THIRD DIVISION

G.R. No. 230817, September 04, 2019

VIVE EAGLE LAND, INC., PETITIONER, v. NATIONAL HOME MORTGAGE

FINANCE CORPORATION, JOSEPH PETER S. SISON, AND CAVACON
CORPORATION, RESPONDENTS.

DECISION

PERALTA, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
assailing the Decision1 dated August 23, 2016 and the Resolution2 dated March 30, 2017 of the
Court of Appeals (CA) in CA-G.R. CV No. 105312, which affirmed the Decision3 dated
September 18, 2014 of the Regional Trial Court (RTC), Branch 138, Makati City and the
Order4 dated June 15, 2015 of the RTC, Branch 139, Makati City, in Civil Case No. 06-308.

The antecedent facts are as follows.

On April 18, 2006, petitioner Vive Eagle Land, Inc., a corporation engaged in the realty business
and represented by its President, Virgilio O. Cervantes, filed a complaint for declaration of
nullity of rescission, declaration of suspension of payment of purchase price and interest, and
other reliefs against respondents National Home Mortgage Finance Corporation (NHMFC), a
government corporation created by virtue of Presidential Decree No. 1267, Joseph Peter S.
Sison, President of NHMFC, and Cavacon Corporation, a domestic corporation engaged in the
business of construction. In its complaint, Vive alleged that on November 17, 1999, it entered
into a Deed of Sale of Rights, Interests, and Participation Over Foreclosed Assets, whereby it
agreed to purchase NHMFC's rights, interests, and participation in the foreclosed property
of Alyansa ng mga Maka-Maralitang Asosasyon at Kapatirang Organisasyon, Inc. located at
Barangay Sta. Catalina, Angeles City, with an area of 73.5565 hectares covered by Transfer
Certificate of Title (TCT) Nos. 86340 and 86341 for a total purchase price of P40,000,000.00
payable in the following manner: (1) the amount of P8,000,000.00 as 20% downpayment payable
in two equal installments, the first of which shall be due on or before December 4, 1999, and the
second, from the execution of the Deed of Conditional Sale, but in no case shall be later than
January 4, 2000; and (2) the balance of P32,000,000.00 shall be paid in 10 equal installments in
the amount of P3,200,000.00 per installment, plus 14% interest per annum, with the first
installment due on July 4, 2000 and every 6 months thereafter until fully paid. Pursuant to the
Deed of Sale, Vive paid the first installment of the downpayment in the amount of
P4,000,000.00.5

Vive, however, did not pay the subsequent installments. According to Vive, it failed to pay
because it was prevented from exercising its right to avail of a developmental loan under Section
8 of the Deed of Sale due to issues on the subject property, particularly: (1) the issuance of
numerous certificates of land awards over the same; and (2) the classification of the same as
agricultural, subjecting it to the coverage of the Comprehensive Agrarian Reform Program
(CARP).6 While awaiting the resolution of said issues, Vive requested NHMFC for a moratorium
or suspension of the period of payment, the corresponding waiver of interest, and a 10%
reduction of the purchase price for litigation costs it incurred. On June 17, 2004, NHMFC,
through its then President, Atty. Angelico T. Salud, initially agreed on the moratorium but
advised Vive to submit its request of waiver and interest reduction to the NHMFC's Board of
Directors.

Notwithstanding the agreement, NHMFC, through Sison, notified Vive through a letter dated
February 10, 2006 of the rescission/cancellation and/or revocation of the Deed of Sale due to the
alleged non-payment of the balance of the purchase price. It reiterated its decision to rescind in
another letter dated February 27, 2006. Said non-payment by Vive of the subsequent installments
became NHMFC's defense in its Answer to Vive's complaint. According to NHMFC, its decision
to rescind the Deed of Sale was valid in view of Vive's refusal to pay the subject installments.
Moreover, since Vive was well aware of the condition of the property prior to its purchase, it was
not justified in suspending its payment of the purchase price.

Vive amended its complaint arguing that without its knowledge and consent, NHMFC and
Cavacon, in bad faith, entered into a Memorandum of Agreement on August 7, 2008 by virtue of
which NHMFC sold the subject property on an "as is-where is" basis to Cavacon for
P35,000,000.00 despite the pendency of the instant case and Cavacon's knowledge of the prior
sale. NHMFC countered that by virtue of Section 5 of the Deed of Sale, it had the right to rescind
the Deed of Sale due to Vive's continuous failure to pay the purchase price and to thereafter
freely dispose of the subject property as if the Deed of Sale has never been made.8

On September 18, 2014, the RTC of Makati City, Branch 138, dismissed Vive's complaint,
finding NHMFC's rescission of the Deed of Sale to be valid. 9 It disposed of the case as
follows:cralawred

WHEREFORE, in view of the foregoing, finding the rescission of the Deed of Sale to be valid,
the complaint filed by the plaintiff Vive Eagle Land, Inc. against defendants National Home
Mortgage Finance Corporation, Joseph Peter S. Sison and defendant Cavacon for Declaration of
Nullity of Rescission, Declaration of Suspension of Payment of Purchase Price and Interest and
Other Reliefs is hereby DISMISSED for lack of merit.

SO ORDERED.10

On Vive's motion, however, the Presiding Judge of Branch 138 inhibited himself and ordered the
re-raffling of the case. Subsequently, the case was raffled to the RTC Branch 133 which, on
January 13, 2015, granted Vive's motion for reconsideration, declaring null and void NHMFC's
rescission of the Deed of Sale, declaring Vive as the owner of the property, declaring due and
demandable the subsequent installments of the downpayment without interest, and ordering
NHMFC to pay attorney's fees and litigation expenses. The dispositive portion of the Order
provides:cralawred
WHEREFORE, foregoing considered, the Motion for Reconsideration of the plaintiff is
GRANTED, the Decision dated September 18, 2014 is REVERSED and SET ASIDE, judgment
is hereby rendered against the defendants and in favour of the plaintiff as follows:cralawred

a. declaring NULL and VOID defendant NHMFC's rescission/cancellation of the

Deed of Sale dated November 17, 1999 between plaintiff VELI and defendant
NHMFC;

b. declaring VALID and SUBSISTING the Deed of Sale dated November 17, 1999
between plaintiff VELI and defendant NHMFC;

c. declaring plaintiff VELI as the OWNER of the subject properties covered by

Deed of Sale dated November 17, 1999;

d. declaring DUE and DEMANDABLE the second installment of the downpayment

under Section 1.01 of the Deed of Sale without imposition of any interest or
penalty within thirty (30) days from plaintiffs receipt of this Order;

e. declaring VALID and SUBSISTING the schedule of payments under Section 1.02
of the Deed of Sale with the first ten (10) equal semi-annual installments in the
amount of THREE MILLION TWO HUNDRED THOUSAND PESOS
(P3,200,000.00) to be paid six (6) months after payment of the second installment
of the downpayment under Section 1.01, and the subsequent ones every six (6)
months thereafter without imposition of any interest or penalty; and

f. ordering defendants, jointly and severally, to pay plaintiff attorney's fees and
litigation expenses in the amount of FIVE HUNDRED THOUSAND PESOS
(P500,000.00) and costs of suit.

SO ORDERED.11

Pursuant to the court's Order, Vive tendered the second installment of the downpayment in the
amount of P4,000,000.00 to NHMFC which refused to accept. Thereafter, on NHMFC's motion,
the Presiding Judge of Branch 133 voluntarily inhibited himself and again ordered the re-raffling
of the case, which was next raffled to RTC Branch 139. In an Order 12 dated June 15, 2015, said
court granted NHMFC's motion for reconsideration and reinstated the Decision of RTC Branch
138 finding NHMFC's rescission valid. Thus:cralawred

WHEREFORE, IN LIGHT OF THE FOREGOING, the defendants' Motions for Reconsideration

both filed on 5 February 2015 are hereby GRANTED. The Order of this Court (Branch 133)
dated 13 January 2015, which granted the Motion of Reconsideration filed by plaintiff VELI,
reversed and set aside its (Branch 138) Decision dated 18 September 2014 and rendered
judgment against the defendants and in favor of plaintiff, is RECONSIDERED AND SET
ASIDE. The Decision of this Court (Branch 138) dated 18 September 2014 finding the rescission
of the Deed of Sale to be valid and dismissing for lack of merit the complaint filed by the
plaintiff Vive Eagle Land, Inc. against defendants National Home Mortgage Finance
Corporation, Joseph Peter S. Sison and defendant Cavacon for Declaration of Nullity of
Suspension of Payment of Purchase Price and Interest and Other Reliefs, is hereby
REINSTATED.

Furnish copies of this Order to the plaintiff, the defendants and their respective counsels.

SO ORDERED."

In a Decision dated August 23, 2016, the CA affirmed the Decision of the RTC Branch
139. First, the appellate court held that Vive's failure to pay the purchase price on the date and in
the manner prescribed by the Deed of Sale is an event of default giving NHMFC the right to
annul/cancel the contract and forfeiting whatever right Vive may have acquired thereunder
pursuant to Section 5 thereof.14Second, it is clear from Section 715 of the Deed of Sale that the
parties intended their agreement to be a contract to sell or a conditional sale. The title to the
property was not immediately transferred, through a formal deed of conveyance, in the name of
Vive prior to or at the time of the first payment. Thus, since the title and ownership remains with
NHMFC until Vive fully pays the balance of the purchase price, the Deed of Sale was merely a
contract to sell. As such, NHMFC can validly exercise its right to annul and/or cancel the Deed
of Sale upon failure of Vive to pay the purchase price on the date and manner prescribed. Thus,
considering that the Deed of Sale was validly annulled and/or cancelled, the subsequent
transaction and MOA entered into between NHMFC and Cavacon is valid.16

Moreover, the appellate court, in its Resolution dated March 30, 2017, rejected Vive's contention
that NHMFC's grant of the moratorium was proven through a letter dated June 17, 2004 when
Atty. Salud, then President of NHMFC, initially agreed to the moratorium on the collection
period for the balance of the purchase price. 17 It found nothing in the records to indicate that the
NHMFC Board of Directors approved the undertaking made by Atty. Salud. Thus, since it was
unilaterally granted without board approval, the CA denied Vive's motion for reconsideration.18

On May 22, 2017, Vive filed a Petition for Review on Certiorari before the Court assailing the
Decision of the CA. It invoked the following arguments:cralawred

I.

THE COURT OF APPEALS COMMITTED MANIFEST ERROR AND DEVIATED FROM

ESTABLISHED LAW AND JURISPRUDENCE WHEN IT FOUND THAT THE DEED OF
SALE OF RIGHTS, INTERESTS, AND PARTICIPATION OVER FORECLOSED ASSETS
DATED 17 NOVEMBER 1999 EXECUTED BETWEEN PETITIONER AND RESPONDENT
[NHMFC] WAS A CONTRACT TO SELL AND NOT A CONTRACT OF SALE
CONSIDERING THAT THERE WAS AN ABSOLUTE TRANSFER OF OWNERSHIP OF
THE SUBJECT MATTER OF THE SALE TO PETITIONER UPON EXECUTION THEREOF.

II.
THE COURT OF APPEALS COMMITTED MANIFEST ERROR AND DEVIATED FROM
ESTABLISHED LAW AND JURISPRUDENCE WHEN IT FOUND PETITIONER IN
DEFAULT CONSIDERING THAT THERE WAS A MORATORIUM ON THE
COLLECTION ON THE BALANCE OF THE PURCHASE PRICE OF THE AMAKO
PROPERTY.

III.

THE COURT OF APPEALS COMMITTED MANIFEST ERROR AND DEVIATED FROM

ESTABLISHED LAW AND JURISPRUDENCE WHEN IT UPHELD THE RESCISSION OF
THE DEED OF SALE OF RIGHTS, INTERESTS, AND PARTICIPATION OVER
FORECLOSED ASSETS DATED 17 NOVEMBER 1999 CONSIDERING THAT THERE
WAS NO SUBSTANTIAL BREACH THEREOF.

IV.

THE COURT OF APPEALS COMMITTED MANIFEST ERROR AND DEVIATED FROM

ESTABLISHED LAW AND JURISPRUDENCE WHEN IT EFFECTIVELY UPHELD THE
VALIDITY OF THE MEMORANDUM OF AGREEMENT DATED 07 AUGUST 2008
ENTERED INTO BY RESPONDENT [NHMFC] AND [RESPONDENT] CAVACON
CORPORATION AND WAS NOT ENTERED INTO IN BAD FAITH.

V.

THE COURT OF APPEALS COMMITTED MANIFEST ERROR AND DEVIATED FROM

ESTABLISHED LAW AND JURISPRUDENCE WHEN IT EFFECTIVELY UPHELD THE
DISMISSAL OF PETITIONER'S CLAIM FOR ATTORNEY'S FEES. 19

First, Vive alleged that the Deed of Sale is a valid contract of sale which absolutely transferred
to Vive all of NHMFC's rights, interests, and participation over the property. The fact that the
contract is bereft of any provision requiring NHMFC to execute a Deed of Absolute Sale in order
to transfer ownership to Vive indicates that there was no intention to retain ownership by
NHMFC. Had the parties intended on a contract to sell, there would not have been a necessity to
annul/cancel a Deed of Sale to allow NHMFC to dispose the property upon default for basic is
the rule that contracts to sell need not be annulled for non-payment since such payment is a
positive suspensive condition, failure of which is not really a breach, but an event that prevents
the obligation of NHMFC to convey title from arising.

Second, even assuming that the Deed of Sale is a contract to sell, Vive was never in default to
pay the balance of the purchase price. It was an essential consideration of the contract for Vive to
be able to use the property as collateral for a loan to develop the same into a residential
subdivision. But Vive discovered issues, such as the coverage of the CARP, affecting the
property after the execution of the Deed of Sale rendering it impossible for Vive to use the same
as intended. Thus, further payments are suspended pending resolution of the DARAB of the
issues affecting the property. Vive added that since NHMFC itself, in failing to assist Vive with
the litigation on the subject property, prevented Vive from obtaining the loan to pay the balance
of the purchase price, Vive should be considered as having constructively fulfilled its obligation
in view of Article 1186 of the Civil Code which provides that the condition shall be deemed
fulfilled when the obligor voluntarily prevents its fulfilment.20

Third, Vive further argued that it could not have been in default as it was validly granted a
moratorium. Contrary to the CA's finding that there is nothing in the June 17, 2004 letter that
would indicate NHMFC's acquiescence to said moratorium, Vive cited the portion of said letter
which states that "In line with our discussion, we initially agreed for a moratorium on the
collection period, we cannot, however, favorably consider your request for discount on purchase
price and waiver of interest and penalties without prior approval from our Board." According to
Vive, the matter that would be referred for board approval was the request for discount and
waiver of interests. There was no mention, however, of the necessity to secure approval for the
moratorium. Moreover, Vive added that even NHMFC's actuations showed that it consented to
the moratorium since it only demanded payment in its letter dated February 10, 2006, under its
new President, Sison, despite the fact that the second installment was scheduled as early as
January 4, 2000 and the first 10 semi-annual installments was scheduled on July 4, 2000. 21 Thus,
such inaction was an affirmation that there was a valid moratorium.

Fourth, Vive maintained that since there was a valid and subsisting moratorium suspending
payment of the purchase price until resolution of the DARAB cases, it did not commit any
breach of contract that supposedly entitled NHMFC to unilaterally rescind the Deed of Sale. In
fact, Vive points out that in its letter to NHMFC, dated July 4, 2005, it categorically thanked
NHMFC for the moratorium it granted. Despite this, NHMFC never replied to said letter.
Clearly, NHMFC had full and actual knowledge of the moratorium and did not deny nor
repudiate the same. It is, therefore, now estopped from denying its existence and validity.22

Fifth, Vive asseverated that the subsequent MOA between NHMFC and Cavacon whereby
NHMFC sold the subject property to Cavacon was entered into in bad faith because of the fact
that they entered into said contract despite their full knowledge of the instant case. In fact, they
even conveniently entered into the MOA on August 7, 2008, after the issues over the property
have been removed, as when the CLOAs over the property have been decreed cancelled with
finality by the Court on March 17, 2008.23

In a Resolution24 dated June 7, 2017, the Court denied Vive's Petition for Review
on Certiorari for failure to sufficiently show any reversible error in the assailed judgment of the
CA to warrant the exercise of discretionary appellate jurisdiction.

On July 19, 2017, Vive filed a Motion for Reconsideration praying that the Court take a second
look at the circumstances of the case, especially considering that the lower courts themselves are
at odds with one another as to how the issues should be resolved. 25 Aside from reiterating its
arguments in the Petition, Vive alleged for the first time that since the Deed of Sale contemplates
the sale of two (2) parcels of land which are not classified as commercial or industrial, the
payment for which is to be made in installments, the Court should take judicial notice of
Republic Act (R.A.) No. 6552, known as the Realty Installment Buyer Act or the Maceda Law.
Thus, in view of the fact that NHMFC's cancellation failed to comply with the Act's mandatory
twin requirements of a notarized notice of cancellation and a refund of the cash surrender value,
the Deed of Sale remains valid and subsisting. 26 Vive added that even assuming that the
rescission effected by NHMFC was valid, the lower courts should have ordered mutual
restitution and that the parties surrender that which they received, and to place each other in their
original position. NHMFC has no basis to lay claim on and reap the benefits of Vive's labor to
cleanse the title of the property from any and all adverse claims.27

On October 25, 2017, respondents NHMFC and Cavacon filed their Comment refuting the
arguments raised by Vive in its Motion for Reconsideration. First, they maintained that the Deed
of Sale is a conditional sale or contract to sell for as expressly stipulated by Vive in its Offer to
Purchase, the downpayment shall be payable within a few days from the signing of a "Deed of
Conditional Sale."28 This is also shown by the fact that the original duplicate copies of the titles
were not delivered to Vive.

Second, respondents insist that there was no valid moratorium on the collection period. Since
Atty. Salud, in initially agreeing to a moratorium, did not secure prior board approval, said
moratorium is unenforceable against NHMFC. Moreover, citing the ruling of the RTC, Branch
138, respondents assert that while it may be true that Atty. Salud granted a moratorium on the
schedule of payments, but such grant cannot extend beyond the end of the term on January 4,
2005, or until the resolution of the legal issues affecting the property, because this would make
the terms of the payment indefinite, in contravention of Article 1182 of the Civil Code which
states that "when the fulfillment of the condition depends upon the sole will of the debtor, the
conditional obligation shall be void."29 In addition, respondents reject Vive's invocation of
apparent authority, equitable estoppel, and laches in the absence of supporting evidence
presented during trial. The government is not bound by unauthorized acts of its agent, even
though within the apparent scope of their authority.30 Also, Vive failed to adduce evidence
during trial to show that NHMFC had, indeed, clothed Atty. Salud with apparent power to grant
the moratorium by presenting evidence that Atty. Salud, had, in the past, granted similar
moratoriums in Vive's or other parties' favor. Furthermore, NHMFC's silence and lack of effort
in collecting installments does not amount to implied ratification of Atty. Salud's unauthorized
grant of moratorium because for an act of the principal to be considered as ratification, such act
must be inconsistent with any other hypothesis than that he approved and intended to adopt what
has been done in his name.31

Third, respondents asseverate that the Deed of Sale was validly rescinded on the ground of
substantial violation of the terms thereof by failing to pay the purchase price within the stipulated
period. Vive cannot unilaterally make its principal obligation to pay conditional on the resolution
of the issues affecting the properties. 32 Moreover, respondents point to the absence of evidence
that Vive had asked NHMFC for some documents needed for the resolution of the DARAB cases
nor was there evidence showing that Vive ever attempted to apply for a loan after the execution
of the Deed of Sale. In addition, contrary to Vive's contention, respondents allege that the
Maceda Law is inapplicable to the instant case for the same covers transactions involving the
sale of real estate on installment payments where the buyer has paid at least 2 years of
installments. Here, Vive has only paid the first installment of P4 million. Because of Vive's
failure to pay and NHMFC's valid rescission of the contract, Vive had forfeited whatever rights it
might have acquired over the properties and has no right to ask for the refund of the P4 million
pursuant to Section 5.2 of the Deed of Sale which provides that "the sums of money paid shall be
considered and treated as rentals for the occupancy and use of the property and VENDEE waives
all rights to ask or demand the return thereof."33 Respondents add that as stipulated in the Offer
to Purchase and the Deed of Sale, Vive was fully aware of the limiting conditions inherent in the
properties and the legal problems affecting the same. Thus, it is not entitled to the reimbursement
for expenses it incurred in the litigation of the same.34

Fourth, respondents argue that the MOA was entered into in good faith, citing the ruling of the
RTC, Branch 139, which held that Cavacon disclosed to Vive the fact that it entered into the
MOA in its Answer to Vive's Amended Complaint, while NHMFC disclosed the same in its
Opposition to the Motion to Admit the Amended Complaint. As to Vive's assertion that NHMFC
conveniently sold the property to Cavacon only after the legal issues affecting it had been
resolved, respondents allege that Vive failed to present any supporting evidence to show when
respondents became aware to the said decision of the Court.35

On October 20, 2017, respondent Sison filed its own, separate Comment 36 essentially refuting the
arguments raised by Vive in its Motion for Reconsideration and declaring that the Court should
not allow Vive to make allegations that are a mere rehash of the ones taken up in the proceedings
below and to raise entirely new issues not agreed to a pre-trial nor taken up during trial. On
October 25, 2017, Vive filed its Reply 37 refuting the allegations in respondents' Comment.
Thereafter, on November 8, 2017, NHMFC and Cavacon filed a Manifestation and Motion
seeking to have the Comment filed by respondent Sison and the Reply filed by Vive in response
thereto be expunged from the records of the case because they tend to mislead, confuse, and
waste the time of the Court. NHMFC and Cavacon assert that Sison's Comment came as a
surprise for neither they, nor their counsel, who was also Sison's counsel, were informed that he
was getting a separate counsel to file his own Comment. On November 24, 2017, Vive filed its
Reply to the Comment of NHMFC and Cavacon. In response, NHMFC and Cavacon filed their
Rejoinder on November 29, 2017. Likewise, Sison filed his Rejoinder on December 1, 2017.
Thereafter, in a Counter-Manifestation filed also on December 1, 2017, Sison rejects the
allegations of NHMFC and Cavacon stating that he has all the right to choose, engage, and be
represented by a primary or collaborating counsel either in his personal or private capacity,
having been resigned from NHMFC as President thereof. In its Reply filed on December 27,
2017, Vive alleged that since Sison's co-respondents as well as his original counsels were
blindsided by the sudden appearance of new collaborating counsel, the same is irregular, illegal,
and unauthorized, and should be expunged from the records.

In a Resolution38 dated April 18, 2018, the Court resolved to grant Vive's Motion for
Reconsideration, giving due course to the Petition for Review on Certiorari, and to require
respondents to file their comments on said petition. After an exchange of pleadings wherein the
parties essentially reiterated their arguments in their respective Comments and Rejoinders, the
Court shall now resolve the conflicting issues presented by the parties.

We rule in favor of the respondents.

At the outset, the Court sustains the appellate court's finding that the nature of the agreement
between the parties herein is one akin to a contract to sell. A contract to sell is defined as a
bilateral contract whereby the prospective seller, while expressly reserving the ownership of the
subject property despite delivery thereof to the prospective buyer, binds himself to sell the said
property exclusively to the latter upon his fulfillment of the conditions agreed upon, i.e., the full
payment of the purchase price and/or compliance with the other obligations stated in the contract
to sell. Given its contingent nature, the failure of the prospective buyer to make full payment
and/or abide by his commitments stated in the contract to sell prevents the obligation of the
prospective seller to execute the corresponding deed of sale to effect the transfer of ownership to
the buyer from arising. A contract to sell is akin to a conditional sale where the efficacy or
obligatory force of the vendor's obligation to transfer title is subordinated to the happening of a
future and uncertain event, so that if the suspensive condition does not take place, the parties
would stand as if the conditional obligation had never existed. In a contract to sell, the fulfillment
of the suspensive condition will not automatically transfer ownership to the buyer although the
property may have been previously delivered to him. The prospective seller still has to convey
title to the prospective buyer by entering into a contract of absolute sale. Conversely, in a
conditional contract of sale, the fulfillment of the suspensive condition renders the sale absolute
and the previous delivery of the property has the effect of automatically transferring the seller's
ownership or title to the property to the buyer.39

A plain and simple reading of the contract executed by the parties readily reveals that the same is
a contract to sell and not a contract of sale. Section 7 thereof provides:cralawred

Section 7. TITLE OF PROPERTY

Upon full payment by the VENDEE of the sales price of the rights, interest and participations
in the property and other sums due, the VENDOR shall execute a Certificate of [full payment)
and deliver the Duplicate Original Transfer Certificate of Title Nos. 86340 and 86341 to the
VENDEE. Expenses for the transfer of the title to VENDEE shall be for VENDEE's account.

As clearly stipulated above, it is only upon Vive's full payment of the purchase price shall
NHMFC be obligated to deliver the title to the property. Otherwise put, by virtue of the
aforequoted provision, NHMFC expressly reserved title and ownership of the subject property in
its name pending Vive's payment of the full amount even though possession thereof was already
granted in favor of Vive. It is, therefore, clear that the parties intended their agreement to be
merely a contract to sell, conditioned upon the full payment of the purchase price. Time and
again, the Court has ruled that in a contract of sale, the title to the property passes to the vendee
upon the delivery of the thing sold whereas in a contract to sell, the ownership is, by agreement,
retained by the vendor and is not to pass to the vendee until full payment of the purchase price.
In a contract of sale, the vendee's non payment of the price is a negative resolutory condition,
while in a contract to sell, the vendee's full payment of the price is a positive suspensive
condition to the coming into effect of the agreement. In the first case, the vendor has lost and
cannot recover the ownership of the property unless he takes action to set aside the contract of
sale. In the second case, the title simply remains in the vendor if the vendee does not comply
with the condition precedent of making payment at the time specified in the contract. Verily, in a
contract to sell, the prospective vendor binds himself to sell the property subject of the agreement
exclusively to the prospective vendee upon fulfilment of the condition agreed upon which is the
full payment of the purchase price but reserving to himself the ownership of the subject property
despite delivery thereof to the prospective buyer.41
On this matter, Vive insists that the subject contract is a contract of sale because of the following
paragraph therein:cralawred

NOW THEREFORE, for in consideration of the foregoing premises and the sum of FORTY
MILLION PESOS (P40,000,000.00) Philippine currency x x x VENDOR hereby SELLS,
TRANSFERS and CONVEYS to the VENDEE, whatever rights, interest, and participation the
VENDOR has over the above-described parcel of land and all the improvements found thereon
by way of negotiated sale x x x.

The contention is not completely accurate. A cursory reading of the above excerpt in its entirety
would show that the phrase "subject to the following terms and conditions:" was left out from the
citation. As such, Vive cannot argue that by virtue of the foregoing incomplete text, NHMFC
absolutely, unconditionally, and without reservation, sold its ownership over the subject property
because the same was categorically made "subject to the following terms and conditions," one of
which is Section 7 of the agreement. It is well to remember that contracts must always be read
and interpreted in its totality, never in isolation only to serve one's claims and interests.
Certainly, a more cohesive reading of the parties' agreement herein would lead to no other
conclusion than that NHMFC transferred to Vive its rights over the property subject to the
condition that the latter fully pays the balance of the purchase price.

It is of no moment that what Section 7 requires from NHMFC is the execution of a "Certificate
of Full Payment" and not a "Deed of Absolute Sale." The mere fact that it expressly states that
NHMFC shall deliver the titles to the property upon full payment of the purchase price suffices
to evince the intent of NHMFC to reserve ownership in its name. As pointed out by the CA, this
intention was sufficiently established by, and may reasonably inferred from, the fact that title to
the subject property was not immediately transferred, through a formal deed of conveyance, in
the name of Vive prior to or at the time of Vive's first payment of P4,000,000.00. 42 To the Court,
moreover, if Vive truly believed that by virtue of the subject contract, it was already acquiring
absolute ownership of the property, it should have already demanded the delivery of the
Duplicate Original Transfer Certificate of Title Nos. 86340 and 86341 right from the execution
of the same. What is more is that the parties even stipulated in their contract that it shall be
considered as an event of default should Vive subdivide, lease, sell, transfer, assign, or otherwise
dispose of the property without prior written consent of NHMFC. If, indeed, NHMFC absolutely
parted with the ownership of the property, it should no longer have any business insofar as Vive's
decisions relating to the property is concerned. Settled is the rule that ownership of a property
includes the right to enjoy and dispose of the thing owned without other limitations than those
established by law.43

It is, likewise, of no moment that the contract grants NHMFC the right to rescind the same as a
consequence of an event of default. Vive asserts that if the parties truly intended on a contract to
sell, there would not have been a necessity to annul or cancel the contract upon default in view of
the rule that contracts to sell need not be annulled for non-payment since such payment is a
positive suspensive condition, failure of which is not really a breach, but an event that prevents
the obligation of NHMFC to convey title from arising. The argument deserves scant
consideration. Instead, We concur with the appellate court in finding that it is immaterial that the
parties described the cancellation of the agreement as one of rescission, which is not available in
contracts to sell. The parties, as laymen, are understandably not adept in the legal terms and their
implications. At any rate, courts are not held captive by the conclusions of the parties in their
contracts. It is an established principle in law that a contract is what the law defines it to be and
not what the contracting parties call it.44

In its Petition, Vive further claims that even assuming that the Deed of Sale is a contract to sell,
it was never in default to pay the balance of the purchase price because further payments are
suspended pending resolution of the issues affecting the property. According to Vive, it was an
essential consideration of the contract for Vive to be able to use the property as collateral for a
loan to develop the same into a residential subdivision. But the issues surrounding the property
rendered it impossible for Vive to do so. In fact, NHMFC further prevented Vive from obtaining
the loan when it failed to assist with the litigation on the property. The assertion, however, fails
to persuade. On the contrary, a cursory reading of the agreement would reveal that Vive was in
truth aware of the nature of the property it was purchasing. The pertinent provisions explicitly
state:cralawred

WHEREAS, pursuant to the disposition policies under Board Resolution No. 2391, dated June
23, 1994, VENDOR was authorized to sell and convey whatever rights, interests, and
participation it has on "as is where is basis" the property of ALYANSA NO MGA MAKA
MARALITANG ASOSASYON AT KAPATIRANG ORGANISASYON, INC. (AMAKO), X X
X.

WHEREAS, VENDEE has full knowledge of the nature and extent of the VENDOR's
rights, interests, and participation over the foreclosed property subject of this contract
including pending litigation involving claims of alleged tenants to the property.

xxxx

Section 9. EJECTMENT

VENDEE at his own expense assumes responsibility of ejecting squatters and/or occupants
of the property, if any.

In view of the foregoing, Vive cannot be permitted to place the blame on NHMFC or the issues
affecting the property for its failure to comply with its obligation to pay when it explicitly
admitted in the contract its awareness thereof. Besides, as aptly pointed out by respondents, there
is nothing in the contract giving NHMFC the obligation to assist in the litigation of the issues
surrounding the property. Neither was there any evidence presented supporting the allegation
that NHMFC even prevented Vive from obtaining the developmental loan.

As for Vive's argument that it could not have been in default as it was validly granted a
moratorium, the same must necessarily fail. Vive consistently maintains that NHMFC, through
its then President, Atty. Salud, agreed on a moratorium on the collection period as evidenced by
Salud's June 17, 2004 letter. Vive cannot deny, however, that the alleged moratorium did not
have board approval. It is a fundamental principle in corporate law that a juridical entity cannot
act or give its consent except through its board of directors as a collective body, which is vested
with the power and responsibility to decide whether the corporation should enter into a contract
that will bind the corporation, subject to the Articles of Incorporation, By-Laws, or relevant
provisions of law.46 Section 23 of the Corporation Code provides:cralawred

SEC. 23. The board of directors or trustees. — Unless otherwise provided in this Code, the
corporate powers of all corporations formed under this Code shall be exercised, all business
conducted and all property of such corporations controlled and held by the board of directors or
trustees to be elected from among the holders of stocks, or where there is no stock, from among
the members of the corporation, who shall hold office for one (1) year and until their successors
are elected and qualified.

Thus, NHMFC, being a juridical person, cannot conduct its business, make decisions, or act in
any manner without action from its board of directors. Said board must act as a body in order to
exercise corporate powers.47 As such, no person, not even its officers, can validly bind a
corporation without the authority of the corporation's board of directors. Nevertheless, the
corporation may delegate through a board resolution its corporate powers or functions to a
representative, subject to limitations under the law and the corporation's articles of
incorporation.48 Accordingly, without delegation by the board of directors or trustees, acts of a
person — including those of the corporation's directors, trustees, shareholders, or officers —
executed on behalf of the corporation are generally not binding on the corporation.49 In view of
the absence of a resolution from NHMFC's Board of Directors authorizing Atty. Salud to grant
any kind of moratorium, We adopt with approval the CA's finding that NHMFC is not liable
under the same.

