G.R. No.

163825 July 13, 2010

VIOLETA TUDTUD BANATE, MARY MELGRID M. CORTEL, BONIFACIO CORTEL, ROSENDO MAGLASANG,
and PATROCINIA MONILAR, Petitioners,
vs.
PHILIPPINE COUNTRYSIDE RURAL BANK (LILOAN, CEBU), INC. and TEOFILO SOON, JR., Respondents.
DECISION
BRION, J.:
Before the Court is a petition for review on certiorari1 assailing the December 19, 2003 decision2 and the May 5,
2004 resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 74332. The CA decision reversed the Regional
Trial Court (RTC) decision4 of June 27, 2001 granting the petitioners’ complaint for specific performance and
damages against the respondent Philippine Countryside Rural Bank, Inc. (PCRB).5
THE FACTUAL ANTECEDENTS
On July 22, 1997, petitioner spouses Rosendo Maglasang and Patrocinia Monilar (spouses Maglasang) obtained a
loan (subject loan) from PCRB for ₱1,070,000.00. The subject loan was evidenced by a promissory note and was
payable on January 18, 1998. To secure the payment of the subject loan, the spouses Maglasang executed, in favor
of PCRB a real estate mortgage over their property, Lot 12868-H-3-C, 6 including the house constructed thereon
(collectively referred to as subject properties), owned by petitioners Mary Melgrid and Bonifacio Cortel (spouses
Cortel), the spouses Maglasang’s daughter and son-in-law, respectively. Aside from the subject loan, the spouses
Maglasang obtained two other loans from PCRB which were covered by separate promissory notes 7 and secured by
mortgages on their other properties.
Sometime in November 1997 (before the subject loan became due), the spouses Maglasang and the spouses
Cortel asked PCRB’s permission to sell the subject properties. They likewise requested that the subject properties
be released from the mortgage since the two other loans were adequately secured by the other mortgages. The
spouses Maglasang and the spouses Cortel claimed that the PCRB, acting through its Branch Manager, Pancrasio
Mondigo, verbally agreed to their request but required first the full payment of the subject loan. The spouses
Maglasang and the spouses Cortel thereafter sold to petitioner Violeta Banate the subject properties for
₱1,750,000.00. The spouses Magsalang and the spouses Cortel used the amount to pay the subject loan with
PCRB. After settling the subject loan, PCRB gave the owner’s duplicate certificate of title of Lot 12868-H-3-C to
Banate, who was able to secure a new title in her name. The title, however, carried the mortgage lien in favor of
PCRB, prompting the petitioners to request from PCRB a Deed of Release of Mortgage. As PCRB refused to
comply with the petitioners’ request, the petitioners instituted an action for specific performance before the RTC to
compel PCRB to execute the release deed.
The petitioners additionally sought payment of damages from PCRB, which, they claimed, caused the publication of
a news report stating that they "surreptitiously" caused the transfer of ownership of Lot 12868-H-3-C. The petitioners
considered the news report false and malicious, as PCRB knew of the sale of the subject properties and, in fact,
consented thereto.
PCRB countered the petitioners’ allegations by invoking the cross-collateral stipulation in the mortgage deed which
states:
1. That as security for the payment of the loan or advance in principal sum of one million seventy thousand
pesos only (₱1,070,000.00) and such other loans or advances already obtained, or still to be obtained by the
MORTGAGOR(s) as MAKER(s), CO-MAKER(s) or GUARANTOR(s) from the MORTGAGEE plus interest at
the rate of _____ per annum and penalty and litigation charges payable on the dates mentioned in the
corresponding promissory notes, the MORTGAGOR(s) hereby transfer(s) and convey(s) to MORTGAGEE
by way of first mortgage the parcel(s) of land described hereunder, together with the improvements now
existing for which may hereafter be made thereon, of which MORTGAGOR(s) represent(s) and warrant(s)
that MORTGAGOR(s) is/are the absolute owner(s) and that the same is/are free from all liens and
encumbrances;
TRANSFER CERTIFICATE OF TITLE NO. 827468
Accordingly, PCRB claimed that full payment of the three loans, obtained by the spouses Maglasang, was
necessary before any of the mortgages could be released; the settlement of the subject loan merely constituted
partial payment of the total obligation. Thus, the payment does not authorize the release of the subject properties
from the mortgage lien.
PCRB considered Banate as a buyer in bad faith as she was fully aware of the existing mortgage in its favor when
she purchased the subject properties from the spouses Maglasang and the spouses Cortel. It explained that it
allowed the release of the owner’s duplicate certificate of title to Banate only to enable her to annotate the sale.
PCRB claimed that the release of the title should not indicate the corresponding release of the subject properties
from the mortgage constituted thereon.
After trial, the RTC ruled in favor of the petitioners. It noted that the petitioners, as "necessitous men," could not
have bargained on equal footing with PCRB in executing the mortgage, and concluded that it was a contract of
adhesion. Therefore, any obscurity in the mortgage contract should not benefit PCRB.9
The RTC observed that the official receipt issued by PCRB stated that the amount owed by the spouses Maglasang
under the subject loan was only about ₱1.2 million; that Mary Melgrid Cortel paid the subject loan using the check
which Banate issued as payment of the purchase price; and that PCRB authorized the release of the title further
indicated that the subject loan had already been settled. Since the subject loan had been fully paid, the RTC
considered the petitioners as rightfully entitled to a deed of release of mortgage, pursuant to the verbal agreement
that the petitioners made with PCRB’s branch manager, Mondigo. Thus, the RTC ordered PCRB to execute a deed
of release of mortgage over the subject properties, and to pay the petitioners moral damages and attorney’s fees.10
On appeal, the CA reversed the RTC’s decision. The CA did not consider as valid the petitioners’ new agreement
with Mondigo, which would novate the original mortgage contract containing the cross-collateral stipulation. It ruled
that Mondigo cannot orally amend the mortgage contract between PCRB, and the spouses Maglasang and the
spouses Cortel; therefore, the claimed commitment allowing the release of the mortgage on the subject properties
cannot bind PCRB. Since the cross-collateral stipulation in the mortgage contract (requiring full settlement of all
three loans before the release of any of the mortgages) is clear, the parties must faithfully comply with its terms. The
CA did not consider as material the release of the owner’s duplicate copy of the title, as it was done merely to allow
the annotation of the sale of the subject properties to Banate.11
Dismayed with the reversal by the CA of the RTC’s ruling, the petitioners filed the present appeal by certiorari,
claiming that the CA ruling is not in accord with established jurisprudence.
THE PETITION
The petitioners argue that their claims are consistent with their agreement with PCRB; they complied with the
required full payment of the subject loan to allow the release of the subject properties from the mortgage.
Having carried out their part of the bargain, the petitioners maintain that PCRB must honor its commitment to
release the mortgage over the subject properties.
The petitioners disregard the cross-collateral stipulation in the mortgage contract, claiming that it had been novated
by the subsequent agreement with Mondigo. Even assuming that the cross-collateral stipulation subsists for lack of
authority on the part of Mondigo to novate the mortgage contract, the petitioners contend that PCRB should
nevertheless return the amount paid to settle the subject loan since the new agreement should be deemed
rescinded.
The basic issues for the Court to resolve are as follows:
1. Whether the purported agreement between the petitioners and Mondigo novated the mortgage contract
over the subject properties and is thus binding upon PCRB.
2. If the first issue is resolved negatively, whether Banate can demand restitution of the amount paid for the
subject properties on the theory that the new agreement with Mondigo is deemed rescinded.
THE COURT’S RULING
We resolve to deny the petition.
The purported agreement did not novate the mortgage contract, particularly the cross- collateral stipulation thereon
Before we resolve the issues directly posed, we first dwell on the determination of the nature of the cross-collateral
stipulation in the mortgage contract. As a general rule, a mortgage liability is usually limited to the amount
mentioned in the contract. However, the amounts named as consideration in a contract of mortgage do not limit the
amount for which the mortgage may stand as security if, from the four corners of the instrument, the intent to secure
future and other indebtedness can be gathered. This stipulation is valid and binding between the parties and is
known as the "blanket mortgage clause" (also known as the "dragnet clause)."12
In the present case, the mortgage contract indisputably provides that the subject properties serve as security, not
only for the payment of the subject loan, but also for "such other loans or advances already obtained, or still to be
obtained." The cross-collateral stipulation in the mortgage contract between the parties is thus simply a variety of a
dragnet clause. After agreeing to such stipulation, the petitioners cannot insist that the subject properties be
released from mortgage since the security covers not only the subject loan but the two other loans as well.
The petitioners, however, claim that their agreement with Mondigo must be deemed to have novated the mortgage
contract. They posit that the full payment of the subject loan extinguished their obligation arising from the mortgage
contract, including the stipulated cross-collateral provision. Consequently, consistent with their theory of a novated
agreement, the petitioners maintain that it devolves upon PCRB to execute the corresponding Deed of Release of
Mortgage.
We find the petitioners’ argument unpersuasive. Novation, in its broad concept, may either be extinctive or
modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the
place of the former; it is merely modificatory when the old obligation subsists to the extent that it remains compatible
with the amendatory agreement. An extinctive novation results either by changing the object or principal conditions
(objective or real), or by substituting the person of the debtor or subrogating a third person in the rights of the
creditor (subjective or personal). Under this mode, novation would have dual functions – one to extinguish an
existing obligation, the other to substitute a new one in its place – requiring a conflux of four essential requisites: (1)
a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the extinguishment of
the old obligation; and (4) the birth of a valid new obligation.13
The second requisite is lacking in this case. Novation presupposes not only the extinguishment or modification of an
existing obligation but, more importantly, the creation of a valid new obligation.14 For the consequent creation of a
new contractual obligation, consent of both parties is, thus, required. As a general rule, no form of words or writing is
necessary to give effect to a novation. Nevertheless, where either or both parties involved are juridical entities, proof
that the second contract was executed by persons with the proper authority to bind their respective principals is
necessary.15
Section 23 of the Corporation Code16 expressly provides that the corporate powers of all corporations shall be
exercised by the board of directors. The power and the responsibility to decide whether the corporation should enter
into a contract that will bind the corporation are lodged in the board, subject to the articles of incorporation, bylaws,
or relevant provisions of law. In the absence of authority from the board of directors, no person, not even its officers,
can validly bind a corporation.
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 its officers, committees or agents. The authority
of these 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.17
The authority of a corporate officer or agent in dealing with third persons may be actual or apparent. Actual authority
is either express or implied. The extent of an agent’s express authority is to be measured by the power delegated to
him by the corporation, while the extent of his implied authority is measured by his prior acts which have been
ratified or approved, or their benefits accepted by his principal.18 The doctrine of "apparent authority," on the other
hand, with special reference to banks, had long been recognized in this jurisdiction. The existence of apparent
authority may be ascertained through:
1) the general manner in which the corporation holds out an officer or agent as having the power to act, or in
other words, the apparent authority to act in general, with which it clothes him; or
2) the acquiescence in his acts of a particular nature, with actual or constructive knowledge thereof, within or
beyond the scope of his ordinary powers.
Accordingly, the authority to act for and to bind a corporation may be presumed from acts of recognition in other
instances when the power was exercised without any objection from its board or shareholders.19
Notably, the petitioners’ action for specific performance is premised on the supposed actual or apparent authority of
the branch manager, Mondigo, to release the subject properties from the mortgage, although the other obligations
remain unpaid. In light of our discussion above, proof of the branch manager’s authority becomes indispensable to
support the petitioners’ contention. The petitioners make no claim that Mondigo had actual authority from PCRB,
whether express or implied. Rather, adopting the trial court’s observation, the petitioners posited that PCRB should
be held liable for Mondigo’s commitment, on the basis of the latter’s apparent authority.
We disagree with this position.
Under the doctrine of apparent authority, acts and contracts of the agent, as are within the apparent scope of the
authority conferred on him, although no actual authority to do such acts or to make such contracts has been
conferred, bind the principal.20 The principal’s liability, however, is limited only to third persons who have been led
reasonably to believe by the conduct of the principal that such actual authority exists, although none was given. In
other words, apparent authority is determined only by the acts of the principal and not by the acts of the
agent.21 There can be no apparent authority of an agent without acts or conduct on the part of the principal; such
acts or conduct must have been known and relied upon in good faith as a result of the exercise of reasonable
prudence by a third party as claimant, and such acts or conduct must have produced a change of position to the
third party’s detriment.22
In the present case, the decision of the trial court was utterly silent on the manner by which PCRB, as supposed
principal, has "clothed" or "held out" its branch manager as having the power to enter into an agreement, as claimed
by petitioners. No proof of the course of business, usages and practices of the bank about, or knowledge that the
board had or is presumed to have of, its responsible officers’ acts regarding bank branch affairs, was ever adduced
to establish the branch manager’s apparent authority to verbally alter the terms of mortgage contracts.23 Neither was
there any allegation, much less proof, that PCRB ratified Mondigo’s act or is estopped to make a contrary claim.24
Further, we would be unduly stretching the doctrine of apparent authority were we to consider the power to undo or
nullify solemn agreements validly entered into as within the doctrine’s ambit. Although a branch manager, within his
field and as to third persons, is the general agent and is in general charge of the corporation, with apparent authority
commensurate with the ordinary business entrusted him and the usual course and conduct thereof, 25 yet the power
to modify or nullify corporate contracts remains generally in the board of directors. 26 Being a mere branch manager
alone is insufficient to support the conclusion that Mondigo has been clothed with "apparent authority" to verbally
alter terms of written contracts, especially when viewed against the telling circumstances of this case: the
unequivocal provision in the mortgage contract; PCRB’s vigorous denial that any agreement to release the
mortgage was ever entered into by it; and, the fact that the purported agreement was not even reduced into writing
considering its legal effects on the parties’ interests. To put it simply, the burden of proving the authority of Mondigo
to alter or novate the mortgage contract has not been established.27
It is a settled rule that persons dealing with an agent are bound at their peril, if they would hold the principal liable, to
ascertain not only the fact of agency but also the nature and extent of the agent’s authority, and in case either is
controverted, the burden of proof is upon them to establish it.28 As parties to the mortgage contract, the petitioners
are expected to abide by its terms. The subsequent purported agreement is of no moment, and cannot prejudice
PCRB, as it is beyond Mondigo’s actual or apparent authority, as above discussed.
Rescission has no legal basis; there can be no restitution of the amount paid
The petitioners, nonetheless, invoke equity and alternatively pray for the restitution of the amount paid, on the
rationale that if PCRB’s branch manager was not authorized to accept payment in consideration of separately
releasing the mortgage, then the agreement should be deemed rescinded, and the amount paid by them returned.
PCRB, on the other hand, counters that the petitioners’ alternative prayer has no legal and factual basis, and insists
that the clear agreement of the parties was for the full payment of the subject loan, and in return, PCRB would
deliver the title to the subject properties to the buyer, only to enable the latter to obtain a transfer of title in her own
name.
We agree with PCRB. Even if we were to assume that the purported agreement has been sufficiently established,
since it is not binding on the bank for lack of authority of PCRB’s branch manager, then the prayer for restitution of
the amount paid would have no legal basis. Of course, it will be asked: what then is the legal significance of the
payment made by Banate? Article 2154 of the Civil Code reads:
Art 2154. If something is received when there is no right to demand it, and it was unduly delivered through mistake,
the obligation to return it arises.
1avvphi1

Notwithstanding the payment made by Banate, she is not entitled to recover anything from PCRB under Article
2154. There could not have been any payment by mistake to PCRB, as the check which Banate issued as payment
was to her co-petitioner Mary Melgrid Cortel (the payee), and not to PCRB. The same check was simply endorsed
by the payee to PCRB in payment of the subject loan that the Maglasangs owed PCRB.29
The mistake, if any, was in the perception of the authority of Mondigo, as branch manager, to verbally alter the
mortgage contract, and not as to whether the Cortels, as sellers, were entitled to payment. This mistake (on
Mondigo’s lack of authority to alter the mortgage) did not affect the validity of the payment made to the bank as the
existence of the loan was never disputed. The dispute was merely on the effect of the payment on the security
given.30
Consequently, no right to recover accrues in Banate’s favor as PCRB never dealt with her. The borrowers-
mortgagors, on the other hand, merely paid what was really owed. Parenthetically, the subject loan was due on
January 18, 1998, but was paid sometime in November 1997. It appears, however, that at the time the complaint
was filed, the subject loan had already matured. Consequently, recovery of the amount paid, even under a claim of
premature payment, will not prosper.
In light of these conclusions, the claim for moral damages must necessarily fail. On the alleged injurious publication,
we quote with approval the CA’s ruling on the matter, viz:
Consequently, there is no reason to hold [respondent] PCRB liable to [petitioners] for damages. x x x [Petitioner]
Maglasang cannot hold [respondent] PCRB liable for the publication of the extra-judicial sale. There was no
evidence submitted to prove that [respondent] PCRB authored the words "Mortgagors surreptitiously caused the
transfer of ownership of Lot 12868-H-3-C x x x" contained in the publication since at the bottom was x x x Sheriff
Teofilo C. Soon, Jr.’s name. Moreover, there was not even an iota of proof which shows damage on the part of
[petitioner] Mary Melgrid M. Cortel.31
WHEREFORE, we DENY the petitioners’ petition for review on certiorari for lack of merit, and AFFIRM the decision
of the Court of Appeals dated December 19, 2003 and its resolution dated May 5, 2004 in CA-G.R. CV No. 74332.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 179441 August 9, 2010
ST. JAMES COLLEGE OF PARAÑAQUE; JAIME T. TORRES, represented by his legal representative, JAMES
KENLEY M. TORRES; and MYRNA M. TORRES, Petitioners,
vs.
EQUITABLE PCI BANK, Respondent.
DECISION
VELASCO, JR., J.:
Appealed via this petition for review under Rule 45 is the Decision1 dated January 17, 2007 of the Court of Appeals
(CA) in CA-G.R. SP No. 86587, as reiterated in its Resolution 2 of August 28, 2007, reversing the earlier orders in
SCA No. 2569 of the Regional Trial Court (RTC), Branch 266 in Pasig City.
The Facts
Petitioners-spouses Jaime (now deceased) and Myrna Torres owned and operated St. James College of
Parañaque3 (St. James College), a sole proprietorship educational institution. Sometime in 1995, the Philippine
Commercial and International Bank (PCIB) granted the Torres spouses and/or St. James College a credit line facility
of up to PhP 25,000,000. This accommodation or any of its extension or renewal was secured by a real estate
mortgage4 (REM) over a parcel of land situated in Parañaque covered by Transfer Certificate of Title (TCT) No.
745985 in the name of St. James College, particularly described as:
A parcel of Land (lot 2 of the cons. and subd. plan Pcs.-13-0008777, being a portion of the cons. of Lots 4654-B and
5654-C Psd.-13-002266. L.R.C. Rec. No. N-21332), situated in the Bo. of San Dionisio, Mun. of Parañaque, Metro
Manila. x x x containing an area of NINETEEN THOUSAND TWO HUNDRED TWENTY FIVE (19,225) SQ.
METERS.
St. James College used to occupy the above lot.
PCIB eventually merged with Equitable Bank with the surviving bank known as Equitable PCI Bank (EPCIB) (now
Banco de Oro). The credit line underwent several annual renewals, the last being effected in 2001. As petitioners
had defaulted in the payment of the loan obtained from the secured credit accommodation, their total unpaid loan
obligation, as of September 2001, stood at PhP 18,300,000.
In a bid to settle its loan availment, petitioners first proposed to EPCIB that they be allowed to pay their account in
equal quarterly installments for five years. This payment scheme was apparently not acceptable to EPCIB, as
another written letter later followed, this time petitioners proposing that their outstanding credit be converted into a
long term loan payable in 10 equal annual installments.
EPCIB responded via a letter of January 9, 2003.6 In it, EPCIB informed petitioners that it is denying their request for
the reinstatement of their credit line, but proposed a restructuring package with a soft payment scheme for the
outstanding loan balance of PhP 18,300,000. Under the counter-proposal, the bank would book the accumulated
past due loans to current status and charge interest at a fixed rate of 13.375% per annum, payable in either of the
ensuing modes and level, at petitioners’ options: payment of the PhP 18,300,000 principal either at a monthly rate of
PhP 508,333.33; or equal annual amortizations of PhP 6,100,000 payable every May. Petitioner Jaime Torres chose
and agreed to the second option, i.e., the equal annual amortizations of PhP 6,100,000 payable every May, by
affixing his conforme signature at the bottom portion of EPCIB’s letter, writing the words "on annual amortization."7
May 2003 came, but petitioners failed to pay the stipulated annual amortization of PhP 6,100,000 agreed upon.
Whereupon, EPCIB addressed to petitioners a demand letter dated June 6, 2003 requiring them to settle their
obligation. On June 23, 2003, petitioners tendered, and EPCIB accepted, a partial payment of PhP 2,521,609.62,
broken down to cover the following items: PhP 1,000,000 principal, PhP 1,360,881.62 interest due on June 15,
2003, and PhP 160,728.00 insurance premium for the mortgaged property. In the covering June 23, 2003
letter,8 which came with the tender, petitioners promised to make another payment in October 2003 and that the
account would be made current in June 2004. They manifested, however, that St. James College is not subject to
the 10% value-added tax (VAT) which EPCIB assessed against the school in its June 15, 2003 statement of
account. Petitioners accordingly requested the deletion of the VAT portion.
Vis-à-vis the PhP 2,521,609.62 payment to which it issued an official receipt (OR)9 dated June 30, 2003, EPCIB
made it abundantly clear on the OR that: "THE RECEIPT OF PAYMENT IS WITHOUT PREJUDICE TO THE
BANK’S RIGHT AND CLAIMS ARISING FROM THE FACT THE ACCOUNT IS OVERDUE. NOR SHALL IT
RENDER THE BANK LIABLE FOR ANY DAMAGE BY ITS ACCEPTANCE OF PAYMENT." And in answer to
petitioners’ cover letter of June 23, 2003, EPCIB, through counsel, reminded and made it clear to petitioners that
their first partial payment did not detract from the past due character of their outstanding loan for which reason it is
demanding the remaining PhP 5,100,000 to complete the first PhP 6,100,000 principal payment. On August 27,
2003, EPCIB again sent another demand letter to petitioners, but to no avail.
On September 15, 2003, petitioners requested that the bank allow a partial payment of the May 2003 amortization
balance of PhP 5,100,000. Two days later, EPCIB responded denying petitioners’ request, but nonetheless
proposed a new repayment scheme to which petitioners were not amenable.
Petitioners made a second check remittance, this time in the amount of PhP 921,535.42,10 the PhP 500,000 portion
of which represented payment of the principal and PhP 421,535.42 for interest due on October 15, 2003. By letter
dated November 5, 2003, EPCIB again reminded petitioners that its receipt of the check payment for the amount of
the PhP 921,535.42 is without prejudice to the bank’s rights considering the overdue nature of petitioners’ loan.11
On November 6, 2003, petitioners issued a Stop Payment Order12 for their PhP 921,535.42 check. And in a
November 8, 2003 letter, petitioner Jaime, adverting to EPCIB’s November 5, 2003 letter, told the bank, "You cannot
just unilaterally decide/announce that you did not approve our proposal/request for restructuring of our loan after
receiving our payment, which was based on said proposal/request."13
On November 10, 2003, EPCIB, through counsel, demanded full settlement of petitioners’ loan obligation in the total
amount of PhP 24,719,461.48. Appended to the demand letter which went unheeded was a statement of account
showing detailed principal obligation, interest, and penalties as well as payments petitioners made and how they
were applied.
On November 27, 2003, EPCIB filed before the Office of the Clerk of Court and Ex-Officio Sheriff of the RTC in
Parañaque City its Petition for Sale14 to extra-judicially foreclose the mortgaged property covered by TCT No. 74598.
After due publication, the foreclosure sale of the mortgaged property was set for January 9 and 16, 2004.
On December 8, 2003, in the RTC, Branch 266 in Pasig City, petitioners instituted against EPCIB a complaint for
Declaratory Relief, Injunction and Damages, with application for a temporary restraining order (TRO) and/or writ of
preliminary injunction,15 docketed as SCA No. 2569.
On the very day of the scheduled foreclosure sale, January 9, 2004, the Pasig City RTC issued a TRO, 16 enjoining
EPCIB from proceeding with the scheduled foreclosure sale, and set a date for the hearing on the application for a
writ of preliminary injunction.
After the scheduled hearing on January 15, 2004, the trial court required the parties to file their respective
memoranda. EPCIB filed a motion praying for an additional time to file its memorandum which the RTC eventually
denied.
On March 10, 2004, the RTC issued an Order granting a writ of preliminary injunction in favor of petitioners, as
plaintiffs a quo, thus effectively staying the rescheduled foreclosure sale of St. James College’s mortgaged property.
The dispositive portion of the RTC Order reads:
WHEREFORE, premises considered, finding plaintiffs’ application for writ of preliminary injunction to be well-taken
and legally justified, the same is hereby GRANTED.
Accordingly, in the interest of substantial justice, let therefore a writ of preliminary injunction be issued enjoining the
defendant EPCIB and/or any of its representative/s or any person acting in its behalf to foreclose the mortgaged
property of the plaintiffs until final order of the Court. Plaintiffs are directed to post an injunction bond in the amount
of ONE MILLION PESOS (PhP1,000,000.00) to answer for whatever damages that said defendant may suffer in the
event that it is finally determined by the Court that plaintiffs are not entitled to the same.
SO ORDERED.17
By Order18 of July 6, 2004, the RTC denied EPCIB’s Extremely Urgent Motion for Reconsideration.19
Aggrieved, EPCIB went to the CA on certiorari to nullify the RTC Orders dated March 10, 2004 and July 6, 2004,
and necessarily to assail the propriety of the writ of preliminary injunction thus granted.
Meanwhile, petitioner Jaime passed away and was substituted by petitioner James Kenley M. Torres.
The Ruling of the CA
On January 17, 2007, the appellate court––while making short shrift of the jurisdictional challenge raised by EPCIB,
but finding that grave abuse of discretion attended the issuance of the assailed writ of preliminary injunction––
rendered the assailed decision nullifying and setting aside the RTC orders, disposing as follows:
WHEREFORE, premises considered, the instant petition for certiorari is GRANTED. Accordingly, the March 10,
2004 and July 6, 2004 Orders of the Regional Trial Court of Pasig City, Branch 266, are hereby REVERSED and
SET ASIDE.
SO ORDERED.20
Their Motion for Reconsideration (Of the Decision dated 17 January 2007)21 having been denied in the equally
assailed resolution of August 28, 2007, petitioners interposed the instant recourse.
The Court, through its Resolution of December 12, 2007, issued a TRO,22 enjoining the Office of the Clerk of Court
and Ex-Officio Sheriff of the Parañaque City RTC, and EPCIB, their agents or representatives, from enforcing the
appealed decision and resolution of the CA, conditioned upon the posting by petitioners of a PhP 1,000,000 surety
bond. On January 29, 2008, petitioners submitted the necessary surety bond.
The Issues
Petitioners urge the setting aside of the appealed CA decision and resolution on the submission that the appellate
court committed grave and reversible error:
I. x x x IN RULING THAT THE PETITIONERS (PRIVATE RESPONDENTS IN CA-G.R. SP NO. 86587) FAILED TO
ESTABLISH THE ELEMENTS FOR THE ISSUANCE OF THE INJUNCTIVE WRIT CONTRARY TO THE FINDINGS
OF THE COURT A QUO BY MISAPPLYING THE CASE OF TOYOTA MOTOR PHILIPPINES CORPORATION
WORKERS’ ASSOCIATION VS COURT OF APPEALS, 412 SCRA 69.
II. x x x IN MISINTERPRETING THE DOCTRINE ENUNCIATED IN ESTARES VS. COURT OF APPEALS, 459
SCRA, 619 UPON WHICH IT LIKEWISE BASED ITS ASSAILED DECISION PROMULGATED ON JANUARY 17,
2007.
III. x x x IN RULING THAT THERE WAS NO NOVATION AS PROVIDED FOR UNDER ARTICLE 1292 OF THE
NEW CIVIL CODE OF THE PHILIPPINES.23
The key issues tendered may be summarized, as follows: first, whether there was indeed a novation of the contract
between the parties; and second, whether the required ground or grounds for the issuance of a preliminary
injunction is/are present.
The Court’s Ruling
The petition is unmeritorious.
No Novation of Contract
Petitioners admit the existence of their unsettled loan obligation to EPCIB. They would insist, however, that the full
amount is still not due owing to the implied novation of the terms of payment previously agreed upon. As petitioners
assert in this regard that the acceptance by EPCIB, particularly of the June 23, 2003 PhP 2,521,609.62 payment,
without any objection on the new terms set forth in their June 23, 2003 complementing covering letter, novated the
terms of payment of the PhP 18,300,000 secured loan. To petitioners, EPCIB veritably acquiesced to the new terms
of payment being incompatible with the terms of the January 9, 2003 counter-proposal of EPCIB affecting
petitioners’ obligation of PhP 18,300,000.
We are not persuaded.
As a civil law concept, novation is the extinguishment of an obligation by the substitution or change of the obligation
by a subsequent one which terminates it, either by changing its objects or principal conditions, or by substituting a
new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. 24 Novation may be
extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new one that takes
the place of the former; it is merely modificatory when the old obligation subsists to the extent that it remains
compatible with the amendatory agreement.25 Novation may either be express, when the new obligation declares in
unequivocal terms that the old obligation is extinguished, or implied, when the new obligation is on every point
incompatible with the old one.26 The test of incompatibility lies on whether the two obligations can stand together,
each one with its own independent existence.27
For novation, as a mode of extinguishing or modifying an obligation, to apply, the following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.28
As correctly determined by the appellate court, certain circumstances or their interplay militates against the
application of novation.
First. The parties did not unequivocally declare, let alone agree, that the obligation had been modified as to the
terms of payment by the partial payments of the obligation. Petitioners indeed made known their inability to pay in
full the PhP 6,100,000 principal obligation due in May 2003 and tendered only partial payments of PhP 1,000,000 on
June 23, 2003 and PhP 500,000 on November 5, 2003. It should be stressed, however, that EPCIB lost no time in
demanding payment for the full PhP 6,100,000 principal obligation due in May 2003. The following acts of EPCIB
readily argue against the idea of its having agreed to a modification in the stipulated terms of payment: (a) its letter-
reply to petitioners’ June 23, 2003 letter; (b) the August 27, 2003 demand-letter of EPCIB for the full principal
balance of PhP 5,100,000 from petitioners; (c) the September 17, 2003 letter of EPCIB denying petitioners’ request
for a partial payment; (d) the OR dated June 30, 2003 EPCIB issued where the following entries were written: "THE
RECEIPT OF PAYMENT IS WITHOUT PREJUDICE TO THE BANK’S RIGHTS AND CLAIMS ARISING FROM THE
FACT THE ACCOUNT IS OVERDUE. NOR SHALL IT RENDER THE BANK LIABLE FOR ANY DAMAGE BY ITS
ACCEPTANCE OF PAYMENT"; and (e) the letter of November 5, 2003 EPCIB sent reiterating that the receipt of the
second partial payment is without prejudice to the bank’s rights on the overdue loan.
The underlying arrangement between petitioners and EPCIB, respecting the terms of payment of the loan drawn
against the credit facility, was that set forth in the January 9, 2003 agreement, which, for reference, required
petitioners to remit to the lending bank an annual amortization of PhP 6,100,000 payable every May until the entire
loan obligation shall have been covered. Any suggestion that EPCIB is precluded from asserting its legal rights after
petitioners reneged on their part of the bargain etched in said January 9, 2003 agreement owing alone to its
acceptance of an amount less than PhP 6,100,000, is too presumptuous for acceptance. Viewed otherwise, the
notion of novation foisted by petitioners on the Court cannot be plausibly deduced from EPCIB’s acceptance of such
lesser amount.
Contrary to what petitioners would want the Court to believe, there is clearly no incompatibility between EPCIB’s
receipt of the partial payments of the principal amounts and what was due in May 2003, i.e., the PhP 1,000,000 and
PhP 500,000 payments vis-à-vis the PhP 6,100,000 due. As it were, EPCIB accepted the partial payments remitted,
but demanded, at the same time, the full payment of what was otherwise due in May 2003, as the parties agreed
upon. As the CA observed correctly, precisely EPCIB was demanding the full payment of the PhP 5,100,000
principal due in May 2003 which had not yet been settled.
Second. Novatio non praesumitur, or novation is never presumed,29 is a well-settled principle. Consequently, that
which arises from a purported modification in the terms and conditions of the obligation must be clear and express.
On petitioners thus rests the onus of showing clearly and unequivocally that novation has indeed taken place. To us,
petitioners have not discharged the burden. Moreover, we fail to see the presence of the concurring requisites for a
novation of contract, as enumerated above. Indeed, petitioners have not shown an express modification of the terms
of payment of the obligation.
It has often been said that the minds that agree to contract can agree to novate. And the agreement or consent to
novate may well be inferred from the acts of a creditor, since volition may as well be expressed by deeds as by
words.30 In the instant case, however, the acts of EPCIB before, simultaneously to, and after its acceptance of
payments from petitioners argue against the idea of its having acceded or acquiesced to petitioners’ request for a
change of the terms of payments of the secured loan. Far from it. Thus, a novation through an alleged implied
consent by EPCIB, as proffered and argued by petitioners, cannot be given imprimatur by the Court.
Propriety of the Grant of Injunctive Writ
We now come to the main issue in this case—the propriety of the issuance of the preliminary injunctive writ.
Basically, petitioners fault the appellate court for citing and relying on Toyota Motor Philippines Corporation Workers’
Association v. Court of Appeals (Toyota)31 and Estares v. Court of Appeals32 in support of its disposition on their non-
entitlement to a preliminary injunctive writ. Pursuing this point, petitioners posit the inapplicability of Toyota, as that
case involved the issuance of a writ of preliminary mandatory injunction, not a writ of preliminary prohibitory
injunction, as here. And Estares, they argue, was cast against and revolved around a different factual issue, for the
debtors Estares spouses in Estares, unlike petitioners, did not question the statement of account given them by the
lending institution and failed to establish their entitlement to the injunctive writ.
Moreover, petitioners invite attention to the fact respecting the mortgaged lot being the site of St. James College. As
such, petitioners add, public interest demands that said educational institution be protected from an undue
operational disruption which would result in damages, in case of a foreclosure sale, that are not only incapable of
pecuniary estimation, but also well-nigh irreparable, affecting the employment of the teaching staff and other school
personnel and the displacement of thousands of students.
We are not persuaded.
Requisites for issuance of an injunctive writ
A writ of preliminary injunction issues to:
prevent threatened or continuous irremediable injury to some of the parties before their claims can be thoroughly
studied and adjudicated. Its sole office is to preserve the status quo until the merits of the case can be heard fully.
Thus, its issuance is conditioned upon a showing of a clear and unmistakable right that is violated. Moreover,
an urgent necessity for its issuance must be shown by the applicant.33 (Emphasis supplied.)
Under Section 3, Rule 58 of the Rules of Court, an application for a writ of preliminary injunction may be granted if
the following grounds are established, thus:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in
restraining the commission or continuance of the act or acts complained of, or in requiring the performance
of an act or acts, either for a limited period or perpetually;
(b) That the commission, continuance or non-performance of the act or acts complained of during the
litigation would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or
suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the
subject of the action or proceeding, and tending to render the judgment ineffectual.
And following jurisprudence, these requisites must be proved before a writ of preliminary injunction, be it mandatory
or prohibitory, will issue:
(1) The applicant must have a clear and unmistakable right to be protected, that is a right in esse;
(2) There is a material and substantial invasion of such right;
(3) There is an urgent need for the writ to prevent irreparable injury to the applicant; and
(4) No other ordinary, speedy, and adequate remedy exists to prevent the infliction of irreparable injury.34
Thus, the question of applicability of Toyota as regards the requisites of a preliminary injunction is of no moment, for
there is no distinction in the requisites for either a mandatory or prohibitory injunctive writ.
Requisites for injunctive writ not present
A circumspect review of the parties’ pleadings and other records of the case readily yields the conclusion that the
minimum legal requisites for the issuance of a preliminary prohibitory injunction have not been satisfied. Hence, the
appellate court neither committed manifest error nor gravely abused its discretion in setting aside the grant by the
trial court of a writ of preliminary injunction in favor of petitioners.
For sure, the Court is aware that the matter of the propriety of the issuance of a writ of preliminary injunction is
addressed to the sound discretion of the trial court. It bears to stress, however, that the injunctive writ
is conditioned on the existence of a clear and positive right of the applicant which should be protected , the
writ being the strong arm of equity, an extraordinary peremptory remedy which can be availed of only upon the
existence of well-defined circumstances. Be that as it may, the writ must be used with extreme caution, affecting as
it does the respective rights of the parties.35 In fine, the writ should be granted only when the court is fully satisfied
that the law permits it and the emergency demands it,36 for the very foundation of the jurisdiction to issue writ of
injunction rests in the existence of a cause of action, probability of irreparable injury, inadequacy of
pecuniary compensation, and the prevention of the multiplicity of suits. Where facts are not shown to bring the
case within these conditions, the relief of injunction should be refused.37
Petitioners failed to show a right in esse to be protected
We join the CA in its findings that the petitioners have not shown a right in esse to be protected. Indeed, the Rules
requires that the applicant’s right must be clear or unmistakable, that is, a right that is actual, clear, and positive
especially calling for judicial protection.38 An injunction will not issue to protect a right not in esse and which may
never arise, or to restrain an act which does not give rise to a cause of action.
An application for a preliminary injunction is a mere adjunct to the main action. While the instant proceeding is only
for the purpose of determining whether grave abuse of discretion indeed attended the issuance by the RTC of the
writ in question, as the CA has determined positively, it is inevitable that our pronouncements may have some
unintended bearing on the main suit for declaratory relief. Nonetheless, it behooves the Court to resolve the matter
in keeping with the requirements of justice and fair play.
A judicious review of the records shows petitioners applying for and EPCIB granting the former credit facilities and
for which a bona fide REM over the St. James College lot had been constituted. EPCIB has shown documentary
evidence of how petitioners agreed to the credit line accomodation with a limit of PhP 25,000,000. Moreover, the late
petitioner Jaime indeed agreed to the January 9, 2003 counter-proposal of EPCIB for the payment of the PhP
18,300,000 outstanding loan, by signing his conforme on the counter-proposal and voluntarily opting to pay the loan
on equal annual payments of PhP 6,100,000 every May for three years.
It bears stressing that the original renewable credit line was granted sometime in 1995, while the REM over the land
covered by TCT No. 74598 was executed on November 8, 1994. The records show that the credit line was last
renewed in 2001. There can be no quibbling that in September 2001, petitioners were already in default, their
overdue loan having an unpaid balance of PhP 18,300,000. The fact of default was admitted by petitioners when
they twice proposed ways of settling their account.
Verily, the January 9, 2003 counter-proposal of EPCIB was a gesture of liberality on its part, inasmuch as, by that
simple act, it deferred exercising its rights as REM-secured creditor, by affording petitioners the opportunity to
restructure their loan by make making the outstanding balance of PhP 18,300,000 current. As events turned out,
however, petitioners still breached the terms of the counter-proposal by which they voluntarily agreed to abide.
We note that EPCIB did not immediately exercise its right to foreclose when the opportunity first presented itself.
From September 27, 2001, when petitioners were already in arrears, until November 27, 2003, or for more than two
years, EPCIB let that opportunity pass by. The new terms of payment pursuant to the January 9, 2003 agreement
gave petitioners a fresh start to meet their obligation.
We further note that petitioners saw fit to commence SCA No. 2569 for declaratory relief only on December 8, 2003
or after EPCIB filed its petition for sale to extra-judicially foreclose the subject mortgaged property. With the view we
take of things, petitioner instituted SCA No. 2569 as an afterthought and a measure to thwart and forestall the
imminent extrajudicial foreclosure proceedings.
Given the foregoing perspective, EPCIB has clearly established its status as unpaid mortgagee-creditor entitled to
foreclose the mortgage, a remedy provided by law39 and the mortgage contract itself. On the other hand, petitioners
can hardly claim a right, much less a clear and unmistakable one, which the intended foreclosure sale would violate
if not enjoined. Surely, the foreclosure of mortgage does not by itself constitute a violation of the rights of a
defaulting mortgagor.
The main purpose of the subsidiary contract of REM is to secure the principal obligation. Withal, when the
mortgagors-debtors has defaulted in the amortization payments of their loans, the superior legal right of the secured
unpaid creditors to exercise foreclosure proceedings on the mortgage property to answer for the principal obligation
arises. So it must be in this case.
Contrary to what the RTC wrote, there was no urgent necessity to issue the writ to protect the rights and interest of
petitioners as owners. First, they could participate in the foreclosure sale and get their property back unencumbered
by the payment of the obligations that they acknowledged in the first place. Second, a foreclosure sale does
not ipso facto pass title to the winning bidder over the mortgaged property. Petitioners continue to own the
mortgaged property sold in an auction sale until the expiration of the redemption period. Third, petitioners have one
year from the auction sale to redeem the mortgaged property. The one-year redemption period is another grace
period accorded petitioners to pay the outstanding debt, which would be converted to the proceeds of the forced
sale pursuant to the requisites under Sec. 6 of Republic Act No. 3135, as amended, for the redemption of a property
sold in an extrajudicial sale, also in accordance with Sec. 78 of the General Banking Act, as amended by
Presidential Decree No. 1828.40 It is only upon the expiration of the redemption period, without the judgment debtors
having made use of their right of redemption, does ownership of the land sold become consolidated in the purchaser
or winning bidder.41
Petitioners contend that the proposed foreclosure sale would likely cause unemployment in, as well as the
displacement of thousands of students of, St. James College. Petitioners’ thesis of unemployment and displacement
provides a practical, not a legal reason, for the issuance of an injunctive writ. What they conveniently refrained from
saying is that it is within their power and to their interest to prevent the occurrence of any of the two eventualities.
Finally, petitioners point to the fact that the mortgaged property has a value of over PhP 1 billion which is many
times over their unpaid loan obligation.
The disparity between what the mortgaged lot is worth and petitioners’ unpaid debt of PhP 24 million is not, standing
alone, a ground to enjoin a foreclosure sale. Neither would petitioners, as mortgagors, be placed at a disadvantage
by such state of things. The CA, citing decisional law, explains why:
Second, the fact that the outstanding obligation is only P24 million while the value of the mortgaged property could
be more than one billion pesos is not sufficient to enjoin the foreclosure sale of the said property. We agree with
[EPCIB] that the value of the mortgaged property has no bearing on the propriety of the auction sale provided that
the same is regularly and honestly conducted. This is because in a foreclosure sale where there is a right to
redeem, inadequacy of the bid price is of no moment for the reason that the judgment debtor has always the chance
to redeem and reacquire the property. In fact, the property may be sold for less than its fair market value precisely
because the lesser the price, the easier for the owner to effect a redemption.42
Application for injunctive relief construed strictly
In all then, the preliminary evidence presented by petitioners and the allegations in their complaint did not clearly
make out any entitlement to the injunctive relief prayed for. Consequently, the RTC gravely abused its discretion in
granting the writ of preliminary injunction. Trial courts are reminded to see to it that applications for preliminary
injunction clearly allege facts and circumstances showing the existence of the requisites. 43 We need not stress that
an application for injunctive relief is construed strictly against the pleader. 44 Here, petitioners have not sufficiently
shown the presence of the requisites for their entitlement to the writ. Perforce, the injunctive writ issued by the trial
court must be recalled. 1avvphi1

On the issue of petitioners’ contention on the alleged VAT imposed on the principal obligation, such can be fully
ventilated in the main action before the trial court.
One final word. The institution by petitioners of a suit for declaratory relief––after the petition for extrajudicial petition
has already been filed; and hoping in the process to block the bank’s legitimate effort to collect an overdue account
and demandable debt––is but a crude attempt to evade complying with their just obligation. It cannot be
countenanced. The antecedent facts in this case are quite simple: petitioners opened a credit line secured by a
REM. After drawing much from that line, they failed to pay, even after the bank bent backwards in the matter of
terms of payments. As a matter of justice and good conscience, the bank’s right to a forced sale of the mortgaged
property pursuant to the REM must be upheld absent other weightier reasons.
WHEREFORE, the instant petition is hereby DENIED for lack of merit, and the Court of Appeals Decision dated
January 17, 2007 and Resolution dated August 28, 2007 in CA-G.R. SP No. 86587 are AFFIRMED. The temporary
restraining order issued by the Court pursuant to its Resolution of December 12, 2007 is accordingly LIFTED.
Costs against petitioners.
SO ORDERED.
G.R. No. 178618 October 11, 2010
MINDANAO SAVINGS AND LOAN ASSOCIATION, INC., represented by its Liquidator, THE PHILIPPINE
DEPOSIT INSURANCE CORPORATION, Petitioner,
vs.
EDWARD WILLKOM; GILDA GO; REMEDIOS UY; MALAYO BANTUAS, in his capacity as the Deputy Sheriff
of Regional Trial Court, Branch 3, Iligan City; and the REGISTER OF DEEDS of Cagayan de Oro
City, Respondent.
DECISION
NACHURA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by Mindanao Savings and Loan
Association, Inc. (MSLAI), represented by its liquidator, Philippine Deposit Insurance Corporation (PDIC), against
respondents Edward R. Willkom (Willkom); Gilda Go (Go); Remedios Uy (Uy); Malayo Bantuas (sheriff Bantuas), in
his capacity as sheriff of the Regional Trial Court (RTC), Branch 3 of Iligan City; and the Register of Deeds of
Cagayan de Oro City. MSLAI seeks the reversal and setting aside of the Court of Appeals1 (CA) Decision2 dated
March 21, 2007 and Resolution3 dated June 1, 2007 in CA-G.R. CV No. 58337.
The controversy stemmed from the following facts:
The First Iligan Savings and Loan Association, Inc. (FISLAI) and the Davao Savings and Loan Association, Inc.
(DSLAI) are entities duly registered with the Securities and Exchange Commission (SEC) under Registry Nos.
34869 and 32388, respectively, primarily engaged in the business of granting loans and receiving deposits from the
general public, and treated as banks.4
Sometime in 1985, FISLAI and DSLAI entered into a merger, with DSLAI as the surviving corporation.5 The articles
of merger were not registered with the SEC due to incomplete documentation.6 On August 12, 1985, DSLAI changed
its corporate name to MSLAI by way of an amendment to Article 1 of its Articles of Incorporation, but the amendment
was approved by the SEC only on April 3, 1987.7
Meanwhile, on May 26, 1986, the Board of Directors of FISLAI passed and approved Board Resolution No. 86-002,
assigning its assets in favor of DSLAI which in turn assumed the former’s liabilities.8
The business of MSLAI, however, failed. Hence, the Monetary Board of the Central Bank of the Philippines ordered
its closure and placed it under receivership per Monetary Board Resolution No. 922 dated August 31, 1990. The
Monetary Board found that MSLAI’s financial condition was one of insolvency, and for it to continue in business
would involve probable loss to its depositors and creditors. On May 24, 1991, the Monetary Board ordered the
liquidation of MSLAI, with PDIC as its liquidator.9
It appears that prior to the closure of MSLAI, Uy filed with the RTC, Branch 3 of Iligan City, an action for collection of
sum of money against FISLAI, docketed as Civil Case No. 111-697. On October 19, 1989, the RTC issued a
summary decision in favor of Uy, directing defendants therein (which included FISLAI) to pay the former the sum of
₱136,801.70, plus interest until full payment, 25% as attorney’s fees, and the costs of suit. The decision was
modified by the CA by further ordering the third-party defendant therein to reimburse the payments that would be
made by the defendants. The decision became final and executory on February 21, 1992. A writ of execution was
thereafter issued.10
On April 28, 1993, sheriff Bantuas levied on six (6) parcels of land owned by FISLAI located in Cagayan de Oro City,
and the notice of sale was subsequently published. During the public auction on May 17, 1993, Willkom was the
highest bidder. A certificate of sale was issued and eventually registered with the Register of Deeds of Cagayan de
Oro City. Upon the expiration of the redemption period, sheriff Bantuas issued the sheriff’s definite deed of sale.
New certificates of title covering the subject properties were issued in favor of Willkom. On September 20, 1994,
Willkom sold one of the subject parcels of land to Go.11
On June 14, 1995, MSLAI, represented by PDIC, filed before the RTC, Branch 41 of Cagayan de Oro City, a
complaint for Annulment of Sheriff’s Sale, Cancellation of Title and Reconveyance of Properties against
respondents.12 MSLAI alleged that the sale on execution of the subject properties was conducted without notice to it
and PDIC; that PDIC only came to know about the sale for the first time in February 1995 while discharging its
mandate of liquidating MSLAI’s assets; that the execution of the RTC decision in Civil Case No. 111-697 was illegal
and contrary to law and jurisprudence, not only because PDIC was not notified of the execution sale, but also
because the assets of an institution placed under receivership or liquidation such as MSLAI should be deemed in
custodia legis and should be exempt from any order of garnishment, levy, attachment, or execution.13
In answer, respondents averred that MSLAI had no cause of action against them or the right to recover the subject
properties because MSLAI is a separate and distinct entity from FISLAI. They further contended that the "unofficial
merger" between FISLAI and DSLAI (now MSLAI) did not take effect considering that the merging companies did
not comply with the formalities and procedure for merger or consolidation as prescribed by the Corporation Code of
the Philippines. Finally, they claimed that FISLAI is still a SEC registered corporation and could not have been
absorbed by petitioner.14
On March 13, 1997, the RTC issued a resolution dismissing the case for lack of jurisdiction. The RTC declared that
it could not annul the decision in Civil Case No. 111-697, having been rendered by a court of coordinate
jurisdiction.15
On appeal, MSLAI failed to obtain a favorable decision when the CA affirmed the RTC resolution. The dispositive
portion of the assailed CA Decision reads:
WHEREFORE, premises considered, the instant appeal is DENIED. The decision assailed is AFFIRMED.
We REFER Sheriff Malayo B. Bantuas’ violation of the Supreme Court Administrative Circular No. 12 to the Office of
the Court Administrator for appropriate action. The Division Clerk of Court is hereby DIRECTED to furnish the Office
of the Court Administrator a copy of this decision.
SO ORDERED.16
The appellate court sustained the dismissal of petitioner’s complaint not because it had no jurisdiction over the case,
as held by the RTC, but on a different ground. Citing Associated Bank v. CA,17 the CA ruled that there was no merger
between FISLAI and MSLAI (formerly DSLAI) for their failure to follow the procedure laid down by the Corporation
Code for a valid merger or consolidation. The CA then concluded that the two corporations retained their separate
personalities; consequently, the claim against FISLAI is warranted, and the subsequent sale of the levied properties
at public auction is valid. The CA went on to say that even if there had been a de facto merger between FISLAI and
MSLAI (formerly DSLAI), Willkom, having relied on the clean certificates of title, was an innocent purchaser for
value, whose right is superior to that of MSLAI. Furthermore, the alleged assignment of assets and liabilities
executed by FISLAI in favor of MSLAI was not binding on third parties because it was not registered. Finally, the CA
said that the validity of the auction sale could not be invalidated by the fact that the sheriff had no authority to
conduct the execution sale.18
Petitioner’s motion for reconsideration was denied in a Resolution dated June 1, 2007. Hence, the instant petition
anchored on the following grounds:
THE HONORABLE COURT OF APPEALS, CAGAYAN DE ORO COMMITTED GRAVE AND REVERSIBLE
ERROR WHEN:
(1)
IT PASSED UPON THE EXISTENCE AND STATUS OF DSLAI (now MSLAI) AS THE SURVIVING ENTITY
IN THE MERGER BETWEEN DSLAI AND FISLAI AS A DEFENSE IN AN ACTION OTHER THAN IN A QUO
WARRANTO PROCEEDING UPON THE INSTITUTION OF THE SOLICITOR GENERAL AS MANDATED
UNDER SECTION 20 OF BATAS PAMBANSA BLG. 68.
(2)
IT REFUSED TO RECOGNIZE THE MERGER BETWEEN F[I]SLAI AND DSLAI WITH DSLAI AS THE
SURVIVING CORPORATION.
(3)
IT HELD THAT THE PROPERTIES SUBJECT OF THE CASE ARE NOT IN CUSTODIA LEGIS AND
THEREFORE, EXEMPT FROM GARNISHMENT, LEVY, ATTACHMENT OR EXECUTION.19
To resolve this petition, we must address two basic questions: (1) Was the merger between FISLAI and DSLAI (now
MSLAI) valid and effective; and (2) Was there novation of the obligation by substituting the person of the debtor?
We answer both questions in the negative.
Ordinarily, in the merger of two or more existing corporations, one of the corporations survives and continues the
combined business, while the rest are dissolved and all their rights, properties, and liabilities are acquired by the
surviving corporation.20 Although there is a dissolution of the absorbed or merged corporations, there is no winding
up of their affairs or liquidation of their assets because the surviving corporation automatically acquires all their
rights, privileges, and powers, as well as their liabilities.21
The merger, however, does not become effective upon the mere agreement of the constituent corporations.22 Since
a merger or consolidation involves fundamental changes in the corporation, as well as in the rights of stockholders
and creditors, there must be an express provision of law authorizing them.23
The steps necessary to accomplish a merger or consolidation, as provided for in Sections 76, 24 77,25 78,26 and 7927 of
the Corporation Code, are:
(1) The board of each corporation draws up a plan of merger or consolidation. Such plan must include any
amendment, if necessary, to the articles of incorporation of the surviving corporation, or in case of
consolidation, all the statements required in the articles of incorporation of a corporation.
(2) Submission of plan to stockholders or members of each corporation for approval. A meeting must be
called and at least two (2) weeks’ notice must be sent to all stockholders or members, personally or by
 registered mail. A summary of the plan must be attached to the notice. Vote of two-thirds of the members or
of stockholders representing two-thirds of the outstanding capital stock will be needed. Appraisal rights,
when proper, must be respected.
(3) Execution of the formal agreement, referred to as the articles of merger o[r] consolidation, by the
corporate officers of each constituent corporation. These take the place of the articles of incorporation of the
consolidated corporation, or amend the articles of incorporation of the surviving corporation.
(4) Submission of said articles of merger or consolidation to the SEC for approval.
(5) If necessary, the SEC shall set a hearing, notifying all corporations concerned at least two weeks before.
(6) Issuance of certificate of merger or consolidation.28
Clearly, the merger shall only be effective upon the issuance of a certificate of merger by the SEC, subject to its
prior determination that the merger is not inconsistent with the Corporation Code or existing laws. 29 Where a party to
the merger is a special corporation governed by its own charter, the Code particularly mandates that a favorable
recommendation of the appropriate government agency should first be obtained.30
In this case, it is undisputed that the articles of merger between FISLAI and DSLAI were not registered with the SEC
due to incomplete documentation. Consequently, the SEC did not issue the required certificate of merger. Even if it
is true that the Monetary Board of the Central Bank of the Philippines recognized such merger, the fact remains that
no certificate was issued by the SEC. Such merger is still incomplete without the certification.
The issuance of the certificate of merger is crucial because not only does it bear out SEC’s approval but it also
marks the moment when the consequences of a merger take place. By operation of law, upon the effectivity of the
merger, the absorbed corporation ceases to exist but its rights and properties, as well as liabilities, shall be taken
and deemed transferred to and vested in the surviving corporation.31
The same rule applies to consolidation which becomes effective not upon mere agreement of the members but only
upon issuance of the certificate of consolidation by the SEC.32 When the SEC, upon processing and examining the
articles of consolidation, is satisfied that the consolidation of the corporations is not inconsistent with the provisions
of the Corporation Code and existing laws, it issues a certificate of consolidation which makes the reorganization
official.33 The new consolidated corporation comes into existence and the constituent corporations are dissolved and
cease to exist.34
There being no merger between FISLAI and DSLAI (now MSLAI), for third parties such as respondents, the two
corporations shall not be considered as one but two separate corporations. A corporation is an artificial being
created by operation of law. It possesses the right of succession and such powers, attributes, and properties
expressly authorized by law or incident to its existence.35 It has a personality separate and distinct from the persons
composing it, as well as from any other legal entity to which it may be related.36 Being separate entities, the property
of one cannot be considered the property of the other.
Thus, in the instant case, as far as third parties are concerned, the assets of FISLAI remain as its assets and cannot
be considered as belonging to DSLAI and MSLAI, notwithstanding the Deed of Assignment wherein FISLAI
assigned its assets and properties to DSLAI, and the latter assumed all the liabilities of the former. As provided in
Article 1625 of the Civil Code, "an assignment of credit, right or action shall produce no effect as against third
persons, unless it appears in a public instrument, or the instrument is recorded in the Registry of Property in case
the assignment involves real property." The certificates of title of the subject properties were clean and contained no
annotation of the fact of assignment. Respondents cannot, therefore, be faulted for enforcing their claim against
FISLAI on the properties registered under its name. Accordingly, MSLAI, as the successor-in-interest of DSLAI, has
no legal standing to annul the execution sale over the properties of FISLAI. With more reason can it not cause the
cancellation of the title to the subject properties of Willkom and Go.
Petitioner cannot also anchor its right to annul the execution sale on the principle of novation. While it is true that
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DSLAI (now MSLAI) assumed all the liabilities of FISLAI, such assumption did not result in novation as would
release the latter from liability, thereby exempting its properties from execution. Novation is the extinguishment of an
obligation by the substitution or change of the obligation by a subsequent one which extinguishes or modifies the
first, either by changing the object or principal conditions, by substituting another in place of the debtor, or by
subrogating a third person in the rights of the creditor.37
It is a rule that novation by substitution of debtor must always be made with the consent of the creditor.38 Article 1293
of the Civil Code is explicit, thus:
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.
In this case, there was no showing that Uy, the creditor, gave her consent to the agreement that DSLAI (now MSLAI)
would assume the liabilities of FISLAI. Such agreement cannot prejudice Uy. Thus, the assets that FISLAI
transferred to DSLAI remained subject to execution to satisfy the judgment claim of Uy against FISLAI. The
subsequent sale of the properties by Uy to Willkom, and of one of the properties by Willkom to Go, cannot,
therefore, be questioned by MSLAI.
The consent of the creditor to a novation by change of debtor is as indispensable as the creditor’s consent in
conventional subrogation in order that a novation shall legally take place.39 Since novation implies a waiver of the
right which the creditor had before the novation, such waiver must be express.40
WHEREFORE, premises considered, the petition is DENIED. The Court of Appeals Decision dated March 21, 2007
and Resolution dated June 1, 2007 in CA-G.R. CV No. 58337 are AFFIRMED.
SO ORDERED.

G.R. No. 171998 October 20, 2010

ANAMER SALAZAR, Petitioner,
vs.
J.Y. BROTHERS MARKETING CORPORATION, Respondent.
DECISION
PERALTA, J.:
Before us is a petition for review seeking to annul and set aside the Decision 1 dated September 29, 2005 and the
Resolution2 dated March 2, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 83104.
The facts, as found by the Court of Appeals, are not disputed, thus:
J.Y. Brothers Marketing (J.Y. Bros., for short) is a corporation engaged in the business of selling sugar, rice and
other commodities. On October 15, 1996, Anamer Salazar, a freelance sales agent, was approached by Isagani
Calleja and Jess Kallos, if she knew a supplier of rice. Answering in the positive, Salazar accompanied the two to
J.Y. Bros. As a consequence, Salazar with Calleja and Kallos procured from J. Y. Bros. 300 cavans of rice worth
₱214,000.00. As payment, Salazar negotiated and indorsed to J.Y. Bros. Prudential Bank Check No. 067481 dated
October 15, 1996 issued by Nena Jaucian Timario in the amount of ₱214,000.00 with the assurance that the check
is good as cash. On that assurance, J.Y. Bros. parted with 300 cavans of rice to Salazar. However, upon
presentment, the check was dishonored due to "closed account."
Informed of the dishonor of the check, Calleja, Kallos and Salazar delivered to J.Y. Bros. a replacement cross Solid
Bank Check No. PA365704 dated October 29, 1996 again issued by Nena Jaucian Timario in the amount of
₱214,000.00 but which, just the same, bounced due to insufficient funds. When despite the demand letter dated
February 27, 1997, Salazar failed to settle the amount due J.Y. Bros., the latter charged Salazar and Timario with
the crime of estafa before the Regional Trial Court of Legaspi City, docketed as Criminal Case No. 7474.
After the prosecution rested its case and with prior leave of court, Salazar submitted a demurrer to evidence. On
November 19, 2001, the court a quo rendered an Order, the dispositive portion of which reads:
WHEREFORE, premises considered, the accused Anamer D. Salazar is hereby ACQUITTED of the crime charged
but is hereby held liable for the value of the 300 bags of rice. Accused Anamer D. Salazar is therefore ordered to
pay J.Y. Brothers Marketing Corporation the sum of ₱214,000.00. Costs against the accused.
SO ORDERED.
Aggrieved, accused attempted a reconsideration on the civil aspect of the order and to allow her to present
evidence thereon. The motion was denied. Accused went up to the Supreme Court on a petition for review on
certiorari under Rule 45 of the Rules of Court. Docketed as G.R. 151931, in its Decision dated September 23, 2003,
the High Court ruled:
IN LIGHT OF ALL THE FOREGOING, the Petition is GRANTED. The Orders dated November 19, 2001 and
January 14, 2002 are SET ASIDE and NULLIFIED. The Regional Trial Court of Legaspi City, Branch 5, is hereby
DIRECTED to set Criminal Case No. 7474 for the continuation of trial for the reception of the evidence-in-chief of the
petitioner on the civil aspect of the case and for the rebuttal evidence of the private complainant and the sur-rebuttal
evidence of the parties if they opt to adduce any.
SO ORDERED.3
The Regional Trial Court (RTC) of Legaspi City, Branch 5, then proceeded with the trial on the civil aspect of the
criminal case.
On April 1, 2004, the RTC rendered its Decision,4 the dispositive portion of which reads:
WHEREFORE, Premises Considered, judgment is rendered DISMISSING as against Anamer D. Salazar the civil
aspect of the above-entitled case. No pronouncement as to costs.
Place into the files (archive) the record of the above-entitled case as against the other accused Nena Jaucian
Timario. Let an alias (bench) warrant of arrest without expiry dated issue for her apprehension, and fix the amount of
the bail bond for her provisional liberty at 59,000.00 pesos.
SO ORDERED.5
The RTC found that the Prudential Bank check drawn by Timario for the amount of ₱214,000.00 was payable to the
order of respondent, and such check was a negotiable order instrument; that petitioner was not the payee appearing
in the check, but respondent who had not endorsed the check, much less delivered it to petitioner. It then found that
petitioner’s liability should be limited to the allegation in the amended information that "she endorsed and negotiated
said check," and since she had never been the holder of the check, petitioner's signing of her name on the face of
the dorsal side of the check did not produce the technical effect of an indorsement arising from negotiation. The
RTC ruled that after the Prudential Bank check was dishonored, it was replaced by a Solid Bank check which,
however, was also subsequently dishonored; that since the Solid Bank check was a crossed check, which meant
that such check was only for deposit in payee’s account, a condition that rendered such check non-negotiable, the
substitution of a non-negotiable Solid Bank check for a negotiable Prudential Bank check was an essential change
which had the effect of discharging from the obligation whoever may be the endorser of the negotiable check. The
RTC concluded that the absence of negotiability rendered nugatory the obligation arising from the technical act of
indorsing a check and, thus, had the effect of novation; and that the ultimate effect of such substitution was to
extinguish the obligation arising from the issuance of the Prudential Bank check.
Respondent filed an appeal with the CA on the sole assignment of error that:
IN BRIEF, THE LOWER COURT ERRED IN RULING THAT ACCUSED ANAMER SALAZAR BY INDORSING THE
CHECK (A) DID NOT BECOME A HOLDER OF THE CHECK, (B) DID NOT PRODUCE THE TECHNICAL EFFECT
OF AN INDORSEMENT ARISING FROM NEGOTIATION; AND (C) DID NOT INCUR CIVIL LIABILITY.6
After petitioner filed her appellees' brief, the case was submitted for decision. On September 29, 2005, the CA
rendered its assailed Decision, the decretal portion of which reads:
IN VIEW OF ALL THE FOREGOING, the instant appeal is GRANTED, the challenged Decision is REVERSED and
SET ASIDE, and a new one entered ordering the appellee to pay the appellant the amount of ₱214,000.00, plus
interest at the legal rate from the written demand until full payment. Costs against the appellee.7
In so ruling, the CA found that petitioner indorsed the Prudential Bank check, which was later replaced by a Solid
Bank check issued by Timario, also indorsed by petitioner as payment for the 300 cavans of rice bought from
respondent. The CA, applying Sections 63,8 669 and 2910 of the Negotiable Instruments Law, found that petitioner
was considered an indorser of the checks paid to respondent and considered her as an accommodation indorser,
who was liable on the instrument to a holder for value, notwithstanding that such holder at the time of the taking of
the instrument knew her only to be an accommodation party.
Respondent filed a motion for reconsideration, which the CA denied in a Resolution dated March 2, 2006.
Hence this petition, wherein petitioner raises the following assignment of errors:
1. THE COURT OF APPEALS ERRED IN IGNORING THE RAMIFICATIONS OF THE ISSUANCE OF THE
SOLIDBANK CHECK IN REPLACEMENT OF THE PRUDENTIAL BANK CHECK WHICH WOULD HAVE
RESULTED TO THE NOVATION OF THE OBLIGATION ARISING FROM THE ISSUANCE OF THE LATTER
CHECK.
2. THE COURT OF APPEALS ERRED IN REVERSING THE DECISION OF THE REGIONAL TRIAL
COURT OF LEGASPI CITY, BRANCH 5, DISMISSING AS AGAINST THE PETITIONER THE CIVIL
ASPECT OF THE CRIMINAL ACTION ON THE GROUND OF NOVATION OF OBLIGATION ARISING
FROM THE ISSUANCE OF THE PRUDENTIAL BANK CHECK.
3. THE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK
OR EXCESS OF JURISDICTION WHEN IT DENIED THE MOTION FOR RECONSIDERATION OF THE
PETITIONER ON THE GROUND THAT THE ISSUE RAISED THEREIN HAD ALREADY BEEN PASSED
UPON AND CONSIDERED IN THE DECISION SOUGHT TO BE RECONSIDERED WHEN IN TRUTH AND
IN FACT SUCH ISSUE HAD NOT BEEN RESOLVED AS YET.11
Petitioner contends that the issuance of the Solid Bank check and the acceptance thereof by the respondent, in
replacement of the dishonored Prudential Bank check, amounted to novation that discharged the latter check; that
respondent's acceptance of the Solid Bank check, notwithstanding its eventual dishonor by the drawee bank, had
the effect of erasing whatever criminal responsibility, under Article 315 of the Revised Penal Code, the drawer or
indorser of the Prudential Bank check would have incurred in the issuance thereof in the amount of ₱214,000.00;
and that a check is a contract which is susceptible to a novation just like any other contract.
Respondent filed its Comment, echoing the findings of the CA. Petitioner filed her Reply thereto.
We find no merit in this petition.
Section 119 of the Negotiable Instrument Law provides, thus:
SECTION 119. Instrument; how discharged. – A negotiable instrument is discharged:
(a) By payment in due course by or on behalf of the principal debtor;
(b) By payment in due course by the party accommodated, where the instrument is made or accepted for his
accommodation;
(c) By the intentional cancellation thereof by the holder;
(d) By any other act which will discharge a simple contract for the payment of money;
 (e) When the principal debtor becomes the holder of the instrument at or after maturity in his own right.
(Emphasis ours)
And, under Article 1231 of the Civil Code, obligations are extinguished:
xxxx
(6) By novation.
Petitioner's claim that respondent's acceptance of the Solid Bank check which replaced the dishonored Prudential
bank check resulted to novation which discharged the latter check is unmeritorious.
In Foundation Specialists, Inc. v. Betonval Ready Concrete, Inc. and Stronghold Insurance Co., Inc.,12 we stated the
concept of novation, thus:
x x x Novation is done by the substitution or change of the obligation by a subsequent one which extinguishes the
first, either by changing the object or principal conditions, or by substituting the person of the debtor, or by
subrogating a third person in the rights of the creditor. Novation may:
[E]ither be extinctive or modificatory, much being dependent on the nature of the change and the intention of the
parties. Extinctive novation is never presumed; there must be an express intention to novate; in cases where it is
implied, the acts of the parties must clearly demonstrate their intent to dissolve the old obligation as the moving
consideration for the emergence of the new one. Implied novation necessitates that the incompatibility between the
old and new obligation be total on every point such that the old obligation is completely superceded by the new one.
The test of incompatibility is whether they can stand together, each one having an independent existence; if they
cannot and are irreconcilable, the subsequent obligation would also extinguish the first.
An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and, second,
creating a new one in its stead. This kind of novation presupposes a confluence of four essential requisites: (1) a
previous valid obligation, (2) an agreement of all parties concerned to a new contract, (3) the extinguishment of the
old obligation, and (4) the birth of a valid new obligation. Novation is merely modificatory where the change brought
about by any subsequent agreement is merely incidental to the main obligation (e.g., a change in interest rates or
an extension of time to pay; in this instance, the new agreement will not have the effect of extinguishing the first but
would merely supplement it or supplant some but not all of its provisions.)
The obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old, changes
only the terms of payment, adds other obligations not incompatible with the old ones or the new contract merely
supplements the old one.13
In Nyco Sales Corporation v. BA Finance Corporation,14 we found untenable petitioner Nyco's claim that novation
took place when the dishonored BPI check it endorsed to BA Finance Corporation was subsequently replaced by a
Security Bank check,15 and said:
There are only two ways which indicate the presence of novation and thereby produce the effect of extinguishing an
obligation by another which substitutes the same. First, novation must be explicitly stated and declared in
unequivocal terms as novation is never presumed. Secondly, the old and the new obligations must be incompatible
on every point. The test of incompatibility is whether or not the two obligations can stand together, each one having
1avvphi1

its independent existence. If they cannot, they are incompatible and the latter obligation novates the first. In the
instant case, there was no express agreement that BA Finance's acceptance of the SBTC check will discharge Nyco
from liability. Neither is there incompatibility because both checks were given precisely to terminate a single
obligation arising from Nyco's sale of credit to BA Finance. As novation speaks of two distinct obligations, such is
inapplicable to this case.16
In this case, respondent’s acceptance of the Solid Bank check, which replaced the dishonored Prudential Bank
check, did not result to novation as there was no express agreement to establish that petitioner was already
discharged from his liability to pay respondent the amount of ₱214,000.00 as payment for the 300 bags of rice. As
we said, novation is never presumed, there must be an express intention to novate. In fact, when the Solid Bank
check was delivered to respondent, the same was also indorsed by petitioner which shows petitioner’s recognition
of the existing obligation to respondent to pay ₱214,000.00 subject of the replaced Prudential Bank check.
Moreover, respondent’s acceptance of the Solid Bank check did not result to any incompatibility, since the two
checks − Prudential and Solid Bank checks − were precisely for the purpose of paying the amount of
₱214,000.00, i.e., the credit obtained from the purchase of the 300 bags of rice from respondent. Indeed, there was
no substantial change in the object or principal condition of the obligation of petitioner as the indorser of the check to
pay the amount of ₱214,000.00. It would appear that respondent accepted the Solid Bank check to give petitioner
the chance to pay her obligation.
Petitioner also contends that the acceptance of the Solid Bank check, a non-negotiable check being a crossed
check, which replaced the dishonored Prudential Bank check, a negotiable check, is a new obligation in lieu of the
old obligation arising from the issuance of the Prudential Bank check, since there was an essential change in the
circumstance of each check.
Such argument deserves scant consideration.
Among the different types of checks issued by a drawer is the crossed check. 17 The Negotiable Instruments Law is
silent with respect to crossed checks,18 although the Code of Commerce makes reference to such instruments.19 We
have taken judicial cognizance of the practice that a check with two parallel lines in the upper left hand corner
means that it could only be deposited and could not be converted into cash.20 Thus, the effect of crossing a check
relates to the mode of payment, meaning that the drawer had intended the check for deposit only by the rightful
person, i.e., the payee named therein.21 The change in the mode of paying the obligation was not a change in any of
the objects or principal condition of the contract for novation to take place.22
Considering that when the Solid Bank check, which replaced the Prudential Bank check, was presented for
payment, the same was again dishonored; thus, the obligation which was secured by the Prudential Bank check
was not extinguished and the Prudential Bank check was not discharged. Thus, we found no reversible error
committed by the CA in holding petitioner liable as an accommodation indorser for the payment of the dishonored
Prudential Bank check.
WHEREFORE, the petition is DENIED. The Decision dated September 29, 2005 and the Resolution dated March 2,
2006, of the Court of Appeals in CA-G.R. CV No. 83104, are AFFIRMED.
SO ORDERED.

G.R. No. 179446 January 10, 2011

LOADMASTERS CUSTOMS SERVICES, INC., Petitioner,
vs.
GLODEL BROKERAGE CORPORATION and R&B INSURANCE CORPORATION, Respondents.
DECISION
MENDOZA, J.:
This is a petition for review on certiorari under Rule 45 of the Revised Rules of Court assailing the August 24, 2007
Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 82822, entitled "R&B Insurance Corporation v. Glodel
Brokerage Corporation and Loadmasters Customs Services, Inc.," which held petitioner Loadmasters Customs
Services, Inc. (Loadmasters) liable to respondent Glodel Brokerage Corporation (Glodel) in the amount of
₱1,896,789.62 representing the insurance indemnity which R&B Insurance Corporation (R&B Insurance) paid to the
insured-consignee, Columbia Wire and Cable Corporation (Columbia).
THE FACTS:
On August 28, 2001, R&B Insurance issued Marine Policy No. MN-00105/2001 in favor of Columbia to insure the
shipment of 132 bundles of electric copper cathodes against All Risks. On August 28, 2001, the cargoes were
shipped on board the vessel "Richard Rey" from Isabela, Leyte, to Pier 10, North Harbor, Manila. They arrived on
the same date.
Columbia engaged the services of Glodel for the release and withdrawal of the cargoes from the pier and the
subsequent delivery to its warehouses/plants. Glodel, in turn, engaged the services of Loadmasters for the use of its
delivery trucks to transport the cargoes to Columbia’s warehouses/plants in Bulacan and Valenzuela City.
The goods were loaded on board twelve (12) trucks owned by Loadmasters, driven by its employed drivers and
accompanied by its employed truck helpers. Six (6) truckloads of copper cathodes were to be delivered to Balagtas,
Bulacan, while the other six (6) truckloads were destined for Lawang Bato, Valenzuela City. The cargoes in six
truckloads for Lawang Bato were duly delivered in Columbia’s warehouses there. Of the six (6) trucks en route to
Balagtas, Bulacan, however, only five (5) reached the destination. One (1) truck, loaded with 11 bundles or 232
pieces of copper cathodes, failed to deliver its cargo.
Later on, the said truck, an Isuzu with Plate No. NSD-117, was recovered but without the copper cathodes. Because
of this incident, Columbia filed with R&B Insurance a claim for insurance indemnity in the amount of ₱1,903,335.39.
After the requisite investigation and adjustment, R&B Insurance paid Columbia the amount of ₱1,896,789.62 as
insurance indemnity.
R&B Insurance, thereafter, filed a complaint for damages against both Loadmasters and Glodel before the Regional
Trial Court, Branch 14, Manila (RTC), docketed as Civil Case No. 02-103040. It sought reimbursement of the
amount it had paid to Columbia for the loss of the subject cargo. It claimed that it had been subrogated "to the right
of the consignee to recover from the party/parties who may be held legally liable for the loss."2
On November 19, 2003, the RTC rendered a decision3 holding Glodel liable for damages for the loss of the subject
cargo and dismissing Loadmasters’ counterclaim for damages and attorney’s fees against R&B Insurance. The
dispositive portion of the decision reads:
WHEREFORE, all premises considered, the plaintiff having established by preponderance of evidence its claims
against defendant Glodel Brokerage Corporation, judgment is hereby rendered ordering the latter:
1. To pay plaintiff R&B Insurance Corporation the sum of ₱1,896,789.62 as actual and compensatory
damages, with interest from the date of complaint until fully paid;
2. To pay plaintiff R&B Insurance Corporation the amount equivalent to 10% of the principal amount
recovered as and for attorney’s fees plus ₱1,500.00 per appearance in Court;
3. To pay plaintiff R&B Insurance Corporation the sum of ₱22,427.18 as litigation expenses.
WHEREAS, the defendant Loadmasters Customs Services, Inc.’s counterclaim for damages and attorney’s fees
against plaintiff are hereby dismissed.
With costs against defendant Glodel Brokerage Corporation.
SO ORDERED.4
Both R&B Insurance and Glodel appealed the RTC decision to the CA.
On August 24, 2007, the CA rendered the assailed decision which reads in part:
Considering that appellee is an agent of appellant Glodel, whatever liability the latter owes to appellant R&B
Insurance Corporation as insurance indemnity must likewise be the amount it shall be paid by appellee
Loadmasters.
WHEREFORE, the foregoing considered, the appeal is PARTLY GRANTED in that the appellee Loadmasters is
likewise held liable to appellant Glodel in the amount of ₱1,896,789.62 representing the insurance indemnity
appellant Glodel has been held liable to appellant R&B Insurance Corporation.
Appellant Glodel’s appeal to absolve it from any liability is herein DISMISSED.
SO ORDERED.5
Hence, Loadmasters filed the present petition for review on certiorari before this Court presenting the following
ISSUES
1. Can Petitioner Loadmasters be held liable to Respondent Glodel in spite of the fact that the latter
respondent Glodel did not file a cross-claim against it (Loadmasters)?
2. Under the set of facts established and undisputed in the case, can petitioner Loadmasters be
legally considered as an Agent of respondent Glodel? 6
To totally exculpate itself from responsibility for the lost goods, Loadmasters argues that it cannot be considered an
agent of Glodel because it never represented the latter in its dealings with the consignee. At any rate, it further
contends that Glodel has no recourse against it for its (Glodel’s) failure to file a cross-claim pursuant to Section 2,
Rule 9 of the 1997 Rules of Civil Procedure.
Glodel, in its Comment,7 counters that Loadmasters is liable to it under its cross-claim because the latter was
grossly negligent in the transportation of the subject cargo. With respect to Loadmasters’ claim that it is already
estopped from filing a cross-claim, Glodel insists that it can still do so even for the first time on appeal because there
is no rule that provides otherwise. Finally, Glodel argues that its relationship with Loadmasters is that of Charter
wherein the transporter (Loadmasters) is only hired for the specific job of delivering the merchandise. Thus, the
diligence required in this case is merely ordinary diligence or that of a good father of the family, not the extraordinary
diligence required of common carriers.
R&B Insurance, for its part, claims that Glodel is deemed to have interposed a cross-claim against Loadmasters
because it was not prevented from presenting evidence to prove its position even without amending its Answer. As
to the relationship between Loadmasters and Glodel, it contends that a contract of agency existed between the two
corporations.8
Subrogation is the substitution of one person in the place of another with reference to a lawful claim or right, so that
he who is substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or
securities.9 Doubtless, R&B Insurance is subrogated to the rights of the insured to the extent of the amount it paid
the consignee under the marine insurance, as provided under Article 2207 of the Civil Code, which reads:
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 wrong-doer or the person who has violated the contract. If the
amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury.
As subrogee of the rights and interest of the consignee, R&B Insurance has the right to seek reimbursement from
either Loadmasters or Glodel or both for breach of contract and/or tort.
The issue now is who, between Glodel and Loadmasters, is liable to pay R&B Insurance for the amount of the
indemnity it paid Columbia.
At the outset, it is well to resolve the issue of whether Loadmasters and Glodel are common carriers to determine
their liability for the loss of the subject cargo. Under Article 1732 of the Civil Code, common carriers are persons,
corporations, firms, or associations engaged in the business of carrying or transporting passenger or goods, or both
by land, water or air for compensation, offering their services to the public.
Based on the aforecited definition, Loadmasters is a common carrier because it is engaged in the business of
transporting goods by land, through its trucking service. It is a common carrier as distinguished from a private carrier
wherein the carriage is generally undertaken by special agreement and it does not hold itself out to carry goods for
the general public.10 The distinction is significant in the sense that "the rights and obligations of the parties to a
contract of private carriage are governed principally by their stipulations, not by the law on common carriers."11
In the present case, there is no indication that the undertaking in the contract between Loadmasters and Glodel was
private in character. There is no showing that Loadmasters solely and exclusively rendered services to Glodel.
In fact, Loadmasters admitted that it is a common carrier.12
In the same vein, Glodel is also considered a common carrier within the context of Article 1732. In its
Memorandum,13 it states that it "is a corporation duly organized and existing under the laws of the Republic of the
Philippines and is engaged in the business of customs brokering." It cannot be considered otherwise because as
held by this Court in Schmitz Transport & Brokerage Corporation v. Transport Venture, Inc., 14 a customs broker is
also regarded as a common carrier, the transportation of goods being an integral part of its business.
Loadmasters and Glodel, being both common carriers, are mandated from the nature of their business and for
reasons of public policy, to observe the extraordinary diligence in the vigilance over the goods transported by them
according to all the circumstances of such case, as required by Article 1733 of the Civil Code. When the Court
speaks of extraordinary diligence, it is that extreme measure of care and caution which persons of unusual
prudence and circumspection observe for securing and preserving their own property or rights. 15 This exacting
standard imposed on common carriers in a contract of carriage of goods is intended to tilt the scales in favor of the
shipper who is at the mercy of the common carrier once the goods have been lodged for shipment. 16 Thus, in case
of loss of the goods, the common carrier is presumed to have been at fault or to have acted negligently.17 This
presumption of fault or negligence, however, may be rebutted by proof that the common carrier has observed
extraordinary diligence over the goods.
With respect to the time frame of this extraordinary responsibility, the Civil Code provides that the exercise of
extraordinary diligence lasts from the time the goods are unconditionally placed in the possession of, and received
by, the carrier for transportation until the same are delivered, actually or constructively, by the carrier to the
consignee, or to the person who has a right to receive them.18
Premises considered, the Court is of the view that both Loadmasters and Glodel are jointly and severally liable to R
& B Insurance for the loss of the subject cargo. Under Article 2194 of the New Civil Code, "the responsibility of two
or more persons who are liable for a quasi-delict is solidary."
Loadmasters’ claim that it was never privy to the contract entered into by Glodel with the consignee Columbia or
R&B Insurance as subrogee, is not a valid defense. It may not have a direct contractual relation with Columbia, but it
is liable for tort under the provisions of Article 2176 of the Civil Code on quasi-delicts which expressly provide:
ART. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay
for the damage done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is
called a quasi-delict and is governed by the provisions of this Chapter.
Pertinent is the ruling enunciated in the case of Mindanao Terminal and Brokerage Service, Inc. v. Phoenix
Assurance Company of New York,/McGee & Co., Inc. 19 where this Court held that a tort may arise despite the
absence of a contractual relationship, to wit:
We agree with the Court of Appeals that the complaint filed by Phoenix and McGee against Mindanao Terminal,
from which the present case has arisen, states a cause of action. The present action is based on quasi-delict,
arising from the negligent and careless loading and stowing of the cargoes belonging to Del Monte Produce. Even
assuming that both Phoenix and McGee have only been subrogated in the rights of Del Monte Produce, who is not
a party to the contract of service between Mindanao Terminal and Del Monte, still the insurance carriers may have a
cause of action in light of the Court’s consistent ruling that the act that breaks the contract may be also a tort. In
fine, a liability for tort may arise even under a contract, where tort is that which breaches the contract. In the present
case, Phoenix and McGee are not suing for damages for injuries arising from the breach of the contract of
service but from the alleged negligent manner by which Mindanao Terminal handled the cargoes belonging to
Del Monte Produce. Despite the absence of contractual relationship between Del Monte Produce and Mindanao
Terminal, the allegation of negligence on the part of the defendant should be sufficient to establish a cause of action
arising from quasi-delict. [Emphases supplied]
In connection therewith, Article 2180 provides:
ART. 2180. The obligation imposed by Article 2176 is demandable not only for one’s own acts or omissions, but also
for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damages caused by their employees and household helpers acting within the
scope of their assigned tasks, even though the former are not engaged in any business or industry.
It is not disputed that the subject cargo was lost while in the custody of Loadmasters whose employees (truck driver
and helper) were instrumental in the hijacking or robbery of the shipment. As employer, Loadmasters should be
made answerable for the damages caused by its employees who acted within the scope of their assigned task of
delivering the goods safely to the warehouse.
Whenever an employee’s negligence causes damage or injury to another, there instantly arises a presumption juris
tantum that the employer failed to exercise diligentissimi patris families in the selection (culpa in eligiendo) or
supervision (culpa in vigilando) of its employees.20 To avoid liability for a quasi-delict committed by its employee, an
employer must overcome the presumption by presenting convincing proof that he exercised the care and diligence
of a good father of a family in the selection and supervision of his employee.21 In this regard, Loadmasters failed.
Glodel is also liable because of its failure to exercise extraordinary diligence. It failed to ensure that Loadmasters
would fully comply with the undertaking to safely transport the subject cargo to the designated destination. It should
have been more prudent in entrusting the goods to Loadmasters by taking precautionary measures, such as
providing escorts to accompany the trucks in delivering the cargoes. Glodel should, therefore, be held liable with
Loadmasters. Its defense of force majeure is unavailing.
At this juncture, the Court clarifies that there exists no principal-agent relationship between Glodel and Loadmasters,
as erroneously found by the CA. Article 1868 of the Civil Code provides: "By the contract of agency a person binds
himself to render some service or to do something in representation or on behalf of another, with the consent or
authority of the latter." The elements of a contract of agency are: (1) consent, express or implied, of the parties to
establish the relationship; (2) the object is the execution of a juridical act in relation to a third person; (3) the agent
acts as a representative and not for himself; (4) the agent acts within the scope of his authority.22
Accordingly, there can be no contract of agency between the parties. Loadmasters never represented Glodel.
Neither was it ever authorized to make such representation. It is a settled rule that the basis for agency is
representation, that is, the agent acts for and on behalf of the principal on matters within the scope of his authority
and said acts have the same legal effect as if they were personally executed by the principal. On the part of the
principal, there must be an actual intention to appoint or an intention naturally inferable from his words or actions,
while on the part of the agent, there must be an intention to accept the appointment and act on it. 23 Such mutual
intent is not obtaining in this case.
What then is the extent of the respective liabilities of Loadmasters and Glodel? Each wrongdoer is liable for the total
damage suffered by R&B Insurance. Where there are several causes for the resulting damages, a party is not
relieved from liability, even partially. It is sufficient that the negligence of a party is an efficient cause without which
the damage would not have resulted. It is no defense to one of the concurrent tortfeasors that the damage would not
have resulted from his negligence alone, without the negligence or wrongful acts of the other concurrent tortfeasor.
As stated in the case of Far Eastern Shipping v. Court of Appeals,24
X x x. Where several causes producing an injury are concurrent and each is an efficient cause without which the
injury would not have happened, the injury may be attributed to all or any of the causes and recovery may be had
against any or all of the responsible persons although under the circumstances of the case, it may appear that one
of them was more culpable, and that the duty owed by them to the injured person was not the same. No actor's
negligence ceases to be a proximate cause merely because it does not exceed the negligence of other actors. Each
wrongdoer is responsible for the entire result and is liable as though his acts were the sole cause of the injury.
There is no contribution between joint tortfeasors whose liability is solidary since both of them are liable for the total
damage. Where the concurrent or successive negligent acts or omissions of two or more persons, although acting
independently, are in combination the direct and proximate cause of a single injury to a third person, it is impossible
to determine in what proportion each contributed to the injury and either of them is responsible for the whole
injury. Where their concurring negligence resulted in injury or damage to a third party, they become joint tortfeasors
and are solidarily liable for the resulting damage under Article 2194 of the Civil Code. [Emphasis supplied]
The Court now resolves the issue of whether Glodel can collect from Loadmasters, it having failed to file a cross-
claim against the latter.
1avvphi1

Undoubtedly, Glodel has a definite cause of action against Loadmasters for breach of contract of service as the
latter is primarily liable for the loss of the subject cargo. In this case, however, it cannot succeed in seeking judicial
sanction against Loadmasters because the records disclose that it did not properly interpose a cross-claim against
the latter. Glodel did not even pray that Loadmasters be liable for any and all claims that it may be adjudged liable in
favor of R&B Insurance. Under the Rules, a compulsory counterclaim, or a cross-claim, not set up shall be
barred.25 Thus, a cross-claim cannot be set up for the first time on appeal.
For the consequence, Glodel has no one to blame but itself. The Court cannot come to its aid on equitable grounds.
"Equity, which has been aptly described as ‘a justice outside legality,’ is applied only in the absence of, and never
against, statutory law or judicial rules of procedure."26 The Court cannot be a lawyer and take the cudgels for a party
who has been at fault or negligent.
WHEREFORE, the petition is PARTIALLY GRANTED. The August 24, 2007 Decision of the Court of Appeals
is MODIFIED to read as follows:
WHEREFORE, judgment is rendered declaring petitioner Loadmasters Customs Services, Inc. and respondent
Glodel Brokerage Corporation jointly and severally liable to respondent R&B Insurance Corporation for the
insurance indemnity it paid to consignee Columbia Wire & Cable Corporation and ordering both parties to pay, jointly
and severally, R&B Insurance Corporation a] the amount of ₱1,896,789.62 representing the insurance indemnity; b]
the amount equivalent to ten (10%) percent thereof for attorney’s fees; and c] the amount of ₱22,427.18 for litigation
expenses.
The cross-claim belatedly prayed for by respondent Glodel Brokerage Corporation against petitioner Loadmasters
Customs Services, Inc. is DENIED.
SO ORDERED.
G.R. No. 171165 February 14, 2011
CAROLINA HERNANDEZ-NIEVERA, DEMETRIO P. HERNANDEZ, JR., and MARGARITA H.
MALVAR, Petitioners,
vs.
WILFREDO HERNANDEZ, HOME INSURANCE AND GUARANTY CORPORATION, PROJECT MOVERS
REALTY AND DEVELOPMENT CORPORATION, MARIO P. VILLAMOR and LAND BANK OF THE
PHILIPPINES, Respondents.
DECISION
PERALTA, J.:
This Rule 45 petition for review assails the October 19, 2005 Decision 1 of the Court of Appeals in CA-G.R. CV No.
83852,2 as well as the January 11, 2006 Resolution3 in the same case which denied reconsideration. The said
decision had reversed and set aside the August 30, 2004 judgment4 rendered by the Regional Trial Court (RTC) of
San Pablo City, Laguna, Branch 32 in Civil Case No. SP-5742(2000) – one for rescission of a memorandum of
agreement and declaration of nullity of a deed of assignment and conveyance, with prayer for preliminary injunction
and damages.
The facts follow.
Project Movers Realty & Development Corporation (PMRDC), one of the respondents herein, is a duly organized
domestic corporation engaged in real estate development. Sometime in 1995, it entered through its president,
respondent Mario Villamor (Villamor), into various agreements with co-respondents Home Insurance & Guaranty
Corporation (HIGC)5 and Land Bank of the Philippines (LBP), in connection with the construction of the Isabel
Homes housing project in Batangas and of the Monumento Plaza commercial and recreation complex in Caloocan
City. In its Asset Pool Formation Agreement, PMRDC conveyed to HIGC the constituent assets of the two
projects,6 whereas LBP agreed to act as trustee of the resulting Asset Pool7 for a consideration.8 The execution of
the projects would be funded largely through securitization, a method of sourcing development funds by the
issuance of participation certificates against the direct backing assets of the projects,9 whereby LBP would act as the
nominal issuer of such certificates with the Asset Pool itself acting as the real issuer. 10 HIGC, in turn, would provide
guaranty coverage to these participation certificates in accordance with its Contract of Guaranty with PMRDC and
LBP. 11
On November 13, 1997, PMRDC entered into a Memorandum of Agreement (MOA) whereby it was given the option
to buy pieces of land owned by petitioners Carolina Hernandez-Nievera (Carolina), Margarita H. Malvar (Margarita)
and Demetrio P. Hernandez, Jr. (Demetrio). Demetrio, under authority of a Special Power of Attorney to Sell or
Mortgage,12 signed the MOA also in behalf of Carolina and Margarita. In the aggregate, the realty measured
4,580,451 square meters and was segregated by agreement into Area I and Area II, respectively pertaining to the
parcels covered by Transfer Certificate of Title (TCT) Nos. T-3137, T-3138, T-3139 and T-3140 on the one hand, and
on the other by TCT Nos. T-3132, T-3133, T-3134, T-3135 and T-3136, all issued by the Register of Deeds of
Laguna. The MOA materially provides:
1. THAT, the consideration for the sale of the parcels of land (Areas I and II) shall be TWENTY-FIVE PESOS
(Php 25.00) per square meter or a total of PESOS: ONE HUNDRED FOURTEEN MILLION FIVE HUNDRED
ELEVEN TWO HUNDRED SEVENTY (Php114,511,270.00);
1. THAT, the VENDEE shall have the option to purchase the above-described parcels of land within
a period of twelve (12) months from the date of this instrument and that the VENDEE shall pay the
vendor option money in the following amounts and on the dates herein specified:
Area I
PESOS: SIX MILLION (Php6,000,000.00) payable in two (2) equal installments of PESOS: THREE
MILLION (Php3,000,000.00), the first installment due on or before November 20, 1997; the second
 installment due on or before December 15, 1997, both installments to be covered by postdated
checks upon signing of this Agreement.
Area II
Option money of PESOS: EIGHT MILLION FIVE HUNDRED THOUSAND (Php8,500,000.00)
payable within thirty (30) days after conveyance to the Isabel Homes Asset Pool.
2. THAT, should the VENDEE exercise the option to purchase the parcels of land within the
stipulated period, the VENDEE shall complete the TWENTY-FIVE (25%) PERCENT downpayment
inclusive of the option money within the said stipulated period. Balance of the TWENTY FIVE (25%)
PERCENT downpayment exclusive of the option money for Area I is PESOS: TEN MILLION FOUR
HUNDRED EIGHTY-TWO THOUSAND TWO HUNDRED SIXTY-TWO (Php10,482,262.00) and for
Area II is PESOS: THREE MILLION SIX HUNDRED FORTY-FIVE THOUSAND FIVE HUNDRED
FIFTY- SIX (Php3,645,556.00).
The balance of the purchase price in the amount of PESOS: EIGHTY-FIVE MILLION EIGHT
HUNDRED EIGHTY-THREE FOUR HUNDRED FIFTY-SIX (Php85,883,456.00) shall be payable
within two (2) years in eight (8) quarterly installments covered by postdated checks. Schedule of
payments shall be as follows:
January 31, 1999 Php 10,735,432.00
April 30, 1999 10,735,432.00
July 31, 1999 10,735,432.00
October 31, 1999 10,735,432.00
January 31, 2000 10,735,432.00
April 30, 2000 10,735,432.00
July 30, 2000 10,735,432.00
October 31, 2000 10,735,432.00
3. THAT, should the VENDEE fail to exercise its option to purchase the said described parcels of
land within the stipulated period, the option money shall be forfeited in favor of the VENDOR and
that the VENDEE shall return to the VENDOR all the Transfer Certificates of Title covering the said
described parcels of land within a period of THIRTY (30) DAYS from the stipulated period, FREE
FROM ALL LIENS AND ENCUMBRANCES;
4. THAT, the VENDOR, at the request of the VENDEE, shall agree to convey the parcels of land to
any bank or financial institution by way of mortgage or to a Trustee by way of a Trust Agreement at
any time from the date of this instrument, PROVIDED, HOWEVER, that the VENDOR is not liable for
any mortgage or loans or obligations that will be incurred by way of mortgage of Trust Agreement
that the VENDEE might enter into;
5. It is agreed that the VENDOR shall have the sole responsibility in the settlement of the tenants
and eviction of the tenants and eviction of the occupants of the described parcels of land after all
consideration have been fully paid by the VENDEE to the VENDOR;
6. THAT, all taxes including capital gains tax, transfer tax and documentary stamps tax shall be for
the account of the VENDOR;
7. THAT, the VENDOR hereby warrants valid title to, and peaceful possession of the said described
parcels of land after all considerations have been fully paid.13
As an implementation of the MOA, the lands within Area I were then mortgaged to Solid Bank for which petitioners
received consideration from PMRDC.14
Later on, PMRDC saw the need to convey additional properties to and augment the value of its Asset Pool to
support the collateralization of additional participation certificates to be issued.15 Thus, on March 23, 1998, it entered
with LBP and Demetrio – the latter purportedly acting under authority of the same special power of attorney as in the
MOA – into a Deed of Assignment and Conveyance (DAC) 16 whereby the lands within Area II covered by TCT Nos.
T-3132, T-3133, T-3134, T-3135 and T-3136 were transferred and assigned to the Asset Pool in exchange for a
number of shares of stock which supposedly had already been issued in the name and in favor of Demetrio. These
pieces of land are the subject of the present controversy as far as they are affected by the explicit provision in the
DAC which dispensed with the stipulated obligation of PMRDC in the MOA to pay option money should it opt to buy
the properties.17
PMRDC admittedly did not avail of its option to purchase the lands in Area II in the twelve months that passed after
the execution of the MOA. Although PMRDC delivered to petitioners certain checks representing the money, the
same however allegedly bounced.18 Hence, on January 8, 1999, petitioners demanded the return of the
corresponding TCTs.19 In its January 21, 1999 letter to Demetrio, however, PMRDC, through Villamor, stated that the
TCTs could no longer be delivered back to petitioners as the covered properties had already been conveyed and
assigned to the Asset Pool pursuant to the March 23, 1998 DAC. In the correspondence that ensued, petitioners
disowned Demetrio’s signature in the DAC and labeled it a mere forgery. They explained that Demetrio could not
have entered into the said agreement as his power of attorney was limited only to selling or mortgaging the
properties and not conveying the same to the Asset Pool. Boldly, they asserted that the fraudulent execution of the
DAC was made possible through the connivance of all the respondents.20
With that final word, petitioners instituted an action before the RTC of San Pablo City, Laguna, Branch 32 for the
rescission of the MOA, as well as for the declaration of nullity of the DAC. They prayed for the issuance of a writ of
preliminary injunction and for the payment of damages.21
Ruling for petitioners, the trial court, on August 30, 2004, declared the MOA to be an option contract and ordered its
rescission. It, likewise, declared the DAC null and void as it made a definite finding of forgery of Demetrio’s
signature as well as fraud in its execution, and accordingly, adjudged respondents PMRDC and Villamor liable to
petitioner for damages.22 The dispositive portion of the decision reads:
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in the favor of the plaintiffs and against
the defendants as follows:
1. Rescinding the Memorandum of Agreement (MOA) executed between the plaintiffs and Project Movers
Realty [&] Development Corporation (PMRDC);
2. Declaring null and void the Deed of Assignment and Conveyance (DAC) executed between Project
Movers Realty [&] Development Corporation, Land Bank of the Philippines and Demetrio Hernandez whose
signature is forged;
3. Ordering Transfer Certificate of Title Nos. T-3132, T-3133, T-3134 and T-3135, all in the names of the
plaintiffs, which are in the custody of the Court, to be delivered to plaintiffs immediately and the plaintiffs are
ordered to issue a corresponding receipt of said certificates of title signed by all the plaintiffs to be submitted
to the OIC-Branch Clerk of Court of this Court within five (5) days from receipt of said titles;
4. Ordering defendants Mario Villamor and Wilfredo Hernandez to pay plaintiffs, jointly and severally, the
following:
a. Actual damages of ₱500,000.00;
b. Moral damages of ₱200,000.00;
c. Exemplary damages of ₱200,000.00;
d. Attorney’s fees in the amount of ₱300,000.00;
e. And the costs of the suit.
SO ORDERED.23
Aggrieved, respondents filed a notice of appeal and elevated the matter to the Court of Appeals. On October 19,
2005, the Court of Appeals issued the assailed Decision reversing and setting aside the trial court’s decision as
follows:
WHEREFORE, based on the foregoing, the appeal is GRANTED. The decision dated August 30, 2004 of the
Regional Trial Court, Branch 32, San Pablo City in Civil Case No. SP-5742 (2000) is REVERSED and SET ASIDE
and a new one is entered declaring the Deed of Conveyance valid and thus, the Transfer Certificates of Title subject
of this case are ordered returned to HIGC. No costs.
SO ORDERED.24
Central to the ruling of the Court of Appeals is its contrary finding that the allegation of forgery of Demetrio’s
signature in the DAC was not established by the evidence and, hence, following the legal presumption of regularity
in the execution of notarized deeds, it upheld the validity of the DAC. 25 The Court of Appeals noted that the
incompatibility in the terms of the MOA and the DAC clearly signified the intention of the parties to have the MOA
novated by subsequent agreement and have the properties conveyed to the Asset Pool in exchange for PMRDC
shares to be issued to Demetrio. This, according to the appellate court, completely changed the original obligations
of PMRDC as provided in the MOA. It noted further that it was premature to order the release of the subject TCTs to
petitioners at this stage of the proceedings, because that would amount to an execution of the decision.26
With the denial of their motion for reconsideration,27 petitioners filed the instant petition for review attributing error to
the Court of Appeals in declining to rescind the MOA and declare the DAC null and void.
Petitioners insist that the obligation of PMRDC to deliver back the TCTs arises on its failure to exercise the option to
purchase the lands according to the terms of the MOA, and that the deliberate refusal of PMRDC to perform such
obligation gives ground for the rescission of the MOA. This thesis is perched on petitioners’ argument that the MOA
could not have possibly been novated by the DAC because first, Demetrio’s signature therein has been forged,
and second, Demetrio could not have validly assented to the DAC in behalf of Carolina and Margarita because his
special power was limited only to selling or mortgaging the properties and excludes conveying and assigning the
said properties to the Asset Pool for consideration.28 They also point out that the DAC itself is infirm insofar as it
stipulated to convey the lands to the Asset Pool as the latter supposedly is neither a registered corporation nor a
partnership and does not possess a legal personality.29
Commenting on the petition, PMRDC and Villamor advance that petitioners’ allegation of fraud and forgery are all
factual matters that are inappropriate in a Rule 45 petition.30 More importantly, they aver that the novation of the
MOA by the DAC is unmistakable as the DAC itself has made an express reference to the MOA provisions on the
payment of option money and, hence, has expressly modified the pertinent terms thereof.31
HIGC and its president, Wilfredo Hernandez, both represented by the Office of the Government Corporate Counsel
(OGCC),32 and LBP33 are of the same view.34 In addition, HIGC explains that contrary to petitioners’ belief, the
transfer of the properties under the DAC is valid as the conveyance has been made to the Asset Pool with LBP, an
entity with juridical entity, acting as trustee thereof.35 Addressing the issue of forgery and fraud in the execution of
the DAC, HIGC maintains that these factual matters remain to be mere allegations which nothing in the records of
the case could conclusively prove, except the self-serving testimony of petitioners themselves.36
The Court denies the petition.
Petitioners’ cause stems from the failure of PMRDC to restore to petitioners the possession of the TCTs of the lands
within Area II upon its failure to exercise the option to purchase within the 12-month period stipulated in the MOA.
Respondents maintain, however, that said obligation, dependent as it is on the exercise of the option to purchase,
has altogether been expressly obliterated by the terms of the DAC whereby petitioners, through Demetrio as
attorney-in-fact, have agreed to novate the terms of the MOA by extinguishing the core obligations of PMRDC on the
payment of option money. This seems to suggest that with the execution of the DAC, PMRDC has already entered
into the exercise of its option except that its obligation to deliver the option money has, by subsequent agreement
embodied in the DAC, been substituted instead by the obligation to issue participation certificates in Demetrio’s
name but which, likewise, has not yet been performed by PMRDC. But petitioners stand against the validity of the
DAC on the ground that the signature of Demetrio therein was spurious.
Firmly settled is the jurisprudential rule that forgery cannot be presumed from a mere allegation but rather must be
proved by clear, positive and convincing evidence by the party alleging the same.37 The burden to prove the
allegation of forgery in this case has not been conclusively discharged by petitioners because first, nothing in the
records supports the allegation except only perhaps Demetrio’s explicit self-serving disavowal of his signature in
open court.38 Second, while in fact Demetrio at the trial of the case had committed to have the subject signature
examined by an expert,39 nevertheless, the trial had terminated without the results of the examination being
submitted in evidence. Third, the claim of forgery, unsubstantiated as it is, becomes even more unremarkable in light
of the fact that the DAC involved in this case is a notarized deed guaranteed by public attestation in accordance with
law, such that the execution thereof enjoys the legal presumption of regularity in the absence of compelling proof to
the contrary.40
Yet the inquiry on the validity of the DAC does not terminate with the finding alone of the genuineness of Demetrio’s
signature therein, because petitioners also stand against its validity on the ground of Demetrio’s non-authority to
execute the same. They claim that the execution of the DAC would be beyond the power of Demetrio to perform as
his authority is limited only to selling or mortgaging the properties and does not include assigning and conveying
said properties to the Asset Pool in consideration of shares of stocks for his lone benefit. For their part, respondents,
who believe Demetrio’s power of attorney was broad enough to effectuate a novation of PMRDC’s core obligations
in the MOA or, at the least, implement the provisions thereof through the DAC, invoke the 4th and 5th whereas-
clauses in the DAC which, in relation to each other, supposedly pertain to that certain provision in the MOA which
authorizes the conveyance of the properties to the Asset Pool in exchange for corporate shares.41
The 4th and 5th whereas-clauses in the DAC read as follows:
WHEREAS, on November 3, 1997, PMRDC and LANDOWNER have entered into a Memorandum of Agreement
whereby the former agreed to convey to the Isabel Homes Asset Pool certain real properties located at Sta. Maria,
Laguna;
[WHEREAS], the LANDOWNER and PMRDC have agreed to revise and modify the said Memorandum of
Agreement, whereby the LANDOWNER shall dispense with the option money as a requisite to the sale and
purchase of the properties by PMRDC, and agreed to convey absolutely and unqualifiedly the same properties
directly to the Isabel Homes Asset Pool for and in exchange of shares of stock or equity in PMRDC.42
While indeed we find no provision in the MOA such as that alluded to in the aforequoted 4th whereas-clause in the
DAC which purportedly embodies an agreement by the parties to assign and convey the subject properties to the
Asset Pool, we surmise that the clause could be referring to paragraph 5 of the MOA which stipulates a commitment
on the part of petitioners to give their consent to an assignment and conveyance of the properties to the Asset Pool
but only once a request therefor is made by PMRDC. Paragraph 5 reads:
5. THAT, the VENDOR at the request of the VENDEE shall agree to convey the parcels of land to any bank or
financial institution by way of mortgage or to a Trustee by way of a Trust Agreement at any time from the date of this
instrument, PROVIDED, HOWEVER, that the VENDOR is not liable for any mortgage or loans or obligations that will
be incurred by way of mortgage of Trust Agreement that the VENDEE might enter into;43
Petitioners profess, however, that no such request was ever intimated to them at any time during the subsistence of
the PMRDC’s right to exercise the option to buy. But respondents are quick to reason that a request is unnecessary
because Demetrio has been legally enabled by his special power to give such consent and accordingly execute the
DAC, effect a novation of the MOA, and extinguish the stipulated obligations of PMRDC therein, or at least that he
could assent to the implementation of the MOA provisions in the way that transpired. We agree.
Demetrio’s special power of attorney granting the powers to sell and/or mortgage reads in part:
1. To sell and/or mortgage in favor of any person, corporation, partnership, private banking or financial
institution, government or semi-government banking or financial institution for such price or amount and
under such terms and conditions as our aforesaid attorney-in-fact may deem just and proper, parcels of land
more particularly described as follows:
xxx
2. To carry out the authority aforestated, to sign, execute and deliver such deeds, instruments and other
papers that may be required or necessary;
 3. To further attain the authority herein given, to do and perform such acts and things that may be necessary
or incidental to fully carry out the authority herein granted.44
It is in the context of this vesture of power that Demetrio, representing his shared interest with Carolina and
Margarita, entered into the MOA with PMRDC. It is likewise within this same context that Demetrio later on entered
into the DAC and accordingly extinguished the previously subsisting obligation of PMRDC to deliver the stipulated
option money and replaced said obligation with the delivery instead of participation certificates in favor of Demetrio.
The powers conferred on Demetrio were exclusive only to selling and mortgaging the properties. Between these two
specific powers, the power to sell is quite controversial because it is the sale transaction which bears close
resemblance to the deal contemplated in the DAC. In fact, part of the testimony of Atty. Danilo Javier, counsel for
respondent HIGC and head of its legal department at the time, is that in the execution of the DAC, respondents had
relied on Demetrio’s special power of attorney and also on his supposed agreement to be paid in kind, i.e., in shares
of stock, as consideration for the assignment and conveyance of the subject properties to the Asset Pool. 45 What
petitioners miss, however, is that the power conferred on Demetrio to sell "for such price or amount" 46 is broad
enough to cover the exchange contemplated in the DAC between the properties and the corresponding corporate
shares in PMRDC, with the latter replacing the cash equivalent of the option money initially agreed to be paid by
PMRDC under the MOA. Suffice it to say that "price" is understood to mean "the cost at which something is
obtained, or something which one ordinarily accepts voluntarily in exchange for something else, or the consideration
given for the purchase of a thing."47
Thus, it becomes clear that Demetrio’s special power of attorney to sell is sufficient to enable him to make a binding
commitment under the DAC in behalf of Carolina and Margarita. In particular, it does include the authority to
extinguish PMRDC’s obligation under the MOA to deliver option money and agree to a more flexible term by
agreeing instead to receive shares of stock in lieu thereof and in consideration of the assignment and conveyance of
the properties to the Asset Pool. Indeed, the terms of his special power of attorney allow much leeway to
accommodate not only the terms of the MOA but also those of the subsequent agreement in the DAC which, in this
case, necessarily and consequently has resulted in a novation of PMRDC’s integral obligations. On this score, we
quote with approval the decision of the Court of Appeals, aptly citing the case of California Bus Lines, Inc. v. State
Investment House, Inc.48 thus –
There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of
extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly
stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on
every point. The test of incompatibility is whether the two obligations can stand together, each one having its
independent existence. If they cannot, they are incompatible, and the latter obligation novates the first. Corollarily,
changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must
take place in any of the essential elements of the obligation such as its object, cause or principal conditions thereof;
otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation.49
In view of the foregoing, the Court finds no useful purpose in addressing all the other issues raised in this petition.
A final note. Section 10, Book IV, Title III, Chapter 350 of the Revised Administrative Code of 1987 has designated the
OGCC to act as the principal law office of government-owned or controlled corporations (GOCCs) in connection with
any judicial or quasi-judicial proceeding. Yet between the two respondents GOCCs in this case – LBP and HIGC – it
is only the latter for which the OGCC has entered its appearance. Nowhere in the records is it shown that the OGCC
has ever entered its appearance in this case as principal legal counsel of respondent LBP, or that at the very least it
has given express conformity to the LBP legal department’s representation.51
In Land Bank of the Philippines v. Martinez,52 citing Land Bank of the Philippines v. Panlilio-Luciano,53 we explained
that the legal department of LBP is not expressly authorized by its charter to appear in behalf of the corporation in
any proceeding as the mandate of the law is explicit enough to place the said department under the OGCC’s power
of control and supervision. We held in that case:
1avvphi1

[Section 10] mandates the OGCC, and not the LBP Legal Department, as the principal law office of the LBP.
Moreover, it establishes the proper hierarchical order in that the LBP Legal Department remains under the
control and supervision of the OGCC. x x x
At the same time, the existence of the OGCC does not render the LBP Legal Department a superfluity. We do not
doubt that the LBP Legal Department carries out vital legal services to LBP. However, the performance of such
functions cannot deprive the OGCC’s role as overseer of the LBP Legal Department and its mandate of exercising
control and supervision over all GOCC legal departments. For the purpose of filing petitions and making
submissions before this Court, such control and supervision imply express participation by the OGCC as
principal legal counsel of LBP. x x x
It should also be noted that the aforementioned Section 10, Book IV, Title III, Chapter 3 of the Administrative Code of
1987 authorizes the OGCC to receive the attorney's fees adjudged in favor of their client GOCCs, such fees
accruing to a special fund of the OGCC. Evidently, the non-participation of the OGCC in litigations pursued by
GOCCs would deprive the former of its due funding as authorized by law. Hence, this is another reason why we
cannot sustain Attys. Beramo and Berbaño's position that the OGCC need not participate in litigations pursued by
LBP.
It may strike as disruptive to the flow of a GOCC’s daily grind to require the participation of the OGCC as its principal
law office, or the exercise of control and supervision by the OGCC over the acts of the GOCC’s legal departments.
For reasons such as proximity and comfort, the GOCC may find it convenient to rely instead on its in-house legal
departments, or more irregularly, on private practitioners. Yet the statutory role of the OGCC as principal law
office of GOCCs is one of long-standing, and we have to recognize such function as part of public policy.
Since the jurisdiction of the OGCC includes all GOCCs, its perspective is less myopic than that maintained
by a particular legal department of a GOCC. It is not inconceivable that left to its own devices, the legal
department of a given GOCC may adopt a legal position inconsistent with or detrimental to other GOCCs.
Since GOCCs fall within the same governmental framework, it would be detrimental to have GOCCs foisted
into adversarial positions by their respective legal departments. Hence, there is indubitable wisdom in
having one overseer over all these legal departments which would ensure that the legal positions adopted
by the GOCCs would not conflict with each other or the government.
x x x Certainly, Section 10, Book IV, Title III, Chapter 3 of the Administrative Code of 1987 can be invoked by
adverse parties or by the courts in citing as deficient the exclusive representation of LBP by its Legal Department.
Then again, if neither the adverse parties nor the courts of jurisdiction choose to contest this point, there would be
no impediment to the litigation to maintain. x x x54
WHEREFORE, the Petition is DENIED. The October 19, 2005 Decision and January 11, 2006 Resolution of the
Court of Appeals, in CA- G.R. CV No. 83852, are hereby AFFIRMED.
SO ORDERED.

