G.R. No.
200558 Aurora was shocked to learn that the subject property was
CONSUELO V. PANGASINAN and ANNABELLA V.
BORROMEO, Petitioners,
vs.
CRISTINA DISONGLOALMAZORA, RENILDA ALMAZORA-
CASUBUAN, RODOLFO CASUBUAN, SUSANA
ALMAZORAMENDIOLA, CARLOS MENDIOLA, CECILIO
ALMAZORA and NENITA ALMAZORA, Respondents.
DECISION
MENDOZA, J.:
The present case demonstrates the legal principle that the
law aids the vigilant, not those who slumber on their
rights. Vigilantibus, sed non dormientibus Jura subverniunt.
This is a petition for review on certiorari seeking to reverse
and set aside the July 28, 2011 Decision 1 and the February 3,
2012 Resolution 2 of the Court of Appeals (CA), in CA-G.R. CV
84529, which affirmed the June 29, 2004 Decision 3 of the
Regional Trial Court, Branch 259, Parañaque City (RTC) in
Civil Case No. 96-0206, a case for damages.
The Facts
The subject property is a parcel of land with an area of 572
square meters located in Brgy. Sto. Domingo, Biñan, Laguna.
It was registered in the name of Aquilina
Martinez (Aquilina) under Transfer Certificate of
Title (TCT) No. T-18729 by the Register of Deeds of Laguna
on July 29, 1939. 4
After the liberation of Manila from the Japanese military
occupation in 1945, Aquilina and her maternal grandmother,
Leoncia Almendral (Leoncia), learned that their house on
Zabala Street, Tondo, Manila, was ruined by the war. To
rebuild their house, they borrowed money from their
relative, Conrado Almazora (Conrado). Thus, their house was
reconstructed. In return, Leoncia entrusted to Contrado the
owner’s duplicate copy of TCT No. T-18729 covering the
subject property in Biñan, Laguna. Consequently, Conrado
and his family remained in the said property.
Following the death of Aquilina on July 19, 1949, the title of
the subject property was transferred to Aurora Morales-
Vivar (Aurora), as her sole heir. Accordingly, TCT No. T-
35280 was issued in the name of Aurora 5 after TCT No. T-
18729 was cancelled. On February 7, 1972, Conrado passed
away.
Sometime in 1994, Aurora learned from Cristina
Almazora (Cristina), the widowed spouse of Conrado, that
the title of the subject property had long been transferred in
the name of Conrado and that the subject property had been
sold to Fullway Development Corporation (Fullway) by the
heirs of Conrado in consideration of P4,000,000.00.6
In its Decision, dated June 29, 2004, the RTC dismissed the
already transferred to Conrado and sold for a meager
amount. On October 30, 1995, she sent a letter to the heirs
of Conrado demanding the delivery of the payment they
received for the sale of the subject property; but it was
unheeded.
On May 9, 1996, Aurora together with her husband, Arturo,
filed a complaint for damages 7 against Cristina and the other
heirs of Conrado (respondents) before the RTC. They
contended that the owner’s duplicate copy of TCT No. T-
18729 was only given to Conrado for safekeeping. The
complaint, however, admitted that the family of Conrado had
been staying on, and using, the subject property since 1912
with the permission and generosity of Aquilina and Leoncia. 8
Aurora asserted that, through the years, she repeatedly
asked Conrado to return the owner’s copy of the title but the
latter procrastinated, giving all kinds of excuses, until he
died in 1972; that thereafter, Aurora asked Cristina for the
copy of the title but the latter also ignored her request; that
the subsequent sale of the subject property to Fullway was
without Aurora’s authorization, and, thus, the payment
received by respondents for the sale of the subject property
should be turned over to her; and that she prayed for moral
and exemplary damages. 9
On June 24, 1996, respondents filed their answer with
compulsory counterclaim. They countered that the subject
property was properly transferred to Conrado under TCT No.
35282, and, thereafter, in the names of the heirs of Conrado
under TCT No. T-114352. Respondents averred that the
imputation of fraud on the part of Conrado in the registration
of the subject property was baseless and this assertion of
fraud was not transmissible from Conrado to his heirs, who
merely acquired the property through succession.10
Respondents raised some special and affirmatives defenses,
among others, that the complaint stated no cause of action
and was barred by prescription. A preliminary hearing for the
said defenses was set by the RTC. 11 In the Order,12 dated
May 27, 1999, the RTC ruled that the complaint stated a
cause of action.
Respondents filed a petition for certiorari  13 to assail the said
interlocutory order of the RTC before the CA. In its
Decision,14 dated February 24, 1999, the CA denied the same
and held that the complaint stated a cause of action, which
was an action for damages arising from fraud committed by
Conrado, as trustee, against Aurora, as cestui que trust. The
CA further held that the complaint, on its face, did not show
that the action had prescribed.
Meanwhile, the RTC continued the proceedings and set the
case for trial on the merits. After the parties adduced their
respective pieces of evidence, the RTC required them to
submit their memoranda. Only respondents filed a
memorandum. 15
The RTC Ruling
complaint. The trial court held that, after a thorough
evaluation of the records, Aurora miserably failed to prove
her right to the subject property. It explained that even if
Aurora had a claim on the subject property, she was guilty of
laches. For many years, Aurora slept on her right over the
questioned property and failed to exhaust all means, legal or
administrative, to retrieve what was rightfully hers at the
earliest possible time.
The RTC determined that Conrado was able to transfer the
title of the subject property in his name on June 17, 1965 by
virtue of a document denominated as "Adjudication and
Absolute Sale of a Parcel of Registered Land," 16 dated
January 9, 1949, signed by Aurora and her husband. The
signatures of Aurora and her husband, affixed on the deed of
sale, were not properly controverted by her. The trial court
found that her allegations of repeated pleas to Conrado to
return the copy of the title deserved scant consideration. It
concluded that Aurora was not entitled to damages because
there were no clear and cogent grounds to award the same.
The decretal portion of the decision reads:
WHEREFORE, premises considered, plaintiffs having failed to
prove its case for damages, the same is hereby ordered
DISMISSED for lack of merit.
SO ORDERED.17
Aggrieved, Aurora appealed to the CA. On June 4, 2009, the
children of Aurora, namely, Consuelo V. Pangasinan, Lucio M.
Vivar and Annabella V. Borromeo (petitioners), filed a motion
for substitution of party18 after her death on March 26, 2008.
In its Resolution,19 dated July 15, 2010, the CA granted the
motion.
The CA Ruling
In the assailed Decision, dated July 28, 2011, the CA denied
the appeal of petitioners. It held that it took Aurora more
than 50 years to act on Conrado’s withholding of the title
covering the subject property. As early as 1945, the title was
already in the possession of Conrado. The CA ruled that
petitioners were barred by laches as Aurora should have
been impervious in asserting her ownership and made
judicial demands to return the title and the property.
The appellate court added that even on the aspect of
prescription of actions, the case would not prosper either. It
explained that the prescriptive period to recover property
obtained through fraud or mistake giving rise to an implied
trust under Article 1456 of the Civil Code was 10 years,
pursuant to Article 1144. This 10-year prescriptive period
began from the time the land was registered on June 17,
1965. Accordingly, Aurora had only until June 17, 1975 within
which to file her action. Evidently, the suit was commenced
only on May 12, 1996, beyond its prescription period. The
dispositive portion of the decision states:
WHEREFORE, premises considered, the instant petition is
DENIED and the Decision dated June 29, 2004 of the
Regional Trial Court of Parañaque City, Branch 259 in Civil
Case No. 96-0206 is hereby AFFIRMED.
SO ORDERED. 20
Petitioners moved for reconsideration, but their motion was
denied by the CA in the assailed Resolution, dated February
3, 2012.
Hence, this petition, raising the following
ISSUES
I
THE COURT OF APPEALS GRAVELY ERRED IN
AFFIRMING THE DECISION OF THE LOWER COURT
DISMISSING THE COMPLAINT FOR DAMAGES FILED BY
AURORA MORALESVIVAR, WHICH DECISIONS ARE ALL
CONTRARY TO LAW;
II
THE COURT OF APPEALS SERIOUSLY ERRED IN NOT
RULING THAT THE ACQUISITION OF CONRADO
ALMAZORA, RESPONDENTS’ PREDECESSOR-IN-
INTEREST, OF THE SUBJECT PROPERTY, IS INVALID
AND PRODUCED NO EFFECT WHATSOEVER BECAUSE
NOT ALL THE ELEMENTS OF LACHES, AS TO DEPRIVE
AURORA MORALES-VIVAR OF HER OWNERSHIP, ARE
PRESENT IN THE CASE AT BAR.21
Petitioners assert that they are not guilty of laches. When
Aurora was told that the subject property was already in the
name of Conrado in April 1994, she immediately filed a
complaint for damages on May 2, 1996. Petitioners also
claim that prescription is not a valid defense to defeat the
title of Aurora. Section 47 of Presidential Decree (P.D.) No.
1529 states that no title to registered land in derogation of
the title of the registered owner shall be acquired by
prescription or adverse possession.
On September 24, 2012, respondents filed their
Comment,22 arguing that petitioners’ assertions were
tenuous. Aurora slept on her rights for more than 50 years,
impervious in asserting her ownership of the subject
property, thereby losing the same by laches.
On December 11, 2012, petitioners filed their
Reply,23 claiming that the CA observed that respondents
might have manipulated the said title to their benefit and
advantage. Respondents’ hands were unclean because of
their bad faith and misrepresentation.
The Court’s Ruling
The petition is bereft of merit.
The petition raises
questions of fact
As a general rule, the Court’s jurisdiction in a Rule 45
petition is limited to the review of pure questions of law. A
question of law arises when the doubt or difference exists as
to what the law is on a certain state of facts. Negatively put,
Rule 45 does not allow the review of questions of fact. A
question of fact exists when the doubt or difference arises as
to the truth or falsity of the alleged facts. 24
Petitioners challenge the findings of laches, prescription and
lack of bad faith by the CA. To answer these questions, the
Court must review the records to determine whether the
lower courts properly appreciated the evidence in concluding
its findings. Clearly, the questions raised are factual. On this
ground alone, the present petition under Rule 45 is
dismissible. In the interest of substantial justice, however,
the Court deems it proper to reevaluate the records.
Petitioners are barred by
laches
Laches is defined as the failure or neglect for an
unreasonable and unexplained length of time to do that
which, by exercising due diligence, could or should have
been done earlier; it is negligence or omission to assert a
right within a reasonable time, warranting a presumption
that the party entitled to assert it either has abandoned it or
declined to assert it.25
The principle of laches is a creation of equity which, as such,
is applied not really to penalize neglect or sleeping upon
one's right, but rather to avoid recognizing a right when to
do so would result in a clearly inequitable situation. 26 The
time-honored rule anchored on public policy is that relief will
be denied to a litigant whose claim or demand has become
"stale," or who has acquiesced for an unreasonable length of
time, or who has not been vigilant or who has slept on his
rights either by negligence, folly or inattention. In other
words, public policy requires, for peace of society, the
discouragement of claims grown stale for non-assertion; thus
laches is an impediment to the assertion or enforcement of a
right which has become, under the circumstances,
inequitable or unfair to permit.27
The four (4) elements of laches, as first prescribed by this
Court in Go Chi Gun v. Co Cho28 are as follows:
(1) conduct on the part of the defendant, or of one
under whom he claims, giving rise to the situation
of which complaint is made for which the
complaint seeks a remedy;
(2) delay in asserting the complainant’s rights, the
complainant having had knowledge or notice, of
the defendant’s conduct and having been afforded
an opportunity to institute a suit;
(3) lack of knowledge or notice on the part of the
defendant that the complainant would assert the
right on which he bases his suit; and
(4) injury or prejudice to the defendant in the
event relief is accorded to the complainant, or the
suit is not held to be barred.29
In the case at bench, the CA correctly held that all the
elements of laches were present. First, Aurora and her
family entrusted to Conrado the owner’s duplicate of the
certificate of title of the subject property in 1945. In their
complaint, petitioners even admitted that Conrado’s family
had been staying in the subject property since
1912.30 Second, it took five decades, from 1945 to 1996,
before Aurora and petitioners decided to enforce their right
thereon. Third, respondents who lived all their lives in the
disputed property apparently were not aware that Aurora
would one day come out and claim ownership
thereon. Fourth, there was no question that respondents
would be prejudiced in the event that the suit would be
allowed to prosper.1avvphi1
The contention of petitioners that they were not in delay in
claiming their rights over the subject property is specious.
For 50 years, Aurora and her heirs did not take any legal
step to uphold their claim over the subject property, despite
being fully aware that Conrado and his family were
occupying the same for a very long time. Even petitioner
Consuelo Vivar- Pangasinan testified that Conrado had been
using the property for 30 years 31 and that Aurora had never
shown her any evidence of ownership of the property. 32
In their complaint, Aurora claimed that she repeatedly
reminded Conrado to return the copy of the title. This,
however, is a self-serving allegation without any evidentiary
substantiation. The two belated demand letters, dated
October 30, 1995 and March 5, 1996, sent by Aurora’s
lawyer before the institution of the present action, are the
only tangible assertions of their claim to the
property.33 Indeed, not a scintilla of proof was presented by
Aurora and her heirs to establish that, for 50 years, they
actively manifested to reclaim the title and possession of the
subject property.
A person, endowed with properties and entitlements, but
chose to lie quietly as decades passed by, watching his
property wither away, allowing innocent bystanders to pick
the fruits of his unguarded trees, instead of safeguarding his
rights through the accessibly and necessary legal means,
does not deserve the protection of equity. The law aids the
vigilant, not those who slumber on their rights.
The action has prescribed
On the basis of prescription of actions, the pending petition
must also be denied. Petitioners argue that prescription shall
not lie against their action because a registered land under
Section 47 of P.D. No. 1529 cannot be acquired through
prescription.34 The argument is patently erroneous.
There are two kinds of prescription provided in the Civil
Code. One is acquisitive, that is, the acquisition of a right by
the lapse of time as expounded in paragraph 1, Article
1106.35 Acquisitive prescription is also known as adverse
possession and usucapcion. The other kind is extinctive
prescription whereby rights and actions are lost by the lapse
of time as defined in paragraph 2, Article 1106 and Article
1139.36 Another name for extinctive prescription is litigation
of action. These two kinds of prescription should not be
interchanged.37
In a plethora of cases, 38 the Court has held that Section 47 of
P.D. No. 1529 covers acquisitive prescription. A registered
land therein can never be acquired by adverse possession. In
the case at bench, however, it was extinctive prescription,
and not acquisitive prescription, which barred the action of
petitioners. As the CA correctly held, the action must fail, not
because respondents adversely occupied the property, but
because petitioners failed to institute their suit within the
prescriptive period under Article 1144 of the Civil Code.
To determine the applicable period of extinctive prescription,
the nature and circumstances of the case should be
considered. According to petitioners, the owner’s duplicate
certificate of title was given to Conrado for safekeeping in
1945. Allegedly, Conrado employed fraud and bad faith
when he drafted the Adjudication and Absolute Sale of a
Parcel of Registered Land39 on January 9, 1949, and
transferred the title of the land to his name with the
issuance of TCT No. 35282 40 on June 17, 1965; and because
of the purported fraud committed by Conrado against
petitioners, an implied constructive trust was created by
operation of law, with Conrado as trustee and Aurora
as cestui que trust.
Constructive trusts are created by the construction of equity
in order to satisfy the demands of justice and prevent unjust
enrichment.41 Article 1456 of the Civil Code provides that a
person acquiring property through fraud becomes, by
operation of law, a trustee of an implied trust for the benefit
of the real owner of the property. 42 It is now well-settled that
the prescriptive period to recover property obtained by fraud
or mistake, giving rise to an implied trust under Article 1456
of the Civil Code, is 10 years pursuant to Article 1144. 43 The
prescriptive period to enforce the constructive trust shall be
counted from the alleged fraudulent registration or date of
issuance of the certificate of title over the property. 44 The
ten-year prescriptive period applies only if there is an actual
need to reconvey the property as when the plaintiff is not in
possession of the property. 45
In this case, the ten-year prescriptive period is squarely
applicable because Conrado and his family, not petitioners,
were in possession of the property. The subject property was
registered in the name of Conrado on June 17, 1965, and this
should be the starting point of the ten-year period.
Petitioners, thus, had until June 17, 1975 to enforce the
implied trust and assert their claim over the land. As
properly held by the CA, petitioners belatedly instituted their
judicial claim over the land on May 9, 1996. Indeed, with the
lapse of the prescriptive period to file an action, petitioners
could no longer seek relief from the courts.
Fraud was not proven
Granting, for the sake of argument, that the present case
was not barred by laches and had not prescribed, it must still
fail on its merits. The basis of the action for damages of
petitioners would be the fraud, bad faith and
misrepresentation allegedly committed by Conrado in
transferring the title of the subject property to his name.
Petitioners, however, drastically failed to prove the fact of
fraud with clear and convincing evidence.
Fraud must be proven by clear and convincing evidence and
not merely by a preponderance thereof. 46 Clear and
convincing proof is more than mere preponderance, but not
to extent of such certainty as is required beyond reasonable
doubt as in criminal cases. 47 The imputation of fraud in a civil
case requires the presentation of clear and convincing
evidence. Mere allegations will not suffice to sustain the
existence of fraud. The burden of evidence rests on the part
of the plaintiff or the party alleging fraud. 48
Here, the Adjudication and Absolute Sale of a Parcel of
Registered Land, which was signed by Aurora and her
husband, transferred the ownership of the subject property
from Aurora to Conrado. Petitioners, however, failed to assail
the validity of such deed. As written by the RTC, petitioners
could have questioned the authenticity of the document and
submitted the same to the National Bureau of Investigation
for comparison of the signatures. This, they failed to do. 49
In fine, the Adjudication and Absolute Sale of a Parcel of
Registered Land, being a notarized document, enjoys the
presumption of regularity. Even assuming that Conrado truly
employed fraud, no proof was presented that respondents,
as heirs of Conrado, were in privy and had knowledge of the
misrepresentations. In the absence of evidence of fraud, the
transfer to Conrado of the title of the subject property, and
the subsequent transfer to respondents by virtue of
succession,50 must be upheld.
Even on the subject of ownership, petitioners failed to
substantiate their claim. Petitioners had nothing, other than
their bare allegations, that they continuously owned the
subject property. For decades, petitioners lacked the
possession and interest to 'recover the subject property. The
trial court even noted that petitioners could not present a
single tax declaration receipt as an indicia of their
ownership. Based on the foregoing, petitioners are certainly
not entitled to damages on the basis of their misplaced claim
of ownership over the subject property.
WHEREFORE, the petition is DENIED. The July 28, 2011
Decision and the February 3, 2012 Resolution of the Court of
Appeals in CA-G.R. CV No. 122153 are AFFIRMED in toto.
SO ORDERED.
G.R. Nos. 170746-47, March 07, 2016
CALTEX (PHILIPPINES), INC., CALTEX PHILIPPINES
PETROLEUM, CO., INC., CALTEX SERVICES
(PHILIPPINES), INC., CALTEX OCEANIC LIMITED,
CALTEX INVESTMENT AND TRADING LIMITED, CALTEX
PETROLEUM CORPORATION, CALTRAPORT (FAR EAST)
COMPANY, CALTEX TRADING AND TRANSPORT
CORPORATION, CALTEX SERVICES CORPORATION,
AMERICAN OVERSEAS PETROLEUM LIMITED, P.T.
CALTEX PACIFIC INDONESIA, CALTEX PETROLEUM
INC., CALTEX ASIA, LIMITED, CALIFORNIA TEXAS OIL
CORPORATION, CALTEX INTERNATIONAL SERVICES
LIMITED, CALTEX OIL CORPORATION, CALTEX OIL
CORPORATION (DELAWARE), CALTEX OIL
CORPORATION (NEW YORK), CALTEX OIL PRODUCT
COMPANY, CALTEX (OVERSEAS) LIMITED, CALTEX
INTERNATIONAL LIMITED, CALTEX OIL
CORP., Petitioners, v. MA. FLOR A. SINGZON AGUIRRE,
ERNEST SINGZON, CESAR SINGZON AND ALL THE
OTHER PLAINTIFFS- INTERVENORS IN CIVIL CASES
NOS. 91-59592,91-59658, AND 92-61026 PENDING
BEFORE THE REGIONAL TRIAL COURT OF MANILA,
BRANCH 39, Respondents.
DECISION
REYES, J.:
Facts
Dubbed as the Asia's Titanic, 1 the M/V Dona Paz was an
inter-island passenger vessel owned and operated by
Sulpicio Lines, Inc. (Sulpicio) traversing its Leyte to Manila
route on the night of December 20, 1987, when it collided
with M/T Vector, a commercial tanker owned and operated
by Vector Shipping Corporation, Inc., (Vector Shipping). On
that particular voyage, M/T Vector was chartered by Caltex
(Philippines) Inc., et al.2 (petitioners) to transport petroleum
products. The collision brought forth an inferno at sea with
an estimate of about 4,000 casualties, and was described as
the "world's worst peace time maritime disaster." 3 It
precipitated the filing of numerous lawsuits, the instant case
included.
In December 1988, the heirs of the victims of the tragedy
(respondents), instituted a class action with the Civil District
Court for the Parish of Orleans, State of Louisiana, United
States of America (Louisiana Court), docketed as Civil Case
No. 88-24481 entitled "Sivirino Carreon, et al. v. Caltex
(Philippines), Inc., et al."4 On November 30, 2000, the
Louisiana Court entered a conditional judgment dismissing
the said case on the ground of forum non-conveniens. 5 This
led the respondents, composed of 1,689 claimants, to file on
March 6, 2001 a civil action for damages for breach of
contract of carriage and quasi-delict with the Regional Trial
Court (RTC) of Catbalogan, Samar, Branch 28 (RTC of
Catbalogan), against the herein petitioners, Sulpicio, Vector
Shipping, and Steamship Mutual Underwriting Association,
Bermuda Limited (Steamship). This was docketed as Civil
Case No. 7277 entitled "Ma. Flor Singzon-Aguirre, et al. v.
Sulpicio Lines, Inc., et al." 6
In its Order7 dated March 28, 2001, the RTC of
Catbalogan, motu proprio dismissed the complaint pursuant
to Section 1, Rule 9 of the 1997 Rules of Civil Procedure as
the respondents' cause of action had already prescribed. In
an unusual turn of events however, the petitioners as
defendants therein, who were not served with summons,
filed a motion for reconsideration, alleging that they are
waiving their defense of prescription, among others. The RTC
of Catbalogan, however, merely noted the petitioners'
motion.8
The dismissal of the complaint prompted the respondents to
have the case reinstated with the Louisiana Court. The
petitioners, as defendants, however argued against it and
contended that the Philippines offered a more convenient
forum for the parties, specifically the RTC of Manila, Branch
39 (RTC of Manila), where three consolidated
cases9 concerning the M/V Dona Paz collision were pending. 10
In its Judgment11 dated March 27, 2002, the Louisiana Court
once again conditionally dismissed the respondents' action,
ordering the latter to bring their claims to the RTC of Manila
by intervening in the consolidated cases filed before the
latter court. It was also stated in the judgment that the
Louisiana Court will allow the reinstatement of the case if the
Philippine court "is unable to assume jurisdiction over the
parties or does not recognize such cause of action or any
cause of action arising out of the same transaction or
occurrence."12
Following the Louisiana Court's order, the respondents filed a
motion for intervention on May 6, 2002, and a complaint in
intervention on May 13, 2002 with the pending consolidated
cases before the RTC of Manila. Also, co-defendants in the
consolidated cases, Sulpicio and Steamship were furnished
with a copy of the respondents' motion to intervene.
In their Manifestation 13 dated April 24, 2002, the petitioners
unconditionally waived the defense of prescription of the
respondents' cause of action. The petitioners also reiterated
a similar position in their Comment/Consent to
Intervention14 dated May 16, 2002. Likewise, Sulpicio and
Steamship filed their Manifestation of No Objection dated
May 30, 2002 and Manifestation dated June 20, 2002 with
the RTC of Manila, expressing concurrence with the
petitioners.15
On July 2, 2002, the RTC of Manila issued its Order 16 denying
the respondents' motion to intervene for lack of merit. The
RTC of Manila ruled that the RTC of Catbalogan had already
dismissed the case with finality; that a final and executory
prior judgment is a bar to the filing of the complaint in
intervention of the respondents; and that the waivers of the
defense of prescription made by the petitioners, Sulpicio and
Steamship are of no moment. 17 The motion for
reconsideration filed by the petitioners, Sulpicio and
Steamship was denied as well on August 30, 2002. 18
On September 25, 2002, the petitioners instituted a petition
for certiorari before the Court of Appeals (CA) docketed as
CA-G.R. SP No. 72994. On November 12, 2002, Sulpicio and
Steamship also filed a separate petition docketed as CA-G.R.
SP No. 73793. These petitions were consolidated in an order
of the CA dated March 31, 2004. 19
On April 27, 2005, the CA dismissed 20 the consolidated
petitions in this wise:
WHEREFORE, premises considered, the consolidated
petitions under consideration are hereby DISMISSED.
Accordingly, the assailed orders of the [RTC of Manila] dated
July 2, 2002 and August 30, 2002 are AFFIRMED. No
pronouncement as to costs.
SO ORDERED.
The CA concurred with the RTC of Manila that the finality of
the Order dated March 28, 2001 issued by the RTC of
Catbalogan has the effect of res judicata, which barred the
respondents' motion to intervene and complaint-in-
intervention with the RTC of Manila. 22 The CA also considered
the filing of motion for reconsideration by the petitioners
before the RTC of Catbalogan as tantamount to voluntary
submission to the jurisdiction of the said court over their
person.23 The CA rationalized that "[i]t is basic that as long
as the party is given the opportunity to defend his interests
in due course, he would have no reason to complain, for it is
this opportunity to be heard that makes up the essence of
due process."24
The motions for reconsideration having been denied by the
CA in its Order25 dated December 8, 2005, only the
petitioners elevated the matter before this Court by way of
petition for review on certiorari26 under Rule 45.
The Parties' Arguments
The petitioners contended that not all the elements of res
judicata are present in this case which would warrant its
application as the RTC of Catbalogan did not acquire
jurisdiction over their persons and that the judgment therein
is not one on the merits. 27 It was also adduced that only the
respondents were heard in the RTC of Catbalogan because
when the petitioners filed their motion for reconsideration,
the order of dismissal was already final and executory. 28 The
petitioners also bewailed that other complaints were
accepted by the RTC of Manila in the consolidated cases
despite prescription of the cause of action 29 and that the real
issue of merit is whether the defense of prescription that has
matured can be waived. 30 They explained that they were not
able to file for the annulment of judgment or order of the
RTC of Catbalogan since the respondents precluded them
from seeking such remedy by filing a motion for intervention
in the consolidated cases before the RTC of Manila. 31
On the other side, the respondents maintained that the
waiver on prescription is not the issue but bar by prior
judgment is, because when they filed their motion for
intervention, the dismissal meted out by the RTC of
Catbalogan was already final.32 According to the
respondents, if the petitioners intended to have the
dismissal reversed, the latter should have appealed from the
order of the RTC of Catbalogan or filed a petition for
certiorari against the said order or an action to nullify the
same.33 The respondents also elucidated that they could not
have precluded the petitioners from assailing the RTC of
Catbalogan's orders because it was not until May 6, 2002
when the respondents filed a motion for intervention with
the consolidated cases before the RTC of Manila 34 and only in
deference to the 2nd order of dismissal of the Louisiana
Court.35 Finally, for the respondents, the CA correctly held
that the petitioners cannot collaterally attack the final order
of the RTC of Catbalogan, the reason being that a situation
wherein there could be two conflicting rulings between two
co-equal courts must be avoided.36
Essentially, the issues can be summed up as follows:
I. WHETHER THE CA ERRED IN RULING
THAT THE ORDERS OF THE RTC OF
CATBALOGAN BARRED THE FILING OF
THE MOTION AND COMPLAINT FOR
INTERVENTION BEFORE THE RTC OF
MANILA; and
II. WHETHER THE CA ERRED IN AFFIRMING
THE RTC OF MANILA'S DISREGARD OF
THE PETITIONERS' WAIVER OF
PRESCRIPTION ON THE GROUND OF BAR
BY PRIOR JUDGMENT.37
Ruling of the Court
The petition lacks merit.
The petitioners cannot be permitted to assert their right to
waive the defense of prescription when they had foregone
the same through their own omission, as will be discussed
below.
The Court shall first discuss the prescription of the
respondents' cause of action against the petitioners. Article
1106 of the Civil Code provides that "[b]y prescription, one
acquires ownership and other real rights through the lapse of
time in the manner and under the conditions laid down by
law. In the same way, rights and conditions are lost by
prescription." The first sentence refers to acquisitive
prescription, which is a mode of "acquisition of ownership
and other real rights through the lapse of time in the manner
and under the conditions provided by law." The second
sentence pertains to extinctive prescription "whereby rights
and actions are lost by the lapse of time." 38 It is also called
limitation of action. 39
This case involves the latter type of prescription, the purpose
of which is to protect the diligent and vigilant, not the person
who sleeps on his rights, forgetting them and taking no
trouble of exercising them one way or another to show that
he truly has such rights. 40 The rationale behind the
prescription of actions is to suppress fraudulent and stale
claims from springing up at great distances of time when all
the proper vouchers and evidence are lost or the facts have
become obscure from the lapse of time or defective memory
or death or removal of witnesses. 41
There is no dispute that the respondents' cause of action
against the petitioners has prescribed under the Civil
Code.42 In fact, the same is evident on the complaint itself.
The respondents brought their claim before a Philippine
court only on March 6, 2001, more than 13 years after the
collision occurred. 43 Article 1139 of the Civil Code states that
actions prescribe by the mere lapse of time fixed by law.
Accordingly, the RTC of Catbalogan cannot be faulted for
the motu proprio dismissal of the complaint filed before it. It
is settled that prescription may be considered by the
courts motu proprio if the facts supporting the ground are
apparent from the pleadings or the evidence on record. 44
The peculiarity in this case is that the petitioners, who were
the defendants in the antecedent cases before the RTCs of
Catbalogan and Manila, are most adamant in invoking their
waiver of the defense of prescription while the respondents,
to whom the cause of action belong, have acceded to the
dismissal of their complaint. The petitioners posit that there
is a conflict between a substantive law and procedural law in
as much as waiver of prescription is allowed under Article
1112 of the Civil Code, a substantive law even though
the motu proprio dismissal of a claim that has prescribed is
mandated under Section 1, Rule 9 of the Rules of Court. 45
The Court has previously held that the right to prescription
may be waived or renounced pursuant to Article 1112 of the
Civil Code:46
Art. 1112. Persons with capacity to alienate property may
renounce prescription already obtained, but not the right to
prescribe in the future.
Prescription is deemed to have been tacitly renounced when
the renunciation results from acts which imply the
abandonment of the right acquired.
In the instant case, not only once did the petitioners
expressly renounce their defense of prescription.
Nonetheless, the Court cannot consider such waiver as basis
in order to reverse the rulings of the courts below as the
dismissal of the complaint had become final and binding on
both the petitioners and the respondents.
It is not contested that the petitioners were not served with
summons by the RTC of Catbalogan prior to the motu
proprio dismissal of the respondents' complaint. It is basic
that courts acquire jurisdiction over the persons of
defendants or respondents, by a valid service of summons or
through their voluntary submission. 47 Not having been
served with summons, the petitioners were not initially
considered as under the jurisdiction of the court. However,
the petitioners voluntarily submitted themselves under the
jurisdiction of the RTC of Catbalogan by filing their motion for
reconsideration.
Section 20, Rule 14 of the 1997 Rules of Court states:
Sec. 20. Voluntary appearance. - The defendant's voluntary
appearance in the action shall be equivalent to service of
summons. The inclusion in a motion to dismiss of other
grounds aside from lack of jurisdiction over the person of the
defendant shall not be deemed a voluntary appearance.
In Philippine Commercial International Bank v. Spouses Dy
Hong Pi, et al.,48 the Court explained the following:
(1)  Special appearance operates as an exception to the
general rule on voluntary appearance;
(2) Accordingly, objections to the jurisdiction of the court
over the person of the defendant must be explicitly
made, i.e., set forth in an unequivocal manner; and
(3)  Failure to do so constitutes voluntary submission to the
jurisdiction of the court, especially in instances where a
pleading or motion seeking affirmative relief is filed and
submitted to the court for resolution.49
Previous to the petitioners' filing of their motion for
reconsideration, the RTC of Catbalogan issued an Entry of
Final Judgment50 stating that its Order dated March 28, 2001
became final and executory on April 13, 2001. The
petitioners claimed that for this reason, they could not have
submitted themselves to the jurisdiction of the RTC of
Catbalogan by filing such a belated motion. 51
But the petitioners cannot capitalize on the supposed finality
of the Order dated March 28, 2001 to repudiate their
submission to the jurisdiction of the RTC of Catbalogan. It
must be emphasized that before the filing of their motion for
reconsideration, the petitioners were not under the RTC of
Catbalogan's jurisdiction. Thus, although the order was
already final and executory with regard to the respondents;
it was not yet, on the part of the petitioners. As opposed to
the conclusion reached by the CA, the Order dated March 28,
2001 cannot be considered as final and executory with
respect to the petitioners. It was only on July 2, 2001, when
the petitioners filed a motion for reconsideration seeking to
overturn the aforementioned order, that they voluntarily
submitted themselves to the jurisdiction of the court. On
September 4, 2001, the RTC of Catbalogan noted the
petitioners' motion for reconsideration on the flawed
impression that the defense of prescription cannot be
waived.52
Consequently, it was only after the petitioners' failure to
appeal or seek any other legal remedy to challenge the
subsequent Order dated September 4, 2001, that the
dismissal became final on their part. It was from the date of
the petitioners' receipt of this particular order that the
reglementary period under the Rules of Court to assail it
commenced to run for the petitioners. But neither the
petitioners nor the respondents resorted to any action to
overturn the orders of the RTC of Catbalogan, which
ultimately led to their finality. While the RTC of Catbalogan
merely noted the motion for reconsideration in its Order
dated September 4, 2001, the effect is the same as a denial
thereof, for the intended purpose of the motion, which is to
have the complaint reinstated, was not realized. This should
have prompted the petitioners to explore and pursue other
legal measures to have the dismissal reversed. Instead,
nothing more was heard from the parties until a motion for
intervention was filed by the respondents before the RTC of
Manila, in conformity with the order of the Louisiana Court.
As the CA espoused in its decision:
We concur with the observation of the [RTC of Manila] that
the petitioners' predicament was of their own making. The
petitioners should have exhausted the other available legal
remedies under the law after the [RTC of Catbalogan] denied
their motion for reconsideration. Under Section 9, Rule 37 of
the [Rules of Court], the remedy against an order denying a
motion for reconsideration is not to appeal the said order of
denial but to appeal from the judgment or final order of the
court. Moreover, the petitioners could have availed of an
action for annulment of judgment for the very purpose of
having the final and executory judgment be set aside so that
there will be a renewal of litigation. An action for annulment
of judgment is grounded only on two justifications: (1)
extrinsic fraud; and (2) lack of jurisdiction or denial of due
process. All that herein petitioners have to prove was that
the trial court had no jurisdiction; that they were prevented
from having a trial or presenting their case to the trial court
by some act or conduct of the private respondents; or that
they have been denied due process of law. Seasonably, the
petitioners could have also interposed a petition for certiorari
under Rule 65 of the Rules [of Court] imputing grave abuse
of discretion on the part of the trial court judge in issuing the
said order of dismissal. For reasons undisclosed in the
records, the petitioners did not bother to mull over and
consider the said legal avenues, which they could have
readily availed of during that time.53
The RTC of Manila denied the respondents' motion for
intervention on the ground of the finality of the order of the
RTC of Catbalogan, there being no appeal or any other legal
remedy perfected in due time by either the petitioners or the
respondents. Since the dismissal of the complaint was
already final and executory, the RTC of Manila can no longer
entertain a similar action from the same parties. The bone of
contention is not regarding the petitioners' execution of
waivers of the defense of prescription, but the effect
of finality of an order or judgment on both parties.
"Settled is the rule that a party is barred from assailing the
correctness of a judgment not appealed from by him"
because the "presumption [is] that a party who did not
interject an appeal is satisfied with the adjudication made by
the lower court."54 Whether the dismissal was based on the
merits or technicality is beside the point. "[A] dismissal on a
technicality is no different in effect and consequences from a
dismissal on the merits."55
The petitioners attempted to justify their failure to file an
action to have the orders of the RTC of Catbalogan annulled
by ratiocinating that the respondents precluded them from
doing so when the latter filed their complaint anew with the
RTC of Manila. This is untenable, as it is clear that the
respondents filed the said complaint-in-intervention with the
RTC of Manila more than a year after the case was ordered
dismissed by the RTC of Catbalogan. 56 Aside from this, the
petitioners offered no other acceptable excuse on why they
did not raise their oppositions against the orders of the RTC
of Catbalogan when they had the opportunity to do so. Thus,
the only logical conclusion is that the petitioners abandoned
their right to waive the defense of prescription.
Lastly, the Court takes judicial notice of its ruling in Vector
Shipping Corporation, et al. v. Macasa, et al. 57 and Caltex
(Philippines) Inc., v. Sulpicio Lines, Inc.58 wherein the
petitioners, as a mere voyage charterer, were exonerated
from third party liability in the M/V Doña Paz collision. Should
this Court allow the reinstatement of the complaint against
the petitioners, let the trial proceedings take its course, and
decide the same on the merits in favor of the respondents,
then it would have led to the promulgation of conflicting
decisions. On the other hand, if this Court were to decide this
matter on the merits in favor of the petitioners, then the
same result would be obtained as with a dismissal now.
WHEREFORE, the petition is denied for lack of merit.
SO ORDERED.
G.R. No. 171514               July 18, 2012
REPUBLIC OF THE PHILIPPINES, Petitioner,
vs.
DOMINGO ESPINOSA, Respondent.
DECISION
REYES, J.:
This is a petition for review on certiorari from the
Decision1 dated November 11, 2004 and Resolution 2 dated
February 13, 2006 of the Court of Appeals in CA-G.R. CV No.
72456.
On March 3, 1999, respondent Domingo Espinosa (Espinosa)
tiled with the Municipal Trial Court (MTC) of Consolacion,
Cebu an application 3 for land registration covering a parcel of
land with an area of 5,525 square meters and situated in
Barangay Cabangahan, Consolacion, Cebu. In support of his
application, which was docketed as LRC Case No. N-81,
Espinosa alleged that: (a) the property, which is more
particularly known as Lot No. 8499 of Cad. 545-D (New), is
alienable and disposable; (b) he purchased the property
from his mother, Isabel Espinosa (Isabel), on July 4, 1970 and
the latter’s other heirs had waived their rights thereto; and
(c) he and his predecessor-in-interest had been in possession
of the property in the concept of an owner for more than
thirty (30) years.
Espinosa submitted the blueprint of Advanced Survey Plan
07-0008934 to prove the identity of the land. As proof that
the property is alienable and disposable, he marked as
evidence the annotation on the advance survey plan made
by Cynthia L. Ibañez, Chief of the Map Projection Section,
stating that "CONFORMED PER L.C. MAP NOTATION L.C. Map
No. 2545 Project No. 28 certified on June 25, 1963, verified
to be within Alienable & Disposable Area". 5 Espinosa also
presented two (2) tax declarations for the years 1965 and
1974 in Isabel’s name – Tax Declaration Nos. 013516 and
06137 – to prove that she had been in possession of the
property since 1965. To support his claim that he had been
religiously paying the taxes due on the property, Espinosa
presented a Certification 6 dated December 1, 1998 issued by
the Office of the Treasurer of Consolacion, Cebu and three
(3) tax declarations for the years 1978, 1980 and 1985 – Tax
Declaration Nos. 14010, 17681 and 010717 .8
Petitioner opposed Espinosa’s application, claiming that: (a)
Section 48(b) of Commonwealth Act No. 141 otherwise
known as the "Public Land Act" (PLA) had not been complied
with as Espinosa’s predecessor-in-interest possessed the
property only after June 12, 1945; and (b) the tax
declarations do not prove that his possession and that of his
predecessor-in-interest are in the character and for the
length of time required by law.
On August 18, 2000, the MTC rendered a Judgment 9 granting
Espinosa’s petition for registration, the dispositive portion of
which states:
WHEREFORE, and in view of all the foregoing, judgment is
hereby rendered ordering for the registration and the
confirmation of title of Espinosa over Lot No. 8499, Cad 545-
D (New), situated at Barangay Cabangahan, Consolacion,
Cebu, Philippines, containing an area of 5,525 square meters
and that upon the finality of this decision, let a
corresponding decree of registration be issued in favor of the
herein applicant in accordance with Section 39, P.D. 1529.
SO ORDERED.10
According to the MTC, Espinosa was able to prove that the
property is alienable and disposable and that he complied
with the requirements of Section 14(1) of Presidential Decree
(P.D.) No. 1529. Specifically:
After a careful consideration of the evidence presented in
the above-entitled case, the Court is convinced, and so
holds, that Espinosa was able to establish his ownership and
possession over the subject lot which is within the area
considered by the Department of Environment and Natural
Resources (DENR) as alienable and disposable land of the
public domain.
The Court is likewise convinced that the applicant and that of
predecessor-in-interest have been in open, actual, public,
continuous, adverse and under claim of title thereto within
the time prescribed by law (Sec. 14, sub-par. 1, P.D. 1529)
and/or in accordance with the Land Registration Act. 11
Petitioner appealed to the CA and pointed Espinosa’s failure
to prove that his possession and that of his predecessor-in-
interest were for the period required by law. As shown by
Tax Declaration No. 013516, Isabel’s possession commenced
only in 1965 and not on June 12, 1945 or earlier as required
by Section 48(b) of the PLA. On the other hand, Espinosa
came into possession of the property only in 1970 following
the sale that transpired between him and his mother and the
earliest tax declaration in his name was for the year 1978.
According to petitioner, that Espinosa and his predecessor-
in-interest were supposedly in possession for more than
thirty (30) years is inconsequential absent proof that such
possession began on June 12, 1945 or earlier.12
Petitioner also claimed that Espinosa’s failure to present the
original tracing cloth of the survey plan or a sepia copy
thereof is fatal to his application. Citing Del Rosario v.
Republic of the Philippines 13 and Director of Lands v. Judge
Reyes,14 petitioner argued that the submission of the original
tracing cloth is mandatory in establishing the identity of the
land subject of the application. 15
Further, petitioner claimed that the annotation on the
advance survey plan is not the evidence admissible to prove
that the subject land is alienable and disposable. 16
By way of the assailed decision, the CA dismissed
petitioner’s appeal and affirmed the MTC Decision dated
August 18, 2000. The CA ruled that possession for at least
thirty (30) years, despite the fact that it commenced after
June 12, 1945, sufficed to convert the property to private.
Thus:
The contention of petitioner is not meritorious on the
following grounds:
a) The record of the case will show that Espinosa has
successfully established valid title over the subject land and
that he and his predecessor-in-interest have been in
continuous, adverse, public and undisturbed possession of
said land in the concept of an owner for more than 30 years
before the filing of the application. Established jurisprudence
has consistently pronounced that "open, continuous and
exclusive possession for at least 30 years of alienable public
land ipso jure converts the same into private property
(Director of Lands vs. Intermediate Appellate Court, 214
SCRA 604). This means that occupation and cultivation for
more than 30 years by applicant and his predecessor-in-
interest vests title on such applicant so as to segregate the
land from the mass of public land (National Power
Corporation vs. Court of Appeals, 218 SCRA 41); and
b) It is true that the requirement of possession since June 12,
1945 is the latest amendment of Section 48(b) of the Public
Land Act (C.A. No. 141), but a strict implementation of the
law would in certain cases result in inequity and unfairness
to Espinosa. As wisely stated by the Supreme Court in the
case of Republic vs. Court of Appeals, 235 SCRA 567:
"Following the logic of the petitioner, any transferee is thus
foreclosed to apply for registration of title over a parcel of
land notwithstanding the fact that the transferor, or his
predecessor-in-interest has been in open, notorious and
exclusive possession thereof for thirty (30) years or more." 17
The CA also ruled that registration can be based on other
documentary evidence, not necessarily the original tracing
cloth plan, as the identity and location of the property can be
established by other competent evidence.
Again, the aforesaid contention of [the petitioner] is without
merit. While the best evidence to identify a piece of land for
registration purposes may be the original tracing cloth plan
from the Land Registration Commission, the court may
sufficiently order the issuance of a decree of registration on
the basis of the blue print copies and other evidence
(Republic of the Philippines vs. Intermediate Appellate Court,
G.R. No. L-70594, October 10, 1986). The said case provides
further:
"The fact that the lower court finds the evidence of the
applicant sufficient to justify the registration and
confirmation of her titles and did not find it necessary to
avail of the original tracing cloth plan from the Land
Registration Commission for purposes of comparison, should
not militate against the rights of the applicant. Such is
especially true in this case where no clear, strong,
convincing and more preponderant proof has been shown by
the oppositor to overcome the correctness of said plans
which were found both by the lower court and the Court of
Appeals as conclusive proofs of the description and identities
of the parcels of land contained therein."
There is no dispute that, in case of Del Rosario vs. Republic,
supra¸ the Supreme Court pronounced that the submission
in evidence of the original tracing cloth plan, duly approved
by the Bureau of Lands, in cases for application of original
registration of land is a mandatory requirement, and that
failure to comply with such requirement is fatal to one’s
application for registration. However, such pronouncement
need not be taken as an iron clad rule nor to be applied
strictly in all cases without due regard to the rationale
behind the submission of the tracing cloth plan.
x x x:
xxxx
As long as the identity of and location of the lot can be
established by other competent evidence like a duly
approved blueprint copy of the advance survey plan of Lot
8499 and technical description of Lot 8499, containing and
identifying the boundaries, actual area and location of the
lot, the presentation of the original tracing cloth plan may be
excused.18
Moreover, the CA ruled that Espinosa had duly proven that
the property is alienable and disposable:
Espinosa has established that Lot 8499 is alienable and
disposable. In the duly approved Advance Survey Plan As-07-
0000893 (sic) duly approved by the Land Management
Services, DENR, Region 7, Cebu City, it is certified/verified
that the subject lot is inside the alienable and disposable
area of the disposable and alienable land of the public
domain.19
Petitioner moved for reconsideration but this was denied by
the CA in its Resolution 20 dated February 13, 2006.
Petitioner’s Case
Petitioner entreats this Court to reverse and set aside the
CA’s assailed decision and attributes the following errors: (a)
Espinosa failed to prove by competent evidence that the
subject property is alienable and disposable; (b)
jurisprudence dictates that a survey plan identifies the
property in preparation for a judicial proceeding but does not
convert the property into alienable, much less, private; (c)
under Section 17 of P.D. No. 1529, the submission of the
original tracing cloth plan is mandatory to determine the
exact metes and bounds of the property; and (d) a blueprint
copy of the survey plan may be admitted as evidence of the
identity and location of the property only if it bears the
approval of the Director of Lands.
Issues
The resolution of the primordial question of whether
Espinosa has acquired an imperfect title over the subject
property that is worthy of confirmation and registration is
hinged on the determination of the following issues:
a. whether the blueprint of the advanced survey
plan substantially complies with Section 17 of P.D.
No. 1529; and
b. whether the notation on the blueprint copy of
the plan made by the geodetic engineer who
conducted the survey sufficed to prove that the
land applied for is alienable and disposable.
Our Ruling
The lower courts were unanimous in holding that Espinosa’s
application is anchored on Section 14(1) of P.D. No. 1529 in
relation to Section 48(b) of the PLA and the grant thereof is
warranted in view of evidence supposedly showing his
compliance with the requirements thereof.
This Court is of a different view.
Based on Espinosa’s allegations and his supporting
documents, it is patent that his claim of an imperfect title
over the property in question is based on Section 14(2) and
not Section 14(1) of P.D. No. 1529 in relation to Section
48(b) of the PLA. Espinosa did not allege that his possession
and that of his predecessor-in-interest commenced on June
12, 1945 or earlier as prescribed under the two (2) latter
provisions. On the contrary, Espinosa repeatedly alleged that
he acquired title thru his possession and that of his
predecessor-in-interest, Isabel, of the subject property for
thirty (30) years, or through prescription. Therefore, the rule
that should have been applied is Section 14(2) of P.D. No.
1529, which states:
Sec. 14. Who may apply. – The following persons may file in
the proper Court of First Instance an application for
registration of title to land, whether personally or through
their duly authorized representatives:
xxxx
(2) Those who have acquired ownership of private lands by
prescription under the provision of existing laws.
Obviously, the confusion that attended the lower courts’
disposition of this case stemmed from their failure to apprise
themselves of the changes that Section 48(b) of the PLA
underwent over the years. Section 48(b) of the PLA originally
states:
Sec. 48. The following described citizens of the Philippines,
occupying lands of the public domain or claiming to own any
such lands or an interest therein, but whose titles have not
been perfected or completed, may apply to the Court of First
Instance of the province where the land is located for
confirmation of their claims and the issuance of a certificate
of title therefor, under the Land Registration Act, to wit:
xxxx
(b) Those who by themselves or through their predecessors-
in-interest have been in the open, continuous, exclusive and
notorious possession and occupation of agricultural lands of
the public domain, under a bona fide claim of acquisition or
ownership, except as against the Government, since July
twenty-sixth, eighteen hundred and ninety-four, except
when prevented by war or force majeure. These shall be
conclusively presumed to have performed all the conditions
essential to a Government grant and shall be entitled to a
certificate of title under the provisions of this chapter.
Thus, the required possession and occupation for judicial
confirmation of imperfect title was since July 26, 1894 or
earlier.
On June 22, 1957, Republic Act (R.A.) No. 1942 amended
Section 48(b) of the PLA by providing a thirty (30)-year
prescriptive period for judicial confirmation of imperfect title.
Thus:
(b) Those who by themselves or through their predecessors-
in-interest have been in the open, continuous, exclusive and
notorious possession and occupation of agricultural lands of
the public domain, under a bona fide claim of acquisition or
ownership, for at least thirty years immediately preceding
the filing of the application for confirmation of title except
when prevented by war or force majeure. These shall be
conclusively presumed to have performed all the conditions
essential to a Government grant and shall be entitled to a
certificate of title under the provisions of this chapter.
On January 25, 1977, P.D. No. 1073 was issued, changing the
requirement for possession and occupation for a period of
thirty (30) years to possession and occupation since June 12,
1945 or earlier. Section 4 of P.D. No. 1073 states:
Sec. 4. The provisions of Section 48(b) and Section 48(c),
Chapter VIII of the Public Land Act are hereby amended in
the sense that these provisions shall apply only to alienable
and disposable lands of the public domain which have been
in open, continuous, exclusive and notorious possession and
occupation by the applicant himself or thru his predecessor-
in-interest, under a bona fide claim of acquisition of
ownership, since June 12, 1945.
On June 11, 1978, P.D. No. 1529 was enacted. Notably, the
requirement for possession and occupation since June 12,
1945 or earlier was adopted under Section 14(1) thereof.
P.D. No. 1073, in effect, repealed R.A. No. 1942 such that
applications under Section 48(b) of the PLA filed after the
promulgation of P.D. No. 1073 should allege and prove
possession and occupation that dated back to June 12, 1945
or earlier. However, vested rights may have been acquired
under Section 48(b) prior to its amendment by P.D. No.
1073. That is, should petitions for registration filed by those
who had already been in possession of alienable and
disposable lands of the public domain for thirty (30) years at
the time P.D. No. 1073 was promulgated be denied because
their possession commenced after June 12, 1945? In
Abejaron v. Nabasa,21 this Court resolved this legal
predicament as follows:
However, as petitioner Abejaron’s 30-year period of
possession and occupation required by the Public Land Act,
as amended by R.A. 1942 ran from 1945 to 1975, prior to the
effectivity of P.D. No. 1073 in 1977, the requirement of said
P.D. that occupation and possession should have started on
June 12, 1945 or earlier, does not apply to him. As the Susi
doctrine holds that the grant of title by virtue of Sec. 48(b)
takes place by operation of law, then upon Abejaron’s
satisfaction of the requirements of this law, he would have
already gained title over the disputed land in 1975. This
follows the doctrine laid down in Director of Lands v.
Intermediate Appellate Court, et al., that the law cannot
impair vested rights such as a land grant. More clearly
stated, "Filipino citizens who by themselves or their
predecessors-in-interest have been, prior to the effectivity of
P.D. 1073 on January 25, 1977, in open, continuous,
exclusive and notorious possession and occupation of
agricultural lands of the public domain, under a bona fide
claim of acquisition of ownership, for at least 30 years, or at
least since January 24, 1947" may apply for judicial
confirmation of their imperfect or incomplete title under Sec.
48(b) of the Public Land Act.22 (Citations omitted)
Consequently, for one to invoke Section 48(b) and claim an
imperfect title over an alienable and disposable land of the
public domain on the basis of a thirty (30)-year possession
and occupation, it must be demonstrated that such
possession and occupation commenced on January 24, 1947
and the thirty (30)-year period was completed prior to the
effectivity of P.D. No. 1073.
There is nothing in Section 48(b) that would suggest that it
provides for two (2) modes of acquisition. It is not the case
that there is an option between possession and occupation
for thirty (30) years and possession and occupation since
June 12, 1945 or earlier. It is neither contemplated under
Section 48(b) that if possession and occupation of an
alienable and disposable public land started after June 12,
1945, it is still possible to acquire an imperfect title if such
possession and occupation spanned for thirty (30) years at
the time of the filing of the application.
In this case, the lower courts concluded that Espinosa
complied with the requirements of Section 48(b) of the PLA
in relation to Section 14(1) of P.D. No. 1529 based on
supposed evidence that he and his predecessor-in-interest
had been in possession of the property for at least thirty (30)
years prior to the time he filed his application. However,
there is nothing on record showing that as of January 25,
1977 or prior to the effectivity of P.D. No. 1073, he or Isabel
had already acquired title by means of possession and
occupation of the property for thirty (30) years. On the
contrary, the earliest tax declaration in Isabel’s name was for
the year 1965 indicating that as of January 25, 1977, only
twelve (12) years had lapsed from the time she first came
supposedly into possession.
The CA’s reliance on Director of Lands v. Intermediate
Appellate Court23 is misplaced considering that the
application therein was filed on October 20, 1975 or before
the effectivity of P.D. No. 1073. The same can be said with
respect to National Power Corporation v. Court of
Appeals.24 The petition for registration therein was filed on
August 21, 1968 and at that time, the prevailing rule was
that provided under Section 48(b) as amended by R.A. No.
1942.
In Republic v. Court of Appeals, 25 the applicants therein
entered into possession of the property on June 17, 1978 and
filed their application on February 5, 1987. Nonetheless,
there is evidence that the individuals from whom the
applicant purchased the property, or their predecessors-in-
interest, had been in possession since 1937. Thus, during the
effectivity of Section 48(b) as amended by R.A. No. 1942, or
while the prevailing rule was possession and occupation for
thirty (30) years, or prior to the issuance of P.D. No. 1073,
the thirty (30)-year prescriptive period was already
completed.
Thus, assuming that it is Section 48(b) of the PLA in relation
to Section 14(1) of P.D. No. 1529 that should apply in this
case, as the lower courts held, it was incumbent upon
Espinosa to prove, among other things, that Isabel’s
possession of the property dated back at least to June 12,
1945. That in view of the established fact that Isabel’s
alleged possession and occupation started much later, the
lower courts should have dismissed Espinosa’s application
outright.
In sum, the CA, as well as the MTC, erred in not applying the
present text of Section 48(b) of the PLA. That there were
instances wherein applications were granted on the basis of
possession and occupation for thirty (30) years was for the
sole reason discussed above. Regrettably, such reason does
not obtain in this case.
Being clear that it is Section 14(2) of P.D. No. 1529 that
should apply, it follows that the subject property being
supposedly alienable and disposable will not suffice. As
Section 14(2) categorically provides, only private properties
may be acquired thru prescription and under Articles 420
and 421 of the Civil Code, only those properties, which are
not for public use, public service or intended for the
development of national wealth, are considered private. In
Heirs of Mario Malabanan v. Republic, 26 this Court held that
there must be an official declaration to that effect before the
property may be rendered susceptible to prescription:
Nonetheless, Article 422 of the Civil Code states that
"property of public dominion, when no longer intended for
public use or for public service, shall form part of the
patrimonial property of the State." It is this provision that
controls how public dominion property may be converted
into patrimonial property susceptible to acquisition by
prescription. After all, Article 420(2) makes clear that those
property "which belong to the State, without being for public
use, and are intended for some public service or for the
development of the national wealth" are public dominion
property. For as long as the property belongs to the State,
although already classified as alienable or disposable, it
remains property of the public dominion if when it is
"intended for some public service or for the development of
the national wealth." (Emphasis supplied)
Accordingly, there must be an express declaration by the
State that the public dominion property is no longer intended
for public service or the development of the national wealth
or that the property has been converted into patrimonial.
Without such express declaration, the property, even if
classified as alienable or disposable, remains property of the
public dominion, pursuant to Article 420(2), and thus
incapable of acquisition by prescription. It is only when such
alienable and disposable lands are expressly declared by the
State to be no longer intended for public service or for the
development of the national wealth that the period of
acquisitive prescription can begin to run. Such declaration
shall be in the form of a law duly enacted by Congress or a
Presidential Proclamation in cases where the President is
duly authorized by law.27
Thus, granting that Isabel and, later, Espinosa possessed and
occupied the property for an aggregate period of thirty (30)
years, this does not operate to divest the State of its
ownership. The property, albeit allegedly alienable and
disposable, is not patrimonial. As the property is not held by
the State in its private capacity, acquisition of title thereto
necessitates observance of the provisions of Section 48(b) of
the PLA in relation to Section 14(1) of P.D. No. 1529 or
possession and occupation since June 12, 1945. For
prescription to run against the State, there must be proof
that there was an official declaration that the subject
property is no longer earmarked for public service or the
development of national wealth. Moreover, such official
declaration should have been issued at least ten (10) or
thirty (30) years, as the case may be, prior to the filing of the
application for registration. The period of possession and
occupation prior to the conversion of the property to private
or patrimonial shall not be considered in determining
completion of the prescriptive period. Indeed, while a piece
of land is still reserved for public service or the development
of national wealth, even if the same is alienable and
disposable, possession and occupation no matter how
lengthy will not ripen to ownership or give rise to any title
that would defeat that of the State’s if such did not
commence on June 12, 1945 or earlier.
At any rate, as petitioner correctly pointed out, the notation
on the survey plan does not constitute incontrovertible
evidence that would overcome the presumption that the
property belongs to the inalienable public domain.
All lands of the public domain belong to the State, which is
the source of any asserted right to any ownership of land. All
lands not appearing to be clearly within private ownership
are presumed to belong to the State. Accordingly, public
lands not shown to have been reclassified or released as
alienable agricultural land, or alienated to a private person
by the State, remain part of the inalienable public domain.
The burden of proof in overcoming the presumption of State
ownership of the lands of the public domain is on the person
applying for registration (or claiming ownership), who must
prove that the land subject of the application is alienable or
disposable. To overcome this presumption, incontrovertible
evidence must be established that the land subject of the
application (or claim) is alienable or disposable. 28
In Republic v. Sarmiento, 29 this Court reiterated the earlier
ruling in Menguito v. Republic 30 that the notation made by a
surveyor-geodetic engineer that the property surveyed is
alienable and disposable is not the positive government act
that would remove the property from the inalienable domain.
Neither it is the evidence accepted as sufficient to controvert
the presumption that the property is inalienable:
To discharge the onus, respondent relies on the blue print
copy of the conversion and subdivision plan approved by the
DENR Center which bears the notation of the surveyor-
geodetic engineer that "this survey is inside the alienable
and disposable area, Project No. 27-B. L.C. Map No. 2623,
certified on January 3, 1968 by the Bureau of Forestry."
Menguito v. Republic teaches, however, that reliance on
such a notation to prove that the lot is alienable is
insufficient and does not constitute incontrovertible evidence
to overcome the presumption that it remains part of the
inalienable public domain.
"To prove that the land in question formed part of the
alienable and disposable lands of the public domain,
petitioners relied on the printed words which read: "This
survey plan is inside Alienable and Disposable Land Area,
Project No. 27-B as per L.C. Map No. 2623, certified by the
Bureau of Forestry on January 3, 1968," appearing on Exhibit
"E" (Survey Plan No. Swo-13-000227).
This proof is not sufficient. Section 2, Article XII of the 1987
Constitution, provides: "All lands of the public domain,
waters, minerals, coal, petroleum, and other mineral oils, all
forces of potential energy, fisheries, forests or timber,
wildlife, flora and fauna, and other natural resources are
owned by the State. . . ."
For the original registration of title, the applicant (petitioners
in this case) must overcome the presumption that the land
sought to be registered forms part of the public domain.
Unless public land is shown to have been reclassified or
alienated to a private person by the State, it remains part of
the inalienable public domain. Indeed, "occupation thereof in
the concept of owner, no matter how long, cannot ripen into
ownership and be registered as a title." To overcome such
presumption, incontrovertible evidence must be shown by
the applicant. Absent such evidence, the land sought to be
registered remains inalienable.
In the present case, petitioners cite a surveyor geodetic
engineer’s notation in Exhibit "E" indicating that the survey
was inside alienable and disposable land. Such notation does
not constitute a positive government act validly changing
the classification of the land in question.
Verily, a mere surveyor has no authority to reclassify lands
of the public domain. By relying solely on the said surveyor’s
assertion, petitioners have not sufficiently proven that the
land in question has been declared alienable." 31 (Citations
omitted and underscoring supplied)
Therefore, even if Espinosa’s application may not be
dismissed due to his failure to present the original tracing
cloth of the survey plan, there are numerous grounds for its
denial. The blueprint copy of the advanced survey plan may
be admitted as evidence of the identity and location of the
subject property if: (a) it was duly executed by a licensed
geodetic engineer; (b) it proceeded officially from the Land
Management Services (LMS) of the DENR; and (c) it is
accompanied by a technical description of the property
which is certified as correct by the geodetic surveyor who
conducted the survey and the LMS of the DENR. As ruled in
Republic v. Guinto-Aldana,32 the identity of the land, its
boundaries and location can be established by other
competent evidence apart from the original tracing cloth
such as a duly executed blueprint of the survey plan and
technical description:
Yet if the reason for requiring an applicant to adduce in
evidence the original tracing cloth plan is merely to provide
a convenient and necessary means to afford certainty as to
the exact identity of the property applied for registration and
to ensure that the same does not overlap with the
boundaries of the adjoining lots, there stands to be no
reason why a registration application must be denied for
failure to present the original tracing cloth plan, especially
where it is accompanied by pieces of evidence—such as a
duly executed blueprint of the survey plan and a duly
executed technical description of the property—which may
likewise substantially and with as much certainty prove the
limits and extent of the property sought to be registered. 33
However, while such blueprint copy of the survey plan may
be offered as evidence of the identity, location and the
boundaries of the property applied for, the notation therein
may not be admitted as evidence of alienability and
disposability. In Republic v. Heirs of Juan Fabio, 34 this Court
enumerated the documents that are deemed relevant and
sufficient to prove that the property is already outside the
inalienable public domain as follows:
In Republic v. T.A.N. Properties, Inc., we ruled that it is not
enough for the Provincial Environment and Natural
Resources Office (PENRO) or CENRO to certify that a land is
alienable and disposable. The applicant for land registration
must prove that the DENR Secretary had approved the land
classification and released the land of the public domain as
alienable and disposable, and that the land subject of the
application for registration falls within the approved area per
verification through survey by the PENRO or CENRO. In
addition, the applicant must present a copy of the original
classification of the land into alienable and disposable, as
declared by the DENR Secretary, or as proclaimed by the
President. Such copy of the DENR Secretary’s declaration or
the President’s proclamation must be certified as a true copy
by the legal custodian of such official record.1âwphi1 These
facts must be established to prove that the land is alienable
and disposable.35 (Citation omitted)
Based on the foregoing, it appears that Espinosa cannot
avail the benefits of either Section 14(1) of P.O. No. 1529 in
relation to Section 48(b) of the PLA or Section 14(2) of P.O.
No. 1529. Applying Section 14(1) of P.O. No. 1529 and
Section 48(b) of the PLA, albeit improper, Espinosa failed to
prove that: (a) Isabel's possession of the property dated
back to June 12, 1945 or earlier; and (b) the property is
alienable and disposable. On the other hand, applying
Section 14(2) of P.O. No. 1529, Espinosa failed to prove that
the property is patrimonial. As to whether Espinosa was able
to prove that his possession and occupation and that of
Isabel were of the character prescribed by law, the resolution
of this issue has been rendered unnecessary by the
foregoing considerations.
WHEREFORE, premises considered, the petition is GIVEN
DUE COURSE and GRANTED. The Decision dated November
11, 2004 and Resolution dated February 13, 2006 of the
Court of Appeals in CA-G.R. CV No. 72456 are REVERSED and
SET ASIDE and Domingo Espinosa's application for
registration of title over Lot No. 8499 of Cad. 545-D (New)
located at Barangay Cabangahan, Consolacion, Cebu is
hereby DENIED for lack of merit. No pronouncement as to
costs.
SO ORDERED.
G.R. No. 193618, November 28, 2016
HEIRS OF LEOPOLDO DELFIN AND SOLEDAD DELFIN,
NAMELY EMELITA D. FABRIGAR AND LEONILO C.
DELFIN, Petitioners, v. NATIONAL HOUSING
AUTHORITY, Respondent.
DECISION
LEONEN, J.:
Under Commonwealth Act No. 141, a claimant may acquire
alienable and disposable public land upon evidence of
exclusive and notorious possession of the land since June 12,
1945. The period to acquire public land by acquisitive
prescription under Presidential Decree No. 1529 begins to
run only after the promulgation of a law or a proclamation by
the President stating that the land is no longer intended for
public use or the development of national wealth.

This resolves a Petition for Review on Certiorari 1 under Rule
45 of the 1997 Rules of Civil Procedure praying that the
assailed February 26, 2010 Decision 2 and July 2, 2010
Resolution3 of the Court of Appeals in CA-G.R. CV No. 80017
be reversed, and that the May 20, 2002 Decision 4 of the
Regional Trial Court in Civil Case No. II-1801 be reinstated.
The Regional Trial Court's May 20, 2002 Decision awarded
compensation to Leopoldo and Soledad Delfin (Delfin
Spouses) for an Iligan City property subsequently occupied
by respondent National Housing Authority.
The assailed Court of Appeals Decision reversed the Regional
Trial Court's May 20, 2002 Decision and dismissed the Delfin
Spouses' complaint seeking compensation. The assailed
Court of Appeals Resolution denied their Motion for
Reconsideration.
In a Complaint for "Payment of Parcel(s) of Land and
Improvements and Damages"5 the Delfin Spouses claimed
that they were the owners of a 28,800 square meter parcel
of land in Townsite, Suarez, Iligan City (the "Iligan
Property").6 They allegedly bought the property in 1951 from
Felix Natingo and Carlos Carbonay, who, allegedly, had been
in actual possession of the property since time
immemorial. 7 The Delfin Spouses had been declaring the
Iligan Property in their names for tax purposes since
1952,8 and had been planting it with mangoes, coconuts,
corn, seasonal crops, and vegetables. 9
They farther alleged that, sometime in 1982, respondent
National Housing Authority forcibly took possession of a
10,798 square meter portion of the property. 10 Despite their
repeated demands for compensation, the National Housing
Authority failed to pay the value of the property. 11 The Delfin
Spouses thus, filed their Complaint. 12
They asserted that the property's reasonable market value
was not less than P40 per square meter 13 and that its
improvements consisting of fruit-bearing trees should be
valued at P13,360.00 at the time of taking. 14 They similarly
claimed that because the National Housing Authority
occupied the property, they were deprived of an average net
yearly income of P10,000.00.15
In its Answer,16 the National Housing Authority alleged that
the Delfin Spouses' property was part of a military
reservation area.17 It cited Proclamation No. 2151 (actually,
Proclamation No. 2143, the National Housing Authority made
an erroneous citation) as having supposedly reserved the
area in which property is situated for Iligan City's slum
improvement and resettlement program, and the relocation
of families who were dislocated by the National Steel
Corporation's five-year expansion program. 18
According to the National Housing Authority, Proclamation
No. 2151 also mandated it to determine the improvements'
valuation. 19 Based on the study of the committee it created,
the value of the property was supposedly only P4.00 per
square meter, regardless of the nature of the improvements
on it.20
It emphasized that among all claimants, only the Delfin
Spouses and two others remained unpaid because of their
disagreement on the property's valuation. 21
The National Housing Authority failed to appear during the
pre-trial conference. 22 Upon the Delfin Spouses' motion, the
Regional Trial Court declared the National Housing Authority
in default.23 The case was set for the ex-parte reception of
the Delfin Spouses' evidence. 24
On May 20, 2002, the Regional Trial Court rendered a
Decision in favor of the Delfin Spouses. 25cralawred The
dispositive portion of the Decision read:
chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, and by virtue of the
existence of preponderance of evidence, the Court hereby
enters a judgment in favor of spouses-plaintiffs Leopoldo
Delfin and Soledad Delfin against defendant National
Housing Authority, its agents or representative/s ordering to
pay the former the following, to wit:
 
1) P400,000.00 representing the reasonable market
value of a portion of the land taken by the
defendant containing an area of 10,000 square
meters at the rate of P40.00 per square meters
plus legal interest per annum from the filing in
Court of the complaint until fully paid;
2) P13,360.00 representing the value of the
permanent improvements that were damaged and
destroyed plus legal interest per annum from the
time of the filing of this case until fully paid;
3) P10,000.00, representing attorney's fees;
4) The costs of this suit. 26
The Regional Trial Court stated that it had no reason to
doubt the evidence presented by the Delfin Spouses:
chanRoblesvirtualLawlibrary
On this regards (sic), the Court finds no reason to doubt the
veracity of the plaintiff['s evidence], there being none to
controvert the same. If said. evidence did not ring true, the
defendant should have and could have easily destroyed their
probatory value. Such indifference can only mean that
defendant had not (sic) equitable rights to protect or assert
over the disputed property together with all the
improvements existing thereon. This, the defendant did not
do so and the Court finds no cogent reasons to disbelieve or
reject the plaintiffs categorical declarations on the witness
stand under a solemn oath, for the same are entitled to full
faith and credence. Indeed, if the defendant National
Housing Authority have been blinded with the consequence
of their neglect and apathy, then defendant have no right to
pass on to the spouses-plaintiffs of their negligence and
expect the Court to come to their rescue. For it is now much
too late in the day to assail the decision which has become
final and executory.27ChanRoblesVirtualawlibrary
The National Housing Authority filed a Motion for
Reconsideration, but this was denied in the Regional trial
Court's September 10, 2002 Resolution. 28
On the National Housing Authority's appeal, the Court of
Appeals rendered the assailed February 26, 2010 Decision
reversing the Regional Trial Court:29
WHEREFORE, the appeal is GRANTED. The assailed Decision
is REVERSED and SET ASIDE. Consequently, appellees'
complaint for compensation is DISMISSED for lack of merit.
The property taken by appellant NHA and for which
compensation is sought by appellees is hereby DECLARED
land of the public domain. 30ChanRoblesVirtualawlibrary
The Court of Appeals ruled that the characterization of the
property is no longer an issue because the National Housing
Authority already conceded that the property is disposable
public land by citing Proclamation No. 2151, which
characterized the property as "a certain disposable parcel of
public land."31 However, the Delfin Spouses supposedly failed
to establish their possession of the property since June 12,
1945, as required in Section 48(b) of the Public Land Act. 32
During the pendency of their petition before the Court of
Appeals. Both Leopoldo and Soledad Delfin both passed
away. Lepoldo passed away on February 3, 2005 and
Soledad on June 22, 2004. Their surviving heirs, Emelita D.
Fabrigar and Leonilo C. Delfin filed a Motion for Substitution
before the Court of Appeals, which was not acted upon. 33
In its assailed July 2, 2010 Resolution, 34 the Court of Appeals
denied the Motion for Reconsideration filed by the heirs of
the Delfin Spouses.
Hence, this petition which was filed by the surviving heirs of
the Delfin Spouses, Emelita D. Fabrigar and Leonilo C. Delfin
(petitioners).35
For resolution is the issue of whether petitioners are entitled
to just compensation for the Iligan City property occupied by
respondent National Housing
Authority.chanroblesvirtuallawlibrary
I
The right to be justly compensated whenever private
property is taken for public use cannot be disputed. Article
III, Section 9 of the 1987 Constitution states that
Section 9. Private property shall not be taken for public use
without just compensation.ChanRoblesVirtualawlibrary
The case now hinges on whether the petitioners and their
predecessors-in-interests have been in possession of the
Iligan Property for such duration and under such
circumstances as will enable them to claim ownership.
Petitioners argue that they and their predecessors-in-
interests' open, continuous, exclusive, and notorious
possession of the Iligan Property for more than 30
years converted the property from public to private. 36 They
then posit that they acquired ownership of the property
through acquisitive prescription under Section 14(2) of
Presidential Decree No. 1529.37
Petitioners also assert that the Court of Appeals disregarded
certifications and letters from government agencies, which
support their claims, particularly, their and their
predecessors-in-interest's possession since June 12, 1945.38
Respondent counters, citing the Court of Appeals Decision,
that petitioners cannot rely on'Section 14(2) of Presidential
Decree No. 1529 because the property was not yet declared
private land when they filed their
Complaint.39chanroblesvirtuallawlibrary
II
Petitioners are erroneously claiming title based on
acquisitive prescription under Section 14(2) of Presidential
Decree No. 1529.
Section 14 reads in full:
chanRoblesvirtualLawlibrary
Section 14. Who may apply. The following persons may file
in the proper Court of First Instance an application for
registration of title to land, whether personally or through
their duly authorized representatives:
(1) Those who by themselves or through their
predecessors-in-interest have been in open,
continuous, exclusive and notorious possession
and occupation of alienable and disposable lands
of the public domain under a bona fide claim of
ownership since June 12, 1945, or earlier.
(2) Those who have acquired ownership of private
lands by prescription under the provision of
existing laws.
(3) Those who have acquired ownership of private
lands or abandoned river beds by right of
accession or accretion under the existing laws.
(4) Those who have acquired ownership of land in any
other manner provided for by law.
Where the land is owned in common, all the co-owners shall
file the application jointly.
Where the land has been sold under pacto de retro, the
vendor a retro may file an application for the original
registration of the land, provided, however, that should the
period for redemption expire during the pendency of the
registration proceedings and ownership to the property
consolidated in the vendee a retro, the latter shall be
substituted for the applicant and may continue the
proceedings.
A trustee on behalf of his principal may apply for original
registration of any land held in trust by him, unless
prohibited by the instrument creating the trust. [Emphasis
supplied]ChanRoblesVirtualawlibrary
For acquisitive prescription to set in pursuant to Section
14(2) of Presidential Decree No. 1529, two (2) requirements
must be satisifled: first, the property is established to be
private in character; and second the applicable prescriptive
period under existing laws had passed.
Property - such as land - is either of public dominion or
private ownership.40
"Land is considered of public dominion if it either: (a) is
intended for public use; or (b) belongs to the State, without
being for public use, and is intended for some public service
or for the development of the national wealth." 41 Land that
belongs to the state but which is not or is no longer intended
for public use, for some public service or for the
development of the national wealth, is patrimonial
property;42 it is property owned by the State in
its private capacity. Provinces, cities, and municipalities may
also hold patrimonial lands. 43
Private property "consists of all property belonging to private
persons, either individually or collectively," 44 as well as "the
patrimonial property of the State, provinces, cities, and
municipalities."45
Accordingly, only publicly owned lands which are patrimonial
in character are susceptible to prescription under Section
14(2) of Presidential Decree No. 1529. Consistent with this,
Article 1113 of Civil Code demarcates properties of the state,
which are not patrimonial in character, as being not
susceptible to prescription:
chanRoblesvirtualLawlibrary
Art. 1113. All things which are within the commerce of men
are susceptible of prescription, unless provided. Property of
the State or any of its subdivisions not patrimonial in
character shall not be the object of
prescription.ChanRoblesVirtualawlibrary
Contrary to petitioners' theory then, for prescription to be
viable, the publicly-owned land must be patrimonial or
private in character at the onset. Possession for thirty (30)
years does not convert it into patrimonial property.
For land of the public domain to be converted into
patrimonial property, there must be an express declaration -
"in the form of a law duly enacted by Congress or a
Presidential Proclamation in cases where the President is
duly authorized by law"46 - that "the public dominion
property is no longer intended for public service or the
development of the national wealth or that the property has
been converted into patrimonial." 47
This Court's 2009 Decision in Heirs of Malabanan v.
Republic48 explains:
chanRoblesvirtualLawlibrary
Nonetheless, Article 422 of the Civil Code states that
"[p]roperty of public dominion, when no longer intended for
public use or for public service, shall form part of the
patrimonial property of the State". It is this provision that
controls how public dominion property may be converted
into patrimonial properly susceptible to acquisition by
prescription. After all, Article 420 (2) makes clear that those
property "which belong to the State, without being for public
use, and are intended for some public service or for the
development of the national wealth" are public dominion
property. For as long as the property belongs to the State,
although already classified as alienable or disposable, it
remains property of the public dominion if when * it is
"intended for some public service or for the development of
the national wealth".
Accordingly, there must be an express declaration by the
State that the public dominion property is no longer intended
for public service or the development of the national wealth
or that the property has been converted into patrimonial.
Without such express declaration, the property, even if
classified as alienable or disposable, remains property of the
public dominion, pursuant to Article 420 (2), and thus
incapable of acquisition by prescription. It is only when such
alienable and disposable lands are expressly declared by the
State to be no longer intended for public service or for the
development of the national wealth that the period of
acquisitive prescription can begin to run. Such declaration
shall be in the form of a law duly enacted by Congress or a
Presidential Proclamation in cases where the President is
duly authorized by law.49ChanRoblesVirtualawlibrary
This was reiterated in this Court's 2013 Resolution in Heirs of
Malabanan v. Republic:50
[W]hen public land is no longer intended for public service or
for the development of the national wealth, thereby
effectively removing the land from the ambit of public
dominion, a declaration of such conversion must be made in
the form of a law duly enacted by Congress or by a
Presidential proclamation in cases where the President is
duly authorized by law to that
effect.51ChanRoblesVirtualawlibrary
Attached to the present Petition was a copy of a May 18,
1988 supplemental letter to the Director of the Land
Management Bureau.52 This referred to an executive order,
which stated that petitioners' property was no longer needed
for any public or quasi-public purposes:
chanRoblesvirtualLawlibrary
th
That it is very clear in the 4  Indorsement of the Executive
Secretary dated April 24, 1954 the portion thereof that will
not be needed for any public or quasi-public purposes, be
disposed in favor of the actual occupants under the
administration of the Bureau of Lands (copy of the Executive
Order is herewith attached for ready
reference)53ChanRoblesVirtualawlibrary
However, a mere indorsement of the executive secretary is
not the law or presidential proclamation required for
converting land of the public domain into patrimonial
property and rendering it susceptible to prescription. There
then was no viable declaration rendering the Iligan property
to have been patrimonial property at the onset. Accordingly,
regardless of the length of petitioners' possession, no title
could vest on them by way of
prescription.chanroblesvirtuallawlibrary
III
While petitioners may not claim title by prescription, they
may, nevertheless, claim title pursuant to Section 48 (b) of
Commonwealth Act No. 141 (the Public Land Act).
Section 48 enabled the confirmation of claims and issuance
of titles in favor of citizens occupying or claiming to own
lands of the public domain or an interest therein. Section 48
(b) specifically pertained to those who "have been in open,
continuous, exclusive, and notorious possession and,
occupation of agricultural lands of the public domain, under
a bona fide claim of acquisition or ownership, since June 12,
1945":
chanRoblesvirtualLawlibrary
Sec. 48. The following-described citizens of the Philippines,
occupying lands of the public domain or claiming to own any
such lands or an interest therein, but whose titles have not
been perfected or completed, may apply to the Court of First
Instance of the province where the land is located for
confirmation of their claims and the issuance of a certificate
of title therefor under the Land Registration Act, to wit:
(b) Those who by themselves or through their
predecessors-in-interest have been in open,
continuous, exclusive, and notorious possession
and, occupation of agricultural lands of the public
domain, under a bona fide claim of acquisition or

ownership, since June 12, 1945, immediately
preceding the filing of the application for
confirmation of title, except when prevented by
war or force majeure. These shall be conclusively
presumed to have performed all the conditions
essential to a government grant and shall be
entitled to a certificate of title under the provisions
of this chapter. (As amended by PD 1073.)
Section 48(b) of the Public Land Act therefore requires that
two (2) requisites be satisfied before claims of title to public
domain lands may be confirmed: first, that the land subject
of the claim is agricultural land; and second, open,
continuous, notorious, and exclusive possession of the land
since June 12, 1945.
The need for the land subject of the claim to have been
classified as agricultural is in conformity with the
constitutional precept that "[a]lienable lands of the public
domain shall be limited to agricultural lands." 54 As explained
in this Court's 2013 Resolution in Heirs of Malabanan v.
Republic:
chanRoblesvirtualLawlibrary
Whether or not land of the public domain is alienable and
disposable primarily rests on the classification of public lands
made under the Constitution. Under the 1935 Constitution,
lands of the public domain were classified into three,
namely, agricultural, timber and mineral. Section 10, Article
XTV of the 1973 Constitution classified lands of the public
domain into seven, specifically, agricultural, industrial or
commercial, residential, resettlement, mineral, timber or
forest, and grazing land, with the reservation that the law
might provide other classifications. The 1987 Constitution
adopted the classification under the 1935 Constitution into
agricultural, forest or timber, and mineral, but added
national parks. Agricultural lands may be further classified
by law according to the uses to which they may be devoted.
The identification of lands according to their legal
classification is done exclusively by and through a positive
act of the Executive Department.
Based on the foregoing, the Constitution places a limit on the
type of public land that may be alienated. Under Section 2,
Article XII of the 1987 Constitution, only agricultural lands of
the public domain may be alienated; all other natural
resources may not be.
Alienable and disposable lands of the State fall into two
categories, to wit: (a) patrimonial lands of the State, or those
classified as lands of private ownership under Article 425 of
the Civil Code, without limitation; and (b) lands of the public
domain, or the public lands as provided by the Constitution,
but with the limitation that the lands must only be
agricultural. Consequently, lands classified as forest or
timber, mineral, or national parks are not susceptible of
alienation or disposition unless they are reclassified as
agricultural. A positive act of the Government is necessary to
enable such reclassification, and the exclusive prerogative to
classify public lands under existing laws is vested in the
Executive Department, not in the
courts.55ChanRoblesVirtualawlibrary
As the Court of Appeals emphasized, respondent has
conceded that the Iligan property was alienable and
disposable land:
chanRoblesvirtualLawlibrary
As to the first requirement: There was no need for appellees claimed by respondent. In a letter 62 to the Director of Lands,
to establish that the property involved was alienable and dated December 22, 1987, Deputy Public Land Inspector Pio
disposable public land. This characterization of the property Lucero, Jr. noted that:
is conceded by [respondent] who cites Proclamation No. chanRoblesvirtualLawlibrary
2151 as declaring that the disputed property was a certain That this land known as Lot No. 5258, Cad. 292, Iligan
disposable parcel of public land. 56ChanRoblesVirtualawlibrary Cadastre which portion was claimed also by the Human
That the Iligan property was alienable and disposable, Settlement and/or National Housing Authority; but the area
agricultural land, has been admitted. What is claimed applied for by Leopoldo Delfin is outside the claim of the said
instead is that petitioners' possession is debunked by how agency as per certification issued dated June 10, 1988; copy
the Iligan Property was supposedly part of a military of which is herewith attached for ready
reservation area57 which was subsequently reserved for reference;63ChanRoblesVirtualawlibrary
Iligan City's slum improvement and resettlement program, The same letter likewise indicated that the Iligan Property
and the relocation of families who were dislocated by the was already occupied by June 1945 and that it had even
National Steel Corporation's five-year expansion program. 58 been released for agricultural purposes in favor of its
occupants.64 Accordingly, the Deputy Public Land Inspector
Indeed, by virtue of Proclamation No. 2143 (erroneously recommended the issuance of a patent in favor of petitioner
referred to by respondent as Proclamation No. 2151) certain Leopoldo Delfin:65
parcels of land in Barrio Suarez, Iligan City were reserved for Upon investigation conducted by the undersigned in the
slum-improvement and resettlement program premises of the land, it was found and ascertained that the
purposes.59 The proclamation characterized the covered area land applied for by Leopoldo Delfrn was first entered,
as "disposable parcel of public land": occupied, possessed and cultivated by him since the year
chanRoblesvirtualLawlibrary June, 1945 up to the present; he have already well improved
WHEREAS, a certain disposable parcel of public land situated the land and introduced some considerable improvements
at Barrio Suarez, Iligan City consisting of one million one such as coconut trees and different kinds of fruit trees which
hundred seventy-four thousand eight hundred fifty-three are presently all fruit bearing trees; declared the same for
(1,174,853) square meters, more or less, has been chosen taxation purposes and taxes have been paid every year; and
by National Steel Corporation and the City Government of that there is no other person or persons who bothered him in
Iligan with the conformity of the National Housing/Authority, his peaceful occupation and cultivation
as the most suitable site for the relocation of the families to thereof;chanrobleslaw
be affected/dislocated as a result of National Steel
Corporation's program and for the establishment of a slum Records of this Office show that said land was surveyed and
improvement and resettlement project in the City of claimed by the Military Reservation, but the portion of which
Iligan;60ChanRoblesVirtualawlibrary has been released in favor of the actual occupants and the
However, even if the Iligan Property was subsumed by area of Leopoldo Delfin is one of the portions released for
Proclamation No. 2143, the same proclamation recognized agricultural purposes;
private rights, which may have already attached, and the
rights of qualified free patent applicants: ....
That the applicant caused the survey of the land under Sgs-
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of 12-000099, approved by the Regional Land Director, Region
the Philippines, by virtue of the powers vested in me by law, XII, Bureau of Lands, Cotabato City on April 3, 1979 (see
do hereby reserve for relocation of the families to be approved plan attached hereof);chanrobleslaw
affected/dislocated by the 5-year expansion program of the
National Steel Corporation and for the slum improvement In view hereof, it is therefore respectfully recommended that
and resettlement project of the City of Iligan under the the entry of the application be now confirmed and that
administration and disposition of the National Housing patent be yes issued in favor of Leopoldo
Authority, subject to private rights, if any there be, Lot 5258 Delfin.66ChanRoblesVirtualawlibrary
(portion) of the Iligan Cadastre, which parcel of land is of the A May 18, 1988 supplemental letter to the Director of the
public domain, situated in Barrio Suarez, City of Iligan and Land Management Bureau further stated:
more particularly described as follows: chanRoblesvirtualLawlibrary
That the land applied for by Leopoldo Delfin is a portion of
.... Lot No. 5258, Cad. 292, Iligan Cadastre which was entered,
occupied and possessed by the said applicant since the year
This Proclamation is subject to the condition that the June 1945 up to the present; well improved the same and
qualified free patent applicants occupying portions of the introduced some considerable improvements such as
aforedescribed parcel of land, if any, may be compensated different kinds of fruit trees, coconut trees and other
for the value of their respective portions and existing permanent improvements thereon;chanrobleslaw
improvements thereon, as may be determined by the
National Housing Authority. 61ChanRoblesVirtualawlibrary ....
Whatever rights petitioners (and their predecessors-in-
interest) may have had over the Iligan property was, thus, That is very clear in the 4th Indorsement of the Executive
not obliterated by Proclamation No. 2143. On the contrary, Secretary dated April 24, 1954 the portion thereof that will
the Proclamation itself facilitated compensation. not be needed for any public or quasi-public purposes, be
disposed in favor of the actual occupants under the
More importantly, there is documentary evidence to the administration of the Bureau of
effect that the Iligan Property was not even within the area Lands[.]67ChanRoblesVirtualawlibrary
Clearly then, petitioners acquired title over the Iligan
Property pursuant to Section 48(b) of the Public Land Act.
First, there is no issue that the Iligan Property had already
been declared to be alienable and disposable land.
Respondent has admitted this and Deputy Public Land
Inspector Pio Lucero, Jr.'s letters to the Director of Land
attest to this.
Second, although the Delfin Spouses' testimonial evidence
and tax declarations showed that their possession went only
as far back as 1952, Deputy Public Land Inspector Pio
Lucero, Jr.'s letters to the Director of Land nevertheless
attest to a previous finding that the property had already
been occupied as early as June 1945.
Having shown that the requisites of Section 48(b) of the
Public Land Act have been satisfied and having established
their rights to the Iligan Property, it follows that petitioners
must be compensated for its taking.
WHEREFORE, the Petition is GRANTED. The assailed Court
of Appeals Decision dated February 26, 2010 and Resolution
dated July 2, 2010 in CA-G.R. CV No. 80017 are REVERSED
and SET ASIDE. The Regional Trial Court's Decision dated
May 20, 2002 in Civil Case No. II-1801 is REINSTATED.
SO ORDERED.
G.R. No. 214367
REPUBLIC OF THE PHILIPPINES, Petitioner
vs
LAUREANA MALIJAN-JAVIER AND IDEN MALIJAN-JAVIER,
Respondents
DECISION
LEONEN, J.:
To establish that the land sought to be registered is
alienable and disposable, applicants must "present a copy of
the original classification approved by the [Department of
Environment and Natural Resources] Secretary and certified
as a true copy by the legal custodian of the official records." 1
This is a Petition for Review on Certiorari2 under Rule 45 of
the 1997 Rules of Civil Procedure, praying that the
September 15, 2014 Decision 3 of the Court of Appeals in CA-
G.R. CV No. 98466 be reversed and set aside. 4 The Court of
Appeals affirmed the May 5, 2011 Decision 5 and December
9, 2011.0rder6 of the Municipal Circuit Trial Court of Talisay-
Laurel, Batangas in Land Reg. ·Case No. 09-001 (LRA Record
No. N-79691), which adjudicated Lot No. 1591, Cad. 729,
Talisay Cadastre in favor of Laureana Malijan-Javier
(Laureana) and Iden Malijan-Javier (Iden). 7
This case involves Laureana and Iden's application for
registration of land title over a parcel situated in Barangay
Tranca, Talisay, Batangas filed in June 2009 before the
Municipal Circuit Trial Court of Talisay-Laurel, Batangas. The
land, regarded as Lot No. 1591, Cad. 729, Talisay Cadastre,
had an area of 9,629 square meters. The application of
Laureana and Iden was docketed as Land Registration Case
No. 09-001 (LRA Record No. N- 79691).8
On September 10, 2009, Republic of the Philippines
(Republic) filed an Opposition to the application based on the
following grounds:
(1) Ne[i]ther the applicants nor their predecessors-in-interest
have been in open, continuous, exclusive and notorious
possession and occupation of the land in question in the
concept of an owner since June 12, 1945 or earlier; (2) The
tax declarations relied upon by appellees do not constitute
competent and sufficient evidence of a bona fide acquisition
of the land by the appellees; and (3) The parcel of land
applied for is a land of public domain and, as such, not
subject to private appropriation.9
An initial hearing was scheduled on January 19, 2010. During
the hearing, several documents were marked to show
compliance with the necessary jurisdictional requirements.
Since nobody appeared to oppose Laureana and Iden's
application, the trial court issued an Order of General Default
against the whole world except the Republic. 10
In the subsequent hearings, Laureana and Iden presented
testimonial and documentary evidence to establish their
ownership claim. 11 Laureana testified along with Juana
Mendoza Banawa (Banawa), Ben Hur Hernandez
(Hernandez), Loida Maglinao (Maglinao), and Glicerio R.
Canarias (Canarias). 12
In her testimony, Laureana alleged that she was married to
Cecilio Javier (Cecilio) and that Iden was their son. She
claimed that she and Cecilio (the Spouses Javier) purchased
the property from Spouses Antonio Lumbres and Leonisa
Manaig (the Spouses Lumbres) on October 10, 1985. A Deed
of Absolute Sale was executed to facilitate the transaction.
They had the property fenced and planted with coconut,
antipolo, and duhat. She also claimed that they had paid its
property taxes since 1986. 13
Banawa, a resident of Barangay Tranca, Talisay, Batangas
since her birth on March 8, 1929, 14 testified that Cito Paison
(Cito) and Juan Paison (Juan) owned the property as early as
1937. The half portion owned by Cito was later transferred to
his daughter, Luisa Paison (Luisa). Both portions owned by
Luisa and Juan were then transferred to the Spouses
Lumbres, until half was finally sold to the Spouses Javier and
the other half to their son, Iden. 15 Banawa added that since
every person in their barangay knew that Laureana and Iden
owned and possessed the property, nobody interrupted or
disturbed their possession or made an adverse claim against
them. 16 Thus, their possession was "open, continuous,
exclusive, and in the concept of an owner[.]" 17
Hernandez, who was a Special Land Investigator I of the
Department of Environment and Natural Resources-
Comnunity Environment and Natural Resources Office
(DENR-CENRO), testified that he was the one who conducted
an ocular inspection on the land. 18 He found that the land
"ha[d] not been forfeited in favor of the government for non-
payment of taxes [or] . . . confiscated as bond in connection
with any civil or criminal case." 19 Moreover, the land was
outside a reservation or forest zone. Hernandez also found
that no prior application was filed or any patent, decree, or
title was ever issued for it. 20 Finally, he stated that the land"[
did] not encroach upon an established watershed, river bed,
river bank protection, creek or right of way." 21
Maglinao, Forester I of DENR-CENRO, 22 also testified that she
inspected the property before issuing a certification, which
stated that the land "[was] within the alienable and
disposable zone under Project No. 39, Land Classification
Map No. 3553 certified on September 10, 1997."23
Meanwhile, Canarias, the Municipal Assessor of Talisay,
Batangas, attested that the property was covered by Tax
Declaration Nos. 014-01335 and 014-00397 under the
names of Laureana and Cecilio, and of Iden. Upon tracing
back the tax declarations on the property, Canarias also
found that the previous owners who declared the land for
taxation purposes were the same as the previous owners
according to Laureana's and Iden's testimonies. The previous
tax declarations of the property now covered by Tax
Declaration No. 014-01335 were under the names of Luisa
and the Spouses Lumbres while Tax Declaration No. 014-
00397 were previously under the names of Juan and the
Spouses Lumbres.24
On May 5, 2011, the trial court rendered a Decision granting
Laureana and Iden's application for registration of title. It
held that they were able to establish that the property was
alienable and disposable since September 10, 1997 and that
" [they] and their predecessors-in-interest ha[ d] been in
open, continuous, exclusive, and notorious possession of the
subject property, in the concept of an owner, even prior to
12 June 1945."25 The dispositive portion of the Decision read:
WHEREFORE, upon confirmation of the Order of General
Default, the Court hereby adjudicates and decrees Lot No.
1591, Cad-729 Talisay Cadastre as shown on plan As-04-
003630 situated in Barangay Tranca, Municipality of Talisay,
Province of Batangas, with an area of NINE THOUSAND SIX
HUNDRED TWENTY[-]NINE (9,629) SQUARE METERS in favor
of and in the name of LAUREANA MALIJAN JAVIER (1/2
SHARE), widow, Filipino, with address at Barangay Tranca,
Talisay, Batangas, and IDEN MALIJAN JAVIER (1/2 SHARE),
married to Jaena Buno, Filipino, with address at 39-31 56 th St
Apt 3, Woodside, New York, USA in accordance with
Presidential Decree No. 1529, otherwise known as the
Property Registration Decree.
Once this decision has become final, let an Order be issued
directing the Administrator of the Land Registration
Authority to issue the corresponding decree of registration.
SO ORDERED.26
The Republic moved for reconsideration, which was denied
by the trial court in its December 9, 2011 Order.27
The Republic elevated the case to the Court of Appeals,
assailing the May 5, 2011 Decision and December 9, 2011
Order of the Municipal Circuit Trial Court. 28 It averred that
there should be "(1) [a] CENRO or [Provincial Environment
and Natural Resources Office] Certification; and (2) a copy of
the original classification approved by the DENR Secretary
and certified as a true copy by the legal custodian of the
official records" attached to the application for title
registration. It added that Laureana and Iden failed to attach
the second requirement. 29 It also argued that they failed to
prove that "they and their predecessors-in-interest ha[d]
been in open, continuous, exclusive, and notorious
possession and occupation [of the property] under a bona
fide claim of ownership since June 12, 1945 or earlier." 30
On September 15, 2014, the Court of Appeals promulgated a
Decision31 dismissing the Republic's appeal and affirming the
Decision and Order of the Municipal Circuit Trial Court. It
ruled that although Laureana and Iden failed to present a
copy of the DENR Secretary-approved original classification
stating that the property was alienable and disposable,
"there [was] substantial compliance to the
requirement[s]." 32 It gave credence to the testimony of
Hernandez, Special Land Investigator I of DENR-CENRO, who
stated that the property was not patented, decreed, or
titled.33 Hernandez also identified his written report on the
property, which stated that:
(1) [T]he entire area is within the alienable and disposable
zone as classified under Project No. 39, L.C. Map No. 3553
released and certified as such on September 10, 1997; (2)
the land has never been forfeited in favor of the government
for non-payment of taxes; (3) it is not inside the forest zone
or forest reserve or unclassified public forest; (4) the land
does not form part of a bed or navigable river, streams, or
creek.34
The Court of Appeals also gave weight to the testimony of
Maglinao, Forester I of DENR-CENRO, who said that she
inspected the property before issuing a certificate classifying
the property as alienable and disposable "under Project No.
39, Land Classification Map No. 3553 certified on 10
September 1997."35
Furthermore, the property's Survey Plan contained an
annotation by DENR Regional Technical Director Romeo P.
Verzosa, stating that the property was within an alienable
and disposable area. The Court of Appeals held that the
annotation could be regarded as substantial compliance with
the requirement that the property should be alienable and
disposable, especially since it coincided with Hernandez's
report and Maglinao's testimony. 36
Finally, the Court of Appeals found that Laureana and Iden
were able to prove their predecessors-in-interest's
possession of property since 1937 and their possession since
1985 as evidenced by the tax declarations.37
The dispositive portion of the Court of Appeals Decision
read: WHEREFORE, in view of the foregoing premises, the
instant appeal is hereby ordered DISMISSED, and the
appealed Decision rendered on 5 May 2011 and Order dated
9 December 2011 by the Fourth Judicial Region of the
Municipal Circuit Trial Court in Talisay-Laurel, Batangas in
Land Reg. Case No. 09-001 (LRA Record No. N-79691)
are AFFIRMED. Without costs.
38
SO ORDERED.  (Emphasis in the original)
On November 25, 2014, the Republic filed a Petition for
Review39 before this Court against Laureana and Iden.
Petitioner argues that the application for land registration
should have been dismissed by the trial court considering
that it was not accompanied by "a copy of the original
classification approved by the Department of Environment
and Natural Resources (DENR) Secretary and certified as
true copy by its legal custodian."40 It avers that a CENRO
Certification is not sufficient to prove the land's classification
as alienable and disposable. 41 Moreover, the rule on
substantial compliance is applied pro hac vice in the cases
of Republic v. Vega and Republic v. Serrano, upon which the
Court of Appeals heavily relied.42
Petitioner contends that respondents' acts of fencing and
planting transpired only after they purchased the property in
1985. Banawa also failed to mention in her testimony that
respondents' predecessors-in-interest occupied, developed,
maintained, or cultivated the property, which could have
shown that the former owners possessed the property by
virtue of a bona fide ownership claim. Lastly, the tax
declarations presented by respondents only date back to
1948 as the earliest year of possession.43
On April 21, 2015, respondents filed their Comment. 44 They
counter that they were able to prove substantial compliance
when they presented Maglinao's Certification and
Hernandez's report. The Survey Plan also stated that the
land was in an alienable and disposable zone. They also
point out that the Land Registration Authority did not
question the classification of the property, despite notice of
the application. 45
Respondents maintain that their and their predecessors-in-
interest's possession had been "open, continuous, exclusive
and notorious ... under a bona fide claim of ownership since
June 12, 1945 or earlier," 46 as supported by Banawa's
testimony. Although they admit that the earliest tax
declaration was dated 1948, they seek the application of this
Court's ruling in Sps. Llanes v. Republic, where this Court
held that "tax declarations and receipts . . . coupled with
actual possession ... constitute evidence of great weight and
can be the basis of a claim of ownership through
prescription." 47
On April 18, 2016, petitioner filed its Reply. 48 It asserts that
land registration applicants should strictly comply with the
requirements in proving that the land is alienable and
disposable. It maintains that for failing to submit the
required document, respondents' application should have
been denied.49 Petitioner also insists that Banawa's
testimony and the tax declarations are not sufficient to
prove that respondents' and their predecessors-in-interest's
possession and occupation of the property were "open,
continuous, exclusive, and notorious ... under a bona
fide claim of ownership, since June 12, 1945 or earlier." 50
This Court resolves the sole issue of whether or not the trial
court and the Court of Appeals erred in granting Laureana
Malijan-Javier and Iden Malijan-Javier's application for
registration of property.
Land registration is governed by Section 14 of Presidential
Decree No. 1529 or the Property Registration Decree, which
states:
Section 14. Who may apply. -The following persons may file
in the proper Court of First Instance an application for
registration of title to land, whether personally or through
their duly authorized representatives:
(1)Those who by themselves or through their predecessors-
in- interest have been in open, continuous, exclusive and
notorious possession and occupation of alienable and
disposable lands of the public domain under a bona
fide claim of ownership since June 12, 1945, or earlier.
(2) Those who have acquired ownership of private lands by
prescription under the provisions of existing laws.
(3) Those who have acquired ownership of private lands or
abandoned river beds by right of accession or accretion
under the existing laws.
(4) Those who have acquired ownership of land m any other
manner provided for by law.
Where the land is owned in common, all the co-owners shall
file the application jointly.
Where the land has been sold under pacto de retro, the
vendor a retro may file an application for the original
registration of the land, provided, however, that should the
period for redemption expire during the pendency of the
registration proceedings and ownership to the property
consolidated in the vendee a retro, the latter shall be
substituted for the applicant and may continue the
proceedings.
A trustee on behalf of his principal may apply for original
registration of any land held in trust by him, unless
prohibited by the instrument creating the trust. 51 (Emphasis
supplied)
Applicants whose circumstances fall under Section 14(1)
need to establish only the following:
[F]irst, that the subject land forms part of the disposable and
alienable lands of the public domain; second, that the
applicant and his predecessors-in-interest have been in
open, continuous, exclusive and notorious possession and
occupation of the [land]; and third, that it is under
a bonafide claim ownership since June 12, 1945, or earlier. 52
To satisfy the first requirement of Section 14(1), petitioner
argues that both a CENRO or Provincial Environment and
Natural Resources Office (PENRO) certification and a certified
true copy of a DENR Secretary-approved certificate should
be obtained to prove that the land is alienable and
disposable. 53
Petitioner's contention has merit.
It is well-settled that a CENRO or PENRO certification is not
enough to establish that a land is alienable and
disposable. 54 It should be "accompanied by an official
publication of the DENR Secretary's issuance declaring the
land alienable and disposable." 55 In Republic v. T.A.N.
Properties :56
[I]t is not enough for the PENRO or CENRO to certify that a
land is alienable and disposable.1âwphi1 The applicant for
land registration must prove that the DENR Secretary had
approved the land classification and released the land of the
public domain as alienable and disposable, and that the land
subject of the application for registration falls within the
approved area per verification through survey by the PENRO
or CENRO. In addition, the applicant for land registration
must present a copy of the original classification approved
by the DENR Secretary and certified as a true copy by the
legal custodian of the official records. These facts must be
established to prove that the land is alienable and
disposable. 57 (Emphasis supplied)
In Republic v. Lualhati: 58
[I]t has been repeatedly ruled that certifications issued by
the CENRO, or specialists of the DENR, as well as Survey
Plans prepared by the DENR containing annotations that the
subject lots are alienable, do not constitute incontrovertible
evidence to overcome the presumption that the property
sought to be registered belongs to the inalienable public
domain. Rather, this Court stressed the importance of
proving alienability by presenting a copy of the original
classification of the land approved by the DENR Secretary
and certified as true copy by the legal custodian of the
official records. 59 (Emphasis supplied, citation omitted)
The certification issued by the DENR Secretary is necessary
since he or she is the official authorized to approve land
classification, including the release of land from public
domain. 60 As thoroughly explained in Republic v.
Spouses Go:61
[A]n applicant has the burden of proving that the public land
has been classified as alienable and disposable. To do this,
the applicant must show a positive act from the government
declassifying the land from the public domain and converting
it into an alienable and disposable land. "[T]he exclusive
prerogative to classify public lands under existing laws is
vested in the Executive Department." In Victoria v. Republic:
To prove that the land subject of the application for
registration is alienable, an applicant must establish the
existence of a positive act of the government such as a
presidential proclamation or an executive order; an
administrative action; investigation reports of Bureau of
Lands investigators; and a legislative act or statute. The
applicant may secure a certification from the government
that the lands applied for are alienable and disposable,
but the certification must show that the DENR Secretary had
approved the land classification and released the land of the
pub[l]ic domain as alienable and disposable[.]
Section X(1) of the DENR Administrative Order No. 1998-24
and Section IX(l) of DENR Administrative Order No. 2000-11
affirm that the DENR Secretary is the approving authority for
"[l]and classification and release of lands of the public
domain as alienable and disposable." Section 4.6 of DENR
Administrative Order No. 2007-20 defines land classification
as follows:
Land classification is the process of demarcating,
segregating, delimiting and establishing the best category,
kind, and uses of public lands. Article XII, Section 3 of the
1987 Constitution of the Philippines provides that lands of
the public domain are to be classified into agricultural, forest
or timber, mineral lands, and national parks.
These provisions, read with Victoria v. Republic, establish
the rule that before an inalienable land of the public domain
becomes private land, the DENR Secretary must first
approve the land classification into an agricultural land and
release it as alienable and disposable. The DENR Secretary's
official acts "may be evidenced by an official publication
thereof or by a copy attested by the officer having legal
custody of the record, or by his deputy."
The CENRO or the Provincial Environment and Natural
Resources Officer will then conduct a survey to verify that
the land for original registration falls within the DENR
Secretary-approved alienable and disposable zone.
The CENRO certification is issued only to verify the DENR
Secretary issuance through a survey[.] 62 (Emphasis in the
original, citations omitted)
In this case, although respondents were able to present a
CENRO certification, a DENR-CENRO report with the
testimony of the DENR officer who made the report, and the
survey plan showing that the property is already considered
alienable and disposable, these pieces of evidence are still
not sufficient to prove that the land sought to be registered
is alienable and disposable. Absent the DENR Secretary's
issuance declaring the land alienable and disposable, the
land remains part of the public domain.
Thus, even if respondents have shown, through their
testimonial evidence, that they and their predecessors-in-
interest have been in open, continuous, exclusive, and
notorious possession and occupation of the property since
June 12, 1945, they still cannot register the land for failing to
establish that the land is alienable and disposable.
All things considered, this Court finds that the Court of
Appeals committed a reversible error in affirming the May 5,
2011 Decision and December 9, 2011 Order of the Municipal
Circuit Trial Court of Talisay-Laurel, Batangas, which granted
the land registration application of respondents.
WHEREFORE, the Petition is GRANTED. The Court of
Appeals September 15, 2014 Decision in CA-G.R. CV No.
98466, which affirmed the May 5, 2011 Decision and
December 9, 2011 Order of the Municipal Circuit Trial Court,
is REVERSED and SET ASIDE. Laureana Malijan-Javier and
Iden Malijan-Javier's application for registration of Lot No.
1591, Cad. 729, Talisay Cadastre is DENIED for lack of
merit.
SO ORDERED.
G.R. No. 194260
HEIRS OF FELICIANO YAMBAO, namely: CHONA
YAMBAO, JOEL YAMBAO, WILLY YAMBAO, LENNIE
YAMBAO and RICHARD YAMBAO, and all other persons
acting under their authority, Petitioners,
vs.
HEIRS OF HERMOGENES YAMBAO, namely: ELEANOR
YAMBAO, ALBERTO YAMBAO, DOMINIC YAMBAO,
ASESCLO YAMBAO, GERALD DANTIC and MARIA PILAR
YAMBAO, who are all represented by their Attorney-
in-Fact, MARIA PILAR YAMBAO, Respondents.
RESOLUTION
REYES, J.:
This is a petition for review on certiorari1 under Rule 45 of
the Rules of Court seeking to annul and set aside the
Decision2 dated October 22, 2010 issued by the Court of
Appeals (CA) in CA-G.R. CV No. 92755, which reversed and
set aside the Decision dated December 23, 2008 of the
Regional Trial Court (RTC) of Iba, Zambales, Branch 69, in
SP. Civil Case No. RTC-88-I.
Facts
The subject of this case is a parcel of land located in
Barangay Bangan, Botolan, Zambales, which was originally
possessed by Macaria De Ocampo (Macaria). Macaria's
nephew, Hermogenes Yambao (Hermogenes ), acted as the
administrator of the property and paid realty taxes therefor.
Hermogenes has eight children, namely: Ulpiano, Dominic,
Teofilo, Feliciano, Asesclo, Delia, Amelia, and Melinda, all
surnamed Yambao.3
After Hermogenes died, it was claimed that all of his heirs
were free to pick and harvest from the fruit-bearing trees
planted on the subject property. Eleanor Yambao (Eleanor),
Ulpiano's daughter, even constructed a house on the subject
property. However, sometime in 2005, the communal and
mutual use of the subject property by the heirs of
Hermogenes ceased when the heirs of Feliciano, herein
petitioners, prohibited them from entering the property. The
heirs of Feliciano even ejected Eleanor from the subject
property.4
This prompted the heirs of Hermogenes, herein respondents,
to file with the RTC a complaint for partition, declaration of
nullity of title/documents, and damages against the heirs of
Feliciano. The heirs of Hermogenes alleged that they and the
heirs of Feliciano are co-owners of the subject property,
having inherited the right thereto from Hermogenes. 5
The heirs of Feliciano denied the allegations of the heirs of
Hermogenes and claimed that their father, Feliciano, was in
possession of the subject property in the concept of owner
since time immemorial. Accordingly, Feliciano was awarded
a free patent thereon for which Original Certificate of Title
(OCT) No. P-10737 was issued. They also averred that the
cause of action in the complaint filed by the heirs of
Hermogenes, which questioned the validity of OCT No. P-
10737, prescribed after the lapse of one year from its
issuance on November 29, 1989.6
Ruling of the RTC
On December 23, 2008, the RTC rendered a Decision
dismissing the complaint filed by the heirs of Hermogenes.
The RTC opined that the heirs of Hermogenes failed to show
that the subject property is owned by Macaria, stating that
tax declarations and receipts in Macaria's name are not
conclusive evidence of ownership. The RTC further held that
even if Macaria owned the subject property, the heirs of
Hermogenes failed to show that Hermogenes had the right
to succeed over the estate of Macaria.
Ruling of the CA
On appeal,. the CA, in its Decision 7 dated October 22, 2010,
reversed and set aside the RTC's Decision dated December
23, 2008. The CA found that the RTC, in hastily dismissing
the complaint for partition, failed to determine first whether
the subject property is indeed co-owned by the heirs of
Hermogenes and the heirs of Feliciano. The CA pointed out
that:
[A] review of the records of the case shows that in Feliciano's
application for free patent, he acknowledged that the source
of his claim of possession over the subject property was
Hermogenes's possession of the real property in peaceful,
open, continuous, and adverse manner and more
importantly, in the concept of an owner, since 1944.
Feliciano's claim of sole possession in his application for free
patent did not therefore extinguish the fact of co-ownership
as claimed by the children of Hermogenes. 8 (Citation
omitted and emphasis deleted)
Accordingly, the CA, considering that the parties are co-
owners of the subject property, ruled that the RTC should
have conducted the appropriate proceedings for partition. 9
Aggrieved, the heirs of Feliciano filed with the Court this
petition for review alleging that the CA erred in ruling that
there is co-ownership between them and the heirs of
Hermogenes. The heirs of Feliciano likewise averred that the
CA also erred in ordering the partition of the subject property
since it amounts to a collateral attack on the validity of OCT
No. P-10737. 10
Ruling of the Court
The petition is denied.
As pointed out by the CA, the R TC overlooked the fact that
the subject property is co-owned by the parties herein,
having inherited the same from Hermogenes. Feliciano's free
patent application indicated that he merely tacked his
possession of the subject property from Hermogenes, his
father, who held the property in peaceful, open, continuous,
and adverse manner in the concept of an owner since 1944.
This is an implicit recognition of the fact that Feliciano
merely co-owns the subject property with the other heirs of
Hermogenes. Indeed, the heirs of Feliciano have not
presented any evidence that would show that Hermogenes
bequeathed the subject property solely to Feliciano.
A co-ownership is a form of trust, with each owner being a
trustee for each other. Mere actual possession by one will
not give rise to the inference that the possession was
adverse because a co-owner is, after all, entitled to
possession of the property. Thus, as a rule, prescription does
not run in favor of a co-heir or co-owner as long as he
expressly or impliedly recognizes the co-ownership; and he
cannot acquire by prescription the share of the other co-
owners, absent a clear repudiation of the co-ownership. An
action to demand partition among co-owners is
imprescriptible, and each co-owner may demand at any time
the partition of the common property. 11
Prescription may nevertheless run against a co-owner if
there is adverse, open, continuous and exclusive possession
of the co-owned property by the other co-owner/s.1âwphi1 In
order that a co-owners possession may be deemed adverse
to the cestui que trust or other co-owners, the following
requisites must concur: (1) that he has performed
unequivocal acts of repudiation amounting to an ouster of
the cestui que trust or other co-owners; (2) that such
positive acts of repudiation have been made known to
the cestui que trust or other co-owners; and (3) that the
evidence thereon must be clear and convincing. 12
The issuance of the certificate of title would constitute an
open and clear repudiation of any trust. 13 In such a case, an
action to demand partition among co-owners prescribes in
10 years, the point of reference being the date of the
issuance of certificate of title over the property. But this rule
applies only when the plaintiff is not in possession of the
property, since if a person claiming to be the owner thereof
is in actual possession of the property, the right to demand
partition does not prescribe. 14
Although OCT No. P-10737 was registered in the name of
Feliciano on November 29, 1989, the prescriptive period
within which to demand partition of the subject property,
contrary to the claim of the heirs of Feliciano, did not begin
to run. At that time, the heirs of Hermogenes were still in
possession of the property. It was only in 2005 that the heirs
of Feliciano expressly prohibited the heirs of Hermogenes
from entering the property. Thus, as aptly ruled by the CA,
the right of the heirs of Hermogenes to demand the partition
of the property had not yet prescribed. Accordingly, the RTC
committed a reversible error when it dismissed the
complaint for partition that was filed by the heirs of
Hermogenes.
There is likewise no merit to the claim that the action for
partition filed by the heirs of Hermogenes amounted to a
collateral attack on the validity of OCT No. P-10737. The
complaint for partition filed by the heirs of Hermogenes
seeks first, a declaration that they are a co-owners of the
subject property, and second, the conveyance of their lawful
shares. The heirs of Hermogenes do not attack the title of
Feliciano; they alleged no fraud, mistake, or any other
irregularity that would justify a review of the registration
decree in their favor. Their theory is that although the
subject property was registered solely in Feliciano's name,
they are co-owners of the property and as such is entitled to
the conveyance of their shares. On the premise that they are
co-owners, they can validly seek the partition of the property
in co-ownership and the conveyance to them of their
respective shares. 15
Moreover, when Feliciano registered the subject property in
his name, to the exclusion of the other heirs of Hermogenes,
an implied trust was created by force of law and he was
considered a trustee of the undivided shares of the other
heirs of Hermogenes in the property. As trustees, the heirs of
Feliciano cannot be permitted to repudiate the trust by
relying on the registration. 16 "A trustee who obtains a
Torrens title over a property held in trust for him by another
cannot repudiate the trust by relying on the registration." 17
WHEREFORE, in light of the foregoing disquisitions, the
petition is hereby DENIED. The Decision dated October 22,
2010 issued by the Court of Appeals in CA-G.R. CV No. 92755
is AFFIRMED.
SO ORDERED.

G.R. No. 175444               December 14, 2011
JAIME ABALOS and SPOUSES FELIX SALAZAR and
CONSUELO SALAZAR, GLICERIO ABALOS, HEIRS OF
AQUILINO ABALOS, namely: SEGUNDA BAUTISTA,
ROGELIO ABALOS, DOLORES A. ROSARIO, FELICIDAD
ABALOS, ROBERTO ABALOS, JUANITO ABALOS, TITA
ABALOS, LITA A. DELA CRUZ AND HEIRS OF AQUILINA
ABALOS, namely: ARTURO BRAVO, PURITA B.
MENDOZA, LOURDES B. AGANON, CONSUELO B.
SALAZAR, PRIMA B. DELOS SANTOS, THELMA
APOSTOL and GLECERIO ABALOS, Petitioners,
vs.
HEIRS OF VICENTE TORIO, namely: PUBLIO TORIO,
LIBORIO TORIO, VICTORINA TORIO, ANGEL TORIO,
LADISLAO TORIO, PRIMO TORIO and NORBERTO
TORIO, Respondents.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari seeking
to set aside the Decision 1 dated June 30, 2006 and
Resolution2 dated November 13, 2006 by the Court of
Appeals (CA) in CA-G.R. SP No. 91887. The assailed Decision
reversed and set aside the Decision 3 dated June 14, 2005 of
the Regional Trial Court (RTC) of Lingayen, Pangasinan,
Branch 69, while the questioned Resolution denied
petitioners' Motion for Reconsideration.
The factual and procedural antecedents of the case are as
follows:
On July 24, 1996, herein respondents filed a Complaint for
Recovery of Possession and Damages with the Municipal
Trial Court (MTC) of Binmaley, Pangasinan against Jaime
Abalos (Jaime) and the spouses Felix and Consuelo Salazar.
Respondents contended that: they are the children and heirs
of one Vicente Torio (Vicente) who died intestate on
September 11, 1973; at the time of the death of Vicente, he
left behind a parcel of land measuring 2,950 square meters,
more or less, which is located at San Isidro Norte, Binmaley,
Pangasinan; during the lifetime of Vicente and through his
tolerance, Jaime and the Spouses Salazar were allowed to
stay and build their respective houses on the subject parcel
of land; even after the death of Vicente, herein respondents
allowed Jaime and the Spouses Salazar to remain on the
disputed lot; however, in 1985, respondents asked Jaime and
the Spouses Salazar to vacate the subject lot, but they
refused to heed the demand of respondents forcing
respondents to file the complaint.4
Jaime and the Spouses Salazar filed their Answer with
Counterclaim, denying the material allegations in the
Complaint and asserting in their Special and Affirmative
Defenses that: respondents' cause of action is barred by
acquisitive prescription; the court a quo has no jurisdiction
over the nature of the action and the persons of the
defendants; the absolute and exclusive owners and
possessors of the disputed lot are the deceased
predecessors of defendants; defendants and their
predecessors-in-interest had been in actual, continuous and
peaceful possession of the subject lot as owners since time
immemorial; defendants are faithfully and religiously paying
real property taxes on the disputed lot as evidenced by Real
Property Tax Receipts; they have continuously introduced
improvements on the said land, such as houses, trees and
other kinds of ornamental plants which are in existence up to
the time of the filing of their Answer. 5
On the same date as the filing of defendants' Answer with
Counterclaim, herein petitioners filed their Answer in
Intervention with Counterclaim. Like the defendants, herein
petitioners claimed that their predecessors-in-interest were
the absolute and exclusive owners of the land in question;
that petitioners and their predecessors had been in
possession of the subject lot since time immemorial up to
the present; they have paid real property taxes and
introduced improvements thereon.6
After the issues were joined, trial ensued.
On December 10, 2003, the MTC issued a Decision, the
dispositive portion of which reads as follows:
WHEREFORE, in view of the foregoing consideration[s], the
Court adjudged the case in favor of the plaintiffs and against
the defendants and defendants-intervenors are ordered to
turn over the land in question to the plaintiffs (Lot Nos. 869
and 870, Cad. 467-D. Binmaley Cadastre located in Brgy.
San Isidro Norte, Binmaley, Pangasinan with an area of 2,950
sq. m., more or less, bounded and described in paragraph 3
of the Complaint[)]; ordering the defendants and defendants-
intervenors to remove their respective houses standing on
the land in dispute; further ordering the defendants and
defendants-intervenors, either singly or jointly to pay the
plaintiffs land rent in the amount of ₱12,000.00 per year to
be reckoned starting the year 1996 until defendants and
defendants-intervenors will finally vacate the premises;
furthermore, defendants and defendants-intervenors are
also ordered to pay, either singly or jointly, the amount of
₱10,000.00 as and by way of attorney's fees and costs of
suit.
SO ORDERED.7
Jaime and the Spouses Salazar appealed the Decision of the
MTC with the RTC of Lingayen, Pangasinan. 8 Herein
petitioners, who were intervenors, did not file an appeal.
In its Decision dated June 14, 2005, the RTC ruled in favor of
Jaime and the Spouses Salazar, holding that they have
acquired the subject property through prescription.
Accordingly, the RTC dismissed herein respondents'
complaint.
Aggrieved, herein respondents filed a petition for review with
the CA assailing the Decision of the RTC.
On June 30, 2006, the CA promulgated its questioned
Decision, the dispositive portion of which reads, thus:
WHEREFORE, the petition is GRANTED. The Decision dated
June 14, 2005 of the Regional Trial Court, Branch 69,
Lingayen, Pangasinan is hereby REVERSED and SET ASIDE.
In its stead, a new one is entered reinstating the Decision
dated December 10, 2003 of the Municipal Trial Court of
Binmaley, Pangasinan.
SO ORDERED.9
Jaime and the Spouses Salazar filed a Motion for
Reconsideration, but the same was denied by the CA in its
Resolution dated November 13, 2006.
Hence, the instant petition based on a sole assignment of
error, to wit:
THE COURT OF APPEALS ERRED IN NOT APPRECIATING THAT
THE PETITIONERS HEREIN ARE NOW THE ABSOLUTE AND
EXCLUSIVE OWNERS OF THE LAND IN QUESTION BY VIRTUE
OF ACQUISITIVE PRESCRIPTION.10
The main issue raised by petitioners is whether they and
their predecessors-in-interest possessed the disputed lot in
the concept of an owner, or whether their possession is by
mere tolerance of respondents and their predecessors-in-
interest. Corollarily, petitioners claim that the due execution
and authenticity of the deed of sale upon which respondents'
predecessors-in-interest derived their ownership were not
proven during trial.
The petition lacks merit.
Preliminarily, the Court agrees with the observation of
respondents that some of the petitioners in the instant
petition were the intervenors 11 when the case was filed with
the MTC. Records would show that they did not appeal the
Decision of the MTC.12 The settled rule is that failure to
perfect an appeal renders the judgment final and
executory.13 Hence, insofar as the intervenors in the MTC are
concerned, the judgment of the MTC had already become
final and executory.
It also bears to point out that the main issue raised in the
instant petition, which is the character or nature of
petitioners' possession of the subject parcel of land, is
factual in nature.
Settled is the rule that questions of fact are not reviewable in
petitions for review on certiorari under Rule 45 of the Rules
of Court.14 Section 1 of Rule 45 states that petitions for
review on certiorari "shall raise only questions of law which
must be distinctly set forth."
Doubtless, the issue of whether petitioners possess the
subject property as owners, or whether they occupy the
same by mere tolerance of respondents, is a question of
fact. Thus, it is not reviewable.
Nonetheless, the Court has, at times, allowed exceptions
from the abovementioned restriction. Among the recognized
exceptions are the following:
(a) When the findings are grounded entirely on
speculation, surmises, or conjectures;
(b) When the inference made is manifestly
mistaken, absurd, or impossible;
(c) When there is grave abuse of discretion;
(d) When the judgment is based on a process.27
misapprehension of facts;
(e) When the findings of facts are conflicting;
(f) When in making its findings the CA went
beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant
and the appellee;
(g) When the CA’s findings are contrary to those
by the trial court;
(h) When the findings are conclusions without
citation of specific evidence on which they are
based;
(i) When the facts set forth in the petition as well
as in the petitioner’s main and reply briefs are not
disputed by the respondent;
(j) When the findings of fact are premised on the
supposed absence of evidence and contradicted
by the evidence on record; or
(k) When the CA manifestly overlooked certain
relevant facts not disputed by the parties, which, if
properly considered, would justify a different
conclusion.15
In the present case, the findings of fact of the MTC and the
CA are in conflict with those of the RTC.
After a review of the records, however, the Court finds that
the petition must fail as it finds no error in the findings of
fact and conclusions of law of the CA and the MTC.
Petitioners claim that they have acquired ownership over the
disputed lot through ordinary acquisitive prescription.
Acquisitive prescription of dominion and other real rights
may be ordinary or extraordinary. 16 Ordinary acquisitive
prescription requires possession in good faith and with just
title for ten (10) years.17 Without good faith and just title,
acquisitive prescription can only be extraordinary in
character which requires uninterrupted adverse possession
for thirty (30) years.18
Possession "in good faith" consists in the reasonable belief
that the person from whom the thing is received has been
the owner thereof, and could transmit his ownership. 19 There
is "just title" when the adverse claimant came into
possession of the property through one of the modes
recognized by law for the acquisition of ownership or other
real rights, but the grantor was not the owner or could not
transmit any right. 20
In the instant case, it is clear that during their possession of
the property in question, petitioners acknowledged
ownership thereof by the immediate predecessor-in-interest
of respondents. This is clearly shown by the Tax Declaration
in the name of Jaime for the year 1984 wherein it contains a
statement admitting that Jaime's house was built on the land
of Vicente, respondents' immediate predecessor-in-
interest.21 Petitioners never disputed such an
acknowledgment. Thus, having knowledge that they nor
their predecessors-in-interest are not the owners of the
disputed lot, petitioners' possession could not be deemed as
possession in good faith as to enable them to acquire the
subject land by ordinary prescription. In this respect, the
Court agrees with the CA that petitioners' possession of the
lot in question was by mere tolerance of respondents and
their predecessors-in-interest. Acts of possessory character
executed due to license or by mere tolerance of the owner
are inadequate for purposes of acquisitive
prescription.22 Possession, to constitute the foundation of a
prescriptive right, must be en concepto de dueño, or, to use
the common law equivalent of the term, that possession
should be adverse, if not, such possessory acts, no matter
how long, do not start the running of the period of
prescription.23
Moreover, the CA correctly held that even if the character of
petitioners' possession of the subject property had become
adverse, as evidenced by their declaration of the same for
tax purposes under the names of their predecessors-in-
interest, their possession still falls short of the required
period of thirty (30) years in cases of extraordinary
acquisitive prescription. Records show that the earliest Tax
Declaration in the name of petitioners was in 1974.
Reckoned from such date, the thirty-year period was
completed in 2004. However, herein respondents' complaint
was filed in 1996, effectively interrupting petitioners'
possession upon service of summons on them. 24 Thus,
petitioners’ possession also did not ripen into ownership,
because they failed to meet the required statutory period of
extraordinary prescription.
This Court has held that the evidence relative to the
possession upon which the alleged prescription is based,
must be clear, complete and conclusive in order to establish
the prescription. 25 In the present case, the Court finds no
error on the part of the CA in holding that petitioners failed
to present competent evidence to prove their alleged good
faith in neither possessing the subject lot nor their adverse
claim thereon. Instead, the records would show that
petitioners' possession was by mere tolerance of
respondents and their predecessors-in-interest.1avvphi1
Finally, as to the issue of whether the due execution and
authenticity of the deed of sale upon which respondents
anchor their ownership were not proven, the Court notes
that petitioners did not raise this matter in their Answer as
well as in their Pre-Trial Brief. It was only in their Comment
to respondents' Petition for Review filed with the CA that
they raised this issue. Settled is the rule that points of law,
theories, issues, and arguments not adequately brought to
the attention of the trial court need not be, and ordinarily will
not be, considered by a reviewing court. 26 They cannot be
raised for the first time on appeal. To allow this would be
offensive to the basic rules of fair play, justice and due
Even granting that the issue of due execution and
authenticity was properly raised, the Court finds no cogent
reason to depart from the findings of the CA, to wit:
xxxx
Based on the foregoing, respondents [Jaime Abalos and the
Spouses Felix and Consuelo Salazar] have not inherited the
disputed land because the same was shown to have already
been validly sold to Marcos Torio, who, thereupon, assigned
the same to his son Vicente, the father of petitioners [herein
respondents]. A valid sale was amply established and the
said validity subsists because the deed evidencing the same
was duly notarized.
There is no doubt that the deed of sale was duly
acknowledged before a notary public. As a notarized
document, it has in its favor the presumption of regularity
and it carries the evidentiary weight conferred upon it with
respect to its due execution. It is admissible in evidence
without further proof of its authenticity and is entitled to full
faith and credit upon its face.28
Indeed, settled is the rule in our jurisdiction that a notarized
document has in its favor the presumption of regularity, and
to overcome the same, there must be evidence that is clear,
convincing and more than merely preponderant; otherwise,
the document should be upheld. 29 In the instant case,
petitioners' bare denials will not suffice to overcome the
presumption of regularity of the assailed deed of sale.
WHEREFORE, the petition is DENIED. The assailed Decision
and Resolution of the Court of Appeals in CA-G.R. SP No.
91887 are AFFIRMED.
SO ORDERED.
The Spouses Supapo then filed a criminal case 11 against the
respondents for violation of Presidential Decree No. 772 or
the Anti-Squatting Law.12 The trial court convicted the
respondents. The dispositive portion of the decision reads:
same parties; (2) the complaint for accion publiciana is
barred by statute of limitations; and (3) the Spouses
Supapo's cause of action is barred by prior judgment.
The MeTC Ruling23

G.R. No. 198356, April 20, 2015
ESPERANZA SUPAPO AND THE HEIRS OF ROMEO
SUPAPO, NAMELY: ESPERANZA, REX EDWARD,
RONALD TROY, ROMEO, JR., SHEILA LORENCE, ALL
SURNAMED SUPAPO, AND SHERYL FORTUNE SUPAPO-
SANDIGAN, Petitioners, v. SPOUSES ROBERTO AND
SUSAN DE JESUS, MACARIO BERNARDO, AND THOSE
PERSONS CLAIMING RIGHTS UNDER THEM, Respondent.
DECISION
BRION, J.:
We resolve the petition for review on certiorari1 filed by
petitioners Esperanza Supapo and Romeo Supapo 2 (Spouses
Supapo) to assail the February 25, 2011 decision 3 and
August 25, 2011 resolution 4 of the Court of Appeals (CA) in
CA-G.R. SP No. 111674.
Factual Antecedents
The Spouses Supapo filed a complaint 5 for accion
publiciana against Roberto and Susan de Jesus (Spouses de
Jesus), Macario Bernardo (Macario), and persons claiming
rights under them (collectively, the respondents), with the
Metropolitan Trial Court (MeTC) of Caloocan City.
The complaint sought to compel the respondents to vacate a
piece of land located in Novaliches, Quezon City, described
as Lot 40, Block 5 (subject lot). The subject lot is covered by
Transfer Certificate of Title (TCT) No. C-28441 6 registered
and titled under the Spouses Supapo's names. The land has
an assessed value of thirty-nine thousand nine hundred
eighty pesos (39,980.00) as shown in the Declaration of Real
Property Value (tax declaration) issued by the Office of the
City Assessor of Caloocan.7
The Spouses Supapo did not reside on the subject lot. They
also did not employ an overseer but they made sure to visit
at least twice a year.8 During one of their visits in 1992, they
saw two (2) houses built on the subject lot. The houses were
built without their knowledge and permission. They later
learned that the Spouses de Jesus occupied one house while
Macario occupied the other one.9
The Spouses Supapo demanded from the respondents the
immediate surrender of the subject lot by bringing the
dispute before the appropriate Lupong Tagapamayapa.
The Lupon issued a Katibayan Upang Makadulog sa
Hukuman (certificate to file action) for failure of the parties
to settle amicably.10
WHEREFORE, in view of all the foregoing, this Court finds The MeTC denied the motion to set the affirmative defenses
accused ROBERTO DE JESUS, SUSAN DE JESUS and MACARIO for preliminary hearing. It ruled that the arguments
BERNARDO, GUILTY beyond reasonable doubt for Violation of advanced by the respondents are evidentiary in nature,
Presidential Decree No. 772, and each accused is hereby which at best can be utilized in the course of the trial. The
ordered to pay a fine of ONE THOUSAND PESOS MeTC likewise denied the respondents' motion for
(P1,000.00), and to vacate the subject premises. reconsideration.
SO ORDERED.13 (Emphasis supplied.) From the MeTC's ruling, the respondents filed a petition
for certiorari with the RTC.24
14
The respondents appealed their conviction to the CA.  While
the appeal was pending, Congress enacted Republic Act (RA)
The RTC Ruling25
No. 8368, otherwise known as "An Act Repealing Presidential
Decree No. 772," which resulted to the dismissal of the
The RTC granted the petition for certiorari on two
criminal case.15
grounds, viz.: (i) the action has prescribed; and (ii) accion
publiciana falls within the exclusive jurisdiction of the RTC.
On April 30, 1999, the CA's dismissal of the criminal case
became final.16
It held that in cases where the only issue involved is
possession, the MeTC has jurisdiction if the action for forcible
Notwithstanding the dismissal, the Spouses Supapo moved
entry or unlawful detainer is filed within one (1) year from
for the execution of the respondents' civil liability, praying
the time to demand to vacate was made. Otherwise, the
that the latter vacate the subject lot. The Regional Trial
complaint for recovery of possession should be filed before
Court (RTC) granted the motion and issued the writ of
the RTC.
execution. The respondents moved for the quashal of the
writ but the RTC denied the same. The RTC also denied the
The dispositive portion of the RTC decision reads:
respondents' motion for reconsideration.
The respondents thus filed with the CA a petition WHEREFORE, premises considered, the instant petition is
for certiorari to challenge the RTC's orders denying the hereby GRANTED.
quashal of the writ and the respondent's motion for
reconsideration.17 The CA granted the petition and held that The Orders dated October 24, 2008 and February 23, 2009
with the repeal of the Anti-Squatting Law, the respondents' are hereby declared NULL and VOID.
criminal and civil liabilities were extinguished. 18 The
dispositive portion of the decision reads: The Public Respondent is hereby directed to DISMISS Civil
Case No. 08-29245 for lack of jurisdiction.
WHEREFORE, premises considered, the petition for certiorari
SO ORDERED.26
with prayer for injunction is GRANTED. The orders dated
June 5, 2003 and July 24, 2003 of Branch 131 of the Regional
In their motion for reconsideration,27 the Spouses Supapo
Trial Court of Caloocan City in Criminal Case No. C-45610
emphasized that the court's jurisdiction over an action
are REVERSED and SET ASIDE. Said court is hereby
involving title to or possession of land is determined by its
permanently ENJOINED from further executing or
assessed value; that the RTC does not have an exclusive
implementing its decision dated March 18, 1996.
jurisdiction on all complaints for accion publiciana; and that
the assessed value of the subject lot falls within MeTC's
SO ORDERED.
jurisdiction.
The CA, however, underscored that the repeal of the Anti-
The RTC denied the petitioners' motion for reconsideration.
Squatting Law does not mean that people now have
unbridled license to illegally occupy lands they do not own,
It held that although the MeTC had jurisdiction based on the
and that it was not intended to compromise the property
assessed value of the subject lot, the Spouses Supapos'
rights of legitimate landowners. 19 In cases of violation of
cause of action had already prescribed, the action having
their property rights, the CA noted that recourse may be had
been filed beyond the ten (l0)-year prescriptive period under
in court by filing the proper action for recovery of
Article 555 of the Civil Code. 28 As it was not proven when the
possession.
actual demand to vacate was made, the RTC ruled that the
reckoning period by which the ejectment suit should have
The Spouses Supapo thus filed the complaint for action
been filed is counted from the time the certificate to file
publiciana.20
action was issued. The certificate to file action was issued on
November 25, 1992, while the complaint for accion
After filing their Answer,21 the respondents moved to set
publiciana was filed only on March 7, 2008, or more than ten
their affirmative defenses for preliminary hearing 22 and
(10) years thereafter.
argued that: (1) there is another action pending between the
Dissatisfied with the RTC ruling, the Spouses Supapo Accion publiciana is an ordinary civil proceeding to Section 3 of the same law provides:
appealed to the CA.29 determine the better right of possession of realty Section. 3. Section 33 of the same law is hereby amended to
independent of title. It refers to an ejectment suit filed after read as follows:
the expiration of one year from the accrual of the cause of Section. 33. Jurisdiction of Metropolitan Trial Courts,
The CA Ruling30
action or from the unlawful withholding of possession of the Municipal Trial Courts and Municipal Circuit Trial Courts in
realty.34 Civil Cases. - Metropolitan Trial Courts, Municipal Trial
The CA dismissed the appeal and held that the complaint
Courts, and Municipal Circuit Trial Courts shall
for accion publiciana should have been lodged before the
In the present case, the Spouses Supapo filed an action for exercise:
RTC and that the period to file the action had prescribed.
the recovery of possession of the subject lot but they based
their better right of possession on a claim of ownership.
The dispositive portion of the CA decision reads: xxxx
This Court has held that the objective of the plaintiffs
(3) Exclusive original jurisdiction in all civil actions which
WHEREFORE, the appeal is DENIED. The Decision dated in accion publiciana is to recover possession only, not
involve title to, or possession of, real property, or any
June 30, 2009 and Order dated October 19, 2009 ownership. However, where the parties raise the issue of
interest therein where the assessed value of the
are AFFIRMED. ownership, the courts may pass upon the issue to determine
property or interest therein does not exceed Twenty
who between the parties has the right to possess the
thousand pesos (P20,000.00) or, in civil actions in
SO ORDERED property.35
Metro Manila, where such assessed value does not
exceed Fifty thousand pesos (P50,000.00) exclusive of
The Spouses Supapo moved31 but failed32 to secure a This adjudication is not a final determination of the issue of
interest, damages of whatever kind, attorney's fees,
reconsideration of the CA decision; hence, they came to us ownership; it is only for the purpose of resolving the issue of
litigation expenses and costs x x x. (Emphasis supplied.)
through the present petition. possession, where the issue of ownership is inseparably
linked to the issue of possession. The adjudication of the
In view of these amendments, jurisdiction over actions
The Petition issue of ownership, being provisional, is not a bar to an
involving title to or possession of real property is
action between the same parties involving title to the
now determined by its assessed value. 40 The assessed
In seeking reversal of the CA's ruling, the Spouses Supapo property. The adjudication, in short, is not conclusive on the
value of real property is its fair market value multiplied by
essentially argue that: issue of ownership.36
the assessment level. It is synonymous to taxable value. 41
Thus, while we will dissect the Spouses Supapo's claim of
(1) the MeTC exercises exclusive original jurisdiction In Quinagoran v. Court of Appeals,42 we explained:
ownership over the subject property, we will only do so to
over accion publiciana where the assessed value of determine if they or the respondents should have the right of
the property does not exceed P20,000.00, or possession. [D]oes the RTC have jurisdiction over all cases of recovery of
P50,000.00 if the property is located in Metro Manila; possession regardless of the value of the property involved?
and that Having thus determined that the dispute involves possession
(2) prescription had not yet set in because their cause of over a real property, we now resolve which court has the The answer is no. The doctrine on which the RTC anchored
action is imprescriptible under the Torrens system. jurisdiction to hear the case. its denial of petitioner's Motion to Dismiss, as affirmed by the
CA — that all cases of recovery of possession or accion
The Respondents' Case33 Under Batas Pambansa Bilang 129,37 the jurisdiction of the publiciana lies with the regional trial courts regardless of the
RTC over actions involving title to or possession of real value of the property — no longer holds true. As tilings now
The respondents argue that the complaint for accion property is plenary.38 stand, a distinction must be made between those
publiciana was (1) filed in the wrong court; (2) barred by properties the assessed value of which is below
prescription; and (3) barred by res judicata. RA No. 7691,39 however, divested the RTC of a portion of its P20,000.00, if outside Metro Manila; and P50,000.00,
jurisdiction and granted the Metropolitan Trial Courts, if within.43 (Emphasis supplied.)
Issues Municipal Trial Courts and Municipal Circuit Trial Courts the
exclusive and original jurisdiction to hear actions where the In this regard, the complaint must allege the assessed value
The issues for resolution are: assessed value of the property does not exceed Twenty of the real property subject of the complaint or the interest
Thousand Pesos (P20,000.00), or Fifty Thousand Pesos thereon to determine which court has jurisdiction over the
(P50,000.00), if the property is located in Metro Manila. action. This is required because the nature of the action and
I. Whether the MeTC properly acquired jurisdiction; the court with original and exclusive jurisdiction over the
II. Whether the cause of action has prescribed; and Section 1 of RA No. 7691 states: same is determined by the material allegations of the
III. Whether the complaint for accion publiciana is complaint, the type of relief prayed for by the plaintiff, and
barred by res judicata. the law in effect when the action is filed, irrespective of
Section 1. Section 19 of Batas Pambansa Blg. 129, otherwise
whether the plaintiffs are entitled to some or all of the claims
known as the "Judiciary Reorganization Act of 1980," is
asserted therein.44
hereby amended to read as follows:
Our Ruling Section. 19. Jurisdiction in civil cases. - Regional Trial
In the present case, the Spouses Supapo alleged that the
Courts shall exercise exclusive original jurisdiction:
assessed value of the subject lot, located in Metro Manila, is
The petition is meritorious. P39,980.00. This is proven by the tax declaration 45 issued by
(2) In all civil actions which involve the title to,
the Office of the City Assessor of Caloocan. The respondents
We hold that: (1) the MeTC properly acquired jurisdiction; (2) or possession of, real property, or any interest therein,
do not deny the genuineness and authenticity of this tax
the cause of action has not prescribed; and (3) the complaint where the assessed value of the property involved
declaration.
is not barred by res judicata. exceeds Twenty thousand pesos (P20,000.00) or, for
civil actions in Metro Manila, where such value
Given that the Spouses Supapo duly complied with the
Accion Publiciana and exceeds Fifty thousand pesos (P50,000.00) x x x.
jurisdictional requirements, we hold that the MeTC of
the Jurisdiction of the (Emphasis supplied.)
Caloocan properly acquired jurisdiction over the complaint
MeTC for accion publiciana.