This notwithstanding, Vive argues that even granting that Atty. Salud did not have power to
grant a moratorium, his act can nevertheless bind NHMFC under the doctrine of apparent
authority. According to Vive, it cannot be faulted for relying on Atty. Salud's letter because
NHMFC made it appear that Salud was empowered to negotiate, administer, and execute the
subject Deed of Sale. Vive added that contrary to the findings of the trial court, NHMFC even
had knowledge of the moratorium granted in Vive's favor. This is shown by a July 4, 2005 letter
written by Vive thanking NHMFC for the moratorium on the collection period. Vive asserts that
said letter was addressed to Atty. Rustico P. Cacal, in his capacity as Senior Vice-President,
Corporate Legal Counsel, and Board Secretary. Thus, the knowledge gained by Atty. Cacal in
said capacity constitutes knowledge of NHMFC for basic is the rule that notice to the agent is
notice to the principal. In support of this contention, Vive cites Our ruling in Francisco v.
Government Service Insurance System (GSIS),50 where We held that "knowledge of facts
acquired by an officer or agent of a corporation in relation to matters within the scope of his
authority is notice to the corporation whether he communicates such knowledge or not."
Moreover, even assuming that Atty. Salud was not vested with apparent authority to grant a
moratorium, NHMFC is effectively estopped from denying the same in view of its silence
following the grant thereof. As shown by the records, NHMFC made no efforts to collect the
installments after the moratorium was granted.

The contention is devoid of merit.

The doctrine of apparent authority is a species of the doctrine of estoppel. Article 1431 of the
Civil Code provides that through estoppel, an admission or representation is rendered conclusive
upon the person making it and cannot be denied or disproved as against the person relying
thereon. Estoppel rests on the rule that when a party has, by his own declaration, act, or
omission, intentionally and deliberately led another to believe a particular thing true, and to act
upon such belief, he cannot, in any litigation arising out of such declaration, act or omission, be
permitted to falsify it.51 In certain instances, therefore, the Court has recognized presumed or
apparent authority or capacity to bind corporate representatives in cases when the corporation,
through its silence or other acts of recognition, allowed others to believe that persons, through
their usual exercise of corporate powers, were conferred with authority to deal on the
corporation's behalf.52

The present case, however, does not involve any of those instances. First of all, there is no proof
to show that Atty. Salud was, in truth, represented to be "the face" of NHMFC. As NHMFC
correctly maintained, Vive failed to adduce evidence during trial to establish that NHMFC had,
indeed, clothed Atty. Salud with apparent power to grant the moratorium or that Atty. Salud, had,
in the past, granted similar moratoriums in Vive's favor. It bears stressing, moreover, that even
the mere execution of the subject deed of sale was accomplished not by Atty. Salud, but by
NHMFC's then President Augusto A. Legasto, Jr.53 Second, just because Vive sent a letter to
Atty. Rustico P. Cacal, in his capacity as Senior Vice-President, Corporate Legal Counsel, and
Board Secretary, does not mean that NHMFC already had knowledge of the moratorium. While
it may be true that knowledge of an officer is considered knowledge of the corporation, this rule
applies only when the officer is acting within the authority given to him or her by the
corporation.54 In University of Mindanao, Inc. v. Bangko Sentral ng Pilipinas, We
ratiocinated:cralawred

The public should be able to rely on and be protected from the representations of a corporate
representative acting within the scope of his or her authority. This is why an authorized officer's
knowledge is considered knowledge of corporation. However, just as the public should be able
to rely on and be protected from corporate representations, corporations should also be
able to expect that they will not be bound by unauthorized actions made on their account.

Thus, knowledge should be actually communicated to the corporation through its

authorized representatives. A corporation cannot be expected to act or not act on a
knowledge that had not been communicated to it through an authorized representative.
There can be no implied ratification without actual communication. Knowledge of the
existence of contract must be brought to the corporation's representative who has authority
to ratify it. Further, "the circumstances must be shown from which such knowledge may be
presumed."

The Spouses Guillermo and Dolores Torres' knowledge cannot be interpreted as knowledge of
petitioner. Their knowledge was not obtained as petitioner's representatives. It was not shown
that they were acting for and within the authority given by petitioner when they acquired
knowledge of the loan transactions and the mortgages. The knowledge was obtained in the
interest of and as representatives of the thrift banks.
On the basis of the foregoing pronouncement, Atty. Cacal's alleged knowledge acquired through
a letter addressed to him cannot instantly be assumed as knowledge of NHMFC itself. This is
especially so in view of the fact that apart from its mere allegation, Vive failed to present any
evidence to establish that Atty. Cacal was actually appointed by the corporation as its authorized
representative. Neither did it present any explanation as to why it chose to send its "thank you"
letter to Atty. Cacal instead of the board of directors itself considering the fact that Atty. Salud,
in his June 17, 2004 letter, stated that he "will submit the request to the Board for consideration
and guidance" and that he "will seek authority to negotiate" with Vive. Said statements should
have already alerted Vive, an established business entity engaged in real estate, of the need for
board approval.

Unfortunately for Vive, moreover, it cannot rely on our ruling in Francisco. There, Francisco
sought the redemption of a property that GSIS acquired in a foreclosure proceeding due to the
failure of the former's daughter to pay the loan she obtained from the latter. Thus, he sent a
telegram of his proposal to the general manager of GSIS who, in turn, stated in another telegram
that the GSIS approved the proposal. In fulfillment of his proposed redemption scheme,
Francisco began remitting several amounts to GSIS, which received the same and issued
corresponding official receipts therefor. After a few months, however, GSIS sent Francisco a
letter demanding for the payment of the loan and informing the latter that the oneyear
redemption period had already expired. It also consolidated the title to the property in its name.
Aggrieved, Francisco filed a complaint alleging that the GSIS must honor their agreement in the
telegram he sent. In ruling in Francisco's favor, the Court held that first, the GSIS did not disown
its general manager's telegram of acceptance but only alleged mistake in the wording thereof.
Second, when Francisco made his first remittance to GSIS, he accompanied the same with a
telegram wherein he referred to the acceptance made by GSIS's general manager. This
notwithstanding, GSIS made no effort to correct the telegram of acceptance as it later on claimed
to be erroneous. More importantly, it even received the payments made by Francisco. Thus, the
Court ruled that this silence, taken together with the unconditional acceptance of three other
subsequent remittances from [Francisco], constitutes in itself a binding ratification of the original
agreement.56

The same cannot be said in this case, however, under the obtaining undisputed facts. Unlike
GSIS, NHMFC never accepted any form of payment from Vive in furtherance of their alleged
amended contract. Also, unlike GSIS, NHMFC made no representation making Atty. Cacal as its
representative authorized to receive notice of a supposed moratorium on NHMFC's behalf. In
view of this absence of evidence pointing to similar acts that can be interpreted as NHMFC
holding Atty. Cacal to receive information or even Atty. Salud to grant a moratorium in its
behalf, there can be no apparent authority that would render NHMFC as estopped from denying
the binding effect of the unauthorized acts of these officers. Certainly, consent of NHMFC
cannot simply be presumed from representations of its individual officers without authority from
the board, especially if obligations will be incurred as a result.57

Neither can NHMFC be deemed to have ratified the unauthorized acts of its officers. Time and
again, the Court has held that "ratification is a voluntary and deliberate confirmation or adoption
of a previous unauthorized act. It converts the unauthorized act of an agent into an act of the
principal. It cures the lack of consent at the time of the execution of the contract entered into by
the representative, making the contract valid and enforceable. It is, in essence, consent belatedly
given through express or implied acts that are deemed a confirmation or waiver of the right to
impugn the unauthorized act."58 But as already mentioned, not only was it proven that the grant
of the moratorium was unauthorized by the board, it was also shown that NHMFC was not duly
informed about the same. It is rather impossible for NHMFC to ratify, whether expressly or
impliedly by its silence, an unauthorized act of its agent which it had no knowledge of. Indeed,
silence, acquiescence, retention of benefits, and acts that may be interpreted as approval of the
act do not by themselves constitute implied ratification. For an act' to constitute an implied
ratification, there must be no acceptable explanation for the act other than that there is an
intention to adopt the act as his or her own. It cannot be inferred from acts that a principal has a
right to do independently of the unauthorized act of the agent.

In an attempt to save its plight, Vive raised for the first time in its Motion for Reconsideration
before the Court the argument that the Deed of Sale must remain valid and subsisting in view of
NHMFC's failure to comply with the mandatory twin requirements of a notarized notice of
cancellation and a refund of the cash surrender value under the Maceda Law. Specifically, Vive
argues that since the instant transaction involves the sale of real estate payable in installments,
and that the subject property is not one that is excluded in Section 359 of the Maceda Law, the
provisions under Section 460 thereof should apply. Thus, NHMFC may only cancel their contract
after giving Vive a grace period of not less than sixty days from the date the installment became
due and upon the expiration of said grace period, only after thirty days from receipt by Vive of a
notice of cancellation or demand for rescission by a notarial act. But since NHMFC failed to
comply with the requirements of Section 4, its notice to rescind not being a notarized document,
their contract must be deemed valid and subsisting.

The contention is untenable.

In the first place, it has not escaped the Court's attention that the argument was raised for the first
time before the Court, not in Vive's Petition for Review on Certiorari, but only in its Motion for
Reconsideration. It is a rudimentary principle of law that matters neither alleged in the pleadings
nor raised during the proceedings below cannot be ventilated for the first time on appeal before
the Supreme Court. It would be offensive to the basic rules of fair play and justice to allow Vive
to raise an issue that was not brought up before the trial court and appellate court. While it is true
that litigation is not a game of technicalities, it is equally true that elementary considerations of
due process require that a party be duly apprised of a claim against him before judgment may be
rendered.61

But even if We make an exception and give due course to the belated assertion, Vive's argument
still would not alter the outcome of the case. Contrary to Vive's claims, the Maceda Law does not
apply to the instant contract to sell.

In Active Realty Development Corporation v. Daroya,62 the Court unequivocally pronounced that

the declared policy of the Maceda Law is to protect the innocent, low-income buyers of real
estate who are eager to acquire property upon which to build their homes from the exploitative
and onerous installment schemes of private housing developers who get to forfeit all payments
upon default by the buyer and resell the same property under the same exigent conditions. We
elucidated in the following wise:cralawred

The contract to sell in the case at bar is governed by Republic Act No. 6552 — "The Realty
Installment Buyer Protection Act," or more popularly known as the Maceda Law — which came
into effect in September 1972. Its declared public policy is to protect buyers of real estate on
installment basis against onerous and oppressive conditions. The law seeks to address the acute
housing shortage problem in our country that has prompted thousands of middle- and lower-class
buyers of houses, lots and condominium units to enter into all sorts of contracts with private
housing developers involving installment schemes. Lot buyers, mostly low-income earners eager
to acquire a lot upon which to build their homes, readily affix their signatures on these contracts,
without an opportunity to question the onerous provisions therein as the contract is offered to
them on a "take it or leave it" basis. Most of these contracts of adhesion, drawn exclusively by
the developers, entrap innocent buyers by requiring cash deposits for reservation agreements
which oftentimes include, in fine print, onerous default clauses where all the installment
payments made will be forfeited upon failure to pay any installment due even if the buyers' had
made payments for several years. Real estate developers thus enjoy an unnecessary advantage
over lot buyers who they often exploit with iniquitous results. They get to forfeit all the
installment payments of defaulting buyers and resell the same lot to another buyer with the same
exigent conditions. To help especially the low-income lot buyers, the legislature enacted R.A.
No. 6552 delineating the rights and remedies of lot buyers and protect them from one-sided and
pernicious contract stipulations.

Seen in the foregoing light, the Court, in Spouses Garcia v. Court of Appeals, refused to apply
the Maceda Law to the contract to sell between buyers, the Spouses Garcia, and seller, Emerlita
Dela Cruz, covering five (5) parcels of land in Cavite. There, the spouses refused to pay the last
installment claiming to have discovered an infirmity on the subject lots. Consequently, Dela
Cruz rescinded their contract and sold the property to another buyer. When the spouses
questioned Dela Cruz' rescission, the Court ruled that their contract was clear in the sense that
Dela Cruz had the right to cancel the contract upon the failure of the spouses to pay the purchase
price on the stipulated dates. In particular, We held that while the Maceda Law applies to
contracts of sale of real estate on installment payments, including residential condominium
apartments but excluding industrial lots, commercial buildings and sales to tenants, the subject
lands, comprising five (5) parcels and aggregating 69,028 square meters, do not comprise
residential real estate within the contemplation of the Maceda Law.64

By the same token, the Court, in Spouses Dela Cruz v. Court of Appeals, ruled that the Maceda
Law does not govern the contract to sell entered into by sellers, the Spouses Dela Cruz and
buyers, the Spouses Aguila, of a house located in Town and Country Executive Village,
Antipolo, Rizal, because it is not a contract involving a subdivision owner or developer but only
between two couples, i.e., the original house-owners and the subsequent buyers of the house and
lot.65

Guided by the foregoing precepts, the Court cannot apply the provisions of the Maceda Law to
the present case. The contract to sell herein is between Vive, a corporation engaged in the realty
business, and NHMFC, a government corporation mandated to increase the availability of loans
for Filipinos who seek to acquire their own homes by operating a secondary market for home
mortgages.66 As such, it is rather obvious that the contract before Us is not the kind of onerous
contract of adhesion under the Maceda Law drawn up by private real estate developers designed
to entrap innocent low-income earners by requiring installment payments for several years only
to be forfeited by the former upon failure to make a single payment. In fact, Vive, the buyer of
the subject property, has been insisting that it was an essential consideration of the contract for
Vive to be able to use the property as collateral for a loan to develop the same into a residential
subdivision. It cannot be denied, therefore, that Vive is not the "innocent, low-income buyer"
that the Maceda Law was enacted to protect. Neither is NHMFC the "real estate developer" that
said law intends to regulate in order to prevent the enjoyment of any unnecessary exploitation.
To repeat, the Maceda law was enacted to remedy the plight of low and middle-income lot
buyers, save them from the exacting default clauses in real estate sales, and assure them of a
home they can call their own.67

In a last-ditch effort to protect its interests, Vive similarly raised for the first time in its Motion
for Reconsideration that even assuming that the rescission effected by NHMFC was valid, the
lower courts should have ordered mutual restitution and that the parties surrender that which they
received and to place each other in their original position. Referring to its efforts in cleansing the
title of the property from adverse claims, Vive added that NHMFC should not be permitted to
benefit therefrom especially when it conveniently sold the property to Cavacon only after the
legal issues affecting it had been resolved. The Court remains unconvinced. For one, there is no
proof of NHMFC's bad faith in allegedly waiting for the resolution of the legal issues before it
decided to sell the property to Cavacon. As NHMFC asserted, Vive did not present any evidence
to show when it became aware of the said resolution. For another, We go back to the provisions
of the contract itself, the pertinent portions of which state:cralawred

WHEREAS, pursuant to the disposition policies under Board Resolution No. 2391, dated June
23, 1994, VENDOR was authorized to sell and convey whatever rights, interests, and
participation it has on "as is where is basis" the property of ALYANSA NG MGA MAKA
MARALITANG ASOSASYON AT KAPATIRANG ORGANISASYON, INC. (AMAKO), X X
X.

WHEREAS, VENDEE has full knowledge of the nature and extent of the VENDOR's
rights, interests, and participation over the foreclosed property subject of this contract
including pending litigation involving claims of alleged tenants to the property.

xxxx

Section 5: EFFECTS OF DEFAULT

Upon the occurrence of an event of default, NHMFC shall have the right to:cralawred

xxxx

5.2 VENDOR shall then be at liberty to dispose of the same as if this Deed of Sale of Rights,
Interest and participation over Foreclosed Assets has never been made, and in the event of
 such annulment, the sums of money paid shall be considered and treated as rentals for the
occupancy and use of the property and VENDEE waives all rights to ask or demand the
return hereof. VENDEE further agrees to peacefully and quickly vacate the property. All
permanent I fixed improvements found in the premises shall belong to the VENDOR
without liability on the part of VENDOR to reimburse VENDEE of the cost of said
improvements;

xxxx

Section 9. EJECTMENT

VENDEE at his own expense assumes responsibility of ejecting squatters and/or occupants
of the property, if any.68

chanRoblesvirtualLaw1ibrary

It is a cardinal rule in the interpretation of contracts that if the terms of a contract are clear and
leave no doubt upon the intention of the contracting parties, the literal meaning of its stipulations
shall control. A court's purpose in examining a contract is to interpret the intent of the
contracting parties, as objectively manifested by them. Where the written terms of the contract
are not ambiguous and can only be read one way, the court will interpret the contract as a matter
of law.69 The contract to sell executed by the parties herein could not be any clearer. In a
language too clear to be mistaken, Vive entered into the agreement fully aware of the nature and
condition of the subject property and expressly assumed responsibility over the pending legal
issues affecting the same. It also deliberately waived all its rights to demand for the return of any
and all amounts it had paid NHMFC prior to its commission of an event of default. As such, and
as We have declared above, Vive cannot now be permitted to put the blame on NHMFC or the
issues affecting the property for its failure to adhere to the clear provisions of the contract.

Stripped of all complexities, the simple fact remains that Vive failed to comply with its
obligation to pay the stipulated amounts for the purchase of the property subject of the
agreement. This comprises as an event of default which, under the contract, produces the
following effects:cralawred

Section 5: EFFECTS OF DEFAULT

Upon the occurrence of an event of default, NHMFC shall have the right to:cralawred

5.1 Declare the contract annulled I cancelled. VENDEE shall forfeit and waive whatever
rights he might have acquired over the property.
5.2 VENDOR shall then be at liberty to dispose of the same as if this Deed of Sale of
Rights, Interest and participation over Foreclosed Assets has never been made, and in
the event of such annulment, the sums of money paid shall be considered and treated as
rentals for the occupancy and use of the property and VENDEE waives all rights to ask
or demand the return hereof. VENDEE further agrees to peacefully and quickly vacate the
 property. All permanent I fixed improvements found in the premises shall belong to the
VENDOR without liability on the part of VENDOR to reimburse VENDEE of the cost of
said improvements; x x x.70

Indubitably, by the clear and express provisions of the agreement, the default on the part of Vive
unequivocally gave NHMFC the right to: (1) annul and cancel the contract; (2) dispose of the
property as if the contract was never executed; and (3) treat the sums of money paid by Vive as
rentals for the latter's use and occupancy thereof. As a matter of fact, Vive even consciously and
categorically waived any and all rights to demand for the return of the sums of money it paid to
NHMFC. It is for this reason that the Court cannot give credence to Vive's argument that the
subsequent sale between NHMFC and Cavacon was entered into in bad faith. As far as NHMFC
was concerned, it was merely acting in accordance with the provisions of the contract to sell,
having every right to dispose of the property as if the sale of the same to Vive was never
executed. As the Court similarly held in Spouses Garcia v. Court of Appeals,71 Dela Cruz, the
seller of the property, was within her rights to sell the subject lands to another buyer as a result of
the Spouses Garcia's failure to pay the balance of the purchase price on the stipulated date of
their contract to sell.

All told, the Court finds no cogent reason to reverse the conclusions reached by the appellate
court. At the risk of being repetitive, Vive consistently failed to pay the balance of the purchase
price on the date and in the manner prescribed by the contract to sell. Unfortunately for Vive,
moreover, this failure could not be justified by its contentions that ownership was already
transferred to it in the absolute sense, that it was granted a moratorium or that the issues inherent
in the subject property suspended all subsequent payments. The provisions of the contract are
clear. To begin with, the agreement executed by the parties is a contract to sell as shown by the
fact that NHMFC expressly reserved its title to the subject property. As such, Vive's non-
payment constituted an event of default that granted NHMFC the right to cancel their contract.
The argument that Vive was granted a moratorium on the collection period hardly persuades in
the absence of proof that NHMFC 's board of directors approved the same or that NHMFC
authorized its officers to grant the suspension on its behalf.

At the end of the day, there is no denying that Vive was well aware of the complications
surrounding the property. Yet, despite knowledge of the pending issues, Vive still endeavored to
acquire the lots and even assumed all responsibility for the resolution thereof. It cannot,
therefore, take refuge on this condition of the property as an excuse for its breach of contract.
Thus, in view of Vive's failure to comply with its obligations under the agreement, We rule that
NHMFC validly cancelled the same. That the cancellation was not executed in compliance with
the Maceda Law is of little relevance for said law is inapplicable to the present contract.
Ultimately, as a legal consequence of Vive's default, and by the express authority of the
agreement, NHMFC cannot be faulted for selling the property to Cavacon. The subsequent
transaction entered into between NHMFC and Cavacon is, therefore, valid.

WHEREFORE, premises considered, the instant petition is DENIED. The assailed Decision
dated August 23, 2016 and the Resolution dated March 30, 2017 of the Court of Appeals in CA-
G.R. CV No. 105312 are AFFIRMED.
SO ORDERED.

G.R. No. 240311, September 18, 2019

PHILIPPINE NATIONAL BANK, PETITIONER, v. FELINA GIRON-ROQUE, DR.

GLORIA M. APOSTOL AND HUSBAND, DR. EDWARD APOSTOL, RESPONDENTS.

DECISION

PERLAS-BERNABE, J.:

Assailed in this petition for review on certiorari1 are the Decision2 dated October 27, 2017 and
the Resolution3 dated June 13, 2018 of the Court of Appeals (CA) in CA-G.R. CV No. 100017,
which affirmed with modification the Decision4 dated August 1, 2012 and the Order5  dated
November 29, 2012 of the Regional Trial Court of Iba, Zambales, Branch 71 (RTC) in Civil
Case No. RTC-1551-I, and accordingly, ordered respondents Dr. Gloria M. Apostol (Gloria) and
her husband, Dr. Edward Apostol (collectively, Spouses Apostol), to pay petitioner Philippine
National Bank (PNB) the amount of P119,820.00, and deleted the award of attorney's fees in
favor of respondent Felina Giron-Roque (Felina).

The Facts

On April 7, 1995, Felina, a Filipino resident of the United States of America (USA), obtained a
credit line from PNB in the amount of P230,000.00, which was secured by a real estate mortgage
of a real property registered under Transfer Certificate of Title No. T-45548.6  On February 10,
1997, she availed of a P50,000.00 loan (first loan) from the credit line, as evidenced by a
promissory note7 of even date, with a due date on August 9, 1997. When Felina was in the USA
sometime between April to August 1997, she purportedly filed, through Gloria, a stand-by
application for further availment of the credit line in the amount of P120,000.00 (second loan).
Subsequently, she discovered that Gloria withdrew from her account with PNB a check (subject
check) for the second loan in the amount of P119,820.00. PNB demanded payment of both loans
but instead of paying, Felina requested for an in-depth investigation of the second loan.8

On December 10, 1998, Felina sent a letter9 to PNB and included therein a cashier's check10 in
the amount of P16,000.00 as full payment of the first loan, which the latter received on
December 21, 1998.11 In response, PNB wrote Felina a letter12 dated December 22, 1998,
returning the aforesaid cashier's check as the same was insufficient to cover for the amount,
interests, and penalties of both loans.13 Thereafter, PNB proceeded with the extrajudicial
foreclosure of Felina's real property.

Claiming that her signature in the subject check was forged and that Gloria was not authorized to
withdraw from her PNB account, Felina filed a complaint15 for annulment of foreclosure sale and
reinstatement of unused credit accommodation with damages before the RTC against both PNB
and Spouses Apostol, praying, inter alia, that: (a) the second loan in the amount of P120,000.00,
together with interests and penalties, be declared null and void; (b) the amount of P16,000.00 be
declared as valid payment of her only availment of the credit arrangement; and (c) the
extrajudicial foreclosure over her property be declared null and void.16

In defense, Spouses Apostol maintained, among others, that Gloria was duly authorized by
Felina to withdraw from the latter's credit line. For its part, PNB claimed that it had exercised the
required due diligence before allowing the withdrawal. It added that there was no valid tender of
payment of the first loan, as it was tendered one (1) day before the foreclosure date and the
amount was not enough to cover interest and penalty. By way of a cross-claim, PNB averred that
in the event Felina's claim is sustained, Spouses Apostol should be ordered to reimburse the
amount of P119,820.00 which the latter received from it.17

The RTC Ruling

In a Decision18 dated August 1, 2012, the RTC ruled in Felina's favor, and accordingly: (a)
declared the extrajudicial foreclosure null and void; (b) directed PNB to reinstate the unused
credit accommodation of Felina; and (c) ordered PNB and Spouses Apostol to pay Felina
attorney's fees in the amount of P100,000.00, plus costs of suit.19

In so ruling, the RTC found that the subject check was forged, considering that Felina could not
have executed it as she was in the USA at that time, and upon comparison with the promissory
note dated February 10, 1997, her alleged signature in the subject check was found to have not
been written by one and the same person.20 Thus, the RTC concluded that PNB was remiss of the
diligence required of banking institutions in allowing the withdrawal and encashment of the
forged check in favor of Gloria, who was not proven to be duly authorized by Felina.21 Notably,
however, the RTC made no pronouncement as to the validity of Felina's tender of payment in
relation to the first loan.

PNB moved for reconsideration which was, however, denied in an Order22 dated November 29,
2012. Aggrieved, both PNB and Spouses Apostol appealed23 to the CA.

The CA Ruling

In a Decision24 dated October 27, 2017, the CA affirmed the RTC ruling with modification,
further ordering Spouses Apostol to pay PNB the amount of P119,820.00, and deleting the award
of attorney's fees in favor of Felina.25 It held that the foreclosure sale had no basis since the loan
in the amount of P120,000.00 was void, considering that the subject check was forged and Gloria
was not duly authorized to withdraw from PNB. It emphasized that, for being in an industry
imbued with public interest, PNB should have exercised extraordinary diligence in handling the
transaction.26 However, similar with the RTC, the CA also made no pronouncement as to the
validity of Felina's tender of payment in relation to the first loan.

Dissatisfied, PNB and Felina separately moved for reconsideration27 but both were denied in a
Resolution28 dated June 13, 2018; hence, this petition by PNB.

The Issue Before the Court

The issue for the Court's resolution is whether or not the CA correctly affirmed the nullification
of the extrajudicial foreclosure proceedings covering Felina's real property subject of the real
estate mortgage.

The Court's Ruling

The petition is without merit.

At the outset, it must be pointed out that PNB commenced extrajudicial foreclosure proceedings
on Felina's real property on the ground of the latter's non-payment of the first and second loans
inclusive of interests and penalties, which as per the Statement of Account29 provided by PNB to
Felina, amounted to P14,565.58 for the first loan and P148,608.33 for the second loan, or a grand
total of P163,173.91.

However, and as unanimously found by the courts a quo: (a) Felina did not avail of the second
loan, as her signature in the subject check was forged; (b) Gloria was not duly authorized to
obtain the second loan from PNB; and (c) PNB was remiss of the diligence required of a banking
institution in allowing the withdrawal and encashment of the subject check representing the
second loan.30 Absent any cogent reason to overturn the aforesaid findings, the Court is inclined
to uphold the same.31

In view of the nullity of the second loan, Felina's outstanding balance to PNB has been
significantly reduced to the value of the first loan, plus interests and penalties, amounting to
P14,565.58. Significantly, Felina tried to fully settle the same by tendering to PNB a cashier's
check in the amount of P16,000.00, which was refused by the latter - on the notion that it was
insufficient to fully pay Felina's total loan obligations to it, considering that at that time, the
second loan was yet to be nullified by judicial fiat. Verily, the remaining balance of the first loan
remains outstanding, due, and demandable, albeit without fault of Felina as she already tendered
the aforementioned cashier's check through her letter dated December 10, 1998 which PNB
received on December 21, 1998.

In this light, and in the interest of substantial justice, the Court deems it prudent to give Felina a
reasonable opportunity to fully settle her remaining obligation to PNB, in the amount of
P14,565.58, plus interests and penalties from the date of the Statement of Account on September
15, 1998 until the date of PNB's receipt of the cashier's check on December 21, 1998. In the
meantime, the Court affirms the annulment of the extrajudicial proceedings, without prejudice to
PNB's availment of the proper remedies, should Felina fail to settle her loan obligation despite
being given the opportunity to do so.

WHEREFORE, the petition is DENIED. The Decision dated October 27, 2017 and the
Resolution dated June 13, 2018 of the Court of Appeals in CA-G.R. CV No. 100017 are
hereby AFFIRMED with MODIFICATION, in that: (a) respondent Felina Giron-Roque is
given a period of sixty (60) days to settle the remaining balance of her outstanding loan
obligation to petitioner Philippine National Bank (PNB) amounting to P14,565.58 plus interests
and penalties from September 15, 1998 to December 21, 1998; and (b) the annulment of the
extrajudicial foreclosure of the real property registered under Transfer Certificate of Title No. T-
45548 shall be without prejudice to PNB's availment of the proper remedies, should the loan
obligation remain unsettled after the lapse of the aforementioned period. The rest of the
Decision STANDS.

SO ORDERED.

THIRD DIVISION

G.R. No. 242570, September 18, 2019

PHILIPPINE NATIONAL BANK, PETITIONER, v. ELENITA V. ABELLO, MA.

ELENA ELIZABETH A. FIDER, JONATHAN V. ABELLO, MANUEL V. ABELLO, JR.
AND VINCENT EDWARD V. ABELLO, RESPONDENTS.

DECISION

REYES, J. JR., J.:

Before this Court is a petition for review on certiorari1 filed by Philippine National Bank
(petitioner) under Rule 45 of the 1997 Rules of Civil Procedure seeking to annul and set aside
the Decision2 dated January 31, 2018 of the Court of Appeals (CA) Cebu City in CA-G.R. CV
No. 05501 and its Resolution3 dated September 4, 2018, denying the Motion for Reconsideration
thereof. The assailed decision dismissed the appeal and affirmed the Decision4 dated August 26,
2014 of the Regional Trial Court (RTC) of Bacolod City, Branch 49, in Civil Case No. 08-
13309, which ordered the cancellation of memorandum of encumbrances annotated on Transfer
Certificates of Title (TCT) Nos. T-127632, T-82974 and T-58311.

The Antecedent Facts

On November 21, 2008, a Complaint for Cancellation/Discharge of Mortgage/Mortgage Liens

was filed by Elenita V. Abello (Elenita), Ma. Elena Elizabeth A. Fider, Jonathan Abello, Manuel
V. Abello (Manuel) and Vincent Edward B. Abello (collectively, the respondents) against the
petitioner before the RTC of Bacolod City, Branch 49.5
The complaint involves parcels of land covered by TCT Nos. T-127632, T-82974, and T-58311,
all located at Bacolod City, registered under the names of Manuel and Elenita (the Spouses
Abello). Inscribed on the TCTs were various encumbrances. On TCT No. T-127632, the
following mortgages, all in favor of the petitioner, were entered:

Date of Mortgage Amount in Php Date

Inscribed
September 18, 1963 5,890.00 August 9,
1968
February 21, 1968 6,600.00 February 22,
1968
August 14, 1973 50,000.00 August 23,
1973
October 8, 1973 (amendment to August 14 1973) Increasing 50,000.00 October 11,
to 94,200.00 1973
Deed of Agreement dated March 18, 1974 increasing 75,000 March 18,
Respondents credit limit accommodations of Manuel 1974
Abello

Over the two other lots covered by TCT Nos. T-82974 and T-58311, inscribed were the real
estate mortgage (REM) obtained by the Spouses Abello from the petitioner on October 30, 1975
for the amount of P227,000.00, under Entry No. 80024, which was made on November 4, 1975.6

Manuel died on October 14, 1998, consequently, his heirs, herein respondents, executed a
Declaration of Heirship7 on June 5, 2003 authorizing Elenita to act as administrator of the estate.

In their complaint, the respondents sought for the cancellation of the inscriptions claiming that
since the petitioner made no action against them since 1975, the action has already prescribed.
Accordingly, the respondents argued that they should be discharged as a matter of right and the
encumbrances cancelled.8

Ruling of the RTC

After trial, the RTC rendered its Decision9 on August 26, 2014, the dispositive portion of which
reads:

WHEREFORE, judgment is hereby rendered in favor of the Plaintiffs and against the
Defendants:
1.) The Register of Deeds of the Province of Negros Occidental, is directed to cancel the
memorandum of encumbrances (Real Estate Mortgage) appearing at the back of TCT No. T-
127632, as Entry Nos. 91194, 131237, 181203, 182910 and 188486.
2.) The Register of Deeds of Bacolod City is directed to cancel the memorandum of
encumbrance (Real Estate Mortgage) appearing at the back of TCT No. T-82974 and T-58311,
as Entry No. 80024.
3.) The Counterclaim of the Defendant PNB is ordered dismissed.
4.) No costs.