G.R. No. 165487 July 13, 2011

COUNTRY BANKERS INSURANCE CORPORATION, Petitioner,
vs.
ANTONIO LAGMAN, Respondent.
DECISION
PEREZ, J.:
This is a petition for review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, assailing the
Decision1 and Resolution2 of the Court of Appeals dated 21 June 2004 and 24 September 2004, respectively.
These are the undisputed facts.
Nelson Santos (Santos) applied for a license with the National Food Authority (NFA) to engage in the business of
storing not more than 30,000 sacks of palay valued at ₱5,250,000.00 in his warehouse at Barangay Malacampa,
Camiling, Tarlac. Under Act No. 3893 or the General Bonded Warehouse Act, as amended, 3 the approval for said
license was conditioned upon posting of a cash bond, a bond secured by real estate, or a bond signed by a duly
authorized bonding company, the amount of which shall be fixed by the NFA Administrator at not less than thirty-
three and one third percent (33 1/3%) of the market value of the maximum quantity of rice to be received.
Accordingly, Country Bankers Insurance Corporation (Country Bankers) issued Warehouse Bond No. 033044 for
₱1,749,825.00 on 5 November 1989 and Warehouse Bond No. 023555 for ₱749,925.00 on 13 December 1989
(1989 Bonds) through its agent, Antonio Lagman (Lagman). Santos was the bond principal, Lagman was the surety
and the Republic of the Philippines, through the NFA was the obligee. In consideration of these issuances,
corresponding Indemnity Agreements6 were executed by Santos, as bond principal, together with Ban Lee Lim
Santos (Ban Lee Lim), Rhosemelita Reguine (Reguine) and Lagman, as co-signors. The latter bound themselves
jointly and severally liable to Country Bankers for any damages, prejudice, losses, costs, payments, advances and
expenses of whatever kind and nature, including attorney’s fees and legal costs, which it may sustain as a
consequence of the said bond; to reimburse Country Bankers of whatever amount it may pay or cause to be paid or
become liable to pay thereunder; and to pay interest at the rate of 12% per annum computed and compounded
monthly, as well as to pay attorney’s fees of 20% of the amount due it.7
Santos then secured a loan using his warehouse receipts as collateral.8 When the loan matured, Santos defaulted in
his payment. The sacks of palay covered by the warehouse receipts were no longer found in the bonded
warehouse.9 By virtue of the surety bonds, Country Bankers was compelled to pay ₱1,166,750.37.10
Consequently, Country Bankers filed a complaint for a sum of money docketed as Civil Case No. 95-73048 before
the Regional Trial Court (RTC) of Manila. In his Answer, Lagman alleged that the 1989 Bonds were valid only for 1
year from the date of their issuance, as evidenced by receipts; that the bonds were never renewed and revived by
payment of premiums; that on 5 November 1990, Country Bankers issued Warehouse Bond No. 03515 (1990 Bond)
which was also valid for one year and that no Indemnity Agreement was executed for the purpose; and that the
1990 Bond supersedes, cancels, and renders no force and effect the 1989 Bonds.11
The bond principals, Santos and Ban Lee Lim, were not served with summons because they could no longer be
found.12 The case was eventually dismissed against them without prejudice.13 The other co-signor, Reguine, was
declared in default for failure to file her answer.14
On 21 September 1998, the trial court rendered judgment declaring Reguine and Lagman jointly and severally liable
to pay Country Bankers the amount of ₱2,400,499.87.15 The dispositive portion of the RTC Decision16 reads:
WHEREFORE, premises considered, judgment is hereby rendered, ordering defendants Rhomesita [sic] Reguine
and Antonio Lagman, jointly and severally liable to pay plaintiff, Country Bankers Assurance Corporation, the
amount of ₱2,400,499.87, with 12% interest from the date the complaint was filed until fully satisfied plus 20% of the
amount due plaintiff as and for attorney’s fees and to pay the costs.
As the Court did not acquire jurisdiction over the persons of defendants Nelson Santos and Ban Lee Lim Santos, let
the case against them be DISMISSED. Defendant Antonio Lagman’s counterclaim is likewise DISMISSED, for lack
of merit.17
In holding Lagman and Reguine solidarily liable to Country Bankers, the trial court relied on the express terms of the
Indemnity Agreement that they jointly and severally bound themselves to indemnify and make good to Country
Bankers any liability which the latter may incur on account of or arising from the execution of the bonds.18
The trial court rationalized that the bonds remain in force unless cancelled by the Administrator of the NFA and
cannot be unilaterally cancelled by Lagman. The trial court emphasized that for the failure of Lagman to comply with
his obligation under the Indemnity Agreements, he is likewise liable for damages as a consequence of the breach.
Lagman filed an appeal to the Court of Appeals, docketed as CA G.R. CV No. 61797. He insisted that the lifetime of
the 1989 Bonds, as well as the corresponding Indemnity Agreements was only 12 months. According to Lagman,
the 1990 Bond was not pleaded in the complaint because it was not covered by an Indemnity Agreement and it
superseded the two prior bonds.19
On 21 June 2004, the Court of Appeals rendered the assailed Decision reversing and setting aside the Decision of
the RTC and ordering the dismissal of the complaint filed against Lagman.20
The appellate court held that the 1990 Bond superseded the 1989 Bonds. The appellate court observed that the
1990 Bond covers 33.3% of the market value of the palay, thereby manifesting the intention of the parties to make
the latter bond more comprehensive. Lagman was also exonerated by the appellate court from liability because he
was not a signatory to the alleged Indemnity Agreement of 5 November 1990 covering the 1990 Bond. The appellate
court rejected the argument of Country Bankers that the 1989 bonds were continuing, finding, as reason therefor,
that the receipts issued for the bonds indicate that they were effective for only one-year.
Country Bankers sought reconsideration which was denied in a Resolution dated 24 September 2004.21
Expectedly, Country Bankers filed the instant petition attributing two (2) errors to the Court of Appeals, to wit:
A.
THE HONORABLE COURT OF APPEALS seriously erred in disregarding the express provisions of Section
177 of the insurance code when it held that the subject surety bonds were superseded by a subsequent
bond notwithstanding the non-cancellation thereof by the bond obligee.
B.
The honorable court of appeals seriously erred in holding that receipts for the payment of premiums prevail
over the express provision of the surety bond that fixes the term thereof.22
Country Bankers maintains that by the express terms of the 1989 Bonds, they shall remain in full force until
cancelled by the Administrator of the NFA. As continuing bonds, Country Bankers avers that Section 177 of the
Insurance Code applies, in that the bond may only be cancelled by the obligee, by the Insurance Commissioner or
by a competent court.
Country Bankers questions the existence of a third bond, the 1990 Bond, which allegedly cancelled the 1989 Bonds
on the following grounds: First, Lagman failed to produce the original of the 1990 Bond and no basis has been laid
for the presentation of secondary evidence; Second, the issuance of the 1990 Bond was not approved and
processed by Country Bankers; Third, the NFA as bond obligee was not in possession of the 1990 Bond. Country
Bankers stresses that the cancellation of the 1989 Bonds requires the participation of the bond obligee. Ergo, the
bonds remain subsisting until cancelled by the bond obligee. Country Bankers further assert that Lagman also failed
to prove that the NFA accepted the 1990 Bond in replacement of the 1989 Bonds.
Country Bankers notes that the receipts issued for the 1989 Bonds are mere evidence of premium payments and
should not be relied on to determine the period of effectivity of the bonds. Country Bankers explains that the receipts
only represent the transactions between the bond principal and the surety, and does not involve the NFA as bond
obligee.
Country Bankers calls this Court’s attention to the incontestability clause contained in the Indemnity Agreements
which prohibits Lagman from questioning his liability therein.
In his Comment, Lagman raises the issue of novation by asserting that the 1989 Bonds were superseded by the
1990 Bond, which did not include Lagman as party. Therefore, Lagman argues, Country Bankers has no cause of
action against him. Lagman also reiterates that because of novation, the 1989 bonds are neither perpetual nor
continuing.
Lagman anchors his defense on two (2) arguments: 1) the 1989 Bonds have expired and 2) the 1990 Bond novates
the 1989 Bonds.
The Court of Appeals held that the 1989 bonds were effective only for one (1) year, as evidenced by the receipts on
the payment of premiums.
We do not agree.
The official receipts in question serve as proof of payment of the premium for one year on each surety bond. It does
not, however, automatically mean that the surety bond is effective for only one (1) year. In fact, the effectivity of the
bond is not wholly dependent on the payment of premium. Section 177 of the Insurance Code expresses:
Sec. 177. The surety is entitled to payment of the premium as soon as the contract of suretyship or bond is
perfected and delivered to the obligor. No contract of suretyship or bonding shall be valid and binding unless and
until the premium therefor has been paid, except where the obligee has accepted the bond, in which case the
bond becomes valid and enforceable irrespective of whether or not the premium has been paid by the
obligor to the surety: Provided, That if the contract of suretyship or bond is not accepted by, or filed with the
obligee, the surety shall collect only reasonable amount, not exceeding fifty per centum of the premium due thereon
as service fee plus the cost of stamps or other taxes imposed for the issuance of the contract or bond: Provided,
however, That if the non-acceptance of the bond be due to the fault or negligence of the surety, no such service fee,
stamps or taxes shall be collected. (Emphasis supplied)
The 1989 Bonds have identical provisions and they state in very clear terms the effectivity of these bonds, viz:
NOW, THEREFORE, if the above-bounded Principal shall well and truly deliver to the depositors PALAY received by
him for STORAGE at any time that demand therefore is made, or shall pay the market value therefore in case he is
unable to return the same, then this obligation shall be null and void; otherwise it shall remain in full force and effect
and may be enforced in the manner provided by said Act No. 3893 as amended by Republic Act No. 247 and P.D.
No. 4. This bond shall remain in force until cancelled by the Administrator of National Food Authority.23
This provision in the bonds is but in compliance with the second paragraph of Section 177 of the Insurance Code,
which specifies that a continuing bond, as in this case where there is no fixed expiration date, may be cancelled only
by the obligee, which is the NFA, by the Insurance Commissioner, and by the court. Thus:
In case of a continuing bond, the obligor shall pay the subsequent annual premium as it falls due until the contract of
suretyship is cancelled by the obligee or by the Commissioner or by a court of competent jurisdiction, as the case
may be.
By law and by the specific contract involved in this case, the effectivity of the bond required for the obtention of a
license to engage in the business of receiving rice for storage is determined not alone by the payment of premiums
but principally by the Administrator of the NFA. From beginning to end, the Administrator’s brief is the enabling or
disabling document.
The clear import of these provisions is that the surety bonds in question cannot be unilaterally cancelled by Lagman.
The same conclusion was reached by the trial court and we quote:
As there appears no record of cancellation of the Warehouse Bonds No. 03304 and No. 02355 either by the
administrator of the NFA or by the Insurance Commissioner or by the Court, the Warehouse Bonds are valid and
binding and cannot be unilaterally cancelled by defendant Lagman as general agent of the plaintiff.24
While the trial court did not directly rule on the existence and validity of the 1990 Bond, it upheld the 1989 Bonds as
valid and binding, which could not be unilaterally cancelled by Lagman. The Court of Appeals, on the other hand,
acknowledged the 1990 Bond as having cancelled the two previous bonds by novation. Both courts however failed
to discuss their basis for rejecting or admitting the 1990 Bond, which, as we indicated, is bone to pick in this case.
Lagman’s insistence on novation depends on the validity, nay, existence of the allegedly novating 1990 Bond.
Country Bankers understandably impugns both. We see the point. Lagman presented a mere photocopy of the 1990
Bond. We rule as inadmissible such copy.
Under the best evidence rule, the original document must be produced whenever its contents are the subject of
inquiry.25 The rule is encapsulated in Section 3, Rule 130 of the Rules of Court, as follow:
Sec. 3. Original document must be produced; exceptions. — When the subject of inquiry is the contents of a
documents, no evidence shall be admissible other than the original document itself, except in the following cases:
(a) When the original has been lost or destroyed, or cannot be produced in court, without bad faith on the
part of the offeror;
(b) When the original is in the custody or under the control of the party against whom the evidence is
offered, and the latter fails to produce it after reasonable notice;
(c) When the original consists of numerous accounts or other documents which cannot be examined in court
without great loss of time and the fact sought to be established from them is only the general result of the
whole; and
(d) When the original is a public record in the custody of a public officer or is recorded in a public office.26
A photocopy, being a mere secondary evidence, is not admissible unless it is shown that the original is
unavailable.27 Section 5, Rule 130 of the Rules of Court states:
SEC.5 When original document is unavailable. — When the original document has been lost or destroyed, or cannot
be produced in court, the offeror, upon proof of its execution or existence and the cause of its unavailability without
bad faith on his part, may prove its contents by a copy, or by a recital of its contents in some authentic document, or
by the testimony of witnesses in the order stated.
Before a party is allowed to adduce secondary evidence to prove the contents of the original, the offeror must prove
the following: (1) the existence or due execution of the original; (2) the loss and destruction of the original or the
reason for its non-production in court; and (3) on the part of the offeror, the absence of bad faith to which the
unavailability of the original can be attributed. The correct order of proof is as follows: existence, execution, loss,
and contents.28
In the case at bar, Lagman mentioned during the direct examination that there are actually four (4) duplicate
originals of the 1990 Bond: the first is kept by the NFA, the second is with the Loan Officer of the NFA in Tarlac, the
third is with Country Bankers and the fourth was in his possession.29 A party must first present to the court proof of
loss or other satisfactory explanation for the non-production of the original instrument. 30 When more than one
original copy exists, it must appear that all of them have been lost, destroyed, or cannot be produced in court before
secondary evidence can be given of any one. A photocopy may not be used without accounting for the other
originals.31
Despite knowledge of the existence and whereabouts of these duplicate originals, Lagman merely presented a
photocopy. He admitted that he kept a copy of the 1990 Bond but he could no longer produce it because he had
already severed his ties with Country Bankers. However, he did not explain why severance of ties is by itself reason
enough for the non-availability of his copy of the bond considering that, as it appears from the 1989 Bonds, Lagman
himself is a bondsman. Neither did Lagman explain why he failed to secure the original from any of the three other
custodians he mentioned in his testimony. While he apparently was able to find the original with the NFA Loan
Officer, he was merely contented with producing its photocopy. Clearly, Lagman failed to exert diligent efforts to
produce the original.
Fueling further suspicion regarding the existence of the 1990 Bond is the absence of an Indemnity Agreement.
While Lagman argued that a 1990 Bond novates the 1989 Bonds, he raises the defense of "non-existence of an
indemnity agreement" which would conveniently exempt him from liability. The trial court deemed this defense as
indicia of bad faith, thus:
To the observation of the Court, defendant Lagman contended that being a general agent (which requires a much
higher qualification than an ordinary agent), he is expected to have attended seminars and workshops on general
insurance wherein he is supposed to have acquired sufficient knowledge of the general principles of insurance
which he had fully practised or implemented from experience. It somehow appears to the Court’s assessment of his
reneging liability of the bonds in question, that he is still short of having really understood the principle of suretyship
with reference to the transaction of indemnity in which he is a signatory. If, as he alleged, that he is well-versed in
insurance, the Court finds no excuse for him to stand firm in denying his liability over the claim against the bonds
with indemnity provision. If he insists in not recognizing that liability, the more that this Court is convinced that his
knowledge that insurance operates under the principle of good faith is inadequate. He missed the exception
provided by Section 177 of the Insurance Code, as amended, wherein non-payment of premium would not have the
same essence in his mind that the agreements entered into would not have full force or effect. It could be glimpsed,
therefore, that the mere fact of cancelling bonds with indemnity agreements and replacing them (absence of the
same) to escape liability clearly manifests bad faith on his part.32 (Emphasis supplied.)
Having discounted the existence and/or validity of the 1990 Bond, there can be no novation to speak of. Novation is
the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one which
extinguishes or modifies the first, either by changing the object or principal conditions, or by substituting another in
place of the debtor, or by subrogating a third person in the rights of the creditor. For novation to take place, the
following requisites must concur: 1) There must be a previous valid obligation; 2) The parties concerned must agree
to a new contract; 3) The old contract must be extinguished; and 4) There must be a valid new contract.33
In this case, only the first element of novation exists. Indeed, there is a previous valid obligation, i.e., the 1989
Bonds. There is however neither a valid new contract nor a clear agreement between the parties to a new contract
since the very existence of the 1990 Bond has been rendered dubious. Without the new contract, the old contract is
not extinguished.
Implied novation necessitates a new obligation with which the old is in total incompatibility such that the old
obligation is completely superseded by the new one.34 Quite obviously, neither can there be implied novation. In this
case, there is no new obligation.
The liability of Lagman is expressed in Indemnity Agreements executed in consideration of the 1989 Bonds which
we have considered as continuing contracts. Under both Indemnity Agreements, Lagman, as co-signor, together
with Santos, Ban Lee Lim and Reguine, bound themselves jointly and severally to Country Bankers to indemnify it
for any damage or loss sustained on the account of the execution of the bond, among others. The pertinent identical
stipulations of the Indemnity Agreements state:
INDEMNITY: ─ To indemnify and make good to the COMPANY jointly and severally, any damages, prejudice, loss,
costs, payments advances and expenses of whatever kind and nature, including attorney’s fees and legal costs,
which the COMPANY may, at any time, sustain or incur, as well as to reimburse to said COMPANY all sums and
amounts of money which the COMPANY or its representatives shall or may pay or cause to be paid or become
liable to pay, on account of or arising from the execution of the above-mentioned BOND or any extension, renewal,
alteration or substitution thereof made at the instance of the undersigned or anyone of them.35
Moreover, the Indemnity Agreements also contained identical Incontestability Clauses which provide:
INCONTESTABILITY OF PAYMENTS MADE BY THE COMPANY: ─ Any payment or disbursement made by the
COMPANY on account of the above-mentioned Bond, its renewals, extensions, alterations or substitutions either in
the belief that the COMPANY was obligated to make such payment or in the belief that said payment was necessary
or expedient in order to avoid greater losses or obligations for which the COMPANY might be liable by virtue of the
terms of the above-mentioned Bond, its renewals, extensions, alterations, or substitutions, shall be final and shall
not be disputed by the undersigned, who hereby jointly and severally bind themselves to indemnify [Country
Bankers] of any and all such payments, as stated in the preceding clauses.
In case the COMPANY shall have paid[,] settled or compromised any liability, loss, costs, damages, attorney’s fees,
expenses, claims[,] demands, suits, or judgments as above-stated, arising out of or in connection with said bond, an
itemized statement thereof, signed by an officer of the COMPANY and other evidence to show said payment,
settlement or compromise, shall be prima facie evidence of said payment, settlement or compromise, as well as the
liability of the undersigned in any and all suits and claims against the undersigned arising out of said bond or this
bond application.36
1awphil

Lagman is bound by these Indemnity Agreements. Payments made by Country Bankers by virtue of the 1989 Bonds
gave rise to Lagman’s obligation to reimburse it under the Indemnity Agreements. Lagman, being a solidary debtor,
is liable for the entire obligation.
WHEREFORE, the petition is GRANTED. The assailed Decision and Resolution of the Court of Appeals in CA-G.R.
CV No. 61797 are SET ASIDE and the Decision dated 21 September 1998 of the RTC is hereby REINSTATED.
SO ORDERED.

G.R. No. 193629 August 17, 2011

RCJ BUS LINES, INCORPORATED, Petitioner,
vs.
STANDARD INSURANCE COMPANY, INCORPORATED, Respondent.
DECISION
CARPIO, J.:
The Case
G.R. No. 193629 is a petition for review assailing the Decision2 promulgated on 11 March 2010 as well as the
1

Resolution3 promulgated on 3 September 2010 by the Court of Appeals (appellate court) in CA-G.R. SP No. 105338.
The appellate court affirmed with modification the 27 May 2008 Decision 4 of Branch 37 of the Regional Trial Court of
Manila (RTC) in Civil Case No. 00-99410. The RTC dismissed RCJ Bus Lines’ appeal from the 12 July 2000
Decision5 of the Metropolitan Trial Court of Manila (MeTC) in Civil Case No. 153566. The MeTC rendered judgment
in favor of Standard Insurance Company, Incorporated (Standard) and ordered Flor Bola Mangoba (Mangoba) and
RCJ Bus Lines, Incorporated (RCJ) to pay damages.
The Facts
The appellate court narrated the facts as follows:
On 01 December 2000, respondent Standard Insurance Co., Inc. (STANDARD) filed an amended complaint
against the petitioners Flor Bola Mangoba and RCJ Bus Lines, Inc. (docketed as Civil Case No. 153566-CV
before the Metropolitan Trial Court of Manila, Branch 29). Said amended complaint alleged, among others:
"2. On June 19, 1994 along the National Highway at Brgy. Amlang, Rosario, La Union, defendant Flor B.
Mangoba while driving [sic] an RCJ HINO BLUE RIBBON PASSENGER BUS bearing Plate No. NYG-363 in
a reckless and imprudent manner, bumped and hit a 1991 Mitsubishi Lancer GLX bearing Plate No. TAJ-
796, a photocopy of the police report is attached hereto and made an integral part hereof as Annex ‘A.’
3. The subject Mitsubishi Lancer which is owned by Rodelene Valentino was insured for loss and damage
with plaintiff [Standard Insurance Co. Inc.] for ₱450,000.00, a photocopy of the insurance policy is attached
hereto and made an integral part hereof as Annex ‘B.’
4. Defendant RCJ Bus Lines, Inc. is the registered owner of the Passenger Bus bearing Plate No. NYG-363
while defendant Flor Mangoba was the driver of the subject Passenger Bus when the accident took place.
5. As a direct and proximate cause of the vehicular accident, the Mitsubishi Lancer was extensively
damaged, the costs of repairs of which were borne by the plaintiff [Standard Insurance Co. Inc.] at a cost of
₱162,151.22.
6. By virtue of the insurance contract, plaintiff [Standard Insurance Co. Inc.] paid Rodelene Valentino the
amount of ₱162,151.22 for the repair of the Mitsubishi Lancer car.
7. After plaintiff [Standard Insurance Co. Inc.] has complied with its obligation under the policy mentioned
above, plaintiff’s assured executed in plaintiff’s favor a Release of Claim thereby subrogating the latter to all
his rights of recovery on all claims, demands and rights of action on account of loss, damage or injury as a
consequence of the accident from any person liable therefor.
 8. Despite demands, defendants have failed and refused and still continue to fail and refuse to reimburse
plaintiff the sum of ₱162,151.22. A photocopy of the demand letter is attached hereto and made an integral
part hereof as Annex ‘C.’
9. As a consequence, plaintiff [Standard Insurance Co. Inc.] has been compelled to resort to court action and
thereby hire the services of counsel as well as incur expenses of litigation for all of which it should be
indemnified by the defendant in the amount of at least ₱30,000.00.
10. In order that it may serve as a deterrent for others and by way of example for the public good,
defendants should be adjudged to pay plaintiff [Standard Insurance Co. Inc.] exemplary damages in the
amount of ₱20,000.00."
Thus, STANDARD prayed:
"WHEREFORE, plaintiff respectfully prays that after due trial on the issues, this court render judgment against the
defendants adjudging them jointly and severally liable to pay plaintiff the following amounts:
1. The principal claim of ₱162,151.22 with interest at 12% per annum from September 1, 1995 until fully
paid.
2. ₱30,000.00 as and by way of indemnification for attorney’s fees.
3. ₱25,000.00 as exemplary damages.
Plaintiff prays for such further or other reliefs as may be deemed just and equitable under the premises."
In its answer, RCJ Bus Lines, Inc. maintained:
"1. That the complaint states no cause of action against it;
2. That venue was improperly laid; and,
3. That the direct, immediate and proximate cause of the accident was the negligence of the driver of the
Mitsubishi Lancer when, for no reason at all, it made a sudden stop along the National Highway, as if to
initiate and/or create an accident."
Flor Bola Mangoba, in his own answer to the complaint, also pointed his finger at the driver of the Mitsubishi Lancer
as the one who caused the vehicular accident on the time, date and place in question.
For his failure to appear at the pre-trial despite notice, Flor Bola Mangoba was declared in default on 14 November
1997. Accordingly, trial proceeded sans his participation.
At the trial, the evidence adduced by the parties established the following facts:
In the evening of 19 June 1994, at around 7:00 o’clock, a Toyota Corolla with Plate No. PHU-185 driven by Rodel
Chua, cruised along the National Highway at Barangay Amlang, Rosario, La Union, heading towards the general
direction of Bauan, La Union. The Toyota Corolla travelled at a speed of 50 kilometers per hour as it traversed the
downward slope of the road, which curved towards the right.
The Mitsubishi Lancer GLX with Plate No. TAJ-796, driven by Teodoro Goki, and owned by Rodelene Valentino, was
then following the Toyota Corolla along the said highway. Behind the Mitsubishi Lancer GLX was the passenger bus
with Plate No. NYG-363, driven by Flor Bola Mangoba and owned by RCJ Bus Lines, Inc. The bus followed the
Mitsubishi Lancer GLX at a distance of ten (10) meters and traveled at the speed of 60 to 75 kilometers per hour.
Upon seeing a pile of gravel and sand on the road, the Toyota Corolla stopped on its tracks. The Mitsubishi Lancer
followed suit and also halted. At this point, the bus hit and bumped the rear portion of the Mitsubishi Lancer causing
it to move forward and hit the Toyota Corolla in front of it.
As a result of the incident, the Mitsubishi Lancer sustained damages amounting to ₱162,151.22, representing the
costs of its repairs. Under the comprehensive insurance policy secured by Rodelene Valentino, owner of the
Mitsubishi Lancer, STANDARD reimbursed to the former the amount she expended for the repairs of her vehicle.
Rodelene then executed a Release of Claim and Subrogation Receipt, subrogating STANDARD to all rights, claims
and actions she may have against RCJ Bus Lines, Inc. and its driver, Flor Bola Mangoba.6
The MeTC’s Ruling
On 12 July 2000, the MeTC rendered its decision in favor of Standard, the dispositive portion of which reads:
WHEREFORE, consistent with Section 1, Rule 131 and Section 1, Rule 133 of the Revised Rules on Evidence,
judgment is hereby rendered in favor of the plaintiff, ordering defendants Flor Bola Mangoba and RCJ Bus Lines,
Inc.:
1. To pay the principal sum of ONE HUNDRED SIXTY TWO THOUSAND ONE HUNDRED FIFTY ONE
PESOS and 22/100 (₱162,151.22), with legal rate of interest at 12% per annum from September 1, 1995
until full payment;
2. To pay the sum of TWENTY THOUSAND PESOS (₱20,000.00) as exemplary damages;
3. To pay the sum of TWENTY THOUSAND PESOS (₱20,000.00) as reasonable attorney’s fees; and
4. To pay the costs of suit.
For want of merit, the separate Counterclaim is hereby DISMISSED.7
In an Order8 dated 2 May 2002, the RTC dismissed Mangoba and RCJ’s appeal for filing their pleading beyond the
reglementary period. The appellate court, however, in a Decision 9 in CA-G.R. SP No. 77598 dated 23 April 2004,
granted RCJ’s petition and remanded the case to the RTC for further proceedings.
The RTC’s Ruling
In its Decision dated 27 May 2008, the RTC affirmed with modification the MeTC’s Decision dated 12 July 2000. The
RTC deleted the award for exemplary damages.
RCJ failed to convince the RTC that it observed the diligence of a good father of a family to prevent damages
sustained by the Mitsubishi Lancer. The RTC ruled that the testimony of Conrado Magno, RCJ’s Operations
Manager, who declared that all applicants for employment in RCJ were required to submit clearances from the
barangay, the courts and the National Bureau of Investigation, is insufficient to show that RCJ exercised due
diligence in the selection and supervision of its drivers. The allegation of the conduct of seminars and training for
RCJ’s drivers is not proof that RCJ examined Mangoba’s qualifications, experience and driving history. Moreover,
the testimony of Noel Oalog, the bus conductor, confirmed that the bus was travelling at a speed of 60 to 75
kilometers per hour, which was beyond the maximum allowable speed of 50 kilometers per hour for a bus on an
open country road. The RTC, however, deleted the award of exemplary damages because it found no evidence that
Mangoba acted with gross negligence.
In an Order10 dated 27 August 2008, the RTC partially reconsidered its 27 May 2008 Decision and modified the
MeTC’s Decision to read as follows:
WHEREFORE, the Decision dated May 27, 2008 is partially reconsidered and the Decision of the court a quo dated
July 12, 2000 is MODIFIED. Appellant RCJ Bus Lines, Inc. and defendant Flor Bola Mangoba are ordered to pay
jointly and severally the appellee [Standard Insurance Co., Inc.] the following:
1. ONE HUNDRED SIXTY TWO THOUSAND ONE FIFTY ONE PESOS and 22/100 (₱162,151.22), with
legal rate of interest at 6% per annum from September 1, 1995 until full payment;
2. TWENTY THOUSAND PESOS (₱20,000.00) as reasonable attorney’s fees; and
3. Cost of suit.
SO ORDERED.11
The Appellate Court’s Ruling
Mangoba and RCJ filed a petition for review before the appellate court. The appellate court found that the RTC
committed no reversible error in affirming RCJ’s liability as registered owner of the bus and employer of Mangoba,
as well as Mangoba’s negligence in driving the passenger bus. The appellate court, however, deleted the award for
attorney’s fees and modified the legal interest imposed by the MeTC.
The dispositive portion of the appellate court’s decision reads:
WHEREFORE, the instant petition for review is DENIED. The assailed Decision of the Regional Trial Court of
Manila, Branch 37, in Civil Case No. 00-99410 is hereby AFFIRMED with MODIFICATION that the legal interest that
should be imposed on the actual damages awarded in favor of respondent Standard Insurance, Co., Inc. should be
at the rate of 6% per annum computed from the time of extra judicial demand until the finality of the 12 July 2000
Decision of the MeTC and thereafter, the legal interest shall be at the rate of 12% per annum until the full payment
of the actual damages. The award of attorney’s fees is DELETED.
SO ORDERED.12
The appellate court denied RCJ’s Motion for Reconsideration13 for lack of merit.14
The Issues
RCJ assigns the following as errors of the appellate court:
1. The Court of Appeals erroneously awarded the amount of ₱162,151.22 representing actual damages
based merely on the proof of payment of policy/insurance claim and not on an official receipt of payment of
actual cost of repair;
2. The Court of Appeals erroneously disregarded the point that petitioner RCJ’s defense of extraordinary
diligence in the selection and supervision of its driver was made as an alternative defense;
3. The Court of Appeals erroneously disregarded the legal principle that the supposed violation of Sec. 35 of
R.A. 4136 merely results in a disputable presumption; and
4. The Court of Appeals erroneously held that petitioner RCJ is vicariously liable for the claim of supposed
actual damages incurred by respondent Standard Insurance.15
The Court’s Ruling
The petition has no merit. We see no reason to overturn the findings of the lower courts. We affirm the ruling of the
appellate court.
RCJ’s Liability

Subrogation
In the present case, it cannot be denied that the Mitsubishi Lancer sustained damages. Moreover, it cannot also be
denied that Standard paid Rodelene Valentino ₱162,151.22 for the repair of the Mitsubishi Lancer pursuant to a
Release of Claim and Subrogation Receipt. Neither RCJ nor Mangoba cross-examined Standard’s claims evaluator
when he testified on his duties, the insurance contract between Rodelene Valentino and Standard, Standard’s
payment of insurance proceeds, and RCJ and Mangoba’s refusal to pay despite demands. After being lackadaisical
during trial, RCJ cannot escape liability now. Standard’s right of subrogation accrues simply upon its payment of the
insurance claim.25
Article 2207 of the Civil Code reads:
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. If the
amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury.
Subrogation is the substitution of one person by another with reference to a lawful claim or right, so that he who
substitutes another succeeds to the rights of the other in relation to a debt or claim, including its remedies or
securities. The principle covers a situation wherein an insurer who has paid a loss under an insurance policy is
entitled to all the rights and remedies belonging to the insured against a third party with respect to any loss covered
by the policy.26
WHEREFORE, we DENY the petition. We AFFIRM the Decision of the Court of Appeals in CA-G.R. SP No. 105338
promulgated on 11 March 2010 as well as the Resolution promulgated on 3 September 2010.
SO ORDERED.

G.R. No. 152313 October 19, 2011

REPUBLIC FLOUR MILLS CORPORATION, Petitioner,
vs.
FORBES FACTORS, INC. Respondent.
DECISION
SERENO, J.:
Petitioner filed this present Petition for Review1 under Rule 45 of the Rules of Court, seeking a reversal of the Court
of Appeals Decision,2 the dispositive portion of which states:
WHEREFORE, premises considered, the Decision dated April 15, 1996 rendered by the Regional Trial Court of
Makati City, Branch 60, is hereby AFFIRMED, with MODIFICATIONS, as follows:
1) The legal interest rate of six percent (6%) per annum should be computed from the date of the filing of the
complaint which shall become twelve percent (12%) per annum from the time the judgment becomes final
and executory until its satisfaction.
2) The award of ₱300,000.00 as exemplary damages is reduced to ₱50,000.00;
3) The award of ₱400,00.00 as attorney’s fees is likewise reduced to ₱75,000.00;
4) The Decision is hereby affirmed in all other respects.
SO ORDERED.
The case arose when petitioner refused to pay the demurrage being collected by respondent.
The facts are as follows:
In a contract dated 26 April 1983, respondent was appointed as the exclusive Philippine indent representative of
Richco Rotterdam B.V. (Richco), a foreign corporation, in the sale of the latter’s commodities. Under one of the
terms of the contract, respondent was to assume the liabilities of all the Philippine buyers, should they fail to honor
the commitments on the discharging operations of each vessel, including the payment of demurrage and other
penalties. In such instances, Richco shall have the option to debit the account of respondent corresponding to the
liabilities of the buyers, and respondent shall then be deemed to be subrogated to all the rights of Richco against
these defaulting buyers.3
Sometime in 1987, petitioner purchased Canadian barley and soybean meal from Richco. The latter thereafter
chartered four (4) vessels to transport the products to the Philippines. Each of the carrier bulk cargoes was covered
by a Contract of Sale executed between respondent as the seller and duly authorized representative of Richco and
petitioner as the buyer. The four contracts specifically referred to the charter party in determining demurrage or
dispatch rate. The contract further provided that petitioner guarantees to settle any demurrage due within one (1)
month from respondent’s presentation of the statement.
Upon delivery of the barley and soybean meal, petitioner failed to discharge the cargoes from the four (4) vessels at
the computed allowable period to do so. Thus, it incurred a demurrage amounting to a total of US$193,937.41.
On numerous occasions, on behalf of Richco, respondent demanded from petitioner the payment of the demurrage,
to no avail. Consequently, on 20 October 1991, Richco sent a communication to respondent, informing it that the
demurrage due from petitioner had been debited from the respondent’s account.
Thereafter, on 12 February 1992, respondent filed with the Regional Trial Court (RTC), National Capital Judicial
Region, Makati City, a Complaint for demurrage and damages against petitioner. Meanwhile, the latter raised the
defense that the delay was due to respondent’s inefficiency in unloading the cargo.
On 15 April 1996, after trial on the merits, the RTC rendered a Decision 4 holding petitioner liable to pay demurrage
and damages to respondent, to wit:
34. WHEREFORE, the Court hereby renders judgment as follows:
34.1 The defendant REPUBLIC FLOUR MILLS CORPORATION is ordered to pay the plaintiff FORBES
FACTORS, INC. the following:
34.1.1. US$193,937.41 or its Philippine PESO equivalent at the rate of exchange at the time of
payment – As demurrage.
34.1.2 Six (6) percent of the amount in the preceding paragraph 34.1.1 – Per annum from October
29, 1991 until the said amount is fully paid – As damages.
34.1.3. ₱300,000.00 – As exemplary damages.
34.1.4. ₱ 400,000.00 – As attorney’s fees.
34.2. The COUNTERCLAIM is DISMISSED; and
34.3. Cost is taxed against the defendant.
The RTC found that the delay in discharging the cargoes within the allowable period was due to petitioner’s failure
to provide enough barges on which to load the goods. It likewise found that petitioner in fact acknowledged that the
latter had incurred demurrage when it alleged that the computation was bloated. Petitioner was thus liable to pay
demurrage based on the sales contracts executed with respondent and on the contract executed between
respondent and Richco.
Finally, the court ruled that respondent was entitled to damages from petitioner’s "wanton, fraudulent, reckless,
oppressive or malevolent" refusal to pay the latter’s liabilities despite repeated demands.
Subsequently, petitioner appealed to the Court of Appeals (CA), alleging that respondent was not a real party-in-
interest to bring the collection suit. Petitioner insisted that the payment of demurrage should be made to the owner
of the vessels that transported the goods, and not to respondent who was merely the indent representative of
Richco, the charterer of the vessel. In addition, petitioner claimed that it was denied due process when the RTC
refused to reset the hearing for the presentation of Reynaldo Santos, petitioner’s witness and export manager.
Finally, petitioner contested the RTC’s award of exemplary damages and attorney’s fees.
On 18 February 2002, the CA promulgated the assailed Decision. It upheld the validity of the Contracts of Sale and
held that these had the force of law between the contracting parties and must be complied with in good faith.
However, the appellate court modified the trial court’s award of damages. It held that exemplary damages are not
intended to enrich anyone, thus, reducing the amount from ₱300,000 to ₱50,000. It also found the award of
attorney’s fees to be excessive, and consequently reduced it from ₱400,000 to ₱75,000.
Hence this Petition.
Three issues are raised for the resolution by this Court. First, petitioner assails the right of respondent to demand
payment of demurrage. Petitioner asserts that, by definition, demurrage is the sum fixed by the contract of carriage
as remuneration to the ship owner for the detention of the vessel beyond the number of days allowed by the charter
party.5 Thus, since respondent is not the ship owner, it has no right to demand the payment of demurrage and has
no personality to bring the claim against petitioner. Second, petitioner questions the propriety of the award of
damages in favor of respondent. And third, the former insists that it was denied due process when the RTC denied
its Motion to reset the hearing to present its witness.
We find the petition without merit.
The facts are undisputed. The delay incurred by petitioner in discharging the cargoes from the vessels was due to
its own fault. Its obligation to demurrage is established by the Contracts of Sale it executed, wherein it agreed to the
conditions to provide all discharging facilities at its expense in order to effect the immediate discharge of cargo; and
to place for its account all discharging costs, fees, taxes, duties and all other charges incurred due to the nature of
the importation.6
Meanwhile, respondent unequivocally established that Richco charged to it the demurrage due from petitioner.
Thus, at the moment that Richco debited the account of respondent, the latter is deemed to have subrogated to the
rights of the former, who in turn, paid demurrage to the ship owner. It is therefore immaterial that respondent is not
the ship owner, since it has been able to prove that it has stepped into the shoes of the creditor.
Subrogation is either "legal" or "conventional." Legal subrogation is an equitable doctrine and arises by operation of
the law, without any agreement to that effect executed between the parties; conventional subrogation rests on a
contract, arising where "an agreement is made that the person paying the debt shall be subrogated to the rights and
remedies of the original creditor."7 The case at bar is an example of legal subrogation, the petitioner and respondent
having no express agreement on the right of subrogation. Thus, it is of no moment that the Contracts of Sale did not
expressly state that demurrage shall be paid to respondent. By operation of law, respondent has become the real
party-in-interest to pursue the payment of demurrage. As aptly stated by the RTC:
19. True it is that demurrage is, as a rule, an amount payable to a shipowner by a charterer for the detention of the
vessel beyond the period allowed for the loading or unloading or sailing. This however, does not mean that a party
cannot stipulate with another who is not a shipowner, on demurrage. In this case, FORBES stipulated under the
charter parties on demurrage with the shipowners. This stipulation could be the basis of the provisions on
demurrage in the four (4) Contracts of Sale (Exhs. B, N, X, and CC) and contract between FORBES and RICHCO
(Exh. A).
xxx xxx xxx
20. RICHCO debited the US$193,937.41 from the accounts of FORBES as evidenced by Exh. OO. Hence,
FORBES was subrogated to the right of RICHCO to collect the said amount from RFM pursuant to the contract
between RICHCO and FORBES (Exh. A).
21. Under Exh. A, FORBES guaranteed its "…buyers (sic) payment schedule…" Consequently, it was subrogated to
the rights of RICHCO arising from the failure of RFM to pay its demurrage and FORBES paid for it. The subrogation
was pursuant to Articles 1302 and 2067, New Civil Code, which read:
"Art. 1302. It is presumed that there is legal subrogation:
(1) When a creditor pays another creditor who is preferred, even without the debtor’s knowledge;
(2) When a third person, not interested in the obligation, pays with the express or tacit approval of the
debtor;
(3) When, even without the knowledge of the debtor, a person interested in the fulfillment of the obligation
pays, without prejudice to the effects of confusion as to the latter’s share."
"Art. 2067. The guarantor who pays is subrogated by virtue thereof to all the rights which the creditor had against
the debtor.
If the guarantor has compromised with the creditor, he cannot demand of the debtor more than what he has really
paid."
As we held in Fireman’s Fund Insurance Company v. Jamila & Company, Inc.:
…Subrogation has been referred to as the doctrine of substitution. It "is an arm of equity that may guide or even
force one to pay a debt for which an obligation was incurred but which was in whole or in part paid by another" (83
C.J.S. 576, 678, note 16, citing Fireman's Fund Indemnity Co. vs. State Compensation Insurance Fund, 209 Pac. 2d
55).
"Subrogation is founded on principles of justice and equity, and its operation is governed by principles of equity. It
rests on the principle that substantial justice should be attained regardless of form, that is, its basis is the doing of
complete, essential, and perfect justice between all the parties without regard to form"(83 C.J.S. 579- 80)8 1avvphi1

Anent the second issue, we have previously held in Pepsi Cola Products Phil., Inc. v. Court of Appeals, 9 that a
motion for continuance of postponement is not a matter of right. Rather, the motion is addressed to the sound
discretion of the court, whose action thereon will not be disturbed by appellate courts in the absence of clear and
manifest abuse of discretion, resulting in a denial of substantial justice.
On the last issue, we find that the award of exemplary damages proper. Petitioner refused to honor the contract
despite respondent’s repeated demands and its proof of payment to Richco; and despite its repeated promise to
settle its outstanding obligations in the span of almost five years. Petitioner indeed acted in a wanton, fraudulent,
reckless, oppressive or malevolent manner. Because respondent was also forced to initiate the present Complaint, it
was only proper that it was awarded attorney’s fees. Lastly, the CA was correct in reducing the award of exemplary
damages or attorney’s fees, since neither is meant to enrich anyone.
WHEREFORE, in view of the foregoing, the assailed Decision of the Court of Appeals is hereby AFFIRMED. The
present Petition is DENIED.
SO ORDERED.
G.R. No. 177498 January 18, 2012
STOLT-NIELSEN TRANSPORTATION GROUP, INC. AND CHUNG GAI SHIP MANAGEMENT, Petitioners,
vs.
SULPECIO MEDEQUILLO, JR., Respondent.
DECISION
PEREZ, J.:
Before the Court is a Petition for Review on Certiorari of the Decision of the First Division of the Court of Appeals in
1 2

CA-G.R. SP No. 91632 dated 31 January 2007, denying the petition for certiorari filed by Stolt-Nielsen
Transportation Group, Inc. and Chung Gai Ship Management (petitioners) and affirming the Resolution of the
National Labor Relations Commission (NLRC). The dispositive portion of the assailed decision reads:
WHEREFORE, the petition is hereby DENIED. Accordingly, the assailed Decision promulgated on February 28,
2003 and the Resolution dated July 27, 2005 are AFFIRMED. 3

The facts as gathered by this Court follow:

On 6 March 1995, Sulpecio Madequillo (respondent) filed a complaint before the Adjudication Office of the Philippine
Overseas Employment Administration (POEA) against the petitioners for illegal dismissal under a first contract and
for failure to deploy under a second contract. In his complaint-affidavit, respondent alleged that:
4

• On 6 November 1991(First Contract), he was hired by Stolt-Nielsen Marine Services, Inc on behalf of its
principal Chung-Gai Ship Management of Panama as Third Assistant Engineer on board the vessel "Stolt
Aspiration" for a period of nine (9) months;
• He would be paid with a monthly basic salary of $808.00 and a fixed overtime pay of $404.00 or a total of
$1,212.00 per month during the employment period commencing on 6 November 1991;
• On 8 November 1991, he joined the vessel MV "Stolt Aspiration";
• On February 1992 or for nearly three (3) months of rendering service and while the vessel was at Batangas,
he was ordered by the ship’s master to disembark the vessel and repatriated back to Manila for no reason or
explanation;
• Upon his return to Manila, he immediately proceeded to the petitioner’s office where he was transferred
employment with another vessel named MV "Stolt Pride" under the same terms and conditions of the First
Contract;
• On 23 April 1992, the Second Contract was noted and approved by the POEA;
 • The POEA, without knowledge that he was not deployed with the vessel, certified the Second Employment
Contract on 18 September 1992.
• Despite the commencement of the Second Contract on 21 April 1992, petitioners failed to deploy him with
the vessel MV "Stolt Pride";
• He made a follow-up with the petitioner but the same refused to comply with the Second Employment
Contract.
• On 22 December 1994, he demanded for his passport, seaman’s book and other employment documents.
However, he was only allowed to claim the said documents in exchange of his signing a document;
• He was constrained to sign the document involuntarily because without these documents, he could not seek
employment from other agencies.
He prayed for actual, moral and exemplary damages as well as attorney’s fees for his illegal dismissal and in view of
the Petitioners’ bad faith in not complying with the Second Contract.
The case was transferred to the Labor Arbiter of the DOLE upon the effectivity of the Migrant Workers and Overseas
Filipinos Act of 1995.
The parties were required to submit their respective position papers before the Labor Arbiter. However, petitioners
failed to submit their respective pleadings despite the opportunity given to them. 5

On 21 July 2000, Labor Arbiter Vicente R. Layawen rendered a judgment finding that the respondent was
6

constructively dismissed by the petitioners. The dispositive portion reads:

WHEREFORE, premises considered, judgment is hereby rendered, declaring the respondents guilty of
constructively dismissing the complainant by not honoring the employment contract. Accordingly, respondents are
hereby ordered jointly and solidarily to pay complainant the following:
• $12,537.00 or its peso equivalent at the time of payment. 7

The Labor Arbiter found the first contract entered into by and between the complainant and the respondents to have
been novated by the execution of the second contract. In other words, respondents cannot be held liable for the first
contract but are clearly and definitely liable for the breach of the second contract. However, he ruled that there was
8

no substantial evidence to grant the prayer for moral and exemplary damages. 9

The petitioners appealed the adverse decision before the National Labor Relations Commission assailing that they
were denied due process, that the respondent cannot be considered as dismissed from employment because he
was not even deployed yet and the monetary award in favor of the respondent was exorbitant and not in accordance
with law.
10

On 28 February 2003, the NLRC affirmed with modification the Decision of the Labor Arbiter. The dispositive portion
reads:
WHEREFORE, premises considered, the decision under review is hereby, MODIFIED BY DELETING the award of
overtime pay in the total amount of Three Thousand Six Hundred Thirty Six US Dollars (US $3,636.00).
In all other respects, the assailed decision so stands as, AFFIRMED. 11

Before the NLRC, the petitioners assailed that they were not properly notified of the hearings that were conducted
before the Labor Arbiter. They further alleged that after the suspension of proceedings before the POEA, the only
notice they received was a copy of the decision of the Labor Arbiter. 12

The NLRC ruled that records showed that attempts to serve the various notices of hearing were made on
petitioners’ counsel on record but these failed on account of their failure to furnish the Office of the Labor Arbiter a
copy of any notice of change of address. There was also no evidence that a service of notice of change of address
was served on the POEA. 13

The NLRC upheld the finding of unjustified termination of contract for failure on the part of the petitioners to present
evidence that would justify their non-deployment of the respondent. It denied the claim of the petitioners that the
14

monetary award should be limited only to three (3) months for every year of the unexpired term of the contract. It
ruled that the factual incidents material to the case transpired within 1991-1992 or before the effectivity of Republic
Act No. 8042 or the Migrant Workers and Overseas Filipinos Act of 1995 which provides for such limitation. 15

However, the NLRC upheld the reduction of the monetary award with respect to the deletion of the overtime pay due
to the non-deployment of the respondent. 16

The Partial Motion for Reconsideration filed by the petitioners was denied by the NLRC in its Resolution dated 27
July 2005. 17

The petitioners filed a Petition for Certiorari before the Court of Appeals alleging grave abuse of discretion on the
part of NLRC when it affirmed with modification the ruling of the Labor Arbiter. They prayed that the Decision and
Resolution promulgated by the NLRC be vacated and another one be issued dismissing the complaint of the
respondent.
Finding no grave abuse of discretion, the Court of Appeals AFFIRMED the Decision of the labor tribunal.
The Court’s Ruling
The following are the assignment of errors presented before this Court:
 I.
THE COURT A QUO ERRED IN FINDING THAT THE SECOND CONTRACT NOVATED THE FIRST CONTRACT.
• THERE WAS NO NOVATION OF THE FIRST CONTRACT BY THE SECOND CONTRACT; THE
ALLEGATION OF ILLEGAL DISMISSAL UNDER THE FIRST CONTRACT MUST BE RESOLVED
SEPARATELY FROM THE ALLEGATION OF FAILURE TO DEPLOY UNDER THE SECOND CONTRACT.
• THE ALLEGED ILLEGAL DISMISSAL UNDER THE FIRST CONTRACT TRANSPIRED MORE THAN
THREE (3) YEARS AFTER THE CASE WAS FILED AND THEREFORE HIS CASE SHOULD HAVE BEEN
DISMISSED FOR BEING BARRED BY PRESCRIPTION.
II.
THE COURT A QUO ERRED IN RULING THAT THERE WAS CONSTRUCTIVE DISMISSAL UNDER THE
SECOND CONTRACT.
• IT IS LEGALLY IMPOSSIBLE TO HAVE CONSTRUCTIVE DISMISSAL WHEN THE EMPLOYMENT HAS
NOT YET COMMENCED.
• ASSUMING THERE WAS OMISSION UNDER THE SECOND CONTRACT, PETITIONERS CAN ONLY BE
FOUND AS HAVING FAILED IN DEPLOYING PRIVATE RESPONDENT BUT WITH VALID REASON.
III.
THE COURT A QUO ERRED IN FAILING TO FIND THAT EVEN ASSUMING THERE WAS BASIS FOR HOLDING
PETITIONER LIABLE FOR "FAILURE TO DEPLOY" RESPONDENT, THE POEA RULES PENALIZES SUCH
OMISSION WITH A MERE "REPRIMAND." 18

The petitioners contend that the first employment contract between them and the private respondent is different from
and independent of the second contract subsequently executed upon repatriation of respondent to Manila.
We do not agree.
Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one
which extinguishes or modifies the first, either by changing the object or principal conditions, or, by substituting
another in place of the debtor, or by subrogating a third person in the rights of the creditor. In order for novation to
take place, the concurrence of the following requisites is indispensable:
1. There must be a previous valid obligation,
2. There must be an agreement of the parties concerned to a new contract,
3. There must be the extinguishment of the old contract, and
4. There must be the validity of the new contract. 19

In its ruling, the Labor Arbiter clarified that novation had set in between the first and second contract. To quote:
xxx [T]his office would like to make it clear that the first contract entered into by and between the complainant and
the respondents is deemed to have been novated by the execution of the second contract. In other words,
respondents cannot be held liable for the first contract but are clearly and definitely liable for the breach of the
second contract. 20

This ruling was later affirmed by the Court of Appeals in its decision ruling that:
Guided by the foregoing legal precepts, it is evident that novation took place in this particular case. The parties
impliedly extinguished the first contract by agreeing to enter into the second contract to placate Medequillo, Jr. who
was unexpectedly dismissed and repatriated to Manila. The second contract would not have been necessary if the
petitioners abided by the terms and conditions of Madequillo, Jr.’s employment under the first contract. The records
also reveal that the 2nd contract extinguished the first contract by changing its object or principal. These contracts
were for overseas employment aboard different vessels. The first contract was for employment aboard the MV "Stolt
Aspiration" while the second contract involved working in another vessel, the MV "Stolt Pride." Petitioners and
Madequillo, Jr. accepted the terms and conditions of the second contract. Contrary to petitioners’ assertion, the first
contract was a "previous valid contract" since it had not yet been terminated at the time of Medequillo, Jr.’s
repatriation to Manila. The legality of his dismissal had not yet been resolved with finality. Undoubtedly, he was still
employed under the first contract when he negotiated with petitioners on the second contract. As such, the NLRC
correctly ruled that petitioners could only be held liable under the second contract. 21

We concur with the finding that there was a novation of the first employment contract.
We reiterate once more and emphasize the ruling in Reyes v. National Labor Relations Commission, to wit: 22

x x x [F]indings of quasi-judicial bodies like the NLRC, and affirmed by the Court of Appeals in due course, are
conclusive on this Court, which is not a trier of facts.
xxxx
x x x Findings of fact of administrative agencies and quasi-judicial bodies, which have acquired expertise
because their jurisdiction is confined to specific matters, are generally accorded not only respect, but
finality when affirmed by the Court of Appeals. Such findings deserve full respect and, without justifiable reason,
ought not to be altered, modified or reversed.(Emphasis supplied) 23
With the finding that respondent "was still employed under the first contract when he negotiated with petitioners on
the second contract", novation became an unavoidable conclusion.
24

Equally settled is the rule that factual findings of labor officials, who are deemed to have acquired expertise in
matters within their jurisdiction, are generally accorded not only respect but even finality by the courts when
supported by substantial evidence, i.e., the amount of relevant evidence which a reasonable mind might accept as
adequate to justify a conclusion. But these findings are not infallible. When there is a showing that they were arrived
25

at arbitrarily or in disregard of the evidence on record, they may be examined by the courts. In this case, there was
26

no showing of any arbitrariness on the part of the lower courts in their findings of facts. Hence, we follow the settled
rule.
We need not dwell on the issue of prescription. It was settled by the Court of Appeals with its ruling that recovery of
damages under the first contract was already time-barred. Thus:
Accordingly, the prescriptive period of three (3) years within which Medequillo Jr. may initiate money claims under
the 1st contract commenced on the date of his repatriation. xxx The start of the three (3) year prescriptive period
must therefore be reckoned on February 1992, which by Medequillo Jr.’s own admission was the date of his
repatriation to Manila. It was at this point in time that Medequillo Jr.’s cause of action already accrued under the first
contract. He had until February 1995 to pursue a case for illegal dismissal and damages arising from the 1st
contract. With the filing of his Complaint-Affidavit on March 6, 1995, which was clearly beyond the prescriptive
period, the cause of action under the 1st contract was already time-barred. 27

The issue that proceeds from the fact of novation is the consequence of the non-deployment of respondent.
The petitioners argue that under the POEA Contract, actual deployment of the seafarer is a suspensive condition for
the commencement of the employment. We agree with petitioners on such point. However, even without actual
28

deployment, the perfected contract gives rise to obligations on the part of petitioners.
A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give
something or to render some service. The contracting parties may establish such stipulations, clauses, terms and
29

conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order,
or public policy.
30

The POEA Standard Employment Contract provides that employment shall commence "upon the actual departure of
the seafarer from the airport or seaport in the port of hire." We adhere to the terms and conditions of the contract so
31

as to credit the valid prior stipulations of the parties before the controversy started. Else, the obligatory force of
every contract will be useless. Parties are bound not only to the fulfillment of what has been expressly stipulated but
also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. 32

Thus, even if by the standard contract employment commences only "upon actual departure of the seafarer", this
does not mean that the seafarer has no remedy in case of non-deployment without any valid reason. Parenthetically,
the contention of the petitioners of the alleged poor performance of respondent while on board the first ship MV
"Stolt Aspiration" cannot be sustained to justify the non-deployment, for no evidence to prove the same was
presented. 33

We rule that distinction must be made between the perfection of the employment contract and the commencement
of the employer-employee relationship. The perfection of the contract, which in this case coincided with the date of
execution thereof, occurred when petitioner and respondent agreed on the object and the cause, as well as the rest
of the terms and conditions therein. The commencement of the employer-employee relationship, as earlier
discussed, would have taken place had petitioner been actually deployed from the point of hire. Thus, even before
the start of any employer-employee relationship, contemporaneous with the perfection of the employment contract
was the birth of certain rights and obligations, the breach of which may give rise to a cause of action against the
erring party. Thus, if the reverse had happened, that is the seafarer failed or refused to be deployed as agreed upon,
he would be liable for damages. 34

Further, we do not agree with the contention of the petitioners that the penalty is a mere reprimand.
The POEA Rules and Regulations Governing Overseas Employment dated 31 May 1991 provides for the
35

consequence and penalty against in case of non-deployment of the seafarer without any valid reason. It reads:
Section 4. Worker’s Deployment. — An agency shall deploy its recruits within the deployment period as indicated
below:
xxx
b. Thirty (30) calendar days from the date of processing by the administration of the employment contracts of
seafarers.
Failure of the agency to deploy a worker within the prescribed period without valid reasons shall be a cause
for suspension or cancellation of license or fine. In addition, the agency shall return all documents at no
cost to the worker.(Emphasis and underscoring supplied)
The appellate court correctly ruled that the penalty of reprimand provided under Rule IV, Part VI of the POEA Rules
36

and Regulations Governing the Recruitment and Employment of Land-based Overseas Workers is not applicable in
this case. The breach of contract happened on February 1992 and the law applicable at that time was the 1991
POEA Rules and Regulations Governing Overseas Employment. The penalty for non-deployment as discussed is
suspension or cancellation of license or fine.
Now, the question to be dealt with is how will the seafarer be compensated by reason of the unreasonable non-
deployment of the petitioners?
The POEA Rules Governing the Recruitment and Employment of Seafarers do not provide for the award of
damages to be given in favor of the employees. The claim provided by the same law refers to a valid contractual
claim for compensation or benefits arising from employer-employee relationship or for any personal injury, illness or
death at levels provided for within the terms and conditions of employment of seafarers. However, the absence of
the POEA Rules with regard to the payment of damages to the affected seafarer does not mean that the seafarer is
precluded from claiming the same. The sanctions provided for non-deployment do not end with the suspension or
cancellation of license or fine and the return of all documents at no cost to the worker. As earlier discussed, they do
not forfend a seafarer from instituting an action for damages against the employer or agency which has failed to
deploy him. 37

We thus decree the application of Section 10 of Republic Act No. 8042 (Migrant Workers Act) which provides for
money claims by reason of a contract involving Filipino workers for overseas deployment. The law provides:
lavvphil

Sec. 10. Money Claims. – Notwithstanding any provision of law to the contrary, the Labor Arbiters of the National
Labor Relations Commission (NLRC) shall have the original and exclusive jurisdiction to hear and decide, within
ninety (90) calendar days after the filing of the complaint, the claims arising out of an employer-employee
relationship or by virtue of any law or contract involving Filipino workers for overseas deployment including claims
for actual, moral, exemplary and other forms of damages. x x x (Underscoring supplied)
Following the law, the claim is still cognizable by the labor arbiters of the NLRC under the second phrase of the
provision.
Applying the rules on actual damages, Article 2199 of the New Civil Code provides that one is entitled to an
adequate compensation only for such pecuniary loss suffered by him as he has duly proved. Respondent is thus
liable to pay petitioner actual damages in the form of the loss of nine (9) months’ worth of salary as provided in the
contract. This is but proper because of the non-deployment of respondent without just cause.
38

WHEREFORE, the appeal is DENIED. The 31 January 2007 Decision of the Court of Appeals in CA-G.R. SP. No.
91632 is hereby AFFIRMED. The Petitioners are hereby ordered to pay Sulpecio Medequillo, Jr., the award of
actual damages equivalent to his salary for nine (9) months as provided by the Second Employment Contract.
SO ORDERED.

G.R. No. 171750 January 25, 2012

UNITED PULP AND PAPER CO., INC., Petitioner,
vs.
ACROPOLIS CENTRAL GUARANTY CORPORATION, Respondent.
DECISION
MENDOZA, J.:
This is a petition for review under Rule 45 praying for the annulment of the November 17, 2005 Decision and the
1

March 2, 2006 Resolution of the Court of Appeals (CA) in CA-G.R. SP No. 89135 entitled Acropolis Central
2

Guaranty Corporation (formerly known as the Philippine Pryce Assurance Corp.) v. Hon. Oscar B. Pimentel, as
Presiding Judge, RTC of Makati City, Branch 148 (RTC), and United Pulp and Paper Co., Inc.
The Facts
On May 14, 2002, United Pulp and Paper Co., Inc. (UPPC) filed a civil case for collection of the amount of
₱42,844,353.14 against Unibox Packaging Corporation (Unibox) and Vicente Ortega (Ortega) before the Regional
Trial Court of Makati, Branch 148 (RTC). UPPC also prayed for a Writ of Preliminary Attachment against the
3

properties of Unibox and Ortega for the reason that the latter were on the verge of insolvency and were transferring
assets in fraud of creditors. On August 29, 2002, the RTC issued the Writ of Attachment after UPPC posted a bond
4 5

in the same amount of its claim. By virtue of the said writ, several properties and assets of Unibox and Ortega were
attached.6

On October 10, 2002, Unibox and Ortega filed their Motion for the Discharge of Attachment, praying that they be
7

allowed to file a counter-bond in the amount of ₱42,844,353.14 and that the writ of preliminary attachment be
discharged after the filing of such bond. Although this was opposed by UPPC, the RTC, in its Order dated October
25, 2002, granted the said motion for the discharge of the writ of attachment subject to the condition that Unibox and
Ortega file a counter-bond. Thus, on November 21, 2002, respondent Acropolis Central Guaranty Corporation
8
(Acropolis) issued the Defendant’s Bond for Dissolution of Attachment in the amount of ₱42,844,353.14 in favor of
9

Unibox.
Not satisfied with the counter-bond issued by Acropolis, UPPC filed its Manifestation and Motion to Discharge the
Counter-Bond dated November 27, 2002, claiming that Acropolis was among those insurance companies whose
10

licenses were set to be cancelled due to their failure to put up the minimum amount of capitalization required by law.
For that reason, UPPC prayed for the discharge of the counter-bond and the reinstatement of the attachment. In its
December 10, 2002 Order, the RTC denied UPPC’s Motion to Discharge Counter-Bond and, instead, approved and
11

admitted the counter-bond posted by Acropolis. Accordingly, it ordered the sheriff to cause the lifting of the
attachment on the properties of Unibox and Ortega.
On September 29, 2003, Unibox, Ortega and UPPC executed a compromise agreement, wherein Unibox and 12

Ortega acknowledged their obligation to UPPC in the amount of ₱35,089,544.00 as of August 31, 2003, inclusive of
the principal and the accrued interest, and bound themselves to pay the said amount in accordance with a schedule
of payments agreed upon by the parties. Consequently, the RTC promulgated its Judgment dated October 2, 2003
13

approving the compromise agreement.

For failure of Unibox and Ortega to pay the required amounts for the months of May and June 2004 despite demand
by UPPC, the latter filed its Motion for Execution to satisfy the remaining unpaid balance. In the July 30, 2004
14

Order, the RTC acted favorably on the said motion and, on August 4, 2004, it issued the requested Writ of
15

Execution. 16

The sheriff then proceeded to enforce the Writ of Execution. It was discovered, however, that Unibox had already
ceased its business operation and all of its assets had been foreclosed by its creditor bank. Moreover, the
responses of the selected banks which were served with notices of garnishment indicated that Unibox and Ortega
no longer had funds available for garnishment. The sheriff also proceeded to the residence of Ortega to serve the
writ but he was denied entry to the premises. Despite his efforts, the sheriff reported in his November 4, 2008 Partial
Return that there was no satisfaction of the remaining unpaid balance by Unibox and Ortega.
17

On the basis of the said return, UPPC filed its Motion to Order Surety to Pay Amount of Counter-Bond directed at
18

Acropolis. On November 30, 2004, the RTC issued its Order granting the motion and ordering Acropolis to comply
19

with the terms of its counter-bond and pay UPPC the unpaid balance of the judgment in the amount of
₱27,048,568.78 with interest of 12% per annum from default.
Thereafter, on December 13, 2004, Acropolis filed its Manifestation and Very Urgent Motion for
Reconsideration, arguing that it could not be made to pay the amount of the counter-bond because it did not
20

receive a demand for payment from UPPC. Furthermore, it reasoned that its obligation had been discharged by
virtue of the novation of its obligation pursuant to the compromise agreement executed by UPPC, Unibox and
Ortega. The motion, which was set for hearing on December 17, 2004, was received by the RTC and UPPC only on
December 20, 2004. In the Order dated February 22, 2005, the RTC denied the motion for reconsideration for lack
21

of merit and for having been filed three days after the date set for the hearing on the said motion. 22

Aggrieved, Acropolis filed a petition for certiorari before the CA with a prayer for the issuance of a Temporary
Restraining Order and Writ of Preliminary Injunction. On November 17, 2005, the CA rendered its
23

Decision granting the petition, reversing the February 22, 2005 Order of the RTC, and absolving and relieving
24

Acropolis of its liability to honor and pay the amount of its counter-attachment bond. In arriving at said disposition,
the CA stated that, firstly, Acropolis was able to comply with the three-day notice rule because the motion it filed was
sent by registered mail on December 13, 2004, four days prior to the hearing set for December 17, 2004; secondly, 25

UPPC failed to comply with the following requirements for recovery of a judgment creditor from the surety on the
counter-bond in accordance with Section 17, Rule 57 of the Rules of Court, to wit: (1) demand made by creditor on
the surety, (2) notice to surety and (3) summary hearing as to his liability for the judgment under the counter-
bond; and, thirdly, the failure of UPPC to include Acropolis in the compromise agreement was fatal to its case.
26 27

UPPC then filed a motion for reconsideration but it was denied by the CA in its Resolution dated March 1, 2006. 28

Hence, this petition.

The Issues
For the allowance of its petition, UPPC raises the following
GROUNDS
I.
The Court of Appeals erred in not holding respondent liable on its counter-attachment bond which it posted before
the trial court inasmuch as:
A. The requisites for recovering upon the respondent-surety were clearly complied with by petitioner and the trial
court, inasmuch as prior demand and notice in writing was made upon respondent, by personal service, of
petitioner’s motion to order respondent surety to pay the amount of its counter-attachment bond, and a hearing
thereon was held for the purpose of determining the liability of the respondent-surety.
B. The terms of respondent’s counter-attachment bond are clear, and unequivocally provide that respondent as
surety shall jointly and solidarily bind itself with defendants to secure and pay any judgment that petitioner may
recover in the action. Hence, such being the terms of the bond, in accordance with fair insurance practices,
respondent cannot, and should not be allowed to, evade its liability to pay on its counter-attachment bond posted by
it before the trial court.
 II.
The Court of Appeals erred in holding that the trial court gravely abused its discretion in denying respondent’s
manifestation and motion for reconsideration considering that the said motion failed to comply with the three (3)-day
notice rule under Section 4, Rule 15 of the Rules of Court, and that it had lacked substantial merit to warrant a
reversal of the trial court’s previous order.
29

Simply put, the issues to be dealt with in this case are as follows:
(1) Whether UPPC failed to make the required demand and notice upon Acropolis; and
(2) Whether the execution of the compromise agreement between UPPC and Unibox and Ortega was tantamount to
a novation which had the effect of releasing Acropolis from its obligation under the counter-attachment bond.
The Court’s Ruling
UPPC complied with the twin requirements of notice and demand
On the recovery upon the counter-bond, the Court finds merit in the arguments of the petitioner.
UPPC argues that it complied with the requirement of demanding payment from Acropolis by notifying it, in writing
and by personal service, of the hearing held on UPPC’s Motion to Order Respondent-Surety to Pay the
Bond. Moreover, it points out that the terms of the counter-attachment bond are clear in that Acropolis, as surety,
30

shall jointly and solidarily bind itself with Unibox and Ortega to secure the payment of any judgment that UPPC may
recover in the action.31

Section 17, Rule 57 of the Rules of Court sets forth the procedure for the recovery from a surety on a counter-bond:
Sec. 17. Recovery upon the counter-bond. – When the judgment has become executory, the surety or sureties on
any counter-bond given pursuant to the provisions of this Rule to secure the payment of the judgment shall become
charged on such counter-bond and bound to pay the judgment obligee upon demand the amount due under the
judgment, which amount may be recovered from such surety or sureties after notice and summary hearing on the
same action.
From a reading of the abovequoted provision, it is evident that a surety on a counter-bond given to secure the
payment of a judgment becomes liable for the payment of the amount due upon: (1) demand made upon the surety;
and (2) notice and summary hearing on the same action. After a careful scrutiny of the records of the case, the
Court is of the view that UPPC indeed complied with these twin requirements.
This Court has consistently held that the filing of a complaint constitutes a judicial demand. Accordingly, the filing by
32

UPPC of the Motion to Order Surety to Pay Amount of Counter-Bond was already a demand upon Acropolis, as
surety, for the payment of the amount due, pursuant to the terms of the bond. In said bond, Acropolis bound itself in
the sum of ₱ 42,844,353.14 to secure the payment of any judgment that UPPC might recover against Unibox and
Ortega. 33

Furthermore, an examination of the records reveals that the motion was filed by UPPC on November 11, 2004 and
was set for hearing on November 19, 2004. Acropolis was duly notified of the hearing and it was personally served
34

a copy of the motion on November 11, 2004, contrary to its claim that it did not receive a copy of the motion.
35

On November 19, 2004, the case was reset for hearing on November 30, 2004. The minutes of the hearing on both
dates show that only the counsel for UPPC was present. Thus, Acropolis was given the opportunity to defend itself.
That it chose to ignore its day in court is no longer the fault of the RTC and of UPPC. It cannot now invoke the
alleged lack of notice and hearing when, undeniably, both requirements were met by UPPC.
No novation despite compromise agreement; Acropolis still liable under the terms of the counter-bond
UPPC argues that the undertaking of Acropolis is to secure any judgment rendered by the RTC in its favor. It points
out that because of the posting of the counter-bond by Acropolis and the dissolution of the writ of preliminary
attachment against Unibox and Ortega, UPPC lost its security against the latter two who had gone bankrupt. It cites
36

the cases of Guerrero v. Court of Appeals and Martinez v. Cavives to support its position that the execution of a
37 38

compromise agreement between the parties and the subsequent rendition of a judgment based on the said
compromise agreement does not release the surety from its obligation nor does it novate the obligation. 39

Acropolis, on the other hand, contends that it was not a party to the compromise agreement. Neither was it aware of
the execution of such an agreement which contains an acknowledgment of liability on the part of Unibox and Ortega
that was prejudicial to it as the surety. Accordingly, it cannot be bound by the judgment issued based on the said
agreement. Acropolis also questions the applicability of Guerrero and draws attention to the fact that in said case,
40

the compromise agreement specifically stipulated that the surety shall continue to be liable, unlike in the case at
bench where the compromise agreement made no mention of its obligation to UPPC. 41

On this issue, the Court finds for UPPC also.

The terms of the Bond for Dissolution of Attachment issued by Unibox and Acropolis in favor of UPPC are clear and
leave no room for ambiguity:
WHEREAS, the Honorable Court in the above-entitled case issued on _____ an Order dissolving / lifting partially the
writ of attachment levied upon the defendant/s personal property, upon the filing of a counterbond by the defendants
in the sun of PESOS FORTY TWO MILLION EIGHT HUNDRED FORTY FOUR THOUSAND THREE HUNDRED
FIFTY THREE AND 14/100 ONLY (P 42,844,353.14) Philippine Currency.
NOW, THEREFORE, we UNIBOX PACKAGING CORP. as Principal and PHILIPPINE PRYCE ASSURANCE CORP.,
a corporation duly organized and existing under and by virtue of the laws of the Philippines, as Surety, in
consideration of the dissolution of said attachment, hereby jointly and severally bind ourselves in the sum
of FORTY TWO MILLION EIGHT HUNDRED FORTY FOUR THOUSAND THREE HUNDRED FIFTY THREE AND
14/100 ONLY (P 42,844,353.14) Philippine Currency, in favor of the plaintiff to secure the payment of any
judgment that the plaintiff may recover against the defendants in this action. [Emphasis and underscoring
42

supplied]
Based on the foregoing, Acropolis voluntarily bound itself with Unibox to be solidarily liable to answer for ANY
judgment which UPPC may recover from Unibox in its civil case for collection. Its counter-bond was issued in
consideration of the dissolution of the writ of attachment on the properties of Unibox and Ortega. The counter-bond
then replaced the properties to ensure recovery by UPPC from Unibox and Ortega. It would be the height of injustice
to allow Acropolis to evade its obligation to UPPC, especially after the latter has already secured a favorable
judgment.
This issue is not novel. In the case of Luzon Steel Corporation v. Sia, Luzon Steel Corporation sued Metal
43

Manufacturing of the Philippines and Jose Sia for breach of contract and damages. A writ of preliminary attachment
was issued against the properties of the defendants therein but the attachment was lifted upon the filing of a
counter-bond issued by Sia, as principal, and Times Surety & Insurance Co., as surety. Later, the plaintiff and the
defendants entered into a compromise agreement whereby Sia agreed to settle the plaintiff’s claim. The lower court
rendered a judgment in accordance with the terms of the compromise. Because the defendants failed to comply with
the same, the plaintiff obtained a writ of execution against Sia and the surety on the counter-bond. The surety
moved to quash the writ of execution on the ground that it was not a party to the compromise and that the writ was
issued without giving the surety notice and hearing. Thus, the court set aside the writ of execution and cancelled the
counter-bond. On appeal, this Court, speaking through the learned Justice J.B.L. Reyes, discussed the nature of the
liability of a surety on a counter-bond:
Main issues posed are (1) whether the judgment upon the compromise discharged the surety from its obligation
under its attachment counterbond and (2) whether the writ of execution could be issued against the surety without
previous exhaustion of the debtor's properties.
Both questions can be solved by bearing in mind that we are dealing with a counterbond filed to discharge a levy on
attachment. Rule 57, section 12, specifies that an attachment may be discharged upon the making of a cash deposit
or filing a counterbond "in an amount equal to the value of the property attached as determined by the judge"; that
upon the filing of the counterbond "the property attached ... shall be delivered to the party making the deposit or
giving the counterbond, or the person appearing on his behalf, the deposit or counterbond aforesaid standing in
place of the property so released."
The italicized expressions constitute the key to the entire problem. Whether the judgment be rendered after trial on
the merits or upon compromise, such judgment undoubtedly may be made effective upon the property released; and
since the counterbond merely stands in the place of such property, there is no reason why the judgment should not
be made effective against the counterbond regardless of the manner how the judgment was obtained.
xxx
As declared by us in Mercado v. Macapayag, 69 Phil. 403, 405-406, in passing upon the liability of counter sureties
in replevin who bound themselves to answer solidarily for the obligations of the defendants to the plaintiffs in a fixed
amount of ₱ 912.04, to secure payment of the amount that said plaintiff be adjudged to recover from the defendants,
the liability of the sureties was fixed and conditioned on the finality of the judgment rendered regardless of whether
the decision was based on the consent of the parties or on the merits. A judgment entered on a stipulation is
nonetheless a judgment of the court because consented to by the parties. 44

[Emphases and underscoring supplied]

The argument of Acropolis that its obligation under the counter-bond was novated by the compromise agreement is,
thus, untenable. In order for novation to extinguish its obligation, Acropolis must be able to show that there is an
incompatibility between the compromise agreement and the terms of the counter-bond, as required by Article 1292
of the Civil Code, which provides that:
Art. 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative that
it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with
each other. (1204)
Nothing in the compromise agreement indicates, or even hints at, releasing Acropolis from its obligation to pay
UPPC after the latter has obtained a favorable judgment. Clearly, there is no incompatibility between the
compromise agreement and the counter-bond. Neither can novation be presumed in this case. As explained
in Duñgo v. Lopena: 45

Novation by presumption has never been favored. To be sustained, it need be established that the old and new
contracts are incompatible in all points, or that the will to novate appears by express agreement of the parties or in
acts of similar import. 46

All things considered, Acropolis, as surety under the terms of the counter-bond it issued, should be held liable for
the payment of the unpaid balance due to UPPC.
Three-day notice rule, not a hard and fast rule
Although this issue has been obviated by our disposition of the two main issues, the Court would like to point out
that the three-day notice requirement is not a hard and fast rule and substantial compliance is allowed.
Pertinently, Section 4, Rule 15 of the Rules of Court reads:
Sec. 4. Hearing of motion. – Except for motions which the court may act upon without prejudicing the rights of the
adverse party, every written motion shall be set for hearing by the applicant.
Every written motion required to be heard and the notice of the hearing thereof shall be served in such a manner
as to insure its receipt by the other party at least three (3) days before the date of hearing, unless the court
for good cause sets the hearing on shorter notice. [Emphasis supplied] 1âwphi1

The law is clear that it intends for the other party to receive a copy of the written motion at least three days before
the date set for its hearing. The purpose of the three (3)-day notice requirement, which was established not for the
benefit of the movant but rather for the adverse party, is to avoid surprises upon the latter and to grant it sufficient
time to study the motion and to enable it to meet the arguments interposed therein. In Preysler, Jr. v. Manila
47

Southcoast Development Corporation, the Court restated the ruling that "the date of the hearing should be at least
48

three days after receipt of the notice of hearing by the other parties."
It is not, however, a hard and fast rule. Where a party has been given the opportunity to be heard, the time to study
the motion and oppose it, there is compliance with the rule. This was the ruling in the case of Jehan Shipping
Corporation v. National Food Authority, where it was written:
49

Purpose Behind the

Notice Requirement
This Court has indeed held time and time again that, under Sections 4 and 5 of Rule 15 of the Rules of Court,
mandatory is the notice requirement in a motion, which is rendered defective by failure to comply with the
requirement. As a rule, a motion without a notice of hearing is considered pro forma and does not affect the
reglementary period for the appeal or the filing of the requisite pleading.
As an integral component of procedural due process, the three-day notice required by the Rules is not intended for
the benefit of the movant. Rather, the requirement is for the purpose of avoiding surprises that may be sprung upon
the adverse party, who must be given time to study and meet the arguments in the motion before a resolution by the
court. Principles of natural justice demand that the right of a party should not be affected without giving it an
opportunity to be heard.
The test is the presence of the opportunity to be heard, as well as to have time to study the motion and
meaningfully oppose or controvert the grounds upon which it is based. Considering the circumstances of the
present case, we believe that the requirements of procedural due process were substantially complied with, and that
the compliance justified a departure from a literal application of the rule on notice of hearing. [Emphasis supplied]
50

In the case at bench, the RTC gave UPPC sufficient time to file its comment on the motion. On January 14, 2005,
UPPC filed its Opposition to the motion, discussing the issues raised by Acropolis in its motion. Thus, UPPC’s right
to due process was not violated because it was afforded the chance to argue its position.
WHEREFORE, the petition is GRANTED. The November 17, 2005 Decision and the March 1, 2006 Resolution of
the Court of Appeals, in CA-G.R. SP No. 89135, are hereby REVERSED and SET ASIDE. The November 30, 2004
Order of the Regional Trial Court, Branch 148, Makati City, ordering Acropolis to comply with the terms of its
counter-bond and pay UPPC the unpaid balance of the judgment in the amount of ₱27,048,568.78 with interest of
12% per annum from default is REINSTATED.

G.R. No. 188726 January 25, 2012

CRESENCIO C. MILLA, Petitioner,

vs.
PEOPLE OF THE PHILIPPINES and MARKET PURSUITS, INC. represented by CARLO V.
LOPEZ, Respondents.
DECISION
SERENO, J.:
This is a Petition for Certiorari assailing the 22 April 2009 Decision and 8 July 2009 Resolution of the Court of
1 2

Appeals, affirming the Decision of the trial court finding petitioner Cresencio C. Milla (Milla) guilty of two counts of
estafa through falsification of public documents.
Respondent Carlo Lopez (Lopez) was the Financial Officer of private respondent, Market Pursuits, Inc. (MPI). In
March 2003, Milla represented himself as a real estate developer from Ines Anderson Development Corporation,
which was engaged in selling business properties in Makati, and offered to sell MPI a property therein located. For
this purpose, he showed Lopez a photocopy of Transfer Certificate of Title (TCT) No. 216445 registered in the name
of spouses Farley and Jocelyn Handog (Sps. Handog), as well as a Special Power of Attorney purportedly executed
by the spouses in favor of Milla. Lopez verified with the Registry of Deeds of Makati and confirmed that the property
3

was indeed registered under the names of Sps. Handog. Since Lopez was convinced by Milla’s authority, MPI
purchased the property for ₱2 million, issuing Security Bank and Trust Co. (SBTC) Check No. 154670 in the amount
of ₱1.6 million. After receiving the check, Milla gave Lopez (1) a notarized Deed of Absolute Sale dated 25 March
2003 executed by Sps. Handog in favor of MPI and (2) an original Owner’s Duplicate Copy of TCT No. 216445. 4

Milla then gave Regino Acosta (Acosta), Lopez’s partner, a copy of the new Certificate of Title to the property, TCT
No. 218777, registered in the name of MPI. Thereafter, it tendered in favor of Milla SBTC Check No. 15467111 in the
amount of ₱400,000 as payment for the balance. 5

Milla turned over TCT No. 218777 to Acosta, but did not furnish the latter with the receipts for the transfer taxes and
other costs incurred in the transfer of the property. This failure to turn over the receipts prompted Lopez to check
with the Register of Deeds, where he discovered that (1) the Certificate of Title given to them by Milla could not be
found therein; (2) there was no transfer of the property from Sps. Handog to MPI; and (3) TCT No. 218777 was
registered in the name of a certain Matilde M. Tolentino.6

Consequently, Lopez demanded the return of the amount of ₱2 million from Milla, who then issued Equitable PCI
Check Nos. 188954 and 188955 dated 20 and 23 May 2003, respectively, in the amount of ₱1 million each.
However, these checks were dishonored for having been drawn against insufficient funds. When Milla ignored the
demand letter sent by Lopez, the latter, by virtue of the authority vested in him by the MPI Board of Directors, filed a
Complaint against the former on 4 August 2003. On 27 and 29 October 2003, two Informations for Estafa Thru
Falsification of Public Documents were filed against Milla and were raffled to the Regional Trial Court, National
Capital Judicial Region, Makati City, Branch 146 (RTC Br. 146). Milla was accused of having committed estafa
7

through the falsification of the notarized Deed of Absolute Sale and TCT No. 218777 purportedly issued by the
Register of Deeds of Makati, viz:
CRIMINAL CASE NO. 034167
That on or about the 25th day of March 2003, in the City of Makati, Philippines and within the jurisdiction of this
Honorable Court, the above-named accused, a private individual, did then and there, wilfully, unlawfully and
feloniously falsify a document denomindated as "Deed of Absolute Sale", duly notarized by Atty. Lope M. Velasco, a
Notary Public for and in the City of Makati, denominated as Doc. No. 297, Page No. 61, Book No. 69, Series of 2003
in his Notarial Register, hence, a public document, by causing it to appear that the registered owners of the property
covered by TCT No. 216445 have sold their land to complainant Market Pursuits, Inc. when in truth and in fact the
said Deed of Absolute Sale was not executed by the owners thereof and after the document was falsified, accused,
with intent to defraud complainant Market Pursuits, Inc. presented the falsified Deed of Sale to complainant, herein
represented by Carlo V. Lopez, and complainant believing in the genuineness of the Deed of Absolute Sale paid
accused the amount of P1,600,000.00 as partial payment for the property, to the damage and prejudice of
complainant in the aforementioned amount of P1,600,000.00
CONTRARY TO LAW.
CRIMINAL CASE NO. 034168
That on or about the 3rd day of April 2003, in the City of Makati, Philippines and within the jurisdiction of this
Honorable Court, the above-named accused, a private individual, did then and there wilfully, unlawfully and
feloniously falsify a document denominated as Transfer Certificate of Title No. 218777 purportedly issued by the
Register of Deeds of Makati City, hence, a public document, by causing it to appear that the lot covered by TCT No.
218777 was already registered in the name of complainant Market Pursuits, Inc., herein represented by Carlo V.
Lopez, when in truth and in fact, as said accused well knew that the Register of Deeds of Makati did not issue TCT
No. 218777 in the name of Market Pursuits Inc., and after the document was falsified, accused with intent to defraud
complainant and complainant believing in the genuineness of Transfer Certificate of Title No. 218777 paid accused
the amount of P400,000.00, to the damage and prejudice of complainant in the aforementioned amount of
P4000,000.00 (sic).
CONTRARY TO LAW. 8

After the prosecution rested its case, Milla filed, with leave of court, his Demurrer to Evidence. In its Order dated 26
9

January 2006, RTC Br. 146 denied the demurrer and ordered him to present evidence, but he failed to do so despite
having been granted ample opportunity. Though the court considered his right to present evidence to have been
10

consequently waived, it nevertheless allowed him to file a memorandum. 11

In its Joint Decision dated 28 November 2006, RTC Br. 146 found Milla guilty beyond reasonable doubt of two
12

counts of estafa through falsification of public documents, thus:

WHEREFORE, judgment is rendered finding the accused Cresencio Milla guilty beyond reasonable doubt of two (2)
counts of estafa through falsification of public documents. Applying the indeterminate sentence law and considering
that the amount involved is more than P22,000,00 this Court should apply the provision that an additional one (1)
year should be imposed for every ten thousand (P10,000.00) pesos in excess of P22,000.00, thus, this Court is
constrained to impose the Indeterminate (sic) penalty of four (4) years, two (2) months one (1) day of prision
correccional as minimum to twenty (20) years of reclusion temporal as maximum for each count.
Accused is adjudged to be civilly liable to the private complainant and is ordered pay (sic) complainant the total
amount of TWO MILLION (P2,000,000.00) PESOS with legal rate of interest from the filing of the Information until
the same is fully paid and to pay the costs. He is further ordered to pay attorney’s fees equivalent to ten (10%) of the
total amount due as and for attorney’s fees. A lien on the monetary award is constituted in favor of the government,
the private complainant not having paid the required docket fee prior to the filing of the Information.
SO ORDERED. 13
On appeal, the Court of Appeals, in the assailed Decision dated 22 April 2009, affirmed the findings of the trial
court. In its assailed Resolution dated 8 July 2009, it also denied Milla’s subsequent Motion for Reconsideration.
14 15

In the instant Petition, Milla alleges that the Decision and the Resolution of the Court of Appeals were not in
accordance with law and jurisprudence. He raises the following issues:
I. Whether the case should be reopened on the ground of negligence of counsel;
II. Whether the principle of novation is applicable;
III. Whether the principle of simple loan is applicable;
IV. Whether the Secretary’s Certificate presented by the prosecution is admissible in evidence;
V. Whether the supposed inconsistent statements of prosecution witnesses cast a doubt on the guilt of
petitioner.
16

In its Comment, MPI argues that (1) Milla was not deprived of due process on the ground of gross negligence of
counsel; (2) under the Revised Penal Code, novation is not one of the grounds for the extinction of criminal liability
for estafa; and (3) factual findings of the trial court, when affirmed by the Court of Appeals, are final and conclusive. 17

On the other hand, in its Comment, the Office of the Solicitor General contends that (1) Milla was accorded due
process of law; (2) the elements of the crime charged against him were established during trial; (3) novation is not a
ground for extinction of criminal liability for estafa; (4) the money received by Milla from Lopez was not in the nature
of a simple loan or cash advance; and (5) Lopez was duly authorized by MPI to institute the action. 18

In his Consolidated Reply, Milla reiterates that the negligence of his former counsel warrants a reopening of the
case, wherein he can present evidence to prove that his transaction with MPI was in the nature of a simple loan. 19

In the disposition of this case, the following issues must be resolved:

I. Whether the negligence of counsel deprived Milla of due process of law
II. Whether the principle of novation can exculpate Milla from criminal liability
III. Whether the factual findings of the trial court, as affirmed by the appellate court, should be reviewed on
appeal
We resolve to deny the Petition.
Milla was not deprived of due process.
Milla argues that the negligence of his former counsel, Atty. Manuel V. Mendoza (Atty. Mendoza), deprived him of
due process. Specifically, he states that after the prosecution had rested its case, Atty. Mendoza filed a Demurrer to
Evidence, and that the former was never advised by the latter of the demurrer. Thus, Milla was purportedly surprised
to discover that RTC Br. 146 had already rendered judgment finding him guilty, and that it had issued a warrant for
his arrest. Atty. Mendoza filed an Omnibus Motion for Leave to File Motion for New Trial, which Milla claims to have
been denied by the trial court for being an inappropriate remedy, thus, demonstrating his counsel’s negligence.
These contentions cannot be given any merit.
The general rule is that the mistake of a counsel binds the client, and it is only in instances wherein the negligence
is so gross or palpable that courts must step in to grant relief to the aggrieved client. In this case, Milla was able to
20

file a Demurrer to Evidence, and upon the trial court’s denial thereof, was allowed to present evidence. Because of
21

his failure to do so, RTC Br. 146 was justified in considering that he had waived his right thereto. Nevertheless, the
trial court still allowed him to submit a memorandum in the interest of justice. Further, contrary to his assertion that
RTC Br. 146 denied the Motion to Recall Warrant of Arrest thereafter filed by his former counsel, a reading of the 2
August 2007 Order of RTC Br. 146 reveals that it partially denied the Omnibus Motion for New Trial and Recall of
Warrant of Arrest, but granted the Motion for Leave of Court to Avail of Remedies under the Rules of Court, allowing
him to file an appeal and lifting his warrant of arrest. 22

It can be gleaned from the foregoing circumstances that Milla was given opportunities to defend his case and was
granted concomitant reliefs. Thus, it cannot be said that the mistake and negligence of his former counsel were so
gross and palpable to have deprived him of due process.
The principle of novation cannot be applied to the case at bar.
Milla contends that his issuance of Equitable PCI Check Nos. 188954 and 188955 before the institution of the
criminal complaint against him novated his obligation to MPI, thereby enabling him to avoid any incipient criminal
liability and converting his obligation into a purely civil one. This argument does not persuade.
The principles of novation cannot apply to the present case as to extinguish his criminal liability. Milla cites People v.
Nery to support his
23

contention that his issuance of the Equitable PCI checks prior to the filing of the criminal complaint averted his
incipient criminal liability. However, it must be clarified that mere payment of an obligation before the institution of a
criminal complaint does not, on its own, constitute novation that may prevent criminal liability. This Court’s ruling in
Nery in fact warned:
It may be observed in this regard that novation is not one of the means recognized by the Penal Code whereby
criminal liability can be extinguished; hence, the role of novation may only be to either prevent the rise of criminal
liability or to cast doubt on the true nature of the original petition, whether or not it was such that its breach would
not give rise to penal responsibility, as when money loaned is made to appear as a deposit, or other similar disguise
is resorted to (cf. Abeto vs. People, 90 Phil. 581; Villareal, 27 Phil. 481).
Even in Civil Law the acceptance of partial payments, without further change in the original relation between the
complainant and the accused, can not produce novation. For the latter to exist, there must be proof of intent to
extinguish the original relationship, and such intent can not be inferred from the mere acceptance of payments on
account of what is totally due. Much less can it be said that the acceptance of partial satisfaction can effect the
nullification of a criminal liability that is fully matured, and already in the process of enforcement. Thus, this Court
has ruled that the offended party’s acceptance of a promissory note for all or part of the amount misapplied does not
obliterate the criminal offense (Camus vs. Court of Appeals, 48 Off. Gaz. 3898). (Emphasis supplied.)
24

Further, in Quinto v. People, this Court exhaustively explained the concept of novation in relation to incipient
25

criminal liability, viz:

Novation is never presumed, and the animus novandi, whether totally or partially, must appear by express
agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.
The extinguishment of the old obligation by the new one is a necessary element of novation which may be effected
either expressly or impliedly. The term "expressly" means that the contracting parties incontrovertibly disclose that
their object in executing the new contract is to extinguish the old one. Upon the other hand, no specific form is
required for an implied novation, and all that is prescribed by law would be an incompatibility between the two
contracts. While there is really no hard and fast rule to determine what might constitute to be a sufficient change that
can bring about novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility between
the old and the new obligations.
There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of
extinguishing an obligation by another which substitutes the same. The first is when novation has been explicitly
stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on
every point. The test of incompatibility is whether or not the two obligations can stand together, each one having its
independent existence. If they cannot, they are incompatible and the latter obligation novates the first. Corollarily,
changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must
take place in any of the essential elements of the obligation, such as its object, cause or principal conditions thereof;
otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation.
The changes alluded to by petitioner consists only in the manner of payment. There was really no substitution of
debtors since private complainant merely acquiesced to the payment but did not give her consent to enter into a
new contract. The appellate court observed:
xxx xxx xxx
The acceptance by complainant of partial payment tendered by the buyer, Leonor Camacho, does not evince the
intention of the complainant to have their agreement novated. It was simply necessitated by the fact that, at that
time, Camacho had substantial accounts payable to complainant, and because of the fact that appellant made
herself scarce to complainant. (TSN, April 15, 1981, 31-32) Thus, to obviate the situation where complainant would
end up with nothing, she was forced to receive the tender of Camacho. Moreover, it is to be noted that the aforesaid
payment was for the purchase, not of the jewelry subject of this case, but of some other jewelry subject of a
previous transaction. (Ibid. June 8, 1981, 10-11)
xxx xxx xxx
Art. 315 of the Revised Penal Code defines estafa and penalizes any person who shall defraud another by
"misappropriating or converting, to the prejudice of another, money, goods, or any other personal property received
by the offender in trust or on commission, or for administration, or under any other obligation involving the duty to
make delivery of or to return the same, even though such obligation be totally or partially guaranteed by a bond; or
by denying having received such money, goods, or other property. It is axiomatic that the gravamen of the offense is
the appropriation or conversion of money or property received to the prejudice of the owner. The terms "convert"
and "misappropriate" have been held to connote "an act of using or disposing of another’s property as if it were
one’s own or devoting it to a purpose or use different from that agreed upon." The phrase, "to misappropriate to
one’s own use" has been said to include "not only conversion to one’s personal advantage, but also every attempt to
dispose of the property of another without right. Verily, the sale of the pieces of jewelry on installments (sic) in
contravention of the explicit terms of the authority granted to her in Exhibit "A" (supra) is deemed to be one of
conversion. Thus, neither the theory of "delay in the fulfillment of commission" nor that of novation posed by
petitioner, can avoid the incipient criminal liability. In People vs. Nery, this Court held:
xxx xxx xxx
The criminal liability for estafa already committed is then not affected by the subsequent novation of contract, for it is
a public offense which must be prosecuted and punished by the State in its own conation. (Emphasis supplied.) 26

In the case at bar, the acceptance by MPI of the Equitable PCI checks tendered by Milla could not have novated the
original transaction, as the checks were only intended to secure the return of the ₱2 million the former had already
given him. Even then, these checks bounced and were thus unable to satisfy his liability. Moreover, the estafa
involved here was not for simple misappropriation or conversion, but was committed through Milla’s falsification of
public documents, the liability for which cannot be extinguished by mere novation.
The Court of Appeals was correct in affirming the trial court’s finding of guilt.
Finally, Milla assails the factual findings of the trial court. Suffice it to say that factual findings of the trial court,
especially when affirmed by the appellate court, are binding on and accorded great respect by this Court. 27

There was no reversible error on the part of the Court of Appeals when it affirmed the finding of the trial court that
Milla was guilty beyond reasonable doubt of the offense of estafa through falsification of public documents. The
prosecution was able to prove the existence of all the elements of the crime charged. The relevant provisions of the
Revised Penal Code read:
Art. 172. Falsification by private individual and use of falsified documents. – The penalty of prision correccional in its
medium and maximum periods and a fine of not more than 5,000 shall be imposed upon:
1. Any private individual who shall commit any of the falsification enumerated in the next preceding article in any
public or official document or letter of exchange or any other kind of commercial document
xxx xxx xxx
Art. 315. Swindling (estafa). – Any person who shall defraud another by any of the means mentioned hereinbelow
shall be punished by:
xxx xxx xxx
2. By means of any of the following false pretenses or fraudulent acts executed prior to or simultaneously with the
commission of the fraud:
(a) By using a fictitious name, or falsely pretending to possess power, influence, qualifications, property, credit,
agency, business or imaginary transactions; or by means of other similar deceits.
xxx xxx xxx
It was proven during trial that Milla misrepresented himself to have the authority to sell the subject property, and it
was precisely this misrepresentation that prompted MPI to purchase it. Because of its reliance on his authority and
1âwphi1

on the falsified Deed of Absolute Sale and TCT No. 218777, MPI parted with its money in the amount of ₱2 million,
which has not been returned until now despite Milla’s allegation of novation. Clearly, he is guilty beyond reasonable
doubt of estafa through falsification of public documents.
WHEREFORE, we resolve to DENY the Petition. The assailed Decision and Resolution of the Court of Appeals are
hereby AFFIRMED.
SO ORDERED.

