JUDICIAL DECISIONS

TEAM ENERGY CORPORATION V CIR, 859 SCRA 1

G.R. No. 190928, January 13, 2014

TEAM ENERGY CORPORATION (FORMERLY MIRANT PAGBILAO

CORP.), Petitioner, v. COMMISSIONER OF INTERNAL REVENUE, Respondent.

DECISION

PERALTA, J.:

Before us is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
which seeks to reverse and set aside the Decision 1 dated August 14, 2009 and
Resolution2 dated January 5, 2010 of the Court of Tax Appeals (CTA) En Banc in CTA EB
No. 422, which modified the Decision3 dated May 16, 2008 and Resolution4 dated
September 8, 2008 of the CTA First Division, insofar as it reduced the amount of refund
granted from P69,618,971.19 to P51,134,951.40.

The facts follow.

On the following dates, petitioner filed with the Bureau of Internal Revenue (BIR) its
first to fourth quarterly value-added tax (VAT) returns for the calendar year 2002:

Quarter Date Filed

First April 25, 2002
Second July 23, 2002
Third October 25, 2002
Fourth January 27, 2003

Subsequently, on December 22, 2003, petitioner filed an administrative claim for refund
of unutilized input VAT with Revenue District Office No. 60, Lucena City, in the total
amount of P79,918,002.95 for calendar year 2002.

However, due to respondent�s inaction, petitioner elevated its claim before the CTA
First Division on April 22, 2004.

In his Answer, respondent interposed the following special and affirmative defenses:

5. Petitioner�s alleged claim for refund is subject to administrative

investigation/examination by the respondent;

6. To support its claim, it is imperative for petitioner to prove the following, viz.:

a. The registration requirements of a value-added taxpayer in

compliance with Section 6 (a) and (b) of Revenue Regulations No.
 6-97 in relation to Section 4.107-1 (a) of Revenue Regulations No.
7-95, and Section 236 of the Tax Code, as amended;
b. The invoicing and accounting requirements for VAT-registered
persons, as well as the filing and payment of VAT in compliance
with the provisions of Sections 113 and 114 of the Tax Code, as
amended;

c. Proof of compliance with the prescribed checklist of requirements

to be submitted involving claim for VAT refund in pursuance to
Revenue Memorandum Order No. 53-98, otherwise there would be
no sufficient compliance with the filing of administrative claim for
refund which is a condition sine qua non prior to the filing of
judicial claim in accordance with the provision of Section 229 of the
Tax Code, as amended. It is worthy of emphasis that Section 112
(D) of the Tax Code, as amended, requires the submission of
complete documents in support of the application filed with the
Bureau of Internal Revenue before the 120-day audit period shall
apply, and before the taxpayer could avail of judicial remedies as
provided for in the law. Hence, petitioner�s failure to submit
proof of compliance with the above-stated requirements warrants
immediate dismissal of the petition for review.

d. That the input taxes of P79,918,002.95 allegedly paid by the

petitioner on its purchases of goods and services for the four (4)
quarters of the year 2002 were attributable to its zero-rated sales
and such have not been applied against any output tax and were
not carried over in the succeeding taxable quarter or quarters;

e. That petitioner�s administrative and judicial claims for tax credit

or refund of unutilized input tax (VAT) was filed within two (2)
years after the close of the taxable quarter when the sales were
made in accordance with Sections 112 (A) and (D) and 229 of the
TAX Code, as amended;

f. That petitioner�s domestic purchases of goods and services were

made in the course of its trade and business, properly supported by
VAT invoices and/or official receipts and other documents, such as
subsidiary purchase Journal, showing that it actually paid VAT in
accordance with Sections 110 (A) (2) and 113 of the Tax Code as
amended, and in pursuance to Section 4.104-5 (a) & (b) of
Revenue Regulations No. 7-95 (Re: Substantiation of Claims for
Input Tax Credit);

g. The requirements as enumerated under Section 4.104-2 of

Revenue Regulations 7-95. (Re: Persons who can avail of the Input
Tax Credits);
7. Furthermore, in an action for refund the burden of proof is on the taxpayer to
establish its right to refund and failure to sustain the burden is fatal to the claim for
refund/credit. This is so because exemptions from taxation are highly disfavored in law
and he who claims exemption must be able to justify his claim by the clearest grant of
organic or statutory law. An exemption from common burden cannot be permitted to
exist upon vague implications;

8. Claims for refund are construed strictly against the claimant for the same partake
the nature of exemption from taxation and, as such, they are looked upon with
disfavor.5

After trial on the merits, the CTA First Division rendered judgment as follows:

WHEREFORE, IN VIEW OF ALL THE FOREGOING, the instant Petition for Review is
hereby PARTIALLY GRANTED. Thus, Respondent is hereby ORDERED TO REFUND
OR ISSUE A TAX CREDIT CERTIFICATE to petitioner in the reduced amount
of SIXTY NINE MILLION SIX HUNDRED EIGHTEEN THOUSAND NINE HUNDRED
SEVENTY-ONE AND 19/100 PESOS (P69,618,971.19), representing unutilized
input value-added taxes paid by petitioner on its domestic purchases of goods and
services and importation of goods attributable to its effectively zero-rated sales of
power generation services to the National Power Corporation for the taxable year 2002.

SO ORDERED.6

Not satisfied, respondent filed his Motion for Partial Reconsideration against said
decision, which the CTA First Division denied in a Resolution dated September 8, 2008.

On October 10, 2007, respondent filed a Petition for Review with the CTA En Banc.