SO ORDERED.10

In its decision, the RTC found merit in the respondents' complaint on the basis of prescription. In
holding that prescription has already set in, the RTC reckoned the period of prescription from the
date of inscription on the TCT. Thus, it explained that the right to foreclose the mortgage on
TCT No. T-127632 accrued on March 19, 1984, while those in TCT Nos. T-82974 and T-58311
on November 5, 1985.11

The parties herein separately filed their appeal via petitions for certiorari with the CA.12

Ruling of the CA

On appeal to the CA, the latter dismissed the petition in its Decision13 dated January 31,
2018, viz.:

WHEREFORE, the instant appeal is DENIED. The Decision dated August 26, 2014 rendered by
the [RTC], Branch 49 of Bacolod City is AFFIRMED in toto.

SO ORDERED.14

In so ruling, the CA found the allegations of the complaint sufficient to establish a cause of
action. The CA held that the type of credit, loan terms and condition, and the date of maturity of
the principal loan are not material elements of the case, and as such need not be alleged.15

The CA also found, on the basis of the accounting notice sent by the petitioner, that the
institution of a mortgage action has already prescribed. The CA explained that the period of
prescription begin to run from the time Manuel stopped paying the mortgage debt on December
31, 1985, whereas the petitioner sent a demand only on January 8, 2002.16

The petitioner filed a Motion for Reconsideration of the said decision, but the same was denied
by the CA in its Resolution17 dated September 4, 2018.

Thus, this petition for review for certiorari  whereby, the petitioner submits that the CA and the
RTC erred in ordering the cancellation of the subject encumbrances. The petitioner argues first,
that the complaint filed by the respondents should have been dismissed for failure to state a cause
of action. Then, even assuming the existence of such cause of action, the action cannot prosper
as the respondents, by their admission of liability, in effect, waived the right to raise the defense
of prescription.

For their part, the respondents aver in their Comment18 that there is no merit in the instant
petition. The respondents argue that the petitioner's own admissions as to the particulars of the
loan and REM could be relied upon in determining the period of prescription, and ultimately,
cause of action.

Verily, the issue in this appeal is whether or not the CA erred in ordering the cancellation of the
annotated encumbrances on the subject TCTs. Ruling of the Court

The petition is meritorious.

A complaint that fails to state or lacks cause of action is dismissible. The Court, in Dabuco v.
CA,19 discussed the difference between the dismissal of the complaint on the ground of "failure to
state cause of action" and "lack of cause of action," to wit:

As a preliminary matter, we wish to stress the distinction between the two grounds for dismissal
of an action: failure to state a cause of action, on the one hand, and lack of cause of action, on the
other hand. The former refers to the insufficiency of allegation in the pleading, the latter to
the insufficiency of factual basis for the action. Failure to state a cause may be raised in a
Motion to Dismiss under Rule 16, while lack of cause may be raised any time. Dismissal for
failure to state a cause can be made at the earliest stages of an action. Dismissal for lack of cause
is usually made after questions of fact have been resolved on the basis of stipulations, admissions
or evidence presented.20 (Emphases Ours)

Thus, in "failure to state a cause of action," the examination is limited to the complaint21 in that
whether it contains an averment of the three (3) essential elements of a cause of action, namely:
(a) a right in favor of the plaintiff by whatever means and under whatever law it arises or is
created; (b) an obligation on the part of the named defendant to respect or not to violate such
right; and (c) an act or omission on the part of the named defendant violative of the right of the
plaintiff or constituting a breach of the obligation of defendant to the plaintiff for which the latter
may maintain an action for recovery.22 The test is whether or not, admitting hypothetically the
allegations of fact made in the complaint, a judge may validly grant the relief demanded.23

In contrast, a complaint "lacks of cause of action" when it presents questions of fact that goes
into proving the existence  of the elements of the plaintiffs cause of action. Thus, in dismissing
the complaint on this ground, the court, in effect, declares that the plaintiff is not entitled to a
favorable judgment for failure to substantiate his or her cause of action by preponderance of
evidence. Considering that questions of fact are involved, the dismissal of the complaint due to
"lack of cause of action" is usually made after trial, when the parties are given the opportunity to
present all relevant evidence on such question of fact.24

Succinctly, "failure to state cause of action" refers to insufficiency of allegation in the pleading;
whereas, "lack of cause of action" deals with insufficiency of evidence25 or insufficiency of
factual basis for the action.26

The Court ruled in the recent of case of Mercene v. Government Service Insurance System,27 that
the commencement of the prescriptive period for REMs is crucial in determining the existence of
cause of action. Prescription, in turn, runs in a mortgage contract not from the time of its
execution, but rather a) when the loan became due and demandable, for instances covered under
the exceptions set forth under Article 116928 of the New Civil Code, or b) from the date of
demand.29

A REM is an accessory contract constituted to protect the creditor's interest to ensure the
fulfillment of the principal contract of loan. By its nature, therefore, the enforcement of a
mortgage contract is dependent on whether or not there has been a violation of the principal
obligation.30 Simply, it is the debtor's failure to pay that sets the mortgage contract into operation.
Prior to that, the creditor-mortgagee has no right to speak of under the REM as it remains
contingent upon the debtor's failure to pay his or her loan obligation.

Thus, contrary to the opinion of the CA, for an action to foreclose REM to prosper, it is crucial
that the creditor-mortgagee establishes his right by alleging the terms and conditions of the
mortgage contract, particularly the maturity of the loan which it secures. The respondents' failure
to allege, much more prove these information, renders the action dismissible for failure to prove
their cause of action.

In this controversy, the respondents pray for the cancellation of the encumbrances on the TCTs
which refer to the REMs constituted on the property. Consequently, the cancellation of these
annotations is dependent on whether the action for REM has already prescribed. Therefore, an
allegation of the date of maturity of the loan is also vital in this case as it signifies the
commencement of the running of the period of prescription for an action for foreclosure REM.

Stated otherwise, the mortgagor would be unable to establish his or her right to pray for the
cancellation of the encumbrances without first establishing that the debt has already become due,
as it is only at that time that the debtor's right to foreclose the property arise and the prescriptive
period begins to run.

Pertinent to the REM, the respondents put forth the following allegations in their Complaint:

COMPLAINT

x x x x

1. Spouses Manuel E. Abello, Sr. (in life) and Elenita V. Abello are the registered and lawful
owners of a parcel of land located in the Municipality of Binalbagan, Negros Occidental, covered
by [TCT] No. T-127632 of the Registry of Deeds, Province of Negros Occidental. (Copy of the
title is marked as Annex "C" hereof). They are also the registered and lawful owners of parcels
of land located at Bacolod City, Negros Occidental, covered by [TCT Nos]. T-82974 and T-
58311 of the Registry of Deeds of Bacolod City (Copies of the titles are marked as Annexes "D"
and "E", respectively).

2. To secure a loan of FIVE THOUSAND EIGHT HUNDRED NINETY PESOS (P5,890.00),

spouses Manuel E. Abello and Elenita V. Abello, executed a Deed of Real Estate Mortgage in
favor of [the petitioner] last September 18, 1963, over the property covered TCT No, T-127632.
As a result of said Real Estate Mortgage, Entry No. 91194 was duly entered upon the
Memorandum of Encumbrance, Annex "C" shows the annotation;

3. Thereafter, Entries No. 131237 (February 21, 1968), No. 181203 (August 14, 1973), No.
182910 (October 8, 1973 and No. 188486 (March 18, 1974) were likewise inscribed in the same
Memorandum of Encumbrances to reflect amendments made to the original mortgage. No
further entry in favor of defendant Bank appears after March 18, 1974;

4. On October 30, 1975, spouses Manuel and Elenita Abello executed a Deed of Real Estate
Mortgage in favor of [the petitioner] over their properties covered by [TCT] Nos. T-82974 and
T-58311 of the Registry of Deeds for the City of Bacolod, in order to secure a loan of P227,
000.00. As a consequence of said Real Estate Mortgage, Entry No. 80024 was entered upon the
Memorandum of Encumbrances and appears at the back of TCT No. T-82974 and TCT No. T-
58311. No further entry in favor of defendant Bank appears in these Certificates of Title.31

It is evident from a cursory reading of the foregoing allegations that the respondents made no
mention of the particulars of the mortgage. In arguing prescription, the respondents instead
anchor on the fact that the latest entry related to the loan from the petitioner was in 1975. But,
the date of annotation is irrelevant on the issue of whether the institution of a mortgage action
has already prescribed. Instead, as previously elucidated, what is crucial is the date of maturity of
the loan in instances when demand is not necessary, or the date of demand. Without these crucial
details, the information supplied is insufficient to enable the court to grant relief to the
respondents. With this, the complaint could have been dismissed by the court a quo on the
ground of the complaint's failure to state cause of action. However, the parties proceeded to trial,
which, therefore, means that the period within which the dismissal for failure to state a cause of
action would have already lapsed.

While it is true that the petitioner has timely and repeatedly raised the same as affirmative
defense in their Answer, and a ground in their Motion to Dismiss, still, the court a quo's power
to dismiss on the ground of "failure to state a cause of action" had already passed when the
parties went into trial. Dismissal on the ground of "failure to state a cause of action" is a
procedural remedy to resolve a complaint saving the parties the costs of going into trial.
However, when the parties have entered trial, Section 34, Rule 132 of the Rules of Court,
requires the parties to formally offer their evidence for the court's consideration. Even then,
evidence excluded by the court may still be attached to the records of the case by tendering it
under Section 40,32 Rule 132 of the Rules of Court. This allows the possibility for presentation of
evidence not admitted, thus, raising the possibility for the parties to deal with their genuine
 issues without refilling the case.

However, in this case, during trial, the respondents failed to adduce evidence to establish when
the loan became due, and consequently, when the right to foreclose the mortgage accrued.
Indubitably, the presentation of the contracts evidencing the loan and the mortgage is necessary
as the respondents' cause of action is anchored on these documents.33 As the respondents failed to
allege more so, adduce sufficient evidence to establish that prescription has set in, it is clear that
the action must be denied and the complaint dismissed for want of cause of action.

In light of the foregoing disposition, the Court sees no reason to delve into the other issue raised
by the petitioner.

WHEREFORE, in view of the foregoing, the instant petition for review on certiorari is
hereby GRANTED. Accordingly, the Decision dated January 31, 2018 and the Resolution dated
September 4, 2018 of the Court of Appeals in CA-G.R. CV No. 05501 are hereby REVERSED
and SET ASIDE. The respondents' Complaint dated October 18, 2007 is hereby ordered
DISMISSED.

SO ORDERED.

THIRD DIVISION

G.R. No. 216029, September 04, 2019

SHEMBERG CORPORATION, MARKETING PETITIONER, v. CITIBANK, N.A.,

NEMESIO SOLOMON, EX-OFFICIO SHERIFF AND SHERIFF-IN-CHARGE,
RESPONDENTS.

DECISION

INTING, J.:

We resolve the Petition for Review on Certiorari  under Rule 45 of the Rules of Court assailing
the Decision1 dated October 23, 2012 and the Resolution2 dated October 27, 2014 of the Court of
Appeals (CA) in CA - G.R. CEB - CV No. 00974.

The Antecedents

On December 10, 1996, petitioner Shemberg Marketing Corporation (Shemberg) executed a real
estate mortgage over a parcel of land located in Mandaue City (Lot 1524-G-6), including all
improvements, machineries, and equipment found thereon,3 in favor of respondent Citibank,
N.A. (Citibank), to secure loan accommodations amounting to P28,242,000.00.4 The real estate
mortgage was embodied in a deed, which the parties denominated as "First Party Real Estate
Mortgage.”5
 On February 13, 1998, Citibank sent a demand letter to Shemberg wherein it required the latter
to pay its outstanding balance in the amount of US$390,000.00 under Promissory Note No.
8976267001;6 otherwise, it would be forced to initiate foreclosure proceedings on the mortgaged
properties.7

Unfortunately, Shemberg defaulted in the payment of its outstanding obligation to

Citibank.8 Consequently, Citibank commenced the extra-judicial foreclosure of the mortgaged
properties on May 10, 1999.9 A Notice of Extra-Judicial Sale of Lot 1524-G-6, including all
improvements thereon, was thereafter issued with the foreclosure sale scheduled on June 16,
1999.10

Upon learning of the foreclosure sale, Shemberg filed a Complaint11 for rescission or declaration
of nullity of the contract of real estate mortgage against Citibank before the Regional Trial Court
(RTC), Branch 55, Cebu City.

In its Complaint, Shemberg alleged that: (a) in 1996, Citibank required Shemberg to execute a
real estate mortgage for and in consideration of the increase and renewal of its credit line with
the bank;12 (b) relying on the representation that its credit line would be renewed, Shemberg
executed the subject real estate mortgage in Citibank's favor;13 (c) however, despite the execution
of the mortgage, Citibank refused to renew and increase Shemberg's credit line.14

Shemberg asserted that the real estate mortgage was void for lack of consideration,15 given
Citibank's failure to comply with its commitment to renew and increase its credit line with the
bank.16

For its part, Citibank countered that it required the execution of the real estate mortgage in order
to provide additional security/collateral to augment Shemberg's subsisting chattel mortgage due
to the latter's dire financial condition at the time.17 It also made clear to Shemberg that the bank
would no longer extend any additional credit unless its financial standing improves.18

Citibank pointed out that the real estate mortgage secured the various obligations of Shemberg to
the bank up to the extent of P28,242,000.00.19 This included Promissory Note No. 8976267001
in the amount of US$500,000.00, executed by Shemberg on September 13, 1996, with Shemberg
defaulting in the payment of the outstanding balance of US$390,000.00 thereof at maturity.20

Ruling of the RTC

In its Decision21 dated June 10, 2005, the RTC declared the real estate mortagage void for lack of
consideration due to Citibank's failure to fulfill its commitment to renew Shemberg's credit line
with the bank after it expired in June 1996.

Nevertheless, the RTC found Shemberg liable to pay Citibank the amount of P19,006,197.00, or
the peso-equivalent of its US$390,000.00 outstanding obligation under Promissory Note No.
8976257-001,23 payable within one (1) year from the date of finality of the Decision.24

Both parties appealed before the CA.

Ruling of the CA

In its Decision dated October 23, 2012, the CA reversed and set aside the RTC Decision. It
declared the real estate mortgage, as well as the extra-judicial foreclosure proceedings initiated
by Citibank, valid, and imposed the stipulated interest equivalent to 8.89% per annum on the
unpaid balance of Promissory Note No. 8976267001 from the time of filing of the extra-judicial
foreclosure until finality of the Decision.25

The CA found that the subject real estate mortgage secured Shemberg's present and future
obligations with Citibank to the extent of P28,242,000.00, or the liquidation value of the
mortgaged properties.26 It noted that at the time of execution of the mortgage, Shemberg had an
existing loan obligation totaling P58,238,200.00.27 Thus, it concluded that, contrary to the RTC's
findings, the real estate mortgage was not without consideration.28

The CA likewise ruled that Citibank had rightfully initiated the extra-judicial foreclosure of the
mortgaged properties after Shemberg failed to pay its oustanding balance of
US$390,000.0029 under Promissory Note No. 8976267001.

Moreover, the CA held mat the RTC erred in granting an additional year for Shemberg to pay its
obligation under the promissory note, considering that: first, Shemberg never prayed for the
fixing of the period for the payment of its outstanding balance with Citibank;30 and second, it
was not necessary to fix the period for payment as the promissory note itself stated that the loan
obligation was payable on September 8, 1997.31

Shemberg moved for reconsideration32 but the CA denied the motion in its Resolution dated
October 27, 2014. As a consequence., Shemberg filed the present Petition for Review
on Certiorari assailing the CA Decision and Resolution.

Issue

The sole issue for the Court's resolution is whether the real estate mortgage is indeed valid and
binding between the parties.

The Court's Ruling

The Petition is unmeritorious.

A careful perusal of the First Party Real Estate Mortgage shows that the subject real estate
mortgage was executed to secure loan accommodations, as well as all past, present, and future
obligations, of Shemberg to Citibank to the extent of P28,242,000.00,33viz.:
This Real Estate Mortgage is hereby constituted to secure the following obligations (hereinafter
referred to as the "Obligations"):

1.01 The Principal Obligations specified in the first premise of this Mortgage and any increase in
the credit accommodations which MORTGAGEE may grant to MORTGAGOR;

xxxx

1.03 All obligations, whether past, present or future, whether direct or indirect, principal or
secondary; whether or not arising out of or in consequence of this Mortgage, and of the credit
accommodations owing the MORTGAGEE by MORTGAGOR as shown in this books and
records of MORTGAGEE;
Shemberg itself admitted that when the real estate mortgage was executed on December 10,
1996, it had an outstanding obligation totaling P58,238,200.00 with Citibank.35 The fact that
Shemberg's outstanding obligation is significantly higher than the amount of secured obligations
does not invalidate the real estate mortgage.36 It only means that in case of default, Citibank can
enforce the mortgage to the maximum amount of P28,242,000.00, which, notably, is simply the
total liquidation value of the mortgaged properties.37

There is thus no question that the subject real estate mortgage covered the US$500,000.00 loan
obtained by Shemberg from Citibank on September 13, 1996 under Promissory Note No.
8976267001. Considering Shemberg's failure to pay the balance of US$390,000.00, or its peso-
equivalent of P19,006,197.00, under this promissory note, Citibank was well within its rights
under the real estate mortgage to initiate the foreclosure proceedings on the mortgaged
properties.

The Court further finds no merit in Shemberg's contention that the real consideration for the real
estate mortgage was the renewal and increase of its credit line with Citibank.

Section 9, Rule 130 of the Rules of Court provides:

SEC. 9. Evidence of written agreements. – When the terms of an agreement have been reduced
to writing, it is considered as containing all the terms agreed upon and there can be, between the
parties and their successors in interest, no evidence of such terms other than the contents of the
written agreement.

xxx

Section 9, or what is commonly known as the Parol Evidence Rule, "forbids any addition to or
contradiction of the terms of a written instrument by testimony purporting to show that, at or
before the signing of the document, other terms were orally agreed on by the parties."38 Under
the Parol Evidence Rule, the terms of a written contract are deemed conclusive between the
parties and evidence aliunde is inadmissible to change the terms embodied in the document.39

This rule, however, is not absolute. Thus, a party may present evidence aliunde to modify,
explain or add to the terms of a written agreement if he puts in issue in his pleading any of the
four exceptions to the Parol Evidence Rule:

(a) An intrinsic ambiguity, mistake or imperfection in the written agreement;

(b) The failure of the written agreement to express the true intent and agreement of the parties
thereto;
(c) The validity of the written agreement; or
(d) The existence of other terms agreed to by the parties or their successors in interest after the
execution of the written agreement.40

"The first exception applies when the ambiguity or uncertainty is readily apparent from reading
the contract."41 The second exception pertains to instances where "the contract is so obscure that
the contractual intention of the parties cannot be understood by mere inspection of the
instrument."42

Under the third exception, the Parol Evidence Rule does not apply "where the purpose of
introducing the evidence is to show the invalidity of the contract."43 And, the fourth exception
involves a situation where the parties agreed to other terms after the execution of the written
agreement.

Here, the first and second exceptions obviously do not apply as the real estate mortgage contract
clearly and succinctly stated the terms of the mortgage, leaving no doubt as to the contractual
intention of the parties by a mere reading of the document. The third exception, too, is
inapplicable since Shemberg's purpose for introducing evidence aliunde is not to invalidate the
contract; rather, it was meant to prove that Citibank had reneged on its alleged commitment to
renew and increase its credit line with the bank which was supposedly the consideration for the
execution of the real estate mortgage. Finally, the fourth exception likewise does not apply as it
was never alleged that the parties had agreed to other terms after the execution of the real estate
mortgage contract.

Based on these considerations, the Court sees no cogent reason to overturn the CA's factual
findings and conclusions. Simply stated, it is clear that the terms agreed upon in the subject real
estate mortgage are binding and conclusive between the parties.

WHEREFORE, the Petition is DENIED. The Decision dated October 23, 2012 and the
Resolution dated October 27, 2014 of the Court of Appeals in CA-G.R. CEB-CV No. 00974
are AFFIRMED.

SO ORDERED.

SECOND DIVISION

G.R. No. 205007, September 16, 2019

 THE MERCANTILE INSURANCE CO., INC., PETITIONER, v. DMCI-LAING
CONSTRUCTION, INC.,° RESPONDENT.

DECISION

CAGUIOA, J.:

This is a petition for review on certiorari1 (Petition) under Rule 45 of the Rules of Court
assailing the Decision2 dated July 30, 2012 (Assailed Decision) and Resolution3 dated January 7,
2013 (Assailed Resolution) rendered by the Court of Appeals (CA) in CA-G.R. SP. No. 80705.

The Assailed Decision and Resolution reverse the Decision4 promulgated on November 7, 2003
issued by the Construction Industry Arbitration Commission (CIAC) Arbitral Tribunal (Tribunal)
in CIAC Case No. 10-2003 which, in turn, dismissed the claim filed by respondent DMCI Laing
Construction, Inc. (DLCI) against Altech Fabrication Industries, Inc. (Altech) and petitioner The
Mercantile Insurance Co., Inc. (Mercantile).

The Facts

The facts, as narrated by the CA, are as follows:

On March 17, 1997, Rockwell Land Corporation ("Rockwell"), as the owner and developer,
entered into an agreement with [DLCI], as the General Contractor, for the construction of The
Condominium Towers and associated external landscaping works of Hidalgo Place, Rizal Tower,
Luna Garden, [and] Amorsolo Square (the "Project") at the Rockwell Center, Makati City. Part
of [DLCI's] scope of work in the Project [was] the supply and installation of glazed aluminum
and curtain walling. Part of the terms and conditions of the contract between Rockwell and DLCI
(the "Main Contract") [was] the appointment of [Altech] as Rockwell's nominated
sub[-]contractor to DLCI for the supply and installation of glazed aluminum and curtain walling.

On July 30, 1997, in compliance with the agreement between Rockwell and DLCI, Rockwell
sent a Notice of Award to Proceed [(NTP)] to Altech for the supply and installation of the glazed
aluminum and curtain walling at the Project. Said [NTP] bears the conformity of DLCI and
Altech.

Pursuant to the [NTP] and the Sub-Contract Agreement [(Sub Contract)] between DLCI and
Altech, Altech secured a Performance Bond from Mercantile for its scope of work in the
[P]roject. On September 5, 1997, Mercantile, as surety, with Altech, as principal, issued
Performance Bond No. G(13)-1500/97 in favor of Rockwell and DLCI, as obligee, for the
amount of PhP90,448,941.60.

On September 8, 1997, Mercantile issued [B]ond [E]ndorsement No. E-109/97 ST, correcting

the effectivity of the Performance Bond from September 5, 1997 to September 5, 1999.
Thereafter, on September 12, 1997, Mercantile issued [B]ond [E]ndorsement No. E-116/97
ST, correcting the obligee of the [P]erformance [B]ond to DLCI alone, and not in favor of
Rockwell and DLCI. Subsequently, on August 26, 1999, Mercantile issued [B]ond
[E]ndorsement [N]o. E-220/99 ST, extending the effectivity of the Performance Bond for
another six (6) months from September 5, 1999 to March 5, 2000.5 (Emphasis supplied)
On November 9, 1998, DLCI called Altech's attention to the poor progress of the works subject
of their Sub-Contract in its Letter6 addressed to Altech's President and General Manager, Nicanor
Peña:

[W]e detail below a programme status report of your installation works-

Panel installation at Rockwell as [of] [November 7, 1998]

                                           
Total    Planned   Planned Actual Actual
Panels  %  No  %  No 
Hidalgo 4623  75%  3406  14%  664 
Rizal 4830  60%  2919  5%  264 
Luna 3100  36% 1110 NIL NIL
Amorsolo [east and west] 3500 35% 1235 NIL NIL
Project Total    16,053  54%    8670  6%  928

We would record that this situation is totally unacceptable, and we hereby request, in compliance
with the proposed sub-contract conditions, the submission of your revised sub-contract works
programme and recovery proposals identifying the methodology by which the agreed completion
dates for your works are to be maintained.

x x x x

We would remind you that as a direct consequence of these delays[,] Altech maybe held liable
for x x x any costs, losses or expenses caused by the delays, and subsequently suffered by
DLCI.7

DLCI was constrained, in several instances, to undertake the completion and rectification of
unfinished and sub-par works to avert further delay. DLCI apprised Altech of these instances, as
well as its intention to charge the corresponding costs against Altech's account.8

On September 3, 1999, DLCI sent a letter to Mercantile, demanding "liquidation of the

[Performance Bond]" with interest at the stipulated rate of 2o/o per month (First
Call).9 DLCI's First Call was reiterated in its subsequent letters dated September 30,
1999,10 October 18, 1999, 11 and March 3, 2000.12 The First Call and the reiterative letters sent by
DLCI demanded the liquidation of the Performance Bond, but did not indicate the exact amount
claimed.

On January 20, 2000, Altech advised DLCI that it had relinquished its major assets to its bank:
due to financial difficulties.14 Nevertheless, Altech assured DLCI that it "[would] continue to
provide [its] whole hearted support in terms of the logistical needs of the [P]roject."15

On February 21, 2000, DLCI terminated its Sub-Contract with Altech effective immediately. The
Termination Letter reads, in part:

This termination is due to [Altech's] failure x x x to perform in accordance with the agreed terms
of the sub-contract stipulated in the Notice of Award as well as in the documents referred to
therein such as, but not limited to, the [Sub-Contract]. Despite numerous written
communications from us, [Altech has] failed to proceed with the sub-contract works with
due diligence and [has] consistently failed to meet the required quality standards.
Furthermore, [Altech has], by [its] own admission, entered into a deed of arrangement with its
creditors in which it surrendered its major assets to the latter. The aforementioned acts are clearly
events of default falling under [Paragraph] 17 of the [Sub-Contract] which justify [its] immediate
termination x x x.

For purposes of record, we will conduct an assessment and evaluation of the sub-contract works
on Wednesday[,] [February 23, 2000] before we formally take-over the same. We invite you to
send your representatives to witness the assessment.
We reserve the right to claim from [Altech] reimbursement of all costs, as well as
compensation for all damages, arising from [Altech's] default, including but not limited to
costs of both direct and consequential delays. Likewise, we reserve the right to claim the
refund of any payment which, after a review of your accomplishment and records, may be
found to have been not due or wrongly paid to [Altech].16 (Emphasis supplied)

Subsequently, Mercantile advised DLCI that it had referred its demand to Altech for appropriate
action through its Letter17 dated March 13, 2000. On March 28, 2000, Mercantile advised DLCI
that since Altech had informed them that negotiations were underway for an amicable settlement,
they would hold further evaluation of DLCI's claim in abeyance "to give enough elbow room to
[Altech] to settle [the claim] on [its] own."18

After negotiations between DLCI and Altech fell through, DLCI reiterated its demand for
liquidation on November 28, 2000.19
Mercantile denied DLCI's claim on February 26, 2001 on the ground that the Performance Bond
expired on March 5, 2000.20

Aggrieved, DLCI filed a complaint against Altech and Mercantile before the CIAC (CIAC
Complaint) on May 29, 2003,21 seeking to collect the sum of Php31,618,494.81 representing the
costs it allegedly incurred to complete the sub-contracted works, with interest and costs of
litigation.22
Despite earnest efforts to serve the CIAC Complaint upon Altech, DLCI was unable to do so
since Altech was no longer holding office at its registered principal address. Its corporate officers
refused to respond to the CIAC Complaint.23

For its part, Mercantile argued that DLCI failed to file the CIAC Complaint within a "reasonable
period of time" as required by the Sub Contract.24 In addition, Mercantile challenged the validity
of the termination of the Sub-Contract, as well as DLCI's right to claim against the Performance
Bond.25

CIAC Ruling

In a Decision promulgated on November 7, 2003, the Tribunal dismissed DLCI's Complaint.26

The Tribunal ruled that DLCI did not file the CIAC Complaint within a reasonable period, as
required by Section 2, Paragraph 25 of the Sub Contract, which states:

x x x Notice of the demand for arbitration of a dispute shall be filed in writing with the other
party to the Sub-Contractor. The demand for arbitration shall be made within a reasonable time
after the dispute has arisen and attempts to settle amicably have failed. In no case, however, shall
the demand be made later than the time of final payment, except as otherwise stipulated in the
Sub-Contract.27 (Italics omitted)

According to the Tribunal, DLCI was unable to justify why it waited for more than three (3)
years and three (3) months after termination of the Sub-Contract before filing the CIAC
Complaint.28 According to the Tribunal, DLCI's delay amounts to a violation of the Sub-
Contract, and triggers the application of laches.29

Moreover, the Tribunal held that Mercantile should be released from its obligations under the
Performance Bond pursuant to Article 2080 of the Civil Code,30 since DLCI's delay had deprived
it of the opportunity to exercise its right of subrogation against Altech.31 It held:

It is not controverted that when [DLCI] filed its claim with CIAC on [May 29, 2003], [Altech]
could no longer be found and efforts to serve it with the letter request for arbitration proved
futile. As already held x x x [DLCI] is found guilty of inexcusable delay in filing this claim for
arbitration. The consequence of this delay is to deprive [Mercantile] of its right to go after
[Altech] on a cross-claim in this suit. This surely deprives [Mercantile] of its right of subrogation
against Altech as [i]ndemnitor in the Performance Bond. x x x [I]n accordance with the
provisions of Article 2080 x x x [Mercantile] is "released from its obligation" under the
[P]erformance [B]ond.32

The Tribunal also ruled that DLCI's First Call was not a valid demand since it did not indicate
the specific amount DLCI sought to recover from Mercantile.33 Consequently, the Tribunal
concluded that DLCI's claim is already barred, since the Performance Bond had already expired
two (2) years before DLCI finally ascertained the total amount of its claim.34
In addition, the Tribunal found the termination of the Sub-Contract unjustified, as DLCI's own
Project Financial Manager John O'Connor admitted that Altech achieved 95% accomplishment
as of the month of termination. According to the Tribunal, 95% work accomplishment qualifies
as substantial completion under the Uniform General Conditions of Contract for Private
Construction prescribed by the Construction Industry Authority of the Philippines (CIAP) in
CIAP Document 102.35
In any case, the Tribunal held that DLCI is not entitled to reimbursement for costs it had incurred
in order to complete the Project, since its claims consist of expenses incurred after the unilateral
termination of the Sub-Contract; it emphasized that the term "cost to complete" assumes a
definite meaning in the const1uction industry, and relates to "the right of the owner (or in this
case, the main contractor) to collect damages against the contractor (in this case, the sub-
contractor) for the latter's failure to complete the work as stipulated, prompting the former to
take-over the project and complete the work by administration or by a different contractor."36

Aggrieved, DLCI filed a petition for review before the CA, insisting on its right to claim against
the Performance Bond.

CA Ruling

The CA granted DLCI's petition for review through the Assailed Decision, the dispositive
portion of which reads:

WHEREFORE, the instant petition is GRANTED. The [CIAC Decision] is REVERSED and
SET ASIDE. [Altech] and [Mercantile] are jointly and solidarily liable to pay [DLCI] the
amount of Php31,618,494.81 representing the costs incurred by [DLCI] in completing the
project and an interest at the rate of 2% per month on the said amount due from
September 3, 1999 until the amount of Php31,618,494.81 is fully paid. Furthermore, a 12%
interest per annum shall be imposed on the award upon the finality of this Decision until the
payment thereof.37 (Emphasis supplied; emphasis in the original omitted)

The CA observed that negotiations between and among DLCI, Altech and Mercantile continued
after the termination of the Sub-Contract, and that DLCI served its final written demand38 upon
Altech and Mercantile on January 20, 2003. A meeting between DLCI and Mercantile's
representatives followed on .January 27, 2003, where said parties mutually agreed that attempts
to arrive at an amicable settlement have failed.39

Considering the foregoing, the CA ruled that the filing of the CIAC Complaint four (4) months
later, or on May 29, 2003, was done within a reasonable time.

The CA further held that Mercantile cannot invoke laches to evade liability in this case since the
CIAC Complaint was brought within the prescriptive period of ten (10) years for filing an action
upon a written contract (i.e., the Performance Bond),41 inasmuch as DLCI's right of action only
arose on January 27, 2003, when negotiations between the parties ceased.

Ultimately, the CA found Mercantile liable under the Performance Bond. Citing Article 2047 of
the Civil Code governing suretyship, it held:

By executing the [P]erformance [B]ond, Mercantile, as surety, guaranteed the performance and
completion by Altech of its sub contracted works, and in case of Altech's failure to complete the
[P]roject according to the terms of the Sub-Contract x x x, Mercantile's liability, as surety, sets
in.