G.R. No. 194320 February 1, 2012

MALAYAN INSURANCE CO., INC., Petitioner,
vs.
RODELIO ALBERTO and ENRICO ALBERTO REYES, Respondents.
DECISION
VELASCO, JR., J.:
The Case
Before Us is a Petition for Review on Certiorari under Rule 45, seeking to reverse and set aside the July 28, 2010
Decision of the Court of Appeals (CA) and its October 29, 2010 Resolution denying the motion for reconsideration
1 2

filed by petitioner Malayan Insurance Co., Inc. (Malayan Insurance). The July 28, 2010 CA Decision reversed and
set aside the Decision dated February 2, 2009 of the Regional Trial Court, Branch 51 in Manila.
3

The Facts
At around 5 o’clock in the morning of December 17, 1995, an accident occurred at the corner of EDSA and Ayala
Avenue, Makati City, involving four (4) vehicles, to wit: (1) a Nissan Bus operated by Aladdin Transit with plate
number NYS 381; (2) an Isuzu Tanker with plate number PLR 684; (3) a Fuzo Cargo Truck with plate number PDL
297; and (4) a Mitsubishi Galant with plate number TLM 732. 4

Based on the Police Report issued by the on-the-spot investigator, Senior Police Officer 1 Alfredo M. Dungga (SPO1
Dungga), the Isuzu Tanker was in front of the Mitsubishi Galant with the Nissan Bus on their right side shortly before
the vehicular incident. All three (3) vehicles were at a halt along EDSA facing the south direction when the Fuzo
Cargo Truck simultaneously bumped the rear portion of the Mitsubishi Galant and the rear left portion of the Nissan
Bus. Due to the strong impact, these two vehicles were shoved forward and the front left portion of the Mitsubishi
Galant rammed into the rear right portion of the Isuzu Tanker.5

Previously, particularly on December 15, 1994, Malayan Insurance issued Car Insurance Policy No. PV-025-00220
in favor of First Malayan Leasing and Finance Corporation (the assured), insuring the aforementioned Mitsubishi
Galant against third party liability, own damage and theft, among others. Having insured the vehicle against such
risks, Malayan Insurance claimed in its Complaint dated October 18, 1999 that it paid the damages sustained by the
assured amounting to PhP 700,000. 6

Maintaining that it has been subrogated to the rights and interests of the assured by operation of law upon its
payment to the latter, Malayan Insurance sent several demand letters to respondents Rodelio Alberto (Alberto) and
Enrico Alberto Reyes (Reyes), the registered owner and the driver, respectively, of the Fuzo Cargo Truck, requiring
them to pay the amount it had paid to the assured. When respondents refused to settle their liability, Malayan
Insurance was constrained to file a complaint for damages for gross negligence against respondents. 7

In their Answer, respondents asserted that they cannot be held liable for the vehicular accident, since its proximate
cause was the reckless driving of the Nissan Bus driver. They alleged that the speeding bus, coming from the
service road of EDSA, maneuvered its way towards the middle lane without due regard to Reyes’ right of way. When
the Nissan Bus abruptly stopped, Reyes stepped hard on the brakes but the braking action could not cope with the
inertia and failed to gain sufficient traction. As a consequence, the Fuzo Cargo Truck hit the rear end of the
Mitsubishi Galant, which, in turn, hit the rear end of the vehicle in front of it. The Nissan Bus, on the other hand,
sideswiped the Fuzo Cargo Truck, causing damage to the latter in the amount of PhP 20,000. Respondents also
controverted the results of the Police Report, asserting that it was based solely on the biased narration of the Nissan
Bus driver.
8

After the termination of the pre-trial proceedings, trial ensued. Malayan Insurance presented the testimony of its
lone witness, a motor car claim adjuster, who attested that he processed the insurance claim of the assured and
verified the documents submitted to him. Respondents, on the other hand, failed to present any evidence.
In its Decision dated February 2, 2009, the trial court, in Civil Case No. 99-95885, ruled in favor of Malayan
Insurance and declared respondents liable for damages. The dispositive portion reads:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff against defendants jointly and severally to pay
plaintiff the following:
1. The amount of P700,000.00 with legal interest from the time of the filing of the complaint;
2. Attorney’s fees of P10,000.00 and;
3. Cost of suit.
SO ORDERED. 9

Dissatisfied, respondents filed an appeal with the CA, docketed as CA-G.R. CV No. 93112. In its Decision dated
July 28, 2010, the CA reversed and set aside the Decision of the trial court and ruled in favor of respondents,
disposing:
WHEREFORE, the foregoing considered, the instant appeal is hereby GRANTED and the assailed Decision dated 2
February 2009 REVERSED and SET ASIDE. The Complaint dated 18 October 1999 is hereby DISMISSED for lack
of merit. No costs.
SO ORDERED. 10

The CA held that the evidence on record has failed to establish not only negligence on the part of respondents, but
also compliance with the other requisites and the consequent right of Malayan Insurance to subrogation. It noted
11

that the police report, which has been made part of the records of the trial court, was not properly identified by the
police officer who conducted the on-the-spot investigation of the subject collision. It, thus, held that an appellate
court, as a reviewing body, cannot rightly appreciate firsthand the genuineness of an unverified and unidentified
document, much less accord it evidentiary value. 12

Subsequently, Malayan Insurance filed its Motion for Reconsideration, arguing that a police report is a prima facie
evidence of the facts stated in it. And inasmuch as they never questioned the presentation of the report in evidence,
respondents are deemed to have waived their right to question its authenticity and due execution. 13

In its Resolution dated October 29, 2010, the CA denied the motion for reconsideration. Hence, Malayan Insurance
filed the instant petition.
The Issues
In its Memorandum dated June 27, 2011, Malayan Insurance raises the following issues for Our consideration:
14

I
 WHETHER THE CA ERRED IN REFUSING ADMISSIBILITY OF THE POLICE REPORT SINCE THE
POLICE INVESTIGATOR WHO PREPARED THE SAME DID NOT ACTUALLY TESTIFY IN COURT
THEREON.
II
WHETHER THE SUBROGATION OF MALAYAN INSURANCE IS IMPAIRED AND/OR DEFICIENT.
On the other hand, respondents submit the following issues in its Memorandum dated July 7, 2011:
15

I
WHETHER THE CA IS CORRECT IN DISMISSING THE COMPLAINT FOR FAILURE OF MALAYAN
INSURANCE TO OVERCOME THE BURDEN OF PROOF REQUIRED TO ESTABLISH THE NEGLIGENCE
OF RESPONDENTS.
II
WHETHER THE PIECES OF EVIDENCE PRESENTED BY MALAYAN INSURANCE ARE SUFFICIENT TO
CLAIM FOR THE AMOUNT OF DAMAGES.
III
WHETHER THE SUBROGATION OF MALAYAN INSURANCE HAS PASSED COMPLIANCE AND
REQUISITES AS PROVIDED UNDER PERTINENT LAWS.
Essentially, the issues boil down to the following: (1) the admissibility of the police report; (2) the sufficiency of the
evidence to support a claim for gross negligence; and (3) the validity of subrogation in the instant case.
Our Ruling
The petition has merit.
Admissibility of the Police Report
Malayan Insurance contends that, even without the presentation of the police investigator who prepared the police
report, said report is still admissible in evidence, especially since respondents failed to make a timely objection to its
presentation in evidence. Respondents counter that since the police report was never confirmed by the
16

investigating police officer, it cannot be considered as part of the evidence on record. 17

Indeed, under the rules of evidence, a witness can testify only to those facts which the witness knows of his or her
personal knowledge, that is, which are derived from the witness’ own perception. Concomitantly, a witness may not
18

testify on matters which he or she merely learned from others either because said witness was told or read or heard
those matters. Such testimony is considered hearsay and may not be received as proof of the truth of what the
19

witness has learned. This is known as the hearsay rule. 20

As discussed in D.M. Consunji, Inc. v. CA, "Hearsay is not limited to oral testimony or statements; the general rule
21

that excludes hearsay as evidence applies to written, as well as oral statements."

There are several exceptions to the hearsay rule under the Rules of Court, among which are entries in official
records. Section 44, Rule 130 provides:
22

Entries in official records made in the performance of his duty by a public officer of the Philippines, or by a person in
the performance of a duty specially enjoined by law are prima facie evidence of the facts therein stated.
In Alvarez v. PICOP Resources, this Court reiterated the requisites for the admissibility in evidence, as an exception
23

to the hearsay rule of entries in official records, thus: (a) that the entry was made by a public officer or by another
person specially enjoined by law to do so; (b) that it was made by the public officer in the performance of his or her
duties, or by such other person in the performance of a duty specially enjoined by law; and (c) that the public officer
or other person had sufficient knowledge of the facts by him or her stated, which must have been acquired by the
public officer or other person personally or through official information.
Notably, the presentation of the police report itself is admissible as an exception to the hearsay rule even if the
police investigator who prepared it was not presented in court, as long as the above requisites could be adequately
proved.24

Here, there is no dispute that SPO1 Dungga, the on-the-spot investigator, prepared the report, and he did so in the
performance of his duty. However, what is not clear is whether SPO1 Dungga had sufficient personal knowledge of
the facts contained in his report. Thus, the third requisite is lacking.
Respondents failed to make a timely objection to the police report’s presentation in evidence; thus, they are deemed
to have waived their right to do so. As a result, the police report is still admissible in evidence.
25

Sufficiency of Evidence
Malayan Insurance contends that since Reyes, the driver of the Fuzo Cargo truck, bumped the rear of the Mitsubishi
Galant, he is presumed to be negligent unless proved otherwise. It further contends that respondents failed to
present any evidence to overturn the presumption of negligence. Contrarily, respondents claim that since Malayan
26

Insurance did not present any witness who shall affirm any negligent act of Reyes in driving the Fuzo Cargo truck
before and after the incident, there is no evidence which would show negligence on the part of respondents. 27
We agree with Malayan Insurance. Even if We consider the inadmissibility of the police report in evidence, still,
respondents cannot evade liability by virtue of the res ipsa loquitur doctrine. The D.M. Consunji, Inc. case is quite
elucidating:
Petitioner’s contention, however, loses relevance in the face of the application of res ipsa loquitur by the CA. The
effect of the doctrine is to warrant a presumption or inference that the mere fall of the elevator was a result of the
person having charge of the instrumentality was negligent. As a rule of evidence, the doctrine of res ipsa loquitur is
peculiar to the law of negligence which recognizes that prima facie negligence may be established without direct
proof and furnishes a substitute for specific proof of negligence.
The concept of res ipsa loquitur has been explained in this wise:
While negligence is not ordinarily inferred or presumed, and while the mere happening of an accident or injury will
not generally give rise to an inference or presumption that it was due to negligence on defendant’s part, under the
doctrine of res ipsa loquitur, which means, literally, the thing or transaction speaks for itself, or in one jurisdiction,
that the thing or instrumentality speaks for itself, the facts or circumstances accompanying an injury may be such as
to raise a presumption, or at least permit an inference of negligence on the part of the defendant, or some other
person who is charged with negligence.
x x x where it is shown that the thing or instrumentality which caused the injury complained of was under the control
or management of the defendant, and that the occurrence resulting in the injury was such as in the ordinary course
of things would not happen if those who had its control or management used proper care, there is sufficient
evidence, or, as sometimes stated, reasonable evidence, in the absence of explanation by the defendant, that the
injury arose from or was caused by the defendant’s want of care.
One of the theoretical bases for the doctrine is its necessity, i.e., that necessary evidence is absent or not available.
The res ipsa loquitur doctrine is based in part upon the theory that the defendant in charge of the instrumentality
which causes the injury either knows the cause of the accident or has the best opportunity of ascertaining it and that
the plaintiff has no such knowledge, and therefore is compelled to allege negligence in general terms and to rely
upon the proof of the happening of the accident in order to establish negligence. The inference which the doctrine
permits is grounded upon the fact that the chief evidence of the true cause, whether culpable or innocent, is
practically accessible to the defendant but inaccessible to the injured person.
It has been said that the doctrine of res ipsa loquitur furnishes a bridge by which a plaintiff, without knowledge of the
cause, reaches over to defendant who knows or should know the cause, for any explanation of care exercised by
the defendant in respect of the matter of which the plaintiff complains. The res ipsa loquitur doctrine, another court
has said, is a rule of necessity, in that it proceeds on the theory that under the peculiar circumstances in which the
doctrine is applicable, it is within the power of the defendant to show that there was no negligence on his part, and
direct proof of defendant’s negligence is beyond plaintiff’s power. Accordingly, some courts add to the three
prerequisites for the application of the res ipsa loquitur doctrine the further requirement that for the res ipsa loquitur
doctrine to apply, it must appear that the injured party had no knowledge or means of knowledge as to the cause of
the accident, or that the party to be charged with negligence has superior knowledge or opportunity for explanation
of the accident.
The CA held that all the requisites of res ipsa loquitur are present in the case at bar:
There is no dispute that appellee’s husband fell down from the 14th floor of a building to the basement while he was
working with appellant’s construction project, resulting to his death. The construction site is within the exclusive
control and management of appellant. It has a safety engineer, a project superintendent, a carpenter leadman and
others who are in complete control of the situation therein. The circumstances of any accident that would occur
therein are peculiarly within the knowledge of the appellant or its employees. On the other hand, the appellee is not
in a position to know what caused the accident. Res ipsa loquitur is a rule of necessity and it applies where evidence
is absent or not readily available, provided the following requisites are present: (1) the accident was of a kind which
does not ordinarily occur unless someone is negligent; (2) the instrumentality or agency which caused the injury was
under the exclusive control of the person charged with negligence; and (3) the injury suffered must not have been
due to any voluntary action or contribution on the part of the person injured. x x x.
No worker is going to fall from the 14th floor of a building to the basement while performing work in a construction
site unless someone is negligent[;] thus, the first requisite for the application of the rule of res ipsa loquitur is
present. As explained earlier, the construction site with all its paraphernalia and human resources that likely caused
the injury is under the exclusive control and management of appellant[;] thus[,] the second requisite is also present.
No contributory negligence was attributed to the appellee’s deceased husband[;] thus[,] the last requisite is also
present. All the requisites for the application of the rule of res ipsa loquitur are present, thus a reasonable
presumption or inference of appellant’s negligence arises. x x x.
Petitioner does not dispute the existence of the requisites for the application of res ipsa loquitur, but argues that the
presumption or inference that it was negligent did not arise since it "proved that it exercised due care to avoid the
accident which befell respondent’s husband."
Petitioner apparently misapprehends the procedural effect of the doctrine. As stated earlier, the defendant’s
negligence is presumed or inferred when the plaintiff establishes the requisites for the application of res ipsa
loquitur. Once the plaintiff makes out a prima facie case of all the elements, the burden then shifts to defendant to
explain. The presumption or inference may be rebutted or overcome by other evidence and, under appropriate
circumstances a disputable presumption, such as that of due care or innocence, may outweigh the inference. It is
not for the defendant to explain or prove its defense to prevent the presumption or inference from arising. Evidence
by the defendant of say, due care, comes into play only after the circumstances for the application of the doctrine
has been established. 28

In the case at bar, aside from the statement in the police report, none of the parties disputes the fact that the Fuzo
Cargo Truck hit the rear end of the Mitsubishi Galant, which, in turn, hit the rear end of the vehicle in front of it.
Respondents, however, point to the reckless driving of the Nissan Bus driver as the proximate cause of the collision,
which allegation is totally unsupported by any evidence on record. And assuming that this allegation is, indeed, true,
it is astonishing that respondents never even bothered to file a cross-claim against the owner or driver of the Nissan
Bus.
What is at once evident from the instant case, however, is the presence of all the requisites for the application of the
rule of res ipsa loquitur. To reiterate, res ipsa loquitur is a rule of necessity which applies where evidence is absent
or not readily available. As explained in D.M. Consunji, Inc., it is partly based upon the theory that the defendant in
charge of the instrumentality which causes the injury either knows the cause of the accident or has the best
opportunity of ascertaining it and that the plaintiff has no such knowledge, and, therefore, is compelled to allege
negligence in general terms and to rely upon the proof of the happening of the accident in order to establish
negligence.
As mentioned above, the requisites for the application of the res ipsa loquitur rule are the following: (1) the accident
was of a kind which does not ordinarily occur unless someone is negligent; (2) the instrumentality or agency which
caused the injury was under the exclusive control of the person charged with negligence; and (3) the injury suffered
must not have been due to any voluntary action or contribution on the part of the person injured. 29

In the instant case, the Fuzo Cargo Truck would not have had hit the rear end of the Mitsubishi Galant unless
someone is negligent. Also, the Fuzo Cargo Truck was under the exclusive control of its driver, Reyes. Even if
respondents avert liability by putting the blame on the Nissan Bus driver, still, this allegation was self-serving and
totally unfounded. Finally, no contributory negligence was attributed to the driver of the Mitsubishi Galant.
Consequently, all the requisites for the application of the doctrine of res ipsa loquitur are present, thereby creating a
reasonable presumption of negligence on the part of respondents.
It is worth mentioning that just like any other disputable presumptions or inferences, the presumption of negligence
may be rebutted or overcome by other evidence to the contrary. It is unfortunate, however, that respondents failed to
present any evidence before the trial court. Thus, the presumption of negligence remains. Consequently, the CA
erred in dismissing the complaint for Malayan Insurance’s adverted failure to prove negligence on the part of
respondents.
Validity of Subrogation
Malayan Insurance contends that there was a valid subrogation in the instant case, as evidenced by the claim check
voucher and the Release of Claim and Subrogation Receipt presented by it before the trial court. Respondents,
30 31

however, claim that the documents presented by Malayan Insurance do not indicate certain important details that
would show proper subrogation.
As noted by Malayan Insurance, respondents had all the opportunity, but failed to object to the presentation of its
evidence. Thus, and as We have mentioned earlier, respondents are deemed to have waived their right to make an
objection. As this Court held in Asian Construction and Development Corporation v. COMFAC Corporation:
The rule is that failure to object to the offered evidence renders it admissible, and the court cannot, on its
own, disregard such evidence. We note that ASIAKONSTRUCT’s counsel of record before the trial court, Atty.
Bernard Dy, who actively participated in the initial stages of the case stopped attending the hearings when COMFAC
was about to end its presentation. Thus, ASIAKONSTRUCT could not object to COMFAC’s offer of evidence nor
present evidence in its defense; ASIAKONSTRUCT was deemed by the trial court to have waived its chance to do
so.
Note also that when a party desires the court to reject the evidence offered, it must so state in the form of a
timely objection and it cannot raise the objection to the evidence for the first time on appeal. Because of a
party’s failure to timely object, the evidence becomes part of the evidence in the case. Thereafter, all the
parties are considered bound by any outcome arising from the offer of evidence properly
presented. (Emphasis supplied.)
32

Bearing in mind that the claim check voucher and the Release of Claim and Subrogation Receipt presented by
Malayan Insurance are already part of the evidence on record, and since it is not disputed that the insurance
company, indeed, paid PhP 700,000 to the assured, then there is a valid subrogation in the case at bar. As
explained in Keppel Cebu Shipyard, Inc. v. Pioneer Insurance and Surety Corporation:
Subrogation is the substitution of one person by another with reference to a lawful claim or right, so that he who is
substituted succeeds to the rights of the other in relation to a debt or claim, including its remedies or securities. The
principle covers a situation wherein an insurer has paid a loss under an insurance policy is entitled to all the rights
and remedies belonging to the insured against a third party with respect to any loss covered by the policy. It
contemplates full substitution such that it places the party subrogated in the shoes of the creditor, and he may use
all means that the creditor could employ to enforce payment. 1âwphi1

We have held that payment by the insurer to the insured operates as an equitable assignment to the insurer of all
the remedies that the insured may have against the third party whose negligence or wrongful act caused the loss.
The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract. It accrues simply
upon payment by the insurance company of the insurance claim. The doctrine of subrogation has its roots in equity.
It is designed to promote and to accomplish justice; and is the mode that equity adopts to compel the ultimate
payment of a debt by one who, in justice, equity, and good conscience, ought to pay.
33

Considering the above ruling, it is only but proper that Malayan Insurance be subrogated to the rights of the
assured.
WHEREFORE, the petition is hereby GRANTED. The CA’s July 28, 2010 Decision and October 29, 2010 Resolution
in CA-G.R. CV No. 93112 are hereby REVERSED and SET ASIDE. The Decision dated February 2, 2009 issued by
the trial court in Civil Case No. 99-95885 is hereby REINSTATED.
No pronouncement as to cost.
SO ORDERED.

G.R. No. 159709 June 27, 2012

HEIRS OF SERVANDO FRANCO, Petitioners,
vs.
SPOUSES VERONICA AND DANILO GONZALES, Respondents.
DECISION
BERSAMIN, J.:
There is novation when there is an irreconcilable incompatibility between the old and the new obligations. There is
no novation in case of only slight modifications; hence, the old obligation prevails.
The petitioners challenge the decision promulgated on March 19, 2003, whereby the Court of Appeals (CA) upheld
1

the issuance of a writ of execution by the Regional Trial Court (RTC), Branch 16, in Malolos, Bulacan.
Antecedents
The Court adopts the following summary of the antecedents rendered by the Court in Medel v. Court of Appeals, the 2

case from which this case originated, to wit:

On November 7, 1985, Servando Franco and Leticia Medel (hereafter Servando and Leticia) obtained a loan from
Veronica R. Gonzales (hereafter Veronica), who was engaged in the money lending business under the name
"Gonzales Credit Enterprises", in the amount of ₱50,000.00, payable in two months. Veronica gave only the amount
of ₱47,000.00, to the borrowers, as she retained ₱3,000.00, as advance interest for one month at 6% per month.
Servado and Leticia executed a promissory note for ₱50,000.00, to evidence the loan, payable on January 7, 1986.
On November 19, 1985, Servando and Leticia obtained from Veronica another loan in the amount of ₱90,000.00,
payable in two months, at 6% interest per month. They executed a promissory note to evidence the loan, maturing
on January 19, 1986. They received only ₱84,000.00, out of the proceeds of the loan.
On maturity of the two promissory notes, the borrowers failed to pay the indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still another loan in the amount of ₱300,000.00,
maturing in one month, secured by a real estate mortgage over a property belonging to Leticia Makalintal
Yaptinchay, who issued a special power of attorney in favor of Leticia Medel, authorizing her to execute the
mortgage. Servando and Leticia executed a promissory note in favor of Veronica to pay the sum of ₱300,000.00,
after a month, or on July 11, 1986. However, only the sum of ₱275,000.00, was given to them out of the proceeds of
the loan.
Like the previous loans, Servando and Medel failed to pay the third loan on maturity.
On July 23, 1986, Servando and Leticia with the latter's husband, Dr. Rafael Medel, consolidated all their previous
unpaid loans totaling ₱440,000.00, and sought from Veronica another loan in the amount of ₱60,000.00, bringing
their indebtedness to a total of ₱500,000.00, payable on August 23, 1986. They executed a promissory note,
reading as follows:
"Baliwag, Bulacan July 23, 1986
"Maturity Date August 23, 1986
"₱500,000.00
"FOR VALUE RECEIVED, I/WE jointly and severally promise to pay to the order of VERONICA R. GONZALES
doing business in the business style of GONZALES CREDIT ENTERPRISES, Filipino, of legal age, married to
Danilo G. Gonzales, Jr., of Baliwag Bulacan, the sum of PESOS ........ FIVE HUNDRED THOUSAND .....
(P500,000.00) Philippine
Currency with interest thereon at the rate of 5.5 PER CENT per month plus 2% service charge per annum from date
hereof until fully paid according to the amortization schedule contained herein. (Underscoring supplied)
"Payment will be made in full at the maturity date.
"Should I/WE fail to pay any amortization or portion hereof when due, all the other installments together with all
interest accrued shall immediately be due and payable and I/WE hereby agree to pay
an additional amount equivalent to one per cent (1%) per month of the amount due and demandable as penalty char
ges in the form of liquidated damages until fully paid; and the
further sum of TWENTY FIVE PER CENT (25%) thereof in full, without deductions as Attorney's Fee whether
actually incurred or not, of the total amount due and demandable, exclusive of costs and judicial or extra judicial
expenses. (Underscoring supplied)
"I, WE further agree that in the event the present rate of interest on loan is increased by law or the Central Bank of
the Philippines, the holder shall have the option to apply and collect the increased interest charges without notice
although the original interest have already been collected wholly or partially unless the contrary is required by law.
"It is also a special condition of this contract that the parties herein agree that the amount of peso-obligation under
this agreement is based on the present value of peso, and if there be any change in the value thereof, due to
extraordinary inflation or deflation, or any other cause or reason, then the peso-obligation herein contracted shall be
adjusted in accordance with the value of the peso then prevailing at the time of the complete fulfillment of obligation.
"Demand and notice of dishonor waived. Holder may accept partial payments and grant renewals of this note or
extension of payments, reserving rights against each and all indorsers and all parties to this note.
"IN CASE OF JUDICIAL Execution of this obligation, or any part of it, the debtors waive all his/their rights under the
provisions of Section 12, Rule 39, of the Revised Rules of Court."
On maturity of the loan, the borrowers failed to pay the indebtedness of ₱500,000.00, plus interests and penalties,
evidenced by the above-quoted promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband Danilo G. Gonzales, filed with the Regional
Trial Court of Bulacan, Branch 16, at Malolos, Bulacan, a complaint for collection of the full amount of the loan
including interests and other charges.
In his answer to the complaint filed with the trial court on April 5, 1990, defendant Servando alleged that he did not
obtain any loan from the plaintiffs; that it was defendants Leticia and Dr. Rafael Medel who borrowed from the
plaintiffs the sum of ₱500,000.00, and actually received the amount and benefited therefrom; that the loan was
secured by a real estate mortgage executed in favor of the plaintiffs, and that he (Servando Franco) signed the
promissory note only as a witness.
In their separate answer filed on April 10,1990, defendants Leticia and Rafael Medel alleged that the loan was the
transaction of Leticia Yaptinchay, who executed a mortgage in favor of the plaintiffs over a parcel of real estate
situated in San Juan, Batangas; that the interest rate is excessive at 5.5% per month with additional service charge
of 2% per annum, and penalty charge of 1% per month; that the stipulation for attorney's fees of 25% of the amount
due is unconscionable, illegal and excessive, and that substantial payments made were applied to interest,
penalties and other charges.
After due trial, the lower court declared that the due execution and genuineness of the four promissory notes had
been duly proved, and ruled that although the Usury Law had been repealed, the interest charged by the plaintiffs
on the loans was unconscionable and "revolting to the conscience". Hence, the trial court applied "the provision of
the New [Civil] Code" that the "legal rate of interest for loan or forbearance of money, goods or credit is 12% per
annum."
Accordingly, on December 9, 1991, the trial court rendered judgment, the dispositive portion of which reads as
follows:
"WHEREFORE, premises considered, judgment is hereby rendered, as follows:
"1. Ordering the defendants Servando Franco and Leticia Medel, jointly and severally, to pay plaintiffs the amount of
₱47,000.00 plus 12% interest per annum from November 7, 1985 and 1% per month as penalty, until the entire
amount is paid in full.
"2. Ordering the defendants Servando Franco and Leticia Y. Medel to plaintiffs, jointly and severally the amount of
₱84,000.00 with 12% interest per annum and 1% per cent per month as penalty from November 19,1985 until the
whole amount is fully paid;
"3. Ordering the defendants to pay the plaintiffs, jointly and severally, the amount of ₱285,000.00 plus 12% interest
per annum and 1% per month as penalty from July 11, 1986, until the whole amount is fully paid;
"4. Ordering the defendants to pay plaintiffs, jointly and severally, the amount of ₱50,000.00 as attorney's fees;
"5. All counterclaims are hereby dismissed.
"With costs against the defendants."
In due time, both plaintiffs and defendants appealed to the Court of Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note, which consolidated all the unpaid loans of the
defendants, is the law that governs the parties. They further argued that Circular No. 416 of the Central Bank
prescribing the rate of interest for loans or forbearance of money, goods or credit at 12% per annum, applies only in
the absence of a stipulation on interest rate, but not when the parties agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention. It ruled that "the Usury Law having become
‘legally inexistent’ with the promulgation by the Central Bank in 1982 of Circular No. 905, the lender and borrower
could agree on any interest that may be charged on the loan". The Court of Appeals further held that "the imposition
of ‘an additional amount equivalent to 1% per month of the amount due and demandable as penalty charges in the
form of liquidated damages until fully paid’ was allowed by law".
Accordingly, on March 21, 1997, the Court of Appeals promulgated it decision reversing that of the Regional Trial
Court, disposing as follows:
"WHEREFORE, the appealed judgment is hereby MODIFIED such that defendants are hereby ordered to pay the
plaintiffs the sum of ₱500,000.00, plus 5.5% per month interest and 2% service charge per annum effective July 23,
1986, plus 1% per month of the total amount due and demandable as penalty charges effective August 24, 1986,
until the entire amount is fully paid.
"The award to the plaintiffs of ₱50,000.00 as attorney's fees is affirmed. And so is the imposition of costs against the
defendants.
"SO ORDERED."
On April 15, 1997, defendants-appellants filed a motion for reconsideration of the said decision. By resolution dated
November 25, 1997, the Court of Appeals denied the motion. 3

On review, the Court in Medel v. Court of Appeals struck down as void the stipulation on the interest for being
iniquitous or unconscionable, and revived the judgment of the RTC rendered on December 9, 1991, viz:
WHEREFORE, the Court hereby REVERSES and SETS ASIDE the decision of the Court of Appeals promulgated
on March 21, 1997, and its resolution dated November 25, 1997. Instead, we render judgment REVIVING and
AFFIRMING the decision dated December 9, 1991, of the Regional Trial Court of Bulacan, Branch 16, Malolos,
Bulacan, in Civil Case No. 134-M-90, involving the same parties.
No pronouncement as to costs in this instance.
SO ORDERED. 4

Upon the finality of the decision in Medel v. Court of Appeals, the respondents moved for execution. Servando
5

Franco opposed, claiming that he and the respondents had agreed to fix the entire obligation at
6

₱775,000.00. According to Servando, their agreement, which was allegedly embodied in a receipt dated February 5,
7

1992, whereby he made an initial payment of ₱400,000.00 and promised to pay the balance of ₱375,000.00 on
8

February 29, 1992, superseded the July 23, 1986 promissory note.
The RTC granted the motion for execution over Servando’s opposition, thus:
There is no doubt that the decision dated December 9, 1991 had already been affirmed and had already become
final and executory. Thus, in accordance with Sec. 1 of Rule 39 of the 1997 Rules of Civil Procedure, execution shall
issue as a matter of right. It has likewise been ruled that a judgment which has acquired finality becomes immutable
and unalterable and hence may no longer be modified at any respect except only to correct clerical errors or
mistakes (Korean Airlines Co. Ltd. vs. C.A., 247 SCRA 599). In this respect, the decision deserves to be respected.
The argument about the modification of the contract or non-participation of defendant Servando Franco in the
proceedings on appeal on the alleged belief that the payment he made had already absolved him from liability is of
no moment. Primarily, the decision was for him and Leticia Medel to pay the plaintiffs jointly and severally the
amounts stated in the Decision. In other words, the liability of the defendants thereunder is solidary. Based on this
aspect alone, the new defense raised by defendant Franco is unavailing.
WHEREFORE, in the light of all the foregoing, the Court hereby grants the Motion for Execution of Judgment.
Accordingly, let a writ of execution be issued for implementation by the Deputy Sheriff of this Court.
SO ORDERED. 9

On March 8, 2001, the RTC issued the writ of execution. 10

Servando moved for reconsideration, but the RTC denied his motion.
11 12

On March 19, 2003, the CA affirmed the RTC through its assailed decision, ruling that the execution was proper
because of Servando’s failure to comply with the terms of the compromise agreement, stating: 13

Petitioner cannot deny the fact that there was no full compliance with the tenor of the compromise agreement.
Private respondents on their part did not disregard the payments made by the petitioner. They even offered that
whatever payments made by petitioner, it can be deducted from the principal obligation including interest. However,
private respondents posit that the payments made cannot alter, modify or revoke the decision of the Supreme Court
in the instant case.
In the case of Prudence Realty and Development Corporation vs. Court of Appeals, the Supreme Court ruled that:
"When the terms of the compromise judgment is violated, the aggrieved party must move for its execution, not its
invalidation."
It is clear from the aforementioned jurisprudence that even if there is a compromise agreement and the terms have
been violated, the aggrieved party, such as the private respondents, has the right to move for the issuance of a writ
of execution of the final judgment subject of the compromise agreement.
Moreover, under the circumstances of this case, petitioner does not stand to suffer any harm or prejudice for the
simple reason that what has been asked by private respondents to be the subject of a writ of execution is only the
balance of petitioner’s obligation after deducting the payments made on the basis of the compromise agreement.
WHEREFORE, premises considered, the instant petition is hereby DENIED DUE COURSE and consequently
DISMISSED for lack of merit.
SO ORDERED.
His motion for reconsideration having been denied, Servando appealed. He was eventually substituted by his heirs,
14

now the petitioners herein, on account of his intervening death. The substitution was pursuant to the resolution
dated June 15, 2005. 15

Issue
The petitioners submit that the CA erred in ruling that:
I
THE 9 DECEMBER 1991 DECISION OF BRANCH 16 OF THE REGIONAL TRIAL COURT OF MALOLOS,
BULACAN WAS NOT NOVATED BY THE COMPROMISE AGREEMENT BETWEEN THE PARTIES ON 5
FEBRUARY 1992.
II
THE LIABILITY OF THE PETITIONER TO RESPONDENTS SHOULD BE BASED ON THE DECEMBER
1991 DECISION OF BRANCH 16 OF THE REGIONAL TRIAL COURT OF MALOLOS, BULACAN AND NOT
ON THE COMPROMISE AGREEMENT EXECUTED IN 1992.
The petitioners insist that the RTC could not validly enforce a judgment based on a promissory note that had been
already novated; that the promissory note had been impliedly novated when the principal obligation of ₱500,000.00
had been fixed at ₱750,000.00, and the maturity date had been extended from August 23, 1986 to February 29,
1992.
In contrast, the respondents aver that the petitioners seek to alter, modify or revoke the final and executory decision
of the Court; that novation did not take place because there was no complete incompatibility between the
promissory note and the memorandum receipt; that Servando’s previous payment would be deducted from the total
liability of the debtors based on the RTC’s decision.
Issue
Was there a novation of the August 23, 1986 promissory note when respondent Veronica Gonzales issued the
February 5, 1992 receipt?
Ruling
The petition lacks merits.
I
Novation did not transpire because no
irreconcilable incompatibility existed
between the promissory note and the receipt
To buttress their claim of novation, the petitioners rely on the receipt issued on February 5, 1992 by respondent
Veronica whereby Servando’s obligation was fixed at ₱750,000.00. They insist that even the maturity date was
extended until February 29, 1992. Such changes, they assert, were incompatible with those of the original
agreement under the promissory note.
The petitioners’ assertion is wrong.
A novation arises when there is a substitution of an obligation by a subsequent one that extinguishes the first, either
by changing the object or the principal conditions, or by substituting the person of the debtor, or by subrogating a
third person in the rights of the creditor. For a valid novation to take place, there must be, therefore: (a) a previous
16

valid obligation; (b) an agreement of the parties to make a new contract; (c) an extinguishment of the old contract;
and (d) a valid new contract. In short, the new obligation extinguishes the prior agreement only when the
17

substitution is unequivocally declared, or the old and the new obligations are incompatible on every point. A
compromise of a final judgment operates as a novation of the judgment obligation upon compliance with either of
these two conditions.18

The receipt dated February 5, 1992, excerpted below, did not create a new obligation incompatible with the old one
under the promissory note, viz:
February 5, 1992
Received from SERVANDO FRANCO BPI Manager’s Check No. 001700 in the amount of ₱400,00.00 as partial
payment of loan. Balance of ₱375,000.00 to be paid on or before FEBRUARY 29, 1992. In case of default an
interest will be charged as stipulated in the promissory note subject of this case.
(Sgd)
V. Gonzalez 19

To be clear, novation is not presumed. This means that the parties to a contract should expressly agree to abrogate
the old contract in favor of a new one. In the absence of the express agreement, the old and the new obligations
must be incompatible on every point. According to California Bus Lines, Inc. v. State Investment House, Inc.:
20 21

The extinguishment of the old obligation by the new one is a necessary element of novation which may be effected
either expressly or impliedly. The term "expressly" means that the contracting parties incontrovertibly disclose that
1âwphi1

their object in executing the new contract is to extinguish the old one. Upon the other hand, no specific form is
required for an implied novation, and all that is prescribed by law would be an incompatibility between the two
contracts. While there is really no hard and fast rule to determine what might constitute to be a sufficient change that
can bring about novation, the touchstone for contrariety, however, would be an irreconcilable incompatibility between
the old and the new obligations.
There is incompatibility when the two obligations cannot stand together, each one having its independent existence.
If the two obligations cannot stand together, the latter obligation novates the first. Changes that breed
22

incompatibility must be essential in nature and not merely accidental. The incompatibility must affect any of the
essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise, the change
is merely modificatory in nature and insufficient to extinguish the original obligation. 23

In light of the foregoing, the issuance of the receipt created no new obligation. Instead, the respondents only thereby
recognized the original obligation by stating in the receipt that the ₱400,000.00 was "partial payment of loan" and by
referring to "the promissory note subject of the case in imposing the interest." The loan mentioned in the receipt was
still the same loan involving the ₱500,000.00 extended to Servando. Advertence to the interest stipulated in the
promissory note indicated that the contract still subsisted, not replaced and extinguished, as the petitioners claim.
The receipt dated February 5, 1992 was only the proof of Servando’s payment of his obligation as confirmed by the
decision of the RTC. It did not establish the novation of his agreement with the respondents. Indeed, the Court has
ruled that an obligation to pay a sum of money is not novated by an instrument that expressly recognizes the old, or
changes only the terms of payment, or adds other obligations not incompatible with the old ones, or the new
contract merely supplements the old one. A new contract that is a mere reiteration, acknowledgment or ratification
24
of the old contract with slight modifications or alterations as to the cause or object or principal conditions can stand
together with the former one, and there can be no incompatibility between them. Moreover, a creditor’s acceptance
25

of payment after demand does not operate as a modification of the original contract. 26

Worth noting is that Servando’s liability was joint and solidary with his co-debtors. In a solidary obligation, the
creditor may proceed against any one of the solidary debtors or some or all of them simultaneously. The choice to
27

determine against whom the collection is enforced belongs to the creditor until the obligation is fully satisfied. Thus,
28

the obligation was being enforced against Servando, who, in order to escape liability, should have presented
evidence to prove that his obligation had already been cancelled by the new obligation or that another debtor had
assumed his place. In case of change in the person of the debtor, the substitution must be clear and express, and 29

made with the consent of the creditor. Yet, these circumstances did not obtain herein, proving precisely that
30

Servando remained a solidary debtor against whom the entire or part of the obligation might be enforced.
Lastly, the extension of the maturity date did not constitute a novation of the previous agreement. It is settled that an
extension of the term or period of the maturity date does not result in novation.31

II
Total liability to be reduced by ₱400,000.00
The petitioners argue that Servando’s remaining liability amounted to only ₱375,000.00, the balance indicated in the
February 5, 1992 receipt. Accordingly, the balance was not yet due because the respondents did not yet make a
demand for payment.
The petitioners cannot be upheld.
The balance of ₱375,000.00 was premised on the taking place of a novation. However, as found now, novation did
not take place. Accordingly, Servando’s obligation, being solidary, remained to be that decreed in the December 9,
1991 decision of the RTC, inclusive of interests, less the amount of ₱400,000.00 that was meanwhile paid by him.
WHEREFORE, the Court AFFIRMS the decision of the Court of Appeals promulgated on March 19, 2003; ORDERS
the Regional Trial Court, Branch 16, in Malolos, Bulacan to proceed with the execution based on its decision
rendered on December 9, 1991, deducting the amount of ₱400,000.00 already paid by the late Servando Franco;
and DIRECTS the petitioners to pay the costs of suit.
SO ORDERED.

G.R. No. 179441 August 9, 2010

ST. JAMES COLLEGE OF PARAÑAQUE; JAIME T. TORRES, represented by his legal representative, JAMES
KENLEY M. TORRES; and MYRNA M. TORRES, Petitioners,
vs.
EQUITABLE PCI BANK, Respondent.
DECISION
VELASCO, JR., J.:
Appealed via this petition for review under Rule 45 is the Decision1 dated January 17, 2007 of the Court of Appeals
(CA) in CA-G.R. SP No. 86587, as reiterated in its Resolution2 of August 28, 2007, reversing the earlier orders in
SCA No. 2569 of the Regional Trial Court (RTC), Branch 266 in Pasig City.
The Facts
Petitioners-spouses Jaime (now deceased) and Myrna Torres owned and operated St. James College of
Parañaque3 (St. James College), a sole proprietorship educational institution. Sometime in 1995, the Philippine
Commercial and International Bank (PCIB) granted the Torres spouses and/or St. James College a credit line facility
of up to PhP 25,000,000. This accommodation or any of its extension or renewal was secured by a real estate
mortgage4 (REM) over a parcel of land situated in Parañaque covered by Transfer Certificate of Title (TCT) No.
745985 in the name of St. James College, particularly described as:
A parcel of Land (lot 2 of the cons. and subd. plan Pcs.-13-0008777, being a portion of the cons. of Lots 4654-B and
5654-C Psd.-13-002266. L.R.C. Rec. No. N-21332), situated in the Bo. of San Dionisio, Mun. of Parañaque, Metro
Manila. x x x containing an area of NINETEEN THOUSAND TWO HUNDRED TWENTY FIVE (19,225) SQ.
METERS.
St. James College used to occupy the above lot.
PCIB eventually merged with Equitable Bank with the surviving bank known as Equitable PCI Bank (EPCIB) (now
Banco de Oro). The credit line underwent several annual renewals, the last being effected in 2001. As petitioners
had defaulted in the payment of the loan obtained from the secured credit accommodation, their total unpaid loan
obligation, as of September 2001, stood at PhP 18,300,000.
In a bid to settle its loan availment, petitioners first proposed to EPCIB that they be allowed to pay their account in
equal quarterly installments for five years. This payment scheme was apparently not acceptable to EPCIB, as
another written letter later followed, this time petitioners proposing that their outstanding credit be converted into a
long term loan payable in 10 equal annual installments.
EPCIB responded via a letter of January 9, 2003.6 In it, EPCIB informed petitioners that it is denying their request for
the reinstatement of their credit line, but proposed a restructuring package with a soft payment scheme for the
outstanding loan balance of PhP 18,300,000. Under the counter-proposal, the bank would book the accumulated
past due loans to current status and charge interest at a fixed rate of 13.375% per annum, payable in either of the
ensuing modes and level, at petitioners’ options: payment of the PhP 18,300,000 principal either at a monthly rate of
PhP 508,333.33; or equal annual amortizations of PhP 6,100,000 payable every May. Petitioner Jaime Torres chose
and agreed to the second option, i.e., the equal annual amortizations of PhP 6,100,000 payable every May, by
affixing his conforme signature at the bottom portion of EPCIB’s letter, writing the words "on annual amortization."7
May 2003 came, but petitioners failed to pay the stipulated annual amortization of PhP 6,100,000 agreed upon.
Whereupon, EPCIB addressed to petitioners a demand letter dated June 6, 2003 requiring them to settle their
obligation. On June 23, 2003, petitioners tendered, and EPCIB accepted, a partial payment of PhP 2,521,609.62,
broken down to cover the following items: PhP 1,000,000 principal, PhP 1,360,881.62 interest due on June 15,
2003, and PhP 160,728.00 insurance premium for the mortgaged property. In the covering June 23, 2003
letter,8 which came with the tender, petitioners promised to make another payment in October 2003 and that the
account would be made current in June 2004. They manifested, however, that St. James College is not subject to
the 10% value-added tax (VAT) which EPCIB assessed against the school in its June 15, 2003 statement of
account. Petitioners accordingly requested the deletion of the VAT portion.
Vis-à-vis the PhP 2,521,609.62 payment to which it issued an official receipt (OR)9 dated June 30, 2003, EPCIB
made it abundantly clear on the OR that: "THE RECEIPT OF PAYMENT IS WITHOUT PREJUDICE TO THE
BANK’S RIGHT AND CLAIMS ARISING FROM THE FACT THE ACCOUNT IS OVERDUE. NOR SHALL IT
RENDER THE BANK LIABLE FOR ANY DAMAGE BY ITS ACCEPTANCE OF PAYMENT." And in answer to
petitioners’ cover letter of June 23, 2003, EPCIB, through counsel, reminded and made it clear to petitioners that
their first partial payment did not detract from the past due character of their outstanding loan for which reason it is
demanding the remaining PhP 5,100,000 to complete the first PhP 6,100,000 principal payment. On August 27,
2003, EPCIB again sent another demand letter to petitioners, but to no avail.
On September 15, 2003, petitioners requested that the bank allow a partial payment of the May 2003 amortization
balance of PhP 5,100,000. Two days later, EPCIB responded denying petitioners’ request, but nonetheless
proposed a new repayment scheme to which petitioners were not amenable.
Petitioners made a second check remittance, this time in the amount of PhP 921,535.42,10 the PhP 500,000 portion
of which represented payment of the principal and PhP 421,535.42 for interest due on October 15, 2003. By letter
dated November 5, 2003, EPCIB again reminded petitioners that its receipt of the check payment for the amount of
the PhP 921,535.42 is without prejudice to the bank’s rights considering the overdue nature of petitioners’ loan.11
On November 6, 2003, petitioners issued a Stop Payment Order12 for their PhP 921,535.42 check. And in a
November 8, 2003 letter, petitioner Jaime, adverting to EPCIB’s November 5, 2003 letter, told the bank, "You cannot
just unilaterally decide/announce that you did not approve our proposal/request for restructuring of our loan after
receiving our payment, which was based on said proposal/request."13
On November 10, 2003, EPCIB, through counsel, demanded full settlement of petitioners’ loan obligation in the total
amount of PhP 24,719,461.48. Appended to the demand letter which went unheeded was a statement of account
showing detailed principal obligation, interest, and penalties as well as payments petitioners made and how they
were applied.
On November 27, 2003, EPCIB filed before the Office of the Clerk of Court and Ex-Officio Sheriff of the RTC in
Parañaque City its Petition for Sale14 to extra-judicially foreclose the mortgaged property covered by TCT No. 74598.
After due publication, the foreclosure sale of the mortgaged property was set for January 9 and 16, 2004.
On December 8, 2003, in the RTC, Branch 266 in Pasig City, petitioners instituted against EPCIB a complaint for
Declaratory Relief, Injunction and Damages, with application for a temporary restraining order (TRO) and/or writ of
preliminary injunction,15 docketed as SCA No. 2569.
On the very day of the scheduled foreclosure sale, January 9, 2004, the Pasig City RTC issued a TRO, 16 enjoining
EPCIB from proceeding with the scheduled foreclosure sale, and set a date for the hearing on the application for a
writ of preliminary injunction.
After the scheduled hearing on January 15, 2004, the trial court required the parties to file their respective
memoranda. EPCIB filed a motion praying for an additional time to file its memorandum which the RTC eventually
denied.
On March 10, 2004, the RTC issued an Order granting a writ of preliminary injunction in favor of petitioners, as
plaintiffs a quo, thus effectively staying the rescheduled foreclosure sale of St. James College’s mortgaged property.
The dispositive portion of the RTC Order reads:
WHEREFORE, premises considered, finding plaintiffs’ application for writ of preliminary injunction to be well-taken
and legally justified, the same is hereby GRANTED.
Accordingly, in the interest of substantial justice, let therefore a writ of preliminary injunction be issued enjoining the
defendant EPCIB and/or any of its representative/s or any person acting in its behalf to foreclose the mortgaged
property of the plaintiffs until final order of the Court. Plaintiffs are directed to post an injunction bond in the amount
of ONE MILLION PESOS (PhP1,000,000.00) to answer for whatever damages that said defendant may suffer in the
event that it is finally determined by the Court that plaintiffs are not entitled to the same.
SO ORDERED.17
By Order18 of July 6, 2004, the RTC denied EPCIB’s Extremely Urgent Motion for Reconsideration.19
Aggrieved, EPCIB went to the CA on certiorari to nullify the RTC Orders dated March 10, 2004 and July 6, 2004,
and necessarily to assail the propriety of the writ of preliminary injunction thus granted.
Meanwhile, petitioner Jaime passed away and was substituted by petitioner James Kenley M. Torres.
The Ruling of the CA
On January 17, 2007, the appellate court––while making short shrift of the jurisdictional challenge raised by EPCIB,
but finding that grave abuse of discretion attended the issuance of the assailed writ of preliminary injunction––
rendered the assailed decision nullifying and setting aside the RTC orders, disposing as follows:
WHEREFORE, premises considered, the instant petition for certiorari is GRANTED. Accordingly, the March 10,
2004 and July 6, 2004 Orders of the Regional Trial Court of Pasig City, Branch 266, are hereby REVERSED and
SET ASIDE.
SO ORDERED.20
Their Motion for Reconsideration (Of the Decision dated 17 January 2007)21 having been denied in the equally
assailed resolution of August 28, 2007, petitioners interposed the instant recourse.
The Court, through its Resolution of December 12, 2007, issued a TRO,22 enjoining the Office of the Clerk of Court
and Ex-Officio Sheriff of the Parañaque City RTC, and EPCIB, their agents or representatives, from enforcing the
appealed decision and resolution of the CA, conditioned upon the posting by petitioners of a PhP 1,000,000 surety
bond. On January 29, 2008, petitioners submitted the necessary surety bond.
The Issues
Petitioners urge the setting aside of the appealed CA decision and resolution on the submission that the appellate
court committed grave and reversible error:
I. x x x IN RULING THAT THE PETITIONERS (PRIVATE RESPONDENTS IN CA-G.R. SP NO. 86587) FAILED TO
ESTABLISH THE ELEMENTS FOR THE ISSUANCE OF THE INJUNCTIVE WRIT CONTRARY TO THE FINDINGS
OF THE COURT A QUO BY MISAPPLYING THE CASE OF TOYOTA MOTOR PHILIPPINES CORPORATION
WORKERS’ ASSOCIATION VS COURT OF APPEALS, 412 SCRA 69.
II. x x x IN MISINTERPRETING THE DOCTRINE ENUNCIATED IN ESTARES VS. COURT OF APPEALS, 459
SCRA, 619 UPON WHICH IT LIKEWISE BASED ITS ASSAILED DECISION PROMULGATED ON JANUARY 17,
2007.
III. x x x IN RULING THAT THERE WAS NO NOVATION AS PROVIDED FOR UNDER ARTICLE 1292 OF THE
NEW CIVIL CODE OF THE PHILIPPINES.23
The key issues tendered may be summarized, as follows: first, whether there was indeed a novation of the contract
between the parties; and second, whether the required ground or grounds for the issuance of a preliminary
injunction is/are present.
The Court’s Ruling
The petition is unmeritorious.
No Novation of Contract
Petitioners admit the existence of their unsettled loan obligation to EPCIB. They would insist, however, that the full
amount is still not due owing to the implied novation of the terms of payment previously agreed upon. As petitioners
assert in this regard that the acceptance by EPCIB, particularly of the June 23, 2003 PhP 2,521,609.62 payment,
without any objection on the new terms set forth in their June 23, 2003 complementing covering letter, novated the
terms of payment of the PhP 18,300,000 secured loan. To petitioners, EPCIB veritably acquiesced to the new terms
of payment being incompatible with the terms of the January 9, 2003 counter-proposal of EPCIB affecting
petitioners’ obligation of PhP 18,300,000.
We are not persuaded.
As a civil law concept, novation is the extinguishment of an obligation by the substitution or change of the obligation
by a subsequent one which terminates it, either by changing its objects or principal conditions, or by substituting a
new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. 24 Novation may be
extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation of a new one that takes
the place of the former; it is merely modificatory when the old obligation subsists to the extent that it remains
compatible with the amendatory agreement.25 Novation may either be express, when the new obligation declares in
unequivocal terms that the old obligation is extinguished, or implied, when the new obligation is on every point
incompatible with the old one.26 The test of incompatibility lies on whether the two obligations can stand together,
each one with its own independent existence.27
For novation, as a mode of extinguishing or modifying an obligation, to apply, the following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.28
As correctly determined by the appellate court, certain circumstances or their interplay militates against the
application of novation.
First. The parties did not unequivocally declare, let alone agree, that the obligation had been modified as to the
terms of payment by the partial payments of the obligation. Petitioners indeed made known their inability to pay in
full the PhP 6,100,000 principal obligation due in May 2003 and tendered only partial payments of PhP 1,000,000 on
June 23, 2003 and PhP 500,000 on November 5, 2003. It should be stressed, however, that EPCIB lost no time in
demanding payment for the full PhP 6,100,000 principal obligation due in May 2003. The following acts of EPCIB
readily argue against the idea of its having agreed to a modification in the stipulated terms of payment: (a) its letter-
reply to petitioners’ June 23, 2003 letter; (b) the August 27, 2003 demand-letter of EPCIB for the full principal
balance of PhP 5,100,000 from petitioners; (c) the September 17, 2003 letter of EPCIB denying petitioners’ request
for a partial payment; (d) the OR dated June 30, 2003 EPCIB issued where the following entries were written: "THE
RECEIPT OF PAYMENT IS WITHOUT PREJUDICE TO THE BANK’S RIGHTS AND CLAIMS ARISING FROM THE
FACT THE ACCOUNT IS OVERDUE. NOR SHALL IT RENDER THE BANK LIABLE FOR ANY DAMAGE BY ITS
ACCEPTANCE OF PAYMENT"; and (e) the letter of November 5, 2003 EPCIB sent reiterating that the receipt of the
second partial payment is without prejudice to the bank’s rights on the overdue loan.
The underlying arrangement between petitioners and EPCIB, respecting the terms of payment of the loan drawn
against the credit facility, was that set forth in the January 9, 2003 agreement, which, for reference, required
petitioners to remit to the lending bank an annual amortization of PhP 6,100,000 payable every May until the entire
loan obligation shall have been covered. Any suggestion that EPCIB is precluded from asserting its legal rights after
petitioners reneged on their part of the bargain etched in said January 9, 2003 agreement owing alone to its
acceptance of an amount less than PhP 6,100,000, is too presumptuous for acceptance. Viewed otherwise, the
notion of novation foisted by petitioners on the Court cannot be plausibly deduced from EPCIB’s acceptance of such
lesser amount.
Contrary to what petitioners would want the Court to believe, there is clearly no incompatibility between EPCIB’s
receipt of the partial payments of the principal amounts and what was due in May 2003, i.e., the PhP 1,000,000 and
PhP 500,000 payments vis-à-vis the PhP 6,100,000 due. As it were, EPCIB accepted the partial payments remitted,
but demanded, at the same time, the full payment of what was otherwise due in May 2003, as the parties agreed
upon. As the CA observed correctly, precisely EPCIB was demanding the full payment of the PhP 5,100,000
principal due in May 2003 which had not yet been settled.
Second. Novatio non praesumitur, or novation is never presumed,29 is a well-settled principle. Consequently, that
which arises from a purported modification in the terms and conditions of the obligation must be clear and express.
On petitioners thus rests the onus of showing clearly and unequivocally that novation has indeed taken place. To us,
petitioners have not discharged the burden. Moreover, we fail to see the presence of the concurring requisites for a
novation of contract, as enumerated above. Indeed, petitioners have not shown an express modification of the terms
of payment of the obligation.
It has often been said that the minds that agree to contract can agree to novate. And the agreement or consent to
novate may well be inferred from the acts of a creditor, since volition may as well be expressed by deeds as by
words.30 In the instant case, however, the acts of EPCIB before, simultaneously to, and after its acceptance of
payments from petitioners argue against the idea of its having acceded or acquiesced to petitioners’ request for a
change of the terms of payments of the secured loan. Far from it. Thus, a novation through an alleged implied
consent by EPCIB, as proffered and argued by petitioners, cannot be given imprimatur by the Court.
Propriety of the Grant of Injunctive Writ
We now come to the main issue in this case—the propriety of the issuance of the preliminary injunctive writ.
Basically, petitioners fault the appellate court for citing and relying on Toyota Motor Philippines Corporation Workers’
Association v. Court of Appeals (Toyota)31 and Estares v. Court of Appeals32 in support of its disposition on their non-
entitlement to a preliminary injunctive writ. Pursuing this point, petitioners posit the inapplicability of Toyota, as that
case involved the issuance of a writ of preliminary mandatory injunction, not a writ of preliminary prohibitory
injunction, as here. And Estares, they argue, was cast against and revolved around a different factual issue, for the
debtors Estares spouses in Estares, unlike petitioners, did not question the statement of account given them by the
lending institution and failed to establish their entitlement to the injunctive writ.
Moreover, petitioners invite attention to the fact respecting the mortgaged lot being the site of St. James College. As
such, petitioners add, public interest demands that said educational institution be protected from an undue
operational disruption which would result in damages, in case of a foreclosure sale, that are not only incapable of
pecuniary estimation, but also well-nigh irreparable, affecting the employment of the teaching staff and other school
personnel and the displacement of thousands of students.
We are not persuaded.
Requisites for issuance of an injunctive writ
A writ of preliminary injunction issues to:
prevent threatened or continuous irremediable injury to some of the parties before their claims can be thoroughly
studied and adjudicated. Its sole office is to preserve the status quo until the merits of the case can be heard fully.
Thus, its issuance is conditioned upon a showing of a clear and unmistakable right that is violated. Moreover,
an urgent necessity for its issuance must be shown by the applicant.33 (Emphasis supplied.)
Under Section 3, Rule 58 of the Rules of Court, an application for a writ of preliminary injunction may be granted if
the following grounds are established, thus:
(a) That the applicant is entitled to the relief demanded, and the whole or part of such relief consists in
restraining the commission or continuance of the act or acts complained of, or in requiring the performance
of an act or acts, either for a limited period or perpetually;
(b) That the commission, continuance or non-performance of the act or acts complained of during the
litigation would probably work injustice to the applicant; or
(c) That a party, court, agency or a person is doing, threatening, or is attempting to do, or is procuring or
suffering to be done, some act or acts probably in violation of the rights of the applicant respecting the
subject of the action or proceeding, and tending to render the judgment ineffectual.
And following jurisprudence, these requisites must be proved before a writ of preliminary injunction, be it mandatory
or prohibitory, will issue:
(1) The applicant must have a clear and unmistakable right to be protected, that is a right in esse;
(2) There is a material and substantial invasion of such right;
(3) There is an urgent need for the writ to prevent irreparable injury to the applicant; and
(4) No other ordinary, speedy, and adequate remedy exists to prevent the infliction of irreparable injury.34
Thus, the question of applicability of Toyota as regards the requisites of a preliminary injunction is of no moment, for
there is no distinction in the requisites for either a mandatory or prohibitory injunctive writ.
Requisites for injunctive writ not present
A circumspect review of the parties’ pleadings and other records of the case readily yields the conclusion that the
minimum legal requisites for the issuance of a preliminary prohibitory injunction have not been satisfied. Hence, the
appellate court neither committed manifest error nor gravely abused its discretion in setting aside the grant by the
trial court of a writ of preliminary injunction in favor of petitioners.
For sure, the Court is aware that the matter of the propriety of the issuance of a writ of preliminary injunction is
addressed to the sound discretion of the trial court. It bears to stress, however, that the injunctive writ
is conditioned on the existence of a clear and positive right of the applicant which should be protected , the
writ being the strong arm of equity, an extraordinary peremptory remedy which can be availed of only upon the
existence of well-defined circumstances. Be that as it may, the writ must be used with extreme caution, affecting as
it does the respective rights of the parties.35 In fine, the writ should be granted only when the court is fully satisfied
that the law permits it and the emergency demands it,36 for the very foundation of the jurisdiction to issue writ of
injunction rests in the existence of a cause of action, probability of irreparable injury, inadequacy of
pecuniary compensation, and the prevention of the multiplicity of suits. Where facts are not shown to bring the
case within these conditions, the relief of injunction should be refused.37
Petitioners failed to show a right in esse to be protected
We join the CA in its findings that the petitioners have not shown a right in esse to be protected. Indeed, the Rules
requires that the applicant’s right must be clear or unmistakable, that is, a right that is actual, clear, and positive
especially calling for judicial protection.38 An injunction will not issue to protect a right not in esse and which may
never arise, or to restrain an act which does not give rise to a cause of action.
An application for a preliminary injunction is a mere adjunct to the main action. While the instant proceeding is only
for the purpose of determining whether grave abuse of discretion indeed attended the issuance by the RTC of the
writ in question, as the CA has determined positively, it is inevitable that our pronouncements may have some
unintended bearing on the main suit for declaratory relief. Nonetheless, it behooves the Court to resolve the matter
in keeping with the requirements of justice and fair play.
A judicious review of the records shows petitioners applying for and EPCIB granting the former credit facilities and
for which a bona fide REM over the St. James College lot had been constituted. EPCIB has shown documentary
evidence of how petitioners agreed to the credit line accomodation with a limit of PhP 25,000,000. Moreover, the late
petitioner Jaime indeed agreed to the January 9, 2003 counter-proposal of EPCIB for the payment of the PhP
18,300,000 outstanding loan, by signing his conforme on the counter-proposal and voluntarily opting to pay the loan
on equal annual payments of PhP 6,100,000 every May for three years.
It bears stressing that the original renewable credit line was granted sometime in 1995, while the REM over the land
covered by TCT No. 74598 was executed on November 8, 1994. The records show that the credit line was last
renewed in 2001. There can be no quibbling that in September 2001, petitioners were already in default, their
overdue loan having an unpaid balance of PhP 18,300,000. The fact of default was admitted by petitioners when
they twice proposed ways of settling their account.
Verily, the January 9, 2003 counter-proposal of EPCIB was a gesture of liberality on its part, inasmuch as, by that
simple act, it deferred exercising its rights as REM-secured creditor, by affording petitioners the opportunity to
restructure their loan by make making the outstanding balance of PhP 18,300,000 current. As events turned out,
however, petitioners still breached the terms of the counter-proposal by which they voluntarily agreed to abide.
We note that EPCIB did not immediately exercise its right to foreclose when the opportunity first presented itself.
From September 27, 2001, when petitioners were already in arrears, until November 27, 2003, or for more than two
years, EPCIB let that opportunity pass by. The new terms of payment pursuant to the January 9, 2003 agreement
gave petitioners a fresh start to meet their obligation.
We further note that petitioners saw fit to commence SCA No. 2569 for declaratory relief only on December 8, 2003
or after EPCIB filed its petition for sale to extra-judicially foreclose the subject mortgaged property. With the view we
take of things, petitioner instituted SCA No. 2569 as an afterthought and a measure to thwart and forestall the
imminent extrajudicial foreclosure proceedings.
Given the foregoing perspective, EPCIB has clearly established its status as unpaid mortgagee-creditor entitled to
foreclose the mortgage, a remedy provided by law39 and the mortgage contract itself. On the other hand, petitioners
can hardly claim a right, much less a clear and unmistakable one, which the intended foreclosure sale would violate
if not enjoined. Surely, the foreclosure of mortgage does not by itself constitute a violation of the rights of a
defaulting mortgagor.
The main purpose of the subsidiary contract of REM is to secure the principal obligation. Withal, when the
mortgagors-debtors has defaulted in the amortization payments of their loans, the superior legal right of the secured
unpaid creditors to exercise foreclosure proceedings on the mortgage property to answer for the principal obligation
arises. So it must be in this case.
Contrary to what the RTC wrote, there was no urgent necessity to issue the writ to protect the rights and interest of
petitioners as owners. First, they could participate in the foreclosure sale and get their property back unencumbered
by the payment of the obligations that they acknowledged in the first place. Second, a foreclosure sale does
not ipso facto pass title to the winning bidder over the mortgaged property. Petitioners continue to own the
mortgaged property sold in an auction sale until the expiration of the redemption period. Third, petitioners have one
year from the auction sale to redeem the mortgaged property. The one-year redemption period is another grace
period accorded petitioners to pay the outstanding debt, which would be converted to the proceeds of the forced
sale pursuant to the requisites under Sec. 6 of Republic Act No. 3135, as amended, for the redemption of a property
sold in an extrajudicial sale, also in accordance with Sec. 78 of the General Banking Act, as amended by
Presidential Decree No. 1828.40 It is only upon the expiration of the redemption period, without the judgment debtors
having made use of their right of redemption, does ownership of the land sold become consolidated in the purchaser
or winning bidder.41
Petitioners contend that the proposed foreclosure sale would likely cause unemployment in, as well as the
displacement of thousands of students of, St. James College. Petitioners’ thesis of unemployment and displacement
provides a practical, not a legal reason, for the issuance of an injunctive writ. What they conveniently refrained from
saying is that it is within their power and to their interest to prevent the occurrence of any of the two eventualities.
Finally, petitioners point to the fact that the mortgaged property has a value of over PhP 1 billion which is many
times over their unpaid loan obligation.
The disparity between what the mortgaged lot is worth and petitioners’ unpaid debt of PhP 24 million is not, standing
alone, a ground to enjoin a foreclosure sale. Neither would petitioners, as mortgagors, be placed at a disadvantage
by such state of things. The CA, citing decisional law, explains why:
Second, the fact that the outstanding obligation is only P24 million while the value of the mortgaged property could
be more than one billion pesos is not sufficient to enjoin the foreclosure sale of the said property. We agree with
[EPCIB] that the value of the mortgaged property has no bearing on the propriety of the auction sale provided that
the same is regularly and honestly conducted. This is because in a foreclosure sale where there is a right to
redeem, inadequacy of the bid price is of no moment for the reason that the judgment debtor has always the chance
to redeem and reacquire the property. In fact, the property may be sold for less than its fair market value precisely
because the lesser the price, the easier for the owner to effect a redemption.42
Application for injunctive relief construed strictly
In all then, the preliminary evidence presented by petitioners and the allegations in their complaint did not clearly
make out any entitlement to the injunctive relief prayed for. Consequently, the RTC gravely abused its discretion in
granting the writ of preliminary injunction. Trial courts are reminded to see to it that applications for preliminary
injunction clearly allege facts and circumstances showing the existence of the requisites. 43 We need not stress that
an application for injunctive relief is construed strictly against the pleader. 44 Here, petitioners have not sufficiently
shown the presence of the requisites for their entitlement to the writ. Perforce, the injunctive writ issued by the trial
court must be recalled. 1avvphi1

On the issue of petitioners’ contention on the alleged VAT imposed on the principal obligation, such can be fully
ventilated in the main action before the trial court.
One final word. The institution by petitioners of a suit for declaratory relief––after the petition for extrajudicial petition
has already been filed; and hoping in the process to block the bank’s legitimate effort to collect an overdue account
and demandable debt––is but a crude attempt to evade complying with their just obligation. It cannot be
countenanced. The antecedent facts in this case are quite simple: petitioners opened a credit line secured by a
REM. After drawing much from that line, they failed to pay, even after the bank bent backwards in the matter of
terms of payments. As a matter of justice and good conscience, the bank’s right to a forced sale of the mortgaged
property pursuant to the REM must be upheld absent other weightier reasons.
WHEREFORE, the instant petition is hereby DENIED for lack of merit, and the Court of Appeals Decision dated
January 17, 2007 and Resolution dated August 28, 2007 in CA-G.R. SP No. 86587 are AFFIRMED. The temporary
restraining order issued by the Court pursuant to its Resolution of December 12, 2007 is accordingly LIFTED.
Costs against petitioners.
SO ORDERED.
G.R. No. 200602 December 11, 2013
ACE FOODS, INC., Petitioner,
vs.
MICRO PACIFIC TECHNOLOGIES CO., LTD. , Respondent.1

DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari are the Decision dated October 21, 2011 and Resolution dated
2 3 4

February 8, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 89426 which reversed and set aside the
Decision dated February 28, 2007 of the Regional Trial Court of Makati, Branch 148 (RTC) in Civil Case No. 02-
5

1248, holding petitioner ACE Foods, Inc. (ACE Foods) liable to respondent Micro Pacific Technologies Co., Ltd.
(MTCL) for the payment of Cisco Routers and Frame Relay Products (subject products) amounting to ₱646,464.00
pursuant to a perfected contract of sale.
The Facts
ACE Foods is a domestic corporation engaged in the trading and distribution of consumer goods in wholesale and
retail bases, while MTCL is one engaged in the supply of computer hardware and equipment.
6 7

On September 26, 2001, MTCL sent a letter-proposal for the delivery and sale of the subject products to be
8

installed at various offices of ACE Foods. Aside from the itemization of the products offered for sale, the said
proposal further provides for the following terms, viz.: 9

TERMS : Thirty (30) days upon delivery

VALIDITY : Prices are based on current dollar rate and subject to changes without prior notice.
DELIVERY : Immediate delivery for items on stock, otherwise thirty (30) to forty-five days upon receipt of [Purchase
Order]
WARRANTY : One (1) year on parts and services. Accessories not included in warranty.
On October 29, 2001, ACE Foods accepted MTCL’s proposal and accordingly issued Purchase Order No.
100023 (Purchase Order) for the subject products amounting to ₱646,464.00 (purchase price). Thereafter, or on
10

March 4, 2002, MTCL delivered the said products to ACE Foods as reflected in Invoice No. 7733 (Invoice Receipt).
11

The fine print of the invoice states, inter alia, that "[t]itle to sold property is reserved in MICROPACIFIC
TECHNOLOGIES CO., LTD. until full compliance of the terms and conditions of above and payment of the
price" (title reservation stipulation). After delivery, the subject products were then installed and configured in ACE
12

Foods’s premises. MTCL’s demands against ACE Foods to pay the purchase price, however, remained
unheeded. Instead of paying the purchase price, ACE Foods sent MTCL a Letter dated September 19, 2002,
13 14

stating that it "ha[s] been returning the [subject products] to [MTCL] thru [its] sales representative Mr. Mark Anteola
who has agreed to pull out the said [products] but had failed to do so up to now."
Eventually, or on October 16, 2002, ACE Foods lodged a Complaint against MTCL before the RTC, praying that the
15

latter pull out from its premises the subject products since MTCL breached its "after delivery services" obligations to
it, particularly, to: (a) install and configure the subject products; (b) submit a cost benefit study to justify the purchase
of the subject products; and (c) train ACE Foods’s technicians on how to use and maintain the subject
products. ACE Foods likewise claimed that the subject products MTCL delivered are defective and not working.
16 17

For its part, MTCL, in its Answer with Counterclaim, maintained that it had duly complied with its obligations to ACE
18

Foods and that the subject products were in good working condition when they were delivered, installed and
configured in ACE Foods’s premises. Thereafter, MTCL even conducted a training course for ACE Foods’s
representatives/employees; MTCL, however, alleged that there was actually no agreement as to the purported "after
delivery services." Further, MTCL posited that ACE Foods refused and failed to pay the purchase price for the
subject products despite the latter’s use of the same for a period of nine (9) months. As such, MTCL prayed that
ACE Foods be compelled to pay the purchase price, as well as damages related to the transaction. 19

The RTC Ruling

On February 28, 2007, the RTC rendered a Decision, directing MTCL to remove the subject products from ACE
20

Foods’s premises and pay actual damages and attorney fees in the amounts of ₱200,000.00 and ₱100,000.00,
respectively. 21

At the outset, it observed that the agreement between ACE Foods and MTCL is in the nature of a contract to sell. Its
conclusion was based on the fine print of the Invoice Receipt which expressly indicated that "title to sold property is
reserved in MICROPACIFIC TECHNOLOGIES CO., LTD. until full compliance of the terms and conditions of above
and payment of the price," noting further that in a contract to sell, the prospective seller explicitly reserves the
transfer of title to the prospective buyer, and said transfer is conditioned upon the full payment of the purchase
price. Thus, notwithstanding the execution of the Purchase Order and the delivery and installation of the subject
22

products at the offices of ACE Foods, by express stipulation stated in the Invoice Receipt issued by MTCL and
signed by ACE Foods, i.e., the title reservation stipulation, it is still the former who holds title to the products until full
payment of the purchase price therefor. In this relation, it noted that the full payment of the price is a positive
suspensive condition, the non-payment of which prevents the obligation to sell on the part of the seller/vendor from
materializing at all. Since title remained with MTCL, the RTC therefore directed it to withdraw the subject products
23

from ACE Foods’s premises. Also, in view of the foregoing, the RTC found it unnecessary to delve into the
allegations of breach since the non-happening of the aforesaid suspensive condition ipso jure prevented the
obligation to sell from arising. 24

Dissatisfied, MTCL elevated the matter on appeal. 25

The CA Ruling
In a Decision dated October 21, 2011, the CA reversed and set aside the RTC’s ruling, ordering ACE Foods to pay
26

MTCL the amount of ₱646,464.00, plus legal interest at the rate of 6% per annum to be computed from April 4,
2002, and attorney’s fees amounting to ₱50,000.00. 27

It found that the agreement between the parties is in the nature of a contract of sale, observing that the said contract
had been perfected from the time ACE Foods sent the Purchase Order to MTCL which, in turn, delivered the subject
products covered by the Invoice Receipt and subsequently installed and configured them in ACE Foods’s
premises. Thus, considering that MTCL had already complied with its obligation, ACE Foods’s corresponding
28

obligation arose and was then duty bound to pay the agreed purchase price within thirty (30) days from March 5,
2002. In this light, the CA concluded that it was erroneous for ACE Foods not to pay the purchase price therefor,
29

despite its receipt of the subject products, because its refusal to pay disregards the very essence of reciprocity in a
contract of sale. The CA also dismissed ACE Foods’s claim regarding MTCL’s failure to perform its "after delivery
30

services" obligations since the letter-proposal, Purchase Order and Invoice Receipt do not reflect any agreement to
that effect.
31

Aggrieved, ACE Foods moved for reconsideration which was, however, denied in a Resolution 32
dated February 8,
2012, hence, this petition.
The Issue Before the Court
The essential issue in this case is whether ACE Foods should pay MTCL the purchase price for the subject
products.
The Court’s Ruling
The petition lacks merit.
A contract is what the law defines it to be, taking into consideration its essential elements, and not what the
contracting parties call it. The real nature of a contract may be determined from the express terms of the written
33

agreement and from the contemporaneous and subsequent acts of the contracting parties. However, in the
construction or interpretation of an instrument, the intention of the parties is primordial and is to be pursued.
The denomination or title given by the parties in their contract is not conclusive of the nature of its contents.
34

The very essence of a contract of sale is the transfer of ownership in exchange for a price paid or
promised. This may be gleaned from Article 1458 of the Civil Code which defines a contract of sale as follows:
35

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership and to
deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.
A contract of sale may be absolute or conditional. (Emphasis supplied)
Corollary thereto, a contract of sale is classified as a consensual contract, which means that the sale is perfected
by mere consent. No particular form is required for its validity. Upon perfection of the contract, the parties may
reciprocally demand performance, i.e., the vendee may compel transfer of ownership of the object of the sale, and
the vendor may require the vendee to pay the thing sold. 36

In contrast, a contract to sell is defined as a bilateral contract whereby the prospective seller, while expressly
reserving the ownership of the property despite delivery thereof to the prospective buyer, binds himself to sell the
property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, i.e., the full payment of
the purchase price. A contract to sell may not even be considered as a conditional contract of sale where the
seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition,
because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the
happening of a contingent event which may or may not occur. 37

In this case, the Court concurs with the CA that the parties have agreed to a contract of sale and not to a contract to
sell as adjudged by the RTC. Bearing in mind its consensual nature, a contract of sale had been perfected at the
precise moment ACE Foods, as evinced by its act of sending MTCL the Purchase Order, accepted the latter’s
proposal to sell the subject products in consideration of the purchase price of ₱646,464.00. From that point in time,
the reciprocal obligations of the parties – i.e., on the one hand, of MTCL to deliver the said products to ACE Foods,
and, on the other hand, of ACE Foods to pay the purchase price therefor within thirty (30) days from delivery –
already arose and consequently may be demanded. Article 1475 of the Civil Code makes this clear:
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the
object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing
the form of contracts.
At this juncture, the Court must dispel the notion that the stipulation anent MTCL’s reservation of ownership of the
subject products as reflected in the Invoice Receipt, i.e., the title reservation stipulation, changed the complexion of
the transaction from a contract of sale into a contract to sell. Records are bereft of any showing that the said
stipulation novated the contract of sale between the parties which, to repeat, already existed at the precise moment
ACE Foods accepted MTCL’s proposal. To be sure, novation, in its broad concept, may either be extinctive or
modificatory. It is extinctive when an old obligation is terminated by the creation of a new obligation that takes the
place of the former; it is merely modificatory when the old obligation subsists to the extent it remains compatible with
the amendatory agreement. In either case, however, novation is never presumed, and the animus novandi, whether
totally or partially, must appear by express agreement of the parties, or by their acts that are too clear and
unequivocal to be mistaken. 38

In the present case, it has not been shown that the title reservation stipulation appearing in the Invoice Receipt had
been included or had subsequently modified or superseded the original agreement of the parties. The fact that the
Invoice Receipt was signed by a representative of ACE Foods does not, by and of itself, prove animus
novandi since: (a) it was not shown that the signatory was authorized by ACE Foods (the actual party to the
transaction) to novate the original agreement; (b) the signature only proves that the Invoice Receipt was received by
a representative of ACE Foods to show the fact of delivery; and (c) as matter of judicial notice, invoices are
generally issued at the consummation stage of the contract and not its perfection, and have been even treated as
documents which are not actionable per se, although they may prove sufficient delivery. Thus, absent any clear
39

indication that the title reservation stipulation was actually agreed upon, the Court must deem the same to be a
mere unilateral imposition on the part of MTCL which has no effect on the nature of the parties’ original agreement
as a contract of sale. Perforce, the obligations arising thereto, among others, ACE Foods’s obligation to pay the
purchase price as well as to accept the delivery of the goods, remain enforceable and subsisting.
40
1âwphi1

As a final point, it may not be amiss to state that the return of the subject products pursuant to a rescissory action is
41

neither warranted by ACE Foods’s claims of breach – either with respect to MTCL’s breach of its purported "after
delivery services" obligations or the defective condition of the products - since such claims were not adequately
proven in this case. The rule is clear: each party must prove his own affirmative allegation; one who asserts the
affirmative of the issue has the burden of presenting at the trial such amount of evidence required by law to obtain a
favorable judgment, which in civil cases, is by preponderance of evidence. This, however, ACE Foods failed to
42

observe as regards its allegations of breach. Hence, the same cannot be sustained.
WHEREFORE, the petition is DENIED. Accordingly, the Decision dated October 21, 2011 and Resolution dated
February 8, 2012 of the Court of Appeals in CA-G.R. CV No. 89426 are hereby AFFIRMED.
SO ORDERED.
G.R. No. 177232 October 11, 2012
RCJ BUS LINES, INCORPORATED, Petitioner,
vs.
MASTER TOURS AND TRAVEL CORPORATION, Respondent.
DECISION
ABAD, J.:
This case is about a prior agreement for the lease of four buses, claimed to have been novated by a subsequent
agreement I~H- their storage in the former lessee's garage for a fee.
The Facts and the Case
On February 9, 1993 respondent Master Tours and Travel Corporation (Master Tours) entered into a five-year lease
agreement from February 15, 1993 to February 15, 1998 with petitioner RCJ Bus Lines, Incorporated (RCJ)
covering four Daewoo air-conditioned buses, described as "presently junked and not operational" for the lease
amount of ₱ 600,000.00, with ₱ 400,000.00 payable upon the signing of the agreement and ₱ 200,000.00 "payable
upon completion of rehabilitation of the four buses by the lessee." The agreement was signed by Marciano T. Tan as
1

Master Tours’ Executive Vice-President and Rolando Abadilla as RCJ’s President and Chairman.
More than four years into the lease or on June 16, 1997 Master Tours wrote RCJ a letter, demanding the return of
the four buses "brought to your garage at E. Rodriguez Avenue for safekeeping" so Master Tours could settle its
2

obligation with creditors who wanted to foreclose on the buses. RCJ did not, however, heed the demand.
On January 16, 1998 Master Tours wrote RCJ a letter, demanding the return of the buses to it and the payment of
the lease fee of ₱ 600,000.00 that had remained unpaid since 1993. On February 2, 1998 RCJ wrote back through
counsel that it had no obligation to pay the lease fee and that it would return the buses only after Master Tours shall
have paid RCJ the storage fees due on them. This prompted Master Tours to file a collection suit against RCJ
before the Regional Trial Court (RTC) of Manila, Branch 49.
For its defense, RCJ alleged that it had no use for the buses, they being non-operational, and that the lease
agreement had been modified into a contract of deposit of the buses for which Master Tours agreed to pay RCJ
storage fees of ₱ 4,000.00 a month. To prove the new agreement, RCJ cited Master Tours’ letter of June 16, 1997
which acknowledged that the buses were brought to RCJ’s garage for "safekeeping."
On November 5, 2001 the RTC rendered judgment, ordering RCJ to pay Master Tours ₱ 600,000.00 as lease fee
with 6% interest per annum from the date of the filing of the suit and attorney’s fees of ₱ 50,000.00 plus costs.
The lower court rejected RCJ’s defense of novation from a contract of lease to a contract of deposit, given the
absence of proof that Master Tours gave its consent to such a novation.
On appeal, the Court of Appeals (CA) rendered judgment dated October 26, 2006, entirely affirming the RTC
3

Decision. The CA also denied petitioner’s motion for reconsideration in a Resolution dated March 27, 2007, hence,
the present petition for review.
The Issues Presented
The case presents the following issues:
1. Whether or not the CA erred in holding that there had been no novation in the agreement of the parties
from one of lease of the buses to one of deposit of the same;
2. Assuming absence of novation, whether or not the CA erred in ruling that RCJ can be held liable for rental
fee notwithstanding that the buses never became operational; and
3. Whether or not the CA erred in affirming the RTC’s award of ₱ 50,000.00 in attorney’s fees plus cost of
suit against RCJ.
The Court’s Rulings
One. Article 1292 of the Civil Code provides that in novation, "it is imperative that it be so declared in unequivocal
terms, or that the old and the new obligations be on every point incompatible with each other." And the obligations
are incompatible if they cannot stand together. In such a case, the subsequent obligation supersedes or novates the
first.
4

To begin with, the cause in a contract of lease is the enjoyment of the thing; in a contract of deposit, it is the
5

safekeeping of the thing. They thus create essentially distinct obligations that would result in a novation only if the
6

parties entered into one after the other concerning the same subject matter. The turning point in this case, therefore,
is whether or not the parties subsequently entered into an agreement for the storage of the buses that superseded
their prior lease agreement involving the same buses.
Although the buses were described in the lease agreement as "junked and not operational," it is clear from the
prescribed manner of payment of the rental fee (₱ 400,000.00 down and ₱ 200,000.00 upon completion of their
rehabilitation) that RCJ would rehabilitate such buses and use them for its transport business. Now, RCJ’s theory is
that the parties subsequently changed their minds and terminated the lease but, rather than have Master Tours get
back its junked buses, RCJ agreed to store them in its garage as a service to Master Tours subject to payment of
storage fees.
Two things militate against RCJ’s theory.
First, RCJ failed to present any clear proof that it agreed with Master Tours to abandon the lease of the buses and in
its place constitute RCJ as depositary of the same, providing storage service to Master Tours for a fee. The only
evidence RCJ relied on is Master Tours’ letter of June 16, 1997 in which it demanded the return of the four buses
which were placed in RCJ’s garage for "safekeeping." The pertinent portion of the letter reads:
This is to follow up our previous discussion with you with regards to the Five (5) units of Daewoo Airconditioned
Motorcoaches, which we brought to your garage at E. Rodriguez Avenue for safekeeping. Since we have
outstanding loan with BancAsia Finance & Investment Corporation and BancAsia Capital Corporation that we are
unable to service payment, they have made final demand to us and are in the process of foreclosing these units. We
urgently request from you a meeting to thresh out matters concerning the pulling of these units by the financing
firms.
7

For one thing, the letter does not on its face constitute an agreement. It contains no contractual stipulations
respecting some warehousing arrangement between the parties concerning the buses. At best, the letter
acknowledges that five Master Tours’ buses were "brought to your RCJ’s garage…for safekeeping." But the idea of
RCJ safekeeping the buses for Master Tours is consistent with their lease agreement. The lessee of a movable
property has an obligation to "return the thing leased, upon the termination of the lease, just as he received it." This
8

means that RCJ must, as an incident of the lease, keep the buses safe from injury or harm while these were in its
possession.
For another, it is evident from the tenor of Master Tours’ letter that RCJ’s "safekeeping" was to begin from the time
the buses were delivered at its garage. There is no allegation or evidence that Master Tours pulled out the buses at
some point, signifying the pre-termination of the lease agreement, then brought them back to RCJ’s garage, this
time for safekeeping. This circumstance rules out any notion that an agreement for RCJ to hold the buses for
safekeeping had overtaken the lease agreement.
Second, it did not make sense for Master Tours to pre-terminate its lease of the junked buses to RCJ, which would
earn Master Tours ₱ 600,000.00, in exchange for having to pay RCJ storage fees for keeping those buses just the
same. As pointed out above, the lease already implied an obligation on RCJ’s part to safekeep the buses while they
were being rented.
Two. RCJ claims that it cannot be held liable to Master Tours for rental fee on the buses considering that these
never became operational. The pertinent portions of the lease agreement provide:
Section 1. Lease of AIRCON BUSES – The LESSOR hereby agrees and shall deliver unto the LESSEE the
AIRCON BUSES by way of a long term lease of said buses.
Section 2. Term of Lease – The lease of the AIRCON BUSES shall be for a period of FIVE (5) years to commence
on 15 February 1993 and to end automatically on 15 February 1998. x x x
Section 3. Lease Fee – For and in consideration of the lease of the AIRCON BUSES subject hereof, the lease fee
for five years for the Four (4) units shall be in the amount of PESOS: SIX HUNDRED THOUSAND (₱ 600,000.00).
The LESSEE agrees to advance the amount of PESOS: FOUR HUNDRED THOUSAND (₱ 400,000.00) payable
upon the signing of the Agreement. The remaining balance of PESOS: TWO HUNDRED THOUSAND (₱
200,000.00) will be payable upon completion of rehabilitation of the 4 buses by the lessee. 9

The Court finds no basis in the above for holding that RCJ’s obligation to pay the rents of ₱ 600,000.00 on the
buses depended on the buses being rehabilitated. Apart from delivering the buses to RCJ, the agreement did not
require any further act from Master Tours as a condition to the exercise of its right to collect the lease fee.
Of course, the lease agreement provided for two payments: ₱ 400,000.00 upon the signing of the agreement and ₱
200,000.00 upon completion of rehabilitation of the buses. But this provision is more about the mode of payment
rather than about the extinguishment of the obligation to pay the amounts due. The phrase "upon completion of
rehabilitation" implies an obligation to complete the rehabilitation which, in this case, wholly depended on work to be
done "by the lessee."
That the buses may have turned out to be unsuitable for use despite repair cannot prejudice Master Tours. The
latter did not hide the condition of the buses from RCJ. Indeed, the lease agreement described them as "presently
junked and not operational." RCJ knew what it was getting into and calculated some profit after it shall have
rehabilitated the buses and placed them on the road. That it may have made a miscalculation cannot exempt it from
its obligation to pay the rents.
But since Master Tours demanded the return of the buses before the expiration of the contract, RCJ was not yet in
default for the payment of ₱ 200,000.00. There was time left to complete or undertake the rehabilitation of the buses
since the lease was still operative at that time Master Tours opted to pre-terminate the contract. It is only equitable
10

to release RCJ from the liability to pay ₱ 200,000.00 since it was not afforded the balance of the period to perform
its obligation to repair. No one should be unduly enriched at the expense of another.
11 12
Three. RCJ claims that the award of attorney’s fees plus cost against it was unjustified.
Notably, RCJ did not question such award in the appellant’s brief that it filed with the CA. RCJ brought it up only
1âwphi1

through a supplemental appellant’s brief that it filed without leave of court three years after the case was submitted
for decision and a month before the CA rendered its judgment in the case. 13

Nonetheless, the Court notes that the RTC Decision awarded attorney’s fees without stating its basis for making
such award. The discretion of the court to award attorney's fees under Article 2208 of the Civil Code demands
factual, legal, and equitable justification. The court must state the reason for the award of attorney's fees and its
failure to do so makes the award utterly baseless.
As regards the cost of suit, costs ordinarily follow the results of the suit and shall be allowed to the prevailing party
as a matter of course.14

WHEREFORE, the Court MODIFIES the Court of Appeals Decision dated October 26, 2006. RCJ Bus Lines,
Incorporated is ORDERED to pay ₱ 400, 000.00 to Master Tours and Travel Corporation with interest of 6% per
annum from the filing of the complaint. The Regional Trial Court’s award of attorney’s fees is DELETED for lack of
legal basis.
Costs against the petitioner.
SO ORDERED.
G.R. No. 164051 October 3, 2012
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
LILIAN S. SORIANO, Respondent.
DECISION
PEREZ, J.:
We arc urged in this petition for review on certiorari to reverse and set aside the Decision of the Court of Appeals in
C A-G.R. SP No. 76243 finding no grave abuse of discretion in the ruling of the Secretary of the Department of
1

Justice ( DOJ) which, in turn, dismissed the criminal complaint for Estafa, i.e., violation of Section 13 of Presidential
Decree No. 1 15 (Trust Receipts Law), in relation to Article 315, paragraph (b) of the Revised Penal Code, filed by
petitioner Philippine National Bank (PNB) against respondent Lilian S. Soriano (Soriano). 2

First, the ostensibly simple facts as found by the Court of Appeals and adopted by PNB in its petition and
memorandum:
On March 20, 1997, [PNB] extended a credit facility in the form of [a] Floor Stock Line (FSL) in the increased
amount of Thirty Million Pesos (₱30 Million) to Lisam Enterprises, Inc. [LISAM], a family-owned and controlled
corporation that maintains Current Account No. 445830099-8 with petitioner PNB.
x x x. Soriano is the chairman and president of LISAM, she is also the authorized signatory in all LISAM’s
Transactions with [PNB].
On various dates, LISAM made several availments of the FSL in the total amount of Twenty Nine Million Six
Hundred Forty Five Thousand Nine Hundred Forty Four Pesos and Fifty Five Centavos (₱ 29,645,944.55), the
proceeds of which were credited to its current account with [PNB]. For each availment, LISAM through [Soriano],
executed 52 Trust Receipts (TRs). In addition to the promissory notes, showing its receipt of the items in trust with
the duty to turn-over the proceeds of the sale thereof to [PNB].
Sometime on January 21-22, 1998, [PNB’s] authorized personnel conducted an actual physical inventory of LISAM’s
motor vehicles and motorcycles and found that only four (4) units covered by the TRs amounting to One Hundred
Forty Thousand Eight Hundred Pesos (₱158,100.00) (sic) remained unsold.
Out of the Twenty Nine Million Six Hundred Forty Four Thousand Nine Hundred Forty Four Pesos and Fifty Five
Centavos (₱29,644,944.55) as the outstanding principal balance [of] the total availments on the line covered by
TRs, [LISAM] should have remitted to [PNB], Twenty Nine Million Four Hundred Eighty Seven Thousand Eight
Hundred Forty Four Pesos and Fifty Five Centavos (₱29,487,844.55). Despite several formal demands, respondent
Soriano failed and refused to turn over the said [amount to] the prejudice of [PNB]. 3

Given the terms of the TRs which read, in pertinent part:

RECEIVED in Trust from the [PNB], Naga Branch, Naga City, Philippines, the motor vehicles ("Motor Vehicles")
specified and described in the Invoice/s issued by HONDA PHILIPPINES, INC. (HPI) to Lisam Enterprises, Inc., (the
"Trustee") hereto attached as Annex "A" hereof, and in consideration thereof, the trustee hereby agrees to hold the
Motor Vehicles in storage as the property of PNB, with the liberty to sell the same for cash for the Trustee’s account
and to deliver the proceeds thereof to PNB to be applied against its acceptance on the Trustee’s account. Under the
terms of the Invoices and (sic) the Trustee further agrees to hold the said vehicles and proceeds of the sale thereof
in Trust for the payment of said acceptance and of any [of] its other indebtedness to PNB.
xxxx
For the purpose of effectively carrying out all the terms and conditions of the Trust herein created and to insure that
the Trustee will comply strictly and faithfully with all undertakings hereunder, the Trustee hereby agrees and
consents to allow and permit PNB or its representatives to inspect all of the Trustee’s books, especially those
pertaining to its disposition of the Motor Vehicles and/or the proceeds of the sale hereof, at any time and whenever
PNB, at its discretion, may find it necessary to do so.
The Trustee’s failure to account to PNB for the Motor Vehicles received in Trust and/or for the proceeds of the sale
thereof within thirty (30) days from demand made by PNB shall constitute prima facie evidence that the Trustee has
converted or misappropriated said vehicles and/or proceeds thereof for its benefit to the detriment and prejudice of
PNB. 4

and Soriano’s failure to account for the proceeds of the sale of the motor vehicles, PNB, as previously adverted to,
filed a complaint-affidavit before the Office of the City Prosecutor of Naga City charging Soriano with fifty two (52)
counts of violation of the Trust Receipts Law, in relation to Article 315, paragraph 1(b) of the Revised Penal Code.
In refutation, Soriano filed a counter-affidavit asserting that:
1. The obligation of [LISAM] which I represent, and consequently[,] my obligation, if any, is purely civil in nature. All
of the alleged trust receipt agreements were availments made by the corporation [LISAM] on the PNB credit facility
known as "Floor Stock Line" (FSL), which is just one of the several credit facilities granted to [LISAM] by PNB. When
my husband Leandro A. Soriano, Jr. was still alive, [LISAM] submitted proposals to PNB for the restructuring of all of
[LISAM’s] credit facilities. After exchanges of several letters and telephone calls, Mr. Josefino Gamboa, Senior Vice
President of PNB on 12 May 1998 wrote [LISAM] informing PNB’s lack of objection to [LISAM’s] proposal of
restructuring all its obligations. x x x.
2. On September 22, 1998 Mr. Avengoza sent a letter to [LISAM], complete with attached copy of PNB Board’s
minutes of meeting, with the happy information that the Board of Directors of PNB has approved the conversion of
[LISAM’s] existing credit facilities at PNB, which includes the FSL on which the Trust receipts are availments, to [an]
Omnibus Line (OL) available by way of Revolving Credit Line (RCL), Discounting Line Against Post-Dated Checks
(DLAPC), and Domestic Bills Purchased Line (DBPL) and with a "Full waiver of penalty charges on RCL, FSL
(which is the Floor Stock Line on which the trust receipts are availments) and Time Loan. x x x.
3. The [FSL] and the availments thereon allegedly secured by Trust Receipts, therefore, was (sic) already converted
into[,] and included in[,] an Omnibus Line (OL) of ₱106 million on September 22, 1998, which was actually a
Revolving Credit Line (RCL)[.] 5

PNB filed a reply-affidavit maintaining Soriano’s criminal liability under the TRs:
2. x x x. While it is true that said restructuring was approved, the same was never implemented because [LISAM]
failed to comply with the conditions of approval stated in B/R No. 6, such as the payment of the interest and other
charges and the submission of the title of the 283 sq. m. of vacant residential lot, x x x Tandang Sora, Quezon City,
as among the common conditions stated in paragraph V, of B/R 6. The nonimplementation of the approved
restructuring of the account of [LISAM] has the effect of reverting the account to its original status prior to the said
approval. Consequently, her claim that her liability for violation of the Trust Receipt Agreement is purely civil does
not hold water.6

In a Resolution, the City Prosecutor of Naga City found, thus:

7

WHEREFORE, the undersigned finds prima facie evidence that respondent LILIAN SORIANO is probably guilty of
violation of [the] Trust Receipt Law, in relation to Article 315 par. 1 (b) of the Revised Penal Code, let therefore 52
counts of ESTAFA be filed against the respondent. 8

Consequently, on 1 August 2001, the same office filed Informations against Soriano for fifty two (52) counts
of Estafa (violation of the Trust Receipts Law), docketed as Criminal Case Nos. 2001-0641 to 2001-0693, which
were raffled to the Regional Trial Court (RTC), Branch 21, Naga City.
Meanwhile, PNB filed a petition for review of the Naga City Prosecutor’s Resolution before the Secretary of the
DOJ.
In January 2002, the RTC ordered the dismissal of one of the criminal cases against Soriano, docketed as Criminal
Case No. 2001-0671. In March of the same year, Soriano was arraigned in, and pled not guilty to, the rest of the
criminal cases. Thereafter, on 16 October 2002, the RTC issued an Order resetting the continuation of the pre-trial
on 27 November 2002.
On the other litigation front, the DOJ, in a Resolution dated 25 June 2002, reversed and set aside the earlier
9

resolution of the Naga City Prosecutor:

WHEREFORE, the questioned resolution is REVERSED and SET ASIDE and the City Prosecutor of Naga City is
hereby directed to move, with leave of court, for the withdrawal of the informations for estafa against Lilian S.
Soriano in Criminal Case Nos. 2001-0641 to 0693 and to report the action taken thereon within ten (10) days from
receipt thereof.10

On various dates the RTC, through Pairing Judge Novelita Villegas Llaguno, issued the following Orders:
1. 27 November 2002 11

When this case was called for continuation of pre-trial, [Soriano’s] counsel appeared. However, Prosecutor Edgar
Imperial failed to appear.
Records show that a copy of the Resolution from the Department of Justice promulgated on October 28, 2002 was
received by this Court, (sic) denying the Motion for Reconsideration of the Resolution No. 320, series of 2002
reversing that of the City Prosecutor of Naga City and at the same time directing the latter to move with leave of
court for the withdrawal of the informations for Estafa against Lilian Soriano.
Accordingly, the prosecution is hereby given fifteen (15) days from receipt hereof within which to comply with the
directive of the Department of Justice.
2. 21 February 2003 12

Finding the Motion to Withdraw Informations filed by Pros. Edgar Imperial duly approved by the City Prosecutor of
Naga City to be meritorious the same is hereby granted. As prayed for, the Informations in Crim. Cases Nos. RTC
2001-0641 to 2001-0693 entitled, People of the Philippines vs. Lilian S. Soriano, consisting of fifty-two (52) cases
except for Crim. Case No. RTC 2001-0671 which had been previously dismissed, are hereby ordered
WITHDRAWN.
3. 15 July 2003 13

The prosecution of the criminal cases herein filed being under the control of the City Prosecutor, the withdrawal of
the said cases by the Prosecution leaves this Court without authority to re-instate, revive or refile the same.
Wherefore, the Motion for Reconsideration filed by the private complainant is hereby DENIED.
With the denial of its Motion for Reconsideration of the 25 June 2002 Resolution of the Secretary of the DOJ, PNB
filed a petition for certiorari before the Court of Appeals alleging that:
A. THE SECRETARY OF THE DOJ COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO WANT OR
EXCESS OF JURISDICTION IN REVERSING AND SETTING ASIDE THE RESOLUTON OF THE CITY
PROSECUTOR OF NAGA CITY FINDING A PRIMA FACIE CASE AGAINST PRIVATE RESPONDENT [SORIANO],
FOR THE SAME HAS NO LEGAL BASES AND IS NOT IN ACCORD WITH THE JURISPRUDENTIAL RULINGS
ON THE MATTER. 14

As stated at the outset, the appellate court did not find grave abuse of discretion in the questioned resolution of the
DOJ, and dismissed PNB’s petition for certiorari.
Hence, this appeal by certiorari.
Before anything else, we note that respondent Soriano, despite several opportunities to do so, failed to file a
Memorandum as required in our Resolution dated 16 January 2008. Thus, on 8 July 2009, we resolved to dispense
with the filing of Soriano’s Memorandum.
In its Memorandum, PNB posits the following issues:
I. Whether or not the Court of Appeals gravely erred in concurring with the finding of the DOJ that the approval by
PNB of [LISAM’s] restructuring proposal of its account with PNB had changed the status of [LISAM’s] obligations
secured by Trust Receipts to one of an ordinary loan, non-payment of which does not give rise to a criminal liability.
II. Whether or not the Court of Appeals gravely erred in concluding and concurring with the June 25, 2002
Resolution of the DOJ directing the withdrawal of the Information for Estafa against the accused in Criminal Case
Nos. 2001-0641 up to 0693 considering the well-established rule that once jurisdiction is vested in court, it is
retained up to the end of the litigation.
III. Whether or not the reinstatement of the 51 counts (Criminal Case No. 2001-0671 was already dismissed) of
criminal cases for estafa against Soriano would violate her constitutional right against double jeopardy. 15

Winnowed from the foregoing, we find that the basic question is whether the Court of Appeals gravely erred in
affirming the DOJ’s ruling that the restructuring of LISAM’s loan secured by trust receipts extinguished Soriano’s
criminal liability therefor.
It has not escaped us that PNB’s second and third issues delve into the three (3) Orders of the RTC which are not
the subject of the petition before us. To clarify, the instant petition assails the Decision of the appellate court in CA-
G.R. SP No. 76243 which, essentially, affirmed the ruling of the DOJ in I.S. Nos. 2000-1123, 2000-1133 and 2000-
1184. As previously narrated, the DOJ Resolution became the basis of the RTC’s Orders granting the withdrawal of
the Informations against Soriano. From these RTC Orders, the remedy of PNB was to file a petition
for certiorari before the Court of Appeals alleging grave abuse of discretion in the issuance thereof.
However, for clarity and to obviate confusion, we shall first dispose of the peripheral issues raised by PNB:
1. Whether the withdrawal of Criminal Cases Nos. 2001-0641 to 2001-0693 against Soriano as directed by the DOJ
violates the well-established rule that once the trial court acquires jurisdiction over a case, it is retained until
termination of litigation.
2. Whether the reinstatement of Criminal Cases Nos. 2001-0641 to 2001-0693 violate the constitutional provision
against double jeopardy.
We rule in the negative.
Precisely, the withdrawal of Criminal Cases Nos. 2001-0641 to 2001-0693 was ordered by the RTC. In particular,
the Secretary of the DOJ directed City Prosecutor of Naga City to move, with leave of court, for the withdrawal of
the Informations for estafa against Soriano. Significantly, the trial court gave the prosecution fifteen (15) days within
which to comply with the DOJ’s directive, and thereupon, readily granted the motion. Indeed, the withdrawal of the
criminal cases did not occur, nay, could not have occurred, without the trial court’s imprimatur. As such, the DOJ’s
directive for the withdrawal of the criminal cases against Soriano did not divest nor oust the trial court of its
jurisdiction.
Regrettably, a perusal of the RTC’s Orders reveals that the trial court relied solely on the Resolution of the DOJ
Secretary and his determination that the Informations for estafa against Soriano ought to be withdrawn. The trial
court abdicated its judicial power and refused to perform a positive duty enjoined by law. On one occasion, we have
declared that while the recommendation of the prosecutor or the ruling of the Secretary of Justice is persuasive, it is
not binding on courts. We shall return to this point shortly.
16

In the same vein, the reinstatement of the criminal cases against Soriano will not violate her constitutional right
against double jeopardy.
Section 7, Rule 117 of the Rules of Court provides for the requisites for double jeopardy to set in: (1) a first jeopardy
17

attached prior to the second; (2) the first jeopardy has been validly terminated; and (3) a second jeopardy is for the
same offense as in the first. A first jeopardy attaches only (a) after a valid indictment; (b) before a competent court;
(c) after arraignment; (d) when a valid plea has been entered; and (e) when the accused has been acquitted or
convicted, or the case dismissed or otherwise terminated without his express consent. 18

In the present case, the withdrawal of the criminal cases did not include a categorical dismissal thereof by the RTC.
Double jeopardy had not set in because Soriano was not acquitted nor was there a valid and legal dismissal or
termination of the fifty one (51) cases against her. It stands to reason therefore that the fifth requisite which requires
conviction or acquittal of the accused, or the dismissal of the case without the approval of the accused, was not met.
On both issues, the recent case of Cerezo v. People, is enlightening. In Cerezo, the trial court simply followed the
19

prosecution’s lead on how to proceed with the libel case against the three accused. The prosecution twice changed
their mind on whether there was probable cause to indict the accused for libel. On both occasions, the trial court
granted the prosecutor’s motions. Ultimately, the DOJ Secretary directed the prosecutor to re-file the Information
against the accused which the trial court forthwith reinstated. Ruling on the same issues raised by PNB in this case,
we emphasized, thus:
x x x. In thus resolving a motion to dismiss a case or to withdraw an Information, the trial court should not rely solely
and merely on the findings of the public prosecutor or the Secretary of Justice. It is the court’s bounden duty to
assess independently the merits of the motion, and this assessment must be embodied in a written order disposing
of the motion. x x x.
In this case, it is obvious from the March 17, 2004 Order of the RTC, dismissing the criminal case, that the RTC
judge failed to make his own determination of whether or not there was a prima facie case to hold respondents for
trial. He failed to make an independent evaluation or assessment of the merits of the case. The RTC judge blindly
relied on the manifestation and recommendation of the prosecutor when he should have been more circumspect
and judicious in resolving the Motion to Dismiss and Withdraw Information especially so when the prosecution
appeared to be uncertain, undecided, and irresolute on whether to indict respondents.
The same holds true with respect to the October 24, 2006 Order, which reinstated the case. The RTC judge failed to
make a separate evaluation and merely awaited the resolution of the DOJ Secretary. This is evident from the
general tenor of the Order and highlighted in the following portion thereof:
As discussed during the hearing of the Motion for Reconsideration, the Court will resolve it depending on the
outcome of the Petition for Review. Considering the findings of the Department of Justice reversing the resolution of
the City Prosecutor, the Court gives favorable action to the Motion for Reconsideration.
By relying solely on the manifestation of the public prosecutor and the resolution of the DOJ Secretary, the trial court
abdicated its judicial power and refused to perform a positive duty enjoined by law. The said Orders were thus
stained with grave abuse of discretion and violated the complainant’s right to due process. They were void, had no
legal standing, and produced no effect whatsoever.
xxxx
It is beyond cavil that double jeopardy did not set in. Double jeopardy exists when the following requisites are
present: (1) a first jeopardy attached prior to the second; (2) the first jeopardy has been validly terminated; and (3) a
second jeopardy is for the same offense as in the first. A first jeopardy attaches only (a) after a valid indictment; (b)
before a competent court; (c) after arraignment; (d) when a valid plea has been entered; and (e) when the accused
has been acquitted or convicted, or the case dismissed or otherwise terminated without his express
consent.
Since we have held that the March 17, 2004 Order granting the motion to dismiss was committed with grave abuse
of discretion, then respondents were not acquitted nor was there a valid and legal dismissal or termination of the
case. Ergo, the fifth requisite which requires the conviction and acquittal of the accused, or the dismissal of the case
without the approval of the accused, was not met. Thus, double jeopardy has not set in. (Emphasis supplied)
20

We now come to the crux of the matter: whether the restructuring of LISAM’s loan account extinguished Soriano’s
criminal liability.
PNB admits that although it had approved LISAM’s restructuring proposal, the actual restructuring of LISAM’s
account consisting of several credit lines was never reduced into writing. PNB argues that the stipulations therein
such as the provisions on the schedule of payment of the principal obligation, interests, and penalties, must be in
writing to be valid and binding between the parties. PNB further postulates that assuming the restructuring was
reduced into writing, LISAM failed to comply with the conditions precedent for its effectivity, specifically, the payment
of interest and other charges, and the submission of the titles to the real properties in Tandang Sora, Quezon City.
On the whole, PNB is adamant that the events concerning the restructuring of LISAM’s loan did not affect the TR
security, thus, Soriano’s criminal liability thereunder subsists.
On the other hand, the appellate court agreed with the ruling of the DOJ Secretary that the approval of LISAM’s
restructuring proposal, even if not reduced into writing, changed the status of LISAM’s loan from being secured with
Trust Receipts (TR’s) to one of an ordinary loan, non-payment of which does not give rise to criminal liability. The
Court of Appeals declared that there was no breach of trust constitutive of estafa through misappropriation or
conversion where the relationship between the parties is simply that of creditor and debtor, not as entruster and
entrustee.
We cannot subscribe to the appellate court’s reasoning. The DOJ Secretary’s and the Court of Appeals holding that,
the supposed restructuring novated the loan agreement between the parties is myopic.
To begin with, the purported restructuring of the loan agreement did not constitute novation.
Novation is one of the modes of extinguishment of obligations; it is a single juridical act with a diptych function. The
21

substitution or change of the obligation by a subsequent one extinguishes the first, resulting in the creation of a new
obligation in lieu of the old. It is not a complete obliteration of the obligor-obligee relationship, but operates as a
22

relative extinction of the original obligation.

