G.R. No.

154486               December 1, 2010

FEDERICO JARANTILLA, JR., Petitioner,

vs.
ANTONIETA JARANTILLA, BUENAVENTURA REMOTIGUE, substituted by CYNTHIA REMOTIGUE,
DOROTEO JARANTILLA and TOMAS JARANTILLA, Respondents.

DECISION

LEONARDO-DE CASTRO, J.:

This petition for review on certiorari1 seeks to modify the Decision2 of the Court of Appeals dated July 30,
2002 in CA-G.R. CV No. 40887, which set aside the Decision3 dated December 18, 1992 of the Regional
Trial Court (RTC) of Quezon City, Branch 98 in Civil Case No. Q-50464.

The pertinent facts are as follows:

The spouses Andres Jarantilla and Felisa Jaleco were survived by eight children: Federico, Delfin,
Benjamin, Conchita, Rosita, Pacita, Rafael and Antonieta.4 Petitioner Federico Jarantilla, Jr. is the
grandchild of the late Jarantilla spouses by their son Federico Jarantilla, Sr. and his wife Leda
Jamili.5 Petitioner also has two other brothers: Doroteo and Tomas Jarantilla.

Petitioner was one of the defendants in the complaint before the RTC while Antonieta Jarantilla, his aunt,
was the plaintiff therein. His co-respondents before he joined his aunt Antonieta in her complaint, were his
late aunt Conchita Jarantilla’s husband Buenaventura Remotigue, who died during the pendency of the
case, his cousin Cynthia Remotigue, the adopted daughter of Conchita Jarantilla and Buenaventura
Remotigue, and his brothers Doroteo and Tomas Jarantilla.6

In 1948, the Jarantilla heirs extrajudicially partitioned amongst themselves the real properties of their
deceased parents.7 With the exception of the real property adjudicated to Pacita Jarantilla, the heirs also
agreed to allot the produce of the said real properties for the years 1947-1949 for the studies of Rafael
and Antonieta Jarantilla.8

In the same year, the spouses Rosita Jarantilla and Vivencio Deocampo entered into an agreement with
the spouses Buenaventura Remotigue and Conchita Jarantilla to provide mutual assistance to each other
by way of financial support to any commercial and agricultural activity on a joint business arrangement.
This business relationship proved to be successful as they were able to establish a manufacturing and
trading business, acquire real properties, and construct buildings, among other things.9 This partnership
ended in 1973 when the parties, in an "Agreement,"10 voluntarily agreed to completely dissolve their "joint
business relationship/arrangement."11

On April 29, 1957, the spouses Buenaventura and Conchita Remotigue executed a document wherein
they acknowledged that while registered only in Buenaventura Remotigue’s name, they were not the only
owners of the capital of the businesses Manila Athletic Supply (712 Raon Street, Manila), Remotigue
Trading (Calle Real, Iloilo City) and Remotigue Trading (Cotabato City). In this same "Acknowledgement
of Participating Capital," they stated the participating capital of their co-owners as of the year 1952, with
Antonieta Jarantilla’s stated as eight thousand pesos (₱8,000.00) and Federico Jarantilla, Jr.’s as five
thousand pesos (₱5,000.00).12

The present case stems from the amended complaint13 dated April 22, 1987 filed by Antonieta Jarantilla
against Buenaventura Remotigue, Cynthia Remotigue, Federico Jarantilla, Jr., Doroteo Jarantilla and
Tomas Jarantilla, for the accounting of the assets and income of the co-ownership, for its partition and the
delivery of her share corresponding to eight percent (8%), and for damages. Antonieta claimed that in
1946, she had entered into an agreement with Conchita and Buenaventura Remotigue, Rafael Jarantilla,
and Rosita and Vivencio Deocampo to engage in business. Antonieta alleged that the initial contribution
of property and money came from the heirs’ inheritance, and her subsequent annual investment of seven
thousand five hundred pesos (₱7,500.00) as additional capital came from the proceeds of her farm.
Antonieta also alleged that from 1946-1969, she had helped in the management of the business they co-
owned without receiving any salary. Her salary was supposedly rolled back into the business as additional
investments in her behalf. Antonieta further claimed co-ownership of certain properties14 (the subject real
properties) in the name of the defendants since the only way the defendants could have purchased these
properties were through the partnership as they had no other source of income.

The respondents, including petitioner herein, in their Answer,15 denied having formed a partnership with
Antonieta in 1946. They claimed that she was in no position to do so as she was still in school at that
time. In fact, the proceeds of the lands they partitioned were devoted to her studies. They also averred
that while she may have helped in the businesses that her older sister Conchita had formed with
Buenaventura Remotigue, she was paid her due salary. They did not deny the existence and validity of
the "Acknowledgement of Participating Capital" and in fact used this as evidence to support their claim
that Antonieta’s 8% share was limited to the businesses enumerated therein. With regard to Antonieta’s
claim in their other corporations and businesses, the respondents said these should also be limited to the
number of her shares as specified in the respective articles of incorporation. The respondents denied
using the partnership’s income to purchase the subject real properties and said that the certificates of title
should be binding on her.16

During the course of the trial at the RTC, petitioner Federico Jarantilla, Jr., who was one of the original
defendants, entered into a compromise agreement17 with Antonieta Jarantilla wherein he supported
Antonieta’s claims and asserted that he too was entitled to six percent (6%) of the supposed partnership
in the same manner as Antonieta was. He prayed for a favorable judgment in this wise:

Defendant Federico Jarantilla, Jr., hereby joins in plaintiff’s prayer for an accounting from the other
defendants, and the partition of the properties of the co-ownership and the delivery to the plaintiff and to
defendant Federico Jarantilla, Jr. of their rightful share of the assets and properties in the co-
ownership.181avvphi1

The RTC, in an Order19 dated March 25, 1992, approved the Joint Motion to Approve Compromise
Agreement20 and on December 18, 1992, decided in favor of Antonieta, to wit:

WHEREFORE, premises above-considered, the Court renders judgment in favor of the plaintiff Antonieta
Jarantilla and against defendants Cynthia Remotigue, Doroteo Jarantilla and Tomas Jarantilla ordering
the latter:

1. to deliver to the plaintiff her 8% share or its equivalent amount on the real properties covered
by TCT Nos. 35655, 338398, 338399 & 335395, all of the Registry of Deeds of Quezon City; TCT
Nos. (18303)23341, 142882 & 490007(4615), all of the Registry of Deeds of Rizal; and TCT No.
T-6309 of the Registry of Deeds of Cotabato based on their present market value;

2. to deliver to the plaintiff her 8% share or its equivalent amount on the Remotigue Agro-
Industrial Corporation, Manila Athletic Supply, Inc., MAS Rubber Products, Inc. and Buendia
Recapping Corporation based on the shares of stocks present book value;

3. to account for the assets and income of the co-ownership and deliver to plaintiff her rightful
share thereof equivalent to 8%;

4. to pay plaintiff, jointly and severally, the sum of ₱50,000.00 as moral damages;

5. to pay, jointly and severally, the sum of ₱50,000.00 as attorney’s fees; and
 6. to pay, jointly and severally, the costs of the suit.21

Both the petitioner and the respondents appealed this decision to the Court of Appeals. The petitioner
claimed that the RTC "erred in not rendering a complete judgment and ordering the partition of the co-
ownership and giving to [him] six per centum (6%) of the properties."22

While the Court of Appeals agreed to some of the RTC’s factual findings, it also established that
Antonieta Jarantilla was not part of the partnership formed in 1946, and that her 8% share was limited to
the businesses enumerated in the Acknowledgement of Participating Capital. On July 30, 2002, the Court
of Appeals rendered the herein challenged decision setting aside the RTC’s decision, as follows:

WHEREFORE, the decision of the trial court, dated 18 December 1992 is SET ASIDE and a new one is
hereby entered ordering that:

(1) after accounting, plaintiff Antonieta Jarantilla be given her share of 8% in the assets and
profits of Manila Athletic Supply, Remotigue Trading in Iloilo City and Remotigue Trading in
Cotabato City;

(2) after accounting, defendant Federico Jarantilla, Jr. be given his share of 6% of the assets and
profits of the above-mentioned enterprises; and, holding that

(3) plaintiff Antonieta Jarantilla is a stockholder in the following corporations to the extent stated in
their Articles of Incorporation:

(a) Rural Bank of Barotac Nuevo, Inc.;

(b) MAS Rubber Products, Inc.;

(c) Manila Athletic Supply, Inc.; and

(d) B. Remotigue Agro-Industrial Development Corp.

(4) No costs.23

The respondents, on August 20, 2002, filed a Motion for Partial Reconsideration but the Court of Appeals
denied this in a Resolution24 dated March 21, 2003.

Antonieta Jarantilla filed before this Court her own petition for review on certiorari25 dated September 16,
2002, assailing the Court of Appeals’ decision on "similar grounds and similar assignments of errors as
this present case"26 but it was dismissed on November 20, 2002 for failure to file the appeal within the
reglementary period of fifteen (15) days in accordance with Section 2, Rule 45 of the Rules of Court.27

Petitioner filed before us this petition for review on the sole ground that:

THE HONORABLE COURT OF APPEALS SERIOUSLY ERRED IN NOT RULING THAT PETITIONER
FEDERICO JARANTILLA, JR. IS ENTITLED TO A SIX PER CENTUM (6%) SHARE OF THE
OWNERSHIP OF THE REAL PROPERTIES ACQUIRED BY THE OTHER DEFENDANTS USING
COMMON FUNDS FROM THE BUSINESSES WHERE HE HAD OWNED SUCH SHARE.28

Petitioner asserts that he was in a partnership with the Remotigue spouses, the Deocampo spouses,
Rosita Jarantilla, Rafael Jarantilla, Antonieta Jarantilla and Quintin Vismanos, as evidenced by the
Acknowledgement of Participating Capital the Remotigue spouses executed in 1957. He contends that
from this partnership, several other corporations and businesses were established and several real
properties were acquired. In this petition, he is essentially asking for his 6% share in the subject real
properties. He is relying on the Acknowledgement of Participating Capital, on his own testimony, and
Antonieta Jarantilla’s testimony to support this contention.

