastrano but Ledesma who was absolute owner of
the property by virtue of the latter's earlier purchase
of Lot No. 19986 from the Spouses Pastrano on
November 18, 1968, via a Deed of Definite Sale of
Unregistered Coconut and Residential Land.42 Bragat
herself knew this, as she and her husband themselves
first bought the property from Ledesma through a Deed
of Absolute Sale of Residential Land dated April 18,
1978.43redarclaw
In fact, it is from this sale in 1978 that Fe Bragat derives
title on the property and not from tjhe Deeds of Sale
dated May 5, 1984 and October 2, 1987 executed
between her as vendee and Pastrano as vendor.
Pastrano could no longer sell any part of the property
to Bragat on such later dates since he had already sold
the same as early as November 18, 1968 to Ledesma.
Well-settled is the rule that no one can give what one
does not have - nemodat quod non habet - and,
accordingly, one can sell only what one owns or is
authorized to sell, and the buyer acquires no better title
than the seller.44 Thus, the sales made on the dates
May 5, 1984 and October 2, 1987 are void for being
[simulated and for lack of a subject matter. On these
sales, Bragat cannot clajim good faith as she herself
knew of Pastrano's lack of ownership.
It needs emphasis, however, that Bragat's property
bought from Ledesma in 1978 does not include the
152-sq.-m. portion that was already bought by the
Badillas.
is GRANTED. The assailed Decision dated October 9,
Therefore, Fe Bragat is entitled to a new transfer 2008 and Resolution dated February 12, 2009 of the
certificate of title issued in her name, but on the basis Court of Appeals in CA-G.R. CV No. 70423 -MM are
of the Deed of Absolute Sale dated April 18, 1978, and hereby REVERSED and SET ASIDE. Transfer
excluding the 152 sq. m. in area that the Spouses Certificate of Title No. T-47759 is DECLARED VOID,
Badilla have already bought and have been occupying and, in its place, two (2) new transfer certificates of
since 1970, but which are currently covered by Bragat's titles are ORDERED ISSUED, namely: (1) in the name
existing title, TCT No. T-47759. Hence, Bragat's TCT of the Spouses Magdalino and Cleofe Badilla, covering
No. T-47759 (which canceled OCT No. P-2035), the 152 sq. m. that they are occupying, and (2) in the
covering 1,015 sq. m., should be declared void and name of Fe Bragat, covering the remaining 863 sq. m.
cancelled and, in its place, two (2) new ones should be of the property, of which measurements are to be
issued: (1) in the name of the spouses Magdalino and based on Exhibits "N"51 and Exhibit "N-2".52redarclaw
Cleofe Badilla, covering the 152 sq. m. that they are
occupying, and (2) in the name of Fe Bragat, covering SO ORDERED.cr
[the remaining 863 sq. m. The metes and bounds of
these two lots are to be based on the survey plans
already submitted by appointed commissioners to the
lower court during trial, which are: the Commissioner's
Relocation Survey Report (Exhibit "N")45 signed by
Engr. Benigno B. Manlangiti et al., as well as the
accompanying Relocation Sketch Plan (Exhibit "N-
2")46 prepared by the same commissioner.
This ruling is compelled by the involvement in this case
of not just one instance of double sales but a series of
such sales made by two different vendors. First, it is
admitted that Pastrano sold the property to Ledesma in
1968; then, Pastrano sold it again to Bragat in 1984
and 1987. But Ledesma, too, sold part of the property
to the Spouses Badilla in 1970 and then the entire lot
to the Spouses; Bragat in 1978. In such a situation of
multiple sales, Article 1544 of the Civil Code relates
that ownership shall belong to the person acquiring the
property who, in good faith, first recorded such
acquisition.47 Presently, however, it cannot be said that
Bragat's recording of her 1987 purchase was in good
faith because that sale was simulated and Bragat was
aware of other persons who have an interest on the
property. That the 1987 sale is void is further revealed
by evidence to show that one of its signatories, Profitiza
Pastrano was already dead when it was
executed.48 Bragat herself also admitted that she knew
of the Spouses Badillas' occupation prior to her
purchase.49 In that case, the same Article 1544 of the
Civil Code provides that when neither buyer registered,
in good faith, the sale of the properties with the register
of deeds, the one who took prior possession of the
properties shall be the lawful owner thereof. 50 Such
prior possessors, at least with respect to the 152-sq.-
m. portion, are indisputably the Spouses Badilla.
WHEREFORE, premises considered, the petition

G.R. No. 214587, February 26, 2018
JOSEPHINE P. DELOS REYES AND JULIUS C.
PERALTA, REPRESENTED BY THEIR ATTORNEY-
IN-FACT, J.F. JAVIER D.
PERALTA, Petitioners, v. MUNICIPALITY OF
KALIBO, AKLAN, ITS SANGGUNIANG BAYAN AND
MAYOR RAYMAR A. REBALDO, Respondents.
DECISION
PERALTA, J.:
This is a petition for review seeking to annul and set
aside the Decision1 of the Court of Appeals (CA) Cebu,
Nineteenth (19th) Division, dated September 28, 2012,
and its Resolution2 dated August 28, 2014 in CA-G.R.
CEB-CV No. 00700 which reversed and set aside the
Decision3 of the Regional Trial Court (RTC), Branch 6
of Kalibo, Aklan on February 22, 2005 in Civil Case No.
5440, thereby declaring the subject properties as part
of public land.
The factual and procedural antecedents, as evidenced
by the records of the case, are the following:
Lot No. 2076 of the Kalibo Cadastre, with a total area
of 101,897 square meters (sq.m.), was covered by
Original Certificate of Title (OCT) No. 24435 RO-831,
and registered in the name of Ana O. Peralta. Upon her
demise, her property passed on to her brother, Jose
Peralta, who caused registration of the same in his
name under Transfer Certificate of Title (TCT) No. T-
5547, issued on January 13, 1975. Jose later had the
property divided into Lots 2076-A and 2076-B, and sold
the latter portion. Lot 2076-A, on the other hand,
remained in Jose's name and was registered under
TCT No. 6166 on November 17, 1975.
In the meantime, allegedly through accretion, land was
added to Lot No. 2076. Said area was first occupied by
and declared for taxation purposes (Tax Declaration
No. 6466) in the name of Ambrocio Ignacio in 1945. He
was the Peraltas' tenant, but he later executed a
Quitclaim of Real Property in Jose's favor for the
amount of P70.44 on March 14, 1955. When Jose died,
Lot 2076-A, together with the supposed area of
accretion, was transferred to his son, Juanito Peralta.
While TCT T-13140 was issued for Lot 2076-A on
September 1, 1983, the area of accretion was
apportioned and registered under Tax Declaration Nos.
21162-A, 21163-A, 21164-A, and 21165-A in the
names of siblings Juanito, Javier Peralta, Josephine
delos Reyes, and Julius Peralta. Subsequently, Juanito
likewise died.
On the other hand, the Municipality of Kalibo, through
its then Mayor Diego Luces and the members of
its Sangguniang Bayan, sought to convert more or less
four (4) hectares of said area of accretion into a
garbage dumpsite. On November 10, 1992, Juanito, in
his capacity as his siblings' representative, opposed
said project in a letter. For failure to get a favorable
response from the mayor's office, he wrote a formal
protest to the Secretary of the Department of
Environment and Natural Resources (DENR) on
October 2, 1997.
Despite the Peraltas' opposition, the Municipality of
Kalibo continued the project under the justification that
the contested property is actually part of the public
domain. Moreover, the DENR's Environmental
Compliance Certificate (ECC) showed that the project
would not harm the dumpsite's neighboring areas,
including the water systems. Thus, the municipality
built a retaining wall on the property facing the Aklan
river in 1996. More of the structures were built on the
area from 1997 to 1998. Later, the area was enclosed
with a perimeter fence.
On January 26, 1998, the Peraltas filed a
Complaint4 for quieting of title over the two (2) portions
of accretion declared in their names for taxation
purposes.
The Peraltas' prayer for an injunctive writ against the
construction of the dumpsite was denied, but on
February 22, 2005, the RTC of Kalibo, ruled in their
favor, thus:
WHEREFORE, in view of the foregoing considerations,
judgment is hereby rendered in favor of the plaintiffs
and against the defendants declaring the
aforedescribed parcels of land as an accretion and not
a public land. Defendants are also ordered to cease
and desist from occupying that portion of the garbage
dumpsite with an area of 31,320 square meters,
indicated in Parcels I, II and III of Annex A of the
Commissioner's Report (Exh. "13") which are within
Lots 3 and 4 of plaintiffs' property.
No award for damages and attorney's fees for want of
evidence to support the same.
Costs against the defendants.
SO ORDERED.5
Undaunted, the Municipality of Kalibo brought the
matter to the CA Cebu. On September 28, 2012, the
CA granted its appeal and reversed the assailed RTC
ruling, hence:
IN LIGHT OF THE FOREGOING, the appeal is
GRANTED. The assailed February 22, 2005 Decision
of the Regional Trial Court, Branch 6 of Kalibo, Aklan
in Civil Case No. 5440 is hereby REVERSED and SET
ASIDE.
SO ORDERED.6
The Peraltas then filed a Motion for Reconsideration,
but the same was denied in a Resolution dated August
28, 2014. Hence, the instant petition.
The main issue in this case is whether or not the CA
committed an error when it reversed the RTC, which
declared the subject parcels of land as accretion and
not part of the public domain.
The Court rules in the negative.
In order that an action for quieting of title may prosper,
the plaintiff must have legal or equitable title to, or
interest in, the property which is the subject matter of
the action. While legal title denotes registered
ownership, equitable title means beneficial ownership.
In the absence of such legal or equitable title, or
interest, there is no cloud to be prevented or
removed.7 Likewise, the plaintiff must show that the
deed, claim, encumbrance, or proceeding that
purportedly casts a cloud on their title is in fact invalid
or inoperative despite its prima facie appearance of
validity or legal efficacy.8
It must be noted that the Peraltas, the petitioners in the
instant case, are not even registered owners of the
area adjacent to the increment claimed, much less of
the subject parcels of land. Only the late Juanito
became the registered owner of Lot 2076-A, the lot
next to the supposed accretion. Assuming that the
petitioners are Juanito's rightful successors, they still
did not register the subject increment under their
names. It is settled that an accretion does not
automatically become registered land just because
the lot that receives such accretion is covered by a
Torrens Title. Ownership of a piece of land is one
thing; registration under the Torrens system of that
ownership is another. Ownership over the accretion
received by the land adjoining a river is governed by
the Civil Code; imprescriptibility of registered land is
provided in the registration law. Registration under the
Land Registration and Cadastral Act does not vest or
give title to the land, but merely confirms and,
thereafter, protects the title already possessed by the
owner, making it imprescriptible by occupation of third
parties. But to obtain this protection, the land must be
placed under the operation of the registration laws,
wherein certain judicial procedures have been
provided.9
If at all, whatever rights the Peraltas derived from their
predecessors-in-interest respecting the area in
question came only from the quitclaim of real property
executed by Ignacio in Jose's favor in 1955. There is
no concrete evidence showing any right of title on
Ignacio's part for him to be able to legally and validly
cede the property to Jose. What the quitclaim merely
proves is that Ignacio had forfeited any claim or interest
over the accretion in Jose's favor. It is settled that
equitable title is defined as a title derived through a
valid contract or relation, and based on recognized
equitable principles, or the right in the party, to whom it
belongs, to have the legal title transferred to him. In
order that a plaintiff may draw to himself an equitable
title, he must show that the one from whom he derives
his right had himself a right to transfer.10 Considering
the aforementioned facts, the plaintiffs have neither
legal nor equitable title over the contested property.
Moreover, even the character of the land subject of the
quitclaim is highly questionable. Ignacio, who was
purportedly the first occupant of the area in 1945 and
who was also in the best position to describe the lot,
stated that "the said parcel of swampy land is an
integral expansion or continuity of the said Cadastral
Lot No. 2076, formed by a change of the shoreline of
the Visayan Sea, which shoreline has receded towards
the North, thus, leaving the swampy or parcel of land
described in the immediately preceding paragraph
which accrues to the owner of said right of said
Cadastral Lot No. 2076 (Torrens Title No. 24435), Jose
O. Peralta by right of lawful accretion or accession." 11
Article 457 of the Civil Code of the Philippines, under
which the Peraltas claim ownership over the disputed
parcels of land, provides:
Art. 457. To the owners of lands adjoining the banks of
rivers belong the accretion which they gradually
receive from the effects of the current of the waters.
Accretion is the process whereby the soil is deposited
along the banks of rivers. The deposit of soil, to be
considered accretion, must be: (a) gradual and
imperceptible; (b) made through the effects of the
current of the water; and (c) taking place on land
adjacent to the banks of rivers.12
Here, Ignacio characterized the land in question as
swampy and its increase in size as the effect of the
change of the shoreline of the Visayan Sea, and not
through the gradual deposits of soil coming from the
river or the sea. Also, Baltazar Gerardo, the Officer-in-
Charge of the Community Environment and Natural
Resources Office of the Bureau of Lands, found upon
inspection in 1987 that the subject area was
predominantly composed of sand rather than
soil.13 One of the plaintiffs, Javier, also testified that in
1974 or 1976, the Visayan Sea was around one (1)
kilometer from the land in question, and in 2003, the
distance already became around three (3) kilometers,
giving the impression that the increment was actually
the result of additional area of sand deposits left by the
sea when it had receded, and not by gradual deposits
of soil or sediment caused by the action of water. In
addition, the DENR has remained firm and consistent
in classifying the area as land of the public domain for
being part of either the Visayan Sea of the Sooc
Riverbed and is reached by tide water. Further, the
Sheriffs Report dated July 13, 1998 shows that when
he conducted an ocular inspection of the area, part of
it was reached by the tide. At around 11:30 a.m., he
was able to measure the deepest portion of the high
tide at around nineteen (19) inches, and its wideness
at five (5) meters near the concrete wall.14
Indeed, by reason of their special knowledge and
expertise over matters falling under their jurisdiction,
administrative agencies, like the DENR, are in a better
position to pass judgment on the same, and their
findings of fact are generally accorded great respect, if
not finality, by the courts. Such findings must be
respected as long as they are supported by substantial
evidence, even if such evidence is not overwhelming
or even preponderant.15 Hence, the questionable
character of the land, which could most probably be
part of the public domain, indeed bars Jose from validly
transferring the increment to any of his successors.
Indubitably, the plaintiffs are merely successors who
derived their alleged right of ownership from tax
declarations. But neither can they validly rely on said
tax declarations and the supposed actual, open,
continuous, exclusive, and notorious possession of the
property by their predecessors-in-interest. Any person
who claims ownership by virtue of tax declarations
must also prove that he has been in actual possession
of the property. Thus, proof that the property involved
had been declared for taxation purposes for a certain
period of time, does not constitute proof of possession,
nor is it proof of ownership, in the absence of the
claimant's actual possession of said property. 16 In the
case at bar, the Peraltas failed to adequately prove
their possession and that of their predecessors-in-
interest.
Verily, in civil cases, the party having the burden of
proof must do so with a preponderance of evidence,
with plaintiff having to rely on the strength of his own
evidence and not upon the defendant's weakness.
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 evidence" or "greater weight of
credible evidence." Succinctly put, it only requires that
evidence be greater or more convincing than the
opposing evidence.17 Since the Peraltas must first
establish their legal or equitable title to or interest in the
property in order for their action for quieting of title may
prosper, failure to do so would mean lack of cause of
action on their part to pursue said remedy.

WHEREFORE, PREMISES CONSIDERED, the

Court DENIES the petition, and AFFIRMS the
Decision of the Court of Appeals Cebu, Nineteenth
(19th) Division, dated September 28, 2012, and
Resolution dated August 28, 2014 in CA-G.R. CEB-CV
No. 00700.

SO ORDERED.

G.R. No. 129018 November 15, 2001
CARMELITA LEAÑO, assisted by her husband
GREGORIO CUACHON, petitioner,
vs.
COURT OF APPEALS and HERMOGENES
FERNANDO, respondents.
PARDO, J.:
The Case
The case is a petition for review on certiorari of the
decision1 of the Court of Appeals affirming that of the
Regional Trial Court, Malolos, Branch 72 ordering
petitioner Leaño to pay respondent Hermogenes
Fernando the sum of P183,687.70 corresponding to
her outstanding obligations under the contract to sell,
with interest and surcharges due thereon, attorney's
fees and costs.1âwphi1.nêt
The Facts
On November 13, 1985, Hermogenes Fernando, as
vendor and Carmelita Leaño, as vendee executed a
contract to sell involving a piece of land, Lot No. 876-
B, with an area of 431 square meters, located at Sto.
Cristo, Baliuag, Bulacan.3
In the contract, Carmelita Leaño bound herself to pay
Hermogenes Fernando the sum of one hundred seven
thousand and seven hundred and fifty pesos
(P107,750.00) as the total purchase price of the lot.
The manner of paying the total purchase price was as
follows:
"The sum of TEN THOUSAND SEVEN
HUNDRED SEVENTY FIVE (P10,775.00)
PESOS, shall be paid at the signing of this
contract as DOWN PAYMENT, the balance of
NINETY SIX THOUSAND NINE HUNDRED
SEVENTY FIVE PESOS (P96,975.00) shall
be paid within a period of TEN (10) years at a
monthly amortization of P1,747.30 to begin
from December 7, 1985 with interest at
eighteen per cent (18%) per annum based on
balances."4
The contract also provided for a grace period of one
month within which to make payments, together with
the one corresponding to the month of grace. Should
the month of grace expire without the installments for
both months having been satisfied, an interest of 18%
per annum will be charged on the unpaid installments. 5
Should a period of ninety (90) days elapse from the
expiration of the grace period without the overdue and
unpaid installments having been paid with the
corresponding interests up to that date, respondent
Fernando, as vendor, was authorized to declare the
contract cancelled and to dispose of the parcel of land,
as if the contract had not been entered into. The
payments made, together with all the improvements
made on the premises, shall be considered as rents
paid for the use and occupation of the premises and as
liquidated damages.6
After the execution of the contract, Carmelita Leaño
made several payments in lump sum.7 Thereafter, she
constructed a house on the lot valued at
P800,000.00.8 The last payment that she made was on
April 1, 1989.
On September 16, 1991, the trial court rendered a
decision in an ejectment case9 earlier filed by
respondent Fernando ordering petitioner Leaño to
vacate the premises and to pay P250.00 per month by
way of compensation for the use and occupation of the
property from May 27, 1991 until she vacated the
premises, attorney's fees and costs of the suit.10 On
August 24, 1993, the trial court issued a writ of
execution which was duly served on petitioner Leaño.
On September 27, 1993, petitioner Leaño filed with the
Regional Trial Court of Malolos, Bulacan a complaint
for specific performance with preliminary
injunction.11 Petitioner Leaño assailed the validity of
the judgment of the municipal trial court12 for being
violative of her right to due process and for being
contrary to the avowed intentions of Republic Act No.
6552 regarding protection to buyers of lots on
installments. Petitioner Leaño deposited P18,000.00
with the clerk of court, Regional Trial Court, Bulacan,
to cover the balance of the total cost of Lot 876-B.13
On November 4, 1993, after petitioner Leaño posted a
cash bond of P50,000.00,14 the trial court issued a writ
of preliminary injunction15 to stay the enforcement of
the decision of the municipal trial court.16
On February 6, 1995, the trial court rendered a
decision, the dispositive portion of which reads:
"WHEREFORE, judgment is hereby rendered
as follows:
"1. The preliminary injunction issued by this
court per its order dated November 4, 1993 is
hereby made permanent;
"2. Ordering the plaintiff to pay to the
defendant the sum of P103,090.70
corresponding to her outstanding obligations
under the contract to sell (Exhibit "A" – Exhibit
"B") consisting of the principal of said
obligation together with the interest and
surcharges due thereon as of February 28,
1994, plus interest thereon at the rate of 18%
per annum in accordance with the provision of
said contract to be computed from March 1,
1994, until the same becomes fully paid;
"3. Ordering the defendant to pay to plaintiff
the amount of P10,000 as and by way of
attorney's fees;
 "4. Ordering the defendant to pay to plaintiff
the costs of the suit in Civil Case No. 1680
aforementioned.
"SO ORDERED.
"Malolos, Bulacan, February 6, 1995.
"(sgd.) DANILO A. MANALASTAS
Judge"17
On February 21, 1995, respondent Fernando filed a
motion for reconsideration18 and the
supplement19 thereto. The trial court increased the
amount of P103,090.70 to P183,687.00 and ordered
petitioner Leaño ordered to pay attorney's fees.20
According to the trial court, the transaction between the
parties was an absolute sale, making petitioner Leaño
the owner of the lot upon actual and constructive
delivery thereof. Respondent Fernando, the seller, was
divested of ownership and cannot recover the same
unless the contract is rescinded pursuant to Article
1592 of the Civil Code which requires a judicial or
notarial demand. Since there had been no rescission,
petitioner Leaño, as the owner in possession of the
property, cannot be evicted.
On the issue of delay, the trial court held:
"While the said contract provides that the
whole purchase price is payable within a ten-
year period, yet the same contract clearly
specifies that the purchase price shall be
payable in monthly installments for which the
corresponding penalty shall be imposed in
case of default. The plaintiff certainly cannot
ignore the binding effect of such stipulation by
merely asserting that the ten-year period for
payment of the whole purchase price has not
yet lapsed. In other words, the plaintiff has
clearly defaulted in the payment of the
amortizations due under the contract as
recited in the statement of account (Exhibit
"2") and she should be liable for the payment
of interest and penalties in accordance with
the stipulations in the contract pertaining
thereto."21
The trial court disregarded petitioner Leaños claim that
she made a downpayment of P10,000.00, at the time
of the execution of the contract.
The trial court relied on the statement of account22 and
the summary23 prepared by respondent Fernando to
determine petitioner Leaño's liability for the payment of
interests and penalties.
The trial court held that the consignation made by
petitioner Leaño in the amount of P18,000.00 did not
produce any legal effect as the same was not done in
accordance with Articles 1176, 1177 and 1178 of the
Civil Code.
In time, petitioner Leaño appealed the decision to the
Court of Appeals.24 On January 22, 1997, Court of
Appeals promulgated a decision affirming that of the
Regional Trial Court in toto.25 On February 11, 1997,
petitioner Leaño filed a motion for
reconsideration.26 On April 18, 1997, the Court of
Appeals denied the motion.27
Hence, this petition.28
The Issues
The issues to be resolved in this petition for review are
(1) whether the transaction between the parties in an
absolute sale or a conditional sale; (2) whether there
was a proper cancellation of the contract to sell; and
(3) whether petitioner was in delay in the payment of
the monthly amortizations.
The Court's Ruling
Contrary to the findings of the trial court, the transaction
between the parties was a conditional sale not an
absolute sale. The intention of the parties was to
reserve the ownership of the land in the seller until the
buyer has paid the total purchase price.
Consider the following:
First, the contract to sell makes the sale, cession and
conveyance "subject to conditions" set forth in the
contract to sell.29
Second, what was transferred was the possession of
the property, not ownership. The possession is even
limited by the following: (1) that the vendee may
continue therewith "as long as the VENDEE complies
with all the terms and conditions mentioned, and (2)
that the buyer may not sell, cede, assign, transfer or
mortgage or in any way encumber any right, interest or
equity that she may have or acquire in and to the said
parcel of land nor to lease or to sublease it or give
possession to another person without the written
consent of the seller.30
Finally, the ownership of the lot was not transferred to
Carmelita Leaño. As the land is covered by a torrens
title, the act of registration of the deed of sale was the
operative act that could transfer ownership over the
lot.31 There is not even a deed that could be registered
since the contract provides that the seller will execute
such a deed "upon complete payment by the VENDEE
of the total purchase price of the property" with the
stipulated interest.32
In a contract to sell real property on installments, the
full payment of the purchase price is a positive
suspensive condition, the failure of which is not
considered a breach, casual or serious, but simply an
event that prevented the obligation of the vendor to
convey title from acquiring any obligatory force. 33 The
transfer of ownership and title would occur after full
payment of the price.34
In the case at bar, petitioner Leaño's non-payment of
the installments after April 1, 1989, prevented the
obligation of respondent Fernando to convey the
property from arising. In fact, it brought into effect the
provision of the contract on cancellation.
Contrary to the findings of the trial court, Article 1592
of the Civil Code is inapplicable to the case at
bar.35 However, any attempt to cancel the contract to
sell would have to comply with the provisions of
Republic Act No. 6552, the "Realty Installment Buyer
Protection Act."
R.A. No. 6552 recognizes in conditional sales of all
kinds of real estate (industrial, commercial, residential)
the right of the seller to cancel the contract upon non-
payment of an installment by the buyer, which is simply
an event that prevents the obligation of the vendor to
convey title from acquiring binding force.36 The law also
provides for the rights of the buyer in case of
cancellation. Thus, Sec. 3 (b) of the law provides that:
"If the contract is cancelled, the seller shall
refund to the buyer the cash surrender value
of the payments on the property equivalent to
fifty percent of the total payments made and,
after five years of installments, an additional
five percent every year but not to exceed
ninety percent of the total payment
made: Provided, That the actual cancellation
of the contract shall take place after thirty
days from receipt by the buyer of the notice of
cancellation or the demand for rescission of
the contract by a notarial act and upon full
payment of the cash surrender value to the
buyer." [Emphasis supplied]
The decision in the ejectment case37 operated as the
notice of cancellation required by Sec. 3(b). As
petitioner Leaño was not given then cash surrender
value of the payments that she made, there was still no
actual cancellation of the contract. Consequently,
petitioner Leaño may still reinstate the contract by
updating the account during the grace period and
before actual cancellation.38
Should petitioner Leaño wish to reinstate the contract,
she would have to update her accounts with
respondent Fernando in accordance with the
statement of account39 which amount was
40
P183,687.00.
In the case at bar, respondent Fernando performed his
part of the obligation by allowing petitioner Leaño to
continue in possession and use of the property.
Clearly, when petitioner Leaño did not pay the monthly
amortizations in accordance with the terms of the
contract, she was in delay and liable for
damages.41 However, we agree with the trial court that
the default committed by petitioner Leaño in respect of
the obligation could be compensated by the interest
and surcharges imposed upon her under the contract
in question.42
It is a cardinal rule in the interpretation of contracts that
if the terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal
meaning of its stipulation shall control.43 Thus, as there
is no ambiguity in the language of the contract, there is
no room for construction, only compliance.
The Fallo
IN VIEW WHEREOF, we DENY the petition
and AFFIRM the decision of the Court of Appeals 44 in
toto. No costs. SO ORDERED.

On the issue of whether petitioner Leaño was in delay

in paying the amortizations, we rule that while the
contract provided that the total purchase price was
payable within a ten-year period, the same contract
specified that the purchase price shall be paid in
monthly installments for which the corresponding
penalty shall be imposed in case of default. Petitioner
Leaño cannot ignore the provision on the payment of
monthly installments by claiming that the ten-year
period within which to pay has not elapsed.

Article 1169 of the Civil Code provides that in reciprocal

obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay
by the other begins.1âwphi1.nêt
 On June 1, 1984, Luis Bacus leased to private
respondent Faustino Duray a parcel of agricultural land
in Bulacao, Talisay, Cebu. Designated as Lot No.
3661-A-3-B-2, it had an area of 3,002 square meters,
covered by Transfer Certificate of Title No. 48866. The
lease was for six years, ending May 31, 1990. The
contract contained an option to buy clause. Under said
option, the lessee had the exclusive and irrevocable
right to buy 2,000 square meters of the property within
five years from a year after the effectivity of the
contract, at P200 per square meter. That rate shall be
proportionately adjusted depending on the peso rate
against the US dollar, which at the time of the execution
of the contract was fourteen pesos.1
Close to the expiration of the contract, Luis Bacus died
on October 10, 1989. Thereafter, on March 15, 1990,
the Duray spouses informed Roque Bacus, one of the
heirs of Luis Bacus, that they were willing and ready to
purchase the property under the option to buy clause.
They requested Roque Bacus to prepare the
necessary documents, such as a Special Power of
Attorney authorizing him to enter into a contract of
G. R. No. 127695 - December 3, 2001 sale,2 on behalf of his sisters who were then abroad.
HEIRS OF LUIS BACUS, namely: CLARA RESMA On March 30, 1990, due to the refusal of petitioners to
sell the property, Faustino Duray's adverse claim was
BACUS, ROQUE R. BACUS, SR., SATURNINO R.
annotated by the Register of Deeds of Cebu, at the
BACUS, PRISCILA VDA. DE CABANERO,
back of TCT No. 63269, covering the segregated 2,000
CARMELITA B. SUQUIB, BERNARDITA B.
square meter portion of Lot No. 3661-A-3-B-2-A.3
CARDENAS, RAUL R. BACUS, MEDARDO R.
BACUS, ANSELMA B. ALBAN, RICARDO R.
BACUS, FELICISIMA B. JUDICO, and Subsequently, on April 5, 1990, Duray filed a complaint
DOMINICIANA B. TANGAL, Petitioners, for specific performance against the heirs of Luis
vs. Bacus with the Lupon Tagapamayapa of Barangay
HON. COURT OF APPEALS and SPOUSES Bulacao, asking that he be allowed to purchase the lot
FAUSTINO DURAY and VICTORIANA specifically referred to in the lease contract with option
DURAY, Respondents. to buy. At the hearing, Duray presented a
certification4 from the manager of Standard Chartered
QUISUMBING, J.: Bank, Cebu City, addressed to Luis Bacus, stating that
at the request of Mr. Lawrence Glauber, a bank client,
arrangements were being made to allow Faustino
This petition assails the decision dated November 29,
Duray to borrow funds of approximately P700,000 to
1996, of the Court of Appeals in CA-G.R. CV No.
enable him to meet his obligations under the contract
37566, affirming the decision dated August 3, 1991, of
with Luis Bacus.5
the Regional Trial Court of Cebu City, Branch 6, in Civil
Case No. CEB-8935.
Having failed to reach an agreement before the Lupon,
on April 27, 1990, private respondents filed a complaint
The facts, as culled from the records, are as follows:
for specific performance with damages against
petitioners before the Regional Trial Court, praying that
the latter, (a) execute a deed of sale over the subject
property in favor of private respondents; (b) receive the
payment of the purchase price; and (c) pay the
damages.
On the other hand, petitioners alleged that before Luis
Bacus' death, private respondents conveyed to them
the former's lack of interest to exercise their option
because of insufficiency of funds, but they were
surprised to learn of private respondents' demand. In
turn, they requested private respondents to pay the
purchase price in full but the latter refused. They further
alleged that private respondents did not deposit the
money as required by the Lupon and instead
presented a bank certification which cannot be deemed
legal tender.
On October 30, 1990, private respondents manifested
in court that they caused the issuance of a cashier's
check in the amount of P650,0006 payable to
petitioners at anytime upon demand.
On August 3, 1991, the Regional Trial Court ruled in
favor of private respondents, the dispositive portion of
which reads:
Premises considered, the court finds for the plaintiffs
and orders the defendants to specifically perform their
obligation in the option to buy and to execute a
document of sale over the property covered by
Transfer Certificate of Title # T-63269 upon payment
by the plaintiffs to them in the amount of Six Hundred
Seventy-Five Thousand Six Hundred Seventy-Five
(P675,675.00) Pesos within a period of thirty (30) days
from the date this decision becomes final.
SO ORDERED.7
Unsatisfied, petitioners appealed to the respondent
Court of Appeals which denied the appeal on
November 29, 1996, on the ground that the private
respondents exercised their option to buy the leased
property before the expiration of the contract of lease.
It held:
. . . After a careful review of the entire records of this
case, we are convinced that the plaintiffs-appellees
validly and effectively exercised their option to buy the
subject property. As opined by the lower court, "the
readiness and preparedness of the plaintiff on his part,
is manifested by his cautionary letters, the prepared
bank certification long before the date of May 31, 1990,
the final day of the option, and his filing of this suit
before said date. If the plaintiff-appellee Francisco
Duray had no intention to purchase the property, he
would not have bothered to write those letters to the
defendant-appellants (which were all received by
them) and neither would he be interested in having his
adverse claim annotated at the back of the T.C.T. of
the subject property, two (2) months before the
expiration of the lease. Moreover, he even went to the
extent of seeking the help of the Lupon Tagapamayapa
to compel the defendants-appellants to recognize his
right to purchase the property and for them to perform
their corresponding obligation.8
xxx - xxx - xxx
We therefore find no merit in this appeal.
WHEREFORE, the decision appealed from is hereby
AFFIRMED.9
Hence, this petition where petitioners aver that the
Court of Appeals gravely erred and abused its
discretion in:
I. . . . UPHOLDING THE TRIAL COURT'S RULING IN
THE SPECIFIC PERFORMANCE CASE BY
ORDERING PETITIONERS (DEFENDANTS
THEREIN) TO EXECUTE A DOCUMENT OF SALE
OVER THE PROPERTY IN QUESTION (WITH TCT
NO. T-63269) TO THEM IN THE AMOUNT OF
P675,675.00 WITHIN THIRTY (30) DAYS FROM THE
DATE THE DECISION BECOMES FINAL;
II. . . . DISREGARDING LEGAL PRINCIPLES,
SPECIFIC PROVISIONS OF LAW AND
JURISPRUDENCE IN UPHOLDING THE DECISION
OF THE TRIAL COURT TO THE EFFECT THAT
PRIVATE RESPONDENTS HAD EXERCISED THEIR
RIGHT OF OPTION TO BUY ON TIME; THUS THE
PRESENTATION OF THE CERTIFICATION OF THE
BANK MANAGER OF A BANK DEPOSIT IN THE
NAME OF ANOTHER PERSON FOR LOAN TO
RESPONDENTS WAS EQUIVALENT TO A VALID
TENDER OF PAYMENT AND A SUFFICIENT
COMPLAINCE (SIC) OF A CONDITION FOR THE
EXERCISE OF THE OPTION TO BUY; AND
III. . . . UPHOLDING THE TRIAL COURT'S RULING
THAT THE PRESENTATION OF A CASHER'S (SIC)
CHECK BY THE RESPONDENTS IN THE AMOUNT
OF P625,000.00 EVEN AFTER THE TERMINATION
OF THE TRIAL ON THE MERITS WITH BOTH
PARTIES ALREADY HAVING RESTED THEIR CASE,
WAS STILL VALID COMPLIANCE OF THE
CONDITION FOR THE PRIVATE RESPONDENTS'
(PLAINTIFFS THEREIN) EXERCISE OF RIGHT OF
OPTION TO BUY AND HAD A FORCE OF VALID AND
FULL TENDER OF PAYMENT WITHIN THE AGREED
PERIOD.10
Petitioners insist that they cannot be compelled to sell
the disputed property by virtue of the nonfulfillment of
the obligation under the option contract of the private
respondents.
Private respondents first aver that petitioners are
unclear if Rule 65 or Rule 45 of the Rules of Court
govern their petition, and that petitioners only raised
questions of facts which this Court cannot properly
entertain in a petition for review. They claim that even
assuming that the instant petition is one under Rule 45,
the same must be denied for the Court of Appeals has
correctly determined that they had validly exercised
their option to buy the leased property before the
contract expired.
In response, petitioners state that private respondents
erred in initially classifying the instant petition as one
under Rule 65 of the Rules of Court. They argue that
the petition is one under Rule 45 where errors of the
Court of Appeals, whether evidentiary or legal in
nature, may be reviewed.
We agree with private respondents that in a petition for
review under Rule 45, only questions of law may be
raised.11 However, a close reading of petitioners'
arguments reveal the following legal issues which may
properly be entertained in the instant petition:
a) When private respondents opted to buy the property
covered by the lease contract with option to buy, were
they already required to deliver the money or consign
it in court before petitioner executes a deed of transfer?
b) Did private respondents incur in delay when they did
not deliver the purchase price or consign it in court on
or before the expiration of the contract?
On the first issue, petitioners contend that private
respondents failed to comply with their obligation
because there was neither actual delivery to them nor
consignation in court or with the Municipal, City or
Provincial Treasurer of the purchase price before the
contract expired. Private respondents' bank certificate
stating that arrangements were being made by the
bank to release P700,000 as a loan to private
respondents cannot be considered as legal tender that
may substitute for delivery of payment to petitioners
nor was it a consignation.
Obligations under an option to buy are reciprocal
obligations.12 The performance of one obligation is
conditioned on the simultaneous fulfillment of the other
obligation.13 In other words, in an option to buy, the
payment of the purchase price by the creditor is
contingent upon the execution and delivery of a deed
of sale by the debtor. In this case, when private
respondents opted to buy the property, their obligation
was to advise petitioners of their decision and their
readiness to pay the price. They were not yet obliged
to make actual payment. Only upon petitioners' actual
execution and delivery of the deed of sale were they
required to pay. As earlier stated, the latter was
contingent upon the former. In Nietes vs. Court of
Appeals, 46 SCRA 654 (1972), we held that notice of
the creditor's decision to exercise his option to buy
need not be coupled with actual payment of the price,
so long as this is delivered to the owner of the property
upon performance of his part of the agreement.
Consequently, since the obligation was not yet due,
consignation in court of the purchase price was not yet
required.
Consignation is the act of depositing the thing due with
the court or judicial authorities whenever the creditor
cannot accept or refuses to accept payment and it
generally requires a prior tender of payment. In
instances, where no debt is due and owing,
consignation is not proper.14 Therefore, petitioners'
contention that private respondents failed to comply
with their obligation under the option to buy because
they failed to actually deliver the purchase price or
consign it in court before the contract expired and
before they execute a deed, has no leg to stand on.
Corollary, private respondents did not incur in delay
when they did not yet deliver payment nor make a
consignation before the expiration of the contract. In
reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in
a proper manner with what is incumbent upon him.
Only from the moment one of the parties fulfills his
obligation, does delay by the other begin.15
In this case, private respondents, as early as March 15,
1990, communicated to petitioners their intention to
buy the property and they were at that time undertaking
to meet their obligation before the expiration of the
contract on May 31, 1990. However, petitioners
refused to execute the deed of sale and it was their
demand to private respondents to first deliver the
money before they would execute the same which
prompted private respondents to institute a case for
specific performance in the Lupong
Tagapamayapa and then in the RTC. On October 30,
1990, after the case had been submitted for decision
but before the trial court rendered its decision, private
respondents issued a cashier's check in petitioners'
favor purportedly to bolster their claim that they were
ready to pay the purchase price. The trial court
considered this in private respondents' favor and we
believe that it rightly did so, because at the time the
check was issued, petitioners had not yet executed a
deed of sale nor expressed readiness to do so.
Accordingly, as there was no compliance yet with what
was incumbent upon petitioners under the option to
buy, private respondents had not incurred in delay
when the cashier's check was issued even after the
contract expired.
WHEREFORE, the instant petition is DENIED. The
decision dated November 29, 1996 of the Court of
Appeals is hereby AFFIRMED.
Costs against petitioners.
SO ORDERED.
[G.R. NO. 181206 : October 9, 2009]
MEGAWORLD
INC., Petitioner, v. MILA S. TANSECO, Respondent.
DECISION
CARPIO MORALES, J.:
On July 7, 1995, petitioner Megaworld Globus Asia,
Inc. (Megaworld) and respondent Mila S. Tanseco
(Tanseco) entered into a Contract to Buy and Sell 1 a
224 square-meter (more or less) condominium unit at
a pre-selling project, "The Salcedo Park," located along
Senator Gil Puyat Avenue, Makati City.
The purchase price was P16,802,037.32, to be paid as
follows: (1) 30% less the reservation fee of P100,000,
or P4,940,611.19, by postdated check payable on July
14, 1995; (2) P9,241,120.50 through 30 equal monthly
installments of P308,037.35 from August 14, 1995 to
January 14, 1998; and (3) the balance
of P2,520,305.63 on October 31, 1998, the stipulated
delivery date of the unit; provided that if the
construction is completed earlier, Tanseco would pay
the balance within seven days from receipt of a notice
of turnover.
Section 4 of the Contract to Buy and Sell provided for
the construction schedule as follows:
4. CONSTRUCTION SCHEDULE - The construction
of the Project and the unit/s herein purchased shall be
completed and delivered not later than October 31,
1998 with additional grace period of six (6)
months within which to complete the Project and the
unit/s, barring delays due to fire, earthquakes, the
elements, acts of God, war, civil disturbances, strikes
or other labor disturbances, government and economic
controls making it, among others, impossible or difficult
to obtain the necessary materials, acts of third person,
or any other cause or conditions beyond the control of
the SELLER. In this event, the completion and delivery
of the unit are deemed extended accordingly without
liability on the part of the SELLER. The foregoing
notwithstanding, the SELLER reserves the right to
withdraw from this transaction and refund to the
BUYER without interest the amounts received from him
under this contract if for any reason not attributable to
SELLER, such as but not limited to fire, storms, floods,
earthquakes, rebellion, insurrection, wars, coup de
etat, civil disturbances or for other reasons beyond its
GLOBUS ASIA, control, the Project may not be completed or it can only
be completed at a financial loss to the SELLER. In any
event, all construction on or of the Project shall remain
the property of the SELLER. (Underscoring
supplied)cralawlibrary
Tanseco paid all installments due up to January, 1998,
leaving unpaid the balance of P2,520,305.63 pending
delivery of the unit.2 Megaworld, however, failed to
deliver the unit within the stipulated period on October
31, 1998 or April 30, 1999, the last day of the six-month
grace period.
A few days shy of three years later, Megaworld, by
notice dated April 23, 2002 (notice of turnover),
informed Tanseco that the unit was ready for
inspection preparatory to delivery.3 Tanseco replied
through counsel, by letter of May 6, 2002, that in view
of Megaworld's failure to deliver the unit on time, she
was demanding the return of P14,281,731.70
representing the total installment payment she had
made, with interest at 12% per annum from April 30,
1999, the expiration of the six-month grace period.
Tanseco pointed out that none of the excepted causes
of delay existed.4
Her demand having been unheeded, Tanseco filed on
June 5, 2002 with the Housing and Land Use
Regulatory Board's (HLURB) Expanded National
Capital Region Field Office a complaint against
Megaworld for rescission of contract, refund of
payment, and damages.5
In its Answer, Megaworld attributed the delay to the
1997 Asian financial crisis which was beyond its
control; and argued that default had not set in, Tanseco
not having made any judicial or extrajudicial demand
for delivery before receipt of the notice of turnover.6
By Decision of May 28, 2003,7 the HLURB Arbiter
dismissed Tanseco's complaint for lack of cause of
action, finding that Megaworld had effected delivery by
the notice of turnover before Tanseco made a demand.
Tanseco was thereupon ordered to pay Megaworld the
balance of the purchase price, plus P25,000 as moral
damages, P25,000 as exemplary damages,
and P25,000 as attorney's fees.
On appeal by Tanseco, the HLURB Board of
Commissioners, by Decision of November 28,
2003,8 sustained the HLURB Arbiter's Decision on the
ground of laches for failure to demand rescission when
the right thereto accrued. It deleted the award of
damages, however. Tanseco's Motion for
Reconsideration having been denied,9 she appealed to
the Office of the President which dismissed the appeal
by Decision of April 28, 200610 for failure to show that
the findings of the HLURB were tainted with grave
abuse of discretion. Her Motion for Reconsideration
having been denied by Resolution dated August 30,
2006,11 Tanseco filed a Petition for Review under Rule
43 with the Court of Appeals.12
By Decision of September 28, 2007,13 the appellate
court granted Tanseco's petition, disposing thus:
WHEREFORE, premises considered, petition is
hereby GRANTED and the assailed May 28, 2003
decision of the HLURB Field Office, the November 28,
2003 decision of the HLURB Board of Commissioners
in HLURB Case No. REM-A-030711-0162, the April
28, 2006 Decision and August 30, 2006 Resolution of
the Office of the President in O.P. Case No. 05-I-318,
are hereby REVERSED and SET ASIDE and a new
one entered: (1) RESCINDING, as prayed for by
TANSECO, the aggrieved party, the contract to buy
and sell; (2) DIRECTING MEGAWORLD TO
PAY TANSECO the amount she had paid totaling
P14,281,731.70 with Twelve (12%) Percent interest
per annum from October 31, 1998;
(3) ORDERING MEGAWORLD TO
PAY TANSECO P200,000.00 by way of exemplary
damages; (4) ORDERING MEGAWORLD TO
PAY TANSECO P200,000.00 as attorney's fees; and
(5) ORDERING MEGAWORLD TO PAY TANSECO
the cost of suit. (Emphasis in the original; underscoring
supplied)
The appellate court held that under Article 1169 of the
Civil Code, no judicial or extrajudicial demand is
needed to put the obligor in default if the contract, as in
the herein parties' contract, states the date when the
obligation should be performed; that time was of the
essence because Tanseco relied on Megaworld's
promise of timely delivery when she agreed to part with
her money; that the delay should be reckoned from
October 31, 1998, there being no force majeure to
warrant the application of the April 30, 1999 alternative
date; and that specific performance could not be
ordered in lieu of rescission as the right to choose the
remedy belongs to the aggrieved party.
The appellate court awarded Tanseco exemplary
damages on a finding of bad faith on the part of
Megaworld in forcing her to accept its long-delayed
delivery; and attorney's fees, she having been
compelled to sue to protect her rights.
Its Motion for Reconsideration having been denied by
Resolution of January 8, 2008,14 Megaworld filed the
present Petition for Review on Certiorari, echoing its
position before the HLURB, adding that Tanseco had
not shown any basis for the award of damages and
attorney's fees.15
Tanseco, on the other hand, maintained her position
too, and citing Megaworld's bad faith which became
evident when it insisted on making the delivery despite
the long delay,16 insisted that she deserved the award
of damages and attorney's fees.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something
incur in delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of
their obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
(1) When the obligation or the law expressly so
declares; or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time
when the thing is to be delivered or the service is to be
rendered was a controlling motive for the
establishment of the contract; or
(3) When demand would be useless, as when the
obligor has rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply in
a proper manner with what is incumbent upon
him. From the moment one of the parties fulfills his
obligation, delay by the other begins. (Underscoring
supplied)cralawlibrary
The Contract to Buy and Sell of the parties contains
reciprocal obligations, i.e., to complete and deliver the
condominium unit on October 31, 1998 or six months
thereafter on the part of Megaworld, and to pay the
balance of the purchase price at or about the time of
delivery on the part of Tanseco. Compliance by
Megaworld with its obligation is determinative of
compliance by Tanseco with her obligation to pay the
balance of the purchase price. Megaworld having failed
to comply with its obligation under the contract, it is
liable therefor.17
That Megaworld's sending of a notice of turnover
preceded Tanseco's demand for refund does not abate
her cause. For demand would have been useless,
Megaworld admittedly having failed in its obligation to
deliver the unit on the agreed date.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the
law, or when it is otherwise declared by stipulation, or
when the nature of the obligation requires the
assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which,
though foreseen, were inevitable.18
The Court cannot generalize the 1997 Asian financial
crisis to be unforeseeable and beyond the control of a
business corporation. A real estate enterprise engaged
in the pre-selling of condominium units is concededly a
master in projections on commodities and currency
movements, as well as business risks. The fluctuating
movement of the Philippine peso in the foreign
exchange market is an everyday occurrence, hence,
not an instance of caso fortuito.19 Megaworld's excuse
for its delay does not thus lie.
As for Megaworld's argument that Tanseco's claim is
considered barred by laches on account of her belated
demand, it does not lie too. Laches is a creation of
equity and its application is controlled by equitable
considerations.20 It bears noting that Tanseco
religiously paid all the installments due up to January,
1998, whereas Megaworld reneged on its obligation to
deliver within the stipulated period. A circumspect
weighing of equitable considerations thus tilts the scale
of justice in favor of Tanseco.
Pursuant to Section 23 of Presidential Decree No.
95721 which reads:
Sec. 23. Non-Forfeiture of Payments. - No installment
payment made by a buyer in a subdivision or
condominium project for the lot or unit he contracted to
buy shall be forfeited in favor of the owner or developer
when the buyer, after due notice to the owner or WHEREFORE, the challenged Decision of the Court of
developer, desists from further payment due to the Appeals is, in light of the foregoing, AFFIRMED with
failure of the owner or developer to develop the MODIFICATION.
subdivision or condominium project according to the
approved plans and within the time limit for complying As modified, the dispositive portion of the Decision
with the same. reads:
Such buyer may, at his option, be reimbursed the total
amount paid including amortization interests but
excluding delinquency The July 7, 1995 Contract to Buy and Sell between the
parties is cancelled. Petitioner, Megaworld Globus
interests, with interest thereon at the legal rate.
(Emphasis and underscoring supplied), Asia, Inc., is directed to pay respondent, Mila S.
Tanseco, the amount of P14,281,731.70, to bear 6%
interest per annum starting May 6, 2002 and 12%
Tanseco is, as thus prayed for, entitled to be interest per annum from the time the judgment
reimbursed the total amount she paid Megaworld. becomes final and executory; and to pay P200,000
attorney's fees, P100,000 exemplary damages, and
While the appellate court correctly costs of suit.
awarded P14,281,731.70 then, the interest rate
should, however, be 6% per annum accruing from the Costs against petitioner.
date of demand on May 6, 2002, and then 12% per
annum from the time this judgment becomes final and
executory, conformably with Eastern Shipping Lines, SO ORDERED.
Inc. v. Court of Appeals.22
The award of P200,000 attorney's fees and of costs of
suit is in order too, the parties having stipulated in the
Contract to Buy and Sell that these shall be borne by
the losing party in a suit based thereon, 23 not to
mention that Tanseco was compelled to retain the
services of counsel to protect her interest. And so is the
award of exemplary damages. With pre-selling
ventures mushrooming in the metropolis, there is an
increasing need to correct the insidious practice of real
estate companies of proffering all sorts of empty
promises to entice innocent buyers and ensure the
profitability of their projects.
The Court finds the appellate court's award
of P200,000 as exemplary damages excessive,
however. Exemplary damages are imposed not to
enrich one party or impoverish another but to serve as
a deterrent against or as a negative incentive to curb
socially deleterious actions.24 The Court finds
that P100,000 is reasonable in this case.
Finally, since Article 119125 of the Civil Code does not
apply to a contract to buy and sell, the suspensive
condition of full payment of the purchase price not
having occurred to trigger the obligation to convey
title, cancellation, not rescission, of the contract is thus
the correct remedy in the premises.26

G.R. No. 193723 July 20, 2011
GENERAL MILLING CORPORATION, Petitioner,
vs.
SPS. LIBRADO RAMOS and REMEDIOS
RAMOS, Respondents.
DECISION
VELASCO, JR., J.:
The Case
This is a petition for review of the April 15, 2010
Decision of the Court of Appeals (CA) in CA-G.R. CR-
H.C. No. 85400 entitled Spouses Librado Ramos &
Remedios Ramos v. General Milling Corporation, et al.,
which affirmed the May 31, 2005 Decision of the
Regional Trial Court (RTC), Branch 12 in Lipa City, in
Civil Case No. 00-0129 for Annulment and/or
Declaration of Nullity of Extrajudicial Foreclosure Sale
with Damages.
The Facts
On August 24, 1989, General Milling Corporation
(GMC) entered into a Growers Contract with spouses
Librado and Remedios Ramos (Spouses Ramos).
Under the contract, GMC was to supply broiler
chickens for the spouses to raise on their land in
Barangay Banaybanay, Lipa City, Batangas.1 To
guarantee full compliance, the Growers Contract was
accompanied by a Deed of Real Estate Mortgage over
a piece of real property upon which their conjugal home
was built. The spouses further agreed to put up a
surety bond at the rate of PhP 20,000 per 1,000 chicks
delivered by GMC. The Deed of Real Estate Mortgage
extended to Spouses Ramos a maximum credit line of
PhP 215,000 payable within an indefinite period with
an interest of twelve percent (12%) per annum.2
The Deed of Real Estate Mortgage contained the
following provision:
WHEREAS, the MORTGAGOR/S has/have agreed to
guarantee and secure the full and faithful compliance
of [MORTGAGORS’] obligation/s with the
MORTGAGEE by a First Real Estate Mortgage in favor
of the MORTGAGEE, over a 1 parcel of land and the
improvements existing thereon, situated in the Barrio/s
of Banaybanay, Municipality of Lipa City, Province of
Batangas, Philippines, his/her/their title/s thereto being
evidenced by Transfer Certificate/s No./s T-9214 of the
Registry of Deeds for the Province of Batangas in the
amount of TWO HUNDRED FIFTEEN THOUSAND (P
215,000.00), Philippine Currency, which the maximum
credit line payable within a x x x day term and to secure
the payment of the same plus interest of twelve percent
(12%) per annum.
Spouses Ramos eventually were unable to settle their
account with GMC. They alleged that they suffered
business losses because of the negligence of GMC
and its violation of the Growers Contract.3
On March 31, 1997, the counsel for GMC notified
Spouses Ramos that GMC would institute foreclosure
proceedings on their mortgaged property.4
On May 7, 1997, GMC filed a Petition for Extrajudicial
Foreclosure of Mortgage. On June 10, 1997, the
property subject of the foreclosure was subsequently
sold by public auction to GMC after the required
posting and publication.5 It was foreclosed for PhP
935,882,075, an amount representing the losses on
chicks and feeds exclusive of interest at 12% per
annum and attorney’s fees.6 To complicate matters, on
October 27, 1997, GMC informed the spouses that its
Agribusiness Division had closed its business and
poultry operations.7
On March 3, 2000, Spouses Ramos filed a Complaint
for Annulment and/or Declaration of Nullity of the
Extrajudicial Foreclosure Sale with Damages. They
contended that the extrajudicial foreclosure sale on
June 10, 1997 was null and void, since there was no
compliance with the requirements of posting and
publication of notices under Act No. 3135, as
amended, or An Act to Regulate the Sale of Property
under Special Powers Inserted in or Annexed to Real
Estate Mortgages. They likewise claimed that there
was no sheriff’s affidavit to prove compliance with the
requirements on posting and publication of notices. It
was further alleged that the Deed of Real Estate
Mortgage had no fixed term. A prayer for moral and
exemplary damages and attorney’s fees was also
included in the complaint.8 Librado Ramos alleged
that, when the property was foreclosed, GMC did not
notify him at all of the foreclosure.9
During the trial, the parties agreed to limit the issues to
the following: (1) the validity of the Deed of Real Estate
Mortgage; (2) the validity of the extrajudicial
foreclosure; and (3) the party liable for damages.10
In its Answer, GMC argued that it repeatedly reminded
Spouses Ramos of their liabilities under the Growers
Contract. It argued that it was compelled to foreclose
the mortgage because of Spouses Ramos’ failure to
pay their obligation. GMC insisted that it had observed
all the requirements of posting and publication of
notices under Act No. 3135.11
The Ruling of the Trial Court
Holding in favor of Spouses Ramos, the trial court ruled
that the Deed of Real Estate Mortgage was valid even
if its term was not fixed. Since the duration of the term
was made to depend exclusively upon the will of the
debtors-spouses, the trial court cited jurisprudence and
said that "the obligation is not due and payable until an
action is commenced by the mortgagee against the
mortgagor for the purpose of having the court fix the
date on and after which the instrument is payable and
the date of maturity is fixed in pursuance thereto." 12
The trial court held that the action of GMC in moving
for the foreclosure of the spouses’ properties was
premature, because the latter’s obligation under their
contract was not yet due.
The trial court awarded attorney’s fees because of the
premature action taken by GMC in filing extrajudicial
foreclosure proceedings before the obligation of the
spouses became due.
The RTC ruled, thus:
WHEREFORE, premises considered, judgment is
rendered as follows:
 1. The Extra-Judicial Foreclosure
Proceedings under docket no. 0107-97 is
hereby declared null and void;
2. The Deed of Real Estate Mortgage is
hereby declared valid and legal for all intents
and puposes;
3. Defendant-corporation General Milling
Corporation is ordered to pay Spouses
Librado and Remedios Ramos attorney’s fees
in the total amount of P 57,000.00
representing acceptance fee of P30,000.00
and P3,000.00 appearance fee for nine (9)
trial dates or a total appearance fee of P
27,000.00;
4. The claims for moral and exemplary
damages are denied for lack of merit.
IT IS SO ORDERED.13
The Ruling of the Appellate Court
On appeal, GMC argued that the trial court erred in: (1)
declaring the extrajudicial foreclosure proceedings null
and void; (2) ordering GMC to pay Spouses Ramos
attorney’s fees; and (3) not awarding damages in favor
of GMC.
The CA sustained the decision of the trial court but
anchored its ruling on a different ground. Contrary to
the findings of the trial court, the CA ruled that the
requirements of posting and publication of notices
under Act No. 3135 were complied with. The CA,
however, still found that GMC’s action against Spouses
Ramos was premature, as they were not in default
when the action was filed on May 7, 1997.14
The CA ruled:
In this case, a careful scrutiny of the evidence on
record shows that defendant-appellant GMC made no
demand to spouses Ramos for the full payment of their
obligation. While it was alleged in the Answer as well
as in the Affidavit constituting the direct testimony of
Joseph Dominise, the principal witness of defendant-
appellant GMC, that demands were sent to spouses
Ramos, the documentary evidence proves otherwise.
A perusal of the letters presented and offered as
evidence by defendant-appellant GMC did not
"demand" but only request spouses Ramos to go to the
office of GMC to "discuss" the settlement of their
account.15
According to the CA, however, the RTC erroneously
awarded attorney’s fees to Spouses Ramos, since the
presumption of good faith on the part of GMC was not
overturned.
The CA disposed of the case as follows:
WHEREFORE, and in view of the foregoing
considerations, the Decision of the Regional Trial Court
of Lipa City, Branch 12, dated May 21, 2005 is hereby
AFFIRMED with MODIFICATION by deleting the
award of attorney’s fees to plaintiffs-appellees spouses
Librado Ramos and Remedios Ramos.16
Hence, We have this appeal.
The Issues
A. WHETHER [THE CA] MAY CONSIDER
ISSUES NOT ALLEGED AND DISCUSSED
IN THE LOWER COURT AND LIKEWISE
NOT RAISED BY THE PARTIES ON
APPEAL, THEREFORE HAD DECIDED THE
CASE NOT IN ACCORD WITH LAW AND
APPLICABLE DECISIONS OF THE
SUPREME COURT.
B. WHETHER [THE CA] ERRED IN RULING
THAT PETITIONER GMC MADE NO
DEMAND TO RESPONDENT SPOUSES
FOR THE FULL PAYMENT OF THEIR
OBLIGATION CONSIDERING THAT THE
LETTER DATED MARCH 31, 1997 OF
PETITIONER GMC TO RESPONDENT
SPOUSES IS TANTAMOUNT TO A FINAL
DEMAND TO PAY, THEREFORE IT
DEPARTED FROM THE ACCEPTED AND
USUAL COURSE OF JUDICIAL
PROCEEDINGS.17
The Ruling of this Court
Can the CA consider matters not alleged?
GMC asserts that since the issue on the existence of
the demand letter was not raised in the trial court, the
CA, by considering such issue, violated the basic
requirements of fair play, justice, and due process.18
In their Comment,19 respondents-spouses aver that
the CA has ample authority to rule on matters not
assigned as errors on appeal if these are indispensable
or necessary to the just resolution of the pleaded
issues.
In Diamonon v. Department of Labor and
Employment,20 We explained that an appellate court
has a broad discretionary power in waiving the lack of
assignment of errors in the following instances:
(a) Grounds not assigned as errors but
affecting the jurisdiction of the court over the
subject matter;
(b) Matters not assigned as errors on appeal
but are evidently plain or clerical errors within
contemplation of law;
(c) Matters not assigned as errors on appeal
but consideration of which is necessary in
arriving at a just decision and complete
resolution of the case or to serve the interests
of a justice or to avoid dispensing piecemeal
justice;
(d) Matters not specifically assigned as errors
on appeal but raised in the trial court and are
matters of record having some bearing on the
issue submitted which the parties failed to
raise or which the lower court ignored;
(e) Matters not assigned as errors on appeal
but closely related to an error assigned;
(f) Matters not assigned as errors on appeal
but upon which the determination of a
question properly assigned, is dependent.
Paragraph (c) above applies to the instant case, for
there would be a just and complete resolution of the
appeal if there is a ruling on whether the Spouses
Ramos were actually in default of their obligation to
GMC.
Was there sufficient demand?
We now go to the second issue raised by GMC. GMC
asserts error on the part of the CA in finding that no
demand was made on Spouses Ramos to pay their
obligation. On the contrary, it claims that its March 31,
1997 letter is akin to a demand.
We disagree.
There are three requisites necessary for a finding of
default. First, the obligation is demandable and
liquidated; second, the debtor delays performance; and
third, the creditor judicially or extrajudicially requires
the debtor’s performance.21
According to the CA, GMC did not make a demand on
Spouses Ramos but merely requested them to go to
GMC’s office to discuss the settlement of their account.
In spite of the lack of demand made on the spouses,
however, GMC proceeded with the foreclosure
proceedings. Neither was there any provision in the
Deed of Real Estate Mortgage allowing GMC to
extrajudicially foreclose the mortgage without need of
demand.
Indeed, Article 1169 of the Civil Code on delay requires
the following:
Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or
extrajudicially demands from them the fulfilment of their
obligation.
However, the demand by the creditor shall not be
necessary in order that delay may exist:
(1) When the obligation or the law expressly so
declares; x x x
As the contract in the instant case carries no such
provision on demand not being necessary for delay to
exist, We agree with the appellate court that GMC
should have first made a demand on the spouses
before proceeding to foreclose the real estate
mortgage.
Development Bank of the Philippines v. Licuanan finds
application to the instant case:
The issue of whether demand was made before the
foreclosure was effected is essential.1avvphi1 If
demand was made and duly received by the
respondents and the latter still did not pay, then they
were already in default and foreclosure was proper.
However, if demand was not made, then the loans had
not yet become due and demandable. This meant that
respondents had not defaulted in their payments and
the foreclosure by petitioner was premature.
Foreclosure is valid only when the debtor is in default
in the payment of his obligation.22
In turn, whether or not demand was made is a question
of fact.23 This petition filed under Rule 45 of the Rules
of Court shall raise only questions of law. For a
question to be one of law, it must not involve an
examination of the probative value of the evidence
presented by the litigants or any of them. The
resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is
clear that the issue invites a review of the evidence
presented, the question posed is one of fact. 24 It need
not be reiterated that this Court is not a trier of
facts.25 We will defer to the factual findings of the trial
court, because petitioner GMC has not shown any
circumstances making this case an exception to the
rule.
WHEREFORE, the petition is DENIED. The CA
Decision in CA-G.R. CR-H.C. No. 85400 is
AFFIRMED.
SO ORDERED.
 claim for payment of sum of money against petitioners
Rodolfo G. Cruz and Esperanza Ibias.4

THE FACTUAL BACKGROUND

The claim arose from an accident that occurred on

October 24, 1999, when the mini bus owned and
operated by Cruz and driven by one Arturo Davin
collided with the Toyota Corolla car of Gruspe;
Gruspe’s car was a total wreck. The next day, on
October 25, 1999, Cruz, along with Leonardo Q. Ibias
went to Gruspe’s office, apologized for the incident,
and executed a Joint Affidavit of Undertaking promising
jointly and severally to replace the Gruspe’s damaged
car in 20 days, or until November 15, 1999, of the same
model and of at least the same quality; or, alternatively,
they would pay the cost of Gruspe’s car amounting to
₱350,000.00, with interest at

12% per month for any delayed payment after

November 15, 1999, until fully paid.5 When Cruz and
Leonardo failed to comply with their undertaking,
Gruspe filed a complaint for collection of sum of money
against them on November 19, 1999 before the RTC.

In their answer, Cruz and Leonardo denied Gruspe’s

allegation, claiming that Gruspe, a lawyer, prepared
the Joint Affidavit of Undertaking and forced them to
G.R. No. 191431 March 13, 2013 affix their signatures thereon, without explaining and
informing them of its contents; Cruz affixed his
RODOLFO G. CRUZ and ESPERANZA signature so that his mini bus could be released as it
IBIAS, Petitioners, was his only means of income; Leonardo, a barangay
vs. official, accompanied Cruz to Gruspe’s office for the
ATTY. DELFIN GRUSPE, Respondent. release of the mini bus, but was also deceived into
signing the Joint Affidavit of Undertaking.
DECISION
Leonardo died during the pendency of the case and
was substituted by his widow, Esperanza. Meanwhile,
BRION, J.: Gruspe sold the wrecked car for ₱130,000.00.

Before the Court is the petition for review on
certiorari1 filed under Rule 45 of the Rules of Court,
assailing the decision2 dated July 30, 2009 and the
resolution3 dated February 19, 2010 of the Court of
Appeals (CA) in CA-G.R. CV No. 86083. The CA
rulings affirmed with modification the decision dated
September 27, 2004 of the Regional Trial Court (RTC)
of Bacoor, Cavite, Branch 19, in Civil Case No. BCV-
99-146 which granted respondent Atty. Delfin Grupe’s
In a decision dated September 27, 2004, the RTC ruled
in favor of Gruspe and ordered Cruz and Leonardo to
pay ₱220,000.00,6 plus 15% per annum from
November 15, 1999 until fully paid, and the cost of suit.
On appeal, the CA affirmed the RTC decision, but
reduced the interest rate to 12% per annum pursuant
to the Joint Affidavit of Undertaking.7 It declared that
despite its title, the Joint Affidavit of Undertaking is a
contract, as it has all the essential elements of consent,
object certain, and consideration required under Article
1318 of the Civil
Code. The CA further said that Cruz and Leonardo
failed to present evidence to support their contention of
vitiated consent. By signing the Joint Affidavit of
Undertaking, they voluntarily assumed the obligation
for the damage they caused to Gruspe’s car; Leonardo,
who was not a party to the incident, could have refused
to sign the affidavit, but he did not.
THE PETITION
In their appeal by certiorari with the Court, Cruz and
Esperanza assail the CA ruling, contending that the
Joint Affidavit of Undertaking is not a contract that can
be the basis of an obligation to pay a sum of money in
favor of Gruspe. They consider an affidavit as different
from a contract: an affidavit’s purpose is simply to attest
to facts that are within his knowledge, while a contract
requires that there be a meeting of the minds between
the two contracting parties.
Even if the Joint Affidavit of Undertaking was
considered as a contract, Cruz and Esperanza claim
that it is invalid because Cruz and Leonardo’s consent
thereto was vitiated; the contract was prepared by
Gruspe who is a lawyer, and its contents were never
explained to them. Moreover, Cruz and Leonardo were
simply forced to affix their signatures, otherwise, the
mini van would not be released.
Also, they claim that prior to the filing of the complaint
for sum of money, Gruspe did not make any demand
upon them. Hence, pursuant to Article 1169 of the Civil
Code, they could not be considered in default. Without
this demand, Cruz and Esperanza contend that Gruspe
could not yet take any action.
THE COURT’S RULING
The Court finds the petition partly meritorious and
accordingly modifies the judgment of the CA.
Contracts are obligatory no matter what their forms
may be, whenever the essential requisites for their
validity are present. In determining whether a
document is an affidavit or a contract, the Court looks
beyond the title of the document, since the
denomination or title given by the parties in their
document is not conclusive of the nature of its
contents.8 In the construction or interpretation of an
instrument, the intention of the parties is primordial and
is to be pursued. If the terms of the document are clear
and leave no doubt on the intention of the contracting
parties, the literal meaning of its stipulations shall
control. If the words appear to be contrary to the
parties’ evident intention, the latter shall prevail over
the former.9
A simple reading of the terms of the Joint Affidavit of
Undertaking readily discloses that it contains
stipulations characteristic of a contract. As quoted in
the CA decision,10 the Joint Affidavit of Undertaking
contained a stipulation where Cruz and Leonardo
promised to replace the damaged car of Gruspe, 20
days from October 25, 1999 or up to November 15,
1999, of the same model and of at least the same
quality. In the event that they cannot replace the car
within the same period, they would pay the cost of
Gruspe’s car in the total amount of ₱350,000.00, with
interest at 12% per month for any delayed payment
after November 15, 1999, until fully paid. These, as
read by the CA, are very simple terms that both Cruz
and Leonardo could easily understand.
There is also no merit to the argument of vitiated
consent.1âwphi1 An allegation of vitiated consent
must be proven by preponderance of evidence; Cruz
and Leonardo failed to support their allegation.
Although the undertaking in the affidavit appears to be
onerous and lopsided, this does not necessarily prove
the alleged vitiation of consent. They, in fact, admitted
the genuineness and due execution of the Joint
Affidavit and Undertaking when they said that they
signed the same to secure possession of their vehicle.
If they truly believed that the vehicle had been illegally
impounded, they could have refused to sign the Joint
Affidavit of Undertaking and filed a complaint, but they
did not. That the release of their mini bus was
conditioned on their signing the Joint Affidavit of
Undertaking does not, by itself, indicate that their
consent was forced – they may have given it
grudgingly, but it is not indicative of a vitiated consent
that is a ground for the annulment of a contract.
Thus, on the issue of the validity and enforceability of
the Joint Affidavit of Undertaking, the CA did not
commit any legal error that merits the reversal of the
assailed decision.
Nevertheless, the CA glossed over the issue of
demand which is material in the computation of interest
on the amount due. The RTC ordered Cruz and
Leonardo to pay Gruspe "₱350,000.00 as cost of the
car xxx plus fifteen percent (15%) per annum from
November 15, 1999 until fully paid."11 The 15% interest
(later modified by the CA to be 12%) was computed
from November 15, 1999 – the date stipulated in the
Joint Affidavit of Undertaking for the payment of the
value of Gruspe’s car. In the absence of a finding by
the lower courts that Gruspe made a demand prior to
the filing of the complaint, the interest cannot be
computed from November 15, 1999 because until a
demand has been made, Cruz and Leonardo could not
be said to be in default.12 "In order that the debtor may
be in default, it is necessary that the following
requisites be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor
delays performance; and (3) that the creditor requires
the performance judicially and
extrajudicially."13 Default generally begins from the
moment the creditor demands the performance of the
obligation. In this case, demand could be considered
to have been made upon the filing of the complaint on
November 19, 1999, and it is only from this date that
the interest should be computed.
Although the CA upheld the Joint Affidavit of
Undertaking, we note that it imposed interest rate on a
per annum basis, instead of the per month basis that
was stated in the Joint Affidavit of Undertaking without
explaining its reason for doing so.14 Neither party,
however, questioned the change. Nonetheless, the
Court affirms the change in the interest rate from 12%
per month to 12% per annum, as we find the interest
rate agreed upon in the Joint Affidavit of Undertaking
excessive.15
WHEREFORE, we AFFIRM the decision dated July 30,
2009 and the resolution dated February 19, 2010 of the
Court of Appeals in CA-G.R. CV No. 86083, subject to
the Modification that the twelve percent (12%) per
annum interest imposed on the amount due shall
accrue only from November 19, 1999, when judicial
demand was made.
SO ORDERED.

G.R. No. 125536 March 16, 2000

PRUDENTIAL BANK, petitioner,

vs.
COURT OF APPEALS and LETICIA TUPASI-
VALENZULA joined by husband Francisco
Valenzuela, respondents.

QUISUMBING, J.:

This appeal by certiorari under Rule 45 of the Rules of

Court seeks to annul and set aside the Decision dated
January 31, 1996, and the Resolution dated July 2,
1997, of the Court of Appeals in CA G.R. CV No.
35532, which reversed the judgment of the Regional
Trial Court of Valenzuela, Metro Manila, Branch 171, in
Civil Case No. 2913-V-88, dismissing the private
respondent's complaint for damages.1
In setting aside the trial court's decision, the Court of
Appeals disposed as follows:
WHEREFORE, the appealed decision is
hereby REVERSED and SET ASIDE and,
another rendered ordering the appellee bank
to pay appellant the sum of P100,000.00 by
way of moral damages; P50,000.00 by way of
exemplary damages, P50,000.00 for and as
attorney's fees; and to pay the costs.
SO ORDERED.2
The facts of the case on record are as follows:
Private respondent Leticia Tupasi-Valenzuela opened
Savings Account No. 5744 and Current Account No.
01016-3 in the Valenzuela Branch of petitioner
Prudential Bank, with automatic transfer of funds from
the savings account to the current account.
On June 1, 1988, herein private respondent deposited
in her savings account Check No. 666B (104561 of
even date) the amount of P35,271.60, drawn against
the Philippine Commercial International Bank (PCIB).
Taking into account that deposit and a series of
withdrawals, private respondent as of June 21, 1988
had a balance of P35,993.48 in her savings account
and P776.93 in her current account, or total deposits of
P36,770.41, with petitioner.
Thereafter, private respondent issued Prudential Bank
Check No. 983395 in the amount of P11,500.00 post-
dated June 20, 1988, in favor of one Belen Legaspi. It
was issued to Legaspi as payment for jewelry which
private respondent had purchased. Legaspi, who was
in jewelry trade, endorsed the check to one Philip
Lhuillier, a businessman also in the jewelry business.
When Lhuillier deposited the check in his account with
the PCIB, Pasay Branch, it was dishonored for being
drawn against insufficient funds. Lhuillier's secretary
informed the secretary of Legaspi of the dishonor. The
latter told the former to redeposit the check, Legaspi's
secretary tried to contact private respondent but to no
avail.
Upon her return from the province, private respondent
was surprised to learn of the dishonor of the check. She
went to the Valenzuela Branch of Prudential Bank on
July 4, 1988, to inquire why her check was dishonored.
She approached one Albert Angeles Reyes, the officer
in charge of current account, and requested him for the
ledger of her current account. Private respondent
discovered a debit of P300.00 penalty for the dishonor
of her Prudential Check No. 983395. She asked why
her check was dishonored when there were sufficient
funds in her account as reflected in her passbook.
Reyes told her that there was no need to review the
passbook because the bank ledger was the best proof
that she did not have sufficient funds. Then, he abruptly
faced his typewriter and started typing.
Later, it was found out that the check in the amount of
P35,271.60 deposited by private respondent on June
1, 1988, was credited in her savings account only on
June 24, 1988, or after a period of 23 days. Thus the
P11,500.00 check was redeposited by Lhuillier on June
24, 1988, and properly cleared on June 27, 1988.
Because of this incident, the bank tried to mollify
private respondent by explaining to Legaspi and
Lhuillier that the bank was at fault. Since this was not
the first incident private respondent had experienced
with the bank, private respondent was unmoved by the
bank's apologies and she commenced the present suit
for damages before the RTC of Valenzuela.
After trial, the court rendered a decision on August 30,
1991, dismissing the complaint of private respondent,
as well as the counterclaim filed by the defendant, now
petitioner.
Undeterred, private respondent appealed to the Court
of Appeals. On January 31, 1996, respondent
appellate court rendered a decision in her favor, setting
aside the trial court's decision and ordering herein
petitioner to pay private respondent the sum of
P100,000.00 by way of moral damages; P50,000.00
exemplary damages; P50,000.00 for and as attorney's
fees; and to pay the costs.3
Petitioner filed a timely motion for reconsideration but
it was denied. Hence, this petition, raising the following
issues:
I. WHETHER OR NOT THE RESPONDENT
COURT OF APPEALS ACTED WITH GRAVE
ABUSE OF DISCRETION AMOUNTING TO
LACK OF JURISDICTION IN DEVIATING
FROM ESTABLISHED JURISPRUDENCE IN
REVERSING THE DISMISSAL JUDGMENT
OF THE TRIAL COURT AND INSTEAD
AWARDED MORAL DAMAGES,
EXEMPLARY DAMAGES AND
ATTORNEY'S FEES.
II. WHETHER OR NOT THE RESPONDENT
COURT OF APPEALS ACTED IN GRAVE
ABUSE OF DISCRETION AMOUNTING TO
LACK OF JURISDICTION WHERE, EVEN IN
THE ABSENCE OF EVIDENCE AS FOUND
BY THE TRIAL COURT, AWARDED MORAL
DAMAGES IN THE AMOUNT OF
P100,000.00.
III. WHETHER OR NOT THE RESPONDENT
COURT OF APPEALS ACTED IN GRAVE
ABUSE OF DISCRETION AMOUNTING TO
LACK OF JURISDICTION, WHERE, EVEN
IN THE ABSENCE OF EVIDENCE AS
FOUND BY THE TRIAL COURT, AWARDED
P50,000.00 BY WAY OF EXEMPLARY
DAMAGES.
IV. WHETHER OR NOT THE RESPONDENT
COURT OF APPEALS ACTED WITH GRAVE
ABUSE OF DISCRETION WHERE EVEN IN
THE ABSENCE OF EVIDENCE, AWARDED
ATTORNEY'S FEES.
Simply stated, the issue is whether the respondent
court erred and gravely abused its discretion in
awarding moral and exemplary damages and
attorney's fees to be paid by petitioner to private
respondent.
Petitioner claims that generally the factual findings of
the lower courts are final and binding upon this Court.
However, there are exceptions to this rule. One is
where the trial court and the Court of Appeals had
arrived at diverse factual findings.4 Petitioner faults the
respondent court from deviating from the basic rule that
finding of facts by the trial court is entitled to great
weight, because the trial court had the opportunity to
observe the deportment of witness and the evaluation
of evidence presented during the trial. Petitioner
contends that the appellate court gravely abused its
discretion when it awarded damages to the plaintiff,
even in the face of lack of evidence to prove such
damages, as found by the trial court.
Firstly, petitioner questions the award of moral
damages. It claims that private respondent did not
suffer any damage upon the dishonor of the check.
Petitioner avers it acted in good faith. It was an honest
mistake on its part, according to petitioner, when
misposting of private respondent's deposit on June 1,
1988, happened. Further, petitioner contends that
private respondent may not "claim" damages because
the petitioner's manager and other employees had
profusely apologized to private respondent for the
error. They offered to make restitution and apology to
the payee of the check, Legaspi, as well as the alleged
endorsee, Lhuillier. Regrettably, it was private
respondent who declined the offer and allegedly said,
that there was nothing more to it, and that the matter
had been put to rest.5
Admittedly, as found by both the respondent appellate
court and the trial court, petitioner bank had committed
a mistake.1âwphi1.nêt It misposted private
respondent's check deposit to another account and
delayed the posting of the same to the proper account
of the private respondent. The mistake resulted to the
dishonor of the private respondent's check. The trial
court found "that the misposting of plaintiff's check
deposit to another account and the delayed posting of
the same to the account of the plaintiff is a clear proof
of lack of supervision on the part of the defendant
bank."6 Similarly, the appellate court also found that
"while it may be true that the bank's negligence in
dishonoring the properly funded check of appellant
might not have been attended with malice and bad
faith, as appellee [bank] submits, nevertheless, it is the
result of lack of due care and caution expected of an
employee of a firm engaged in so sensitive and
accurately demanding task as banking."7
In Simex International (Manila), Inc. vs. Court of
Appeals, 183 SCRA 360, 367 (1990), and Bank of
Philippine Islands vs. IAC, et al., 206 SCRA 408, 412-
413 (1992), this Court had occasion to stress the
fiduciary nature of the relationship between a bank and
its depositors and the extent of diligence expected of
the former in handling the accounts entrusted to its
care, thus:
In every case, the depositor expects the bank
to treat his account with the utmost fidelity,
whether such account consists only of a few
hundred pesos or of millions. The bank must
record every single transaction accurately,
down to the last centavo, and as promptly as
possible. This has to be done if the account is
to reflect at any given time the amount of
money the depositor can dispose of as he
sees fit, confident that the bank will deliver it
as and to whomever he directs. A blunder on
the part of bank, such as the dishonor of a
check without good reason, can cause the
depositor not a little embarrassment if not also
financial loss and perhaps even civil and
criminal litigation.
The paint is that as a business affected with
public interest and because of the nature of its
functions, the bank is under obligation to treat
the accounts of its depositors with meticulous
care, always having in mind the fiduciary
nature of their relationship. . . .
In the recent case of Philippine National Bank vs. Court
of Appeals,8 we held that "a bank is under obligation to
treat the accounts of its depositors with meticulous
care whether such account consists only of a few
hundred pesos or of millions of pesos. Responsibility
arising from negligence in the performance of every
kind of obligation is demandable. While petitioner's
negligence in this case may not have been attended
with malice and bad faith, nevertheless, it caused
serious anxiety, embarrassment and humiliation".
Hence we ruled that the offended party in said case
was entitled to recover reasonable moral damages.
Even if malice or bad faith was not sufficiently proved
in the instant case, the fact remains that petitioner has
committed a serious mistake. It dishonored the check
issued by the private respondent who turned out to
have sufficient funds with petitioner. The bank's
negligence was the result of lack of due care and
caution required of managers and employees of a firm
engaged in so sensitive and demanding business as
banking. Accordingly, the award of moral damages by
the respondent Court of Appeals could not be said to
be in error nor in grave abuse of its discretion.
There is no hard-and-fast rule in the determination of
what would be a fair amount of moral damages since
each case must be governed by its own peculiar facts.
The yardstick should be that it is not palpably and
scandalously excessive. In our view, the award of
P100,000.00 is reasonable, considering the reputation
and social standing of private respondent Leticia T.
Valenzuela.9
The law allows the grant of exemplary damages by way
of example for the public good. 10 The public relies on
the banks' sworn profession of diligence and
meticulousness in giving irreproachable service. The
level of meticulousness must be maintained at all times
by the banking sector. Hence, the Court of Appeals did
not err in awarding exemplary damages. In our view,
however, the reduced amount of P20,000.00 is more
appropriate.
The award of attorney's fees is also proper when
exemplary damages are awarded and since private
respondent was compelled to engage the services of a
lawyer and incurred expenses to protect her
interest. 11 The standards in fixing attorney's fees are:
(1) the amount and the character of the services
rendered; (2) labor, time and trouble involved; (3) the
nature and importance of the litigation and business in
which the services were rendered; (4) the responsibility
imposed; (5) the amount of money and the value of the
property affected by the controversy or involved in the
employment; (6) the skill and the experience called for
in the performance of the services; (7) the professional
character and the social standing of the attorney; (8)
the results secured, it being a recognized rule that an
attorney may properly charge a much larger fee when
it is contingent than when it is not. 12 In this case, all the
aforementioned weighed, and considering that the
amount involved in the controversy is only P36,770.41,
the total deposit of private respondent which was
misposted by the bank, we find the award of
respondent court of P50,000.00 for attorney's fees,
excessive and reduce the same to P30,000.00.
WHEREFORE, the assailed DECISION of the Court of
Appeals is hereby AFFIRMED, with MODIFICATION.
The petitioner is ordered to pay P100,000.00 by way of
moral damages in favor of private respondent Leticia
T. Valenzuela. It is further ordered to pay her
exemplary damages in the amount of P20,000.00 and
P30,000.00, attorney's fees.
Costs against petitioner.
SO ORDERED.
G.R. No. 191636, January 16, 2017
PRUDENTIAL BANK (NOW BANK OF THE
PHILIPPINE ISLANDS), Petitioner, v. RONALD
RAPANOT AND HOUSING & LAND USE
REGULATORY BOARD, Respondents.
DECISION
CAGUIOA, J:
Only questions of law may be raised in petitions for
review on certiorari brought before this Court under
Rule 45, since this Court is not a trier of facts. While
there are recognized exceptions which warrant review
of factual findings, mere assertion of these exceptions
does not suffice. It is incumbent upon the party seeking
review to overcome the burden of demonstrating that
review is justified under the circumstances prevailing in
his case.
The Case
Before the Court is an Appeal by Certiorari1 under Rule
45 of the Rules of Court (Petition) of the
Decision2 dated November 18, 2009 (questioned
Decision) rendered by the Court of Appeals - Seventh
Division (CA). The questioned Decision stems from a
complaint filed by herein private respondent Ronald
Rapanot (Rapanot) against Golden Dragon Real
Estate Corporation (Golden Dragon), Golden Dragon's
President Ma. Victoria M. Vazquez3 and herein
petitioner, Bank of the Philippine Islands, formerly
known as Prudential Bank4 (Bank) for Specific
Performance and Damages (Complaint) before the
Housing and Land Use Regulatory Board (HLURB).5
The Petition seeks to reverse the questioned Decision
insofar as it found that the Bank (i) was not deprived of
due process when the Housing and Land Use Arbiter
(Arbiter) issued his Decision dated July 3, 2002 without
awaiting submission of the Bank's position paper and
draft decision, and (ii) cannot be deemed a mortgagee
in good faith with respect to Unit 2308-B2 mortgaged
by Golden Dragon in its favor as collateral.5-a
The Facts
Golden Dragon is the developer of Wack-Wack Twin
Towers Condominium, located in Mandaluyong City.
On May 9, 1995, Rapanot paid Golden Dragon the
amount ofP453,329.64 as reservation fee for a
41.1050-square meter unit in said condominium,
particularly designated as Unit 2308-B2,6 and covered
by Condominium Certificate of Title (CCT) No. 2383 in
the name of Golden Dragon.7
On September 13, 1995, the Bank extended a loan to
Golden Dragon amounting to P50,000,000.008 to be
utilized by the latter as additional working capital. 9 To
secure the loan, Golden Dragon executed a Mortgage
Agreement in favor of the Bank, which had the effect of
constituting a real estate mortgage over several
condominium units owned and registered under
Golden Dragon's name. Among the units subject of the
Mortgage Agreement was Unit 2308-B2.10 The
mortgage was annotated on CCT No. 2383 on
September 13, 1995.11
On May 21, 1996, Rapanot and Golden Dragon
entered into a Contract to Sell covering Unit 2308-B2.
On April 23, 1997, Rapanot completed payment of the
full purchase price of said unit amounting to
P1,511,098.97.12 Golden Dragon executed a Deed of
Absolute Sale in favor of Rapanot of the same
date.13 Thereafter, Rapanot made several verbal
demands for the delivery of Unit 2308-B2.14
Prompted by Rapanot's verbal demands, Golden
Dragon sent a letter to the Bank dated March 17, 1998,
requesting for a substitution of collateral for the
purpose of replacing Unit 2308-B2 with another unit
with the same area. However, the Bank denied Golden
Dragon's request due to the latter's unpaid
accounts.15 Because of this, Golden Dragon failed to
comply with Rapanot's verbal demands.
Thereafter, Rapanot, through his counsel, sent several
demand letters to Golden Dragon and the Bank,
formally demanding the delivery of Unit 2308-B2 and
its corresponding CCT No. 2383, free from all liens and
encumbrances.16 Neither Golden Dragon nor the Bank
complied with Rapanot's written demands. 17
Proceedings before the HLURB
On April 27, 2001, Rapanot filed a Complaint with the
Expanded National Capital Region Field Office of the
HLURB.18 The Field Office then scheduled the
preliminary hearing and held several conferences with
a view of arriving at an amicable settlement. However,
no settlement was reached.19
Despite service of summons to all the defendants
named in the Complaint, only the Bank filed its
Answer.20 Thus, on April 5, 2002, the Arbiter issued an
order declaring Golden Dragon and its President Maria
Victoria Vazquez in default, and directing Rapanot and
the Bank to submit their respective position papers and
draft decisions (April 2002 Order).21 Copies of the April
2002 Order were served on Rapanot and the Bank via
registered mail.22 However, the envelope bearing the
copy sent to the Bank was returned to the Arbiter,
bearing the notation "refused to receive".23
Rapanot complied with the April 2002 Order and
personally served copies of its position paper and draft
decision on the Bank on May 22, 2002 and May 24,
2002, respectively.24 In the opening statement of
Rapanot's position paper, Rapanot made reference to
the April 2002 Order.25cralawred
On July 3, 2002, the Arbiter rendered a decision
(Arbiter's Decision) in favor of Rapanot, the dispositive
portion of which reads:
chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, judgment is
hereby rendered as follows:
1. Declaring the mortgage over the
condominium unit No. 2308-B2
covered by Condominium Certificate
of Title No. 2383 in favor of
respondent Bank as null and void for
violation of Section 18 of
Presidential Decree No. 957[;]
2. Ordering respondent Bank to cancel
the mortgage on the subject
condominium unit, and accordingly,
release the title thereof to the
complainant;chanrobleslaw
3. Ordering respondents to pay jointly
and severally the complainant the
following sums:
a. P100,000.00 as moral
damages,
b. P100,000.00 as exemplary
damages,
c. P50,000.00 as attorney's
fees,
d. The costs of litigations
(sic), and
e. An administrative fine of
TEN THOUSAND PESOS
(P10,000.00) payable to
this Office fifteen (15) days
upon receipt of this
decision, for violation of
Section 18 in relation to
Section 38 of PD 957;
4. Directing the Register of Deeds of
Mandaluyong City to cancel the
aforesaid mortgage on the title of the
subject condominium unit; and
5. Immediate[ly] upon receipt by the
complainant of the owner's duplicate
Condominium Certificate of Title of
Unit 2308-B2, delivery of CCT No.
2383 over Unit 2308-B2 in favor of
the complainant free from all liens
and encumbrances.
SO ORDERED.26ChanRoblesVirtualawlibrary
On July 25, 2002, the Bank received a copy of
Rapanot's Manifestation dated July 24, 2002, stating
that he had received a copy of the Arbiter's
Decision.27 On July 29, 2002, the Bank filed a
Manifestation and Motion for Clarification,28 requesting
for the opportunity to file its position paper and draft
decision, and seeking confirmation as to whether a
decision had indeed been rendered notwithstanding
the fact that it had yet to file such submissions.
Subsequently, the Bank received a copy of Rapanot's
Motion for Execution dated September 2, 2002,29 to
which it filed an Opposition dated September 4, 2002.30
Meanwhile, the Bank's Manifestation and Motion for
Clarification remained unresolved despite the lapse of
five (5) months from the date of filing. This prompted
the Bank to secure a certified true copy of the Arbiter's
Decision from the HLURB.31
On January 16, 2003, the Bank filed a Petition for
Review with the HLURB Board of Commissioners
(HLURB Board) alleging, among others, that it had
been deprived of due process when the Arbiter
rendered a decision without affording the Bank the
opportunity to submit its position paper and draft
decision.
The HLURB Board modified the Arbiter's Decision by:
(i) reducing the award for moral damages from
P100,000.00 to P50,000.00, (ii) deleting the award for
exemplary damages, (iii) reducing the award for
attorney's fees from P50,000.00 to P20,000.00, and
(iv) directing Golden Dragon to pay the Bank all the
damages the latter is directed to pay thereunder, and
settle the mortgage obligation corresponding to Unit
2308-B2.32
Anent the issue of due process, the HLURB Board
held, as follows:
chanRoblesvirtualLawlibrary
x x x x
With respect to the first issue, we find the same
untenable. Records show that prior to the rendition of
its decision, the office below has issued and duly sent
an Order to the parties declaring respondent GDREC
in default and directing respondent Bank to submit its
position paper. x x x33 (Underscoring
omitted)ChanRoblesVirtualawlibrary
Proceedings before the Office of the President
The Bank appealed the decision of the HLURB Board
to the Office of the President (OP). On October 10,
2005, the OP issued a resolution denying the Bank's
appeal. In so doing, the OP adopted the BLURB's
findings.34 The Bank filed a Motion for
Reconsideration, which was denied by the OP in an
Order dated March 3, 2006.35
Proceedings before the CA
The Bank filed a Petition for Review with the CA on
April 17, 2006 assailing the resolution and subsequent
order of the OP. The Bank argued, among others, that
the OP erred when it found that the Bank (i) was not
denied due process before the HLURB, and (ii) is jointly
and severally liable with Golden Dragon for damages
due Rapanot.36
After submission of the parties' respective memoranda,
the CA rendered the questioned Decision dismissing
the Bank's Petition for Review. On the issue of due
process, the CA held:
chanRoblesvirtualLawlibrary
Petitioner asserts that it was denied due process
because it did not receive any notice to file its position
paper nor a copy of the Housing Arbiter's Decision.
Rapanot, meanwhile, contends that the Housing
Arbiter sent petitioner a copy of the April 5, 2002 Order
to file position paper by registered mail, as evidenced
by the list of persons furnished with a copy thereof.
However, according to Rapanot, petitioner "refused to
receive" it.
x x x x
In the instant case, there is no denial of due process.
Petitioner filed its Answer where it was able to explain
its side through its special and affirmative defenses.
Furthermore, it participated in the preliminary hearing
and attended scheduled conferences held to resolve
differences between the parties. Petitioner was also
served with respondent's position paper and draft
decision. Having received said pleadings of
respondent, petitioner could have manifested before
the Housing Arbiter that it did not receive, if correct, its
order requiring the submission of its pleadings and
therefore prayed that it be given time to do so. Or, it
could have filed its position paper and draft decision
without awaiting the order to file the same. Under the
circumstances, petitioner was thus afforded and
availed of the opportunity to present its side. It cannot
make capital of the defense of denial of due process as
a screen for neglecting to avail of opportunities to file
other pleadings.37ChanRoblesVirtualawlibrary
With respect to the Bank's liability for damages, the CA
held thus:
chanRoblesvirtualLawlibrary
Section 18 of PD 957, requires prior written authority of
the HLURB before the owner or developer of a
subdivision lot or condominium unit may enter into a
contract of mortgage. Hence, the jurisdiction of the
HLURB is broad enough to include complaints for
annulment of mortgage involving violations of PD 957.
Petitioner argues that, as a mortgagee in good faith
and for value, it must be accorded protection and
should not be held jointly and severally liable with
Golden Dragon and its President, Victoria Vasquez.
It is true that a mortgagee in good faith and for value is
entitled to protection, as held in Rural Bank of
Compostela vs. Court of Appeals but petitioner's
dependence on this ruling is misplaced as it cannot be
considered a mortgagee in good faith.
The doctrine of "mortgagee in good faith" is based on
the rule that all persons dealing with property covered
by a certificate of title, as mortgagees, are not required
to go beyond what appears on the face of the title.
However, while a mortgagee is not under obligation to
look beyond the certificate of title, the nature of
petitioner's business requires it to take further steps to
assure that there are no encumbrances or liens on the
mortgaged property, especially since it knew that it was
dealing with a condominium developer. It should have
inquired deeper into the status of the properties offered
as collateral and verified if the HLURB's authority to
mortgage was in fact previously obtained. This it failed
to do.
It has been ruled that a bank, like petitioner, cannot
argue that simply because the titles offered as security
were clean of any encumbrances or lien, it was relieved
of taking any other step to verify the implications should
the same be sold by the developer. While it is not
expected to conduct an exhaustive investigation of the
mortgagor's title, it cannot be excused from the duty of
exercising the due diligence required of banking
institutions, for banks are expected to exercise more
care and prudence than private individuals in their
dealings, even those involving registered property, for
their business is affected with public interest.
As aforesaid, petitioner should have ascertained that
the required authority to mortgage the condominium
units was obtained from the HLURB before it approved
Golden Dragon's loan. It cannot feign lack of
knowledge of the sales activities of Golden Dragon
since, as an extender of credit, it is aware of the
practices, both good or bad, of condominium
developers. Since petitioner was negligent in its duty to
investigate the status of the properties offered to it as
collateral, it cannot claim that it was a mortgagee in
good faith.38ChanRoblesVirtualawlibrary
The Bank filed a Motion for Reconsideration, which
was denied by the CA in a Resolution dated March
17,2010.39 The Bank received a copy of the resolution
on March 22, 2010.39-a
On April 6, 2010, the Bank filed with the Court a motion
praying for an additional period of 30 days within which
to file its petition for review on certiorari.39-b
On May 6, 2010, the Bank filed the instant Petition.
Rapanot filed his Comment to the Petition on
September 7, 2010.40 Accordingly, the Bank filed its
Reply on January 28, 2011.41
Issues
Essentially, the Bank requests this Court to resolve the
following issues:
1. Whether or not the CA erred when it affirmed
the resolution of the OP finding that the Bank
had been afforded due process before the
HLURB; and
2. Whether or not the CA erred when it affirmed
the resolution of the OP holding that the Bank
cannot be considered a mortgagee in good
faith.
The Court's Ruling
In the instant Petition, the Bank avers that the CA
misappreciated material facts when it affirmed the OP's
resolution which denied its appeal. The Bank contends
that the CA committed reversible error when it
concluded that the Bank was properly afforded due
process before the HLURB, and when it failed to
recognize the Bank as a mortgagee in good faith. The
Bank concludes that these alleged errors justify the
reversal of the questioned Decision, and ultimately call
for the dismissal of the Complaint against it.
The Court disagrees.
Time and again, the Court has emphasized that review
of appeals under Rule 45 is "not a matter of right, but
of sound judicial discretion."42 Thus, a petition for
review on certiorari shall only be granted on the basis
of special and important reasons.43
As a general rule, only questions of law may be raised
in petitions filed under Rule 45.44 However, there are
recognized exceptions to this general rule, namely:
chanRoblesvirtualLawlibrary
(1) when the findings are grounded entirely on
speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of
facts are conflicting; (6) when in making its findings the
Court of Appeals went beyond the issues of the case,
or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are
contrary to 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; (10) when
the findings of fact are premised on the supposed
absence of evidence and contradicted by the evidence
on record; and (11) when the Court of Appeals
manifestly overlooked certain relevant facts not
disputed by the parties, which, if properly
considered, would justify a different conclusion. x
x x45 (Emphasis supplied)ChanRoblesVirtualawlibrary
The Bank avers that the second, fourth and eleventh
exceptions above are present in this case. However,
after a judicious examination of the records of this case
and the respective submissions of the parties, the
Court finds that none of these exceptions apply.
The Bank was not deprived of due process before the
HLURB.
The Bank asserts that it never received the April2002
Order. It claims that it was taken by surprise on July 25,
2002, when it received a copy of Rapanot's
Manifestation alluding to the issuance of the Arbiter's
Decision on July 3, 2002. Hence, the Bank claims that
it was deprived of due process, since it was not able to
set forth its "valid and meritorious" defenses for the
Arbiter's consideration through its position paper and
draft decision.46
The Court finds these submissions untenable.
"The essence of due process is to be heard." 47 In
administrative proceedings, due process entails "a fair
and reasonable opportunity to explain one's side, or an
opportunity to seek a reconsideration of the action or
ruling complained of. Administrative due process
cannot be fully equated with due process in its strict
judicial sense, for in the former a formal or trial-type
hearing is not always necessary, and technical rules of
procedure are not strictly applied."48
As correctly pointed out by the CA in the questioned
Decision, the Bank was able to set out its position by
participating in the preliminary hearing and the
scheduled conferences before the Arbiter.49 The Bank
was likewise able to assert its special and affirmative
defenses in its Answer to Rapanot's Complaint.50
The fact that the Arbiter's Decision was rendered
without having considered the Bank's position paper
and draft decision is of no moment. An examination of
the 1996 Rules of Procedure of the HLURB51 then
prevailing shows that the Arbiter merely acted in
accordance therewith when he rendered his decision
on the basis of the pleadings and records submitted by
the parties thus far. The relevant rules provide:
chanRoblesvirtualLawlibrary
RULE VI - PRELIMINARY CONFERENCE AND
RESOLUTION
x x x x
Section 4. Position Papers. - If the parties fail to settle
within the period of preliminary conference, then they
will be given a period of not more than thirty (30)
calendar days to file their respective verified
position papers, attaching thereto the affidavits of
their witnesses and documentary evidence.
In addition, as provided for by Executive Order No.
26, Series of 1992, the parties shall be required to
submit their respective draft decisions within the
same thirty (30)-day period.
Said draft decision shall state clearly and distinctly the
findings of facts, the issues and the applicable law and
jurisprudence on which it is based. The arbiter may
adopt in whole or in part either of the parties' draft
decision, or reject both and prepare his own decision.
The party who fails to submit a draft decision shall be
fined P2,000.00.
Section 5. Summary Resolution - With or without the
position paper and draft decision[,] the Arbiter
shall summarily resolve the case on the basis of
the verified pleadings and pertinent records of the
Board. (Emphasis and underscoring
supplied)ChanRoblesVirtualawlibrary
Clearly, the Arbiter cannot be faulted for rendering his
Decision, since the rules then prevailing required him
to do so.
The Bank cannot likewise rely on the absence of proof
of service to further its cause. Notably, while the Bank
firmly contends that it did not receive the copy of the
April 2002 Order, it did not assail the veracity of the
notation "refused to receive" inscribed on the envelope
bearing said order. In fact, the Bank only offered the
following explanation respecting said notation:
chanRoblesvirtualLawlibrary
9. The claim that the Bank "refused to receive" the
envelope that bore the Order cannot be given credence
and is belied by the Bank's act of immediately
manifesting before the Housing Arbiter that it had not
yet received an order for filing the position paper and
draft decision.52ChanRoblesVirtualawlibrary
This is specious, at best. More importantly, the records
show that the Bank gained actual notice of the Arbiter's
directive to file their position papers and draft decisions
as early as May 22, 2002, when it was personally
served a copy of Rapanot's position paper which made
reference to the April 2002 Order.53 This shows as
mere pretense the Bank's assertion that it learned of
the Arbiter's Decision only through Rapanot's
Manifestation.54 Worse, the Bank waited until the lapse
of five (5) months before it took steps to secure a copy
of the Arbiter's Decision directly from the HLURB for
the purpose of assailing the same before the OP.
The Mortgage Agreement is null and void as against
Rapanot, and thus cannot be enforced against him.
The Bank avers that contrary to the CA's conclusion in
the questioned Decision, it exercised due diligence
before it entered into the Mortgage Agreement with
Golden Dragon and accepted Unit 2308-B2, among
other properties, as collateral.55 The Bank stressed
that prior to the approval of Golden Dragon's loan, it
deployed representatives to ascertain that the
properties being offered as collateral were in order.
Moreover, it confirmed that the titles corresponding to
the properties offered as collateral were free from
existing liens, mortgages and other
encumbrances.56 Proceeding from this, the Bank
claims that the CA overlooked these facts when it failed
to recognize the Bank as a mortgagee in good faith.
The Court finds the Bank's assertions indefensible.
First of all, under Presidential Decree No. 957 (PD
957), no mortgage on any condominium unit may be
constituted by a developer without prior written
approval of the National Housing Authority, now
HLURB.57 PD 957 further requires developers to notify
buyers of the loan value of their corresponding
mortgaged properties before the proceeds of the
secured loan are released. The relevant provision
states:
chanRoblesvirtualLawlibrary
Section 18. Mortgages. - No mortgage on any unit or
lot shall be made by the owner or developer without
prior written approval of the Authority. Such approval
shall not be granted unless it is shown that the
proceeds of the mortgage loan shall be used for the
development of the condominium or subdivision project
and effective measures have been provided to ensure
such utilization. The loan value of each lot or unit
covered by the mortgage shall be determined and the
buyer thereof, if any, shall be notified before the
release of the loan. The buyer may, at his option, pay
his installment for the lot or unit directly to the
mortgagee who shall apply the payments to the
corresponding mortgage indebtedness secured by the
particular lot or unit being paid for, with a view to
enabling said buyer to obtain title over the lot or unit
promptly after full payment
thereof.ChanRoblesVirtualawlibrary
In Far East Bank & Trust Co. v. Marquez,58 the Court
clarified the legal effect of a mortgage constituted in
violation of the foregoing provision, thus:
chanRoblesvirtualLawlibrary
The lot was mortgaged in violation of Section 18 of PD
957. Respondent, who was the buyer of the property,
was not notified of the mortgage before the release of
the loan proceeds by petitioner. Acts executed against
the provisions of mandatory or prohibitory laws shall be
void. Hence, the mortgage over the lot is null and
void insofar as private respondent is
concerned.59 (Emphasis
supplied)ChanRoblesVirtualawlibrary
The Court reiterated the foregoing pronouncement in
the recent case of Philippine National Bank v.
Lim60 and again in United Overseas Bank of the
Philippines, Inc. v. Board of Commissioners-HLURB.61
Thus, the Mortgage Agreement cannot have the effect
of curtailing Rapanot's right as buyer of Unit 2308-B2,
precisely because of the Bank's failure to comply with
PD 957.
Moreover, contrary to the Bank's assertions, it cannot
be considered a mortgagee in good faith. The Bank
failed to ascertain whether Golden Dragon secured
HLURB's prior written approval as required by PD 957
before it accepted Golden Dragon's properties as
collateral. It also failed to ascertain whether any of the
properties offered as collateral already had
corresponding buyers at the time the Mortgage
Agreement was executed.
The Bank cannot harp on the fact that the Mortgage
Agreement was executed before the Contract to Sell
and Deed of Absolute Sale between Rapanot and
Golden Dragon were executed, such that no amount of
verification could have revealed Rapanot's right over
Unit 2308-B2.62 The Court particularly notes that
Rapanot made his initial payment for Unit 2308-B2 as
early as May 9, 1995, four (4) months prior to the
execution of the Mortgage Agreement. Surely, the
Bank could have easily verified such fact if it had simply
requested Golden Dragon to confirm if Unit 2308-B2
already had a buyer, given that the nature of the latter's
business inherently involves the sale of condominium
units on a commercial scale.
It bears stressing that banks are required to exercise
the highest degree of diligence in the conduct of their
affairs. The Court explained this exacting requirement
in the recent case of Philippine National Bank v.
Vila,63 thus:
chanRoblesvirtualLawlibrary
In Land Bank of the Philippines v. Belle Corporation,
the Court exhorted banks to exercise the highest
degree of diligence in its dealing with properties offered
as securities for the loan obligation:
chanRoblesvirtualLawlibrary
When the purchaser or the mortgagee is a bank, the
rule on innocent purchasers or mortgagees for value is
applied more strictly. Being in the business of
extending loans secured by real estate mortgage,
banks are presumed to be familiar with the rules on
land registration. Since the banking business is
impressed with public interest, they are expected to be
more cautious, to exercise a higher degree of
diligence, care and prudence, than private individuals
in their dealings, even those involving registered lands.
Banks may not simply rely on the face of the certificate
of title. Hence, they cannot assume that, x x x the title
offered as security is on its face free of any
encumbrances or lien, they are relieved of the
responsibility of taking further steps to verify the title
and inspect the properties to be mortgaged. As
expected, the ascertainment of the status or condition
of a property offered to it as security for a loan must be
a standard and indispensable part of the bank's
operations. x x x (Citations
omitted)ChanRoblesVirtualawlibrary
We never fail to stress the remarkable significance
of a banking institution to commercial
transactions, in particular, and to the country's
economy in general. The banking system is an
indispensable institution in the modern world and
plays a vital role in the economic life of every
civilized nation. Whether as mere passive entities
for the safekeeping and saving of money or as
active instruments of business and commerce,
banks have become an ubiquitous presence
among the people, who have come to regard them
with respect and even gratitude and, most of all,
confidence. Consequently, the highest degree of
diligence is expected, and high standards of
integrity and performance are even required, of
it.64 (Emphasis and underscoring
supplied)ChanRoblesVirtualawlibrary
In loan transactions, banks have the particular
obligation of ensuring that clients comply with all the
documentary requirements pertaining to the approval
of their loan applications and the subsequent release
of their proceeds.65
If only the Bank exercised the highest degree of
diligence required by the nature of its business as a
financial institution, it would have discovered that (i)
Golden Dragon did not comply with the approval
requirement imposed by Section 18 of PD 957, and (ii)
that Rapanot already paid a reservation fee and had
made several installment payments in favor of Golden
Dragon, with a view of acquiring Unit 2308-B2.66
The Bank's failure to exercise the diligence required of
it constitutes negligence, and negates its assertion that
it is a mortgagee in good faith. On this point, this
Court's ruling in the case of Far East Bank & Trust Co.
v. Marquez67 is instructive:
chanRoblesvirtualLawlibrary
Petitioner argues that it is an innocent mortgagee
whose lien must be respected and protected, since the
title offered as security was clean of any encumbrance
or lien. We do not agree.
"x x x As a general rule, where there is nothing on the
certificate of title to indicate any cloud or vice in the
ownership of the property, or any encumbrance
thereon, the purchaser is not required to explore further
than what the Torrens Title upon its face indicates in
quest for any hidden defect or inchoate right that may
subsequently defeat his right thereto. This rule,
however, admits of an exception as where the
purchaser or mortgagee has knowledge of a defect or
lack of title in the vendor, or that he was aware of
sufficient facts to induce a reasonably prudent man to
inquire into the status of the property in
litigation."ChanRoblesVirtualawlibrary
Petitioner bank should have considered that it was
dealing with a town house project that was already in
progress. A reasonable person should have been
aware that, to finance the project, sources of funds questioned Decision proceeded from a thorough
could have been used other than the loan, which was deliberation of the facts established by the submissions
intended to serve the purpose only partially. Hence, of the parties and the evidence on record.
there was need to verity whether any part of the
property was already the subject of any other contract For these reasons, we resolve to deny the instant
involving buyers or potential buyers. In granting the Petition for lack of merit.
loan, petitioner bank should not have been content
merely with a clean title, considering the presence WHEREFORE, premises considered, the Petition for
of circumstances indicating the need for a Review on Certiorari is DENIED. The Decision dated
thorough investigation of the existence of buyers November 18, 2009 and Resolution dated March 17,
like respondent. Having been wanting in care and 2010 of the Court of Appeals in CA-G.R. SP No. 93862
prudence, the latter cannot be deemed to be an are hereby AFFIRMED.
innocent mortgagee.
SO ORDERED.
Petitioner cannot claim to be a mortgagee in good
faith. Indeed it was negligent, as found by the
Office of the President and by the CA. Petitioner
should not have relied only on the representation
of the mortgagor that the latter had secured all
requisite permits and licenses from the
government agencies concerned. The former
should have required the submission of certified
true copies of those documents and verified their
authenticity through its own independent effort.

Having been negligent in finding out what

respondent's rights were over the lot, petitioner
must be deemed to possess constructive
knowledge of those rights. (Emphasis
supplied)ChanRoblesVirtualawlibrary
The Court can surely take judicial notice of the fact that
commercial banks extend credit accommodations to
real estate developers on a regular basis. In the course
of its everyday dealings, the Bank has surely been
made aware of the approval and notice requirements
under Section 18 of PD 957. At this juncture, this Court
deems it necessary to stress that a person who
deliberately ignores a significant fact that could create
suspicion in an otherwise reasonable person cannot be
deemed a mortgagee in good faith.68 The nature of the
Bank's business precludes it from feigning ignorance
of the need to confirm that such requirements are
complied with prior to the release of the loan in favor of
Golden Dragon, in view of the exacting standard of
diligence it is required to exert in the conduct of its
affairs.

Proceeding from the foregoing, we find that neither

mistake nor misapprehension of facts can be ascribed
to the CA in rendering the questioned Decision. The
Court likewise finds that contrary to the Bank's claim,
the CA did not overlook material facts, since the

G.R. No. L-82619 September 15, 1993
PHILIPPINE AIRLINES, INC., petitioner,
vs.
COURT OF APPEALS and PEDRO
ZAPATOS, respondents.
Leighton R. Liazon for petitioner.
Balmes L. Ocampo for private respondent.
BELLOSILLO, J.:
This petition for review in certiorari seeks to annul and
set aside the decision of the then Intermediate
Appellant Court,1 now Court of Appeals, dated 28
February 1985, in AC-G.R. CV No. 69327 ("Pedro
Zapatos v. Philippine Airlines, Inc.") affirming the
decision of the then Court of first Instance, now
Regional Trial Court, declaring Philippine Airlines, Inc.,
liable in damages for breach of contract.
On 25 November 1976, private respondent filed a
complaint for damages for breach of contract of
carriage2 against Philippine Airlines, Inc. (PAL), before
the then Court of First Instance, now Regional Trial
Court, of Misamis Occidental, at Ozamiz City.
According to him, on 2 August 1976, he was among the
twenty-one (21) passengers of PAL Flight 477 that took
off from Cebu bound for Ozamiz City. The routing of
this flight was Cebu-Ozamiz-Cotabato. While on flight
and just about fifteen (15) minutes before landing at
Ozamiz City, the pilot received a radio message that
the airport was closed due to heavy rains and
inclement weather and that he should proceed to
Cotabato City instead.
Upon arrival at Cotabato City, the PAL Station Agent
informed the passengers of their options to return to
Cebu on flight 560 of the same day and thence to
Ozamiz City on 4 August 1975, or take the next flight
to Cebu the following day, or remain at Cotabato and
take the next available flight to Ozamiz City on 5
August 1975.3 The Station Agent likewise informed
them that Flight 560 bound for Manila would make a
stop-over at Cebu to bring some of the diverted
passengers; that there were only six (6) seats available
as there were already confirmed passengers for
Manila; and, that the basis for priority would be the
check-in sequence at Cebu.
Private respondent chose to return to Cebu but was not
accommodated because he checked-in as passenger
No. 9 on Flight 477. He insisted on being given priority
over the confirmed passengers in the accommodation,
but the Station Agent refused private respondent's
demand explaining that the latter's predicament was
not due to PAL's own doing but to be a force majeure.4
Private respondent tried to stop the departure of Flight
560 as his personal belongings, including a package
containing a camera which a certain Miwa from Japan
asked him to deliver to Mrs. Fe Obid of Gingoog City,
were still on board. His plea fell on deaf ears. PAL then
issued to private respondent a free ticket to Iligan city,
which the latter received under protest. 5 Private
respondent was left at the airport and could not even
hitch a ride in the Ford Fiera loaded with PAL
personnel.6 PAL neither provided private respondent
with transportation from the airport to the city proper
nor food and accommodation for his stay in Cotabato
City.
The following day, private respondent purchased a
PAL ticket to Iligan City. He informed PAL personnel
that he would not use the free ticket because he was
filing a case against PAL.7 In Iligan City, private
respondent hired a car from the airport to Kolambugan,
Lanao del Norte, reaching Ozamiz City by crossing the
bay in a launch.8 His personal effects including the
camera, which were valued at P2,000.00 were no
longer recovered.
On 13 January 1977, PAL filed its answer denying that
it unjustifiably refused to accommodate private
respondent.9 It alleged that there was simply no more
seat for private respondent on Flight 560 since there
were only six (6) seats available and the priority of
accommodation on Flight 560 was based on the check-
in sequence in Cebu; that the first six (6) priority
passengers on Flight 477 chose to take Flight 560; that
its Station Agent explained in a courteous and polite
manner to all passengers the reason for PAL's inability
to transport all of them back to Cebu; that the stranded
passengers agreed to avail of the options and had their
respective tickets exchanged for their onward trips; that
it was
only the private respondent who insisted on being
given priority in the accommodation; that pieces of
checked-in baggage and had carried items of the
Ozamiz City passengers were removed from the
aircraft; that the reason for their pilot's inability to land
at Ozamis City airport was because the runway was
wet due to rains thus posing a threat to the safety of
both passengers and aircraft; and, that such reason
of force majeure was a valid justification for the pilot to
bypass Ozamiz City and proceed directly to Cotabato
City.
On 4 June 1981, the trial court rendered its
decision 10 the dispositive portion of which states:
WHEREFORE, judgment is hereby
rendered in favor of the plaintiff and
against the defendant Philippine
AirLines, Inc. ordering the latter to
pay:
(1) As actual damages, the sum of
Two Hundred Pesos (P200.00)
representing plaintiff's expenses for
transportation, food and
accommodation during his stranded
stay at Cotabato City; the sum of
Forty-Eight Pesos (P48.00)
representing his flight fare from
Cotabato City to Iligan city; the sum
of Five Hundred Pesos (P500.00)
representing plaintiff's transportation
expenses from Iligan City to Ozamiz
City; and the sum of Five Thousand
Pesos (P5,000.00) as loss of
business opportunities during his
stranded stay in Cotabato City;
(2) As moral damages, the sum of
Fifty Thousand Pesos (P50,000.00)
for plaintiff's hurt feelings, serious
anxiety, mental anguish and unkind
and discourteous treatment
perpetrated by defendant's
employees during his stay as
stranded passenger in Cotabato
City;
(3) As exemplary damages, the sum
of Ten Thousand Pesos
(P10,000.00) to set a precedent to
the defendant airline that it shall
provide means to give comfort and
convenience to stranded
passengers;
(4) The sum of Three Thousand
Pesos (P3,000.00) as attorney's
fees;
(5) To pay the costs of this suit.
PAL appealed to the Court of Appeals which on 28
February 1985, finding no reversible error, affirmed the
judgment of the court a quo. 11
PAL then sought recourse to this Court by way of a
petition for review on certiorari 12 upon the following
issues: (1) Can the Court of Appeals render a decision
finding petitioner (then defendant-appellant in the court
below) negligent and, consequently, liable for damages
on a question of substance which was neither raised
on a question nor proved at the trial? (2) Can the Court
of Appeals award actual and moral damages contrary
to the evidence and established jurisprudence? 13
An assiduous examination of the records yields no
valid reason for reversal of the judgment on appeal;
only a modification of its disposition.
In its petition, PAL vigorously maintains that private
respondent's principal cause of action was its alleged
denial of private respondent's demand for priority over
the confirmed passengers on Flight 560. Likewise, PAL
points out that the complaint did not impute to PAL
neglect in failing to attend to the needs of the diverted
passengers; and, that the question of negligence was
not and never put in issue by the pleadings or proved
at the trial.
Contrary to the above arguments, private respondent's
amended complaint touched on PAL's indifference and
inattention to his predicament. The pertinent portion of
the amended complaint 14 reads:
10. That by virtue of the refusal of
the defendant through its agent in
Cotabato to accommodate (sic) and
allow the plaintiff to take and board
the plane back to Cebu, and by
accomodating (sic) and allowing
passengers from Cotabato for Cebu
in his stead and place, thus forcing
the plaintiff against his will, to be left
and stranded in Cotabato, exposed
to the peril and danger of muslim
rebels plundering at the time, the
plaintiff, as a consequence, (have)
suffered mental anguish, mental
torture, social humiliation,
bismirched reputation and wounded
feeling, all amounting to a
conservative amount of thirty
thousand (P30,000.00) Pesos.
To substantiate this aspect of apathy, private
respondent testified 15
A I did not even notice that I was I think the last
passenger or the last person out of the PAL
employees and army personnel that were left there.
I did not notice that when I was already outside of the
building after our conversation.
Q What did you do next?
A I banished (sic) because it seems that there was a
war not far from the airport. The sound of guns and
the soldiers were plenty.
Q After that what did you do?
A I tried to look for a transportation that could bring
me down to the City of Cotabato.
Q Were you able to go there?
A I was at about 7:00 o'clock in the evening more or
less and it was a private jeep that I boarded. I was
even questioned why I and who am (sic) I then. Then
I explained my side that I am (sic) stranded
passenger. Then they brought me downtown at
Cotabato.
Q During your conversation with the Manager were
you not offered any vehicle or transportation to
Cotabato airport downtown?
 A In fact I told him (Manager) now I am by-passed
passenger here which is not my destination what can
you offer me. Then they answered, "it is not my fault.
Let us forget that."
Q In other words when the Manager told you that
offer was there a vehicle ready?
A Not yet. Not long after that the Ford Fiera loaded
with PAL personnel was passing by going to the City
of Cotabato and I stopped it to take me a ride
because there was no more available transportation
but I was not accommodated.
Significantly, PAL did not seem to mind the introduction
of evidence which focused on its alleged negligence in
caring for its stranded passengers. Well-settled is the
rule in evidence that the protest or objection against the
admission of evidence should be presented at the time
the evidence is offered, and that the proper time to
make protest or objection to the admissibility of
evidence is when the question is presented to the
witness or at the time the answer thereto is
given. 16 There being no objection, such evidence
becomes property of the case and all the parties are
amenable to any favorable or unfavorable effects
resulting from the evidence. 17
PAL instead attempted to rebut the aforequoted
testimony. In the process, it failed to substantiate its
counter allegation for want of concrete proof 18 —
Atty. Rubin O. Rivera — PAL's counsel:
Q You said PAL refused to help you when you were
in Cotabato, is that right?
Private respondent:
A Yes.
Q Did you ask them to help you regarding any offer
of transportation or of any other matter asked of
them?
A Yes, he (PAL PERSONNEL) said what is? It is not
our fault.
Q Are you not aware that one fellow passenger even
claimed that he was given Hotel accommodation
because they have no money?
xxx xxx xxx
A No, sir, that was never offered to me. I said, I tried
to stop them but they were already riding that PAL
pick-up jeep, and I was not accommodated.
Having joined in the issue over the alleged lack of care
it exhibited towards its passengers, PAL cannot now
turn around and feign surprise at the outcome of the
case. When issues not raised by the pleadings are tried
by express or implied consent of the parties, they shall
be treated in all respects as if they had been raised in
the pleadings. 19
With regard to the award of damages affirmed by the
appellate court, PAL argues that the same is
unfounded. It asserts that it should not be charged with
the task of looking after the passengers' comfort and
convenience because the diversion of the flight was
due to a fortuitous event, and that if made liable, an
added burden is given to PAL which is over and beyond
its duties under the contract of carriage. It submits that
granting arguendo that negligence exists, PAL cannot
be liable in damages in the absence of fraud or bad
faith; that private respondent failed to apprise PAL of
the nature of his trip and possible business losses; and,
that private respondent himself is to be blamed for
unreasonably refusing to use the free ticket which PAL
issued.
The contract of air carriage is a peculiar one. Being
imbued with public interest, the law requires common
carriers to carry the passengers safely as far as human
care and foresight can provide, using the utmost
diligence of very cautious persons, with due regard for
all the circumstances. 20 In Air France
v. Carrascoso, we held that —
21
A contract to transport passengers is
quite different in kind and degree
from any other contractual relation.
And this, because of the relation
which an air carrier sustains with the
public. Its business is mainly with the
travelling public. It invites people to
avail of the comforts and advantages
it offers. The contract of air carriage,
therefore, generates a relation
attended with a public duty . . . . (
emphasis supplied).
The position taken by PAL in this case clearly illustrates
its failure to grasp the exacting standard required by
law. Undisputably, PAL's diversion of its flight due to
inclement weather was a fortuitous event.
Nonetheless, such occurrence did not terminate PAL's
contract with its passengers. Being in the business of
air carriage and the sole one to operate in the country,
PAL is deemed equipped to deal with situations as in
the case at bar. What we said in one case once again
must be stressed, i.e., the relation of carrier and
passenger continues until the latter has been landed at
the port of destination and has left the carrier's
premises. 22 Hence, PAL necessarily would still have
to exercise extraordinary diligence in safeguarding the
comfort, convenience and safety of its stranded
passengers until they have reached their final
destination. On this score, PAL grossly failed
considering the then ongoing battle between
government forces and Muslim rebels in Cotabato City
and the fact that the private respondent was a stranger
to the place. As the appellate court correctly ruled —
While the failure of plaintiff in the first
instance to reach his destination at
Ozamis City in accordance with the
contract of carriage was due to the
closure of the airport on account of
rain and inclement weather which
was radioed to defendant 15
minutes before landing, it has not
been disputed by defendant airline
that Ozamis City has no all-weather
airport and has to cancel its flight to
Ozamis City or by-pass it in the
event of inclement weather.
Knowing this fact, it becomes the
duty of defendant to provide all
means of comfort and convenience
to its passengers when they would
have to be left in a strange place in
case of such by-passing. The steps
taken by defendant airline company
towards this end has not been put in
evidence, especially for those 7
others who were not accommodated
in the return trip to Cebu, only 6 of
 the 21 having been so
accommodated. It appears that
plaintiff had to leave on the next
flight 2 days later. If the cause of
non-fulfillment of the contract is due
to a fortuitous event, it has to be the
sole and only cause (Art. 1755 CC.,
Art. 1733 C.C.) Since part of the
failure to comply with the obligation
of common carrier to deliver its
passengers safely to their
destination lay in the defendant's
failure to provide comfort and
convenience to its stranded
passengers using extra-ordinary
diligence, the cause of non-
fulfillment is not solely and
exclusively due to fortuitous event,
but due to something which
defendant airline could have
prevented, defendant becomes
liable to plaintiff. 23
While we find PAL remiss in its duty of extending
utmost care to private respondent while being stranded
in Cotabato City, there is no sufficient basis to conclude
that PAL failed to inform him about his non-
accommodation on Flight 560, or that it was inattentive
to his queries relative thereto.
On 3 August 1975, the Station Agent reported to his
Branch Manager in Cotabato City that —
3. Of the fifteen stranded
passengers two pax elected to take
F478 on August 05, three pax opted
to take F442 August 03. The
remaining ten (10) including subject
requested that they be instead
accommodated (sic) on F446 CBO-
IGN the following day where they
intended to take the surface
transportation to OZC. Mr. Pedro
Zapatos had by then been very vocal
and boiceterous (sic) at the counter
and we tactfully managed to steer
him inside the Station Agent's office.
Mr. Pedro Zapatos then adamantly
insisted that all the diverted
passengers should have been given
priority over the originating
passengers of F560 whether
confirmed or otherwise. We
explained our policies and after
awhile he seemed pacified and
thereafter took his ticket (in-lieued
(sic) to CBO-IGN, COCON basis), at
the counter in the presence of five
other passengers who were waiting
for their tickets too. The rest of the
diverted pax had left earlier after
being assured their tickets will be
ready the following day. 24
Aforesaid Report being an entry in the course of
business is prima facie evidence of the facts therein
stated. Private respondent, apart from his testimony,
did not offer any controverting evidence. If indeed PAL
omitted to give information about the options available
to its diverted passengers, it would have been deluged
with complaints. But, only private respondent
complained —
Atty. Rivera (for PAL)
Q I understand from you Mr. Zapatos that at the time
you were waiting at Cotabato Airport for the decision
of PAL, you were not informed of the decision until
after the airplane left is that correct?
A Yes.
COURT:
Q What do you mean by "yes"? You meant you were
not informed?
A Yes, I was not informed of their decision, that they
will only accommodate few passengers.
Q Aside from you there were many other stranded
passengers?
A I believed, yes.
Q And you want us to believe that PAL did not
explain (to) any of these passengers about the
decision regarding those who will board the aircraft
back to Cebu?
A No, Sir.
Q Despite these facts Mr. Zapatos did any of the
other passengers complained (sic) regarding that
incident?
xxx xxx xxx
A There were plenty of argument and I was one of
those talking about my case.
Q Did you hear anybody complained (sic) that he has
not been informed of the decision before the plane
left for Cebu?
A No. 25
Admittedly, private respondent's insistence on being
given priority in accommodation was unreasonable
considering the fortuitous event and that there was a
sequence to be observed in the booking, i.e., in the
order the passengers checked-in at their port of origin.
His intransigence in fact was the main cause for his
having to stay at the airport longer than was necessary.
Atty. Rivera:
Q And, you were saying that despite the fact that
according to your testimony there were at least 16
passengers who were stranded there in Cotabato
airport according to your testimony, and later you
said that there were no other people left there at that
time, is that correct?
A Yes, I did not see anyone there around. I think I
was the only civilian who was left there.
Q Why is it that it took you long time to leave that
place?
26
A Because I was arguing with the PAL personnel.
Anent the plaint that PAL employees were
disrespectful and inattentive toward private
respondent, the records are bereft of evidence to
support the same. Thus, the ruling of respondent Court
of Appeals in this regard is without basis. 27 On the
contrary, private respondent was attended to not only
by the personnel of PAL but also by its Manager." 28

In the light of these findings, we find the award of moral

damages of Fifty Thousand Pesos (P50,000.00)
unreasonably excessive; hence, we reduce the same
to Ten Thousand Pesos (P10,000.00). Conformably
herewith, the award of exemplary damages is also
reduced to five Thousand Pesos (5,000.00). Moral
damages are not intended to enrich the private
respondent. They are awarded only to enable the
injured party to obtain means, diversion or
amusements that will serve to alleviate the moral
suffering he has undergone by reason of the
defendant's culpable action. 29

With regard to the award of actual damages in the

amount of P5,000.00 representing private
respondent's alleged business losses occasioned by
his stay at Cotabato City, we find the same
unwarranted. Private respondent's testimony that he
had a scheduled business "transaction of shark liver oil
supposedly to have been consummated on August 3,
1975 in the morning" and that "since (private
respondent) was out for nearly two weeks I missed to
buy about 10 barrels of shark liver oil,"30 are purely
speculative. Actual or compensatory damages cannot
be presumed but must be duly proved with reasonable
degree of certainty. A court cannot rely on speculation,
conjecture or guesswork as to the fact and amount of
damages, but must depend upon competent proof that
they have suffered and on evidence of the actual
amount thereof. 31

WHEREFORE the decision appealed from is

AFFIRMED with modification however that the award
of moral damages of Fifty Thousand Pesos
(P50,000.00) is reduced to Ten Thousand Pesos
(P10,000.00) while the exemplary damages of Ten
Thousand Pesos (P10,000.00) is also reduced to Five
Thousand Pesos (P5,000.00). The award of actual
damages in the amount Five Thousand Pesos
(P5,000.00) representing business losses occasioned
by private respondent's being stranded in Cotabato
City is deleted.

SO ORDERED.

G.R. No. 126389 July 10, 1998
SOUTHEASTERN COLLEGE INC., petitioner,
vs.
COURT OF APPEALS, JUANITA DE JESUS VDA.
DE DIMAANO, EMERITA DIMAANO, REMEDIOS
DIMAANO, CONSOLACION DIMAANO and
MILAGROS DIMAANO, respondents.
PURISIMA, J.:
Petition for review under Rule 45 of the Rules of Court
seeking to set aside the Decision 1 promulgated on
July 31, 1996, and Resolution 2 dated September 12,
1996 of the Court of Appeals 3 in CA-G.R. No. 41422,
entitled "Juanita de Jesus vda. de Dimaano, et al. vs.
Southeastern College, Inc.", which reduced the moral
damages awarded below from P1,000,000.00 to
P200,000.00. 4 The Resolution under attack denied
petitioner's motion for reconsideration.
Private respondents are owners of a house at 326
College Road, Pasay City, while petitioner owns a four-
storey school building along the same College Road.
On October 11, 1989, at about 6:30 in the morning, a
powerful typhoon "Saling" hit Metro Manila. Buffeted by
very strong winds, the roof of petitioner's building was
partly ripped off and blown away, landing on and
destroying portions of the roofing of private
respondents' house. After the typhoon had passed, an
ocular inspection of the destroyed building was
conducted by a team of engineers headed by the city
building official, Engr. Jesus L. Reyna. Pertinent
aspects of the latter's Report 5 dated October 18, 1989
stated, as follows:
5. One of the factors that may have
led to this calamitous event is the
formation of the building in the area
and the general direction of the wind.
Situated in the peripheral lot is an
almost U-shaped formation of 4-
storey building. Thus, with the strong
winds having a westerly direction,
the general formation of the building
becomes a big funnel-like structure,
the one situated along College
Road, receiving the heaviest impact
of the strong winds. Hence, there are
portions of the roofing, those located
on both ends of the building, which
remained intact after the storm.
6. Another factor and perhaps the
most likely reason for the dislodging
of the roofing structural trusses is the
improper anchorage of the said
trusses to the roof beams. The 1/2'
diameter steel bars embedded on
the concrete roof beams which serve
as truss anchorage are not bolted
nor nailed to the trusses. Still, there
are other steel bars which were not
even bent to the trusses, thus, those
trusses are not anchored at all to the
roof beams.
It then recommended that "to avoid any
further loss and damage to lives, limbs and
property of persons living in the vicinity," the
fourth floor of subject school building be
declared as a "structural hazard."
6
In their Complaint before the Regional Trial Court of
Pasay City, Branch 117, for damages based on culpa
aquiliana, private respondents alleged that the damage
to their house rendered the same uninhabitable,
forcing them to stay temporarily in others' houses. And
so they sought to recover from petitioner P117,116.00,
as actual damages, P1,000,000.00, as moral
damages, P300,000.00, as exemplary damages and
P100,000.00, for and as attorney's fees; plus costs.
In its Answer, petitioner averred that subject school
building had withstood several devastating typhoons
and other calamities in the past, without its roofing or
any portion thereof giving way; that it has not been
remiss in its responsibility to see to it that said school
building, which houses school children, faculty
members, and employees, is "in tip-top condition"; and
furthermore, typhoon "Saling" was "an act of God and
therefore beyond human control" such that petitioner
cannot be answerable for the damages wrought
thereby, absent any negligence on its part.
The trial court, giving credence to the ocular inspection
report to the effect that subject school building had a
"defective roofing structure," found that, while typhoon
"Saling" was accompanied by strong winds, the
damage to private respondents' houses "could have
been avoided if the construction of the roof of
[petitioner's] building was not faulty." The dispositive
portion of the lower court's decision 7 reads, thus:
WHEREFORE, in view of the
foregoing, the Court renders
judgment (sic) in favor of the plaintiff
(sic) and against the defendants,
(sic) ordering the latter to pay jointly
and severally the former as follows:
a) P117,116.00, as actual damages, plus litigation
expenses;
b) P1,000,000.00 as moral damages;
c) P100,000.00 as attorney's fees;
d) Costs of the instant suit.
The claim for exemplary damages is
denied for the reason that the
defendants (sic) did in a wanton
fraudulent, reckless, oppressive or
malevolent manner.
In its appeal to the Court of Appeals, petitioner
assigned as errors, 8 that:
I
THE TRIAL COURT ERRED IN
HOLDING THAT TYPHOON
"SALING", AS AN ACT OF GOD, IS
NOT "THE SOLE AND ABSOLUTE
REASON" FOR THE RIPPING-OFF
 OF THE SMALL PORTION OF THE reducing the award of moral damages from conclusion finds support in Article 1174 of Civil Code,
ROOF OF SOUTHEASTERN'S P1,000,000.00 to P200,000.00. Hence, petitioner's which provides:
FOUR (4) STOREY SCHOOL resort to this Court, raising for resolution the issues of:
BUILDING. Art 1174. Except in cases expressly
1. Whether or not the award of actual specified by the law, or when it is
II damages [sic] to respondent otherwise declared by stipulation, or
Dimaanos on the basis of when the nature of the obligation
THE TRIAL COURT ERRED IN speculation or conjecture, without requires the assumption of risk, no
HOLDING THAT "THE proof or receipts of actual damage, person shall be responsible for those
CONSTRUCTION OF THE ROOF [sic] legally feasible or justified. events which could not be foreseen,
OF DEFENDANT'S SCHOOL or which, though foreseen, were
BUILDING WAS FAULTY" 2. Whether or not the award of moral inevitable.
NOTWITHSTANDING THE damages to respondent Dimaanos,
ADMISSION THAT THERE WERE with the latter having suffered, actual The antecedent of fortuitous event or caso fortuito is
TYPHOONS BEFORE BUT NOT damage has legal basis. found in the Partidas which defines it as "an event
AS GRAVE AS TYPHOON which takes place by accident and could not have been
"SALING" WHICH IS THE DIRECT 3. Whether or not respondent foreseen." 9 Escriche elaborates it as "an unexpected
AND PROXIMATE CAUSE OF THE Dimaanos who are no longer the event or act of God which could neither be foreseen
INCIDENT. owner of the property, subject matter nor resisted." 10 Civilist Arturo M. Tolentino adds that
of the case, during its pendency, has "[f]ortuitous events may be produced by two general
III the right to pursue their complaint causes: (1) by nature, such as earthquakes, storms,
against petitioner when the case floods, epidemics, fires, etc. and (2) by the act of man,
was already moot and academic by such as an armed invasion, attack by bandits,
THE TRIAL COURT ERRED IN governmental prohibitions, robbery, etc." 11
AWARDING ACTUAL AND MORAL the sale of the property to third party.
DAMAGES AS WELL AS
ATTORNEY'S FEES AND 4. Whether or not the award of In order that a fortuitous event may exempt a person
LITIGATION EXPENSES AND attorney's fees when the case was from liability, it is necessary that he be free from any
COSTS OF SUIT TO DIMAANOS already moot academic [sic] legally previous negligence or misconduct by reason of which
WHEN THEY HAVE NOT justified. the loss may have been occasioned. 12 An act of God
INCURRED ACTUAL DAMAGES cannot be invoked for the protection of a person who
AT ALL AS DIMAANOS HAVE has been guilty of gross negligence in not trying to
5. Whether or not petitioner is liable forestall its possible adverse consequences. When a
ALREADY SOLD THEIR for damage caused to others by
PROPERTY, AN INTERVENING person's negligence concurs with an act of God in
typhoon "Saling" being an act of producing damage or injury to another, such person is
EVENT THAT RENDERS THIS God.
CASE MOOT AND ACADEMIC. not exempt from liability by showing that the immediate
or proximate cause of the damages or injury was a
6. Whether or not the issuance of a fortuitous event. When the effect is found to be partly
IV writ of execution pending the result of the participation of man — whether it be
appeal, ex-parte or without hearing, from active intervention, or neglect, or failure to act —
THE TRIAL COURT ERRED IN has support in law. the whole occurrence is hereby humanized, and
ORDERING THE ISSUANCE OF removed from the rules applicable to acts of God. 13
THE WRIT OF EXECUTION The pivot of inquiry here, determinative of the other
INSPITE OF THE PERFECTION OF issues, is whether the damage on the roof of the In the case under consideration, the lower court
SOUTHEASTERN'S APPEAL building of private respondents resulting from the accorded full credence to the finding of the
WHEN THERE IS NO impact of the falling portions of the school building's investigating team that subject school building's roofing
COMPELLING REASON FOR THE roof ripped off by the strong winds of typhoon "Saling", had "no sufficient anchorage to hold it in position
ISSUANCE THERETO. was, within legal contemplation, due to fortuitous especially when battered by strong winds." Based on
event? If so, petitioner cannot be held liable for the such finding, the trial court imputed negligence to
As mentioned earlier, respondent Court of Appeals damages suffered by the private respondents. This petitioner and adjudged it liable for damages to private
affirmed with modification the trial court's disposition by respondents.
After a thorough study and evaluation of the evidence
on record, this Court believes otherwise,
notwithstanding the general rule that factual findings by
the trail court, especially when affirmed by the
appellate court, are binding and conclusive upon this
Court. 14 After a careful scrutiny of the records and the
pleadings submitted by the parties, we find exception
to this rule and hold that the lower courts
misappreciated the evidence proffered.
There is no question that a typhoon or storm is a
fortuitous event, a natural occurrence which may be
foreseen but is unavoidable despite any amount of
foresight, diligence or care. 15 In order to be exempt
from liability arising from any adverse consequence
engendered thereby, there should have been no
human participation amounting to a negligent act. 16 In
other words; the person seeking exoneration from
liability must not be guilty of negligence. Negligence,
as commonly understood, is conduct which naturally or
reasonably creates undue risk or harm to others. It may
be the failure to observe that degree of care,
precaution, and vigilance which the circumstances
justify demand, 17 or the omission to do something
which a prudent and reasonable man, guided by
considerations which ordinarily regulate the conduct of
human affairs, would
do. 18 From these premises, we proceed to determine
whether petitioner was negligent, such that if it were
not, the damage caused to private respondents' house
could have been avoided?
At the outset, it bears emphasizing that a person
claiming damages for the negligence of another has
the burden of proving the existence of fault or
negligence causative of his injury or loss. The facts
constitutive of negligence must be affirmatively
established by competent evidence, 19 not merely by
presumptions and conclusions without basis in fact.
Private respondents, in establishing the culpability of
petitioner, merely relied on the aforementioned report
submitted by a team which made an ocular inspection
of petitioner's school building after the typhoon. As the
term imparts, an ocular inspection is one by means of
actual sight or viewing. 20 What is visual to the eye
through, is not always reflective of the real cause
behind. For instance, one who hears a gunshot and
then sees a wounded person, cannot always definitely
conclude that a third person shot the victim. It could
have been self-inflicted or caused accidentally by a
stray bullet. The relationship of cause and effect must
be clearly shown.
In the present case, other than the said ocular
inspection, no investigation was conducted to
determine the real cause of the partial unroofing of
petitioner's school building. Private respondents did
not even show that the plans, specifications and design
of said school building were deficient and defective.
Neither did they prove any substantial deviation from
the approved plans and specifications. Nor did they
conclusively establish that the construction of such
building was basically flawed. 21
On the other hand, petitioner elicited from one of the
witnesses of private respondents, city building official
Jesus Reyna, that the original plans and design of
petitioner's school building were approved prior to its
construction. Engr. Reyna admitted that it was a legal
requirement before the construction of any building to
obtain a permit from the city building official (city
engineer, prior to the passage of the Building Act of
1977). In like manner, after construction of the building,
a certification must be secured from the same official
attesting to the readiness for occupancy of the edifice.
Having obtained both building permit and certificate of
occupancy, these are, at the very least, prima
facie evidence of the regular and proper construction
of subject school building. 22
Furthermore, when part of its roof needed repairs of the
damage inflicted by typhoon "Saling", the same city
official gave the go-signal for such repairs — without
any deviation from the original design — and
subsequently, authorized the use of the entire fourth
floor of the same building. These only prove that
subject building suffers from no structural defect,
contrary to the report that its "U-shaped" form was
"structurally defective." Having given his unqualified
imprimatur, the city building official is presumed to
have properly performed his duties 23 in connection
therewith.
In addition, petitioner presented its vice president for
finance and administration who testified that an annual
maintenance inspection and repair of subject school
building were regularly undertaken. Petitioner was
even willing to present its maintenance supervisor to
attest to the extent of such regular inspection but
private respondents agreed to dispense with his
testimony and simply stipulated that it would be
corroborative of the vice president's narration.
Moreover, the city building official, who has been in the
city government service since 1974, admitted in open
court that no complaint regarding any defect on the
same structure has ever been lodged before his office
prior to the institution of the case at bench. It is a matter
of judicial notice that typhoons are common
occurrences in this country. If subject school building's
roofing was not firmly anchored to its trusses,
obviously, it could not have withstood long years and
several typhoons even stronger than "Saling."
In light of the foregoing, we find no clear and convincing
evidence to sustain the judgment of the appellate court.
We thus hold that petitioner has not been shown
negligent or at fault regarding the construction and
maintenance of its school building in question and that
typhoon "Saling" was the proximate cause of the
damage suffered by private respondents' house.
With this disposition on the pivotal issue, private
respondents' claim for actual and moral damages as
well as attorney's fees must fail. 24 Petitioner cannot be
made to answer for a purely fortuitous event. 25 More
so because no bad faith or willful act to cause damage
was alleged and proven to warrant moral damages.
Private respondents failed to adduce adequate and
competent proof of the pecuniary loss they actually
incurred. 26 It is not enough that the damage be
capable of proof but must be actually proved with a
reasonable degree of certainty, pointing out specific
facts that afford a basis for measuring whatever
compensatory damages are borne. 27 Private
respondents merely submitted an estimated amount
needed for the repair of the roof their subject building.
What is more, whether the "necessary repairs" were
caused ONLY by petitioner's alleged negligence in the
maintenance of its school building, or included the
ordinary wear and tear of the house itself, is an
essential question that remains indeterminable.
The Court deems unnecessary to resolve the other
issues posed by petitioner.
As regards the sixth issue, however, the writ of
execution issued on April 1, 1993 by the trial court is
hereby nullified and set aside. Private respondents are
ordered to reimburse any amount or return to petitioner GLOBE TELECOM, INC., Petitioner, v. PHILIPPINE
any property which they may have received by virtue COMMUNICATION SATELLITE
of the enforcement of said writ. CORPORATION, Respondent.

WHEREFORE, the petition is GRANTED and the DECISION

challenged Decision is REVERSED. The complaint of
private respondents in Civil Case No. 7314 before the TINGA, J.:
trial court a quo is ordered DISMISSED and the writ of
execution issued on April 1, 1993 in said case is SET
ASIDE. Accordingly, private respondents are Before the Court are two Petitions for Review assailing
ORDERED to return to petitioner any amount or the Decision of the Court of Appeals, dated 27
property received by them by virtue of said writ. Costs February 2001, in CA-G.R. CV No. 63619.1 ςrνll
against the private respondents.
The facts of the case are undisputed.
SO ORDERED.
For several years prior to 1991, Globe Mckay Cable
and Radio Corporation, now Globe Telecom, Inc.
(Globe), had been engaged in the coordination of the
provision of various communication facilities for the
military bases of the United States of America (US) in
Clark Air Base, Angeles, Pampanga and Subic Naval
Base in Cubi Point, Zambales. The said
communication facilities were installed and configured
for the exclusive use of the US Defense
Communications Agency (USDCA), and for security
reasons, were operated only by its personnel or those
of American companies contracted by it to operate said
facilities. The USDCA contracted with said American
companies, and the latter, in turn, contracted with
Globe for the use of the communication facilities.
Globe, on the other hand, contracted with local service
providers such as the Philippine Communications
Satellite Corporation (Philcomsat) for the provision of
the communication facilities.

On 07 May 1991, Philcomsat and Globe entered into

[G.R. NO. 147324 : May 25, 2004]
PHILIPPINE COMMUNICATIONS SATELLITE
CORPORATION, Petitioner, v. GLOBE TELECOM,
INC. (formerly and Globe Mckay Cable and Radio
Corporation), Respondents.
[G.R. NO. 147334 : May 25, 2004]
an Agreement whereby Philcomsat obligated itself to
establish, operate and provide an IBS Standard B earth
station (earth station) within Cubi Point for the
exclusive use of the USDCA.2 The term of the contract
was for 60 months, or five (5) years.3 In turn, Globe
promised to pay Philcomsat monthly rentals for each
leased circuit involved.4 ςrνll
At the time of the execution of the Agreement, both
parties knew that the Military Bases Agreement
between the Republic of the Philippines and the US
(RP-US Military Bases Agreement), which was the
basis for the occupancy of the Clark Air Base and Subic
Naval Base in Cubi Point, was to expire in 1991. Under
Section 25, Article XVIII of the 1987 Constitution,
foreign military bases, troops or facilities, which include
those located at the US Naval Facility in Cubi Point,
shall not be allowed in the Philippines unless a new
treaty is duly concurred in by the Senate and ratified by
a majority of the votes cast by the people in a national
referendum when the Congress so requires, and such
new treaty is recognized as such by the US
Government.
Subsequently, Philcomsat installed and established
the earth station at Cubi Point and the USDCA made
use of the same.
On 16 September 1991, the Senate passed and
adopted Senate Resolution No. 141, expressing its
decision not to concur in the ratification of the Treaty of
Friendship, Cooperation and Security and its
Supplementary Agreements that was supposed to
extend the term of the use by the US of Subic Naval
Base, among others.5 The last two paragraphs of the
Resolution state:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
FINDING that the Treaty constitutes a defective
framework for the continuing relationship between the
two countries in the spirit of friendship, cooperation and
sovereign equality: Now, therefore, be it
Resolved by the Senate, as it is hereby resolved, To
express its decision not to concur in the ratification of
the Treaty of Friendship, Cooperation and Security and
its Supplementary Agreements, at the same time
reaffirming its desire to continue friendly relations with
the government and people of the United States of
America.6 ςrνll
On 31 December 1991, the Philippine Government
sent a Note Verbale to the US Government through the
US Embassy, notifying it of the Philippines termination
of the RP-US Military Bases Agreement. The Note
Verbale stated that since the RP-US Military Bases
Agreement, as amended, shall terminate on 31
December 1992, the withdrawal of all US military
forces from Subic Naval Base should be completed by
said date.
In a letter dated 06 August 1992, Globe notified
Philcomsat of its intention to discontinue the use of the
earth station effective 08 November 1992 in view of the
withdrawal of US military personnel from Subic Naval
Base after the termination of the RP-US Military Bases
Agreement. Globe invoked as basis for the letter of
termination Section 8 (Default) of the Agreement,
which provides:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Neither party shall be held liable or deemed to be in
default for any failure to perform its obligation under
this Agreement if such failure results directly or
indirectly from force majeure or fortuitous event. Either
party is thus precluded from performing its obligation
until such force majeure or fortuitous event shall
terminate. For the purpose of this paragraph, force
majeure shall mean circumstances beyond the control
of the party involved including, but not limited to, any
law, order, regulation, direction or request of the
Government of the Philippines, strikes or other labor
difficulties, insurrection riots, national emergencies,
war, acts of public enemies, fire, floods, typhoons or
other catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to
Globe, stating that we expect [Globe] to know its
commitment to pay the stipulated rentals for the
remaining terms of the Agreement even after [Globe]
shall have discontinue[d] the use of the earth station
after November 08, 1992.7 Philcomsat referred to
Section 7 of the Agreement, stating as
follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
7.DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of
the earth station after it has been put into operation, a
written notice shall be served to PHILCOMSAT at least
sixty (60) days prior to the expected date of
termination. Notwithstanding the non-use of the earth
station, [Globe] shall continue to pay PHILCOMSAT for
the rental of the actual number of T1 circuits in use, but
in no case shall be less than the first two (2) T1 circuits,
for the remaining life of the agreement. However,
should PHILCOMSAT make use or sell the earth
station subject to this agreement, the obligation of
[Globe] to pay the rental for the remaining life of the
agreement shall be at such monthly rate as may be
agreed upon by the parties.8 ςrνll
After the US military forces left Subic Naval Base,
Philcomsat sent Globe a letter dated 24 November
1993 demanding payment of its outstanding
obligations under the Agreement amounting to
US$4,910,136.00 plus interest and attorneys fees.
However, Globe refused to heed Philcomsats demand.
On 27 January 1995, Philcomsat filed with the
Regional Trial Court of Makati a Complaint against
Globe, praying that the latter be ordered to pay
liquidated damages under the Agreement, with legal
interest, exemplary damages, attorneys fees and costs
of suit. The case was raffled to Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it
was constrained to end the Agreement due to the
termination of the RP-US Military Bases Agreement
and the non-ratification by the Senate of the Treaty of
Friendship and Cooperation, which events
constituted force majeure under the Agreement. Globe
explained that the occurrence of said events exempted
it from paying rentals for the remaining period of the
Agreement.
On 05 January 1999, the trial court rendered
its Decision, the dispositive portion of which
reads:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
WHEREFORE, premises considered, judgment is
hereby rendered as
follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
1.Ordering the defendant to pay the plaintiff the amount
of Ninety Two Thousand Two Hundred Thirty Eight US
Dollars (US$92,238.00) or its equivalent in Philippine
Currency (computed at the exchange rate prevailing at
the time of compliance or payment) representing
rentals for the month of December 1992 with interest
thereon at the legal rate of twelve percent (12%) per
annum starting December 1992 until the amount is fully
paid;chanroblesvirtuallawlibrary
2.Ordering the defendant to pay the plaintiff the amount
of Three Hundred Thousand (P300,000.00) Pesos as
and for attorneys fees;chanroblesvirtuallawlibrary
3.Ordering the DISMISSAL of defendants counterclaim
for lack of merit; andcralawlibrary
4.With costs against the defendant.
SO ORDERED.9 ςrνll
Both parties appealed the trial courts Decision to the
Court of Appeals.
Philcomsat claimed that the trial court erred in ruling
that: (1) the non-ratification by the Senate of the Treaty
of Friendship, Cooperation and Security and its
Supplementary Agreements constitutes force
majeure which exempts Globe from complying with its
obligations under the Agreement; (2) Globe is not liable
to pay the rentals for the remainder of the term of the
Agreement; and (3) Globe is not liable to Philcomsat
for exemplary damages.
Globe, on the other hand, contended that the RTC
erred in holding it liable for payment of rent of the earth
station for December 1992 and of attorneys fees. It
explained that it terminated Philcomsats services on 08
November 1992; hence, it had no reason to pay for
rentals beyond that date.
On 27 February 2001, the Court of Appeals
promulgated its Decision dismissing Philcomsats
appeal for lack of merit and affirming the trial courts
finding that certain events constituting force
majeure under Section 8 the Agreement occurred and
justified the non-payment by Globe of rentals for the
remainder of the term of the Agreement.
The appellate court ruled that the non-ratification by the
Senate of the Treaty of Friendship, Cooperation and
Security, and its Supplementary Agreements, and the
termination by the Philippine Government of the RP-
US Military Bases Agreement effective 31 December
1991 as stated in the Philippine Governments Note
Verbale to the US Government, are acts, directions, or
requests of the Government of the Philippines which
constitute force majeure. In addition, there were
circumstances beyond the control of the parties, such
as the issuance of a formal order by Cdr. Walter Corliss
of the US Navy, the issuance of the letter notification
from ATT and the complete withdrawal of all US military
forces and personnel from Cubi Point, which prevented
further use of the earth station under the Agreement.
However, the Court of Appeals ruled that although
Globe sought to terminate Philcomsats services by 08
November 1992, it is still liable to pay rentals for the
December 1992, amounting to US$92,238.00 plus
interest, considering that the US military forces and
personnel completely withdrew from Cubi Point only on
31 December 1992.10 ςrνll
Both parties filed their respective Petitions for
Review assailing the Decision of the Court of Appeals.
In G.R. No. 147324,11petitioner Philcomsat raises the
following assignments of error:
A.THE HONORABLE COURT OF APPEALS ERRED
IN ADOPTING A DEFINITION OF FORCE
MAJEURE DIFFERENT FROM WHAT ITS LEGAL
DEFINITION FOUND IN ARTICLE 1174 OF THE
CIVIL CODE, PROVIDES, SO AS TO EXEMPT
GLOBE TELECOM FROM COMPLYING WITH ITS
OBLIGATIONS UNDER THE SUBJECT
AGREEMENT.
B.THE HONORABLE COURT OF APPEALS ERRED
IN RULING THAT GLOBE TELECOM IS NOT LIABLE
TO PHILCOMSAT FOR RENTALS FOR THE
REMAINING TERM OF THE AGREEMENT, DESPITE
THE CLEAR TENOR OF SECTION 7 OF THE
AGREEMENT.
C.THE HONORABLE OCURT OF APPEALS ERRED
IN DELETING THE TRIAL COURTS AWARD OF
ATTORNEYS FEES IN FAVOR OF PHILCOMSAT.
D.THE HONORABLE COURT OF APPEALS ERRED
IN RULING THAT GLOBE TELECOM IS NOT LIABLE
TO PHILCOMSAT FOR EXEMPLARY
DAMAGES.12 ςrνll
Philcomsat argues that the termination of the RP-US
Military Bases Agreement cannot be considered a
fortuitous event because the happening thereof was
foreseeable. Although the Agreement was freely
entered into by both parties, Section 8 should be
deemed ineffective because it is contrary to Article
1174 of the Civil Code. Philcomsat posits the view that
the validity of the parties definition of force majeure in
Section 8 of the Agreement as circumstances beyond
the control of the party involved including, but not
limited to, any law, order, regulation, direction or
request of the Government of the Philippines, strikes or
other labor difficulties, insurrection riots, national
emergencies, war, acts of public enemies, fire, floods,
typhoons or other catastrophies or acts of God, should
be deemed subject to Article 1174 which defines
fortuitous events as events which could not be
foreseen, or which, though foreseen, were
inevitable.13 ςrνll
Philcomsat further claims that the Court of Appeals
erred in holding that Globe is not liable to pay for the
rental of the earth station for the entire term of the
Agreement because it runs counter to what was plainly
stipulated by the parties in Section 7 thereof.Moreover,
said ruling is inconsistent with the appellate courts
pronouncement that Globe is liable to pay rentals for
December 1992 even though it terminated Philcomsats
services effective 08 November 1992, because the US
military and personnel completely withdrew from Cubi
Point only in December 1992. Philcomsat points out
that it was Globe which proposed the five-year term of
the Agreement, and that the other provisions of the
Agreement, such as Section 4.114 thereof, evince the
intent of Globe to be bound to pay rentals for the entire
five-year term.15 ςrνll
Philcomsat also maintains that contrary to the
appellate courts findings, it is entitled to attorneys fees
and exemplary damages.16 ςrνll
In its Comment to Philcomsats Petition, Globe asserts
that Section 8 of the Agreement is not contrary to
Article 1174 of the Civil Code because said provision
does not prohibit parties to a contract from providing for
other instances when they would be exempt from
fulfilling their contractual obligations. Globe also claims
that the termination of the RP-US Military Bases
Agreement constitutes force majeure and exempts it
from complying with its obligations under the
Agreement.17 On the issue of the propriety of awarding
attorneys fees and exemplary damages to Philcomsat,
Globe maintains that Philcomsat is not entitled thereto
because in refusing to pay rentals for the remainder of
the term of the Agreement, Globe only acted in
accordance with its rights.18 ςrνll
In G.R. No. 147334,19 Globe, the petitioner therein,
contends that the Court of Appeals erred in finding it
liable for the amount of US$92,238.00, representing
rentals for December 1992, since Philcomsats services
were actually terminated on 08 November 1992.20 ςrνll
In its Comment, Philcomsat claims that Globes petition
should be dismissed as it raises a factual issue which
is not cognizable by the Court in a Petition for Review
on Certiorari .21 ςrνll
On 15 August 2001, the Court issued
a Resolution giving due course to Philcomsats Petition
in G.R. No. 147324 and required the parties to submit
their respective memoranda.22 ςrνll
Similarly, on 20 August 2001, the Court issued
a Resolution giving due course to the Petition filed by
Globe in G.R. No. 147334and required both parties to
submit their memoranda.23 ςrνll
Philcomsat and Globe thereafter filed their
respective Consolidated Memoranda in the two
cases, reiterating their arguments in their respective
petitions.
The Court is tasked to resolve the following issues: (1)
whether the termination of the RP-US Military Bases
Agreement, the non-ratification of the Treaty of
Friendship, Cooperation and Security, and the
consequent withdrawal of US military forces and
personnel from Cubi Point constitute force
majeure which would exempt Globe from complying
with its obligation to pay rentals under its Agreement
with Philcomsat; (2) whether Globe is liable to pay
rentals under the Agreement for the month of
December 1992; and (3) whether Philcomsat is entitled
to attorneys fees and exemplary damages.
No reversible error was committed by the Court of
Appeals in issuing the assailed Decision; hence the
petitions are denied.
There is no merit is Philcomsats argument that Section
8 of the Agreement cannot be given effect because the
enumeration of events constituting force
majeure therein unduly expands the concept of a
fortuitous event under Article 1174 of the Civil Code
and is therefore invalid.
In support of its position, Philcomsat contends that
under Article 1174 of the Civil Code, an event must be
unforeseen in order to exempt a party to a contract
from complying with its obligations therein. It insists
that since the expiration of the RP-US Military Bases
Agreement, the non-ratification of the Treaty of
Friendship, Cooperation and Security and the
withdrawal of US military forces and personnel from
Cubi Point were not unforeseeable, but were
possibilities known to it and Globe at the time they
entered into the Agreement, such events cannot
exempt Globe from performing its obligation of paying
rentals for the entire five-year term thereof.
However, Article 1174, which exempts an obligor from
liability on account of fortuitous events or force
majeure, refers not only to events that are
unforeseeable, but also to those which are
foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or
when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events
which, could not be foreseen, or which, though
foreseen were inevitable.
A fortuitous event under Article 1174 may either be an
act of God, or natural occurrences such as floods or
typhoons,24 or an act of man, such as riots, strikes or
wars.25 ςrνll
Philcomsat and Globe agreed in Section 8 of the
Agreement that the following events shall be deemed
events constituting force
majeure:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
1.Any law, order, regulation, direction or request of the
Philippine Government;chanroblesvirtuallawlibrary
2.Strikes or other labor
difficulties;chanroblesvirtuallawlibrary
3.Insurrection;chanroblesvirtuallawlibrary
4.Riots;chanroblesvirtuallawlibrary
5.National emergencies;chanroblesvirtuallawlibrary
6.War;chanroblesvirtuallawlibrary
7.Acts of public enemies;chanroblesvirtuallawlibrary
8.Fire, floods, typhoons or other catastrophies or acts
of God;chanroblesvirtuallawlibrary
9.Other circumstances beyond the control of the
parties.
Clearly, the foregoing are either unforeseeable, or
foreseeable but beyond the control of the parties.
There is nothing in the enumeration that runs contrary
to, or expands, the concept of a fortuitous event under
Article 1174.
Furthermore, under Article 130626 of the Civil Code,
parties to a contract may establish such stipulations,
clauses, terms and conditions as they may deem fit, as
long as the same do not run counter to the law, morals,
good customs, public order or public policy.27 ςrνll
Article 1159 of the Civil Code also provides that
[o]bligations arising from contracts have the force of
law between the contracting parties and should be
complied with in good faith.28 Courts cannot stipulate
for the parties nor amend their agreement where the
same does not contravene law, morals, good customs,
public order or public policy, for to do so would be to
alter the real intent of the parties, and would run
contrary to the function of the courts to give force and
effect thereto.29 ςrνll
Not being contrary to law, morals, good customs,
public order, or public policy, Section 8 of the
Agreement which Philcomsat and Globe freely agreed
upon has the force of law between them.30 ςrνll
In order that Globe may be exempt from non-
compliance with its obligation to pay rentals under
Section 8, the concurrence of the following elements
must be established: (1) the event must be
independent of the human will; (2) the occurrence must
render it impossible for the debtor to fulfill the obligation
in a normal manner; and (3) the obligor must be free of
participation in, or aggravation of, the injury to the
creditor.31 ςrνll
The Court agrees with the Court of Appeals and the
trial court that the abovementioned requisites are
present in the instant case. Philcomsat and Globe had
no control over the non-renewal of the term of the RP-
US Military Bases Agreement when the same expired
in 1991, because the prerogative to ratify the treaty
extending the life thereof belonged to the Senate.
Neither did the parties have control over the
subsequent withdrawal of the US military forces and
personnel from Cubi Point in December
1992:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Obviously the non-ratification by the Senate of the RP-
US Military Bases Agreement (and its Supplemental
Agreements) under its Resolution No. 141. (Exhibit 2)
on September 16, 1991 is beyond the control of the
parties. This resolution was followed by the sending on
December 31, 1991 o[f] a Note Verbale (Exhibit 3) by
the Philippine Government to the US Government
notifying the latter of the formers termination of the RP-
US Military Bases Agreement (as amended) on 31
December 1992 and that accordingly, the withdrawal of
all U.S. military forces from Subic Naval Base should
be completed by said date. Subsequently, defendant
[Globe] received a formal order from Cdr. Walter F.
Corliss II Commander USN dated July 31, 1992 and a
notification from ATT dated July 29, 1992 to terminate
the provision of T1s services (via an IBS Standard B
Earth Station) effective November 08, 1992. Plaintiff
[Philcomsat] was furnished with copies of the said
order and letter by the defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the
Note Verbale of the Philippine Government to the US
Government are acts, direction or request of the
Government of the Philippines and circumstances
beyond the control of the defendant. The formal order
from Cdr. Walter Corliss of the USN, the letter
notification from ATT and the complete withdrawal of
all the military forces and personnel from Cubi Point in
the year-end 1992 are also acts and circumstances
beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds
that the afore-narrated circumstances constitute force
majeure or fortuitous event(s) as defined under
paragraph 8 of the Agreement.
From the foregoing, the Court finds that the defendant
is exempted from paying the rentals for the facility for
the remaining term of the contract.
As a consequence of the termination of the RP-US
Military Bases Agreement (as amended) the continued
stay of all US Military forces and personnel from Subic
Naval Base would no longer be allowed, hence, plaintiff
would no longer be in any position to render the service
it was obligated under the Agreement. To put it blantly
(sic), since the US military forces and personnel left or
withdrew from Cubi Point in the year end December
1992, there was no longer any necessity for the plaintiff
to continue maintaining the IBS facility.32 (Emphasis in
the original.)
The aforementioned events made impossible the
continuation of the Agreement until the end of its five-
year term without fault on the part of either party. The
Court of Appeals was thus correct in ruling that the
happening of such fortuitous events rendered Globe
exempt from payment of rentals for the remainder of
the term of the Agreement.
Moreover, it would be unjust to require Globe to
continue paying rentals even though Philcomsat
cannot be compelled to perform its corresponding
obligation under the Agreement. As noted by the
appellate court:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
We also point out the sheer inequity of PHILCOMSATs
position. PHILCOMSAT would like to charge GLOBE
rentals for the balance of the lease term without there
being any corresponding telecommunications service
subject of the lease.It will be grossly unfair and
iniquitous to hold GLOBE liable for lease charges for a
service that was not and could not have been rendered
due to an act of the government which was clearly
beyond GLOBEs control. The binding effect of a
contract on both parties is based on the principle that
the obligations arising from contracts have the force of
law between the contracting parties, and there must be
mutuality between them based essentially on their
equality under which it is repugnant to have one party
bound by the contract while leaving the other party free
therefrom (Allied Banking Corporation v. Court of
Appeals, 284 SCRA 357 ). 33 ςrνll
With respect to the issue of whether Globe is liable for
payment of rentals for the month of December 1992,
the Court likewise affirms the appellate courts ruling
that Globe should pay the same.
Although Globe alleged that it terminated the
Agreement with Philcomsat effective 08 November
1992 pursuant to the formal order issued by Cdr.
Corliss of the US Navy, the date when they actually
ceased using the earth station subject of the
Agreement was not established during the
trial.34 However, the trial court found that the US
military forces and personnel completely withdrew from
Cubi Point only on 31 December 1992.35 Thus, until
that date, the USDCA had control over the earth station
and had the option of using the same. Furthermore,
Philcomsat could not have removed or rendered
ineffective said communication facility until after 31
December 1992 because Cubi Point was accessible
only to US naval personnel up to that time. Hence, the
Court of Appeals did not err when it affirmed the trial
courts ruling that Globe is liable for payment of rentals
until December 1992.
Neither did the appellate court commit any error in
holding that Philcomsat is not entitled to attorneys fees
and exemplary damages.
The award of attorneys fees is the exception rather
than the rule, and must be supported by factual, legal
and equitable justifications.36 In previously decided
cases, the Court awarded attorneys fees where a party
acted in gross and evident bad faith in refusing to
satisfy the other partys claims and compelled the
former to litigate to protect his rights;37 when the action
filed is clearly unfounded,38 or where moral or
exemplary damages are awarded.39 However, in cases
where both parties have legitimate claims against each
other and no party actually prevailed, such as in the
present case where the claims of both parties were
sustained in part, an award of attorneys fees would not
be warranted.40 ςrνll
Exemplary damages may be awarded in cases
involving contracts or quasi-contracts, if the erring
party acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.41 In the present
case, it was not shown that Globe acted wantonly or
oppressively in not heeding Philcomsats demands for
payment of rentals. It was established during the trial
of the case before the trial court that Globe had valid
grounds for refusing to comply with its contractual
obligations after 1992.
WHEREFORE, the Petitions are DENIED for lack of
merit. The assailed Decision of the Court of Appeals in
CA-G.R. CV No. 63619 is AFFIRMED.
SO ORDERED.