Article 1292 of the Civil Code which provides:
Art. 1292. In order that an obligation may be extinguished by another which substitutes the same, it is imperative
that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible
with each other.
contemplates two kinds of novation: express or implied. The extinguishment of the old obligation by the new one is a
necessary element of novation, which may be effected either expressly or impliedly.
In order for novation to take place, the concurrence of the following requisites is indispensable:
(1) There must be a previous valid obligation;
(2) There must be an agreement of the parties concerned to a new contract;
(3) There must be the extinguishment of the old contract; and
(4) There must be the validity of the new contract. 23

Novation is never presumed, and the animus novandi, whether totally or partially, must appear by express
agreement of the parties, or by their acts that are too clear and unmistakable. The contracting parties must
incontrovertibly disclose that their object in executing the new contract is to extinguish the old one. Upon the other
hand, no specific form is required for an implied novation, and all that is prescribed by law would be an
incompatibility between the two contracts. Nonetheless, both kinds of novation must still be clearly proven.
24 25

In this case, without a written contract stating in unequivocal terms that the parties were novating the original loan
agreement, thus undoubtedly eliminating an express novation, we look to whether there is an incompatibility
between the Floor Stock Line secured by TR’s and the subsequent restructured Omnibus Line which was
supposedly approved by PNB.
Soriano is confident with her assertion that PNB’s approval of her proposal to restructure LISAM’s loan novated the
loan agreement secured by TR’s. Soriano relies on the following:
1. x x x. All the alleged trust receipt agreements were availments made by [LISAM] on the PNB credit facility known
as "Floor Stock Line," (FSL) which is just one of the several credit facilities granted to [LISAM] by PNB. When my
husband Leandro A. Soriano, Jr. was still alive, [LISAM] submitted proposals to PNB for the restructuring of all of
[LISAM’s] credit facilities. After exchanges of several letters and telephone calls, Mr. Josefino Gamboa, Senior Vice
President of PNB on 12 May 1998 wrote [LISAM] informing PNB’s lack of objection to [LISAM’s] proposal of
restructuring all its obligations. x x x.
2. On September 22, 1998, Mr. Avengoza sent a letter to [LISAM], complete with attached copy of PNB’s Board’s
minutes of meeting, with the happy information that the Board of Directors of PNB has approved the conversion of
[LISAM’s] existing credit facilities at PNB, which includes the FSL on which the trust receipts are availments, to [an]
Omnibus Line (OL) available by way of Revolving Credit Line (RCL), Discounting Line Against Post-Dated Checks
(DLAPC), and Domestic Bills Purchased Line (DBPL) and with a "Full waiver of penalty charges on RCL, FSL
(which is the Floor Stock Line on which the trust receipts are availments) and Time Loan. x x x. 26

Soriano’s reliance thereon is misplaced. The approval of LISAM’s restructuring proposal is not the bone of
contention in this case. The pith of the issue lies in whether, assuming a restructuring was effected, it extinguished
the criminal liability on the loan obligation secured by trust receipts, by extinguishing the entruster-entrustee
relationship and substituting it with that of an ordinary creditor-debtor relationship. Stated differently, we examine
whether the Floor Stock Line is incompatible with the purported restructured Omnibus Line.
The test of incompatibility is whether the two obligations can stand together, each one having its independent
existence. If they cannot, they are incompatible and the latter obligation novates the first. Corollarily, changes that
breed incompatibility must be essential in nature and not merely accidental. The incompatibility must take place in
any of the essential elements of the obligation, such as its object, cause or principal conditions thereof; otherwise,
the change would be merely modificatory in nature and insufficient to extinguish the original obligation. 27

We have scoured the records and found no incompatibility between the Floor Stock Line and the purported
restructured Omnibus Line. While the restructuring was approved in principle, the effectivity thereof was subject to
conditions precedent such as the payment of interest and other charges, and the submission of the titles to the real
properties in Tandang Sora, Quezon City. These conditions precedent imposed on the restructured Omnibus Line
were never refuted by Soriano who, oddly enough, failed to file a Memorandum. To our mind, Soriano’s bare
assertion that the restructuring was approved by PNB cannot equate to a finding of an implied novation which
extinguished Soriano’s obligation as entrustee under the TR’s.
Moreover, as asserted by Soriano in her counter-affidavit, the waiver pertains to penalty charges on the Floor Stock
Line. There is no showing that the waiver extinguished Soriano’s obligation to "sell the [merchandise] for cash for
[LISAM’s] account and to deliver the proceeds thereof to PNB to be applied against its acceptance on [LISAM’s]
account." Soriano further agreed to hold the "vehicles and proceeds of the sale thereof in Trust for the payment of
said acceptance and of any of its other indebtedness to PNB." Well-settled is the rule that, with respect to
obligations to pay a sum of money, the obligation is not novated by an instrument that expressly recognizes the old,
changes only the terms of payment, adds other obligations not incompatible with the old ones, or the new contract
merely supplements the old one. Besides, novation does not extinguish criminal liability. It stands to reason
28 29

therefore, that Soriano’s criminal liability under the TR’s subsists considering that the civil obligations under the Floor
Stock Line secured by TR’s were not extinguished by the purported restructured Omnibus Line.
In Transpacific Battery Corporation v. Security Bank and Trust Company, we held that the restructuring of a loan
30

agreement secured by a TR does not per se novate or extinguish the criminal liability incurred thereunder:
x x x Neither is there an implied novation since the restructuring agreement is not incompatible with the trust receipt
transactions.
Indeed, the restructuring agreement recognizes the obligation due under the trust receipts when it required
"payment of all interest and other charges prior to restructuring." With respect to Michael, there was even a proviso
under the agreement that the amount due is subject to "the joint and solidary liability of Spouses Miguel and Mary
Say and Michael Go Say." While the names of Melchor and Josephine do not appear on the restructuring
agreement, it cannot be presumed that they have been relieved from the obligation. The old obligation continues to
subsist subject to the modifications agreed upon by the parties.
The circumstance that motivated the parties to enter into a restructuring agreement was the failure of petitioners to
account for the goods received in trust and/or deliver the proceeds thereof. To remedy the situation, the parties
executed an agreement to restructure Transpacific's obligations.
The Bank only extended the repayment term of the trust receipts from 90 days to one year with monthly installment
at 5% per annum over prime rate or 30% per annum whichever is higher. Furthermore, the interest rates were
flexible in that they are subject to review every amortization due. Whether the terms appeared to be more onerous
or not is immaterial. Courts are not authorized to extricate parties from the necessary consequences of their acts.
1âwphi1

The parties will not be relieved from their obligations as there was absolutely no intention by the parties to
supersede or abrogate the trust receipt transactions. The intention of the new agreement was precisely to revive the
old obligation after the original period expired and the loan remained unpaid. Well-settled is the rule that, with
respect to obligations to pay a sum of money, the obligation is not novated by an instrument that expressly
recognizes the old, changes only the terms of payment, adds other obligations not incompatible with the old ones, or
the new contract merely supplements the old one. 31

Based on all the foregoing, we find grave error in the Court of Appeals dismissal of PNB’s petition for certiorari.
Certainly, while the determination of probable cause to indict a respondent for a crime lies with the prosecutor, the
discretion must not be exercised in a whimsical or despotic manner tantamount to grave abuse of discretion.
WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals in CA-G.R. SP No. 76243 finding no
grave abuse of discretion on the part of the Secretary of Justice is REVERSED and SET ASIDE.
The Resolution of the Secretary of Justice dated 25 June 2002, directing the City Prosecutor of Naga City to move
for the withdrawal of the Informations for estafa in relation to the Trust Receipts Law against respondent Lilian S.
Soriano, and his 29 October 2002 Resolution, denying petitioner's Motion for Reconsideration,
are ANNULLED and SET ASIDE for having been issued with grave abuse of discretion; and the Resolution or the
Naga City Prosecutor's Office dated 19 March 2001, finding probable cause against herein respondent,
is REINSTATED. Consequently, the Orders of the Regional Trial Court, Branch 21 of Naga City in Criminal Cases
Nos. 2001-0641 to 2001-0693, except Criminal Case No. 2001-0671, dated 27 November 2002, 21 February 2003
and 15 July 2003 are SET ASIDE and its Order of 16 October 2002 resetting the continuation or the pre-trial
is REINSTATED. The RTC is further ordered to conduct the pretrial with dispatch.
SO ORDERED.
G.R. No. 174665 September 18, 2013
PHILIPPINE RECLAMATION AUTHORITY (Formerly known as the PUBLIC ESTATES AUTHORITY), Petitioner,
vs.
ROMAGO, INCORPORATED, Respondent.
x-----------------------x
G.R. No. 175221
ROMAGO, INCORPORATED, Petitioner,
vs.
PHILIPPINE RECLAMATION AUTHORITY (Formerly known as the PUBLIC ESTATES
AUTHORITY), Respondent.
DECISION
ABAD, J.:
These cases pertain to the defense of novation by virtue of the debtor’s assignment to a third party of its contractual
liability to the creditor.
The Facts and the Case
In order to convert former military reservations and installations to productive use and raise funds out of the sale of
portions of the country’s military camps,1 in 1992 Congress enacted Republic Act 7227,2 creating the Bases
Conversion and Development Authority (BCDA). Pursuant to this law, the President issued Executive Order
40,3 Series of 1992, setting aside portions of Fort Bonifacio in Taguig, Metro Manila, for the Heritage Park Project,
aimed at converting a 105-hectare land into a world class memorial park for the purpose of generating funds for the
BCDA.4
On August 9, 1993 the BCDA entered into a Memorandum of Agreement5 (MOA) with the Philippine Reclamation
Authority (PRA),formerly the Public Estates Authority, designating it as the Project Manager. On September 9, 1994
the BCDA, PRA, and the Philippine National Bank (PNB) executed a Pool Formation Trust Agreement
(PFTA)6 under which BCDA, as project owner, was to issue Heritage Park Investment Certificates that would
evidence the holders’ right to the perpetual use and care of specific interment plots. The PFTA designated PRA as
Project Manager, tasked with the physical development of the park. The PNB was to act as trustee for the Heritage
Park securitization.7
After public bidding, the PRA awarded the outdoor electrical and lighting works for the park to respondent Romago,
Inc. (Romago) with which it entered into a Construction Agreement on March 18, 1996 for the contract price of
₱176,326,794.10.8 On receipt of the PRA’s notice to proceed,9 Romago immediately began construction
works.10 Meanwhile, the parties to the PFTA organized the Heritage Park Management Corporation (HPMC) to take
over the management of the project.11 On February 24, 2000 the Chairman of HPMC Board of Trustees, Mr. Rogelio
L. Singson, sent a notice of termination of management to then PRA General Manager Carlos P. Doble with a
demand for the turnover of the park to HPMC.12 The letter reads:
Pursuant to Article 11 of the Pool Formation Trust Agreement(PFTA), the certificate holders of the Heritage Park
Management Corporation (HPMC) duly elected its Board of Trustees at the 03 January2000 meeting held at the
BCDA Corporate Center. Attached is a copy of the Secretary’s Certificate attesting to said election of the HPMC
Board of Trustees.
Section 11.07 of the PFTA provides that upon the election of the Board of Trustees, the PNB shall turnover to the
Board all its functions and responsibilities, and all documents in its custody, including all Heritage Park Accounts,
except the General Fund, which will go to BCDA. Upon such turnover and upon the complete and faithful
performance by PNB and [PRA] of their respective obligations under this Agreement, the respective obligations of
[PRA] and PNB under this Agreement shall be deemed terminated.
[PRA] shall turnover to the Board of Trustees all the documents and equipment it has in its possession relating to
the Project and the Park, including the computer hardware and software pertaining to the geographical information
system of the Park."
Pursuant to the foregoing provision, we hereby formally advise you of the termination of [PRA’s] obligations, duties
and responsibilities as Project Manager under the PFTA, effective upon receipt of this letter. We also formally
request for [PRA] to turn over, within fifteen (15) days from receipt of this letter, the documents and equipment
relating to the Heritage Park Project, including the computer hardware and software in [PRA’s] possession
pertaining to the geographical information system of the Park.13
The PRA lost no time in informing Romago of the consequent termination of its services. Thus, it wrote Romago a
letter14 on March 13,2000:
As a consequence of the assumption of functions, duties and responsibilities by the Heritage Park Management
Corporation, as provided for under the provisions of the Pool Formation Trust Agreement, we are constrained to
assign the Electrical Works contract entered with you on March 18, 1996 including all supplemental agreements
relative thereto, effective March 18, 2000 in favor of the Heritage Park Management Corporation. The formal
turnover on March 17, 2000 by[PRA] to the Heritage Park Management Corporation of all its obligations, duties and
responsibilities, and all documents relating to the Heritage Park Project, was made pursuant to the attached letter of
the Chairman of HPMC Board of Trustees, Mr. Rogelio L. Singson to the [PRA], received by us on March 02, 2000.
By virtue of this assignment, all the contractual functions, responsibilities and liabilities, if any, as well as any cause
of action for or against [PRA] shall hereafter accrue to and devolve upon the assignee hereof.
Please be guided accordingly.15
Because the HPMC refused to recognize the PRA’s contract with it, on March 17, 2004 Romago filed with the
Construction Industry Arbitration Commission (CIAC) a complaint,16 docketed as CIAC Case 18-2004,seeking to
collect its claims totaling ₱24,467,621.64, plus interest from the PRA, HPMC, and Rosehills Memorial Management
(Phils.), Inc. (RMMI). Romago claimed that it won the bidding for the construction of the electrical and lighting
facilities at the Heritage Park for ₱181,779,800.0017 but PRA deducted 3% from the bid amount, reducing the
contract price to₱176,326,794.10.18
Because of problems encountered with illegal settlers, only around 60of the 105-hectare park was delivered to
Romago for lighting work, reducing the contract price to ₱101,083,636.16.19 But this amount was adjusted to
₱109,330,032.81 due to PRA variation orders.20 Although Romago completed 96.15% of the works, it claimed that
the PRA paid it only₱82,929,577.22 instead of the ₱105,120,826.50 due it. 21 Romago also claimed that it should be
reimbursed the ₱9,336,054.15 retention money that it posted since its services had already been terminated and
since it had substantially completed the Heritage Park Project.22
Romago also sought payment of the additional costs and expenses that it incurred by reason of PRA’s delays in
turning over the project area, in delivering the owner-supplied equipment, and in solving the security problems at the
work site. These included price escalation of materials and supplies, at ₱857,799.10; and extended overhead costs,
at ₱10,051,870.61.23 And, for mobilizations costs that it spent preparing for works on the entire105-hectare project
area, Romago sought additional payment of ₱7,524,315.79 plus interest of ₱517,923.74 from April 12, 1999 to May
31,1999 or a total of ₱8,042,239.53. It also claimed proportionate refund of ₱2,327,107.97 out of the 3% discount
applied to its original bid 24 and ₱420,944.02 in damages for the unceremonious termination of its services.25
Romago admitted, however, owing the PRA ₱15,475,835.42 in unrecouped prepaid materials and ₱12,286,795.12
in unrecouped down payment.26
In its answer, the PRA denied liability, claiming that it entered into the construction agreement with Romago after its
approval by the Heritage Park Executive Committee, the policy-making and governing body of the Heritage Park
Project. The PRA merely processed and recommended payment of all the works done. The money came from the
project’s Construction and Development Fund that PRA did not control. PNB acted as trustee of the fund under the
PFTA. Since these funds had all been turned over to the HPMC when the latter came into being, Romago should
not address its claims to PRA.27
Rather than answer the complaint, the HPMC and RMMI moved to dismiss it, claiming that CIAC had no jurisdiction
over them since they never agreed to arbitration.28 Additionally, the HPMC said that the PRA’s turnover of the
Heritage Park project to it did not amount to assignment of the PRA’s liabilities under the construction agreement.
Further, its termination of the PRA’s authority over the project carried with it the termination of any Construction
Agreement that the PRA entered into.
For its part, RMMI averred that it was merely the undertaker at the Heritage Park, tasked with providing services for
embalming, burial, cremation, and other activities for the care of the dead.29
On July 22, 2004 the CIAC issued an order dropping RMMI as respondent but denying the HPMC’s motion to
dismiss the case against it.30 The HPMC elevated the CIAC order to the Court of Appeals (CA) by special civil action
of certiorari and prohibition in CA-G.R. SP 86342.
Meantime, after due proceedings, on October 22, 2004 the CIAC rendered a decision,31 holding the PRA and the
HPMC jointly and severally liable to Romago for the following amounts:
The unpaid balance of the 96.15%
accomplishment --------------------------------------------------------------- ₱22,191,249.38
Interest from 15 May 2002 to 31
January 2004 at 6% per annum -------------------------------------------- 2,276,372.31

Plus:

1.1.1 – Retention Charges ---------------- ₱9,336,054.15

1.1.2 – Price Escalation ------------------- 775,793.55

 1.1.3 – Damages for Closure of Area -- 8,042,239.53
1.1.4 – Reimbursement for Pro-rata
discount ---------------------------- (not entitled)

1.1.5 – Damages for Stoppage of Works 420,944.02

Sub-Total ------- ₱18,575,031.25

Less:
Unrecouped prepaid materials and
unrecouped downpayment -------------------------------------------------- 27,762,642.54

Actual Damages Due -------------------------- ₱15,280,012.35

Plus:
Additional 6% interest from February 1, 2004
to August 31, 2004 on the ₱15,280,012.35 ----------------------------- 534,800.43

Costs of Arbitration:

Filing Fee ------------------- ₱26,834.39

Administrative Fee ------- 28,164.39

Arbitrator’s Fees ---------- 316,296.95

ADF ------------------------- 25,323.99

Total Cost of Arbitration ----------------------- ₱396,608.73

Total Award -------------------------------------- ₱16,211,421.51 32

Not satisfied with the CIAC decision, the PRA filed a petition for review of the same with the CA in CA-G.R. SP
88059.
Meantime on February 18, 2005 the CA rendered a Decision in CA-G.R. SP 86342, dismissing Romago’s complaint
before the CIAC against the HPMC on the ground that the latter did not have an arbitration agreement with
Romago.33
On December 20, 2005 the CA rendered a Decision 34 in CA-G.R. S₱88059, the main case, finding that the unpaid
accomplishment of Romago should be reduced from ₱22,191,249.33 to ₱18,641,208.89, and that interests on the
damages awarded to Romago arising from the reduction in project area and on its unpaid accomplishment from
May 15, 2002 to January 31, 2004 should be deleted, therefore entitling it to actual damages in the amount of
₱8,935,673.8635 plus interest from February 1, 2004 to August 31, 2004 and the costs of arbitration.
The CA rejected the PRA’s argument that it can no longer be held liable to Romago after turning over and assigning
the project, including all its duties and obligations relating to it, to the HPMC. Romago was not a party to the PFTA
and it did not give consent to the PRA’s supposed assignment of its obligations to the HPMC.
The PRA and Romago separately moved for reconsideration of the decision but the CA denied both motions in its
August 24, 2006Resolution.36 Undeterred, both parties filed separate petitions for review before this Court in G.R.
174665 for the PRA and in G.R. 175221 for Romago.
The Issues Presented
These consolidated cases present the following issues:
1. Whether or not the CA erred in holding the PRA still liable to Romago under the Construction Agreement
despite the subsequent turnover of the Heritage Park Project to the HPMC; and
2. Whether or not the CA erred in reducing the CIAC award for actual damages to Romago to just
₱8,935,673.86.
The Rulings of the Court
The PRA claims that its liability under its contract with Romago had been extinguished by novation when it assigned
all its obligations to the HPMC pursuant to the provisions of the PFTA. The PRA insists that the CA erroneously
applied to the case the 2001 ruling of the Court in Public Estates Authority v. Uy 37 that also involved the Heritage
Park Project. Uy dealt only with the PRA and the HPMC came into the picture only after the case has been filed.
Here, while Romago first dealt with the PRA, it eventually dealt with the HPMC before the construction company can
finish the contracted works, evidencing novation of parties.
In novation, a subsequent obligation extinguishes a previous one through substitution either by changing the object
or principal conditions, by substituting another in place of the debtor, or by subrogating a third person into the rights
of the creditor.38 Novation requires (a) the existence of a previous valid obligation; (b) the agreement of all parties to
the new contract; (c) the extinguishment of the old contract; and (d) the validity of the new one.39
There cannot be novation in this case since the proposed substituted parties did not agree to the PRA’s supposed
assignment of its obligations under the contract for the electrical and light works at Heritage Park to the HPMC. The
latter definitely and clearly rejected the PRA’s assignment of its liability under that contract to the HPMC. Romago
tried to follow up its claims with the HPMC, not because of any new contract it entered into with the latter, but simply
because the PRA told it that the HPMC would henceforth assume the PRA’s liability under its contract with
Romago. 1âwphi1

Besides, Section 11.07 of the PFTA makes it clear that the termination of the PRA’s obligations is conditioned upon
the turnover of documents, equipment, computer hardware and software on the geographical information system of
the Park; and the completion and faithful performance of its respective duties and responsibilities under the PFTA.
More importantly, Section 11.07 did not say that the HPMC shall, thereafter, assume the PRA’s obligations. On the
contrary, Section 7.01 of the PFTA recognizes that contracts that the PRA entered into in its own name and makes it
liable for the same. Thus:
Section 7.01. Liability of BCDA and [PRA]. BCDA and [PRA]shall be liable in accordance herewith only to the extent
of the obligations specifically undertaken by BCDA and [PRA] herein and any other documents or agreements
relating to the Project, and in which they are parties.40
Romago claims that the CA award should be increased to₱13,598,139.24 based on the detailed account of
expenses and cash payments as of December 31, 2005 that it submitted. But the Court cannot agree. Engineer J.
R. Milan testified that Romago received ₱86,479,617.61 out of ₱105,120,826.50 worth of work that it accomplished,
thereby leaving a deficiency of only ₱18,641,208.89. Thus:
ATTY. S.B. GARCIA:
Mr. Witness, from the time you became the Project Manager of Heritage Park Project up to the time it turned over its
responsibilities to HPMC, can you recall how much [PRA] already paid to Romago? You can refer to any documents
we have now with you for recollection.
ENGR. J.R. MILLAN:
Based on progress Report No. 50, which was submitted by the Managing Consultant of Robert Espiritu, the
accomplishment as of February 29, 2000, the amount disbursed as of Billing no. 14A is₱86,479,617.61.
ATTY. S.B. GARCIA:
What document again are you referring to, Mr. Witness?
ENGR. J.R. MILLAN:This is a Progress Report dated March 8, 2000 addressed to the [Philippine Reclamation
Authority], Progress Report No. 50 submitted by Mr. Roberto Espiritu.
ATTY. S.B. GARCIA: And the one where the ₱86,479,617.61, the document which reflects that amount, that is what
the document?
ENGR. J.R. MILLAN:
This is the attachment to the accomplishment of Romago kasi the Managing Consultant who made the report, they
were the ones computing the accomplishments of the contractors. All the contractors in the project, bale ito yong
report nila . For Romago, ito yong report niya as of February29, 2000.
ATTY. S.B. GARCIA:
Your Honor, please, may I request that this accomplishment report as February 29, 2000 for outdoor electrical and
lighting works be marked as our exhibit "R-2-10."41
Had the above testimony been untrue, Romago should have refuted the same considering that it had every
opportunity to do so. On the contrary, it even adopted the same document as its own exhibit. 42 In effect, Romago
conceded the correctness of the PRA’s valuation of the balance due it.
In keeping with this Court’s ruling in Eastern Shipping Lines, Inc. v. Court of Appeals, 43 the Court deems it proper to
impose legal interest of 6% per annum on the amount finally adjudged, reckoned from October 22,2004, the date
the CIAC rendered judgment until the same is wholly satisfied.44
WHEREFORE , the Court AFFIRMS the Decision dated December 20, 2005 and Resolution dated August 24, 2006
of the Court of Appeals in CA-G.R. SP 88059 with MODIFICATION , directing the Philippine Reclamation Authority
to pay Romago in addition to the ₱8,935,673.86award of actual damages, legal interest of 6% per annum from
October 22,2004 until the judgment against it is wholly paid; and the costs of arbitration in the amount of
₱396,608.73.
SO ORDERED.
G.R. No. 159213 July 3, 2013
VECTOR SHIPPING CORPORATION and FRANCISCO SORIANO, Petitioners,
vs.
AMERICAN HOME ASSURANCE COMPANY and SULPICIO LINES, INC., Respondents.
DECISION
BERSAMIN, J.:
Subrogation under Article 2207 of the Civil Code gives rise to a cause of action created by law. For purposes of the
law on the prescription of actions, the period of limitation is ten years.
The Case
Vector Shipping Corporation (Vector) and Francisco Soriano appeal the decision promulgated on July 22,
2003,1 whereby the Court of Appeals (CA) held them jointly and severally liable to pay ₱7 ,455,421.08 to American
Home Assurance Company (respondent) as and by way of actual damages on the basis of respondent being the
subrogee of its insured Caltex Philippines, Inc. (Caltex).
Antecedents
Vector was the operator of the motor tanker M/T Vector, while Soriano was the registered owner of the M/T Vector.
Respondent is a domestic insurance corporation.2
On September 30, 1987, Caltex entered into a contract of Affreightment3 with Vector for the transport of Caltex’s
petroleum cargo through the M/T Vector. Caltex insured the petroleum cargo with respondent for ₱7,455,421.08
under Marine Open Policy No. 34-5093-6.4 In the evening of December 20, 1987, the M/T Vector and the M/V Doña
Paz, the latter a vessel owned and operated by Sulpicio Lines, Inc., collided in the open sea near Dumali Point in
Tablas Strait, located between the Provinces of Marinduque and Oriental Mindoro. The collision led to the sinking of
both vessels. The entire petroleum cargo of Caltex on board the M/T Vector perished. 5 On July 12, 1988, respondent
indemnified Caltex for the loss of the petroleum cargo in the full amount of ₱7,455,421.08.6
On March 5, 1992, respondent filed a complaint against Vector, Soriano, and Sulpicio Lines, Inc. to recover the full
amount of ₱7,455,421.08 it paid to Caltex (Civil Case No. 92-620).7 The case was raffled to Branch 145 of the
Regional Trial Court (RTC) in Makati City.
On December 10, 1997, the RTC issued a resolution dismissing Civil Case No. 92-620 on the following grounds:
This action is upon a quasi-delict and as such must be commenced within four 4 years from the day they may be
brought. [Art. 1145 in relation to Art. 1150, Civil Code] "From the day [the action] may be brought" means from the
day the quasi-delict occurred. [Capuno v. Pepsi Cola, 13 SCRA 663]
The tort complained of in this case occurred on 20 December 1987. The action arising therefrom would under the
law prescribe, unless interrupted, on 20 December 1991.
When the case was filed against defendants Vector Shipping and Francisco Soriano on 5 March 1992, the action
not having been interrupted, had already prescribed.
Under the same situation, the cross-claim of Sulpicio Lines against Vector Shipping and Francisco Soriano filed on
25 June 1992 had likewise prescribed.
The letter of demand upon defendant Sulpicio Lines allegedly on 6 November 1991 did not interrupt the tolling of the
prescriptive period since there is no evidence that it was actually received by the addressee. Under such
circumstances, the action against Sulpicio Lines had likewise prescribed.
Even assuming that such written extra-judicial demand was received and the prescriptive period interrupted in
accordance with Art. 1155, Civil Code, it was only for the 10-day period within which Sulpicio Lines was required to
settle its obligation. After that period lapsed, the prescriptive period started again. A new 4-year period to file action
was not created by the extra-judicial demand; it merely suspended and extended the period for 10 days, which in
this case meant that the action should be commenced by 30 December 1991, rather than 20 December 1991.
Thus, when the complaint against Sulpicio Lines was filed on 5 March 1992, the action had prescribed.
PREMISES CONSIDERED, the complaint of American Home Assurance Company and the cross-claim of Sulpicio
Lines against Vector Shipping Corporation and Francisco Soriano are DISMISSED.
Without costs.
SO ORDERED.8
Respondent appealed to the CA, which promulgated its assailed decision on July 22, 2003 reversing the
RTC.9 Although thereby absolving Sulpicio Lines, Inc. of any liability to respondent, the CA held Vector and Soriano
jointly and severally liable to respondent for the reimbursement of the amount of ₱7,455,421.08 paid to Caltex,
explaining:
xxxx
The resolution of this case is primarily anchored on the determination of what kind of relationship existed between
Caltex and M/V Dona Paz and between Caltex and M/T Vector for purposes of applying the laws on prescription.
The Civil Code expressly provides for the number of years before the extinctive prescription sets in depending on
the relationship that governs the parties.
xxxx
After a careful perusal of the factual milieu and the evidence adduced by the parties, We are constrained to rule that
the relationship that existed between Caltex and M/V Dona Paz is that of a quasi-delict while that between Caltex
and M/T Vector is culpa contractual based on a Contract of Affreightment or a charter party.
xxxx
On the other hand, the claim of appellant against M/T Vector is anchored on a breach of contract of affreightment.
The appellant averred that M/T Vector committed such act for having misrepresented to the appellant that said
vessel is seaworthy when in fact it is not. The contract was executed between Caltex and M/T Vector on September
30, 1987 for the latter to transport thousands of barrels of different petroleum products. Under Article 1144 of the
New Civil Code, actions based on written contract must be brought within 10 years from the time the right of action
accrued. A passenger of a ship, or his heirs, can bring an action based on culpa contractual within a period of 10
years because the ticket issued for the transportation is by itself a complete written contract (Peralta de Guerrero vs.
Madrigal Shipping Co., L 12951, November 17, 1959).
Viewed with reference to the statute of limitations, an action against a carrier, whether of goods or of passengers, for
injury resulting from a breach of contract for safe carriage is one on contract, and not in tort, and is therefore, in the
absence of a specific statute relating to such actions governed by the statute fixing the period within which actions
for breach of contract must be brought (53 C.J.S. 1002 citing Southern Pac. R. Co. of Mexico vs. Gonzales 61 P. 2d
377, 48 Ariz. 260, 106 A.L.R. 1012).
Considering that We have already concluded that the prescriptive periods for filing action against M/V Doña Paz
based on quasi delict and M/T Vector based on breach of contract have not yet expired, are We in a position to
decide the appeal on its merit.
We say yes.
xxxx
Article 2207 of the Civil Code on subrogation is explicit that 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 should be subrogated to the rights of the insured against the wrongdoer or
the person who has violated the contract. Undoubtedly, the herein appellant has the rights of a subrogee to recover
from M/T Vector what it has paid by way of indemnity to Caltex.
WHEREFORE, foregoing premises considered, the decision dated December 10, 1997 of the RTC of Makati City,
Branch 145 is hereby REVERSED. Accordingly, the defendant-appellees Vector Shipping Corporation and
Francisco Soriano are held jointly and severally liable to the plaintiff-appellant American Home Assurance Company
for the payment of ₱7,455,421.08 as and by way of actual damages.
SO ORDERED.10
Respondent sought the partial reconsideration of the decision of the CA, contending that Sulpicio Lines, Inc. should
also be held jointly liable with Vector and Soriano for the actual damages awarded. 11 On their part, however, Vector
and Soriano immediately appealed to the Court on September 12, 2003.12 Thus, on October 1, 2003, the CA held in
abeyance its action on respondent’s partial motion for reconsideration pursuant to its internal rules until the Court
has resolved this appeal.13
Issues
The main issue is whether this action of respondent was already barred by prescription for bringing it only on March
5, 1992. A related issue concerns the proper determination of the nature of the cause of action as arising either from
a quasi-delict or a breach of contract.
The Court will not pass upon whether or not Sulpicio Lines, Inc. should also be held jointly liable with Vector and
Soriano for the actual damages claimed.
Ruling
The petition lacks merit.
Vector and Soriano posit that the RTC correctly dismissed respondent’s complaint on the ground of prescription.
They insist that this action was premised on a quasi-delict or upon an injury to the rights of the plaintiff, which,
pursuant to Article 1146 of the Civil Code, must be instituted within four years from the time the cause of action
accrued; that because respondent’s cause of action accrued on December 20, 1987, the date of the collision,
respondent had only four years, or until December 20, 1991, within which to bring its action, but its complaint was
filed only on March 5, 1992, thereby rendering its action already barred for being commenced beyond the four-year
prescriptive period;14 and that there was no showing that respondent had made extrajudicial written demands upon
them for the reimbursement of the insurance proceeds as to interrupt the running of the prescriptive period.15
We concur with the CA’s ruling that respondent’s action did not yet prescribe. The legal provision governing this
case was not Article 1146 of the Civil Code,16 but Article 1144 of the Civil Code, which states:
Article 1144. The following actions must be brought within ten years from the time the cause of action accrues:
(1)Upon a written contract;
(2)Upon an obligation created by law;
(3)Upon a judgment.
We need to clarify, however, that we cannot adopt the CA’s characterization of the cause of action as based on the
contract of affreightment between Caltex and Vector, with the breach of contract being the failure of Vector to make
the M/T Vector seaworthy, as to make this action come under Article 1144 (1), supra. Instead, we find and hold that
that the present action was not upon a written contract, but upon an obligation created by law. Hence, it came under
Article 1144 (2) of the Civil Code. This is because the subrogation of respondent to the rights of Caltex as the
insured was by virtue of the express provision of law embodied in Article 2207 of the Civil Code, to wit:
Article 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. If the
amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury. (Emphasis supplied)
The juridical situation arising under Article 2207 of the Civil Code is well explained in Pan Malayan Insurance
Corporation v. Court of Appeals,17 as follows:
Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is
1âwphi1

destroyed or damaged through the fault or negligence of a party other than the assured, then the insurer, upon
payment to the assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent
that the insurer has been obligated to pay. Payment by the insurer to the assured operates as an equitable
assignment to the former of all remedies which the latter may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of
1âwphi1

contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer
[Compania Maritima v. Insurance Company of North America, G.R. No. L-18965, October 30, 1964, 12 SCRA 213;
Fireman’s Fund Insurance Company v. Jamilla & Company, Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323].18
Verily, the contract of affreightment that Caltex and Vector entered into did not give rise to the legal obligation of
Vector and Soriano to pay the demand for reimbursement by respondent because it concerned only the agreement
for the transport of Caltex’s petroleum cargo. As the Court has aptly put it in Pan Malayan Insurance Corporation v.
Court of Appeals, supra, respondent’s right of subrogation pursuant to Article 2207, supra, was "not dependent
upon, nor did it grow out of, any privity of contract or upon written assignment of claim but accrued simply upon
payment of the insurance claim by the insurer."
Considering that the cause of action accrued as of the time respondent actually indemnified Caltex in the amount of
₱7,455,421.08 on July 12, 1988,19 the action was not yet barred by the time of the filing of its complaint on March 5,
1992,20 which was well within the 10-year period prescribed by Article 1144 of the Civil Code.
The insistence by Vector and Soriano that the running of the prescriptive period was not interrupted because of the
failure of respondent to serve any extrajudicial demand was rendered inconsequential by our foregoing finding that
respondent’s cause of action was not based on a quasi-delict that prescribed in four years from the date of the
collision on December 20, 1987, as the RTC misappreciated, but on an obligation created by law, for which the law
fixed a longer prescriptive period of ten years from the accrual of the action.
Still, Vector and Soriano assert that respondent had no right of subrogation to begin with, because the complaint did
not allege that respondent had actually paid Caltex for the loss of the cargo. They further assert that the subrogation
receipt submitted by respondent was inadmissible for not being properly identified by Ricardo C. Ongpauco,
respondent’s witness, who, although supposed to identify the subrogation receipt based on his affidavit, was not
called to testify in court; and that respondent presented only one witness in the person of Teresita Espiritu, who
identified Marine Open Policy No. 34-5093-6 issued by respondent to Caltex.21
We disagree with petitioners’ assertions. It is undeniable that respondent preponderantly established its right of
subrogation. Its Exhibit C was Marine Open Policy No. 34-5093-6 that it had issued to Caltex to insure the petroleum
cargo against marine peril.22 Its Exhibit D was the formal written claim of Caltex for the payment of the insurance
coverage of ₱7,455,421.08 coursed through respondent’s adjuster.23 Its Exhibits E to H were marine documents
relating to the perished cargo on board the M/V Vector that were processed for the purpose of verifying the
insurance claim of Caltex.24 Its Exhibit I was the subrogation receipt dated July 12, 1988 showing that respondent
paid Caltex ₱7,455,421.00 as the full settlement of Caltex’s claim under Marine Open Policy No. 34-5093-6. 25 All
these exhibits were unquestionably duly presented, marked, and admitted during the trial. 26 Specifically, Exhibit C
was admitted as an authentic copy of Marine Open Policy No. 34-5093-6, while Exhibits D, E, F, G, H and I,
inclusive, were admitted as parts of the testimony of respondent’s witness Efren Villanueva, the manager for the
adjustment service of the Manila Adjusters and Surveyors Company.27
Consistent with the pertinent law and jurisprudence, therefore, Exhibit I was already enough by itself to prove the
payment of ₱7,455,421.00 as the full settlement of Caltex’s claim. 28 The payment made to Caltex as the insured
being thereby duly documented, respondent became subrogated as a matter of course pursuant to Article 2207 of
the Civil Code. In legal contemplation, subrogation is the "substitution of another person in the place of the creditor,
to whose rights he succeeds in relation to the debt;" and is "independent of any mere contractual relations between
the parties to be affected by it, and is broad enough to cover every instance in which one party is required to pay a
debt for which another is primarily answerable, and which in equity and conscience ought to be discharged by the
latter."29
Lastly, Vector and Soriano argue that Caltex waived and abandoned its claim by not setting up a cross-claim against
them in Civil Case No. 18735, the suit that Sulpicio Lines, Inc. had brought to claim damages for the loss of the M/V
Doña Paz from them, Oriental Assurance Company (as insurer of the M/T Vector), and Caltex; that such failure to
set up its cross- claim on the part of Caltex, the real party in interest who had suffered the loss, left respondent
without any better right than Caltex, its insured, to recover anything from them, and forever barred Caltex from
asserting any claim against them for the loss of the cargo; and that respondent was similarly barred from asserting
its present claim due to its being merely the successor-in-interest of Caltex.
The argument of Vector and Soriano would have substance and merit had Civil Case No. 18735 and this case
involved the same parties and litigated the same rights and obligations. But the two actions were separate from and
independent of each other. Civil Case No. 18735 was instituted by Sulpicio Lines, Inc. to recover damages for the
loss of its M/V Doña Paz. In contrast, this action was brought by respondent to recover from Vector and Soriano
whatever it had paid to Caltex under its marine insurance policy on the basis of its right of subrogation. With the
clear variance between the two actions, the failure to set up the cross-claim against them in Civil Case No. 18735 is
no reason to bar this action.
WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the decision promulgated on July
22, 2003; and ORDERS petitioners to pay the costs of suit.
SO ORDERED.
G.R. No. 181163 July 24, 2013
ASIAN TERMINALS, INC., Petitioner,
vs.
PHILAM INSURANCE CO., INC. (now Chartis Philippines Insurance, Inc.), Respondent.
x-----------------------x
G.R. No. 181262
PHILAM INSURANCE CO., INC. (now Chartis Philippines Insurance, Inc.), Petitioner,
vs.
WESTWIND SHIPPING CORPORATION and ASIAN TERMINALS, INC., Respondents.
x-----------------------x
G.R. No. 181319
WESTWIND SHIPPING CORPORATION, Petitioner,
vs.
PHILAM INSURANCE CO., INC. (now Chartis Philippines Insurance, Inc.) and ASIAN TERMINALS,
INC., Respondents.
DECISION
VILLARAMA, JR., J.:
Before us are three consolidated petitions for review on certiorari assailing the Decision1 dated October 15, 2007
and the Resolution2 dated January 11, 2008 of the Court of Appeals (CA) which affirmed with modification the
Decision3 of the Regional Trial Court (RTC) of Makati City, Branch 148, in Civil Case No. 96-062. The RTC had
ordered Westwind Shipping Corporation (Westwind) and Asian Terminals, Inc. (ATI) to pay, jointly and severally,
Philam Insurance Co., Inc. (Philam) the sum of ₱633,957.15, with interest at 12% per annum from the date of
judicial demand and ₱158,989.28 as attorney’s fees.
The facts of the case follow:
On April 15, 1995, Nichimen Corporation shipped to Universal Motors Corporation (Universal Motors) 219 packages
containing 120 units of brand new Nissan Pickup Truck Double Cab 4x2 model, without engine, tires and batteries,
on board the vessel S/S "Calayan Iris" from Japan to Manila. The shipment, which had a declared value of
US$81,368 or ₱29,400,000, was insured with Philam against all risks under Marine Policy No. 708-8006717-4.4
The carrying vessel arrived at the port of Manila on April 20, 1995, and when the shipment was unloaded by the staff
of ATI, it was found that the package marked as 03-245-42K/1 was in bad order. 5 The Turn Over Survey of Bad
Order Cargoes6 dated April 21, 1995 identified two packages, labeled 03-245-42K/1 and 03/237/7CK/2, as being
dented and broken. Thereafter, the cargoes were stored for temporary safekeeping inside CFS Warehouse in Pier
No. 5.
On May 11, 1995, the shipment was withdrawn by R.F. Revilla Customs Brokerage, Inc., the authorized broker of
Universal Motors, and delivered to the latter’s warehouse in Mandaluyong City. Upon the request 7 of Universal
Motors, a bad order survey was conducted on the cargoes and it was found that one Frame Axle Sub without LWR
was deeply dented on the buffle plate while six Frame Assembly with Bush were deformed and misaligned.8 Owing
to the extent of the damage to said cargoes, Universal Motors declared them a total loss.
On August 4, 1995, Universal Motors filed a formal claim for damages in the amount of ₱643,963.84 against
Westwind,9 ATI10 and R.F. Revilla Customs Brokerage, Inc.11 When Universal Motors’ demands remained unheeded,
it sought reparation from and was compensated in the sum of ₱633,957.15 by Philam. Accordingly, Universal Motors
issued a Subrogation Receipt12 dated November 15, 1995 in favor of Philam.
On January 18, 1996, Philam, as subrogee of Universal Motors, filed a Complaint13 for damages against Westwind,
ATI and R.F. Revilla Customs Brokerage, Inc. before the RTC of Makati City, Branch 148.
On September 24, 1999, the RTC rendered judgment in favor of Philam and ordered Westwind and ATI to pay
Philam, jointly and severally, the sum of ₱633,957.15 with interest at the rate of 12% per annum, ₱158,989.28 by
way of attorney’s fees and expenses of litigation.
The court a quo ruled that there was sufficient evidence to establish the respective participation of Westwind and ATI
in the discharge of and consequent damage to the shipment. It found that the subject cargoes were compressed
while being hoisted using a cable that was too short and taut.
The trial court observed that while the staff of ATI undertook the physical unloading of the cargoes from the carrying
vessel, Westwind’s duty officer exercised full supervision and control throughout the process. It held Westwind
vicariously liable for failing to prove that it exercised extraordinary diligence in the supervision of the ATI stevedores
who unloaded the cargoes from the vessel. However, the court absolved R.F. Revilla Customs Brokerage, Inc. from
liability in light of its finding that the cargoes had been damaged before delivery to the consignee.
The trial court acknowledged the subrogation between Philam and Universal Motors on the strength of the
Subrogation Receipt dated November 15, 1995. It likewise upheld Philam’s claim for the value of the alleged
damaged vehicle parts contained in Case Nos. 03-245-42K/1 and 03-245-51K or specifically for "7 pieces of Frame
Axle Sub Without Lower and Frame Assembly with Bush."14
Westwind filed a Motion for Reconsideration15 which was, however, denied in an Order16 dated October 26, 2000.
On appeal, the CA affirmed with modification the ruling of the RTC. In a Decision dated October 15, 2007, the
appellate court directed Westwind and ATI to pay Philam, jointly and severally, the amount of ₱190,684.48 with
interest at the rate of 12% per annum until fully paid, attorney’s fees of ₱47,671 and litigation expenses.
The CA stressed that Philam may not modify its allegations by claiming in its Appellee’s Brief17 that the six pieces of
Frame Assembly with Bush, which were purportedly damaged, were also inside Case No. 03-245-42K/1. The CA
noted that in its Complaint, Philam alleged that "one (1) pc. FRAME AXLE SUB W/O LWR from Case No. 03-245-
42K/1 was completely deformed and misaligned, and six (6) other pcs. of FRAME ASSEMBLY WITH BUSH from
Case No. 03-245-51K were likewise completely deformed and misaligned."18
The appellate court accordingly affirmed Westwind and ATI’s joint and solidary liability for the damage to only one
(1) unit of Frame Axle Sub without Lower inside Case No. 03-245-42K/1. It also noted that when said cargo
sustained damage, it was not yet in the custody of the consignee or the person who had the right to receive it. The
CA pointed out that Westwind’s duty to observe extraordinary diligence in the care of the cargoes subsisted during
unloading thereof by ATI’s personnel since the former exercised full control and supervision over the discharging
operation.
Similarly, the appellate court held ATI liable for the negligence of its employees who carried out the offloading of
cargoes from the ship to the pier. As regards the extent of ATI’s liability, the CA ruled that ATI cannot limit its liability
to ₱5,000 per damaged package. It explained that Section 7.0119 of the Contract for Cargo Handling Services20 does
not apply in this case since ATI was not yet in custody and control of the cargoes when the Frame Axle Sub without
Lower suffered damage.
Citing Belgian Overseas Chartering and Shipping N.V. v. Philippine First Insurance Co., Inc.,21 the appellate court
also held that Philam’s action for damages had not prescribed notwithstanding the absence of a notice of claim.
All the parties moved for reconsideration, but their motions were denied in a Resolution dated January 11, 2008.
Thus, they each filed a petition for review on certiorari which were consolidated together by this Court considering
that all three petitions assail the same CA decision and resolution and involve the same parties.
Essentially, the issues posed by petitioner ATI in G.R. No. 181163, petitioner Philam in G.R. No. 181262 and
petitioner Westwind in G.R. No. 181319 can be summed up into and resolved by addressing three questions: (1)
Has Philam’s action for damages prescribed? (2) Who between Westwind and ATI should be held liable for the
damaged cargoes? and (3) What is the extent of their liability?
Petitioners’ Arguments
G.R. No. 181163
Petitioner ATI disowns liability for the damage to the Frame Axle Sub without Lower inside Case No. 03-245-42K/1.
It shifts the blame to Westwind, whom it charges with negligence in the supervision of the stevedores who unloaded
the cargoes. ATI admits that the damage could have been averted had Westwind observed extraordinary diligence
in handling the goods. Even so, ATI suspects that Case No. 03-245-42K/1 is "weak and defective" 22 considering that
it alone sustained damage out of the 219 packages.
Notwithstanding, petitioner ATI submits that, at most, it can be held liable to pay only ₱5,000 per package pursuant
to its Contract for Cargo Handling Services. ATI maintains that it was not properly notified of the actual value of the
cargoes prior to their discharge from the vessel.
G.R. No. 181262
Petitioner Philam supports the CA in holding both Westwind and ATI liable for the deformed and misaligned Frame
Axle Sub without Lower inside Case No. 03-245-42K/1. It, however, faults the appellate court for disallowing its
claim for the value of six Chassis Frame Assembly which were likewise supposedly inside Case Nos. 03-245-51K
and 03-245-42K/1. As to the latter container, Philam anchors its claim on the results of the Inspection/Survey
Report23 of Chartered Adjusters, Inc., which the court received without objection from Westwind and ATI. Petitioner
believes that with the offer and consequent admission of evidence to the effect that Case No. 03-245-42K/1 contains
six pieces of dented Chassis Frame Assembly, Philam’s claim thereon should be treated, in all respects, as if it has
been raised in the pleadings. Thus, Philam insists on the reinstatement of the trial court’s award in its favor for the
payment of ₱633,957.15 plus legal interest, ₱158,989.28 as attorney’s fees and costs.
G.R. No. 181319
Petitioner Westwind denies joint liability with ATI for the value of the deformed Frame Axle Sub without Lower in
Case No. 03-245-42K/1. Westwind argues that the evidence shows that ATI was already in actual custody of said
case when the Frame Axle Sub without Lower inside it was misaligned from being compressed by the tight cable
used to unload it. Accordingly, Westwind ceased to have responsibility over the cargoes as provided in paragraph 4
of the Bill of Lading which provides that the responsibility of the carrier shall cease when the goods are taken into
the custody of the arrastre.
Westwind contends that sole liability for the damage rests on ATI since it was the latter’s stevedores who operated
the ship’s gear to unload the cargoes. Westwind reasons that ATI is an independent company, over whose
employees and operations it does not exercise control. Moreover, it was ATI’s employees who selected and used
the wrong cable to lift the box containing the cargo which was damaged.
Westwind likewise believes that ATI is bound by its acceptance of the goods in good order despite a finding that
Case No. 03-245-42K/1 was partly torn and crumpled on one side. Westwind also notes that the discovery that a
piece of Frame Axle Sub without Lower was completely deformed and misaligned came only on May 12, 1995 or 22
days after the cargoes were turned over to ATI and after the same had been hauled by R.F. Revilla Customs
Brokerage, Inc.
Westwind further argues that the CA erred in holding it liable considering that Philam’s cause of action has
prescribed since the latter filed a formal claim with it only on August 17, 1995 or four months after the cargoes
arrived on April 20, 1995. Westwind stresses that according to the provisions of clause 20, paragraph 224 of the Bill
of Lading as well as Article 36625 of the Code of Commerce, the consignee had until April 20, 1995 within which to
make a claim considering the readily apparent nature of the damage, or until April 27, 1995 at the latest, if it is
assumed that the damage is not readily apparent.
Lastly, petitioner Westwind contests the imposition of 12% interest on the award of damages to Philam reckoned
from the time of extrajudicial demand. Westwind asserts that, at most, it can only be charged with 6% interest since
the damages claimed by Philam does not constitute a loan or forbearance of money.
The Court’s Ruling
The three consolidated petitions before us call for a determination of who between ATI and Westwind is liable for the
damage suffered by the subject cargo and to what extent. However, the resolution of the issues raised by the
present petitions is predicated on the appreciation of factual issues which is beyond the scope of a petition for
review on certiorari under Rule 45 of the 1997 Rules of Civil Procedure, as amended. It is settled that in petitions for
review on certiorari, only questions of law may be put in issue. Questions of fact cannot be entertained.26
There is a question of law if the issue raised is capable of being resolved without need of reviewing the probative
value of the evidence. 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. If the query requires a re-evaluation of the credibility of witnesses, or the existence or relevance of
surrounding circumstances and their relation to each other, the issue in that query is factual.27
In the present petitions, the resolution of the question as to who between Westwind and ATI should be liable for the
damages to the cargo and to what extent would have this Court pass upon the evidence on record. But while it is
not our duty to review, examine and evaluate or weigh all over again the probative value of the evidence
presented,28 the Court may nonetheless resolve questions of fact when the case falls under any of the following
exceptions:
(1) when the findings are grounded entirely on speculation, surmises, or conjectures; (2) when the inference made
is manifestly mistaken, absurd, or impossible; (3) when there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of fact are conflicting; (6) when in making its findings the
Court of Appeals went beyond the issues of the case, or its findings are contrary to the admissions of both the
appellant and the appellee; (7) when the findings are contrary to those of 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; and (10) when the findings of
fact are premised on the supposed absence of evidence and contradicted by the evidence on record.29
In the cases at bar, the fifth and seventh exceptions apply. While the CA affirmed the joint liability of ATI and
Westwind, it held them liable only for the value of one unit of Frame Axle Sub without Lower inside Case No. 03-
245-42K/1. The appellate court disallowed the award of damages for the six pieces of Frame Assembly with Bush,
which petitioner Philam alleged, for the first time in its Appellee’s Brief, to be likewise inside Case No. 03-245-42K/1.
Lastly, the CA reduced the award of attorney’s fees to ₱47,671.
Foremost, the Court holds that petitioner Philam has adequately established the basis of its claim against petitioners
ATI and Westwind. Philam, as insurer, was subrogated to the rights of the consignee, Universal Motors Corporation,
pursuant to the Subrogation Receipt executed by the latter in favor of the former. The right of subrogation accrues
simply upon payment by the insurance company of the insurance claim.30 Petitioner Philam’s action finds support in
Article 2207 of the Civil Code, which provides as follows:
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.
In their respective comments31 to Philam’s Formal Offer of Evidence,32 petitioners ATI and Westwind objected to the
admission of Marine Certificate No. 708-8006717-4 and the Subrogation Receipt as documentary exhibits "B" and
"P," respectively. Petitioner Westwind objects to the admission of both documents for being hearsay as they were
not authenticated by the persons who executed them. For the same reason, petitioner ATI assails the admissibility of
the Subrogation Receipt. As regards Marine Certificate No. 708-8006717-4, ATI makes issue of the fact that the
same was issued only on April 27, 1995 or 12 days after the shipment was loaded on and transported via S/S
"Calayan Iris."
The nature of documents as either public or private determines how the documents may be presented as evidence
in court. Public documents, as enumerated under Section 19,33 Rule 132 of the Rules of Court, are self-
authenticating and require no further authentication in order to be presented as evidence in court.34
In contrast, a private document is any other writing, deed or instrument executed by a private person without the
intervention of a notary or other person legally authorized by which some disposition or agreement is proved or set
forth. Lacking the official or sovereign character of a public document, or the solemnities prescribed by law, a private
document requires authentication35 in the manner prescribed under Section 20, Rule 132 of the Rules:
SEC. 20. Proof of private document. – Before any private document offered as authentic is received in evidence, its
due execution and authenticity must be proved either:
(a) By anyone who saw the document executed or written; or
(b) By evidence of the genuineness of the signature or handwriting of the maker.
Any other private document need only be identified as that which it is claimed to be.
The requirement of authentication of a private document is excused only in four instances, specifically: (a) when the
document is an ancient one within the context of Section 21, 36 Rule 132 of the Rules; (b) when the genuineness and
authenticity of the actionable document have not been specifically denied under oath by the adverse party; (c) when
the genuineness and authenticity of the document have been admitted; or (d) when the document is not being
offered as genuine.37
Indubitably, Marine Certificate No. 708-8006717-4 and the Subrogation Receipt are private documents which Philam
and the consignee, respectively, issue in the pursuit of their business. Since none of the exceptions to the
requirement of authentication of a private document obtains in these cases, said documents may not be admitted in
evidence for Philam without being properly authenticated.
Contrary to the contention of petitioners ATI and Westwind, however, Philam presented its claims officer, Ricardo
Ongchangco, Jr. to testify on the execution of the Subrogation Receipt, as follows:
ATTY. PALACIOS
Q How were you able to get hold of this subrogation receipt?
A Because I personally delivered the claim check to consignee and have them receive the said check.
Q I see. Therefore, what you are saying is that you personally delivered the claim check of Universal Motors
Corporation to that company and you have the subrogation receipt signed by them personally?
A Yes, sir.
Q And it was signed in your presence?
A Yes, sir.38
Indeed, all that the Rules require to establish the authenticity of a document is the testimony of a person who saw
the document executed or written. Thus, the trial court did not err in admitting the Subrogation Receipt in evidence
despite petitioners ATI and Westwind’s objections that it was not authenticated by the person who signed it.
However, the same cannot be said about Marine Certificate No. 708-8006717-4 which Ongchangcho, Jr. merely
identified in court. There is nothing in Ongchangco, Jr.’s testimony which indicates that he saw Philam’s authorized
representative sign said document, thus:
ATTY. PALACIOS
Q Now, I am presenting to you a copy of this marine certificate 708-8006717-4 issued by Philam Insurance
Company, Inc. to Universal Motors Corporation on April 15, 1995. Will you tell us what relation does it have to that
policy risk claim mentioned in that letter?
A This is a photocopy of the said policy issued by the consignee Universal Motors Corporation.
ATTY. PALACIOS
I see. May I request, if Your Honor please, that this marine risk policy of the plaintiff as submitted by claimant
Universal Motors Corporation be marked as Exhibit B.
COURT
Mark it.39
As regards the issuance of Marine Certificate No. 708-8006717-4 after the fact of loss occurred, suffice it to say that
said document simply certifies the existence of an open insurance policy in favor of the consignee. Hence, the
reference to an "Open Policy Number 9595093" in said certificate. The Court finds it completely absurd to suppose
that any insurance company, of sound business practice, would assume a loss that has already been realized, when
the profitability of its business rests precisely on the non-happening of the risk insured against.
Yet, even with the exclusion of Marine Certificate No. 708-8006717-4, the Subrogation Receipt, on its own, is
adequate proof that petitioner Philam paid the consignee’s claim on the damaged goods. Petitioners ATI and
Westwind failed to offer any evidence to controvert the same. In Malayan Insurance Co., Inc. v. Alberto, 40 the Court
explained the effect of payment by the insurer of the insurance claim in this wise:
We have held that payment by the insurer to the insured operates as an equitable assignment to the insurer of all
the remedies that the insured may have against the third party whose negligence or wrongful act caused the loss.
The right of subrogation is not dependent upon, nor does it grow out of, any privity of contract. It accrues simply
upon payment by the insurance company of the insurance claim. The doctrine of subrogation has its roots in equity.
It is designed to promote and accomplish justice; and is the mode that equity adopts to compel the ultimate payment
of a debt by one who, in justice, equity, and good conscience, ought to pay.41
Neither do we find support in petitioner Westwind’s contention that Philam’s right of action has prescribed.
The Carriage of Goods by Sea Act (COGSA) or Public Act No. 521 of the 74th US Congress, was accepted to be
made applicable to all contracts for the carriage of goods by sea to and from Philippine ports in foreign trade by
virtue of Commonwealth Act (C.A.) No. 65.42 Section 1 of C.A. No. 65 states:
Section 1. That the provisions of Public Act Numbered Five hundred and twenty-one of the Seventy-fourth Congress
of the United States, approved on April sixteenth, nineteen hundred and thirty-six, be accepted, as it is hereby
accepted to be made applicable to all contracts for the carriage of goods by sea to and from Philippine ports in
foreign trade: Provided, That nothing in the Act shall be construed as repealing any existing provision of the Code of
Commerce which is now in force, or as limiting its application.
The prescriptive period for filing an action for the loss or damage of the goods under the COGSA is found in
paragraph (6), Section 3, thus:
(6) Unless notice of loss or damage and the general nature of such loss or damage be given in writing to the carrier
or his agent at the port of discharge before or at the time of the removal of the goods into the custody of the person
entitled to delivery thereof under the contract of carriage, such removal shall be prima facie evidence of the delivery
by the carrier of the goods as described in the bill of lading. If the loss or damage is not apparent, the notice must be
given within three days of the delivery.
Said notice of loss or damage maybe endorsed upon the receipt for the goods given by the person taking delivery
thereof.
The notice in writing need not be given if the state of the goods has at the time of their receipt been the subject of
joint survey or inspection.
In any event the carrier and the ship shall be discharged from all liability in respect of loss or damage unless suit is
brought within one year after delivery of the goods or the date when the goods should have been delivered:
Provided, That if a notice of loss or damage, either apparent or concealed, is not given as provided for in this
section, that fact shall not affect or prejudice the right of the shipper to bring suit within one year after the delivery of
the goods or the date when the goods should have been delivered.
In the Bill of Lading43 dated April 15, 1995, Rizal Commercial Banking Corporation (RCBC) is indicated as the
consignee while Universal Motors is listed as the notify party. These designations are in line with the subject
shipment being covered by Letter of Credit No. I501054, which RCBC issued upon the request of Universal Motors.
A letter of credit is a financial device developed by merchants as a convenient and relatively safe mode of dealing
with sales of goods to satisfy the seemingly irreconcilable interests of a seller, who refuses to part with his goods
before he is paid, and a buyer, who wants to have control of his goods before paying.44 However, letters of credit are
employed by the parties desiring to enter into commercial transactions, not for the benefit of the issuing bank but
mainly for the benefit of the parties to the original transaction,45 in these cases, Nichimen Corporation as the seller
and Universal Motors as the buyer. Hence, the latter, as the buyer of the Nissan CKD parts, should be regarded as
the person entitled to delivery of the goods. Accordingly, for purposes of reckoning when notice of loss or damage
should be given to the carrier or its agent, the date of delivery to Universal Motors is controlling.
S/S "Calayan Iris" arrived at the port of Manila on April 20, 1995, and the subject cargoes were discharged to the
custody of ATI the next day. The goods were then withdrawn from the CFS Warehouse on May 11, 1995 and the last
of the packages delivered to Universal Motors on May 17, 1995. Prior to this, the latter filed a Request for Bad Order
Survey46 on May 12,1995 following a joint inspection where it was discovered that six pieces of Chassis Frame
Assembly from two bundles were deformed and one Front Axle Sub without Lower from a steel case was dented.
Yet, it was not until August 4, 1995 that Universal Motors filed a formal claim for damages against petitioner
Westwind.
Even so, we have held in Insurance Company of North America v. Asian Terminals, Inc. that a request for, and the
result of a bad order examination, done within the reglementary period for furnishing notice of loss or damage to the
carrier or its agent, serves the purpose of a claim. A claim is required to be filed within the reglementary period to
afford the carrier or depositary reasonable opportunity and facilities to check the validity of the claims while facts are
still fresh in the minds of the persons who took part in the transaction and documents are still available.47 Here,
Universal Motors filed a request for bad order survey on May 12, 1995, even before all the packages could be
unloaded to its warehouse.
Moreover, paragraph (6), Section 3 of the COGSA clearly states that failure to comply with the notice requirement
shall not affect or prejudice the right of the shipper to bring suit within one year after delivery of the goods. Petitioner
Philam, as subrogee of Universal Motors, filed the Complaint for damages on January 18, 1996, just eight months
after all the packages were delivered to its possession on May 17, 1995. Evidently, petitioner Philam’s action against
petitioners Westwind and ATI was seasonably filed.
This brings us to the question that must be resolved in these consolidated petitions. Who between Westwind and
ATI should be liable for the damage to the cargo?
It is undisputed that Steel Case No. 03-245-42K/1 was partly torn and crumpled on one side while it was being
unloaded from the carrying vessel. The damage to said container was noted in the Bad Order Cargo Receipt48 dated
April 20, 1995 and Turn Over Survey of Bad Order Cargoes dated April 21, 1995. The Turn Over Survey of Bad
Order Cargoes indicates that said steel case was not opened at the time of survey and was accepted by the arrastre
in good order. Meanwhile, the Bad Order Cargo Receipt bore a notation "B.O. not yet t/over to ATI." On the basis of
these documents, petitioner ATI claims that the contents of Steel Case No. 03-245-42K/1 were damaged while in the
custody of petitioner Westwind.
We agree.
Common carriers, from the nature of their business and for reasons of public policy, are bound to observe
extraordinary diligence in the vigilance over the goods transported by them. Subject to certain exceptions
enumerated under Article 173449 of the Civil Code, common carriers are responsible for the loss, destruction, or
deterioration of the goods. The extraordinary responsibility of the common carrier lasts from the time the goods are
unconditionally placed in the possession of, and received by the carrier for transportation until the same are
delivered, actually or constructively, by the carrier to the consignee, or to the person who has a right to receive
them.50
The court a quo, however, found both petitioners Westwind and ATI, jointly and severally, liable for the damage to
the cargo. It observed that while the staff of ATI undertook the physical unloading of the cargoes from the carrying
vessel, Westwind’s duty officer exercised full supervision and control over the entire process. The appellate court
affirmed the solidary liability of Westwind and ATI, but only for the damage to one Frame Axle Sub without Lower.
Upon a careful review of the records, the Court finds no reason to deviate from the finding that petitioners Westwind
and ATI are concurrently accountable for the damage to the content of Steel Case No. 03-245-42K/1.
Section 251 of the COGSA provides that under every contract of carriage of goods by the sea, the carrier in relation
to the loading, handling, stowage, carriage, custody, care and discharge of such goods, shall be subject to the
responsibilities and liabilities and entitled to the rights and immunities set forth in the Act. Section 3 (2) 52 thereof then
states that among the carrier’s responsibilities are to properly load, handle, stow, carry, keep, care for and discharge
the goods carried.53
At the trial, Westwind’s Operation Assistant, Menandro G. Ramirez, testified on the presence of a ship officer to
supervise the unloading of the subject cargoes.
ATTY. LLAMAS
Q Having been present during the entire discharging operation, do you remember who else were present at that
time?
A Our surveyor and our checker the foreman of ATI.
Q Were there officials of the ship present also?
A Yes, sir there was an officer of the vessel on duty at that time.54
xxxx
Q Who selected the cable slink to be used?
A ATI Operation.
Q Are you aware of how they made that selection?
A Before the vessel arrived we issued a manifesto of the storage plan informing the ATI of what type of cargo and
equipment will be utilitized in discharging the cargo.55
xxxx
Q You testified that it was the ATI foremen who select the cable slink to be used in discharging, is that correct?
A Yes sir, because they are the one who select the slink and they know the kind of cargoes because they inspected
it before the discharge of said cargo.
Q Are you aware that the ship captain is consulted in the selection of the cable sling?
A Because the ship captain knows for a fact the equipment being utilized in the discharge of the cargoes because
before the ship leave the port of Japan the crew already utilized the proper equipment fitted to the
cargo.56 (Emphasis supplied.)
It is settled in maritime law jurisprudence that cargoes while being unloaded generally remain under the custody of
the carrier.57 The Damage Survey Report58 of the survey conducted by Phil. Navtech Services, Inc. from April 20-21,
1995 reveals that Case No. 03-245-42K/1 was damaged by ATI stevedores due to overtightening of a cable sling
hold during discharge from the vessel’s hatch to the pier. Since the damage to the cargo was incurred during the
discharge of the shipment and while under the supervision of the carrier, the latter is liable for the damage caused to
the cargo.
This is not to say, however, that petitioner ATI is without liability for the damaged cargo.
The functions of an arrastre operator involve the handling of cargo deposited on the wharf or between the
establishment of the consignee or shipper and the ship’s tackle. Being the custodian of the goods discharged from a
vessel, an arrastre operator’s duty is to take good care of the goods and to turn them over to the party entitled to
their possession.59
Handling cargo is mainly the arrastre operator’s principal work so its drivers/operators or employees should observe
the standards and measures necessary to prevent losses and damage to shipments under its custody.60
While it is true that an arrastre operator and a carrier may not be held solidarily liable at all times,61 the facts of these
cases show that apart from ATI’s stevedores being directly in charge of the physical unloading of the cargo, its
foreman picked the cable sling that was used to hoist the packages for transfer to the dock. Moreover, the fact that
218 of the 219 packages were unloaded with the same sling unharmed is telling of the inadequate care with which
ATI’s stevedore handled and discharged Case No. 03-245-42K/1.
With respect to petitioners ATI and Westwind’s liability, we agree with the CA that the same should be confined to
the value of the one piece Frame Axle Sub without Lower.
In the Bad Order Inspection Report62 prepared by Universal Motors, the latter referred to Case No. 03-245-42K/1 as
the source of said Frame Axle Sub without Lower which suffered a deep dent on its buffle plate. Yet, it identified
Case No. 03-245-51K as the container which bore the six pieces Frame Assembly with Bush. Thus, in Philam’s
Complaint, it alleged that "the entire shipment showed one (1) pc. FRAME AXLE SUB W/O LWR from Case No. 03-
245-42K/1 was completely deformed and misaligned, and six (6) other pcs. of FRAME ASSEMBLY WITH BUSH
from Case No. 03-245-51K were likewise completely deformed and misaligned." 63 Philam later claimed in its
Appellee’s Brief that the six pieces of Frame Assembly with Bush were also inside the damaged Case No. 03-245-
42K/1.
However, there is nothing in the records to show conclusively that the six Frame Assembly with Bush were likewise
contained in and damaged inside Case No. 03-245-42K/1. In the Inspection Survey Report of Chartered Adjusters,
Inc., it mentioned six pieces of chassis frame assembly with deformed body mounting bracket. However, it merely
noted the same as coming from two bundles with no identifying marks.
Lastly, we agree with petitioner Westwind that the CA erred in imposing an interest rate of 12% on the award of
damages. Under Article 2209 of the Civil Code, 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.64 In the similar case of Belgian Overseas Chartering and Shipping NV v. Philippine First
Insurance Co., lnc.,65 the Court reduced the rate of interest on the damages awarded to the carrier therein to 6%
from the time of the filing of the complaint until the finality of the decision.
WHEREFORE, the Court AFFIRMS with MODIFICATION the Decision dated October 15,2007 and the Resolution
dated January 11, 2008 of the Court of Appeals in CA-G.R. CV No. 69284 in that the interest rate on the award of
₱190,684.48 is reduced to 6% per annum from the date of extrajudicial demand, until fully paid.
With costs against the petitioners in G.R. No. 181163 and G.R. No. 181319, respectively.
SO ORDERED.
G.R. No. 162826 October 14, 2013
NARCISO DEGAÑOS, Petitioner,
1

vs.
PEOPLE OF THE PHILIPPINES, Respondent.
DECISION
BERSAMIN, J.:
Novation is not a mode of extinguishing criminal liability under the penal laws of the country. Only the. State may
validly waive the criminal action against an accused. Novation is relevant only to determine if the parties have
meanwhile altered the nature of the obligation prior to the commencement of the criminal prosecution in order to
prevent the incipient criminal liability of the accused.
Antecedents
In an amended information dated March 23, 1994, the Office of the Provincial Prosecutor of Bulacan charged
Brigida D. Luz, alias Aida Luz, and Narciso Degaños in the Regional Trial Court in Malolos, Bulacan with estafa
under Article 315 paragraph 1 b) of the Revised Penal Code, allegedly committed as follows:
That on or about the 27th day of April, 1987 until July 20, 1987, in the municipality of Meycauayan, province of
Bulacan, Philippines, and within the jurisdiction of this Honorable Court, the above-named accused conspiring,
confederating and helping one another, received from Spouses Atty. Jose Bordador and Lydia Bordador gold and
pieces of jewelry worth ₱438,702.00, under express obligation to sell the same on commission and remit the
proceeds thereof or return the unsold gold and pieces of jewelry, but the said accused, once in possession of the
said merchandise and far from complying with their aforesaid obligation, inspite of repeated demands for
compliance therewith, did then and there willfully, unlawfully and feloniously, with intent of gain and grave abuse of
confidence misapply, misappropriate and convert to their own use and benefit the said merchandise and/or the
proceeds thereof, to the damage and prejudice of said Sps. Atty. Jose Bordador and Lydia Bordador in the said
amount of ₱438,702.00.
Contrary to law.2
The decision of the Court of Appeals (CA) summarized the evidence of the parties as follows:
Prior to the institution of the instant case, a separate civil action for the recovery of sum of money was filed on June
25, 1990 by the private complainants spouses Jose and Lydia Bordador against accused Brigida D. Luz alias Aida
D. Luz and Narciso Degaños. In an amended complaint dated November 29, 1993, Ernesto Luz, husband of Brigida
Luz, was impleaded as party defendant. The case docketed as Civil Case No. 412-M-90 was raffled to Branch 15,
RTC of Malolos, Bulacan. On June 23, 1995, the said court found Narciso Degaños liable and ordered him to pay
the sum of ₱725,463,98 as actual and consequential damages plus interest and attorney’s fees in the amount of
₱10,000.00. On the other hand, Brigida Luz alias Aida Luz was ordered to pay the amount of ₱21,483.00,
representing interest on her personal loan. The case against Ernesto Luz was dismissed for insufficiency of
evidence. Both parties appealed to the Court of Appeals. On July 9, 1997, this Court affirmed the aforesaid decision.
On further appeal, the Supreme Court on December 15, 1997 sustained the Court of Appeals. Sometime in 1994,
while the said civil case was pending, the private complainants instituted the present case against the accused.
EVIDENCE FOR THE PROSECUTION
The prosecution evidence consists of the testimonies of the private complainants-spouses, Jose and Lydia
Bordador.
Private complainant Lydia Bordador, a jeweler, testified that accused Narciso Degaños and Brigida/Aida Luz are
brother and sister. She knew them because they are the relatives of her husband and their Kumpadre/kumadre.
Brigida/Aida Luz was the one who gave instructions to Narciso Degaños to get gold and jewelry from Lydia for them
to sell. Lydia came to know Narciso Degaños because the latter frequently visited their house selling religious
articles and books. While in their house, Narciso Degaños saw her counting pieces of jewelry and he asked her if he
could show the said pieces of jewelry to his sister, Brigida/Aida Luz, to which she agreed. Thereafter, Narciso
Degaños returned the jewelry and Aida/Brigida Luz called her to ask if she could trust Narciso Degaños to get the
pieces of jewelry from her for Aida/Brigida Luz to sell. Lydia agreed on the condition that if they could not pay it in
cash, they should pay it after one month or return the unsold jewelry within the said period. She delivered the said
jewelry starting sometime in 1986 as evidenced by several documents entitled "Katibayan at Kasunduan", the
earliest of which is dated March 16, 1986. Everytime Narciso Degaños got jewelry from her, he signed the receipts
in her presence. They were able to pay only up to a certain point. However, receipt nos. 614 to 745 dated from April
27, 1987 up to July 20, 1987 (Exhs. "A"-"O") were no longer paid and the accused failed to return the jewelry
covered by such receipts. Despite oral and written demands, the accused failed and refused to pay and return the
subject jewelry. As of October 1998, the total obligation of the accused amounted to ₱725,000.00.
Private complainant Atty. Jose Bordador corroborated the testimony of his wife, Lydia. He confirmed that their usual
business practice with the accused was for Narciso Degaños to receive the jewelry and gold items for and in behalf
of Brigida/Aida Luz and for Narciso Degaños to sign the "Kasunduan at Katibayan" receipts while Brigida/Aida Luz
will pay for the price later on. The subject items were usually given to Narciso Degaños only upon instruction from
Brigida/Aida Luz through telephone calls or letters. For the last one year, the "Kasunduan at Katibayan" receipts
were signed in his presence. Said business arrangement went on for quite sometime since Narciso Degaños and
Brigida/Aida Luz had been paying religiously. When the accused defaulted in their payment, they sent demand
letters. It was the accused’s sister, Julie dela Rosa, who responded, seeking an extension of time for the accused to
settle their obligation.
EVIDENCE FOR THE DEFENSE
The defense presented accused Brigida/Aida Luz, who testified that she started transacting business of selling gold
bars and jewelry with the private complainants sometime in 1986 through her brother, Narciso Degaños. It was the
usual business practice for Narciso Degaños to get the gold bars and pieces of jewelry from the private
complainants after she placed orders through telephone calls to the private complainants, although sometimes she
personally went to the private complainants’ house to get the said items. The gold bars and pieces of jewelry
delivered to her by Narciso Degaños were usually accompanied by a pink receipt which she would sign and after
which she would make the payments to the private complainants through Narciso Degaños, which payments are in
the form of postdated checks usually with a thirty-day period. In return, the private complainants would give the
original white receipts to Narciso Degaños for him to sign. Thereafter, as soon as the postdated checks were
honored by the drawee bank, the said white receipts were stamped "paid" by Lydia Bordador, after which the same
would be delivered to her by Narciso Degaños.
On September 2, 1987, she sent a letter to private complainant Lydia Bordador requesting for an accounting of her
indebtedness. Lydia Bordador made an accounting which contained the amount of ₱122,673.00 as principal and
₱21,483.00 as interest. Thereafter, she paid the principal amount through checks. She did not pay the interest
because the same was allegedly excessive. In 1998, private complainant Atty. Jose Bordador brought a ledger to
her and asked her to sign the same. The said ledger contains a list of her supposed indebtedness to the private
complainants. She refused to sign the same because the contents thereof are not her indebtedness but that of his
brother, Narciso Degaños. She even asked the private complainants why they gave so many pieces of jewelry and
gold bars to Narciso Degaños without her permission, and told them that she has no participation in the transactions
covered by the subject "Kasunduan at Katibayan" receipts.
Co-accused Narciso Degaños testified that he came to know the private complainants when he went to the latter’s
house in 1986 to sell some Bible books. Two days later he returned to their house and was initially given a gold
bracelet and necklace to sell. He was able to sell the same and paid the private complainants with the proceeds
thereof. Since then he started conducting similar business transactions with the private complainants. Said
transactions are usually covered by receipts denominated as "Kasunduan at Katibayan". All the "Kasunduan at
Katibayan" receipts were issued by the private complainants and was signed by him. The phrase "for Brigida Luz"
and for "Evely Aquino" were written on the receipts so that in case he fails to pay for the items covered therein, the
private complainants would have someone to collect from. He categorically admitted that he is the only one who was
indebted to the private complainants and out of his indebtedness, he already made partial payments in the amount
of ₱53,307.00. Included in the said partial payments is the amount of ₱20,000.00 which was contributed by his
brothers and sisters who helped him and which amount was delivered by Brigida Luz to the private complainants.3
Ruling of the RTC On June 23, 1999, the RTC found Degaños guilty as charged but acquitted Luz for insufficiency
of evidence, imposing on Degaños twenty years of reclusion temporal, viz:
WHEREFORE, judgment is hereby rendered as follows:
1. finding accused Narciso Degaños GUILTY beyond reasonable doubt of the crime of estafa penalized under Article
315, Subsection 1, paragraph (b) of the Revised Penal code and hereby sentences him to suffer the penalty of
TWENTY YEARS (20) of reclusion temporal;
2. finding accused Brigida Luz NOT GUILTY and is hereby ACQUITTED on the ground of insufficiency of evidence.
SO ORDERED.4
Decision of the CA
On appeal, Degaños assailed his conviction upon the following grounds, to wit:
I THE HONORABLE COURT A QUO ERRED IN NOT FINDING THAT THE AGREEMENT BETWEEN THE
PRIVATE COMPLAINANT LYDIA BORDADOR AND THE ACCUSED WAS ONE OF SALE ON CREDIT.
II THE HONORABLE COURT A QUO ERRED IN NOT FINDING THAT NOVATION HAD CONVERTED THE
LIABILITY OF THE ACCUSED INTO A CIVIL ONE.
III
THE HONORABLE COURT ERRED IN NOT APPLYING THE INDETERMINATE SENTENCE LAW.5
On September 23, 2003, however, the CA affirmed the conviction of Degaños but modified the prescribed
penalty,6 thusly:
WHEREFORE, the appealed Decision finding the accused-appellant Narciso Degaños guilty beyond reasonable
doubt of the crime of Estafa under Article 315 (1) par. b of the Revised Penal code is hereby AFFIRMED with the
modification that the accused-appellant is sentenced to suffer an indeterminate penalty of imprisonment of four (4)
years and two (2) months of prision correccional in its medium period, as the minimum, to twenty (20) years of
reclusion temporal as maximum .
SO ORDERED.7
Issues
Hence, Degaños has appealed, again submitting that:
I.
THE HONORABLE COURT A QUO ERRED IN NOT FINDING THAT THE AGREEMENT BETWEEN THE PRIVATE
COMPLAINANT LYDIA BORDADOR AND THE ACCUSED WAS ONE OF SALE ON CREDIT;
II.
THE HONORABLE COURT A QUO ERRED IN NOT FINDING THAT NOVATION HAD CONVERTED THE
LIABILITY OF THE ACCUSED INTO A CIVIL ONE.8
Ruling
The appeal lacks merit.
I.
Transaction was an agency, not a sale on credit
Degaños contends that his agreement with the complainants relative to the items of jewelry and gold subject of the
amended information as embodied in the relevant Kasunduan at Katibayan was a sale on credit, not a consignment
to sell on commission basis.
The contention of Degaños is devoid of factual and legal bases.
The text and tenor of the relevant Kasunduan at Katibayan follow:
KASUNDUAN AT KATIBAYAN
xxxx
Akong nakalagda sa ibaba nito ay nagpapatunay na tinanggap ko kay Ginang LYDIA BORDADOR ng Calvario,
Meycauayan, Bulacan ang mga hiyas (jewelries) [sic] na natatala sa ibaba nito upang ipagbili ko sa kapakanan ng
nasabing Ginang. Ang pagbibilhan ko sa nasabing mga hiyas ay aking ibibigay sa nasabing Ginang, sa loob ng
__________ araw at ang hindi mabili ay aking isasauli sa kanya sa loob din ng nasabing taning na panahon sa
mabuting kalagayan katulad ng aking tanggapin. Ang bilang kabayaran o pabuya sa akin ay ano mang halaga na
aking mapalabis na mga halagang nakatala sa ibaba nito. Ako ay walang karapatang magpautang o kaya ay
magpalako sa ibang tao ng nasabing mga hiyas.9
xxxx
Based on the express terms and tenor of the Kasunduan at Katibayan , Degaños received and accepted the items
under the obligation to sell them in behalf of the complainants ("ang mga hiyas (jewelries) na natatala sa ibaba nito
upang ipagbili ko sa kapakanan ng nasabing Ginang"), and he would be compensated with the overprice as his
commission ("Ang bilang kabayaran o pabuya sa akin ay ano mang halaga na aking mapalabis na mga halagang
nakatala sa ibaba nito."). Plainly, the transaction was a consignment under the obligation to account for the
proceeds of sale, or to return the unsold items. As such, he was the agent of the complainants in the sale to others
of the items listed in the Kasunduan at Katibayan.
In contrast, according the first paragraph of Article 1458 of the Civil Code, one of the contracting parties in a contract
of sale obligates himself to transfer the ownership of and to deliver a determinate thing, while the other party
obligates himself to pay therefor a price certain in money or its equivalent. Contrary to the contention of Degaños,
there was no sale on credit to him because the ownership of the items did not pass to him.
II.
Novation did not transpire as to prevent
the incipient criminal liability from arising
Degaños claims that his partial payments to the complainants novated his contract with them from agency to loan,
thereby converting his liability from criminal to civil. He insists that his failure to complete his payments prior to the
filing of the complaint-affidavit by the complainants notwithstanding, the fact that the complainants later required him
to make a formal proposal before the barangay authorities on the payment of the balance of his outstanding
obligations confirmed that novation had occurred.
The CA rejected the claim of Degaños, opining as follows:
Likewise untenable is the accused-appellant’s argument that novation took place when the private complainants
accepted his partial payments before the criminal information was filed in court and therefore, his criminal liability
was extinguished.
Novation is not one of the grounds prescribed by the Revised Penal Code for the extinguishment of criminal
liability. It is well settled that criminal liability for estafa is not affected by compromise or novation of contract, for it is
1âwphi1

a public offense which must be prosecuted and punished by the Government on its own motion even though
complete reparation should have been made of the damage suffered by the offended party. A criminal offense is
committed against the People and the offended party may not waive or extinguish the criminal liability that the law
imposes for the commission of the offense. The criminal liability for estafa already committed is not affected by the
subsequent novation of the contract.10
We sustain the CA.
Degaños’ claim was again factually unwarranted and legally devoid of basis, because the partial payments he made
and his purported agreement to pay the remaining obligations did not equate to a novation of the original contractual
relationship of agency to one of sale. As we see it, he misunderstands the nature and the role of novation in a
criminal prosecution.
Novation is the extinguishment of an obligation by the substitution or change of the obligation by a subsequent one
that terminates the first, either by (a) changing the object or principal conditions; or (b) substituting the person of the
debtor; or (c) subrogating a third person in the rights of the creditor. In order that an obligation may be extinguished
by another that substitutes the former, it is imperative that the extinguishment be so declared in unequivocal terms,
or that the old and the new obligations be on every point incompatible with each other. 11 Obviously, in case of only
slight modifications, the old obligation still prevails.12
The Court has further pointed out in Quinto v. People:13
Novation is never presumed, and the animus novandi, whether totally or partially, must appear by express
agreement of the parties, or by their acts that are too clear and unequivocal to be mistaken.
The extinguishment of the old obligation by the new one is necessary element of novation which may be effected
either expressly or impliedly. The term "expressly" means that the contracting parties incontrovertibly disclose that
their object in executing the new contract is to extinguish the old one. Upon the other hand, no specific form is
required for an implied novation, and all that is prescribed by law would be an incompatibility between the two
contracts. While there is really no hard and fast rule to determine what might constitute to be a sufficient change that
can bring about novation, the touchstone for contrarity, however would be an irreconcilable incompatibility between
the old and the new obligations.
There are two ways which could indicate, in fine, the presence of novation and thereby produce the effect of
extinguishing an obligation by another which substitutes the same. The firs t is when novation has been explicitly
stated and declared in unequivocal terms. The second is when the old and the new obligations are incompatible on
every point. The test of incompatibility is whether or not the two obligations can stand together, each one having its
independent existence. If they cannot, they are incompatible and the latter obligation novates the first. Corollarily,
changes that breed incompatibility must be essential in nature and not merely accidental. The incompatibility must
take place in any of the essential elements of the obligation, such as its object, cause or principal conditions thereof;
otherwise, the change would be merely modificatory in nature and insufficient to extinguish the original obligation.
The changes alluded to by petitioner consists only in the manner of payment. There was really no substitution of
1âwphi1

debtors since private complainant merely acquiesced to the payment but did not give her consent to enter into a
new contract.14 x x x The legal effects of novation on criminal liability were explained by the Court, through Justice
J.B.L. Reyes, in People v. Nery,15 viz: The novation theory may perhaps apply prior to the filing of the criminal
information in court by the state prosecutors because up to that time the original trust relation may be converted by
the parties into an ordinary creditor-debtor situation, thereby placing the complainant in estoppel to insist on the
original trust. But after the justice authorities have taken cognizance of the crime and instituted action in court, the
offended party may no longer divest the prosecution of its power to exact the criminal liability, as distinguished from
the civil. The crime being an offense against the state, only the latter can renounce it (People vs. Gervacio, 54 Off.
Gaz. 2898; People vs. Velasco, 42 Phil. 76; U.S. vs. Montañes, 8 Phil. 620). It may be observed in this regard that
novation is not one of the means recognized by the Penal Code whereby criminal liability can be extinguished;
hence, the role of novation may only be to either prevent the rise of criminal liability or to cast doubt on the true
nature of the original basic transaction, whether or not it was such that its breach would not give rise to penal
responsibility, as when money loaned is made to appear as a deposit, or other similar disguise is resorted to (cf.
Abeto vs. People, 90 Phil. 581; U.S. vs. Villareal, 27 Phil. 481). Even in Civil Law the acceptance of partial
payments, without further change in the original relation between the complainant and the accused, can not produce
novation. For the latter to exist, there must be proof of intent to extinguish the original relationship, and such intent
can not be inferred from the mere acceptance of payments on account of what is totally due. Much less can it be
said that the acceptance of partial satisfaction can effect the nullification of a criminal liability that is fully matured,
and already in the process of enforcement. Thus, this Court has ruled that the offended party’s acceptance of a
promissory note for all or part of the amount misapplied does not obliterate the criminal offense (Camus vs. Court of
Appeals, 48 Off. Gaz. 3898).
Novation is not a ground under the law to extinguish criminal liability. Article 89 (on total extinguishment)16 and Article
94 (on partial extinguishrnent)17 of the Revised Penal Code list down the various grounds for the extinguishment of
criminal liability. Not being included in the list, novation is limited in its effect only to the civil aspect of the liability,
and, for that reason, is not an efficient defense in estafa. This is because only the State may validly waive the
criminal action against an accused.18 The role of novation may only be either to prevent the rise of criminal liability,
or to cast doubt on the true nature of the original basic transaction, whether or not it was such that the breach of the
obligation would not give rise to penal responsibility, as when money loaned is made to appear as a deposit, or
other similar disguise is resorted to.19
Although the novation of a contract of agency to make it one of sale may relieve an offender from an incipient
criminal liability, that did not happen here, for the partial payments and the proposal to pay the balance the accused
made during the barangay proceedings were not at all incompatible with Degafios liability under the agency that had
already attached. Rather than converting the agency to sale, therefore, he even thereby confirmed his liability as the
sales agent of the complainants.
VHEREFORE, the Court AFFIRMS the decision of the Court of Appeals promulgated on September 23, 2003; and
ORDERS petitioner to pay the costs of suit.
SO ORDERED.

G.R. No. 206806 June 25, 2014

ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS, Petitioners,
vs.
DAN T. LIM, doing business under the name and style of QUALITY PAPERS & PLASTIC PRODUCTS
ENTERPRISES, Respondent.
DECISION
LEONEN, J.:
Novation must be stated in clear and unequivocal terms to extinguish an obligation. It cannot be presumed and may
be implied only if the old and new contracts are incompatible on every point.
Before us is a petition for review on certiorari assailing the Court of Appeals’ decision in CA-G.R. CV No. 95709,
1 2

which stemmed from a complaint filed in the Regional Trial Court of Valenzuela City, Branch 171, for collection of
3

sum of money.
The facts are as follows:
Dan T. Lim works in the business of supplying scrap papers, cartons, and other raw materials, under the name
Quality Paper and Plastic Products, Enterprises, to factories engaged in the paper mill business. From February
4

2007 to March 2007, he delivered scrap papers worth 7,220,968.31 to Arco Pulp and Paper Company, Inc. (Arco
Pulp and Paper) through its Chief Executive Officer and President, Candida A. Santos. The parties allegedly agreed
5
that Arco Pulp and Paper would either pay Dan T. Lim the value of the raw materials or deliver to him their finished
products of equivalent value. 6

Dan T. Lim alleged that when he delivered the raw materials, Arco Pulp and Paper issued a post-dated check dated
April 18, 2007 in the amount of 1,487,766.68 as partial payment, with the assurance that the check would not
7

bounce. When he deposited the check on April 18, 2007, it was dishonored for being drawn against a closed
8

account. 9

On the same day, Arco Pulp and Paper and a certain Eric Sy executed a memorandum of agreement where Arco 10

Pulp and Paper bound themselves to deliver their finished products to Megapack Container Corporation, owned by
Eric Sy, for his account. According to the memorandum, the raw materials would be supplied by Dan T. Lim, through
his company, Quality Paper and Plastic Products. The memorandum of agreement reads as follows:
Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A. Santos and Mr.
Eric Sy that ARCO will deliver 600 tons Test Liner 150/175 GSM, full width 76 inches at the price of ₱18.50 per kg.
to Megapack Container for Mr. Eric Sy’s account. Schedule of deliveries are as follows:
....
It has been agreed further that the Local OCC materials to be used for the production of the above Test Liners will
be supplied by Quality Paper & Plastic Products Ent., total of 600 Metric Tons at ₱6.50 per kg. (price subject to
change per advance notice). Quantity of Local OCC delivery will be based on the quantity of Test Liner delivered to
Megapack Container Corp. based on the above production schedule. 11

On May 5, 2007, Dan T.Lim sent a letter to Arco Pulp and Paper demanding payment of the amount of
12

7,220,968.31, but no payment was made to him. 13

Dan T. Lim filed a complaint for collection of sum of money with prayer for attachment with the Regional Trial Court,
14

Branch 171, Valenzuela City, on May 28, 2007. Arco Pulp and Paper filed its answer but failed to have its
15

representatives attend the pre-trial hearing. Hence, the trial court allowed Dan T. Lim to present his evidence ex
parte. 16

On September 19, 2008, the trial court rendered a judgment in favor of Arco Pulp and Paper and dismissed the
complaint, holding that when Arco Pulp and Paper and Eric Sy entered into the memorandum of agreement,
novation took place, which extinguished Arco Pulp and Paper’s obligation to Dan T. Lim. 17

Dan T. Lim appealed the judgment with the Court of Appeals. According to him, novation did not take place since
18

the memorandum of agreement between Arco Pulp and Paper and Eric Sy was an exclusive and private agreement
between them. He argued that if his name was mentioned in the contract, it was only for supplying the parties their
required scrap papers, where his conformity through a separate contract was indispensable. 19

On January 11, 2013, the Court of Appeals rendered a decision reversing and setting aside the judgment dated
20 21

September 19, 2008 and ordering Arco Pulp and Paper to jointly and severally pay Dan T. Lim the amount of
₱7,220,968.31 with interest at 12% per annum from the time of demand; ₱50,000.00 moral damages; ₱50,000.00
exemplary damages; and ₱50,000.00 attorney’s fees. 22

The appellate court ruled that the facts and circumstances in this case clearly showed the existence of an alternative
obligation. It also ruled that Dan T. Lim was entitled to damages and attorney’s fees due to the bad faith exhibited
23

by Arco Pulp and Paper in not honoring its undertaking. 24

Its motion for reconsideration having been denied, Arco Pulp and Paper and its President and Chief Executive
25 26

Officer, Candida A. Santos, bring this petition for review on certiorari.