The core issue is whether or not the partnership subject of the Acknowledgement of Participating Capital
funded the subject real properties. In other words, what is the petitioner’s right over these real properties?

It is a settled rule that in a petition for review on certiorari under Rule 45 of the Rules of Civil Procedure,
only questions of law may be raised by the parties and passed upon by this Court.29

A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is
a question of fact when the doubt arises as to the truth or falsity of the alleged facts. 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. Thus, the test of whether a question is one of law or of fact is not the
appellation given to such question by the party raising the same; rather, it is whether the appellate court
can determine the issue raised without reviewing or evaluating the evidence, in which case, it is a
question of law; otherwise it is a question of fact.30

Since the Court of Appeals did not fully adopt the factual findings of the RTC, this Court, in resolving the
questions of law that are now in issue, shall look into the facts only in so far as the two courts a quo
differed in their appreciation thereof.

The RTC found that an unregistered partnership existed since 1946 which was affirmed in the 1957
document, the "Acknowledgement of Participating Capital." The RTC used this as its basis for giving
Antonieta Jarantilla an 8% share in the three businesses listed therein and in the other businesses and
real properties of the respondents as they had supposedly acquired these through funds from the
partnership.31

The Court of Appeals, on the other hand, agreed with the RTC as to Antonieta’s 8% share in the business
enumerated in the Acknowledgement of Participating Capital, but not as to her share in the other
corporations and real properties. The Court of Appeals ruled that Antonieta’s claim of 8% is based on the
"Acknowledgement of Participating Capital," a duly notarized document which was specific as to the
subject of its coverage. Hence, there was no reason to pattern her share in the other corporations from
her share in the partnership’s businesses. The Court of Appeals also said that her claim in the
respondents’ real properties was more "precarious" as these were all covered by certificates of title which
served as the best evidence as to all the matters contained therein.32 Since petitioner’s claim was
essentially the same as Antonieta’s, the Court of Appeals also ruled that petitioner be given his 6% share
in the same businesses listed in the Acknowledgement of Participating Capital.

Factual findings of the trial court, when confirmed by the Court of Appeals, are final and conclusive except
in the following cases: (1) when the inference made is manifestly mistaken, absurd or impossible; (2)
when there is a grave abuse of discretion; (3) when the finding is grounded entirely on speculations,
surmises or conjectures; (4) when the judgment of the Court of Appeals is based on misapprehension of
facts; (5) when the findings of fact are conflicting; (6) when 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 appellant and
appellee; (7) when the findings of the Court of Appeals are contrary to those of the trial court; (8) when
the findings of fact are conclusions without citation of specific evidence on which they are based; (9) when
the Court of Appeals manifestly overlooked certain relevant facts not disputed by the parties and which, if
properly considered, would justify a different conclusion; and (10) when the findings of fact of the Court of
Appeals are premised on the absence of evidence and are contradicted by the evidence on record.33
In this case, we find no error in the ruling of the Court of Appeals.

Both the petitioner and Antonieta Jarantilla characterize their relationship with the respondents as a co-
ownership, but in the same breath, assert that a verbal partnership was formed in 1946 and was affirmed
in the 1957 Acknowledgement of Participating Capital.

There is a co-ownership when an undivided thing or right belongs to different persons.34 It is a partnership
when two or more persons bind themselves to contribute money, property, or industry to a common fund,
with the intention of dividing the profits among themselves.35 The Court, in Pascual v. The Commissioner
of Internal Revenue,36 quoted the concurring opinion of Mr. Justice Angelo Bautista in Evangelista v. The
Collector of Internal Revenue37 to further elucidate on the distinctions between a co-ownership and a
partnership, to wit:

I wish however to make the following observation: Article 1769 of the new Civil Code lays down the rule
for determining when a transaction should be deemed a partnership or a co-ownership. Said article
paragraphs 2 and 3, provides;

(2) Co-ownership or co-possession does not itself establish a partnership, whether such co-
owners or co-possessors do or do not share any profits made by the use of the property;

(3) The sharing of gross returns does not of itself establish a partnership, whether or not the
persons sharing them have a joint or common right or interest in any property from which the
returns are derived;

From the above it appears that the fact that those who agree to form a co- ownership share or do not
share any profits made by the use of the property held in common does not convert their venture into a
partnership. Or the sharing of the gross returns does not of itself establish a partnership whether or not
the persons sharing therein have a joint or common right or interest in the property. This only means that,
aside from the circumstance of profit, the presence of other elements constituting partnership is
necessary, such as the clear intent to form a partnership, the existence of a juridical personality different
from that of the individual partners, and the freedom to transfer or assign any interest in the property by
one with the consent of the others.

It is evident that an isolated transaction whereby two or more persons contribute funds to buy certain real
estate for profit in the absence of other circumstances showing a contrary intention cannot be considered
a partnership.

Persons who contribute property or funds for a common enterprise and agree to share the gross returns
of that enterprise in proportion to their contribution, but who severally retain the title to their respective
contribution, are not thereby rendered partners. They have no common stock or capital, and no
community of interest as principal proprietors in the business itself which the proceeds derived.

A joint purchase of land, by two, does not constitute a co-partnership in respect thereto; nor does an
agreement to share the profits and losses on the sale of land create a partnership; the parties are only
tenants in common.

Where plaintiff, his brother, and another agreed to become owners of a single tract of realty, holding as
tenants in common, and to divide the profits of disposing of it, the brother and the other not being entitled
to share in plaintiff’s commission, no partnership existed as between the three parties, whatever their
relation may have been as to third parties.

In order to constitute a partnership inter sese there must be: (a) An intent to form the same; (b) generally
participating in both profits and losses; (c) and such a community of interest, as far as third persons are
concerned as enables each party to make contract, manage the business, and dispose of the whole
property. x x x.

The common ownership of property does not itself create a partnership between the owners, though they
may use it for the purpose of making gains; and they may, without becoming partners, agree among
themselves as to the management, and use of such property and the application of the proceeds
therefrom.38 (Citations omitted.)

Under Article 1767 of the Civil Code, there are two essential elements in a contract of partnership: (a) an
agreement to contribute money, property or industry to a common fund; and (b) intent to divide the profits
among the contracting parties. The first element is undoubtedly present in the case at bar, for, admittedly,
all the parties in this case have agreed to, and did, contribute money and property to a common
fund. Hence, the issue narrows down to their intent in acting as they did.39 It is not denied that all the
parties in this case have agreed to contribute capital to a common fund to be able to later on share its
profits. They have admitted this fact, agreed to its veracity, and even submitted one common
documentary evidence to prove such partnership - the Acknowledgement of Participating Capital.

As this case revolves around the legal effects of the Acknowledgement of Participating Capital, it would
be instructive to examine the pertinent portions of this document:

ACKNOWLEDGEMENT OF
PARTICIPATING CAPITAL

KNOW ALL MEN BY THESE PRESENTS:

That we, the spouses Buenaventura Remotigue and Conchita Jarantilla de Remotigue, both of legal age,
Filipinos and residents of Loyola Heights, Quezon City, P.I. hereby state:

That the Manila Athletic Supply at 712 Raon, Manila, the Remotigue Trading of Calle Real, Iloilo City and
the Remotigue Trading, Cotabato Branch, Cotabato, P.I., all dealing in athletic goods and equipments,
and general merchandise are recorded in their respective books with Buenaventura Remotigue as the
registered owner and are being operated by them as such:

That they are not the only owners of the capital of the three establishments and their participation in the
capital of the three establishments together with the other co-owners as of the year 1952 are stated as
follows:

1. Buenaventura Remotigue (TWENTY-FIVE THOUSAND)₱25,000.00

2. Conchita Jarantilla de Remotigue (TWENTY-FIVE THOUSAND)… 25,000.00

3. Vicencio Deocampo (FIFTEEN THOUSAND)…… 15,000.00

4. Rosita J. Deocampo (FIFTEEN THOUSAND)….... 15,000.00

5. Antonieta Jarantilla (EIGHT THOUSAND)……….. 8,000.00

6. Rafael Jarantilla (SIX THOUSAND)…………….. ... 6,000.00

7. Federico Jarantilla, Jr. (FIVE THOUSAND)……….. 5,000.00

8. Quintin Vismanos (TWO THOUSAND)…………... 2,000.00

That aside from the persons mentioned in the next preceding paragraph, no other person has any interest
in the above-mentioned three establishments.

IN WITNESS WHEREOF, they sign this instrument in the City of Manila, P.I., this 29th day of April, 1957.

[Sgd.]
BUENAVENTURA REMOTIGUE

[Sgd.]
CONCHITA JARANTILLA DE REMOTIGUE40

The Acknowledgement of Participating Capital is a duly notarized document voluntarily executed by

Conchita Jarantilla-Remotigue and Buenaventura Remotigue in 1957. Petitioner does not dispute its
contents and is actually relying on it to prove his participation in the partnership. Article 1797 of the Civil
Code provides:

Art. 1797. The losses and profits shall be distributed in conformity with the agreement. If only the share of
each partner in the profits has been agreed upon, the share of each in the losses shall be in the same
proportion.

In the absence of stipulation, the share of each partner in the profits and losses shall be in proportion to
what he may have contributed, but the industrial partner shall not be liable for the losses. As for the
profits, the industrial partner shall receive such share as may be just and equitable under the
circumstances. If besides his services he has contributed capital, he shall also receive a share in the
profits in proportion to his capital. (Emphases supplied.)

It is clear from the foregoing that a partner is entitled only to his share as agreed upon, or in the absence
of any such stipulations, then to his share in proportion to his contribution to the partnership. The
petitioner himself claims his share to be 6%, as stated in the Acknowledgement of Participating Capital.
However, petitioner fails to realize that this document specifically enumerated the businesses covered by
the partnership: Manila Athletic Supply, Remotigue Trading in Iloilo City and Remotigue Trading in
Cotabato City. Since there was a clear agreement that the capital the partners contributed went to the
three businesses, then there is no reason to deviate from such agreement and go beyond the stipulations
in the document. Therefore, the Court of Appeals did not err in limiting petitioner’s share to the assets of
the businesses enumerated in the Acknowledgement of Participating Capital.