G.R. No. 147839 June 8, 2006
GAISANO CAGAYAN, INC. Petitioner,
vs.
INSURANCE COMPANY OF NORTH
AMERICA, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of
the Decision1 dated October 11, 2000 of the Court of
Appeals (CA) in CA-G.R. CV No. 61848 which set
aside the Decision dated August 31, 1998 of the
Regional Trial Court, Branch 138, Makati (RTC) in Civil
Case No. 92-322 and upheld the causes of action for
damages of Insurance Company of North America
(respondent) against Gaisano Cagayan, Inc.
(petitioner); and the CA Resolution dated April 11,
2001 which denied petitioner's motion for
reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker
of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc.
(LSPI) is the local distributor of products bearing
trademarks owned by Levi Strauss & Co.. IMC and
LSPI separately obtained from respondent fire
insurance policies with book debt endorsements. The
insurance policies provide for coverage on "book debts
in connection with ready-made clothing materials
which have been sold or delivered to various
customers and dealers of the Insured anywhere in the
Philippines."2 The policies defined book debts as the
"unpaid account still appearing in the Book of Account
of the Insured 45 days after the time of the loss covered
under this Policy."3 The policies also provide for the
following conditions:
1. Warranted that the Company shall not be
liable for any unpaid account in respect of the
merchandise sold and delivered by the
Insured which are outstanding at the date of
loss for a period in excess of six (6) months
from the date of the covering invoice or actual
delivery of the merchandise whichever shall
first occur.
2. Warranted that the Insured shall submit to
the Company within twelve (12) days after the
close of every calendar month all amount
shown in their books of accounts as unpaid
and thus become receivable item from their
customers and dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of
IMC and LSPI. On February 25, 1991, the Gaisano
Superstore Complex in Cagayan de Oro City, owned
by petitioner, was consumed by fire. Included in the
items lost or destroyed in the fire were stocks of ready-
made clothing materials sold and delivered by IMC and
LSPI.
On February 4, 1992, respondent filed a complaint for
damages against petitioner. It alleges that IMC and
LSPI filed with respondent their claims under their
respective fire insurance policies with book debt
endorsements; that as of February 25, 1991, the
unpaid accounts of petitioner on the sale and delivery
of ready-made clothing materials with IMC
was P2,119,205.00 while with LSPI it
was P535,613.00; that respondent paid the claims of
IMC and LSPI and, by virtue thereof, respondent was
subrogated to their rights against petitioner; that
respondent made several demands for payment upon
petitioner but these went unheeded.5
In its Answer with Counter Claim dated July 4, 1995,
petitioner contends that it could not be held liable
because the property covered by the insurance policies
were destroyed due to fortuities event or force majeure;
that respondent's right of subrogation has no basis
inasmuch as there was no breach of contract
committed by it since the loss was due to fire which it
could not prevent or foresee; that IMC and LSPI never
communicated to it that they insured their properties;
that it never consented to paying the claim of the
insured.6
At the pre-trial conference the parties failed to arrive at
an amicable settlement.7 Thus, trial on the merits
ensued.
On August 31, 1998, the RTC rendered its decision
dismissing respondent's complaint.8 It held that the fire
was purely accidental; that the cause of the fire was not
attributable to the negligence of the petitioner; that it
has not been established that petitioner is the debtor of
IMC and LSPI; that since the sales invoices state that
"it is further agreed that merely for purpose of securing
the payment of purchase price, the above-described
merchandise remains the property of the vendor until
the purchase price is fully paid", IMC and LSPI retained
ownership of the delivered goods and must bear the
loss.
Dissatisfied, petitioner appealed to the CA.9 On
October 11, 2000, the CA rendered its decision setting
aside the decision of the RTC. The dispositive portion
of the decision reads:
WHEREFORE, in view of the foregoing, the appealed
decision is REVERSED and SET ASIDE and a new
one is entered ordering defendant-appellee Gaisano
Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing
the amount paid by the plaintiff-appellant to
the insured Inter Capitol Marketing
Corporation, plus legal interest from the time
of demand until fully paid;
2. the amount of P535,613.00 representing
the amount paid by the plaintiff-appellant to
the insured Levi Strauss Phil., Inc., plus legal
interest from the time of demand until fully
paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale,
being detailed statements of the nature, quantity and
cost of the thing sold; that loss of the goods in the fire
must be borne by petitioner since
the proviso contained in the sales invoices is an
exception under Article 1504 (1) of the Civil Code, to
the general rule that if the thing is lost by a fortuitous
event, the risk is borne by the owner of the thing at the
time the loss under the principle of res perit domino;
that petitioner's obligation to IMC and LSPI is not the
delivery of the lost goods but the payment of its unpaid
account and as such the obligation to pay is not
extinguished, even if the fire is considered a fortuitous
event; that by subrogation, the insurer has the right to
go against petitioner; that, being a fire insurance with
book debt endorsements, what was insured was the
vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it was
denied by the CA in its Resolution dated April 11,
2001.13
Hence, the present petition for review on certiorari
anchored on the following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING
THAT THE INSURANCE IN THE INSTANT CASE
WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING
THAT ALL RISK OVER THE SUBJECT GOODS IN
THE INSTANT CASE HAD TRANSFERRED TO
PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING
THAT THERE WAS AUTOMATIC SUBROGATION
UNDER ART. 2207 OF THE CIVIL CODE IN FAVOR
OF RESPONDENT.14
Anent the first error, petitioner contends that the
insurance in the present case cannot be deemed to be
over credit since an insurance "on credit" belies not
only the nature of fire insurance but the express terms
of the policies; that it was not credit that was insured
since respondent paid on the occasion of the loss of
the insured goods to fire and not because of the non-
payment by petitioner of any obligation; that, even if the
insurance is deemed as one over credit, there was no
loss as the accounts were not yet due since no prior
demands were made by IMC and LSPI against
petitioner for payment of the debt and such demands
came from respondent only after it had already paid
IMC and LSPI under the fire insurance policies.15
As to the second error, petitioner avers that despite
delivery of the goods, petitioner-buyer IMC and LSPI
assumed the risk of loss when they secured fire
insurance policies over the goods.
Concerning the third ground, petitioner submits that
there is no subrogation in favor of respondent as no
valid insurance could be maintained thereon by IMC
and LSPI since all risk had transferred to petitioner
upon delivery of the goods; that petitioner was not privy
to the insurance contract or the payment between
respondent and its insured nor was its consent or
approval ever secured; that this lack of privity
forecloses any real interest on the part of respondent
in the obligation to pay, limiting its interest to keeping
the insured goods safe from fire.
For its part, respondent counters that while ownership
over the ready- made clothing materials was
transferred upon delivery to petitioner, IMC and LSPI
have insurable interest over said goods as creditors
who stand to suffer direct pecuniary loss from its
destruction by fire; that petitioner is liable for loss of the
ready-made clothing materials since it failed to
overcome the presumption of liability under Article
126516 of the Civil Code; that the fire was caused
through petitioner's negligence in failing to provide
stringent measures of caution, care and maintenance
on its property because electric wires do not usually
short circuit unless there are defects in their installation
or when there is lack of proper maintenance and
supervision of the property; that petitioner is guilty of
gross and evident bad faith in refusing to pay
respondent's valid claim and should be liable to
respondent for contracted lawyer's fees, litigation
expenses and cost of suit.17
As a general rule, in petitions for review, the jurisdiction
of this Court in cases brought before it from the CA is
limited to reviewing questions of law which involves no
examination of the probative value of the evidence
presented by the litigants or any of them. 18 The
Supreme Court is not a trier of facts; it is not its function
to analyze or weigh evidence all over
again.19 Accordingly, findings of fact of the appellate
court are generally conclusive on the Supreme Court. 20
Nevertheless, jurisprudence has recognized several
exceptions in which factual issues may be resolved by
this Court, such as: (1) when the findings are grounded
entirely on speculation, surmises or conjectures; (2)
when the inference made is manifestly mistaken,
absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of facts
are conflicting; (6) when in making its findings the CA
went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and
the appellee; (7) when the findings are contrary to 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; (10) when the findings of
fact are premised on the supposed absence of
evidence and contradicted by the evidence on record;
and (11) when the CA manifestly overlooked certain
relevant facts not disputed by the parties, which, if
properly considered, would justify a different
conclusion.21 Exceptions (4), (5), (7), and (11) apply to
the present petition.
At issue is the proper interpretation of the questioned
insurance policy. Petitioner claims that the CA erred in
construing a fire insurance policy on book debts as one
covering the unpaid accounts of IMC and LSPI since
such insurance applies to loss of the ready-made
clothing materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are
plain and readily understood, there is no room for
construction.22 In this case, the questioned insurance
policies provide coverage for "book debts in connection
with ready-made clothing materials which have been
sold or delivered to various customers and dealers of
the Insured anywhere in the Philippines." 23 ; and
defined book debts as the "unpaid account still
appearing in the Book of Account of the Insured 45
days after the time of the loss covered under this
Policy."24 Nowhere is it provided in the questioned
insurance policies that the subject of the insurance is
the goods sold and delivered to the customers and
dealers of the insured.
Indeed, when the terms of the agreement are clear and
explicit that they do not justify an attempt to read into it
any alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of
the contract.25 Thus, what were insured against were
the accounts of IMC and LSPI with petitioner which
remained unpaid 45 days after the loss through fire,
and not the loss or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss
because it expressly reserved ownership of the goods
by stipulating in the sales invoices that "[i]t is further
agreed that merely for purpose of securing the
payment of the purchase price the above described
merchandise remains the property of the vendor until
the purchase price thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1),
Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods
remain at the seller's risk until the ownership therein is
transferred to the buyer, but when the ownership
therein is transferred to the buyer the goods are at the
buyer's risk whether actual delivery has been made or
not, except that:
(1) Where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been
retained by the seller merely to secure performance by
the buyer of his obligations under the contract, the
goods are at the buyer's risk from the time of such
delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure
that the buyer will pay its debt, the risk of loss is borne
by the buyer.27 Accordingly, petitioner bears the risk of
loss of the goods delivered.
IMC and LSPI did not lose complete interest over the
goods. They have an insurable interest until full
payment of the value of the delivered goods. Unlike the
civil law concept of res perit domino, where ownership
is the basis for consideration of who bears the risk of
loss, in property insurance, one's interest is not
determined by concept of title, but whether insured has
substantial economic interest in the property.28
Section 13 of our Insurance Code defines insurable
interest as "every interest in property, whether real or
personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril might
directly damnify the insured." Parenthetically, under
Section 14 of the same Code, an insurable interest in
property may consist in: (a) an existing interest; (b) an
inchoate interest founded on existing interest; or (c) an
expectancy, coupled with an existing interest in that out
of which the expectancy arises.
Therefore, an insurable interest in property does not
necessarily imply a property interest in, or a lien upon,
or possession of, the subject matter of the insurance,
and neither the title nor a beneficial interest is requisite
to the existence of such an interest, it is sufficient that
the insured is so situated with reference to the property
that he would be liable to loss should it be injured or
destroyed by the peril against which it is
insured.29 Anyone has an insurable interest in property
who derives a benefit from its existence or would suffer
loss from its destruction.30 Indeed, a vendor or seller
retains an insurable interest in the property sold so long
as he has any interest therein, in other words, so long
as he would suffer by its destruction, as where he has
a vendor's lien.31 In this case, the insurable interest of
IMC and LSPI pertain to the unpaid accounts
appearing in their Books of Account 45 days after the
time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid
accounts?
Petitioner's argument that it is not liable because the
fire is a fortuitous event under Article 117432 of the Civil
Code is misplaced. As held earlier, petitioner bears the
loss under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this
case is not for loss of goods by fire but for petitioner's
accounts with IMC and LSPI that remained unpaid 45
days after the fire. Accordingly, petitioner's obligation
is for the payment of money. As correctly stated by the
CA, where the obligation consists in the payment of
money, the failure of the debtor to make the payment
even by reason of a fortuitous event shall not relieve
him of his liability.33 The rationale for this is that the rule
that an obligor should be held exempt from liability
when the loss occurs thru a fortuitous event only holds
true when the obligation consists in the delivery of a
determinate thing and there is no stipulation holding
him liable even in case of fortuitous event. It does not
apply when the obligation is pecuniary in nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation
to deliver a generic thing, the loss or destruction of
anything of the same kind does not extinguish the
obligation." If the obligation is generic in the sense that
the object thereof is designated merely by its class or
genus without any particular designation or physical
segregation from all others of the same class, the loss
or destruction of anything of the same kind even
without the debtor's fault and before he has incurred in
delay will not have the effect of extinguishing the
obligation.35 This rule is based on the principle that the
genus of a thing can never perish. Genus nunquan
perit.36 An obligation to pay money is generic;
therefore, it is not excused by fortuitous loss of any
specific property of the debtor.37
Thus, whether fire is a fortuitous event or petitioner was
negligent are matters immaterial to this case. What is
relevant here is whether it has been established that
petitioner has outstanding accounts with IMC and
LSPI.
With respect to IMC, the respondent has adequately
established its claim. Exhibits "C" to "C-22"38 show that
petitioner has an outstanding account with IMC in the
amount of P2,119,205.00. Exhibit "E"39 is the check
voucher evidencing payment to IMC. Exhibit "F" 40 is
the subrogation receipt executed by IMC in favor of
respondent upon receipt of the insurance proceeds. All
these documents have been properly identified,
presented and marked as exhibits in court. The
subrogation receipt, by itself, is sufficient to establish
not only the relationship of respondent as insurer and
IMC as the insured, but also the amount paid to settle
the insurance claim. The right of subrogation accrues
simply upon payment by the insurance company of the
insurance claim.41 Respondent's action against
petitioner is squarely sanctioned by Article 2207 of the
Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured,
and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong
or breach of contract complained of, the insurance
company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has
violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient
evidence to prove its cause of action. No evidentiary
weight can be given to Exhibit "F Levi Strauss", 42 a
letter dated April 23, 1991 from petitioner's General
Manager, Stephen S. Gaisano, Jr., since it is not an
admission of petitioner's unpaid account with LSPI. It
only confirms the loss of Levi's products in the amount
of P535,613.00 in the fire that razed petitioner's
building on February 25, 1991.
Moreover, there is no proof of full settlement of the
insurance claim of LSPI; no subrogation receipt was
offered in evidence. Thus, there is no evidence that
respondent has been subrogated to any right which
LSPI may have against petitioner. Failure to
substantiate the claim of subrogation is fatal to
petitioner's case for recovery of the amount
of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The
assailed Decision dated October 11, 2000 and
Resolution dated April 11, 2001 of the Court of Appeals
in CA-G.R. CV No. 61848 are AFFIRMED with
the MODIFICATION that the order to pay the amount
of P535,613.00 to respondent is DELETED for lack of
factual basis.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 159617 August 8, 2007
ROBERTO C. SICAM and AGENCIA de R.C. SICAM,
INC., petitioners,
vs.
LULU V. JORGE and CESAR JORGE, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by
Roberto C. Sicam, Jr. (petitioner Sicam)
and Agencia de R.C. Sicam, Inc. (petitioner
corporation) seeking to annul the Decision1 of the
Court of Appeals dated March 31, 2003, and its
Resolution2 dated August 8, 2003, in CA G.R. CV No.
56633.
It appears that on different dates from September to
October 1987, Lulu V. Jorge (respondent Lulu) pawned
several pieces of jewelry with Agencia de R. C. Sicam
located at No. 17 Aguirre Ave., BF Homes Parañaque,
Metro Manila, to secure a loan in the total amount
of P59,500.00.
On October 19, 1987, two armed men entered the
pawnshop and took away whatever cash and jewelry
were found inside the pawnshop vault. The incident
was entered in the police blotter of the Southern Police
District, Parañaque Police Station as follows:
Investigation shows that at above TDPO,
while victims were inside the office, two (2)
male unidentified persons entered into the
said office with guns drawn. Suspects(sic) (1)
went straight inside and poked his gun toward
Romeo Sicam and thereby tied him with an
electric wire while suspects (sic) (2) poked his
gun toward Divina Mata and Isabelita
Rodriguez and ordered them to lay (sic) face
flat on the floor. Suspects asked forcibly the
case and assorted pawned jewelries items
mentioned above.
Suspects after taking the money and jewelries
fled on board a Marson Toyota unidentified
plate number.3
Petitioner Sicam sent respondent Lulu a letter dated
October 19, 1987 informing her of the loss of her
jewelry due to the robbery incident in the pawnshop.
On November 2, 1987, respondent Lulu then wrote a
letter4 to petitioner Sicam expressing disbelief stating
that when the robbery happened, all jewelry pawned
were deposited with Far East Bank near the pawnshop
since it had been the practice that before they could
withdraw, advance notice must be given to the
pawnshop so it could withdraw the jewelry from the
bank. Respondent Lulu then requested petitioner
Sicam to prepare the pawned jewelry for withdrawal on
November 6, 1987 but petitioner Sicam failed to return
the jewelry.
On September 28, 1988, respondent Lulu joined by her
husband, Cesar Jorge, filed a complaint against
petitioner Sicam with the Regional Trial Court of Makati
seeking indemnification for the loss of pawned jewelry
and payment of actual, moral and exemplary damages
as well as attorney's fees. The case was docketed as
Civil Case No. 88-2035.
Petitioner Sicam filed his Answer contending that he is
not the real party-in-interest as the pawnshop was
incorporated on April 20, 1987 and known
as Agencia de R.C. Sicam, Inc; that petitioner
corporation had exercised due care and diligence in
the safekeeping of the articles pledged with it and could
not be made liable for an event that is fortuitous.
Respondents subsequently filed an Amended
Complaint to include petitioner corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss
as far as he is concerned considering that he is not the
real party-in-interest. Respondents opposed the same.
The RTC denied the motion in an Order dated
November 8, 1989.5
After trial on the merits, the RTC rendered its
Decision6 dated January 12, 1993, dismissing
respondents’ complaint as well as petitioners’
counterclaim. The RTC held that petitioner Sicam
could not be made personally liable for a claim arising
out of a corporate transaction; that in the Amended
Complaint of respondents, they asserted that "plaintiff
pawned assorted jewelries in defendants' pawnshop";
and that as a consequence of the separate juridical
personality of a corporation, the corporate debt or
credit is not the debt or credit of a stockholder.
The RTC further ruled that petitioner corporation could
not be held liable for the loss of the pawned jewelry
since it had not been rebutted by respondents that the
loss of the pledged pieces of jewelry in the possession
of the corporation was occasioned by armed robbery;
that robbery is a fortuitous event which exempts the
victim from liability for the loss, citing the case
of Austria v. Court of Appeals;7 and that the parties’
transaction was that of a pledgor and pledgee and
under Art. 1174 of the Civil Code, the pawnshop as a
pledgee is not responsible for those events which could
not be foreseen.
Respondents appealed the RTC Decision to the CA. In
a Decision dated March 31, 2003, the CA reversed the
RTC, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the
instant Appeal is GRANTED, and the
Decision dated January 12, 1993,of the
Regional Trial Court of Makati, Branch 62, is
hereby REVERSED and SET ASIDE,
ordering the appellees to pay appellants the
actual value of the lost jewelry amounting
to P272,000.00, and attorney' fees
of P27,200.00.8
In finding petitioner Sicam liable together with
petitioner corporation, the CA applied the doctrine of
piercing the veil of corporate entity reasoning that
respondents were misled into thinking that they were
dealing with the pawnshop owned by petitioner Sicam
as all the pawnshop tickets issued to them bear the
words "Agencia de R.C. Sicam"; and that there was no
indication on the pawnshop tickets that it was the
petitioner corporation that owned the pawnshop which
explained why respondents had to amend their
complaint impleading petitioner corporation.
The CA further held that the corresponding diligence
required of a pawnshop is that it should take steps to
secure and protect the pledged items and should take
steps to insure itself against the loss of articles which
are entrusted to its custody as it derives earnings from
the pawnshop trade which petitioners failed to do;
that Austria is not applicable to this case since the
robbery incident happened in 1961 when the criminality
had not as yet reached the levels attained in the
present day; that they are at least guilty of contributory
negligence and should be held liable for the loss of
jewelries; and that robberies and hold-ups are
foreseeable risks in that those engaged in the
pawnshop business are expected to foresee.
The CA concluded that both petitioners should be
jointly and severally held liable to respondents for the
loss of the pawned jewelry.
Petitioners’ motion for reconsideration was denied in a
Resolution dated August 8, 2003.
Hence, the instant petition for review with the following
assignment of errors:
THE COURT OF APPEALS ERRED AND
WHEN IT DID, IT OPENED ITSELF TO
REVERSAL, WHEN IT ADOPTED
UNCRITICALLY (IN FACT IT
REPRODUCED AS ITS OWN WITHOUT IN
THE MEANTIME ACKNOWLEDGING IT)
WHAT THE RESPONDENTS ARGUED IN
THEIR BRIEF, WHICH ARGUMENT WAS
PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND
WHEN IT DID, IT OPENED ITSELF TO
REVERSAL BY THIS HONORABLE COURT,
WHEN IT AGAIN ADOPTED UNCRITICALLY
(BUT WITHOUT ACKNOWLEDGING IT)
THE SUBMISSIONS OF THE
RESPONDENTS IN THEIR BRIEF
WITHOUT ADDING ANYTHING MORE
THERETO DESPITE THE FACT THAT THE
SAID ARGUMENT OF THE RESPONDENTS
COULD NOT HAVE BEEN SUSTAINED IN
VIEW OF UNREBUTTED EVIDENCE ON
RECORD.9
Anent the first assigned error, petitioners point out that
the CA’s finding that petitioner Sicam is personally
liable for the loss of the pawned jewelries is "a virtual
and uncritical reproduction of the arguments set out on
pp. 5-6 of the Appellants’ brief."10
Petitioners argue that the reproduced arguments of
respondents in their Appellants’ Brief suffer from
infirmities, as follows:
(1) Respondents conclusively asserted in
paragraph 2 of their Amended Complaint that
Agencia de R.C. Sicam, Inc. is the present
owner of Agencia de R.C. Sicam Pawnshop,
and therefore, the CA cannot rule against said
conclusive assertion of respondents;
(2) The issue resolved against petitioner
Sicam was not among those raised and
litigated in the trial court; and
(3) By reason of the above infirmities, it was
error for the CA to have pierced the corporate
veil since a corporation has a personality
distinct and separate from its individual
stockholders or members.
Anent the second error, petitioners point out that the
CA finding on their negligence is likewise an unedited
reproduction of respondents’ brief which had the
following defects:
(1) There were unrebutted evidence on record
that petitioners had observed the diligence
required of them, i.e, they wanted to open a
vault with a nearby bank for purposes of
safekeeping the pawned articles but was
discouraged by the Central Bank (CB) since
CB rules provide that they can only store the
pawned articles in a vault inside the
pawnshop premises and no other place;
(2) Petitioners were adjudged negligent as
they did not take insurance against the loss of
the pledged jelweries, but it is judicial notice
that due to high incidence of crimes,
insurance companies refused to cover
pawnshops and banks because of high
probability of losses due to robberies;
(3) In Hernandez v. Chairman, Commission
on Audit (179 SCRA 39, 45-46), the victim of
robbery was exonerated from liability for the
sum of money belonging to others and lost by
him to robbers.
Respondents filed their Comment and petitioners filed
their Reply thereto. The parties subsequently
submitted their respective Memoranda.
We find no merit in the petition.
To begin with, although it is true that indeed the CA
findings were exact reproductions of the arguments
raised in respondents’ (appellants’) brief filed with the
CA, we find the same to be not fatally infirmed. Upon
examination of the Decision, we find that it expressed
clearly and distinctly the facts and the law on which it
is based as required by Section 8, Article VIII of the
Constitution. The discretion to decide a case one way
or another is broad enough to justify the adoption of the
arguments put forth by one of the parties, as long as
these are legally tenable and supported by law and the
facts on records.11
Our jurisdiction under Rule 45 of the Rules of Court is
limited to the review of errors of law committed by the
appellate court. Generally, the findings of fact of the
appellate court are deemed conclusive and we are not
duty-bound to analyze and calibrate all over again the
evidence adduced by the parties in the court a
quo.12 This rule, however, is not without exceptions,
such as where the factual findings of the Court of
Appeals and the trial court are conflicting or
contradictory13 as is obtaining in the instant case.
However, after a careful examination of the records, we
find no justification to absolve petitioner Sicam from
liability.
The CA correctly pierced the veil of the corporate fiction
and adjudged petitioner Sicam liable together with
petitioner corporation. The rule is that the veil of
corporate fiction may be pierced when made as a
shield to perpetrate fraud and/or confuse legitimate
issues. 14 The theory of corporate entity was not meant
to promote unfair objectives or otherwise to shield
them.15
Notably, the evidence on record shows that at the time
respondent Lulu pawned her jewelry, the pawnshop
was owned by petitioner Sicam himself. As correctly
observed by the CA, in all the pawnshop receipts
issued to respondent Lulu in September 1987, all bear
the words "Agencia de R. C. Sicam," notwithstanding
that the pawnshop was allegedly incorporated in April
1987. The receipts issued after such alleged
incorporation were still in the name of "Agencia de R.
C. Sicam," thus inevitably misleading, or at the very
least, creating the wrong impression to respondents
and the public as well, that the pawnshop was owned
solely by petitioner Sicam and not by a corporation.
Even petitioners’ counsel, Atty. Marcial T. Balgos, in
his letter16 dated October 15, 1987 addressed to the
Central Bank, expressly referred to petitioner Sicam as
the proprietor of the pawnshop notwithstanding the
alleged incorporation in April 1987.
We also find no merit in petitioners' argument that since
respondents had alleged in their Amended Complaint
that petitioner corporation is the present owner of the
pawnshop, the CA is bound to decide the case on that
basis.
Section 4 Rule 129 of the Rules of Court provides that
an admission, verbal or written, made by a party in the
course of the proceedings in the same case, does not
require proof. The admission may be contradicted only
by showing that it was made through palpable mistake
or that no such admission was made.
Thus, the general rule that a judicial admission is
conclusive upon the party making it and does not
require proof, admits of two exceptions, to wit: (1) when
it is shown that such admission was made through
palpable mistake, and (2) when it is shown that no such
admission was in fact made. The latter exception
allows one to contradict an admission by denying
that he made such an admission.17
The Committee on the Revision of the Rules of Court
explained the second exception in this wise:
x x x if a party invokes an "admission" by an
adverse party, but cites the admission "out of
context," then the one making the "admission"
may show that he made no "such" admission,
or that his admission was taken out of
context.
x x x that the party can also show that he
made no "such admission", i.e., not in the
sense in which the admission is made to
appear.
That is the reason for the modifier "such"
because if the rule simply states that the
admission may be contradicted by showing
that "no admission was made," the rule would
not really be providing for a contradiction of
the admission but just a denial.18 (Emphasis
supplied).
While it is true that respondents alleged in their
Amended Complaint that petitioner corporation is the
present owner of the pawnshop, they did so only
because petitioner Sicam alleged in his Answer to the
original complaint filed against him that he was not the
real party-in-interest as the pawnshop was
incorporated in April 1987. Moreover, a reading of the
Amended Complaint in its entirety shows that
respondents referred to both petitioner Sicam and
petitioner corporation where they (respondents)
pawned their assorted pieces of jewelry and ascribed
to both the failure to observe due diligence
commensurate with the business which resulted in the
loss of their pawned jewelry.
Markedly, respondents, in their Opposition to
petitioners’ Motion to Dismiss Amended Complaint,
insofar as petitioner Sicam is concerned, averred as
follows:
Roberto C. Sicam was named the defendant
in the original complaint because the
pawnshop tickets involved in this case did not
show that the R.C. Sicam Pawnshop was a
corporation. In paragraph 1 of his Answer, he
admitted the allegations in paragraph 1 and 2
of the Complaint. He merely added "that
defendant is not now the real party in interest
in this case."
It was defendant Sicam's omission to correct
the pawnshop tickets used in the subject
transactions in this case which was the cause
of the instant action. He cannot now ask for
the dismissal of the complaint against him
simply on the mere allegation that his
pawnshop business is now incorporated. It is
a matter of defense, the merit of which can
only be reached after consideration of the
evidence to be presented in due course.19
Unmistakably, the alleged admission made in
respondents' Amended Complaint was taken "out of
context" by petitioner Sicam to suit his own purpose.
Ineluctably, the fact that petitioner Sicam continued to
issue pawnshop receipts under his name and not
under the corporation's name militates for the piercing
of the corporate veil.
We likewise find no merit in petitioners' contention that
the CA erred in piercing the veil of corporate fiction of
petitioner corporation, as it was not an issue raised and
litigated before the RTC.
Petitioner Sicam had alleged in his Answer filed with
the trial court that he was not the real party-in-interest
because since April 20, 1987, the pawnshop business
initiated by him was incorporated and known
as Agencia de R.C. Sicam. In the pre-trial brief filed by
petitioner Sicam, he submitted that as far as he was
concerned, the basic issue was whether he is the real
party in interest against whom the complaint should be
directed.20 In fact, he subsequently moved for the
dismissal of the complaint as to him but was not
favorably acted upon by the trial court. Moreover, the
issue was squarely passed upon, although
erroneously, by the trial court in its Decision in this
manner:
x x x The defendant Roberto Sicam, Jr
likewise denies liability as far as he is
concerned for the reason that he cannot be
made personally liable for a claim arising from
a corporate transaction.
This Court sustains the contention of the
defendant Roberto C. Sicam, Jr. The
amended complaint itself asserts that "plaintiff
pawned assorted jewelries in defendant's
pawnshop." It has been held that " as a
consequence of the separate juridical
personality of a corporation, the corporate
debt or credit is not the debt or credit of the
stockholder, nor is the stockholder's debt or
credit that of a corporation.21
Clearly, in view of the alleged incorporation of the
pawnshop, the issue of whether petitioner Sicam is
personally liable is inextricably connected with the
determination of the question whether the doctrine of
piercing the corporate veil should or should not apply
to the case.
The next question is whether petitioners are liable for
the loss of the pawned articles in their possession.
Petitioners insist that they are not liable since robbery
is a fortuitous event and they are not negligent at all.
We are not persuaded.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified
by the law, or when it is otherwise declared by
stipulation, or when the nature of the
obligation requires the assumption of risk, no
person shall be responsible for those events
which could not be foreseen or which, though
foreseen, were inevitable.
Fortuitous events by definition are extraordinary events
not foreseeable or avoidable. It is therefore, not
enough that the event should not have been foreseen
or anticipated, as is commonly believed but it must be
one impossible to foresee or to avoid. The mere
difficulty to foresee the happening is not impossibility to
foresee the same. 22
To constitute a fortuitous event, the following elements
must concur: (a) the cause of the unforeseen and
unexpected occurrence or of the failure of the debtor to
comply with obligations must be independent of human
will; (b) it must be impossible to foresee the event that
constitutes the caso fortuito or, if it can be foreseen, it
must be impossible to avoid; (c) the occurrence must
be such as to render it impossible for the debtor to fulfill
obligations in a normal manner; and, (d) the obligor
must be free from any participation in the aggravation
of the injury or loss. 23
The burden of proving that the loss was due to a
fortuitous event rests on him who invokes it. 24 And, in
order for a fortuitous event to exempt one from liability,
it is necessary that one has committed no negligence
or misconduct that may have occasioned the loss. 25
It has been held that an act of God cannot be invoked
to protect a person who has failed to take steps to
forestall the possible adverse consequences of such a
loss. One's negligence may have concurred with an act
of God in producing damage and injury to another;
nonetheless, showing that the immediate or proximate
cause of the damage or injury was a fortuitous event
would not exempt one from liability. When the effect is
found to be partly the result of a person's participation
-- whether by active intervention, neglect or failure to
act -- the whole occurrence is humanized and removed
from the rules applicable to acts of God. 26
Petitioner Sicam had testified that there was a security
guard in their pawnshop at the time of the robbery. He
likewise testified that when he started the pawnshop
business in 1983, he thought of opening a vault with
the nearby bank for the purpose of safekeeping the
valuables but was discouraged by the Central Bank
since pawned articles should only be stored in a vault
inside the pawnshop. The very measures which
petitioners had allegedly adopted show that to them the
possibility of robbery was not only foreseeable, but
actually foreseen and anticipated. Petitioner Sicam’s
testimony, in effect, contradicts petitioners’ defense of
fortuitous event.
Moreover, petitioners failed to show that they were free
from any negligence by which the loss of the pawned
jewelry may have been occasioned.
Robbery per se, just like carnapping, is not a fortuitous
event. It does not foreclose the possibility of negligence
on the part of herein petitioners. In Co v. Court of
Appeals,27 the Court held:
It is not a defense for a repair shop of motor
vehicles to escape liability simply because the
damage or loss of a thing lawfully placed in its
possession was due to carnapping.
Carnapping per se cannot be considered as a
fortuitous event. The fact that a thing was
unlawfully and forcefully taken from
another's rightful possession, as in cases
of carnapping, does not automatically give
rise to a fortuitous event. To be
considered as such, carnapping entails
more than the mere forceful taking of
another's property. It must be proved and
established that the event was an act of
God or was done solely by third parties
and that neither the claimant nor the
person alleged to be negligent has any
participation. In accordance with the Rules
of Evidence, the burden of proving that the
loss was due to a fortuitous event rests on
him who invokes it — which in this case is
the private respondent. However, other
than the police report of the alleged
carnapping incident, no other evidence was
presented by private respondent to the effect
that the incident was not due to its fault. A
police report of an alleged crime, to which
only private respondent is privy, does not
suffice to establish the carnapping. Neither
does it prove that there was no fault on the
part of private respondent notwithstanding the
parties' agreement at the pre-trial that the car
was carnapped. Carnapping does not
foreclose the possibility of fault or negligence
on the part of private respondent.28
Just like in Co, petitioners merely presented the police
report of the Parañaque Police Station on the robbery
committed based on the report of petitioners'
employees which is not sufficient to establish robbery.
Such report also does not prove that petitioners were
not at fault.
On the contrary, by the very evidence of petitioners, the
CA did not err in finding that petitioners are guilty of
concurrent or contributory negligence as provided in
Article 1170 of the Civil Code, to wit:
Art. 1170. Those who in the performance of
their obligations are guilty of fraud,
negligence, or delay, and those who in any
manner contravene the tenor thereof, are
liable for damages.29
Article 2123 of the Civil Code provides that with regard
to pawnshops and other establishments which are
engaged in making loans secured by pledges, the
special laws and regulations concerning them shall be
observed, and subsidiarily, the provisions on pledge,
mortgage and antichresis.
The provision on pledge, particularly Article 2099 of the
Civil Code, provides that the creditor shall take care of
the thing pledged with the diligence of a good father of
a family. This means that petitioners must take care of
the pawns the way a prudent person would as to his
own property.
In this connection, Article 1173 of the Civil Code further
provides:
Art. 1173. The fault or negligence of the
obligor consists in the omission of that
diligence which is required by the nature of
the obligation and corresponds with the
circumstances of the persons, of time and of
the place. When negligence shows bad faith,
the provisions of Articles 1171 and 2201,
paragraph 2 shall apply.
If the law or contract does not state the
diligence which is to be observed in the
performance, that which is expected of a good
father of a family shall be required.
We expounded in Cruz v. Gangan30 that negligence is
the omission to do something which a reasonable man,
guided by those considerations which ordinarily
regulate the conduct of human affairs, would do; or the
doing of something which a prudent and reasonable
man would not do.31 It is want of care required by the
circumstances.
A review of the records clearly shows that petitioners
failed to exercise reasonable care and caution that an
ordinarily prudent person would have used in the same
situation. Petitioners were guilty of negligence in the
operation of their pawnshop business. Petitioner Sicam
testified, thus:
Court:
Q. Do you have security guards in your
pawnshop?
A. Yes, your honor.
Q. Then how come that the robbers were able
to enter the premises when according to you
there was a security guard?
A. Sir, if these robbers can rob a bank, how
much more a pawnshop.
Q. I am asking you how were the robbers able
to enter despite the fact that there was a
security guard?
A. At the time of the incident which happened
about 1:00 and 2:00 o'clock in the afternoon
and it happened on a Saturday and
everything was quiet in the area BF Homes
Parañaque they pretended to pawn an article
in the pawnshop, so one of my employees
allowed him to come in and it was only when
it was announced that it was a hold up.
Q. Did you come to know how the vault was
opened?
A. When the pawnshop is official (sic) open
your honor the pawnshop is partly open. The
combination is off.
Q. No one open (sic) the vault for the robbers?
A. No one your honor it was open at the time
of the robbery.
Q. It is clear now that at the time of the
robbery the vault was open the reason why
the robbers were able to get all the items
pawned to you inside the vault.
A. Yes sir.32
revealing that there were no security measures
adopted by petitioners in the operation of the
pawnshop. Evidently, no sufficient precaution and
vigilance were adopted by petitioners to protect the
pawnshop from unlawful intrusion. There was no clear
showing that there was any security guard at all. Or if
there was one, that he had sufficient training in
securing a pawnshop. Further, there is no showing that
the alleged security guard exercised all that was
necessary to prevent any untoward incident or to
ensure that no suspicious individuals were allowed to
enter the premises. In fact, it is even doubtful that there
was a security guard, since it is quite impossible that
he would not have noticed that the robbers were armed
with caliber .45 pistols each, which were allegedly
poked at the employees.33 Significantly, the alleged
security guard was not presented at all to corroborate
petitioner Sicam's claim; not one of petitioners'
employees who were present during the robbery
incident testified in court.
Furthermore, petitioner Sicam's admission that the
vault was open at the time of robbery is clearly a proof
of petitioners' failure to observe the care, precaution
and vigilance that the circumstances justly demanded.
Petitioner Sicam testified that once the pawnshop was
open, the combination was already off. Considering
petitioner Sicam's testimony that the robbery took
place on a Saturday afternoon and the area in BF
Homes Parañaque at that time was quiet, there was
more reason for petitioners to have exercised
reasonable foresight and diligence in protecting the
pawned jewelries. Instead of taking the precaution to
protect them, they let open the vault, providing no
difficulty for the robbers to cart away the pawned
articles.
We, however, do not agree with the CA when it found
petitioners negligent for not taking steps to insure
themselves against loss of the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374,
Rules and Regulations for Pawnshops, which took
effect on July 13, 1973, and which was issued pursuant
to Presidential Decree No. 114, Pawnshop Regulation
Act, it is provided that pawns pledged must be insured,
to wit:
Sec. 17. Insurance of Office Building and
Pawns- The place of business of a pawnshop
and the pawns pledged to it must be
insured against fire and against
burglary as well as for the latter(sic), by an
insurance company accredited by the
Insurance Commissioner.
However, this Section was subsequently amended by
CB Circular No. 764 which took effect on October 1,
1980, to wit:
Sec. 17 Insurance of Office Building and
Pawns – The office building/premises and
pawns of a pawnshop must be
insured against fire. (emphasis supplied).
where the requirement that insurance against burglary
was deleted. Obviously, the Central Bank considered it
not feasible to require insurance of pawned articles
against burglary.
The robbery in the pawnshop happened in 1987, and
considering the above-quoted amendment, there is no
statutory duty imposed on petitioners to insure the
pawned jewelry in which case it was error for the CA to
consider it as a factor in concluding that petitioners
were negligent.
Nevertheless, the preponderance of evidence shows
that petitioners failed to exercise the diligence required
of them under the Civil Code.
The diligence with which the law requires the individual
at all times to govern his conduct varies with the nature
of the situation in which he is placed and the
importance of the act which he is to perform.34 Thus,
the cases of Austria v. Court of Appeals,35 Hernandez
v. Chairman, Commission on Audit36 and Cruz v.
Gangan37 cited by petitioners in their pleadings, where
the victims of robbery were exonerated from liability,
find no application to the present case.
In Austria, Maria Abad received from Guillermo Austria
a pendant with diamonds to be sold on commission
basis, but which Abad failed to subsequently return
because of a robbery committed upon her in 1961. The
incident became the subject of a criminal case filed
against several persons. Austria filed an action against
Abad and her husband (Abads) for recovery of the
pendant or its value, but the Abads set up the defense
that the robbery extinguished their obligation. The RTC
ruled in favor of Austria, as the Abads failed to prove
robbery; or, if committed, that Maria Abad was guilty of
negligence. The CA, however, reversed the RTC
decision holding that the fact of robbery was duly
established and declared the Abads not responsible for
the loss of the jewelry on account of a fortuitous event.
We held that for the Abads to be relieved from the civil
liability of returning the pendant under Art. 1174 of the
Civil Code, it would only be sufficient that the
unforeseen event, the robbery, took place without any
concurrent fault on the debtor’s part, and this can be
done by preponderance of evidence; that to be free
from liability for reason of fortuitous event, the debtor
must, in addition to the casus itself, be free of any
concurrent or contributory fault or negligence.38
We found in Austria that under the circumstances
prevailing at the time the Decision was promulgated in
1971, the City of Manila and its suburbs had a high
incidence of crimes against persons and property that
rendered travel after nightfall a matter to be sedulously
avoided without suitable precaution and protection;
that the conduct of Maria Abad in returning alone to her
house in the evening carrying jewelry of considerable
value would have been negligence per se and would
not exempt her from responsibility in the case of
robbery. However we did not hold Abad liable for
negligence since, the robbery happened ten years
previously; i.e., 1961, when criminality had not reached
the level of incidence obtaining in 1971.
In contrast, the robbery in this case took place in 1987
when robbery was already prevalent and petitioners in
fact had already foreseen it as they wanted to deposit
the pawn with a nearby bank for safekeeping.
Moreover, unlike in Austria, where no negligence was
committed, we found petitioners negligent in securing
their pawnshop as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and
special disbursing officer of the Ternate Beach Project
of the Philippine Tourism in Cavite. In the morning of
July 1, 1983, a Friday, he went to Manila to encash two
checks covering the wages of the employees and the
operating expenses of the project. However for some
reason, the processing of the check was delayed and
was completed at about 3 p.m. Nevertheless, he
decided to encash the check because the project
employees would be waiting for their pay the following
day; otherwise, the workers would have to wait until
July 5, the earliest time, when the main office would
open. At that time, he had two choices: (1) return to
Ternate, Cavite that same afternoon and arrive early
evening; or (2) take the money with him to his house in
Marilao, Bulacan, spend the night there, and leave for
Ternate the following day. He chose the second option,
thinking it was the safer one. Thus, a little past 3 p.m.,
he took a passenger jeep bound for Bulacan. While the
jeep was on Epifanio de los Santos Avenue, the jeep
was held up and the money kept by Hernandez was
taken, and the robbers jumped out of the jeep and ran.
Hernandez chased the robbers and caught up with one
robber who was subsequently charged with robbery
and pleaded guilty. The other robber who held the
stolen money escaped. The Commission on Audit
found Hernandez negligent because he had not
brought the cash proceeds of the checks to his office
in Ternate, Cavite for safekeeping, which is the normal
procedure in the handling of funds. We held that
Hernandez was not negligent in deciding to encash the
check and bringing it home to Marilao, Bulacan instead
of Ternate, Cavite due to the lateness of the hour for
the following reasons: (1) he was moved by unselfish
motive for his co-employees to collect their wages and
salaries the following day, a Saturday, a non-working,
because to encash the check on July 5, the next
working day after July 1, would have caused discomfort
to laborers who were dependent on their wages for
sustenance; and (2) that choosing Marilao as a safer
destination, being nearer, and in view of the
comparative hazards in the trips to the two places, said
decision seemed logical at that time. We further held
that the fact that two robbers attacked him in broad
daylight in the jeep while it was on a busy highway and
in the presence of other passengers could not be said
to be a result of his imprudence and negligence.
Unlike in Hernandez where the robbery happened in a
public utility, the robbery in this case took place in the
pawnshop which is under the control of petitioners.
Petitioners had the means to screen the persons who
were allowed entrance to the premises and to protect
itself from unlawful intrusion. Petitioners had failed to
exercise precautionary measures in ensuring that the
robbers were prevented from entering the pawnshop
and for keeping the vault open for the day, which paved
the way for the robbers to easily cart away the pawned
articles.
In Cruz, Dr. Filonila O. Cruz, Camanava District
Director of Technological Education and Skills
Development Authority (TESDA), boarded the Light
Rail Transit (LRT) from Sen. Puyat Avenue to
Monumento when her handbag was slashed and the
contents were stolen by an unidentified person. Among
those stolen were her wallet and the government-
issued cellular phone. She then reported the incident
to the police authorities; however, the thief was not
located, and the cellphone was not recovered. She
also reported the loss to the Regional Director of
TESDA, and she requested that she be freed from
accountability for the cellphone. The Resident Auditor
denied her request on the ground that she lacked the
diligence required in the custody of government
property and was ordered to pay the purchase value in
the total amount of P4,238.00. The COA found no
sufficient justification to grant the request for relief from
accountability. We reversed the ruling and found that
riding the LRT cannot per se be denounced as a
negligent act more so because Cruz’s mode of transit
was influenced by time and money considerations; that
she boarded the LRT to be able to arrive in Caloocan
in time for her 3 pm meeting; that any prudent and
rational person under similar circumstance can
reasonably be expected to do the same; that
possession of a cellphone should not hinder one from
boarding the LRT coach as Cruz did considering that
whether she rode a jeep or bus, the risk of theft would
have also been present; that because of her relatively
low position and pay, she was not expected to have her
own vehicle or to ride a taxicab; she did not have a
government assigned vehicle; that placing the
cellphone in a bag away from covetous eyes and
holding on to that bag as she did is ordinarily sufficient
care of a cellphone while traveling on board the LRT;
that the records did not show any specific act of
negligence on her part and negligence can never be
presumed.

Unlike in the Cruz case, the robbery in this case

happened in petitioners' pawnshop and they were
negligent in not exercising the precautions justly
demanded of a pawnshop.

WHEREFORE, except for the insurance aspect, the

Decision of the Court of Appeals dated March 31, 2003
and its Resolution dated August 8, 2003,
are AFFIRMED.

Costs against petitioners.

SO ORDERED.
 17, 2006 of the Regional Trial Court of Makati, Branch
November Trust Receipt
57 (RTC) in Civil Case No. 00-1563, thereby ordering
16, 1995 No. 96-20243914 ₱13,015,109.87
petitioners Metro Concast Steel Corporation (Metro
Concast), Spouses Jose S. Dychiao and Tiu Oh Yan,
Spouses Guillermo and Mercedes Dychiao, and Trust Receipt
Spouses Vicente and Filomena Duchiao (individual July 3, 1996 No. 96-20355215 ₱401,608.89
petitioners) to solidarily pay respondent Allied Bank
Corporation (Allied Bank) the aggregate amount of June 20, Trust Receipt
₱51,064,094.28, with applicable interests and penalty 1995 No. 95-20171016 ₱750,089.25
charges.
December Trust Receipt
13, 1995 No. 96-37908917 ₱92,919.00
The Facts
December Trust Receipt
On various dates and for different amounts, Metro 13, 1995 No. 96/20258118 ₱224,713.58
Concast, a corporation duly organized and existing
under and by virtue of Philippine laws and engaged in
the business of manufacturing steel,5 through its The interest rate under Promissory Note No. 96-21301
officers, herein individual petitioners, obtained several was pegged at 15.25% per annum (p.a.), with penalty
loans from Allied Bank. These loan transactions were charge of 3% per month in case of default; while the
covered by a promissory note and separate letters of twelve (12) trust receipts uniformly provided for an
credit/trust receipts, the details of which are as follows: interest rate of 14% p.a. and 1% penalty charge. By
way of security, the individual petitioners executed
several Continuing Guaranty/Comprehensive Surety
Date Document Amount Agreements19 in favor of Allied Bank. Petitioners failed
to settle their obligations under the aforementioned
December Promissory Note promissory note and trust receipts, hence, Allied Bank,
13, 1996 No. 96-213016 ₱2,000,000.00 through counsel, sent them demand letters,20 all dated
December 10, 1998, seeking payment of the total
November Trust Receipt amount of ₱51,064,093.62, but to no avail. Thus, Allied
7, 1995 No. 96-2023657 ₱608,603.04 Bank was prompted to file a complaint for collection of
G.R. No. 177921 December 4, 2013 sum of money21 (subject complaint) against petitioners
May 13, Trust Receipt before the RTC, docketed as Civil Case No. 00-1563.
1996 No. 96-9605228 ₱3,753,777.40 In their second22 Amended Answer,23 petitioners
METRO CONCAST STEEL CORPORATION, admitted their indebtedness to Allied Bank but denied
SPOUSES JOSE S. DYCHIAO AND TIUOH YAN, liability for the interests and penalties charged,
May 24, Trust Receipt
SPOUSES GUILLERMO AND MERCEDES claiming to have paid the total sum of ₱65,073,055.73
1996 No. 96-9605249 ₱4,602,648.08
DYCHIAO, AND SPOUSES VICENTE AND by way of interest charges for the period covering 1992
FILOMENA DYCHIAO, Petitioners, to 1997.24
March 21, Trust Receipt
vs.
ALLIED BANK CORPORATION, Respondent. 1997 No. 97-20472410 ₱7,289,757.79
They also alleged that the economic reverses suffered
June 7, Trust Receipt by the Philippine economy in 1998 as well as the
RESOLUTION 1996 No. 96-20328011 ₱17,340,360.73 devaluation of the peso against the US dollar
contributed greatly to the downfall of the steel industry,
PERLAS-BERNABE, J.: July 26, Trust Receipt directly affecting the business of Metro Concast and
1995 No. 95-20194312 ₱670,709.24 eventually leading to its cessation. Hence, in order to
certiorari1
Assailed in this petition for review on are the settle their debts with Allied Bank, petitioners offered
Decision2 dated February 12, 2007 and the August 31, Trust Receipt the sale of Metro Concast’s remaining assets,
1995 No. 95-20205313 ₱313,797.41 consisting of machineries and equipment, to Allied
Resolution3 dated May 10, 2007 of the Court of
Appeals (CA) in CA-G.R. CV No. 86896 which Bank, which the latter, however, refused. Instead,
reversed and set aside the Decision4 dated January Allied Bank advised them to sell the equipment and
apply the proceeds of the sale to their outstanding
obligations. Accordingly, petitioners offered the
equipment for sale, but since there were no takers, the
equipment was reduced into ferro scrap or scrap metal
over the years. In 2002, Peakstar Oil Corporation
(Peakstar), represented by one Crisanta Camiling
(Camiling), expressed interest in buying the scrap
metal. During the negotiations with Peakstar,
petitioners claimed that Atty. Peter Saw (Atty. Saw), a
member of Allied Bank’s legal department, acted as the
latter’s agent. Eventually, with the alleged conformity of
Allied Bank, through Atty. Saw, a Memorandum of
Agreement25 dated November 8, 2002 (MoA) was
drawn between Metro Concast, represented by
petitioner Jose Dychiao, and Peakstar, through
Camiling, under which Peakstar obligated itself to
purchase the scrap metal for a total consideration of
₱34,000,000.00, payable as follows:
(a) ₱4,000,000.00 by way of earnest money –
₱2,000,000.00 to be paid in cash and the
other ₱2,000,000.00 to be paid in two (2)
post-dated checks of ₱1,000,000.00
each;26 and
(b) the balance of ₱30,000,000.00 to be paid
in ten (10) monthly installments of
₱3,000,000.00, secured by bank guarantees
from Bankwise, Inc. (Bankwise) in the form of
separate post-dated checks.27
Unfortunately, Peakstar reneged on all its obligations
under the MoA.1âwphi1 In this regard, petitioners
asseverated that:
(a) their failure to pay their outstanding loan
obligations to Allied Bank must be considered
as force majeure ; and
(b) since Allied Bank was the party that
accepted the terms and conditions of
payment proposed by Peakstar, petitioners
must therefore be deemed to have settled
their obligations to Allied Bank. To bolster
their defense, petitioner Jose Dychiao (Jose
Dychiao) testified28 during trial that it was Atty.
Saw himself who drafted the MoA and
subsequently received29 the ₱2,000,000.00
cash and the two (2) Bankwise post-dated
checks worth ₱1,000,000.00 each from
Camiling. However, Atty. Saw turned over
only the two (2) checks and ₱1,500,000.00 in
cash to the wife of Jose Dychiao.30
Claiming that the subject complaint was falsely and
maliciously filed, petitioners prayed for the award of
moral damages in the amount of ₱20,000,000.00 in
favor of Metro Concast and at least ₱25,000,000.00 for
each individual petitioner, ₱25,000,000.00 as
exemplary damages, ₱1,000,000.00 as attorney’s
fees, ₱500,000.00 for other litigation expenses,
including costs of suit.
The RTC Ruling
After trial on the merits, the RTC, in a Decision31 dated
January 17, 2006, dismissed the subject complaint,
holding that the "causes of action sued upon had been
paid or otherwise extinguished." It ruled that since
Allied Bank was duly represented by its agent, Atty.
Saw, in all the negotiations and transactions with
Peakstar – considering that Atty. Saw
(a) drafted the MoA,
(b) accepted the bank guarantee issued by
Bankwise, and
(c) was apprised of developments regarding
the sale and disposition of the scrap metal –
then it stands to reason that the MoA between
Metro Concast and Peakstar was binding
upon said bank.
The CA Ruling
Allied Bank appealed to the CA which, in a
Decision32 dated February 12, 2007, reversed and set
aside the ruling of the RTC, ratiocinating that there was
"no legal basis in fact and in law to declare that when
Bankwise reneged its guarantee under the [MoA],
herein [petitioners] should be deemed to be discharged
from their obligations lawfully incurred in favor of [Allied
Bank]."33
The CA examined the MoA executed between Metro
Concast, as seller of the ferro scrap, and Peakstar, as
the buyer thereof, and found that the same did not
indicate that Allied Bank intervened or was a party
thereto. It also pointed out the fact that the post-dated
checks pursuant to the MoA were issued in favor of
Jose Dychiao. Likewise, the CA found no sufficient
evidence on record showing that Atty. Saw was duly
and legally authorized to act for and on behalf of Allied
Bank, opining that the RTC was "indulging in
hypothesis and speculation"34 when it made a contrary
pronouncement. While Atty. Saw received the earnest
money from Peakstar, the receipt was signed by him
on behalf of Jose Dychiao.35
It also added that "[i]n the final analysis, the aforesaid
checks and receipts were signed by [Atty.] Saw either
as representative of [petitioners] or as partner of the
latter’s legal counsel, and not in anyway as
representative of [Allied Bank]."36
Consequently, the CA granted the appeal and directed
petitioners to solidarily pay Allied Bank their
corresponding obligations under the aforementioned
promissory note and trust receipts, plus interests,
penalty charges and attorney’s fees. Petitioners sought
reconsideration37 which was, however, denied in a
Resolution38 dated May 10, 2007. Hence, this petition.
The Issue Before the Court
At the core of the present controversy is the sole issue
of whether or not the loan obligations incurred by the
petitioners under the subject promissory note and
various trust receipts have already been extinguished.
The Court’s Ruling
Article 1231 of the Civil Code states that obligations are
extinguished either by payment or performance, the
loss of the thing due, the condonation or remission of
the debt, the confusion or merger of the rights of
creditor and debtor, compensation or novation.
In the present case, petitioners essentially argue that
their loan obligations to Allied Bank had already been
extinguished due to Peakstar’s failure to perform its
own obligations to Metro Concast pursuant to the MoA.
Petitioners classify Peakstar’s default as a form of
force majeure in the sense that they have, beyond their
control, lost the funds they expected to have received
from the Peakstar (due to the MoA) which they would,
in turn, use to pay their own loan obligations to Allied
Bank. They further state that Allied Bank was equally
bound by Metro Concast’s MoA with Peakstar since its
agent, Atty. Saw, actively represented it during the
negotiations and execution of the said agreement.
Petitioners’ arguments are untenable. At the outset, the
Court must dispel the notion that the MoA would have
any relevance to the performance of petitioners’
obligations to Allied Bank. The MoA is a sale of assets
contract, while petitioners’ obligations to Allied Bank
arose from various loan transactions. Absent any
showing that the terms and conditions of the latter
transactions have been, in any way, modified or
novated by the terms and conditions in the MoA, said
contracts should be treated separately and distinctly
from each other, such that the existence, performance
or breach of one would not depend on the existence,
performance or breach of the other. In the foregoing
respect, the issue on whether or not Allied Bank
expressed its conformity to the assets sale transaction
between Metro Concast and Peakstar (as evidenced
by the MoA) is actually irrelevant to the issues related
to petitioners’ loan obligations to the bank. Besides, as
the CA pointed out, the fact of Allied Bank’s
representation has not been proven in this case and
hence, cannot be deemed as a sustainable defense to
exculpate petitioners from their loan obligations to
Allied Bank. Now, anent petitioners’ reliance on force
majeure, suffice it to state that Peakstar’s breach of its
obligations to Metro Concast arising from the MoA
cannot be classified as a fortuitous event under
jurisprudential formulation. As discussed in Sicam v.
Jorge:39
Fortuitous events by definition are extraordinary events
not foreseeable or avoidable.1âwphi1 It is therefore,
not enough that the event should not have been
foreseen or anticipated, as is commonly believed but it
must be one impossible to foresee or to avoid. The
mere difficulty to foresee the happening is not
impossibility to foresee the same. To constitute a
fortuitous event, the following elements must concur:
(a) the cause of the unforeseen and unexpected
occurrence or of the failure of the debtor to comply with
obligations must be independent of human will; (b) it
must be impossible to foresee the event that
constitutes the caso fortuito or, if it can be foreseen, it
must be impossible to avoid; (c) the occurrence must
be such as to render it impossible for the debtor to
fulfill obligations in a normal manner; and (d) the
obligor must be free from any participation in the
aggravation of the injury or loss.40 (Emphases
supplied)
While it may be argued that Peakstar’s breach of the
MoA was unforseen by petitioners, the same us clearly
not "impossible"to foresee or even an event which is
independent of human will." Neither has it been shown
that said occurrence rendered it impossible for
petitioners to pay their loan obligations to Allied Bank
and thus, negates the former’s force majeure theory
altogether. In any case, as earlier stated, the
performance or breach of the MoA bears no relation to
the performance or breach of the subject loan
transactions, they being separate and distinct sources
of obligations. The fact of the matter is that petitioners’
loan obligations to Allied Bank remain subsisting for the
basic reason that the former has not been able to prove
that the same had already been paid41 or, in any way,
extinguished. In this regard, petitioners’ liability, as
adjudged by the CA, must perforce stand. Considering,
however, that Allied Bank’s extra-judicial demand on
petitioners appears to have been made only on
December 10, 1998, the computation of the applicable
interests and penalty charges should be reckoned only
from such date.
WHEREFORE, the petition is DENIED. The Decision
dated February 12, 2007 and Resolution dated May 10,
2007 of the Court of Appeals in CA-G.R. CV No. 86896
are hereby AFFIRMED with MODIFICATION
reckoning the applicable interests and penalty charges
from the date of the extrajudicial demand or on
December 10, 1998. The rest of the appellate court’s
dispositions stand.
SO ORDERED.
G.R. No. 118180 September 20, 1996
DEVELOPMENT BANK OF THE
PHILIPPINES, petitioner,
vs.
COURT OF APPEALS, Sps. NORMY D. CARPIO and
CARMEN ORQUISA; Sps. ROLANDO D. CARPIO
and RAFAELA VILLANUEVA; Sps. ELISEO D.
CARPIO and ANUNCIACION del ROSARIO; LUZ C.
REYES, MARIO C. REYES, JULIET REYES-
RUBIN, respondents.
PADILLA, J.:
This is a petitioner for review on certiorari under Rule
45 of the Rules of Court which seeks to set aside the
decision1 of the Court of Appeals (CA) dated 28
February 1994 in CA-G.R. CV No. 37158, as well as
the resolution dated 11 August 1994 denying
petitioner's motion for reconsideration.
The facts are undisputed:
Private respondents were the original owner of a parcel
of agricultural land covered by TCT No T-1432,
situated in Barrio Capucao, Ozamis City, with an area
of 113,695 square meters, more or less.
On 30 May 1977, Private respondents mortgaged said
land to petitioner. When private respondents defaulted
on their obligation, petitioner foreclosed the mortgage
on the land and emerged as sole bidder in the ensuing
auction sale. Consequently. Transfer Certificate of Title
No. T-10913 was eventually issued in petitioner's
name.
On 6 April 1984 petitioner and private respondents
entered into a Deed of Conditional Sale wherein
petitioner agreed to reconvey the foreclosed property
to private respondents.
The pertinent stipulations of the Deed provided that:
WHEREAS, the VENDOR acquired
a parcel of land in an auction sale by
the City Sheriff of Ozamiz City,
pursuant to Act 3135, As amended,
and subject to the redemption period
pursuant to CA 141, described as
follows:
xxx xxx xxx
 WHEREAS, the VENDEES offered
to repurchase and the VENDOR
agreed to sell the above-described
property, subject to the terms and
stipulations as hereinafter
stipulated, for the sum of SEVENTY
THREE THOUSAND SEVEN
HUNDRED ONLY (P73,700.00),
with a down payment of P8,900.00
and the balance of P64,800 shall be
payable in six (6) years on equal
quarterly amortization plan at 18%
interest per annum. The first
quarterly amortization of P4,470.36
shall be payable three months from
the date of the execution of the
documents and all subsequent
amortization shall be due and
payable every quarter thereafter.
xxx xxx xxx
That, upon completion of the
payment herein stipulated and
agreed, the Vendor agrees to deliver
to the Vendee/s(,) his heirs,
administrators and assigns(,) a good
and sufficient deed of conveyance
covering the property, subject matter
of this deed of conditional sale, in
accordance with the provision of law.
(Exh. "A", p. 5, Records)2
On 6 April 1990, upon completing the payment of the
full repurchase price, private respondents demanded
from petitioner the execution of a Deed of Conveyance
in their favor.
Petitioner then informed private respondents that the
prestation to execute and deliver a deed of conveyance
in their favor had become legally impossible in view of
Sec. 6 of Rep. Act 6657 (the Comprehensive Agrarian
Reform Law or CARL) approved 10 June 1988, and
Sec. 1 of E.O. 407 issued 10 June 1990.
Aggrieved, private respondents filed a complaint for
specific performance with damages against petitioner
before the Regional Trial Court of Ozamis City, Branch
XV. During the pre-trial court narrowed down the issue
to whether or not Sec. 6 of the CARL (Rep. Act 6657)
had rendered legally impossible compliance by
petitioner with its obligation to execute a deed of
conveyance of the subject land in favor of private
respondents. The trial court ordered both parties to file
their separate memorandum and deemed the case
submitted for decision thereafter.
On 30 January 1992, the trial court rendered judgment,
the dispositive part of which reads:
WHEREFORE, judgment is
rendered ordering defendant to
execute and deliver unto plaintiffs a
deed of final sale of there land
subject of their deed of conditional
sale — Lot 5259-A, to pay plaintiffs
P10,000.00 as nominal damages,
P5,000.00 as attorney's fees,
P3,000.00 as litis expenses and
costs.3
The trial court held that petitioner interpreted the fourth
paragraph of Sec. 6, Rep. Act 6657 literally in
conjunction with Sec. 1 of E. O. 407.
The fourth paragraph of Sec. 6, Rep. Act 6657 states
that:
Upon the effectivity of this Act, any
sale, disposition, lease,
management contract or transfer of
possession of private lands
executed by the original landowner
in violation of this act shall be null
and void; Provided, however, that
those executed prior to this act shall
be valid only when registered with
the Registers of Deeds after the
effectivity of this Act. Thereafter, all
Registers of Deeds shall inform the
DAR WITHIN 320 days of any
transaction involving agricultural
lands in excess of five hectares.
while Sec. 1 of E.O. 407 states that:
Sec. 1. All government
instrumentalities but not limited to . .
. financial institutions such as the
DBP . . . shall immediately execute
deeds of transfer in favor of the
Republic of the Philippines as
represented by the Department of
Agrarian Reform and surrender to
the latter department all land
holdings suitable for agriculture.
The court a quo noted that Sec 6 of Rep. Act 6657,
taken in its entirety, is a provision dealing primarily with
retention limits in agricultural land allowed the
landowner and his family and that the fourth paragraph,
which nullifies any sale . . . by the original landowner in
violation of the Act, does not cover the sale by
petitioner (not the original land owner) to private
respondents.
On the other hand, according to the trial court, E.O. 407
took effect on June 1990. But private respondents
completed of the price for the property, object of the
conditional sale, as early as 6 April 1990. Hence, with
the fulfillment of the condition for the sale, the land
covered thereby, was detached from the mass of
foreclosed properties held by DBP, and, therefore, fell
beyond the ambit or reach of E.O. 407.
Dissatisfied, petitioner appealed to the Court of
Appeals (CA), still insisting that its obligation to execute
a Deed of Sale in favor of private respondents had
become a legal impossibility and that the non-
impairment clause of the Constitution must yield to the
demands of police power.
On 28 February 1994, the CA rendered judgment
dismissing petitioner's appeal on the basis of the
following disquisitions:
It is a rule that if the obligation
depends upon a suspensive
condition, the demandability as well
as the acquisition or effectivity of the
rights arising from the obligation is
suspended pending the happening
or fulfillment of the fact or event
which constitutes the condition.
Once the event which constitutes the
condition is fulfilled resulting in the
effectivity of the obligation, its effects
retroact to the moment when the
essential elements which gave birth
to the obligation have taken place (8
Manresa, 5th Ed. Bk. 1, pa. 33).
Applying this precept to the case, the
full payment by the appellee on April
6, 1990 retracts to the time the
contract of conditional sale was
executed on April 6, 1984. From that
time, all elements of the contract of
sale were present. Consequently,
the contract of sale was perfected.
As such, the said sale does not
come under the coverage of R.A.
6657.
It is likewise interesting to note that
despite the mandate of Sec. 1, R.A.
6657, appellant continued to accept
the payments made by the appellant
until it was fully paid on April 6, 1990.
All that the appellant has to do now
is to execute the final deed of sale in
favor of the appellee. To follow the
line of argument of the appellant
would only result in an
unconscionable injury to the
appellee. Obligations arising from
contracts have the force of law
between the contracting parties and
should be complied with in good faith
(Flavio Macasaet & Associates, Inc.
vs. Commission on Audit, 173 SCRA
352).
Going now to E.O. 407, We hold that
the same can neither affect
appellant's obligation under the
deed of conditional sale. Under the
said law, appellant is required to
transfer to the Republic of the
Philippines "all lands foreclosed"
effective June 10, 1990. Under the
facts obtaining, the subject property
has ceased to belong to the mass of
foreclosed property failing within the
reach of said law. As earlier
explained, the property has already
been sold to herein appellees even
before the said E.O. has been
enacted. On this same reason, We
therefore need not delve on the
applicability of DBP Circular No. 11.4
In the present petitioner for review on certiorari,
petitioner still insists on its position that Rep. Act 6657,
E.O. 407 and DBP Circular No.11 rendered its
obligation to execute a Deed of Sale to private
respondents "a legal impossibility."5 Petitioner also
questions the award of attorney's fees, nominal
damages, and cost in favor of private respondents, as
not in accord with law and the evidence.6
We rule in favor of private respondents.
In conditional obligations, the acquisition of rights, as
well as the extinguishment or loss of those already
acquired, shall depend upon the happening of the
event which constitutes the condition.7
The deed of conditional sale between petitioner and
private respondents was executed on 6 April 1984.
Private respondents had religiously paid the agreed
installments on the property until they completed
payment on 6 April 1990. Petitioner, in
fact, allowed private respondents to fulfill the condition
of effecting full payment, and invoked Section 6 of Rep.
Act 6657 only after private respondents, having fully
paid the repurchase price, demanded the execution of
a Deed of Sale in their favor.
It will be noted that Rep. Act 6657 was enacted on 10
June 1988. Following petitioner's argument in this
case, its prestation to execute the deed of sale was
rendered legally impossible by Section 6 said law. In
other words, the deed of conditional sale was
extinguished by a supervening event, giving rise to an
impossibility of performance.
We reject petitioner's contention as we rule — as the
trial court and CA have correctly ruled — that neither
Sec. 6 of Rep. Act 6657 nor Sec. 1 of E.O. 407 was
intended to impair the obligation of contract petitioner
had much earlier concluded with private respondents.
More specifically, petitioner cannot invoke the last
paragraph of Sec. 6 of Rep. Act 6657 to set aside its
obligations already existing prior to its enactment. In
the first place, said last paragraph clearly deals with
"any sale, lease, management contract or transfer or
possession of private lands executed by the original
landowner." The original owner in this case is not the
petitioner but the private respondents Petitioner
acquired the land through foreclosure proceedings but
agreed thereafter to reconvey it to private respondents,
albeit conditionally.
As earlier stated, Sec. 6 of Rep. Act 6657 in its entirety
deals with retention limits allowed by law to small
landowners. Since the property here involved is more
or less ten (10) hectares, it is then within the jurisdiction
of the Department of Agrarian Reform (DAR) to
determine whether or not the property can be
subjected to agrarian reform. But this necessitates an
entirely differently proceeding.
The CARL (Rep. Act 6657) was not intended to take
away property without due process of law. Nor is it
intended to impair the obligation of contracts. In the
same manner must E.O. 407 be regarded. It was
enacted two (2) months after private respondents had
legally fulfilled the condition in the contract of
conditional sale by the payment of all installment on
their due dates. These laws cannot have retroactive
effect unless there is an express provision in them to
that effect.8
As to petitioner's contention, however, that the CA
erred in affirming the trial court's decision awarding
nominal damages, and attorney's fees to private
respondents, we rule in favor of petitioner.
It appears that the core issue in this case, being a pure
question of law, did not reach the trial stage as the case
was submitted for decision after pre-trial.
The award of attorney's fees under Article 2208 of the
Civil Code is more of an exception to the general rule
that it is not sound policy to place a penalty on the right
to litigate. While judicial discretion in the award of
attorney's fees is not entirely left out, the same, as a
rule, must have a factual, legal or equitable
justification. The matter cannot and should not be left
to speculation and conjecture.9
As aptly stated in the Mirasol case:
. . . The matter of attorney's fees
cannot be touched once and only in
the dispositive portion of the
decision. The text itself must
expressly state the reason why
attorney's fees are being awarded.
 The court, after reading through the
text of the appealed decision, finds
the same bereft of any findings of
fact and law to justify the award of
attorney's fees. The matter of such
fees was touched but once and
appears only in the dispositive
portion of the decision. Simply put,
the text of the decision did not state
the reason why attorney's fees are
being awarded, and for this reason,
the Court finds it necessary to
disallow the same for being
conjectural. 10

While DBP committed egregious error in interpreting

Sec. 6 of RA 6657, the same is not equivalent to gross
and evident bad faith when it refused to execute the
deed of sale in favor of private respondents.

For the same reasons stated above, the award of

nominal damages in the amount of P10,000.00 should
also be deleted.

The amount of P3,000.00 as litigation expenses and

cost against petitioner must remain.

WHEREFORE, premises considered, the petition is

hereby DENIED, and the decision of the CA is hereby
AFFIRMED, for lack of any reversible error, with the
MODIFICATION that attorney's fees and nominal
damages awarded to private respondent are hereby
DELETED.

G.R. No. 112127 July 17, 1995
CENTRAL PHILIPPINE UNIVERSITY, petitioner,
vs.
COURT OF APPEALS, REMEDIOS FRANCO,
FRANCISCO N. LOPEZ, CECILIA P. VDA. DE
LOPEZ, REDAN LOPEZ AND REMARENE
LOPEZ, respondents.
BELLOSILLO, J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition
for review on certiorari of the decision of the Court of
Appeals which reversed that of the Regional Trial Court
of Iloilo City directing petitioner to reconvey to private
respondents the property donated to it by their
predecessor-in-interest.
Sometime in 1939, the late Don Ramon Lopez, Sr.,
who was then a member of the Board of Trustees of
the Central Philippine College (now Central Philippine
University [CPU]), executed a deed of donation in favor
of the latter of a parcel of land identified as Lot No.
3174-B-1 of the subdivision plan Psd-1144, then a
portion of Lot No. 3174-B, for which Transfer Certificate
of Title No. T-3910-A was issued in the name of the
donee CPU with the following annotations copied from
the deed of donation —
1. The land described shall be
utilized by the CPU exclusively for
the establishment and use of a
medical college with all its buildings
as part of the curriculum;
2. The said college shall not sell,
transfer or convey to any third party
nor in any way encumber said land;
3. The said land shall be called
"RAMON LOPEZ CAMPUS", and
the said college shall be under
obligation to erect a cornerstone
bearing that name. Any net income
from the land or any of its parks shall
be put in a fund to be known as the
"RAMON LOPEZ CAMPUS FUND"
to be used for improvements of said
campus and erection of a building
thereon.1
On 31 May 1989, private respondents, who are the
heirs of Don Ramon Lopez, Sr., filed an action for
annulment of donation, reconveyance and damages
against CPU alleging that since 1939 up to the time the
action was filed the latter had not complied with the
conditions of the donation. Private respondents also
argued that petitioner had in fact negotiated with the
National Housing Authority (NHA) to exchange the
donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private
respondents to file the action had prescribed; that it did
not violate any of the conditions in the deed of donation
because it never used the donated property for any
other purpose than that for which it was intended; and,
that it did not sell, transfer or convey it to any third
party.
On 31 May 1991, the trial court held that petitioner
failed to comply with the conditions of the donation and
declared it null and void. The court a quo further
directed petitioner to execute a deed of the
reconveyance of the property in favor of the heirs of the
donor, namely, private respondents herein.
Petitioner appealed to the Court of Appeals which on
18 June 1993 ruled that the annotations at the back of
petitioner's certificate of title were resolutory conditions
breach of which should terminate the rights of the
donee thus making the donation revocable.
The appellate court also found that while the first
condition mandated petitioner to utilize the donated
property for the establishment of a medical school, the
donor did not fix a period within which the condition
must be fulfilled, hence, until a period was fixed for the
fulfillment of the condition, petitioner could not be
considered as having failed to comply with its part of
the bargain. Thus, the appellate court rendered its
decision reversing the appealed decision and
remanding the case to the court of origin for the
determination of the time within which petitioner should
comply with the first condition annotated in the
certificate of title.
Petitioner now alleges that the Court of Appeals erred:
(a) in holding that the quoted annotations in the
certificate of title of petitioner are onerous obligations
and resolutory conditions of the donation which must
be fulfilled non-compliance of which would render the
donation revocable; (b) in holding that the issue of
prescription does not deserve "disquisition;" and, (c) in
remanding the case to the trial court for the fixing of the
period within which petitioner would establish a
medical college.2
We find it difficult to sustain the petition. A clear perusal
of the conditions set forth in the deed of donation
executed by Don Ramon Lopez, Sr., gives us no
alternative but to conclude that his donation was
onerous, one executed for a valuable consideration
which is considered the equivalent of the donation
itself, e.g., when a donation imposes a burden
equivalent to the value of the donation. A gift of land to
the City of Manila requiring the latter to erect schools,
construct a children's playground and open streets on
the land was considered an onerous
donation.3 Similarly, where Don Ramon Lopez donated
the subject parcel of land to petitioner but imposed an
obligation upon the latter to establish a medical college
thereon, the donation must be for an onerous
consideration.
Under Art. 1181 of the Civil Code, on conditional
obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall
depend upon the happening of the event which
constitutes the condition. Thus, when a person donates
land to another on the condition that the latter would
build upon the land a school, the condition imposed
was not a condition precedent or a suspensive
condition but a resolutory one.4 It is not correct to say
that the schoolhouse had to be constructed before the
donation became effective, that is, before the donee
could become the owner of the land, otherwise, it
would be invading the property rights of the donor. The
donation had to be valid before the fulfillment of the
condition.5 If there was no fulfillment or compliance
with the condition, such as what obtains in the instant
case, the donation may now be revoked and all rights
which the donee may have acquired under it shall be
deemed lost and extinguished.
The claim of petitioner that prescription bars the instant
action of private respondents is unavailing.
The condition imposed by the donor, i.e., the
building of a medical school upon the land
donated, depended upon the exclusive will of
the donee as to when this condition shall be
fulfilled. When petitioner accepted the
donation, it bound itself to comply with the
condition thereof. Since the time within which
the condition should be fulfilled depended
upon the exclusive will of the petitioner, it has
been held that its absolute acceptance and
the acknowledgment of its obligation provided
in the deed of donation were sufficient to
prevent the statute of limitations from barring
the action of private respondents upon the
original contract which was the deed of
donation.6
Moreover, the time from which the cause of action
accrued for the revocation of the donation and recovery
of the property donated cannot be specifically
determined in the instant case. A cause of action arises
when that which should have been done is not done,
or that which should not have been done is done. 7 In
cases where there is no special provision for such
computation, recourse must be had to the rule that the
period must be counted from the day on which the
corresponding action could have been instituted. It is
the legal possibility of bringing the action which
determines the starting point for the computation of the
period. In this case, the starting point begins with the
expiration of a reasonable period and opportunity for
petitioner to fulfill what has been charged upon it by the
donor.
The period of time for the establishment of a medical
college and the necessary buildings and improvements
on the property cannot be quantified in a specific
number of years because of the presence of several
factors and circumstances involved in the erection of
an educational institution, such as government laws
and regulations pertaining to education, building
requirements and property restrictions which are
beyond the control of the donee.
Thus, when the obligation does not fix a period but from
its nature and circumstances it can be inferred that a
period was intended, the general rule provided in Art.
1197 of the Civil Code applies, which provides that the
courts may fix the duration thereof because the
fulfillment of the obligation itself cannot be demanded
until after the court has fixed the period for compliance
therewith and such period has arrived.8
This general rule however cannot be applied
considering the different set of circumstances existing
in the instant case. More than a reasonable period of
fifty (50) years has already been allowed petitioner to
avail of the opportunity to comply with the condition
even if it be burdensome, to make the donation in its
favor forever valid. But, unfortunately, it failed to do so.
Hence, there is no more need to fix the duration of a
term of the obligation when such procedure would be a
mere technicality and formality and would serve no
purpose than to delay or lead to an unnecessary and
expensive multiplication of suits. 9 Moreover, under
Art. 1191 of the Civil Code, when one of the obligors
cannot comply with what is incumbent upon him, the
obligee may seek rescission and the court shall decree
the same unless there is just cause authorizing the
fixing of a period. In the absence of any just cause for
the court to determine the period of the compliance,
there is no more obstacle for the court to decree the
rescission claimed.
Finally, since the questioned deed of donation herein
is basically a gratuitous one, doubts referring to
incidental circumstances of a gratuitous contract
should be resolved in favor of the least transmission of
rights and interests. 10 Records are clear and facts are
undisputed that since the execution of the deed of
donation up to the time of filing of the instant action,
petitioner has failed to comply with its obligation as
donee. Petitioner has slept on its obligation for an
unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already
ineffective and, for all purposes, revoked so that
petitioner as donee should now return the donated
property to the heirs of the donor, private respondents
herein, by means of reconveyance.
WHEREFORE, the decision of the Regional Trial Court
of Iloilo, Br. 34, of 31 May 1991 is REINSTATED and
AFFIRMED, and the decision of the Court of Appeals
of 18 June 1993 is accordingly MODIFIED.
Consequently, petitioner is directed to reconvey to
private respondents Lot No. 3174-B-1 of the
subdivision plan Psd-1144 covered by Transfer
Certificate of Title No. T-3910-A within thirty (30) days
from the finality of this judgment.
Costs against petitioner.
SO ORDERED.
Quiason and Kapunan, JJ., concur.
Separate Opinions

DAVIDE, JR., J., dissenting:
I agree with the view in the majority opinion that the
donation in question is onerous considering the
conditions imposed by the donor on the donee which
created reciprocal obligations upon both parties.
Beyond that, I beg to disagree.
First of all, may I point out an inconsistency in the
majority opinion's description of the donation in
question. In one part, it says that the donation in
question is onerous. Thus, on page 4 it states:
We find it difficult to sustain the
petition. A clear perusal of the
conditions set forth in the deed of
donation executed by Don Ramon
Lopez, Sr., give us no alternative but
to conclude that his donation
was onerous, one executed for a
valuable consideration which is
considered the equivalent of the
donation itself, e.g., when a donation
imposes a burden equivalent to the
value of the donation . . . . (emphasis
supplied)
Yet, in the last paragraph of page 8 it states
that the donation is basically a gratuitous one.
The pertinent portion thereof reads:
Finally, since the questioned deed of
donation herein is basically a
gratuitous one, doubts referring to
incidental circumstances of
a gratuitous contract should be
resolved in favor of the least
transmission of rights and interest . .
. (emphasis supplied)
Second, the discussion on conditional obligations is
unnecessary. There is no conditional obligation to
speak of in this case. It seems that the "conditions"
imposed by the donor and as the word is used in the
law of donations is confused with "conditions" as used
in the law of obligations. In his annotation of Article 764
of the Civil Code on Donations, Arturo M. Tolentino,
citing the well-known civilists such as Castan, Perez
Gonzalez and Alguer, and Colin & Capitant, states
clearly the context within which the term "conditions" is
used in the law of donations, to wit:
The word "conditions" in this article
does not refer to uncertain events on
which the birth or extinguishment of
a juridical relation depends, but is
used in the vulgar sense
of obligations or charges imposed
by the donor on the donee. It is used,
not in its technical or strict legal
sense, but in its broadest
sense.1 (emphasis supplied)
Clearly then, when the law and the deed of donation
speaks of "conditions" of a donation, what are referred
to are actually the obligations, charges or burdens
imposed by the donor upon the donee and which would
characterize the donation as onerous. In the present
case, the donation is, quite obviously, onerous, but it is
more properly called a "modal donation." A modal
donation is one in which the donor imposes a
prestation upon the donee. The establishment of the
medical college as the condition of the donation in the
present case is one such prestation.
The conditions imposed by the donor Don Ramon
Lopez determines neither the existence nor the
extinguishment of the obligations of the donor and the
donee with respect to the donation. In fact, the
conditions imposed by Don Ramon Lopez upon the
donee are the very obligations of the donation — to
build the medical college and use the property for the
purposes specified in the deed of donation. It is very
clear that those obligations are unconditional, the
fulfillment, performance, existence or extinguishment
of which is not dependent on any future or uncertain
event or past and unknown event, as the Civil Code
would define a conditional obligation.2
Reliance on the case of Parks vs. Province of
Tarlac3 as cited on page 5 of the majority opinion is
erroneous in so far as the latter stated that the
condition in Parks is a resolutory one and applied this
to the present case. A more careful reading of this
Court's decision would reveal that nowhere did we say,
whether explicitly or impliedly, that the donation in that
case, which also has a condition imposed to build a
school and a public park upon the property donated, is
a resolutory condition.4 It is incorrect to say that the
"conditions" of the donation there or in the present case
are resolutory conditions because, applying Article
1181 of the Civil Code, that would mean that upon
fulfillment of the conditions, the rights already acquired
will be extinguished. Obviously, that could not have
been the intention of the parties.
What the majority opinion probably had in mind was
that the conditions are resolutory because if they
are not complied with, the rights of the donee as such
will be extinguished and the donation will be revoked.
To my mind, though, it is more accurate to state that
the conditions here are not resolutory conditions but,
for the reasons stated above,
are the obligations imposed by the donor.
Third, I cannot subscribe to the view that the provisions
of Article 1197 cannot be applied here. The
conditions/obligations imposed by the donor herein are
subject to a period. I draw this conclusion based on our
previous ruling which, although made almost 90 years
ago, still finds application in the present case.
In Barretto vs. City of Manila,5 we said that when the
contract of donation, as the one involved therein, has
no fixed period in which the condition should be
fulfilled, the provisions of what is now Article 1197 (then
Article 1128) are applicable and it is the duty of the
court to fix a suitable time for its fulfillment. Indeed,
from the nature and circumstances of the
conditions/obligations of the present donation, it can be
inferred that a period was contemplated by the donor.
Don Ramon Lopez could not have intended his
property to remain idle for a long period of time when
in fact, he specifically burdened the donee with the
obligation to set up a medical college therein and thus
put his property to good use. There is a need to fix the
duration of the time within which the conditions
imposed are to be fulfilled.
It is also important to fix the duration or period for the
performance of the conditions/obligations in the
donation in resolving the petitioner's claim that
prescription has already barred the present action. I
disagree once more with the ruling of the majority that
the action of the petitioners is not barred by the statute
of limitations. There is misplaced reliance again on a
previous decision of this Court in Osmeña vs.
Rama.6 That case does not speak of a deed of
donation as erroneously quoted and cited by the
majority opinion. It speaks of a contract for a sum of
money where the debtor herself imposed a condition
which will determine when she will fulfill her obligation
to pay the creditor, thus, making the fulfillment of her
obligation dependent upon her will. What we have
here, however, is not a contract for a sum of money but
a donation where the donee has not imposed any
conditions on the fulfillment of its obligations. Although
it is admitted that the fulfillment of the
conditions/obligations of the present donation may be
dependent on the will of the donee as to when it will
comply therewith, this did not arise out of a condition
which the donee itself imposed. It is believed that the
donee was not meant to and does not have absolute
control over the time within which it will perform its
obligations. It must still do so within a reasonable time.
What that reasonable time is, under the circumstances,
for the courts to determine. Thus, the mere fact that
there is no time fixed as to when the conditions of the
donation are to be fulfilled does not ipso facto mean
that the statute of limitations will not apply anymore and
the action to revoke the donation becomes
imprescriptible.
Admittedly, the donation now in question is an onerous
donation and is governed by the law on contracts
(Article 733) and the case of Osmeña, being one
involving a contract, may apply. But we must not lose
sight of the fact that it is still a donation for which this
Court itself applied the pertinent law to resolve
situations such as this. That the action to revoke the
donation can still prescribe has been the
pronouncement of this Court as early as 1926 in the
case of Parks which, on this point, finds relevance in
this case. There, this Court said,
[that] this action [for the revocation of
the donation] is prescriptible, there is
no doubt. There is no legal provision
which excludes this class of action
from the statute of limitations. And
not only this, the law itself
recognizes the prescriptibility of the
action for the revocation of a
donation, providing a special period
of [four] years for the revocation by
the subsequent birth of children [Art.
646, now Art. 763], and . . . by
reason of ingratitude. If no special
period is provided for the
prescription of the action for
revocation for noncompliance of the
conditions of the donation [Art. 647,
now Art. 764], it is because in this
respect the donation is considered
onerous and is governed by the law
of contracts and the general rules of
prescription.7
More recently, in De Luna v. Abrigo,8 this Court
reiterated the ruling in Parks and said that:
It is true that under Article 764 of the
New Civil Code, actions for the
revocation of a donation must be
brought within four (4) years from the
non-compliance of the conditions of
the donation. However, it is Our
opinion that said article does not
apply to onerous donations in view
of the specific provision of Article
733 providing that onerous
donations are governed by the rules
on contracts.
In the light of the above, the rules on
contracts and the general rules on
prescription and not the rules on
donations are applicable in the case
at bar.
The law applied in both cases is Article 1144(1). It
refers to the prescription of an action upon a written
contract, which is what the deed of an onerous
donation is. The prescriptive period is ten years from
the time the cause of action accrues, and that is, from
the expiration of the time within which the donee must
comply with the conditions/obligations of the donation.
As to when this exactly is remains to be determined,
and that is for the courts to do as reposed upon them
by Article 1197.
For the reasons expressed above, I register my
dissent. Accordingly, the decision of the Court of
Appeals must be upheld, except its ruling that the
conditions of the donation are resolutory.
Padilla, J., dissents
Separate Opinions
DAVIDE, JR., J., dissenting:
I agree with the view in the majority opinion that the
donation in question is onerous considering the
conditions imposed by the donor on the donee which
created reciprocal obligations upon both parties.
Beyond that, I beg to disagree.
First of all, may I point out an inconsistency in the
majority opinion's description of the donation in
question. In one part, it says that the donation in
question is onerous. Thus, on page 4 it states:
We find it difficult to sustain the
petition. A clear perusal of the
conditions set forth in the deed of
donation executed by Don Ramon
Lopez, Sr., give us no alternative but
to conclude that his donation
was onerous, one executed for a
valuable consideration which is
considered the equivalent of the
donation itself, e.g., when a donation
imposes a burden equivalent to the
value of the donation . . . . (emphasis
supplied)
Yet, in the last paragraph of page 8 it states
that the donation is basically a gratuitous one.
The pertinent portion thereof reads:
Finally, since the questioned deed of
donation herein is basically a
gratuitous one, doubts referring to
incidental circumstances of
a gratuitous contract should be
resolved in favor of the least
transmission of rights and interest . .
. (emphasis supplied)
Second, the discussion on conditional obligations is
unnecessary. There is no conditional obligation to
speak of in this case. It seems that the "conditions"
imposed by the donor and as the word is used in the
law of donations is confused with "conditions" as used
in the law of obligations. In his annotation of Article 764
of the Civil Code on Donations, Arturo M. Tolentino,
citing the well-known civilists such as Castan, Perez
Gonzalez and Alguer, and Colin & Capitant, states
clearly the context within which the term "conditions" is
used in the law of donations, to wit:
The word "conditions" in this article
does not refer to uncertain events on
which the birth or extinguishment of
a juridical relation depends, but is
used in the vulgar sense
of obligations or charges imposed
by the donor on the donee. It is used,
not in its technical or strict legal
sense, but in its broadest
sense.1 (emphasis supplied)
Clearly then, when the law and the deed of donation
speaks of "conditions" of a donation, what are referred
to are actually the obligations, charges or burdens
imposed by the donor upon the donee and which would
characterize the donation as onerous. In the present
case, the donation is, quite obviously, onerous, but it is
more properly called a "modal donation." A modal
donation is one in which the donor imposes a
prestation upon the donee. The establishment of the
medical college as the condition of the donation in the
present case is one such prestation.
The conditions imposed by the donor Don Ramon
Lopez determines neither the existence nor the
extinguishment of the obligations of the donor and the
donee with respect to the donation. In fact, the
conditions imposed by Don Ramon Lopez upon the
donee are the very obligations of the donation — to
build the medical college and use the property for the
purposes specified in the deed of donation. It is very
clear that those obligations are unconditional, the
fulfillment, performance, existence or extinguishment
of which is not dependent on any future or uncertain
event or past and unknown event, as the Civil Code
would define a conditional obligation.2
Reliance on the case of Parks vs. Province of
Tarlac3 as cited on page 5 of the majority opinion is
erroneous in so far as the latter stated that the
condition in Parks is a resolutory one and applied this
to the present case. A more careful reading of this
Court's decision would reveal that nowhere did we say,
whether explicitly or impliedly, that the donation in that
case, which also has a condition imposed to build a
school and a public park upon the property donated, is
a resolutory condition.4 It is incorrect to say that the
"conditions" of the donation there or in the present case
are resolutory conditions because, applying Article
1181 of the Civil Code, that would mean that upon
fulfillment of the conditions, the rights already acquired
will be extinguished. Obviously, that could not have
been the intention of the parties.
What the majority opinion probably had in mind was
that the conditions are resolutory because if they
are not complied with, the rights of the donee as such
will be extinguished and the donation will be revoked.
To my mind, though, it is more accurate to state that
the conditions here are not resolutory conditions but,
for the reasons stated above,
are the obligations imposed by the donor.
Third, I cannot subscribe to the view that the provisions
of Article 1197 cannot be applied here. The
conditions/obligations imposed by the donor herein are
subject to a period. I draw this conclusion based on our
previous ruling which, although made almost 90 years
ago, still finds application in the present case.
In Barretto vs. City of Manila,5 we said that when the
contract of donation, as the one involved therein, has
no fixed period in which the condition should be
fulfilled, the provisions of what is now Article 1197 (then
Article 1128) are applicable and it is the duty of the
court to fix a suitable time for its fulfillment. Indeed,
from the nature and circumstances of the
conditions/obligations of the present donation, it can be
inferred that a period was contemplated by the donor.
Don Ramon Lopez could not have intended his
property to remain idle for a long period of time when
in fact, he specifically burdened the donee with the
obligation to set up a medical college therein and thus
put his property to good use. There is a need to fix the
duration of the time within which the conditions
imposed are to be fulfilled.
It is also important to fix the duration or period for the
performance of the conditions/obligations in the
donation in resolving the petitioner's claim that
prescription has already barred the present action. I
disagree once more with the ruling of the majority that
the action of the petitioners is not barred by the statute
of limitations. There is misplaced reliance again on a
previous decision of this Court in Osmeña vs.
Rama.6 That case does not speak of a deed of
donation as erroneously quoted and cited by the
majority opinion. It speaks of a contract for a sum of
money where the debtor herself imposed a condition
which will determine when she will fulfill her obligation
to pay the creditor, thus, making the fulfillment of her
obligation dependent upon her will. What we have
here, however, is not a contract for a sum of money but
a donation where the donee has not imposed any
conditions on the fulfillment of its obligations. Although
it is admitted that the fulfillment of the
conditions/obligations of the present donation may be
dependent on the will of the donee as to when it will
comply therewith, this did not arise out of a condition
which the donee itself imposed. It is believed that the
donee was not meant to and does not have absolute
control over the time within which it will perform its
obligations. It must still do so within a reasonable time.
What that reasonable time is, under the circumstances,
for the courts to determine. Thus, the mere fact that
there is no time fixed as to when the conditions of the
donation are to be fulfilled does not ipso facto mean
that the statute of limitations will not apply anymore and
the action to revoke the donation becomes
imprescriptible.
Admittedly, the donation now in question is an onerous
donation and is governed by the law on contracts
(Article 733) and the case of Osmeña, being one
involving a contract, may apply. But we must not lose
sight of the fact that it is still a donation for which this
Court itself applied the pertinent law to resolve
situations such as this. That the action to revoke the
donation can still prescribe has been the
pronouncement of this Court as early as 1926 in the
case of Parks which, on this point, finds relevance in
this case. There, this Court said,
[that] this action [for the revocation of
the donation] is prescriptible, there is
no doubt. There is no legal provision
which excludes this class of action
from the statute of limitations. And
not only this, the law itself
recognizes the prescriptibility of the
action for the revocation of a
donation, providing a special period
of [four] years for the revocation by
the subsequent birth of children [Art.
646, now Art. 763], and . . . by
reason of ingratitude. If no special
period is provided for the
prescription of the action for
 revocation for noncompliance of the
conditions of the donation [Art. 647,
now Art. 764], it is because in this
respect the donation is considered
onerous and is governed by the law
of contracts and the general rules of
prescription.7

More recently, in De Luna v. Abrigo,8 this Court

reiterated the ruling in Parks and said that:

It is true that under Article 764 of the

New Civil Code, actions for the
revocation of a donation must be
brought within four (4) years from the
non-compliance of the conditions of
the donation. However, it is Our
opinion that said article does not
apply to onerous donations in view
of the specific provision of Article
733 providing that onerous
donations are governed by the rules
on contracts.