On one hand, petitioners argue that the execution of the memorandum of agreement constituted a novation of the
original obligation since Eric Sy became the new debtor of respondent. They also argue that there is no legal basis
to hold petitioner Candida A. Santos personally liable for the transaction that petitioner corporation entered into with
respondent. The Court of Appeals, they allege, also erred in awarding moral and exemplary damages and attorney’s
fees to respondent who did not show proof that he was entitled to damages. 27

Respondent, on the other hand, argues that the Court of Appeals was correct in ruling that there was no proper
novation in this case. He argues that the Court of Appeals was correct in ordering the payment of 7,220,968.31 with
damages since the debt of petitioners remains unpaid. He also argues that the Court of Appeals was correct in
28

holding petitioners solidarily liable since petitioner Candida A. Santos was "the prime mover for such outstanding
corporate liability." In their reply, petitioners reiterate that novation took place since there was nothing in the
29

memorandum of agreement showing that the obligation was alternative. They also argue that when respondent
allowed them to deliver the finished products to Eric Sy, the original obligation was novated. 30

A rejoinder was submitted by respondent, but it was noted without action in view of A.M. No. 99-2-04-SC dated
November 21, 2000. 31

The issues to be resolved by this court are as follows:

1. Whether the obligation between the parties was extinguished by novation
2. Whether Candida A. Santos was solidarily liable with Arco Pulp and Paper Co., Inc.
3. Whether moral damages, exemplary damages, and attorney’s fees can be awarded
The petition is denied.
The obligation between the
parties was an alternative
obligation
The rule on alternative obligations is governed by Article 1199 of the Civil Code, which states:
Article 1199. A person alternatively bound by different prestations shall completely perform one of them.
The creditor cannot be compelled to receive part of one and part of the other undertaking.
"In an alternative obligation, there is more than one object, and the fulfillment of one is sufficient, determined by the
choice of the debtor who generally has the right of election." The right of election is extinguished when the party
32

who may exercise that option categorically and unequivocally makes his or her choice known. 33

The choice of the debtor must also be communicated to the creditor who must receive notice of it since: The object
of this notice is to give the creditor . . . opportunity to express his consent, or to impugn the election made by the
debtor, and only after said notice shall the election take legal effect when consented by the creditor, or if impugned
by the latter, when declared proper by a competent court. 34

According to the factual findings of the trial court and the appellate court, the original contract between the parties
was for respondent to deliver scrap papers worth ₱7,220,968.31 to petitioner Arco Pulp and Paper. The payment for
this delivery became petitioner Arco Pulp and Paper’s obligation. By agreement, petitioner Arco Pulp and Paper, as
the debtor, had the option to either (1) pay the price or(2) deliver the finished products of equivalent value to
respondent. 35

The appellate court, therefore, correctly identified the obligation between the parties as an alternative obligation,
whereby petitioner Arco Pulp and Paper, after receiving the raw materials from respondent, would either pay him the
price of the raw materials or, in the alternative, deliver to him the finished products of equivalent value.
When petitioner Arco Pulp and Paper tendered a check to respondent in partial payment for the scrap papers, they
exercised their option to pay the price. Respondent’s receipt of the check and his subsequent act of depositing it
constituted his notice of petitioner Arco Pulp and Paper’s option to pay.
This choice was also shown by the terms of the memorandum of agreement, which was executed on the same day.
The memorandum declared in clear terms that the delivery of petitioner Arco Pulp and Paper’s finished products
would be to a third person, thereby extinguishing the option to deliver the finished products of equivalent value to
respondent.
The memorandum of
agreement did not constitute
a novation of the original
contract
The trial court erroneously ruled that the execution of the memorandum of agreement constituted a novation of the
contract between the parties. When petitioner Arco Pulp and Paper opted instead to deliver the finished products to
a third person, it did not novate the original obligation between the parties.
The rules on novation are outlined in the Civil Code, thus:
Article 1291. Obligations may be modified by:
(1) Changing their object or principal conditions;
(2) Substituting the person of the debtor;
(3) Subrogating a third person in the rights of the creditor. (1203)
Article 1292. In order that an obligation may be extinguished by another which substitute the same, it is imperative
that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible
with each other. (1204)
Article 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. (1205a)
Novation extinguishes an obligation between two parties when there is a substitution of objects or debtors or when
there is subrogation of the creditor. It occurs only when the new contract declares so "in unequivocal terms" or that
"the old and the new obligations be on every point incompatible with each other." 36

Novation was extensively discussed by this court in Garcia v. Llamas: 37

Novation is a mode of extinguishing an obligation by changing its objects or principal obligations, by substituting a
new debtor in place of the old one, or by subrogating a third person to the rights of the creditor. Article 1293 of the
Civil Code defines novation as follows:
"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 rights mentioned in articles 1236 and 1237."
In general, there are two modes of substituting the person of the debtor: (1) expromision and (2) delegacion. In
expromision, the initiative for the change does not come from — and may even be made without the knowledge of
— the debtor, since it consists of a third person’s assumption of the obligation. As such, it logically requires the
consent of the third person and the creditor. In delegacion, the debtor offers, and the creditor accepts, a third person
who consents to the substitution and assumes the obligation; thus, the consent of these three persons are
necessary. Both modes of substitution by the debtor require the consent of the creditor.
Novation may also be extinctive or modificatory. It is extinctive when an old obligation is terminated by the creation
of a new one that takes the place of the former. It is merely modificatory when the old obligation subsists to the
extent that it remains compatible with the amendatory agreement. Whether extinctive or modificatory, novation is
made either by changing the object or the principal conditions, referred to as objective or real novation; or by
substituting the person of the debtor or subrogating a third person to the rights of the creditor, an act known as
subjective or personal novation. For novation to take place, the following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.
Novation may also be express or implied. It is express when the new obligation declares in unequivocal terms that
the old obligation is extinguished. It is implied when the new obligation is incompatible with the old one on every
point. The test of incompatibility is whether the two obligations can stand together, each one with its own
independent existence. (Emphasis supplied)
38

Because novation requires that it be clear and unequivocal, it is never presumed, thus:
In the civil law setting, novatio is literally construed as to make new. So it is deeply rooted in the Roman Law
jurisprudence, the principle — novatio non praesumitur —that novation is never presumed.At bottom, for novation
tobe a jural reality, its animus must be ever present, debitum pro debito — basically extinguishing the old obligation
for the new one. (Emphasis supplied) There is nothing in the memorandum of agreement that states that with its
39

execution, the obligation of petitioner Arco Pulp and Paper to respondent would be extinguished. It also does not
state that Eric Sy somehow substituted petitioner Arco Pulp and Paper as respondent’s debtor. It merely shows that
petitioner Arco Pulp and Paper opted to deliver the finished products to a third person instead.
The consent of the creditor must also be secured for the novation to be valid:
Novation must be expressly consented to. Moreover, the conflicting intention and acts of the parties underscore the
absence of any express disclosure or circumstances with which to deduce a clear and unequivocal intent by the
parties to novate the old agreement. (Emphasis supplied)
40

In this case, respondent was not privy to the memorandum of agreement, thus, his conformity to the contract need
not be secured. This is clear from the first line of the memorandum, which states:
Per meeting held at ARCO, April 18, 2007, it has been mutually agreed between Mrs. Candida A. Santos and Mr.
Eric Sy. . . .41

If the memorandum of agreement was intended to novate the original agreement between the parties, respondent
must have first agreed to the substitution of Eric Sy as his new debtor. The memorandum of agreement must also
state in clear and unequivocal terms that it has replaced the original obligation of petitioner Arco Pulp and Paper to
respondent. Neither of these circumstances is present in this case.
Petitioner Arco Pulp and Paper’s act of tendering partial payment to respondent also conflicts with their alleged
intent to pass on their obligation to Eric Sy. When respondent sent his letter of demand to petitioner Arco Pulp and
Paper, and not to Eric Sy, it showed that the former neither acknowledged nor consented to the latter as his new
debtor. These acts, when taken together, clearly show that novation did not take place. Since there was no novation,
petitioner Arco Pulp and Paper’s obligation to respondent remains valid and existing. Petitioner Arco Pulp and
Paper, therefore, must still pay respondent the full amount of ₱7,220,968.31.
Petitioners are liable for
damages
Under Article 2220 of the Civil Code, moral damages may be awarded in case of breach of contract where the
breach is due to fraud or bad faith:
Art. 2220. Willfull injury to property may be a legal ground for awarding moral damages if the court should find that,
under the circumstances, such damages are justly due. The same rule applies to breaches of contract where the
defendant acted fraudulently or in bad faith. (Emphasis supplied)
Moral damages are not awarded as a matter of right but only after the party claiming it proved that the breach was
due to fraud or bad faith. As this court stated:
Moral damages are not recoverable simply because a contract has been breached. They are recoverable only if the
party from whom it is claimed acted fraudulently or in bad faith or in wanton disregard of his contractual obligations.
The breach must be wanton, reckless, malicious or in bad faith, and oppressive or abusive. 42

Further, the following requisites must be proven for the recovery of moral damages:
An award of moral damages would require certain conditions to be met, to wit: (1)first, there must be an injury,
whether physical, mental or psychological, clearly sustained by the claimant; (2) second, there must be culpable act
or omission factually established; (3) third, the wrongful act or omission of the defendant is the proximate cause of
the injury sustained by the claimant; and (4) fourth, the award of damages is predicated on any of the cases stated
in Article 2219 of the Civil Code. 43

Here, the injury suffered by respondent is the loss of ₱7,220,968.31 from his business. This has remained unpaid
since 2007. This injury undoubtedly was caused by petitioner Arco Pulp and Paper’s act of refusing to pay its
obligations.
When the obligation became due and demandable, petitioner Arco Pulp and Paper not only issued an unfunded
check but also entered into a contract with a third person in an effort to evade its liability. This proves the third
requirement.
As to the fourth requisite, Article 2219 of the Civil Code provides that moral damages may be awarded in the
following instances:
Article 2219. Moral damages may be recovered in the following and analogous cases:
(1) A criminal offense resulting in physical injuries;
(2) Quasi-delicts causing physical injuries;
(3) Seduction, abduction, rape, or other lascivious acts;
(4) Adultery or concubinage;
(5) Illegal or arbitrary detention or arrest;
(6) Illegal search;
(7) Libel, slander or any other form of defamation;
(8) Malicious prosecution;
(9) Acts mentioned in Article 309;
(10) Acts and actions referred to in Articles 21, 26, 27, 28, 29, 30, 32, 34, and 35.
Breaches of contract done in bad faith, however, are not specified within this enumeration. When a party breaches a
contract, he or she goes against Article 19 of the Civil Code, which states: Article 19. Every person must, in the
exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith.
Persons who have the right to enter into contractual relations must exercise that right with honesty and good faith.
Failure to do so results in an abuse of that right, which may become the basis of an action for damages. Article 19,
however, cannot be its sole basis:
Article 19 is the general rule which governs the conduct of human relations. By itself, it is not the basis of an
actionable tort. Article 19 describes the degree of care required so that an actionable tort may arise when it is
alleged together with Article 20 or Article 21. 44

Article 20 and 21 of the Civil Code are as follows:

Article 20. Every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the
latter for the same.
Article 21.Any person who wilfully causes loss or injury to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for the damage.
To be actionable, Article 20 requires a violation of law, while Article 21 only concerns with lawful acts that are
contrary to morals, good customs, and public policy:
Article 20 concerns violations of existing law as basis for an injury. It allows recovery should the act have been willful
or negligent. Willful may refer to the intention to do the act and the desire to achieve the outcome which is
considered by the plaintiff in tort action as injurious. Negligence may refer to a situation where the act was
consciously done but without intending the result which the plaintiff considers as injurious.
Article 21, on the other hand, concerns injuries that may be caused by acts which are not necessarily proscribed by
law. This article requires that the act be willful, that is, that there was an intention to do the act and a desire to
achieve the outcome. In cases under Article 21, the legal issues revolve around whether such outcome should be
considered a legal injury on the part of the plaintiff or whether the commission of the act was done in violation of the
standards of care required in Article 19. 45

When parties act in bad faith and do not faithfully comply with their obligations under contract, they run the risk of
violating Article 1159 of the Civil Code:
Article 1159. Obligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith.
Article 2219, therefore, is not an exhaustive list of the instances where moral damages may be recovered since it
only specifies, among others, Article 21. When a party reneges on his or her obligations arising from contracts in
bad faith, the act is not only contrary to morals, good customs, and public policy; it is also a violation of Article 1159.
Breaches of contract become the basis of moral damages, not only under Article 2220, but also under Articles 19
and 20 in relation to Article 1159.
Moral damages, however, are not recoverable on the mere breach of the contract. Article 2220 requires that the
breach be done fraudulently or in bad faith. In Adriano v. Lasala:
46

To recover moral damages in an action for breach of contract, the breach must be palpably wanton, reckless and
malicious, in bad faith, oppressive, or abusive. Hence, the person claiming bad faith must prove its existence by
clear and convincing evidence for the law always presumes good faith.
Bad faith does not simply connote bad judgment or negligence. It imports a dishonest purpose or some moral
obliquity and conscious doing of a wrong, a breach of known duty through some motive or interest or ill will that
partakes of the nature of fraud. It is, therefore, a question of intention, which can be inferred from one’s conduct
and/or contemporaneous statements. (Emphasis supplied)
47

Since a finding of bad faith is generally premised on the intent of the doer, it requires an examination of the
circumstances in each case.
When petitioner Arco Pulp and Paper issued a check in partial payment of its obligation to respondent, it was
presumably with the knowledge that it was being drawn against a closed account. Worse, it attempted to shift their
obligations to a third person without the consent of respondent.
Petitioner Arco Pulp and Paper’s actions clearly show "a dishonest purpose or some moral obliquity and conscious
doing of a wrong, a breach of known duty through some motive or interest or ill will that partakes of the nature of
fraud." Moral damages may, therefore, be awarded.
48

Exemplary damages may also be awarded. Under the Civil Code, exemplary damages are due in the following
circumstances:
Article 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner.
Article 2233. Exemplary damages cannot be recovered as a matter of right; the court will decide whether or not they
should be adjudicated.
Article 2234. While the amount of the exemplary damages need not be proven, the 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.
In Tankeh v. Development Bank of the Philippines, we stated that:
49

The purpose of exemplary damages is to serve as a deterrent to future and subsequent parties from the commission
of a similar offense. The case of People v. Ranteciting People v. Dalisay held that:
Also known as ‘punitive’ or ‘vindictive’ damages, exemplary or corrective damages are intended to serve as a
deterrent to serious wrong doings, and as a vindication of undue sufferings and wanton invasion of the rights of an
injured or a punishment for those guilty of outrageous conduct. These terms are generally, but not always, used
interchangeably. In common law, there is preference in the use of exemplary damages when the award is to account
for injury to feelings and for the sense of indignity and humiliation suffered by a person as a result of an injury that
has been maliciously and wantonly inflicted, the theory being that there should be compensation for the hurt caused
by the highly reprehensible conduct of the defendant—associated with such circumstances as willfulness,
wantonness, malice, gross negligence or recklessness, oppression, insult or fraud or gross fraud—that intensifies
the injury. The terms punitive or vindictive damages are often used to refer to those species of damages that may be
awarded against a person to punish him for his outrageous conduct. In either case, these damages are intended in
good measure to deter the wrongdoer and others like him from similar conduct in the future. (Emphasis supplied;
50

citations omitted)
The requisites for the award of exemplary damages are as follows:
(1) they may be imposed by way of example in addition to compensatory damages, and only after the
claimant's right to them has been established;
(2) that they cannot be recovered as a matter of right, their determination depending upon the amount of
compensatory damages that may be awarded to the claimant; and
(3) the act must be accompanied by bad faith or done in a wanton, fraudulent, oppressive or malevolent
manner.51

Business owners must always be forthright in their dealings. They cannot be allowed to renege on their obligations,
considering that these obligations were freely entered into by them. Exemplary damages may also be awarded in
this case to serve as a deterrent to those who use fraudulent means to evade their liabilities.
Since the award of exemplary damages is proper, attorney’s fees and cost of the suit may also be recovered.
Article 2208 of the Civil Code states:
Article 2208. In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs,
cannot be recovered, except:
(1) When exemplary damages are awarded[.]
Petitioner Candida A. Santos
is solidarily liable with
petitioner corporation
Petitioners argue that the finding of solidary liability was erroneous since no evidence was adduced to prove that the
transaction was also a personal undertaking of petitioner Santos. We disagree.
In Heirs of Fe Tan Uy v. International Exchange Bank, we stated that:
52

Basic is the rule in corporation law that a corporation is a juridical entity which is vested with a legal personality
separate and distinct from those acting for and in its behalf and, in general, from the people comprising it. Following
this principle, obligations incurred by the corporation, acting through its directors, officers and employees, are its
sole liabilities. A director, officer or employee of a corporation is generally not held personally liable for obligations
incurred by the corporation. Nevertheless, this legal fiction may be disregarded if it is used as a means to perpetrate
fraud or an illegal act, or as a vehicle for the evasion of an existing obligation, the circumvention of statutes, or to
confuse legitimate issues.
....
Before a director or officer of a corporation can be held personally liable for corporate obligations, however, the
following requisites must concur: (1) the complainant must allege in the complaint that the director or officer
assented to patently unlawful acts of the corporation, or that the officer was guilty of gross negligence or bad faith;
and (2) the complainant must clearly and convincingly prove such unlawful acts, negligence or bad faith.
While it is true that the determination of the existence of any of the circumstances that would warrant the piercing of
the veil of corporate fiction is a question of fact which cannot be the subject of a petition for review on certiorari
under Rule 45, this Court can take cognizance of factual issues if the findings of the lower court are not supported
by the evidence on record or are based on a misapprehension of facts. (Emphasis supplied)
53

As a general rule, directors, officers, or employees of a corporation cannot be held personally liable for obligations
incurred by the corporation. However, this veil of corporate fiction may be pierced if complainant is able to prove, as
in this case, that (1) the officer is guilty of negligence or bad faith, and (2) such negligence or bad faith was clearly
and convincingly proven.
Here, petitioner Santos entered into a contract with respondent in her capacity as the President and Chief Executive
Officer of Arco Pulp and Paper. She also issued the check in partial payment of petitioner corporation’s obligations
to respondent on behalf of petitioner Arco Pulp and Paper. This is clear on the face of the check bearing the account
name, "Arco Pulp & Paper, Co., Inc." Any obligation arising from these acts would not, ordinarily, be petitioner
54

Santos’ personal undertaking for which she would be solidarily liable with petitioner Arco Pulp and Paper.
We find, however, that the corporate veil must be pierced. In Livesey v. Binswanger Philippines: 55

Piercing the veil of corporate fiction is an equitable doctrine developed to address situations where the separate
corporate personality of a corporation is abused or used for wrongful purposes. Under the doctrine, the corporate
existence may be disregarded where the entity is formed or used for non-legitimate purposes, such as to evade a
just and due obligation, or to justify a wrong, to shield or perpetrate fraud or to carry out similar or inequitable
considerations, other unjustifiable aims or intentions, in which case, the fiction will be disregarded and the
individuals composing it and the two corporations will be treated as identical. (Emphasis supplied)
56

According to the Court of Appeals, petitioner Santos was solidarily liable with petitioner Arco Pulp and Paper, stating
that:
In the present case, We find bad faith on the part of the [petitioners] when they unjustifiably refused to honor their
undertaking in favor of the [respondent]. After the check in the amount of 1,487,766.68 issued by [petitioner] Santos
was dishonored for being drawn against a closed account, [petitioner] corporation denied any privity with
[respondent]. These acts prompted the [respondent] to avail of the remedies provided by law in order to protect his
rights.57

We agree with the Court of Appeals. Petitioner Santos cannot be allowed to hide behind the corporate veil. When 1âwphi1

petitioner Arco Pulp and Paper’s obligation to respondent became due and demandable, she not only issued an
unfunded check but also contracted with a third party in an effort to shift petitioner Arco Pulp and Paper’s liability.
She unjustifiably refused to honor petitioner corporation’s obligations to respondent. These acts clearly amount to
bad faith. In this instance, the corporate veil may be pierced, and petitioner Santos may be held solidarily liable with
petitioner Arco Pulp and Paper.
The rate of interest due on
the obligation must be
reduced in view of Nacar v.
Gallery Frames 58

In view, however, of the promulgation by this court of the decision dated August 13, 2013 in Nacar v. Gallery
Frames, the rate of interest due on the obligation must be modified from 12% per annum to 6% per annum from the
59

time of demand.
Nacar effectively amended the guidelines stated in Eastern Shipping v. Court of Appeals, and we have laid down
60

the following guidelines with regard to the rate of legal interest:

To recapitulate and for future guidance, the guidelines laid down in the case of Eastern Shipping Linesare
accordingly modified to embody BSP-MB Circular No. 799, as follows:
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. (Emphasis supplied;
61

citations omitted.)
According to these guidelines, the interest due on the obligation of ₱7,220,968.31 should now be at 6% per annum,
computed from May 5, 2007, when respondent sent his letter of demand to petitioners. This interest shall continue to
be due from the finality of this decision until its full satisfaction.
WHEREFORE, the petition is DENIED in part. The decision in CA-G.R. CV No. 95709 is AFFIRMED.
Petitioners Arco Pulp & Paper Co., Inc. and Candida A. Santos are hereby ordered solidarily to pay respondent Dan
T. Lim the amount of ₱7,220,968.31 with interest of 6% per annum at the time of demand until finality of judgment
and its full satisfaction, with moral damages in the amount of ₱50,000.00, exemplary damages in the amount of
₱50,000.00, and attorney's fees in the amount of ₱50,000.00.
SO ORDERED.

G.R. No. 169407

BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs.
AMADOR DOMINGO, Respondent.
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, filed by petitioner Bank of
the Philippine Islands (BPI), seeking the reversal and setting aside of the Decision dated July 11, 2005 and
1

Resolution dated August 19, 2005 of the Court of Appeals in CAG.R. SP No. 88836.
2

The Petition arose from the following facts:

On September 27, 1993, respondent Amador Domingo (Amador) and his wife, the late Mercy Maryden Domingo
(Mercy), (collectively referred to as the spouses Domingo) executed a Promissory Note in favor of Makati Auto
3 4

Center, Inc. in the sum of ₱629,856.00, payable in 48 successive monthly installments in the amount of ₱13,122.00
each. They simultaneously executed a Deed of Chattel Mortgage over a 1993 Mazda 323 (subject vehicle) to
5

secure the payment of their Promissory Note. Makati Auto Center, Inc. then assigned, ceded, and transferred all its
rights and interests over the said Promissory Note and chattel mortgage to Far East Bank and Trust Company
(FEBTC).
On April 7, 2000, the Securities and Exchange Commission (SEC) approved and issued the Certificate of Filing of
the Articles of Merger and Plan-· of Merger executed on January 20, 2000 by and between BPI, the surviving
corporation, and FEBTC, the absorbed corporation. By virtue of said merger, all the assets and liabilities of FEBTC
were transferred to and absorbed by BPI. 6

The spouses Domingo defaulted when they failed to pay 21 monthly installments that had fallen due consecutively
from January 15, 1996 to September 15, 1997. BPI, being the surviving corporation after the merger, demanded that
the spouses Domingo pay the balance of the Promissory Note including accrued late payment charges/interests or
to return the possession of the subject vehicle for the purpose of foreclosure in accordance with the undertaking
stated in the chattel mortgage. When the spouses Domingo still failed to comply with its demands, BPI filed on
November 14, 2000 a Complaint for Replevin and Damages (or in the alternative, for the collection of sum of
7

money, interest and other charges, and attorney's fees) which was raffled to the Metropolitan Trial Court (MeTC) of
Manila, Branch 9, and docketed as Civil Case No. 168949-CV. BPI included a John Doe as defendant because at
the time of filing of the Complaint, BPI was already aware that the subject vehicle was in the possession of a third
person but did not yet know the identity of said person.
In their Answer, the spouses Domingo raised the following affirmative defenses:
8

4. [BPI] has no cause of action against the [spouses Domingo].

5. The Honorable Court has no jurisdiction over this case,
6. As per the allegations in the complaint, JOHN DOE is an indispensable party to this case so with his
whereabouts unknown, service by publication should first be made before proceeding with the trial of this
case;
7. Defendant Maryden Domingo once obtained a car loan from Far East Bank and Trust Company but the
car was later sold to Carmelita S. Gonzales with the bank's conformity and the buyer subsequently assumed
payment of the balance of the mortgaged loan.
During trial, the prosecution presented as witness Vicente Magpusao, a former employee of FEBTC and now an
Account Analyst of BPI. His testimony was summed up by the MeTC as follows:
Vicente Magpusao, [BPI's] Account Analyst and formerly connected with Far East Bank and Trust Company testified
that on September 27, 1993, [the spouses Domingo] for consideration executed and delivered to Makati Auto
Center, Inc. a Promissory Note in the sum of ₱629,856.00 payable in monthly installments in accordance with the
schedule of payment indicated in said Promissory Note. In order to secure the payment of the obligation, the
[spouses Domingo] executed in favor of said Makati Auto Center, Inc. on the same date a Chattel Mortgage over
one (1) unit of 1993 Mazda (323) with Motor No. B6-270146 and with Serial No. BG1062M9100287. With notice to
[the spouses Domingo], said Makati Auto Center, Inc. assigned to Far East Bank and Trust Co. the Chattel Mortgage
as shown by the Deed of Assignment executed by [Makati Auto Center, Inc.]. Far East Bank and Trust Co. on the
other hand, has been merged with and/or absorbed by herein plaintiff [BPI]. The [spouses Domingo] defaulted in
complying with the terms and conditions of the Promissory Note with Chattel Mortgage by failing to pay twenty[-one]
(21) successive installments which fell due on January 15, 1996 up to September 15, 1997. [BPI] sent a demand
letter [to] defendant Mercy Domingo thru registered mail demanding payment of the whole balance of the
Promissory Note plus the stipulated interest and other charges or return to [BPI] the possession of the above-
described motor vehicle. There were some negotiations made by the [spouses Domingo] to their In-House Legal
Assistant but the same did not materialize. Based on the Statement of Account dated October 31, 2000, [the
spouses Domingo have] an outstanding balance of ₱275,562.00 exclusive of interest and other charges.
On cross-examination, the witness explained that the first time he came to handle [the spouses Domingo's] account
was in 1997. Despite the fact that he was not yet employed with the bank in 1993, he knew exactly what happened
in this particular transaction because of his experience in auto financing. He also has an access [to] the Promissory
Note, Chattel Mortgage and other records of payment made by the bank. Based on the records, the [spouses
Domingo] issued several postdated checks but not for the entire term. There were payments made from October 30,
199[3] up to September 14, 1994. He was not the one who received payments for the auto finance. If there were
receipts issued, they will only ride for the account of Mrs. Domingo. He was not sure if these receipts are kept in the
warehouse or probably disposed of by the bank since the transaction was made in 1997. They already have a
computer records of all payments made by their client. Based on the subsidiary ledger, there were three (3) checks
that bounced and these are payments from the new buyer. They only have one (1) photocopy of these checks in the
amount of ₱325,431.60 while the other two (2) are missing. He was not aware who owns Cargo and Hardware
Corporation but the check was issued by a certain Miss Gonzales. The witness further testified that anyone can pay
the monthly amortization as long as the payment is for the account of Maryden Domingo. They cannot include
Carmelita Gonzales as one of the defendants in this case because they don't have a document executed by the
latter in behalf of Far East Bank and Trust Co. The bank did not approve the Deed of Sale with Assumption of
Mortgage.
Witness further testified that he found the photocopy of the Deed of Sale in the records of Maryden Domingo. The
Promissory Note and Chattel Mortgage were executed by the defendants Maryden and Amador Domingo. There
was no assumption of obligation of the [spouses Domingo]. Witness however admitted that Far East Bank did not
tum over to [BPI] all the records pertaining to the account of the [spouses Domingo ]. (Citations omitted.) Amador
9

himself testified for the defense. The MeTC provided the following summary of Amador's testimony:
For his defense, defendant Amador Domingo testified that his wife and co-defendant Mercy Maryden Domingo died
on November 27, 2003. He admitted that his wife bought a car and was mortgaged to Far East Bank and Trust
Company. He identified the Chattel Mortgage and the Promissory Note he executed together with his wife. In
connection with the execution of this Promissory Note, he recalled that his wife issued forty-eight (48) checks. The
twelve (12) checks were cleared by the bank and his wife was able to obtain a discount for prompt payments up to
October 1994. While they were still paying for the car, Carmelita Gonzales got interested to buy the car and is willing
to assume the mortgage. After furnishing the bank [with] the Deed of Sale duly notarized, Carmelita Gonzales
subsequently issued a check payable to Far East Bank and Trust Company and the remaining postdated checks
were returned to them. Based on the application of payment prepared by [BPI's] witness, Carmelita Gonzales made
payments from November 14, 1995 to December 1995. Aside from these payments on May 19, 1997, Carmelita
Gonzales issued a check to Far East Bank in the amount of ₱385,431.60. In 1996, he received a phone call from a
certain Marvin Orence asking for their assistance to locate the car which Carmelita Gonzales bought from them. His
lawyer went to Land Transportation Office for assistance. From the time Ms. Gonzales started to pay, they never
received any demand letter from Far East Bank. Thereafter, on February 29, 1997, they received a demand letter
from Espino Law Office [on] behalf of [FEBTC]. His lawyer made a reply on March 31, 1997 stating therein that the
motor vehicle for which the loan was obtained had been sold to Carmelita Gonzales as of July 5, 1994 with the
knowledge and approval of their client. After three years, they received another demand letter dated October 31,
2000 from Labaguis Law Office. His lawyer made the same reply on March 7, 2000 and another letter on November
24, 2000. Witness further testified that this malicious complaint probably triggered the early demise of his wife who
has a high blood pressure. His wife died of aneurism. As damages, he is asking for the amount of ₱200,000.00 as
moral damages, ₱75,000.00 as attorney's fees and ₱5,000.00 appearance fee.
On cross-examination, witness elaborates that when his wife presented to Far East Bank the Deed of Sale with
Assumption of Mortgage, the bank made no objection and returned all their postdated checks. His wife was the one
who deal[t] with Carmelita Gonzales but he always provide[d] assistance with respect to paper works. Aside from the
aforesaid Deed of Sale, there is no other document which shows the conformity of the bank. They were only verbally
assured by Mr. Orence that their papers are in order.10

On June 10, 2004, the Me TC rendered a Decision in favor of BPI as the bank was able to establish by
preponderance of evidence a valid cause of action against the spouses Domingo. According to the MeTC, novation
is never presumed and must be clearly shown by express agreement or by acts of equal import. To effect a
subjective novation by a change in the person of the debtor, it is necessary that the old debtor be released expressly
from the obligation and the third person or new debtor assumes his place. Without such release, there is no
novation and the third person who assumes the debtor's obligation merely becomes a co-debtor or surety. The
MeTC found Amador' s bare testimony as insufficient evidence to prove that he and his wife Mercy had been
expressly released from their obligations and that Carmelita Gonzales (Carmelita) assumed their place as the new
debtor within the context of subjective novation; and if at all, Carmelita only became the spouses Domingo's co-
debtor or surety. While finding that BPI was entitled to the reliefs prayed for, the MeTC made no adjudication as to
the entitlement of the bank to the Writ of Replevin, and instead awarded monetary reliefs as were just and equitable.
The dispositive portion of the MeTC decision reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of [BPI], ordering defendant Amador
Domingo:
1. To pay [BPI] the sum of ₱275,562.00 plus interest thereon at the rate of 36% per annum from November
15, 2000 until fully paid;
2. To pay [BPI] the sum equivalent to 25% of the total amount due as attorney's fees; and
3. To pay the costs of suit. 11

Acting on Amador's Motion for Reconsideration, the MeTC issued an Order dated September 6, 2004 affirming its
12

earlier judgment but reducing the attorney's fees awarded, thus: WHEREFORE, premises considered the Decision
of this Court dated June 10, 2014 stands, subject to the modification that the attorney's fees of twenty-five percent
(25%) is ordered reduced to ten percent (10%) of the total amount due. 13

Dissatisfied, Amador appealed his case before the Regional Trial Court (RTC) of Manila, Branch 26, wherein it was
docketed as Civil Case No. 04-111100. In its Decision dated February 10, 2005, the RTC held that in novation,
consent of the creditor to the substitution of the debtor need not be by express agreement, it can be merely implied.
The consent is not required to be in any specific or particular form; the only requirement being that it must be given
by the creditor in one way or another. To the RTC, the following circumstances demonstrated the implied consent of
BPI to the novation: ( 1) BPI had knowledge of the Deed of Sale and Assumption of Mortgage executed between
Mercy and Carmelita, but did not interpose any objection to the same; and (2) BPI (through FEBTC) returned the
personal checks of the spouses Domingo and accepted the payments made by Carmelita. The R TC also noted that
BPI made a demand for payment upon the spouses Domingo only after 30 months from the time Carmelita
assumed payments for the installments due. The R TC reasoned that if the spouses Domingo truly remained as
debtors, BPI would not have wasted time m demanding payments from them. Ultimately, the RTC decreed:
WHEREFORE, premises considered, the judgment appealed from is hereby reversed. The complaint filed by [BPI]
before [MeTC] Branch 9, Manila, is hereby DISMISSED and ordering [BPI] to pay defendant/appellant Amador
Domingo the following, to wit:
a) One Hundred Thousand (₱100,000.00) Pesos as moral damages;
b) Fifty Thousand (₱50,000.00) Pesos as exemplary damages;
c) Fifty Thousand (₱50,000.00) Pesos as attorney's fees;
d) Twenty-Five Thousand (₱25,000.00) [Pesos] as litigation expenses;
e) Costs of this suit. 14

Aggrieved by the foregoing RTC judgment, BPI filed a Petition for Review with the Court of Appeals, docketed as
CA-G.R. SP No. 88836. The Court of Appeals promulgated its Decision on July 11, 2005, affirming the finding of the
R TC that novation took place. The Court of Appeals, relying on the declaration in Babst v. Court of Appeals that15

consent of the creditor to the substitution of debtors need not always be express and may be inferred from the acts
of the creditor, ruled that:
In this case, there is no doubt that FEBTC had the intention to release private respondent [Amador] and his wife
from the obligation when the latter sold the subject vehicle to [Carmelita]. This intention can be inferred from the
following acts of FEBTC: 1) it returned the postdated checks issued by private respondent [Amador's] wife in favor
of FEBTC; 2) it accepted the payments made by [Carmelita]; 3) it did not interpose any objection despite knowledge
of the existence of the Deed of Sale with Assumption of Mortgage; and 4) it did not demand payment from private
respondent [Amador] and his wife for thirty (30) long months.
xxxx
As correctly found by the R TC, the testimony of private respondent [Amador] as regards the return of the said
checks to them by FEBTC was not rebutted by petitioner BPI.
If indeed the said checks were not returned to private respondent [Amador' s] wife, the least thing that petitioner BPI
or FEB TC could have done was to deposit them. Should the checks thereafter bounce, then petitioner BPI or
FEBTC could have filed a separate case against private respondent [Amador's] wife. This was never done by
petitioner BPI or FEBTC. Hence, it is safe to conclude that the said checks were indeed returned to private
respondent [Amador's] wife. 16

The Court of Appeals rejected the other arguments of BPI:

Petitioner BPI further argues that as regards the payment made by the alleged new debtor, Carmelita Gonzales, it
appears that the only payment made by her was a PNB Check No. 00190322 dated May 19, 1997 which was
dishonored due to Account Closed.
Careful scrutiny of the records of the case reveals otherwise. As found by the Me TC in its decision dated June 10,
2004, Carmelita Gonzales made several payments on the said loan obligation, as testified to by witness Vicente
Magpusao, petitioner BPI's Account Analyst, thus:
x x x. Based on the subsidiary leger, (Exhibit "2"), there were three (3) checks that bounced and these are payments
from the new buyer. They only have one (1) photocopy of these checks in the amount of P.325,431.60 (Exhibit 4)
while the other two are missing. He was not aware who owns Cargo and Hardware Corporation but the check was
issued by a certain Miss Gonzales. x x x.
xxxx
Petitioner BPI further argues that it was not its obligation to interpose any objection to the Deed of Sale with
Assumption of Mortgage. Rather it should be the vendee, [Carmelita], who should secure the approval and consent
of petitioner BPI to the Deed of Sale.
This argument is untenable.
The Deed of Sale with Assumption of Mortgage between private respondent [Amador's] wife and [Carmelita] was
executed way back on July 5, 1994. The check that was issued by [Carmelita] was dated May 19, 1997. The
position of petitioner BPI is not possible because when the Deed of Sale with Assumption of Mortgage was executed
and the said check was issued, private respondent [Amador's] wife and [Carmelita] were still dealing with FEBTC,
considering the fact that the merger of petitioner BPI and FEBTC was formalized on April 10, 2000.
Nevertheless, FEBTC interposed no objection to the Deed of Sale with Assumption of Mortgage, hence, it
consented to it.
From the foregoing, it is clear that novation took place so that private respondent Domingo is no longer the debtor of
petitioner BPI. (Citations omitted.)
17

The Court of Appeals, however, deleted the damages awarded to Amador for the following reasons:
As to the second issue, petitioner BPI argues that the RTC awarded moral and exemplary damages and attorney's
fees to respondent [Amador] only in the dispositive portion of the assailed decision without any basis in fact and in
law.
This Court finds the argument tenable.
In the case of Solid Homes, Inc. vs. Court of Appeals, it was held that:
"It is basic that the claim for actual, moral and punitive damages as well as exemplary damages and attorney's fees
must each be independently identified and justified."
Furthermore, Section 14, paragraph 1 of Article VIII, of the 1987 Constitution lays down the standard in rendering
decisions, to wit: it must be express therein clearly and distinctly the facts and law on which it is based.
Perusal of the assailed decision reveals that the award of moral and exemplary damages as well as attorney's fees
and litigation expenses were only touched in the dispositive portion, which is in clear disregard of the established
rules laid down by the Constitution and existing jurisprudence. Therefore, their deletion is in order.
As regards the award of litigation expenses and costs of the suit, the same should also be deleted considering that
"no premium should be placed on the right to litigate." (Citations omitted.)
18

The Court of Appeals ultimately adjudged:

WHEREFORE, premises considered, the assailed decision dated February 10, 2005 of the Regional Trial Court,
Branch 26, Manila in Civil Case No. 04-111100 is hereby AFFIRMED with MODIFICATION in that the award of moral
and exemplary damages as well as attorney's fees, litigation expenses and costs of suit, is hereby deleted. 19

In its Resolution dated August 19, 2005, the Court of Appeals denied the Motion for Partial Reconsideration of BPI.
BPI comes to this Court via the present Petition for Review/ Appeal by Certiorari raising the sole issue of whether or
not there had been a novation of the loan obligation with chattel mortgage of the spouses Domingo to BPI so that
the spouses Domingo were released from said obligation and Carmelita was substituted as debtor.
The Court answers in the negative and grants the Petition.
In De Cortes v. Venturanza, the Court discussed some principles and jurisprudence underlying the concept and
20

nature of novation as a mode of extinguishing obligations:

According to Manresa, novation is the extinguishment of an obligation by the substitution or change of the obligation
by a subsequent one which extinguishes or modifies the first, either by changing the object or principal conditions,
or by substituting the person of the debtor, or by subrogating a third person to the rights of the creditor (8 Manresa
428, cited in IV Civil Code of the Philippines by Tolentino 1962 ed., p. 352). Unlike other modes of extinction of
obligations, novation is a juridical act with a dual function - it extinguishes an obligation and creates a new one in
lieu of the old.
Article 1293 of the New Civil Code provides:
"N ovation 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." (emphasis supplied)
Under this provision, there are two forms of novation by substituting the person of the debtor, and they are: (1)
expromision and (2) delegacion. In the former, the initiative for the change does not come from the debtor and may
even be made without his knowledge, since it consists in a third person assuming the obligation. As such, it logically
requires the consent of the third person and the creditor. In the latter, the debtor offers and the creditor accepts a
third person who consents to the substitution and assumes the obligation, so that the intervention and the consent
of these three persons are necessary (8 Manresa 436-437, cited in IV Civil Code of the Philippines by Tolentino,
1962 ed., p. 360). In these two modes of substitution, the consent of the creditor is an indispensable requirement
(Garcia vs. Khu Yek Chiong, 65 Phil. 466, 468). (Emphases supplied.)
The Court also emphasized in De Cortes the indispensability of the creditor's consent to the novation, whether
expromision or delegacion, given that the "[s]ubstitution of one debtor for another may delay or prevent the
fulfillment of the obligation by reason of the financial inability or insolvency of the new debtor; hence, the creditor
should agree to accept the substitution in order that it may be binding on him." 21

Both the R TC and the Court of Appeals found that there was novation by delegacion in the case at bar. The Deed of
Sale with Assumption of Mortgage was executed between Mercy (representing herself and her husband Amador)
and Carmelita, thus, their consent to the substitution as debtors and third person, respectively, are deemed
undisputed. It is the existence of the consent of BPI (or its absorbed corporation FEB TC) as creditor that is being
challenged herein.
As a general rule, since novation implies a waiver of the right the creditor had before the novation, such waiver must
be express. The Court explained the rationale for the rule in Testate Estate of Lazaro Mota v. Serra :
22 23

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 a 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 praesumitor, 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.
However, in Asia Banking Corporation v. Elser, the Court qualified thus:
24

The aforecited article 1205 [now 1293] of the Civil Code does not state that the creditor's consent to the substitution
of the new debtor for the old be express, or given at the time of the substitution, and the Supreme Court of Spain, in
its judgment of June 16, 1908, construing said article, laid down the doctrine that "article 1205 of the Civil Code
does not mean or require that the creditor's consent to the change of debtors must be given simultaneously with the
debtor's consent to the substitution; its evident purpose being to preserve the creditor's full right, it is sufficient that
the latter's consent be given at any time and in any form whatever, while the agreement of the debtors subsists."
The same rule is stated in the Enciclopedia Juridica Espanola, volume 23, page 503, which reads: "The rule that this
kind of novation, like all others, must be express, is not absolute; for the existence of the consent may well be
inferred from the acts of the creditor, since volition may as well be expressed by deeds as by words." The
understanding between Henry W. Elser and the principal director of Yangco, Rosenstock & Co., Inc., with respect to
Luis R. Y angco' s stock in said corporation, and the acts of the board of directors after Henry W. Elser had acquired
said shares, in substituting the latter for Luis R. Y angco, are a clear and unmistakable expression of its consent.
When this court said in the case of Estate of Mota vs. Serra (47 Phil., 464), that the creditor's express consent is
necessary in order that there may be a novation of a contract by the substitution of debtors, it did not wish to convey
the impression that the word "express" was to be given an unqualified meaning, as indicated in the authorities or
cases, both Spanish and American, cited in said decision.
Hence, based on the aforequoted ruling in Asia Banking, the existence of the creditor's consent may also be inferred
from the creditor's acts, but such acts still need to be "a clear and unmistakable expression of [the creditor's]
consent. "25

In Ajax Marketing and Development Corporation v. Court of Appeals, the Court further clarified that:
26

The well settled rule is that novation is never presumed. Novation will not be allowed unless it is clearly shown by
express agreement, or by acts of equal import. Thus, to effect an objective novation it is imperative that the new
obligation expressly declare that the old obligation is thereby extinguished, or that the new obligation be on every
point incompatible with the new one. In the same vein, to effect a subjective novation by a change in the person of
the debtor it is necessary that the old debtor be released expressly from the obligation, and the third person or new
debtor assumes his place in the relation. There is no novation without such release as the third person who has
assumed the debtor's obligation becomes merely a co-debtor or surety. (Citations omitted.)
The determination of the existence of the consent of BPI to the substitution of debtors, in accordance with the
standards set in the preceding jurisprudence, is a question of fact because it requires the Court to review the
evidence on record. It is an established rule that the jurisdiction of the Court in cases brought before it from the
Court of Appeals via a petition for review on certiorari under Rule 45 of the Rules of Court is generally limited to
reviewing errors of law as the former is not a trier of facts. Thus, the findings of fact of the Court of Appeals are
conclusive and binding upon the Court in the latter's exercise of its power to review for it is not the function of the
Court to analyze or weigh evidence all over again. However, several of the recognized exceptions to this rule are
27 28

present in the instant case that justify a factual review, i.e., the inference is manifestly mistaken, the judgment is
based on misapprehension of facts, and the findings of the Court of Appeals and the RTC are contrary to those of
the MeTC.
The burden of establishing a novation is on the party who asserts its existence. Contrary to the findings of the
29

Court of Appeals and the RTC, Amador failed to discharge such burden as he was unable to present proof of the
clear and unmistakable consent of BPI to the substitution of debtors.
Irrefragably, there is no express consent of BPI to the substitution of debtors. The Court of Appeals and the RTC
inferred the consent of BPI from the following facts: (1) BPI had a copy of the Deed of Sale and Assumption of
Mortgage executed between Mercy and Carmelita in its file, indicating its knowledge of said agreement, and still it
did not interpose any objection to the same; (2) BPI (through FEBTC) returned the spouses Domingo's checks and
accepted Carmelita's payments; and (3) BPI did not demand any payment from the spouses Domingo not until 3 0
months after Carmelita assumed the payment of balance on the Promissory Note.
The Court disagrees with the inferences made by the Court of Appeals and the RTC.
First, that BPI (or FEB TC) had a copy of the Deed of Sale and Assumption of Mortgage executed between Mercy
and Carmelita in its file does not mean that it had consented to the same. The very Deed itself states:
That the VENDEE [Carmelita] assumes as he/she had assumed to pay the aforecited mortgage in accordance with
the original terms and conditions of said mortgage, and the parties hereto [Mercy and Carmelita] have agreed to
seek the conformity of the MORTGAGEE [FEBTC]. This brings the Court back to the original question of whether
30

there is proof of the conformity of BPI.

The Court notes that the documents of BPI concerning the car loan and chattel mortgage are still in the name of the
spouses Domingo. No new promissory note or chattel mortgage had been executed between BPI (or FEBTC) and
Carmelita. Even the account itself is still in the names of the spouses Domingo.
The absence of objection on the part of BPI (or FEB TC) cannot be presumed as consent. Jurisprudence requires
presentation of proof of consent, not mere absence of objection. Amador cannot rely on Babst which involved a
different factual milieu. Relevant portions of the Court's ruling in Babst are reproduced below:
In the case at bar, Babst, MULTI and ELISCON all maintain that due to the failure of BPI to register its objection to
the take-over by DBP of ELISCON's assets, at the creditors' meeting held in June 1981 and thereafter, it is deemed
to have consented to the substitution of DBP for
ELISCON as debtor.
We find merit in the argument. Indeed, there exist clear indications that BPI was aware of the assumption by DBP of
the obligations of ELISCON. In fact, BPI admits that –
"[T]he Development Bank of the Philippines (DBP), for a time, had proposed a formula for the settlement of Eliscon's
past obligations to its creditors, including the plaintiff [BPI], but the formula was expressly rejected by the plaintiff as
not acceptable (long before the filing of the complaint at bar)."
The Court of Appeals held that even if the account officer who attended the June 1981 creditors' meeting had
expressed consent to the assumption by DBP of ELISCON's debts, such consent would not bind BPI for lack of a
specific authority therefor. In its petition, ELISCON counters that the mere presence of the account officer at the
meeting necessarily meant that he was authorized to represent BPI in that creditors' meeting. Moreover, BPI did not
object to the substitution of debtors, although it objected to the payment formula submitted by DBP.
Indeed, the authority granted by BPI to its account officer to attend the creditors' meeting was an authority to
represent the bank, such that when he failed to object to the substitution of debtors, he did so on behalf of and for
the bank. Even granting arguendo that the said account officer was not so empowered, BPI could have
subsequently registered its objection to the substitution, especially after it had already learned that DBP had taken
over the assets and assumed the liabilities of ELISCON. Its failure to do so can only mean an acquiescence in the
assumption by DBP of ELISCON's obligations. As repeatedly pointed out by ELISCON and MULTI, BPI's objection
was to the proposed payment formula, not to the substitution itself. In Babst, there was a clear opportunity for BPI,
31

as creditor therein, to object to the substitution of debtors given that its representative attended a creditor's meeting,
during which, said representative already objected to the proposed payment formula made by DBP, as the new
debtor. Hence, the silence of BPI during the same meeting as to the matter of substitution of debtors could already
be interpreted as its acquiescence to the same. In contrast, there was no clear opportunity for BPI (or FEB TC) to
have expressed its objection to the substitution of debtors in the case at bar.
Second, the consent of BPI to the substitution of debtors cannot be deduced from its acceptance of payments from
Carmelita, absent proof of its clear and unmistakable consent to release the spouses Domingo from their obligation.
Since the spouses Domingo remained as debtors of BPI, together with Carmelita, the fact that BPI demanded
payment from the spouses Domingo 30 months after accepting payment from Carmelita is insignificant.
The acceptance by a creditor of payments from a third person, who has assumed the obligation, will result merely to
the addition of debtors and not novation. The creditor may therefore enforce the obligation against both debtors. As 32

the Court pronounced in Magdalena Estates, Inc. v. Rodriguez, "[t]he mere fact that the creditor receives a
33

guaranty or accepts payments from a third person who has agreed to assume the obligation, when there is no
agreement that the first debtor shall be released from responsibility, does not constitute a novation, and the creditor
can still enforce the obligation against the original debtor." The Court reiterated in Quinto v. People that "[n]ot too
34

uncommon is when a stranger to a contract agrees to assume an obligation; and while this may have the effect of
adding to the number of persons liable, it does not necessarily imply the extinguishment of the liability of the first
debtor. Neither would the fact alone that the creditor receives guaranty or accepts payments from a third person who
has agreed to assume the obligation, constitute an extinctive novation absent an agreement that the first debtor
shall be released from responsibility."
Absent proof that BPI gave its clear and unmistakable consent to release the spouses Domingo from the obligation
to pay the car loan, Carmelita is simply considered an additional debtor. Consequently, BPI can still enforce the
obligation against the spouses Domingo even 30 months after it had started accepting payments from Carmelita.
And third, there is no sufficient or competent evidence to establish the return of the checks to the spouses Domingo
and the assurance made by FEBTC that the spouses Domingo were already released from their obligation.
During his direct examination, Amador testified as follows:
Atty. Rivera:
1. Q. Do you remember who was this person who became interested to buy this car?
A. Carmelita S. Gonzales, Sir.
2. Q. What did you tell Mrs. Gonzales when she expressed interest in buying this car, this Mazda vehicle?
A. We told her that the car was mortgaged and she told us that she is willing to assume the mortgage, Sir.
3. Q. With that willingness, what happened next on the part of Mrs. Gonzales to assume the mortgage?
A. My wife and Mrs. Gonzales went to Far East Bank and Trust Company and she informed the bank that
somebody is interested in buying the car and assume the mortgage and the bank informed her that the bank
is agreeable and with no objection.
Atty. Ganitano: Objection, your Honor. May we object to the answer of the witness, it would be hearsay. The
witness testified that it was his wife and the would be buyer who went to the bank.
Atty. Rivera: Then, we are just offering it as part of the narration not necessarily to prove the truth of the
statement, your Honor.
Court: The witness may continue.
Atty. Rivera: So, after that meeting with the bank occurred, what happened next in connection with this
intention of Mrs. Gonzales to purchase the car?
Witness: After furnishing the bank with the Deed of Absolute Sale duly notarized, [Ms.] Carmelita Gonzales
subsequently issued a check payable to Far East Bank and Trust Company, Sir.
Atty. Rivera:
1. Q. How about the postdated checks that your wife issued to Far East Bank and Trust Company?
A. The remaining postdated checks were returned to us, Sir.
2. Q. Do you remember what were those postdated checks that were returned by the bank?
A. Those were the checks we issued in advance, Sir.
3. Q. What were the dates of these checks?
A. October 30, 1994 to 1997, Sir.
xxxx
Atty. Rivera:
1. Q. Aside from this evidence that you have enumerated, were you able to talk to any representative from
Far East Bank relative to the approval of the change in the personality of the debtor from your wife to ...
A. As I remember, sometime in 1996, I received a call from a certain Marvin Orence asking for our
assistance to locate the car that Mrs. Carmelita Gonzales bought from us and informed us that we have
nothing to worry except that we provide them assistance to locate the car and I informed our lawyer, Atty.
Rivera, about this and Atty. Rivera went to the Land Transportation Office for assistance. 35

Amador continued to testify on cross-examination, thus:

CROSS EXAMINATION BY ATTY. GANITANO
1. Q. You testified that out of the 48 checks you paid to Far East Bank & Trust Company, only 12 checks
were made good. What happened to the 3 6 checks?
A. When my wife brought the transaction to Far East Bank and presented the Deed of Absolute Sale, the
bank have no objection to the sale of the car and afterwards, the bank returned all the postdated checks
prepared by my wife that was in the possession of the bank, Sir.
1. Q. Do you have with you those 36 checks that were allegedly returned by Far East Bank?
A. These checks have already been discarded, Sir.
2. Q. So, you cannot present those 36 checks anymore?
A. No, Sir.
3. Q. Who was the alleged buyer of the mortgaged car again?
Witness: Carmelita S. Gonzales, Sir.
Atty. Ganitano:
1. Q. To whom did this Carmelita Gonzales transacted with respect to the sale of mortgaged vehicle?
A. To my wife, Mercy Maryden Domingo, Sir.
2. Q. Not with you, Mr. Witness?
A. Well, I always provide assistance to my wife with regards to paper works, Sir.
3. Q. When was this Deed of Sale executed, was it before when your wife and the buyer went to the bank or
after they went to the bank?
A. I think it was simultaneous, Sir.
4. Q. When you say "simultaneous", Mr. Witness, I'm showing to you this Deed of Sale with Assumption of
Mortgage and you said it was with the conformity of the bank. Will you please tell us in this Deed of Sale
with Assumption of Mortgage if you could find any entry which indicate that the bank agreed to the sale with
assumption of mortgage?
Witness: None, Sir.
Atty. Ganitano: Aside from this Deed of Sale with Assumption of Mortgage, do you have any document which
shows that the bank indeed conformed to the sale of the mortgaged vehicle with assumption of mortgage?
Witness: We were verbally assured that our papers are in order, Sir.
Atty. Ganitano: So, there is no document, Mr. Witness, it was only made orally?
Witness: Yes, Sir, we were verbally assured that our papers are in order.
Atty. Ganitano:
1. Q. Were you present when your wife and the would-be buyer went to the bank?
A. No, Sir.
2. Q. How did you know that there was an assurance from the bank?
A. I received a phone call from Mr. Oronce. I asked about the transaction and he told me that there is
nothing to worry because our documents or papers were in order, Sir.
3. Q. Do I get you right, Mr. Witness, that the confirmation was only through phone call?
A. It was Mr. Oronce who called me, Sir.
4. Q. I'm just asking what was the means of communication, was it only thru phone call?
 A. Yes, Sir, thru phone call. I think twice or three times.
Atty. Rivera: We would like to manifest, your Honor, as early as 1997, just to stress this point, as early as
March 1997, the name of Marvin Oronce ...
Atty. Ganitano: The witness is under cross, your Honor.
Court: You just ask that in re-direct, counsel.
Atty. Rivera: Yes, you Honor. 36

Amador admitted that it was his wife Mercy, together with Carmelita, who directly transacted with FEBTC regarding
the sale of the subject vehicle to and assumption of mortgage by Carmelita. Amador had no personal knowledge of
what had happened when Mercy and Carmelita went to the bank so his testimony on the matter was hearsay, which,
if not excluded, deserves no credence.
The Court explained in Da Jose v. Angeles that:
37

Evidence is hearsay when its probative force depends on the competency and credibility of some persons other
than the witness by whom it is sought to be produced. The exclusion of hearsay evidence is anchored on three
reasons: (1) absence of cross-examination; (2) absence of demeanor evidence; and (3) absence of oath. Basic
under the rules of evidence is that a witness can only testify on facts within his or her personal knowledge. This
personal knowledge is a substantive prerequisite in accepting testimonial evidence establishing the truth of a
disputed fact. xx x. (Citations omitted.)
The Court of Appeals and the RTC substantively based their finding that BPI (or FEB TC) consented to the
substitution of debtors on the return of the checks to the spouses Domingo, but the proof of the issuance of the
checks, their delivery to the bank, and the return of the checks flimsily consists of Amador's unsubstantiated
testimony. Amador recounted that the postdated checks which he and Mercy executed in favor of FEBTC were
returned to them, however, he failed to provide the details surrounding the return. Amador only stated that when
Mercy provided FEBTC with a copy of the Deed of Sale and Assumption of Mortgage, the bank returned the checks
to them "subsequently" or "afterwards." Amador did not say how the checks were returned and to whom. The
checks were not presented during the trial since according to Amador, they were already "discarded," although once
more, any other detail surrounding the discarding of the checks is sorely lacking. Aside from Amador's bare
testimony, no other supporting evidence of the return of the checks to the spouses Domingo was submitted during
trial. For the foregoing reasons, the Court accords little weight and credence to Amador' s testimony on the return of
the checks.
It is worthy to stress that Amador, as the party asserting novation, bears the burden of proving its
existence. Amador cannot simply rely on the failure of BPI to produce the checks if these were not actually returned
1âwphi1

to the spouses Domingo. There is simply not enough evidence to establish the prima facie existence of novation to
shift the burden of evidence to BPI to controvert the same.
The verbal assurances purportedly given by a Mr. Marvin Orence or Oronce (Orence/Oronce) of FEBTC to Amador
over the telephone that the spouses Domingo's documents were in order do not constitute the clear and
unmistakable consent of the bank to the substitution of debtors. Once again, except for Amador's bare testimony,
there is no other evidence of such telephone conversations taking place and the subject of such telephone
conversations. In addition, Mr. Orence/Oronce's identity, position at FEBTC, and authority to represent and bind the
bank, were not even clearly established.
The letter dated March 31, 1997 of Atty. Ricardo J.M. Rivera (Rivera), counsel for the spouses Domingo, addressed
to Atty. Cresenciano L. Espino, counsel for FEBTC, does not serve as supporting evidence for Amador' s testimony
regarding the return of the checks and the verbal assurances given by Mr. Orence/Oronce. The contents of such
letter are mere hearsay because the events stated therein did not personally happen to Atty. Rivera or in his
presence, and he merely relied on what his clients, the spouses Domingo, told him.
The Court is therefore convinced that there is no novation by delegacion in this case and Amador remains a debtor
of BPI. The Court reinstates the MeTC judgment ordering Amador to pay for the ₱275,562.00 balance on the
Promissory Note, 10% attorney's fees, and costs of suit; but modifies the rate of interest imposed and the date when
such interest began to run.
In Ruiz v. Court of Appeals, the Court equitably reduced the interest rate of 3% per month or 36% per annum
38

stipulated in the promissory notes therein to 1% per month or 12% per annum, based on the following ratiocination:
We affirm the ruling of the appellate court, striking down as invalid the 10% compounded monthly interest, the 10%
surcharge per month stipulated in the promissory notes dated May 23, 1995 and December 1, 1995, and the 1%
compounded monthly interest stipulated in the promissory note dated April 21, 1995. The legal rate of interest of
12% per annum shall apply after the maturity dates of the notes until full payment of the entire amount due. Also, the
only permissible rate of surcharge is 1% per month, without compounding. We also uphold the award of the
appellate court of attorney's fees, the amount of which having been reasonably reduced from the stipulated 25% (in
the March 22, 1995 promissory note) and 10% (in the other three promissory notes) of the entire amount due, to a
fixed amount of ₱50,000.00. However, we equitably reduce the 3% per month or 36% per annum interest present in
all four (4) promissory notes to 1 % per month or 12% per annum interest.
The foregoing rates of interests and surcharges are in accord with Medel vs. Court of Appeals, Garcia vs. Court of
Appeals, Bautista vs. Pilar Development Corporation, and the recent case of Spouses Solangon vs. Salazar. This
Court invalidated a stipulated 5.5% per month or 66% per annum interest on a ₱500,000.00 loan in Medel and a 6%
per month or 72% per annum interest on a ₱60,000.00 loan in Solangon for being excessive, iniquitous,
unconscionable and exorbitant. In both cases, we reduced the interest rate to 12% per annum. We held that while
the Usury Law has been suspended by Central Bank Circular No. 905, s. 1982, effective on January 1, 1983, and
parties to a loan agreement have been given wide latitude to agree on any interest rate, still stipulated interest rates
are illegal if they are unconscionable. Nothing in the said circular grants lenders carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or lead to a hemorrhaging of their assets. On the
other hand, in Bautista vs. Pilar Development Corp., this Court upheld the validity of a 21% per annum interest on a
₱142,326.43 loan, and in Garcia vs. Court of Appeals, sustained the agreement of the parties to a 24% per annum
interest on an ₱8,649,250.00 loan. It is on the basis of these cases that we reduce the 36% per annum interest to
12%. An interest of 12% per annum is deemed fair and reasonable. While it is true that this Court invalidated a much
higher interest rate of 66% per annum in Medel and 72% in Solangon it has sustained the validity of a much lower
interest rate of 21 % in Bautista and 24% in Garcia. We still find the 36% per annum interest rate in the case at bar
to be substantially greater than those upheld by this Court in the two (2) aforecited cases. (Citations omitted.)
On the strength of the foregoing jurisprudence, the Court likewise finds the interest rate of 3% per month or 36% per
annum stipulated in the Promissory Note herein for the balance of ₱275,562.00 as excessive, iniquitous,
unconscionable, and exorbitant. Following the guidelines set forth in Eastern Shipping Lines, Inc. v. Court of
Appeals and Nacar v. Gallery Frames, the Court imposes instead legal interest in the following rates: (1) legal
39 40

interest of 12% per annum from date of extrajudicial demand on January 29, 1997 until June 30, 2013; and (2) legal
interest of 6o/o per annum from July 1, 2013 until fully paid.
Incidentally, Amador passed away on June 5, 2010 during the pendency of the instant petition, and is survived by
his children, namely: Joann D. Moya, Annabelle G. Domingo, Cristina G. Domingo, Amador G. Domingo, Jr., Gloria
Maryden D. Macatangay, Dante Amador G. Domingo, Gregory Amador A. Domingo, and Ina Joy A. Domingo. To 41

prevent future litigation in the enforcement of the award, the Court clarifies that Amador's heirs are not personally
responsible for the debts of their predecessor. The extent of liability of Amador's heirs to BPI is limited to the value of
the estate which they inherited from Amador. In this jurisdiction, "it is the estate or mass of the property left by the
decedent, instead of the heirs directly, that becomes vested and charged with his rights and obligations which
survive after his death." To rule otherwise would unduly deprive Amador' s heirs of their properties.
42

WHEREFORE, in view of the foregoing, the Petition is GRANTED. The Decision dated July 11, 2005 and Resolution
dated August 19, 2005 of the Court of Appeals in CA-G.R. SP No. 88836, affirming with modification the Decision
dated February 10, 2005 of the RTC of Manila, Branch 26 in Civil Case No. 04-111100, is REVERSED and SET
ASIDE. The Decision dated June 10, 2004 and Order dated September 6, 2004 of the Me TC of Manila, Branch 9 in
Civil Case No. 168949-CV, is REINSTATED with MODIFICATIONS. The heirs of respondent Amador Domingo are
ORDERED to pay petitioner Bank of the Philippine Islands the following:
(1) the ₱275,562.00 balance on the Promissory Note, plus legal interest of 12% from January 29, 1997 to June 30,
2013 and 6% from July 1, 2013 until fully paid; (2) attorney's fees of 10%; and (3) costs of suit. However, the liability
of Amador Domingo's heirs is limited to the value of the inheritance they received from the deceased.
SO ORDERED.

G.R. No. 174104 February 14, 2011

INSURANCE OF THE PHILIPPINE ISLANDS CORPORATION, Petitioner,
vs.
SPOUSES VIDAL S. GREGORIO and JULITA GREGORIO, Respondents.
 DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari under Rule 45 of the Rules of Court seeking the reversal and
nullification of the Decision1 of the Court of Appeals (CA), dated June 14, 2006 and its Resolution 2 dated August 10,
2006 in CA-G.R. CV No. 82303. The assailed CA Decision reversed the Decision3 of the Regional Trial Court (RTC)
of Morong, Rizal, Branch 79, in Civil Case No. 748-M in favor of herein petitioner, while the questioned CA
Resolution denied petitioner's motion for reconsideration.
The pertinent antecedent facts of the case, as summarized by the CA, are as follows:
On January 10, 1968, the spouses Vidal Gregorio and Julita Gregorio [herein respondents] obtained a loan from the
Insurance of the Philippine Islands Corporation [herein petitioner] (formerly known as Pyramid Insurance Co., Inc.)
in the sum of P2,200.00, payable on or before January 10, 1969, with interest thereon at the rate of 12% per annum.
By way of security for the said loan, [respondents] executed a Real Estate Mortgage in favor of [petitioner] over a
parcel of land known as Lot 6186 of the Morong Cadastre, then covered by Tax Declaration No. 7899 issued by the
Municipal Assessor's Office of Morong, Rizal.
On February 14, 1968, [respondents] again obtained another loan from [petitioner] in the sum of ₱2,000.00, payable
on or before February 14, 1969, with 12% interest per annum. Another Real Estate Mortgage, covering a parcel of
land known as Lot No. 6190 of the Morong Cadastre under Tax Declaration No. 10518, was executed by
[respondents] in favor of [petitioner].
On April 10, 1968, [respondents] obtained, for the third time, another loan from [petitioner] in the amount of
₱4,500.00 payable on or before April 10, 1969 with 12% interest per annum. As a security for the loan,
[respondents] again executed a Real Estate Mortgage, this time covering two parcels of land: Lot 3499 under Tax
Declaration No. 10631-Rizal and a lot situated in Brgy. Kay Kuliat under Tax Declaration No. 3918.
[Respondents] failed to pay their loans, as a result of which the [mortgaged] properties were extrajudicially
foreclosed. The extrajudicial foreclosure sale was conducted on December 11, 1969 where [petitioner] was the
highest bidder. Since [respondents] failed to redeem the property, [petitioner] consolidated its ownership over the
properties. The corresponding Tax Declarations were thereafter issued in the name of [petitioner].4
On February 20, 1996, petitioner filed a Complaint5 for damages against respondents alleging that in 1995, when it
was in the process of gathering documents for the purpose of filing an application for the registration and
confirmation of its title over the foreclosed properties, it discovered that the said lots were already registered in the
names of third persons and transfer certificates of title (TCT) were issued to them.
Claiming that respondents acted in a fraudulent and malevolent manner in enticing it to grant their loan applications
by misrepresenting ownership of the subject properties, petitioner prayed for the grant of actual and exemplary
damages as well as attorney's fees and litigation expenses.
In their Amended Answer,6 respondents contended that their obligations in favor of petitioner were all settled by the
foreclosure of the properties given as security therefor. In the alternative, respondents argue that petitioner's cause
of action and right of action are already barred by prescription and laches. 1avvphi1

In its Decision dated February 23, 2004, the RTC of Morong, Rizal, ruled in favor of petitioner, the dispositive portion
of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and as against the
defendants, directing the latter to pay the plaintiff, jointly and severally, as follows:
a. Actual damages in the amount of ₱1,000,000.00, representing the fair market value of the real properties
subject matter of this suit;
b. For defendants' deceit and bad faith, exemplary damage in the sum of ₱300,000.00;
c. Attorney's fees and litigation expenses in the amount of ₱200,000.00; and
d. Costs of suit.
SO ORDERED.7
Aggrieved, respondents appealed the judgment of the trial court to the CA.
On June 14, 2006, the CA rendered a Decision reversing and setting aside the decision of the RTC and dismissing
the complaint of petitioner. It ruled that petitioner's action for damages is barred by prescription and laches.
Petitioner filed a Motion for Reconsideration but the CA denied it in its Resolution of August 10, 2006.
Hence, the instant petition.
Petitioner's main contention is that the CA erred in ruling that petitioner's right to any relief under the law has already
prescribed or is barred by laches. Petitioner argues that the prescriptive period of its action for damages should be
counted from 1995, which it alleges to be the time that it discovered the fraud committed by respondents against it.
On the other hand, the CA ruled that petitioner's right of action prescribed four years after the subject properties
were registered with the Register of Deeds of Morong, Rizal and TCTs were subsequently issued in the names of
third persons in the years 1970, 1973 and 1989.
The Court finds the petition meritorious.
Petitioner filed an action for damages on the ground of fraud committed against it by respondents. Under the
provisions of Article 1146 of the Civil Code, actions upon an injury to the rights of the plaintiff or upon a quasi-delict
must be instituted within four years from the time the cause of action accrued.8
The Court finds no error in the ruling of the CA that petitioner's cause of action accrued at the time it discovered the
alleged fraud committed by respondents. It is at this point that the four-year prescriptive period should be counted.
However, the Court does not agree with the CA in its ruling that the discovery of the fraud should be reckoned from
the time of registration of the titles covering the subject properties.
The Court notes that what has been given by respondents to petitioner as evidence of their ownership of the subject
properties at the time that they mortgaged the same are not certificates of title but tax declarations, in the guise that
the said properties are unregistered. On the basis of the tax declarations alone and by reason of respondent's
misrepresentations, petitioner could not have been reasonably expected to acquire knowledge of the fact that the
said properties were already titled. As a consequence, petitioner may not be charged with any knowledge of any
subsequent entry of an encumbrance which may have been annotated on the said titles, much less any change of
ownership of the properties covered thereby. As such, the Court agrees with petitioner that the reckoning period for
prescription of petitioner's action should be from the time of actual discovery of the fraud in 1995. Hence, petitioner's
suit for damages, filed on February 20, 1996, is well within the four-year prescriptive period.
Neither may the principle of laches apply in the present case.
The essence of laches or "stale demands" is 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, thus, giving rise to a
presumption that the party entitled to assert it either has abandoned or declined to assert it. 9 It is not concerned with
mere lapse of time; the fact of delay, standing alone, being insufficient to constitute laches.10
In addition, it is a rule of equity and applied not to penalize neglect or sleeping on one's rights, but rather to avoid
recognizing a right when to do so would result in a clearly unfair situation.11 There is no absolute rule as to what
constitutes laches or staleness of demand; each case is to be determined according to its particular
circumstances.12 Ultimately, the question of laches is addressed to the sound discretion of the court and, being an
equitable doctrine, its application is controlled by equitable considerations.13 It cannot be used to defeat justice or
perpetrate fraud and injustice.14 It is the better rule that courts, under the principle of equity, will not be guided or
bound strictly by the statute of limitations or the doctrine of laches when to be so, a manifest wrong or injustice
would result.15
It is significant to point out at this juncture that the overriding consideration in the instant case is that petitioner was
deprived of the subject properties which it should have rightly owned were it not for the fraud committed by
respondents. Hence, it would be the height of injustice if respondents would be allowed to go scot-free simply
because petitioner relied in good faith on the former's false representations. Besides, as earlier discussed, even in
the exercise of due diligence, petitioner could not have been expected to immediately discover respondents'
fraudulent scheme.
WHEREFORE, the instant petition is GRANTED. The Decision and Resolution, dated June 14, 2006 and August 10,
2006, respectively, of the Court of Appeals in CA-G.R. CV No. 82303, are REVERSED and SET ASIDE. The
Decision of the Regional Trial Court of Morong, Rizal, Branch 79, dated February 23, 2004 in Civil Case No. 748-M,
is REINSTATED.
SO ORDERED.

\
G.R. No. 114776 February 2, 2000
MENANDRO B. LAUREANO, petitioner,
vs.
COURT OF APPEALS AND SINGAPORE AIRLINES LIMITED, respondents.
QUISUMBING, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to reverse the Decision of the Court
of Appeals, dated October 29, 1993, in C.A. G.R. No. CV 34476, as well as its Resolution dated February 28, 1994,
which denied the motion for reconsideration.
The facts of the case as summarized by the respondent appellate court are as follows:
Sometime in 1978, plaintiff [Menandro B. Laureano, herein petitioner], then Director of Flight Operations and
Chief Pilot of Air Manila, applied for employment with defendant company [herein private respondent]
through its Area Manager in Manila.
On September 30, 1978, after the usual personal interview, defendant wrote to plaintiff, offering a contract of
employment as an expatriate B-707 captain for an original period of two (2) years commencing on January
21, 1978. Plaintiff accepted the offer and commenced working on January 20, 1979. After passing the six-
month probation period, plaintiffs appointment was confirmed effective July 21, 1979. (Annex "B", p.
30, Rollo).
On July 21, 1979, defendant offered plaintiff an extension of his two-year contract to five (5) years effective
January 21, 1979 to January 20, 1984 subject to the terms and conditions set forth in the contract of
employment, which the latter accepted (Annex "C" p. 31, Rec.).
During his service as B-707 captain, plaintiff on August 24, 1980, while in command of a flight, committed a
noise violation offense at the Zurich Airport, for which plaintiff apologized.(Exh. "3", p. 307, Rec.).
Sometime in 1980, plaintiff featured in a tail scraping incident wherein the tail of the aircraft scraped or
touched the runway during landing. He was suspended for a few days until he was investigated by board
headed by Capt. Choy. He was reprimanded.
On September 25, 1981, plaintiff was invited to take a course of A-300 conversion training at Aeroformacion,
Toulouse, France at dependant's expense. Having successfully completed and passed the training course,
plaintiff was cleared on April 7, 1981, for solo duty as captain of the Airbus A-300 and subsequently
appointed as captain of the A-300 fleet commanding an Airbus A-300 in flights over Southeast Asia.
(Annexes "D", "E" and "F", pp. 34-38, Rec.).
Sometime in 1982, defendant, hit by a recession, initiated cost-cutting measures. Seventeen (17) expatriate
captains in the Airbus fleet were found in excess of the defendant's requirement (t.s.n., July 6, 1988. p. 11).
Consequently, defendant informed its expatriate pilots including plaintiff of the situation and advised them to
take advance leaves. (Exh. "15", p. 466, Rec.)
Realizing that the recession would not be for a short time, defendant decided to terminate its excess
personnel (t.s.n., July 6, 1988, p. 17). It did not, however, immediately terminate it's A-300 pilots. It reviewed
their qualifications for possible promotion to the B-747 fleet. Among the 17 excess Airbus pilots reviewed,
twelve were found qualified. Unfortunately, plaintiff was not one of the twelve.
On October 5, 1982, defendant informed plaintiff of his termination effective November 1, 1982 and that he
will be paid three (3) months salary in lieu of three months notice (Annex "I", pp. 41-42, Rec.). Because he
could not uproot his family on such short notice, plaintiff requested a three-month notice to afford him time to
exhaust all possible avenues for reconsideration and retention. Defendant gave only two (2) months notice
and one (1) month salary. (t.s.n., Nov. 12, 1987. p. 25).
Aggrieved, plaintiff on June 29, 1983, instituted a case for illegal dismissal before the Labor Arbiter.
Defendant moved to dismiss on jurisdiction grounds. Before said motion was resolved, the complaint was
withdrawn. Thereafter, plaintiff filed the instant case for damages due to illegal termination of contract of
services before the court a quo (Complaint, pp. 1-10, Rec.).
Again, defendant on February 11, 1987 filed a motion to dismiss alleging inter alia: (1) that the court has no
jurisdiction over the subject matter of the case, and (2) that Philippine courts have no jurisdiction over the
instant case. Defendant contends that the complaint is for illegal dismissal together with a money claim
arising out of and in the course of plaintiffs employment "thus it is the Labor Arbiter and the NLRC who have
the jurisdiction pursuant to Article 217 of the Labor Code" and that, since plaintiff was employed in
Singapore, all other aspects of his employment contract and/or documents executed in Singapore. Thus,
defendant postulates that Singapore laws should apply and courts thereat shall have jurisdiction. (pp. 50-69,
Rec.).
In traversing defendant's arguments, plaintiff claimed that: (1) where the items demanded in a complaint are
the natural consequences flowing from a breach of an obligation and not labor benefits, the case is
intrinsically a civil dispute; (2) the case involves a question that is beyond the field of specialization of labor
arbiters; and (3) if the complaint is grounded not on the employee's dismissal per se but on the manner of
said dismissal and the consequence thereof, the case falls under the jurisdiction of the civil courts. (pp. 70-
73, Rec.)
On March 23, 1987, the court a quo denied defendant's motion to dismiss (pp. 82-84, Ibid). The motion for
reconsideration was likewise denied. (p. 95 ibid.)
 On September 16, 1987, defendant filed its answer reiterating the grounds relied upon in its motion to
dismiss and further arguing that plaintiff is barred by laches, waiver, and estoppel from instituting the
complaint and that he has no cause of action . (pp. 102-115)1
On April 10, 1991, the trial court handed down its decision in favor of plaintiff. The dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff Menandro Laureano and against defendant
Singapore Airlines Limited, ordering defendant to pay plaintiff the amounts of —
SIN$396,104.00, or its equivalent in Philippine currency at the current rate of exchange at the time of
payment, as and for unearned compensation with legal interest from the filing of the complaint until fully
paid;
SIN$154,742.00, or its equivalent in Philippine currency at the current rate of exchange at the time of
payment; and the further amounts of P67,500.00 as consequential damages with legal interest from the filing
of the complaint until fully paid;
P1,000,000.00 as and for moral damages; P1,000,000.00 as and for exemplary damages; and P100,000.00
as and for attorney's fees.
Costs against defendant.
SO ORDERED.2
Singapore Airlines timely appealed before the respondent court and raised the issues of jurisdiction, validity of
termination, estoppel, and damages.
On October 29, 1993, the appellate court set aside the decision of the trial court, thus,
. . . In the instant case, the action for damages due to illegal termination was filed by plaintiff-appellee only
on January 8, 1987 or more than four (4) years after the effectivity date of his dismissal on November 1,
1982. Clearly, plaintiff-appellee's action has already prescribed.
WHEREFORE, the appealed decision is hereby REVERSED and SET ASIDE. The complaint is hereby
dismissed.
SO ORDERED.3
Petitioner's and Singapore Airlines' respective motions for reconsideration were denied.
Now, before the Court, petitioner poses the following queries:
1. IS THE PRESENT ACTION ONE BASED ON CONTRACT WHICH PRESCRIBES IN TEN YEARS UNDER
ARTICLE 1144 OF THE NEW CIVIL CODE OR ONE FOR DAMAGES ARISING FROM AN INJURY TO THE
RIGHTS OF THE PLAINTIFF WHICH PRESCRIBES IN FOUR YEARS UNDER ARTICLE 1146 OF THE NEW CIVIL
CODE?
2. CAN AN EMPLOYEE WITH A FIXED PERIOD OF EMPLOYMENT BE RETRENCHED BY HIS EMPLOYER?
3. CAN THERE BE VALID RETRENCHMENT IF AN EMPLOYER MERELY FAILS TO REALIZE THE EXPECTED
PROFITS EVEN IF IT WERE NOT, IN FACT, INCURRING LOSSES?
At the outset, we find it necessary to state our concurrence on the assumption of jurisdiction by the Regional Trial
Court of Manila, Branch 9. The trial court rightly ruled on the application of Philippine law, thus:
Neither can the Court determine whether the termination of the plaintiff is legal under the Singapore Laws
because of the defendant's failure to show which specific laws of Singapore Laws apply to this case. As
substantially discussed in the preceding paragraphs, the Philippine Courts do not take judicial notice of the
laws of Singapore. The defendant that claims the applicability of the Singapore Laws to this case has the
burden of proof. The defendant has failed to do so. Therefore, the Philippine law should be applied.4
Respondent Court of Appeals acquired jurisdiction when defendant filed its appeal before said court. 5 On this matter,
respondent court was correct when it barred defendant-appellant below from raising further the issue of jurisdiction.6
Petitioner now raises the issue of whether his action is one based on Article 1144 or on Article 1146 of the Civil
Code. According to him, his termination of employment effective November 1, 1982, was based on an employment
contract which is under Article 1144, so his action should prescribe in 10 years as provided for in said article. Thus
he claims the ruling of the appellate court based on Article 1146 where prescription is only four (4) years, is an error.
The appellate court concluded that the action for illegal dismissal originally filed before the Labor Arbiter on June 29,
1983, but which was withdrawn, then filed again in 1987 before the Regional Trial Court, had already prescribed.
In our view, neither Article 11447 nor Article 11468 of the Civil Code is here pertinent. What is applicable is Article 291
of the Labor Code, viz:
Art. 291. Money claims. — All money claims arising from employee-employer relations accruing during the
effectivity of this Code shall be filed within three (3) years from the time the cause of action accrued;
otherwise they shall be forever barred.
xxx xxx xxx
What rules on prescription should apply in cases like this one has long been decided by this Court. In illegal
dismissal, it is settled, that the ten-year prescriptive period fixed in Article 1144 of the Civil Code may not be invoked
by petitioners, for the Civil Code is a law of general application, while the prescriptive period fixed in Article 292 of
the Labor Code [now Article 291] is a SPECIAL LAW applicable to claims arising from employee-employer relations.9
More recently in De Guzman vs. Court of Appeals,10 where the money claim was based on a written contract, the
Collective Bargaining Agreement, the Court held:
. . . The language of Art. 291 of the Labor Code does not limit its application only to "money claims
specifically recoverable under said Code" but covers all money claims arising from an employee-employer
relations" (Citing Cadalin v. POEA Administrator, 238 SCRA 721, 764 [1994]; and Uy v. National Labor
Relations Commission, 261 SCRA 505, 515 [1996]). . . .
It should be noted further that Article 291 of the Labor Code is a special law applicable to money claims
arising from employer-employee relations; thus, it necessarily prevails over Article 1144 of the Civil Code, a
general law. Basic is the rule in statutory construction that "where two statutes are of equal theoretical
application to a particular case, the one designed therefore should prevail." (Citing Leveriza v. Intermediate
Appellate Court, 157 SCRA 282, 294.) Generalia specialibus non derogant.11
In the light of Article 291, aforecited, we agree with the appellate court's conclusion that petitioner's action
for damages due to illegal termination filed again on January 8, 1987 or more than four (4) years after the effective
date of his dismissal on November 1, 1982 has already prescribed.
In the instant case, the action for damages due to illegal termination was filed by plaintiff-appelle only on
January 8, 1987 or more than four (4) years after the effectivity date of his dismissal on November 1, 1982.
Clearly, plaintiff-appellee's action has already prescribed.
We base our conclusion not on Article 1144 of the Civil Code but on which sets the prescription period at three (3)
years and which governs under this jurisdiction.
Petitioner claims that the running of the prescriptive period was tolled when he filed his complaint for illegal
dismissal before the Labor Arbiter of the National Labor Relations Commission. However, this claim deserves scant
consideration; it has no legal leg to stand on. In Olympia International, Inc., vs., Court of Appeals, we 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 the plaintiff leaves in exactly the same position as though no action had
been commenced at all."12
Now, as to whether petitioner's separation from the company due to retrenchment was valid, the appellate court
found that the employment contract of petitioner allowed for pre-termination of employment. We agree with the
Court of Appeals when it said,
It is a settled rule that contracts have the force of law between the parties. From the moment the same is
perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to
all consequences which, according to their nature, may be in keeping with good faith, usage and law. Thus,
when plaintiff-appellee accepted the offer of employment, he was bound by the terms and conditions set
forth in the contract, among others, the right of mutual termination by giving three months written notice or
by payment of three months salary. Such provision is clear and readily understandable, hence, there is no
room for interpretation.
xxx xxx xxx
Further, plaintiff-appellee's contention that he is not bound by the provisions of the Agreement, as he is not a
signatory thereto, deserves no merit. It must be noted that when plaintiff-appellee's employment was
confirmed, he applied for membership with the Singapore Airlines Limited (Pilots) Association, the signatory
to the aforementioned Agreement. As such, plaintiff-appellee is estopped from questioning the legality of the
said agreement or any proviso contained therein.13
Moreover, the records of the present case clearly show that respondent court's decision is amply supported by
evidence and it did not err in its findings, including the reason for the retrenchment:
When defendant-appellant was faced with the world-wide recession of the airline industry resulting in a slow
down in the company's growth particularly in the regional operation (Asian Area) where the Airbus 300
operates. It had no choice but to adopt cost cutting measures, such as cutting down services, number of
frequencies of flights, and reduction of the number of flying points for the A-300 fleet (t.s.n., July 6, 1988, pp.
17-18). As a result, defendant-appellant had to lay off A-300 pilots, including plaintiff-appellee, which it found
to be in excess of what is reasonably needed.14
All these considered, we find sufficient factual and legal basis to conclude that petitioner's termination from
employment was for an authorized cause, for which he was given ample notice and opportunity to be heard, by
respondent company. No error nor grave abuse of discretion, therefore, could be attributed to respondent appellate
court.
1âwphi1.nêt

ACCORDINGLY, the instant petition is DISMISSED. The decision of the Court of Appeals in C.A. CV No. 34476 is
AFFIRMED.
SO ORDERED.
G.R. No. 191247 July 10, 2013
FRANCISCO L. ROSARIO, JR., Petitioner,
vs.
LELLANI DE GUZMAN, ARLEEN DE GUZMAN, PHILIP RYAN DE GUZMAN, and ROSELLA DE
GUZMANBAUTISTA, Respondents.
DECISION
MENDOZA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court seeks to set aside the November 23,
20091 and the February 11, 20102 Orders of the Regional Trial Court, Branch 7, Manila (RTC), in Civil Case No. 89-
50138, entitled "Loreta A. Chong v. Sps. Pedro and Rosita de Guzman," denying the Motion to Determine Attorney's
Fees filed by the petitioner.
The Facts
Sometime in August 1990, Spouses Pedro and Rosita de Guzman (Spouses de Guzman) engaged the legal
services of Atty. Francisco L. Rosario, Jr. (petitioner) as defense counsel in the complaint filed against them by one
Loreta A. Chong (Chong) for annulment of contract and recovery of possession with damages involving a parcel of
land in Parañaque City, covered by Transfer Certificate of Title (TCT) No. 1292, with an area of 266 square meters,
more or less. Petitioner’s legal services commenced from the RTC and ended up in this Court.3 Spouses de
Guzman, represented by petitioner, won their case at all levels. While the case was pending before this Court,
Spouses de Guzman died in a vehicular accident. Thereafter, they were substituted by their children, namely:
Rosella de Guzman-Bautista, Lellani de Guzman, Arleen de Guzman, and Philip Ryan de Guzman (respondents).4
On September 8, 2009, petitioner filed the Motion to Determine Attorney’s Fees5 before the RTC. He alleged, among
others, that he had a verbal agreement with the deceased Spouses de Guzman that he would get 25% of the
market value of the subject land if the complaint filed against them by Chong would be dismissed. Despite the fact
that he had successfully represented them, respondents refused his written demand for payment of the contracted
attorney’s fees. Petitioner insisted that he was entitled to an amount equivalent to 25% percent of the value of the
subject land on the basis of quantum meruit.
On November 23, 2009, the RTC rendered the assailed order denying petitioner’s motion on the ground that it was
filed out of time. The RTC stated that the said motion was filed after the judgment rendered in the subject case, as
affirmed by this Court, had long become final and executory on October 31, 2007. The RTC wrote that considering
that the motion was filed too late, it had already lost jurisdiction over the case because a final decision could not be
amended or corrected except for clerical errors or mistakes. There would be a variance of the judgment rendered if
his claim for attorney’s fees would still be included.
Petitioner filed a motion for reconsideration, but it was denied by the RTC for lack of merit. Hence, this petition.
The Issues
This petition is anchored on the following grounds:
I
THE TRIAL COURT COMMITTED A REVERSIBLE ERROR IN DENYING THE MOTION TO DETERMINE
ATTORNEY’S FEES ON THE GROUND THAT IT LOST JURISDICTION OVER THE CASE SINCE THE
JUDGMENT IN THE CASE HAS BECOME FINAL AND EXECUTORY;
II
THE TRIAL COURT SERIOUSLY ERRED IN DECLARING THAT PETITIONER’S CLAIM FOR ATTORNEY’S FEES
WOULD RESULT IN A VARIANCE OF THE JUDGMENT THAT HAS LONG BECOME FINAL AND EXECUTORY;
III
THE TRIAL COURT ERRED IN NOT DECLARING THAT THE FINALITY OF THE DECISION DID NOT BAR
PETITIONER FROM FILING THE MOTION TO RECOVER HIS ATTORNEY’S FEES.6
Petitioner claims that Spouses de Guzman engaged his legal services and orally agreed to pay him 25% of the
market value of the subject land. He argues that a motion to recover attorney’s fees can be filed and entertained by
the court before and after the judgment becomes final.
Moreover, his oral contract with the deceased spouses can be considered a quasi-contract upon which an action
can be commenced within six (6) years, pursuant to Article 1145 of the Civil Code. Because his motion was filed on
September 8, 2009, he insists that it was not yet barred by prescription.7
For their part, respondents counter that the motion was belatedly filed and, as such, it could no longer be granted. In
addition, the RTC had already resolved the issue when it awarded the amount of ₱10,000.00 as attorney’s fees.
Respondents further assert that the law, specifically Article 2208 of the Civil Code, allows the recovery of attorney’s
fees under a written agreement. The alleged understanding between their deceased parents and petitioner,
however, was never put in writing. They also aver that they did not have any knowledge or information about the
existence of an oral contract, contrary to petitioner’s claims. At any rate, the respondents believe that the amount of
25% of the market value of the lot is excessive and unconscionable.8
The Court’s Ruling
Preliminarily, the Court notes that the petitioner filed this petition for review on certiorari under Rule 45 of the Rules
of Court because of the denial of his motion to determine attorney’s fees by the RTC. Apparently, the petitioner
pursued the wrong remedy. Instead of a petition for review under Rule 45, he should have filed a petition for
certiorari under Rule 65 because this case involves an error of jurisdiction or grave abuse of discretion on the part of
the trial court.
Moreover, petitioner violated the doctrine of hierarchy of courts which prohibits direct resort to this Court unless the
appropriate remedy cannot be obtained in the lower tribunals. 9 In this case, petitioner should have first elevated the
case to the Court of Appeals (CA) which has concurrent jurisdiction, together with this Court, over special civil
actions for certiorari.10 Even so, this principle is not absolute and admits of certain exceptions, such as in this case,
when it is demanded by the broader interest of justice.11
Indeed, on several occasions, this Court has allowed a petition to prosper despite the utilization of an improper
remedy with the reasoning that the inflexibility or rigidity of the application of the rules of procedure must give way to
serve the higher ends of justice. The strict application of procedural technicalities should not hinder the speedy
disposition of the case on the merits.12 Thus, this Court deems it expedient to consider this petition as having been
filed under Rule 65.
With respect to the merits of the case, the Court finds in favor of petitioner.
In order to resolve the issues in this case, it is necessary to discuss the two concepts of attorney’s fees – ordinary
and extraordinary. In its ordinary sense, it is the reasonable compensation paid to a lawyer by his client for legal
services rendered. In its extraordinary concept, it is awarded by the court to the successful litigant to be paid by the
losing party as indemnity for damages.13 Although both concepts are similar in some respects, they differ from each
other, as further explained below:
The attorney’s fee which a court may, in proper cases, award to a winning litigant is, strictly speaking, an item of
damages. It differs from that which a client pays his counsel for the latter’s professional services. However, the two
concepts have many things in common that a treatment of the subject is necessary. The award that the court may
grant to a successful party by way of attorney’s fee is an indemnity for damages sustained by him in prosecuting or
defending, through counsel, his cause in court. It may be decreed in favor of the party, not his lawyer, in any of the
instances authorized by law. On the other hand, the attorney’s fee which a client pays his counsel refers to the
compensation for the latter’s services. The losing party against whom damages by way of attorney’s fees may be
assessed is not bound by, nor is his liability dependent upon, the fee arrangement of the prevailing party with his
lawyer. The amount stipulated in such fee arrangement may, however, be taken into account by the court in fixing
the amount of counsel fees as an element of damages.
The fee as an item of damages belongs to the party litigant and not to his lawyer. It forms part of his judgment
recoveries against the losing party. The client and his lawyer may, however, agree that whatever attorney’s fee as an
element of damages the court may award shall pertain to the lawyer as his compensation or as part thereof. In such
a case, the court upon proper motion may require the losing party to pay such fee directly to the lawyer of the
prevailing party.
The two concepts of attorney’s fees are similar in other respects. They both require, as a prerequisite to their grant,
the intervention of or the rendition of professional services by a lawyer. As a client may not be held liable for counsel
fees in favor of his lawyer who never rendered services, so too may a party be not held liable for attorney’s fees as
damages in favor of the winning party who enforced his rights without the assistance of counsel. Moreover, both
fees are subject to judicial control and modification. And the rules governing the determination of their reasonable
amount are applicable in one as in the other.14 [Emphasis and underscoring supplied]
In the case at bench, the attorney’s fees being claimed by the petitioner refers to the compensation for professional
services rendered, and not as indemnity for damages. He is demanding payment from respondents for having
successfully handled the civil case filed by Chong against Spouses de Guzman. The award of attorney’s fees by the
RTC in the amount of ₱10,000.00 in favor of Spouses de Guzman, which was subsequently affirmed by the CA and
this Court, is of no moment. The said award, made in its extraordinary concept as indemnity for damages, forms part
of the judgment recoverable against the losing party and is to be paid directly to Spouses de Guzman (substituted
by respondents) and not to petitioner. Thus, to grant petitioner’s motion to determine attorney’s fees would not result
in a double award of attorney’s fees. And, contrary to the RTC ruling, there would be no amendment of a final and
executory decision or variance in judgment.
The Court now addresses two (2) important questions: (1) How can attorney’s fees for professional services be
recovered? (2) When can an action for attorney’s fees for professional services be filed? The case of Traders Royal
Bank Employees Union-Independent v. NLRC15 is instructive:
As an adjunctive episode of the action for the recovery of bonus differentials in NLRC-NCR Certified Case No. 0466,
private respondent’s present claim for attorney’s fees may be filed before the NLRC even though or, better stated,
especially after its earlier decision had been reviewed and partially affirmed. It is well settled that a claim for
attorney’s fees may be asserted either in the very action in which the services of a lawyer had been rendered or in a
separate action.
With respect to the first situation, the remedy for recovering attorney’s fees as an incident of the main action may be
availed of only when something is due to the client. Attorney’s fees cannot be determined until after the main
litigation has been decided and the subject of the recovery is at the disposition of the court. The issue over
attorney’s fees only arises when something has been recovered from which the fee is to be paid.
While a claim for attorney’s fees may be filed before the judgment is rendered, the determination as to the propriety
of the fees or as to the amount thereof will have to be held in abeyance until the main case from which the lawyer’s
claim for attorney’s fees may arise has become final. Otherwise, the determination to be made by the courts will be
premature. Of course, a petition for attorney’s fees may be filed before the judgment in favor of the client is satisfied
or the proceeds thereof delivered to the client.
It is apparent from the foregoing discussion that a lawyer has two options as to when to file his claim for professional
fees. Hence, private respondent was well within his rights when he made his claim and waited for the finality of the
judgment for holiday pay differential, instead of filing it ahead of the award’s complete resolution. To declare that a
lawyer may file a claim for fees in the same action only before the judgment is reviewed by a higher tribunal would
deprive him of his aforestated options and render ineffective the foregoing pronouncements of this Court.
[Emphases and underscoring supplied]
In this case, petitioner opted to file his claim as an incident in the main action, which is permitted by the rules. As to
the timeliness of the filing, this Court holds that the questioned motion to determine attorney’s fees was seasonably
filed.
The records show that the August 8, 1994 RTC decision became final and executory on October 31, 2007. There is 1âwphi1

no dispute that petitioner filed his Motion to Determine Attorney’s Fees on September 8, 2009, which was only about
one (1) year and eleven (11) months from the finality of the RTC decision. Because petitioner claims to have had an
oral contract of attorney’s fees with the deceased spouses, Article 1145 of the Civil Code16 allows him a period of six
(6) years within which to file an action to recover professional fees for services rendered. Respondents never
asserted or provided any evidence that Spouses de Guzman refused petitioner’s legal representation. For this
reason, petitioner’s cause of action began to run only from the time the respondents refused to pay him his
attorney’s fees, as similarly held in the case of Anido v. Negado:17
In the case at bar, private respondent’s allegation in the complaint that petitioners refused to sign the contract for
legal services in October 1978, and his filing of the complaint only on November 23, 1987 or more than nine years
after his cause of action arising from the breach of the oral contract between him and petitioners point to the
conclusion that the six-year prescriptive period within which to file an action based on such oral contract under
Article 1145 of the Civil Code had already lapsed.
As a lawyer, private respondent should have known that he only had six years from the time petitioners refused to
sign the contract for legal services and to acknowledge that they had engaged his services for the settlement of their
parents’ estate within which to file his complaint for collection of legal fees for the services which he rendered in their
favor. [Emphases supplied]
At this juncture, having established that petitioner is entitled to attorney’s fees and that he filed his claim well within
the prescribed period, the proper remedy is to remand the case to the RTC for the determination of the correct
amount of attorney’s fees. Such a procedural route, however, would only contribute to the delay of the final
disposition of the controversy as any ruling by the trial court on the matter would still be open for questioning before
the CA and this Court. In the interest of justice, this Court deems it prudent to suspend the rules and simply resolve
the matter at this level. The Court has previously exercised its discretion in the same way in National Power
Corporation v. Heirs of Macabangkit Sangkay:18
In the event of a dispute as to the amount of fees between the attorney and his client, and the intervention of the
courts is sought, the determination requires that there be evidence to prove the amount of fees and the extent and
value of the services rendered, taking into account the facts determinative thereof. Ordinarily, therefore, the
determination of the attorney’s fees on quantum meruit is remanded to the lower court for the purpose. However, it
will be just and equitable to now assess and fix the attorney’s fees of both attorneys in order that the resolution of "a
comparatively simple controversy," as Justice Regalado put it in Traders Royal Bank Employees Union-Independent
v. NLRC, would not be needlessly prolonged, by taking into due consideration the accepted guidelines and so much
of the pertinent data as are extant in the records.19 [Emphasis supplied]
With respect to petitioner’s entitlement to the claimed attorney’s fees, it is the Court’s considered view that he is
deserving of it and that the amount should be based on quantum meruit.
Quantum meruit – literally meaning as much as he deserves – is used as basis for determining an attorney’s
professional fees in the absence of an express agreement. The recovery of attorney’s fees on the basis of quantum
meruit is a device that prevents an unscrupulous client from running away with the fruits of the legal services of
counsel without paying for it and also avoids unjust enrichment on the part of the attorney himself. An attorney must
show that he is entitled to reasonable compensation for the effort in pursuing the client’s cause, taking into account
certain factors in fixing the amount of legal fees.20
Rule 20.01 of the Code of Professional Responsibility lists the guidelines for determining the proper amount of
attorney fees, to wit:
Rule 20.1 – A lawyer shall be guided by the following factors in determining his fees:
a) The time spent and the extent of the services rendered or required;
b) The novelty and difficulty of the questions involved;
 c) The importance of the subject matter;
d) The skill demanded;
e) The probability of losing other employment as a result of acceptance of the proffered case;
f) The customary charges for similar services and the schedule of fees of the IBP chapter to which he
belongs;
g) The amount involved in the controversy and the benefits resulting to the client from the service;
h) The contingency or certainty of compensation;
i) The character of the employment, whether occasional or established; and
j) The professional standing of the lawyer.
Petitioner unquestionably rendered legal services for respondents’ deceased parents in the civil case for annulment
of contract and recovery of possession with damages. He successfully represented Spouses de Guzman from the
trial court level in 1990 up to this Court in 2007, for a lengthy period of 17 years. After their tragic death in 2003,
petitioner filed a notice of death and a motion for substitution of parties with entry of appearance and motion to
resolve the case before this Court.21 As a consequence of his efforts, the respondents were substituted in the place
of their parents and were benefited by the favorable outcome of the case.
As earlier mentioned, petitioner served as defense counsel for deceased Spouses de Guzman and respondents for
almost seventeen (17) years. The Court is certain that it was not an easy task for petitioner to defend his clients’
cause for such a long period of time, considering the heavy and demanding legal workload of petitioner which
included the research and preparation of pleadings, the gathering of documentary proof, the court appearances, and
the various legal work necessary to the defense of Spouses de Guzman. It cannot be denied that petitioner devoted
much time and energy in handling the case for respondents. Given the considerable amount of time spent, the
diligent effort exerted by petitioner, and the quality of work shown by him in ensuring the successful defense of his
clients, petitioner clearly deserves to be awarded reasonable attorney’s fees for services rendered. Justice and
equity dictate that petitioner be paid his professional fee based on quantum meruit.
The fact that the practice of law is not a business and the attorney plays a vital role in the administration of justice
underscores the need to secure him his honorarium lawfully earned as a means to preserve the decorum and
respectability of the legal profession. A lawyer is as much entitled to judicial protection against injustice, imposition
or fraud on the part of his client as the client against abuse on the part of his counsel. The duty of the court is not
alone to see that a lawyer acts in a proper and lawful manner; it is also its duty to see that a lawyer is paid his just
fees. With his capital consisting of his brains and with his skill acquired at tremendous cost not only in money but in
expenditure of time and energy, he is entitled to the protection of any judicial tribunal against any attempt on the part
of his client to escape payment of his just compensation. It would be ironic if after putting forth the best in him to
secure justice for his client he himself would not get his due.22
The Court, however, is resistant in granting petitioner's prayer for an award of 25% attorney's fees based on the
value of the property subject of litigation because petitioner failed to clearly substantiate the details of his oral
agreement with Spouses de Guzman. A fair and reasonable amount of attorney's fees should be 15% of the market
value of the property.
WHEREFORE, the petition is GRANTED. Accordingly, the Court grants the Motion to Determine Attorney's Fees
filed by petitioner Atty. Francisco L. Rosario, Jr. Based on quantum meruit, the amount of attorney's fees is at the
rate of 15% of the market value of the parcel of land, covered by Transfer Certificate of Title No. 1292, at the time of
payment.
SO ORDERED.
G.R. No. 159213 July 3, 2013
VECTOR SHIPPING CORPORATION and FRANCISCO SORIANO, Petitioners,
vs.
AMERICAN HOME ASSURANCE COMPANY and SULPICIO LINES, INC., Respondents.
DECISION
BERSAMIN, J.:
Subrogation under Article 2207 of the Civil Code gives rise to a cause of action created by law. For purposes of the
law on the prescription of actions, the period of limitation is ten years.
The Case
Vector Shipping Corporation (Vector) and Francisco Soriano appeal the decision promulgated on July 22,
2003,1 whereby the Court of Appeals (CA) held them jointly and severally liable to pay ₱7 ,455,421.08 to American
Home Assurance Company (respondent) as and by way of actual damages on the basis of respondent being the
subrogee of its insured Caltex Philippines, Inc. (Caltex).
Antecedents
Vector was the operator of the motor tanker M/T Vector, while Soriano was the registered owner of the M/T Vector.
Respondent is a domestic insurance corporation.2
On September 30, 1987, Caltex entered into a contract of Affreightment3 with Vector for the transport of Caltex’s
petroleum cargo through the M/T Vector. Caltex insured the petroleum cargo with respondent for ₱7,455,421.08
under Marine Open Policy No. 34-5093-6.4 In the evening of December 20, 1987, the M/T Vector and the M/V Doña
Paz, the latter a vessel owned and operated by Sulpicio Lines, Inc., collided in the open sea near Dumali Point in
Tablas Strait, located between the Provinces of Marinduque and Oriental Mindoro. The collision led to the sinking of
both vessels. The entire petroleum cargo of Caltex on board the M/T Vector perished. 5 On July 12, 1988, respondent
indemnified Caltex for the loss of the petroleum cargo in the full amount of ₱7,455,421.08.6
On March 5, 1992, respondent filed a complaint against Vector, Soriano, and Sulpicio Lines, Inc. to recover the full
amount of ₱7,455,421.08 it paid to Caltex (Civil Case No. 92-620).7 The case was raffled to Branch 145 of the
Regional Trial Court (RTC) in Makati City.
On December 10, 1997, the RTC issued a resolution dismissing Civil Case No. 92-620 on the following grounds:
This action is upon a quasi-delict and as such must be commenced within four 4 years from the day they may be
brought. [Art. 1145 in relation to Art. 1150, Civil Code] "From the day [the action] may be brought" means from the
day the quasi-delict occurred. [Capuno v. Pepsi Cola, 13 SCRA 663]
The tort complained of in this case occurred on 20 December 1987. The action arising therefrom would under the
law prescribe, unless interrupted, on 20 December 1991.
When the case was filed against defendants Vector Shipping and Francisco Soriano on 5 March 1992, the action
not having been interrupted, had already prescribed.
Under the same situation, the cross-claim of Sulpicio Lines against Vector Shipping and Francisco Soriano filed on
25 June 1992 had likewise prescribed.
The letter of demand upon defendant Sulpicio Lines allegedly on 6 November 1991 did not interrupt the tolling of the
prescriptive period since there is no evidence that it was actually received by the addressee. Under such
circumstances, the action against Sulpicio Lines had likewise prescribed.
Even assuming that such written extra-judicial demand was received and the prescriptive period interrupted in
accordance with Art. 1155, Civil Code, it was only for the 10-day period within which Sulpicio Lines was required to
settle its obligation. After that period lapsed, the prescriptive period started again. A new 4-year period to file action
was not created by the extra-judicial demand; it merely suspended and extended the period for 10 days, which in
this case meant that the action should be commenced by 30 December 1991, rather than 20 December 1991.
Thus, when the complaint against Sulpicio Lines was filed on 5 March 1992, the action had prescribed.
PREMISES CONSIDERED, the complaint of American Home Assurance Company and the cross-claim of Sulpicio
Lines against Vector Shipping Corporation and Francisco Soriano are DISMISSED.
Without costs.
SO ORDERED.8
Respondent appealed to the CA, which promulgated its assailed decision on July 22, 2003 reversing the
RTC.9 Although thereby absolving Sulpicio Lines, Inc. of any liability to respondent, the CA held Vector and Soriano
jointly and severally liable to respondent for the reimbursement of the amount of ₱7,455,421.08 paid to Caltex,
explaining:
xxxx
The resolution of this case is primarily anchored on the determination of what kind of relationship existed between
Caltex and M/V Dona Paz and between Caltex and M/T Vector for purposes of applying the laws on prescription.
The Civil Code expressly provides for the number of years before the extinctive prescription sets in depending on
the relationship that governs the parties.
xxxx
After a careful perusal of the factual milieu and the evidence adduced by the parties, We are constrained to rule that
the relationship that existed between Caltex and M/V Dona Paz is that of a quasi-delict while that between Caltex
and M/T Vector is culpa contractual based on a Contract of Affreightment or a charter party.
xxxx
On the other hand, the claim of appellant against M/T Vector is anchored on a breach of contract of affreightment.
The appellant averred that M/T Vector committed such act for having misrepresented to the appellant that said
vessel is seaworthy when in fact it is not. The contract was executed between Caltex and M/T Vector on September
30, 1987 for the latter to transport thousands of barrels of different petroleum products. Under Article 1144 of the
New Civil Code, actions based on written contract must be brought within 10 years from the time the right of action
accrued. A passenger of a ship, or his heirs, can bring an action based on culpa contractual within a period of 10
years because the ticket issued for the transportation is by itself a complete written contract (Peralta de Guerrero vs.
Madrigal Shipping Co., L 12951, November 17, 1959).
Viewed with reference to the statute of limitations, an action against a carrier, whether of goods or of passengers, for
injury resulting from a breach of contract for safe carriage is one on contract, and not in tort, and is therefore, in the
absence of a specific statute relating to such actions governed by the statute fixing the period within which actions
for breach of contract must be brought (53 C.J.S. 1002 citing Southern Pac. R. Co. of Mexico vs. Gonzales 61 P. 2d
377, 48 Ariz. 260, 106 A.L.R. 1012).
Considering that We have already concluded that the prescriptive periods for filing action against M/V Doña Paz
based on quasi delict and M/T Vector based on breach of contract have not yet expired, are We in a position to
decide the appeal on its merit.
We say yes.
xxxx
Article 2207 of the Civil Code on subrogation is explicit that 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 should be subrogated to the rights of the insured against the wrongdoer or
the person who has violated the contract. Undoubtedly, the herein appellant has the rights of a subrogee to recover
from M/T Vector what it has paid by way of indemnity to Caltex.
WHEREFORE, foregoing premises considered, the decision dated December 10, 1997 of the RTC of Makati City,
Branch 145 is hereby REVERSED. Accordingly, the defendant-appellees Vector Shipping Corporation and
Francisco Soriano are held jointly and severally liable to the plaintiff-appellant American Home Assurance Company
for the payment of ₱7,455,421.08 as and by way of actual damages.
SO ORDERED.10
Respondent sought the partial reconsideration of the decision of the CA, contending that Sulpicio Lines, Inc. should
also be held jointly liable with Vector and Soriano for the actual damages awarded. 11 On their part, however, Vector
and Soriano immediately appealed to the Court on September 12, 2003.12 Thus, on October 1, 2003, the CA held in
abeyance its action on respondent’s partial motion for reconsideration pursuant to its internal rules until the Court
has resolved this appeal.13
Issues
The main issue is whether this action of respondent was already barred by prescription for bringing it only on March
5, 1992. A related issue concerns the proper determination of the nature of the cause of action as arising either from
a quasi-delict or a breach of contract.
The Court will not pass upon whether or not Sulpicio Lines, Inc. should also be held jointly liable with Vector and
Soriano for the actual damages claimed.
Ruling
The petition lacks merit.
Vector and Soriano posit that the RTC correctly dismissed respondent’s complaint on the ground of prescription.
They insist that this action was premised on a quasi-delict or upon an injury to the rights of the plaintiff, which,
pursuant to Article 1146 of the Civil Code, must be instituted within four years from the time the cause of action
accrued; that because respondent’s cause of action accrued on December 20, 1987, the date of the collision,
respondent had only four years, or until December 20, 1991, within which to bring its action, but its complaint was
filed only on March 5, 1992, thereby rendering its action already barred for being commenced beyond the four-year
prescriptive period;14 and that there was no showing that respondent had made extrajudicial written demands upon
them for the reimbursement of the insurance proceeds as to interrupt the running of the prescriptive period.15
We concur with the CA’s ruling that respondent’s action did not yet prescribe. The legal provision governing this
case was not Article 1146 of the Civil Code,16 but Article 1144 of the Civil Code, which states:
Article 1144. The following actions must be brought within ten years from the time the cause of action accrues:
(1)Upon a written contract;
(2)Upon an obligation created by law;
(3)Upon a judgment.
We need to clarify, however, that we cannot adopt the CA’s characterization of the cause of action as based on the
contract of affreightment between Caltex and Vector, with the breach of contract being the failure of Vector to make
the M/T Vector seaworthy, as to make this action come under Article 1144 (1), supra. Instead, we find and hold that
that the present action was not upon a written contract, but upon an obligation created by law. Hence, it came under
Article 1144 (2) of the Civil Code. This is because the subrogation of respondent to the rights of Caltex as the
insured was by virtue of the express provision of law embodied in Article 2207 of the Civil Code, to wit:
Article 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. If the
amount paid by the insurance company does not fully cover the injury or loss, the aggrieved party shall be entitled to
recover the deficiency from the person causing the loss or injury. (Emphasis supplied)
The juridical situation arising under Article 2207 of the Civil Code is well explained in Pan Malayan Insurance
Corporation v. Court of Appeals,17 as follows:
Article 2207 of the Civil Code is founded on the well-settled principle of subrogation. If the insured property is
1âwphi1

destroyed or damaged through the fault or negligence of a party other than the assured, then the insurer, upon
payment to the assured, will be subrogated to the rights of the assured to recover from the wrongdoer to the extent
that the insurer has been obligated to pay. Payment by the insurer to the assured operates as an equitable
assignment to the former of all remedies which the latter may have against the third party whose negligence or
wrongful act caused the loss. The right of subrogation is not dependent upon, nor does it grow out of, any privity of
1âwphi1

contract or upon written assignment of claim. It accrues simply upon payment of the insurance claim by the insurer
[Compania Maritima v. Insurance Company of North America, G.R. No. L-18965, October 30, 1964, 12 SCRA 213;
Fireman’s Fund Insurance Company v. Jamilla & Company, Inc., G.R. No. L-27427, April 7, 1976, 70 SCRA 323].18
Verily, the contract of affreightment that Caltex and Vector entered into did not give rise to the legal obligation of
Vector and Soriano to pay the demand for reimbursement by respondent because it concerned only the agreement
for the transport of Caltex’s petroleum cargo. As the Court has aptly put it in Pan Malayan Insurance Corporation v.
Court of Appeals, supra, respondent’s right of subrogation pursuant to Article 2207, supra, was "not dependent
upon, nor did it grow out of, any privity of contract or upon written assignment of claim but accrued simply upon
payment of the insurance claim by the insurer."
Considering that the cause of action accrued as of the time respondent actually indemnified Caltex in the amount of
₱7,455,421.08 on July 12, 1988,19 the action was not yet barred by the time of the filing of its complaint on March 5,
1992,20 which was well within the 10-year period prescribed by Article 1144 of the Civil Code.
The insistence by Vector and Soriano that the running of the prescriptive period was not interrupted because of the
failure of respondent to serve any extrajudicial demand was rendered inconsequential by our foregoing finding that
respondent’s cause of action was not based on a quasi-delict that prescribed in four years from the date of the
collision on December 20, 1987, as the RTC misappreciated, but on an obligation created by law, for which the law
fixed a longer prescriptive period of ten years from the accrual of the action.
Still, Vector and Soriano assert that respondent had no right of subrogation to begin with, because the complaint did
not allege that respondent had actually paid Caltex for the loss of the cargo. They further assert that the subrogation
receipt submitted by respondent was inadmissible for not being properly identified by Ricardo C. Ongpauco,
respondent’s witness, who, although supposed to identify the subrogation receipt based on his affidavit, was not
called to testify in court; and that respondent presented only one witness in the person of Teresita Espiritu, who
identified Marine Open Policy No. 34-5093-6 issued by respondent to Caltex.21
We disagree with petitioners’ assertions. It is undeniable that respondent preponderantly established its right of
subrogation. Its Exhibit C was Marine Open Policy No. 34-5093-6 that it had issued to Caltex to insure the petroleum
cargo against marine peril.22 Its Exhibit D was the formal written claim of Caltex for the payment of the insurance
coverage of ₱7,455,421.08 coursed through respondent’s adjuster.23 Its Exhibits E to H were marine documents
relating to the perished cargo on board the M/V Vector that were processed for the purpose of verifying the
insurance claim of Caltex.24 Its Exhibit I was the subrogation receipt dated July 12, 1988 showing that respondent
paid Caltex ₱7,455,421.00 as the full settlement of Caltex’s claim under Marine Open Policy No. 34-5093-6. 25 All
these exhibits were unquestionably duly presented, marked, and admitted during the trial. 26 Specifically, Exhibit C
was admitted as an authentic copy of Marine Open Policy No. 34-5093-6, while Exhibits D, E, F, G, H and I,
inclusive, were admitted as parts of the testimony of respondent’s witness Efren Villanueva, the manager for the
adjustment service of the Manila Adjusters and Surveyors Company.27
Consistent with the pertinent law and jurisprudence, therefore, Exhibit I was already enough by itself to prove the
payment of ₱7,455,421.00 as the full settlement of Caltex’s claim. 28 The payment made to Caltex as the insured
being thereby duly documented, respondent became subrogated as a matter of course pursuant to Article 2207 of
the Civil Code. In legal contemplation, subrogation is the "substitution of another person in the place of the creditor,
to whose rights he succeeds in relation to the debt;" and is "independent of any mere contractual relations between
the parties to be affected by it, and is broad enough to cover every instance in which one party is required to pay a
debt for which another is primarily answerable, and which in equity and conscience ought to be discharged by the
latter."29
Lastly, Vector and Soriano argue that Caltex waived and abandoned its claim by not setting up a cross-claim against
them in Civil Case No. 18735, the suit that Sulpicio Lines, Inc. had brought to claim damages for the loss of the M/V
Doña Paz from them, Oriental Assurance Company (as insurer of the M/T Vector), and Caltex; that such failure to
set up its cross- claim on the part of Caltex, the real party in interest who had suffered the loss, left respondent
without any better right than Caltex, its insured, to recover anything from them, and forever barred Caltex from
asserting any claim against them for the loss of the cargo; and that respondent was similarly barred from asserting
its present claim due to its being merely the successor-in-interest of Caltex.
The argument of Vector and Soriano would have substance and merit had Civil Case No. 18735 and this case
involved the same parties and litigated the same rights and obligations. But the two actions were separate from and
independent of each other. Civil Case No. 18735 was instituted by Sulpicio Lines, Inc. to recover damages for the
loss of its M/V Doña Paz. In contrast, this action was brought by respondent to recover from Vector and Soriano
whatever it had paid to Caltex under its marine insurance policy on the basis of its right of subrogation. With the
clear variance between the two actions, the failure to set up the cross-claim against them in Civil Case No. 18735 is
no reason to bar this action.
WHEREFORE, the Court DENIES the petition for review on certiorari; AFFIRMS the decision promulgated on July
22, 2003; and ORDERS petitioners to pay the costs of suit.
SO ORDERED.
G.R. No. 182937 August 8, 2010
ERNESTO VILLEZA, Petitioner,
vs.
GERMAN MANAGEMENT AND SERVICES, INC., DOMINGO RENE JOSE, PIO DIOKNO, SESINANDO
FAJARDO, BAYANI OLIPINO, ROLANDO ROMILO and JOHN DOES, Respondents.
DECISION
MENDOZA, J.:
This petition sprouted from an earlier Supreme Court ruling in German Management v. Court of Appeals,1 G.R. Nos.
72616-76217, September 14, 1989, which has already become final and executory. The decision, however, remains
unenforced due to the prevailing party’s own inaction. This petition, therefore, is the struggle of a victor trying to
retrieve the prize once won.
It appears that German Management v. Court of Appeals stemmed from a forcible entry case instituted by petitioner
Ernesto Villeza against respondent German Management, the authorized developer of the landowners, before the
Metropolitan Trial Court of Antipolo City (MeTC). The Decision of this Court favoring the petitioner became final and
executory on October 5, 1989.2 In ruling against German Management, We wrote:
Although admittedly, petitioner may validly claim ownership based on the muniments of title it presented, such
evidence does not responsively address the issue of prior actual possession raised in a forcible entry case. It must
be stated that regardless of the actual condition of the title to the property, the party in peaceable quiet possession
shall not be turned out by a strong hand, violence or terror. Thus, a party who can prove prior possession, can
recover such possession even against the owner himself. Whatever may be the character of his prior possession if
he has in his favor priority in time, he has the security that entitles him to remain on the property until he is lawfully
ejected by a person having a better right by accion publiciana or accion reinvindicatoria.3
On May 27, 1991, the petitioner filed a Motion for Issuance of Writ of Execution with the MeTC. On February 27,
1992, he filed a Motion to Defer Resolution4 thereon because "he was permanently assigned in Iloilo and it would
take quite sometime before he could come back." On February 28, 1992, the MeTC issued an order holding in
abeyance the resolution of his motion to issue writ of execution until his return. Three years later, as there was no
further movement, the said court issued an order dated January 9, 1995 denying petitioner’s pending Motion for
Issuance of Writ of Execution for lack of interest.
More than three (3) years had passed before petitioner filed a Motion for Reconsideration dated May 29, 1998
alleging that he had retired from his job in Iloilo City and was still interested in the issuance of the writ. On October
8, 1998, the MeTC issued a writ of execution.
As the sheriff was implementing the writ, an Opposition with Motion to Quash Writ of Execution was filed by German
Management and Services, Inc. On June 3, 1999, an order was handed down granting the motion to quash the writ
of execution issued. Pertinently, the said Order reads:
Considering the provision of Section 6, Rule 39 of the 1997 Rules of Civil Procedure, after the lapse of five years
from the date of entry, judgment may no longer be enforced by way of motion but by independent action.5
On October 3, 2000, Villeza filed with the MeTC a Complaint for Revival of Judgment of the Decision of the
Supreme Court dated September 14, 1989.
Respondent German Management moved to dismiss the complaint. It alleged that it had been more than 10 years
from the time the right of action accrued, that is, from October 5, 1989, the date of the finality of the Court's decision
to October 3, 2000, the date of the filing of the complaint for its revival. It further argued that, pursuant to Section 6,
Rule 39 of the Rules of Court in relation to Article 1144 of the Civil Code, the complaint is now barred by the statute
of limitations.
On March 29, 2001, the MeTC granted the motion to dismiss reasoning that Article 1144 of the Civil Code was
categorical that an action to enforce a judgment must be brought within ten years from the time such right accrues.
Since it had been almost 11 years from the time the 1989 Court’s decision became final and executory, the action to
revive it was barred.
Aggrieved, petitioner Villeza appealed the decision to the Regional Trial Court (RTC) which affirmed in toto the
MeTC order of dismissal in its April 24, 2004 Decision.
Petitioner Villeza elevated the case to the Court of Appeals (CA) arguing that the 10-year prescriptive period was
tolled by the suspension granted him by the MeTC of Antipolo pursuant to his request to hold in abeyance the
issuance of the writ of execution. He claimed that he could not be considered to have slept on his rights as he filed
the necessary action to enforce the final decision. Nevertheless, the CA ruled against him. Thus:
Petitioner's claim that the prescriptive period should be deemed interrupted by the grant of his move to defer action
on the motion to execute cannot be countenanced. While there had been many instances where the Hon. Supreme
Court allowed execution by motion even after the lapse of five years, said exceptions were occasioned by delay
attributed to the judgment debtor. In the case at bar, the delay in the excution of the judgment is attributable to the
petitioner, the party in whose favor judgment was issued.
xxxx
WHEREFORE, in view of the foregoing, the petition is DENIED. The decision appealed from is hereby AFFIRMED.6
Hence, this Petition for Review on Certiorari under Rule 45 of the Rules of Court.
Petitioner Villeza reiterates his argument that he never slept on his right as he pursued several remedies. Still, he
insists that the interruption or suspension granted by the MeTC must be considered in computing the period
because it has the effect of tolling or stopping the counting of the
period for execution.7 Besides, the Court has in the past provided several exceptions affording extension of the
prescriptive period. Thus, he averred: "It is revolting to the conscience to allow respondents to further avert the
satisfaction of its obligation because of the sheer literal adherence to technicality."8
The Court finds no merit in this petition.
An action for revival of judgment is governed by Article 1144 (3), Article 1152 of the Civil Code and Section 6, Rule
39 of the Rules of Court. Thus,
Art. 1144. The following actions must be brought within ten years from the time the right of action accrues:
xxxx
(3) Upon a judgment
Article 1152 of the Civil Code states:
Art. 1152. The period for prescription of actions to demand the fulfillment of obligations declared by a judgment
commences from the time the judgment became final.
Apropos, Section 6, Rule 39 of the Rules of Court reads:
Sec. 6. Execution by motion or by independent action. –A final and executory judgment or order may be executed
on motion within five (5) years from the date of its entry. After the lapse of such time, and before it is barred by
the statute of limitations, a judgment may be enforced by action. The revived judgment may also be enforced by
motion within five (5) years from the date of its entry and thereafter by action before it is barred by the statute of
limitations. (emphasis supplied)
The rules are clear. Once a judgment becomes final and executory, the prevailing party can have it executed as a
matter of right by mere motion within five years from the date of entry of judgment. If the prevailing party fails to
have the decision enforced by a motion after the lapse of five years, the said judgment is reduced to a right of action
which must be enforced by the institution of a complaint in a regular court within ten years from the time the
judgment becomes final.
When petitioner Villeza filed the complaint for revival of judgment on October 3, 2000, it had already been eleven
(11) years from the finality of the judgment he sought to revive. Clearly, the statute of limitations had set in.
Petitioner Villeza, however, wants this Court to agree with him that the abeyance granted to him by the lower court
tolled the running of the prescriptive period. He even cited cases allowing exceptions to the general rule. The Court,
nevertheless, is not persuaded. The cited cases are, in fact, not applicable to him, despite his endeavor to tailor
them to fit in to his position. The same cases lamentably betray him.
Republic v. Court of Appeals9 deals with the stay of the period due to the acts of the losing party. It was impossible
for the winning party to have sought the execution of the judgment because of the dilatory schemes and maneuvers
resorted to by the other party.10
In Torralba v. delos Angeles,11 the running of the period was interrupted when the winning party filed a motion for the
issuance of the writ of execution. The order of ejectment was not carried out, however, due to the judgment debtor’s
begging to withhold the execution of judgment because of financial difficulties.12 The agreement of the parties to
defer or suspend the enforcement of the judgment interrupted the period of prescription.13 1avvphi1