In Villareal v. Ramirez,41 the Court held that since a partnership is a separate juridical entity, the shares to
be paid out to the partners is necessarily limited only to its total resources, to wit:

Since it is the partnership, as a separate and distinct entity, that must refund the shares of the partners,
the amount to be refunded is necessarily limited to its total resources. In other words, it can only pay out
what it has in its coffers, which consists of all its assets. However, before the partners can be paid their
shares, the creditors of the partnership must first be compensated. After all the creditors have been paid,
whatever is left of the partnership assets becomes available for the payment of the partners’ shares.42

There is no evidence that the subject real properties were assets of the partnership referred to in the
Acknowledgement of Participating Capital.

The petitioner further asserts that he is entitled to respondents’ properties based on the concept of trust.
He claims that since the subject real properties were purchased using funds of the partnership, wherein
he has a 6% share, then "law and equity mandates that he should be considered as a co-owner of those
properties in such proportion."43 In Pigao v. Rabanillo,44 this Court explained the concept of trusts, to wit:
Express trusts are created by the intention of the trustor or of the parties, while implied trusts come into
being by operation of law, either through implication of an intention to create a trust as a matter of law or
through the imposition of the trust irrespective of, and even contrary to, any such intention. In turn, implied
trusts are either resulting or constructive trusts. Resulting trusts are based on the equitable doctrine that
valuable consideration and not legal title determines the equitable title or interest and are presumed
always to have been contemplated by the parties. They arise from the nature or circumstances of the
consideration involved in a transaction whereby one person thereby becomes invested with legal title but
is obligated in equity to hold his legal title for the benefit of another.45

On proving the existence of a trust, this Court held that:

Respondent has presented only bare assertions that a trust was created. Noting the need to prove the
existence of a trust, this Court has held thus:

"As a rule, the burden of proving the existence of a trust is on the party asserting its existence, and such
proof must be clear and satisfactorily show the existence of the trust and its elements. While implied
trusts may be proved by oral evidence, the evidence must be trustworthy and received by the courts with
extreme caution, and should not be made to rest on loose, equivocal or indefinite declarations.
Trustworthy evidence is required because oral evidence can easily be fabricated." 46

The petitioner has failed to prove that there exists a trust over the subject real properties. Aside from his
bare allegations, he has failed to show that the respondents used the partnership’s money to purchase
the said properties. Even assuming arguendo that some partnership income was used to acquire these
properties, the petitioner should have successfully shown that these funds came from his share in the
partnership profits. After all, by his own admission, and as stated in the Acknowledgement of Participating
Capital, he owned a mere 6% equity in the partnership.

In essence, the petitioner is claiming his 6% share in the subject real properties, by relying on his own
self-serving testimony and the equally biased testimony of Antonieta Jarantilla. Petitioner has not
presented evidence, other than these unsubstantiated testimonies, to prove that the respondents did not
have the means to fund their other businesses and real properties without the partnership’s income. On
the other hand, the respondents have not only, by testimonial evidence, proven their case against the
petitioner, but have also presented sufficient documentary evidence to substantiate their claims,
allegations and defenses. They presented preponderant proof on how they acquired and funded such
properties in addition to tax receipts and tax declarations.47 It has been held that "while tax declarations
and realty tax receipts do not conclusively prove ownership, they may constitute strong evidence of
ownership when accompanied by possession for a period sufficient for prescription."48 Moreover, it is a
rule in this jurisdiction that testimonial evidence cannot prevail over documentary evidence.49 This Court
had on several occasions, expressed our disapproval on using mere self-serving testimonies to support
one’s claim. In Ocampo v. Ocampo,50 a case on partition of a co-ownership, we held that:

Petitioners assert that their claim of co-ownership of the property was sufficiently proved by their
witnesses -- Luisa Ocampo-Llorin and Melita Ocampo. We disagree. Their testimonies cannot prevail
over the array of documents presented by Belen. A claim of ownership cannot be based simply on the
testimonies of witnesses; much less on those of interested parties, self-serving as they are.51

It is true that a certificate of title is merely an evidence of ownership or title over the particular property
described therein. Registration in the Torrens system does not create or vest title as registration is not a
mode of acquiring ownership; hence, this cannot deprive an aggrieved party of a remedy in
law.52 However, petitioner asserts ownership over portions of the subject real properties on the strength of
his own admissions and on the testimony of Antonieta Jarantilla.1avvphi1 As held by this Court in
Republic of the Philippines v. Orfinada, Sr.53:
Indeed, a Torrens title is generally conclusive evidence of ownership of the land referred to therein, and a
strong presumption exists that a Torrens title was regularly issued and valid. A Torrens title is
incontrovertible against any informacion possessoria, of other title existing prior to the issuance thereof
not annotated on the Torrens title. Moreover, persons dealing with property covered by a Torrens
certificate of title are not required to go beyond what appears on its face.54

As we have settled that this action never really was for partition of a co-ownership, to permit petitioner’s
claim on these properties is to allow a collateral, indirect attack on respondents’ admitted titles. In the
words of the Court of Appeals, "such evidence cannot overpower the conclusiveness of these certificates
of title, more so since plaintiff’s [petitioner’s] claims amount to a collateral attack, which is prohibited under
Section 48 of Presidential Decree No. 1529, the Property Registration Decree."55

SEC. 48. Certificate not subject to collateral attack. – A certificate of title shall not be subject to collateral
attack. It cannot be altered, modified, or cancelled except in a direct proceeding in accordance with law.

This Court has deemed an action or proceeding to be "an attack on a title when its objective is to nullify
the title, thereby challenging the judgment pursuant to which the title was decreed."56 In Aguilar v.
Alfaro,57 this Court further distinguished between a direct and an indirect or collateral attack, as follows:

A collateral attack transpires when, in another action to obtain a different relief and as an incident to the
present action, an attack is made against the judgment granting the title. This manner of attack is to be
distinguished from a direct attack against a judgment granting the title, through an action whose main
objective is to annul, set aside, or enjoin the enforcement of such judgment if not yet implemented, or to
seek recovery if the property titled under the judgment had been disposed of. x x x.

Petitioner’s only piece of documentary evidence is the Acknowledgement of Participating Capital, which
as discussed above, failed to prove that the real properties he is claiming co-ownership of were acquired
out of the proceeds of the businesses covered by such document. Therefore, petitioner’s theory has no
factual or legal leg to stand on.

WHEREFORE, the Petition is hereby DENIED and the Decision of the Court of Appeals in CA-G.R. CV
No. 40887, dated July 30, 2002 is AFFIRMED.

SO ORDERED.

G.R. No. 70926 January 31, 1989

DAN FUE LEUNG, petitioner,

vs.
HON. INTERMEDIATE APPELLATE COURT and LEUNG YIU, respondents.

John L. Uy for petitioner.

Edgardo F. Sundiam for private respondent.

GUTIERREZ, JR., J.:
The petitioner asks for the reversal of the decision of the then Intermediate Appellate Court in AC-G.R.
No. CV-00881 which affirmed the decision of the then Court of First Instance of Manila, Branch II in Civil
Case No. 116725 declaring private respondent Leung Yiu a partner of petitioner Dan Fue Leung in the
business of Sun Wah Panciteria and ordering the petitioner to pay to the private respondent his share in
the annual profits of the said restaurant.

This case originated from a complaint filed by respondent Leung Yiu with the then Court of First Instance
of Manila, Branch II to recover the sum equivalent to twenty-two percent (22%) of the annual profits
derived from the operation of Sun Wah Panciteria since October, 1955 from petitioner Dan Fue Leung.

The Sun Wah Panciteria, a restaurant, located at Florentino Torres Street, Sta. Cruz, Manila, was
established sometime in October, 1955. It was registered as a single proprietorship and its licenses and
permits were issued to and in favor of petitioner Dan Fue Leung as the sole proprietor. Respondent
Leung Yiu adduced evidence during the trial of the case to show that Sun Wah Panciteria was actually a
partnership and that he was one of the partners having contributed P4,000.00 to its initial establishment.

The private respondents evidence is summarized as follows:

About the time the Sun Wah Panciteria started to become operational, the private respondent gave
P4,000.00 as his contribution to the partnership. This is evidenced by a receipt identified as Exhibit "A"
wherein the petitioner acknowledged his acceptance of the P4,000.00 by affixing his signature thereto.
The receipt was written in Chinese characters so that the trial court commissioned an interpreter in the
person of Ms. Florence Yap to translate its contents into English. Florence Yap issued a certification and
testified that the translation to the best of her knowledge and belief was correct. The private respondent
identified the signature on the receipt as that of the petitioner (Exhibit A-3) because it was affixed by the
latter in his (private respondents') presence. Witnesses So Sia and Antonio Ah Heng corroborated the
private respondents testimony to the effect that they were both present when the receipt (Exhibit "A") was
signed by the petitioner. So Sia further testified that he himself received from the petitioner a similar
receipt (Exhibit D) evidencing delivery of his own investment in another amount of P4,000.00 An
examination was conducted by the PC Crime Laboratory on orders of the trial court granting the private
respondents motion for examination of certain documentary exhibits. The signatures in Exhibits "A" and
'D' when compared to the signature of the petitioner appearing in the pay envelopes of employees of the
restaurant, namely Ah Heng and Maria Wong (Exhibits H, H-1 to H-24) showed that the signatures in the
two receipts were indeed the signatures of the petitioner.

Furthermore, the private respondent received from the petitioner the amount of P12,000.00 covered by
the latter's Equitable Banking Corporation Check No. 13389470-B from the profits of the operation of the
restaurant for the year 1974. Witness Teodulo Diaz, Chief of the Savings Department of the China
Banking Corporation testified that said check (Exhibit B) was deposited by and duly credited to the private
respondents savings account with the bank after it was cleared by the drawee bank, the Equitable
Banking Corporation. Another witness Elvira Rana of the Equitable Banking Corporation testified that the
check in question was in fact and in truth drawn by the petitioner and debited against his own account in
said bank. This fact was clearly shown and indicated in the petitioner's statement of account after the
check (Exhibit B) was duly cleared. Rana further testified that upon clearance of the check and pursuant
to normal banking procedure, said check was returned to the petitioner as the maker thereof.