In the light of the above, the rules on

contracts and the general rules on
prescription and not the rules on
donations are applicable in the case
at bar.

The law applied in both cases is Article 1144(1). It

refers to the prescription of an action upon a written
contract, which is what the deed of an onerous
donation is. The prescriptive period is ten years from
the time the cause of action accrues, and that is, from
the expiration of the time within which the donee must
comply with the conditions/obligations of the donation.
As to when this exactly is remains to be determined,
and that is for the courts to do as reposed upon them
by Article 1197.

For the reasons expressed above, I register my

dissent. Accordingly, the decision of the Court of
Appeals must be upheld, except its ruling that the
conditions of the donation are resolutory.

Padilla, J., dissents


G.R. No. 169694, December 09, 2015
MEGAWORLD PROPERTIES AND HOLDINGS,
INC., EMPIRE EAST LAND HOLDINGS, INC., AND
ANDREW L. TAN, Petitioners, v. MAJESTIC
FINANCE AND INVESTMENT CO., INC., RHODORA
LOPEZ-LIM, AND PAULINA CRUZ, Respondents.
DECISION
BERSAMIN, J.:
This case arises from a dispute on whether either party
of a joint venture agreement to develop property into a
residential subdivision has already performed its
obligation as to entitle it to demand the performance of
the other's reciprocal
obligation.chanRoblesvirtualLawlibrary
The Case
Under review is the decision promulgated on April 27,
2005,1 whereby the Court of Appeals (CA) upheld the
order issued on November 5, 2002 by the Regional
Trial Court, Branch 67, in Pasig City (RTC) in Civil
Case No. 67813 directing the defendants (petitioners
herein) to perform their obligation to provide round-the-
clock security for the property under
development.2 Also appealed is the resolution
promulgated on September 12, 2005 denying the
petitioners' motion for
reconsideration.3chanRoblesvirtualLawlibrary
Antecedents
On September 23, 1994, Megaworld Properties and
Holdings, Inc. (developer) entered into a Joint Venture
Agreement (JVA)4 with Majestic Finance and
Investment Co., Inc. (owner) for the development of the
residential subdivision located in Brgy. Alingaro,
General Trias, Cavite. According to the JVA, the
development of the 215 hectares of land belonging to
the owner (joint venture property) would be for the sole
account of the developer;5 and that upon completion of
the development of the subdivision, the owner would
compensate the developer in the form of saleable
residential subdivision lots.6 The JVA further provided
that the developer would advance all the costs for the
relocation and resettlement of the occupants of the
joint venture property, subject to reimbursement by the
owner;7 and that the developer would deposit the initial
amount of P10,000,000.00 to defray the expenses for
the relocation and settlement, and the costs for
obtaining from the Government the exemptions and
conversion permits, and the required
clearances.8chanroblesvirtuallawlibrary
On September 24, 1994, the developer and owner
agreed, through the addendum to the JVA,9 to increase
the initial deposit for the settlement of claims and the
relocation of the tenants from P10,000,000.00 to
P60,000,000.00.
On October 27, 1994, the developer, by deed of
assignment,10 transferred, conveyed and assigned to
Empire East Land Holdings, Inc. (developer/assignee)
all its rights and obligations under the JVA including the
addendum.
On February 29, 2000, the owner filed in the RTC a
complaint for specific performance with damages
against the developer, the developer/assignee, and
respondent Andrew Tan, who are now the petitioners
herein. The complaint, docketed as Civil Case No.
67813, was mainly based on the failure of the
petitioners to comply with their obligations under the
JVA,11 including the obligation to maintain a strong
security force to safeguard the entire joint venture
property of 215 hectares from illegal entrants and
occupants.
Following the joinder of issues by the petitioners'
answer with counterclaim, and by the respondents'
reply with answer to the counterclaim, the RTC set the
pre-trial of the case. At the conclusion of the pre-trial
conference, the presentation of the owner's evidence
was suspended because of the parties' manifestation
that they would settle the case amicably. It appears that
the parties negotiated with each other on how to
implement the JVA and the addendum.
On September 16, 2002, the owner filed in the RTC a
manifestation and motion,12 praying therein that the
petitioners be directed to provide round-the-clock
security for the joint venture property in order to defend
and protect it from the invasion of unauthorized
persons. The petitioners opposed the manifestation
and motion,13 pointing out that: (1) the move to have
them provide security in the properties was premature;
and (2) under the principle of reciprocal obligations, the
owner could not compel them to perform their
obligations under the JVA if the owner itself refused to
honor its obligations under the JVA and the addendum.
On November 5, 2002, the RTC issued its first assailed
order,14 directing the developer to provide sufficient
round-the-clock security for the protection of the joint
venture property, as follows:
For consideration is a "Manifestation and Motion" filed
by plaintiff, through counsel, defendants having filed
their Opposition thereto, the incident is now ripe for
resolution.
After a careful examination of the records of this case,
the Court believes that the defendants should provide
security for the 215 hectares land subject of the joint
venture agreement to protect it from unlawful elements
as well as to avoid undue damage which may be
caused by the settling of squatters. As specified in
Article III par. (j) of the joint venture agreement which
was entered into by plaintiffs and defendants, the latter
shall at its exclusive account and sole expense secure
the land in question from the influx of squatters and/or
unauthorized settlers, occupants, tillers, cultivators and
the likes from date of execution of this agreement.
WHEREFORE, and as prayed for, the Court hereby
directs the defendants to provide sufficient round the
clock security for the protection of the 215 hectares
land subject of the joint venture agreement during the
pendency of this case.
SO ORDERED.
The petitioners sought the reconsideration of the
November 5, 2002 order,15 but the RTC denied the
motion on May 19, 2003,16 observing that there was no
reason to reverse the order in question considering that
the allegations in the motion for reconsideration, being
a mere rehash of those made earlier, had already been
passed upon.
On August 4, 2003, the petitioners instituted a special
civil action for certiorari in the CA,17 claiming therein
that the RTC thereby gravely abused its discretion
amounting to lack or excess of jurisdiction in issuing
the order of November 5, 2002, specifying the following
grounds, namely:
THE PUBLIC RESPONDENT GRAVELY ABUSED
HIS DISCRETION AMOUNTING TO LACK OR
EXCESS OF JURISDICTION IN DIRECTING
PETITIONERS TO PROVIDE ROUND THE CLOCK
SECURITY GUARDS ON THE SUBJECT
PROPERTIES.
I. THE PUBLIC RESPONDENT ARBITRARILY AND
PREMATURELY DISPOSED OF ONE OF THE
RELIEF[S] PRAYED FOR BY PRIVATE
RESPONDENTS IN THEIR COMPLAINT WHEN
TRIAL HAS NOT EVEN STARTED.
II. PUBLIC RESPONDENT ARBITRARILY
DISREGARDED THE FACT THAT THE PARTIES
ARE DISCUSSING HOW TO PURSUE THE JVA.
III. PUBLIC RESPONDENT ARBITRARILY
DISREGARDED THE PRINCIPLE OF "RECIPROCAL
OBLIGATIONS" UNDER THE CIVIL CODE.
On April 27, 2005, the CA promulgated its assailed
decision dismissing the petitioner's petition
for certiorari,18 ruling thusly:
On the merits of the petition, our examination of the
records shows nothing whimsical or arbitrary in the
respondent judge's order directing the petitioners to
provide security over the joint venture property. Like
the respondent judge, we believe that the obligation of
the petitioners under the JVA to provide security in the
area, as spelled out under Article II, par. (c) and Article
III, paragraphs (h) and (j), is well established, thus:
x x x x
These clear and categorical provisions in the JVA -
which petitioners themselves do not question -
obviously belie their contention that the respondent
judge's order to provide security for the property is
premature at this stage. The petitioner's obligation to
secure the property under the JVA arose upon the
execution of the Agreement, or as soon as the
petitioners acquired possession of the joint venture
property in 1994, and is therefore already demandable.
The settled rule is that "contracts are the laws between
the contracting parties, and if their terms are clear and
leave no room for doubt as to their intentions, the
contracts are obligatory no matter what their forms may
be, whenever the essential requisites for their validity
are present." Thus, unless the existence of this
particular obligation - i.e., to secure the joint venture
property - is challenged, petitioners are bound to
respect the terms of the Agreement and of his
obligation as the law between them and MAJESTIC.
We stress along this line that the complaint MAJESTIC
filed below is for specific performance and is not for
rescission of contract. The complaint presupposes
existing obligations on the part of the petitioners that
MAJESTIC seeks to be carried out in accordance with
the terms of the Agreement. Significantly, MAJESTIC
did not pray in the complaint that petitioners be ordered
to secure the area from the influx of illegal settlers and
squatters because petitioner's obligation in this regard
commenced upon the execution of the JVA and hence,
is already an existing obligation. What it did ask is for
the petitioners to maintain a strong security force at all
times over the area, in keeping with their commitment
to secure the area from the influx of illegal settlers and
occupant. To be sure, to "maintain" means "to
continue", "to carry on", to "hold or keep in any
particular state or condition" and presupposes an
obligation that already began. Thus, contrary to
petitioner's submissions, the question of whether or not
they have the obligation to provide security in the area
is not at all an issue in the case below. The issue
MAJESTIC presented below is whether or not
petitioner should be ordered to maintain a strong
security force within the joint venture property. Hence,
in issuing the assailed orders, the public respondent
prejudged no issue that is yet to be resolved after the
parties shall have presented their evidence.
Our conclusion (that the petitioner's obligation to
secure and protect the joint venture property is a non-
issue in the case below) necessarily explains why the
first assailed order -although not in the form of a
preliminary mandatory injunction -is nonetheless
legally justified. As an established and undisputed
interim measure pending the resolution of the case on
the merits, we do not see its enforcement as hindrance
to whatever negotiations the parties may undertake to
settle their dispute.
Nor do we find the principle of reciprocal obligations a
justification for petitioner's refusal to perform their
commitment of safeguarding the joint venture property.
For, while it is true that the JVA gives rise to reciprocal
obligations from both parties, these obligations are not
necessarily demandable at the same time.
MAJESTIC's initial obligation under the JVA is to
deliver or surrender to the petitioners the possession of
the joint venture property -an obligation it fulfilled upon
the execution of the Agreement. MAJESTIC's
obligation under the JVA to deliver to the petitioners the
titles to the joint venture property and to reimburse
them for tenant-related expenses are demandable at
later stages of the contract or upon completion of the
development, and therefore may not be used by the
petitioners as an excuse for not complying with their
own currently demandable obligation.
All told, we believe that securing and protecting the
area from unlawful elements benefits both the
developer and the landowner who are equally keen in
safeguarding their interests in the project. Otherwise
stated, incursion by unlawful settlers into an unsecured
and unprotected joint venture property can only cause
great loss and damage to both parties. Reasons of
practicality within legal parameters, rather than grave
abuse of discretion, therefore underlie the respondent
judge's challenged orders.
WHEREFORE, premises considered, we hereby
DISMISS the petition for lack of merit.
SO ORDERED.19 (Emphasis omitted)
On May 26, 2005, the petitioners filed a motion for
reconsideration,20 but the CA denied the motion on
September 12, 2005.21chanroblesvirtuallawlibrary
Hence, this appeal by petition for review
on certiorari.chanRoblesvirtualLawlibrary
Issues
The petitioner submits the following issues:
a. Whether or not the petitioners are
obligated to perform their obligations
under the JVA, including that of
providing round-the-clock security
for the subject properties, despite
respondents' failure or refusal to
acknowledge, or perform their
reciprocal obligations there;
b. Whether or not the RTC gravely
abused its discretion in directing the
petitioners to perform their
obligations under the JVA, including
that of providing round-the-clock
security for the subject properties,
although the JVA had been
suspended due to the parties'
disagreement as to how to
implement the same;
c. Whether or not the RTC gravely
abused its discretion in issuing the
SEQUENCE OF ACTIVITIES (Article XIV of the JVA)
ACTIVITY
Signing of JVA.
first and second assailed orders and
prematurely resolving and disposing
of one of the causes of action of the
respondents, which was to provide
round-the-clock security for the
subject properties, an issue
proposed by the respondents, even
before the termination of the pre-
trial;
d. Whether or not the RTC gravely
abused its discretion in issuing the
first and second assailed orders in
clear disregard of the mandatory
requirements of Rule 58 of the Rules
of
Court.22chanroblesvirtuallawlibrary
Ruling of the Court
The appeal is meritorious. The CA erred in upholding
the November 5, 2002 order of the RTC.
The obligations of the parties under the JVA were
unquestionably reciprocal. Reciprocal obligations are
those that arise from the same cause, and in which
each party is a debtor and a creditor of the other at the
same time, such that the obligations of one are
dependent upon the obligations of the other. They are
to be performed simultaneously, so that the
performance by one is conditioned upon the
simultaneous fulfillment by the other.23 As the Court
has expounded in Consolidated Industrial Gases, Inc.
v. Alabang Medical
Center:24chanroblesvirtuallawlibrary
Reciprocal obligations are those which arise from the
same cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of one is
dependent upon the obligation of the other. They are
to be performed simultaneously, so that the
OWNER
OBLIGATION
Sign JVA
performance of one is conditioned upon the
simultaneous fulfillment of the other. In reciprocal
obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay
by the other begins.
x x x x
In reciprocal obligations, before a party can demand
the performance of the obligation of the other, the
former must also perform its own obligation. For its
failure to turn over a complete project in accordance
with the terms and conditions of the installation
contracts, CIGI cannot demand for the payment of the
contract price balance from AMC, which, in turn,
cannot legally be ordered to pay.25chanrobleslaw
The determination of default on the part of either of the
parties depends on the terms of the JVA that clearly
categorized the parties' several obligations into two
types.
The first type related to the continuous obligations that
would be continuously performed from the moment of
the execution of the JVA until the parties shall have
achieved the purpose of their joint venture. The
continuous obligations under the JVA were as follows:
(1) the developer would secure the joint venture
property from unauthorized occupants;26 (2) the owner
would allow the developer to take possession of the
joint venture property;27 (3) the owner would deliver
any and all documents necessary for the
accomplishment of each activity;28 and (4) both the
developer and the owner would pay the real estate
taxes.29chanroblesvirtuallawlibrary
The second type referred to the activity obligations.
The following table shows the activity obligations of the
parties under the JVA, to wit:
DEVELOPER OBLIGATION
Sign JVA
 Art. II(b) Art. V par. 2
Deliver any and all documents required for the Pay real estate taxes
successful development of the Project Art. IIIa par. 2
Art. V par. 2 Deposit P10M
Pay real estate taxes
Art. II(g)
Warrant absolute ownership

DEVELOPER to negotiate immediately with all tenants, Art. II(b) Art. V par. 2
settlers, occupants, tillers, cultivators of the land in Deliver any and all documents required for the Pay real estate taxes
question. successful development of the Project Art. II(c)
Art. V par. 2 Take possession of the parcels of land
Pay real estate taxes Art. III (j)
Art. II(c) Secure property from invasion of squatters and other
Allow DEVELOPER to take possession of subject elements
property Art. III (c)
To negotiate with occupants

DEVELOPER to pay and settle all monetary claims of all Art. II(b) Art. V par. 2
tenants, settlers, occupants, tillers, cultivators of the Deliver any and all documents required for the Pay real estate taxes
land. successful development of the Project Art. II(c)
Art. V par. 2 Take possession of the parcels of land
Pay real estate taxes Art. III (j)
Art. VI Secure property from invasion of squatters and other
Must consent on the reasonableness of the expenses. elements
Art. III(a) par. 1
Advance expense for settlement and relocation
Art. III(a) par. 2
Deposit P10M in a joint account of parties.

DEVELOPER to relocate and transfer all the tenants, Art. II(b) Art. V par. 2
settlers, occupants, tillers, cultivators of the land to their Deliver any and all documents required for the Pay real estate taxes
relocation site, and shall endeavor to fulfill the same and successful development of the Project Art. III(c)
the two immediately preceding paragraphs (b & c) up to Art. V par. 2 Take possession of the parcels of land
the extent of 75% accomplishment thereof within a Pay real estate taxes Art. III(j)
period of one (1) year from date of execution of this Art. II(d) Secure property from invasion of squatters and other
Agreement. The remaining 25% of the same Agree to allocate and aggregate a resettlement site elements
requirements shall be fully accomplished within another within the property subject to mutually accepted Art. III(a) par. 1
6 months from date of expiration of the original one-year conditions. Advance expense for settlement and relocation
period. Art. VI Art. III(a)par. 2
Must consent on the reasonableness of the expenses. Deposit P10M in a joint account of OWNER and
DEVELOPER
Art. III(c)
Relocate the occupants

DEVELOPER to apply for and secure exemption or Art. II(b) Art. V par. 2
conversion permit and such other related requirements Deliver any and all documents required for the Pay real estate taxes
needed for the approval of exemption or conversion successful development of the Project Art. II(c)
application of the land in question within a period of one Art. V par. 2
and a half (1 1/2) years from date of execution of this Pay real estate taxes
Agreement subject to a six (6) month extension. Art. II(f)
Assist DEVELOPER secure exemption from CARL and
conversion/reclassification of subject property
Art. III(b)
Give DEVELOPER authority to apply for exemption,
conversion and re-classification.
Art. VI
Must consent on the reasonableness of the expenses.
Take possession of the parcels of land
Art. III (j)
Secure property from invasion of squatters and other
elements
Art. III(a)
Advance expenses for exemption, conversion, re-
classification expenses.
Art.III(b) secure exemption and conversion permit

DEVELOPER to lay out a complete Development Plan Art.III(i) Art. III(d)

Give written conformity to the development plan
Complete comprehensive development plan (within 6
months to one year from the execution of the JVA)

DEVELOPER to apply for and secure all necessary Art. II(b) Art. V par. 2
development permit, performance bonds, Deliver any and all documents required for the Pay real estate taxes
environmental compliance certificate, license to sell and successful development of the Project Art. II(c)
all other related requirement from the pertinent Art. V par. 2 Take possession of the parcels of land
Municipal Government, DENR, HLURB and other Pay real estate taxes Art. III (j)
governmental agencies concerned within a period of 2 Secure property from invasion of squatters and other
years from date of execution of this Agreement. elements
Art. III(f)
Secure development permit, ECC, License to Sell, etc.

DEVELOPER Art. II(b) Art. V par. 2

construction stage/ground breaking to commence after Deliver any and all documents required for the Pay real estate taxes
release of DAR exemption permit or conversion successful development of the Project Art. II(c)
clearance and approval of other required permits by Art. V par. 2 Take possession of the parcels of land
pertinent agencies of the government. Pay real estate taxes Art. III (j)
Secure property from invasion of squatters and other
elements
Art. III(e)
Mobilize development work and solely pay its expenses
Art. III(f)
Develop the property and solely pay its expenses on
necessary permits

DEVELOPER to secure approval of subdivision plan Art. II(b) Art. V par. 2

and technical description from the Bureau of Lands Deliver any and all documents required for the Pay real estate taxes
based on the approved scheme and thereafter to successful development of the Project Art. II(c)
petition, follow-up and secure the release of individual Art. V par. 2 Take possession of the parcels of land
titles for all lots in the project in the respective names of Pay real estate taxes Art. III (j)
the parties form the register of deeds. Art. II(a) Secure property from invasion of squatters and other
Deliver titles to DEVELOPER elements
Art. II(a) Art. III(k)
Execute Deed of Assignment Process titling of lots

Market and Sell the property
Owner to reimburse and pay the DEVELOPER
The activities under the JVA fell into seven major
categories, specifically: (l)the relocation of the
occupants; (2) the completion of the development plan;
(3) the securing of exemption and conversion permits;
(4) the obtention of the development permits from
government agencies; (5) the development of the
subject land; (6) the issuance of titles for the subdivided
lots; and (7) the selling of the subdivided lots and the
reimbursement of the advances.
For the first activity (i.e., the relocation of the
occupants), the developer was obliged to negotiate
with the occupants, to advance payment for
disturbance compensation, and to relocate the
occupants to an area within the subject land, while the
owner was obliged to agree to and to allocate the
resettlement site within the property, and to approve
the expenses to be incurred for the process. Should the
owner fail to allocate the site for the resettlement, the
obligation of the developer to relocate would not be
demandable. Conversely, should the developer fail to
negotiate with the occupants, the owner's obligation to
allocate the resettlement site would not become due.
As to the second activity (i.e., the completion of the
development plan), the developer had the obligation to
lay out the plan, but the owner needed to conform to
the plan before the same was finalized. Accordingly,
the final development plan would not be generated
should the owner fail to approve the lay-out plan; nor
would the owner be able to approve if no such plan had
been initially laid out by the developer.
In each activity, the obligation of each party was
dependent upon the obligation of the other. Although
their obligations were to be performed simultaneously,
the performance of an activity obligation was still
conditioned upon the fulfillment of the continuous
Art. III(a)
Pay all expenses for settlement of claims, relocation,
application for exemption, conversion, re-classification.
Fix selling date
obligation, and vice versa. Should either party cease to
perform a continuous obligation, the other's
subsequent activity obligation would not accrue.
Conversely, if an activity obligation was not performed
by either party, the continuous obligation of the other
would cease to take effect. The performance of the
continuous obligation was subject to the resolutory
condition that the precedent obligation of the other
party, whether continuous or activity, was fulfilled as it
became due. Otherwise, the continuous obligation
would be extinguished.
According to Article 1184 of the Civil Code, the
condition that some event happen at a determinate
time shall extinguish the obligation as soon as the time
expires, or if it has become indubitable that the event
will not take place. Here, the common cause of the
parties in entering into the joint venture was the
development of the joint venture property into the
residential subdivision as to eventually profit therefrom.
Consequently, all of the obligations under the JVA
were subject to the happening of the complete
development of the joint venture property, or if it would
become indubitable that the completion would not take
place, like when an obligation, whether continuous or
activity, was not performed. Should any of the
obligations, whether continuous or activity, be not
performed, all the other remaining obligations would
not ripen into demandable obligations while those
already performed would cease to take effect. This is
because every single obligation of each party under the
JVA rested on the common cause of profiting from the
developed subdivision.
It appears that upon the execution of the JVA, the
parties were performing their respective obligations
until disagreement arose between them that affected
the subsequent performance of their accrued
obligations. Being reciprocal in nature, their respective
obligations as the owner and the developer were
Fix selling date
dependent upon the performance by the other of its
obligations; hence, any claim of delay or non-
performance against the other could prosper only if the
complaining party had faithfully complied with its own
correlative obligation.30chanroblesvirtuallawlibrary
A respected commentator has cogently observed in
this connection:31chanroblesvirtuallawlibrary
§ 135. Same; consequences of simultaneous
performance. As a consequence of the rule of
simultaneous performance, if the party who has not
performed his obligation demands performance from
the other, the latter may interpose the defense of
unfulfilled contract (exceptio non adimpleli contraclus)
by virtue of which he cannot be obliged to perform while
the other's obligation remains unfulfilled. Hence, the
Spanish Supreme Court has ruled that the non-
performance of one party is justified if based on the
non-performance of the other; that the party who has
failed to perform cannot demand performance from the
other; and that judicial approval is not necessary to
release a party from his obligation, the non-
performance of the other being a sufficient defense
against any demand for performance by the guilty
party.
Another consequence of simultaneous performance is
the rule of compensatio morae, that is to say that
neither party incurs in delay if the other does not or is
not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the
parties fulfills his obligations, delay by the other begins.
Yet, the record is bereft of the proof to support the
lower courts' unanimous conclusion that the owner had
already performed its correlative obligation under the
JVA as to place itself in the position to demand that the
developer should already perform its obligation of
providing the round-the-clock security on the property.
In issuing its order of November 5, 2002, therefore, the
RTC acted whimsically because it did not first ascertain
whether or not the precedent reciprocal obligation of
the owner upon which the demanded obligation of the
developer was dependent had already been
performed. Without such showing that the developer
had ceased to perform a continuous obligation to
provide security over the joint venture property despite
complete fulfillment by the owner of all its accrued
obligations, the owner had no right to demand from the
developer the round-the-clock security over the 215
hectares of land.
The CA further gravely erred in characterizing the order
for the petitioners to implement the round-the-clock
security provision of the JVA and the addendum as an
established and undisputed interim measure that could
be issued pending the resolution of the case on the
merits.
Apart from the provisional remedies expressly
recognized and made available under Rule 56 to Rule
61 of the Rules of Court, the Court has sanctioned only
the issuance of the status quo ante order but only to
maintain the last, actual, peaceable and uncontested
state of things that preceded the controversy.32 The
eminent Justice Florenz D. Regalado,33 an authority on
remedial law, has delineated the nature of the status
quo ante order, and distinguished it from the
provisional remedy of temporary restraining order, as
follows:
There have been instances when the Supreme Court
has issued a status quo order which, as the very term
connotes, is merely intended to maintain the last,
actual, peaceable and uncontested state of things
which preceded the controversy. This was resorted to
when the projected proceedings in the case made the
conservation of the status quo desirable or essential,
but the affected party neither sought such relief or the
allegations in his pleading did not sufficiently make out
a case for a temporary restraining order. The status
quo order was thus issued motu proprio on equitable
considerations. Also, unlike a temporary restraining
order or a preliminary injunction, a status quo order is
more in the nature of a cease and desist order, since it
neither directs the doing or undoing of acts as in the
case of prohibitory or mandatory injunctive relief. The
further distinction is provided by the present
amendment in the sense that, unlike the amended rule
on restraining orders, a status quo order does not
require the posting of a bond.
The order of November 5, 2002, by directing the
developer to provide sufficient round-the-clock security
for the protection of the joint venture property during
the pendency of the case, was not of the nature of
the status quo ante order because the developer, as
averred in the complaint, had not yet provided a single
security watchman to secure the entire 215 hectares of
land for several years.34 Also, the owner stated in the
comment to the petition that the developer had
dismissed all the security guards posted in the property
since 1997.35 At the time of the filing of the complaint
for specific performance on February 29, 2000,
therefore, the last actual, peaceable and uncontested
state of things preceding the controversy was the
absence of such security, not the installation of the
security personnel/measures. In fact, the failure of the
developer to provide the round-the-clock security itself
became the controversy that impelled the owner to
bring the action against the petitioners.
By preliminarily directing the developer to provide
sufficient round-the-clock security for the protection of
the joint venture property during the pendency of the
case, the November 5, 2002 order of the RTC did not
come under the category of the status quo ante order
that would issue upon equitable consideration, or even
of an injunctive relief that would issue under Rule 58 of
the Rules of Court. Hence, the issuance of the order
constituted a blatant jurisdictional error that needed to
be excised. Verily, a jurisdictional error is one by which
the act complained of was issued by the court without
or in excess of jurisdiction.36Without jurisdiction means
that the court acted with absolute want of
jurisdiction. Excess of jurisdiction means that the court
has jurisdiction but has transcended the same or acted
without any statutory
authority.37chanroblesvirtuallawlibrary
Although the RTC undoubtedly had jurisdiction to hear
and decide the principal action for specific performance
as well as to act on the motions submitted to it in the
course of the proceedings, the distinction between
jurisdiction over the case and jurisdiction to issue an
interlocutory order as an ancillary remedy incident to
the principal action should be discerned. We have
frequently declared that a court may have jurisdiction
over the principal action but may nevertheless act
irregularly or in excess of its jurisdiction in the course
of its proceedings by the granting of an auxiliary
remedy.38 In Leung Ben v. O'Brien,39 for instance, this
Court has thus clarified:
It may be observed in this connection that the word
"jurisdiction" as used in attachment cases, has
reference not only to the authority of the court to
entertain the principal action but also to its authority to
issue the attachment, as dependent upon the
existence of the statutory ground. (6 C. J., 89.) This
distinction between jurisdiction to issue the attachment
as an ancillary remedy incident to the principal litigation
is of importance; as a court's jurisdiction over the main
action may be complete, and yet it may lack authority
to grant an attachment as ancillary to such action. This
distinction between jurisdiction over the ancillary has
been recognized by this court in connection with
actions involving the appointment of a receiver. Thus
in Rocha & Co. vs. Crossfield and Figueras (6 Phil.
Rep., 355), a receiver had been appointed without
legal justification. It was held that the order making the
appointment was beyond the jurisdiction of the court;
and though the court admittedly had jurisdiction of the
main cause, the order was vacated by this court upon
application a writ of certiorari. (See Blanco vs. Ambler,
3 Phil. Rep., 358, Blanco vs. Ambler and McMicking 3
Phil. Rep., 735, Yangco vs. Rohde, 1 Phil. Rep., 404.)
By parity of reasoning it must follow that when a court
issues a writ of attachment for which there is no
statutory authority, it is acting irregularly and in excess
of its jurisdiction, in the sense necessary to justify the
Supreme Court in granting relief by the writ of certiorari.
WHEREFORE, the Court GRANTS the petition for
review on certiorari; REVERSES and SETS
ASIDE the decision promulgated on April 27, 2005 and
the resolution promulgated on September 12,
2005; NULLIFIES the orders issued on November 5,
2002 and May 19, 2003 in Civil Case No. 67813 by the
Regional Trial Court, Branch 67, in Pasig
City; DIRECTS the Regional Trial Court, Branch 67, in
Pasig City to resume the proceedings in Civil Case No.
67813 with dispatch; and ORDERS the respondents to
pay the costs of suit.
SO ORDERED.
 HEREBY acknowledged to have
been paid upon the execution of this
agreement;

2. The sum of PESOS: TEN

THOUSAND (P10,000.00) shall be
paid within ten (10) days from and
after the execution of this
agreement;

3. The sum of PESOS: TEN

THOUSAND (P10,000.00)
represents the VENDORS'
indebtedness with the Philippine
Veterans Bank which is hereby
assumed by the VENDEE; and

4. The balance of PESOS: TWENTY

SEVEN THOUSAND (P27,000.00.)
shall be paid within one (1) year from
and after the execution of this
instrument. (p. 53, Rollo)
G.R. No. 96053 March 3, 1993
is the subject matter of the present litigation between
JOSEFINA TAYAG, RICARDO GALICIA, TERESITA the heirs of Juan Galicia, Sr. who assert breach of the
GALICIA, EVELYN GALICIA, JUAN GALICIA, JR. conditions as against private respondent's claim
and RODRIGO GALICIA, petitioners, anchored on full payment and compliance with the
vs. stipulations thereof.
COURT OF APPEALS and ALBRIGIDO
LEYVA, respondents. The court of origin which tried the suit for specific
performance filed by private respondent on account of
Facundo T. Bautista for petitioners. the herein petitioners' reluctance to abide by the
covenant, ruled in favor of the vendee (p. 64, Rollo)
while respondent court practically agreed with the trial
Jesus T. Garcia for private respondent. court except as to the amount to be paid to petitioners
and the refund to private respondent are concerned (p.
46, Rollo).

MELO, J.: There is no dispute that the sum of P3,000.00 listed as

The deed of conveyance executed on May 28, 1975 by
Juan Galicia, Sr., prior to his demise in 1979, and
Celerina Labuguin, in favor of Albrigido Leyva involving
the undivided one-half portion of a piece of land
situated at Poblacion, Guimba, Nueva Ecija for the sum
of P50,000.00 under the following terms:
1. The sum of PESOS: THREE
THOUSAND (P3,000.00) is
first installment was received by Juan Galicia, Sr.
According to petitioners, of the P10,000.00 to be paid
within ten days from execution of the instrument, only
P9,707.00 was tendered to, and received by, them on
numerous occasions from May 29, 1975, up to
November 3, 1979. Concerning private respondent's
assumption of the vendors' obligation to the Philippine
Veterans Bank, the vendee paid only the sum of
P6,926.41 while the difference the indebtedness came
from Celerina Labuguin (p. 73, Rollo). Moreover,
petitioners asserted that not a single centavo of the
P27,000.00 representing the remaining balance was
paid to them. Because of the apprehension that the
heirs of Juan Galicia, Sr. are disavowing the contract
inked by their predecessor, private respondent filed the
complaint for specific performance.
In addressing the issue of whether the conditions of the
instrument were performed by herein private
respondent as vendee, the Honorable Godofredo
Rilloraza, Presiding Judge of Branch 31 of the
Regional Trial Court, Third Judicial Region stationed at
Guimba, Nueva Ecija, decided to uphold private
respondent's theory on the basis of constructive
fulfillment under Article 1186 and estoppel through
acceptance of piecemeal payments in line with Article
1235 of the Civil Code.
Anent the P10,000.00 specified as second installment,
the lower court counted against the vendors the candid
statement of Josefina Tayag who sat on the witness
stand and made the admission that the check issued
as payment thereof was nonetheless paid on a
staggered basis when the check was dishonored (TSN,
September 1, 1983, pp. 3-4; p. 3, Decision; p.
66, Rollo). Regarding the third condition, the trial court
noted that plaintiff below paid more than P6,000.00 to
the Philippine Veterans Bank but Celerina Labuguin,
the sister and co-vendor of Juan Galicia, Sr. paid
P3,778.77 which circumstance was construed to be a
ploy under Article 1186 of the Civil Code that
"prematurely prevented plaintiff from paying the
installment fully" and "for the purpose of withdrawing
the title to the lot". The acceptance by petitioners of the
various payments even beyond the periods agreed
upon, was perceived by the lower court as tantamount
to faithful performance of the obligation pursuant to
Article 1235 of the Civil Code. Furthermore, the trial
court noted that private respondent consigned
P18,520.00, an amount sufficient to offset the
remaining balance, leaving the sum of P1,315.00 to be
credited to private respondent.
On September 12, 1984, judgment was rendered:
1. Ordering the defendants — heirs
of Juan Galicia, to execute the Deed
of Sale of their undivided ONE HALF
(1/2) portion of Lot No. 1130,
Guimba Cadastre, covered by TCT
No. NT-120563, in favor of plaintiff
Albrigido Leyva, with an equal
frontage facing the national road
upon finality of judgment; that, in
their default, the Clerk of Court II, is
hereby ordered to execute the deed
of conveyance in line with the
provisions of Section 10, Rule 39 of
the Rules of Court;
2. Ordering the defendants, heirs of
Juan Galicia, jointly and severally to
pay attorney's fees of P6,000.00 and
the further sum of P3,000.00 for
actual and compensatory damages;
3. Ordering Celerina Labuguin and
the other defendants herein to
surrender to the Court the owner's
duplicate of TCT No. NT-120563,
province of Nueva Ecija, for the use
of plaintiff in registering the portion,
subject matter of the instant suit;
4. Ordering the withdrawal of the
amount of P18,520.00 now
consigned with the Court, and the
amount of P17,204.75 be delivered
to the heirs of Juan Galicia as
payment of the balance of the sale of
the lot in question, the defendants
herein after deducting the amount of
attorney's fees and damages
awarded to the plaintiff hereof and
the delivery to the plaintiff of the
further sum of P1,315.25 excess or
over payment and, defendants to
pay the cost of the suit. (p. 69, Rollo)
and following the appeal interposed with respondent
court, Justice Dayrit with whom Justices Purisima and
Aldecoa, Jr. concurred, modified the fourth paragraph
of the decretal portion to read:
4. Ordering the withdrawal of the
amount of P18,500.00 now
consigned with the Court, and that
the amount of P16,870.52 be
delivered to the heirs of Juan
Galicia, Sr. as payment to the unpaid
balance of the sale, including the
reimbursement of the amount paid to
Philippine Veterans Bank, minus the
amount of attorney's fees and
damages awarded in favor of
plaintiff. The excess of P1,649.48
will be returned to plaintiff. The costs
against defendants. (p. 51, Rollo)
As to how the foregoing directive was arrived at, the
appellate court declared:
With respect to the fourth condition
stipulated in the contract, the period
indicated therein is deemed
modified by the parties when the
heirs of Juan Galicia, Sr. accepted
payments without objection up to
November 3, 1979. On the basis of
receipts presented by appellee
commencing from August 8, 1975 up
to November 3, 1979, a total amount
of P13,908.25 has been paid,
thereby leaving a balance of
P13,091.75. Said unpaid balance
plus the amount reimbursable to
appellant in the amount of P3,778.77
will leave an unpaid total of
P16,870.52. Since appellee
consigned in court the sum of
P18,500.00, he is entitled to get the
excess of P1,629.48. Thus, when
the heirs of Juan Galicia, Sr.
(obligees) accepted the
performance, knowing its
incompleteness or irregularity and
without expressing any protest or
objection, the obligation is deemed
fully complied with (Article 1235,
Civil Code). (p. 50, Rollo)
Petitioners are of the impression that the decision
appealed from, which agreed with the conclusions of
the trial court, is vulnerable to attack via the recourse
before Us on the principal supposition that the full
consideration of the agreement to sell was not paid by
private respondent and, therefore, the contract must be
rescinded.
The suggestion of petitioners that the covenant must
be cancelled in the light of private respondent's so-
called breach seems to overlook petitioners' demeanor
who, instead of immediately filing the case precisely to
rescind the instrument because of non-compliance,
allowed private respondent to effect numerous
payments posterior to the grace periods provided in the
contract. This apathy of petitioners who even permitted
private respondent to take the initiative in filing the suit
for specific performance against them, is akin to waiver
or abandonment of the right to rescind normally
conferred by Article 1191 of the Civil Code. As aptly
observed by Justice Gutierrez, Jr. in Angeles vs.
Calasanz (135 SCRA 323 [1985]; 4 Paras, Civil Code
of the Philippines Annotated, Twelfth Ed. [1989], p.
203:
. . . We agree with the plaintiffs-
appellees that when the defendants-
appellants, instead of availing of
their alleged right to rescind, have
accepted and received delayed
payments of installments, though
the plaintiffs-appellees have been in
arrears beyond the grace period
mentioned in paragraph 6 of the
contract, the defendants-appellants
have waived, and are now estopped
from exercising their alleged right of
rescission . . .
In Development Bank of the Philippines vs. Sarandi (5
CAR (25) 811; 817-818; cited in 4 Padilla, Civil Code
Annotated, Seventh Ed. [1987], pp. 212-213) a similar
opinion was expressed to the effect that:
In a perfected contract of sale of land
under an agreed schedule of
payments, while the parties may
mutually oblige each other to compel
the specific performance of the
monthly amortization plan, and upon
failure of the buyer to make the
payment, the seller has the right to
ask for a rescission of the contract
under Art. 1191 of the Civil Code,
this shall be deemed waived by
acceptance of posterior payments.
Both the trial and appellate courts were, therefore,
correct in sustaining the claim of private respondent
anchored on estoppel or waiver by acceptance of
delayed payments under Article 1235 of the Civil Code
in that:
When the obligee accepts the
performance, knowing its
incompleteness or irregularity, and
without expressing any protest or
objection, the obligation is deemed
fully complied with.
considering that the heirs of Juan Galicia, Sr.
accommodated private respondent by accepting the
latter's delayed payments not only beyond the grace
periods but also during the pendency of the case for
specific performance (p. 27, Memorandum for
petitioners; p. 166, Rollo). Indeed, the right to rescind
is not absolute and will not be granted where there has
been substantial compliance by partial payments
(4 Caguioa, Comments and Cases on Civil Law, First
Ed. [1968] p. 132). By and large, petitioners' actuation
is susceptible of but one construction — that they are
now estopped from reneging from their commitment on
account of acceptance of benefits arising from overdue
accounts of private respondent.
Now, as to the issue of whether payments had in fact
been made, there is no doubt that the second
installment was actually paid to the heirs of Juan
Galicia, Sr. due to Josefina Tayag's admission in
judicio that the sum of P10,000.00 was fully liquidated.
It is thus erroneous for petitioners to suppose that "the
evidence in the records do not support this conclusion"
(p. 18, Memorandum for Petitioners; p. 157, Rollo).
A contrario, when the court of origin, as well as the
appellate court, emphasized the frank representation
along this line of Josefina Tayag before the trial court
(TSN, September l, 1983, pp. 3-4; p. 5, Decision in CA-
G.R. CV No. 13339, p. 50, Rollo; p. 3, Decision in Civil
Case No. 681-G, p. 66, Rollo), petitioners chose to
remain completely mute even at this stage despite the
opportunity accorded to them, for clarification.
Consequently, the prejudicial aftermath of Josefina
Tayag's spontaneous reaction may no longer be
obliterated on the basis of estoppel (Article 1431, Civil
Code; Section 4, Rule 129; Section 2(a), Rule 131,
Revised Rules on Evidence).
Insofar as the third item of the contract is concerned, it
may be recalled that respondent court applied Article
1186 of the Civil Code on constructive fulfillment which
petitioners claim should not have been appreciated
because they are the obligees while the proviso in
point speaks of the obligor. But, petitioners must
concede that in a reciprocal obligation like a contract of
purchase, (Ang vs. Court of Appeals, 170 SCRA 286
[1989]; 4 Paras, supra, at p. 201), both parties are
mutually obligors and also obligees (4 Padilla,
supra, at p. 197), and any of the contracting parties
may, upon non-fulfillment by the other privy of his part
of the prestation, rescind the contract or seek fulfillment
(Article 1191, Civil Code). In short, it is puerile for
petitioners to say that they are the only obligees under
the contract since they are also bound as obligors to
respect the stipulation in permitting private respondent
to assume the loan with the Philippine Veterans Bank
which petitioners impeded when they paid the balance
of said loan. As vendors, they are supposed to execute
the final deed of sale upon full payment of the balance
as determined hereafter.
Lastly, petitioners argue that there was no valid tender
of payment nor consignation of the sum of P18,520.00
which they acknowledge to have been deposited in
court on January 22, 1981 five years after the amount
of P27,000.00 had to be paid (p. 23, Memorandum for
Petitioners; p. 162, Rollo). Again this suggestion
ignores the fact that consignation alone produced the
effect of payment in the case at bar because it was
established below that two or more heirs of Juan
Galicia, Sr. claimed the same right to collect (Article
1256, (4), Civil Code; pp. 4-5, Decision in Civil Case
No. 681-G; pp. 67-68, Rollo). Moreover, petitioners did
not bother to refute the evidence on hand that, aside
from the P18,520.00 (not P18,500.00 as computed by
respondent court) which was consigned, private
respondent also paid the sum of P13,908.25 (Exhibits
"F" to "CC"; p. 50, Rollo). These two figures
representing private respondent's payment of the
fourth condition amount to P32,428.25, less the
P3,778.77 paid by petitioners to the bank, will lead us
to the sum of P28,649.48 or a refund of P1,649.48 to
private respondent as overpayment of the P27,000.00
balance.
WHEREFORE, the petition is hereby DISMISSED and
the decision appealed from is hereby AFFIRMED with
the slight modification of Paragraph 4 of the dispositive
thereof which is thus amended to read:
4. ordering the withdrawal of the sum
of P18,520.00 consigned with the
 Regional Trial Court, and that the
amount of P16,870.52 be delivered
by private respondent with legal rate
of interest until fully paid to the heirs
of Juan Galicia, Sr. as balance of the
sale including reimbursement of the
sum paid to the Philippine Veterans
Bank, minus the attorney's fees and
damages awarded in favor of private
respondent. The excess of
P1,649.48 shall be returned to
private respondent also with legal
interest until fully paid by petitioners.
With costs against petitioners.

SO ORDERED.

G.R. No. 193068, February 01, 2017

DEVELOPMENT BANK OF THE
PHILIPPINES, Petitioner, v. STA. INES MELALE
FOREST PRODUCTS CORPORATION, RODOLFO
CUENCA, MANUEL TINIO, CUENCA INVESTMENT
CORPORATION AND UNIVERSAL HOLDINGS
CORPORATION, Respondents.
G.R. No. 193099, February 1, 2017
NATIONAL DEVELOPMENT
CORPORATION, Petitioner, v. STA. INES MELALE
FOREST PRODUCTS CORPORATION, RODOLFO
M. CUENCA, MANUEL I. TINIO, CUENCA
INVESTMENT CORPORATION AND UNIVERSAL
HOLDINGS CORPORATION, Respondents.
DECISION
LEONEN, J.:
A condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfilment and a debtor loses the
right to make use of the period when a condition is
violated, making the obligation immediately
demandable.1
This resolves the consolidated Petitions for Review
filed by the Development Bank of the Philippines
(DBP)2 and the National Development Corporation
(NEDC)3 assailing the Court of Appeals
Decision4 dated March 24, 2010 and Court of Appeals
Resolution5 dated July 21, 2010, which affirmed with
modifications the Decision6 dated September 16, 2003
of Branch 137, Regional Trial Court of Makati City.7
Sometime in 1977, National Galleon Shipping
Corporation (Galleon), "formerly known as Galleon
Shipping Corporation, was organized to operate a liner
service between the Philippines and its ... trading
partners."8 Galleon's major stockholders were
respondents Sta. Ines Melale Forest Products
Corporation (Sta. Ines), Cuenca Investment
Corporation (Cuenca Investment), Universal Holdings
Corporation (Universal Holdings), Galleon's President
Rodolfo M. Cuenca (Cuenca), Manuel I. Tinio (Tinio),
and the Philippine National Construction Corporation
(PNCC).9
Galleon experienced financial difficulties and had to
take out several loans from different sources such as
foreign financial institutions, its shareholders (Sta. WHEREAS, it is a policy of government to provide a
Ines, Cuenca Investment, Universal Holdings, Cuenca, reliable liner service between the Philippines and its
and Tinio), and other entities "with whom it had ongoing major trading partners;
commercial relationships."10
WHEREAS, it is a policy to have a Philippine national
DBP guaranteed Galleon's foreign loans.11 In return, flag liner service to compete with other heavily
Galleon and its stockholders Sta. Ines, Cuenca subsidized national shipping companies of other
Investment, Universal Holdings, Cuenca, and Tinio, countries;
executed a Deed of Undertaking12 on October 10, 1979
and obligated themselves to guarantee DBP's potential
NOW, THEREFORE, I, FERDINAND E. MARCOS,
liabilities.13 President of the Philippines, do hereby direct the
following:
To secure DBP's guarantee, Galleon undertook to
secure a first mortgage on its five new vessels and two 1. NDC shall acquire 100% of the
second-hand vessels.14 However, despite the loans shareholdings of Galleon Shipping
extended to it, "[Galleon's] financial condition did not Corporation from its present owners
improve."15 for the amount of P46.7 million which
is the amount originally contributed
Cuenca, as Galleon's president, wrote to the members by the present shareholders,
of the Cabinet Standing Committee "for the payable after five years with no
consideration of a policy decision to support a liner interest cost.
service."16 Cuenca also wrote then President
Ferdinand Marcos and asked for assistance.17 2. NDC to immediately infuse P30
million into Galleon Shipping
On July 21, 1981, President Marcos issued Letter of Corporation in lieu of its previously
Instructions No. 115518 addressed to the NDC, DBP, approved subscription to Philippine
and the Maritime Industry Authority. Letter of National Lines. In addition, NDC is to
Instructions No. 1155 reads: provide additional equity to Galleon
as may be required.
TO : Development Bank of the Philippines 3. DBP to advance for a period of three
National Development Company years from date hereof both the
Maritime Industry Authority principal and the interest on
Galleon's obligations falling due and
to convert such advances into 12%
preferred shares in Galleon
Shipping Corporation.
DIRECTING A REHABILITATION
PLAN FOR 4. DBP and NDC to negotiate a
GALLEON SHIPPING restructuring of loans extended by
CORPORATION foreign creditors of Galleon.
5. MARINA to provide assistance to
WHEREAS, Galleon Shipping Corporation is presently Galleon by mandating a rational liner
in a distressed state in view of the unfavorable shipping schedule considering
developments in the liner shipping business; existing freight volume and to
immediately negotiate a bilateral
agreement with the United States in
WHEREAS, the exposure of the Philippine government accordance with UNCTAD
financial institutions is substantial;
resolutions.
These instructions are to take effect immediately.19
On August 10, 1981,20 pursuant to Letter of
Instructions No. 1155, Galleon's stockholders,
represented by Cuenca, and NDC, through its then
Chairman of the Board of Directors, Roberto V. Ongpin
(Ongpin) entered into a Memorandum of
Agreement,21 where NDC and Galleon undertook to
prepare and sign a share purchase agreement
covering 100% of Galleon's equity for
P46,740,755.00.22 The purchase price was to be paid
after five years from the execution of the share
purchase agreement.23 The share purchase
agreement also provided for the release of Sta. Ines,
Cuenca, Tinio and Construction Development
Corporation of the Philippines from the personal
counter-guarantees they issued in DBP's favor under
the Deed of Undertaking.24
The Memorandum of Agreement reads:
KNOW ALL MEN BY THESE PRESENTS:
This Memorandum of Agreement made and entered
into this day of August, 1981, at Makati, Metro Manila,
Philippines, by and between the stockholders of
Galleon Shipping Corporation listed in Annex A hereof,
represented herein by their duly authorized attorney-in-
fact, Mr. Rodolfo M. Cuenca (hereinafter called
"Sellers") and National Development Company,
represented herein by its Chairman of the Board, Hon.
Minister Roberto V. Ongpin (hereinafter called
"Buyer").
WITNESSETH: That —
WHEREAS, Sellers and Buyer desire to implement
immediately Letter of Instructions No. 1155, dated July
21, 1981, which directs that Buyer acquire 100% of the
shareholdings of Galleon Shipping Corporation
("GSC") from Sellers who are the present owners.
WHEREAS, Sellers have consented to allow Buyer to
assume actual control over the management and
operations of GSC prior to the execution of a formal
share purchase agreement and the transfer of all the
shareholdings of Sellers to Buyer.
NOW, THEREFORE, the parties agree as follows:
1. Within seven (7) days after the signing hereof,
Sellers shall take all steps necessary to cause five (5)
persons designated by Buyer to be elected directors of
GSC, it being understood that Sellers shall retain the
remaining two (2) seats in the GSC board subject to
the condition hereafter stated in clause 7(b).
2. The new board to be created pursuant to clause 1
above shall elect Antonio L. Carpio as Chairman and
Chief Executive Officer and Rodolfo M. Cuenca as
President. All other officers will be nominated and
appointed by Buyer.
3. As soon as possible, but not more than 60 days after
the signing hereof, the parties shall endeavor to
prepare and sign a share purchase agreement
covering 100% of the shareholdings of Sellers in GSC
to be transferred to Buyer, i.e. 10,000,000 fully paid
common shares of the par value of P1.00 per share
and subscription of an additional 100,000,000 common
shares of the par value of P1.00 per share of which
P36,740,755.00 has been paid, but not yet issued.
4. Sellers hereby warrant that P46,740,755[.00] had
been actually paid to Galleon Shipping Corporation,
which amount represents payment of Sellers for
46,740,755 common shares of said Corporation. This
warranty shall be verified by Buyer, the results of which
will determine the final purchase price to be paid to
Sellers. The purchase price directed by LOI 1155 to be
paid to Sellers shall be paid after five (5) years from
date of the share purchase agreement with no interest
cost to buyer.
5. As security for the payment of the aforementioned
purchase price, Buyer shall issue to each of the GSC
stockholders listed in Annex A a negotiable promissory
note in the amount corresponding to the respective
paid-up capital in GSC of each of such stockholders
and with maturity on the date of the fifth annual
anniversary of the share purchase agreement.
6. Notwithstanding the provisions of clauses 4 and 5
above, upon the signing of the share purchase
agreement, it is understood that Sellers shall deliver to
Buyer all the stock certificates covering 10,000,000
common shares of GSC, and duly and validly endorsed
for transfer, free from any and all Hens and
encumbrances whatsoever. It is likewise understood
that Buyer shall at that time acquire all the subscription
rights to 100,000,000 common shares of which
P36,740,755.00 has been paid by Sellers, and shall
assume the obligation to pay the unpaid portion of such
subscription.
7. The stock purchase agreement to be prepared and
signed by the parties within sixty (60) days from date
hereof shall contain, among other things:
(a) standard warranties of seller including, but
not limited to, warranties pertaining to the
accuracy of financial and other statements
of GSC; disclosure of liabilities; payment of
all taxes, duties, licenses and fees; non-
encumbrance of corporate assets; valid
contracts with third parties, etc. including
an indemnity clause covering any breach
thereof.
(b) provisions that Buyer shall retain 2
representatives of Sellers in the board of
GSC only for as long as Sellers have not
been paid, or have not negotiated or
discounted any of the promissory notes
referred to in clause 5 above.
(c) provisions whereby Construction
Development Corporation of the
Philippines, Sta. Ines Melale Forest
Products Corporation, Mr. Rodolfo M.
Cuenca and Mr. Manuel I. Tinio shall be
released from counter-guarantees they
have issued in favor of DBP and other
financial institutions in connection with
GSC's various credit accommodations.
(d) provisions for arbitration as a means of
settling disputes and differences of opinion
regarding the stock purchase agreement.
8. Sellers hereby make a special
warranty
that:chanRoblesvirtualLawlibrary

(a) any and all liabilities and obligations as
disclosed in the financial statements of
Galleon Shipping Corporation are valid,
regular, normal and incurred in the ordinary
course of business of Galleon Shipping
Corporation, and Buyer will verify this
warranty and conduct an audit of Galleon
Shipping Corporation as of March 31 and
July 31, 1981; liabilities that do not fall
under the above definition are to be for the
account of the Seller; and
(b) from July 31, 1981 to the date of the
election of Buyers' representatives to the
Board of GSC, GSC has not and shall not
enter into any contract and has not and
shall not incur any liability except what is
normal and usual in the ordinary course of
shipping business.
9. Valid and duly authorized liabilities
of GSC which are the subject of a
meritorious lawsuit, or which have
been arranged and guaranteed by
Mr. Rodolfo M. Cuenca, may be
considered by Buyer for priority in
the repayment of accounts, provided
that, upon review, the Buyer shall
determine these to be legitimate and
were validly incurred in the ordinary
course of GSC's principal business.
IN WITNESS HEREOF, the parties have signed this
Memorandum of Agreement this day of August 1981,
in Makati, Metro Manila.
STOCKHOLDERS
OF
GALLEON
SHIPPING
CORPORATION
By:
(signed) would be unable to pay from its cash flows the resulting
RODOLFO debt service burden;
M.
CUENCA WHEREAS, in such a situation the financial exposure
of the Government will continue to increase and
therefore the appropriate steps must be taken to limit
NATIONAL
DEVELOPMENT and protect the Government's exposure;
COMPANY
By: NOW, THEREFORE, I, FERDINAND E. MARCOS,
President of the Philippines, do hereby direct the
(signed) following:
ROBERTO
V.
ONGPIN25
1) The DBP and the NDC shall take immediate
steps, including foreclosure of Galleon
Acting as Galleon's guarantor, DBP paid off Galleon's vessels and other assets, as may be
debts to its foreign bank creditor and, on January 25, deemed necessary to limit and protect the
1982, pursuant to the Deed of Undertaking, Galleon Government's exposure;
executed a mortgage contract26 over seven of its
vessels in favor of DBP.
2) NDC shall discharge such maritime liens as
it may deem necessary to allow the
NDC took over Galleon's operations "even prior to the foreclosed vessels to engage in the
signing of a share purchase agreement."27 However, international shipping business;
despite NDC's takeover, the share purchase
agreement was never formally executed.28 3) Any provision of LOI No. 1155 inconsistent
with this Letter of Instructions is hereby
On February 10, 1982, or barely seven months from rescinded.
the issuance of Letter of Instructions No. 1155,
President Marcos issued Letter of Instructions No.
1195,29 which reads: These instructions are to take effect immediately.30
TO : Development On April 22, 1985, respondents Sta. Ines, Cuenca,
Bank of the Tinio, Cuenca Investment and Universal Holdings filed
Philippines a Complaint with Application for the Issuance of a
National Temporary Restraining Order or Writ of Preliminary
Development Injunction.31 The Complaint was amended several
Company times to implead new parties and to include new
claims/counterclaims.32
RE : Galleon
Shipping In their Complaint, Sta. Ines, Cuenca, Tinio, Cuenca
Corporation Investment, and Universal Holdings alleged that NDC,
"without paying a single centavo, took over the
complete, total, and absolute ownership, management,
WHEREAS, NDC has assumed management of control, and operation of defendant [Galleon] and all its
Galleon's operations pursuant to LOI No. 1155;
assets, even prior to the formality of signing a share
purchase agreement, which was held in abeyance
WHEREAS, the original terms under which Galleon because the defendant NDC was verifying and
acquired or leased the vessels were such that Galleon confirming the amounts paid by plaintiffs to Galleon,
and certain liabilities of Galleon to plaintiffs[.]"33
Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings also alleged that NDC tried to delay
'the formal signing of the share purchase agreement in
order to interrupt the running of the 5-year period to pay
... the purchase of the shares in the amount of
P46,740,755[.00] and the execution of the negotiable
promissory notes to secure payment[.]34
As for DBP, Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings claimed that "DBP
can no longer go after [them] for any deficiency
judgment [since] NDC had been subrogated [in their
place] as borrower[s], hence the Deed of Undertaking
between [Sta. Ines, Cuenca Investment, Universal
Holdings, Cuenca, and Tinio and DBP] had been
extinguished and novated[.]"35
Meanwhile, on December 8, 1986, Proclamation No.
50 created the Asset Privatization Trust.36 The Asset
Privatization Trust was tasked to "take title to and
possession of, conserve, provisionally manage and
dispose of, assets which have been identified for
privatization or disposition and transferred to the TI-List
for [that] purpose."37
Under Administrative Order No. 14 issued by then
President Corazon C. Aquino, certain assets of DBP,
which included Galleon's loan accounts, "were
identified for transfer to the National Government."38
On February 27, 1987, a Deed of Transfer was
executed providing for the transfer of the Galleon loan
account from DBP to the National Government.39 The
Asset Privatization Trust was "constituted as [the
National Government's] trustee over the transferred
accounts and assets[.]"40
On September 16, 2003, the Regional Trial Court
upheld the validity of Letter of Instructions No. 1155
and the Memorandum of Agreement executed by NDC
and Galleon's stockholders, pursuant to Letter of
Instructions No. 1155.41
The Regional Trial Court also held that Letter of
Instructions No. 1195 did not supersede or impliedly
repeal Letter of Instructions No. 1155, and assuming
that it did impliedly repeal Letter of Instructions No.
1155, it would be void and unconstitutional for violating
the non-impairment clause.42
As regards NDC's argument that Sta. Ines, Cuenca,
Tinio, Cuenca Investment, and Universal Holdings had
no basis to compel it to pay Galleon's shares of stocks
because no share purchase agreement was executed,
the Regional Trial Court held that the NDC was in
estoppel since it prevented the execution of the share
purchase agreement and had admitted to being
Galleon's owner.43
The Regional Trial Court also ruled that Sta. Ines,
Cuenca, Tinio, Cuenca Investment, and Universal
Holdings' liability to DBP under the Deed of
Undertaking had been extinguished due to novation,
with NDC replacing them and PNCC as debtors.44 The
dispositive of the Regional Trial Court's Decision reads:
WHEREFORE, judgment is hereby rendered (1)
ordering defendants National Development
Corporation and National Galleon Shipping
Corporation, jointly and severally, to pay plaintiffs Sta.
Ines Melale Forest Products Corporation, Rodolfo M.
Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation, the
amounts of P15,150,000.00 and US$2.3 million,
representing the amount of advances made by
plaintiffs in behalf of defendant Galleon, plus legal
interest at the rate of 6% per annum from the date of
filing of this case on 22 April 1985 up to full payment;
(2) ordering defendants National Development
Corporation and National Galleon Shipping
Corporation, jointly and severally, to pay plaintiffs Sta.
Ines Melale Forest Products Corporation, Rodolfo M.
Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation, the
amount of P46,740,755.00, representing the price of
the shares of stock of plaintiffs and defendant PNCC in
defendant Galleon, plus legal interest at the rate of 6%
per annum from the date of filing of this case on 22 April
1985 up to full payment;
(3) ordering defendants National Development
Corporation and National Galleon Shipping
Corporation, jointly and severally, to pay plaintiffs Sta.
Ines Melale Forest Products Corporation, Rodolfo M.
Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation,
attorney's fees equivalent to 10% of the amount due;
and costs of suit; and
(4) ordering defendants National Development
Corporation, Development Bank of the Philippines and
National Galleon Shipping Corporation, jointly and
severally, to pay each plaintiff and defendant Philippine
National Construction Corporation, P10,000.00 as
moral damages; and P10,000.00 as exemplary
damages.
SO ORDERED.45
On February 23, 2003, the Regional Trial Court issued
an Order46 partially reconsidering and modifying the
September 16, 2003 Decision by categorically
declaring Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings free from liability
under the mortgage contract with DBP and the
deficiency claim of DBP.47 The Regional Trial Court
also deleted the award of US$2.3 million to Sta. Ines,
Cuenca, Tinio, Cuenca Investment, and Universal
Holdings since they failed to Include the same in their
fourth amended complaint.48 The dispositive portion of
the Regional Trial Court Order, as amended, reads:
WHEREFORE, judgment is hereby rendered (1)
ordering defendants National Development
Corporation and National Galleon Shipping
Corporation, jointly and severally, to pay plaintiffs Sta.
Ines Melale Forest Products Corporation, Rodolfo M.
Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation, the
amount of P15,150,000.00 representing the amount of
advances made by plaintiffs in behalf of defendant
NGSC, plus legal interest at the rate of 6% per annum
from the date of filing of this case on 22 April 1985 up
to full payment;
(2) ordering defendants National Development
Corporation and National Galleon Shipping
Corporation, jointly and severally, to pay plaintiffs Sta.
Ines Melale Forest Products Corporation, Rodolfo M.
Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation, the
amount of P46,740,755.00, representing the price of
the shares of stock of plaintiffs and defendant PNCC in
defendant NGSC, plus legal interest at the rate of 6%
per annum from the date of filing of this case on 22 April
1985 up to full payment;
(3) ordering defendants National Development
Corporation and National Galleon Shipping
Corporation, jointly and severally, to pay plaintiffs Sta.
Ines Melale Forest Products Corporation, Rodolfo M.
Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation,
attorney's fees equivalent to 10% of the amount due;
and costs of suit;
(4) ordering defendants National Development
Corporation and National Galleon Shipping
Corporation, jointly and severally, to pay to each
plaintiff and defendant Philippine National Construction
Corporation, P10,000.00 as moral damages; and
P10,000.00 as exemplary damages; and
(5) declaring plaintiffs Sta. Ines Melale Forest Products
Corporation, Rodolfo M. Cuenca, Manuel I. Tinio,
Cuenca Investment Corporation and Universal
Holdings Corporation and defendant Philippine
National Construction Corporation to be no longer
liable to defendants National Development
Corporation, Development Bank of the Philippines and
Asset Privatization Trust under the deed of
undertaking, pledge, mortgages, and other accessory
contracts between the parties; and consequently,
permanently enjoining defendant DBP or APT from
filing a deficiency claim against plaintiffs and defendant
PNCC.
SO ORDERED.49
On March 9, 2004 and March 16, 2004, DBP and NDC
filed their respective notices of appeal to the Court of
Appeals.50
In its assailed Decision dated March 24, 2010, the
Court of Appeals upheld the Regional Trial Court's
findings that the Memorandum of Agreement between
NDC and Cuenca (representing Sta. Ines, Cuenca,
Tinio, Cuenca Investment, and Universal Holdings)
was a perfected contract, which bound the
parties,51 thus:
Although the Supreme Court ruled in the Poliand case
that LOI No. 1155 is a mere administrative issuance
and, as such, cannot be a valid source of obligation,
the defendant-appellant NDC cannot escape its
liabilities to the plaintiffs-appellees considering that the
Memorandum of Agreement that it executed with the
plaintiffs-appellees created certain rights and
obligations between the parties which may be enforced
by the parties against each other. The situation in the
Poliand case is different because Poliand was not a
party to the Memorandum of Agreement.52
The Court of Appeals ruled that NDC is estopped from
claiming that there was no agreement between it and
Cuenca since the agreement had already been
partially executed after NDC took over the control and
management of Galleon.53
The Court of Appeals also rejected NDC's argument
that it should not be held liable for the payment of
Galleon's shares.54 The Court of Appeals held that
NDC "voluntarily prevented the execution of a share
purchase agreement when it reneged on its various
obligations under the Memorandum of Agreement." 55
The Court of Appeals likewise affirmed the Regional
Trial Court's ruling that novation took place when NDC
agreed to be substituted in place of Sta. Ines, Cuenca,
Tinio, Cuenca Investment, and Universal Holdings in
the counter-guarantees they issued in favor of DBP.56
The Court of Appeals ruled that DBP was privy to the
Memorandum of Agreement between NDC and Sta.
Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings, since Ongpin was concurrently
Governor of DBP and chairman of the NDC Board at
the time the Memorandum of Agreement was signed.57
The Court of Appeals further held that DBF was no
longer the real party-in-interest as the loan accounts of
Galleon were transferred to the Asset Privatization
Trust.58
The fallo of the Court of Appeals Decision reads:
WHEREFORE, in view of the foregoing premises, the
assailed Decision, as well as, assailed Order,
appealed from is
hereby AFFIRMED with MODIFICATIONS such that,
as modified, the dispositive portion thereof shall now
read as follows:
"WHEREFORE, judgment is hereby rendered (1)
ordering defendants National Development
Corporation and National Galleon Shipping
Corporation jointly and severally, to pay plaintiffs Sta.
Ines Melale Forest Products Corporation, Rodolfo M.
Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation, the
amount of P15,150,000.00 representing the amount of
advances made by plaintiffs in behalf of defendant
NGSC, plus interest at the rate of twelve percent (12%)
per annum from the date of filing of this case on 22 April
1985 until instant Decision becomes final and
executory, thereafter the said amount shall earn an
interest at the rate of twelve (12%) percent per annum
from such finality until its satisfaction;
(2) ordering the defendants National Development
Corporation and National Galleon Shipping
[C]orporation, jointly and severally, to pay plaintiffs Sta.
Ines Melale Forest Products Corporation, Rodolfo M.
Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation, the
amount of P46,740,755.00, representing the price of
the shares of stock of plaintiffs and defendant PNCC in
defendant NGSC, plus interest at the rate of twelve
percent (12%) per annum from the date of filing of this
case on 22 April 1985 until instant Decision becomes
final and executory, thereafter the said amount shall
earn an interest at the rate of twelve percent (12%) per
annum from such finality until its satisfaction;
(3) ordering the defendants National Development
Corporation and National Galleon Shipping
Corporation, jointly and severally, to pay plaintiffs Sta.
Ines Melale Forest Products Corporation, Rodolfo M.
Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation,
attorney's fees equivalent to 10% of the amount due;
and costs of suit;
(4) ordering the defendants National Development
Corporation and National Galleon Shipping
Corporation, jointly and severally, to pay to each
plaintiffs and defendant Philippine National
Construction Corporation, P10,000.00 as moral
damages; and P10,000.00 as exemplary damages;
and
(5) declaring plaintiffs Sta. Ines Melale Forest Products
Corporation, Rodolfo M. Cuenca, Manuel I. Tinio,
Cuenca Investment Corporation and Universal
Holdings Corporation and defendant Philippine
National Construction Corporation to be no longer
liable to defendants National Development
Corporation, Development Bank of the Philippines and
Asset Privatization Trust under the deed of
undertaking, pledge, mortgages, and other accessory
contracts between the parties; and consequently,
permanently enjoining defendant DBP or APT from
filing a deficiency claim against plaintiffs and defendant
PNCC.
SO ORDERED.59 (Emphasis and underscoring in the
original)
On September 16, 2010, NDC appealed the Court of
Appeals Decision to this Court. In its Petition for
Review,60 NDC maintains that the Memorandum of
Agreement does not bind it, since Ongpin was not
equipped with authority from the NDC Board to sign the
Memorandum of Agreement on NDC's behalf.61 NDC
also denies that it took over the control and
management of Galleon or that it "prevented the
execution of the [s]hare [p]urchase [a]greement[.]" 62
NDC asserts that even assuming that the
Memorandum of Agreement was binding, what was
agreed upon was that the parties shall execute a share
purchase agreement within a certain period of
time.63 The Memorandum of Agreement was only a
preliminary agreement between Cuenca and Ongpin
for NDC's "intended purchase of Galleon's equity[,]
pursuant to [Letter of Instructions No.] 1155." 64 The
Memorandum of Agreement cannot "be considered as
the executing agreement or document for the purchase
of the shares."65
On September 13, 2010, DBP filed its Petition for
Review66 before this Court. DBP insisted that novation
did not take place because: (a) there was no second
binding contract designed to replace the Deed of
Undertaking; (b) it did not give its consent to the
substitution of debtors under the Memorandum of
Agreement; and (c) there was no agreement that
unequivocally declared novation by substitution of
debtors.67
The issues raised for the resolution of this Court are as
follows:
a) Whether the Memorandum of Agreement
obligates NDC to purchase Galleon's
shares of stocks and pay the advances
made by respondents in Galleon's favor;68
b) Whether the Memorandum of Agreement
novated the Deed of Undertaking executed
between DBP and respondents;69 and
c) Whether the computation of legal interest
should be at the rate of 6% per annum,
instead of the 12% per annum pegged by
the Court of Appeals.70
I c)
When the "terms of a contract are clear and leave no
doubt upon the intention of the contracting parties, the
literal meaning of its stipulations shall control." 71
Bautista v. Court of Appeals72 instructs that where the
language of a contract is plain and unambiguous, the
contract must be taken at its face value, thus:
The rule is that where the language of a contract is
plain and unambiguous, its meaning should be
determined without reference to extrinsic facts or aids.
The intention of the parties must be gathered from that
language, and from that language alone. Stated
differently, where the language of a written contract is
clear and unambiguous, the contract must be taken to
mean that which, on its face, it purports to mean,
unless some good reason can be assigned to show
that the words used should be understood in a different
sense. Courts cannot make for the parties better or
more equitable agreements than they themselves have
been satisfied to make, or rewrite contracts because
they operate harshly or inequitably as to one of the
parties, or alter them for the benefit of one party and to
the detriment of the other, or by construction, relieve
one of the parties from terms which he voluntarily
consented to, or impose on him those which he did
not.73
It is not disputed that NDC and respondents Sta. Ines,
Cuenca, Tinio, Cuenca Investment, and Universal
Holdings executed a Memorandum of Agreement
pursuant to the directives of Letter of Instructions No.
1155.
Under the Memorandum of Agreement, NDC, as the
Buyer, undertook to:
a) implement Letter of Instructions No. 1155
and acquire 100% of Galleon's
shareholdings;
b) assume actual control over Galleon's
management and operations prior to the
execution of a formal share purchase
agreement and prior to the transfer to NDC
of Galleon's shareholdings;
designate five persons to sit in Galleon's
Board of Directors;
d) pay Galleon's stockholders the share
purchase price after five years from the date
of the share purchase agreement;
e) issue each Galleon stockholder a
negotiable promissory note with maturity on
the date of the fifth annual anniversary of
the share purchase agreement;
f) verify Galleon's special warranty on its
liabilities and obligations by conducting an
audit; and
g) consider for priority in the repayment of
accounts, Galleon's valid and duly
authorized liabilities which are the subject of
meritorious lawsuit or which have been
arranged and guaranteed by Cuenca.
While respondents, Galleon's stockholders, as the
Sellers, undertook to:
a) implement Letter of Instructions No. 1155 by
allowing NDC to purchase 100% of their
shareholdings;
b) consent for NDC to assume actual control
over Galleon's management and operations

prior to the execution of a formal share
purchase agreement and prior to the
transfer to NDC of Galleon's shareholdings;
c) elect NDC's designated five persons to
Galleon's Board of Directors;
d) warrant that P46,740,755.00 had been
actually paid to Galleon, representing
payment of 46,740,755 common shares to
Galleon;
e) deliver to NDC, upon signing of the share
purchase agreement, 10,000,000 common
shares of Galleon, duly and validly
endorsed for transfer, free from any and all
liens and encumbrances whatsoever; and
f) make special warranties under clause 8.
As parties to the Memorandum of Agreement, NDC
and respondents jointly undertook to:
a) immediately implement Letter of
Instructions No. 1155;
b) endeavor to prepare and sign a share
purchase agreement covering 100% of
Galleon's shareholdings not more than 60
days after the signing of the Memorandum
of Agreement; and
c) incorporate the conditions listed down in
clause 7 in the share purchase agreement.
The law is categorical that "various stipulations of a
contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of
them taken jointly."74Fernandez v. Court of
Appeals75 further emphasizes that "[t]he important task
in contract interpretation is always the ascertainment of
the intention of the contracting parties and that task is
of course to be discharged by looking to the words they
used to project that intention in their contract, all the
words not just a particular word or two, and words in
context not words standing alone."76
The Court of Appeals found that the Memorandum of
Agreement between NDC and Galleon was a perfected
contract for NDC to purchase 100% of Galleon's
shareholdings. However, a careful reading of the
Memorandum of Agreement shows that what the
parties agreed to was the execution of a share
purchase agreement to effect the transfer of 100% of
Galleon's shareholdings to NDC, as seen in clause 3:
3. As soon as possible, but not more than 60 days after
the signing hereof, the parties shall endeavor to
prepare and sign a share purchase agreement
covering 100% of the shareholdings of Sellers in GSC
to be transferred to Buyer, i.e. 10,000,000 fully paid
common shares of the par value of P1.00 per share
and subscription of an additional 100,000,000 common
shares of the par value of P1.00 per share of which
P36,740,755.00 has been paid, but not yet issued.
The second paragraph of clause 4 likewise makes the
execution of a share purchase agreement a condition
before the purchase price can be paid to respondents,
since the payment of the purchase price becomes due
only after five years from the date of execution of the
share purchase agreement:
4. Sellers hereby warrant that P46,740,755[.00] had
been actually paid to Galleon Shipping Corporation,
which amount represents payment of Sellers for
46,740,755 common shares of said Corporation. This
warranty shall be verified by Buyer, the results of which
will determine the final purchase price to be paid to
Sellers.
The purchase price directed by LOI 1155 to be paid to
Sellers shall be paid after five (5) years from date of the
share purchase agreement with no interest cost to
buyer. (Emphasis supplied)
NDC asserts that the Memorandum of Agreement was
only a preliminary agreement between Galleon,
represented by Cuenca, and NDC, represented by
Ongpin, for the intended purchase of Galleon's equity
pursuant to Letter of Instructions No. 1155,77 thus:
It merely prescribed the manner, terms and conditions
of said purchase. In fact, the [Memorandum of
Agreement] provided for a time frame for the execution
of the share purchase agreement which is within sixty
(60) days from the signing thereof. By no means can it
be considered as the executing agreement or
document for the purchase of the shares.78
NDC's assertion that the Memorandum of Agreement
was merely a preliminary agreement that was separate
and distinct from the share purchase agreement, finds
support in clause 7 of the Memorandum of Agreement,
which lists down the terms and conditions to be
included in the share purchase agreement as follows:
7. The stock purchase agreement to be prepared and
signed by the parties within sixty (60) days from date
hereof shall contain, among other things:
(a) standard warranties of seller including, but
not limited to, warranties pertaining to the
accuracy of financial and other statements
of GSC; disclosure of liabilities; payment of
all taxes, duties, licenses and fees; non-
encumbrance of corporate assets; valid
contracts with third parties, etc. including
an indemnity clause covering any breach
thereof.
(b) provisions that Buyer shall retain 2
representatives of Sellers in the board of
GSC only for as long as Sellers have not
been paid, or have not negotiated or
discounted any of the promissory notes
referred to in clause 5 above.
(c) provisions whereby Construction
Development Corporation of the
Philippines, Sta. Ines Melale Forest
Products Corporation, Mr. Rodolfo M.
Cuenca and Mr. Manuel I. Tinio shall be
released from counter-guarantees they
have issued in favor of DBP and other
financial institutions in connection with
GSC's various credit accommodations.