The cause of action
has not prescribed
The respondents argue that the complaint for accion
publiciana is dismissible for being filed out of time.
They invoke Article 555 of the Civil Code, which states: Art.
555. A possessor may lose his possession:
xxxx
(4) By the possession of another, subject to the provisions of
Article 537, if the new possession has lasted longer
than one year. But the real right of possession is not
lost till after the lapse of ten years. (Emphasis
supplied.)
The respondents point out that the Spouses Supapo filed the
complaint for accion publiciana on March 7, 2008 or more
than ten (10) years after the certificate to file action was
issued on November 25, 1992. The respondents contend that
the Spouses Supapo may no longer recover possession of
the subject property, the complaint having been filed beyond
the period provided by law.
Further, while the respondents concede that the Spouses
Supapo hold a TCT over the subject property, and assuming
a Torrens title is imprescriptible and indefeasible, they posit
that the latter have lost their right to recover possession
because of laches.
On their part, the Spouses Supapo admit that they filed the
complaint for accion publiciana more than ten (10) years
after the certificate to file action was issued. Nonetheless,
they argue that their cause of action is imprescriptible since
the subject property is registered and titled under the
Torrens system.
We rule that the Spouses Supapo's position is legally correct.
At the core of this controversy is a parcel of land registered
under the Torrens system. The Spouses Supapo acquired the
TCT on the subject lot in 1979. 46 Interestingly, the
respondents do not challenge the existence,
authenticity and genuineness of the Supapo's TCT. 47
In defense, the respondents rest their entire case on the fact
that they have allegedly been in actual, public, peaceful and
uninterrupted possession of the subject property in the
concept of an owner since 1992. The respondents contend
that they built their houses on the subject lot in good faith.
Having possessed the subject lot for more than ten (10)
years, they claim that they can no longer be disturbed in
their possession.48
Under the undisputed facts of this case, we find that the
respondents' contentions have no legal basis.
In a long line of cases, we have consistently ruled that lands
covered by a title cannot be acquired by prescription
or adverse possession. We have also held that a claim of
acquisitive prescription is baseless when the land involved is
a registered land because of Article 1126 49 of the Civil Code
in relation to Act 496 [now, Section 47 of Presidential Decree
(PD) No. 152950].51
With respect to the respondents' defense 59 of laches, suffice
The Spouses Supapo (as holders of the TCT) enjoy a panoply it to say that the same is evidentiary in nature and cannot be
of benefits under the Torrens system. The most essential established by mere allegations in the pleadings. 60 In other
insofar as the present case is concerned is Section 47 of PD words, the party alleging laches must adduce in court
No. 1529 which states: evidence proving such allegation. This Court not being a trier
of facts cannot rule on this issue; especially so since the
lower courts did not pass upon the same.
Section 47. Registered land not subject to prescriptions. No
title to registered land in derogation of the title of the
Thus, without solid evidentiary basis, laches cannot be a
registered owner shall be acquired by prescription or
valid ground to deny the Spouses Supapo's petition. 61 On the
adverse possession.
contrary, the facts as culled from the records show the clear
intent of the Spouses Supapo to exercise their right over and
In addition to the imprescriptibility, the person who holds a
recover possession of the subject lot, viz.: (1) they brought
Torrens Title over a land is also entitled to the possession
the dispute to the appropriate Lupon; (2) they initiated the
thereof.52 The right to possess and occupy the land is an
criminal complaint for squatting; and (3) finally, they filed
attribute and a logical consequence of ownership. 53 Corollary
the action publiciana. To our mind, these acts negate the
to this rule is the right of the holder of the Torrens Title to
allegation of laches.
eject any person illegally occupying their property. Again,
this right is imprescriptible. 54
With these as premises, we cannot but rule that the Spouses
Supapo's right to recover possession of the subject lot is not
In Bishop v. CA,55 we held that even if it be supposed that
barred by prescription.
the holders of the Torrens Title were aware of the other
persons' occupation of the property, regardless of the
The action is not barred
length of that possession, the lawful owners have a right
by prior judgment
to demand the return of their property at any time as long as
the possession was unauthorized or merely tolerated, if at
As a last-ditch effort to save their case, the respondents
all.56
invoke res judicata. They contend that the decision of the CA
in CA-G.R. SP No. 78649 barred the filing of the action
Even if the defendant attacks the Torrens Title because of a
publiciana.
purported sale or transfer of the property, we still rule in
favor of the holder of the Torrens Title if the defendant
To recall, CA-G.R. SP No. 78649 is the petition
cannot adduce, in addition to the deed of sale, a duly-
for certiorari filed by the respondents to challenge the RTC's
registered certificate of title proving the alleged transfer or
issuance of the writ enforcing their civil liability (i.e., to
sale.
vacate the subject property) arising from their conviction
under the Anti-Squatting Law. The CA granted the petition
A case in point is Umpoc v. Mercado57 in which we gave
and permanently enjoined the execution of the respondents'
greater probative weight to the plaintiffs TCT vis-a-vis the
conviction because their criminal liability had been
contested unregistered deed of sale of the defendants.
extinguished by the repeal of the law under which they were
Unlike the defendants in Umpoc, however, the respondents
tried and convicted. It follows that their civil liability arising
did not adduce a single evidence to refute the Spouses
from the crime had also been erased.
Supapo's TCT. With more reason therefore that we uphold
the indefeasibility and imprescriptibility of the Spouses
The respondents' reliance on the principle of res judicata is
Supapo's title.
misplaced.
By respecting the imprescriptibility and indefeasibility of the
Res judicata embraces two concepts: (1) bar by prior
Spouses Supapo's TCT, this Court merely recognizes the
judgment as enunciated in Rule 39, Section 47(b) of the
value of the Torrens System in ensuring the stability of real
Rules of Civil Procedure; and (2) conclusiveness of
estate transactions and integrity of land registration.
judgment in Rule 39, Section 47(c). 62
We reiterate for the record the policy behind the Torrens
"Bar by prior judgment" means that when a right or fact had
System, viz.:
already been judicially tried on the merits and determined by
a court of competent jurisdiction, the final judgment or order
The Government has adopted the Torrens system due to its shall be conclusive upon the parties and those in privity with
being the most effective measure to guarantee the integrity them and constitutes an absolute bar to subsequent actions
of land titles and to protect their indefeasibility once the involving the same claim, demand or cause of action. 63
claim of ownership is established and recognized. If a person
purchases a piece of land on the assurance that the seller's The requisites64 for res judicata under the concept of bar by
title thereto is valid, he should not run the risk of being told prior judgment are:
later that his acquisition was ineffectual after all, which will
not only be unfair to him as the purchaser, but will also
(1) The former judgment or order must be final;
erode public confidence in the system and will force land
transactions to be attended by complicated and not
(2) It must be a judgment on the merits;
necessarily conclusive investigations and proof of ownership.
The further consequence will be that land conflicts can be
(3) It must have been rendered by a court having jurisdiction
even more abrasive, if not even violent. 58
over the subject matter and the parties; and As a final note, we stress that our ruling in this case is which had been bought by the government through Act No.
limited only to the issue of determining who between the 1120 for distribution to its occupants. Antonio had initially
(4) There must be between the first and second parties has a better right to possession. This adjudication is been Lot No. 557's beneficiary, but subsequently assigned
actions, identity of parties, subject matter, and cause not a final and binding determination of the issue of his rights over Lot No. 557 to Alejandro.
of action. ownership. As such, this is not a bar for the parties or even
third persons to file an action for the determination of the Since then, Alejandro possessed Lot No. 557 until his death;
Res judicata is not present in this case. issue of ownership. thereafter, his children and grandchildren continued to
reside in the lot. The present controversy arose when the
While requisites one to three may be present, it is obvious WHEREFORE, premises considered, we GRANT the petition, respondents, claiming to be its registered owners, attempted
that the there is no identity of subject matter, parties and and consequently REVERSE and SET ASIDE the February to eject the petitioners from Lot No. 557.
causes of action between the criminal case prosecuted 25, 2011 decision and August 25, 2011 resolution of the
under the Anti-Squatting Law and the civil action for the Court of Appeals in CA-G.R. SP No. 111674. On January 1993, Mauricia filed before the RTC of Cebu City
recovery of the subject property. Branch 17 a petition for the issuance of a new owner's
SO ORDERED. duplicate of TCT No. 571, which purportedly covers Lot No.
First, there is no identity of parties. The criminal 557. Mauricia claimed to own TCT No. 571, but lost her
complaint, although initiated by the Spouses Supapo, was owner's duplicate during a strong typhoon sometime in
prosecuted in the name of the people of the Philippines. 1946. The RTC, after due hearing, granted Quilaton's petition
The accion publiciana, on the other hand, was filed by and in and directed the issuance of a new owner's duplicate of TCT
the name of the Spouses Supapo. G.R. No. 170671, August 19, 2015 No. 571.

Second, there is no identity of subject matter. The
criminal case involves the prosecution of a crime under the
Anti-Squatting Law while the accion publiciana is an action to
recover possession of the subject property.
And third, there is no identity of causes of action . The
people of the Philippines filed the criminal case to protect
and preserve governmental interests by prosecuting persons
who violated the statute. The Spouses Supapo filed
the accion publiciana to protect their proprietary interests
over the subject property and recover its possession.
Even casting aside the requirement of identity of causes of
action, the defense of res judicata has still no basis.
The concept of "conclusiveness of judgment" does not
require that there is identity of causes of action provided
that there is identity of issue and identity of parties. 65
Under this particular concept of res judicata, any right, fact,
or matter in issue directly adjudicated or necessarily
involved in the determination of an action before a
competent court in which judgment is rendered on the
merits is conclusively settled by the judgment therein and
cannot again be litigated between the parties and their
privies, whether or not the claim, demand, purpose, or
subject matter of the two actions is the same. 66
As already explained, there is no identity of parties between
the criminal complaint under the Anti-Squatting law and the
civil action for accion publiciana. For this reason alone,
"collusiveness of judgment" does not apply.
Even if we assume, for the sake of argument, that there is
identity of parties, "conclusiveness of judgment" still does
not apply because there is no identity of issues. The issue in
the criminal case is whether the respondents (accused
therein) committed the crime alleged in the information,
while the only issue in accion publiciana is whether the
Spouses Supapo have a better right than the respondents to
possess and occupy the subject property.
For all these reasons, the defense of res judicata is baseless.
Final Note
FILADELFA T. LAUSA, LORETA T. TORRES, PRIMITIVO
TUGOT AND ANACLETO T.
CADUHAY, Petitioners, v. MAURICIA QUILATON,
RODRIGO Q. TUGOT, PURIFICACION T. CODILLA,
TEOFRA T. SADAYA, ESTRELLITA T. GALEOS AND
ROSITA T. LOPEZ, Respondents.
DECISION
BRION, J.:
Before us is a Petition for review on certiorari assailing the
Court of Appeals (CA) Decision in CA-G.R. CV No. 63248. The
CA reversed the decision of the Regional Trial Court (RTC) of
Cebu City, Branch 15 in Civil Case No. CEB - 17857, and.
upheld the validity of Transfer Certificate Title (TCT) No. 571.
Factual Antecedents
The main issue in the present case involves the title to Lot
No. 557, a parcel of land situated in V. Ranudo and D.
Jakosalem Streets, Cogon Central, Cebu City.
The petitioners and the respondents are relatives residing in
Lot No. 557.
Petitioners Filadelfa T. Lausa, Loreta T. Torres, Primitivo
Tugot, and Anacleto T. Caduhay are the cousins of
respondents Rodrigo Tugot, Purificacion Codilla, Teofra
Sadaya, and Estrellita Galeos; while Mauricia Quilaton is the
respondents' mother and the petitioners' aunt-in-law.
The respondent Rosita T. Lopez, on the other hand, acquired
the rights of Rodrigo when he mortgaged Lot No. 557-A, a
portion of Lot No. 557, to her. Rodrigo subsequently
defaulted on his loan.
The petitioners and respondents, with the exception of
Mauricia and Rosita, are all grandchildren of Alejandro Tugot.
Alejandro had possessed Lot No. 557 since September 13,
1915, after it was assigned to him by Martin Antonio.
Lot No. 557 formed part of the Banilad Friar Estate Lands,
On September 27, 1994, Mauricia donated Lot No. 557 to her
children Rodrigo, Purificacion, Teofra and Estrellita. Thus,
TCT No. 571 was cancelled, and re-issued as TCT Nos.
130517, 130518, 130519, 130520 and 130521 in the names
of Mauricia's children.1cralawrednad
Mauricia's children subsequently performed several acts of
ownership over Lot 571: first, Rodrigo, on March 23, 1995,
mortgaged TCT No. 130517 to Lopez as security for a loan
he obtained from the latter. Rodrigo subsequently defaulted
on his loan, prompting the foreclosure of TCT No. 130517.
The land covered by TCT No. 130517 was thereafter sold by
public auction to Lopez, for which she was issued TCT No.
143511 on March 31, 1997.
Second, Mauricia's children filed a complaint for ejectment
against the petitioners, docketed as Civil Case No. R-35137,
on August 4, 1995.
In response, the petitioners filed Civil Case No. CEB-17857
for the annulment of TCT No. 571 and the subsequent titles
that originate from TCT No. 571, as well as criminal
complaints2 for falsification and perjury against the
respondents.
The Regional Trial Court's ruling
The RTC found TCT No. 571 to be a forgery, and declared it
and all titles originating from it to be null and void ab initio.
The RTC gave the following reasons as basis for this
conclusion:ChanRoblesvirtualLawlibrary
First, the RTC noted several discrepancies in TCT No. 571
indicating that it is a
forgery, viz.:ChanRoblesvirtualLawlibrary
(i) The TCTs issued before and after TCT No. 571, that is, TCT
No. 570 and TCT No. 572, both use a different and more
recent form than TCT No. 571. TCT Nos. 570 and 572 use
Judicial Form No. 109, which was issued in June 1945,
while TCT No. 571 uses Judicial Form No. 140-D, which
was issued in April 1936.
(ii TCT Nos. 570 and 572 was signed by Martina L. Arnoco as
) Register of Deeds, while TCT No. 571 was signed by
Gervasio Lavilles as Acting Register of Deeds.
(iii There are distinct differences in Lavilles' signature as it
) appears in TCT No. 571 from his signatures in other TCTs,
such as TCT Nos. 525 and 526.
Second, Mauricia's previous acts show that she
acknowledged Alejandro's ownership over Lot No. 557. Prior
to instituting a petition for issuance of a new owner's
duplicate in 1993, Mauricia had been paying Alejandro (and
subsequently Aurea) contributions for the real estate taxes
due on Lot No. 557.
Third, Mauricia exercised acts of full ownership over Lot No.
557 only in 1994, after she had filed a petition for the
issuance of a new owner's duplicate, even as she claimed to
have owned the lot since 1946.
Fourth, Mauricia failed to present evidence showing how
she acquired title to Lot No. 557. If indeed the land was
purchased from Martin Antonio, she could have secured a
copy of its document of sale from the Archives Office,
Manila.
Additionally, the RTC held that the petitioners had better title
to Lot No. 557 than the respondents. The RTC found that Lot
No. 557 had been in the possession of Alejandro since
September 13, 1915, when the lot's owner, Martin Antonio,
executed a Deed of Assignment in favor of Alejandro. This
conveyance, together with Alejandro and his heirs'
continuous payment of Lot No. 557's real estate taxes since
1928, amounts to more than thirty years of adverse
possession, so that ownership over the lot vested in him.
As Alejandro's heirs, both the petitioners and respondents
are entitled to a share in Lot No. 557.
Lastly, the RTC declared Lopez's TCT No. 143511, which she
acquired when she purchased TCT No. 130517, to be null
and void. TCT No. 130517 covers Lot No. 557-A, and had
been annotated with a Notice of Lis Pendens at the time
Lopez purchased it. Thus, Lopez had knowledge of the
dispute over the ownership of the lot she bought, and could
not claim the defense of a purchaser in good faith. She
acquired no greater title to the lot than Rodrigo, who
mortgaged TCT No. 130517.
The respondents filed a motion for reconsideration
contesting the RTC's decision. After the RTC denial of the
motion, the respondents appealed to the CA.
The Court of Appeals' ruling
The CA reversed the RTC's decision, and upheld the validity
of TCT No. 571 and all the titles originating from it.
In upholding the validity of TCT No. 571 (and all the titles
originating from it), the CA emphasized the existence of a
copy of TCT No. 571 in the custody of the Office of the
Register of Deeds of Cebu City, and noted that it is
presumed by law to have been issued in a regular manner.
The application of this presumption is called for by the
purpose of the Torrens system, which is to promote the
stability and integrity of land titles.
According to the CA, the petitioners have failed to disprove
this presumption of regularity. The pieces of evidence that
the petitioners presented (i.e., the tax receipts and Antonio's
Deed of Assignment of Lot No. 557 to Alejandro) do not
prove with clear, positive, and convincing evidence that TCT
No. 571 had been fraudulently issued. The payment of real
estate taxes over Lot No. 557 does not prove ownership. The
Deed of Assignment, on the other hand, had been
subsequently cancelled, as shown by the Friar Lands Sale
Certificate Register on file with the DENR. It proves that the
lot had been earlier assigned to Alejandro, but because the
assignment was canceled, the ownership of Lot No. 557
remained with Antonio.
The CA also noted that the lot that Alejandro appears to
have owned was not Lot No. 557 but Lot No. 357. The
description of Lot No. 557 - as set forth by the petitioners in
their original complaint - substantially varies from the actual
and precise technical description of Lot No. 557. Additionally,
some of the documentary evidence in the case (such as tax
declarations, tax receipts and notices of tax delinquency)
show that what Alejandro owned was Lot No. 357, not Lot
No. 557.
The CA also pointed out that Alejandro could not have
acquired Lot 557 through acquisitive prescription for two
reasons: first, Mauricia had been in possession of the
property since 1946; and second, a lot registered under the
Torrens system cannot be acquired through acquisitive
prescription. Records show that the lands comprising the
Banilad Friar Lands Estate, of which Lot No. 557 was a part,
had been brought under the operation of the Torrens system
on September 23, 1913.
The CA found Lopez to be an innocent purchaser for value.
Applying the Court's ruling in Bank of the Philippine Islands
v. Noblejas, the CA held that Lopez's good faith as a
mortgagee extends to her eventual purchase of the lot
during its foreclosure. Since TCT No. 130517 had no notice of
any adverse claim at the time it was mortgaged to Lopez,
then the subsequent annotation of Notice of Lis
Pendens prior to TCT No. 130517's foreclosure should not
affect her status as a mortgagee-in-good-faith. The clean
title presented to Lopez at the time TCT No. 130517 was
mortgaged to her maintains this status at the time of its
foreclosure, and cannot be prejudiced by the subsequent
annotation of a claim to it before the lot is foreclosed.
Lastly, the CA found that the RTC erred when it did not
immediately dismiss the petitioners' complaint, as their
cause of action had been barred by prescription and laches.
An action for the annulment of title to land prescribes in ten
years. The petitioners filed their complaint only on
September 20, 1995, almost fifty years after Mauricia had
been issued TCT No. 571 on July 16, 1946. Thus, the
petitioners had slept on their claimed right over Lot 557;
consequently, they are now barred by laches from seeking
redress before the courts.
The petitioners filed a motion for reconsideration assailing
the CA's decision, which motion the CA denied. The denial
opened the way for the present petition for review
on certiorari before this Court.
The present petition
In their present petition, the petitioners seek the reversal of
the CA's decision through their assertion that they have
acquired ownership over Lot No. 557 by acquisitive
prescription.
The petitioners claim that the CA committed the following
errors:ChanRoblesvirtualLawlibrary
First, the CA erred in upholding the validity of TCT No. 571,
which is a fake and fabricated title;
Second, the CA erred in finding that Mauricia owned and
possessed Lot No. 557, as it was Alejandro who exercised
acts of exclusive ownership and possession over the lot since
it was assigned to him in 1915. The lot Antonio assigned to
Alejandro covered Lot No. 557, although earlier tax
declarations indicated the areas of the lot to be Lot No. 357.
This error was corrected in subsequent tax declarations by
the City of Cebu Assessor's Office in 1997.
Third, the CA erred in holding that Lopez is an innocent
purchaser in good faith, as she knew that the portion of Lot
No. 557 being mortgaged to her was in the possession of
Filadelfa, and not Rodrigo. She knew of this possession
before she executed the real estate mortgage contract over
the property with Rodrigo.
Fourth, the CA erred in finding the petitioners' cause of
action barred by prescription and laches, as they discovered
the existence of TCT No. 571 only in August 1995, when
Mauricia and her children instituted ejectment proceedings
against them.
In response, the respondents argue that the petitioners have
no cause of action against them because Alejandro's tax
declarations cover Lot No. 357, and not Lot No. 557, which is
covered by their TCTs. They also cited the CA's decision, and
argued that the CA committed no error of law in upholding
the validity of their TCTs.
Lopez, on the other hand, asserted that her status as an
innocent purchaser or mortgagor in good faith had not been
included in the petitioners' amended complaint including her
as an indispensible party, and should thus not have been
considered as an issue in the case. In any case, Lopez
asserts that her title to Lot No. 557-A is valid because she is
an innocent purchaser in good faith.
Issues:
The issues, having been properly joined, present to us the
following questions:ChanRoblesvirtualLawlibrary
(1 Whether the CA erred in finding that the lot that the
) petitioners claim to own covers Lot No. 357, and not Lot
No. 557;
(2 Whether the CA erred in finding that the respondents, and
) not the petitioners, are the owners and possessors of Lot
No. 557;
(3 Whether the CA erred in finding Lopez an innocent
) purchaser in good faith; and
(4 Whether the CA erred in finding the petitioners' cause of
) action to have been barred by prescription and laches.
The Court's Ruling
We find the petition meritorious.
We note at the outset that the Court is not a trier of facts,
and our jurisdiction in cases brought before us from the
appellate court is limited to the review of errors of law.
We have, however, recognized several exceptional situations
that call for a re-evaluation of the CA's factual conclusions,
among them, the situation when the CA's findings are
contrary to that of the trial court, and when the CA
manifestly overlooks relevant facts not disputed by the
parties and which, if properly considered, would lead to a
different conclusion.3cralawrednad
We find these circumstances in the present case, prompting
us to re-examine the records of the case and to reverse the
CA's decision after due consideration of the records.
The CA erred in finding that the lot that the
petitioners claim to own is Lot No. 357, and not Lot
No. 557
The CA, in upholding the validity of Mauricia's title and
ownership over Lot No. 557, pointed out that the lot that
Alejandro claimed to own was not Lot No. 557, but Lot No.
357.
The CA based this conclusion on several tax documents in
the name of Alejandro Tugot, which indicate that the lot
covered is Lot No. 357, and not Lot No. 557.
In so doing, the CA overlooked several key pieces of
evidence presented before the RTC, which had led the latter
to conclude that the designation of Lot No. 357 in Alejandro's
tax declarations actually pertained to Lot No. 557. These
pieces of evidence are as
follows:ChanRoblesvirtualLawlibrary
First, the testimony of Mr. Antonio Abellana of the City of
Cebu Assessor's Office established that he issued a
Certification of Correction to change Alejandro's tax
declarations, which initially covered Lot No. 357, to Lot No.
557.
According to Abellana, Lot No. 357 is located in a barangay
different from the address found in Alejandro's tax
declaration. The base map of Cebu locates Lot No. 357 to be
in Barangay Day-as, almost five meters from Sikatuna
Street, while the address in Alejandro's erroneous tax
declaration indicates that Lot No. 357 is located in Jakosalem
Street.
Second, records of the Cebu City Assessor's Office show
that Lot No. 357 is covered by another tax declaration with
an address corresponding to the city's base map. In this tax
declaration, Lot No. 357 is owned by a certain Antonio Yap.
Third, the deed of donation 4 of Lot No. 558, which adjoins
Lot Nos. 557 and 559, recognized Alejandro Tugot as the
owner of Lot No. 557.
We find that these pieces of evidence sufficiently explain
that the lot in Alejandro and Aurea's tax declarations actually
covered Lot No. 557, and its initial designation as Lot No.
357 was an error. The Assessor's Office of Cebu City, which
had the responsibility of classifying, appraising, and
assessing real property in Cebu, had acknowledged this
designation to be erroneous, and subsequently made
rectification. This acknowledgment is not only entitled to the it supposedly gave rise to was issued in 1946.
presumption of regularity; it is also corroborated by the Deed
of Donation of an adjoining lot. Second, TCT No. 571 contains discrepancies when
compared with TCT Nos. 570 and 572, the TCTs that were
Additionally, we also found other pieces of evidence supposedly issued before and after TCT No. 571. These
supporting the conclusion of the Cebu City Assessor's Office. discrepancies are as follows:ChanRoblesvirtualLawlibrary
The tax declarations in Alejandro and (subsequently) Aurea's
names indicate that they covered the same address as the
(i) TCT Nos. 570 and 572 had both been issued on February
Lot No. 557 described in the Deed of Assignment that
26, 1947, almost a year after TCT No. 571 was issued on
Antonio executed in Alejandro's favor in 1915. The identity of
July 16, 1946. Since TCT No. 571 was an intervening title
the addresses in these two documents show that what the
between TCT No. 570 and 572, then it should have also
petitioners intended to pay real property tax for, was the lot
been issued on February 26, 1947.
covered in the Deed of Assignment, which was Lot No. 557.
(ii TCT No. 571 used an old form, Judicial Form No. 140-D,
Thus, the tax declarations that placed Lot No. 357 under
) which was revised in June 1945 by Judicial Form No. 109.
Alejandro's name actually pertained to the lot covered by Lot
Since TCT No. 571 shows that it was issued in 1946, then
No. 557; its designation as covered by Lot No. 357 was an
it should have used Judicial Form No. 109. Notably, both
error that the Cebu City Assessor's Office eventually
TCT Nos. 570 and 572 used the updated Judicial Form No.
discovered and corrected.
109, as they were issued in 1947.
(i TCT Nos. 570 and 572 were signed by Martina L. Arnoco
In the same vein, the court-approved subdivision plan for Lot
v) as Register of Deeds, while TCT No. 571 was signed by
No. 557 indicated it to be found along Jakosalem Street, the
Gervasio Lavilles as Acting Register of Deeds.
address of the lot covered by Alejandro and Aurea's tax
(v There are distinct differences in Lavilles' signature as it
declarations. The plan was commissioned for Alejandro and
) appears in TCT No. 571, compared with his signatures in
his children, including Romualdo (Mauricia's husband and
other TCTs, such as TCT Nos. 525 and 526.
the father of her children), in 1960. That the address of Lot
No. 557 in the subdivision plan is identical to the address in
Additionally, we note that Mauricia's claim that she bought
Alejandro and Aurea's tax declarations establishes that what
Lot No. 557 from Antonio is contradicted by the contents of
they actually claim to own is Lot No. 557, and not Lot No.
TCT No. 16534.
357.
For a new TCT to be issued, the owner's duplicate of the
With this foundation established, we now resolve the issue of
seller should have been surrendered to the Registry of
who among them have the better right over Lot No. 557.
Deeds, along with a copy of the TCT's Deed of Sale. Thus,
the seller's TCT would be cancelled, and the new TCT of the
The CA erred in finding that the petitioners failed to
buyer would indicate the seller's TCT as its TCT of origin.
prove that TCT No. 571 is a fabricated title
The text of TCT No. 571 shows that it originated from TCT
In upholding the validity of Mauricia's TCT No. 571, the CA
No. 16534. If indeed TCT No. 571 was issued to Mauricia
held that the petitioners failed to overcome the presumption
because the latter bought Lot No. 557 from Antonio, then
of regularity that attended its issuance. The CA emphasized
TCT No. 16534 should have reflected this transaction.
that a copy of TCT No. 571 is currently with the Register of
Deeds, and that the documents that the petitioners
However, instead of reflecting Antonio's title to Lot No. 557,
presented do not prove their ownership over the lot.
TCT No. 16534 shows that it pertained to a different lot,
and had been issued ten years after the issuance of
The CA's conclusion, however, overlooked the evidence that
TCT No. 571 to a certain Crispina Lopez.
the petitioners presented before the RTC to prove that TCT
No. 571 is a fabricated title. These pieces of evidence
The original certificate of title from which TCT No. 571 and
include the TCTs issued immediately before and after TCT
TCT No. 16534 originated are also different: TCT No. 571
No. 571; TCT No. 16534 (the TCT from which TCT No. 571
originated from Original Certificate of Title (OCT) No. 251-
allegedly originated); and several TCTs that contain the
253, while TCT No. 16534 originated fromOCTNo. 11375.
signature of the Acting Register of Deeds who signed TCT
No. 571. Taken together, all these pieces of evidence
These discrepancies, taken together with its variations from
sufficiently prove, by preponderance of evidence, that TCT
the other titles issued around the same time and Mauricia's
No. 571 is a fabricated title.
failure to present proof of how she acquired the lot from
Antonio, reasonably establish that TCT No. 571 is a
We cite with approval the RTC's factual observations and
fabricated title.
conclusions, viz:ChanRoblesvirtualLawlibrary
We now proceed to determine whether Alejandro was Lot No.
First, the text of TCT No. 571 contains glaring discrepancies
557's rightful owner.
with TCT No. 16534, the title indicated in TCT No. 571 as its
precursor.
The CA erred in relying on a fabricated title as basis
to deny Alejandro's claim to acquisitive prescription
TCT No. 16534 covered a different area from TCT No. 571.
TCT No. 16534 covered Lot 7005-E-2, which has an area of
The CA, in reversing the RTC's decision recognizing
3,311 square meters, while TCT No. 571 covers Lot No. 557
Alejandro's ownership over Lot No. 571, held that Lot No.
with an area of 525 square meters. Too, TCT No. 16534 was
557 could no longer be acquired through prescription
issued in September 1957, or almost ten years after the title
because it had already been brought under the Torrens
system, in Registry Book No. A-3.
Registry Book No. A-3 refers to the registry book where OCT
No. 251-253 is registered, as indicated in TCT No. 571. Thus,
the CA concluded that Lot No. 557 has been brought under
the Torrens system because TCT No. 571 is already covered
by the system. But as TCT No. 571 is a fabricated title, the
CA erred in relying on its contents to conclude that Lot No.
557 has already been brought under the Torrens system.
Alejandro Tugot did not acquire Lot No. 557 through
acquisitive prescription
We agree with the CA's conclusion that Lot No. 557 cannot
be acquired through prescription, but for a different reason.
In the present case, the Deed of Assignment between
Antonio and Alejandro was cancelled three months after it
was executed. The Deed, executed on September 13, 1915,
was inscribed with the phrase: "Cancelled December 21,
1915. See letter # 12332."
Both the trial court and the CA found this inscription to be
sufficient proof that the Deed of Assignment had been
cancelled three months after its execution. As a
consequence, the Deed of Assignment could not have vested
Antonio's rights over Lot No. 557 to Alejandro.
Thus, Lot No. 557 reverted to its original status after the
Deed of Assignment was cancelled. It remained subject to
the conditional sale5 between the government and Antonio;
under the Certificate of Sale between the Bureau of Lands
and Antonio, the government should transfer title to Lot No.
557 to Antonio upon full payment of the lot's purchase price.
The nature of the contract of sale between Antonio and the
government is in line with Section 15 of Act No. 1120, which
provides for the administration, temporary lease, and sale of
friar lands that the government bought through sections 63
to 65 of "An Act temporarily to provide for the administration
of the affairs of civil government in the Philippine Islands,
and for other purposes." These friar lands included the
Banilad Estate Friar Lands, from where Lot No. 557
originated.
Section 15 of Act No. 1120 that applied to Lot No. 557
provides:cralawlawlibrary
Sec. 15. The Government hereby reserves the title to
each and every parcel of land sold under the
provisions of this Act until the full payment of all
installments or purchase money and interest by the
purchaser has been made, and any sale or encumbrance
made by him shall be invalid as against the Government of
the Philippine Islands and shall be in all respects subordinate
to its prior claim.
xxxx
According to jurisprudence, Section 15 of Act No. 1120
reserves to the government the naked title to the friar lands,
until its beneficiaries have fully paid their purchase price.
Since the intent of Act No. 1120 was to transfer ownership of
the friar lands to its actual occupants, the equitable and
beneficial title to the land passes to them the moment the
first installment is paid and a certificate of sale is issued.
This right is subject to the resolutory condition that the sale
may be rescinded if the agreed price shall not be paid in full.
When the Certificate of Sale was executed, Antonio obligated
himself to pay P9.00 as the final installment to purchase Lot
No. 557. His previous lease payments to the lot were applied
as initial installments for the payment of the lot's purchase
price of PI5.16. Upon full payment of the installment and its
annual 4% interest, the government was bound to transfer
full ownership of Lot No. 557 to Antonio under Section 122 of
Act No. 496.
While the records of the case do not show any documents or
paper trail showing the actions of the parties to the
Certificate of Sale after the Deed of Assignment was
cancelled, we can, with certainty, rule out the possibility that
Alejandro acquired title to it through prescription.
Three scenarios could have happened after the Deed of
Assignment was cancelled - all of which forego the possibility
of acquisitive prescription.
First, Antonio could have completed payment of the
purchase price of Lot No. 557. Upon full payment, the lot
would have then been registered in Antonio's name.
The Certificate of Sale between Antonio and the government
requires registration under Section 122 of Act No. 496, or the
Land Registration Act of 1902, for the ownership over Lot No.
557 to be transferred to Antonio. Section 122 of Act No. 496
provides:cralawlawlibrary
Section 122. Whenever public lands in the Philippine Islands
belonging to the Government of the United States or to the
Government of the Philippine Islands are alienated, granted,
or conveyed to persons or to public or private corporations,
the same shall be brought forthwith under the operation of
this Act and shall become registered lands. It shall be the
duty of the official issuing the instrument of alienation,
grant, or conveyance in behalf of the Government to cause
such instrument, before its delivery to the grantee, to be
filed with the register of deeds for the province where the
land lies and to be there registered like other deeds and
conveyances, whereupon a certificate shall be entered as in
other cases of registered land, and an owner's duplicate
certificate issued to the grantee. The deed, grant, or
instrument of conveyance from the Government to
the grantee shall not take effect as a conveyance or
bind the land, but shall operate as a contract
between the Government and the grantee and as
evidence of authority to the clerk or register of deeds
to make registration. The act of registration shall be
the operative act to convey and affect the lands, and
in all cases under this Act registration shall be made
in the office of the register of deeds for the province
where the land lies. The fees for registration shall be paid
by the grantee. After due registration and issue of the
certificate and owner's duplicate such land shall be
registered land for all purposes under this Act.
Thus, the government could have registered the title to Lot
No. 557 in Antonio's name only after he had paid the
purchase price in full. Had Antonio eventually completed the
payment of Lot No. 557's purchase price, it would have been
registered under the Torrens system, through Section 122 of
Act No. 496.
Land registered under the Torrens system cannot be
acquired through prescription. As early as 1902, Section 46
of Act No. 496 categorically declared that lands registered
under the Torrens system cannot be acquired by
prescription, viz:cralawlawlibrary
Section 46. No title to registered land in derogation to that of
the registered owner shall be acquired by prescription or
adverse possession.
Second, Antonio could have failed to complete payment of
Lot No. 557's purchase price; thus, the naked title to Lot No.
557 remains with the government.
Under Act No. 1120, the Chief of the Bureau of Public Lands
is required to register title to the friar lands acquired by the
government through Act No. 496. Section 6 of Act No. 1120,
in particular, provides:cralawlawlibrary
SECTION 6. The title, deeds and instruments of conveyance
pertaining to the lands in each province, when executed and
delivered by said grantors to the Government and placed in
the keeping of the Chief of the Bureau of Public Lands, as
above provided, shall be by him transmitted to the register
of deeds of each province in which any part of said lands
lies, for registration in accordance with law. But before
transmitting the title, deeds, and instruments of conveyance
in this section mentioned to the register of deeds of each
province for registration, the Chief of the Bureau of Public
Lands shall record all such deeds and instruments at length
in one or more books to be provided by him for that purpose
and retained in the Bureau of Public Lands, when duly
certified by him shall be received in all courts of the
Philippine Islands as sufficient evidence of the contents of
the instrument so recorded whenever it is not practicable to
produce the originals in court.
The law on land registration at that time was Act No. 496,
which established the Torrens system in the Philippines. As
earlier pointed out, a piece of land, once registered under
the Torrens system, can no longer be the subject of
acquisitive prescription.
No certificate of title pertaining to the government's transfer
of ownership of Lot No. 557 was ever presented in evidence.
Assuming, however, that the Chief of the Bureau of Public
Lands failed to register Lot No. 557, the lot could not have
been acquired by Alejandro through prescription, under the
rule that prescription does not lie against the government.
Third, Antonio could have sold his rights to Lot No. 557 to
another person. Assuming he did, only that person could
have stepped into his shoes, and could have either
completed payment of the purchase price of Lot No. 557 and
had it registered in his name; or, he could have failed to pay
the purchase price in full, in which case the naked title to the
lot remains government property.
In all three scenarios, Alejandro could not have acquired
ownership over Lot No. 557 through prescription.
Republic Act No. 9443 and the friar lands
The Court is not unaware of the enactment of Republic Act
No. 9443, which confirms the validity of titles covering any
portion of the Banilad Friar Lands with Certificates of Sale
and Assignment of Sale that do not contain the signature of
the then Secretary of the Interior and/or Chief of the Bureau
of Public Lands. It does not apply to TCTs that have been
fraudulently issued and registered.
Republic Act No. 9443, however, does not validate any of the
parties' claims of ownership over Lot No. 557.
Mauricia's title, as earlier established, is fabricated; thus, her
situation falls within the exception expressed under Section
1 of RA No. 9443, viz:cralawlawlibrary
This confirmation and declaration of validity shall in all
respects be entitled to like effect and credit as a decree of
registration, binding the land and quieting the title thereto
and shall be' conclusive upon and against all persons,
including the national government and all branches
thereof; except when, in a given case involving a
certificate of title or a reconstituted certificate of
title, there is a clear evidence that such certificate of
title or reconstituted certificate of title was obtained
through fraud, in which case the solicitor general or his
duly designated representative shall institute the necessary
judicial proceeding to cancel the certificate of title or
reconstituted certificate of title as the case may be, obtained
through such fraud.
With respect to Alejandro, his claim to Lot No. 557 rests on
the Deed of Assignment executed between him and Antonio,
which had been cancelled; hence, it cannot be confirmed
through Republic Act No. 9443.
Effects of the nullity of TCT No. 571
After establishing that neither Mauricia nor Alejandro has
title over Lot No. 557, we now resolve the validity of the
TCTs that originated from TCTNo. 571.
As a general rule, a person transmits only the rights that he
possesses. When innocent third persons, however, purchase
or acquire rights over the property relying on the correctness
of its certificate of title, courts cannot disregard the rights
they acquired and order the cancellation of the certificate.
As the third paragraph of section 53 of Presidential Decree
No. 1529, otherwise known as the Property Registration
Decree, provides:cralawlawlibrary
Section 53. xxx
xxxx
In all cases of registration procured by fraud, the owner may
pursue all his legal and equitable remedies against the
parties to such fraud without prejudice, however, to the
rights of any innocent holder for value of a certificate
of title. After the entry of the decree of registration on the
original petition or application, any subsequent registration
procured by the presentation of a forged duplicate certificate
of title, or a forged deed or other instrument, shall be null
and void.
Thus, innocent purchasers in good faith may safely rely on
the correctness of the certificate of title issued therefor, and
neither the law nor the courts can oblige them to go behind
the certificate and investigate again the true condition of the
property. They are only charged with notice of the liens and
encumbrances on the property that are noted on the
certificate.
Jurisprudence defines innocent purchaser for value as "one
who buys the property of another, without notice that
some other person has a right or interest in such
property and pays a full price for the same, at the
time of such purchase or before he has notice of the
claims or interest of some other person in the property."
PD 1529 has expanded the definition of an innocent
purchaser for value to include an innocent lessee,
mortgagee, or other encumbrancer for value.
Neither PD 1529 nor jurisprudence, however, has included an
innocent donee to the definition, and for good reason. An
innocent purchaser for value pays for the full price of the
property, while a donee receives the property out of the
donor's liberality. Additionally, what the law does not
include, it excludes, and a donee is not included in the
expansion of the term innocent purchaser for value.
Applying these principles of law in the case at hand, we hold
that the Deed of Donation Mauricia issued in favor of her
children immediately after getting a copy of TCT No. 571
could not have transferred ownership over Lot No. 557 to her
children. Since TCT No. 571 is a fabricated title, it does not
indicate ownership over Lot No. 557; thus, the Deed of
Donation involving TCT No. 571 could not have conveyed the
ownership of Lot No. 557 to Mauricia's children.
Neither could her children claim the status of an innocent
purchaser in good faith, as they received the property
through donation.
The TCTs issued to Mauricia's children pursuant to the
donation should thus be cancelled, as they do not signify
ownership over Lot No. 557.
We also note several circumstances that cast doubt over the
ignorance of Mauricia's children regarding the fabricated
nature of TCT No. 571, viz: (1) the petitioners are their close
relatives, who have been residing in Lot No. 557 as early as
1928; (2) their father, Romualdo, signed and recognized a
subdivision plan of Lot No. 557 that would divide the lot
among all of Alejandro's heirs, including the petitioners; (3)
their mother executed the deed of donation as soon as she
acquired a copy of TCT No. 571; (4) their mother's
nonpayment of taxes due Lot No. 557 since 1946; and (5)
the payment of real property taxes only to facilitate the
subdivision of Lot No. 557 among them.
Lopez is not an innocent purchaser for value of Lot 5
57-A
We now determine Lopez's claim that she is an innocent
purchaser for value of Lot No. 557-A, and should thus be
allowed to keep her title over it.
The CA, in affirming Lopez's title over Lot No. 557-A, held
that she was an innocent mortgagee for value. According to
the CA, TCT No. 130517 had no encumbrances and liens at
the time it was mortgaged to Lopez, and this status
extended to the time that TCT No. 130517 was foreclosed to
answer for Rodrigo's loan.
We cannot agree with the CA's conclusion.
As a general rule, a person dealing with registered land has
a right to rely on the Torrens certificate of title and to
dispense with the need of further inquiring over the status of
the lot.
Jurisprudence has established exceptions to the protection
granted to an innocent purchaser for value, such as when
the purchaser has actual knowledge of facts and
circumstances that would compel a reasonably cautious man
to inquire into the status of the lot; or of a defect or the lack
of title in his vendor; or of sufficient facts to induce a
reasonably prudent man to inquire into the status of the title
of the property in litigation.
The presence of anything that excites or arouses suspicion
should then prompt the vendee to look beyond the
certificate and investigate the title of the vendor appearing
on the face of the certificate. One who falls within the
exception can neither be denominated as innocent
purchaser for value nor a purchaser in good faith, and hence
does not merit the protection of the law.
In particular, the Court has consistently held that that a
buyer of a piece of land that is in the actual possession of
persons other than the seller must be wary and should
investigate the rights of those in possession. Without such
inquiry, the buyer can hardly be regarded as a buyer in good
faith.
We find that Lopez knew of circumstances that should have
prodded her to further investigate the Lot No. 557-A's status
before she executed a mortgage contract over it with
Rodrigo.
In the pre-trial brief she submitted before the trial court,
Lopez made the following admissions:cralawlawlibrary
xxx Only after these checking did an actual inspection of the
properties took (sic) place, but on this occasion,
unfortunately, none of the plaintiffs, especially plaintiff
Filadelfa T. Lausa, who is found lately to be residing nearby,
furnished her the information of the present claims.
She likewise made the same admission in an
affidavit, viz:cralawlawlibrary
6. The properties which were mortgaged were checked and
no one at that time, even plaintiff Filadelfa T. Lausa who is
just residing nearby, disputed that the absolute owners
thereof were the spouses Rodrigo and Ligaya Tugot.
While these admissions pertain to the petitioners' act of not
telling Lopez of the status of Lot No. 557-A, it implies that
she had inspected the property, and accordingly found that
Rodrigo did not reside in Lot No. 557-A.
Records of the case show that Filadelfa resided in Lot No.
557-A at the time Lopez executed the real estate mortgage
with Rodrigo. In August 1995, Rodrigo and his siblings filed
an ejectment case against the petitioners Filadelfa Lausa
and Anacleto Caduhay - Filadelfa resides in Lot No. 557-A
while Anacleto's in Lot 557-B. Notably, this ejectment case
was filed five months after Lopez had entered into the real
estate mortgage contract. Thus, at the time Lopez inspected
Lot No. 557, she would have found Filadelfa residing in it,
and not Rodrigo.
That Filadelfa - and not Rodrigo - resided in Lot No. 557-A
should have prompted Lopez to make further inquiries over
its status. Further inquiries with the lot owners of
surrounding property could have informed her of its actual
status. Instead, she contented herself with checking the copy
of the title to Lot No. 557-A against the copy in the Registry
of Deeds of Cebu, which she had done prior to the actual
inspection of Lot No. 557-A. The law cannot protect Lopez's
rights to Lot 557-A given her complacency.
Further, the status of an innocent-purchaser for value or
innocent mortgagor for value is established by the person
claiming it, an onus probandi that Lopez failed to meet.
In her memorandum, Lopez urged the Court to acknowledge
her rights over Lot No. 557-A, arguing that the declaration of
her status as an innocent-purchaser and innocent mortgagor
is a non-issue because it was never pleaded in her co-
respondents' amended complaint. She also pointed out that
a valid title can emerge from a fabricated title, and
essentially invoked the innocent purchaser for value
doctrine.
The amended complaint alleges that Lopez's status as
current owner of Lot 557-A prejudices the rights of the
petitioners, who are its true owners. The circumstances
regarding how Lopez acquired ownership over Lot No. 557-A
had also been pleaded therein.
Verily, the amended complaint does not need to allege
Lopez's status as an innocent purchaser or mortgagor in
good faith precisely because it was incumbent upon her to
allege and prove this to defend her title to Lot No. 557-A. It
merely needed to allege a cause of action against Lopez,
(which it did by alleging the circumstances surrounding
Lopez's ownership of Lot No. 557-A) and that it prejudices
the petitioners' rights as its true owners.
Further, Lopez chose to ignore in her Memorandum the
petitioners' contention that she knew that Filadelfa Lausa,
and not Rodrigo, resided in Lot No. 557-A. To reiterate, Lopez
has the burden of proving her status as an innocent
purchaser for value in order to invoke its application. Failing
in this, she cannot avail of the protection the law grants to
innocent purchasers for value.
The CA erred in finding that the petitioners' claim of
ownership over Lot No. 557 had been barred by
prescription and laches
The outcome of the present case dispenses with the need for
a discussion regarding extinctive prescription and laches.
We note, however, that the CA erred in applying the
principle of prescription and laches to the petitioners' cause
of action involving Lot No. 557.
An action for annulment of title or reconveyance based on
fraud is imprescriptible where the plaintiff is in possession of
the property subject of the fraudulent acts. One who is in
actual possession of a piece of land on a claim of ownership
thereof may wait until his possession is disturbed or his title
is attacked before taking steps to vindicate his right.
The records of the case show that the petitioners resided in
the property at the time they learned about TCT No. 571.
Being in possession of Lot No. 557, their claim for annulment
of title had not expired. Their ownership of Lot No. 571,
however, is a different matter.
Effects of the Court's decision
Our decision in the present case does not settle the
ownership of Lot No. 557. To recapitulate, our examination
of the records and the evidence presented by the petitioners
and the respondents lead us to conclude that neither of
them own Lot No. 557.
Despite the intent of Act No. 1120 and Republic Act No. 9443
to transfer ownership of the Banilad Friar Estate Lands to its
occupants, we cannot settle the ownership of Lot No. 557 in
the present case.
Indeed, the petitioners and the respondents are the actual
occupants of Lot No. 557, and they and their families (with
the exception of Rosita Lopez) have resided in the lot since
1915.
However, as we have discussed above, neither party had
been able to establish their right of ownership, much less
possession, of Lot No. 557. The petitioners anchor their claim
on acquisitive prescription, which does not lie against
registered land or the government. The respondents, on the
other hand, presented spurious TCTs. Thus, no amount of
liberal interpretation of Act No. 1120 or Republic Act No.
9443 could give either party the right over the lot.
Neither can we ignore the evidence showing that none of
them could rightfully own Lot No. 557. The petitioners'
cancelled deed of assignment and tax declarations cannot
establish their ownership over Lot No. 557; especially since
the operation of pertinent laws prevented the possibility of
acquisitive prescription. The respondents' TCT No. 571, on
the other hand, had several discrepancies indicating that it
was a fake.
The exercise of the Court's judicial power settles actual
controversies between parties, through which the Court
establishes their legally enforceable and demandable rights.
We determine the parties' rights based on the application of
the law to the facts established through the pieces of
evidence submitted by the parties. The application of the law
on the facts of the present case establishes that neither
party has a legally enforceable right over Lot No. 557.
Given this situation, we direct that the records of the case be
transmitted to the Land Management Bureau6 for further
investigation and appropriate action over Lot No. 557 of the
Banilad Friar Estate Lands.
Additionally, we direct that a copy of the records of the case
be transmitted to the Ombudsman, for further investigation
regarding how the fake TCTs covering Lot No. 557 ended up
in the Registry of Deeds of Cebu City, and for the criminal
and administrative investigation of government officials
liable for them.
WHEREFORE, premises considered, the instant Petition for
Review on Certiorari is PARTIALLY GRANTED. The Court of
Appeals Decision in CA-G.R. CV No. 63248 is MODIFIED, and
the following titles are declared null and void: (1) TCT No.
571 issued to Mauricia Quilaton; (2) TCT No. 130517 issued
to Rodrigo Tugot; (3) TCT No. 130518 issued to Purificacion
Codilla; (4) TCT No. 130519 issued to Teofra Sadaya; (5) TCT
No. 130520 issued to Estrellita Galeos; (5) TCT No. 130521
issued to Rodrigo Tugot; and (6) TCT No. 143511 issued to
Rosita Lopez.
The claim of the petitioners Filadelfa T. Lausa, Loreta T.
Torres, Primitivo Tugot and Anacleto T. ]Caduhay for
recognition of their ownership over Lot No. 557 is DENIED.
We DIRECT that a copy of the records of the case be
transmitted to the Land Management Bureau and the
Ombudsman for further investigation and appropriate action.
SO ORDERED.
G.R. No. 116111 January 21, 1999
REPUBLIC OF THE PHILIPPINES, (Represented by the
Acting Commissioner of Land Registration), petitioner,
vs.
COURT OF APPEALS, Spouses CATALINO SANTOS and
THELMA BARRERO SANTOS, ST. JUDE'S ENTERPRISES,
INC., Spouses DOMINGO CALAGUIAN and FELICIDAD
CALAGUIAN, VIRGINIA DELA FUENTE and LUCY
MADAYA, respondents.
PANGANIBAN, J.:
Is the immunity of the government from laches and estoppel
absolute? May it still recover the ownership of lots sold in
good faith by a private developer to innocent purchaser for
value, notwithstanding its approval of the subdivision plan
issuance of seperate individual certificates of the title
thereto?
The Case
These are the main questions raised in the Petition for
Review before us, seeking to set aside the November 29,
1993 Decision 1 of the Court of Appeals 2 in CA-G.R CV No.
34647. The assailed Decision affirmed the ruling 3 of the
Regional Trial Court in Caloocan City, Branch 125, in Civil
Case No. C-111708, which dismissed petitioner's Complaint
for the cancellation of Transfer Certificates of Title (TCTs) to
several lots in Caloocan City, issued in the name of private
respondents.
In a Resolution 4 dated July 7, 1994, the Court of
Appeals denied the Republic's motion for
reconsideration.
The Fact
The facts of the case are not disputed. The trial court's
summary, which was adopted by the Court of Appeals, is
reproduced below:
Defendant St. Jude's Enterprises, Inc. is
the registered owner of a parcel of land
known as Lot 865-B-1 of the subdivision
plan (LRC) PSD-52368, being a portion
of Lot 865-B located in Caloocan City
containing an area of 40,623 square
meters. For Lot 865-B-1 defendant St.
Jude's Enterprises, Inc. was issued TCT
No. 22660 on July 25, 1995.
Sometime in March 1966. defendant St.
Jude's Enterprises, Inc. subdivided Lot
No. 865-B-1 under subdivision plan
(LRC) PSD-55643 and as a result thereof
the Register of Deeds of Caloocan City
cancelled TCT No. 22660 and in lieu
thereof issued Certificates of Title Nos.
23967 up to 24068 inclusive, all in the
name of defendant St. Jude's
Enterprises, Inc. The subdivision of lot
865-B-1 [which was] covered [by] TCT
No. 22660 was later found to have
expanded and enlarged from its original
area of 40,523 square meters to 42,044
square meters or an increase of 1,421
square meters. This expansion or
increase in area was confirmed by the
Land Registration Commission [to have
been made] on the northern portion of
Lot 865-B-1.
Subsequently, defendant St. Jude's
Enterprises, Inc. sold the lots covered by
TCT Nos. 24013 and 24014 to defendant
Sps. Catalino Santos and Thelma Barreto
Santos[;] TCT No. 24019 to defendant
Sps. Domingo Calaguian and Felicidad
de Jesus[;] TCT No. 24022 to defendant
Virginia dela Fuente[;] and TCT No.
2402[3] to defendant Lucy Madaya.
Accordingly, these titles were cancelled
and said defendants were issued the
following: TCT No. C-43319 issued in the
name of Sps. Santos containing an area
of 344 square meters[;] TCT No. 55513
issued in the name of defendants Sps.
Calaguian containing an area of 344
square meters[;] TCT 13309 issued in
the name of Sps. Santos[;] TCT No.
24069 issued in the name of Virginia
dela Fuente containing an area of 350
square meters[;] and TCT No. C-46648
issued in the name of defendant Lucy
Madaya with an area of 350 square
meters. 5
[On January 29, 1985, then Solicitor
General Estelito Mendoza filed] an
action seeking . . . the annulment and
cancellation of Transfer Certificates of
Title (TCT) Nos. 24015, 24017, 24018,
24020, 24021, 24024, 24025 and 24068
issued in the name of defendant St.
Jude's Enterprises, Inc.[;] Transfer
Certificates of Title Nos. 13309 and C-
43319 both registered in the name of
Sps. Catalino Santos and Thelma B.
Santos[;] and TCT No. 55513 registered
in the name of Sps. Domingo Calaguian
and Felicidad de Jesus[;] TCT No. 24069
registered in the name of Virginia dela
Fuente[;] and TCT No. C-46648
registered in the name of Lucy Madaya,
principally on the ground that said
Certificates of Title were issued on the
strength of [a] null and void subdivision
plan (LRC) PSD-55643 which expanded
the original area of TCT No. 22660 in the
name of St. Jude's Enterprises, Inc. from
40,623 square meters to 42,044 square
meters upon its subdivision.
Defendants Virginia dela Fuente and
Lucy Mandaya were declared in default
for failure to file their respective answer
within the reglementary period.
Defendants Sps. Catalino Santos and
Thelma Barreto Santos, St. Jude's
Enterprises, Inc. and Sps. Domingo
Calaguian and Felicidad Calaguian filed
separate answers to the complaint.
Defendants Sps. Domingo Calaguian and
Sps. Catalino Santos interposed
defenses, among others, that they
acquired the lots in question in good
faith from their former owner, defendant
St. Jude's Enterprises, Inc. and for value
and that the titles issued to the said
defendants were rendered
incontrovertible, conclusive and
indefeasible after one year from the
date of the issuance of the titles by the
Register of Deeds of Caloocan City.
On the other hand, defendant St. Jude's
Enterprises, Inc. interposed defenses,
among others, that the cause of action
of plaintiff is barred by prior judgement;
that the subdivision plan submitted
having been approved by the LRC, the
government is now in estoppel to
question the approved subdivision plan;
and the plaintiff's allegation that the
area of the subdivision increased by
1,421 square meters is without any
basis in fact and in law.6
Ruling of the Trial Court
On April 30, 1991, the trial court dismissed the Complaint.
While the plaintiff sufficiently proved the enlargement or
expansion of the area of the disputed property, it presented
no proof that Respondent St. Jude Enterprises, Inc. ("St.
Jude") had committed fraud when it submitted the
subdivision plan to the Land Registration Commission (LRC)
for approval. Because the plan was presumed to have been
subjected to investigation, study and verification by the LRC,
there was no one to blame for the increase in the area "but
the plaintiff[,] for having allowed and approved the
subdivision plan." Thus, the court concluded, the
government was already "in estoppel to question the
approved subdivision plan."
The trial court also took into account the "absence of
complaints from adjoining owners whose supposed lots
[were] encroached upon by the defendants," as well as the
fact that an adjoining owner had categorically stated that
there was no such encroachment. Finding that Spouses
Santos, Spouses Calaguian, Dela Fuente and Madaya had
bought their respective lots from St. Jude for value and good
faith, the court held that their titles could no longer be
questioned, because under the Torrens system, such titles
had become absolute and irrevocable. As regards the
Republic's allegation that it had filed the case to protect the
integrity of the said system, the court said:
. . . [S]ustaining the position taken by
the government would certainly lead to
disastrous consequences. Buyers in
good faith would lose their titles.
Adjoining owners who were deprived of
a portion of their lot would be forced to
accept the portion of the property
allegedly encroached upon. Actions for
recovery will be filed right and left[;]
thus instead of preserving the integrity
of the Torrens System it would certainly
cause chaos rather than stability.
Finally, if only to strengthen the Torrens
System and in the interest of justice, the
boundaries of the affected properties of
the defendants should not be disturbed
and the status quo should be
maintained.8
The solicitor general appealed the trial court's Decision to
the Court of Appeals.
Ruling of the Appelate Court
Citing several cases 9 upholding the indefeasibility of the
titles issued under the Torrens system, the appelate court
affirmed the trial court. It berated petitioner for bringing the
suit only after nineteen (19) years had passed since the
issuance of St. Jude's title and the approval of the
subdivision plan. The pertinent portion of the assailed
Decision reads:10
. . . Rather than make the Torrens
system reliable and stable, [its] act of
filing the instant suit rocks the system,
as it gives the impression to Torrens title
holders, like appellees, that their titles
to properties can be questioned by the
same authority who had approved the
same even after a long period of time. In
that case, no Torrens title holder shall
be at peace with the ownership and
possession of his land, for the
Commission of Land Registration can
question his title anytime it makes a
finding unfavorable to said Torrens title
holder.
Undauted, petitioner seeks a review by this Court. 11
The Issues
In this petition, the Republic raises the following issues for
our resolution:12
1. Whether or not the government is
estopped from questioning the approved
subdivision plan which expanded the
areas covered by the transfer
certificates of title in question;
2. Whether or not the Court of Appeals
erred when it did not consider the
Torrens System as merely a means of
registering title to land;
3. Whether or not the Court of Appeals
erred when it failed to consider that
petitioner's complaint before the lower
court was filed to preserve the integrity
of the Torrens System.
We shall discuss the second and third questions together.
Hence, the issues shall be (1) the applicability of estoppel
against the State and (2) the Torrens system.
The Court's Ruling
The petition is bereft of merit.
First Issue:
Estoppel Against the Government
The general rule is that the State cannot be put in estoppel
by the mistakes or errors of its officials or agents. 13 However,
like all general rules, this is also subject to exception, viz.:14
Estoppels against the public are little
favored. They should not be invoked
except in a rare and unusual
circumstances, and may not be invoked
where they would operate to defeat the
effective operation of a policy adopted
to protect the public. They must be
applied with circumspection and should
be applied only in those special cases
where the interests of justice clearly
require it. Nevertheless, the government
must not be allowed to deal
dishonorably or capriciously with its
citizens, and must not play an ignoble
part or do a shabby thing; and subject to
limitations . . ., the doctrine of equitable
estoppel may be invoked against public
authorities as well as against private
individuals.
In Republic v. Sandiganbayan, 15 the government, in its effort
to recover ill-gotten wealth, tried to skirt the application of
estoppel against it by invoking a specific constitutional
provision.16 The Court countered: 17
We agree with the statement that the
State is immune from estoppel, but this
concept is understood to refer to acts
and mistakes of its officials especially
those which are irregular (Sharp
International Marketing vs. Court of
Appeals, 201 SCRA 299; 306 [1991];
Republic v. Aquino, 120 SCRA 186
[1983]), which peculiar circumstances
are absent in this case at bar. Although
the State's right of action to recover ill-
gotten wealth is not vulnerable to
estoppel[;] it is non sequitur to suggest
that a contract, freely and in good faith
executed between the parties thereto is
susceptible to disturbance ad
infinitum. A different interpretation will
lead to the absurd scenario of
permitting a party to unilaterally jettison
a compromise agreement which is
supposed to have the authority of res
judicata (Article 2037, New Civil Code),
and like any other contract, has the
force of law between parties thereto
(Article 1159, New Civil Code; Hernaez
vs. Kao, 17 SCRA 296 [1996]; 6 Padilla,
Civil Code Annotated, 7th ed., 1987, p.
711; 3 Aquino, Civil Code, 1990 ed., p.
463). . . .
The Court further declared that "(t)he real office of the
equitable norm of estoppel is limited to supply[ing]
deficiency in the law, but it should not supplant positive
law." 18
In the case at bar, for nearly twenty years (starting from the
issuance of St. Jude's titles in 1996 up to the filing of the
Complaint in 1985), petitioner failed to correct and recover
the alleged increase in the land area of St. Jude. Its
prolonged inaction strongly militates against its cause, as it
is tantamount to laches, which means "the failure or neglect,
for an unreasonable and unexplained length of time, to do
what which by exercising due diligence could or should have
been done earlier; it is negligence or omission to assert a
right within a reasonable time, warranting a presumption
that the party entitled to assert it either has abandoned it or
declined to assert it."19
The Court notes private repondents' argument that, prior to
the subdivision, the surveyors erred in the original survey of
the whole tract of land covered by TCT No. 22660, so that
less than the actual land area was indicated on the title.
Otherwise, the adjoining owners would have complained
upon the partition of the land in accordance with the LRC-
approved subdivision plan. As it is, Florenci Quintos, the
owner of the 9,146 square-meter Quintos Village adjoining
the northern potion of St. Jude's property (the portion
allegedly "expanded"), even attested on August 16, 1973
that "there [was] no everlapping of boundaries as per my
approved plan (LRC) PSD 147766 dated September 8,
1971." 20 None of the other neighboring owners ever
complained against St. Jude or the purchaser of its property.
It is clear, therefore, that there was no actual damage to
third persons caused by the resurvey and the subdivision.
Significantly, the other private respondents — Spouses
Santos, Spouses Calaguian, Dela Fuente and Madaya —
bought such "expanded" lots in good faith, relying on the
clean certificates of St. Jude, which had no notice of any flaw
in them either. It is only fair and reasonable to apply the
equitable principle of estoppel by laches against the
government to avoid an injustice 21 to the innocent
purchasers for value.
Likewise time-settled is the doctrine that where innocent
third persons, relying on the correctness of the certificate of
title, acquire rights over the property, courts cannot
disregard such rights and order the cancellation of the
certificate. Such cancellation would impair public confidence
in the certificate of title, for everyone dealing with property
registered under the Torrens system would have to inquire in
very instance whether the title has been regularly issued or
not. This would be contrary to the very purpose of the law,
which is to stabilize land titles. Verily, all persons dealing
with registered land may safely rely on the correctness of
the certificate of title issued therefor, and the law or the
courts do not oblige them to go behind the certificate in
order to investigate again the true condition of the property.
They are only charged with notice of the liens and
encumbrances on the property that are noted on the
certificate.22
When private respondent-purchasers bought their lots from
St. Jude, they did not have to go behind the titles thereto to
verify their contents or search for hidden defects or inchoate
rights that could defeat their rights to said lots. Although
they were bound by liens and encumbrances annonated on
the titles, private respondents-purchasers could not have
had notice of defects that only an inquiry beyond the face of
the titles could have satisfied. 23 The rationale for this
presumption has been stated thus: 24
The main purpose of the Torrens System
is to avoid possible conflicts of title to
real estate and to facilitate transactions
relative thereto by giving the public the
right to rely upon the face of a Torrens
Certificate of the Title and to dispense
with the need of inquiring further,
except when the party concerned had
actual knowledge of facts and
circumtances that should impel a
reasonably cautious man to make such
further inquiry (Pascua v. Capuyoc, 77
SCRA 78). Thus, where innocent third
persons relying on the correctness of
the certificate thus issued, acquire
 rights over the property, the court
cannot disregard such rights (Director of
Land v. Abache, et al., 73 Phil. 606).
In another case, 25 this Court further said:
The Torrens System was adopted in this
country because it was believed to be
the most effective measure to
guarantee the integrity of land titles and
to protect their indefeasibility once the
claim of ownership is established and
recognized. If a person purchases a
piece of land on the assurance that the
seller's title thereto is valid, he should
not run the risk of being told later that
his acquisition was ineffectual after all.
This would not only be unfair to him.
What is worse is that if there were
permitted, public confidence in the
system would be eroded and land
transactions would have to be attended
by complicated and not necessarily
conclusive investigations and proof of
ownership. The further consequence
would be that land conflicts could be
even more abrasive, if not even violent.
The Government, recognizing the
worthy purposes of the Torrens System,
should be the first to accept the validity
of the titles issued thereunder once the
conditions laid down by the law are
satisfied [Emphasis supplied.]
Petitioner never presented proof that the private
respondents who had bought their lots from St. Jude were
buyers in bad faith. Consequently, their claim of good faith
prevails. A purchaser in good faith and for value is one who
buys the property of another without notice that some other
person has right to or an interest in such property; and who
pays a full and fair price for the same at the time of such
purchase or before he or she has notice of the claims or
interest of some other person. 26 Good faith is the honest
intention to abstain from taking any unconsientious
advantage of another.27
Furthermore, it should be stressed that the total area of forty
thousand six hundred twenty-three (40,623) square meters
indicated on St. Jude's original title (TCT No, 22660) was not
an exact area. Such figure was followed by the phrase "more
or less." This plainly means that the land area indicated was
not precise. Atty. Antonio H. Noblejas, who became the
counsel of St. Jude subsequent to his tenure as0 Land
Registration Commissioner, offers a sensible explanation. In
his letter 28 to the LRC dated November 8, 1982, he gave the
following information:
a. Records show that our client owned a
large tract of land situated in an area
cutting the boundary of Quezon City and
Caloocan City, then known as Lot 865-B,
Psd 60608, and described in T.C.T. No.
100412, containing an area of 96.931
sq. meters, more or less.
b. It will be noted that on the northern
portion of this lot 865-B, Psd-60608, is . .
. Lot 865-A, Psd-60608, which means
that at previous point of time, these 2
lots composed one whole tract of land.
c. On December 23, 1995, Lot 865-B,
Psd-60608, was subdivided into 2 lots,
denominated as Lot 865-B-1, with an
area of 40,622 sq. meters, more or less,
on the Caloocan side, and Lot 865-B-2,
with an area of 56,308 sq. meters, more
or less, Quezon City side, under
plan (LRC) Psd-52368.
d. On March 1-10, 1966, Lot 865-B-1,
Psd-52368, then covered by T.C.T. No.
N-22660, was subdivided into residential
lots under Plan (LRC)Psd-55643, with a
total area of 42,044 sq. meters, more or
less.
e. It will be noted that Lot 865-B, Psd-
60608, covered by T.C.T. No. 100412,
contained an area of 96,931 sq. meters,
more or less, but when subdivided under
Plan (LRC) Psd-52368, into 2 lots its total
area shrank by 1 sq. meter, to wit:
Lot 865-B-1, Psd-
52368 = 40,622 sq.
meters
Lot 865-B-2, Psd-
52368 = 56,308 sq.
meters
———
96,930 sq. meters
———
f. There is no allegation whatever in the
Perez report that there was no error in
laying out the metes and bound of Lot
865-B-1 in Plan (LRC) Psd-55643 as
specified in Technical Description of the
said lot set forth in T.C.T. No. N-22660
covering the same. There is likewise no
allegation, on the contrary there is no
confirmation from the boundary owner
on the northern side. Mr. Florencio
Quintos, that there is no overlapping of
boundaries on the northern side of Lot
865-B-1, Psd-55643.
g. We respectfully submit that the area
of 42, 044 sq. meters stated in Plan
(LRC) Psd-55643 as the size of Lot 865-
B-a, is the more accurate area,
confirmed by the Perez report 'as per
surveyor[']s findings on the ground,
which rectifies previous surveyor's error
in computing its area as 40,622 sq.
meters in Plan (LRC) Psd-52368, which is
about 3.5% tolerable error (1,422
divided by 40,622 = 035).
[h.] It is well settled that in the
identification of a parcel of land covered
by certificate of title, what is controlling
are the metes and bounds as set forth in
its Technical Description and not the
area stated therein, which is merely an
approximation as indicated in the more
or less phrase placed after the number
of square meters.
i. There is thus no unauthorized
expansion of the survey occasioned by
the subdivision of Lot 865-B-1 under
Plan (LRC) Psd-55643; consequently,
LRC Circular No. 167, Series of 1967,
finds no application thereto, as to bar
the processing and registration in due
course of transactions involving the
subdivision lots of our client, subject
hereof. This is apart from the fact that
LRC Circular No. 167 has not been
implemented by the Register of Deeds
of Caloocan City or any proper
government authority since its issuance
in 1967, and that, in the interest of
justice and equity, its restrictive and
oppressive effect on transactions over
certificates of titles of subdivisions that
allegedly expanded on re-surveys,
cannot be allowed to continue
indefinitely. (Emphasis supplied.)
The discrepancy in the figures could have been caused by
the inadvertence or the negligence of the surveyors. There is
no proof, though, that the land area indicated was
intentionally and fraudulently increased. The property
originally registered was the same property that was
subdivided. It is well-settled that what defines a piece of
titled property is not the numerical data indicated as the
area of the land, but the boundaries or "metes and bounds"
of the property specified in its technical description as
enclosing it and showing its limits. 29
Petitioner miserably failed to prove any fraud, either on the
part of Private Respondent St. Jude or on the part of land
registration officials who had approved the subdivision plan
and issued the questioned TCTs. Other than its peremptory
statement in the Complaint that the "expansion" of the area
was "motivated by bad faith with intent to defraud, to the
damage and prejudice of the government and public
interest," petitioner did not allege specifically how fraud was
perpetrated to cause an increase in the actual land size
indicated. Nor was any evidence proffered to substantiate
the allegation. That the land registration authorities
supposedly erred or committed an irregularity was merely a
conclusion drawn from the "table survey" showing that the
aggregate area of the subdivision lots exceeded the area
indicated on the title of the property before its subdivision.
Fraud cannot be presumed, and the failure of petitioner to
prove it defeats its own cause.
Second Issue:
The Torrens System
True, the Torrens system is not a means of acquiring titles to
lands; it is merely a system of registration of titles to
lands. 30 Consequently, land erroneously included in a
Torrens certificate of title is not necessarily acquired by the
holder of such certificate.31
But in the interest of justice and equity, neither may the title
holder be made to bear the unfavorable effect of the mistake
or negligence of the State's agents, in the absence of proof
of his complicity in a fraud or of manifest damage to third
persons. First, the real purpose of the Torrens system is to
quiet title to land to put a stop forever to any question as to
the legality of the title, except claims that were noted in the
certificate at the time of the registration or that may arise
subsequent thereto.32 Second, as we discussed earlier,
estoppel by laches now bars petitioner from questioning
private respondent's titles to the subdivision lots. Third, it
was never proven that Private Respondent St. Jude was a
party to the fraud that led to the increase in the area of the
property after its subdivision. Finally, because petitioner
even failed to give sufficient proof of any error that might
have been committed by its agent who had surveyed the
property, the presumption of regularity in the performance
of their functions must be respected. Otherwise, the integrity
of the Torrens system, which petitioner purportedly aims to
protect by filing this case, shall forever be sullied by the
ineptitude and inefficiency of land registration officials, who
are ordinarily presumed to have regularly performed their
duties.33
We cannot, therefore, adhere to petitioner's submission that,
in filing this suit, it seeks to preserve the integrity of the
Torrens system. To the contrary, it is rather evident from our
foregoing discussion that petitioner's action derogates the
very integrity of the system. Time and again, we have said
that a Torrens certificate is evidence of an indefeasible title
to property in favor of the person whose name appears
thereon.
WHEREFORE, the petition is hereby DENIED and the assailed
Decision is AFFIRMED.
SO ORDERED.
Romero, Vitug, Purisima and Gonzaga-Reyes, JJ., concur.
 