In a Decision dated August 14, 2009, the CTA En Banc affirmed the CTA First
Division�s decision with the modification that the refundable amount be reduced to
P51,134,951.40. The fallo reads:

WHEREFORE, premises considered, the petition is hereby PARTLY GRANTED. The

assailed Decision dated May 16, 2008 and Resolution dated September 8, 2008 are
hereby AFFIRMED, with modification that only P51,134,951.40 is the refundable
amount to respondent for taxable year 2002. Accordingly, the Commissioner of Internal
Revenue is hereby ORDERED to REFUND or ISSUE a TAX CREDIT CERTIFICATE in
favor of Team Energy Corporation the reduced amount of FIFTY-ONE MILLION ONE
HUNDRED THIRTY- FOUR THOUSAND NINE HUNDRED FIFTY-ONE AND 40/100
(P51,134,951.40), representing the latter�s excess and unutilized input VAT for the
period covering calendar year 2002.

SO ORDERED.7

Unfazed, petitioner filed a motion for reconsideration against said Decision, but the
same was denied in a Resolution dated January 5, 2010.
Hence, the present petition wherein petitioner raises the following issues for our
resolution:

THE CTA EN BANC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK

OR EXCESS OF JURISDICTION WHEN IT DISALLOWED PETITIONER�S INPUT VAT
FOR THE FIRST QUARTER AMOUNTING TO P18,484,019.79 BASED ON PRESCRIPTION
BECAUSE:

A. PETITIONER FILED ITS JUDICIAL CLAIM FOR REFUND WELL WITHIN THE
TWO-YEAR PRESCRIPTIVE PERIOD RECKONED FROM THE DATE OF FILING
OF THE QUARTERLY VAT RETURN PURSUANT TO LONG STANDING
JURISPRUDENCE, WHICH THE HONORABLE COURT EXPRESSLY
RECOGNIZED IN ATLAS CONSOLIDATED MINING AND DEVELOPMENT
CORPORATION V. COMMISSIONER OF INTERNAL REVENUE, G.R. NOS.
141104 & [148763], JUNE 8, 2007 (�ATLAS CASE�).

B. THE CTA EN BANC SHOULD NOT HAVE HASTILY RELIED ON THE

CONTRARY RULING OF THE HONORABLE COURT IN COMMISSIONER OF
INTERNAL REVENUE V. MIRANT PAGBILAO CORPORATION, G.R. NO.
172129, SEPTEMBER 12, 2008 (�MIRANT PAGBILAO CASE�) AS THE
HONORABLE COURT COULD NOT HAVE INTENDED TO REVERSE THE
DOCTRINE IN THE ATLAS CASE IN THE LIGHT OF ARTICLE VIII, SECTION
4 (3) OF THE CONSTITUTION.

C. ASSUMING, BUT WITHOUT CONCEDING, THAT THE MIRANT PAGBILAO

CASE REVERSED THE DOCTRINE IN THE ATLAS CASE, THE SAME SHOULD
BE APPLIED PROSPECTIVELY AND NOT RETROACTIVELY TO THE
PREJUDICE OF PETITIONER WHO RELIED IN GOOD FAITH ON PREVAILING
JURISPRUDENCE AT THE TIME OF FILING OF ITS JUDICIAL CLAIM FOR
REFUND.8

Simply, the sole issue for our resolution is whether or not petitioner timely filed its
judicial claim for refund of input VAT for the first quarter of 2002.

To appropriately address this issue, it is relevant to quote Sections 112 (A) and (C) of
the Tax Code, viz.:

SEC. 112. Refund or Tax Credits of Input Tax. -

(A) Zero-rated or Effectively Zero-rated Sales. - Any VAT-registered person, whose

sales are zero-rated or effectively zero-rated may, within two (2) years after the close
of the taxable quarter when the sales were made, apply for the issuance of a tax credit
certificate or refund of creditable input tax due or paid attributable to such sales, except
transitional input tax, to the extent that such input tax has not been applied against
output tax; Provided, however, That in the case of zero-rated sales under Section 106
(A)(2)(a)(1), (2) and (B) and Section 108 (B)(1) and (2), the acceptable foreign
currency exchange proceeds thereof had been duly accounted for in accordance with
the rules and regulations of the Bangko Sentral ng Pilipinas (BSP): Provided, further,
That where the taxpayer is engaged in zero-rated or effectively zero-rated sale and also
in taxable or exempt sale of good of properties or services, and the amount of
creditable input tax due or paid cannot be directly and entirely attributed to any one of
the transactions, it shall be allocated proportionately on the basis of the volume of
sales.

xxxx

(C) Period within which Refund or Tax Credit of Input Taxes shall be Made. - In proper
cases, the Commissioner shall grant a refund or issue a tax credit certificate for
creditable input taxes within one hundred twenty (120) days from the date of
submission of complete documents in support of the application filed in accordance with
Subsection (A) hereof.

In case of full or partial denial of the claim for tax refund or tax credit, or the failure on
the part of the Commissioner to act on the application within the period prescribed
above, the taxpayer affected may, within thirty (30) days from the receipt of the
decision denying the claim or after the expiration of the one hundred twenty day-
period, appeal the decision or the unacted claim with the Court of Tax Appeals.

In its assailed decision, the CTA En Banc reduced petitioner�s claim for refund of its
excess or unutilized input VAT to P51,134,951.40 on the ground that petitioner�s
judicial claim for the first quarter of 2002 was filed beyond the two-year period
prescribed under Section 112 (A) of the Tax Code, to wit:

As regards the fifth requisite, Section 112 (A) of the NIRC of 1997, as amended,
provides that a VAT-registered taxpayer whose sale is zero-rated or effectively zero-
rated may, within two (2) years after the close of the taxable quarter when the sales
were made, apply for refund or issuance of a TCC of its creditable input tax or paid
attributable to such sales.