(d) provisions for arbitration as a means of
settling disputes and differences of opinion
regarding the stock purchase agreement.
Under clause 7 of the Memorandum of Agreement,
NDC and respondents agreed to include in the still-to-
be-executed share purchase agreement, provisions
on: (a) standard warranties, including warranties on the
accuracy of Galleon's financials, disclosure of
liabilities, etc; (b) the retention of Galleon's
representatives in Galleon's board of directors prior to
the payment of the share purchase price; (c) the
release of respondents from the counter-guarantees
they made in favor of DBP and other financial
institutions in connection with Galleon's various credit
accommodations; and (d) arbitration as a means of
settling disputes and differences of opinion regarding
the stock purchase agreement.
Taking the provisions of the Memorandum of
Agreement as a whole, it is clear that while there was
an intention to follow the directives of Letter of
Instructions No. 1155, the transfer of shares from
respondents to NDC was to be effected only with the
execution of the share purchase agreement, the terms
and conditions of which were laid out in the
Memorandum of Agreement.
NDC and the respondents undertook to prepare and
sign a share purchase agreement over 100% of
respondents' shares in Galleon not more than sixty
days after the signing of the Memorandum of
Agreement:
3. As soon as possible, but not more than 60 days after
the signing hereof, the parties shall endeavor to
prepare and sign a share purchase agreement
covering 100% of the shareholdings of Sellers in GSC
to be transferred to Buyer, i.e. 10,000,000 fully paid
common shares of the par value of P1.00 per share
and subscription of an additional 100,000,000 common
shares of the par value of P1.00 per share of which
P36,740,755.00 has been paid, but not yet issued.
The execution of a share purchase agreement was a
condition precedent to the transfer of Galleon's shares
to NDC. However, the Court of Appeals found that the
NDC prevented its execution by deliberately delaying outstanding accounts which statement of account was
its review of Galleon's financial accounts: intended to be included as part of the annexes of the
said share purchase agreement. Another team with
representatives from both parties, that is, the former
From the foregoing, it is evident that the period for the
payment of the purchase price is entirely dependent on stockholders of defendant Galleon and defendant
the execution of a share purchase agreement by the NDC, had to be created for a smoother turnover.
parties. The evidence on record, however, show that However, despite said efforts done by plaintiff Cuenca
the defendant-appellant NDC itself voluntarily the share purchase agreement was not formally
prevented the execution of a share purchase executed.81 (Emphasis in the original)
agreement when it reneged on its various obligations
under the Memorandum of Agreement. The evidence NDC denies that it caused the delay in the execution of
on record show that the share purchase agreement the share purchase agreement and argues that it was
was not formally executed because then Minister Cuenca who caused the delay for insisting on the
Roberto Ongpin claimed that the accounts of payment first of the advances made in Galleon's favor
defendant Galleon had to be reviewed and cleared up before executing the share purchase agreement and
before the share purchase agreement is signed. While relinquishing control over Galleon.82
defendant Galleon made its financial records available
to defendant-appellant NDC for their review, the latter
NDC's bare denials cannot succeed in light of the
never made any serious effort to review the financial preponderance of evidence submitted by respondents.
accounts of the defendant Galleon, hence, effectively
preventing the execution of the share purchase
agreement. Consequently, the condition for the running In his Affidavit83 dated June 17, 1999, Cuenca narrated
of the period for the payment of the purchase price of the preparations the Galleon stockholders undertook
the shares of stocks in defendant Galleon by the for the execution of the share purchase agreement with
defendant-appellant NDC, i.e., the execution of the NDC:
Share Purchase Agreement, was deemed fulfilled as it
was the defendant-appellant NDC itself which
prevented it from happening. Under Article 1186 of the What happened to the share
Civil Code, a "condition shall be deemed fulfilled when purchase agreement referred
the obligor voluntarily prevents its fulfilment." This 168. Q : to in the Memorandum of
applies in the instant case.79 (Emphasis supplied) Agreement dated August 1981
(Exhibit "J")?
The Regional Trial Court likewise found that
respondent Cuenca, as Galleon's representative, The share purchase agreement
initiated moves for the preparation and execution of the was never drawn up despite
share purchase agreement and NDC's takeover of persistent attempts by myself
Galleon.80 Nonetheless, despite Cuenca's efforts, the to see it prepared and
share purchase agreement was never formally A :
executed. In fact, we
executed: continually negotiated with
NDC and DBP throughout 1982
Assuming that the share purchase agreement was a and 1983 on the matter.
condition for the effectivity of the Memorandum of
Agreement (dated 10 August 1981), said condition is 169. Q : Why was it never executed?
deemed fulfilled by virtue of Art. 1186 of the Civil Code,
which provides that "the condition shall be deemed
fulfilled when the obligor voluntarily prevents its Minister Ongpin kept claiming
fulfillment." Plaintiff Cuenca, as representative of the that the accounts had to be
A :
former shareholders of defendant Galleon, in order to cleared up before any formal
agreement could be signed.
clear up the accounts preparatory to the execution of
the share purchase agreement, created a team to
prepare a statement of defendant Galleon's

What steps, if any, did the
parties take to clear up the
170. Q : accounts preparatory to the
signing of the share purchase
agreement?
During the transition period,
prior to the signing of the share
purchase agreement, I created
a team to prepare a statement
of Galleon's outstanding
accounts which we intended to
include as part of the annexes
of the share purchase
agreement. Another team with
representatives from both
parties, i.e., the former
stockholders of Galleon and
A :
NDC, had to be created for a
smoother turn-over. In short,
we did all that was possible and
required of us under the
Memorandum of
Agreement. We negotiated
with NDC in good faith for years
but NDC kept stonewalling the
execution of the share
purchase
agreement.84 (Emphasis
supplied)
On April 26, 1982, Antonio L. Carpio, NDC's General
Manager,85 sent Ongpin a Memorandum,86 where
Carpio acknowledged reviewing Galleon's outstanding
accounts submitted by Cuenca.87 This supports
Cuenca's statement that they submitted a statement of
Galleon's outstanding accounts for NDC's review, as
per Ongpin's request, a fact not denied by NDC.
Upon receiving Galleon's outstanding accounts, NDC
and Sta. Ines, Cuenca, Tinio, Cuenca Investment and
Universal Holdings should have initiated the execution
of the share purchase agreement. However, the share
purchase agreement was never executed, through no
fault of Galleon's stockholders.
In clause 4 of the Memorandum of Agreement, NDC as
the buyer was to verify the warranty of the Galleon
shareholders that P46,740,755.00 was paid for
Galleon's 46,740,755 common shares with par value of
P1.00 per share. The results of the verification would
have determined the final purchase price to be paid to
the Galleon shareholders. Nonetheless, despite the
verification still to be done, both parties agreed to
execute the share purchase agreement as soon as
possible but not more than sixty days from the signing
of the Memorandum of Agreement.
We uphold the Court of Appeals' finding that the failure
to execute the share purchase agreement was brought
about by NDC's delay in reviewing the financial
accounts submitted by Galleon's stockholders. The
Memorandum of Agreement was executed on August
10, 1981, giving the parties no more than sixty days or
up to October 9, 1981, to prepare and sign the share
purchase agreement. However, it was only on April 26,
1982, or more than eight months after the
Memorandum of Agreement was signed, did NDC's
General Director submit his recommendation on
Galleon's outstanding account. Even then, there was
no clear intention to execute a share purchase
agreement as compliance with the Memorandum of
Agreement. Article 1186 of the Civil Code is categorical
that a "condition shall be deemed fulfilled when the
obligor voluntarily prevents its fulfilment." Considering
NDC's delay, the execution of the share purchase
agreement should be considered fulfilled with NDC as
the new owner of 100% of Galleon's shares of stocks.
The due execution of the share purchase agreement is
further bolstered by Article 1198(4) of the Civil Code,
which states that the debtor loses the right to make use
of the period when a condition is violated, making the
obligation immediately demandable:
Article 1198. The debtor shall lose every right to make
use of the period:
(1) When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or
security for the debt;
(2) When he does not furnish to the creditor the
guaranties or securities which he has promised;
(3) When by his own acts he has impaired said
guaranties or securities after their establishment, and
when through a fortuitous event they disappear, unless
he immediately gives new ones equally satisfactory;
(4) When the debtor violates any undertaking, in
consideration of which the creditor agreed to the
period;
(5) When the debtor attempts to abscond. (Emphasis
supplied)
Well-settled is the rule that findings of fact made by a
trial court and the Court of Appeals are accorded the
highest degree of respect by this Court, and, absent a
clear disregard of the evidence before it that can
otherwise affect the results of the case, those findings
should not be ignored.88
II
The Regional Trial Court found that the advances
made by respondents in Galleon's behalf covered
legitimate expenses in the ordinary course of
business,89 making NDC liable under clause 9 of the
Memorandum of Agreement, which states:
9. Valid and duly authorized liabilities of GSC which are
the subject of a meritorious lawsuit, or which have been
arranged and guaranteed by Mr. Rodolfo M. Cuenca,
may be considered by Buyer for priority in the
repayment of accounts, provided that, upon review, the
Buyer shall determine these to be legitimate and were
validly incurred in the ordinary course of GSC's
principal business.
NDC's liability for the advances made in Galleon's
behalf was upheld by the Court of Appeals, which held
that the advances made were valid and authorized
liabilities incurred by Galleon in the course of its
business, thus:
In the instant case, the advances being claimed by
[respondents] are in the nature of guarantee fees in
consideration for the personal undertakings of the
[respondents] to secure the potential liabilities of
defendant-appellant DBP in favor of defendant
Galleon's foreign creditors, advances to cover
payments of interest, security and management fees
arising out of a mortgage contract, charter line
payments, bare boat hire payments, fuel and ship
franchise payments, salaries and wages and
advertising expenses[.]90
Ordinary and necessary business expenses are those
that are "directly attributable to, the development,
management, operation and/or conduct of the trade,
business or exercise of a profession[.]"91
In Carpio's Memorandum to Ongpin dated April 26,
1982, he recommended that the guarantee fees being
claimed by Galleon's stockholders should not be paid.
Carpio also questioned the P1,400,000.00 interest
being charged by Sta. Ines from the ]P6,650,000.00
cash advances it made in Galleon's behalf. Carpio
likewise questioned the charge of P600,000.00 being
claimed as Galleon's share for the Construction
Development Corporation of the Philippine’s basketball
team with the Philippine Basketball Association.92
We see no reason to disturb the findings of fact made
by the trial court and the Court of Appeals considering
that the same are duly supported by substantial
evidence.
III
Novation is a mode of extinguishing an obligation by
"[c]hanging [its] object or principal conditions[,]
[substituting the person of the debtor [or] [s]ubrogating
a third person in the rights of the creditor."93 While
novation, "which consists in substituting a new debtor
in the place of the original one may be made even
without the knowledge or against the will of the latter,
[it must be with] the consent of the creditor."94
Testate Estate of Mota v. Serra95 instructs that for
novation to have legal effect, the creditor must
expressly consent to the substitution of the new debtor:
It should be noted that in order to give novation its legal
effect, the law requires that the creditor should consent
to the substitution of a new debtor. This consent must
be given expressly for the reason that, since novation
extinguishes the personality of the first debtor who is to
be substituted by new one, it implies on the part of the
creditor a waiver of the right that he had before the
novation, which waiver must be express under the
principle that renuntiatio non præsumitur, recognized
by the law in declaring that a waiver of right may not be
performed unless the will to waive is indisputably
shown by him who holds the right.96 (Emphasis
supplied)
The Court of Appeals erred when it ruled that DBP was
privy to the Memorandum of Agreement since Ongpin
was concurrently Governor of DBP and chairman of
NDC Board of Directors at the time the Memorandum
of Agreement was signed.97
The general rule is that, "[i]n the absence of an
authority from the board of directors, no person, not
even the officers of the corporation, can validly bind the
corporation."98 A corporation is a juridical person,
separate and distinct from its stockholders and
members, having "powers, attributes and properties
expressly authorized by law or incident to its
existence."99
Section 23100 of the Corporation Code provides that
"the corporate powers of all corporations . . . shall be
exercised, all business conducted and all property of
such corporations [shall] be controlled and held by the
board of directors[.]"
People's Aircargo and Warehousing Co. Inc. v. Court
of Appeals101 explains that under Section 23 of the
Corporation Code, the power and responsibility to bind
a corporation can be delegated to its officers,
committees, or agents. Such delegated authority is
derived from law, corporate bylaws, or authorization
from the board:
Under this provision, the power and the responsibility
to decide whether the corporation should enter into a
contract that will bind the corporation is lodged in the
board, subject to the articles of incorporation, bylaws,
or relevant provisions of law. However, just as a natural
person may authorize another to do certain acts for and
on his behalf, the board of directors may validly
delegate some of its functions and powers to officers,
committees or agents. The authority of such individuals
to bind the corporation is generally derived from law,
corporate bylaws or authorization from the board,
either expressly or impliedly by habit, custom or
acquiescence in the general course of business, viz.:
"A corporate officer or agent may represent and bind
the corporation in transactions with third persons to the
extent that [the] authority to do so has been conferred
upon him, and this includes powers which have been
intentionally conferred, and also such powers as, in the
usual course of the particular business, are incidental
to, or may be implied from, the powers intentionally
conferred, powers added by custom and usage, as
usually pertaining to the particular officer or agent, and
such apparent powers as the corporation has caused
persons dealing with the officer or agent to believe that
it has conferred."102 (Emphasis supplied)
Aside from Ongpin being the concurrent head of DBP
and NDC at the time the Memorandum of Agreement
was executed, there was no proof presented that
Ongpin was duly authorized by the DBP to give
consent to the substitution by NDC as a co-guarantor
of Galleon's debts. Ongpin is not DBP, therefore, it is
wrong to assume that DBP impliedly gave its consent
to the substitution simply by virtue of the personality of
its Governor.
Novation is never presumed. The animus novandi,
whether partial or total, "must appear by express
agreement of the parties, or by their acts which are too
clear and unequivocal to be mistaken."103
There was no such animus novandi in the case at bar
between DBP and respondents, thus, respondents
have not been discharged as Galleon's co-guarantors
under the Deed of Undertaking and they remain liable
to DBP.
IV
On the issue of attorney's fees and moral and
exemplary damages awarded to Sta. Ines, Cuenca,
Tinio, Cuenca Investment, and Universal Holdings, the
Court of Appeals upheld the findings of the Regional
Trial Court for being just, reasonable, and supported by
the evidence on record.104
We see no reason to disturb the findings of the lower
courts.
However, on the issue of compensatory interest as
damages, where the Regional Trial Court imposed an
interest rate of six percent (6%) per annum on the
advances made and the payment due for the shares of
stock,105 the Court of Appeals modified the Regional
Trial Court's ruling insofar as the interest rate to be
imposed was concerned.106 The Court of Appeals ruled
that the advances made by Sta. Ines, Cuenca, Tinio,
Cuenca Investment, and Universal Holdings and the
payment due them for the Galleon shares of stocks
were loans or forbearances of money that should earn
interest of 12% from the date the case was
filed.107 Furthermore, the Court of Appeals held that
these amounts should likewise earn an additional 12%
interest per annum from finality until its satisfaction.108
Estores v. Spouses Supangan109 defined forbearance
as an arrangement other than a loan where a person
agrees to the temporary use of his money, goods, or
credits subject to the fulfilment of certain conditions.110
In this case, Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings advanced money
in Galleon's favor and agreed to turn over management
and control of Galleon to NDC even before receiving
payment for their shares of stocks. They were deprived
of the use of their money in both cases for the periods
pending fulfillment of the agreed conditions. When
those conditions were not met, they became entitled
not only to the return of their advances and payment of
their shares of stocks, but also to the compensation for
the use of their money and property. The unwarranted
withholding of the money, which rightfully pertains to
Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings, amounts to forbearance of money.
Sunga-Chan v. Court of Appeals,111 citing Eastern
Shipping Lines, Inc. v. Court of Appeals,112 reiterated
the rule on application of interest:
Eastern Shipping Lines, Inc. synthesized the rules on
the imposition of interest, if proper, and the applicable
rate, as follows: The 12% per annum rate under CB
Circular No. 416 shall apply only to loans or
forbearance of money, goods, or credits, as well as to
judgments involving such loan or forbearance of
money, goods, or credit, while the 6% per annum under
Art. 2209 of the Civil Code applies "when the
transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay
in the performance of obligations in general," with the
application of both rates reckoned "from the time the
complaint was filed until the [adjudged] amount is fully
paid." In either instance, the reckoning period for the
commencement of the running of the legal interest
shall be subject to the condition "that the courts are
vested with discretion, depending on the equities of
each case, on the award of interest."
Otherwise formulated, the norm to be followed in the
future on the rates and application thereof is:
I. When an obligation, regardless of its
source, is breached, the contravenor
can be held liable for damages. The
provisions under Title XVIII on
"Damages" of the Civil Code govern
in determining the measure of
recoverable damages.
II. With regard particularly to an award
of interest in the concept of actual
and compensatory damages, the
rate of interest, as well as the
accrual thereof, is imposed, as
follows:chanRoblesvirtualLawlibrary
1. When the obligation breached consists in
the payment of a sum of money, i.e., a loan
or forbearance of money, the interest due
should be that which may have been
stipulated in writing. Furthermore, the
interest due shall itself earn legal interest
from the time it is judicially demanded. In the
absence of stipulation, the rate of interest
shall be 12% per annum to be computed
from default, i.e., from judicial or
extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil
Code.
...
3. When the judgment of the court awarding a
sum of money becomes final and executory,
the rate of legal interest, whether the case
falls under paragraph 1 or paragraph 2,
above, shall be 12% per annum from such
finality until its satisfaction, this interim
period being deemed to be by then an
equivalent to a forbearance of
credit.113 (Emphasis supplied, citations
omitted)
On May 16, 2013, the Monetary Board of the Bangko
Sentral ng Pilipinas issued Resolution No. 796, which
revised the interest rate to be imposed for the loan or
forbearance of any money, goods, or credits. This was
implemented by Bangko Sentral ng Pilipinas Circular
No. 799,114 Series of 2013, which reads:
The Monetary Board, in its Resolution No. 796 dated
16 May 2013, approved the following revisions
governing the rate of interest in the absence of
stipulation in loan contracts, thereby amending Section
2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or
forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of an
express contract as to such rate of interest, shall be six
percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of
the Manual of Regulations for Banks and Sections
4305Q.1, 4305S.3 and 4303P.1 of the Manual of
Regulations for Non-Bank Financial Institutions are
hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Nacar v. Gallery Frames, et al.115 then modified the
guidelines laid down in Eastern Shipping Lines to
embody Bangko Sentral ng Pilipinas Circular No. 799,
thus:
I. When an obligation, regardless of its source, i.e., law,
contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the
measure of recoverable damages.
II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate
of interest, as well as the accrual thereof, is imposed,
as follows:
1. When the obligation is breached,
and it consists in the payment of a
sum of money, i.e., a loan or
forbearance of money, the interest
due should be that which may have
 been stipulated in writing.
Furthermore, the interest due shall
itself earn legal interest from the time
it is judicially demanded. In the
absence of stipulation, the rate of
interest shall be 6% per annum to be
computed from default, i.e., from
judicial or extrajudicial demand
under and subject to the provisions
of Article 1169 of the Civil Code.
2. When an obligation, not constituting
a loan or forbearance of money, is
breached, an interest on the amount
of damages awarded may be
imposed at the discretion of the court
at the rate of 6% per annum. No
interest, however, shall be adjudged
on unliquidated claims or damages,
except when or until the demand can
be established with reasonable
certainty. Accordingly, where the
demand is established with
reasonable certainty, the interest
shall begin to run from the time the
claim is made judicially or
extrajudicially (Art. 1169, Civil
Code), but when such certainty
cannot be so reasonably established
at the time the demand is made, the
interest shall begin to run only from
the date the judgment of the court is
made (at which time the
quantification of damages may be
deemed to have been reasonably
ascertained). The actual base for the
computation of legal interest shall, in
any case, be on the amount finally
adjudged.
3. When the judgment of the court
awarding a sum of money becomes
final and executory, the rate of legal
interest, whether the case falls under
paragraph 1 or paragraph 2, above,
shall be 6% per annum from such
finality until its satisfaction, this
interim period being deemed to be
by then an equivalent to a
forbearance of credit.
And, in addition to the above, judgments that have per annum until the Decision becomes final and
become final and executory prior to July 1, 2013, shall executory.
not be disturbed and shall continue to be implemented
applying the rate of interest fixed therein.116 These amounts shall earn interest at the rate of 6% per
annum from the finality of this Decision until its
Applying these guidelines, the Court of Appeals' ruling satisfaction.
must be modified to reflect the ruling in Nacar. The
award of the advances made by Sta. Ines, Cuenca,
SO ORDERED.
Tinio, Cuenca Investment, and Universal Holdings in
Galleon's favor and payment for their shares of stocks
in Galleon shall earn an interest rate of 12% per annum
from the date of filing of this case on April 22,
1985117 until June 30, 2013. After June 30, 2013, these
amounts shall earn interest at six percent (6%) per
annum until the Decision becomes final and executory.
An interest of six percent (6%) per annum shall be
imposed on such amounts from the finality of the
Decision until its satisfaction.
Finally, DBP's claims for damages are denied since it
failed to support its claims of malicious prosecution and
a deliberate act of Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings to cause loss or
injury to DBP.
WHEREFORE, the March 24, 2010 Decision and July
21, 2010 Resolution of the Court of Appeals in CA-G.R.
CV No. 85385 are AFFIRMED with the
following MODIFICATIONS:
(1) Sta. Ines Melale Forest Products Corporation,
Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca
Investment Corporation, Universal Holdings
Corporation, and the Philippine National Construction
Corporation are declared LIABLE to the National
Development Corporation, the Development Bank of
the Philippines, and the Asset Privatization Trust under
the deed of undertaking, pledge, mortgages, and other
accessory contracts among the parties; and
(2) The award of the advances made by Sta. Ines
Melale Forest Products Corporation, Rodolfo M.
Cuenca, Manuel L. Tinio, Cuenca Investment
Corporation, and Universal Holdings Corporation in
Galleon's favour, as well as the award of the payment
for their shares of stocks in Galleon, shall earn an
interest rate of 12% per annum from the date of the
filing of this case on April 22, 1985 until June 30, 2013,
after which, they shall earn interest at the rate of 6%

G.R. No. 108346 July 11, 2001
Spouses MARIANO Z. VELARDE and AVELINA D.
VELARDE, petitioners,
vs.
COURT OF APPEALS, DAVID A. RAYMUNDO and
GEORGE RAYMUNDO, respondents.
PANGANIBAN, J.:
A substantial breach of a reciprocal obligation, like
failure to pay the price in the manner prescribed by the
contract, entitled the injured party to rescind the
obligation. Rescission abrogates the contract from its
inception and requires a mutual restitution of benefits
received.
The Case
Before us is a Petition for Review on
Certiorari1 questioning the Decision2 of the Court of
Appeals (CA) in CA-GR CV No. 32991 dated October
9, 1992, as well as its Resolution3 dated December 29,
1992 denying petitioner's motion for reconsideration. 4
The dispositive portion of the assailed Decision reads:
"WHEREFORES the Order dated May 15,
1991 is hereby ANNULLED and SET ASIDE
and the Decision dated November 14, 1990
dismissing the [C]omplaint is RESINSTATED.
The bonds posted by plaintiffs-appellees and
defendants-appellants are hereby
RELEASED."5
The Facts
The factual antecedents of the case, as found by the
CA, are as follows:
"x x x. David Raymundo [herein private
respondent] is the absolute and registered
owner of a parcel of land, together with the
house and other improvements thereon,
located at 1918 Kamias St., Dasmariñas
Village, Makati and covered by TCT No.
142177. Defendant George Raymundo
[herein private petitioners] is David's father
who negotiated with plaintiffs Avelina and
Mariano Velarde [herein petitioners] for the
sale of said property, which was, however,
under lease (Exh. '6', p. 232, Record of Civil
Case No. 15952).
"On August 8, 1986, a Deed of Sale with
Assumption of Mortgage (Exh. 'A'; Exh. '1',
pp. 11-12, Record) was executed by
defendant David Raymundo, as vendor, in
favor of plaintiff Avelina Velarde, as vendee,
with the following terms and conditions:
'x x x xxx xxx
'That for and in consideration of the
amount of EIGHT HUNDRED
THOUSAND PESOS
(P800,000.00), Philippine currency,
receipt of which in full is hereby
acknowledged by the VENDOR from
the VENDEE, to his entire and
complete satisfaction, by these
presents the VENDOR hereby
SELLS, CEDES, TRANSFERS,
CONVEYS AND DELIVERS, freely
and voluntarily, with full warranty of
a legal and valid title as provided by
law, unto the VENDEE, her heirs,
successors and assigns, the parcel
of land mentioned and described
above, together with the house and
other improvements thereon.
'That the aforesaid parcel of land,
together with the house and other
improvements thereon, were
mortgaged by the VENDOR to the
BANK OF THE PHILIPPINE
ISLANDS, Makati, Metro Manila to
secure the payment of a loan of ONE
MILLION EIGHT HUNDRED
THOUSAND PESOS
(P1,800,000.00), Philippine
currency, as evidenced by a Real
Estate Mortgage signed and
executed by the VENDOR in favor of
the said Bank of the Philippine
Islands, on _____ and which Real
Estate Mortgage was ratified before
Notary Public for Makati, _____, as
Doc. No. ______, Page No. _____,
Book No. ___, Series of 1986 of his
Notarial Register.
'That as part of the consideration of
this sale, the VENDEE hereby
assumes to pay the mortgage
obligations on the property herein
sold in the amount of ONE MILLION
EIGHT HUNDRED THOUSAND
PESOS (P1,800,000.00), Philippine
currency, in favor of Bank of
Philippine Islands, in the name of the
VENDOR, and further agrees to
strictly and faithfully comply with all
the terms and conditions appearing
in the Real Estate Mortgage signed
and executed by the VENDOR in
favor of BPI, including interests and
other charges for late payment
levied by the Bank, as if the same
were originally signed and executed
by the VENDEE.
'It is further agreed and understood
by the parties herein that the capital
gains tax and documentary stamps
on the sale shall be for the account
of the VENDOR; whereas, the
registration fees and transfer tax
thereon shall be the account of the
VENDEE.' (Exh. 'A', pp. 11-12,
Record).'
"On the same date, and as part of the above-
document, plaintiff Avelina Velarde, with the
consent of her husband, Mariano, executed
an Undertaking (Exh. 'C', pp. 13-14, Record).'
'x x x xxx xxx
'Whereas, as per deed of Sale with
Assumption of Mortgage, I paid Mr.
David A. Raymundo the sum of
EIGHT HUNDRED THOUSAND
PESOS (P800,000.00), Philippine
currency, and assume the mortgage
obligations on the property with the
Bank of the Philippine Islands in the
amount of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS
(P1,800,000.00), Philippine
currency, in accordance with the
terms and conditions of the Deed of
Real Estate Mortgage dated _____,
signed and executed by Mr. David A.
Raymundo with the said Bank,
acknowledged before Notary Public
for Makati, _____, as Doc. No.
_____, Page No. _____, Book No.
_____, Series of 1986 of his Notarial
Register.
'WHEREAS, while my application for
the assumption of the mortgage
obligations on the property is not yet
approved by the mortgagee Bank, I
have agreed to pay the mortgage
obligations on the property with the
Bank in the name of Mr. David A.
Raymundo, in accordance with the
terms and conditions of the said
Deed of Real Estate Mortgage,
including all interests and other
charges for late payment.
'WHEREAS, this undertaking is
being executed in favor of Mr. David
A. Raymundo, for purposes of
attesting and confirming our private
understanding concerning the said
mortgage obligations to be
assumed.
'NOW, THEREFORE, for and in
consideration of the foregoing
premises, and the assumption of the
mortgage obligations of ONE
MILLION EIGHT HUNDRED
THOUSAND PESOS
(P1,800,000.00), Philippine
currency, with the bank of the
Philippine Islands, I, Mrs, Avelina D,
Velarde with the consent of my
husband, Mariano Z. Velardo, do
hereby bind and obligate myself, my
heirs, successors and assigns, to
strictly and faithfully comply with the
following terms and conditions:
'1. That until such time as my
assumption of the mortgage
obligations on the property
purchased is approved by the
mortgagee bank, the Bank of the
Philippine Islands, I shall continue to
pay the said loan in accordance with
the terms and conditions of the Deed
of Real Estate Mortgage in the name
of Mr. David A. Raymundo, the
original Mortgagor.
'2. That, in the event I violate any of
the terms and conditions of the said
Deed of Real Estate Mortgage, I
hereby agree that my downpayment
of P800,000.00, plus all payments
made with the Bank of the Philippine
Islands on the mortgage loan, shall
be forfeited in favor of Mr. David A.
Raymundo, as and by way of
liquidated damages, without
necessity of notice or any judicial
declaration to that effect, and Mr.
David A. Raymundo shall resume
total and complete ownership and
possession of the property sold by
way of Deed of Sale with
Assumption of Mortgage, and the
same shall be deemed automatically
cancelled and be of no further force
or effect, in the same manner as it
(the) same had never been executed
or entered into.
'3. That I am executing the
Undertaking for purposes of binding
myself, my heirs, successors and
assigns, to strictly and faithfully
comply with the terms and
conditions of the mortgage
obligations with the Bank of the
Philippine Islands, and the
covenants, stipulations and
provisions of this Undertaking.
'That, David A. Raymundo, the
vendor of the property mentioned
and identified above, [does] hereby
confirm and agree to the
undertakings of the Vendee
pertinent to the assumption of the
mortgage obligations by the Vendee
with the Bank of the Philippine
Islands. (Exh. 'C', pp. 13-14,
Record).'
"This undertaking was signed by Avelina and
Mariano Velarde and David Raymundo.
"It appears that the negotiated terms for the
payment of the balance of P1.8 million was
from the proceeds of a loan that plaintiffs were
to secure from a bank with defendant's help.
Defendants had a standing approved credit
line with the Bank of the Philippine Islands
(BPI). The parties agreed to avail of this,
subject to BPI's approval of an application for
assumption of mortgage by plaintiffs. Pending
BPI's approval o[f] the application, plaintiffs
were to continue paying the monthly interests
of the loan secured by a real estate mortgage.
"Pursuant to said agreements, plaintiffs paid
BPI the monthly interest on the loan secured
by the aforementioned mortgage for three (3)
months as follows: September 19, 1986 at
P27,225.00; October 20, 1986 at P23,000.00;
and November 19, 1986 at P23,925.00 (Exh.
'E', 'H' & 'J', pp. 15, 17and 18, Record).
"On December 15, 1986, plaintiffs were
advised that the Application for Assumption of
Mortgage with BPI, was not approved (Exh.
'J', p. 133, Record). This prompted plaintiffs
not to make any further payment.
"On January 5, 1987, defendants, thru
counsel, wrote plaintiffs informing the latter
that their non-payment to the mortgage bank
 constitute[d] non-performance of their
obligation (Exh. '3', p. 220, Record).
"In a Letter dated January 7, 1987, plaintiffs, thru
counsel, responded, as follows:
'This is to advise you, therefore, that
our client is willing to pay the
balance in cash not later than
January 21, 1987 provided: (a) you
deliver actual possession of the
property to her not later than
January 15, 1987 for her immediate
occupancy; (b) you cause the re-
lease of title and mortgage from the
Bank of P.I. and make the title
available and free from any liens and
encumbrances; and (c) you execute
an absolute deed of sale in her favor
free from any liens or encumbrances
not later than January 21, 1987.'
(Exhs. 'k', '4', p. 223, Record).
"On January 8, 1987 defendants sent
plaintiffs a notarial notice of
cancellation/rescission of the intended sale of
the subject property allegedly due to the
latter's failure to comply with the terms and
conditions of the Deed of Sale with
Assumption of Mortgage and the Undertaking
(Exh. '5', pp. 225-226, Record)."6
Consequently, petitioners filed on February 9, 1987 a
Complaint against private respondents for specific
performance, nullity of cancellation, writ of possession
and damages. This was docketed as Civil Case No.
15952 at the Regional Trial Court of Makati, Branch
149. The case was tried and heard by then Judge
Consuelo Ynares-Santiago (now an associate justice
of this Court), who dismissed the Complaint in a
Decision dated November 14, 1990.7 Thereafter,
petitioners filed a Motion for Reconsideration.8
Meanwhile, then Judge Ynares-Santiago was
promoted to the Court of Appeals and Judge Salvador
S. A. Abad Santos was assigned to the sala she
vacated. In an Order dated May 15, 1991,9 Judge Abad
Santos granted petitioner's Motion for Reconsideration
and directed the parties to proceed with the sale. He
instructed petitioners to pay the balance of P1.8 million
to private respondents who, in turn, were ordered to
execute a deed of absolute sale and to surrender
possession of the disputed property to petitioners.
Private respondents appealed to the CA.
Ruling of the Court of Appeal
The CA set aside the Order of Judge Abad Santos and
reinstated then Judge Ynares-Santiago's earlier
Decision dismissing petitioners' Complaint. Upholding
the validity of the rescission made by private
respondents, the CA explained its ruling in this wise:
"In the Deed of Sale with Assumption of Mortgage,
it was stipulated that 'as part of the consideration of
this sale, the VENDEE (Velarde)' would assume to
pay the mortgage obligation on the subject property
in the amount of P 1.8 million in favor of BPI in the
name of the Vendor (Raymundo). Since the price to
be paid by the Vendee Velarde includes the
downpayment of P800,000.00 and the balance of
Pl.8 million, and the balance of Pl.8 million cannot
be paid in cash, Vendee Velarde, as part of the
consideration of the sale, had to assume the
mortgage obligation on the subject property. In
other words, the assumption of the mortgage
obligation is part of the obligation of Velarde, as
vendee, under the contract. Velarde further agreed
'to strictly and faithfully comply with all the terms
and conditions appearing in the Real Estate
Mortgage signed and executed by the VENDOR in
favor of BPI x x x as if the same were originally
signed and executed by the Vendee. (p. 2, thereof,
p. 12, Record). This was reiterated by Velarde in
the document entitled 'Undertaking' wherein the
latter agreed to continue paying said loan in
accordance with the terms and conditions of the
Deed of Real Estate Mortgage in the name of
Raymundo. Moreover, it was stipulated that in the
event of violation by Velarde of any terms and
conditions of said deed of real estate mortgage, the
downpayment of P800,000.00 plus all payments
made with BPI or the mortgage loan would be
forfeited and the [D]eed of [S]ale with [A]ssumption
of [M]ortgage would thereby be Cancelled
automatically and of no force and effect (pars. 2 &
3, thereof, pp 13-14, Record).
"From these 2 documents, it is therefore clear that
part of the consideration of the sale was the
assumption by Velarde of the mortgage obligation
of Raymundo in the amount of Pl.8 million. This
would mean that Velarde had to make payments to
BPI under the [D]eed of [R]eal [E]state [M]ortgage
the name of Raymundo. The application with BPI
for the approval of the assumption of mortgage
would mean that, in case of approval, payment of
the mortgage obligation will now be in the name of
Velarde. And in the event said application is
disapproved, Velarde had to pay in full. This is
alleged and admitted in Paragraph 5 of the
Complaint. Mariano Velarde likewise admitted this
fact during the hearing on September 15, 1997 (p.
47, t.s.n., September 15, 1987; see also pp. 16-26,
t.s.n., October 8, 1989). This being the case, the
non-payment of the mortgage obligation would
result in a violation of the contract. And, upon
Velarde's failure to pay the agreed price, the[n]
Raymundo may choose either of two (2) actions -
(1) demand fulfillment of the contract, or (2)
demand its rescission (Article 1191, Civil Code).
"The disapproval by BPI of the application for
assumption of mortgage cannot be used as an
excuse for Velarde's non-payment of the balance of
the purchase price. As borne out by the evidence,
Velarde had to pay in full in case of BPI's
disapproval of the application for assumption of
mortgage. What Velarde should have done was to
pay the balance of P1.8 million. Instead, Velarde
sent Raymundo a letter dated January 7, 1987
(Exh. 'K', '4') which was strongly given weight by the
lower court in reversing the decision rendered by
then Judge Ynares-Santiago. In said letter, Velarde
registered their willingness to pay the balance in
cash but enumerated 3 new conditions which, to the
mind of this Court, would constitute a new
undertaking or new agreement which is subject to
the consent or approval of Raymundo. These 3
conditions were not among those previously agreed
upon by Velarde and Raymundo. These are mere
offers or, at most, an attempt to novate. But then
again, there can be no novation because there was
no agreement of all the parties to the new contract
(Garcia, Jr. vs. Court of Appeals, 191 SCRA 493).
"It was likewise agreed that in case of violation of
the mortgage obligation, the Deed of Sale with
Assumption of Mortgage would be deemed
 'automatically cancelled and of no further force and
effect, as if the same had never been executed or
entered into.' While it is true that even if the contract
expressly provided for automatic rescission upon
failure to pay the price, the vendee may still pay, he
may do so only for as long as no demand for
rescission of the contract has been made upon him
either judicially or by a notarial act (Article 1592,
Civil Code). In the case at bar, Raymundo sent
Velarde notarial notice dated January 8, 1987 of
cancellation/rescission of the contract due to the
latter's failure to comply with their obligation. The
rescission was justified in view of Velarde's failure
to pay the price (balance) which is substantial and
fundamental as to defeat the object of the parties in
making the agreement. As adverted to above, the
agreement of the parties involved a reciprocal
obligation wherein the obligation of one is a
resolutory condition of the obligation of the other,
the non-fulfillment of which entitles the other party
to rescind the contract (Songcuan vs. IAC, 191
SCRA 28). Thus, the non-payment of the mortgage
obligation by appellees Velarde would create a right
to demand payment or to rescind the contract, or to
criminal prosecution (Edca Publishing &
Distribution Corporation vs. Santos, 184 SCRA
614). Upon appellee's failure, therefore, to pay the
balance, the contract was properly rescinded (Ruiz
vs. IAC, 184 SCRA 720). Consequently, appellees
Velarde having violated the contract, they have lost
their right to its enforcement and hence, cannot
avail of the action for specific performance (Voysaw
vs. Interphil Promotions, Inc., 148 SCRA 635)."10
Hence, this appeal. 11
The Issues
Petitioners, in their Memorandum,12 interpose the
following assignment of errors:
"I.
The Court of Appeals erred in holding that the
non-payment of the mortgage obligation
resulted in a breach of the contract.
"II
The Court of Appeals erred in holding that the
rescission (resolution) of the contract by
private respondents was justified.
"III
The Court of Appeals erred in holding that
petitioners' January 7, 1987 letter gave three
'new conditions' constituting mere offers or an
attempt to novate necessitating a new
agreement between the parties."
The Court's Ruling
The Petition is partially meritorious.
First Issue:
Breach of Contract
Petitioner aver that their nonpayment of private
respondents' mortgage obligation did not constitute a
breach of contract, considering that their request to
assume the obligation had been disapproved by the
mortgagee bank. Accordingly, payment of the monthly
amortizations ceased to be their obligation and,
instead, it devolved upon private respondents again.
However, petitioners did not merely stop paying the
mortgage obligations; they also failed to pay the
balance of the purchase price. As admitted by both
parties, their agreement mandated that petitioners
should pay the purchase price balance of P1.8 million
to private respondents in case the request to assume
the mortgage would be disapproved. Thus, on
December 15, 1986, when petitioners received notice
of the bank's disapproval of their application to assume
respondents' mortgage, they should have paid the
balance of the P1.8 million loan.
Instead of doing so, petitioners sent a letter to private
respondents offering to make such payment only upon
the fulfillment of certain conditions not originally agreed
upon in the contract of sale. Such conditional offer to
pay cannot take the place of actual payment as would
discharge the obligation of a buyer under a contract of
sale.
In a contract of sale, the seller obligates itself to
transfer the ownership of and deliver a determinate
things, and the buyer to pay therefor a price certain in
money or its equivalent.13
Private respondents had already performed their
obligation through the execution of the Deed of Sale,
which effectively transferred ownership of the property
to petitioner through constructive delivery. Prior
physical delivery or possession is not legally required,
and the execution of the Deed of Sale is deemed
equivalent to delivery.14
Petitioners, on the other hand, did not perform their
correlative obligation of paying the contract price in the
manner agreed upon. Worse, they wanted private
respondents to perform obligations beyond those
stipulated in the contract before fulfilling their own
obligation to pay the full purchase price.
Second Issue
Validity of the Rescission
Petitioners likewise claim that the rescission of the
contract by private respondents was not justified,
inasmuch as the former had signified their willingness
to pay the balance of the purchase price only a little
over a month from the time they were notified of the
disapproval of their application for assumption of
mortgage. Petitioners also aver that the breach of the
contract was not substantial as would warrant a
rescission. They cite several cases15 in which this
Court declared that rescission of a contract would not
be permitted for a slight or casual breach. Finally, they
argue that they have substantially performed their
obligation in good faith, considering that they have
already made the initial payment of P800,000 and
three (3) monthly mortgage payments.
As pointed out earlier, the breach committed by
petitioners was not so much their nonpayment of the
mortgage obligations, as their nonperformance of their
reciprocal obligation to pay the purchase price under
the contract of sale. Private respondents' right to
rescind the contract finds basis in Article 1191 of the
Civil Code, which explicitly provides as follows:
 "Art. 1191. -- The power to rescind obligations
is implied in reciprocal ones, in case one of
the obligors should not comply with what is
incumbent upon him.
The injured party may choose between
fulfillment and the rescission of the obligation,
with the payment of damages in either case.
He may also seek rescission even after he
has chosen fulfillment, if the latter should
become impossible."
The right of rescission of a party to an obligation under
Article 1191 of the Civil Code is predicated on a breach
of faith by the other party who violates the reciprocity
between them.16 The breach contemplated in the said
provision is the obligor's failure to comply with an
existing obligation.17 When the obligor cannot comply
with what is incumbent upon it, the obligee may seek
rescission and, in the absence of any just cause for the
court to determine the period of compliance, the court
shall decree the rescission.18
In the present case, private respondents validly
exercised their right to rescind the contract, because of
the failure of petitioners to comply with their obligation
to pay the balance of the purchase price. Indubitably,
the latter violated the very essence of reciprocity in the
contract of sale, a violation that consequently gave rise
to private respondent's right to rescind the same in
accordance with law.
True, petitioners expressed their willingness to pay the
balance of the purchase price one month after it
became due; however, this was not equivalent to
actual payment as would constitute a faithful
compliance of their reciprocal obligation. Moreover, the
offer to pay was conditioned on the performance by
private respondents of additional burdens that had not
been agreed upon in the original contract. Thus, it
cannot be said that the breach committed by
petitioners was merely slight or casual as would
preclude the exercise of the right to rescind.
Misplaced is petitioners' reliance on the cases 19 they
cited, because the factual circumstances in those
cases are not analogous to those in the present one.
In Song Fo there was, on the part of the buyer, only a
delay of twenty (20) days to pay for the goods
delivered. Moreover, the buyer's offer to pay was
unconditional and was accepted by the seller.
In Zepeda, the breach involved a mere one-week delay
in paying the balance of 1,000 which was actually paid.
In Tan, the alleged breach was private respondent's
delay of only a few days, which was for the purpose of
clearing the title to the property; there was no reference
whatsoever to the nonpayment of the contract price.
In the instant case, the breach committed did not
merely consist of a slight delay in payment or an
irregularity; such breach would not normally defeat the
intention of the parties to the contract. Here, petitioners
not only failed to pay the P1.8 million balance, but they
also imposed upon private respondents new
obligations as preconditions to the performance of their
own obligation. In effect, the qualified offer to pay was
a repudiation of an existing obligation, which was
legally due and demandable under the contract of sale.
Hence, private respondents were left with the legal
option of seeking rescission to protect their own
interest.
Mutual Restitution
Required in Rescission
As discussed earlier, the breach committed by
petitioners was the nonperformance of a reciprocal
obligation, not a violation of the terms and conditions
of the mortgage contract. Therefore, the automatic
rescission and forfeiture of payment clauses stipulated
in the contract does not apply. Instead, Civil Code
provisions shall govern and regulate the resolution of
this controversy.
Considering that the rescission of the contract is based
on Article 1191 of the Civil Code, mutual restitution is
required to bring back the parties to their original
situation prior to the inception of the contract.
Accordingly, the initial payment of P800,000 and the
corresponding mortgage payments in the amounts of
P27,225, P23,000 and P23,925 (totaling P874,150.00)
advanced by petitioners should be returned by private
respondents, lest the latter unjustly enrich themselves
at the expense of the former.
Rescission creates the obligation to return the object of
the contract. It can be carried out only when the one
who demands rescission can return whatever he may
be obliged to restore.20 To rescind is to declare a
contract void at its inception and to put an end to it as
though it never was. It is not merely to terminate it and
release the parties from further obligations to each
other, but to abrogate it from the beginning and restore
the parties to their relative positions as if no contract
has been made.21
Third Issue
Attempt to Novate
In view of the foregoing discussion, the Court finds it
no longer necessary to discuss the third issue raised
by petitioners. Suffice it to say that the three conditions
appearing on the January 7, 1987 letter of petitioners
to private respondents were not part of the original
contract. By that time, it was already incumbent upon
the former to pay the balance of the sale price. They
had no right to demand preconditions to the fulfillment
of their obligation, which had become due.
WHEREFORE, the assailed Decision is
hereby AFFIRMED with the MODIFICATION that
private respondents are ordered to return to petitioners
the amount of P874,150, which the latter paid as a
consequence of the rescinded contract, with legal
interest thereon from January 8, 1987, the date of
rescission. No pronouncement as to costs.
SO ORDERED.
[G.R. NO. 139523 : May 26, 2005]
SPS. FELIPE AND LETICIA
CANNU, Petitioners, v. SPS. GIL AND FERNANDINA
GALANG AND NATIONAL HOME MORTGAGE
FINANCE CORPORATION, Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a Petition for Review on Certiorari which
seeks to set aside the decision1 of the Court of Appeals
dated 30 September 1998 which affirmed with
modification the decision of Branch 135 of the Regional
Trial Court (RTC) of Makati City, dismissing the
complaint for Specific Performance and Damages filed
by petitioners, and its Resolution2 dated 22 July 1999
denying petitioners' motion for reconsideration.
A complaint3 for Specific Performance and Damages
was filed by petitioners-spouses Felipe and Leticia
Cannu against respondents-spouses Gil and
Fernandina Galang and the National Home Mortgage
Finance Corporation (NHMFC) before Branch 135 of
the RTC of Makati, on 24 June 1993. The case was
docketed as Civil Case No. 93-2069.
The facts that gave rise to the aforesaid complaint are
as follows:
Respondents-spouses Gil and Fernandina Galang
obtained a loan from Fortune Savings & Loan
Association for P173,800.00 to purchase a house and
lot located at Pulang Lupa, Las Piñas, with an area of
150 square meters covered by Transfer Certificate of
Title (TCT) No. T-8505 in the names of respondents-
spouses. To secure payment, a real estate mortgage
was constituted on the said house and lot in favor of
Fortune Savings & Loan Association. In early 1990,
NHMFC purchased the mortgage loan of respondents-
spouses from Fortune Savings & Loan Association
for P173,800.00.
Respondent Fernandina Galang authorized 4 her
attorney-in-fact, Adelina R. Timbang, to sell the subject
house and lot.
Petitioner Leticia Cannu agreed to buy the property
for P120,000.00 and to assume the balance of the
mortgage obligations with the NHMFC and with CERF
Realty5 (the Developer of the property).
Of the P120,000.00, the following payments were
made by petitioners:
Date Amount Paid
July 19, 1990 P40,000.006
March 13, 1991 15,000.007
April 6, 1991 15,000.008
November 28, 1991 5,000.009
Total P75,000.00
Thus, leaving a balance of P45,000.00.
A Deed of Sale with Assumption of Mortgage
Obligation10 dated 20 August 1990 was made and
entered into by and between spouses Fernandina and
Gil Galang (vendors) and spouses Leticia and Felipe
Cannu (vendees) over the house and lot in question
which contains, inter alia, the following:
NOW, THEREFORE, for and in consideration of the
sum of TWO HUNDRED FIFTY THOUSAND PESOS
(P250,000.00), Philippine Currency, receipt of which is
hereby acknowledged by the Vendors and the
assumption of the mortgage obligation, the Vendors
hereby sell, cede and transfer unto the Vendees, their
heirs, assigns and successor in interest the above-
described property together with the existing
improvement thereon.
It is a special condition of this contract that the Vendees
shall assume and continue with the payment of the
amortization with the National Home Mortgage Finance
Corporation Inc. in the outstanding balance
of P_______________, as of __________ and shall
comply with and abide by the terms and conditions of
the mortgage document dated Feb. 27, 1989 and
identified as Doc. No. 82, Page 18, Book VII, S. of 1989
of Notary Public for Quezon City Marites Sto. Tomas
Alonzo, as if the Vendees are the original signatories.
Petitioners immediately took possession and occupied
the house and lot.
Petitioners made the following payments to the
NHMFC:
Date Amount
July 9, 1990 P 14,312.47
March 12, 1991 8,000.00
February 4, 1992 10,000.00
March 31, 1993 6,000.00
April 19, 1993 10,000.00
April 27, 1993 7,000.00
P 55,312.47
Petitioners paid the "equity" or second mortgage to
CERF Realty.17
Despite requests from Adelina R. Timbang and
Fernandina Galang to pay the balance of P45,000.00
or in the alternative to vacate the property in question,
petitioners refused to do so.
In a letter18 dated 29 March 1993, petitioner Leticia
Cannu informed Mr. Fermin T. Arzaga, Vice President,
Fund Management Group of the NHMFC, that the
ownership rights over the land covered by TCT No. T-
8505 in the names of respondents-spouses had been
ceded and transferred to her and her husband per
Deed of Sale with Assumption of Mortgage, and that
they were obligated to assume the mortgage and pay
the remaining unpaid loan balance. Petitioners' formal
assumption of mortgage was not approved by the
NHMFC.19
Because the Cannus failed to fully comply with their
obligations, respondent Fernandina Galang, on 21 May
1993, paid P233,957.64 as full payment of her
remaining mortgage loan with NHMFC.20
Petitioners opposed the release of TCT No. T-8505 in
favor of respondents-spouses insisting that the subject
property had already been sold to them. Consequently,
the NHMFC held in abeyance the release of said TCT.
Thereupon, a Complaint for Specific Performance and
Damages was filed asking, among other things, that
petitioners (plaintiffs therein) be declared the owners of
the property involved subject to reimbursements of the
amount made by respondents-spouses (defendants
therein) in preterminating the mortgage loan with
NHMFC.
Respondent NHMFC filed its Answer.21 It claimed that
Receipt
petitioners have No. of action against it because
no cause
D-50398611
they have not submitted the formal requirements to be
considered assignees
D-729478and12 successors-in-interest of
the property under litigation.
D-99912713
In their Answer,22 respondents-spouses alleged that
because of petitioners-spouses' failure to fully pay the
consideration and to update the monthly amortizations
with the NHMFC, they paid in full the existing
obligations with NHMFC as an initial step in the
rescission and annulment of the Deed of Sale with
Assumption of Mortgage. In their counterclaim, they
maintain that the acts of petitioners in not fully
complying with their obligations give rise to rescission
of the Deed of Sale with Assumption of Mortgage with
the corresponding damages.
After trial, the lower court rendered its decision
ratiocinating:
On the basis of the evidence on record, testimonial and
documentary, this Court is of the view that plaintiffs
have no cause of action either against the spouses
Galang or the NHMFC. Plaintiffs have admitted on
record they failed to pay the amount of P45,000.00 the
balance due to the Galangs in consideration of the
Deed of Sale With Assumption of Mortgage Obligation
(Exhs. "C" and "3"). Consequently, this is a breach of
contract and evidently a failure to comply with
obligation arising from contracts. . . In this case,
NHMFC has not been duly informed due to lack of
formal requirements to acknowledge plaintiffs as legal
assignees, or legitimate tranferees and, therefore,
successors-in-interest to the property, plaintiffs should
have no legal personality to claim any right to the same
property.23
The decretal portion of the decision reads:
Premises considered, the foregoing complaint has not
been proven even by preponderance of evidence, and,
as such, plaintiffs have no cause of action against the
defendants herein. The above-entitled case is ordered
dismissed for lack of merit.
Judgment is hereby rendered by way of counterclaim,
in favor of defendants and against plaintiffs, to wit:
1. Ordering the Deed of Sale With Assumption of
Mortgage Obligation (Exhs. "C" and "3") rescinded and
hereby declared the same as nullified without prejudice
for defendants-spouses Galang to return the partial
payments made by plaintiffs; and the plaintiffs are
ordered, on the other hand, to return the physical and
legal possession of the subject property to spouses
Galang by way of mutual restitution;
2. To pay defendants spouses Galang and NHMFC,
each the amount of P10,000.00 as litigation expenses,
jointly and severally;
3. To pay attorney's fees to defendants in the amount
of P20,000.00, jointly and severally; andcralawlibrary
4. The costs of suit.
5. No moral and exemplary damages awarded.24
A Motion for Reconsideration25 was filed, but same
was denied. Petitioners appealed the decision of the
RTC to the Court of Appeals. On 30 September 1998,
the Court of Appeals disposed of the appeal as follows:
Obligations arising from contract have the force of law
between the contracting parties and should be
complied in good faith. The terms of a written contract
are binding on the parties thereto.
Plaintiffs-appellants therefore are under obligation to
pay defendants-appellees spouses Galang the sum of
P250,000.00, and to assume the mortgage.
Records show that upon the execution of the Contract
of Sale or on July 19, 1990 plaintiffs-appellants paid
defendants-appellees spouses Galang the amount of
only P40,000.00.
The next payment was made by plaintiffs-appellants on
March 13, 1991 or eight (8) months after the execution
of the contract. Plaintiffs-appellants paid the amount of
P5,000.00.
The next payment was made on April 6, 1991 for
P15,000.00 and on November 28, 1991, for another
P15,000.00.
From 1991 until the present, no other payments were
made by plaintiffs-appellants to defendants-appellees
spouses Galang.
Out of the P250,000.00 purchase price which was
supposed to be paid on the day of the execution of
contract in July, 1990 plaintiffs-appellants have paid, in
the span of eight (8) years, from 1990 to present, the
amount of only P75,000.00. Plaintiffs-appellants
should have paid the P250,000.00 at the time of the
execution of contract in 1990. Eight (8) years have
already lapsed and plaintiffs-appellants have not yet
complied with their obligation.
We consider this breach to be substantial.
The tender made by plaintiffs-appellants after the filing
of this case, of the Managerial Check in the amount of
P278,957.00 dated January 24, 1994 cannot be
considered as an effective mode of payment.
Performance or payment may be effected not by tender
of payment alone but by both tender and consignation.
It is consignation which is essential in order to
extinguish plaintiffs-appellants obligation to pay the
balance of the purchase price.
In addition, plaintiffs-appellants failed to comply with
their obligation to pay the monthly amortizations due
on the mortgage.
In the span of three (3) years from 1990 to 1993,
plaintiffs-appellants made only six payments. The
payments made by plaintiffs-appellants are not even
sufficient to answer for the arrearages, interests and
penalty charges.
On account of these circumstances, the rescission of
the Contract of Sale is warranted and justified.
...
WHEREFORE, foregoing considered, the appealed
decision is hereby AFFIRMED with modification.
Defendants-appellees spouses Galang are hereby
ordered to return the partial payments made by
plaintiff-appellants in the amount of P135,000.00.
No pronouncement as to cost.26
The motion for reconsideration27 filed by petitioners
was denied by the Court of Appeals in a
Resolution28 dated 22 July 1999.
Hence, this Petition for Certiorari.
Petitioners raise the following assignment of errors:
1. THE HONORABLE COURT OF APPEALS ERRED
WHEN IT HELD THAT PETITIONERS' BREACH OF
THE OBLIGATION WAS SUBSTANTIAL.
2. THE HONORABLE COURT OF APPEALS ERRED
WHEN IN EFFECT IT HELD THAT THERE WAS NO
SUBSTANTIAL COMPLIANCE WITH THE
OBLIGATION TO PAY THE MONTHLY
AMORTIZATION WITH NHMFC.
3. THE HONORABLE COURT OF APPEALS ERRED
WHEN IT FAILED TO CONSIDER THE OTHER
FACTS AND CIRCUMSTANCES THAT MILITATE
AGAINST RESCISSION.
4. THE HONORABLE COURT OF APPEALS ERRED
WHEN IT FAILED TO CONSIDER THAT THE ACTION
FOR RESCISSION IS SUBSIDIARY.29
Before discussing the errors allegedly committed by
the Court of Appeals, it must be stated a priori that the
latter made a misappreciation of evidence regarding
the consideration of the property in litigation when it
relied solely on the Deed of Sale with Assumption of
Mortgage executed by the respondents-spouses
Galang and petitioners-spouses Cannu.
As above-quoted, the consideration for the house and
lot stated in the Deed of Sale with Assumption of
Mortgage is P250,000.00, plus the assumption of the
balance of the mortgage loan with NHMFC. However,
after going over the record of the case, more
particularly the Answer of respondents-spouses, the
evidence shows the consideration therefor
is P120,000.00, plus the payment of the outstanding
loan mortgage with NHMFC, and of the "equity" or
second mortgage with CERF Realty (Developer of the
property).30
Nowhere in the complaint and answer of the
petitioners-spouses Cannu and respondents-spouses
Galang shows that the consideration is "P250,000.00."
In fact, what is clear is that of the P120,000.00 to be
paid to the latter, only P75,000.00 was paid to Adelina
Timbang, the spouses Galang's attorney-in-fact. This
debunks the provision in the Deed of Sale with
Assumption of Mortgage that the amount
of P250,000.00 has been received by petitioners.
Inasmuch as the Deed of Sale with Assumption of
Mortgage failed to express the true intent and
agreement of the parties regarding its consideration,
the same should not be fully relied upon. The foregoing
facts lead us to hold that the case on hand falls within
one of the recognized exceptions to the parole
evidence rule. Under the Rules of Court, a party may
present evidence to modify, explain or add to the terms
of the written agreement if he puts in issue in his
pleading, among others, its failure to express the true
intent and agreement of the parties thereto.31
In the case at bar, when respondents-spouses
enumerated in their Answer the terms and conditions
for the sale of the property under litigation, which is
different from that stated in the Deed of Sale with
Assumption with Mortgage, they already put in issue
the matter of consideration. Since there is a difference
as to what the true consideration is, this Court has
admitted evidence aliunde to explain such
inconsistency. Thus, the Court has looked into the
pleadings and testimonies of the parties to thresh out
the discrepancy and to clarify the intent of the parties.
As regards the computation32
of petitioners as to the
breakdown of the P250,000.00 consideration, we find
the same to be self-serving and unsupported by
evidence.
On the first assigned error, petitioners argue that the
Court erred when it ruled that their breach of the
obligation was substantial.
Settled is the rule that rescission or, more accurately,
resolution,33 of a party to an obligation under Article
119134 is predicated on a breach of faith by the other
party that violates the reciprocity between
them.35 Article 1191 reads:
Art. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
Rescission will not be permitted for a slight or casual
breach of the contract. Rescission may be had only for
such breaches that are substantial and fundamental as
to defeat the object of the parties in making the
agreement.36 The question of whether a breach of
contract is substantial depends upon the attending
circumstances37 and not merely on the percentage of
the amount not paid.
In the case at bar, we find petitioners' failure to pay the
remaining balance of P45,000.00 to be substantial.
Even assuming arguendo that only said amount was
left out of the supposed consideration of P250,000.00,
or eighteen (18%) percent thereof, this percentage is
still substantial. Taken together with the fact that the
last payment made was on 28 November 1991,
eighteen months before the respondent Fernandina
Galang paid the outstanding balance of the mortgage
loan with NHMFC, the intention of petitioners to renege
on their obligation is utterly clear.
Citing Massive Construction, Inc. v. Intermediate
Appellate Court,38 petitioners ask that they be granted
additional time to complete their obligation. Under the
facts of the case, to give petitioners additional time to
comply with their obligation will be putting premium on
their blatant non-compliance of their obligation. They
had all the time to do what was required of them (i.e.,
pay the P45,000.00 balance and to properly assume
the mortgage loan with the NHMFC), but still they failed
to comply. Despite demands for them to pay the
balance, no payments were made.39
The fact that petitioners tendered a Manager's Check
to respondents-spouses Galang in the amount of
P278,957.00 seven months after the filing of this case
is of no moment. Tender of payment does not by itself
produce legal payment, unless it is completed by
consignation.40 Their failure to fulfill their obligation
gave the respondents-spouses Galang the right to
rescission.
Anent the second assigned error, we find that
petitioners were not religious in paying the amortization
with the NHMFC. As admitted by them, in the span of
three years from 1990 to 1993, their payments covered
only thirty months.41 This, indeed, constitutes another
breach or violation of the Deed of Sale with Assumption
of Mortgage. On top of this, there was no formal
assumption of the mortgage obligation with NHMFC
because of the lack of approval by the NHMFC42 on
account of petitioners' non-submission of requirements
in order to be considered as assignees/successors-in-
interest over the property covered by the mortgage
obligation.43
On the third assigned error, petitioners claim there was
no clear evidence to show that respondents-spouses
Galang demanded from them a strict and/or faithful
compliance of the Deed of Sale with Assumption of
Mortgage.
We do not agree.
There is sufficient evidence showing that demands
were made from petitioners to comply with their
obligation. Adelina R. Timbang, attorney-in-fact of
respondents-spouses, per instruction of respondent
Fernandina Galang, made constant follow-ups after the
last payment made on 28 November 1991, but
petitioners did not pay.44 Respondent Fernandina
Galang stated in her Answer45 that upon her arrival
from America in October 1992, she demanded from
petitioners the complete compliance of their obligation
by paying the full amount of the consideration
(P120,000.00) or in the alternative to vacate the
property in question, but still, petitioners refused to
fulfill their obligations under the Deed of Sale with
Assumption of Mortgage. Sometime in March 1993,
due to the fact that full payment has not been paid and
that the monthly amortizations with the NHMFC have
not been fully updated, she made her intentions clear
with petitioner Leticia Cannu that she will rescind or
annul the Deed of Sale with Assumption of Mortgage.
We likewise rule that there was no waiver on the part
of petitioners to demand the rescission of the Deed of
Sale with Assumption of Mortgage. The fact that
respondents-spouses accepted, through their
attorney-in-fact, payments in installments does not
constitute waiver on their part to exercise their right to
rescind the Deed of Sale with Assumption of Mortgage.
Adelina Timbang merely accepted the installment
payments as an accommodation to petitioners since
they kept on promising they would pay. However, after
the lapse of considerable time (18 months from last
payment) and the purchase price was not yet fully paid,
respondents-spouses exercised their right of
rescission when they paid the outstanding balance of
the mortgage loan with NHMFC. It was only after
petitioners stopped paying that respondents-spouses
moved to exercise their right of rescission.
Petitioners cite the case of Angeles v. Calasanz46 to
support their claim that respondents-spouses waived
their right to rescind. We cannot apply this case since
it is not on all fours with the case before us. First,
in Angeles, the breach was only slight and casual
which is not true in the case before us. Second,
in Angeles, the buyer had already paid more than the
principal obligation, while in the instant case, the
buyers (petitioners) did not pay P45,000.00 of the
P120,000.00 they were obligated to pay.
We find petitioners' statement that there is no evidence
of prejudice or damage to justify rescission in favor of
respondents-spouses to be unfounded. The damage
suffered by respondents-spouses is the effect of
petitioners' failure to fully comply with their obligation,
that is, their failure to pay the remaining P45,000.00
and to update the amortizations on the mortgage loan
with the NHMFC. Petitioners have in their possession
the property under litigation. Having parted with their
house and lot, respondents-spouses should be fully
compensated for it, not only monetarily, but also as to
the terms and conditions agreed upon by the parties.
This did not happen in the case before us.
Citing Seva v. Berwin & Co., Inc.,47 petitioners argue
that no rescission should be decreed because there is
no evidence on record that respondent Fernandina
Galang is ready, willing and able to comply with her
own obligation to restore to them the total payments
they made. They added that no allegation to that effect
is contained in respondents-spouses' Answer.
We find this argument to be misleading.
First, the facts obtaining in Seva case do not fall
squarely with the case on hand. In the former, the
failure of one party to perform his obligation was the
fault of the other party, while in the case on hand,
failure on the part of petitioners to perform their
obligation was due to their own fault.
Second, what is stated in the book of Justice Edgardo
L. Paras is "[i]t (referring to the right to rescind or
resolve) can be demanded only if the plaintiff is ready,
willing and able to comply with his own obligation, and
the other is not." In other words, if one party has
complied or fulfilled his obligation, and the other has
not, then the former can exercise his right to rescind.
In this case, respondents-spouses complied with their
obligation when they gave the possession of the
property in question to petitioners. Thus, they have the
right to ask for the rescission of the Deed of Sale with
Assumption of Mortgage.
On the fourth assigned error, petitioners, relying on
Article 1383 of the Civil Code, maintain that the Court
of Appeals erred when it failed to consider that the
action for rescission is subsidiary.
Their reliance on Article 1383 is misplaced.
The subsidiary character of the action for rescission
applies to contracts enumerated in Articles 1381 48 of
the Civil Code. The contract involved in the case before
us is not one of those mentioned therein. The provision
that applies in the case at bar is Article 1191.
In the concurring opinion of Justice Jose B.L. Reyes
in Universal Food Corp. v. Court of
Appeals,49 rescission under Article 1191 was
distinguished from rescission under Article 1381.
Justice J.B.L. Reyes said:
. . . The rescission on account of breach of stipulations
is not predicated on injury to economic interests of the
party plaintiff but on the breach of faith by the
defendant, that violates the reciprocity between the
parties. It is not a subsidiary action, and Article 1191
may be scanned without disclosing anywhere that the
action for rescission thereunder is subordinated to
anything other than the culpable breach of his
obligations by the defendant. This rescission is a
principal action retaliatory in character, it being unjust
that a party be held bound to fulfill his promises when
the other violates his. As expressed in the old Latin
aphorism: "Non servanti fidem, non est fides
servanda." Hence, the reparation of damages for the
breach is purely secondary.
On the contrary, in the rescission by reason of lesion or
economic prejudice, the cause of action is
subordinated to the existence of that prejudice,
because it is the raison d être as well as the measure
of the right to rescind. Hence, where the defendant
makes good the damages caused, the action cannot
be maintained or continued, as expressly provided in
Articles 1383 and 1384. But the operation of these two
articles is limited to the cases of rescission
for lesion enumerated in Article 1381 of the Civil Code
of the Philippines, and does not apply to cases under
Article 1191.
From the foregoing, it is clear that rescission
("resolution" in the Old Civil Code) under Article 1191
is a principal action, while rescission under Article 1383
is a subsidiary action. The former is based on breach
by the other party that violates the reciprocity between
the parties, while the latter is not.
In the case at bar, the reciprocity between the parties
was violated when petitioners failed to fully pay the
balance of P45,000.00 to respondents-spouses and
their failure to update their amortizations with the
NHMFC.
Petitioners maintain that inasmuch as respondents-
spouses Galang were not granted the right to
unilaterally rescind the sale under the Deed of Sale
with Assumption of Mortgage, they should have first
asked the court for the rescission thereof before they
fully paid the outstanding balance of the mortgage loan
with the NHMFC. They claim that such payment is a
unilateral act of rescission which violates existing
jurisprudence.
In Tan v. Court of Appeals,50 this court said:
. . . [T]he power to rescind obligations is implied in
reciprocal ones in case one of the obligors should not
comply with what is incumbent upon him is clear from
a reading of the Civil Code provisions. However, it is
equally settled that, in the absence of a stipulation to
the contrary, this power must be invoked judicially; it
cannot be exercised solely on a party's own judgment
that the other has committed a breach of the obligation.
Where there is nothing in the contract empowering the
petitioner to rescind it without resort to the courts, the
petitioner's action in unilaterally terminating the
contract in this case is unjustified.
It is evident that the contract under consideration does
not contain a provision authorizing its extrajudicial
rescission in case one of the parties fails to comply with
what is incumbent upon him. This being the case,
respondents-spouses should have asked for judicial
intervention to obtain a judicial declaration of
rescission. Be that as it may, and considering that
respondents-spouses' Answer (with affirmative
defenses) with Counterclaim seeks for the rescission
of the Deed of Sale with Assumption of Mortgage, it
behooves the court to settle the matter once and for all
than to have the case re-litigated again on an issue
already heard on the merits and which this court has
already taken cognizance of. Having found that
petitioners seriously breached the contract, we,
therefore, declare the same is rescinded in favor of
respondents-spouses.
As a consequence of the rescission or, more
accurately, resolution of the Deed of Sale with
Assumption of Mortgage, it is the duty of the court to
require the parties to surrender whatever they may
have received from the other. The parties should be
restored to their original situation.51
The record shows petitioners paid respondents-
spouses the amount of P75,000.00 out of the
P120,000.00 agreed upon. They also made payments
to NHMFC amounting to P55,312.47. As to the
petitioners' alleged payment to CERF Realty of
P46,616.70, except for petitioner Leticia Cannu's bare
allegation, we find the same not to be supported by
competent evidence. As a general rule, one who
pleads payment has the burden of proving
it.52 However, since it has been admitted in
respondents-spouses' Answer that petitioners shall
assume the second mortgage with CERF Realty in the
amount of P35,000.00, and that Adelina Timbang,
respondents-spouses' very own witness,
testified53 that same has been paid, it is but proper to
return this amount to petitioners. The three amounts
total P165,312.47 - - the sum to be returned to
petitioners.
WHEREFORE, premises considered, the decision of
the Court of Appeals is hereby AFFIRMED with
MODIFICATION. Spouses Gil and Fernandina Galang
are hereby ordered to return the partial payments
made by petitioners in the amount of P165,312.47.
With costs.
SO ORDERED.
G.R. No. 202205 March 6, 2013
FOREST HILLS GOLF & COUNTRY
CLUB, Petitioner,
vs.
VERTEX SALES AND TRADING, INC., Respondent.
DECISION
BRION, J.:
Before the Court is a petition for review on
certiorari,1 filed under Rule 45 of the Rules of Court,
assailing the decision2 dated February 22, 2012 and
the resolution3dated May 31, 2012 of the Court of
Appeals (CA) in CA-G.R. CV No. 89296.
The Facts
Petitioner Forest Hills Golf & Country Club (Forest
Hills) is a domestic non-profit stock corporation that
operates and maintains a golf and country club facility
in Antipolo City. Forest Hills was created as a result of
a joint venture agreement between Kings Properties
Corporation (Kings) and Fil-Estate Golf and
Development, Inc. (FEGDI). Accordingly, Kings and
FEGDI owned the shares of stock of Forest Hills,
holding 40% and 60% of the shares, respectively.
In August 1997, FEGDI sold to RS Asuncion
Construction Corporation (RSACC) one (1) Class "C"
common share of Forest Hills for ₱1.1 million. Prior to
the full payment of the purchase price, RSACC
transferred its interests over FEGDI's Class "C"
common share to respondent Vertex Sales and
Trading, Inc. (Vertex).4 RSACC advised FEGDI of the
transfer and FEGDI, in turn, requested Forest Hills to
recognize Vertex as a shareholder. Forest Hills
acceded to the request, and Vertex was able to enjoy
membership privileges in the golf and country club.
Despite the sale of FEGDI's Class "C" common share
to Vertex, the share remained in the name of FEGDI,
prompting Vertex to demand for the issuance of a stock
certificate in its name.5 As its demand went unheeded,
Vertex filed a complaint6 for rescission with damages
against defendants Forest Hills, FEGDI, and Fil-Estate
Land, Inc. (FELI) – the developer of the Forest Hills golf
course. Vertex averred that the defendants defaulted
in their obligation as sellers when they failed and
refused to issue the stock certificate covering the Class
"C" common share. It prayed for the rescission of the
sale and the return of the sums it paid; it also claimed
payment of actual damages for the defendants’
unjustified refusal to issue the stock certificate.
Forest Hills denied transacting business with Vertex
and claimed that it was not a party to the sale of the
share; FELI claimed the same defense. While
admitting that no stock certificate was issued, FEGDI
alleged that Vertex nonetheless was recognized as a
stockholder of Forest Hills and, as such, it exercised
rights and privileges of one. FEGDI added that during
the pendency of Vertex's action for rescission, a stock
certificate was issued in Vertex's name,7 but Vertex
refused to accept it.
The RTC Ruling
In its March 1, 2007 decision,8 the Regional Trial Court
(RTC) dismissed Vertex's complaint after finding that
the failure to issue a stock certificate did not constitute
a violation of the essential terms of the contract of sale
that would warrant its rescission. The RTC noted that
the sale was already consummated notwithstanding
the non-issuance of the stock certificate. The issuance
of a stock certificate is a collateral matter in the
consummated sale of the share; the stock certificate is
not essential to the creation of the relation of a
shareholder. Hence, the RTC ruled that the non-
issuance of the stock certificate is a mere casual
breach that would not entitle Vertex to rescind the
sale.9
The CA Ruling
Vertex appealed the RTC's dismissal of its complaint.
In its February 22, 2012 decision,10 the CA reversed
the RTC. It declared that "in the sale of shares of stock,
physical delivery of a stock certificate is one of the
essential requisites for the transfer of ownership of the
stocks purchased."11 It based its ruling on Section 63
of the Corporation Code,12 which requires for a valid
transfer of stock –
(1) the delivery of the stock certificate;
(2) the endorsement of the stock certificate by
the owner or his attorney-in-fact or other
persons legally authorized to make the
transfer; and
(3) to be valid against third parties, the
transfer must be recorded in the books of the
corporation.
Without the issuance of the stock certificate and
despite Vertex’s full payment of the purchase price, the
share cannot be considered as having been validly
transferred. Hence, the CA rescinded the sale of the
share and ordered the defendants to return the amount
paid by Vertex by reason of the sale. The dispositive
portion reads:
WHEREFORE, in view of the foregoing premises, the
appeal is hereby GRANTED and the March 1, 2007
Decision of the Regional Trial Court, Branch 161, Pasig
City in Civil Case No. 68791 is hereby REVERSED
AND SET ASIDE. Accordingly, the sale of x x x one (1)
Class "C" Common Share of Forest Hills Golf and
Country Club is hereby rescinded and defendants-
appellees are hereby ordered to return to Vertex Sales
and Trading, Inc. the amount it paid by reason of the
said sale.13 (emphasis ours)
The CA denied Forest Hills' motion for reconsideration
in its resolution of May 31, 2012.14
The Parties’ Arguments
Forest Hills filed the present petition for review on
certiorari to assail the CA rulings. It argues that
rescission should be allowed only for substantial
breaches that would defeat the very object of the
parties making the agreement.
The delay in the issuance of the stock certificate could
not be considered as a substantial breach, considering
that Vertex was recognized as, and enjoyed the
privileges of, a stockholder.
Forest Hills also objects to the CA ruling that required
it to return the amount paid by Vertex for the share of
stock. It claims that it was not a party to the contract of
sale; hence, it did not receive any amount from Vertex
which it would be obliged to return on account of the
rescission of the contract.
In its comment to the petition,15 Vertex disagrees and
claims that its compliance with its obligation to pay the
price and the other fees called into action the
defendants’ compliance with their reciprocal obligation
to deliver the stock certificate, but the defendants failed
to discharge this obligation. The defendants’ three (3)-
year delay in issuing the stock certificate justified the
rescission of the sale of the share of stock. On account
of the rescission, Vertex claims that mutual restitution
should take place. It argues that Forest Hills should be
held solidarily liable with FEGDI and FELI, since the
delay was caused by Forest Hills’ refusal to issue the
share of FEGDI, from whom Vertex acquired its share.
The Court’s Ruling
The assailed CA rulings (a) declared the rescission of
the sale of one (1) Class "C" common share of Forest
Hills to Vertex and (b) ordered the return by Forest
Hills, FEGDI, and FELI to Vertex of the amount the
latter paid by reason of the sale. While Forest Hills
argues that the ruling rescinding the sale of the share
is erroneous, its ultimate prayer was for the reversal
and setting aside of the ruling holding it liable to return
the amount paid by Vertex for the sale.16
The Court finds Forest Hills’ prayer justified.
Ruling on rescission of sale is a
settled matter
At the outset, we declare that the question of rescission
of the sale of the share is a settled matter that the Court
can no longer review in this petition. While Forest Hills
questioned and presented its arguments against the
CA ruling rescinding the sale of the share in its petition,
it is not the proper party to appeal this ruling.
As correctly pointed out by Forest Hills, it was not a
party to the sale even though the subject of the sale
was its share of stock. The corporation whose shares
of stock are the subject of a transfer transaction
(through sale, assignment, donation, or any other
mode of conveyance) need not be a party to the
transaction, as may be inferred from the terms of
Section 63 of the Corporation Code. However, to bind
 Date of
Payee Purpose Amount Paid
the corporation as well as third parties, it is necessary Payment SO ORDERED.
that the transfer is recorded in the books of the FEGDI February Purchase ₱780,000.0019
corporation. In the present case, the parties to the sale 9, 1999 price for one
of the share were FEGDI as the seller and Vertex as (1) Class "C"
the buyer (after it succeeded RSACC). As party to the common
sale, FEGDI is the one who may appeal the ruling share
rescinding the sale. The remedy of appeal is available FEGDI February Transfer fee P 60,000.0020
to a party who has "a present interest in the subject 9, 1999
matter of the litigation and is aggrieved or prejudiced Forest February Membership P
by the judgment. A party, in turn, is deemed aggrieved Hills 23, 1999 fee 150,000.0021
or prejudiced when his interest, recognized by law FELI September Documentary P 6,300.0022
in the subject matter of the lawsuit, is injuriously 25, 2000 Stamps
affected by the judgment, order or decree."17 The FEGDI September Notarial fees P 200.0023
rescission of the sale does not in any way prejudice 25, 2000
Forest Hills in such a manner that its interest in the
subject matter – the share of stock – is injuriously
affected. Thus, Forest Hills is in no position to appeal A necessary consequence of rescission is restitution:
the ruling rescinding the sale of the share. Since the parties to a rescinded contract must be brought
FEGDI, as party to the sale, filed no appeal against its back to their original situation prior to the inception of
rescission, we consider as final the CA’s ruling on this the contract; hence, they must return what they
matter. received pursuant to the contract.24 Not being a party
to the rescinded contract, however, Forest Hills is
Ruling on return of amounts paid by under no obligation to return the amount paid by Vertex
reason of the sale modified by reason of the sale. Indeed, Vertex failed to present
sufficient evidence showing that Forest Hills received
The CA’s ruling ordering the "return to [Vertex] the the purchase price for the share or any other fee paid
amount it paid by reason of the sale" 18 did not specify on account of the sale (other than the membership fee
in detail what the amount to be returned consists of and which we will deal with after) to make Forest Hills jointly
it did not also state the extent of Forest Hills, FEGDI, or solidarily liable with FEGDI for restitution.
and FELI’s liability with regard to the amount to be
returned. The records, however, show that the Although Forest Hills received ₱150,000.00 from
following amounts were paid by Vertex to Forest Hills, Vertex as membership fee, it should be allowed to
FEGDI, and FELI by reason of the sale: retain this amount. For three years prior to the
rescission of the sale, the nominees of Vertex enjoyed
membership privileges and used the golf course and
the amenities of Forest Hills.25 We consider the amount
paid as sufficient consideration for the privileges
enjoyed by Vertex's nominees as members of Forest
Hills.