Separate Opinions
 VITUG, J., concurring opinion;
The rule has been to the effect that a purchaser of registered
land is not ordinarily required to explore further than what
the record in the Registry indicates on its face in quest of
any hidden defect or inchoate right which might adversely
affect the buyer's right over the property. 1 Undoubtedly, to
allow in the instant case the cancellation of the titles of
herein private respondents would defeat rather than
enhance the purpose and scheme of the Torrens System. It
is my understanding, however, that the rule that the Court
has here announced would not apply to a situation where the
enlargement or expansion in area would result in an
encroachment on or reduction of any area covered by a
certificate of title previously issued. To rule otherwise would
itself be to downgrade the integrity of the Torrens System.
Separate Opinions
VITUG, J., concurring opinion;
The rule has been to the effect that a purchaser of registered
land is not ordinarily required to explore further than what
the record in the Registry indicates on its face in quest of
any hidden defect or inchoate right which might adversely
affect the buyer's right over the property. 1 Undoubtedly, to
allow in the instant case the cancellation of the titles of
herein private respondents would defeat rather than
enhance the purpose and scheme of the Torrens System. It
is my understanding, however, that the rule that the Court
has here announced would not apply to a situation where the
enlargement or expansion in area would result in an
encroachment on or reduction of any area covered by a
certificate of title previously issued. To rule otherwise would
itself be to downgrade the integrity of the Torrens System.
G.R. No. 194516               June 17, 2015
BALDOMERA FOCULAN-FUDALAN, Petitioner,
vs.
SPOUSES DANILO OCIAL and DAVIDICA
BONGCARASOCIAL, EVAGRIA F. BAGCAT, CRISTINA G.
DOLLISEN, EULALIA F. VILLACORA, TEOFREDO
FUDERANAN, JAIME FUDERANAN, MARIANO
FUDERANAN, FILADELFO FUDERANAN, MUSTIOLA F.
MONTEJO, CORAZON LOGMAO, DIONESIO FUDERANAN,
EUTIQUIA FUDERANAN, ASTERIA FUDERANAN,
ANTONIO FUDERANAN, ROMEO FUDERANAN,
FLORENTINO FUDERANAN, DOMECIANO FUDERANAN,
ERLINDA SOMONTAN, FELICIANA FUDERANAN,
BONIFACIO FUDERANAN, QUIRINO FUDERANAN, MA.
ASUNCION FUDERANAN, MARCELINA ARBUTANTE,
SALOME GUTUAL, LEONARDO LUCILLA, IMELDA L.
ESTOQUE, CIRILA OLANDRIA, TITA G. BONGAY and
MUNICIPAL ASSESSOR OF PANGLAO,
BOHOL, Respondents.
DECISION
MENDOZA, J.:
Before this Court is a petition for review under Rule 45 of the
Rules of Court assailing the November 5, 2009 Resolution 1 of
the Court of Appeals (CA), in CA-G.R. CEB-CV No. 01733,
which granted the respondents" 'Urgent Motion to Dismiss
Appeal,"2 dated September 23, 2009, on the ground that
petitioner Baldomera Foculan-Fudalan (Baldomera) failed to
file her appellant's brief within the non-ex.tendible period of
forty-five (45) days; and the October 26, 2010
Resolution3 which denied her "Omnibus Motion for
Reconsideration of the Resolution dated November 5, 2009,
with Leave of Court to Admit Appellant's Brief for the
Intervenor-Third Party Plaintiff." 4
The Antecedents
The present controversy began when the spouses Danilo
Ocial and Davidica Bongcaras-Ocial (Spouses Ocial),
represented by their Attomey-in-Fact, Marcelino Bongcaras,
filed an action for the declaration of validity of partition and
sale, recovery of ownership and possession and damages
against Flavio Fudalan (Flavia) and Cristobal Fudalan
(Cristobal) before the Regional Trial Court, Branch 3,
Tagbilaran City (RTC), docketed as Civil Case No. 6672.
Later, Baldomera, the wife of Flavio and mother of Cristobal,
intervened as 3rd party plaintiff against third-party
defendants, Heirs of Pedro and Ulpiano Fuderanan (the
Fuderanans), the predecessors-in-interest of Spouses Ocial.
The subject of the said action was a parcel of land
designated as Cad. Lot No. 56-A located at Tangnan,
Panglao, Bohol, which was a portion of Lot No. 56, Cad 705-
D, Panglao Cadastre, in the name of Juana Fuderanan
(Juana).
Spouses Ocial alleged in their complaint 5 that on March 13,
2001, the heirs of Juana executed the Extrajudicial
Settlement Among Heirs with Simultaneous Deed of Absolute
Sale over Lot 56-A including two (2) fruit bearing mango
trees in their favor as lawful vendees; that as the new
owners of the subject land, they caused the planting of thirty
(30) gemelina seedlings, twenty (20) mahogany seedlings,
and two (2) mango seedlings, and in October 2001, they
claimed the landowner’s share of the mango produce from
Maximo Bolongaita who had been taking care of the two (2)
fruit-bearing mango trees; that in October 2001, they caused
the placement of a "no-trespassing" sign on one of the
mango trees; that they also caused the processing of the
Deed of Extrajudicial Settlement Among Heirs with
Simultaneous Sale for the cancellation of Tax Declaration No.
93-009-00247 and the issuance of a new tax declaration in
their favor; that in June 2001, the Fudalans, without any
lawful right or authorization, surreptitiously planted "ubi" on
a portion of Lot No. 56-A and they also claimed the
landowner’s share of the mango produce from Maximo
Bolongaita who refused to give the same and instead
deposited the amount in a bank in Tagbilaran City; that in
November 2001, the Fudalans illegally placed two "no-
trespassing" signs inside the questioned property; that for
this reason, they complained to the barangay captain of
Tangnan, Panglao, Bohol, who conducted conciliation
proceedings on November 14 and 29, 2001; that no
settlement was reached between the parties; that the Office
of the Lupong Tagapamayapa later on issued the
Certification to File Action; and that they learned that on
December 14 and 15, 2001, while the Lupong
Tagapamayapa had not yet issued the required Certification
to File Action, the Fudalans unjustifiably caused the
installation of a fence consisting of barbed wires with
cemented posts around Lot No. 56-A, without the necessary
permit from the barangay captain of Tangnan and the
municipal officials of Panglao, Bohol.6
The Fudalans, on the other hand, claimed that they were the
rightful owners of the subject land having purchased the
same from the Fuderanans on November 4, 1983; that the
sale was evidenced by a private document printed in a blue
paper; that as owners, they planted "ubi," posted two "no-
trespassing" signs and installed a barb wire fence around the
land; that since their purchase, they had been in possession
of the land in the concept of owners and had been paying
the real property taxes religiously; and that it was for this
reason that they insisted that if there was any deed of
extrajudicial settlement of estate and simultaneous sale of
the land by the the Fuderanans, the same was null and void
for being without legal basis.7
On May 6, 2002, Baldomera filed, with leave of court, an
Answer in Intervention with Third-Party Complaint against
the Fuderanans for specific performance, quieting of title and
nullification of the deed of extra-judicial settlement with
simultaneous sale in favor of Spouses Ocial. She alleged
therein that, although still declared in the name of the late
Juana Fuderanan, the property was absolutely owned by her
parents, the late Spouses Eusebio Fucolan and Catalina
Bolias,8 who acquired the property in 1935 and thereafter
took actual possession of the land. She averred that the
possession was continuous, peaceful, open, public, adverse,
and in the concept of an owner which was never disturbed
by any person until Spouses Ocial, through their Attorney-in-
Fact, informed the Fudalans and Baldomera that they had
already bought the land from the Fuderanans. 9
Baldomera also claimed that sometime in 1983, two of the
Fuderanans, Teofredo and Eutiquia, approached her and her
husband. They represented themselves as the duly
authorized representatives of their coheirs and agreed to
settle their claims over the subject lot in their favor for the
amount of 1,000.00. This agreement was evidenced by a
memorandum, dated November 4, 1983.10
Baldomera further claimed that in the year 2000, a certain
Salome Getual, supposedly another heir of Juana, told her
that all the heirs of Juana were claiming their rights of
inheritance over the land but were willing to enter into a
settlement if the price would be acceptable. Unfortunately,
no agreement was reached which prompted Spouses Ocial to
file an action before the barangay chairman of the place
where the property was situated. A mediation proceeding
was conducted between the parties where an amicable
settlement was reached. Baldomera agreed to pay the
Fuderanans the amount of ₱50,000.00 as purchase price of
the lot. The latter, however, did not comply with their
obligation in the agreed settlement. Instead, they sold the
land to Spouses Ocial for 20,000.00.11
The RTC Decision
On August 22, 2006, the RTC rendered a Fudalan is credible for the amount of ₱1,000.00 is grossly
Decision,12 confirming the validity of the extrajudicial
settlement with simultaneous sale, thus, recognizing the
right of the third-party defendants, the Fuderanans, to sell
the land in question to the Spouses Ocial. The trial court
explained its conclusion in this wise:
After a perusal of the evidence, the Court acknowledges the
right of third party defendants Heirs of Pedro and Ulpiano
Fuderanan to sell the land in question to plaintiffs Ocial
spouses and upholds the validity of the sale. The claim of
intervenor Baldomera Fucolan-Fudalan that the land was
purchased by her parents from Juana Fuderanan in 1935 is
not only doubtful being oral but more than that, it is
unenforceable under the Statute of Frauds as provided in
Art. 1403 (e) of the Civil Code, as follows:
"Art. 1403. The following contracts are unenforceable, unless
they are ratified:
xxxx
(e) An agreement for the leasing for a longer period than one
year, or for the sale of real property or of an interest therein;
No efforts were exerted by the intervenor and her
predecessor parents for the ratification of the sale despite
the lapse of considerable time so that their failure and
neglect to do it amounts to laches and equitable estoppel on
their part to lay claim of ownership of the land. Furthermore,
upon a perusal of the tax declarations of the land from 1940
to 1985 the administrators mentioned therein were Modesta
Bongcaras, Ulpiano Fuderanan and Leoncia Estoreras, who
took turn in its administration. There was no mention of the
predecessor parents of Baldomera as one of the
administrators which would only fairly suggest that they
were never in possession of the land. It was only in 1994
when Flavio Fudalan came to be named as its administrator
per TD-93-009-00247 evidently after the execution of the
blue paper receipt of ₱1,000.00 by Teofredo and Teofista
Fuderanan in their favor. And it was also only then that the
Fudalans started paying taxes thereto, as shown by the
numerous receipts submitted. Thus, the parents of
Baldomera could not have paid taxes to the land before that
period for being not in actual possession of the land contrary
to their claim. It could be for this reason that defendants and
intervenor agreed to buy the land from the heirs of Pedro
and Ulpiano Fuderanan to whom the land was adjudicated
which act was tantamount to an abandonment of their claim.
xxx Besides, it is to be noted from the testimony of
Baldomera Fucolan-Fudalan in her direct examination on July
13, 2005 when she acknowledged that the amount of
₱1,000.00 as mentioned in the blue paper receipt was not
actually a payment of the land but was given to Toribio and
Juana Fuderanan as a consideration for them to prepare the
deed of sale for the land in their favor but to which the latter
did not comply. Instead, they filed a complaint along with the
other heirs before the barangay captain of Tangnan, Paglao,
Bohol for the repossession and partition of the property
among the heirs. This admission of Baldomera Fucolan-
inadequate to be a consideration for the sale of the whole lot
of 7,334 sq. m. or even for the combined shares of Teofredo
and Teofista of their common property 1,018 sq. m.
Furthermore, the alleged agreement was not signed by the
parties as required by the Local Government Code for its
validity and no time or period was set for its compliance,
thus, leaving it to the Fudalans the choice as to when they
would pay the purchase price of the land which is against the
provision of Art. 1308 of the Civil Code on the qualifications
of a valid contract.
On the alleged promise of the heirs of Pedro and Ulpiano
Fuderanan to sell the property to defendants Fudalan for
₱50,000.00 as shown in the minutes of the mediation
proceedings before the barangay captain of Tangnan,
Panglao, Bohol of which they did not comply, there is no
evidence of tender of payment made by the defendants. In
fact, in the testimony of Maria Salome Gutual in the witness
stand during her cross-examination on March 10, 2003 which
was not refuted by defendants, the Fudalans did not
allegedly comply with their promise to buy the land, and
instead, they even signified refusal to pay it claiming that
they had already bought it from Teofredo and Teofista
Fuderanan so that the heirs of Pedro and Ulpiano Fuderanan
were forced to sell the land to herein plaintiffs Ocial spouses.
Their act of selling the land to the plaintiffs was therefore
justified as it was the defendants who first reneged from
their agreement. Moreover, as there was no tender of
payment or earnest money given by defendants as a
consideration therefor, no contract to sell was perfected that
would bind the parties to it (Art. 1479, par. 2, Civil Code) nor
is there any basis for an action of specific performance which
defendants only initiated lately upon the filing of the third-
party complaint.13
[Emphasis Supplied]
Consequently, the Fudalans and Baldomera were ordered to
vacate the subject land. Thus, the decretal portion of the
decision reads:
WHEREFORE, in view of all the foregoing, the Court hereby
confirms the Deed of Extra-Judicial Settlement with
Simultaneous Sale executed by the Heirs of Pedro Fuderanan
and Ulpiano Fuderanan of Lot 56-A to herein plaintiffs Danilo
Ocial and Davidica Bongcaras-Ocial as one valid and
enforceable. Consequently, herein defendants Flavio
Fudalan, Cristobal Fudalan and Intervenor Baldomera
Fucolan-Fudalan are hereby ordered to vacate from the
premises of Lot 56-A CAD 705-D of Panglao Cadastre which
is located at barangay Tangnan, Panglao, Bohol having an
area of 6,316 sq. m. Furthermore, defendants and intervenor
are hereby ordered to pay jointly and severally reasonable
attorney’s fee in the amount of ₱30,000.00 and the costs of
the proceedings which shall earn legal interest from the
filing of the complaint until the same shall have been fully
paid. The landowner shares of the fruits of the two mango
trees which are deposited in the bank are hereby
adjudicated to plaintiffs if the same are found to be within
Lot 56-A.
SO ORDERED.14
Not in conformity, the Fudalans and Baldomera filed their
respective notices of appeal with the trial court.
The CA Decision
On March 18, 2009, upon receipt of the records, the CA
issued a Resolution,15 requiring the Fudalans and Baldomera,
as well as Spouses Ocial; and Evagra F. Bacat, as third-party
defendants, to file their respective briefs within the non-
extendible period of forty-five (45) days. In their Urgent
Motion to Dismiss Appeal, dated September 23, 2009,
Spouses Ocial prayed for the dismissal of the appeal for
failure of the appellants to file the required appellants’ brief
within the prescribed non-extendible period of 45 days.
Acting thereon, the CA granted the motion and dismissed
the appeal in its November 5, 2009 Resolution, which in its
entirety reads:
Finding merit in appellee’s Urgent Motion to Dismiss Appeal
dated September 23, 2009, citing as ground therein
appellants’ failure to file their respective appeal briefs within
the non-extendible period required under Resolution, dated
March 18, 2009, the court resolves to grant the same.
Accordingly, the case is considered closed and terminated.
SO ORDERED. 16
Baldomera filed her Omnibus Motion for Reconsideration of
the Resolution dated November 5, 2009 with Leave of Court
to Admit Appellant’s Brief for the Intervenor-Third Party
Plaintiff. On October 26, 2010, however, the CA issued
another resolution denying her motion, to wit: WHEREFORE,
the Omnibus Motion for Reconsideration of the Resolution
dated November 5, 2009 with Leave of Court to Admit
Appellant’s Brief for the Intervenor-Third Party Plaintiff is
DENIED.
SO ORDERED.17
According to the CA, "[b]laming the failure to file the
required brief on counsel’s heavy workload, on the mistake
or ignorance of his client, and excusable neglect on his part
is not acceptable."18 What happened was simply the
negligence of the counsel in the monitoring of notices and
resolutions from the courts. The attendant circumstances did
not make a case of gross negligence that would fall under
the exception to the rule that the inadvertence of counsel
could be considered as an adequate excuse to call for the
court’s leniency. The CA further stated that "the delay in the
filing of the brief, 206 days after the last day to file the same
which is May 22, 2009, is unreasonably long." 19
Hence, this petition.
Petitioner Baldomera states, among others, that the main
reason for the late filing of the appellant’s brief was both her
mistake and simple negligence and that of her counsel; and
that the CA should have been lenient in the application of
technical rules in resolving the appeal considering their
peculiar situation.
Spouses Ocial, on the other hand, counter that the CA was
correct in denying the omnibus motion for reconsideration
because the records were bereft of any factual justification
for Baldomera’s failure to file the required appellant’s brief.
Furthermore, even granting arguendo, that the CA gravely
abused its discretion in promulgating the November 5, 2009
and October 26, 2010 Resolutions, still the subject petition
must be dismissed because abuse of discretion is not among
the allowable grounds for a petition for review under Rule 45
to prosper.
The Court's Ruling
The Court finds the petitioner’s contention wanting in merit.
There was inexcusable
negligence where a brief
was filed 206 days late
It appears from the record that the counsel for Baldomera
received a copy of the March 18, 2009 CA Resolution on April
7, 2009, thus, giving him until May 22, 2009 to file the
appellant’s brief; that he did not file any motion for
extension of the period to file the brief; that he did not file
either a comment or opposition to the Urgent Motion to
Dismiss Appeal, filed by Spouses Ocial on September 24,
2009, a copy of which he was furnished by mail; and that he
filed the brief for his client only at the time he filed the
omnibus motion for reconsideration on December 14, 2009,
or 206 days late.20
In this regard, Section 1 (e), Rule50 of the Rules of Court
succinctly provides that:
Section 1. Grounds for dismissal of appeal. – An appeal may
be dismissed by the Court of Appeals, on its own motion or
on that of the appellee, on the following grounds:
xxxx
(e) Failure of the appellant to serve and file the required
number of copies of his brief or memorandum within the
time provided by these Rules; x x x
Baldomera posits that it was erroneous for the CA to dismiss
her appeal on the ground that she failed to file her
appellant’s brief on time. She cited the case of Sebastian v.
Morales21 where it was written that liberal construction of the
rules is the controlling principle to effect substantial justice.
Nevertheless, the Court in the same case made
qualifications with respect to the application of the said
principle.1âwphi1 It was held therein,
Litigation is not a game of technicalities, but every case
must be prosecuted in accordance with the prescribed
procedure so that issues may be properly presented and
justly resolved. Hence, rules of procedure must be faithfully
followed except only when for persuasive reasons, they may
be relaxed to relieve a litigant of an injustice not
commensurate with his failure to comply with the prescribed
procedure. Concomitant to a liberal application of the rules
of procedure should be an effort on the part of the party
invoking liberality to explain his failure to abide by the
rules.22
[Emphases and Underscoring Supplied]
In other words, procedural rules are not to be belittled or
dismissed simply because their non-observance may have
resulted in prejudice to a party’s substantive rights. Like all
rules, they are required to be followed except only for the
most persuasive of reasons when they may be relaxed to
relieve a litigant of an injustice not commensurate with the
degree of his thoughtlessness in not complying with the
procedure prescribed. 23 Besides, as the oft quoted quip
would put it, the bare invocation of "in the interest of
substantial justice" is not a magic wand that will
automatically compel this Court to suspend procedural
rules.24
Although the authority of the CA to dismiss an appeal for
failure to file the appellant’s brief is a matter of judicial
discretion, a dismissal based on this ground is neither
mandatory nor ministerial; the fundamentals of justice and
fairness must be observed, bearing in mind the background
and web of circumstances surrounding the case.25
Petitioner’s assertion that her counsel is partly to be blamed
for her legal predicament is not persuasive. Indeed, there
have been myriad of instances when the Court has relaxed
the rule on the binding effect of counsel’s negligence and
allowed a litigant another chance to present his case, to wit:
(1) where the reckless or gross negligence of counsel
deprives the client of due process of law; (2) when
application of the rule will result in outright deprivation of
the client’s liberty or property; or (3) where the interests of
justice so require. Unfortunately, none of these exceptions
obtain here.26
For a claim of counsel’s gross negligence to prosper, nothing
short of clear abandonment of the client’s cause must be
shown. Here, petitioner’s counsel failed to file the appellant’s
brief. While this omission can plausibly qualify as simple
negligence, it does not amount to gross negligence to justify
the annulment of the proceeding.27
Baldomera herself should have exerted some efforts to
inquire as to the status of her appeal. She should not have
been complacent. "While this Court has recognized that a
non-lawyer litigant is not expected to be familiar with the
intricacies of the legal procedures, a layman nonetheless
must not be allowed to conveniently profit from his
improvident mistakes. Thus, it has been equally stressed
that litigants represented by counsel should not expect that
all they need to do is sit back, relax and await the outcome
of the case; instead, they should give the necessary
assistance to their counsel for what is at stake is ultimately
their interest."28
Even on the merits, the
petition must fail
Even on the merits, the petitioner’s quest must fail.
In essence, Baldomera claims that because they have been
in adverse possession for the requisite period, their
possession has now ripened into ownership through
acquisitive prescription.
Baldomera’s argument fails to convince the Court.
Prescription, as a mode of acquiring ownership and other
real rights over immovable property, is concerned with lapse
of time in the manner and under conditions laid down bylaw,
namely, that the possession should be in the concept of an
owner, public, peaceful, uninterrupted, and adverse.
Acquisitive prescription of real rights may be ordinary or
extraordinary. Ordinary acquisitive prescription requires
possession in good faith and with just title for 10
years.29 When the Court speaks of possession in "good faith,"
it consists in the reasonable belief that the person from
whom the thing is received has been the owner thereof, and
can transmit his ownership. There is "just title," on the other
hand, when the adverse claimant comes into possession of
the property through one of the modes recognized by law for
the acquisition of ownership or other real rights, but the
grantor is not the owner or cannot transmit any right. 30 In the
present controversy, aside from Baldomera’s bare allegation
that her family had been in possession of the subject
property since it was sold to her parents, no other evidence,
documentary or otherwise, showing that the title to the
subject property was indeed transferred from Juana to her
parents was presented. In fact, she never denied that the tax
declaration of the property was still in the name of Juana
Fuderanan. As such, for lack of "just title," she could not
have acquired the disputed property by ordinary prescription
through possession of ten (10) years. Occupation or use
alone, no matter how long, cannot confer title by
prescription or adverse possession unless coupled with the
element of hostility towards the true owner, that is,
possession under the claim of title.31
Even the allegation that sometime on November 4, 1983, a
blue paper was executed wherein Teofredo and Eutiquia,
allegedly the duly authorized representatives of the heirs of
Juana to settle their claims over the land, acknowledged to
have received the sum of 1,000.00,32 cannot be considered a
valid basis for a possession in good faith and just title. The
alleged agreement which is, at best, a compromise
agreement cannot be made as the foundation of a
conclusion that Baldomera is a possessor in good faith and
with just title who acquired the property through ordinary
acquisitive prescription. By the nature of a compromise
agreement, which brings the parties to agree to something
that neither of them may actually want, but for the peace it
will bring them without a protracted litigation, no right can
arise therefrom because the parties executed the same only
to buy peace and to write finis to the controversy. It did not
create or transmit ownership rights over the subject
property.33
That being settled, the next question now is: Can Baldomera
acquire the property through extraordinary acquisitive
prescription?
The Court is still constrained to rule in the negative.
In extraordinary prescription, ownership and other real rights
over immovable property are acquired through
uninterrupted adverse possession for 30 years even without
need of title or of good faith. 34
As observed by the trial court,
here was no mention of the predecessor parents of
Baldomera as one of the administrators which would only
fairly suggest that they were never in possession of the land.
It was only in 1994 when Flavio Fudalan came to be named
as its administrator per TD-93-009-00247 evidently after the
execution of the blue paper receipt of ₱1,000.00 by Teofredo
and Teofista Fuderanan in their favor. And it was only then
that the Fudalans started paying taxes thereto, as shown by
the numerous receipts submitted. Thus, the parents of
Baldomera could not have paid taxes to the land before that
period for being not in actual possession of the land contrary
to their claim. It could be for this reason that defendants and
intervenor agreed to buy the land from the heirs of Pedro
and Ulpiano Fuderanan to whom the land was adjudicated
which act was tantamount to an abandonment of their
claim.35
Taking cue from the foregoing, Baldomera’s alleged
possession could not have amounted to an ownership by
way of extraordinary acquisitive prescription. According to
the factual findings of the trial court, it was only in 1994 that
her husband, Flavio was named administrator; that it was
also then that they started paying taxes; and that it was also
then that they started occupying the subject property. This
observation of the trial court was contrary to her assertion
that they had been paying taxes and had been in possession
of the land even before the said period. On this note, the
thirty– year period would only be completed in the year
2024. Also, the records would reveal that as early as
November 2001, her possession was effectively interrupted
when Spouses Ocial filed a complaint before the barangay
captain of Tangnan, Panglao, Bohol, where conciliation
proceedings were held although no settlement was
reached.36
Finally, Baldomera also assails the jurisdiction of the RTC
over the case. According to her, since the action involves
ownership and possession of real property, jurisdiction is
determined by the assessed value of the property in
contention. Considering that the assessed value of Lot 56-A
was only 1,930.00 as indicated in Tax Declaration No. 93-
009-00247, it should have been the first level court, and not
the RTC, which should have exercised jurisdiction to hear
actions involving title to, or possession of real property or
any interest in it, as provided in Sections 19 and 33 of Batas
Pambansa (B.P.) 129, as amended. 37
This argument cannot be sustained.
Even if the Court would treat the complaint filed by Spouses
Ocial as falling under the jurisdiction of the first level court
under Sec. 33 of B.P. 129, as the assessed value was way
below the ₱20,000.00 threshold, still Baldomera's postulation
that it is the first level court, and not the RTC, which has
jurisdiction, would not hold water. As observed, Baldomera
had voluntarily participated in the proceedings before the
RTC and aggressively defended her position. Although she
questioned the jurisdiction of the trial court as early as in the
trial level, she actively participated in the proceeding when
she filed an ANSWER IN INTERVENTION WITH THIRD-PARTY
COMPLAINT38 where she interposed counterclaims, and
asked for affirmative reliefs. Simply put, considering the
extent of her participation in the case, she is estopped from
invoking lack of jurisdiction as a ground for the dismissal of
the action.39
WHEREFORE, the petition is DENIED. The assailed November
5, 2009 and October 26, 2010 Resolutions of the Court of
Appeals in CA-G.R. CV No. 01733 are AFFIRMED.
SO ORDERED.
G.R. No. 201405, August 24, 2015
LIWAYWAY ANDRES, RONNIE ANDRES, AND PABLO B.
FRANCISCO, Petitioners, v. STA. LUCIA REALTY &
DEVELOPMENT, INCORPORATED, Respondent.
DECISION
DEL CASTILLO, J.:
Not all may demand for an easement of right-of-way. Under
the law, an easement of right-of-way may only be demanded
by the owner of an immovable property or by any person
who by virtue of a real right may cultivate or use the same.
This Petition for Review on Certiorari assails the November
17, 2011 Decision 1 of the Court of Appeals in CA-G.R. CV No.
87715, which reversed and set aside the May 22, 2006
Decision2 of the Regional Trial Court (RTC), Binangonan,
Rizal, Branch 68 granting petitioners Pablo B. Francisco
(Pablo), Liwayway Andres (Liwayway), Ronnie Andres
(Ronnie) and their co-plaintiff Liza Andres (Liza) a 50-square
meter right-of-way within the subdivision of respondent Sta.
Lucia Realty and Development, Incorporated (respondent).
Likewise assailed is the March 27, 2012 CA Resolution 3 which
denied petitioners and Liza's Motion for Reconsideration
thereto.
Factual Antecedents
Petitioners and Liza filed a Complaint 4 for Easement of Right-
of-Way against respondent before the RTC on November
28,2000. They alleged that they are co-owners and
possessors for more than 50 years of three parcels of
unregistered agricultural land in Pag-asa, Binangonan, Rizal
with a total area of more or less 10,500 square meters
(subject property). A few years back, however, respondent
acquired the lands surrounding the subject property,
developed the same into a residential subdivision known as
the Binangonan Metropolis East, and built a concrete
perimeter fence around it such that petitioners and Liza were
denied access from subject property to the nearest public
road and vice versa. They thus prayed for a right-of-way
within Binangonan Metropolis East in order for them to have
access to Col. Guido Street, a public road.
In its Answer, 5 respondent denied knowledge of any property
adjoining its subdivision owned by petitioners and Liza. At
any rate, it pointed out that petitioners and Liza failed to
sufficiently allege in their complaint the existence of the
requisites for the grant of an easement of right-of-way.
During trial, Pablo testified that he bought a 4,000-square
meter-portion of the subject property from Carlos Andres
(Carlos), the husband of Liwayway and father of Ronnie and
Liza.6 According to Pablo, he and his co-plaintiffs are still in
possession of the subject property as evidenced by an April
13, 1998 Certification 7 issued by the Barangay Chairman of
Pag-asa.8 Further, Pablo clarified that the easement of right-
of-way that they are asking from respondent would traverse
the latter's subdivision for about 50 meters from the subject
property all the way to another subdivision that he co-owns,
Victoria Village, which in turn, leads to Col. Guido Street. 9 He
claimed that the prevailing market value of lands in the area
is about P600.00 per square meter. Pablo also explained that
the subject property is still not registered under the Land
Registration Act since no tax declaration over the same has
been issued to them despite application with the Municipal
Assessor of Binangonan. 10 When required by the court to
submit documents regarding the said application, 11 Pablo
attached in his Compliance, 12 among others, Carlos'
letter13 of Maty 18, 1998 to the Municipal Assessor of
Binangonan requesting for the issuance of a tax declaration
and the reply thereto dated August 5, 1998 14 of the
Provincial Assessor of Rizal. In the aforesaid reply, the
Provincial Assessor denied the request on the ground that
the subject property was already declared for taxation
purposes under the name of Juan Diaz and later, in the name
of Juanito15 Blanco, et al. (the Blancos).
Liwayway testified next. According to her, she and her
children Ronnie and Liza are the surviving heirs of the late
Carlos who owned the subject property. 16 Carlos acquired
ownership over the same after he had been in continuous,
public and peaceful possession thereof for 50 years, 17 the
circumstances of which he narrated in a Sinumpaang
Salaysay18 that he executed while he was still alive. Carlos
stated therein that even before he was born in 1939, his
father was already in possession and working on the subject
property; that in 1948, he started to help his father in tilling
the land; that when his father became weak and eventually
died, he took over the land; and, that he already sought to
register his ownership of the property with the Department
of Environment and Natural Resources (DENR) and to
declare the same for taxation purposes.
For its part, respondent presented as a lone witness the then
Municipal Assessor of Binangonan, Virgilio Flordeliza
(Flordeliza). Flordeliza confirmed that Carlos wrote him a
letter-request for the issuance of a tax declaration. 19 He,
however, referred the matter to the Provincial Assessor of
Rizal since the property for which the tax declaration was
being applied for was already declared for taxation purposes
in the name of one Juan Diaz.20 Later, the tax declaration of
Juan Diaz was cancelled and in lieu thereof, a tax declaration
in the name of the Blancos was issued. 21 For this reason, the
Provincial Assessor of Rizal denied Carlos' application for
issuance of tax declaration.22cralawrednad
Ruling of the Regional Trial Court
The RTC rendered its Decision 23 on May 22, 2006. It
observed that petitioners and Liza's allegation in their
Complaint that they were in possession of the subject
property for more than 50 years was not denied by
respondent in its Answer. Thus, the same is deemed to have
been impliedly admitted by the latter. It then ratiocinated
that based on Article 113724 of the Civil Code, petitioners and
Liza are considered owners of the subject property through
extraordinary prescription. Having real right over the same,
therefore, they are entitled to demand an easement of right-
of-way under Article 64925cralawred of the Civil Code.
The RTC further held that Pablo's testimony sufficiently
established: (1) that the subject property was surrounded by
respondent's property; (2) the area and location of the right-
of-way sought; (3) the value of the land on which the right-
of-way is to be constituted which was P600.00 per square
meter; and (4) petitioners and Liza's possession of the
subject property up to the present time.
In the ultimate, said court concluded that petitioners and
Liza are entitled to an easement of right-of-way,
thus:cralawlawlibrary
WHEREFORE, judgment is hereby rendered giving the
plaintiffs a right of way of 50 square meters to reach Victoria
Village towards Col. Guido Street. Defendant Sta. Lucia is
hereby ordered to grant the right of way to the plaintiffs as
previously described upon payment of an indemnity
equivalent to the market value of the [50-square meter right
of way].
SO ORDERED.26
Respondent filed a Notice of Appeal27 which was given due
course by the RTC in an Order28 dated June 27, 2006.
Ruling of the Court of Appeals
On appeal, respondent argued mat petitioners and Liza were
neither able to prove that they were owners nor that they
have any real right over the subject property intended to be
the dominant estate. Hence, they are not entitled to demand
an easement of right-of-way. At any rate, they likewise failed
to establish that the only route available from their property
to Col. Guido Street is through respondent's subdivision.
In a Decision 29 dated November 17, 2011, the CA held that
the evidence adduced by petitioners and Liza failed to
sufficiently establish their asserted ownership and
possession of the subject property. Moreover, it held that
contrary to the RTC's observation, respondent in fact denied
in its Answer the allegation of petitioners and Liza that they
have been in possession of subject property for more than
50 years. In view of these, the CA concluded that petitioners
and Liza have no right to demand an easement of right-of-
way from respondent, thus:cralawlawlibrary
WHEREFORE, in view of the foregoing, the appeal is hereby
GRANTED. Accordingly, the May 22, 2006 Decision of the
Regional Trial Court of Binangonan, Rizal, Branch 68 is
REVERSED and SET ASIDE. Civil Case No. 00-037-B is
ordered DISMISSED.
SO ORDERED.30
Petitioners and Liza's Motion for Reconsideration 31 was
denied in the CA Resolution32 dated March 27, 2012.
Hence, petitioners seek recourse to this Court through this
Petition for Review on Certiorari.
Issue
Whether petitioners are entitled to demand an easement of
right-of-way from respondent.
Our Ruling
The Petition has no merit.
Under Article 649 of the Civil Code, an easement of right-of-
way may be demanded by the owner of an immovable or by
any person who by virtue of a real right may cultivate or use
the same.
Here, petitioners argue that they are entitled to demand an
easement of right-of-way from respondent because they are
the owners of the subject property intended to be the
dominant estate. They contend that they have already
acquired ownership of the subject property through ordinary
acquisitive prescription. 33 This is considering that their
possession became adverse as against the Blancos (under
whose names the subject property is declared for taxation)
when Carlos formally registered his claim of ownership with
the DENR and sought to declare the subject property for
taxation purposes in 1998. And since more than 10
years34 had lapsed from that time without the Blancos doing
anything to contest their continued possession of the subject
property, petitioners aver that ordinary acquisitive
prescription had already set in their favor and against the
Blancos.
In the alternative, petitioners assert that they have already
become owners of the subject property through
extraordinary acquisitive prescription since (1) they have
been in open, continuous and peaceful possession thereof
for more than 50 years; (2) the subject property, as depicted
in the Survey Plan they caused to be prepared is alienable
and disposable; (3) Carlos filed a claim of ownership over the
property with the DENR, the agency charged with the
administration of alienable public land; and (4) Carlos'
manifestation of willingness to declare the property for
taxation purposes not only had the effect of giving notice of
his adverse claim on the property but also strengthened
his bona fide claim of ownership over the same.
It must be stressed at the outset that contrary to petitioners'
allegations, there is no showing that Carlos filed a claim of
ownership over the subject property with the DENR. His April
13, 1998 letter 35 to the said office which petitioners assert to
be an application for the registration of such claim is actually
just a request for the issuance of certain documents and
nothing more. Moreover, while Carlos indeed attempted to
declare the subject property for taxation purposes, his
application, as previously mentioned, was denied because a
tax declaration was already issued to the Blancos.
Anent petitioners' invocation of ordinary acquisitive
prescription, the Court notes that the same was raised for
the first time on appeal. Before the RTC, petitioners based
their claim of ownership on extraordinary acquisitive
prescription under Article 1137 of the Civil Code 36 such that
the said court declared them owners of the subject property
by virtue thereof in its May 22, 2006 Decision. 37 Also with the
CA, petitioners initially asserted ownership through
extraordinary acquisitive prescription. 38 It was only later in
their Motion for Reconsideration 39 therein that they averred
that their ownership could also be based on ordinary
acquisitive prescription. 40 "Settled is the rule that points of
law, theories, issues and arguments not brought to the
attention of the lower court need not be considered by a
reviewing court, as they cannot be raised for the first time at
that late stage. Basic considerations of fairness and due
process impel this rule."41cralawrednad
Even if timely raised, such argument of petitioners, as well
as with respect to extraordinary acquisitive prescription,
fails. "Prescription is one of the modes of acquiring
ownership under the Civil Code." 42 There are two modes of
prescription through which immovables may be acquired -
ordinary acquisitive prescription which requires possession in
good faith and just title for 10 years and, extraordinary
prescription wherein ownership and other real rights over
immovable property are acquired through uninterrupted
adverse possession for 30 years without need of title or of
good faith.43 However, it was clarified in the Heirs of Mario
Malabanan v. Republic of the Philippines,44 that only lands of
the public domain subsequently classified or declared as no
longer intended for public use or for the development of
national wealth, or removed from the sphere of public
dominion and are considered converted into patrimonial
lands or lands of private ownership, may be alienated or
disposed through any of the modes of acquiring ownership
under the Civil Code. 45 And if the mode of acquisition is
prescription, whether ordinary or extraordinary, it must first
be shown that the land has already been converted to
private ownership prior to the requisite acquisitive
prescriptive period. Otherwise, Article 1113 of the Civil Code,
which provides that property of the State not patrimonial in
character shall not be the subject of prescription,
applies.46cralawrednad
Sifting through petitioners' allegations, it appears that the
subject property is an unregistered public agricultural land.
Thus, being a land of the public domain, petitioners, in order
to validly claim acquisition thereof through prescription,
must first be able to show that the State has -
expressly declared through either a law enacted by Congress
or a proclamation issued by the President that the subject
[property] is no longer retained for public service or the
development of the national wealth or that the property has
been converted into patrimonial. Consequently, without an
express declaration by the State, the land remains to be a
property of public dominion and hence, not susceptible to
acquisition by virtue of prescription. 47
In the absence of such proof of declaration in this case,
petitioners' claim of ownership over the subject property
based on prescription necessarily crumbles. Conversely, they
cannot demand an easement of right-of-way from
respondent for lack of personality.
All told, the Court finds no error on the part of the CA in
reversing and setting aside the May 22, 2006 Decision of the
RTC and in ordering the dismissal of petitioners' Complaint
for Easement of Right-of-Way against respondent.
WHEREFORE, the Petition is DENIED. The November 17,
2011 Decision and March 27, 2014 Resolution of the Court of
Appeals in CA-G.R. CV No. 87715 are AFFIRMED.
SO ORDERED.
G.R. No. 213014, October 14, 2015
MAYBANK PHILIPPINES, INC. (FORMERLY PNB-
REPUBLIC BANK1), Petitioner, v. SPOUSES OSCAR AND
NENITA TARROSA, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari2 are the
Decision3 dated November 29, 2013 and the
Resolution4 dated May 13, 2014 of the Court of Appeals (CA)
in CA-G.R. CV No. 02211, which affirmed the Decision 5 dated
June 16, 2005 of the Regional Trial Court of Bacolod City,
Branch 41 (RTC) in Civil Case No. 98-10451 declaring the
extrajudicial foreclosure sale of the property covered by
Transfer Certificate of Title (TCT) No. T-5649 as null and void
for being barred by prescription.
The Facts
On December 15, 1980, respondents-spouses Oscar and
Nenita Tarrosa (Sps. Tarrosa) obtained from then PNB-
Republic Bank, now petitioner Maybank Philippines, Inc.
(Maybank), a loan in the amount of P91,000.00. The loan
was secured by a Real Estate Mortgage 6 dated January 5,
1981 (real estate mortgage) over a 500-square meter parcel
of land situated in San Carlos City, Negros Occidental
(subject property), covered by TCT No. T-5649, 7 and the
improvements thereon.8
After paying the said loan, or sometime in March 1983, Sps.
Tarrosa obtained another loan from Maybank in the amount
of P60,000.00 (second loan),9 payable on March 11,
1984.10 However, Sps. Tarrosa failed to settle the second
loan upon maturity.11
Sometime in April 1998, Sps. Tarrosa received a Final
Demand Letter12 dated March 4, 1998 (final demand letter)
from Maybank requiring them to settle their outstanding loan
in the aggregate amount of P564,579.91, inclusive of
principal, interests, and penalty charges. 13 They offered to
pay a lesser amount, which Maybank refused. 14 Thereafter,
or on June 25, 1998, Maybank commenced extrajudicial
foreclosure proceedings15 before the office of Ex-Officio
Provincial Sheriff Ildefonso Villanueva, Jr. (Sheriff Villanueva).
The subject property was eventually sold in a public auction
sale held on July 29, 1998 16 for a total bid price of
P600,000.00, to the highest bidder, Philmay Property, Inc.
(PPI), which was thereafter issued a Certificate of
Sale17 dated July 30, 1998.18
On September 7, 1998, Sps. Tarrosa filed a complaint 19 for
declaration of nullity and invalidity of the foreclosure of real
estate and of public auction sale proceedings and damages
with prayer for preliminary injunction against Maybank, PPI,
Sheriff Villanueva, and the Registry of Deeds of San Carlos
City, Negros Occidental (RD-San Carlos), before the RTC,
docketed as Civil Case No. 98-10451. They averred, inter
alia, that: (a) the second loan was a clean or unsecured loan;
(b) after receiving the final demand letter, they tried to pay
the second loan, including the agreed interests and charges,
but Maybank unjustly refused their offers of payment; and
(c) Maybank's right to foreclose had prescribed or is barred
by laches.20
On the other hand, Maybank and PPI countered 21 that: (a)
the second loan was secured by the same real estate
mortgage under a continuing security provision therein; (b)
when the loan became past due, Sps. Tarrosa promised to
pay and negotiated for a restructuring of their loan, but
failed to pay despite demands; and (c) Sps. Tarrosa's
positive acknowledgment and admission of their
indebtedness controverts the defense of prescription.
The RTC Ruling
In a Decision 23 dated June 16, 2005, the RTC held that the
second loan was subject to the continuing security provision
in the real estate mortgage. 24 However, it ruled that
Maybank's right to foreclose, reckoned from the time the
mortgage indebtedness became due and payable on March
11, 1984, had already prescribed, considering the lack of any
timely judicial action, written extrajudicial demand or written
acknowledgment by the debtor of his debt that could
interrupt the prescriptive period. 25 Accordingly, it declared
the extrajudicial foreclosure proceedings affecting the
subject property as null and void, and ordered Maybank to
pay Sps. Tarrosa moral and exemplary damages, as well as
attorney's fees and litigation expenses. 26
Maybank filed a motion for reconsideration 27 which was,
however, denied in an Order28 dated December 9, 2005,
prompting it to appeal29 to the CA.
The CA Ruling
In a Decision 30 dated November 29, 2013, the CA affirmed
the RTC ruling that Maybank's right to foreclose the real
estate mortgage over the subject property is already barred
by prescription. It held that the prescriptive period should be
reckoned from March 11, 1984 when the second loan had
become past due and remained unpaid since demand was
not a condition sine qua non for the accrual of the latter's
right to foreclose under paragraph 5 of the real estate
mortgage. It observed that Maybank failed to present
evidence of any timely written extrajudicial demand or
written acknowledgment by the debtors of their debt that
could have effectively interrupted the running of the
prescriptive period.31
Undaunted, Maybank moved for reconsideration, 32 which was
denied in a Resolution 33 dated May 13, 2014; hence this
petition.
The Issues Before the Court
The essential issue for the Court's resolution is whether or
not the CA committed reversible error in finding that
Maybank's right to foreclose the real estate mortgage over
the subject property was barred by
prescription.chanrobleslaw
The Court's Ruling
The petition is meritorious.
An action to enforce a right arising from a mortgage
should be enforced within ten (10) years from the
time the right of action accrues, i.e., when the
mortgagor defaults in the payment of his obligation
to the mortgagee; otherwise, it will be barred by
prescription and the mortgagee will lose his rights
under the mortgage.34 However, mere delinquency in
payment does not necessarily mean delay in the legal
concept. To be in default is different from mere delay in the
grammatical sense, because it involves the beginning of a
special condition or status which has its own peculiar effects
or results.35
In order that the debtor may be in default, it is necessary
that: (a) the obligation be demandable and already
liquidated; (b) the debtor delays performance; and (c) the
creditor requires the performance judicially or
extrajudicially, 36unless demand is not necessary  - i.e., when
there is an express stipulation to that effect; where the law
so provides; when the period is the controlling motive or the
principal inducement for the creation of the obligation; and
where demand would be useless. Moreover, it is not
sufficient that the law or obligation fixes a date for
performance; it must further state expressly that after the
period lapses, default will commence. Thus, it is only when
demand to pay is unnecessary in case of the
aforementioned circumstances, or when required,
such demand is made and subsequently refused that
the mortgagor can be considered in default and the
mortgagee obtains the right to file an action to collect
the debt or foreclose the mortgage.38
In the present case, both the CA and the RTC reckoned the
accrual of Maybank's cause of action to foreclose the real
estate mortgage over the subject property from the maturity
of the second loan on May 11, 1984. The CA further held that
demand was unnecessary for the accrual of the cause of
action in light of paragraph 5 of the real estate mortgage,
which pertinently provides:
5. In the event that the Mortgagor herein should fail or
refuse to pay any of the sums of money secured by this
mortgage, or any part thereof, in accordance with the terms
and conditions herein set forth, or should he/it fail to perform
any of the conditions stipulated herein, then and in any such
case, the Mortgagee shall have the right, at its election to
foreclose this mortgage, [x x x].39
However, this provision merely articulated Maybank's right
to elect foreclosure upon Sps. Tarrosa's failure or refusal to
comply with the obligation secured, which is one of the
rights duly accorded to mortgagees in a similar situation. 40 In
no way did it affect the general parameters of default,
particularly the need of prior demand under Article 1169 41 of
the Civil Code, considering that it did not expressly declare:
(a) that demand shall not be necessary in order that the
mortgagor may be in default; or (b) that default shall
commence upon mere failure to pay on the maturity date of
the loan. Hence, the CA erred in construing the above
provision as one through which the parties had dispensed
with demand as a condition sine qua non for the accrual of
Maybank's right to foreclose the real estate mortgage over
the subject property, and thereby, mistakenly reckoned such
right from the maturity date of the loan on March 11, 1984.
In the absence of showing that demand is unnecessary for
the loan obligation to become due and demandable,
Maybank's right to foreclose the real estate mortgage
accrued only after the lapse of the period indicated in its
final demand letter for Sps. Tarrosa to pay, i.e., after the
lapse of five (5) days from receipt of the final demand letter
dated March 4, 1998.42 Consequently, both the CA and the
RTC committed reversible error in declaring that Maybank's
right to foreclose the real estate mortgage had already
prescribed.
Thus, considering that the existence of the loan had been
admitted, the default on the part of the debtors-mortgagors
had been duly established, and the foreclosure proceedings
had been initiated within the prescriptive period as afore-
discussed, the Court finds no reason to nullify the
extrajudicial foreclosure sale of the subject property.
WHEREFORE, the petition is GRANTED. The Decision dated
November 29, 2013 and the Resolution dated May 13, 2014
of the Court of Appeals in CA-G.R. CV No. 02211 are
hereby REVERSED AND SET ASIDE. The complaint in Civil
Case No. 98-10451 is DISMISSED.
SO ORDERED.
G.R. No. 128991. April 12, 2000
YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA and
CHARITO PORMIDA, Petitioners, vs. HONORABLE MATEO
M. LEANDA, in his capacity as Presiding Judge of RTC,
Tacloban City, Branch 8, and LEYTE GULF TRADERS,
INC., Respondents.
DECISION
KAPUNAN, J.:
Reformation of an instrument is that remedy in equity by
means of which a written instrument is made or construed so
as to express or conform to the real intention of the parties
when some error or mistake has been committed. 1 It is
predicated on the equitable maxim that equity treats as
done that which ought to be done. 2 The rationale of the
doctrine is that it would be unjust and unequitable to allow
the enforcement of a written instrument which does not
reflect or disclose the real meeting of the minds of the
parties.3 However, an action for reformation must be brought
within the period prescribed by law, otherwise, it will be
barred by the mere lapse of time. The issue in this case is
whether or not the complaint for reformation filed by
respondent Leyte Gulf Traders, Inc. has prescribed and in the
negative, whether or not it is entitled to the remedy of
reformation sought.
On May 15, 1992, respondent Leyte Gulf Traders, Inc. (herein
referred to as respondent corporation) filed a complaint for
reformation of instrument, specific performance, annulment
of conditional sale and damages with prayer for writ of
injunction against petitioners Yolanda Rosello-Bentir and the
spouses Samuel and Charito Pormida. The case was
docketed as Civil Case No. 92-05-88 and raffled to Judge
Pedro S. Espina, RTC, Tacloban City, Branch 7. Respondent
corporation alleged that it entered into a contract of lease of
a parcel of land with petitioner Bentir for a period of twenty
(20) years starting May 5, 1968. According to respondent
corporation, the lease was extended for another four (4)
years or until May 31, 1992. On May 5, 1989, petitioner
Bentir sold the leased premises to petitioner spouses Samuel
Pormada and Charito Pormada. Respondent corporation
questioned the sale alleging that it had a right of first
refusal. Rebuffed, it filed Civil Case No. 92-05-88 seeking the
reformation of the expired contract of lease on the ground
that its lawyer inadvertently omitted to incorporate in the
contract of lease executed in 1968, the verbal agreement or
understanding between the parties that in the event
petitioner Bentir leases or sells the lot after the expiration of
the lease, respondent corporation has the right to equal the
highest offer.
In due time, petitioners filed their answer alleging that the
inadvertence of the lawyer who prepared the lease contract
is not a ground for reformation. They further contended that
respondent corporation is guilty of laches for not bringing
the case for reformation of the lease contract within the
prescriptive period of ten (10) years from its execution.
Respondent corporation then filed its reply and on November
18, 1992, filed a motion to admit amended complaint. Said
motion was granted by the lower court.4cräläwvirtualibräry
Thereafter, petitioners filed a motion to dismiss reiterating
that the complaint should be dismissed on the ground of
prescription.
On December 15, 1995, the trial court through Judge Pedro
S. Espina issued an order dismissing the complaint premised
on its finding that the action for reformation had already
prescribed. The order reads:
ORDER
Resolved here is the defendants MOTION TO DISMISS
PLAINTIFFS complaint on ground of prescription of action.
It is claimed by plaintiff that he and defendant Bentir entered
into a contract of lease of a parcel of land on May 5, 1968 for
a period of 20 years (and renewed for an additional 4 years
thereafter) with the verbal agreement that in case the lessor
decides to sell the property after the lease, she shall give the
plaintiff the right to equal the offers of other prospective
buyers. It was claimed that the lessor violated this right of
first refusal of the plaintiff when she sureptitiously (sic) sold
the land to co-defendant Pormida on May 5, 1989 under a
Deed of Conditional Sale. Plaintiffs right was further violated
when after discovery of the final sale, plaintiff ordered to
equal the price of co-defendant Pormida was refused and
again defendant Bentir surreptitiously executed a final deed
of sale in favor of co-defendant Pormida in December 11,
1991.
The defendant Bentir denies that she bound herself to give
the plaintiff the right of first refusal in case she sells the
property. But assuming for the sake of argument that such
right of first refusal was made, it is now contended that
plaintiffs cause of action to reform the contract to reflect
such right of first refusal, has already prescribed after 10
years, counted from May 5, 1988 when the contract of lease
incepted. Counsel for defendant cited Conde vs. Malaga, L-
9405 July 31, 1956 and Ramos vs. Court of Appeals, 180
SCRA 635, where the Supreme Court held that the
prescriptive period for reformation of a written contract is
ten (10) years under Article 1144 of the Civil Code.
This Court sustains the position of the defendants that this
action for reformation of contract has prescribed and hereby
orders the dismissal of the case.
SO ORDERED.5cräläwvirtualibräry
On December 29, 1995, respondent corporation filed a
motion for reconsideration of the order dismissing the
complaint.
On January 11, 1996, respondent corporation filed an
urgent ex-parte motion for issuance of an order directing the
petitioners, or their representatives or agents to refrain from
taking possession of the land in question.
Considering that Judge Pedro S. Espina, to whom the case
was raffled for resolution, was assigned to the RTC, Malolos,
Bulacan, Branch 19, Judge Roberto A. Navidad was
designated in his place.
On March 28, 1996, upon motion of herein petitioners, Judge
Navidad inhibited himself from hearing the case.
Consequently, the case was re-raffled and assigned to RTC,
Tacloban City, Branch 8, presided by herein respondent
judge Mateo M. Leanda.
On May 10, 1996, respondent judge issued an order
reversing the order of dismissal on the grounds that the
action for reformation had not yet prescribed and the
dismissal was "premature and precipitate", denying
respondent corporation of its right to procedural due
process. The order reads:
ORDER
Stated briefly, the principal objectives of the twin motions
submitted by the plaintiffs, for resolution are:
(1) for the reconsideration of the Order of 15 December 1995
of the Court (RTC, Br. 7), dismissing this case, on the sole
ground of prescription of one (1) of the five (5) causes of
action of plaintiff in its complaint for "reformation" of a
contract of lease; and,
(2) for issuance by this Court of an Order prohibiting the
defendants and their privies-in-interest, from taking
possession of the leased premises, until a final court order
issues for their exercise of dominical or possessory right
thereto.
The records of this case reveal that co-defendant BENTER
(Yolanda) and plaintiff Leyte Gulf Traders Incorporation,
represented by Chairman Benito Ang, entered into a contract
of lease of a parcel of land, denominated as Lot No. 878-D,
located at Sagkahan District, Tacloban City, on 05 May 1968,
for a period of twenty (20) years, (later renewed for an
additional two (2) years). Included in said covenant of lease
is the verbal understanding and agreement between the
contracting parties, that when the defendant (as lessor) will
sell the subject property, the plaintiff as (lessee) has the
"right of first refusal", that is, the right to equal the offer of
any other prospective third-party buyer. This agreement (sic)
is made apparent by paragraph 4 of the lease agreement
stating:
"4. IMPROVEMENT. The lessee
shall have the right to erect
on the leased premises any
building or structure that it
may desire without the
consent or approval of the
Lessor x x x provided that any
improvements existing at the
termination of the lease shall
remain as the property of the
Lessor without right to
reimbursement to the Lessee
of the cost or value thereof."
That the foregoing provision has been included in the lease
agreement if only to convince the defendant-lessor that
plaintiff desired a priority right to acquire the property (ibid)
by purchase, upon expiration of the effectivity of the deed of
lease.
In the course of the interplay of several procedural moves of
the parties herein, the defendants filed their motion to admit
their amended answer to plaintiffs amended complaint.
Correspondingly, the plaintiff filed its opposition to said
motion. The former court branch admitted the amended
answer, to which order of admission, the plaintiff seasonably
filed its motion for reconsideration. But, before the said
motion for reconsideration was acted upon by the court, the
latter issued an Order on 15 December 1995, DISMISSING
this case on the lone ground of prescription of the cause of
action of plaintiffs complaint on "reformation" of the lease
contract, without anymore considering the remaining cause
of action, viz.: (a) on Specific Performance; (b) an Annulment
of Sale and Title; (c) on Issuance of a Writ of Injunction, and
(d) on Damages.
With due respect to the judicial opinion of the Honorable
Presiding Judge of Branch 7 of this Court, the undersigned, to
whom this case was raffled to after the inhibition of Judge
Roberto Navidad, as acting magistrate of Branch 7, feels not
necessary any more to discuss at length that even the cause
of action for "reformation" has not, as yet, prescribed.
To the mind of this Court, the dismissal order adverted to
above, was obviously premature and precipitate, thus
resulting denial upon the right of plaintiff that procedural
due process. The other remaining four (4) causes of action of
the complaint must have been deliberated upon before that
court acted hastily in dismissing this case.
WHEREFORE, in the interest of substantial justice, the Order
of the court, (Branch 7, RTC) dismissing this case, is hereby
ordered RECONSIDERED and SET ASIDE.
Let, therefore, the motion of plaintiff to reconsider the Order
admitting the amended answer and the Motion to Dismiss
this case (ibid), be set for hearing on May 24, 1996, at 8:30
oclock in the morning. Service of notices must be effected
upon parties and counsel as early as possible before said
scheduled date.
Concomitantly, the defendants and their privies-in-interest or
agents, are hereby STERNLY WARNED not to enter, in the
meantime, the litigated premises, before a final court order
issues granting them dominical as well as possessory right
thereto.
To the motion or petition for contempt, filed by plaintiff, thru
Atty. Bartolome C. Lawsin, the defendants may, if they so
desire, file their answer or rejoinder thereto, before the said
petition will be set for hearing. The latter are given ten (10)
days to do so, from the date of their receipt of a copy of this
Order.
SO ORDERED.6cräläwvirtualibräry
On June 10, 1996, respondent judge issued an order
for status quo ante, enjoining petitioners to desist from
occupying the property.7cräläwvirtualibräry
Aggrieved, petitioners herein filed a petition for certiorari to
the Court of Appeals seeking the annulment of the order of
respondent court with prayer for issuance of a writ of
preliminary injunction and temporary restraining order to
restrain respondent judge from further hearing the case and
to direct respondent corporation to desist from further
possessing the litigated premises and to turn over
possession to petitioners.
On January 17, 1997, the Court of Appeals, after finding no
error in the questioned order nor grave abuse of discretion
on the part of the trial court that would amount to lack, or in
excess of jurisdiction, denied the petition and affirmed the
questioned order.8 A reconsideration of said decision was,
likewise, denied on April 16, 1997.9cräläwvirtualibräry
Thus, the instant petition for review based on the following
assigned errors, viz:
6.01 THE COURT OF APPEALS ERRED IN HOLDING THAT AN
ACTION FOR REFORMATION IS PROPER AND JUSTIFIED
UNDER THE CIRCUMSTANCES OF THE PRESENT CASE;
6.02 THE COURT OF APPEALS ERRED IN HOLDING THAT THE
ACTION FOR REFORMATION HAS NOT YET PRESCRIBED;
6.03 THE COURT OF APPEALS ERRED IN HOLDING THAT AN
OPTION TO BUY IN A CONTRACT OF LEASE IS REVIVED FROM
THE IMPLIED RENEWAL OF SUCH LEASE; AND,
6.04 THE COURT OF APPEALS ERRED IN HOLDING THAT A
STATUS QUO ANTE ORDER IS NOT AN INJUNCTIVE RELIEF
THAT SHOULD COMPLY WITH THE PROVISIONS OF RULE 58
OF THE RULES OF COURT.10cräläwvirtualibräry
The petition has merit.
The core issue that merits our consideration is whether the
complaint for reformation of instrument has prescribed.
The remedy of reformation of an instrument is grounded on
the principle of equity where, in order to express the true
intention of the contracting parties, an instrument already
executed is allowed by law to be reformed. The right of
reformation is necessarily an invasion or limitation of the
parol evidence rule since, when a writing is reformed, the
result is that an oral agreement is by court decree made
legally effective.11 Consequently, the courts, as the agencies
authorized by law to exercise the power to reform an
instrument, must necessarily exercise that power sparingly
and with great caution and zealous care. Moreover, the
remedy, being an extraordinary one, must be subject to
limitations as may be provided by law. Our law and
jurisprudence set such limitations, among which is laches. A
suit for reformation of an instrument may be barred by lapse
of time. The prescriptive period for actions based upon a
written contract and for reformation of an instrument is ten
(10) years under Article 1144 of the Civil Code. 12 Prescription
is intended to suppress stale and fraudulent claims arising
from transactions like the one at bar which facts had become
so obscure from the lapse of time or defective memory. 13 In
the case at bar, respondent corporation had ten (10) years
from 1968, the time when the contract of lease was
executed, to file an action for reformation. Sadly, it did so
only on May 15, 1992 or twenty-four (24) years after the
cause of action accrued, hence, its cause of action has
become stale, hence, time-barred.
In holding that the action for reformation has not prescribed,
the Court of Appeals upheld the ruling of the Regional Trial
Court that the 10-year prescriptive period should be
reckoned not from the execution of the contract of lease in
1968, but from the date of the alleged 4-year extension of
the lease contract after it expired in 1988. Consequently,
when the action for reformation of instrument was filed in
1992 it was within ten (10) years from the extended period
of the lease. Private respondent theorized, and the Court of
Appeals agreed, that the extended period of lease was an
"implied new lease" within the contemplation of Article 1670
of the Civil Code,14 under which provision, the other terms of
the original contract were deemed revived in the implied
new lease.
We do not agree. First, if, according to respondent
corporation, there was an agreement between the parties to
extend the lease contract for four (4) years after the original
contract expired in 1988, then Art. 1670 would not apply as
this provision speaks of an implied new lease (tacita
reconduccion) where at the end of the contract, the lessee
continues to enjoy the thing leased "with the acquiescence
of the lessor", so that the duration of the lease is "not for the
period of the original contract, but for the time established in
Article 1682 and 1687." In other words, if the extended
period of lease was expressly agreed upon by the parties,
then the term should be exactly what the parties stipulated,
not more, not less. Second, even if the supposed 4-year
extended lease be considered as an implied new lease under
Art. 1670, "the other terms of the original contract"
contemplated in said provision are only those terms which
are germane to the lessees right of continued enjoyment of
the property leased.15 The prescriptive period of ten (10)
years provided for in Art. 1144 16 applies by operation of law,
not by the will of the parties. Therefore, the right of action
for reformation accrued from the date of execution of the
contract of lease in 1968.
Even if we were to assume for the sake of argument that the
instant action for reformation is not time-barred, respondent
corporations action will still not prosper. Under Section 1,
Rule 64 of the New Rules of Court, 17 an action for the
reformation of an instrument is instituted as a special civil
action for declaratory relief. Since the purpose of an action
for declaratory relief is to secure an authoritative statement
of the rights and obligations of the parties for their guidance
in the enforcement thereof, or compliance therewith, and not
to settle issues arising from an alleged breach thereof, it
may be entertained only before the breach or violation of the
law or contract to which it refers. 18 Here, respondent
corporation brought the present action for reformation after
an alleged breach or violation of the contract was already
committed by petitioner Bentir. Consequently, the remedy of
reformation no longer lies.
We no longer find it necessary to discuss the other issues
raised considering that the same are predicated upon our
affirmative resolution on the issue of the prescription of the
action for reformation.
WHEREFORE, the petition is hereby GRANTED. The Decision
of the Court of Appeals dated January 17, 1997 is REVERSED
and SET ASIDE. The Order of the Regional Trial Court of
Tacloban City, Branch 7, dated December 15, 1995
dismissing the action for reformation is REINSTATED.
SO ORDERED.
G.R. No. 169442
REPUBLIC OF THE PHILIPPINES, represented by the
PRIVATIZATION AND MANAGEMENT OFFICE
(PMO), Petitioner
vs.
ANTONIO V. BANEZ, LUISITA BANEZ VALERA, NENA
BANEZ HOJILLA, and EDGARDO B. HOJILLA, JR.,
Respondents
DECISION
PEREZ, J.:
Assailed and sought to be annulled in this Petition for Review
on Certiorari under Rule 45 of the 1997 Rules of Civil
Procedure is the Decision 1 of the Court of Appeals dated 23
August 2005 in CA-G.R. CV No. 70137, entitled "Cellophil
Resources Corporation v. Antonio V. Banez, Luisita Banez
Valera, Nena Banez Hojilla and Edgardo B. Hojilla, Jr.," which
affirmed the Order2 of the Regional Trial Court (RTC), Branch
1, Bangued, Abra, dated 16 August 2000, that dismissed the
complaint of petitioner Republic of the Philippines,
represented by Privatization and Management Office (PMO),
for specific performance, recovery of possession, and
damages against respondents Antonio V. Banez, Luisita
Bañez Valera, Nena Bañez Hojilla and Edgardo B. Hojilla, Jr.,
docketed as Civil Case No. 1853.
The facts as culled from the records are as follows:
In 1976, Antonio V. Bañez, Luisita Bañez Valera, and Nena
Bañez Hojilla (collectively, respondents) offered for sale a
parcel of land (subject property), with an area of 20,000 sq
m in Barangay Calaba, Bangued, Abra to Cellophil Resources
Corporation (CRC). Pursuant to the offer to sell on 7
December 1981, respondents executed a Letter Agreement
irrevocably giving CRC the option to purchase the subject
property, which CRC accepted. The pertinent portion of the
Letter Agreement (hereinafter referred to as Contract), to
wit:
1. The purchase price shall be Twenty Pesos xxx per square
meter or a total amount of Four Hundred Thousand Pesos
(₱400,000.00).
2. The co-owners shall take all necessary steps to
cause the CRC Portion to be brought under the
operation of Republic Act No. 496, as amended, and
to cause the issuance in their name of the
corresponding original certificate of title, all of the
foregoing to be accomplished within a reasonable
time from date hereof. xxx
xxxx
7. The co-owners hereby confirm their agreement and
permission to CRC’s entry into, construction of building[s]
and improvements, and occupancy of, any portion of the
Property, and xxx waive any right of action they may have
against CRC respecting such entry, construction, or
occupancy by the latter of any Portion of the Property.
8. An absolute deed of sale containing the above
provisions and standard warranties on conveyances
of real property shall be executed by the co-owners in
favor of CRC or its assignee/s and the same delivered to
the latter together with the original certificate of title upon
payment of the purchase price less the advances made by
CRC in accordance with Paragraphs 2 and 3 above;
provided, that payment shall be made by CRC only
upon presentation by the co-owners to CRC of
certificate/s and/or clearances, with corresponding
receipts, issued by the appropriate government
office/s or agency/ies to the effect that capital gains
tax, real estate taxes on the Property and local
transfer tax and other taxes, fees or charges due on
the transaction and/or on the Property have been
paid.
9. This option shall be effective from [the] date of your
acceptance as indicated by your conformity below and for a
period of one (1) month from and after CRC shall have been
notified in writing by the co-owners that an original
certificate of title has been issued in their names and that
they are ready to execute the xxx deed of sale. 3 (Emphasis
and underscoring ours)
Respondents asked for several cash advances which reached
the total amount of, more or less, Two Hundred Seventeen
Thousand Pesos (P217,000.00), to be deducted from the
purchase price of Four Hundred Thousand Pesos
(₱400,000.00). After paying cash advances to respondents,
CRC constructed staff houses and introduced improvements
on the subject property. As respondents would be staying
abroad for a time, they executed a Special Power of Attorney
(SPA) in favor of Edgardo B. Hojilla (Hojilla). The SPA
authorized Hojilla to perform the following:
1. To take all steps necessary to cause a portion of the lot
covered by Tax Declaration No. 40185 in the name of Urbano
Bañez which is the subject of our "Offer to Sell" to Cellophil
Resources Corporation containing an area xxx to be brought
under the operation of Republic Act No. 496, as amended,
and to cause the issuance in our name of the corresponding
original certificate of title.
2. To do all acts and things and to execute all papers and
documents of whatever nature or kind required for the
accomplishments of the aforesaid purpose.
HEREBY GRANTING AND GIVING unto our said attorney full
power and authority whatsoever requisite or necessary or
proper to be done in or about the premises as fully to all
intents and purposes as we might or could lawfully do if
personally present (with power of substitution and
revocation), and hereby ratifying and confirming all that our
said attorney shall do or cause to be done under and by
virtue of these presents. 4
However, CRC stopped its operation. The Development Bank
of the Philippines and National Development Company took
over CRC’s operation and turned over CRC’s equity to Asset
Privatization Trust (APT), which is a government agency
created by virtue of Proclamation No. 50, as amended. The
APT’s function is to take title to and possession of,
provisionally manage and dispose of nonperforming assets
of government financial institutions. Upon the expiration of
APT’s term on 31 December 2000, the government issued
Executive Order (E.O.) No. 323, which created the
Privatization and Management Office (PMO). By virtue of E.O.
No. 323, the powers, functions, and duties of APT were
transferred to the PMO. Thus, the original party, CRC, is now
represented by the Republic of the Philippines through the
PMO (hereinafter referred to as petitioner), the successor of
the defunct APT.
As alleged by petitioner, respondents declared afterwards
the subject property as Urbano Bañez property, rented out to
third parties the staff houses petitioner constructed, and
ordered its guards to prohibit the petitioner from entering
the compound, which impelled petitioner to file a complaint
for specific performance, recovery of possession, and
damages against respondents, including Hojilla, on 10 April
2000. Among others, the complaint prayed for respondents
to surrender and deliver the title of the subject property, and
execute a deed of absolute sale in favor of petitioner upon
full payment. It mentioned three letters sent to respondents
on 29 May 1991, 24 October 1991, and 6 July 1999.
In the Complaint, it was alleged that:
"[t]here is no justification, legal or otherwise for the
[respondents] to dispossess (sic) the [petitioner] from the
subject property. [Petitioner] is more than willing and able to
pay the [respondents] the balance of the purchase price of
the subject parcel of land but its inability to do so was due to
the [respondents’] failure to produce the original certificate
of title of the subject parcel of land and to execute the
pertinent deed of sale, as well as the unjustified occupation
by the [respondents] of the property and [of] the staff
houses built by [petitioner and that] such actions of the
[respondents] are contrary to their undertaking under
condition no. 7 of the subject letter agreement, that is, for
[respondents] to permit [petitioner’s] entry into and
occupancy of any portion of the subject property and their
waiver of any right of action they may have against
[petitioner] respecting such entry and occupancy of any
portion of the property. And despite repeated demands
made by [petitioner] upon the [respondents] for them to
vacate and turnover the subject parcel of land and the staff
houses to [petitioner], the last of which was in a letter dated
July 6, 1999, the said [respondents] have failed and
neglected and still fail and neglect to do so up to the present
time."5
Ruling of the RTC
On 23 June 2000, Hojilla filed a Motion to Dismiss on the
grounds that he was not a real party-in-interest and that the
action was barred by the Statute of Limitations, which Motion
the RTC granted in an Order dated 16 August 2000 based on
Article 1144(1) of the Civil Code, which bars actions filed
beyond ten (10) years upon the execution of the written
contract. According to the RTC, the letters petitioner sent to
respondents were not demands for respondents to comply
with their obligation to deliver the title as to interrupt the
running of the prescriptive period. The pertinent portion of
the RTC Order reads:
In the instant case, the defendants were given [enough] time
from December 7, 1981 to comply with their obligation,
hence, after a reasonable period of time, the plaintiff should
have demanded compliance of defendants’ undertakings or
initiated any other action to protect its interest without
waiting for the statute of limitations to bar their claim. 6
The RTC resolved that because the written contract was
executed on 7 December 1981, then the complaint that was
filed more than eighteen (18) years since the contract was
executed was beyond the 10-year prescriptive period. Within
that 18-year period, there was no act on the part of
petitioner, whether judicial or extrajudicial, to interrupt
prescription.
While petitioner paid cash advances to respondents for the
processing of the registration of the title, "which totaled to
more or less ₱217,000.00 as of September 7, 1984 xxx to
the filing of this suit, [petitioner] has not demanded
compliance by [respondents] of their obligation, that is, the
execution of the absolute deed of sale and the delivery of
the Original Certificate of Title to the property to [petitioner]
upon payment of the purchase price stipulated. There were
letters addressed to [respondents] but these were not
demands for compliance of [respondents’] obligation and
which is not sufficient under the law to interrupt the
prescriptive period."7
The RTC further stated that:
"[t]he parties could not have contemplated that the delivery
of the property and the payment thereof could be made
indefinitely and render uncertain the status of the land. The
failure of either [of the] parties to demand performance of
the obligation of the other for an unreasonable length of
time renders the contract ineffective."8
The motion for reconsideration was likewise denied in an
Order dated 5 January 2001.
On appeal, petitioner argued that the RTC erred when it
dismissed the complaint. Petitioner averred that: (1) its claim
was not yet barred by prescription; (2) the period of
prescription had been interrupted by extrajudicial demand;
(3) the Statute of Limitation did not run against the State; (4)
petitioner’s claim not having prescribed, laches could not
have set in; (5) the laches of one nullified the laches of the
other; and (6) laches cannot be used to defeat justice or to
perpetuate fraud and injustice.
Ruling of the Court of Appeals
The Court of Appeals affirmed the ruling of the RTC in a
Decision dated 23 August 2005 on the ground that the
complaint was barred by the Statute of Limitations. Contrary
to petitioner’s arguments, the Court of Appeals found that
the extrajudicial demand to respondents did not serve to toll
the running of the prescriptive period. The Court of Appeals
ruled that the record is bereft of evidence that would attest
that written extrajudicial demands were sent to respondents.
While petitioner sent demand letters dated 29 May 1991 and
24 October 1991, these demand letters were not considered
as demand letters because the letters simply called the
attention of Hojilla to return the properties and unlock the
gates. As regards the letter dated 6 July 1999, the Court of
Appeals ruled that because the letter was addressed to
Hojilla, who was only an attorney-in-fact authorized to
register the property, it was not binding upon the
respondents. The Court of Appeals also gave no probative
value to the 6 July 1999 letter for having no proof of service.
With regard to the issue of running of prescriptive period
against the State, the Court of Appeals opined that because
the subject property is a patrimonial property of the State
when APT became the controlling stockholder of CRC,
prescription may run against the State. Thus, the reasonable
period within which to register the property is three (3)
years. According to the Court of Appeals, the cause of action
of petitioner accrued three (3) years from the time the
Contract was executed on 7 December 1981 or, to say the
least, on 15 August 1984 when Hojilla sent the
acknowledgment letter dated 15 August 1984, at which time
it became clear that respondents could no longer fulfill their
obligation.
Hence, petitioner is before us raising the following
arguments:
A. The Court of Appeals erred in ruling that the
running of the prescriptive period was not
interrupted when respondents acknowledged their
still unfulfilled obligation to initiate proceedings for
the registration of title of the subject property and
at the same time committed that they will only
claim the full payment of the property upon
presentation of a clean title and execution of a
Deed of Sale signed by the heirs as stated in the
letter dated August 15, 1984.
B. The Court of Appeals erred in affirming the
outright dismissal of petitioner’s suit for specific
performance, recovery of possession and damages
on the basis of prescription even as it is evident
that there is a need to fix a period considering that
the performance of the condition or obligation is
dependent upon the will of respondents.
C. The Court of Appeals erred in ignoring certain
manifest equitable considerations which militate
against a resort to a purely mathematical
computation of the prescriptive period and in
disregarding the provision of the irrevocable offer
that the option remains effective for a period of
one month from and after notice that a certificate
of title has been issued. 9
The main issue is whether or not the complaint for specific
performance was filed beyond the prescriptive period.
Petitioner’s Arguments
The petitioner argues that although there is a 10-year
limitation within which to file a case based on a written
contract, the period was interrupted due to a written
acknowledgment of respondents’ obligation and demand by
petitioner. The argument is based on Article 1155 of the Civil
Code, which provides that the running of the prescriptive
period is interrupted when there is a written extrajudicial
demand by the creditors, and when there is any written
acknowledgment of the debt by the debtor.
The petitioner referred to the letter sent by Hojilla to the
former dated 15 August 1984, and letters given by petitioner
to Hojilla dated 29 May 1991, 24 October 1991, and 6 July
1999. In the letter dated 15 August 1984, respondents
affirmed their undertaking that they will claim full payment
of the property upon presentation of a clean title and the
execution of the Absolute Deed of Sale, which reads, "[t]he
Bañez heirs will only claim for the full payment of the
property upon presentation of a clean title and execution of
a Deed of Sale signed by the heirs."10
Based on Hojilla’s representation as stated in the letter
dated 15 August 1984, petitioner argues that Hojilla is
estopped by his own acts and for misleading petitioner
because "respondents not only failed to comply with their
commitment to deliver a certificate of title but where [sic]
they also [misled] petitioner into believing that they were
working on the title of the subject property even as they
had[,] at the back of their mind[s], the running of the statute
of limitations as an arsenal once petitioner demands the
fulfillment of their obligation." 11
The petitioner further added that because there was no
period fixed for the fulfillment or performance of the
obligation to deliver the title, the least the court should have
done was to fix the period pursuant to Article 1197 of the
Civil Code.
Finally, the petitioner posits that pursuant to paragraph 9 of
the Contract, its obligation is conditioned upon respondents’
obligation, which is to deliver the title. Thus, because the
respondents failed to deliver such, the obligation of
petitioner never ripened.
Respondents’ Arguments
The arguments of respondents, which are aligned with the
reasons of the lower courts, rely on Article 1144 of the Civil
Code, which provides that actions upon a written contract
must be brought within ten (10) years from execution.
Because the complaint was filed beyond the 10-year
prescriptive period, the action was already barred by the
Statute of Limitations. Further, during such period, petitioner
failed to act either judicially or extrajudicially to effectively
interrupt the running of the prescriptive period. Thus, the
complaint must be dismissed for having been extinguished
by the Statute of Limitations.
Our Ruling
We rule in favor of the petitioner.
We deem material, for the resolution of the issues in this
case, the letters that were exchanged by the parties.
We shall discuss each letter in seriatim.
Hojilla’s letter dated 15 August 1984
In Hojilla’s letter to petitioner dated 15 August 1984, Hojilla
updated petitioner of the status of the subject property’s
title, in this wise:
The preparation of the advance survey plan, technical
description and Engineer’s Certificate pursuant to Land
Administrative Order No. 10- 4 has been submitted to the
Regional Land Office, and approved by the Regional Director.
Atty. Valera is now in the process of preparing the petition
papers of the Calaba property for submission to the local
court.12
There is no other logical conclusion but that the 15 August
1984 letter is an acknowledgment of respondents’
commitment under the Contract. The letter served to update
petitioner of the status of the subject property’s title, an
obligation agreed upon by the parties in the Contract. It
would be specious to argue that respondents did not
acknowledge the existence of the Contract and yet, send
correspondence to petitioner updating it of the status of the
application for title on the subject property. Therefore, the
letter dated 15 August 1984 served as a written
acknowledgment of debt or obligation of respondents.
In Philippine National Railways v. NLRC,13 it was stated that a
written acknowledgment of debt or obligation effectively
interrupts the running of the prescriptive period and sets the
same running anew. 14 Hence, because Hojilla’s letter dated
15 August 1984 served as a written acknowledgement of the
respondents’ debt or obligation, it interrupted the running of
the prescriptive period and set the same running anew with
a new expiry period of 15 August 1994.
Petitioner’s letters dated 29 May
1991 and 24 October 1991
With regard to the letters petitioner sent to Hojilla dated 29
May 1991 and 24 October 1991, the RTC ruled that these
letters were insufficient under the law to interrupt the
prescriptive period because these were not demand letters.
We lift the pertinent portion from the letter dated 29 May
1991, which demanded respondents to return the properties
and to unlock the gates:
Under the agreement to purchase the lot, APT-CRC shall pay
the whole of the purchase price thereof when the certificate
of title and other documents enumerated therein are
presented to it. Clearly, the consummation of the sale is
within your control. x x x
In view of the foregoing, demand is hereby made
upon you and your principals, the heirs of Urbano
Bañez, to return the properties withdrawn and to
unlock the gates leading to the staffhouses (sic),
within fifteen (15) days from receipt thereof,
otherwise we will be constrained to institute the
necessary action to protect the interest of APT-
CRC.15 (Emphasis and underscoring ours)
In the same vein, the letter dated 24 October 1991
demanded respondents to discontinue the construction,
repair, demolition, and occupancy of several staff houses. A
pertinent portion of the 24 October 1991 letter reads:
Considering that these action (sic) are unauthorized, they
constitute violations of the irrevocable option to purchase
dated December 7, 1981, which remains valid, binding and
effective to this day. Demand is hereby made upon you
to discontinue such unauthorized acts and vacate the
premises within fifteen (15) days from receipt
hereof.16 x x x (Emphasis and underscoring ours)
We do not agree with the lower courts. Clearly, the 29 May
1991 and 24 October 1991 letters demanded respondents to
return the properties, discontinue the construction, repair,
demolition and occupancy of several staff houses, and
unlock the gates, which is to enforce respondents’
obligations pursuant to paragraph 7 of the Contract which
reads:
7. The co-owners hereby confirm their agreement and
permission to CRC’s entry into, construction of building and
improvements, and occupancy of, any portion of the
Property, and hereby accordingly waive any right of action
they may have against CRC respecting such entry,
construction, or occupancy by the latter of any Portion of the
Property.17
The letters dated 29 May 1991 and 24 October 1991 are
deemed demand letters as contemplated under Article 1155.
They are demand letters to enforce respondents’ obligation
under the Contract, which is to cede possession to petitioner.
The letters interrupted the running of the prescriptive period
which commenced to run anew.
Petitioner’s letter dated 6 July 1999
Compared to the letters dated 29 May and 24 October 1991,
which demanded Hojilla to surrender possession of the
subject property, this time, in petitioner’s letter to Hojilla
dated 6 July 1999, petitioner demanded Hojilla to produce
the title of the subject property. However, despite the fact
that the letter was a clear demand of the nature
contemplated by law that would interrupt the prescriptive
period, the Court of Appeals found that (1) the letter did not
effectively interrupt the prescriptive period because the
complaint had long prescribed; (2) the letter was addressed
to the wrong party; and, finally, (3) the letter did not bear
any proof of service or receipt.
We do not agree.
Hojilla’s SPA
We refer to the SPA, which granted the authority of Hojilla.
When respondents went abroad pending the performance of
their obligations in the Contract, they authorized Hojilla to
register the subject property— a single obligation in the
whole range of obligations in the Contract. The SPA
appeared to have left no representative to fulfill
respondents’ obligations in the Contract on their behalf
except for Hojilla’s authority to register the subject property.
The pertinent portion of the SPA reads:
1. To take all steps necessary to cause a portion of
the lot covered by Tax Declaration No. 40185 in the
name of Urbano Bañez which is the subject of our
"Offer to Sell" to Cellophil Resources Corporation
containing an area xxx to be brought under the
operation of Republic Act No. 496, as amended, and
to cause the issuance in our name of the
corresponding original certificate of title.
2. To do all acts and things and to execute all papers and
documents of whatever nature or kind required for the
accomplishments of the aforesaid purpose.
HEREBY GRANTING AND GIVING unto our said attorney full
power and authority whatsoever requisite or necessary or
proper to be done in or about the premises as fully to all
intents and purposes as we might or could lawfully do if
personally present (with power of substitution and
revocation), and hereby ratifying and confirming all that our
said attorney shall do or cause to be done under and by
virtue of these presents. 18 (Emphasis and underscoring ours)
This was read simply by the lower courts as limiting Hojilla’s
authority to the registration of the subject property under
the name of his principal, and all the necessary acts for such
purpose. It observed that nowhere in the SPA was Hojilla
authorized as administrator or agent of respondents with
respect to the execution of the Contract.
In the case at bar, the reliefs prayed for by petitioner include
the execution of the Contract such as delivery of the subject
title, recovery of possession of the subject property,
execution of the deed of sale or transfer of absolute
ownership upon full payment of the balance, and damages
for alleged violation of respondents of the Contract for non-
delivery of the title and refusal to vacate the subject
property. Indeed, following the reading of the lower courts of
the scope of Hojilla’s authority, Hojilla is neither the proper
party to execute the Contract nor the proper party to receive
the demand letters on behalf of respondents.
This strict construction of the tenor of the SPA will render the
obligatory force of the Contract ineffective. Construction is
not a tool to prejudice or commit fraud or to obstruct, but to
attain justice. Ea Est Accipienda Interpretatio Quae Vitio
Caret. To favor the lower court’s interpretation of the scope
of Hojilla’s power is to defeat the juridical tie of the Contract
—the vinculum juris of the parties. As no one was authorized
to represent respondents in the Contract, then petitioner
cannot enforce the Contract, as it were. This is an absurd
interpretation of the SPA. It renders the Contract ineffective
for lack of a party to execute the Contract.
Contrary to the findings of the lower court, the present case
is a case of an express agency, where, Hojilla, the agent,
binds himself to represent another, the principal, who are
herein respondents, with the latter’s express consent or
authority.19 In a contract of agency, the agent acts for and in
behalf of the principal on matters within the scope of the
authority conferred upon him, such that, the acts of the
agent have the same legal effect as if they were personally
done by the principal. 20 Because there is an express
authority granted upon Hojilla to represent the respondents
as evidenced by the SPA, Hojilla’s actions bind the
respondents.
As agent, the representations and guarantees of Hojilla are
considered representations and guarantees of the principal.
This is the principle of agency by promissory estoppel. We
refer to the evidence on record. It was Hojilla who
administered and/or managed the subject property. 21 Based
on Hojilla’s letter dated 15 August 1984 to petitioner, Hojilla
made the representation that besides being the attorney-in-
fact of the respondents with limited authority to register the
property, he was also their agent with regard to
respondents’ other obligations related to the Contract. The
pertinent portion of the 15 August 1984 letter of Hojilla to
petitioner reads:
Regarding our loan with the National Electrification
Administration (NEA), Hon. Mel Mathay who is helping the
Bañez heirs has initiated negotiations with NEA for Abreco to
purchase our lot in front of the Provincial Jail to offset our
loan with NEA.22
Also, one glaring fact that cannot escape us is Hojilla’s
representation and guarantee that petitioner’s obligation will
only arise upon presentation of a clean title and execution of
a Deed of Sale signed by the respondents’ heirs, which
reads, "[t]he Bañez heirs will only claim for the full
payment of the property upon presentation of a clean
title and execution of a Deed of Sale signed by the
heirs."23
If Hojilla knew that he had no authority to execute the
Contract and receive the letters on behalf of respondents, he
should have opposed petitioner’s demand letters. However,
having received the several demand letters from petitioner,
Hojilla continuously represented himself as the duly
authorized agent of respondents, authorized not only to
administer and/or manage the subject property, but also
authorized to register the subject property and represent the
respondents with regard to the latter’s obligations in the
Contract. Hojilla also assured petitioner that petitioner’s
obligation to pay will arise only upon presentation of the
title.
Clearly, the respondents are estopped by the acts and
representations of their agent. Falling squarely in the case at
bar is our pronouncement in Philippine National Bank v. IAC
(First Civil Cases Div.),24 "[h]aving given that assurance,
[Hojilla] may not turn around and do the exact opposite of
what [he] said [he] would do. One may not take inconsistent
positions. A party may not go back on his own acts and
representations to the prejudice of the other party who relied
upon them."25
Assuming further that Hojilla exceeded his authority, the
respondents are still solidarily liable because they allowed
Hojilla to act as though he had full powers by impliedly
ratifying Hojilla’s actions—through action by omission. 26 This
is the import of the principle of agency by estoppel or the
doctrine of apparent authority.
In an agency by estoppel or apparent authority, "[t]he
principal is bound by the acts of his agent with the apparent
authority which he knowingly permits the agent to assume,
or which he holds the agent out to the public as
possessing."27
The respondents’ acquiescence of Hojilla’s acts was made
when they failed to repudiate the latter’s acts. They
knowingly permitted Hojilla to represent them and
petitioners were clearly misled into believing Hojilla’s
authority. Thus, the respondents are now estopped from
repudiating Hojilla’s authority, and Hojilla’s actions are
binding upon the respondents.
Receipt of the Letters
Time and time again, this Court has reiterated it is not a trier
of facts and parties may raise only questions of
law.1âwphi1 The jurisdiction of the Court is limited to
reviewing errors of law and findings of fact of the Court of
Appeals are conclusive because it is not the Court’s function
to review, examine, and evaluate or weigh the evidence all
over again.28 The rule, however, is not without exceptions,
viz.:
(1) [W]hen the [conclusion is a finding] grounded entirely on
speculations, surmises [and] conjectures;
(2) [W]hen the inference made is manifestly mistaken,
absurd or impossible;
(3) [W]hen there is grave abuse of discretion;
(4) [W]hen the judgment is based on a misapprehension of
facts;
(5) [W]hen the findings of fact are conflicting;
(6) [W]hen xxx the Court of Appeals[, in making its findings,]
went beyond the issues of the case [and the same is]
contrary to the admissions of both the appellant and the
appellee;
(7) [W]hen the findings are contrary to [those] of the trial
court;
(8) [W]hen the findings [of fact] are conclusions without
citation of specific evidence on which they are based;
(9) [W]hen the facts set forth in the petition as well as in the
petitioner’s main and reply briefs are not disputed by the
respondents;
(10) [W]hen the findings of fact [of the Court of Appeals] are
premised on the supposed absence of evidence and
contradicted by the evidence on record and
(11) [When] the Court of Appeals manifestly overlooked
certain irrelevant facts not disputed by the parties, which, if
properly considered, would justify a different conclusion. 29
In the case at bar, the findings of the RTC and the Court of
Appeals are contradictory: the RTC did not make any finding
on the receipt of the demand letters by Hojilla, while the
Court of Appeals resolved that assuming arguendo that the
letters were demand letters contemplated under Article 1155
of the Civil Code, the same are unavailing because the
letters do not bear any proof of service of receipt by
respondents.
A perusal of the records reveals that only the 24 October
1991 letter has no proof of receipt. 30 The demand letters
dated 29 May 199131 and 6 July 199932 contain proofs of
receipt.
Thus, the core issue of whether or not the action has
prescribed.
An action based on a written contract must be brought
within ten (10) years from the time the right of action
accrued. Accordingly, a cause of action on a written contract
accrues only when an actual breach or violation thereof
occurs.33 A cause of action has three elements, to wit: (1) a
right in favor of the plaintiff by whatever means and under
whatever law it arises or is created; (2) an obligation on the
part of the named defendant to respect or not to violate
such right; and (3) an act or omission on the part of such
defendant violative of the right of the plaintiff or constituting
a breach of the obligation of the defendant to the plaintiff. 34
By the contract between the herein parties, the cause of
action accrued at the point when the reasonable time within
which to present the title lapsed. The parties did not
determine the date when the respondents must present the
title and other documents to the petitioner. The parties only
agreed that the respondents must present the same within a
"reasonable time." Reasonable time means "so much time as
is necessary under the circumstances for a reasonably
prudent and diligent man to do, conveniently, what the
contract or duty requires that should be done, having a
regard for the rights and possibility of loss, if any, to the
other party."35 Such reasonable time was determined by the
respondents through the letter dated 15 August 1984. The
respondents acknowledged their obligation to deliver the
title and asked for a new period to do so. It states:
The preparation of the advance survey plan, technical
description and Engineer’s Certificate pursuant to Land
Administrative Order No. 10-4 has been submitted to the
Regional Land Office, and approved by the Regional Director.
Atty. Valera is now in the process of preparing the petition
papers of the Calaba property for submission to the local
court.
xxxx
The Bañez heirs will only claim for the full payment of the
property upon presentation of a clean title and execution of
a Deed of Sale signed by the heirs.36
The accrual of the cause of action to demand the titling of
the land cannot be earlier than 15 August 1984. So that, the
petitioner can sue on the contract until 15 August 1994. Prior
to the expiration of the aforesaid period, the petitioner sent
a demand letter to Hojilla dated 29 May 1991. A few months
thereafter, petitioner sent another demand letter to Hojilla
dated 24 October 1991.37 The prescriptive period was
interrupted on 29 May 1991.The consequence is stated in
Article 1155 of the Civil Code. It states, "[t]he prescription of
actions is interrupted when they are filed before the court,
when there is a written extrajudicial demand by the
creditors, and when there is any written acknowledgment of
the debt by the debtor." Following the law, the new ten-year
period for the filing of a case by the petitioner should be
counted from 29 May 1991, ending on 29 May 2001. The
complaint at bar was filed on 10 April 2000, well within the
required period.
Notably, before the expiration of the new prescriptive period,
the petitioner again sent a new demand letter on 6 July
1999, which again caused the same to run anew, which will
expire on 6 July 2009. The complaint filed on 10 April 2000
was timely.
The Contract and True Intent of the Parties
Based on the stipulation in the Contract, the parties agreed
that payment shall be made only upon presentation of the
title and other documents of the subject property to
petitioner. Paragraph 8 of the Contract reads:
8. An absolute deed of sale containing the above provisions
and standard warranties on conveyances of real property
shall be executed by the co-owners in favor of CRC or its
assignee/s and the same delivered to the latter together with
the original certificate of title upon payment of the purchase
price less the advances made by CRC in accordance with
Paragraphs 2 and 3 above; provided, that payment shall
be made by CRC only upon presentation by the co-
owners to CRC of certificate/s and/or clearances, with
corresponding receipts, issued by the appropriate
government office/s or agency/ies to the effect that
capital gains tax, real estate taxes on the Property
and local transfer tax and other taxes, fees or
charges due on the transaction and/or on the
Property have been paid.38 (Emphasis and underscoring
ours)
The true intent of the parties is further enunciated in Hojilla's
letter to petitioner dated 15 August 1984, which stated,
"[t]he Baiiez heirs will only claim for the full payment of the
property upon presentation of a clean title and execution of
a Deed of Sale signed by the heirs."39
To rule in favor of respondents despite their failure to
perform their obligations is the height of injustice.
Respondents cannot benefit from their own inaction and
failure to comply with their obligations in the Contract and
let the petitioner suffer from respondents' own default.
WHEREFORE, the petition is GRANTED. The Decision of the
Court of Appeals dated 23 August 2005 in CA-G.R. CV No.
70137, affirming the Order of the Regional Trial Court, which
ruled that the action has prescribed, is reversed and set
aside. Let the records of this case be REMANDED to the
court of origin, which is DIRECTED to admit the Answer with
Counterclaim of the petitioner for further trial on the merits.
The respondents are further ordered to return possession of
the subject property to petitioner. No pronouncement as to
costs.
SO ORDERED.
G.R. No. 165420               June 30, 2005
CONCEPCION R. AINZA, substituted by her legal heirs,
DR. NATIVIDAD A. TULIAO, CORAZON A. JALECO and
LILIA A. OLAYON, petitioners,
vs.
SPOUSES ANTONIO PADUA and EUGENIA
PADUA, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the February 24,
2004 decision of the Court of Appeals in CA-G.R. CV No.
70239,1 and its September 28, 2004 resolution, denying
reconsideration thereof.2
In her complaint for partition of real property, annulment of
titles with damages, 3 Concepcion Ainza (Concepcion) alleged
that respondent-spouses Eugenia (Eugenia) and Antonio
Padua (Antonio) owned a 216.40 sq. m. lot with an
unfinished residential house located at No. 85-A Durian
corner Pajo Sts., Barangay Quirino 2-C, Project 2, Quezon
City, covered by Transfer Certificate of Title No. 271935.
Sometime in April 1987, she bought one-half of an undivided
portion of the property from her daughter, Eugenia and the
latter’s husband, Antonio, for One Hundred Thousand Pesos
(P100,000.00).
No Deed of Absolute Sale was executed to evidence the
transaction, but cash payment was received by the
respondents, and ownership was transferred to Concepcion
through physical delivery to her attorney-in-fact and
daughter, Natividad Tuliao (Natividad). Concepcion
authorized Natividad and the latter’s husband, Ceferino
Tuliao (Ceferino) to occupy the premises, and make
improvements on the unfinished building.
Thereafter, Concepcion alleged that without her consent,
respondents caused the subdivision of the property into
three portions and registered it in their names under TCT
Nos. N-155122, N-155123 and N-155124 in violation of the
restrictions annotated at the back of the title.
On the other hand, Antonio averred that he bought the
property in 1980 and introduced improvements thereon.
Between 1989 and 1990, he and his wife, Eugenia, allowed
Natividad and Ceferino to occupy the premises temporarily.
In 1994, they caused the subdivision of the property and
three (3) separate titles were issued.
Thereafter, Antonio requested Natividad to vacate the
premises but the latter refused and claimed that Concepcion
owned the property. Antonio thus filed an ejectment suit on
April 1, 1999. Concepcion, represented by Natividad, also
filed on May 4, 1999 a civil case for partition of real property
and annulment of titles with damages.
Antonio claimed that his wife, Eugenia, admitted that
Concepcion offered to buy one third (1/3) of the property
who gave her small amounts over several years which
totaled P100,000.00 by 1987 and for which she signed a
receipt.
On January 9, 2001, the Regional Trial Court of Quezon City,
Branch 85, rendered judgment 4 in favor of Concepcion, the
dispositive portion of which states:
WHEREFORE, premises considered, judgment is hereby
rendered in favor of the plaintiff and against the defendants
and ordering:
1. the subdivision of the subject property between
the said plaintiff and defendants in equal shares
with one-half of the property, including the portion
occupied by the spouses Severino and Natividad
Tuliao to be awarded to the plaintiff;
2. the cancellation of Transfer Certificates of Title
Nos. N-155122, N-155123, N-155124 of the
Registry of Deeds of Quezon City;
3. the defendants to pay to the plaintiff
P50,000.00 as attorney’s fees.
SO ORDERED.5
The trial court upheld the sale between Eugenia and
Concepcion. It ruled that the sale was consummated when
both contracting parties complied with their respective
obligations. Eugenia transferred possession by delivering the
property to Concepcion who in turn paid the purchase price.
It also declared that the transfer of the property did not
violate the Statute of Frauds because a fully executed
contract does not fall within its coverage.
On appeal by the respondents, the Court of Appeals reversed
the decision of the trial court, and declared the sale null and
void. Applying Article 124 of the Family Code, the Court of
Appeals ruled that since the subject property is conjugal, the
written consent of Antonio must be obtained for the sale to
be valid. It also ordered the spouses Padua to return the
amount of P100,000.00 to petitioners plus interest. 6
The sole issue for resolution in this petition for review is
whether there was a valid contract of sale between Eugenia
and Concepcion.
A contract of sale is perfected by mere consent, upon a
meeting of the minds on the offer and the acceptance
thereof based on subject matter, price and terms of
payment.7
In this case, there was a perfected contract of sale between
Eugenia and Concepcion. The records show that Eugenia
offered to sell a portion of the property to Concepcion, who
accepted the offer and agreed to pay P100,000.00 as
consideration. The contract of sale was consummated when
both parties fully complied with their respective obligations.
Eugenia delivered the property to Concepcion, who in turn,
paid Eugenia the price of One Hundred Thousand Pesos
(P100,000.00), as evidenced by the receipt which reads:
R E C E I P T
Received the amount of ONE HUNDRED THOUSAND PESOS
(P100,000.00) as payment for the lot on 85-A Durian St.,
Project 2, Quezon City, from Mrs. Concepcion R. Ainza, on
April, 1987.
_______(Sgd.)______
Mrs.. Eugenia A. Padua8
The verbal contract of sale between Eugenia and Concepcion
did not violate the provisions of the Statute of Frauds that a
contract for the sale of real property shall be unenforceable
unless the contract or some note or memorandum of the
sale is in writing and subscribed by the party charged or his
agent.9 When a verbal contract has been completed,
executed or partially consummated, as in this case, its
enforceability will not be barred by the Statute of Frauds,
which applies only to an executory agreement. 10 Thus, where
one party has performed his obligation, oral evidence will be
admitted to prove the agreement. 11
In the instant case, the oral contract of sale between
Eugenia and Concepcion was evidenced by a receipt signed
by Eugenia. Antonio also stated that his wife admitted to him
that she sold the property to Concepcion.
It is undisputed that the subject property was conjugal and
sold by Eugenia in April 1987 or prior to the effectivity of the
Family Code on August 3, 1988, Article 254 of which
repealed Title V, Book I of the Civil Code provisions on the
property relations between husband and wife. However,
Article 256 thereof limited its retroactive effect only to cases
where it would not prejudice or impair vested or acquired
rights in accordance with the Civil Code or other laws. In the
case at bar, vested rights of Concepcion will be impaired or
prejudiced by the application of the Family Code; hence, the
provisions of the Civil Code should be applied.
In Felipe v. Heirs of Aldon, et al.,12 the legal effect of a sale of
conjugal properties by the wife without the consent of the
husband was clarified, to wit:
The legal ground which deserves attention is the legal effect
of a sale of lands belonging to the conjugal partnership
made by the wife without the consent of the husband.
It is useful at this point to re-state some elementary rules:
The husband is the administrator of the conjugal partnership.
(Art. 165, Civil Code) Subject to certain exceptions, the
husband cannot alienate or encumber any real property of
the conjugal partnership without the wife’s consent. (Art.
166, Idem.) And the wife cannot bind the conjugal
partnership without the husband’s consent, except in cases
provided by law. (Art. 172, Idem.).
In the instant case, Gimena, the wife, sold lands belonging to
the conjugal partnership without the consent of the husband
and the sale is not covered by the phrase "except in cases
provided by law." The Court of Appeals described the sale as
"invalid" – a term which is imprecise when used in relation to
contracts because the Civil Code uses specific names in
designating defective contracts, namely: rescissible (Arts.
1380 et seq.), voidable (Arts. 1390 et
seq.), unenforceable (Arts. 1403, et seq.), and void or
inexistent (Arts. 1409 et seq.).1awphi1.zw+
The sale made by Gimena is certainly a defective
contract but of what category? The answer: it is a
voidable contract.
According to Art. 1390 of the Civil Code, among the voidable
contracts are "[T]hose where one of the parties is incapable
of giving consent to the contract." (Par. 1.) In the instant
case Gimena had no capacity to give consent to the contract
of sale. The capacity to give consent belonged not even to
the husband alone but to both spouses.
The view that the contract made by Gimena is a
voidable contract is supported by the legal provision
that contracts entered by the husband without the
consent of the wife when such consent is required,
are annullable at her instance during the marriage
and within ten years from the transaction questioned.
(Art. 173, Civil Code).
Gimena’s contract is not rescissible for in such a contract all
the essential elements are untainted but Gimena’s consent
was tainted. Neither can the contract be classified as
unenforceable because it does not fit any of those described
in Art. 1403 of the Civil Code. And finally, the contract
cannot be void or inexistent because it is not one of those
mentioned in Art. 1409 of the Civil Code. By process of
elimination, it must perforce be a voidable contract.
The voidable contract of Gimena was subject to annulment
by her husband only during the marriage because he was
the victim who had an interest in the contract. Gimena, who
was the party responsible for the defect, could not ask for its
annulment. Their children could not likewise seek the
annulment of the contract while the marriage subsisted
because they merely had an inchoate right to the lands sold.
(Emphasis supplied)
The consent of both Eugenia and Antonio is necessary for
the sale of the conjugal property to be valid. Antonio’s
consent cannot be presumed. 13 Except for the self-serving
testimony of petitioner Natividad, there is no evidence that
Antonio participated or consented to the sale of the conjugal
property. Eugenia alone is incapable of giving consent to the
contract. Therefore, in the absence of Antonio’s consent, the
disposition made by Eugenia is voidable.14
The contract of sale between Eugenia and Concepcion being
an oral contract, the action to annul the same must be
commenced within six years from the time the right of action
accrued.15 Eugenia sold the property in April 1987 hence
Antonio should have asked the courts to annul the sale on or
before April 1993. No action was commenced by Antonio to
annul the sale, hence his right to seek its annulment was
extinguished by prescription.
Even assuming that the ten (10)-year prescriptive period
under Art. 173 should apply, Antonio is still barred from
instituting an action to annul the sale because since April
1987, more than ten (10) years had already lapsed without
any such action being filed.
In sum, the sale of the conjugal property by Eugenia without
the consent of her husband is voidable. It is binding unless
annulled. Antonio failed to exercise his right to ask for the
annulment within the prescribed period, hence, he is now
barred from questioning the validity of the sale between his
wife and Concepcion.
WHEREFORE, the petition is GRANTED. The decision dated
February 24, 2004 of the Court of Appeals in CA-G.R. CV No.
70239 and its resolution dated September 28, 2004 are
REVERSED and SET ASIDE. The decision dated January 9,
2001 of the Regional Trial Court of Quezon City, Branch 85,
in Civil Case No. Q-99-37529, is REINSTATED.
SO ORDERED.
G.R. No. 190828, March 16, 2015
ONOFRE V. MONTERO, EDGARDO N. ESTRAÑERO,
RENING P. PADRE, GABRIEL A. MADERA, HERMINIO T.
TACLA, NELSON C. VILORIA, DEMETRIO Q. PAJARILLO,
ALFREDO R. AGANON, REYNALDO AVILA, ALBERT T.
RUIZ, NESTOR Y. YAGO, HARTY M. TUPASI, AGUSTIN R.
AVILA, JR. OR MARCOS R. AVILA, BONIFACIO B.
GAANO, JOSELITO D. CUENTA, JONAS P. ESTILONG,
DOMINADOR C. CANARIA, GENARO C. RONDARIS,
HERARDO M. DULAY, FRANKLIN A. RAVINA, JR., AND
RUBEN C. CABELLO, Petitioners, v. TIMES
TRANSPORTATION CO., INC., AND SANTIAGO
RONDARIS, MENCORP TRANSPORT SYSTEMS, INC.,
VIRGINIA R. MENDOZA AND REYNALDO
MENDOZA, Respondents.
DECISION
REYES, J.:
This appeal by petition for review1 seeks to annul and set
aside the Decision 2 dated August 28, 2009 and
Resolution3 dated December 11, 2009 of the Court of
Appeals (CA) in CA-G.R. SP No. 106260, which affirmed the
Decision4dated March 31, 2008 of the National Labor
Relations Commission (NLRC) in NLRC CA No. 046325-05
(08), and its Resolution 5 dated September 5, 2008, denying
the petitioner’s Motion for Reconsideration. The NLRC
decision vacated and set aside the Decision 6 dated June 29,
2005 of the Labor Arbiter (LA) on the ground that the
consolidated complaints for illegal dismissal, unfair labor
practice and money claims have already prescribed.
The Facts
Respondent Times Transportation Co., Inc., (TTCI) is a
company engaged in the business of land transportation for
passengers and goods serving the Ilocos Region to Metro
Manila route. TTCI employed the herein 21 petitioners as bus
drivers, conductors, mechanics, welders, security guards and
utility personnel, namely: Onofre V. Montero (Montero),
Edgardo N. Estrañero (Estrañero), Rening P. Padre (Padre),
Gabriel A. Madera (Madera), Herminio T. Tacla, Nelson C.
Viloria, Demetrio Q. Pajarillo (Pajarillo), Alfredo R. Aganon
(Aganon), Reynaldo Avila (Avila), Albert T. Ruiz, Nestor Y.
Yago (Yago), Harty M. Tupasi (Tupasi), Agustin R. Avila, Jr.
(Avila, Jr.), Bonifacio B. Gaano (Gaano), Joselito D. Cuenta
(Cuenta), Jonas P. Estilong (Estilong), Dominador C. Canaria
(Canaria), Genaro C. Rondaris (Genaro), Herardo M. Dulay
(Dulay), Franklin A. Ravina, Jr. (Ravina), and Ruben C.
Cabello (Cabello) (petitioners).7chanroblesvirtuallawlibrary
Sometime in 1995, the rank-and-file employees of TTCI
formed a union named as Times Employees Union (TEU)
which was later certified as the sole and exclusive
bargaining unit within TTCI.8chanroblesvirtuallawlibrary
In March 1997, members of TEU went on strike; but when
former Labor Secretary Leonardo A. Quisimbing assumed
jurisdiction over the labor dispute and certified the same for
compulsory arbitration, a return-to-work Order dated March
10, 1997 was issued which ended the strike and enjoined the
parties from committing any other act that may intensify the
situation.9chanroblesvirtuallawlibrary
On August 23, 1997, TTCI Board of Directors approved a
resolution confirming the authority given to respondent
Santiago Rondaris (Santiago), TTCI President and Chairman
of the Board of Directors, to gradually dispose the assets of
the TTCI as a result of its unabated increase of the cost of
operations and losses for the last two years. TTCI also
adopted a company-wide retrenchment program, which will
take effect on October 1, 1997, where Santiago was given
the authority to determine the number of excess employees
who would be the subject of
retrenchment.10chanroblesvirtuallawlibrary
The sale of 25 buses of TTCI, as well as the Certificates of
Public Convenience for the operation of the buses, were
likewise approved and subsequently transferred to
respondent Mencorp Transport Systems, Inc., (MENCORP) by
virtue of a Deed of Sale dated December 12, 1997.
Thereafter, several union members received notices that
they were being retrenched effective 30 days from
September 16, 1997.11chanroblesvirtuallawlibrary
For a second time, on October 17, 1997, TEU declared a
strike against TTCI, but the latter merely reiterated the
earlier return-to-work order of the Labor Secretary. For
disregarding the said return-to-work order, Santiago issued
two notices of termination dated October 26,
199712 terminating some 106 workers and a revised list
dated November 24, 199713 increasing the number of
dismissed employees to 119, for participating in the illegal
strike.14chanroblesvirtuallawlibrary
On December 4, 1997, Santiago served to the Department of
Labor and Employment Regional Office I a notice that TTCI
would be closing its operations due to heavy business
losses.15chanroblesvirtuallawlibrary
On May 14, 1998, petitioners Estrañero, Pajarillo, Padre,
Avila, Avila, Jr., Tupasi, Cuenta, Dulay, Yago, and Aganon
filed several complaints against TTCI and MENCORP before
the NLRC. The complaints were thereafter consolidated
under the case entitled “Malana v. TTCI” docketed as NLRC
RAB-I-01-1007.16 However, this case was withdrawn on
March 4, 1999 upon motion by the TEU’s counsel which was
given due course on March 22,
1999.17chanroblesvirtuallawlibrary
Four years later, several complaints for unfair labor practice,
illegal dismissal with money claims, damages and attorney’s
fees were filed against TTCI, Santiago, MENCORP and its
General Manager Virginia Mendoza, including the latter’s
husband Reynaldo Mendoza (collectively called the
respondents), before the LA from June to July
2002.18 Accordingly, these complaints were consolidated.
In response, TTCI asserted that the petitioners’ cause of
action had already been barred by prescription because the
complaints were filed only in June 2002 or after almost five
years from the date of their dismissal. MENCORP, on the
other hand, raised the defense of lack of employer-employee
relationship since it never engaged the services of the
petitioners when TTCI sold to them its buses and the
Certificates of Public
Convenience.19chanroblesvirtuallawlibrary
On June 9, 2005, the LA rendered a Decision dismissing the
petitioners’ claim for unfair labor practice and money claims
on the ground of prescription. However, with regard to the
issue of illegal dismissal, only the complaints of Montero,
Ravina, Cabello, Genaro, Madera, Gaano, Arsenio Donato
and Estilong were dismissed for having been barred by
prescription.20chanroblesvirtuallawlibrary
The LA found that petitioners Estrañero, Pajarillo, Aganon,
Padre, Dulay, Cuenta, Canaria, Yago, Avila and Avila, Jr. were
illegally dismissed and were awarded their separation pay
and backwages. According to the LA, the complaints of these
10 petitioners were timely filed in June 2002 because the
eight-month period during which their cases were pending
should be excluded from the four-year prescriptive
period.21chanroblesvirtuallawlibrary
Disagreeing with the LA decision, all parties interposed an
appeal before the NLRC. However, said appeals have both
been denied for non-perfection, particularly for failure of the
petitioners to verify their appeal, and for failure of the
respondent to post the required cash or surety bond. In a
Decision22 dated March 31, 2008, the NLRC vacated and set
aside the findings of the LA, upon finding that the
petitioners’ complaints had already been barred by
prescription. The dispositive part of which
reads:chanRoblesvirtualLawlibrary
WHEREFORE, IN VIEW OF THE FOREGOING, the decision
appealed from is hereby VACATED and SET ASIDE, and the
complaints dismissed on ground of prescription.
SO ORDERED.23
The NLRC observed that the LA had ignored the rule on
prescription, and chose to be selective in awarding relief to
the 10 complainants by stating in his decision that the period
during which the labor cases were pending should be
deducted from the period of prescription. According to the
NLRC:chanRoblesvirtualLawlibrary
We have thoroughly examined the records and find no
justification for the [LA] to rule that the pendency of the
cases has worked in favor of the complainants to whom he
awarded separation pay and backwages. The [LA] has not at
all indicated in his decision when the eight (8)[-]month
period of pendency he alluded to commenced and when it
ended. As a matter of fact, these cases took almost three (3)
years from filing of the complaints to the rendition of the
appealed decision. 24
The NLRC added that the application of the principle of
prescription should not be done on a selective basis,
especially when the dates of accrual of the causes of action
and the filing of the complaints readily show that
prescription has set in.25chanroblesvirtuallawlibrary
The petitioners filed a motion for reconsideration 26 dated
May 16, 2008, but it was denied. 27 Hence, they filed a
petition for certiorari28 before the CA.
On August 28, 2009, the CA Decision dismissed the
petition.29 In sustaining the NLRC decision, the appellate
court ratiocinated:chanRoblesvirtualLawlibrary
Here, the illegal dismissal case was filed only in June 2002 or
for more than four (4) years and seven (7) months from the
time petitioners received the notices of their dismissal in
November and October 1997. Clearly, the four-year
prescriptive period has already elapsed.
Moreover, there is likewise no merit in petitioners’
contention that the period when they filed a complaint on
May 14, 1998 but withdrawn on March 30, 1998 should be
excluded from the computation of the four-year prescriptive
[period] for illegal dismissal cases. The prescriptive period
continues even after the withdrawal of the case as though no
action has been filed at all. This was clarified in the case
of Intercontinental Broadcasting Corporation vs.
Panganiban, where the Supreme Court held that although
the commencement of an action stops the running of the
statute of prescription or limitations, its dismissal or
voluntary abandonment by plaintiff leaves the parties in
exactly the same position as though no action had been
commenced at all. x x x.30
Aggrieved by the foregoing disquisition, the petitioners
moved for reconsideration 31 but it was denied by the
CA.32 Hence, the present petition for review
on certiorari.33chanroblesvirtuallawlibrary
The Issue
The main issue in this case is whether or not the petitioners’
complaints for illegal dismissal have already prescribed.
Ruling of the Court
The petition is bereft of merit.
“It should be emphasized at the outset that as a rule, this
Court is not a trier of facts and this applies with greater force
in labor cases. Hence, factual findings of quasi-judicial
bodies like the NLRC, particularly when they coincide with
those of the [LA] and if supported by substantial evidence,
are accorded respect and even finality by this Court. But
where the findings of the NLRC and the [LA] are
contradictory, as in the present case, this Court may delve
into the records and examine for itself the questioned
findings.”34chanroblesvirtuallawlibrary
Nevertheless, the Court has thoroughly reviewed the records
in this case and finds that the NLRC did not commit any
grave abuse of its discretion amounting to lack or in excess
of jurisdiction in rendering its decision in favor of the
respondents. The CA acted in accord with the evidence on
record and case law when it dismissed the petition and
affirmed the assailed decision and resolution of the NLRC.
In the case at bar, October 26, 1997 and November 24, 1997
appear on record to be the dates when the petitioners’
employment were terminated by TTCI. The antecedent facts
that gave rise to the petitioners’ dismissal from employment
are not disputed in this case. There is no question about the
fact that the petitioners’ complaints for unfair labor practice
and money claims have already prescribed. The petitioners
however argue that their complaints for illegal dismissal
were duly filed within the four-year prescriptive period since
the period during which their cases were pending should be
deducted from the period of prescription. On the other hand,
the respondents insist that said complaints have already
prescribed. Hence, the pivotal question in resolving the
issues hinges on the resolution of whether the period during
which the petitioners’ cases were pending should be
excluded from the period of prescription.
Settled is the rule that when one is arbitrarily and unjustly
deprived of his job or means of livelihood, the action
instituted to contest the legality of one’s dismissal from
employment constitutes, in essence, an action predicated
upon an injury to the rights of the plaintiff, as contemplated
under Article 114635 of the New Civil Code, which must be
brought within four years.36chanroblesvirtuallawlibrary
The petitioners contend that the period when they filed a
labor case on May 14, 1998 but withdrawn on March 22,
1999 should be excluded from the computation of the four-
year prescriptive period for illegal dismissal cases. However,
the Court had already ruled that the prescriptive period
continues even after the withdrawal of the case as though no
action has been filed at all. The applicability of Article
115537of the Civil Code in labor cases was upheld in the case
of Intercontinental Broadcasting Corporation v.
Panganiban38 where the Court held that “although the
commencement of a civil action stops the running of the
statute of prescription or limitations, its dismissal or
voluntary abandonment by plaintiff leaves the parties in
exactly the same position as though no action had been
commenced at all.” 39chanroblesvirtuallawlibrary
In like manner, while the filing of the complaint for illegal
dismissal before the LA interrupted the running of the
prescriptive period, its voluntary withdrawal left the
petitioners in exactly the same position as though no
complaint had been filed at all. The withdrawal of their
complaint effectively erased the tolling of the reglementary
period.
A prudent review of the antecedents of the claim reveals
that it has in fact prescribed due to the petitioners’
withdrawal of their labor case docketed as NLRC RAB-I-01-
1007.40 Hence, while the filing of the said case could have
interrupted the running of the four-year prescriptive period,
the voluntary withdrawal of the petitioners effectively
cancelled the tolling of the prescriptive period within which
to file their illegal dismissal case, leaving them in exactly the
same position as though no labor case had been filed at all.
The running of the four-year prescriptive period not having
been interrupted by the filing of NLRC RAB-I-01-1007, the
petitioners’ cause of action had already prescribed in four
years after their cessation of employment on October 26,
1997 and November 24, 1997. Consequently, when the
petitioners filed their complaint for illegal dismissal,
separation pay, retirement benefits, and damages in 2002,
their claim, clearly, had already been barred by
prescription.41chanroblesvirtuallawlibrary
Sadly, the petitioners have no one but themselves to blame
for their own predicament. By their own allegations in their
respective complaints, they have barred their remedy and
extinguished their right of action. Although the Constitution
is committed to the policy of social justice and the protection
of the working class, it does not necessary follow that every
labor dispute will be automatically decided in favor of labor.
The management also has its own rights. Out of concern for
the less privileged in life, this Court, has more often than not
inclined, to uphold the cause of the worker in his conflict
with the employer. Such leaning, however, does not blind the
Court to the rule that justice is in every case for the
deserving, to be dispensed in the light of the established
facts and applicable law and
doctrine.42chanroblesvirtuallawlibrary
WHEREFORE, the Decision dated August 28, 2009 and
Resolution dated December 11, 2009 of the Court of Appeals
in CA-G.R. SP No. 106260 are AFFIRMED.
SO ORDERED.
G.R. No. 175949
UNITED ALLOY PHILIPINES CORPORATION, SPOUSES
DAVID C. CHUA and LUTEN CHUA, Petitioners
vs.
UNITED COCONUT PLANTERS BANK, Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari seeking
the reversal and setting aside of the Decision 1 and
Resolution2 of the Court of Appeals (CA), dated September
21, 2006 and December 11, 2006, respectively, in CA-G.R.
CV No. 81079. The assailed Decision affirmed the Decision of
the Regional Trial Court (RTC) of Makati City, Branch 135, in
Civil Case No. 01-1332, while the questioned Resolution
denied petitioners' Motion for Reconsideration.
The pertinent factual and procedural antecedents of the case
are as follows:
On December 18, 2000, herein petitioner corporation, United
Alloy Philippines Corporation (UNIALLOY) applied for and was
granted a credit accommodation by herein respondent
United Coconut Planters Bank
(UCPB) in the amount of PhP50,000,000.00, as evidenced by
a Credit Agreement. 3 Part of UNIALLOY's obligation under
the Credit Agreement was secured by a Surety
Agreement,4 dated December 18, 2000, executed by
UNIALLOY Chairman, Jakob Van Der Sluis (Van Der Sluis),
UNIALLOY President, David Chua and his spouse, Luten Chua
(Spouses Chua), and one Yang Kim Eng (Yang). Six (6)
Promissory Notes,5 were later executed by UNIALLOY in
UCPB's favor, to wit:
1) #8111-00-20031-1, executed on December 18, 2000, in
the amount ofUS$110,000.00;
2) #8111-00-00110-6, executed on December 18, 2000, in
the amount of PhP6,000,000.00;
3) #8111-00-00112-2, executed on December 27, 2000, in
the amount of PhP3,900,000.00;
4) #8111-01-20005-6, executed on February 7, 2001, in the
amount of US$320,000.00;
5) #8111-01-00009-0, executed on February 26, 2001, in the
amount of PhPl,600,000.00;
6) #8111-01-00030-8, executed on April 30, 2001, in the
amount of PhP16,029,320.88.
In addition, as part of the consideration for the credit
accommodation, UNIALLOY and UCPB also entered into a
"lease-purchase" contract wherein the former assured the
latter that it will purchase several real properties which UCPB
co-owns with the Development Bank of the Philippines.
Subsequently, UNIALLOY failed to pay its loan obligations. As
a result, UCPB filed against UNIALLOY, the spouses Chua,
Yang and Van Der Sluis an action for Sum of Money with
Prayer for Preliminary Attachment 6 on August 27, 2001. The
collection case was filed with the Regional Trial Court of
Makati City (RTC of Makati) and docketed as Civil Case No.
01-1332. Consequently, UCPB also unilaterally rescinded its
leasepurchase contract with UNIALLOY.
On the other hand, on even date, UNIALLOY filed against
UCPB, UCPB Vice-President Robert Chua and Van Der Sluis a
complaint for Annulment and/or Reformation of Contract with
Damages, with Prayer for a Writ of Preliminary Injunction or
Temporary Restraining Order.7 Claiming that it holds office
and conducts its business operations in Tagoloan, Misamis
Oriental, UNIALLOY filed the case with the Regional Trial
Court of Cagayan De Oro City (RTC of CDO) and was
docketed as Civil Case No. 2001-219. UNIALLOY contended
that Van Der Sluis, in cahoots with UCPB Vice-President
Robert Chua, committed fraud, manipulation and
misrepresentation to obtain the subject loan for their own
benefit. UNIALLOY prayed, among others, that three (3) of
the six (6) Promissory Notes it executed be annulled or
reformed or that it be released from liability thereon.
On September 12, 2001, UNIALLOY filed an Urgent Motion to
Dismiss8 the collection case (Civil Case No. 01-1332) filed by
UCPB on the ground of litis pendentia and forum shopping.
UNIALLOY contended that its complaint for annulment of
contract (Civil Case No. 2001-219) and the collection case
filed by UCPB involves the same parties and causes of
action. On October 31, 2001, the RTC of Makati issued an
Order9 denying UNIALLOY's motion to dismiss.
In the meantime, UCPB and its co-defendants also filed a
Motion to Dismiss UNIALLOY's complaint for annulment of
contract on the grounds of improper venue, forum shopping,
litis pendentia, and harassment or nuisance suit. On
September 13, 2001, the RTC of CDO issued an
Order10 dismissing UNIALLOY's complaint for annulment of
contract. The dispositive portion of the Order reads, thus:
ACCORDINGLY, finding meritorious that the venue is Meanwhile, on March 15, 2002, UNIALLOY filed with the RTC
improperly laid and the complain[ant] engaged in forum- of Makati an omnibus motion praying for the suspension of
shopping and harassment of defendant Jakob Van Der Sluis, the proceedings of the collection case in the said court on
this case is hereby DISMISSED rendering the prayer for the ground of pendency of the certiorari petition it filed with
issuance of a writ of preliminary injunction moot and this Court.13 However, the RTC denied UNIALLOY's motion in
academic, and ordering plaintiff to turn over possession of its Order14 dated August 19, 2002.
the subject premises of the properties in question at
Barangay Gracia, Tagoloan, Misamis Oriental to defendant
Subsequently, on June 17, 2003, the RTC of Makati rendered
United Coconut Planters Bank.
Judgment in the collection case in favor of UCPB. The
dispositive portion of the RTC Decision reads, thus:
SO ORDERED. 11
WHEREFORE, premises considered, judgment is hereby
Thereafter, on motion, the RTC of CDO issued an Order of rendered in favor of plaintiff. Defendants are hereby ordered
Execution, dated September 14, 2001, directing UNIALLOY to to pay plaintiff the following:
tum over to UCPB the property subject of their lease-
purchase agreement.
a. The sum of US DOLLARS: (US$435,494.44) with interest
and penalty charges from August 1, 2001 until fully paid.
UNIALLOY then filed a petition for certiorari and mandamus
with the CA questioning the September 13 and September
14, 2001 Orders of the RTC of CDO. UNIALLOY also prayed b. The sum of ₱26,940,950.80 with interest and penalty
charges from August 1, 2001 until fully paid.
for the issuance of a writ of preliminary injunction. The case
was docketed as CA G.R. SP. No. 67079.
c. Attorney's fees in the amount of ₱1,000,000.00.
On February 18, 2002, the CA promulgated a
Resolution 12 granting UNIALLOY's prayer for the issuance of
d. Costs of suit.
a writ of preliminary injunction. UCPB questioned the above
CA Resolution by filing a petition for certiorari with this
Court, which was docketed as G.R. No. 152238. On March SO ORDERED. 15
18, 2002, this Court issued a Resolution which restrained the
CA from enforcing its February 18, 2002 Resolution.
UNIALLOY appealed the above RTC Decision with the CA.
On January 28, 2005, this Court, rendered its Decision in G.R.
No. 152238 denying UCPB's petition for certiorari and On September 21, 2006, the CA rendered its assailed
affirming the CA Resolution granting the writ of preliminary judgment denying UNIALLOY's appeal and affirming the
injunction. questioned RTC Decision.
Thereafter, on August 17, 2007, the CA promulgated a Hence, the instant petition raising the following issues:
Decision dismissing UNIALLOY's certiorari petition and
affirming the September 13 and September 14, 2001 Orders
of the RTC of CDO. UNIALLOY then filed a petition for review 5.01 THE HONORABLE COURT OF APPEALS COMMITTED A
on certiorari challenging the above CA Decision. The case SERIOUS, REVERSIBLE ERROR, IF NOT GRAVE ABUSE OF
was docketed as G.R. No. 179257.
DISCRETION, IN REFUSING TO RESOLVE AS TO -
On November 23, 2015, this Court promulgated a Decision in
G.R. No. 179257 denying UNIALLOY's petition. This Court I
held that the CA did not err in affirming the dismissal of
UNIALLOY's complaint on the grounds of improper venue,
forum shopping and for being a harassment suit. This Court WHETHER OR NOT THE TRIAL COURT ERRED IN DENYING
also ruled that the August 17, 2007 Decision of the CA PETITIONERS' URGENT MOTION TO DISMISS
neither violated this Comi's January 28, 2005 Decision in G.R.
No. 152238 nor contradicted the CA's February 18, 2002
Resolution granting the preliminary injunction prayed for by II
UNIALLOY because the dismissal of UNIALLOY's main action
carried with it the dissolution of any ancillary relief
WHETHER OR NOT THE TRIAL COURT ERRED IN DENYING
previously granted in the said case, such as the
PETITIONERS' OMNIBUS MOTION TO SUSPEND PROCEEDINGS
abovementioned preliminary injunction. Subsequently, this
AND TO LIFT WRIT OF PRELIMINARY ATTACHMENT
Court's Decision in G.R. No. 179257 became final and
executory per Entry of Judgment dated January 20, 2016.
III
WHETHER OR NOT THE TRIAL COURT ERRED AND/OR
COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR IN EXCESS OF JURISDICTION IN RENDERING THE
ASSAILED QUESTIONED DECISION WHEN THERE IS A
PENDING CIVIL ACTION BEFORE THE REGIONAL TRIAL COURT
OF CAGAYAN DE ORO, BRANCH 40, INVOLVING THE SAME
PARTIES AND SUBJECT MATTER WHICH CASE, IS NOW
PENDING AND ASSAILED BY THE PLAINTIFF-APPELLEE VIA
PETITION BEFORE THE HONORABLE SUPREME COURT.
5.02 THE HONORABLE COURT OF APPEALS COMMITTED A
SERIOUS, REVERSIBLE ERROR IF NOT GRAVE ABUSE OF
DISCRETION, IN DENYING PETITIONERS' URGENT MOTION
FOR RECONSIDERATION WITHOUT STATING CLEARLY AND
DISTINCTLY THE FACTUAL AND LEGAL BASIS THEREOF. 16
Petitioners' basic argument is that the resolution of the
instant petition basically hinges on the outcome of the
petition filed under G.R. No. 179257. Considering that the
promissory notes subject of G.R. No. 179257 are among the
promissory notes which are also involved in the present
case, petitioner contends that a judgment by this Court in
G.R. No. 179257 that reverses the Decision of the RTC of
Cagayan de Oro City, which in effect would declare the
nullity of the subject promissory notes, may conflict with the
Decision of this Court in the present petition, which involves
the collection of the sum being represented in the same
promissory notes. Thus, petitioner prays for the dismissal of
the collection case (Civil Case No. 01- 1332) filed by UCPB or
the suspension of proceedings therein pending resolution of
its petition in G.R. No. 179257.
However, as mentioned above, on November 23, 2015, the
2nd Division of this Court already came up with a Decision in
G.R. No. 179257 which affirmed the RTC's dismissal of
UNIALLOY's complaint. Pe1iinent portions of the said
Decision read as follows:
CA CDO did not err in affirming the
dismissal of UniAlloy's Complaint on the
grounds of improper venue, forum shopping
and for being a harassment suit
The RTC was correct in dismissing UniAlloy's Complaint on
the ground of improper venue. In general, personal actions
must be commenced and tried (i) where the plaintiff or any
of the principal plaintiffs resides, (ii) where the defendant or
any of the principal defendants resides, or (III) in the case of
a resident defendant where he may be found, at the election
of the plaintiff. Nevertheless, the parties may agree in
writing to limit the venue of future actions between them to
a specified place.
In the case at bench, paragraph 18 of the LPA expressly
provides that "[a]ny legal action arising out of or in
connection with this Agreement shall be brought exclusively
in the proper courts of Makati City, Metro Manila." Hence,
UniAlloy should have filed its complaint before the RTC of
Makati City, and not with the RTC of Cagayan de Oro City.
But to justify its choice of venue, UniAlloy insists that the
subject matter of its Complaint in Civil Case No. 2001-219 is
not the LPA, but the fictitious loans that purportedly matured
on April 17, 2001.
UniAlloy's insistence lacks merit. Its Complaint unequivocally
sought to declare "as null and void the unilateral rescission
made by defendant UCPB of its subsisting Lease Purchase
Agreement with [UniAlloy]." What UCPB unilaterally
rescinded is the LPA and without it there can be no unilateral
rescission to speak of. Hence, the LPA is the subject matter
or at least one of the subject matters of the Complaint.
Moreover, and to paraphrase the aforecited paragraph 18 of
the LPA, as long as the controversy arises out of or is
connected therewith, any legal action should be filed
exclusively before the proper courts of Makati City. Thus,
even assuming that the LPA is not the main subject matter,
considering that what is being sought to be annulled is an
act connected and inseparably related thereto, the
Complaint should have been filed before the proper courts in
Makati City.
With regard forum-shopping, our review of the records of this
case revealed that UniAlloy did not disclose in the
Verification/Certification of the Complaint the pendency of
Civil Case No. 2001-156 entitled "Ernesto Paraiso and United
Alloy Philippines Corporation v. Jakob Van Der Sluis." The
trial court took judicial notice of its pendency as said case is
also assigned and pending before it. Thus, we adopt the
following unrebutted finding of the RTC:
These two civil cases have identical causes of action or
issues against defendant Jakob Van Der Sluis for having
misrepresented to plaintiff and its stockholders that he can
extend financial assistance in running the operation of the
corporation, such that on April 6, 2001 plaintiff adopted a
Stockholders Resolution making defendant Jakob chairman
of the corporation for having the financial capability to
provide the financial needs of plaintiff and willing to finance
the operational needs thereof; that a Memorandum of
Agreement was subsequently entered between the parties
whereby defendant Jakob obligated to provide sufficient
financial loan to plaintiff to make it profitable; that Jakob
malicious! y and willfiilly reneged [on] his financial
commitments to plaintiff prompting the stockholders to call
his attention and warned him of avoiding the said
agreement; that defendant who had then complete control
of plaintiffs bank account with defendant UCPB, through
fraudulent machinations and manipulations, was able to
maliciously convince David C. Chua to pre-sign several
checks; that defendant Jakob facilitated several huge loans
purportedly obtained by plaintiff which defendant himself
could not even account and did not even pay the debts of
the corporation but instead abused and maliciously
manipulated plaintiffs account. Forum-shopping indeed
exists in this case, for both actions involve the same
transactions and same essential facts and circumstances as
well as identical causes of action, subject matter and issues,
xxx
As mentioned above, this Court's Decision in the above case
has become final and executory on January 20, 2016.
Thus, contrary to petitioners' position, there is no longer any
possibility that the Decision of the RTC of CDO may conflict
with the disposition of the present case because UNIALLOY's
complaint for annulment of contract has already been
dismissed with finality. This Court will, thus, proceed to
resolve the merits of the instant case.
The fundamental issue here is whether or not herein
petit10ners, together with their co-defendants Van Der Sluis
and Yang, are liable to pay respondent the amounts awarded
by the RTC of Makati City in its June 17, 2003 Decision. 17
The Court rules in the affirmative.
As ruled upon by both the RTC and the CA, UNIALLOY failed
to pay its obligations under the above promissory notes and
that herein petitioner Spouses Chua, together with their co-
defendants Van Der Sluis and Yang freely executed a Surety
Agreement whereby they bound themselves jointly and
severally with UNIALLOY, to pay the latter's loan obligations
with UCPB. Pertinent portions of the said Surety Agreement
are reproduced hereunder, to wit:
xxxx
ARTICLE I
LIABILITIES OF SURETIES
Section 1.01. The SURETIES, jointly and severally with the
PRINCIPAL, hereby unconditionally and irrevocably
guarantee the full and complete payment when due,
whether at stated maturity, by acceleration or otherwise, of
all sums payable by the PRINCIPAL under the Credit
Agreement, the Note/s and other related documents or
instruments referred to therein (hereinafter referred to
collectively as the "Loan Documents") the terms and
conditions of which are hereby deemed incorporated by
reference.
The liability of the SURETIES shall not be limited to the
aggregate principal amount of FIFTY MILLION PESOS
(₱50,000,000.00), Philippine Currency, or its foreign
currency equivalent, but shall include such interest, fees,
penalties and other charges due thereon, as well as any and
all renewals, extensions, restructurings or conversions of the
Accommodation or any portion thereof, as may appear in the
books and records of account of the BANK.
Such extension/s, renewal/s, restructuring/s, or conversion/s
of the Accommodation or any portion thereof, including
any increase in the principal amount thereof, or the
imposable interest rates and other bank charges, shall be
binding upon the SURETIES under the terms of this SURETY
AGREEMENT, without need of any further notice to or
consent or conformity of the SURETIES, all of which are
hereby expressly waived.1âwphi1
Section 1.02. This SURETY AGREEMENT is a guarantee of
payment and not merely of collection and is intended to be a
perfect and continuing indemnity in favor of the BANK for the
amounts and to the extent stated above. For this purpose,
the SURETIES hereby commit that for as long as
this SURETY AGREEMENT is in effect, the SURETIES shall
not sell, lease, transfer, assign or encumber any of its
present and future properties without the written consent of
the BANK, which consent will not be unreasonably withheld.
The liability of the SURETIES shall be absolute, irrevocable,
unconditional, direct, immediate and not contingent upon
the pursuit by the BANK of whatever remedies it may have
against the PRINCIPAL or the other sureties for the
Accommodation, and shall be performed by
the SURETIES strictly in accordance with the terms hereof
and under any and all circumstances, including the existence
of any claim, set-off, defense or other rights which
the SURETIES or any person or entity may have at any time
against the BANK for any reason whatsoever, whether or not
related to this SURETY AGREEMENT, the Loan Documents
or under such other documents executed in relation thereto,
or contemplated hereunder.
ARTICLE II
TERM
Section 2.01. This SURETY AGREEMENT shall remain in full
force and effect until payment in full of all amount for which
the PRINCIPAL is or may be liable as set forth in ARTICLE I
hereof, regardless of the absence of any further or other
assent or conformity of, or notice to the SURETIES, or any
circumstance, or provision of law which might otherwise
constitute a defense or discharge of the SURETIES, all of
which are hereby expressly waived.
ARTICLE III
DEFAULT
Section 3.01. If the BANK shall declare the obligation of
the PRINCIPAL to be due and payable because of the
happening of any of the event of default as defined in
the Credit Agreement, the SURETIES, upon receipt of
written notice from the BANK, shall forthwith pay to
the BANK the full amount of the said obligations, without
need of demand, protest or notice of any kind, other than
the notice provided herein, all of which are likewise
expressly waived by the SURETIES. In this connection,
the BANK is hereby given full power and authority to apply
whatever moneys or things of value belonging to
the SURETIES which may be in the possession or control of
the BANK in payment of the obligations mentioned above.
ARTICLE IV
BINDING EFFECT
Section 4.01. This SURETY AGREEMENT shall except upon
the other SURETIES, if any whose liability(ies) is/are
extinguished by way of compromise or otherwise be binding
upon the SURETIES, their heirs and successors in interest
and shall inure to the benefit of and be enforceable by
the BANK, its assigns and successors in interest. For this
purpose, the SURETIES have agreed, as they hereby agree,
that an extinguishment of liability(ies) of any of
the SURETIES shall not be an obstacle to the BANK from
demanding payment from the other SURETIES, if any, so
long as the Accommodation has not been fully collected.
x x x x18
Petitioners do not deny their liability under the abovequoted
Surety Agreement. As correctly held by both the RTC and the
CA, Article 1159 of the Civil Code expressly provides that
"[o]bligations arising from contracts have the force of law
between the contracting parties and should be complied with
in good faith." The RTC as well as the CA found nothing
which would justify or excuse petitioners from non-
compliance with their obligations under the contract they
have entered into. Thus, it becomes apparent that
petitioners are merely attempting to evade or, at least, delay
the inevitable performance of their obligation to pay under
the Surety Agreement and the subject promissory notes
which were executed in respondent's favor.
The Court notes, however, that the interest rates imposed on
the subject promissory notes were made subject to review
and adjustment at the sole discretion and under the
exclusive will of UCPB. Moreover, aside from the
Consolidated Statement of Account attached to the demand
letters addressed to petitioner spouses Chua and their co-
defendants,19 no other competent evidence was shown to
prove the total amount of interest due on the above
promissory notes. In fact, based on the attached
Consolidated Statement of Account, UCPB has already
imposed a 24% interest rate on the total amount due on
respondents' peso obligation for a short period of six
months. Settled is the rule that any contract which appears
to be heavily weighed in favor of one of the parties so as to
lead to an unconscionable result is void. 19 a Any stipulation
regarding the validity or compliance of the contract which is
left solely to the will of one of the parties, is likewise,
invalid.20
Moreover, courts have the authority to strike down or to
modify provisions in promissory notes that grant the lenders
unrestrained power to increase interest rates, penalties and
other charges at the latter's sole discretion and without
giving prior notice to and securing the consent of the
borrowers.21 This unilateral authority is anathema to the
mutuality of contracts and enable lenders to take undue
advantage of borrowers.22 Although the Usury Law has been
effectively repealed, courts may still reduce iniquitous or
unconscionable rates charged for the use of
money. 23 Furthermore, excessive interests, penalties and
other charges not revealed in disclosure statements issued
by banks, even if stipulated in the promissory notes, cannot
be given effect under the Truth in Lending Act.24
The Court, thus, finds it proper to modify the interest rates
imposed on respondents' obligation. Pursuant to the ruling
in Nacar v. Gallery Frames, et. al.,25 the sums of
US$435,494.44 and PhP26,940,950.80 due to UCPB shall
earn interest at the rate of 12% per annum from the date of
default, on August, 1, 2001, until June 30, 2013 and
thereafter, at the rate of 6% per annum, from July 1, 2013
until finality of this Decision. The total amount owing to
UCPB as set forth in this Decision shall further earn legal
interest at the rate of 6o/o per annum from its finality until
full payment thereof, this interim period being deemed to be
by then an equivalent to a forbearance of credit.1âwphi1
Finally, pursuant to the parties' Credit Agreement as well as
the subject Promissory Notes, respondents are also liable to
pay a penalty charge at the rate of 1 % per month or
12% per annum.
WHEREFORE, the instant petition is DENIED. The Decision
and Resolution of the Court of Appeals, dated September 21,
2006 and December 11, 2006, respectively, in CA-G.R. CV
No. 81079, are AFFIRMED with MODIFICATION by
directing petitioners and their codefendants to pay
respondent UCPB the following:
(1) the principal amounts of US$435,494.44 and
PhP26,940,950.80;
(2) legal interest of 12% per annum on the above principal
amounts reckoned from August 1, 2001 until June 30, 2013;
(3) penalty charge of 12% per annum from August 1, 2001
until fully paid; and
(4) an interest of 6% from July 1, 2013 until fully paid.
SO ORDERED.
G.R. No. 189316               June 1, 2013
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
SPOUSES BERNARD and CRESENCIA
MARANON, Respondents.
RESOLUTION
REYES, J.:
This is a petition for review on certiorari 1 under Rule 45 of
the Rules of Court, assailing the Decision 2 dated June 18,
2008 and Resolution3 dated August 10, 2009 of the Court of
Appeals (CA) in CA-G.R. SP No. 02513, which affirmed in toto
the Orders dated September 8, 2006 4 and December 6,
20065 of the Regional Trial Court (RTC) of Bacolod City,
Branch 54, directing petitioner Philippine National Bank
(PNB) to release in favor of Spouses Bernard and Cresencia
Marafion (Spouses Marafion) the rental fees it received
amounting to Thirty Thousand Pesos (₱30,000.00).
The Facts
The controversy at bar involves a 152-square meter parcel of
land located at Cuadra-Smith Streets, Downtown, Bacolod
(subject lot) erected with a building leased by various
tenants. The subject lot was among the properties
mortgaged by Spouses Rodolfo and Emilie Montealegre
(Spouses Montealegre) to PNB as a security for a loan. In
their transactions with PNB, Spouses Montealegre used
Transfer Certificate of Title (TCT) No. T-156512 over the
subject lot purportedly registered in the name of Emilie
Montealegre (Emilie). 6
When Spouses Montealegre failed to pay the loan, PNB
initiated foreclosure proceedings on the mortgaged
properties, including the subject lot. In the auction sale held
on August 16, 1991, PNB emerged as the highest bidder. It
was issued the corresponding Certificate of Sale dated
December 17, 19917 which was subsequently registered on
February 4, 1992.8
Before the expiration of the redemption period or on July 29,
1992, Spouses Marañon filed before the RTC a complaint for
Annulment of Title, Reconveyance and Damages 9 against
Spouses Montealegre, PNB, the Register of Deeds of Bacolod
City and the Ex-Officio Provincial Sheriff of Negros
Occidental. The complaint, docketed as Civil Case No. 7213,
alleged that Spouses Marañon are the true registered
owners of the subject lot by virtue of TCT No. T-129577
which was illegally cancelled by TCT No. T-156512 under the
name of Emilie who used a falsified Deed of Sale bearing the
forged signatures of Spouse Marañon 10 to effect the transfer
of title to the property in her name.
In its Answer, 11 PNB averred that it is a mortgagee in good
faith and for value and that its mortgage lien on the property
was registered thus valid and binding against the whole
world.
As reflected in the Pre-trial Order 12 dated March 12, 1996,
the parties stipulated, among others, that the period for
legal redemption of the subject lot has already expired.
While the trial proceedings were ongoing, Paterio Tolete
(Tolete), one of the tenants of the building erected on the
subject lot deposited his rental payments with the Clerk of
Court of Bacolod City which, as of October 24, 2002,
amounted to ₱144,000.00.
On June 2, 2006, the RTC rendered its Decision 13 in favor of
the respondents after finding, based on the expert testimony
of Colonel Rodolfo Castillo, Head of the Forensic Technology
Section of Bacolod City Philippine National Police, that the
signatures of Spouses Marañon in the Deed of Sale
presented by Spouses Montealegre before the Register of
Deeds to cause the cancellation of TCT No. T-129577 were
forged. Hence, the RTC concluded the sale to be null and
void and as such it did not transfer any right or title in law.
PNB was adjudged to be a mortgagee in good faith whose
lien on the subject lot must be respected. Accordingly, the
Decision disposed as follows:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiffs herein respondents:
1. The cancellation of TCT No. 129577 over Lot
177-A-1 Bacolod Cadastre in the name of Bernard
Marañon and the issuance of new TCT No. 156512
in the name of defendant Emilie Montealegre are
hereby declared null and void;
2. The defendant Emilie Montealegre is ordered to
reconvey the title over Lot No. 177-A-1, Bacolod
Cadastre back to the plaintiffs Marañon herein
respondents;
3. The Real Estate Mortgage lien of the Philippine
National Bank registered on the title of Lot No.
177-A-1 Bacolod Cadastre shall stay and be
respected; and
4. The defendants - Emilie Montealegre and
spouse are ordered to pay attorney’s fees in the
sum of Php50,000.00, and to pay the costs of the
suit.
SO ORDERED.14
Neither of the parties sought a reconsideration of the above
decision or any portion thereof nor did they elevate the
same for appellate review.
What precipitated the controversy at hand were the
subsequent motions filed by Spouses Marañon for release of
the rental payments deposited with the Clerk of Court and
paid to PNB by Tolete.
On June 13, 2006, Spouses Marañon filed an Urgent Motion
for the Withdrawal of Deposited Rentals15 praying that the
₱144,000.00 rental fees deposited by Tolete with the Clerk of
Court be released in their favor for having been adjudged as
the real owner of the subject lot. The RTC granted the
motion in its Order16 dated June 28, 2006.
On September 5, 2006, Spouses Marañon again filed with
the RTC an Urgent Ex-Parte Motion for Withdrawal of
Deposited Rentals17 praying that the ₱30,000.00 rental fees
paid to PNB by Tolete on December 12, 1999 be released in
their favor. The said lease payments were for the five (5)-
month period from August 1999 to December 1999 at the
monthly lease rate of ₱6,000.00.
The RTC granted the motion in its Order 18 dated September
8, 2006 reasoning that pursuant to its Decision dated June 2,
2006 declaring Spouses Marañon to be the true registered
owners of the subject lot, they are entitled to its fruits.
The PNB differed with the RTC’s ruling and moved for
reconsideration averring that as declared by the RTC in its
Decision dated June 2, 2006, its mortgage lien should be
carried over to the new title reconveying the lot to Spouses
Marañon. PNB further argued that with the expiration of the
redemption period on February 4, 1993, or one (1) year from
the registration of the certificate of sale, PNB is now the
owner of the subject lot hence, entitled to its fruits. PNB
prayed that (1) the Order dated September 8, 2006 be set
aside, and (2) an order be issued directing Spouses Marañon
to turn over to PNB the amount of ₱144,000.00 released in
their favor by the Clerk of Court.19
On November 20, 2006, the RTC issued an Order again
directing PNB to release to Spouses Marañon the ₱30,000.00
rental payments considering that they were adjudged to
have retained ownership over the property.20
On December 6, 2006, the RTC issued another Order
denying PNB’s motion for reconsideration and reiterating the
directives in its Order dated September 8, 2006.21
Aggrieved, PNB sought recourse with the CA via a petition
for certiorari and mandamus 22 claiming that as the lawful
owner of the subject lot per the RTC’s judgment dated June
2, 2006, it is entitled to the fruits of the same such as rentals
paid by tenants hence, the ruling that "the real estate
mortgage lien of the PNB registered on the title of Lot No.
177-A-1 Bacolod Cadastre shall stay and be respected." PNB
also contended that it is an innocent mortgagee.
In its Decision23 dated June 18, 2008, the CA denied the
petition and affirmed the RTC’s judgment ratiocinating that
not being parties to the mortgage transaction between PNB
and Spouses Montealegre, Spouses Marañon cannot be
deprived of the fruits of the subject lot as the same will
amount to deprivation of property without due process of
law. The RTC further held that PNB is not a mortgagee in
good faith because as a financial institution imbued with
public interest, it should have looked beyond the certificate
of title presented by Spouses Montealegre and conducted an
inspection on the circumstances surrounding the transfer to
Spouses Montealegre. The decretal portion of the Decision
thus read:
WHEREFORE, in view of the foregoing, the petition is hereby
DISMISSED. The Orders dated September 8, 2006 and
December 6, 2006, rendered by the respondent Presiding
Judge of the Regional Trial Court, Branch 54, Bacolod City, in
Civil Case NO. 7213 directing the release of the deposited
rental in the amount of THIRTY THOUSAND PESOS
([P]30,000.00) to private respondents are hereby AFFIRMED.
SO ORDERED.24
PNB moved for reconsideration 25 but the motion was denied
in the CA Resolution dated August 10, 2009. 26 Hence, the
present recourse whereby PNB argues that the RTC Decision
dated June 2, 2006 lapsed into finality when it was not
appealed or submitted for reconsideration. As such, all
conclusions therein are immutable and can no longer be
modified by any court even by the RTC that rendered the
same. The CA however erroneously altered the RTC Decision
by reversing the pronouncement that PNB is a mortgagee-in-
good-faith.
PNB further asseverates that its mortgage lien was carried
over to the new title issued to Spouses Marañon and thus it
retained the right to foreclose the subject lot upon non-
payment of the secured debt. PNB asserts that it is entitled
to the rent because it became the subject lot’s new owner
when the redemption period expired without the property
being redeemed.
Ruling of the Court
We deny the petition.
It is readily apparent from the facts at hand that the status
of PNB’s lien on the subject lot has already been settled by
the RTC in its Decision dated June 2, 2006 where it was
adjudged as a mortgagee in good faith whose lien shall
subsist and be respected. The decision lapsed into finality
when neither of the parties moved for its reconsideration or
appealed.
Being a final judgment, the dispositions and conclusions
therein have become immutable and unalterable not only as
against the parties but even the courts. This is known as the
doctrine of immutability of judgments which espouses that a
judgment that has acquired finality becomes immutable and
unalterable, and may no longer be modified in any respect
even if the modification is meant to correct erroneous
conclusions of fact or law and whether it will be made by the
court that rendered it or by the highest court of the
land.27 The significance of this rule was emphasized in Apo
Fruits Corporation v. Court of Appeals, 28 to wit:
The reason for the rule is that if, on the application of one
party, the court could change its judgment to the prejudice
of the other, it could thereafter, on application of the latter,
again change the judgment and continue this practice
indefinitely. The equity of a particular case must yield to the
overmastering need of certainty and unalterability of judicial
pronouncements.
The doctrine of immutability and inalterability of a final
judgment has a two-fold purpose: (1) to avoid delay in the
administration of justice and thus, procedurally, to make
orderly the discharge of judicial business and (2) to put an
end to judicial controversies, at the risk of occasional errors,
which is precisely why courts exist. Controversies cannot
drag on indefinitely. The rights and obligations of every
litigant must not hang in suspense for an indefinite period of
time. The doctrine is not a mere technicality to be easily
brushed aside, but a matter of public policy as well as a
time-honored principle of procedural law. 29 (Citations
omitted)
Hence, as correctly argued by PNB, the issue on its status as
a mortgagee in good faith have been adjudged with finality
and it was error for the CA to still delve into and, worse,
overturn, the same. The CA had no other recourse but to
uphold the status of PNB as a mortgagee in good faith
regardless of its defects for the sake of maintaining stability
of judicial pronouncements. "The main role of the courts of
justice is to assist in the enforcement of the law and in the
maintenance of peace and order by putting an end to
judiciable controversies with finality. Nothing better serves
this role than the long established doctrine of immutability of
judgments."30
Further, it must be remembered that what reached the CA
on certiorari were RTC resolutions issued long after the
finality of the Decision dated June 2, 2006. The RTC Orders
dated September 8, 2006 and December 6, 2006 were
implements of the pronouncement that Spouses Marañon
are still the rightful owners of the subject lot, a matter that
has been settled with finality as well. This notwithstanding,
the Court agrees with the ultimate outcome of the CA’s
assailed resolutions.
Rent is a civil fruit 31 that belongs to the owner of the
property32 producing it by right of accession 33.34 The rightful
recipient of the disputed rent in this case should thus be the
owner of the subject lot at the time the rent accrued. It is
beyond question that Spouses Marañon never lost ownership
over the subject lot. This is the precise consequence of the
final and executory judgment in Civil Case No. 7213
rendered by the RTC on June 3, 2006 whereby the title to the
subject lot was reconveyed to them and the cloud thereon
consisting of Emilie’s fraudulently obtained title was
removed. Ideally, the present dispute can be simply resolved
on the basis of such pronouncement. However, the
application of related legal principles ought to be clarified in
order to settle the intervening right of PNB as a mortgagee
in good faith.
The protection afforded to PNB as a mortgagee in good faith
refers to the right to have its mortgage lien carried over and
annotated on the new certificate of title issued to Spouses
Marañon35 as so adjudged by the RTC. Thereafter, to enforce
such lien thru foreclosure proceedings in case of non-
payment of the secured debt, 36 as PNB did so pursue. The
principle, however, is not the singular rule that governs real
estate mortgages and foreclosures attended by fraudulent
transfers to the mortgagor.
Rent, as an accessory follow the principal. 37 In fact, when the
principal property is mortgaged, the mortgage shall include
all natural or civil fruits and improvements found thereon
when the secured obligation becomes due as provided in
Article 2127 of the Civil Code, viz:
Art. 2127. The mortgage extends to the natural accessions,
to the improvements, growing fruits, and the rents or income
not yet received when the obligation becomes due, and to
the amount of the indemnity granted or owing to the
proprietor from the insurers of the property mortgaged, or in
virtue of expropriation for public use, with the declarations,
amplifications and limitations established by law, whether
the estate remains in the possession of the mortgagor, or it
passes into the hands of a third person.
Consequently, in case of non-payment of the secured debt,
foreclosure proceedings shall cover not only the
hypothecated property but all its accessions and accessories
as well. This was illustrated in the early case of Cu Unjieng e
Hijos v. Mabalacat Sugar Co.38 where the Court held:
That a mortgage constituted on a sugar central includes not
only the land on which it is built but also the buildings,
machinery, and accessories installed at the time the
mortgage was constituted as well as the buildings,
machinery and accessories belonging to the mortgagor,
installed after the constitution thereof x x x .39
Applying such pronouncement in the subsequent case of
Spouses Paderes v. Court of Appeals, 40 the Court declared
that the improvements constructed by the mortgagor on the
subject lot are covered by the real estate mortgage contract
with the mortgagee bank and thus included in the
foreclosure proceedings instituted by the latter. 41
However, the rule is not without qualifications. In Castro, Jr.
v. CA42 the Court explained that Article 2127 is predicated on
the presumption that the ownership of accessions and
accessories also belongs to the mortgagor as the owner of
the principal. After all, it is an indispensable requisite of a
valid real estate mortgage that the mortgagor be the
absolute owner of the encumbered property, thus:
All improvements subsequently introduced or owned by the
mortgagor on the encumbered property are deemed to form
part of the mortgage. That the improvements are to be
considered so incorporated only if so owned by the
mortgagor is a rule that can hardly be debated since a
contract of security, whether, real or personal, needs as an
indispensable element thereof the ownership by the pledgor
or mortgagor of the property pledged or mortgaged. x x
x.43 (Citation omitted)
Otherwise stated, absent an adverse claimant or any
evidence to the contrary, all accessories and accessions
accruing or attached to the mortgaged property are included
in the mortgage contract and may thus also be foreclosed
together with the principal property in case of non-payment
of the debt secured.
Corollary, any evidence sufficiently overthrowing the
presumption that the mortgagor owns the mortgaged
property precludes the application of Article 2127. Otherwise
stated, the provision is irrelevant and inapplicable to
mortgages and their resultant foreclosures if the mortgagor
is later on found or declared to be not the true owner of the
property, as in the instant case.1âwphi1
It is beyond question that PNB’s mortgagors, Spouses
Montealegre, are not the true owners of the subject lot much
less of the building which produced the disputed rent. The
foreclosure proceedings on August 16, 1991 caused by PNB
could not have, thus, included the building found on the
subject lot and the rent it yields. PNB’s lien as a mortgagee
in good faith pertains to the subject lot alone because the
rule that improvements shall follow the principal in a
mortgage under Article 2127 of the Civil Code does not apply
under the premises. Accordingly, since the building was not
foreclosed, it remains a property of Spouses Marañon; it is
not affected by non-redemption and is excluded from any
consolidation of title made by PNB over the subject lot. Thus,
PNB’s claim for the rent paid by Tolete has no basis.
It must be remembered that there is technically no juridical
tie created by a valid mortgage contract that binds PNB to
the subject lot because its mortgagor was not the true
owner. But by virtue of the mortgagee in good faith principle,
the law allows PNB to enforce its lien. We cannot, however,
extend such principle so as to create a juridical tie between
PNB and the improvements attached to the subject lot
despite clear and undeniable evidence showing that no such
juridical tie exists.
Lastly, it is worthy to note that the effects of the foreclosure
of the subject lot is in fact still contentious considering that
as a purchaser in the public sale, PNB was only substituted
to and acquired the right, title, interest and claim of the
mortgagor to the property as of the time of the levy. 44 There
being already a final judgment reconveying the subject lot to
Spouses Marañon and declaring as null and void Emilie's
purported claim of ownership, the legal consequences of the
foreclosure sale, expiration of the redemption period and
even the consolidation of the subject lot's title in PNB's name
shall be subjected to such final judgment. This is the clear
import of the ruling in Unionbank of the Philippines v. Court
of Appeals:45
This is because as purchaser at a public auction, UNIONBANK
is only substituted to and acquires the right, title, interest
and claim of the judgment debtors or mortgagors to the
property at the time of levy. Perforce, the judgment in the
main action for reconveyance will not be rendered
ineffectual by the consolidation of ownership and the
issuance of title in the name of UNIONBANK. 46 (Citation
omitted)
Nonetheless, since the present recourse stemmed from a
mere motion claiming ownership of rent and not from a main
action for annulment of the foreclosure sale or of its
succeeding incidents, the Court cannot proceed to make a
ruling on the bearing of the CA's Decision dated June 18,
2008 to PNB's standing as a purchaser in the public auction.
Such matter will have to be threshed out in the proper
forum.
All told, albeit the dispositive portions of the assailed CA
decision and resolution are differently premised, they ought
to be upheld as they convey the similar conclusion that
Spouses Marañon are the rightful owners of the rent earned
by the building on the subject lot.
WHEREFORE, foregoing considered, the petition is hereby
DENIED. The Decision dated June 18, 2008 and Resolution
dated August 10, 2009 of the Court of Appeals in CA-G.R. SP
No. 02513 are AFFIRMED.
SO ORDERED.
G.R. No. 187013, April 22, 2015
SPOUSES MAGDALINO AND CLEOFE
BADILLA, Petitioners, v. FE BRAGAT, Respondent.
DECISION
PERALTA, J.:
This is a petition for review on certiorari, under Rule 45 of
the Rules of Court, assailing the Decision dated October 9,
2008 and Resolution dated February 12, 2009 of the Court of
Appeals rendered in CA-G.R. CV No. 70423-MIN.
The case involves the issue of ownership of the subject real
property.
The facts follow.
Azur Pastrano and his wife Profitiza Ebaning (Spouses
Pastrano) were the original owners of Lot No. 19986 (subject
property), located at Tablon, Cagayan de Oro City. Its
Original Certificate of Title (OCT) No. P-2035, consisting of
1,015 sq. m. was issued on November 18, 1980.1 The OCT
was in the name of Azur Pastrano. 2redarclaw
Before the issuance of the OCT, however, the Spouses
Pastrano, on November 18, 1968, sold the lot to Eustaquio P.
Ledesma, Jr. (Ledesma), as evidenced by a Deed of Definite
Sale of Unregistered Coconut and Residential
Land.3redarclaw
The petitioners, the spouses Magdalino and Cleofe Badilla
(Spouses Badilla) claimed that in 1970, Ledesma sold to
them, "on installment" basis, a portion amounting to 200 sq.
m. of Lot No. 19986 (subject property). The sale was not
reduced in writing, however, possession of the portion sold
was transferred to the Badillas, which portion the Badillas
claim was designated as Lot No. 19986-B.4redarclaw
On April 18, 1978, the spouses Florito Bragat and Fe Bragat
(Spouses Bragat) bought 991 sq. m. of the property from
Ledesma and his wife, via a Deed of Absolute Sale of a
Residential Lot.5 Two (2) tax declarations were allegedly
issued as a result of the sale: one designated a lot as Lot No.
19986-A with an area of 642 sq. m., 6 while another
designated the other lot as Lot No. 19986-B with an area of
349 sq. m.7redarclaw
On May 5, 1984, the Spouses Pastrano executed another
Deed of Absolute Sale of Registered Land in favor of herein
petitioner Fe Bragat (Bragat), covered by OCT No. P-2035
and with an area of 1,015 sq. m. 8 On the same date, Azur
Pastrano executed an Affidavit of Loss reporting the loss of
the owner's duplicate copy of OCT No. P-2035. 9redarclaw
It was Bragat, however, who petitioned the court for the
issuance of a new owner's duplicate copy of OCT No. P-2035.
Thus, on July 24, 1987, the RTC ordered the issuance of a
new owner's copy of OCT No. P-2035. 10redarclaw
On October 2, 1987, the Spouses Pastrano executed yet
another Deed of Sale of Registered Land in favor of Bragat,
which land is again covered by OCT No. P-2035 with an area
of 1,015 sq. m.11 As a result, OCT No. P-2035 was canceled
and TCT No. T-47759 was issued in the name of
Bragat.12redarclaw
On March 7, 1991, Bragat, through her counsel, made a
written demand to vacate against the Spouses Badilla. In
response, the Spouses Badilla, also through their counsel's
letter, refused the demand and raised the earlier sale made
by the Spouses Pastrano to Ledesma and the subsequent
sale by Ledesma to the Badillas. 13redarclaw
Hence, the parties filed their respective complaints within
days of each other.
Bragat filed her Complaint for Recovery of Posession and
Damages against the spouses Magdalino and Cleofe Badilla
on June 5, 1992, alleging therein that she is the absolute
owner of Lot No. 19986, covered by TCT No. T-47759. She
claimed to have purchased the property, first, from
Eustaquio Ledesma, Jr., but later, when she found out that
Ledesma was "unauthorized" to sell, she again allegedly
made another purchase of the same property from Azur
Pastrano, on May 5, 1984. This led to the cancellation of
Pastrano's OCT No. P-2035 and the issuance of Bragat's TCT
No. T-47759. Thus, she prays for the Spouses Badilla to be
ordered to vacate the around 149-square-meter portion that
they occupy in the property.14redarclaw
Just six days later, on June 11, 1992, the Spouses Badilla
filed their own Complaint for Quieting of Title, Declaration of
Nullity of TCT No. T-47759 and Damages against Bragat,
claiming that the Spouses Badilla are the lawful owners and
possessors of Lot No. 19986-B (a portion of Lot No. 19986),
having acquired it in 1970 from Ledesma. The latter, on his
part, allegedly bought the bigger Lot No. 19986 from
Pastrano earlier on November 18, 1968. The Spouses Badilla
alleged that they took possession of and built a house on the
property upon their purchase thereof from Ledesma and has
since remained in possession. However, they claimed that
Pastrano was subsequently able to obtain a free patent and
a title, OCT No. P-2035, over Lot No. 19986. According to the
Badillas, Pastrano made a sale to Bragat on October 2, 1987,
but such sale is not valid since Pastrano was no longer the
owner of the property on that date. Consequently, the
Spouses Badilla prayed that TCT No. T-47759 issued to
Bragat pursuant to that sale be declared null and
void.15redarclaw
After Answers were filed for both complaints, the two cases
were consolidated and heard by one court, Branch 25 of the
RTC of Cagayan de Oro City, as they involved exactly the
same parties and subject lot.
After trial, the RTC found for Bragat, noting that the sketch
map shows the 152-square-meter portion occupied by the
Spouses .Badilla is within the titled property of Bragat. 16 It
also found Bragat's title as valid for what it saw as the result
of a purchase in good faith and. for value. 17 In contrast, the
trial court observed a lack of evidence of the Spouses
Badilla. The latter allegedly presented handwritten and
typewritten receipts which were purportedly signed by
Ledesma, dated March 5, 1989, March 1, 1991 and March
23, 1991 acknowledging Ledesma's receipt of certain
amounts, but the court claimed that it found no evidence of
(Ledesma's) absolute ownership on these dates. The court
noted that Ledesma had sold previously to the Spouses
Bragat via a Deed of Absolute Sale of Residential Land dated
April 18, 1978. Hence, in the trial court's view, on March 5,
1989, March 1, 1991 and March 23, 1991, Ledesma no
longer owned the land and transferred nothing to the
Badillas.18 The dispositive portion of the RTC decision
states:LawlibraryofCRAlaw
IN THE LIGHT OF THE FOREGOING, by preponderance of
evidence, judgment is hereby rendered in favor of Spouses
Fe Bragat and Florito Bragat and against Spouses Magdalino
and Cleofe Badilla and dismissing Civil Case No. 92-287 for
failure of Spouses Magdalino and Cleofe Badilla to
substantiate their complaint and for lack of merit and
ordering defendants Cleofe Badilla and Magdalino Badilla in
Civil Case No. 92-273:LawlibraryofCRAlaw
a) to vacate immediately the 152-square-meter property
they are occupying as shown in Exh. N-2-A, P;
b) to pay Twenty Thousand Pesos (P20,000.00) by way of
moral damages;
c) to pay a reasonable rental of One Hundred Pesos
(P100.00) a month from March 1, 1991 at 6% legal
interest until they vacate the premises;
d) to reimburse Ten Thousand Pesos (P10,000.00) attorney's
fees and Five Thousand Pesos (P5,000.00) as expenses
for litigation as part of consequential damages; and
e) pay the costs.
SO ORDERED.19
Upon appeal to the CA, the appellate court affirmed the
RTC's decision but modified the same on a finding that
Ledesma sold only 991 sq. of the property to Bragat in 1978;
hence, it held that the remaining 24 sq. of the 1,015-sq.-m.
property was validly sold to the Badillas in 1991 and,
therefore, must be reconveyed to the latter. 20 It also
removed the award of damages. The dispositive portion of
the CA's decision is as follows:LawlibraryofCRAlaw
WHEREFORE, the instant appeal is PARTIALLY GRANTED. The
January 14, 2001 Judgment (of the RTC) is MODIFIED in
that:LawlibraryofCRAlaw
a) appellants are ordered to VACATE 128 square meters of
the disputed lot and appellee is ordered to RECONVEY 24
square meters of the disputed lot to appellants, and
b) the reimbursement of attorney's fees and expenses of
litigation and the payment of costs are DELETED.
This case is REMANDED to the court of origin for the purpose
of determining the 24-square-meter lot to be reconveyed to
appellants.
SO ORDERED.21
Hence, this petition.
Petitioners Spouses Badijla contend that ownership of the
200-sq.-m. portion was transferred to them when they
purchased the same and possession was delivered to them
by Ledesma in 1970.22 They also contend that when OCT No.
P-2035 was actually issued in 1980, it was first delivered by
Pastrano to Ledesma and, the latter delivered the same to
them (the Badillas). 23 Thus, Bragat allegedly falsely claimed
the "loss" of the title when she petitioned the court for a new
duplicate original, because such title was not lost but had
been with the Badillas all along. 24 Another fraud that Bragat
allegedly committed was the Deed of Sale dated October 2,
1987, in which Profitiza Pastrano signed (in marital consent)
although she had been dead since March 30,
1985.25redarclaw
In her Comment, Bragat claims that the sale of October 2,
1987 was only a "re-execution" of the sale of May 5, 1984, in
order to avoid tax surcharges.26 Further, she alleges that the
Badillas1 documentary evidence were all executed only after
she had the property titled to her name. 27redarclaw
The Court resolves to GRANT the petition.
The issue is one of ownership of the subject property.
This Court notes that the arguments raised call for a re-
examination of the factual findings of the trial court and the
appellate court. It must be stressed that it is a time-honored
rule that in a petition for review on certiorari under Rule 45,
only questions of law may be raised. 28 Certainly, it is equally
observed that factual findings of the Court of Appeals,
affirming those of the trial court, are binding on this
Court.29redarclaw
However, these rules admit of certain exceptions, such as
when the judgment of the Court of Appeals is premised on a
misapprehension of facts, or is belied by the evidence on
record, or fails to notice certain relevant facts which, if
properly considered, will justify a different conclusion. 30 After
a thorough examination of the findings of the trial court and
Court of Appeals, this Court concludes that the case falls
under these exceptional situations. Such findings must be
reversed.
The error of the courts below is in misapprehending the fact
that ownership' passed to the Spouses Badilla upon their
purchase of the subject property from Eustaquio Ledesma.
It is not disputed that the spouses Azur and Profitiza
Pastrano had previously sold on November 18, 1968, via a
Deed of Definite Sale of Unregistered Coconut and
Residential Land, the property to Eustaquio
Ledesma.31 Therefore, as early as such date, it is established
that the Pastranos no longer had ownership over the
property.
Then, as Ledesma subsequently sold, in 1970, a portion of
the property to the petitioner Spouses Badilla, who
immediately took delivery and possession, ownership of this
portion had also been transferred to the said spouses.
Although that sale appears to be merely verbal, and
payment therefor was to be made on installment, it is a
partially consummated sale, with the Badillas paying the
initial purchase price and Ledesma surrendering
possession.32 That the parties intended for ownership to be
transferred may be inferred from their lack of any agreement
stipulating that ownership of the property is reserved by the
seller and shall not pass to the buyer until the latter has fully
paid the purchase price. 33 The fact is, Ledesma even
delivered to the Badillas the owner's duplicate copy of OCT
No. P-2035.34 The Civil Code states that ownership of the
thing sold is transferred to the vendee upon the actual or
constructive delivery of the same. 35 And the thing is
understood as delivered when it is placed in the control and
possession of the vendee. 36 Payment of the purchase price is
not essential to the transfer of ownership as long as the
property sold has been delivered; and such delivery (traditio)
operated to divest the vendor of title to the property which
may not be regained or recovered until and unless the
contract is resolved or rescinded in accordance with
law.37redarclaw
The same is true even if the sale is a verbal one, because it
is held that when a verbal contract has been completed,
executed or partially consummated, its enforceability will not
be barred by the Statute of Frauds, which applies only to an
executory agreement. 38 Thus, where a party has performed
his obligation, oral evidence will be admitted to prove the