In the recent case of Commissioner of Internal Revenue v. Mirant Pagbilao (Formerly

Southern Energy Quezon, Inc.), 565 SCRA 154 (hereafter referred to as the �Mirant
Case�), the Supreme Court definitely settled the issue on the reckoning of the
prescriptive period on claims for refund of input VAT attributable to zero-rated or
effectively zero-rated sales, as follows:

xxxx

Pursuant to the above ruling of the Supreme Court, it is clear that the two-year
prescriptive period provided in Section 112 (A) of the NIRC of 1997, as amended,
should be counted not from the payment of the tax, but from the close of the taxable
quarter when the sales were made.

Pursuant to the above ruling of the Supreme Court, the following are the pertinent
dates relevant to petitioner�s claim for refund:

Last Day for Filing of the

Period (2002) Close of Taxable Quarter
Claim
1st Quarter March 31, 2002 March 31, 2004
2nd Quarter June 30, 2002 June 30, 2004
3rd Quarter September 30, 2002 September 30, 2004
4th Quarter December 31, 2002 December 31, 2004

Record shows that respondent filed its administrative claim for refund or issuance of a
TCC on December 22, 2003, while the judicial claim for refund was filed on April 22,
2004. Since respondent filed its judicial claim for refund for the four quarters of 2002,
only on April 22, 2004, twenty-two (22) days from March 31, 2004, the last day
prescribed by the Mirant Case, respondent is barred from claiming refund of its
unutilized input taxes for the first quarter of 2002.

Therefore, the claim for refund granted by the First Division of this Court in the amount
of P69,618,971.19 should be reduced by deducting the portion of the claim
corresponding to the first quarter that had already prescribed, x x x.

xxxx

In sum, the Court En Banc finds that the total substantiated input tax filed within the
two-year prescriptive period of respondent TeaM Energy amounts to P51,134,951.40
only.9

Recently, however, in the consolidated cases of Commissioner of Internal Revenue v.

San Roque Power Corporation10(San Roque ponencia), this Court emphasized that
Section 112 (A) and (C) of the Tax Code must be interpreted according to its clear,
plain and unequivocal language.

In said case, we held that the taxpayer can file his administrative claim for refund or
issuance of tax credit certificate anytime within the two-year prescriptive period. If he
files his claim on the last day of the two-year prescriptive period, his claim is still filed
on time. The Commissioner will then have 120 days from such filing to decide the
claim. If the Commissioner decides the claim on the 120 th day or does not decide it on
that day, the taxpayer still has 30 days to file his judicial claim with the CTA. Thus, the
Court expounded:

Section 112 (C) also expressly grants the taxpayer a 30-day period to appeal to the
CTA the decision or inaction of the Commissioner, thus:

x x x the taxpayer affected may, within thirty (30) days from receipt of the
decision denying the claim or after the expiration of the one hundred twenty-
day period, appeal the decision or the unacted claim with the Court of Tax Appeals.
(Emphasis supplied)

This law is clear, plain and unequivocal. Following the well-settled verba legis doctrine,
this law should be applied exactly as worded since it is clear, plain and unequivocal. As
this law states, the taxpayer may, if he wishes, appeal the decision of the
Commissioner to the CTA within 30 days from receipt of the Commissioner�s
decision, or if the Commissioner does not act on the taxpayer�s claim within the 120-
day period, the taxpayer may appeal to the CTA within 30 days from the expiration of
the 120-day period.

xxxx

There are three compelling reasons why the 30-day period need not necessarily fall
within the two-year prescriptive period, as long as the administrative claim is filed
within the two-year prescriptive period.

First, Section 112 (A) clearly, plainly and unequivocally provides that the taxpayer
�may, within two (2) years after the close of the taxable quarter when the sales
were made, apply for the issuance of a tax credit certificate or refund of the
creditable input tax due or paid to such sales.� In short, the law states that the
taxpayer may apply with the Commissioner for a refund or credit �within
two (2) years,� which means at anytime within two years. Thus, the
application for refund or credit may be filed by the taxpayer with the
Commissioner on the last day of the two-year prescriptive period and it will
still strictly comply with the law. The two-year prescriptive period is a grace
period in favor of the taxpayer and he can avail of the full period before his
right to apply for a tax refund or credit is barred by prescription.

Second, Section 112 (C) provides that the Commissioner shall decide the application for
refund or credit �within one hundred twenty (120) days from the date of submission
of complete documents in support of the application filed in accordance with Subsection
(A).� The reference in Section 112 (C) of the submission of documents �in support
of the application filed in accordance with Subsection (A)� means that the application
in Section 112 (A) is the administrative claim that the Commissioner must decide within
the 120-day period. In short, the two-year prescriptive period in Section 112 (A) refers
to the period within which the taxpayer can file an administrative claim for tax refund or
credit. Stated otherwise, the two-year prescriptive period does not refer to the
filing of the judicial claim with the CTA but to the filing of the administrative
claim with the Commissioner. As held in Aichi, the �phrase �within two
years x x x apply for the issuance of a tax credit or refund� refers to
applications for refund/credit with the CIR and not to appeals made to the
CTA.�

Third, if the 30-day period, or any part of it, is required to fall within the two-year
prescriptive period (equivalent to 730 days), then the taxpayer must file his
administrative claim for refund or credit within the first 610 days of the two-year
prescriptive period. Otherwise, the filing of the administrative claim beyond the
first 610 days will result in the appeal to the CTA being filed beyond the two-
year prescriptive period. Thus, if the taxpayer files his administrative claim on the
611th day, the Commissioner, with his 120-day period, will have until the 731st day to
decide the claim. If the Commissioner decides only on the 731st day, or does not decide
at all, the taxpayer can no longer file his judicial claim with the CTA because the two-
year prescriptive period (equivalent to 730 days) has lapsed. The 30-day period
granted by law to the taxpayer to file an appeal before the CTA becomes utterly
useless, even if the taxpayer complied with the law by filing his administrative claim
within the two-year prescriptive period.
The theory that the 30-day period must fall within the two-year prescriptive
period adds a condition that is not found in the law. It results in truncating
120 days from the 730 days that the law grants the taxpayer for filing his
administrative claim with the Commissioner. This Court cannot interpret a law
to defeat, wholly or even partly, a remedy that the law expressly grants in
clear, plain and unequivocal language.