A careful review of the record[s] of the case revealed that Altech has reneged on its undertaking
under the Sub-Contract before DLCI asked Mercantile for the liquidation of the [P]erformance
[B]ond on September 3, 1999. On various dates, DLCI sent letters to Altech concerning the
latter's continued poor performance and delays which seriously affected the progress of DLCI' s
programmed work. DLCI mentioned that it may have no other alternative but to seek recourse
through the terms of the Sub-Contract and that repair works, as well as, associated costs as a
result of damage to other contractors' works due to Altech's delay shall be charged to Altech's
account.

Apparently, Altech had already been in default even prior to DLCI's call on the
[P]erformance [B]ond. By reason of said default, liability attached to Altech and as a
consequence, the liability of Mercantile as surety had arisen. By the language of the bond
issued by Mercantile, it guaranteed the full and faithful compliance by Altech of its
obligations set forth in its Sub-Contract with DLCI. This guarantee made by Mercantile
gave DLCI the right to proceed against the former following Altech's default or non-
compliance with its obligation.42 (Emphasis supplied)

Contrary to the Tribunal's findings, the CA held that DLCI's First Call was valid despite its
failure to reflect the specific amount claimed. While DLCI's exact monetary claim was still
undetermined at the time of the First Call, it was already understood, by the terms of the
Performance Bond, that such amount would not exceed Php90,448,941.60.43 In addition, the CA
ruled that Mercantile cannot escape its liability under the Performance Bond due to its alleged
expiration, considering that it was Mercantile's own inaction which delayed the evaluation of
DLCI's claim.44

Further, the CA ruled that the termination of the Sub-Contract was justified by Altech's
consistent delay and poor workmanship, regardless of the level of its accomplishment at the time
of termination.45 As a result, Mercantile is liable for the costs of completion claimed by DLCI
having guaranteed the full and faithful compliance of Altech's obligations under the Sub-
Contract.

Finally, while the CA found Mercantile liable to pay DLCI's claim, it fom1d no basis to hold it
liable for costs of litigation and attorney's fees there being no evidence that the former acted in
bad faith.47

Mercantile's motion for reconsideration was denied by the CA through the Assailed Resolution,
which Mercantile received on January 10, 2013.48
On January 17, 2013, Mercantile filed a Motion for Extension of Time49 praying that it be
granted a period of thirty (30) days, or until February 24, 201350 to file its Petition, which the
Court granted.51

Mercantile filed the present Petition on February 20, 2013.52

The Court directed DLCI to file its comment on the Petition in its Resolution53 dated March 18,
2013.

DLCI filed its Comment54 on July 2, 2013, to which Mercantile filed its Reply.55

The Issue

The Court is called upon to determine whether the CA erred when it directed Mercantile to pay
DLCI the sum of Php31,618,494.81 on the basis of the Performance Bond, with stipulated
interest at the rate of 2% per month.

The Court's Ruling

The Petition is denied for lack of merit. The Assailed Decision and Resolution are affirmed, with
modification.

The CIAC Complaint was timely filed.

Foremost, Mercantile insists that the CIAC Complaint should have been dismissed outright since
DLCI failed to file it within a reasonable time. A plain reading of Section 2, Paragraph 25 of the
Sub-Contract belies this claim.

Section 2, Paragraph 25 of the Sub-Contract requires that any demand for arbitration between
and among the parties shall be made within a reasonable time after the dispute has arisen
and attempts to settle amicably have failed.

Mercantile does not dispute that all efforts to arrive at an amicable settlement proved futile on
January 27, 2003,57 following its refusal to heed DLCI's final demand for payment. Verily, the
filing of the CIAC Complaint four (4) months later, that is, on May 29, 2003, was done within a
reasonable time from the reckoning date set by Section 2, Paragraph 25 of the Sub Contract.

DLCJ's demand for liquidation through

the First Call was valid.

It is a well-established rule that a contract stands as the law between the parties for as long as it is
not contrary to law, morals, good customs, public order, or public policy.58 Hence, to determine
the validity of DLCI's demand for liquidation, reference to the conditions of the Performance
Bond is proper.
On the conditions for recovery, the Performance Bond states:
[T]his bond is conditioned x x x upon the OBLIGEE's [DLCI's] first demand, the SURETY
[(Mercantile)] shall immediately indemnify [DLCI] notwithstanding any dispute to the
effect that the principal has fulfilled its contractual obligation, the amount
demanded; PROVIDED however, that the liability of [Mercantile] under this bond shall in no
case exceed the x x x sum [of Php90,448,941.60]. [Mercantile] further agrees to pay [DLCI]
interest at the rate of 2% per month on the amount due from the date of rece[i]pt by
[Mercantile] of [DLCI's] first demand letter up to the date of actual payment.59 (Emphasis
supplied; italics omitted)

By these terms, Mercantile obligated itself to pay DLCI immediately upon demand,

notwithstanding any dispute as to the fulfillment of Altech's obligations under the Sub-Contract.
The Performance Bond thus stands as a contract of surety contemplated under Article 2047 of
the Civil Code which states:

ART. 2047. By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the
obligation of the principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4,
Chapter 3, Title I of this Book60shall be observed. In such case the contract is called a
suretyship. (Emphasis supplied)
Through a contract of suretyship, one party called the surety, guarantees the performance by
another party, called the principal or obligor, of an obligation or undertaking in favor of another
party, called the obligee.61 As a result, the surety is considered in law as being the same party as
the debtor in relation to whatever is adjudged touching upon the obligation of the latter, and their
liabilities are interwoven as to be inseparable.62

While the contract of surety stands secondary to the principal obligation, the surety's liability is
direct, primary and absolute, albeit limited to the amount for which the contract of surety is
issued.63 The surety's liability attaches the moment a demand for payment is made by the
creditor. The Court's ruling in Trade and Investment Development Corporation of the
Philippines v. Asia Paces Corporation64 lends guidance:

x x x [S]ince the surety is a solidary debtor, it is not necessary that the original debtor first
failed to pay before the surety could be made liable; it is enough that a demand for
payment is made by the creditor for the surety's liability to attach. Article 1216 of the Civil
Code provides that:
Article 1216. The creditor may proceed against any one of the solidary debtors or some or all of
them simultaneously.

The demand made against one of them shall not be an obstacle to those which may subsequently
be directed against the others, so long as the debt has not been fully collected. 65 (Emphasis
supplied)
While the Performance Bond in this case is "conditioned" upon DLCI's first demand, a close
reading of its terms unequivocally indicates that Mercantile's liability thereunder consists of
a pure obligation since such liability attaches immediately upon demand, and is neither
dependent upon any future or uncertain event, nor a past event unknown to the parties.66 Thus,
the Performance Bond is one that is callable on demand, wherein mere demand triggers
Mercantile's obligation (as surety) to indemnify DLCI (the obligee) the amount for which said
bond was issued, that is, Php90,448,941.60.67

Accordingly, the requirement of "first demand" in this case should be understood in light of
Article 1169,68 wherein the obligee is deemed to be in delay upon judicial or extra-judicial
demand. Clearly, Mercantile's liability became due upon its receipt of the First Call.

In this respect, DLCI's alleged failure to state the value of its claim is of no moment. As astutely
observed by the CA:

x x x [The Tribunal] makes much out of DLCI's failure to state the specific amount that it is
claiming. It must be emphasized that at the time of the call on the bond, Mercantile's obligation
guaranteeing project completion already arose and it is understood that the exact amount, while
still undetermined, shall not exceed the amount of the bond [Php90,448,941.60].69

The Tribunal appears to have overlooked the fact that the First Call demanded for
the liquidation of the Performance Bond, that is, the payment of the entire amount for which it
was issued. Payments made in response to DLCI's demand for liquidation would have then been
subject to subsequent adjustment following the final settlement of Altech and DLCI's respective
accounts. This much is clear from the terms of the Performance Bond.70

The Performance Bond itself provides that Mercantile's liability is not contingent upon the
determination of the actual amount for which Altech is liable. In the event of an overpayment,
Mercantile can proceed against DLCI based on the principle of unjust enrichment.71 Any amount
subject to reimbursement would then assume the nature of a forbearance of money, subject to
legal interest.

In any case, it bears stressing that Mercantile made no mention of the purported defect in DLCI's
First Call at any time prior to the CIAC proceedings. To recall, Mercantile premised its refusal to
evaluate DLCI's claim solely on the pending negotiations between DLCI and Altech.
Mercantile's objection regarding the validity and completeness of the First Call, which it
belatedly raised during the CIAC proceedings, appears to have been an afterthought.

For these reasons, the Court finds Mercantile's refusal to evaluate DLCI's claim unjustified.

DLCI is entitled to claim the costs it

incurred  as  a  consequence  of  Altech'
s delay and poor workmanship.

Under the Performance Bond, Altech and Mercantile jointly and severally bound themselves "for
the payment of the [Performance] Bond in the event that Altech [should] fail to fully and
faithfully undertake and complete its scope of work in strict compliance with the general
conditions, plans and specifications, bill of quantities and other documents, which were
[furnished to] Altech x x x and which [were] incorporated in said Performance Bond x x x by
reference."72

In turn, the general conditions of the Sub-Contract between DLCI and Altech provide:

6. Commencement [and] Completion

xxxx

(12) Time is an essential feature of the [Sub-Contract]. If [Altech] shall fail to complete the
Sub-Contract Works within the time or times required by its obligations hereunder[,
Altech] shall indemnify [DLCI] for any costs, losses or expenses caused by such
delay, including but not limited to any liquidated damages or penalties for which [DLCI] may
become liable under the Main Contract as a result wholly or partly of [Altech's] default x x x.
xxxx

17. [Altech's] Default

xxxx

(f) [If Altech] fails to execute the Sub-Contract works or to perform his other obligations in
accordance with the Sub-Contract after being required in writing so to do by [DLCI]; x x x
xxxx

(3) [DLCI] may in lieu of giving a notice of termination x x x take part only of the Sub-Contract
Works out of the hands of [Altech] and may[,] by himself, his servants or agents execute such
part and in such event [DLCI] may recover his reasonable costs of so doing from [Altech], or
deduct such costs from monies otherwise becoming due to [Altech].73 (Emphasis supplied; italics
omitted)

The records show that Altech failed to accomplish its work in a timely and satisfactory manner.
This is apparent from the correspondences,74 which DLCI submitted as evidence. Mercantile had
the full opportunity to contest the truthfulness and veracity of these correspondences and the
matters to which they pertain. Instead of doing so, Mercantile merely argued that DLCI's failure
to "pray for Liquidated Damages and Cost for Rectification of work" belies its claim of delay
and poor workmanship.75

Mercantile's undue reliance on nomenclature does not support its cause. To recall, the CIAC
Complaint prayed for the payment of costs incurred to complete the sub-contract works.76 These
costs represent those incurred as a consequence of Altech's delay and poor workmanship. Verily,
these costs are chargeable against the Performance Bond, inasmuch as the latter stands as a
 guarantee for Altech's full and faithful compliance with the Sub-Contract.

Mercantile further attempts to evade liability on the Performance Bond by drawing a

distinction between first, costs incurred before and after termination of the Sub-Contract
and also, between costs incurred to complete the project and those which are claimed due to
overpayment. However, these distinctions are irrelevant to Mercantile's liability under the
Performance Bond.

At the risk of being repetitive, Mercantile's Performance Bond guarantees Altech's full and
faithful compliance with the Sub-Contract. Accordingly, the scope of the Performance Bond
should be understood to cover all costs incurred by DLCI as a result of Altech's failure to comply
with its obligations under said agreement. To limit the scope of the Performance Bond only to
costs incurred before termination of the Sub Contract would be to create an additional condition
for recovery which does not appear on the face of the Performance Bond. To stress, Mercantile's
liability is conditioned only upon DLCI's first demand, "notwithstanding any dispute to the effect
that the principal has fulfilled its contractual obligation [or] the amount demanded."77

It is likewise erroneous for Mercantile to argue that DLCI's claim is a mere request for
reimbursement for overpayment which falls outside of the scope of the Performance Bond.

Reference to DLCI's breakdown of claims is proper, thus:

1. Total    
sub-
contract
amount
  Aluminum works 361,451,520.00
  Glazing works __ 
90,793,188.00________________
________
  452,244,708
.00
 
2.
Adjustme
nt
  Additional works/dollar 107,532,754.60
fluctuation
  Less: [Rockwell Debit Memo]78 ___(168,773,746.89)___________
____________
    (61,240,992.
29)
   
    391,003,715
.71
   
3. DLCI's
liabilities
to date
  Payment on Altech's letter of 36,930,126.62
credit and telegraphic transfers79
  Payment in favor of Altech's local 5,485,386.43
suppliers
  Interest expense80 240,709.94
  Payment to Fuji Reynolds81 1,763,819.91
  Payment to J.A. Shillinglaw82 80,000.00
  Contra-charges83 ___1,236,609.26______________
__________
     
    (45,736,652.
16)

4. Total
amount
paid by
DLCI to
Altech
  Measured worli:s less charges 297,125,482.52
  Additional works/dollar ___74,221,471.20_____________
fluctuation ___________
    (371,346,95
3.72)
   
  Balance currently remaining on (26,079,890.
Altech's estimated final account 17)
   
5. Future       
support/D ____________________________
LCI ____________
liabilities84
    (28,150,840.
04)
       
Retention 22,612,235.40
amount
earlier
withheld
from
Altech85
          
========================
=====
Altech's (31,618,494.81)86
Liability

Based on DLCI's breakdown of claims, the sub-contract price, after due adjustment,87 amounts to
Php391,003,715.71.

Due to Altech's delay and poor workmanship, DLCI was constrained to incur additional
expenses to complete the sub-contract works, which, in turn, amounted to
Php73,887,492.20.88 These expenses, when charged against Altech's account, bring down the
total sub-contract price to Php317,116,223.51.

It appears, however, that Altech was able to previously bill and receive payment for
accomplished work in the amount of Php371,346,953.7289 — an amount evidently more than
what Altech is entitled to after taking DLCI's additional expenses for completion into account.

Thus, DLCI's claim of Php31,618,494.81 represents the difference between the adjusted sub-
contract price of Php317,116,223.51 and DLCI's previous payments of
Php371,346,953.72, less the retention amount which remains with DLCI. The fact that DLCI
paid in excess of what Altech is now entitled to under the Sub-Contract does not place the claim
beyond the scope of the Performance Bond, inasmuch as the claim results from additional
expenses incurred by DLCI to complete the sub-contract works — expenses which DLCI would
not have otherwise incurred had Altech fully and faithfully complied with its obligations under
the Sub-Contract.

Altech's obligation to perform the specified works under the Sub Contract constitutes an
obligation to do. Obligations to do have as their object a prestation consisting of a performance
of a certain activity which, in turn, cannot be exacted without exercising violence against the
person of the debtor.90 Accordingly, the debtor's failure to fulfill the prestation gives rise to the
creditor's right to obtain from the latter's assets the satisfaction of the money value of the
prestation.91

As Altech's surety, Mercantile is bound to answer for the costs incurred by DLCI as a
consequence of the latter's non-fulfillment, pursuant to Article 1167 of the Civil Code:

ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his
cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore, it may be decreed that what has been poorly done be undone.

It is well to note that Mercantile had the opportunity to contest the costs claimed by DLCI, but
again, did not do so. Accordingly, the sum payable, as computed by DLCI, stands.

Article  2080 of the Civil  Code  does not

apply.

In a last ditch effort to escape liability, Mercantile maintains that it should be deemed released
from its obligations under the Performance Bond as it had been deprived of the opportunity to
exercise its right of subrogation against Altech due to DLCI's "inexcusable delay" in filing the
CIAC Complaint. Mercantile bases this assertion on Article 2080 of the Civil Code.

It has already been settled that no delay may be attributed to DLCI with respect to the
filing of the CIAC Complaint. Nevertheless, even if it is assumed, for the sake of argument,
that DLCI was in fact guilty of inexcusable delay, Mercantile's argument still fails.

A plain reading of Article 2080 indicates that the article applies to guarantors. Mercantile's
position that the provision applies with equal force to sureties fails to appreciate the fundamental
distinctions between the respective liabilities of a guarantor and a surety.

A surety is an insurer of the debt, whereas a guarantor is an insurer of the solvency of the debtor.
A suretyship is an undertaking that the debt shall be paid; a guaranty, an undertaking that the
debtor shall pay. Stated differently, a surety promises to pay the principal's debt if the principal
will not pay, while a guarantor agrees that the creditor, after proceeding against the principal,
may proceed against the guarantor if the principal is unable to pay. A surety binds himself to
perform if the principal does not, without regard to his ability to do so. A guarantor, on the
other hand, does not contract that the principal will pay, but simply that he is able to do so. In
other words, a surety undertakes directly for the payment and is so responsible at once if
the principal debtor makes default, while a guarantor contracts to pay if, by the use of due
diligence, the debt cannot be made out of the principal debtor. x x x92 (Emphasis supplied;
emphasis and underscoring in the original omitted)

In Bicol Savings  & Loan Association  v. Guinhawa,93 the Court unequivocally ruled that Article
2080 applies only with respect to the liability of a guarantor. The Court reiterated this ruling in
the subsequent case of Ang v. Associated Bank,94 where it held:

As petitioner acknowledged it to be, the relation between an accommodation party and the
accommodated party is one of principal and surety — the accommodation party being the surety.
As such, he is deemed an original promisor and debtor from the beginning; he is considered in
law as the same party as the debtor in relation to whatever is adjudged touching the obligation of
the latter since their liabilities are interwoven as to be inseparable. Although a contract of
suretyship is in essence accessory or collateral to a valid principal obligation, the surety's liability
to the creditor is immediate, primary and absolute; he is directly and equally bound with the
principal. As an equivalent of a regular party to the undertaking, a surety becomes liable to
the debt and duty of the principal obligor even without possessing a direct or personal
interest in the obligations nor does he receive any benefit therefrom.

Contrary to petitioner's adamant stand, however, Article 2080 of the Civil Code does not
apply in a contract of suretyship. [Article] 2047 of the Civil Code states that if a person binds
himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I, Book
IV of the Civil Code must be observed. Accordingly, Articles 1207 up to 1222 of the Code (on
joint and solidary obligations) shall govern the relationship of petitioner[-surety] with the
bank.95 (Emphasis supplied; italics in the original and citations omitted)

Verily, a surety's liability stands without regard to the debtor's ability to perform his obligations
under the contract subject of the suretyship. Mercantile's reliance on Article 2080 is thus
misplaced.

DLCI  is  entitled  to  reimbursement  for

litigation expenses.

The records show that DLCI claimed the amount of Php200,000.00 representing litigation
expenses incurred in connection with the present case. The Tribunal denied the claim, Mercantile
being the prevailing party therein.96

The CA also denied DLCI's claim for reimbursement, as it found Mercantile's position "not so
untenable as to amount to gross and evident bad faith."97

The Court disagrees.

Article 2208 of the Civil Code entitles the plaintiff to an award of attorney's fees and expenses of
litigation when "the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiffs plainly valid, just and demandable claim."98

To recall, the Performance Bond explicitly required Mercantile to immediately indemnify

DLCI notwithstanding any dispute as to Altech's fulfillment of its contractual obligations
under the Sub-Contract.99 Mercantile's refusal to heed DLCI's demand for liquidation to
purportedly await Altech's action thereon despite the clear and unequivocal terms of the
Performance Bond defeated the very purpose for which the said bond had been procured.
Mercantile's unjust refusal to evaluate DLCI's claim appears to have been a deliberate attempt to
delay action thereon until the expiration of the Perfonnance Bond. Such gross and evident bad
faith on the part of Mercantile warrants the award of litigation expenses in DLCI's favor.

Only  Mercantile  may  be  held  liable in

this case.

It is a well-settled rule that a judgment binds only those who were made parties to the case, thus:

In relation to the rules of civil procedure, it is elementary that a judgment of a court is conclusive
and binding only upon the parties and their successors-in-interest after the commencement of the
action in court. A decision rendered on a complaint in a civil action or proceeding does not bind
or prejudice a person not impleaded therein, for no person shall be adversely affected by the
outcome of a civil action or proceeding in which he is not a party. The principle that a person
cannot be prejudiced by a ruling rendered in an action or proceeding in which he has not been
made a party conforms to the constitutional guarantee of due process of law.100

While the CA petition was docketed as "DMCI  Laing Construction, Inc. v. Construction
Industry Arbitration Commission, Altech Fabrication Industries, Inc. and Mercantile Insurance,
Co., lnc."101 the records do not show that the CA had in fact acquired jurisdiction over Altech
either by service of summons or voluntary participation.102

Accordingly, the CA erred when it rendered judgment against Altech which, for all intents and
purposes, stands as a non-party to the present case. Nevertheless, the Court deems it necessary to
stress that Mercantile retains the right to seek full reimbursement from Altech on the basis of
Article 2066103 of the Civil Code in a separate case filed for the purpose.

WHEREFORE, premises considered, the petition for review on certiorari is DENIED. The

Decision dated July 30, 2012 and Resolution dated January 7, 2013 rendered by the Court of
Appeals in CA-G.R. SP. No. 80705 are AFFIRMED WITH MODIFICATION.

Petitioner The Mercantile Insurance, Co. Inc. is liable to pay respondent DMCI-Laing
Construction, Inc. the following amounts as surety, pursuant to the terms of Performm1ce Bond
No. G (13)-1500/97 dated September 5, 1997:

1. Php31,618,494.81, representing the costs incurred by respondent as a result of the delay

and poor workmanship of petitioner's principal, Altech Fabrication Industries, Inc.
(Principal Award);

2. Interest applied on the Principal Award, at the rate of two percent (2%) per month as
stipulated under Performance Bond No. G (13)-1500/97, reckoned from September 3,
1999, the date petitioner received respondent's first demand (Stipulated Interest) until full
payment;
 3. Litigation expenses amounting to Php200,000.00.

This pronouncement shall be without prejudice to all legal remedies which petitioner The
Mercantile Insurance, Co., Inc. may pursue against its principal, Altech Fabrication Industries,
Inc.

SO ORDERED.

THIRD DIVISION

G.R.No. 206598, September 04, 2019

SPOUSES SALVADOR BATOLINIO AND AMOR P. BATOLINIO, REPRESENTED BY

ROY B. PANTALEON AS ATTORNEY-IN-FACT, PETITIONERS, v. SHERIFF JANET
YAP-ROSAS AND PHILIPPINE SAVINGS BANK, RESPONDENTS.

RESOLUTION

INTING, J.:

This Petition for Review on Certiorari assails the Decision1 dated November 27, 2012 of the
Court of Appeals (CA), dismissing the petition for certiorari filed therewith, and its
Resolution2 dated April 4, 2013, denying the motion for reconsideration, in CA-G.R. SP No.
117859.

The Antecedents

The present case stemmed from an Ex Parte Petition3 for the issuance of a writ of possession
filed by Philippine Savings Bank (private respondent). According to private respondent: on
October 26, 2007, Nicefora. Miñoza (Miñoza) obtained a loan from it in the amount of P-5.7
Million;4 as security thereof, Miñoza executed a real estate mortgage (REM) over a parcel of
land registered under her name, located in Las Piñas City and covered by Transfer Certificate of
Title (TCT) No. T-1081845 (subject property); Miñoza failed to pay the loan when it fell due;
thus, private respondent instituted an extrajudicial foreclosure of the REM; and later, it emerged
as the highest bidder at the public auction such that a certificate of sale was eventually issued in
its favor and registered with the Registry of Deeds on June 23, 2008. Private respondent added
that it demanded from Miñoza and all those persons claiming rights under her to vacate the
subject property, but to no avail.

On July 29, 2010, the Regional Trial Court (RTC) of Las Piñas City, Branch 198 granted6 the
petition and issued the corresponding writ of possession.7 In granting the petition, the RTC noted
that after the certificate of sale was issued and subsequent to the expiration of the redemption
period, private respondent caused the consolidation of title and anew one (TCT No. T-118772)
 was issued in its name. This being the case, the RTC ruled that the issuance of a writ of
possession became a matter of right in favor of private respondent.

Meanwhile, spouses Salvador Batolinio and Amor P. Batolinio (petitioners) filed an Omnibus
Motion with Prayer for the Issuance of a Preliminary Mandatory Injunction.8 They claimed that
they were the owners of the subject property, which was previously covered by TCT No. T-
80337 under their name. They stated that in 2003, they mortgaged it to Union Bank of the
Philippines (Union Bank), but in September 2007, through a certain Leonila Briones, Yolanda
Vargas, and Fedeline Balbis, they decided to sell it to Miñoza for P2.435 Million. Allegedly, the
aforesaid sale was subject to these conditions: (1) Miñoza would secure financing from one
Velez and Maria Elena Simbulan, who, in turn, would pay petitioners' balance with Union Bank;
(2) Miñoza would then secure a loan from private respondent for P5.5 Million using the same
property as collateral; and (3) upon approval of the loan, private respondent would release the
proceeds to petitioners.

While petitioners asserted that Miñoza, in cahoots with other people, forged their signatures in
the deed of sale and certificate of full payment pertaining to the subject property, they confirmed
having executed a letter of guaranty for private respondent to facilitate the loan of Miñoza. At
the same time, they stated that they filed an adverse claim on the subject property as well as a
civil case9 for cancellation of title, specific performance, and damages against Miñoza, among
other persons.

Petitioners added that they were third persons claiming rights adverse to Miñoza; thus, they
could not be deprived of the possession of the subject property without being heard of their claim
first. They further argued that private respondent was not a mortgagee or purchaser for value as it
purportedly did not observe due diligence before entering into a mortgage agreement with
Miñoza. Lastly, they confirmed receiving a notice to vacate relative to the grant of private
respondent's petition for the issuance of a writ of possession.

Ruling of the RTC

In its Order10 dated December 17, 2010, the RTC denied petitioners' Omnibus Motion. It stressed
that since its Decision dated July 29, 2010 already became final and executory, then the issuance
of a writ of possession could no longer be enjoined. It added that it was its ministerial duty to
issue a writ of possession upon the ex parte application of private respondent which had caused
the extrajudicial foreclosure of the REM and acquired the subject property in a foreclosure sale.
It decreed that the pendency of the civil case filed by petitioners would not bar the issuance of
such writ in favor of private respondent.

Undaunted, petitioners filed a petition for certiorari with the CA.

Ruling of the CA

On November 27, 2012, the CA dismissed the petition.

The CA elucidated that because petitioners sold the subject property to Miñoza through an
absolute sale and made no reservation of ownership until its full payment, they parted with their
ownership, leaving them without anymore right over the land in dispute. It also explained that
petitioners could not be considered third parties whose rights were adverse to Miñoza because of
the same reason that they already sold their rights and participation over the property through an
absolute sale.

In addition, the CA ruled that petitioners' allegation that private respondent was not a mortgagee
or buyer in good faith would not warrant the suspension of the writ of possession because
questions on the validity of the mortgage, its foreclosure or sale were not grounds for the denial
of the issuance of a writ of possession. Finally, it decreed that until the foreclosure sale was
annulled, the issuance of the writ of possession was ministerial.

On April 4, 2013, the CA denied petitioners' motion for reconsideration.

Hence, petitioners filed this Petition raising the following issues:

Issues

a. x x x [W]hether it was correct for the [CA] to rule that the petitioners do
not fall under the category of a "third party who [is] actually holding the
property adversely to the judgment obligor" on the ground that the
petitioners have already parted with their ownership of the subject
property;

b. Whether it was correct for the [CA] to rule on an issue of fact - though not
raised on appeal - which is yet to be determined by a lower court; of
competent jurisdiction;

c. Whether it was correct for the [CA] to rule that the issue of [private]
respondent xxx being a mortgagee or buyer in good faith or for value does
not warrant the suspension of the writ of possession;

d. Whether the RTC Branch 198 has been impartial or unbiased in

adjudicating LRC Case No. LP 09-0030.11

Petitioners contend that the deed of sale they purportedly executed in favor of Miñoza was
fraudulent. According to them, due to such forged deed, Miñoza acquired no right over the
subject property and she could not convey it to private respondent; and, all transactions
subsequent to the sale between her and private respondent are also void. They further claim that
they have been in open, exclusive and continuous possession of the subject property which
proves that they are its owners.

Petitioners likewise posit that they assert a claim of ownership adverse to that of Miñoza and
private respondent. They argue that their rights as third parties cannot be resolved in an ex
parte proceeding where they were not impleaded or where they did not appear to present their
side.

Finally, petitioners maintain that private respondent was not a mortgagee or purchaser in good
faith and for value because it did not exercise due diligence required of banking and financial
institutions before entering into a mortgage contract with Miñoza. They insist that the fact that
the property in dispute was not in possession of Miñoza at the time she contracted the loan
should have placed private respondent on guard and prompted it to make a more thorough
inquiry into its ownership.
Private respondent, on its end, argues, among other things, that petitioners were not adverse
claimants because when they already sold the subject property, petitioners no longer hold any
valid title over it. It also denies that petitioners are in actual possession of the property in dispute
as they did not submit any certification that they reside therein.

Our Ruling

The Petition is without merit.

Issuance of a writ of possession;

when to apply, requirements

Section 7 of Act No. 3135,12 as amended by Act No. 4118,13 provides for the manner for the
issuance of a writ of possession in extrajudicial foreclosure of REM, to wit:

Sec. 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of
First Instance of the province or place where the property or any part thereof is situated, to give
him possession thereof during the redemption period, furnishing bond in an amount equivalent to
the use of the property for a period of twelve months, to indemnify the debtor in case it be shown
that the sale was made without violating the mortgage or without complying with the
requirements of this Act. Such petition shall be made under oath and filed in form of an ex
parte motion in the registration or cadastral proceedings if the property is registered, or in special
proceedings in the case of property registered under the Mortgage Law or under section one
hundred and ninety-four of the Administrative Code, or of any other real property encumbered
with a mortgage duly registered in the office of any register of deeds in accordance with any
existing law, and in each case the clerk of the [sic] court shall, upon the filing of such petition,
collect the fees specified in paragraph eleven of section one hundred and fourteen of Act
Numbered Four hundred and ninety-six, as amended by Act Numbered Twenty-eight hundred
and sixty-six, and the court shall, upon approval of the bond, order that a writ of possession
issue, addressed to the sheriff of the province in which the property is situated, who shall execute
said order immediately.

Simply put, a successful buyer of a foreclosed property bought at a public auction sale is
authorized to apply for a writ of possession (1) during the redemption period upon filing of the
corresponding bond; and, (2) after the expiration of the redemption period without any need of a
bond.14
 After the lapse of the one-year
redemption period, writ of possession
is a matter of right; exception

Meanwhile, Section 33, Rule 39 of the Rules of Court, which extends to extrajudicial foreclosure
sales,15 explicitly provides that when no redemption is made within one year from the date of
registration of the certificate of sale, the purchaser is already entitled to the possession of the
subject property unless a third party is holding it adversely to the judgment debtor.16

It bears stressing that a purchaser in an extrajudicial foreclosure becomes the absolute owner of
the subject property in case no redemption is made within one year from the registration of the
certificate of sale. As the absolute owner, the purchaser is entitled to all the rights of ownership,
including the right to possess the property.17 It, thus, follows that upon proper application and
evidence of ownership, the issuance of a writ of possession becomes a ministerial duty of the
court except where a third party is holding the property adversely to the judgment debtor. In the
latter case, the issuance of a writ of possession is no longer ministerial and may not be done ex
parte and hearing for the purpose of determining entitlement to possession must be held.18 Let it
be stressed that by third party holding the property by adverse title or right, the Court refers to
one who is in possession of the disputed property in his or her own right such as a co-owner, a
tenant or a usufructuary.19

In this case, petitioners insist that the RTC improperly issued a writ of possession in favor of
private respondent on the contention that they were third parties holding the subject property
adverse to the judgment debtor, Miñoza.

Petitioners' contention is untenable.

First, petitioners sold the subject property to Miñoza through a deed of absolute sale. By doing
so, they relinquished their title over it in favor of the latter. This also means that from the time
that they sold the subject property, petitioners no longer had any right over it and cannot be
considered as third parties with an adverse interest from the judgment debtor. Second, as pointed
out by the CA, the sale was an absolute one; thereby, it was without any reservation of
ownership by its previous owners (petitioners). In fact, the interest of the judgment debtor
stemmed from petitioners themselves which refutes the very claim of petitioners of a different
interest from that of Miñoza.

Third, considering that the sale of real property is an effective mode of transferring ownership, it
follows that there is sufficient reason to conclude that petitioners have no independent right over
the subject property.20

No violation of due process of law

Based on the foregoing disquisitions, petitioners cannot be deemed as third parties who were not
privy to the debtor. They are not entitled to protection and may be removed from the subject
property without violating their right to due process of law.21
Petitioners were no strangers to the transaction between private respondent and Miñoza. By their
own account, they themselves confirmed that they decided to sell their property to Miñoza and
that they were well aware " of the mortgage that Miñoza and private respondent had entered into.
Despite these assertions, petitioners may avail themselves of legal remedies should they maintain
their entitlement to the subject property, that is, by filing an independent and separate
action,22 which they already did when they filed an action for cancellation of title against
Miñoza, among other persons.