agreement. And, where it was proven that one party had
delivered the thing sold to another, then the contract was
partially executed and the Statute of Frauds does not
apply.39redarclaw
Therefore, with the Spouses Bad ilia owning and occupying
the said 152-square-meter portion since 1970, it may be
concluded that TCT No. T-47759 (which canceled OCT No. P-
2035) covering the said portion has been wrongfully
issued.40redarclaw
In addition, TCT No. T-47759 was issued to Fe Bragat on the
strength of a Deed of Sale of Registered Land dated October
2, 1987.41 This deed of sale, however, is void for being
simulated, since both the vendor (Pastrano) and the vendee
(Bragat) knew at the time of its execution of the vendor's
lack of ownership over Lot No. 19986, the property being
sold. At that time, it was not Pastrano but Ledesma who was
absolute owner of the property by virtue of the latter's
earlier purchase of Lot No. 19986 from the Spouses Pastrano
on November 18, 1968, via a Deed of Definite Sale of
Unregistered Coconut and Residential Land. 42 Bragat herself
knew this, as she and her husband themselves first bought
the property from Ledesma through a Deed of Absolute Sale
of Residential Land dated April 18, 1978. 43redarclaw
In fact, it is from this sale in 1978 that Fe Bragat derives title
on the property and not from tjhe Deeds of Sale dated May
5, 1984 and October 2, 1987 executed between her as
vendee and Pastrano as vendor. Pastrano could no longer
sell any part of the property to Bragat on such later dates
since he had already sold the same as early as November
18, 1968 to Ledesma. Well-settled is the rule that no one can
give what one does not have - nemodat quod non habet -
and, accordingly, one can sell only what one owns or is
authorized to sell, and the buyer acquires no better title than
the seller.44 Thus, the sales made on the dates May 5, 1984
and October 2, 1987 are void for being [simulated and for
lack of a subject matter. On these sales, Bragat cannot
clajim good faith as she herself knew of Pastrano's lack of
ownership.
It needs emphasis, however, that Bragat's property bought
from Ledesma in 1978 does not include the 152-sq.-m.
portion that was already bought by the Badillas.
Therefore, Fe Bragat is entitled to a new transfer certificate
of title issued in her name, but on the basis of the Deed of
Absolute Sale dated April 18, 1978, and excluding the 152
sq. m. in area that the Spouses Badilla have already bought
and have been occupying since 1970, but which are
currently covered by Bragat's existing title, TCT No. T-47759.
Hence, Bragat's TCT No. T-47759 (which canceled OCT No. P-
2035), covering 1,015 sq. m., should be declared void and
cancelled and, in its place, two (2) new ones should be
issued: (1) in the name of the spouses Magdalino and Cleofe
Badilla, covering the 152 sq. m. that they are occupying, and
(2) in the name of Fe Bragat, covering [the remaining 863
sq. m. The metes and bounds of these two lots are to be
based on the survey plans already submitted by appointed
commissioners to the lower court during trial, which are: the
Commissioner's Relocation Survey Report (Exhibit
"N")45 signed by Engr. Benigno B. Manlangiti et al., as well as
the accompanying Relocation Sketch Plan (Exhibit "N-
2")46 prepared by the same commissioner.
This ruling is compelled by the involvement in this case of
not just one instance of double sales but a series of such
sales made by two different vendors. First, it is admitted that
Pastrano sold the property to Ledesma in 1968; then,
Pastrano sold it again to Bragat in 1984 and 1987. But
Ledesma, too, sold part of the property to the Spouses
Badilla in 1970 and then the entire lot to the Spouses; Bragat
in 1978. In such a situation of multiple sales, Article 1544 of
the Civil Code relates that ownership shall belong to the
person acquiring the property who, in good faith, first
recorded such acquisition.47 Presently, however, it cannot be
said that Bragat's recording of her 1987 purchase was in
good faith because that sale was simulated and Bragat was
aware of other persons who have an interest on the
property. That the 1987 sale is void is further revealed by
evidence to show that one of its signatories, Profitiza
Pastrano was already dead when it was executed. 48 Bragat
herself also admitted that she knew of the Spouses Badillas'
occupation prior to her purchase. 49 In that case, the same
Article 1544 of the Civil Code provides that when neither
buyer registered, in good faith, the sale of the properties
with the register of deeds, the one who took prior possession
of the properties shall be the lawful owner thereof. 50 Such
prior possessors, at least with respect to the 152-sq.-m.
portion, are indisputably the Spouses Badilla.
WHEREFORE, premises considered, the petition
is GRANTED. The assailed Decision dated October 9, 2008
and Resolution dated February 12, 2009 of the Court of
Appeals in CA-G.R. CV No. 70423 -MM are
hereby REVERSED and SET ASIDE. Transfer Certificate of
Title No. T-47759 is DECLARED VOID, and, in its place, two
(2) new transfer certificates of titles are ORDERED ISSUED,
namely: (1) in the name of the Spouses Magdalino and
Cleofe Badilla, covering the 152 sq. m. that they are
occupying, and (2) in the name of Fe Bragat, covering the
remaining 863 sq. m. of the property, of which
measurements are to be based on Exhibits "N" 51 and Exhibit
"N-2".52redarclaw
SO ORDERED.cr
G.R. No. 214587, February 26, 2018
JOSEPHINE P. DELOS REYES AND JULIUS C. PERALTA,
REPRESENTED BY THEIR ATTORNEY-IN-FACT, J.F.
JAVIER D. PERALTA, Petitioners, v. MUNICIPALITY OF
KALIBO, AKLAN, ITS SANGGUNIANG BAYAN AND Moreover, the DENR's Environmental Compliance Certificate
MAYOR RAYMAR A. REBALDO, Respondents. (ECC) showed that the project would not harm the
dumpsite's neighboring areas, including the water systems.
Thus, the municipality built a retaining wall on the property
DECISION facing the Aklan river in 1996. More of the structures were
built on the area from 1997 to 1998. Later, the area was
enclosed with a perimeter fence.
PERALTA, J.:
On January 26, 1998, the Peraltas filed a Complaint 4 for
This is a petition for review seeking to annul and set aside
quieting of title over the two (2) portions of accretion
the Decision1 of the Court of Appeals (CA) Cebu, Nineteenth
declared in their names for taxation purposes.
(19th) Division, dated September 28, 2012, and its
Resolution2 dated August 28, 2014 in CA-G.R. CEB-CV No.
00700 which reversed and set aside the Decision 3 of the The Peraltas' prayer for an injunctive writ against the
Regional Trial Court (RTC), Branch 6 of Kalibo, Aklan on construction of the dumpsite was denied, but on February
February 22, 2005 in Civil Case No. 5440, thereby declaring 22, 2005, the RTC of Kalibo, ruled in their favor, thus:
the subject properties as part of public land.
WHEREFORE, in view of the foregoing considerations,
The factual and procedural antecedents, as evidenced by the judgment is hereby rendered in favor of the plaintiffs and
records of the case, are the following: against the defendants declaring the aforedescribed parcels
of land as an accretion and not a public land. Defendants are
also ordered to cease and desist from occupying that portion
Lot No. 2076 of the Kalibo Cadastre, with a total area of
of the garbage dumpsite with an area of 31,320 square
101,897 square meters (sq.m.), was covered by Original
meters, indicated in Parcels I, II and III of Annex A of the
Certificate of Title (OCT) No. 24435 RO-831, and registered
Commissioner's Report (Exh. "13") which are within Lots 3
in the name of Ana O. Peralta. Upon her demise, her
and 4 of plaintiffs' property.
property passed on to her brother, Jose Peralta, who caused
registration of the same in his name under Transfer
Certificate of Title (TCT) No. T-5547, issued on January 13, No award for damages and attorney's fees for want of
1975. Jose later had the property divided into Lots 2076-A evidence to support the same.
and 2076-B, and sold the latter portion. Lot 2076-A, on the
other hand, remained in Jose's name and was registered
under TCT No. 6166 on November 17, 1975. Costs against the defendants.
In the meantime, allegedly through accretion, land was SO ORDERED.5
added to Lot No. 2076. Said area was first occupied by and
declared for taxation purposes (Tax Declaration No. 6466) in
the name of Ambrocio Ignacio in 1945. He was the Peraltas' Undaunted, the Municipality of Kalibo brought the matter to
tenant, but he later executed a Quitclaim of Real Property in the CA Cebu. On September 28, 2012, the CA granted its
Jose's favor for the amount of P70.44 on March 14, 1955. appeal and reversed the assailed RTC ruling, hence:
When Jose died, Lot 2076-A, together with the supposed area
of accretion, was transferred to his son, Juanito Peralta.
IN LIGHT OF THE FOREGOING, the appeal is GRANTED. The
While TCT T-13140 was issued for Lot 2076-A on September
assailed February 22, 2005 Decision of the Regional Trial
1, 1983, the area of accretion was apportioned and
Court, Branch 6 of Kalibo, Aklan in Civil Case No. 5440 is
registered under Tax Declaration Nos. 21162-A, 21163-A,
hereby REVERSED and SET ASIDE.
21164-A, and 21165-A in the names of siblings Juanito, Javier
Peralta, Josephine delos Reyes, and Julius Peralta.
Subsequently, Juanito likewise died. SO ORDERED.6
On the other hand, the Municipality of Kalibo, through its The Peraltas then filed a Motion for Reconsideration, but the
then Mayor Diego Luces and the members of same was denied in a Resolution dated August 28, 2014.
its Sangguniang Bayan, sought to convert more or less four Hence, the instant petition.
(4) hectares of said area of accretion into a garbage
dumpsite. On November 10, 1992, Juanito, in his capacity as
his siblings' representative, opposed said project in a letter. The main issue in this case is whether or not the CA
For failure to get a favorable response from the mayor's committed an error when it reversed the RTC, which
office, he wrote a formal protest to the Secretary of the declared the subject parcels of land as accretion and not
Department of Environment and Natural Resources (DENR) part of the public domain.
on October 2, 1997.
The Court rules in the negative.
Despite the Peraltas' opposition, the Municipality of Kalibo
continued the project under the justification that the
contested property is actually part of the public domain.
In order that an action for quieting of title may prosper, the
plaintiff must have legal or equitable title to, or interest in,
the property which is the subject matter of the action. While
legal title denotes registered ownership, equitable title
means beneficial ownership. In the absence of such legal or
equitable title, or interest, there is no cloud to be prevented
or removed.7 Likewise, the plaintiff must show that the deed,
claim, encumbrance, or proceeding that purportedly casts a
cloud on their title is in fact invalid or inoperative despite
its prima facie appearance of validity or legal efficacy.8
It must be noted that the Peraltas, the petitioners in the
instant case, are not even registered owners of the area
adjacent to the increment claimed, much less of the subject
parcels of land. Only the late Juanito became the registered
owner of Lot 2076-A, the lot next to the supposed accretion.
Assuming that the petitioners are Juanito's rightful
successors, they still did not register the subject increment
under their names. It is settled that an accretion does not
automatically become registered land just because the lot
that receives such accretion is covered by a Torrens Title.
Ownership of a piece of land is one thing; registration under
the Torrens system of that ownership is another. Ownership
over the accretion received by the land adjoining a river is
governed by the Civil Code; imprescriptibility of registered
land is provided in the registration law. Registration under
the Land Registration and Cadastral Act does not vest or
give title to the land, but merely confirms and, thereafter,
protects the title already possessed by the owner, making it
imprescriptible by occupation of third parties. But to obtain
this protection, the land must be placed under the operation
of the registration laws, wherein certain judicial procedures
have been provided.9
If at all, whatever rights the Peraltas derived from their
predecessors-in-interest respecting the area in question
came only from the quitclaim of real property executed by
Ignacio in Jose's favor in 1955. There is no concrete evidence
showing any right of title on Ignacio's part for him to be able
to legally and validly cede the property to Jose. What the
quitclaim merely proves is that Ignacio had forfeited any
claim or interest over the accretion in Jose's favor. It is
settled that equitable title is defined as a title derived
through a valid contract or relation, and based on recognized
equitable principles, or the right in the party, to whom it
belongs, to have the legal title transferred to him. In order
that a plaintiff may draw to himself an equitable title, he
must show that the one from whom he derives his right had
himself a right to transfer.10 Considering the aforementioned
facts, the plaintiffs have neither legal nor equitable title over
the contested property.
Moreover, even the character of the land subject of the
quitclaim is highly questionable. Ignacio, who was
purportedly the first occupant of the area in 1945 and who
was also in the best position to describe the lot, stated that
"the said parcel of swampy land is an integral expansion or
continuity of the said Cadastral Lot No. 2076, formed by a
change of the shoreline of the Visayan Sea, which shoreline
has receded towards the North, thus, leaving the swampy or
parcel of land described in the immediately preceding
paragraph which accrues to the owner of said right of said
Cadastral Lot No. 2076 (Torrens Title No. 24435), Jose O.
Peralta by right of lawful accretion or accession." 11
Article 457 of the Civil Code of the Philippines, under which possession, nor is it proof of ownership, in the absence of the
the Peraltas claim ownership over the disputed parcels of claimant's actual possession of said property. 16 In the case at
land, provides: bar, the Peraltas failed to adequately prove their possession
and that of their predecessors-in-interest.
Art. 457. To the owners of lands adjoining the banks of rivers
belong the accretion which they gradually receive from the Verily, in civil cases, the party having the burden of proof
effects of the current of the waters. must do so with a preponderance of evidence, with plaintiff
having to rely on the strength of his own evidence and not
upon the defendant's weakness. Preponderance of evidence
Accretion is the process whereby the soil is deposited along is the weight, credit, and value of the aggregate evidence on
the banks of rivers. The deposit of soil, to be considered either side and is usually considered to be synonymous with
accretion, must be: (a) gradual and imperceptible; (b) made the term "greater weight of evidence" or "greater weight of
through the effects of the current of the water; and (c) taking credible evidence." Succinctly put, it only requires that
place on land adjacent to the banks of rivers. 12 evidence be greater or more convincing than the opposing
evidence.17 Since the Peraltas must first establish their legal
or equitable title to or interest in the property in order for
Here, Ignacio characterized the land in question as swampy
their action for quieting of title may prosper, failure to do so
and its increase in size as the effect of the change of the
would mean lack of cause of action on their part to pursue
shoreline of the Visayan Sea, and not through the gradual
said remedy.
deposits of soil coming from the river or the sea. Also,
Baltazar Gerardo, the Officer-in-Charge of the Community
Environment and Natural Resources Office of the Bureau of WHEREFORE, PREMISES CONSIDERED, the
Lands, found upon inspection in 1987 that the subject area Court DENIES the petition, and AFFIRMS the Decision of
was predominantly composed of sand rather than soil. 13 One th
the Court of Appeals Cebu, Nineteenth (19 ) Division, dated
of the plaintiffs, Javier, also testified that in 1974 or 1976, September 28, 2012, and Resolution dated August 28, 2014
the Visayan Sea was around one (1) kilometer from the land in CA-G.R. CEB-CV No. 00700.
in question, and in 2003, the distance already became
around three (3) kilometers, giving the impression that the
increment was actually the result of additional area of sand SO ORDERED.
deposits left by the sea when it had receded, and not by
gradual deposits of soil or sediment caused by the action of
water. In addition, the DENR has remained firm and
consistent in classifying the area as land of the public
domain for being part of either the Visayan Sea of the Sooc
Riverbed and is reached by tide water. Further, the Sheriffs
Report dated July 13, 1998 shows that when he conducted
an ocular inspection of the area, part of it was reached by G.R. No. 129018      November 15, 2001
the tide. At around 11:30 a.m., he was able to measure the
deepest portion of the high tide at around nineteen (19)
inches, and its wideness at five (5) meters near the concrete CARMELITA LEAÑO, assisted by her husband
wall.14 GREGORIO CUACHON, petitioner,
vs.
COURT OF APPEALS and HERMOGENES
Indeed, by reason of their special knowledge and expertise FERNANDO, respondents.
over matters falling under their jurisdiction, administrative
agencies, like the DENR, are in a better position to pass
PARDO, J.:
judgment on the same, and their findings of fact are
generally accorded great respect, if not finality, by the
courts. Such findings must be respected as long as they are
The Case
supported by substantial evidence, even if such evidence is
not overwhelming or even preponderant. 15 Hence, the
questionable character of the land, which could most The case is a petition for review on certiorari of the
probably be part of the public domain, indeed bars Jose from decision1 of the Court of Appeals affirming that of the
validly transferring the increment to any of his successors. Regional Trial Court, Malolos, Branch 7 2 ordering petitioner
Leaño to pay respondent Hermogenes Fernando the sum of
P183,687.70 corresponding to her outstanding obligations
Indubitably, the plaintiffs are merely successors who derived
under the contract to sell, with interest and surcharges due
their alleged right of ownership from tax declarations. But
thereon, attorney's fees and costs.1âwphi1.nêt
neither can they validly rely on said tax declarations and the
supposed actual, open, continuous, exclusive, and notorious
possession of the property by their predecessors-in-interest. The Facts
Any person who claims ownership by virtue of tax
declarations must also prove that he has been in actual
possession of the property. Thus, proof that the property On November 13, 1985, Hermogenes Fernando, as vendor
involved had been declared for taxation purposes for a and Carmelita Leaño, as vendee executed a contract to sell
certain period of time, does not constitute proof of
involving a piece of land, Lot No. 876-B, with an area of 431
square meters, located at Sto. Cristo, Baliuag, Bulacan. 3
In the contract, Carmelita Leaño bound herself to pay
Hermogenes Fernando the sum of one hundred seven
thousand and seven hundred and fifty pesos (P107,750.00)
as the total purchase price of the lot. The manner of paying
the total purchase price was as follows:
"The sum of TEN THOUSAND SEVEN HUNDRED
SEVENTY FIVE (P10,775.00) PESOS, shall be paid
at the signing of this contract as DOWN PAYMENT,
the balance of NINETY SIX THOUSAND NINE
HUNDRED SEVENTY FIVE PESOS (P96,975.00) shall
be paid within a period of TEN (10) years at a
monthly amortization of P1,747.30 to begin from
December 7, 1985 with interest at eighteen per
cent (18%) per annum based on balances." 4
The contract also provided for a grace period of one month
within which to make payments, together with the one
corresponding to the month of grace. Should the month of
grace expire without the installments for both months having
been satisfied, an interest of 18% per annum will be charged
on the unpaid installments.5
Should a period of ninety (90) days elapse from the
expiration of the grace period without the overdue and
unpaid installments having been paid with the corresponding
interests up to that date, respondent Fernando, as vendor,
was authorized to declare the contract cancelled and to
dispose of the parcel of land, as if the contract had not been
entered into. The payments made, together with all the
improvements made on the premises, shall be considered as
rents paid for the use and occupation of the premises and as
liquidated damages.6
After the execution of the contract, Carmelita Leaño made
several payments in lump sum. 7 Thereafter, she constructed
a house on the lot valued at P800,000.00. 8 The last payment
that she made was on April 1, 1989.
On September 16, 1991, the trial court rendered a decision
in an ejectment case 9 earlier filed by respondent Fernando
ordering petitioner Leaño to vacate the premises and to pay
P250.00 per month by way of compensation for the use and
occupation of the property from May 27, 1991 until she
vacated the premises, attorney's fees and costs of the
suit.10 On August 24, 1993, the trial court issued a writ of
execution which was duly served on petitioner Leaño.
On September 27, 1993, petitioner Leaño filed with the
Regional Trial Court of Malolos, Bulacan a complaint for
specific performance with preliminary injunction. 11 Petitioner
Leaño assailed the validity of the judgment of the municipal
trial court12 for being violative of her right to due process and
for being contrary to the avowed intentions of Republic Act
No. 6552 regarding protection to buyers of lots on
installments. Petitioner Leaño deposited P18,000.00 with the
clerk of court, Regional Trial Court, Bulacan, to cover the
balance of the total cost of Lot 876-B.13
On November 4, 1993, after petitioner Leaño posted a cash
bond of P50,000.00,14 the trial court issued a writ of
preliminary injunction15 to stay the enforcement of the
decision of the municipal trial court.16
On February 6, 1995, the trial court rendered a decision, the
dispositive portion of which reads:
"WHEREFORE, judgment is hereby rendered as
follows:
"1. The preliminary injunction issued by this court
per its order dated November 4, 1993 is hereby
made permanent;
"2. Ordering the plaintiff to pay to the defendant
the sum of P103,090.70 corresponding to her
outstanding obligations under the contract to sell
(Exhibit "A" – Exhibit "B") consisting of the
principal of said obligation together with the
interest and surcharges due thereon as of
February 28, 1994, plus interest thereon at the
rate of 18% per annum in accordance with the
provision of said contract to be computed from
March 1, 1994, until the same becomes fully paid;
"3. Ordering the defendant to pay to plaintiff the
amount of P10,000 as and by way of attorney's
fees;
"4. Ordering the defendant to pay to plaintiff the
costs of the suit in Civil Case No. 1680
aforementioned.
"SO ORDERED.
"Malolos, Bulacan, February 6, 1995.
"(sgd.) DANILO A. MANALASTAS
Judge"17
On February 21, 1995, respondent Fernando filed a motion
for reconsideration 18 and the supplement19 thereto. The trial
court increased the amount of P103,090.70 to P183,687.00
and ordered petitioner Leaño ordered to pay attorney's
fees.20
According to the trial court, the transaction between the
parties was an absolute sale, making petitioner Leaño the
owner of the lot upon actual and constructive delivery
thereof. Respondent Fernando, the seller, was divested of
ownership and cannot recover the same unless the contract
is rescinded pursuant to Article 1592 of the Civil Code which
requires a judicial or notarial demand. Since there had been
no rescission, petitioner Leaño, as the owner in possession of
the property, cannot be evicted.
On the issue of delay, the trial court held:
"While the said contract provides that the whole
purchase price is payable within a ten-year period,
yet the same contract clearly specifies that the
purchase price shall be payable in monthly
installments for which the corresponding penalty
shall be imposed in case of default. The plaintiff
certainly cannot ignore the binding effect of such
stipulation by merely asserting that the ten-year
period for payment of the whole purchase price
has not yet lapsed. In other words, the plaintiff has
clearly defaulted in the payment of the
amortizations due under the contract as recited in
the statement of account (Exhibit "2") and she
should be liable for the payment of interest and
penalties in accordance with the stipulations in the
contract pertaining thereto."21
The trial court disregarded petitioner Leaños claim that she
made a downpayment of P10,000.00, at the time of the
execution of the contract.
The trial court relied on the statement of account 22 and the
summary23 prepared by respondent Fernando to determine
petitioner Leaño's liability for the payment of interests and
penalties.
The trial court held that the consignation made by petitioner
Leaño in the amount of P18,000.00 did not produce any legal
effect as the same was not done in accordance with Articles
1176, 1177 and 1178 of the Civil Code.
In time, petitioner Leaño appealed the decision to the Court
of Appeals.24 On January 22, 1997, Court of Appeals
promulgated a decision affirming that of the Regional Trial
Court in toto.25 On February 11, 1997, petitioner Leaño filed
a motion for reconsideration. 26 On April 18, 1997, the Court
of Appeals denied the motion.27
Hence, this petition.28
The Issues
The issues to be resolved in this petition for review are (1)
whether the transaction between the parties in an absolute
sale or a conditional sale; (2) whether there was a proper
cancellation of the contract to sell; and (3) whether
petitioner was in delay in the payment of the monthly
amortizations.
The Court's Ruling
Contrary to the findings of the trial court, the transaction
between the parties was a conditional sale not an absolute
sale. The intention of the parties was to reserve the
ownership of the land in the seller until the buyer has paid
the total purchase price.
Consider the following:
First, the contract to sell makes the sale, cession and
conveyance "subject to conditions" set forth in the contract
to sell.29
Second, what was transferred was the possession of the
property, not ownership. The possession is even limited by
the following: (1) that the vendee may continue therewith
"as long as the VENDEE complies with all the terms and
conditions mentioned, and (2) that the buyer may not sell,
cede, assign, transfer or mortgage or in any way encumber
any right, interest or equity that she may have or acquire in
and to the said parcel of land nor to lease or to sublease it or
give possession to another person without the written
consent of the seller. 30
Finally, the ownership of the lot was not transferred to
Carmelita Leaño. As the land is covered by a torrens title,
the act of registration of the deed of sale was the operative
act that could transfer ownership over the lot. 31 There is not
even a deed that could be registered since the contract
provides that the seller will execute such a deed "upon
complete payment by the VENDEE of the total purchase
price of the property" with the stipulated interest. 32
In a contract to sell real property on installments, the full
payment of the purchase price is a positive suspensive
condition, the failure of which is not considered a breach,
casual or serious, but simply an event that prevented the
obligation of the vendor to convey title from acquiring any
obligatory force.33 The transfer of ownership and title would
occur after full payment of the price. 34
In the case at bar, petitioner Leaño's non-payment of the
installments after April 1, 1989, prevented the obligation of
respondent Fernando to convey the property from arising. In
fact, it brought into effect the provision of the contract on
cancellation.
Contrary to the findings of the trial court, Article 1592 of the
Civil Code is inapplicable to the case at bar. 35 However, any
attempt to cancel the contract to sell would have to comply
with the provisions of Republic Act No. 6552, the "Realty
Installment Buyer Protection Act."
R.A. No. 6552 recognizes in conditional sales of all kinds of
real estate (industrial, commercial, residential) the right of
the seller to cancel the contract upon non-payment of an
installment by the buyer, which is simply an event that
prevents the obligation of the vendor to convey title from
acquiring binding force. 36 The law also provides for the rights
of the buyer in case of cancellation. Thus, Sec. 3 (b) of the
law provides that:
"If the contract is cancelled, the seller shall refund
to the buyer the cash surrender value of the
payments on the property equivalent to fifty
percent of the total payments made and, after five
years of installments, an additional five percent
every year but not to exceed ninety percent of the
total payment made: Provided, That the actual
cancellation of the contract shall take place after
thirty days from receipt by the buyer of the notice
of cancellation or the demand for rescission of the
contract by a notarial act and upon full payment of
the cash surrender value to the buyer." [Emphasis
supplied]
The decision in the ejectment case37 operated as the notice
of cancellation required by Sec. 3(b). As petitioner Leaño
was not given then cash surrender value of the payments
that she made, there was still no actual cancellation of the
contract. Consequently, petitioner Leaño may still reinstate
the contract by updating the account during the grace period
and before actual cancellation.38
Should petitioner Leaño wish to reinstate the contract, she
would have to update her accounts with respondent
Fernando in accordance with the statement of
account39 which amount was P183,687.00.40
On the issue of whether petitioner Leaño was in delay in
paying the amortizations, we rule that while the contract
provided that the total purchase price was payable within a
ten-year period, the same contract specified that the
purchase price shall be paid in monthly installments for
which the corresponding penalty shall be imposed in case of
default. Petitioner Leaño cannot ignore the provision on the
payment of monthly installments by claiming that the ten-
year period within which to pay has not elapsed.
Article 1169 of the Civil Code provides that in reciprocal
obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with
what is incumbent upon him. From the moment one of the
parties fulfills his obligation, delay by the other
begins.1âwphi1.nêt
In the case at bar, respondent Fernando performed his part
of the obligation by allowing petitioner Leaño to continue in
possession and use of the property. Clearly, when petitioner
Leaño did not pay the monthly amortizations in accordance
with the terms of the contract, she was in delay and liable
for damages. 41 However, we agree with the trial court that
the default committed by petitioner Leaño in respect of the
obligation could be compensated by the interest and
surcharges imposed upon her under the contract in
question.42
It is a cardinal rule in the interpretation of contracts that if
the terms of a contract are clear and leave no doubt upon
the intention of the contracting parties, the literal meaning
of its stipulation shall control. 43 Thus, as there is no
ambiguity in the language of the contract, there is no room
for construction, only compliance.
The Fallo
IN VIEW WHEREOF, we DENY the petition
and AFFIRM the decision of the Court of Appeals 44 in toto.
No costs. SO ORDERED.
G. R. No. 127695 - December 3, 2001
HEIRS OF LUIS BACUS, namely: CLARA RESMA BACUS,
ROQUE R. BACUS, SR., SATURNINO R. BACUS,
PRISCILA VDA. DE CABANERO, CARMELITA B. SUQUIB,
BERNARDITA B. CARDENAS, RAUL R. BACUS,
MEDARDO R. BACUS, ANSELMA B. ALBAN, RICARDO R.
BACUS, FELICISIMA B. JUDICO, and DOMINICIANA B.
TANGAL, Petitioners,
vs.
HON. COURT OF APPEALS and SPOUSES FAUSTINO
DURAY and VICTORIANA DURAY, Respondents.
QUISUMBING, J.:
This petition assails the decision dated November 29, 1996,
of the Court of Appeals in CA-G.R. CV No. 37566, affirming
the decision dated August 3, 1991, of the Regional Trial
Court of Cebu City, Branch 6, in Civil Case No. CEB-8935.
The facts, as culled from the records, are as follows:
On June 1, 1984, Luis Bacus leased to private respondent
Faustino Duray a parcel of agricultural land in Bulacao,
Talisay, Cebu. Designated as Lot No. 3661-A-3-B-2, it had an
area of 3,002 square meters, covered by Transfer Certificate
of Title No. 48866. The lease was for six years, ending May
31, 1990. The contract contained an option to buy clause.
Under said option, the lessee had the exclusive and
irrevocable right to buy 2,000 square meters of the property
within five years from a year after the effectivity of the
contract, at P200 per square meter. That rate shall be
proportionately adjusted depending on the peso rate against
the US dollar, which at the time of the execution of the
contract was fourteen pesos.1
Close to the expiration of the contract, Luis Bacus died on
October 10, 1989. Thereafter, on March 15, 1990, the Duray
spouses informed Roque Bacus, one of the heirs of Luis
Bacus, that they were willing and ready to purchase the
property under the option to buy clause. They requested
Roque Bacus to prepare the necessary documents, such as a
Special Power of Attorney authorizing him to enter into a
contract of sale,2 on behalf of his sisters who were then
abroad.
On March 30, 1990, due to the refusal of petitioners to sell
the property, Faustino Duray's adverse claim was annotated
by the Register of Deeds of Cebu, at the back of TCT No.
63269, covering the segregated 2,000 square meter portion
of Lot No. 3661-A-3-B-2-A.3
Subsequently, on April 5, 1990, Duray filed a complaint for
specific performance against the heirs of Luis Bacus with
the Lupon Tagapamayapa of Barangay Bulacao, asking that
he be allowed to purchase the lot specifically referred to in
the lease contract with option to buy. At the hearing, Duray
presented a certification4 from the manager of Standard
Chartered Bank, Cebu City, addressed to Luis Bacus, stating
that at the request of Mr. Lawrence Glauber, a bank client,
arrangements were being made to allow Faustino Duray to
borrow funds of approximately P700,000 to enable him to
meet his obligations under the contract with Luis Bacus. 5
Having failed to reach an agreement before the Lupon, on
April 27, 1990, private respondents filed a complaint for
specific performance with damages against petitioners
before the Regional Trial Court, praying that the latter, (a)
execute a deed of sale over the subject property in favor of
private respondents; (b) receive the payment of the
purchase price; and (c) pay the damages.
On the other hand, petitioners alleged that before Luis
Bacus' death, private respondents conveyed to them the
former's lack of interest to exercise their option because of
insufficiency of funds, but they were surprised to learn of
private respondents' demand. In turn, they requested private
respondents to pay the purchase price in full but the latter
refused. They further alleged that private respondents did
not deposit the money as required by the Lupon and instead
presented a bank certification which cannot be deemed legal
tender.
On October 30, 1990, private respondents manifested in
court that they caused the issuance of a cashier's check in
the amount of P650,000 6 payable to petitioners at anytime
upon demand.
On August 3, 1991, the Regional Trial Court ruled in favor of
private respondents, the dispositive portion of which reads:
Premises considered, the court finds for the plaintiffs and
orders the defendants to specifically perform their obligation
in the option to buy and to execute a document of sale over
the property covered by Transfer Certificate of Title # T-
63269 upon payment by the plaintiffs to them in the amount
of Six Hundred Seventy-Five Thousand Six Hundred Seventy-
Five (P675,675.00) Pesos within a period of thirty (30) days
from the date this decision becomes final.
SO ORDERED.7
Unsatisfied, petitioners appealed to the respondent Court of
Appeals which denied the appeal on November 29, 1996, on
the ground that the private respondents exercised their
option to buy the leased property before the expiration of
the contract of lease. It held:
. . . After a careful review of the entire records of this case,
we are convinced that the plaintiffs-appellees validly and
effectively exercised their option to buy the subject property.
As opined by the lower court, "the readiness and
preparedness of the plaintiff on his part, is manifested by his
cautionary letters, the prepared bank certification long
before the date of May 31, 1990, the final day of the option,
and his filing of this suit before said date. If the plaintiff-
appellee Francisco Duray had no intention to purchase the
property, he would not have bothered to write those letters
to the defendant-appellants (which were all received by
them) and neither would he be interested in having his
adverse claim annotated at the back of the T.C.T. of the
subject property, two (2) months before the expiration of the
lease. Moreover, he even went to the extent of seeking the
help of the Lupon Tagapamayapa to compel the defendants-
appellants to recognize his right to purchase the property
and for them to perform their corresponding obligation. 8
xxx - xxx - xxx
We therefore find no merit in this appeal.
WHEREFORE, the decision appealed from is hereby
AFFIRMED.9
Hence, this petition where petitioners aver that the Court of
Appeals gravely erred and abused its discretion in:
I. . . . UPHOLDING THE TRIAL COURT'S RULING IN THE
SPECIFIC PERFORMANCE CASE BY ORDERING PETITIONERS
(DEFENDANTS THEREIN) TO EXECUTE A DOCUMENT OF SALE
OVER THE PROPERTY IN QUESTION (WITH TCT NO. T-63269)
TO THEM IN THE AMOUNT OF P675,675.00 WITHIN THIRTY
(30) DAYS FROM THE DATE THE DECISION BECOMES FINAL;
II. . . . DISREGARDING LEGAL PRINCIPLES, SPECIFIC
PROVISIONS OF LAW AND JURISPRUDENCE IN UPHOLDING
THE DECISION OF THE TRIAL COURT TO THE EFFECT THAT
PRIVATE RESPONDENTS HAD EXERCISED THEIR RIGHT OF
OPTION TO BUY ON TIME; THUS THE PRESENTATION OF THE
CERTIFICATION OF THE BANK MANAGER OF A BANK DEPOSIT
IN THE NAME OF ANOTHER PERSON FOR LOAN TO
RESPONDENTS WAS EQUIVALENT TO A VALID TENDER OF
PAYMENT AND A SUFFICIENT COMPLAINCE (SIC) OF A
CONDITION FOR THE EXERCISE OF THE OPTION TO BUY; AND
III. . . . UPHOLDING THE TRIAL COURT'S RULING THAT THE
PRESENTATION OF A CASHER'S (SIC) CHECK BY THE
RESPONDENTS IN THE AMOUNT OF P625,000.00 EVEN AFTER
THE TERMINATION OF THE TRIAL ON THE MERITS WITH BOTH
PARTIES ALREADY HAVING RESTED THEIR CASE, WAS STILL
VALID COMPLIANCE OF THE CONDITION FOR THE PRIVATE
RESPONDENTS' (PLAINTIFFS THEREIN) EXERCISE OF RIGHT
OF OPTION TO BUY AND HAD A FORCE OF VALID AND FULL
TENDER OF PAYMENT WITHIN THE AGREED PERIOD.10
Petitioners insist that they cannot be compelled to sell the
disputed property by virtue of the nonfulfillment of the
obligation under the option contract of the private
respondents.
Private respondents first aver that petitioners are unclear if
Rule 65 or Rule 45 of the Rules of Court govern their
petition, and that petitioners only raised questions of facts
which this Court cannot properly entertain in a petition for
review. They claim that even assuming that the instant
petition is one under Rule 45, the same must be denied for
the Court of Appeals has correctly determined that they had
validly exercised their option to buy the leased property
before the contract expired.
In response, petitioners state that private respondents erred
in initially classifying the instant petition as one under Rule
65 of the Rules of Court. They argue that the petition is one
under Rule 45 where errors of the Court of Appeals, whether
evidentiary or legal in nature, may be reviewed.
We agree with private respondents that in a petition for
review under Rule 45, only questions of law may be
raised.11 However, a close reading of petitioners' arguments
reveal the following legal issues which may properly be
entertained in the instant petition:
a) When private respondents opted to buy the property
covered by the lease contract with option to buy, were they
already required to deliver the money or consign it in court
before petitioner executes a deed of transfer?
b) Did private respondents incur in delay when they did not
deliver the purchase price or consign it in court on or before
the expiration of the contract?
On the first issue, petitioners contend that private
respondents failed to comply with their obligation because
there was neither actual delivery to them nor consignation in
court or with the Municipal, City or Provincial Treasurer of
the purchase price before the contract expired. Private
respondents' bank certificate stating that arrangements
were being made by the bank to release P700,000 as a loan
to private respondents cannot be considered as legal tender
that may substitute for delivery of payment to petitioners
nor was it a consignation.
Obligations under an option to buy are reciprocal
obligations.12 The performance of one obligation is
conditioned on the simultaneous fulfillment of the other
obligation.13 In other words, in an option to buy, the payment
of the purchase price by the creditor is contingent upon the
execution and delivery of a deed of sale by the debtor. In
this case, when private respondents opted to buy the
property, their obligation was to advise petitioners of their
decision and their readiness to pay the price. They were not
yet obliged to make actual payment. Only upon petitioners'
actual execution and delivery of the deed of sale were they
required to pay. As earlier stated, the latter was contingent
upon the former. In Nietes vs. Court of Appeals, 46 SCRA 654
(1972), we held that notice of the creditor's decision to
exercise his option to buy need not be coupled with actual
payment of the price, so long as this is delivered to the
owner of the property upon performance of his part of the
agreement. Consequently, since the obligation was not yet
due, consignation in court of the purchase price was not yet
required.
Consignation is the act of depositing the thing due with the
court or judicial authorities whenever the creditor cannot
accept or refuses to accept payment and it generally
requires a prior tender of payment. In instances, where no
debt is due and owing, consignation is not
proper.14 Therefore, petitioners' contention that private
respondents failed to comply with their obligation under the
option to buy because they failed to actually deliver the
purchase price or consign it in court before the contract
expired and before they execute a deed, has no leg to stand
on.
Corollary, private respondents did not incur in delay when
they did not yet deliver payment nor make a consignation
before the expiration of the contract. In reciprocal
obligations, neither party incurs in delay if the other does not
comply or is not ready to comply in a proper manner with
what is incumbent upon him. Only from the moment one of
the parties fulfills his obligation, does delay by the other
begin.15
In this case, private respondents, as early as March 15,
1990, communicated to petitioners their intention to buy the
property and they were at that time undertaking to meet
their obligation before the expiration of the contract on May
31, 1990. However, petitioners refused to execute the deed
of sale and it was their demand to private respondents to
first deliver the money before they would execute the same
which prompted private respondents to institute a case for
specific performance in the Lupong Tagapamayapa and then
in the RTC. On October 30, 1990, after the case had been
submitted for decision but before the trial court rendered its
decision, private respondents issued a cashier's check in
petitioners' favor purportedly to bolster their claim that they
were ready to pay the purchase price. The trial court
considered this in private respondents' favor and we believe
that it rightly did so, because at the time the check was
issued, petitioners had not yet executed a deed of sale nor
expressed readiness to do so. Accordingly, as there was no
compliance yet with what was incumbent upon petitioners
under the option to buy, private respondents had not
incurred in delay when the cashier's check was issued even
after the contract expired.
WHEREFORE, the instant petition is DENIED. The decision
dated November 29, 1996 of the Court of Appeals is hereby
AFFIRMED.
Costs against petitioners.
SO ORDERED.
[G.R. NO. 181206 : October 9, 2009]
MEGAWORLD GLOBUS ASIA, INC., Petitioner, v. MILA S.
TANSECO, Respondent.
DECISION
CARPIO MORALES, J.:
On July 7, 1995, petitioner Megaworld Globus Asia, Inc.
(Megaworld) and respondent Mila S. Tanseco (Tanseco)
entered into a Contract to Buy and Sell1 a 224 square-meter
(more or less) condominium unit at a pre-selling project,
"The Salcedo Park," located along Senator Gil Puyat Avenue,
Makati City.
The purchase price was P16,802,037.32, to be paid as
follows: (1) 30% less the reservation fee of P100,000,
or P4,940,611.19, by postdated check payable on July 14,
1995; (2) P9,241,120.50 through 30 equal monthly
installments of P308,037.35 from August 14, 1995 to January
14, 1998; and (3) the balance of P2,520,305.63 on October
31, 1998, the stipulated delivery date of the unit; provided
that if the construction is completed earlier, Tanseco would
pay the balance within seven days from receipt of a notice of
turnover.
Section 4 of the Contract to Buy and Sell provided for the
construction schedule as follows:
4. CONSTRUCTION SCHEDULE - The construction of the
Project and the unit/s herein purchased shall be completed
and delivered not later than October 31, 1998 with additional
grace period of six (6) months within which to complete the
Project and the unit/s, barring delays due to fire,
earthquakes, the elements, acts of God, war, civil
disturbances, strikes or other labor disturbances,
government and economic controls making it, among others,
impossible or difficult to obtain the necessary materials, acts
of third person, or any other cause or conditions beyond the
control of the SELLER. In this event, the completion and
delivery of the unit are deemed extended accordingly
without liability on the part of the SELLER. The foregoing
notwithstanding, the SELLER reserves the right to withdraw
from this transaction and refund to the BUYER without
interest the amounts received from him under this contract if
for any reason not attributable to SELLER, such as but not
limited to fire, storms, floods, earthquakes, rebellion,
insurrection, wars, coup de etat, civil disturbances or for
other reasons beyond its control, the Project may not be
completed or it can only be completed at a financial loss to
the SELLER. In any event, all construction on or of the Project
shall remain the property of the SELLER. (Underscoring
supplied)cralawlibrary
Tanseco paid all installments due up to January, 1998,
leaving unpaid the balance of P2,520,305.63 pending
delivery of the unit. 2 Megaworld, however, failed to deliver
the unit within the stipulated period on October 31, 1998 or
April 30, 1999, the last day of the six-month grace period.
A few days shy of three years later, Megaworld, by notice
dated April 23, 2002 (notice of turnover), informed Tanseco
that the unit was ready for inspection preparatory to
delivery.3 Tanseco replied through counsel, by letter of May
6, 2002, that in view of Megaworld's failure to deliver the
unit on time, she was demanding the return
of P14,281,731.70 representing the total installment
payment she had made, with interest at 12% per annum
from April 30, 1999, the expiration of the six-month grace
period. Tanseco pointed out that none of the excepted
causes of delay existed.4
Her demand having been unheeded, Tanseco filed on June 5,
2002 with the Housing and Land Use Regulatory Board's
(HLURB) Expanded National Capital Region Field Office a
complaint against Megaworld for rescission of contract,
refund of payment, and damages. 5
In its Answer, Megaworld attributed the delay to the 1997
Asian financial crisis which was beyond its control; and
argued that default had not set in, Tanseco not having made
any judicial or extrajudicial demand for delivery before
receipt of the notice of turnover.6
By Decision of May 28, 2003,7 the HLURB Arbiter dismissed
Tanseco's complaint for lack of cause of action, finding that
Megaworld had effected delivery by the notice of turnover
before Tanseco made a demand. Tanseco was thereupon
ordered to pay Megaworld the balance of the purchase price,
plus P25,000 as moral damages, P25,000 as exemplary
damages, and P25,000 as attorney's fees.
On appeal by Tanseco, the HLURB Board of Commissioners,
by Decision of November 28, 2003, 8 sustained the HLURB
Arbiter's Decision on the ground of laches for failure to
demand rescission when the right thereto accrued. It deleted
the award of damages, however. Tanseco's Motion for
Reconsideration having been denied, 9 she appealed to the
Office of the President which dismissed the appeal by
Decision of April 28, 200610 for failure to show that the
findings of the HLURB were tainted with grave abuse of
discretion. Her Motion for Reconsideration having been
denied by Resolution dated August 30, 2006,11 Tanseco filed
a Petition for Review under Rule 43 with the Court of
Appeals.12
By Decision of September 28, 2007, 13 the appellate court
granted Tanseco's petition, disposing thus:
WHEREFORE, premises considered, petition is
hereby GRANTED and the assailed May 28, 2003 decision of
the HLURB Field Office, the November 28, 2003 decision of
the HLURB Board of Commissioners in HLURB Case No. REM-
A-030711-0162, the April 28, 2006 Decision and August 30,
2006 Resolution of the Office of the President in O.P. Case
No. 05-I-318, are hereby REVERSED and SET ASIDE and a
new one entered: (1) RESCINDING, as prayed for by
TANSECO, the aggrieved party, the contract to buy and sell;
(2) DIRECTING MEGAWORLD TO PAY TANSECO the amount
she had paid totaling P14,281,731.70 with Twelve (12%)
Percent interest per annum from October 31, 1998;
(3) ORDERING MEGAWORLD TO
PAY TANSECO P200,000.00 by way of exemplary damages;
(4) ORDERING MEGAWORLD TO
PAY TANSECO P200,000.00 as attorney's fees; and
(5) ORDERING MEGAWORLD TO PAY TANSECO the cost of
suit. (Emphasis in the original; underscoring supplied)
The appellate court held that under Article 1169 of the Civil
Code, no judicial or extrajudicial demand is needed to put
the obligor in default if the contract, as in the herein parties'
contract, states the date when the obligation should be
performed; that time was of the essence because Tanseco
relied on Megaworld's promise of timely delivery when she
agreed to part with her money; that the delay should
be reckoned from October 31, 1998, there being no force
majeure to warrant the application of the April 30, 1999
alternative date; and that specific performance could not be
ordered in lieu of rescission as the right to choose the
remedy belongs to the aggrieved party.
The appellate court awarded Tanseco exemplary damages
on a finding of bad faith on the part of Megaworld in forcing
her to accept its long-delayed delivery; and attorney's fees,
she having been compelled to sue to protect her rights.
Its Motion for Reconsideration having been denied by
Resolution of January 8, 2008,14 Megaworld filed the present
Petition for Review on Certiorari, echoing its position before
the HLURB, adding that Tanseco had not shown any basis for
the award of damages and attorney's fees. 15
Tanseco, on the other hand, maintained her position too, and
citing Megaworld's bad faith which became evident when it
insisted on making the delivery despite the long
delay,16 insisted that she deserved the award of damages
and attorney's fees.
Article 1169 of the Civil Code provides:
Art. 1169. Those obliged to deliver or to do something incur
in delay from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary
in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time when
the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the
contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment
one of the parties fulfills his obligation, delay by the other
begins. (Underscoring supplied)cralawlibrary
The Contract to Buy and Sell of the parties contains
reciprocal obligations, i.e., to complete and deliver the
condominium unit on October 31, 1998 or six months
thereafter on the part of Megaworld, and to pay the balance
of the purchase price at or about the time of delivery on the
part of Tanseco. Compliance by Megaworld with its
obligation is determinative of compliance by Tanseco with
her obligation to pay the balance of the purchase price.
Megaworld having failed to comply with its obligation under
the contract, it is liable therefor.17
That Megaworld's sending of a notice of turnover preceded
Tanseco's demand for refund does not abate her cause. For
demand would have been useless, Megaworld admittedly
having failed in its obligation to deliver the unit on the
agreed date.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by the law, or
when it is otherwise declared by stipulation, or when the
nature of the obligation requires the assumption of risk, no
person shall be responsible for those events which could not
be foreseen, or which, though foreseen, were inevitable. 18
The Court cannot generalize the 1997 Asian financial crisis to
be unforeseeable and beyond the control of a business
corporation. A real estate enterprise engaged in the pre-
selling of condominium units is concededly a master in
projections on commodities and currency movements, as
well as business risks. The fluctuating movement of the
Philippine peso in the foreign exchange market is an
everyday occurrence, hence, not an instance of caso
fortuito.19 Megaworld's excuse for its delay does not thus lie.
As for Megaworld's argument that Tanseco's claim is
considered barred by laches on account of her belated
demand, it does not lie too. Laches is a creation of equity
and its application is controlled by equitable
considerations. 20 It bears noting that Tanseco religiously paid
all the installments due up to January, 1998, whereas
Megaworld reneged on its obligation to deliver within the
stipulated period. A circumspect weighing of equitable
considerations thus tilts the scale of justice in favor of
Tanseco.
Pursuant to Section 23 of Presidential Decree No.
95721 which reads:
Sec. 23. Non-Forfeiture of Payments. - No installment
payment made by a buyer in a subdivision or condominium
project for the lot or unit he contracted to buy shall be
forfeited in favor of the owner or developer when the buyer,
after due notice to the owner or developer, desists from
further payment due to the failure of the owner or developer
to develop the subdivision or condominium project according
to the approved plans and within the time limit for complying
with the same.
Such buyer may, at his option, be reimbursed the total amou
nt paid including amortization interests but excluding
delinquency interests, with interest thereon at the legal rate.
(Emphasis and underscoring supplied),
Tanseco is, as thus prayed for, entitled to be reimbursed the
total amount she paid Megaworld.
While the appellate court correctly awarded P14,281,731.70
then, the interest rate should, however, be 6% per annum
accruing from the date of demand on May 6, 2002, and then
12% per annum from the time this judgment becomes final
and executory, conformably with Eastern Shipping Lines, Inc.
v. Court of Appeals.22
The award of P200,000 attorney's fees and of costs of suit is
in order too, the parties having stipulated in the Contract to
Buy and Sell that these shall be borne by the losing party in
a suit based thereon, 23 not to mention that Tanseco was
compelled to retain the services of counsel to protect her
interest. And so is the award of exemplary damages. With
pre-selling ventures mushrooming in the metropolis, there is
an increasing need to correct the insidious practice of real
estate companies of proffering all sorts of empty promises to
entice innocent buyers and ensure the profitability of their
projects.
The Court finds the appellate court's award of P200,000 as
exemplary damages excessive, however. Exemplary
damages are imposed not to enrich one party or impoverish
another but to serve as a deterrent against or as a negative
incentive to curb socially deleterious actions. 24 The Court
finds that P100,000 is reasonable in this case.
Finally, since Article 119125 of the Civil Code does not apply
to a contract to buy and sell, the suspensive condition of full
payment of the purchase price not having occurred to trigger
the obligation to convey title, cancellation, not rescission, of
the contract is thus the correct remedy in the premises. 26
WHEREFORE, the challenged Decision of the Court of
Appeals is, in light of the foregoing, AFFIRMED with
MODIFICATION.
As modified, the dispositive portion of the Decision reads:
The July 7, 1995 Contract to Buy and Sell between the
parties is cancelled. Petitioner, Megaworld Globus Asia, Inc.,
is directed to pay respondent, Mila S. Tanseco, the amount
of P14,281,731.70, to bear 6% interest per annum starting
May 6, 2002 and 12% interest per annum from the time the
judgment becomes final and executory; and to pay P200,000
attorney's fees, P100,000 exemplary damages, and costs of
suit.
Costs against petitioner.
SO ORDERED.
G.R. No. 193723               July 20, 2011
GENERAL MILLING CORPORATION, Petitioner,
vs.
SPS. LIBRADO RAMOS and REMEDIOS
RAMOS, Respondents.
DECISION
VELASCO, JR., J.:
The Case
This is a petition for review of the April 15, 2010 Decision of
the Court of Appeals (CA) in CA-G.R. CR-H.C. No. 85400
entitled Spouses Librado Ramos & Remedios Ramos v.
General Milling Corporation, et al., which affirmed the May
31, 2005 Decision of the Regional Trial Court (RTC), Branch
12 in Lipa City, in Civil Case No. 00-0129 for Annulment
and/or Declaration of Nullity of Extrajudicial Foreclosure Sale
with Damages.
The Facts
On August 24, 1989, General Milling Corporation (GMC)
entered into a Growers Contract with spouses Librado and
Remedios Ramos (Spouses Ramos). Under the contract, GMC
was to supply broiler chickens for the spouses to raise on
their land in Barangay Banaybanay, Lipa City, Batangas. 1 To
guarantee full compliance, the Growers Contract was
accompanied by a Deed of Real Estate Mortgage over a
piece of real property upon which their conjugal home was
built. The spouses further agreed to put up a surety bond at
the rate of PhP 20,000 per 1,000 chicks delivered by GMC.
The Deed of Real Estate Mortgage extended to Spouses
Ramos a maximum credit line of PhP 215,000 payable within
an indefinite period with an interest of twelve percent (12%)
per annum.2
The Deed of Real Estate Mortgage contained the following
provision:
WHEREAS, the MORTGAGOR/S has/have agreed to guarantee
and secure the full and faithful compliance of
[MORTGAGORS’] obligation/s with the MORTGAGEE by a First
Real Estate Mortgage in favor of the MORTGAGEE, over
a 1 parcel of land and the improvements existing thereon,
situated in the Barrio/s of Banaybanay, Municipality of Lipa
City, Province of Batangas, Philippines, his/her/their title/s
thereto being evidenced by Transfer Certificate/s No./s T-
9214 of the Registry of Deeds for the Province of Batangas in
the amount of TWO HUNDRED FIFTEEN THOUSAND (P
215,000.00), Philippine Currency, which the maximum credit
line payable within a x x x day term and to secure the
payment of the same plus interest of twelve percent (12%)
per annum.
Spouses Ramos eventually were unable to settle their
account with GMC. They alleged that they suffered business
losses because of the negligence of GMC and its violation of
the Growers Contract.3
On March 31, 1997, the counsel for GMC notified Spouses
Ramos that GMC would institute foreclosure proceedings on
their mortgaged property. 4
On May 7, 1997, GMC filed a Petition for Extrajudicial
Foreclosure of Mortgage. On June 10, 1997, the property
subject of the foreclosure was subsequently sold by public
auction to GMC after the required posting and publication. 5 It
was foreclosed for PhP 935,882,075, an amount representing
the losses on chicks and feeds exclusive of interest at 12%
per annum and attorney’s fees.6 To complicate matters, on
October 27, 1997, GMC informed the spouses that its
Agribusiness Division had closed its business and poultry
operations.7
On March 3, 2000, Spouses Ramos filed a Complaint for
Annulment and/or Declaration of Nullity of the Extrajudicial
Foreclosure Sale with Damages. They contended that the
extrajudicial foreclosure sale on June 10, 1997 was null and
void, since there was no compliance with the requirements
of posting and publication of notices under Act No. 3135, as
amended, or An Act to Regulate the Sale of Property under
Special Powers Inserted in or Annexed to Real Estate
Mortgages. They likewise claimed that there was no sheriff’s
affidavit to prove compliance with the requirements on
posting and publication of notices. It was further alleged that
the Deed of Real Estate Mortgage had no fixed term. A
prayer for moral and exemplary damages and attorney’s
fees was also included in the complaint. 8 Librado Ramos
alleged that, when the property was foreclosed, GMC did not
notify him at all of the foreclosure.9
During the trial, the parties agreed to limit the issues to the
following: (1) the validity of the Deed of Real Estate
Mortgage; (2) the validity of the extrajudicial foreclosure;
and (3) the party liable for damages. 10
In its Answer, GMC argued that it repeatedly reminded
Spouses Ramos of their liabilities under the Growers
Contract. It argued that it was compelled to foreclose the
mortgage because of Spouses Ramos’ failure to pay their
obligation. GMC insisted that it had observed all the
requirements of posting and publication of notices under Act
No. 3135.11
The Ruling of the Trial Court
Holding in favor of Spouses Ramos, the trial court ruled that
the Deed of Real Estate Mortgage was valid even if its term
was not fixed. Since the duration of the term was made to
depend exclusively upon the will of the debtors-spouses, the
trial court cited jurisprudence and said that "the obligation is
not due and payable until an action is commenced by the
mortgagee against the mortgagor for the purpose of having
the court fix the date on and after which the instrument is
payable and the date of maturity is fixed in pursuance
thereto."12
The trial court held that the action of GMC in moving for the
foreclosure of the spouses’ properties was premature,
because the latter’s obligation under their contract was not
yet due.
The trial court awarded attorney’s fees because of the
premature action taken by GMC in filing extrajudicial
foreclosure proceedings before the obligation of the spouses
became due.
The RTC ruled, thus:
WHEREFORE, premises considered, judgment is rendered as
follows:
1. The Extra-Judicial Foreclosure Proceedings
under docket no. 0107-97 is hereby declared null
and void;
2. The Deed of Real Estate Mortgage is hereby
declared valid and legal for all intents and
puposes;
3. Defendant-corporation General Milling
Corporation is ordered to pay Spouses Librado and
Remedios Ramos attorney’s fees in the total
amount of P 57,000.00 representing acceptance
fee of P30,000.00 and P3,000.00 appearance fee
for nine (9) trial dates or a total appearance fee of
P 27,000.00;
4. The claims for moral and exemplary damages
are denied for lack of merit.
IT IS SO ORDERED.13
The Ruling of the Appellate Court
On appeal, GMC argued that the trial court erred in: (1)
declaring the extrajudicial foreclosure proceedings null and
void; (2) ordering GMC to pay Spouses Ramos attorney’s
fees; and (3) not awarding damages in favor of GMC.
The CA sustained the decision of the trial court but anchored
its ruling on a different ground. Contrary to the findings of
the trial court, the CA ruled that the requirements of posting
and publication of notices under Act No. 3135 were complied
with. The CA, however, still found that GMC’s action against
Spouses Ramos was premature, as they were not in default
when the action was filed on May 7, 1997.14
The CA ruled:
In this case, a careful scrutiny of the evidence on record
shows that defendant-appellant GMC made no demand to
spouses Ramos for the full payment of their obligation. While
it was alleged in the Answer as well as in the Affidavit
constituting the direct testimony of Joseph Dominise, the
principal witness of defendant-appellant GMC, that demands
were sent to spouses Ramos, the documentary evidence
proves otherwise. A perusal of the letters presented and
offered as evidence by defendant-appellant GMC did not
"demand" but only request spouses Ramos to go to the
office of GMC to "discuss" the settlement of their account. 15
According to the CA, however, the RTC erroneously awarded
attorney’s fees to Spouses Ramos, since the presumption of
good faith on the part of GMC was not overturned.
The CA disposed of the case as follows:
WHEREFORE, and in view of the foregoing considerations,
the Decision of the Regional Trial Court of Lipa City, Branch
12, dated May 21, 2005 is hereby AFFIRMED with
MODIFICATION by deleting the award of attorney’s fees to
plaintiffs-appellees spouses Librado Ramos and Remedios
Ramos.16
Hence, We have this appeal.
The Issues
A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT
ALLEGED AND DISCUSSED IN THE LOWER COURT
AND LIKEWISE NOT RAISED BY THE PARTIES ON
APPEAL, THEREFORE HAD DECIDED THE CASE NOT
IN ACCORD WITH LAW AND APPLICABLE
DECISIONS OF THE SUPREME COURT.
B. WHETHER [THE CA] ERRED IN RULING THAT
PETITIONER GMC MADE NO DEMAND TO
RESPONDENT SPOUSES FOR THE FULL PAYMENT
OF THEIR OBLIGATION CONSIDERING THAT THE
LETTER DATED MARCH 31, 1997 OF PETITIONER
GMC TO RESPONDENT SPOUSES IS TANTAMOUNT
TO A FINAL DEMAND TO PAY, THEREFORE IT
DEPARTED FROM THE ACCEPTED AND USUAL
COURSE OF JUDICIAL PROCEEDINGS.17
The Ruling of this Court
Can the CA consider matters not alleged?
GMC asserts that since the issue on the existence of the
demand letter was not raised in the trial court, the CA, by
considering such issue, violated the basic requirements of
fair play, justice, and due process. 18
In their Comment,19 respondents-spouses aver that the CA
has ample authority to rule on matters not assigned as
errors on appeal if these are indispensable or necessary to
the just resolution of the pleaded issues.
In Diamonon v. Department of Labor and Employment, 20 We
explained that an appellate court has a broad discretionary
power in waiving the lack of assignment of errors in the
following instances:
(a) Grounds not assigned as errors but affecting
the jurisdiction of the court over the subject
matter;
(b) Matters not assigned as errors on appeal but
are evidently plain or clerical errors within
contemplation of law;
(c) Matters not assigned as errors on appeal but
consideration of which is necessary in arriving at a
just decision and complete resolution of the case
or to serve the interests of a justice or to avoid
dispensing piecemeal justice;
(d) Matters not specifically assigned as errors on
appeal but raised in the trial court and are matters
of record having some bearing on the issue
submitted which the parties failed to raise or
which the lower court ignored;
(e) Matters not assigned as errors on appeal but
closely related to an error assigned;
(f) Matters not assigned as errors on appeal but
upon which the determination of a question
properly assigned, is dependent.
Paragraph (c) above applies to the instant case, for there
would be a just and complete resolution of the appeal if
there is a ruling on whether the Spouses Ramos were
actually in default of their obligation to GMC.
Was there sufficient demand?
We now go to the second issue raised by GMC. GMC asserts
error on the part of the CA in finding that no demand was
made on Spouses Ramos to pay their obligation. On the
contrary, it claims that its March 31, 1997 letter is akin to a
demand.
We disagree.
There are three requisites necessary for a finding of default.
First, the obligation is demandable and liquidated; second,
the debtor delays performance; and third, the creditor
judicially or extrajudicially requires the debtor’s
performance.21
According to the CA, GMC did not make a demand on
Spouses Ramos but merely requested them to go to GMC’s
office to discuss the settlement of their account. In spite of
the lack of demand made on the spouses, however, GMC
proceeded with the foreclosure proceedings. Neither was
there any provision in the Deed of Real Estate Mortgage
allowing GMC to extrajudicially foreclose the mortgage
without need of demand.
Indeed, Article 1169 of the Civil Code on delay requires the
following:
Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially
demands from them the fulfilment of their obligation.
However, the demand by the creditor shall not be necessary
in order that delay may exist:
(1) When the obligation or the law expressly so declares; x x
x
As the contract in the instant case carries no such provision
on demand not being necessary for delay to exist, We agree
with the appellate court that GMC should have first made a
demand on the spouses before proceeding to foreclose the
real estate mortgage.
Development Bank of the Philippines v. Licuanan finds
application to the instant case:
The issue of whether demand was made before the
foreclosure was effected is essential.1avvphi1 If demand was
made and duly received by the respondents and the latter
still did not pay, then they were already in default and
foreclosure was proper. However, if demand was not made,
then the loans had not yet become due and demandable.
This meant that respondents had not defaulted in their
payments and the foreclosure by petitioner was premature.
Foreclosure is valid only when the debtor is in default in the
payment of his obligation.22
In turn, whether or not demand was made is a question of
fact.23 This petition filed under Rule 45 of the Rules of Court
shall raise only questions of law. For a question to be one of
law, it must not involve an examination of the probative
value of the evidence presented by the litigants or any of
them. The resolution of the issue must rest solely on what
the law provides on the given set of circumstances. Once it
is clear that the issue invites a review of the evidence
presented, the question posed is one of fact. 24 It need not be
reiterated that this Court is not a trier of facts. 25 We will
defer to the factual findings of the trial court, because
petitioner GMC has not shown any circumstances making
this case an exception to the rule.
WHEREFORE, the petition is DENIED. The CA Decision in CA-
G.R. CR-H.C. No. 85400 is AFFIRMED.
SO ORDERED.
G.R. No. 191431               March 13, 2013
RODOLFO G. CRUZ and ESPERANZA IBIAS, Petitioners,
vs.
ATTY. DELFIN GRUSPE, Respondent.
DECISION
BRION, J.:
Before the Court is the petition for review on certiorari 1 filed
under Rule 45 of the Rules of Court, assailing the
decision2 dated July 30, 2009 and the resolution 3 dated
February 19, 2010 of the Court of Appeals (CA) in CA-G.R. CV
No. 86083. The CA rulings affirmed with modification the
decision dated September 27, 2004 of the Regional Trial
Court (RTC) of Bacoor, Cavite, Branch 19, in Civil Case No.
BCV-99-146 which granted respondent Atty. Delfin Grupe’s
claim for payment of sum of money against petitioners
Rodolfo G. Cruz and Esperanza Ibias.4
THE FACTUAL BACKGROUND
The claim arose from an accident that occurred on October
24, 1999, when the mini bus owned and operated by Cruz
and driven by one Arturo Davin collided with the Toyota
Corolla car of Gruspe; Gruspe’s car was a total wreck. The
next day, on October 25, 1999, Cruz, along with Leonardo Q.
Ibias went to Gruspe’s office, apologized for the incident, and
executed a Joint Affidavit of Undertaking promising jointly
and severally to replace the Gruspe’s damaged car in 20
days, or until November 15, 1999, of the same model and of
at least the same quality; or, alternatively, they would pay
the cost of Gruspe’s car amounting to ₱350,000.00, with
interest at
12% per month for any delayed payment after November 15,
1999, until fully paid.5 When Cruz and Leonardo failed to
comply with their undertaking, Gruspe filed a complaint for
collection of sum of money against them on November 19,
1999 before the RTC.
In their answer, Cruz and Leonardo denied Gruspe’s
allegation, claiming that Gruspe, a lawyer, prepared the Joint
Affidavit of Undertaking and forced them to affix their
signatures thereon, without explaining and informing them
of its contents; Cruz affixed his signature so that his mini bus
could be released as it was his only means of income;
Leonardo, a barangay official, accompanied Cruz to Gruspe’s
office for the release of the mini bus, but was also deceived
into signing the Joint Affidavit of Undertaking.
Leonardo died during the pendency of the case and was
substituted by his widow, Esperanza. Meanwhile, Gruspe sold
the wrecked car for ₱130,000.00.
In a decision dated September 27, 2004, the RTC ruled in
favor of Gruspe and ordered Cruz and Leonardo to pay
₱220,000.00,6 plus 15% per annum from November 15, 1999
until fully paid, and the cost of suit.
On appeal, the CA affirmed the RTC decision, but reduced
the interest rate to 12% per annum pursuant to the Joint
Affidavit of Undertaking. 7 It declared that despite its title, the
Joint Affidavit of Undertaking is a contract, as it has all the
essential elements of consent, object certain, and
consideration required under Article 1318 of the Civil
Code. The CA further said that Cruz and Leonardo failed to
present evidence to support their contention of vitiated
consent. By signing the Joint Affidavit of Undertaking, they
voluntarily assumed the obligation for the damage they
caused to Gruspe’s car; Leonardo, who was not a party to
the incident, could have refused to sign the affidavit, but he
did not.
THE PETITION
In their appeal by certiorari with the Court, Cruz and
Esperanza assail the CA ruling, contending that the Joint
Affidavit of Undertaking is not a contract that can be the
basis of an obligation to pay a sum of money in favor of
Gruspe. They consider an affidavit as different from a
contract: an affidavit’s purpose is simply to attest to facts
that are within his knowledge, while a contract requires that
there be a meeting of the minds between the two
contracting parties.
Even if the Joint Affidavit of Undertaking was considered as a
contract, Cruz and Esperanza claim that it is invalid because
Cruz and Leonardo’s consent thereto was vitiated; the
contract was prepared by Gruspe who is a lawyer, and its
contents were never explained to them. Moreover, Cruz and
Leonardo were simply forced to affix their signatures,
otherwise, the mini van would not be released.
Also, they claim that prior to the filing of the complaint for
sum of money, Gruspe did not make any demand upon
them. Hence, pursuant to Article 1169 of the Civil Code, they
could not be considered in default. Without this demand,
Cruz and Esperanza contend that Gruspe could not yet take
any action.
THE COURT’S RULING
The Court finds the petition partly meritorious and
accordingly modifies the judgment of the CA.
Contracts are obligatory no matter what their forms may be,
whenever the essential requisites for their validity are
present. In determining whether a document is an affidavit
or a contract, the Court looks beyond the title of the
document, since the denomination or title given by the
parties in their document is not conclusive of the nature of
its contents.8 In the construction or interpretation of an
instrument, the intention of the parties is primordial and is to
be pursued. If the terms of the document are clear and leave
no doubt on the intention of the contracting parties, the
literal meaning of its stipulations shall control. If the words
appear to be contrary to the parties’ evident intention, the
latter shall prevail over the former.9
A simple reading of the terms of the Joint Affidavit of
Undertaking readily discloses that it contains stipulations
characteristic of a contract. As quoted in the CA
decision,10 the Joint Affidavit of Undertaking contained a
stipulation where Cruz and Leonardo promised to replace the
damaged car of Gruspe, 20 days from October 25, 1999 or
up to November 15, 1999, of the same model and of at least
the same quality. In the event that they cannot replace the
car within the same period, they would pay the cost of
Gruspe’s car in the total amount of ₱350,000.00, with
interest at 12% per month for any delayed payment after
November 15, 1999, until fully paid. These, as read by the
CA, are very simple terms that both Cruz and Leonardo could
easily understand.
There is also no merit to the argument of vitiated
consent.1âwphi1 An allegation of vitiated consent must be
proven by preponderance of evidence; Cruz and Leonardo
failed to support their allegation.
Although the undertaking in the affidavit appears to be
onerous and lopsided, this does not necessarily prove the
alleged vitiation of consent. They, in fact, admitted the
genuineness and due execution of the Joint Affidavit and
Undertaking when they said that they signed the same to
secure possession of their vehicle. If they truly believed that
the vehicle had been illegally impounded, they could have
refused to sign the Joint Affidavit of Undertaking and filed a
complaint, but they did not. That the release of their mini
bus was conditioned on their signing the Joint Affidavit of
Undertaking does not, by itself, indicate that their consent
was forced – they may have given it grudgingly, but it is not
indicative of a vitiated consent that is a ground for the
annulment of a contract.
Thus, on the issue of the validity and enforceability of the
Joint Affidavit of Undertaking, the CA did not commit any
legal error that merits the reversal of the assailed decision.
Nevertheless, the CA glossed over the issue of demand
which is material in the computation of interest on the
amount due. The RTC ordered Cruz and Leonardo to pay
Gruspe "₱350,000.00 as cost of the car xxx plus fifteen
percent (15%) per annum from November 15, 1999 until
fully paid."11 The 15% interest (later modified by the CA to be
12%) was computed from November 15, 1999 – the date
stipulated in the Joint Affidavit of Undertaking for the
payment of the value of Gruspe’s car. In the absence of a
finding by the lower courts that Gruspe made a demand
prior to the filing of the complaint, the interest cannot be
computed from November 15, 1999 because until a demand
has been made, Cruz and Leonardo could not be said to be
in default.12 "In order that the debtor may be in default, it is
necessary that the following requisites be present: (1) that
the obligation be demandable and already liquidated; (2)
that the debtor delays performance; and (3) that the creditor
requires the performance judicially and
extrajudicially." 13 Default generally begins from the moment
the creditor demands the performance of the obligation. In
this case, demand could be considered to have been made
upon the filing of the complaint on November 19, 1999, and
it is only from this date that the interest should be
computed.
Although the CA upheld the Joint Affidavit of Undertaking, we
note that it imposed interest rate on a per annum basis,
instead of the per month basis that was stated in the Joint
Affidavit of Undertaking without explaining its reason for
doing so.14 Neither party, however, questioned the change.
Nonetheless, the Court affirms the change in the interest
rate from 12% per month to 12% per annum, as we find the
interest rate agreed upon in the Joint Affidavit of Undertaking
excessive.15
WHEREFORE, we AFFIRM the decision dated July 30, 2009
and the resolution dated February 19, 2010 of the Court of
Appeals in CA-G.R. CV No. 86083, subject to the Modification
that the twelve percent (12%) per annum interest imposed
on the amount due shall accrue only from November 19,
1999, when judicial demand was made.
SO ORDERED.
G.R. No. 125536             March 16, 2000
PRUDENTIAL BANK, petitioner,
vs.
COURT OF APPEALS and LETICIA TUPASI-VALENZULA
joined by husband Francisco Valenzuela, respondents.
QUISUMBING, J.:
This appeal by certiorari under Rule 45 of the Rules of Court
seeks to annul and set aside the Decision dated January 31,
1996, and the Resolution dated July 2, 1997, of the Court of
Appeals in CA G.R. CV No. 35532, which reversed the
judgment of the Regional Trial Court of Valenzuela, Metro
Manila, Branch 171, in Civil Case No. 2913-V-88, dismissing
the private respondent's complaint for damages.1
In setting aside the trial court's decision, the Court of
Appeals disposed as follows:
WHEREFORE, the appealed decision is hereby
REVERSED and SET ASIDE and, another rendered
ordering the appellee bank to pay appellant the
sum of P100,000.00 by way of moral damages;
P50,000.00 by way of exemplary damages,
P50,000.00 for and as attorney's fees; and to pay
the costs.
SO ORDERED.2
The facts of the case on record are as follows:
Private respondent Leticia Tupasi-Valenzuela opened
Savings Account No. 5744 and Current Account No. 01016-3
in the Valenzuela Branch of petitioner Prudential Bank, with
automatic transfer of funds from the savings account to the
current account.
On June 1, 1988, herein private respondent deposited in her
savings account Check No. 666B (104561 of even date) the
amount of P35,271.60, drawn against the Philippine
Commercial International Bank (PCIB). Taking into account
that deposit and a series of withdrawals, private respondent
as of June 21, 1988 had a balance of P35,993.48 in her
savings account and P776.93 in her current account, or total
deposits of P36,770.41, with petitioner.
Thereafter, private respondent issued Prudential Bank Check
No. 983395 in the amount of P11,500.00 post-dated June 20,
1988, in favor of one Belen Legaspi. It was issued to Legaspi
as payment for jewelry which private respondent had
purchased. Legaspi, who was in jewelry trade, endorsed the
check to one Philip Lhuillier, a businessman also in the
jewelry business. When Lhuillier deposited the check in his
account with the PCIB, Pasay Branch, it was dishonored for
being drawn against insufficient funds. Lhuillier's secretary
informed the secretary of Legaspi of the dishonor. The latter
told the former to redeposit the check, Legaspi's secretary
tried to contact private respondent but to no avail.
Upon her return from the province, private respondent was
surprised to learn of the dishonor of the check. She went to
the Valenzuela Branch of Prudential Bank on July 4, 1988, to
inquire why her check was dishonored. She approached one
Albert Angeles Reyes, the officer in charge of current
account, and requested him for the ledger of her current
account. Private respondent discovered a debit of P300.00
penalty for the dishonor of her Prudential Check No. 983395.
She asked why her check was dishonored when there were
sufficient funds in her account as reflected in her passbook.
Reyes told her that there was no need to review the
passbook because the bank ledger was the best proof that
she did not have sufficient funds. Then, he abruptly faced his
typewriter and started typing.
Later, it was found out that the check in the amount of
P35,271.60 deposited by private respondent on June 1,
1988, was credited in her savings account only on June 24,
1988, or after a period of 23 days. Thus the P11,500.00
check was redeposited by Lhuillier on June 24, 1988, and
properly cleared on June 27, 1988.
Because of this incident, the bank tried to mollify private
respondent by explaining to Legaspi and Lhuillier that the
bank was at fault. Since this was not the first incident private
respondent had experienced with the bank, private
respondent was unmoved by the bank's apologies and she
commenced the present suit for damages before the RTC of
Valenzuela.
After trial, the court rendered a decision on August 30, 1991,
dismissing the complaint of private respondent, as well as
the counterclaim filed by the defendant, now petitioner.
Undeterred, private respondent appealed to the Court of
Appeals. On January 31, 1996, respondent appellate court
rendered a decision in her favor, setting aside the trial
court's decision and ordering herein petitioner to pay private
respondent the sum of P100,000.00 by way of moral
damages; P50,000.00 exemplary damages; P50,000.00 for
and as attorney's fees; and to pay the costs. 3
Petitioner filed a timely motion for reconsideration but it was
denied. Hence, this petition, raising the following issues:
I. WHETHER OR NOT THE RESPONDENT COURT OF
APPEALS ACTED WITH GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF
JURISDICTION IN DEVIATING FROM ESTABLISHED
JURISPRUDENCE IN REVERSING THE DISMISSAL
JUDGMENT OF THE TRIAL COURT AND INSTEAD
AWARDED MORAL DAMAGES, EXEMPLARY
DAMAGES AND ATTORNEY'S FEES.
II. WHETHER OR NOT THE RESPONDENT COURT OF
APPEALS ACTED IN GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OF JURISDICTION WHERE,
EVEN IN THE ABSENCE OF EVIDENCE AS FOUND BY
THE TRIAL COURT, AWARDED MORAL DAMAGES IN
THE AMOUNT OF P100,000.00.
III. WHETHER OR NOT THE RESPONDENT COURT
OF APPEALS ACTED IN GRAVE ABUSE OF
DISCRETION AMOUNTING TO LACK OF
JURISDICTION, WHERE, EVEN IN THE ABSENCE OF
EVIDENCE AS FOUND BY THE TRIAL COURT,
AWARDED P50,000.00 BY WAY OF EXEMPLARY
DAMAGES.
IV. WHETHER OR NOT THE RESPONDENT COURT
OF APPEALS ACTED WITH GRAVE ABUSE OF
DISCRETION WHERE EVEN IN THE ABSENCE OF
EVIDENCE, AWARDED ATTORNEY'S FEES.
Simply stated, the issue is whether the respondent court
erred and gravely abused its discretion in awarding moral
and exemplary damages and attorney's fees to be paid by
petitioner to private respondent.
Petitioner claims that generally the factual findings of the
lower courts are final and binding upon this Court. However,
there are exceptions to this rule. One is where the trial court
and the Court of Appeals had arrived at diverse factual
findings.4 Petitioner faults the respondent court from
deviating from the basic rule that finding of facts by the trial
court is entitled to great weight, because the trial court had
the opportunity to observe the deportment of witness and
the evaluation of evidence presented during the trial.
Petitioner contends that the appellate court gravely abused
its discretion when it awarded damages to the plaintiff, even
in the face of lack of evidence to prove such damages, as
found by the trial court.
Firstly, petitioner questions the award of moral damages. It
claims that private respondent did not suffer any damage
upon the dishonor of the check. Petitioner avers it acted in
good faith. It was an honest mistake on its part, according to
petitioner, when misposting of private respondent's deposit
on June 1, 1988, happened. Further, petitioner contends that
private respondent may not "claim" damages because the
petitioner's manager and other employees had profusely
apologized to private respondent for the error. They offered
to make restitution and apology to the payee of the check,
Legaspi, as well as the alleged endorsee, Lhuillier.
Regrettably, it was private respondent who declined the
offer and allegedly said, that there was nothing more to it,
and that the matter had been put to rest. 5
Admittedly, as found by both the respondent appellate court
and the trial court, petitioner bank had committed a
mistake.1âwphi1.nêt It misposted private respondent's
check deposit to another account and delayed the posting of
the same to the proper account of the private respondent.
The mistake resulted to the dishonor of the private
respondent's check. The trial court found "that the
misposting of plaintiff's check deposit to another account
and the delayed posting of the same to the account of the
plaintiff is a clear proof of lack of supervision on the part of
the defendant bank."6 Similarly, the appellate court also
found that "while it may be true that the bank's negligence
in dishonoring the properly funded check of appellant might
not have been attended with malice and bad faith, as
appellee [bank] submits, nevertheless, it is the result of lack
of due care and caution expected of an employee of a firm
engaged in so sensitive and accurately demanding task as
banking."7
In Simex International (Manila), Inc. vs. Court of Appeals, 183
SCRA 360, 367 (1990), and Bank of Philippine Islands vs.
IAC, et al., 206 SCRA 408, 412-413 (1992), this Court had
occasion to stress the fiduciary nature of the relationship
between a bank and its depositors and the extent of
diligence expected of the former in handling the accounts
entrusted to its care, thus:
In every case, the depositor expects the bank to
treat his account with the utmost fidelity, whether
such account consists only of a few hundred pesos
or of millions. The bank must record every single
transaction accurately, down to the last centavo,
and as promptly as possible. This has to be done if
the account is to reflect at any given time the
amount of money the depositor can dispose of as
he sees fit, confident that the bank will deliver it
as and to whomever he directs. A blunder on the
part of bank, such as the dishonor of a check
without good reason, can cause the depositor not
a little embarrassment if not also financial loss and
perhaps even civil and criminal litigation.
The paint is that as a business affected with public
interest and because of the nature of its functions,
the bank is under obligation to treat the accounts
of its depositors with meticulous care, always
having in mind the fiduciary nature of their
relationship. . . .
In the recent case of Philippine National Bank vs. Court of
Appeals,8 we held that "a bank is under obligation to treat
the accounts of its depositors with meticulous care whether
such account consists only of a few hundred pesos or of
millions of pesos. Responsibility arising from negligence in
the performance of every kind of obligation is demandable.
While petitioner's negligence in this case may not have been
attended with malice and bad faith, nevertheless, it caused
serious anxiety, embarrassment and humiliation". Hence we
ruled that the offended party in said case was entitled to
recover reasonable moral damages.
Even if malice or bad faith was not sufficiently proved in the
instant case, the fact remains that petitioner has committed
a serious mistake. It dishonored the check issued by the
private respondent who turned out to have sufficient funds
with petitioner. The bank's negligence was the result of lack
of due care and caution required of managers and
employees of a firm engaged in so sensitive and demanding
business as banking. Accordingly, the award of moral
damages by the respondent Court of Appeals could not be
said to be in error nor in grave abuse of its discretion.
There is no hard-and-fast rule in the determination of what
would be a fair amount of moral damages since each case
must be governed by its own peculiar facts. The yardstick
should be that it is not palpably and scandalously excessive.
In our view, the award of P100,000.00 is reasonable,
considering the reputation and social standing of private
respondent Leticia T. Valenzuela.9
The law allows the grant of exemplary damages by way of
example for the public good. 10 The public relies on the
banks' sworn profession of diligence and meticulousness in
giving irreproachable service. The level of meticulousness
must be maintained at all times by the banking sector.
Hence, the Court of Appeals did not err in awarding
exemplary damages. In our view, however, the reduced
amount of P20,000.00 is more appropriate.
The award of attorney's fees is also proper when exemplary
damages are awarded and since private respondent was
compelled to engage the services of a lawyer and incurred
expenses to protect her interest. 11 The standards in fixing
attorney's fees are: (1) the amount and the character of the
services rendered; (2) labor, time and trouble involved; (3)
the nature and importance of the litigation and business in
which the services were rendered; (4) the responsibility
imposed; (5) the amount of money and the value of the
property affected by the controversy or involved in the
employment; (6) the skill and the experience called for in the
performance of the services; (7) the professional character
and the social standing of the attorney; (8) the results
secured, it being a recognized rule that an attorney may
properly charge a much larger fee when it is contingent than
when it is not. 12 In this case, all the aforementioned
weighed, and considering that the amount involved in the
controversy is only P36,770.41, the total deposit of private
respondent which was misposted by the bank, we find the
award of respondent court of P50,000.00 for attorney's fees,
excessive and reduce the same to P30,000.00.
WHEREFORE, the assailed DECISION of the Court of Appeals
is hereby AFFIRMED, with MODIFICATION. The petitioner is
ordered to pay P100,000.00 by way of moral damages in
favor of private respondent Leticia T. Valenzuela. It is further
ordered to pay her exemplary damages in the amount of
P20,000.00 and P30,000.00, attorney's fees.
Costs against petitioner.
SO ORDERED.
G.R. No. 191636, January 16, 2017
PRUDENTIAL BANK (NOW BANK OF THE PHILIPPINE
ISLANDS), Petitioner, v. RONALD RAPANOT AND
HOUSING & LAND USE REGULATORY
BOARD, Respondents.
DECISION
CAGUIOA, J:
Only questions of law may be raised in petitions for review
on certiorari brought before this Court under Rule 45, since
this Court is not a trier of facts. While there are recognized
exceptions which warrant review of factual findings, mere
assertion of these exceptions does not suffice. It is
incumbent upon the party seeking review to overcome the
burden of demonstrating that review is justified under the
circumstances prevailing in his case.
The Case
Before the Court is an Appeal by Certiorari1 under Rule 45 of
the Rules of Court (Petition) of the Decision 2 dated
November 18, 2009 (questioned Decision) rendered by the
Court of Appeals - Seventh Division (CA). The questioned
Decision stems from a complaint filed by herein private
respondent Ronald Rapanot (Rapanot) against Golden
Dragon Real Estate Corporation (Golden Dragon), Golden
Dragon's President Ma. Victoria M. Vazquez 3 and herein
petitioner, Bank of the Philippine Islands, formerly known as
Prudential Bank4 (Bank) for Specific Performance and
Damages (Complaint) before the Housing and Land Use
Regulatory Board (HLURB).5
The Petition seeks to reverse the questioned Decision insofar
as it found that the Bank (i) was not deprived of due process
when the Housing and Land Use Arbiter (Arbiter) issued his
Decision dated July 3, 2002 without awaiting submission of
the Bank's position paper and draft decision, and (ii) cannot
be deemed a mortgagee in good faith with respect to Unit
2308-B2 mortgaged by Golden Dragon in its favor as
collateral.5-a
The Facts
 the opening statement of Rapanot's position paper, Rapanot SO ORDERED.26ChanRoblesVirtualawlibrary
Golden Dragon is the developer of Wack-Wack Twin Towers made reference to the April 2002 Order.25cralawred On July 25, 2002, the Bank received a copy of Rapanot's
Condominium, located in Mandaluyong City. On May 9, 1995, Manifestation dated July 24, 2002, stating that he had
Rapanot paid Golden Dragon the amount ofP453,329.64 as On July 3, 2002, the Arbiter rendered a decision (Arbiter's received a copy of the Arbiter's Decision. 27 On July 29, 2002,
reservation fee for a 41.1050-square meter unit in said Decision) in favor of Rapanot, the dispositive portion of the Bank filed a Manifestation and Motion for
condominium, particularly designated as Unit 2308-B2, 6 and which reads: Clarification,28 requesting for the opportunity to file its
covered by Condominium Certificate of Title (CCT) No. 2383 chanRoblesvirtualLawlibrary position paper and draft decision, and seeking confirmation
in the name of Golden Dragon. 7 WHEREFORE, premises considered, judgment is hereby as to whether a decision had indeed been rendered
rendered as follows: notwithstanding the fact that it had yet to file such
On September 13, 1995, the Bank extended a loan to Golden submissions.
Dragon amounting to P50,000,000.008 to be utilized by the
latter as additional working capital. 9 To secure the loan, 1. Declaring the mortgage over the Subsequently, the Bank received a copy of Rapanot's Motion
Golden Dragon executed a Mortgage Agreement in favor of condominium unit No. 2308-B2 covered for Execution dated September 2, 2002,29 to which it filed an
the Bank, which had the effect of constituting a real estate by Condominium Certificate of Title No. Opposition dated September 4, 2002.30
mortgage over several condominium units owned and 2383 in favor of respondent Bank as null
registered under Golden Dragon's name. Among the units and void for violation of Section 18 of Meanwhile, the Bank's Manifestation and Motion for
subject of the Mortgage Agreement was Unit 2308-B2. 10 The Presidential Decree No. 957[;] Clarification remained unresolved despite the lapse of five
mortgage was annotated on CCT No. 2383 on September 13, (5) months from the date of filing. This prompted the Bank to
1995.11 2. Ordering respondent Bank to cancel the secure a certified true copy of the Arbiter's Decision from the
mortgage on the subject condominium HLURB.31
On May 21, 1996, Rapanot and Golden Dragon entered into a unit, and accordingly, release the title
Contract to Sell covering Unit 2308-B2. On April 23, 1997, thereof to the On January 16, 2003, the Bank filed a Petition for Review
Rapanot completed payment of the full purchase price of complainant;chanrobleslaw with the HLURB Board of Commissioners (HLURB Board)
said unit amounting to P1,511,098.97.12 Golden Dragon alleging, among others, that it had been deprived of due
executed a Deed of Absolute Sale in favor of Rapanot of the process when the Arbiter rendered a decision without
same date.13 Thereafter, Rapanot made several verbal 3. Ordering respondents to pay jointly and affording the Bank the opportunity to submit its position
demands for the delivery of Unit 2308-B2. 14 severally the complainant the following paper and draft decision.
sums:
Prompted by Rapanot's verbal demands, Golden Dragon sent The HLURB Board modified the Arbiter's Decision by: (i)
a letter to the Bank dated March 17, 1998, requesting for a a. P100,000.00 as moral reducing the award for moral damages from P100,000.00 to
substitution of collateral for the purpose of replacing Unit damages, P50,000.00, (ii) deleting the award for exemplary damages,
2308-B2 with another unit with the same area. However, the (iii) reducing the award for attorney's fees from P50,000.00
Bank denied Golden Dragon's request due to the latter's to P20,000.00, and (iv) directing Golden Dragon to pay the
unpaid accounts. 15 Because of this, Golden Dragon failed to b. P100,000.00 as exemplary Bank all the damages the latter is directed to pay
comply with Rapanot's verbal demands. damages, thereunder, and settle the mortgage obligation
corresponding to Unit 2308-B2.32
Thereafter, Rapanot, through his counsel, sent several c. P50,000.00 as attorney's fees,
demand letters to Golden Dragon and the Bank, formally Anent the issue of due process, the HLURB Board held, as
demanding the delivery of Unit 2308-B2 and its follows:
d. The costs of litigations (sic),
corresponding CCT No. 2383, free from all liens and chanRoblesvirtualLawlibrary
and
encumbrances.16 Neither Golden Dragon nor the Bank x x x x
complied with Rapanot's written demands. 17
e. An administrative fine of TEN With respect to the first issue, we find the same untenable.
Proceedings before the HLURB THOUSAND PESOS Records show that prior to the rendition of its decision, the
(P10,000.00) payable to this office below has issued and duly sent an Order to the parties
On April 27, 2001, Rapanot filed a Complaint with the Office fifteen (15) days upon declaring respondent GDREC in default and directing
Expanded National Capital Region Field Office of the receipt of this decision, for respondent Bank to submit its position paper. x x
HLURB.18 The Field Office then scheduled the preliminary violation of Section 18 in x33 (Underscoring omitted)ChanRoblesVirtualawlibrary
hearing and held several conferences with a view of arriving relation to Section 38 of PD Proceedings before the Office of the President
at an amicable settlement. However, no settlement was 957;
reached.19 The Bank appealed the decision of the HLURB Board to the
Office of the President (OP). On October 10, 2005, the OP
Despite service of summons to all the defendants named in issued a resolution denying the Bank's appeal. In so doing,
the Complaint, only the Bank filed its Answer.20 Thus, on April the OP adopted the BLURB's findings. 34 The Bank filed a
5, 2002, the Arbiter issued an order declaring Golden Dragon Motion for Reconsideration, which was denied by the OP in
4. Directing the Register of Deeds of
and its President Maria Victoria Vazquez in default, and an Order dated March 3, 2006.35
Mandaluyong City to cancel the
directing Rapanot and the Bank to submit their respective
aforesaid mortgage on the title of the
position papers and draft decisions (April 2002 Proceedings before the CA
subject condominium unit; and
Order).21 Copies of the April 2002 Order were served on
Rapanot and the Bank via registered mail. 22 However, the The Bank filed a Petition for Review with the CA on April 17,
envelope bearing the copy sent to the Bank was returned to 5. Immediate[ly] upon receipt by the 2006 assailing the resolution and subsequent order of the
the Arbiter, bearing the notation "refused to receive". 23 complainant of the owner's duplicate OP. The Bank argued, among others, that the OP erred when
Condominium Certificate of Title of Unit it found that the Bank (i) was not denied due process before
Rapanot complied with the April 2002 Order and personally 2308-B2, delivery of CCT No. 2383 over the HLURB, and (ii) is jointly and severally liable with Golden
served copies of its position paper and draft decision on the Unit 2308-B2 in favor of the complainant Dragon for damages due Rapanot. 36
Bank on May 22, 2002 and May 24, 2002, respectively. 24 In free from all liens and encumbrances.
After submission of the parties' respective memoranda, the
CA rendered the questioned Decision dismissing the Bank's
Petition for Review. On the issue of due process, the CA held:
chanRoblesvirtualLawlibrary
Petitioner asserts that it was denied due process because it
did not receive any notice to file its position paper nor a copy
of the Housing Arbiter's Decision. Rapanot, meanwhile,
contends that the Housing Arbiter sent petitioner a copy of
the April 5, 2002 Order to file position paper by registered
mail, as evidenced by the list of persons furnished with a
copy thereof. However, according to Rapanot, petitioner
"refused to receive" it.
x x x x
In the instant case, there is no denial of due process.
Petitioner filed its Answer where it was able to explain its
side through its special and affirmative defenses.
Furthermore, it participated in the preliminary hearing and
attended scheduled conferences held to resolve differences
between the parties. Petitioner was also served with
respondent's position paper and draft decision. Having
received said pleadings of respondent, petitioner could have
manifested before the Housing Arbiter that it did not receive,
if correct, its order requiring the submission of its pleadings
and therefore prayed that it be given time to do so. Or, it
could have filed its position paper and draft decision without
awaiting the order to file the same. Under the
circumstances, petitioner was thus afforded and availed of
the opportunity to present its side. It cannot make capital of
the defense of denial of due process as a screen for
neglecting to avail of opportunities to file other
pleadings.37ChanRoblesVirtualawlibrary
With respect to the Bank's liability for damages, the CA held
thus:
chanRoblesvirtualLawlibrary
Section 18 of PD 957, requires prior written authority of the
HLURB before the owner or developer of a subdivision lot or
condominium unit may enter into a contract of mortgage.
Hence, the jurisdiction of the HLURB is broad enough to
include complaints for annulment of mortgage involving
violations of PD 957.
Petitioner argues that, as a mortgagee in good faith and for
value, it must be accorded protection and should not be held
jointly and severally liable with Golden Dragon and its
President, Victoria Vasquez.
It is true that a mortgagee in good faith and for value is
entitled to protection, as held in Rural Bank of
Compostela vs. Court of Appeals but petitioner's
dependence on this ruling is misplaced as it cannot be
considered a mortgagee in good faith.
The doctrine of "mortgagee in good faith" is based on the
rule that all persons dealing with property covered by a
certificate of title, as mortgagees, are not required to go
beyond what appears on the face of the title.
However, while a mortgagee is not under obligation to look
beyond the certificate of title, the nature of petitioner's
business requires it to take further steps to assure that there
are no encumbrances or liens on the mortgaged property,
especially since it knew that it was dealing with a
condominium developer. It should have inquired deeper into
the status of the properties offered as collateral and verified
if the HLURB's authority to mortgage was in fact previously
obtained. This it failed to do.
It has been ruled that a bank, like petitioner, cannot argue
that simply because the titles offered as security were clean
of any encumbrances or lien, it was relieved of taking any
other step to verify the implications should the same be sold
by the developer. While it is not expected to conduct an
exhaustive investigation of the mortgagor's title, it cannot be
excused from the duty of exercising the due diligence
required of banking institutions, for banks are expected to
exercise more care and prudence than private individuals in
their dealings, even those involving registered property, for
their business is affected with public interest.
As aforesaid, petitioner should have ascertained that the
required authority to mortgage the condominium units was
obtained from the HLURB before it approved Golden
Dragon's loan. It cannot feign lack of knowledge of the sales
activities of Golden Dragon since, as an extender of credit, it
is aware of the practices, both good or bad, of condominium
developers. Since petitioner was negligent in its duty to
investigate the status of the properties offered to it as
collateral, it cannot claim that it was a mortgagee in good
faith.38ChanRoblesVirtualawlibrary
The Bank filed a Motion for Reconsideration, which was
denied by the CA in a Resolution dated March 17,2010. 39 The
Bank received a copy of the resolution on March 22, 2010. 39-a
On April 6, 2010, the Bank filed with the Court a motion
praying for an additional period of 30 days within which to
file its petition for review on certiorari.39-b
On May 6, 2010, the Bank filed the instant Petition.
Rapanot filed his Comment to the Petition on September 7,
2010.40 Accordingly, the Bank filed its Reply on January 28,
2011.41
Issues
Essentially, the Bank requests this Court to resolve the
following issues:
1. Whether or not the CA erred when it affirmed the
resolution of the OP finding that the Bank had
been afforded due process before the HLURB; and
2. Whether or not the CA erred when it affirmed the
resolution of the OP holding that the Bank cannot
be considered a mortgagee in good faith.
The Court's Ruling
In the instant Petition, the Bank avers that the CA
misappreciated material facts when it affirmed the OP's
resolution which denied its appeal. The Bank contends that
the CA committed reversible error when it concluded that
the Bank was properly afforded due process before the
HLURB, and when it failed to recognize the Bank as a
mortgagee in good faith. The Bank concludes that these
alleged errors justify the reversal of the questioned Decision,
and ultimately call for the dismissal of the Complaint against
it.
The Court disagrees.
Time and again, the Court has emphasized that review of
appeals under Rule 45 is "not a matter of right, but of sound
judicial discretion." 42 Thus, a petition for review
on certiorari shall only be granted on the basis of special and
important reasons.43
As a general rule, only questions of law may be raised in
petitions filed under Rule 45.44 However, there are
recognized exceptions to this general rule, namely:
chanRoblesvirtualLawlibrary
(1) when the findings are grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when
there is grave abuse of discretion; (4) when the judgment
is based on a misapprehension of facts; (5) when the
findings of facts are conflicting; (6) when in making its
findings the Court of Appeals went beyond the issues of the
case, or its findings are contrary to the admissions of both
the appellant and the appellee; (7) when the findings are
contrary to the trial court; (8) when the findings are
conclusions without citation of specific evidence on which
they are based; (9) when the facts set forth in the petition as
well as in the petitioner's main and reply briefs are not
disputed by the respondent; (10) when the findings of fact
are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the
Court of Appeals manifestly overlooked certain
relevant facts not disputed by the parties, which, if
properly considered, would justify a different
conclusion. x x x45 (Emphasis
supplied)ChanRoblesVirtualawlibrary
The Bank avers that the second, fourth and eleventh
exceptions above are present in this case. However, after a
judicious examination of the records of this case and the
respective submissions of the parties, the Court finds that
none of these exceptions apply.
The Bank was not deprived of due process before the
HLURB.
The Bank asserts that it never received the April2002 Order.
It claims that it was taken by surprise on July 25, 2002, when
it received a copy of Rapanot's Manifestation alluding to the
issuance of the Arbiter's Decision on July 3, 2002. Hence, the
Bank claims that it was deprived of due process, since it was
not able to set forth its "valid and meritorious" defenses for
the Arbiter's consideration through its position paper and
draft decision.46
The Court finds these submissions untenable.
"The essence of due process is to be heard." 47 In
administrative proceedings, due process entails "a fair and
reasonable opportunity to explain one's side, or an
opportunity to seek a reconsideration of the action or ruling
complained of. Administrative due process cannot be fully
equated with due process in its strict judicial sense, for in the
former a formal or trial-type hearing is not always necessary,
and technical rules of procedure are not strictly applied." 48
As correctly pointed out by the CA in the questioned
Decision, the Bank was able to set out its position by
participating in the preliminary hearing and the scheduled
conferences before the Arbiter.49 The Bank was likewise able
to assert its special and affirmative defenses in its Answer to
Rapanot's Complaint.50
The fact that the Arbiter's Decision was rendered without
having considered the Bank's position paper and draft
decision is of no moment. An examination of the 1996 Rules
of Procedure of the HLURB51 then prevailing shows that the
Arbiter merely acted in accordance therewith when he
rendered his decision on the basis of the pleadings and
records submitted by the parties thus far. The relevant rules
provide:
chanRoblesvirtualLawlibrary
RULE VI - PRELIMINARY CONFERENCE AND
RESOLUTION
x x x x
Section 4. Position Papers. - If the parties fail to settle within
the period of preliminary conference, then they will be
given a period of not more than thirty (30) calendar
days to file their respective verified position papers,
attaching thereto the affidavits of their witnesses and
documentary evidence.
In addition, as provided for by Executive Order No.
26, Series of 1992, the parties shall be required to
submit their respective draft decisions within the
same thirty (30)-day period.
Said draft decision shall state clearly and distinctly the
findings of facts, the issues and the applicable law and
jurisprudence on which it is based. The arbiter may adopt in
whole or in part either of the parties' draft decision, or reject
both and prepare his own decision.
The party who fails to submit a draft decision shall be fined
P2,000.00.
Section 5. Summary Resolution - With or without the
position paper and draft decision[,] the Arbiter shall
summarily resolve the case on the basis of the
verified pleadings and pertinent records of the
Board. (Emphasis and underscoring
supplied)ChanRoblesVirtualawlibrary
Clearly, the Arbiter cannot be faulted for rendering his
Decision, since the rules then prevailing required him to do
so.
The Bank cannot likewise rely on the absence of proof of
service to further its cause. Notably, while the Bank firmly
contends that it did not receive the copy of the April 2002
Order, it did not assail the veracity of the notation "refused
to receive" inscribed on the envelope bearing said order. In
fact, the Bank only offered the following explanation
respecting said notation:
chanRoblesvirtualLawlibrary
9. The claim that the Bank "refused to receive" the envelope
that bore the Order cannot be given credence and is belied
by the Bank's act of immediately manifesting before the
Housing Arbiter that it had not yet received an order for
filing the position paper and draft
decision.52ChanRoblesVirtualawlibrary
This is specious, at best. More importantly, the records show
that the Bank gained actual notice of the Arbiter's directive
to file their position papers and draft decisions as early as
May 22, 2002, when it was personally served a copy of
Rapanot's position paper which made reference to the April
2002 Order.53 This shows as mere pretense the Bank's
assertion that it learned of the Arbiter's Decision only
through Rapanot's Manifestation. 54 Worse, the Bank waited
until the lapse of five (5) months before it took steps to
secure a copy of the Arbiter's Decision directly from the
HLURB for the purpose of assailing the same before the OP.
The Mortgage Agreement is null and void as against
Rapanot, and thus cannot be enforced against him.
The Bank avers that contrary to the CA's conclusion in the
questioned Decision, it exercised due diligence before it
entered into the Mortgage Agreement with Golden Dragon
and accepted Unit 2308-B2, among other properties, as
collateral.55 The Bank stressed that prior to the approval of
Golden Dragon's loan, it deployed representatives to
ascertain that the properties being offered as collateral were
in order. Moreover, it confirmed that the titles corresponding
to the properties offered as collateral were free from existing
liens, mortgages and other encumbrances. 56 Proceeding
from this, the Bank claims that the CA overlooked these facts
when it failed to recognize the Bank as a mortgagee in good
faith.
The Court finds the Bank's assertions indefensible.
First of all, under Presidential Decree No. 957 (PD 957), no
mortgage on any condominium unit may be constituted by a
developer without prior written approval of the National
Housing Authority, now HLURB.57 PD 957 further requires
developers to notify buyers of the loan value of their
corresponding mortgaged properties before the proceeds of
the secured loan are released. The relevant provision states:
chanRoblesvirtualLawlibrary
Section 18. Mortgages. - No mortgage on any unit or lot shall
be made by the owner or developer without prior written
approval of the Authority. Such approval shall not be granted
unless it is shown that the proceeds of the mortgage loan
shall be used for the development of the condominium or
subdivision project and effective measures have been
provided to ensure such utilization. The loan value of each
lot or unit covered by the mortgage shall be determined and
the buyer thereof, if any, shall be notified before the release
of the loan. The buyer may, at his option, pay his installment
for the lot or unit directly to the mortgagee who shall apply
the payments to the corresponding mortgage indebtedness
secured by the particular lot or unit being paid for, with a
view to enabling said buyer to obtain title over the lot or unit
promptly after full payment
thereof.ChanRoblesVirtualawlibrary
58
In Far East Bank & Trust Co. v. Marquez,  the Court clarified
the legal effect of a mortgage constituted in violation of the
foregoing provision, thus:
chanRoblesvirtualLawlibrary
The lot was mortgaged in violation of Section 18 of PD 957.
Respondent, who was the buyer of the property, was not
notified of the mortgage before the release of the loan
proceeds by petitioner. Acts executed against the provisions
of mandatory or prohibitory laws shall be void. Hence, the
mortgage over the lot is null and void insofar as
private respondent is concerned.59 (Emphasis
supplied)ChanRoblesVirtualawlibrary
The Court reiterated the foregoing pronouncement in the
recent case of Philippine National Bank v. Lim60 and again
in United Overseas Bank of the Philippines, Inc. v. Board of
Commissioners-HLURB.61
Thus, the Mortgage Agreement cannot have the effect of
curtailing Rapanot's right as buyer of Unit 2308-B2, precisely
because of the Bank's failure to comply with PD 957.
Moreover, contrary to the Bank's assertions, it cannot be
considered a mortgagee in good faith. The Bank failed to
ascertain whether Golden Dragon secured HLURB's prior
written approval as required by PD 957 before it accepted
Golden Dragon's properties as collateral. It also failed to
ascertain whether any of the properties offered as collateral
already had corresponding buyers at the time the Mortgage
Agreement was executed.
The Bank cannot harp on the fact that the Mortgage
Agreement was executed before the Contract to Sell and
Deed of Absolute Sale between Rapanot and Golden Dragon
were executed, such that no amount of verification could
have revealed Rapanot's right over Unit 2308-B2. 62 The
Court particularly notes that Rapanot made his initial
payment for Unit 2308-B2 as early as May 9, 1995, four (4)
months prior to the execution of the Mortgage Agreement.
Surely, the Bank could have easily verified such fact if it had
simply requested Golden Dragon to confirm if Unit 2308-B2
already had a buyer, given that the nature of the latter's
business inherently involves the sale of condominium units
on a commercial scale.
It bears stressing that banks are required to exercise the
highest degree of diligence in the conduct of their affairs.
The Court explained this exacting requirement in the recent
case of Philippine National Bank v. Vila,63 thus:
chanRoblesvirtualLawlibrary
In Land Bank of the Philippines v. Belle Corporation, the
Court exhorted banks to exercise the highest degree of
diligence in its dealing with properties offered as securities
for the loan obligation:
chanRoblesvirtualLawlibrary
When the purchaser or the mortgagee is a bank, the rule on
innocent purchasers or mortgagees for value is applied more
strictly. Being in the business of extending loans secured by
real estate mortgage, banks are presumed to be familiar
with the rules on land registration. Since the banking
business is impressed with public interest, they are expected
to be more cautious, to exercise a higher degree of
diligence, care and prudence, than private individuals in
their dealings, even those involving registered lands. Banks
may not simply rely on the face of the certificate of title.
Hence, they cannot assume that, x x x the title offered as
security is on its face free of any encumbrances or lien, they
are relieved of the responsibility of taking further steps to
verify the title and inspect the properties to be mortgaged.
As expected, the ascertainment of the status or condition of
a property offered to it as security for a loan must be a
standard and indispensable part of the bank's operations. x x
x (Citations omitted)ChanRoblesVirtualawlibrary
We never fail to stress the remarkable significance of
a banking institution to commercial transactions, in
particular, and to the country's economy in general.
The banking system is an indispensable institution in
the modern world and plays a vital role in the
economic life of every civilized nation. Whether as
mere passive entities for the safekeeping and saving
of money or as active instruments of business and
commerce, banks have become an ubiquitous
presence among the people, who have come to regard
them with respect and even gratitude and, most of
all, confidence. Consequently, the highest degree of
diligence is expected, and high standards of integrity
and performance are even required, of it.64 (Emphasis
and underscoring supplied)ChanRoblesVirtualawlibrary
In loan transactions, banks have the particular obligation of
ensuring that clients comply with all the documentary
requirements pertaining to the approval of their loan
applications and the subsequent release of their proceeds. 65
If only the Bank exercised the highest degree of diligence
required by the nature of its business as a financial
institution, it would have discovered that (i) Golden Dragon
did not comply with the approval requirement imposed by
Section 18 of PD 957, and (ii) that Rapanot already paid a
reservation fee and had made several installment payments
in favor of Golden Dragon, with a view of acquiring Unit
2308-B2.66
The Bank's failure to exercise the diligence required of it
constitutes negligence, and negates its assertion that it is a
mortgagee in good faith. On this point, this Court's ruling in
the case of Far East Bank & Trust Co. v. Marquez 67 is
instructive:
chanRoblesvirtualLawlibrary
Petitioner argues that it is an innocent mortgagee whose lien
must be respected and protected, since the title offered as
security was clean of any encumbrance or lien. We do not
agree.
"x x x As a general rule, where there is nothing on the
certificate of title to indicate any cloud or vice in the
ownership of the property, or any encumbrance thereon, the
purchaser is not required to explore further than what
the Torrens Title upon its face indicates in quest for any
hidden defect or inchoate right that may subsequently
defeat his right thereto. This rule, however, admits of an
exception as where the purchaser or mortgagee has
knowledge of a defect or lack of title in the vendor, or that
he was aware of sufficient facts to induce a reasonably
prudent man to inquire into the status of the property in
litigation."ChanRoblesVirtualawlibrary
Petitioner bank should have considered that it was dealing
with a town house project that was already in progress. A
reasonable person should have been aware that, to finance
the project, sources of funds could have been used other
than the loan, which was intended to serve the purpose only
partially. Hence, there was need to verity whether any part
of the property was already the subject of any other contract
involving buyers or potential buyers. In granting the loan,
petitioner bank should not have been content merely
with a clean title, considering the presence of
circumstances indicating the need for a thorough
investigation of the existence of buyers like
respondent. Having been wanting in care and prudence,
the latter cannot be deemed to be an innocent mortgagee.
Petitioner cannot claim to be a mortgagee in good
faith. Indeed it was negligent, as found by the Office
of the President and by the CA. Petitioner should not
have relied only on the representation of the
mortgagor that the latter had secured all requisite
permits and licenses from the government agencies
concerned. The former should have required the
submission of certified true copies of those
documents and verified their authenticity through its
own independent effort.
Having been negligent in finding out what
respondent's rights were over the lot, petitioner must
be deemed to possess constructive knowledge of
those rights. (Emphasis
supplied)ChanRoblesVirtualawlibrary
The Court can surely take judicial notice of the fact that
commercial banks extend credit accommodations to real
estate developers on a regular basis. In the course of its
everyday dealings, the Bank has surely been made aware of
the approval and notice requirements under Section 18 of PD
957. At this juncture, this Court deems it necessary to stress
that a person who deliberately ignores a significant fact that
could create suspicion in an otherwise reasonable person
cannot be deemed a mortgagee in good faith. 68 The nature
of the Bank's business precludes it from feigning ignorance
of the need to confirm that such requirements are complied
with prior to the release of the loan in favor of Golden
Dragon, in view of the exacting standard of diligence it is
required to exert in the conduct of its affairs.
Proceeding from the foregoing, we find that neither mistake
nor misapprehension of facts can be ascribed to the CA in
rendering the questioned Decision. The Court likewise finds
that contrary to the Bank's claim, the CA did not overlook
material facts, since the questioned Decision proceeded
from a thorough deliberation of the facts established by the
submissions of the parties and the evidence on record.
For these reasons, we resolve to deny the instant Petition for
lack of merit.
WHEREFORE, premises considered, the Petition for Review
on Certiorari is DENIED. The Decision dated November 18,
2009 and Resolution dated March 17, 2010 of the Court of
Appeals in CA-G.R. SP No. 93862 are hereby AFFIRMED.
SO ORDERED.
G.R. No. L-82619 September 15, 1993
PHILIPPINE AIRLINES, INC., petitioner,
vs.
COURT OF APPEALS and PEDRO ZAPATOS, respondents.
Leighton R. Liazon for petitioner.
Balmes L. Ocampo for private respondent.
BELLOSILLO, J.:
This petition for review in certiorari seeks to annul and set
aside the decision of the then Intermediate Appellant
Court,1 now Court of Appeals, dated 28 February 1985, in AC-
G.R. CV No. 69327 ("Pedro Zapatos v. Philippine Airlines,
Inc.") affirming the decision of the then Court of first
Instance, now Regional Trial Court, declaring Philippine
Airlines, Inc., liable in damages for breach of contract.
On 25 November 1976, private respondent filed a complaint
for damages for breach of contract of carriage 2 against
Philippine Airlines, Inc. (PAL), before the then Court of First
Instance, now Regional Trial Court, of Misamis Occidental, at
Ozamiz City. According to him, on 2 August 1976, he was
among the twenty-one (21) passengers of PAL Flight 477
that took off from Cebu bound for Ozamiz City. The routing
of this flight was Cebu-Ozamiz-Cotabato. While on flight and
just about fifteen (15) minutes before landing at Ozamiz City,
the pilot received a radio message that the airport was
closed due to heavy rains and inclement weather and that
he should proceed to Cotabato City instead.
Upon arrival at Cotabato City, the PAL Station Agent
informed the passengers of their options to return to Cebu
on flight 560 of the same day and thence to Ozamiz City on
4 August 1975, or take the next flight to Cebu the following
day, or remain at Cotabato and take the next available flight
to Ozamiz City on 5 August 1975. 3 The Station Agent likewise
informed them that Flight 560 bound for Manila would make
a stop-over at Cebu to bring some of the diverted
passengers; that there were only six (6) seats available as
there were already confirmed passengers for Manila; and,
that the basis for priority would be the check-in sequence at
Cebu.
Private respondent chose to return to Cebu but was not
accommodated because he checked-in as passenger No. 9
on Flight 477. He insisted on being given priority over the
confirmed passengers in the accommodation, but the Station
Agent refused private respondent's demand explaining that
the latter's predicament was not due to PAL's own doing but
to be a force majeure.4
Private respondent tried to stop the departure of Flight 560
as his personal belongings, including a package containing a
camera which a certain Miwa from Japan asked him to
deliver to Mrs. Fe Obid of Gingoog City, were still on board.
His plea fell on deaf ears. PAL then issued to private
respondent a free ticket to Iligan city, which the latter
received under protest.5 Private respondent was left at the
airport and could not even hitch a ride in the Ford Fiera
loaded with PAL personnel.6 PAL neither provided private
respondent with transportation from the airport to the city
proper nor food and accommodation for his stay in Cotabato
City.
The following day, private respondent purchased a PAL ticket
to Iligan City. He informed PAL personnel that he would not
use the free ticket because he was filing a case against
PAL.7 In Iligan City, private respondent hired a car from the
airport to Kolambugan, Lanao del Norte, reaching Ozamiz
City by crossing the bay in a launch. 8 His personal effects
including the camera, which were valued at P2,000.00 were
no longer recovered.
On 13 January 1977, PAL filed its answer denying that it
unjustifiably refused to accommodate private respondent. 9 It
alleged that there was simply no more seat for private
respondent on Flight 560 since there were only six (6) seats
available and the priority of accommodation on Flight 560
was based on the check-in sequence in Cebu; that the first
six (6) priority passengers on Flight 477 chose to take Flight
560; that its Station Agent explained in a courteous and
polite manner to all passengers the reason for PAL's inability
to transport all of them back to Cebu; that the stranded
passengers agreed to avail of the options and had their
respective tickets exchanged for their onward trips; that it
was
only the private respondent who insisted on being given
priority in the accommodation; that pieces of checked-in
baggage and had carried items of the Ozamiz City
passengers were removed from the aircraft; that the reason
for their pilot's inability to land at Ozamis City airport was
because the runway was wet due to rains thus posing a
threat to the safety of both passengers and aircraft; and,
that such reason of force majeure was a valid justification for
the pilot to bypass Ozamiz City and proceed directly to
Cotabato City.
On 4 June 1981, the trial court rendered its decision 10 the
dispositive portion of which states:
WHEREFORE, judgment is hereby
rendered in favor of the plaintiff and
against the defendant Philippine
AirLines, Inc. ordering the latter to pay:
(1) As actual damages, the sum of Two
Hundred Pesos (P200.00) representing
plaintiff's expenses for transportation,
food and accommodation during his
stranded stay at Cotabato City; the sum
of Forty-Eight Pesos (P48.00)
representing his flight fare from
Cotabato City to Iligan city; the sum of
Five Hundred Pesos (P500.00)
representing plaintiff's transportation
expenses from Iligan City to Ozamiz
City; and the sum of Five Thousand
Pesos (P5,000.00) as loss of business
opportunities during his stranded stay in
Cotabato City;
(2) As moral damages, the sum of Fifty
Thousand Pesos (P50,000.00) for
plaintiff's hurt feelings, serious anxiety,
mental anguish and unkind and
discourteous treatment perpetrated by
defendant's employees during his stay
as stranded passenger in Cotabato City;
(3) As exemplary damages, the sum of
Ten Thousand Pesos (P10,000.00) to set
a precedent to the defendant airline that
it shall provide means to give comfort
and convenience to stranded
passengers;
(4) The sum of Three Thousand Pesos
(P3,000.00) as attorney's fees;
(5) To pay the costs of this suit.
PAL appealed to the Court of Appeals which on 28 February
1985, finding no reversible error, affirmed the judgment of
the court a quo. 11
PAL then sought recourse to this Court by way of a petition
for review on certiorari  12 upon the following issues: (1) Can
the Court of Appeals render a decision finding petitioner
(then defendant-appellant in the court below) negligent and,
consequently, liable for damages on a question of substance
which was neither raised on a question nor proved at the
trial? (2) Can the Court of Appeals award actual and moral
damages contrary to the evidence and established
jurisprudence? 13
An assiduous examination of the records yields no valid
reason for reversal of the judgment on appeal; only a
modification of its disposition.
In its petition, PAL vigorously maintains that private
respondent's principal cause of action was its alleged denial
of private respondent's demand for priority over the
confirmed passengers on Flight 560. Likewise, PAL points out
that the complaint did not impute to PAL neglect in failing to
attend to the needs of the diverted passengers; and, that the
question of negligence was not and never put in issue by the
pleadings or proved at the trial.
Contrary to the above arguments, private respondent's
amended complaint touched on PAL's indifference and
inattention to his predicament. The pertinent portion of the
amended complaint 14 reads:
10. That by virtue of the refusal of the
defendant through its agent in Cotabato
to accommodate (sic) and allow the
plaintiff to take and board the plane
back to Cebu, and by accomodating
(sic) and allowing passengers from
Cotabato for Cebu in his stead and
place, thus forcing the plaintiff against
his will, to be left and stranded in
Cotabato, exposed to the peril and
danger of muslim rebels plundering at
the time, the plaintiff, as a consequence,
(have) suffered mental anguish, mental
torture, social humiliation, bismirched
reputation and wounded feeling, all
amounting to a conservative amount of
thirty thousand (P30,000.00) Pesos.
To substantiate this aspect of apathy, private respondent
testified 15
A I did not even notice that I was I think the last passenger
or the last person out of the PAL employees and army
personnel that were left there. I did not notice that when I
was already outside of the building after our conversation.
Q What did you do next?
A I banished (sic) because it seems that there was a war
not far from the airport. The sound of guns and the
soldiers were plenty.
Q After that what did you do?
A I tried to look for a transportation that could bring me
down to the City of Cotabato.
Q Were you able to go there?
A I was at about 7:00 o'clock in the evening more or less
and it was a private jeep that I boarded. I was even
questioned why I and who am (sic) I then. Then I
explained my side that I am (sic) stranded passenger.
Then they brought me downtown at Cotabato.
Q During your conversation with the Manager were you
not offered any vehicle or transportation to Cotabato
airport downtown?
A In fact I told him (Manager) now I am by-passed
passenger here which is not my destination what can you
offer me. Then they answered, "it is not my fault. Let us
forget that."
Q In other words when the Manager told you that offer
was there a vehicle ready?
A Not yet. Not long after that the Ford Fiera loaded with
PAL personnel was passing by going to the City of
Cotabato and I stopped it to take me a ride because there
was no more available transportation but I was not
accommodated.
Significantly, PAL did not seem to mind the introduction of
evidence which focused on its alleged negligence in caring
for its stranded passengers. Well-settled is the rule in
evidence that the protest or objection against the admission
of evidence should be presented at the time the evidence is
offered, and that the proper time to make protest or
objection to the admissibility of evidence is when the
question is presented to the witness or at the time the
answer thereto is given. 16 There being no objection, such
evidence becomes property of the case and all the parties
are amenable to any favorable or unfavorable effects
resulting from the evidence. 17
PAL instead attempted to rebut the aforequoted testimony.
In the process, it failed to substantiate its counter allegation
for want of concrete proof 18 —
Atty. Rubin O. Rivera — PAL's counsel:
Q You said PAL refused to help you when you were in
Cotabato, is that right?
Private respondent:
A Yes.
Q Did you ask them to help you regarding any offer of
transportation or of any other matter asked of them?
A Yes, he (PAL PERSONNEL) said what is? It is not our
fault.
Q Are you not aware that one fellow passenger even
claimed that he was given Hotel accommodation because
they have no money?
x x x           x x x          x x x
A No, sir, that was never offered to me. I said, I tried to
stop them but they were already riding that PAL pick-up
jeep, and I was not accommodated.
Having joined in the issue over the alleged lack of care it
exhibited towards its passengers, PAL cannot now turn
around and feign surprise at the outcome of the case. When
issues not raised by the pleadings are tried by express or
implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings. 19
With regard to the award of damages affirmed by the
appellate court, PAL argues that the same is unfounded. It
asserts that it should not be charged with the task of looking
after the passengers' comfort and convenience because the
diversion of the flight was due to a fortuitous event, and that
if made liable, an added burden is given to PAL which is over
and beyond its duties under the contract of carriage. It
submits that granting arguendo that negligence exists, PAL
cannot be liable in damages in the absence of fraud or bad
faith; that private respondent failed to apprise PAL of the
nature of his trip and possible business losses; and, that
private respondent himself is to be blamed for unreasonably
refusing to use the free ticket which PAL issued.
The contract of air carriage is a peculiar one. Being imbued
with public interest, the law requires common carriers to
carry the passengers safely as far as human care and
foresight can provide, using the utmost diligence of very
cautious persons, with due regard for all the
circumstances. 20 In Air France v. Carrascoso, 21 we held that
— passengers safely to their destination
A contract to transport passengers is
quite different in kind and degree from
any other contractual relation. And this,
because of the relation which an air
carrier sustains with the public. Its
business is mainly with the travelling
public. It invites people to avail of the
comforts and advantages it offers. The
contract of air carriage, therefore,
generates a relation attended with a
public duty . . . . ( emphasis supplied).
The position taken by PAL in this case clearly illustrates its
failure to grasp the exacting standard required by law.
Undisputably, PAL's diversion of its flight due to inclement
weather was a fortuitous event. Nonetheless, such
occurrence did not terminate PAL's contract with its
passengers. Being in the business of air carriage and the
sole one to operate in the country, PAL is deemed equipped
to deal with situations as in the case at bar. What we said in
one case once again must be stressed, i.e., the relation of
carrier and passenger continues until the latter has been
landed at the port of destination and has left the carrier's
premises. 22 Hence, PAL necessarily would still have to
exercise extraordinary diligence in safeguarding the comfort,
convenience and safety of its stranded passengers until they
have reached their final destination. On this score, PAL
grossly failed considering the then ongoing battle between
government forces and Muslim rebels in Cotabato City and
the fact that the private respondent was a stranger to the
place. As the appellate court correctly ruled —
While the failure of plaintiff in the first
instance to reach his destination at
Ozamis City in accordance with the
contract of carriage was due to the
closure of the airport on account of rain
and inclement weather which was
radioed to defendant 15 minutes before
landing, it has not been disputed by
defendant airline that Ozamis City has
no all-weather airport and has to cancel
its flight to Ozamis City or by-pass it in
the event of inclement weather.
Knowing this fact, it becomes the duty
of defendant to provide all means of
comfort and convenience to its
passengers when they would have to be
left in a strange place in case of such
by-passing. The steps taken by
defendant airline company towards this
end has not been put in evidence,
especially for those 7 others who were
not accommodated in the return trip to
Cebu, only 6 of the 21 having been so
accommodated. It appears that plaintiff
had to leave on the next flight 2 days
later. If the cause of non-fulfillment of
the contract is due to a fortuitous event,
it has to be the sole and only cause (Art.
1755 CC., Art. 1733 C.C.) Since part of
the failure to comply with the obligation
of common carrier to deliver its
lay in the defendant's failure to provide
comfort and convenience to its stranded
passengers using extra-ordinary
diligence, the cause of non-fulfillment is
not solely and exclusively due to
fortuitous event, but due to something
which defendant airline could have
prevented, defendant becomes liable to
plaintiff. 23
While we find PAL remiss in its duty of extending utmost care
to private respondent while being stranded in Cotabato City,
there is no sufficient basis to conclude that PAL failed to
inform him about his non-accommodation on Flight 560, or
that it was inattentive to his queries relative thereto.
On 3 August 1975, the Station Agent reported to his Branch
Manager in Cotabato City that —
3. Of the fifteen stranded passengers
two pax elected to take F478 on August
05, three pax opted to take F442 August
03. The remaining ten (10) including
subject requested that they be instead
accommodated (sic) on F446 CBO-IGN
the following day where they intended
to take the surface transportation to
OZC. Mr. Pedro Zapatos had by then
been very vocal and boiceterous (sic) at
the counter and we tactfully managed to
steer him inside the Station Agent's
office. Mr. Pedro Zapatos then
adamantly insisted that all the diverted
passengers should have been given
priority over the originating passengers
of F560 whether confirmed or otherwise.
We explained our policies and after
awhile he seemed pacified and
thereafter took his ticket (in-lieued (sic)
to CBO-IGN, COCON basis), at the
counter in the presence of five other
passengers who were waiting for their
tickets too. The rest of the diverted pax
had left earlier after being assured their
tickets will be ready the following day. 24
Aforesaid Report being an entry in the course of business
is prima facie evidence of the facts therein stated. Private
respondent, apart from his testimony, did not offer any
controverting evidence. If indeed PAL omitted to give
information about the options available to its diverted
passengers, it would have been deluged with complaints.
But, only private respondent complained —
Atty. Rivera (for PAL)
Q I understand from you Mr. Zapatos that at the time you
were waiting at Cotabato Airport for the decision of PAL,
you were not informed of the decision until after the
airplane left is that correct?
 A Yes.
COURT:
Q What do you mean by "yes"? You meant you were not
informed?
A Yes, I was not informed of their decision, that they will
only accommodate few passengers.
Q Aside from you there were many other stranded
passengers?
A I believed, yes.
Q And you want us to believe that PAL did not explain (to)
any of these passengers about the decision regarding
those who will board the aircraft back to Cebu?
A No, Sir.
Q Despite these facts Mr. Zapatos did any of the other
passengers complained (sic) regarding that incident?
x x x           x x x          x x x
A There were plenty of argument and I was one of those
talking about my case.
Q Did you hear anybody complained (sic) that he has not
been informed of the decision before the plane left for
Cebu?
A No. 25
Admittedly, private respondent's insistence on being given
priority in accommodation was unreasonable considering the
fortuitous event and that there was a sequence to be
observed in the booking, i.e., in the order the passengers
checked-in at their port of origin. His intransigence in fact
was the main cause for his having to stay at the airport
longer than was necessary.
Atty. Rivera:
Q And, you were saying that despite the fact that
according to your testimony there were at least 16
passengers who were stranded there in Cotabato airport
according to your testimony, and later you said that there
were no other people left there at that time, is that
correct?
A Yes, I did not see anyone there around. I think I was the
only civilian who was left there.
Q Why is it that it took you long time to leave that place?
A Because I was arguing with the PAL personnel. 26
Anent the plaint that PAL employees were disrespectful and
inattentive toward private respondent, the records are bereft
of evidence to support the same. Thus, the ruling of
respondent Court of Appeals in this regard is without
basis. 27 On the contrary, private respondent was attended to
not only by the personnel of PAL but also by its Manager." 28
In the light of these findings, we find the award of moral
damages of Fifty Thousand Pesos (P50,000.00) unreasonably
excessive; hence, we reduce the same to Ten Thousand
Pesos (P10,000.00). Conformably herewith, the award of
exemplary damages is also reduced to five Thousand Pesos
(5,000.00). Moral damages are not intended to enrich the
private respondent. They are awarded only to enable the
injured party to obtain means, diversion or amusements that
will serve to alleviate the moral suffering he has undergone
by reason of the defendant's culpable action. 29
With regard to the award of actual damages in the amount
of P5,000.00 representing private respondent's alleged
business losses occasioned by his stay at Cotabato City, we
find the same unwarranted. Private respondent's testimony
that he had a scheduled business "transaction of shark liver
oil supposedly to have been consummated on August 3,
1975 in the morning" and that "since (private respondent)
was out for nearly two weeks I missed to buy about 10
barrels of shark liver oil," 30 are purely speculative. Actual or
compensatory damages cannot be presumed but must be
duly proved with reasonable degree of certainty. A court
cannot rely on speculation, conjecture or guesswork as to
the fact and amount of damages, but must depend upon
competent proof that they have suffered and on evidence of
the actual amount thereof. 31
WHEREFORE the decision appealed from is AFFIRMED with
modification however that the award of moral damages of
Fifty Thousand Pesos (P50,000.00) is reduced to Ten
Thousand Pesos (P10,000.00) while the exemplary damages
of Ten Thousand Pesos (P10,000.00) is also reduced to Five
Thousand Pesos (P5,000.00). The award of actual damages
in the amount Five Thousand Pesos (P5,000.00) representing
business losses occasioned by private respondent's being
stranded in Cotabato City is deleted.
SO ORDERED.
G.R. No. 126389 July 10, 1998
SOUTHEASTERN COLLEGE INC., petitioner,
vs.
COURT OF APPEALS, JUANITA DE JESUS VDA. DE
DIMAANO, EMERITA DIMAANO, REMEDIOS DIMAANO,
CONSOLACION DIMAANO and MILAGROS
DIMAANO, respondents.
PURISIMA, J.:
Petition for review under Rule 45 of the Rules of Court
seeking to set aside the Decision 1 promulgated on July 31,
1996, and Resolution 2 dated September 12, 1996 of the
Court of Appeals 3 in CA-G.R. No. 41422, entitled "Juanita de
Jesus vda. de Dimaano, et al. vs. Southeastern College, Inc.",
which reduced the moral damages awarded below from
P1,000,000.00 to P200,000.00. 4 The Resolution under attack
denied petitioner's motion for reconsideration.
Private respondents are owners of a house at 326 College
Road, Pasay City, while petitioner owns a four-storey school
building along the same College Road. On October 11, 1989,
at about 6:30 in the morning, a powerful typhoon "Saling" hit
Metro Manila. Buffeted by very strong winds, the roof of
petitioner's building was partly ripped off and blown away,
landing on and destroying portions of the roofing of private
respondents' house. After the typhoon had passed, an ocular
inspection of the destroyed building was conducted by a
team of engineers headed by the city building official, Engr.
Jesus L. Reyna. Pertinent aspects of the latter's
Report 5 dated October 18, 1989 stated, as follows:
5. One of the factors that may have led
to this calamitous event is the formation
of the building in the area and the
general direction of the wind. Situated in
the peripheral lot is an almost U-shaped
formation of 4-storey building. Thus,
with the strong winds having a westerly
direction, the general formation of the
building becomes a big funnel-like
structure, the one situated along College
Road, receiving the heaviest impact of
the strong winds. Hence, there are
portions of the roofing, those located on
both ends of the building, which
remained intact after the storm.
6. Another factor and perhaps the most
likely reason for the dislodging of the
roofing structural trusses is the
improper anchorage of the said trusses
to the roof beams. The 1/2' diameter
steel bars embedded on the concrete
roof beams which serve as truss
anchorage are not bolted nor nailed to
the trusses. Still, there are other steel
bars which were not even bent to the
trusses, thus, those trusses are not
anchored at all to the roof beams.
 It then recommended that "to avoid any further
loss and damage to lives, limbs and property of
persons living in the vicinity," the fourth floor of
subject school building be declared as a "structural
hazard."
In their Complaint 6 before the Regional Trial Court of Pasay
City, Branch 117, for damages based on culpa aquiliana,
private respondents alleged that the damage to their house
rendered the same uninhabitable, forcing them to stay
temporarily in others' houses. And so they sought to recover
from petitioner P117,116.00, as actual damages,
P1,000,000.00, as moral damages, P300,000.00, as
exemplary damages and P100,000.00, for and as attorney's
fees; plus costs.
In its Answer, petitioner averred that subject school building
had withstood several devastating typhoons and other
calamities in the past, without its roofing or any portion
thereof giving way; that it has not been remiss in its
responsibility to see to it that said school building, which
houses school children, faculty members, and employees, is
"in tip-top condition"; and furthermore, typhoon "Saling" was
"an act of God and therefore beyond human control" such
that petitioner cannot be answerable for the damages
wrought thereby, absent any negligence on its part.
The trial court, giving credence to the ocular inspection
report to the effect that subject school building had a
"defective roofing structure," found that, while typhoon
"Saling" was accompanied by strong winds, the damage to
private respondents' houses "could have been avoided if the
construction of the roof of [petitioner's] building was not
faulty." The dispositive portion of the lower court's
decision 7 reads, thus:
WHEREFORE, in view of the foregoing,
the Court renders judgment (sic) in favor
of the plaintiff (sic) and against the
defendants, (sic) ordering the latter to
pay jointly and severally the former as
follows:
a) P117,116.00, as actual damages, plus litigation expenses;
b) P1,000,000.00 as moral damages;
c) P100,000.00 as attorney's fees;
d) Costs of the instant suit.
The claim for exemplary damages is
denied for the reason that the
defendants (sic) did in a wanton
fraudulent, reckless, oppressive or
malevolent manner.
In its appeal to the Court of Appeals, petitioner assigned as
errors, 8 that:
I the latter having suffered,
THE TRIAL COURT ERRED IN HOLDING
THAT TYPHOON "SALING", AS AN ACT OF
GOD, IS NOT "THE SOLE AND ABSOLUTE
REASON" FOR THE RIPPING-OFF OF THE
SMALL PORTION OF THE ROOF OF
SOUTHEASTERN'S FOUR (4) STOREY
SCHOOL BUILDING.
II
THE TRIAL COURT ERRED IN HOLDING
THAT "THE CONSTRUCTION OF THE
ROOF OF DEFENDANT'S SCHOOL
BUILDING WAS FAULTY"
NOTWITHSTANDING THE ADMISSION
THAT THERE WERE TYPHOONS BEFORE
BUT NOT AS GRAVE AS TYPHOON
"SALING" WHICH IS THE DIRECT AND
PROXIMATE CAUSE OF THE INCIDENT.
III
THE TRIAL COURT ERRED IN AWARDING
ACTUAL AND MORAL DAMAGES AS WELL
AS ATTORNEY'S FEES AND LITIGATION
EXPENSES AND COSTS OF SUIT TO
DIMAANOS WHEN THEY HAVE NOT
INCURRED ACTUAL DAMAGES AT ALL AS
DIMAANOS HAVE ALREADY SOLD THEIR
PROPERTY, AN INTERVENING EVENT
THAT RENDERS THIS CASE MOOT AND
ACADEMIC.
IV
THE TRIAL COURT ERRED IN ORDERING
THE ISSUANCE OF THE WRIT OF
EXECUTION INSPITE OF THE PERFECTION
OF SOUTHEASTERN'S APPEAL WHEN
THERE IS NO COMPELLING REASON FOR
THE ISSUANCE THERETO.
As mentioned earlier, respondent Court of Appeals affirmed
with modification the trial court's disposition by reducing the
award of moral damages from P1,000,000.00 to
P200,000.00. Hence, petitioner's resort to this Court, raising
for resolution the issues of:
1. Whether or not the award of actual
damages [sic] to respondent Dimaanos
on the basis of speculation or
conjecture, without proof or receipts of
actual damage, [sic] legally feasible or
justified.
2. Whether or not the award of moral
damages to respondent Dimaanos, with
actual
damage has legal basis.
3. Whether or not respondent Dimaanos
who are no longer the owner of the
property, subject matter of the case,
during its pendency, has the right to
pursue their complaint against petitioner
when the case was already moot and
academic by the sale of the property to
third party.
4. Whether or not the award of
attorney's fees when the case was
already moot academic [sic] legally
justified.
5. Whether or not petitioner is liable for
damage caused to others by typhoon
"Saling" being an act of God.
6. Whether or not the issuance of a writ
of execution pending appeal, ex-parte or
without hearing, has support in law.
The pivot of inquiry here, determinative of the other issues,
is whether the damage on the roof of the building of private
respondents resulting from the impact of the falling portions
of the school building's roof ripped off by the strong winds of
typhoon "Saling", was, within legal contemplation, due to
fortuitous event? If so, petitioner cannot be held liable for
the damages suffered by the private respondents. This
conclusion finds support in Article 1174 of Civil Code, which
provides:
Art 1174. Except in cases expressly
specified by the law, or when it is
otherwise declared by stipulation, or
when the nature of the obligation
requires the assumption of risk, no
person shall be responsible for those
events which could not be foreseen, or
which, though foreseen, were inevitable.
The antecedent of fortuitous event or caso fortuito is found
in the Partidas which defines it as "an event which takes
place by accident and could not have been
foreseen." 9 Escriche elaborates it as "an unexpected event
or act of God which could neither be foreseen nor
resisted." 10 Civilist Arturo M. Tolentino adds that
"[f]ortuitous events may be produced by two general causes:
(1) by nature, such as earthquakes, storms, floods,
epidemics, fires, etc. and (2) by the act of man, such as an
armed invasion, attack by bandits, governmental
prohibitions, robbery, etc." 11
In order that a fortuitous event may exempt a person from
liability, it is necessary that he be free from any previous
negligence or misconduct by reason of which the loss may
have been occasioned. 12 An act of God cannot be invoked
for the protection of a person who has been guilty of gross
negligence in not trying to forestall its possible adverse
consequences. When a person's negligence concurs with an
act of God in producing damage or injury to another, such
person is not exempt from liability by showing that the
immediate or proximate cause of the damages or injury was
a fortuitous event. When the effect is found to be partly the
result of the participation of man — whether it be from
active intervention, or neglect, or failure to act — the whole
occurrence is hereby humanized, and removed from the
rules applicable to acts of God. 13
In the case under consideration, the lower court accorded
full credence to the finding of the investigating team that
subject school building's roofing had "no sufficient
anchorage to hold it in position especially when battered by
strong winds." Based on such finding, the trial court imputed
negligence to petitioner and adjudged it liable for damages
to private respondents.
After a thorough study and evaluation of the evidence on
record, this Court believes otherwise, notwithstanding the
general rule that factual findings by the trail court, especially
when affirmed by the appellate court, are binding and
conclusive upon this Court. 14 After a careful scrutiny of the
records and the pleadings submitted by the parties, we find
exception to this rule and hold that the lower courts
misappreciated the evidence proffered.
There is no question that a typhoon or storm is a fortuitous
event, a natural occurrence which may be foreseen but is
unavoidable despite any amount of foresight, diligence or
care. 15 In order to be exempt from liability arising from any
adverse consequence engendered thereby, there should
have been no human participation amounting to a negligent
act. 16 In other words; the person seeking exoneration from
liability must not be guilty of negligence. Negligence, as
commonly understood, is conduct which naturally or
reasonably creates undue risk or harm to others. It may be
the failure to observe that degree of care, precaution, and
vigilance which the circumstances justify demand, 17 or the
omission to do something which a prudent and reasonable
man, guided by considerations which ordinarily regulate the
conduct of human affairs, would
do. 18 From these premises, we proceed to determine
whether petitioner was negligent, such that if it were not,
the damage caused to private respondents' house could
have been avoided?
At the outset, it bears emphasizing that a person claiming
damages for the negligence of another has the burden of
proving the existence of fault or negligence causative of his
injury or loss. The facts constitutive of negligence must be
affirmatively established by competent evidence, 19 not
merely by presumptions and conclusions without basis in
fact. Private respondents, in establishing the culpability of
petitioner, merely relied on the aforementioned report
submitted by a team which made an ocular inspection of
petitioner's school building after the typhoon. As the term
imparts, an ocular inspection is one by means of actual sight
or viewing. 20 What is visual to the eye through, is not always
reflective of the real cause behind. For instance, one who
hears a gunshot and then sees a wounded person, cannot
always definitely conclude that a third person shot the
victim. It could have been self-inflicted or caused
accidentally by a stray bullet. The relationship of cause and
effect must be clearly shown.
In the present case, other than the said ocular inspection, no
investigation was conducted to determine the real cause of
the partial unroofing of petitioner's school building. Private
respondents did not even show that the plans, specifications
and design of said school building were deficient and
defective. Neither did they prove any substantial deviation
from the approved plans and specifications. Nor did they
conclusively establish that the construction of such building
was basically flawed. 21
On the other hand, petitioner elicited from one of the
witnesses of private respondents, city building official Jesus
Reyna, that the original plans and design of petitioner's
school building were approved prior to its construction. Engr.
Reyna admitted that it was a legal requirement before the
construction of any building to obtain a permit from the city
building official (city engineer, prior to the passage of the
Building Act of 1977). In like manner, after construction of
the building, a certification must be secured from the same
official attesting to the readiness for occupancy of the
edifice. Having obtained both building permit and certificate
of occupancy, these are, at the very least, prima
facie evidence of the regular and proper construction of
subject school building. 22
Furthermore, when part of its roof needed repairs of the
damage inflicted by typhoon "Saling", the same city official
gave the go-signal for such repairs — without any deviation
from the original design — and subsequently, authorized the
use of the entire fourth floor of the same building. These
only prove that subject building suffers from no structural
defect, contrary to the report that its "U-shaped" form was
"structurally defective." Having given his unqualified
imprimatur, the city building official is presumed to have
properly performed his duties 23 in connection therewith.
In addition, petitioner presented its vice president for finance
and administration who testified that an annual maintenance
inspection and repair of subject school building were
regularly undertaken. Petitioner was even willing to present
its maintenance supervisor to attest to the extent of such
regular inspection but private respondents agreed to
dispense with his testimony and simply stipulated that it
would be corroborative of the vice president's narration.
Moreover, the city building official, who has been in the city
government service since 1974, admitted in open court that
no complaint regarding any defect on the same structure
has ever been lodged before his office prior to the institution
of the case at bench. It is a matter of judicial notice that
typhoons are common occurrences in this country. If subject
school building's roofing was not firmly anchored to its
trusses, obviously, it could not have withstood long years
and several typhoons even stronger than "Saling."
In light of the foregoing, we find no clear and convincing
evidence to sustain the judgment of the appellate court. We
thus hold that petitioner has not been shown negligent or at
fault regarding the construction and maintenance of its
school building in question and that typhoon "Saling" was
the proximate cause of the damage suffered by private
respondents' house.
With this disposition on the pivotal issue, private
respondents' claim for actual and moral damages as well as
attorney's fees must fail. 24 Petitioner cannot be made to
answer for a purely fortuitous event. 25 More so because no
bad faith or willful act to cause damage was alleged and
proven to warrant moral damages.
Private respondents failed to adduce adequate and
competent proof of the pecuniary loss they actually
incurred. 26 It is not enough that the damage be capable of
proof but must be actually proved with a reasonable degree
of certainty, pointing out specific facts that afford a basis for
measuring whatever compensatory damages are
borne. 27 Private respondents merely submitted an estimated
amount needed for the repair of the roof their subject
building. What is more, whether the "necessary repairs"
were caused ONLY by petitioner's alleged negligence in the
maintenance of its school building, or included the ordinary
wear and tear of the house itself, is an essential question
that remains indeterminable.
The Court deems unnecessary to resolve the other issues
posed by petitioner.
As regards the sixth issue, however, the writ of execution
issued on April 1, 1993 by the trial court is hereby nullified
and set aside. Private respondents are ordered to reimburse
any amount or return to petitioner any property which they
may have received by virtue of the enforcement of said writ.
WHEREFORE, the petition is GRANTED and the challenged
Decision is REVERSED. The complaint of private respondents
in Civil Case No. 7314 before the trial court a quo is ordered
DISMISSED and the writ of execution issued on April 1, 1993
in said case is SET ASIDE. Accordingly, private respondents
are ORDERED to return to petitioner any amount or property
received by them by virtue of said writ. Costs against the
private respondents.
SO ORDERED.
[G.R. NO. 147324 : May 25, 2004]
PHILIPPINE COMMUNICATIONS SATELLITE
CORPORATION, Petitioner, v. GLOBE TELECOM, INC.
(formerly and Globe Mckay Cable and Radio
Corporation), Respondents.
[G.R. NO. 147334 : May 25, 2004]
GLOBE TELECOM, INC., Petitioner, v. PHILIPPINE
COMMUNICATION SATELLITE
CORPORATION, Respondent.
DECISION
TINGA, J.:
Before the Court are two Petitions for Review assailing
the Decision of the Court of Appeals, dated 27 February
2001, in CA-G.R. CV No. 63619.1 ςrνll
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay Cable and
Radio Corporation, now Globe Telecom, Inc. (Globe), had
been engaged in the coordination of the provision of various
communication facilities for the military bases of the United
States of America (US) in Clark Air Base, Angeles, Pampanga
and Subic Naval Base in Cubi Point, Zambales. The said
communication facilities were installed and configured for
the exclusive use of the US Defense Communications Agency
(USDCA), and for security reasons, were operated only by its
personnel or those of American companies contracted by it
to operate said facilities. The USDCA contracted with said
American companies, and the latter, in turn, contracted with
Globe for the use of the communication facilities. Globe, on
the other hand, contracted with local service providers such
as the Philippine Communications Satellite Corporation
(Philcomsat) for the provision of the communication facilities.
On 07 May 1991, Philcomsat and Globe entered into an
Agreement whereby Philcomsat obligated itself to establish,
operate and provide an IBS Standard B earth station (earth
station) within Cubi Point for the exclusive use of the
USDCA.2 The term of the contract was for 60 months, or five
(5) years.3 In turn, Globe promised to pay Philcomsat
monthly rentals for each leased circuit involved. 4 ςrνll
At the time of the execution of the Agreement, both parties
knew that the Military Bases Agreement between the
Republic of the Philippines and the US (RP-US Military Bases
Agreement), which was the basis for the occupancy of the
Clark Air Base and Subic Naval Base in Cubi Point, was to
expire in 1991. Under Section 25, Article XVIII of the 1987
Constitution, foreign military bases, troops or facilities, which
include those located at the US Naval Facility in Cubi Point,
shall not be allowed in the Philippines unless a new treaty is
duly concurred in by the Senate and ratified by a majority of
the votes cast by the people in a national referendum when
the Congress so requires, and such new treaty is recognized
as such by the US Government.
Subsequently, Philcomsat installed and established the earth
station at Cubi Point and the USDCA made use of the same.
On 16 September 1991, the Senate passed and adopted
Senate Resolution No. 141, expressing its decision not to
concur in the ratification of the Treaty of Friendship,
Cooperation and Security and its Supplementary Agreements
that was supposed to extend the term of the use by the US
of Subic Naval Base, among others. 5 The last two paragraphs
of the Resolution state:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
FINDING that the Treaty constitutes a defective framework
for the continuing relationship between the two countries in
the spirit of friendship, cooperation and sovereign equality:
Now, therefore, be it
Resolved by the Senate, as it is hereby resolved, To express
its decision not to concur in the ratification of the Treaty of
Friendship, Cooperation and Security and its Supplementary
Agreements, at the same time reaffirming its desire to
continue friendly relations with the government and people
of the United States of America.6 ςrνll
On 31 December 1991, the Philippine Government sent
a Note Verbale to the US Government through the US
Embassy, notifying it of the Philippines termination of the RP-
US Military Bases Agreement. The Note Verbale stated that
since the RP-US Military Bases Agreement, as amended, shall
terminate on 31 December 1992, the withdrawal of all US
military forces from Subic Naval Base should be completed
by said date.
In a letter dated 06 August 1992, Globe notified Philcomsat
of its intention to discontinue the use of the earth station
effective 08 November 1992 in view of the withdrawal of US
military personnel from Subic Naval Base after the
termination of the RP-US Military Bases Agreement. Globe
invoked as basis for the letter of termination Section 8
(Default) of the Agreement, which
provides:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
Neither party shall be held liable or deemed to be in default
for any failure to perform its obligation under this Agreement
if such failure results directly or indirectly from force majeure
or fortuitous event. Either party is thus precluded from
performing its obligation until such force majeure or
fortuitous event shall terminate. For the purpose of this
paragraph, force majeure shall mean circumstances beyond
the control of the party involved including, but not limited to,
any law, order, regulation, direction or request of the
Government of the Philippines, strikes or other labor
difficulties, insurrection riots, national emergencies, war,
acts of public enemies, fire, floods, typhoons or other
catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August 1992 to
Globe, stating that we expect [Globe] to know its
commitment to pay the stipulated rentals for the remaining
terms of the Agreement even after [Globe] shall have
discontinue[d] the use of the earth station after November
08, 1992.7 Philcomsat referred to Section 7 of the
Agreement, stating as follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
7.DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of the
earth station after it has been put into operation, a written
notice shall be served to PHILCOMSAT at least sixty (60)
days prior to the expected date of termination.
Notwithstanding the non-use of the earth station, [Globe]
shall continue to pay PHILCOMSAT for the rental of the actual
number of T1 circuits in use, but in no case shall be less than
the first two (2) T1 circuits, for the remaining life of the
agreement. However, should PHILCOMSAT make use or sell
the earth station subject to this agreement, the obligation of
[Globe] to pay the rental for the remaining life of the
agreement shall be at such monthly rate as may be agreed
upon by the parties.8 ςrνll
After the US military forces left Subic Naval Base, Philcomsat
sent Globe a letter dated 24 November 1993 demanding
payment of its outstanding obligations under the Agreement
amounting to US$4,910,136.00 plus interest and attorneys
fees. However, Globe refused to heed Philcomsats demand.
On 27 January 1995, Philcomsat filed with the Regional Trial
Court of Makati a Complaint against Globe, praying that the
latter be ordered to pay liquidated damages under the
Agreement, with legal interest, exemplary damages,
attorneys fees and costs of suit. The case was raffled to
Branch 59 of said court.
Globe filed an Answer to the Complaint, insisting that it was
constrained to end the Agreement due to the termination of
the RP-US Military Bases Agreement and the non-ratification
by the Senate of the Treaty of Friendship and Cooperation,
which events constituted force majeure under the
Agreement. Globe explained that the occurrence of said
events exempted it from paying rentals for the remaining
period of the Agreement.
On 05 January 1999, the trial court rendered its Decision, the
dispositive portion of which
reads:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
WHEREFORE, premises considered, judgment is hereby
rendered as follows:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
1.Ordering the defendant to pay the plaintiff the amount of
Ninety Two Thousand Two Hundred Thirty Eight US Dollars
(US$92,238.00) or its equivalent in Philippine Currency
(computed at the exchange rate prevailing at the time of
compliance or payment) representing rentals for the month
of December 1992 with interest thereon at the legal rate of
twelve percent (12%) per annum starting December 1992
until the amount is fully paid;chanroblesvirtuallawlibrary
2.Ordering the defendant to pay the plaintiff the amount of
Three Hundred Thousand (P300,000.00) Pesos as and for
attorneys fees;chanroblesvirtuallawlibrary
3.Ordering the DISMISSAL of defendants counterclaim for
lack of merit; andcralawlibrary
4.With costs against the defendant.
SO ORDERED.9 ςrνll
Both parties appealed the trial courts Decision to the Court
of Appeals.
Philcomsat claimed that the trial court erred in ruling that:
(1) the non-ratification by the Senate of the Treaty of
Friendship, Cooperation and Security and its Supplementary
Agreements constitutes force majeure which exempts Globe
from complying with its obligations under the Agreement; (2)
Globe is not liable to pay the rentals for the remainder of the
term of the Agreement; and (3) Globe is not liable to
Philcomsat for exemplary damages.
Globe, on the other hand, contended that the RTC erred in
holding it liable for payment of rent of the earth station for
December 1992 and of attorneys fees. It explained that it
terminated Philcomsats services on 08 November 1992;
hence, it had no reason to pay for rentals beyond that date.
On 27 February 2001, the Court of Appeals promulgated
its Decision dismissing Philcomsats appeal for lack of merit
and affirming the trial courts finding that certain events
constituting force majeure under Section 8 the Agreement
occurred and justified the non-payment by Globe of rentals
for the remainder of the term of the Agreement.
The appellate court ruled that the non-ratification by the
Senate of the Treaty of Friendship, Cooperation and Security,
and its Supplementary Agreements, and the termination by
the Philippine Government of the RP-US Military Bases
Agreement effective 31 December 1991 as stated in the
Philippine Governments Note Verbale to the US Government,
are acts, directions, or requests of the Government of the
Philippines which constitute force majeure. In addition, there
were circumstances beyond the control of the parties, such
as the issuance of a formal order by Cdr. Walter Corliss of
the US Navy, the issuance of the letter notification from ATT
and the complete withdrawal of all US military forces and
personnel from Cubi Point, which prevented further use of
the earth station under the Agreement.
However, the Court of Appeals ruled that although Globe
sought to terminate Philcomsats services by 08 November
1992, it is still liable to pay rentals for the December 1992,
amounting to US$92,238.00 plus interest, considering that
the US military forces and personnel completely withdrew
from Cubi Point only on 31 December 1992.10 ςrνll
Both parties filed their respective Petitions for
Review assailing the Decision of the Court of Appeals.
In G.R. No. 147324,11 petitioner Philcomsat raises the
following assignments of error:
A.THE HONORABLE COURT OF APPEALS ERRED IN ADOPTING
A DEFINITION OF FORCE MAJEURE DIFFERENT FROM WHAT
ITS LEGAL DEFINITION FOUND IN ARTICLE 1174 OF THE CIVIL
CODE, PROVIDES, SO AS TO EXEMPT GLOBE TELECOM FROM
COMPLYING WITH ITS OBLIGATIONS UNDER THE SUBJECT
AGREEMENT.
B.THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR
RENTALS FOR THE REMAINING TERM OF THE AGREEMENT,
DESPITE THE CLEAR TENOR OF SECTION 7 OF THE
AGREEMENT.
C.THE HONORABLE OCURT OF APPEALS ERRED IN DELETING
THE TRIAL COURTS AWARD OF ATTORNEYS FEES IN FAVOR
OF PHILCOMSAT.
D.THE HONORABLE COURT OF APPEALS ERRED IN RULING
THAT GLOBE TELECOM IS NOT LIABLE TO PHILCOMSAT FOR
EXEMPLARY DAMAGES.12 ςrνll
Philcomsat argues that the termination of the RP-US Military
Bases Agreement cannot be considered a fortuitous event
because the happening thereof was foreseeable. Although
the Agreement was freely entered into by both parties,
Section 8 should be deemed ineffective because it is
contrary to Article 1174 of the Civil Code. Philcomsat posits
the view that the validity of the parties definition of force
majeure in Section 8 of the Agreement as circumstances
beyond the control of the party involved including, but not
limited to, any law, order, regulation, direction or request of
the Government of the Philippines, strikes or other labor
difficulties, insurrection riots, national emergencies, war,
acts of public enemies, fire, floods, typhoons or other
catastrophies or acts of God, should be deemed subject to
Article 1174 which defines fortuitous events as events which
could not be foreseen, or which, though foreseen, were
inevitable.13 ςrνll
Philcomsat further claims that the Court of Appeals erred in
holding that Globe is not liable to pay for the rental of the
earth station for the entire term of the Agreement because it
runs counter to what was plainly stipulated by the parties in
Section 7 thereof.Moreover, said ruling is inconsistent with
the appellate courts pronouncement that Globe is liable to
pay rentals for December 1992 even though it terminated
Philcomsats services effective 08 November 1992, because
the US military and personnel completely withdrew from
Cubi Point only in December 1992. Philcomsat points out
that it was Globe which proposed the five-year term of the
Agreement, and that the other provisions of the Agreement,
such as Section 4.114 thereof, evince the intent of Globe to
be bound to pay rentals for the entire five-year term. 15 ςrνll
Philcomsat also maintains that contrary to the appellate
courts findings, it is entitled to attorneys fees and exemplary
damages.16 ςrνll
In its Comment to Philcomsats Petition, Globe asserts that
Section 8 of the Agreement is not contrary to Article 1174 of
the Civil Code because said provision does not prohibit
parties to a contract from providing for other instances when
they would be exempt from fulfilling their contractual
obligations. Globe also claims that the termination of the RP-
US Military Bases Agreement constitutes force majeure and
exempts it from complying with its obligations under the
Agreement.17 On the issue of the propriety of awarding
attorneys fees and exemplary damages to Philcomsat, Globe
maintains that Philcomsat is not entitled thereto because in
refusing to pay rentals for the remainder of the term of the
Agreement, Globe only acted in accordance with its
rights.18 ςrνll
In G.R. No. 147334,19 Globe, the petitioner therein,
contends that the Court of Appeals erred in finding it liable
for the amount of US$92,238.00, representing rentals for
December 1992, since Philcomsats services were actually
terminated on 08 November 1992.20 ςrνll
In its Comment, Philcomsat claims that Globes petition
should be dismissed as it raises a factual issue which is not
cognizable by the Court in a Petition for Review
on Certiorari .21 ςrνll
On 15 August 2001, the Court issued a Resolution giving due
course to Philcomsats Petition in G.R. No. 147324 and
required the parties to submit their respective
memoranda.22 ςrνll
Similarly, on 20 August 2001, the Court issued
a Resolution giving due course to the Petition filed by Globe
in G.R. No. 147334and required both parties to submit
their memoranda.23 ςrνll
Philcomsat and Globe thereafter filed their
respective Consolidated Memoranda in the two
cases, reiterating their arguments in their respective
petitions.
The Court is tasked to resolve the following issues: (1)
whether the termination of the RP-US Military Bases
Agreement, the non-ratification of the Treaty of Friendship,
Cooperation and Security, and the consequent withdrawal of
US military forces and personnel from Cubi Point
constitute force majeure which would exempt Globe from
complying with its obligation to pay rentals under its
Agreement with Philcomsat; (2) whether Globe is liable to
pay rentals under the Agreement for the month of December
1992; and (3) whether Philcomsat is entitled to attorneys
fees and exemplary damages.
No reversible error was committed by the Court of Appeals in
issuing the assailed Decision; hence the petitions are denied.
There is no merit is Philcomsats argument that Section 8 of
the Agreement cannot be given effect because the
enumeration of events constituting force majeure therein
unduly expands the concept of a fortuitous event under
Article 1174 of the Civil Code and is therefore invalid.
In support of its position, Philcomsat contends that under
Article 1174 of the Civil Code, an event must be unforeseen
in order to exempt a party to a contract from complying with
its obligations therein. It insists that since the expiration of
the RP-US Military Bases Agreement, the non-ratification of
the Treaty of Friendship, Cooperation and Security and the
withdrawal of US military forces and personnel from Cubi
Point were not unforeseeable, but were possibilities known
to it and Globe at the time they entered into the Agreement,
such events cannot exempt Globe from performing its
obligation of paying rentals for the entire five-year term
thereof.
However, Article 1174, which exempts an obligor from
liability on account of fortuitous events or force majeure,
refers not only to events that are unforeseeable, but also to
those which are foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the
obligation requires the assumption of risk, no person shall be
responsible for those events which, could not be foreseen, or
which, though foreseen were inevitable.
A fortuitous event under Article 1174 may either be an act of
God, or natural occurrences such as floods or typhoons, 24 or
an act of man, such as riots, strikes or wars.25  (1) the event must be independent of the human will; (2) the
Philcomsat and Globe agreed in Section 8 of the Agreement
that the following events shall be deemed events
constituting force majeure:
1.Any law, order, regulation, direction or request of the
Philippine Government;
2.Strikes or other labor difficulties;
3.Insurrection;
4.Riots;
5.National emergencies;
6.War;chanroblesvirtuallawlibrary
7.Acts of public enemies;
8.Fire, floods, typhoons or other catastrophies or acts of
God;
9.Other circumstances beyond the control of the parties.
Clearly, the foregoing are either unforeseeable, or
foreseeable but beyond the control of the parties. There is
nothing in the enumeration that runs contrary to, or
expands, the concept of a fortuitous event under Article
1174.
Furthermore, under Article 130626 of the Civil Code, parties
to a contract may establish such stipulations, clauses, terms
and conditions as they may deem fit, as long as the same do
not run counter to the law, morals, good customs, public
order or public policy.27 ςrνll
Article 1159 of the Civil Code also provides that [o]bligations
arising from contracts have the force of law between the
contracting parties and should be complied with in good
faith.28 Courts cannot stipulate for the parties nor amend
their agreement where the same does not contravene law,
morals, good customs, public order or public policy, for to do
so would be to alter the real intent of the parties, and would
run contrary to the function of the courts to give force and
effect thereto.29  From the foregoing, the Court finds that the defendant is
Not being contrary to law, morals, good customs, public
order, or public policy, Section 8 of the Agreement which
Philcomsat and Globe freely agreed upon has the force of
law between them.30 ςrνll
In order that Globe may be exempt from non-compliance
with its obligation to pay rentals under Section 8, the
concurrence of the following elements must be established:
occurrence must render it impossible for the debtor to fulfill
the obligation in a normal manner; and (3) the obligor must
be free of participation in, or aggravation of, the injury to the
creditor.31 ςrνll
The Court agrees with the Court of Appeals and the trial
court that the abovementioned requisites are present in the
instant case. Philcomsat and Globe had no control over the
non-renewal of the term of the RP-US Military Bases
Agreement when the same expired in 1991, because the
prerogative to ratify the treaty extending the life thereof
belonged to the Senate. Neither did the parties have control
over the subsequent withdrawal of the US military forces and
personnel from Cubi Point in December 1992:
Obviously the non-ratification by the Senate of the RP-US
Military Bases Agreement (and its Supplemental
Agreements) under its Resolution No. 141. (Exhibit 2) on
September 16, 1991 is beyond the control of the parties.
This resolution was followed by the sending on December
31, 1991 o[f] a Note Verbale (Exhibit 3) by the Philippine
Government to the US Government notifying the latter of the
formers termination of the RP-US Military Bases Agreement
(as amended) on 31 December 1992 and that accordingly,
the withdrawal of all U.S. military forces from Subic Naval
Base should be completed by said date. Subsequently,
defendant [Globe] received a formal order from Cdr. Walter
F. Corliss II Commander USN dated July 31, 1992 and a
notification from ATT dated July 29, 1992 to terminate the
provision of T1s services (via an IBS Standard B Earth
Station) effective November 08, 1992. Plaintiff [Philcomsat]
was furnished with copies of the said order and letter by the
defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the Note
Verbale of the Philippine Government to the US Government
are acts, direction or request of the Government of the
Philippines and circumstances beyond the control of the
defendant. The formal order from Cdr. Walter Corliss of the
USN, the letter notification from ATT and the complete
withdrawal of all the military forces and personnel from Cubi
Point in the year-end 1992 are also acts and circumstances
beyond the control of the defendant.
Considering the foregoing, the Court finds and so holds that
the afore-narrated circumstances constitute force majeure or
fortuitous event(s) as defined under paragraph 8 of the
Agreement.
exempted from paying the rentals for the facility for the
remaining term of the contract.
As a consequence of the termination of the RP-US Military
Bases Agreement (as amended) the continued stay of all US
Military forces and personnel from Subic Naval Base would
no longer be allowed, hence, plaintiff would no longer be in
any position to render the service it was obligated under the
Agreement. To put it blantly (sic), since the US military
forces and personnel left or withdrew from Cubi Point in the
year end December 1992, there was no longer any necessity
for the plaintiff to continue maintaining the IBS
facility.32 (Emphasis in the original.)
The aforementioned events made impossible the
continuation of the Agreement until the end of its five-year
term without fault on the part of either party. The Court of
Appeals was thus correct in ruling that the happening of
such fortuitous events rendered Globe exempt from
payment of rentals for the remainder of the term of the
Agreement.
Moreover, it would be unjust to require Globe to continue
paying rentals even though Philcomsat cannot be compelled
to perform its corresponding obligation under the
Agreement. As noted by the appellate
court:ςηαñrοblεš νιr†υαl lαω lιbrαrÿ
We also point out the sheer inequity of PHILCOMSATs
position. PHILCOMSAT would like to charge GLOBE rentals for
the balance of the lease term without there being any
corresponding telecommunications service subject of the
lease.It will be grossly unfair and iniquitous to hold GLOBE
liable for lease charges for a service that was not and could
not have been rendered due to an act of the government
which was clearly beyond GLOBEs control. The binding effect
of a contract on both parties is based on the principle that
the obligations arising from contracts have the force of law
between the contracting parties, and there must be
mutuality between them based essentially on their equality
under which it is repugnant to have one party bound by the
contract while leaving the other party free therefrom (Allied
Banking Corporation v. Court of Appeals, 284 SCRA
357 ). 33 ςrνll
With respect to the issue of whether Globe is liable for
payment of rentals for the month of December 1992, the
Court likewise affirms the appellate courts ruling that Globe
should pay the same.
Although Globe alleged that it terminated the Agreement
with Philcomsat effective 08 November 1992 pursuant to the
formal order issued by Cdr. Corliss of the US Navy, the date
when they actually ceased using the earth station subject of
the Agreement was not established during the
trial.34 However, the trial court found that the US military
forces and personnel completely withdrew from Cubi Point
only on 31 December 1992.35 Thus, until that date, the
USDCA had control over the earth station and had the option
of using the same. Furthermore, Philcomsat could not have
removed or rendered ineffective said communication facility
until after 31 December 1992 because Cubi Point was
accessible only to US naval personnel up to that time.
Hence, the Court of Appeals did not err when it affirmed the
trial courts ruling that Globe is liable for payment of rentals
until December 1992.
Neither did the appellate court commit any error in holding
that Philcomsat is not entitled to attorneys fees and
exemplary damages.
The award of attorneys fees is the exception rather than the
rule, and must be supported by factual, legal and equitable
justifications. 36 In previously decided cases, the Court
awarded attorneys fees where a party acted in gross and
evident bad faith in refusing to satisfy the other partys
claims and compelled the former to litigate to protect his
rights;37 when the action filed is clearly unfounded, 38 or
where moral or exemplary damages are
awarded.39 However, in cases where both parties have
legitimate claims against each other and no party actually
prevailed, such as in the present case where the claims of
both parties were sustained in part, an award of attorneys
fees would not be warranted.40 ςrνll
GAISANO CAGAYAN, INC. Petitioner, On February 4, 1992, respondent filed a complaint for
vs. damages against petitioner. It alleges that IMC and LSPI filed
INSURANCE COMPANY OF NORTH with respondent their claims under their respective fire
AMERICA, Respondent. insurance policies with book debt endorsements; that as of
February 25, 1991, the unpaid accounts of petitioner on the
sale and delivery of ready-made clothing materials with IMC
DECISION was P2,119,205.00 while with LSPI it was P535,613.00; that
respondent paid the claims of IMC and LSPI and, by virtue
thereof, respondent was subrogated to their rights against
AUSTRIA-MARTINEZ, J.:
petitioner; that respondent made several demands for
payment upon petitioner but these went unheeded. 5
Before the Court is a petition for review on certiorari of the
Decision1 dated October 11, 2000 of the Court of Appeals
In its Answer with Counter Claim dated July 4, 1995,
(CA) in CA-G.R. CV No. 61848 which set aside the Decision
petitioner contends that it could not be held liable because
dated August 31, 1998 of the Regional Trial Court, Branch
the property covered by the insurance policies were
138, Makati (RTC) in Civil Case No. 92-322 and upheld the
destroyed due to fortuities event or force majeure; that
causes of action for damages of Insurance Company of North
respondent's right of subrogation has no basis inasmuch as
America (respondent) against Gaisano Cagayan, Inc.
there was no breach of contract committed by it since the
(petitioner); and the CA Resolution dated April 11, 2001
loss was due to fire which it could not prevent or foresee;
which denied petitioner's motion for reconsideration.
that IMC and LSPI never communicated to it that they
insured their properties; that it never consented to paying
the claim of the insured. 6
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of At the pre-trial conference the parties failed to arrive at an
Wrangler Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the amicable settlement. 7 Thus, trial on the merits ensued.
local distributor of products bearing trademarks owned by
Levi Strauss & Co.. IMC and LSPI separately obtained from
On August 31, 1998, the RTC rendered its decision
respondent fire insurance policies with book debt
dismissing respondent's complaint.8 It held that the fire was
endorsements. The insurance policies provide for coverage
purely accidental; that the cause of the fire was not
on "book debts in connection with ready-made clothing
attributable to the negligence of the petitioner; that it has
materials which have been sold or delivered to various
not been established that petitioner is the debtor of IMC and
customers and dealers of the Insured anywhere in the
LSPI; that since the sales invoices state that "it is further
Philippines."2 The policies defined book debts as the "unpaid
agreed that merely for purpose of securing the payment of
account still appearing in the Book of Account of the Insured
purchase price, the above-described merchandise remains
45 days after the time of the loss covered under this
the property of the vendor until the purchase price is fully
Policy."3 The policies also provide for the following
paid", IMC and LSPI retained ownership of the delivered
conditions:
goods and must bear the loss.