Section 112 (A) and (C) must be interpreted according to its clear, plain and
unequivocal language. The taxpayer can file his administrative claim for refund
or credit at any time within the two-year prescriptive period. If he files his
claim on the last day of the two-year prescriptive period, his claim is still filed
on time. The Commissioner will have 120 days from such filing to decide the
claim. If the Commissioner decides the claim on the 120th day, or does not
decide it on that day, the taxpayer still has 30 days to file his judicial claim
with the CTA. This is not only the plain meaning but also the only logical interpretation
of Section 112 (A) and (C).11 (Emphasis supplied)

Based on the aforequoted discussions, we therefore disagree with the CTA En Banc�s
finding that petitioner�s judicial claim for the first quarter of 2002 was not timely
filed.

The San Roque ponencia firmly enunciates that the taxpayer can file his administrative
claim for refund or credit at any time within the two-year prescriptive period. What is
only required of him is to file his judicial claim within thirty (30) days after denial of his
claim by respondent or after the expiration of the 120-day period within which
respondent can decide on its claim.

Here, there is no question that petitioner timely filed its administrative claim with the
Bureau of Internal Revenue within the required period. However, since its
administrative claim was filed within the two-year prescriptive period and its judicial
claim was filed on the first day after the expiration of the 120-day period granted to
respondent, to decide on its claim, we rule that petitioner�s claim for refund for the
first quarter of 2002 should be granted.

All told, we revert to the CTA First Division�s finding that petitioner�s total
refundable amount should be P69,618,971.19, representing petitioner�s unutilized
input VAT paid on its domestic purchases of goods and services and importation of
goods attributable to its effectively zero-rated sales of power generation services to the
National Power Corporation for the taxable year 2002.

WHEREFORE, in view of the foregoing, the Decision dated August 14, 2009 and
Resolution dated January 5, 2010 of the Court of Tax Appeals En Banc, in CTA EB No.
422 are hereby AFFIRMED with MODIFICATION that petitioner�s total refundable
amount shall be P69,618,971.19.

SO ORDERED.
 AYALA CORP V ROSA-DIANA REALTY AND DEVELOPMENT CORP.,

346 SCRA 663

G.R. No. 134284, December 1, 2000.

AYALA CORPORATION, petitioner.

vs.
ROSA-DIANA REALTY AND DEVELOPMENT CORPORATION, respondent.

DE LEON, J.:

Before us is a petition for review on certiorari seeking the reversal of a decision rendered by the
Court of Appeals in C.A. G.R. C.V. No. 4598 entitled "Ayala Corporation vs. Rosa-Diana Realty and
Development Corporation, ‘ dismissing Ayala Corporation’s petition for lack of merit.

The facts of the case are not in dispute:

Petitioner Ayala Corporation (herein-after referred to as Ayala) was the registration owner of a parcel
of land located in Alfaro Street, Salcedo Village, Makati City with an area of 840 square meters,
more or less and covered by Transfer Certificate of Title (TCT) No. 233435 of the Register of Deeds
of Rizal.

On April 20, 1976, Ayala sold the lot to Manuel Sy married to Vilma Po and Sy Ka Kieng married to
Rosa Chan. The Deed of Sale executed between Ayala and the buyers contained Special conditions
of sale and Deed Restrictions. Among the Special Conditions of Sale were.

a. The vendee shall build on the lot and submit the building plans to the vendor before
September 30, 1976 for the latter’s approval.
b. The construction of the building shall start on or before March 30, 1977 and
completed before 1979. Before such completion, neither no the title released even if
the purchase price shall have been fully paid.
c. There shall be no resale of the property.

The Deed Restrictions, on the other hand, contained the stipulation that the gross floor area of the
building to be constructed shall not be more than five (5) times the lot area and the total height shall
not exceed forty two (42) meters. The restrictions were to expire in the year 2025.

Manuel Sy and Sy Ka Kieng failed to construct the building in violation of the Special Conditions of
Sale. Notwithstanding the violation, Manuel Sy anf Sy Ka Kieng, in April 1989, were able to sell the
lot to respondent Rosa-Diana Realty and Development Corporation (hereinafter referred to as Rosa-
Diana) with Ayala’s approval. As a consideration for Ayala to release the Certificate of title of the
subject property, Rosa Diana, on July 27, 1989 executed an Undertaking, together with the buildings
plans for a condominium project, known as "The Peak", Ayala released title to the lot, thereby
enabling Rosa-Diana t register the deed of sale in its favor and obtain Certificate of Title No. 165720
in its name. The title carried as encumbrances the special conditions of sale and the deed
restrictions. Rosa-Diana’s building plans as approved by Ayala were ‘subject to strict compliance of
cautionary notices appearing on the building plans and to the restrictions encumbering the Lot
regarding the use and occupancy of the same.’
Thereafter, Rosa-Diana submitted to the building official of Makati another set of building plans for
"The Peak" which Rosa-Diana submitted to Ayala for approval envisioned a 24-meter high, seven (7)
storey condominium project with a gross floor area of 3,968.56 square meters, the building plans
which Rosa-Diana submitted to the building official of Makati, contemplated a 91.65 meter high, 38
storey condominium building with a gross floor area of 23,305.09 square meters. 1 Needless to say,
while the first set of building plans complied with the deed restrictions, the latter set seceded the
same.

During the construction of Rosa-Diana’s condominium project, Ayala filed an action with the
Regional Trial Court (RTC) of Makati, Branch 139 for specific performance, with application for a writ
of preliminary injunction/temporary restraining order against Rosa-Diana Realty seeking to compel
the latter to comply with the contractual obligations under the deed of restrictions annotated on its
title as well as with the building plans it submitted to the latter. In the alternative, Ayala prayed for
rescission of the sale of the subject lot to Rosa-Diana Realty.