It is also of equal importance to note that petitioners' right to due process was not violated
considering that by its very nature, an ex parte application for a writ of possession involves a
proceeding for the benefit of one party without necessarily giving notice to any adverse party. It.
is summary in nature and a mere incident in the transfer of title. It does not bar any purported
adverse party from filing a case for annulment of mortgage or foreclosure.23 At the same time,
"not even a pending action to annul the mortgage or the foreclosure sale will by itself stay the
issuance of a writ of possession x x x. The trial court, where the application for a writ of
possession is filed, does not need to look into the validity of the mortgage or the manner of its
foreclosure. The purchaser is entitled to a writ of possession without prejudice to the outcome of
the pending annulment case."24 Under these circumstances, the issue that private respondent was
not a purchaser or mortgagee in good faith will not prevent the issuance of a writ of possession in
its favor given that this issue is one that may be subject of a different proceeding, not the one
involving the application for a writ of possession.

To recapitulate, the right of private respondent to the possession of the subject property was fully
established. As the buyer in the foreclosure sale and to which the title to the property was already
issued, private respondent's right over it is absolute, which the court must facilitate into
delivering. In this regard, there being sufficient factual and legal bases in issuing the writ of
possession in favor of private respondent, the CA correctly found that the RTC committed no
grave abuse of discretion and there is no reason for the issuance of a writ of certiorari against the
trial court.

WHEREFORE, the Petition is DENIED. The Decision dated November 27, 2012 and the
Resolution dated April 4, 2013 of the Court of Appeals in CA-G.R. SP No. 117859
are AFFIRMED.

SO ORDERED.

SECOND DIVISION

G.R. No. 219673, September 02, 2019

 SOLID HOMES, INC., PETITIONER, v. SPOUSES ARTEMIO JURADO AND
CONSUELO O. JURADO, RESPONDENTS.

DECISION

REYES, J. JR., J.:

This Petition for Review1 under Rule 45 assails the Decision2 dated March 13, 2015 of the Court
of Appeals (CA) in CA-GR. SP No. 130627. Also assailed is the CA Resolution3 dated July 22,
2015, which denied petitioner Solid Homes, Inc.'s (Solid Homes) motion for partial
reconsideration.4

The assailed CA Decision essentially affirmed the Decision5 dated May 9, 2012 of the Office of
the President (OP) which, in turn, affirmed the Decision6 dated May 22, 2008 of the Board of
Commissioners of the Housing and Land Use Regulatory Board (HLURB Board), finding Solid
Homes liable to herein respondents spouses Artemio and Consuelo O. Jurado (spouses Jurado)
under the terms of a contract to sell covering a residential lot.

The Facts

In 1977, Solid Homes entered into a Contract to Sell covering a 1,241 square meter residential
lot located at Loyola Grand Villas Subdivision, Marikina, Rizal (subject property) with spouses
Violeta and Jesus Calica (spouses Calica) for the consideration of P434,350.00.7 Spouses Calica
paid P86,870.00 as downpayment and the balance was made payable in equal monthly
installments of P5,646.55 for a period of eight years.8

In 1983, by virtue of a Deed of Assignment and Transfer of Rights, spouses Calica assigned and
transferred their rights as vendees in the Contract to Sell to spouses Jurado for the amount of
P130,352.00. Solid Homes prepared the standard printed form of the Deed of Assignment and
Transfer of Rights and its officer, Rita Castillo Dumatay (Dumatay), attested and affixed her
signature thereon. Spouses Jurado paid the transfer fee for which Solid Homes issued a
provisional receipt. Solid Homes also issued to spouses Jurado a credit memorandum indicating
that the latter paid P108,001.00. As of February 22, 1983, spouses Calica and spouses Jurado
made the total payment of P480,262.95.

Thereafter, spouses Jurado inquired as to the transfer of ownership over the subject property and
were informed by Dumatay that Solid Homes had mortgaged the property and that the mortgage
had been foreclosed.10 Solid Homes undertook to replace the subject property with another lot
and for this purpose, spouses Jurado submitted the required documents. Through letters dated
October 23, 1992 and August 7, 1996, spouses Jurado followed-up on the promised substitute
property but to no avail.11

In 2000, spouses Jurado filed a complaint for specific performance and damages before the
HLURB. The HLURB dismissed the complaint without prejudice.12 Said dismissal was affirmed
by the HLURB Board on April 20, 2005.13

It appears that spouses Jurado no longer pursued any further appeal and instead in 2005, they
refiled the complaint for specific performance and damages before the HLURB. They prayed
that Solid Homes be ordered to replace the lot, or to convey and transfer to them a substitute lot,
or in the alternative, to pay the current value of the lot, or to return the payments made with
interests.14 In answer, Solid Homes argued that the assignment and transfer was void as it was
made without Solid Homes' prior written consent. Solid Homes further raised the defenses of
prescription and laches, res judicata, forum shopping and estoppel.15 Because the complaint was
allegedly unfounded, Solid Homes prayed for the award of damages and attorney's fees.16

The Ruling of the HLURB Arbiter

On June 13, 2007, the HLURB Arbiter issued a Decision dismissing the complaint for lack of
merit. The HLURB Arbiter held that there was no right created in favor of spouses Jurado for
lack of proof that Solid Homes gave its prior written consent to the assignment and transfer of
rights; and that, in any case, spouses Jurado's cause of action had prescribed.17

The Ruling of the HLURB Board of Commissioners

On appeal, the HLURB Board reversed the ruling of the HLURB Arbiter. It ruled that there was
substantial evidence showing that Solid Homes consented and even participated in the transfer of
the property to spouses Jurado. It noted the following: (1) the standard form for the transfer and
assignment of rights was prepared by Solid Homes; (2) Solid Homes required the payment of a
transfer fee which was in fact paid by spouses Jurado in consideration for the transfer of the lot;
(3) Solid Homes presented a subdivision plan to spouses Jurado showing a shaded area which
was designated as a possible replacement lot. The subdivision plan presented in evidence by
spouses Jurado was signed by a representative of Solid Homes; (4) Solid Homes wrote a letter to
spouses Jurado requiring the latter to submit certain documents to facilitate the replacement; and
(5) Solid Homes issued a credit memorandum in favor of spouses Jurado in the amount of
P108,001.00 for the price of the subject property.18

The HLURB Board also brushed aside Solid Homes' argument of prescription and instead noted
that extrajudicial demands were made by spouses Jurado. It likewise disregarded Solid Homes'
defense of res judicata on the ground that the initial HLURB complaint was dismissed without
prejudice.

Accordingly, the HLURB Board disposed as follows:

Wherefore, premises considered, the appeal is GRANTED. The [HLURB Arbiter] decision of
June 13, 2007 is REVERSED and SET ASIDE and a new judgment is hereby rendered ordering:

1.  Respondent to replace the foreclosed lot and to convey to complainants in absolute ownership
a parcel of land of the same area, quality and location as the lot covered by the contract to sell in
the event that respondent is unable to do so, respondent Solid Homes is ordered to pay to
respondent the current fair market value of the foreclosed lot.

2.  Respondent to pay attorney's fees in the amount of Thirty Thousand Pesos ([P]30,000.00) and
moral damages in the amount of Thirty Thousand Pesos ([P]30,000.00), and the cost of the suit.

So ordered.19
Solid Homes moved for reconsideration, arguing that the HLURB Board erred in requiring that
the subject lot be replaced, and in ordering that the same be conveyed to spouses Jurado without
full payment of the purchase price. After examining the buyers' ledger which spouses Jurado
themselves submitted in evidence, the HLURB Board confirmed that spouses Jurado still have a
balance of P145,843.35, which they must pay to be entitled to the conveyance of the substitute
property. The HLURB, thus, ordered spouses Jurado to pay the balance and imposed interest
thereon to commence only from the time when Solid Homes shall make available to spouses
Jurado a substitute lot.20

Thus, in a Resolution21 dated October 2, 2009, the HLURB Board modified its earlier ruling and
accordingly disposed:

WHEREFORE, premises considered, our decision of May 22, 2008 is MODIFIED as follows:
1.  Respondent is ordered to replace the foreclosed lot another of the same area, quality and
location as the lot covered by the Contract to Sell. Thereupon, complainants are ordered to pay
respondents the amount of [P] 145,843.35 with interest at the rate of 12% per annum in
accordance with the contract reckoned from the time the lot is made available to them; upon such
full payment, respondent is ordered to execute a deed of sale and deliver the title of the substitute
lot in complainants' favor.

2.  At complainant's option, or if the above is no longer possible, respondent is hereby ordered to
pay the complainants the fair market value of the lot they lost with interest at the rate of 12% per
annum reckoned from the filing of the complaint until fully paid.

3.  Respondent is ordered to pay complainants moral damages of [P]30,000.00, attorney's fees of
[P]30,000.00 and the cost of the suit.
SO ORDERED.22
Consequently, Solid Homes lodged an appeal to the OP.

The Ruling of the Office of the President

The OP adopted by reference the findings of facts and conclusions of law as contained in the
HLURB Board's Decision and Resolution and held that the same were supported by the evidence
on record. The OP also agreed with the HLURB Board that there was substantial evidence
showing that Solid Homes consented to the transfer and assignment of the property and even
recognized spouses Jurado as the buyers-assignees thereof. It similarly disregarded Solid Homes'
argument that the complaint was barred by res judicata. Finally, the OP held that spouses Jurado
are not guilty of laches for lack of proof that they abandoned their case,23 disposing, thus:
WHEREFORE,  premises  considered,  the  appeal of [Solid Homes] is hereby DISMISSED.

SO ORDERED.24
Solid Homes' subsequent motion for reconsideration met similar denial from the OP.

Through a petition for review, Solid Homes elevated the case to the CA, arguing that the OP
erred in adopting by reference the HLURB's findings of facts and conclusions of law; that the
complaint was barred by res judicata and prescription; that there was no privity of contract
between Solid Homes and spouses Jurado considering that the Deed of Assignment and Transfer
of Rights between spouses Calica and spouses Jurado was void; and that the award of damages
and attorney's fees was without basis.

The Court of Appeals' Ruling

Except as to the award of damages and attorney's fees, the CA affirmed the ruling of the OP.

The CA held that the OP's adoption by reference of the HLURB's findings of facts and
conclusions of law was allowed considering that the administrative decision was based on
evidence and expressed in a manner that sufficiently informed the parties of the bases of the
decision.25  The CA also dismissed Solid Homes' contention that the complaint was barred by res
judicata, noting that the earlier complaint was dismissed by the HLURB without prejudice and
as such, was not a final judgment on the merits. Considering that the complaint was not barred
by res judicata, the imputation of forum shopping is consequently without basis.26

With regard to Solid Homes' contention that the complaint was barred by prescription and laches,
the CA held that spouses Jurado's cause of action arose after February 22, 1983, when Solid
Homes informed the spouses Jurado that the subject property had been mortgaged and
foreclosed. The CA observed that the written extrajudicial demands made by spouses Jurado
in the meantime interrupted the running of the prescriptive period.27

As to whether Solid Homes consented to the assignment and transfer of rights to the Contract to
Sell, the CA found that Solid Homes' consent was evident from the facts that: Solid Homes itself
prepared the standard form of the Deed of Assignment and Transfer of Rights which was attested
and signed by Dumatay; Solid Homes charged a transfer fee; Solid Homes issued a credit
memorandum to spouses Jurado indicating that the amount of PI08,001.00 was credited in favor
of the latter as payment for the subject property; and Solid Homes, through Dumatay, received
the documents from spouses Jurado which the former required to facilitate the replacement of the
subject property.28 The CA, thus, held that by Solid Homes' acts and representations, it led
spouses Jurado to believe that Solid Homes consented to the Deed of Assignment and Transfer
of Rights.29

Addressing finally the issue on the award of damages, the CA ruled that moral damages are
recoverable only when proven and that the award of attorney's fees must have factual and legal
bases which must be stated in the body of the decision. Noting that these requirements were not
satisfied, the CA disallowed the award of moral damages and attorney's fees but sustained the
imposition of the costs of suit against Solid Homes.

The fallo of the CA Decision reads:

We MODIFY the Decision dated 09 May 2012 of Office of the President in O.P. Case No. 09-
K-581 (which affirmed the Resolution dated 02 October 2008 of the Housing and Land Use
Regulatory Board in HLURB Case No. REM-A-070914-0423), as follows: we DELETE the
award for moral damages in the amount of Php30,000.00 and the attorney's fees in the amount of
Php30,000.00.

IT IS SO ORDERED.30
Solid Homes' motion for partial reconsideration met similar denial from the CA in its
Resolution31 dated July 22, 2015.

The Issues

Hence, Solid  Homes resorts to the  present  petition raising  the following issues:

1. Whether or not the Honorable Office of the President as affirmed by the Honorable Court
of Appeals seriously and gravely erred in adopting by reference the findings of fact and
conclusion of law contained in the assailed Decision and Resolution of the HLURB
Board of Commissioners;

2. Whether or not the Honorable Office of the President as affirmed by the Honorable Court
of Appeals seriously and gravely erred in not holding that res judicata has already set-in
in the instant case;

3. Whether or not the Honorable Office of the President as affirmed by the Honorable Court
of Appeals seriously and gravely erred in not holding that prescription and laches have
likewise set-in;

4. Whether or not the Honorable Office of the President as affirmed by the Honorable Court
of Appeals seriously and gravely erred in not holding that respondents are guilty of
forum-shopping;

5. Whether or not the Honorable Office of the President as affirmed by the Honorable Court
of Appeals seriously and gravely erred in not holding that there was no privity of 
contract between respondents and petitioner;

6. Whether or not the Honorable Office of the President as affirmed by the Honorable Court
of Appeals seriously and gravely erred in not holding respondents were in estoppel;
 7. Whether or not the Honorable Office of the President as affirmed by the Honorable Court
of Appeals seriously and gravely erred in ordering to replace the 'alleged' foreclosed lot
covered by the Contract to  Sell.  Thereupon,  respondents  are  ordered to pay petitioner
the amount of [P]145,843.35 with interest at the rate of 12% per annum in accordance
with the contract reckoned from the time the lot is made available to them; and upon such
full payment, petitioner is ordered to execute a deed of sale and deliver title of the
substitute lot in respondents['] favor;

8. Whether or not the Honorable Office of the President as affirmed by the Honorable Court
of Appeals seriously and gravely erred in ordering that at respondents['] option, or if the
above is no longer possible, petitioner is hereby ordered to pay the respondents the fair
market value of the lot they lost with interest at the rate of 12% per annum reckoned from
the filing of the complaint until fully paid; and

9. Whether or not the Honorable Office of the President as affirmed by the Honorable Court
of Appeals seriously and gravely erred in not awarding petitioner to [sic] its
counterclaim.32

Save for the issue on the propriety of the award for damages, the issues raised in the instant
petition were a virtual copy of the issues raised by Solid Homes before the CA.

In essence, Solid Homes is asking the Court to review the correctness of the CA's ruling on the
issues of whether: (a) the OP may adopt by reference the HLURB's findings of facts and
conclusions of law; (b) the complaint should have been dismissed on the grounds of res judicata,
prescription, laches, forum shopping and estoppel; (c) there was privity of contract between
Solid Homes and spouses Jurado; and (d) Solid Homes' counterclaims should have been granted.
Additionally, Solid Homes impugns the correctness of the imposition of a 12% interest rate on
the fair market value of the property instead of 6% pursuant to Nacar v. Gallery Frames.33

The Court's Ruling

The petition is partly meritorious.

Compliance with Constitutional mandate

of a memorandum decision

The question as to whether the OP may adopt by reference the findings and conclusions of the
HLURB was priorly raised and squarely resolved by the Court in Solid Homes, Inc. v.
Laserna34 wherein we ruled:

The constitutional mandate that, no decision shall be rendered by any court without expressing
therein clearly and distinctly the facts and the law on which it is based, does not preclude the
validity of memorandum decisions, which adopt by reference the findings of fact and
conclusions of law contained in the decisions of inferior tribunals. In fact, in Yao v. Court of
Appeals, this Court has sanctioned the use of memorandum decisions, a specie of succinctly
written decisions by appellate courts in accordance with the provisions of Section 40, B.P. Blg.
129, as amended, on the grounds of expediency, practicality, convenience and docket status of
our courts. This Court likewise declared that memorandum decisions comply with the
constitutional mandate.35 (Emphasis and citations omitted)
Laserna, citing Francisco v. Permskul,36 reiterated the conditions when incorporation by
reference is allowed: (a) the memorandum decision must embody the findings of facts and
conclusions of law of the lower court in an annex attached to and made an indispensable part of
the decision; (b) the decision being adopted should, to begin with, comply with Article VIII,
Section 14 of the Constitution;37  and (c) resort to memorandum decision may be had only in
cases where the facts are in the main accepted by both parties and easily determinable by the
judge and there are no doctrinal complications involved that will require an extended discussion
of the laws involved.

The OP's Decision satisfied these standards given that copies of the HLURB's Decision and
Resolution were attached as annexes; the HLURB's Decision and Resolution itself complied with
the requirements of the Constitution; the decision of the OP stated that it was convinced that the
HLURB's Decision and Resolution were correct only after it evaluated and studied the case
records; and that the case was an ordinary complaint for specific performance where Solid
Homes' appeal was found to be without merit.

Further, in Laserna, we emphasized that the Constitutional requirement that no decision shall be
rendered by any court without expressing therein clearly and distinctly the facts and the law on
which it is based need not apply to decisions rendered in administrative proceedings. The
administrative decision satisfies the requirement of due process for as long as it is supported by
evidence, and expressed in a manner that sufficiently informs the parties of the factual and legal
bases of the decision. At bar, the OP's Decision reviewed the evidence relied upon by the
HLURB and even arrived at an independent conclusion that Solid Homes' defenses of lack of
privity of contract, res judicata and laches are without merit.

II
Effect of non-assignment clause

In arguing that spouses Jurado's complaint should have been dismissed, Solid Homes insists that
it did not give the prior written consent requisite to the assignment and transfer of rights under
the Contract to Sell and as such, the assignment was void. Solid Homes invites attention to the
non-assignment clause found in the Contract to Sell:

SECTION 10. THE VENDEE AGREES NOT TO SELL, CEDE, ENCUMBER, TRANSFER
OR IN TANY1 MANNER DO ANY ACT WHICH WILL AFFECT HIS/HER RIGHT UNDER
THIS CONTRACT WITHOUT THE PRIOR WRITTEN APPROVAL OF THE ENDOR AND
UNTIL ALL STIPULATIONS OF THIS CONTRACT SHALL HAVE BEEN FULFILLED.38 x
x x (Underscoring in the original)
Disregarding this contention, the HLURB, the OP, as well as the CA, similarly held that the
factual circumstances negate Solid Homes' disavowal of consent.

Whether or not Solid Homes consented to the transfer and assignment of rights is a question of
fact.39 To emphasize, the Court, under its power of review under Rule 45, generally addresses
only questions of law and that factual findings of the CA, especially when such are not
contradictory to that of the lower court's, are binding. While several exceptions40 to these rules
have been jurisprudentially recognized, such exceptions must be alleged, substantiated, and
proved. Even then, as the Court held in Pascual v. Burgos,41 the Court retains full discretion
whether or not to review the CA's factual findings.

We find none of the exceptions working to Solid Homes' benefit. On the contrary, we sustain the
identical findings of the lower courts that Solid Homes' undisputed acts of preparing a standard
form of the Deed of Assignment and Transfer of Rights signed by one of its officers; charging a
transfer fee; crediting payment in favor of spouses Jurado; and requiring and receiving from
spouses Jurado the documents necessary to replace the subject property — all signify Solid
Homes' consent to the transfer and assignment by spouses Calica of their rights under the
Contract to Sell to spouses Jurado. As held by the CA, Solid Homes, by its acts and
representations, is estopped from claiming otherwise. That Solid Homes gave its consent to
spouses Calica's assignment and transfer of rights to spouses Jurado, is now an established fact
that we find no reason to deviate from.

At any rate, the non-assignment clause could not be interpreted as affecting the validity of the
transfer and assignment between spouses Calica and spouses Jurado.

Firstly, basic is the rule that the transfer of rights takes place upon the perfection of the contract,
and the ownership of the right thereunder, including all appurtenant accessory rights, is acquired
by the assignee,42 who steps into the shoes of the original creditor as subrogee,43 the moment the
contract is perfected. The debtor need not be notified of the assignment but becomes bound
thereby upon acquiring knowledge of the assignment. Upon an assignment of a contract to sell,
the assignee is effectively subrogated in place of the assignor and in a position to enforce the
contract to sell to the same extent as the assignor could.44

Secondly, there is no express stipulation in the Contract to Sell that an assignment made by the
vendee will give no right whatsoever to the assignee. Otherwise stated, the non-assignment
clause invoked by Solid Homes does not say that any assignment of rights under the Contract to
Sell shall be null and void. The logical implication, if at all, which may be derived from the
wording of the non-assignment clause is that the Contract to Sell is forfeited should there be an
assignment, but even then, the right to forfeit is susceptible to waiver.45 Thus, when Solid Homes
learned of the assignment, it could have treated the Contract to Sell with spouses Calica as
having been breached, and yet, it opted not to do so and instead, by its own acts, recognized
spouses Jurado as the buyers-assignees.

III
 Defenses of res judicata, forum shopping,
estoppel, prescription and laches

Solid Homes also repeatedly invokes the grounds of res judicata, forum shopping, estoppel,
prescription and laches to defeat the claim of spouses Jurado. These arguments are, however,
patently without merit.

The 1996 HLURB Rules of Procedure, as amended by Resolution No. R-660, series of 1999, the
rules in force at the time the first complaint was filed, require that documentary evidence
supporting the cause of action must be attached to the complaint and in the absence of which, the
complaint shall be dismissed without prejudice. Dismissal with prejudice disallows and bars the
refiling of the complaint; whereas, the same cannot be said of a dismissal without prejudice.46

Here, the HLURB Arbiter dismissed the first complaint for lack of documentary evidence and
the dismissal was expressly made to be without prejudice to the refiling thereof. Since spouses
Jurado did not appear to have further appealed from said dismissal as affirmed by the HLURB
Board, their remedy was to refile the complaint, together with their documentary evidence
supporting their cause of action, as they in fact did in 2005. Thus, Solid Homes' contentions that
the second complaint was barred by res judicata,47 that spouses Jurado committed forum
shopping,48 and that  they were estopped from adducing additional documentary evidence, are
erroneous.

There is likewise no reason to hold that the complaint was barred by prescription or by laches.
Solid Homes postulates that the 10-year prescriptive period should be reckoned from September
17, 1977 when it executed the Contract to Sell with spouses Calica, or at the latest, from January,
1983, when the Deed of Assignment and Transfer of Rights was executed.

The Civil Code provides that an action based on a written contract, an obligation created by law,
and a judgment must be brought within 10 years from the time the right of action
accrues.49 While the prescriptive period for bringing an action for specific performance, as in this
case, prescribes in 10 years, the period of prescription is reckoned only from the date the cause
of action accrued.50

A cause of action arises when that which should have been done is not done, or that which
should not have been done is done.51 A right of action does not necessarily accrue on the date of
the execution of the contracts because it is the legal possibility of bringing the action that
determines the reckoning point for the period of prescription.52 Thus, it was only when Solid
Homes mortgaged the subject property in February 1983 that spouses Jurado's cause of action
accrued because it was only then that Solid Homes' obligation to replace the mortgaged property
arose.

Congruently, Article 1155 of the Civil Code explicitly provides that the prescriptive period is
interrupted when an action has been filed in court; when there is a written extrajudicial demand
made by the creditors; and when there is any written acknowledgment of the debt by the debtor.
Interruption of the prescriptive period, as distinguished from mere suspension or tolling, by
written extrajudicial demand means that the period would commence anew from the receipt of
the demand.53 In other words, "[a] written extrajudicial demand wipes out the period that has
already elapsed and starts anew the prescriptive period."54

In this case, the uncontroverted fact is that spouses Jurado made extrajudicial demands upon
Solid Homes to replace the property through letters dated October 23, 1992 and August 7, 1996,
and then filed the complaint in 2000. Resultantly, when Spouses Jurado re-filed their complaint
in 2005, their cause of action had not yet prescribed.

Neither do we find spouses Jurado guilty of laches as to deprive them of the remedy provided
under the law.

Laches is defined as the failure or neglect, for an unreasonable and unexplained length of time, to
do that which by the exercise of due diligence could or should have been done earlier. Its
elements are:

(1) conduct on the part of the defendant, or of one under whom the defendant claims, giving rise
to the situation which the complaint seeks a remedy; (2) delay in asserting the complainant[']s
rights, the complainant having had knowledge or notice of the defendant[']s conduct as having
been afforded an opportunity to institute a suit; (3) lack of knowledge or notice on the part of the
defendant that the complainant would assert the right in which the defendant bases the suit; and
(4) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the
suit is not held barred.55
In 1983, when spouses Jurado were made aware that Solid Homes mortgaged the subject
property, which mortgage was eventually foreclosed, the latter made representation that it will
replace the lot. The factual findings of the HLURB, OP, and CA indicate that indeed such was
the case. Relying on this representation, spouses Jurado submitted the required documents to
facilitate the replacement and when no such replacement was forthcoming, they made repeated
extrajudicial demands on Solid Homes until, eventually, they filed a complaint in the HLURB.
By their actions, spouses Jurado could not be charged of having stalled in asserting their rights
under the Contract to Sell.

It is further noted that since Solid Homes was factually determined to be the subdivision
developer,56 the provisions of Presidential Decree No. 957 (P.D. 957), or the Subdivision and
Condominium Buyer's Protective Decree, as amended, should apply. With respect to mortgages
over existing subdivision projects, Section 18 of P.D. 957 provides:

SEC. 18. Mortgages. - No mortgage on any unit or lot shall be made by the owner or
developer without prior written approval of the Authority. Such approval shall not be
granted unless it is shown that the proceeds of the mortgage loan shall be used for the
development of the condominium or subdivision project and effective measures have been
provided to ensure such utilization. The loan value of each lot or unit covered by the mortgage
shall be determined and the buyer thereof, if any, shall be notified before the release of the loan.
The buyer may, at his option, pay his installment for the lot or unit directly to the mortgagee who
shall apply the payments to the corresponding mortgage indebtedness secured by the particular
lot or unit being paid for, with a view to enabling said buyer to obtain title over the lot or unit
promptly after full payment thereto;
In Philippine Bank of Communications v. Pridisons Realty Corporation,57  the Court held that the
failure to secure the HLURB's approval results in the nullity of the mortgage but that,
nevertheless, a contract of indebtedness still exists between the subdivision developer as
mortgagor and the mortgagee. In this case, however, considering the dearth of factual finding as
to whether or not Solid Homes secured the clearance to mortgage before mortgaging the subject
property, that neither of the parties raised this issue in the instant case, and that the parties were
factually found to have instead, agreed on the replacement of the property, compel the Court to
refrain from delving upon the applicability of Section 18 to the instant case. At any rate, the
remedies provided under P.D. 957 are expressly made to be in addition to any and all other rights
and remedies that may be available under existing laws.

IV
Obligations under a contract to sell

Based on the same argument that it did not give its consent to the transfer and assignment of
rights under the Contract to Sell, Solid Homes contends that the CA erred in affirming the OP's
and the HLURB's similar orders to replace the foreclosed lot and to convey title over the
property, or in the alternative, to pay the current value of the property.

As above-discussed, the Deed of Assignment and Transfer of Rights between spouses Calica and
spouses Jurado effectively subrogated the latter in place of the former; consequently, spouses
Jurado had the right to enforce the Contract to Sell as spouses Calica could.

A contract to sell is textually defined as a "bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the prospective buyer
upon fulfillment of the condition agreed upon."58 The obligation of the prospective seller, which
is in the nature of an obligation to do, is to sell the property to the prospective buyer upon the
happening of the positive suspensive condition, that is, the full payment of the purchase price.59

Nabus v. Pacson60 exhaustively explains the concept of a contract to sell:

In a contract to sell, the prospective seller explicitly reserves the transfer of title to the
prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer
ownership of the property subject of the contract to sell until the happening of an event, which
for present purposes we shall take as the full payment of the purchase price. What the seller
agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire
amount of the purchase price is delivered to him. In other words, the full payment of the
purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the
obligation to sell from arising and, thus, ownership is retained by the prospective seller without
further remedies by the prospective buyer.

x x x x

Stated positively, upon the fulfillment of the suspensive condition which is the full payment of
the purchase price, the prospective seller's obligation to sell the subject property by entering into
a contract of sale with the prospective buyer becomes demandable x x x x.
x x x x

In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of
the purchase price, ownership will not automatically transfer to the buyer although the property
may have been previously delivered to him. The prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute sale.
The foregoing characters of a contract to sell are important in order to determine the laws and
remedies applicable in case a party does not fulfill his or her obligations under the
contract.61 In Olivarez Realty Corporation v. Castillo62 we held that the prospective buyer's
failure to fully pay the purchase price in a contract to sell is not a breach of contract under
Article 1191 on the right to rescind reciprocal obligations. Citing Nabus, Olivarez held that
"[t]his is because there can be no rescission of an obligation that is still non-existent, the
suspensive condition not having happened."63 Thus, in case the prospective buyer does not
comply, the contract to sell is cancelled and the parties shall stand as if the obligation to sell
never existed.64  When a contract to sell is cancelled, the installments paid for the property are
generally ordered reimbursed, especially if possession over the property has not been delivered
to the prospective buyer.65

The pronouncement in Olivarez should, however, be reconciled with our ruling in Gotesco

Properties, Inc. v. Spouses Fajardo,66 wherein we upheld the buyer's right to rescind the contract
to sell for failure of the seller to cause the transfer of the corresponding certificate of title upon
full payment of the purchase price. Thus, a contract to sell is susceptible to rescission for
substantial and fundamental breaches,67 as when the seller fails to comply with his obligation to
sell the property despite the happening of the suspensive condition, because the power to rescind
obligations is implied in reciprocal ones, in case one of the obligors should not comply with what
is incumbent upon him. However, instead of rescission of the obligation, the injured party may
choose that the contract be actually accomplished by the party bound to fulfill it.68 Specific
performance refers to the remedy of requiring exact performance of a contract in the specific
form in which it was made, or according to the precise terms agreed upon.

In their complaint, spouses Jurado prayed that Solid Homes be ordered "to replace the foreclosed
lot or to convey and transfer to complainants in absolute ownership, a parcel of land of the same
area, volume, quality and location as the lot covered by the Contract to Sell and that in the event
[Solid Homes] is unable to do so, that [Solid Homes] be ordered to pay [spouses Jurado] its
current market value in the amount of P10 million; and that moreover, if found unwarranted that
[Solid Homes] be ordered to return the amount [of] P480,262.95 to [spouses Jurado] and that
[Solid Homes] be ordered to pay moral damages of P500,000.00 and attorney's fee of
P200,000.00, all with legal interest until fully paid."69

Spouses Jurado opted to avail of the remedy of specific performance, i.e., to replace the property,
when Solid Homes mortgaged the subject property without the former's knowledge, much less,
consent. Notably, the facts that the subject property had been mortgaged and that said mortgage
was eventually foreclosed, were never disputed by Solid Homes.

Consequently, rights to the lot should be restored to spouses Jurado or the same should be
replaced by another acceptable lot.70 The HLURB Board, as affirmed by the OP and the CA,
therefore correctly ordered Solid Homes to replace the mortgaged and foreclosed property with
another of the same area, quality, and location as the lot covered by the Contract to Sell. In case
Solid Homes fails to comply, spouses Jurado can treat the contract to sell as cancelled and be
entitled to a reimbursement of the installments paid. Spouses Jurado could not have rescinded the
contract to sell as they have yet to pay the purchase price in full.

Considering that spouses Jurado have not yet paid the full purchase price, the HLURB's order,
affirmed by the OP and the CA, for Solid Homes to convey title in favor of spouses Jurado or to
pay the fair market value of the property is premature and consequently, erroneous.