In Casela v. Court of Appeals,14 it was the judgment obligor who moved to suspend the writ of execution. The
judgment obligee was not in delay because he exhausted all legal means within his power to eject the obligor from
his land. The writs of execution issued by the lower court were not complied with and/or were suspended by reason
of acts or causes not of obligee’s own making and against his objections.15
Unlike the cases cited above, the records reveal that it was petitioner Villeza, the prevailing party himself, who
moved to defer the execution of judgment. The losing party never had any hand in the delay of its execution. Neither
did the parties have any agreement on that matter. After the lapse of five years (5) from the finality of judgment,
petitioner Villeza should have instead filed a complaint for its revival in accordance with Section 6, Rule 39 of the
Rules of Court. He, however, filed a motion to execute the same which was a wrong course of action. On the 11th
year, he finally sought its revival but he requested the aid of the courts too late.
The Court has pronounced in a plethora of cases that it is revolting to the conscience to allow someone to further
avert the satisfaction of an obligation because of sheer literal adherence to technicality;16 that although strict
compliance with the rules of procedure is desired, liberal interpretation is warranted in cases where a strict
enforcement of the rules will not serve the ends of justice;17 and that it is a better rule that courts, under the principle
of equity, will not be guided or bound strictly by the statute of limitations or the doctrine of laches when to do so,
manifest wrong or injustice would result.18 These cases, though, remain exceptions to the general rule. The purpose
of the law in prescribing time limitations for enforcing judgment by action is precisely to prevent the winning parties
from sleeping on their rights.19 This Court cannot just set aside the statute of limitations into oblivion every time
someone cries for equity and justice. Indeed, "if eternal vigilance is the price of safety, one cannot sleep on one's
right for more than a 10th of a century and expect it to be preserved in pristine purity."20
WHEREFORE, the May 9, 2008 Decision of the Court of Appeals in CA-GR No. SP No. 84035 is AFFIRMED. SO
ORDERED.
G.R. No. 163271 January 15, 2010
SPOUSES PATRICIO and MYRNA BERNALES, Petitioners,
vs.
HEIRS OF JULIAN SAMBAAN, namely: EMMA S. FELICILDA, ANITA S. SAMBAAN, VIOLETA S. DADSANAN,
ABSALON S. SAMBAAN, AGUSTINE S. SAMBAAN, EDITHA S. MANGUIRAN, GRACE S. NITCHA,
CLODUALDO S. SAMBAAN, GINA S. SAMBAAN and FE S. YAP, Respondents.
DECISION
DEL CASTILLO, J.:
A legal tussle among children is a nightmare for their parents. Sometimes, this happens when pecuniary interests
takes precedence over family relationship. In the instant case, we are at the forefront of a family squabble over a
disputed land situated in Cagayan de Oro City which was purportedly conveyed to the eldest child through a Deed
of Absolute Sale.1
Branch 18 of the Regional Trial Court (RTC) of Misamis Oriental2 rendered judgment in favor of the herein
respondents, which was affirmed in toto by the Court of Appeals3 (CA). Alleging that the CA Decision4 is not in
accordance with law and jurisprudence, as well as the evidence on record, petitioners now come to us via the
instant Petition for Review on Certiorari.5
Factual Antecedents
Julian Sambaan (Julian), married to Guillerma Saarenas-Sambaan (Guillerma), was the registered owner of a
property located at Bulua, Cagayan de Oro City. The lot was covered by Transfer Certificate of Title (TCT) No. T-
142026 issued on March 8, 1972, and more particularly described as follows:
A parcel of land (Lot No. 5947-A of the Subdivision Plan (LRC) Psd-138019, being a portion of Lot No. 5947,
Cagayan Cadastre, LRC Cad. Rec. No. 1572) situated in the Barrio of Bulua, City of Cagayan de Oro, Island of
Mindanao x x x containing an area of THREE THOUSAND SIX HUNDRED FORTY THREE (3,643) SQUARE
METERS, more or less.
The respondents herein and the petitioner Myrna Bernales (Myrna) are the children of Julian and Guillerma. Myrna,
who is the eldest of the siblings, is the present owner and possessor of the property in question.
Sometime in 1975, Julian was ambushed at Merayon, Talakad, Bukidnon, and was hospitalized due to a gunshot
wound. On April 11, 1975, Julian allegedly requested his children to gather so that he could make his last two
wishes. Julian’s first wish was for the children to redeem the subject property which was mortgaged to Myrna and
her husband Patricio Bernales (Patricio), while his second wish was for his remains not to be brought to the house
of Myrna at Nazareth, Cagayan de Oro City. Thus, in 1982, respondent Absalon Sambaan (Absalon), one of Julian’s
children, offered to redeem the property but the petitioners refused because they were allegedly using the property
as tethering place for their cattle.
In January 1991, respondents received information that the property covered by TCT No. T-14202 was already
transferred to petitioners’ name. Whereupon, they secured a copy of the Deed of Absolute Sale dated December 7,
1970 which bore the signatures of their parents and had it examined by the National Bureau of Investigation (NBI).
The result of the examination revealed that the signatures of their parents, Julian and Guillerma, were forged.
Proceedings before the Regional Trial Court
Thus, on April 13, 1993, the respondents, together with their mother Guillerma, filed a Complaint for Annulment of
Deed of Absolute Sale and Cancellation of Transfer Certificate of Title No. T-14204 with Damages and Writ of
Preliminary Injunction7 against herein petitioners. They alleged that in spite of the forged signature of their parents,
the petitioners were able to register the Deed of Absolute Sale with the Registry of Deeds of Cagayan de Oro City
and secure TCT No. T-142048 on March 8, 1972. They prayed for an injunctive relief in order to prevent the
petitioners from selling, disposing, or mortgaging said property. They further prayed that (i) the Deed of Absolute
Sale and TCT No. T-14204 be annulled; (ii) they be declared the absolute owners of the property; (iii) all documents
executed, made and entered into relative to the said title be declared void; and, (iv) the petitioners be ordered to pay
them ₱300,000.00 as moral and exemplary damages, and ₱50,000.00 as attorney’s fees plus ₱1,000.00 as
appearance fee.
On May 6, 1992, petitioners filed their Answer, 9 alleging that the subject property (Lot No. 5947-A) used to be a
portion of Lot No. 5947, which was originally owned by Clodualdo Sambaan (Clodualdo) and Gliceria Dacer
(Gliceria). Lot No. 5947 is more particularly described as follows:
A parcel of land (Lot No. 5947 of the Cadastral Survey of Cagayan) situated at Bulua, Cagayan de Oro City.
Bounded on the NE., by Lot No. 5984 and 5948; E., by Lot Nos. 5948 and 5946, SW., by Lot No. 5946; and on the
NW., by Lot No. 5984, containing an area of 7,286 square meters, more or less, under Tax Declaration No. 21421
and covered by Original Certificate of Title No. 7921 issued on September 23, 1940.
After the death of Clodualdo and Gliceria in 1949, their heirs, namely, Alicia Lago, wife of Pedro Gacusan; Bernardo
Lago (single); Gloria Lago, wife of Jimmy Angco; Dionesia Lago, married to Paulino Unat; Prysbetero Sambaan,
married to Rosario Zaragosa; Juanito Sambaan, married to Renerio Galos; Leo Sambaan, married to Adeloisa
Tambulian; Renato Sambaan, married to Adelina Ablon; Aida Sambaan (single); Julian Sambaan, married to
Guillerma Saarenas; Paz Sambaan, wife of Rufinito Lago; and, Bernie Sambaan, married to Alicia Sabuero,
executed an Extra Judicial Settlement and Sale10 dated April 10, 1970 involving the abovementioned land covered
by Original Certificate of Title (OCT) No. 7921.
It appears, however, that Juanito, Aida and Renato sold their share to a certain Domingo Ebarrat (Ebarrat). Hence, a
portion of the property belonged to Julian while another portion belonged to Ebarrat. In view of the co-ownership
between Ebarrat and Julian, the former and the latter executed a Deed of Partition 11 dated September 8, 1970
whereby Lot No. 5947 was divided. The eastern half with an area of 3,643 square meters was assigned to Julian,
while the western half with the same area went to Ebarrat.
Petitioners claimed that Julian subsequently sold his share to them by virtue of a Deed of Absolute Sale 12 dated
December 7, 1970. The said property is
described as follows:
A Parcel of land (Lot No. 5947-A, being a portion of Lot No. 5947, Cadastral Survey of Cagayan) situated at Bulua,
Cagayan de Oro City. Bounded on the North by Lot Nos. 5947-B and 5948, Cad. 237; South by Lot Nos. 5946, Cad-
237; East by Lot Nos. 5948 and 5946, Cad. 237; and West by Lot No. 5947-B, containing an area of 3643 square
meters, more or less, covered by OCT No. 7921 (now TCT No. T-14202) of the Registry of Deeds of Cagayan de
Oro City.
Thereafter, on December 10, 1970, Ebarrat and Patricio executed an Agreement13 wherein Ebarrat acknowledged
that petitioners are the owners of the 18 coconut trees planted in Ebarrat’s property and even made Julian as a
witness to the said Agreement.
In addition, petitioners alleged that the imputation of falsification of the signatures of Julian and Guillerma is a
product of respondents’ inflamed imagination because the latter envy them for they have been successful in
managing their properties. Petitioners thus prayed that judgment be rendered dismissing the complaint; affirming
their title over the controverted property and ordering respondents to pay them ₱500,000.00 as moral damages;
₱300,000.00 as exemplary damages; ₱50,000.00 as attorney’s fees and costs of litigation.
On July 27, 1992, petitioners filed a Motion for Production and Inspection of Document14 to compel respondents to
produce and permit them to inspect and to copy or photograph the Deed of Absolute Sale subject matter of said
examination. Thereafter, the trial court issued an Order15 dated August 14, 1992 granting the motion and directing
the Regional Office of the NBI to bring the document to court so that the same may be properly examined.
On August 11, 1992, Guillerma died in Cagayan de Oro City and was accordingly dropped as co-plaintiff.
After trial on the merits, the trial court rendered its Decision16 dated August 2, 2001 ruling in favor of the
respondents, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the plaintiffs were able to establish a strong preponderance of evidence in
their favor. Accordingly, Transfer Certificate of Title No. T-14204 is hereby declared NULL AND VOID, and is hereby
CANCELLED. Let another title be issued in the name of the late Julian Sambaan. The defendants are jointly and
severally directed to pay the plaintiffs the sum of ₱20,000.00 as moral damages, ₱20,000.00 as attorney’s fees and
₱1,671.00 representing actual expenses.17
Proceedings before the Court of Appeals
Petitioners, alleging among others that the trial court erred in finding that the signature of Julian on the assailed
document was a forgery, went to the CA by way of ordinary appeal. On August 20, 2003, the CA rendered a
Decision affirming the findings of the trial court, the dispositive portion of which reads:
WHEREFORE, premises considered, the appealed Decision dated August 2, 2001 of the Regional Trial Court of
Cagayan de Oro City, Branch 18, in Civil Case no. 92-179 is hereby AFFIRMED in toto. Costs against appellants.18
Petitioners filed a Motion for Reconsideration19 which was denied by the CA in its Resolution20 dated March 17, 2004.
Issues
In this Petition for Review on Certiorari, petitioners assail the Decision of the CA on the following grounds:
A. THE COURT OF APPEALS ERRED WHEN IT RULED THAT PRESCRIPTION DID NOT BAR
RESPONDENTS’ ACTION TO RECOVER OWNERSHIP OF THE SUBJECT PROPERTY.
B. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED SETTLED PRINCIPLES ON THE
ADMISSIBILITY AND APPRECIATION OF OPINIONS OF EXPERT WITNESSES IN ITS BLANKET
 ACCEPTANCE OF THE INADEQUATE TESTIMONY OF THE DOCUMENT EXAMINER WHO WAS
COMMISSIONED BY RESPONDENTS PRIOR TO THE COMMENCEMENT OF CIVIL CASE NO. 92-179.
C. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED THE RULES OF EVIDENCE IN
ARRIVING AT THE CONCLUSION THAT THE DEED OF ABSOLUTE SALE WAS A FORGED DOCUMENT
ON THE BASIS OF SPECIMEN SIGNATURES THE GENUINENESS OF WHICH WERE NEVER
ESTABLISHED.
D. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED LEGAL PRINCIPLES ON
HANDWRITING COMPARISON IN USING SPECIMEN SIGNATURES OF GUILLERMA SAMBAAN THAT
WERE MADE AT THE TIME AND FOR THE SPECIFIC PURPOSE OF THE HANDWRITING ANALYSIS OF
THE DEED OF ABSOLUTE SALE.
E. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED JURISPRUDENCE ON THE PROOF
REQUIRED TO ESTABLISH FORGERY IN ARRIVING AT THE CONCLUSION THAT THE SIGNATURE OF
JULIAN SAMBAAN ON THE DEED OF ABSOLUTE SALE WAS FORGED BECAUSE IT BELIEVED THAT
GUILLERMA SAMBAAN’S SIGNATURE WAS ALSO FORGED.
F. THE COURT OF APPEALS CONTRAVENED THE LEGAL RULES GOVERNING THE APPRECIATION
OF DOCUMENTS IN RULING AGAINST THE VALIDITY OF JULIAN SAMBAAN’S SALE OF THE SUBJECT
PROPERTY TO PETITIONERS DESPITE THE EXISTENCE OF THE AGREEMENT DATED 10
DECEMBER 1970 CONFIRMING THE SALE.
G. THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURT’S AWARD OF DAMAGES IN
FAVOR OF RESPONDENTS AND IN DISMISSING PETITIONERS’ COUNTERCLAIMS FOR DAMAGES.
Our Ruling
The core issue to be resolved in the present controversy is the authenticity of the Deed of Absolute Sale which is a
question of fact rather than of law. In Manila Bay Club Corporation v. Court of Appeals,21 we held that 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. There is a question of law when the doubt or difference arises as to what the law is pertaining to a
certain state of facts. On the other hand, there is a question of fact when the doubt arises as to the truth or the falsity
of alleged facts.22
In the case at bench, the issues raised by the petitioners are essentially factual matters, the determination of which
are best left to the courts below. Well-settled is the rule that the Supreme Court is not a trier of facts. Factual
findings of the lower courts are entitled to great weight and respect on appeal, and in fact accorded finality when
supported by substantial evidence on the record.23 Substantial evidence is more than a mere scintilla of evidence. It
is that amount of relevant evidence that a reasonable mind might accept as adequate to support a
conclusion,24 even if other minds, equally reasonable, might conceivably opine otherwise. 25 But to erase any doubt
on the correctness of the assailed ruling, we have carefully perused the records and, nonetheless, arrived at the
same conclusion. We find that there is substantial evidence on record to support the Court of Appeals and trial
court’s conclusion that the signatures of Julian and Guillerma in the Deed of Absolute Sale were forged.
The examination conducted by the NBI disclosed that Julian and Guillerma’s signatures were forged.
We find that both the trial court and the Court of Appeals correctly gave probative value to the testimony of the NBI
Senior Document Examiner Caroline Moldez Pitoy, who categorically testified that the signatures of Julian and
Guillerma in the Deed of Absolute Sale were forged, viz:26
Atty. Dalisay: As Senior Document Examiner of the National Bureau of Investigation, do [sic] you have [the] occasion
of examining [sic] the signatures of Julian Sambaan and Guillerma Saarenas by virtue of the case of the Regional
Director, Regional Office of the National Bureau of Investigation, Cagayan de Oro City?
A: Yes sir.
xxxx
Q: What was the result of the findings on the signatures of Julian Sambaan and Guillerma Saarenas Sambaan
appearing on the Deed of Sale dated December 12, 1990.
A: After [conducting] comparative examinations x x x on the standard specimen signatures of Julian Sambaan [and
Guillerma Sambaan] as well as the x x x questioned x x x signatures x x x we found out that [they were] not written
by one and the same person.27
xxxx
Q: What was the procedure which you have taken x x x in examining the authenticity of the signatures of Guillerma
Saarenas Sambaan?
A: Per Standard Operating Procedures, the first thing we did upon receipt of the documents submitted to us is to
check x x x the documents attached to the basic letter-request and then the questioned and standard documents
were classified as to the sufficiency and appropriateness of the standards, and then these were evaluated, after
which, they were marked accordingly, then we go to examining all the standard/specimens first, to determine
whether the handwriting is done by one and the same person before comparing with the questioned and standard
signatures. x x x After they were found to be written by one and the same person, before comparing with the
questioned documents, the handwriting characteristics were properly observed in these two (2) sheets of
photographs, then, the final evaluation is made, after which, a written report is made as a result of the examination,
then the same is forwarded to the Document Examiner for re-examination and this Examiner affixes his signature
and submits the same to the Chief of the Division for approval and the said report passes to the office of the
Regional Director for final approval.
Petitioners failed to present any evidence to rebut the findings of the NBI handwriting expert.
Moreover, the findings of the NBI document examiner were corroborated by the trial court’s own observation, as
affirmed by the CA, that "even a cursory examination of Guillerma’s questioned signature from her specimen
signatures in the enlarged photographs (Exhibits ‘F’ and ‘F-1’) would show that it needs no expert witness to notice
the wide difference in stroke, as well as the writing style in capital ‘G’." 28 What is more, Emma S. Felicilda, the
daughter of then deceased Guillerma, likewise testified that "in fact my mother was the one who filed the complaint
in this instant case because according to her, she did not sign the said document".29
The fact that the examination was commissioned by the respondents did not make said examination null and void.
It is of no moment that the examination of the Deed of Absolute Sale was commissioned by the respondents. In the
end, it is the court which has the discretion and authority on whether to give probative value to the results of the
examination. As held in Sali v. Abubakar,30 the fact that the NBI conducted the examination of certain contested
documents upon the request of a private litigant does not necessarily nullify the examination thus made:
x x x Its purpose is, presumably, to assist the court having jurisdiction over said litigations, in the performance of its
duty to settle correctly the issue relative to said documents. Even a non-expert private individual may examine the
same, if there are facts within his knowledge which may help the courts in the determination of said issue. Such
examination, which may properly be undertaken by a non-expert private individual, does not, certainly, become null
and void when the examiner is an expert and/or an officer of the NBI.
Indeed, any person, expert or not, either in his private or in his official capacity, may testify in court on matters,
within his personal knowledge, which are relevant to a suit, subject to the judicial authority to determine the
credibility of said testimony and the weight thereof. [On] the other hand, the question whether a public official may or
shall be ordered or permitted by his superior to examine documents and testify thereon in a given case, is one
mainly administrative in character, which is within the competence of said superior officer, or the Bureau Director or
Head of the Office, or the corresponding department head to decide, and is independent of the validity of the
examination thus made or of the credence and weight to be given by the Court to the conclusions reached, in
consequence of said examination, by the official who made it.
The procedures taken by the NBI document examiner did not violate Section 22, Rule 132 of the Rules of Court.
We are not swayed by petitioners’ allegation that the comparisons made by the document examiner, the CA and the
trial court, of Guillerma’s signature in the Deed of Absolute Sale and her specimen signatures, violated Section 22,
Rule 13231 of the Rules of Court on the authentication of private documents. It should be borne in mind that in this
case respondents were not presenting evidence to authenticate a private document. On the contrary, they are
challenging the signatures appearing in the Deed of Absolute Sale.
The confluence of the following circumstances prove by preponderance of evidence that the Deed of Absolute Sale
was forged.
Records show that Julian was unaware of any absolute conveyance of his rights over the subject property in favor of
petitioners. As found by the trial court and affirmed by the CA, Julian even requested his children to redeem subject
property from the petitioners. In furtherance of his father’s request, Absalon offered to redeem the subject property
from the petitioners in 1982, however, the latter refused because they were allegedly using the same as tethering
place for their cattle.32
The caretaker of the subject property, Eufronio Abrea, also testified on cross-examination that there were times
when the brothers and sisters of Myrna went to the land and asked for coconuts. 33 Petitioners take this to imply that
the respondents "never owned the subject property because they had to ask for coconuts from petitioners, who
were the real owners of the property."34 We disagree with this interpretation. Harvesting of coconuts requires
specialized skills; an ordinary person who does not know how to climb necessarily has to ask the caretaker to get
the coconuts for him or her.
In addition, Myrna admitted that she was not present when her parents signed the assailed Deed of Absolute
Sale.35 Neither was she cognizant of who the witnesses were to the said deed.36 Interestingly, Guillerma, one of the
alleged signatories, would have been privy to the transaction that involved her husband. Yet, she joined herein
respondents in filing an action for the Annulment of the Deed of Absolute Sale on the ground of forgery.
Lastly, the trial court and the CA were one in proclaiming that considering that the subject property belongs to
Julian’s capital, the execution of the assailed Deed of Absolute Sale could be validly made by Julian even without
his wife’s signature.37 As a matter of fact, the wife’s name was not typed in the assailed deed and her purported
signature merely appears next to the supposed signature of Julian. This only confirms that the person who prepared
the deed knew that her signature was unnecessary for the assailed document.
The trial court and the CA further concluded:
x x x If such was the case, we are in a query why the signature of GUILLERMA must have to be forged when her
consent, as spouse of JULIAN, is not necessary to the execution of the Deed of Absolute Sale? The answer to this
is simple: JULIAN never executed the assailed Deed of Absolute Sale in favor of MYRNA and such deed conveys
no ownership in favor of the appellants.38
Conclusions and findings of fact by the trial court are entitled to great weight on appeal and should not be disturbed
unless for strong and cogent reasons because the trial court is in a better position to examine real evidence, as well
as to observe the demeanor of the witnesses while testifying in the case.39 The fact that the CA adopted the findings
of fact of the trial court makes the same binding upon this court.40 In Philippine Airlines, Inc. v. Court of Appeals, 41 we
held that factual findings of the CA which are supported by substantial evidence are binding, final and conclusive
upon the Supreme Court. A departure from this rule may be warranted where the findings of fact of the CA are
contrary to the findings and conclusions of the trial court,42 or when the same is unsupported by the evidence on
record.43 There is no ground to apply the exception in the instant case, however, because the findings and
conclusions of the CA are in full accord with those of the trial court.
The forged Deed of Absolute Sale is null and conveys no title.
Having affirmed the findings of fact of both the CA and the trial court that the signatures of Julian and Guillerma are
forgeries, we now come to the question of the validity of the transfer of title to the petitioners.
In Sps. Solivel v. Judge Francisco,44 we held that:
x x x in order that the holder of a certificate for value issued by virtue of the registration of a voluntary instrument
may be considered a holder in good faith for value, the instrument registered should not be forged. When the
instrument presented is forged, even if accompanied by the owner’s duplicate certificate of title, the registered
owner does not thereby lose his title, and neither does the assignee in the forged deed acquire any right or title to
the property. x x x The innocent purchaser for value protected by law is one who purchases a titled land by virtue of
a deed executed by the registered owner himself, not by a forged deed, as the law expressly states. x x x
In Instrade, Inc. v. Court of Appeals,45 we reiterated the said ruling maintaining that "[A]s early as Joaquin v. Madrid,
x x x, we said that in order that the holder of a certificate for value issued by virtue of the registration of a voluntary
instrument may be considered a holder in good faith and for value, the instrument registered should not be forged".
Indubitably, therefore, the questioned Deed of Absolute Sale did not convey any title to herein petitioners.
Consequently, they cannot take refuge in the protection accorded by the Torrens system on titled lands.
Thus, we hold that with the presentation of the forged deed, even if accompanied by the owner’s duplicate certificate
of title, the registered owner did not thereby lose his title, and neither does the assignee in the forged deed acquire
any right or title to the said property. The CA has aptly arrived at the same conclusion in its August 20, 2003
Decision affirming in toto the August 2, 2001 Decision of the RTC of Cagayan de Oro City ratiocinating that:
It is significant to stress that the main thrust in the case at bench is the regularity and validity of the assailed Deed of
Absolute Sale dated December 7, 1970 (Record p. 374, Exhibit "3") allegedly executed by JULIAN in favor of the
appellants. As such, we must not confuse the issue at hand by averring that other documents should be considered
in determining the validity of the deed of absolute sale. The reason is simple: the valid execution of the Deed of
Absolute Sale will convey and transfer ownership in favor of appellants title based on the rule that by the contract of
sale one of the contracting parties obligates himself to transfer ownership of and to deliver a determinate thing, and
the other to pay therefor a sum certain in money or its equivalent (Coronel vs. Court of Appeals, 263 SCRA 15). The
fact that the assailed Deed was not signed by JULIAN and the signatures of JULIAN and GUILLERMA were forged
per findings of the NBI Senior Document Examiner, it can therefore be inferred that the subsequent issuance of
Transfer Certificate of Title No. T-14204 has no basis at all since ownership was not conveyed to appellants by
reason of the forged Deed. In addition, as to the issue that the Agreement dated December 10, 1970 (Record p.
1avvphi1

375, Exhibit "4") executed between DOMINGO and PATRICIO were excluded, we believe there is no need to delve
on the said Agreement since the same will not in any way give justification to the forgery committed in the Deed of
Absolute Sale. As explained by the court a quo, to which we concur, appellees should not be faulted because they
are not lawyers, and as such they may not be able to appreciate the legal logic between Exhibits "3" and "4".46
Prescription did not bar respondents’ action to recover ownership of the subject property. Citing Article 145447 of the
Civil Code, petitioners assert that since the respondents admit that there was a mortgage transaction between
Julian and herein petitioners involving the subject property there is no dispute that an implied trust was created by
operation of law. In which case, respondents’ right to reconveyance had already prescribed when they filed the
annulment case on April 3, 1992, or more than 10 years after petitioners’ repudiated such implied trust. On the other
hand, respondents assert that the element of consent is totally wanting in the assailed Deed of Absolute Sale
because the signatures of Julian and Guillerma, which is equivalent to their consent, were forged by the
petitioners.48 They maintain that the absence of consent made the said document null and void.49 Hence, this case
falls under the purview of Article 1410 of the Civil Code which provides that an action to declare the inexistence of
void contracts does not prescribe.50 We agree with the respondents. The supposed vendor's signature having been
proved to be a forgery, the instrument is totally void or inexistent as "absolutely simulated or fictitious" under Article
1409 of the Civil Code.51 According to Article 1410, "the action or defense for the declaration of the inexistence of a
contract does not prescribe". The inexistence of a contract is permanent and incurable which cannot be cured either
by ratification or by prescription.52
The award of moral damages and attorney’s fees is proper.
On this aspect, we must consider the blood relations among the parties. One of the respondents, Emma S. Felicilda,
testified on cross examination that they had high regard for Myrna, their eldest sister.53 The same was echoed by
respondent Anita Sambaan on cross examination.54 They could not believe that Myrna would keep and appropriate
the land for herself and transfer the title exclusively to her name.55 On direct examination, respondent Emma S.
Felicilda likewise testified that the forgery caused them anger and bad emotions.56
Moreover, it was Julian’s dying wish for the property to be redeemed from the petitioners.57 Hence, it is not
unexpected that the sentimental significance of the property and the anger and emotions caused by the unlawful
transfer of the same have moved the respondents to recover the same through the instant action. We therefore hold
that the award of ₱20,000.00 as moral damages is proper.
In addition, in view of the complexity of the instant case and the multiple levels of appeal that this case had gone
through, we also affirm the award of attorney’s fees of ₱20,000.00 as well as the actual damages of ₱1,671.00
incurred by the prevailing party which was substantiated during trial.
On a final note, it bears stressing that the arguments raised by the petitioners are essentially the same issues they
put forward before the CA which have been duly passed upon and considered by the appellate court in affirming the
RTC Decision in toto.
WHEREFORE, the petition is DENIED.
SO ORDERED.

G.R. No. 129227. May 30, 2000

BANCO FILIPINO SAVINGS AND MORTGAGE BANK, petitioners, vs. THE HON. COURT OF APPEALS, and
CALVIN & ELSA ARCILLA, respondents.
DECISION
GONZAGA_REYES, J.:
Before us is a Petition for Review on Certiorari of the Decision of the Court of Appeals in CA-G.R. CV No. 45891
1

entitled CALVIN S. ARCILLA and ELSA B. ARCILLA vs. BANCO FILIPINO SAVINGS and MORTGAGE BANK, ET.
AL. which affirmed the decision of the Regional Trial Court (RTC), Branch 33, Manila ordering BANCO FILIPINO to
pay CALVIN and ELSA ARCILLA the amount of P126,139.00 with interest thereon at 12% per annum from the filing
of the complaint.
The undisputed facts as found by the Court of Appeals are as follows:
"Elsa Arcilla and her husband, Calvin Arcilla, the Appellees in the present recourse, secured, on three (3) occasions,
loans from the Banco Filipino Savings and Mortgage Bank, the Appellant in the present recourse, in the total amount
of P107,946.00 as evidenced by "Promissory Note" executed by the Appellees in favor of the Appellant. To secure
the payment of said loans, the Appellees executed "Real Estate Mortgages" in favor of the Appellants over their
parcels of land located in BF-Parañaque, covered by Transfer Certificate of Title Nos. 444645, 450406, 450407 and
455410 of the Registry of Deeds of Parañaque (Annexes "B" to "B-2", Amended Complaint). Under said deeds, the
Appellant may increase the rate of interest, on said loans, within the limits allowed by law, as Appellant’s Board of
Directors may prescribe for its borrowers. At that time, under the Usury Law, Act 2655, as amended, the maximum
rate of interest for loans secured by real estate mortgages was 12% per annum. On January 10, 1975, the
Appellees and the Appellant executed a "Deed of Consolidation and Amendment of Real Estate Mortgage" whereby
the aforementioned loans of the Appellees and the "Real Estate Mortgage" executed by them as security for the
payment of said loans were consolidated (pages 33-35, Record). Likewise, under said deed, the loan of the
Appellees from the Appellant was increased to P188,000.00. The Appellees executed a "Promissory Note", dated
January 15, 1975, whereby they bound and obliged themselves, jointly and severally, to pay the Appellant the
aforesaid amount of P188,000.00 with interest at the rate of 12% per annum, in nineteen (19) years from date
thereof, in stated installments of P2,096.93 a month (page 32, Records).
On January 2, 1976, the Central Bank of the Philippines issued Central Bank Circular No. 494, quoted infra, as
follows:
‘x x x
‘3. The maximum rate of interest, including commissions, premiums, fees and other charges on loans with maturity
of more than seven hundred thirty (730) days, by banking institutions, including thrift banks, or by financial
intermediaries authorized to engage in quasi-banking functions shall be nineteen percent (19%) per annum.
‘x x x
‘7. Except as provided in this Circular and Circular No. 493, loans or renewals thereof shall continue to be governed
by the Usury Law, as amended.’ (idem, supra)
In the meantime, the Skyline Builders, Inc., through its President, Appellee Calvin Arcilla, secured loans from the
Bank of the Philippine Islands in the total amount of P450,000.00. To insure payment of the aforesaid loan, the FGU
Insurance Corporation, issued PG Bond No. 1003 for the amount of P225,000.00 (pages 434-436, Records) in favor
of the Bank of the Philippine Islands. Skyline Buildings, Inc., and the Appellees executed an "Agreement of Counter-
Guaranty with Mortgage" in favor of the FGU Insurance Corporation covering the aforesaid parcels of land to assure
payment of any amount that the insurance company may pay on account of said loans (pages 429-436, Records).
The mortgage was annotated as Entry No. 58009 at the dorsal portion of Appellees’ titles.
After October 30, 1978, the Appellant prepared and issued a "Statement of Account" to the Appellees on their loan
account to the effect that, as of October 30, 1978, the balance of their loan account, inclusive of interests, computed
at 17% per annum, amounted to 284,490.75 (page 555, Records). It turned out that the Appellant unilaterally
increased the rate of interest on the loan account of the Appellees from 12% per annum, as covenanted in the "Real
Estate Mortgage" and "Deed of Consolidated and Amended Real Estate Mortgage" to 17% per annum on the
authority of the aforequoted Central Bank Circular.
The Appellees failed to pay their monthly amortizations to Appellant. The latter forthwith filed, on April 3, 1979, a
petition, with the Provincial Sheriff, for the extrajudicial foreclosure of Appellees’ "Real Esate Mortgage" in favor of
the Appellant for the amount of P342,798.00 inclusive of the 17% per annum which purportedly was the totality of
Appellees’ account with the Appellant on their loans. The Appellant was the purchaser of the property at public
auction for the aforesaid amount of P324,798.00. On May 25, 1979, the Sheriff executed a "Certificate of Sale" over
the aforesaid properties in favor of the Appellant for the aforesaid amount (pages 37-38, Records).
The Appellant filed a "Petition for a Writ of Possession" with the Regional Trial Court entitled "Banco Filipino Savings
and Mortgage Bank vs. Elsa Arcilla, et al., LRC Case No. P-7757-P". On February 28, 1980, the Court rendered a
Decision granting the Petition of the Appellant. The Appellees appealed to the Court of Appeals but the latter Court,
on June 29, 1985, promulgated a Decision affirming the Decision of the Regional Trial Court (pages 190-198,
Records).
In the meantime, the FGU Insurance Corporation, Inc., redeemed the aforesaid properties from the Appellant by
paying to the latter the amount of P389,289.41 inclusive of interest computed at 17% per annum. The Appellant and
FGU Insurance Corp., Inc., executed, on May 27, 1980, a "Deed of Redemption" (pages 126-129, Records).
On September 2, 1985, the Appellees filed a complaint in the Court a quo for the "Annulment of the Loan Contracts,
Foreclose Sale with Prohibition and Injunction, Etc." entitled "Calvin Arcilla, et al. vs. Banco Filipino Savings and
Mortgage Bank, et al." (pages 1-38, Records).
The Appellees averred, in their complaint, inter alia, that the loan contracts and mortgages between the Appellees
and the Appellant were null and void because: (a) the interests, charges, etc., were deducted in advance from the
face value of the "Promissory Notes" executed by the Appellees; and (b) the rate of interests charged by the
Appellant were usurious. The Appellees prayed that judgment be rendered in their favor as follows:
"x x x
WHEREFORE, it is respectfully prayed –
a) Pending hearing on the prayer for the issuance of the Writ of Preliminary Injunction, a restraining order be
immediately issued against the defendants or anyone acting in their behalf from enforcing the writ of possession
issued against the plaintiffs;
b) After notice and hearing, a writ of preliminary injunction be issued against the defendants, particularly defendants
FGU Insurance Corporation and the City Sheriff of Pasay City, MM, or any of his deputies or anyone acting in their
behalf from enforcing the writ of possession;
c) After trial –
1) To make the injunction permanent;
2) Declare the loan contracts null and void;
3) Declare the extrajudicial foreclosure null and void;
4) Ordering the defendants to pay the plaintiffs the sums of P100,000.00 as moral damages; P50,000.00 as attorney
fees; and, costs of suit.
PLAINTIFFS further pray for such other reliefs and remedies just and equitable in the premises." (pages 88-89,
Records)
In its Answer to the Complaint, the Appellant averred that the interests charged by it on Appellees’ loan accounts
and that the said loan contracts and mortgages were lawful. The Appellant further averred that the Appellees’ action
had already prescribed.
In the interim, the Supreme Court promulgated its Decision in the precedent - setting case of "Banco Filipino
Savings and Mortgage Bank vs. Hon. Miguel Navarro, et al., 152 SCRA 346" where it declared that Central Bank
Circular No. 494 was not the "law" envisaged in the mortgage deeds of borrowers of the Bank; that the escalation
clause incorporated in said deeds giving authority to the Appellant to increase the rate of interests without the
corresponding deescalation clause should not be given effect because of its one-sidedness in favor of the Appellant;
that the aforesaid Central Bank Circular did not apply to loans secured by real estate mortgages, and that, therefore,
the Appellant cannot rely said Circular as authority for it to unilaterally increase the rate of interests on loans secured
by Real Estate Mortgages.
In the meantime, the FGU Insurance Corp., Inc., filed a "Motion for Substitution" with the Regional Trial Court, in
LRC Case No. Pq-7757-P praying that it be substituted as the Petitioner in said case (pages 354-356, Records).
The Appellees were served with a copy of said motion and filed their Opposition thereto. However, on November 10,
1987, the Regional Trial Court rendered a Decision granting the motion of FGU Insurance Company (page 369,
Records)
On December 3, 1987, the Appellees filed a Motion, with the Court a quo, for leave to file an "Amended Complaint"
to implead FGU Insurance Corporation as party defendant (pages 83-129, Records). The Court granted said motion
and admitted Appellees’ Amended Complaint.
After the requisite pre-trial, the Court a quo issued a Pre-Trial Order which defined, inter alia, Appellees’ action
against the Appellant, and the latter’s defenses, to wit:
"x x x
On the part of the defendants Banco Filipino Savings to simplify the case, it seeks to declare as null and void
plaintiff’s loan contract with Banco Filipino obtained in May 1974, on the ground that the interest agreed in the
contract was usurious. Plaintiffs also seek to declare as null and void the foreclosure of their mortgage by Banco
Filipino on the ground that the loan with the said mortgagee foreclosure maybe validly done.
DEFENSES
1. Prescription
2. Laches
3. Estoppel" (page 496, Records)
In the meantime, the Appellees and FGU Insurance Corporation entered into and forged a "Compromise
Agreement." The Court a quo promulgated a Decision, dated April 3, 1991, based on said "Compromise
Agreement." Under the "Compromise Agreement", the Appellees bound and obliged themselves, jointly and
severally, to pay to FGU Insurance Corporation the amount of P1,964,117.00 in three (3) equal installments and
that:
"x x x
6. Upon faithful compliance by plaintiffs Calvin S. Arcilla and Elsa B. Arcilla with their Agreement, defendant FGU
Insurance Corporation shall renounce in their favor all its rights, interests and claims to the four (4) parcels of land
mentioned in paragraph No. 4 of this Compromise Agreement, together with all the improvements thereon, and
plaintiffs Calvin S. Arcilla and Elsa B. Arcilla shall be subrogated to all such rights, interests and claims. In addition,
defendant FGU Insurance Corporation shall execute in favor of plaintiffs Calvin S. Arcilla and Elsa B. Arcilla a deed
of cancellation of the real estate mortgage constituted in its favor on the above-mentioned four (4) parcels of land,
together with all the improvements thereon. All documentary stamps and expenses for registration of the said deed
of cancellation of mortgage shall be for the account of plaintiffs Calvin S. Arcilla and Elsa B. Arcilla.
7. Subject to the provisions of paragraph No. 4 of this Compromise Agreement, the execution of this Compromise
Agreement shall be without prejudice to the prosecution of the claims of plaintiffs Calvin S. Arcilla and Elsa B. Arcilla.
(pages 543-544, Records)
Thereafter, the Appellees and the Appellant agreed, upon the prodding of the Court a quo, that the only issue to be
resolved by the Court a quo was, whether or not the Appellees were entitled to the refund, under the Decision of the
Supreme Court in "Banco Filipino Savings and Mortgage Bank vs. Hon. Miguel Navarro, et al.," supra. On
November 8, 1991, the Appellees filed a "Motion for Summary Judgment" appending thereto, inter alia, the Affidavit
of Appellee Calvin S. Arcilla and the appendages thereof (pages 550-555, Records). Appellant filed its Opposition
but did not append any affidavit to said Opposition. On March 26, 1993, the Court a quo promulgated a Decision,
the decretal portion of which reads as follows:
‘WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiffs and against defendant
Banco Filipino ordering defendant Banco Filipino to pay spouses Calvin S. Arcilla and Elsa B. Arcilla the sum of
P126,139.00 with interest thereon at 12% per annum reckoned from the filing of the complaint.
SO ORDERED.’ (pages 584-585, Records)" 2

Petitioner appealed to the Court of Appeals, which affirmed the decision of the RTC the dispositive portion of which
reads:
"IN THE LIGHT OF ALL THE FOREGOING, the assailed Decision is AFFIRMED. Appellant’s appeal is DISMISSED.
With costs against the Appellant.
SO ORDERED." 3

Their Motion for Reconsideration was denied hence this petition where the petitioner assigns the following errors:
4

"I. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THE CAUSE OF ACTION OF THE
PRIVATE RESPONDENTS ACCRUED ON OCTOBER 30, 1978, AND THEREFORE THE FILING OF THEIR
COMPLAINT FOR ANNULMENT OF THEIR LOAN CONTRACTS WITH THE PETITIONER IN 1985 WAS NOT YET
BARRED BY PRESCRIPTION.
II. THE HONORABLE COURT OF APPEALS ERRED WHEN IT HELD THAT THE MATERIAL ALLEGATIONS OF
THE PRIVATE RESPONDENTS COMPLAINT WERE SUFFICIENT TO WARRANT THE RELIEFS GRANTED TO
THEM BY THE LOWER COURT, PATICULARLY THE REFUND OF P126,139.00 REPRESENTING ALLEGED
EXCESS INTEREST PAID ON THEIR LOAN.
III. THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE PRIVATE RESPONDENTS WERE
ENTITLED TO THE SAID REFUND OF P126,139.00 CLAIMED BY THEM." 5
The petitioner maintains that the complaint filed by herein private respondents was an action for Annulment of Loan
Contracts, foreclosure sale with prohibition and injunction. It is contended that these causes of action accrued on
the date of the execution of the promissory note and deed of mortgage on January 15, 1975 and not October 30,
1978 as found by the Court of Appeals. Thus, private respondents cause of action has already prescribed inasmuch
as the case was filed on September 2, 1985 or more than ten years thereafter. Petitioner further contends that
private respondents cannot rely on the ruling in the case of Banco Filipino Savings & Mortgage Bank vs.
Navarro considering that they were not parties to said case. Petitioner also maintains that the order of the lower
6

court, which was affirmed by the Court of Appeals ordering the petitioner to refund the excess interest paid by
private respondents in the amount of P126,318.00 was without any legal basis since private respondents never
raised the issue of interest nor prayed for any relief with respect thereto. Moreover, the private respondents never
paid said amount to the petitioner. While the amount was included in the bid price of the bank when it bought the
mortgaged properties during the public auction, said bid price did not prejudice the private respondents because
when the private respondents repurchased the properties, the amount they paid was different and independent of
the redemption price of the bank. Besides, the agreement between the private respondents and FGU Insurance
Corporation was one of sale and not redemption. Thus, any amount paid by the private respondents to FGU was
voluntarily entered into by them and was not a consequence of the foreclosure of the mortgage properties.
Conversely, private respondents allege that their action has not prescribed considering that prescription begins to
run from the day the action may be brought; the date their right of action accrued. It is their contention that the
period of prescription of their action should commence to run from October 30, 1978 when the petitioner unilaterally
increased the rate of interest on private respondents’ loan to 17% per annum. Thus, when private respondents filed
their action against the petitioner on September 2, 1985 or almost eight years thereafter, their action had not yet
prescribed. Moreover, private respondents aver that they are entitled to the refund inasmuch as the escalation
clause incorporated in the loan contracts do not have a corresponding de-escalation clause and is therefore illegal.
The appeal is unmeritorious.
There are only two issues, which must be resolved in the present appeal. First, has the action of the private
respondents prescribed; and second, are the respondents entitled to the refund of the alleged interest
overpayments.
Petitioner’s claim that the action of the private respondents has prescribed is bereft of merit. Under Article 1150 of
the Civil Code, the time for prescription of all kinds of actions, when there is no special provision which ordains
otherwise, shall be counted from the day they may be brought. Thus, the period of prescription of any cause of
action is reckoned only from the date the cause of action accrued. And a cause of action arises when that which
7

should have been done is not done, or that which should not have been done is done. The period should not be
8

made to retroact to the date of the execution of the contract on January 15, 1975 as claimed by the petitioner for at
that time, there would be no way for the respondents to know of the violation of their rights. The Court of Appeals
9

therefore correctly found that respondents’ cause of action accrued on October 30, 1978, the date they received the
statement of account showing the increased rate of interest, for it was only from that moment that they discovered
the petitioner’s unilateral increase thereof. We quote with approval the pertinent portions of the Court of Appeals
decision as follows:
"It is the legal possibility of bringing the action that determines the starting point for the computation of the period of
prescription (Constancia C. Telentino vs. Court of Appeals, et al., 162 SCRA 66). In fine, the ten-year prescriptive
period is to be reckoned from the accrual of Appellees’ right of action, not necessarily on the very date of the
execution of the contracts subject of the action (Naga Telepone Co. Inc. vs. Court of Appeals, et al., 230 SCRA 351).
A party’s right of action accrues only when the confluence of the following elements is established:
"xxx: a) a right in favor of the plaintiff by whatever means and under whatever law it arises or is created; b) an
obligation on the part of defendant to respect such right; and c) an act or omission on the part of such defendant
violative of the right of the plaintiff (Cole vs. Vda. de Gregorio, 116 SCRA 670 [1982]; Mathay vs. Consolidated Bank
& Trust Co., 58 SCRA 559 [1974]; Vda. de Enriquez vs. Dela Cruz, 54 SCRA 1 [1973]. It is only when the last
element occurs or takes place that it can be said in law that a cause of action has arisen (Cole vs. Vda. De
Gregorio, supra)" (Maria U. Español vs. Chairman, etc., et al.,, 137 SCRA 314, page 318)
More, the aggrieved must have either actual or presumptive knowledge of the violation, by the guilty party of his
rights either by an act or omission. The question that now comes to the fore is when the Appellees became precisely
aware of the unilateral increase, by the Appellant, of the rate of interest on their loan account to 17% per annum. As
can be ascertained from the records, the Appellees discovered or should have discovered, for the first time, the
unilateral increase by the Appellant of the rate of interest to 17% per annum when they received the "Statement of
Account" of the Appellant as of October 30, 1978. Hence, it was only then that the prescriptive period for the
Appellees to institute their action in the Court a quo commenced. Since the Appellees filed their complaint in the
Court a quo on September 2, 1985, the same was seasonably filed within the ten-year prescriptive period." 10

Anent the second issue as to whether the respondents are entitled to recover the alleged overpayments of interest,
we find that they are despite the absence of any prayer therefor. This Court has ruled that it is the material
allegations of fact in the complaint, not the legal conclusion made therein or the prayer that determines the relief to
which the plaintiff is entitled. It is the allegations of the pleading which determine the nature of the action and the
11

Court shall grant relief warranted by the allegations and the proof even if no such relief is prayed for. Thus, even if
12

the complaint seeks the declaration of nullity of the contract, the Court of Appeals correctly ruled that the factual
allegations contained therein ultimately seek the return of the excess interests paid.
The amended complaint of herein private respondents specifically allege that the contracts of loan entered into by
13

them and the petitioner were contrary to and signed in violation of the Usury Law and consequentially pray that said
14

contracts be declared null and void. The amended complaint reads:

"6. The aforementioned loans granted by defendant Banco Filipino to the plaintiffs as stated on the face of the
promissory note and real estate mortgage (Annexes "B" to "D", inclusive) were not actually received by the plaintiffs
because interests, charges, etc. were deducted in advance from the face value of the loans not in accordance with
the contracts;
7. Even the loan contracts (Annexes "B" to "D", inclusive) required by defendant Banco Filipino to be signed by the
plaintiffs were contrary to and in violation of the then Usury Law, as amended;
8. Assuming arguendo that the loan contracts between plaintiffs and defendant Banco Filipino are valid, the extra-
judicial foreclosure of the properties of the plaintiffs on May 24, 1979 was null and void for having been conducted in
clear violation of the law (Act 3135), namely: a) lack of roper notice to the plaintiffs; b) lack of proper publication and
posting as required by law; c) the alleged sale was conducted at the place other than that prescribed by law, among
others;
9. On May 27, 1990, defendant Banco Filipino purportedly executed in favor of defendant FGU Insurance
Corporation a Deed of Redemption over the foreclosed properties of the plaintiffs, again, without notice to the latter,
as evidenced by the said Deed of Redemption, copy of which is hereto attached and marked as Annex "F".
10. The Deed of Redemption (Annex "F") is clearly null and void for having been executed in violation of Rule 39,
Rules of Court, and other related provisions of the Rules of Court." 15

The loan contracts with real estate mortgage entered into by and between the petitioner and respondent stated that
the petitioner may increase the interest on said loans, within the limits allowed by law, as petitioner’s Board of
Directors may prescribe for its borrowers. At the time the contracts were entered into, said escalation clause was
valid. It was only pursuant to P.D. No. 1684 which became effective March 17, 1980 wherein to be valid, escalation
16

clauses should provide: 1.) that there can be an increase in interest if increased by law or by the Monetary Board;
and 2.) in order for such stipulation to be valid, it must include a provision for the reduction of the stipulated interest
in the event that the maximum rate of interest is reduced by law or by the Monetary Board. 17

Given the validity of the escalation clause, could the petitioner increase the stipulated interest pursuant to the
Central Bank Circular 494 from 12% to 17%.
We rule that it may not.
The escalation clause in the loan contracts reads as follows:
"xxx g) The rate of interest charged on the obligation secured by this mortgage, as well as the interest on the
amount which may have been advanced by the Mortgagee in accordance with paragraph (b) and (d) hereof, shall
be subject, during the terms of this contract, to such an increase, within the limits allowed by law, as the Board of
Directors of the Mortgagee may prescribe for its debtors; xxx" (emphasis supplied) 18

In Banco Filipino Savings & Mortgage Bank vs. Navarro, which involved a similar escalation clause , we ruled that
19 20

Central Bank Circular 494, although it has the force and effect of law, is not a law and is not the law contemplated by
the parties which authorizes the petitioner to unilaterally raise the interest rate of the loan. Consequently, the
21

reliance by the petitioner on Central Bank Circular 494 to unilaterally raise the interest rates on the loan in question
was without any legal basis.
Petitioner’s argument that the Banco Filipino case cannot be applied to the present case since the respondents
were not intervenors therein is flawed. Only the judgment in said case cannot bind the respondents as they were not
parties thereto, however, the doctrine enunciated therein is a judicial decision and forms part of the legal system of
the land. It forms a precedent, which must be adhered to under the doctrine of stare decisis. Thus, even if the
22 23

respondents were not parties to the above-mentioned case, the doctrine enunciated therein may be applied to the
present case.
WHEREFORE, the decision of the Court of Appeals in CA-G.R. CV No. 45891 is AFFIRMED and the instant petition
is hereby DENIED.
No pronouncement as to costs.
SO ORDERED.
G.R. No. 125728 August 28, 2001
MARIA ALVAREZ VDA. DE DELGADO, CATALINA C. DELGADO, NATIVIDAD D. CLUTARIO, ANTONIA
DELGADO, FLORINTINO DELGADO, PACIENCIA D. CAZORLA, GLORIA D. SOTIANGCO, JOSE DELGADO,
JR., MARLENE D. SENNER, JOEL DELGADO, MARISSA DELGADO, JESUS DELGADO, JANICE DELGADO,
VICTORINO DELGADO, and JUAN DELGADO, petitioners,
vs.
HON. COURT OF APPEALS and REPUBLIC OF THE PHILIPPINES, respondents.
QUISUMBING, J.:
This petition assails the decision of the Court of Appeals in CA-G.R. CV No. 36923 dated June 14, 1996, which
1

reversed the decision of the Regional Trial Court, of Catarman, Northern Samar, Branch 19, in a case originally
2

involving reconveyance of property with damages between the Delgado family members as plaintiffs and the
Republic of the Philippines as defendant.
The following facts appear on the record:
During his lifetime, Carlos Delgado was the absolute owner of a parcel of land with an area of 692,549 square
meters, situated in the Municipality of Catarman, Samar. On October 5, 1936, said Carlos Delgado granted and
conveyed, by way of donation or gift with quitclaim, all his rights, title, interest, claim and demand over a portion of
said land consisting of 165,000 square meters in favor of the Commonwealth of the Philippines or its successors.
Acceptance was made by then President Manuel L. Quezon in his capacity as Commander-in-Chief of the
3

Philippine Army.4

The Deed of Donation states as reason or consideration the donor's desire to contribute to the formation of the
5

National Defense of the Philippines. It contained the following condition:

The condition of this donation is, that the parcel of land above described shall be for the exclusive benefit of
the Commonwealth of the Philippines to be used as military reservation for training cadres or for such other
uses of the Philippine Army as the Commander-in-Chief or Chief of Staff thereof may determine, provided
that when the Commonwealth of the Philippines no longer needs this parcel of land for any military
purposes, then said land shall automatically revert to the donor or its heirs or assigns.
6

The donee promptly occupied the donated land and constructed buildings thereon for military purposes, such as a
military training campsite. Further, after entering into physical possession of the land and making the said
improvements, the donee caused the property and several others similarly donated to it to be surveyed, with a view
7

to having them all brought under the operation of the Torrens system and registered in the name of the
Commonwealth of the Philippines.
Upon approval of the application for registration with the Court of First Instance of Samar, the parcels of land
donated by Carlos Delgado (165,000 sq. m.), Visitacion Diaz (8,220 sq. m.) and Leona Balite (10,080 sq. m.),
containing a total of 183,300 square meters in all, became identified as Lot No. 1, Plan Psl-9. But said Lot No. 1
showed an area of 216,907 square meters, apparently with an excess of 33,607 square meters from the total area
of the parcels actually donated. Such apparent excess came allegedly from the neighboring parcels of land also
owned by Carlos Delgado.
On February 6, 1939, the CFI of Samar decreed that on the basis of more than forty years of quiet, peaceful and
continuous possession by the donors and their donee, and after finding a general default of opposition to the
application for registration, the aforesaid parcels of land as well as the improvements thereon, were to be registered
in the name of the Commonwealth of the Philippines as absolute owner thereof.
Pursuant to the CFI order, Original Certificate of Title No. 2539 was issued by the Register of Deeds on September
9, 1939, covering among other parcels the aforesaid Lot No. 1, Plan Psl-9. The OCT contained an annotation of the
express condition attached to the land donated by Carlos Delgado.
Subsequently, said OCT was later cancelled and replaced with Transfer Certificate of Title No. (0-2539)-160. It
appears, however, that said TCT did not contain an annotation of the condition originally found in the Deed of
Donation.
Upon declaration of independence on July 4, 1946, the Commonwealth of the Philippines passed out of existence. It
was replaced by the existing Republic of the Philippines, which took over the subject land and turned portions of it
over to the then Civil Aeronautics Administration (CAA), later renamed Bureau of Air Transportation Office (ATO).
Said government agency has since utilized the land in question, or portions of it as a domestic national airport, with
some portions rented to the Philippine Airlines, and some to the provincial government for a capitol site and a
hospital site, and for some other uses which clearly are not military in nature.
A petition for reconveyance was filed on December 25, 1970, alleging as ground therefor the violation of the express
condition imposed by the donor. It was also during this time that Jose Delgado, brother and lone heir of the donor,
Carlos, obtained a court order dated March 15, 1971, directing the insertion of the automatic reversion clause as an
8

annotation in the TCT.

Due to the plaintiff's failure to prosecute, the case for reconveyance was eventually dismissed by the lower court
without prejudice on September 26, 1983.
Sometime in early 1989, the heirs of Jose Delgado sent letters to the different agencies occupying the subject
9

property, inviting their attention to the donation and the violation of the condition imposed therein. No settlement or
understanding was reached, such that on September 28, 1989, the widow and surviving heirs of Jose Delgado filed
a new action for reconveyance with the RTC of Catarman, Northern Samar, Branch 19, docketed as Civil Case No.
C-489.
On March 8, 1990, an Amended Complaint was filed wherein plaintiffs prayed for reconveyance of the
donated parcel of land based on the following reasons:
a.) That there was non-compliance by the donee of the condition imposed in the deed of donation;
b.) That assuming there was compliance, the donation became inoperative when the donee, the then
Commonwealth of the Philippines, passed out of existence on July 4, 1946, with the birth of the Republic of
the Philippines, making the donation inoperative and the land subject thereof automatically reverted to the
donor or his heirs;
c.) That in the event the court declares the donation to have subsisted, the excess of 33,607 square meters,
over and above the 165,000 square meters donated by Carlos Delgado, should be declared to have been
unlawfully included and registered in the name of the Commonwealth of the Philippines and is now in the
possession of the Republic of the Philippines. They pray for the reconveyance of such excess, or in the
alternative, to declare that portion to have been expropriated, entitling them to just compensation; and
d.) That the Republic should be declared a possessor in bad faith and therefore liable to the petitioners for
the fruits received or could have been received from the use and occupation of the land. They likewise pray
for actual and compensatory damages as well as attorney's fees.
In answer to the complaint, respondent Republic of the Philippines contends that the heirs have no cause of action
and even denied knowledge of such donation, having no record thereof in its possession. It continually asserts
government ownership over the property in dispute. Assuming arguendo that indeed there was such a donation, the
Republic interposed these defenses:
1.) That defendant (Republic) as successor-in-interest of the Commonwealth of the Philippines thereby
succeeded to all the rights, titles and interests of the latter with respect to the property in question; that the
said donation continued to be operative and no automatic reversion occurred;
2.) That granting there was a violation of the condition, the action for reconveyance is already barred by
laches, waiver and/or prescription; and
3.) That the suit is one against the state or the government which is immune from suit, and no consent was
given by the latter to be sued.
The RTC ruled in favor of the petitioners herein and disposed of the case as follows:
WHEREFORE, judgment is hereby rendered:
a.) Ordering the defendant to reconvey in favor of the plaintiffs the ownership and possession of the portions
of the land in question designated as Lots Nos. 1-A, 1-B, 1-C, 1-E, 1-G, 1-H and 1-I in the commissioner's
report;
 b.) Declaring that portions designated as Lots 1-O, 1-J and 1-K deemed expropriated as of 1966 by the
defendant and to pay just compensation therefor with interest thereon at the legal rate commencing from
December 29, 1970, the date of filing of Civil Case No. C-504 (Exh. "X"), until fully paid; and
c.) Ordering the defendant to pay plaintiffs the amounts of P10,000.00 and P5,000.00 as reimbursement for
attorney's fee and other litigation expenses, respectively, and to pay the costs hereof.
SO ORDERED.
On appeal to the Court of Appeals, the RTC ruling was reversed and set aside. Hence, this petition for review,
wherein the following are assigned by petitioners as errors committed by the respondent court:
I. THE RESPONDENT COURT SERIOUSLY ERRED WITH GRAVE ABUSE OF DISCRETION IN HOLDING
THAT THE AUTOMATIC REVERSION CLAUSE CONDITION EXPRESSLY CONTAINED IN THE DEED OF
DONATION AND AS ACCEPTED BY THE DONEE, IS NOT IMPRESCRIPTIBLE;
II. THE RESPONDENT COURT SERIOUSLY ERRED WITH GRAVE ABUSE OF DISCRETION IN NOT
HOLDING THAT THE PORTION NOW OCCUPIED BY THE PHILIPPINE ARMY DESIGNATED AS LOT 1-M
IN EXHS. V AND V-1 WITH AN AREA OF 89,959 SQUARE METERS, SHALL REMAIN IN THE
POSSESSION AND USE OF THE PHILIPPINE ARMY;
III. THE RESPONDENT COURT SERIOUSLY ERRED WITH GRAVE ABUSE OF DISCRETION IN NOT
DECIDING THAT LOTS 1-A, 1-B, 1-C AND 1-D AS DESIGNATED IN EXHS. V AND V-1 CONTAINING A
TOTAL AREA OF 19,781 SQUARE METERS, HAVE BEEN EXPROPRIATED DE FACTO FOR PUBLIC
USE FOR WHICH PETITIONERS ARE ENTITLED TO JUST COMPENSATION;
IV. THE RESPONDENT COURT SERIOUSLY ERRED WITH GRAVE ABUSE OF DISCRETION IN NOT
DECIDING THAT LOT 1-J WITH AN AREA OF 845 SQUARE METERS; LOT 1-K WITH AN AREA OF 739
SQUARE METERS; AND 1-O WITH AN AREA OF 59,408 SQUARE METERS AS DESIGNATED IN EXHS.
V AND V-1, HAVE BEEN EXPROPRIATED DE FACTO FOR PUBLIC USE FOR WHICH PETITIONERS
ARE ENTITLED TO JUST COMPENSATION;
V. THE RESPONDENT COURT SERIOUSLY ERRED WITH GRAVE ABUSE OF DISCRETION IN NOT
DECIDING THAT LOTS 1-E, 1-G, 1-H, 1-I, AS DESIGNATED IN EXHS. V AND V-1 WITH A TOTAL AREA
OF 30,575 SQUARE METERS, HAVE TO BE RECONVEYED BY RESPONDENT REPUBLIC OF THE
PHILIPPINES TO THE PETITIONERS; AND
VI. THE RESPONDENT COURT SERIOUSLY ERRED WITH GRAVE ABUSE OF DISCRETION IN NOT
AWARDING TO PETITIONERS ATTORNEY'S FEES, LITIGATION EXPENSES AND COST OF SUIT. 10

The main issue to be resolved by this Court now is whether or not the petitioners' action for reconveyance is already
barred by prescription. From a resolution of this issue will proceed the proper adjudication of the rights of the parties
to the subject land, including any right to just compensation, damages and other fees.
At the outset, we find that the case of Roman Catholic Archbishop of Manila vs. Court of Appeals, 198 SCRA 300
(1991), provides a precedent in the resolution of the issue at hand. It involved a donation by the Eusebio spouses as
private respondents therein, of a parcel of land, with an express provision for automatic reversion of the donated
property in case of a violation of the condition therein. This Court held that from parity of reasons, the rules
governing onerous donations are applicable to donations with a resolutory condition. Although automatic reversion
11

immediately happens upon a violation of the condition and therefore no judicial action is necessary for such
purpose, still judicial intervention must be sought by the aggrieved party if only for the purpose of determining the
propriety of the rescission made. 12

Applying Article 1144 (1) of the Civil Code on prescription of actions based on a written contract, the petitioners
13

herein should have instituted the action for reconveyance within 10 years from the time the condition in the Deed of
Donation was violated. The earliest date the petitioners knew of the said violation of said condition was on July 4,
1946, when the Republic, as successor of the Commonwealth of the Philippines, took over the properties and
diverted the property to uses other than that imposed by the donor. As found by the Court of Appeals, the cause of
action of the petitioners has clearly prescribed, having instituted the action for reconveyance only on December 29,
14

1970, or 24 years after the condition was violated. Said action was dismissed by the trial court on September 26,
1983 for failure of petitioners to prosecute the case. The institution of a new action for reconveyance made on
September 28, 1989, does not alter respondent court's conclusion but in fact bolsters it, for by then, a total of 43
long years were allowed by petitioners to lapse before instituting the case at bar.
Even if the written communication sent by petitioners sometime in January 1969 and those made on February 10
15

and March 16, 1989 can be considered as written extrajudicial demands made by the creditors, they were
nevertheless made way beyond the ten-year period of prescription stated in the law.
With regard to the alleged excess of 33,607 square meters mistakenly included in the Original Certificate of Title, we
also find in order the ruling of the Court of Appeals that the action for its reconveyance has likewise prescribed.
Article 1456 of the Civil code states, "If property is acquired through mistake or fraud, the person obtaining it is, by
force of law, considered a trustee of an implied trust for the benefit of the person from whom the property comes." In
the case of Bueno vs. Reyes, G.R. No. L-22587, 27 SCRA 1179, 1183 (1969), we held that registration of property
by one person in his name, whether by mistake or fraud, the real owner being another person, impresses upon the
title so acquired the character of a constructive trust for the real owner, which would justify an action for
reconveyance. However, it is now well-settled that an action for reconveyance of registered land based on an
implied trust prescribes in ten years and it is from the date of issuance of such title that the effective assertion of
16

adverse title for purposes of the statute of limitations is counted.

17

Granting that in the present case, the said excess portion of petitioners' land was mistakenly registered in the name
of the Commonwealth of the Philippines on September 9, 1939, still petitioners were admittedly aware of this fact.
The issuance of the OCT on said date stating the total area included should have apprised them, even
constructively, that a portion of their land was mistakenly claimed by the donee, respondent Republic's predecessor-
in-interest. Petitioners should have taken appropriate legal action seasonably, within the ten years prescriptive
period. Since petitioners filed their action belatedly, we find that they have also lost any right to the aforesaid portion
of land consisting of 33,607 square meters.
For now, the causes of action which petitioners may have against the respondent Republic, in our view, are already
barred by prescription. Extinctive prescription has set in in favor of the Republic, and it cannot now be sued based
on the same causes of action. The main issue presented to us having been resolved, the other issues raised by
petitioners no longer need elaboration for patent lack of merit.
WHEREFORE, the petition for review is DENIED and the appealed decision of the Court of Appeals in CA-G.R. CV
No. 36923, dated June 14, 1996, is hereby AFFIRMED. No pronouncement as to costs.
SO ORDERED.

G.R. No. 146972 January 29, 2008

B & I REALTY CO., INC., petitioner,
vs.
TEODORO CASPE and PURIFICACION AGUILAR CASPE, respondents.
DECISION
CORONA, J.:
This petition for review on certiorari seeks to set aside the February 7, 2001 decision1 of the Court of Appeals (CA)
in CA-G.R. C.V. No. 57273.
This case stems from two earlier complaints filed by Spouses Arsenio and Consorcia L. Venegas 2 against herein
petitioner B & I Realty Co., Inc., respondent spouses Teodoro and Purificacion Aguilar Caspe, and a certain Arturo
G. Datuin.3
Consorcia L. Venegas was the owner of a parcel of land located in Barrio Bagong-Ilog in Pasig, Rizal and covered
by TCT No. 247434. She delivered said title to, and executed a simulated deed of sale in favor of, Datuin for
purposes of obtaining a loan with the Rizal Commercial Banking Corporation (RCBC). Datuin claimed that he had
connections with the management of RCBC and offered his assistance to Venegas in obtaining a loan from the
bank. He issued a receipt to the Venegases, acknowledging that the lot was to be used as a collateral for bank
financing and that the deed of sale (with a resolutory condition) was executed only as a device to obtain the loan.
However, Datuin prepared a deed of absolute sale and, through forgery, made it appear that the spouses Venegas
executed the document in his favor. He was then able to have the TCT transferred to his name. Consequently, TCT
No. 247434 was cancelled and a new title, TCT No. 377734, was issued to him by the register of deeds. Thereafter,
he obtained a loan from petitioner in the amount of P75,000 using the title of the property as collateral for the
loan. The mortgage was annotated at the back of the title.
Venegas learned of Datuin's fraudulent scheme when she sold the lot (subject of the mortgage) to herein
respondents for P160,000 in a deed of conditional sale.4 She, along with her husband, instituted a complaint against
Datuin in the then Court of First Instance (CFI) of Rizal, Branch 11, docketed as Civil Case No. 188893, for recovery
of property and nullification of TCT No. 377734, with damages. However, when the case was called for pre-trial, the
Venegases' counsel failed to appear and the complaint was eventually dismissed without prejudice.
Thereafter, Venegas and her husband, respondents and Datuin entered into a compromise agreement whereby the
Venegases agreed to sell and transfer the property to respondents with the condition that they (respondents) would
assume and settle Datuin's mortgage debt to petitioner. The amount corresponding to the unpaid mortgage would
be deducted from the consideration.
As provided for in the agreement, Datuin executed a deed of absolute sale over the property covered by TCT No.
377734 in favor of respondents. On February 12, 1976, the respondents started paying their assumed mortgage
obligation to petitioner.
However, on August 27, 1980, Venegas brought a new action before the CFI of Pasig, Branch 6, docketed as Civil
Case No. 36852, for annulment of the transfer of the property to Datuin and the declaration of nullity of all
transactions involving and annotated on TCT No. 377734, including the mortgage executed in favor of petitioner, as
well as the cancellation of the conditional deed of sale to respondents. On January 10, 1986, the trial court ruled in
favor of respondents, to wit:
WHEREFORE, judgment is hereby rendered in favor of the defendants spouses Teodoro Caspe and
Purificacion A. Caspe on their counterclaims and ordering the complaint of plaintiffs [spouses Venegas] as
well as the counterclaims of B & I Realty Co, Inc. dismissed. Arturo G. Datuin is ordered to pay the damages
suffered by the defendants-Caspe[s] PhP10,000.00 as compensatory and consequential damages;
PhP5,000.00 moral damages and PhP5,000.00 attorney's fees and to pay the costs.
The sale between Consorcia Venegas and Arturo G. Datuin is declared void from the beginning.
Consequently, the transfer of title no. 247434 from Venegas to Datuin is hereby ordered non-existent and
Transfer Certificate of Title No. 377734 in the name of Arturo G. Datuin is hereby cancelled. The Conditional
Deed of Sale between the Venegas and the Caspes is declared valid and approved. All payments of Caspes
to Venegas or agents, to Datuin and to B & I Realty Co. Inc. are considered part of the PhP160,000.00
consideration or purchase price.
The mortgage between Datuin and the B & I Realty Co., Inc. is hereby declared cancelled and B & I Realty
Co., Inc. is hereby ordered to deliver the title to the Caspes upon the latter paying said financing company
the remaining balance of PhP15,132.00. The Register of Deeds of Rizal is hereby ordered to cancel
Transfer Certificate of Title No. 377734 in the name of Arturo G. Datuin and in lieu to issue a new title in the
name of Teodoro Caspe and Purificacion A. Caspe.
Petitioner interposed an appeal to the CA. On October 31, 1989, the CA held that all pronouncements in the
aforesaid CFI decision pertaining to petitioner had no binding effect on it. It reasoned that the appealed decision
adversely affected petitioner on the basis of evidence presented ex-parte by respondents without according the
former the opportunity to controvert the same, in violation of the due process clause. However, the CA affirmed the
rest of the judgment.5
Respondents filed a motion for reconsideration6 which was denied on January 25, 1990.7 It became final and
executory as respondents did not appeal the denial thereof.
On May 12, 1993, petitioner sent a demand letter to respondents for the payment of their loan. The latter refused to
pay.
On August 27, 1993, petitioner filed an action for judicial foreclosure of mortgage, the subject of the instant petition
for review, against respondents before the Regional Trial Court (RTC), Branch 166, Pasig City. It was docketed as
SCA 447. In their answer, respondents argued that the action had already prescribed.
On August 26, 1997, the RTC ruled in favor of petitioner. The trial court held that the defense of prescription could
not prosper as it was not pleaded by respondents in their motion to dismiss.
Respondents appealed to the CA which reversed the RTC decision and dismissed petitioner's action for judicial
foreclosure. It stated that, although the defense of prescription was not pleaded in the motion to dismiss,8 the same
was, however, pleaded in the answer9 and in their motion to set case for hearing on the special affirmative
defenses.10 As such, respondents could not have waived the defense of prescription. The CA further held that the
action had indeed prescribed. It cited Section 1, Rule 9 of the 1997 Rules of Court:
Section 1. Defenses and objections not pleaded. - Defenses and objections not pleaded either in a motion to
dismiss or in the answer are deemed waived. However, when it appears from the pleadings or the
evidence on record that the court has no jurisdiction over the subject matter, that there is another action
pending between the same parties for the same cause, or that the action is barred by a prior judgment
or by statute of limitations, the court shall dismiss the claim. (emphasis supplied by the CA)
Petitioner questioned the CA ruling that respondents did not waive the defense of prescription. It argued that, as its
complaint for judicial foreclosure of mortgage was filed on August 27, 1993 before the effectivity of the 1997 Rules of
Court, the provision did not apply to the instant case. It invoked the old rule in the 1964 Rules of Court as basis that
its cause of action had not yet prescribed.
Petitioner's contention is untenable.
Before addressing the merits of the controversy, we shall first discuss a preliminary matter relating to the application
of the mode of appeal under Rule 45 of the Rules of Court.
It should be noted that the jurisdiction of this Court in a petition for review on certiorari under Rule 45 is limited only
to questions of law. This Court is not a trier of facts. The findings of fact of the CA are binding and conclusive on this
Court. However, the application of this rule is not absolute and admits of certain exceptions. For instance, factual
findings of the CA may be reviewed by this Court when the findings of fact of the RTC and the CA are conflicting.11 In
this case, the RTC held that the action had already prescribed; the CA ruled otherwise. Thus, although the petition
now before us involves a question of fact, that is, whether or not the action for judicial foreclosure of mortgage has
already prescribed, we may still rule on the same.
We now proceed to the merits of this controversy.
On one hand, the CA erred when it held that there was no waiver of the defense of prescription even if it was
invoked only in the answer and in the motion to set case for hearing on the affirmative defenses, and not in the
motion to dismiss, because it should have been raised at the earliest possible time, in this case, in the motion to
dismiss. Thus, it was deemed waived in accordance with the "omnibus motion rule."12
On the other hand, however, the CA was correct in applying the 1997 Rules of Court. Procedural laws may be given
retroactive application in cases of actions pending and undetermined at the time of their passage. 13 In this case, the
action was still pending in the RTC when the 1997 Rules of Court was promulgated on July 1, 1997. The RTC
decided the case on August 26, 1997. Thus, retroactive application of the 1997 Rules was proper. Ultimately, the CA
did not commit any error when it granted respondents’ appeal. It correctly applied the 1997 Rules of Court and
rightly ruled in favor of prescription as the same was supported by the evidence on record.
In fact, it was the evidence of the petitioner itself which proved that prescription had set in:
1. a duplicate original of the deed of real estate mortgage,14 executed by Arturo G. Datuin, showing that the
mortgage was executed on May 17, 1973. This deed of real estate mortgage expressly provided that the
mortgage loan (was to) be repaid within one year from the date thereof, or on May 17, 1974.
2. a duplicate original of the promissory note,15 executed by Datuin on May 17, 1973, showing that he was
indebted to petitioner in the amount of P75,000 secured by a deed of real estate mortgage.
3. a machine copy of the compromise agreement,16 dated June 11, 1975, executed by spouses Venegas,
Datuin and respondents, showing that the mortgaged property was sold and transferred to respondents on
the condition that they would assume and settle in full Datuin's mortgage loan to petitioner.
4. a machine copy of the deed of absolute sale,17 dated October 30, 1975, showing the sale of the
mortgaged property between Arturo G. Datuin and respondents. In this instrument, respondents
acknowledged their assumption of Datuin's mortgage.
5. a statement of account of defendants18 showing the computation of the interests and service fees on the
loan. In the said statement of account, payments made by respondents to petitioner were duly reflected. The
series of payments began on February 12, 1976 and ended on January 14, 1980.
6. the complaint for judicial foreclosure of real state mortgage was instituted on August 27, 1993.
Article 1142 of the Civil Code provides:
Art. 1142. A mortgage action prescribes after ten years.
Article 1155 also provides that the prescription of actions is interrupted in the following instance:
Art. 1155. The 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.
Although the deed of real estate mortgage and the promissory note executed by Datuin expressly declared that the
date of maturity of the loan was May 14, 1974 or one year after the real estate mortgage was entered into between
Datuin and petitioner, the same could not be the reckoning point for purposes of counting the prescriptive period of
the mortgage. This is because Datuin and respondents executed a deed of absolute sale on October 30, 1975
whereby the latter acknowledged and assumed the mortgage obligation of the former in favor of petitioner. Under
Article 1155 of the Civil Code, the written acknowledgment and assumption of the mortgage obligation by
respondents had the effect of interrupting the prescriptive period of the mortgage action.19
A perusal of the evidence for the petitioner, as may be gleaned from the statement of account of respondents
prepared by petitioner itself, revealed that respondents made payments to the former beginning February 12, 1976
up to January 14, 1980. No other payments were made thereafter.
We have held in a number of cases that the computation of the prescriptive period of any cause of action (the same
as prescription of actions) starts from the date when the cause of action accrues. 20 Here, petitioner's cause of action
accrued from the time respondents stopped paying the mortgage debt they assumed from Datuin, in accordance
with Article 1151 of the Civil Code:
Art. 1151. The time for the prescription of actions which have for their object the enforcement of obligations
to pay principal with interest or annuity runs from the last payment of the annuity or of the interest.
It was then that respondents committed a breach of duty to pay their remaining obligation to the former. 21 Thus, the
ten-year prescriptive period should be reckoned from January 14, 1980. Petitioner had until January 14, 1990 to file
suit so that, when it sued on August 27, 1993, the action had already prescribed.
However, even if we apply the 1964 Rules of Court as petitioner wants, its cause of action had prescribed just the
same.
Section 8, Rule 15 of the 1964 Rules of Court provided:
Sec. 8. Omnibus motion. - A motion attacking a pleading or a proceeding shall include all objections then
available, and all objections not so included shall be deemed waived. (emphasis supplied)
Petitioner contends that the 1964 Rules unequivocally provided that a motion attacking a pleading should state all
the objections available at the time of its filing. Otherwise, they were deemed waived. This was in stark contrast to
the present rule which provides for instances when other objections may be made even after such an omnibus
motion has already been filed.
Admittedly, respondents interposed the defense of prescription only in their answer after having filed their motion to
dismiss without alleging the said defense. Hence, in accordance with the old rule, respondents' defense could not
prosper as the same was deemed waived.
It should be pointed out that the difference between the two provisions is more apparent than real. A review of the
pertinent jurisprudence under the old rule reveals the existence of exceptions to the general rule.
In Philippine National Bank v. Perez, et al.,22 the Court held that:
The rule does not obtain when the evidence shows that the cause of action upon which plaintiff's
complaint is based is already barred by the statute of limitations. (emphasis supplied)
The Court made the same pronouncement in Philippine National Bank v. Pacific Commission House 23 when, despite
defendant's having been declared in default for failure to answer after service of summons, it held that:
xxx [T]he fact that the plaintiff's own allegation in the complaint or the evidence it presented shows clearly
that the action had prescribed removes this case from the rule regarding waiver of the defense by failure to
plead the same.
In the case at bar, and as already explained, the evidence of the petitioner itself showed that prescription had in fact
set in.
Petitioner, however, argues that the filing of Civil Case No. 36852 by the Venegases had the effect of interrupting the
prescriptive period for the filing of the complaint for judicial foreclosure of mortgage. We disagree.
Petitioner is clutching at straws to justify its failure to institute the action within the required period. We agree with
the CA's ruling that Civil Case No. 36852 did not have the effect of interrupting the prescription of the action for
foreclosure of mortgage as it was not an action for foreclosure but one for annulment of title and nullification of the
deed of mortgage and the deed of sale. It was not at all the action contemplated in Article 1155 of the Civil Code
which explicitly provides that the prescription of an action is interrupted only when the action itself is filed in court.
Petitioner nevertheless claims that it had to wait for the decision in Civil Case No. 36852 before it could file a
complaint for judicial foreclosure of mortgage as the same would have constituted forum shopping. Petitioner's
argument is misplaced.
Petitioner could have protected its right over the property by filing a cross-claim 24 for judicial foreclosure of mortgage
against respondents in Civil Case No. 36852. The filing of a cross-claim would have been proper there. All the
issues pertaining to the mortgage — validity of the mortgage and the propriety of foreclosure — would have been
passed upon concurrently and not on a piecemeal basis. This should be the case as the issue of foreclosure of the
subject mortgage was connected with, or dependent on, the subject of annulment of mortgage in Civil Case No.
36852.
The records indicate that petitioner even threatened to foreclose on the mortgage during the pendency of Civil Case
No. 36852. This prompted respondents to ask the trial court to issue an order to restrain petitioner from proceeding
with the institution of such an action pending the disposition of the case, to maintain the status quo. 25 Petitioner
cannot now claim that it had to wait for the decision of the court in Civil Case No. 36852 before it could institute the
foreclosure. Its actuations clearly manifested that it knew its rights under the law but chose to sleep on the same.
WHEREFORE, the petition is hereby DENIED. The February 7, 2001 decision of the Court of Appeals in CA-G.R.
C.V. No. 57273 is AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. 168035 November 30, 2006
MELANIE M. MESINA, DANILO M. MESINA, and SIMEON M. MESINA, Petitioners,
vs.
GLORIA C. GARCIA, Respondent.
DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review on Certiorari under Rule 45 of the 1997 Revised Rules of Civil Procedure,
seeking to reverse and set aside the Court of Appeals Decision1 in C.A.–G.R. CV No. 79646 entitled, Gloria C.
Garcia v. Melanie M. Mesina, Danilo M. Mesina and Simeon M. Mesina, dated 6 January 2005, which affirmed the
Decision2 of the Regional Trial Court (RTC) of Cabanatuan City, dated 6 January 2003, ordering petitioners to issue
the necessary Deed of Absolute Sale over the parcel of land, subject matter of this case in favor of respondent.
The controversy of the present case arose from the following facts, as summarized by the RTC and the Court of
Appeals:
Atty. Honorio Valisno Garcia and Felicisima Mesina, during their lifetime, or on 26 April 1977, to be exact entered
into a Contract to Sell over a lot consisting of 235 square meters, situated at Diversion Road, Sangitan, Cabanatuan
City, covered and embraced by [Transfer Certificate of Title] TCT No. T-31643 in the name of Felicisima Mesina
which title was eventually cancelled and TCT No. T-78881 was issued in the name of herein [petitioners]. Atty.
Honorio Valisno Garcia is the deceased husband of [herein respondent Gloria C. Garcia] while the late Felicisima
Mesina is the mother of [petitioners] Danilo, Simeon, and Melanie, all surnamed Mesina.
The Contract to Sell provides that the cost of the lot is P70.00 per square meter for a total amount of P16,450.00;
payable within a period not to exceed seven (7) years at an interest rate of 12% per annum, in successive monthly
installments of P260.85 per month, starting May 1977. Thereafter, the succeeding monthly installments are to be
paid within the first week of every month, at the residence of the vendor at Quezon City, with all unpaid monthly
installments earning an interest of one percent (1%) per month.
The Contract [to Sell] also stipulated, among others, that: Should the [spouses Garcia] fail to pay five (5) successive
monthly installments, [Felicisima Mesina] shall have a right to rescind this [C]ontract to [S]ell. All paid installments to
be recomputed as rental for usage of lot shall be at the rate of [P100.00] a month and that [Felicisima Mesina] shall
have the further option to return the downpayment (sic) plus whatever balance [spouses Garcia] paid, thereby
rescinding the Contract to Sell. Upon rescission of the Contract to Sell, [spouses Garcia] agrees (sic) to remove all
the improvements built on the lot within three (3) months from rescission of this contract, [spouses Garcia]
shouldering all expenses of said removal.3
Instituting this case at bar, [respondent] asserts that despite the full payment made on 7 February 1984 for the
consideration of the subject lot, [petitioners] refused to issue the necessary Deed of Sale to effect the transfer of the
property to her, for which reason she was constrained to secure the services of a counsel at an agreed attorney’s
fees of P150,000.00 in addition to P3,000.00 per court appearance.
[Respondent] prays that the Court renders judgment in [her] favor and against [herein petitioners], viz:
1. Ordering the [petitioners] to issue a [D]eed of [A]bsolute [S]ale pertaining to the property in question;
2. Ordering the [petitioners] to pay to the [respondent] moral damages (sic) P1,000,000.00;
3. Ordering the [petitioners] to pay the [respondent] exemplary damages of P150,000.00;
4. Ordering the [petitioners] to pay to the [respondent] attorney’s fees of P150,000.00 plus P3,000.00 per
court appearance;
5. To pay the costs of this suit.
On the other hand, through the lone testimony of Atty. Caesar Augustus P. Blanco, the [petitioners] sought to
establish that [they] agreed to pay P300,000.00 attorney’s fees to the Carag, Caballes, Jamora and Somera Law
Office, and appearance fee in accordance with the standard hourly charge of P2,500.00 per hour.
As of 20 December 1999, up to present, their law firm had rendered a total of 113 hours computed at an hourly rate
of P2,500.00 per hour, or a total of P282,500.00. The [petitioners] have made partial payments in the total sum of
P71,725.00. Atty. Blanco presented a Statement of Account dated 15 January 2002 (Exhibit "1") of the expenses
incurred by [petitioners] as of 20 December 1996.
Records show that none of the [petitioners] was presented to give their respective testimony.4
After trial, the court a quo rendered a Decision dated 6 January 2003. The decretal portion of which reads, thus:
WHEREFORE, premises considered, judgment is hereby rendered:
1. ordering the [petitioners] MELANIE MESINA, DANILO MESINA, and SIMEON MESINA to issue the
necessary [D]eed of [A]bsolute [S]ale in favor of the [respondent] GLORIA C. GARCIA over the property,
more particularly described as follows:
"A parcel of land portion of Lot 314-A-2 (LRC) PSD-179247 situated in the District of Magsaysay,
Cabanatuan City. Bounded in the NE. & SE. by Lot 317, Cabanatuan City; on the SW., by Lot 314-A-1 (LRC)
PSD-179247 (Atty. R.Z. Annang); on the W., by National Road; and on the NW., by Lot 314-A-2 (LRC) PSD-
179247 (portion). Containing an area of 235 sq. meters more or less."
2. ordering the [respondent] GLORIA C. GARCIA to vacate and return the excess of the 235 square meter
area subject of the Contract to Sell, or, pay compensation therefore at the present prevailing current market
value to the [petitioners]; and
3. Parties’ claim for damages and attorney’s fees are DISMISSED.
No pronouncement as to costs.5
Petitioners sought reconsideration of the above-mentioned Decision on 10 February 2003 but the same was denied
by the court a quo in its Order, dated 21 March 2003.
Petitioners appealed the aforesaid Decision of the RTC to the Court of Appeals. Nonetheless, on 6 January 2005,
the Court of Appeals rendered a Decision dismissing the appeal for lack of merit; thereby affirming the Decision of
the RTC dated 6 January 2003. The dispositive portion of which reads as follows:
WHEREFORE, PREMISES CONSIDERED, this Appeal is DISMISSED for lack of merit. Accordingly, the Decision of
the Regional Trial Court, Third Judicial Region, Branch 24, Cabanatuan City in Civil Case No. 2549 (AF) is hereby
AFFIRMED.6
Petitioners filed a Motion for Reconsideration of the Court of Appeals’ Decision on 27 January 2005, but it was
denied in a Resolution7 dated 5 May 2005.
Hence, this Petition.
Petitioners submit that the Court of Appeals committed a reversible error in rendering its Decision dated 6 January
2005, which was based on the inadmissible, incompetent, and unreliable testimonies of respondent’s witnesses.
Hence, petitioners presented before this Court the following issues:
I.
Whether or not respondent’s cause of action had already prescribed.
II.
Whether or not petitioners are in estoppel.
III.
Whether or not the Court of Appeals failed to consider the fact that no competent evidence had been
adduced by respondent tending to prove her cause of action.
Petitioners aver that the respondent’s cause of action had already prescribed. They further contend that the "series
of extra-judicial demands" made by the respondent could never have worked to interrupt the prescriptive period
following the exception laid down in Article 11558 of the Civil Code as the exception in Article 1155 refers only to an
extra-judicial demand made by a creditor not by a debtor. Hence, herein respondent, being a debtor, does not
qualify under the said exception. Therefore, there could be no interruption in the prescriptive period of this present
case. Consequently, the case should have been dismissed outright for having been filed out of time.
Petitioners likewise argue that the principle of estoppel does not apply in the case at bar because respondent was
never induced to believe that she already owned the subject property by making full payment. Furthermore,
respondent cannot say that she has been led by petitioners to have validly effected full payment in view of the fact
that petitioners repeatedly denied her requests for execution of a Deed of Absolute Sale. In fact, petitioners made it
clear to respondent that they have not accepted her late payments, and that they will not execute the Deed of
Absolute Sale in her favor.
Petitioners also claim that respondent failed to prove the fact of full payment of the subject property because there
were no reliable and credible evidence adduced by respondent to support her unfounded claims that she completely
paid the purchase price of the subject property.
The Petition is bereft of merit.
The Civil Code provides that an action based on a written contract, an obligation created by law, and a judgment
must be brought within 10 years from the time the right of action accrues.9
In the case at bar, as pointed out by the Court of Appeals, the right of action of the respondent accrued on the date
that the full and final payment of the contract price was made. Accordingly, as the full payment of the purchase price
on the subject Contract to Sell had been effected on 7 February 198410 thus, respondent had from said date until 7
February 1994 within which to bring an action to enforce the written contract, i.e., the Contract to Sell. It was then
the contention of the petitioners that when the respondent instituted her Complaint for Specific Performance with
Damages on 20 January 1997, the same had already been barred by prescription. The contention of the petitioners
is untenable. Article 1155 of the Civil Code is explicit that the prescriptive period is interrupted when an action has
been filed in court; when there is a written extrajudicial demand made by the creditors; and when there is any written
acknowledgment of the debt by the debtor.
In the present case it cannot be gainsaid that respondent made a series of written extrajudicial demands for the
petitioners to execute the Deed of Absolute Sale in her favor. The records reveal that starting 19 April 1986 until 2
January 1997 respondent continuously demanded from the petitioners the execution of the said Deed of Absolute
Sale but the latter conjured many reasons and excuses not to execute the same. Respondent even filed a
Complaint before the Housing and Land Use Regulatory Board (HLURB) way back in June, 1986, to enforce her
rights and to compel the mother of herein petitioners, who was still alive at that time, to execute the necessary Deed
of Absolute Sale for the transfer of title in her name. The HLURB rendered a Decision 11 on 14 January 1988 in favor
of the respondent; however, via a Petition for Review filed by the late Felicisima Mesina, the HLURB rendered a
Decision12 dated 7 February 1989 setting aside its 14 January 1988 Decision for lack of jurisdiction.
After the aforesaid incident, respondent executed an Affidavit of Adverse Claim13 on 4 December 1996, which was
duly registered before the Register of Deeds of Cabanatuan City, on 5 December 1996. In the said Affidavit, she
stated that after the reversal by the HLURB of its 14 January 1988 Decision, either petitioner Simeon or Melanie
gave her assurances that as soon as their mother, Felicisima Mesina, recovered from her ailment, the Deed of Sale
shall be issued in her favor. Unfortunately, it did not happen.
On 2 January 1997, respondent, through her counsel, sent a final demand letter 14 to the petitioners for the execution
of the Deed of Absolute Sale, but still to no avail. Consequently, because of utter frustration of the respondent, she
finally lodged a formal Complaint for Specific Performance with Damages before the trial court on 20 January 1997.
Hence, from the series of written extrajudicial demands made by respondent to have the execution of the Deed of
Absolute Sale in her favor, the prescriptive period of 10 years has been interrupted. Therefore, it cannot be said that
the cause of action of the respondent has already been prescribed.
Anent petitioners’ argument that since Article 1155 of the Civil Code is clear that only creditors who execute a written
extrajudicial demand can toll the period of prescription of actions, respondent, being a debtor, does not qualify under
the said exception. This Court finds said argument indefensible.
Both the trial court and the Court of Appeals upheld the right of the respondent to have the Deed of Absolute Sale
issued in her favor. It is understood, then, that the purchase price of the subject property had already been paid in
full. Hence, at the time of full payment of the purchase price, the respondent was no longer the debtor of petitioners’
deceased mother Felicisima Mesina because respondent already performed her obligation to the latter. Upon the full
payment of the purchase price, respondent’s right to demand the execution of the Deed of Absolute Sale begins and
Felicisima Mesina’s (now survived by petitioners) obligation to execute the said deed to respondent commenced. At
that point, respondent ceased to be the debtor of petitioners’ mother Felicisima Mesina. Hence, it would be the
height of injustice to deny to respondent the benefit of Article 1155 upon the assumption that respondent being a
debtor is not qualified under the exception mentioned in the aforesaid provision of the Civil Code. In all, we hold that
the series of written extrajudicial demands made by herein respondent interrupted the running of the 10-year
prescriptive period, thereby preventing prescription to bar the cause of action of the respondent against herein
petitioners.
With respect to the issue on estoppel, this Court, upon reviewing the records of the case at bar, finds no reason to
overturn the findings of the appellate court that, indeed, petitioners are estopped from avowing that they never had
knowledge as to the acceptance of the delayed payments made by the respondent, and that they never induced
respondent to believe that she had validly effected full payment.
Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the person making it,
and cannot be denied or disproved as against the person relying thereon. A party, having performed affirmative acts
upon which another person based his subsequent actions, cannot thereafter refute his acts or renege on the effects
of the same, to the prejudice of the latter.15
As aptly observed by the Court of Appeals in its Decision rendered on 6 January 2005, evidence on record show
that petitioners can no longer deny having accepted the late payments made by the respondent because in a
letter16 dated 10 April 1986 sent to petitioner Simeon Mesina by Engineer Danilo Angeles, who is the husband of
petitioners’ authorized collection agent Angelina Angeles, he told petitioner Simeon Mesina that the title and the
Deed of Sale were both ready for their signature, and respondent was willing and ready to pay for the excess area.
Hence, if petitioners did not accept the late payments of the respondent, and if they did not consider such as full
payment of the purchase price on the subject property as they claimed it to be, the title as well as the Deed of Sale
could not have been prepared for their signature. In the same way, respondent could not have sent a demand letter
to ask for the execution of those documents had they not been induced to believe that the late payments were
validly accepted and that the purchase price had already been paid in full.
Moreover, as the Court of Appeals mentioned in its Decision, petitioners in their Petition for Review filed before the
HLURB in connection with a case docketed as HLURB Case No. REM-072186-2915, and stated under oath, thus:
x x x After his death, the heirs of Atty. Garcia began to make sporadic payments to one Angelina Angeles in 1984.
Mrs. Angeles apparently acted as the agent of the [petitioners], but this was done without the knowledge of the
[petitioners] Mesinas. Eventually, the late payments were accepted by the [petitioners] but the [petitioners] Mesinas
reiterated the obligation of the [respondent] to survey and title the portion of the land subject of the [C]ontract to
[S]ell at their expense. x x x17
Likewise, in an Affidavit18 executed by petitioner Simeon Mesina, dated 15 February 1988, he affirmed that:
"10. By reason of such incident, [petitioner Simeon Mesina] requested Mrs. Angelina Angeles to tell [respondent]
that as a further concession to their family, [petitioner Simeon Mesina] would recommend the acceptance of the late
payment that she collected, but with the condition that the [respondent] would shoulder all the expenses for the
transfer of the title and for the separation of the lot from the mother title, subject matter of the installment sale;
11. That sometime in 1985, a draft of deed of absolute sale was presented to the [petitioner Simeon Mesina] by Mrs.
Angelina Angeles to [petitioners’ mother, the late Felicisima Mesina] for the latter’s signature. However, [petitioner
Simeon Mesina] noticed that the area of the lot was increased from x x x;
12. For such reason, the [petitioner Simeon Mesina] requested their collector, Mrs. Angelina Angeles, to relay to
[respondent] that this was not the area agreed upon, with the request that the area actually agreed upon should be
stated in the Deed of [Absolute] Sale."19
Based on the foregoing statements, which were made under oath, it is crystal clear that the late payments were
accepted by the petitioners, and that the payments corresponded to the purchase value of the subject property;
therefore, petitioners cannot deny the fact that the full payment of the purchase value of the lot in question had in
fact been made by the respondent. 1âwphi1