The lower court denied Ayala’s prayer for injunctive relief, thus enabling Rosa-Diana to complete the
construction of the building. Undeterred, Ayala tried to cause the annotation of a notice of lis
pendens on Rosa-Diana’s title. The Register of Deeds of Makati, however, refused registration of the
notice of lis pendens on the ground that the case pending before the trial court, being an action for
specific performance and/or rescission, is an action in personal which does not involve the title, use
or possession of the property.2 The Land Registration Authority (LRA) reversed the ruling of the
Register of Deeds saying that an action for specific performance or recession may be classified as a
proceeding of any kind in court directly affecting title to the land or the use or occupation thereof for
which a notice of lis pendens may be held proper. 3 The decision of the LRA, however, was
overturned by the Court of Appeals in C.A. G.R. S.P. No. 29157. In G.R. No. 112774, We affirmed
the ruling of the CA on February 16, 1994 saying.

We agree with respondent court that the notice of lis pendens is not proper in this
instance. The case before the trial court is a personal action since the cause of
action thereof arises primarily from the alleged violation of the Deed of Restriction.

In the meantime, Ayala completed its presentation of evidence before the trial court. Rosa-Diana
filed a Demurrer to Evidence averring that Ayala failed to establish its right to the relief sought in-as
much as (a) Ayala admittedly does not enforce the deed restrictions uniformly and strictly (b) Ayala
has lost its right/power to enforce the restrictions due to its own acts and omissions; and (c) the deed
restrictions are no longer valid and effective against lot buyers in Ayala’s controlled subdivision.

The trial court sustained Rosa-Diana’s Demurrer to Evidence saying that Ayala was guilty of
abandonment and/or estoppel due to its failure to enforce the terms of deed of restrictions and
special conditions of sale against Manuel Sy and Sy Ka Kieng. The trial court noted that
notwithstanding the violation of the special conditions of sale, Manuel Sy and Sy Ka Kieng were able
to transfer the title to Rosa-Diana with the approval of Ayala. The trial court added that Ayala’s
failure to enforce the restrictions with respect to Trafalgar, Shellhouse, Eurovilla, LPL Plaza, Parc
Regent, LPL Mansion and Leronville, which are located within Salcedo Village, shows that Ayala
discriminated against those which it wants to have the obligation enforced. The trial court then
concluded that for Ayala to discriminatory choose which obligor would be made to follow certain
conditions and which should not, did not seem fair and legal.

The Court of Appeals affirmed the ruling of the trial court saying that the "appeal is seated by the
doctrine of the law of the case in C.A. G.R. S.P. No. 29157" where it was stated that
xxx Ayala is bared from enforcing the Deed of Restriction in question pursuant to the doctrine of
waiver and estoppel. Under the terms of the deed of sale, the vendee Sy Ka Kieng assumed faithful
compliance with the special conditions of sale and with the Salcedo Village Deed of Restrictions.
One of the conditions was that a building would be constructed within one year. However, Sy Ka
Kieng failed to construct the building as required under the Deed Sale. Ayala did nothing to enforce
the terms of the contract. In fact, it even agreed to the sale of the lot by Sy Ka Kieng in favor of
petitioner Realty in 1989 or thirteen (13) years later. We, therefore, see no justifiable reason for
Ayala to attempt to enforce the terms of the conditions of sale against the petitioner.

xxx

The Court of Appeals also cited C.A. G.R. C.V. No. 46488 entitled, "Ayala Corporation vs. Ray
Burton Development Corporation’ which relied on C.A. G.R. S.P. No. 29157 in ruling that Ayala is
barred from enforcing the deed restrictions in dispute. Upon a motion for reconsideration filed by
herein petitioner, the Court of Appeals clarified that "the citation of the decision in Ayala Corporation
vs. Ray Burton Development Corporation, Ca G.R. C.V. No. 46488, February 27, 1996, was made
not because said decision is res judicata to the case at bar but rather because it is precedential
under the doctrine of stare decisis."

Upon denial of said motion for reconsideration, Ayala filed the present appeal.

Ayala contends that the pronouncement of the Court of Appeals in C.A. G.R. S.P. No. 29157 that it
is estopped from enforcing the deed restrictions is merely obiter dicta inasmuch as the only issue
raised in the aforesaid case was the propriety of a lis pendens annotation on Rosa-Diana’s
certificate of title.

Ayala avers that Rosa-Diana presented no evidence whatsoever on Ayala’s supposed waiver or
estoppel in C.A. G.R. S.P. No. 29157. Ayala likewise pointed out that at the time C.A. G.R. S.P. No.
29157 was on appeal, the issues of the validity and continued viability of the deed of restrictions and
their enforceability by Ayala were joined and then being tried before the trial court.

Petitioner’s assignment of errors in the present appeal may essentially be summarized as follows:

I. The Court of Appeals acted in manner not in accord with law and the applicable
decisions of the Supreme Court in holding that the doctrine of the law of the case,
or stare decisis, operated to dismiss Ayala’s appeal.
II. The Court of Appeals erred as a matter of law and departed from the accepted and
usual course of judicial proceedings when it failed to expressly pass upon the
specific errors assigned in Ayala’s appeal.

A discussion on the distinctions between law of the case, stare decisis and obiter dicta is in order.