The petitioner denied having received from the private respondent the amount of P4,000.00. He
contested and impugned the genuineness of the receipt (Exhibit D). His evidence is summarized as
follows:

The petitioner did not receive any contribution at the time he started the Sun Wah Panciteria. He used his
savings from his salaries as an employee at Camp Stotsenberg in Clark Field and later as waiter at the
Toho Restaurant amounting to a little more than P2,000.00 as capital in establishing Sun Wah Panciteria.
To bolster his contention that he was the sole owner of the restaurant, the petitioner presented various
government licenses and permits showing the Sun Wah Panciteria was and still is a single proprietorship
solely owned and operated by himself alone. Fue Leung also flatly denied having issued to the private
respondent the receipt (Exhibit G) and the Equitable Banking Corporation's Check No. 13389470 B in the
amount of P12,000.00 (Exhibit B).

As between the conflicting evidence of the parties, the trial court gave credence to that of the plaintiffs.
Hence, the court ruled in favor of the private respondent. The dispositive portion of the decision reads:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the
defendant, ordering the latter to deliver and pay to the former, the sum equivalent to 22%
of the annual profit derived from the operation of Sun Wah Panciteria from October,
1955, until fully paid, and attorney's fees in the amount of P5,000.00 and cost of suit. (p.
125, Rollo)

The private respondent filed a verified motion for reconsideration in the nature of a motion for new trial
and, as supplement to the said motion, he requested that the decision rendered should include the net
profit of the Sun Wah Panciteria which was not specified in the decision, and allow private respondent to
adduce evidence so that the said decision will be comprehensively adequate and thus put an end to
further litigation.

The motion was granted over the objections of the petitioner. After hearing the trial court rendered an
amended decision, the dispositive portion of which reads:

FOR ALL THE FOREGOING CONSIDERATIONS, the motion for reconsideration filed by
the plaintiff, which was granted earlier by the Court, is hereby reiterated and the decision
rendered by this Court on September 30, 1980, is hereby amended. The dispositive
portion of said decision should read now as follows:

WHEREFORE, judgment is hereby rendered, ordering the plaintiff (sic) and against the
defendant, ordering the latter to pay the former the sum equivalent to 22% of the net
profit of P8,000.00 per day from the time of judicial demand, until fully paid, plus the sum
of P5,000.00 as and for attorney's fees and costs of suit. (p. 150, Rollo)

The petitioner appealed the trial court's amended decision to the then Intermediate Appellate Court. The
questioned decision was further modified by the appellate court. The dispositive portion of the appellate
court's decision reads:

WHEREFORE, the decision appealed from is modified, the dispositive portion thereof
reading as follows:

1. Ordering the defendant to pay the plaintiff by way of temperate damages 22% of the
net profit of P2,000.00 a day from judicial demand to May 15, 1971;

2. Similarly, the sum equivalent to 22% of the net profit of P8,000.00 a day from May 16,
1971 to August 30, 1975;

3. And thereafter until fully paid the sum equivalent to 22% of the net profit of P8,000.00 a
day.

Except as modified, the decision of the court a quo is affirmed in all other respects. (p.
102, Rollo)
Later, the appellate court, in a resolution, modified its decision and affirmed the lower court's decision.
The dispositive portion of the resolution reads:

WHEREFORE, the dispositive portion of the amended judgment of the court a

quo  reading as follows:

WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendant,
ordering the latter to pay to the former the sum equivalent to 22% of the net profit of
P8,000.00 per day from the time of judicial demand, until fully paid, plus the sum of
P5,000.00 as and for attorney's fees and costs of suit.

is hereby retained in full and affirmed in toto it being understood that the date of judicial demand is July
13, 1978. (pp. 105-106, Rollo).

In the same resolution, the motion for reconsideration filed by petitioner was denied.

Both the trial court and the appellate court found that the private respondent is a partner of the petitioner
in the setting up and operations of the panciteria. While the dispositive portions merely ordered the
payment of the respondents share, there is no question from the factual findings that the respondent
invested in the business as a partner. Hence, the two courts declared that the private petitioner is entitled
to a share of the annual profits of the restaurant. The petitioner, however, claims that this factual finding is
erroneous. Thus, the petitioner argues: "The complaint avers that private respondent extended 'financial
assistance' to herein petitioner at the time of the establishment of the Sun Wah Panciteria, in return of
which private respondent allegedly will receive a share in the profits of the restaurant. The same
complaint did not claim that private respondent is a partner of the business. It was, therefore, a serious
error for the lower court and the Hon. Intermediate Appellate Court to grant a relief not called for by the
complaint. It was also error for the Hon. Intermediate Appellate Court to interpret or construe 'financial
assistance' to mean the contribution of capital by a partner to a partnership;" (p. 75, Rollo)

The pertinent portions of the complaint state:

xxx xxx xxx

2. That on or about the latter (sic) of September, 1955, defendant sought the financial
assistance of plaintiff in operating the defendant's eatery known as Sun Wah Panciteria,
located in the given address of defendant; as a return for such  financial assistance.
plaintiff would be entitled to twenty-two percentum (22%) of the annual profit derived from
the operation of the said panciteria;

3. That on October 1, 1955, plaintiff delivered to the defendant the sum of four thousand
pesos (P4,000.00), Philippine Currency, of which copy for the receipt of such amount,
duly acknowledged by the defendant is attached hereto as Annex "A", and form an
integral part hereof; (p. 11, Rollo)

In essence, the private respondent alleged that when Sun Wah Panciteria was established, he gave
P4,000.00 to the petitioner with the understanding that he would be entitled to twenty-two percent (22%)
of the annual profit derived from the operation of the said panciteria. These allegations, which were
proved, make the private respondent and the petitioner partners in the establishment of Sun Wah
Panciteria because Article 1767 of the Civil Code provides that "By the contract of partnership two or
more persons bind themselves to contribute money, property or industry to a common fund, with the
intention of dividing the profits among themselves".
Therefore, the lower courts did not err in construing the complaint as one wherein the private respondent
asserted his rights as partner of the petitioner in the establishment of the Sun Wah Panciteria,
notwithstanding the use of the term financial assistance therein. We agree with the appellate court's
observation to the effect that "... given its ordinary meaning, financial assistance is the giving out of
money to another without the expectation of any returns therefrom'. It connotes an ex gratia dole out in
favor of someone driven into a state of destitution. But this circumstance under which the P4,000.00 was
given to the petitioner does not obtain in this case.' (p. 99, Rollo) The complaint explicitly stated that "as a
return for such financial assistance, plaintiff (private respondent) would be entitled to twenty-two
percentum (22%) of the annual profit derived from the operation of the said panciteria.' (p. 107, Rollo) The
well-settled doctrine is that the '"... nature of the action filed in court is determined by the facts alleged in
the complaint as constituting the cause of action." (De Tavera v. Philippine Tuberculosis Society, Inc., 113
SCRA 243; Alger Electric, Inc. v. Court of Appeals, 135 SCRA 37).

The appellate court did not err in declaring that the main issue in the instant case was whether or not the
private respondent is a partner of the petitioner in the establishment of Sun Wah Panciteria.

The petitioner also contends that the respondent court gravely erred in giving probative value to the PC
Crime Laboratory Report (Exhibit "J") on the ground that the alleged standards or specimens used by the
PC Crime Laboratory in arriving at the conclusion were never testified to by any witness nor has any
witness identified the handwriting in the standards or specimens belonging to the petitioner. The
supposed standards or specimens of handwriting were marked as Exhibits "H" "H-1" to "H-24" and
admitted as evidence for the private respondent over the vigorous objection of the petitioner's counsel.

The records show that the PC Crime Laboratory upon orders of the lower court examined the signatures
in the two receipts issued separately by the petitioner to the private respondent and So Sia (Exhibits "A"
and "D") and compared the signatures on them with the signatures of the petitioner on the various pay
envelopes (Exhibits "H", "H-1" to 'H-24") of Antonio Ah Heng and Maria Wong, employees of the
restaurant. After the usual examination conducted on the questioned documents, the PC Crime
Laboratory submitted its findings (Exhibit J) attesting that the signatures appearing in both receipts
(Exhibits "A" and "D") were the signatures of the petitioner.

The records also show that when the pay envelopes (Exhibits "H", "H-1" to "H-24") were presented by the
private respondent for marking as exhibits, the petitioner did not interpose any objection. Neither did the
petitioner file an opposition to the motion of the private respondent to have these exhibits together with
the two receipts examined by the PC Crime Laboratory despite due notice to him. Likewise, no
explanation has been offered for his silence nor was any hint of objection registered for that purpose.

Under these circumstances, we find no reason why Exhibit "J" should be rejected or ignored. The records
sufficiently establish that there was a partnership.

The petitioner raises the issue of prescription. He argues: The Hon. Respondent Intermediate Appellate
Court gravely erred in not resolving the issue of prescription in favor of petitioner. The alleged receipt is
dated October 1, 1955 and the complaint was filed only on July 13, 1978 or after the lapse of twenty-two
(22) years, nine (9) months and twelve (12) days. From October 1, 1955 to July 13, 1978, no written
demands were ever made by private respondent.

The petitioner's argument is based on Article 1144 of the Civil Code which provides:

Art. 1144. The following actions must be brought within ten years from the time the right
of action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

 (3) Upon a judgment.

in relation to Article 1155 thereof which provides:

Art. 1155. The prescription of actions is interrupted when they are filed before the court,
when there is a written extra-judicial demand by the creditor, and when there is any
written acknowledgment of the debt by the debtor.'

The argument is not well-taken.

The private respondent is a partner of the petitioner in Sun Wah Panciteria. The requisites of a
partnership which are — 1) two or more persons bind themselves to contribute money, property, or
industry to a common fund; and 2) intention on the part of the partners to divide the profits among
themselves (Article 1767, Civil Code; Yulo v. Yang Chiao Cheng, 106 Phil. 110)-have been established.
As stated by the respondent, a partner shares not only in profits but also in the losses of the firm. If
excellent relations exist among the partners at the start of business and all the partners are more
interested in seeing the firm grow rather than get immediate returns, a deferment of sharing in the profits
is perfectly plausible. It would be incorrect to state that if a partner does not assert his rights anytime
within ten years from the start of operations, such rights are irretrievably lost. The private respondent's
cause of action is premised upon the failure of the petitioner to give him the agreed profits in the operation
of Sun Wah Panciteria. In effect the private respondent was asking for an accounting of his interests in
the partnership.