Furthermore, in the Affidavit of Adverse Claim20 made by the respondent which has been properly recorded before
the Register of Deeds of Cabanatuan City, respondent declared therein that she and the rest of her family were
given assurances by the Mesinas that as soon as their mother, Felicisima Mesina, recovered from her ailment, the
corresponding Deed of Absolute Sale would be issued in her favor. But, petitioners reneged on such promise made
to the respondent.
All the foregoing incidents proved that petitioners made an admission or representation that respondent already paid
in full the purchase value of the subject property. Petitioners are already estopped from claiming otherwise. As the
respondent relied vehemently on such representation or admission of the petitioners, it will be highly prejudicial on
her part if the bare denial of the petitioners will be allowed to defeat her established right over the subject property
and to have the Deed of Absolute Sale issued in her favor.
Finally, we cannot lend ourselves to concede to the contention of the petitioners that respondent failed to prove the
fact of full payment of the subject property as there were no reliable and credible evidence adduced by the latter to
support her unfounded claims.
All the evidence presented by the respondent before the trial court as sustained by the appellate court, i.e., the
receipts of payment issued by petitioners’ mother during her lifetime, as well as the receipts issued by their
authorized collection agent, the Affidavit of Adverse Claim executed by the respondent, which has been properly
recorded before the Register of Deeds, and which remains unquestioned, and the series of demand letters sent to
petitioners by the respondent with nary a challenge from the petitioners, are all proofs that respondent had truly
completed the performance of her obligation, which is the payment in full of the purchase price of the subject
property.
In sum, the Court of Appeals committed no reversible error in sustaining the cause of action of the respondent
because the evidence on record properly supported it.
WHEREFORE, premises considered, the instant Petition for Review is hereby DENIED. The Decision of the Court
of Appeals dated 6 January 2005, which upheld the Decision of RTC of Cabanatuan City date 6 January 2003 is
hereby AFFIRMED. Costs against petitioners.
SO ORDERED.
G.R. No. 170352 June 1, 2011
MEGAN SUGAR CORPORATION, Petitioner,
vs.
REGIONAL TRIAL COURT of ILOILO, Branch 68, Dumangas, Iloilo; New Frontier Sugar Corporation and
EQUITABLE PCI BANK, Respondents.
DECISION
PERALTA, J.:
Before this Court is a petition for review on certiorari, 1 under Rule 45 of the Rules of Court, seeking to set aside the
August 23, 2004 Decision2 and October 12, 2005 Resolution3 of the Court of Appeals (CA), in CA-G.R. SP No.
75789.
The facts of the case are as follows:
On July 23, 1993, respondent New Frontier Sugar Corporation (NFSC) obtained a loan from respondent Equitable
PCI Bank (EPCIB). Said loan was secured by a real estate mortgage over NFSC’s land consisting of ninety-two (92)
hectares located in Passi City, Iloilo, and a chattel mortgage over NFSC’s sugar mill.
On November 17, 2000, because of liquidity problems and continued indebtedness to EPCIB, NFSC entered into a
Memorandum of Agreement4 (MOA) with Central Iloilo Milling Corporation (CIMICO), whereby the latter agreed to
take-over the operation and management of the NFSC raw sugar factory and facilities for the period covering crop
years 2000 to 2003.
On April 19, 2002, NFSC filed a compliant for specific performance and collection5 against CIMICO for the latter’s
failure to pay its obligations under the MOA.
In response, CIMICO filed with the Regional Trial Court (RTC) of Dumangas, Iloilo, Branch 68, a case against NFSC
for sum of money and/or breach of contract.6 The case was docketed as Civil Case No. 02-243.
On May 10, 2002, because of NFSC’s failure to pay its debt, EPCIB instituted extra-judicial foreclosure proceedings
over NFSC’s land and sugar mill. During public auction, EPCIB was the sole bidder and was thus able to buy the
entire property and consolidate the titles in its name. EPCIB then employed the services of Philippine Industrial
Security Agency (PISA) to help it in its effort to secure the land and the sugar mill.
On September 16, 2002, CIMICO filed with the RTC an Amended Complaint 7 where it impleaded PISA and EPCIB.
As a result, on September 25, 2002, upon the motion of CIMICO, the RTC issued a restraining order, directing
EPCIB and PISA to desist from taking possession over the property in dispute. Hence, CIMICO was able to continue
its possession over the property.
On October 3, 2002, CIMICO and petitioner Megan Sugar Corporation (MEGAN) entered into a MOA 8 whereby
MEGAN assumed CIMICO’s rights, interests and obligations over the property. As a result of the foregoing
undertaking, MEGAN started operating the sugar mill on November 18, 2002.
On November 22, 2002, Passi Iloilo Sugar Central, Inc. (Passi Sugar) filed with the RTC a Motion for Intervention
claiming to be the vendee of EPCIB. Passi Sugar claimed that it had entered into a Contract to Sell9 with EPCIB
after the latter foreclosed NFSC’s land and sugar mill.
On November 29, 2002, during the hearing on the motion for intervention, Atty. Reuben Mikhail Sabig (Atty. Sabig)
appeared before the RTC and entered his appearance as counsel for MEGAN. Several counsels objected to Atty.
Sabig’s appearance since MEGAN was not a party to the proceedings; however, Atty. Sabig explained to the court
that MEGAN had purchased the interest of CIMICO and manifested that his statements would bind MEGAN.
On December 10, 2002, EPCIB filed a Motion for Delivery/Deposit of Mill Shares/Rentals.10
On December 11, 2002, Passi Sugar filed a Motion to Order Deposit of Mill Share Production of "MEGAN" and/or
CIMICO.11 On the same day, NFSC filed a Motion to Order Deposit of Miller’s Share (37%) or the Lease
Consideration under the MOA between NFSC and CIMICO.12
On December 27, 2002, NFSC filed another Motion to Hold in Escrow Sugar Quedans or Proceeds of Sugar Sales
Equivalent to Miller’s Shares.13
On January 16, 2003, the RTC issued an Order 14 granting EPCIB’s motion for the placement of millers’ share in
escrow. The dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the motions to place the mill’s share in escrow to the court is hereby
GRANTED.
Megan Sugar Corporation or its director-officer, Mr. Joey Concha, who is General Manager of Megan, is ordered to
deposit in escrow within five (5) days upon receipt of this order, the sugar quedans representing the miller’s share to
the Court starting from December 19, 2002 and thereafter, in every Friday of the week pursuant to the Memorandum
of Agreement executed by plaintiff CIMICO and defendant NFSC.
SO ORDERED. 15
On January 29, 2003, Atty. Sabig filed an Omnibus Motion for Reconsideration and Clarification. 16 On February 19,
2003, the RTC issued an Order17 denying said motion.
On February 27, 2003, EPCIB filed an Urgent Ex-Parte Motion for Execution, 18 which was granted by the RTC in an
Order19 dated February 28, 2003.
Aggrieved by the orders issued by the RTC, MEGAN filed before the CA a petition for certiorari, 20 dated March 5,
2003. In said petition, MEGAN argued mainly on two points; first, that the RTC erred when it determined that
MEGAN was subrogated to the obligations of CIMICO and; second, that the RTC had no jurisdiction over MEGAN.
On August 23, 2004, the CA issued a Decision dismissing MEGAN’s petition, the dispositive portion of which reads:
WHEREFORE, premises considered, the Petition for Certiorari is hereby DENIED and forthwith DISMISSED for lack
of merit. Cost against petitioner.
SO ORDERED.21
In denying MEGAN’s petition, the CA ruled that since Atty. Sabig had actively participated before the RTC, MEGAN
was already estopped from assailing the RTC’s jurisdiction.
Aggrieved, MEGAN then filed a Motion for Reconsideration, 22 which was, however, denied by the CA in Resolution
dated October 12, 2005.
Hence, herein petition, with MEGAN raising the following issues for this Court’s consideration, to wit:
I.
WHETHER OR NOT THE PETITIONER IS ESTOPPED FROM QUESTIONING THE ASSAILED ORDERS
BECAUSE OF THE ACTS OF ATTY. REUBEN MIKHAIL SABIG.
II.
WHETHER OR NOT THE REGIONAL TRIAL COURT HAD JURISDICTION TO ISSUE THE ORDERS
DATED JANUARY 16, 2003, FEBRUARY 19, 2003 AND FEBRUARY 28, 2003.23
The petition is not meritorious.
MEGAN points out that its board of directors did not issue a resolution authorizing Atty. Sabig to represent the
corporation before the RTC. It contends that Atty. Sabig was an unauthorized agent and as such his actions should
not bind the corporation. In addition, MEGAN argues that the counsels of the different parties were aware of Atty.
Sabig’s lack of authority because he declared in court that he was still in the process of taking over the case and
that his voluntary appearance was just for the hearing of the motion for intervention of Passi Sugar.
Both EPCIB and NFSC, however, claim that MEGAN is already estopped from assailing the authority of Atty. Sabig.
They contend that Atty. Sabig had actively participated in the proceedings before the RTC and had even filed a
number of motions asking for affirmative relief. They also point out that Jose Concha (Concha), who was a member
of the Board of Directors of MEGAN, accompanied Atty. Sabig during the hearing. Lastly, EPCIB and NFSC contend
that all the motions, pleadings and court orders were sent to the office of MEGAN; yet, despite the same, MEGAN
never repudiated the authority of Atty. Sabig.
After a judicial examination of the records pertinent to the case at bar, this Court agrees with the finding of the CA
that MEGAN is already estopped from assailing the jurisdiction of the RTC.
Relevant to the discussion herein is the transcript surrounding the events of the November 29, 2002 hearing of
Passi Sugar’s motion for intervention, to wit:
ATTY. ARNOLD LEBRILLA:
Appearing as counsel for defendant PCI Equitable Bank, your Honor.
ATTY. CORNELIO PANES:
Also appearing as counsel for defendant New Frontier Sugar Corporation.
ATTY. ANTONIO SINGSON:
I am appearing, your Honor, as counsel for Passisugar.
ATTY. REUBEN MIKHAIL SABIG:
Appearing your Honor, for Megan Sugar, Inc.
ATTY. LEBRILLA: Your Honor, the counsel for the plaintiff CIMICO has not yet arrived.
ATTY. SABIG: Your Honor, we have been furnished of a copy of the motion. I’ve talked to Atty. [Leonardo] Jiz and he
informed me that he cannot attend this hearing because we are in the process of taking over this case. However,
the Passisugar had intervened and we have to appear because we have been copy furnished of the motion, and
also, your Honor, since the motion will directly affect Megan and we are appearing in this hearing despite the fact
that we had not officially received the copy of the motion. Anyway, your Honor, since we are in the process of taking
over this case, Atty. Jiz told me that he cannot appear today.
COURT: Here is the representative from CIMICO.
ATTY. PANES: Yes, your Honor, Atty. Gonzales is here.
ATTY. NELIA JESUSA GONZALES:
I am appearing in behalf of the plaintiff CIMICO, your Honor.
xxxx
COURT: Shall we tackle first your motion for intervention?
ATTY. SINGSON: Yes, your Honor.
ATTY. PANES: Yes, your Honor, and I would like to make a manifestation in relation to the appearance made by Atty.
Sabig. Megan is not, in anyway, a party [to] this case and if he must join, he can file a motion for intervention. We
would like to reiterate our stand that he cannot participate in any proceeding before this Court particularly in this
case.
COURT: Yes, that is right.
ATTY. SINGSON: Yes, your Honor, unless there is a substitution of the plaintiff.
ATTY. SABIG: I understand, your Honor, that we have been served a copy of this motion.
ATTY. PANES: A service copy of the motion is only a notice and it is not, in anyway, [a] right for him to appear as a
party.
COURT: Just a moment, Atty. Panes. Shall we allow Atty. Sabig to finish first?
ATTY. SABIG: This motion directly affects us and that’s why we’re voluntarily appearing, just for this hearing on the
motion and not for the case itself, specifically for the hearing [on] this motion. That’s our appearance for today
because we have been served and we have to protect our interest. We are not saying that we are taking over the
case but there is a hearing for the motion in intervention and we have been served a copy, that’s why we appear
voluntarily.
ATTY. LEBRILLA: Your Honor, please, for the defendant, we do not object to the appearance of the counsel for
Megan provided that the counsel could assure us that whatever he says [all through] in this proceeding will [bind] his
client, your Honor, as he is duly authorized by the corporation, under oath, your Honor, that whatever he says here
is binding upon the corporation.
ATTY. SABIG: Yes, your Honor.
COURT: But I thought all the while that your motion for intervention will implead Megan.
ATTY. SINGSON: We will not yet implead them, your Honor.
COURT: Why will you not implead them because they are now in possession of the mill?
ATTY. SINGSON: That’s why we want to be clarified. In what capacity is Megan entering into the picture? That’s the
point now that we would like to ask them. So, whatever statement you’ll be making here will bind Megan?
ATTY. SABIG: Yes, your Honor. Specifically for the hearing because apparently, we have to voluntarily appear since
they furnished us a copy that would directly affect our rights.
xxxx
COURT: Are you saying that you are appearing now in behalf of Megan?
ATTY. SABIG: Yes, your Honor.
COURT: And whatever statement you made here will bind Megan?
ATTY. SABIG: Yes, your Honor.
xxxx
COURT: That’s why you’re being asked now what interest [does] Megan have here?
ATTY. SABIG: We are already in possession of the mill, your Honor.
ATTY. SINGSON: You are in possession of the mill. [On] what authority are you in possession, this Megan group?
ATTY. SABIG: We have a Memorandum of Agreement which we entered, your Honor, and they transferred their
[referring to CIMICO] rights to us.24
The doctrine of estoppel is based upon the grounds of public policy, fair dealing, good faith and justice, and its
purpose is to forbid one to speak against his own act, representations, or commitments to the injury of one to whom
they were directed and who reasonably relied thereon. The doctrine of estoppel springs from equitable principles
and the equities in the case. It is designed to aid the law in the administration of justice where without its aid
injustice might result. It has been applied by this Court wherever and whenever special circumstances of a case so
demand.25
Based on the events and circumstances surrounding the issuance of the assailed orders, this Court rules that
MEGAN is estopped from assailing both the authority of Atty. Sabig and the jurisdiction of the RTC. While it is true,
as claimed by MEGAN, that Atty. Sabig said in court that he was only appearing for the hearing of Passi Sugar’s
motion for intervention and not for the case itself, his subsequent acts, coupled with MEGAN’s inaction and
negligence to repudiate his authority, effectively bars MEGAN from assailing the validity of the RTC proceedings
under the principle of estoppel.
In the first place, Atty. Sabig is not a complete stranger to MEGAN. As a matter of fact, as manifested by EPCIB,
Atty. Sabig and his law firm SABIG SABIG & VINGCO Law Office has represented MEGAN in other cases 26 where
the opposing parties involved were also CIMICO and EPCIB. As such, contrary to MEGAN’s claim, such
manifestation is neither immaterial nor irrelevant,27 because at the very least, such fact shows that MEGAN knew
Atty. Sabig.
MEGAN can no longer deny the authority of Atty. Sabig as they have already clothed him with apparent authority to
act in their behalf. It must be remembered that when Atty. Sabig entered his appearance, he was accompanied by
Concha, MEGAN’s director and general manager. Concha himself attended several court hearings, and on
December 17, 2002, even sent a letter28 to the RTC asking for the status of the case. A corporation may be held in
estoppel from denying as against innocent third persons the authority of its officers or agents who have been
clothed by it with ostensible or apparent authority.29Atty. Sabig may not have been armed with a board resolution, but
the appearance of Concha made the parties assume that MEGAN had knowledge of Atty. Sabig’s actions and, thus,
clothed Atty. Sabig with apparent authority such that the parties were made to believe that the proper person and
entity to address was Atty. Sabig. Apparent authority, or what is sometimes referred to as the "holding out" theory, or
doctrine of ostensible agency, imposes liability, not as the result of the reality of a contractual relationship, but rather
because of the actions of a principal or an employer in somehow misleading the public into believing that the
relationship or the authority exists.30
Like the CA, this Court notes that MEGAN never repudiated the authority of Atty. Sabig when all the motions,
pleadings and court orders were sent not to the office of Atty. Sabig but to the office of MEGAN, who in turn, would
forward all of the same to Atty. Sabig, to wit:
x x x All the motions, pleadings and other notices in the civil case were mailed to Atty. Reuben Mikhail P. Sabig,
Counsel for Megan Sugar, NFSC Compound, Barangay Man-it, Passi, Iloilo City which is the address of the Sugar
Central being operated by Megan Sugar. The said address is not the real office address of Atty. Sabig. As pointed
out by private respondent Equitable PCI Bank, the office address of Atty. Sabig is in Bacolod City. All orders,
pleadings or motions filed in Civil Case 02-243 were received in the sugar central being operated by Megan Central
and later forwarded by Megan Sugar to Atty. Sabig who is based in Bacolod City. We find it incredible that, granting
that there was no authority given to said counsel, the record shows that it was received in the sugar mill operated by
Megan and passed on to Atty. Sabig. At any stage, petitioner could have repudiated Atty. Sabig when it received the
court pleadings addressed to Atty. Sabig as their counsel.31
One of the instances of estoppel is when the principal has clothed the agent with indicia of authority as to lead a
reasonably prudent person to believe that the agent actually has such authority.32 With the case of MEGAN, it had all
the opportunity to repudiate the authority of Atty. Sabig since all motions, pleadings and court orders were sent to
MEGAN’s office. However, MEGAN never questioned the acts of Atty. Sabig and even took time and effort to
forward all the court documents to him.
To this Court’s mind, MEGAN cannot feign knowledge of the acts of Atty. Sabig, as MEGAN was aware from the
very beginning that CIMICO was involved in an on-going litigation. Such fact is clearly spelled out in MEGAN’s MOA
with CIMICO, to wit:
WHEREAS, CIMICO had filed a 2nd Amended Complaint for Sum of Money, Breach of Contract and Damages with
Preliminary Injunction with a Prayer for a Writ of Temporary Restraining Order against the NEW FRONTIER SUGAR
CORPORATION, pending before Branch 68 of the Regional Trial Court, based in Dumangas, Iloilo, Philippines,
entitled CENTRAL ILOILO MILLING CORPORATION (CIMICO) versus NEW FRONTIER SUGAR CORPORATION
(NFSC), EQUITABLE PCI BANK and PHILIPPINE INDUSTRIAL SECURITY AGENCY docketed as CIVIL CASE
NO. 02-243;33
Considering that MEGAN’s rights stemmed from CIMICO and that MEGAN was only to assume the last crop period
of 2002-2003 under CIMICO’s contract with NFSC,34 it becomes improbable that MEGAN would just wait idly by for
the final resolution of the case and not send a lawyer to protect its interest.
1avvphi1

In addition, it bears to point out that MEGAN was negligent when it did not assail the authority of Atty. Sabig within a
reasonable time from the moment when the first adverse order was issued. To restate, the January 16, 2003 RTC
Order directed MEGAN to deposit a sizable number of sugar quedans. With such an order that directly affects the
disposition of MEGAN’s assets and one that involves a substantial amount, it is inconceivable for Atty. Sabig or for
Concha not to inform MEGAN’s board of such an order or for one of the directors not to hear of such order thru
other sources. As manifested by NFSC, MEGAN is a family corporation and Concha is the son-in-law of Eduardo
Jose Q. Miranda (Eduardo), the President of MEGAN. Elizabeth Miranda, one of the directors, is the daughter of
Eduardo. MEGAN’s treasurer, Ramon Ortiz is a cousin of the Mirandas. 35 Thus, given the nature and structure of
MEGAN’s board, it is unimaginable that not a single director was aware of the January 16, 2003 RTC Order.
However, far from repudiating the authority of Atty. Sabig, Atty. Sabig even filed a Manifestation 36 that MEGAN will
deposit the quedans, as directed by the RTC, every "Friday of the week."
MEGAN had all the opportunity to assail the jurisdiction of the RTC and yet far from doing so, it even complied with
the RTC Order. With the amount of money involved, it is beyond belief for MEGAN to claim that it had no knowledge
of the events that transpired. Moreover, it bears to stress that Atty. Sabig even filed subsequent motions asking for
affirmative relief, more important of which is his March 27, 2003 Urgent Ex-Parte Motion 37 asking the RTC to direct
the Sugar Regulatory Administration (SRA) to release certain quedans in favor of MEGAN on the premise that the
same were not covered by the RTC Orders. Atty. Sabig manifested that 30% of the value of the quedans will be
deposited in court as payment for accrued rentals. Noteworthy is the fact that Atty. Sabig’s motion was favorably
acted upon by the RTC. Like the CA, this Court finds that estoppel has already set in. It is not right for a party who
has affirmed and invoked the jurisdiction of a court in a particular matter to secure an affirmative relief to afterwards
deny that same jurisdiction to escape a penalty.38 The party is barred from such conduct not because the judgment
or order of the court is valid but because such a practice cannot be tolerated for reasons of public policy.39
Lastly, this Court also notes that on April 2, 2003, Atty. Sabig again filed an Urgent Ex-Parte Motion40 asking the RTC
to direct the SRA to release certain quedans not covered by the RTC Orders. The same was granted by the RTC in
an Order41 dated April 2, 2003. Curiously, however, Rene Imperial, the Plant Manager of MEGAN, also signed the
April 2, 2003 RTC Order and agreed to the terms embodied therein. If Atty. Sabig was not authorized to act in behalf
of MEGAN, then why would MEGAN’s plant manager sign an official document assuring the RTC that he would
deliver 30% of the value of the quedans earlier released to MEGAN pursuant to the March 27, 2003 Order?
The rule is that the active participation of the party against whom the action was brought, coupled with his failure to
object to the jurisdiction of the court or administrative body where the action is pending, is tantamount to an
invocation of that jurisdiction and a willingness to abide by the resolution of the case and will bar said party from
later on impugning the court or body’s jurisdiction. 42 Based on the preceding discussion, this Court holds that
MEGAN’s challenge to Atty. Sabig’s authority and the RTC’s jurisdiction was a mere afterthought after having
received an unfavorable decision from the RTC. Certainly, it would be unjust and inequitable to the other parties if
this Court were to grant such a belated jurisdictional challenge.
WHEREFORE, premises considered, the petition is DENIED. The August 23, 2004 Decision and October 12, 2005
Resolution of the Court of Appeals, in CA-G.R. SP No. 75789, are AFFIRMED.
SO ORDERED.
G.R. No. 140182. April 12, 2005
TANAY RECREATION CENTER AND DEVELOPMENT CORP., Petitioners,
vs.
CATALINA MATIENZO FAUSTO* and ANUNCIACION FAUSTO PACUNAYEN, Respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is the lessee of a 3,090-square meter
property located in Sitio Gayas, Tanay, Rizal, owned by Catalina Matienzo Fausto, under a Contract of Lease
1

executed on August 1, 1971. On this property stands the Tanay Coliseum Cockpit operated by petitioner. The lease
contract provided for a 20-year term, subject to renewal within sixty days prior to its expiration. The contract also
provided that should Fausto decide to sell the property, petitioner shall have the "priority right" to purchase the
same. 2

On June 17, 1991, petitioner wrote Fausto informing her of its intention to renew the lease. However, it was Fausto’s
3

daughter, respondent Anunciacion F. Pacunayen, who replied, asking that petitioner remove the improvements built
thereon, as she is now the absolute owner of the property. It appears that Fausto had earlier sold the property to
4

Pacunayen on August 8, 1990, for the sum of ₱10,000.00 under a "Kasulatan ng Bilihan Patuluyan ng Lupa," and 5

title has already been transferred in her name under Transfer Certificate of Title (TCT) No. M-35468.
6

Despite efforts, the matter was not resolved. Hence, on September 4, 1991, petitioner filed an Amended Complaint
for Annulment of Deed of Sale, Specific Performance with Damages, and Injunction, docketed as Civil Case No.
372-M. 7

In her Answer, respondent claimed that petitioner is estopped from assailing the validity of the deed of sale as the
latter acknowledged her ownership when it merely asked for a renewal of the lease. According to respondent, when
they met to discuss the matter, petitioner did not demand for the exercise of its option to purchase the property, and
it even asked for grace period to vacate the premises. 8

After trial on the merits, the Regional Trial Court of Morong, Rizal (Branch 78), rendered judgment extending the
period of the lease for another seven years from August 1, 1991 at a monthly rental of ₱10,000.00, and dismissed
petitioner’s claim for damages. 9

On appeal, docketed as CA-G.R. CV No. 43770, the Court of Appeals (CA) affirmed with modifications the trial
court’s judgment per its Decision dated June 14, 1999. The dispositive portion of the decision reads:
10

WHEREFORE, the appealed decision is AFFIRMED AND ACCORDINGLY MODIFIED AS DISCUSSED.

Furthermore, we resolved:
1.0. That TRCDC VACATE the leased premises immediately;
2.0. To GRANT the motion of Pacunayen to allow her to withdraw the amount of ₱320,000.00, deposited according
to records, with this court.
3.0. To order TRCDC to MAKE THE NECESSARY ACCOUNTING regarding the amounts it had already deposited
(for unpaid rentals for the extended period of seven [7] years of the contract of lease). In case it had not yet
completed its deposit, to immediately pay the remaining balance to Pacunayen.
4.0. To order TRCDC to PAY the amount of ₱10,000.00 as monthly rental, with regard to its continued stay in the
leased premises even after the expiration of the extended period of seven (7) years, computed from August 1, 1998,
until it finally vacates therefrom.
SO ORDERED. 11

In arriving at the assailed decision, the CA acknowledged the priority right of TRCDC to purchase the property in
question. However, the CA interpreted such right to mean that it shall be applicable only in case the property is sold
to strangers and not to Fausto’s relative. The CA stated that "(T)o interpret it otherwise as to comprehend all sales
including those made to relatives and to the compulsory heirs of the seller at that would be an absurdity," and "her
(Fausto’s) only motive for such transfer was precisely one of preserving the property within her bloodline and that
someone administer the property." The CA also ruled that petitioner already acknowledged the transfer of
12

ownership and is deemed to have waived its right to purchase the property. The CA even further went on to rule
13

that even if the sale is annulled, petitioner could not achieve anything because the property will be eventually
transferred to Pacunayen after Fausto’s death. 14

Petitioner filed a motion for reconsideration but it was denied per Resolution dated September 14, 1999. 15

Dissatisfied, petitioner elevated the case to this Court on petition for review on certiorari, raising the following
grounds:
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN HOLDING THAT
THE CONTRACTUAL STIPULATION GIVING PETITIONER THE PRIORITY RIGHT TO PURCHASE THE LEASED
PREMISES SHALL ONLY APPLY IF THE LESSOR DECIDES TO SELL THE SAME TO STRANGERS;
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE ERROR IN HOLDING THAT
PETITIONER’S PRIORITY RIGHT TO PURCHASE THE LEASED PREMISES IS INCONSEQUENTIAL. 16

The principal bone of contention in this case refers to petitioner’s priority right to purchase, also referred to as the
right of first refusal.
Petitioner’s right of first refusal in this case is expressly provided for in the notarized "Contract of Lease" dated
August 1, 1971, between Fausto and petitioner, to wit:
7. That should the LESSOR decide to sell the leased premises, the LESSEE shall have the priority right to purchase
the same; 17

When a lease contract contains a right of first refusal, the lessor is under a legal duty to the lessee not to sell to
anybody at any price until after he has made an offer to sell to the latter at a certain price and the lessee has failed
to accept it. The lessee has a right that the lessor's first offer shall be in his favor. Petitioner’s right of first refusal is
18

an integral and indivisible part of the contract of lease and is inseparable from the whole contract. The consideration
for the lease includes the consideration for the right of first refusal and is built into the reciprocal obligations of the
19

parties.
It was erroneous for the CA to rule that the right of first refusal does not apply when the property is sold to Fausto’s
relative. When the terms of an agreement have been reduced to writing, it is considered as containing all the terms
20

agreed upon. As such, there can be, between the parties and their successors in interest, no evidence of such terms
other than the contents of the written agreement, except when it fails to express the true intent and agreement of the
parties. In this case, the wording of the stipulation giving petitioner the right of first refusal is plain and
21

unambiguous, and leaves no room for interpretation. It simply means that should Fausto decide to sell the leased
property during the term of the lease, such sale should first be offered to petitioner. The stipulation does not provide
for the qualification that such right may be exercised only when the sale is made to strangers or persons other than
Fausto’s kin. Thus, under the terms of petitioner’s right of first refusal, Fausto has the legal duty to petitioner not to
sell the property to anybody, even her relatives, at any price until after she has made an offer to sell to petitioner at a
certain price and said offer was rejected by petitioner. Pursuant to their contract, it was essential that Fausto should
have first offered the property to petitioner before she sold it to respondent. It was only after petitioner failed to
exercise its right of first priority could Fausto then lawfully sell the property to respondent.
The rule is that a sale made in violation of a right of first refusal is valid. However, it may be rescinded, or, as in this
case, may be the subject of an action for specific performance. In Riviera Filipina, Inc. vs. Court of Appeals, the
22 23

Court discussed the concept and interpretation of the right of first refusal and the consequences of a breach thereof,
to wit:
. . . It all started in 1992 with Guzman, Bocaling & Co. v. Bonnevie where the Court held that a lease with a
proviso granting the lessee the right of first priority "all things and conditions being equal" meant that there should be
identity of the terms and conditions to be offered to the lessee and all other prospective buyers, with the lessee to
enjoy the right of first priority. A deed of sale executed in favor of a third party who cannot be deemed a purchaser in
good faith, and which is in violation of a right of first refusal granted to the lessee is not voidable under the Statute of
Frauds but rescissible under Articles 1380 to 1381 (3) of the New Civil Code.
Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of Appeals, the Court en banc departed from the
doctrine laid down in Guzman, Bocaling & Co. v. Bonnevie and refused to rescind a contract of sale which
violated the right of first refusal. The Court held that the so-called "right of first refusal" cannot be deemed a
perfected contract of sale under Article 1458 of the New Civil Code and, as such, a breach thereof decreed under a
final judgment does not entitle the aggrieved party to a writ of execution of the judgment but to an action for
damages in a proper forum for the purpose.
In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., the Court en banc reverted
back to the doctrine in Guzman Bocaling & Co. v. Bonnevie stating that rescission is a relief allowed for the
protection of one of the contracting parties and even third persons from all injury and damage the contract may
cause or to protect some incompatible and preferred right by the contract.
Thereafter in 1997, in Parañaque Kings Enterprises, Inc. v. Court of Appeals, the Court affirmed the nature of
and the concomitant rights and obligations of parties under a right of first refusal. The Court, summarizing the rulings
in Guzman, Bocaling & Co. v. Bonnevie and Equatorial Realty Development, Inc. v. Mayfair Theater, Inc., held
that in order to have full compliance with the contractual right granting petitioner the first option to purchase, the sale
of the properties for the price for which they were finally sold to a third person should have likewise been first
offered to the former. Further, there should be identity of terms and conditions to be offered to the buyer holding a
right of first refusal if such right is not to be rendered illusory. Lastly, the basis of the right of first refusal must be the
current offer to sell of the seller or offer to purchase of any prospective buyer.
The prevailing doctrine therefore, is that a right of first refusal means identity of terms and conditions to be offered to
the lessee and all other prospective buyers and a contract of sale entered into in violation of a right of first refusal of
another person, while valid, is rescissible. 24

It was also incorrect for the CA to rule that it would be useless to annul the sale between Fausto and respondent
because the property would still remain with respondent after the death of her mother by virtue of succession, as in
fact, Fausto died in March 1996, and the property now belongs to respondent, being Fausto’s heir. 25

For one, Fausto was bound by the terms and conditions of the lease contract. Under the right of first refusal clause,
she was obligated to offer the property first to petitioner before selling it to anybody else. When she sold the
property to respondent without offering it to petitioner, the sale while valid is rescissible so that petitioner may
exercise its option under the contract.
With the death of Fausto, whatever rights and obligations she had over the property, including her obligation under
the lease contract, were transmitted to her heirs by way of succession, a mode of acquiring the property, rights and
obligation of the decedent to the extent of the value of the inheritance of the heirs. Article 1311 of the Civil Code
provides:
ART. 1311. Contracts take effect only between the parties, their assigns and heirs, except in case where the rights
and obligations arising from the contract are not transmissible by their nature, or by stipulation or by provision of law.
The heir is not liable beyond the value of the property he received from the decedent.
A lease contract is not essentially personal in character. Thus, the rights and obligations therein are transmissible to
26

the heirs. The general rule is that heirs are bound by contracts entered into by their predecessors-in-interest except
when the rights and obligations arising therefrom are not transmissible by (1) their nature, (2) stipulation or (3)
provision of law.27

In this case, the nature of the rights and obligations are, by their nature, transmissible. There is also neither
contractual stipulation nor provision of law that makes the rights and obligations under the lease contract
intransmissible. The lease contract between petitioner and Fausto is a property right, which is a right that passed on
to respondent and the other heirs, if any, upon the death of Fausto.
In DKC Holdings Corporation vs. Court of Appeals, the Court held that the Contract of Lease with Option to Buy
28

entered into by the late Encarnacion Bartolome with DKC Holdings Corporation was binding upon her sole heir,
Victor, even after her demise and it subsists even after her death. The Court ruled that:
. . . Indeed, being an heir of Encarnacion, there is privity of interest between him and his deceased mother. He only
succeeds to what rights his mother had and what is valid and binding against her is also valid and binding
as against him. This is clear from Parañaque Kings Enterprises vs. Court of Appeals, where this Court rejected a
similar defense-
With respect to the contention of respondent Raymundo that he is not privy to the lease contract, not being the
lessor nor the lessee referred to therein, he could thus not have violated its provisions, but he is nevertheless a
proper party. Clearly, he stepped into the shoes of the owner-lessor of the land as, by virtue of his purchase, he
assumed all the obligations of the lessor under the lease contract. Moreover, he received benefits in the form of
rental payments. Furthermore, the complaint, as well as the petition, prayed for the annulment of the sale of the
properties to him. Both pleadings also alleged collusion between him and respondent Santos which defeated the
exercise by petitioner of its right of first refusal.
In order then to accord complete relief to petitioner, respondent Raymundo was a necessary, if not indispensable,
party to the case. A favorable judgment for the petitioner will necessarily affect the rights of respondent Raymundo
as the buyer of the property over which petitioner would like to assert its right of first option to buy. (Emphasis
29

supplied)
Likewise in this case, the contract of lease, with all its concomitant provisions, continues even after Fausto’s death
and her heirs merely stepped into her shoes. Respondent, as an heir of Fausto, is therefore bound to fulfill all its
30

terms and conditions.

There is no personal act required from Fausto such that respondent cannot perform it. Fausto’s obligation to deliver
possession of the property to petitioner upon the exercise by the latter of its right of first refusal may be performed
by respondent and the other heirs, if any. Similarly, nonperformance is not excused by the death of the party when
the other party has a property interest in the subject matter of the contract.31

The CA likewise found that petitioner acknowledged the legitimacy of the sale to respondent and it is now barred
from exercising its right of first refusal. According to the appellate court:
Second, when TRCDC, in a letter to Fausto, signified its intention to renew the lease contract, it was Pacunayen
who answered the letter on June 19, 1991. In that letter Pacunayen demanded that TRCDC vacate the leased
premises within sixty (60) days and informed it of her ownership of the leased premises. The pertinent portion of the
letter reads:
Furtherly, please be advised that the land is no longer under the absolute ownership of my mother and the
undersigned is now the real and absolute owner of the land.
Instead of raising a howl over the contents of the letter, as would be its expected and natural reaction under the
circumstances, TRCDC surprisingly kept silent about the whole thing. As we mentioned in the factual antecedents of
this case, it even invited Pacunayen to its special board meeting particularly to discuss with her the renewal of the
lease contract. Again, during that meeting, TRCDC did not mention anything that could be construed as challenging
Pacunayen’s ownership of the leased premises. Neither did TRCDC assert its priority right to purchase the same
against Pacunayen. 32

The essential elements of estoppel are: (1) conduct of a party amounting to false representation or concealment of
material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with,
those which the party subsequently attempts to assert; (2) intent, or at least expectation, that this conduct shall be
acted upon by, or at least influence, the other party; and (3) knowledge, actual or constructive, of the real facts.33

The records are bereft of any proposition that petitioner waived its right of first refusal under the contract such that it
is now estopped from exercising the same. In a letter dated June 17, 1991, petitioner wrote to Fausto asking for a
renewal of the term of lease. Petitioner cannot be faulted for merely seeking a renewal of the lease contract
34

because obviously, it was working on the assumption that title to the property is still in Fausto’s name and the latter
has the sole authority to decide on the fate of the property. Instead, it was respondent who replied, advising
petitioner to remove all the improvements on the property, as the lease is to expire on the 1st of August 1991.
Respondent also informed petitioner that her mother has already sold the property to her. In order to resolve the
35

matter, a meeting was called among petitioner’s stockholders, including respondent, on July 27, 1991, where
petitioner, again, proposed that the lease be renewed. Respondent, however, declined. While petitioner may have
sought the renewal of the lease, it cannot be construed as a relinquishment of its right of first refusal. Estoppel must
be intentional and unequivocal. 36

Also, in the excerpts from the minutes of the special meeting, it was further stated that the possibility of a sale was
likewise considered. But respondent also refused to sell the land, while the improvements, "if for sale shall be
37

subject for appraisal." After respondent refused to sell the land, it was then that petitioner filed the complaint for
38

annulment of sale, specific performance and damages. Petitioner’s acts of seeking all possible avenues for the
39

amenable resolution of the conflict do not amount to an intentional and unequivocal abandonment of its right of first
refusal.
Respondent was well aware of petitioner’s right to priority of sale, and that the sale made to her by her mother was
merely for her to be able to take charge of the latter’s affairs. As admitted by respondent in her Appellee’s Brief filed
before the CA, viz.:
After June 19, 1991, TRCDC invited Pacunayen to meeting with the officers of the corporation. . . . In the same
meeting, Pacunayen’s attention was called to the provision of the Contract of Lease had by her mother with
TRCDC, particularly paragraph 7 thereof, which states:
7. That should the lessor decide to sell the leased premises, the LESSEE shall have the priority right to purchase
the same.
Of course, in the meeting she had with the officers of TRCDC, Pacunayen explained that the sale made in her favor
by her mother was just a formality so that she may have the proper representation with TRCDC in the absence of
her parents, more so that her father had already passed away, and there was no malice in her mine (sic) and that of
her mother, or any intention on their part to deceive TRCDC. All these notwithstanding, and for her to show their
good faith in dealing with TRCDC, Pacunayen started the ground work to reconvey ownership over the whole land,
now covered by Transfer Certificare (sic) of Title No. M-259, to and in the name of her mother (Fausto), but the latter
was becoming sickly, old and weak, and they found no time to do it as early as they wanted to. (Emphasis supplied)
40

Given the foregoing, the "Kasulatan ng Bilihan Patuluyan ng Lupa" dated August 8, 1990 between Fausto and
respondent must be rescinded. Considering, however, that Fausto already died on March 16, 1996, during the
pendency of this case with the CA, her heirs should have been substituted as respondents in this case.
Considering further that the Court cannot declare respondent Pacunayen as the sole heir, as it is not the proper
forum for that purpose, the right of petitioner may only be enforced against the heirs of the deceased Catalina
Matienzo Fausto, represented by respondent Pacunayen.
In Parañaque Kings Enterprises, Inc. vs. Court of Appeals, it was ruled that the basis of the right of the first refusal
41

must be the current offer to sell of the seller or offer to purchase of any prospective buyer. It is only after the grantee
fails to exercise its right of first priority under the same terms and within the period contemplated, could the owner
validly offer to sell the property to a third person, again, under the same terms as offered to the grantee. The
circumstances of this case, however, dictate the application of a different ruling. An offer of the property to petitioner
under identical terms and conditions of the offer previously given to respondent Pacunayen would be inequitable.
The subject property was sold in 1990 to respondent Pacunayen for a measly sum of ₱10,000.00. Obviously, the
value is in a small amount because the sale was between a mother and daughter. As admitted by said respondent,
"the sale made in her favor by her mother was just a formality so that she may have the proper representation with
TRCDC in the absence of her parents…" Consequently, the offer to be made to petitioner in this case should be
42

under reasonable terms and conditions, taking into account the fair market value of the property at the time it was
sold to respondent.
In its complaint, petitioner prayed for the cancellation of TCT No. M-35468 in the name of respondent
Pacunayen, which was issued by the Register of Deeds of Morong on February 7, 1991. Under ordinary
43 44

circumstances, this would be the logical effect of the rescission of the "Kasulatan ng Bilihan Patuluyan ng Lupa"
between the deceased Fausto and respondent Pacunayen. However, the circumstances in this case are not
ordinary. The buyer of the subject property is the seller’s own daughter. If and when the title (TCT No. M-35468) in
respondent Pacunayen’s name is cancelled and reinstated in Fausto’s name, and thereafter negotiations between
petitioner and respondent Pacunayen for the purchase of the subject property break down, then the subject property
will again revert to respondent Pacunayen as she appears to be one of Fausto’s heirs. This would certainly be a
winding route to traverse. Sound reason therefore dictates that title should remain in the name of respondent
Pacunayen, for and in behalf of the other heirs, if any, to be cancelled only when petitioner successfully exercises its
right of first refusal and purchases the subject property.
Petitioner further seeks the award of the following damages in its favor: (1) ₱100,000.00 as actual damages; (2)
₱1,100,000.00 as compensation for lost goodwill or reputation; (3) ₱100,000.00 as moral damages; (4) ₱100,000.00
as exemplary damages; (5) ₱50,000.00 as attorney’s fees; (6) ₱1,000.00 appearance fee per hearing; and (7) the
costs of suit.
45

According to petitioner, respondent’s act in fencing the property led to the closure of the Tanay Coliseum Cockpit
and petitioner was unable to conduct cockfights and generate income of not less than ₱100,000.00 until the end of
September 1991, aside from the expected rentals from the cockpit space lessees in the amount of ₱11,000.00. 46

Under Article 2199 of the Civil Code, it is provided that:

Except as provided by law or by stipulation, one is entitled to an adequate compensation only for such pecuniary
loss suffered by him as he has duly proved. Such compensation is referred to as actual or compensatory
damages. (Emphasis supplied)
The rule is that actual or compensatory damages cannot be presumed, but must be proved with reasonable degree
of certainty. A court cannot rely on speculations, conjectures, or guesswork as to the fact and amount of damages,
but must depend upon competent proof that they have been suffered by the injured party and on the best obtainable
evidence of the actual amount thereof. It must point out specific facts, which could afford a basis for measuring
whatever compensatory or actual damages are borne. 47

In the present case, there is no question that the Tanay Coliseum Cockpit was closed for two months and TRCDC
did not gain any income during said period. But there is nothing on record to substantiate petitioner’s claim that it
was bound to lose some ₱111,000.00 from such closure. TRCDC’s president, Ambrosio Sacramento, testified that
they suffered income losses with the closure of the cockpit from August 2, 1991 until it re-opened on October 20,
1991. Mr. Sacramento, however, cannot state with certainty the amount of such unrealized income. Meanwhile,
48 49

TRCDC’s accountant, Merle Cruz, stated that based on the corporation’s financial statement for the years 1990 and
1991, they derived the amount of ₱120,000.00 as annual income from rent. From said financial statement, it is safe
50 51

to presume that TRCDC generated a monthly income of ₱10,000.00 a month (₱120,000.00 annual income divided
by 12 months). At best therefore, whatever actual damages that petitioner suffered from the cockpit’s closure for a
period of two months can be reasonably summed up only to ₱20,000.00.
Such award of damages shall earn interest at the legal rate of six percent (6%) per annum, which shall be computed
from the time of the filing of the Complaint on August 22, 1991, until the finality of this decision. After the present
decision becomes final and executory, the rate of interest shall increase to twelve percent (12%) per annum from
such finality until its satisfaction, this interim period being deemed to be equivalent to a forbearance of credit. This is
52

in accord with the guidelines laid down by the Court in Eastern Shipping Lines, Inc. vs. Court of Appeals, regarding
53

the manner of computing legal interest, viz.:

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 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 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. 54

Petitioner also claims the amount of ₱1,100,000.00 as compensation for lost goodwill or reputation. It alleged that
"with the unjust and wrongful conduct of the defendants as above-described, plaintiff stands to lose its goodwill and
reputation established for the past 20 years." 55

An award of damages for loss of goodwill or reputation falls under actual or compensatory damages as provided in
Article 2205 of the Civil Code, to wit:
Art. 2205. Damages may be recovered:
(1) For loss or impairment of earning capacity in cases of temporary or permanent personal injury;
(2) For injury to the plaintiff’s business standing or commercial credit.
Even if it is not recoverable as compensatory damages, it may still be awarded in the concept of temperate or
moderate damages. In arriving at a reasonable level of temperate damages to be awarded, trial courts are guided
56

by the ruling that:

. . . There are cases where from the nature of the case, definite proof of pecuniary loss cannot be offered, although
the court is convinced that there has been such loss. For instance, injury to one's commercial credit or to the
goodwill of a business firm is often hard to show certainty in terms of money. Should damages be denied for that
reason? The judge should be empowered to calculate moderate damages in such cases, rather than that the
plaintiff should suffer, without redress from the defendant's wrongful act. (Araneta v. Bank of America, 40 SCRA 144,
145)57

In this case, aside from the nebulous allegation of petitioner in its amended complaint, there is no evidence on
record, whether testimonial or documentary, to adequately support such claim. Hence, it must be denied.
Petitioner’s claim for moral damages must likewise be denied. The award of moral damages cannot be granted in
favor of a corporation because, being an artificial person and having existence only in legal contemplation, it has no
feelings, no emotions, no senses. It cannot, therefore, experience physical suffering and mental anguish, which can
be experienced only by one having a nervous system. Petitioner being a corporation, the claim for moral damages
58 59

must be denied.
With regard to the claim for exemplary damages, it is a requisite in the grant thereof that the act of the offender must
be accompanied by bad faith or done in wanton, fraudulent or malevolent manner. Moreover, where a party is not
60

entitled to actual or moral damages, an award of exemplary damages is likewise baseless. In this case, petitioner
61

failed to show that respondent acted in bad faith, or in wanton, fraudulent or malevolent manner.
Petitioner likewise claims the amount of ₱50,000.00 as attorney’s fees, the sum of ₱1,000.00 for every appearance
of its counsel, plus costs of suit. It is well settled that no premium should be placed on the right to litigate and not
every winning party is entitled to an automatic grant of attorney's fees. The party must show that he falls under one
of the instances enumerated in Article 2208 of the Civil Code. In this case, since petitioner was compelled to engage
the services of a lawyer and incurred expenses to protect its interest and right over the subject property, the award
of attorney’s fees is proper. However there are certain standards in fixing attorney's fees, to wit: (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; and (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. Considering the foregoing, the award of ₱10,000.00 as
62

attorney’s fees, including the costs of suit, is reasonable under the circumstances.
WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED. The Court of Appeals’ Decision dated June
14, 1999 in CA-G.R. CV No. 43770 is MODIFIED as follows:
(1) the "Kasulatan ng Bilihan Patuluyan ng Lupa" dated August 8, 1990 between Catalina Matienzo Fausto and
respondent Anunciacion Fausto Pacunayen is hereby deemed rescinded;
(2) The Heirs of the deceased Catalina Matienzo Fausto who are hereby deemed substituted as respondents,
represented by respondent Anunciacion Fausto Pacunayen, are ORDERED to recognize the obligation of Catalina
Matienzo Fausto under the Contract of Lease with respect to the priority right of petitioner Tanay Recreation Center
and Development Corp. to purchase the subject property under reasonable terms and conditions;
(3) Transfer Certificate of Title No. M-35468 shall remain in the name of respondent Anunciacion Fausto Pacunayen,
which shall be cancelled in the event petitioner successfully purchases the subject property;
(4) Respondent is ORDERED to pay petitioner Tanay Recreation Center and Development Corporation the amount
of Twenty Thousand Pesos (₱20,000.00) as actual damages, plus interest thereon at the legal rate of six percent
(6%) per annum from the filing of the Complaint until the finality of this Decision. After this Decision becomes final
and executory, the applicable rate shall be twelve percent (12%) per annum until its satisfaction; and,
(5) Respondent is ORDERED to pay petitioner the amount of Ten Thousand Pesos (₱10,000.00) as attorney’s fees,
and to pay the costs of suit.
(6) Let the case be remanded to the Regional Trial Court, Morong, Rizal (Branch 78) for further proceedings on the
determination of the "reasonable terms and conditions" of the offer to sell by respondents to petitioner, without
prejudice to possible mediation between the parties.
The rest of the unaffected dispositive portion of the Court of Appeals’ Decision is AFFIRMED.
SO ORDERED.

G.R. No. 136031 January 4, 2002

JEFFERSON LIM, petitioner,
vs.
QUEENSLAND TOKYO COMMODITIES, INC., respondent.
QUISUMBING, J.:
Before us is a petition for review assailing the June 25, 1998, decision of the Court of Appeals in CA-G.R. CV No.
1

46495 which reversed and set aside the decision of the Regional Trial Court of Cebu, Branch 24, dismissing the
complaint by respondent for a sum of money as well as petitioner’s counterclaim.
Private respondent Queensland Tokyo Commodities, Incorporated (Queensland, for brevity) is a duly licensed
broker engaged in the trading of commodities futures with full membership and with a floor trading right at the
Manila Futures Exchange, Inc.. 2

Sometime in 1992, Benjamin Shia, a market analyst and trader of Queensland, was introduced to petitioner
Jefferson Lim by Marissa Bontia, one of his employees. Marissa’s father was a former employee of Lim’s father.
3 4

Shia suggested that Lim invest in the Foreign Exchange Market, trading U.S. dollar against the Japanese yen,
British pound, Deutsche Mark and Swiss Franc.
Before investing, Lim requested Shia for proof that the foreign exchange was really lucrative. They conducted mock
tradings without money involved. As the mock trading showed profitability, Lim decided to invest with a marginal
deposit of US$5,000 in manager’s check. The marginal deposit represented the advance capital for his future
tradings. It was made to apply to any authorized future transactions, and answered for any trading account against
which the deposit was made, for any loss of whatever nature, and for all obligations, which the investor would incur
with the broker. 5

Because respondent Queensland dealt in pesos only, it had to convert US$5,000 in manager’s check to pesos,
amounting to ₱125,000 since the exchange rate at that time was ₱25 to US$1.00. To accommodate petitioner’s
request to trade right away, it advanced the ₱125,000 from its own funds while waiting for the manager’s check to
clear. Thereafter, a deposit notice in the amount of ₱125,000 was issued to Queensland, marked as Exhibit "E". This
was sent to Lim who received it as indicated by his signature marked as Exhibit "E-1". Then, Lim signed the
Customer’s Agreement, marked as Exhibit "F," which provides as follows:
25. Upon signing of this Agreement, I shall deposit an initial margin either by personal check, manager’s
check or cash. In the case of the first, I shall not be permitted to trade until the check has been cleared by
my bank and credited to your account. In respect of margin calls or additional deposits required, I shall
likewise pay them either by personal check, manager’s check or cash. In the event my personal check is
dishonored, the company has the right without call or notice to settle/close my trading account against which
the deposit was made. In such event, any loss of whatever nature shall be borne by me and I shall settle
such loss upon demand together with interest and reasonable cost of collection. However, in the event such
liquidation gives rise to a profit then such amount shall be credited to the Company. The above
notwithstanding, I am not relieved of any legal responsibility as a result of my check being dishonored by my
bank. 6

Petitioner Lim was then allowed to trade with respondent company which was coursed through Shia by virtue of the
blank order forms, marked as Exhibits "G", "G-1" to "G-13", all signed by Lim. Respondent furnished Lim with the
7

daily market report and statements of transactions as evidenced by the receiving forms, marked as Exhibits "J", "J-
1" to "J-4", some of which were received by Lim.
8

During the first day of trading or on October 22, 1992, Lim made a net profit of ₱6,845.57. Shia went to the office of
9

Lim and informed him about it. He was elated. He agreed to continue trading. During the second day of trading or on
October 23, 1992, they lost P44,465. 10

Meanwhile, on October 22, 1992, respondent learned that it would take seventeen (17) days to clear the manager’s
check given by petitioner. Hence, on October 23, 1992, at about 11:00 A.M., upon management’s request, Shia
returned the check to petitioner who informed Shia that petitioner would rather replace the manager’s check with a
traveler’s check. Considering that it was 12:00 noon already, petitioner requested Shia to come back at 2:00 P.M..
11

Shia went with petitioner to the bank to purchase a traveler’s check at the PCI Bank, Juan Luna Branch at 2:00 P.M..
Shia noticed that the traveler’s check was not indorsed but Lim told Shia that Queensland could sign the indorsee
portion. Because Shia trusted the latter’s good credit rating, and out of ignorance, he brought the check back to the
12

office unsigned. Inasmuch as that was a busy Friday, the check was kept in the drawer of respondent’s consultant.
13

Later, the traveler’s check was deposited with Citibank. 14

On October 26, 1992, Shia informed petitioner that they incurred a floating loss of ₱44,695 on October 23, 1992.
15

He told petitioner that they could still recover their losses. He could unlock the floating loss on Friday. By unlocking
the floating loss, the loss on a particular day is minimized.
On October 27, 1992, Citibank informed respondent that the traveler’s check could not be cleared unless it was duly
signed by Lim, the original purchaser of the traveler’s check. A Miss Arajo, from the accounting staff of Queensland,
returned the check to Lim for his signature, but the latter, aware of his ₱44,465 loss, demanded for a liquidation of
his account and said he would get back what was left of his investment. Meanwhile, Lim signed only one portion of
16

the traveler’s check, leaving the other half blank. He then kept it. Arajo went back to the office without it.
17
1âwphi1.nêt

Respondent asked Shia to talk to petitioner for a settlement of his account but petitioner refused to talk with Shia.
Shia made follow-ups for more than a week beginning October 27, 1992. Because petitioner disregarded this
request, respondent was compelled to engage the services of a lawyer, who sent a demand letter to petitioner. This
18

letter went unheeded. Thus, respondent filed a complaint against petitioner, docketed as Civil Case No. CEB-
19

13737, for collection of a sum of money.

On April 22, 1994, the trial court rendered its decision, thus:
WHEREFORE, in view of all the foregoing, the complaint is dismissed without pronouncement as to costs.
The defendant’s counterclaim is likewise dismissed.
SO ORDERED. 20

On appeal by Queensland, the Court of Appeals reversed and set aside the trial court’s decision, with the
following fallo:
WHEREFORE, the decision appealed from is hereby REVERSED AND SET ASIDE, and another one is
entered ordering appellee [Jefferson Lim] to pay appellant the sum of P125,000.00, with interest at the legal
rate until the whole amount is fully paid, P10,000.00 as attorney’s fees, and costs.21

Petitioner herein filed a motion for reconsideration before the Court of Appeals, which was denied in a resolution
dated October 6, 1998. 22
Dissatisfied, petitioner filed the instant recourse alleging that the appellate court committed errors:
I - … IN REVERSING THE DECISION OF THE RTC WHICH DISMISSED RESPONDENT’S COMPLAINT;
II -… IN HOLDING THAT THE PETITIONER IS ESTOPPED IN QUESTIONING THE VALIDITY OF THE
CUSTOMER’S AGREEMENT AND FROM DENYING THE EFFECTS OF HIS CONDUCT;
III -… IN NOT TAKING JUDICIAL NOTICE OF THE LETTER OF RESPONDENT THAT THE SEC HAS
ISSUED A CEASE AND DESIST ORDER AGAINST THE MANILA INTERNATIONAL FUTURES
EXCHANGE COMMISSION AND ALL COMMODITY TRADERS INCLUDING THE RESPONDENT.
Despite the petitioner’s formulation of alleged errors, we find that the main issue is whether or not the appellate
court erred in holding that petitioner is estopped from questioning the validity of the Customer’s Agreement that he
signed.
The essential elements of estoppel are: (1) conduct of a party amounting to false representation or concealment of
material facts or at least calculated to convey the impression that the facts are otherwise than, and inconsistent with,
those which the party subsequently attempts to assert; (2) intent, or at least expectation, that this conduct shall be
acted upon by, or at least influence, the other party; and (3) knowledge, actual or constructive, of the real facts. 23

Here, it is uncontested that petitioner had in fact signed the Customer’s Agreement in the morning of October 22,
1992, knowing fully well the nature of the contract he was entering into. The Customer’s Agreement was duly
24

notarized and as a public document it is evidence of the fact, which gave rise to its execution and of the date of the
latter. Next, petitioner paid his investment deposit to respondent in the form of a manager’s check in the amount of
25

US$5,000 as evidenced by PCI Bank Manager’s Check No. 69007, dated October 22, 1992. All these 26

are indicia that petitioner treated the Customer’s Agreement as a valid and binding contract.
Moreover, we agree that, on petitioner’s part, there was misrepresentation of facts. He replaced the manager’s
check with an unendorsed traveler’s check, instead of cash, while assuring Shia that respondent Queensland could
sign the indorsee portion thereof. As it turned out, Citibank informed respondent that only the original purchaser (i.e.
27

the petitioner) could sign said check. When the check was returned to petitioner for his signature, he refused to sign.
Then, as petitioner himself admitted in his Memorandum, he used the traveler’s check for his travel expenses.
28 29

More significantly, petitioner already availed himself of the benefits of the Customer’s Agreement whose validity he
now impugns. As found by the CA, even before petitioner’s initial marginal deposit (in the form of the PCI manager’s
check dated October 22, 1992) was converted into cash, he already started trading on October 22, 1992, thereby
30

making a net profit of ₱6,845.57. On October 23, he continued availing of said agreement, although this time he
incurred a "floating loss" of ₱44,645. While he claimed he had not authorized respondent to trade on those dates,
31

this claim is belied by his signature affixed in the order forms, marked as Exhibits "G", "G-1" to "G-13". 32

Clearly, by his own acts, petitioner is estopped from impugning the validity of the Customer’s Agreement. For a party
to a contract cannot deny the validity thereof after enjoying its benefits without outrage to one’s sense of justice and
fairness.
It appears that petitioner’s reason to back out of the agreement is that he began sustaining losses from the trade.
However, this alone is insufficient to nullify the contract or disregard its legal effects. By its very nature it is already a
perfected, if not a consummated, contract. Courts have no power to relieve parties from obligations voluntarily
assumed, simply because their contracts turned out to be disastrous or unwise investments. Notably, in the 33

Customer’s Agreement, petitioner has been forewarned of the high risk involved in the foreign currency investment
as stated in the "Risk Disclosure Statement," located in the same box where petitioner signed.
34

Further, petitioner contends that the Customer’s Agreement was rendered nugatory because: (1) the marginal
deposit he gave was in dollars and (2) respondent allowed him to trade even before the US$5,000 manager’s
check was cleared. This contention is disingenuous to say the least, but hardly meritorious.
Petitioner himself was responsible for the issuance of the US$5,000 manager’s check. It was he who failed to
replace the manager’s check with cash. He authorized Shia to start trading even before the US$5,000 check had
cleared. He could not, in fairness to the other party concerned, now invoke his own misdeeds to exculpate himself,
conformably with the basic principle in law that he who comes to court must come with clean hands.
Contrary to petitioner’s contention, we also find that respondent did not violate paragraph 14 of the Guidelines for
Spot/Futures Currency Trading, which provides:
14. DEPOSITS & PAYMENTS
All deposits, payments and repayments, etc. will be in Philippine Currency. When a deposit with the
Company is not in cash or bank draft, such deposit will not take effect in the account concerned until it has
been confirmed NEGOTIABLE for payment by authorized management personnel. 35

Respondent claims it informed petitioner of its policy not to accept dollar investment. For this reason, it converted
the petitioner’s US$5,000 manager’s check to pesos (₱125,000) out of respondent’s own funds to accommodate
petitioner’s request to trade right away. On record, it appears that petitioner agreed to the conversion of his dollar
36

deposit to pesos. 37

Neither is there merit in petitioner’s contention that respondent violated the Customer’s Agreement by allowing him
to trade even if his manager’s check was not yet cleared, as he had no margin deposit as required by the
Customer’s Agreement, viz:
5. Margin Receipt
 A Margin Receipt issued by the Company shall only be for the purpose of acknowledging receipt of an
amount as margin deposit for Spot/Futures Currency Trading. All checks received for the purpose of margin
deposits have to be cleared through such bank account as may be opened by the Company before any
order can be accepted. 38

But as stated earlier, respondent advanced petitioner’s marginal deposit of ₱125,000 out of its own funds while
waiting for the US$5,000 manager’s check to clear, relying on the good credit standing of petitioner. Contrary to
petitioner’s averment now, respondent had advanced his margin deposit with his approval. Nowhere in the
"Guidelines" adverted to by petitioner was such an arrangement prohibited. Note that the advance was made with
petitioner’s consent, as indicated by his signature, Exhibit "E-1", affixed in the deposit notice, Exhibit "E", sent to
39 40

him by respondent. By his failure to seasonably object to this arrangement and by affixing his signature to the notice
of deposit, petitioner is barred from questioning said arrangement now. 1âwphi1.nêt

Anent the last assigned error, petitioner faults the appellate court for not taking judicial notice of the cease and
desist order against the Manila International Futures Exchange Commission and all commodity traders including
respondent. However, we find that this issue was first raised only in petitioner’s motion for reconsideration of the
Court of Appeals’ decision. It was never raised in the Memorandum filed by petitioner before the trial court. Hence,
41

this Court cannot now, for the first time on appeal, pass upon this issue. For an issue cannot be raised for the first
time on appeal. It must be raised seasonably in the proceedings before the lower court. Questions raised on appeal
must be within the issues framed by the parties and, consequently, issues not raised in the trial court cannot be
raised for the first time on appeal. 42

WHEREFORE, the instant petition is DENIED for lack of merit. The decision of the Court of Appeals dated June 25,
1998, in CA-G.R. CV No. 46495 is AFFIRMED. Costs against petitioner.
SO ORDERED.

G.R. No. L-27782 July 31, 1970

OCTAVIO A. KALALO, plaintiff-appellee,
vs.
ALFREDO J. LUZ, defendant-appellant.
Amelia K. del Rosario for plaintiff-appellee.
Pelaez, Jalandoni & Jamir for defendant-appellant.

ZALDIVAR, J.:
Appeal from the decision, dated, February 10, 1967, of the Court of First Instance of Rizal (Branch V, Quezon City)
in its Civil Case No. Q-6561.
On November 17, 1959, plaintiff-appellee Octavio A. Kalalo hereinafter referred to as appellee), a licensed civil
engineer doing business under the firm name of O. A. Kalalo and Associates, entered into an agreement (Exhibit
A ) with defendant-appellant Alfredo J . Luz (hereinafter referred to as appellant), a licensed architect, doing
1
business under firm name of A. J. Luz and Associates, whereby the former was to render engineering design
services to the latter for fees, as stipulated in the agreement. The services included design computation and
sketches, contract drawing and technical specifications of all engineering phases of the project designed by O. A.
Kalalo and Associates bill of quantities and cost estimate, and consultation and advice during construction relative to
the work. The fees agreed upon were percentages of the architect's fee, to wit: structural engineering, 12-½ %; electrical
engineering, 2-½%. The agreement was subsequently supplemented by a "clarification to letter-proposal" which provided, among other things, that "the schedule
of engineering fees in this agreement does not cover the following: ... D. Foundation soil exploration, testing and evaluation; E. Projects that are principally
engineering works such as industrial plants, ..." and "O. A. Kalalo and Associates reserve the right to increase fees on projects ,which cost less than
P100,000 ...."2 Pursuant to said agreement, appellee rendered engineering services to appellant in the following projects:

(a) Fil-American Life Insurance Building at Legaspi City;

(b) Fil-American Life Insurance Building at Iloilo City;
(c) General Milling Corporation Flour Mill at Opon Cebu;
(d) Menzi Building at Ayala Blvd., Makati, Rizal;
(e) International Rice Research Institute, Research center Los Baños, Laguna;
(f) Aurelia's Building at Mabini, Ermita, Manila;
(g) Far East Bank's Office at Fil-American Life Insurance Building at Isaac Peral Ermita, Manila;
(h) Arthur Young's residence at Forbes Park, Makati, Rizal;
(i) L & S Building at Dewey Blvd., Manila; and
(j) Stanvac Refinery Service Building at Limay, Bataan.
On December 1 1, '1961, appellee sent to appellant a statement of account (Exhibit "1"), to which was attached an 3

itemized statement of defendant-appellant's account (Exh. "1-A"), according to which the total engineering fee asked
by appellee for services rendered amounted to P116,565.00 from which sum was to be deducted the previous
payments made in the amount of P57,000.00, thus leaving a balance due in the amount of P59,565.00.
On May 18, 1962 appellant sent appellee a resume of fees due to the latter. Said fees, according to appellant.
amounted to P10,861.08 instead of the amount claimed by the appellee. On June 14, 1962 appellant sent appellee
a check for said amount, which appellee refused to accept as full payment of the balance of the fees due him.
On August 10, 1962, appellee filed a complaint against appellant, containing four causes of action. In the first cause
of action, appellee alleged that for services rendered in connection with the different projects therein mentioned
there was due him fees in sum s consisting of $28,000 (U.S.) and P100,204.46, excluding interests, of which sums
only P69,323.21 had been paid, thus leaving unpaid the $28,000.00 and the balance of P30,881.25. In the second
cause of action, appellee claimed P17,000.00 as consequential and moral damages; in the third cause of action
claimed P55,000.00 as moral damages, attorney's fees and expenses of litigation; and in the fourth cause of action
he claimed P25,000.00 as actual damages, and also for attorney's fees and expenses of litigation.
In his answer, appellant admitted that appellee rendered engineering services, as alleged in the first cause of action,
but averred that some of appellee's services were not in accordance with the agreement and appellee's claims were
not justified by the services actually rendered, and that the aggregate amount actually due to appellee was only
P80,336.29, of which P69,475.21 had already been paid, thus leaving a balance of only P10,861.08. Appellant
denied liability for any damage claimed by appellee to have suffered, as alleged in the second, third and fourth
causes of action. Appellant also set up affirmative and special defenses, alleging that appellee had no cause of
action, that appellee was in estoppel because of certain acts, representations, admissions and/or silence, which led
appellant to believe certain facts to exist and to act upon said facts, that appellee's claim regarding the Menzi project
was premature because appellant had not yet been paid for said project, and that appellee's services were not
complete or were performed in violation of the agreement and/or otherwise unsatisfactory. Appellant also set up a
counterclaim for actual and moral damages for such amount as the court may deem fair to assess, and for
attorney's fees of P10,000.00.
Inasmuch as the pleadings showed that the appellee's right to certain fees for services rendered was not denied, the
only question being the assessment of the proper fees and the balance due to appellee after deducting the admitted
payments made by appellant, the trial court, upon agreement of the parties, authorized the case to be heard before
a Commissioner. The Commissioner rendered a report which, in resume, states that the amount due to appellee
was $28,000.00 (U.S.) as his fee in the International Research Institute Project which was twenty percent (20%) of
the $140,000.00 that was paid to appellant, and P51,539.91 for the other projects, less the sum of P69,475.46
which was already paid by the appellant. The Commissioner also recommended the payment to appellee of the sum
of P5,000.00 as attorney's fees.
At the hearing on the Report of the Commissioner, the respective counsel of the parties manifested to the court that
they had no objection to the findings of fact of the Commissioner contained in the Report, and they agreed that the
said Report posed only two legal issues, namely: (1) whether under the facts stated in the Report, the doctrine of
estoppel would apply; and (2) whether the recommendation in the Report that the payment of the amount. due to
the plaintiff in dollars was legally permissible, and if not, at what rate of exchange it should be paid in pesos. After
the parties had submitted their respective memorandum on said issues, the trial court rendered its decision dated
February 10, 1967, the dispositive portion of which reads as follows:
WHEREFORE, judgment is rendered in favor of plaintiff and against the defendant, by ordering the
defendant to pay plaintiff the sum of P51,539.91 and $28,000.00, the latter to be converted into the
Philippine currency on the basis of the current rate of exchange at the time of the payment of this
 judgment, as certified to by the Central Bank of the Philippines, from which shall be deducted the
sum of P69,475.46, which the defendant had paid the plaintiff, and the legal rate of interest thereon
from the filing of the complaint in the case until fully paid for; by ordering the defendant to pay to
plaintiff the further sum of P8,000.00 by way of attorney's fees which the Court finds to be
reasonable in the premises, with costs against the defendant. The counterclaim of the defendant is
ordered dismissed.
From the decision, this appeal was brought, directly to this Court, raising only questions of law.
During the pendency of this appeal, appellee filed a petition for the issuance of a writ of attachment under Section 1
(f) of Rule 57 of the Rules of Court upon the ground that appellant is presently residing in Canada as a permanent
resident thereof. On June 3, 1969, this Court resolved, upon appellee's posting a bond of P10,000.00, to issue the
writ of attachment, and ordered the Provincial Sheriff of Rizal to attach the estate, real and personal, of appellant
Alfredo J. Luz within the province, to the value of not less than P140,000.00.
The appellant made the following assignments of errors:
I. The lower court erred in not declaring and holding that plaintiff-appellee's letter dated December
11, 1961 (Exhibit "1") and the statement of account (Exhibit "1-A") therein enclosed, had the effect,
cumulatively or alternatively, of placing plaintiff-appellee in estoppel from thereafter modifying the
representations made in said exhibits, or of making plaintiff-appellee otherwise bound by said
representations, or of being of decisive weight in determining the true intent of the parties as to the
nature and extent of the engineering services rendered and/or the amount of fees due.
II. The lower court erred in declaring and holding that the balance owing from defendant-appellant to
plaintiff-appellee on the IRRI Project should be paid on the basis of the rate of exchange of the U.S.
dollar to the Philippine peso at the time of payment of judgment. .
III. The lower court erred in not declaring and holding that the aggregate amount of the balance due
from defendant-appellant to plaintiff-appellee is only P15,792.05.
IV. The lower court erred in awarding attorney's fees in the sum of P8,000.00, despite the
commissioner's finding, which plaintiff-appellee has accepted and has not questioned, that said fee
be only P5,000.00; and
V. The lower court erred in not granting defendant-appellant relief on his counter-claim.
1. In support of his first assignment of error appellant argues that in Exhibit 1-A, which is a statement of accounts
dated December 11, 1961, sent by appellee to appellant, appellee specified the various projects for which he
claimed engineering fees, the precise amount due on each particular engineering service rendered on each of the
various projects, and the total of his claims; that such a statement barred appellee from asserting any claim contrary
to what was stated therein, or from taking any position different from what he asserted therein with respect to the
nature of the engineering services rendered; and consequently the trial court could not award fees in excess of what
was stated in said statement of accounts. Appellant argues that for estoppel to apply it is not necessary, contrary to
the ruling of the trial court, that the appellant should have actually relied on the representation, but that it is sufficient
that the representations were intended to make the defendant act there on; that assuming arguendo that Exhibit 1-A
did not put appellee in estoppel, the said Exhibit 1-A nevertheless constituted a formal admission that would be
binding on appellee under the law on evidence, and would not only belie any inconsistent claim but also would
discredit any evidence adduced by appellee in support of any claim inconsistent with what appears therein; that,
moreover, Exhibit 1-A, being a statement of account, establishes prima facie the accuracy and correctness of the
items stated therein and its correctness can no longer be impeached except for fraud or mistake; that Exhibit 1-A
furthermore, constitutes appellee's own interpretation of the contract between him and appellant, and hence, is
conclusive against him.
On the other hand, appellee admits that Exhibit 1-A itemized the services rendered by him in the various
construction projects of appellant and that the total engineering fees charged therein was P116,565.00, but
maintains that he was not in estoppel: first, because when he prepared Exhibit 1-A he was laboring under an
innocent mistake, as found by the trial court; second, because appellant was not ignorant of the services actually
rendered by appellee and the fees due to the latter under the original agreement, Exhibit "A."
We find merit in the stand of appellee.
The statement of accounts (Exh. 1-A) could not estop appellee, because appellant did not rely thereon as found by
the Commissioner, from whose Report we read:
While it is true that plaintiff vacillated in his claim, yet, defendant did not in anyway rely or believe in
the different claims asserted by the plaintiff and instead insisted on a claim that plaintiff was only
entitled to P10,861.08 as per a separate resume of fees he sent to the plaintiff on May 18, 1962
(See Exhibit 6). 4

The foregoing finding of the Commissioner, not disputed by appellant, was adopted by the trial court in its decision.
Under article 1431 of the Civil Code, in order that estoppel may apply the person, to whom representations have
been made and who claims the estoppel in his favor must have relied or acted on such representations. Said article
provides:
Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon.
An essential element of estoppel is that the person invoking it has been influenced and has relied on the
representations or conduct of the person sought to be estopped, and this element is wanting in the instant case.
In Cristobal vs. Gomez, this Court held that no estoppel based on a document can be invoked by one who has not
5

been mislead by the false statements contained therein. And in Republic of the Philippines vs. Garcia, et al., this 6

Court ruled that there is no estoppel when the statement or action invoked as its basis did not mislead the adverse
party-Estoppel has been characterized as harsh or odious and not favored in law. When misapplied, estoppel
7

becomes a most effective weapon to accomplish an injustice, inasmuch as it shuts a man's mouth from speaking
the truth and debars the truth in a particular case. Estoppel cannot be sustained by mere argument or doubtful
8

inference: it must be clearly proved in all its essential elements by clear, convincing and satisfactory evidence. No 9

party should be precluded from making out his case according to its truth unless by force of some positive principle
of law, and, consequently, estoppel in pains must be applied strictly and should not be enforced unless
substantiated in every particular. 0
1

The essential elements of estoppel in pais may be considered in relation to the party sought to be estopped, and in
relation to the party invoking the estoppel in his favor. As related to the party to be estopped, the essential elements
are: (1) conduct amounting to false representation or concealment of material facts or at least calculated to convey
the impression that the facts are otherwise than, and inconsistent with, those which the party subsequently attempts
to assert; (2) intent, or at least expectation that his conduct shall be acted upon by, or at least influence, the other
party; and (3) knowledge, actual or constructive, of the real facts. As related to the party claiming the estoppel, the
essential elements are (1) lack of knowledge and of the means of knowledge of the truth as the facts in questions;
(2) (reliance, in good faith, upon the conduct or statements of the party to be estopped; (3) action or inaction based
thereon of such character as To change the position or status of the party claiming the estoppel, to his injury,
detriment or prejudice. 1
1

The first essential element in relation to the party sought to be estopped does not obtain in the instant case, for, as
appears in the Report of the Commissioner, appellee testified "that when he wrote Exhibit 1 and prepared Exhibit 1-
A, he had not yet consulted the services of his counsel and it was only upon advice of counsel that the terms of the
contract were interpreted to him resulting in his subsequent letters to the defendant demanding payments of his fees
pursuant to the contract Exhibit A." 2 This finding of the Commissioner was adopted by the trial court. 3 It is
1 1

established , therefore, that Exhibit 1-A was written by appellee through ignorance or mistake. Anent this matter, it
has been held that if an act, conduct or misrepresentation of the party sought to be estopped is due to ignorance
founded on innocent mistake, estoppel will not arise. 4 Regarding the essential elements of estoppel in relation to
1

the party claiming the estoppel, the first element does not obtain in the instant case, for it cannot be said that
appellant did not know, or at least did not have the means of knowing, the services rendered to him by appellee and
the fees due thereon as provided in Exhibit A. The second element is also wanting, for, as adverted to, appellant did
not rely on Exhibit 1-A but consistently denied the accounts stated therein. Neither does the third element obtain, for
appellant did not act on the basis of the representations in Exhibit 1-A, and there was no change in his position, to
his own injury or prejudice.
Appellant, however, insists that if Exhibit 1-A did not put appellee in estoppel, it at least constituted an admission
binding upon the latter. In this connection, it cannot be gainsaid that Exhibit 1-A is not a judicial admission.
Statements which are not estoppels nor judicial admissions have no quality of conclusiveness, and an opponent.
whose admissions have been offered against him may offer any evidence which serves as an explanation for his
former assertion of what he now denies as a fact. This may involve the showing of a mistake. Accordingly, in Oas
vs. Roa, 6 it was held that when a party to a suit has made an admission of any fact pertinent to the issue involved,
1

the admission can be received against him; but such an admission is not conclusive against him, and he is entitled
to present evidence to overcome the effect of the admission. Appellee did explain, and the trial court concluded, that
Exhibit 1-A was based on either his ignorance or innocent mistake and he, therefore, is not bound by it.
Appellant further contends that Exhibit 1-A being a statement of account, establishes prima facie the accuracy and
correctness of the items stated therein. If prima facie, as contended by appellant, then it is not absolutely conclusive
upon the parties. An account stated may be impeached for fraud, mistake or error. In American Decisions, Vol. 62, p.
95, cited as authority by appellant himself. we read thus:
An account stated or settled is a mere admission that the account is correct. It is not an estoppel.
The account is still open to impeachment for mistakes or errors. Its effect is to establish, prima facie,
the accuracy of the items without other proof; and the party seeking to impeach it is bound to show
affirmatively the mistake or error alleged. The force of the admission and the strength of the
evidence necessary to overcome it will depend upon the circumstances of the case.
In the instant case, it is Our view that the ignorance mistake that attended the writing of Exhibit 1-A by appellee was
sufficient to overcome the prima facie evidence of correctness and accuracy of said Exhibit 1-A.
Appellant also urges that Exhibit 1-A constitutes appellee's own interpretation of the contract, and is, therefore,
conclusive against him. Although the practical construction of the contract by one party, evidenced by his words or
acts, can be used against him in behalf of the other party, 7 yet, if one of the parties carelessly makes a wrong
1

interpretation of the words of his contract, or performs more than the contract requires (as reasonably interpreted
independently of his performance), as happened in the instant case, he should be entitled to a restitutionary remedy,
instead of being bound to continue to his erroneous interpretation or his erroneous performance and "the other party
should not be permitted to profit by such mistake unless he can establish an estoppel by proving a material change
of position made in good faith. The rule as to practical construction does not nullify the equitable rules with respect
to performance by mistake." 8 In the instant case, it has been shown that Exhibit 1-A was written through mistake
1

by appellee and that the latter is not estopped by it. Hence, even if said Exhibit 1-A be considered as practical
construction of the contract by appellee, he cannot be bound by such erroneous interpretation. It has been held that
if by mistake the parties followed a practice in violation of the terms of the agreement, the court should not
perpetuate the error. 9
1

2. In support of the second assignment of error, that the lower court erred in holding that the balance from appellant
on the IRRI project should be paid on the basis of the rate of exchange of the U.S. dollar to the Philippine peso at
the time of payment of the judgment, appellant contends: first, that the official rate at the time appellant received his
architect's fees for the IRRI project, and correspondingly his obligation to appellee's fee on August 25, 1961, was
P2.00 to $1.00, and cites in support thereof Section 1612 of the Revised Administrative Code, Section 48 of
Republic Act 265 and Section 6 of Commonwealth Act No. 699; second, that the lower court's conclusion that the
rate of exchange to be applied in the conversion of the $28,000.00 is the current rate of exchange at the time the
judgment shall be satisfied was based solely on a mere presumption of the trial court that the defendant did not
convert, there being no showing to that effect, the dollars into Philippine currency at the official rate, when the legal
presumption should be that the dollars were converted at the official rate of $1.00 to P2.00 because on August 25,
1961, when the IRRI project became due and payable, foreign exchange controls were in full force and effect,
and partial decontrol was effected only afterwards, during the Macapagal administration; third, that the other ground
advanced by the lower court for its ruling, to wit, that appellant committed a breach of his obligation to turn over to
the appellee the engineering fees received in U.S. dollars for the IRRI project, cannot be upheld, because there was
no such breach, as proven by the fact that appellee never claimed in Exhibit 1-A that he should be paid in dollars;
and there was no provision in the basic contract (Exh. "A") that he should be paid in dollars; and, finally, even if
there were such provision, it would have no binding effect under the provision of Republic Act 529; that, moreover, it
cannot really be said that no payment was made on that account for appellant had already paid P57,000.00 to
appellee, and under Article 125 of the Civil Code, said payment could be said to have been applied to the fees due
from the IRRI project, this project being the biggest and this debt being the most onerous.
In refutation of appellant's argument in support of the second assignment of error, appellee argues that
notwithstanding Republic Act 529, appellant can be compelled to pay the appellee in dollars in view of the fact that
appellant received his fees in dollars, and appellee's fee is 20% of appellant's fees; and that if said amount is be
converted into Philippine Currency, the rate of exchange should be that at the time of the execution of the
judgment. 0 2

We have taken note of the fact that on August 25, 1961, the date when appellant said his obligation to pay
appellee's fees became due, there was two rates of exchange, to wit: the preferred rate of P2.00 to $1.00, and the
free market rate. It was so provided in Circular No. 121 of the Central Bank of the Philippines, dated March 2, 1961.
amending an earlier Circular No. 117, and in force until January 21, 1962 when it was amended by Circular No. 133,
thus:
1. All foreign exchange receipts shall be surrendered to the Central Bank of those authorized to deal
in foreign exchange as follows:
Percentage of Total to be surrendered at
Preferred: Free Market Rate: Rate:
(a) Export Proceeds, U.S. Government Expenditures invisibles other than those specifically
mentioned below. ................................................ 25 75
(b) Foreign Investments, Gold Proceeds, Tourists and Inward Remittances of Veterans and Filipino
Citizens; and Personal Expenses of Diplomatic Per personnel ................................. 100" 1
2

The amount of $140,000.00 received by appellant foil the International Rice Research Institute project is not within
the scope of sub-paragraph (a) of paragraph No. 1 of Circular No. 121. Appellant has not shown that 25% of said
amount had to be surrendered to the Central Bank at the preferred rate because it was either export proceeds, or
U.S. Government expenditures, or invisibles not included in sub-paragraph (b). Hence, it cannot be said that the trial
court erred in presuming that appellant converted said amount at the free market rate. It is hard to believe that a
person possessing dollars would exchange his dollars at the preferred rate of P2.00 to $1.00, when he is not
obligated to do so, rather than at the free market rate which is much higher. A person is presumed to take ordinary
care of his concerns, and that the ordinary course of business has been
followed. 2
2

Under the agreement, Exhibit A, appellee was entitled to 20% of $140,000.00, or the amount of $28,000.00.
Appellee, however, cannot oblige the appellant to pay him in dollars, even if appellant himself had received his fee
for the IRRI project in dollars. This payment in dollars is prohibited by Republic Act 529 which was enacted on June
16, 1950. Said act provides as follows:
SECTION 1. Every provision contained in, or made with respect to, any obligation which provision
purports to give the obligee the right to require payment in gold or in a particular kind of coin or
currency other than Philippine currency or in an amount of money of the Philippines measured
thereby, be as it is hereby declared against public policy, and null, void and of no effect, and no such
provision shall be contained in, or made with respect to, any obligation hereafter incurred. Every
obligation heretofore or here after incurred, whether or not any such provision as to payment is
contained therein or made with respect thereto, shall be discharged upon payment in any coin or
currency which at the time of payment is legal tender for public and private debts: Provided, That,
( a) if the obligation was incurred prior to the enactment of this Act and required payment in a
particular kind of coin or currency other than Philippine currency, it shall be discharged in Philippine
 currency measured at the prevailing rate of exchange at the time the obligation was incurred, (b)
except in case of a loan made in a foreign currency stipulated to be payable in the same currency in
which case the rate of exchange prevailing at the time of the stipulated date of payment shall prevail.
All coin and currency, including Central Bank notes, heretofore or hereafter issued and declared by
the Government of the Philippines shall be legal tender for all debts, public and private.
Under the above-quoted provision of Republic Act 529, if the obligation was incurred prior to the enactment of the
Act and require payment in a particular kind of coin or currency other than the Philippine currency the same shall be
discharged in Philippine currency measured at the prevailing rate of exchange at the time the obligation was
incurred. As We have adverted to, Republic Act 529 was enacted on June 16, 1950. In the case now before Us the
obligation of appellant to pay appellee the 20% of $140,000.00, or the sum of $28,000.00, accrued on August 25,
1961, or after the enactment of Republic Act 529. It follows that the provision of Republic Act 529 which requires
payment at the prevailing rate of exchange when the obligation was incurred cannot be applied. Republic Act 529
does not provide for the rate of exchange for the payment of obligation incurred after the enactment of said Act. The
logical Conclusion, therefore, is that the rate of exchange should be that prevailing at the time of payment. This view
finds support in the ruling of this Court in the case of Engel vs. Velasco & Co. 3 where this Court held that even if
2

the obligation assumed by the defendant was to pay the plaintiff a sum of money expressed in American currency,
the indemnity to be allowed should be expressed in Philippine currency at the rate of exchange at the time of
judgment rather than at the rate of exchange prevailing on the date of defendant's breach. This is also the ruling of
American court as follows:
The value in domestic money of a payment made in foreign money is fixed with respect to the rate of
exchange at the time of payment. (70 CJS p. 228)
According to the weight of authority the amount of recovery depends upon the current rate of
exchange, and not the par value of the particular money involved. (48 C.J. 605-606)
The value in domestic money of a payment made in foreign money is fixed in reference to the rate of
exchange at the time of such payment. (48 C.J. 605)
It is Our considered view, therefore, that appellant should pay the appellee the equivalent in pesos of the
$28,000.00 at the free market rate of exchange at the time of payment. And so the trial court did not err when it held
that herein appellant should pay appellee $28,000.00 "to be converted into the Philippine currency on the basis of
the current rate of exchange at the time of payment of this judgment, as certified to by the Central Bank of the
Philippines, ...." 4
2

Appellant also contends that the P57,000.00 that he had paid to appellee should have been applied to the due to
the latter on the IRRI project because such debt was the most onerous to appellant. This contention is untenable.
The Commissioner who was authorized by the trial court to receive evidence in this case, however, reports that the
appellee had not been paid for the account of the $28,000.00 which represents the fees of appellee equivalent to
20% of the $140,000.00 that the appellant received as fee for the IRRI project. This is a finding of fact by the
Commissioner which was adopted by the trial court. The parties in this case have agreed that they do not question
the finding of fact of the Commissioner. Thus, in the decision appealed from the lower court says:
At the hearing on the Report of the Commissioner on February 15, 1966, the counsels for both
parties manifested to the court that they have no objection to the findings of facts of the
Commissioner in his report; and agreed that the said report only poses two (2)legal issues, namely:
(1) whether under the facts stated in the Report, the doctrine of estoppel will apply; and (2) whether
the recommendation in the Report that the payment of amount due to the plaintiff in dollars is
permissible under the law, and, if not, at what rate of exchange should it be paid in pesos (Philippine
currency) .... 5
2

In the Commissioner's report, it is spetifically recommended that the appellant be ordered to pay the plaintiff the sum
of "$28,000. 00 or its equivalent as the fee of the plaintiff under Exhibit A on the IRRI project." It is clear from this
report of the Commissioner that no payment for the account of this $28,000.00 had been made. Indeed, it is not
shown in the record that the peso equivalent of the $28,000.00 had been fixed or agreed upon by the parties at the
different times when the appellant had made partial payments to the appellee.
3. In his third assignment of error, appellant contends that the lower court erred in not declaring that the aggregate
amount due from him to appellee is only P15,792.05. Appellant questions the propriety or correctness of most of the
items of fees that were found by the Commissioner to be due to appellee for services rendered. We believe that it is
too late for the appellant to question the propriety or correctness of those items in the present appeal. The record
shows that after the Commissioner had submitted his report the lower court, on February 15, 1966, issued the
following order:
When this case was called for hearing today on the report of the Commissioner, the counsels of the
parties manifested that they have no objection to the findings of facts in the report. However, the
report poses only legal issues, namely: (1) whether under the facts stated in the report, the doctrine
of estoppel will apply; and (2) whether the recommendation in the report that the alleged payment of
the defendant be made in dollars is permissible by law and, if not, in what rate it should be paid in
pesos (Philippine Currency). For the purpose of resolving these issues the parties prayed that they
be allowed to file their respective memoranda which will aid the court in the determination of said
issues. 6
2
In consonance with the afore-quoted order of the trial court, the appellant submitted his memorandum which opens
with the following statements:
As previously manifested, this Memorandum shall be confined to:
(a) the finding in the Commissioner's Report that defendant's defense of estoppel will not lie (pp. 17-
18, Report); and
(b) the recommendation in the Commissioner's Report that defendant be ordered to pay plaintiff the
sum of '$28,000.00 (U.S.) or its equivalent as the fee of the plaintiff under Exhibit 'A' in the IRRI
project.'
More specifically this Memorandum proposes to demonstrate the affirmative of three legal
issues posed, namely:
First: Whether or not plaintiff's letter dated December 11, 1961 (Exhibit 'I') and/or Statement of
Account (Exhibit '1-A') therein enclosed has the effect of placing plaintiff in estoppel from thereafter
modifying the representations made in said letter and Statement of Account or of making plaintiff
otherwise bound thereby; or of being decisive or great weight in determining the true intent of the
parties as to the amount of the engineering fees owing from defendant to plaintiff;
Second: Whether or not defendant can be compelled to pay whatever balance is owing to plaintiff on
the IRRI (International Rice and Research Institute) project in United States dollars; and
Third: Whether or not in case the ruling of this Honorable Court be that defendant cannot be
compelled to pay plaintiff in United States dollars, the dollar-to-peso convertion rate for determining
the peso equivalent of whatever balance is owing to plaintiff in connection with the IRRI project
should be the 2 to 1 official rate and not any other rate. 7
2

It is clear, therefore, that what was submitted by appellant to the lower court for resolution did not include the
question of correctness or propriety of the amounts due to appellee in connection with the different projects for
which the appellee had rendered engineering services. Only legal questions, as above enumerated, were submitted
to the trial court for resolution. So much so, that the lower court in another portion of its decision said, as follows:
The objections to the Commissioner's Report embodied in defendant's memorandum of objections,
dated March 18, 1966, cannot likewise be entertained by the Court because at the hearing of the
Commissioner's Report the parties had expressly manifested that they had no objection to the
findings of facts embodied therein.
We, therefore hold that the third assignment of error of the appellant has no merit.
4. In his fourth assignment of error, appellant questions the award by the lower court of P8,000.00 for attorney's
fees. Appellant argues that the Commissioner, in his report, fixed the sum of P5,000.00 as "just and reasonable"
attorney's fees, to which amount appellee did not interpose any objection, and by not so objecting he is bound by
said finding; and that, moreover, the lower court gave no reason in its decision for increasing the amount to
P8,000.00.
Appellee contends that while the parties had not objected to the findings of the Commissioner, the assessment of
attorney's fees is always subject to the court's appraisal, and in increasing the recommended fees from P5,000.00 to
P8,000.00 the trial court must have taken into consideration certain circumstances which warrant the award of
P8,000.00 for attorney's fees.
We believe that the trial court committed no error in this connection. Section 12 of Rule 33 of the Rules of Court, on
which the fourth assignment of error is presumably based, provides that when the parties stipulate that a
commissioner's findings of fact shall be final, only questions of law arising from the facts mentioned in the report
shall thereafter be considered. Consequently, an agreement by the parties to abide by the findings of fact of the
commissioner is equivalent to an agreement of facts binding upon them which the court cannot disregard. The
question, therefore, is whether or not the estimate of the reasonable fees stated in the report of the Commissioner is
a finding of fact.
The report of the Commissioner on this matter reads as follows:
As regards attorney's fees, under the provisions of Art 2208, par (11), the same may be awarded, and considering
the number of hearings held in this case, the nature of the case (taking into account the technical nature of the case
and the voluminous exhibits offered in evidence), as well as the way the case was handled by counsel, it is
believed, subject to the Court's appraisal of the matter, that the sum of P5,000.00 is just and reasonable as
attorney's fees." 8
2

It is thus seen that the estimate made by the Commissioner was an expression of belief, or an opinion. An opinion is
different from a fact. The generally recognized distinction between a statement of "fact" and an expression of
"opinion" is that whatever is susceptible of exact knowledge is a matter of fact, while that not susceptible of exact
knowledge is generally regarded as an expression of opinion. 9 It has also been said that the word "fact," as
2

employed in the legal sense includes "those conclusions reached by the trior from shifting testimony, weighing
evidence, and passing on the credit of the witnesses, and it does not denote those inferences drawn by the trial
court from the facts ascertained and settled by it. 0 In the case at bar, the estimate made by the Commissioner of
3

the attorney's fees was an inference from the facts ascertained by him, and is, therefore, not a finding of facts. The
trial court was, consequently, not bound by that estimate, in spite of the manifestation of the parties that they had no
objection to the findings of facts of the Commissioner in his report. Moreover, under Section 11 of Rule 33 of the
Rules of Court, the court may adopt, modify, or reject the report of the commissioner, in whole or in part, and hence,
it was within the trial court's authority to increase the recommended attorney's fees of P5,000.00 to P8,000.00. It is a
settled rule that the amount of attorney's fees is addressed to the sound discretion of the court. 1
3

It is true, as appellant contends, that the trial court did not state in the decision the reasons for increasing the
attorney's fees. The trial court, however, had adopted the report of the Commissioner, and in adopting the report the
trial court is deemed to have adopted the reasons given by the Commissioner in awarding attorney's fees, as stated
in the above-quoted portion of the report. Based on the reasons stated in the report, the trial court must have
considered that the reasonable attorney's fees should be P8,000.00. Considering that the judgment against the
appellant would amount to more than P100,000.00, We believe that the award of P8,000.00 for attorney's fees is
reasonable.
5. In his fifth assignment of error appellant urges that he is entitled to relief on his counterclaim. In view of what We
have stated in connection with the preceding four assignments of error, We do not consider it necessary to dwell any
further on this assignment of error.
WHEREFORE, the decision appealed from is affirmed, with costs against the defendant-appellant. It is so ordered.

G.R. No. 145368 April 12, 2002

SALVADOR H. LAUREL, petitioner,
vs.
HON. ANIANO A. DESIERTO, in his capacity as Ombudsman, respondent.
KAPUNAN, J.:
On June 13, 1991, President Corazon C. Aquino issued Administrative Order No. 223 "constituting a Committee for
the preparation of the National Centennial Celebration in 1998." The Committee was mandated "to take charge of
the nationwide preparations for the National Celebration of the Philippine Centennial of the Declaration of Philippine
Independence and the Inauguration of the Malolos Congress." 1

Subsequently, President Fidel V. Ramos issued Executive Order No. 128, "reconstituting the Committee for the
preparation of the National Centennial Celebrations in 1988." It renamed the Committee as the "National Centennial
Commission." Appointed to chair the reconstituted Commission was Vice-President Salvador H. Laurel. Presidents
Diosdado M. Macapagal and Corazon C. Aquino were named Honorary Chairpersons. 2

Characterized as an "i body," the existence of the Commission "shall terminate upon the completion of all activities
related to the Centennial Celebrations." Like its predecessor Committee, the Commission was tasked to "take
3

charge of the nationwide preparations for the National Celebration of the Philippine Centennial of the Declaration of
Philippine Independence and the Inauguration of the Malolos Congress."
Per Section 6 of the Executive Order, the Commission was also charged with the responsibility to "prepare, for
approval of the President, a Comprehensive Plan for the Centennial Celebrations within six (6) months from the
effectivity of" the Executive Order.
E.O. No. 128 also contained provisions for staff support and funding:
Sec. 3. The Commission shall be provided with technical and administrative staff support by a Secretariat to
be composed of, among others, detailed personnel from the Presidential Management Staff, the National
Commission for Culture and the Arts, and the National Historical Institute. Said Secretariat shall be headed
by a full time Executive Director who shall be designated by the President.
Sec. 4. The Commission shall be funded with an initial budget to be drawn from the Department of Tourism
and the president’s Contingent Fund, in an amount to be recommended by the Commission, and approved
by the President. Appropriations for succeeding years shall be incorporated in the budget of the Office of the
President.
Subsequently, a corporation named the Philippine Centennial Expo ’98 Corporation (Expocorp) was
created. Petitioner was among the nine (9) Expocorp incorporators, who were also its first nine (9) directors.
4

Petitioner was elected Expocorp Chief Executive Officer.