The doctrine of the law of the case has certain affinities with, but is clearly distinguishable from, the
doctrines of res judicata and stare decisis, principally on the ground that the rule of the law of the
case operates only in the particular case and only as a rule of policy and not as one of law. 4 At
variance with the doctrine of stare decisis, the ruling adhered to in the particular case under the
doctrine of the law of the case need not be followed as a precedent in subsequent litigation between
other parties, neither by the appellate court which made the decision followed on a subsequent
appeal in the same case, nor by any other court. The ruling covered by the doctrine of the law of the
case is adhered to in the single case where it arises, but is not carried into other cases as a
precedent.5 On the other hand, under the doctrine of stare decisis, once a point of law has been
established by the court, that point of law will, generally, be followed by the same court and by all
courts of lower rank in subsequent cases where the same legal issue is
raised.6 Stare decisis proceeds from the first principle of justice that, absent powerful countervailing
considerations, like cases ought to be decided alike. 7

The Court of Appeals, in ruling against petitioner Ayala Corporation stated that the appeal is ‘sealed’
by the doctrine of the law of the case, referring to G.R. No. 112774 entitled "Ayala
Corporation, petitioner vs. Courts of Appeals, et al., respondents". The Court of Appeals likewise
made reference to C.A. G.R. C.V. No. 46488 entitled, "Ayala Corporation vs. Ray Burton
Development Corporation, Inc." in ruling against petitioner saying that it is jurisprudentially under the
doctrine of stare decisis.

It must be pointed out that the only issue that was raised before the Court of Appeals in C.A. G.R.
S.P. No. 29157 was whether or not the annotation of lis pendens is proper. The Court of Appeals, in
its decision, in fact stated "the principal issue to be resolved is: whether or not an action for specific
performance, or in the alternative, rescission of deed of sale to enforce the deed of restrictions
governing the use of property, is a real or personal action, or one that affects title thereto and its use
or occupation thereof.8

In the aforesaid decision, the Court of Appeals even justified the cancellation of the notice of lis
pendens on the ground that Ayala had ample protection should it succeed in proving its allegations
regarding the violation of the deed of restrictions, without unduly curtailing the right of the petitioner
to fully enjoy its property in the meantime that there is as yet no decision by the trial court. 9

From the foregoing, it is clear that the Court of Appeals was aware that the issue as to whether
petitioner is estopped from enforcing the deed of restrictions has yet to be resolved by the trial court.
Though it did make a pronouncement that the petitioner is estopped from enforcing the deed of
restrictions, it also mentioned at the same time that this particular issue has yet to be resolved by the
trial court. Notably, upon appeal to this Court, We have affirmed the ruling of the Court of Appeals
only as regards the particular issue of the propriety of the cancellation of the notice of lis pendens.

We see no reason then, how the law of the case or stare decisis can be held to be applicable in the
case at bench. If at all, the pronouncement made by the Court of Appeals that petitioner Ayala is
barred from enforcing the deed of restrictions can only be considered as obiter dicta. As earlier
mentioned the only issue before the Court of Appeals at the time was the propriety of the annotation
of the lis pendens. The additional pronouncement of the Court of Appeals that Ayala is estopped
from enforcing the deed of restrictions even as it recognized that this said issue is being tried before
the trial court was not necessary to dispose of the issue as to the propriety of the annotation of
the lis pendens. A dictum is an opinion of a judge which does not embody the resolution or
determination of the court, and made without argument, or full consideration of the point, not the
proffered deliberate opinion of the judge himself. 10 It is not necessarily limited to issues essential to
the decision but may also include expressions of opinion which are not necessary to support the
decision reached by the court. Mere dicta are not binding under the doctrine of stare decisis11.

While the Court of Appeals did not err in ruling that the present petition is not barred by C.A. G.R.
C.V. No. 46488 entitled "Ayala Corporation vs. Ray Burton Development Inc." under the doctrine
of res judicata, neither, however, can the latter case be cited as presidential under the doctrine
of stare decisis. It must be pointed out that at the time the assailed decision was rendered, C.A. G.R.
C.V. No. 46488 was on appeal with this Court. Significantly, in the decision. We have rendered in
Ayala Corporation vs. Ray Burton Development Corporation12 which became final and executory on
July 5, 1999 we have clearly stated that "An examination of the decision in the said Rosa-Diana case
reveals that the sole issue raised before the appellate court was the propriety of the lis pendens
annotation. However, the appellate court went beyond the sole issue and made factual findings
bereft of any basis in the record to inappropriately rule that AYALA is in estoppel and has waived its
right to enforce the subject restrictions. Such ruling was immaterial to the annotation of the lis
pendens. The finding of estoppel was thus improper and made in excess of jurisdiction."

Coming now to the merits of the case, petitioner avers that the Court of Appeals departed from the
usual course of judicial proceedings when it failed to expressly pass upon the specific errors
assigned in its appeal. Petitioner reiterates its contention that law and evidence do not support the
trial court’s findings that Ayala has waived its right to enforce the deed of restrictions.

We find merit in the petition.

It is basic that findings of fact of the trial court and the Court of Appeals are conclusive upon the
Supreme Court when supported by substantial evidence. 13 We are constrained, however, to review
the trial court'’ findings of fact, which the Court of Appeals chose not to pass upon, in as much as
there is ample evidence on record to show that certain facts were overlooked which would affect the
disposition of the case.

In its assailed decision of February 4, 1994, the trial court, ruled in favor of respondent Rosa-Diana
Realty on the ground that Ayala had not acted fairly when it did not institute an action against the
original vendees despite the latter’s violation of the Special Conditions of Sale but chose instead to
file an action against herein respondent Rosa-Diana. The trial court added that although the 38-
storey building of Rosa-Diana is beyond the total height restriction, it was not violative of the National
Building Code. According to the trial court the construction of the 38 storey building known as "The
Peak" has not been shown to have been prohibited by law and neither is it against public policy.