It is Article 1842 of the Civil Code in conjunction with Articles 1144 and 1155 which is applicable. Article
1842 states:

The right to an account of his interest shall accrue to any partner, or his legal
representative as against the winding up partners or the surviving partners or the person
or partnership continuing the business, at the date of dissolution, in the absence or any
agreement to the contrary.

Regarding the prescriptive period within which the private respondent may demand an accounting,
Articles 1806, 1807, and 1809 show that the right to demand an accounting exists as long as the
partnership exists. Prescription begins to run only upon the dissolution of the partnership when the final
accounting is done.

Finally, the petitioner assails the appellate court's monetary awards in favor of the private respondent for
being excessive and unconscionable and above the claim of private respondent as embodied in his
complaint and testimonial evidence presented by said private respondent to support his claim in the
complaint.

Apart from his own testimony and allegations, the private respondent presented the cashier of Sun Wah
Panciteria, a certain Mrs. Sarah L. Licup, to testify on the income of the restaurant.

Mrs. Licup stated:

ATTY. HIPOLITO (direct examination to Mrs. Licup).

Q Mrs. Witness, you stated that among your duties was that you were in
charge of the custody of the cashier's box, of the money, being the
cashier, is that correct?

A Yes, sir.
 Q So that every time there is a customer who pays, you were the one
who accepted the money and you gave the change, if any, is that
correct?

A Yes.

Q Now, after 11:30 (P.M.) which is the closing time as you said, what do
you do with the money?

A We balance it with the manager, Mr. Dan Fue Leung.

ATTY. HIPOLITO:

I see.

Q So, in other words, after your job, you huddle or confer together?

A Yes, count it all. I total it. We sum it up.

Q Now, Mrs. Witness, in an average day, more or less, will you please
tell us, how much is the gross income of the restaurant?

A For regular days, I received around P7,000.00 a day during my shift

alone and during pay days I receive more than P10,000.00. That is
excluding the catering outside the place.

Q What about the catering service, will you please tell the Honorable
Court how many times a week were there catering services?

A Sometimes three times a month; sometimes two times a month or

more.

xxx xxx xxx

Q Now more or less, do you know the cost of the catering service?

A Yes, because I am the one who receives the payment also of the
catering.

Q How much is that?

A That ranges from two thousand to six thousand pesos, sir.

Q Per service?

A Per service, Per catering.

Q So in other words, Mrs. witness, for your shift alone in a single day
from 3:30 P.M. to 11:30 P.M. in the evening the restaurant grosses an
income of P7,000.00 in a regular day?

A Yes.
 Q And ten thousand pesos during pay day.?

A Yes.

(TSN, pp. 53 to 59, inclusive, November 15,1978)

xxx xxx xxx

COURT:

Any cross?

ATTY. UY (counsel for defendant):

No cross-examination, Your Honor. (T.S.N. p. 65, November 15, 1978).

(Rollo, pp. 127-128)

The statements of the cashier were not rebutted. Not only did the petitioner's counsel waive the cross-
examination on the matter of income but he failed to comply with his promise to produce pertinent
records. When a subpoena duces tecum was issued to the petitioner for the production of their records of
sale, his counsel voluntarily offered to bring them to court. He asked for sufficient time prompting the court
to cancel all hearings for January, 1981 and reset them to the later part of the following month. The
petitioner's counsel never produced any books, prompting the trial court to state:

Counsel for the defendant admitted that the sales of Sun Wah were registered or
recorded in the daily sales book. ledgers, journals and for this purpose, employed a
bookkeeper. This inspired the Court to ask counsel for the defendant to bring said
records and counsel for the defendant promised to bring those that were available.
Seemingly, that was the reason why this case dragged for quite sometime. To bemuddle
the issue, defendant instead of presenting the books where the same, etc. were
recorded, presented witnesses who claimed to have supplied chicken, meat, shrimps,
egg and other poultry products which, however, did not show the gross sales nor does it
prove that the same is the best evidence. This Court gave warning to the defendant's
counsel that if he failed to produce the books, the same will be considered a waiver on
the part of the defendant to produce the said books inimitably showing decisive records
on the income of the eatery pursuant to the Rules of Court (Sec. 5(e) Rule 131).
"Evidence willfully suppressed would be adverse if produced." (Rollo, p. 145)

The records show that the trial court went out of its way to accord due process to the petitioner.

The defendant was given all the chance to present all conceivable witnesses, after the
plaintiff has rested his case on February 25, 1981, however, after presenting several
witnesses, counsel for defendant promised that he will present the defendant as his last
witness. Notably there were several postponement asked by counsel for the defendant
and the last one was on October 1, 1981 when he asked that this case be postponed for
45 days because said defendant was then in Hongkong and he (defendant) will be back
after said period. The Court acting with great concern and understanding reset the
hearing to November 17, 1981. On said date, the counsel for the defendant who again
failed to present the defendant asked for another postponement, this time to November
24, 1981 in order to give said defendant another judicial magnanimity and substantial due
process. It was however a condition in the order granting the postponement to said date
that if the defendant cannot be presented, counsel is deemed to have waived the
presentation of said witness and will submit his case for decision.
 On November 24, 1981, there being a typhoon prevailing in Manila said date was
declared a partial non-working holiday, so much so, the hearing was reset to December 7
and 22, 1981. On December 7, 1981, on motion of defendant's counsel, the same was
again reset to December 22, 1981 as previously scheduled which hearing was
understood as intransferable in character. Again on December 22, 1981, the defendant's
counsel asked for postponement on the ground that the defendant was sick. the Court,
after much tolerance and judicial magnanimity, denied said motion and ordered that the
case be submitted for resolution based on the evidence on record and gave the parties
30 days from December 23, 1981, within which to file their simultaneous memoranda.
(Rollo, pp. 148-150)

The restaurant is located at No. 747 Florentino Torres, Sta. Cruz, Manila in front of the Republic
Supermarket. It is near the corner of Claro M. Recto Street. According to the trial court, it is in the heart of
Chinatown where people who buy and sell jewelries, businessmen, brokers, manager, bank employees,
and people from all walks of life converge and patronize Sun Wah.

There is more than substantial evidence to support the factual findings of the trial court and the appellate
court. If the respondent court awarded damages only from judicial demand in 1978 and not from the
opening of the restaurant in 1955, it is because of the petitioner's contentions that all profits were being
plowed back into the expansion of the business. There is no basis in the records to sustain the petitioners
contention that the damages awarded are excessive. Even if the Court is minded to modify the factual
findings of both the trial court and the appellate court, it cannot refer to any portion of the records for such
modification. There is no basis in the records for this Court to change or set aside the factual findings of
the trial court and the appellate court. The petitioner was given every opportunity to refute or rebut the
respondent's submissions but, after promising to do so, it deliberately failed to present its books and other
evidence.

The resolution of the Intermediate Appellate Court ordering the payment of the petitioner's obligation
shows that the same continues until fully paid. The question now arises as to whether or not the payment
of a share of profits shall continue into the future with no fixed ending date.

Considering the facts of this case, the Court may decree a dissolution of the partnership under Article
1831 of the Civil Code which, in part, provides:

Art. 1831. On application by or for a partner the court shall decree a dissolution
whenever:

xxx xxx xxx

(3) A partner has been guilty of such conduct as tends to affect prejudicially the carrying
on of the business;

(4) A partner willfully or persistently commits a breach of the partnership agreement, or

otherwise so conducts himself in matters relating to the partnership business that it is not
reasonably practicable to carry on the business in partnership with him;

xxx xxx xxx

(6) Other circumstances render a dissolution equitable.

There shall be a liquidation and winding up of partnership affairs, return of capital, and other incidents of
dissolution because the continuation of the partnership has become inequitable.
WHEREFORE, the petition for review is hereby DISMISSED for lack of merit. The decision of the
respondent court is AFFIRMED with a MODIFICATION that as indicated above, the partnership of the
parties is ordered dissolved.

SO ORDERED.

[G.R. No. 129919. February 6, 2002.]

DOMINION INSURANCE CORPORATION, Petitioner, v. COURT OF APPEALS, RODOLFO S.

GUEVARRA, and FERNANDO AUSTRIA, Respondents.

DECISION

PARDO, J.:

The Case

This is an appeal via certiorari 1 from the decision of the Court of Appeals 2 affirming the decision 3 of the
Regional Trial Court, Branch 44, San Fernando, Pampanga, which ordered petitioner Dominion Insurance
Corporation (Dominion) to pay Rodolfo S. Guevarra (Guevarra) the sum of P156,473.90 representing the
total amount advanced by Guevarra in the payment of the claims of Dominion’s clients.chanrob1es
virtua1 1aw 1ibrary

The Facts

The facts, as found by the Court of Appeals, are as follows:jgc:chanrobles.com.ph

"On January 25, 1991, plaintiff Rodolfo S. Guevarra instituted Civil Case No. 8855 for sum of money
against defendant Dominion Insurance Corporation. Plaintiff sought to recover thereunder the sum of
P156,473.90 which he claimed to have advanced in his capacity as manager of defendant to satisfy
certain claims filed by defendant’s clients.

"In its traverse, defendant denied any liability to plaintiff and asserted a counterclaim for P249,672.53,
representing premiums that plaintiff allegedly failed to remit.

"On August 8, 1991, defendant filed a third-party complaint against Fernando Austria, who, at the time
relevant to the case, was its Regional Manager for Central Luzon area.

"In due time, third-party defendant Austria filed his answer.