WHEREFORE, in view of the foregoing, the Court

PARTIALLY GRANTS the petition for review on
certiorari. The decision dated February 22, 2012 and
the resolution dated May 31, 2012 of the Court of
Appeals in CA-G.R. CV No. 89296 are hereby
MODIFIED. Petitioner Forest Hills Golf & Country Club
is ABSOLVED from liability for any amount paid by
Vertex Sales and Trading, Inc. by reason of the
rescinded sale of one (1) Class "C" common share of
Forest Hills Golf & Country Club.
 The first contract partly The second contract essentially contains the same
reads:5chanroblesvirtualawlibrary terms and conditions as
follows:6chanroblesvirtualawlibrary
That in consideration of the payment herein mentioned
to be made by the First Party (defendant), the Second That in consideration of the payment herein mentioned
Party agrees to furnish, supply, install and integrate the to be made by the First Party (defendant), the Second
most modern INTEGRATED BRIDGE SYSTEM Party agrees to furnish, supply, install & integrate the
located at Northwestern University MOCK BOAT in most modern INTEGRATED BRIDGE SYSTEM
accordance with the general conditions, plans and located at Northwestern University MOCK BOAT in
G.R. NO. 188986 : March 20, 2013 specifications of this contract. accordance with the general conditions, plans and
specifications of this contract.
GALILEO A. MAGLASANG, doing business under SUPPLY & INSTALLATION OF THE
the name GL FOLLOWING:chanroblesvirtualawlibrary SUPPLY & INSTALLATION OF THE
Enterprises, Petitioner, v. NORTHWESTERN INC., FOLLOWING:chanroblesvirtualawlibrary
UNIVERSITY, Respondent. INTEGRATED BRIDGE SYSTEM
1. ARPA RADAR SIMULATION ROOM
DECISION A. 2-RADAR SYSTEM
xxx
SERENO, C.J.: B. OVERHEAD CONSOLE MONITORING SYSTEM
2. GMDSS SIMULATION ROOM
Before this Court is a Rule 45 Petition, seeking a review C. ENGINE TELEGRAPH SYSTEM
of the 27 July 2009 Court of Appeals (CA) Decision in xxx
CA-G.R. CV No. 88989,1 which modified the Regional
Trial Court (RTC) Decision of 8 January 2007 in Civil D. ENGINE CONTROL SYSTEM
Case No. Q-04-53660.2 The CA held that petitioner TOTAL COST: PhP 270,000.00
substantially breached its contracts with respondent for E. WEATHER CONTROL SYSTEM (Emphasis in the original)
the installation of an integrated bridge system (IBS).
F. ECDIS SYSTEM Common to both contracts are the following provisions:
The antecedent .facts are as (1) the IBS and its components must be compliant with
follows:3chanroblesvirtualawlibrary the IMO and CHED standard and with manuals for
G. STEERING WHEEL SYSTEM simulators/major equipment; (2) the contracts may be
terminated if one party commits a substantial breach of
On 10 June 2004, respondent Northwestern University H. BRIDGE CONSOLE its undertaking; and (3) any dispute under the
(Northwestern), an educational institution offering agreement shall first be settled mutually between the
maritime-related courses, engaged the services of a parties, and if settlement is not obtained, resort shall
Quezon City-based firm, petitioner GL Enterprises, to Php be sought in the courts of law.
install a new IBS in Laoag City. The installation of an TOTAL COST:
3,800,000.00
IBS, used as the students' training laboratory, was
required by the Commission on Higher Education Subsequently, Northwestern paid P1 million as down
LESS: OLD MARITIME payment to GL Enterprises. The former then assumed
(CHED) before a school could offer maritime
EQUIPMENT TRADE-IN VALUE 1,000,000.00 possession of Northwestern's old IBS as trade-in
transportation programs.4chanroblesvirtualawlibrary
payment for its service. Thus, the balance of the
DISCOUNT 100,000.00 contract price remained at P1.97
Since its IBS was already obsolete, respondent million.7chanroblesvirtualawlibrary
required petitioner to supply and install specific PROJECT COST (MATERIALS PhP
components in order to form the most modern IBS that & INSTALLATION) 2,700,000.00
would be acceptable to CHED and would be compliant Two months after the execution of the contracts, GL
with the standards of the International Maritime Enterprises technicians delivered various materials to
(Emphasis in the original) the project site. However, when they started installing
Organization (IMO). For this purpose, the parties
executed two contracts. the components, respondent halted the operations. GL
Enterprises then asked for an
explanation.8chanroblesvirtualawlibrary
Northwestern justified the work stoppage upon its
finding that the delivered equipment were
substandard.9 It explained further that GL Enterprises
violated the terms and conditions of the contracts,
since the delivered components (1) were old; (2) did
not have instruction manuals and warranty certificates;
(3) contained indications of being reconditioned
machines; and (4) did not meet the IMO and CHED
standards. Thus, Northwestern demanded compliance
with the agreement and suggested that GL Enterprises
meet with the former's representatives to iron out the
situation.
Instead of heeding this suggestion, GL Enterprises
filed on 8 September 2004 a Complaint10 for breach of
contract and prayed for the following sums: P1.97
million, representing the amount that it would have
earned, had Northwestern not stopped it from
performing its tasks under the two contracts; at
least P100,000 as moral damages; at least P100,000
by way of exemplary damages; at least P100,000 as
attorney's fees and litigation expenses; and cost of suit.
Petitioner alleged that Northwestern breached the
contracts by ordering the work stoppage and thus
preventing the installation of the materials for the IBS.
Northwestern denied the allegation. In its defense, it
asserted that since the equipment delivered were not
in accordance with the specifications provided by the
contracts, all succeeding works would be futile and
would entail unnecessary expenses. Hence, it prayed
for the rescission of the contracts and made a
compulsory counterclaim for actual, moral, and
exemplary damages, and attorney's fees.
The RTC held both parties at fault. It found that
Northwestern unduly halted the operations, even if the
contracts called for a completed project to be evaluated
by the CHED. In turn, the breach committed by GL
Enterprises consisted of the delivery of substandard
equipment that were not compliant with IMO and
CHED standards as required by the agreement.
Invoking the equitable principle that "each party must
bear its own loss," the trial court treated the contracts
as impossible of performance without the fault of either
party or as having been dissolved by mutual consent.
Consequently, it ordered mutual restitution, which
would thereby restore the parties to their original
positions as follows:11chanroblesvirtualawlibrary
Accordingly, plaintiff is hereby ordered to restore to the
defendant all the equipment obtained by reason of the
First Contract and refund the downpayment
of P1,000,000.00 to the defendant; and for the
defendant to return to the plaintiff the equipment and
materials it withheld by reason of the non-continuance
of the installation and integration project. In the event
that restoration of the old equipment taken from
defendant's premises is no longer possible, plaintiff is
hereby ordered to pay the appraised value of
defendant's old equipment at P1,000,000.00. Likewise,
in the event that restoration of the equipment and
materials delivered by the plaintiff to the defendant is
no longer possible, defendant is hereby ordered to pay
its appraised value at P1,027,480.00.
Moreover, plaintiff is likewise ordered to restore and
return all the equipment obtained by reason of the
Second Contract, or if restoration or return is not
possible, plaintiff is ordered to pay the value thereof to
the defendant.
SO ORDERED.
Aggrieved, both parties appealed to the CA. With each
of them pointing a finger at the other party as the
violator of the contracts, the appellate court ultimately
determined that GL Enterprises was the one guilty of
substantial breach and liable for attorney's fees.
The CA appreciated that since the parties essentially
sought to have an IBS compliant with the CHED and
IMO standards, it was GL Enterprises' delivery of
defective equipment that materially and substantially
breached the contracts. Although the contracts
contemplated a completed project to be evaluated by
CHED, Northwestern could not just sit idly by when it
was apparent that the components delivered were
substandard.
The CA held that Northwestern only exercised ordinary
prudence to prevent the inevitable rejection of the IBS
delivered by GL Enterprises. Likewise, the appellate
court disregarded petitioner's excuse that the
equipment delivered might not have been the
components intended to be installed, for it would be
contrary to human experience to deliver equipment
from Quezon City to Laoag City with no intention to use
it.
This time, applying Article 1191 of the Civil Code, the
CA declared the rescission of the contracts. It then
proceeded to affirm the RTC's order of mutual
restitution. Additionally, the appellate court
granted P50,000 to Northwestern by way of attorney's
fees.
Before this Court, petitioner rehashes all the
arguments he had raised in the courts a quo. 12 He
maintains his prayer for actual damages equivalent to
the amount that he would have earned, had
respondent not stopped him from performing his tasks
under the two contracts; moral and exemplary
damages; attorney's fees; litigation expenses; and cost
of suit.
Hence, the pertinent issue to be resolved in the instant
appeal is whether the CA gravely erred in (1) finding
substantial breach on the part of GL Enterprises; (2)
refusing petitioner's claims for damages, and (3)
awarding attorney's fees to Northwestern.
RULING OF THE COURT
Substantial Breaches of the Contracts
Although the RTC and the CA concurred in ordering
restitution, the courts a quo, however, differed on the
basis thereof. The RTC applied the equitable principle
of mutual fault, while the CA applied Article 1191 on
rescission.
The power to rescind the obligations of the injured
party is implied in reciprocal obligations, such as in this
case. On this score, the CA correctly applied Article
1191, which provides thus:chanroblesvirtualawlibrary
The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
The two contracts require no less than substantial
breach before they can be rescinded. Since the
contracts do not provide for a definition of substantial
breach that would terminate the rights and obligations
of the parties, we apply the definition found in our
jurisprudence.
This Court defined in Cannu v. Galang13
that
substantial, unlike slight or casual breaches of
contract, are fundamental breaches that defeat the
object of the parties in entering into an agreement,
since the law is not concerned with
trifles.14chanroblesvirtualawlibrary
The question of whether a breach of contract is
substantial depends upon the attending
circumstances.15chanroblesvirtualawlibrary
In the case at bar, the parties explicitly agreed that the
materials to be delivered must be compliant with the
CHED and IMO standards and must be complete with
manuals. Aside from these clear provisions in the
contracts, the courts a quo similarly found that the
intent of the parties was to replace the old IBS in order
to obtain CHED accreditation for Northwestern's
maritime-related courses.
According to CHED Memorandum Order (CMO) No.
10, Series of 1999, as amended by CMO No. 13,
Series of 2005, any simulator used for simulator-based
training shall be capable of simulating the operating
capabilities of the shipboard equipment concerned.
The simulation must be achieved at a level of physical
realism appropriate for training objectives; include the
capabilities, limitations and possible errors of such
equipment; and provide an interface through which a
trainee can interact with the equipment, and the
simulated environment.
Given these conditions, it was thus incumbent upon GL
Enterprises to supply the components that would
create an IBS that would effectively facilitate the
learning of the students.
However, GL Enterprises miserably failed in meeting
its responsibility. As contained in the findings of the CA
and the RTC, petitioner supplied substandard
equipment when it delivered components that (1) were
old; (2) did not have instruction manuals and warranty
certificates; (3) bore indications of being reconditioned
machines; and, all told, (4) might not have met the IMO
and CHED standards. Highlighting the defects of the
delivered materials, the CA quoted respondent's
testimonial evidence as
follows:16chanroblesvirtualawlibrary
Q: In particular which of these equipment of CHED
requirements were not complied with?
A: The Radar Ma'am, because they delivered only 10-
inch PPI, that is the monitor of the Radar. That is 16-
inch and the gyrocompass with two (2) repeaters and
the history card. The gyrocompass - there is no marker,
there is no model, there is no serial number, no gimbal,
no gyroscope and a bulb to work it properly to point the
true North because it is very important to the Cadets to
learn where is the true North being indicated by the
Master Gyrocompass.
xxx
Q: Mr. Witness, one of the defects you noted down in
this history card is that the master gyrocompass had
no gimbals, gyroscope and balls and was replaced with
an ordinary electric motor. So what is the Implication of
this?
A: Because those gimbals, balls and the gyroscope it
let the gyrocompass to work so it will point the true
North but they being replaced with the ordinary motor
used for toys so it will not indicate the true North.
Q: So what happens if it will not indicate the true North?
A: It is very big problem for my cadets because they
must, to learn into school where is the true North and
what is that equipment to be used on board.
Q: One of the defects is that the steering wheel was
that of an ordinary automobile. And what is the
implication of this?
A: Because. on board Ma am, we are using the real
steering wheel and the cadets will be implicated if they
will notice that the ship have the same steering wheel
as the car so it is not advisable for them.
Q:. And another one is that the gyrocompass repeater
was only refurbished and it has no serial number. What
is wrong with that?
A: It should be original Ma am because this gyro
repeater, it must to repeat also the true North being
indicated by the Master Gyro Compass so it will not
work properly, I don t know it will work properly.
(Underscoring supplied)
Evidently, the materials delivered were less likely to
pass the CHED standards, because the navigation
system to be installed might not accurately point to the
true north; and the steering wheel delivered was one
that came from an automobile, instead of one used in
ships. Logically, by no stretch of the imagination could
these form part of the most modern IBS compliant with
the IMO and CHED standards.
Even in the instant appeal, GL Enterprises does not
refute that the equipment it delivered was substandard.
However, it reiterates its rejected excuse that
Northwestern should have made an assessment only
after the completion of the IBS.17 Thus, petitioner
stresses that it was Northwestern that breached the
agreement when the latter halted the installation of the
materials for the IBS, even if the parties had
contemplated a completed project to be evaluated by
CHED. However, as aptly considered by the CA,
respondent could not just "sit still and wait for such day
that its accreditation may not be granted by CHED due
to the apparent substandard equipment installed in the
bridge system."18 The appellate court correctly
emphasized that, by that time, both parties would have
incurred more costs for nothing.
Additionally, GL Enterprises reasons that, based on the
contracts, the materials that were hauled all the way
from Quezon City to Laoag City under the custody of
the four designated installers might not have been the
components to be used.19 Without belaboring the
point, we affirm the conclusion of the CA and the RTC
that the excuse is untenable for being contrary to
human experience.20chanroblesvirtualawlibrary
Given that petitioner, without justification, supplied
substandard components for the new IBS, it is thus
clear that its violation was not merely incidental, but
directly related to the essence of the agreement
pertaining to the installation of an IBS compliant with
the CHED and IMO standards.
Consequently, the CA correctly found substantial
breach on the part of petitioner.
In contrast, Northwestern's breach, if any, was
characterized by the appellate court as slight or
casual.21 By way of negative definition, a breach is
considered casual if it does not fundamentally defeat
the object of the parties in entering into an agreement.
Furthermore, for there to be a breach to begin with,
there must be a "failure, without legal excuse, to
perform any promise which forms the whole or part of
the contract."22chanroblesvirtualawlibrary
Here, as discussed, the stoppage of the installation
was justified. The action of Northwestern constituted a
legal excuse to prevent the highly possible rejection of
the IBS. Hence, just as the CA concluded, we find that
Northwestern exercised ordinary prudence to avert a
possible wastage of time, effort, resources and also of
the P2.9 million representing the value of the new IBS.
Actual Damages, Moral and Exemplary Damages, and
Attorney's Fees
As between the parties, substantial breach can clearly
be attributed to GL Enterprises. Consequently, it is not
the injured party who can claim damages under Article
1170 of the Civil Code. For this reason, we concur in
the result of the CA's Decision denying petitioner actual
damages in the form of lost earnings, as well as moral
and exemplary damages.
With respect to attorney's fees, Article 2208 of the Civil
Code allows the grant thereof when the court deems it
just and equitable that attorney's fees should be
recovered. An award of attorney's fees is proper if one
was forced to litigate and incur expenses to protect
one's rights and interest by reason of an unjustified act
or omission on the part of the party from whom the
award is sought.23chanroblesvirtualawlibrary
Since we affirm the CA's finding that it was not
Northwestern but GL Enterprises that breached the
contracts without justification, it follows that the
appellate court correctly awarded attorney's fees to
respondent. Notably, this litigation could have
altogether been avoided if petitioner heeded
respondent's suggestion to amicably settle; or, better
yet, if in the first place petitioner delivered the right
materials as required by the contracts.
IN VIEW THEREOF, the assailed 27 July 2009
Decision of the Court of Appeals in CA-G.R. CV No.
88989 is hereby AFFIRMED.
SO ORDERED.
G.R. No. 207133, March 09, 2015
SWIRE REALTY DEVELOPMENT
CORPORATION, Petitioner, v. JAYNE
YU, Respondent.
DECISION
PERALTA, J.:
This is a Petition for Review on Certiorari under Rule
45 of the 1997 Rules of Civil Procedure which seeks to
reverse and set aside the Decision 1 dated January 24,
2013 and Resolution 2 dated April 30, 2013 of the Court
of Appeals (CA) in CA-G.R. SP No. 121175.
The facts follow.
Respondent Jayne Yu and petitioner Swire Realty
Development Corporation entered into a Contract to
Sell on July 25, 1995 covering one residential
condominium unit, specifically Unit 3007 of the Palace
of Makati, located at P. Burgos corner Caceres Sts.,
Makati City, with an area of 137.30 square meters for
the total contract price of P7,519,371.80, payable in
equal monthly installments until September 24, 1997.
Respondent likewise purchased a parking slot in the
same condominium building for P600,000.00.
On September 24, 1997, respondent paid the full
purchase price of P7,519,371.80 for the unit while
making a down payment of P20,000.00 for the parking
lot. However, notwithstanding full payment of the
contract price, petitioner failed to complete and deliver
the subject unit on time. This prompted respondent to
file a Complaint for Rescission of Contract with
Damages before the Housing and Land Use
Regulatory Board (HLURB) Expanded National Capital
Region Field Office (ENCRFO).
On October 19, 2004, the HLURB ENCRFO rendered
a Decision 3 dismissing respondent’s complaint. It
ruled that rescission is not permitted for slight or casual
breach of the contract but only for such breaches as
are substantial and fundamental as to defeat the object
of the parties in making the agreement. It disposed of
the case as follows:chanRoblesvirtualLawlibrary
WHEREFORE, PREMISES CONSIDERED, judgment
is hereby rendered ordering [petitioner] the following:
1. To finish the subject unit as pointed
out in the inspection Report
2. To pay [respondent] the following:
 a. the amount of P100,000 as Wherefore, the decision of the Office below is set aside
compensatory damages for and a new decision is rendered as follows: Based on the ruling in United Overseas Bank
the minor irreversible Philippines, Inc. v. Ching (486 SCRA 655), the period
defects in her unit 1. Declaring the contract to sell as to appeal decisions of the HLURB Board of
[respondent], or, in the rescinded and directing [petitioner] Commissioners to the Office of the President is 15 days
alternative, conduct the to refund to [respondent] the amount from receipt thereof pursuant to Section 15 of P.D. No.
necessary repairs on the of P7,519,371.80 at 6% per annum 957 and Section 2 of P.D. No. 1344 which are special
subject unit to conform to from the time of extrajudicial laws that provide an exception to Section 1 of
the intended specifications; demand on January 05, 2001: Administrative Order No. 18.
b. moral damages of subject to computation and payment
P20,000.00 of the correct filing Corollary thereto, par. 2, Section 1 of Administrative
c. Attorney’s fees of fee;ChanRoblesVirtualawlibrary Order No. 18, Series of 1987 provides that:
P20,000.00 The time during which a motion for reconsideration has
been pending with the Ministry/Agency concerned shall
2. Directing [petitioner] to pay
On the other hand, [respondent] is hereby directed to be deducted from the period of appeal. But where
respondent attorney’s fees in the
immediately update her account insofar as the parking such a motion for reconsideration has been filed during
amount of
slot is concerned, without interest, surcharges or office hours of the last day of the period herein
P20,000.00;ChanRoblesVirtualawli
penalties charged therein. provided, the appeal must be made within the day
brary
following receipt of the denial of said motion by the
All other claims and counterclaims are hereby appealing party. (Underscoring supplied)
3. Directing [petitioner] to pay an
dismissed for lack of merit. administrative fine of P10,000.00 for xxxx
violation of Section 20, in relation to Accordingly, the [petitioner] had only four (4) days from
IT IS SO ORDERED. 4cralawlawlibrary Section 38 of P.D. 957: receipt on 23 July 2007 of HLURB Resolution dated 14
Respondent then elevated the matter to the HLURB June 2007, or until 27 July 2007 to file the Notice of
Board of Commissioners. SO ORDERED. 6cralawred Appeal before this Office. However, [petitioner] filed its
cralawlawlibrary appeal only on 7 August 2007 or eleven (11) days late.
In a Decision 5 dated March 30, 2006, the HLURB
Board of Commissioners reversed and set aside the Petitioner moved for reconsideration, but the same was Thus, this Office need not delve on the merits of the
ruling of the HLURB ENCRFO and ordered the denied by the HLURB Board of Commissioners in a appeal filed as the records clearly show that the said
rescission of the Contract to Sell, Resolution 7 dated June 14, 2007. appeal was filed out of time.
ratiocinating:chanRoblesvirtualLawlibrary
Unfazed, petitioner appealed to the Office of the WHEREFORE, premises considered, [petitioner]’s
President (OP) on August 7, 2007. appeal is hereby DISMISSED, and the HLURB
We find merit in the appeal. The report on the ocular
Decision dated 30 March 2006 and HLURB Resolution
inspection conducted on the subject condominium
In a Decision 8 dated November 21, 2007, the OP, dated 14 June 2007 are hereby AFFIRMED.
project and subject unit shows that the amenities under
through then Deputy Executive Secretary Manuel
the approved plan have not yet been provided as of
Gaite, dismissed petitioner’s appeal on the ground that SO ORDERED. 9cralawlawlibrary
May 3, 2002, and that the subject unit has not been
it failed to promptly file its appeal before the OP. It
delivered to [respondent] as of August 28, 2002, which
held:chanRoblesvirtualLawlibrary Immediately thereafter, petitioner filed a motion for
is beyond the period of development of December
reconsideration against said decision.
1999 under the license to sell. The delay in the
completion of the project as well as of the delay in the Records show that [petitioner] received its copy of the
30 March 2006 HLURB Decision on 17 April 2006 and In a Resolution 10 dated February 17, 2009, the OP,
delivery of the unit are breaches of statutory and
instead of filing an appeal, it opted first to file a Motion through then Executive Secretary Eduardo Ermita,
contractual obligations which entitles [respondent] to
for Reconsideration on 28 April 2006 or eleven (11) granted petitioner’s motion and set aside Deputy
rescind the contract, demand a refund and payment of
days thereafter. The said motion interrupted the 15-day Executive Secretary Gaite’s decision. It held that after
damages.
period to appeal. a careful and thorough evaluation and study of the
records of the case, the OP was more inclined to agree
The delay in the completion of the project in
On 23 July 2007, [petitioner] received the HLURB with the earlier decision of the HLURB ENCRFO as it
accordance with the license to sell also renders
Resolution dated 14 June 2007 denying the Motion for was more in accord with facts, law and jurisprudence
[petitioner] liable for the payment of administrative fine.
Reconsideration. relevant to the case.
Thus:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the instant COMPLAINED OF IS
Motion for Reconsideration is hereby GRANTED. The SUBSTANTIAL AS TO DEFEAT
Decision and Resolution of the HLURB Third Division THE OBJECT OF THE PARTIES IN
Board of Commissioners, dated March 30, 2006 and ENTERING INTO THE
June 14, 2007, respectively, are hereby SET ASIDE, AGREEMENT. 14
and the HLURB ENCRFO Decision dated October 19,
2004 is hereby REINSTATED. cralawlawlibrary
11cralawred
SO ORDERED. In essence, the issues are: (1) whether petitioner’s
cralawlawlibrary appeal was timely filed before the OP; and (2) whether
rescission of the contract is proper in the instant case.
Respondent sought reconsideration of said resolution,
however, the same was denied by the OP in a We shall resolve the issues in seriatim.
Resolution 12 dated August 18, 2011.
First, the period to appeal the decision of the HLURB
Consequently, respondent filed an appeal to the CA. Board of Commissioners to the Office of the President
has long been settled in the case of SGMC Realty
In a Decision dated January 24, 2013, the CA granted Corporation v. Office of the President, 15 as reiterated
respondent’s appeal and reversed and set aside the in the cases of Maxima Realty Management and
Order of the OP. The fallo of its decision Development Corporation v. Parkway Real Estate
reads:chanRoblesvirtualLawlibrary Development Corporation 16 and United Overseas
Bank Philippines, Inc. v. Ching. 17cralawred
WHEREFORE, the Petition is hereby GRANTED. The
assailed Resolution dated 17 February 2009 In the aforementioned cases, we ruled that the period
and Order dated 18 August 2011 of the Office of the to appeal decisions of the HLURB Board of
President, in O.P. Case No. 07-H-283, are Commissioners is fifteen (15) days from receipt thereof
hereby REVERSED and SET ASIDE. Accordingly, the pursuant to Section 15 18 of PD No. 957 19 and Section
Decision dated 30 March 2006 and Resolution dated 2 20 of PD No. 1344 21 which are special laws that
14 June 2007 of the HLURB Board of Commissioners provide an exception to Section 1 of Administrative
in HLURB Case No. REM-A-050127-0014, Order No. 18. Thus, in the SGMC Realty Corporation
are REINSTATED. v. Office of the President case, the Court
explained:chanRoblesvirtualLawlibrary
SO ORDERED.cralawlawlibrary 13cralawred
cralawlawlibrary
As pointed out by public respondent, the aforecited
administrative order allows aggrieved party to file its
Petitioner moved for reconsideration, however, the CA
appeal with the Office of the President within thirty (30)
denied the same in a Resolution dated April 30, 2013.
days from receipt of the decision complained of.
Nonetheless, such thirty-day period is subject to the
Hence, the present petition wherein petitioner raises
qualification that there are no other statutory periods of
the following grounds to support its
appeal applicable. If there are special laws governing
petition:chanRoblesvirtualLawlibrary
particular cases which provide for a shorter or longer
reglementary period, the same shall prevail over the
THE COURT OF APPEALS GRAVELY ERRED IN thirty-day period provided for in the administrative
IGNORING THE LEGAL PRECEPTS THAT:
order. This is in line with the rule in statutory
construction that an administrative rule or regulation, in
1. TECHNICAL RULES ARE NOT order to be valid, must not contradict but conform to the
BINDING UPON ADMINISTRATIVE provisions of the enabling law.
AGENCIES; and
We note that indeed there are special laws that
2. RESCISSION WILL BE ORDERED mandate a shorter period of fifteen (15) days within
ONLY WHERE THE BREACH which to appeal a case to public respondent. First,
Section 15 of Presidential Decree No. 957 provides
that the decisions of the National Housing Authority
(NHA) shall become final and executory after the lapse
of fifteen (15) days from the date of receipt of the
decision. Second, Section 2 of Presidential Decree No.
1344 states that decisions of the National Housing
Authority shall become final and executory after the
lapse of fifteen (15) days from the date of its receipt.
The latter decree provides that the decisions of the
NHA is appealable only to the Office of the President.
Further, we note that the regulatory functions of NHA
relating to housing and land development has been
transferred to Human Settlements Regulatory
Commission, now known as HLURB. x x
x 22cralawlawlibrary
Records show that petitioner received a copy of the
HLURB Board of Commissioners’ decision on April 17,
2006. Correspondingly, it had fifteen days from April
17, 2006 within which to file its appeal or until May 2,
2006. However, on April 28, 2006, or eleven days after
receipt of the HLURB Board of Commissioner’s
decision, it filed a Motion for Reconsideration, instead
of an appeal.
Concomitantly, Section 1 of Administrative Order No.
18 23 provides that the time during which a motion for
reconsideration has been pending with the ministry or
agency concerned shall be deducted from the period
for appeal. Petitioner received the HLURB Board
Resolution denying its Motion for Reconsideration on
July 23, 2007 and filed its appeal only on August 7,
2007. Consequently therefore, petitioner had only four
days from July 23, 2007, or until July 27, 2007, within
which to file its appeal to the OP as the filing of the
motion for reconsideration merely suspended the
running of the 15-day period. However, records reveal
that petitioner only appealed to the OP on August 7,
2007, or eleven days late. Ergo, the HLURB Board of
Commissioners’ decision had become final and
executory on account of the fact that petitioner did not
promptly appeal with the OP.
In like manner, we find no cogent reason to exempt
petitioner from the effects of its failure to comply with
the rules.
In an avuncular case, we have held that while the
dismissal of an appeal on purely technical grounds is
concededly frowned upon, it bears emphasizing that
the procedural requirements of the rules on appeal are
not harmless and trivial technicalities that litigants can
just discard and disregard at will. Neither being a violates the reciprocity between them. The breach cladding could not be
natural right nor a part of due process, the rule is contemplated in the said provision is the obligor’s determined.
settled that the right to appeal is merely a statutory failure to comply with an existing obligation. When the
privilege which may be exercised only in the manner obligor cannot comply with what is incumbent upon it, d. Window opening at the
and in accordance with the provisions of the the obligee may seek rescission and, in the absence of master bedroom conforms
law. 24cralawred any just cause for the court to determine the period of to the approved plans. As a
compliance, the court shall decree the result it leaves a 3 inches
Time and again, we have held that rules of procedure rescission. 27cralawred (sic) gap between the glass
exist for a noble purpose, and to disregard such rules, window and partitioning of
in the guise of liberal construction, would be to defeat In the instant case, the CA aptly found that the the master’s bedroom.
such purpose. Procedural rules are not to be disdained completion date of the condominium unit was
as mere technicalities. They may not be ignored to suit November 1998 pursuant to License No. 97-12-3202 e. It was verified and
the convenience of a party. 25 The reason for the liberal dated November 2, 1997 but was extended to confirmed that a square
application of the rules before quasi-judicial agencies December 1999 as per License to Sell No. 99-05-3401 column replaced the round
cannot be used to perpetuate injustice and hamper the dated May 8, 1999. However, at the time of the ocular column, based on the
just resolution of the case. Neither is the rule on liberal inspection conducted by the HLURB ENCRFO, the unit approved plans.
construction a license to disregard the rules of was not yet completely finished as the kitchen cabinets
procedure. 26cralawred and fixtures were not yet installed and the agreed
f. At the time of inspection,
amenities were not yet available. Said inspection report
amenities such as
Thus, while there may be exceptions for the relaxation states:chanRoblesvirtualLawlibrary
swimming pool and change
of technical rules principally geared to attain the ends
room are seen at the
of justice, petitioner’s fatuous belief that it had a fresh 1. The unit of the [respondent] is Unit 31st floor only. These
15-day period to elevate an appeal with the OP is not 3007, which was labeled as P2-07, amenities are reflected on
the kind of exceptional circumstance that merits at the Palace of Makati, located at the 27th floor plan of the
relaxation. the corner of P. Burgos Street and approved condominium
Caceres Street, Poblacion, Makati plans. Health spa for men
Second, Article 1191 of the Civil Code sanctions the City. Based on the approved plans, and women, Shiatsu
right to rescind the obligation in the event that specific the said unit is at the 26th Floor. Massage Room, Two-
performance becomes impossible, to 2. During the time of inspection, the Level Sky Palace
wit:chanRoblesvirtualLawlibrary said unit appears to be completed Restaurant and Hall for
except for the installation of kitchen games and entertainments,
Article 1191. The power to rescind obligations is cabinets and fixtures. replete with billiard tables,
implied in reciprocal ones, in case one of the obligors a bar, indoor golf with
should not comply with what is incumbent upon him. 3. Complainant pinpointed to the spectacular deck and
undersigned the deficiencies as karaoke rooms were not
The injured party may choose between the fulfillment follows: yet provided by the
and the rescission of the obligation, with the payment [petitioner].
of damages in either case. He may also seek
a. The delivered unit has high
rescission, even after he has chosen fulfillment, if the
density fiber (HDF) g. The [master’s] bedroom
latter should become impossible.
floorings instead of narra door bore sign of poor
wood parquet. quality of workmanship as
The court shall decree the rescission claimed, unless
seen below.
there be just cause authorizing the fixing of a period.
b. The [petitioners] have also
This is understood to be without prejudice to the rights installed baseboards as h. The stairs have been
of third persons who have acquired the thing, in borders instead of pink installed in such manner
accordance with Articles 1385 and 1388 and the porrino granite boarders. acceptable to the
Mortgage Law.cralawlawlibrary undersigned.
c. Walls are newly painted by
Basic is the rule that the right of rescission of a party to the respondent and the i. Bathrooms and powder
an obligation under Article 1191 of the Civil Code is alleged obvious signs of room have been installed in
predicated on a breach of faith by the other party who
 such manner acceptable to
the undersigned. 28
cralawlawlibrary
From the foregoing, it is evident that the report on the
ocular inspection conducted on the subject
condominium project and subject unit shows that the
amenities under the approved plan have not yet been
provided as of May 3, 2002, and that the subject unit
has not been delivered to respondent as of August 28,
2002, which is beyond the period of development of
December 1999 under the license to sell.
Incontrovertibly, petitioner had incurred delay in the
performance of its obligation amounting to breach of
contract as it failed to finish and deliver the unit to
respondent within the stipulated period. The delay in
the completion of the project as well as of the delay in
the delivery of the unit are breaches of statutory and
contractual obligations which entitle respondent to
rescind the contract, demand a refund and payment of
damages.
WHEREFORE, premises considered, the instant
petition is DENIED. The Decision dated January 24,
2013 and Resolution dated April 30, 2013 of the Court
of Appeals in CA-G.R. SP No. 121175 are
hereby AFFIRMED, with MODIFICATION that moral
damages be awarded in the amount of P20,000.00
SO ORDERED.crala
G.R. No. 185592, June 15, 2015
GEORGE C. FONG, Petitioner, v. JOSE V.
DUEÑAS, Respondent.
DECISION
BRION, J.:
We resolve in this petition for review on certiorari1 the
challenge to the September 16, 2008 decision2 and the
December 8, 2008 resolution3 of the Court of Appeals
(CA) in CA-G.R. CV No. 88396.
These assailed CA rulings annulled the June 27, 2006
decision4 and October 30, 2006 order5 of the Regional
Trial Court of Makati, Branch 64 (trial court), which
directed respondent Jose V. Dueñas (Dueñas) to pay
Five Million Pesos (P5 Million) to petitioner George C.
Fong (Fong), and imposed a six percent (6%) annual
interest on this amount.
Factual Antecedents
Dueñas is engaged in the bakery, food manufacturing,
and retailing business, which are all operated under his
two companies, D.C. DANTON, Inc. (Danton) and
Bakcom Food Industries, Inc. (Bakcom). He was an old
acquaintance of Fong as they were former
schoolmates at the De La Salle
University.6chanrobleslaw
Sometime in November 1996, Dueñas and Fong
entered into a verbal joint venture contract where they
agreed to engage in the food business and to
incorporate a holding company under the name
Alliance Holdings, Inc. (Alliance or the proposed
corporation). Its capitalization would be Sixty Five
Million Pesos (P65 Million), to which they would
contribute in equal parts.7chanrobleslaw
The parties agreed that Fong would contribute Thirty
Two Million and Five Hundred Thousand Pesos (P32.5
Million) in cash while Dueñas would contribute all his
Danton and Bakcom shares which he valued at P32.5
Million.8 Fong required Dueñas to submit the financial
documents supporting the valuation of these shares.
On November 25, 1996, Fong started remitting in
tranches his share in the proposed corporation’s
capital. He made the remittances under the impression
that his contribution would be applied as his
subscription to fifty percent (50%) of Alliance’s total
shareholdings. On the other hand, Dueñas started
processing the Boboli9 international license that they
would use in their food business. Fong’s cash
contributions are summarized below.10c
ralawred
Date Amount
November 25, 1996 P1,980,475.20
January 14, 1997 P1,000,000.00
February 8, 1997 P500,000.00
March 7, 1997 P100,000.00
April 28, 1997 P500,000.00
June 13, 1997 P919,524.80
Total P5,000,000.00
On June 13, 1997, Fong sent a letter to Dueñas
informing him of his decision to limit his total
contribution from P32.5 Million to P5 Million. This
letter reads:chanRoblesvirtualLawlibrary
June 13, 1997
Mr. Jose Dueñas
c/o Camira Industries
Re: Proposed JV in Bakcom, D.C. Danton and Boboli
Dear Jojit,
Enclosed is our check for P919,534.80 representing
our additional advances to subject company in
process of incorporation. This will make our total
advances to date amounting to P5 million.
Since we agreed in principal late last year to pursue
subject matter, the delays in implementing the joint
venture have caused us to rethink our position. First,
we were faced with the ‘personal’ factor which was
explained to you one time. This has caused us to turn
down a number of business opportunities. Secondly,
since last year, the operation of Century 21 has been
taking more time from us than anticipated. That is why
we decided to relinquish our original plan to manage
and operate ‘Boboli’ knowing this limitation. For us, it
does not make sense anymore to go for a significant
shareholding when we cannot be hands on and
participate actively as originally planned. For your
information, we will probably be giving up our subway
franchise too.
Together with our business advisers and legal
counsel, we came to a decision to hold our
commitment (from advances to investment) at P5
million only for now from the original plan of P32.5
million, if this is acceptable to you.
We know that our decision will somewhat upset the
overall plans. But it will probably be more problematic
for us in the long run if we continue full speed. We have
put our money down in trust and good faith despite
the much delayed financials. We continue to believe
in your game plan and capabilities to achieve the
desired goals for subject undertaking. Please permit us
instead to be just a modest silent investor now with a
take out plan when time and price is right.
Thank you for your kind understanding and
consideration.
With best regards.
(Signed) George Fong11
Fong observed that despite his P5 Million
contribution, Dueñas still failed to give him the
financial documents on the valuation of the Danton
and Bakcom shares. Thus, except for Dueñas’
representations, Fong had nothing to rely on to ensure
that these shares were really valued at P32.5
Million. Moreover, Dueñas failed to incorporate and
register Alliance with the Securities and Exchange
Commission (SEC).12chanrobleslaw
These circumstances convinced Fong that Dueñas
would no longer honor his obligations in their joint
venture agreement.13 Thus, on October 30, 1997,
Fong wrote Dueñas informing him of his decision to
cancel the joint venture agreement. He also asked for
the refund of the P5 Million that he advanced. 14In
response, Dueñas admitted that he could not
immediately return the money since he used it to
defray the business expenses of Danton and
Bakcom.15chanrobleslaw
To meet Fong’s demand, Dueñas proposed several
schemes for payment of the P5 Million.16 However,
Fong did not accept any of these proposed schemes.
On March 25, 1998, Fong wrote a final letter of
demand17 informing Dueñas that he would file a judicial
action against him should he still fail to pay after receipt
of this written demand.
Since Dueñas did not pay, Fong filed a complaint
against him for collection of a sum of money and
damages18 on April 24, 1998.
The Trial Court’s Ruling
In its June 27, 2006 decision, the trial court ruled in
favor of Fong and held that a careful examination of the
complaint shows that although it was labeled as an
action for collection of a sum of money, it was actually
an action for rescission.19chanrobleslaw
The trial court noted that Dueñas’ failure to furnish
Fong with the financial documents on the valuation of
the Danton and Bakcom shares, as well as the almost
one year delay in the incorporation of Alliance, caused
Fong to rescind the joint venture
agreement.20 According to the trial court, these are
adequate and acceptable reasons for rescission.
The trial court also held that Dueñas erroneously
invested Fong’s cash contributions in his two
companies, Danton and Bakcom. The signed
receipts,21 presented as evidence, expressly provided
that each remittance should be applied as advance
subscription to Fong’s shareholding in Alliance.
Thus, Dueñas’ investment of the money in Danton and
Bakcom was clearly unauthorized and contrary to the
parties’ agreement.
Since Dueñas was unjustly enriched by Fong’s
advance capital contributions, the trial court ordered
him to return the money amounting to P5 Million and to
pay ten percent (10%) of this amount in attorney’s fees,
as well as the cost of the suit.22chanrobleslaw
Fong filed a partial motion for reconsideration from the
trial court’s June 27, 2006 decision and asked for the
imposition of a six percent (6%) annual interest,
computed from the date of extrajudicial demand until
full payment of the award. The trial court granted this
prayer in its October 30, 2006 order.23chanrobleslaw
The CA’s Ruling
Dueñas responded to the trial court’s ruling through an
appeal with the CA, which granted the appeal and
annulled the trial court’s ruling.
The CA ruled that Fong’s June 13, 1997 letter
evidenced his intention to convert his cash
contributions from “advances” to the proposed
corporation’s shares, to mere “investments.” Thus,
contrary to the trial court’s ruling, Dueñas correctly
invested Fong’s P5 Million contribution to Bakcom and
Danton. This did not deviate from the parties’ original
agreement as eventually, the shares of these two
companies would form part of Alliance’s
capital.24chanrobleslaw
Lastly, the CA held that the June 13, 1997 letter
showed that Fong knew all along that he could not
immediately ask for the return of his P5 Million
investment. Thus, whether the action filed was a
complaint for collection of a sum of money, or
rescission, it must still fail.25chanrobleslaw
The Petition
Fong submits that the CA erred when it ruled that his
June 13, 1997 letter showed his intent to convert his
contributions from advance subscriptions to Alliance’s
shares, to investments in Dueñas’ two companies.
Contrary to the CA’s findings, the receipts and the letter
expressly mentioned that his contributions should all
be treated as his share subscription to
Alliance.26chanrobleslaw
Also, Fong argues that Dueñas’ unjustified retention of
the P5 Million and its appropriation to his (Dueñas’)
own business, amounted to unjust enrichment; and
that he contributed to fund Alliance’s capital and
incorporation, not to pay for Danton and Bakcom’s
business expenses.27chanrobleslaw
The Case for Dueñas
Dueñas contends that he could no longer refund the P5
Million since he had already applied it to his two
companies; that this is proper since Danton and
Bakcom’s shares would also form part of his capital
contribution to Alliance.28chanrobleslaw
Moreover, the incorporation did not push through
because Fong unilaterally rescinded the joint venture
agreement by limiting his investment from P32.5 Million
to P5 Million.29 Thus, it was Fong who first breached
the contract, not he. Consequently, Fong’s failure to
comply with his undertaking disqualified him from
seeking the agreement’s rescission.30chanrobleslaw
The Court’s Ruling
We resolve to GRANT the petition.
At the outset, the Court notes that the parties’ joint
venture agreement to incorporate a company that
would hold the shares of Danton and Bakcom and that
would serve as the business vehicle for their food
enterprise, is a valid agreement. The failure to reduce
the agreement to writing does not affect its validity or
enforceability as there is no law or regulation which
provides that an agreement to incorporate must be in
writing.
With this as premise, we now address the related
issues raised by the parties.
The body rather than the title of the complaint
determines the nature of the action.
A well-settled rule in procedural law is that the
allegations in the body of the pleading or the complaint,
and not its title, determine the nature of an
action.31chanrobleslaw
An examination of Fong’s complaint shows
that although it was labeled as an action for a sum
of money and damages, it was actually a complaint
for rescission. The following allegations in the
complaint support this finding:
9. Notwithstanding the aforesaid remittances,
defendant failed for an unreasonable length of time
to submit a valuation of the equipment of D.C.
Danton and Bakcom x x x.
10. Worse, despite repeated reminders from
plaintiff, defendant failed to accomplish the
organization and incorporation of the proposed
holding company, contrary to his representation to
promptly do so.
x x x x
17. Considering that the incorporation of the
proposed holding company failed to materialize,
despite the lapse of one year and four months from
the time of subscription, plaintiff has the right to
revoke his pre-incorporation subscription. Such
revocation entitles plaintiff to a refund of the
amount of P5,000,000.00 he remitted to defendant,
representing advances made in favor of defendant to
be considered as payment on plaintiff’s subscription to
the proposed holding company upon its incorporation,
plus interest from receipt by defendant of said amount
until fully paid. [Emphasis supplied.]
Fong’s allegations primarily pertained to his
cancellation of their verbal agreement because
Dueñas failed to perform his obligations to provide
verifiable documents on the valuation of the
Danton’s and Bakcom’s shares, and to incorporate
the proposed corporation. These allegations clearly
show that what Fong sought was the joint venture same cause, in which each party is a debtor and a
agreement’s rescission. creditor of the other, such that the obligation of one is
dependent on the obligation of the
As a contractual remedy, rescission is available when other.36chanrobleslaw
one of the parties substantially fails to do what he has
obligated himself to perform.32 It aims to address the Fong and Dueñas’ execution of a joint venture
breach of faith and the violation of reciprocity between agreement created between them reciprocal
two parties in a contract.33 Under Article 1191 of the obligations that must be performed in order to fully
Civil Code, the right of rescission is inherent in consummate the contract and achieve the purpose for
reciprocal obligations, viz:chanRoblesvirtualLawlibrary which it was entered into.
The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not Both parties verbally agreed to incorporate a company
comply with what is incumbent upon him. [Emphasis that would hold the shares of Danton and Bakcom and
supplied.] which, in turn, would be the platform for their food
Dueñas submits that Fong’s prayer for the return of his business. Fong obligated himself to contribute half of
cash contribution supports his claim that Fong’s the capital or P32.5 Million in cash. On the other hand,
complaint is an action for collection of a sum of money. Dueñas bound himself to shoulder the other half by
However, Dueñas failed to appreciate that the contributing his Danton and Bakcom shares, which
ultimate effect of rescission is to restore the were allegedly also valued at P32.5 Million. Aside from
parties to their original status before they entered this, Dueñas undertook to process Alliance’s
in a contract. As the Court ruled in Unlad Resources incorporation and registration with the SEC.
v. Dragon:34cralawred
Rescission has the effect of “unmaking a contract, or When the proposed company remained
its undoing from the beginning, and not merely its unincorporated by October 30, 1997, Fong cancelled
termination.” Hence, rescission creates the joint venture agreement and demanded the return
the obligation to return the object of the contract. It of his P5 Million contribution.
can be carried out only when the one who demands
rescission can return whatever he may be obliged to For his part, Dueñas explained that he could not
restore. To rescind is to declare a contract void at its immediately return the P5 Million since he had invested
inception and to put an end to it as though it never was. it in his two companies. He found nothing irregular in
It is not merely to terminate it and release the parties this as eventually, the Danton and Bakcom shares
from further obligations to each other, but to abrogate would form part of Alliance’s capital.
it from the beginning and restore the parties to their
relative positions as if no contract has been made. Dueñas’ assertion is erroneous.
Accordingly, when a decree for rescission is handed The parties never agreed that Fong would invest his
down, it is the duty of the court to require both money in Danton and Bakcom. Contrary to Dueñas’
parties to surrender that which they have submission, Fong’s understanding was that his money
respectively received and to place each other as far would be applied to his shareholdings in Alliance. As
as practicable in his original situation.35 [Emphasis shown in Fong’s June 13, 1997 letter, this fact
supplied.] remained to be true even after he limited his
In this light, we rule that Fong’s prayer for the return of contribution to P5
his contribution did not automatically convert the action Million, viz:chanRoblesvirtualLawlibrary
to a complaint for a sum of money. The mutual Dear Jojit,
restitution of the parties’ original contributions is
only a necessary consequence of their Enclosed is our check for P919,534.80 representing
agreement’s rescission. our additional advances to subject company in
process of incorporation. This will make our total
Rescission under Art. 1191 is applicable in the advances to date amounting to P5 million.37 [Emphasis
present case supplied.]
Moreover, under the Corporation Code, before a stock
Reciprocal obligations are those which arise from the corporation may be incorporated and registered, it is
required that at least twenty five percent (25%) of its
authorized capital stock as stated in the articles of
incorporation, be first subscribed at the time of
incorporation, and at least twenty five percent (25%) of
the total subscription, be paid upon
subscription.38chanrobleslaw
To prove compliance with this requirement, the SEC
requires the incorporators to submit a treasurer’s
affidavit and a certificate of bank deposit, showing the
existence of an amount compliant with the prescribed
capital subscription.39chanrobleslaw
In this light, we conclude that Fong’s cash
contributions play an indispensable part in
Alliance’s incorporation. The process necessarily
requires the money not only to fund Alliance’s
registration with the SEC but also its initial capital
subscription. This is evident in the receipts which
Dueñas himself executed, one of which
provides:chanRoblesvirtualLawlibrary
I, JOSE V. DUEÑAS, hereby acknowledge the receipt
on January 14, 1997 of the amount of One Million
Pesos (Php 1,000,000.00) Check No. 118 118 7014
Metro Bank, Pasong Tamo branch dated January 13,
1997 from Mr. George Fong, which amount shall
constitute an advance of the contribution or
investment of Mr. Fong in the joint venture which
he and I are in the process of organizing.
Specifically, this amount will be considered as part of
Mr. Fong’s subscription to the shares of stock of the
joint venture company which we will incorporate to
embody and carry out our joint venture.40 [Emphasis
supplied.]
Thus, Dueñas erred when he invested Fong’s
contributions in his two companies. This money should
have been used in processing Alliance’s registration.
Its incorporation would not materialize if there would be
no funds for its initial capital. Moreover, Dueñas
represented that Danton and Bakcom’s shares were
valued at P32.5 Million. If this was true, then there was
no need for Fong’s additional P5 Million investment,
which may possibly increase the value of the Danton
and Bakcom shares.
Under these circumstances, the Court agrees with the
trial court that Dueñas violated his agreement with
Fong. Aside from unilaterally applying Fong’s
contributions to his two companies, Dueñas also
failed to deliver the valuation documents of the
Danton and Bakcom shares to prove that the
combined values of their capital contributions
actually amounted to P32.5 Million.
These acts led to Dueñas’ delay in incorporating
the planned holding company, thus resulting in his
breach of the contract.
On this basis, Dueñas’ breach justified Fong’s
rescission of the joint venture agreement under Article
1191. As the Court ruled in Velarde v. Court of
Appeals:41cralawred
The right of rescission of a party to an obligation
under Article 1191 of the Civil Code is predicated on
a breach of faith by the other party who violates the
reciprocity between them. The breach contemplated
in the said provision is the obligor’s failure to comply
with an existing obligation. When the obligor cannot
comply with what is incumbent upon it, the obligee
may seek rescission and in the absence of any just
cause for the court to determine the period of
compliance, the court shall decree the rescission.
In the present case, private respondents validly
exercised their right to rescind the contract,
because of the failure of petitioners to comply with
their obligation to pay the balance of the purchase
price. Indubitably, the latter violated the very essence
of reciprocity in the contract of sale, a violation that
consequently gave rise to private respondents’ right to
rescind the same in accordance with law.42 [Emphasis
supplied.]
However, the Court notes that Fong also breached
his obligation in the joint venture agreement.
In his June 13, 1997 letter, Fong expressly informed
Dueñas that he would be limiting his cash contribution
from P32.5 Million to P5 Million because of the
following reasons which we quote
verbatim:chanRoblesvirtualLawlibrary
1. First, we were faced with the
‘personal’ factor which was
explained to you one time. This has
caused us to turn down a number of
business opportunities;
2. Secondly, since last year, the
operation of Century 21 has been
taking more time from us than
anticipated. That is why we decided
to relinquish our original plan to
manage and operate ‘Boboli’
knowing this limitation. For us, it
does not make sense anymore to go
for a significant shareholding when
we cannot be hands on and
participate actively as originally
planned.43 x x x.
Although these reasons appear to be valid, they do
not erase the fact that Fong still reneged on his
original promise to contribute P32.5 Million. The
joint venture agreement was not reduced to writing and
the evidence does not show if the parties agreed on
valid causes that would justify the limitation of the
parties’ capital contributions. Their only admission was
that they obligated themselves to contribute P32.5
Million each.
Hence, Fong’s diminution of his capital share to P5
Million also amounted to a substantial breach of
the joint venture agreement, which breach
occurred before Fong decided to rescind his
agreement with Dueñas. Thus, Fong also contributed
to the non-incorporation of Alliance that needed P65
Million as capital to operate.
Fong cannot entirely blame Dueñas since the
substantial reduction of his capital contribution also
greatly impeded the implementation of their agreement
to engage in the food business and to incorporate a
holding company for it.
As both parties failed to comply with their respective
reciprocal obligations, we apply Article 1192 of the Civil
Code, which provides:chanRoblesvirtualLawlibrary
Art. 1192. In case both parties have committed a
breach of the obligation, the liability of the first infractor
shall be equitably tempered by the courts. If it cannot
be determined which of the parties first violated the
contract, the same shall be deemed extinguished,
and each shall bear his own damages. [Emphasis
supplied.]
Notably, the Court is not aware of the schedule of
performance of the parties’ obligations since the joint
venture agreement was never reduced to writing. The
facts, however, show that both parties began
performing their obligations after executing the joint
venture agreement. Fong started remitting his share
while Dueñas started processing the Boboli
international license for the proposed corporation’s
food business.
The absence of a written contract renders the Court
unsure as to whose obligation must be performed first.
It is possible that the parties agreed that Fong would
infuse capital first and Dueñas’ submission of the
documents on the Danton and Bakcom shares would
just follow. It could also be the other way around.
Further, the parties could have even agreed to
simultaneously perform their respective obligations.

Despite these gray areas, the fact that both Fong

and Dueñas substantially contributed to the non-
incorporation of Alliance and to the failure of their
food business plans remains certain.

As the Court cannot precisely determine who between

the parties first violated the agreement, we apply the
second part of Article 1192 which states: “if it cannot
be determined which of the parties first violated the
contract, the same shall be deemed extinguished, and
each shall bear his own damages.”

In these lights, the Court holds that the joint venture

agreement between Fong and Dueñas is deemed
extinguished through rescission under Article
1192 in relation with Article 1191 of the Civil Code.
Dueñas must therefore return the P5 Million that Fong
initially contributed since rescission requires mutual
restitution.44After rescission, the parties must go
back to their original status before they entered
into the agreement. Dueñas cannot keep Fong’s
contribution as this would constitute unjust enrichment.

No damages shall be awarded to any party in

accordance with the rule under Article 1192 of the Civil
Code that in case of mutual breach and the first
infractor of the contract cannot exactly be determined,
each party shall bear his own damages.

WHEREFORE, premises considered, we

hereby GRANT the petition and reverse the
September 16, 2008 decision and December 8, 2008
resolution of the Court of Appeals in CA-G.R. CV No.
88396. Respondent Jose V. Dueñas is ordered
to RETURN Five Million Pesos to petitioner George C.
Fong. This amount shall incur an interest of six percent
(6%) per annum from the date of finality of this
judgment until fully paid.45 The parties’ respective
claims for damages are deemed EXTINGUISHED and
each of them shall bear his own damages.

SO ORDERED.cr

G.R. No. 210215, December 09, 2015
ROGELIO S. NOLASCO, NICANORA N. GUEVARA,
LEONARDA N. ELPEDES, HEIRS OF ARNULFO S.
NOLASCO, AND REMEDIOS M. NOLASCO,
REPRESENTED BY ELENITA M.
NOLASCO Petitioners, v. CELERINO S. CUERPO,
JOSELITO ENCABO, JOSEPH ASCUTIA, AND
DOMILO LUCENARIO, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the
Decision2 dated June 17, 2013 and
Resolution3 dated November 19, 2013 of the Court of
Appeals (CA) in CA-G.R. CV No. 95353, which
affirmed in toto the Decision4 dated March 1, 2010 of
the Regional Trial Court of Quezon City, Branch 81
(RTC) in Civil Case No. Q-08-63860 ordering the
rescission of the Contract to Sell executed by herein
parties and the return of the amounts already paid by
respondents Celerino S. Cuerpo, Joselito Encabo,
Joseph Ascutia, and Domilo Lucenario (respondents)
to petitioners Rogelio S. Nolasco, Nicanora N.
Guevara, Leonarda N. Elpedes, Heirs of Arnulfo S.
Nolasco, and Remedios M. Nolasco, represented by
Elenita M. Nolasco (petitioners), as well as the
remaining post-dated checks issued by respondent
Celerino S. Cuerpo representing the remaining
monthly amortizations, all in connection with the said
contract.
The Facts
On July 22, 2008, petitioners and respondents entered
into a Contract to Sell5 (subject contract) over a
165,775-square meter parcel of land located in
Barangay San Isidro, Rodriguez, Rizal covered by
Original Certificate of Title No. 152 (subject land).6 The
subject contract provides, inter alia, that: (a) the
consideration for the sale is P33,155,000.00 payable
as follows: down payment in the amount of
P11,604,250.00 inclusive of the amount of
P2,000,000.00 previously paid by respondents as
earnest money/reservation fee, and the remaining
balance of P21,550,750.00 payable in 36 monthly
installments, each in the amount of P598,632.00
through post-dated checks; (b) in case any of the
checks is dishonored, the amounts already paid shall
be forfeited in petitioners' favor, and the latter shall be
entitled to cancel the subject contract without judicial
recourse in addition to other appropriate legal action;
(c) respondents are not entitled to possess the subject
land until full payment of the purchase price; (d)
petitioners shall transfer the title over the subject land
from a certain Edilberta N. Santos to petitioners'
names, and, should they fail to do so, respondents may
cause the said transfer and charge the costs incurred
against the monthly amortizations; and (e) upon full
payment of the purchase price, petitioners shall
transfer title over the subject land to
respondents.7 However, respondents sent petitioners
a letter8 dated November 7, 2008 seeking to rescind
the subject contract on the ground of financial
difficulties in complying with the same. They also
the
sought the return of the amount of P12,202,882.00
they had paid to petitioners.9 As their letter went
unheeded, respondents filed the instant complaint10 for
rescission before the RTC.11
In their defense,12 petitioners countered that
respondents' act is a unilateral cancellation of the
subject contract as the former did not consent to it.
Moreover, the ground of financial difficulties is not
among the grounds provided by law to effect a valid
rescission.13
In view of petitioners' failure to file the required pre-trial
brief, they were declared "as in default" and,
consequently, respondents were allowed to present
their evidence ex-parte.14
The RTC Ruling
In a Decision15 dated March 1, 2010, the RTC ruled in
favor of respondents and, accordingly, ordered: (a) the
rescission of the subject contract; and (b) the return of
the amounts already paid by respondents to
petitioners, as well as the remaining post-dated checks
issued by respondent Celerino S. Cuerpo representing
the remaining monthly amortizations.16
It found petitioners to have substantially breached
paragraph 7 of the subject contract which states that
"[t]he [petitioners] shall, within ninety (90) days from the
signing of [the subject contract] cause the completion
of the transfer of registration of title of the property
subject of [the said contract], from Edilberta N. Santos
to their names, at [petitioners'] own expense."17 As
such, respondents were entitled to rescission under
Article 1191 of the Civil Code.18
Dissatisfied, petitioners appealed19 to the CA.
The CA Ruling
In a Decision20 dated June 17, 2013, the CA affirmed
the RTC ruling. It agreed with the RTC that petitioners
substantially breached paragraph 7 of the subject
contract when they did not effect the transfer of the
subject land from Edilberta N. Santos to petitioners'
names within ninety (90) days from the execution of
said contract, thus, entitling respondents to rescind the
same. In this relation, the CA held that under the
present circumstances, the forfeiture of the payments
already made by respondents to petitioners is clearly
improper and unwarranted.21
Aggrieved, petitioners moved for
reconsideration,22 which was denied in a
Resolution23 dated November 19, 2013; hence, this
petition.
The Issue Before the Court
The core issue for the Court's resolution is whether or
not the CA correctly affirmed the rescission of the
subject contract and the return of the amounts already
paid by respondents to petitioners, as well as the
remaining post-dated checks issued by respondent
Celerino S. Cuerpo representing the remaining
monthly amortizations.
The Court's Ruling
The petition is partially meritorious.
In reciprocal obligations, either party may rescind - or
more appropriately, resolve - the contract upon the
other party's substantial breach of the obligation/s he
had assumed thereunder.24 This is expressly provided
for in Article 1191 of the Civil Code which states:
Art. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the
Mortgage Law.
"More accurately referred to as resolution, the right of
rescission under Article 1191 is predicated on a breach
of faith that violates the reciprocity between the parties
to the contract. This retaliatory remedy is given to the
contracting party who suffers the injurious breach on
the premise that it is 'unjust that a party be held bound
to fulfill his promises when the other violates
his.'"25 Note that the rescission (or resolution) of a
contract will not be permitted for a slight or casual
breach, but only for such substantial and fundamental
violations as would defeat the very object of the parties
in making the agreement.26 Ultimately, the question of
whether a breach of contract is substantial depends
upon the attending circumstances.27
In the instant case, both the RTC and the CA held that
petitioners were in substantial breach of paragraph 7 of
the subject contract as they did not cause the transfer
of the property to their names from one Edilberta N.
Santos within 90 days from the execution of said
contract.28
The courts a quo are mistaken.
Paragraph 7 of the subject contract state in full:
7. [Petitioners] shall, within ninety (90) days from the
signing of [the subject contract], cause the completion
of the transfer of registration of title of the property
subject of [the subject contract], from Edilberta N.
Santos to their names, at [petitioners'] own
expense. Failure on the part of [petitioners] to
undertake the foregoing within the prescribed
period shall automatically authorize [respondents]
to undertake the same in behalf of [petitioners] and
charge the costs incidental to the monthly
amortizations upon due date. (Emphasis and
underscoring supplied)
A plain reading of paragraph 7 of the subject contract
reveals that while the RTC and the CA were indeed
correct in finding that petitioners failed to perform their
obligation to effect the transfer of the title to the subject
land from one Edilberta N. Santos to their names within
the prescribed period, said courts erred in concluding
that such failure constituted a substantial breach that
would entitle respondents to rescind (or resolve) the
subject contract. To reiterate, for a contracting party to
be entitled to rescission (or resolution) in accordance
with Article 1191 of the Civil Code, the other contracting
party must be in substantial breach of the terms and
conditions of their contract. A substantial breach of a
contract, unlike slight and casual breaches thereof, is
a fundamental breach that defeats the object of the
parties in entering into an agreement.29 Here, it cannot
be said that petitioners' failure to undertake their
obligation under paragraph 7 defeats the object of the
parties in entering into the subject contract, considering
that the same paragraph provides respondents
contractual recourse in the event of petitioners' non-
performance of the aforesaid obligation, that is, to
cause such transfer themselves in behalf and at the
expense of petitioners.
Indubitably, there is no substantial breach of paragraph
7 on the part of petitioners that would necessitate a
rescission (or resolution) of the subject contract. As
such, a reversal of the rulings of the RTC and the CA
is in order.
The foregoing notwithstanding, the Court cannot grant
petitioners' prayer in the instant petition to order the
cancellation of the subject contract and the forfeiture of
the amounts already paid by respondents on account
of the latter's failure to pay its monthly
amortizations,30 simply because in their Answer with
Compulsory Counterclaim and Motion for Summary
Judgment31 filed before the RTC, petitioners neither
prayed for this specific relief nor argued that they were
entitled to the same. Worse, petitioners were declared
"as in default" for failure to file the required pre-trial
brief and, thus, failed to present any evidence in
support of their defense.32 It is settled that "[w]hen a
party deliberately adopts a certain theory and the case
is decided upon that theory in the court below, he will
not be permitted to change the same on appeal,
because to permit him to do so would be unfair to the
adverse party."33 The Court's pronouncement in Peña
v. Spouses Tolentino34 is instructive on this matter, to
wit:
Indeed, the settled rule in this jurisdiction, according
to Mon v. Court of Appeals, is that a party cannot
change his theory of the case or his cause of action on
appeal. This rule affirms that "courts of justice have no
jurisdiction or power to decide a question not in issue."
Thus, a judgment that goes beyond the issues and
purports to adjudicate something on which the court did
not hear the parties is not only irregular but also
extrajudicial and invalid. The legal theory under
which the controversy was heard and decided in
the trial court should be the same theory under
which the review on appeal is conducted.
Otherwise, prejudice will result to the adverse
party. We stress that points of law, theories,
issues, and arguments not adequately brought to
the attention of the lower court will not be
ordinarily considered by a reviewing court,
inasmuch as they cannot be raised for the first time
on appeal. This would be offensive to the basic
rules of fair play, justice, and due
process.35 (Emphasis and underscoring supplied)
WHEREFORE, the petition is PARTIALLY
GRANTED. Accordingly, the Decision dated June 17,
2013 and the Resolution dated November 19, 2013 of
the Court of Appeals in CA-G.R. CV No. 95353 are
hereby REVERSED and SET ASIDE. The Contract to
Sell executed by the parties on July 22, 2008
remains VALID and SUBSISTING.
SO ORDERED.ch

G.R. No. 202947, December 09, 2015
ASB REALTY
CORPORATION, Petitioner, v. ORTIGAS & Limited Partnership (Ortigas) entered into a Deed of
COMPANY LIMITED PARTNERSHIP, Respondent.
DECISION
BERSAMIN, J.:
This appeal seeks the review and reversal of the
amended decision promulgated on January 9,
2012,1 whereby the Court of Appeals (CA) disposed
thusly:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, judgment is
rendered:chanRoblesvirtualLawlibrary
1. Granting the appeal of plaintiff-appellant and herein
movant Ortigas and Company Limited Partnership, and
reversing the Decision of the court a quo dated
December 14, 2009;
2. Rescinding the June 24, 1994 Deed of Sale between
Ortigas and Company Limited Partnership and
Amethyst Pearl Corporation in view of the material
breached (sic) thereof by AMETHYST;
3. Ordering ASB Realty Corporation, by way of mutual
restitution, the RECONVEYANCE to ORTIGAS of the
subject property covered by TCT No. PT-105797 upon
payment by ORTIGAS to ASB of the amount of Two
Million Twenty Four Thousand Pesos (PhP
2,024,000.00) plus legal interest at the rate of 6% per
annum from the time of the finality of this judgment until
the same shall have been fully paid; and
4. Ordering the Register of Deeds of Pasig City to
cancel TCT No. PT-105797 and issue a new title over
the subject property under the name of ORTIGAS &
COMPANY LIMITED PARTNERSHIP.
No pronouncement as to cost.
SO ORDERED.2
The petitioner also assails the resolution promulgated
on July 26, 2012,3 whereby the CA denied its Motion
for Reconsideration.
Antecedents
On June 29, 1994, respondent Ortigas & Company
Sale with Amethyst Pearl Corporation (Amethyst)
involving the parcel of land with an area of 1,012
square meters situated in Barrio Oranbo, Pasig City
and registered under Transfer Certificate of Title (TCT)
No. 65118 of the Register of Deeds of Rizal 4 for the
consideration of P2,024,000.00. The Deed of
Sale5 contained the following stipulations, among
others:
COVENANTS, CONDITIONS AND RESTRICTIONS
This lot has been segregated by ORTIGAS from its
subdivisions to form part of a zonified BUILDING AREA
pursuant to its controlled real estate development
project and subdivision scheme, and is subject to the
following covenants which form part of the
consideration of ORTIGAS' sale to VENDEE and its
assigns, namely:chanRoblesvirtualLawlibrary
x x x x
B. BUILDING WORKS AND ARCHITECTURE:
1. The building to be constructed on the lot shall be of
reinforced concrete, cement hollow blocks and other
high-quality materials and shall be of the following
height of not more than: fourteen (14) storeys plus one
penthouse.
x x x x
L. SUBMISSION OF PLANS:
The final plans and specifications of the said building
shall be submitted to ORTIGAS for approval not later
than six (6) months from date hereof. Should
ORTIGAS object to the same, it shall notify and specify
to the VENDEE in writing the amendments required to
conform with its building restrictions and VENDEE shall
submit the amended plans within sixty (60) days from
receipt of said notice.
M. CONSTRUCTION AND COMPLETION OF
BUILDING:
The VENDEE shall finish construction of its building
within four (4) years from December 31,
1991.6ChanRoblesVirtualawlibrary
As a result, the Register of Deeds of Rizal cancelled
TCT No. 65118 and issued TCT No. PT-94175 in the
name of Amethyst.7 The conditions contained in
the Deed of Sale were also annotated on TCT No. PT-
94175 as encumbrances.8
On December 28, 1996, Amethyst assigned the
subject property to its sole stockholder, petitioner ASB
Realty Corporation (the petitioner), under a so-
called Deed of Assignment in Liquidation in
consideration of 10,000 shares of the petitioner's
outstanding capital stock.9 Thus, the property was
transferred to the petitioner free from any liens or
encumbrances except those duly annotated on TCT
No. PT-94175.10 The Register of Deeds of Rizal
cancelled TCT No. PT-94175 and issued TCT No. PT-
105797 in the name of the petitioner with the same
encumbrances annotated on TCT No. PT-94175.11
On July 7, 2000, Ortigas filed its complaint for specific
performance against the petitioner,12 which was
docketed as Civil Case No. 67978 of the Regional Trial
Court (RTC) in Pasig City.13 Ortigas amended the
complaint, and alleged,14 among others, that:
5. Defendant has violated the terms of the Deed of
Absolute Sale (Annex "A") in the following manner:
a. While the lot may be used only "for office and
residential purposes", defendant introduced
constructions on the property which are commercial in
nature, like restaurants, retail stores and the like (see
par. A, Deed of Absolute Sale, Annex "A").
b. The commercial structures constructed by defendant
on the property extend up to the boundary lines of the
lot in question violating the setbacks established in the
contract (see par. B.A., ibid).
c. Defendant likewise failed to submit the final plans
and specifications of its proposed building not later
than six (6) months from June 29, 1994 and to
complete construction of the same within four (4) years
from December 31, 1991. (see pars. L and M, ibid).
d. Being situated in a first-class office building area, it
was agreed that no advertisements or any kind of
commercial signs shall be allowed on the lot or the
improvements therein but this was violated by
defendant when it put up commercial signs and
advertisements all over the area, (see par. F, ibid).
6. Any of the afore-described violations committed by
the defendant empower the plaintiff to sue under
parangraph "N. Unilateral Cancellation", plaintiff may
have the Deed of Absolute Sale (Annex "A") cancelled
and the property reverted to it by paying the defendant
the amount it has paid less the items indicated
therein.15ChanRoblesVirtualawlibrary
For reliefs, Ortigas prayed for the reconveyance of the
subject property, or, alternatively, for the demolition of
the structures and improvements thereon, plus the
payment of penalties, attorney's fees and costs of
suit.16
During the pendency of the proceedings in the RTC,
the petitioner amended its Articles of Incorporation to
change its name to St. Francis Square Realty
Corporation.17
After trial on the merits, the RTC rendered its decision
on December 14, 2009,18 and dismissed the complaint,
pertinently holding as follows:
Ortigas sold the property [to] Amethyst on 29 June
1994. Amethyst was supposed to finish construction on
31 December 1995. Yet, up to the time the property
was transferred to ASB on 28 December 1996, Ortigas
never initiated any action against Amethyst to
enforce said provision. Ortigas is therefore guilty of
laches or negligence or omission to assert a right within
a reasonable time, warranting a presumption that the
party entitled to assert it either has abandoned it or
declined to assert it. (Tijam v. Sibonghanoy, L-21450,
15 April 1968, 23 SCRA 29).
It is worth mentioning that the restrictions annotated in
TCT No. 94175 (in the name of Amethyst Pearl
Corporation) and TCT No. PT-105797 (in the name of
ASB) repeatedly and consistently refer to the
VENDEE. The term VENDEE in the said restrictions
obviously refer to Amethyst Pearls Corporation
considering the fact that the date referred to in
Paragraph N thereof (Construction and Completion of
Building), which is four (4) years from December 31,
1991, obviously refer to the plaintiffs VENDEE
Amethyst Pearl Corporation. Definitely, it cannot refer
to the defendant ASB which is not a vendee of the
plaintiff. Therefore, all references to VENDEE in the
restrictions evidently refer to Amethyst Pearl
Corporation, the VENDEE in the sale from the plaintiff.
Such explanation is more consistent with logic than the
plaintiffs convoluted assertions that the said
restrictions apply to the defendant ASB.
Reconveyance of the property to Ortigas necessarily
implies rescission of the sale or transfer from Amethyst
to ASB and from Ortigas to Amethyst. But Amethyst
was not made a party to the case. Reconveyance of
the property to the original seller (Ortigas) applies only
on the sale to the original vendee (Amethyst) and not
to subsequent vendees to whom the property was sold
(Ayala Corp. v. Rosa Diana Realty and Dev. Corp.,
G.R. No. 134284, Dec. 1, 2000, 346 SCRA 663).
The non-compliance by the plaintiff with the requisites
of its own restrictions further proves that it had
no intention whatsoever to enforce or implement the
same. If at all, this evinces an afterthought of the
plaintiff to belatedly and unjustifiably single out the
defendant for alleged non compliance of the said
restrictions which are not applicable to it anyway.
WHEREFORE, foregoing premises considered, the
present complaint is hereby dismissed for lack of
basis.
SO ORDERED.19ChanRoblesVirtualawlibrary
Ortigas appealed to the CA, which initially affirmed the
RTC under the decision promulgated on September 6,
2011,20 ruling thusly:
x x x x ORTIGAS can no longer enforce the said
restrictions as against ASB.
The "Covenants, Conditions and Restrictions" of
ORTIGAS with respect to the property clearly states
the following purpose:
"This lot has been segregated by ORTIGAS from its
subdivisions to form part of a zonified BUILDING AREA
pursuant to its controlled real estate development
project and subdivision scheme. x x x"
However, it appears from the circumstances obtaining
in this case that ORTIGAS failed to pursue the
aforequoted purpose. It never filed a complaint against
its vendee, AMETHYST, notwithstanding that it
required the latter to complete construction of the
building within four (4) years from the execution of
the Deed of Sale. Neither did it make a demand to
enforce the subject restriction. Moreover, while it
imposed a restriction on the registration and issuance
of title in the name of the vendee under Paragraph
"P" on "Registration of Sale", to
wit:chanRoblesvirtualLawlibrary
"P. REGISTRATION OF SALE:
The VENDEE hereby agrees that, for the time being,
this Deed will not be registered and that its title shall
not be issued until the satisfactory construction of the
contemplated Office Building and VENDEE's
compliance with all conditions therein. x x x"
AMETHYST was nonetheless able to procure the title
to the property in its name, and subsequently, assigned
the same to ASB.
Besides, records show that there are registered owner-
corporations of several properties within the Ortigas
area, where the subject property is located, that have
likewise failed to comply with the restriction on building
construction notwithstanding the fact of its annotation
on the titles covering their properties. In fact, the tax
declarations covering these properties in the
respective names of UNIMART INC., CHAILEASE
DEVELOPMENT CO. INC., CANOGA PARK
DEVELOPMENT CORPORATION, and MAKATI
SUPERMARKET CORPORATION reveal that no
improvements or buildings have been erected thereon.
Notwithstanding such blatant non-compliance,
however, records are bereft of evidence to prove that
ORTIGAS took steps to demand observance of the
said restriction from these corporations, or that it opted
to institute any case against them in order to enforce
its rights as seller. Thus, while ORTIGAS effectively
tolerated the non-compliance of these other
corporations, it nonetheless proceeded with the filing of
the Complaint a quo against ASB, seeking the
rescission of the original Deed of Sale on the ground of
non-compliance of the very same restriction being
violated by other property owners similarly situated.
On the basis of the foregoing acts or omissions of
ORTIGAS, and the factual milieu of the present case,
it cannot be pretended that it failed to actively pursue
the attainment of its objective of having a "controlled
real estate development project and subdivision
scheme". The Court thus concurs with the
ratiocinations of the RTC when it posited that the
restrictions imposed by ORTIGAS on ASB have been
"rendered obsolete and inexistent" for failure of
ORTIGAS to enforce the same uniformly and
indiscriminately against all non-complying property
owners. If the purpose of ORTIGAS for imposing the
restrictions was for its "controlled real estate
development project and subdivision scheme", then it
should have sought compliance from all property
owners that have violated the restriction on building
completion. As things stand, ASB would appear to
have been singled out by ORTIGAS, rendering the
present action highly suspect and a mere afterthought.
Consequently, while it may be true that ASB was bound
by the restrictions annotated on its title, specifically the
restriction on building completion, ORTIGAS is now
effectively estopped from enforcing the same by virtue
of its inaction and silence.
x x x x
In this case, ORTIGAS acquiesced to the conveyance
of the property from AMETHYST to ASB with nary a
demand, reservation or complaint for the enforcement
of the restriction on building construction. It allowed the
four-year period within which to construct a building to
lapse before it decided that it wanted, after all, to
enforce the restriction, which cannot be allowed lest
the property rights of the registered owner, ASB, be
transgressed. Such a silence or inaction, which in
effect led ASB to believe that ORTIGAS no longer
sought the enforcement of the restrictions on the
contract, therefore bars ORTIGAS from enforcing the
restriction it imposed on the subject property.
x x x x
WHEREFORE, premises considered, the instant
appeal is DENIED. The assailed Decision is
hereby AFFIRMED.
SO ORDERED.21ChanRoblesVirtualawlibrary
Acting on Ortigas' Motion for Reconsideration,
however, the CA promulgated its assailed amended
decision on January 9, 2012,22 whereby it reversed the
decision promulgated on September 6, 2011. It
observed and ruled as follows:
It is not disputed that AMETHYST failed to finish
construction within the period stated in the 1994 Deed
of Sale. As correctly pointed out by ORTIGAS, in
accordance with Article 1144 of the Civil Code, the
prescriptive period within which to enforce remedies
under the 1994 Deed of sale is ten (10) years from the
time the right of action accrues.
ORTIGAS, therefore, had ten (10) years from 31
December 1995 or until 31 December 2005 within
which to file suit to enforce the restriction. ORTIGAS
filed the present complaint on 07 July 2000 well
within the prescriptive period for filing the same.
ASB contends that it could not have complied with the
particular restriction to finish construction of the
building as the period to finish the same had already
lapsed by the time ASB acquired the property by way
of a Deed of Assignment in Liquidation between
AMETHYST and ASB on 28 December 1996. We
hold, however, that the mere assignment or
transfer of the subject property from AMETHYST to
ASB does not serve to defeat the vested right of
ORTIGAS to avail of remedies to enforce the
subject restriction within the applicable
prescriptive period.
x x x x
As to the argument that the inaction of ORTIGAS with
respect to other non-compliant properties in the Ortigas
area is tantamount to consenting to such non-
compliance, it must be mentioned that it is the sole
prerogative and discretion of Ortigas to initiate any
action against the violators of the deed restrictions.
This Court cannot interfere with the exercise of such
prerogative/discretion. Furthermore, We cannot
sustain estoppel in doubtful inference. Absent the
conclusive proof that its essential elements are
present, estoppel must fail. Estoppel, when misapplied,
becomes an effective weapon to accomplish an
injustice, inasmuch as it shuts a man's mouth from
speaking the truth.23ChanRoblesVirtualawlibrary
By its resolution promulgated on July 26, 2012, the CA
denied the petitioner's Motion for Reconsideration24 for
being filed out of time.25cralawred
Issues
Hence, this appeal in which ASB submits: (1) that
its Motion for Reconsideration vis-a-vis the CA's
amended decision was filed on time; and (2) that the
amended decision promulgated on January 9, 2012 by
CA be reversed and set aside, and the decision
promulgated on September 6, 2011 be reinstated. 26
The petitioner essentially seeks the resolution of the
issue of whether or not Ortigas validly rescinded
the Deed of Sale due to the failure of Amethyst and its
assignee, the petitioner, to fulfil the covenants under
the Deed of Sale.
Ruling of the Court
The petition for review is meritorious.
1.
Petitioner's motion for reconsideration vis-a-vis
the amended decision of the CA was timely filed
In denying the petitioner's Motion for Reconsideration,
the CA concluded as follows:
Per allegation of material dates, the Motion for
Reconsideration filed by Balgos Gumara & Jalandoni,
co-counsel with Jose, Mendoza & Associates, on
January 30, 2012 appears to have been filed on time.
However, per registry return attached at the back of p.
212 of the Rollo, the Motion for Reconsideration was
filed three (3) days late considering that the Amended
Decision was received by defendant appellee's
counsel of record, Jose, Mendoza & Associates, on
January 12, 2012.27ChanRoblesVirtualawlibrary
The conclusion of the CA was unwarranted because
the petitioner established that its filing of the Motion for
Reconsideration was timely.
It is basic that the party who asserts a fact or the
affirmative of an issue has the burden of proving
it.28 Here, that party was the petitioner. To comply with
its burden, it attached to its petition for review
on certiorari: (1) the affidavit executed by Noel S.R.
Rose, Senior Partner of Jose, Mendoza & Associates
attesting that he had requested the postmaster of the
Mandaluyong City Post Office to certify the date when
Jose, Mendoza & Associates had received the copy of
the amended decision of the CA;29 and (2) the
certification issued on August 15, 2012 by Postmaster
Rufino C. Robles, and Letter Carrier, Jojo Salvador,
both of the Mandaluyong Central Post Office, certifying
that Registered Letter No. MVC 457 containing the
copy of the amended decision had been delivered to
and received on January 18, 2012 by Jose, Mendoza
& Associates, through Ric Ancheta.30 It thereby sought
to prove that it had received the copy of the amended
decision only on January 18, 2012, not January 12,
2012 as stated in the registry return card on record.
Thus, it had until February 2, 2012, or 15 days from
January 18, 2012, within which to file the same. In
contrast, Ortigas relied only on the copy of the registry
return to refute the petitioner's assertion.31 Under the
circumstances, the filing on January 30, 2012 of
the Motion for Reconsideration was timely.
2.
Ortigas' action for rescission could not prosper
The petitioner reiterates that although the restrictions
and covenants imposed by Ortigas under the Deed of
Sale with Amethyst, particularly with regard to the
construction of the building, were similarly imposed on
Ortigas' other buyers and annotated on the latter's
respective certificates of title,32 Ortigas never took to
task such other buyers and Amethyst for failing to
construct the buildings within the periods contractually
imposed.33 It maintains, therefore, that Ortigas slept on
its rights because it did not take any action against
Amethyst during the period prescribed in the Deed of
Sale.34 It argues that even assuming that it was bound
by the terms of the Deed of Sale, certain
circumstances occurred in the interim that rendered it
impossible for the petitioner to comply with the
covenants embodied in the Deed of Sale, namely: (1)
the delay in the petitioner's possession of the property
resulted from the complaint for forcible entry it had filed
in the Metropolitan Trial Court in Pasig City; (2) at the
time the property was transferred to the petitioner, the
period within which to construct the building had
already expired without Ortigas enforcing the obligation
against Amethyst; and (3) the petitioner was placed
under corporate rehabilitation by the Securities and
Exchange Commission (SEC) by virtue of which a stay
order was issued on May 4, 2000.35
In contrast, Ortigas contends that it had the sole
discretion whether or not to commence any action
against a party who violated a restriction in the Deed of
Sale;36 and that it could not be estopped because
the Deed of Sale with Amethyst and the deeds of sale
with its other buyers contained a uniform provision to
the effect that "any inaction, delay or tolerance by
OCLP (Ortigas) in respect to violation of any of the
covenants and restrictions committed by these buyers
shall not bar or estop the institution of an action to
enforce them."37
In asserting its right to rescind, Ortigas insists that the
petitioner was bound by the covenants of the Deed of
Sale annotated on TCT No. PT-10597 in the name of
the petitioner;38 and that the petitioner's privity to
the Deed of Sale was by virtue of its being the
successor-in-interest or assignee of Amethyst.39
After evaluating the parties' arguments and the records
of the case, the Court holds that Ortigas could not
validly demand the reconveyance of the property, or
the demolition of the structures thereon through
rescission.
The Deed of Assignment in Liquidation executed
between Amethyst and the petitioner expressly stated,
in part, that:
x x x x [T]he ASSIGNOR hereby assigns, transfers
and conveys unto the ASSIGNEE, its successors
and assigns, free from any lien or encumbrance except
those that are duly annotated on the Transfer
Certificate of Title (TCT), one parcel of real property
(with improvements). x x x.
x x x x
The ASSIGNEE in turn in consideration of the
foregoing assignment of assets to it, hereby
surrenders to ASSIGNOR, Amethyst Pearl
Corporation, Stock Certificate Nos. (006, 007, 008,
009, 010, 011), covering a total of TEN THOUSAND
SHARES (10,000) registered in the name of the
ASSIGNEE and its nominees in the books of
ASSIGNOR, receipt of which is hereby acknowledged,
and in addition hereby releases ASSIGNOR from any
and all claims.40ChanRoblesVirtualawlibrary
The express terms of the Deed of Assignment in
Liquidation, supra, indicate that Amethyst transferred
to the petitioner only the tangible asset consisting of
the parcel of land covered by TCT No. PT-94175
registered in the name of Amethyst. By no means did
Amethyst assign the rights or duties it had assumed
under the Deed of Sale. The petitioner thus became
vested with the ownership of the parcel of land "free
from any lien or encumbrance except those that are
duly annotated on the [title]" from the time Amethyst
executed the Deed of Assignment in Liquidation.
Although the Deed of Sale stipulated that:
3. The lot, together with any improvements thereon, or
any rights thereto, shall not be transferred, sold or
encumbered before the final completion of the building
as herein provided unless it is with the prior express
written approval of ORTIGAS.41
x x x x

The VENDEE hereby agrees that, for the time being,
this Deed will not be registered and that its title shall
not be issued until the satisfactory construction of the
contemplated Office Building and VENDEE's
compliance with all conditions herein. x x
x42ChanRoblesVirtualawlibrary
Ortigas apparently recognized without any
reservation the issuance of the new certificate of title in
the name of Amethyst and the subsequent transfer by
assignment from Amethyst to the petitioner that
resulted in the issuance of the new certificate of title
under the name of the petitioner. As such, Ortigas was
estopped from assailing the petitioner's acquisition and
ownership of the property.
The application of estoppel was appropriate. The
doctrine of estoppel was based on public policy, fair
dealing, good faith and justice, and its purpose was to
forbid a party to speak against his own act or omission,
representation, or commitment to the injury of another
to whom the act, omission, representation, or
commitment was directed and who reasonably relied
thereon. The doctrine sprang from equitable principles
and the equities in the case, and was designed to aid
the law in the administration of justice where without its
aid injustice would result. Estoppel has been applied
by the Court wherever and whenever special
circumstances of the case so demanded.43
Yet, the query that persists is whether or not the
covenants annotated on TCT No. PT-10597 bound the
petitioner to the performance of the obligations
assumed by Amethyst under the Deed of Sale.
We agree with Ortigas that the annotations on TCT No.
PT-10597 bound the petitioner but not to the extent that
rendered the petitioner liable for the non-performance
of the covenants stipulated in the Deed of Sale.
Section 39 of Act No. 496 (The Land Registration Act)
requires that every person receiving a certificate of title
in pursuance of a decree of registration, and every
subsequent purchaser of registered land who takes a
certificate of title for value in good faith shall hold the
same free of all encumbrances except those noted on
said certificate. An encumbrance in the context of the
provision is "anything that impairs the use or transfer of
property; anything which constitutes a burden on the
title; a burden or charge upon property; a claim or lien
upon property."44 It denotes "any right to, or interest in,
land which may subsist in another to the diminution of
its value, but consistent with the passing of the fee by
conveyance."45 An annotation, on the other hand, is "a
remark, note, case summary, or commentary on some
passage of a book, statutory provision, court decision,
of the like, intended to illustrate or explain its
meaning."46 The purpose of the annotation is to charge
the purchaser or title holder with notice of such burden
and claims.47 Being aware of the annotation, the
purchaser must face the possibility that the title or the
real property could be subject to the rights of third
parties.48
By acquiring the parcel of land with notice of the
covenants contained in the Deed of Sale between the
vendor (Ortigas) and the vendee (Amethyst), the
petitioner bound itself to acknowledge and respect the
encumbrance. Even so, the petitioner did not step into
the shoes of Amethyst as a party in the Deed of Sale.
Thus, the annotation of the covenants contained in
the Deed of Sale did not give rise to a liability on the
part of the petitioner as the purchaser/successor-in-
interest without its express assumption of the duties or
obligations subject of the annotation. As stated, the
annotation was only the notice to the
purchaser/successor-in-interest of the burden, claim or
lien subject of the annotation. In that respect, the Court
has observed in Garcia v. Villar:49
The sale or transfer of the mortgaged property cannot
affect or release the mortgage; thus the purchaser or
transferee is necessarily bound to acknowledge and
respect the encumbrance.
x x x x
x x x However, Villar, in buying the subject property
with notice that it was mortgaged, only undertook to
pay such mortgage or allow the subject property to be
sold upon failure of the mortgage creditor to obtain
payment from the principal debtor once the debt
matures. Villar did not obligate herself to replace the
debtor in the principal obligation, and could not do so
in law without the creditors consent. Article 1293 of the
Civil Code provides:
Art. 1293. Novation which consists in substituting a
new debtor in the place of the original one, may be
made even without the knowledge or against the will of
the latter, but not without the consent of the creditor.
Payment by the new debtor gives him the rights
mentioned in articles 1236 and 1237.
Therefore, the obligation to pay the mortgage
indebtedness remains with the original debtors Galas
and Pingol. x x x
To be clear, contractual obligations, unlike contractual
rights or benefits, are generally not assignable. But
there are recognized means by which obligations may
be transferred, such as by sub-contract and novation.
In this case, the substitution of the petitioner in the
place of Amethyst did not result in the novation of
the Deed of Sale. To start with, it does not appear from
the records that the consent of Ortigas to the
substitution had been obtained despite its essentiality
to the novation. Secondly, the petitioner did not
expressly assume Amethyst's obligations under
the Deed of Sale, whether through the Deed of
Assignment in Liquidation or another document. And,
thirdly, the consent of the new obligor (i.e., the
petitioner), which was as essential to the novation as
that of the obligee (i.e., Ortigas), was not obtained.50
Even if we would regard the petitioner as the assignee
of Amethyst as far as the Deed of Sale was concerned,
instead of being the buyer only of the subject property,
there would still be no express or implied indication that
the petitioner had assumed Amethyst's obligations. In
short, the burden to perform the covenants under
the Deed of Sale, or the liability for the non-
performance thereof, remained with Amethyst. As held
in an American case:
The mere assignment of a bilateral executory contract
may not be interpreted as a promise by the assignee
to the assignor to assume the performance of the
assignor's duties, so as to have the effect of creating a
new liability on the part of the assignee to the other
party to the contract assigned. The assignee of the
vendee is under no personal engagement to the
vendor where there is no privity between them.
(Champion v. Brown, 6 Johns. Ch. 398; Anderson v. N.
Y. & H. R. R. Co., 132 App. Div. 183, 187, 188; Hugel
v. Habel, 132 App. Div. 327, 328.) The assignee may,
however, expressly or impliedly, bind himself to
perform the assignor's duties. This he may do by
contract with the assignor or with the other party to the
contract. It has been held (Epstein v. Gluckin, 233 N.
Y. 490) that where the assignee of the vendee invokes
the aid of a court of equity in an action for specific
performance, he impliedly binds himself to perform on
his part and subjects himself to the conditions of the
judgment appropriate thereto. "He who seeks equity
must do equity." The converse of the proposition, that
the assignee of the vendee would be bound when the
vendor began the action, did not follow from the
decision in that case. On the contrary, the question was
wholly one of remedy rather than right and it was held
that mutuality of remedy is important only so far as its
presence is essential to the attainment of the ends of
justice. This holding was necessary to sustain the
decision. No change was made in the law of contracts
nor in the rule for the interpretation of an assignment of
a contract.
A judgment requiring the assignee of the vendee to
perform at the suit of the vendor would operate as the
imposition of a new liability on the assignee which
would be an act of oppression and injustice, unless the
assignee had, expressly or by implication, entered into
a personal and binding contract with the assignor or
with the vendor to assume the obligations of the
assignor.51ChanRoblesVirtualawlibrary
Is rescission the proper remedy for Ortigas to recover
the subject property from the petitioner?
The Civil Code uses rescission in two different
contexts, namely: (1) rescission on account of breach
of contract under Article 1191; and (2) rescission by
reason of lesion or economic prejudice under Article
1381. Cogently explaining the differences between the
contexts of rescission in his concurring opinion
in Universal Food Corp. v. Court of Appeals,52 the
eminent Justice J.B.L. Reyes observed:
x x x The rescission on account of breach of
stipulations is not predicated on injury to economic
interests of the party plaintiff but on the breach of faith
by the defendant, that violates the reciprocity between
the parties. It is not a subsidiary action, and Article
1191 may be scanned without disclosing anywhere
that the action for rescission thereunder is
subordinated to anything; other than the culpable
breach of his obligations by the defendant. This
rescission is in principal action retaliatory in character,
it being unjust that a party be held bound to fulfill his
promises when the other violates his, as expressed in
the old Latin aphorism: "Non servanti fidem, non est
fides servanda." Hence, the reparation of damages for
the breach is purely secondary.
On the contrary, in the rescission by reason of lesion or
economic prejudice, the cause of action is
subordinated to the existence of that prejudice,
because it is the raison d'etre as well as the measure
of the right to rescind. Hence, where the defendant
makes good the damages caused, the action cannot
be maintained or continued, as expressly provided in
Articles 1383 and 1384. But the operation of these two
articles is limited to the cases of rescission
for lesion enumerated in Article 1381 of the Civil Code
of the Philippines, and does not apply to cases under because it was not the party obliged thereon. Not
Article 1191. having come under the duty not to violate any covenant
Based on the foregoing, Ortigas' complaint was in the Deed of Sale when it purchased the subject
predicated on Article 1191 of the Civil Code, which property despite the annotation on the title, its failure to
provides: comply with the covenants in the Deed of Sale did not
Article 1191. The power to rescind obligations is constitute a breach of contract that gave rise to Ortigas'
implied in reciprocal ones, in case one of the obligors right of rescission. It was rather Amethyst that
should not comply with what is incumbent upon him. defaulted on the covenants under the Deed of Sale;
hence, the action to enforce the provisions of the
The injured party may choose between the fulfillment contract or to rescind the contract should be against
and the rescission of the obligation, with the payment Amethyst. In other words, rescission could not
of damages in either case. He may also seek anymore take place against the petitioner once the
rescission, even after he has chosen fulfillment, if the subject property legally came into the juridical
latter should become impossible. possession of the petitioner, who was a third party to
the Deed of Sale.55
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period. In view of the outcome, we consider to be superfluous
any discussion of the other matters raised in the
This is understood to be without prejudice to the rights petition, like the effects of the petitioner's corporate
of third persons who have acquired the thing, in rehabilitation and whether Ortigas was guilty of laches.
accordance with articles 1385 and 1388 and the
Mortgage Law. WHEREFORE, the Court GRANTS the petition for
Rescission under Article 1191 of the Civil Code is review on certiorari; ANNULS and REVERSES the
proper if one of the parties to the contract commits a amended decision promulgated on January 9, 2012
substantial breach of its provisions. It abrogates the and the resolution promulgated on July 26, 2012 by the
contract from its inception and requires the mutual Court of Appeals in C.A.-G.R. CV No.
restitution of the benefits received;53 hence, it can be 94997; DISMISSES Civil Case No. 67978 for lack of
carried out only when the party who demands cause of action; and ORDERS respondent ORTIGAS
rescission can return whatever he may be obliged to & COMPANY LIMITED PARTNERSHIP to pay the
restore. costs of suit.
Considering the foregoing, Ortigas did not have a SO ORDERED.c
cause of action against the petitioner for the rescission
of the Deed of Sale. Under Section 2, Rule 2 of
the Rules of Court, a cause of action is the act or
omission by which a party violates a right of another.
The essential elements of a cause of action are: (1) a
right in favor of the plaintiff by whatever means and
under whatever law it arises or is created; (2) an
obligation on the part of the defendant not to violate
such right; and (3) an act or omission on the part of the
defendant in violation of the right of the plaintiff or
constituting a breach of the obligation of the defendant
to the plaintiff for which the latter may maintain an
action for recovery of damages or other relief. It is only
upon the occurrence of the last element that the cause
of action arises, giving the plaintiff the right to file an
action in court for the recovery of damages or other
relief.54
The second and third elements were absent herein.
The petitioner was not privy to the Deed of Sale