It bears emphasis that as complainant, Ayala had the prerogative to initiate an action against
violators of the deed restrictions. That Rosa-Diana had acted in bad faith is manifested by the fact
that it submitted two sets of building plans, one which was in conformity with the deed restrictions
submitted to Ayala and MACEA, and the other, which exceeded the height requirement in the deed
restrictions to the Makati building official for the purpose of procuring a building permit from the
latter. Moreover, the violation of the deed restrictions committed by respondent can hardly be
denominated as a minor violation. It should be pointed out that the original building plan which was
submitted to and approved by petitioner Ayala Corporation, envisioned a twenty four (24) meter high,
seven (7) storey condominium whereas the respondent’s building plan which was submitted to and
approved by the building official of Makati is that of a thirty eight (38) storey, 91.65 meters high,
building. At present, the Peak building of respondent which actually stands at 133.65 meters with a
total gross floor area of 23,305.09 square meters, seriously violates the dimensions indicated in the
building plans submitted by Rosa-Diana to petitioner Ayala for approval in as much as the Peak
building exceeds the approved height limit by about 109 meters and the allowable gross floor area
under the applicable deed restrictions by about 19,105 square meters. Clearly, there was a gross
violation of the deed restrictions and evident bad faith by the respondent.

It may not be amiss to mention that the deed restrictions were revised in a general membership
meeting of the association of lot owners in Makati Central Business District the Makati Commercial
Estate Association, Inc. (MACEA).

Whereby direct height restrictions were abolished in lieu of floor area limits. Respondent, however,
did not vote for the approval of this revision during the General Membership meeting, which was
held on July 11, 1990 at the Manila Polo Clud Pavilion, Makati, and Metro Manila. Hence,
respondent continues to be bound by the original deed restrictions applicable to Lot 7, Block 1 and
annotated on its title to said lot. In any event, assuming arguendo that respondent voted for the
approval of direct height restrictions in lieu of floor area limits, the total floor area of its Peak building
would still be violative of the floor area limits to the extent of about 9,865 square meters of allowable
floor area under the MACEA revised restrictions.

Respondent Rosa-Diana avers that there is nothing illegal or unlawful in the building plans which it
used in the construction of the Peak condominium ‘inasmuch as it bears the imprimatur of the
building official of Makati, who is tasked to determine whether building and construction plans are in
accordance with the law, notably, the National Building Code."

Respondent Rosa-Diana, however, misses the point inasmuch as it has freely consented to be
bound by the deed restrictions when it entered into a contract of sale with spouses Manuel Sy and
Sy Ka Kieng. While respondent claims that it was under the impression that Ayala was no longer
enforcing the deed restrictions, the Undertaking 14 it executed belies this same claim. In said
Undertaking, respondent agreed to ‘construct and complete the construction of the house on said lot
as required under the special condition of sale." Respondent likewise bound itself to abide and
comply with x x x the condition of the rescission of the scale by Ayala Land, Inc. on the grounds
therein stated x x x.

Contractual obligations between parties have the force of law between them and absent any
allegation that the same are contrary to law, morals, good custom, public order or public policy, they
must be complied with in good faith. Hence, Article 1159 of the New Civil Code provides.

"Obligations arising from contracts have the force of law between the contracting
parties and should be complied with in good faith."

Respondent Rosa-Diana insists that the trial court had already ruled that the undertaking executed
by its Chairman and President cannot validly bind Rosa-Diana and hence, it should not be held
bound by the deed restrictions.

We agree with petitioner Ayala’s observation that respondent Rosa-Diana’s special and affirmative
defenses before the trial court never mentioned any allegation that its president and chairman were
not authorized to execute the Undertaking. It was inappropriate therefore for the trial court to rule
that in the absence of any authority or confirmation from the Board of Directors of respondent Rosa-
Diana, its Chairman and the President cannot validly enter into an undertaking relative to the
construction of the building on the lot within one year from July 27, 1989 and in accordance with the
deed restrictions, Curiously, while the trial court stated that it cannot be presumed that the Chairman
and the President can validly bind respondent Rosa-Diana to enter into the aforesaid Undertaking in
the absence of any authority or confirmation from the Board of Directors, the trial court held that the
ordinary presumption of regularity of business transactions is applicable as regards the Deed of Sale
which was executed by Manuel Sy and Sy Ka Kieng and respondent Rosa-Diana. In the light of the
fact that respondent Rosa-Diana never alleged in its Answer that its president and chairman were
not authorized to execute the Undertaking, the aforesaid ruling of the trial court is without factual and
legal basis and suppressing to say the least.

The fact alone that respondent Rosa-Diana conveniently prepared two sets of building plans –with
one set which fully conformed to the Deed Restrictions and another in gross violation of the same –
should have cautioned the trial court to conclude that respondent Rose-Diana was under the
erroneous impression that the Deed Restrictions were no longer enforceable and that it never
intended to be bound by the Undertaking signed by its President and Chairman. We reiterate that
contractual obligations have the force of law between parties and unless the same is contrary to
public policy morals and good customs, they must be complied by the parties in good faith.
Petitioners, in its Petition, prays that judgement be rendered:

a. ordering Rosa-Diana Realty and Development Corporation to comply with its

contractual obligations in the construction of the Peak by removing, or closing down
and prohibiting Rosa-Diana from using, selling, leasing or otherwise disposing, of the
portions of areas thereof constructed beyond or in excess of the approved height, as
shown by the building plans submitted to, and approved by, Ayala, including any
other portion of the building constructed not in accordance with the said building
plans, during the effectivity of the Deed Restrictions;
b. Alternatively, in the event specific performance has become impossible;

1. ordering the cancellation and recession of the April 20, 1976 Deed of Sale by Ayala
in favor of the original vendees thereof as well as the subsequent Deed of Sale
executed by such original vendees in favor of Rosa-Diana, and ordering Rosa-Diana
to return Ayala Lot 7, Block 1 of Salcedo Village;
2. ordering the cancellation of Transfer Certificate of Title No. 165720 (in the name of
Rosa-Diana) and directing the office of the Register of Deeds of Makati to issue a
new title over the lot in the name of Ayala; and
3. Ordering Rosa-Diana to pay Ayala attorney’s fees in the amount of P500, 000.00,
exemplary damages in the amount of P5, 000,000.00 and the costs of suit.