"Thereafter the pre-trial conference was set on the following dates: October 18, 1991, November 12,
1991, March 29, 1991, December 12, 1991, January 17, 1992, January 29, 1992, February 28, 1992,
March 17, 1992 and April 6, 1992, in all of which dates no pre-trial conference was held. The record
shows that except for the settings on October 18, 1991, January 17, 1992 and March 17, 1992 which
were cancelled at the instance of defendant, third-party defendant and plaintiff, respectively, the rest were
postponed upon joint request of the parties.

"On May 22, 1992 the case was again called for pre-trial conference. Only plaintiff and counsel were
present. Despite due notice, defendant and counsel did not appear, although a messenger, Roy Gamboa,
submitted to the trial court a handwritten note sent to him by defendant’s counsel which instructed him to
request for postponement. Plaintiff’s counsel objected to the desired postponement and moved to have
defendant declared as in default. This was granted by the trial court in the following
order:jgc:chanrobles.com.ph

"ORDER

"When this case was called for pre-trial this afternoon only plaintiff and his counsel Atty. Romeo
Maglalang appeared. When shown a note dated May 21, 1992 addressed to a certain Roy who was
requested to ask for postponement, Atty. Maglalang vigorously objected to any post-ponement on the
ground that the note is but a mere scrap of paper and moved that the defendant corporation be declared
as in default for its failure to appear in court despite due notice.

"Finding the verbal motion of plaintiff’s counsel to be meritorious and considering that the pre-trial
conference has been repeatedly postponed on motion of the defendant Corporation, the defendant
Dominion Insurance Corporation is hereby declared (as) in default and plaintiff is allowed to present his
evidence on June 16, 1992 at 9:00 o’clock in the morning.

"The plaintiff and his counsel are notified of this order in open court.

"SO ORDERED.

"Plaintiff presented his evidence on June 16, 1992. This was followed by a written offer of documentary
exhibits on July 8 and a supplemental offer of additional exhibits on July 13, 1992. The exhibits were
admitted in evidence in an order dated July 17, 1992.

"On August 7, 1992 defendant corporation filed a ‘MOTION TO LIFT ORDER OF DEFAULT.’ It alleged
therein that the failure of counsel to attend the pre-trial conference was ‘due to an unavoidable
circumstance’ and that counsel had sent his representative on that date to inform the trial court of his
inability to appear. The Motion was vehemently opposed by plaintiff.

"On August 25, 1992 the trial court denied defendant’s motion for reasons, among others, that it was
neither verified nor supported by an affidavit of merit and that it further failed to allege or specify the facts
constituting his meritorious defense.

"On September 28, 1992 defendant moved for reconsideration of the aforesaid order. For the first time
counsel revealed to the trial court that the reason for his nonappearance at the pre-trial conference was
his illness. An Affidavit of Merit executed by its Executive Vice-President purporting to explain its
meritorious defense was attached to the said Motion. Just the same, in an Order dated November 13,
1992, the trial court denied said Motion.

"On November 18, 1992, the court a quo rendered judgment as follows:jgc:chanrobles.com.ph

"WHEREFORE, premises considered, judgment is hereby rendered ordering:jgc:chanrobles.com.ph

"1. The defendant Dominion Insurance Corporation to pay plaintiff the sum of P156,473.90 representing
the total amount advanced by plaintiff in the payment of the claims of defendant’s clients;

"2. The defendant to pay plaintiff P10,000.00 as and by way of attorney’s fees;

"3. The dismissal of the counter-claim of the defendant and the third-party complaint;

"4. The defendant to pay the costs of suit." 4

On December 14, 1992, Dominion appealed the decision to the Court of Appeals. 5
On July 19, 1996, the Court of Appeals promulgated a decision affirming that of the trial court. 6 On
September 3, 1996, Dominion filed with the Court of Appeals a motion for reconsideration. 7 On July 16,
1997, the Court of Appeals denied the motion. 8

Hence, this appeal. 9

The Issues

The issues raised are: (1) whether respondent Guevarra acted within his authority as agent for petitioner,
and (2) whether respondent Guevarra is entitled to reimbursement of amounts he paid out of his personal
money in settling the claims of several insured.

The Court’s Ruling

The petition is without merit.

By the contract of agency, a person binds himself to render some service or to do something in
representation or on behalf of another, with the consent or authority of the latter. 10 The basis for agency
is representation. 11 On the part of the principal, there must be an actual intention to appoint 12 or an
intention naturally inferrable from his words or actions; 13 and on the part of the agent, there must be an
intention to accept the appointment and act on it, 14 and in the absence of such intent, there is generally
no agency. 15

A perusal of the Special Power of Attorney 16 would show that petitioner (represented by third-party
defendant Austria) and respondent Guevarra intended to enter into a principal-agent relationship. Despite
the word "special" in the title of the document, the contents reveal that what was constituted was actually
a general agency. The terms of the agreement read:jgc:chanrobles.com.ph

"That we, FIRST CONTINENTAL ASSURANCE COMPANY, INC., 17 a corporation duly organized and
existing under and by virtue of the laws of the Republic of the Philippines, . . . represented by the
undersigned as Regional Manager, . . . do hereby appoint RSG Guevarra Insurance Services represented
by Mr. Rodolfo Guevarra . . . to be our Agency Manager in San Fdo., for our place and instead, to do and
perform the following acts and things:jgc:chanrobles.com.ph

"1. To conduct, sign, manager (sic), carry on and transact Bonding and Insurance business as usually
pertain to a Agency Office, or FIRE, MARINE, MOTOR CAR, PERSONAL ACCIDENT, and BONDING
with the right, upon our prior written consent, to appoint agents and sub-agents.

"2. To accept, underwrite and subscribed (sic) cover notes or Policies of Insurance and Bonds for and on
our behalf.

"3. To demand, sue, for (sic) collect, deposit, enforce payment, deliver and transfer for and receive and
give effectual receipts and discharge for all money to which the FIRST CONTINENTAL ASSURANCE
COMPANY, INC., 18 may hereafter become due, owing payable or transferable to said Corporation by
reason of or in connection with the above-mentioned appointment.

"4. To receive notices, summons, and legal processes for and in behalf of the FIRST CONTINENTAL
ASSURANCE COMPANY, INC., in connection with actions and all legal proceedings against the said
Corporation." 19 [Emphasis supplied]

The agency comprises all the business of the principal, 20 but, couched in general terms, it is limited only
to acts of administration. 21
A general power permits the agent to do all acts for which the law does not require a special power. 22
Thus, the acts enumerated in or similar to those enumerated in the Special Power of Attorney do not
require a special power of attorney.

Article 1878, Civil Code, enumerates the instances when a special power of attorney is required. The
pertinent portion that applies to this case provides that:jgc:chanrobles.com.ph

"Article 1878. Special powers of attorney are necessary in the following cases:jgc:chanrobles.com.ph

"(1) To make such payments as are not usually considered as acts of administration;

x           x          x

"(15) Any other act of strict dominion."cralaw virtua1aw library

The payment of claims is not an act of administration. The settlement of claims is not included among the
acts enumerated in the Special Power of Attorney, neither is it of a character similar to the acts
enumerated therein. A special power of attorney is required before respondent Guevarra could settle the
insurance claims of the insured.

Respondent Guevarra’s authority to settle claims is embodied in the Memorandum of Management

Agreement 23 dated February 18, 1987 which enumerates the scope of respondent Guevarra’s duties
and responsibilities as agency manager for San Fernando, Pampanga, as follows:jgc:chanrobles.com.ph

"x       x       x

"1. You are hereby given authority to settle and dispose of all motor car claims in the amount of
P5,000.00 with prior approval of the Regional Office.

"2. Full authority is given you on TPPI claims settlement.

"x       x       x" 24

In settling the claims mentioned above, respondent Guevarra’s authority is further limited by the written
standard authority to pay, 25 which states that the payment shall come from respondent Guevarra’s
revolving fund or collection. The authority to pay is worded as follows:jgc:chanrobles.com.ph

"This is to authorize you to withdraw from your revolving fund/collection the amount of PESOS
__________________(P _______) representing the payment on the _______________ claim of assured
________________ under Policy No. ________ in that accident of __________ at
__________________________.

"It is further expected, release papers will be signed and authorized by the concerned and attached to the
corresponding claim folder after effecting payment of the claim.

"(sgd.) FERNANDO C. AUSTRIA

Regional Manager" 26

[Emphasis supplied]

The instruction of petitioner as the principal could not be any clearer. Respondent Guevarra was
authorized to pay the claim of the insured, but the payment shall come from the revolving fund or
collection in his possession.
Having deviated from the instructions of the principal, the expenses that respondent Guevarra incurred in
the settlement of the claims of the insured may not be reimbursed from petitioner Dominion. This
conclusion is in accord with Article 1918, Civil Code, which states that:jgc:chanrobles.com.ph

"The principal is not liable for the expenses incurred by the agent in the following
cases:jgc:chanrobles.com.ph

"(1) If the agent acted in contravention of the principal’s instructions, unless the latter should wish to avail
himself of the benefits derived from the contract;

"x       x       x"

However, while the law on agency prohibits respondent Guevarra from obtaining reimbursement, his right
to recover may still be justified under the general law on obligations and contracts.

Article 1236, second paragraph, Civil Code, provides:jgc:chanrobles.com.ph

"Whoever pays for another may demand from the debtor what he has paid, except that if he paid without
the knowledge or against the will of the debtor, he can recover only insofar as the payment has been
beneficial to the debtor."cralaw virtua1aw library

In this case, when the risk insured against occurred, petitioner’s liability as insurer arose. This obligation
was extinguished when respondent Guevarra paid the claims and obtained Release of Claim Loss and
Subrogation Receipts from the insured who were paid.

Thus, to the extent that the obligation of the petitioner has been extinguished, respondent Guevarra may
demand for reimbursement from his principal. To rule otherwise would result in unjust enrichment of
petitioner.

The extent to which petitioner was benefited by the settlement of the insurance claims could best be
proven by the Release of Claim Loss and Subrogation Receipts 27 which were attached to the original
complaint as Annexes C-2, D-1, E-1, F-1, G-1, H-1, I-1 and J-1, in the total amount of P116,276.95.

However, the amount of the revolving fund/collection that was then in the possession of respondent
Guevarra as reflected in the statement of account dated July 11, 1990 would be deducted from the above
amount.