1. Warranted that the Company shall not be liable

Exemplary damages may be awarded in cases involving
contracts or quasi-contracts, if the erring party acted in a
wanton, fraudulent, reckless, oppressive or malevolent
manner.41 In the present case, it was not shown that Globe
acted wantonly or oppressively in not heeding Philcomsats
demands for payment of rentals. It was established during
the trial of the case before the trial court that Globe had
valid grounds for refusing to comply with its contractual
obligations after 1992.
WHEREFORE, the Petitions are DENIED for lack of merit.
The assailed Decision of the Court of Appeals in CA-G.R. CV
No. 63619 is AFFIRMED.
for any unpaid account in respect of the
merchandise sold and delivered by the Insured
which are outstanding at the date of loss for a
period in excess of six (6) months from the date of
the covering invoice or actual delivery of the
merchandise whichever shall first occur.
2. Warranted that the Insured shall submit to the
Company within twelve (12) days after the close of
every calendar month all amount shown in their
books of accounts as unpaid and thus become
receivable item from their customers and dealers.
x x x4
Dissatisfied, petitioner appealed to the CA.9 On October 11,
2000, the CA rendered its decision setting aside the decision
of the RTC. The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision
is REVERSED and SET ASIDE and a new one is entered
ordering defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the
amount paid by the plaintiff-appellant to the
insured Inter Capitol Marketing Corporation, plus
legal interest from the time of demand until fully
paid;

SO ORDERED.
xxxx 2. the amount of P535,613.00 representing the
amount paid by the plaintiff-appellant to the
insured Levi Strauss Phil., Inc., plus legal interest
Petitioner is a customer and dealer of the products of IMC
from the time of demand until fully paid.
and LSPI. On February 25, 1991, the Gaisano Superstore
G.R. No. 147839             June 8, 2006 Complex in Cagayan de Oro City, owned by petitioner, was
consumed by fire. Included in the items lost or destroyed in With costs against the defendant-appellee.
the fire were stocks of ready-made clothing materials sold
and delivered by IMC and LSPI.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being
detailed statements of the nature, quantity and cost of the
thing sold; that loss of the goods in the fire must be borne by
petitioner since the proviso contained in the sales invoices is
an exception under Article 1504 (1) of the Civil Code, to the
general rule that if the thing is lost by a fortuitous event, the
risk is borne by the owner of the thing at the time the loss
under the principle of res perit domino; that petitioner's
obligation to IMC and LSPI is not the delivery of the lost
goods but the payment of its unpaid account and as such the
obligation to pay is not extinguished, even if the fire is
considered a fortuitous event; that by subrogation, the
insurer has the right to go against petitioner; that, being a
fire insurance with book debt endorsements, what was
insured was the vendor's interest as a creditor. 11
Petitioner filed a motion for reconsideration 12 but it was
denied by the CA in its Resolution dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored
on the following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
INSURANCE IN THE INSTANT CASE WAS ONE OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL RISK
OVER THE SUBJECT GOODS IN THE INSTANT CASE HAD
TRANSFERRED TO PETITIONER UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT THERE
WAS AUTOMATIC SUBROGATION UNDER ART. 2207 OF THE
CIVIL CODE IN FAVOR OF RESPONDENT. 14
Anent the first error, petitioner contends that the insurance
in the present case cannot be deemed to be over credit
since an insurance "on credit" belies not only the nature of
fire insurance but the express terms of the policies; that it
was not credit that was insured since respondent paid on the
occasion of the loss of the insured goods to fire and not
because of the non-payment by petitioner of any obligation;
that, even if the insurance is deemed as one over credit,
there was no loss as the accounts were not yet due since no
prior demands were made by IMC and LSPI against petitioner
for payment of the debt and such demands came from
respondent only after it had already paid IMC and LSPI under
the fire insurance policies. 15
As to the second error, petitioner avers that despite delivery
of the goods, petitioner-buyer IMC and LSPI assumed the risk
of loss when they secured fire insurance policies over the
goods.
Concerning the third ground, petitioner submits that there is
no subrogation in favor of respondent as no valid insurance
could be maintained thereon by IMC and LSPI since all risk
had transferred to petitioner upon delivery of the goods; that
petitioner was not privy to the insurance contract or the
payment between respondent and its insured nor was its
consent or approval ever secured; that this lack of privity
forecloses any real interest on the part of respondent in the
obligation to pay, limiting its interest to keeping the insured
goods safe from fire.
For its part, respondent counters that while ownership over
the ready- made clothing materials was transferred upon
delivery to petitioner, IMC and LSPI have insurable interest
over said goods as creditors who stand to suffer direct
pecuniary loss from its destruction by fire; that petitioner is
liable for loss of the ready-made clothing materials since it
failed to overcome the presumption of liability under Article
126516 of the Civil Code; that the fire was caused through
petitioner's negligence in failing to provide stringent
measures of caution, care and maintenance on its property
because electric wires do not usually short circuit unless
there are defects in their installation or when there is lack of
proper maintenance and supervision of the property; that
petitioner is guilty of gross and evident bad faith in refusing
to pay respondent's valid claim and should be liable to
respondent for contracted lawyer's fees, litigation expenses
and cost of suit.17
As a general rule, in petitions for review, the jurisdiction of
this Court in cases brought before it from the CA is limited to
reviewing questions of law which involves no examination of
the probative value of the evidence presented by the
litigants or any of them. 18 The Supreme Court is not a trier of
facts; it is not its function to analyze or weigh evidence all
over again.19 Accordingly, findings of fact of the appellate
court are generally conclusive on the Supreme Court. 20
Nevertheless, jurisprudence has recognized several
exceptions in which factual issues may be resolved by this
Court, such as: (1) when the findings are grounded entirely
on speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd or
impossible; (3) when there is grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts;
(5) when the findings of facts are conflicting; (6) when in
making its findings the CA went beyond the issues of the
case, or its findings are contrary to the admissions of both
the appellant and the appellee; (7) when the findings are
contrary to the trial court; (8) when the findings are
conclusions without citation of specific evidence on which
they are based; (9) when the facts set forth in the petition as
well as in the petitioner's main and reply briefs are not
disputed by the respondent; (10) when the findings of fact
are premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11) when the
CA manifestly overlooked certain relevant facts not disputed
by the parties, which, if properly considered, would justify a
different conclusion. 21 Exceptions (4), (5), (7), and (11) apply
to the present petition.
At issue is the proper interpretation of the questioned
insurance policy. Petitioner claims that the CA erred in
construing a fire insurance policy on book debts as one
covering the unpaid accounts of IMC and LSPI since such
insurance applies to loss of the ready-made clothing
materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain
and readily understood, there is no room for
construction. 22 In this case, the questioned insurance policies
provide coverage for "book debts in connection with ready-
made clothing materials which have been sold or delivered
to various customers and dealers of the Insured anywhere in
the Philippines."23 ; and defined book debts as the "unpaid
account still appearing in the Book of Account of the Insured
45 days after the time of the loss covered under this
Policy." 24 Nowhere is it provided in the questioned insurance
policies that the subject of the insurance is the goods sold
and delivered to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and
explicit that they do not justify an attempt to read into it any
alleged intention of the parties, the terms are to be
understood literally just as they appear on the face of the
contract.25 Thus, what were insured against were the
accounts of IMC and LSPI with petitioner which remained
unpaid 45 days after the loss through fire, and not the loss
or destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it
expressly reserved ownership of the goods by stipulating in
the sales invoices that "[i]t is further agreed that merely for
purpose of securing the payment of the purchase price the
above described merchandise remains the property of the
vendor until the purchase price thereof is fully paid." 26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article
1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at
the seller's risk until the ownership therein is transferred to
the buyer, but when the ownership therein is transferred to
the buyer the goods are at the buyer's risk whether actual
delivery has been made or not, except that:
(1) Where delivery of the goods has been made to the buyer
or to a bailee for the buyer, in pursuance of the contract and
the ownership in the goods has been retained by the seller
merely to secure performance by the buyer of his obligations
under the contract, the goods are at the buyer's risk from
the time of such delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that
the buyer will pay its debt, the risk of loss is borne by the
buyer.27 Accordingly, petitioner bears the risk of loss of the
goods delivered.
IMC and LSPI did not lose complete interest over the goods.
They have an insurable interest until full payment of the
value of the delivered goods. Unlike the civil law concept of
res perit domino, where ownership is the basis for
consideration of who bears the risk of loss, in property
insurance, one's interest is not determined by concept of
title, but whether insured has substantial economic interest
in the property. 28
Section 13 of our Insurance Code defines insurable interest
as "every interest in property, whether real or personal, or
any relation thereto, or liability in respect thereof, of such
nature that a contemplated peril might directly damnify the
insured." Parenthetically, under Section 14 of the same
Code, an insurable interest in property may consist in: (a) an
existing interest; (b) an inchoate interest founded on existing
interest; or (c) an expectancy, coupled with an existing
interest in that out of which the expectancy arises.
Therefore, an insurable interest in property does not
necessarily imply a property interest in, or a lien upon, or
possession of, the subject matter of the insurance, and
neither the title nor a beneficial interest is requisite to the
existence of such an interest, it is sufficient that the insured
is so situated with reference to the property that he would
be liable to loss should it be injured or destroyed by the peril
against which it is insured. 29 Anyone has an insurable
interest in property who derives a benefit from its existence
or would suffer loss from its destruction. 30 Indeed, a vendor
or seller retains an insurable interest in the property sold so
long as he has any interest therein, in other words, so long
as he would suffer by its destruction, as where he has a
vendor's lien.31 In this case, the insurable interest of IMC and
LSPI pertain to the unpaid accounts appearing in their Books
of Account 45 days after the time of the loss covered by the
policies.
The next question is: Is petitioner liable for the unpaid
accounts?
Petitioner's argument that it is not liable because the fire is a
fortuitous event under Article 117432 of the Civil Code is
misplaced. As held earlier, petitioner bears the loss under
Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in this case
is not for loss of goods by fire but for petitioner's accounts
with IMC and LSPI that remained unpaid 45 days after the
fire. Accordingly, petitioner's obligation is for the payment of
money. As correctly stated by the CA, where the obligation
consists in the payment of money, the failure of the debtor
to make the payment even by reason of a fortuitous event
shall not relieve him of his liability. 33 The rationale for this is
that the rule that an obligor should be held exempt from
liability when the loss occurs thru a fortuitous event only
holds true when the obligation consists in the delivery of a
determinate thing and there is no stipulation holding him
liable even in case of fortuitous event. It does not apply
when the obligation is pecuniary in nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation to
deliver a generic thing, the loss or destruction of anything of
the same kind does not extinguish the obligation." If the
obligation is generic in the sense that the object thereof is
designated merely by its class or genus without any
particular designation or physical segregation from all others
of the same class, the loss or destruction of anything of the
same kind even without the debtor's fault and before he has
incurred in delay will not have the effect of extinguishing the
obligation.35 This rule is based on the principle that the
genus of a thing can never perish. Genus nunquan perit. 36 An
obligation to pay money is generic; therefore, it is not
excused by fortuitous loss of any specific property of the
debtor.37
Thus, whether fire is a fortuitous event or petitioner was
negligent are matters immaterial to this case. What is
relevant here is whether it has been established that
petitioner has outstanding accounts with IMC and LSPI.
With respect to IMC, the respondent has adequately
established its claim. Exhibits "C" to "C-22"38 show that
petitioner has an outstanding account with IMC in the
amount of P2,119,205.00. Exhibit "E" 39 is the check voucher
evidencing payment to IMC. Exhibit "F" 40 is the subrogation
receipt executed by IMC in favor of respondent upon receipt
of the insurance proceeds. All these documents have been
properly identified, presented and marked as exhibits in
court. The subrogation receipt, by itself, is sufficient to
establish not only the relationship of respondent as insurer
and IMC as the insured, but also the amount paid to settle
the insurance claim. The right of subrogation accrues simply
upon payment by the insurance company of the insurance
claim.41 Respondent's action against petitioner is squarely
sanctioned by Article 2207 of the Civil Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he
has received indemnity from the insurance company for the
injury or loss arising out of the wrong or breach of contract
complained of, the insurance company shall be subrogated
to the rights of the insured against the wrongdoer or the
person who has violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient evidence
to prove its cause of action. No evidentiary weight can be
given to Exhibit "F Levi Strauss", 42 a letter dated April 23,
1991 from petitioner's General Manager, Stephen S.
Gaisano, Jr., since it is not an admission of petitioner's
unpaid account with LSPI. It only confirms the loss of Levi's
products in the amount of P535,613.00 in the fire that razed
petitioner's building on February 25, 1991.
Moreover, there is no proof of full settlement of the
insurance claim of LSPI; no subrogation receipt was offered
in evidence. Thus, there is no evidence that respondent has
been subrogated to any right which LSPI may have against
petitioner. Failure to substantiate the claim of subrogation is
fatal to petitioner's case for recovery of the amount
of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The assailed
Decision dated October 11, 2000 and Resolution dated April
11, 2001 of the Court of Appeals in CA-G.R. CV No. 61848
are AFFIRMED with the MODIFICATION that the order to
pay the amount of P535,613.00 to respondent
is DELETED for lack of factual basis.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 159617             August 8, 2007
ROBERTO C. SICAM and AGENCIA de R.C. SICAM,
INC., petitioners,
vs.
LULU V. JORGE and CESAR JORGE, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us is a Petition for Review on Certiorari filed by
Roberto C. Sicam, Jr. (petitioner Sicam) and Agencia de R.C.
Sicam, Inc. (petitioner corporation) seeking to annul the
Decision1 of the Court of Appeals dated March 31, 2003, and
its Resolution2 dated August 8, 2003, in CA G.R. CV No.
56633.
It appears that on different dates from September to October
1987, Lulu V. Jorge (respondent Lulu) pawned several pieces
of jewelry with Agencia de R. C. Sicam located at No. 17
Aguirre Ave., BF Homes Parañaque, Metro Manila, to secure
a loan in the total amount of P59,500.00.
On October 19, 1987, two armed men entered the pawnshop
and took away whatever cash and jewelry were found inside
the pawnshop vault. The incident was entered in the police
blotter of the Southern Police District, Parañaque Police
Station as follows:
Investigation shows that at above TDPO, while
victims were inside the office, two (2) male
unidentified persons entered into the said office
with guns drawn. Suspects(sic) (1) went straight
inside and poked his gun toward Romeo Sicam and
thereby tied him with an electric wire while
suspects (sic) (2) poked his gun toward Divina
Mata and Isabelita Rodriguez and ordered them to
lay (sic) face flat on the floor. Suspects asked
forcibly the case and assorted pawned jewelries
items mentioned above.
Suspects after taking the money and jewelries fled
on board a Marson Toyota unidentified plate
number.3
Petitioner Sicam sent respondent Lulu a letter dated October
19, 1987 informing her of the loss of her jewelry due to the
robbery incident in the pawnshop. On November 2, 1987,
respondent Lulu then wrote a letter 4 to petitioner Sicam
expressing disbelief stating that when the robbery
happened, all jewelry pawned were deposited with Far East
Bank near the pawnshop since it had been the practice that
before they could withdraw, advance notice must be given to
the pawnshop so it could withdraw the jewelry from the
bank. Respondent Lulu then requested petitioner Sicam to
prepare the pawned jewelry for withdrawal on November 6,
1987 but petitioner Sicam failed to return the jewelry.
On September 28, 1988, respondent Lulu joined by her
husband, Cesar Jorge, filed a complaint against petitioner
Sicam with the Regional Trial Court of Makati seeking
indemnification for the loss of pawned jewelry and payment
of actual, moral and exemplary damages as well as
attorney's fees. The case was docketed as Civil Case No. 88-
2035.
Petitioner Sicam filed his Answer contending that he is not
the real party-in-interest as the pawnshop was incorporated
on April 20, 1987 and known as Agencia de R.C. Sicam, Inc;
that petitioner corporation had exercised due care and
diligence in the safekeeping of the articles pledged with it
and could not be made liable for an event that is fortuitous.
Respondents subsequently filed an Amended Complaint to
include petitioner corporation.
Thereafter, petitioner Sicam filed a Motion to Dismiss as far
as he is concerned considering that he is not the real party-
in-interest. Respondents opposed the same. The RTC denied
the motion in an Order dated November 8, 1989.5
After trial on the merits, the RTC rendered its
Decision6 dated January 12, 1993, dismissing respondents’
complaint as well as petitioners’ counterclaim. The RTC held
that petitioner Sicam could not be made personally liable for
a claim arising out of a corporate transaction; that in the
Amended Complaint of respondents, they asserted that
"plaintiff pawned assorted jewelries in defendants'
pawnshop"; and that as a consequence of the separate
juridical personality of a corporation, the corporate debt or
credit is not the debt or credit of a stockholder.
The RTC further ruled that petitioner corporation could not
be held liable for the loss of the pawned jewelry since it had
not been rebutted by respondents that the loss of the
pledged pieces of jewelry in the possession of the
corporation was occasioned by armed robbery; that robbery
is a fortuitous event which exempts the victim from liability
for the loss, citing the case of Austria v. Court of
Appeals;7 and that the parties’ transaction was that of a
pledgor and pledgee and under Art. 1174 of the Civil Code,
the pawnshop as a pledgee is not responsible for those
events which could not be foreseen.
Respondents appealed the RTC Decision to the CA. In a
Decision dated March 31, 2003, the CA reversed the RTC,
the dispositive portion of which reads as follows:
WHEREFORE, premises considered, the instant
Appeal is GRANTED, and the Decision dated
January 12, 1993,of the Regional Trial Court of
Makati, Branch 62, is hereby REVERSED and SET
ASIDE, ordering the appellees to pay appellants
the actual value of the lost jewelry amounting
to P272,000.00, and attorney' fees of P27,200.00.8
In finding petitioner Sicam liable together with petitioner
corporation, the CA applied the doctrine of piercing the veil
of corporate entity reasoning that respondents were misled
into thinking that they were dealing with the pawnshop
owned by petitioner Sicam as all the pawnshop tickets
issued to them bear the words "Agencia de R.C. Sicam"; and
that there was no indication on the pawnshop tickets that it
was the petitioner corporation that owned the pawnshop
which explained why respondents had to amend their
complaint impleading petitioner corporation.
The CA further held that the corresponding diligence
required of a pawnshop is that it should take steps to secure
and protect the pledged items and should take steps to
insure itself against the loss of articles which are entrusted
to its custody as it derives earnings from the pawnshop
trade which petitioners failed to do; that Austria is not
applicable to this case since the robbery incident happened
in 1961 when the criminality had not as yet reached the
levels attained in the present day; that they are at least
guilty of contributory negligence and should be held liable
for the loss of jewelries; and that robberies and hold-ups are
foreseeable risks in that those engaged in the pawnshop
business are expected to foresee.
The CA concluded that both petitioners should be jointly and
severally held liable to respondents for the loss of the
pawned jewelry.
Petitioners’ motion for reconsideration was denied in a
Resolution dated August 8, 2003.
Hence, the instant petition for review with the following
assignment of errors:
THE COURT OF APPEALS ERRED AND WHEN IT DID,
IT OPENED ITSELF TO REVERSAL, WHEN IT
ADOPTED UNCRITICALLY (IN FACT IT REPRODUCED
AS ITS OWN WITHOUT IN THE MEANTIME
ACKNOWLEDGING IT) WHAT THE RESPONDENTS
ARGUED IN THEIR BRIEF, WHICH ARGUMENT WAS
PALPABLY UNSUSTAINABLE.
THE COURT OF APPEALS ERRED, AND WHEN IT
DID, IT OPENED ITSELF TO REVERSAL BY THIS
HONORABLE COURT, WHEN IT AGAIN ADOPTED
UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING
IT) THE SUBMISSIONS OF THE RESPONDENTS IN
THEIR BRIEF WITHOUT ADDING ANYTHING MORE
THERETO DESPITE THE FACT THAT THE SAID
ARGUMENT OF THE RESPONDENTS COULD NOT
HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED
EVIDENCE ON RECORD.9
Anent the first assigned error, petitioners point out that the
CA’s finding that petitioner Sicam is personally liable for the
loss of the pawned jewelries is "a virtual and uncritical
reproduction of the arguments set out on pp. 5-6 of the
Appellants’ brief."10
Petitioners argue that the reproduced arguments of
respondents in their Appellants’ Brief suffer from infirmities,
as follows:
(1) Respondents conclusively asserted in
paragraph 2 of their Amended Complaint that
Agencia de R.C. Sicam, Inc. is the present owner of
Agencia de R.C. Sicam Pawnshop, and therefore,
the CA cannot rule against said conclusive
assertion of respondents;
(2) The issue resolved against petitioner Sicam
was not among those raised and litigated in the
trial court; and
(3) By reason of the above infirmities, it was error
for the CA to have pierced the corporate veil since
a corporation has a personality distinct and
separate from its individual stockholders or
members.
Anent the second error, petitioners point out that the CA
finding on their negligence is likewise an unedited
reproduction of respondents’ brief which had the following
defects:
(1) There were unrebutted evidence on record that
petitioners had observed the diligence required of
them, i.e, they wanted to open a vault with a
nearby bank for purposes of safekeeping the
pawned articles but was discouraged by the
Central Bank (CB) since CB rules provide that they
can only store the pawned articles in a vault inside
the pawnshop premises and no other place;
(2) Petitioners were adjudged negligent as they
did not take insurance against the loss of the
pledged jelweries, but it is judicial notice that due
to high incidence of crimes, insurance companies
refused to cover pawnshops and banks because of
high probability of losses due to robberies;
(3) In Hernandez v. Chairman, Commission on
Audit (179 SCRA 39, 45-46), the victim of robbery
was exonerated from liability for the sum of
money belonging to others and lost by him to
robbers.
Respondents filed their Comment and petitioners filed their
Reply thereto. The parties subsequently submitted their
respective Memoranda.
We find no merit in the petition.
To begin with, although it is true that indeed the CA findings
were exact reproductions of the arguments raised in
respondents’ (appellants’) brief filed with the CA, we find the
same to be not fatally infirmed. Upon examination of the
Decision, we find that it expressed clearly and distinctly the
facts and the law on which it is based as required by Section
8, Article VIII of the Constitution. The discretion to decide a
case one way or another is broad enough to justify the
adoption of the arguments put forth by one of the parties, as
long as these are legally tenable and supported by law and
the facts on records.11
Our jurisdiction under Rule 45 of the Rules of Court is limited
to the review of errors of law committed by the appellate
court. Generally, the findings of fact of the appellate court
are deemed conclusive and we are not duty-bound to
analyze and calibrate all over again the evidence adduced
by the parties in the court a quo.12 This rule, however, is not
without exceptions, such as where the factual findings of the
Court of Appeals and the trial court are conflicting or
contradictory13 as is obtaining in the instant case.
However, after a careful examination of the records, we find
no justification to absolve petitioner Sicam from liability.
The CA correctly pierced the veil of the corporate fiction and
adjudged petitioner Sicam liable together with petitioner
corporation. The rule is that the veil of corporate fiction may
be pierced when made as a shield to perpetrate fraud and/or
confuse legitimate issues. 14 The theory of corporate entity
was not meant to promote unfair objectives or otherwise to
shield them.15
Notably, the evidence on record shows that at the time
respondent Lulu pawned her jewelry, the pawnshop was
owned by petitioner Sicam himself. As correctly observed by
the CA, in all the pawnshop receipts issued to respondent
Lulu in September 1987, all bear the words "Agencia de R. C.
Sicam," notwithstanding that the pawnshop was allegedly
incorporated in April 1987. The receipts issued after such
alleged incorporation were still in the name of "Agencia de R.
C. Sicam," thus inevitably misleading, or at the very least,
creating the wrong impression to respondents and the public
as well, that the pawnshop was owned solely by petitioner
Sicam and not by a corporation.
Even petitioners’ counsel, Atty. Marcial T. Balgos, in his
letter16 dated October 15, 1987 addressed to the Central
Bank, expressly referred to petitioner Sicam as the
proprietor of the pawnshop notwithstanding the alleged
incorporation in April 1987.
We also find no merit in petitioners' argument that since
respondents had alleged in their Amended Complaint that
petitioner corporation is the present owner of the pawnshop,
the CA is bound to decide the case on that basis.
Section 4 Rule 129 of the Rules of Court provides that an
admission, verbal or written, made by a party in the course
of the proceedings in the same case, does not require proof.
The admission may be contradicted only by showing that it
was made through palpable mistake or that no such
admission was made.
Thus, the general rule that a judicial admission is conclusive
upon the party making it and does not require proof, admits
of two exceptions, to wit: (1) when it is shown that such
admission was made through palpable mistake, and (2)
when it is shown that no such admission was in fact
made. The latter exception allows one to contradict an
admission by denying that he made such an
admission.17
The Committee on the Revision of the Rules of Court
explained the second exception in this wise:
x x x if a party invokes an "admission" by an
adverse party, but cites the admission "out of
context," then the one making the "admission"
may show that he made no "such" admission,
or that his admission was taken out of
context.
x x x that the party can also show that he
made no "such admission", i.e., not in the
sense in which the admission is made to
appear.
That is the reason for the modifier "such" because
if the rule simply states that the admission may be
contradicted by showing that "no admission was
made," the rule would not really be providing for a
contradiction of the admission but just a
denial.18 (Emphasis supplied).
While it is true that respondents alleged in their Amended
Complaint that petitioner corporation is the present owner of
the pawnshop, they did so only because petitioner Sicam
alleged in his Answer to the original complaint filed against
him that he was not the real party-in-interest as the
pawnshop was incorporated in April 1987. Moreover, a
reading of the Amended Complaint in its entirety shows that
respondents referred to both petitioner Sicam and petitioner
corporation where they (respondents) pawned their assorted
pieces of jewelry and ascribed to both the failure to observe
due diligence commensurate with the business which
resulted in the loss of their pawned jewelry.
Markedly, respondents, in their Opposition to petitioners’
Motion to Dismiss Amended Complaint, insofar as petitioner
Sicam is concerned, averred as follows:
Roberto C. Sicam was named the defendant in the
original complaint because the pawnshop tickets
involved in this case did not show that the R.C.
Sicam Pawnshop was a corporation. In paragraph
1 of his Answer, he admitted the allegations in
paragraph 1 and 2 of the Complaint. He merely
added "that defendant is not now the real party in
interest in this case."
It was defendant Sicam's omission to correct the
pawnshop tickets used in the subject transactions
in this case which was the cause of the instant
action. He cannot now ask for the dismissal of the
complaint against him simply on the mere
allegation that his pawnshop business is now
incorporated. It is a matter of defense, the merit of
which can only be reached after consideration of
the evidence to be presented in due course.19
Unmistakably, the alleged admission made in respondents'
Amended Complaint was taken "out of context" by petitioner
Sicam to suit his own purpose. Ineluctably, the fact that
petitioner Sicam continued to issue pawnshop receipts under
his name and not under the corporation's name militates for
the piercing of the corporate veil.
We likewise find no merit in petitioners' contention that the
CA erred in piercing the veil of corporate fiction of petitioner
corporation, as it was not an issue raised and litigated before
the RTC.
Petitioner Sicam had alleged in his Answer filed with the trial
court that he was not the real party-in-interest because since
April 20, 1987, the pawnshop business initiated by him was
incorporated and known as Agencia de R.C. Sicam. In the
pre-trial brief filed by petitioner Sicam, he submitted that as
far as he was concerned, the basic issue was whether he is
the real party in interest against whom the complaint should
be directed.20 In fact, he subsequently moved for the
dismissal of the complaint as to him but was not favorably
acted upon by the trial court. Moreover, the issue was
squarely passed upon, although erroneously, by the trial
court in its Decision in this manner:
x x x The defendant Roberto Sicam, Jr likewise
denies liability as far as he is concerned for the
reason that he cannot be made personally liable
for a claim arising from a corporate transaction.
This Court sustains the contention of the
defendant Roberto C. Sicam, Jr. The amended
complaint itself asserts that "plaintiff pawned
assorted jewelries in defendant's pawnshop." It
has been held that " as a consequence of the
separate juridical personality of a corporation, the
corporate debt or credit is not the debt or credit of
the stockholder, nor is the stockholder's debt or
credit that of a corporation. 21
Clearly, in view of the alleged incorporation of the pawnshop,
the issue of whether petitioner Sicam is personally liable is
inextricably connected with the determination of the
question whether the doctrine of piercing the corporate veil
should or should not apply to the case.
The next question is whether petitioners are liable for the
loss of the pawned articles in their possession.
Petitioners insist that they are not liable since robbery is a
fortuitous event and they are not negligent at all.
We are not persuaded.
Article 1174 of the Civil Code provides:
Art. 1174. Except in cases expressly specified by
the law, or when it is otherwise declared by
stipulation, or when the nature of the obligation
requires the assumption of risk, no person shall be
responsible for those events which could not be
foreseen or which, though foreseen, were
inevitable.
Fortuitous events by definition are extraordinary events not
foreseeable or avoidable. It is therefore, not enough that the
event should not have been foreseen or anticipated, as is
commonly believed but it must be one impossible to foresee
or to avoid. The mere difficulty to foresee the happening is
not impossibility to foresee the same. 22
To constitute a fortuitous event, the following elements must
concur: (a) the cause of the unforeseen and unexpected
occurrence or of the failure of the debtor to comply with
obligations must be independent of human will; (b) it must
be impossible to foresee the event that constitutes
the caso fortuito or, if it can be foreseen, it must be
impossible to avoid; (c) the occurrence must be such as to
render it impossible for the debtor to fulfill obligations in a
normal manner; and, (d) the obligor must be free from any
participation in the aggravation of the injury or loss. 23
The burden of proving that the loss was due to a fortuitous
event rests on him who invokes it. 24 And, in order for a
fortuitous event to exempt one from liability, it is necessary
that one has committed no negligence or misconduct that
may have occasioned the loss. 25
It has been held that an act of God cannot be invoked to
protect a person who has failed to take steps to forestall the
possible adverse consequences of such a loss. One's
negligence may have concurred with an act of God in
producing damage and injury to another; nonetheless,
showing that the immediate or proximate cause of the
damage or injury was a fortuitous event would not exempt
one from liability. When the effect is found to be partly the
result of a person's participation -- whether by active
intervention, neglect or failure to act -- the whole occurrence
is humanized and removed from the rules applicable to acts
of God. 26
Petitioner Sicam had testified that there was a security
guard in their pawnshop at the time of the robbery. He
likewise testified that when he started the pawnshop
business in 1983, he thought of opening a vault with the
nearby bank for the purpose of safekeeping the valuables
but was discouraged by the Central Bank since pawned
articles should only be stored in a vault inside the pawnshop.
The very measures which petitioners had allegedly adopted
show that to them the possibility of robbery was not only
foreseeable, but actually foreseen and anticipated. Petitioner
Sicam’s testimony, in effect, contradicts petitioners’ defense
of fortuitous event.
Moreover, petitioners failed to show that they were free from
any negligence by which the loss of the pawned jewelry may
have been occasioned.
Robbery per se, just like carnapping, is not a fortuitous
event. It does not foreclose the possibility of negligence on
the part of herein petitioners. In Co v. Court of Appeals,27 the
Court held:
It is not a defense for a repair shop of motor
vehicles to escape liability simply because the
damage or loss of a thing lawfully placed in its
possession was due to carnapping. Carnapping per
se cannot be considered as a fortuitous event. The
fact that a thing was unlawfully and
forcefully taken from another's rightful
possession, as in cases of carnapping, does
not automatically give rise to a fortuitous
event. To be considered as such, carnapping
entails more than the mere forceful taking of
another's property. It must be proved and
established that the event was an act of God
or was done solely by third parties and that
neither the claimant nor the person alleged
to be negligent has any participation. In
accordance with the Rules of Evidence, the
burden of proving that the loss was due to a
fortuitous event rests on him who invokes it
— which in this case is the private
respondent. However, other than the police
report of the alleged carnapping incident, no other
evidence was presented by private respondent to
the effect that the incident was not due to its fault.
A police report of an alleged crime, to which only
private respondent is privy, does not suffice to
establish the carnapping. Neither does it prove
that there was no fault on the part of private
respondent notwithstanding the parties'
agreement at the pre-trial that the car was
carnapped. Carnapping does not foreclose the
possibility of fault or negligence on the part of
private respondent.28
Just like in Co, petitioners merely presented the police report
of the Parañaque Police Station on the robbery committed
based on the report of petitioners' employees which is not
sufficient to establish robbery. Such report also does not
prove that petitioners were not at fault.
On the contrary, by the very evidence of petitioners, the CA
did not err in finding that petitioners are guilty of concurrent
or contributory negligence as provided in Article 1170 of the
Civil Code, to wit:
Art. 1170. Those who in the performance of their
obligations are guilty of fraud, negligence, or
delay, and those who in any manner contravene
the tenor thereof, are liable for damages. 29
Article 2123 of the Civil Code provides that with regard to
pawnshops and other establishments which are engaged in
making loans secured by pledges, the special laws and
regulations concerning them shall be observed, and
subsidiarily, the provisions on pledge, mortgage and
antichresis.
The provision on pledge, particularly Article 2099 of the Civil
Code, provides that the creditor shall take care of the thing
pledged with the diligence of a good father of a family. This
means that petitioners must take care of the pawns the way
a prudent person would as to his own property.
In this connection, Article 1173 of the Civil Code further
provides:
Art. 1173. The fault or negligence of the obligor
consists in the omission of that diligence which is
required by the nature of the obligation and
corresponds with the circumstances of the
persons, of time and of the place. When
negligence shows bad faith, the provisions of
Articles 1171 and 2201, paragraph 2 shall apply.
If the law or contract does not state the diligence
which is to be observed in the performance, that
which is expected of a good father of a family shall
be required.
We expounded in Cruz v. Gangan30 that negligence is the
omission to do something which a reasonable man, guided
by those considerations which ordinarily regulate the
conduct of human affairs, would do; or the doing of
something which a prudent and reasonable man would not
do.31 It is want of care required by the circumstances.
A review of the records clearly shows that petitioners failed
to exercise reasonable care and caution that an ordinarily
prudent person would have used in the same situation.
Petitioners were guilty of negligence in the operation of their
pawnshop business. Petitioner Sicam testified, thus:
Court:
Q. Do you have security guards in your pawnshop?
A. Yes, your honor.
Q. Then how come that the robbers were able to
enter the premises when according to you there
was a security guard?
 A. Sir, if these robbers can rob a bank, how much
more a pawnshop.
Q. I am asking you how were the robbers able to
enter despite the fact that there was a security
guard?
A. At the time of the incident which happened
about 1:00 and 2:00 o'clock in the afternoon and it
happened on a Saturday and everything was quiet
in the area BF Homes Parañaque they pretended
to pawn an article in the pawnshop, so one of my
employees allowed him to come in and it was only
when it was announced that it was a hold up.
Q. Did you come to know how the vault was
opened?
A. When the pawnshop is official (sic) open your
honor the pawnshop is partly open. The
combination is off.
Q. No one open (sic) the vault for the robbers?
A. No one your honor it was open at the time of
the robbery.
Q. It is clear now that at the time of the robbery
the vault was open the reason why the robbers
were able to get all the items pawned to you
inside the vault.
A. Yes sir.32
revealing that there were no security measures adopted by
petitioners in the operation of the pawnshop. Evidently, no
sufficient precaution and vigilance were adopted by
petitioners to protect the pawnshop from unlawful intrusion.
There was no clear showing that there was any security
guard at all. Or if there was one, that he had sufficient
training in securing a pawnshop. Further, there is no showing
that the alleged security guard exercised all that was
necessary to prevent any untoward incident or to ensure
that no suspicious individuals were allowed to enter the
premises. In fact, it is even doubtful that there was a
security guard, since it is quite impossible that he would not
have noticed that the robbers were armed with caliber .45
pistols each, which were allegedly poked at the
employees.33 Significantly, the alleged security guard was
not presented at all to corroborate petitioner Sicam's claim;
not one of petitioners' employees who were present during
the robbery incident testified in court.
Furthermore, petitioner Sicam's admission that the vault was
open at the time of robbery is clearly a proof of petitioners'
failure to observe the care, precaution and vigilance that the
circumstances justly demanded. Petitioner Sicam testified
that once the pawnshop was open, the combination was
already off. Considering petitioner Sicam's testimony that
the robbery took place on a Saturday afternoon and the area
in BF Homes Parañaque at that time was quiet, there was
more reason for petitioners to have exercised reasonable
foresight and diligence in protecting the pawned jewelries.
Instead of taking the precaution to protect them, they let
open the vault, providing no difficulty for the robbers to cart
away the pawned articles.
We, however, do not agree with the CA when it found
petitioners negligent for not taking steps to insure
themselves against loss of the pawned jewelries.
Under Section 17 of Central Bank Circular No. 374, Rules and
Regulations for Pawnshops, which took effect on July 13,
1973, and which was issued pursuant to Presidential Decree
No. 114, Pawnshop Regulation Act, it is provided that pawns
pledged must be insured, to wit:
Sec. 17. Insurance of Office Building and Pawns-
The place of business of a pawnshop and the
pawns pledged to it must be insured against fire
and against burglary as well as for the
latter(sic), by an insurance company accredited by
the Insurance Commissioner.
However, this Section was subsequently amended by CB
Circular No. 764 which took effect on October 1, 1980, to wit:
Sec. 17 Insurance of Office Building and Pawns –
The office building/premises and pawns of a
pawnshop must be insured against
fire. (emphasis supplied).
where the requirement that insurance against burglary was
deleted. Obviously, the Central Bank considered it not
feasible to require insurance of pawned articles against
burglary.
The robbery in the pawnshop happened in 1987, and
considering the above-quoted amendment, there is no
statutory duty imposed on petitioners to insure the pawned
jewelry in which case it was error for the CA to consider it as
a factor in concluding that petitioners were negligent.
Nevertheless, the preponderance of evidence shows that
petitioners failed to exercise the diligence required of them
under the Civil Code.
The diligence with which the law requires the individual at all
times to govern his conduct varies with the nature of the
situation in which he is placed and the importance of the act
which he is to perform.34 Thus, the cases of Austria v. Court
of Appeals,35 Hernandez v. Chairman, Commission on
Audit36 and Cruz v. Gangan37 cited by petitioners in their
pleadings, where the victims of robbery were exonerated
from liability, find no application to the present case.
In Austria, Maria Abad received from Guillermo Austria a
pendant with diamonds to be sold on commission basis, but
which Abad failed to subsequently return because of a
robbery committed upon her in 1961. The incident became
the subject of a criminal case filed against several persons.
Austria filed an action against Abad and her husband (Abads)
for recovery of the pendant or its value, but the Abads set up
the defense that the robbery extinguished their obligation.
The RTC ruled in favor of Austria, as the Abads failed to
prove robbery; or, if committed, that Maria Abad was guilty
of negligence. The CA, however, reversed the RTC decision
holding that the fact of robbery was duly established and
declared the Abads not responsible for the loss of the jewelry
on account of a fortuitous event. We held that for the Abads
to be relieved from the civil liability of returning the pendant
under Art. 1174 of the Civil Code, it would only be sufficient
that the unforeseen event, the robbery, took place without
any concurrent fault on the debtor’s part, and this can be
done by preponderance of evidence; that to be free from
liability for reason of fortuitous event, the debtor must, in
addition to the casus itself, be free of any concurrent or
contributory fault or negligence.38
We found in Austria that under the circumstances prevailing
at the time the Decision was promulgated in 1971, the City
of Manila and its suburbs had a high incidence of crimes
against persons and property that rendered travel after
nightfall a matter to be sedulously avoided without suitable
precaution and protection; that the conduct of Maria Abad in
returning alone to her house in the evening carrying jewelry
of considerable value would have been negligence per se
and would not exempt her from responsibility in the case of
robbery. However we did not hold Abad liable for negligence
since, the robbery happened ten years previously; i.e., 1961,
when criminality had not reached the level of incidence
obtaining in 1971.
In contrast, the robbery in this case took place in 1987 when
robbery was already prevalent and petitioners in fact had
already foreseen it as they wanted to deposit the pawn with
a nearby bank for safekeeping. Moreover, unlike in Austria,
where no negligence was committed, we found petitioners
negligent in securing their pawnshop as earlier discussed.
In Hernandez, Teodoro Hernandez was the OIC and special
disbursing officer of the Ternate Beach Project of the
Philippine Tourism in Cavite. In the morning of July 1, 1983, a
Friday, he went to Manila to encash two checks covering the
wages of the employees and the operating expenses of the
project. However for some reason, the processing of the
check was delayed and was completed at about 3 p.m.
Nevertheless, he decided to encash the check because the
project employees would be waiting for their pay the
following day; otherwise, the workers would have to wait
until July 5, the earliest time, when the main office would
open. At that time, he had two choices: (1) return to Ternate,
Cavite that same afternoon and arrive early evening; or (2)
take the money with him to his house in Marilao, Bulacan,
spend the night there, and leave for Ternate the following
day. He chose the second option, thinking it was the safer
one. Thus, a little past 3 p.m., he took a passenger jeep
bound for Bulacan. While the jeep was on Epifanio de los
Santos Avenue, the jeep was held up and the money kept by
Hernandez was taken, and the robbers jumped out of the
jeep and ran. Hernandez chased the robbers and caught up
with one robber who was subsequently charged with robbery
and pleaded guilty. The other robber who held the stolen cellphone while traveling on board the LRT; that the records
money escaped. The Commission on Audit found Hernandez did not show any specific act of negligence on her part and Date Document Amount
negligent because he had not brought the cash proceeds of negligence can never be presumed.
the checks to his office in Ternate, Cavite for safekeeping, December 13, Promissory Note No. ₱2,000,000.0
which is the normal procedure in the handling of funds. We 1996 96-213016 0
held that Hernandez was not negligent in deciding to encash Unlike in the Cruz case, the robbery in this case happened in
the check and bringing it home to Marilao, Bulacan instead petitioners' pawnshop and they were negligent in not November 7, Trust Receipt No. 96-
of Ternate, Cavite due to the lateness of the hour for the exercising the precautions justly demanded of a pawnshop. 1995 2023657 ₱608,603.04
following reasons: (1) he was moved by unselfish motive for
his co-employees to collect their wages and salaries the Trust Receipt No. 96- ₱3,753,777.4
WHEREFORE, except for the insurance aspect, the Decision
following day, a Saturday, a non-working, because to encash May 13, 1996 9605228 0
of the Court of Appeals dated March 31, 2003 and its
the check on July 5, the next working day after July 1, would Resolution dated August 8, 2003, are AFFIRMED.
have caused discomfort to laborers who were dependent on
Trust Receipt No. 96- ₱4,602,648.0
their wages for sustenance; and (2) that choosing Marilao as
May 24, 1996 9605249 8
a safer destination, being nearer, and in view of the Costs against petitioners.
comparative hazards in the trips to the two places, said
decision seemed logical at that time. We further held that Trust Receipt No. 97- ₱7,289,757.7
the fact that two robbers attacked him in broad daylight in SO ORDERED. March 21, 1997 20472410 9
the jeep while it was on a busy highway and in the presence
of other passengers could not be said to be a result of his Trust Receipt No. 96- ₱17,340,360.
imprudence and negligence. June 7, 1996 20328011 73

Trust Receipt No. 95-

Unlike in Hernandez where the robbery happened in a public
G.R. No. 177921               December 4, 2013 July 26, 1995 20194312 ₱670,709.24
utility, the robbery in this case took place in the pawnshop
which is under the control of petitioners. Petitioners had the
means to screen the persons who were allowed entrance to August 31, Trust Receipt No. 95-
METRO CONCAST STEEL CORPORATION, SPOUSES 1995 20205313 ₱313,797.41
the premises and to protect itself from unlawful intrusion. JOSE S. DYCHIAO AND TIUOH YAN, SPOUSES
Petitioners had failed to exercise precautionary measures in GUILLERMO AND MERCEDES DYCHIAO, AND SPOUSES
ensuring that the robbers were prevented from entering the VICENTE AND FILOMENA DYCHIAO, Petitioners, November 16, Trust Receipt No. 96- ₱13,015,109.
pawnshop and for keeping the vault open for the day, which vs. 1995 20243914 87
paved the way for the robbers to easily cart away the ALLIED BANK CORPORATION, Respondent.
pawned articles. Trust Receipt No. 96-
July 3, 1996 20355215 ₱401,608.89
RESOLUTION
In Cruz, Dr. Filonila O. Cruz, Camanava District Director of
Technological Education and Skills Development Authority Trust Receipt No. 95-
(TESDA), boarded the Light Rail Transit (LRT) from Sen. PERLAS-BERNABE, J.: June 20, 1995 20171016 ₱750,089.25
Puyat Avenue to Monumento when her handbag was slashed
and the contents were stolen by an unidentified person. December 13, Trust Receipt No. 96-
Among those stolen were her wallet and the government- Assailed in this petition for review on certiorari 1 are the 1995 37908917 ₱92,919.00
issued cellular phone. She then reported the incident to the Decision2 dated February 12, 2007 and the Resolution 3 dated
police authorities; however, the thief was not located, and May 10, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. December 13, Trust Receipt No.
the cellphone was not recovered. She also reported the loss 86896 which reversed and set aside the Decision 4 dated 1995 96/20258118 ₱224,713.58
to the Regional Director of TESDA, and she requested that January 17, 2006 of the Regional Trial Court of Makati,
she be freed from accountability for the cellphone. The Branch 57 (RTC) in Civil Case No. 00-1563, thereby ordering
Resident Auditor denied her request on the ground that she petitioners Metro Concast Steel Corporation (Metro Concast),
Spouses Jose S. Dychiao and Tiu Oh Yan, Spouses Guillermo The interest rate under Promissory Note No. 96-21301 was
lacked the diligence required in the custody of government
and Mercedes Dychiao, and Spouses Vicente and Filomena pegged at 15.25% per annum (p.a.), with penalty charge of
property and was ordered to pay the purchase value in the
Duchiao (individual petitioners) to solidarily pay respondent 3% per month in case of default; while the twelve (12) trust
total amount of P4,238.00. The COA found no sufficient
Allied Bank Corporation (Allied Bank) the aggregate amount receipts uniformly provided for an interest rate of 14% p.a.
justification to grant the request for relief from
of ₱51,064,094.28, with applicable interests and penalty and 1% penalty charge. By way of security, the individual
accountability. We reversed the ruling and found that riding
charges. petitioners executed several Continuing
the LRT cannot per se be denounced as a negligent act more
Guaranty/Comprehensive Surety Agreements 19 in favor of
so because Cruz’s mode of transit was influenced by time
Allied Bank. Petitioners failed to settle their obligations under
and money considerations; that she boarded the LRT to be
The Facts the aforementioned promissory note and trust receipts,
able to arrive in Caloocan in time for her 3 pm meeting; that
hence, Allied Bank, through counsel, sent them demand
any prudent and rational person under similar circumstance
letters,20 all dated December 10, 1998, seeking payment of
can reasonably be expected to do the same; that possession On various dates and for different amounts, Metro Concast, a the total amount of ₱51,064,093.62, but to no avail. Thus,
of a cellphone should not hinder one from boarding the LRT corporation duly organized and existing under and by virtue Allied Bank was prompted to file a complaint for collection of
coach as Cruz did considering that whether she rode a jeep of Philippine laws and engaged in the business of sum of money21 (subject complaint) against petitioners
or bus, the risk of theft would have also been present; that manufacturing steel,5 through its officers, herein individual before the RTC, docketed as Civil Case No. 00-1563. In their
because of her relatively low position and pay, she was not petitioners, obtained several loans from Allied Bank. These second22 Amended Answer,23 petitioners admitted their
expected to have her own vehicle or to ride a taxicab; she loan transactions were covered by a promissory note and indebtedness to Allied Bank but denied liability for the
did not have a government assigned vehicle; that placing separate letters of credit/trust receipts, the details of which interests and penalties charged, claiming to have paid the
the cellphone in a bag away from covetous eyes and holding are as follows: total sum of ₱65,073,055.73 by way of interest charges for
on to that bag as she did is ordinarily sufficient care of a
the period covering 1992 to 1997.24
They also alleged that the economic reverses suffered by the
Philippine economy in 1998 as well as the devaluation of the
peso against the US dollar contributed greatly to the
downfall of the steel industry, directly affecting the business
of Metro Concast and eventually leading to its cessation.
Hence, in order to settle their debts with Allied Bank,
petitioners offered the sale of Metro Concast’s remaining
assets, consisting of machineries and equipment, to Allied
Bank, which the latter, however, refused. Instead, Allied
Bank advised them to sell the equipment and apply the
proceeds of the sale to their outstanding obligations.
Accordingly, petitioners offered the equipment for sale, but
since there were no takers, the equipment was reduced into
ferro scrap or scrap metal over the years. In 2002, Peakstar
Oil Corporation (Peakstar), represented by one Crisanta
Camiling (Camiling), expressed interest in buying the scrap
metal. During the negotiations with Peakstar, petitioners
claimed that Atty. Peter Saw (Atty. Saw), a member of Allied
Bank’s legal department, acted as the latter’s agent.
Eventually, with the alleged conformity of Allied Bank,
through Atty. Saw, a Memorandum of Agreement 25 dated
November 8, 2002 (MoA) was drawn between Metro Concast,
represented by petitioner Jose Dychiao, and Peakstar,
through Camiling, under which Peakstar obligated itself to
purchase the scrap metal for a total consideration of
₱34,000,000.00, payable as follows:
(a) ₱4,000,000.00 by way of earnest money –
₱2,000,000.00 to be paid in cash and the other
₱2,000,000.00 to be paid in two (2) post-dated
checks of ₱1,000,000.00 each;26 and
(b) the balance of ₱30,000,000.00 to be paid in
ten (10) monthly installments of ₱3,000,000.00,
secured by bank guarantees from Bankwise, Inc.
(Bankwise) in the form of separate post-dated
checks.27
Unfortunately, Peakstar reneged on all its obligations under
the MoA.1âwphi1 In this regard, petitioners asseverated
that:
(a) their failure to pay their outstanding loan
obligations to Allied Bank must be considered as
force majeure ; and
(b) since Allied Bank was the party that accepted
the terms and conditions of payment proposed by
Peakstar, petitioners must therefore be deemed to
have settled their obligations to Allied Bank. To
bolster their defense, petitioner Jose Dychiao (Jose
Dychiao) testified28 during trial that it was Atty.
Saw himself who drafted the MoA and
subsequently received29 the ₱2,000,000.00 cash
and the two (2) Bankwise post-dated checks worth
₱1,000,000.00 each from Camiling. However, Atty.
Saw turned over only the two (2) checks and
₱1,500,000.00 in cash to the wife of Jose
Dychiao.30
Claiming that the subject complaint was falsely and
maliciously filed, petitioners prayed for the award of moral
damages in the amount of ₱20,000,000.00 in favor of Metro
Concast and at least ₱25,000,000.00 for each individual
petitioner, ₱25,000,000.00 as exemplary damages,
₱1,000,000.00 as attorney’s fees, ₱500,000.00 for other
litigation expenses, including costs of suit.
The RTC Ruling
After trial on the merits, the RTC, in a Decision 31 dated
January 17, 2006, dismissed the subject complaint, holding
that the "causes of action sued upon had been paid or
otherwise extinguished." It ruled that since Allied Bank was
duly represented by its agent, Atty. Saw, in all the
negotiations and transactions with Peakstar – considering
that Atty. Saw
(a) drafted the MoA,
(b) accepted the bank guarantee issued by
Bankwise, and
(c) was apprised of developments regarding the
sale and disposition of the scrap metal – then it
stands to reason that the MoA between Metro
Concast and Peakstar was binding upon said bank.
The CA Ruling
Allied Bank appealed to the CA which, in a Decision 32 dated
February 12, 2007, reversed and set aside the ruling of the
RTC, ratiocinating that there was "no legal basis in fact and
in law to declare that when Bankwise reneged its guarantee
under the [MoA], herein [petitioners] should be deemed to
be discharged from their obligations lawfully incurred in
favor of [Allied Bank]."33
The CA examined the MoA executed between Metro Concast,
as seller of the ferro scrap, and Peakstar, as the buyer
thereof, and found that the same did not indicate that Allied
Bank intervened or was a party thereto. It also pointed out
the fact that the post-dated checks pursuant to the MoA
were issued in favor of Jose Dychiao. Likewise, the CA found
no sufficient evidence on record showing that Atty. Saw was
duly and legally authorized to act for and on behalf of Allied
Bank, opining that the RTC was "indulging in hypothesis and
speculation" 34 when it made a contrary pronouncement.
While Atty. Saw received the earnest money from Peakstar,
the receipt was signed by him on behalf of Jose Dychiao. 35
It also added that "[i]n the final analysis, the aforesaid
checks and receipts were signed by [Atty.] Saw either as
representative of [petitioners] or as partner of the latter’s
legal counsel, and not in anyway as representative of [Allied
Bank]."36
Consequently, the CA granted the appeal and directed
petitioners to solidarily pay Allied Bank their corresponding
obligations under the aforementioned promissory note and
trust receipts, plus interests, penalty charges and attorney’s
fees. Petitioners sought reconsideration 37 which was,
however, denied in a Resolution 38 dated May 10, 2007.
Hence, this petition.
The Issue Before the Court
At the core of the present controversy is the sole issue of
whether or not the loan obligations incurred by the
petitioners under the subject promissory note and various
trust receipts have already been extinguished.
The Court’s Ruling
Article 1231 of the Civil Code states that obligations are
extinguished either by payment or performance, the loss of
the thing due, the condonation or remission of the debt, the
confusion or merger of the rights of creditor and debtor,
compensation or novation.
In the present case, petitioners essentially argue that their
loan obligations to Allied Bank had already been
extinguished due to Peakstar’s failure to perform its own
obligations to Metro Concast pursuant to the MoA.
Petitioners classify Peakstar’s default as a form of force
majeure in the sense that they have, beyond their control,
lost the funds they expected to have received from the
Peakstar (due to the MoA) which they would, in turn, use to
pay their own loan obligations to Allied Bank. They further
state that Allied Bank was equally bound by Metro Concast’s
MoA with Peakstar since its agent, Atty. Saw, actively
represented it during the negotiations and execution of the
said agreement. Petitioners’ arguments are untenable. At
the outset, the Court must dispel the notion that the MoA
would have any relevance to the performance of petitioners’
obligations to Allied Bank. The MoA is a sale of assets
contract, while petitioners’ obligations to Allied Bank arose
from various loan transactions. Absent any showing that the
terms and conditions of the latter transactions have been, in
any way, modified or novated by the terms and conditions in
the MoA, said contracts should be treated separately and
distinctly from each other, such that the existence,
performance or breach of one would not depend on the
existence, performance or breach of the other. In the
foregoing respect, the issue on whether or not Allied Bank
expressed its conformity to the assets sale transaction
between Metro Concast and Peakstar (as evidenced by the
MoA) is actually irrelevant to the issues related to
petitioners’ loan obligations to the bank. Besides, as the CA
pointed out, the fact of Allied Bank’s representation has not
been proven in this case and hence, cannot be deemed as a
sustainable defense to exculpate petitioners from their loan
obligations to Allied Bank. Now, anent petitioners’ reliance
on force majeure, suffice it to state that Peakstar’s breach of
its obligations to Metro Concast arising from the MoA cannot
be classified as a fortuitous event under jurisprudential
formulation. As discussed in Sicam v. Jorge:39
Fortuitous events by definition are extraordinary events not
foreseeable or avoidable.1âwphi1 It is therefore, not enough
that the event should not have been foreseen or anticipated,
as is commonly believed but it must be one impossible to
foresee or to avoid. The mere difficulty to foresee the
happening is not impossibility to foresee the same. To
constitute a fortuitous event, the following elements must
concur: (a) the cause of the unforeseen and unexpected
occurrence or of the failure of the debtor to comply with
obligations must be independent of human will; (b) it
must be impossible to foresee the event that constitutes
the caso fortuito or, if it can be foreseen, it must be
impossible to avoid; (c) the occurrence must be such as
to render it impossible for the debtor to fulfill
obligations in a normal manner; and (d) the obligor must
be free from any participation in the aggravation of the
injury or loss. 40 (Emphases supplied)
While it may be argued that Peakstar’s breach of the MoA
was unforseen by petitioners, the same us clearly not
"impossible"to foresee or even an event which is
independent of human will." Neither has it been shown that
said occurrence rendered it impossible for petitioners to pay
their loan obligations to Allied Bank and thus, negates the
former’s force majeure theory altogether. In any case, as
earlier stated, the performance or breach of the MoA bears
no relation to the performance or breach of the subject loan
transactions, they being separate and distinct sources of
obligations. The fact of the matter is that petitioners’ loan
obligations to Allied Bank remain subsisting for the basic
reason that the former has not been able to prove that the
same had already been paid 41 or, in any way, extinguished.
In this regard, petitioners’ liability, as adjudged by the CA,
must perforce stand. Considering, however, that Allied
Bank’s extra-judicial demand on petitioners appears to have
been made only on December 10, 1998, the computation of
the applicable interests and penalty charges should be
reckoned only from such date.
WHEREFORE, the petition is DENIED. The Decision dated
February 12, 2007 and Resolution dated May 10, 2007 of the
Court of Appeals in CA-G.R. CV No. 86896 are hereby
AFFIRMED with MODIFICATION reckoning the applicable
interests and penalty charges from the date of the
extrajudicial demand or on December 10, 1998. The rest of
the appellate court’s dispositions stand.
SO ORDERED.
G.R. No. 118180 September 20, 1996
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner,
vs.
COURT OF APPEALS, Sps. NORMY D. CARPIO and
CARMEN ORQUISA; Sps. ROLANDO D. CARPIO and
RAFAELA VILLANUEVA; Sps. ELISEO D. CARPIO and
ANUNCIACION del ROSARIO; LUZ C. REYES, MARIO C.
REYES, JULIET REYES-RUBIN, respondents.
 
PADILLA, J.:
This is a petitioner for review on certiorari under Rule 45 of
the Rules of Court which seeks to set aside the decision 1 of
the Court of Appeals (CA) dated 28 February 1994 in CA-G.R.
CV No. 37158, as well as the resolution dated 11 August
1994 denying petitioner's motion for reconsideration.
The facts are undisputed:
Private respondents were the original owner of a parcel of
agricultural land covered by TCT No T-1432, situated in
Barrio Capucao, Ozamis City, with an area of 113,695 square
meters, more or less.
On 30 May 1977, Private respondents mortgaged said land
to petitioner. When private respondents defaulted on their
obligation, petitioner foreclosed the mortgage on the land
and emerged as sole bidder in the ensuing auction sale.
Consequently. Transfer Certificate of Title No. T-10913 was
eventually issued in petitioner's name.
On 6 April 1984 petitioner and private respondents entered
into a Deed of Conditional Sale wherein petitioner agreed to
reconvey the foreclosed property to private respondents.
The pertinent stipulations of the Deed provided that:
WHEREAS, the VENDOR acquired a
parcel of land in an auction sale by the
City Sheriff of Ozamiz City, pursuant to
Act 3135, As amended, and subject to
the redemption period pursuant to CA
141, described as follows:
xxx xxx xxx
WHEREAS, the VENDEES offered to
repurchase and the VENDOR agreed to
sell the above-described property,
subject to the terms and stipulations as
hereinafter stipulated, for the sum of
SEVENTY THREE THOUSAND SEVEN
HUNDRED ONLY (P73,700.00), with a
down payment of P8,900.00 and the
balance of P64,800 shall be payable in
six (6) years on equal quarterly
amortization plan at 18% interest per
annum. The first quarterly amortization
of P4,470.36 shall be payable three
months from the date of the execution
of the documents and all subsequent
amortization shall be due and payable
every quarter thereafter.
xxx xxx xxx
That, upon completion of the payment
herein stipulated and agreed, the
Vendor agrees to deliver to the
Vendee/s(,) his heirs, administrators and
assigns(,) a good and sufficient deed of
conveyance covering the property,
subject matter of this deed of
conditional sale, in accordance with the
provision of law. (Exh. "A", p. 5,
Records)2
On 6 April 1990, upon completing the payment of the full
repurchase price, private respondents demanded from
petitioner the execution of a Deed of Conveyance in their
favor.
Petitioner then informed private respondents that the
prestation to execute and deliver a deed of conveyance in
their favor had become legally impossible in view of Sec. 6 of
Rep. Act 6657 (the Comprehensive Agrarian Reform Law or
CARL) approved 10 June 1988, and Sec. 1 of E.O. 407 issued
10 June 1990.
Aggrieved, private respondents filed a complaint for specific
performance with damages against petitioner before the
Regional Trial Court of Ozamis City, Branch XV. During the
pre-trial court narrowed down the issue to whether or not
Sec. 6 of the CARL (Rep. Act 6657) had rendered legally
impossible compliance by petitioner with its obligation to
execute a deed of conveyance of the subject land in favor of
private respondents. The trial court ordered both parties to
file their separate memorandum and deemed the case
submitted for decision thereafter.
On 30 January 1992, the trial court rendered judgment, the
dispositive part of which reads:
WHEREFORE, judgment is rendered
ordering defendant to execute and
deliver unto plaintiffs a deed of final sale
of there land subject of their deed of
conditional sale — Lot 5259-A, to pay
plaintiffs P10,000.00 as nominal
damages, P5,000.00 as attorney's fees,
P3,000.00 as litis expenses and costs. 3
The trial court held that petitioner interpreted the fourth
paragraph of Sec. 6, Rep. Act 6657 literally in conjunction
with Sec. 1 of E. O. 407.
The fourth paragraph of Sec. 6, Rep. Act 6657 states that:
Upon the effectivity of this Act, any sale,
disposition, lease, management contract
or transfer of possession of private lands
executed by the original landowner in
violation of this act shall be null and
void; Provided, however, that those
executed prior to this act shall be valid
only when registered with the Registers
of Deeds after the effectivity of this Act.
Thereafter, all Registers of Deeds shall
inform the DAR WITHIN 320 days of any
 transaction involving agricultural lands
in excess of five hectares.
while Sec. 1 of E.O. 407 states that:
Sec. 1. All government instrumentalities
but not limited to . . . financial
institutions such as the DBP . . . shall
immediately execute deeds of transfer
in favor of the Republic of the
Philippines as represented by the
Department of Agrarian Reform and
surrender to the latter department all
land holdings suitable for agriculture.
The court a quo noted that Sec 6 of Rep. Act 6657, taken in
its entirety, is a provision dealing primarily with retention
limits in agricultural land allowed the landowner and his
family and that the fourth paragraph, which nullifies any sale
. . . by the original landowner in violation of the Act, does not
cover the sale by petitioner (not the original land owner) to
private respondents.
On the other hand, according to the trial court, E.O. 407 took
effect on June 1990. But private respondents completed of
the price for the property, object of the conditional sale, as
early as 6 April 1990. Hence, with the fulfillment of the
condition for the sale, the land covered thereby, was
detached from the mass of foreclosed properties held by
DBP, and, therefore, fell beyond the ambit or reach of E.O.
407.
Dissatisfied, petitioner appealed to the Court of Appeals
(CA), still insisting that its obligation to execute a Deed of
Sale in favor of private respondents had become a legal
impossibility and that the non-impairment clause of the
Constitution must yield to the demands of police power.
On 28 February 1994, the CA rendered judgment dismissing
petitioner's appeal on the basis of the following disquisitions:
It is a rule that if the obligation depends
upon a suspensive condition, the
demandability as well as the acquisition
or effectivity of the rights arising from
the obligation is suspended pending the
happening or fulfillment of the fact or
event which constitutes the condition.
Once the event which constitutes the
condition is fulfilled resulting in the
effectivity of the obligation, its effects
retroact to the moment when the
essential elements which gave birth to
the obligation have taken place (8
Manresa, 5th Ed. Bk. 1, pa. 33). Applying
this precept to the case, the full
payment by the appellee on April 6,
1990 retracts to the time the contract of
conditional sale was executed on April 6,
1984. From that time, all elements of
the contract of sale were present.
Consequently, the contract of sale was
perfected. As such, the said sale does
not come under the coverage of R.A.
6657.
It is likewise interesting to note that
despite the mandate of Sec. 1, R.A.
6657, appellant continued to accept the
payments made by the appellant until it
was fully paid on April 6, 1990. All that
the appellant has to do now is to
execute the final deed of sale in favor of
the appellee. To follow the line of
argument of the appellant would only
result in an unconscionable injury to the
appellee. Obligations arising from
contracts have the force of law between
the contracting parties and should be
complied with in good faith (Flavio
Macasaet & Associates, Inc. vs.
Commission on Audit, 173 SCRA 352).
Going now to E.O. 407, We hold that the
same can neither affect appellant's
obligation under the deed of conditional
sale. Under the said law, appellant is
required to transfer to the Republic of
the Philippines "all lands foreclosed"
effective June 10, 1990. Under the facts
obtaining, the subject property has
ceased to belong to the mass of
foreclosed property failing within the
reach of said law. As earlier explained,
the property has already been sold to
herein appellees even before the said
E.O. has been enacted. On this same
reason, We therefore need not delve on
the applicability of DBP Circular No. 11.4
In the present petitioner for review on certiorari, petitioner
still insists on its position that Rep. Act 6657, E.O. 407 and
DBP Circular No.11 rendered its obligation to execute a Deed
of Sale to private respondents "a legal
impossibility."5 Petitioner also questions the award of
attorney's fees, nominal damages, and cost in favor of
private respondents, as not in accord with law and the
evidence.6
We rule in favor of private respondents.
In conditional obligations, the acquisition of rights, as well as
the extinguishment or loss of those already acquired, shall
depend upon the happening of the event which constitutes
the condition.7
The deed of conditional sale between petitioner and private
respondents was executed on 6 April 1984. Private
respondents had religiously paid the agreed installments on
the property until they completed payment on 6 April 1990.
Petitioner, in fact, allowed private respondents to fulfill the
condition of effecting full payment, and invoked Section 6 of
Rep. Act 6657 only after private respondents, having fully
paid the repurchase price, demanded the execution of a
Deed of Sale in their favor.
It will be noted that Rep. Act 6657 was enacted on 10 June
1988. Following petitioner's argument in this case, its
prestation to execute the deed of sale was rendered legally
impossible by Section 6 said law. In other words, the deed of
conditional sale was extinguished by a supervening event,
giving rise to an impossibility of performance.
We reject petitioner's contention as we rule — as the trial
court and CA have correctly ruled — that neither Sec. 6 of
Rep. Act 6657 nor Sec. 1 of E.O. 407 was intended to impair
the obligation of contract petitioner had much earlier
concluded with private respondents.
More specifically, petitioner cannot invoke the last paragraph
of Sec. 6 of Rep. Act 6657 to set aside its obligations already
existing prior to its enactment. In the first place, said last
paragraph clearly deals with "any sale, lease, management
contract or transfer or possession of private lands executed
by the original landowner." The original owner in this case is
not the petitioner but the private respondents Petitioner
acquired the land through foreclosure proceedings but
agreed thereafter to reconvey it to private respondents,
albeit conditionally.
As earlier stated, Sec. 6 of Rep. Act 6657 in its entirety deals
with retention limits allowed by law to small landowners.
Since the property here involved is more or less ten (10)
hectares, it is then within the jurisdiction of the Department
of Agrarian Reform (DAR) to determine whether or not the
property can be subjected to agrarian reform. But this
necessitates an entirely differently proceeding.
The CARL (Rep. Act 6657) was not intended to take away
property without due process of law. Nor is it intended to
impair the obligation of contracts. In the same manner must
E.O. 407 be regarded. It was enacted two (2) months after
private respondents had legally fulfilled the condition in the
contract of conditional sale by the payment of all installment
on their due dates. These laws cannot have retroactive
effect unless there is an express provision in them to that
effect.8
As to petitioner's contention, however, that the CA erred in
affirming the trial court's decision awarding nominal
damages, and attorney's fees to private respondents, we
rule in favor of petitioner.
It appears that the core issue in this case, being a pure
question of law, did not reach the trial stage as the case was
submitted for decision after pre-trial.
The award of attorney's fees under Article 2208 of the Civil
Code is more of an exception to the general rule that it is not
sound policy to place a penalty on the right to litigate. While
judicial discretion in the award of attorney's fees is not
entirely left out, the same, as a rule, must have a factual,
legal or equitable justification. The matter cannot and should
not be left to speculation and conjecture.9
As aptly stated in the Mirasol case:
. . . The matter of attorney's fees cannot
be touched once and only in the
dispositive portion of the decision. The
text itself must expressly state the
reason why attorney's fees are being
awarded. The court, after reading
through the text of the appealed
decision, finds the same bereft of any
findings of fact and law to justify the
award of attorney's fees. The matter of
such fees was touched but once and
appears only in the dispositive portion of
the decision. Simply put, the text of the
decision did not state the reason why
attorney's fees are being awarded, and
for this reason, the Court finds it
necessary to disallow the same for being
conjectural. 10
While DBP committed egregious error in interpreting Sec. 6
of RA 6657, the same is not equivalent to gross and evident
bad faith when it refused to execute the deed of sale in favor
of private respondents.
For the same reasons stated above, the award of nominal
damages in the amount of P10,000.00 should also be
deleted.
The amount of P3,000.00 as litigation expenses and cost
against petitioner must remain.
WHEREFORE, premises considered, the petition is hereby
DENIED, and the decision of the CA is hereby AFFIRMED, for
lack of any reversible error, with the MODIFICATION that
attorney's fees and nominal damages awarded to private
respondent are hereby DELETED.
G.R. No. 112127 July 17, 1995
CENTRAL PHILIPPINE UNIVERSITY, petitioner,
vs.
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO
N. LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ
AND REMARENE LOPEZ, respondents.
BELLOSILLO, J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review
on certiorari of the decision of the Court of Appeals which
reversed that of the Regional Trial Court of Iloilo City
directing petitioner to reconvey to private respondents the
property donated to it by their predecessor-in-interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was
then a member of the Board of Trustees of the Central
Philippine College (now Central Philippine University [CPU]),
executed a deed of donation in favor of the latter of a parcel
of land identified as Lot No. 3174-B-1 of the subdivision plan
Psd-1144, then a portion of Lot No. 3174-B, for which
Transfer Certificate of Title No. T-3910-A was issued in the
name of the donee CPU with the following annotations
copied from the deed of donation —
1. The land described shall be utilized by
the CPU exclusively for the
establishment and use of a medical
college with all its buildings as part of
the curriculum;
2. The said college shall not sell,
transfer or convey to any third party nor
in any way encumber said land;
3. The said land shall be called "RAMON
LOPEZ CAMPUS", and the said college
shall be under obligation to erect a
cornerstone bearing that name. Any net
income from the land or any of its parks
shall be put in a fund to be known as the
"RAMON LOPEZ CAMPUS FUND" to be
used for improvements of said campus
and erection of a building thereon.1
On 31 May 1989, private respondents, who are the heirs of
Don Ramon Lopez, Sr., filed an action for annulment of
donation, reconveyance and damages against CPU alleging
that since 1939 up to the time the action was filed the latter
had not complied with the conditions of the donation. Private
respondents also argued that petitioner had in fact
negotiated with the National Housing Authority (NHA) to
exchange the donated property with another land owned by
the latter.
In its answer petitioner alleged that the right of private
respondents to file the action had prescribed; that it did not
violate any of the conditions in the deed of donation because
it never used the donated property for any other purpose
than that for which it was intended; and, that it did not sell,
transfer or convey it to any third party.
On 31 May 1991, the trial court held that petitioner failed to
comply with the conditions of the donation and declared it
null and void. The court a quo further directed petitioner to
execute a deed of the reconveyance of the property in favor
of the heirs of the donor, namely, private respondents
herein.
Petitioner appealed to the Court of Appeals which on 18 June
1993 ruled that the annotations at the back of petitioner's
certificate of title were resolutory conditions breach of which
should terminate the rights of the donee thus making the
donation revocable.
The appellate court also found that while the first condition
mandated petitioner to utilize the donated property for the
establishment of a medical school, the donor did not fix a
period within which the condition must be fulfilled, hence,
until a period was fixed for the fulfillment of the condition,
petitioner could not be considered as having failed to comply
with its part of the bargain. Thus, the appellate court
rendered its decision reversing the appealed decision and
remanding the case to the court of origin for the
determination of the time within which petitioner should
comply with the first condition annotated in the certificate of
title.
Petitioner now alleges that the Court of Appeals erred: (a) in
holding that the quoted annotations in the certificate of title
of petitioner are onerous obligations and resolutory
conditions of the donation which must be fulfilled non-
compliance of which would render the donation revocable;
(b) in holding that the issue of prescription does not deserve
"disquisition;" and, (c) in remanding the case to the trial
court for the fixing of the period within which petitioner
would establish a medical college.2
We find it difficult to sustain the petition. A clear perusal of
the conditions set forth in the deed of donation executed by
Don Ramon Lopez, Sr., gives us no alternative but to
conclude that his donation was onerous, one executed for a
valuable consideration which is considered the equivalent of
the donation itself, e.g., when a donation imposes a burden
equivalent to the value of the donation. A gift of land to the
City of Manila requiring the latter to erect schools, construct
a children's playground and open streets on the land was
considered an onerous donation. 3 Similarly, where Don
Ramon Lopez donated the subject parcel of land to petitioner
but imposed an obligation upon the latter to establish a
medical college thereon, the donation must be for an
onerous consideration.
Under Art. 1181 of the Civil Code, on conditional obligations,
the acquisition of rights, as well as the extinguishment or
loss of those already acquired, shall depend upon the
happening of the event which constitutes the condition.
Thus, when a person donates land to another on the
condition that the latter would build upon the land a school,
the condition imposed was not a condition precedent or a
suspensive condition but a resolutory one. 4 It is not correct
to say that the schoolhouse had to be constructed before the
donation became effective, that is, before the donee could
become the owner of the land, otherwise, it would be
invading the property rights of the donor. The donation had
to be valid before the fulfillment of the condition. 5 If there
was no fulfillment or compliance with the condition, such as
what obtains in the instant case, the donation may now be
revoked and all rights which the donee may have acquired
under it shall be deemed lost and extinguished.
The claim of petitioner that prescription bars the instant
action of private respondents is unavailing.
The condition imposed by the donor, i.e., the
building of a medical school upon the land
donated, depended upon the exclusive will of the
donee as to when this condition shall be fulfilled.
When petitioner accepted the donation, it bound
itself to comply with the condition thereof. Since
the time within which the condition should be
fulfilled depended upon the exclusive will of the
petitioner, it has been held that its absolute
acceptance and the acknowledgment of its
obligation provided in the deed of donation were
sufficient to prevent the statute of limitations from
barring the action of private respondents upon the
original contract which was the deed of donation. 6
Moreover, the time from which the cause of action accrued
for the revocation of the donation and recovery of the
property donated cannot be specifically determined in the
instant case. A cause of action arises when that which should
have been done is not done, or that which should not have
been done is done.7 In cases where there is no special
provision for such computation, recourse must be had to the
rule that the period must be counted from the day on which
the corresponding action could have been instituted. It is the
legal possibility of bringing the action which determines the
starting point for the computation of the period. In this case,
the starting point begins with the expiration of a reasonable
period and opportunity for petitioner to fulfill what has been
charged upon it by the donor.
The period of time for the establishment of a medical college
and the necessary buildings and improvements on the
property cannot be quantified in a specific number of years
because of the presence of several factors and
circumstances involved in the erection of an educational
institution, such as government laws and regulations
pertaining to education, building requirements and property
restrictions which are beyond the control of the donee.
Thus, when the obligation does not fix a period but from its
nature and circumstances it can be inferred that a period
was intended, the general rule provided in Art. 1197 of the
Civil Code applies, which provides that the courts may fix the
duration thereof because the fulfillment of the obligation
itself cannot be demanded until after the court has fixed the
period for compliance therewith and such period has
arrived.8
This general rule however cannot be applied considering the
different set of circumstances existing in the instant case.
More than a reasonable period of fifty (50) years has already
been allowed petitioner to avail of the opportunity to comply
with the condition even if it be burdensome, to make the
donation in its favor forever valid. But, unfortunately, it failed
to do so. Hence, there is no more need to fix the duration of
a term of the obligation when such procedure would be a
mere technicality and formality and would serve no purpose
than to delay or lead to an unnecessary and expensive
multiplication of suits. 9 Moreover, under Art. 1191 of the
Civil Code, when one of the obligors cannot comply with
what is incumbent upon him, the obligee may seek
rescission and the court shall decree the same unless there
is just cause authorizing the fixing of a period. In the
absence of any just cause for the court to determine the
period of the compliance, there is no more obstacle for the
court to decree the rescission claimed.
Finally, since the questioned deed of donation herein is
basically a gratuitous one, doubts referring to incidental
circumstances of a gratuitous contract should be resolved in
favor of the least transmission of rights and
interests. 10 Records are clear and facts are undisputed that
since the execution of the deed of donation up to the time of
filing of the instant action, petitioner has failed to comply
with its obligation as donee. Petitioner has slept on its
obligation for an unreasonable length of time. Hence, it is
only just and equitable now to declare the subject donation
already ineffective and, for all purposes, revoked so that
petitioner as donee should now return the donated property
to the heirs of the donor, private respondents herein, by
means of reconveyance.
WHEREFORE, the decision of the Regional Trial Court of
Iloilo, Br. 34, of 31 May 1991 is REINSTATED and AFFIRMED,
and the decision of the Court of Appeals of 18 June 1993 is
accordingly MODIFIED. Consequently, petitioner is directed
to reconvey to private respondents Lot No. 3174-B-1 of the
subdivision plan Psd-1144 covered by Transfer Certificate of
Title No. T-3910-A within thirty (30) days from the finality of
this judgment.
Costs against petitioner.
SO ORDERED.
Quiason and Kapunan, JJ., concur.
Separate Opinions
DAVIDE, JR., J., dissenting:
I agree with the view in the majority opinion that the
donation in question is onerous considering the conditions
imposed by the donor on the donee which created reciprocal
obligations upon both parties. Beyond that, I beg to disagree.
First of all, may I point out an inconsistency in the majority
opinion's description of the donation in question. In one part,
it says that the donation in question is onerous. Thus, on
page 4 it states:
We find it difficult to sustain the petition.
A clear perusal of the conditions set
forth in the deed of donation executed
by Don Ramon Lopez, Sr., give us no
alternative but to conclude that his
donation was onerous, one executed for
a valuable consideration which is
considered the equivalent of the
donation itself, e.g., when a donation
imposes a burden equivalent to the
value of the donation . . . . (emphasis
supplied)
Yet, in the last paragraph of page 8 it states that
the donation is basically a gratuitous one. The
pertinent portion thereof reads:
Finally, since the questioned deed of
donation herein is basically a
gratuitous one, doubts referring to
incidental circumstances of a gratuitous
contract should be resolved in favor of
the least transmission of rights and
interest . . . (emphasis supplied)
Second, the discussion on conditional obligations is
unnecessary. There is no conditional obligation to speak of in
this case. It seems that the "conditions" imposed by the
donor and as the word is used in the law of donations is
confused with "conditions" as used in the law of obligations.
In his annotation of Article 764 of the Civil Code on
Donations, Arturo M. Tolentino, citing the well-known civilists
such as Castan, Perez Gonzalez and Alguer, and Colin &
Capitant, states clearly the context within which the term
"conditions" is used in the law of donations, to wit:
The word "conditions" in this article does
not refer to uncertain events on which
the birth or extinguishment of a juridical
relation depends, but is used in the
vulgar sense of obligations or
charges imposed by the donor on the
donee. It is used, not in its technical or
strict legal sense, but in its broadest
sense.1 (emphasis supplied)
Clearly then, when the law and the deed of donation speaks
of "conditions" of a donation, what are referred to are
actually the obligations, charges or burdens imposed by the
donor upon the donee and which would characterize the
donation as onerous. In the present case, the donation is,
quite obviously, onerous, but it is more properly called a
"modal donation." A modal donation is one in which the
donor imposes a prestation upon the donee. The
establishment of the medical college as the condition of the
donation in the present case is one such prestation.
The conditions imposed by the donor Don Ramon Lopez
determines neither the existence nor the extinguishment of
the obligations of the donor and the donee with respect to
the donation. In fact, the conditions imposed by Don Ramon
Lopez upon the donee are the very obligations of the
donation — to build the medical college and use the property
for the purposes specified in the deed of donation. It is very
clear that those obligations are unconditional, the fulfillment,
performance, existence or extinguishment of which is not
dependent on any future or uncertain event or past and
unknown event, as the Civil Code would define a conditional
obligation.2
Reliance on the case of Parks vs. Province of Tarlac3 as cited
on page 5 of the majority opinion is erroneous in so far as
the latter stated that the condition in Parks is a resolutory
one and applied this to the present case. A more careful
reading of this Court's decision would reveal that nowhere
did we say, whether explicitly or impliedly, that the donation
in that case, which also has a condition imposed to build a
school and a public park upon the property donated, is a
resolutory condition.4 It is incorrect to say that the
"conditions" of the donation there or in the present case are
resolutory conditions because, applying Article 1181 of the
Civil Code, that would mean that upon fulfillment of the
conditions, the rights already acquired will be extinguished.
Obviously, that could not have been the intention of the
parties.
What the majority opinion probably had in mind was that the
conditions are resolutory because if they are not complied
with, the rights of the donee as such will be extinguished
and the donation will be revoked. To my mind, though, it is
more accurate to state that the conditions here are not
resolutory conditions but, for the reasons stated above,
are the obligations imposed by the donor.
Third, I cannot subscribe to the view that the provisions of
Article 1197 cannot be applied here. The
conditions/obligations imposed by the donor herein are
subject to a period. I draw this conclusion based on our
previous ruling which, although made almost 90 years ago,
still finds application in the present case. In Barretto vs. City
of Manila,5 we said that when the contract of donation, as
the one involved therein, has no fixed period in which the
condition should be fulfilled, the provisions of what is now
Article 1197 (then Article 1128) are applicable and it is the
duty of the court to fix a suitable time for its fulfillment.
Indeed, from the nature and circumstances of the
conditions/obligations of the present donation, it can be
inferred that a period was contemplated by the donor. Don
Ramon Lopez could not have intended his property to remain
idle for a long period of time when in fact, he specifically
burdened the donee with the obligation to set up a medical
college therein and thus put his property to good use. There
is a need to fix the duration of the time within which the
conditions imposed are to be fulfilled.
It is also important to fix the duration or period for the
performance of the conditions/obligations in the donation in
resolving the petitioner's claim that prescription has already
barred the present action. I disagree once more with the
ruling of the majority that the action of the petitioners is not
barred by the statute of limitations. There is misplaced
reliance again on a previous decision of this Court
in Osmeña vs. Rama.6 That case does not speak of a deed of
donation as erroneously quoted and cited by the majority
opinion. It speaks of a contract for a sum of money where donations in view of the specific
the debtor herself imposed a condition which will determine provision of Article 733 providing that
when she will fulfill her obligation to pay the creditor, thus, onerous donations are governed by the
making the fulfillment of her obligation dependent upon her rules on contracts.
will. What we have here, however, is not a contract for a sum
of money but a donation where the donee has not imposed
any conditions on the fulfillment of its obligations. Although In the light of the above, the rules on
it is admitted that the fulfillment of the conditions/obligations contracts and the general rules on
of the present donation may be dependent on the will of the prescription and not the rules on
donee as to when it will comply therewith, this did not arise donations are applicable in the case at
out of a condition which the donee itself imposed. It is bar.
believed that the donee was not meant to and does not have
absolute control over the time within which it will perform its
The law applied in both cases is Article 1144(1). It refers to
obligations. It must still do so within a reasonable time. What
the prescription of an action upon a written contract, which
that reasonable time is, under the circumstances, for the
is what the deed of an onerous donation is. The prescriptive
courts to determine. Thus, the mere fact that there is no
period is ten years from the time the cause of action
time fixed as to when the conditions of the donation are to
accrues, and that is, from the expiration of the time within
be fulfilled does not ipso facto mean that the statute of
which the donee must comply with the conditions/obligations
limitations will not apply anymore and the action to revoke
of the donation. As to when this exactly is remains to be
the donation becomes imprescriptible.
determined, and that is for the courts to do as reposed upon
them by Article 1197.
Admittedly, the donation now in question is an onerous
donation and is governed by the law on contracts (Article For the reasons expressed above, I register my dissent.
733) and the case of Osmeña, being one involving a
Accordingly, the decision of the Court of Appeals must be
contract, may apply. But we must not lose sight of the fact upheld, except its ruling that the conditions of the donation
that it is still a donation for which this Court itself applied the
are resolutory.
pertinent law to resolve situations such as this. That the
action to revoke the donation can still prescribe has been the
pronouncement of this Court as early as 1926 in the case Padilla, J., dissents
of Parks which, on this point, finds relevance in this case.
There, this Court said,
 
[that] this action [for the revocation of
the donation] is prescriptible, there is no Separate Opinions
doubt. There is no legal provision which
excludes this class of action from the
statute of limitations. And not only this, DAVIDE, JR., J., dissenting:
the law itself recognizes the
prescriptibility of the action for the
I agree with the view in the majority opinion that the
revocation of a donation, providing a donation in question is onerous considering the conditions
special period of [four] years for the
imposed by the donor on the donee which created reciprocal
revocation by the subsequent birth of obligations upon both parties. Beyond that, I beg to disagree.
children [Art. 646, now Art. 763],
and . . . by reason of ingratitude. If no
special period is provided for the First of all, may I point out an inconsistency in the majority
prescription of the action for revocation opinion's description of the donation in question. In one part,
for noncompliance of the conditions of it says that the donation in question is onerous. Thus, on
the donation [Art. 647, now Art. 764], it page 4 it states:
is because in this respect the donation is
considered onerous and is governed by
the law of contracts and the general We find it difficult to sustain the petition.
rules of prescription.7 A clear perusal of the conditions set
forth in the deed of donation executed
by Don Ramon Lopez, Sr., give us no
More recently, in De Luna v. Abrigo,8 this Court reiterated alternative but to conclude that his
the ruling in Parks and said that: donation was onerous, one executed for
a valuable consideration which is
considered the equivalent of the
It is true that under Article 764 of the donation itself, e.g., when a donation
New Civil Code, actions for the imposes a burden equivalent to the
revocation of a donation must be value of the donation . . . . (emphasis
brought within four (4) years from the supplied)
non-compliance of the conditions of the
donation. However, it is Our opinion that
said article does not apply to onerous
 Yet, in the last paragraph of page 8 it states that
the donation is basically a gratuitous one. The
pertinent portion thereof reads:
Finally, since the questioned deed of
donation herein is basically a
gratuitous one, doubts referring to
incidental circumstances of a gratuitous
contract should be resolved in favor of
the least transmission of rights and
interest . . . (emphasis supplied)
Second, the discussion on conditional obligations is
unnecessary. There is no conditional obligation to speak of in
this case. It seems that the "conditions" imposed by the
donor and as the word is used in the law of donations is
confused with "conditions" as used in the law of obligations.
In his annotation of Article 764 of the Civil Code on
Donations, Arturo M. Tolentino, citing the well-known civilists
such as Castan, Perez Gonzalez and Alguer, and Colin &
Capitant, states clearly the context within which the term
"conditions" is used in the law of donations, to wit:
The word "conditions" in this article does
not refer to uncertain events on which
the birth or extinguishment of a juridical
relation depends, but is used in the
vulgar sense of obligations or
charges imposed by the donor on the
donee. It is used, not in its technical or
strict legal sense, but in its broadest
sense.1 (emphasis supplied)
Clearly then, when the law and the deed of donation speaks
of "conditions" of a donation, what are referred to are
actually the obligations, charges or burdens imposed by the
donor upon the donee and which would characterize the
donation as onerous. In the present case, the donation is,
quite obviously, onerous, but it is more properly called a
"modal donation." A modal donation is one in which the
donor imposes a prestation upon the donee. The
establishment of the medical college as the condition of the
donation in the present case is one such prestation.
The conditions imposed by the donor Don Ramon Lopez
determines neither the existence nor the extinguishment of
the obligations of the donor and the donee with respect to
the donation. In fact, the conditions imposed by Don Ramon
Lopez upon the donee are the very obligations of the
donation — to build the medical college and use the property
for the purposes specified in the deed of donation. It is very
clear that those obligations are unconditional, the fulfillment,
performance, existence or extinguishment of which is not
dependent on any future or uncertain event or past and
unknown event, as the Civil Code would define a conditional
obligation.2
Reliance on the case of Parks vs. Province of Tarlac3 as cited
on page 5 of the majority opinion is erroneous in so far as
the latter stated that the condition in Parks is a resolutory
one and applied this to the present case. A more careful
reading of this Court's decision would reveal that nowhere
did we say, whether explicitly or impliedly, that the donation
in that case, which also has a condition imposed to build a
school and a public park upon the property donated, is a
resolutory condition.4 It is incorrect to say that the
"conditions" of the donation there or in the present case are
resolutory conditions because, applying Article 1181 of the
Civil Code, that would mean that upon fulfillment of the
conditions, the rights already acquired will be extinguished.
Obviously, that could not have been the intention of the
parties.
What the majority opinion probably had in mind was that the
conditions are resolutory because if they are not complied
with, the rights of the donee as such will be extinguished
and the donation will be revoked. To my mind, though, it is
more accurate to state that the conditions here are not
resolutory conditions but, for the reasons stated above,
are the obligations imposed by the donor.
Third, I cannot subscribe to the view that the provisions of
Article 1197 cannot be applied here. The
conditions/obligations imposed by the donor herein are
subject to a period. I draw this conclusion based on our
previous ruling which, although made almost 90 years ago,
still finds application in the present case. In Barretto vs. City
of Manila,5 we said that when the contract of donation, as
the one involved therein, has no fixed period in which the
condition should be fulfilled, the provisions of what is now
Article 1197 (then Article 1128) are applicable and it is the
duty of the court to fix a suitable time for its fulfillment.
Indeed, from the nature and circumstances of the
conditions/obligations of the present donation, it can be
inferred that a period was contemplated by the donor. Don
Ramon Lopez could not have intended his property to remain
idle for a long period of time when in fact, he specifically
burdened the donee with the obligation to set up a medical
college therein and thus put his property to good use. There
is a need to fix the duration of the time within which the
conditions imposed are to be fulfilled.
It is also important to fix the duration or period for the
performance of the conditions/obligations in the donation in
resolving the petitioner's claim that prescription has already
barred the present action. I disagree once more with the
ruling of the majority that the action of the petitioners is not
barred by the statute of limitations. There is misplaced
reliance again on a previous decision of this Court
in Osmeña vs. Rama.6 That case does not speak of a deed of
donation as erroneously quoted and cited by the majority
opinion. It speaks of a contract for a sum of money where
the debtor herself imposed a condition which will determine
when she will fulfill her obligation to pay the creditor, thus,
making the fulfillment of her obligation dependent upon her
will. What we have here, however, is not a contract for a sum
of money but a donation where the donee has not imposed
any conditions on the fulfillment of its obligations. Although
it is admitted that the fulfillment of the conditions/obligations
of the present donation may be dependent on the will of the
donee as to when it will comply therewith, this did not arise
out of a condition which the donee itself imposed. It is
believed that the donee was not meant to and does not have
absolute control over the time within which it will perform its
obligations. It must still do so within a reasonable time. What
that reasonable time is, under the circumstances, for the
courts to determine. Thus, the mere fact that there is no
time fixed as to when the conditions of the donation are to
be fulfilled does not ipso facto mean that the statute of
limitations will not apply anymore and the action to revoke
the donation becomes imprescriptible.
Admittedly, the donation now in question is an onerous
donation and is governed by the law on contracts (Article
733) and the case of Osmeña, being one involving a
contract, may apply. But we must not lose sight of the fact
that it is still a donation for which this Court itself applied the
pertinent law to resolve situations such as this. That the
action to revoke the donation can still prescribe has been the
pronouncement of this Court as early as 1926 in the case
of Parks which, on this point, finds relevance in this case.
There, this Court said,
[that] this action [for the revocation of
the donation] is prescriptible, there is no
doubt. There is no legal provision which
excludes this class of action from the
statute of limitations. And not only this,
the law itself recognizes the
prescriptibility of the action for the
revocation of a donation, providing a
special period of [four] years for the
revocation by the subsequent birth of
children [Art. 646, now Art. 763],
and . . . by reason of ingratitude. If no
special period is provided for the
prescription of the action for revocation
for noncompliance of the conditions of
the donation [Art. 647, now Art. 764], it
is because in this respect the donation is
considered onerous and is governed by
the law of contracts and the general
rules of prescription.7
More recently, in De Luna v. Abrigo,8 this Court reiterated
the ruling in Parks and said that:
It is true that under Article 764 of the
New Civil Code, actions for the
revocation of a donation must be
brought within four (4) years from the
non-compliance of the conditions of the
donation. However, it is Our opinion that
said article does not apply to onerous
donations in view of the specific
provision of Article 733 providing that
onerous donations are governed by the
rules on contracts.
In the light of the above, the rules on
contracts and the general rules on
prescription and not the rules on
donations are applicable in the case at
bar.
The law applied in both cases is Article 1144(1). It refers to
the prescription of an action upon a written contract, which
is what the deed of an onerous donation is. The prescriptive
period is ten years from the time the cause of action
accrues, and that is, from the expiration of the time within
which the donee must comply with the conditions/obligations
of the donation. As to when this exactly is remains to be
determined, and that is for the courts to do as reposed upon
them by Article 1197.
For the reasons expressed above, I register my dissent.
Accordingly, the decision of the Court of Appeals must be
upheld, except its ruling that the conditions of the donation
are resolutory.
Padilla, J., dissents
G.R. No. 169694, December 09, 2015
MEGAWORLD PROPERTIES AND HOLDINGS, INC.,
EMPIRE EAST LAND HOLDINGS, INC., AND ANDREW L.
TAN, Petitioners, v. MAJESTIC FINANCE AND
INVESTMENT CO., INC., RHODORA LOPEZ-LIM, AND
PAULINA CRUZ, Respondents.
DECISION
BERSAMIN, J.:
This case arises from a dispute on whether either party of a
joint venture agreement to develop property into a
residential subdivision has already performed its obligation
as to entitle it to demand the performance of the other's
reciprocal obligation.chanRoblesvirtualLawlibrary
The Case
Under review is the decision promulgated on April 27,
2005,1 whereby the Court of Appeals (CA) upheld the order
issued on November 5, 2002 by the Regional Trial Court,
Branch 67, in Pasig City (RTC) in Civil Case No. 67813
directing the defendants (petitioners herein) to perform their
obligation to provide round-the-clock security for the
property under development. 2 Also appealed is the
resolution promulgated on September 12, 2005 denying the
petitioners' motion for
reconsideration.3chanRoblesvirtualLawlibrary
Antecedents
On September 23, 1994, Megaworld Properties and Holdings,
Inc. (developer) entered into a Joint Venture Agreement
(JVA)4 with Majestic Finance and Investment Co., Inc. (owner)
for the development of the residential subdivision located in
Brgy. Alingaro, General Trias, Cavite. According to the JVA,
the development of the 215 hectares of land belonging to
the owner (joint venture property) would be for the sole
account of the developer; 5 and that upon completion of the
development of the subdivision, the owner would
compensate the developer in the form of saleable residential
subdivision lots.6 The JVA further provided that the developer
would advance all the costs for the relocation and
resettlement of the occupants of the joint venture property,
subject to reimbursement by the owner; 7 and that the
developer would deposit the initial amount of
P10,000,000.00 to defray the expenses for the relocation
and settlement, and the costs for obtaining from the
Government the exemptions and conversion permits, and
the required clearances.8chanroblesvirtuallawlibrary
On September 24, 1994, the developer and owner agreed,
through the addendum to the JVA,9 to increase the initial
deposit for the settlement of claims and the relocation of the
tenants from P10,000,000.00 to P60,000,000.00.
On October 27, 1994, the developer, by deed of
assignment,10 transferred, conveyed and assigned to Empire
East Land Holdings, Inc. (developer/assignee) all its rights
and obligations under the JVA including the addendum.
On February 29, 2000, the owner filed in the RTC a
complaint for specific performance with damages against the
developer, the developer/assignee, and respondent Andrew
Tan, who are now the petitioners herein. The complaint,
docketed as Civil Case No. 67813, was mainly based on the
failure of the petitioners to comply with their obligations
under the JVA,11 including the obligation to maintain a strong
security force to safeguard the entire joint venture property
of 215 hectares from illegal entrants and occupants.
Following the joinder of issues by the petitioners' answer
with counterclaim, and by the respondents' reply with
answer to the counterclaim, the RTC set the pre-trial of the
case. At the conclusion of the pre-trial conference, the
presentation of the owner's evidence was suspended
because of the parties' manifestation that they would settle
the case amicably. It appears that the parties negotiated
with each other on how to implement the JVA and the
addendum.
On September 16, 2002, the owner filed in the RTC a
manifestation and motion, 12 praying therein that the
petitioners be directed to provide round-the-clock security
for the joint venture property in order to defend and protect
it from the invasion of unauthorized persons. The petitioners
opposed the manifestation and motion,13 pointing out that:
(1) the move to have them provide security in the properties
was premature; and (2) under the principle of reciprocal
obligations, the owner could not compel them to perform
their obligations under the JVA if the owner itself refused to
honor its obligations under the JVA and the addendum.
On November 5, 2002, the RTC issued its first assailed
order,14 directing the developer to provide sufficient round-
the-clock security for the protection of the joint venture
property, as follows:
For consideration is a "Manifestation and Motion" filed by
plaintiff, through counsel, defendants having filed their
Opposition thereto, the incident is now ripe for resolution.
After a careful examination of the records of this case, the
Court believes that the defendants should provide security
for the 215 hectares land subject of the joint venture
agreement to protect it from unlawful elements as well as to
avoid undue damage which may be caused by the settling of
squatters. As specified in Article III par. (j) of the joint
venture agreement which was entered into by plaintiffs and
defendants, the latter shall at its exclusive account and sole
expense secure the land in question from the influx of
squatters and/or unauthorized settlers, occupants, tillers,
cultivators and the likes from date of execution of this
agreement.
WHEREFORE, and as prayed for, the Court hereby directs the
defendants to provide sufficient round the clock security for
the protection of the 215 hectares land subject of the joint
venture agreement during the pendency of this case.
SO ORDERED.
The petitioners sought the reconsideration of the November
5, 2002 order,15 but the RTC denied the motion on May 19,
2003,16 observing that there was no reason to reverse the
order in question considering that the allegations in the
motion for reconsideration, being a mere rehash of those
made earlier, had already been passed upon.
On August 4, 2003, the petitioners instituted a special civil
action for certiorari in the CA,17 claiming therein that the RTC
thereby gravely abused its discretion amounting to lack or
excess of jurisdiction in issuing the order of November 5,
2002, specifying the following grounds, namely:
THE PUBLIC RESPONDENT GRAVELY ABUSED HIS
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN DIRECTING PETITIONERS TO PROVIDE
ROUND THE CLOCK SECURITY GUARDS ON THE SUBJECT
PROPERTIES.
I. THE PUBLIC RESPONDENT ARBITRARILY AND
PREMATURELY DISPOSED OF ONE OF THE RELIEF[S] PRAYED
FOR BY PRIVATE RESPONDENTS IN THEIR COMPLAINT WHEN
TRIAL HAS NOT EVEN STARTED.
II. PUBLIC RESPONDENT ARBITRARILY DISREGARDED THE
FACT THAT THE PARTIES ARE DISCUSSING HOW TO PURSUE
THE JVA.
III. PUBLIC RESPONDENT ARBITRARILY DISREGARDED THE
PRINCIPLE OF "RECIPROCAL OBLIGATIONS" UNDER THE CIVIL
CODE.
On April 27, 2005, the CA promulgated its assailed decision
dismissing the petitioner's petition for certiorari,18 ruling
thusly:
On the merits of the petition, our examination of the records
shows nothing whimsical or arbitrary in the respondent
judge's order directing the petitioners to provide security
over the joint venture property. Like the respondent judge,
we believe that the obligation of the petitioners under the
JVA to provide security in the area, as spelled out under
Article II, par. (c) and Article III, paragraphs (h) and (j), is well
established, thus:
x x x x
These clear and categorical provisions in the JVA -which
petitioners themselves do not question -obviously belie their
contention that the respondent judge's order to provide
security for the property is premature at this stage. The
petitioner's obligation to secure the property under the JVA
arose upon the execution of the Agreement, or as soon as
the petitioners acquired possession of the joint venture
property in 1994, and is therefore already demandable. The
settled rule is that "contracts are the laws between the
contracting parties, and if their terms are clear and leave no
room for doubt as to their intentions, the contracts are
obligatory no matter what their forms may be, whenever the
essential requisites for their validity are present." Thus,
unless the existence of this particular obligation - i.e., to
secure the joint venture property - is challenged, petitioners
are bound to respect the terms of the Agreement and of his
obligation as the law between them and MAJESTIC.
We stress along this line that the complaint MAJESTIC filed
below is for specific performance and is not for rescission of
contract. The complaint presupposes existing obligations on
the part of the petitioners that MAJESTIC seeks to be carried
out in accordance with the terms of the Agreement.
Significantly, MAJESTIC did not pray in the complaint that
petitioners be ordered to secure the area from the influx of
illegal settlers and squatters because petitioner's obligation
in this regard commenced upon the execution of the JVA and
hence, is already an existing obligation. What it did ask is for
the petitioners to maintain a strong security force at all
times over the area, in keeping with their commitment to
secure the area from the influx of illegal settlers and
occupant. To be sure, to "maintain" means "to continue", "to
carry on", to "hold or keep in any particular state or
condition" and presupposes an obligation that already
began. Thus, contrary to petitioner's submissions, the
question of whether or not they have the obligation to
provide security in the area is not at all an issue in the case
below. The issue MAJESTIC presented below is whether or
not petitioner should be ordered to maintain a strong
security force within the joint venture property. Hence, in
issuing the assailed orders, the public respondent prejudged
no issue that is yet to be resolved after the parties shall have
presented their evidence.
Our conclusion (that the petitioner's obligation to secure and
protect the joint venture property is a non-issue in the case
below) necessarily explains why the first assailed order
-although not in the form of a preliminary mandatory
injunction -is nonetheless legally justified. As an established
and undisputed interim measure pending the resolution of
the case on the merits, we do not see its enforcement as
hindrance to whatever negotiations the parties may
undertake to settle their dispute.
Nor do we find the principle of reciprocal obligations a
justification for petitioner's refusal to perform their
commitment of safeguarding the joint venture property. For,
while it is true that the JVA gives rise to reciprocal
obligations from both parties, these obligations are not
necessarily demandable at the same time. MAJESTIC's initial
obligation under the JVA is to deliver or surrender to the
petitioners the possession of the joint venture property -an
obligation it fulfilled upon the execution of the Agreement.
MAJESTIC's obligation under the JVA to deliver to the
petitioners the titles to the joint venture property and to
reimburse them for tenant-related expenses are demandable
at later stages of the contract or upon completion of the
development, and therefore may not be used by the
petitioners as an excuse for not complying with their own
currently demandable obligation.
All told, we believe that securing and protecting the area
from unlawful elements benefits both the developer and the
landowner who are equally keen in safeguarding their
interests in the project. Otherwise stated, incursion by
unlawful settlers into an unsecured and unprotected joint
venture property can only cause great loss and damage to
both parties. Reasons of practicality within legal parameters,
rather than grave abuse of discretion, therefore underlie the
respondent judge's challenged orders.
WHEREFORE, premises considered, we hereby DISMISS the
petition for lack of merit.
SO ORDERED.19 (Emphasis omitted)
On May 26, 2005, the petitioners filed a motion for
reconsideration,20 but the CA denied the motion on
September 12, 2005.21chanroblesvirtuallawlibrary
Hence, this appeal by petition for review
on certiorari.chanRoblesvirtualLawlibrary
Issues
The petitioner submits the following issues:
a. Whether or not the petitioners are
obligated to perform their obligations
under the JVA, including that of
providing round-the-clock security for
the subject properties, despite
respondents' failure or refusal to
acknowledge, or perform their reciprocal
obligations there;
b. Whether or not the RTC gravely abused
its discretion in directing the petitioners
to perform their obligations under the
JVA, including that of providing round-
the-clock security for the subject
properties, although the JVA had been
suspended due to the parties'
disagreement as to how to implement
the same;
c. Whether or not the RTC gravely abused
its discretion in issuing the first and
second assailed orders and prematurely
resolving and disposing of one of the
causes of action of the respondents,
which was to provide round-the-clock
security for the subject properties, an
issue proposed by the respondents,
even before the termination of the pre-
trial;
d. Whether or not the RTC gravely abused
its discretion in issuing the first and
second assailed orders in clear disregard
of the mandatory requirements of Rule
58 of the Rules of
Court.22chanroblesvirtuallawlibrary
Ruling of the Court
The appeal is meritorious. The CA erred in upholding the
November 5, 2002 order of the RTC.
The obligations of the parties under the JVA were
unquestionably reciprocal. Reciprocal obligations are those
that arise from the same cause, and in which each party is a
debtor and a creditor of the other at the same time, such
that the obligations of one are dependent upon the
obligations of the other. They are to be performed
simultaneously, so that the performance by one is
conditioned upon the simultaneous fulfillment by the
other.23 As the Court has expounded in Consolidated
Industrial Gases, Inc. v. Alabang Medical
Center:24chanroblesvirtuallawlibrary
Reciprocal obligations are those which arise from the same
cause, and in which each party is a debtor and a creditor of
the other, such that the obligation of one is dependent upon
the obligation of the other. They are to be performed
simultaneously, so that the performance of one is
conditioned upon the simultaneous fulfillment of the other. In
reciprocal obligations, neither party incurs in delay if the
other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment
one of the parties fulfills his obligation, delay by the other
begins.
x x x x
In reciprocal obligations, before a party can demand the
performance of the obligation of the other, the former must
also perform its own obligation. For its failure to turn over a
complete project in accordance with the terms and
conditions of the installation contracts, CIGI cannot demand
for the payment of the contract price balance from AMC,
which, in turn, cannot legally be ordered to
pay.25chanrobleslaw
The determination of default on the part of either of the
parties depends on the terms of the JVA that clearly
categorized the parties' several obligations into two types.
The first type related to the continuous obligations that
would be continuously performed from the moment of the
execution of the JVA until the parties shall have achieved the
purpose of their joint venture. The continuous obligations
under the JVA were as follows: (1) the developer would
secure the joint venture property from unauthorized
occupants;26 (2) the owner would allow the developer to take
possession of the joint venture property; 27 (3) the owner
would deliver any and all documents necessary for the
accomplishment of each activity; 28 and (4) both the
developer and the owner would pay the real estate
taxes.29chanroblesvirtuallawlibrary
The second type referred to the activity obligations. The
following table shows the activity obligations of the parties
under the JVA, to wit:
SEQUENCE OF ACTIVITIES (Article XIV of the JVA)

ACTIVITY OWNER DEVELOPER OBLIGATION

OBLIGATION

Signing of JVA. Sign JVA Sign JVA

Art. II(b) Art. V par. 2
Deliver any and all documents required for the successful Pay real estate taxes
development of the Project Art. IIIa par. 2
Art. V par. 2 Deposit P10M
Pay real estate taxes
Art. II(g)
Warrant absolute ownership

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

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

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

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

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

 Give written conformity to the development plan
DEVELOPER to apply for and secure all necessary development Art. II(b)
permit, performance bonds, environmental compliance Deliver any and all documents required for the successful
certificate, license to sell and all other related requirement from development of the Project
the pertinent Municipal Government, DENR, HLURB and other Art. V par. 2
governmental agencies concerned within a period of 2 years Pay real estate taxes
from date of execution of this Agreement.
DEVELOPER Art. II(b)
construction stage/ground breaking to commence after release Deliver any and all documents required for the successful
of DAR exemption permit or conversion clearance and approval development of the Project
of other required permits by pertinent agencies of the Art. V par. 2
government. Pay real estate taxes
DEVELOPER to secure approval of subdivision plan and technical Art. II(b)
description from the Bureau of Lands based on the approved Deliver any and all documents required for the successful
scheme and thereafter to petition, follow-up and secure the development of the Project
release of individual titles for all lots in the project in the Art. V par. 2
respective names of the parties form the register of deeds. Pay real estate taxes
Art. II(a)
Deliver titles to DEVELOPER
Art. II(a)
Execute Deed of Assignment
Art. III(a)
Pay all expenses for settlement of claims, relocation,
application for exemption, conversion, re-classification.
Market and Sell the property Fix selling date
Owner to reimburse and pay the DEVELOPER
expenses to be incurred for the process. Should the owner
fail to allocate the site for the resettlement, the obligation of
The activities under the JVA fell into seven major categories, the developer to relocate would not be demandable.
specifically: (l)the relocation of the occupants; (2) the Conversely, should the developer fail to negotiate with the
completion of the development plan; (3) the securing of occupants, the owner's obligation to allocate the
exemption and conversion permits; (4) the obtention of the resettlement site would not become due.
development permits from government agencies; (5) the
development of the subject land; (6) the issuance of titles for As to the second activity (i.e., the completion of the
the subdivided lots; and (7) the selling of the subdivided lots development plan), the developer had the obligation to lay
and the reimbursement of the advances. out the plan, but the owner needed to conform to the plan
before the same was finalized. Accordingly, the final
For the first activity (i.e., the relocation of the occupants), development plan would not be generated should the owner
the developer was obliged to negotiate with the occupants, fail to approve the lay-out plan; nor would the owner be able
to advance payment for disturbance compensation, and to to approve if no such plan had been initially laid out by the
relocate the occupants to an area within the subject land, developer.
while the owner was obliged to agree to and to allocate the
resettlement site within the property, and to approve the In each activity, the obligation of each party was dependent
Complete comprehensive development plan (within 6 months to
one year from the execution of the JVA)
Art. V par. 2
Pay real estate taxes
Art. II(c)
Take possession of the parcels of land
Art. III (j)
Secure property from invasion of squatters and other elements
Art. III(f)
Secure development permit, ECC, License to Sell, etc.
Art. V par. 2
Pay real estate taxes
Art. II(c)
Take possession of the parcels of land
Art. III (j)
Secure property from invasion of squatters and other elements
Art. III(e)
Mobilize development work and solely pay its expenses
Art. III(f)
Develop the property and solely pay its expenses on necessary
permits
Art. V par. 2
Pay real estate taxes
Art. II(c)
Take possession of the parcels of land
Art. III (j)
Secure property from invasion of squatters and other elements
Art. III(k)
Process titling of lots
Fix selling date
upon the obligation of the other. Although their obligations
were to be performed simultaneously, the performance of an
activity obligation was still conditioned upon the fulfillment
of the continuous obligation, and vice versa. Should either
party cease to perform a continuous obligation, the other's
subsequent activity obligation would not accrue. Conversely,
if an activity obligation was not performed by either party,
the continuous obligation of the other would cease to take
effect. The performance of the continuous obligation was
subject to the resolutory condition that
the precedent obligation of the other party, whether
continuous or activity, was fulfilled as it became due.
Otherwise, the continuous obligation would be extinguished.
According to Article 1184 of the Civil Code, the condition that
some event happen at a determinate time shall extinguish
the obligation as soon as the time expires, or if it has
become indubitable that the event will not take place. Here,
the common cause of the parties in entering into the joint
venture was the development of the joint venture property
into the residential subdivision as to eventually profit
therefrom. Consequently, all of the obligations under the JVA
were subject to the happening of the complete development
of the joint venture property, or if it would become
indubitable that the completion would not take place, like
when an obligation, whether continuous or activity, was not
performed. Should any of the obligations, whether
continuous or activity, be not performed, all the
other remaining obligations would not ripen into demandable
obligations while those already performed would cease to
take effect. This is because every single obligation of each
party under the JVA rested on the common cause of profiting
from the developed subdivision.
It appears that upon the execution of the JVA, the parties
were performing their respective obligations until
disagreement arose between them that affected the
subsequent performance of their accrued obligations. Being
reciprocal in nature, their respective obligations as the
owner and the developer were dependent upon the
performance by the other of its obligations; hence, any claim
of delay or non-performance against the other could prosper
only if the complaining party had faithfully complied with its
own correlative obligation. 30chanroblesvirtuallawlibrary
A respected commentator has cogently observed in this
connection:31chanroblesvirtuallawlibrary
§ 135. Same; consequences of simultaneous
performance. As a consequence of the rule of simultaneous
performance, if the party who has not performed his
obligation demands performance from the other, the latter
may interpose the defense of unfulfilled contract (exceptio
non adimpleli contraclus) by virtue of which he cannot be
obliged to perform while the other's obligation remains
unfulfilled. Hence, the Spanish Supreme Court has ruled that
the non-performance of one party is justified if based on the
non-performance of the other; that the party who has failed
to perform cannot demand performance from the other; and
that judicial approval is not necessary to release a party
from his obligation, the non-performance of the other being
a sufficient defense against any demand for performance by
the guilty party.
Another consequence of simultaneous performance is the
rule of compensatio morae, that is to say that neither party
incurs in delay if the other does not or is not ready to comply
in a proper manner with what is incumbent upon him. From
the moment one of the parties fulfills his obligations, delay
by the other begins.
Yet, the record is bereft of the proof to support the lower
courts' unanimous conclusion that the owner had already
performed its correlative obligation under the JVA as to place
itself in the position to demand that the developer should
already perform its obligation of providing the round-the-
clock security on the property. In issuing its order of
November 5, 2002, therefore, the RTC acted whimsically
because it did not first ascertain whether or not the
precedent reciprocal obligation of the owner upon which the
demanded obligation of the developer was dependent had
already been performed. Without such showing that the
developer had ceased to perform a continuous obligation to
provide security over the joint venture property despite
complete fulfillment by the owner of all its accrued
obligations, the owner had no right to demand from the
developer the round-the-clock security over the 215 hectares
of land.
The CA further gravely erred in characterizing the order for
the petitioners to implement the round-the-clock security
provision of the JVA and the addendum as an established
and undisputed interim measure that could be issued
pending the resolution of the case on the merits.
Apart from the provisional remedies expressly recognized
and made available under Rule 56 to Rule 61 of the Rules of
Court, the Court has sanctioned only the issuance of
the status quo ante order but only to maintain the last,
actual, peaceable and uncontested state of things that
preceded the controversy. 32 The eminent Justice Florenz D.
Regalado,33 an authority on remedial law, has delineated the
nature of the status quo ante order, and distinguished it
from the provisional remedy of temporary restraining order,
as follows:
There have been instances when the Supreme Court has
issued a status quo order which, as the very term connotes,
is merely intended to maintain the last, actual, peaceable
and uncontested state of things which preceded the
controversy. This was resorted to when the projected
proceedings in the case made the conservation of the status
quo desirable or essential, but the affected party neither
sought such relief or the allegations in his pleading did not
sufficiently make out a case for a temporary restraining
order. The status quo order was thus issued motu proprio on
equitable considerations. Also, unlike a temporary
restraining order or a preliminary injunction, a status
quo order is more in the nature of a cease and desist order,
since it neither directs the doing or undoing of acts as in the
case of prohibitory or mandatory injunctive relief. The further
distinction is provided by the present amendment in the
sense that, unlike the amended rule on restraining orders,
a status quo order does not require the posting of a bond.
The order of November 5, 2002, by directing the developer
to provide sufficient round-the-clock security for the
protection of the joint venture property during the pendency
of the case, was not of the nature of the status quo
ante order because the developer, as averred in the
complaint, had not yet provided a single security watchman
to secure the entire 215 hectares of land for several
years.34 Also, the owner stated in the comment to the
petition that the developer had dismissed all the security
guards posted in the property since 1997. 35 At the time of
the filing of the complaint for specific performance on
February 29, 2000, therefore, the last actual, peaceable and
uncontested state of things preceding the controversy was
the absence of such security, not the installation of the
security personnel/measures. In fact, the failure of the
developer to provide the round-the-clock security itself
became the controversy that impelled the owner to bring the
action against the petitioners.
By preliminarily directing the developer to provide sufficient
round-the-clock security for the protection of the joint
venture property during the pendency of the case, the
November 5, 2002 order of the RTC did not come under the
category of the status quo ante order that would issue upon
equitable consideration, or even of an injunctive relief that
would issue under Rule 58 of the Rules of Court. Hence, the
issuance of the order constituted a blatant jurisdictional
error that needed to be excised. Verily, a jurisdictional error
is one by which the act complained of was issued by the
court without or in excess of jurisdiction. 36Without
jurisdiction means that the court acted with absolute want of
jurisdiction. Excess of jurisdiction means that the court has
jurisdiction but has transcended the same or acted without
any statutory authority. 37chanroblesvirtuallawlibrary
Although the RTC undoubtedly had jurisdiction to hear and
decide the principal action for specific performance as well
as to act on the motions submitted to it in the course of the
proceedings, the distinction between jurisdiction over the
case and jurisdiction to issue an interlocutory order as an
ancillary remedy incident to the principal action should be
discerned. We have frequently declared that a court may
have jurisdiction over the principal action but may
nevertheless act irregularly or in excess of its jurisdiction in
the course of its proceedings by the granting of an auxiliary
remedy.38 In Leung Ben v. O'Brien,39 for instance, this Court
has thus clarified:
It may be observed in this connection that the word
"jurisdiction" as used in attachment cases, has reference not
only to the authority of the court to entertain the principal
action but also to its authority to issue the attachment, as
dependent upon the existence of the statutory ground. (6 C.
J., 89.) This distinction between jurisdiction to issue the
attachment as an ancillary remedy incident to the principal
litigation is of importance; as a court's jurisdiction over the
main action may be complete, and yet it may lack authority
to grant an attachment as ancillary to such action. This
distinction between jurisdiction over the ancillary has been
recognized by this court in connection with actions involving
the appointment of a receiver. Thus in Rocha & Co. vs.
Crossfield and Figueras (6 Phil. Rep., 355), a receiver had
been appointed without legal justification. It was held that
the order making the appointment was beyond the
jurisdiction of the court; and though the court admittedly had
jurisdiction of the main cause, the order was vacated by this
court upon application a writ of certiorari. (See Blanco vs.
Ambler, 3 Phil. Rep., 358, Blanco vs. Ambler and McMicking 3
Phil. Rep., 735, Yangco vs. Rohde, 1 Phil. Rep., 404.)
By parity of reasoning it must follow that when a court issues
a writ of attachment for which there is no statutory
authority, it is acting irregularly and in excess of its
jurisdiction, in the sense necessary to justify the Supreme
Court in granting relief by the writ of certiorari.
WHEREFORE, the Court GRANTS the petition for review
on certiorari; REVERSES and SETS ASIDE the decision
promulgated on April 27, 2005 and the resolution
promulgated on September 12, 2005; NULLIFIES the orders
issued on November 5, 2002 and May 19, 2003 in Civil Case
No. 67813 by the Regional Trial Court, Branch 67, in Pasig
City; DIRECTS the Regional Trial Court, Branch 67, in Pasig
City to resume the proceedings in Civil Case No. 67813 with
dispatch; and ORDERS the respondents to pay the costs of
suit.