It must be noted that during the trial respondent Rosa-Diana was able to complete the construction
of The Peak as a building with a height of thirty-eight (38) floors or 133.65 meters. Having been
completed for a number of years already, it would be reasonable to assume that it is now fully
tenanted. Consequently, the remedy of specific performance by respondent is no longer feasible.
However, neither can we grant petitioner’s prayer for the cancellation and rescission of the April 20,
1976 Deed of Sale by petitioner Ayala in favor of respondent Rosa-Diana inasmuch as the resale of
the property by the original vendees, spouses Manuel Sy and Ka Kieng to comply with their
obligation to construct a building within one year from April 20, 1976, has effectively waived its right
to rescind the sale of the subject lot to the original vendees.

Faced with the same question as to the proper remedy available to petitioner in the case of "Ayala
Corporation vs. Ray Burton Development Inc., ‘ a case which is on all fours with the case at bench,
we ruled therein that the party guilty of violating the deed restrictions may only be held alternatively
liable for substitute performance of its obligation, that is, for the payment of damages. In the
aforesaid case it was observed that the Consolidated and Revised Deed Restrictions (CRDR)
imposed development charges on constructions which exceed the estimated Gross Limits permitted
under the original Deed Restrictions but which are within the limits of the CRDR’s. 1âwphi1.nêt

The pertinent portion of the Deed of Restrictions reads:

3. DEVELOPMENT CAHRGE For building construction within the Gross Floor Area limits defined
under Paragraphs C-2.1 to C-2.4 above, but which will result in a Gross Floor Area exceeding
certain standards defined in Paragraphs C-3.1-C below, the OWNER shall pay MACEA, prior to the
construction of any new building a DEVELOPMENT CHARGE as a contribution to a trust fund to be
administered by MACEA. This trust fund shall be used to improve facilities and utilities in Makati
Central District.

3.1 The amount of the development charge that shall be due from the OWNER shall be computed as
follows:

DEVELOPMENT
CAHRGE = A x (B-C-D)

Where:

A – is equal to the a Area Assessment which shall be set at Five Hundred Pesos (P500.00) until
December 31, 1990. Each January 1st thereafter, such amount shall increase by ten percent (10%)
over the immediately preceding year; provided that beginning 1995 and at the end of every
successive five-year period thereafter, the increase in the Area Assessment shall be reviewed and
adjusted by the VENDOR to correspond to the accumulated increase in the construction cost index
during the immediately preceding five years as based on the weighted average of wholesale price
and wage indices of the National Census and Statistics Office and the Bureau of Labor Statistics.

B – Is equal to the Gross Floor Area of the completed or expanded building in square meters.

C – is equal to the estimated Gross Floor Area permitted under the original deed restrictions, derived
by multiplying the lot area by the effective original FAR shown below for each location.

We then ruled in the aforesaid case that the development; charges are a fair measure of
compensatory damages which therein respondent Ray Burton Development Inc. is liable to Ayala
Corporation. The dispositive portion of the decision in the said case, which is squarely applicable to
the case at bar, reads as, follows:

WHEREFORE, premises considered, the assailed Decision of the Court of Appeals dated February
27, 1996, in CA G.R. C.V. No. 46488, and its Resolution dated October 7, 1996 are hereby
REVERSED and SET ASIDE, and in lieu thereof judgement is hereby rendered finding that:

1. The Deed Restrictions are valid and petitioner AYALA is not estopped from enforcing
them against lot owners who have not yet adopted the Consolidated and Revised
Deed Restrictions.
2. Having admitted that the Consolidated and Revised Deed Restrictions are the
applicable Deed Restrictions to Ray Burton Development Corporation, RBDC should
be, and is bound by the same.
3. Considering that Ray Burton Development Corporation’s Trafalgar plaza exceeds the
floor area limits of the Deed Restrictions, RBDC is hereby ordered to pay
development charges as computed under the provisions of the consolidated and
Revised Deed Restrictions currently in force.
4. Ray Burton Development corporation is further ordered to pay AYALA exemplary
damages in the amount of P2, 500,000.00 attorney’s fees in the amount of
P250,000.00

SO ORDERED:

There is no reason why the same rule should not be followed in the case at bar, the remedies of
specific performance and/or rescission prayed for by petitioner no longer being feasible. In
accordance with the peculiar circumstances of the case at bar, the development charges would
certainly be a fair measure of compensatory damages to petitioner Ayala.

Exemplary damages in the sum of P2, 500,000.00 as prayed for by petitioner are also in order
inasmuch as respondent Rosa-Diana was in evident bad faith when it submitted a set of building
plans in conformity with the deed restrictions to petitioner Ayala for the sole purpose of obtaining title
to the property, but only to prepare and later on submit another set of buildings plans which are in
gross violation of the Deed Restrictions. Petitioner Ayala is likewise entitled to an award of attorney’s
fees in the sum of P250, 000.00.

WHEREFORE, the assailed Decision of the Court of Appeals dated December 4, 1997 and its
Resolution dated June 19, 1998, C.A. G.R. C.V. No. 4598, are REVERSED and SET ASIDE. In lieu
thereof, judgement is rendered.

a. orderings respondent Rosa-Diana Realty and Development Corporation to pay

development charges as computed under the provisions of the consolidated and
Revised Deed Restrictions currently in force; and
b. ordering respondent Rosa-Diana Realty and Development Corporation to pay
petitioner Ayala Corporation exemplary damages in the sum of P2,500,00.00,
attorney’s fees in the sum of P250,000.00 and the costs of the suit.

SO ORDERED.