The outstanding balance and the production/remittance for the period corresponding to the claims was
P3,604.84. Deducting this from P116,276.95, we get P112,672.11. This is the amount that may be
reimbursed to respondent Guevarra.

The Fallo

IN VIEW WHEREOF, we DENY the petition.

However, we MODIFY the decision of the Court of Appeals 28 and that of the Regional Trial Court,
Branch 44, San Fernando, Pampanga, 29 in that petitioner is ordered to pay respondent Guevarra the
amount of P112,672.11 representing the total amount advanced by the latter in the payment of the claims
of petitioner’s clients.chanrob1es virtua1 1aw 1ibrary

No costs in this instance.

HEIRS OF ZOILO ESPIRITU AND PRIMITIVA ESPIRITU, Petitioners, v. SPOUSES MAXIMO

LANDRITO AND PAZ LANDRITO, Represented by ZOILO LANDRITO, as their Attorney-in-
Fact, Respondents.
 DECISION

CHICO-NAZARIO, J.:

This is a petition for Review on Certiorari under Rule 45 of the Rules of Court assailing the Decision of the
Court of Appeals,1 dated 31 August 2005, reversing the Decision rendered by the trial court on 13
December 1995. The Court of Appeals, in its assailed Decision, fixed the interest rate of the loan between
the parties at 12% per annum, and ordered the Spouses Zoilo and Primitiva Espiritu (Spouses Espiritu) to
reconvey the subject property to the Spouses Landrito conditioned upon the payment of the loan.

Petitioners DULCE, BENLINDA, EDWIN, CYNTHIA, AND MIRIAM ANDREA, all surnamed ESPIRITU,
are the only children and legal heirs of the Spouses Zoilo and Primitiva Espiritu, who both died during the
pendency of the case before the Honorable Court of Appeals.2

Respondents Spouses Maximo and Paz Landrito (Spouses Landrito) are herein represented by their son
and attorney-in-fact, Zoilo Landrito.3

On 5 September 1986, Spouses Landrito loaned from the Spouses Espiritu the amount of P350,000.00
payable in three months. To secure the loan, the Spouses Landrito executed a real estate mortgage over
a five hundred forty (540) square meter lot located in Alabang, Muntinlupa, covered by Transfer
Certificate of Title No. S-48948, in favor of the Spouses Espiritu. From the P350,000.00 that the Landritos
were supposed to receive, P17,500.00 was deducted as interest for the first month which was equivalent
to five percent of the principal debt, and P7,500.00 was further deducted as service fee. Thus, they
actually received a net amount of P325,000.00. The agreement, however, provided that the principal
indebtedness earns "interest at the legal rate."4

After three months, when the debt became due and demandable, the Spouses Landrito were unable to
pay the principal, and had not been able to make any interest payments other than the amount initially
deducted from the proceeds of the loan. On 29 December 1986, the loan agreement was extended to 4
January 1987 through an Amendment of Real Estate Mortgage. The loan was restructured in such a way
that the unpaid interest became part of the principal, thus increasing the principal to P385,000. The new
loan agreement adopted all other terms and conditions contained in first agreement.5

Due to the continued inability of the Spouses Landritos to settle their obligations with the Spouses
Espiritu, the loan agreement was renewed three more times. In all these subsequent renewals, the same
terms and conditions found in the first agreement were retained. On 29 July 1987, the principal was
increased to P507,000.00 inclusive of running interest. On 11 March 1988, it was increased
to P647,000.00. And on 21 October 1988, the principal was increased to P874,125.00.6 At the hearing
before the trial court, Zoilo Espiritu testified that the increase in the principal in each amendment of the
loan agreement did not correspond to the amount delivered to the Spouses Landrito. Rather, the increase
in the principal had been due to unpaid interest and other charges.7

The debt remained unpaid. As a consequence, the Spouses Espiritu foreclosed the mortgaged property
on 31 October 1990. During the auction sale, the property was sold to the Spouses Espiritu as the lone
bidder. On 9 January 1991, the Sheriff's Certificate of Sale was annotated on the title of the mortgaged
property, giving the Spouses Landrito until 8 January 1992 to redeem the property.8

The Spouses Landrito failed to redeem the subject property although they alleged that they negotiated for
the redemption of the property as early as 30 October 1991. While the negotiated price for the land
started at P1,595,392.79, it was allegedly increased by the Spouses Espiritu from time to time. Spouses
Landrito allegedly tendered two manager's checks and some cash, totaling P1,800,000.00 to the Spouses
Espiritu on 13 January 1992, but the latter refused to accept the same. They also alleged that the
Spouses Espiritu increased the amount demanded to P2.5 Million and gave them until July 1992 to pay
the said amount. However, upon inquiry, they found out that on 24 June 1992, the Spouses Espiritu had
already executed an Affidavit of Consolidation of Ownership and registered the mortgaged property in
their name, and that the Register of Deeds of Makati had already issued Transfer Certificate of Title No.
179802 in the name of the Spouses Espiritu. On 9 October 1992, the Spouses Landrito, represented by
their son Zoilo Landrito, filed an action for annulment or reconveyance of title, with damages against the
Spouses Espiritu before Branch 146 of the Regional Trial Court of Makati.9 Among the allegations in their
Complaint, they stated that the Spouses Espiritu, as creditors and mortgagees, "imposed interest rates
that are shocking to one's moral senses."10

The trial court dismissed the complaint and upheld the validity of the foreclosure sale. The trial court
ordered in its Decision, dated 13 December 1995:11

WHEREFORE, all the foregoing premises considered, the herein complaint is hereby dismissed forthwith.

Without pronouncements to costs.

The Spouses Landrito appealed to the Court of Appeals pursuant to Rule 41 of the 1997 Rules of Court.
In its Decision dated 31 August 2005, the Court of Appeals reversed the trial court's decision, decreeing
that the five percent (5%) interest imposed by the Spouses Espiritu on the first month and the varying
interest rates imposed for the succeeding months contravened the provisions of the Real Estate Mortgage
contract which provided that interest at the legal rate, i.e., 12% per annum, would be imposed. It also
ruled that although the Usury Law had been rendered ineffective by Central Bank Circular No. 905, which,
in effect, removed the ceiling rates prescribed for interests, thus, allowing parties to freely stipulate
thereon, the courts may render void any stipulation of interest rates which are found iniquitous or
unconscionable. As a result, the Court of Appeals set the interest rate of the loan at the legal rate, or 12%
per annum.12

Furthermore, the Court of Appeals held that the action for reconveyance, filed by the Spouses Landrito, is
still a proper remedy. Even if the Spouses Landrito failed to redeem the property within the one-year
redemption period provided by law, the action for reconveyance remained as a remedy available to a
landowner whose property was wrongfully registered in another's name since the subject property has not
yet passed to an innocent purchaser for value.13

In the decretal portion of its Decision, the Court of Appeals ruled14 :

WHEREFORE, the instant appeal is hereby GRANTED. The assailed Decision dated December 13, 1995
of the Regional Trial Court of Makati, Branch 146 in Civil Case No. 92-2920 is hereby REVERSED and
SET ASIDE, and a new one is hereby entered as follows: (1) The legal rate of 12% per annum is hereby
FIXED to be applied as the interest of the loan; and (2) Conditioned upon the payment of the loan,
defendants-appellees spouses Zoilo and Primitiva Espiritu are hereby ordered to reconvey Transfer
Certificate of Title No. S-48948 to appellant spouses Maximo and Paz Landrito.

The case is REMANDED to the Trial Court for the above determination.

Hence, the present petition. The following issues were raised:15

THE HONORABLE COURT OF APPEALS ERRED IN REVERSING AND SETTING ASIDE THE
DECISION OF THE TRIAL COURT AND ORDERING HEREIN PETITIONERS TO RECONVEY
TRANSFER CERTIFICATE OF TITLE NO. 18918 TO HEREIN RESPONDENTS, WITHOUT ANY
FACTUAL OR LEGAL BASIS THEREFOR.

II
THE HONORABLE COURT OF APPEALS ERRED IN FINDING THAT HEREIN PETITIONERS
UNILATERALLY IMPOSED ON HEREIN RESPONDENTS THE ALLEGEDLY UNREASONABLE
INTERESTS ON THE MORTGAGE LOANS.

III

THE HONORABLE COURT OF APPEALS ERRED IN NOT CONSIDERING THAT HEREIN

RESPONDENTS' ATTORNEY-IN-FACT IS NOT ARMED WITH AUTHORITY TO FILE AND
PROSECUTE THIS CASE.

The petition is without merit.

The Real Estate Mortgage executed between the parties specified that "the principal indebtedness shall
earn interest at the legal rate." The agreement contained no other provision on interest or any fees or
charges incident to the debt. In at least three contracts, all designated as Amendment of Real Estate
Mortgage, the interest rate imposed was, likewise, unspecified. During his testimony, Zoilo Espiritu
admitted that the increase in the principal in each of the Amendments of the Real Estate Mortgage
consists of interest and charges. The Spouses Espiritu alleged that the parties had agreed on the interest
and charges imposed in connection with the loan, hereunder enumerated:

1. P17,500.00 was the interest charged for the first month and P7,500.00 was imposed as service fee.

2. P35,000.00 interest and charges, or the difference between the P350,000.00 principal in the Real
Estate Mortgage dated 5 September 1986 and the P385,000.00 principal in the Amendment of the Real
Estate Mortgage dated 29 December 1986.

3. P132,000.00 interest and charges, or the difference between the P385,000.00 principal in the
Amendment of the Real Estate Mortgage dated 29 December 1986 and the P507,000.00 principal in the
Amendment of the Real Estate Mortgage dated 29 July 1987.

4. P140,000.00 interest and charges, or the difference between the P507,000.00 principal in the
Amendment of the Real Estate Mortgage dated 29 July 1987 and the P647,000.00 principal in the
Amendment of the Real Estate Mortgage dated 11 March 1988.

5. P227,125.00 interest and charges, or the difference between the P647,000.00 principal in the
Amendment of the Real Estate Mortgage dated 11 March 1988 and the P874,125 principal in the
Amendment of the Real Estate Mortgage dated 21 October 1988.