We underscore that title and ownership over the replacement property remains with Solid Homes
until spouses Jurado fully pay the balance of the purchase price which was factually determined
to be in the amount of P145,843.35. It is only then that Solid Homes can be made to execute the
corresponding deed of absolute sale and deliver the title in favor of spouses Jurado. As
emphasized in Gotesco,71 the seller's obligation to deliver the corresponding certificates of title is
simultaneous and reciprocal to the buyer's full payment of the purchase price. Pointedly, Section
25 of P.D. No. 957 states:

SEC. 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to
the buyer upon full payment of the lot or unit. No fee, except those required for the
registration of the deed of sale in the Registry of Deeds, shall be collected for the issuance of
such title. In the event a mortgage over the lot or unit is outstanding at the time of the issuance of
the title to the buyer, the owner or developer shall redeem the mortgage or the corresponding
portion thereof within six months from such issuance in order that the title over any fully paid lot
or unit may be secured and delivered to the buyer in accordance herewith. (Emphasis supplied)
It must be emphasized that the obligation to pay the fair market value of the property, as the
alternative to the transfer of ownership and delivery of title over the subject lot, becomes
demandable only upon the full payment of the purchase price. Since spouses Jurado have yet to
pay the purchase price in full, Solid Homes cannot be ordered to convey title over the
replacement lot or to pay the value of the lot foreclosed at this point. Otherwise stated, without
spouses Jurado's full payment, there can be no breach of the obligation to sell because Solid
Homes has no obligation yet to turn over the title, or in the alternative, to pay its value.

Only in the event that Solid Homes fails to sell an acceptable replacement lot despite full
payment of the purchase price that such may be considered a contractual breach which, under
Article 1191 of the New Civil Code, gives rise to the remedy of rescission. Relatedly, rescission
creates the obligation to return the things which were the object of the contract, together with
their fruits, and the price with its interests.72 While we are aware of our ruling in Solid Homes,
Inc. v. Spouses Tan,73 as reiterated in Gotesco, that for reasons of equity and justice and to
prevent unjust enrichment, the injured party should be paid the market value of the lot,74 such
presupposes that the buyer already paid the purchase price in full. As held in Gotesco:

On this score, it is apt to mention that it is the intent of PD 957 to protect the buyer against
unscrupulous developers, operators and/or sellers who reneged on their obligations. Thus, in
order to achieve this purpose, equity and justice dictate that the injured party should be afforded
full recompense and as such, be allowed to recover the prevailing market value of the
undelivered lot which had been fully paid for. (Emphasis ours)75
But since in this case, spouses Jurado have yet to fully pay the purchase price, they should be
entitled, not to the entire current market value of the property, but to a refund of the installments
they paid with interest, in the event Solid Homes fails to replace the subject property with an
acceptable lot.

With regard to the imposition of interest, Nacar held that in the absence of stipulation, whether
or not the obligation constitutes a loan or forbearance of money, the rate of interest shall be
6% per annum which shall be reckoned from the time of judicial or extrajudicial demand.

Thus, in line with Nacar and in consonance with the circular of the Monetary Board of the
Bangko Sentral ng Pilipinas No. 799, Series of 2013, effective July 1, 2013,76 the prevailing rate
of interest is 6% per annum, in the absence of an express contract as to such rate of interest.
Accordingly, the interest rate of 12%77per annum should be imposed on the total payments made
from the date of the demand to replace the property, or on February 22, 1983, until June 30, 2013
and the interest rate of 6% per annum is imposed from July 1, 2013 until fully paid.

WHEREFORE, the instant Petition is PARTLY GRANTED. Petitioner Solid Homes, Inc. is
ordered to REPLACE the foreclosed lot with another of the same area, quality, and location as
the lot covered by the Contract to Sell. Upon replacement of the property, spouses Artemio and
Consuelo O. Jurado shall pay the remaining balance of P145,843.35 with interest at the rate of
6% per annum reckoned from the time the replacement lot is made available to them. In case of
failure to replace the foreclosed lot with an acceptable lot, Solid Homes is ordered
to REIMBURSE to spouses Jurado the amount of P480,262.95 with interest at the rate of 12%
per annum reckoned from February 22, 1983 until June 30, 2013, and interest at the rate of
6% per annum from July 1, 2013 until fully paid.

No pronouncement as to costs.

SO ORDERED.

SECOND DIVISION

G.R. No. 204782, September 18, 2019

GENUINO AGRO-INDUSTRIAL DEVELOPMENT CORPORATION, PETITIONER, v.

ARMANDO G. ROMANO, JAY A. CABRERA AND MOISES V. SARMIENTO,
RESPONDENTS.

DECISION
 REYES, J. JR., J.:

The Facts and The Case

Before this Court is a Petition for Review on Certiorari1 filed by petitioner Genuino Agro-
Industrial Development Corporation, seeking to annul and set aside the May 31, 2012
Decision2 and December 12, 2012 Resolution3 of the Court of Appeals (CA) in CA-G.R. SP No.
103337 which found no grave abuse of discretion on the part of the National Labor Relations
Commission (NLRC) in affirming the ruling of the Labor Arbiter finding the respondents to be
the regular employees of the petitioner whom it had illegally dismissed; and ordering the
petitioner to reinstate them and Respondents Armando G. Romano (Romano), Jay A. Cabrera
(Cabrera) and Moises V. Sarmiento (Sarmiento) claimed that they work as brine men at Genuino
Ice Company Inc.'s (Genuino Ice) ice plant in Turbina, Calamba, Laguna branch. Romano was
hired through the man power agency, Vicar General Contractor and Management Services
(Vicar), while Sarmiento and Cabrera were hired through L.C. Moreno General Contractor and
Management Services (L.C. Moreno). Vicar was the last agency that supplied all the employees
to Genuino Ice.4

Respondents averred that sometime in September 2004, the workers were given a work schedule
where one worker was not made to report for work for 15 consecutive days while the six other
workers report for work on their regular schedules. In other words, each worker does not work
for 15 days for a period of 90 days. When Romano reported back to work on June 25, 2005 after
his 15 days forced leave, he was told then and there that his employment was already terminated.
Sarmiento and Cabrera also suffered the same fate. They were dismissed from work on July 10,
2005.5 Thus, on August 3, 2005, respondents filed a complaint for illegal dismissal with prayer
for separation pay against Genuino Ice and Vicar before the Department of Labor and
Employment (DOLE).
Genuino Ice, for its part, claimed that respondents charged the wrong party as they were never its
employees but of petitioner, its affiliate company. They were contractual employees of Vicar and
L.C. Moreno which deployed them to work at petitioner's ice plant at Turbina, Calamba City.
Due to the continuous and tremendous decline in the demand for ice products being produced by
the petitioner, it shut down its block ice production plant facilities. Its six workers were reduced
to two. Among those affected were the respondents who were relieved from their posts by Vicar
and L.C Moreno.7

By reason of Genuino Ice's contention that respondents charged the wrong party, they amended
their complaint by impleading the petitioner, including the relief of reinstatement, and asking for
attorney's fees.

In his Decision9 dated December 29, 2006, the Labor Arbiter held that respondents were regular
employees of the petitioner since they were performing functions that were necessary and
desirable to the operations of the ice plant. The continuous work of the respondents as brine men
in the plant for several years (since 1988 in the case of Romano and Sarmiento, and since 1992
in Cabrera's case) rendered dubious the proposition that their respective employments were fixed
for a specific period or that they were seasonal employees. The contention that petitioner did not
exercise any form of control over the work performance of the respondents was found by the
Labor Arbiter hard to believe considering that they were suffered to work at the ice plant. The
Labor Arbiter also found Vicar to be without substantial capital and equipment to qualify as an
independent contractor, and thus treated it as a labor-only contractor, and held accountable as
such.

While the Labor Arbiter recognized that the company has the prerogative to close its department,
the Labor Arbiter still found respondents' dismissal from employment as illegal inasmuch as the
petitioner failed to adduce any evidence showing that the closure of its block ice production
facility had some basis and that their dismissal was for an authorized cause. The Labor Arbiter
disposed the case in this wise:

WHEREFORE, judgment is hereby rendered:

1. Declaring that [respondents] were regular employees of [petitioner];

2. Declaring that [respondents] were illegally dismissed by [petitioner]; and as such should
be immediately reinstated to their former positions without loss of seniority rights.
[Petitioner] should report compliance with this directive within ten (10) days from receipt
hereof;

3. Adjudging [petitioner] and [Vicar] jointly and severally liable to pay [respondents] the
amount of [P] 133,395.51 each as backwages, as of the date of this decision for a total
amount of [P]400,186.53. This is only partial payment, full satisfaction of which shall be
reckoned to the date of the actual reinstatement of [respondents].

SO ORDERED.10

On appeal before the NLRC, petitioner stressed that respondents never questioned its prerogative
to retrench them due to partial closure of its plant and reduction of its personnel, but only
questioned the propriety of their termination for non-compliance with the notice requirement laid
down in Article 283 (now Article 298) of the Labor Code. Considering that respondents were
laid-off for an authorized cause (the partial shut-down of its ice plant), only that they were not
properly notified thereof, petitioner contended that respondents are not entitled to reinstatement,
backwages and separation pay, but only to nominal damages.11

Meanwhile, in compliance with the reinstatement aspect of the Labor Arbiter's Decision, the
petitioner served upon the respondents a Notice of Compliance informing them that they could
no longer be reinstated to their former posts at its ice plant in Turbina, Calamba City, due to the
closure of its block ice production facilities. Thus, they were directed to report at petitioner's
main office within five days from receipt of the said notice of compliance for their
reinstatement/placement at petitioner's other branches or affiliate companies, particularly at its
ice plant in Navotas.12 By virtue of the said directive, respondents reported at petitioner's main
office on March 6, 2007. However, they were simply made to wait the whole day and were not
given any job assignments. When respondents inquired on their work assignments on March 8
and 12, 2007, they were told that there were still no available work assignments for them,
prompting them to file a motion for the issuance of a writ of partial execution ordering their
reinstatement in the payroll effective March 6, 2007.13
Petitioner opposed the motion for partial execution. It argued that it could not be forced to
reinstate the respondents whether in their previous positions or in the payroll because the
department where they used to work had already closed and there were no other equivalent
positions available in petitioner's only branch in Navotas.14

In an Order dated July 5, 2007, the Labor Arbiter granted the motion and issued a writ of partial
execution. Since the writ of partial execution was returned unsatisfied,15 petitioner moved for the
issuance of an alias writ of partial execution reiterating their prayer to be reinstated in the
payroll.16 After the petitioner filed its opposition to the motion, the Labor Arbiter issued an Order
on September 28, 2007 granting the issuance of an alias writ of partial execution. Petitioner
appealed the said September 28, 2007 Order and prayed that the same be lifted and set aside
pending resolution of the main case on appeal.17

On November 29, 2007, the NLRC rendered its Decision18 finding that the Labor Arbiter did not
err in holding the petitioner and Vicar guilty of illegal dismissal, and ordering respondents'
reinstatement with full backwages. The NLRC held that they could not justify respondents'
dismissal on the ground of retrenchment considering that petitioner and Vicar totally disregarded
the requirements laid down in Article 298 of the Labor Code and failed to adduce documentary
proof, like an audited financial statement, to substantiate their claim.

Not accepting defeat, petitioner moved for the reconsideration of the NLRC Decision. Petitioner
stressed that as it had explained in its Notice of Compliance, respondents could no longer be
reinstated to their former positions due to the closure of its block ice production facilities. There
were also no equivalent positions available at its other branch where the respondents may be
placed. As such, petitioner reiterated that in view of the situation, it could not be forced to
reinstate the respondents to their former positions or even in the payroll. The closure of its ice
plants one after the other must be treated as a supervening event that warrants the modification of
the order of reinstatement with payment of full backwages, to the payment of separation pay.19

Finding the motion for reconsideration filed by the petitioner to have raised no new matters of
substance, the NLRC denied the same in a Resolution20 dated February 26, 2008.

Undaunted, the petitioner sought recourse before the CA via a Petition for Certiorari alleging
grave abuse of discretion on the part of the NLRC in: (1) not finding that respondents were
retrenched from employment and that they are not entitled to reinstatement and backwages, but
only to nominal damages; (2) not modifying the Labor Arbiter's Decision which ordered
respondents' reinstatement and payment of full backwages to the payment of separation pay.21
In the interim, or on September 26, 2011, the Labor Arbiter issued a Writ of Execution
commanding the sheriff to proceed to the premises of the petitioner and Vicar, and collect from
them the amount of P1,392,579.93 representing respondents' backwages, inclusive of 13th month
pay and service incentive leave pay, for the period of July 10, 2005 to April 30, 2010, among
others.22

In a Decision23 dated May 31, 2012, the CA found no grave abuse of discretion on the part of the
NLRC in deciding the case as it did and denied the petition. It held that while retrenchment is
one of the recognized authorized causes for the dismissal of an employee, petitioner failed to
discharge its burden of proving that respondents' retrenchment was valid for the reason that
petitioner not only failed to notify them and the DOLE of the retrenchment, it also failed to prove
that it was losing financially. Thus, respondents' dismissal was clearly illegal. Petitioner cannot
also claim that it is liable only for nominal damages considering that retrenchment was shown
not to be justified. The CA also found no reason to modify the award of reinstatement and full
backwages for failure of the petitioner to sufficiently prove that the department where
respondents' used to work had indeed closed, or that there were no other similar unfilled posts
available at its other branch.

Its motion for reconsideration having been denied,24 petitioner is now before this Court via  the
present petition. Respondents filed their Comment with Motion25 thereto, praying that Genuino
Ice be declared solidarity liable with the petitioner to pay respondents the monetary awards
granted to them by the Labor Arbiter, to which the petitioner has filed its Opposition.26 In a
Resolution27 dated January 14, 2015, the Court required the parties to submit their respective
memoranda.28

The Issues Presented

Petitioner raised the following issues for this Court's consideration:

1. THE HONORABLE COURT OF APPEALS ERRED AND COMMITTED GRAVE

ABUSE OF DISCRETION IN AFFIRMING THE NLRC'S DECISION IN NOT
RULING FOR THE RETRENCHMENT OF THE RESPONDENTS WITHOUT
PROPER NOTICE AND DUE PROCESS, THAT THEY ARE NOT ENTITLED TO
REINSTATEMENT AND PAYMENT OF BACKAWAGES, BUT TO NOMINAL
DAMAGES PURSUANT TO RULING HELD IN "JAKA FOOD PROCESSING
CORP. VERSUS PACOT," GR. No. 151378, March 28, 2005."

2. THE HONORABLE COURT OF APPEALS ERRED AND COMMITTED GRAVE

ABUSE OF DISCRETION IN NOT MODIFYING THE NLRC'S DECISION
AFFIRMING THE LABOR ARBITER'S DECISION ORDERING REINSTATEMENT
AND PAYMENT OF FULL BACKWAGES TO THE RESPONDENTS, TO
 PAYMENT OF SEPARATION PAY RECKONED FROM DATE OF THEIR INITIAL
EMPLOYMENT, UP TO DECEMBER 29, 2006, THE DATE OF THE LABOR
ARBITER'S DECISION.

3. [RESPONDENTS'] MOTION PRAYING THAT GENUINO ICE COMPANY, INC. BE

HELD SOLIDARILY LIABLE WITH PETITIONER GENUINO AGRO
DEVELOPMENT CORPORATION FOR THE PAYMENT OF MONETARY
AWARDS OF THE LABOR ARBITER IS OUT OF CONTEXT, AND HAS NO
FACTUAL AND LEGAL BASIS.29

The Arguments of the Parties

Echoing substantially the same arguments put forward before the Labor Arbiter, the NLRC and
the CA, petitioner avers that the respondents do not question its right to lay off its workers on
account of serious business losses, but only questions the propriety of their termination for non-
compliance with the notice requirement and non-payment of separation pay under Article 298 of
the Labor Code. Respondents also bewail that their termination was discriminatory since they
were not informed why their services were terminated instead of the other workers. Since
respondents admitted that the closure of petitioner's business was brought about by serious
business losses, respondents are considered to have been terminated for cause, but without
according them due process, entitling them to the payment of nominal damages.30

Petitioner reiterates that the closure of its ice plants was a supervening event which rendered it
impossible for it to reinstate the respondents to their former positions or even in the payroll,
since their former positions are no longer existing and no equivalent positions are also available
in its other branch. Thus, instead of directing it to reinstate the respondents and pay them their
full backwages, petitioner must instead be ordered to pay respondents their separation pay.31

Anent the motion of the respondents to declare Genuino Ice solidarity liable with it, petitioner
avers that the same has no factual and legal basis because Genuino Ice is not a party in this case.
Moreover, the Decision of the Labor Arbiter which held only the petitioner liable to the
respondents, had already become final and immutable as to the respondents, they having not
appealed the same. Thus, they cannot at this stage of the proceedings seek to alter the Decision to
make Genuino Ice solidarity liable.32

Respondents counter that the petitioner is raising the very same grounds it raised before the CA,
and this Court in Genuino Ice Company, Inc. v. Lava33 has resolved exactly the same issues and
exactly the same facts involving co-employees of the respondents against Genuino Ice, where the
latter was found guilty of illegal dismissal. Consistent with the Court's ruling in the said case, the
Court must likewise affirm the ruling of the CA finding the petitioner guilty of illegal dismissal
and liable for the monetary awards prayed for by the respondents.34

Respondents contend further that they could not be precluded from asking the Court to pierce the
veil of corporate fiction of Genuino Ice to make it solidarity liable with the petitioner given that
their actuations would lead one to believe that they are one and the same company inasmuch as
the verification portion of the Memorandum of Appeal filed by the petitioner was signed by
Edgar A. Carriaga (Carriaga), Genuino Ice's authorized representative, and it was Genuino Ice
that posted the appeal bond on its behalf. When respondents tried to collect from the surety bond
the amount of P401,000.00 by virtue of the writ of partial execution and notice of garnishment
that were issued, they failed to get a single centavo as the same was opposed by Carriaga,
claiming that the amount was intended as a collateral security for Genuino Ice and not for the
petitioner (despite the latter's representation that it had duly perfected its appeal before the
NLRC).35

The Ruling of the Court

Limits of review under Rule 45 from

the CA's Decision in a labor case

A perusal of the present petition inevitably shows that the petitioner reiterated substantially the
same arguments and assailed congruent factual findings of the Labor Arbiter, the NLRC and the
CA. A petition for review on certiorari  under Rule 45 is a mode of appeal where the issue is
limited only to questions of law.36 In labor cases, a Rule 45 petition is limited to reviewing
whether the CA correctly determined the presence or absence of grave abuse of discretion and
deciding other jurisdictional errors of the NLRC,37 and not on the basis of whether the latter's
decision on the merits of the case was strictly correct.38

By grave abuse of discretion is meant such capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction.39 The abuse of discretion must be grave, as when the power is
exercised in an arbitrary or despotic manner by reason of passion or personal hostility. The abuse
must also be so patent and gross as would amount to an evasion of a positive duty or to a virtual
refusal to perform the duty required, or to act at all in contemplation of law, as to be equivalent
to having acted without jurisdiction.40

In Career Philippines Shipmanagement, Inc. v. Serna,41 this Court laid down the parameters of
an appeal taken under Rule 45 from the CA's Rule 65 Decision in a labor case, viz:

In a Rule 45 review, we consider the correctness of the assailed CA decision, in contrast with the
review for jurisdictional error that we undertake under Rule 65. Furthermore, Rule 45 limits us to
the review of questions of law raised against the assailed CA decision. In ruling for legal
correctness, we have to view the CA decision in the same context that the petition
for certiorari it ruled upon was presented to it; we have to examine the CA decision from the
prism of whether it correctly determined the presence or absence of grave abuse of
discretion in the NLRC decision before it, not on the basis of whether the NLRC decision
on the merits of the case was correct. In other words, we have to be keenly aware that the CA
undertook a Rule 65 review, not a review on appeal, of the NLRC decision challenged before it.
xxx
Accordingly, we do not re-examine conflicting evidence, re-evaluate the credibility of witnesses,
or substitute the findings of fact of the NLRC, an administrative body that has expertise in its
specialized field. Nor do we substitute our "own judgment for that of the tribunal in determining
where the weight of evidence lies or what evidence is credible." The factual findings of the
NLRC, when affirmed by the CA, are generally conclusive on this Court.

There are, however, recognized exceptions to this general rule where the Court, in the exercise of
its discretionary appellate jurisdiction, may look into factual issues raised in Rule 45 petition.
These exceptions are enumerated in Sia Tio v. Abayata42 To wit:

(1) when the findings are grounded entirely on speculation, surmises or conjectures;
(2) when the inference made is manifestly mistaken, absurd or impossible;
(3) when there is grave abuse of discretion;
(4) when the judgment is based on a misapprehension of facts;
(5) when the findings of fact are conflicting;
(6) when in making its findings the Court of Appeals went beyond the issues of the case, or its
findings are contrary to the admissions of both the appellant and the appellee;
(7) when the findings are contrary to the trial court;
(8) when the findings are conclusions without citation of specific evidence on which they are
based; 
(9) when the facts set forth in the petition as well as in the petitioner's main and reply briefs are
not disputed by the respondent;
(10) when the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record; and
(11) when the Court of Appeals manifestly overlooked certain relevant facts not disputed by the
parties, which, if properly considered, would justify a different conclusion.

None of the exceptions enumerated above are obtaining in this case.

Respondents were illegally

dismissed from employment,
retrenchment not being duly
proved

Article 298 of the Labor Code laid down the authorized causes where the employer may validly
terminate the employment of its employees. It provides:
ART. 298. Closure of Establishment and Reduction of Personnel. – The employer may also
terminate the employment of any employee due to the installation of labor-saving devices,
redundancy, retrenchment to prevent losses or the closing or cessation of operation of the
establishment or undertaking unless the closing is for the purpose of circumventing the
provisions of this Title, by serving a written notice on the workers and the Ministry of Labor and
Employment at least one (1) month before the intended date thereof. In case of termination due
to the installation of labor-saving devices or redundancy, the worker affected thereby shall be
entitled to separation pay equivalent to at least his one (1) month pay or to at least one (1) month
pay for every year of service, whichever is higher. In case of retrenchment to prevent losses and
in cases of closures or cessation of operations of establishment or undertaking not due to serious
business losses or financial reverses, the separation pay shall be equivalent to one (1) month pay
or at least one-half (1/2) month pay for every year of service, whichever is higher. A fraction of
at least six (6) months shall be considered one (1) whole year.

Petitioner is correct in saying that retrenchment is a management prerogative to downsize its

work force to avert business losses, which could either be already incurred or impending. Where
appropriate and where conditions are in accord with law and jurisprudence, the Court has
authorized valid reductions in the work force to forestall business losses, the hemorrhaging of
capital, or even to recognize an obvious reduction in the volume of business which has rendered
certain employees redundant.43 However, for retrenchment to be valid, certain requisites must
first be satisfied. In Perez v. Comparts Industries, Inc.44 this Court held:

The complete designation of this authorized cause is retrenchment to prevent losses precisely
to save a financially ailing business establishment from eventually collapsing. Without the
purpose to prevent losses, the termination becomes illegal. However, the employer or the
company need not be incurring losses already; the requirement is that there may be impending
losses hence the resort to retrenchment:

[T]he three (3) basic requirements are: (a) proof that the retrenchment is necessary to prevent
losses or impending losses; (b) service of written notices to the employees and to the Department
of Labor and Employment at least one (1) month prior to the intended date of retrenchment; and
(c) payment of separation pay equivalent to one (1) month pay, or at least one-half (1/2) month
pay for every year of service, whichever is higher. In addition, jurisprudence has set the
standards for losses which may justify retrenchment, thus: (1) the losses incurred are substantial
and not de minimis;  (2) the losses are actual or reasonably imminent; (3) the retrenchment is
reasonably necessary and is likely to be effective in preventing the expected losses; and (4) the
alleged losses, if already incurred, or the expected imminent losses sought to be forestalled, are
proven by sufficient and convincing evidence.

To justify retrenchment, petitioner claims serious business losses leading to the shutdown of its
block ice plant facilities to which respondents belong. There is, however, dearth of evidence
showing that the petitioner was indeed suffering from business losses or financial reverses as it
staunchly claimed. Petitioner could have easily proved its dire financial state by submitting its
financial statements duly audited by independent external auditors, but it did not.45 Its failure to
prove these reverses or losses necessarily means that respondents' dismissal was not
justified.46 In addition, records would bear out, as in fact petitioner never denied, that it failed to
satisfy the notice requirement under Article 298 of the Labor Code. Neither was the required
separation pay to effect a valid retrenchment given to the respondents. For these reasons, the
Court must uphold the ruling of the CA that there was absence of grave abuse of discretion on
the part of the NLRC when it upheld the ruling of Labor Arbiter finding the respondents to have
been illegally dismissed by the petitioner inasmuch as retrenchment was not duly proven by the
latter.
Respondents are entitled to backwages
and separation pay

Article 294 of the Labor Code provides for the reliefs of an illegally dismissed employee. The
provision states:

ART. 294. Security of Tenure. – In cases of regular employment, the employer shall not
terminate the services of an employee except for a just cause or when authorized by this Title.
An employee who is unjustly dismissed from work shall be entitled to reinstatement without loss
of seniority rights and other privileges and to his full backwages, inclusive of allowances, and to
his other benefits or their monetary equivalent computed from the time his compensation was
withheld from him up to the time of his actual reinstatement.

In Advan Motor, Inc.  v. Veneration,47 the Court explained the reliefs of reinstatement and
backwages. Thus:

The two reliefs of reinstatement and backwages have been discussed in Reyes v. RP Guardians
Security Agency, Inc. in the following manner:

Backwages and reinstatement are separate and distinct reliefs given to an illegally dismissed
employee in order to alleviate the economic damage brought about by the employee's dismissal.
"Reinstatement is a restoration to a state from which one has been removed or separated" while
"the payment of backwages is a form of relief that restores the income that was lost by reason of
the unlawful dismissal." Therefore, the award of one does not bar the other.

In the case of Aliling v. Feliciano, citing Golden Ace Builders v. Talde, the Court explained:

Thus, an illegally dismissed employee is entitled to two reliefs: backwages and reinstatement.
The two reliefs provided are separate and distinct. In instances where reinstatement is no longer
feasible because of strained relations between the employee and the employer, separation pay is
granted. In effect, an illegally dismissed employee is entitled to either reinstatement, if viable, or
separation pay if reinstatement is no longer viable, and backwages.

The normal consequences of respondents' illegal dismissal, then, are reinstatement without loss
of seniority rights, and payment of backwages computed from the time compensation was
withheld up to the date of actual reinstatement. Where reinstatement is no longer viable as an
option, separation pay equivalent to one (1) month salary for every year of service should be
awarded as an alternative. The payment of separation pay is in addition to payment of
backwages.

Since respondents' termination was illegal, they are entitled to reinstatement without loss of
seniority rights and to their full backwages pursuant to the said article.

However, reinstatement presupposes that the previous position from which the employee has
been removed is still in existence or there is an unfilled position of a nature, more or less, similar
to the one previously occupied by said employee.48 While the CA was correct in its assessment
that the NLRC did not abuse its discretion when it ordered respondents' reinstatement, the Court,
in the exercise of its equity jurisdiction may still modify the affirmed judgment in order to
conform to law and justice.

Equity jurisdiction aims to do complete justice in cases where a court of law is unable to adapt its
judgments to the special circumstances of a case because of the inflexibility of its statutory or
legal jurisdiction.49 Since it has been 14 years since the time respondents were removed from
work, it is unlikely that the former positions held by them or their equivalent are still existing or
are presently unoccupied; thus, making their reinstatement no longer viable. On this score, the
CA decision must accordingly be modified in this respect. In lieu of reinstatement and full
backwages, an award of separation pay, equivalent to one (1) month salary for every year of
service, and full backwages is ordered instead.50

Bases for computation of backwages

and separation pay
The basis for computing separation pay is usually the length of the employee's past service, while
that for backwages is the actual period when the employee was unlawfully prevented from
working.51 Backwages represent compensation that should have been earned but were not
collected because of the unjust dismissal.52 Separation pay, on the other hand, is that amount
which an employee receives at the time of his severance from employment, designed to provide
the employee with the wherewithal during the period that he is looking for another
employment,53 and is a proper substitute for reinstatement.54

Under Article 279 (now Article 294) of the Labor Code, backwages is computed from the time
of dismissal until the employee's reinstatement. However, when separation pay is ordered in lieu
of reinstatement, backwages is computed from the time of dismissal until the finality of the
decision ordering separation pay.55 Anent the computation of separation pay, the same shall be
equivalent to one month salary for every year of service56 and should not go beyond the date an
employee was deemed to have been actually separated from employment, or beyond the date
when reinstatement was rendered impossible.57 In the present case, in allowing separation pay,
the final decision effectively declares that the employment relationship ended so that separation
pay and backwages are to be computed up to that point.58

Applied here, Romano's backwages shall be computed from June 25, 2005, while the backwages
of Sarmiento and Cabrera shall be reckoned from  July 10, 2005, the time they were illegally
dismissed until finality of this Decision. As regards their separation pay, the same shall be
computed from their first day of employment until the finality of this decision, at the rate of one
month pay per year of service.

Genuino Ice should be held solidarity

liable with petitioner Genuino Agro

It is an elementary and fundamental principle of corporation law that a corporation is an artificial

being invested by law with a personality separate and distinct from its stockholders and from
other corporations to which it may be connected.59 However, the corporate mask may be lifted
and the corporate veil may be pierced when a corporation is just but the alter ego of a person or
of another corporation.60 Moreover, piercing the corporate veil may also be resorted to by the
courts or quasi-judicial bodies when "[the separate personality of a corporation] is used as a
means to perpetrate fraud or an illegal act, or as a vehicle for the evasion of an existing
obligation, the circumvention of statutes, or to confuse legitimate issues."61 Furthermore, the veil
of corporate fiction may also be pierced as when the same is made as a shield to confuse
legitimate issues.62 As such, in Zambrano v. Philippine Carpet Manufacturing Corporation,63 the
Court held:

The doctrine of piercing the corporate veil applies in three (3) basic areas, namely: (1) defeat of
public convenience as when the corporate fiction is used as a vehicle for the evasion of an
existing obligation; (2) fraud cases or when the corporate entity is used to justify a wrong,
protect fraud, or defend a crime; or (3) alter ego cases, where a corporation is merely a farce
since it is a mere alter ego or business conduit of a person, or where the corporation is so
organized and controlled and its affairs are so conducted as to make it merely an instrumentality,
agency, conduit or adjunct of another corporation.

Furthermore, once the veil of corporate fiction is pierced, the separate but related corporation
becomes solidarity liable in labor cases. Thus, the Court in Symex Security Services, Inc. v.
Rivera, Jr.,64 pronounced:

The common thread running among the aforementioned cases, however, is that the veil of
corporate fiction can be pierced, and responsible corporate directors and officers or even a
separate but related corporation, may be impleaded and held answerable solidarily in a labor
case, even after final judgment and on execution, so long as it is established that such persons
have deliberately used the corporate vehicle to unjustly evade the judgment obligation, or have
resorted to fraud, bad faith or malice in doing so. When the shield of a separate corporate identity
is used to commit wrongdoing and opprobriously elude responsibility, the courts and the legal
authorities in a labor case have not hesitated to step in and shatter the said shield and deny the
usual protections to the offending party, even after final judgment. The key element is the
presence of fraud, malice or bad faith. Bad faith, in this instance, does not connote bad judgment
or negligence but imparts a dishonest purpose or some moral obliquity and conscious doing of
wrong; it means breach of a known duty through some motive or interest or ill will; it partakes of
the nature of fraud.

Thus, for purposes of determining whether to pierce Genuino Ice's separate corporate personality
and hold it solidarily liable with the petitioner to pay the monetary claims due to the respondents,
the following factual circumstances have to be considered:
(1) Petitioner and its supposed affiliate Genuino Ice have the same address, sets of officers, and
representative to this suit.65
(2) The Calamba City ice plant where respondents used to work appears to be owned and
operated by both the petitioner and Genuino Ice.66
(3) Genuino Ice, after being sued for illegal dismissal before the Labor Arbiter, claimed that
the respondents were actually employees of its affiliate company, which is the petitioner.67
(4) Genuino Ice, despite claiming that employer, manifested during the proceedings that it is
willing to re-hire the respondents.68
(5) Respondents impleaded petitioner in the proceedings before the Labor Arbiter.69
(6) Genuino Ice filed all the pleadings in the proceedings before the Labor Arbiter while the
petitioner stood idly by despite having been already impleaded by the respondents.70
(7) The Labor Arbiter found the petitioner jointly liable with Vicar for illegally dismissing the
respondents.
(8) Petitioner, after the Labor Arbiter handed its verdict, filed the appeal before the NLRC with
Genuino Ice posting its appeal bond.71
(9) Genuino Ice, by virtue of the surety bond it posted, acknowledged its obligation to pay the
monetary claims awarded to the respondents on account of the December 29, 2006
Decision of the Labor Arbiter, should the same not be reversed on appeal, despite the fact
that the one adjudged liable therein was not Genuino Ice but the petitioner.72
(10) Respondents tried to collect from the appeal bond that was posted by Genuino Ice (and
which the petitioner had previously assured was sufficient) but failed to do so due to the
opposition of Genuino Ice where it invoked its separate corporate personality.73
(11) Petitioner insists before this Court that, since the Labor Arbiter's Decision adjudged it liable
to pay the respondents' monetary claims, its affiliate, Genuino Ice, cannot be declared as
solidarily liable to pay the same claims for lack of factual and legal basis.
A deep scrutiny of the aforementioned circumstances necessitates the application of the doctrine
of piercing the veil of corporate fiction. The circumstances indubitably establish that both
Genuino Ice and the petitioner are using their respective distinct corporate personalities in bad
faith and to confuse legitimate issues in the hope of evading its obligation to the respondents.