SO ORDERED.
G.R. No. 96053 March 3, 1993
JOSEFINA TAYAG, RICARDO GALICIA, TERESITA
GALICIA, EVELYN GALICIA, JUAN GALICIA, JR. and
RODRIGO GALICIA, petitioners,
vs.
COURT OF APPEALS and ALBRIGIDO
LEYVA, respondents.
Facundo T. Bautista for petitioners.
Jesus T. Garcia for private respondent.
MELO, J.:
The deed of conveyance executed on May 28, 1975 by Juan
Galicia, Sr., prior to his demise in 1979, and Celerina
Labuguin, in favor of Albrigido Leyva involving the undivided
one-half portion of a piece of land situated at Poblacion,
Guimba, Nueva Ecija for the sum of P50,000.00 under the
following terms:
1. The sum of PESOS: THREE THOUSAND
(P3,000.00) is HEREBY acknowledged to
have been paid upon the execution of
this agreement;
2. The sum of PESOS: TEN THOUSAND
(P10,000.00) shall be paid within ten
(10) days from and after the execution
of this agreement;
3. The sum of PESOS: TEN THOUSAND
(P10,000.00) represents the VENDORS'
indebtedness with the Philippine
Veterans Bank which is hereby assumed
by the VENDEE; and
4. The balance of PESOS: TWENTY
SEVEN THOUSAND (P27,000.00.) shall
be paid within one (1) year from and
after the execution of this instrument.
(p. 53, Rollo)
is the subject matter of the present litigation between the
heirs of Juan Galicia, Sr. who assert breach of the conditions
as against private respondent's claim anchored on full
payment and compliance with the stipulations thereof.
The court of origin which tried the suit for specific
performance filed by private respondent on account of the
herein petitioners' reluctance to abide by the covenant, ruled
in favor of the vendee (p. 64, Rollo) while respondent court
practically agreed with the trial court except as to the
amount to be paid to petitioners and the refund to private
respondent are concerned (p. 46, Rollo).
There is no dispute that the sum of P3,000.00 listed as first
installment was received by Juan Galicia, Sr. According to
petitioners, of the P10,000.00 to be paid within ten days
from execution of the instrument, only P9,707.00 was
tendered to, and received by, them on numerous occasions
from May 29, 1975, up to November 3, 1979. Concerning
private respondent's assumption of the vendors' obligation
to the Philippine Veterans Bank, the vendee paid only the
sum of P6,926.41 while the difference the indebtedness
came from Celerina Labuguin (p. 73, Rollo). Moreover,
petitioners asserted that not a single centavo of the
P27,000.00 representing the remaining balance was paid to
them. Because of the apprehension that the heirs of Juan
Galicia, Sr. are disavowing the contract inked by their
predecessor, private respondent filed the complaint for
specific performance.
In addressing the issue of whether the conditions of the
instrument were performed by herein private respondent as
vendee, the Honorable Godofredo Rilloraza, Presiding Judge
of Branch 31 of the Regional Trial Court, Third Judicial Region
stationed at Guimba, Nueva Ecija, decided to uphold private
respondent's theory on the basis of constructive fulfillment
under Article 1186 and estoppel through acceptance of
piecemeal payments in line with Article 1235 of the Civil
Code.
Anent the P10,000.00 specified as second installment, the
lower court counted against the vendors the candid
statement of Josefina Tayag who sat on the witness stand
and made the admission that the check issued as payment
thereof was nonetheless paid on a staggered basis when the
check was dishonored (TSN, September 1, 1983, pp. 3-4; p.
3, Decision; p. 66, Rollo). Regarding the third condition, the
trial court noted that plaintiff below paid more than
P6,000.00 to the Philippine Veterans Bank but Celerina
Labuguin, the sister and co-vendor of Juan Galicia, Sr. paid
P3,778.77 which circumstance was construed to be a ploy
under Article 1186 of the Civil Code that "prematurely
prevented plaintiff from paying the installment fully" and "for
the purpose of withdrawing the title to the lot". The
acceptance by petitioners of the various payments even
beyond the periods agreed upon, was perceived by the lower
court as tantamount to faithful performance of the obligation
pursuant to Article 1235 of the Civil Code. Furthermore, the
trial court noted that private respondent consigned
P18,520.00, an amount sufficient to offset the remaining
balance, leaving the sum of P1,315.00 to be credited to
private respondent.
On September 12, 1984, judgment was rendered:
1. Ordering the defendants — heirs of
Juan Galicia, to execute the Deed of Sale
of their undivided ONE HALF (1/2)
portion of Lot No. 1130, Guimba
Cadastre, covered by TCT No. NT-
120563, in favor of plaintiff Albrigido
Leyva, with an equal frontage facing the
national road upon finality of judgment;
that, in their default, the Clerk of Court
II, is hereby ordered to execute the deed
of conveyance in line with the provisions
of Section 10, Rule 39 of the Rules of
Court;
2. Ordering the defendants, heirs of Juan
Galicia, jointly and severally to pay
attorney's fees of P6,000.00 and the
further sum of P3,000.00 for actual and
compensatory damages;
3. Ordering Celerina Labuguin and the
other defendants herein to surrender to
the Court the owner's duplicate of TCT
No. NT-120563, province of Nueva Ecija,
for the use of plaintiff in registering the
portion, subject matter of the instant
suit;
4. Ordering the withdrawal of the
amount of P18,520.00 now consigned
with the Court, and the amount of
P17,204.75 be delivered to the heirs of
Juan Galicia as payment of the balance
of the sale of the lot in question, the
defendants herein after deducting the
amount of attorney's fees and damages
awarded to the plaintiff hereof and the
delivery to the plaintiff of the further
sum of P1,315.25 excess or over
payment and, defendants to pay the
cost of the suit. (p. 69, Rollo)
and following the appeal interposed with respondent court,
Justice Dayrit with whom Justices Purisima and Aldecoa, Jr.
concurred, modified the fourth paragraph of the decretal
portion to read:
4. Ordering the withdrawal of the
amount of P18,500.00 now consigned
with the Court, and that the amount of
P16,870.52 be delivered to the heirs of
Juan Galicia, Sr. as payment to the
unpaid balance of the sale, including the
reimbursement of the amount paid to
Philippine Veterans Bank, minus the
amount of attorney's fees and damages
awarded in favor of plaintiff. The excess
of P1,649.48 will be returned to plaintiff.
The costs against defendants. (p.
51, Rollo)
As to how the foregoing directive was arrived at, the
appellate court declared:
 With respect to the fourth condition
stipulated in the contract, the period
indicated therein is deemed modified by
the parties when the heirs of Juan
Galicia, Sr. accepted payments without
objection up to November 3, 1979. On
the basis of receipts presented by
appellee commencing from August 8,
1975 up to November 3, 1979, a total
amount of P13,908.25 has been paid,
thereby leaving a balance of
P13,091.75. Said unpaid balance plus
the amount reimbursable to appellant in
the amount of P3,778.77 will leave an
unpaid total of P16,870.52. Since
appellee consigned in court the sum of
P18,500.00, he is entitled to get the
excess of P1,629.48. Thus, when the
heirs of Juan Galicia, Sr. (obligees)
accepted the performance, knowing its
incompleteness or irregularity and
without expressing any protest or
objection, the obligation is deemed fully
complied with (Article 1235, Civil Code).
(p. 50, Rollo)
Petitioners are of the impression that the decision appealed
from, which agreed with the conclusions of the trial court, is
vulnerable to attack via the recourse before Us on the
principal supposition that the full consideration of the
agreement to sell was not paid by private respondent and,
therefore, the contract must be rescinded.
The suggestion of petitioners that the covenant must be
cancelled in the light of private respondent's so-called
breach seems to overlook petitioners' demeanor who,
instead of immediately filing the case precisely to rescind
the instrument because of non-compliance, allowed private
respondent to effect numerous payments posterior to the
grace periods provided in the contract. This apathy of
petitioners who even permitted private respondent to take
the initiative in filing the suit for specific performance
against them, is akin to waiver or abandonment of the right
to rescind normally conferred by Article 1191 of the Civil
Code. As aptly observed by Justice Gutierrez, Jr. in Angeles
vs. Calasanz (135 SCRA 323 [1985]; 4 Paras, Civil Code of
the Philippines Annotated, Twelfth Ed. [1989], p. 203:
. . . We agree with the plaintiffs-
appellees that when the defendants-
appellants, instead of availing of their
alleged right to rescind, have accepted
and received delayed payments of
installments, though the plaintiffs-
appellees have been in arrears beyond
the grace period mentioned in
paragraph 6 of the contract, the
defendants-appellants have waived, and
are now estopped from exercising their
alleged right of rescission . . .
In Development Bank of the Philippines vs. Sarandi (5 CAR
(25) 811; 817-818; cited in 4 Padilla, Civil Code Annotated,
Seventh Ed. [1987], pp. 212-213) a similar opinion was
expressed to the effect that:
In a perfected contract of sale of land
under an agreed schedule of payments,
while the parties may mutually oblige
each other to compel the specific
performance of the monthly
amortization plan, and upon failure of
the buyer to make the payment, the
seller has the right to ask for a
rescission of the contract under Art.
1191 of the Civil Code, this shall be
deemed waived by acceptance of
posterior payments.
Both the trial and appellate courts were, therefore, correct in
sustaining the claim of private respondent anchored on
estoppel or waiver by acceptance of delayed payments
under Article 1235 of the Civil Code in that:
When the obligee accepts the
performance, knowing its
incompleteness or irregularity, and
without expressing any protest or
objection, the obligation is deemed fully
complied with.
considering that the heirs of Juan Galicia, Sr. accommodated
private respondent by accepting the latter's delayed
payments not only beyond the grace periods but also during
the pendency of the case for specific performance (p. 27,
Memorandum for petitioners; p. 166, Rollo). Indeed, the right
to rescind is not absolute and will not be granted where
there has been substantial compliance by partial payments
(4 Caguioa, Comments and Cases on Civil Law, First Ed.
[1968] p. 132). By and large, petitioners' actuation is
susceptible of but one construction — that they are now
estopped from reneging from their commitment on account
of acceptance of benefits arising from overdue accounts of
private respondent.
Now, as to the issue of whether payments had in fact been
made, there is no doubt that the second installment was
actually paid to the heirs of Juan Galicia, Sr. due to Josefina
Tayag's admission in judicio that the sum of P10,000.00 was
fully liquidated. It is thus erroneous for petitioners to
suppose that "the evidence in the records do not support
this conclusion" (p. 18, Memorandum for Petitioners; p.
157, Rollo). A contrario, when the court of origin, as well as
the appellate court, emphasized the frank representation
along this line of Josefina Tayag before the trial court (TSN,
September l, 1983, pp. 3-4; p. 5, Decision in CA-G.R. CV No.
13339, p. 50, Rollo; p. 3, Decision in Civil Case No. 681-G, p.
66, Rollo), petitioners chose to remain completely mute even
at this stage despite the opportunity accorded to them, for
clarification. Consequently, the prejudicial aftermath of
Josefina Tayag's spontaneous reaction may no longer be
obliterated on the basis of estoppel (Article 1431, Civil
Code; Section 4, Rule 129; Section 2(a), Rule 131, Revised
Rules on Evidence).
Insofar as the third item of the contract is concerned, it may
be recalled that respondent court applied Article 1186 of the
Civil Code on constructive fulfillment which petitioners claim
should not have been appreciated because they are the
obligees while the proviso in point speaks of the obligor. But,
petitioners must concede that in a reciprocal obligation like a
contract of purchase, (Ang vs. Court of Appeals, 170 SCRA
286 [1989]; 4 Paras, supra, at p. 201), both parties are
mutually obligors and also obligees (4 Padilla, supra, at p.
197), and any of the contracting parties may, upon non-
fulfillment by the other privy of his part of the prestation,
rescind the contract or seek fulfillment (Article 1191, Civil
Code). In short, it is puerile for petitioners to say that they
are the only obligees under the contract since they are also
bound as obligors to respect the stipulation in permitting
private respondent to assume the loan with the Philippine
Veterans Bank which petitioners impeded when they paid
the balance of said loan. As vendors, they are supposed to
execute the final deed of sale upon full payment of the
balance as determined hereafter.
Lastly, petitioners argue that there was no valid tender of
payment nor consignation of the sum of P18,520.00 which
they acknowledge to have been deposited in court on
January 22, 1981 five years after the amount of P27,000.00
had to be paid (p. 23, Memorandum for Petitioners; p.
162, Rollo). Again this suggestion ignores the fact that
consignation alone produced the effect of payment in the
case at bar because it was established below that two or
more heirs of Juan Galicia, Sr. claimed the same right to
collect (Article 1256, (4), Civil Code; pp. 4-5, Decision in Civil
Case No. 681-G; pp. 67-68, Rollo). Moreover, petitioners did
not bother to refute the evidence on hand that, aside from
the P18,520.00 (not P18,500.00 as computed by respondent
court) which was consigned, private respondent also paid
the sum of P13,908.25 (Exhibits "F" to "CC"; p. 50, Rollo).
These two figures representing private respondent's
payment of the fourth condition amount to P32,428.25, less
the P3,778.77 paid by petitioners to the bank, will lead us to
the sum of P28,649.48 or a refund of P1,649.48 to private
respondent as overpayment of the P27,000.00 balance.
WHEREFORE, the petition is hereby DISMISSED and the
decision appealed from is hereby AFFIRMED with the slight
modification of Paragraph 4 of the dispositive thereof which
is thus amended to read:
4. ordering the withdrawal of the sum of
P18,520.00 consigned with the Regional
Trial Court, and that the amount of
P16,870.52 be delivered by private
respondent with legal rate of interest
until fully paid to the heirs of Juan
Galicia, Sr. as balance of the sale
including reimbursement of the sum
paid to the Philippine Veterans Bank,
minus the attorney's fees and damages
awarded in favor of private respondent.
The excess of P1,649.48 shall be
returned to private respondent also with
legal interest until fully paid by
petitioners. With costs against
petitioners.
SO ORDERED.
G.R. No. 193068, February 01, 2017
DEVELOPMENT BANK OF THE
PHILIPPINES, Petitioner, v. STA. INES MELALE FOREST
PRODUCTS CORPORATION, RODOLFO CUENCA,
MANUEL TINIO, CUENCA INVESTMENT CORPORATION
AND UNIVERSAL HOLDINGS
CORPORATION, Respondents.
G.R. No. 193099, February 1, 2017
NATIONAL DEVELOPMENT
CORPORATION, Petitioner, v. STA. INES MELALE FOREST
PRODUCTS CORPORATION, RODOLFO M. CUENCA,
MANUEL I. TINIO, CUENCA INVESTMENT CORPORATION
AND UNIVERSAL HOLDINGS
CORPORATION, Respondents.
DECISION
LEONEN, J.:
A condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfilment and a debtor loses the
right to make use of the period when a condition is violated,
making the obligation immediately demandable. 1
This resolves the consolidated Petitions for Review filed by
the Development Bank of the Philippines (DBP)2 and the
National Development Corporation (NEDC) 3 assailing the
Court of Appeals Decision 4 dated March 24, 2010 and Court
of Appeals Resolution 5 dated July 21, 2010, which affirmed
with modifications the Decision 6 dated September 16, 2003
of Branch 137, Regional Trial Court of Makati City. 7
Sometime in 1977, National Galleon Shipping Corporation
(Galleon), "formerly known as Galleon Shipping Corporation,
was organized to operate a liner service between the
Philippines and its ... trading partners." 8 Galleon's major
stockholders were respondents Sta. Ines Melale Forest
Products Corporation (Sta. Ines), Cuenca Investment
Corporation (Cuenca Investment), Universal Holdings
Corporation (Universal Holdings), Galleon's President Rodolfo
M. Cuenca (Cuenca), Manuel I. Tinio (Tinio), and the
Philippine National Construction Corporation (PNCC). 9
Galleon experienced financial difficulties and had to take out
several loans from different sources such as foreign financial
institutions, its shareholders (Sta. Ines, Cuenca Investment,
Universal Holdings, Cuenca, and Tinio), and other entities
"with whom it had ongoing commercial relationships." 10
DBP guaranteed Galleon's foreign loans. 11 In return, Galleon
and its stockholders Sta. Ines, Cuenca Investment, Universal
Holdings, Cuenca, and Tinio, executed a Deed of
Undertaking12 on October 10, 1979 and obligated themselves
to guarantee DBP's potential liabilities.13
To secure DBP's guarantee, Galleon undertook to secure a
first mortgage on its five new vessels and two second-hand
vessels.14 However, despite the loans extended to it,
"[Galleon's] financial condition did not improve."15
Cuenca, as Galleon's president, wrote to the members of the
Cabinet Standing Committee "for the consideration of a
policy decision to support a liner service." 16 Cuenca also
wrote then President Ferdinand Marcos and asked for
assistance. 17
On July 21, 1981, President Marcos issued Letter of
Instructions No. 115518 addressed to the NDC, DBP, and the
Maritime Industry Authority. Letter of Instructions No. 1155
reads:
TO : Development Bank of the
Philippines
National Development Company
Maritime Industry Authority
 
DIRECTING A REHABILITATION
PLAN FOR
GALLEON SHIPPING
CORPORATION
WHEREAS, Galleon Shipping Corporation is presently in a
distressed state in view of the unfavorable developments in
the liner shipping business;
WHEREAS, the exposure of the Philippine government
financial institutions is substantial;
WHEREAS, it is a policy of government to provide a reliable
liner service between the Philippines and its major trading
partners;
WHEREAS, it is a policy to have a Philippine national flag
liner service to compete with other heavily subsidized
national shipping companies of other countries;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of
the Philippines, do hereby direct the following:
1. NDC shall acquire 100% of the
shareholdings of Galleon Shipping
Corporation from its present owners for
the amount of P46.7 million which is the
amount originally contributed by the
present shareholders, payable after five
years with no interest cost.
2. NDC to immediately infuse P30 million
into Galleon Shipping Corporation in lieu
of its previously approved subscription
to Philippine National Lines. In addition,
NDC is to provide additional equity to
Galleon as may be required.
3. DBP to advance for a period of three
years from date hereof both the
principal and the interest on Galleon's
obligations falling due and to convert
such advances into 12% preferred
shares in Galleon Shipping Corporation.
4. DBP and NDC to negotiate a
restructuring of loans extended by
foreign creditors of Galleon.
5. MARINA to provide assistance to Galleon
by mandating a rational liner shipping
schedule considering existing freight
volume and to immediately negotiate a
bilateral agreement with the United
States in accordance with UNCTAD
resolutions.
These instructions are to take effect immediately. 19
On August 10, 1981,20 pursuant to Letter of Instructions No.
1155, Galleon's stockholders, represented by Cuenca, and
NDC, through its then Chairman of the Board of Directors,
Roberto V. Ongpin (Ongpin) entered into a Memorandum of
Agreement,21 where NDC and Galleon undertook to prepare
and sign a share purchase agreement covering 100% of
Galleon's equity for P46,740,755.00. 22 The purchase price
was to be paid after five years from the execution of the
share purchase agreement. 23 The share purchase agreement
also provided for the release of Sta. Ines, Cuenca, Tinio and
Construction Development Corporation of the Philippines
from the personal counter-guarantees they issued in DBP's
favor under the Deed of Undertaking. 24
The Memorandum of Agreement reads:
KNOW ALL MEN BY THESE PRESENTS:
This Memorandum of Agreement made and entered into this
day of August, 1981, at Makati, Metro Manila, Philippines, by
and between the stockholders of Galleon Shipping
Corporation listed in Annex A hereof, represented herein by
their duly authorized attorney-in-fact, Mr. Rodolfo M. Cuenca
(hereinafter called "Sellers") and National Development
Company, represented herein by its Chairman of the Board,
Hon. Minister Roberto V. Ongpin (hereinafter called "Buyer").
WITNESSETH: That —
WHEREAS, Sellers and Buyer desire to implement
immediately Letter of Instructions No. 1155, dated July 21,
1981, which directs that Buyer acquire 100% of the
shareholdings of Galleon Shipping Corporation ("GSC") from
Sellers who are the present owners.
WHEREAS, Sellers have consented to allow Buyer to assume
actual control over the management and operations of GSC
prior to the execution of a formal share purchase agreement
and the transfer of all the shareholdings of Sellers to Buyer.
NOW, THEREFORE, the parties agree as follows:
1. Within seven (7) days after the signing hereof, Sellers
shall take all steps necessary to cause five (5) persons
designated by Buyer to be elected directors of GSC, it being
understood that Sellers shall retain the remaining two (2)
seats in the GSC board subject to the condition hereafter
stated in clause 7(b).
2. The new board to be created pursuant to clause 1 above
shall elect Antonio L. Carpio as Chairman and Chief
Executive Officer and Rodolfo M. Cuenca as President. All
other officers will be nominated and appointed by Buyer.
3. As soon as possible, but not more than 60 days after the
signing hereof, the parties shall endeavor to prepare and
sign a share purchase agreement covering 100% of the
shareholdings of Sellers in GSC to be transferred to Buyer,
i.e. 10,000,000 fully paid common shares of the par value of
P1.00 per share and subscription of an additional
100,000,000 common shares of the par value of P1.00 per
share of which P36,740,755.00 has been paid, but not yet
issued.
4. Sellers hereby warrant that P46,740,755[.00] had been
actually paid to Galleon Shipping Corporation, which amount
represents payment of Sellers for 46,740,755 common
shares of said Corporation. This warranty shall be verified by
Buyer, the results of which will determine the final purchase
price to be paid to Sellers. The purchase price directed by
LOI 1155 to be paid to Sellers shall be paid after five (5)
years from date of the share purchase agreement with no
interest cost to buyer.
5. As security for the payment of the aforementioned
purchase price, Buyer shall issue to each of the GSC
stockholders listed in Annex A a negotiable promissory note
in the amount corresponding to the respective paid-up
capital in GSC of each of such stockholders and with
maturity on the date of the fifth annual anniversary of the
share purchase agreement.
6. Notwithstanding the provisions of clauses 4 and 5 above,
upon the signing of the share purchase agreement, it is
understood that Sellers shall deliver to Buyer all the stock
certificates covering 10,000,000 common shares of GSC, and
duly and validly endorsed for transfer, free from any and all
Hens and encumbrances whatsoever. It is likewise
understood that Buyer shall at that time acquire all the
subscription rights to 100,000,000 common shares of which
P36,740,755.00 has been paid by Sellers, and shall assume M. Cuenca, may be considered by Buyer
the obligation to pay the unpaid portion of such subscription. for priority in the repayment of
accounts, provided that, upon review,
the Buyer shall determine these to be
7. The stock purchase agreement to be prepared and signed legitimate and were validly incurred in
by the parties within sixty (60) days from date hereof shall the ordinary course of GSC's principal
contain, among other things: business.
(a) standard warranties of seller including, but not IN WITNESS HEREOF, the parties have signed this
limited to, warranties pertaining to the accuracy of Memorandum of Agreement this day of August 1981, in
Makati, Metro Manila.
financial and other statements of GSC; disclosure
of liabilities; payment of all taxes, duties, licenses
and fees; non-encumbrance of corporate assets;
STOCKHOLDER
valid contracts with third parties, etc. including an
S OF
indemnity clause covering any breach thereof.
GALLEON
SHIPPING
(b) provisions that Buyer shall retain 2 representatives CORPORATION
of Sellers in the board of GSC only for as long as By:
Sellers have not been paid, or have not negotiated
or discounted any of the promissory notes referred (signed)
to in clause 5 above. RODOLFO M.
CUENCA
(c) provisions whereby Construction Development
Corporation of the Philippines, Sta. Ines Melale NATIONAL
DEVELOPMENT
Forest Products Corporation, Mr. Rodolfo M.
Cuenca and Mr. Manuel I. Tinio shall be released COMPANY
from counter-guarantees they have issued in favor By:
of DBP and other financial institutions in (signed)
connection with GSC's various credit ROBERTO V.
accommodations. ONGPIN25
(d) provisions for arbitration as a means of settling
disputes and differences of opinion regarding the Acting as Galleon's guarantor, DBP paid off Galleon's debts
stock purchase agreement. to its foreign bank creditor and, on January 25, 1982,
pursuant to the Deed of Undertaking, Galleon executed a
mortgage contract26 over seven of its vessels in favor of DBP.
8. Sellers hereby make a special warranty
that:chanRoblesvirtualLawlibrary NDC took over Galleon's operations "even prior to the
signing of a share purchase agreement." 27 However, despite
NDC's takeover, the share purchase agreement was never
(a) any and all liabilities and obligations as disclosed formally executed. 28
in the financial statements of Galleon Shipping
Corporation are valid, regular, normal and incurred
in the ordinary course of business of Galleon On February 10, 1982, or barely seven months from the
Shipping Corporation, and Buyer will verify this issuance of Letter of Instructions No. 1155, President Marcos
warranty and conduct an audit of Galleon Shipping issued Letter of Instructions No. 1195,29 which reads:
Corporation as of March 31 and July 31, 1981;
liabilities that do not fall under the above definition
TO : Development Bank
are to be for the account of the Seller; and
of the Philippines
National
(b) from July 31, 1981 to the date of the election of Development
Buyers' representatives to the Board of GSC, GSC
Company
has not and shall not enter into any contract and
RE : Galleon Shipping
has not and shall not incur any liability except
Corporation
what is normal and usual in the ordinary course of
shipping business.
WHEREAS, NDC has assumed management of Galleon's
operations pursuant to LOI No. 1155;
9. Valid and duly authorized liabilities of WHEREAS, the original terms under which Galleon acquired
GSC which are the subject of a or leased the vessels were such that Galleon would be
meritorious lawsuit, or which have been
arranged and guaranteed by Mr. Rodolfo
unable to pay from its cash flows the resulting debt service
burden;
WHEREAS, in such a situation the financial exposure of the
Government will continue to increase and therefore the
appropriate steps must be taken to limit and protect the
Government's exposure;
NOW, THEREFORE, I, FERDINAND E. MARCOS, President of
the Philippines, do hereby direct the following:
1) The DBP and the NDC shall take immediate steps,
including foreclosure of Galleon vessels and other
assets, as may be deemed necessary to limit and
protect the Government's exposure;
2) NDC shall discharge such maritime liens as it may
deem necessary to allow the foreclosed vessels to
engage in the international shipping business;
3) Any provision of LOI No. 1155 inconsistent with this
Letter of Instructions is hereby rescinded.
These instructions are to take effect immediately. 30
On April 22, 1985, respondents Sta. Ines, Cuenca, Tinio,
Cuenca Investment and Universal Holdings filed a Complaint
with Application for the Issuance of a Temporary Restraining
Order or Writ of Preliminary Injunction. 31 The Complaint was
amended several times to implead new parties and to
include new claims/counterclaims. 32
In their Complaint, Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings alleged that NDC,
"without paying a single centavo, took over the complete,
total, and absolute ownership, management, control, and
operation of defendant [Galleon] and all its assets, even
prior to the formality of signing a share purchase agreement,
which was held in abeyance because the defendant NDC was
verifying and confirming the amounts paid by plaintiffs to
Galleon, and certain liabilities of Galleon to plaintiffs[.]" 33
Sta. Ines, Cuenca, Tinio, Cuenca Investment, and Universal
Holdings also alleged that NDC tried to delay 'the formal
signing of the share purchase agreement in order to
interrupt the running of the 5-year period to pay ... the
purchase of the shares in the amount of P46,740,755[.00]
and the execution of the negotiable promissory notes to
secure payment[.]34
As for DBP, Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings claimed that "DBP can no longer go after
[them] for any deficiency judgment [since] NDC had been
subrogated [in their place] as borrower[s], hence the Deed of
Undertaking between [Sta. Ines, Cuenca Investment,
Universal Holdings, Cuenca, and Tinio and DBP] had been
extinguished and novated[.]"35
Meanwhile, on December 8, 1986, Proclamation No. 50
created the Asset Privatization Trust. 36 The Asset
Privatization Trust was tasked to "take title to and
possession of, conserve, provisionally manage and dispose
of, assets which have been identified for privatization or
disposition and transferred to the TI-List for [that] purpose." 37
Under Administrative Order No. 14 issued by then President
Corazon C. Aquino, certain assets of DBP, which included
Galleon's loan accounts, "were identified for transfer to the
National Government."38
On February 27, 1987, a Deed of Transfer was executed
providing for the transfer of the Galleon loan account from
DBP to the National Government. 39 The Asset Privatization
Trust was "constituted as [the National Government's]
trustee over the transferred accounts and assets[.]" 40
On September 16, 2003, the Regional Trial Court upheld the
validity of Letter of Instructions No. 1155 and the
Memorandum of Agreement executed by NDC and Galleon's
stockholders, pursuant to Letter of Instructions No. 1155.41
The Regional Trial Court also held that Letter of Instructions
No. 1195 did not supersede or impliedly repeal Letter of
Instructions No. 1155, and assuming that it did impliedly
repeal Letter of Instructions No. 1155, it would be void and
unconstitutional for violating the non-impairment clause. 42
As regards NDC's argument that Sta. Ines, Cuenca, Tinio,
Cuenca Investment, and Universal Holdings had no basis to
compel it to pay Galleon's shares of stocks because no share
purchase agreement was executed, the Regional Trial Court
held that the NDC was in estoppel since it prevented the
execution of the share purchase agreement and had
admitted to being Galleon's owner.43
The Regional Trial Court also ruled that Sta. Ines, Cuenca,
Tinio, Cuenca Investment, and Universal Holdings' liability to
DBP under the Deed of Undertaking had been extinguished
due to novation, with NDC replacing them and PNCC as
debtors.44 The dispositive of the Regional Trial Court's
Decision reads:
WHEREFORE, judgment is hereby rendered (1) ordering
defendants National Development Corporation and National
Galleon Shipping Corporation, jointly and severally, to pay
plaintiffs Sta. Ines Melale Forest Products Corporation,
Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation, the
amounts of P15,150,000.00 and US$2.3 million, representing
the amount of advances made by plaintiffs in behalf of
defendant Galleon, plus legal interest at the rate of 6% per
annum from the date of filing of this case on 22 April 1985
up to full payment;
(2) ordering defendants National Development Corporation
and National Galleon Shipping Corporation, jointly and
severally, to pay plaintiffs Sta. Ines Melale Forest Products
Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca
Investment Corporation and Universal Holdings Corporation,
the amount of P46,740,755.00, representing the price of the
shares of stock of plaintiffs and defendant PNCC in
defendant Galleon, plus legal interest at the rate of 6% per
annum from the date of filing of this case on 22 April 1985
up to full payment;
(3) ordering defendants National Development Corporation
and National Galleon Shipping Corporation, jointly and
severally, to pay plaintiffs Sta. Ines Melale Forest Products
Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca
Investment Corporation and Universal Holdings Corporation,
attorney's fees equivalent to 10% of the amount due; and
costs of suit; and
(4) ordering defendants National Development Corporation,
Development Bank of the Philippines and National Galleon
Shipping Corporation, jointly and severally, to pay each
plaintiff and defendant Philippine National Construction
Corporation, P10,000.00 as moral damages; and P10,000.00
as exemplary damages.
SO ORDERED.45
On February 23, 2003, the Regional Trial Court issued an
Order46 partially reconsidering and modifying the September
16, 2003 Decision by categorically declaring Sta. Ines,
Cuenca, Tinio, Cuenca Investment, and Universal Holdings
free from liability under the mortgage contract with DBP and
the deficiency claim of DBP.47 The Regional Trial Court also
deleted the award of US$2.3 million to Sta. Ines, Cuenca,
Tinio, Cuenca Investment, and Universal Holdings since they
failed to Include the same in their fourth amended
complaint.48 The dispositive portion of the Regional Trial
Court Order, as amended, reads:
WHEREFORE, judgment is hereby rendered (1) ordering
defendants National Development Corporation and National
Galleon Shipping Corporation, jointly and severally, to pay
plaintiffs Sta. Ines Melale Forest Products Corporation,
Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation, the amount
of P15,150,000.00 representing the amount of advances
made by plaintiffs in behalf of defendant NGSC, plus legal
interest at the rate of 6% per annum from the date of filing
of this case on 22 April 1985 up to full payment;
(2) ordering defendants National Development Corporation
and National Galleon Shipping Corporation, jointly and
severally, to pay plaintiffs Sta. Ines Melale Forest Products
Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca
Investment Corporation and Universal Holdings Corporation,
the amount of P46,740,755.00, representing the price of the
shares of stock of plaintiffs and defendant PNCC in
defendant NGSC, plus legal interest at the rate of 6% per
annum from the date of filing of this case on 22 April 1985
up to full payment;
(3) ordering defendants National Development Corporation
and National Galleon Shipping Corporation, jointly and
severally, to pay plaintiffs Sta. Ines Melale Forest Products
Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca
Investment Corporation and Universal Holdings Corporation,
attorney's fees equivalent to 10% of the amount due; and
costs of suit;
(4) ordering defendants National Development Corporation
and National Galleon Shipping Corporation, jointly and
severally, to pay to each plaintiff and defendant Philippine
National Construction Corporation, P10,000.00 as moral
damages; and P10,000.00 as exemplary damages; and
(5) declaring plaintiffs Sta. Ines Melale Forest Products
Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca
Investment Corporation and Universal Holdings Corporation
and defendant Philippine National Construction Corporation
to be no longer liable to defendants National Development
Corporation, Development Bank of the Philippines and Asset
Privatization Trust under the deed of undertaking, pledge,
mortgages, and other accessory contracts between the
parties; and consequently, permanently enjoining defendant
DBP or APT from filing a deficiency claim against plaintiffs
and defendant PNCC.
SO ORDERED.49
On March 9, 2004 and March 16, 2004, DBP and NDC filed
their respective notices of appeal to the Court of Appeals. 50
In its assailed Decision dated March 24, 2010, the Court of
Appeals upheld the Regional Trial Court's findings that the
Memorandum of Agreement between NDC and Cuenca
(representing Sta. Ines, Cuenca, Tinio, Cuenca Investment,
and Universal Holdings) was a perfected contract, which
bound the parties, 51 thus:
Although the Supreme Court ruled in the Poliand case that
LOI No. 1155 is a mere administrative issuance and, as such,
cannot be a valid source of obligation, the defendant-
appellant NDC cannot escape its liabilities to the plaintiffs-
appellees considering that the Memorandum of Agreement
that it executed with the plaintiffs-appellees created certain
rights and obligations between the parties which may be
enforced by the parties against each other. The situation in
the Poliand case is different because Poliand was not a party
to the Memorandum of Agreement. 52
The Court of Appeals ruled that NDC is estopped from
claiming that there was no agreement between it and
Cuenca since the agreement had already been partially
executed after NDC took over the control and management
of Galleon. 53
The Court of Appeals also rejected NDC's argument that it
should not be held liable for the payment of Galleon's
shares.54 The Court of Appeals held that NDC "voluntarily
prevented the execution of a share purchase agreement
when it reneged on its various obligations under the
Memorandum of Agreement."55
The Court of Appeals likewise affirmed the Regional Trial
Court's ruling that novation took place when NDC agreed to
be substituted in place of Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings in the counter-
guarantees they issued in favor of DBP.56
The Court of Appeals ruled that DBP was privy to the
Memorandum of Agreement between NDC and Sta. Ines,
Cuenca, Tinio, Cuenca Investment, and Universal Holdings,
since Ongpin was concurrently Governor of DBP and
chairman of the NDC Board at the time the Memorandum of
Agreement was signed.57
The Court of Appeals further held that DBF was no longer the
real party-in-interest as the loan accounts of Galleon were
transferred to the Asset Privatization Trust. 58
The fallo of the Court of Appeals Decision reads:
WHEREFORE, in view of the foregoing premises, the
assailed Decision, as well as, assailed Order, appealed from
is hereby AFFIRMED with MODIFICATIONS such that, as
modified, the dispositive portion thereof shall now read as
follows:
"WHEREFORE, judgment is hereby rendered (1) ordering
defendants National Development Corporation and National
Galleon Shipping Corporation jointly and severally, to pay
plaintiffs Sta. Ines Melale Forest Products Corporation,
Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca Investment
Corporation and Universal Holdings Corporation, the amount
of P15,150,000.00 representing the amount of advances
made by plaintiffs in behalf of defendant NGSC, plus interest
at the rate of twelve percent (12%) per annum from the date
of filing of this case on 22 April 1985 until instant Decision
becomes final and executory, thereafter the said amount
shall earn an interest at the rate of twelve (12%) percent per
annum from such finality until its satisfaction;
(2) ordering the defendants National Development
Corporation and National Galleon Shipping [C]orporation,
jointly and severally, to pay plaintiffs Sta. Ines Melale Forest
Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio,
Cuenca Investment Corporation and Universal Holdings
Corporation, the amount of P46,740,755.00, representing
the price of the shares of stock of plaintiffs and defendant
PNCC in defendant NGSC, plus interest at the rate of twelve
percent (12%) per annum from the date of filing of this case
on 22 April 1985 until instant  Decision becomes final and
executory, thereafter the said amount shall earn an interest
at the rate of twelve percent (12%) per annum from such
finality until its satisfaction;
(3) ordering the defendants National Development
Corporation and National Galleon Shipping Corporation,
jointly and severally, to pay plaintiffs Sta. Ines Melale Forest
Products Corporation, Rodolfo M. Cuenca, Manuel I. Tinio,
Cuenca Investment Corporation and Universal Holdings
Corporation, attorney's fees equivalent to 10% of the
amount due; and costs of suit;
(4) ordering the defendants National Development
Corporation and National Galleon Shipping Corporation,
jointly and severally, to pay to each plaintiffs and defendant
Philippine National Construction Corporation, P10,000.00 as
moral damages; and P10,000.00 as exemplary damages;
and
(5) declaring plaintiffs Sta. Ines Melale Forest Products
Corporation, Rodolfo M. Cuenca, Manuel I. Tinio, Cuenca
Investment Corporation and Universal Holdings Corporation
and defendant Philippine National Construction Corporation
to be no longer liable to defendants National Development
Corporation, Development Bank of the Philippines and Asset
Privatization Trust under the deed of undertaking, pledge,
mortgages, and other accessory contracts between the
parties; and consequently, permanently enjoining defendant
DBP or APT from filing a deficiency claim against plaintiffs
and defendant PNCC.
SO ORDERED.59 (Emphasis and underscoring in the original)
On September 16, 2010, NDC appealed the Court of Appeals
Decision to this Court. In its Petition for Review, 60 NDC
maintains that the Memorandum of Agreement does not bind
it, since Ongpin was not equipped with authority from the
NDC Board to sign the Memorandum of Agreement on NDC's
behalf.61 NDC also denies that it took over the control and
management of Galleon or that it "prevented the execution
of the [s]hare [p]urchase [a]greement[.]"62
NDC asserts that even assuming that the Memorandum of
Agreement was binding, what was agreed upon was that the
parties shall execute a share purchase agreement within a
certain period of time. 63 The Memorandum of Agreement was
only a preliminary agreement between Cuenca and Ongpin
for NDC's "intended purchase of Galleon's equity[,] pursuant
to [Letter of Instructions No.] 1155." 64 The Memorandum of
Agreement cannot "be considered as the executing
agreement or document for the purchase of the shares." 65
On September 13, 2010, DBP filed its Petition for
Review66 before this Court. DBP insisted that novation did not
take place because: (a) there was no second binding
contract designed to replace the Deed of Undertaking; (b) it
did not give its consent to the substitution of debtors under
the Memorandum of Agreement; and (c) there was no
agreement that unequivocally declared novation by
substitution of debtors.67
The issues raised for the resolution of this Court are as
follows:
a) Whether the Memorandum of Agreement obligates
NDC to purchase Galleon's shares of stocks and
pay the advances made by respondents in
Galleon's favor;68
b) Whether the Memorandum of Agreement novated
the Deed of Undertaking executed between DBP

and respondents;69 and
c) Whether the computation of legal interest should
be at the rate of 6% per annum, instead of the 12%
per annum pegged by the Court of Appeals. 70
I the words not just a particular word or two, and words in
When the "terms of a contract are clear and leave no doubt
upon the intention of the contracting parties, the literal
meaning of its stipulations shall control." 71
Bautista v. Court of Appeals72 instructs that where the
language of a contract is plain and unambiguous, the
contract must be taken at its face value, thus:
The rule is that where the language of a contract is plain and
unambiguous, its meaning should be determined without
reference to extrinsic facts or aids. The intention of the
parties must be gathered from that language, and from that
language alone. Stated differently, where the language of a
written contract is clear and unambiguous, the contract must
be taken to mean that which, on its face, it purports to
mean, unless some good reason can be assigned to show
that the words used should be understood in a different
sense. Courts cannot make for the parties better or more
equitable agreements than they themselves have been
satisfied to make, or rewrite contracts because they operate
harshly or inequitably as to one of the parties, or alter them
for the benefit of one party and to the detriment of the
other, or by construction, relieve one of the parties from
terms which he voluntarily consented to, or impose on him
those which he did not.73
It is not disputed that NDC and respondents Sta. Ines,
Cuenca, Tinio, Cuenca Investment, and Universal Holdings
executed a Memorandum of Agreement pursuant to the
directives of Letter of Instructions No. 1155.
Under the Memorandum of Agreement, NDC, as the Buyer,
undertook to:
a) implement Letter of Instructions No. 1155 and
acquire 100% of Galleon's shareholdings;
b) assume actual control over Galleon's management
and operations prior to the execution of a formal
share purchase agreement and prior to the transfer
to NDC of Galleon's shareholdings;
c) designate five persons to sit in Galleon's Board of
Directors;
d) pay Galleon's stockholders the share purchase
price after five years from the date of the share
purchase agreement;
e) issue each Galleon stockholder a negotiable
promissory note with maturity on the date of the
fifth annual anniversary of the share purchase
agreement;
f) verify Galleon's special warranty on its liabilities
and obligations by conducting an audit; and
g) consider for priority in the repayment of accounts,
Galleon's valid and duly authorized liabilities which
are the subject of meritorious lawsuit or which have
been arranged and guaranteed by Cuenca.
While respondents, Galleon's stockholders, as the Sellers,
undertook to:
a) implement Letter of Instructions No. 1155 by
allowing NDC to purchase 100% of their
shareholdings;
b) consent for NDC to assume actual control over
Galleon's management and operations prior to the
execution of a formal share purchase agreement
and prior to the transfer to NDC of Galleon's
shareholdings;
c) elect NDC's designated five persons to Galleon's
Board of Directors;
d) warrant that P46,740,755.00 had been actually
paid to Galleon, representing payment of
46,740,755 common shares to Galleon;
e) deliver to NDC, upon signing of the share purchase
agreement, 10,000,000 common shares of Galleon,
duly and validly endorsed for transfer, free from
any and all liens and encumbrances whatsoever;
and
f) make special warranties under clause 8.
As parties to the Memorandum of Agreement, NDC and
respondents jointly undertook to:
a) immediately implement Letter of Instructions No.
1155;
b) endeavor to prepare and sign a share purchase
agreement covering 100% of Galleon's
shareholdings not more than 60 days after the
signing of the Memorandum of Agreement; and
c) incorporate the conditions listed down in clause 7
in the share purchase agreement.
The law is categorical that "various stipulations of a contract
shall be interpreted together, attributing to the doubtful ones
that sense which may result from all of them taken
jointly."74Fernandez v. Court of Appeals 75 further emphasizes
that "[t]he important task in contract interpretation is always
the ascertainment of the intention of the contracting parties
and that task is of course to be discharged by looking to the
words they used to project that intention in their contract, all
context not words standing alone."76
The Court of Appeals found that the Memorandum of
Agreement between NDC and Galleon was a perfected
contract for NDC to purchase 100% of Galleon's
shareholdings. However, a careful reading of the
Memorandum of Agreement shows that what the parties
agreed to was the execution of a share purchase agreement
to effect the transfer of 100% of Galleon's shareholdings to
NDC, as seen in clause 3:
3. As soon as possible, but not more than 60 days after the
signing hereof, the parties shall endeavor to prepare and
sign a share purchase agreement covering 100% of the
shareholdings of Sellers in GSC to be transferred to Buyer,
i.e. 10,000,000 fully paid common shares of the par value of
P1.00 per share and subscription of an additional
100,000,000 common shares of the par value of P1.00 per
share of which P36,740,755.00 has been paid, but not yet
issued.
The second paragraph of clause 4 likewise makes the
execution of a share purchase agreement a condition before
the purchase price can be paid to respondents, since the
payment of the purchase price becomes due only after five
years from the date of execution of the share purchase
agreement:
4. Sellers hereby warrant that P46,740,755[.00] had been
actually paid to Galleon Shipping Corporation, which amount
represents payment of Sellers for 46,740,755 common
shares of said Corporation. This warranty shall be verified by
Buyer, the results of which will determine the final purchase
price to be paid to Sellers.
The purchase price directed by LOI 1155 to be paid to Sellers
shall be paid after five (5) years from date of the share
purchase agreement with no interest cost to
buyer. (Emphasis supplied)
NDC asserts that the Memorandum of Agreement was only a
preliminary agreement between Galleon, represented by
Cuenca, and NDC, represented by Ongpin, for the intended
purchase of Galleon's equity pursuant to Letter of
Instructions No. 1155,77 thus:
It merely prescribed the manner, terms and conditions of
said purchase. In fact, the [Memorandum of Agreement]
provided for a time frame for the execution of the share
purchase agreement which is within sixty (60) days from the
signing thereof. By no means can it be considered as the
executing agreement or document for the purchase of the
shares.78
NDC's assertion that the Memorandum of Agreement was
merely a preliminary agreement that was separate and
distinct from the share purchase agreement, finds support in
clause 7 of the Memorandum of Agreement, which lists down
the terms and conditions to be included in the share
purchase agreement as follows:
7. The stock purchase agreement to be prepared and signed
by the parties within sixty (60) days from date hereof shall
contain, among other things:
(a) standard warranties of seller including, but not
limited to, warranties pertaining to the accuracy of
financial and other statements of GSC; disclosure
of liabilities; payment of all taxes, duties, licenses
and fees; non-encumbrance of corporate assets;
valid contracts with third parties, etc. including an
indemnity clause covering any breach thereof.
(b) provisions that Buyer shall retain 2 representatives
of Sellers in the board of GSC only for as long as
Sellers have not been paid, or have not negotiated
or discounted any of the promissory notes referred
to in clause 5 above.
(c) provisions whereby Construction Development
Corporation of the Philippines, Sta. Ines Melale
Forest Products Corporation, Mr. Rodolfo M.
Cuenca and Mr. Manuel I. Tinio shall be released
from counter-guarantees they have issued in favor
of DBP and other financial institutions in
connection with GSC's various credit
accommodations.
(d) provisions for arbitration as a means of settling
disputes and differences of opinion regarding the
stock purchase agreement.
Under clause 7 of the Memorandum of Agreement, NDC and
respondents agreed to include in the still-to-be-executed
share purchase agreement, provisions on: (a) standard
warranties, including warranties on the accuracy of Galleon's
financials, disclosure of liabilities, etc; (b) the retention of
Galleon's representatives in Galleon's board of directors prior
to the payment of the share purchase price; (c) the release
of respondents from the counter-guarantees they made in
favor of DBP and other financial institutions in connection
with Galleon's various credit accommodations; and (d)
arbitration as a means of settling disputes and differences of
opinion regarding the stock purchase agreement.
Taking the provisions of the Memorandum of Agreement as a
whole, it is clear that while there was an intention to follow
the directives of Letter of Instructions No. 1155, the transfer
of shares from respondents to NDC was to be effected only
with the execution of the share purchase agreement, the
terms and conditions of which were laid out in the
Memorandum of Agreement.
NDC and the respondents undertook to prepare and sign a
share purchase agreement over 100% of respondents'
shares in Galleon not more than sixty days after the signing
of the Memorandum of Agreement:
3. As soon as possible, but not more than 60 days after the
signing hereof, the parties shall endeavor to prepare and
sign a share purchase agreement covering 100% of the
shareholdings of Sellers in GSC to be transferred to Buyer,
i.e. 10,000,000 fully paid common shares of the par value of
P1.00 per share and subscription of an additional
100,000,000 common shares of the par value of P1.00 per
share of which P36,740,755.00 has been paid, but not yet
issued.
The execution of a share purchase agreement was a
condition precedent to the transfer of Galleon's shares to
NDC. However, the Court of Appeals found that the NDC
prevented its execution by deliberately delaying its review of
Galleon's financial accounts:
From the foregoing, it is evident that the period for the
payment of the purchase price is entirely dependent on the
execution of a share purchase agreement by the parties. The
evidence on record, however, show that the defendant-
appellant NDC itself voluntarily prevented the execution of a
share purchase agreement when it reneged on its various
obligations under the Memorandum of Agreement. The
evidence on record show that the share purchase agreement
was not formally executed because then Minister Roberto
Ongpin claimed that the accounts of defendant Galleon had
to be reviewed and cleared up before the share purchase
agreement is signed. While defendant Galleon made its
financial records available to defendant-appellant NDC for
their review, the latter never made any serious effort to
review the financial accounts of the defendant Galleon,
hence, effectively preventing the execution of the share
purchase agreement. Consequently, the condition for the
running of the period for the payment of the purchase price
of the shares of stocks in defendant Galleon by the
defendant-appellant NDC, i.e., the execution of the Share
Purchase Agreement, was deemed fulfilled as it was the
defendant-appellant NDC itself which prevented it from
happening. Under Article 1186 of the Civil Code, a "condition
shall be deemed fulfilled when the obligor voluntarily
prevents its fulfilment." This applies in the instant
case.79 (Emphasis supplied)
The Regional Trial Court likewise found that respondent
Cuenca, as Galleon's representative, initiated moves for the
preparation and execution of the share purchase agreement
and NDC's takeover of Galleon. 80 Nonetheless, despite
Cuenca's efforts, the share purchase agreement was never
formally executed:
Assuming that the share purchase agreement was a
condition for the effectivity of the Memorandum of
Agreement (dated 10 August 1981), said condition is
deemed fulfilled by virtue of Art. 1186 of the Civil Code,
which provides that "the condition shall be deemed fulfilled
when the obligor voluntarily prevents its fulfillment." Plaintiff
Cuenca, as representative of the former shareholders of
defendant Galleon, in order to clear up the accounts
preparatory to the execution of the share purchase
agreement, created a team to prepare a statement of
defendant Galleon's outstanding accounts which statement
of account was intended to be included as part of the
annexes of the said share purchase agreement. Another
team with representatives from both parties, that is, the
former stockholders of defendant Galleon and defendant
NDC, had to be created for a smoother turnover. However,
despite said efforts done by plaintiff Cuenca the share
purchase agreement was not formally executed. 81 (Emphasis
in the original)
NDC denies that it caused the delay in the execution of the
share purchase agreement and argues that it was Cuenca
who caused the delay for insisting on the payment first of
the advances made in Galleon's favor before executing the
share purchase agreement and relinquishing control over
Galleon.82
NDC's bare denials cannot succeed in light of the
preponderance of evidence submitted by respondents.
In his Affidavit 83 dated June 17, 1999, Cuenca narrated the
preparations the Galleon stockholders undertook for the
execution of the share purchase agreement with NDC:
What happened to the share purchase
agreement referred to in the
168. Q :
Memorandum of Agreement dated
August 1981 (Exhibit "J")?
The share purchase agreement was
never drawn up despite persistent
attempts by myself to see it prepared
  A : and executed. In fact, we continually
negotiated with NDC and DBP
throughout 1982 and 1983 on the
matter.
169. Q : Why was it never executed?
Minister Ongpin kept claiming that the
  A : accounts had to be cleared up before
any formal agreement could be signed.
What steps, if any, did the parties take
to clear up the accounts preparatory to
170. Q :
the signing of the share purchase
agreement?
  A : During the transition period, prior to
the signing of the share purchase
agreement, I created a team to
prepare a statement of Galleon's
outstanding accounts which we
intended to include as part of the

annexes of the share purchase
agreement. Another team with
representatives from both parties, i.e.,
the former stockholders of Galleon and
NDC, had to be created for a smoother
turn-over. In short, we did all that was
possible and required of us under the
Memorandum of Agreement. We
negotiated with NDC in good faith for
years but NDC kept stonewalling the
execution of the share purchase
agreement.84 (Emphasis supplied)
On April 26, 1982, Antonio L. Carpio, NDC's General
Manager,85 sent Ongpin a Memorandum, 86 where Carpio
acknowledged reviewing Galleon's outstanding accounts
submitted by Cuenca.87 This supports Cuenca's statement
that they submitted a statement of Galleon's outstanding
accounts for NDC's review, as per Ongpin's request, a fact
not denied by NDC.
Upon receiving Galleon's outstanding accounts, NDC and
Sta. Ines, Cuenca, Tinio, Cuenca Investment and Universal
Holdings should have initiated the execution of the share
purchase agreement. However, the share purchase
agreement was never executed, through no fault of Galleon's
stockholders.
In clause 4 of the Memorandum of Agreement, NDC as the
buyer was to verify the warranty of the Galleon shareholders
that P46,740,755.00 was paid for Galleon's 46,740,755
common shares with par value of P1.00 per share. The
results of the verification would have determined the final
purchase price to be paid to the Galleon shareholders.
Nonetheless, despite the verification still to be done, both
parties agreed to execute the share purchase agreement as
soon as possible but not more than sixty days from the
signing of the Memorandum of Agreement.
We uphold the Court of Appeals' finding that the failure to
execute the share purchase agreement was brought about
by NDC's delay in reviewing the financial accounts submitted
by Galleon's stockholders. The Memorandum of Agreement
was executed on August 10, 1981, giving the parties no
more than sixty days or up to October 9, 1981, to prepare
and sign the share purchase agreement. However, it was
only on April 26, 1982, or more than eight months after the
Memorandum of Agreement was signed, did NDC's General
Director submit his recommendation on Galleon's
outstanding account. Even then, there was no clear intention
to execute a share purchase agreement as compliance with
the Memorandum of Agreement. Article 1186 of the Civil
Code is categorical that a "condition shall be deemed fulfilled
when the obligor voluntarily prevents its fulfilment."
Considering NDC's delay, the execution of the share
purchase agreement should be considered fulfilled with NDC
as the new owner of 100% of Galleon's shares of stocks.
The due execution of the share purchase agreement is
further bolstered by Article 1198(4) of the Civil Code, which
states that the debtor loses the right to make use of the
period when a condition is violated, making the obligation
immediately demandable:
Article 1198. The debtor shall lose every right to make use of
the period:
(1) When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or security
for the debt;
(2) When he does not furnish to the creditor the guaranties
or securities which he has promised;
(3) When by his own acts he has impaired said guaranties or
securities after their establishment, and when through a
fortuitous event they disappear, unless he immediately gives
new ones equally satisfactory;
(4) When the debtor violates any undertaking, in
consideration of which the creditor agreed to the period;
(5) When the debtor attempts to abscond. (Emphasis
supplied)
Well-settled is the rule that findings of fact made by a trial
court and the Court of Appeals are accorded the highest
degree of respect by this Court, and, absent a clear
disregard of the evidence before it that can otherwise affect
the results of the case, those findings should not be
ignored.88
II
The Regional Trial Court found that the advances made by
respondents in Galleon's behalf covered legitimate expenses
in the ordinary course of business, 89 making NDC liable
under clause 9 of the Memorandum of Agreement, which
states:
9. Valid and duly authorized liabilities of GSC which are the
subject of a meritorious lawsuit, or which have been
arranged and guaranteed by Mr. Rodolfo M. Cuenca, may be
considered by Buyer for priority in the repayment of
accounts, provided that, upon review, the Buyer shall
determine these to be legitimate and were validly incurred in
the ordinary course of GSC's principal business.
NDC's liability for the advances made in Galleon's behalf was
upheld by the Court of Appeals, which held that the
advances made were valid and authorized liabilities incurred
by Galleon in the course of its business, thus:
In the instant case, the advances being claimed by
[respondents] are in the nature of guarantee fees in
consideration for the personal undertakings of the
[respondents] to secure the potential liabilities of defendant-
appellant DBP in favor of defendant Galleon's foreign
creditors, advances to cover payments of interest, security
and management fees arising out of a mortgage contract,
charter line payments, bare boat hire payments, fuel and
ship franchise payments, salaries and wages and advertising
expenses[.]90
Ordinary and necessary business expenses are those that
are "directly attributable to, the development, management,
operation and/or conduct of the trade, business or exercise
of a profession[.]" 91
In Carpio's Memorandum to Ongpin dated April 26, 1982, he
recommended that the guarantee fees being claimed by
Galleon's stockholders should not be paid. Carpio also
questioned the P1,400,000.00 interest being charged by Sta.
Ines from the ]P6,650,000.00 cash advances it made in
Galleon's behalf. Carpio likewise questioned the charge of
P600,000.00 being claimed as Galleon's share for the
Construction Development Corporation of the Philippine’s
basketball team with the Philippine Basketball Association. 92
We see no reason to disturb the findings of fact made by the
trial court and the Court of Appeals considering that the
same are duly supported by substantial evidence.
III
Novation is a mode of extinguishing an obligation by
"[c]hanging [its] object or principal conditions[,] [substituting
the person of the debtor [or] [s]ubrogating a third person in
the rights of the creditor." 93 While novation, "which consists
in substituting a new debtor in the place of the original one
may be made even without the knowledge or against the will
of the latter, [it must be with] the consent of the creditor." 94
Testate Estate of Mota v. Serra95 instructs that for novation
to have legal effect, the creditor must expressly consent to
the substitution of the new debtor:
It should be noted that in order to give novation its legal
effect, the law requires that the creditor should consent to
the substitution of a new debtor. This consent must be given
expressly for the reason that, since novation extinguishes
the personality of the first debtor who is to be substituted by
new one, it implies on the part of the creditor a waiver of the
right that he had before the novation, which waiver must be
express under the principle that renuntiatio non præsumitur,
recognized by the law in declaring that a waiver of right may
not be performed unless the will to waive is indisputably
shown by him who holds the right.96 (Emphasis supplied)
The Court of Appeals erred when it ruled that DBP was privy
to the Memorandum of Agreement since Ongpin was
concurrently Governor of DBP and chairman of NDC Board of
Directors at the time the Memorandum of Agreement was
signed.97
The general rule is that, "[i]n the absence of an authority
from the board of directors, no person, not even the officers
of the corporation, can validly bind the corporation." 98 A
corporation is a juridical person, separate and distinct from
its stockholders and members, having "powers, attributes
and properties expressly authorized by law or incident to its
existence."99
Section 23100 of the Corporation Code provides that "the
corporate powers of all corporations . . . shall be exercised,
all business conducted and all property of such corporations
[shall] be controlled and held by the board of directors[.]"
People's Aircargo and Warehousing Co. Inc. v. Court of
Appeals101 explains that under Section 23 of the Corporation
Code, the power and responsibility to bind a corporation can
be delegated to its officers, committees, or agents. Such
delegated authority is derived from law, corporate bylaws, or
authorization from the board:
Under this provision, the power and the responsibility to
decide whether the corporation should enter into a contract
that will bind the corporation is lodged in the board, subject
to the articles of incorporation, bylaws, or relevant provisions
of law. However, just as a natural person may authorize
another to do certain acts for and on his behalf, the board of
directors may validly delegate some of its functions and
powers to officers, committees or agents. The authority of
such individuals to bind the corporation is generally derived
from law, corporate bylaws or authorization from the board,
either expressly or impliedly by habit, custom or
acquiescence in the general course of business, viz.:
"A corporate officer or agent may represent and bind the
corporation in transactions with third persons to the extent
that [the] authority to do so has been conferred upon him,
and this includes powers which have been intentionally
conferred, and also such powers as, in the usual course of
the particular business, are incidental to, or may be implied
from, the powers intentionally conferred, powers added by
custom and usage, as usually pertaining to the particular
officer or agent, and such apparent powers as the
corporation has caused persons dealing with the officer or
agent to believe that it has conferred." 102 (Emphasis
supplied)
Aside from Ongpin being the concurrent head of DBP and
NDC at the time the Memorandum of Agreement was
executed, there was no proof presented that Ongpin was
duly authorized by the DBP to give consent to the
substitution by NDC as a co-guarantor of Galleon's debts.
Ongpin is not DBP, therefore, it is wrong to assume that DBP
impliedly gave its consent to the substitution simply by
virtue of the personality of its Governor.
Novation is never presumed. The animus novandi, whether
partial or total, "must appear by express agreement of the
parties, or by their acts which are too clear and unequivocal
to be mistaken."103
There was no such animus novandi in the case at bar
between DBP and respondents, thus, respondents have not
been discharged as Galleon's co-guarantors under the Deed
of Undertaking and they remain liable to DBP.
IV
On the issue of attorney's fees and moral and exemplary
damages awarded to Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings, the Court of Appeals
upheld the findings of the Regional Trial Court for being just,
reasonable, and supported by the evidence on record.104
We see no reason to disturb the findings of the lower courts.
However, on the issue of compensatory interest as damages,
where the Regional Trial Court imposed an interest rate of
six percent (6%) per annum on the advances made and the
payment due for the shares of stock, 105 the Court of Appeals
modified the Regional Trial Court's ruling insofar as the
interest rate to be imposed was concerned. 106 The Court of
Appeals ruled that the advances made by Sta. Ines, Cuenca,
Tinio, Cuenca Investment, and Universal Holdings and the
payment due them for the Galleon shares of stocks were
loans or forbearances of money that should earn interest of
12% from the date the case was filed. 107 Furthermore, the
Court of Appeals held that these amounts should likewise
earn an additional 12% interest per annum from finality until
its satisfaction. 108
Estores v. Spouses Supangan 109 defined forbearance as an
arrangement other than a loan where a person agrees to the
temporary use of his money, goods, or credits subject to the
fulfilment of certain conditions.110
In this case, Sta. Ines, Cuenca, Tinio, Cuenca Investment,
and Universal Holdings advanced money in Galleon's favor
and agreed to turn over management and control of Galleon
to NDC even before receiving payment for their shares of
stocks. They were deprived of the use of their money in both
cases for the periods pending fulfillment of the agreed
conditions. When those conditions were not met, they
became entitled not only to the return of their advances and
payment of their shares of stocks, but also to the
compensation for the use of their money and property. The
unwarranted withholding of the money, which rightfully
pertains to Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings, amounts to forbearance of money.
Sunga-Chan v. Court of Appeals,111 citing Eastern Shipping
Lines, Inc. v. Court of Appeals,112 reiterated the rule on
application of interest:
Eastern Shipping Lines, Inc. synthesized the rules on the
imposition of interest, if proper, and the applicable rate, as
follows: The 12% per annum rate under CB Circular No. 416
shall apply only to loans or forbearance of money, goods, or
credits, as well as to judgments involving such loan or
forbearance of money, goods, or credit, while the 6% per
annum under Art. 2209 of the Civil Code applies "when the
transaction involves the payment of indemnities in the
concept of damage arising from the breach or a delay in the
performance of obligations in general," with the application
of both rates reckoned "from the time the complaint was
filed until the [adjudged] amount is fully paid." In either
instance, the reckoning period for the commencement of the
running of the legal interest shall be subject to the condition
"that the courts are vested with discretion, depending on the
equities of each case, on the award of interest."
Otherwise formulated, the norm to be followed in the future
on the rates and application thereof is:
I. When an obligation, regardless of its
source, is breached, the contravenor
can be held liable for damages. The
provisions under Title XVIII on
"Damages" of the Civil Code govern in
determining the measure of recoverable
damages.
II. With regard particularly to an award of
interest in the concept of actual and
compensatory damages, the rate of
interest, as well as the accrual thereof,
is imposed, as
follows:chanRoblesvirtualLawlibrary
1. When the obligation breached consists in the
payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be
that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall
be 12% per annum to be computed from default,
i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil
Code.
...
3. When the judgment of the court awarding a sum of
money becomes final and executory, the rate of
legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12%
per annum from such finality until its satisfaction,
this interim period being deemed to be by then an
equivalent to a forbearance of credit. 113 (Emphasis
supplied, citations omitted)
On May 16, 2013, the Monetary Board of the Bangko Sentral
ng Pilipinas issued Resolution No. 796, which revised the
interest rate to be imposed for the loan or forbearance of
any money, goods, or credits. This was implemented by
Bangko Sentral ng Pilipinas Circular No. 799, 114 Series of
2013, which reads:
The Monetary Board, in its Resolution No. 796 dated 16 May
2013, approved the following revisions governing the rate of
interest in the absence of stipulation in loan contracts,
thereby amending Section 2 of Circular No. 905, Series of
1982:
Section 1. The rate of interest for the loan or forbearance of
any money, goods or credits and the rate allowed in
judgments, in the absence of an express contract as to such
rate of interest, shall be six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.1 of the
Manual of Regulations for Banks and Sections 4305Q.1,
4305S.3 and 4303P.1 of the Manual of Regulations for Non-
Bank Financial Institutions are hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Nacar v. Gallery Frames, et al. 115 then modified the
guidelines laid down in Eastern Shipping Lines to embody
Bangko Sentral ng Pilipinas Circular No. 799, thus:
I. When an obligation, regardless of its source, i.e., law,
contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for damages.
The provisions under Title XVIII on "Damages" of the Civil
Code govern in determining the measure of recoverable
damages.
II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as
follows:
1. When the obligation is breached, and it
consists in the payment of a sum of
money, i.e., a loan or forbearance of
money, the interest due should be that
which may have been stipulated in
writing. Furthermore, the interest due
shall itself earn legal interest from the
time it is judicially demanded. In the
absence of stipulation, the rate of
interest shall be 6% per annum to be
computed from default, i.e., from judicial
or extrajudicial demand under and
subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, not constituting a
loan or forbearance of money, is
breached, an interest on the amount of
damages awarded may be imposed at
the discretion of the court at the rate of
6% per annum. No interest, however,
shall be adjudged on unliquidated claims
or damages, except when or until the
demand can be established with
reasonable certainty. Accordingly, where
the demand is established with
reasonable certainty, the interest shall
begin to run from the time the claim is
made judicially or extrajudicially (Art.
1169, Civil Code), but when such
certainty cannot be so reasonably
established at the time the demand is
made, the interest shall begin to run
only from the date the judgment of the
court is made (at which time the
quantification of damages may be
deemed to have been reasonably
ascertained). The actual base for the
computation of legal interest shall, in
any case, be on the amount finally
adjudged.
3. When the judgment of the court
awarding a sum of money becomes final
and executory, the rate of legal interest,
whether the case falls under paragraph
1 or paragraph 2, above, shall be
6% per annum from such finality until its
satisfaction, this interim period being
deemed to be by then an equivalent to a
forbearance of credit.
And, in addition to the above, judgments that have become
final and executory prior to July 1, 2013, shall not be
disturbed and shall continue to be implemented applying the
rate of interest fixed therein. 116
Applying these guidelines, the Court of Appeals' ruling must
be modified to reflect the ruling in Nacar. The award of the
advances made by Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings in Galleon's favor and
payment for their shares of stocks in Galleon shall earn an
interest rate of 12% per annum from the date of filing of this
case on April 22, 1985117 until June 30, 2013. After June 30,
2013, these amounts shall earn interest at six percent (6%)
per annum until the Decision becomes final and executory.
An interest of six percent (6%) per annum shall be imposed
on such amounts from the finality of the Decision until its
satisfaction.
Finally, DBP's claims for damages are denied since it failed
to support its claims of malicious prosecution and a
deliberate act of Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings to cause loss or injury to
DBP.
WHEREFORE, the March 24, 2010 Decision and July 21,
2010 Resolution of the Court of Appeals in CA-G.R. CV No.
85385 are AFFIRMED with the following MODIFICATIONS:
(1) Sta. Ines Melale Forest Products Corporation, Rodolfo M.
Cuenca, Manuel I. Tinio, Cuenca Investment Corporation,
Universal Holdings Corporation, and the Philippine National
Construction Corporation are declared LIABLE to the
National Development Corporation, the Development Bank
of the Philippines, and the Asset Privatization Trust under the
deed of undertaking, pledge, mortgages, and other
accessory contracts among the parties; and
(2) The award of the advances made by Sta. Ines Melale
Forest Products Corporation, Rodolfo M. Cuenca, Manuel L.
Tinio, Cuenca Investment Corporation, and Universal
Holdings Corporation in Galleon's favour, as well as the
award of the payment for their shares of stocks in Galleon,
shall earn an interest rate of 12% per annum from the date
of the filing of this case on April 22, 1985 until June 30, 2013,
after which, they shall earn interest at the rate of 6% per
annum until the Decision becomes final and executory.
These amounts shall earn interest at the rate of 6% per
annum from the finality of this Decision until its satisfaction.
SO ORDERED.
G.R. No. 108346       July 11, 2001
Spouses MARIANO Z. VELARDE and AVELINA D.
VELARDE, petitioners,
vs.
COURT OF APPEALS, DAVID A. RAYMUNDO and
GEORGE RAYMUNDO, respondents.
PANGANIBAN, J.:
A substantial breach of a reciprocal obligation, like failure to
pay the price in the manner prescribed by the contract,
entitled the injured party to rescind the obligation.
Rescission abrogates the contract from its inception and
requires a mutual restitution of benefits received.
The Case
Before us is a Petition for Review on Certiorari1 questioning
the Decision2 of the Court of Appeals (CA) in CA-GR CV No.
32991 dated October 9, 1992, as well as its
Resolution3 dated December 29, 1992 denying petitioner's
motion for reconsideration. 4
The dispositive portion of the assailed Decision reads:
"WHEREFORES the Order dated May 15, 1991 is
hereby ANNULLED and SET ASIDE and the Decision
dated November 14, 1990 dismissing the
[C]omplaint is RESINSTATED. The bonds posted by
plaintiffs-appellees and defendants-appellants are
hereby RELEASED."5
The Facts
The factual antecedents of the case, as found by the CA, are
as follows:
"x x x. David Raymundo [herein private
respondent] is the absolute and registered owner
of a parcel of land, together with the house and
 other improvements thereon, located at 1918
Kamias St., Dasmariñas Village, Makati and
covered by TCT No. 142177. Defendant George
Raymundo [herein private petitioners] is David's
father who negotiated with plaintiffs Avelina and
Mariano Velarde [herein petitioners] for the sale of
said property, which was, however, under lease
(Exh. '6', p. 232, Record of Civil Case No. 15952).
"On August 8, 1986, a Deed of Sale with
Assumption of Mortgage (Exh. 'A'; Exh. '1', pp. 11-
12, Record) was executed by defendant David
Raymundo, as vendor, in favor of plaintiff Avelina
Velarde, as vendee, with the following terms and
conditions:
'x x x      x x x      x x x
'That for and in consideration of the
amount of EIGHT HUNDRED THOUSAND
PESOS (P800,000.00), Philippine
currency, receipt of which in full is
hereby acknowledged by the VENDOR
from the VENDEE, to his entire and
complete satisfaction, by these presents
the VENDOR hereby SELLS, CEDES,
TRANSFERS, CONVEYS AND DELIVERS,
freely and voluntarily, with full warranty
of a legal and valid title as provided by
law, unto the VENDEE, her heirs,
successors and assigns, the parcel of
land mentioned and described above,
together with the house and other
improvements thereon.
'That the aforesaid parcel of land,
together with the house and other
improvements thereon, were mortgaged
by the VENDOR to the BANK OF THE
PHILIPPINE ISLANDS, Makati, Metro
Manila to secure the payment of a loan
of ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00),
Philippine currency, as evidenced by a
Real Estate Mortgage signed and
executed by the VENDOR in favor of the
said Bank of the Philippine Islands, on
_____ and which Real Estate Mortgage
was ratified before Notary Public for
Makati, _____, as Doc. No. ______, Page
No. _____, Book No. ___, Series of 1986 of
his Notarial Register.
'That as part of the consideration of this
sale, the VENDEE hereby assumes to
pay the mortgage obligations on the
property herein sold in the amount of
ONE MILLION EIGHT HUNDRED
THOUSAND PESOS (P1,800,000.00),
Philippine currency, in favor of Bank of
Philippine Islands, in the name of the
VENDOR, and further agrees to strictly
and faithfully comply with all the terms
and conditions appearing in the Real
Estate Mortgage signed and executed
by the VENDOR in favor of BPI, including
interests and other charges for late
payment levied by the Bank, as if the
same were originally signed and
executed by the VENDEE.
'It is further agreed and understood by
the parties herein that the capital gains
tax and documentary stamps on the
sale shall be for the account of the
VENDOR; whereas, the registration fees
and transfer tax thereon shall be the
account of the VENDEE.' (Exh. 'A', pp.
11-12, Record).'
"On the same date, and as part of the above-
document, plaintiff Avelina Velarde, with the
consent of her husband, Mariano, executed an
Undertaking (Exh. 'C', pp. 13-14, Record).'
'x x x      x x x      x x x
'Whereas, as per deed of Sale with
Assumption of Mortgage, I paid Mr.
David A. Raymundo the sum of EIGHT
HUNDRED THOUSAND PESOS
(P800,000.00), Philippine currency, and
assume the mortgage obligations on the
property with the Bank of the Philippine
Islands in the amount of ONE MILLION
EIGHT HUNDRED THOUSAND PESOS
(P1,800,000.00), Philippine currency, in
accordance with the terms and
conditions of the Deed of Real Estate
Mortgage dated _____, signed and
executed by Mr. David A. Raymundo
with the said Bank, acknowledged
before Notary Public for Makati, _____, as
Doc. No. _____, Page No. _____, Book No.
_____, Series of 1986 of his Notarial
Register.
'WHEREAS, while my application for the
assumption of the mortgage obligations
on the property is not yet approved by
the mortgagee Bank, I have agreed to
pay the mortgage obligations on the
property with the Bank in the name of
Mr. David A. Raymundo, in accordance
with the terms and conditions of the
said Deed of Real Estate Mortgage,
including all interests and other charges
for late payment.
'WHEREAS, this undertaking is being
executed in favor of Mr. David A.
Raymundo, for purposes of attesting and
confirming our private understanding
concerning the said mortgage
obligations to be assumed.
'NOW, THEREFORE, for and in
consideration of the foregoing premises,
and the assumption of the mortgage
obligations of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS
(P1,800,000.00), Philippine currency,
with the bank of the Philippine Islands, I,
Mrs, Avelina D, Velarde with the consent
of my husband, Mariano Z. Velardo, do
hereby bind and obligate myself, my
heirs, successors and assigns, to strictly
and faithfully comply with the following
terms and conditions:
'1. That until such time as my
assumption of the mortgage obligations
on the property purchased is approved
by the mortgagee bank, the Bank of the
Philippine Islands, I shall continue to pay
the said loan in accordance with the
terms and conditions of the Deed of Real
Estate Mortgage in the name of Mr.
David A. Raymundo, the original
Mortgagor.
'2. That, in the event I violate any of the
terms and conditions of the said Deed of
Real Estate Mortgage, I hereby agree
that my downpayment of P800,000.00,
plus all payments made with the Bank of
the Philippine Islands on the mortgage
loan, shall be forfeited in favor of Mr.
David A. Raymundo, as and by way of
liquidated damages, without necessity
of notice or any judicial declaration to
that effect, and Mr. David A. Raymundo
shall resume total and complete
ownership and possession of the
property sold by way of Deed of Sale
with Assumption of Mortgage, and the
same shall be deemed automatically
cancelled and be of no further force or
effect, in the same manner as it (the)
same had never been executed or
entered into.
'3. That I am executing the Undertaking
for purposes of binding myself, my heirs,
successors and assigns, to strictly and
faithfully comply with the terms and
conditions of the mortgage obligations
with the Bank of the Philippine Islands,
and the covenants, stipulations and
provisions of this Undertaking.
'That, David A. Raymundo, the vendor of
the property mentioned and identified
above, [does] hereby confirm and agree
to the undertakings of the Vendee
 pertinent to the assumption of the
mortgage obligations by the Vendee
with the Bank of the Philippine Islands.
(Exh. 'C', pp. 13-14, Record).'
"This undertaking was signed by Avelina and
Mariano Velarde and David Raymundo.
"It appears that the negotiated terms for the
payment of the balance of P1.8 million was from
the proceeds of a loan that plaintiffs were to
secure from a bank with defendant's help.
Defendants had a standing approved credit line
with the Bank of the Philippine Islands (BPI). The
parties agreed to avail of this, subject to BPI's
approval of an application for assumption of
mortgage by plaintiffs. Pending BPI's approval o[f]
the application, plaintiffs were to continue paying
the monthly interests of the loan secured by a real
estate mortgage.
"Pursuant to said agreements, plaintiffs paid BPI
the monthly interest on the loan secured by the
aforementioned mortgage for three (3) months as
follows: September 19, 1986 at P27,225.00;
October 20, 1986 at P23,000.00; and November
19, 1986 at P23,925.00 (Exh. 'E', 'H' & 'J', pp. 15,
17and 18, Record).
"On December 15, 1986, plaintiffs were advised
that the Application for Assumption of Mortgage
with BPI, was not approved (Exh. 'J', p. 133,
Record). This prompted plaintiffs not to make any
further payment.
"On January 5, 1987, defendants, thru counsel,
wrote plaintiffs informing the latter that their non-
payment to the mortgage bank constitute[d] non-
performance of their obligation (Exh. '3', p. 220,
Record).
"In a Letter dated January 7, 1987, plaintiffs, thru counsel,
responded, as follows:
'This is to advise you, therefore, that our
client is willing to pay the balance in
cash not later than January 21, 1987
provided: (a) you deliver actual
possession of the property to her not
later than January 15, 1987 for her
immediate occupancy; (b) you cause the
re- lease of title and mortgage from the
Bank of P.I. and make the title available
and free from any liens and
encumbrances; and (c) you execute an
absolute deed of sale in her favor free
from any liens or encumbrances not
later than January 21, 1987.' (Exhs. 'k',
'4', p. 223, Record).
"On January 8, 1987 defendants sent plaintiffs a
notarial notice of cancellation/rescission of the
intended sale of the subject property allegedly due
to the latter's failure to comply with the terms and
conditions of the Deed of Sale with Assumption of
Mortgage and the Undertaking (Exh. '5', pp. 225-
226, Record)."6
Consequently, petitioners filed on February 9, 1987 a
Complaint against private respondents for specific
performance, nullity of cancellation, writ of possession and
damages. This was docketed as Civil Case No. 15952 at the
Regional Trial Court of Makati, Branch 149. The case was
tried and heard by then Judge Consuelo Ynares-Santiago
(now an associate justice of this Court), who dismissed the
Complaint in a Decision dated November 14,
1990.7 Thereafter, petitioners filed a Motion for
Reconsideration.8
Meanwhile, then Judge Ynares-Santiago was promoted to the
Court of Appeals and Judge Salvador S. A. Abad Santos was
assigned to the sala she vacated. In an Order dated May 15,
1991,9 Judge Abad Santos granted petitioner's Motion for
Reconsideration and directed the parties to proceed with the
sale. He instructed petitioners to pay the balance of P1.8
million to private respondents who, in turn, were ordered to
execute a deed of absolute sale and to surrender possession
of the disputed property to petitioners.
Private respondents appealed to the CA.
Ruling of the Court of Appeal
The CA set aside the Order of Judge Abad Santos and
reinstated then Judge Ynares-Santiago's earlier Decision
dismissing petitioners' Complaint. Upholding the validity of
the rescission made by private respondents, the CA
explained its ruling in this wise:
"In the Deed of Sale with Assumption of Mortgage, it was
stipulated that 'as part of the consideration of this sale,
the VENDEE (Velarde)' would assume to pay the
mortgage obligation on the subject property in the
amount of P 1.8 million in favor of BPI in the name of the
Vendor (Raymundo). Since the price to be paid by the
Vendee Velarde includes the downpayment of
P800,000.00 and the balance of Pl.8 million, and the
balance of Pl.8 million cannot be paid in cash, Vendee
Velarde, as part of the consideration of the sale, had to
assume the mortgage obligation on the subject property.
In other words, the assumption of the mortgage
obligation is part of the obligation of Velarde, as vendee,
under the contract. Velarde further agreed 'to strictly
and faithfully comply with all the terms and conditions
appearing in the Real Estate Mortgage signed and
executed by the VENDOR in favor of BPI x x x as if the
same were originally signed and executed by the
Vendee. (p. 2, thereof, p. 12, Record). This was
reiterated by Velarde in the document entitled
'Undertaking' wherein the latter agreed to continue
paying said loan in accordance with the terms and
conditions of the Deed of Real Estate Mortgage in the
name of Raymundo. Moreover, it was stipulated that in
the event of violation by Velarde of any terms and
conditions of said deed of real estate mortgage, the
downpayment of P800,000.00 plus all payments made
with BPI or the mortgage loan would be forfeited and the
[D]eed of [S]ale with [A]ssumption of [M]ortgage would
thereby be Cancelled automatically and of no force and
effect (pars. 2 & 3, thereof, pp 13-14, Record).
"From these 2 documents, it is therefore clear that part
of the consideration of the sale was the assumption by
Velarde of the mortgage obligation of Raymundo in the
amount of Pl.8 million. This would mean that Velarde had
to make payments to BPI under the [D]eed of [R]eal
[E]state [M]ortgage the name of Raymundo. The
application with BPI for the approval of the assumption of
mortgage would mean that, in case of approval, payment
of the mortgage obligation will now be in the name of
Velarde. And in the event said application is disapproved,
Velarde had to pay in full. This is alleged and admitted in
Paragraph 5 of the Complaint. Mariano Velarde likewise
admitted this fact during the hearing on September 15,
1997 (p. 47, t.s.n., September 15, 1987; see also pp. 16-
26, t.s.n., October 8, 1989). This being the case, the non-
payment of the mortgage obligation would result in a
violation of the contract. And, upon Velarde's failure to
pay the agreed price, the[n] Raymundo may choose
either of two (2) actions - (1) demand fulfillment of the
contract, or (2) demand its rescission (Article 1191, Civil
Code).
"The disapproval by BPI of the application for assumption
of mortgage cannot be used as an excuse for Velarde's
non-payment of the balance of the purchase price. As
borne out by the evidence, Velarde had to pay in full in
case of BPI's disapproval of the application for
assumption of mortgage. What Velarde should have
done was to pay the balance of P1.8 million. Instead,
Velarde sent Raymundo a letter dated January 7, 1987
(Exh. 'K', '4') which was strongly given weight by the
lower court in reversing the decision rendered by then
Judge Ynares-Santiago. In said letter, Velarde registered
their willingness to pay the balance in cash but
enumerated 3 new conditions which, to the mind of this
Court, would constitute a new undertaking or new
agreement which is subject to the consent or approval of
Raymundo. These 3 conditions were not among those
previously agreed upon by Velarde and Raymundo.
These are mere offers or, at most, an attempt to novate.
But then again, there can be no novation because there
was no agreement of all the parties to the new contract
(Garcia, Jr. vs. Court of Appeals, 191 SCRA 493).
"It was likewise agreed that in case of violation of the
mortgage obligation, the Deed of Sale with Assumption
of Mortgage would be deemed 'automatically cancelled
and of no further force and effect, as if the same had
never been executed or entered into.' While it is true
that even if the contract expressly provided for
automatic rescission upon failure to pay the price, the
vendee may still pay, he may do so only for as long as no
demand for rescission of the contract has been made
upon him either judicially or by a notarial act (Article
 1592, Civil Code). In the case at bar, Raymundo sent
Velarde notarial notice dated January 8, 1987 of
cancellation/rescission of the contract due to the latter's
failure to comply with their obligation. The rescission was
justified in view of Velarde's failure to pay the price
(balance) which is substantial and fundamental as to
defeat the object of the parties in making the
agreement. As adverted to above, the agreement of the
parties involved a reciprocal obligation wherein the
obligation of one is a resolutory condition of the
obligation of the other, the non-fulfillment of which
entitles the other party to rescind the contract
(Songcuan vs. IAC, 191 SCRA 28). Thus, the non-
payment of the mortgage obligation by appellees
Velarde would create a right to demand payment or to
rescind the contract, or to criminal prosecution (Edca
Publishing & Distribution Corporation vs. Santos, 184
SCRA 614). Upon appellee's failure, therefore, to pay the
balance, the contract was properly rescinded (Ruiz vs.
IAC, 184 SCRA 720). Consequently, appellees Velarde
having violated the contract, they have lost their right to
its enforcement and hence, cannot avail of the action for
specific performance (Voysaw vs. Interphil Promotions,
Inc., 148 SCRA 635)."10
Hence, this appeal. 11
The Issues
Petitioners, in their Memorandum, 12 interpose the following
assignment of errors:
"I.
The Court of Appeals erred in holding that the non-
payment of the mortgage obligation resulted in a
breach of the contract.
"II
The Court of Appeals erred in holding that the
rescission (resolution) of the contract by private
respondents was justified.
"III
The Court of Appeals erred in holding that
petitioners' January 7, 1987 letter gave three 'new
conditions' constituting mere offers or an attempt
to novate necessitating a new agreement between
the parties."
The Court's Ruling
The Petition is partially meritorious.
First Issue:
Breach of Contract
Petitioner aver that their nonpayment of private
respondents' mortgage obligation did not constitute a breach
of contract, considering that their request to assume the
obligation had been disapproved by the mortgagee bank.
Accordingly, payment of the monthly amortizations ceased
to be their obligation and, instead, it devolved upon private
respondents again.
However, petitioners did not merely stop paying the
mortgage obligations; they also failed to pay the balance of
the purchase price. As admitted by both parties, their
agreement mandated that petitioners should pay the
purchase price balance of P1.8 million to private respondents
in case the request to assume the mortgage would be
disapproved. Thus, on December 15, 1986, when petitioners
received notice of the bank's disapproval of their application
to assume respondents' mortgage, they should have paid
the balance of the P1.8 million loan.
Instead of doing so, petitioners sent a letter to private
respondents offering to make such payment only upon the
fulfillment of certain conditions not originally agreed upon in
the contract of sale. Such conditional offer to pay cannot
take the place of actual payment as would discharge the
obligation of a buyer under a contract of sale.
In a contract of sale, the seller obligates itself to transfer the
ownership of and deliver a determinate things, and the
buyer to pay therefor a price certain in money or its
equivalent.13
Private respondents had already performed their obligation
through the execution of the Deed of Sale, which effectively
transferred ownership of the property to petitioner through
constructive delivery. Prior physical delivery or possession is
not legally required, and the execution of the Deed of Sale is
deemed equivalent to delivery. 14
Petitioners, on the other hand, did not perform their
correlative obligation of paying the contract price in the
manner agreed upon. Worse, they wanted private
respondents to perform obligations beyond those stipulated
in the contract before fulfilling their own obligation to pay
the full purchase price.
Second Issue
Validity of the Rescission
Petitioners likewise claim that the rescission of the contract
by private respondents was not justified, inasmuch as the
former had signified their willingness to pay the balance of
the purchase price only a little over a month from the time
they were notified of the disapproval of their application for
assumption of mortgage. Petitioners also aver that the
breach of the contract was not substantial as would warrant
a rescission. They cite several cases 15 in which this Court
declared that rescission of a contract would not be permitted
for a slight or casual breach. Finally, they argue that they
have substantially performed their obligation in good faith,
considering that they have already made the initial payment
of P800,000 and three (3) monthly mortgage payments.
As pointed out earlier, the breach committed by petitioners
was not so much their nonpayment of the mortgage
obligations, as their nonperformance of their reciprocal
obligation to pay the purchase price under the contract of
sale. Private respondents' right to rescind the contract finds
basis in Article 1191 of the Civil Code, which explicitly
provides as follows:
"Art. 1191. -- The power to rescind obligations is
implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent
upon him.
The injured party may choose between fulfillment
and the rescission of the obligation, with the
payment of damages in either case. He may also
seek rescission even after he has chosen
fulfillment, if the latter should become impossible."
The right of rescission of a party to an obligation under
Article 1191 of the Civil Code is predicated on a breach of
faith by the other party who violates the reciprocity between
them.16 The breach contemplated in the said provision is the
obligor's failure to comply with an existing obligation. 17 When
the obligor cannot comply with what is incumbent upon it,
the obligee may seek rescission and, in the absence of any
just cause for the court to determine the period of
compliance, the court shall decree the rescission. 18
In the present case, private respondents validly exercised
their right to rescind the contract, because of the failure of
petitioners to comply with their obligation to pay the balance
of the purchase price. Indubitably, the latter violated the
very essence of reciprocity in the contract of sale, a violation
that consequently gave rise to private respondent's right to
rescind the same in accordance with law.
True, petitioners expressed their willingness to pay the
balance of the purchase price one month after it became
due; however, this was not equivalent to actual payment as
would constitute a faithful compliance of their reciprocal
obligation. Moreover, the offer to pay was conditioned on the
performance by private respondents of additional burdens
that had not been agreed upon in the original contract. Thus,
it cannot be said that the breach committed by petitioners
was merely slight or casual as would preclude the exercise
of the right to rescind.
Misplaced is petitioners' reliance on the cases 19 they cited,
because the factual circumstances in those cases are not
analogous to those in the present one. In Song Fo there was,
on the part of the buyer, only a delay of twenty (20) days to
pay for the goods delivered. Moreover, the buyer's offer to
pay was unconditional and was accepted by the seller.
In Zepeda, the breach involved a mere one-week delay in
paying the balance of 1,000 which was actually paid.
In Tan, the alleged breach was private respondent's delay of
only a few days, which was for the purpose of clearing the
title to the property; there was no reference whatsoever to
the nonpayment of the contract price.
In the instant case, the breach committed did not merely
consist of a slight delay in payment or an irregularity; such
breach would not normally defeat the intention of the parties
to the contract. Here, petitioners not only failed to pay the
P1.8 million balance, but they also imposed upon private
respondents new obligations as preconditions to the
performance of their own obligation. In effect, the qualified
offer to pay was a repudiation of an existing obligation,
which was legally due and demandable under the contract of
sale. Hence, private respondents were left with the legal
option of seeking rescission to protect their own interest.
In view of the foregoing discussion, the Court finds it no
longer necessary to discuss the third issue raised by
petitioners. Suffice it to say that the three conditions
appearing on the January 7, 1987 letter of petitioners to
private respondents were not part of the original contract. By
that time, it was already incumbent upon the former to pay
the balance of the sale price. They had no right to demand
preconditions to the fulfillment of their obligation, which had
become due.
WHEREFORE, the assailed Decision is
hereby AFFIRMED with the MODIFICATION that private
respondents are ordered to return to petitioners the amount
of P874,150, which the latter paid as a consequence of the
rescinded contract, with legal interest thereon from January
8, 1987, the date of rescission. No pronouncement as to
costs.
SO ORDERED.
lot in favor of Fortune Savings & Loan Association. In early
1990, NHMFC purchased the mortgage loan of respondents-
spouses from Fortune Savings & Loan Association
for P173,800.00.
Respondent Fernandina Galang authorized4 her attorney-in-
fact, Adelina R. Timbang, to sell the subject house and lot.
Petitioner Leticia Cannu agreed to buy the property
for P120,000.00 and to assume the balance of the mortgage
obligations with the NHMFC and with CERF Realty 5 (the
Developer of the property).
Of the P120,000.00, the following payments were made by
petitioners:

Date Amount Paid

Mutual Restitution
Required in Rescission
As discussed earlier, the breach committed by petitioners
was the nonperformance of a reciprocal obligation, not a
violation of the terms and conditions of the mortgage
contract. Therefore, the automatic rescission and forfeiture
of payment clauses stipulated in the contract does not apply.
Instead, Civil Code provisions shall govern and regulate the
resolution of this controversy.
Considering that the rescission of the contract is based on
Article 1191 of the Civil Code, mutual restitution is required
to bring back the parties to their original situation prior to
the inception of the contract. Accordingly, the initial
payment of P800,000 and the corresponding mortgage
payments in the amounts of P27,225, P23,000 and P23,925
(totaling P874,150.00) advanced by petitioners should be
returned by private respondents, lest the latter unjustly
enrich themselves at the expense of the former.
Rescission creates the obligation to return the object of the
contract. It can be carried out only when the one who
demands rescission can return whatever he may be obliged
to restore.20 To rescind is to declare a contract void at its
inception and to put an end to it as though it never was. It is
not merely to terminate it and release the parties from
further obligations to each other, but to abrogate it from the
beginning and restore the parties to their relative positions
as if no contract has been made.21
Third Issue
Attempt to Novate
July 19, 1990 P40,000.006
March 13, 1991 15,000.007
[G.R. NO. 139523 : May 26, 2005] April 6, 1991 15,000.008
November 28, 1991 5,000.009
SPS. FELIPE AND LETICIA CANNU, Petitioners, v. SPS. Total P75,000.00
GIL AND FERNANDINA GALANG AND NATIONAL HOME
MORTGAGE FINANCE CORPORATION, Respondents.
Thus, leaving a balance of P45,000.00.
DECISION
A Deed of Sale with Assumption of Mortgage
Obligation10 dated 20 August 1990 was made and entered
CHICO-NAZARIO, J.: into by and between spouses Fernandina and Gil Galang
(vendors) and spouses Leticia and Felipe Cannu (vendees)
over the house and lot in question which contains, inter alia,
Before Us is a Petition for Review on Certiorari which seeks the following:
to set aside the decision1 of the Court of Appeals dated 30
September 1998 which affirmed with modification the
decision of Branch 135 of the Regional Trial Court (RTC) of NOW, THEREFORE, for and in consideration of the sum of
Makati City, dismissing the complaint for Specific TWO HUNDRED FIFTY THOUSAND PESOS (P250,000.00),
Performance and Damages filed by petitioners, and its Philippine Currency, receipt of which is hereby acknowledged
Resolution2 dated 22 July 1999 denying petitioners' motion by the Vendors and the assumption of the mortgage
for reconsideration. obligation, the Vendors hereby sell, cede and transfer unto
the Vendees, their heirs, assigns and successor in interest
the above-described property together with the existing
A complaint3 for Specific Performance and Damages was improvement thereon.
filed by petitioners-spouses Felipe and Leticia Cannu against
respondents-spouses Gil and Fernandina Galang and the
National Home Mortgage Finance Corporation (NHMFC) It is a special condition of this contract that the Vendees
before Branch 135 of the RTC of Makati, on 24 June 1993. shall assume and continue with the payment of the
The case was docketed as Civil Case No. 93-2069. amortization with the National Home Mortgage Finance
Corporation Inc. in the outstanding balance
of P_______________, as of __________ and shall comply with
The facts that gave rise to the aforesaid complaint are as and abide by the terms and conditions of the mortgage
follows: document dated Feb. 27, 1989 and identified as Doc. No. 82,
Page 18, Book VII, S. of 1989 of Notary Public for Quezon
Respondents-spouses Gil and Fernandina Galang obtained a City Marites Sto. Tomas Alonzo, as if the Vendees are the
loan from Fortune Savings & Loan Association original signatories.
for P173,800.00 to purchase a house and lot located at
Pulang Lupa, Las Piñas, with an area of 150 square meters Petitioners immediately took possession and occupied the
covered by Transfer Certificate of Title (TCT) No. T-8505 in house and lot.
the names of respondents-spouses. To secure payment, a
real estate mortgage was constituted on the said house and
Petitioners made the following payments to the NHMFC:
Date Amount
July 9, 1990 P 14,312.47
March 12, 1991 8,000.00
February 4, 1992 10,000.00
March 31, 1993 6,000.00
April 19, 1993 10,000.00
April 27, 1993 7,000.00
  P 55,312.47
Petitioners paid the "equity" or second mortgage to CERF
Realty.17
Despite requests from Adelina R. Timbang and Fernandina
Galang to pay the balance of P45,000.00 or in the alternative
to vacate the property in question, petitioners refused to do
so.
In a letter18 dated 29 March 1993, petitioner Leticia Cannu
informed Mr. Fermin T. Arzaga, Vice President, Fund
Management Group of the NHMFC, that the ownership rights
over the land covered by TCT No. T-8505 in the names of
respondents-spouses had been ceded and transferred to her
and her husband per Deed of Sale with Assumption of
Mortgage, and that they were obligated to assume the
mortgage and pay the remaining unpaid loan balance.
Petitioners' formal assumption of mortgage was not
approved by the NHMFC.19
Because the Cannus failed to fully comply with their
obligations, respondent Fernandina Galang, on 21 May 1993,
paid P233,957.64 as full payment of her remaining mortgage
loan with NHMFC.20
Petitioners opposed the release of TCT No. T-8505 in favor of
respondents-spouses insisting that the subject property had
already been sold to them. Consequently, the NHMFC held in
abeyance the release of said TCT.
Thereupon, a Complaint for Specific Performance and
Damages was filed asking, among other things, that
petitioners (plaintiffs therein) be declared the owners of the
property involved subject to reimbursements of the amount
made by respondents-spouses (defendants therein) in
preterminating the mortgage loan with NHMFC.
Respondent NHMFC filed its Answer. 21 It claimed that
petitioners have no cause of action against it because they
have not submitted the formal requirements to be
considered assignees and successors-in-interest of the
property under litigation.
In their Answer,22 respondents-spouses alleged that because
of petitioners-spouses' failure to fully pay the consideration
and to update the monthly amortizations with the NHMFC,
they paid in full the existing obligations with NHMFC as an
initial step in the rescission and annulment of the Deed of
Sale with Assumption of Mortgage. In their counterclaim,
they maintain that the acts of petitioners in not fully
complying with their obligations give rise to rescission of the
Deed of Sale with Assumption of Mortgage with the
corresponding damages.
After trial, the lower court rendered its decision ratiocinating:
On the basis of the evidence on record, testimonial and
documentary, this Court is of the view that plaintiffs have no
cause of action either against the spouses Galang or the
NHMFC. Plaintiffs have admitted on record they failed to pay
the amount of P45,000.00 the balance due to the Galangs in
consideration of the Deed of Sale With Assumption of
Mortgage Obligation (Exhs. "C" and "3"). Consequently, this
is a breach of contract and evidently a failure to comply with
obligation arising from contracts. . . In this case, NHMFC has
not been duly informed due to lack of formal requirements to
acknowledge plaintiffs as legal assignees, or legitimate
tranferees and, therefore, successors-in-interest to the
property, plaintiffs should have no legal personality to claim
any right to the same property. 23
The decretal portion of the decision reads:
Premises considered, the foregoing complaint has not been
proven even by preponderance of evidence, and, as such,
plaintiffs have no cause of action against the defendants
herein. The above-entitled case is ordered dismissed for lack
of merit.
Judgment is hereby rendered by way of counterclaim, in
favor of defendants and against plaintiffs, to wit:
1. Ordering the Deed of Sale With Assumption of Mortgage
Obligation (Exhs. "C" and "3") rescinded and hereby declared
the same as nullified without prejudice for defendants-
spouses Galang to return the partial payments made by
plaintiffs; and the plaintiffs are ordered, on the other hand,
to return the physical and legal possession of the subject
property to spouses Galang by way of mutual restitution;
2. To pay defendants spouses Galang and NHMFC, each the
amount of P10,000.00 as litigation expenses, jointly and
severally;
3. To pay attorney's fees to defendants in the amount of
P20,000.00, jointly and severally; andcralawlibrary
4. The costs of suit.
5. No moral and exemplary damages awarded. 24
A Motion for Reconsideration 25 was filed, but same was
denied. Petitioners appealed the decision of the RTC to the
Court of Appeals. On 30 September 1998, the Court of
Appeals disposed of the appeal as follows:
Obligations arising from contract have the force of law
between the contracting parties and should be complied in
good faith. The terms of a written contract are binding on
the parties thereto.
Plaintiffs-appellants therefore are under obligation to pay
defendants-appellees spouses Galang the sum of
P250,000.00, and to assume the mortgage.
Records show that upon the execution of the Contract of
Sale or on July 19, 1990 plaintiffs-appellants paid
defendants-appellees spouses Galang the amount of only
P40,000.00.
The next payment was made by plaintiffs-appellants on
March 13, 1991 or eight (8) months after the execution of
the contract. Plaintiffs-appellants paid the amount of
P5,000.00.
The next payment was made on April 6, 1991 for P15,000.00
and on November 28, 1991, for another P15,000.00.
From 1991 until the present, no other payments were made
by plaintiffs-appellants to defendants-appellees spouses
Galang.
Out of the P250,000.00 purchase price which was supposed
to be paid on the day of the execution of contract in July,
1990 plaintiffs-appellants have paid, in the span of eight (8)
years, from 1990 to present, the amount of only P75,000.00.
Plaintiffs-appellants should have paid the P250,000.00 at the
time of the execution of contract in 1990. Eight (8) years
have already lapsed and plaintiffs-appellants have not yet
complied with their obligation.
We consider this breach to be substantial.
The tender made by plaintiffs-appellants after the filing of
this case, of the Managerial Check in the amount of
P278,957.00 dated January 24, 1994 cannot be considered
as an effective mode of payment.
Performance or payment may be effected not by tender of
payment alone but by both tender and consignation. It is
consignation which is essential in order to extinguish
plaintiffs-appellants obligation to pay the balance of the
purchase price.
In addition, plaintiffs-appellants failed to comply with their
obligation to pay the monthly amortizations due on the
mortgage.
In the span of three (3) years from 1990 to 1993, plaintiffs-
appellants made only six payments. The payments made by
plaintiffs-appellants are not even sufficient to answer for the
arrearages, interests and penalty charges.
On account of these circumstances, the rescission of the
Contract of Sale is warranted and justified.
...
WHEREFORE, foregoing considered, the appealed decision is
hereby AFFIRMED with modification. Defendants-appellees
spouses Galang are hereby ordered to return the partial
payments made by plaintiff-appellants in the amount of
P135,000.00.
No pronouncement as to cost.26
The motion for reconsideration 27 filed by petitioners was
denied by the Court of Appeals in a Resolution 28 dated 22
July 1999.
Hence, this Petition for Certiorari.
Petitioners raise the following assignment of errors:
1. THE HONORABLE COURT OF APPEALS ERRED WHEN IT
HELD THAT PETITIONERS' BREACH OF THE OBLIGATION WAS
SUBSTANTIAL.
2. THE HONORABLE COURT OF APPEALS ERRED WHEN IN
EFFECT IT HELD THAT THERE WAS NO SUBSTANTIAL
COMPLIANCE WITH THE OBLIGATION TO PAY THE MONTHLY
AMORTIZATION WITH NHMFC.
3. THE HONORABLE COURT OF APPEALS ERRED WHEN IT
FAILED TO CONSIDER THE OTHER FACTS AND
CIRCUMSTANCES THAT MILITATE AGAINST RESCISSION.
4. THE HONORABLE COURT OF APPEALS ERRED WHEN IT
FAILED TO CONSIDER THAT THE ACTION FOR RESCISSION IS
SUBSIDIARY.29
Before discussing the errors allegedly committed by the
Court of Appeals, it must be stated a priori that the latter
made a misappreciation of evidence regarding the
consideration of the property in litigation when it relied
solely on the Deed of Sale with Assumption of Mortgage
executed by the respondents-spouses Galang and
petitioners-spouses Cannu.
As above-quoted, the consideration for the house and lot
stated in the Deed of Sale with Assumption of Mortgage
is P250,000.00, plus the assumption of the balance of the
mortgage loan with NHMFC. However, after going over the
record of the case, more particularly the Answer of
respondents-spouses, the evidence shows the consideration
therefor is P120,000.00, plus the payment of the outstanding
loan mortgage with NHMFC, and of the "equity" or second
mortgage with CERF Realty (Developer of the property). 30
Nowhere in the complaint and answer of the petitioners-
spouses Cannu and respondents-spouses Galang shows that
the consideration is "P250,000.00." In fact, what is clear is
that of the P120,000.00 to be paid to the latter,
only P75,000.00 was paid to Adelina Timbang, the spouses
Galang's attorney-in-fact. This debunks the provision in the
Deed of Sale with Assumption of Mortgage that the amount
of P250,000.00 has been received by petitioners.
Inasmuch as the Deed of Sale with Assumption of Mortgage
failed to express the true intent and agreement of the
parties regarding its consideration, the same should not be
fully relied upon. The foregoing facts lead us to hold that the
case on hand falls within one of the recognized exceptions to
the parole evidence rule. Under the Rules of Court, a party
may present evidence to modify, explain or add to the terms
of the written agreement if he puts in issue in his pleading,
among others, its failure to express the true intent and
agreement of the parties thereto. 31
In the case at bar, when respondents-spouses enumerated in
their Answer the terms and conditions for the sale of the
property under litigation, which is different from that stated
in the Deed of Sale with Assumption with Mortgage, they
already put in issue the matter of consideration. Since there
is a difference as to what the true consideration is, this Court
has admitted evidence aliunde to explain such
inconsistency. Thus, the Court has looked into the pleadings
and testimonies of the parties to thresh out the discrepancy
and to clarify the intent of the parties.
As regards the computation32 of petitioners as to the
breakdown of the P250,000.00 consideration, we find the
same to be self-serving and unsupported by evidence.
On the first assigned error, petitioners argue that the Court
erred when it ruled that their breach of the obligation was
substantial.
Settled is the rule that rescission or, more accurately,
resolution,33 of a party to an obligation under Article
119134 is predicated on a breach of faith by the other party
that violates the reciprocity between them. 35 Article 1191
reads:
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there
be just cause authorizing the fixing of a period.
Rescission will not be permitted for a slight or casual breach
of the contract. Rescission may be had only for such
breaches that are substantial and fundamental as to defeat
the object of the parties in making the agreement. 36 The
question of whether a breach of contract is substantial
depends upon the attending circumstances 37 and not merely
on the percentage of the amount not paid.
In the case at bar, we find petitioners' failure to pay the
remaining balance of P45,000.00 to be substantial. Even
assuming arguendo that only said amount was left out of the
supposed consideration of P250,000.00, or eighteen (18%)
percent thereof, this percentage is still substantial. Taken
together with the fact that the last payment made was on 28
November 1991, eighteen months before the respondent
Fernandina Galang paid the outstanding balance of the
mortgage loan with NHMFC, the intention of petitioners to
renege on their obligation is utterly clear.
Citing Massive Construction, Inc. v. Intermediate Appellate
Court,38 petitioners ask that they be granted additional time
to complete their obligation. Under the facts of the case, to
give petitioners additional time to comply with their
obligation will be putting premium on their blatant non-
compliance of their obligation. They had all the time to do
what was required of them (i.e., pay the P45,000.00 balance
and to properly assume the mortgage loan with the NHMFC),
but still they failed to comply. Despite demands for them to
pay the balance, no payments were made.39
The fact that petitioners tendered a Manager's Check to
respondents-spouses Galang in the amount of P278,957.00
seven months after the filing of this case is of no moment.
Tender of payment does not by itself produce legal payment,
unless it is completed by consignation. 40 Their failure to fulfill
their obligation gave the respondents-spouses Galang the
right to rescission.
Anent the second assigned error, we find that petitioners
were not religious in paying the amortization with the
NHMFC. As admitted by them, in the span of three years
from 1990 to 1993, their payments covered only thirty
months.41 This, indeed, constitutes another breach or
violation of the Deed of Sale with Assumption of Mortgage.
On top of this, there was no formal assumption of the
mortgage obligation with NHMFC because of the lack of
approval by the NHMFC42 on account of petitioners' non-
submission of requirements in order to be considered as
assignees/successors-in-interest over the property covered
by the mortgage obligation.43
On the third assigned error, petitioners claim there was no
clear evidence to show that respondents-spouses Galang
demanded from them a strict and/or faithful compliance of
the Deed of Sale with Assumption of Mortgage.
We do not agree.
There is sufficient evidence showing that demands were
made from petitioners to comply with their obligation.
Adelina R. Timbang, attorney-in-fact of respondents-spouses,
per instruction of respondent Fernandina Galang, made
constant follow-ups after the last payment made on 28
November 1991, but petitioners did not pay.44 Respondent
Fernandina Galang stated in her Answer 45 that upon her
arrival from America in October 1992, she demanded from
petitioners the complete compliance of their obligation by
paying the full amount of the consideration (P120,000.00) or
in the alternative to vacate the property in question, but still,
petitioners refused to fulfill their obligations under the Deed
of Sale with Assumption of Mortgage. Sometime in March
1993, due to the fact that full payment has not been paid
and that the monthly amortizations with the NHMFC have
not been fully updated, she made her intentions clear with
petitioner Leticia Cannu that she will rescind or annul the
Deed of Sale with Assumption of Mortgage.
We likewise rule that there was no waiver on the part of
petitioners to demand the rescission of the Deed of Sale with
Assumption of Mortgage. The fact that respondents-spouses
accepted, through their attorney-in-fact, payments in
installments does not constitute waiver on their part to
exercise their right to rescind the Deed of Sale with
Assumption of Mortgage. Adelina Timbang merely accepted
the installment payments as an accommodation to
petitioners since they kept on promising they would pay.
However, after the lapse of considerable time (18 months
from last payment) and the purchase price was not yet fully
paid, respondents-spouses exercised their right of rescission
when they paid the outstanding balance of the mortgage
loan with NHMFC. It was only after petitioners stopped
paying that respondents-spouses moved to exercise their
right of rescission.
Petitioners cite the case of Angeles v. Calasanz46 to support
their claim that respondents-spouses waived their right to
rescind. We cannot apply this case since it is not on all fours
with the case before us. First, in Angeles, the breach was
only slight and casual which is not true in the case before us.
Second, in Angeles, the buyer had already paid more than
the principal obligation, while in the instant case, the buyers
(petitioners) did not pay P45,000.00 of the P120,000.00 they
were obligated to pay.
We find petitioners' statement that there is no evidence of
prejudice or damage to justify rescission in favor of
respondents-spouses to be unfounded. The damage suffered
by respondents-spouses is the effect of petitioners' failure to
fully comply with their obligation, that is, their failure to pay
the remaining P45,000.00 and to update the amortizations
on the mortgage loan with the NHMFC. Petitioners have in
their possession the property under litigation. Having parted
with their house and lot, respondents-spouses should be fully
compensated for it, not only monetarily, but also as to the
terms and conditions agreed upon by the parties. This did
not happen in the case before us.
Citing Seva v. Berwin & Co., Inc.,47 petitioners argue that no
rescission should be decreed because there is no evidence
on record that respondent Fernandina Galang is ready,
willing and able to comply with her own obligation to restore
to them the total payments they made. They added that no
allegation to that effect is contained in respondents-spouses'
Answer.
We find this argument to be misleading.
First, the facts obtaining in Seva case do not fall squarely
with the case on hand. In the former, the failure of one party
to perform his obligation was the fault of the other party,
while in the case on hand, failure on the part of petitioners to
perform their obligation was due to their own fault.
Second, what is stated in the book of Justice Edgardo L.
Paras is "[i]t (referring to the right to rescind or resolve) can
be demanded only if the plaintiff is ready, willing and able to
comply with his own obligation, and the other is not." In
other words, if one party has complied or fulfilled his
obligation, and the other has not, then the former can
exercise his right to rescind. In this case, respondents-
spouses complied with their obligation when they gave the
possession of the property in question to petitioners. Thus,
they have the right to ask for the rescission of the Deed of
Sale with Assumption of Mortgage.
On the fourth assigned error, petitioners, relying on Article
1383 of the Civil Code, maintain that the Court of Appeals
erred when it failed to consider that the action for rescission
is subsidiary.
Their reliance on Article 1383 is misplaced.
The subsidiary character of the action for rescission applies
to contracts enumerated in Articles 1381 48 of the Civil Code.
The contract involved in the case before us is not one of
those mentioned therein. The provision that applies in the
case at bar is Article 1191.
In the concurring opinion of Justice Jose B.L. Reyes
in Universal Food Corp. v. Court of Appeals,49 rescission
under Article 1191 was distinguished from rescission under
Article 1381. Justice J.B.L. Reyes said:
. . . The rescission on account of breach of stipulations is not
predicated on injury to economic interests of the party
plaintiff but on the breach of faith by the defendant, that
violates the reciprocity between the parties. It is not a
subsidiary action, and Article 1191 may be scanned without
disclosing anywhere that the action for rescission thereunder
is subordinated to anything other than the culpable breach
of his obligations by the defendant. This rescission is a
principal action retaliatory in character, it being unjust that a
party be held bound to fulfill his promises when the other
violates his. As expressed in the old Latin aphorism: "Non
servanti fidem, non est fides servanda." Hence, the
reparation of damages for the breach is purely secondary.
On the contrary, in the rescission by reason of lesion or
economic prejudice, the cause of action is subordinated to
the existence of that prejudice, because it is the raison d
être as well as the measure of the right to rescind. Hence,
where the defendant makes good the damages caused, the
action cannot be maintained or continued, as expressly
provided in Articles 1383 and 1384. But the operation of
these two articles is limited to the cases of rescission
for lesion enumerated in Article 1381 of the Civil Code of the
Philippines, and does not apply to cases under Article 1191.
From the foregoing, it is clear that rescission ("resolution" in
the Old Civil Code) under Article 1191 is a principal action,
while rescission under Article 1383 is a subsidiary action.
The former is based on breach by the other party that
violates the reciprocity between the parties, while the latter
is not.
In the case at bar, the reciprocity between the parties was
violated when petitioners failed to fully pay the balance of
P45,000.00 to respondents-spouses and their failure to
update their amortizations with the NHMFC.
Petitioners maintain that inasmuch as respondents-spouses
Galang were not granted the right to unilaterally rescind the
sale under the Deed of Sale with Assumption of Mortgage,
they should have first asked the court for the rescission
thereof before they fully paid the outstanding balance of the
mortgage loan with the NHMFC. They claim that such
payment is a unilateral act of rescission which violates
existing jurisprudence.
In Tan v. Court of Appeals,50 this court said:
. . . [T]he power to rescind obligations is implied in reciprocal
ones in case one of the obligors should not comply with what
is incumbent upon him is clear from a reading of the Civil
Code provisions. However, it is equally settled that, in the
absence of a stipulation to the contrary, this power must be
invoked judicially; it cannot be exercised solely on a party's
own judgment that the other has committed a breach of the
obligation. Where there is nothing in the contract
empowering the petitioner to rescind it without resort to the
courts, the petitioner's action in unilaterally terminating the
contract in this case is unjustified.
It is evident that the contract under consideration does not
contain a provision authorizing its extrajudicial rescission in
case one of the parties fails to comply with what is
incumbent upon him. This being the case, respondents-
spouses should have asked for judicial intervention to obtain
a judicial declaration of rescission. Be that as it may, and
considering that respondents-spouses' Answer (with
affirmative defenses) with Counterclaim seeks for the
rescission of the Deed of Sale with Assumption of Mortgage,
it behooves the court to settle the matter once and for all
than to have the case re-litigated again on an issue already
heard on the merits and which this court has already taken
cognizance of. Having found that petitioners seriously
breached the contract, we, therefore, declare the same is
rescinded in favor of respondents-spouses.
As a consequence of the rescission or, more accurately,
resolution of the Deed of Sale with Assumption of Mortgage,
it is the duty of the court to require the parties to surrender
whatever they may have received from the other. The
parties should be restored to their original situation. 51
The record shows petitioners paid respondents-spouses the
amount of P75,000.00 out of the P120,000.00 agreed upon.
They also made payments to NHMFC amounting to
P55,312.47. As to the petitioners' alleged payment to CERF
Realty of P46,616.70, except for petitioner Leticia Cannu's
bare allegation, we find the same not to be supported by
competent evidence. As a general rule, one who pleads
payment has the burden of proving it.52 However, since it has
been admitted in respondents-spouses' Answer that
petitioners shall assume the second mortgage with CERF
Realty in the amount of P35,000.00, and that Adelina
Timbang, respondents-spouses' very own witness,
testified53 that same has been paid, it is but proper to return
this amount to petitioners. The three amounts total
P165,312.47 - - the sum to be returned to petitioners.
WHEREFORE, premises considered, the decision of the
Court of Appeals is hereby AFFIRMED with MODIFICATION.
Spouses Gil and Fernandina Galang are hereby ordered to
return the partial payments made by petitioners in the
amount of P165,312.47. With costs.
SO ORDERED.
G.R. No. 202205               March 6, 2013
FOREST HILLS GOLF & COUNTRY CLUB, Petitioner,
vs.
VERTEX SALES AND TRADING, INC., Respondent.
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari, 1 filed
under Rule 45 of the Rules of Court, assailing the
decision2 dated February 22, 2012 and the resolution 3dated
May 31, 2012 of the Court of Appeals (CA) in CA-G.R. CV No.
89296.
The Facts
Petitioner Forest Hills Golf & Country Club (Forest Hills) is a
domestic non-profit stock corporation that operates and
maintains a golf and country club facility in Antipolo City.
Forest Hills was created as a result of a joint venture
agreement between Kings Properties Corporation (Kings) and
Fil-Estate Golf and Development, Inc. (FEGDI). Accordingly,
Kings and FEGDI owned the shares of stock of Forest Hills,
holding 40% and 60% of the shares, respectively.
In August 1997, FEGDI sold to RS Asuncion Construction
Corporation (RSACC) one (1) Class "C" common share of
Forest Hills for ₱1.1 million. Prior to the full payment of the
purchase price, RSACC transferred its interests over FEGDI's
Class "C" common share to respondent Vertex Sales and
Trading, Inc. (Vertex).4 RSACC advised FEGDI of the transfer
and FEGDI, in turn, requested Forest Hills to recognize
Vertex as a shareholder. Forest Hills acceded to the request,
and Vertex was able to enjoy membership privileges in the
golf and country club.
Despite the sale of FEGDI's Class "C" common share to
Vertex, the share remained in the name of FEGDI, prompting
Vertex to demand for the issuance of a stock certificate in its
name.5 As its demand went unheeded, Vertex filed a
complaint6 for rescission with damages against defendants
Forest Hills, FEGDI, and Fil-Estate Land, Inc. (FELI) – the
developer of the Forest Hills golf course. Vertex averred that
the defendants defaulted in their obligation as sellers when
they failed and refused to issue the stock certificate covering
the Class "C" common share. It prayed for the rescission of
the sale and the return of the sums it paid; it also claimed
payment of actual damages for the defendants’ unjustified
refusal to issue the stock certificate.
Forest Hills denied transacting business with Vertex and
claimed that it was not a party to the sale of the share; FELI
claimed the same defense. While admitting that no stock
certificate was issued, FEGDI alleged that Vertex
nonetheless was recognized as a stockholder of Forest Hills
and, as such, it exercised rights and privileges of one. FEGDI
added that during the pendency of Vertex's action for
rescission, a stock certificate was issued in Vertex's
name,7 but Vertex refused to accept it.
The RTC Ruling
In its March 1, 2007 decision, 8 the Regional Trial Court (RTC)
dismissed Vertex's complaint after finding that the failure to
issue a stock certificate did not constitute a violation of the
essential terms of the contract of sale that would warrant its
rescission. The RTC noted that the sale was already
consummated notwithstanding the non-issuance of the stock
certificate. The issuance of a stock certificate is a collateral
matter in the consummated sale of the share; the stock
certificate is not essential to the creation of the relation of a
shareholder. Hence, the RTC ruled that the non-issuance of
the stock certificate is a mere casual breach that would not
entitle Vertex to rescind the sale. 9
The CA Ruling
Vertex appealed the RTC's dismissal of its complaint. In its
February 22, 2012 decision,10 the CA reversed the RTC. It
declared that "in the sale of shares of stock, physical
delivery of a stock certificate is one of the essential
requisites for the transfer of ownership of the stocks
purchased."11 It based its ruling on Section 63 of the
Corporation Code,12 which requires for a valid transfer of
stock –
(1) the delivery of the stock certificate;
(2) the endorsement of the stock certificate by the
owner or his attorney-in-fact or other persons
legally authorized to make the transfer; and
(3) to be valid against third parties, the transfer
must be recorded in the books of the corporation.
Without the issuance of the stock certificate and despite
Vertex’s full payment of the purchase price, the share
cannot be considered as having been validly transferred.
Hence, the CA rescinded the sale of the share and ordered
the defendants to return the amount paid by Vertex by
reason of the sale. The dispositive portion reads:
WHEREFORE, in view of the foregoing premises, the appeal
is hereby GRANTED and the March 1, 2007 Decision of the
Regional Trial Court, Branch 161, Pasig City in Civil Case No.
68791 is hereby REVERSED AND SET ASIDE. Accordingly, the
sale of x x x one (1) Class "C" Common Share of Forest Hills
Golf and Country Club is hereby rescinded and defendants-
appellees are hereby ordered to return to Vertex Sales and
Trading, Inc. the amount it paid by reason of the said
sale.13 (emphasis ours)
The CA denied Forest Hills' motion for reconsideration in its
resolution of May 31, 2012.14
The Parties’ Arguments
Forest Hills filed the present petition for review on certiorari
to assail the CA rulings. It argues that rescission should be
allowed only for substantial breaches that would defeat the
very object of the parties making the agreement.
The delay in the issuance of the stock certificate could not
be considered as a substantial breach, considering that
Vertex was recognized as, and enjoyed the privileges of, a
stockholder.
Forest Hills also objects to the CA ruling that required it to
return the amount paid by Vertex for the share of stock. It
claims that it was not a party to the contract of sale; hence,
it did not receive any amount from Vertex which it would be
obliged to return on account of the rescission of the contract.
In its comment to the petition,15 Vertex disagrees and claims
that its compliance with its obligation to pay the price and
the other fees called into action the defendants’ compliance
with their reciprocal obligation to deliver the stock
certificate, but the defendants failed to discharge this
obligation. The defendants’ three (3)-year delay in issuing
the stock certificate justified the rescission of the sale of the
share of stock. On account of the rescission, Vertex claims
that mutual restitution should take place. It argues that
Forest Hills should be held solidarily liable with FEGDI and
FELI, since the delay was caused by Forest Hills’ refusal to
issue the share of FEGDI, from whom Vertex acquired its
share.
The Court’s Ruling
The assailed CA rulings (a) declared the rescission of the sale
of one (1) Class "C" common share of Forest Hills to Vertex
and (b) ordered the return by Forest Hills, FEGDI, and FELI to A necessary consequence of rescission is restitution: the SERENO, C.J.:
Vertex of the amount the latter paid by reason of the sale. parties to a rescinded contract must be brought back to their
While Forest Hills argues that the ruling rescinding the sale original situation prior to the inception of the contract;
of the share is erroneous, its ultimate prayer was for the hence, they must return what they received pursuant to the Before this Court is a Rule 45 Petition, seeking a review of
reversal and setting aside of the ruling holding it liable to contract.24 Not being a party to the rescinded contract, the 27 July 2009 Court of Appeals (CA) Decision in CA-G.R.
return the amount paid by Vertex for the sale. 16 however, Forest Hills is under no obligation to return the CV No. 88989,1 which modified the Regional Trial Court (RTC)
amount paid by Vertex by reason of the sale. Indeed, Vertex Decision of 8 January 2007 in Civil Case No. Q-04-
failed to present sufficient evidence showing that Forest Hills 53660.2 The CA held that petitioner substantially breached
The Court finds Forest Hills’ prayer justified. received the purchase price for the share or any other fee its contracts with respondent for the installation of an
paid on account of the sale (other than the membership fee integrated bridge system (IBS).
which we will deal with after) to make Forest Hills jointly or
Ruling on rescission of sale is a
solidarily liable with FEGDI for restitution.
settled matter The antecedent .facts are as
follows:3chanroblesvirtualawlibrary
Although Forest Hills received ₱150,000.00 from Vertex as
At the outset, we declare that the question of rescission of
membership fee, it should be allowed to retain this amount.
the sale of the share is a settled matter that the Court can On 10 June 2004, respondent Northwestern University
For three years prior to the rescission of the sale, the
no longer review in this petition. While Forest Hills (Northwestern), an educational institution offering maritime-
nominees of Vertex enjoyed membership privileges and used
questioned and presented its arguments against the CA related courses, engaged the services of a Quezon City-
the golf course and the amenities of Forest Hills. 25 We
ruling rescinding the sale of the share in its petition, it is not based firm, petitioner GL Enterprises, to install a new IBS in
consider the amount paid as sufficient consideration for the
the proper party to appeal this ruling. Laoag City. The installation of an IBS, used as the students'
privileges enjoyed by Vertex's nominees as members of
training laboratory, was required by the Commission on
Forest Hills. Higher Education (CHED) before a school could offer
As correctly pointed out by Forest Hills, it was not a party to maritime transportation
the sale even though the subject of the sale was its share of programs.4chanroblesvirtualawlibrary
WHEREFORE, in view of the foregoing, the Court PARTIALLY
stock. The corporation whose shares of stock are the subject
GRANTS the petition for review on certiorari. The decision
of a transfer transaction (through sale, assignment,
dated February 22, 2012 and the resolution dated May 31,
donation, or any other mode of conveyance) need not be a Since its IBS was already obsolete, respondent required
2012 of the Court of Appeals in CA-G.R. CV No. 89296 are
party to the transaction, as may be inferred from the terms petitioner to supply and install specific components in order
hereby MODIFIED. Petitioner Forest Hills Golf & Country Club
of Section 63 of the Corporation Code. However, to bind the to form the most modern IBS that would be acceptable to
is ABSOLVED from liability for any amount paid by Vertex
corporation as well as third parties, it is necessary that the CHED and would be compliant with the standards of the
Sales and Trading, Inc. by reason of the rescinded sale of
transfer is recorded in the books of the corporation. In the International Maritime Organization (IMO). For this purpose,
one (1) Class "C" common share of Forest Hills Golf &
present case, the parties to the sale of the share were FEGDI the parties executed two contracts.
Country Club.
as the seller and Vertex as the buyer (after it succeeded
RSACC). As party to the sale, FEGDI is the one who may
appeal the ruling rescinding the sale. The remedy of appeal The first contract partly reads:5chanroblesvirtualawlibrary
SO ORDERED.
is available to a party who has "a present interest in the
subject matter of the litigation and is aggrieved or That in consideration of the payment herein mentioned to be
prejudiced by the judgment. A party, in turn, is deemed
made by the First Party (defendant), the Second Party
aggrieved or prejudiced when his interest, recognized by Date of
Payee Purpose Amount Paid agrees to furnish, supply, install and integrate the most
law in the subject matter of the lawsuit, is injuriously Payment
modern INTEGRATED BRIDGE SYSTEM located at
affected by the judgment, order or decree." 17 The FEGDI February Purchase price ₱780,000.0019
Northwestern University MOCK BOAT in accordance with the
rescission of the sale does not in any way prejudice Forest 9, 1999 for one (1)
general conditions, plans and specifications of this contract.
Hills in such a manner that its interest in the subject matter – Class "C"
the share of stock – is injuriously affected. Thus, Forest Hills common share
is in no position to appeal the ruling rescinding the sale of FEGDI February Transfer fee P 60,000.0020 SUPPLY & INSTALLATION OF THE
the share. Since FEGDI, as party to the sale, filed no appeal 9, 1999 FOLLOWING:chanroblesvirtualawlibrary
against its rescission, we consider as final the CA’s ruling on Fores February Membership P
this matter. t Hills 23, 1999 fee 150,000.0021
FELI September Documentary P 6,300.0022 INTEGRATED BRIDGE SYSTEM
25, 2000 Stamps
Ruling on return of amounts paid by
FEGDI September Notarial fees P 200.0023 A. 2-RADAR SYSTEM
reason of the sale modified
25, 2000