G.R. No. 72275 November 13, 1991
PACIFIC BANKING CORPORATION, petitioner,
vs.
HON INTERMEDIATE APPELLATE COURT AND
ROBERTO REGALA, JR., respondents.
Ocampo, Dizon & Domingo for petitioner.
Angara, Concepcion, Regala & Cruz for private
respondent.
MEDIALDEA, J.:
This is a petition for review on certiorari of the decision
(pp 21-31, Rollo) of the Intermediate Appellate Court
(now Court of Appeals) in AC-G.R. C.V. No.
02753, 1 which modified the decision of the trial court
against herein private respondent Roberto Regala, Jr.,
one of the defendants in the case for sum of money
filed by Pacific Banking Corporation.
The facts of the case as adopted by the respondent
appellant court from herein petitioner's brief before said
court are as follows:
On October 24, 1975, defendant Celia Syjuco
Regala (hereinafter referred to as Celia
Regala for brevity), applied for and obtained
from the plaintiff the issuance and use of
Pacificard credit card (Exhs. "A", "A-l",), under
the Terms and Conditions Governing the
Issuance and Use of Pacificard (Exh. "B" and
hereinafter referred to as Terms and
Conditions), a copy of which was issued to
and received by the said defendant on the
date of the application and expressly agreed
that the use of the Pacificard is governed by
said Terms and Conditions. On the same
date, the defendant-appelant Robert Regala,
Jr., spouse of defendant Celia Regala,
executed a "Guarantor's Undertaking" (Exh.
"A-1-a") in favor of the appellee Bank,
whereby the latter agreed "jointly and
severally of Celia Aurora Syjuco Regala, to
pay the Pacific Banking Corporation upon
demand, any and all indebtedness,
obligations, charges or liabilities due and
incurred by said Celia Aurora Syjuco Regala
with the use of the Pacificard, or renewals
thereof, issued in her favor by the Pacific
Banking Corporation". It was also agreed that
"any changes of or novation in the terms and
conditions in connection with the issuance or
use of the Pacificard, or any extension of time
to pay such obligations, charges or liabilities
shall not in any manner release me/us from
responsibility hereunder, it being understood
that I fully agree to such charges, novation or
extension, and that this understanding is a
continuing one and shall subsist and bind me
until the liabilities of the said Celia Syjuco
Regala have been fully satisfied or paid.
Plaintiff-appellee Pacific Banking Corporation
has contracted with accredited business
establishments to honor purchases of goods
and/or services by Pacificard holders and the
cost thereof to be advanced by the plaintiff-
appellee for the account of the defendant
cardholder, and the latter undertook to pay
any statements of account rendered by the
plaintiff-appellee for the advances thus made
within thirty (30) days from the date of the
statement, provided that any overdue account
shall earn interest at the rate of 14% per
annum from date of default.
The defendant Celia Regala, as such
Pacificard holder, had purchased goods
and/or services on credit (Exh. "C", "C-l" to
"C-112") under her Pacificard, for which the
plaintiff advanced the cost amounting to
P92,803.98 at the time of the filing of the
complaint.
In view of defendant Celia Regala's failure to
settle her account for the purchases made
thru the use of the Pacificard, a written
demand (Exh. "D") was sent to the latter and
also to the defendant Roberto Regala, Jr.
(Exh. " ") under his "Guarantor's
Undertaking."
A complaint was subsequently filed in Court
for defendant's (sic) repeated failure to settle
their obligation. Defendant Celia Regala was
declared in default for her failure to file her
answer within the reglementary period.
Defendant-appellant Roberto Regala, Jr., on
the other hand, filed his Answer with
Counterclaim admitting his execution of the
"Guarantor's Understanding", "but with the
understanding that his liability would be
limited to P2,000.00 per month."
In view of the solidary nature of the liability of
the parties, the presentation of evidence ex-
parte as against the defendant Celia Regala
was jointly held with the trial of the case as
against defendant Roberto Regala.
After the presentation of plaintiff's testimonial
and documentary evidence, fire struck the
City Hall of Manila, including the court where
the instant case was pending, as well as all its
records.
Upon plaintiff-appellee's petition for
reconstitution, the records of the instant case
were duly reconstituted. Thereafter, the case
was set for pre-trial conference with respect
to the defendant-appellant Roberto Regala on
plaintiff-appellee's motion, after furnishing the
latter a copy of the same. No opposition
thereto having been interposed by defendant-
appellant, the trial court set the case for pre-
trial conference. Neither did said defendant-
appellant nor his counsel appear on the date
scheduled by the trial court for said
conference despite due notice.
Consequently, plaintiff-appellee moved that
the defendant-appellant Roberto Regala he
declared as in default and that it be allowed to
present its evidence ex-parte, which motion
was granted. On July 21, 1983, plaintiff-
appellee presented its evidence ex-parte.
(pp. 23-26, Rollo)
After trial, the court a quo rendered judgment on
December 5, 1983, the dispositive portion of which
reads:
WHEREFORE, the Court renders judgment
for the plaintiff and against the defendants
condemning the latter, jointly and severally, to
pay said plaintiff the amount of P92,803.98,
with interest thereon at 14% per annum,
compounded annually, from the time of
demand on November 17, 1978 until said
principal amount is fully paid; plus 15% of the
principal obligation as and for attorney's fees
and expense of suit; and the costs.
The counterclaim of defendant Roberto
Regala, Jr. is dismissed for lack of merit.
SO ORDERED. (pp. 22-23, Rollo)
The defendants appealed from the decision of the
court a quo to the Intermediate Appellate Court.
On August 12, 1985, respondent appellate court
rendered judgment modifying the decision of the trial
court. Private respondent Roberto Regala, Jr. was
made liable only to the extent of the monthly credit limit
granted to Celia Regala, i.e., at P2,000.00 a month and
only for the advances made during the one year period
of the card's effectivity counted from October 29, 1975
up to October 29, 1976. The dispositive portion of the
decision states:
WHEREFORE, the judgment of the trial court
dated December 5, 1983 is modified only as
to appellant Roberto Regala, Jr., so as to
make him liable only for the purchases made
by defendant Celia Aurora Syjuco Regala with
the use of the Pacificard from October 29,
1975 up to October 29, 1976 up to the amount
of P2,000.00 per month only, with interest
from the filing of the complaint up to the
payment at the rate of 14% per annum without
pronouncement as to costs. (p. 32, Rollo)
A motion for reconsideration was filed by Pacific
Banking Corporation which the respondent appellate
court denied for lack of merit on September 19, 1985
(p. 33, Rollo).
On November 8, 1985, Pacificard filed this petition. The
petitioner contends that while the appellate court
correctly recognized Celia Regala's obligation to
Pacific Banking Corp. for the purchases of goods and
services with the use of a Pacificard credit card in the
total amount of P92,803.98 with 14% interest per
annum, it erred in limiting private respondent Roberto
Regala, Jr.'s liability only for purchases made by Celia
Regala with the use of the card from October 29, 1975
up to October 29, 1976 up to the amount of P2,000.00
per month with 14% interest from the filing of the
complaint.
There is merit in this petition.
The pertinent portion of the "Guarantor's Undertaking"
which private respondent Roberto Regala, Jr. signed in
favor of Pacific Banking Corporation provides:
I/We, the undersigned, hereby agree, jointly
and severally with Celia Syjuco Regala to pay
the Pacific Banking Corporation upon
demand any and all indebtedness,
obligations, charges or liabilities due and
incurred by said Celia Syjuco Regala with the
use of the Pacificard or renewals thereof
issued in his favor by the Pacific Banking
Corporation. Any changes of or Novation in
the terms and conditions in connection with
the issuance or use of said Pacificard, or any
extension of time to pay such obligations,
charges or liabilities shall not in any manner
release me/us from the responsibility
hereunder, it being understood that the
undertaking is a continuing one and shall
subsist and bind me/us until all the liabilities
of the said Celia Syjuco Regala have been
fully satisfied or paid. (p. 12, Rollo)
The undertaking signed by Roberto Regala, Jr.
although denominated "Guarantor's Undertaking," was
in substance a contract of surety. As distinguished from
a contract of guaranty where the guarantor binds
himself to the creditor to fulfill the obligation of the
principal debtor only in case the latter should fail to do
so, in a contract of suretyship, the surety binds himself
solidarily with the principal debtor (Art. 2047, Civil Code
of the Philippines).
We need not look elsewhere to determine the nature
and extent of private respondent Roberto Regala, Jr.'s
undertaking. As a surety he bound himself jointly and
severally with the debtor Celia Regala "to pay the
Pacific Banking Corporation upon demand, any and all
indebtedness, obligations, charges or liabilities due
and incurred by said Celia Syjuco Regala with the use
of Pacificard or renewals thereof issued in (her) favor
by Pacific Banking Corporation." This undertaking was
also provided as a condition in the issuance of the
Pacificard to Celia Regala, thus:
5. A Pacificard is issued to a Pacificard-holder
against the joint and several signature of a
third party and as such, the Pacificard holder
and the guarantor assume joint and several
liabilities for any and all amount arising out of
the use of the Pacificard. (p. 14, Rollo)
The respondent appellate court held that "all the other
rights of the guarantor are not thereby lost by the
guarantor becoming liable solidarily and therefore a
surety." It further ruled that although the surety's
liability is like that of a joint and several debtor, it does
not make him the debtor but still the guarantor (or the
surety), relying on the case of Government of the
Philippines v. Tizon. G.R. No. L-22108, August 30,
1967, 20 SCRA 1182. Consequently, Article 2054 of
the Civil Code providing for a limited liability on the part
of the guarantor or debtor still applies.
It is true that under Article 2054 of the Civil Code, "(A)
guarantor may bind himself for less, but not for more
than the principal debtor, both as regards the amount
and the onerous nature of the conditions. 2 It is likewise
not disputed by the parties that the credit limit granted
to Celia Regala was P2,000.00 per month and that
Celia Regala succeeded in using the card beyond the
original period of its effectivity, October 29, 1979. We
do not agree however, that Roberto Jr.'s liability should
be limited to that extent. Private respondent Roberto
Regala, Jr., as surety of his wife, expressly bound
himself up to the extent of the debtor's (Celia)
indebtedness likewise expressly waiving any
"discharge in case of any change or novation of the
terms and conditions in connection with the issuance
of the Pacificard credit card." Roberto, in fact, made his
commitment as a surety a continuing one, binding upon
himself until all the liabilities of Celia Regala have been
fully paid. All these were clear under the "Guarantor's
Undertaking" Roberto signed, thus:
. . . Any changes of or novation in the terms
and conditions in connection with the
issuance or use of said Pacificard, or any
extension of time to pay such obligations,
charges or liabilities shall not in any manner
release me/us from the responsibility
hereunder, it being understood that the
undertaking is a continuing one and shall
subsist and bind me/us until all the liabilities
of the said Celia Syjuco Regala have been
fully satisfied or paid. (p. 12, supra; emphasis
supplied)
Private respondent Roberto Regala, Jr. had been
made aware by the terms of the undertaking of future
changes in the terms and conditions governing the
issuance of the credit card to his wife and that,
notwithstanding, he voluntarily agreed to be bound as
a surety. As in guaranty, a surety may secure additional
and future debts of the principal debtor the amount of
which is not yet known (see Article 2053, supra).
The application by respondent court of the ruling in
Government v. Tizon, supra is misplaced. It was held
in that case that:
. . . although the defendants bound
themselves in solidum, the liability of the
Surety under its bond would arise only if its
co-defendants, the principal obligor, should
fail to comply with the contract. To paraphrase
the ruling in the case of Municipality of Orion
vs. Concha, the liability of the Surety is
"consequent upon the liability" of Tizon, or "so
dependent on that of the principal debtor" that
the Surety "is considered in law as being the
same party as the debtor in relation to
whatever is adjudged, touching the obligation
of the latter"; or the liabilities of the two
defendants herein "are so interwoven and
dependent as to be inseparable." Changing
the expression, if the defendants are held
liable, their liability to pay the plaintiff would
be solidary, but the nature of the Surety's
undertaking is such that it does not incur
liability unless and until the principal debtor is
held liable.
A guarantor or surety does not incur liability unless the
principal debtor is held liable. It is in this sense that a
surety, although solidarily liable with the principal
debtor, is different from the debtor. It does not mean,
however, that the surety cannot be held liable to the
same extent as the principal debtor. The nature and
extent of the liabilities of a guarantor or a surety is
determined by the clauses in the contract of
suretyship(see PCIB v. CA, L-34959, March 18, 1988,
159 SCRA 24).
ACCORDINGLY, the petition is GRANTED. The
questioned decision of respondent appellate court is
SET ASIDE and the decision of the trial court is
REINSTATED.
SO ORDERED.
G.R. No. 101723 May 11, 2000
INDUSTRIAL MANAGEMENT INTERNATIONAL
DEVELOPMENT CORP. (INIMACO), petitioner,
vs.
NATIONAL LABOR RELATIONS COMMISSION,
(Fourth Division) Cebu City, and ENRIQUE SULIT,
SOCORRO MAHINAY, ESMERALDO PEGARIDO,
TITA BACUSMO, GINO NIERE, VIRGINIA BACUS,
ROBERTO NEMENZO, DARIO GO, and ROBERTO
ALEGARBES, respondents.
BUENA, J.:
This is a petition for certiorari assailing the Resolution
dated September 4, 1991 issued by the National Labor
Relations Commission in RAB-VII-0711-84 on the
alleged ground that it committed a grave abuse of
discretion amounting to lack of jurisdiction in upholding
the Alias Writ of Execution issued by the Labor Arbiter
which deviated from the dispositive portion of the
Decision dated March 10, 1987, thereby holding that
the liability of the six respondents in the case below is
solidary despite the absence of the word "solidary" in
the dispositive portion of the Decision, when their
liability should merely be joint.
The factual antecedents are undisputed:
In September 1984, private respondent Enrique Sulit,
Socorro Mahinay, Esmeraldo Pegarido, Tita Bacusmo,
Gino Niere, Virginia Bacus, Roberto Nemenzo,
Dariogo, and Roberto Alegarbes filed a complaint with
the Department of Labor and Employment, Regional
Arbitration Branch No. VII in Cebu City against Filipinas
Carbon Mining Corporation, Gerardo Sicat, Antonio
Gonzales, Chiu Chin Gin, Lo Kuan Chin, and petitioner
Industrial Management Development Corporation
(INIMACO), for payment of separation pay and unpaid
wages.
In a Decision dated March 10, 1987, Labor Arbiter
Bonifacio B. Tumamak held that:
RESPONSIVE, to all the foregoing,
judgment is hereby entered,
ordering respondents Filipinas
Carbon and Mining Corp. Gerardo
Sicat, Antonio Gonzales/Industrial
Management Development Corp.
(INIMACO), Chiu Chin Gin and Lo
Kuan Chin, to pay complainants
Enrique Sulit, the total award of
P82,800.00; ESMERALDO
PEGARIDO the full award of
P19,565.00; Roberto Nemenzo the
total sum of P29,623.60 and DARIO
GO the total award of P6,599.71, or
the total aggregate award of ONE
HUNDRED THIRTY-EIGHT
THOUSAND FIVE HUNDRED
EIGHTY-EIGHT PESOS AND
31/100 (P138,588.31) to be
deposited with this Commission
within ten (10) days from receipt of
this Decision for appropriate
disposition. All other claims are
hereby Dismiss (sic) for lack of merit.
SO ORDERED.
Cebu City, Philippines.
10 March 1987. 1
No appeal was filed within the reglementary period
thus, the above Decision became final and executory.
On June 16, 1987, the Labor Arbiter issued a writ of
execution but it was returned unsatisfied. On August
26, 1987, the Labor Arbiter issued an Alias Writ of
Execution which ordered thus:
NOW THEREFORE, by virtue of the
powers vested in me by law, you are
hereby commanded to proceed to
the premises of respondents
Antonio Gonzales/Industrial
Management Development
Corporation (INIMACO) situated at
Barangay Lahug, Cebu City, in front
of La Curacha Restaurant, and/or to
Filipinas Carbon and Mining
corporation and Gerardo Sicat at 4th
Floor Universal RE-Bldg. 106 Paseo
de Roxas, Legaspi Village, Makati
Metro Manila and at Philippine
National Bank, Escolta, Manila
respectively, and collect the
aggregate award of ONE
HUNDRED THIRTY-EIGHT
THOUSAND FIVE HUNDRED
EIGHTY-EIGHT PESOS AND
THIRTY ONE CENTAVOS
(P138,588.31) and thereafter turn
over said amount to complainants
ENRIQUE SULIT, ESMERALDO
PEGARIDO, ROBERTO NEMENZO
AND DARIO GO or to this Office for
appropriate disposition. Should you
fail to collect the said sum in cash,
you are hereby authorized to cause
the satisfaction of the same on the
movable or immovable property(s)
of respondents not exempt from
execution. You are to return this writ
sixty (6) (sic) days from your receipt
hereof, together with your
corresponding report.
You may collect your legal expenses
from the respondents as provided for
by law.
SO ORDERED. 2
On September 3, 1987, petitioner filed a "Motion to
Quash Alias Writ of Execution and Set Aside
Decision," 3 alleging among others that the alias writ of
execution altered and changed the tenor of the
decision by changing the liability of therein
respondents from joint to solidary, by the insertion of
the words "AND/OR" between "Antonio
Gonzales/Industrial Management Development
Corporation and Filipinas Carbon and Mining
Corporation, et al." However, in an order dated
September 14, 1987, the Labor Arbiter denied the
motion.
On October 2, 1987, petitioner appealed 4 the Labor
Arbiter's Order dated September 14, 1987 to the
respondent NLRC.
The respondent NLRC dismissed the appeal in a
Decision 5 dated August 31, 1988, the pertinent
portions of which read:
In matters affecting labor rights and
labor justice, we have always
adopted the liberal approach which
favors the exercise of labor rights
and which is beneficial to labor as a
means to give full meaning and
import to the constitutional mandate
to afford protection to labor.
Considering the factual
circumstances in this case, there is
no doubt in our mind that the
respondents herein are called upon
to pay, jointly and severally, the
claims of the complainants as was
the latters' prayers. Inasmuch as
respondents herein never
controverted the claims of the
complainants below, there is no
 reason why complainants' prayer
should not be granted. Further, in
line with the powers granted to the
Commission under Article 218 (c) of
the Labor code, "to waive any error,
defect or irregularity whether in
substance or in form" in a
proceeding before Us, We hold that
the Writ of Execution be given due
course in all respects.
On July 31, 1989, petitioner filed a "Motion To Compel
Sheriff To Accept Payment Of P23,198.05
Representing One Sixth Pro Rata Share of
Respondent INIMACO As Full and Final Satisfaction of
Judgment As to Said Respondent." 6 The private
respondents opposed the motion. In an Order 7 dated
August 15, 1989, the Labor Arbiter denied the motion
ruling thus:
WHEREFORE, responsive to the
foregoing respondent INIMACO's
Motions are hereby DENIED. The
Sheriff of this Office is order (sic) to
accept INIMACO's tender payment
(sic) of the sum of P23,198.05, as
partial satisfaction of the judgment
and to proceed with the enforcement
of the Alias Writ of Execution of the
levied properties, now issued by this
Office, for the full and final
satisfaction of the monetary award
granted in the instant case.
SO ORDERED.
Petitioner appealed the above Order of the Labor
Arbiter but this was again dismissed by the respondent
NLRC in its Resolution 8 dated September 4, 1991
which held that:
The arguments of respondent on the
finality of the dispositive portion of
the decision in this case is beside
the point. What is important is that
the Commission has ruled that the
Writ of Execution issued by the
Labor Arbiter in this case is proper.
It is not really correct to say that said
Writ of Execution varied the terms of
the judgment. At most, considering
the nature of labor proceedings
there was, an ambiguity in said
dispositive portion which was
subsequently clarified by the Labor
Arbiter and the Commission in the
incidents which were initiated by
INIMACO itself. By sheer
technicality and unfounded
assertions, INIMACO would now
reopen the issue which was already
resolved against it. It is not in
keeping with the established rules of
practice and procedure to allow this
attempt of INIMACO to delay the
final disposition of this case.
WHEREFORE, in view of all the
foregoing, this appeal is
DISMISSED and the Order
appealed from is hereby
AFFIRMED.
With double costs against appellant.
Dissatisfied with the foregoing, petitioner filed the
instant case, alleging that the respondent NLRC
committed grave abuse of discretion in affirming the
Order of the Labor Arbiter dated August 15, 1989,
which declared the liability of petitioner to be solidary.
The only issue in this petition is whether petitioner's
liability pursuant to the Decision of the Labor Arbiter
dated March 10, 1987, is solidary or not.
Upon careful examination of the pleadings filed by the
parties, the Court finds that petitioner INIMACO's
liability is not solidary but merely joint and that the
respondent NLRC acted with grave abuse of discretion
in upholding the Labor Arbiter's Alias Writ of Execution
and subsequent Orders to the effect that petitioner's
liability is solidary.
A solidary or joint and several obligation is one in which
each debtor is liable for the entire obligation, and each
creditor is entitled to demand the whole obligation. 9 In
a joint obligation each obligor answers only for a part
of the whole liability and to each obligee belongs only
a part of the correlative
rights. 10
Well-entrenched is the rule that solidary obligation
cannot lightly be inferred. 11 There is a solidary liability
only when the obligation expressly so states, when the
law so provides or when the nature of the obligation so
requires. 12
In the dispositive portion of the Labor Arbiter, the word
"solidary" does not appear. The said fallo expressly
states the following respondents therein as liable,
namely: Filipinas Carbon and Mining Corporation,
Gerardo Sicat, Antonio Gonzales, Industrial
Management Development Corporation (petitioner
INIMACO), Chiu Chin Gin, and Lo Kuan Chin. Nor can
it be inferred therefrom that the liability of the six (6)
respondents in the case below is solidary, thus their
liability should merely be joint.
Moreover, it is already a well-settled doctrine in this
jurisdiction that, when it is not provided in a judgment
that the defendants are liable to pay jointly and
severally a certain sum of money, none of them may
be compelled to satisfy in full said judgment. In Oriental
Commercial Co. vs. Abeto and Mabanag 1 this Court
held:
It is of no consequence that, under
the contract of suretyship executed
by the parties, the obligation
contracted by the sureties was joint
and several in character. The final
judgment, which superseded the
action for the enforcement of said
contract, declared the obligation to
be merely joint, and the same cannot
be executed otherwise. 14
Granting that the Labor Arbiter has committed a
mistake in failing to indicate in the dispositive portion
that the liability of respondents therein is solidary, the
correction — which is substantial — can no longer be
allowed in this case because the judgment has already
become final and executory.
It is an elementary principle of procedure that the
resolution of the court in a given issue as embodied in
the dispositive part of a decision or order is the
controlling factor as to settlement of rights of the
parties. 15 Once a decision or order becomes final and
executory, it is removed from the power or jurisdiction
of the court which rendered it to further alter or amend
it. 16 It thereby becomes immutable and unalterable
and any amendment or alteration which substantially
affects a final and executory judgment is null and void
for lack of jurisdiction, including the entire proceedings
held for that purpose. 17 An order of execution which
varies the tenor of the judgment or exceeds the terms
thereof is a CRISOSTOMO, ROMULO MACALINAO, NESTOR
nullity. 18
None of the parties in the case before the Labor Arbiter
appealed the Decision dated March 10, 1987, hence
the same became final and executory. It was,
therefore, removed from the jurisdiction of the Labor
Arbiter or the NLRC to further alter or amend it. Thus,
the proceedings held for the purpose of amending or
altering the dispositive portion of the said decision are
null and void for lack of jurisdiction. Also, the Alias Writ
of Execution is null and void because it varied the tenor
of the judgment in that it sought to enforce the final
judgment against "Antonio Gonzales/Industrial
Management Development Corp.
(INIMACO) and/or Filipinas Carbon and Mining Corp.
and Gerardo Sicat," which makes the liability solidary.
WHEREFORE, the petition is hereby GRANTED. The
Resolution dated September 4, 1991 of the respondent
National Labor Relations is hereby declared NULL and
VOID. The liability of the respondents in RAB-VII-0711-
84 pursuant to the Decision of the Labor Arbiter dated
March 10, 1987 should be, as it is hereby, considered
joint and petitioner's payment which has been
accepted considered as full satisfaction of its liability,
without prejudice to the enforcement of the award,
against the other five (5) respondents in the said case.
SO ORDERED.
[G.R. No. 144134. November 11, 2003.]
MARIVELES SHIPYARD CORP., Petitioner, v. HON.
COURT OF APPEALS, LUIS REGONDOLA, *
MANUELIT GATALAN, * ORESCA AGAPITO, NOEL
ALBADBAD, * ROGELIO PINTUAN, DANILO
FERER, * RICKY CUESTA, ROLLY ANDRADA, *
LARRY ROGOLA, FRANCISCO LENOGON,
AUGUSTO QUINTO, * ARFE BERAMO, BONIFACIO
TRINIDAD, ALFREDO ASCARRAGA, * ERNESTO
MAGNO, HONORARIO HORTECIO, * NELBERT
PINEDA, GLEN ESTIPULAR, FRANCISCO
COMPUESTO, ISABELITO CORTEZ, * MATURAN
ROSAURO, SAMSON CANAS, FEBIEN ISIP, JESUS
RIPARIP, ALFREDO SIENES, ADOLAR ALBERT,
HONESTO CABANILLAS, AMPING CASTILLO and
ELWIN REVILLA, Respondents.
DECISION
QUISUMBING, J.:
For review on certiorari is the Resolution, 1 dated
December 29, 1999, of the Court of Appeals in CA-
G.R. SP No. 55416, which dismissed outright the
petition for certiorari of Mariveles Shipyard Corp., due
to a defective certificate of non-forum shopping and
non-submission of the required documents to
accompany said petition. Mariveles Shipyard Corp.,
had filed a special civil action for certiorari with the
Court of Appeals to nullify the resolution 2 of the
National Labor Relations Commission (NLRC), dated
April 22, 1999, in NLRC NCR Case No. 00-09-005440-
96-A, which affirmed the Labor Arbiter’s decision, 3
dated May 22, 1998, holding petitioner jointly and
severally liable with Longest Force Investigation and
Security Agency, Inc., for the underpayment of wages
and overtime pay due to the private respondents.
Likewise challenged in the instant petition is the
resolution 4 of the Court of Appeals, dated July 12,
2000, denying petitioner’s motion for reconsideration.
The facts, as culled from records, are as
follows:chanrob1es virtua1 1aw 1ibrary
Sometime on October 1993, petitioner Mariveles
Shipyard Corporation engaged the services of Longest
Force Investigation and Security Agency, Inc.
(hereinafter, "Longest Force") to render security
services at its premises. Pursuant to their agreement,
Longest Force deployed its security guards, the private
respondents herein, at the petitioner’s shipyard in
Mariveles, Bataan.
According to petitioner, it religiously complied with the
terms of the security contract with Longest Force,
promptly paying its bills and the contract rates of the
latter. However, it found the services being rendered
by the assigned guards unsatisfactory and inadequate,
causing it to terminate its contract with Longest Force
on April 1995. 5 Longest Force, in turn, terminated the
employment of the security guards it had deployed at
petitioner’s shipyard.
On September 2, 1996, private respondents filed a
case for illegal dismissal, underpayment of wages
pursuant to the PNPSOSIA-PADPAO rates, non-
payment of overtime pay, premium pay for holiday and
rest day, service incentive leave pay, 13th month pay
and attorney’s fees, against both Longest Force and
petitioner, before the Labor Arbiter. Docketed as NLRC
NCR Case No. 00-09-005440-96-A, the case sought
the guards’ reinstatement with full backwages and
without loss of seniority rights.
For its part, Longest Force filed a cross-claim 6 against
the petitioner. Longest Force admitted that it employed
private respondents and assigned them as security
guards at the premises of petitioner from October 16,
1993 to April 30, 1995, rendering a 12 hours duty per
shift for the said period. It likewise admitted its liability
as to the non-payment of the alleged wage differential
in the total amount of P2,618,025 but passed on the
liability to petitioner alleging that the service fee paid by
the latter to it was way below the PNPSOSIA and
PADPAO rate, thus, "contrary to the mandatory and
prohibitive laws because the right to proper
compensation and benefits provided under the existing
labor laws cannot be waived nor compromised."cralaw
virtua1aw library
The petitioner denied any liability on account of the
alleged illegal dismissal, stressing that no employer-
employee relationship existed between it and the
security guards. It further pointed out that it would be
the height of injustice to make it liable again for
monetary claims which it had already paid. Anent the
cross-claim filed by Longest Force against it, petitioner
prayed that it be dismissed for lack of merit. Petitioner
averred that Longest Force had benefited from the
contract, it was now estopped from questioning said
agreement on the ground that it had made a bad deal. 25. Febien Isip (the same) 87,116.90
OVERTIME: 26. Jesus Riparip (the same) 87,116.90
On May 22, 1998, the Labor Arbiter decided NLRC 27. Alfredo Sienes (the same) 87,116.90
NCR Case No. 00-09-005440-96-A, to wit:chanrob1es Oct. 16-Dec. 15/93 P5,485 x 2 = P5,485.00 28. Adolar Albert (the same) 87,116.90
virtual 1aw library 29. Cabanillas Honesto (the same) 87,116.90
(2 mos.) 2 30. Castillo Amping (the same) 87,116.90
WHEREFORE, conformably with the foregoing, 31. Revilla Elwin (the same) 87,116.90
judgment is hereby rendered ordering the respondents
as follows:chanrob1es virtual 1aw library Dec. 16/93-Mar. 31/94 6,630 x 3.5 = 11,602.50 ——————

1. DECLARING respondents Longest Force (3.5 mos.) 2 GRAND TOTAL P2,700,623.90

Investigation & Security Agency, Inc. and Mariveles
Shipyard Corporation jointly and severally liable to pay Apr. 1-Dec. 31/94 7,090 x 9 = 31,905.00 ===========
the money claims of complainants representing
underpayment of wages and overtime pay in the total (9 mos.) 2 2. DECLARING both respondents liable to pay
amount of P2,700,623.40 based on the PADPAO rates complainants attorney’s fees equivalent to ten (10%)
of pay covering the period from October 16, 1993 up to Jan. 1-Apr. 29/95 7,220 x 3.97 = 14,331.70 percent of the total award recovered or the sum of
April 29, 1995 broken down as follows:chanrob1es P270,062.34.
virtual 1aw library (3.97 mos.) 2
3. ORDERING respondent Longest Force Investigation
UNDERPAYMENT OF WAGES:chanrob1es virtual TOTAL OVERTIME P63,324.20 & Security Agency, Inc. to reinstate all the herein
1aw library complainants to their former or equivalent positions
MONTHLY UNDER ========= without loss of seniority rights and privileges with full
backwages which as computed as of the date of this
PERIOD PADPAO ACTUAL PAYMENT Sub-Total of Underpayments and Overtime decision are as follows:chanrob1es virtua1 1aw 1ibrary
COVERED RATES SALARY FOR WAGE P87,116.90
Backwages:
(8 hrs. duty) RECEIVED THE PERIOD
DIFFERENTIALS 1. Luis Regondula (the same) P87,116.90
2. Manolito Catalan (the same) 87,116.90 10/16 – 12/15/93 = 2 mos.
3. Oresca Agapito (the same) 87,116.90
Oct. 16-Dec. P5,485.00 P5,000 P485.00 P970.00 4. Noel Alibadbad (the same) 87,116.90 P5,485.00 x 2 mos. = P10,970.00
5. Rogelio Pintuan (the same) 87,116.90
15/93 (2 mos.) 6. Danilo Crisostomo (the same) 87,116.90 12/16/93 – 3/31/94 = 3.5 mos.
7. Romulo Macalinao (the same) 87,116.90
Dec. 16/93-Mar. 6,630.00 5,000 1,630.00 5,705.00 8. Nestor Ferrer (the same) 87,116.90 P6,630.00 x 3.5 mos. = 23,205.00
9. Ricky Cuesta (the same) 87,116.90
31/94 (3.5 mos.) 10. Andrada Ricky (the same) 87,116.90 4/1 – 12/31/94 = 9 mos.
11. Larry Rogola (the same) 87,116.90
Apr. 1-Dec. 31/94 7,090.00 5,810 1,280.00 11,520.00 12. Francisco Lenogon (the same) 87,116.90 P7,090.00 x 9 mos. = 63,810.00
13. Augosto Quinto (the same) 87,116.90
(9 mos.) 14. Arfe Beramo (the same) 87,116.90
15. Bonifacio Trinidad (the same) 87,116.90 1/1 – 4/29/95 = 3.97 mos.
16. Alfredo Azcarraga (the same) 87,116.90
Jan. 1-Apr. 29/95 7,220.00 5,810 1,410.00 5,597.70 17. Ernesto Magno (the same) 87,116.90 P7,220.00 x 3.97 mos. = 28,663.40
18. Honario Hortecio (the same) 87,116.90
(3.97 mos.) ————— 19. Nelbert Pineda (the same) 87,116.90 –—————
20. Glen Estipular (the same) 87,116.90
TOTAL UNDERPAYMENTS P23,792.70 21. Francisco Compuesto (the same) 87,116.90 TOTAL P126,684.40 7
22. Isabelito Cortes (the same) 87,116.90
========= 23. Maturan Rosauro (the same) 87,116.90 ==========
24. Samson Canas (the same) 87,116.90
1. Luis Regondula (same) P126,684.40 8 The petitioner then filed a special civil action ULTIMATELY LIABLE IN THE INSTANT CASE. 13
2. Manolito Catalan (same) 126,684.40 for certiorari assailing the NLRC judgment for having
3. Oresca Agapito (same) 126,684.40 been rendered with grave abuse of discretion with the We find the issues for our resolution to be: (1) Was it
4. Noel Alibadbad (same) 126,684.40 Court of Appeals, docketed as CA-G.R. SP No. 55416. error for the Court of Appeals to sustain its order of
5. Rogelio Pintuan (same) 126,684.40 The Court of Appeals, however, denied due course to dismissal of petitioner’s special civil action
6. Danilo Crisostomo (same) 126,684.40 the petition and dismissed it outright for the following for certiorari, notwithstanding subsequent compliance
7. Romulo Macalinao (same) 126,684.40 reasons:chanrob1es virtual 1aw library with the requirements under the Rules of Court by the
8. Nestor Ferrer (same) 126,684.40 petitioner? (2) Did the appellate court err in not holding
9. Ricky Cuesta (same) 126,684.40 1. The verification and certification on non-forum that petitioner was denied due process of law by the
10. Andrada Rolly (same) 126,684.40 shopping is signed not by duly authorized officer of NLRC? and (3) Did the appellate court grievously err in
11. Larry Rogola (same) 126,684.40 petitioner corporation, but by counsel (Section 1, Rule finding petitioner jointly and severally liable with
12. Francisco Lenogon (same) 126,684.40 65, 1997 Rules of Civil Procedure). Longest Force for the payment of wage differentials
13. Augosto Quinto (same) 126,684.40 and overtime pay owing to the private respondents?
14. Arfe Beramo (same) 126,684.40 2. The petition is unaccompanied by copies of relevant
15. Bonifacio Trinidad (same) 126,684.40 and pertinent documents, particularly the motion for On the first issue, the Court of Appeals in dismissing
16. Alfredo Azcarraga (same) 126,684.40 reconsideration filed before the NLRC (Section 1, Rule CA-G.R. SP No. 55416 observed that: (1) the
17. Ernesto Magno (same) 126,684.40 65, 1997 Rules of Civil Procedure). 12 verification and certification of non-forum shopping was
18. Honario Hortecio (same) 126,684.40 not signed by any duly authorized officer of petitioner
19. Nelbert Pineda (same) 126,684.40 The petitioner then moved for reconsideration of the but merely by petitioner’s counsel; and (2) the petition
20. Glen Estipular (same) 126,684.40 order of dismissal. The appellate court denied the was not accompanied by a copy of motion for
21. Francisco Compuesto (same) 126,684.40 motion, pointing out that under prevailing case law reconsideration filed before the NLRC, thus violating
22. Isabelito Cortes (same) 126,684.40 subsequent compliance with formal requirements for Section 1, 14 Rule 65 of the Rules of Court. Hence, a
23. Maturan Rosauro (same) 126,684.40 filing a petition as prescribed by the Rules, does not dismissal was proper under Section 3, 15 Rule 46 of
24. Samson Canas (same) 126,684.40 ipso facto warrant a reconsideration. In any event, it the Rules.
25. Febien Isip (same) 126,684.40 found no grave abuse of discretion on the part of the
26. Jesus Riparip (same) 126,684.40 NLRC to grant the writ of certiorari. In assailing the appellate court’s ruling, the petitioner
27. Alfredo Sienes (same) 126,684.40 appeals to our sense of compassion and kind
28. Adolar Albert (same) 126,684.40 Hence, this present petition before us. Petitioner consideration. It submits that the certification signed by
29. Cabanillas Honesto (same) 126,684.40 submits that THE COURT OF APPEALS GRAVELY its counsel and attached to its petition filed with the
30. Castillo Amping (same) 126,684.40 ERRED:chanrob1es virtual 1aw library Court of Appeals is substantial compliance with the
31. Revilla Elwin (same) 126,684.40 requirement. Moreover, petitioner calls our attention to
1. . . . IN DISMISSING THE PETITION AND DENYING the fact that when it filed its motion for reconsideration
————— THE MOTION FOR RECONSIDERATION DESPITE before the Court of Appeals, a joint verification and
THE FACT THAT PETITIONER SUBSTANTIALLY certification of non-forum shopping duly signed by its
GRAND TOTAL P3,927,216.40 9 COMPLIED WITH THE REQUIREMENTS OF Personnel Manager 16 and a copy of the Motion for
SECTION 1, RULE 65, 1997 RULES OF CIVIL Reconsideration 17 filed before the NLRC were
4. ORDERING said Longest Force Investigation & PROCEDURE. attached therein. Thus, petitioner prays that we take a
Security Agency, Inc. to pay attorney’s fees equivalent liberal stance to promote the ends of justice.
to ten (10%) percent of the total award recovered 2. . . . IN RULING THAT PETITIONER WAS NOT
representing backwages in the amount of DENIED DUE PROCESS OF LAW. Petitioner’s plea for liberality, however, cannot be
P392,721.64. 10 granted by the Court for reasons herein elucidated.
3. . . . IN AFFIRMING THE DECISION OF THE
5. DISMISSING all other claims for lack of legal basis. NATIONAL LABOR RELATIONS COMMISSION It is settled that the requirement in the Rules that the
THAT "LONGEST FORCE" AND PETITIONER ARE certification of non-forum shopping should be executed
SO ORDERED. 11 JOINTLY AND SEVERALLY LIABLE FOR PAYMENT and signed by the plaintiff or the principal means that
OF WAGES AND OVERTIME PAY DESPITE THE counsel cannot sign said certification unless clothed
Petitioner appealed the foregoing to the NLRC in CLEAR SHOWING THAT PETITIONER HAVE with special authority to do so. 18 The reason for this
NLRC NCR Case No. 00-09-005440-96-A. The labor ALREADY PAID THE SECURITY SERVICES THAT is that the plaintiff or principal knows better than
tribunal, however, affirmed in toto the decision of the WAS RENDERED BY PRIVATE RESPONDENTS. anyone else whether a petition has previously been
Labor Arbiter. Petitioner moved for reconsideration, but filed involving the same case or substantially the same
this was denied by the NLRC. 4. . . . WHEN IT FAILED TO RULE THAT ONLY issues. Hence, a certification signed by counsel alone
"LONGEST FORCE" SHOULD BE SOLELY AND is defective and constitutes a valid cause for dismissal
of the petition. 19 In the case of natural persons, the
Rule requires the parties themselves to sign the
certificate of non-forum shopping. However, in the case
of the corporations, the physical act of signing may be
performed, on behalf of the corporate entity, only by
specifically authorized individuals for the simple reason
that corporations, as artificial persons, cannot
personally do the task themselves. 20 In this case, not
only was the originally appended certification signed by
counsel, but in its motion for reconsideration, still
petitioner utterly failed to show that Ms. Rosanna
Ignacio, its Personnel Manager who signed the
verification and certification of non-forum shopping
attached thereto, was duly authorized for this purpose.
It cannot be gainsaid that obedience to the
requirements of procedural rule is needed if we are to
expect fair results therefrom. Utter disregard of the
rules cannot justly be rationalized by harking on the
policy of liberal construction. 21
Thus, on this point, no error could be validly attributed
to respondent Court of Appeals. It did not err in
dismissing the petition for non-compliance with the
requirements governing the certification of non-forum
shopping.
Anent the second issue, petitioner avers that there was
denial of due process of law when the Labor Arbiter
failed to have the case tried on the merits. Petitioner
adds that the Arbiter did not observe the mandatory
language of the then Sec. 5(b) Rule V (now Section 11,
per amendment in Resolution No. 01-02, Series of
2002) of the NLRC New Rules of Procedure which
provided that:chanrob1es virtual 1aw library
If the Labor Arbiter finds no necessity of further hearing
after the parties have submitted their position papers
and supporting documents, he shall issue an Order to
that effect and shall inform the parties, stating the
reasons therefor . . . 22
Petitioner’s contention, in our view, lacks sufficient
basis. Well settled is the rule that the essence of due
process is simply an opportunity to be heard, or, as
applied to administrative proceedings, an opportunity
to explain one’s side or an opportunity to seek a
reconsideration of the action or ruling complained of.
23 Not all cases require a trial-type hearing. The
requirement of due process in labor cases before a
Labor Arbiter is satisfied when the parties are given the
opportunity to submit their position papers to which
they are supposed to attach all the supporting
documents or documentary evidence that would prove
their respective claims, in the event the Labor Arbiter
determines that no formal hearing would be conducted
or that such hearing was not necessary. 24 In any
event, as found by the NLRC, petitioner was given
ample opportunity to present its side in several
hearings conducted before the Labor Arbiter and in the
position papers and other supporting documents that it
had submitted. We find that such opportunity more
than satisfies the requirement of due process in labor
cases.
On the third issue, petitioner argues that it should not
be held jointly and severally liable with Longest Force
for underpayment of wages and overtime pay because
it had been religiously and promptly paying the bills for
the security services sent by Longest Force and that
these are in accordance with the statutory minimum
wage. Also, petitioner contends that it should not be
held liable for overtime pay as private respondents
failed to present proof that overtime work was actually
performed. Lastly, petitioner claims that the Court of
Appeals failed to render a decision that finally disposed
of the case because it did not specifically rule on the
immediate recourse of private respondents, that is, the
matter of reimbursement between petitioner and
Longest Force in accordance with Eagle Security
Agency Inc. v. NLRC , 25 and Philippine Fisheries
Development Authority v. NLRC . 26
Petitioner’s liability is joint and several with that of
Longest Force, pursuant to Articles 106, 107 and 109
of the Labor Code which provide as
follows:chanrob1es virtual 1aw library
ART. 106. CONTRACTOR OR SUBCONTRACTOR.
— Whenever an employer enters into a contract with
another person for the performance of the former’s
work, the employees of the contractor and of the latter’s
subcontractor, if any, shall be paid in accordance with
the provisions of this Code.
In the event that the contractor or subcontractor fails to
pay the wages of his employees in accordance with this
Code, the employer shall be jointly and severally liable
with his contractor or subcontractor to such employees
to the extent of the work performed under the contract,
in the same manner and extent that he is liable to
employees directly employed by him.
x x x
ART. 107. INDIRECT EMPLOYER. — The provisions
of the immediately preceding Article shall likewise
apply to any person, partnership, association or
corporation which, not being an employer, contracts
with an independent contractor for the performance of
any work, task, job or project.
ART. 109. SOLIDARY LIABILITY . — The provisions of
existing laws to the contrary notwithstanding, every
employer or indirect employer shall be held responsible
with his contractor or subcontractor for any violation of
any provision of this Code. For purposes of
determining the extent of their civil liability under this
Chapter, they shall be considered as direct
employers.chanrob1es virtua1 1aw 1ibrary
In this case, when petitioner contracted for security
services with Longest Force as the security agency
that hired private respondents to work as guards for the
shipyard corporation, petitioner became an indirect
employer of private respondents pursuant to Article
107 abovecited. Following Article 106, when the
agency as contractor failed to pay the guards, the
corporation as principal becomes jointly and severally
liable for the guards’ wages. This is mandated by the
Labor Code to ensure compliance with its provisions,
including payment of statutory minimum wage. The
security agency is held liable by virtue of its status as
direct employer, while the corporation is deemed the
indirect employer of the guards for the purpose of
paying their wages in the event of failure of the agency
to pay them. This statutory scheme gives the workers
the ample protection consonant with labor and social
justice provisions of the 1987 Constitution. 27
Petitioner cannot evade its liability by claiming that it
had religiously paid the compensation of guards as
stipulated under the contract with the security agency.
Labor standards are enacted by the legislature to
alleviate the plight of workers whose wages barely
meet the spiraling costs of their basic needs. Labor
laws are considered written in every contract.
Stipulations in violation thereof are considered null.
Similarly, legislated wage increases are deemed
amendments to the contract. Thus, employers cannot
hide behind their contracts in order to evade their (or
their contractors’ or subcontractors’) liability for
noncompliance with the statutory minimum wage. 28
However, we must emphasize that the solidary liability
of petitioner with that of Longest Force does not
preclude the application of the Civil Code provision on
the right of reimbursement from his co-debtor by the
one who paid. 29 As held in Del Rosario & Sons
Logging Enterprises, Inc. v. NLRC , 30 the joint and
several liability imposed on petitioner is without
prejudice to a claim for reimbursement by petitioner
against the security agency for such amounts as
petitioner may have to pay to complainants, the private
respondents herein. The security agency may not seek
exculpation by claiming that the principal’s payments to
it were inadequate for the guards’ lawful compensation.
As an employer, the security agency is charged with
knowledge of labor laws; and the adequacy of the
compensation that it demands for contractual services
is its principal concern and not any other’s. 31

On the issue of the propriety of the award of overtime

pay despite the alleged lack of proof thereof, suffice it
to state that such involves a determination and
evaluation of facts which cannot be done in a petition
for review. Well established is the rule that in an appeal
via certiorari, only questions of law may be reviewed.
32

One final point. Upon review of the award of

backwages and attorney’s fees, we discovered certain
errors that happened in the addition of the amount of
individual backwages that resulted in the erroneous
total amount of backwages and attorney’s fees. These
errors ought to be properly rectified now. Thus, the
correct sum of individual backwages should be
P126,648.40 instead of P126,684.40, while the correct
sum of total backwages awarded and attorney’s fees
should be P3,926,100.40, and P392,610.04, instead of
P3,927,216.40 and P392,721.64, respectively.

WHEREFORE, the Resolution of the Court of Appeals

in CA-G.R. SP No. 55416 is AFFIRMED with
MODIFICATION. Petitioner and Longest Force are
held liable jointly and severally for underpayment of
wages and overtime pay of the security guards, without
prejudice to petitioner’s right of reimbursement from
Longest Force Investigation and Security Agency, Inc.
The amounts payable to complaining security guards,
herein private respondents, by way of total backwages
and attorney’s fees are hereby set at P3,926,100.40
and P392,610.04, respectively. Costs against
petitioner.

SO ORDERED.ch

G.R. No. 147791 September 8, 2006
CONSTRUCTION DEVELOPMENT CORPORATION
OF THE PHILIPPINES, petitioner,
vs.
REBECCA G. ESTRELLA, RACHEL E. FLETCHER,
PHILIPPINE PHOENIX SURETY & INSURANCE
INC., BATANGAS LAGUNA TAYABAS BUS CO.,
and WILFREDO DATINGUINOO, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the March 29, 2001
Decision1 of the Court of Appeals in CA-G.R. CV No.
46896, which affirmed with modification the February
9, 1993 Decision2 of the Regional Trial Court of Manila,
Branch 13, in Civil Case No. R-82-2137, finding
Batangas Laguna Tayabas Bus Co. (BLTB) and
Construction Development Corporation of the
Philippines (CDCP) liable for damages.
The antecedent facts are as follows:
On December 29, 1978, respondents Rebecca G.
Estrella and her granddaughter, Rachel E. Fletcher,
boarded in San Pablo City, a BLTB bus bound for
Pasay City. However, they never reached their
destination because their bus was rammed from
behind by a tractor-truck of CDCP in the South
Expressway. The strong impact pushed forward their
seats and pinned their knees to the seats in front of
them. They regained consciousness only when
rescuers created a hole in the bus and extricated their
legs from under the seats. They were brought to the
Makati Medical Center where the doctors diagnosed
their injuries to be as follows:
Medical Certificate of Rebecca Estrella
Fracture, left tibia mid 3rd
Lacerated wound, chin
Contusions with abrasions, left lower leg
Fracture, 6th and 7th ribs, right3
Medical Certificate of Rachel Fletcher
Extensive lacerated wounds, right leg
posterior aspect popliteal area
and antero-lateral aspect mid lower leg with
severance of muscles.
Partial amputation BK left leg with severance
of gastro-soleus and
antero-lateral compartment of lower leg.
Fracture, open comminuted, both tibial4
Thereafter, respondents filed a Complaint5 for
damages against CDCP, BLTB, Espiridion Payunan,
Jr. and Wilfredo Datinguinoo before the Regional Trial
Court of Manila, Branch 13. They alleged (1) that
Payunan, Jr. and Datinguinoo, who were the drivers of
CDCP and BLTB buses, respectively, were negligent
and did not obey traffic laws; (2) that BLTB and CDCP
did not exercise the diligence of a good father of a
family in the selection and supervision of their
employees; (3) that BLTB allowed its bus to operate
knowing that it lacked proper maintenance thus
exposing its passengers to grave danger; (4) that they
suffered actual damages amounting to P250,000.00 for
Estrella and P300,000.00 for Fletcher; (5) that they
suffered physical discomfort, serious anxiety, fright and
mental anguish, besmirched reputation and wounded
feelings, moral shock, and lifelong social humiliation;
(6) that defendants failed to act with justice, give
respondents their due, observe honesty and good faith
which entitles them to claim for exemplary damage;
and (7) that they are entitled to a reasonable amount
of attorney's fees and litigation expenses.
CDCP filed its Answer6 which was later amended to
include a third-party complaint against Philippine
Phoenix Surety and Insurance, Inc. (Phoenix).7
On February 9, 1993, the trial court rendered a decision
finding CDCP and BLTB and their employees liable for
damages, the dispositive portion of which, states:
WHEREFORE, judgment is rendered:
In the Complaint –
1. In favor of the plaintiffs and against the
defendants BLTB, Wilfredo Datinguinoo,
Construction and Development Corporation
of the Philippines (now PNCC) and Espiridion
Payunan, Jr., ordering said defendants, jointly
and severally to pay the plaintiffs the sum of
P79,254.43 as actual damages and to pay the
sum of P10,000.00 as attorney's fees or a
total of P89,254.43;
2. In addition, defendant Construction and
Development Corporation of the Philippines
and defendant Espiridion Payunan, Jr., shall
pay the plaintiffs the amount of Fifty
Thousand (P50,000.00) Pesos to plaintiff
Rachel Fletcher and Twenty Five Thousand
(P25,000.00) Pesos to plaintiff Rebecca
Estrella;
3. On the counterclaim of BLTB Co. and
Wilfredo Datinguinoo –
Dismissing the counterclaim;
4. On the crossclaim against Construction
and Development Corporation of the
Philippines (now PNCC) and Espiridion
Payunan, Jr. –
Dismissing the crossclaim;
5. On the counterclaim of Construction and
Development Corporation of the Philippines
(now PNCC) –
Dismissing the counterclaim;
6. On the crossclaim against BLTB –
Dismissing the crossclaim;
7. On the Third Party Complaint by
Construction and Development Corporation
 of the Philippines against Philippine Phoenix
Surety and Insurance, Incorporated –
Dismissing the Third Party Complaint.
SO ORDERED.8
The trial court held that BLTB, as a common carrier,
was bound to observe extraordinary diligence in the
vigilance over the safety of its passengers. It must carry
the passengers safely as far as human care and
foresight provide, using the utmost diligence of very
cautious persons, with a due regard for all the
circumstances. Thus, where a passenger dies or is
injured, the carrier is presumed to have been at fault or
has acted negligently. BLTB's inability to carry
respondents to their destination gave rise to an action
for breach of contract of carriage while its failure to
rebut the presumption of negligence made it liable to
respondents for the breach.9
Regarding CDCP, the trial court found that the tractor-
truck it owned bumped the BLTB bus from behind.
Evidence showed that CDCP's driver was reckless and
driving very fast at the time of the incident. The gross
negligence of its driver raised the presumption that
CDCP was negligent either in the selection or in the
supervision of its employees which it failed to rebut
thus making it and its driver liable to respondents.10
Unsatisfied with the award of damages and attorney's
fees by the trial court, respondents moved that the
decision be reconsidered but was denied.
Respondents elevated the case11 to the Court of
Appeals which affirmed the decision of the trial court
but modified the amount of damages, the dispositive
portion of which provides:
WHEREFORE, the assailed decision dated
October 7, 1993 of the Regional Trial Court,
Branch 13, Manila is hereby AFFIRMED with
the following MODIFICATION:
1. The interest of six (6) percent per annum
on the actual damages of P79,354.43 should
commence to run from the time the judicial
demand was made or from the filing of the
complaint on February 4, 1980;
2. Thirty (30) percent of the total amount
recovered is hereby awarded as attorney's
fees;
3. Defendants-appellants Construction and
Development Corporation of the Philippines
(now PNCC) and Espiridion Payunan, Jr. are
ordered to pay plaintiff-appellants Rebecca
Estrella and Rachel Fletcher the amount of
Twenty Thousand (P20,000.00) each as
exemplary damages and P80,000.00 by way
of moral damages to Rachel Fletcher.
SO ORDERED.12
The Court of Appeals held that the actual or
compensatory damage sought by respondents for the
injuries they sustained in the form of hospital bills were
already liquidated and were ascertained. Accordingly,
the 6% interest per annum should commence to run
from the time the judicial demand was made or from
the filing of the complaint and not from the date of
judgment. The Court of Appeals also awarded
attorney's fees equivalent to 30% of the total amount
recovered based on the retainer agreement of the
parties. The appellate court also held that respondents
are entitled to exemplary and moral damages. Finally,
it affirmed the ruling of the trial court that the claim of
CDCP against Phoenix had already prescribed.
Hence, this petition raising the following issues:
I Respondents, on the other hand, argue that petitioner
WHETHER OR NOT THE COURT OF
APPEALS GRAVELY ERRED IN NOT
HOLDING RESPONDENTS BLTB AND/OR
ITS DRIVER WILFREDO DATINGUINOO
SOLELY LIABLE FOR THE DAMAGES
SUSTAINED BY HEREIN RESPONDENTS
FLETCHER AND ESTRELLA.
II
WHETHER OR NOT THE COURT OF
APPEALS GRAVELY ERRED IN
AWARDING EXCESSIVE OR UNFOUNDED
DAMAGES, ATTORNEY'S FEES AND
LEGAL INTEREST TO RESPONDENTS
FLETCHER AND ESTRELLA.
III
WHETHER OR NOT THE COURT OF
APPEALS GRAVELY ERRED IN NOT
HOLDING RESPONDENT PHOENIX
LIABLE UNDER ITS INSURANCE POLICY
ON THE GROUND OF PRESCRIPTION.
The issues for resolution are as follows: (1) whether
BLTB and its driver Wilfredo Datinguinoo are solely
liable for the damages sustained by respondents; (2)
whether the damages, attorney's fees and legal
interest awarded by the CA are excessive and
unfounded; (3) whether CDCP can recover under its
insurance policy from Phoenix.
Petitioner contends that since it was made solidarily
liable with BLTB for actual damages and attorney's
fees in paragraph 1 of the trial court's decision, then it
should no longer be held liable to pay the amounts
stated in paragraph 2 of the same decision. Petitioner
claims that the liability for actual damages and
attorney's fees is based on culpa contractual, thus, only
BLTB should be held liable. As regards paragraph 2 of
the trial court's decision, petitioner claims that it is
ambiguous and arbitrary because the dispositive
portion did not state the basis and nature of such
award.
is also at fault, hence, it was properly joined as a party.
There may be an action arising out of one incident
where questions of fact are common to all. Thus, the
cause of action based on culpa aquiliana in the civil
suit they filed against it was valid.
The petition lacks merit.
The case filed by respondents against petitioner is an
action for culpa aquiliana or quasi-delict under Article
2176 of the Civil Code.13 In this regard, Article 2180
provides that the obligation imposed by Article 2176 is
demandable for the acts or omissions of those persons
for whom one is responsible. Consequently, an action
based on quasi-delict may be instituted against the
employer for an employee's act or omission. The
liability for the negligent conduct of the subordinate
is direct and primary, but is subject to the defense of
due diligence in the selection and supervision of the
employee.14 In the instant case, the trial court found
that petitioner failed to prove that it exercised the
diligence of a good father of a family in the selection
and supervision of Payunan, Jr.
The trial court and the Court of Appeals found
petitioner solidarily liable with BLTB for the actual
damages suffered by respondents because of the
injuries they sustained. It was established that
Payunan, Jr. was driving recklessly because of the skid
marks as shown in the sketch of the police investigator.
It is well-settled in Fabre, Jr. v. Court of Appeals,15 that
the owner of the other vehicle which collided with a
common carrier is solidarily liable to the injured
passenger of the same. We held, thus:
The same rule of liability was applied in
situations where the negligence of the driver
of the bus on which plaintiff was riding
concurred with the negligence of a third party
who was the driver of another vehicle, thus
causing an accident. In Anuran v.
Buño, Batangas Laguna Tayabas Bus Co. v.
Intermediate Appellate Court, and Metro
Manila Transit Corporation v. Court of
Appeals, the bus company, its driver, the
operator of the other vehicle and the driver
of the vehicle were jointly and severally
held liable to the injured passenger or the
latter's heirs. The basis of this allocation of
liability was explained in Viluan v. Court of
Appeals, thus:
Nor should it make any difference that the
liability of petitioner [bus owner] springs
from contract while that of respondents
[owner and driver of other vehicle] arises
from quasi-delict. As early as 1913, we
already ruled in Gutierrez vs. Gutierrez, 56
Phil. 177, that in case of injury to a passenger
due to the negligence of the driver of the bus
on which he was riding and of the driver of
another vehicle, the drivers as well as the
owners of the two vehicles are jointly and
severally liable for damages. x x x
xxxx
As in the case of BLTB, private respondents
in this case and her co-plaintiffs did not stake
out their claim against the carrier and the
driver exclusively on one theory, much less on
that of breach of contract alone. After all, it
was permitted for them to allege
alternative causes of action and join as
many parties as may be liable on such
causes of action so long as private
respondent and her co-plaintiffs do not
recover twice for the same injury. What is
clear from the cases is the intent of the plaintiff
there to recover from both the carrier and the
driver, thus justifying the holding that the
carrier and the driver were jointly and
severally liable because their separate and
distinct acts concurred to produce the same
injury.16 (Emphasis supplied)
In a "joint" obligation, each obligor answers only for a
part of the whole liability; in a "solidary" or "joint and
several" obligation, the relationship between the active
and the passive subjects is so close that each of them
must comply with or demand the fulfillment of the whole
obligation. In Lafarge Cement v. Continental Cement
Corporation,17 we reiterated that joint tort feasors are
jointly and severally liable for the tort which they
commit. Citing Worcester v. Ocampo,18 we held that:
x x x The difficulty in the contention of the
appellants is that they fail to recognize that
the basis of the present action is tort. They fail
to recognize the universal doctrine that each
joint tort feasor is not only individually liable
for the tort in which he participates, but is also
jointly liable with his tort feasors. x x x
It may be stated as a general rule that joint
tort feasors are all the persons who
command, instigate, promote, encourage,
advise, countenance, cooperate in, aid or
abet the commission of a tort, or who approve
of it after it is done, if done for their benefit.
They are each liable as principals, to the
same extent and in the same manner as if
they had performed the wrongful act
themselves. x x x
Joint tort feasors are jointly and severally
liable for the tort which they commit. The
persons injured may sue all of them or any
number less than all. Each is liable for the
whole damages caused by all, and all
together are jointly liable for the whole
damage. It is no defense for one sued alone,
that the others who participated in the
wrongful act are not joined with him as
defendants; nor is it any excuse for him that
his participation in the tort was insignificant as
compared to that of the others. x x x
Joint tort feasors are not liable pro rata. The
damages can not be apportioned among
them, except among themselves. They
cannot insist upon an apportionment, for the
purpose of each paying an aliquot part. They
are jointly and severally liable for the whole
amount. x x x
A payment in full for the damage done, by one
of the joint tort feasors, of course satisfies any
claim which might exist against the others.
There can be but satisfaction. The release of
one of the joint tort feasors by agreement
generally operates to discharge all. x x x
Of course the court during trial may find that
some of the alleged tort feasors are liable and
that others are not liable. The courts may
release some for lack of evidence while
condemning others of the alleged tort feasors.
And this is true even though they are charged
jointly and severally.19
Petitioner's claim that paragraph 2 of the dispositive
portion of the trial court's decision is ambiguous and
arbitrary and also entitles respondents to recover twice
is without basis. In the body of the trial court's decision,
it was clearly stated that petitioner and its driver
Payunan, Jr., are jointly and solidarily liable for moral
damages in the amount of P50,000.00 to respondent
Fletcher and P25,000.00 to respondent
Estrella.20 Moreover, there could be no double
recovery because the award in paragraph 2 is for moral
damages while the award in paragraph 1 is for actual
damages and attorney's fees.
Petitioner next claims that the damages, attorney's
fees, and legal interest awarded by the Court of
Appeals are excessive.
Moral damages may be recovered in quasi-delicts
causing physical injuries.21 The award of moral
damages in favor of Fletcher and Estrella in the amount
of P80,000.00 must be reduced since prevailing
jurisprudence fixed the same at P50,000.00.22 While
moral damages are not intended to enrich the plaintiff
at the expense of the defendant, the award should
nonetheless be commensurate to the suffering
inflicted.23
The Court of Appeals correctly awarded respondents
exemplary damages in the amount of P20,000.00
each. Exemplary damages may be awarded in addition
to moral and compensatory damages.24 Article 2231 of
the Civil Code also states that in quasi-delicts,
exemplary damages may be granted if the defendant
acted with gross negligence.25 In this case, petitioner's
driver was driving recklessly at the time its truck
rammed the BLTB bus. Petitioner, who has direct and
primary liability for the negligent conduct of its
subordinates, was also found negligent in the selection
and supervision of its employees. In Del Rosario v.
Court of Appeals,26 we held, thus:
ART. 2229 of the Civil Code also provides that
such damages may be imposed, by way of
example or correction for the public good.
While exemplary damages cannot be
recovered as a matter of right, they need not
be proved, although plaintiff must show that
he is entitled to moral, temperate or
compensatory damages before the court may
consider the question of whether or not
exemplary damages should be awarded.
Exemplary Damages are imposed not to
enrich one party or impoverish another but to
serve as a deterrent against or as a negative
incentive to curb socially deleterious actions.
Regarding attorney's fees, we held in Traders Royal
Bank Employees Union-Independent v. National Labor
Relations Commission,27 that:
There are two commonly accepted concepts
of attorney's fees, the so-called ordinary and
extraordinary. In its ordinary concept, an
attorney's fee is the reasonable
compensation paid to a lawyer by his client for
the legal services he has rendered to the
latter. The basis of this compensation is the
fact of his employment by and his agreement
with the client.
In its extraordinary concept, an attorney's
fee is an indemnity for damages ordered
by the court to be paid by the losing party
in a litigation. The basis of this is any of the
cases provided by law where such award can
be made, such as those authorized in Article
2208, Civil Code, and is payable not to the
lawyer but to the client, unless they have
agreed that the award shall pertain to the
lawyer as additional compensation or as
part thereof.28 (Emphasis supplied)
In the instant case, the Court of Appeals correctly
awarded attorney's fees and other expenses of
litigation as they may be recovered as actual or
compensatory damages when exemplary damages are
awarded; when the defendant acted in gross and
evident bad faith in refusing to satisfy the plaintiff's
valid, just and demandable claim; and in any other
case where the court deems it just and equitable that
attorney's fees and expenses of litigation should be
recovered.29
Regarding the imposition of legal interest at the rate of
6% from the time of the filing of the complaint, we held
in Eastern Shipping Lines, Inc. v. Court of
Appeals,30 that when an obligation, regardless of its
source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held
liable for payment of interest in the concept of actual
and compensatory damages,31 subject to the following
rules, to wit –
1. When the obligation is breached, and it
consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the
interest due should be that which may have
been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest from
the time it is judicially demanded. In the
absence of stipulation, the rate of interest
shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial
demand under and subject to the provisions
of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan
or forbearance of money, is breached, an
interest on the amount of damages awarded
may be imposed at the discretion of the court
at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated
claims or damages except when or until the
demand can be established with reasonable
certainty. Accordingly, where the demand is
established with reasonable certainty, the
interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty
cannot be so reasonably established at the
time the demand is made, the interest shall
begin to run only from the date the
judgment of the court is made (at which
time the quantification of damages may be
deemed to have been reasonably
ascertained). The actual base for the
computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court
awarding a sum of money becomes final
and executory, the rate of legal interest,
whether the case falls under paragraph 1
or paragraph 2, above, shall be 12% per
annum from such finality until its
satisfaction, this interim period being
deemed to be by then an equivalent to a
forbearance of credit.32 (Emphasis
supplied)
Accordingly, the legal interest of 6% shall begin to run
on February 9, 1993 when the trial court rendered
judgment and not on February 4, 1980 when the
complaint was filed. This is because at the time of the
filing of the complaint, the amount of the damages to
which plaintiffs may be entitled remains unliquidated
and unknown, until it is definitely ascertained,
assessed and determined by the court and only upon
presentation of proof thereon.33 From the time the
judgment becomes final and executory, the interest
rate shall be 12% until its satisfaction.
Anent the last issue of whether petitioner can recover
under its insurance policy from Phoenix, we affirm the
findings of both the trial court and the Court of Appeals,
thus:
As regards the liability of Phoenix, the court a
quo correctly ruled that defendant-appellant
CDCP's claim against Phoenix already
prescribed pursuant to Section 384 of P.D.
612, as amended, which provides:
Any person having any claim upon
the policy issued pursuant to this
chapter shall, without any
unnecessary delay, present to the
insurance company concerned a
written notice of claim setting forth
the nature, extent and duration of the
injuries sustained as certified by a
duly licensed physician. Notice of
claim must be filed within six months
from date of the accident, otherwise,
the claim shall be deemed waived.
Action or suit for recovery of damage
due to loss or injury must be brought
in proper cases, with the
Commissioner or Courts within one
year from denial of the claim,
otherwise, the claimant's right of
action shall prescribe. (As amended
by PD 1814, BP 874.)34
The law is clear and leaves no room for interpretation.
A written notice of claim must be filed within six months
from the date of the accident. Since petitioner never
made any claim within six months from the date of the
accident, its claim has already prescribed.
WHEREFORE, the instant petition is DENIED. The
Decision of the Court of Appeals in CA-G.R. CV No.
46896 dated March 29, 2001, which modified the
Decision of the Regional Trial Court of Manila, Branch
13, in Civil Case No. R-82-2137, is AFFIRMED with
the MODIFICATIONS that petitioner is held jointly and
severally liable to pay (1) actual damages in the
amount of P79,354.43; (2) moral damages in the
amount of P50,000.00 each for Rachel Fletcher and
Rebecca Estrella; (3) exemplary damages in the
amount of P20,000.00 each for Rebecca Estrella and
Rachel Fletcher; and (4) thirty percent (30%) of the
total amount recovered as attorney's fees. The total
amount adjudged shall earn interest at the rate of 6%
per annum from the date of judgment of the trial court
until finality of this judgment. From the time this
Decision becomes final and executory and the
judgment amount remains unsatisfied, the same shall
earn interest at the rate of 12% per annum until its
satisfaction.
SO ORDERED.
G.R. No. 203133, February 18, 2015
YULIM INTERNATIONAL COMPANY LTD., JAMES
YU, JONATHAN YU, AND ALMERICK TIENG
LIM, Petitioners, v. INTERNATIONAL EXCHANGE
BANK (NOW UNION BANK OF THE
PHILIPPINES), Respondent.
DECISION
REYES, J.:
In the assailed Decision1 dated February 1, 2012 in
CA-G.R. CV No. 95522, the Court of Appeals (CA)
modified the Decision2 dated December 21, 2009 of
the Regional Trial Court (RTC) of Makati City, Branch
145, in Civil Case No. 02-749, holding that James Yu
(James), Jonathan Yu (Jonathan) and Almerick Tieng
Lim (Almerick), who were capitalist partners in Yulim
International Company Ltd. (Yulim), collectively called
as the petitioners, were jointly and severally liable with
Yulim for its loan obligations with respondent
International Exchange Bank (iBank).
The Facts
On June 2, 2000, iBank, a commercial bank, granted
Yulim, a domestic partnership, a credit facility in the
form of an Omnibus Loan Line for P5,000,000.00, as
evidenced by a Credit Agreement3 which was secured Ruling of the RTC I. THE LOWER COURT ERRED IN
by a Chattel Mortgage4 over Yulim’s inventories in its ORDERING [YULIM] TO PAY
merchandise warehouse at 106 4th Street, 9th Avenue, After trial on the merits, the RTC rendered judgment on [iBANK] THE AMOUNT OF
Caloocan City. As further guarantee, the partners, December 21, 2009, the dispositive portion of which P4,246,310.00 WITH INTEREST AT
namely, James, Jonathan and Almerick, executed a reads, as follows: 16.5% PER ANNUM FROM
Continuing Surety Agreement5 in favor of iBank. FEBRUARY 28, 2002 UNTIL FULLY
PAID.
Yulim availed of its aforesaid credit facility with iBank, WHEREFORE, in view of the foregoing considerations,
as follows: the Court finds the individual defendants James Yu, II. THE LOWER COURT ERRED IN
Jonathan Yu and Almerick Tieng Lim, not liable to the NOT ORDERING [iBANK] TO PAY
Promissory Face Value PN Date Date of plaintiff, iBank, hence the complaint against them is ATTORNEY’S FEES, MORAL
Note No. Maturity hereby DISMISSED for insufficiency of evidence, DAMAGES AND EXEMPLARY
2110005852 P 10/26/2000 01/29/2001 without pronouncement as to cost. DAMAGES.20
1,298,926.00
2110006026 1,152,963.00 11/18/2000 02/05/2001 This court, however, finds defendant corporation Yulim
2110006344 499,890.00 12/04/2000 03/12/2001 International Company Ltd. liable; and it hereby orders
For its part, iBank raised the following as errors of the
2110006557 798,010.00 12/18/2000 04/23/2001 defendant corporation to pay plaintiff the sum of
RTC:
2110100189 496,521.00 01/11/2001 05/07/20016 P4,246,310.00 with interest at 16.50% per annum from
February 28, 2002 until fully paid plus cost of suit.
The above promissory notes (PN) were later
consolidated under a single promissory note, PN No. The counterclaims of defendants against plaintiff iBank
SADDK001014188, for P4,246,310.00, to mature on are hereby DISMISSED for insufficiency of evidence. I. THE TRIAL COURT ERRED IN
February 28, 2002.7 Yulim defaulted on the said note. NOT HOLDING INDIVIDUAL
On April 5, 2002, iBank sent demand letters to Yulim, SO ORDERED.15 [PETITIONERS JAMES,
through its President, James, and through JONATHAN AND ALMERICK]
Almerick,8 but without success. iBank then filed a Thus, the RTC ordered Yulim alone to pay iBank the SOLIDARILY LIABLE WITH
Complaint for Sum of Money with Replevin9 against amount of P4,246,310.00, plus interest at 16.50% per [YULIM] ON THE BASIS OF THE
Yulim and its sureties. On August 8, 2002, the Court annum from February 28, 2002 until fully paid, plus CONTINUING SURETYSHIP
granted the application for a writ of replevin. Pursuant costs of suit, and dismissed the complaint against AGREEMENT EXECUTED BY
to the Sheriff’s Certificate of Sale dated November 7, petitioners James, Jonathan and Almerick, stating that THEM.
2002,10 the items seized from Yulim’s warehouse were there was no iota of evidence that the loan proceeds
worth only P140,000.00, not P500,000.00 as the benefited their families.16 II. THE TRIAL COURT ERRED IN
petitioners have insisted.11 NOT HOLDING ALL THE
The petitioners moved for reconsideration on January [PETITIONERS] LIABLE FOR
On October 2, 2002, the petitioners moved to dismiss 12, 2010;17 iBank on January 19, 2010 likewise filed a PENALTY CHARGES UNDER THE
the complaint insisting that their loan had been fully motion for partial reconsideration.18 In its Joint CREDIT AGREEMENT AND
paid after they assigned to iBank their Condominium Order19 dated March 8, 2010, the RTC denied both PROMISSORY NOTES SUED
Unit No. 141, with parking space, at 20 Landsbergh motions. UPON.
Place in Tomas Morato Avenue, Quezon City.12 They
claimed that while the pre-selling value of the III. THE TRIAL COURT ERRED IN
condominium unit was P3.3 Million, its market value Ruling of the CA NOT HOLDING [THE
has since risen to P5.5 Million.13 The RTC, however, PETITIONERS] LIABLE TO [iBANK]
did not entertain the motion to dismiss for non- On March 23, 2010, Yulim filed a Notice of Partial FOR ATTORNEY’S FEES AND
compliance with Rule 15 of the Rules of Court. Appeal, followed on March 30, 2010 by iBank with a INDIVIDUAL [PETITIONERS]
Notice of Appeal. JOINTLY AND SEVERALLY
On May 16, 2006, the petitioners filed their Answer LIABLE WITH [YULIM] FOR COSTS
reiterating that they have paid their loan by way of Yulim interposed the following as errors of the court a OF SUIT INCURRED BY [iBANK] IN
assignment of a condominium unit to iBank, as well as quo: ORDER TO PROTECT ITS
insisting that iBank’s penalties and charges were RIGHTS.21
exorbitant, oppressive and unconscionable.14

Chiefly, the factual issue on appeal to the CA, raised
by petitioners James, Jonathan and Almerick, was
whether Yulim’s loans have in fact been extinguished
with the execution of a Deed of Assignment of their
condominium unit in favor of iBank, while the corollary
legal issue, raised by iBank, was whether they should
be held solidarily liable with Yulim for its loans and
other obligations to iBank.
The CA ruled that the petitioners failed to prove that
they have already paid Yulim’s consolidated loan
obligations totaling P4,246,310.00, for which it issued
to iBank PN No. SADDK001014188 for the said
amount. It held that the existence of a debt having been
established, the burden to prove with legal certainty
that it has been extinguished by payment devolves
upon the debtors who have offered such defense. The
CA found the records bereft of any evidence to show
that Yulim had fully settled its obligation to iBank,
further stating that the so-called assignment by Yulim
of its condominium unit to iBank was nothing but a
mere temporary arrangement to provide security for its
loan pending the subsequent execution of a real estate
mortgage. Specifically, the CA found nothing in the
Deed of Assignment which could signify that iBank had
accepted the said property as full payment of the
petitioners’ loan. The CA cited Manila Banking
Corporation v. Teodoro, Jr.22 which held that an
assignment to guarantee an obligation is in effect a
mortgage and not an absolute conveyance of title
which confers ownership on the assignee.
Concerning the solidary liability of petitioners James,
Jonathan and Almerick, the CA disagreed with the trial
court’s ruling that it must first be shown that the
proceeds of the loan redounded to the benefit of the
family of the individual petitioners before they can be
held liable. Article 161 of the Civil Code and Article 121
of the Family Code cited by the RTC apply only where
the liability is sought to be enforced against the
conjugal partnership itself. In this case, regardless of
whether the loan benefited the family of the individual
petitioners, they signed as sureties, and iBank sought
to enforce the loan obligation against them as sureties
of Yulim.
Thus, the appellate court granted the appeal of iBank,
and denied that of the petitioners, as follows:
WHEREFORE, the foregoing considered, [iBank’s]
appeal is PARTLY GRANTED while [the petitioners’]
appeal is DENIED. Accordingly, the appealed decision
is hereby MODIFIED in that [petitioners] James Yu,
Jonathan Yu and A[l]merick Tieng Lim are hereby held
jointly and severally liable with defendant-appellant
Yulim for the payment of the monetary awards. The
rest of the assailed decision is AFFIRMED.
SO ORDERED.23
Petition for Review to the Supreme Court
In the instant petition, the following assigned errors are
before this Court:
1. The CA erred in ordering petitioners James,
Jonathan and Almerick jointly and severally liable with
petitioner Yulim to pay iBank the amount of
P4,246,310.00 with interest at 16.5% per annum from
February 28, 2002 until fully paid.
2. The CA erred in not ordering iBank to pay the
petitioners moral damages, exemplary damages, and
attorney’s fees.24
The petitioners insist that they have paid their loan to
iBank. They maintain that the letter of iBank to them
dated May 4, 2001, which “expressly stipulated that the
petitioners shall execute a Deed of Assignment over
one condominium unit No. 141, 3rd Floor and a parking
slot located at 20 Landsbergh Place, Tomas Morato
Avenue, Quezon City,” was with the understanding that
the Deed of Assignment, which they in fact executed,
delivering also to iBank all the pertinent supporting
documents, would serve to totally extinguish their loan
obligation to iBank. In particular, the petitioners state
that it was their understanding that upon approval by
iBank of their Deed of Assignment, the same “shall be
considered as full and final payment of the petitioners’
obligation.” They further assert that iBank’s May 4,
2001 letter expressly carried the said approval.
The petitioner invoked Article 1255 of the Civil Code,
on payment by cession, which provides:
Art. 1255. The debtor may cede or assign his property
to his creditors in payment of his debts. This cession,
unless there is stipulation to the contrary, shall only
release the debtor from responsibility for the net
proceeds of the thing assigned. The agreements
which, on the effect of the cession, are made between
the debtor and his creditors shall be governed by
special laws.
Ruling of the Court
The petition is bereft of merit.
Firstly, the individual petitioners do not deny that they
executed the Continuing Surety Agreement, wherein
they “jointly and severally with the PRINCIPAL [Yulim],
hereby unconditionally and irrevocably guarantee full
and complete payment when due, whether at stated
maturity, by acceleration, or otherwise, of any and all
credit accommodations that have been granted” to
Yulim by iBank, including interest, fees, penalty and
other charges.25 Under Article 2047 of the Civil Code,
these words are said to describe a contract of
suretyship. It states:
Art. 2047. By guaranty a person, called the guarantor,
binds himself to the creditor to fulfill the obligation of
the principal debtor 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
is called a suretyship.
In a contract of suretyship, one lends his credit by
joining in the principal debtor’s obligation so as to
render himself directly and primarily responsible with
him without reference to the solvency of the
principal.26 According to the above Article, if a person
binds himself solidarily with the principal debtor, the
provisions of Articles 1207 to 1222, or Section 4,
Chapter 3, Title I, Book IV of the Civil Code on joint and
solidary obligations, shall be observed. Thus, where
there is a concurrence of two or more creditors or of
two or more debtors in one and the same obligation,
Article 1207 provides that among them, “[t]here is a
solidary liability only when the obligation expressly so
states, or when the law or the nature of the obligation
requires solidarity.”
“A surety is considered in law as being the same party
as the debtor in relation to whatever is adjudged
touching the obligation of the latter, and their liabilities
are interwoven as to be inseparable.”27 And it is well
settled that when the obligor or obligors undertake to
be “jointly and severally” liable, it means that the
obligation is solidary,28 as in this case. There can be no
mistaking the same import of Article I of the Continuing
Surety Agreement executed by the individual
petitioners:
ARTICLE I a term of 360 days, that interest would be due every 90
LIABILITIES OF SURETIES
SECTION 1.01. The SURETIES, jointly and severally
with the PRINCIPAL, hereby unconditionally and
irrevocably guarantee full and complete payment when
due, whether at stated maturity, by acceleration, or
otherwise, of any and all credit accommodations that
have been granted or may be granted, renewed and/or
extended by the BANK to the PRINCIPAL.
The liability of the SURETIES shall not be limited to the
maximum principal amount of FIVE MILLION PESOS
(P5,000,000.00) but shall include interest, fees, penalty
and other charges due thereon.
SECTION 1.02. This INSTRUMENT is a guarantee of
payment and not merely of collection and is intended
to be a perfect and continuing indemnity in favor of the
BANK for the amounts and to the extent stated above.
The liability of the SURETIES shall be direct,
immediate and not contingent upon the pursuit of the
BANK of whatever remedies it may have against the
PRINCIPAL of the other securities for the
Accommodation.29
Thereunder, in addition to binding themselves “jointly
and severally” with Yulim to “unconditionally and
irrevocably guarantee full and complete payment” of
any and all credit accommodations that have been
granted to Yulim, the petitioners further warrant that
their liability as sureties “shall be direct, immediate and
not contingent upon the pursuit [by] the BANK of
whatever remedies it may have against the
PRINCIPAL of other securities.” There can thus be no
doubt that the individual petitioners have bound
themselves to be solidarily liable with Yulim for the
payment of its loan with iBank.
As regards the petitioners’ contention that iBank in its
letter dated May 4, 2001 had “accepted/approved” the
assignment of its condominium unit in Tomas Morato
Avenue as full and final payment of their various loan
obligations, the Court is far from persuaded. On the
contrary, what the letter accepted was only the
collaterals provided for the loans, as well as the
consolidation of the petitioners’ various PN’s under one
PN for their aggregate amount of P4,246,310.00. The
letter goes on to spell out the terms of the new PN,
such as, that its expiry would be February 28, 2002 or
days, and that the rate would be based on the 91-day
Treasury Bill rate or other market reference.
Nowhere can it be remotely construed that the letter
even intimates an understanding by iBank that the
Deed of Assignment would serve to extinguish the
petitioners’ loan. Otherwise, there would have been no
need for iBank to mention therein the three “collaterals”
or “supports” provided by the petitioners, namely, the
Deed of Assignment, the Chattel Mortgage and the
Continuing Surety Agreement executed by the
individual petitioners. In fact, Section 2.01 of the Deed
of Assignment expressly acknowledges that it is a
mere “interim security for the repayment of any loan
granted and those that may be granted in the future by
the BANK to the ASSIGNOR and/or the BORROWER,
for compliance with the terms and conditions of the
relevant credit and/or loan documents thereof.”30 The
condominium unit, then, is a mere temporary security,
not a payment to settle their promissory notes.31
Even more unmistakably, Section 2.02 of the Deed of
Assignment provides that as soon as title to the
condominium unit is issued in its name, Yulim
shall “immediately execute the necessary Deed of Real
Estate Mortgage in favor of the BANK to secure the
loan obligations of the ASSIGNOR and/or the
BORROWER.”32 This is a plain and direct
acknowledgement that the parties really intended to
merely constitute a real estate mortgage over the
property. In fact, the Deed of Assignment expressly
states, by way of a resolutory condition concerning the
purpose or use of the Deed of Assignment, that after
the petitioners have delivered or caused the delivery of
their title to iBank, the Deed of Assignment shall then
become null and void. Shorn of its legal efficacy as an
interim security, the Deed of Assignment would then
become functus officio once title to the condominium
unit has been delivered to iBank. This is so because
the petitioners would then execute a Deed of Real
Estate Mortgage over the property in favor of iBank as
security for their loan obligations.
Respondent iBank certainly does not share the
petitioners’ interpretation of its May 4, 2001 letter. Joy
Valerie Gatdula, Senior Bank Officer of iBank and the
Vice President of iBank’s Commercial Banking Group,
declared in her testimony that the purpose of the Deed
of Assignment was merely to serve as collateral for
their loan:
Q: And during the time that the defendant[,] James
Yu[,] was negotiating with your bank, [is it] not a fact
that the defendant offered to you a [condominium] unit
so that – that will constitute full payment of his
obligation?
A: No ma’am. It was not offered that way. It was offered
as security or collateral to pay the outstanding loans.
But the premise is, that he will pay x x x in cash. So,
that property was offered as a security or collateral.
Q: That was your position?
A: That was the agreement and that was how the
document was signed. It was worded out[.]
x x x x
Q: Do you remember if a real estate mortgage was
executed over this property that was being assigned to
the plaintiff?
A: To my recollection, none at all.
Q: Madam Witness, this Deed of Assignment was
considered as full payment by the plaintiff bank, what
document was executed by the plaintiff bank?
A: It should have been a Dacion en Pago.
Q: Was there such document executed in this account?
A: None.33
To stress, the assignment being in its essence a
mortgage, it was but a security and not a satisfaction
of the petitioners’ indebtedness.34 Article 125535 of the
Civil Code invoked by the petitioners contemplates the
existence of two or more creditors and involves the
assignment of the entire debtor’s property, not a dacion
en pago.36 Under Article 1245 of the Civil Code,
“[d]ation in payment, whereby property is alienated to
the creditor in satisfaction of a debt in money, shall be
governed by the law on sales.” Nowhere in the Deed of
Assignment can it be remotely said that a sale of the
condominium unit was contemplated by the parties, the
consideration for which would consist of the amount of
outstanding loan due to iBank from the petitioners.