The aforementioned circumstances show that both Genuino Ice and the petitioner have taken
turns in representing each other's common cause and in pursuing remedies to protect its common
interest in repelling the respondents' monetary claims. Whenever a claim is directed against one
of them, the other admits the monetary liability so that the former may be shielded and vice
versa.  This was demonstrated, for example, when Genuino Ice posted a bond for the appeal filed
by the petitioner with the NLRC. In the said surety bond, Genuino Ice acknowledged its
obligation to satisfy the monetary awards granted to the respondents notwithstanding the fact that
it was not the one found liable for illegal dismissal, but the petitioner. Petitioner, for its part,
assured the respondents that the bond it posted was sufficient to answer for their monetary claims
in the event that the decision rendered in their favor becomes final and executory. However,
despite their assurances, when the respondents went for the appeal bond to satisfy their claims,
Genuino Ice opposed the move and through Carriaga, its manager and who also happened to be
the personnel manager of the petitioner, argued that the funds cannot be pursued for it belongs to
Genuino Ice. Such evasive maneuver clearly demonstrates bad faith on the part of the petitioner
and Genuino Ice, and is clearly indicative of using the veil of corporate fiction to unjustly elude
the monetary obligation due to respondents as adjudged.

As observed, when an "affiliate company" takes the cudgels for another, it means that both have
a common interest. If indeed there was no commonality or intertwining of an interest in
frustrating the respondents' monetary claims, the petitioner and not Genuino Ice would have
posted a bond for its own appeal. The Court cannot allow its intelligence to be insulted by
Genuino Ice's representation that it has a corporate personality which is separate and distinct
from the petitioner because both companies have pursued legal remedies and measures for the
benefit of each other, and made representations that clearly defrauded the respondents. Hence,
for purposes of this litigation and for the satisfaction of the respondents' monetary claims, both
Genuino Ice and the petitioner shall be treated as one and the same entity, and held liable
solidarity for the same.

WHEREFORE, premises considered, the petition is partially GRANTED. The assailed May

31, 2012 Decision and December 12, 2012 Resolution of the Court of Appeals in CA-G.R. SP
No. 103337 are AFFIRMED with MODIFICATION in that, Genuino Ice Company, Inc. is
adjudged solidarity liable with petitioner Genuino Agro-Industrial Development Corporation and
Vicar General Contractor and Management Services to pay the monetary claims due to the
respondents as follows:

(1) Backwages computed from June 25, 2005 with respect to respondent Armando G. Romano,
and July 10, 2005 with respect to respondents Moises V. Sarmiento and Jay A. Cabrera, the
time they were illegally dismissed, until the finality of this Decision; and
(2) In lieu of reinstatement, separation pay computed from respondents' first day of employment
until the finality of this Decision, at the rate of one month pay per year of service.

The monetary awards granted shall earn legal interest at the rate of six percent per annum from
the date of the finality of this Decision until fully paid.

The case is REMANDED to the Labor Arbiter for the proper computation of the monetary
benefits awarded.

SO ORDERED.

THIRD DIVISION

G.R. No. 221709, October 16, 2019

 NATIONAL POWER CORPORATION, PETITIONER, v. DELTA P, INC.,
RESPONDENT.

DECISION

REYES, J. JR., J.:

Challenged before this Court via  this Petition for Review on Certiorari1 under Rule 45 of the
Rules of Court is the Decision2 dated March 26, 2015 of the Court of Appeals (CA), and its
Resolution3 dated November 25, 2015, in CA-G.R. CV No. 99605, which affirmed the
Decision4 dated March 30, 2012 of the Regional Trial Court (RTC) of Puerto Princesa City,
Branch 47, in Civil Case No. 3997.

The Antecedent Facts

The facts, as summarized from the CA, are as follows: respondent Delta P, Inc. (Delta P), an
independent power producer, previously took over the operations of a generating plant in Puerto
Princesa City owned by Paragua Power Corporation (PPC). At the time of the takeover of
operations, PPC had a Power Purchase Agreement (PPA) with petitioner National Power
Corporation (NAPOCOR), wherein the latter agreed to purchase the electricity generated by the
former for the purpose of meeting NAPOCOR's obligation to supply the consumers of Palawan
Electric Cooperative, Inc. in Puerto Princesa City and the towns of Narra, Aborlan, and Quezon,
Palawan.5

As a result of Delta P's takeover, NAPOCOR was requested to direct payment for the services to
Delta P. However, NAPOCOR refused to do so, with the reasoning that PPC, not Delta P, is the
contracting party involved in the PPA. The standstill resulted in Delta P subsequently advising
NAPOCOR that it could no longer operate the power station for lack of funds.6

On February 26, 2003, NAPOCOR Vice-President for Strategic Power Utilities Group, Lorenzo
S. Marcelo (Marcelo), issued a Memorandum to NAPOCOR President Rogelio M. Murga
(Murga) seeking approval to supply the fuel and pay the manpower services of PPC's generating
plant due to the imminent power shortage in Puerto Princesa City. Allegedly, this shortage was
caused by Delta P's inability to produce the required electricity due to the lack of bunker fuel.7

The Memorandum was approved by Murga. Thus, Marcelo sent a letter on March 7, 2003 to
Delta P's Plant Manager informing him that, upon the request of the local government of
Palawan, NAPOCOR would supply fuel to the generating plant and pay the manpower salaries
while Delta P's internal problems were being resolved.8

The already fragile equilibrium began to further fracture when Delta P instituted on March 12,
2003 an action for collection of sum of money against NAPOCOR, docketed as Civil Case No.
3766, insisting on its right to collect payment of electricity "off-taken" by NAPOCOR. On July
15, 2003, the RTC upheld the action taken by Delta P and rendered a judgment recognizing the
latter's right under the doctrines of accion in rem verso and unjust enrichment to be paid for the
electricity "off-taken" by NAPOCOR from the months December 2002 to June 2003. This was
despite the lack of any existing contract between the parties, as the RTC found that NAPOCOR
benefited from Delta P without paying a single centavo.9

NAPOCOR was, thus, ordered to pay P87,944,215.67 representing the P90,394,855.86 total
value of the invoices from January 28, 2003 to June 27, 2003 less P2,450,640.19 for adjustment
in billing due to reduction in tariff effective March 9, 2003, for the billing period February 25,
2003 to March 25, 2003.10 This judgment attained finality, and was subsequently implemented
against NAPOCOR.

On July 30, 2003, NAPOCOR sent to Delta P a Notice of Termination reminding the latter that it
undertook the supply of fuel requirement of the generating plant as a remedial measure to
address the imminent power shortage in Puerto Princesa City, but with the payment of the
adjudged amount in Civil Case No. 3766, there was no longer any basis for the NAPOCOR to
continue its fuel supply. Thus, Delta P stated that it will terminate the said supply of fuel to the
16MW Power Plant effective August 15, 2003.11

However, the parties belatedly agreed that Delta P should continue generating and supplying
electricity in Palawan with the express undertaking of NAPOCOR to pay monthly invoices for
the services rendered by Delta P at the power station.12

The contractual relationship of the parties continued without any hitch until the NAPOCOR
issued on December 4, 2003 Debit Memo S1-03-12-0041 (Debit Memo) deducting
P24,449,247.36 from Delta P's account for the alleged incremental costs of the fuel it had
supplied to Delta P from February 25, 2003 to June 25, 2003. Finding the same preposterous,
Delta P countered by filing a sum of money case assailing the validity of the Debit Memo for
lack of prior agreement authorizing payment of the fuel costs.13

Therein, Delta P alleged that NAPOCOR voluntarily chose to supply fuel in the power station
despite lack of request, in order to avoid a disruption of fuel, and that Delta P's acceptance of the
fuel should not be construed as an implied approval to bear the costs of the same. Delta P,
likewise, pointed to its previous invoices to NAPOCOR from February 25, 2003 to June 25,
2003, which did not include the fuel costs component of the electricity it generated and supplied
at the power station.14

In response, NAPOCOR invoked Delta's alleged voluntary acceptance and benefit from the fuel
supplied, and that upon an audit, it was discovered that there were variances between the actual
costs of fuel and the fuel costs tariff.15

In its Decision16 dated March 30, 2012, the RTC ruled in favor of Delta P, the dispositive portion
of the same reading, to wit:

WHEREFORE, premises considered, judgment is hereby rendered, to wit:

1. Declaring the debit made by the [NAPOCOR] on the account of the [Delta P] for the
period from February 25, 2003 to June 25, 2003 for "cost of fuel delivered to DELTA P"
 in the total amount of TWENTY[-]FOUR MILLION, FOUR HUNDRED FORTY-NINE
THOUSAND, TWO HUNDRED FORTY-SEVEN PESOS AND TH[IR]TY-SIX
CENTAVOS (Php24,449,247.36) to be void and illegal;
2. Ordering the [NAPOCOR] to pay [Delta P]:
a. TWENTY[-]FOUR MILLION, FOUR HUNDRED FORTY-NINE THOUSAND,
TWO HUNDRED FORTY SEVEN PESOS AND TH[IR]TY-SIX CENTAVOS
(PHP24,449,247.36) plus legal interest from the finality of this Decision until full
payment;
b. FIVE HUNDRED THOUSAND PESOS (PHP500,000.00) as attorney's fees[.]

With costs against the defendant.

SO ORDERED.17 (Emphasis in the original)

The RTC denied the NAPOCOR's Motion for Reconsideration in an Order18 dated July 4, 2012.
On appeal, the CA dismissed the NAPOCOR's petition for lack of merit,19 to wit:

WHEREFORE, the appeal is DENIED for lack of merit. The March 30, 2012 Decision and the
July 4, 2012 Order of the [RTC], Branch 47, Puerto Princesa City in Civil Case No. 3997 are
hereby AFFIRMED.20 (Emphasis in the original)
NAPOCOR's Motion for Reconsideration21 was, likewise, struck down for lack of merit.22 Hence,
this Petition.

The Issues

First, whether or not NAPOCOR's supply of fuel to Delta P is gratuitous, and in the form of a
donation.

Second, whether or not Delta P is liable to reimburse NAPOCOR for the latter's payment of the
same, and subject to NAPOCOR's computation of the cost taking into consideration
NAPOCOR's allegations that the post-audit constituted a supervening event justifying the
payment, and despite the judgment rendered by the RTC in Civil Case No. 3766.

The Arguments of the Parties

NAPOCOR argues that the lower courts mistakenly perceived the supply of fuel to be in the
form of a donation and essentially gratuitous. NAPOCOR states that, had it been its intention to
provide fuel to Delta P free of charge, it would have necessarily manifested that gratuity clearly
to the latter, especially since public funds were utilized to fund the procurement of the fuel and
as such, all the expenses would be subject to post-audit.23

For NAPOCOR, the lower courts erred in finding as contrary to law NAPOCOR's act of debiting
from Delta P's invoice the amount totaling P24,449,247.36. This debited amount allegedly
corresponds to the incremental cost NAPOCOR had to shoulder because of its supply of fuel to
Delta P's 16MW Diesel Power Station in Puerto Princesa City, Palawan.24

NAPOCOR alleges that its debit was necessarily valid, as it was able to properly substantiate
with competent evidence its overpayment and the alleged prevailing circumstances, rendering the
execution inequitable. This overpayment was allegedly due to Delta P unjustifiably excluding the
market fluctuations and transshipment costs that resulted to an erroneous computation, which led
the NAPOCOR to make an overpayment of P24,449,247.36 representing the difference between
the allowable fuel cost and the actual fuel cost.25

When NAPOCOR took on the responsibility of delivering fuel to Delta P, the latter, thus,
became liable to compensate NAPOCOR all the incremental costs for delivering fuel, including
the market fluctuations and transshipment costs from the period of March 2003 to June 2003.
NAPOCOR alleges that its computation showed that Delta P merely indicated a zero amount in
the fuel tariff, but the incremental fuel costs were not included, and that the increase in the cost
of fuel in the international market was not taken into consideration by Delta P in its computation.
Delta P, instead, relied on the reference rate stated in the PPA formula, and disregarded market
fluctuations and transshipment costs.26

NAPOCOR, further, alleges that the principles of unjust enrichment and solution indebiti are
applicable to the case at bar. As NAPOCOR took on the responsibility of delivering fuel to Delta
P, the latter became liable to compensate NAPOCOR for all the incremental costs of the
delivery, which included market fluctuations and transshipment.27

On the other hand, Delta P counters that NAPOCOR was unable to raise any arguments that have
not already been considered, passed upon, and resolved by the trial court and the CA, and, in
fact, are merely rehashes or reiterations of the points already adjudicated upon by the lower
courts.28

For Delta P, the payment made to it by NAPOCOR was not made by mistake as it was pursuant
to a decision that had already become final and executory29 and, as such, was now immutable and
unalterable. Anent NAPOCOR's contention that it had the authority to conduct a post-audit of the
adjudged amount based on the PPA with PPC which provided a formula in the fuel component
computable in the billings to be provided by the power producer, Delta P contends that such is
irrelevant to the case as the cause of action is not based on contract, but on the decision in Civil
Case No. 3766.30

Delta P also points to the records showing that on cross-examination, officers of NAPOCOR
admitted that any manifestation as to the amounts subjected to post-audit was only
communicated internally and was not formally made known to Delta P. Witness testimony also
showed that there was no disagreement regarding the fact that the invoices, which were adjusted
by NAPOCOR, formed part of the decision in Civil Case No. 3766, further emphasizing the
unilateral nature of NAPOCOR's deduction.31

For Delta P, not only did the decision in Civil Case No. 3766 become final and executory, the
same was actually and already satisfied when NAPOCOR paid the sums adjudged without any
condition or qualification.32

Ruling of the Court

NAPOCOR's petition is partly meritorious.

The debit was done unilaterally by

the NAPOCOR.

The Court adheres to the findings of fact consistent with both the RTC and the CA that the debit
made by NAPOCOR was unilaterally done, and that NAPOCOR's supply of fuel to Delta P was
an act of gratuity.

As a rule, the findings of fact of the RTC, as affirmed in totality by the CA, are binding and
conclusive upon this Court. In Gatan v. Vinarao,33 the Court stated it has always accorded great
weight and respect to the findings of fact of trial courts, especially in their assessment of the
credibility of witnesses. It was held, thus:

When it comes to credibility, the trial court's assessment deserves great weight, and is even
conclusive and binding, unless the same is tainted with arbitrariness or oversight of some fact or
circumstance of weight and influence. Since it had the full opportunity to observe directly the
deportment and the manner of testifying of the witnesses before it, the trial court is in a better
position than the appellate court to properly evaluate testimonial evidence. The rule finds an
even more stringent application where the CA sustained said findings, as in this case.34
In Bank of the Philippine Islands v. Leobrera,35 the Court further stressed that:

[F]indings of fact of the trial court, when affirmed by the [CA], are binding upon the Supreme
Court. This rule may be disregarded only when the findings of fact of the [CA] are contrary to
the findings and conclusions of the trial court, or are not supported by the evidence on record.
But there is no ground to apply this exception to the instant case. This Court will not assess all
over again the evidence adduced by the parties particularly where as in this case the findings of
both the trial court and the [CA] completely coincide.36
In this case, absent any proper substantiation on the part of NAPOCOR that there was
arbitrariness or oversight on the part of the RTC or CA in appreciating the evidence presented as
to the status of the grant during the lower proceedings, the Court adheres to the lower courts'
findings of fact. Even if the Court would rely on its own perusal of the records, it is clear that
NAPOCOR's motivation for supplying the fuel was the power crisis in Palawan and the request
of the local government to intervene. While this may not be as absolute an act of liberality as
NAPOCOR had a personal agenda for doing so, such reason does not take away from the fact
that the supplying of fuel was done without the annexing of any condition to be complied with
by Delta P. There was not even an annotation in any document that Delta P would have to pay
any amount back, nor any indication whatsoever that the supply was a mere loan. Absent any
these, for whatever reason, the Court agrees to the finding that the supplying of fuel was a
donation, which was defined in Republic of the Philippines v. Sps. Llamas,37 to wit:

A donation is, by definition, "an act of liberality." Article 725 of the Civil Code provides:
Article 725. Donation is an act of liberality whereby a person disposes gratuitously of a thing or
right in favor of another, who accepts it.

To be considered a donation, an act of conveyance must necessarily proceed freely from the
donor's own, unrestrained volition. A donation cannot be forced: it cannot arise from
compulsion, be borne by a requirement, or otherwise be impelled by a mandate imposed upon
the donor by forces that are external to him or her. Article 726 of the Civil Code reflects this
commonsensical wisdom when it specifically states that conveyances made in view of a
"demandable debt" cannot be considered true or valid donations.38 (Citation omitted)
NAPOCOR's grant was not forced, did not arise from any compulsion exerted upon it, and was
not impelled by any mandate. Even arguing that NAPOCOR was constrained to supply the fuel
at the request of the local government, there was nothing to hinder it from annotating or stating
even in brief terms that this payment would be a loan meant to be paid back once Delta P reaches
financial stability.

NAPOCOR itself mentions that as a government entity subject of audit, the funds that it provides
must be carefully accounted for. Thus, NAPOCOR should have protected what it supplied by
putting a caveat for whatever it gave, and absent that, there is no other conclusion than to treat
the supply of fuel as gratuitous and a donation without condition.

The doctrine of immutability of

judgment applies in this case.

Likewise, the Court agrees with the CA that there is no valid reason to depart from the doctrine
of immutability of judgment of the RTC in Civil Case No. 3766, said doctrine applying as
NAPOCOR's debit in essence served as a gross deviation of the final and executory judgment as
rendered for NAPOCOR to pay the complete P87,944,215.67 to Delta P.

It is axiomatic that when a final judgment is executory, it becomes immutable and unalterable. It
may no longer be modified in any respect either by the tribunal which rendered it or even by this
Court. The doctrine is founded on considerations of public policy and sound practice that, at the
risk of occasional errors, judgments must become final at some definite point in time. It has a
two-fold purpose: first,  to avoid delay in the administration of justice and thus, procedurally, to
make orderly the discharge of judicial business, and second, to put an end to judicial
controversies, at the risk of occasional errors, which is precisely why courts exist. Controversies
cannot drag on indefinitely, and the rights and obligations of every litigant must not hang in
suspense for an indefinite period of time.39

There are, however, recognizable instances when a final judgment may be subject to
modification. In FGU Insurance Corp. v. RTC of Makati City, Br. 66, et al.,40 the Court took the
occasion to expound on the doctrine and the instances when there can be an acceptable deviation
from the same:

Under the doctrine of finality of judgment or immutability of judgment, a decision that has
acquired finality becomes immutable and unalterable, and may no longer be modified in any
respect, even if the modification is meant to correct erroneous conclusions of fact and law, and
whether it be made by the court that rendered it or by the Highest Court of the land. Any act
which violates this principle must immediately be struck down.

But like any other rule, it has exceptions, namely: (1) the correction of clerical errors; (2) the so-
called nunc pro tunc entries which cause no prejudice to any party; (3) void judgments; and (4)
whenever circumstances transpire after the finality of the decision rendering its execution unjust
and inequitable. The exception to the doctrine of immutability of judgment has been applied in
several cases in order to serve substantial justice. x x x.41 (Citation omitted)
In Go v. Echavez,42 the exceptions to the rule were further elaborated on, to wit:

Clerical errors cover all errors, mistakes, or omissions that result in the record's failure to
correctly represent the court's decision. However, courts are not authorized to add terms it never
adjudged, nor enter orders it never made, although it should have made such additions or
entered such orders.

In other words, to be clerical, the error or mistake must be plainly due to inadvertence or
negligence. x x x.

Nunc pro tunc is Latin for "now for then." Its purpose is to put on record an act which the court
performed, but omitted from the record through inadvertence or mistake. It is neither intended to
render a new judgment nor supply the court's inaction. In other words, a nunc pro tunc entry may
be used to make the record speak the truth, but not to make it speak what it did not speak but
ought to have spoken.

A void judgment or order has no legal and binding effect. It does not divest rights and no rights
can be obtained under it; all proceedings founded upon a void judgment are equally worthless.

Void judgments, because they are legally nonexistent, are susceptible to collateral attacks. A
collateral attack is an attack, made as an incident in another action, whose purpose is to obtain a
different relief. In other words, a party need not file an action to purposely attack a void
judgment; he may attack the void judgment as part of some other proceeding. A void judgment
or order is a lawless thing, which can be treated as an outlaw and slain at sight, or ignored
wherever and whenever it exhibits its head. Thus, it can never become final, and could be
assailed at any time.

Nevertheless, this Court has laid down a stiff requirement to collaterally overthrow a judgment.
In the case of Reyes, et al. v. Datu, We ruled that it is not enough for the party seeking the nullity
to show a mistaken or erroneous decision; he must show to the court that the judgment
complained of is utterly void. In short, the judgment must be void upon its face.
Supervening events, on the other hand, are circumstances that transpire after the decision's
finality rendering the execution of the judgment unjust and inequitable. It includes matters that
the parties were not aware of prior to or during the trial because such matters were not yet in
existence at the time. In such cases, courts are allowed to suspend execution, admit evidence
proving the event or circumstance, and grant relief as the new facts and circumstances warrant.

To successfully stay or stop the execution of a final judgment, the supervening event: (i) must
have altered or modified the parties' situation as to render execution inequitable, impossible, or
unfair; and (ii) must be established by competent evidence; otherwise, it would become all too
easy to frustrate the conclusive effects of a final and immutable judgment. 43 (Citations omitted
and italics in the original)
In the case herein, none of these exceptions exist for the Court to digress "from the judgment of
the RTC. NAPOCOR's premise that the post-audit qualifies as a supervening event that would
bring into operation the non-application of the immutability doctrine, is mistaken. A supervening
event, to be sufficient to stay or stop the execution, must alter the execution to become
inequitable, impossible, or unfair, and cannot rest on unproved or uncertain facts.44 In Abrigo, et
al. v. Flores, et al.,45 the Court said:

We deem it highly relevant to point out that a supervening event is an exception to the execution
as a matter of right of a final and immutable judgment rule, only if it directly affects the matter
already litigated and settled, or substantially changes the rights or relations of the parties therein
as to render the execution unjust, impossible or inequitable. A supervening event consists of facts
that transpire after the judgment became final and executory, or of new circumstances that
develop after the judgment attained finality, including matters that the parties were not aware of
prior to or during the trial because such matters were not yet in existence at that time. In that
event, the interested party may properly seek the stay of execution or the quashal of the writ of
execution, or he may move the court to modify or alter the judgment in order to harmonize it
with justice and the supervening event. The party who alleges a supervening event to stay the
execution should necessarily establish the facts by competent evidence; otherwise, it would
become all too easy to frustrate the conclusive effects of a final and immutable
judgment.46 (Citations omitted and italics in the original)
In this case, the post-audit of the adjudged amount based on the PPA with PPC which provided a
formula in the fuel component computable in the billings is irrelevant to" the proceedings and
cannot be deemed to be a fact that transpired after the judgment became final, as it was already
existing. The post-audit concerned itself with the subject amounts already deemed final, and not
any amounts that came about through the contemporaneous and/or subsequent actions of the
involved parties.

Lastly, the Court highlights the directive in the decision in Civil Case No. 3766. By way of
recall, the dispositive portion of the decision reads, to wit:

WHEREFORE, all the foregoing premises considered, judgment is hereby rendered ordering
[NAPOCOR] to pay [Delta P] for the electricity off-taken by it from the latter's 16 MW Power
 Station located at Kilometer 13, Barangay Sta[.] Lourdes, Puerto Princesa City, Palawan from
the months of December 25, 2002 to June 25, 2003 under the following invoices, to wit:

   Invoice Invoice Metering Amount

No. Date Date
1 2003- Jan. 28, 25 Dec '02- P16,129,510.32
001 2003 25 Jan '03
2 2003- Feb. 07, 25 Dec '02- 9,808,653.03
002 2003 25 Jan '03
3 2003- Feb. 27, 25 Jan. '03- 16,583,089.60
003 2003 25 Feb '03
4 2003-04 Mar. 10, 25 Jan '03-25 11,607,784.51
2003 Feb '03
5 2003- Mar. 29, 25 Feb '03- 7,612,620.40
005 2003 25 Mar '03
6 2003- Apr. 30, 25 Mar '03- 7,336,160.10
006 2003 25 Apr '03
7 2003- May 30, 25 Feb '03- 2,787,181.97
007 2003 25 Mar '03
8 2003- May 30, 25 Apr '03- 8,737,988.97
008 2003 25 May '03
9 2003- June 27, 25 May '03- 9,991,846.96
009 2003 25 June '03
      P 90,394,855.86
       
      Less: P 2,450,640.86
for adjustment in billing due to reduction
in tariff effective March 9, 2003 for the
billing period February 25, 2003 to March
25, 2003.
TOTAL P87,944,215.67
IT IS SO ORDERED
Puerto Princesa City, July 15, 200347
The directive to NAPOCOR is clear. NAPOCOR must pay the judgment amount without any
amount subtraction, and without any qualification. In fact, NAPOCOR proceeded to do so.
Allowing a post-audit to serve as basis to modify the amount of judgment will open the
floodgates for entities to manipulate the amounts they have to pay without any valid reason, and
in direct contravention to the judgment findings of the courts.

Delta P was unjustly enriched by

NAPOCOR when the latter supplied
fuel to Delta P without receiving
anything in return.

Despite the foregoing, the Court agrees with the arguments posited by NAPOCOR and finds that
the lower courts erred in stating that unjust enrichment is not present in this case. An exception
to the general rule that the findings of fact are binding is when the inference of the lower court is
manifestly mistaken.48 Herein, the Court finds that both the trial court and the CA were
manifestly mistaken when they failed to take into consideration the fact that Delta P was
enriched without justification due to the fuel supply given by NAPOCOR.

There is unjust enrichment "when a person unjustly retains a benefit to the loss of another, or
when a person retains money or property of another against the fundamental principles of justice,
equity and good conscience." The principle of unjust enrichment requires two conditions: (1) that
a person is benefited without a valid basis or justification, and (2) that such benefit is derived at
the expense of another.49

In the case at bar, the fuel grant, while done unilaterally, was still done without NAPOCOR
receiving anything in return, even when Delta P's internal issues were eventually sorted out.
NAPOCOR ended up prejudiced by its action especially as there was no legal obligation
mandating it to contribute to the woes of Delta P, only the intervention of the local government
due to the power crisis in Palawan. There was an appreciable monetary loss on the part of
NAPOCOR, despite Delta P's lack of attendant blame, with the end result of Delta P's
enrichment being a correlative loss on the books of NAPOCOR.

In Almario v. Philippine Airlines, Inc.:50

(Article 22 of the New Civil Code) on unjust enrichment recognizes the principle that one may
not enrich himself at the expense of another. An authority on Civil Law writes on the
subject, viz[.]:

Enrichment of the defendant consists in every patrimonial; physical, or moral advantage, so long
as it is appreciable in money. It may consist of some positive pecuniary value incorporated into
the patrimony of the defendant, such as: (1) the enjoyment of a thing belonging to the plaintiff;
(2) the benefits from service rendered by the plaintiff to the defendant; (3) the acquisition of a
right, whether real or personal; (4) the increase of value of property of the defendant; (5) the
improvement 9f a right of the defendant, such as the acquisition of a right of preference; (6) the
recognition of the existence of a right in the defendant; and (7) the improvement of the
conditions of life of the defendant.

x x x x
The enrichment of the defendant must have a correlative prejudice, disadvantage, or injury to the
plaintiff. This prejudice may consist, not only of the loss of property or the deprivation of its
enjoyment, but also of non-payment of compensation for a prestation or service rendered to the
defendant without intent to donate on the part of the plaintiff, or the failure to acquire something
which the latter would have obtained. The injury to the plaintiff, however, need not be the cause
of the enrichment of the defendant. It is enough that there be some relation between them, that
the enrichment of the defendant would not have been produced had it not been for the fact from
which the injury to the plaintiff is derived. x x x51 (Citations omitted)
While the Almario case states that intent to donate on the part of NAPOCOR, which the Court
holds is present despite the former's protestations, may be enough to remove a case from the
ambit of the unjust enrichment doctrine, the failure to acquire any compensation even from the
local government of Palawan, who had requested that NAPOCOR provide the fuel in the first
place, means that there was unjust enrichment on the part of NAPOCOR.

This case presents one of the rare situations where Delta P is unjustly enriched through the
voluntary act of the enriching party, NAPOCOR in this case. The Court holds that while the
principle of solutio indebiti52 will not apply as a remedy for NAPOCOR's recovery, as the
payment of the fuel costs was not a mistake and NAPOCOR was not able to prove that the
requirements for the same have been met,53 NAPOCOR is entitled to recover under the doctrine
of unjust enrichment, for the amount it paid to Delta P for the supply of fuel, for the period
February 25, 2003 to June 25, 2003.

However, as NAPOCOR failed to properly substantiate the amount of P24,449,247.36 it debited

as a result of the supplying of fuel, the case is remanded to the trial court in order to determine
the exact amount which NAPOCOR spent in the course of supplying fuel to Delta P for the
aforementioned time period.

WHEREFORE, the petition for review on certiorari is GRANTED insofar as respondent Delta

P, Inc. is liable to pay the amount corresponding to the fuel it received from petitioner National
Power Corporation from February 25, 2003 to June 25, 2003. This case is remanded to the trial
court to ascertain the amount to be paid by Delta P, Inc. All other claims of the National Power
Corporation are denied for lack of merit.

THIRD DIVISION

G.R. No. 210906, October 16, 2019

AGO REALTY & DEVELOPMENT CORPORATION (ARDC), EMMANUEL F. AGO,

AND CORAZON CASTAÑEDA-AGO, PETITIONERS, v. DR. ANGELITA F. AGO,
TERESITA PALOMA-APIN, AND MARIBEL AMARO, RESPONDENTS.

[G.R. No. 211203, October 16, 2019]

 DR. ANGELITA F. AGO, PETITIONER, v. AGO REALTY & DEVELOPMENT
CORPORATION, EMMANUEL F. AGO, CORAZON C. AGO, EMMANUEL VICTOR
C. AGO, AND ARTHUR EMMANUEL C. AGO, RESPONDENTS

DECISION

A. REYES, JR., J.:

Grounded on equity, the derivative suit has proven to be an effective tool for the protection of
minority shareholders. Such actions have for their object the vindication of a corporate injury,
even though they are not brought by the corporation, but by its stockholders. That said,
derivative suits remain an exception. As a general rule, corporate litigation must be commenced
by the corporation itself, with the imprimatur of the board of directors, which, pursuant to the
law, wields the power to sue. Therefore, since the derivative suit is a remedy of last resort, it
must be shown that the board, to the detriment of the corporation and without a valid business
consideration, refuses to remedy a corporate wrong. A derivative suit may only be instituted
after such an omission. Simply put, derivative suits take a back seat to board-sanctioned
litigation whenever the corporation is willing and able to sue in its own name.

On appeal are the September 26, 2013 Decision1 and the January 10, 2014 Resolution2 rendered
by the Court of Appeals (CA) in CA-G.R. CV No. 99771.