The CA’s ruling ordering the "return to [Vertex] the amount it B. OVERHEAD CONSOLE MONITORING SYSTEM
paid by reason of the sale" 18 did not specify in detail what
the amount to be returned consists of and it did not also
state the extent of Forest Hills, FEGDI, and FELI’s liability C. ENGINE TELEGRAPH SYSTEM
G.R. NO. 188986 : March 20, 2013
with regard to the amount to be returned. The records,
however, show that the following amounts were paid by D. ENGINE CONTROL SYSTEM
Vertex to Forest Hills, FEGDI, and FELI by reason of the sale: GALILEO A. MAGLASANG, doing business under the
name GL Enterprises, Petitioner, v. NORTHWESTERN
INC., UNIVERSITY, Respondent. E. WEATHER CONTROL SYSTEM

DECISION F. ECDIS SYSTEM

G. STEERING WHEEL SYSTEM Two months after the execution of the contracts, GL the event that restoration of the old equipment taken from
Enterprises technicians delivered various materials to the defendant's premises is no longer possible, plaintiff is hereby
project site. However, when they started installing the ordered to pay the appraised value of defendant's old
H. BRIDGE CONSOLE components, respondent halted the operations. GL equipment at P1,000,000.00. Likewise, in the event that
Enterprises then asked for an restoration of the equipment and materials delivered by the
explanation.8chanroblesvirtualawlibrary plaintiff to the defendant is no longer possible, defendant is
Php hereby ordered to pay its appraised value at P1,027,480.00.
TOTAL COST:
3,800,000.00
Northwestern justified the work stoppage upon its finding
that the delivered equipment were substandard. 9 It Moreover, plaintiff is likewise ordered to restore and return
LESS: OLD MARITIME
explained further that GL Enterprises violated the terms and all the equipment obtained by reason of the Second
EQUIPMENT TRADE-IN VALUE 1,000,000.00
conditions of the contracts, since the delivered components Contract, or if restoration or return is not possible, plaintiff is
(1) were old; (2) did not have instruction manuals and ordered to pay the value thereof to the defendant.
DISCOUNT 100,000.00 warranty certificates; (3) contained indications of being
reconditioned machines; and (4) did not meet the IMO and
PROJECT COST (MATERIALS & PhP CHED standards. Thus, Northwestern demanded compliance SO ORDERED.
INSTALLATION) 2,700,000.00 with the agreement and suggested that GL Enterprises meet
with the former's representatives to iron out the situation. Aggrieved, both parties appealed to the CA. With each of
(Emphasis in the original) them pointing a finger at the other party as the violator of
Instead of heeding this suggestion, GL Enterprises filed on 8 the contracts, the appellate court ultimately determined that
September 2004 a Complaint10 for breach of contract and GL Enterprises was the one guilty of substantial breach and
The second contract essentially contains the same terms and prayed for the following sums: P1.97 million, representing liable for attorney's fees.
conditions as follows: 6chanroblesvirtualawlibrary the amount that it would have earned, had Northwestern not
stopped it from performing its tasks under the two contracts;
The CA appreciated that since the parties essentially sought
at least P100,000 as moral damages; at least P100,000 by
That in consideration of the payment herein mentioned to be to have an IBS compliant with the CHED and IMO standards,
way of exemplary damages; at least P100,000 as attorney's
made by the First Party (defendant), the Second Party it was GL Enterprises' delivery of defective equipment that
fees and litigation expenses; and cost of suit. Petitioner
agrees to furnish, supply, install & integrate the most materially and substantially breached the contracts.
alleged that Northwestern breached the contracts by
modern INTEGRATED BRIDGE SYSTEM located at Although the contracts contemplated a completed project to
ordering the work stoppage and thus preventing the
Northwestern University MOCK BOAT in accordance with the be evaluated by CHED, Northwestern could not just sit idly
installation of the materials for the IBS.
general conditions, plans and specifications of this contract. by when it was apparent that the components delivered
were substandard.
Northwestern denied the allegation. In its defense, it
SUPPLY & INSTALLATION OF THE asserted that since the equipment delivered were not in
FOLLOWING:chanroblesvirtualawlibrary The CA held that Northwestern only exercised ordinary
accordance with the specifications provided by the prudence to prevent the inevitable rejection of the IBS
contracts, all succeeding works would be futile and would
delivered by GL Enterprises. Likewise, the appellate court
1. ARPA RADAR SIMULATION ROOM entail unnecessary expenses. Hence, it prayed for the disregarded petitioner's excuse that the equipment delivered
rescission of the contracts and made a compulsory
might not have been the components intended to be
counterclaim for actual, moral, and exemplary damages, and installed, for it would be contrary to human experience to
xxx attorney's fees.
deliver equipment from Quezon City to Laoag City with no
intention to use it.
2. GMDSS SIMULATION ROOM The RTC held both parties at fault. It found that
Northwestern unduly halted the operations, even if the
This time, applying Article 1191 of the Civil Code, the CA
contracts called for a completed project to be evaluated by
xxx declared the rescission of the contracts. It then proceeded to
the CHED. In turn, the breach committed by GL Enterprises
affirm the RTC's order of mutual restitution. Additionally, the
consisted of the delivery of substandard equipment that appellate court granted P50,000 to Northwestern by way of
were not compliant with IMO and CHED standards as
TOTAL COST: PhP 270,000.00 attorney's fees.
required by the agreement.
(Emphasis in the original)
Before this Court, petitioner rehashes all the arguments he
Invoking the equitable principle that "each party must bear
Common to both contracts are the following provisions: (1) had raised in the courts a quo. 12 He maintains his prayer for
its own loss," the trial court treated the contracts as
the IBS and its components must be compliant with the IMO actual damages equivalent to the amount that he would
impossible of performance without the fault of either party or
and CHED standard and with manuals for simulators/major have earned, had respondent not stopped him from
as having been dissolved by mutual consent. Consequently,
equipment; (2) the contracts may be terminated if one party performing his tasks under the two contracts; moral and
it ordered mutual restitution, which would thereby restore
commits a substantial breach of its undertaking; and (3) any exemplary damages; attorney's fees; litigation expenses;
the parties to their original positions as
dispute under the agreement shall first be settled mutually and cost of suit.
follows:11chanroblesvirtualawlibrary
between the parties, and if settlement is not obtained, resort
shall be sought in the courts of law.
Hence, the pertinent issue to be resolved in the instant
Accordingly, plaintiff is hereby ordered to restore to the appeal is whether the CA gravely erred in (1) finding
defendant all the equipment obtained by reason of the First
Subsequently, Northwestern paid P1 million as down substantial breach on the part of GL Enterprises; (2) refusing
Contract and refund the downpayment of P1,000,000.00 to
payment to GL Enterprises. The former then assumed petitioner's claims for damages, and (3) awarding attorney's
the defendant; and for the defendant to return to the plaintiff
possession of Northwestern's old IBS as trade-in payment for fees to Northwestern.
the equipment and materials it withheld by reason of the
its service. Thus, the balance of the contract price remained
non-continuance of the installation and integration project. In
at P1.97 million.7chanroblesvirtualawlibrary
RULING OF THE COURT
Substantial Breaches of the Contracts
Although the RTC and the CA concurred in ordering
restitution, the courts a quo, however, differed on the basis
thereof. The RTC applied the equitable principle of mutual
fault, while the CA applied Article 1191 on rescission.
The power to rescind the obligations of the injured party is
implied in reciprocal obligations, such as in this case. On this
score, the CA correctly applied Article 1191, which provides
thus:chanroblesvirtualawlibrary
The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with
what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there
be just cause authorizing the fixing of a period.
The two contracts require no less than substantial breach
before they can be rescinded. Since the contracts do not
provide for a definition of substantial breach that would
terminate the rights and obligations of the parties, we apply
the definition found in our jurisprudence.
This Court defined in Cannu v. Galang13 that substantial,
unlike slight or casual breaches of contract, are fundamental
breaches that defeat the object of the parties in entering into
an agreement, since the law is not concerned with
trifles.14chanroblesvirtualawlibrary
The question of whether a breach of contract is substantial
depends upon the attending
circumstances.15chanroblesvirtualawlibrary
In the case at bar, the parties explicitly agreed that the
materials to be delivered must be compliant with the CHED
and IMO standards and must be complete with manuals.
Aside from these clear provisions in the contracts, the courts
a quo similarly found that the intent of the parties was to
replace the old IBS in order to obtain CHED accreditation for
Northwestern's maritime-related courses.
According to CHED Memorandum Order (CMO) No. 10, Series
of 1999, as amended by CMO No. 13, Series of 2005, any
simulator used for simulator-based training shall be capable
of simulating the operating capabilities of the shipboard
equipment concerned. The simulation must be achieved at a
level of physical realism appropriate for training objectives;
include the capabilities, limitations and possible errors of
such equipment; and provide an interface through which a
trainee can interact with the equipment, and the simulated
environment.
Given these conditions, it was thus incumbent upon GL
Enterprises to supply the components that would create an
IBS that would effectively facilitate the learning of the
students.
However, GL Enterprises miserably failed in meeting its
responsibility. As contained in the findings of the CA and the
RTC, petitioner supplied substandard equipment when it
delivered components that (1) were old; (2) did not have
instruction manuals and warranty certificates; (3) bore
indications of being reconditioned machines; and, all told, (4)
might not have met the IMO and CHED standards.
Highlighting the defects of the delivered materials, the CA
quoted respondent's testimonial evidence as
follows:16chanroblesvirtualawlibrary
Q: In particular which of these equipment of CHED
requirements were not complied with?
A: The Radar Ma'am, because they delivered only 10-inch
PPI, that is the monitor of the Radar. That is 16-inch and the
gyrocompass with two (2) repeaters and the history card.
The gyrocompass - there is no marker, there is no model,
there is no serial number, no gimbal, no gyroscope and a
bulb to work it properly to point the true North because it is
very important to the Cadets to learn where is the true North
being indicated by the Master Gyrocompass.
xxx
Q: Mr. Witness, one of the defects you noted down in this
history card is that the master gyrocompass had no gimbals,
gyroscope and balls and was replaced with an ordinary
electric motor. So what is the Implication of this?
A: Because those gimbals, balls and the gyroscope it let the
gyrocompass to work so it will point the true North but they
being replaced with the ordinary motor used for toys so it
will not indicate the true North.
Q: So what happens if it will not indicate the true North?
A: It is very big problem for my cadets because they must, to
learn into school where is the true North and what is that
equipment to be used on board.
Q: One of the defects is that the steering wheel was that of
an ordinary automobile. And what is the implication of this?
A: Because. on board Ma am, we are using the real steering
wheel and the cadets will be implicated if they will notice
that the ship have the same steering wheel as the car so it is
not advisable for them.
Q:. And another one is that the gyrocompass repeater was
only refurbished and it has no serial number. What is wrong
with that?
A: It should be original Ma am because this gyro repeater, it
must to repeat also the true North being indicated by the
Master Gyro Compass so it will not work properly, I don t
know it will work properly. (Underscoring supplied)
Evidently, the materials delivered were less likely to pass the
CHED standards, because the navigation system to be
installed might not accurately point to the true north; and
the steering wheel delivered was one that came from an
automobile, instead of one used in ships. Logically, by no
stretch of the imagination could these form part of the most
modern IBS compliant with the IMO and CHED standards.
Even in the instant appeal, GL Enterprises does not refute
that the equipment it delivered was substandard. However,
it reiterates its rejected excuse that Northwestern should
have made an assessment only after the completion of the
IBS.17 Thus, petitioner stresses that it was Northwestern that
breached the agreement when the latter halted the
installation of the materials for the IBS, even if the parties
had contemplated a completed project to be evaluated by
CHED. However, as aptly considered by the CA, respondent
could not just "sit still and wait for such day that its
accreditation may not be granted by CHED due to the
apparent substandard equipment installed in the bridge
system."18 The appellate court correctly emphasized that, by
that time, both parties would have incurred more costs for
nothing.
Additionally, GL Enterprises reasons that, based on the
contracts, the materials that were hauled all the way from
Quezon City to Laoag City under the custody of the four
designated installers might not have been the components
to be used.19 Without belaboring the point, we affirm the
conclusion of the CA and the RTC that the excuse is
untenable for being contrary to human
experience.20chanroblesvirtualawlibrary
Given that petitioner, without justification, supplied
substandard components for the new IBS, it is thus clear that
its violation was not merely incidental, but directly related to
the essence of the agreement pertaining to the installation
of an IBS compliant with the CHED and IMO standards.
Consequently, the CA correctly found substantial breach on
the part of petitioner.
In contrast, Northwestern's breach, if any, was characterized
by the appellate court as slight or casual. 21 By way of
negative definition, a breach is considered casual if it does
not fundamentally defeat the object of the parties in
entering into an agreement. Furthermore, for there to be a
breach to begin with, there must be a "failure, without legal
excuse, to perform any promise which forms the whole or
part of the contract." 22chanroblesvirtualawlibrary
Here, as discussed, the stoppage of the installation was
justified. The action of Northwestern constituted a legal The facts follow. In a Decision 5 dated March 30, 2006, the HLURB Board of
excuse to prevent the highly possible rejection of the IBS. Commissioners reversed and set aside the ruling of the
Hence, just as the CA concluded, we find that Northwestern Respondent Jayne Yu and petitioner Swire Realty HLURB ENCRFO and ordered the rescission of the Contract to
exercised ordinary prudence to avert a possible wastage of Development Corporation entered into a Contract to Sell on Sell, ratiocinating:chanRoblesvirtualLawlibrary
time, effort, resources and also of the P2.9 million July 25, 1995 covering one residential condominium unit,
representing the value of the new IBS. specifically Unit 3007 of the Palace of Makati, located at P.
We find merit in the appeal. The report on the ocular
Burgos corner Caceres Sts., Makati City, with an area of
inspection conducted on the subject condominium project
137.30 square meters for the total contract price of
Actual Damages, Moral and Exemplary Damages, and and subject unit shows that the amenities under the
P7,519,371.80, payable in equal monthly installments until
Attorney's Fees approved plan have not yet been provided as of May 3,
September 24, 1997. Respondent likewise purchased a
2002, and that the subject unit has not been delivered to
parking slot in the same condominium building for
[respondent] as of August 28, 2002, which is beyond the
P600,000.00.
As between the parties, substantial breach can clearly be period of development of December 1999 under the license
attributed to GL Enterprises. Consequently, it is not the to sell. The delay in the completion of the project as well as
On September 24, 1997, respondent paid the full purchase
injured party who can claim damages under Article 1170 of of the delay in the delivery of the unit are breaches of
price of P7,519,371.80 for the unit while making a down
the Civil Code. For this reason, we concur in the result of the statutory and contractual obligations which entitles
payment of P20,000.00 for the parking lot. However,
CA's Decision denying petitioner actual damages in the form [respondent] to rescind the contract, demand a refund and
notwithstanding full payment of the contract price, petitioner
of lost earnings, as well as moral and exemplary damages. payment of damages.
failed to complete and deliver the subject unit on time. This
prompted respondent to file a Complaint for Rescission of
The delay in the completion of the project in accordance with
With respect to attorney's fees, Article 2208 of the Civil Code Contract with Damages before the Housing and Land Use
the license to sell also renders [petitioner] liable for the
allows the grant thereof when the court deems it just and Regulatory Board (HLURB) Expanded National Capital Region
payment of administrative fine.
equitable that attorney's fees should be recovered. An award Field Office (ENCRFO).
of attorney's fees is proper if one was forced to litigate and Wherefore, the decision of the Office below is set aside and a
incur expenses to protect one's rights and interest by reason On October 19, 2004, the HLURB ENCRFO rendered a
new decision is rendered as follows:
of an unjustified act or omission on the part of the party from Decision 3 dismissing respondent’s complaint. It ruled that
whom the award is sought. 23chanroblesvirtualawlibrary rescission is not permitted for slight or casual breach of the
contract but only for such breaches as are substantial and 1. Declaring the contract to sell as
fundamental as to defeat the object of the parties in making rescinded and directing [petitioner] to
Since we affirm the CA's finding that it was not Northwestern the agreement. It disposed of the case as refund to [respondent] the amount of
but GL Enterprises that breached the contracts without follows:chanRoblesvirtualLawlibrary P7,519,371.80 at 6% per annum from
justification, it follows that the appellate court correctly the time of extrajudicial demand on
awarded attorney's fees to respondent. Notably, this January 05, 2001: subject to
litigation could have altogether been avoided if petitioner WHEREFORE, PREMISES CONSIDERED, judgment is hereby
rendered ordering [petitioner] the following: computation and payment of the correct
heeded respondent's suggestion to amicably settle; or, filing fee;ChanRoblesVirtualawlibrary
better yet, if in the first place petitioner delivered the right
materials as required by the contracts. 1. To finish the subject unit as pointed out
2. Directing [petitioner] to pay respondent
in the inspection Report
attorney’s fees in the amount of
IN VIEW THEREOF, the assailed 27 July 2009 Decision of the P20,000.00;ChanRoblesVirtualawlibrary
Court of Appeals in CA-G.R. CV No. 88989 is hereby 2. To pay [respondent] the following:
AFFIRMED.
3. Directing [petitioner] to pay an
a. the amount of P100,000 as administrative fine of P10,000.00 for
SO ORDERED. compensatory damages for violation of Section 20, in relation to
the minor irreversible defects Section 38 of P.D. 957:
in her unit [respondent], or, in
the alternative, conduct the
necessary repairs on the SO ORDERED. 6cralawred
subject unit to conform to the cralawlawlibrary
G.R. No. 207133, March 09, 2015 intended specifications;
b. moral damages of P20,000.00 Petitioner moved for reconsideration, but the same was
c. Attorney’s fees of P20,000.00 denied by the HLURB Board of Commissioners in a
SWIRE REALTY DEVELOPMENT Resolution 7 dated June 14, 2007.
CORPORATION, Petitioner, v. JAYNE YU, Respondent.
On the other hand, [respondent] is hereby directed to Unfazed, petitioner appealed to the Office of the President
DECISION immediately update her account insofar as the parking slot is (OP) on August 7, 2007.
concerned, without interest, surcharges or penalties charged
therein. In a Decision 8 dated November 21, 2007, the OP, through
PERALTA, J.: then Deputy Executive Secretary Manuel Gaite, dismissed
All other claims and counterclaims are hereby dismissed for petitioner’s appeal on the ground that it failed to promptly
lack of merit. file its appeal before the OP. It
This is a Petition for Review on Certiorari under Rule 45 of held:chanRoblesvirtualLawlibrary
the 1997 Rules of Civil Procedure which seeks to reverse and IT IS SO ORDERED. 4cralawlawlibrary
set aside the Decision 1 dated January 24, 2013 and
Resolution 2 dated April 30, 2013 of the Court of Appeals Records show that [petitioner] received its copy of the 30
Respondent then elevated the matter to the HLURB Board of
(CA) in CA-G.R. SP No. 121175. March 2006 HLURB Decision on 17 April 2006 and instead of
Commissioners.
filing an appeal, it opted first to file a Motion for
Reconsideration on 28 April 2006 or eleven (11) days
thereafter. The said motion interrupted the 15-day period to
appeal.
On 23 July 2007, [petitioner] received the HLURB Resolution
dated 14 June 2007 denying the Motion for Reconsideration.
Based on the ruling in United Overseas Bank Philippines,
Inc. v. Ching (486 SCRA 655), the period to appeal
decisions of the HLURB Board of Commissioners to the Office
of the President is 15 days from receipt thereof pursuant to
Section 15 of P.D. No. 957 and Section 2 of P.D. No. 1344
which are special laws that provide an exception to Section 1
of Administrative Order No. 18.
Corollary thereto, par. 2, Section 1 of Administrative Order
No. 18, Series of 1987 provides that:
The time during which a motion for reconsideration has been
pending with the Ministry/Agency concerned shall
be deducted from the period of appeal. But where such a
motion for reconsideration has been filed during office hours
of the last day of the period herein provided, the appeal
must be made within the day following receipt of the denial
of said motion by the appealing party.  (Underscoring
supplied)
xxxx
Accordingly, the [petitioner] had only four (4) days from
receipt on 23 July 2007 of HLURB Resolution dated 14 June
2007, or until 27 July 2007 to file the Notice of Appeal before
this Office. However, [petitioner] filed its appeal only on 7
August 2007 or eleven (11) days late.
Thus, this Office need not delve on the merits of the appeal
filed as the records clearly show that the said appeal was
filed out of time.
WHEREFORE, premises considered, [petitioner]’s appeal is
hereby DISMISSED, and the HLURB Decision dated 30
March 2006 and HLURB Resolution dated 14 June 2007 are
hereby AFFIRMED.
SO ORDERED. 9cralawlawlibrary
Immediately thereafter, petitioner filed a motion for
reconsideration against said decision.
In a Resolution 10 dated February 17, 2009, the OP, through
then Executive Secretary Eduardo Ermita, granted
petitioner’s motion and set aside Deputy Executive
Secretary Gaite’s decision. It held that after a careful and
thorough evaluation and study of the records of the case,
the OP was more inclined to agree with the earlier decision
of the HLURB ENCRFO as it was more in accord with facts,
law and jurisprudence relevant to the case.
Thus:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, the instant Motion for
Reconsideration is hereby GRANTED. The Decision and
Resolution of the HLURB Third Division Board of
Commissioners, dated March 30, 2006 and June 14, 2007,
respectively, are hereby SET ASIDE, and the HLURB
ENCRFO Decision dated October 19, 2004 is hereby
REINSTATED.
In the aforementioned cases, we ruled that the period to
SO ORDERED. 11cralawred appeal decisions of the HLURB Board of Commissioners is
cralawlawlibrary fifteen (15) days from receipt thereof pursuant to Section
15 18 of PD No. 957 19 and Section 2 20 of PD No.
Respondent sought reconsideration of said resolution, 1344 21 which are special laws that provide an exception to
however, the same was denied by the OP in a Section 1 of Administrative Order No. 18. Thus, in the SGMC
Resolution 12 dated August 18, 2011. Realty Corporation v. Office of the President case, the Court
explained:chanRoblesvirtualLawlibrary
Consequently, respondent filed an appeal to the CA.
As pointed out by public respondent, the aforecited
In a Decision dated January 24, 2013, the CA granted
administrative order allows aggrieved party to file its appeal
respondent’s appeal and reversed and set aside the Order of
with the Office of the President within thirty (30) days from
the OP. The fallo of its decision
receipt of the decision complained of. Nonetheless, such
reads:chanRoblesvirtualLawlibrary
thirty-day period is subject to the qualification that there are
no other statutory periods of appeal applicable. If there are
WHEREFORE, the Petition is hereby GRANTED. The special laws governing particular cases which provide for a
assailed Resolution dated 17 February 2009 and Order dated shorter or longer reglementary period, the same shall prevail
18 August 2011 of the Office of the President, in O.P. Case over the thirty-day period provided for in the administrative
No. 07-H-283, are hereby REVERSED and SET order. This is in line with the rule in statutory construction
ASIDE. Accordingly, the Decision dated 30 March 2006 that an administrative rule or regulation, in order to be valid,
and Resolution dated 14 June 2007 of the HLURB Board of must not contradict but conform to the provisions of the
Commissioners in HLURB Case No. REM-A-050127-0014, enabling law.
are REINSTATED.
We note that indeed there are special laws that mandate a
SO ORDERED.cralawlawlibrary 13cralawred shorter period of fifteen (15) days within which to appeal a
cralawlawlibrary case to public respondent. First, Section 15 of Presidential
Decree No. 957 provides that the decisions of the National
Petitioner moved for reconsideration, however, the CA Housing Authority (NHA) shall become final and executory
denied the same in a Resolution dated April 30, 2013. after the lapse of fifteen (15) days from the date of receipt of
the decision. Second, Section 2 of Presidential Decree No.
Hence, the present petition wherein petitioner raises the 1344 states that decisions of the National Housing Authority
following grounds to support its shall become final and executory after the lapse of fifteen
petition:chanRoblesvirtualLawlibrary (15) days from the date of its receipt. The latter decree
provides that the decisions of the NHA is appealable only to
the Office of the President. Further, we note that the
THE COURT OF APPEALS GRAVELY ERRED IN IGNORING THE
regulatory functions of NHA relating to housing and land
LEGAL PRECEPTS THAT:
development has been transferred to Human Settlements
Regulatory Commission, now known as HLURB.  x x
1. TECHNICAL RULES ARE NOT BINDING x 22cralawlawlibrary
UPON ADMINISTRATIVE AGENCIES; and
Records show that petitioner received a copy of the HLURB
Board of Commissioners’ decision on April 17, 2006.
2. RESCISSION WILL BE ORDERED ONLY Correspondingly, it had fifteen days from April 17, 2006
WHERE THE BREACH COMPLAINED OF IS within which to file its appeal or until May 2, 2006. However,
SUBSTANTIAL AS TO DEFEAT THE on April 28, 2006, or eleven days after receipt of the HLURB
OBJECT OF THE PARTIES IN ENTERING Board of Commissioner’s decision, it filed a Motion for
INTO THE AGREEMENT. 14 Reconsideration, instead of an appeal.
cralawlawlibrary Concomitantly, Section 1 of Administrative Order No.
18 23 provides that the time during which a motion for
In essence, the issues are: (1) whether petitioner’s appeal reconsideration has been pending with the ministry or
was timely filed before the OP; and (2) whether rescission of agency concerned shall be deducted from the period for
the contract is proper in the instant case. appeal. Petitioner received the HLURB Board Resolution
denying its Motion for Reconsideration on July 23, 2007 and
We shall resolve the issues in seriatim. filed its appeal only on August 7, 2007. Consequently
therefore, petitioner had only four days from July 23, 2007,
First, the period to appeal the decision of the HLURB Board or until July 27, 2007, within which to file its appeal to the OP
of Commissioners to the Office of the President has long as the filing of the motion for reconsideration merely
been settled in the case of SGMC Realty Corporation v. suspended the running of the 15-day period. However,
Office of the President,  15 as reiterated in the cases records reveal that petitioner only appealed to the OP on
of Maxima Realty Management and Development August 7, 2007, or eleven days late. Ergo, the HLURB Board
Corporation v. Parkway Real Estate Development of Commissioners’ decision had become final and executory
Corporation 16 and United Overseas Bank Philippines, Inc. v. on account of the fact that petitioner did not promptly
Ching. 17cralawred appeal with the OP.
In like manner, we find no cogent reason to exempt approved condominium plans.
petitioner from the effects of its failure to comply with the In the instant case, the CA aptly found that the completion Health spa for men and
rules. date of the condominium unit was November 1998 pursuant women, Shiatsu Massage
to License No. 97-12-3202 dated November 2, 1997 but was Room, Two-Level Sky Palace
In an avuncular case, we have held that while the dismissal extended to December 1999 as per License to Sell No. 99- Restaurant and Hall for games
of an appeal on purely technical grounds is concededly 05-3401 dated May 8, 1999. However, at the time of the and entertainments, replete
frowned upon, it bears emphasizing that the procedural ocular inspection conducted by the HLURB ENCRFO, the unit with billiard tables, a bar,
requirements of the rules on appeal are not harmless and was not yet completely finished as the kitchen cabinets and indoor golf with spectacular
trivial technicalities that litigants can just discard and fixtures were not yet installed and the agreed amenities deck and karaoke rooms were
disregard at will. Neither being a natural right nor a part of were not yet available. Said inspection report not yet provided by the
due process, the rule is settled that the right to appeal is states:chanRoblesvirtualLawlibrary [petitioner].
merely a statutory privilege which may be exercised only in
the manner and in accordance with the provisions of the
1. The unit of the [respondent] is Unit g. The [master’s] bedroom door
law. 24cralawred
3007, which was labeled as P2-07, at bore sign of poor quality of
the Palace of Makati, located at the workmanship as seen below.
Time and again, we have held that rules of procedure exist
for a noble purpose, and to disregard such rules, in the guise corner of P. Burgos Street and Caceres
of liberal construction, would be to defeat such purpose. Street, Poblacion, Makati City. Based on h. The stairs have been installed
Procedural rules are not to be disdained as mere the approved plans, the said unit is at in such manner acceptable to
technicalities. They may not be ignored to suit the the 26th Floor. the undersigned.
convenience of a party. 25 The reason for the liberal 2. During the time of inspection, the said
application of the rules before quasi-judicial agencies cannot unit appears to be completed except for
the installation of kitchen cabinets and i. Bathrooms and powder room
be used to perpetuate injustice and hamper the just have been installed in such
resolution of the case. Neither is the rule on liberal fixtures.
manner acceptable to the
construction a license to disregard the rules of undersigned. 28
procedure. 26cralawred 3. Complainant pinpointed to the
undersigned the deficiencies as follows:
Thus, while there may be exceptions for the relaxation of cralawlawlibrary
technical rules principally geared to attain the ends of
justice, petitioner’s fatuous belief that it had a fresh 15-day a. The delivered unit has high
From the foregoing, it is evident that the report on the ocular
period to elevate an appeal with the OP is not the kind of density fiber (HDF) floorings
inspection conducted on the subject condominium project
exceptional circumstance that merits relaxation. instead of narra wood
and subject unit shows that the amenities under the
parquet.
approved plan have not yet been provided as of May 3,
Second, Article 1191 of the Civil Code sanctions the right to 2002, and that the subject unit has not been delivered to
rescind the obligation in the event that specific performance b. The [petitioners] have also respondent as of August 28, 2002, which is beyond the
becomes impossible, to wit:chanRoblesvirtualLawlibrary installed baseboards as period of development of December 1999 under the license
borders instead of pink to sell. Incontrovertibly, petitioner had incurred delay in the
Article 1191. The power to rescind obligations is implied in porrino granite boarders. performance of its obligation amounting to breach of
reciprocal ones, in case one of the obligors should not contract as it failed to finish and deliver the unit to
comply with what is incumbent upon him. respondent within the stipulated period. The delay in the
c. Walls are newly painted by
completion of the project as well as of the delay in the
the respondent and the
The injured party may choose between the fulfillment and delivery of the unit are breaches of statutory and contractual
alleged obvious signs of
the rescission of the obligation, with the payment of obligations which entitle respondent to rescind the contract,
cladding could not be
damages in either case. He may also seek rescission, even demand a refund and payment of damages.
determined.
after he has chosen fulfillment, if the latter should become
impossible. WHEREFORE, premises considered, the instant petition
d. Window opening at the is DENIED. The Decision dated January 24, 2013 and
The court shall decree the rescission claimed, unless there master bedroom conforms to Resolution dated April 30, 2013 of the Court of Appeals in
be just cause authorizing the fixing of a period. the approved plans. As a CA-G.R. SP No. 121175 are hereby AFFIRMED, with
result it leaves a 3 inches (sic) MODIFICATION that moral damages be awarded in the
This is understood to be without prejudice to the rights of gap between the glass amount of P20,000.00
third persons who have acquired the thing, in accordance window and partitioning of the
with Articles 1385 and 1388 and the Mortgage master’s bedroom. SO ORDERED.
Law.cralawlawlibrary
e. It was verified and confirmed
Basic is the rule that the right of rescission of a party to an that a square column replaced
obligation under Article 1191 of the Civil Code is predicated the round column, based on
on a breach of faith by the other party who violates the the approved plans.
reciprocity between them. The breach contemplated in the
said provision is the obligor’s failure to comply with an
f. At the time of inspection,
existing obligation. When the obligor cannot comply with
amenities such as swimming
what is incumbent upon it, the obligee may seek rescission
pool and change room are
and, in the absence of any just cause for the court to
seen at the 31st floor only.
determine the period of compliance, the court shall decree
These amenities are reflected
the rescission. 27cralawred
on the 27th floor plan of the
 March 7, 1997 P100,000.00 representations, Fong had nothing to rely on to ensure that
April 28, 1997 P500,000.00 these shares were really valued at P32.5 Million. Moreover,
Dueñas failed to incorporate and register Alliance
G.R. No. 185592, June 15, 2015 June 13, 1997 P919,524.80 with the Securities and Exchange Commission
Total P5,000,000.00 (SEC).12chanrobleslaw
GEORGE C. FONG, Petitioner, v. JOSE V.
On June 13, 1997, Fong sent a letter to Dueñas These circumstances convinced Fong that Dueñas would no
DUEÑAS, Respondent.
informing him of his decision to limit his total longer honor his obligations in their joint venture
contribution from P32.5 Million to P5 Million. This letter agreement.13 Thus, on October 30, 1997, Fong wrote Dueñas
DECISION reads:chanRoblesvirtualLawlibrary informing him of his decision to cancel the joint venture
agreement. He also asked for the refund of the P5 Million
June 13, 1997 that he advanced. 14In response, Dueñas admitted that
BRION, J.: he could not immediately return the money since he
Mr. Jose Dueñas used it to defray the business expenses of Danton
c/o Camira Industries and Bakcom.15chanrobleslaw
We resolve in this petition for review on certiorari1 the
challenge to the September 16, 2008 decision 2 and the Re: Proposed JV in Bakcom, D.C. Danton and Boboli To meet Fong’s demand, Dueñas proposed several schemes
December 8, 2008 resolution 3 of the Court of Appeals (CA) in for payment of the P5 Million.16 However, Fong did not accept
CA-G.R. CV No. 88396. Dear Jojit, any of these proposed schemes. On March 25, 1998, Fong
wrote a final letter of demand17 informing Dueñas that he
These assailed CA rulings annulled the June 27, 2006 Enclosed is our check for P919,534.80 representing would file a judicial action against him should he still fail to
decision4 and October 30, 2006 order 5 of the Regional Trial our additional advances to subject company in process pay after receipt of this written demand.
Court of Makati, Branch 64 (trial court), which directed of incorporation. This will make our total advances to date
respondent Jose V. Dueñas (Dueñas) to pay Five Million amounting to P5 million. Since Dueñas did not pay, Fong filed a complaint against him
Pesos (P5 Million) to petitioner George C. Fong (Fong), and for collection of a sum of money and damages 18 on April 24,
imposed a six percent (6%) annual interest on this amount. Since we agreed in principal late last year to pursue subject 1998.
matter, the delays in implementing the joint venture have
Factual Antecedents caused us to rethink our position. First, we were faced with
The Trial Court’s Ruling
the ‘personal’ factor which was explained to you one time.
Dueñas is engaged in the bakery, food manufacturing, and This has caused us to turn down a number of business
In its June 27, 2006 decision, the trial court ruled in favor of
retailing business, which are all operated under his two opportunities. Secondly, since last year, the operation of
Fong and held that a careful examination of the complaint
companies, D.C. DANTON, Inc. (Danton) and Bakcom Food Century 21 has been taking more time from us than
shows that although it was labeled as an action for collection
Industries, Inc. (Bakcom). He was an old acquaintance of anticipated. That is why we decided to relinquish our original
of a sum of money, it was actually an action for
Fong as they were former schoolmates at the De La Salle plan to manage and operate ‘Boboli’ knowing this limitation.
rescission.19chanrobleslaw
University.6chanrobleslaw For us, it does not make sense anymore to go for a
significant shareholding when we cannot be hands on and
The trial court noted that Dueñas’ failure to furnish Fong with
Sometime in November 1996, Dueñas and Fong entered into participate actively as originally planned. For your
the financial documents on the valuation of the Danton and
a verbal joint venture contract where they agreed to information, we will probably be giving up our subway
Bakcom shares, as well as the almost one year delay in the
engage in the food business and to incorporate a holding franchise too.
incorporation of Alliance, caused Fong to rescind the joint
company under the name Alliance Holdings, Inc. (Alliance or venture agreement.20 According to the trial court, these are
the proposed corporation). Its capitalization would be Sixty Together with our business advisers and legal counsel, we
adequate and acceptable reasons for rescission.
Five Million Pesos (P65 Million), to which they would came to a decision to hold our commitment (from
contribute in equal parts.7chanrobleslaw advances to investment) at P5 million only for now
The trial court also held that Dueñas erroneously invested
from the original plan of P32.5 million, if this is
Fong’s cash contributions in his two companies, Danton and
The parties agreed that Fong would contribute Thirty Two acceptable to you.
Bakcom. The signed receipts,21 presented as evidence,
Million and Five Hundred Thousand Pesos (P32.5 Million) in expressly provided that each remittance should be
cash while Dueñas would contribute all his Danton and We know that our decision will somewhat upset the overall
applied as advance subscription to Fong’s
Bakcom shares which he valued at P32.5 Million. 8 Fong plans. But it will probably be more problematic for us in the
shareholding in Alliance. Thus, Dueñas’ investment of the
required Dueñas to submit the financial documents long run if we continue full speed. We have put our money
money in Danton and Bakcom was clearly unauthorized and
supporting the valuation of these shares. down in trust and good faith despite the much
contrary to the parties’ agreement.
delayed financials. We continue to believe in your game
On November 25, 1996, Fong started remitting in tranches plan and capabilities to achieve the desired goals for subject
Since Dueñas was unjustly enriched by Fong’s advance
his share in the proposed corporation’s capital. He made the undertaking. Please permit us instead to be just a modest
capital contributions, the trial court ordered him to return
remittances under the impression that his contribution would silent investor now with a take out plan when time and price
the money amounting to P5 Million and to pay ten percent
be applied as his subscription to fifty percent (50%) of is right.
(10%) of this amount in attorney’s fees, as well as the cost of
Alliance’s total shareholdings. On the other hand, Dueñas the suit.22chanrobleslaw
started processing the Boboli 9 international license that they Thank you for your kind understanding and consideration.
would use in their food business. Fong’s cash contributions Fong filed a partial motion for reconsideration from the trial
are summarized below.10c With best regards.
court’s June 27, 2006 decision and asked for the imposition
of a six percent (6%) annual interest, computed from the
ralawred (Signed) George Fong11
date of extrajudicial demand until full payment of the award.
Date Amount The trial court granted this prayer in its October 30, 2006
Fong observed that despite his P5 Million
November 25, 1996 P1,980,475.20 order.23chanrobleslaw
contribution, Dueñas still failed to give him the
January 14, 1997 P1,000,000.00 financial documents on the valuation of the Danton
February 8, 1997 P500,000.00 and Bakcom shares. Thus, except for Dueñas’ The CA’s Ruling
 or regulation which provides that an agreement to is to restore the parties to their original status before
Dueñas responded to the trial court’s ruling through an incorporate must be in writing. they entered in a contract. As the Court ruled in Unlad
appeal with the CA, which granted the appeal and annulled Resources v. Dragon:34cralawred
the trial court’s ruling. With this as premise, we now address the related issues Rescission has the effect of “unmaking a contract, or
raised by the parties. its undoing from the beginning, and not merely its
The CA ruled that Fong’s June 13, 1997 letter evidenced his termination.” Hence, rescission creates the obligation
intention to convert his cash contributions from “advances” The body rather than the title of the complaint to return the object of the contract. It can be carried out
to the proposed corporation’s shares, to mere determines the nature of the action. only when the one who demands rescission can return
“investments.” Thus, contrary to the trial court’s ruling, whatever he may be obliged to restore. To rescind is to
Dueñas correctly invested Fong’s P5 Million contribution to A well-settled rule in procedural law is that the allegations in declare a contract void at its inception and to put an end to
Bakcom and Danton. This did not deviate from the parties’ the body of the pleading or the complaint, and not its title, it as though it never was. It is not merely to terminate it and
original agreement as eventually, the shares of these two determine the nature of an action. 31chanrobleslaw release the parties from further obligations to each other,
companies would form part of Alliance’s but to abrogate it from the beginning and restore the parties
capital.24chanrobleslaw An examination of Fong’s complaint shows that although it to their relative positions as if no contract has been made.
was labeled as an action for a sum of money and
Lastly, the CA held that the June 13, 1997 letter showed that damages, it was actually a complaint for rescission. Accordingly, when a decree for rescission is handed
Fong knew all along that he could not immediately ask for The following allegations in the complaint support this down, it is the duty of the court to require both
the return of his P5 Million investment. Thus, whether the finding: parties to surrender that which they have
action filed was a complaint for collection of a sum of money, respectively received and to place each other as far
or rescission, it must still fail.25chanrobleslaw 9. Notwithstanding the aforesaid remittances, 35
as practicable in his original situation.  [Emphasis
defendant failed for an unreasonable length of time supplied.]
to submit a valuation of the equipment of D.C. Danton In this light, we rule that Fong’s prayer for the return of his
The Petition
and Bakcom x x x. contribution did not automatically convert the action to a
complaint for a sum of money. The mutual restitution of
Fong submits that the CA erred when it ruled that his June
10. Worse, despite repeated reminders from the parties’ original contributions is only a necessary
13, 1997 letter showed his intent to convert his contributions
plaintiff, defendant failed to accomplish the consequence of their agreement’s rescission.
from advance subscriptions to Alliance’s shares, to
organization and incorporation of the proposed
investments in Dueñas’ two companies. Contrary to the CA’s
holding company, contrary to his representation to Rescission under Art. 1191 is applicable in the
findings, the receipts and the letter expressly mentioned
promptly do so. present case
that his contributions should all be treated as his share
subscription to Alliance. 26chanrobleslaw
x x x x Reciprocal obligations are those which arise from the same
cause, in which each party is a debtor and a creditor of the
Also, Fong argues that Dueñas’ unjustified retention of the
17. Considering that the incorporation of the proposed other, such that the obligation of one is dependent on the
P5 Million and its appropriation to his (Dueñas’) own
holding company failed to materialize, despite the obligation of the other.36chanrobleslaw
business, amounted to unjust enrichment; and that he
lapse of one year and four months from the time of
contributed to fund Alliance’s capital and incorporation, not
subscription, plaintiff has the right to revoke his pre- Fong and Dueñas’ execution of a joint venture agreement
to pay for Danton and Bakcom’s business
incorporation subscription. Such revocation entitles created between them reciprocal obligations that must be
expenses.27chanrobleslaw
plaintiff to a refund of the amount of P5,000,000.00 performed in order to fully consummate the contract and
he remitted to defendant, representing advances made in achieve the purpose for which it was entered into.
The Case for Dueñas favor of defendant to be considered as payment on plaintiff’s
subscription to the proposed holding company upon its Both parties verbally agreed to incorporate a company that
Dueñas contends that he could no longer refund the P5 incorporation, plus interest from receipt by defendant of said would hold the shares of Danton and Bakcom and which, in
Million since he had already applied it to his two companies; amount until fully paid. [Emphasis supplied.] turn, would be the platform for their food business. Fong
that this is proper since Danton and Bakcom’s shares would Fong’s allegations primarily pertained to his obligated himself to contribute half of the capital or P32.5
also form part of his capital contribution to cancellation of their verbal agreement because Million in cash. On the other hand, Dueñas bound himself to
Alliance. 28chanrobleslaw Dueñas failed to perform his obligations to provide shoulder the other half by contributing his Danton and
verifiable documents on the valuation of the Danton’s Bakcom shares, which were allegedly also valued at P32.5
Moreover, the incorporation did not push through because and Bakcom’s shares, and to incorporate the Million. Aside from this, Dueñas undertook to process
Fong unilaterally rescinded the joint venture agreement by proposed corporation. These allegations clearly show that Alliance’s incorporation and registration with the SEC.
limiting his investment from P32.5 Million to P5 what Fong sought was the joint venture agreement’s
Million.29 Thus, it was Fong who first breached the contract, rescission. When the proposed company remained unincorporated by
not he. Consequently, Fong’s failure to comply with his October 30, 1997, Fong cancelled the joint venture
undertaking disqualified him from seeking the agreement’s As a contractual remedy, rescission is available when one of agreement and demanded the return of his P5 Million
rescission.30chanrobleslaw the parties substantially fails to do what he has obligated contribution.
himself to perform.32 It aims to address the breach of faith
The Court’s Ruling and the violation of reciprocity between two parties in a For his part, Dueñas explained that he could not immediately
contract.33 Under Article 1191 of the Civil Code, the right of return the P5 Million since he had invested it in his two
We resolve to GRANT the petition. rescission is inherent in reciprocal companies. He found nothing irregular in this as eventually,
obligations, viz:chanRoblesvirtualLawlibrary the Danton and Bakcom shares would form part of Alliance’s
At the outset, the Court notes that the parties’ joint venture The power to rescind obligations is implied in reciprocal capital.
agreement to incorporate a company that would hold the ones, in case one of the obligors should not comply with
shares of Danton and Bakcom and that would serve as the what is incumbent upon him. [Emphasis supplied.] Dueñas’ assertion is erroneous.
business vehicle for their food enterprise, is a valid Dueñas submits that Fong’s prayer for the return of his cash
agreement. The failure to reduce the agreement to writing contribution supports his claim that Fong’s complaint is an The parties never agreed that Fong would invest his money
does not affect its validity or enforceability as there is no law action for collection of a sum of money. However, Dueñas in Danton and Bakcom. Contrary to Dueñas’ submission,
failed to appreciate that the ultimate effect of rescission Fong’s understanding was that his money would be applied
to his shareholdings in Alliance. As shown in Fong’s June 13,
1997 letter, this fact remained to be true even after he
limited his contribution to P5
Million, viz:chanRoblesvirtualLawlibrary
Dear Jojit,
Enclosed is our check for P919,534.80 representing
our additional advances to subject company in process
of incorporation. This will make our total advances to date
amounting to P5 million.37 [Emphasis supplied.]
Moreover, under the Corporation Code, before a stock
corporation may be incorporated and registered, it is
required that at least twenty five percent (25%) of its
authorized capital stock as stated in the articles of
incorporation, be first subscribed at the time of
incorporation, and at least twenty five percent (25%) of the
total subscription, be paid upon subscription. 38chanrobleslaw
To prove compliance with this requirement, the SEC requires
the incorporators to submit a treasurer’s affidavit and a
certificate of bank deposit, showing the existence of an
amount compliant with the prescribed capital
subscription.39chanrobleslaw
In this light, we conclude that Fong’s cash contributions
play an indispensable part in Alliance’s incorporation.
The process necessarily requires the money not only to fund
Alliance’s registration with the SEC but also its initial capital
subscription. This is evident in the receipts which Dueñas
himself executed, one of which
provides:chanRoblesvirtualLawlibrary
I, JOSE V. DUEÑAS, hereby acknowledge the receipt on
January 14, 1997 of the amount of One Million Pesos (Php
1,000,000.00) Check No. 118 118 7014 Metro Bank, Pasong
Tamo branch dated January 13, 1997 from Mr. George
Fong, which amount shall constitute an advance of the
contribution or investment of Mr. Fong in the joint
venture which he and I are in the process of
organizing. Specifically, this amount will be considered as
part of Mr. Fong’s subscription to the shares of stock of the
joint venture company which we will incorporate to embody
and carry out our joint venture.40 [Emphasis supplied.]
Thus, Dueñas erred when he invested Fong’s contributions in
his two companies. This money should have been used in
processing Alliance’s registration. Its incorporation would not
materialize if there would be no funds for its initial capital.
Moreover, Dueñas represented that Danton and Bakcom’s
shares were valued at P32.5 Million. If this was true, then
there was no need for Fong’s additional P5 Million
investment, which may possibly increase the value of the
Danton and Bakcom shares.
Under these circumstances, the Court agrees with the trial
court that Dueñas violated his agreement with Fong. Aside
from unilaterally applying Fong’s contributions to his
two companies, Dueñas also failed to deliver the
valuation documents of the Danton and Bakcom
shares to prove that the combined values of their
capital contributions actually amounted to P32.5
Million.
These acts led to Dueñas’ delay in incorporating the
planned holding company, thus resulting in his breach
of the contract.
On this basis, Dueñas’ breach justified Fong’s rescission of
the joint venture agreement under Article 1191. As the Court
ruled in Velarde v. Court of Appeals:41cralawred
The right of rescission of a party to an obligation under
Article 1191 of the Civil Code is predicated on a breach of
faith by the other party who violates the reciprocity
between them. The breach contemplated in the said
provision is the obligor’s failure to comply with an existing
obligation. When the obligor cannot comply with what
is incumbent upon it, the obligee may seek
rescission and in the absence of any just cause for the
court to determine the period of compliance, the court shall
decree the rescission.
In the present case, private respondents validly
exercised their right to rescind the contract, because
of the failure of petitioners to comply with their
obligation to pay the balance of the purchase price.
Indubitably, the latter violated the very essence of
reciprocity in the contract of sale, a violation that
consequently gave rise to private respondents’ right to
rescind the same in accordance with law. 42 [Emphasis
supplied.]
However, the Court notes that Fong also breached his
obligation in the joint venture agreement.
In his June 13, 1997 letter, Fong expressly informed Dueñas
that he would be limiting his cash contribution from P32.5
Million to P5 Million because of the following reasons which
we quote verbatim:chanRoblesvirtualLawlibrary
1. First, we were faced with the ‘personal’
factor which was explained to you one
time. This has caused us to turn down a
number of business opportunities;
2. Secondly, since last year, the operation
of Century 21 has been taking more
time from us than anticipated. That is
why we decided to relinquish our
original plan to manage and operate
‘Boboli’ knowing this limitation. For us, it
does not make sense anymore to go for
a significant shareholding when we
cannot be hands on and participate
actively as originally planned. 43 x x x.
Although these reasons appear to be valid, they do
not erase the fact that Fong still reneged on his
original promise to contribute P32.5 Million. The joint
venture agreement was not reduced to writing and the
evidence does not show if the parties agreed on valid causes
that would justify the limitation of the parties’ capital
contributions. Their only admission was that they obligated
themselves to contribute P32.5 Million each.
Hence, Fong’s diminution of his capital share to P5
Million also amounted to a substantial breach of the
joint venture agreement, which breach occurred
before Fong decided to rescind his agreement with
Dueñas. Thus, Fong also contributed to the non-
incorporation of Alliance that needed P65 Million as capital to
operate.
Fong cannot entirely blame Dueñas since the substantial
reduction of his capital contribution also greatly impeded the
implementation of their agreement to engage in the food
business and to incorporate a holding company for it.
As both parties failed to comply with their respective
reciprocal obligations, we apply Article 1192 of the Civil
Code, which provides:chanRoblesvirtualLawlibrary
Art. 1192. In case both parties have committed a breach of
the obligation, the liability of the first infractor shall be
equitably tempered by the courts. If it cannot be
determined which of the parties first violated the
contract, the same shall be deemed extinguished, and
each shall bear his own damages. [Emphasis supplied.]
Notably, the Court is not aware of the schedule of
performance of the parties’ obligations since the joint
venture agreement was never reduced to writing. The facts,
however, show that both parties began performing their
obligations after executing the joint venture agreement.
Fong started remitting his share while Dueñas started
processing the Boboli international license for the proposed
corporation’s food business.
The absence of a written contract renders the Court unsure
as to whose obligation must be performed first. It is possible
that the parties agreed that Fong would infuse capital first
and Dueñas’ submission of the documents on the Danton
and Bakcom shares would just follow. It could also be the
other way around. Further, the parties could have even
agreed to simultaneously perform their respective
obligations.
Despite these gray areas, the fact that both Fong and
Dueñas substantially contributed to the non-
incorporation of Alliance and to the failure of their
food business plans remains certain.
As the Court cannot precisely determine who between the
parties first violated the agreement, we apply the second
part of Article 1192 which states: “if it cannot be determined
which of the parties first violated the contract, the same
shall be deemed extinguished, and each shall bear his
own damages.”
In these lights, the Court holds that the joint venture
agreement between Fong and Dueñas is deemed
extinguished through rescission under Article 1192 in
relation with Article 1191 of the Civil Code. Dueñas
must therefore return the P5 Million that Fong initially
contributed since rescission requires mutual
restitution.44After rescission, the parties must go back
to their original status before they entered into the
agreement. Dueñas cannot keep Fong’s contribution as this
would constitute unjust enrichment.
No damages shall be awarded to any party in accordance
with the rule under Article 1192 of the Civil Code that in case
of mutual breach and the first infractor of the contract
cannot exactly be determined, each party shall bear his own
damages.
WHEREFORE, premises considered, we hereby GRANT the
petition and reverse the September 16, 2008 decision and
December 8, 2008 resolution of the Court of Appeals in CA-
G.R. CV No. 88396. Respondent Jose V. Dueñas is ordered
to RETURN Five Million Pesos to petitioner George C. Fong.
This amount shall incur an interest of six percent (6%) per
annum from the date of finality of this judgment until fully
paid.45 The parties’ respective claims for damages are
deemed EXTINGUISHED and each of them shall bear his
own damages.
SO ORDERED.cr
G.R. No. 210215, December 09, 2015
ROGELIO S. NOLASCO, NICANORA N. GUEVARA,
LEONARDA N. ELPEDES, HEIRS OF ARNULFO S.
NOLASCO, AND REMEDIOS M. NOLASCO,
REPRESENTED BY ELENITA M. NOLASCO Petitioners,
v. CELERINO S. CUERPO, JOSELITO ENCABO, JOSEPH
ASCUTIA, AND DOMILO LUCENARIO, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the
Decision2 dated June 17, 2013 and the Resolution 3 dated
November 19, 2013 of the Court of Appeals (CA) in CA-G.R.
CV No. 95353, which affirmed in toto the Decision4 dated
March 1, 2010 of the Regional Trial Court of Quezon City,
Branch 81 (RTC) in Civil Case No. Q-08-63860 ordering the
rescission of the Contract to Sell executed by herein parties
and the return of the amounts already paid by respondents
Celerino S. Cuerpo, Joselito Encabo, Joseph Ascutia, and
Domilo Lucenario (respondents) to petitioners Rogelio S.
Nolasco, Nicanora N. Guevara, Leonarda N. Elpedes, Heirs of
Arnulfo S. Nolasco, and Remedios M. Nolasco, represented
by Elenita M. Nolasco (petitioners), as well as the remaining
post-dated checks issued by respondent Celerino S. Cuerpo
representing the remaining monthly amortizations, all in
connection with the said contract.
The Facts
On July 22, 2008, petitioners and respondents entered into a
Contract to Sell 5 (subject contract) over a 165,775-square
meter parcel of land located in Barangay San Isidro,
Rodriguez, Rizal covered by Original Certificate of Title No.
152 (subject land). 6 The subject contract provides, inter alia,
that: (a) the consideration for the sale is P33,155,000.00
payable as follows: down payment in the amount of
P11,604,250.00 inclusive of the amount of P2,000,000.00
previously paid by respondents as earnest
money/reservation fee, and the remaining balance of
P21,550,750.00 payable in 36 monthly installments, each in
the amount of P598,632.00 through post-dated checks; (b) in
case any of the checks is dishonored, the amounts already
paid shall be forfeited in petitioners' favor, and the latter
shall be entitled to cancel the subject contract without
judicial recourse in addition to other appropriate legal action;
(c) respondents are not entitled to possess the subject land
until full payment of the purchase price; (d) petitioners shall
transfer the title over the subject land from a certain
Edilberta N. Santos to petitioners' names, and, should they
fail to do so, respondents may cause the said transfer and
charge the costs incurred against the monthly amortizations;
and (e) upon full payment of the purchase price, petitioners
shall transfer title over the subject land to
respondents.7 However, respondents sent petitioners a
letter8 dated November 7, 2008 seeking to rescind the
subject contract on the ground of financial difficulties in
complying with the same. They also sought the return of the
amount of P12,202,882.00 they had paid to petitioners. 9 As
their letter went unheeded, respondents filed the instant
complaint10 for rescission before the RTC.11
In their defense,12 petitioners countered that respondents'
act is a unilateral cancellation of the subject contract as the
former did not consent to it. Moreover, the ground of
financial difficulties is not among the grounds provided by
law to effect a valid rescission. 13
In view of petitioners' failure to file the required pre-trial
brief, they were declared "as in default" and, consequently,
respondents were allowed to present their evidence ex-
parte.14
The RTC Ruling
In a Decision15 dated March 1, 2010, the RTC ruled in favor of
respondents and, accordingly, ordered: (a) the rescission of
the subject contract; and (b) the return of the amounts
already paid by respondents to petitioners, as well as the
remaining post-dated checks issued by respondent Celerino
S. Cuerpo representing the remaining monthly
amortizations.16
It found petitioners to have substantially breached
paragraph 7 of the subject contract which states that "[t]he
[petitioners] shall, within ninety (90) days from the signing of
[the subject contract] cause the completion of the transfer of
registration of title of the property subject of [the said
contract], from Edilberta N. Santos to their names, at
[petitioners'] own expense." 17 As such, respondents were
entitled to rescission under Article 1191 of the Civil Code. 18
Dissatisfied, petitioners appealed 19 to the CA.
The CA Ruling
In a Decision 20 dated June 17, 2013, the CA affirmed the RTC
ruling. It agreed with the RTC that petitioners substantially
breached paragraph 7 of the subject contract when they did
not effect the transfer of the subject land from Edilberta N.
Santos to petitioners' names within ninety (90) days from
the execution of said contract, thus, entitling respondents to
rescind the same. In this relation, the CA held that under the
present circumstances, the forfeiture of the payments
already made by respondents to petitioners is clearly
improper and unwarranted.21
Aggrieved, petitioners moved for reconsideration, 22 which
was denied in a Resolution 23 dated November 19, 2013;
hence, this petition.
The Issue Before the Court
The core issue for the Court's resolution is whether or not
the CA correctly affirmed the rescission of the subject
contract and the return of the amounts already paid by
respondents to petitioners, as well as the remaining post-
dated checks issued by respondent Celerino S. Cuerpo
representing the remaining monthly amortizations.
The Court's Ruling
The petition is partially meritorious.
In reciprocal obligations, either party may rescind - or more
appropriately, resolve - the contract upon the other party's
substantial breach of the obligation/s he had assumed
thereunder.24 This is expressly provided for in Article 1191 of
the Civil Code which states:
Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there
be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance
with Articles 1385 and 1388 and the Mortgage Law.
"More accurately referred to as resolution, the right of
rescission under Article 1191 is predicated on a breach of
faith that violates the reciprocity between the parties to the
contract. This retaliatory remedy is given to the contracting
party who suffers the injurious breach on the premise that it
is 'unjust that a party be held bound to fulfill his promises
when the other violates his.'"25 Note that the rescission (or
resolution) of a contract will not be permitted for a slight or
casual breach, but only for such substantial and fundamental
violations as would defeat the very object of the parties in
making the agreement. 26 Ultimately, the question of whether
a breach of contract is substantial depends upon the
attending circumstances.27
In the instant case, both the RTC and the CA held that
petitioners were in substantial breach of paragraph 7 of the
subject contract as they did not cause the transfer of the
property to their names from one Edilberta N. Santos within
90 days from the execution of said contract. 28
The courts a quo are mistaken.
Paragraph 7 of the subject contract state in full:
7. [Petitioners] shall, within ninety (90) days from the signing
of [the subject contract], cause the completion of the
transfer of registration of title of the property subject of [the
subject contract], from Edilberta N. Santos to their names, at
[petitioners'] own expense. Failure on the part of
[petitioners] to undertake the foregoing within the
prescribed period shall automatically authorize
[respondents] to undertake the same in behalf of
[petitioners] and charge the costs incidental to the
monthly amortizations upon due date. (Emphasis and
underscoring supplied)
A plain reading of paragraph 7 of the subject contract
reveals that while the RTC and the CA were indeed correct in
finding that petitioners failed to perform their obligation to
effect the transfer of the title to the subject land from one
Edilberta N. Santos to their names within the prescribed
period, said courts erred in concluding that such failure
constituted a substantial breach that would entitle
respondents to rescind (or resolve) the subject contract. To
reiterate, for a contracting party to be entitled to rescission
(or resolution) in accordance with Article 1191 of the Civil
Code, the other contracting party must be in substantial
breach of the terms and conditions of their contract. A
substantial breach of a contract, unlike slight and casual
breaches thereof, is a fundamental breach that defeats the
object of the parties in entering into an agreement. 29 Here, it
cannot be said that petitioners' failure to undertake their
obligation under paragraph 7 defeats the object of the
parties in entering into the subject contract, considering that
the same paragraph provides respondents contractual
recourse in the event of petitioners' non-performance of the
aforesaid obligation, that is, to cause such transfer
themselves in behalf and at the expense of petitioners.
WHEREFORE, the petition is PARTIALLY GRANTED.
Accordingly, the Decision dated June 17, 2013 and the
Resolution dated November 19, 2013 of the Court of Appeals
in CA-G.R. CV No. 95353 are hereby REVERSED and SET
ASIDE. The Contract to Sell executed by the parties on July
22, 2008 remains VALID and SUBSISTING.
SO ORDERED.ch
G.R. No. 202947, December 09, 2015
ASB REALTY CORPORATION, Petitioner, v. ORTIGAS &
COMPANY LIMITED PARTNERSHIP, Respondent.
DECISION
On June 29, 1994, respondent Ortigas & Company Limited
Partnership (Ortigas) entered into a Deed of Sale with
Amethyst Pearl Corporation (Amethyst) involving the parcel
of land with an area of 1,012 square meters situated in
Barrio Oranbo, Pasig City and registered under Transfer
Certificate of Title (TCT) No. 65118 of the Register of Deeds
of Rizal4 for the consideration of P2,024,000.00. The Deed of
Sale5 contained the following stipulations, among others:
COVENANTS, CONDITIONS AND RESTRICTIONS
This lot has been segregated by ORTIGAS from its
subdivisions to form part of a zonified BUILDING AREA
pursuant to its controlled real estate development project
and subdivision scheme, and is subject to the following
covenants which form part of the consideration of ORTIGAS'
sale to VENDEE and its assigns,
namely:chanRoblesvirtualLawlibrary
x x x x
B. BUILDING WORKS AND ARCHITECTURE:

Indubitably, there is no substantial breach of paragraph 7 on
the part of petitioners that would necessitate a rescission (or
resolution) of the subject contract. As such, a reversal of the
rulings of the RTC and the CA is in order.
The foregoing notwithstanding, the Court cannot grant
petitioners' prayer in the instant petition to order the
cancellation of the subject contract and the forfeiture of the
amounts already paid by respondents on account of the
latter's failure to pay its monthly amortizations, 30 simply
because in their Answer with Compulsory Counterclaim and
Motion for Summary Judgment 31 filed before the RTC,
petitioners neither prayed for this specific relief nor argued
that they were entitled to the same. Worse, petitioners were
declared "as in default" for failure to file the required pre-
trial brief and, thus, failed to present any evidence in support
of their defense. 32 It is settled that "[w]hen a party
deliberately adopts a certain theory and the case is decided
upon that theory in the court below, he will not be permitted
to change the same on appeal, because to permit him to do
so would be unfair to the adverse party." 33 The Court's
pronouncement in Peña v. Spouses Tolentino 34 is instructive
on this matter, to wit:
Indeed, the settled rule in this jurisdiction, according to Mon
v. Court of Appeals, is that a party cannot change his theory
of the case or his cause of action on appeal. This rule affirms
that "courts of justice have no jurisdiction or power to decide
a question not in issue." Thus, a judgment that goes beyond
the issues and purports to adjudicate something on which
the court did not hear the parties is not only irregular but
also extrajudicial and invalid. The legal theory under
which the controversy was heard and decided in the
trial court should be the same theory under which
the review on appeal is conducted. Otherwise,
prejudice will result to the adverse party. We stress
that points of law, theories, issues, and arguments
not adequately brought to the attention of the lower
court will not be ordinarily considered by a reviewing
court, inasmuch as they cannot be raised for the first
time on appeal. This would be offensive to the basic
rules of fair play, justice, and due process. 35 (Emphasis
and underscoring supplied)
BERSAMIN, J.: 1. The building to be constructed on the lot shall be of
reinforced concrete, cement hollow blocks and other high-
This appeal seeks the review and reversal of the amended quality materials and shall be of the following height of not
decision promulgated on January 9, 2012, 1 whereby the more than: fourteen (14) storeys plus one penthouse.
Court of Appeals (CA) disposed
thusly:chanRoblesvirtualLawlibrary x x x x
WHEREFORE, premises considered, judgment is L. SUBMISSION OF PLANS:
rendered:chanRoblesvirtualLawlibrary
The final plans and specifications of the said building shall be
1. Granting the appeal of plaintiff-appellant and herein submitted to ORTIGAS for approval not later than six (6)
movant Ortigas and Company Limited Partnership, and months from date hereof. Should ORTIGAS object to the
reversing the Decision of the court a quo dated December same, it shall notify and specify to the VENDEE in writing the
14, 2009; amendments required to conform with its building
restrictions and VENDEE shall submit the amended plans
2. Rescinding the June 24, 1994 Deed of Sale between within sixty (60) days from receipt of said notice.
Ortigas and Company Limited Partnership and Amethyst
Pearl Corporation in view of the material breached (sic) M. CONSTRUCTION AND COMPLETION OF BUILDING:
thereof by AMETHYST;
The VENDEE shall finish construction of its building within
3. Ordering ASB Realty Corporation, by way of mutual four (4) years from December 31,
restitution, the RECONVEYANCE to ORTIGAS of the subject 1991.6ChanRoblesVirtualawlibrary
property covered by TCT No. PT-105797 upon payment by As a result, the Register of Deeds of Rizal cancelled TCT No.
ORTIGAS to ASB of the amount of Two Million Twenty Four 65118 and issued TCT No. PT-94175 in the name of
Thousand Pesos (PhP 2,024,000.00) plus legal interest at the Amethyst.7 The conditions contained in the Deed of
rate of 6% per annum from the time of the finality of this Sale were also annotated on TCT No. PT-94175 as
judgment until the same shall have been fully paid; and encumbrances.8
4. Ordering the Register of Deeds of Pasig City to cancel TCT On December 28, 1996, Amethyst assigned the subject
No. PT-105797 and issue a new title over the subject property to its sole stockholder, petitioner ASB Realty
property under the name of ORTIGAS & COMPANY LIMITED Corporation (the petitioner), under a so-called Deed of
PARTNERSHIP. Assignment in Liquidation in consideration of 10,000 shares
of the petitioner's outstanding capital stock. 9 Thus, the
No pronouncement as to cost. property was transferred to the petitioner free from any liens
or encumbrances except those duly annotated on TCT No.
SO ORDERED.2 PT-94175.10 The Register of Deeds of Rizal cancelled TCT No.
PT-94175 and issued TCT No. PT-105797 in the name of the
The petitioner also assails the resolution promulgated on July petitioner with the same encumbrances annotated on TCT
26, 2012,3 whereby the CA denied its Motion for No. PT-94175.11
Reconsideration.
On July 7, 2000, Ortigas filed its complaint for specific
performance against the petitioner, 12 which was docketed as
Antecedents Civil Case No. 67978 of the Regional Trial Court (RTC) in
Pasig City.13 Ortigas amended the complaint, and
alleged,14 among others, that:
5. Defendant has violated the terms of the Deed of Absolute
Sale (Annex "A") in the following manner:
a. While the lot may be used only "for office and residential
purposes", defendant introduced constructions on the
property which are commercial in nature, like restaurants,
retail stores and the like (see par. A, Deed of Absolute Sale,
Annex "A").
b. The commercial structures constructed by defendant on
the property extend up to the boundary lines of the lot in
question violating the setbacks established in the contract
(see par. B.A., ibid).
c. Defendant likewise failed to submit the final plans and
specifications of its proposed building not later than six (6)
months from June 29, 1994 and to complete construction of
the same within four (4) years from December 31, 1991.
(see pars. L and M, ibid).
d. Being situated in a first-class office building area, it was
agreed that no advertisements or any kind of commercial
signs shall be allowed on the lot or the improvements therein
but this was violated by defendant when it put up
commercial signs and advertisements all over the area, (see
par. F, ibid).
6. Any of the afore-described violations committed by the
defendant empower the plaintiff to sue under parangraph "N.
Unilateral Cancellation", plaintiff may have the Deed of
Absolute Sale (Annex "A") cancelled and the property
reverted to it by paying the defendant the amount it has
paid less the items indicated
therein.15ChanRoblesVirtualawlibrary
For reliefs, Ortigas prayed for the reconveyance of the
subject property, or, alternatively, for the demolition of the
structures and improvements thereon, plus the payment of
penalties, attorney's fees and costs of suit. 16
During the pendency of the proceedings in the RTC, the
petitioner amended its Articles of Incorporation to change its
name to St. Francis Square Realty Corporation. 17
After trial on the merits, the RTC rendered its decision on
December 14, 2009,18 and dismissed the complaint,
pertinently holding as follows:
Ortigas sold the property [to] Amethyst on 29 June 1994.
Amethyst was supposed to finish construction on 31
December 1995. Yet, up to the time the property was
transferred to ASB on 28 December 1996, Ortigas never
initiated any action against Amethyst to enforce said
provision. Ortigas is therefore guilty of laches or negligence
or omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to assert it
either has abandoned it or declined to assert it. (Tijam v.
Sibonghanoy, L-21450, 15 April 1968, 23 SCRA 29).
It is worth mentioning that the restrictions annotated in TCT
No. 94175 (in the name of Amethyst Pearl Corporation) and
TCT No. PT-105797 (in the name of ASB) repeatedly and
consistently refer to the VENDEE. The term VENDEE in the
said restrictions obviously refer to Amethyst Pearls
Corporation considering the fact that the date referred to in
Paragraph N thereof (Construction and Completion of
Building), which is four (4) years from December 31, 1991,
obviously refer to the plaintiffs VENDEE Amethyst Pearl
Corporation. Definitely, it cannot refer to the defendant ASB
which is not a vendee of the plaintiff. Therefore, all
references to VENDEE in the restrictions evidently refer to
Amethyst Pearl Corporation, the VENDEE in the sale from the
plaintiff. Such explanation is more consistent with logic than
the plaintiffs convoluted assertions that the said restrictions
apply to the defendant ASB.
Reconveyance of the property to Ortigas necessarily implies
rescission of the sale or transfer from Amethyst to
ASB and from Ortigas to Amethyst. But Amethyst was not
made a party to the case. Reconveyance of the property to
the original seller (Ortigas) applies only on the sale to the
original vendee (Amethyst) and not to subsequent vendees
to whom the property was sold (Ayala Corp. v. Rosa Diana
Realty and Dev. Corp., G.R. No. 134284, Dec. 1, 2000, 346
SCRA 663).
The non-compliance by the plaintiff with the requisites of its
own restrictions further proves that it had no intention
whatsoever to enforce or implement the same. If at all, this
evinces an afterthought of the plaintiff to belatedly and
unjustifiably single out the defendant for alleged non
compliance of the said restrictions which are not applicable
to it anyway.
WHEREFORE, foregoing premises considered, the present
complaint is hereby dismissed for lack of basis.
SO ORDERED.19ChanRoblesVirtualawlibrary
Ortigas appealed to the CA, which initially affirmed the RTC
under the decision promulgated on September 6,
2011,20 ruling thusly:
x x x x ORTIGAS can no longer enforce the said restrictions
as against ASB.
The "Covenants, Conditions and Restrictions" of ORTIGAS
with respect to the property clearly states the following
purpose:
"This lot has been segregated by ORTIGAS from its
subdivisions to form part of a zonified BUILDING AREA
pursuant to its controlled real estate development project
and subdivision scheme. x x x"
However, it appears from the circumstances obtaining in this
case that ORTIGAS failed to pursue the aforequoted purpose.
It never filed a complaint against its vendee, AMETHYST,
notwithstanding that it required the latter to complete
construction of the building within four (4) years from the
execution of the Deed of Sale. Neither did it make a demand
to enforce the subject restriction. Moreover, while it imposed
a restriction on the registration and issuance of title in the
name of the vendee under Paragraph "P" on "Registration of
Sale", to wit:chanRoblesvirtualLawlibrary
"P. REGISTRATION OF SALE:
The VENDEE hereby agrees that, for the time being, this
Deed will not be registered and that its title shall not be
issued until the satisfactory construction of the
contemplated Office Building and VENDEE's compliance with
all conditions therein. x x x"
AMETHYST was nonetheless able to procure the title to the
property in its name, and subsequently, assigned the same
to ASB.
Besides, records show that there are registered owner-
corporations of several properties within the Ortigas area,
where the subject property is located, that have likewise
failed to comply with the restriction on building construction
notwithstanding the fact of its annotation on the titles
covering their properties. In fact, the tax declarations
covering these properties in the respective names of
UNIMART INC., CHAILEASE DEVELOPMENT CO. INC., CANOGA
PARK DEVELOPMENT CORPORATION, and MAKATI
SUPERMARKET CORPORATION reveal that no improvements
or buildings have been erected thereon.
Notwithstanding such blatant non-compliance, however,
records are bereft of evidence to prove that ORTIGAS took
steps to demand observance of the said restriction from
these corporations, or that it opted to institute any case
against them in order to enforce its rights as seller. Thus,
while ORTIGAS effectively tolerated the non-compliance of
these other corporations, it nonetheless proceeded with the
filing of the Complaint a quo against ASB, seeking the
rescission of the original Deed of Sale on the ground of non-
compliance of the very same restriction being violated by
other property owners similarly situated.
On the basis of the foregoing acts or omissions of ORTIGAS,
and the factual milieu of the present case, it cannot be
pretended that it failed to actively pursue the attainment of
its objective of having a "controlled real estate development
project and subdivision scheme". The Court thus concurs
with the ratiocinations of the RTC when it posited that the
restrictions imposed by ORTIGAS on ASB have been
"rendered obsolete and inexistent" for failure of ORTIGAS to
enforce the same uniformly and indiscriminately against all
non-complying property owners. If the purpose of ORTIGAS
for imposing the restrictions was for its "controlled real
estate development project and subdivision scheme", then it
should have sought compliance from all property
owners that have violated the restriction on building
completion. As things stand, ASB would appear to have been
singled out by ORTIGAS, rendering the present action highly
suspect and a mere afterthought.
Consequently, while it may be true that ASB was bound by
the restrictions annotated on its title, specifically the
restriction on building completion, ORTIGAS is now
effectively estopped from enforcing the same by virtue of its
inaction and silence.
x x x x
In this case, ORTIGAS acquiesced to the conveyance of the
property from AMETHYST to ASB with nary a demand,
reservation or complaint for the enforcement of the
restriction on building construction. It allowed the four-year
period within which to construct a building to lapse before it
decided that it wanted, after all, to enforce the restriction,
which cannot be allowed lest the property rights of the
registered owner, ASB, be transgressed. Such a silence or
inaction, which in effect led ASB to believe that ORTIGAS no
longer sought the enforcement of the restrictions on the
contract, therefore bars ORTIGAS from enforcing the
restriction it imposed on the subject property.
x x x x
WHEREFORE, premises considered, the instant appeal
is DENIED. The assailed Decision is hereby AFFIRMED.
SO ORDERED.21ChanRoblesVirtualawlibrary
Acting on Ortigas' Motion for Reconsideration, however, the
CA promulgated its assailed amended decision on January 9,
2012,22 whereby it reversed the decision promulgated on
September 6, 2011. It observed and ruled as follows:
It is not disputed that AMETHYST failed to finish construction
within the period stated in the 1994 Deed of Sale. As
correctly pointed out by ORTIGAS, in accordance with Article
1144 of the Civil Code, the prescriptive period within which
to enforce remedies under the 1994 Deed of sale is ten (10)
years from the time the right of action accrues.
ORTIGAS, therefore, had ten (10) years from 31 December
1995 or until 31 December 2005 within which to file suit to
enforce the restriction. ORTIGAS filed the present
complaint on 07 July 2000 well within the prescriptive
period for filing the same.
ASB contends that it could not have complied with the
particular restriction to finish construction of the building as
the period to finish the same had already lapsed by the time
ASB acquired the property by way of a Deed of Assignment
in Liquidation between AMETHYST and ASB on 28 December
1996. We hold, however, that the mere assignment or
transfer of the subject property from AMETHYST to
ASB does not serve to defeat the vested right of
ORTIGAS to avail of remedies to enforce the subject
restriction within the applicable prescriptive period.
x x x x
As to the argument that the inaction of ORTIGAS with
respect to other non-compliant properties in the Ortigas area
is tantamount to consenting to such non-compliance, it must
be mentioned that it is the sole prerogative and discretion of
Ortigas to initiate any action against the violators of the
deed restrictions. This Court cannot interfere with the
exercise of such prerogative/discretion. Furthermore, We
cannot sustain estoppel in doubtful inference. Absent the
conclusive proof that its essential elements are present,
estoppel must fail. Estoppel, when misapplied, becomes an
effective weapon to accomplish an injustice, inasmuch as it
shuts a man's mouth from speaking the
truth.23ChanRoblesVirtualawlibrary
By its resolution promulgated on July 26, 2012, the CA
denied the petitioner's Motion for Reconsideration 24 for being
filed out of time.25cralawred
Issues
Hence, this appeal in which ASB submits: (1) that its Motion
for Reconsideration vis-a-vis the CA's amended decision was
filed on time; and (2) that the amended decision
promulgated on January 9, 2012 by CA be reversed and set
aside, and the decision promulgated on September 6, 2011
be reinstated.26
The petitioner essentially seeks the resolution of the issue of
whether or not Ortigas validly rescinded the Deed of
Sale due to the failure of Amethyst and its assignee, the
petitioner, to fulfil the covenants under the Deed of Sale.
Ruling of the Court
occurred in the interim that rendered it impossible for the
The petition for review is meritorious. petitioner to comply with the covenants embodied in
the Deed of Sale, namely: (1) the delay in the petitioner's
possession of the property resulted from the complaint for
1.
forcible entry it had filed in the Metropolitan Trial Court in
Pasig City; (2) at the time the property was transferred to
Petitioner's motion for reconsideration vis-a-vis the
the petitioner, the period within which to construct the
amended decision of the CA was timely filed
building had already expired without Ortigas enforcing the
obligation against Amethyst; and (3) the petitioner was
In denying the petitioner's Motion for Reconsideration, the
placed under corporate rehabilitation by the Securities and
CA concluded as follows:
Exchange Commission (SEC) by virtue of which a stay order
Per allegation of material dates, the Motion for
was issued on May 4, 2000.35
Reconsideration filed by Balgos Gumara & Jalandoni, co-
counsel with Jose, Mendoza & Associates, on January 30,
In contrast, Ortigas contends that it had the sole discretion
2012 appears to have been filed on time. However, per
whether or not to commence any action against a party who
registry return attached at the back of p. 212 of the Rollo,
violated a restriction in the Deed of Sale;36 and that it could
the Motion for Reconsideration was filed three (3) days late
not be estopped because the Deed of Sale with Amethyst
considering that the Amended Decision was received by
and the deeds of sale with its other buyers contained a
defendant appellee's counsel of record, Jose, Mendoza &
uniform provision to the effect that "any inaction, delay or
Associates, on January 12,
tolerance by OCLP (Ortigas) in respect to violation of any of
2012.27ChanRoblesVirtualawlibrary
the covenants and restrictions committed by these buyers
The conclusion of the CA was unwarranted because the
shall not bar or estop the institution of an action to enforce
petitioner established that its filing of the Motion for
them."37
Reconsideration was timely.
In asserting its right to rescind, Ortigas insists that the
It is basic that the party who asserts a fact or the affirmative
petitioner was bound by the covenants of the Deed of
of an issue has the burden of proving it. 28 Here, that party
Sale annotated on TCT No. PT-10597 in the name of the
was the petitioner. To comply with its burden, it attached to
petitioner;38 and that the petitioner's privity to the Deed of
its petition for review on certiorari: (1) the affidavit executed
Sale was by virtue of its being the successor-in-interest or
by Noel S.R. Rose, Senior Partner of Jose, Mendoza &
assignee of Amethyst.39
Associates attesting that he had requested the postmaster of
the Mandaluyong City Post Office to certify the date when
After evaluating the parties' arguments and the records of
Jose, Mendoza & Associates had received the copy of the
the case, the Court holds that Ortigas could not validly
amended decision of the CA; 29 and (2) the certification
demand the reconveyance of the property, or the demolition
issued on August 15, 2012 by Postmaster Rufino C. Robles,
of the structures thereon through rescission.
and Letter Carrier, Jojo Salvador, both of the Mandaluyong
Central Post Office, certifying that Registered Letter No. MVC
The Deed of Assignment in Liquidation executed between
457 containing the copy of the amended decision had been
Amethyst and the petitioner expressly stated, in part, that:
delivered to and received on January 18, 2012 by Jose,
x x x x [T]he ASSIGNOR hereby assigns, transfers and
Mendoza & Associates, through Ric Ancheta. 30 It thereby
conveys unto the ASSIGNEE, its successors and assigns,
sought to prove that it had received the copy of the
free from any lien or encumbrance except those that are
amended decision only on January 18, 2012, not January 12,
duly annotated on the Transfer Certificate of Title (TCT), one
2012 as stated in the registry return card on record. Thus, it
parcel of real property (with improvements). x x x.
had until February 2, 2012, or 15 days from January 18,
2012, within which to file the same. In contrast, Ortigas
x x x x
relied only on the copy of the registry return to refute the
petitioner's assertion. 31 Under the circumstances, the filing
The ASSIGNEE in turn in consideration of the
on January 30, 2012 of the Motion for Reconsideration was
foregoing assignment of assets to it, hereby surrenders to
timely.
ASSIGNOR, Amethyst Pearl Corporation, Stock Certificate
Nos. (006, 007, 008, 009, 010, 011), covering a total of TEN
2. THOUSAND SHARES (10,000) registered in the name of the
ASSIGNEE and its nominees in the books of ASSIGNOR,
Ortigas' action for rescission could not prosper receipt of which is hereby acknowledged, and in addition
hereby releases ASSIGNOR from any and all
The petitioner reiterates that although the restrictions and claims.40ChanRoblesVirtualawlibrary
covenants imposed by Ortigas under the Deed of Sale with The express terms of the Deed of Assignment in Liquidation,
Amethyst, particularly with regard to the construction of the supra, indicate that Amethyst transferred to the petitioner
building, were similarly imposed on Ortigas' other buyers only the tangible asset consisting of the parcel of land
and annotated on the latter's respective certificates of covered by TCT No. PT-94175 registered in the name of
title,32 Ortigas never took to task such other buyers and Amethyst. By no means did Amethyst assign the rights or
Amethyst for failing to construct the buildings within the duties it had assumed under the Deed of Sale. The petitioner
periods contractually imposed.33 It maintains, therefore, that thus became vested with the ownership of the parcel of land
Ortigas slept on its rights because it did not take any action "free from any lien or encumbrance except those that are
against Amethyst during the period prescribed in the Deed duly annotated on the [title]" from the time Amethyst
of Sale.34 It argues that even assuming that it was bound by executed the Deed of Assignment in Liquidation.
the terms of the Deed of Sale, certain circumstances

Although the Deed of Sale stipulated that:
3. The lot, together with any improvements thereon, or any
rights thereto, shall not be transferred, sold or encumbered
before the final completion of the building as herein provided
unless it is with the prior express written approval of
ORTIGAS.41
x x x x
The VENDEE hereby agrees that, for the time being, this
Deed will not be registered and that its title shall not be
issued until the satisfactory construction of the
contemplated Office Building and VENDEE's compliance with
42
all conditions herein. x x x ChanRoblesVirtualawlibrary
Ortigas apparently recognized without any reservation the
issuance of the new certificate of title in the name of
Amethyst and the subsequent transfer by assignment from
Amethyst to the petitioner that resulted in the issuance of
the new certificate of title under the name of the petitioner.
As such, Ortigas was estopped from assailing the petitioner's
acquisition and ownership of the property.
The application of estoppel was appropriate. The doctrine of
estoppel was based on public policy, fair dealing, good faith
and justice, and its purpose was to forbid a party to speak
against his own act or omission, representation, or
commitment to the injury of another to whom the act,
omission, representation, or commitment was directed and
who reasonably relied thereon. The doctrine sprang from
equitable principles and the equities in the case, and was
designed to aid the law in the administration of justice where
without its aid injustice would result. Estoppel has been
applied by the Court wherever and whenever special
circumstances of the case so demanded. 43
Yet, the query that persists is whether or not the covenants
annotated on TCT No. PT-10597 bound the petitioner to the
performance of the obligations assumed by Amethyst under
the Deed of Sale.
We agree with Ortigas that the annotations on TCT No. PT-
10597 bound the petitioner but not to the extent that
rendered the petitioner liable for the non-performance of the
covenants stipulated in the Deed of Sale.
Section 39 of Act No. 496 (The Land Registration Act)
requires that every person receiving a certificate of title in
pursuance of a decree of registration, and every subsequent
purchaser of registered land who takes a certificate of title
for value in good faith shall hold the same free of all
encumbrances except those noted on said certificate. An
encumbrance in the context of the provision is "anything
that impairs the use or transfer of property; anything which
constitutes a burden on the title; a burden or charge upon
property; a claim or lien upon property." 44 It denotes "any
right to, or interest in, land which may subsist in another to
the diminution of its value, but consistent with the passing of
the fee by conveyance." 45 An annotation, on the other hand,
is "a remark, note, case summary, or commentary on some
passage of a book, statutory provision, court decision, of the
like, intended to illustrate or explain its meaning." 46 The
purpose of the annotation is to charge the purchaser or title
holder with notice of such burden and claims. 47 Being aware
of the annotation, the purchaser must face the possibility
that the title or the real property could be subject to the
rights of third parties. 48
By acquiring the parcel of land with notice of the covenants
contained in the Deed of Sale between the vendor (Ortigas)
and the vendee (Amethyst), the petitioner bound itself to
acknowledge and respect the encumbrance. Even so, the
petitioner did not step into the shoes of Amethyst as a party
in the Deed of Sale. Thus, the annotation of the covenants
contained in the Deed of Sale did not give rise to a liability
on the part of the petitioner as the purchaser/successor-in-
interest without its express assumption of the duties or
obligations subject of the annotation. As stated, the
annotation was only the notice to the purchaser/successor-
in-interest of the burden, claim or lien subject of the
annotation. In that respect, the Court has observed in Garcia
v. Villar:49
The sale or transfer of the mortgaged property cannot affect
or release the mortgage; thus the purchaser or transferee is
necessarily bound to acknowledge and respect the
encumbrance.
x x x x
x x x However, Villar, in buying the subject property with
notice that it was mortgaged, only undertook to pay such
mortgage or allow the subject property to be sold upon
failure of the mortgage creditor to obtain payment from the
principal debtor once the debt matures. Villar did not
obligate herself to replace the debtor in the principal
obligation, and could not do so in law without the creditors
consent. Article 1293 of the Civil Code provides:
Art. 1293. Novation which consists in substituting a new
debtor in the place of the original one, may be made even
without the knowledge or against the will of the latter, but
not without the consent of the creditor. Payment by the new
debtor gives him the rights mentioned in articles 1236 and
1237.
Therefore, the obligation to pay the mortgage indebtedness
remains with the original debtors Galas and Pingol. x x x
To be clear, contractual obligations, unlike contractual rights
or benefits, are generally not assignable. But there are
recognized means by which obligations may be transferred,
such as by sub-contract and novation. In this case, the
substitution of the petitioner in the place of Amethyst did not
result in the novation of the Deed of Sale. To start with, it
does not appear from the records that the consent of Ortigas
to the substitution had been obtained despite its essentiality
to the novation. Secondly, the petitioner did not expressly
assume Amethyst's obligations under the Deed of Sale,
whether through the Deed of Assignment in Liquidation or
another document. And, thirdly, the consent of the new
obligor (i.e., the petitioner), which was as essential to the
novation as that of the obligee (i.e., Ortigas), was not
obtained.50
Even if we would regard the petitioner as the assignee of
Amethyst as far as the Deed of Sale was concerned, instead
of being the buyer only of the subject property, there would
still be no express or implied indication that the petitioner
had assumed Amethyst's obligations. In short, the burden to
perform the covenants under the Deed of Sale, or the
liability for the non-performance thereof, remained with
Amethyst. As held in an American case:
The mere assignment of a bilateral executory contract may
not be interpreted as a promise by the assignee to the
assignor to assume the performance of the assignor's duties,
so as to have the effect of creating a new liability on the part
of the assignee to the other party to the contract assigned.
The assignee of the vendee is under no personal
engagement to the vendor where there is no privity between
them. (Champion v. Brown, 6 Johns. Ch. 398; Anderson v. N.
Y. & H. R. R. Co., 132 App. Div. 183, 187, 188; Hugel v.
Habel, 132 App. Div. 327, 328.) The assignee may, however,
expressly or impliedly, bind himself to perform the assignor's
duties. This he may do by contract with the assignor or with
the other party to the contract. It has been held (Epstein v.
Gluckin, 233 N. Y. 490) that where the assignee of the
vendee invokes the aid of a court of equity in an action for
specific performance, he impliedly binds himself to perform
on his part and subjects himself to the conditions of the
judgment appropriate thereto. "He who seeks equity must do
equity." The converse of the proposition, that the assignee of
the vendee would be bound when the vendor began the
action, did not follow from the decision in that case. On the
contrary, the question was wholly one of remedy rather than
right and it was held that mutuality of remedy is important
only so far as its presence is essential to the attainment of
the ends of justice. This holding was necessary to sustain the
decision. No change was made in the law of contracts nor in
the rule for the interpretation of an assignment of a contract.
A judgment requiring the assignee of the vendee to perform
at the suit of the vendor would operate as the imposition of a
new liability on the assignee which would be an act of
oppression and injustice, unless the assignee had, expressly
or by implication, entered into a personal and binding
contract with the assignor or with the vendor to assume the
obligations of the assignor.51ChanRoblesVirtualawlibrary
Is rescission the proper remedy for Ortigas to recover the
subject property from the petitioner?
The Civil Code uses rescission in two different contexts,
namely: (1) rescission on account of breach of contract
under Article 1191; and (2) rescission by reason of lesion or
economic prejudice under Article 1381. Cogently explaining
the differences between the contexts of rescission in his
concurring opinion in Universal Food Corp. v. Court of
Appeals,52 the eminent Justice J.B.L. Reyes observed:
x x x The rescission on account of breach of stipulations is
not predicated on injury to economic interests of the party
plaintiff but on the breach of faith by the defendant, that
violates the reciprocity between the parties. It is not a
subsidiary action, and Article 1191 may be scanned without
disclosing anywhere that the action for rescission thereunder
is subordinated to anything; other than the culpable breach
of his obligations by the defendant. This rescission is in
principal action retaliatory in character, it being unjust that a
party be held bound to fulfill his promises when the other
violates his, as expressed in the old Latin aphorism: "Non
servanti fidem, non est fides servanda." Hence, the
reparation of damages for the breach is purely secondary.
On the contrary, in the rescission by reason of lesion or
economic prejudice, the cause of action is subordinated to
the existence of that prejudice, because it is the raison
d'etre as well as the measure of the right to rescind. Hence,
where the defendant makes good the damages caused, the
action cannot be maintained or continued, as expressly
provided in Articles 1383 and 1384. But the operation of
these two articles is limited to the cases of rescission
for lesion enumerated in Article 1381 of the Civil Code of the
Philippines, and does not apply to cases under Article 1191.
Based on the foregoing, Ortigas' complaint was predicated
on Article 1191 of the Civil Code, which provides:
Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become
impossible.
The court shall decree the rescission claimed, unless there
be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of
third persons who have acquired the thing, in accordance
with articles 1385 and 1388 and the Mortgage Law.
Rescission under Article 1191 of the Civil Code is proper if
one of the parties to the contract commits a substantial
breach of its provisions. It abrogates the contract from its
inception and requires the mutual restitution of the benefits
received;53 hence, it can be carried out only when the party
who demands rescission can return whatever he may be
obliged to restore.
Considering the foregoing, Ortigas did not have a cause of
action against the petitioner for the rescission of the Deed of
Sale. Under Section 2, Rule 2 of the Rules of Court, a cause
of action is the act or omission by which a party violates a
right of another. The essential elements of a cause of action
are: (1) a right in favor of the plaintiff by whatever means
and under whatever law it arises or is created; (2) an
obligation on the part of the defendant not to violate such
right; and (3) an act or omission on the part of the defendant
in violation of the right of the plaintiff or constituting a
breach of the obligation of the defendant to the plaintiff for
which the latter may maintain an action for recovery of
damages or other relief. It is only upon the occurrence of the
last element that the cause of action arises, giving the
plaintiff the right to file an action in court for the recovery of
damages or other relief. 54
The second and third elements were absent herein. The
petitioner was not privy to the Deed of Sale because it was
not the party obliged thereon. Not having come under the
duty not to violate any covenant in the Deed of Sale when it
purchased the subject property despite the annotation on
the title, its failure to comply with the covenants in the Deed
of Sale did not constitute a breach of contract that gave rise
to Ortigas' right of rescission. It was rather Amethyst that
defaulted on the covenants under the Deed of Sale; hence,
the action to enforce the provisions of the contract or to
rescind the contract should be against Amethyst. In other
words, rescission could not anymore take place against the
petitioner once the subject property legally came into the
juridical possession of the petitioner, who was a third party
to the Deed of Sale.55
In view of the outcome, we consider to be superfluous any
discussion of the other matters raised in the petition, like the
effects of the petitioner's corporate rehabilitation and
whether Ortigas was guilty of laches.
WHEREFORE, the Court GRANTS the petition for review
on certiorari; ANNULS and REVERSES the amended
decision promulgated on January 9, 2012 and the resolution
promulgated on July 26, 2012 by the Court of Appeals in
C.A.-G.R. CV No. 94997; DISMISSES Civil Case No. 67978
for lack of cause of action;
and ORDERS respondent ORTIGAS & COMPANY LIMITED
PARTNERSHIP to pay the costs of suit.
SO ORDERED.c
G.R. No. 72275 November 13, 1991
PACIFIC BANKING CORPORATION, petitioner,
vs.
HON INTERMEDIATE APPELLATE COURT AND ROBERTO
REGALA, JR., respondents.
Ocampo, Dizon & Domingo for petitioner.
Angara, Concepcion, Regala & Cruz for private respondent.
MEDIALDEA, J.:
This is a petition for review on certiorari of the decision (pp
21-31, Rollo) of the Intermediate Appellate Court (now Court
of Appeals) in AC-G.R. C.V. No. 02753, 1 which modified the
decision of the trial court against herein private respondent
Roberto Regala, Jr., one of the defendants in the case for
sum of money filed by Pacific Banking Corporation.
The facts of the case as adopted by the respondent
appellant court from herein petitioner's brief before said
court are as follows:
On October 24, 1975, defendant Celia Syjuco
Regala (hereinafter referred to as Celia Regala for
brevity), applied for and obtained from the plaintiff
the issuance and use of Pacificard credit card
(Exhs. "A", "A-l",), under the Terms and Conditions
Governing the Issuance and Use of Pacificard (Exh.
"B" and hereinafter referred to as Terms and
Conditions), a copy of which was issued to and
received by the said defendant on the date of the
application and expressly agreed that the use of
the Pacificard is governed by said Terms and
Conditions. On the same date, the defendant-
appelant Robert Regala, Jr., spouse of defendant
Celia Regala, executed a "Guarantor's
Undertaking" (Exh. "A-1-a") in favor of the
appellee Bank, whereby the latter agreed "jointly
and severally of Celia Aurora Syjuco Regala, to pay
the Pacific Banking Corporation upon demand, any
and all indebtedness, obligations, charges or
liabilities due and incurred by said Celia Aurora
Syjuco Regala with the use of the Pacificard, or
renewals thereof, issued in her favor by the Pacific
Banking Corporation". It was also agreed that "any
changes of or novation in the terms and conditions
in connection with the issuance or use of the
Pacificard, or any extension of time to pay such
obligations, charges or liabilities shall not in any
manner release me/us from responsibility
hereunder, it being understood that I fully agree to
such charges, novation or extension, and that this
understanding is a continuing one and shall
subsist and bind me until the liabilities of the said
Celia Syjuco Regala have been fully satisfied or
paid.
Plaintiff-appellee Pacific Banking Corporation has
contracted with accredited business
establishments to honor purchases of goods
and/or services by Pacificard holders and the cost
thereof to be advanced by the plaintiff-appellee for
the account of the defendant cardholder, and the
latter undertook to pay any statements of account
rendered by the plaintiff-appellee for the advances
thus made within thirty (30) days from the date of
the statement, provided that any overdue account
shall earn interest at the rate of 14% per annum
from date of default.
The defendant Celia Regala, as such Pacificard
holder, had purchased goods and/or services on
credit (Exh. "C", "C-l" to "C-112") under her
Pacificard, for which the plaintiff advanced the
cost amounting to P92,803.98 at the time of the
filing of the complaint.
In view of defendant Celia Regala's failure to settle
her account for the purchases made thru the use
of the Pacificard, a written demand (Exh. "D") was
sent to the latter and also to the defendant
Roberto Regala, Jr. (Exh. " ") under his
"Guarantor's Undertaking."
A complaint was subsequently filed in Court for
defendant's (sic) repeated failure to settle their
obligation. Defendant Celia Regala was declared in
default for her failure to file her answer within the
reglementary period. Defendant-appellant Roberto
Regala, Jr., on the other hand, filed his Answer
with Counterclaim admitting his execution of the
"Guarantor's Understanding", "but with the
understanding that his liability would be limited to
P2,000.00 per month."
In view of the solidary nature of the liability of the
parties, the presentation of evidence ex-parte as
against the defendant Celia Regala was jointly
held with the trial of the case as against defendant
Roberto Regala.
After the presentation of plaintiff's testimonial and
documentary evidence, fire struck the City Hall of
Manila, including the court where the instant case
was pending, as well as all its records.
 Upon plaintiff-appellee's petition for reconstitution,
the records of the instant case were duly
reconstituted. Thereafter, the case was set for pre-
trial conference with respect to the defendant-
appellant Roberto Regala on plaintiff-appellee's
motion, after furnishing the latter a copy of the
same. No opposition thereto having been
interposed by defendant-appellant, the trial court
set the case for pre-trial conference. Neither did
said defendant-appellant nor his counsel appear
on the date scheduled by the trial court for said
conference despite due notice. Consequently,
plaintiff-appellee moved that the defendant-
appellant Roberto Regala he declared as in default
and that it be allowed to present its evidence ex-
parte, which motion was granted. On July 21,
1983, plaintiff-appellee presented its evidence ex-
parte. (pp. 23-26, Rollo)
After trial, the court a quo rendered judgment on December
5, 1983, the dispositive portion of which reads:
WHEREFORE, the Court renders judgment for the
plaintiff and against the defendants condemning
the latter, jointly and severally, to pay said plaintiff
the amount of P92,803.98, with interest thereon at
14% per annum, compounded annually, from the
time of demand on November 17, 1978 until said
principal amount is fully paid; plus 15% of the
principal obligation as and for attorney's fees and
expense of suit; and the costs.
The counterclaim of defendant Roberto Regala, Jr.
is dismissed for lack of merit.
SO ORDERED. (pp. 22-23, Rollo)
The defendants appealed from the decision of the court a
quo to the Intermediate Appellate Court.
On August 12, 1985, respondent appellate court rendered
judgment modifying the decision of the trial court. Private
respondent Roberto Regala, Jr. was made liable only to the
extent of the monthly credit limit granted to Celia
Regala, i.e., at P2,000.00 a month and only for the advances
made during the one year period of the card's effectivity
counted from October 29, 1975 up to October 29, 1976. The
dispositive portion of the decision states:
WHEREFORE, the judgment of the trial court dated
December 5, 1983 is modified only as to appellant
Roberto Regala, Jr., so as to make him liable only
for the purchases made by defendant Celia Aurora
Syjuco Regala with the use of the Pacificard from
October 29, 1975 up to October 29, 1976 up to the
amount of P2,000.00 per month only, with interest
from the filing of the complaint up to the payment
at the rate of 14% per annum without
pronouncement as to costs. (p. 32, Rollo)
A motion for reconsideration was filed by Pacific Banking
Corporation which the respondent appellate court denied for
lack of merit on September 19, 1985 (p. 33, Rollo).
On November 8, 1985, Pacificard filed this petition. The
petitioner contends that while the appellate court correctly
recognized Celia Regala's obligation to Pacific Banking Corp.
for the purchases of goods and services with the use of a
Pacificard credit card in the total amount of P92,803.98 with
14% interest per annum, it erred in limiting private
respondent Roberto Regala, Jr.'s liability only for purchases
made by Celia Regala with the use of the card from October
29, 1975 up to October 29, 1976 up to the amount of
P2,000.00 per month with 14% interest from the filing of the
complaint.
There is merit in this petition.
The pertinent portion of the "Guarantor's Undertaking" which
private respondent Roberto Regala, Jr. signed in favor of
Pacific Banking Corporation provides:
I/We, the undersigned, hereby agree, jointly and
severally with Celia Syjuco Regala to pay the
Pacific Banking Corporation upon demand any and
all indebtedness, obligations, charges or liabilities
due and incurred by said Celia Syjuco Regala with
the use of the Pacificard or renewals thereof
issued in his favor by the Pacific Banking
Corporation. Any changes of or Novation in the
terms and conditions in connection with the
issuance or use of said Pacificard, or any
extension of time to pay such obligations, charges
or liabilities shall not in any manner release me/us
from the responsibility hereunder, it being
understood that the undertaking is a continuing
one and shall subsist and bind me/us until all the
liabilities of the said Celia Syjuco Regala have
been fully satisfied or paid. (p. 12, Rollo)
The undertaking signed by Roberto Regala, Jr. although
denominated "Guarantor's Undertaking," was in substance a
contract of surety. As distinguished from a contract of
guaranty where the guarantor binds himself to the creditor
to fulfill the obligation of the principal debtor only in case the
latter should fail to do so, in a contract of suretyship, the
surety binds himself solidarily with the principal debtor (Art.
2047, Civil Code of the Philippines).
We need not look elsewhere to determine the nature and
extent of private respondent Roberto Regala, Jr.'s
undertaking. As a surety he bound himself jointly and
severally with the debtor Celia Regala "to pay the Pacific
Banking Corporation upon demand, any and all
indebtedness, obligations, charges or liabilities due and
incurred by said Celia Syjuco Regala with the use of
Pacificard or renewals thereof issued in (her) favor by Pacific
Banking Corporation." This undertaking was also provided as
a condition in the issuance of the Pacificard to Celia Regala,
thus:
5. A Pacificard is issued to a Pacificard-holder
against the joint and several signature of a third
party and as such, the Pacificard holder and the
guarantor assume joint and several liabilities for
any and all amount arising out of the use of the
Pacificard. (p. 14, Rollo)
The respondent appellate court held that "all the other rights
of the guarantor are not thereby lost by the guarantor
becoming liable solidarily and therefore a surety." It further
ruled that although the surety's liability is like that of a joint
and several debtor, it does not make him the debtor but still
the guarantor (or the surety), relying on the case of
Government of the Philippines v. Tizon. G.R. No. L-22108,
August 30, 1967, 20 SCRA 1182. Consequently, Article 2054
of the Civil Code providing for a limited liability on the part of
the guarantor or debtor still applies.
It is true that under Article 2054 of the Civil Code, "(A)
guarantor may bind himself for less, but not for more than
the principal debtor, both as regards the amount and the
onerous nature of the conditions. 2 It is likewise not disputed
by the parties that the credit limit granted to Celia Regala
was P2,000.00 per month and that Celia Regala succeeded
in using the card beyond the original period of its effectivity,
October 29, 1979. We do not agree however, that Roberto
Jr.'s liability should be limited to that extent. Private
respondent Roberto Regala, Jr., as surety of his
wife, expressly bound himself up to the extent of the
debtor's (Celia) indebtedness likewise expressly waiving any
"discharge in case of any change or novation of the terms
and conditions in connection with the issuance of the
Pacificard credit card." Roberto, in fact, made his
commitment as a surety a continuing one, binding upon
himself until all the liabilities of Celia Regala have been fully
paid. All these were clear under the "Guarantor's
Undertaking" Roberto signed, thus:
. . . Any changes of or novation in the terms and
conditions in connection with the issuance or use
of said Pacificard, or any extension of time to pay
such obligations, charges or liabilities shall not in
any manner release me/us from the responsibility
hereunder, it being understood that the
undertaking is a continuing one and shall subsist
and bind me/us until all the liabilities of the said
Celia Syjuco Regala have been fully satisfied or
paid. (p. 12, supra; emphasis supplied)
Private respondent Roberto Regala, Jr. had been made aware
by the terms of the undertaking of future changes in the
terms and conditions governing the issuance of the credit
card to his wife and that, notwithstanding, he voluntarily
agreed to be bound as a surety. As in guaranty, a surety
may secure additional and future debts of the principal
debtor the amount of which is not yet known (see Article
2053, supra).
The application by respondent court of the ruling in
Government v. Tizon, supra is misplaced. It was held in that
case that:
 . . . although the defendants bound themselves in of the Decision dated March 10, 1987, thereby holding that
solidum, the liability of the Surety under its bond the liability of the six respondents in the case below is
would arise only if its co-defendants, the principal solidary despite the absence of the word "solidary" in the
obligor, should fail to comply with the contract. To dispositive portion of the Decision, when their liability should
paraphrase the ruling in the case of Municipality of merely be joint.
Orion vs. Concha, the liability of the Surety is
"consequent upon the liability" of Tizon, or "so
dependent on that of the principal debtor" that the The factual antecedents are undisputed:
Surety "is considered in law as being the same
party as the debtor in relation to whatever is
In September 1984, private respondent Enrique Sulit,
adjudged, touching the obligation of the latter"; or
Socorro Mahinay, Esmeraldo Pegarido, Tita Bacusmo, Gino
the liabilities of the two defendants herein "are so
Niere, Virginia Bacus, Roberto Nemenzo, Dariogo, and
interwoven and dependent as to be inseparable."
Roberto Alegarbes filed a complaint with the Department of
Changing the expression, if the defendants are
Labor and Employment, Regional Arbitration Branch No. VII
held liable, their liability to pay the plaintiff would
in Cebu City against Filipinas Carbon Mining Corporation,
be solidary, but the nature of the Surety's
Gerardo Sicat, Antonio Gonzales, Chiu Chin Gin, Lo Kuan
undertaking is such that it does not incur liability
Chin, and petitioner Industrial Management Development
unless and until the principal debtor is held liable.
Corporation (INIMACO), for payment of separation pay and
unpaid wages.
A guarantor or surety does not incur liability unless the
principal debtor is held liable. It is in this sense that a surety,
In a Decision dated March 10, 1987, Labor Arbiter Bonifacio
although solidarily liable with the principal debtor, is
B. Tumamak held that:
different from the debtor. It does not mean, however, that
the surety cannot be held liable to the same extent as the
principal debtor. The nature and extent of the liabilities of a RESPONSIVE, to all the foregoing,
guarantor or a surety is determined by the clauses in the judgment is hereby entered, ordering
contract of suretyship(see PCIB v. CA, L-34959, March 18, respondents Filipinas Carbon and Mining
1988, 159 SCRA 24). Corp. Gerardo Sicat, Antonio
Gonzales/Industrial Management
Development Corp. (INIMACO), Chiu
ACCORDINGLY, the petition is GRANTED. The questioned Chin Gin and Lo Kuan Chin, to pay
decision of respondent appellate court is SET ASIDE and the
complainants Enrique Sulit, the total
decision of the trial court is REINSTATED.
award of P82,800.00; ESMERALDO
PEGARIDO the full award of P19,565.00;
SO ORDERED. Roberto Nemenzo the total sum of
P29,623.60 and DARIO GO the total
award of P6,599.71, or the total
aggregate award of ONE HUNDRED
THIRTY-EIGHT THOUSAND FIVE
HUNDRED EIGHTY-EIGHT PESOS AND
G.R. No. 101723 May 11, 2000 31/100 (P138,588.31) to be deposited
with this Commission within ten (10)
days from receipt of this Decision for
INDUSTRIAL MANAGEMENT INTERNATIONAL
appropriate disposition. All other claims
DEVELOPMENT CORP. (INIMACO), petitioner,
are hereby Dismiss (sic) for lack of
vs.
merit.
NATIONAL LABOR RELATIONS COMMISSION, (Fourth
Division) Cebu City, and ENRIQUE SULIT, SOCORRO
MAHINAY, ESMERALDO PEGARIDO, TITA BACUSMO, SO ORDERED.
GINO NIERE, VIRGINIA BACUS, ROBERTO NEMENZO,
DARIO GO, and ROBERTO ALEGARBES, respondents.
Cebu City, Philippines.
hereby commanded to proceed to the
premises of respondents Antonio
Gonzales/Industrial Management
Development Corporation (INIMACO)
situated at Barangay Lahug, Cebu City,
in front of La Curacha
Restaurant, and/or to Filipinas Carbon
and Mining corporation and Gerardo
Sicat at 4th Floor Universal RE-Bldg. 106
Paseo de Roxas, Legaspi Village, Makati
Metro Manila and at Philippine National
Bank, Escolta, Manila respectively, and
collect the aggregate award of ONE
HUNDRED THIRTY-EIGHT THOUSAND
FIVE HUNDRED EIGHTY-EIGHT PESOS
AND THIRTY ONE CENTAVOS
(P138,588.31) and thereafter turn over
said amount to complainants ENRIQUE
SULIT, ESMERALDO PEGARIDO,
ROBERTO NEMENZO AND DARIO GO or
to this Office for appropriate disposition.
Should you fail to collect the said sum in
cash, you are hereby authorized to
cause the satisfaction of the same on
the movable or immovable property(s)
of respondents not exempt from
execution. You are to return this writ
sixty (6) (sic) days from your receipt
hereof, together with your
corresponding report.
You may collect your legal expenses
from the respondents as provided for by
law.
SO ORDERED. 2
On September 3, 1987, petitioner filed a "Motion to Quash
Alias Writ of Execution and Set Aside Decision," 3 alleging
among others that the alias writ of execution altered and
changed the tenor of the decision by changing the liability of
therein respondents from joint to solidary, by the insertion of
the words "AND/OR" between "Antonio Gonzales/Industrial
Management Development Corporation and Filipinas Carbon
and Mining Corporation, et al." However, in an order dated
September 14, 1987, the Labor Arbiter denied the motion.
On October 2, 1987, petitioner appealed 4 the Labor Arbiter's
Order dated September 14, 1987 to the respondent NLRC.

The respondent NLRC dismissed the appeal in a

BUENA, J.:
This is a petition for certiorari assailing the Resolution dated
September 4, 1991 issued by the National Labor Relations
Commission in RAB-VII-0711-84 on the alleged ground that it
committed a grave abuse of discretion amounting to lack of
jurisdiction in upholding the Alias Writ of Execution issued by
the Labor Arbiter which deviated from the dispositive portion
10 March 1987. 1
Decision 5 dated August 31, 1988, the pertinent portions of
which read:
No appeal was filed within the reglementary period thus, the
above Decision became final and executory. On June 16,
In matters affecting labor rights and
1987, the Labor Arbiter issued a writ of execution but it was
labor justice, we have always adopted
returned unsatisfied. On August 26, 1987, the Labor Arbiter
the liberal approach which favors the
issued an Alias Writ of Execution which ordered thus:
exercise of labor rights and which is
beneficial to labor as a means to give
NOW THEREFORE, by virtue of the full meaning and import to the
powers vested in me by law, you are constitutional mandate to afford
 protection to labor. Considering the
factual circumstances in this case, there
is no doubt in our mind that the
respondents herein are called upon to
pay, jointly and severally, the claims of
the complainants as was the latters'
prayers. Inasmuch as respondents
herein never controverted the claims of
the complainants below, there is no
reason why complainants' prayer should
not be granted. Further, in line with the
powers granted to the Commission
under Article 218 (c) of the Labor code,
"to waive any error, defect or
irregularity whether in substance or in
form" in a proceeding before Us, We
hold that the Writ of Execution be given
due course in all respects.
On July 31, 1989, petitioner filed a "Motion To Compel Sheriff
To Accept Payment Of P23,198.05 Representing One
Sixth Pro Rata Share of Respondent INIMACO As Full and
Final Satisfaction of Judgment As to Said Respondent." 6 The
private respondents opposed the motion. In an Order 7 dated
August 15, 1989, the Labor Arbiter denied the motion ruling
thus:
WHEREFORE, responsive to the
foregoing respondent INIMACO's Motions
are hereby DENIED. The Sheriff of this
Office is order (sic) to accept INIMACO's
tender payment (sic) of the sum of
P23,198.05, as partial satisfaction of the
judgment and to proceed with the
enforcement of the Alias Writ of
Execution of the levied properties, now
issued by this Office, for the full and
final satisfaction of the monetary award
granted in the instant case.
SO ORDERED.
Petitioner appealed the above Order of the Labor Arbiter but
this was again dismissed by the respondent NLRC in its
Resolution 8 dated September 4, 1991 which held that:
The arguments of respondent on the
finality of the dispositive portion of the
decision in this case is beside the point.
What is important is that the
Commission has ruled that the Writ of
Execution issued by the Labor Arbiter in
this case is proper. It is not really correct
to say that said Writ of Execution varied
the terms of the judgment. At most,
considering the nature of labor
proceedings there was, an ambiguity in
said dispositive portion which was
subsequently clarified by the Labor
Arbiter and the Commission in the
incidents which were initiated by
INIMACO itself. By sheer technicality and
unfounded assertions, INIMACO would
now reopen the issue which was already
resolved against it. It is not in keeping
with the established rules of practice
and procedure to allow this attempt of
INIMACO to delay the final disposition of
this case.
WHEREFORE, in view of all the
foregoing, this appeal is DISMISSED and
the Order appealed from is hereby
AFFIRMED.
With double costs against appellant.
Dissatisfied with the foregoing, petitioner filed the instant
case, alleging that the respondent NLRC committed grave
abuse of discretion in affirming the Order of the Labor
Arbiter dated August 15, 1989, which declared the liability of
petitioner to be solidary.
The only issue in this petition is whether petitioner's liability
pursuant to the Decision of the Labor Arbiter dated March
10, 1987, is solidary or not.
Upon careful examination of the pleadings filed by the
parties, the Court finds that petitioner INIMACO's liability is
not solidary but merely joint and that the respondent NLRC
acted with grave abuse of discretion in upholding the Labor
Arbiter's Alias Writ of Execution and subsequent Orders to
the effect that petitioner's liability is solidary.
A solidary or joint and several obligation is one in which each
debtor is liable for the entire obligation, and each creditor is
entitled to demand the whole obligation. 9 In a joint
obligation each obligor answers only for a part of the whole
liability and to each obligee belongs only a part of the
correlative
rights. 10
Well-entrenched is the rule that solidary obligation cannot
lightly be inferred. 11 There is a solidary liability only when
the obligation expressly so states, when the law so provides
or when the nature of the obligation so requires. 12
In the dispositive portion of the Labor Arbiter, the word
"solidary" does not appear. The said fallo expressly states
the following respondents therein as liable, namely: Filipinas
Carbon and Mining Corporation, Gerardo Sicat, Antonio
Gonzales, Industrial Management Development Corporation
(petitioner INIMACO), Chiu Chin Gin, and Lo Kuan Chin. Nor
can it be inferred therefrom that the liability of the six (6)
respondents in the case below is solidary, thus their liability
should merely be joint.
Moreover, it is already a well-settled doctrine in this
jurisdiction that, when it is not provided in a judgment that
the defendants are liable to pay jointly and severally a
certain sum of money, none of them may be compelled to
satisfy in full said judgment. In Oriental Commercial
Co. vs. Abeto and Mabanag 1 this Court held:
It is of no consequence that, under the
contract of suretyship executed by the
parties, the obligation contracted by the
sureties was joint and several in
character. The final judgment, which
superseded the action for the
enforcement of said contract, declared
the obligation to be merely joint, and
the same cannot be executed
otherwise. 14
Granting that the Labor Arbiter has committed a mistake in
failing to indicate in the dispositive portion that the liability
of respondents therein is solidary, the correction — which is
substantial — can no longer be allowed in this case because
the judgment has already become final and executory.
It is an elementary principle of procedure that the resolution
of the court in a given issue as embodied in the dispositive
part of a decision or order is the controlling factor as to
settlement of rights of the parties. 15 Once a decision or order
becomes final and executory, it is removed from the power
or jurisdiction of the court which rendered it to further alter
or amend it. 16 It thereby becomes immutable and
unalterable and any amendment or alteration which
substantially affects a final and executory judgment is null
and void for lack of jurisdiction, including the entire
proceedings held for that purpose. 17 An order of execution
which varies the tenor of the judgment or exceeds the terms
thereof is a
nullity. 18
None of the parties in the case before the Labor Arbiter
appealed the Decision dated March 10, 1987, hence the
same became final and executory. It was, therefore,
removed from the jurisdiction of the Labor Arbiter or the
NLRC to further alter or amend it. Thus, the proceedings held
for the purpose of amending or altering the dispositive
portion of the said decision are null and void for lack of
jurisdiction. Also, the Alias Writ of Execution is null and void
because it varied the tenor of the judgment in that it sought
to enforce the final judgment against "Antonio
Gonzales/Industrial Management Development Corp.
(INIMACO) and/or Filipinas Carbon and Mining Corp. and
Gerardo Sicat," which makes the liability solidary.
WHEREFORE, the petition is hereby GRANTED. The
Resolution dated September 4, 1991 of the respondent
National Labor Relations is hereby declared NULL and VOID.
The liability of the respondents in RAB-VII-0711-84 pursuant
to the Decision of the Labor Arbiter dated March 10, 1987
should be, as it is hereby, considered joint and petitioner's
payment which has been accepted considered as full
satisfaction of its liability, without prejudice to the
enforcement of the award, against the other five (5)
respondents in the said case.
SO ORDERED.
 On September 2, 1996, private respondents filed a case for Dec. 16/93-Mar. 6,630.00 5,000 1,630.00 5,705.00
illegal dismissal, underpayment of wages pursuant to the
PNPSOSIA-PADPAO rates, non-payment of overtime pay, 31/94 (3.5 mos.)
[G.R. No. 144134. November 11, 2003.] premium pay for holiday and rest day, service incentive
leave pay, 13th month pay and attorney’s fees, against both
MARIVELES SHIPYARD CORP., Petitioner, v. HON. Longest Force and petitioner, before the Labor Arbiter. Apr. 1-Dec. 31/94 7,090.00 5,810 1,280.00 11,520.00
COURT OF APPEALS, LUIS REGONDOLA, * MANUELIT Docketed as NLRC NCR Case No. 00-09-005440-96-A, the
GATALAN, * ORESCA AGAPITO, NOEL ALBADBAD, * case sought the guards’ reinstatement with full backwages (9 mos.)
ROGELIO PINTUAN, DANILO CRISOSTOMO, ROMULO and without loss of seniority rights.
MACALINAO, NESTOR FERER, * RICKY CUESTA, ROLLY
ANDRADA, * LARRY ROGOLA, FRANCISCO LENOGON, Jan. 1-Apr. 29/95 7,220.00 5,810 1,410.00 5,597.70
For its part, Longest Force filed a cross-claim 6 against the
AUGUSTO QUINTO, * ARFE BERAMO, BONIFACIO petitioner. Longest Force admitted that it employed private
TRINIDAD, ALFREDO ASCARRAGA, * ERNESTO MAGNO, (3.97 mos.) —————
respondents and assigned them as security guards at the
HONORARIO HORTECIO, * NELBERT PINEDA, GLEN premises of petitioner from October 16, 1993 to April 30,
ESTIPULAR, FRANCISCO COMPUESTO, ISABELITO TOTAL UNDERPAYMENTS P23,792.70
1995, rendering a 12 hours duty per shift for the said period.
CORTEZ, * MATURAN ROSAURO, SAMSON CANAS, It likewise admitted its liability as to the non-payment of the
FEBIEN ISIP, JESUS RIPARIP, ALFREDO SIENES, =========
alleged wage differential in the total amount of P2,618,025
ADOLAR ALBERT, HONESTO CABANILLAS, AMPING but passed on the liability to petitioner alleging that the
CASTILLO and ELWIN REVILLA, Respondents. OVERTIME:
service fee paid by the latter to it was way below the
PNPSOSIA and PADPAO rate, thus, "contrary to the
DECISION mandatory and prohibitive laws because the right to proper Oct. 16-Dec. 15/93 P5,485 x 2 = P5,485.00
compensation and benefits provided under the existing labor
laws cannot be waived nor compromised."cralaw virtua1aw (2 mos.) 2
library
QUISUMBING, J.:
The petitioner denied any liability on account of the alleged Dec. 16/93-Mar. 31/94 6,630 x 3.5 = 11,602.50
illegal dismissal, stressing that no employer-employee
relationship existed between it and the security guards. It (3.5 mos.) 2
For review on certiorari is the Resolution, 1 dated December
29, 1999, of the Court of Appeals in CA-G.R. SP No. 55416, further pointed out that it would be the height of injustice to
which dismissed outright the petition for certiorari of make it liable again for monetary claims which it had already
paid. Anent the cross-claim filed by Longest Force against it, Apr. 1-Dec. 31/94 7,090 x 9 = 31,905.00
Mariveles Shipyard Corp., due to a defective certificate of
non-forum shopping and non-submission of the required petitioner prayed that it be dismissed for lack of merit.
Petitioner averred that Longest Force had benefited from the (9 mos.) 2
documents to accompany said petition. Mariveles Shipyard
Corp., had filed a special civil action for certiorari with the contract, it was now estopped from questioning said
Court of Appeals to nullify the resolution 2 of the National agreement on the ground that it had made a bad deal. Jan. 1-Apr. 29/95 7,220 x 3.97 = 14,331.70
Labor Relations Commission (NLRC), dated April 22, 1999, in
NLRC NCR Case No. 00-09-005440-96-A, which affirmed the On May 22, 1998, the Labor Arbiter decided NLRC NCR Case (3.97 mos.) 2
Labor Arbiter’s decision, 3 dated May 22, 1998, holding No. 00-09-005440-96-A, to wit:chanrob1es virtual 1aw library
petitioner jointly and severally liable with Longest Force TOTAL OVERTIME P63,324.20
Investigation and Security Agency, Inc., for the WHEREFORE, conformably with the foregoing, judgment is
underpayment of wages and overtime pay due to the private hereby rendered ordering the respondents as =========
respondents. Likewise challenged in the instant petition is follows:chanrob1es virtual 1aw library
the resolution 4 of the Court of Appeals, dated July 12, 2000, Sub-Total of Underpayments and Overtime P87,116.90
denying petitioner’s motion for reconsideration. 1. DECLARING respondents Longest Force Investigation &
Security Agency, Inc. and Mariveles Shipyard Corporation
The facts, as culled from records, are as follows:chanrob1es jointly and severally liable to pay the money claims of 1. Luis Regondula (the same) P87,116.90
virtua1 1aw 1ibrary complainants representing underpayment of wages and 2. Manolito Catalan (the same) 87,116.90
overtime pay in the total amount of P2,700,623.40 based on 3. Oresca Agapito (the same) 87,116.90
Sometime on October 1993, petitioner Mariveles Shipyard the PADPAO rates of pay covering the period from October 4. Noel Alibadbad (the same) 87,116.90
Corporation engaged the services of Longest Force 16, 1993 up to April 29, 1995 broken down as 5. Rogelio Pintuan (the same) 87,116.90
Investigation and Security Agency, Inc. (hereinafter, follows:chanrob1es virtual 1aw library 6. Danilo Crisostomo (the same) 87,116.90
"Longest Force") to render security services at its premises. 7. Romulo Macalinao (the same) 87,116.90
Pursuant to their agreement, Longest Force deployed its UNDERPAYMENT OF WAGES:chanrob1es virtual 1aw library 8. Nestor Ferrer (the same) 87,116.90
security guards, the private respondents herein, at the MONTHLY UNDER 9. Ricky Cuesta (the same) 87,116.90
petitioner’s shipyard in Mariveles, Bataan. 10. Andrada Ricky (the same) 87,116.90
PERIOD PADPAO ACTUAL PAYMENT 11. Larry Rogola (the same) 87,116.90
According to petitioner, it religiously complied with the terms COVERED RATES SALARY FOR WAGE 12. Francisco Lenogon (the same) 87,116.90
of the security contract with Longest Force, promptly paying 13. Augosto Quinto (the same) 87,116.90
its bills and the contract rates of the latter. However, it found (8 hrs. duty) RECEIVED THE PERIOD DIFFERENTIALS 14. Arfe Beramo (the same) 87,116.90
the services being rendered by the assigned guards 15. Bonifacio Trinidad (the same) 87,116.90
unsatisfactory and inadequate, causing it to terminate its 16. Alfredo Azcarraga (the same) 87,116.90
Oct. 16-Dec. P5,485.00 P5,000 P485.00 P970.00 17. Ernesto Magno (the same) 87,116.90
contract with Longest Force on April 1995. 5 Longest Force,
in turn, terminated the employment of the security guards it 18. Honario Hortecio (the same) 87,116.90
15/93 (2 mos.) 19. Nelbert Pineda (the same) 87,116.90
had deployed at petitioner’s shipyard.
20. Glen Estipular (the same) 87,116.90
21. Francisco Compuesto (the same) 87,116.90
22. Isabelito Cortes (the same) 87,116.90 11. Larry Rogola (same) 126,684.40 Hence, this present petition before us. Petitioner submits
23. Maturan Rosauro (the same) 87,116.90 12. Francisco Lenogon (same) 126,684.40 that THE COURT OF APPEALS GRAVELY ERRED:chanrob1es
24. Samson Canas (the same) 87,116.90 13. Augosto Quinto (same) 126,684.40 virtual 1aw library
25. Febien Isip (the same) 87,116.90 14. Arfe Beramo (same) 126,684.40
26. Jesus Riparip (the same) 87,116.90 15. Bonifacio Trinidad (same) 126,684.40 1. . . . IN DISMISSING THE PETITION AND DENYING THE
27. Alfredo Sienes (the same) 87,116.90 16. Alfredo Azcarraga (same) 126,684.40 MOTION FOR RECONSIDERATION DESPITE THE FACT THAT
28. Adolar Albert (the same) 87,116.90 17. Ernesto Magno (same) 126,684.40 PETITIONER SUBSTANTIALLY COMPLIED WITH THE
29. Cabanillas Honesto (the same) 87,116.90 18. Honario Hortecio (same) 126,684.40 REQUIREMENTS OF SECTION 1, RULE 65, 1997 RULES OF
30. Castillo Amping (the same) 87,116.90 19. Nelbert Pineda (same) 126,684.40 CIVIL PROCEDURE.
31. Revilla Elwin (the same) 87,116.90 20. Glen Estipular (same) 126,684.40
21. Francisco Compuesto (same) 126,684.40 2. . . . IN RULING THAT PETITIONER WAS NOT DENIED DUE
—————— 22. Isabelito Cortes (same) 126,684.40 PROCESS OF LAW.
23. Maturan Rosauro (same) 126,684.40
GRAND TOTAL P2,700,623.90 24. Samson Canas (same) 126,684.40 3. . . . IN AFFIRMING THE DECISION OF THE NATIONAL LABOR
25. Febien Isip (same) 126,684.40 RELATIONS COMMISSION THAT "LONGEST FORCE" AND
=========== 26. Jesus Riparip (same) 126,684.40 PETITIONER ARE JOINTLY AND SEVERALLY LIABLE FOR
27. Alfredo Sienes (same) 126,684.40 PAYMENT OF WAGES AND OVERTIME PAY DESPITE THE
2. DECLARING both respondents liable to pay complainants 28. Adolar Albert (same) 126,684.40 CLEAR SHOWING THAT PETITIONER HAVE ALREADY PAID THE
attorney’s fees equivalent to ten (10%) percent of the total 29. Cabanillas Honesto (same) 126,684.40 SECURITY SERVICES THAT WAS RENDERED BY PRIVATE
award recovered or the sum of P270,062.34. 30. Castillo Amping (same) 126,684.40 RESPONDENTS.
31. Revilla Elwin (same) 126,684.40
3. ORDERING respondent Longest Force Investigation & 4. . . . WHEN IT FAILED TO RULE THAT ONLY "LONGEST
Security Agency, Inc. to reinstate all the herein complainants ————— FORCE" SHOULD BE SOLELY AND ULTIMATELY LIABLE IN THE
to their former or equivalent positions without loss of INSTANT CASE. 13
seniority rights and privileges with full backwages which as GRAND TOTAL P3,927,216.40 9
computed as of the date of this decision are as We find the issues for our resolution to be: (1) Was it error
follows:chanrob1es virtua1 1aw 1ibrary 4. ORDERING said Longest Force Investigation & Security for the Court of Appeals to sustain its order of dismissal of
Agency, Inc. to pay attorney’s fees equivalent to ten (10%) petitioner’s special civil action for certiorari, notwithstanding
Backwages: percent of the total award recovered representing subsequent compliance with the requirements under the
backwages in the amount of P392,721.64. 10 Rules of Court by the petitioner? (2) Did the appellate court
err in not holding that petitioner was denied due process of
10/16 – 12/15/93 = 2 mos. 5. DISMISSING all other claims for lack of legal basis. law by the NLRC? and (3) Did the appellate court grievously
err in finding petitioner jointly and severally liable with
P5,485.00 x 2 mos. = P10,970.00 SO ORDERED. 11 Longest Force for the payment of wage differentials and
overtime pay owing to the private respondents?
Petitioner appealed the foregoing to the NLRC in NLRC NCR
12/16/93 – 3/31/94 = 3.5 mos.
Case No. 00-09-005440-96-A. The labor tribunal, however, On the first issue, the Court of Appeals in dismissing CA-G.R.
affirmed in toto the decision of the Labor Arbiter. Petitioner SP No. 55416 observed that: (1) the verification and
P6,630.00 x 3.5 mos. = 23,205.00
moved for reconsideration, but this was denied by the NLRC. certification of non-forum shopping was not signed by any
duly authorized officer of petitioner but merely by
4/1 – 12/31/94 = 9 mos. The petitioner then filed a special civil action petitioner’s counsel; and (2) the petition was not
for certiorari assailing the NLRC judgment for having been accompanied by a copy of motion for reconsideration filed
P7,090.00 x 9 mos. = 63,810.00 rendered with grave abuse of discretion with the Court of before the NLRC, thus violating Section 1, 14 Rule 65 of the
Appeals, docketed as CA-G.R. SP No. 55416. The Court of Rules of Court. Hence, a dismissal was proper under Section
Appeals, however, denied due course to the petition and 3, 15 Rule 46 of the Rules.
1/1 – 4/29/95 = 3.97 mos. dismissed it outright for the following reasons:chanrob1es
virtual 1aw library In assailing the appellate court’s ruling, the petitioner
P7,220.00 x 3.97 mos. = 28,663.40 appeals to our sense of compassion and kind consideration.
1. The verification and certification on non-forum shopping is It submits that the certification signed by its counsel and
–————— signed not by duly authorized officer of petitioner attached to its petition filed with the Court of Appeals is
corporation, but by counsel (Section 1, Rule 65, 1997 Rules substantial compliance with the requirement. Moreover,
TOTAL P126,684.40 7 of Civil Procedure). petitioner calls our attention to the fact that when it filed its
motion for reconsideration before the Court of Appeals, a
========== 2. The petition is unaccompanied by copies of relevant and joint verification and certification of non-forum shopping duly
pertinent documents, particularly the motion for signed by its Personnel Manager 16 and a copy of the Motion
reconsideration filed before the NLRC (Section 1, Rule 65, for Reconsideration 17 filed before the NLRC were attached
1. Luis Regondula (same) P126,684.40 8 1997 Rules of Civil Procedure). 12 therein. Thus, petitioner prays that we take a liberal stance
2. Manolito Catalan (same) 126,684.40 to promote the ends of justice.
3. Oresca Agapito (same) 126,684.40 The petitioner then moved for reconsideration of the order of
4. Noel Alibadbad (same) 126,684.40 dismissal. The appellate court denied the motion, pointing Petitioner’s plea for liberality, however, cannot be granted
5. Rogelio Pintuan (same) 126,684.40 out that under prevailing case law subsequent compliance by the Court for reasons herein elucidated.
6. Danilo Crisostomo (same) 126,684.40 with formal requirements for filing a petition as prescribed
7. Romulo Macalinao (same) 126,684.40 by the Rules, does not ipso facto warrant a reconsideration. It is settled that the requirement in the Rules that the
8. Nestor Ferrer (same) 126,684.40 In any event, it found no grave abuse of discretion on the certification of non-forum shopping should be executed and
9. Ricky Cuesta (same) 126,684.40 part of the NLRC to grant the writ of certiorari. signed by the plaintiff or the principal means that counsel
10. Andrada Rolly (same) 126,684.40 cannot sign said certification unless clothed with special
authority to do so. 18 The reason for this is that the plaintiff
or principal knows better than anyone else whether a
petition has previously been filed involving the same case or
substantially the same issues. Hence, a certification signed
by counsel alone is defective and constitutes a valid cause
for dismissal of the petition. 19 In the case of natural
persons, the Rule requires the parties themselves to sign the
certificate of non-forum shopping. However, in the case of
the corporations, the physical act of signing may be
performed, on behalf of the corporate entity, only by
specifically authorized individuals for the simple reason that
corporations, as artificial persons, cannot personally do the
task themselves. 20 In this case, not only was the originally
appended certification signed by counsel, but in its motion
for reconsideration, still petitioner utterly failed to show that
Ms. Rosanna Ignacio, its Personnel Manager who signed the
verification and certification of non-forum shopping attached
thereto, was duly authorized for this purpose. It cannot be
gainsaid that obedience to the requirements of procedural
rule is needed if we are to expect fair results therefrom.
Utter disregard of the rules cannot justly be rationalized by
harking on the policy of liberal construction. 21
Thus, on this point, no error could be validly attributed to
respondent Court of Appeals. It did not err in dismissing the
petition for non-compliance with the requirements governing
the certification of non-forum shopping.
Anent the second issue, petitioner avers that there was
denial of due process of law when the Labor Arbiter failed to
have the case tried on the merits. Petitioner adds that the
Arbiter did not observe the mandatory language of the then
Sec. 5(b) Rule V (now Section 11, per amendment in
Resolution No. 01-02, Series of 2002) of the NLRC New Rules
of Procedure which provided that:chanrob1es virtual 1aw
library
If the Labor Arbiter finds no necessity of further hearing after
the parties have submitted their position papers and
supporting documents, he shall issue an Order to that effect
and shall inform the parties, stating the reasons therefor . . .
22
Petitioner’s contention, in our view, lacks sufficient basis.
Well settled is the rule that the essence of due process is
simply an opportunity to be heard, or, as applied to
administrative proceedings, an opportunity to explain one’s
side or an opportunity to seek a reconsideration of the action
or ruling complained of. 23 Not all cases require a trial-type
hearing. The requirement of due process in labor cases
before a Labor Arbiter is satisfied when the parties are given
the opportunity to submit their position papers to which they
are supposed to attach all the supporting documents or
documentary evidence that would prove their respective
claims, in the event the Labor Arbiter determines that no
formal hearing would be conducted or that such hearing was
not necessary. 24 In any event, as found by the NLRC,
petitioner was given ample opportunity to present its side in
several hearings conducted before the Labor Arbiter and in
the position papers and other supporting documents that it
had submitted. We find that such opportunity more than
satisfies the requirement of due process in labor cases.
On the third issue, petitioner argues that it should not be
held jointly and severally liable with Longest Force for
underpayment of wages and overtime pay because it had
been religiously and promptly paying the bills for the
security services sent by Longest Force and that these are in
accordance with the statutory minimum wage. Also,
petitioner contends that it should not be held liable for
overtime pay as private respondents failed to present proof
that overtime work was actually performed. Lastly, petitioner
claims that the Court of Appeals failed to render a decision
that finally disposed of the case because it did not
specifically rule on the immediate recourse of private
respondents, that is, the matter of reimbursement between
petitioner and Longest Force in accordance with Eagle
Security Agency Inc. v. NLRC , 25 and Philippine Fisheries
Development Authority v. NLRC . 26
Petitioner’s liability is joint and several with that of Longest
Force, pursuant to Articles 106, 107 and 109 of the Labor
Code which provide as follows:chanrob1es virtual 1aw library
ART. 106. CONTRACTOR OR SUBCONTRACTOR. — Whenever
an employer enters into a contract with another person for
the performance of the former’s work, the employees of the
contractor and of the latter’s subcontractor, if any, shall be
paid in accordance with the provisions of this Code.
In the event that the contractor or subcontractor fails to pay
the wages of his employees in accordance with this Code,
the employer shall be jointly and severally liable with his
contractor or subcontractor to such employees to the extent
of the work performed under the contract, in the same
manner and extent that he is liable to employees directly
employed by him.
x       x       x
ART. 107. INDIRECT EMPLOYER. — The provisions of the
immediately preceding Article shall likewise apply to any
person, partnership, association or corporation which, not
being an employer, contracts with an independent contractor
for the performance of any work, task, job or project.
ART. 109. SOLIDARY LIABILITY . — The provisions of existing
laws to the contrary notwithstanding, every employer or
indirect employer shall be held responsible with his
contractor or subcontractor for any violation of any provision
of this Code. For purposes of determining the extent of their
civil liability under this Chapter, they shall be considered as
direct employers.chanrob1es virtua1 1aw 1ibrary
In this case, when petitioner contracted for security services
with Longest Force as the security agency that hired private
respondents to work as guards for the shipyard corporation,
petitioner became an indirect employer of private
respondents pursuant to Article 107 abovecited. Following
Article 106, when the agency as contractor failed to pay the
guards, the corporation as principal becomes jointly and
severally liable for the guards’ wages. This is mandated by
the Labor Code to ensure compliance with its provisions,
including payment of statutory minimum wage. The security
agency is held liable by virtue of its status as direct
employer, while the corporation is deemed the indirect
employer of the guards for the purpose of paying their
wages in the event of failure of the agency to pay them. This
statutory scheme gives the workers the ample protection
consonant with labor and social justice provisions of the
1987 Constitution. 27
Petitioner cannot evade its liability by claiming that it had
religiously paid the compensation of guards as stipulated
under the contract with the security agency. Labor standards
are enacted by the legislature to alleviate the plight of
workers whose wages barely meet the spiraling costs of their
basic needs. Labor laws are considered written in every
contract. Stipulations in violation thereof are considered null.
Similarly, legislated wage increases are deemed
amendments to the contract. Thus, employers cannot hide
behind their contracts in order to evade their (or their
contractors’ or subcontractors’) liability for noncompliance
with the statutory minimum wage. 28
However, we must emphasize that the solidary liability of
petitioner with that of Longest Force does not preclude the
application of the Civil Code provision on the right of
reimbursement from his co-debtor by the one who paid. 29
As held in Del Rosario & Sons Logging Enterprises, Inc. v.
NLRC , 30 the joint and several liability imposed on petitioner
is without prejudice to a claim for reimbursement by
petitioner against the security agency for such amounts as
petitioner may have to pay to complainants, the private
respondents herein. The security agency may not seek
exculpation by claiming that the principal’s payments to it
were inadequate for the guards’ lawful compensation. As an
employer, the security agency is charged with knowledge of
labor laws; and the adequacy of the compensation that it
demands for contractual services is its principal concern and
not any other’s. 31
On the issue of the propriety of the award of overtime pay
despite the alleged lack of proof thereof, suffice it to state
that such involves a determination and evaluation of facts
which cannot be done in a petition for review. Well
established is the rule that in an appeal via certiorari, only
questions of law may be reviewed. 32
One final point. Upon review of the award of backwages and
attorney’s fees, we discovered certain errors that happened
in the addition of the amount of individual backwages that
resulted in the erroneous total amount of backwages and
attorney’s fees. These errors ought to be properly rectified
now. Thus, the correct sum of individual backwages should
be P126,648.40 instead of P126,684.40, while the correct
sum of total backwages awarded and attorney’s fees should
be P3,926,100.40, and P392,610.04, instead of
P3,927,216.40 and P392,721.64, respectively.
WHEREFORE, the Resolution of the Court of Appeals in CA-
G.R. SP No. 55416 is AFFIRMED with MODIFICATION.
Petitioner and Longest Force are held liable jointly and
severally for underpayment of wages and overtime pay of
the security guards, without prejudice to petitioner’s right of
reimbursement from Longest Force Investigation and
Security Agency, Inc. The amounts payable to complaining
security guards, herein private respondents, by way of total
backwages and attorney’s fees are hereby set at
P3,926,100.40 and P392,610.04, respectively. Costs against
petitioner.
SO ORDERED.