WHEREFORE, premises considered, the petition

is DENIED.

SO ORDERED.

G.R. No. 193890 March 11, 2015

ESTANISLAO and AFRICA SINAMBAN, Petitioners,

vs.
CHINA BANKING CORPORATION, Respondent.

DECISION

REYES, J.:

Before this Court is a Petition for Review on Certiorari 1 of the Decision2 dated May 19, 2010 of the Court of Appeals (CA) in CA-G.R. CV. No. 66274 modifying the Decision3 dated
July 30, 1999 of the Regional Trial Court (RTC) of San Fernando City, Pampanga, Branch 45 for Sum of Money in Civil Case No. 11708.

Factual Antecedents

On February 19, 1990, the spouses Danilo and Magdalena Manalastas (spouses Manalastas) executed a Real Estate Mortgage (REM) 4 in favor of respondent China Banking
Corporation (Chinabank) over two real estate properties covered by Transfer Certificate of Title Nos. 173532-R and 173533-R, Registry of Deeds of Pampanga, to secure a loan from
Chinabank of ₱700,000.00 intended as working capital in their rice milling business. During the next few years, they executed several amendments to the mortgage contract
progressively increasing their credit line secured by the aforesaid mortgage. Thus, from ₱700,000.00 in 1990, their loan limit was increased to ₱1,140,000.00 on October 31, 1990,
then to ₱1,300,000.00 on March 4, 1991, and then to2,450,000.00 on March 23, 1994. 5 The spouses Manalastas executed several promissory notes (PNs) in favor of Chinabank. In
two of the PNs, petitioners Estanislao and Africa Sinamban (spouses Sinamban) signed as co-makers.

On November 18, 1998, Chinabank filed a Complaint6 for sum of money, docketed as Civil Case No. 11708, against the spouses Manalastas and the spouses Sinamban (collectively
called the defendants) before the RTC. The complaint alleged that they reneged on their loan obligations under the PNs which the spouses Manalastas executed in favor of Chinabank
on different dates, namely:

1. PN No. OACL 634-95, dated April 24, 1995, for a loan principal of ₱1,800,000.00, with interest at 23% per annum; the spouses Manalastas signed alone as makers.7
 2. PN No. OACL 636-95, dated May 23, 1995, for a loan principal of 325,000.00, with interest at 21% per annum; the spouses Sinamban signed as solidary co-makers;8

3. PN No. CLF 5-93, dated February 26, 1991, for a loan principal of ₱1,300,000.00, with interest at 22.5% per annum; only Estanislao Sinamban signed as solidary co-
maker.9

All of the three promissory notes carried an acceleration clause stating that if the borrowers failed to pay any stipulated interest, installment or loan amortization as they accrued, the
notes shall, at the option of Chinabank and without need of notice, immediately become due and demandable. A penalty clause also provides that an additional amount shall be paid
equivalent to 1/10 of 1% per day of the total amount due from date of default until fully paid, and the further sum of 10% of the total amount due, inclusive of interests, charges and
penalties, as and for attorney’s fees and costs.10

In Chinabank’s Statement of Account11 dated May 18, 1998, reproduced below, the outstanding balances of the three loans are broken down, as follows:

(a) PN No. OACL 636-95 has an outstanding principal of ₱325,000.00, cumulative interest of ₱184,679.00, and cumulative penalties of ₱258,050.00, or a total amount due
of ₱767,729.00; (b) PN No. OACL 634-95 has an outstanding principal of ₱1,800,000.00, cumulative interest of ₱1,035,787.50, and cumulative penalties of 1,429,200.00, or
a total amount due of 4,264,987.50; and

(c) PN No. CLF 5-93 has an outstanding principal of ₱148,255.08, cumulative interest of ₱64,461.84, and cumulative penalties of ₱156,541.58, or a total amount due of
₱369,258.50. Note that from the original amount of ₱1,300,000.00, the loan principal had been reduced to only ₱148,255.08 as of May 18, 1998.12

CHINA BANKING CORPORATION

San Fernando, Pampanga
SPS. DANILO & MAGDALENA MANALASTAS
STATEMENT OF ACCOUNT
As of May 18, 1998
36%
PN NUMBER PRINCIPAL INTEREST PENALTY FEE TOTAL
----------------------- ----------------------- ----------------------- ----------------------- -----------------------

OACL 636-95 325,000.00 184,679.00 258,050.00 767,729.00

OACL 634-95 1,800,000.00 1,035,787.50 1,429,200.00 4,264,987.50

CLF 005-93 148,255.08 64,461.84 156,541.58 369,258.50

----------------------- ----------------------- ----------------------- -----------------------

TOTAL P2,273,255.08 1,284,928.34 1,843,791.58 5,401,975.00

TOTAL AMOUNT DUE - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,401,975.00

PLUS 10% ATTORNEY’S FEE - - - - - - - - - - - - - - - - - - - - - - - - - - 540,197.50

-----------------------
5,942,172.50

ADD: OTHER EXPENSES

INSURANCE PREMIUM 22,618.37

POSTING OF NOTICE OF SALE 700.00

 PUBLICATION FEE 17,500.00

REGISTRATION OF CERTIFICATE OF SALE (MISC.) 1,000.00

REGISTRATION OF CERTIFICATE OF SALE (REGISTER OF DEEDS)

Registration fee 10,923.00

Entry fee 30.00

Legal fund 20.00

BIR certification 60.00

Doc. stamps tax 69,000.00

Capital Gains tax 276,000.00 356,033.00

-----------------------

EXPENSES INCURRED ON OCULAR INSPECTION MADE ON 404.00

TCT#173532-R & TCT#173533-R

ATTORNEY’S FEE 18,000.00

416,255.37

LESS: BID PRICE 4,600,000.00

-----------

1,758,427.87 13
GRAND TOTAL - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

On the basis of the above statement of account, and that they do not recall having executed PN was worth more than ₱10,000,000.00,
pursuant to the promissory notes, Chinabank instituted No. OACL 636-95 for ₱325,000.00 on May enough to answer for all the loans, interests
extrajudicial foreclosure proceedings against the 23, 1995, or PN No. CLF 5-93 for and penalties. They also claimed that they
mortgage security. The foreclosure sale was held on ₱1,300,000.00 on February 26, 1991, and were not notified of the auction sale, and
May 18, 1998, with Chinabank offering the highest bid had no participation in the execution of PN denied that they knew about the Certificate of
of ₱4,600,000.00, but by then the defendants’ total No. OACL 634-95 for ₱1,800,000.00 on April Sale18 and the Statement of Account dated
obligations on the three promissory notes had risen to 24, 1995. They however admitted that they May 18, 1998, and insisted that Chinabank
₱5,401,975.00, before attorney’s fees of 10% and signed some PN forms as co-makers upon manipulated the foreclosure sale to exclude
auction expenses, leaving a loan deficiency of the request of the spouses Manalastas who them therefrom. By way of counterclaim, the
₱1,758,427.87.14 Thus, in the complaint before the are their relatives; although they insisted that Spouses Sinamban prayed for damages and
RTC, Chinabank prayed to direct the defendants to they derived no money or other benefits from attorney’s fees of 25%, plus litigation
jointly and severally settle the said deficiency, plus the loans. They denied knowing about the expenses and costs of suit.
12% interest per annum after May 18, 1998,15 the date mortgage security provided by the spouses
of the auction sale.16 Manalastas, or that the latter defaulted on The spouses Manalastas were declared in
their loans. They also refused to acknowledge default in the RTC Order19 dated April 6,
The spouses Sinamban, in their the loan deficiency of ₱1,758,427.87 on the 1999, and Chinabank was allowed to present
Answer17 dated February 26, 1999, averred PNs, insisting that the mortgage collateral evidence ex parte as against them, but at the
pre-trial conference held on July 5, 1999, the
spouses Sinamban and their counsel also did
not appear;20 hence, in the Order21 dated July
5, 1999, the RTC allowed Chinabank to
present evidence ex parte against the
defendants before the Branch Clerk of Court.
During the testimony of Rosario D. Yabut,
Branch Manager of Chinabank-San Fernando
Branch, all the foregoing facts were adduced
and confirmed, particularly the identity of the
pertinent loan documents and the signatures
of the defendants. On July 21, 1999, the court
admitted the exhibits of Chinabank and
declared the case submitted for decision.22
Ruling of the RTC
On July 30, 1999, the RTC rendered its
Decision23 with the following dispositive
portion: WHEREFORE, premises considered,
judgment is hereby rendered in favor of
plaintiff China Banking Corporation and
against defendant Sps. Danilo and
Magdalena Manalastas and defendant Sps.
Estanislao and Africa Sinamban to jointly and
severally pay [Chinabank] the amount of
₱1,758,427.87, representing the deficiency
between the acquisition cost of the foreclosed
real estate properties and the outstanding
obligation of defendants at the time of the
foreclosure sale; interest at the legal rate of
12% per annum from and after May 18, 1998;
attorney’s fees equivalent to 10% of the
aforesaid deficiency amount and the litigation
and costs of suit.
SO ORDERED.24
On Motion for Reconsideration25 of the
spouses Sinamban dated August 27, 1999, to
which Chinabank filed an Opposition26 dated
September 14, 1999, the RTC in its
Order27 dated October 22, 1999 set aside the
Decision dated July 30, 1999 with respect to
the spouses Sinamban, in this wise:
As it is undisputed that Exhibit "B"
(Promissory Note dated April 24, 1995 in the
amount of ₱1,800,000.00), was not signed by
the Spouses Sinamban it would not be
equitable that the said defendants be made
solidarily liable for the payment of the said
note as co-makers of their co-defendants
Spouses Manalastas who are the one[s]
principally liable thereto. Prescinding from this
premise, the movant spouses could only be
held liable for the two (2) promissory notes
they have signed, Promissory Notes dated
May 23, 1995 in the amount of ₱325,000.00
and February 26, 1991 in the amount of
₱1,300,000.00, Exhibits "A" and "C",
respectively. As the total amount of the said
notes is only ₱1,625,000.00, so even if we
would add the interests due thereon, there is
no way that the said outstanding loan
exceed[s] the acquisition cost of the
foreclosed real estate properties subject
hereof in the amount of ₱4,600,000.00.It
would appear then that the Spouses
Sinamban could not be held liable for the
deficiency in the amount of ₱1,758,427.87
which should justly be borne alone by the
defendant Spouses Manalastas. Guided by
law and equity on the matter, the court will not
hesitate to amend a portion of its assailed
decision to serve the interest of justice.
WHEREFORE, premises considered, the
decision dated July 30, 1999 is hereby
Reconsidered and Set Aside with respect to
the Spouses Estanislao and Africa Sinamban
hereby Relieving them from any liability
arising from the said Decision which is
affirmed in toto with respect to Spouses
Manalastas.
SO ORDERED.28 (Emphases ours)
The RTC ruled that the proceeds of the
auction were sufficient to answer for the two
PNs co-signed by the spouses Sinamban,
including interest and penalties thereon, and
therefore the spouses Manalastas should
solely assume the deficiency of
₱1,758,427.87. Chinabank moved for
reconsideration on November 11, 1999,29 to
which the spouses Sinamban filed their
comment/opposition on November 23,
1999.30
On December 8, 1999, the RTC set aside its
Order dated October 22, 1999 and reinstated
its Decision dated July 30, 1999, with
modification, as follows:31
WHEREFORE, premises considered, the
instant Motion for Reconsideration of plaintiff
is Granted.
Order dated October 22, 1999 is hereby Set
Aside.
Accordingly, the dispositive portion of the
Decision dated July 30, 1999 is hereby
Modified to read as follows:
WHEREFORE, premises considered,
judgment [is] hereby rendered in favor of
plaintiff China Banking Corporation and
against the defendant Sps. Danilo and
Magdalena Manalastas and defendant Sps.
Estanislao and Africa Sinamban, ordering
them to pay as follows:
1. For defendant Sps. Danilo and
Magdalena Manalastas, the amount
of ₱1,758,427.87, the deficiency
between the acquisition cost of the
foreclosed real properties and their
outstanding obligation;
2. For defendant Sps. Sinamban a
percentage of ₱1,758,427.87, jointly
and severally with the defendant
Sps. [Manalastas] only on two (2)
promissory notes;
3. The corresponding interests
thereon at legal rate;
4. Attorney’s fees; and
5. Costs of suit.
SO ORDERED.32
This time the RTC held that the spouses
Sinamban must, solidarily with the spouses
Manalastas, proportionately answer for the
loan deficiency pertaining to the two PNs they
co-signed, since the mortgage security
provided by the spouses Manalastas secured
all three PNs and thus also benefited them as
co-makers. But since they did not co-sign PN
No. OACL 634-95, the deficiency judgment
pertaining thereto will be the sole liability of
the spouses Manalastas.
Ruling of the CA
From the Order dated December 8, 1999 of
the RTC, the spouses Sinamban appealed to
the CA on January 4, 2000, docketed as CA-
G.R. CV. No. 66274, interposing the following
errors of the RTC, viz:
I Php844,501.90 (inclusive of 10%
THE LOWER COURT ERRED WHENIT
HELD DEFENDANTSAPPELLANTS SPS.
SINAMBAN LIABLE TO PAY A 5.2 Whether or not the Honorable
PERCENTAGE OF ₱1,758,427.87, JOINTLY
AND SEVERALLY WITH THE
DEFENDANTS SPS. MANALASTAS ON
THE TWO PROMISSORY NOTES
(EXHIBITS ‘C’ AND ‘A’).
II
THE LOWER COURT ERRED WHEN IT
RECONSIDERED AND SET ASIDE ITS
PREVIOUS ORDER DATED 22 OCTOBER
1999 RELIEVING DEFENDANTS-
APPELLANTS SPS. SINAMBAN FROM ANY
LIABILITY ARISING FROM THE DECISION
DATED 30 JULY 1999.
III
THE LOWER COURT ERRED WHEN IT
RENDERED THE VAGUE ORDER OF 8
DECEMBER 1999 (ANNEX ‘B’ HEREOF).33
On May 19, 2010, the CA rendered judgment
denying the appeal, the fallo of which reads:
WHEREFORE, considering the foregoing
disquisition, the appeal is DENIED. The
Decision dated 30 July 1999 and the Order
dated 08 December 1999 of the Regional
Trial Court of San Fernando, Pampanga,
Branch 45 in Civil Case No. 11708are hereby
AFFIRMED with MODIFICATION in that:
1. Sps. Danilo and Magdalena
Manalastas are solidarily liable for
the deficiency amount of
Php507,741.62 (inclusive of 10%
attorney’s fees) on Promissory Note
No. OACL 634-95 dated 24 April
1995;
2. Sps. Estanislao and Africa
Sinamban are solidarily liable with
Sps. Danilo and Magdalena
Manalastas for the amount of
attorney’s fees) on Promissory Note
No. OACL00636-95 dated 23 May
1995;
3. Estanislao Sinamban and Sps.
Danilo and Magdalena Manalastas
are solidarily liable for the amount of
Php406,184.35 (inclusive of 10%
attorney’s fees) on Promissory Note
No. CLF 5-93 dated 26 February
1991; and
4. The foregoing amounts shall bear
interest at the rate of 12% per
annum from 18 November 1998 until
fully paid.
SO ORDERED.34 (Some emphasis ours)
Petition for Review to the Supreme Court
In this petition for review, the spouses
Sinamban seek to be completely relieved of
any liability on the PNs, solidary or otherwise,
by interposing the following issues:
5.1 Whether or not the Honorable
Court of Appeals erred in not
considering that the Sps.
Sinamban’s obligations under PN#
OACL 636-95 dated May 23, 1995 in
the principal sum of Php325,000.00
and PN# CLF 5-93 dated February
26, 1991 in the principal sum of
Php1,300,000.00 are more onerous
and burdensome on their part as
mere sureties (co-makers) of their
co-defendants-spouses Danilo and
Magdalena Manalastas’ (hereinafter
referred to as the "Sps. Manalastas")
obligations over the same,
compared to the Sps. Manalastas’
sole obligation under PN# OACL
634-95 dated 24 April 1995 in the
principal amount of
Php1,800,000.00, such that the
proceeds of the auction sale of the
properties securing all the three (3)
promissory notes should first be
applied to satisfy the promissory
notes signed by the Sps. Sinamban;
and
Court of Appeals erred in not
considering the facts indubitably
showing that it is the Sps. Sinamban,
as the debtors, and not the
respondent bank, who are given the
choice under Article 1252 of the Civil
Code to have the proceeds of the
auction sale applied as payments to
their obligations under PN# OACL
636-95 dated 23 May 1995 and PN#
CLF 5-93 dated 26 February 1991.35
Ruling of the Court
The Court modifies the CA decision.
A co-maker of a PN who binds
himself with the maker "jointly and
severally" renders himself directly
and primarily liable with the maker
on the debt, without reference to his
solvency.
"A promissory note is a solemn
acknowledgment of a debt and a formal
commitment to repay it on the date and under
the conditions agreed upon by the borrower
and the lender. A person who signs such an
instrument is bound to honor it as a legitimate
obligation duly assumed by him through the
signature he affixes thereto as a token of his
good faith. If he reneges on his promise
without cause, he forfeits the sympathy and
assistance of this Court and deserves instead
its sharp repudiation."36
Employing words of common commercial
usage and well-accepted legal significance,
the three subject PNs uniformly describe the
solidary nature and extent of the obligation
assumed by each of the defendants in Civil
Case No. 11708, to wit:
"FOR VALUE RECEIVED, I/We jointly and
severally promise to pay to the CHINA
BANKING CORPORATION or its order the
sum of PESOS x x x[.]"37 (Emphasis ours)
According to Article 2047 of the Civil
Code,38 if a person binds himself solidarily
with the principal debtor, the provisions of
Articles 1207 to 1222 of the Civil Code
(Section 4, Chapter 3,Title I, Book IV) on joint
and solidary obligations shall be observed.
Thus, where there is a concurrence of two or
more creditors or of two or more debtors in
one and the same obligation, Article 1207
provides that among them, "[t]here is a
solidary liability only when the obligation
expressly so states, or when the law or the
nature of the obligation requires solidarity." It
is settled that when the obligor or obligors
undertake to be "jointly and severally" liable,
it means that the obligation is solidary.39 In
this case, the spouses Sinamban expressly
bound themselves to be jointly and severally,
or solidarily, liable with the principal makers of
the PNs, the spouses Manalastas.
Moreover, as the CA pointed out, in
Paragraph 5 of the PNs, the borrowers and
their co-makers expressly authorized
Chinabank, as follows:
[T]o apply to the payment of this note and/or
any other particular obligation or obligations
of all or any one of us to the CHINA BANKING
CORPORATION as the said Corporation may
select, irrespective of the dates of maturity,
whether or not said obligations are then due,
any or all moneys, securities and things of
value which are now or which may hereafter
be in its hands on deposit or otherwise to the
credit of, or belonging to, all or any one of us,
and the CHINA BANKING CORPORATION is
hereby authorized to sell at public or private
sale such securities or things of value for the
purpose of applying their proceeds to such
payments.40
Pursuant to Article 1216 of the Civil
Code, as well as Paragraph 5 of the
PNs, Chinabank opted to proceed
against the co-debtors
simultaneously, as implied in its
May 18, 1998 statement of
account when it applied the entire
amount of its auction bid to the
aggregate amount of the loan
obligations.
The PNs were executed to acknowledge each
loan obtained from the credit line extended by
Chinabank, which the principal makers and
true beneficiaries, the spouses Manalastas,
secured with a REM they executed over their
properties. As the RTC noted in its Order
dated December 8, 1999, "the real estate
mortgage was constituted to secure all the
three (3) promissory notes," concluding that
"[j]ust as the liability of the [spouses]
Sinamban was lessened by the foreclosure
proceedings, so must they also share in the
deficiency judgment, in proportion to the PNs
they co-signed with the [spouses]
Manalastas, but notthe entire deficiency
judgment of ₱1,758,427.87."41
Significantly, in modifying the RTC’s second
amended decision, which provides for the pro
rata distribution of the loan deficiency of
₱1,758,427.87, the CA first applied the entire
net proceeds of the auction sale of
₱4,183,744.63 (after auction expenses of
₱416,255.37), to PN No. OACL 634-95, which
on May 18, 1998 had an outstanding balance
of ₱4,264,987.50, inclusive of interest and
penalties, plus 10% attorney’s fees, or a total
of ₱4,691,486.25. Thus, ₱4,691,486.25 less
₱4,183,744.63 leaves a deficiency on PN No.
OACL 634-95 of ₱507,741.62, which is due
solely from the spouses Manalastas.
As for PN No. OACL 636-95, the CA ordered
the spouses Sinamban to pay, solidarily with
the spouses Manalastas, the entire amount
due thereon, ₱844,501.90, consisting of the
loan principal of ₱767,729.00 plus accrued
interest, penalties and 10% attorney’s fees;
concerning PN No. CLF 5-93, the CA ordered
the spouses Sinamban to pay, solidarily with
the spouses Manalastas, the amount of
₱406,184.35, consisting of the balance of the
loan principal of ₱369,258.50 plus accrued
interest, penalties and 10% attorney’s fees.
The CA further ordered the payment of 12%
interest per annum from November 18, 1998,
the date of judicial demand, until fully paid, on
the above deficiencies.
Article 1216 of the Civil Code provides that
"[t]he 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." Article 125242 of the Civil
Code does not apply, as urged by the
petitioners, because in the said article the
situation contemplated is that of a debtor with
several debts due, whereas the reverse is
true, with each solidary debt imputable to
several debtors.
While the CA correctly noted that the choice
is given to the solidary creditor to determine
against whom he wishes to enforce payment,
the CA stated that Chinabank, in the exercise
of the aforesaid option, chose to apply the net
proceeds of the extrajudicial foreclosure sale
first to the PN solely signed by spouses
Manalastas.43 Thus, the net proceeds were
applied first to PN No. OACL 634-95 in the
principal amount of ₱1,800,000.00, instead of
pro rata to all three PNs due.
The Court finds this factual conclusion of the
CA not supported by any evidence or any
previous arrangement.1âwphi1 To the
contrary, as clearly shown in its Statement of
Account dated May 18, 1998, Chinabank
opted to apply the entire auction proceeds to
the aggregate amount of the three PNs due,
₱5,401,975.00 (before attorney’s fees and
auction expenses). Had it chosen to enforce
the debts as ruled by the CA, the Statement
of Account would have shown that the loan
due on PN No. OACL 634-95 which is
₱4,691,486.25, should have been deducted
first from the net auction proceeds of
₱4,183,744.63, arriving at a deficiency of
₱507,741.62on PN No. OACL 634-95 alone;
thereby, leaving no remainder of the proceeds
available to partially settle the other two PNs.
As it appears, the auction proceeds are not
even sufficient to cover just PN No. OACL
634-95 alone.
But as the Court has noted, by deducting the
auction proceeds from the aggregate amount
of the three loans due, Chinabank in effect
opted to apply the entire proceeds of the
auction simultaneously to all the three loans.
This implies that each PN will assume a pro
rata portion of the resulting deficiency on the
total indebtedness as bears upon each PN’s
outstanding balance. Contrary to the spouses
Sinamban’s insistence, none of the three PNs
is more onerous than the others to justify
applying the proceeds according to Article
1254 of the Civil Code, in relation to Articles
1252 and 1253.44 Since each loan,
represented by each PN, was obtained under
a single credit line extended by Chinabank for
the working capital requirements of the
spouses Manalastas’ rice milling business,
which credit line was secured also by a single
REM over their properties, then each PN is
simultaneously covered by the same
mortgage security, the foreclosure of which
will also benefit them proportionately. No PN
enjoys any priority or preference in payment
over the others, with the only difference being
that the spouses Sinamban are solidarily
liable for the deficiency on two of them.
Pursuant, then, to the order or manner of
application of the auction proceeds chosen by
Chinabank, the solidary liability of the
defendants pertaining to each PN shall be as
follows:
a) PN No. OACL 634-95, with a
balance as of May 18, 1998 of
₱4,264,987.50: its share in the total
deficiency is computed as the ratio
of ₱4,264,987.50 to ₱5,401,975.00,
multiplied by ₱1,758,427.87, or
₱1,388,320.55, (not ₱507,741.62 as
found by the CA);
b) PN No. OACL 636-95, with a
balance of ₱767,729.00 as of May
18, 1998: its share in the deficiency
is computed as the ratio of
₱767,729.00 to ₱5,401,975.00,
multiplied by ₱1,758,427.87, or
₱249,907.87, (not ₱844,501.90 as
computed by the CA);
c) PN No. CLF 5-93, with an
outstanding balance of ₱369,258.50
as of May 18, 1998: its share in the
deficiency is computed as the ratio
of ₱369,258.50 to ₱5,401,975.00,
multiplied by ₱1,758,427.87, or
₱120,199.45, (not ₱406,184.35 as
found by the CA).
In short, in the CA decision, the spouses
Manalastas would be solely liable on PN No.
OACL 634-95 for only ₱507,741.62(instead of
the much bigger amount of
₱1,388,320.55which this Court found),
whereas the spouses Sinamban would be
solidarily liable with the spouses Manalastas
for a total deficiency of ₱1,250,686.25 on PN
No. OACL 636-95 and PN No. CLF 5-93. But
under the Court’s interpretation, the spouses
Sinamban are solidarily liable with the
spouses Manalastas for only ₱370,107.32on
the said two PNs, for a significant difference
of ₱880,578.93.
Pursuant to Monetary Board
Circular No. 799, effective July 1,
2013, the rate of interest for the
loan or forbearance of any money,
goods or credits and the rate
allowed in judgments, in the
absence of an express contract as to
such rate of interest, has been
reduced to six percent (6%) per
annum.
The subject three PNs bear interests ranging
from 21% to 23% per annum, exclusive of
penalty of 1% on the overdue amount per
month of delay, whereas in its complaint,
Chinabank prayed to recover only the legal
rate of 12% on whatever judgment it could
obtain. Meanwhile, the Monetary Board of the
Bangko Sentral ng Pilipinas in its Resolution
No. 796 dated May 16, 2013, and now
embodied in Monetary Board Circular No.
799, has effective July 1, 2013 reduced to 6%,
from 12%, the legal rate of interest for the loan
or forbearance of any money, goods or credits
and the rate allowed in judgments, in the
absence of stipulation.45 Since Chinabank
demanded only the legal, not the stipulated,
interest rate on the deficiency and attorney’s
fees due, the defendants will solidarily pay
interest on their shares in the deficiency at the
rate of 12% from November 18, 1998 to June
30, 2013, and 6% from July 1, 2013 until fully
paid. WHEREFORE, the Decision of the
Court of Appeals dated May 19, 2010 in CA-
G.R. CV No. 66274 is MODIFIED. The
Decision dated July 30, 1999 and the Order
dated December 8, 1999 of the Regional Trial
Court of San Fernando City, Pampanga,
Branch 45 in Civil Case No. 11708 are hereby
AFFIRMED with MODIFICATIONS as
follows:
1. Spouses Danilo and Magdalena
Manalastas are solidarily liable for
the deficiency amount of
1,388,320.55 (inclusive of 10%
attorney’s fees) on Promissory Note
No. OACL 634-95 dated April 24,
1995;
2. Spouses Estanislao and Africa
Sinamban are solidarily liable with
spouses Danilo and Magdalena
 Manalastas for the deficiency construction, operation, maintenance, and/or lease of
amount of ₱249,907.87(inclusive of light rail transit systems in the Philippines.
10% attorney’s fees) on Promissory
Note No. OACL 636-95 dated May To carry out its mandate, LRTA entered into a ten-year
23, 1995; operations and management (O & M) agreement4 with
the Meralco Transit Organization, Inc. (MTOI) from
3. Estanislao Sinamban and June 8, 1984, to June 8, 1994, for an annual fee of
spouses Danilo and Magdalena P5,000,000.00. Subject to specified conditions, and in
Manalastas are solidarily liable for connection with the operation and maintenance of the
the deficiency amount of system not covered by the O & M agreement, LRTA
₱120,199.45 (inclusive of 10% undertook to reimburse MTOI such operating
attorney’s fees) on Promissory Note expenses and advances to the revolving fund.
No. CLF 5-93 dated February 26,
1991; and "Operating expenses" included "all salaries, wages
and fringe benefits (both direct and indirect) up to the
rank of manager, and a lump sum amount to be
4. The foregoing amounts shall bear determined annually as top management
interest at the rate of twelve percent compensation (above the rank of manager up to
(12%) per annum from November president), subject to consultation with the LRTA."
18, 1998 to June 30, 2013, and six MTOI hired the necessary employees for its operations
percent (6%) per annum from July 1, and forged collective bargaining agreements (CBAs)
2013 until fully paid. with the employees' unions, with the LRTA's approval.

SO ORDERED. On June 9, 1989, the Manila Electric Company, who

G.R. No. 202322, August 19, 2015
LIGHT RAIL TRANSIT
AUTHORITY, Petitioner, v. ROMULO S. MENDOZA,
FRANCISCO S. MERCADO, ROBERTO M. REYES,
EDGARDO CRISTOBAL, JR., AND RODOLFO
ROMAN, Respondents.
DECISION
BRION, J.:
For resolution is the present petition for review
on certiorari1 which seeks the reversal of the January
31, 2012 Decision2 and June 15, 2012 Resolution3 of
the Court of Appeals in CA-G.R. SP No. 109224.
The Antecedents
The Light Rail Transit Authority (LRTA) is a
government-owned and -controlled corporation
created under Executive Order No. 603 for the
owned 499,990 of MTOI shares of stocks, sold said
shares to the LRTA. Consequently, MTOI became a
wholly owned subsidiary of LRTA. MTOI changed its
corporate name to Metro Transit Organization,
Inc. (METRO), but maintained its distinct and separate
personality. LRTA and METRO renewed the O & M
agreement upon its expiration on June 8, 1994,
extended on a month-to-month basis.5cralawrednad
On July 25, 2000, the Pinag-isang Lakas ng
Manggagawa sa METRO, INC., the rank-and-file union
at METRO, staged an illegal strike over a bargaining
deadlock, paralyzing the operations of the light rail
transport system. On July 28, 2000, the LRTA Board of
Directors issued Resolution No. 00-446 where LRTA
agreed to shoulder METRO'S operating expenses for
a maximum of two months counted from August 1,
2000. It also updated the Employee Retirement
Fund.
Because of the strike, LRTA no longer renewed the O
& M agreement when it expired on July 31, 2000,
resulting in the cessation of METRO'S operations and
the termination of employment of its workforce,
including the respondents Romulo Mendoza,
Francisco Mercado, Roberto Reyes, Edgardo
Cristobal, Jr., and Rodolfo Roman.
On April 1, 2001, the METRO Board of Directors
authorized the payment of 50 % of the dismissed
employees' separation pay, to be sourced from the
retirement fund. In May 2001, respondents received
one half (1/2) of their separation pay. Dissatisfied, they
demanded from LRTA payment of the 50% balance of
their separation pay, but LRTA rejected the demand,
prompting them to file on August 31, 2004, a formal
complaint,7 before the labor arbiter, against LRTA and
METRO.
LRTA moved to dismiss the complaint on grounds
of absence of employer-employee relationship with
the respondents, lack of jurisdiction and of merit,
and prescription of action.
The Compulsory Arbitration Rulings
In his decision8 dated August 8, 2005, Labor Arbiter
(LA) Arthur L. Amansec pierced the veil of METRO'S
corporate fiction, invoked the law against labor-only
contracting, and declared LRTA solidarity liable with
METRO for the payment of the remaining 50% of
respondents' separation pay. On appeal by the LRTA,
the National Labor Relations Commission (NLRC)
affirmed in its decision9 of December 23, 2008, LA
Amansec's ruling, thereby dismissing the appeal. It
also held that the case had not prescribed. LRTA
moved for reconsideration, but the NLRC denied the
motion in its resolution10 of March 30, 2009.
The Case before the CA
LRTA challenged the NLRC decision before the CA
through a petition for certiorari under Rule 65 of the
Rules of Court, contending that the labor tribunal
committed grave abuse of discretion when it (1)
assumed jurisdiction over the case; (2) held that it was
an indirect employer of the respondents with solidary
liability for their claim; and (3) took cognizance of the
case despite its being barred by prescription.
LRTA argued that as a government-owned and -
controlled corporation, all actions against it should be
brought before the Civil Service Commission, not the
NLRC, pursuant to Article IX-B, Section 2 (1) of the
Constitution, as declared by this Court's decision in the
consolidated cases of LRTA v. Venus, Jr., and METRO
v. Court of Appeals (Venus case).11 It further argued
that it could not be made solidarity liable with METRO
for the respondents' claim since METRO is an
independent job contractor.
In a different vein, LRTA stressed that its Resolution
No. 00-44 updating the retirement fund for METRO
employees was merely a financial assistance to
METRO, which neither created an employer-employee
relationship between it and the METRO employees,
nor did it impose a contractual obligation upon it for the
employees' separation pay. Lastly, it reiterated that
respondents' claim had already prescribed since they
filed the complaint beyond the three-year period under
Article 306 of the Labor Code (formerly Article 291; re-
numbered by R.A. 10151, An Act Allowing the
Employment of Nightworkers).12cralawrednad
The respondents, for their part, prayed for the
dismissal of the petition, relying on an earlier case
involving the same cause of action decided by the
CA, LRTA v. NLRC and Ricardo B. Malanao, et
al.,13 and which had become final and executory on
February 21, 2006.14 In that case, they pointed out,
LRTA was held solidarity liable with METRO, as an
indirect employer, for the payment of the severance
pay of METRO'S separated employees.
In the meantime, or on June 3, 2010, LA Amansec
issued a Writ of Execution15 for his August 8, 2005
decision. On August 5, 2010, respondents filed
an Urgent Manifestation16 stating that pursuant to the
labor arbiter's order, LRTA's cash bond covered by
Check No. LB0000007505, dated September 20, 2005,
for PI,082,929.16 had been released to them. Thus,
they considered the case to have become academic.
The CA Decision
The CA affirmed the NLRC ruling that LRTA is
solidarity liable for the remaining 50% of respondents'
separation pay, but not squarely on the same grounds.
Unlike the NLRC, it considered inapplicable the
doctrine of piercing the veil of corporate fiction to justify
LRTA's solidary liability due to the absence of fraud or
wrongdoing on LRTA's part in relation to the non-
payment of the balance of the respondents' separation
pay as this Court had stated in
the Venus case.17cralawrednad
The CA likewise disagreed with the NLRC's opinion
that METRO is a labor-only contractor so as to make
LRTA the respondents' direct employer. It explained
that METRO was a corporation with sufficient capital
and investment in tools and equipment, and its own
employees (who were even unionized) to undertake
the operation and management of the light rail transit
system, for which it was exclusively engaged by LRTA.
Neither did LRTA exercise the prerogatives of an
employer over the METRO employees. It thus
concluded that LRTA's solidary liability as an indirect
employer is limited to the payment of wages, and for
any violation of the Labor Code,18 excluding
backwages and separation pay which are punitive in
nature.19cralawrednad
The CA nonetheless held that LRTA cannot avoid
liability for respondents' separation pay as it is a
contractual obligation. It agreed with the NLRC
finding that LRTA provided METRO'S "operating
expenses" which included the employees' wages
and fringe benefits, and all other general and
administrative expenses relative to the operation
of the light rail transit system.
The CA found additional basis for its ruling in the letter
to the LRTA, dated July 12, 2001, of then Acting
Chairman of the METRO Board of Directors,
Wilfredo Trinidad, that "Funding provisions for the
retirement fund have always been considered
operating expenses of METRO. Pursuant to the O
& M Agreement, the LRTA had been reimbursing
METRO of all operating expenses, including the
funds set aside for the retirement fund. It follows—
now that circumstances call for Metro to pay the full
separation benefits—that LRTA should provide the
necessary funding to completely satisfy these
benefits."20cralawrednad
Also, the CA noted that "METRO'S November 17, 1997
Memorandum further revealed that the LRTA Board
approved 'the additional
retirement/resignation benefit of 7.65 days or a total
of 1.5 months' salary for every year of service' for
METRO'S rank-and-file employees and that lthe
granting of 1.5 months' salary for every year of service
as severance or resignation pay would effectively
amend the existing Employees' Retirement
Plan."21 This LRTA memorandum, together with its
July 28, 2000 Resolution No. 00-44, the CA believed,
was an indication that LRTA regularly financed the
retirement fund.
Accordingly, the CA stressed, the LRTA cannot argue
that the retirement fund was not meant to cover the
separation pay of the "terminated" employees of
METRO, and neither can it deny that it is bound to
comply with its undertaking to provide the necessary
funds to cover payment of the respondents' claim.
The CA brushed aside the prescription issue. It held
that the complaint is not time-barred, citing De Guzman
v. Court of Appeals,22 where the Court affirmed the
applicability of Article 1155 of the Civil Code 23 to an
employee's claim for separation pay in the absence of
an equivalent Labor Code provision for determining
whether the period for such claim may be interrupted.
It agreed with the NLRC conclusion that the
prescriptive period for respondents' claim for
separation pay was interrupted by their letters to
LRTA24 (dated September 19, 2002 and October 14,
2002) demanding payment of the 50% balance of their
separation pay.
The Petition
Its motion for reconsideration having been denied by
the CA, LRTA now asks the Court for a reversal,
contending that the appellate court committed a
serious error of law when it affirmed the NLRC
decision.
It faults the CA for not ruling on the jurisdictional
question which, it contends, had been settled with
finality "in actions similar to the one at
bar."25cralawredcralawrednad
On the merits of the case, LRTA submits that no
liability, from whatever origin or source, was ever
attached to it insofar as the respondents' claim is
concerned. It disputes the CA opinion that its liability
for 50% of the respondents' separation pay is a
contractual obligation under METRO'S retirement fund.
It also assails the CA's reliance on its July 28, 2000
Resolution No. 00-44 as evidence of its contractual
obligation. It asserts it has no such obligation.
Lastly, LRTA contends that while its board of directors
updated METRO'S retirement fund to cover the
retirement benefits of METRO'S employees, the
updating was a mere financial assistance or goodwill to
METRO. It did not execute, it stresses, any deed or
contract in favor of METRO, Avhich amended the O &
M agreement between them, or assumed any
obligation in favor of METRO or its employees; thus, it
has no contractual obligation for the unpaid balance of
respondents' separation pay.
The Respondents' Position
In their Comment26 dated October 8, 2012, the
respondents prayed that the petition be dismissed for
lack of merit as the CA had committed no error of law
when it affirmed the NLRC decision.
They stand firm on their position that LRTA is legally
bound to pay the balance of their separation pay as
evidenced by its official undertakings such as the Joint
Memorandum, dated June 6, 1989,27 with METRO, its
wholly owned subsidiary, providing, among others, for
the establishment of the Retirement Fund of METRO,
Inc., Employees; LRTA Board Resolution No. 00-44 of
July 28, 2000,28 authorizing the updating of the
retirement fund; and approving the collective
bargaining agreements entered into by METRO with its
unions containing terms and conditions of employment
and benefits for its employees.
They also cite the letter to LRTA,29 dated July 12, 2001,
of the Acting Chairman of the METRO Board of
Directors stating that funding provisions for the
retirement fund have always been considered
operating expenses of METRO. In short, they maintain,
LRTA regularly financed the retirement fund intended
not only for the retirement benefit, but also for the
severance and/or resignation pay of METRO'S
employees.
The Court's Ruling
The jurisdictional issue
LRTA reiterates its position that the labor arbiter and
the NLRC had no jurisdiction over it in relation to the
respondents' claim, quoting the Venus ruling to prove
its point, thus: "x x x There should be no dispute
then that employment in petitioner LRTA should be
governed only by civil service rules, and not the
Labor Code and beyond the reach of the
Department of Labor and Employment, since
petitioner LRTA is a government-owned and -
controlled corporation with an original charter x x
x Petitioner METRO was originally organized under
the Corporation Code, and only became a
government-owned and -controlled corporation
after it was acquired by petitioner LRTA. Even then,
petitioner METRO has no original charter, hence, it
is the Department of Labor and Employment, and
not the Civil Service Commission, which has
jurisdiction over disputes from the employment of
its workers x x x."30cralawrednad
We disagree. Under the facts of the present labor
controversy, LRTA's reliance on the Venus ruling is
misplaced. The ruling has no bearing on the
respondents' case. As we see it, the jurisdictional issue
should not have been brought up in the first place
because the respondents' claim does not involve their
employment with LRTA. There is no dispute on this
aspect of the case. The respondents were hired by
METRO and, were, therefore, its employees.
Rather, the controversy involves the question of
whether LRTA can be made liable by the labor tribunals
for the respondents' money claim, despite the absence
of an employer-employee relationship between them
and despite the fact that LRTA is a government-owned
and -controlled corporation with an original charter.
The Court provided the answer in Phil. National Bank
v. Pabalan31 where it said: "By engaging in a particular
business through the instrumentality of a corporation,
the government divests itself pro hac vice of its
sovereign character, so as to render the corporation
subject of the rules governing private
corporations."32cralawrednad
The NLRC accordingly declared: "for having conducted
business through a private corporation, in this case,
respondent METRO, as its business conduit or alter
ego, respondent LRTA must submit itself to the
provisions governing private corporations, including
the Labor Code. Consequently, the Labor Arbiter
rightfully dismissed the Motion to Dismiss of
respondent LRTA."33cralawrednad
In this light, we find no grave abuse of discretion in the
labor tribunals' taking cognizance of the respondents'
money claim against LRTA.
The substantive aspect of the case
The petition is without merit, for the following
reasons:ChanRoblesvirtualLawlibrary
First. LRTA obligated itself to fund METRO'S
retirement fund to answer for the retirement or
severance/resignation of METRO employees as part of
METRO'S "operating expenses." Under Article 4.05.1
of the O & M agreement34 between LRTA and Metro,
"The Authority shall reimburse METRO for x x
x "OPERATING EXPENSES x x x" In the letter to
LRTA35 dated July 12, 2001, the Acting Chairman of
the METRO Board of Directors at the time, Wilfredo
Trinidad, reminded LRTA that "funding provisions for
the retirement fund have always been considered
operating expenses of Metro.36 The coverage
of operating expenses to include provisions for the
retirement fund has never been denied by LRTA.
In the same letter, Trinidad stressed that as a
consequence of the non-renewal of the O & M
agreement by LRTA, METRO was compelled to close
its business operations effective September 30,
2000. This created, Trinidad added, a legal
obligation to pay the qualified employees
separation benefits under existing company policy
and collective bargaining agreements. The METRO
Board of Directors approved the payment of 50%
of the employees' separation pay because that was
only what the Employees' Retirement Fund could
accommodate.37cralawrednad
The evidence supports Trinidad's position. We
refer principally to Resolution No. 00-4438 issued by the
LRTA Board of Directors on July 28, 2000, in
anticipation of and in preparation for the expiration of
the O & M agreement with METRO on July 31, 2000.
Specifically, the LRTA anticipated and prepared for the
(1) non-renewal (at its own behest) of the agreement,
(2) the eventual cessation of METRO operations, and
(3) the involuntary loss of jobs of the METRO
employees; thus, (1) the extension of a two-month
bridging fund for METRO from August 1, 2000, to
coincide with the agreement's expiration on July
31, 2000; (2) METRO'S cessation of operations—it
closed on September 30, 2000, the last day of the
bridging fund—and most significantly to the
employees adversely affected; (3) the updating of
the "Metro, Inc., Employee Retirement Fund with
the Bureau of Treasury to ensure that the fund fully
covers all retirement benefits yay able to the
employees of Metro, Inc."39cralawrednad
The clear language of Resolution No.00-44, to our
mind, established the LRTA's obligation for the 50%
unpaid balance of the respondents' separation pay.
Without doubt, it bound itself to provide the necessary
funding to METRO'S Employee Retirement Fund to
fully compensate the employees who had been
involuntary retired by the cessation of operations of
METRO. This is not at all surprising considering that
METRO was a wholly owned subsidiary of the LRTA.
Second. Even on the assumption that the LRTA did In fine, we find no reversible error in the CA rulings.
not obligate itself to fully cover the separation benefits
of the respondents and others similarly situated, it still WHEREFORE, premises considered, the petition for
cannot avoid liability for the respondents' claim. It is review on certiorari is DISMISSED, for lack of merit.
solidarity liable as an indirect employer under the The assailed decision and resolution of the Court of
law for the respondents' separation pay. This Appeals are AFFIRMED. The decision dated May 8,
liability arises from the O & M agreement it had with 2005, of Labor Arbiter Arthur L. Amansec,
METRO, which created a principal-job contractor is REINSTATED.
relationship between them, an arrangement it admitted
when it argued before the CA that METRO was an SO ORDERED.
independent job contractor40 who, it insinuated, should
be solely responsible for the respondents' claim.
Under Article 107 of the Labor Code, an indirect
employer is "any person, partnership, association or
corporation which, not being an employer, contracts
with an independent contractor for the performance of
any work, task, job or project."
On the other hand, Article 109 on solidary liability,
mandates that x x x "every employer or indirect
employer shall be held responsible with his contractor
or subcontractor for any violation of any provisions of
this Code. For purposes of determining the extent of
their civil liability under this Chapter, they shall be
considered as direct employers."
Department Order No. 18-02, s. 2002, the rules
implementing Articles 106 to 109 of the Labor Code,
provides in its Section 19 that "the principal shall also
be solidarity liable in case the contract between the
principal is preterminated for reasons not attributable
to the contractor or subcontractor."
Although the cessation of METRO'S operations was
due to a non-renewal of the O & M agreement and not
a pretermination of the contract, the cause of the
nonrenewal and the effect on the employees are the
same as in the contract pretermination contemplated in
the rules. The agreement was not renewed through no
fault of METRO, as it was solely at the behest of LRTA.
The fact is, under the circumstances, METRO really
had no choice on the matter, considering that it was a
mere subsidiary of LRTA.
Nevertheless, whether it is a pretermination or a
nonrenewal of the contract, the same adverse effect
befalls the workers affected, like the respondents in
this case - the involuntary loss of their employment,
one of the contingencies addressed and sought to be
rectified by the rules.
 damages more than the amount awarded by the Court
of Appeals.5
I *Secured
On January 8, 1992, the Lam Spouses and Kodak
Philippines, Ltd. entered into an agreement (Letter
Agreement) for the sale of three (3) units of the Kodak
Minilab System 22XL6 (Minilab Equipment) in the
amount of ₱1,796,000.00 per unit,7 with the following
terms:
This confirms our verbal agreement for Kodak Phils.,
Ltd. To provide Colorkwik Laboratories, Inc. with three
(3) units Kodak Minilab System 22XL . . . for your
proposed outlets in Rizal Avenue (Manila), Tagum
(Davao del Norte), and your existing Multicolor photo
counter in Cotabato City under the following terms and
conditions:
1. Said Minilab Equipment packages will avail
a total of 19% multiple order discount based
on prevailing equipment price provided said
equipment packages will be purchased not
later than June 30, 1992.
2. 19% Multiple Order Discount shall be
G.R. No. 167615
applied in the form of merchandise and
delivered in advance immediately after
SPOUSES ALEXANDER AND JULIE LAM, Doing signing of the contract.
Business Under the Name and Style "COLORKWIK
LABORATORIES" AND "COLORKWIK PHOTO * Also includes start-up packages worth
SUPPLY", Petitioners, P61,000.00.
vs.
KODAK PHILIPPINES, LTD., Respondent.
3. NO DOWNPAYMENT.
DECISION
4. Minilab Equipment Package shall be
payable in 48 monthly installments at THIRTY
LEONEN, J.:
FIVE THOUSAND PESOS (P35,000.00)
inclusive of 24% interest rate for the first 12
This is a Petition for Review on Certiorari filed on April months; the balance shall be re-amortized for
20, 2005 assailing the March 30, 2005 Decision1 and the remaining 36 months and the prevailing
September 9, 2005 Amended Decision2 of the Court of interest shall be applied.
Appeals, which modified the February 26, 1999
Decision3 of the Regional Trial Court by reducing the 5. Prevailing price of Kodak Minilab System
amount of damages awarded to petitioners Spouses 22XL as of January 8, 1992 is at ONE
Alexander and Julie Lam (Lam Spouses).4 The Lam MILLION SEVEN HUNDRED NINETY SIX
Spouses argue that respondent Kodak Philippines, THOUSAND PESOS.
Ltd.’s breach of their contract of sale entitles them to
6. Price is subject to change without prior
notice.
with PDCs; 1st monthly
amortization due 45 days after installation[.]8
On January 15, 1992, Kodak Philippines, Ltd. delivered
one (1) unit of the Minilab Equipment in Tagum, Davao
Province.9 The delivered unit was installed by Noritsu
representatives on March 9, 1992.10 The Lam Spouses
issued postdated checks amounting to ₱35,000.00
each for 12 months as payment for the first delivered
unit, with the first check due on March 31, 1992.11
The Lam Spouses requested that Kodak Philippines,
Ltd. not negotiate the check dated March 31, 1992
allegedly due to insufficiency of funds.12 The same
request was made for the check due on April 30, 1992.
However, both checks were negotiated by Kodak
Philippines, Ltd. and were honored by the depository
bank.13 The 10 other checks were subsequently
dishonored after the Lam Spouses ordered the
depository bank to stop payment.14
Kodak Philippines, Ltd. canceled the sale and
demanded that the Lam Spouses return the unit it
delivered together with its accessories.15 The Lam
Spouses ignored the demand but also rescinded the
contract through the letter dated November 18, 1992
on account of Kodak Philippines, Ltd.’s failure to deliver
the two (2) remaining Minilab Equipment units.16
On November 25, 1992, Kodak Philippines, Ltd. filed a
Complaint for replevin and/or recovery of sum of
money. The case was raffled to Branch 61 of the
Regional Trial Court, Makati City.17 The Summons and
a copy of Kodak Philippines, Ltd.’s Complaint was
personally served on the Lam Spouses.18
The Lam Spouses failed to appear during the pre-trial
conference and submit their pre-trial brief despite being
given extensions.19 Thus, on July 30, 1993, they were
declared in default.20 Kodak Philippines, Ltd.
presented evidence ex-parte.21 The trial court issued
the Decision in favor of Kodak Philippines, Ltd.
ordering the seizure of the Minilab Equipment, which
included the lone delivered unit, its standard
accessories, and a separate generator set.22 Based on
this Decision, Kodak Philippines, Ltd. was able to
obtain a writ of seizure on December 16, 1992 for the
Minilab Equipment installed at the Lam Spouses’ outlet
in Tagum, Davao Province.23 The writ was enforced on
December 21, 1992, and Kodak Philippines, Ltd.
gained possession of the Minilab Equipment unit,
accessories, and the generator set.24
The Lam Spouses then filed before the Court of
Appeals a Petition to Set Aside the Orders issued by
the trial court dated July 30, 1993 and August 13, 1993.
These Orders were subsequently set aside by the
Court of Appeals Ninth Division, and the case was
remanded to the trial court for pre-trial.25
On September 12, 1995, an Urgent Motion for
Inhibition was filed against Judge Fernando V.
Gorospe, Jr.,26 who had issued the writ of
seizure.27 The ground for the motion for inhibition was
not provided. Nevertheless, Judge Fernando V.
Gorospe Jr. inhibited himself, and the case was
reassigned to Branch 65 of the Regional Trial Court,
Makati City on October 3, 1995.28
In the Decision dated February 26, 1999, the Regional
Trial Court found that Kodak Philippines, Ltd. defaulted
in the performance of its obligation under its Letter
Agreement with the Lam Spouses.29 It held that Kodak
Philippines, Ltd.’s failure to deliver two (2) out of the
three (3) units of the Minilab Equipment caused the
Lam Spouses to stop paying for the rest of the
installments.30 The trial court noted that while the Letter
Agreement did not specify a period within which the
delivery of all units was to be made, the Civil Code
provides "reasonable time" as the standard period for
compliance:
The second paragraph of Article 1521 of the Civil Code
provides:
Where by a contract of sale the seller is bound to send
the goods to the buyer, but no time for sending them is
fixed, the seller is bound to send them within a
reasonable time.
What constitutes reasonable time is dependent on the
circumstances availing both on the part of the seller
and the buyer. In this case, delivery of the first unit was
made five (5) days after the date of the agreement.
Delivery of the other two (2) units, however, was never
made despite the lapse of at least three (3) months.31
Kodak Philippines, Ltd. failed to give a sufficient
explanation for its failure to deliver all three (3)
purchased units within a reasonable time.32
The trial court found:
Kodak would have the court believe that it did not
deliver the other two (2) units due to the failure of
defendants to make good the installments subsequent
to the second. The court is not convinced. First of all,
there should have been simultaneous delivery on
account of the circumstances surrounding the
transaction. . . . Even after the first delivery . . . no
delivery was made despite repeated demands from the
defendants and despite the fact no installments were
due. Then in March and in April (three and four months
respectively from the date of the agreement and the
first delivery) when the installments due were both
honored, still no delivery was made.
Second, although it might be said that Kodak was
testing the waters with just one delivery - determining
first defendants’ capacity to pay - it was not at liberty to
do so. It is implicit in the letter agreement that delivery
within a reasonable time was of the essence and failure
to so deliver within a reasonable time and despite
demand would render the vendor in default.
....
Third, at least two (2) checks were honored. If indeed
Kodak refused delivery on account of defendants’
inability to pay, non-delivery during the two (2) months
that payments were honored is unjustified.33
Nevertheless, the trial court also ruled that when the
Lam Spouses accepted delivery of the first unit, they
became liable for the fair value of the goods received:
On the other hand, defendants accepted delivery of
one (1) unit. Under Article 1522 of the Civil Code, in the
event the buyer accepts incomplete delivery and uses
the goods so delivered, not then knowing that there
would not be any further delivery by the seller, the
buyer shall be liable only for the fair value to him of the
goods received. In other words, the buyer is still liable
for the value of the property received. Defendants were
under obligation to pay the amount of the unit. Failure
of delivery of the other units did not thereby give unto
them the right to suspend payment on the unit
delivered. Indeed, in incomplete deliveries, the buyer
has the remedy of refusing payment unless delivery is
first made. In this case though, payment for the two
undelivered units have not even commenced; the
installments made were for only one (1) unit.
Hence, Kodak is right to retrieve the unit delivered.34
The Lam Spouses were under obligation to pay for the
amount of one unit, and the failure to deliver the
remaining units did not give them the right to suspend
payment for the unit already delivered.35 However, the
trial court held that since Kodak Philippines, Ltd. had
elected to cancel the sale and retrieve the delivered
unit, it could no longer seek payment for any
deterioration that the unit may have suffered while
under the custody of the Lam Spouses.36
As to the generator set, the trial court ruled that Kodak
Philippines, Ltd. attempted to mislead the court by
claiming that it had delivered the generator set with its
accessories to the Lam Spouses, when the evidence
showed that the Lam Spouses had purchased it from
Davao Ken Trading, not from Kodak Philippines,
Ltd.37 Thus, the generator set that Kodak Philippines,
Ltd. wrongfully took from the Lam Spouses should be
replaced.38
The dispositive portion of the Regional Trial Court
Decision reads:
PREMISES CONSIDERED, the case is hereby
dismissed. Plaintiff is ordered to pay the following:
1) PHP 130,000.00 representing the amount
of the generator set, plus legal interest at 12%
per annum from December 1992 until fully
paid; and
2) PHP 1,300,000.00 as actual expenses in
the renovation of the Tagum, Davao and Rizal
Ave., Manila outlets.
SO ORDERED.39
On March 31, 1999, the Lam Spouses filed their Notice
of Partial Appeal, raising as an issue the Regional Trial
Court’s failure to order Kodak Philippines, Ltd. to pay:
(1) ₱2,040,000 in actual damages; (2) ₱50,000,000 in
moral damages; (3) ₱20,000,000 in exemplary
damages; (4) ₱353,000 in attorney’s fees; and (5)
₱300,000 as litigation expenses.40 The Lam Spouses
did not appeal the Regional Trial Court’s award for the
generator set and the renovation expenses.41
Kodak Philippines, Ltd. also filed an appeal. However,
the Court of Appeals42 dismissed it on December 16,
2002 for Kodak Philippines, Ltd.’s failure to file its
appellant’s brief, without prejudice to the continuation
of the Lam Spouses’ appeal.43 The Court of Appeals’
December 16, 2002 Resolution denying Kodak
Philippines, Ltd.’s appeal became final and executory
on January 4, 2003.44
In the Decision45 dated March 30, 2005, the Court of
Appeals Special Fourteenth Division modified the
February 26, 1999 Decision of the Regional Trial Court:
WHEREFORE, PREMISES CONSIDERED, the
Assailed Decision dated 26 February 1999 of the
Regional Trial Court, Branch 65 in Civil Case No. 92-
3442 is hereby MODIFIED. Plaintiff-appellant is
ordered to pay the following:
1. P130,000.00 representing the amount of
the generator set, plus legal interest at 12%
per annum from December 1992 until fully
paid; and
2. P440,000.00 as actual damages;
3. P25,000.00 as moral damages; and
4. P50,000.00 as exemplary damages.
SO ORDERED.46 (Emphasis supplied)
The Court of Appeals agreed with the trial court’s
Decision, but extensively discussed the basis for the
modification of the dispositive portion.
The Court of Appeals ruled that the Letter Agreement
executed by the parties showed that their obligations
were susceptible of partial performance. Under Article
1225 of the New Civil Code, their obligations are
divisible:
In determining the divisibility of an obligation, the
following factors may be considered, to wit: (1) the will
or intention of the parties, which may be expressed or
presumed; (2) the objective or purpose of the stipulated
prestation; (3) the nature of the thing; and (4)
provisions of law affecting the prestation.
Applying the foregoing factors to this case, We found
that the intention of the parties is to be bound
separately for each Minilab Equipment to be delivered
as shown by the separate purchase price for each of
the item, by the acceptance of Sps. Lam of separate
deliveries for the first Minilab Equipment and for those
of the remaining two and the separate payment
arrangements for each of the equipment. Under this
premise, Sps. Lam shall be liable for the entire amount
of the purchase price of the Minilab
Equipment delivered considering that Kodak had
already completely fulfilled its obligation to deliver the
same. . . .
Third, it is also evident that the contract is one that is
severable in character as demonstrated by the
separate purchase price for each of the minilab
equipment. "If the part to be performed by one party
consists in several distinct and separate items and the
price is apportioned to each of them, the contract will
generally be held to be severable. In such case, each
distinct stipulation relating to a separate subject matter
will be treated as a separate contract." Considering
this, Kodak's breach of its obligation to deliver the other
two (2) equipment cannot bar its recovery for the full
payment of the equipment already delivered. As far as
Kodak is concerned, it had already fully complied with
its separable obligation to deliver the first unit of Minilab
Equipment.47 (Emphasis supplied)
The Court of Appeals held that the issuance of a writ of
replevin is proper insofar as the delivered Minilab
Equipment unit and its standard accessories are
concerned, since Kodak Philippines, Ltd. had the right
to possess it:48
The purchase price of said equipment is
P1,796,000.00 which, under the agreement is payable
with forty eight (48) monthly amortization. It is
undisputed that Sps. Lam made payments which
amounted to Two Hundred Seventy Thousand Pesos
(P270,000.00) through the following checks:
Metrobank Check Nos. 00892620 and 00892621 dated
31 March 1992 and 30 April 1992 respectively in the
amount of Thirty Five Thousand Pesos (P35,000.00)
each, and BPI Family Check dated 31 July 1992
amounting to Two Hundred Thousand Pesos
(P200,000.00). This being the case, Sps. Lam are still
liable to Kodak in the amount of One Million Five
Hundred Twenty Six Thousand Pesos
(P1,526,000.00), which is payable in several monthly
amortization, pursuant to the Letter
Agreement. However, Sps. Lam admitted that
sometime in May 1992, they had already ordered their
drawee bank to stop the payment on all the other
checks they had issued to Kodak as payment for the
Minilab Equipment delivered to them. Clearly then,
Kodak ha[d] the right to repossess the said equipment,
through this replevin suit. Sps. Lam cannot excuse
themselves from paying in full the purchase price of the
equipment delivered to them on account of Kodak’s
breach of the contract to deliver the other two (2)
Minilab Equipment, as contemplated in the Letter
Agreement.49 (Emphasis supplied)
Echoing the ruling of the trial court, the Court of
Appeals held that the liability of the Lam Spouses to
pay the remaining balance for the first delivered unit is
based on the second sentence of Article 1592 of the
New Civil Code.50 The Lam Spouses’ receipt and use
of the Minilab Equipment before they knew that Kodak
Philippines, Ltd. would not deliver the two (2) remaining
units has made them liable for the unpaid portion of the
purchase price.51
The Court of Appeals noted that Kodak Philippines,
Ltd. sought the rescission of its contract with the Lam
Spouses in the letter dated October 14, 1992.52 The
rescission was based on Article 1191 of the New Civil
Code, which provides: "The power to rescind
obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent
upon him."53 In its letter, Kodak Philippines, Ltd.
demanded that the Lam Spouses surrender the lone
delivered unit of Minilab Equipment along with its
standard accessories.54
The Court of Appeals likewise noted that the Lam
Spouses rescinded the contract through its letter dated
November 18, 1992 on account of Kodak Philippines,
Inc.’s breach of the parties’ agreement to deliver the
two (2) remaining units.55
As a result of this rescission under Article 1191, the
Court of Appeals ruled that "both parties must be
restored to their original situation, as far as practicable,
as if the contract was never entered into."56 The Court
of Appeals ratiocinated that Article 1191 had the effect
of extinguishing the obligatory relation as if one was
never created:57
To rescind is to declare a contract void in its inception
and to put an end to it as though it never were. It is not
merely to terminate it and to release parties from
further obligations to each other but abrogate it from
the beginning and restore parties to relative positions
which they would have occupied had no contract been
made.58
The Lam Spouses were ordered to relinquish
possession of the Minilab Equipment unit and its
standard accessories, while Kodak Philippines, Ltd.
was ordered to return the amount of ₱270,000.00,
tendered by the Lam Spouses as partial payment.59
As to the actual damages sought by the parties, the
Court of Appeals found that the Lam Spouses were
able to substantiate the following:
Incentive fee paid to Mr. Ruales in the amount of
P100,000.00; the rider to the contract of lease which
made the Sps. Lam liable, by way of advance payment,
in the amount of P40,000.00, the same being intended
for the repair of the flooring of the leased premises; and
lastly, the payment of P300,000.00, as compromise
agreement for the pre-termination of the contract of
lease with Ruales.60
The total amount is ₱440,000.00. The Court of Appeals
found that all other claims made by the Lam Spouses
were not supported by evidence, either through official
receipts or check payments.61
As regards the generator set improperly seized from
Kodak Philippines, Ltd. on the basis of the writ of
replevin, the Court of Appeals found that there was no
basis for the Lam Spouses’ claim for reasonable rental
of ₱5,000.00. It held that the trial court’s award of 12%
interest, in addition to the cost of the generator set in
the amount of ₱130,000.00, is sufficient compensation
for whatever damage the Lam Spouses suffered on
account of its improper seizure.62
The Court of Appeals also ruled on the Lam Spouses’
entitlement to moral and exemplary damages, as well
as attorney’s fees and litigation expenses:
In seeking recovery of the Minilab Equipment, Kodak
cannot be considered to have manifested bad faith and
malevolence because as earlier ruled upon, it was well
within its right to do the same. However, with respect
to the seizure of the generator set, where Kodak
misrepresented to the court a quo its alleged right over
the said item, Kodak’s bad faith and abuse of judicial
processes become self-evident. Considering the off-
setting circumstances attendant, the amount of
P25,000.00 by way of moral damages is considered
sufficient.
In addition, so as to serve as an example to the public
that an application for replevin should not be
accompanied by any false claims and
misrepresentation, the amount of P50,000.00 by way
of exemplary damages should be pegged against
Kodak.
With respect to the attorney’s fees and litigation
expenses, We find that there is no basis to award Sps.
Lam the amount sought for.63
Kodak Philippines, Ltd. moved for reconsideration of
the Court of Appeals Decision, but it was denied for
lack of merit.64 However, the Court of Appeals noted
that the Lam Spouses’ Opposition correctly pointed out
that the additional award of ₱270,000.00 made by the
trial court was not mentioned in the decretal portion of
the March 30, 2005 Decision:
Going over the Decision, specifically page 12 thereof,
the Court noted that, in addition to the amount of Two
Hundred Seventy Thousand (P270,000.00) which
plaintiff-appellant should return to the
defendantsappellants, the Court also ruled that
defendants-appellants should, in turn, relinquish
possession of the Minilab Equipment and the standard
accessories to plaintiff-appellant. Inadvertently, these
material items were not mentioned in the decretal
portion of the Decision. Hence, the proper correction
should herein be made.65
The Lam Spouses filed this Petition for Review on April
14, 2005. On the other hand, Kodak Philippines, Ltd.
filed its Motion for Reconsideration66 before the Court
of Appeals on April 22, 2005.
While the Petition for Review on Certiorari filed by the
Lam Spouses was pending before this court, the Court
of Appeals Special Fourteenth Division, acting on
Kodak Philippines, Ltd.’s Motion for Reconsideration,
issued the Amended Decision67 dated September 9,
2005. The dispositive portion of the Decision reads:
WHEREFORE, premises considered, this Court
resolved that:
A. Plaintiff-appellant’s Motion for
Reconsideration is hereby DENIED for lack of
merit.
B. The decretal portion of the 30 March 2005
Decision should now read as follows:
"WHEREFORE, PREMISES CONSIDERED, the
Assailed Decision dated 26 February 1999 of the
Regional Trial Court, Branch 65 in Civil Cases No. 92-
3442 is hereby MODIFIED. Plaintiff-appellant is
ordered to pay the following:
a. P270,000.00 representing the partial
payment made on the Minilab equipment.
b. P130,000.00 representing the amount of
the generator set, plus legal interest at 12%
per annum from December 1992 until fully
paid;
c. P440,000.00 as actual damages;
d. P25,000.00 as moral damages; and
e. P50,000.00 as exemplary damages.
Upon the other hand, defendants-appellants are
hereby ordered to return to plaintiff-appellant the
Minilab equipment and the standard accessories
delivered by plaintiff-appellant.
SO ORDERED."
SO ORDERED.68 (Emphasis in the original)
Upon receiving the Amended Decision of the Court of
Appeals, Kodak Philippines, Ltd. filed a Motion for
Extension of Time to File an Appeal by Certiorari under
Rule 45 of the 1997 Rules of Civil Procedure before
this court.69
This was docketed as G.R. No. 169639. In the Motion
for Consolidation dated November 2, 2005, the Lam
Spouses moved that G.R. No. 167615 and G.R. No.
169639 be consolidated since both involved the same
parties, issues, transactions, and essential facts and
circumstances.70
In the Resolution dated November 16, 2005, this court
noted the Lam Spouses’ September 23 and September
30, 2005 Manifestations praying that the Court of
Appeals’ September 9, 2005 Amended Decision be
considered in the resolution of the Petition for Review
on Certiorari.71 It also granted the Lam Spouses’
Motion for Consolidation.72
In the Resolution73 dated September 20, 2006, this
court deconsolidated G.R No. 167615 from G.R. No.
169639 and declared G.R. No. 169639 closed and
terminated since Kodak Philippines, Ltd. failed to file its
Petition for Review.
II
We resolve the following issues:
First, whether the contract between petitioners
Spouses Alexander and Julie Lam and respondent
Kodak Philippines, Ltd. pertained to obligations that are
severable, divisible, and susceptible of partial
performance under Article 1225 of the New Civil Code;
and
Second, upon rescission of the contract, what the
parties are entitled to under Article 1190 and Article
1522 of the New Civil Code.
Petitioners argue that the Letter Agreement it executed
with respondent for three (3) Minilab Equipment units
was not severable, divisible, and susceptible of partial
performance. Respondent’s recovery of the delivered
unit was unjustified.74
Petitioners assert that the obligations of the parties
were not susceptible of partial performance since the
Letter Agreement was for a package deal consisting of
three (3) units.75 For the delivery of these units,
petitioners were obliged to pay 48 monthly payments,
the total of which constituted one debt.76 Having relied
on respondent’s assurance that the three units would
be delivered at the same time, petitioners
simultaneously rented and renovated three stores in
anticipation of simultaneous operations.77 Petitioners
argue that the divisibility of the object does not
necessarily determine the divisibility of the obligation
since the latter is tested against its susceptibility to a
partial performance.78 They argue that even if the
object is susceptible of separate deliveries, the
transaction is indivisible if the parties intended the
realization of all parts of the agreed obligation.79
Petitioners support the claim that it was the parties’
intention to have an indivisible agreement by asserting
that the payments they made to respondent were
intended to be applied to the whole package of three
units.80 The postdated checks were also intended as
initial payment for the whole package.81 The separate
purchase price for each item was merely intended to
particularize the unit prices, not to negate the
indivisible nature of their transaction.82 As to the issue
of delivery, petitioners claim that their acceptance of
separate deliveries of the units was solely due to the
constraints faced by respondent, who had sole control
over delivery matters.83
With the obligation being indivisible, petitioners argue
that respondent’s failure to comply with its obligation to
deliver the two (2) remaining Minilab Equipment units
amounted to a breach. Petitioners claim that the
breach entitled them to the remedy of rescission and
damages under Article 1191 of the New Civil Code.84
Petitioners also argue that they are entitled to moral
damages more than the ₱50,000.00 awarded by the
Court of Appeals since respondent’s wrongful act of
accusing them of non-payment of their obligations
caused them sleepless nights, mental anguish, and
wounded feelings.85 They further claim that, to serve as
an example for the public good, they are entitled to
exemplary damages as respondent, in making false
allegations, acted in evident bad faith and in a wanton,
oppressive, capricious, and malevolent manner.86
Petitioners also assert that they are entitled to
attorney’s fees and litigation expenses under Article
2208 of the New Civil Code since respondent’s act of
bringing a suit against them was baseless and
malicious. This prompted them to engage the services
of a lawyer.87
Respondent argues that the parties’ Letter Agreement
contained divisible obligations susceptible of partial
performance as defined by Article 1225 of the New Civil
Code.88 In respondent’s view, it was the intention of the
parties to be bound separately for each individually
priced Minilab Equipment unit to be delivered to
different outlets:89
The three (3) Minilab Equipment are intended by
petitioners LAM for install[a]tion at their Tagum, Davao
del Norte, Sta. Cruz, Manila and Cotabato City outlets.
Each of these units [is] independent from one another,
as many of them may perform its own job without the
other. Clearly the objective or purpose of the
prestation, the obligation is divisible.
The nature of each unit of the three (3) Minilab
Equipment is such that one can perform its own
functions, without awaiting for the other units to
perform and complete its job. So much so, the nature
of the object of the Letter Agreement is susceptible of
partial performance, thus the obligation is divisible.90
With the contract being severable in character,
respondent argues that it performed its obligation when
it delivered one unit of the Minilab Equipment.91 Since
each unit could perform on its own, there was no need
to await the delivery of the other units to complete its
job.92 Respondent then is of the view that when
petitioners ordered the depository bank to stop
payment of the issued checks covering the first
delivered unit, they violated their obligations under the
Letter Agreement since respondent was already
entitled to full payment.93
Respondent also argues that petitioners benefited from
the use of the Minilab Equipment for 10 months—from
March to December 1992— despite having paid only
two (2) monthly installments.94 Respondent avers that
the two monthly installments amounting to ₱70,000.00
should be the subject of an offset against the amount
the Court of Appeals awarded to petitioners.95
Respondent further avers that petitioners have no
basis for claiming damages since the seizure and
recovery of the Minilab Equipment was not in bad faith
and respondent was well within its right.96
III
The Letter Agreement contained an indivisible
obligation.
Both parties rely on the Letter Agreement97 as basis of
their respective obligations. Written by respondent’s
Jeffrey T. Go and Antonio V. Mines and addressed to
petitioner Alexander Lam, the Letter Agreement
contemplated a "package deal" involving three (3) units
of the Kodak Minilab System 22XL, with the following
terms and conditions:
This confirms our verbal agreement for Kodak Phils.,
Ltd. to provide Colorkwik Laboratories, Inc. with three
(3) units Kodak Minilab System 22XL . . . for your
proposed outlets in Rizal Avenue (Manila), Tagum
(Davao del Norte), and your existing Multicolor photo
counter in Cotabato City under the following terms and
conditions:
1. Said Minilab Equipment packages will avail
a total of 19% multiple order discount based
on prevailing equipment price provided said
equipment packages will be purchased not
later than June 30, 1992.
2. 19% Multiple Order Discount shall be
applied in the form of merchandise and
delivered in advance immediately after
signing of the contract.
* Also includes start-up packages worth
P61,000.00.
3. NO DOWNPAYMENT.
4. Minilab Equipment Package shall be
payable in 48 monthly installments at THIRTY
FIVE THOUSAND PESOS (P35,000.00)
inclusive of 24% interest rate for the first 12
months; the balance shall be re-amortized for
the remaining 36 months and the prevailing
interest shall be applied.
5. Prevailing price of Kodak Minilab System
22XL as of January 8, 1992 is at ONE
MILLION SEVEN HUNDRED NINETY SIX
THOUSAND PESOS.
6. Price is subject to change without prior
notice.
*Secured with PDCs; 1st monthly
amortization due 45 days after installation[.]98
Based on the foregoing, the intention of the parties is
for there to be a single transaction covering all three (3)
units of the Minilab Equipment. Respondent’s
obligation was to deliver all products purchased under
a "package," and, in turn, petitioners’ obligation was to
pay for the total purchase price, payable in
installments.
The intention of the parties to bind themselves to an
indivisible obligation can be further discerned through
their direct acts in relation to the package deal. There
was only one agreement covering all three (3) units of
the Minilab Equipment and their accessories. The
Letter Agreement specified only one purpose for the
buyer, which was to obtain these units for three
different outlets. If the intention of the parties were to
have a divisible contract, then separate agreements
could have been made for each Minilab Equipment unit
instead of covering all three in one package deal.
Furthermore, the 19% multiple order discount as
contained in the Letter Agreement was applied to all
three acquired units.99 The "no downpayment" term
contained in the Letter Agreement was also applicable
to all the Minilab Equipment units. Lastly, the fourth
clause of the Letter Agreement clearly referred to the
object of the contract as "Minilab Equipment Package."
In ruling that the contract between the parties intended
to cover divisible obligations, the Court of Appeals
highlighted: (a) the separate purchase price of each
item; (b) petitioners’ acceptance of separate deliveries
of the units; and (c) the separate payment
arrangements for each unit.100 However, through the
specified terms and conditions, the tenor of the Letter
Agreement indicated an intention for a single
transaction. This intent must prevail even though the
articles involved are physically separable and capable
of being paid for and delivered individually, consistent
with the New Civil Code:
Article 1225. For the purposes of the preceding
articles, obligations to give definite things and those
which are not susceptible of partial performance shall
be deemed to be indivisible.
When the obligation has for its object the execution of
a certain number of days of work, the accomplishment
of work by metrical units, or analogous things which by
their nature are susceptible of partial performance, it
shall be divisible.
However, even though the object or service may be
physically divisible, an obligation is indivisible if so
provided by law or intended by the parties. (Emphasis
supplied)
In Nazareno v. Court of Appeals,101 the indivisibility of
an obligation is tested against whether it can be the
subject of partial performance:
An obligation is indivisible when it cannot be validly
performed in parts, whatever may be the nature of the
thing which is the object thereof. The indivisibility refers
to the prestation and not to the object thereof. In the
present case, the Deed of Sale of January 29, 1970
supposedly conveyed the six lots to Natividad. The
obligation is clearly indivisible because the
performance of the contract cannot be done in parts,
otherwise the value of what is transferred is
diminished. Petitioners are therefore mistaken in
basing the indivisibility of a contract on the number of
obligors.102 (Emphasis supplied, citation omitted)
There is no indication in the Letter Agreement that the
units petitioners ordered were covered by three (3)
separate transactions. The factors considered by the
Court of Appeals are mere incidents of the execution
of the obligation, which is to deliver three units of the
Minilab Equipment on the part of respondent and
payment for all three on the part of petitioners. The
intention to create an indivisible contract is apparent
from the benefits that the Letter Agreement afforded to
both parties. Petitioners were given the 19% discount
on account of a multiple order, with the discount being
equally applicable to all units that they sought to
acquire. The provision on "no downpayment" was also
applicable to all units. Respondent, in turn, was entitled
to payment of all three Minilab Equipment units,
payable by installments.
IV
With both parties opting for rescission of the contract
under Article 1191, the Court of Appeals correctly
ordered for restitution.
The contract between the parties is one of sale, where
one party obligates himself or herself to transfer the
ownership and deliver a determinate thing, while the
other pays a certain price in money or its
equivalent.103 A contract of sale is perfected upon the
meeting of minds as to the object and the price, and
the parties may reciprocally demand the performance
of their respective obligations from that point on.104
The Court of Appeals correctly noted that respondent
had rescinded the parties’ Letter Agreement through
the letter dated October 14, 1992.105 It likewise noted
petitioners’ rescission through the letter dated
November 18, 1992.106 This rescission from both
parties is founded on Article 1191 of the New Civil
Code:
The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfilment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfilment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
Rescission under Article 1191 has the effect of mutual
restitution.107 In Velarde v. Court of Appeals:108
Rescission abrogates the contract from its inception
and requires a mutual restitution of benefits received.
....
Rescission creates the obligation to return the object of
the contract. It can be carried out only when the one
who demands rescission can return whatever he may
be obliged to restore. To rescind is to declare a contract
void at its inception and to put an end to it as though it
never was. It is not merely to terminate it and release
the parties from further obligations to each other, but to
abrogate it from the beginning and restore the parties
to their relative positions as if no contract has been
made.109 (Emphasis supplied, citations omitted)
The Court of Appeals correctly ruled that both parties
must be restored to their original situation as far as
practicable, as if the contract was never entered into.
Petitioners must relinquish possession of the delivered
Minilab Equipment unit and accessories, while
respondent must return the amount tendered by
petitioners as partial payment for the unit received.
Further, respondent cannot claim that the two (2)
monthly installments should be offset against the
amount awarded by the Court of Appeals to petitioners
because the effect of rescission under Article 1191 is
to bring the parties back to their original positions
before the contract was entered into. Also in Velarde:
As discussed earlier, the breach committed by
petitioners was the nonperformance of a reciprocal
obligation, not a violation of the terms and conditions
of the mortgage contract. Therefore, the automatic
rescission and forfeiture of payment clauses stipulated
in the contract does not apply. Instead, Civil Code
provisions shall govern and regulate the resolution of
this controversy.
Considering that the rescission of the contract is based
on Article 1191 of the Civil Code, mutual restitution is
required to bring back the parties to their original
situation prior to the inception of the contract.
Accordingly, the initial payment of ₱800,000 and the
corresponding mortgage payments in the amounts of
₱27,225, ₱23,000 and ₱23,925 (totaling ₱874,150.00)
advanced by petitioners should be returned by private
respondents, lest the latter unjustly enrich themselves
at the expense of the former.110 (Emphasis supplied)
When rescission is sought under Article 1191 of the
Civil Code, it need not be judicially invoked because
the power to resolve is implied in reciprocal
obligations.111 The right to resolve allows an injured
party to minimize the damages he or she may suffer on
account of the other party’s failure to perform what is
incumbent upon him or her.112 When a party fails to
comply with his or her obligation, the other party’s right
to resolve the contract is triggered.113 The resolution
immediately produces legal effects if the non-
performing party does not question the
resolution.114 Court intervention only becomes
necessary when the party who allegedly failed to
comply with his or her obligation disputes the resolution
of the contract.115 Since both parties in this case have
exercised their right to resolve under Article 1191,
there is no need for a judicial decree before the
resolution produces effects.
V
The issue of damages is a factual one. A petition for
review on certiorari under Rule 45 shall only pertain to
questions of law.116 It is not the duty of this court to re-
evaluate the evidence adduced before the lower
courts.117 Furthermore, unless the petition clearly
shows that there is grave abuse of discretion, the
findings of fact of the trial court as affirmed by the Court
of Appeals are conclusive upon this
court.118 In Lorzano v. Tabayag, Jr.:119
For a question to be one of law, the same must not
involve an examination of the probative value of the
evidence presented by the litigants or any of them. The
resolution of the issue must rest solely on what the law
provides on the given set of circumstances. Once it is
clear that the issue invites a review of the evidence
presented, the question posed is one of fact.
....
For the same reason, we would ordinarily disregard the
petitioner’s allegation as to the propriety of the award
of moral damages and attorney’s fees in favor of the
respondent as it is a question of fact. Thus, questions
on whether or not there was a preponderance of
evidence to justify the award of damages or whether or
not there was a causal connection between the given
set of facts and the damage suffered by the private
complainant or whether or not the act from which civil
liability might arise exists are questions of fact.
Essentially, the petitioner is questioning the award of
moral damages and attorney’s fees in favor of the
respondent as the same is supposedly not fully
supported by evidence. However, in the final analysis,
the question of whether the said award is fully
supported by evidence is a factual question as it would
necessitate whether the evidence adduced in support
of the same has any probative value. For a question to
be one of law, it must involve no examination of the
probative value of the evidence presented by the
litigants or any of them.120 (Emphasis supplied,
citations omitted)
The damages awarded by the Court of Appeals were
supported by documentary evidence.121 Petitioners
failed to show any reason why the factual
determination of the Court of Appeals must be
reviewed, especially in light of their failure to produce
receipts or check payments to support their other claim
for actual damages.122
Furthermore, the actual damages amounting to
₱2,040,000.00 being sought by petitioners 123 must be
tempered on account of their own failure to pay the rest
of the installments for the delivered unit. This failure on
their part is a breach of their obligation, for which the
liability of respondent, for its failure to deliver the
remaining units, shall be equitably tempered on
account of Article 1192 of the New Civil
Code.124 In Central Bank of the Philippines v. Court of
Appeals:125
Since both parties were in default in the performance
of their respective reciprocal obligations, that is, Island
Savings Bank failed to comply with its obligation to
furnish the entire loan and Sulpicio M. Tolentino failed
to comply with his obligation to pay his ₱17,000.00
debt within 3 years as stipulated, they are both liable
for damages.
Article 1192 of the Civil Code provides that in case both
parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be
equitably tempered by the courts. WE rule that the
liability of Island Savings Bank for damages in not
furnishing the entire loan is offset by the liability of
Sulpicio M. Tolentino for damages, in the form of
penalties and surcharges, for not paying his overdue
₱17,000.00 debt. The liability of Sulpicio M. Tolentino
for interest on his ₱17,000.00 debt shall not be
included in offsetting the liabilities of both parties. Since
Sulpicio M. Tolentino derived some benefit for his use
of the ₱17,000.00, it is just that he should account for
the interest thereon.126 (Emphasis supplied)
The award for moral and exemplary damages also
appears to be sufficient. Moral damages are granted to
alleviate the moral suffering suffered by a party due to (d) P25,000.00 as moral damages;
an act of another, but it is not intended to enrich the
victim at the defendant’s expense.127 It is not meant to (e) P50,000.00 as exemplary damages; and
punish the culpable party and, therefore, must always
be reasonable vis-a-vis the injury
caused.128 Exemplary damages, on the other hand, are (f) P20,000.00 as attorney's fees.
awarded when the injurious act is attended by bad
faith.129 In this case, respondent was found to have Petitioners are ordered to return the Kodak Minilab
misrepresented its right over the generator set that was System 22XL unit and its standard accessories to
seized. As such, it is properly liable for exemplary respondent.
damages as an example to the public.130
SO ORDERED.
However, the dispositive portion of the Court of
Appeals Amended Decision dated September 9, 2005
must be modified to include the recovery of attorney’s
fees and costs of suit in favor of petitioners.
In Sunbanun v. Go:131
Furthermore, we affirm the award of exemplary
damages and attorney’s fees. Exemplary damages
may be awarded when a wrongful act is accompanied
by bad faith or when the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent manner
which would justify an award of exemplary damages
under Article 2232 of the Civil Code. Since the award
of exemplary damages is proper in this case, attorney’s
fees and cost of the suit may also be recovered as
provided under Article 2208 of the Civil
Code.132 (Emphasis supplied, citation omitted)
Based on the amount awarded for moral and
exemplary damages, it is reasonable to award
petitioners ₱20,000.00 as attorney’s fees.
WHEREFORE, the Petition is DENIED. The Amended
Decision dated September 9, 2005 is AFFIRMED with
MODIFICATION. Respondent Kodak Philippines, Ltd.
is ordered to pay petitioners Alexander and Julie Lam:
(a) P270,000.00, representing the partial
payment made on the Minilab Equipment;
(b) P130,000.00, representing the amount of
the generator set, plus legal interest at 12%
.per annum from December 1992 until fully
paid;
(c) P440,000.00 as actual damages;