The Factual Antecedents

Petitioner Ago Realty & Development Corporation (ARDC) is a close corporation.3 Its

stockholders are petitioner Emmanuel F. Ago (Emmanuel); his wife, petitioner Corazon C. Ago
(Corazon); their children, Emmanuel Victor C. Ago and Arthur Emmanuel C. Ago (collectively
Emmanuel, et al.); and Emmanuel's sister, respondent Angelita F. Ago (Angelita). Per ARDC's
General Information Sheet,4 their respective stockholdings are as follows:

Number of Subscribed
  Amount
Shares

Emmanuel 2,498 P249,800.00

Corazon 1,000 P100,000.00

Victor 1 P100.00

Arthur 1 P100.00

Angelita 1,500 P150,000.00

TOTAL 5,000 P500,000.00

This controversy arose when Angelita introduced improvements on Lot No. H-3, titled in the
name of ARDC, without the proper resolution from the corporation's Board of Directors.
The improvements also encroached on Lot No. H-1 and Lot No. H-2, which also belonged to
ARDC.5

Consequently, on August 11, 2006, ARDC and Emmanuel, et al. filed a comp1aint6 before the
Legazpi City Regional Trial Court (RTC). They essentially alleged that Angelita, in connivance
with Teresita P. Apin (Teresita), Maribel Amaro (Maribel), and certain local officials of Legazpi
City, introduced unauthorized improvements on corporate property. For her part, Teresita was
accused of operating a restaurant named "Kicks Resto Bar" in the improvements, 7 while Maribel
was impleaded as Angelita's employee.8 On the other hand, the local officials were impleaded as
defendants since they were responsible for issuing the permits relative to the improvements
introduced by Angelita and the business concerns thereon. 9On September 15, 2006, Teresita filed
her answer. She denied all the material allegations and averred that her restaurant was operating
not on Lot No. H-3, as stated in the complaint, but on Lot No. 1-B, which is not ARDC's
property.10

On February 9, 2007, after their motion to dismiss was denied, 11 Angelita and Maribel filed their
answer.12 Angelita admitted to introducing improvements on the subject lots. She narrated that
sometime in the 1960s, Emmanuel and Corazon immigrated to the United States, leaving the
management of ARDC's properties to her. She thus took control of the corporation's properties
and introduced improvements thereon, particularly a semi-permanent multipurpose
structure13 and a fence designed to protect the lot.14

Angelita further claimed that the suit was brought because she refused to heed to Emmanuel's
demand that she buyout his shares in ARDC for $6,000,000.00. After she failed to satisfy the
unreasonable demand, Emmanuel, through two letters sent by counsel, allegedly accused her of
introducing improvements on ARDC's property and allowing Teresita to operate a restaurant
business thereon, without the necessary authorization from the corporation's Board of Directors.
For such acts, Emmanuel supposedly demanded damages amounting to P10,000,000.00.15

Anent Maribel's inclusion as defendant, it was argued that the plaintiffs had no cause of action
against her since the complaint failed to point out any act for which she should be held
accountable. Being a mere employee of Angelita, she had no participation in the acts complained
of. 16

Notably, a defense common to all the defendants was that ARDC never authorized the
institution of the suit. Without a resolution emanating from the corporation's Board of
Directors, it was argued that Emmanuel, et al. had no legal standing to bring the case since
the lots in question belonged to ARDC.

On July 24, 2007, the local officials of Legazpi City were dropped as defendants on motion of
Emmanuel, et al. Hence, the case against them was dismissed.17

After the pre-trial conference was terminated on July 31, 2007, trial on the merits ensued.18
 The RTC's Ruling

On September 20, 2012, the RTC rendered a Decision 19 dismissing the complaint and holding
Emmanuel and Corazon jointly and severally liable for damages. Finding ARDC to be the real
party in interest, the trial court ruled that the plaintiffs had no cause of action. 20 Since
Emmanuel, et al. brought the case without the proper resolution from the Board of Directors, 21 it
was held that they were not authorized to sue on behalf of the corporation. 22The RTC gave
consideration to the undisputed fact that the properties in litigation belonged to ARDC,
concluding that Emmanuel, et al., in their individual capacities, were not the real parties in
interest.23

Next, the trial court found that Teresita's restaurant business was not operating on ARDC's
property. The finding was based on Corazon's admission that the restaurant was built on Lot No.
1-B, contrary to what was alleged in the complaint.24

Lastly, the suit was held to be baseless, thus entitling the defendants to damages and attorney's
fees.25 Angelita was awarded moral damages since Emmanuel's claims caused her
embarrassment and tarnished her reputation in Bicol. Maribel was likewise awarded moral
damages because the suit took her by surprise, made her restless, resulted in a rise in her blood
pressure, and caused her to figure in an accident. 26 However, Teresita's claim for moral and
exemplary damages failed, as she did not take the witness stand. 27 Nevertheless, she,28 Angelita,
and Maribel29 were awarded attorney's fees on the ground that the action was clearly unfounded.

The fallo of the RTC's Decision reads:

WHEREFORE, in view of the foregoing, the court hereby orders:

1. That the herein-entitled complaint be DISMISSED as it is hereby DISMISSED and

2. That Emmanuel F. Ago and Corazon Casta[ñ]eda-Ago be ordered to pay jointly and solidarily
the following in damages:

A. To Teresita Paloma Apin, the amount of P150,000.00 in attorney's fees;

B. To each of Dr. Angelita F. Ago and Maribel Amaro, the amount of P100,000.00 in moral
damages; and,

C. To both Dr. Angelita F. Ago and Maribel Amaro, the amount of P200,000.00 in attorney's
fees.

SO ORDERED.30 (Emphasis in the original)

The CA's Ruling

On September 26, 2013, the CA rendered the herein assailed Decision affirming the RTC's ruling
anent the plaintiffs' lack of cause of action, but deleting the lower court's award of moral
damages and attorney's fees. The appellate court held that the case partook of the nature of a
derivative suit. As such, Emmanuel, et al. needed the imprimatur of ARDC's Board of
Directors to institute the action.31 While they were able to present a resolution purportedly
authorizing the filing of the case, the CA refused to give credence thereto on the ground that the
same was passed by the corporation's stockholders, and not its Board of Directors.32

As for the award of moral damages, the CA held that the case was not totally baseless
considering that Angelita indeed introduced substantial improvements on ARDC's property. The
filing of the case was thus held to be free from malicious intent. 33 Likewise, the award of
attorney's fees was erroneous since there was no factual or legal basis for its grant.34

The CA, therefore, disposed of the case, viz.:

WHEREFORE, the Decision dated September 20, 2012 of the Regional Trial Court of Legazpi
City, Branch 1, in Civil Case No. 10585 is AFFIRMED WITH MODIFICATION, in that, the
award of moral damages and attorney's fees in favor of the defendants-appellees is DELETED.

SO ORDERED.35 (Emphasis in the original)

After the CA denied their respective motions for reconsideration through the herein assailed
Resolution, ARDC, Emmanuel, and Corazon,36 on the one hand, and Angelita,37 on the other,
filed the instant consolidated petitions for review on certiorari, raising the following issues:

The Issues

In G.R. No. 210906 (filed by ARDC and Emmanuel, et al.):

Whether or not Emmanuel, et al. may sue on behalf of ARDC absent a resolution or any other
grant of authority from its Board of Directors sanctioning the institution of the case.38

In G.R. No. 211203 (filed by Angelita):

Whether or not the grant of moral damages and attorney's fees in favor of Angelita is warranted.

The Court's Ruling

The petitions have no merit. Hence, the CA's decision stands.

The historical development of corporation law in the Philippines

Towards the end of the Spanish occupation, the application of the Spanish Code of Commerce
was extended to the Philippine Islands.40 This introduced the sociedad anónima, a juridical entity
formed "upon the execution of the public instrument in which its articles of agreement appear,
and the contribution of funds and personal property." 41 Just as today's corporations, sociedades
anónimas could own and deal in property, as well as sue and be sued.42
With the conclusion of the Treaty of Paris, Spain ceded the Philippines to the United
States.43 The Americans brought with them their notion of the corporation through the enactment
of Act No. 1459, "a sort of codification of American corporate law."44 Their attention was caught
by the fact that Spanish law did not provide for an entity that was precisely equivalent to the
American or English corporation.45 To them, the sociedad anónima was an inadequate business
medium.

Appropriately named the Corporation Law, Act No. 1459 took effect on April 1, 1906 and was to
serve as the principal corporate regulatory statute for the next 74 years. The law defined a
corporation as "an artificial being created by operation of law, having the right of succession and
the powers, attributes, and properties expressly authorized by law or incident to its existence," 46 a
definition that is still used to this day. It contained special provisions expressly penalizing the
employment of persons in involuntary servitude 47 and the unlicensed transaction of business by a
foreign corporation.48

However, as Act No. 1459 was unable to keep up with modern commerce, it was replaced
by Batas Pambansa Blg. 68, otherwise known as the Corporation Code. The new law codified
various jurisprudential pronouncements made under its predecessor, clarified the obligations of
corporate directors and officers, and defined close corporations, providing special rules for their
formation and the ownership of their stock. It also dispensed with the old restrictions pertinent to
agricultural and mining corporations, the limitations on corporate ownership of real property, and
the penal clauses integrated into certain provisions of the law.49

The Corporation Code was the law in effect at the time the factual antecedents of this case
occurred.

The most recent edition of our corporation law came with the passage of Republic Act No.
11232, or the Revised Corporation Code, which took effect on February 23, 2019. This new
piece of legislation introduced many significant changes to the corporate regulatory regime in
this jurisdiction. Notably, it removed the requirement to incorporate with at least five
incorporators,50 the minimum capitalization requirement for stock corporations, 51 and the 50-year
limit on the duration of the corporate term.52 Also, in an effort to strengthen corporate
governance, the new law requires corporations imbued with public interest to allocate a certain
percentage of their board seats to independent directors, 53 as well as to elect a compliance officer
to ensure adherence to all relevant laws and regulations.54

Corporate powers are exercised by the board of directors

If there is one constant that has been observed from the introduction of the Spanish Code of
Commerce to the enactment of the Revised Corporation Code, it is that "[c]orporations are
creatures of the law."55 They owe their existence to the sovereign powers of the State, exercised
by the Legislature, which—by general law or, in certain instances, direct act—prescribes the
manner of their formation or organization.56 Throughout their lifetimes, corporations are subject
to a plethora of regulatory requirements, such as those involving annual reports, 57 voting in
stockholders' or directors' meetings,58 and, depending on the industry where the firm operates,
limitations on foreign ownership.59 As so aptly put in Ang Pue & Co., et al. v. Sec. of Comm.
and Industry,60 "[t]o organize a corporation x x x is not a matter of absolute right but a privilege
which may be enjoyed only under such terms as the State may deem necessary to impose."61

While corporations are subjected to the State's broad regulatory powers, it is their directors and
officers who are tasked with addressing questions of internal policy and management. 62The
business of a corporation is conducted by its board of directors, and so long as the board
acts in good faith, the State, through the courts, may not interfere with its management
decisions.63 This finds support in Section 23 of the Corporation Code, which provides that a
corporation exercises its powers, conducts its business, and controls and holds its property
through its board of directors.64

As creatures of the law, corporations only possess those powers that are granted through statute,
either expressly or by way of implication, or those that are incidental to their existence.65

One of the powers expressly granted by law to corporations is the power to sue. 66 As with other
corporate powers, the power to sue is lodged in the board of directors, acting as a collegial
body.67 Thus, in the absence of any clear authority from the board, charter, or by-laws, 68 no suit
may be maintained on behalf of the corporation. A case instituted by a corporation without
authority from its board of directors is subject to dismissal on the ground of failure to state a
cause of action.69

In certain instances, however, the stockholders may sue on behalf of the corporation

As an exception70 to the foregoing rule, jurisprudence has recognized certain instances

when minority stockholders may bring suits on behalf of corporations.71 Where the board of
directors itself is a party to the wrong, either because it is the author thereof or because it refuses
to take remedial action, equity permits individual stockholders to seek redress. 72 These actions
have come to be known as derivative suits. In Chua v. Court of Appeals,73 the Court defined a
derivative suit as "a suit by a shareholder to enforce a corporate cause of action."74

In derivative suits, it is the corporation that is the victim of the wrong. As such, it is the
corporation that is properly regarded as the real party in interest, while the relator-stockholder is
merely a nominal party.75 The corporation must be impleaded so that the benefits of the suit
accrue to it and also because it must be barred from bringing a subsequent case against the same
defendants for the same cause of action. 76 Stated otherwise, the judgment rendered in the suit
must constitute res judicata against the corporation, even though it refuses to sue through its
board of directors.77

That said, not every wrong suffered by a stockholder involving a corporation will vest in him or
her the standing to commence a derivative suit. 78 In Cua, Jr., et al. v. Tan, et al.,79 the Court
explained when such actions lie,  viz.:

Suits by stockholders or members of a corporation based on wrongful or fraudulent acts of

directors or other persons may be classified into individual suits, class suits, and derivative suits.
Where a stockholder or member is denied the right of inspection, his suit would be individual
because the wrong is done to him personally and not to the other stockholders or the corporation.
Where the wrong is done to a group of stockholders, as where preferred stockholders' rights are
violated, a class or representative suit will be proper for the protection of all stockholders
belonging to the same group. But where the acts complained of constitute a wrong to the
corporation itself, the cause of action belongs to the corporation and not to the individual
stockholder or member. Although in most every case of wrong to the corporation, each
stockholder is necessarily affected because the value of his interest therein would be impaired,
this fact of itself is not sufficient to give him an individual cause of action since the corporation
is a person distinct and separate from him, and can and should itself sue the wrongdoer.
Otherwise, not only would the theory of separate entity be violated, but there would be
multiplicity of suits as well as a violation of the priority rights of creditors. Furthermore, there is
the difficulty of determining the amount of damages that should be paid to each individual
stockholder.

However, in cases of mismanagement where the wrongful acts are committed by the

directors or trustees themselves, a stockholder or member may find that he has no redress
because the former are vested by law with the right to decide whether or not the
corporation should sue, and they will never be willing to sue themselves. The corporation
would thus be helpless to seek remedy. Because of the frequent occurrence of such a situation,
the common law gradually recognized the right of a stockholder to sue on behalf of a corporation
in what eventually became known as a "derivative suit." It has been proven to be an effective
remedy of the minority against the abuses of management. Thus, an individual stockholder is
permitted to institute a derivative suit on behalf of the corporation wherein he holds stock in
order to protect or vindicate corporate rights, whenever officials of the corporation refuse to sue
or are the ones to be sued or hold the control of the corporation. In such actions, the suing
stockholder is regarded as the nominal party, with the corporation as the party in
interest.80 (Emphasis and underscoring supplied)

Here, the CA held that since the cause of action belongs to ARDC, the properties in question
being titled in its name, the case instituted by Emmanuel, et al. was derivative in nature. As such,
they should have first secured a board resolution authorizing them to bring suit. 81 Emmanuel, et
al. counter, arguing that a derivative suit does not require the imprimatur of the board of
directors.82 Since, in derivative suits, the corporation is usually under the control of the
wrongdoers, it would be absurd to require the stockholders to obtain board authority prior to the
commencement of litigation.

Emmanuel et al. are correct.

A board resolution is not needed for the institution of a derivative suit

The record reveals that the complaint a quo was filed by Emmanuel, et al. While the caption
states that ARDC was also one of the plaintiffs, there is nothing showing that the corporation's
Board of Directors had authorized the filing of the case. Thus, the case is deemed as instituted by
Emmanuel, et al. without ARDC's acquiescence.

As discussed above, the corporate power to sue is exercised by the board of directors. For this
purpose, the board may authorize a representative of the corporation to perform all necessary
physical acts, such as the signing of documents.83 Such authority may be derived from the by-
laws or from a specific act of the board of directors,  i.e., a board resolution.84

In Rep. of the Phils. v. Coalbrine Int'l. Phils., Inc., et al.,85 the Court dismissed a complaint for
damages instituted by a corporation because the managing director who signed the certification
against forum shopping failed to show that the board of directors authorized her to do so. Ruling
that the lack of such certification was prejudicial to the corporation's cause, the Court held that
the managing director should have first obtained a valid board resolution sanctioning the filing of
the case and the signing of the certification.

However, in derivative suits, the recognized rule is different. Since the board is guilty of
breaching the trust reposed in it by the stockholders, it is but logical to dispense with the
requirement of obtaining from it authority to institute the case and to sign the certification
against forum shopping. It has been held that when "the corporation x x x is under the complete
control of the principal defendants in the case, x x x it is obvious that a demand upon the [board]
to institute an action and prosecute the same effectively would [be] useless, and the law does not
require litigants to perform useless acts."86Thus, the institution of a derivative suit need not be
preceded by a board resolution.

But, given that authority from the board of directors can be dispensed with in derivative suits,
can the case filed by Emmanuel, et al. even be classified as such in the first place?

Emmanuel, et al. argue that they have the right to file a derivative suit on behalf of
ARDC.87 Since the corporation was the victim of the wrong committed by Angelita, i.e., the
introduction of improvements on its property without its consent, a derivative suit lies as the
appropriate remedy.

On this score, they err.

The derivative suit is an equitable remedy and one of last resort

The right of stockholders to bring derivative suits is not based on any provision of the
Corporation Code or the Securities Regulation Code, but is a right that is implied by the
fiduciary duties that directors owe corporations and stockholders. 88Derivative suits are,
therefore, grounded not on law, but on equity.89

In Hi-Yield Realty, Incorporated v. Court of Appeals, et al.,90 a corporation, through its

controlling stockholder and without authority from its board of directors, entered into loan
obligations that later led to the foreclosure of its property. A minority stockholder then instituted
a petition to annul the subject mortgage deeds and the consequent foreclosure sales. The
complaint alleged that the suing minority stockholder had been excluded from corporate affairs
and that attempts between him and the other stockholders to compromise the case had failed.
Since the board of directors did nothing to rectify the corporation's questionable transactions, the
Court allowed the institution of the complaint as a derivative suit.
 In Gochan v. Young,91 minority stockholders instituted a complaint against directors and officers
who appropriated for themselves corporate funds through excessive salaries and cash advances.
It was stated that the capital of the corporation was impaired, as the firm was prevented from
using its own funds in the conduct of its regular business. The Court held that the suit was
correctly classified as derivative in nature since the relator-stockholders had clearly alleged
injury to the corporation. The fact that the plaintiffs alleged damage to themselves in their
personal capacities on top of the damage done to the corporation merely gave rise to an
additional cause of action, but it did not disqualify them from filing a derivative suit.

In San Miguel Corporation v. Kahn,92 a significant number of shares of San Miguel Corporation
(SMC) were acquired by 14 other companies. SMC tried to repurchase shares through its wholly-
owned foreign subsidiary, Neptunia Corporation Limited (Neptunia). However, the shares had
been sequestered by the Presidential Commission on Good Government (PCGG) on the ground
that they were owned by one of the cronies of former President Ferdinand E. Marcos. Later,
SMC's Board of Directors passed a resolution assuming Neptunia's liability for the purchase of
the subject shares. The board opined that there was nothing illegal about the assumption of
liability since Neptunia was wholly-owned by SMC. Subsequently, Eduardo de los Angeles (De
los Angeles), director and minority stockholder of SMC, brought a derivative suit challenging
the board resolution as constituting an improper use of corporate funds. When the case reached
the Court, it was held that De los Angeles had properly resorted to a derivative suit. It was of no
moment that he owned only 20 SMC shares or that he was elected to the board of directors by
the PCGG. Since the case concerned the validity of the assumption by SMC of the indebtedness
of Neptunia, a cause of action that indeed belonged to the former corporation, the Court held that
De los Angeles could maintain the suit on behalf of SMC.

Despite derivative suits being grounded on equity, they cannot prosper in the absence of any or
some of the requisites enumerated in the Interim Rules of Procedure for Intra-Corporate
Controversies,93viz.:

Rule 8
DERIVATIVE SUITS

Section 1. Derivative action. - A stockholder or member may bring an action in the name of a
corporation or association, as the case may be, provided, that:

(1) He was a stockholder or member at the time the acts or transactions subject of the action
occurred and the time the action was filed;
   
(2) He exerted all reasonable efforts, and alleges the same with particularity in the complaint, to
exhaust all remedies available under the articles of incorporation, by-laws, laws or rules
governing the corporation or partnership to obtain the relief he desires;
   
(3) No appraisal rights are available for the acts or acts complained of; and
   
(4) The suits is not a nuisance or harassment suit.94

The second requisite does not obtain in this case.

Before instituting a derivative suit, the relator-stockholder must exert all reasonable efforts
to exhaust all remedies available under the articles of incorporation, the by-laws, and the
laws or rules governing the corporation or partnership to obtain the relief he or she
desires. Such fact must then be alleged with particularity in the complaint. 95 "The obvious intent
behind the rule is to make the derivative suit the final recourse of the stockholder, after all other
remedies to obtain the relief sought had failed."96

In their petition, Emmanuel, et al. allege that they exerted all reasonable efforts to exhaust all
remedies available to them. They point to the fact that they invited Angelita to a meeting to
amicably settle the dispute.97 Indeed, the record shows that Emmanuel, Corazon, and Angelita
came together for a special stockholders' meeting on August 11, 2006. However, their attempt to
resolve the dispute turned sour when Angelita walked out before the meeting even started.98

Contrary to the postulation of Emmanuel and Corazon, their attempt to settle the dispute with
Angelita can hardly be considered "all reasonable efforts to exhaust all remedies available."

In Yu,  et al. v. Yukayguan, et al.,99 the Court rejected the argument that attempts between
stockholders to amicably settle a corporate dispute constitute "all reasonable efforts to exhaust all
remedies available." It was held that:

The allegation of respondent Joseph in his Affidavit of his repeated attempts to talk to petitioner
Anthony regarding their dispute hardly constitutes "all reasonable efforts to exhaust all remedies
available." Respondents did not refer to or mention at all any other remedy under the articles of
incorporation or by-laws of Winchester, Inc., available for dispute resolution among
stockholders, which respondents unsuccessfully availed themselves of. And the Court is not
prepared to conclude that the articles of incorporation and by-laws of Winchester, Inc. absolutely
failed to provide for such remedies.100

More importantly, an apparent remedy available to Emmanuel, et al. was to cause ARDC

itself, through its Board of Directors, to directly institute the case. Because of their
controlling interest in the corporation, Emmanuel, et al. could have prevailed upon the board to
pass a resolution authorizing any of them to file the case and sign the certification against forum
shopping.

The derivative suit has proven to be an effective tool for the protection of the minority
shareholder's corporate interest. It is essentially an exception to the rule that a wrong done to a
corporation must be vindicated through legal action commenced by the board of directors.

Through the voting procedure found in the Corporation Code, 101 the majority shareholders
exercise control over the board of directors. In Gamboa v. Finance Secretary Teves, et al.,102 the
 Court, in no uncertain terms, declared that: "[i]ndisputably, one of the rights of a stockholder is
the right to participate in the control or management of the corporation. This is exercised through
his vote in the election of directors because it is the board of directors that controls or manages
the corporation."103 Hence, in the normal course of things, when a corporation is wronged,
the board will readily litigate in order to protect the majority's corporate interests. For the
minority, on the other hand, this may not be the case. There may be situations where a
corporation is wronged, but the board of directors refuses to take remedial action. The board's
refusal may be based on valid business considerations, such as that the costs of litigation exceed
the potential judgment award. But in situations where the board's decision is tantamount to
breaching the trust reposed in it by the minority, equity necessitates that the aggrieved
stockholders be given a remedy. Thus, the minority, in a derivative capacity, may sue or
defend104 on behalf of the corporation.

Due to their control over the board of directors, the majority should not ordinarily be allowed to
resort to derivative suits. Where a corporation under the effective control of the majority is
wronged, board-sanctioned litigation should take precedence over derivative actions. After
all, the law expressly vests the power to sue in the board of directors, 105and a remedy based
on equity, such as the derivative suit, can prevail only in the absence of one provided by
statute.106 In other words, majority stockholders who have undisputed corporate control cannot
resort to derivative suits when there is nothing preventing the corporation itself from filing the
case.

In the complaint they filed before the Legazpi City RTC, Emmanuel, et al. alleged that,
together, they own 70% of ARDC's shares of capital stock. 107 In support of their allegation,
they attached to their complaint the corporation's General Information Sheet,108 which shows
that, out of ARDC's 5,000 shares of stock, 3,500 belong to Emmanuel, et al. collectively, while
only 1,500 belong to Angelita.

Clearly, the case before the RTC was instituted by the stockholders holding the controlling
interest in ARDC. However, the wrong done directly to ARDC was a wrong done only
indirectly to the inchoate corporate interests of Emmanuel, et al.109 If ARDC truly desired to
vindicate its rights, it should have done so through its Board of Directors. Considering the
majority shareholdings of the plaintiffs  a quo, their interests should have been protected by
the board through affirmative action.

However, this could not happen because ARDC did not have a board of directors. On this
point, the record is bereft of any showing that ARDC's stockholders ever met to elect its
governing board. Before the trial court, Emmanuel admitted that ARDC never held any
stockholders' meetings from the time it was incorporated until 2005, viz.:

Q Mr. Ago, you would also agree with me that from 1989 until 2000 you had no meeting of
stockholders in Ago Realty and Development Corporation?
A No.
   
Q Do you mean to say that you had meeting?
A There were no meetings.
   
Q Similarly in 2000, 2001, 2003 until 2005[,] there were no meetings of stockholders in Ago
Realty and Development Corporation[?]
A No, there was no meeting.
   
Q And you would confirm or you would agree with me that there was no election likewise of
Ago Realty and Development Corporation as far as its corporate officers are concerned?
A Yes.
   
Q And that was from 1989 until 2005?
A Yes.
   
Q Likewise, during that period from 1989 up to 2005[,] there were no board resolutions
interpreted x x x or issued by Ago Realty and Development Corporation?
A No, there's no need.110 (Citation omitted)

There is likewise no showing that ARDC held an election for its Board of Directors from 2005
until the filing of the complaint before the RTC. While Emmanuel, Corazon, and Angelita came
together for a special stockholders' meeting on August 11, 2006, no election was held then. As
mentioned earlier, Angelita walked out before the meeting started, and Emmanuel and Corazon
were only able to pass a stockholders' resolution purportedly authorizing the institution of the
instant case.111 However, as amply discussed above, a corporation's power to sue is lodged in its
board of directors. Hence, the resolution, not emanating from the board, was inefficacious.

The failure of ARDC's majority stockholders to elect a board of directors must be taken against
them. To be sure, there was nothing preventing Emmanuel, et al. from holding a meeting for
the purpose of electing a board, even in Angelita's absence or over her objection. It is
admitted that the plaintiffs a quo hold a majority of ARDC's capital stock, by virtue of which
they could have constituted a board to exercise the corporation's powers.112 If they had done so,
the instant case could have been instituted by ARDC itself.

The role of the board of directors is impressed with such importance that corporate business
cannot properly be conducted without it

Being necessary to the legitimate operation of business, the board of directors is an organ that is
indispensable to the corporate vehicle. If this case were allowed to prosper as a derivative suit,
the non-election of boards of directors would be incentivized, and the stability brought by
"centralized management"113 eroded. Majority shareholders cannot be allowed to bypass the
formation of a board and directly conduct corporate business themselves. The Court
cannot stress enough that the law mandates corporations to exercise their powers through
their governing boards. Hence, if a person114 or group of persons truly desires to conduct
business through the corporate medium, then he, she, or they, as a matter of law, must form a
board of directors. To allow Emmanuel, et al. to forego the election of directors, and directly
commence and prosecute this case would not only downplay the key role of the board in
corporate affairs, but also undermine the theory of separate juridical personality.

It is axiomatic that a corporation is an entity with a legal personality separate and distinct from
the people comprising it.115 Accordingly, a wrong done to a corporation does not vest in its
shareholders a cause of action against the wrongdoer. Since the corporation is the real party in
interest, it must seek redress itself. As stated above, a case instituted by the stockholders would
be subject to dismissal on the ground that the complaint fails to state a cause of action.116

Here, because ARDC is the victim of the act complained of, the cause of action does not lie with
Emmanuel, et al. The corporation should have filed the case itself through its board of directors.
However, this could not be done since those responsible for the institution of this case never
bothered to elect a governing body to wield ARDC's powers and to manage its affairs. Their
omission cannot be without consequence. Verily, by virtue of their admitted controlling
interest in ARDC, Emmanuel, et al. could have come together and formed a board of
directors consisting of all five of the corporation's stockholders. Even without Angelita's
participation, such a board would have been able to validly conduct business 117 and, accordingly,
could have sanctioned the filing of the complaint before the Legazpi City RTC. The aggrieved
stockholders cannot now come before the Court, claiming that their remedy is a derivative
suit. Their failure to elect a board ultimately resulted in their failure to exhaust all legal
remedies to obtain the relief they desired. Since this case could have been brought by ARDC,
through its board, its stockholders cannot maintain the suit themselves, purporting to sue in a
derivative capacity. Emmanuel, et al. should not be allowed to use a derivative suit to
shortcut the law.

Neither can Emmanuel, et al. take refuge in their assertion that ARDC is a close family
corporation. They claim that the stockholders of a close corporation may take part in the active
management of corporate affairs. Hence, they, as ARDC's stockholders, are legally invested with
the power to sue for the corporation.

As correctly claimed, under Section 97 of the Corporation Code, 118 a close corporation may task
its stockholders with the management of business, essentially designating them as directors.
However, the law is clear that a close corporation must do so through a provision to that effect
contained in its articles of incorporation. Nowhere in ARDC's Articles of incorporation 119 can
such a provision be found. There is nothing that expressly or impliedly allows Emmanuel, et
al. and Angelita, or any of them, to manage the corporation. Hence, the merger of stock
ownership and active management that Emmanuel, et al. rely on cannot be applied to ARDC.
Further, assuming arguendo that ARDC is a close family corporation, the same cannot be
considered a justification for noncompliance with the requirements for the filing of a derivative
suit. In Ang v. Sps. Ang,120 the Court declared:

The fact that [SMBI] is a family corporation does not exempt private respondent Juanito Ang
from complying with the Interim Rules. In the x x x Yu case, the Supreme Court held that a
family corporation is not exempt from complying with the clear requirements and formalities of
the rules for filing a derivative suit. There is nothing in the pertinent laws or rules which state
that there is a distinction between x x x family corporations x x x and other types of corporations
in the institution by a stockholder of a derivative suit.121 (Citation omitted)

The next contention of Emmanuel, et al. is that Emmanuel, as President of ARDC, had the
authority to institute the case and sign the certification against forum shopping. In support of
their argument, they point to the By-laws of ARDC, which provide that the President is
authorized "[t]o represent the corporation at all functions and proceedings" and "[t]o perform
such other duties as are incident in his office or are entrusted by the Board of Directors." 122 They
assert that jurisprudence has consistently recognized the legal standing of the president to bring
corporate litigation.123

The argument deserves scant consideration.

Emmanuel's designation as President was ineffectual because ARDC did not have a board of
directors. Section 25 of the Corporation Code explicitly requires the president of a corporation to
concurrently hold office as a director.124 This only serves to further highlight the key role of the
board as a corporate manager. By designating a director as president of the corporation, the law
intended to create a close-knit relationship between the top corporate officer and the collegial
body that ultimately wields the corporation's powers.

The lower courts correctly refused to award damages

Turning now to Angelita's petition, she argues that the CA erred in deleting the award of moral
damages and attorney's fees. According to her, the case filed before the Legazpi City RTC was
totally baseless and unfounded.125 To support her assertion, she points to the fact that Emmanuel
and Corazon sued without the authority of ARDC's Board of Directors. 126 Essentially, Angelita
claims that the filing of the case a quo amounted to malicious prosecution.

The argument fails to persuade.

Jurisprudence has defined malicious prosecution as "an action for damages brought by one
against whom a criminal prosecution, civil suit, or other legal proceeding has been instituted
maliciously and without probable cause, after the termination of such prosecution, suit, or other
proceeding in favor of the defendant therein." 127 While generally associated with criminal
actions, "the term has been expanded to include unfounded civil suits instituted just to vex and
humiliate the defendant despite the absence of a cause of action or probable cause." 128 For an
action based on malicious prosecution to prosper, it is indispensable that the institution of the
prior legal proceeding be impelled or actuated by legal malice.129
Here, it was never shown that the institution of the case against Angelita was tainted with bad
faith or malice. Since it is settled that she introduced improvements on ARDC's property without
its consent, it follows that the complaint was not baseless at all. However, because the case was
not brought by the corporation, but by its stockholders, its dismissal was properly decreed by the
trial court.

The fact that Emmanuel, et al. brought the case without the consent of the corporation cannot be
equivalent to malice. Surely, they could have elected a board of directors to run ARDC's affairs,
but their failure to do so, coupled with the filing of the complaint before the RTC, should not
make them liable for moral damages. After all, the fact that a case is dismissed does not per
se make that case one of malicious prosecution and subject the plaintiff to the payment of moral
damages.130 Since it is not a sound public policy to place a premium on the right to litigate, no
damages can be charged on those who exercise such precious right in good faith, even if done
erroneously.131

Neither does the Court see any cogent reason to award attorney's fees in favor of Angelita.
Certainly, she only has herself to blame for the filing of the case before the RTC. If she did not
introduce improvements on ARDC's property, Emmanuel et al. would have no reason to institute
an action against her. Since she treated corporate property as if it was her own, she should have
reasonably expected retaliatory action from the other shareholders. Hence, the CA was correct to
delete the award of attorney's fees.

WHEREFORE, the September 26, 2013 Decision and January 10, 2014 Resolution rendered by
the Court of Appeals in CA-G.R. CV No. 99771 are AFFIRMED.

SO ORDERED.