G.R. No. 147791             September 8, 2006
CONSTRUCTION DEVELOPMENT CORPORATION OF THE
PHILIPPINES, petitioner,
vs.
REBECCA G. ESTRELLA, RACHEL E. FLETCHER,
PHILIPPINE PHOENIX SURETY & INSURANCE INC.,
BATANGAS LAGUNA TAYABAS BUS CO., and WILFREDO
DATINGUINOO, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the March 29, 2001
Decision1 of the Court of Appeals in CA-G.R. CV No. 46896,
which affirmed with modification the February 9, 1993
Decision2 of the Regional Trial Court of Manila, Branch 13, in
Civil Case No. R-82-2137, finding Batangas Laguna Tayabas
Bus Co. (BLTB) and Construction Development Corporation
of the Philippines (CDCP) liable for damages.
The antecedent facts are as follows:
On December 29, 1978, respondents Rebecca G. Estrella and
her granddaughter, Rachel E. Fletcher, boarded in San Pablo
City, a BLTB bus bound for Pasay City. However, they never
reached their destination because their bus was rammed
from behind by a tractor-truck of CDCP in the South
Expressway. The strong impact pushed forward their seats
and pinned their knees to the seats in front of them. They
regained consciousness only when rescuers created a hole in
the bus and extricated their legs from under the seats. They
were brought to the Makati Medical Center where the
doctors diagnosed their injuries to be as follows:
Medical Certificate of Rebecca Estrella
Fracture, left tibia mid 3rd
Lacerated wound, chin
Contusions with abrasions, left lower leg
Fracture, 6th and 7th ribs, right 3
Medical Certificate of Rachel Fletcher
Extensive lacerated wounds, right leg posterior
aspect popliteal area
and antero-lateral aspect mid lower leg with
severance of muscles.
Partial amputation BK left leg with severance of
gastro-soleus and
antero-lateral compartment of lower leg.
Fracture, open comminuted, both tibial4
Thereafter, respondents filed a Complaint 5 for damages
against CDCP, BLTB, Espiridion Payunan, Jr. and Wilfredo
Datinguinoo before the Regional Trial Court of Manila,
Branch 13. They alleged (1) that Payunan, Jr. and
Datinguinoo, who were the drivers of CDCP and BLTB buses,
respectively, were negligent and did not obey traffic laws;
(2) that BLTB and CDCP did not exercise the diligence of a
good father of a family in the selection and supervision of
their employees; (3) that BLTB allowed its bus to operate
knowing that it lacked proper maintenance thus exposing its
passengers to grave danger; (4) that they suffered actual
damages amounting to P250,000.00 for Estrella and
P300,000.00 for Fletcher; (5) that they suffered physical
discomfort, serious anxiety, fright and mental anguish,
besmirched reputation and wounded feelings, moral shock,
and lifelong social humiliation; (6) that defendants failed to
act with justice, give respondents their due, observe honesty
and good faith which entitles them to claim for exemplary
damage; and (7) that they are entitled to a reasonable
amount of attorney's fees and litigation expenses.
CDCP filed its Answer 6 which was later amended to include a
third-party complaint against Philippine Phoenix Surety and
Insurance, Inc. (Phoenix). 7
On February 9, 1993, the trial court rendered a decision
finding CDCP and BLTB and their employees liable for
damages, the dispositive portion of which, states:
WHEREFORE, judgment is rendered:
In the Complaint –
1. In favor of the plaintiffs and against the
defendants BLTB, Wilfredo Datinguinoo,
Construction and Development Corporation of the
Philippines (now PNCC) and Espiridion Payunan, Jr.,
ordering said defendants, jointly and severally to
pay the plaintiffs the sum of P79,254.43 as actual
damages and to pay the sum of P10,000.00 as
attorney's fees or a total of P89,254.43;
2. In addition, defendant Construction and
Development Corporation of the Philippines and
defendant Espiridion Payunan, Jr., shall pay the
plaintiffs the amount of Fifty Thousand
(P50,000.00) Pesos to plaintiff Rachel Fletcher and
Twenty Five Thousand (P25,000.00) Pesos to
plaintiff Rebecca Estrella;
3. On the counterclaim of BLTB Co. and Wilfredo
Datinguinoo –
Dismissing the counterclaim;
4. On the crossclaim against Construction and
Development Corporation of the Philippines (now
PNCC) and Espiridion Payunan, Jr. –
Dismissing the crossclaim;
5. On the counterclaim of Construction and
Development Corporation of the Philippines (now
PNCC) –
Dismissing the counterclaim;
6. On the crossclaim against BLTB –
Dismissing the crossclaim;
7. On the Third Party Complaint by Construction
and Development Corporation of the Philippines
against Philippine Phoenix Surety and Insurance,
Incorporated –
Dismissing the Third Party Complaint.
SO ORDERED.8
The trial court held that BLTB, as a common carrier, was
bound to observe extraordinary diligence in the vigilance
over the safety of its passengers. It must carry the
passengers safely as far as human care and foresight
provide, using the utmost diligence of very cautious persons,
with a due regard for all the circumstances. Thus, where a
passenger dies or is injured, the carrier is presumed to have
been at fault or has acted negligently. BLTB's inability to
carry respondents to their destination gave rise to an action
for breach of contract of carriage while its failure to rebut the
presumption of negligence made it liable to respondents for
the breach.9
Regarding CDCP, the trial court found that the tractor-truck it
owned bumped the BLTB bus from behind. Evidence showed
that CDCP's driver was reckless and driving very fast at the
time of the incident. The gross negligence of its driver raised
the presumption that CDCP was negligent either in the
selection or in the supervision of its employees which it
failed to rebut thus making it and its driver liable to
respondents.10
Unsatisfied with the award of damages and attorney's fees
by the trial court, respondents moved that the decision be
reconsidered but was denied. Respondents elevated the
case11 to the Court of Appeals which affirmed the decision of
the trial court but modified the amount of damages, the
dispositive portion of which provides:
WHEREFORE, the assailed decision dated October
7, 1993 of the Regional Trial Court, Branch 13,
Manila is hereby AFFIRMED with the following
MODIFICATION:
1. The interest of six (6) percent per annum on the
actual damages of P79,354.43 should commence
 to run from the time the judicial demand was
made or from the filing of the complaint on
February 4, 1980;
2. Thirty (30) percent of the total amount
recovered is hereby awarded as attorney's fees;
3. Defendants-appellants Construction and
Development Corporation of the Philippines (now
PNCC) and Espiridion Payunan, Jr. are ordered to
pay plaintiff-appellants Rebecca Estrella and
Rachel Fletcher the amount of Twenty Thousand
(P20,000.00) each as exemplary damages and
P80,000.00 by way of moral damages to Rachel
Fletcher.
SO ORDERED.12
The Court of Appeals held that the actual or compensatory
damage sought by respondents for the injuries they
sustained in the form of hospital bills were already liquidated
and were ascertained. Accordingly, the 6% interest per
annum should commence to run from the time the judicial
demand was made or from the filing of the complaint and
not from the date of judgment. The Court of Appeals also
awarded attorney's fees equivalent to 30% of the total
amount recovered based on the retainer agreement of the
parties. The appellate court also held that respondents are
entitled to exemplary and moral damages. Finally, it affirmed
the ruling of the trial court that the claim of CDCP against
Phoenix had already prescribed.
Hence, this petition raising the following issues:
I
WHETHER OR NOT THE COURT OF APPEALS
GRAVELY ERRED IN NOT HOLDING RESPONDENTS
BLTB AND/OR ITS DRIVER WILFREDO
DATINGUINOO SOLELY LIABLE FOR THE DAMAGES
SUSTAINED BY HEREIN RESPONDENTS FLETCHER
AND ESTRELLA.
II
WHETHER OR NOT THE COURT OF APPEALS
GRAVELY ERRED IN AWARDING EXCESSIVE OR
UNFOUNDED DAMAGES, ATTORNEY'S FEES AND
LEGAL INTEREST TO RESPONDENTS FLETCHER
AND ESTRELLA.
III
WHETHER OR NOT THE COURT OF APPEALS
GRAVELY ERRED IN NOT HOLDING RESPONDENT
PHOENIX LIABLE UNDER ITS INSURANCE POLICY
ON THE GROUND OF PRESCRIPTION.
The issues for resolution are as follows: (1) whether BLTB
and its driver Wilfredo Datinguinoo are solely liable for the
damages sustained by respondents; (2) whether the
damages, attorney's fees and legal interest awarded by the
CA are excessive and unfounded; (3) whether CDCP can
recover under its insurance policy from Phoenix.
Petitioner contends that since it was made solidarily liable
with BLTB for actual damages and attorney's fees in
paragraph 1 of the trial court's decision, then it should no
longer be held liable to pay the amounts stated in paragraph
2 of the same decision. Petitioner claims that the liability for
actual damages and attorney's fees is based on culpa
contractual, thus, only BLTB should be held liable. As regards
paragraph 2 of the trial court's decision, petitioner claims
that it is ambiguous and arbitrary because the dispositive
portion did not state the basis and nature of such award.
Respondents, on the other hand, argue that petitioner is also
at fault, hence, it was properly joined as a party. There may
be an action arising out of one incident where questions of
fact are common to all. Thus, the cause of action based
on culpa aquiliana in the civil suit they filed against it was
valid.
The petition lacks merit.
The case filed by respondents against petitioner is an action
for culpa aquiliana or quasi-delict under Article 2176 of the
Civil Code.13 In this regard, Article 2180 provides that the
obligation imposed by Article 2176 is demandable for the
acts or omissions of those persons for whom one is
responsible. Consequently, an action based on quasi-delict
may be instituted against the employer for an employee's
act or omission. The liability for the negligent conduct of the
subordinate is direct and primary, but is subject to the
defense of due diligence in the selection and supervision of
the employee.14 In the instant case, the trial court found that
petitioner failed to prove that it exercised the diligence of a
good father of a family in the selection and supervision of
Payunan, Jr.
The trial court and the Court of Appeals found petitioner
solidarily liable with BLTB for the actual damages suffered by
respondents because of the injuries they sustained. It was
established that Payunan, Jr. was driving recklessly because
of the skid marks as shown in the sketch of the police
investigator.
It is well-settled in Fabre, Jr. v. Court of Appeals,15 that the
owner of the other vehicle which collided with a common
carrier is solidarily liable to the injured passenger of the
same. We held, thus:
The same rule of liability was applied in situations
where the negligence of the driver of the bus on
which plaintiff was riding concurred with the
negligence of a third party who was the driver of
another vehicle, thus causing an accident.
In Anuran v. Buño, Batangas Laguna Tayabas Bus
Co. v. Intermediate Appellate Court, and Metro
Manila Transit Corporation v. Court of Appeals, the
bus company, its driver, the operator of the
other vehicle and the driver of the vehicle
were jointly and severally held liable to the
injured passenger or the latter's heirs. The
basis of this allocation of liability was explained
in Viluan v. Court of Appeals, thus:
Nor should it make any difference that the
liability of petitioner [bus owner] springs
from contract while that of respondents
[owner and driver of other vehicle] arises
from quasi-delict. As early as 1913, we already
ruled in Gutierrez vs. Gutierrez, 56 Phil. 177, that
in case of injury to a passenger due to the
negligence of the driver of the bus on which he
was riding and of the driver of another vehicle, the
drivers as well as the owners of the two vehicles
are jointly and severally liable for damages. x x x
xxxx
As in the case of BLTB, private respondents in this
case and her co-plaintiffs did not stake out their
claim against the carrier and the driver exclusively
on one theory, much less on that of breach of
contract alone. After all, it was permitted for
them to allege alternative causes of action
and join as many parties as may be liable on
such causes of action so long as private
respondent and her co-plaintiffs do not
recover twice for the same injury. What is
clear from the cases is the intent of the plaintiff
there to recover from both the carrier and the
driver, thus justifying the holding that the carrier
and the driver were jointly and severally liable
because their separate and distinct acts concurred
to produce the same injury.16 (Emphasis supplied)
In a "joint" obligation, each obligor answers only for a part of
the whole liability; in a "solidary" or "joint and several"
obligation, the relationship between the active and the
passive subjects is so close that each of them must comply
with or demand the fulfillment of the whole obligation.
In Lafarge Cement v. Continental Cement Corporation,17 we
reiterated that joint tort feasors are jointly and severally
liable for the tort which they commit. Citing Worcester v.
Ocampo,18 we held that:
x x x The difficulty in the contention of the
appellants is that they fail to recognize that the
basis of the present action is tort. They fail to
recognize the universal doctrine that each joint
tort feasor is not only individually liable for the tort
in which he participates, but is also jointly liable
with his tort feasors. x x x
It may be stated as a general rule that joint tort
feasors are all the persons who command,
instigate, promote, encourage, advise,
countenance, cooperate in, aid or abet the
 commission of a tort, or who approve of it after it
is done, if done for their benefit. They are each
liable as principals, to the same extent and in the
same manner as if they had performed the
wrongful act themselves. x x x
Joint tort feasors are jointly and severally liable for
the tort which they commit. The persons injured
may sue all of them or any number less than all.
Each is liable for the whole damages caused by all,
and all together are jointly liable for the whole
damage. It is no defense for one sued alone, that
the others who participated in the wrongful act are
not joined with him as defendants; nor is it any
excuse for him that his participation in the tort
was insignificant as compared to that of the
others. x x x
Joint tort feasors are not liable pro rata. The
damages can not be apportioned among them,
except among themselves. They cannot insist
upon an apportionment, for the purpose of each
paying an aliquot part. They are jointly and
severally liable for the whole amount. x x x
A payment in full for the damage done, by one of
the joint tort feasors, of course satisfies any claim
which might exist against the others. There can be
but satisfaction. The release of one of the joint tort
feasors by agreement generally operates to
discharge all. x x x
Of course the court during trial may find that some
of the alleged tort feasors are liable and that
others are not liable. The courts may release some
for lack of evidence while condemning others of
the alleged tort feasors. And this is true even
though they are charged jointly and severally. 19
Petitioner's claim that paragraph 2 of the dispositive portion
of the trial court's decision is ambiguous and arbitrary and
also entitles respondents to recover twice is without basis. In
the body of the trial court's decision, it was clearly stated
that petitioner and its driver Payunan, Jr., are jointly and
solidarily liable for moral damages in the amount of
P50,000.00 to respondent Fletcher and P25,000.00 to
respondent Estrella. 20 Moreover, there could be no double
recovery because the award in paragraph 2 is for moral
damages while the award in paragraph 1 is for actual
damages and attorney's fees.
Petitioner next claims that the damages, attorney's fees, and
legal interest awarded by the Court of Appeals are
excessive.
Moral damages may be recovered in quasi-delicts causing
physical injuries.21 The award of moral damages in favor of
Fletcher and Estrella in the amount of P80,000.00 must be
reduced since prevailing jurisprudence fixed the same at
P50,000.00.22 While moral damages are not intended to
enrich the plaintiff at the expense of the defendant, the
award should nonetheless be commensurate to the suffering
inflicted.23
The Court of Appeals correctly awarded respondents
exemplary damages in the amount of P20,000.00 each.
Exemplary damages may be awarded in addition to moral
and compensatory damages. 24 Article 2231 of the Civil Code
also states that in quasi-delicts, exemplary damages may be
granted if the defendant acted with gross negligence. 25 In
this case, petitioner's driver was driving recklessly at the
time its truck rammed the BLTB bus. Petitioner, who has
direct and primary liability for the negligent conduct of its
subordinates, was also found negligent in the selection and
supervision of its employees. In Del Rosario v. Court of
Appeals,26 we held, thus:
ART. 2229 of the Civil Code also provides that such
damages may be imposed, by way of example or
correction for the public good. While exemplary
damages cannot be recovered as a matter of right,
they need not be proved, although plaintiff must
show that he is entitled to moral, temperate or
compensatory damages before the court may
consider the question of whether or not exemplary
damages should be awarded. Exemplary Damages
are imposed not to enrich one party or impoverish
another but to serve as a deterrent against or as a
negative incentive to curb socially deleterious
actions.
Regarding attorney's fees, we held in Traders Royal Bank
Employees Union-Independent v. National Labor Relations
Commission, 27 that:
There are two commonly accepted concepts of
attorney's fees, the so-called ordinary and
extraordinary. In its ordinary concept, an
attorney's fee is the reasonable compensation
paid to a lawyer by his client for the legal services
he has rendered to the latter. The basis of this
compensation is the fact of his employment by
and his agreement with the client.
In its extraordinary concept, an attorney's
fee is an indemnity for damages ordered by
the court to be paid by the losing party in a
litigation. The basis of this is any of the cases
provided by law where such award can be made,
such as those authorized in Article 2208, Civil
Code, and is payable not to the lawyer but to
the client, unless they have agreed that the
award shall pertain to the lawyer as
additional compensation or as part
thereof.28 (Emphasis supplied)
In the instant case, the Court of Appeals correctly awarded
attorney's fees and other expenses of litigation as they may
be recovered as actual or compensatory damages when
exemplary damages are awarded; when the defendant acted
in gross and evident bad faith in refusing to satisfy the
plaintiff's valid, just and demandable claim; and in any other
case where the court deems it just and equitable that
attorney's fees and expenses of litigation should be
recovered.29
Regarding the imposition of legal interest at the rate of 6%
from the time of the filing of the complaint, we held
in Eastern Shipping Lines, Inc. v. Court of Appeals,30 that
when an obligation, regardless of its source, i.e., law,
contracts, quasi-contracts, delicts or quasi-delicts is
breached, the contravenor can be held liable for payment of
interest in the concept of actual and compensatory
damages,31 subject to the following rules, to wit –
1. When the obligation is breached, and it consists
in the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be
that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169
of the Civil Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed
at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on
unliquidated claims or damages except when or
until the demand can be established with
reasonable certainty. Accordingly, where the
demand is established with reasonable certainty,
the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art.
1169, Civil Code) but when such certainty cannot
be so reasonably established at the time the
demand is made, the interest shall begin to
run only from the date the judgment of the
court is made (at which time the
quantification of damages may be deemed to
have been reasonably ascertained). The
actual base for the computation of legal interest
shall, in any case, be on the amount finally
adjudged.
3. When the judgment of the court awarding
a sum of money becomes final and
executory, the rate of legal interest, whether
the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum
from such finality until its satisfaction, this
interim period being deemed to be by then
an equivalent to a forbearance of
credit.32 (Emphasis supplied)
Accordingly, the legal interest of 6% shall begin to run on
February 9, 1993 when the trial court rendered judgment
and not on February 4, 1980 when the complaint was filed.
This is because at the time of the filing of the complaint, the
amount of the damages to which plaintiffs may be entitled
remains unliquidated and unknown, until it is definitely
ascertained, assessed and determined by the court and only
upon presentation of proof thereon. 33 From the time the
judgment becomes final and executory, the interest rate
shall be 12% until its satisfaction.
Anent the last issue of whether petitioner can recover under
its insurance policy from Phoenix, we affirm the findings of
both the trial court and the Court of Appeals, thus:
As regards the liability of Phoenix, the court a quo
correctly ruled that defendant-appellant CDCP's
claim against Phoenix already prescribed pursuant
to Section 384 of P.D. 612, as amended, which
provides:
Any person having any claim upon the
policy issued pursuant to this chapter
shall, without any unnecessary delay,
present to the insurance company
concerned a written notice of
claim setting forth the nature, extent
and duration of the injuries sustained as
certified by a duly licensed physician.
Notice of claim must be filed within six
months from date of the accident,
otherwise, the claim shall be deemed
waived. Action or suit for recovery of
damage due to loss or injury must be
brought in proper cases, with the
Commissioner or Courts within one year
from denial of the claim, otherwise, the
claimant's right of action shall
prescribe. (As amended by PD 1814, BP
874.) 34
The law is clear and leaves no room for interpretation. A
written notice of claim must be filed within six months from
the date of the accident. Since petitioner never made any
claim within six months from the date of the accident, its
claim has already prescribed.
WHEREFORE, the instant petition is DENIED. The Decision
of the Court of Appeals in CA-G.R. CV No. 46896 dated March
29, 2001, which modified the Decision of the Regional Trial
Court of Manila, Branch 13, in Civil Case No. R-82-2137,
is AFFIRMED with the MODIFICATIONS that petitioner is
held jointly and severally liable to pay (1) actual damages in
the amount of P79,354.43; (2) moral damages in the amount
of P50,000.00 each for Rachel Fletcher and Rebecca Estrella;
(3) exemplary damages in the amount of P20,000.00 each
for Rebecca Estrella and Rachel Fletcher; and (4) thirty
percent (30%) of the total amount recovered as attorney's
fees. The total amount adjudged shall earn interest at the
rate of 6% per annum from the date of judgment of the trial
court until finality of this judgment. From the time this
Decision becomes final and executory and the judgment
amount remains unsatisfied, the same shall earn interest at
the rate of 12% per annum until its satisfaction.
SO ORDERED.
complaint insisting that their loan had been fully paid after
they assigned to iBank their Condominium Unit No. 141, with
parking space, at 20 Landsbergh Place in Tomas Morato
G.R. No. 203133, February 18, 2015 Avenue, Quezon City.12 They claimed that while the pre-
selling value of the condominium unit was P3.3 Million, its
market value has since risen to P5.5 Million. 13 The RTC,
YULIM INTERNATIONAL COMPANY LTD., JAMES YU,
however, did not entertain the motion to dismiss for non-
JONATHAN YU, AND ALMERICK TIENG
compliance with Rule 15 of the Rules of Court.
LIM, Petitioners, v. INTERNATIONAL EXCHANGE BANK
(NOW UNION BANK OF THE PHILIPPINES), Respondent.
On May 16, 2006, the petitioners filed their Answer
reiterating that they have paid their loan by way of
DECISION assignment of a condominium unit to iBank, as well as
insisting that iBank’s penalties and charges were exorbitant,
oppressive and unconscionable. 14
REYES, J.:
In the assailed Decision 1 dated February 1, 2012 in CA-G.R. Ruling of the RTC
CV No. 95522, the Court of Appeals (CA) modified the
Decision2 dated December 21, 2009 of the Regional Trial After trial on the merits, the RTC rendered judgment on
Court (RTC) of Makati City, Branch 145, in Civil Case No. 02- December 21, 2009, the dispositive portion of which reads,
749, holding that James Yu (James), Jonathan Yu (Jonathan) as follows:
and Almerick Tieng Lim (Almerick), who were capitalist
partners in Yulim International Company Ltd. (Yulim),
collectively called as the petitioners, were jointly and
severally liable with Yulim for its loan obligations with WHEREFORE, in view of the foregoing considerations, the
respondent International Exchange Bank (iBank). Court finds the individual defendants James Yu, Jonathan Yu
and Almerick Tieng Lim, not liable to the plaintiff, iBank,
hence the complaint against them is hereby DISMISSED for
The Facts
insufficiency of evidence, without pronouncement as to cost.
On June 2, 2000, iBank, a commercial bank, granted Yulim, a
This court, however, finds defendant corporation Yulim
domestic partnership, a credit facility in the form of an
International Company Ltd. liable; and it hereby orders
Omnibus Loan Line for P5,000,000.00, as evidenced by a
defendant corporation to pay plaintiff the sum of
Credit Agreement3 which was secured by a Chattel
P4,246,310.00 with interest at 16.50% per annum from
Mortgage 4 over Yulim’s inventories in its merchandise
February 28, 2002 until fully paid plus cost of suit.
warehouse at 106 4th Street, 9th Avenue, Caloocan City. As
further guarantee, the partners, namely, James, Jonathan
The counterclaims of defendants against plaintiff iBank are
and Almerick, executed a Continuing Surety Agreement5 in
hereby DISMISSED for insufficiency of evidence.
favor of iBank.
SO ORDERED.15
Yulim availed of its aforesaid credit facility with iBank, as
follows:
Thus, the RTC ordered Yulim alone to pay iBank the amount
of P4,246,310.00, plus interest at 16.50% per annum from
Promissory Face Value PN Date Date of Maturity
February 28, 2002 until fully paid, plus costs of suit, and
Note No.
dismissed the complaint against petitioners James, Jonathan
2110005852 P 1,298,926.00 10/26/2000 01/29/2001
and Almerick, stating that there was no iota of evidence that
2110006026 1,152,963.00 11/18/2000 02/05/2001
the loan proceeds benefited their families. 16
2110006344 499,890.00 12/04/2000 03/12/2001
2110006557 798,010.00 12/18/2000 04/23/2001
The petitioners moved for reconsideration on January 12,
2110100189 496,521.00 01/11/2001 05/07/20016
2010;17 iBank on January 19, 2010 likewise filed a motion for
partial reconsideration. 18 In its Joint Order19 dated March 8,
The above promissory notes (PN) were later consolidated
2010, the RTC denied both motions.
under a single promissory note, PN No. SADDK001014188,
for P4,246,310.00, to mature on February 28, 2002. 7 Yulim
defaulted on the said note. On April 5, 2002, iBank sent
demand letters to Yulim, through its President, James, and Ruling of the CA
through Almerick,8 but without success. iBank then filed a
Complaint for Sum of Money with Replevin 9 against Yulim On March 23, 2010, Yulim filed a Notice of Partial Appeal,
and its sureties. On August 8, 2002, the Court granted the followed on March 30, 2010 by iBank with a Notice of Appeal.
application for a writ of replevin. Pursuant to the Sheriff’s
Certificate of Sale dated November 7, 2002,10 the items Yulim interposed the following as errors of the court a quo:
seized from Yulim’s warehouse were worth only
P140,000.00, not P500,000.00 as the petitioners have
insisted.11
On October 2, 2002, the petitioners moved to dismiss the
 I. THE LOWER COURT ERRED IN
ORDERING [YULIM] TO PAY [iBANK] THE
AMOUNT OF P4,246,310.00 WITH
INTEREST AT 16.5% PER ANNUM FROM
FEBRUARY 28, 2002 UNTIL FULLY PAID.
II. THE LOWER COURT ERRED IN NOT
ORDERING [iBANK] TO PAY ATTORNEY’S
FEES, MORAL DAMAGES AND
EXEMPLARY DAMAGES.20
For its part, iBank raised the following as errors of the RTC:
I. THE TRIAL COURT ERRED IN NOT
HOLDING INDIVIDUAL [PETITIONERS
JAMES, JONATHAN AND ALMERICK]
SOLIDARILY LIABLE WITH [YULIM] ON
THE BASIS OF THE CONTINUING
SURETYSHIP AGREEMENT EXECUTED BY
THEM.
II. THE TRIAL COURT ERRED IN NOT
HOLDING ALL THE [PETITIONERS] LIABLE
FOR PENALTY CHARGES UNDER THE
CREDIT AGREEMENT AND PROMISSORY
NOTES SUED UPON.
III. THE TRIAL COURT ERRED IN NOT
HOLDING [THE PETITIONERS] LIABLE TO
[iBANK] FOR ATTORNEY’S FEES AND
INDIVIDUAL [PETITIONERS] JOINTLY AND
SEVERALLY LIABLE WITH [YULIM] FOR
COSTS OF SUIT INCURRED BY [iBANK] IN
ORDER TO PROTECT ITS RIGHTS.21
Chiefly, the factual issue on appeal to the CA, raised by
petitioners James, Jonathan and Almerick, was whether
Yulim’s loans have in fact been extinguished with the
execution of a Deed of Assignment of their condominium
unit in favor of iBank, while the corollary legal issue, raised
by iBank, was whether they should be held solidarily liable
with Yulim for its loans and other obligations to iBank.
The CA ruled that the petitioners failed to prove that they
have already paid Yulim’s consolidated loan obligations
totaling P4,246,310.00, for which it issued to iBank PN No.
SADDK001014188 for the said amount. It held that the
existence of a debt having been established, the burden to
prove with legal certainty that it has been extinguished by
payment devolves upon the debtors who have offered such
defense. The CA found the records bereft of any evidence to
show that Yulim had fully settled its obligation to iBank,
further stating that the so-called assignment by Yulim of its
condominium unit to iBank was nothing but a mere
temporary arrangement to provide security for its loan
pending the subsequent execution of a real estate mortgage.
Specifically, the CA found nothing in the Deed of Assignment
which could signify that iBank had accepted the said
property as full payment of the petitioners’ loan. The CA
cited Manila Banking Corporation v. Teodoro, Jr.22 which held
that an assignment to guarantee an obligation is in effect a
mortgage and not an absolute conveyance of title which
confers ownership on the assignee.
Concerning the solidary liability of petitioners James,
Jonathan and Almerick, the CA disagreed with the trial
court’s ruling that it must first be shown that the proceeds of
the loan redounded to the benefit of the family of the
individual petitioners before they can be held liable. Article
161 of the Civil Code and Article 121 of the Family Code
cited by the RTC apply only where the liability is sought to be
enforced against the conjugal partnership itself. In this case,
regardless of whether the loan benefited the family of the
individual petitioners, they signed as sureties, and iBank
sought to enforce the loan obligation against them as
sureties of Yulim.
Thus, the appellate court granted the appeal of iBank, and
denied that of the petitioners, as follows:
WHEREFORE, the foregoing considered, [iBank’s] appeal
is PARTLY GRANTED while [the petitioners’] appeal
is DENIED. Accordingly, the appealed decision is
hereby MODIFIED in that [petitioners] James Yu, Jonathan
Yu and A[l]merick Tieng Lim are hereby held jointly and
severally liable with defendant-appellant Yulim for the
payment of the monetary awards. The rest of the assailed
decision is AFFIRMED.
SO ORDERED.23
Petition for Review to the Supreme Court
In the instant petition, the following assigned errors are
before this Court:
1. The CA erred in ordering petitioners James, Jonathan and
Almerick jointly and severally liable with petitioner Yulim to
pay iBank the amount of P4,246,310.00 with interest at
16.5% per annum from February 28, 2002 until fully paid.
2. The CA erred in not ordering iBank to pay the petitioners
moral damages, exemplary damages, and attorney’s fees. 24
The petitioners insist that they have paid their loan to iBank.
They maintain that the letter of iBank to them dated May 4,
2001, which “expressly stipulated that the petitioners shall
execute a Deed of Assignment over one condominium unit
No. 141, 3rd Floor and a parking slot located at 20
Landsbergh Place, Tomas Morato Avenue, Quezon City,” was
with the understanding that the Deed of Assignment, which
they in fact executed, delivering also to iBank all the
pertinent supporting documents, would serve to totally
extinguish their loan obligation to iBank. In particular, the
petitioners state that it was their understanding that upon
approval by iBank of their Deed of Assignment, the same
“shall be considered as full and final payment of the
petitioners’ obligation.” They further assert that iBank’s May
4, 2001 letter expressly carried the said approval.
The petitioner invoked Article 1255 of the Civil Code,
on payment by cession, which provides:
Art. 1255. The debtor may cede or assign his property to his
creditors in payment of his debts. This cession, unless there
is stipulation to the contrary, shall only release the debtor
from responsibility for the net proceeds of the thing
assigned. The agreements which, on the effect of the
cession, are made between the debtor and his creditors shall
be governed by special laws.
Ruling of the Court
The petition is bereft of merit.
Firstly, the individual petitioners do not deny that they
executed the Continuing Surety Agreement, wherein they
“jointly and severally with the PRINCIPAL [Yulim], hereby
unconditionally and irrevocably guarantee full and complete
payment when due, whether at stated maturity, by
acceleration, or otherwise, of any and all credit
accommodations that have been granted” to Yulim by iBank,
including interest, fees, penalty and other charges. 25 Under
Article 2047 of the Civil Code, these words are said to
describe a contract of suretyship. It states:
Art. 2047. By guaranty a person, called the guarantor, binds
himself to the creditor to fulfill the obligation of the principal
debtor in case the latter should fail to do so.
If a person binds himself solidarily with the principal debtor,
the provisions of Section 4, Chapter 3, Title I of this Book
shall be observed. In such case the contract is called a
suretyship.
In a contract of suretyship, one lends his credit by joining in
the principal debtor’s obligation so as to render himself
directly and primarily responsible with him without reference
to the solvency of the principal. 26 According to the above
Article, if a person binds himself solidarily with the principal
debtor, the provisions of Articles 1207 to 1222, or Section 4,
Chapter 3, Title I, Book IV of the Civil Code on joint and
solidary obligations, shall be observed. Thus, where there is
a concurrence of two or more creditors or of two or more
debtors in one and the same obligation, Article 1207
provides that among them, “[t]here is a solidary liability only
when the obligation expressly so states, or when the law or
the nature of the obligation requires solidarity.”
“A surety is considered in law as being the same party as the
debtor in relation to whatever is adjudged touching the
obligation of the latter, and their liabilities are interwoven as
to be inseparable.”27 And it is well settled that when the
obligor or obligors undertake to be “jointly and severally”
liable, it means that the obligation is solidary, 28 as in this
case. There can be no mistaking the same import of Article I
of the Continuing Surety Agreement executed by the
individual petitioners:
ARTICLE I Nowhere can it be remotely construed that the letter even
LIABILITIES OF SURETIES
SECTION 1.01. The SURETIES, jointly and severally with the
PRINCIPAL, hereby unconditionally and irrevocably
guarantee full and complete payment when due, whether at
stated maturity, by acceleration, or otherwise, of any and all
credit accommodations that have been granted or may be
granted, renewed and/or extended by the BANK to the
PRINCIPAL.
The liability of the SURETIES shall not be limited to the
maximum principal amount of FIVE MILLION PESOS
(P5,000,000.00) but shall include interest, fees, penalty and
other charges due thereon.
SECTION 1.02. This INSTRUMENT is a guarantee of payment
and not merely of collection and is intended to be a perfect
and continuing indemnity in favor of the BANK for the
amounts and to the extent stated above.
The liability of the SURETIES shall be direct, immediate and
not contingent upon the pursuit of the BANK of whatever
remedies it may have against the PRINCIPAL of the other
securities for the Accommodation. 29
Thereunder, in addition to binding themselves “jointly and
severally” with Yulim to “unconditionally and irrevocably
guarantee full and complete payment” of any and all credit
accommodations that have been granted to Yulim, the
petitioners further warrant that their liability as sureties
“shall be direct, immediate and not contingent upon the
pursuit [by] the BANK of whatever remedies it may have
against the PRINCIPAL of other securities.”  There can thus
be no doubt that the individual petitioners have bound
themselves to be solidarily liable with Yulim for the payment
of its loan with iBank.
As regards the petitioners’ contention that iBank in its letter
dated May 4, 2001 had “accepted/approved” the assignment
of its condominium unit in Tomas Morato Avenue as full and
final payment of their various loan obligations, the Court is
far from persuaded. On the contrary, what the letter
accepted was only the collaterals provided for the loans, as
well as the consolidation of the petitioners’ various PN’s
under one PN for their aggregate amount of P4,246,310.00.
The letter goes on to spell out the terms of the new PN, such
as, that its expiry would be February 28, 2002 or a term of
G.R. No. 193890               March 11, 2015
ESTANISLAO
vs.
CHINA BANKING CORPORATION, Respondent.
DECISION
REYES, J.:
360 days, that interest would be due every 90 days, and that defendant offered to you a [condominium] unit so that – that
the rate would be based on the 91-day Treasury Bill rate or will constitute full payment of his obligation?
other market reference.
A: No ma’am. It was not offered that way. It was offered as
security or collateral to pay the outstanding loans. But the
intimates an understanding by iBank that the Deed of premise is, that he will pay x x x in cash. So, that property
Assignment would serve to extinguish the petitioners’ loan. was offered as a security or collateral.
Otherwise, there would have been no need for iBank to
mention therein the three “collaterals” or “supports” Q: That was your position?
provided by the petitioners, namely, the Deed of
Assignment, the Chattel Mortgage and the Continuing Surety A: That was the agreement and that was how the document
Agreement executed by the individual petitioners. In fact, was signed. It was worded out[.]
Section 2.01 of the Deed of Assignment expressly
acknowledges that it is a mere “interim security for the x x x x
repayment of any loan granted and those that may be
granted in the future by the BANK to the ASSIGNOR and/or Q: Do you remember if a real estate mortgage was executed
the BORROWER, for compliance with the terms and over this property that was being assigned to the plaintiff?
conditions of the relevant credit and/or loan documents
thereof.”30 The condominium unit, then, is a mere temporary A: To my recollection, none at all.
security, not a payment to settle their promissory notes. 31
Q: Madam Witness, this Deed of Assignment was considered
Even more unmistakably, Section 2.02 of the Deed of as full payment by the plaintiff bank, what document was
Assignment provides that as soon as title to the executed by the plaintiff bank?
condominium unit is issued in its name, Yulim
shall “immediately execute the necessary Deed of Real A: It should have been a Dacion en Pago.
Estate Mortgage in favor of the BANK to secure the loan
obligations of the ASSIGNOR and/or the BORROWER.”32 This Q: Was there such document executed in this account?
is a plain and direct acknowledgement that the parties really
intended to merely constitute a real estate mortgage over A: None.33
the property. In fact, the Deed of Assignment expressly
states, by way of a resolutory condition concerning the To stress, the assignment being in its essence a mortgage, it
purpose or use of the Deed of Assignment, that after the was but a security and not a satisfaction of the petitioners’
petitioners have delivered or caused the delivery of their indebtedness.34 Article 125535 of the Civil Code invoked by
title to iBank, the Deed of Assignment shall then the petitioners contemplates the existence of two or more
become null and void. Shorn of its legal efficacy as an creditors and involves the assignment of the entire debtor’s
interim security, the Deed of Assignment would then property, not a dacion en pago.36 Under Article 1245 of the
become functus officio once title to the condominium unit Civil Code, “[d]ation in payment, whereby property is
has been delivered to iBank. This is so because the alienated to the creditor in satisfaction of a debt in money,
petitioners would then execute a Deed of Real Estate shall be governed by the law on sales.” Nowhere in the Deed
Mortgage over the property in favor of iBank as security for of Assignment can it be remotely said that a sale of the
their loan obligations. condominium unit was contemplated by the parties, the
consideration for which would consist of the amount of
Respondent iBank certainly does not share the petitioners’ outstanding loan due to iBank from the petitioners.
interpretation of its May 4, 2001 letter. Joy Valerie Gatdula,
Senior Bank Officer of iBank and the Vice President of WHEREFORE, premises considered, the petition is DENIED.
iBank’s Commercial Banking Group, declared in her
testimony that the purpose of the Deed of Assignment was SO ORDERED.
merely to serve as collateral for their loan:
Q: And during the time that the defendant[,] James Yu[,] was
negotiating with your bank, [is it] not a fact that the
and AFRICA SINAMBAN, Petitioners,
Before this Court is a Petition for Review on Certiorari 1 of the Decision 2 dated May 19, 2010 of the Court of Appeals (CA) in CA-G.R. CV. No. 66274 modifying the Decision 3 dated July 30, 1999 of the
Regional Trial Court (RTC) of San Fernando City, Pampanga, Branch 45 for Sum of Money in Civil Case No. 11708.

Factual Antecedents

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

On November 18, 1998, Chinabank filed a Complaint 6 for sum of money, docketed as Civil Case No. 11708, against the spouses Manalastas and the spouses Sinamban (collectively called the defendants)
before the RTC. The complaint alleged that they reneged on their loan obligations under the PNs which the spouses Manalastas executed in favor of Chinabank on different dates, namely:

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

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

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

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

In Chinabank’s Statement of Account 11 dated May 18, 1998, reproduced below, the outstanding balances of the three loans are broken down, as follows:

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

(c) PN No. CLF 5-93 has an outstanding principal of ₱148,255.08, cumulative interest of ₱64,461.84, and cumulative penalties of ₱156,541.58, or a total amount due of ₱369,258.50. Note that
from the original amount of ₱1,300,000.00, the loan principal had been reduced to only ₱148,255.08 as of May 18, 1998. 12

CHINA BANKING CORPORATION

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

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

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

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

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

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

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

 PLUS 10% ATTORNEY’S FEE - - - - - - - - - - - - - - - - - - - - - - - - - - 540,197.50
-----------------------
5,942,172.50

ADD: OTHER EXPENSES

INSURANCE PREMIUM 22,618.37

POSTING OF NOTICE OF SALE 700.00

PUBLICATION FEE 17,500.00

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

REGISTRATION OF CERTIFICATE OF SALE (REGISTER OF DEEDS)

Registration fee 10,923.00

Entry fee 30.00

Legal fund 20.00

BIR certification 60.00

Doc. stamps tax 69,000.00

Capital Gains tax 276,000.00 356,033.00

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

EXPENSES INCURRED ON OCULAR INSPECTION MADE ON 404.00

TCT#173532-R & TCT#173533-R

ATTORNEY’S FEE 18,000.00

416,255.37

LESS: BID PRICE 4,600,000.00

-----------

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

On the basis of the above statement of account, and
pursuant to the promissory notes, Chinabank instituted
extrajudicial foreclosure proceedings against the mortgage
security. The foreclosure sale was held on May 18, 1998,
with Chinabank offering the highest bid of ₱4,600,000.00,
but by then the defendants’ total obligations on the three
promissory notes had risen to ₱5,401,975.00, before
attorney’s fees of 10% and auction expenses, leaving a loan
deficiency of ₱1,758,427.87.14 Thus, in the complaint before
the RTC, Chinabank prayed to direct the defendants to
jointly and severally settle the said deficiency, plus 12%
interest per annum after May 18, 1998, 15 the date of the
auction sale.16
The spouses Sinamban, in their Answer 17 dated
February 26, 1999, averred that they do not recall
having executed PN No. OACL 636-95 for
₱325,000.00 on May 23, 1995, or PN No. CLF 5-93
for ₱1,300,000.00 on February 26, 1991, and had
no participation in the execution of PN No. OACL
634-95 for ₱1,800,000.00 on April 24, 1995. They
however admitted that they signed some PN forms
as co-makers upon the request of the spouses
Manalastas who are their relatives; although they
insisted that they derived no money or other
benefits from the loans. They denied knowing
about the mortgage security provided by the
spouses Manalastas, or that the latter defaulted on
their loans. They also refused to acknowledge the
loan deficiency of ₱1,758,427.87 on the PNs,
insisting that the mortgage collateral was worth
more than ₱10,000,000.00, enough to answer for
all the loans, interests and penalties. They also
claimed that they were not notified of the auction
sale, and denied that they knew about the
Certificate of Sale18 and the Statement of Account
dated May 18, 1998, and insisted that Chinabank
manipulated the foreclosure sale to exclude them
therefrom. By way of counterclaim, the Spouses
Sinamban prayed for damages and attorney’s fees
of 25%, plus litigation expenses and costs of suit.
The spouses Manalastas were declared in default
in the RTC Order19 dated April 6, 1999, and
Chinabank was allowed to present evidence ex
parte as against them, but at the pre-trial
conference held on July 5, 1999, the spouses
Sinamban and their counsel also did not
appear;20 hence, in the Order21 dated July 5, 1999,
the RTC allowed Chinabank to present evidence ex
parte against the defendants before the Branch
Clerk of Court. During the testimony of Rosario D.
Yabut, Branch Manager of Chinabank-San
Fernando Branch, all the foregoing facts were
adduced and confirmed, particularly the identity of
the pertinent loan documents and the signatures
of the defendants. On July 21, 1999, the court
admitted the exhibits of Chinabank and declared
the case submitted for decision.22
Ruling of the RTC
On July 30, 1999, the RTC rendered its
Decision23 with the following dispositive portion:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of plaintiff China Banking
Corporation and against defendant Sps. Danilo and
Magdalena Manalastas and defendant Sps.
Estanislao and Africa Sinamban to jointly and
severally pay [Chinabank] the amount of
₱1,758,427.87, representing the deficiency
between the acquisition cost of the foreclosed real
estate properties and the outstanding obligation of
defendants at the time of the foreclosure sale;
interest at the legal rate of 12% per annum from
and after May 18, 1998; attorney’s fees equivalent
to 10% of the aforesaid deficiency amount and the
litigation and costs of suit.
SO ORDERED. 24
On Motion for Reconsideration 25 of the spouses
Sinamban dated August 27, 1999, to which
Chinabank filed an Opposition 26 dated September
14, 1999, the RTC in its Order 27 dated October 22,
1999 set aside the Decision dated July 30, 1999
with respect to the spouses Sinamban, in this
wise:
As it is undisputed that Exhibit "B" (Promissory
Note dated April 24, 1995 in the amount of
₱1,800,000.00), was not signed by the Spouses
Sinamban it would not be equitable that the said
defendants be made solidarily liable for the
payment of the said note as co-makers of their co-
defendants Spouses Manalastas who are the
one[s] principally liable thereto. Prescinding from
this premise, the movant spouses could only be
held liable for the two (2) promissory notes they
have signed, Promissory Notes dated May 23,
1995 in the amount of ₱325,000.00 and February
26, 1991 in the amount of ₱1,300,000.00, Exhibits
"A" and "C", respectively. As the total amount of
the said notes is only ₱1,625,000.00, so even if we
would add the interests due thereon, there is no
way that the said outstanding loan exceed[s] the
acquisition cost of the foreclosed real estate
properties subject hereof in the amount of
₱4,600,000.00.It would appear then that the
Spouses Sinamban could not be held liable for the
deficiency in the amount of ₱1,758,427.87 which
should justly be borne alone by the defendant
Spouses Manalastas. Guided by law and equity on
the matter, the court will not hesitate to amend a
portion of its assailed decision to serve the
interest of justice.
WHEREFORE, premises considered, the decision
dated July 30, 1999 is hereby Reconsidered and
Set Aside with respect to the Spouses Estanislao
and Africa Sinamban hereby Relieving them from
any liability arising from the said Decision which is
affirmed in toto with respect to Spouses
Manalastas.
SO ORDERED.28 (Emphases ours)
The RTC ruled that the proceeds of the auction
were sufficient to answer for the two PNs co-
signed by the spouses Sinamban, including
interest and penalties thereon, and therefore the
spouses Manalastas should solely assume the
deficiency of ₱1,758,427.87. Chinabank moved for
reconsideration on November 11, 1999, 29 to which
the spouses Sinamban filed their
comment/opposition on November 23, 1999.30
On December 8, 1999, the RTC set aside its Order
dated October 22, 1999 and reinstated its Decision
dated July 30, 1999, with modification, as follows: 31
WHEREFORE, premises considered, the instant
Motion for Reconsideration of plaintiff is Granted.
Order dated October 22, 1999 is hereby Set Aside.
Accordingly, the dispositive portion of the Decision
dated July 30, 1999 is hereby Modified to read as
follows:
WHEREFORE, premises considered, judgment [is]
hereby rendered in favor of plaintiff China Banking
Corporation and against the defendant Sps. Danilo
and Magdalena Manalastas and defendant Sps.
Estanislao and Africa Sinamban, ordering them to
pay as follows:
1. For defendant Sps. Danilo and
Magdalena Manalastas, the amount of
₱1,758,427.87, the deficiency between
the acquisition cost of the foreclosed
real properties and their outstanding
obligation;
2. For defendant Sps. Sinamban a
percentage of ₱1,758,427.87, jointly and
severally with the defendant Sps.
[Manalastas] only on two (2) promissory
notes;
3. The corresponding interests thereon
at legal rate;
4. Attorney’s fees; and
5. Costs of suit.
SO ORDERED.32
This time the RTC held that the spouses Sinamban
must, solidarily with the spouses Manalastas,
proportionately answer for the loan deficiency
pertaining to the two PNs they co-signed, since the
mortgage security provided by the spouses
Manalastas secured all three PNs and thus also
benefited them as co-makers. But since they did
not co-sign PN No. OACL 634-95, the deficiency
judgment pertaining thereto will be the sole
liability of the spouses Manalastas.
Ruling of the CA
From the Order dated December 8, 1999 of the
RTC, the spouses Sinamban appealed to the CA on
January 4, 2000, docketed as CA-G.R. CV. No.
66274, interposing the following errors of the RTC,
viz:
I
THE LOWER COURT ERRED WHENIT HELD
DEFENDANTSAPPELLANTS SPS. SINAMBAN LIABLE
TO PAY A PERCENTAGE OF ₱1,758,427.87, JOINTLY
AND SEVERALLY WITH THE DEFENDANTS SPS.
MANALASTAS ON THE TWO PROMISSORY NOTES
(EXHIBITS ‘C’ AND ‘A’).
II
THE LOWER COURT ERRED WHEN IT
RECONSIDERED AND SET ASIDE ITS PREVIOUS
ORDER DATED 22 OCTOBER 1999 RELIEVING
DEFENDANTS-APPELLANTS SPS. SINAMBAN FROM
ANY LIABILITY ARISING FROM THE DECISION
DATED 30 JULY 1999.
III
THE LOWER COURT ERRED WHEN IT RENDERED
THE VAGUE ORDER OF 8 DECEMBER 1999 (ANNEX
‘B’ HEREOF).33
On May 19, 2010, the CA rendered judgment
denying the appeal, the fallo of which reads:
WHEREFORE, considering the foregoing
disquisition, the appeal is DENIED. The Decision
dated 30 July 1999 and the Order dated 08
December 1999 of the Regional Trial Court of San
Fernando, Pampanga, Branch 45 in Civil Case No.
11708are hereby AFFIRMED with MODIFICATION in
that:
1. Sps. Danilo and Magdalena
Manalastas are solidarily liable for the
deficiency amount of Php507,741.62
(inclusive of 10% attorney’s fees) on
Promissory Note No. OACL 634-95 dated
24 April 1995;
2. Sps. Estanislao and Africa Sinamban
are solidarily liable with Sps. Danilo and
Magdalena Manalastas for the amount
of Php844,501.90 (inclusive of 10%
attorney’s fees) on Promissory Note No.
OACL00636-95 dated 23 May 1995;
3. Estanislao Sinamban and Sps. Danilo
and Magdalena Manalastas are solidarily
liable for the amount of Php406,184.35
(inclusive of 10% attorney’s fees) on
Promissory Note No. CLF 5-93 dated 26
February 1991; and
4. The foregoing amounts shall bear
interest at the rate of 12% per annum
from 18 November 1998 until fully paid.
SO ORDERED.34 (Some emphasis ours)
Petition for Review to the Supreme Court
In this petition for review, the spouses Sinamban
seek to be completely relieved of any liability on
the PNs, solidary or otherwise, by interposing the
following issues:
5.1 Whether or not the Honorable Court
of Appeals erred in not considering that
the Sps. Sinamban’s obligations under
PN# OACL 636-95 dated May 23, 1995
in the principal sum of Php325,000.00
and PN# CLF 5-93 dated February 26,
1991 in the principal sum of
Php1,300,000.00 are more onerous and
burdensome on their part as mere
sureties (co-makers) of their co-
defendants-spouses Danilo and
Magdalena Manalastas’ (hereinafter
referred to as the "Sps. Manalastas")
obligations over the same, compared to
the Sps. Manalastas’ sole obligation
under PN# OACL 634-95 dated 24 April
1995 in the principal amount of
Php1,800,000.00, such that the
proceeds of the auction sale of the
properties securing all the three (3)
promissory notes should first be applied
to satisfy the promissory notes signed
by the Sps. Sinamban; and
5.2 Whether or not the Honorable Court
of Appeals erred in not considering the
facts indubitably showing that it is the
Sps. Sinamban, as the debtors, and not
the respondent bank, who are given the
choice under Article 1252 of the Civil
Code to have the proceeds of the
auction sale applied as payments to
their obligations under PN# OACL 636-
95 dated 23 May 1995 and PN# CLF 5-
93 dated 26 February 1991.35
Ruling of the Court
The Court modifies the CA decision.
A co-maker of a PN who binds
himself with the maker "jointly and
severally" renders himself directly
and primarily liable with the maker
on the debt, without reference to his
solvency.
"A promissory note is a solemn acknowledgment
of a debt and a formal commitment to repay it on
the date and under the conditions agreed upon by
the borrower and the lender. A person who signs
such an instrument is bound to honor it as a
legitimate obligation duly assumed by him through
the signature he affixes thereto as a token of his
good faith. If he reneges on his promise without
cause, he forfeits the sympathy and assistance of
this Court and deserves instead its sharp
repudiation."36
Employing words of common commercial usage
and well-accepted legal significance, the three
subject PNs uniformly describe the solidary nature
and extent of the obligation assumed by each of
the defendants in Civil Case No. 11708, to wit:
"FOR VALUE RECEIVED, I/We jointly and severally
promise to pay to the CHINA BANKING
CORPORATION or its order the sum of PESOS x x
x[.]"37 (Emphasis ours)
According to Article 2047 of the Civil Code, 38 if a
person binds himself solidarily with the principal
debtor, the provisions of Articles 1207 to 1222 of
the Civil Code (Section 4, Chapter 3,Title I, Book
IV) on joint and solidary obligations shall be
observed. Thus, where there is a concurrence of
two or more creditors or of two or more debtors in
one and the same obligation, Article 1207 provides
that among them, "[t]here is a solidary liability
only when the obligation expressly so states, or
when the law or the nature of the obligation
requires solidarity." It is settled that when the
obligor or obligors undertake to be "jointly and
severally" liable, it means that the obligation is
solidary.39 In this case, the spouses Sinamban
expressly bound themselves to be jointly and
severally, or solidarily, liable with the principal
makers of the PNs, the spouses Manalastas.
Moreover, as the CA pointed out, in Paragraph 5 of
the PNs, the borrowers and their co-makers
expressly authorized Chinabank, as follows:
[T]o apply to the payment of this note and/or any
other particular obligation or obligations of all or
any one of us to the CHINA BANKING
CORPORATION as the said Corporation may select,
irrespective of the dates of maturity, whether or
not said obligations are then due, any or all
moneys, securities and things of value which are
now or which may hereafter be in its hands on
deposit or otherwise to the credit of, or belonging
to, all or any one of us, and the CHINA BANKING
CORPORATION is hereby authorized to sell at
public or private sale such securities or things of
value for the purpose of applying their proceeds to
such payments.40
Pursuant to Article 1216 of the Civil
Code, as well as Paragraph 5 of the
PNs, Chinabank opted to proceed
against the co-debtors
simultaneously, as implied in its
May 18, 1998 statement of
account when it applied the entire
amount of its auction bid to the
aggregate amount of the loan
obligations.
The PNs were executed to acknowledge each loan
obtained from the credit line extended by
Chinabank, which the principal makers and true
beneficiaries, the spouses Manalastas, secured
with a REM they executed over their properties. As
the RTC noted in its Order dated December 8,
1999, "the real estate mortgage was constituted
to secure all the three (3) promissory notes,"
concluding that "[j]ust as the liability of the
[spouses] Sinamban was lessened by the
foreclosure proceedings, so must they also share
in the deficiency judgment, in proportion to the
PNs they co-signed with the [spouses] Manalastas,
but notthe entire deficiency judgment of
₱1,758,427.87."41
Significantly, in modifying the RTC’s second
amended decision, which provides for the pro rata
distribution of the loan deficiency of
₱1,758,427.87, the CA first applied the entire net
proceeds of the auction sale of ₱4,183,744.63
(after auction expenses of ₱416,255.37), to PN No.
OACL 634-95, which on May 18, 1998 had an
outstanding balance of ₱4,264,987.50, inclusive of
interest and penalties, plus 10% attorney’s fees, or
a total of ₱4,691,486.25. Thus, ₱4,691,486.25 less
₱4,183,744.63 leaves a deficiency on PN No. OACL
634-95 of ₱507,741.62, which is due solely from
the spouses Manalastas.
As for PN No. OACL 636-95, the CA ordered the
spouses Sinamban to pay, solidarily with the
spouses Manalastas, the entire amount due
thereon, ₱844,501.90, consisting of the loan
principal of ₱767,729.00 plus accrued interest,
penalties and 10% attorney’s fees; concerning PN
No. CLF 5-93, the CA ordered the spouses
Sinamban to pay, solidarily with the spouses
Manalastas, the amount of ₱406,184.35,
consisting of the balance of the loan principal of
₱369,258.50 plus accrued interest, penalties and
10% attorney’s fees. The CA further ordered the
payment of 12% interest per annum from
November 18, 1998, the date of judicial demand,
until fully paid, on the above deficiencies.
Article 1216 of the Civil Code provides that "[t]he
creditor may proceed against any one of the
solidary debtors or some or all of them
simultaneously. The demand made against one of
them shall not be an obstacle to those which may
subsequently be directed against the others, so
long as the debt has not been fully collected."
Article 125242 of the Civil Code does not apply, as
urged by the petitioners, because in the said
article the situation contemplated is that of a
debtor with several debts due, whereas the
reverse is true, with each solidary debt imputable
to several debtors.
While the CA correctly noted that the choice is
given to the solidary creditor to determine against
whom he wishes to enforce payment, the CA
stated that Chinabank, in the exercise of the
aforesaid option, chose to apply the net proceeds
of the extrajudicial foreclosure sale first to the PN
solely signed by spouses Manalastas. 43 Thus, the
net proceeds were applied first to PN No. OACL
634-95 in the principal amount of ₱1,800,000.00,
instead of pro rata to all three PNs due.
The Court finds this factual conclusion of the CA
not supported by any evidence or any previous
arrangement.1âwphi1 To the contrary, as clearly
shown in its Statement of Account dated May 18,
1998, Chinabank opted to apply the entire auction
proceeds to the aggregate amount of the three
PNs due, ₱5,401,975.00 (before attorney’s fees
and auction expenses). Had it chosen to enforce
the debts as ruled by the CA, the Statement of
Account would have shown that the loan due on
PN No. OACL 634-95 which is ₱4,691,486.25,
should have been deducted first from the net
auction proceeds of ₱4,183,744.63, arriving at a
deficiency of ₱507,741.62on PN No. OACL 634-95
alone; thereby, leaving no remainder of the
proceeds available to partially settle the other two
PNs. As it appears, the auction proceeds are not
even sufficient to cover just PN No. OACL 634-95
alone.
But as the Court has noted, by deducting the
auction proceeds from the aggregate amount of
the three loans due, Chinabank in effect opted to
apply the entire proceeds of the auction
simultaneously to all the three loans. This implies
that each PN will assume a pro rata portion of the
resulting deficiency on the total indebtedness as
bears upon each PN’s outstanding balance.
Contrary to the spouses Sinamban’s insistence,
none of the three PNs is more onerous than the
others to justify applying the proceeds according
to Article 1254 of the Civil Code, in relation to
Articles 1252 and 1253.44 Since each loan,
represented by each PN, was obtained under a
single credit line extended by Chinabank for the
working capital requirements of the spouses
Manalastas’ rice milling business, which credit line
was secured also by a single REM over their
properties, then each PN is simultaneously
covered by the same mortgage security, the
foreclosure of which will also benefit them
proportionately. No PN enjoys any priority or
preference in payment over the others, with the
only difference being that the spouses Sinamban
are solidarily liable for the deficiency on two of
them.
Pursuant, then, to the order or manner of
application of the auction proceeds chosen by
Chinabank, the solidary liability of the defendants
pertaining to each PN shall be as follows:
a) PN No. OACL 634-95, with a balance
as of May 18, 1998 of ₱4,264,987.50: its
share in the total deficiency is computed
as the ratio of ₱4,264,987.50 to
₱5,401,975.00, multiplied by
₱1,758,427.87, or ₱1,388,320.55, (not
₱507,741.62 as found by the CA);
b) PN No. OACL 636-95, with a balance
of ₱767,729.00 as of May 18, 1998: its
share in the deficiency is computed as
the ratio of ₱767,729.00 to
₱5,401,975.00, multiplied by
₱1,758,427.87, or ₱249,907.87, (not
₱844,501.90 as computed by the CA);
c) PN No. CLF 5-93, with an outstanding
balance of ₱369,258.50 as of May 18,
1998: its share in the deficiency is
computed as the ratio of ₱369,258.50 to
₱5,401,975.00, multiplied by
₱1,758,427.87, or ₱120,199.45, (not
₱406,184.35 as found by the CA).
In short, in the CA decision, the spouses
Manalastas would be solely liable on PN No. OACL
634-95 for only ₱507,741.62(instead of the much
bigger amount of ₱1,388,320.55which this Court
found), whereas the spouses Sinamban would be
solidarily liable with the spouses Manalastas for a
total deficiency of ₱1,250,686.25 on PN No. OACL
636-95 and PN No. CLF 5-93. But under the Court’s
interpretation, the spouses Sinamban are solidarily
liable with the spouses Manalastas for only
₱370,107.32on the said two PNs, for a significant
difference of ₱880,578.93.
Pursuant to Monetary Board
Circular No. 799, effective July 1,
2013, the rate of interest for the
loan or forbearance of any money,
goods or credits and the rate
allowed in judgments, in the
absence of an express contract as to
such rate of interest, has been
reduced to six percent (6%) per
annum.
The subject three PNs bear interests ranging from
21% to 23% per annum, exclusive of penalty of
1% on the overdue amount per month of delay,
whereas in its complaint, Chinabank prayed to
recover only the legal rate of 12% on whatever
judgment it could obtain. Meanwhile, the Monetary
Board of the Bangko Sentral ng Pilipinas in its
Resolution No. 796 dated May 16, 2013, and now
embodied in Monetary Board Circular No. 799, has
effective July 1, 2013 reduced to 6%, from 12%,
the legal rate of interest for the loan or
forbearance of any money, goods or credits and
the rate allowed in judgments, in the absence of
stipulation.45 Since Chinabank demanded only the
 legal, not the stipulated, interest rate on the
deficiency and attorney’s fees due, the defendants
will solidarily pay interest on their shares in the
deficiency at the rate of 12% from November 18,
1998 to June 30, 2013, and 6% from July 1, 2013
until fully paid. WHEREFORE, the Decision of the
Court of Appeals dated May 19, 2010 in CA-G.R.
CV No. 66274 is MODIFIED. The Decision dated July
30, 1999 and the Order dated December 8, 1999
of the Regional Trial Court of San Fernando City,
Pampanga, Branch 45 in Civil Case No. 11708 are
hereby AFFIRMED with MODIFICATIONS as follows:
1. Spouses Danilo and Magdalena
Manalastas are solidarily liable for the
deficiency amount of 1,388,320.55
(inclusive of 10% attorney’s fees) on
Promissory Note No. OACL 634-95 dated
April 24, 1995;
2. Spouses Estanislao and Africa
Sinamban are solidarily liable with
spouses Danilo and Magdalena
Manalastas for the deficiency amount of
₱249,907.87(inclusive of 10% attorney’s
fees) on Promissory Note No. OACL 636-
95 dated May 23, 1995;
3. Estanislao Sinamban and spouses
Danilo and Magdalena Manalastas are
solidarily liable for the deficiency
amount of ₱120,199.45 (inclusive of
10% attorney’s fees) on Promissory Note
No. CLF 5-93 dated February 26, 1991;
and
4. The foregoing amounts shall bear
interest at the rate of twelve percent
(12%) per annum from November 18,
1998 to June 30, 2013, and six percent
(6%) per annum from July 1, 2013 until
fully paid.
SO ORDERED.
G.R. No. 202322, August 19, 2015
LIGHT RAIL TRANSIT AUTHORITY, Petitioner, v. ROMULO
S. MENDOZA, FRANCISCO S. MERCADO, ROBERTO M.
REYES, EDGARDO CRISTOBAL, JR., AND RODOLFO
ROMAN, Respondents.
DECISION
BRION, J.:
For resolution is the present petition for review
on certiorari1 which seeks the reversal of the January 31,
2012 Decision 2 and June 15, 2012 Resolution 3 of the Court of
Appeals in CA-G.R. SP No. 109224.
The Antecedents
The Light Rail Transit Authority (LRTA) is a government-
owned and -controlled corporation created under Executive
Order No. 603 for the construction, operation, maintenance,
and/or lease of light rail transit systems in the Philippines.
To carry out its mandate, LRTA entered into a ten-year
operations and management (O & M) agreement4 with the
Meralco Transit Organization, Inc. (MTOI) from June 8, 1984,
to June 8, 1994, for an annual fee of P5,000,000.00. Subject
to specified conditions, and in connection with the operation
and maintenance of the system not covered by the O & M
agreement, LRTA undertook to reimburse MTOI such
operating expenses and advances to the revolving fund.
"Operating expenses" included "all salaries, wages and
fringe benefits (both direct and indirect) up to the rank of
manager, and a lump sum amount to be determined
annually as top management compensation (above the rank
of manager up to president), subject to consultation with the
LRTA." MTOI hired the necessary employees for its
operations and forged collective bargaining agreements
(CBAs) with the employees' unions, with the LRTA's approval.
On June 9, 1989, the Manila Electric Company, who owned
499,990 of MTOI shares of stocks, sold said shares to the
LRTA. Consequently, MTOI became a wholly owned
subsidiary of LRTA. MTOI changed its corporate name
to Metro Transit Organization, Inc. (METRO), but maintained
its distinct and separate personality. LRTA and METRO
renewed the O & M agreement upon its expiration on June 8,
1994, extended on a month-to-month basis. 5cralawrednad
On July 25, 2000, the Pinag-isang Lakas ng Manggagawa sa
METRO, INC., the rank-and-file union at METRO, staged an
illegal strike over a bargaining deadlock, paralyzing the
operations of the light rail transport system. On July 28,
2000, the LRTA Board of Directors issued Resolution No. 00-
446 where LRTA agreed to shoulder METRO'S operating
expenses for a maximum of two months counted from
August 1, 2000. It also updated the Employee
Retirement Fund.
Because of the strike, LRTA no longer renewed the O & M
agreement when it expired on July 31, 2000, resulting in the
cessation of METRO'S operations and the termination of
employment of its workforce, including
the respondents Romulo Mendoza, Francisco Mercado,
Roberto Reyes, Edgardo Cristobal, Jr., and Rodolfo Roman.
On April 1, 2001, the METRO Board of Directors authorized
the payment of 50 % of the dismissed employees' separation
pay, to be sourced from the retirement fund. In May
2001, respondents received one half (1/2) of their separation
pay. Dissatisfied, they demanded from LRTA payment of the
50% balance of their separation pay, but LRTA rejected the
demand, prompting them to file on August 31, 2004, a
formal complaint, 7 before the labor arbiter, against LRTA and
METRO.
LRTA moved to dismiss the complaint on grounds of
absence of employer-employee relationship with the
respondents, lack of jurisdiction and of merit, and
prescription of action.
The Compulsory Arbitration Rulings
In his decision 8 dated August 8, 2005, Labor Arbiter (LA)
Arthur L. Amansec pierced the veil of METRO'S corporate
fiction, invoked the law against labor-only contracting, and
declared LRTA solidarity liable with METRO for the payment
of the remaining 50% of respondents' separation pay. On
appeal by the LRTA, the National Labor Relations
Commission (NLRC) affirmed in its decision 9 of December 23,
2008, LA Amansec's ruling, thereby dismissing the appeal. It
also held that the case had not prescribed. LRTA moved for
reconsideration, but the NLRC denied the motion in its
resolution10 of March 30, 2009.
The Case before the CA
LRTA challenged the NLRC decision before the CA through a
petition for certiorari under Rule 65 of the Rules of Court,
contending that the labor tribunal committed grave abuse of
discretion when it (1) assumed jurisdiction over the case; (2)
held that it was an indirect employer of the respondents with
solidary liability for their claim; and (3) took cognizance of
the case despite its being barred by prescription.
LRTA argued that as a government-owned and -controlled
corporation, all actions against it should be brought before
the Civil Service Commission, not the NLRC, pursuant to
Article IX-B, Section 2 (1) of the Constitution, as declared by
this Court's decision in the consolidated cases of LRTA v.
Venus, Jr., and METRO v. Court of Appeals (Venus case).11 It
further argued that it could not be made solidarity liable with
METRO for the respondents' claim since METRO is an
independent job contractor.
In a different vein, LRTA stressed that its Resolution No. 00-
44 updating the retirement fund for METRO employees was
merely a financial assistance to METRO, which neither
created an employer-employee relationship between it and
the METRO employees, nor did it impose a contractual
obligation upon it for the employees' separation pay. Lastly,
it reiterated that respondents' claim had already prescribed
since they filed the complaint beyond the three-year period
under Article 306 of the Labor Code (formerly Article 291; re-
numbered by R.A. 10151, An Act Allowing the
Employment of Nightworkers).12cralawrednad
The respondents, for their part, prayed for the dismissal of
the petition, relying on an earlier case involving the same
cause of action decided by the CA, LRTA v. NLRC and
Ricardo B. Malanao, et al.,13 and which had become final and
executory on February 21, 2006.14 In that case, they pointed
out, LRTA was held solidarity liable with METRO, as an
indirect employer, for the payment of the severance pay of
METRO'S separated employees.

In the meantime, or on June 3, 2010, LA Amansec issued
a Writ of Execution15 for his August 8, 2005 decision. On
August 5, 2010, respondents filed an Urgent Manifestation16
stating that pursuant to the labor arbiter's order, LRTA's cash
bond covered by Check No. LB0000007505, dated
September 20, 2005, for PI,082,929.16 had been released to
them. Thus, they considered the case to have become
academic.
The CA Decision
The CA affirmed the NLRC ruling that LRTA is solidarity liable
for the remaining 50% of respondents' separation pay, but
not squarely on the same grounds. Unlike the NLRC, it
considered inapplicable the doctrine of piercing the veil of
corporate fiction to justify LRTA's solidary liability due to the
absence of fraud or wrongdoing on LRTA's part in relation to
the nonpayment of the balance of the respondents'
separation pay as this Court had stated in
the Venus case.17cralawrednad
The CA likewise disagreed with the NLRC's opinion that
METRO is a labor-only contractor so as to make LRTA the
respondents' direct employer. It explained that METRO was a
corporation with sufficient capital and investment in tools
and equipment, and its own employees (who were even
unionized) to undertake the operation and management of
the light rail transit system, for which it was exclusively
engaged by LRTA. Neither did LRTA exercise the
prerogatives of an employer over the METRO employees. It
thus concluded that LRTA's solidary liability as an indirect
employer is limited to the payment of wages, and for any
violation of the Labor Code, 18 excluding backwages and
separation pay which are punitive in nature. 19cralawrednad
The CA nonetheless held that LRTA cannot avoid liability for
respondents' separation pay as it is a contractual
obligation. It agreed with the NLRC finding that LRTA
provided METRO'S "operating expenses" which
included the employees' wages and fringe benefits,
and all other general and administrative expenses
relative to the operation of the light rail transit
system.
The CA found additional basis for its ruling in the letter to the
LRTA, dated July 12, 2001, of then Acting Chairman of the
METRO Board of Directors, Wilfredo Trinidad, that
"Funding provisions for the retirement fund have
always been considered operating expenses of
METRO. Pursuant to the O & M Agreement, the LRTA
had been reimbursing METRO of all operating
expenses, including the funds set aside for the
retirement fund. It follows—now that circumstances call for
Metro to pay the full separation benefits—that LRTA should
provide the necessary funding to completely satisfy these
benefits."20cralawrednad
Also, the CA noted that "METRO'S November 17, 1997
Memorandum further revealed that the LRTA Board
approved 'the additional retirement/resignation benefit of
7.65 days or a total of 1.5 months' salary for every year of
service' for METRO'S rank-and-file employees and that lthe
granting of 1.5 months' salary for every year of service
as severance or resignation pay would effectively amend
the existing Employees' Retirement Plan."21 This LRTA
memorandum, together with its July 28, 2000 Resolution No.
00-44, the CA believed, was an indication that LRTA regularly
financed the retirement fund.
Accordingly, the CA stressed, the LRTA cannot argue that the
retirement fund was not meant to cover the separation pay
of the "terminated" employees of METRO, and neither can it
deny that it is bound to comply with its undertaking to
provide the necessary funds to cover payment of the
respondents' claim.
The CA brushed aside the prescription issue. It held that the
complaint is not time-barred, citing De Guzman v. Court of
Appeals,22 where the Court affirmed the applicability of
Article 1155 of the Civil Code 23 to an employee's claim for
separation pay in the absence of an equivalent Labor Code
provision for determining whether the period for such claim
may be interrupted. It agreed with the NLRC conclusion that
the prescriptive period for respondents' claim for separation
pay was interrupted by their letters to LRTA 24 (dated
September 19, 2002 and October 14, 2002) demanding
payment of the 50% balance of their separation pay.
The Petition
Its motion for reconsideration having been denied by the CA,
LRTA now asks the Court for a reversal, contending that the
appellate court committed a serious error of law when it
affirmed the NLRC decision.
It faults the CA for not ruling on the jurisdictional question
which, it contends, had been settled with finality "in actions
similar to the one at bar." 25cralawredcralawrednad
On the merits of the case, LRTA submits that no liability,
from whatever origin or source, was ever attached to it
insofar as the respondents' claim is concerned. It disputes
the CA opinion that its liability for 50% of the respondents'
separation pay is a contractual obligation under METRO'S
retirement fund. It also assails the CA's reliance on its July
28, 2000 Resolution No. 00-44 as evidence of its contractual
obligation. It asserts it has no such obligation.
Lastly, LRTA contends that while its board of directors
updated METRO'S retirement fund to cover the retirement
benefits of METRO'S employees, the updating was a mere
financial assistance or goodwill to METRO. It did not execute,
it stresses, any deed or contract in favor of METRO, Avhich
amended the O & M agreement between them, or assumed
any obligation in favor of METRO or its employees; thus, it
has no contractual obligation for the unpaid balance of
respondents' separation pay.
The Respondents' Position
In their Comment26 dated October 8, 2012, the respondents
prayed that the petition be dismissed for lack of merit as the
CA had committed no error of law when it affirmed the NLRC
decision.
They stand firm on their position that LRTA is legally bound
to pay the balance of their separation pay as evidenced by
its official undertakings such as the Joint Memorandum,
dated June 6, 1989,27 with METRO, its wholly owned
subsidiary, providing, among others, for the establishment of
the Retirement Fund of METRO, Inc., Employees; LRTA Board
Resolution No. 00-44 of July 28, 2000, 28 authorizing the
updating of the retirement fund; and approving the collective
bargaining agreements entered into by METRO with its
unions containing terms and conditions of employment and
benefits for its employees.
They also cite the letter to LRTA, 29 dated July 12, 2001, of the
Acting Chairman of the METRO Board of Directors stating
that funding provisions for the retirement fund have always
been considered operating expenses of METRO. In short,
they maintain, LRTA regularly financed the retirement fund
intended not only for the retirement benefit, but also for the
severance and/or resignation pay of METRO'S employees.
The Court's Ruling
The jurisdictional issue
LRTA reiterates its position that the labor arbiter and the
NLRC had no jurisdiction over it in relation to the
respondents' claim, quoting the Venus ruling to prove its
point, thus: "x x x There should be no dispute then that
employment in petitioner LRTA should be governed
only by civil service rules, and not the Labor Code and
beyond the reach of the Department of Labor and
Employment, since petitioner LRTA is a government-
owned and -controlled corporation with an original
charter x x x Petitioner METRO was originally
organized under the Corporation Code, and only
became a government-owned and -controlled
corporation after it was acquired by petitioner LRTA.
Even then, petitioner METRO has no original charter,
hence, it is the Department of Labor and
Employment, and not the Civil Service Commission,
which has jurisdiction over disputes from the
employment of its workers x x x."30cralawrednad
We disagree. Under the facts of the present labor
controversy, LRTA's reliance on the Venus ruling is
misplaced. The ruling has no bearing on the respondents'
case. As we see it, the jurisdictional issue should not have
been brought up in the first place because the respondents'
claim does not involve their employment with LRTA. There is
no dispute on this aspect of the case. The respondents were
hired by METRO and, were, therefore, its employees.
Rather, the controversy involves the question of whether
LRTA can be made liable by the labor tribunals for the
respondents' money claim, despite the absence of an
employer-employee relationship between them and despite
the fact that LRTA is a government-owned and -controlled
corporation with an original charter.
The Court provided the answer in Phil. National Bank v.
Pabalan31 where it said: "By engaging in a particular
business through the instrumentality of a corporation, the
government divests itself pro hac vice of its sovereign
character, so as to render the corporation subject of the
rules governing private corporations."32cralawrednad
The NLRC accordingly declared: "for having conducted
business through a private corporation, in this case,
respondent METRO, as its business conduit or alter ego,
respondent LRTA must submit itself to the provisions
governing private corporations, including the Labor Code.
Consequently, the Labor Arbiter rightfully dismissed the
Motion to Dismiss of respondent LRTA."33cralawrednad
In this light, we find no grave abuse of discretion in the labor
tribunals' taking cognizance of the respondents' money
claim against LRTA.
The substantive aspect of the case
The petition is without merit, for the following
reasons:ChanRoblesvirtualLawlibrary
First. LRTA obligated itself to fund METRO'S retirement
fund to answer for the retirement or severance/resignation
of METRO employees as part of METRO'S "operating
expenses." Under Article 4.05.1 of the O & M
agreement34 between LRTA and Metro, "The Authority shall
reimburse METRO for x x x "OPERATING EXPENSES x x x" In
the letter to LRTA35 dated July 12, 2001, the Acting Chairman
of the METRO Board of Directors at the time, Wilfredo
Trinidad, reminded LRTA that "funding provisions for the
retirement fund have always been considered operating
expenses of Metro.36 The coverage of operating expenses to
include provisions for the retirement fund has never been
denied by LRTA.
In the same letter, Trinidad stressed that as a consequence
of the non-renewal of the O & M agreement by LRTA, METRO
was compelled to close its business operations effective
September 30, 2000. This created, Trinidad added, a
legal obligation to pay the qualified employees
separation benefits under existing company policy
and collective bargaining agreements. The METRO
Board of Directors approved the payment of 50% of
the employees' separation pay because that was only
what the Employees' Retirement Fund could
accommodate.37cralawrednad
The evidence supports Trinidad's position. We refer
principally to Resolution No. 00-4438 issued by the LRTA
Board of Directors on July 28, 2000, in anticipation of and in
preparation for the expiration of the O & M agreement with
METRO on July 31, 2000.
Specifically, the LRTA anticipated and prepared for the (1)
non-renewal (at its own behest) of the agreement, (2) the
eventual cessation of METRO operations, and (3) the
involuntary loss of jobs of the METRO employees; thus, (1)
the extension of a two-month bridging fund for
METRO from August 1, 2000, to coincide with the
agreement's expiration on July 31, 2000; (2) METRO'S
cessation of operations—it closed on September 30,
2000, the last day of the bridging fund—and most
significantly to the employees adversely affected; (3)
the updating of the "Metro, Inc., Employee
Retirement Fund with the Bureau of Treasury to
ensure that the fund fully covers all retirement
benefits yay able to the employees of Metro,
Inc."39cralawrednad
The clear language of Resolution No.00-44, to our mind, SO ORDERED.
established the LRTA's obligation for the 50% unpaid balance
of the respondents' separation pay. Without doubt, it bound
itself to provide the necessary funding to METRO'S Employee G.R. No. 167615
Retirement Fund to fully compensate the employees who
had been involuntary retired by the cessation of operations
SPOUSES ALEXANDER AND JULIE LAM, Doing Business
of METRO. This is not at all surprising considering that Under the Name and Style "COLORKWIK
METRO was a wholly owned subsidiary of the LRTA.
LABORATORIES" AND "COLORKWIK PHOTO
SUPPLY", Petitioners,
Second. Even on the assumption that the LRTA did not
vs.
obligate itself to fully cover the separation benefits of the KODAK PHILIPPINES, LTD., Respondent.
respondents and others similarly situated, it still cannot
avoid liability for the respondents' claim. It is solidarity
liable as an indirect employer under the law for the DECISION
respondents' separation pay. This liability arises from the
O & M agreement it had with METRO, which created a
principal-job contractor relationship between them, an LEONEN, J.:
arrangement it admitted when it argued before the CA that
METRO was an independent job contractor 40 who, it
insinuated, should be solely responsible for the respondents' This is a Petition for Review on Certiorari filed on April 20,
claim. 2005 assailing the March 30, 2005 Decision 1 and September
9, 2005 Amended Decision 2 of the Court of Appeals, which
Under Article 107 of the Labor Code, an indirect modified the February 26, 1999 Decision 3 of the Regional
employer is "any person, partnership, association or Trial Court by reducing the amount of damages awarded to
corporation which, not being an employer, contracts with an petitioners Spouses Alexander and Julie Lam (Lam
independent contractor for the performance of any work, Spouses).4 The Lam Spouses argue that respondent Kodak
task, job or project." Philippines, Ltd.’s breach of their contract of sale entitles
them to damages more than the amount awarded by the
On the other hand, Article 109 on solidary liability, Court of Appeals.5
mandates that x x x "every employer or indirect employer
shall be held responsible with his contractor or subcontractor I
for any violation of any provisions of this Code. For purposes
of determining the extent of their civil liability under this
Chapter, they shall be considered as direct employers." On January 8, 1992, the Lam Spouses and Kodak Philippines,
Ltd. entered into an agreement (Letter Agreement) for the
Department Order No. 18-02, s. 2002, the rules sale of three (3) units of the Kodak Minilab System
implementing Articles 106 to 109 of the Labor Code, 22XL6 (Minilab Equipment) in the amount of ₱1,796,000.00
provides in its Section 19 that "the principal shall also be per unit,7 with the following terms:
solidarity liable in case the contract between the principal is
preterminated for reasons not attributable to the contractor
or subcontractor." This confirms our verbal agreement for Kodak Phils., Ltd. To
provide Colorkwik Laboratories, Inc. with three (3) units
Although the cessation of METRO'S operations was due to a Kodak Minilab System 22XL . . . for your proposed outlets in
non-renewal of the O & M agreement and not a Rizal Avenue (Manila), Tagum (Davao del Norte), and your
pretermination of the contract, the cause of the nonrenewal existing Multicolor photo counter in Cotabato City under the
and the effect on the employees are the same as in the following terms and conditions:
contract pretermination contemplated in the rules. The
agreement was not renewed through no fault of METRO, as it
1. Said Minilab Equipment packages will avail a
was solely at the behest of LRTA. The fact is, under the
total of 19% multiple order discount based on
circumstances, METRO really had no choice on the matter,
prevailing equipment price provided said
considering that it was a mere subsidiary of LRTA.
equipment packages will be purchased not later
than June 30, 1992.
Nevertheless, whether it is a pretermination or a nonrenewal
of the contract, the same adverse effect befalls the workers
affected, like the respondents in this case - the involuntary 2. 19% Multiple Order Discount shall be applied in
loss of their employment, one of the contingencies the form of merchandise and delivered in advance
addressed and sought to be rectified by the rules. immediately after signing of the contract.
In fine, we find no reversible error in the CA rulings.
* Also includes start-up packages worth
WHEREFORE, premises considered, the petition for review P61,000.00.
on certiorari is DISMISSED, for lack of merit. The assailed
decision and resolution of the Court of Appeals
are AFFIRMED. The decision dated May 8, 2005, of Labor 3. NO DOWNPAYMENT.
Arbiter Arthur L. Amansec, is REINSTATED.
 4. Minilab Equipment Package shall be payable in
48 monthly installments at THIRTY FIVE
THOUSAND PESOS (P35,000.00) inclusive of 24%
interest rate for the first 12 months; the balance
shall be re-amortized for the remaining 36 months
and the prevailing interest shall be applied.
5. Prevailing price of Kodak Minilab System 22XL
as of January 8, 1992 is at ONE MILLION SEVEN
HUNDRED NINETY SIX THOUSAND PESOS.
6. Price is subject to change without prior notice.
*Secured with PDCs; 1st monthly amortization due
45 days after installation[.]8
On January 15, 1992, Kodak Philippines, Ltd. delivered one
(1) unit of the Minilab Equipment in Tagum, Davao
Province.9 The delivered unit was installed by Noritsu
representatives on March 9, 1992.10 The Lam Spouses issued
postdated checks amounting to ₱35,000.00 each for 12
months as payment for the first delivered unit, with the first
check due on March 31, 1992.11
The Lam Spouses requested that Kodak Philippines, Ltd. not
negotiate the check dated March 31, 1992 allegedly due to
insufficiency of funds.12 The same request was made for the
check due on April 30, 1992. However, both checks were
negotiated by Kodak Philippines, Ltd. and were honored by
the depository bank.13 The 10 other checks were
subsequently dishonored after the Lam Spouses ordered the
depository bank to stop payment. 14
Kodak Philippines, Ltd. canceled the sale and demanded that
the Lam Spouses return the unit it delivered together with its
accessories.15 The Lam Spouses ignored the demand but also
rescinded the contract through the letter dated November
18, 1992 on account of Kodak Philippines, Ltd.’s failure to
deliver the two (2) remaining Minilab Equipment units.16
On November 25, 1992, Kodak Philippines, Ltd. filed a
Complaint for replevin and/or recovery of sum of money. The
case was raffled to Branch 61 of the Regional Trial Court,
Makati City. 17 The Summons and a copy of Kodak Philippines,
Ltd.’s Complaint was personally served on the Lam
Spouses.18
The Lam Spouses failed to appear during the pre-trial
conference and submit their pre-trial brief despite being
given extensions.19 Thus, on July 30, 1993, they were
declared in default. 20 Kodak Philippines, Ltd. presented
evidence ex-parte.21 The trial court issued the Decision in
favor of Kodak Philippines, Ltd. ordering the seizure of the
Minilab Equipment, which included the lone delivered unit,
its standard accessories, and a separate generator
set.22 Based on this Decision, Kodak Philippines, Ltd. was
able to obtain a writ of seizure on December 16, 1992 for the
Minilab Equipment installed at the Lam Spouses’ outlet in
Tagum, Davao Province.23 The writ was enforced on
December 21, 1992, and Kodak Philippines, Ltd. gained
possession of the Minilab Equipment unit, accessories, and
the generator set.24
The Lam Spouses then filed before the Court of Appeals a
Petition to Set Aside the Orders issued by the trial court
dated July 30, 1993 and August 13, 1993. These Orders were
subsequently set aside by the Court of Appeals Ninth
Division, and the case was remanded to the trial court for
pre-trial.25
On September 12, 1995, an Urgent Motion for Inhibition was
filed against Judge Fernando V. Gorospe, Jr., 26 who had
issued the writ of seizure.27 The ground for the motion for
inhibition was not provided. Nevertheless, Judge Fernando V.
Gorospe Jr. inhibited himself, and the case was reassigned to
Branch 65 of the Regional Trial Court, Makati City on October
3, 1995.28
In the Decision dated February 26, 1999, the Regional Trial
Court found that Kodak Philippines, Ltd. defaulted in the
performance of its obligation under its Letter Agreement
with the Lam Spouses. 29 It held that Kodak Philippines, Ltd.’s
failure to deliver two (2) out of the three (3) units of the
Minilab Equipment caused the Lam Spouses to stop paying
for the rest of the installments. 30 The trial court noted that
while the Letter Agreement did not specify a period within
which the delivery of all units was to be made, the Civil Code
provides "reasonable time" as the standard period for
compliance:
The second paragraph of Article 1521 of the Civil Code
provides:
Where by a contract of sale the seller is bound to send the
goods to the buyer, but no time for sending them is fixed,
the seller is bound to send them within a reasonable time.
What constitutes reasonable time is dependent on the
circumstances availing both on the part of the seller and the
buyer. In this case, delivery of the first unit was made five
(5) days after the date of the agreement. Delivery of the
other two (2) units, however, was never made despite the
lapse of at least three (3) months. 31
Kodak Philippines, Ltd. failed to give a sufficient explanation
for its failure to deliver all three (3) purchased units within a
reasonable time.32
The trial court found:
Kodak would have the court believe that it did not deliver the
other two (2) units due to the failure of defendants to make
good the installments subsequent to the second. The court is
not convinced. First of all, there should have been
simultaneous delivery on account of the circumstances
surrounding the transaction. . . . Even after the first
delivery . . . no delivery was made despite repeated
demands from the defendants and despite the fact no
installments were due. Then in March and in April (three and
four months respectively from the date of the agreement
and the first delivery) when the installments due were both
honored, still no delivery was made.
Second, although it might be said that Kodak was testing the
waters with just one delivery - determining first defendants’
capacity to pay - it was not at liberty to do so. It is implicit in
the letter agreement that delivery within a reasonable time
was of the essence and failure to so deliver within a
reasonable time and despite demand would render the
vendor in default.
....
Third, at least two (2) checks were honored. If indeed Kodak
refused delivery on account of defendants’ inability to pay,
non-delivery during the two (2) months that payments were
honored is unjustified. 33
Nevertheless, the trial court also ruled that when the Lam
Spouses accepted delivery of the first unit, they became
liable for the fair value of the goods received:
On the other hand, defendants accepted delivery of one (1)
unit. Under Article 1522 of the Civil Code, in the event the
buyer accepts incomplete delivery and uses the goods so
delivered, not then knowing that there would not be any
further delivery by the seller, the buyer shall be liable only
for the fair value to him of the goods received. In other
words, the buyer is still liable for the value of the property
received. Defendants were under obligation to pay the
amount of the unit. Failure of delivery of the other units did
not thereby give unto them the right to suspend payment on
the unit delivered. Indeed, in incomplete deliveries, the
buyer has the remedy of refusing payment unless delivery is
first made. In this case though, payment for the two
undelivered units have not even commenced; the
installments made were for only one (1) unit.
Hence, Kodak is right to retrieve the unit delivered. 34
The Lam Spouses were under obligation to pay for the
amount of one unit, and the failure to deliver the remaining
units did not give them the right to suspend payment for the
unit already delivered. 35 However, the trial court held that
since Kodak Philippines, Ltd. had elected to cancel the sale
and retrieve the delivered unit, it could no longer seek
payment for any deterioration that the unit may have
suffered while under the custody of the Lam Spouses.36
As to the generator set, the trial court ruled that Kodak
Philippines, Ltd. attempted to mislead the court by claiming
that it had delivered the generator set with its accessories to
the Lam Spouses, when the evidence showed that the Lam
Spouses had purchased it from Davao Ken Trading, not from
Kodak Philippines, Ltd.37 Thus, the generator set that Kodak
Philippines, Ltd. wrongfully took from the Lam Spouses
should be replaced. 38
The dispositive portion of the Regional Trial Court Decision
reads:
PREMISES CONSIDERED, the case is hereby dismissed.
Plaintiff is ordered to pay the following:
1) PHP 130,000.00 representing the amount of the
generator set, plus legal interest at 12% per
annum from December 1992 until fully paid; and
2) PHP 1,300,000.00 as actual expenses in the
renovation of the Tagum, Davao and Rizal Ave.,
Manila outlets.
SO ORDERED.39
On March 31, 1999, the Lam Spouses filed their Notice of
Partial Appeal, raising as an issue the Regional Trial Court’s
failure to order Kodak Philippines, Ltd. to pay: (1) ₱2,040,000
in actual damages; (2) ₱50,000,000 in moral damages; (3)
₱20,000,000 in exemplary damages; (4) ₱353,000 in
attorney’s fees; and (5) ₱300,000 as litigation
expenses.40 The Lam Spouses did not appeal the Regional
Trial Court’s award for the generator set and the renovation
expenses.41
Kodak Philippines, Ltd. also filed an appeal. However, the
Court of Appeals 42 dismissed it on December 16, 2002 for
Kodak Philippines, Ltd.’s failure to file its appellant’s brief,
without prejudice to the continuation of the Lam Spouses’
appeal.43 The Court of Appeals’ December 16, 2002
Resolution denying Kodak Philippines, Ltd.’s appeal became
final and executory on January 4, 2003.44
In the Decision 45 dated March 30, 2005, the Court of Appeals
Special Fourteenth Division modified the February 26, 1999
Decision of the Regional Trial Court:
WHEREFORE, PREMISES CONSIDERED, the Assailed
Decision dated 26 February 1999 of the Regional Trial Court,
Branch 65 in Civil Case No. 92-3442 is hereby MODIFIED.
Plaintiff-appellant is ordered to pay the following:
1. P130,000.00 representing the amount of the
generator set, plus legal interest at 12% per
annum from December 1992 until fully paid; and
2. P440,000.00 as actual damages;
3. P25,000.00 as moral damages; and
4. P50,000.00 as exemplary damages.
SO ORDERED.46 (Emphasis supplied)
The Court of Appeals agreed with the trial court’s Decision,
but extensively discussed the basis for the modification of
the dispositive portion.
The Court of Appeals ruled that the Letter Agreement
executed by the parties showed that their obligations were
susceptible of partial performance. Under Article 1225 of the
New Civil Code, their obligations are divisible:
In determining the divisibility of an obligation, the following
factors may be considered, to wit: (1) the will or intention of
the parties, which may be expressed or presumed; (2) the
objective or purpose of the stipulated prestation; (3) the
nature of the thing; and (4) provisions of law affecting the
prestation.
Applying the foregoing factors to this case, We found that
the intention of the parties is to be bound separately for
each Minilab Equipment to be delivered as shown by the
separate purchase price for each of the item, by the
acceptance of Sps. Lam of separate deliveries for the first
Minilab Equipment and for those of the remaining two and
the separate payment arrangements for each of the
equipment. Under this premise, Sps. Lam shall be liable for
the entire amount of the purchase price of the Minilab
Equipment delivered considering that Kodak had already
completely fulfilled its obligation to deliver the same. . . .
Third, it is also evident that the contract is one that is
severable in character as demonstrated by the separate
purchase price for each of the minilab equipment. "If the
part to be performed by one party consists in several distinct
and separate items and the price is apportioned to each of
them, the contract will generally be held to be severable. In
such case, each distinct stipulation relating to a separate
subject matter will be treated as a separate
contract." Considering this, Kodak's breach of its obligation
to deliver the other two (2) equipment cannot bar its
recovery for the full payment of the equipment already
delivered. As far as Kodak is concerned, it had already fully
complied with its separable obligation to deliver the first unit
of Minilab Equipment. 47 (Emphasis supplied)
The Court of Appeals held that the issuance of a writ of
replevin is proper insofar as the delivered Minilab Equipment
unit and its standard accessories are concerned, since Kodak
Philippines, Ltd. had the right to possess it:48
The purchase price of said equipment is P1,796,000.00
which, under the agreement is payable with forty eight (48)
monthly amortization. It is undisputed that Sps. Lam made
payments which amounted to Two Hundred Seventy
Thousand Pesos (P270,000.00) through the following checks:
Metrobank Check Nos. 00892620 and 00892621 dated 31
March 1992 and 30 April 1992 respectively in the amount of
Thirty Five Thousand Pesos (P35,000.00) each, and BPI
Family Check dated 31 July 1992 amounting to Two Hundred
Thousand Pesos (P200,000.00). This being the case, Sps.
Lam are still liable to Kodak in the amount of One Million Five
Hundred Twenty Six Thousand Pesos (P1,526,000.00), which
is payable in several monthly amortization, pursuant to the
Letter Agreement. However, Sps. Lam admitted that
sometime in May 1992, they had already ordered their
drawee bank to stop the payment on all the other checks
they had issued to Kodak as payment for the Minilab
Equipment delivered to them. Clearly then, Kodak ha[d] the
right to repossess the said equipment, through this replevin
suit. Sps. Lam cannot excuse themselves from paying in full
the purchase price of the equipment delivered to them on
account of Kodak’s breach of the contract to deliver the
other two (2) Minilab Equipment, as contemplated in the
Letter Agreement.49 (Emphasis supplied)
Echoing the ruling of the trial court, the Court of Appeals
held that the liability of the Lam Spouses to pay the
remaining balance for the first delivered unit is based on the
second sentence of Article 1592 of the New Civil Code. 50 The
Lam Spouses’ receipt and use of the Minilab Equipment
before they knew that Kodak Philippines, Ltd. would not
deliver the two (2) remaining units has made them liable for
the unpaid portion of the purchase price.51
The Court of Appeals noted that Kodak Philippines, Ltd.
sought the rescission of its contract with the Lam Spouses in
the letter dated October 14, 1992.52 The rescission was
based on Article 1191 of the New Civil Code, which provides:
"The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with
what is incumbent upon him." 53 In its letter, Kodak
Philippines, Ltd. demanded that the Lam Spouses surrender
the lone delivered unit of Minilab Equipment along with its
standard accessories.54
The Court of Appeals likewise noted that the Lam Spouses
rescinded the contract through its letter dated November 18,
1992 on account of Kodak Philippines, Inc.’s breach of the
parties’ agreement to deliver the two (2) remaining units. 55
As a result of this rescission under Article 1191, the Court of
Appeals ruled that "both parties must be restored to their
original situation, as far as practicable, as if the contract was
never entered into."56 The Court of Appeals ratiocinated that
Article 1191 had the effect of extinguishing the obligatory
relation as if one was never created: 57
To rescind is to declare a contract void in its inception and to
put an end to it as though it never were. It is not merely to
terminate it and to release parties from further obligations to
each other but abrogate it from the beginning and restore
parties to relative positions which they would have occupied
had no contract been made.58
The Lam Spouses were ordered to relinquish possession of
the Minilab Equipment unit and its standard accessories,
while Kodak Philippines, Ltd. was ordered to return the
amount of ₱270,000.00, tendered by the Lam Spouses as
partial payment. 59
As to the actual damages sought by the parties, the Court of
Appeals found that the Lam Spouses were able to
substantiate the following:
Incentive fee paid to Mr. Ruales in the amount of
P100,000.00; the rider to the contract of lease which made
the Sps. Lam liable, by way of advance payment, in the
amount of P40,000.00, the same being intended for the
repair of the flooring of the leased premises; and lastly, the
payment of P300,000.00, as compromise agreement for the
pre-termination of the contract of lease with Ruales. 60
The total amount is ₱440,000.00. The Court of Appeals found
that all other claims made by the Lam Spouses were not
supported by evidence, either through official receipts or
check payments.61
As regards the generator set improperly seized from Kodak
Philippines, Ltd. on the basis of the writ of replevin, the Court
of Appeals found that there was no basis for the Lam
Spouses’ claim for reasonable rental of ₱5,000.00. It held
that the trial court’s award of 12% interest, in addition to the
cost of the generator set in the amount of ₱130,000.00, is
sufficient compensation for whatever damage the Lam
Spouses suffered on account of its improper seizure.62
The Court of Appeals also ruled on the Lam Spouses’
entitlement to moral and exemplary damages, as well as
attorney’s fees and litigation expenses:
In seeking recovery of the Minilab Equipment, Kodak cannot
be considered to have manifested bad faith and malevolence
because as earlier ruled upon, it was well within its right to
do the same. However, with respect to the seizure of the
generator set, where Kodak misrepresented to the court a
quo its alleged right over the said item, Kodak’s bad faith
and abuse of judicial processes become self-evident.
Considering the off-setting circumstances attendant, the
amount of P25,000.00 by way of moral damages is
considered sufficient.
In addition, so as to serve as an example to the public that
an application for replevin should not be accompanied by
any false claims and misrepresentation, the amount of
P50,000.00 by way of exemplary damages should be pegged
against Kodak.
With respect to the attorney’s fees and litigation expenses,
We find that there is no basis to award Sps. Lam the amount
sought for.63
Kodak Philippines, Ltd. moved for reconsideration of the
Court of Appeals Decision, but it was denied for lack of
merit.64 However, the Court of Appeals noted that the Lam
Spouses’ Opposition correctly pointed out that the additional
award of ₱270,000.00 made by the trial court was not
mentioned in the decretal portion of the March 30, 2005
Decision:
Going over the Decision, specifically page 12 thereof, the
Court noted that, in addition to the amount of Two Hundred
Seventy Thousand (P270,000.00) which plaintiff-appellant
should return to the defendantsappellants, the Court also
ruled that defendants-appellants should, in turn, relinquish
possession of the Minilab Equipment and the standard
accessories to plaintiff-appellant. Inadvertently, these
material items were not mentioned in the decretal portion of
the Decision. Hence, the proper correction should herein be
made.65
The Lam Spouses filed this Petition for Review on April 14,
2005. On the other hand, Kodak Philippines, Ltd. filed its
Motion for Reconsideration 66 before the Court of Appeals on
April 22, 2005.
While the Petition for Review on Certiorari filed by the Lam
Spouses was pending before this court, the Court of Appeals
Special Fourteenth Division, acting on Kodak Philippines,
Ltd.’s Motion for Reconsideration, issued the Amended
Decision67 dated September 9, 2005. The dispositive portion
of the Decision reads:
WHEREFORE, premises considered, this Court resolved
that:
A. Plaintiff-appellant’s Motion for Reconsideration
is hereby DENIED for lack of merit.
B. The decretal portion of the 30 March 2005
Decision should now read as follows:
"WHEREFORE, PREMISES CONSIDERED, the Assailed Decision
dated 26 February 1999 of the Regional Trial Court, Branch
65 in Civil Cases No. 92-3442 is hereby MODIFIED. Plaintiff-
appellant is ordered to pay the following:
a. P270,000.00 representing the partial payment
made on the Minilab equipment.
b. P130,000.00 representing the amount of the
generator set, plus legal interest at 12% per
annum from December 1992 until fully paid;
c. P440,000.00 as actual damages;
d. P25,000.00 as moral damages; and
e. P50,000.00 as exemplary damages.
Upon the other hand, defendants-appellants are hereby
ordered to return to plaintiff-appellant the Minilab equipment
and the standard accessories delivered by plaintiff-appellant.
SO ORDERED."
SO ORDERED.68 (Emphasis in the original)
Upon receiving the Amended Decision of the Court of
Appeals, Kodak Philippines, Ltd. filed a Motion for Extension
of Time to File an Appeal by Certiorari under Rule 45 of the
1997 Rules of Civil Procedure before this court.69
This was docketed as G.R. No. 169639. In the Motion for
Consolidation dated November 2, 2005, the Lam Spouses
moved that G.R. No. 167615 and G.R. No. 169639 be
consolidated since both involved the same parties, issues,
transactions, and essential facts and circumstances. 70
In the Resolution dated November 16, 2005, this court noted
the Lam Spouses’ September 23 and September 30, 2005
Manifestations praying that the Court of Appeals’ September
9, 2005 Amended Decision be considered in the resolution of
the Petition for Review on Certiorari. 71 It also granted the
Lam Spouses’ Motion for Consolidation.72
In the Resolution73 dated September 20, 2006, this court
deconsolidated G.R No. 167615 from G.R. No. 169639 and
declared G.R. No. 169639 closed and terminated since Kodak
Philippines, Ltd. failed to file its Petition for Review.
II
We resolve the following issues:
First, whether the contract between petitioners Spouses
Alexander and Julie Lam and respondent Kodak Philippines,
Ltd. pertained to obligations that are severable, divisible,
and susceptible of partial performance under Article 1225 of
the New Civil Code; and
Second, upon rescission of the contract, what the parties are
entitled to under Article 1190 and Article 1522 of the New
Civil Code.
Petitioners argue that the Letter Agreement it executed with
respondent for three (3) Minilab Equipment units was not
severable, divisible, and susceptible of partial performance.
Respondent’s recovery of the delivered unit was
unjustified.74
Petitioners assert that the obligations of the parties were not
susceptible of partial performance since the Letter
Agreement was for a package deal consisting of three (3)
units.75 For the delivery of these units, petitioners were
obliged to pay 48 monthly payments, the total of which
constituted one debt. 76 Having relied on respondent’s
assurance that the three units would be delivered at the
same time, petitioners simultaneously rented and renovated
three stores in anticipation of simultaneous
operations.77 Petitioners argue that the divisibility of the
object does not necessarily determine the divisibility of the
obligation since the latter is tested against its susceptibility
to a partial performance. 78 They argue that even if the object
is susceptible of separate deliveries, the transaction is
indivisible if the parties intended the realization of all parts
of the agreed obligation. 79
Petitioners support the claim that it was the parties’
intention to have an indivisible agreement by asserting that
the payments they made to respondent were intended to be
applied to the whole package of three units. 80 The postdated
checks were also intended as initial payment for the whole
package.81 The separate purchase price for each item was
merely intended to particularize the unit prices, not to
negate the indivisible nature of their transaction. 82 As to the
issue of delivery, petitioners claim that their acceptance of
separate deliveries of the units was solely due to the
constraints faced by respondent, who had sole control over
delivery matters.83
With the obligation being indivisible, petitioners argue that
respondent’s failure to comply with its obligation to deliver
the two (2) remaining Minilab Equipment units amounted to
a breach. Petitioners claim that the breach entitled them to
the remedy of rescission and damages under Article 1191 of
the New Civil Code.84
Petitioners also argue that they are entitled to moral
damages more than the ₱50,000.00 awarded by the Court of
Appeals since respondent’s wrongful act of accusing them of
non-payment of their obligations caused them sleepless
nights, mental anguish, and wounded feelings. 85 They further
claim that, to serve as an example for the public good, they
are entitled to exemplary damages as respondent, in making
false allegations, acted in evident bad faith and in a wanton,
oppressive, capricious, and malevolent manner.86
Petitioners also assert that they are entitled to attorney’s
fees and litigation expenses under Article 2208 of the New
Civil Code since respondent’s act of bringing a suit against
them was baseless and malicious. This prompted them to
engage the services of a lawyer.87
Respondent argues that the parties’ Letter Agreement
contained divisible obligations susceptible of partial
performance as defined by Article 1225 of the New Civil
Code.88 In respondent’s view, it was the intention of the
parties to be bound separately for each individually priced
Minilab Equipment unit to be delivered to different outlets: 89
The three (3) Minilab Equipment are intended by petitioners
LAM for install[a]tion at their Tagum, Davao del Norte, Sta.
Cruz, Manila and Cotabato City outlets. Each of these units
[is] independent from one another, as many of them may
perform its own job without the other. Clearly the objective
or purpose of the prestation, the obligation is divisible.
The nature of each unit of the three (3) Minilab Equipment is
such that one can perform its own functions, without
awaiting for the other units to perform and complete its job.
So much so, the nature of the object of the Letter Agreement
is susceptible of partial performance, thus the obligation is
divisible.90
With the contract being severable in character, respondent
argues that it performed its obligation when it delivered one
unit of the Minilab Equipment. 91 Since each unit could
perform on its own, there was no need to await the delivery
of the other units to complete its job. 92 Respondent then is of
the view that when petitioners ordered the depository bank
to stop payment of the issued checks covering the first
delivered unit, they violated their obligations under the
Letter Agreement since respondent was already entitled to
full payment.93
Respondent also argues that petitioners benefited from the
use of the Minilab Equipment for 10 months—from March to
December 1992— despite having paid only two (2) monthly
installments.94 Respondent avers that the two monthly
installments amounting to ₱70,000.00 should be the subject
of an offset against the amount the Court of Appeals
awarded to petitioners. 95
Respondent further avers that petitioners have no basis for
claiming damages since the seizure and recovery of the
Minilab Equipment was not in bad faith and respondent was
well within its right.96
III
The Letter Agreement contained an indivisible obligation.
Both parties rely on the Letter Agreement 97 as basis of their
respective obligations. Written by respondent’s Jeffrey T. Go
and Antonio V. Mines and addressed to petitioner Alexander
Lam, the Letter Agreement contemplated a "package deal"
involving three (3) units of the Kodak Minilab System 22XL,
with the following terms and conditions:
This confirms our verbal agreement for Kodak Phils., Ltd. to
provide Colorkwik Laboratories, Inc. with three (3) units
Kodak Minilab System 22XL . . . for your proposed outlets in
Rizal Avenue (Manila), Tagum (Davao del Norte), and your
existing Multicolor photo counter in Cotabato City under the
following terms and conditions:
1. Said Minilab Equipment packages will avail a
total of 19% multiple order discount based on
prevailing equipment price provided said
equipment packages will be purchased not later
than June 30, 1992.
2. 19% Multiple Order Discount shall be applied in
the form of merchandise and delivered in advance
immediately after signing of the contract.
* Also includes start-up packages worth
P61,000.00.
3. NO DOWNPAYMENT.
4. Minilab Equipment Package shall be payable in
48 monthly installments at THIRTY FIVE
THOUSAND PESOS (P35,000.00) inclusive of 24%
interest rate for the first 12 months; the balance
shall be re-amortized for the remaining 36 months
and the prevailing interest shall be applied.
5. Prevailing price of Kodak Minilab System 22XL
as of January 8, 1992 is at ONE MILLION SEVEN
HUNDRED NINETY SIX THOUSAND PESOS.
6. Price is subject to change without prior notice.
*Secured with PDCs; 1st monthly amortization due
45 days after installation[.]98
Based on the foregoing, the intention of the parties is for
there to be a single transaction covering all three (3) units of
the Minilab Equipment. Respondent’s obligation was to
deliver all products purchased under a "package," and, in
turn, petitioners’ obligation was to pay for the total purchase
price, payable in installments.
The intention of the parties to bind themselves to an
indivisible obligation can be further discerned through their
direct acts in relation to the package deal. There was only
one agreement covering all three (3) units of the Minilab
Equipment and their accessories. The Letter Agreement
specified only one purpose for the buyer, which was to
obtain these units for three different outlets. If the intention
of the parties were to have a divisible contract, then
separate agreements could have been made for each Minilab
Equipment unit instead of covering all three in one package
deal. Furthermore, the 19% multiple order discount as
contained in the Letter Agreement was applied to all three
acquired units. 99 The "no downpayment" term contained in
the Letter Agreement was also applicable to all the Minilab
Equipment units. Lastly, the fourth clause of the Letter
Agreement clearly referred to the object of the contract as
"Minilab Equipment Package."
In ruling that the contract between the parties intended to
cover divisible obligations, the Court of Appeals highlighted:
(a) the separate purchase price of each item; (b) petitioners’
acceptance of separate deliveries of the units; and (c) the
separate payment arrangements for each unit. 100 However,
through the specified terms and conditions, the tenor of the
Letter Agreement indicated an intention for a single
transaction. This intent must prevail even though the articles
involved are physically separable and capable of being paid
for and delivered individually, consistent with the New Civil
Code:
Article 1225. For the purposes of the preceding articles,
obligations to give definite things and those which are not
susceptible of partial performance shall be deemed to be
indivisible.
When the obligation has for its object the execution of a
certain number of days of work, the accomplishment of work
by metrical units, or analogous things which by their nature
are susceptible of partial performance, it shall be divisible.
However, even though the object or service may be
physically divisible, an obligation is indivisible if so provided
by law or intended by the parties. (Emphasis supplied)
In Nazareno v. Court of Appeals, 101 the indivisibility of an
obligation is tested against whether it can be the subject of
partial performance:
An obligation is indivisible when it cannot be validly
performed in parts, whatever may be the nature of the thing
which is the object thereof. The indivisibility refers to the
prestation and not to the object thereof. In the present case,
the Deed of Sale of January 29, 1970 supposedly conveyed
the six lots to Natividad. The obligation is clearly indivisible
because the performance of the contract cannot be done in
parts, otherwise the value of what is transferred is
diminished. Petitioners are therefore mistaken in basing the
indivisibility of a contract on the number of
obligors.102 (Emphasis supplied, citation omitted)
There is no indication in the Letter Agreement that the units
petitioners ordered were covered by three (3) separate
transactions. The factors considered by the Court of Appeals
are mere incidents of the execution of the obligation, which
is to deliver three units of the Minilab Equipment on the part
of respondent and payment for all three on the part of
petitioners. The intention to create an indivisible contract is
apparent from the benefits that the Letter Agreement
afforded to both parties. Petitioners were given the 19%
discount on account of a multiple order, with the discount
being equally applicable to all units that they sought to
acquire. The provision on "no downpayment" was also
applicable to all units. Respondent, in turn, was entitled to
payment of all three Minilab Equipment units, payable by
installments.
IV
With both parties opting for rescission of the contract under
Article 1191, the Court of Appeals correctly ordered for
restitution.
The contract between the parties is one of sale, where one
party obligates himself or herself to transfer the ownership
and deliver a determinate thing, while the other pays a
certain price in money or its equivalent. 103 A contract of sale
is perfected upon the meeting of minds as to the object and
the price, and the parties may reciprocally demand the
performance of their respective obligations from that point
on.104
The Court of Appeals correctly noted that respondent had
rescinded the parties’ Letter Agreement through the letter
dated October 14, 1992.105 It likewise noted petitioners’
rescission through the letter dated November 18,
1992.106 This rescission from both parties is founded on
Article 1191 of the New Civil Code:
The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with
what is incumbent upon him.
The injured party may choose between the fulfilment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfilment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there
be just cause authorizing the fixing of a period.
Rescission under Article 1191 has the effect of mutual
restitution.107 In Velarde v. Court of Appeals: 108
Rescission abrogates the contract from its inception and
requires a mutual restitution of benefits received.
....
Rescission creates the obligation to return the object of the
contract. It can be carried out only when the one who
demands rescission can return whatever he may be obliged
to restore. To rescind is to declare a contract void at its
inception and to put an end to it as though it never was. It is
not merely to terminate it and release the parties from
further obligations to each other, but to abrogate it from the
beginning and restore the parties to their relative positions
as if no contract has been made.109 (Emphasis supplied,
citations omitted)
The Court of Appeals correctly ruled that both parties must
be restored to their original situation as far as practicable, as
if the contract was never entered into. Petitioners must
relinquish possession of the delivered Minilab Equipment unit
and accessories, while respondent must return the amount
tendered by petitioners as partial payment for the unit
received. Further, respondent cannot claim that the two (2)
monthly installments should be offset against the amount
awarded by the Court of Appeals to petitioners because the
effect of rescission under Article 1191 is to bring the parties
back to their original positions before the contract was
entered into. Also in Velarde:
As discussed earlier, the breach committed by petitioners
was the nonperformance of a reciprocal obligation, not a
violation of the terms and conditions of the mortgage
contract. Therefore, the automatic rescission and forfeiture
of payment clauses stipulated in the contract does not apply.
Instead, Civil Code provisions shall govern and regulate the
resolution of this controversy.
Considering that the rescission of the contract is based on
Article 1191 of the Civil Code, mutual restitution is required
to bring back the parties to their original situation prior to
the inception of the contract. Accordingly, the initial
payment of ₱800,000 and the corresponding mortgage
payments in the amounts of ₱27,225, ₱23,000 and ₱23,925
(totaling ₱874,150.00) advanced by petitioners should be
returned by private respondents, lest the latter unjustly
enrich themselves at the expense of the
former.110 (Emphasis supplied)
When rescission is sought under Article 1191 of the Civil
Code, it need not be judicially invoked because the power to
resolve is implied in reciprocal obligations. 111 The right to
resolve allows an injured party to minimize the damages he
or she may suffer on account of the other party’s failure to
perform what is incumbent upon him or her. 112 When a party
fails to comply with his or her obligation, the other party’s
right to resolve the contract is triggered. 113 The resolution
immediately produces legal effects if the non-performing
party does not question the resolution. 114 Court intervention
only becomes necessary when the party who allegedly failed
to comply with his or her obligation disputes the resolution of
the contract.115 Since both parties in this case have exercised
their right to resolve under Article 1191, there is no need for
a judicial decree before the resolution produces effects.
V
The issue of damages is a factual one. A petition for review
on certiorari under Rule 45 shall only pertain to questions of
law.116 It is not the duty of this court to re-evaluate the
evidence adduced before the lower courts. 117 Furthermore,
unless the petition clearly shows that there is grave abuse of
discretion, the findings of fact of the trial court as affirmed
by the Court of Appeals are conclusive upon this
court.118 In Lorzano v. Tabayag, Jr.:119
For a question to be one of law, the same must not involve
an examination of the probative value of the evidence
presented by the litigants or any of them. The resolution of
the issue must rest solely on what the law provides on the
given set of circumstances. Once it is clear that the issue
invites a review of the evidence presented, the question
posed is one of fact.
....
For the same reason, we would ordinarily disregard the
petitioner’s allegation as to the propriety of the award of
moral damages and attorney’s fees in favor of the
respondent as it is a question of fact. Thus, questions on
whether or not there was a preponderance of evidence to
justify the award of damages or whether or not there was a
causal connection between the given set of facts and the
damage suffered by the private complainant or whether or
not the act from which civil liability might arise exists are
questions of fact.
Essentially, the petitioner is questioning the award of moral
damages and attorney’s fees in favor of the respondent as
the same is supposedly not fully supported by evidence.
However, in the final analysis, the question of whether the
said award is fully supported by evidence is a factual
question as it would necessitate whether the evidence
adduced in support of the same has any probative value. For
a question to be one of law, it must involve no examination
of the probative value of the evidence presented by the
litigants or any of them.120 (Emphasis supplied, citations
omitted)
The damages awarded by the Court of Appeals were
supported by documentary evidence.121 Petitioners failed to
show any reason why the factual determination of the Court
of Appeals must be reviewed, especially in light of their
failure to produce receipts or check payments to support
their other claim for actual damages. 122
Furthermore, the actual damages amounting to
₱2,040,000.00 being sought by petitioners123 must be
tempered on account of their own failure to pay the rest of
the installments for the delivered unit. This failure on their
part is a breach of their obligation, for which the liability of
respondent, for its failure to deliver the remaining units,
shall be equitably tempered on account of Article 1192 of
the New Civil Code.124 In Central Bank of the Philippines v.
Court of Appeals:125
Since both parties were in default in the performance of
their respective reciprocal obligations, that is, Island Savings
Bank failed to comply with its obligation to furnish the entire
loan and Sulpicio M. Tolentino failed to comply with his
obligation to pay his ₱17,000.00 debt within 3 years as
stipulated, they are both liable for damages.
Article 1192 of the Civil Code provides that in case both
parties have committed a breach of their reciprocal
obligations, the liability of the first infractor shall be
equitably tempered by the courts. WE rule that the liability of
Island Savings Bank for damages in not furnishing the entire
loan is offset by the liability of Sulpicio M. Tolentino for
damages, in the form of penalties and surcharges, for not
paying his overdue ₱17,000.00 debt. The liability of Sulpicio
M. Tolentino for interest on his ₱17,000.00 debt shall not be
included in offsetting the liabilities of both parties. Since
Sulpicio M. Tolentino derived some benefit for his use of the
₱17,000.00, it is just that he should account for the interest
thereon.126 (Emphasis supplied)
The award for moral and exemplary damages also appears
to be sufficient. Moral damages are granted to alleviate the
moral suffering suffered by a party due to an act of another,
but it is not intended to enrich the victim at the defendant’s
expense.127 It is not meant to punish the culpable party and,
therefore, must always be reasonable vis-a-vis the injury
caused.128 Exemplary damages, on the other hand, are
awarded when the injurious act is attended by bad faith. 129 In
this case, respondent was found to have misrepresented its
right over the generator set that was seized. As such, it is
properly liable for exemplary damages as an example to the
public.130
However, the dispositive portion of the Court of Appeals
Amended Decision dated September 9, 2005 must be
modified to include the recovery of attorney’s fees and costs
of suit in favor of petitioners. In Sunbanun v. Go:131
Furthermore, we affirm the award of exemplary damages
and attorney’s fees. Exemplary damages may be awarded
when a wrongful act is accompanied by bad faith or when
the defendant acted in a wanton, fraudulent, reckless,
oppressive, or malevolent manner which would justify an
award of exemplary damages under Article 2232 of the Civil
Code. Since the award of exemplary damages is proper in
this case, attorney’s fees and cost of the suit may also be
recovered as provided under Article 2208 of the Civil
Code.132 (Emphasis supplied, citation omitted)
Based on the amount awarded for moral and exemplary
damages, it is reasonable to award petitioners ₱20,000.00 as
attorney’s fees.
WHEREFORE, the Petition is DENIED. The Amended
Decision dated September 9, 2005 is AFFIRMED with
MODIFICATION. Respondent Kodak Philippines, Ltd. is
ordered to pay petitioners Alexander and Julie Lam:
(a) P270,000.00, representing the partial payment
made on the Minilab Equipment;
(b) P130,000.00, representing the amount of the
generator set, plus legal interest at 12% .per
annum from December 1992 until fully paid;
(c) P440,000.00 as actual damages;
(d) P25,000.00 as moral damages;
(e) P50,000.00 as exemplary damages; and
(f) P20,000.00 as attorney's fees.
Petitioners are ordered to return the Kodak Minilab System
22XL unit and its standard accessories to respondent.
SO ORDERED.