The total interest and charges amounting to P559,125.00 on the original principal of P350,000 was
accumulated over only two years and one month. These charges are not found in any written agreement
between the parties. The records fail to show any computation on how much interest was charged and
what other fees were imposed. Not only did lack of transparency characterize the aforementioned
agreements, the interest rates and the service charge imposed, at an average of 6.39% per month, are
excessive.

In enacting Republic Act No. 3765, known as the "Truth in Lending Act," the State seeks to protect its
citizens from a lack of awareness of the true cost of credit by assuring the full disclosure of such costs.
Section 4, in connection with Section 3(3)16 of the said law, gives a detailed enumeration of the specific
information required to be disclosed, among which are the interest and other charges incident to the
extension of credit. Section 617 of the same law imposes on anyone who willfully violates these provisions,
sanctions which include civil liability, and a fine and/or imprisonment.
Although any action seeking to impose either civil or criminal liability had already prescribed, this Court
frowns upon the underhanded manner in which the Spouses Espiritu imposed interest and charges, in
connection with the loan. This is aggravated by the fact that one of the creditors, Zoilo Espiritu, a lawyer,
is hardly in a position to plead ignorance of the requirements of the law in connection with the
transparency of credit transactions. In addition, the Civil Code clearly provides that:

Article 1956. No interest shall be due unless it has been stipulated in writing.

The omission of the Spouses Espiritu in specifying in the contract the interest rate which was actually
imposed, in contravention of the law, manifested bad faith.

In several cases, this Court has been known to declare null and void stipulations on interest and charges
that were found excessive, iniquitous, and unconscionable. In the case of Medel v. Court of Appeals,18 the
Court declared an interest rate of 5.5% per month on a P500,000.00 loan to be excessive, iniquitous,
unconscionable and exorbitant. Even if the parties themselves agreed on the interest rate and stipulated
the same in a written agreement, it nevertheless declared such stipulation as void and ordered the
imposition of a 12% yearly interest rate. In Spouses Solangon v. Salazar,19 6% monthly interest on
a P60,000.00 loan was likewise equitably reduced to a 1% monthly interest or 12% per annum. In Ruiz v.
Court of Appeals,20 the Court found a 3% monthly interest imposed on four separate loans with a total
of P1,050,000.00 to be excessive and reduced the interest to a 1% monthly interest or 12% per annum.

In declaring void the stipulations authorizing excessive interest and charges, the Court declared that
although the Usury Law was suspended by Central Bank Circular No. 905, s. 1982, effective on 1 January
1983, and consequently parties are given a wide latitude to agree on any interest rate, nothing in the said
Circular grants lenders carte blanche authority to raise interest rates to levels which will either enslave
their borrowers or lead to a hemorrhaging of their assets.21

Stipulation authorizing iniquitous or unconscionable interests are contrary to morals, if not against the law.
Under Article 1409 of the Civil Code, these contracts are inexistent and void from the beginning. They
cannot be ratified nor the right to set up their illegality as a defense be waived.22 The nullity of the
stipulation on the usurious interest does not, however, affect the lender's right to recover the principal of
the loan.23 Nor would it affect the terms of the real estate mortgage. The right to foreclose the mortgage
remains with the creditors, and said right can be exercised upon the failure of the debtors to pay the debt
due. The debt due is to be considered without the stipulation of the excessive interest. A legal interest of
12% per annum will be added in place of the excessive interest formerly imposed.

While the terms of the Real Estate Mortgage remain effective, the foreclosure proceedings held on 31
Ocotber 1990 cannot be given effect. In the Notice of Sheriff's Sale24 dated 5 October 1990, and in the
Certificate of Sale25 dated 31 October 1990, the amount designated as mortgage indebtedness amounted
to P874,125.00. Likewise, in the demand letter26 dated 12 December 1989, Zoilo Espiritu demanded from
the Spouses Landrito the amount of P874,125.00 for the unpaid loan. Since the debt due is limited to the
principal of P350,000.00 with 12% per annum as legal interest, the previous demand for payment of the
amount of P874,125.00 cannot be considered as a valid demand for payment. For an obligation to
become due, there must be a valid demand.27 Nor can the foreclosure proceedings be considered valid
since the total amount of the indebtedness during the foreclosure proceedings was pegged
at P874,125.00 which included interest and which this Court now nullifies for being excessive, iniquitous
and exorbitant. If the foreclosure proceedings were considered valid, this would result in an inequitable
situation wherein the Spouses Landrito will have their land foreclosed for failure to pay an over-inflated
loan only a small part of which they were obligated to pay.

Moreover, it is evident from the facts of the case that despite considerable effort on their part, the
Spouses Landrito failed to redeem the mortgaged property because they were unable to raise the total
amount, which was grossly inflated by the excessive interest imposed. Their attempt to redeem the
mortgaged property at the inflated amount of P1,595,392.79, as early as 30 October 1991, is reflected in
a letter, which creditor-mortgagee Zoilo Landrito acknowledged to have received by affixing his signature
herein.28 They also attached in their Complaint copies of two checks in the amounts of P770,000.00
and P995,087.00, both dated 13 January 1992, which were allegedly refused by the Spouses
Espiritu.29 Lastly, the Spouses Espiritu even attached in their exhibits a copy of a handwritten letter, dated
27 January 1994, written by Paz Landrito, addressed to the Spouses Espiritu, wherein the former offered
to pay the latter the sum of P2,000,000.00.30 In all these instances, the Spouses Landrito had tried, but
failed, to pay an amount way over the indebtedness they were supposed to pay - i.e., P350,000.00 and
12% interest per annum. Thus, it is only proper that the Spouses Landrito be given the opportunity to
repay the real amount of their indebtedness.

Since the Spouses Landrito, the debtors in this case, were not given an opportunity to settle their debt, at
the correct amount and without the iniquitous interest imposed, no foreclosure proceedings may be
instituted. A judgment ordering a foreclosure sale is conditioned upon a finding on the correct amount of
the unpaid obligation and the failure of the debtor to pay the said amount.31 In this case, it has not yet
been shown that the Spouses Landrito had already failed to pay the correct amount of the debt and,
therefore, a foreclosure sale cannot be conducted in order to answer for the unpaid debt. The foreclosure
sale conducted upon their failure to pay P874,125 in 1990 should be nullified since the amount demanded
as the outstanding loan was overstated; consequently it has not been shown that the mortgagors - the
Spouses Landrito, have failed to pay their outstanding obligation. Moreover, if the proceeds of the sale
together with its reasonable rates of interest were applied to the obligation, only a small part of its original
loans would actually remain outstanding, but because of the unconscionable interest rates, the larger part
corresponded to said excessive and iniquitous interest.

As a result, the subsequent registration of the foreclosure sale cannot transfer any rights over the
mortgaged property to the Spouses Espiritu. The registration of the foreclosure sale, herein declared
invalid, cannot vest title over the mortgaged property. The Torrens system does not create or vest title
where one does not have a rightful claim over a real property. It only confirms and records title already
existing and vested. It does not permit one to enrich oneself at the expense of another.32 Thus, the decree
of registration, even after the lapse of one (1) year, cannot attain the status of indefeasibility.

Significantly, the records show that the property mortgaged was purchased by the Spouses Espiritu and
had not been transferred to an innocent purchaser for value. This means that an action for reconveyance
may still be availed of in this case.33

Registration of property by one person in his or her name, whether by mistake or fraud, the real owner
being another person, impresses upon the title so acquired the character of a constructive trust for the
real owner, which would justify an action for reconveyance.34 This is based on Article 1465 of the Civil
Code which states that:

Art. 1465. If property acquired through mistakes or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for benefit of the person from whom the property comes.

The action for reconveyance does not prescribe until after a period of ten years from the date of the
registration of the certificate of sale since the action would be based on implied trust.35 Thus, the action
for reconveyance filed on 31 October 1992, more than one year after the Sheriff's Certificate of Sale was
registered on 9 January 1991, was filed within the prescription period.

It should, however, be reiterated that the provisions of the Real Estate Mortgage are not annulled and the
principal obligation stands. In addition, the interest is not completely removed; rather, it is set by this Court
at 12% per annum. Should the Spouses Landrito fail to pay the principal, with its recomputed interest
which runs from the time the loan agreement was entered into on 5 September 1986 until the present,
there is nothing in this Decision which prevents the Spouses Espiritu from foreclosing the mortgaged
property.
The last issue raised by the petitioners is whether or not Zoilo Landrito was authorized to file the action for
reconveyance filed before the trial court or even to file the appeal from the judgment of the trial court, by
virtue of the Special Power of Attorney dated 30 September 1992. They further noted that the trial court
and the Court of Appeals failed to rule on this issue.36

The Special Power of Attorney37 dated 30 September 1992 was executed by Maximo Landrito, Jr., with
the conformity of Paz Landrito, in connection with the mortgaged property. It authorized Zoilo Landrito:

2. To make, sign, execute and deliver corresponding pertinent contracts, documents, agreements and
other writings of whatever nature or kind and to sue or file legal action in any court of the Philippines, to
collect, ask demands, encash checks, and recover any and all sum of monies, proceeds, interest and
other due accruing, owning, payable or belonging to me as such owner of the afore-mentioned property.
(Emphasis provided.)

Zoilo Landrito's authority to file the case is clearly set forth in the Special Power of Attorney. Furthermore,
the records of the case unequivocally show that Zoilo Landrito filed the reconveyance case with the full
authority of his mother, Paz Landrito, who attended the hearings of the case, filed in her behalf, without
making any protest.38 She even testified in the same case on 30 August 1995. From the acts of Paz
Landrito, there is no doubt that she had authorized her son to file the action for reconveyance, in her
behalf, before the trial court.

IN VIEW OF THE FOREGOING, the instant Petition is DENIED. This Court AFFIRMS the assailed
Decision of the Court of Appeals, promulgated on 31 August 2005, fixing the interest rate of the loan
between the parties at 12% per annum, and ordering the Spouses Espiritu to reconvey the subject
property to the Spouses Landrito conditioned upon the payment of the loan together with herein fixed rate
of interest. Costs against the petitioners.

SO ORDERED.