On August 5, 1998, Senator Ana Dominique Coseteng delivered a privilege speech in the Senate denouncing
alleged anomalies in the construction and operation of the Centennial Exposition Project at the Clark Special
Economic Zone. Upon motion of Senator Franklin Drilon, Senator Coseteng’s privilege speech was referred to the
Committee on Accountability of Public Officers and Investigation (The Blue Ribbon Committee) and several other
Senate Committees for investigation.
On February 24, 1999, President Joseph Estrada issued Administrative Order No. 35, creating an ad hoc and
independent citizens’ committee to investigate all the facts and circumstances surrounding the Philippine centennial
projects, including its component activities. Former Senator Rene A.V. Saguisag was appointed to chair the
Committee.
On March 23, 1999, the Senate Blue Ribbon Committee filed with the Secretary of the Senate its Committee Final
Report No. 30 dated February 26, 1999. Among the Committee’s recommendations was "the prosecution by the
Ombudsman/DOJ of Dr. Salvador Laurel, chair of NCC and of EXPOCORP for violating the rules on public bidding,
relative to the award of centennial contracts to AK (Asia Construction & Development Corp.); for exhibiting manifest
bias in the issuance of the NTP (Notice to Proceed) to AK to construct the FR (Freedom Ring) even in the absence
of a valid contract that has caused material injury to government and for participating in the scheme to preclude
audit by COA of the funds infused by the government for the implementation of the said contracts all in violation… of
the anti-graft law."
5

Later, on November 5, 1999, the Saguisag Committee issued its own report. It recommended "the further
investigation by the Ombudsman, and indictment, in proper cases of," among others, NCC Chair Salvador H. Laurel
for violations of Section 3(e) of R.A. No. 3019, Section 4(a) in relation to Section 11 of R.A. No. 6713, and Article
217 of the Revised Penal Code.
The Reports of the Senate Blue Ribbon and the Saguisag Committee were apparently referred to the Fact-finding
and Intelligence Bureau of the Office of the Ombudsman. On January 27, 2000, the Bureau issued its Evaluation
Report, recommending:
1. that a formal complaint be filed and preliminary investigation be conducted before the Evaluation and
Preliminary Investigation Bureau (EPIB), Office of the Ombudsman against former NCC and EXPOCORP
chair Salvador H. Laurel, former EXPOCORP President Teodoro Q. Peña and AK President Edgardo H.
Angeles for violation of Sec. 3(e) and (g) of R.A. No. 3019, as amended in relation to PD 1594 and COA
Rules and Regulations;
2. That the Fact Finding and Intelligence Bureau of this Office, act as the nominal complainant. 6

In an Order dated April 10, 2000, Pelagio S. Apostol, OIC-Director of the Evaluation and Preliminary Investigation
Bureau, directed petitioner to submit his counter-affidavit and those of his witnesses.
On April 24, 2000, petitioner filed with the Office of the Ombudsman a Motion to Dismiss questioning the jurisdiction
of said office.
In an Order dated June 13, 2000, the Ombudsman denied petitioner’s motion to dismiss.
On July 3, 2000, petitioner moved for a reconsideration of the June 13, 2000 Order but the motion was denied in an
Order dated October 5, 2000.
On October 25, 2000, petitioner filed the present petition for certiorari.
On November 14, 2000, the Evaluation and Preliminary Investigation Bureau issued a resolution finding "probable
cause to indict respondents SALVADOR H. LAUREL and TEODORO Q. PEÑA before the Sandiganbayan for
conspiring to violate Section 3(e) of Republic Act No. 3019, in relation to Republic Act No. 1594." The resolution also
directed that an information for violation of the said law be filed against Laurel and Peña. Ombudsman Aniano A.
Desierto approved the resolution with respect to Laurel but dismissed the charge against Peña.
In a Resolution dated September 24, 2001, the Court issued a temporary restraining order, commanding
respondents to desist from filing any information before the Sandiganbayan or any court against petitioner for
alleged violation of Section 3(e) of the Anti-Graft and Corrupt Practices Act.
On November 14, 2001, the Court, upon motion of petitioner, heard the parties in oral argument.
Petitioner assails the jurisdiction of the Ombudsman on the ground that he is not a public officer because:
A.
EXPOCORP, THE CORPORATION CHAIRED BY PETITIONER LAUREL WHICH UNDERTOOK THE FREEDOM
RING PROJECT IN CONNECTION WITH WHICH VIOLATIONS OF THE ANTI-GRAFT AND CORRUPT
PRACTICES WERE ALLEGEDLY COMMITTED, WAS A PRIVATE CORPORATION, NOT A GOVERNMENT-
OWNED OR CONTROLLED CORPORATION.
B.
THE NATIONAL CENTENNIAL COMMISSION (NCC) WAS NOT A PUBLIC OFFICE.
C.
PETITIONER, BOTH AS CHAIRMAN OF THE NCC AND OF EXPOCORP WAS NOT A "PUBLIC OFFICER" AS
DEFINED UNDER THE ANTI-GRAFT & CORRUPT PRACTICES ACT. 7

In addition, petitioner in his reply invokes this Court’s decision in Uy vs. Sandiganbayan, where it was held that the
8 9

jurisdiction of the Ombudsman was limited to cases cognizable by the Sandiganbayan, i.e., over public officers of
Grade 27 and higher. As petitioner’s position was purportedly not classified as Grade 27 or higher, the
Sandiganbayan and, consequently, the Ombudsman, would have no jurisdiction over him.
This last contention is easily dismissed. In the Court’s decision in Uy, we held that "it is the prosecutor, not the
Ombudsman, who has the authority to file the corresponding information/s against petitioner in the regional trial
court. The Ombudsman exercises prosecutorial powers only in cases cognizable by the Sandiganbayan."
In its Resolution of February 22, 2000, the Court expounded:
The clear import of such pronouncement is to recognize the authority of the State and regular provincial and
city prosecutors under the Department of Justice to have control over prosecution of cases falling within the
jurisdiction of the regular courts. The investigation and prosecutorial powers of the Ombudsman relate to
cases rightfully falling within the jurisdiction of the Sandiganbayan under Section 15 (1) of R.A. 6770 ("An
Act Providing for the Functional and Structural Organization of the Office of the Ombudsman, and for other
purposes") which vests upon the Ombudsman "primary jurisdiction over cases cognizable by the
Sandiganbayan…" And this is further buttressed by Section 11 (4a) of R.A. 6770 which emphasizes that the
Office of the Special Prosecutor shall have the power to "conduct preliminary investigation and prosecute
criminal cases within the jurisdiction of the Sandiganbayan." Thus, repeated references to the
Sandiganbayan’s jurisdiction clearly serve to limit the Ombudsman’s and Special Prosecutor’s authority to
cases cognizable by the Sandiganbayan. [Emphasis in the original.]
The foregoing ruling in Uy, however, was short-lived. Upon motion for clarification by the Ombudsman in the same
case, the Court set aside the foregoing pronouncement in its Resolution dated March 20, 2001. The Court explained
the rationale for this reversal:
The power to investigate and to prosecute granted by law to the Ombudsman is plenary and unqualified. It
pertains to any act or omission of any public officer or employee when such act or omission appears to be
illegal, unjust, improper or inefficient. The law does not make a distinction between cases cognizable by the
Sandiganbayan and those cognizable by regular courts. It has been held that the clause "any illegal act or
omission of any public official" is broad enough to embrace any crime committed by a public officer or
employee.
The reference made by RA 6770 to cases cognizable by the Sandiganbayan, particularly in Section 15(1)
giving the Ombudsman primary jurisdiction over cases cognizable by the Sandiganbayan, and Section 11(4)
granting the Special Prosecutor the power to conduct preliminary investigation and prosecute criminal cases
within the jurisdiction of the Sandiganbayan, should not be construed as confining the scope of the
investigatory and prosecutory power of the Ombudsman to such cases.
 Section 15 of RA 6770 gives the Ombudsman primary jurisdiction over cases cognizable by the
Sandiganbayan. The law defines such primary jurisdiction as authorizing the Ombudsman "to take over, at
any stage, from any investigatory agency of the government, the investigation of such cases." The grant of
this authority does not necessarily imply the exclusion from its jurisdiction of cases involving public officers
and employees by other courts. The exercise by the Ombudsman of his primary jurisdiction over cases
cognizable by the Sandiganbayan is not incompatible with the discharge of his duty to investigate and
prosecute other offenses committed by public officers and employees. Indeed, it must be stressed that the
powers granted by the legislature to the Ombudsman are very broad and encompass all kinds of
malfeasance, misfeasance and non-feasance committed by public officers and employees during their
tenure of office.
Moreover, the jurisdiction of the Office of the Ombudsman should not be equated with the limited authority of
the Special Prosecutor under Section 11 of RA 6770. The Office of the Special Prosecutor is merely a
component of the Office of the Ombudsman and may only act under the supervision and control and upon
authority of the Ombudsman. Its power to conduct preliminary investigation and to prosecute is limited
to criminal cases within the jurisdiction of the Sandiganbayan. Certainly, the lawmakers did not intend to
confine the investigatory and prosecutory power of the Ombudsman to these types of cases. The
Ombudsman is mandated by law to act on all complaints against officers and employees of the government
and to enforce their administrative, civil and criminal liability in every case where the evidence warrants. To
carry out this duty, the law allows him to utilize the personnel of his office and/or designate any fiscal, state
prosecutor or lawyer in the government service to act as special investigator or prosecutor to assist in the
investigation and prosecution of certain cases. Those designated or deputized to assist him work under his
supervision and control. The law likewise allows him to direct the Special Prosecutor to prosecute cases
outside the Sandiganbayan’s jurisdiction in accordance with Section 11 (4c) of RA 6770.
The prosecution of offenses committed by public officers and employees is one of the most important
functions of the Ombudsman. In passing RA 6770, the Congress deliberately endowed the Ombudsman with
such power to make him a more active and effective agent of the people in ensuring accountability in public
office. A review of the development of our Ombudsman law reveals this intent. [Emphasis in the original.]
Having disposed of this contention, we proceed to the principal grounds upon which petitioner relies. We first
address the argument that petitioner, as Chair of the NCC, was not a public officer.
The Constitution describes the Ombudsman and his Deputies as "protectors of the people," who "shall act promptly
10

on complaints filed in any form or manner against public officials or employees of the government, or any
subdivision, agency or instrumentality thereof, including government-owned or controlled corporations." Among the
awesome powers, functions, and duties vested by the Constitution upon the Office of the Ombudsman is to
11

"[i]nvestigate… any act or omission of any public official, employee, office or agency, when such act or omission
appears to be illegal, unjust, improper, or inefficient."
The foregoing constitutional provisions are substantially reproduced in R.A. No. 6770, otherwise known as the
"Ombudsman Act of 1989." Sections 13 and 15(1) of said law respectively provide:
SEC. 13. Mandate. – The Ombudsman and his Deputies, as protectors of the people shall act promptly on
complaints file in any form or manner against officers or employees of the Government, or of any
subdivision, agency or instrumentality thereof, including government-owned or controlled corporations, and
enforce their administrative, civil and criminal liability in every case where the evidence warrants in order to
promote efficient service by the Government to the people.
SEC. 15. Powers, Functions and Duties. – The Office of the Ombudsman shall have the following powers,
functions and duties:
(1) Investigate and prosecute on its own or on complaint by any person, any act or omission of any public
officer or employee, office or agency, when such act or omission appears to be illegal unjust, improper or
inefficient. It has primary jurisdiction over cases cognizable by the Sandiganbayan and, in the exercise of
this primary jurisdiction, it may take over, at any stage, from any investigatory agency of Government, the
investigation of such cases;
x x x.
The coverage of the law appears to be limited only by Section 16, in relation to Section 13, supra:
SEC 16. Applicability. – The provisions of this Act shall apply to all kinds of malfeasance, misfeasance and
non-feasance that have been committed by any officer or employee as mentioned in Section 13 hereof,
during his tenure of office.
In sum, the Ombudsman has the power to investigate any malfeasance, misfeasance and non-feasance by a public
officer or employee of the government, or of any subdivision, agency or instrumentality thereof, including
government-owned or controlled corporations. 12

Neither the Constitution nor the Ombudsman Act of 1989, however, defines who public officers are. A definition of
public officers cited in jurisprudence is that provided by Mechem, a recognized authority on the subject:
13

A public office is the right, authority and duty, created and conferred by law, by which, for a given period,
either fixed by law or enduring at the pleasure of the creating power, an individual is invested with some
portion of the sovereign functions of the government, to be exercised by him for the benefit of the public. The
individual so invested is a public officer. 14
The characteristics of a public office, according to Mechem, include the delegation of sovereign functions, its
creation by law and not by contract, an oath, salary, continuance of the position, scope of duties, and the
designation of the position as an office.
15

Petitioner submits that some of these characteristics are not present in the position of NCC Chair, namely: (1) the
delegation of sovereign functions; (2) salary, since he purportedly did not receive any compensation; and (3)
continuance, the tenure of the NCC being temporary.
Mechem describes the delegation to the individual of some of the sovereign functions of government as "[t]he most
important characteristic" in determining whether a position is a public office or not.
The most important characteristic which distinguishes an office from an employment or contract is that the
creation and conferring of an office involves a delegation to the individual of some of the sovereign functions
of government, to be exercised by him for the benefit of the public; – that some portion of the sovereignty of
the country, either legislative, executive or judicial, attaches, for the time being, to be exercised for the public
benefit. Unless the powers conferred are of this nature, the individual is not a public officer.16

Did E.O. 128 delegate the NCC with some of the sovereign functions of government? Certainly, the law did not
delegate upon the NCC functions that can be described as legislative or judicial. May the functions of the NCC then
be described as executive?
We hold that the NCC performs executive functions. The executive power "is generally defined as the power to
enforce and administer the laws. It is the power of carrying the laws into practical operation and enforcing their due
observance." The executive function, therefore, concerns the implementation of the policies as set forth by law.
17

The Constitution provides in Article XIV (Education, Science and Technology, Arts, Culture, and Sports) thereof:
Sec. 15. Arts and letters shall enjoy the patronage of the State. The State shall conserve, promote, and
popularize the nation’s historical and cultural heritage and resources, as well as artistic creations.
In its preamble, A.O. No. 223 states the purposes for the creation of the Committee for the National Centennial
Celebrations in 1998:
Whereas, the birth of the Republic of the Philippines is to be celebrated in 1998, and the centennial presents
an important vehicle for fostering nationhood and a strong sense of Filipino identity;
Whereas, the centennial can effectively showcase Filipino heritage and thereby strengthen Filipino values;
Whereas, the success of the Centennial Celebrations may be insured only through long-range planning and
continuous developmental programming;
Whereas, the active participation of the private sector in all areas of special expertise and capability,
particularly in communication and information dissemination, is necessary for long-range planning and
continuous developmental programming;
Whereas, there is a need to create a body which shall initiate and undertake the primary task of harnessing
the multisectoral components from the business, cultural, and business sectors to serve as effective
instruments from the launching and overseeing of this long-term project;
x x x.
E.O. No. 128, reconstituting the Committee for the National Centennial Celebrations in 1998, cited the "need to
strengthen the said Committee to ensure a more coordinated and synchronized celebrations of the Philippine
Centennial and wider participation from the government and non-government or private organizations." It also
referred to the "need to rationalize the relevance of historical links with other countries."
The NCC was precisely created to execute the foregoing policies and objectives, to carry them into effect. Thus, the
Commission was vested with the following functions:
(a) To undertake the overall study, conceptualization, formulation and implementation of programs and
projects on the utilization of culture, arts, literature and media as vehicles for history, economic endeavors,
and reinvigorating the spirit of national unity and sense of accomplishment in every Filipino in the context of
the Centennial Celebrations. In this regard, it shall include a Philippine National Exposition ’98 within Metro
Manila, the original eight provinces, and Clark Air Base as its major venues;
(b) To act as principal coordinator for all the activities related to awareness and celebration of the
Centennial;
(c) To serve as the clearing house for the preparation and dissemination of all information about the plans
and events for the Centennial Celebrations;
(d) To constitute working groups which shall undertake the implementation of the programs and projects;
(e) To prioritize the refurbishment of historical sites and structures nationwide. In this regard, the
Commission shall formulate schemes (e.g. lease-maintained-and-transfer, build-operate-transfer, and similar
arrangements) to ensure the preservation and maintenance of the historical sites and structures;
(f) To call upon any government agency or instrumentality and corporation, and to invite private individuals
and organizations to assist it in the performance of its tasks; and,
(g) Submit regular reports to the President on the plans, programs, projects, activities as well as the status
of the preparations for the Celebration. 18
It bears noting the President, upon whom the executive power is vested, created the NCC by executive order. Book
19

III (Office of the President), Chapter 2 (Ordinance Power), Section 2 describes the nature of executive orders:
SEC. 2. Executive Orders. – Acts of the President providing for rules of a general or permanent character
in implementation or execution of constitutional or statutory powers shall be promulgated in executive
orders. [Underscoring ours.]
Furthermore, the NCC was not without a role in the country’s economic development, especially in Central Luzon.
Petitioner himself admitted as much in the oral arguments before this Court:
MR. JUSTICE REYNATO S. PUNO:
And in addition to that expounded by Former President Ramos, don’t you agree that the task of the
centennial commission was also to focus on the long term over all socio economic development of
the zone and Central Luzon by attracting investors in the area because of the eruption of Mt.
Pinatubo.
FORMER VICE PRESIDENT SALVADOR H. LAUREL:
I am glad Your Honor touched on that because that is something I wanted to touch on by lack of
material time I could not but that is a very important point. When I was made Chairman I wanted the
Expo to be in Batangas because I am a Batangeño but President Ramos said Mr. Vice President the
Central Luzon is suffering, suffering because of the eruption of Mt. Pinatubo let us try to catalize [sic]
economic recovery in that area by putting this Expo in Clark Field and so it was done I agreed and
Your Honor if I may also mention we wanted to generate employment aside from attracting business
investments and employment. And the Estrada administration decided to junk this project there 48,
40 thousand people who lost job, they were employed in Expo. And our target was to provide 75
thousand jobs. It would have really calibrated, accelerated the development of Central Luzon. Now, I
think they are going back to that because they had the airport and there are plan to revive the Expo
site into key park which was the original plan.
There can hardly be any dispute that the promotion of industrialization and full employment is a fundamental state
policy.
20

Petitioner invokes the ruling of this Court in Torio vs. Fontanilla that the holding by a municipality of a town fiesta is
21

a proprietary rather than a governmental function. Petitioner argues that the "holding of a nationwide celebration
which marked the nation’s 100th birthday may be likened to a national fiesta which involved only the exercise of the
national government’s proprietary function." In Torio, we held:
22

[Section 2282 of the Chapter on Municipal Law of the Revised Administrative Code] simply gives authority to
the municipality to [celebrate] a yearly fiesta but it does not impose upon it a duty to observe one. Holding a
fiesta even if the purpose is to commemorate a religious or historical event of the town is in essence an act
for the special benefit of the community and not for the general welfare of the public performed in pursuance
of a policy of the state. The mere fact that the celebration, as claimed, was not to secure profit or gain but
merely to provide entertainment to the town inhabitants is not a conclusive test. For instance, the
maintenance of parks is not a source of income for the town, nonetheless it is [a] private undertaking as
distinguished from the maintenance of public schools, jails, and the like which are for public service.
As stated earlier, there can be no hard and fast rule for purposes of determining the true nature of an
undertaking or function of a municipality; the surrounding circumstances of a particular case are to be
considered and will be decisive. The basic element, however beneficial to the public the undertaking may
be, is that it is government in essence, otherwise, the function becomes private or propriety in character.
Easily, no governmental or public policy of the state is involved in the celebration of a town fiesta.
Torio, however, did not intend to lay down an all-encompassing doctrine. Note that the Court cautioned that "there
can be no hard and fast rule for purposes of determining the true nature of an undertaking or function of a
municipality; the surrounding circumstances of a particular case are to be considered and will be decisive." Thus, in
footnote 15 of Torio, the Court, citing an American case, illustrated how the "surrounding circumstances plus the
political, social, and cultural backgrounds" could produce a conclusion different from that in Torio:
We came across an interesting case which shows that surrounding circumstances plus the political, social,
and cultural backgrounds may have a decisive bearing on this question. The case of Pope v. City of New
Haven, et al. was an action to recover damages for personal injuries caused during a Fourth of July
fireworks display resulting in the death of a bystander alleged to have been caused by defendants’
negligence. The defendants demurred to the complaint invoking the defense that the city was engaged in
the performance of a public governmental duty from which it received no pecuniary benefit and for
negligence in the performance of which no statutory liability is imposed. This demurrer was sustained by the
Superior Court of New Haven Country. Plaintiff sought to amend his complaint to allege that the celebration
was for the corporate advantage of the city. This was denied. In affirming the order, the Supreme Court of
Errors of Connecticut held inter alia:
Municipal corporations are exempt from liability for the negligent performance of purely public governmental
duties, unless made liable by statute….
A municipality corporation, which under permissive authority of its charter or of statute, conducted a public
Fourth of July celebration, including a display of fireworks, and sent up a bomb intended to explode in the
 air, but which failed to explode until it reached the ground, and then killed a spectator, was engaged in the
performance of a governmental duty. (99 A.R. 51)
This decision was concurred in by three Judges while two dissented.
At any rate the rationale of the Majority Opinion is evident from [this] excerpt:
"July 4th, when that date falls upon Sunday, July 5th, is made a public holiday, called Independence Day, by
our statutes. All or nearly all of the other states have similar statutes. While there is no United States statute
making a similar provision, the different departments of the government recognize, and have recognized
since the government was established, July 4th as a national holiday. Throughout the country it has been
recognized and celebrated as such. These celebrations, calculated to entertain and instruct the people
generally and to arouse and stimulate patriotic sentiments and love of country, frequently take the form of
literary exercises consisting of patriotic speeches and the reading of the Constitution, accompanied by a
musical program including patriotic air sometimes preceded by the firing of cannon and followed by
fireworks. That such celebrations are of advantage to the general public and their promotion a proper
subject of legislation can hardly be questioned. x x x"
Surely, a town fiesta cannot compare to the National Centennial Celebrations. The Centennial Celebrations was
meant to commemorate the birth of our nation after centuries of struggle against our former colonial master, to
memorialize the liberation of our people from oppression by a foreign power. 1998 marked 100 years of
independence and sovereignty as one united nation. The Celebrations was an occasion to reflect upon our history
and reinvigorate our patriotism. As A.O. 223 put it, it was a "vehicle for fostering nationhood and a strong sense of
Filipino identity," an opportunity to "showcase Filipino heritage and thereby strengthen Filipino values." The
significance of the Celebrations could not have been lost on petitioner, who remarked during the hearing:
Oh, yes, certainly the State is interested in the unity of the people, we wanted to rekindle the love for
freedom, love for country, that is the over-all goal that has to make everybody feel proud that he is a Filipino,
proud of our history, proud of what our forefather did in their time. x x x.
Clearly, the NCC performs sovereign functions. It is, therefore, a public office, and petitioner, as its Chair, is a public
officer.
That petitioner allegedly did not receive any compensation during his tenure is of little consequence. A salary is a
usual but not a necessary criterion for determining the nature of the position. It is not conclusive. The salary is a
mere incident and forms no part of the office. Where a salary or fees is annexed, the office is provided for it is a
naked or honorary office, and is supposed to be accepted merely for the public good. Hence, the office of petitioner
23

as NCC Chair may be characterized as an honorary office, as opposed to a lucrative office or an office of profit, i.e.,
one to which salary, compensation or fees are attached. But it is a public office, nonetheless.
24

Neither is the fact that the NCC was characterized by E.O. No. 128 as an "ad-hoc body" make said commission less
of a public office.
The term office, it is said, embraces the idea of tenure and duration, and certainly a position which is merely
temporary and local cannot ordinarily be considered an office. "But," says Chief Justice Marshall, "if a duty
be a continuing one, which is defined by rules prescribed by the government and not by contract, which an
individual is appointed by government to perform, who enters on the duties pertaining to his station without
any contract defining them, if those duties continue though the person be changed, -- it seems very difficult
to distinguish such a charge or employment from an office of the person who performs the duties from an
officer."
At the same time, however, this element of continuance can not be considered as indispensable, for, if the
other elements are present "it can make no difference," says Pearson, C.J., "whether there be but one act or
a series of acts to be done, -- whether the office expires as soon as the one act is done, or is to be held for
years or during good behavior." 25

Our conclusion that petitioner is a public officer finds support in In Re Corliss. There the Supreme Court of Rhode
26

Island ruled that the office of Commissioner of the United States Centennial Commission is an "office of trust" as to
disqualify its holder as elector of the United States President and Vice-President. (Under Article II of the United
States Constitution, a person holding an office of trust or profit under the United States is disqualified from being
appointed an elector.)
x x x. We think a Commissioner of the United States Centennial Commission holds an office of trust under
the United States, and that he is therefore disqualified for the office of elector of President and Vice-
President of the United States.
The commission was created under a statute of the United States approved March 3, 1871. That statute
provides for the holding of an exhibition of American and foreign arts, products, and manufactures, "under
the auspices of the government of the United States," and for the constitution of a commission, to consist of
more than one delegate from each State and from each Territory of the United States, "whose functions shall
continue until close of the exhibition," and "whose duty it shall be to prepare and superintend the execution
of the plan for holding the exhibition." Under the statute the commissioners are appointed by the President
of the United States, on the nomination of the governor of the States and Territories respectively. Various
duties were imposed upon the commission, and under the statute provision was to be made for it to have
exclusive control of the exhibit before the President should announce, by proclamation, the date and place
of opening and holding the exhibition. By an act of Congress approved June 1st, 1872, the duties and
 functions of the commission were further increased and defined. That act created a corporation, called "The
Centennial Board of Finance," to cooperate with the commission and to raise and disburse the funds. It was
to be organized under the direction of the commission. The seventh section of the act provides "that the
grounds for exhibition shall be prepared and the buildings erected by the corporation, in accordance with
plans which shall have been adopted by the United States Centennial Commission; and the rules and
regulations of said corporation, governing rates for entrance and admission fees, or otherwise affecting the
rights, privileges, or interests of the exhibitors, or of the public, shall be fixed and established by the United
States Centennial Commission; and no grant conferring rights or privileges of any description connected
with said grounds or buildings, or relating to said exhibition or celebration, shall be made without the consent
of the United States Centennial Commission, and said commission shall have power to control, change, or
revoke all such grants, and shall appoint all judges and examiners and award all premiums." The tenth
section of the act provides that "it shall be the duty of the United States Centennial Commission to supervise
the closing up of the affairs of said corporation, to audit its accounts, and submit in a report to the President
of the United States the financial results of the centennial exhibition."
It is apparent from this statement, which is but partial, that the duties and functions of the commission were
various, delicate, and important; that they could be successfully performed only by men of large experience
and knowledge of affairs; and that they were not merely subordinate and provisional, but in the highest
degree authoritative, discretionary, and final in their character. We think that persons performing such duties
and exercising such functions, in pursuance of statutory direction and authority, are not to be regarded as
mere employees, agents, or committee men, but that they are, properly speaking, officers, and that the
places which they hold are offices. It appears, moreover, that they were originally regarded as officers by
Congress; for the act under which they were appointed declares, section 7, that "no compensation for
services shall be paid to the commissioners or other officers, provided for in this act, from the treasury of the
United States." The only other officers provided for were the "alternates" appointed to serve as
commissioners when the commissioners were unable to attend.
Having arrived at the conclusion that the NCC performs executive functions and is, therefore, a public office, we
need no longer delve at length on the issue of whether Expocorp is a private or a public corporation. Even assuming
that Expocorp is a private corporation, petitioner’s position as Chief Executive Officer (CEO) of Expocorp arose from
his Chairmanship of the NCC. Consequently, his acts or omissions as CEO of Expocorp must be viewed in the light
of his powers and functions as NCC Chair. 27

Finally, it is contended that since petitioner supposedly did not receive any compensation for his services as NCC or
Expocorp Chair, he is not a public officer as defined in Republic Act No. 3019 (The Anti-Graft and Corrupt Practices
Act) and is, therefore, beyond the jurisdiction of the Ombudsman.
Respondent seeks to charge petitioner with violation of Section 3 (e) of said law, which reads:
SEC. 3. Corrupt practices of public officers. – In addition to acts or omissions of public officers already
penalized by existing law, the following shall constitute corrupt practices of any public officer and are hereby
declared to be unlawful:
xxx
(e) Causing any undue injury to any party, including the Government, or giving any private party any
unwarranted benefits, advantage or preference in the discharge of his official, administrative or judicial
functions through manifest partiality, evident bad faith or gross inexcusable negligence. This provision shall
apply to officers and employees of offices or government corporations charged with the grant of licenses or
permits or other concessions.
A "public officer," under R.A. No. 3019, is defined by Section 2 of said law as follows:
SEC. 2. Definition of terms. – As used in this Act, the term –
xxx
(b) "Public officer" includes elective and appointive officials and employees, permanent or temporary,
whether in the classified or unclassified or exemption service receiving compensation, even nominal, from
the government as defined in the preceding paragraph. [Emphasis supplied.]
It is clear from Section 2 (b), above, that the definition of a "public officer" is expressly limited to the application of
R.A. No. 3019. Said definition does not apply for purposes of determining the Ombudsman’s jurisdiction, as defined
by the Constitution and the Ombudsman Act of 1989.
Moreover, the question of whether petitioner is a public officer under the Anti-Graft and Corrupt Practices Act
involves the appreciation of evidence and interpretation of law, matters that are best resolved at trial.
To illustrate, the use of the term "includes" in Section 2 (b) indicates that the definition is not restrictive. The Anti-
28

Graft and Corrupt Practices Act is just one of several laws that define "public officers." Article 203 of the Revised
Penal Code, for example, provides that a public officer is:
x x x any person who, by direct provision of law, popular election or appointment by competent authority,
takes part in the performance of public functions in the Government of Philippines, or performs in said
Government or in any of its branches public duties as an employee, agent or subordinate official, of any rank
or class.
Section 2 (14) of the Introductory Provisions of the Administrative Code of 1987, on the other hand, states:
29
 Officer – as distinguished from "clerk" or "employee", refers to a person whose duties not being of a clerical
or manual nature, involves the exercise of discretion in the performance of the functions of the government.
When used with reference to a person having authority to do a particular act or perform a particular person
in the exercise of governmental power, "officer" includes any government employee, agent or body having
authority to do the act or exercise that function.
It bears noting that under Section 3 (b) of Republic Act No. 6713 (The Code of Conduct and Ethical Standards for
Public Officials and Employees), one may be considered a "public official" whether or not one receives
compensation, thus:
"Public Officials" include elective and appointive officials and employees, permanent or temporary, whether
in the career or non-career service including military and police personnel, whether or not they receive
compensation, regardless of amount.
Which of these definitions should apply, if at all?
Assuming that the definition of public officer in R.A. No. 3019 is exclusive, the term "compensation," which is not
defined by said law, has many meanings.
Under particular circumstances, "compensation" has been held to include allowance for personal expenses,
commissions, expenses, fees, an honorarium, mileage or traveling expenses, payments for services,
restitution or a balancing of accounts, salary, and wages.
30

How then is "compensation," as the term is used in Section 2 (b) of R.A. No. 3019, to be interpreted?
Did petitioner receive any compensation at all as NCC Chair? Granting that petitioner did not receive any salary, the
records do not reveal if he received any allowance, fee, honorarium, or some other form of compensation. Notably,
under the by-laws of Expocorp, the CEO is entitled to per diems and compensation. Would such fact bear any
31

significance?
Obviously, this proceeding is not the proper forum to settle these issues lest we preempt the trial court from
resolving them.
WHEREFORE, the petition is DISMISSED. The preliminary injunction issued in the Court’s Resolution dated
September 24, 2001 is hereby LIFTED.
SO ORDERED.
G.R. No. 164453 March 28, 2006
JESUS CALDO, Petitioner,
vs.
VICTORIA CALDO-ATIENZA, FELICIANA CALDO-SABADO, and ZOSIMO CALDO, Respondents.
DECISION
CARPIO MORALES, J.:
Petitioner Jesus Caldo is the only child of the marriage of Francisco Caldo to his first wife Pilar Sayaman.1
In September 1943, Francisco Caldo filed an "Application to Purchase Friar Lands" covering Lot No. 5749-D of the
Municipality of Dasmariñas, Cavite containing 1.996 hectares.2
Pilar Sayaman later died and Francisco Caldo took as his second wife Juana Manareza (Juana), with whom he had
three children, herein respondents Victoria Caldo-Atienza and Feliciana Caldo-Sabado, and the now deceased
Alberto Caldo − father of respondent Zosimo Caldo.3
In December 1950,4 Juana filed an application for the purchase of Lot No. 5749-D.
Francisco Caldo died on September 13, 1946.
In 1951, Juana and the Republic of the Philippines forged a private sale, under Sales Contract No. V-61 "[e]ffective
November 17, 1951," covering Lot No. 5749-D (the lot) in which the latter acknowledged the downpayment by
Juana of P27.60 representing the first of 10 annual installment payments.
After Juana had fully paid for the lot, she in November 1976 registered it in her name under Transfer Certificate of
Title (TCT) No. T-87239.5
Juana died on June 12, 1986.
In March 1987, petitioner Jesus Caldo and respondents executed a Salaysay ng Pag-aari ng Iba’t-Ibang
Lupa (Salaysay)6 stating that:
1. Na kami ang may-ari ng isang (1) lagay na lupa sa Salitran, Dasmariñas, Cavite, na laong kilala sa Lot
2543 ng Imus Estate, na sakop ng Transfer Certificate of Title No. 21400;
2. Na bukod sa nasabing lote, kami ay nag-aari pa rin ng mga sumusunod na lote:

TCT No. Lot No. Area Location

58366 6128 500 sq. m. San Agustin, Dasmariñas,

Cavite

87259 [sic] 5749 19,996 sq. m. Salitran, Dasmariñas, Cavite

3. Na ang mga nasabing lote ay walang inaani o kita;

4. Na isinagawa naming ang salaysay na ito upang patunayan ang mga nakalahad sa dakong
itaas.7 (Emphasis supplied)
On November 26, 1993, respondents, together with respondent Zosimo Caldo’s siblings, executed a "Deed of
Extrajudicial Partition with Waiver"8 adjudicating the lot to themselves, prompting petitioner to file on December 10,
1993 a Complaint9 against respondents for Annulment of Title before the Regional Trial Court (RTC) of Imus, Cavite.
In his Complaint, petitioner alleged that, inter alia, he co-owns the lot as in fact when he confronted his stepmother
Juana about her having registered it in her name, she replied that she did so in order to facilitate its sale but that she
recognized his right thereto and even promised him his rightful share from the proceeds of the sale; and Juana even
entrusted to him the title to the lot which he kept for four years.
In their "Answer with Counterclaim,"10 respondents countered that the lot belonged exclusively to their mother, she
having entered into a Sales Contract with the Republic of the Philippines in January 1951 after their father died (in
1946) and was the one who paid for the installments thereof.11 Additionally, respondents invoked laches and
prescription against petitioner.
Defined as issues before Branch 20 of the Imus RTC were as follows:
1. Whether plaintiff is entitled to inherit a share in the disputed parcel of land together with the defendants
who are heirs of the late Juana Manareza;
2. Whether plaintiff is guilty of laches and/or whether prescription has already set in;
3. Whether defendants are in estoppel to deny the claim of plaintiff as co-owner.12 (Underscoring supplied)
By Decision of May 13, 1997, the trial court held that the lot was co-owned by Francisco Caldo and his second wife
Juana.
Between the two divergent views, this Court considers the version espoused by the plaintiff to be more credible and
trustworthy. Evidently, there was already an application to purchase subject land filed by Francisco Caldo way back
on March 10, 1945 [sic] before he became a widower. Upon his death in 1946, his second wife, Juana Manareza,
continued paying the installments relative to the lot in question until 1951 when the amortizations were [sic]
completed, resulting in the execution of a deed of sale in her favor. It was, however, only in November, 1976 that a
torrens title was issued to Juana Manareza. Such being the case, subject lot was acquired through the efforts,
sacrifices, and contributions of both Francisco Caldo and Juana Manareza.
The claim of defendants that the disputed lot is solely owned by their mother is untenable. For, Juana Manareza
had impliedly acknowledged the rights and interest of the plaintiff over the premises in question, being the son
of her husband by previous marriage, when she entrusted the title to him and promised to give him his share in the
event it is sold.
The most convincing proof that plaintiff is indeed entitled to share in the subject land is the "Salaysay" ng
Pag-aari ng Iba’t Ibang Lupa 13 which defendants themselves admitted to have executed and signed in March
1987 – even before the execution of the Deed of Extrajudicial Partition with Waiver which was only executed by the
defendants on March 26, 1993. In said document, (Exh. "F"), plaintiff and
defendants admitted that they are the [co-]owners of the disputed property. In so doing, defendants expressly
recognized plaintiff as co-owner thereof and are already in estoppel to deny plaintiff’s claim. The action of plaintiff in
bringing the present suit as co-owner is imprescriptible. By and large, therefore, the property covered by TCT No. T-
87239 is co-owned by their common father, Francisco Caldo, and Juana Manareza such that one-half thereof
belonged to Francisco Caldo and the other half to Juana Manareza. The one-half share of Juana Manareza shall be
divided among her two children and nephew Zosimo Caldo; while the one-half share of Francisco Caldo shall be
divided into 4 parts, with plaintiff being entitled to ¼ share thereof together with the three defendants with ¼ share
each.14 (Emphasis and underscoring supplied)
Accordingly, the trial court disposed:
WHEREFORE, premises considered, judgment is hereby rendered as follows:
1. Declaring the Deed of Extrajudicial Partition with Waiver executed by the defendants as null and void;
2. Canceling TCT No. T-87239 in the name of Juana Manareza and a new title thereof be issued in the
name of plaintiff and defendants, based on the following sharing:
a. To defendants Victoria Caldo-Atienza, Feliciana Caldo-Sabado and Zosimo Caldo – 1/3 share each
of the ½ share belonging to Juana Manareza, plus another ¼ share each of the ½ share belonging
to Francisco Caldo, covering the entire area of the lot in question; and
b. To the plaintiff – ¼ of the ½ share of his father, Francisco Caldo.
No award of damages and attorney’s fees.
SO ORDERED.15 (Underscoring supplied)
On respondents’ appeal, the Court of Appeals, finding that petitioner failed to establish his case by preponderance
of evidence whereas respondents established their right to the lot, reversed the trial court’s decision.16 Thus held the
Court of Appeals:
Nothing on record would show that the application of the plaintiff-appellee’s father, Francisco Caldo, to purchase the
friar land was approved by the Bureau of Lands. Such application cannot be said to have vested in Francisco Caldo
the ownership in the land applied for. Plaintiff-appellant [sic], likewise, failed to show any proof that his father, had
fully paid for the subject parcel of land required by the contract to vest title in him. The failure of Francisco Caldo to
pay any of the installments has the effect of forfeiture of the application pursuant to Section 17 of Act No. 1120 x x
x17 (Underscoring supplied)
Discrediting the trial court’s application of the doctrine of estoppel in petitioner’s favor as reflected in the earlier
quoted portion of its decision, the appellate court held:
Under the New Civil Code, the modes of acquiring ownership are as follows: (a) occupation; (b) intellectual creation;
(c) donation; (d) succession; and (e) prescription. Estoppel is not one of them x x x. The recognition by the
defendants-appellants of the plaintiff-appellee as co-owner of the subject parcel of land in the "Salaysay ng Pag-aari
ng Iba’t Ibang Lupa" was based on the mistaken belief that the said land was a conjugal property of Francisco
Caldo and Juana Manaresa. To rule otherwise, will not only cause injustice to the vested right of the defendants-
appellants but also will run counter to the provisions of the law and applicable jurisprudence. In accordance with the
settled rule, an innocent mistake on the part of the defendants-appellants as to the legal right does not estop them
to assert the same.18 (Emphasis and underscoring supplied)
Petitioner’s Motion for Reconsideration19 having been denied by Resolution20 of July 7, 2004, the present Petition for
Review on Certiorari21 was filed, petitioner insisting that respondents are estopped to deny his co-ownership of the
land in light of their execution, together with him, of the Salaysay and of Juana’s entrusting to him the title covering
the lot with the promise to give him his share of the proceeds of the sale thereof.
The petition fails.
In estoppel,
a person, who by his deed or conduct has induced another to act in a particular manner, is barred from adopting an
inconsistent position, attitude or course of conduct that thereby causes loss or injury to another. It further bars him
from denying the truth of a fact which has, in the contemplation of law, become settled by the acts and
proceedings of judicial or legislative officers or by the act of the party himself, either by conventional
writing or by representations, express or implied or in pais.22 (Emphasis supplied)
It can only be invoked between the person making the representation and the person to whom it was addressed, the
latter having relied upon the misrepresentation and having been influenced and misled thereby intentionally.23 Since
it was Juana who allegedly made the representation to petitioner to the effect that he is a co-owner of the land,
estoppel cannot be invoked against respondents.
As for the invocation of estoppel against respondents in light of their execution, together with petitioner, of
the Salaysay, the following pronouncement of the Court is instructive.
The doctrine of estoppel is predicated on, and has its origin in equity which, broadly defined, is justice according to
natural law and right. It is a principle intended to avoid a clear case of injustice. The term is hardly distinguishable
from a waiver of right. Estoppel, like its counterpart, must be unequivocal and intentional for, when misapplied, it
can easily become a convenient and effective means of injustice. Estoppel is not understood to be a principal that,
as a rule, should prevalently apply but, as it concededly is, a mere exception from the standard legal norms of
general application that can be invoked only in highly exceptional and justifiable cases.24 (Emphasis and
underscoring supplied)
In the case at bar, petitioner failed to refute the testimony of respondent Victoria that the 1987 Salaysay was
executed on the request of one Felino Nolasco upon his representation that it was needed for estate tax
purposes25 following Juana’s death in 1986. The earlier quoted statement in the Salaysay that "ang nasabing lote ay
walang inaani o kita" lends credence to Victoria’s unrefuted claim. Petitioner in fact failed to present evidence that
by executing the Salaysay, respondents intentionally induced him to believe and to act on such belief that he co-
owns the lot in question.
On the merits, the "Application to Purchase Friar Lands" filed by the parties’ common ascendant Francisco Caldo in
1943 was, as correctly noted by respondents in the Brief for Defendants-Appellants26 which they filed before the
Court of Appeals, merely an offer to purchase the lot. It was neither an award nor proof that he subsequently paid for
it.27
Upon the other hand, respondents presented a Sales Contract effective November 17, 1951, more than five years
after Francisco Caldo’s death on September 13, 1946, between the Republic of the Philippines and their mother
Juana covering Lot No. 5749-D stating:
That by virtue of a private sale held on November 17, 1951 and in consideration of the sum of TWO HUNDRED
SEVENTY SIX PESOS (P276.00) to be paid in (10) installments, the first installment in the amount of P27.60 having
been paid by the vendee and acknowledged by the vendor under Official Receipt No. 1530300 and 10764994, the
vendor does hereby sell and convey to the vendee, his heirs and assigns, Lot No. 5749-D of the Imus Estate,
situated in the Municipality of Dasmariñas, Province of Cavite which contains an area of 1 hectare, 99 ares and 96
centares, more or less.28 (Emphasis supplied)
This document constitutes evidence of their mother’s absolute ownership-title to the lot in question.
WHEREFORE, the petition is DENIED. The questioned decision of the Court of Appeals is hereby AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. 169599 March 16, 2011
REPUBLIC OF THE PHILIPPINES, Petitioner,
vs.
JUANITO MANIMTIM, JULIO UMALI, represented by AURORA U. JUMARANG, SPOUSES EDILBERTO
BAÑANOLA and SOFIA BAÑANOLA, ZENAIDA MALABANAN, MARCELINO MENDOZA, DEMETRIO
BARRIENTOS, FLORITA CUADRA, and FRANCISCA MANIMTIM, Respondents.
DECISION
MENDOZA, J.:
Assailed in this petition is the September 5, 2005 Decision1 of the Court of Appeals (CA) in CA-G.R. CV No. 74720,
which reversed and set aside the February 15, 2000 Amended Judgment2 of the Regional Trial Court, Branch 18,
Tagaytay City (RTC), and reinstated the March 31, 1997 Judgment3 granting the respondents’ application for
registration of Lot 3857 but deferring the approval of the application for Lot 3858.
The Facts
Records show that on December 3, 1991, Juanito Manimtim, Julio Umali, Spouses Edilberto Bañanola and Sofia
Bañanola, Zenaida Malabanan, Marcelino Mendoza, Demetrio Barrientos, Florita Cuadra, and Francisca
Manimtim (respondents) filed with the RTC two applications for registration and confirmation of their title over two (2)
parcels of land, designated as Lot 3857 (Ap-04-006225) with an area of 38,213 square meters and Lot 3858 (Ap-04-
006227) with an area of 9,520 square meters, located in Barangay Sungay, Tagaytay City.
Julio Umali died while the case was pending and he was substituted by his heirs namely: Guillermo, Jose, Gerardo,
Meynardo, Jacinto, and Ernesto, all surnamed Umali, and Aurora Umali-Jumarang.
The respondents alleged that they are the owners pro indiviso and in fee simple of the subject parcels of land; that
they have acquired the subject parcels of land by purchase or assignment of rights; and that they have been in
actual, open, public, and continuous possession of the subject land under claim of title exclusive of any other rights
and adverse to all other claimants by themselves and through their predecessors-in-interest since time immemorial.
In support of their applications, the respondents submitted blueprint plans of Lot 3857 and Lot 3858, technical
descriptions, certifications in lieu of lost geodetic engineer’s certificates, declarations of real property tax, official
receipts of payment of taxes, real property tax certifications, and deeds of absolute sale.
The RTC set the initial hearing of the case on May 20, 1992 after compliance with all the requirements of the law
regarding publication, mailing and posting.
On February 19, 1992, the Republic of the Philippines, through the Office of the Solicitor General (OSG), opposed
the respondents’ twin application on the following grounds:
1] Neither the applicants nor their predecessors-in-interest have been in open, continuous, exclusive, and
notorious possession and occupation of the land in question since June 12, 1945 or prior thereto;
2] The muniments of title, that is, tax declaration and tax receipts, attached to or alleged in the application,
do not constitute competent and sufficient evidence of a bona fide acquisition of the land applied for
registration;
3] This is a claim of ownership on the basis of a Spanish title or grant, which has been barred as a mode of
proving acquisition; and
4] The land is part of the public domain belonging to the Republic of the Philippines, which is not subject to
private appropriation.4
On May 15, 1992, the Land Registration Authority (LRA) transmitted to the RTC a report dated April 29, 1992 stating
that there were discrepancies in Plans Ap-04-006225 (Lot 3857) and Ap-04-006227 (Lot 3858) and referred the
matter to the Land Management Sector (LMS), now called the Land Management Bureau of the Department of
Environment and Natural Resources (DENR), for verification and correction.
On May 20, 1992, Moldex Realty, Inc. (MOLDEX) opposed the applications on the ground that it is the registered
owner of a parcel of land designated as Lot 4, Psu-108624 and technically described in Transfer Certificate of
Title (TCT) No. T-20118 and that the metes and bounds of Lot 3857 and Lot 3858 overlapped its lot by about 14,088
square meters. MOLDEX, therefore, prayed that the overlapping portion be excluded from the applications.
On June 30, 1993, the respondents and MOLDEX filed a joint motion requesting the RTC to appoint a team of
commissioners composed of a government representative from the Survey Division, LMS, DENR; Engr. Vivencio L.
Valerio, representing the respondents; and Engr. Romeo Durante, representing MOLDEX, to conduct an actual
ground verification and relocation survey to assist the RTC in resolving the controversy on the location and position
of the subject lots. On that same day, the RTC granted the joint motion and directed the team of commissioners to
submit its findings within 15 days after the termination of the ground verification and relocation survey.
On January 19, 1995, Robert C. Pangyarihan, the Chief of Survey Division, LMS, DENR, transmitted to the RTC the
report of Engr. Alexander L. Jacob (Engr. Jacob), based on the verification and relocation survey he conducted in
the presence of the respondents and MOLDEX, which found an encroachment or overlapping on Lot 4, Psu-
108624. The report stated the following findings and recommendations:
3.5. Lot 4, Psu-108624 is an older approved survey previously decreed and, therefore, it is the survey which was
encroached upon or overlapped by Lot 1, Psu-176181;Lot 1, Psu-176182; and Lot 1 & 2 Psu-176184.
4. RECOMMENDATIONS
4.1 In view of the foregoing findings of encroachment on decreed survey, the portions labeled as "A" "B" "C" and "D"
should be segregated from Lot 1, Psu-176181; Lot 1 & 2, 176184; and Lot 1 & 2 Psu-176182; respectively, which
process involves the amendment of said plans to be submitted for approval by the Regional Office.
4.2 It is further recommended that the point of reference or "tie point" of Lot 1, Psu-176181, Lot 1, Psu-176182, Lot
1, Psu-176182 and Lot 3, Psu-176181 be changed to BLLM No. 5, Tagaytay Cadastre, the said amendment being
warranted by the findings of this verification survey thru direct traverse connection of the corner boundaries of said
lots from BLLM No. 5 which is relatively near to subject lots.5
On March 31, 1997, the RTC handed down its Judgment granting the respondents’ application for registration of Lot
3857 of Plan Ap-04-006227 but deferred the approval of registration of Lot 3858 pending the segregation of 4,243
square meter portion thereof which was found to belong to MOLDEX.
On April 29, 1997, the respondents filed a motion for partial new trial on the following grounds:
1] Newly discovered evidence explaining that when they were in the process of amending plan Ap-04-
006227 of Lot 3858, they found out that the sketch plan that was furnished to them by the LRA, upon their
request, showed no overlapping between their property and that of MOLDEX; and
2] Insufficiency of evidence because the plan prepared by Engr. Jacob, which was the basis of his report,
was not signed by the respondents or their representatives and the LRA was not informed of these
developments.
On October 27, 1997, Director Felino M. Cortez (Director Cortez) of the LRA Department of Registration transmitted
a supplementary report to the RTC dated October 1, 1997, which found that Lot 3858 did not encroach on
MOLDEX’s property. Likewise, the supplementary report made the following recommendations:
1. To approve the correction made by the Lands Management Sector on the boundaries of Lot 3858, Cad.
355 along lines 2-3 and 9-1 which is Lot 4-B, Psu-105624 Amd. as mentioned in paragraph 2 hereof; and
2. The judgment dated March 31, 1997 with respect to Lot 3858, Cad. 355 item #2 of the dispositive portion
be amended accordingly.6
On January 29, 1998, MOLDEX filed an opposition to the respondents’ motion for partial new trial for lack of a
supporting affidavit of the witness by whom such evidence would be given or a duly authenticated document which
was supposed to be introduced in evidence as required by Section 2, Rule 37 of the Revised Rules of Court.
On September 3, 1998, the RTC granted the respondents’ motion for partial new trial.
On February 15, 2000, the RTC, after due hearing and pleadings submitted by the parties, rendered an Amended
Judgment by also approving the application for the confirmation and registration of Lot 3858 of Plan Ap-04-006227,
Cad. 355, Tagaytay Cadastre, Barangay Sungay, Tagaytay City.
The OSG and MOLDEX filed their respective appeals with the CA based on the following
ASSIGNMENT OF ERRORS
For MOLDEX:
THE TRIAL COURT GRAVELY ERRED IN APPROVING THE APPLICATION FOR REGISTRATION OF LOT 3858
DESPITE FINDINGS OF ENCROACHMENT BASED ON ACTUAL GROUND VERIFICATION SURVEY
CONDUCTED PURSUANT TO ITS OWN ORDER.
THE TRIAL COURT GRAVELY ERRED IN GIVING CREDENCE TO THE SUPPLEMENTARY REPORT DATED 1
OCTOBER 1997 ISSUED BY THE LRA THRU DIRECTOR FELINO CORTEZ.
THE TRIAL COURT GRAVELY ERRED IN SETTING ASIDE THE REPORT ON THE ACTUAL GROUND
VERIFICATION SURVEY PREPARED BY ENGR. ALEXANDER JACOB DESPITE COMPLETE ABSENCE OF ANY
EVIDENCE TO CONTRADICT ITS VERACITY AND CORRECTNESS.
THE TRIAL COURT GRAVELY ERRED IN RULING THAT DENIAL OF THE REGISTRATION FOR LOT 3858 WILL
VIOLATE SECTION 19, PARAGRAPH 2 OF P.D. 1529.
For the OSG:
THE TRIAL COURT ERRED IN GRANTING THE APPLICATION FOR REGISTRATION OF ORIGINAL TITLE FOR
FAILURE OF THE APPELLEES TO SUBMIT IN EVIDENCE THE ORIGINAL TRACING CLOTH PLAN OR SEPIA
OF THE LAND APPLIED FOR.
THE TRIAL COURT ERRED IN FINDING THAT APPELLEES, BY THEMSELVES AND THROUGH THEIR
PREDECESSORS-IN-INTEREST, HAVE BEEN IN POSSESSION OF THE DISPUTED LANDS IN THE CONCEPT
OF OWNER, OPENLY AND ADVERSELY FOR THE PERIOD REQUIRED BY LAW.
On September 5, 2005, the CA reversed and set aside the February 15, 2000 Amended Judgment of the RTC and
reinstated its earlier March 31, 1997 Judgment. The dispositive portion of the CA Decision reads:
WHEREFORE, the February 15, 2000 Amended Judgment of the Regional Trial Court of Tagaytay City, Branch 18 is
hereby REVERSED and SET ASIDE and in its stead, the earlier March 31, 1997 Judgment is hereby REINSTATED
whereby registration as to LOT 3857 is hereby APPROVED while registration as to LOT 3858 is hereby DENIED
until such time that the encroachment on the land of MOLDEX REALTY, INC. is separated and removed.
The CA held, among others, that the January 19, 1995 Report made by Engr. Jacob of the LMS, DENR was more
reliable than the supplementary report dated October 1, 1997 of Director Cortez of the Department of Registration,
LRA. The CA reasoned out that the January 19, 1995 Report which found that Lot 3858 encroached on the property
of MOLDEX was based on an actual field verification and actual relocation survey ordered by the RTC upon joint
motion of the parties. On the other hand, the supplementary report dated October 1, 1997 which found no
encroachment was only based on an unreliable "table survey" of existing data and plans which were actually not
verified in the field.
The CA likewise ruled that although the respondents failed to submit in evidence the original tracing cloth plan or
sepia of the subject lots (Lots 3857 and 3858), these were sufficiently identified with the presentation of the blueprint
copy of Plans Ap-04-006225 and Ap-04-006227 and the technical descriptions duly certified by the Land
Management Bureau.
Hence, the OSG filed this petition.
ISSUE
WHETHER OR NOT THE COURT OF APPEALS ERRED IN REINSTATING THE MARCH 31, 1997 DECISION OF
THE REGIONAL TRIAL COURT WHICH APPROVED THE APPLICATION FOR REGISTRATION OF LOT 3857
BUT DEFERRED THE APPROVAL OF REGISTRATION OF LOT 3858.
The OSG argues that the respondents have not shown a registrable right over Lot 3857. According to the OSG,
respondents’ evidence is insufficient to establish their alleged possession over Lot 3857 to warrant its registration in
their names. Despite their claim that their predecessors-in-interest have been in possession of Lot 3857 for over 40
years at the time of their application for registration in December 1991, it appears that their possession only started
in 1951 which falls short of the legal date requirement of possession, that is, since June 12, 1945 or earlier. The
respondents simply made a general statement that their possession and that of their predecessors-in-interest have
been adverse, continuous, open, public, peaceful and in the concept of an owner for the required number of years.
Their general statements simply lack supporting evidence.
The OSG further contends that the respondents’ claim over the subject lots suffer from the following infirmities, to
wit:
1] The alleged deed of absolute sale upon which Juanito Manimtim (Juanito) anchors his claim over the lot is
a mere xerox copy and mentions only an area of 6,225 square meters and not 11, 577.44 square meters as
claimed by him.
2] The signature appearing in the deed of sale as allegedly belonging to Julio Umali as vendor is actually
that of his daughter, Aurora, who, as far as Juanito knows, was not authorized to sign for and in behalf of her
father.
3] Likewise, in the case of Edilberto Bañanola, the alleged deed of absolute sale upon which he banks his
claim on the subject land is a mere xerox copy.
4] Jacinto and Isabelo Umali, claiming that they inherited the land they seek to be registered in their names,
have not adduced any evidence to substantiate this claim.
5) As to Eliseo Granuelas, representing Zenaida Malabanan, he failed to present any instrument to
substantiate her claim that her parents bought the claimed property from Julio Umali.
On the other hand, the respondents aver that the petition violates Section 2, Rule 45 of the Rules of Court because
the CA decision dated September 5, 2005 is not yet final in view of the unresolved issues raised in their motion for
reconsideration dated September 27, 2005. The respondents likewise claim that the RTC decision dated February
15, 2000 refers only to Lot 3858, Plan Ap-04006227 and that it was promulgated in accordance with the
fundamental requirements in the land registration of Commonwealth Act No. 141 and Presidential Decree (P.D.) No.
1529.
They further argue that the OSG, represented by the City Prosecutor of Tagaytay, did not raise the issues, currently
put forward by the OSG, in all the hearings before the RTC. Neither did the OSG contest the respondents’
possession of Lot 3858 and 3857. In fact, Lot 3858, Plan Ap-04-006227, together with the other adjoining lots, is
originally listed in the original copy of the tracing cloth of Tagaytay Cadastre Map as those belonging to the
respondents’ grandmother, Agapito Magsumbol, and/or Julio Umali.
Finally, the respondents aver that insofar as Lot No. 3857 is concerned, Original Certificate of Title No. 0-741 was
issued in their names pursuant to the decision dated March 31, 1997 and that the derivative transfer certificates of
title were already registered in their names in compliance with the order for the issuance of the decree dated
December 14, 1998 issued by the Land Registration Court in LRC No. TG-399.
In reply, the OSG asserts that the issue raised by the respondents has been rendered moot with the denial by the
CA of their motion for reconsideration in its resolution dated March 13, 2006. The OSG further claims that under the
Regalian Doctrine, all lands of whatever classification belong to the state. Hence, the respondents have the burden
to show, even in the absence of an opposition, that they are the absolute owners of the subject lots or that they have
continuously possessed the same under claim of ownership since June 12, 1945.
The Court’s Ruling
In its September 5, 2005 Decision, the CA ruled in favor of the respondents by approving their application for
registration of Lot 3857 but denying their application for registration of Lot 3858 until such time that the
encroachment on the land of MOLDEX would have been separated and removed. The CA, however, did not rule on
the second and more important issue of whether the respondents were qualified for registration of title.
After going over the records, the Court agrees with the OSG that the respondents indeed failed to sufficiently prove
that they are entitled to the registration of the subject lands.
Sec. 14(1) of P.D. No. 15297 in relation to Section 48(b) of Commonwealth Act 141, as amended by Section 4 of P.D.
No. 1073,8 provides:
SEC. 14. Who may apply.—The following persons may file in the proper Court of First Instance [now Regional Trial
Court] 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. 1avvphi1

Xxx
Section 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 [now Regional Trial Court] 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:
Xxx
(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 of ownership, since June 12, 1945, or earlier, 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. [Emphasis supplied]
Based on these legal parameters, applicants for registration of title under Section 14(1) must sufficiently establish:
(1) that the subject land forms part of the disposable and alienable lands of the public domain; (2) that the applicant
and his predecessors-in-interest have been in open, continuous, exclusive and notorious possession and
occupation of the same; and (3) that it is under a bona fide claim of ownership since June 12, 1945, or
earlier.9 These the respondents must prove by no less than clear, positive and convincing evidence.10
In the case at bench, the respondents failed to establish that the subject lots were disposable and alienable lands.
Although respondents attached a photocopy of a certification 11 dated August 16, 1988 from the District Land Officer,
LMS, DENR, attesting that the subject lots were not covered by any public land applications or patents, and another
certification12 dated August 23, 1988 from the Office of the District Forester, Forest Management Bureau, DENR,
attesting that the subject lots have been verified, certified and declared to be within the alienable or disposable land
of Tagaytay City on April 5, 1978, they were not able to present the originals of the attached certifications as
evidence during the trial. Neither were they able to present the officers who issued the certifications to authenticate
them.
A careful scrutiny of the respondents’ Offer of Evidence13 would show that only the following were offered as
evidence:
1) blue print plans of AP-04-006225 and AP-04-006227
2) technical descriptions of Lot 3857 and 3858
3) surveyor’s certificates for Lot 3857 and 3858
4) photo-copy of the deed of sale dated September 17, 1971
5) jurisdictional requirements of posting and publication
6) tax declarations
7) tax receipts
Hence, there is no proof that the subject lots are disposable and alienable lands.
Moreover, the records failed to show that the respondents by themselves or through their predecessors-in-interest
have been in open, exclusive, continuous, and notorious possession and occupation of the subject lands, under a
bona fide claim of ownership since June 12, 1945 or earlier.
The respondents presented the testimonies of Juanito Manimtim (Juanito), Edilberto Bañanola, Jacinto Umali,
Eliseo Ganuelas, Isabelo Umali, and Engr. Vivencio Valerio and tax declarations to prove possession and
occupation over the subject lots. These declarations and documents, however, do not suffice to prove their
qualifications and compliance with the requirements.
Juanito testified, among others, that he is a co-owner of the subject lots 14 and that his ownership covers about
11,577.14 square meters of the subject lots;15 that he acquired his possession through a deed of absolute
sale16 dated September 17, 1971 from Julio Umali (Julio);17 that the 11,577.14 square meter property has been
covered by three (3) tax declarations;18 and that his great grandparents were in possession of the subject lots for a
period of 40 years.19
Juanito, however, could not show a duplicate original copy of the deed of sale dated September 17, 1991. Moreover,
a closer look at the deed of absolute sale dated September 17, 1991 would show that, for and in consideration of
the amount of ₱10,000.00, the sale covered only an area of 6,225 square meters of Lot 1, Plan Psu-176181 (Lot
3858) and not 11,577.44 square meters as claimed. Juanito explained that only the 6,225 square meter portion (Tax
Declaration No. 018-0928)20 was covered by the subject deed of absolute sale while the two (2) other portions (Tax
Declaration No. 018-0673 and Tax Declaration No. 018-0748 covering 2,676.40 square meters each)21 were not
covered by any deed of sale because Julio knew that these other portions were already owned by him
(Juanito).22 So, no deed of sale was executed between the two of them after he paid Julio the price for the portions
covered by Tax Declaration No. 018-0673 and Tax Declaration No. 018-0748.23 He was not able to show, however,
any other document that would support his claim over the portions beyond 6,225 square meters.
In any event, Juanito failed to substantiate his general statement that his great grandparents were in possession of
the subject lots for a period of over 40 years. He failed to give specific details on the actual occupancy by his
predecessors-in-interest of the subject lots or mode of acquisition of ownership for the period of possession required
by law. It is a rule that general statements that are mere conclusions of law and not factual proof of possession are
unavailing and cannot suffice. An applicant in a land registration case cannot just harp on mere conclusions of law to
embellish the application but must impress thereto the facts and circumstances evidencing the alleged ownership
and possession of the land.24
Like Juanito, the testimonies of Edilberto Bañanola, Jacinto Umali, Eliseo Ganuelas, and Isabelo Umali were all
unsubstantiated general statements.
Edilberto Bañanola (Edilberto) claims that he owns a portion of Lot 3857 based on Tax Declaration No. GR-018-
1058-R25 covering 5,025 square meters and Tax Declaration No. GR-018-1059-R26 covering 6,225 square
meters.27 According to him, he bought the subject property from Hilarion Maglabe and Juanito Remulla through a
deed of absolute sale28 dated February 6, 1978.29 To prove the same, he presented several tax declarations30 in the
names of Hilarion Maglabe and Juanito Remulla. He further asserts that he has been in actual, continuous and
uninterrupted possession of the subject property since he purchased it in 1978.31
Like Juanito, however, Edilberto failed to present a duplicate original copy of the deed of sale dated February 6,
1978 and validate his claim that he himself and his predecessors-in-interest have been in open, exclusive,
continuous, and notorious possession and occupation of the subject land, under a bona fide claim of ownership
since June 12, 1945 or earlier.
As for Jacinto Umali and Eliseo Ganuelas, they likewise failed to authenticate their claim of acquisition through
inheritance and acquisition through purchase, respectively.
Apparently, the respondents’ best evidence to prove possession and ownership over the subject property were the
tax declarations issued in their names. Unfortunately, these tax declarations together with their unsubstantiated
general statements and mere xerox copies of deeds of sale are not enough to prove their rightful claim. Well settled
is the rule that tax declarations and receipts are not conclusive evidence of ownership or of the right to possess land
when not supported by any other evidence. The fact that the disputed property may have been declared for taxation
purposes in the names of the applicants for registration or of their predecessors-in-interest does not necessarily
prove ownership. They are merely indicia of a claim of ownership.32
Finally, the fact that the public prosecutor of Tagaytay City did not contest the respondents’ possession of the
subject property is of no moment. The absence of opposition from government agencies is of no controlling
significance because the State cannot be estopped by the omission, mistake or error of its officials or agents.33
WHEREFORE, the petition is GRANTED. Accordingly, the September 5, 2005 Decision of the Court of Appeals in
CA-G.R. CV No. 74720 is hereby REVERSED and SET ASIDE and another judgment entered denying the
application for land registration of the subject properties.
SO ORDERED.
G.R. No. 196200 September 11, 2013
ERNESTO DY, Petitioner,
vs.
HON. GINA M. BIBAT- PALAMOS, in her capacity as Presiding Judge of the Regional Trial Court, Branch 64,
Makati City, and ORIX METRO LEASING AND FINANCE CORPORATION, Respondents.
DECISION
MENDOZA, J.:
This petition for certiorari under Rule 65 of the 1997 Revised Rules of Civil Procedure questions the December 13,
2010 and March 7, 2011Orders1 of the Regional Trial Court of Makati, Branch 64 (RTC), in Civil Case No. 92-2311,
granting the motion for execution of petitioner, but denying his prayer for the return of his cargo vessel in the
condition when the possession thereof was seized from him.
The Facts
The present controversy finds its roots in the Court’s decision in Orix Metro Leasing and Finance Corporation v. M/V
"Pilar-I" and Spouses Ernesto Dy and Lourdes Dy2 involving the same parties. The facts, as culled from the Court’s
decision in the said case and the records, are not disputed by the parties.
Petitioner Ernesto Dy (petitioner) and his wife, Lourdes Dy (Lourdes), were the proprietors of Limchia Enterprises
which was engaged in the shipping business. In 1990, Limchia Enterprises, with Lourdes as co-maker, obtained a
loan from Orix Metro Leasing and Finance Corporation (respondent) to fund its acquisition of M/V Pilar-I, a cargo
vessel. As additional security for the loan, Limchia Enterprises executed the Deed of Chattel Mortgage over M/V
Pilar-I.3
Due to financial losses suffered when M/V Pilar-I was attacked by pirates, Spouses Dy failed to make the scheduled
payments as required in their promissory note. After receiving several demand letters from respondent, Spouses Dy
applied for the restructuring of their loan. Meanwhile, Lourdes issued several checks to cover the remainder of their
loan but the same were dishonored by the bank, prompting respondent to institute a criminal complaint for violation
of the Bouncing Checks Law. Lourdes appealed to respondent with a new proposal to update their outstanding loan
obligations.4
On August 18, 1992, respondent filed the Complaint and Petition for Extrajudicial Foreclosure of Preferred Ship
Mortgage under Presidential Decree No. 1521 with Urgent Prayer for Attachment with the RTC. Following the filing
of an affidavit of merit and the posting of bond by respondent, the RTC ordered the seizure of M/V Pilar-I and turned
over its possession to respondent. On September 28, 1994, respondent transferred all of its rights, title to and
interests, as mortgagee, in M/V Pilar-I to Colorado Shipyard Corporation (Colorado).5
On July 31, 1997, the RTC rendered a decision in favor of Spouses Dy, ruling that they had not yet defaulted on
their loan because respondent agreed to a restructured schedule of payment. There being no default, the
foreclosure of the chattel mortgage on M/V Pilar-I was premature. The RTC ordered that the vessel be returned to
Spouses Dy.6 This was affirmed by the Court of Appeals (CA), with the modification that Spouses Dy be ordered to
reimburse the respondent for repair and dry docking expenses while the vessel was in the latter’s possession. 7 On
appeal, the Court promulgated its Decision, dated September 11, 2009, upholding the findings of the CA but deleting
the order requiring Spouses Dy to reimburse respondent.8
Consequently, on August 17, 2010, petitioner filed a motion for execution of judgment with the RTC. In the
intervening period, Colorado filed its Manifestation/Motion, dated July 29, 2010, informing the RTC that M/V Pilar-I,
which was in its possession, had sustained severe damage and deterioration and had sunk in its shipyard because
of its exposure to the elements. For this reason, it sought permission from the court to cut the sunken vessel into
pieces, sell its parts and deposit the proceeds in escrow.9 In his Comment/Objection, petitioner insisted that he had
the right to require that the vessel be returned to him in the same condition that it had been at the time it was
wrongfully seized by respondent or, should it no longer be possible, that another vessel of the same tonnage, length
and beam similar to that of M/V Pilar-I be delivered.10 Colorado, however, responded that the vessel had suffered
severe damage and deterioration that refloating or restoring it to its former condition would be futile, impossible and
very costly; and should petitioner persist in his demand that the ship be refloated, it should be done at the expense
of the party adjudged by the court to pay the same.11
The RTC issued its questioned December 13, 2010 Order granting the motion for execution but denying petitioner’s
prayer for the return of M/V Pilar-I in the same state in which it was taken by respondent. In so resolving, the RTC
ratiocinated:
First, the judgment of the Supreme Court does not require the delivery of M/V Pilar in the state the defendants
wanted it to be. Secondly, said judgment has now become final and it is axiomatic that after judgment has become
executory, the court cannot amend the same, except: x x x None of the three circumstances where a final and
executory judgment may be amended is present in this case. And third, the present deplorable state of M/V Pilar
certainly did not happen overnight, thus, defendants should have brought it to the attention of this Court, the Court
of Appeals or the Supreme Court after it became apparent. Their inaction until after the judgment has become final,
executory and immutable rendered whatever right they may have to remedy the situation to be nugatory.
[Underlining supplied]
Petitioner moved for reconsideration but the motion was denied by the RTC in its March 7, 2011 Order.12
Hence, this petition.
The Issues
Petitioner raises the following issues in its Memorandum:
1. Whether or not the rule on hierarchy of courts is applicable to the instant petition?
2. Whether or not the honorable trial court gravely abused its discretion, amounting to lack or excess of
jurisdiction, in finding that petitioner is not entitled to the return of M/VPilar-1 in the condition that it had when
it was wrongfully seized by Orix Metro, or in the alternative, to a vessel of similar tonnage, length, beam, and
other particulars as M/VPilar-1;
3. Whether or not petitioner is estopped from asking for the return of the vessel in the condition it had at the
time it was seized?
4. Whether or not it was petitioner’s duty to look out for the vessel’s condition?13
To be succinct, only two central issues need to be resolved: (1) whether petitioner was justified in resorting directly
to this Court via a petition for certiorari under Rule 65; and (2) whether petitioner is entitled to the return of M/V Pilar-
I in the same condition when it was seized by respondent.
The Court’s Ruling
The Court finds the petition to be partly meritorious.
Hierarchy of Courts; Direct Resort
To The Supreme Court Justified
Petitioner argues that his situation calls for the direct invocation of this Court’s jurisdiction in the interest of justice.
Moreover, as pointed out by the RTC, what is involved is a judgment of the Court which the lower courts cannot
modify. Hence, petitioner deemed it proper to bring this case immediately to the attention of this Court. Lastly,
petitioner claims that the present case involves a novel issue of law – that is, whether in an action to recover, a
defendant in wrongful possession of the subject matter in litigation may be allowed to return the same in a
deteriorated condition without any liability.14
Respondent, on the other hand, contends that the petition should have been filed with the CA, following the doctrine
of hierarchy of courts. It pointed out that petitioner failed to state any special or important reason or any exceptional
and compelling circumstance which would warrant a direct recourse to this Court.15
Under the principle of hierarchy of courts, direct recourse to this Court is improper because the Supreme Court is a
court of last resort and must remain to be so in order for it to satisfactorily perform its constitutional functions,
thereby allowing it to devote its time and attention to matters within its exclusive jurisdiction and preventing the
overcrowding of its docket. 16 Nonetheless, the invocation of this Court’s original jurisdiction to issue writs of
certiorari has been allowed in certain instances on the ground of special and important reasons clearly stated in the
petition, such as,(1) when dictated by the public welfare and the advancement of public policy; (2) when demanded
by the broader interest of justice; (3) when the challenged orders were patent nullities; or (4) when analogous
exceptional and compelling circumstances called for and justified the immediate and direct handling of the case.17
This case falls under one of the exceptions to the principle of hierarchy of courts. Justice demands that this Court
take cognizance of this case to put an end to the controversy and resolve the matter which has been dragging on for
more than twenty (20) years. Moreover, in light of the fact that what is involved is a final judgment promulgated by
this Court, it is but proper for petitioner to call upon its original jurisdiction and seek final clarification.
Wrong Mode of Appeal;
Exception
Petitioner asserts that the RTC committed grave abuse of discretion when it failed to rule in his favor despite the fact
that he had been deprived by respondent of his property rights over M/V Pilar-I for the past eighteen(18) years.
Moreover, the change in the situation of the parties calls for a relaxation of the rules which would make the
execution of the earlier decision of this Court inequitable or unjust. According to petitioner, for the RTC to allow
respondent to return the ship to him in its severely damaged and deteriorated condition without any liability would be
to reward bad faith.18
Conversely, respondent submits that there was no grave abuse of discretion on the part of the RTC as the latter
merely observed due process and followed the principle that an execution order may not vary or go beyond the
terms of the judgment it seeks to enforce. 19 Respondent adds that the proper remedy should have been an ordinary
appeal, where a factual review of the records can be made to determine the condition of the ship at the time it was
taken from petitioner, and not a special civil action for certiorari.20
There are considerable differences between an ordinary appeal and a petition for certiorari which have been
exhaustively discussed by this Court in countless cases. The remedy for errors of judgment, whether based on the
law or the facts of the case or on the wisdom or legal soundness of a decision, is an ordinary appeal.21 In contrast, a
petition for certiorari under Rule 65 is an original action designed to correct errors of jurisdiction, defined to be those
"in which the act complained of was issued by the court, officer, or quasi-judicial body without or in excess of
jurisdiction, or with grave abuse of discretion which is tantamount to lack of in excess of jurisdiction." 22 A court or
tribunal can only be considered to have acted with grave abuse of discretion if its exercise of judgment was so
whimsical and capricious as to be equivalent to a lack of jurisdiction. The abuse must be extremely patent and gross
that it would amount to an "evasion of a positive duty or to virtual refusal to perform a duty enjoined by law, or to act
at all in contemplation of law, as where the power is exercised in an arbitrary and despotic manner by reason of
passion and hostility."23
Therefore, a misappreciation of evidence on the part of the lower court, as asserted by petitioner, may only be
reviewed by appeal and not by certiorari because the issue raised by the petitioner does not involve any
jurisdictional ground.24 It is a general rule of procedural law that when a party adopts an inappropriate mode of
appeal, his petition may be dismissed outright to prevent the erring party from benefiting from his neglect and
mistakes.25 There are exceptions to this otherwise ironclad rule, however. One is when the strict application of
procedural technicalities would hinder the expeditious disposition of this case on the merits,26 such as in this case.
Petitioner Not Barred from Demanding
Return of the Vessel in its Former Condition
Petitioner insists that it is respondent who should bear the responsibility for the deterioration of the vessel because
the latter, despite having in its possession the vessel M/V Pilar-I during the pendency of the foreclosure
proceedings, failed to inform the court and petitioner himself about the actual condition of the ship. For estoppel to
take effect, there must be knowledge of the real facts by the party sought to be estopped and reliance by the party
claiming estoppel on the representation made by the former. In this case, petitioner cannot be estopped from asking
for the return of the vessel in the condition that it had been at the time it was seized by respondent because he had
not known of the deteriorated condition of the ship.27
On the contrary, respondent argues that petitioner is barred from asking for a modification of the judgment since he
never prayed for the return of M/V Pilar-I in the same condition that it had been at the time it was seized. 28 Petitioner
could have prayed for such relief in his prior pleadings and presented evidence thereon before the judgment
became final and executory. During the course of the trial, and even at the appellate phase of the case, petitioner
failed to ask the courts to look into the naturally foreseeable depreciation of M/V Pilar-I and to determine who should
pay for the wear and tear of the vessel. Consequently, petitioner can no longer pursue such relief for the first time at
this very late stage.29 Moreover, respondent posits that it can only be held liable for the restoration and replacement
of the vessel if it can be proven that M/V Pilar-I deteriorated through the fault of respondent. Nowhere in the prior
decision of this Court, however, does it appear that respondent was found to have been negligent in its care of the
vessel. In fact, respondent points out that, for a certain period, it even paid for the repair and maintenance of the
vessel and engaged the services of security guards to watch over the vessel. It reasons that the vessel’s
deterioration was necessarily due to its exposure to sea water and the natural elements for the almost twenty years
that it was docked in the Colorado shipyard.30
On this matter, the Court finds for petitioner.
This Court is not unaware of the doctrine of immutability of judgments. When a judgment becomes final and
executory, it is made immutable and unalterable, meaning it can no longer be modified in any respect either by the
court which rendered it or even by this Court. Its purpose is to avoid delay in the orderly administration of justice and
to put an end to judicial controversies. Even at the risk of occasional errors, public policy and sound practice dictate
that judgments must become final at some point.31
As with every rule, however, this admits of certain exceptions. When a supervening event renders the execution of a
judgment impossible or unjust, the interested party can petition the court to modify the judgment to harmonize it with
justice and the facts.32 A supervening event is a fact which transpires or a new circumstance which develops after a
judgment has become final and executory. This includes matters which the parties were unaware of prior to or
during trial because they were not yet in existence at that time.33
In this case, the sinking of M/V Pilar-I can be considered a supervening event. Petitioner, who did not have
1âwphi1

possession of the ship, was only informed of its destruction when Colorado filed its Manifestation, dated July 29,
2010, long after the September 11, 2009 Decision of this Court in Orix Metro Leasing and Finance Corporation v.
M/V "Pilar-I" and Spouses Ernesto Dy and Lourdes Dy attained finality on January 19, 2010. During the course of
the proceedings in the RTC, the CA and this Court, petitioner could not have known of the worsened condition of the
vessel because it was in the possession of Colorado.
It could be argued that petitioner and his lawyer should have had the foresight to ask for the return of the vessel in
its former condition at the time respondent took possession of the same during the proceedings in the earlier case.
Nonetheless, the modification of the Court’s decision is warranted by the superseding circumstances, that is, the
severe damage to the vessel subject of the case and the belated delivery of this information to the courts by the
party in possession of the same.
Having declared that a modification of our earlier judgment is permissible in light of the exceptional incident present
in this case, the Court further rules that petitioner is entitled to the return of M/V Pilar-I in the same condition in
which respondent took possession of it. Considering, however, that this is no longer possible, then respondent
should pay petitioner the value of the ship at such time.
This disposition is not without precedent. In the case of Metro Manila Transit Corporation v. D.M. Consortium,
Inc.,34 D.M. Consortium, Inc. (DMCI) acquired 228 buses under a lease purchase agreement with Metro Manila
Transit Corporation (MMTC). MMTC later alleged that DMCI was in default of its amortization, as a result of which,
MMTC took possession of all the buses. This Court upheld the right of DMCI, after having been unjustly denied of its
right of possession to several buses, to have them returned by MMTC. Considering, however, that the buses could
no longer be returned in their original state, the Court sustained the resolution of the CA ordering MMTC to pay
DMCI the value of the buses at the time of repossession.
The aforecited case finds application to the present situation of petitioner. After having been deprived of his vessel
for almost two decades, through no fault of his own, it would be the height of injustice to permit there turn of M/V
Pilar-I to petitioner in pieces, especially after a judgment by this very same Court ordering respondent to restore
possession of the vessel to petitioner. To do so would leave petitioner with nothing but a hollow and illusory victory
for although the Court ruled in his favor and declared that respondent wrongfully took possession of his vessel, he
could no longer enjoy the beneficial use of his extremely deteriorated vessel that it is no longer seaworthy and has
no other commercial value but for the sale of its parts as scrap.
Moreover, the incongruity only becomes more palpable when consideration is taken of the fact that petitioner's
obligation to respondent, for which the now practically worthless vessel serves as security, is still outstanding.35 The
Court cannot countenance such an absurd outcome. It could not have been the intention of this Court to perpetrate
an injustice in the guise of a favorable decision. As the court of last resort, this Court is the final bastion of justice
where litigants can hope to correct any error made in the lower courts.
WHEREFORE, the petition is PARTIALLYGRANTED. Respondent is ordered to pay petitioner the value of M/V
Pilar- I at the time it was wrongfully seized by it. The case is hereby REMANDED to the Regional Trial Court, Branch
64, Makati City, for the proper determination of the value of the vessel at said time.
SO ORDERED.
G.R. No. 203655 August 13, 2014
SM LAND, INC., Petitioner,
vs.
BASES CONVERSION AND DEVELOPMENT AUTHORITY and ARNEL PACIANO D. CASANOVA, ESQ., in his
official capacity as President and CEO of BCDA, Respondents.
DECISION
VELASCO, JR., J.:
The Case
Before Us is a Petition for Certiorari, Prohibition and Mandamus under Rule 65 of the Rules of Court, with prayer for
injunctive relief, seeking to nullify and set aside the Bases Conversion and Development Authority (BCDA)
Supplemental Notice No. 5 as well as all other acts pursued in furtherance thereof, and to order respondents to
1

immelliately conduct and complete the Competitive Selection Process on petitioner's duly accepted unsolicited
proposal.
The Facts
As culled from the records, the facts are simple and undisputed.
Pursuant to Republic Act No. (RA) 7227 or the "Bases Conversion and Development Act of 1992," the BCDA
opened for disposition and development its Bonifacio South Property, a 33.1-hectare expanse located at Taguig City
that was once used as the command center for the country's military forces. Jumping on the opportunity, petitioner
SM Land, Inc. (SMLI), on December 14, 2009, submitted to the BCDA an unsolicited proposal for the development
of the lot through a public-private joint venture agreement. The proposal guaranteed the BCDA secured payments
amounting to PhP 15,985/sqm or a total of PhP 8.1 billion.
Barely three months later, the initial proposal was followed by a second one with guaranteed secured payments of
PhP 31,139/sqm, totaling PhP 20 billion. On May 4, 2010, however, SMLI submitted its third unsolicited proposal
with guaranteed secured payments amounting to PhP 32,501/sqm for a total of PhP 22.6 billion.
Thereafter, the BCDA created a Joint Venture Selection Committee (JV-SC) following the procedures prescribed
under Annex "C" of the Detailed Guidelines for Competitive Challenge Procedure for PublicPrivate Joint Ventures
(NEDA JV Guidelines) promulgated by the National Economic Development Authority(NEDA). The said committee
recommended the acceptance of the unsolicited proposal, which recommendation was favorablyacted upon by the
BCDA. Through a letter dated May 12, 2010, the BCDA communicated to petitioner its acceptance of the unsolicited
proposal. Despite its acceptance, however, the BCDA clarified that its act should not be construed to bind the
agency to enter into a joint venture agreement with the petitioner but only constitutes an authorization granted to the
JV-SC to conduct detailed negotiations with petitioner SMLI and iron out the terms and conditions of the agreement.
Pursuant to this authorization, the JV-SC and SMLI embarked on a series of detailed negotiations, and on July 23,
2010, SMLI submitted its final revised proposal with guaranteed secured payments amounting to a total of PhP 25.9
billion. Afterwards, upon arriving at mutually acceptable terms and conditions, a Certification of Successful
Negotiations (Certification) was issued by the BCDA and signed by both parties on August 6, 2010. Through the said
Certification, the BCDA undertook to "subject SMLI’s Original Proposal to Competitive Challenge pursuant to Annex
C" and committed itself to "commence the activities for the solicitation for comparative proposals."
1

In an attempt to comply with its obligations, the BCDA prepared for the conduct of a Competitive Challenge to
determine whether or not there are other Private Sector Entities (PSEs)that can match the proposal of SMLI, and
concurrently ensure that the joint venture contract will be awarded to the party that can offer the most advantageous
terms in favor of the government. In furtherance thereof, the agency issued Terms of Reference (TOR), which 2

mapped out the procedure to be followed in connection with the Competitive Challenge. Consequently, SMLI was
required, as it did, to post a proposalsecurity in the amount of PhP 187 million, following the prescribed procedure
outlined in the TOR and the NEDA JV Guidelines.
Afterwards, the BCDA set the Pre-eligibility Conference on September 3, 2010. Invitations to apply for eligibility and
to submit comparative proposals were then duly published on August 12, 16 and 20, 2010. Hence, the pre-eligibility
conference was conducted as scheduled. The companies that participated in the conference included SMLI, as the
Original Proponent, and three (3) PSEs, namely Ayala Land, Inc., Rockwell Land Corp., and Filinvest Land, Inc.
On Ayala Land, Inc.’s request, the deadline for submission of Eligibility Documents was scheduled on October 20,
2010 through Supplemental Notice No. 1. However, the deadline was again moved to November 19, 2010 to allow
the BCDA, in conjunction with other national agencies, to resolve issues concerning the relocation and replication of
facilities located in the subject property.For this purpose, the BCDA issued Supplemental Notice No. 2.
Following a conference, the BCDA, on November 18, 2010, issued Supplemental Notice No. 3, again rescheduling
the submission deadline this time to an unspecified future date "pending final results of the policy review by the
Office of the President on the lease versus joint venture/sale mode and other issues." Henceforth, the BCDA
3

repeatedly postponed the deadline of eligibility requirements untiltwo (2) years have already elapsed from the
signing of the Certification without the Competitive Challenge being completed.
Then, instead of proceeding withthe Competitive Challenge, the BCDA addressed a letter to Jose T. Gabionza, Vice
4

President of SMLI, stating that it will welcome any "voluntary and unconditional proposal" to improve the original
offer, with the assurance that the BCDA will nonetheless respect any right which may have accrued in favor of SMLI.
SMLI, through a letter dated December 22, 2011, replied by increasing the total secured payments to PhP 22.436
billion in over fifteen (15) years with an upfront payment of PhP 3 billion. SMLI likewise proposed to increase the net
present value of the property to PhP 38,500.00/sqm. With this accelerated terms of payment, the total inflow to be
received by the BCDA from the project after five (5) years would amount to PhP 9.289 billion. In the same letter,
SMLI clarified that itsimproved offer is tendered on reliance of the BCDA’s previous commitment torespect SMLI’s
status as the Original Proponent.
Without responding to SMLI’s new proposal, the BCDA sent a memorandum to the Office of the President (OP)
dated February 13, 2012, categorically recommending the termination of the Competitive Challenge. The
memorandum, in part, reads:
In view of the foregoing, may we respectfully recommend the President’s approval for BCDA to terminate the
proceedings for the privatization and development of the BNS/PMC/ASCOM/SSU Properties in Bonifacio South
through Competitive Challenge and proceed with the bidding of the property. 5

Alarmed by this development, SMLI, in a letter dated August 10, 2012, urged the BCDA to proceed with the
Competitive Challenge as agreed upon. However, the BCDA, via the assailed Supplemental Notice No. 5,
terminated the Competitive Challenge altogether. Said Supplemental Notice pertinently reads:
This Supplemental Notice No. 05 is issued to inform the [PSEs] that the Competitive Challenge for the Selection of
BCDA’s Private Sector Partner for the Privatization and Development of the approximately 33.1-hectare
BNS/PMC/ASCOM/SSU Properties in Bonifacio South is hereby terminated. BCDA shall not dispose the property
through Competitive Challenge. 6

To support its position, the BCDA invoked Article VIII of the TOR on the subject "Qualifications and Waivers," to wit:
The BCDA reserves the right to call off [the] disposition prior to acceptance of the proposal(s) and call for a new
disposition process under amended rules and without any liability whatsoever to any or all the PSEs, except the
obligation to return the Proposal Security.
Thereafter, the BCDA informed SMLI of the OP’s decision to subject the development of the subject propertyto
public bidding. When asked by SMLI, the JV-SC manifested its conformity with the actions thus taken by the BCDA
and OP.
The JV-SC’s declaration proved to be the last straw that fractured SMLI’s patience as it lost no time in interposing
the instant recourse.
In the meantime, the BCDA issuedin favor of SMLI Philippine National Bank Check No. 11-634-610001-0 in the
amount of PhP 188,508,466.67 dated September 28, 2012. The check was sent through registered mail with no
explanation whatsoever accompanying the same, although the BCDA admitted that its value corresponds to the
proposal security posted by SMLI, plus interest in an unspecified rate. SMLI attempted to return the check but to no
avail.
The BCDA likewise caused the publication of an "Invitation to Bid" for the development of the subject property in the
December 21, 2012 issue of the Philippine Star. This impelled SMLI to file an Urgent Manifestation with Reiterative
7

Motion to Resolve SMLI’s Application for Temporary Restraining Order (TRO) and Preliminary Injunctionon the same
day. By Resolution of January 9, 2013, the Court issued the TRO prayed for by petitioner and enjoined respondent
8

BCDA from proceeding with the new selection process for the development of the property.
The Issue
Without a doubt, the issue in this case boils down to whether or not the BCDA gravely abused its discretion in
issuing Supplemental Notice No. 5, in unilaterally aborting the Competitive Challenge, and in subjecting the
development of the project to public bidding.
For its part, SMLI alleged in its petition that the Certification issued by the BCDA and signed by the parties
constituted a contract and that under the said contract, BCDA cannot renege on its obligation to conduct and
complete the Competitive Challenge. The BCDA, on the other hand, relies chiefly on the reservation clause in the
TOR, which allegedly authorized the agency to unilaterally cancel the Competitive Challenge. Respondents add that
the terms and conditions agreedupon are disadvantageous to the government, and that it cannot legally be barred
by estoppel in correcting a mistake committed by its agents.
The Court’s Ruling
The petition is impressed with merit. SMLI has the right to a completed competitive challenge pursuant to the NEDA
JV Guidelines and the Certification issued by the BCDA. The reservation clause adverted to by the respondent
cannot, in any way, prejudice said right.
The Procurement Process under the NEDA JV Guidelines
In resolving the case, discussing the procedure outlined under the NEDA JV Guidelines and a brief backgrounder
thereof is apropos.
To streamline the procurement process and expedite the acquisition of goods and services, Executive Order No.
(EO) 423 was issued on April 30, 2005, which prescribed the rules and procedures on the review and approval of
government contracts. The EO, in part, provides: Section 8. Joint Venture Agreements. The NEDA, in consultation
with the GPPB, shall issue guidelines regarding joint venture agreements with private entities with the objective of
promoting transparency, competitiveness, and accountability in government transactions, and, where applicable,
complying with the requirements of an open and competitive public bidding.
Taking its cue from the above-quoted provision, the NEDA promulgated the NEDA JV Guidelines, which detailed two
(2) modes of selecting a private sector JV partner: by competitive selectionor through negotiated agreements.
Competitive selection involves a selection process based on transparent criteria, which should not constrain or limit
competition, and is open to participation byany interested and qualified private entity. Selection by negotiated
9

agreements or negotiated projects, on the other hand, comes about as an end result of an unsolicited
10 11

proposal from a private sector proponent, or if the government has failed to identify an eligible private sector
12

partner for a desired activity after subjecting the same to a competitive selection.
Relevant to the case at bar is the selection modality by negotiated agreement arising from the submission and
acceptance of an unsolicited proposal, known as the Swiss Challenge method, in essea hybrid mechanism
13

between the direct negotiation approach and the competitive bidding route. With the availability of the Swiss
14

Challenge method for utilization by those in the private sector, PSEs have studied, formulated, and submitted
numerous suo motoor unsolicited proposals with the ultimate goal of assisting the public sector in elevating the
country’s place in the global economy, as in the case herein.
The development and adoption by several countries of the Swiss Challenge scheme is attributed to the recognition
15

that the private sector can be an important source of technical and managerial expertise, as well as financing, as
evidenced by private companies’ practice of directly approaching governments with new and innovative project
ideas through unsolicited proposals. Some states, however, frown on the practice since transparency is allegedly
16

compromised when the government directly negotiates with a proponent. In this method, the Original Proponent,
who first submitted and secured acceptance ofthe unsolicited proposal, is given the right to match the successful bid
received in the competitive bid process for the said project. 17

Item III, Annex "C" of the NEDA JV Guidelines, where the Swiss Challenge format is tucked in, maps out a three-
stage framework, to which Negotiated JV Agreements are to be mandatorily subjected, as summarized below:
Stage One
Submission and the Acceptance
or Rejection of the Unsolicited Proposal
Stage One of the process involves the submission, evaluation, and the acceptance of unsolicited proposals from
18

private entities. The steps involved are:

1. A PSE submits an unsolicited proposalto the government entity (GE) or the GE seeks out a JV partner
after a failed competition (open bidding) for a JV activity or project.
2. The GE, through its JV-SC, undertakes the initial evaluation of the proposal.
3. The head of the GE shall then either issue an acceptance or nonacceptance notice of the proposal.
a. An acceptance shall not bind the GE to enter into the JV activity, but shall mean that authorization
is given to proceed with detailed negotiations on the terms and conditions of the JV activity.
b. In case of non-acceptance, the private sector entity shall be informed of the reasons/grounds for
such action.
Stage Two
Detailed Negotiations
Stage Two entails negotiation on the terms and conditions of the JV activity. Below is a summary of the parameters
19

adhered to in detailed negotiations, and the preparation of the proposal documents in case of successful
negotiations:
1. The parties shall negotiate on, among other things, the scope as well as all legal, technical, and financial
aspects of the JV activity.
2. The JV-SC shall determine the eligibility of the PSE to enter into the JV activity in accordance with pre-set
rules.
 3. Negotiations shall comply with the process, requirements and conditions as stipulated under Sections 6
(General Guidelines) and 7 (Process for Entering into JV Agreements) of the JV Guidelines.
a. If successful, the GE head and the representative of the PSE shall issue a signed certification of
successful negotiation to the effect that:
a) an agreement has been reached;
b) the PSE is eligible to enter into the proposed JV activity; and
c) the GE shall commence the activities for the solicitation for comparative proposals.
b. If an acceptable agreement isnot reached, the GE may:
a) reject the proposal and thereafter accept a new one from private sector participants; or
b) pursue the proposed activity through alternative routes other than a joint venture.
4. After an agreement is reached, the contract documents, including the selection documents for the
competitive challenge, are prepared.
Stage Three
Competitive Challenge
In Stage Three, upon the successful completion of the detailed negotiation phase, the JV activity shall be subjected
20

to a competitive challenge, which includes the observance of the following procedure:

21

1. Preparation and approval of all tender documents including the draft contract before the invitation for
comparative proposals is published.
2. Publication of the invitation for comparative proposals followed by the posting by the PSE of the proposal
security.
3. Determination of the eligibility of comparative proponents/PSEs, issuance of supplemental competitive
selection bulletins and pre-selection conferences, submission, opening and evaluation of comparative
proposals.
4. In the evaluation of the comparative proposals as a prelude to determine the best offer, the original
proposal of the original proponent shall be considered.
a. If the GE determines that an offer made by a comparative private sector participant is more
advantageous to the government than the original proposal, the original proponent shall be given the
right to match such superior or more advantageous offer.
b. Should no matching offer be received, the JV activity shall be awarded to the comparative private
sector participant submitting the most advantageous proposal.
c. If a matching offer is received, or if there is no comparative proposal, the JV activity shall be
awarded to the original proponent.
5. After the completion of the competitive challenge, the JV-SC shall submit the recommendation of award to
the head of the GE. 22

6. Embarking on activities leading to the execution of the Final Agreement. 23

Deviation from the procedure outlined cannot be countenanced. Wellestablished is the rule that administrative
issuances––such as the NEDA JV Guidelines, duly promulgated pursuant to the rule-making power granted by
statute––have the force and effect of law. Being an issuance in compliance with an executive edict, the NEDA JV
24

Guidelines, therefore, has the same binding effect as if it were issued by the President himself. As such, no agency
25

or instrumentality covered by the JV Guidelines can validly stray from the mandatory procedures set forth therein,
26

even if the other party acquiesced therewith or not.

27

SMLI’s rights as an Original Proponent and BCDA’s correlative duty under the NEDA JV Guidelinesand the parties’
agreement
It is well to point out that after BCDA accepted the unsolicited proposal of SMLI and after both parties herein
successfully concluded the detailed negotiations on the terms and conditions of the project, SMLI acquired the
status of an Original Proponent. An Original Proponent, per the TOR, pertains to the party whose unsolicited
proposal for the development and privatization of the subject property though JV with BCDA has been accepted by
the latter, subject to certain conditions, and is now being subjected to a competitive challenge.28

In this regard, SMLI insists that asan Original Proponent, it obtained the right to a completed competitive challenge.
On the other hand, the BCDA argues that it can, at any time, withdraw from the disposition process as it is not
bound to enter into the proposed JV activity with SMLI. Petitioner’s argument holds water.
A scrutiny of the NEDA JV Guidelinesreveals that certain rights are conferred to an Original Proponent. Ascorrectly
pointed out by SMLI, these rights include:
1. The right to the conduct and completion of a competitive challenge;
2. The right to match the superior or more advantageous offer, if any;
3. The right to be awarded the JV activity in the event that a matching offer is submitted within the prescribed
period; and
 4. The right to be immediately awarded the JV activity should there be no comparative
proposals. (emphasis added)
29

Material to the present case is the right to the conduct and completion of a Competitive Challenge. Based onthe
NEDA JV Guidelines, it is necessary that Stages One and Two of the Swiss Challenge shall have been fruitful for
this right to arise.
To recall, Stages One and Two ofthe framework deal with the submission and evaluation of the unsolicited proposal
and the conduct of the detailed negotiations. Should the parties productively conclude the in-depth negotiations, the
guidelines require the preparation of the contract and selection documents for the competitive challenge. Following
30

this, Stage Three of the same rules provides that the GE shall subject the terms agreed upon to a Competitive
Challenge. Thus:
Stage Three – Once the negotiations have been successfully completed, the JV activity shallbe subjected to a
competitive challenge, as follows:
1. The [GE] shallprepare the tender documents pursuant to Section II (Selection/Tender Documents) of
Annex A hereof. The eligibility criteria used in determining the eligibility of the [PSE] shall be the same as
those stated in the tender documents. x x x The Head of the [GE] shall approve all tender documents
including the draft contract before the publication of the invitation for comparative proposals.
2. Within seven (7) calendar days from the issuance of the Certification of a successful negotiation referred
toin Stage Two above, the JV-SC shall publish the invitation for comparative proposals in accordance with
Section III.2. (Publication of Invitation to Apply for Eligibility and to Submit Proposal) under Annex A hereof.
3. The [PSE] shallpost the proposal security at the date of the first day of the publication of the invitation for
comparative proposals in the amount and form stated in the tender documents.
4. The procedure for the determination of eligibility of comparative proponents/private sector participants,
issuance of supplemental competitive selection bulletins and pre-selection conferences, submission and
receipt of proposals, opening and evaluation of proposals shall follow the procedure stipulated under Annex
A hereof. In the evaluation of proposals, the best offer shall be determined to include the original proposal of
the [PSE]. If the [GE] determines that an offer made by a comparative private sector participant other than
the original proponent is superior or more advantageous to the government than the original proposal, the
[PSE] who submitted the original proposal shall be given the right to match such superior or more
advantageous offerx x x. Should no matching offer be received within the stated period, the JV activity
shallbe awarded to the comparative private sector participant submitting the most advantageous proposal. If
a matching offer is received within the prescribed period, the JV activity shallbe awarded to the original
proponent. If no comparative proposal isreceived by the [GE], the JV activity shallbe immediately awarded to
the original private sector proponent.
5. Within seven (7) calendar days from the date of completion of the Competitive Challenge, the JV-SC
shallsubmit the recommendation of award to the Head of the [GE]. Succeeding activities shall be in
accordance with Sections VIII. (Awardand Approval of Contract) and X (Final Approval) of Annex A
hereof. (emphasis added)
31

Anent the above-quoted directives, emphasis must be given to the repeated use of the word "shall." It is elementary
that the word "shall" underscores the mandatory character of the rule. Itis a word of command, one which always
has or must be given a compulsory meaning, and is generally imperative or mandatory. Considering the 32

compulsory tenor of the order, the rule could not be any clearer––that once the negotiations at Stage Two shall have
been successfully completed, it becomes mandatory for the GE to subject theJV activity to a competitive challenge.
By the Guidelines’ explicit order, proceeding to Stage Three of the process is compulsory, conditioned only on the
successful conclusion of Stage Two. The GE is not given any discretion to decide whether it will proceed with the
competitive challenge or not. Furthermore, there is no question in the case at hand that the unsolicited proposal for
the development of the subject property passed through scrutiny under the first two stages, resulting inthe issuance
and signing of the Certification. As a matter of fact, this is clearly evinced in the whereas clauses of the Certification,
to wit:
WHEREAS, on 04 May 2010, BCDA received from [SMLI] an unsolicited proposalfor the development of [the subject
property]. x x x
WHEREAS, after evaluation of the unsolicited proposalsubmitted by SMLI in accordance with the provisions of
Annex "C" of the JV Guidelines, the [JV-SC] created byBCDA x x x recommended to the BCDA Board, and the
BCDA Board approved, per Board Resolution No. 2010-05-100, the acceptance ofthe unsolicited proposal, subject
to the condition that such acceptance shall not bind BCDA to enter into a JV activity, but shall mean that
authorization is given to proceed with detailed negotiationson the terms and conditions of the JV activity;
WHEREAS, pursuant to the authorization granted by the Board and issued pursuant to Annex "C", Part III, Stage
One of the JV Guidelines, BCDA went into detailed negotiations with SMLI. The JV-SC simultaneously ascertained
the eligibility of SMLI inaccordance with Annex "C", Part III, Stage 2 (2) of the JV Guidelines;
WHEREAS, this Certificationisissuedpursuant to Annex "C" Part III, Stage 2 (2) of the JV Guidelines;
NOW, THEREFORE, for and in consideration of the foregoing, BCDA and SMLI, after successful
negotiationspursuant to Stage II of Annex C x x x reached an agreement on the purpose, terms and conditions of
the JV development of the subjectproperty, which shall become the terms for the Competitive Challenge pursuant to
Annex C of the JV Guidelinesx x x. (emphasis added)
33
Moreover, the Certification further discloses that the BCDA has the obligation to subject SMLI’s unsolicited proposal
to a Competitive Challenge, to which SMLI assented. As provided:
BCDA and SMLI have agreed to subject SMLI’s Original Proposal to Competitive Challenge pursuant to Annex C –
Detailed Guidelines for Competitive Challenge Procedure for Public-Private Joint Ventures of the NEDA JV
Guidelines, which competitive challenge process shall be immediately implemented following the Terms of
Reference (TOR) Volumes 1 and 2. BCDA shall, thus, commence the activities for the solicitation for comparative
proposals with the publication of the Invitation to Apply for Eligibility and to Submit Comparative Proposals (IAESCP)
thrice for two (2) consecutive weeks in three (3) major newspapers starting on 10 August 2010, on which date SMLI
shall post the required Proposal Security as statedabove. Pursuant to Annex C of the NEDA JV Guidelines, if, after
solicitation of comparative proposals, BCDA determines that an offer by a comparative PSE is found to be superior
to SMLI’s Original Proposal,SMLI shall be given the right to match such superior offer within the period prescribed in
the attached TOR Volumes 1 and 2. If SMLI is ableto match such superior offer, SMLI shall be issued the Notice of
Award, subject to Item No. 19 above. In the event, however, that SMLI is unable to match the superior offer, the
comparative PSE which submitted such superior offer shall be awarded the contract, subject to Item No. 19
above. (emphasis added)
34

By their mutual consent and in signing the Certification, both parties, in effect, entered into a binding agreement to
subject the unsolicited proposal to the Competitive Challenge. Evidently, the certification partakes of a
contractwherein BCDA committed itself to proceed with the Third Stage of the process and simultaneously grants
SMLI the right to expect that the BCDA will fulfill its obligations under the same. The preconditions to the conduct of
the Competitive Challenge having been met, what is left, therefore, is tosubject the terms agreed upon to a
Competitive Challenge pursuant to Stage Three, Annex "C" of the NEDA JV Guidelines.
The Reservation Clause only covers the Third Stage and cannot prejudice SMLI’s rights stemming from the first two
stages
In an attempt to advance its claim, BCDA invokes the reservation clause in Article VIII of the TOR on "Qualifications
and Waivers." To reiterate, said provision reads:
3. BCDA further reserves the right to call off this disposition prior to acceptance of the proposal(s) and call for a new
disposition process under amended rules, and without any liability whatsoever to any or all of the PSEs, except the
obligation to return the Proposal Security. (emphasis ours)
35

The BCDA insists that the "disposition process" to which the reservation clause refers is the entire Swiss Challenge,
and not merely Stage Three thereof regarding the Competitive Challenge. This interpretation does not come as a
surprise considering the term’s technical meaning, that is, alienation of property; the transfer of the property and
36

possession of lands, tenements, or other things from one person to another; or the voluntary resignation of title to
real estate by one person to another and accepted by the latter, in the forms prescribed by law. On the basis of said
37

definition, indeed, the reservation clause seemingly refers to the Swiss Challenge itself since in the case at bar, it is
the Swiss Challenge, not the competitive challenge, that is the avenue for the disposition.
To anchor the real import of the clause on the basis only of a single word may, however, result in a deviation from its
true meaning by rendering all the other terms unnecessaryor insignificant. Suchan interpretation would run afoul
Article 1373 of the Civil Code, which states that "[i]f some stipulation of any contract should admit of several
meanings, it shall be understood as bearing that import which is most adequate to render it effectual." It is a cardinal
rule in statutory construction that no word, clause, sentence, provision or part of a statute shall be considered
surplusage or superfluous, meaningless, void and insignificant. For this purpose, an interpretation which renders
38

every word operative is preferred over that which makes some words idle and nugatory.
We find that the reservation clausecannot justify the cancellation of the entire procurement process. Respondent
cannot merely harp on the lone provision adverted to without first explaining the context surrounding the reservation
clause. The said provision cannot be interpreted in a vacuum and should instead be read in congruence with the
other provisions in the TOR for Us to fully appreciate its import.
At this juncture, it is worthy to point out that the TOR containing the reservation clause details the requirements for
eligibility to qualify as a PSE that may submit its proposal for the JV, as well as the procedure to be followed in the
39

assessment of the eligibility requirements submitted and in the conduct of the Competitive Challenge. It basically
governs only part and parcel of Stage Three of the Swiss Challenge Process, that is, the requirements for and the
determination of an interested PSE’s eligibility to participate inthe Competitive Challenge. This conclusion is
deduced from the very provisions of the TOR, viz:
These [TOR] describe the procedures that shall be followed in connection with the disposition of the approximately
Three Hundred Thirty-one Thousand Three Hundred Twenty-seven square meters (331,327 sq.m.) or 33.1-hectare
Bonifacio Naval Station (BNS)/Philippine Marine Corps (PMC)/Army Support Command (ASCOM)/Service Support
Unit (SSU) Properties in Bonifacio South (the "Property"), located along Lawton Avenue, Fort Bonifacio, Taguig City,
Metro Manila, Philippines.
These TOR are issued in two (2) volumes: Volume 1 – Eligibility Documents; and Volume 2 – Tender Documents.
This first volume details the requirements for eligibility to qualify as a Private Sector Entity (PSE) that may submit
Technical and Financial Proposals for the Joint Venture (JV) Privatization and Development of [the] subject Property,
and the procedures involved in the entire Competitive Challenge procedure. [PSEs] which shall be declared eligible
shall be issued the second volume of the TOR which details the requirements and procedures for the submission of
Technical and Financial Proposals, with the end-view of determining a Winning PSE for subject JV development.
xxxx
I. GENERAL INFORMATION
xxxx
2. Publication of Invitation for Comparative Proposals. BCDA shall publish x x x the "Invitation to Apply for Eligibility
and to Submit a Comparative Proposal" (IAESCP). This shall serve to inform and to invite the prospective PSEs to
the Competitive Challenge procedure at hand. x x x
3. Joint Venture Agreement.x x x the ultimate objective of BCDA in qualifying prospective PSEsto be eligible to
submit Technical and Financial Proposals is to select a partner in the unincorporated/contractual [JV]for the
privatization and development of the subject Property. x x x
xxxx
4. Amendment of these TOR. x x x Should any of the information and/or procedurescontained in these TOR be
amended or replaced, the JV-SC shall inform and send Supplemental Notices to all PSEs. To ensure all PSEs are
informed of any amendments, all PSEs are requested to inform BCDA of their contact [details].In addition, receipt of
all Supplemental Notices shall beduly acknowledged by each PSEprior to the submission of eligibility documents
and/or proposals and shall be soindicated therein.
5. Pre-Eligibility Conference. Interested parties are invited to attend a Pre-Eligibility Conference for prospective
PSEs x x x.
6. One-on-One Meetings. Prospective PSEs may request for one-on-one meetings with the JV-SC or its duly
authorized representatives. x x x
xxxx
9. Due Diligence. x x x
The PSE shall investigate x x x [and] carefully examine [the] conditions of and at the Property and its surrounding
vicinities affecting the actual execution and such other information as to allow the PSE to make a competitive
estimate. The PSE, by the act of submitting its proposal, acknowledges that it has inspected the Property and
accepted all the terms and conditions for this competitive challenge as set in TOR Volumes 1 and 2.
xxxx
V. APPLICATION FOR ELIGIBILITY
1. Eligibility Requirements. Only eligible PSEs shall be allowed to submit comparative Technical and Financial
Proposals, or collectively, the Tender Documents x x x. Hence, interested PSEs are invited to apply for eligibility and
to participate in the Competitive Challenge procedure. Aside from being required to purchase the [TOR] – Volume1,
for a non-refundable fee x x x, a PSE shall be considered eligible if it satisfies all of the following requirements:
1.1. Legal Requirements. The PSE must be a duly registered and existing corporation authorized by Philippine Laws
to own, hold or develop lands in the Philippines. x x
x
1.2. Technical Requirements.
1.2.1. Firm Experience. The PSEx x x shall have completed within a period of ten (10) years from the date of
submission and receipt of Proposals, a similar or related development project x x x.
1.2.2. Key Personnel. x x x
1.3. Financial Capability. The PSEx x x must have adequate capability to sustain the financing requirements for the
proposed development ofthe Property. This shall be measured in terms of:
1.3.1. Net Worth. x x x
1.3.2. Good financial standing. x x x
1.3.3. No Arrears. x x x
1.3.4. Timely and complete Payment of Taxes. x x x
1.3.5. Financial Capacity to Undertake the
Project.
xxxx
2. Required Eligibility Documents. The PSEs x x x that wish to be considered for eligibility are required to submit x x
x the following documents:
xxxx
VI. EVALUATION OF ELIGIBILITY
1. Opening of Eligibility Documents. x x x
2. Evaluation Process. Eligibility Documents submitted by the PSEshall be evaluated on a pass or fail basis
to determine if the PSEx x x complies with or satisfies all of the requirements specified in Article V hereof. x
xx
 3. Motion for Reconsideration/Appeal on Eligibility. A prospective PSE determined as "Ineligible" has seven
(7) calendar days upon written notice within which to file a motion for reconsideration tothe JV-SC. x x x
4. No Eligible [PSEs]. In the event that no PSE be found eligible or no PSE submitted itself to eligibility
check for the Competitive Challenge procedure, BCDA shall proceed to the issuance of Notice of Award to
SMLI, as the original proponent for the subject JV project.
xxxx
VII. CHANGE IN MEMBERSHIP OF AN ELIGIBLE PSE.
xxxx
VIII. QUALIFICATIONS AND WAIVERS
1. BCDA reserves the right to reject any or all Eligibility Documents, to waive any defect or informality
thereon or minor deviations, which do notaffect the substance and validity of the proposal.
2. BCDA reserves the right to review other relevant information affecting the PSE or its Eligibility Documents
before its declaration as eligible to participate further in the selection process, and be allowed to submit a
Final Proposal. Should such review uncover any misrepresentations made in the eligibility documents, or
any change in the situation of the PSE, which affects its eligibility, BCDA may disqualify the PSE from
obtaining any award/contract.
3. BCDA further reserves the right tocall of this disposition prior to acceptance of the proposal(s) and call for
a new disposition process under amended rules,and without any liability whatsoever to any or all the PSEs,
except the obligation to return the Proposal Security x x x. (emphasis ours; citation omitted)
40

A cursory reading of the TOR, ascouched, readily shows that it focuses only on the eligibility requirements for PSEs
who wish to challenge SMLI’s proposal as well as the procedure to be followed by the BCDA JVSC in the evaluation
of the PSEs’ submittals. We thus find merit in SMLI’s thrust that since the TOR governs the eligibility requirements
for PSE’s, the "disposition process" referred to inthe reservation clause could only refer to the eligibility process in
Stage Three of the Swiss Challenge and not the entire Swiss Challenge process itself. We are convinced that the
said provision does not authorize BCDA to abort the entire procurement process and cannot impair any of SMLI’s
statutorily and contractuallyconferred rights stemming from the first two stages’ conclusion. To rule otherwise would
grant the GE unbridled authority to thrust aside the agreement between the parties after successful detailed
negotiations. It would disregard the fact that through the said covenant,the GE bound itself to conduct and complete
the Competitive Challenge pertaining to SMLI’s proposal.
Provisions of the TOR cannot prevail over the NEDA JV Guidelines
In the same vein, We cannot also agree with respondents’ contention that the term "disposition" in the assailed
reservation clause refers to the entire Swiss Challenge itself and authorizes the BCDA to abandon the negotiations
even at Stage Three of the process for this would result in an interpretation that is antagonisticwith the NEDA JV
Guidelines.
A review of the outlined three-stage framework reveals that there are only two occasions where pre-termination of
the Swiss Challenge process is allowed: at Stage One, prior to acceptance of the unsolicited proposal; and at Stage
Two, should the detailed negotiationsprove unsuccessful. In the Third Stage, the BCDA can no longer withdraw with
impunity from conducting the Competitive Challenge as it became ministerial for the agency to commence and
complete the same. Thus, acceding to the interpretation of the TOR offered byBCDA will, in effect, result not only in
the alteration of the agreement between the parties but also of the NEDA JV Guidelines itself, both of which has the
force and effect of law.
The interpretation offered by BCDA is, therefore, unacceptable. Between procedural guidelines promulgated by an
agency pursuant to its rule-making power and a condition unilaterally designed and imposed for the implementation
of the same, the former must prevail. BCDA does not wield any rule-making power such that it can validly alter or
abandon a clear and definite provision in the NEDA JV Guidelines under the guise of a condition under the TOR.
AsWe have time and again harped, the ones dutybound to ensure observance with laws and rules should not be the
ones to depart therefrom. A contrary rule would open the floodgates to abuses and anomalies more detrimental to
41

public interest. For how can others be expected to respect the rule of law if the very persons or entities tasked to
42

administer laws and their implementing rules and regulations are the first to violate them, blatantly or surreptitiously?
BCDA gravely abused its discretion when it issued Supplemental
Notice No. 5 in breach of its contractual obligation to SMLI
"Grave abuse of discretion" implies such capricious and whimsical exercise of judgment as is equivalent tolack of
jurisdiction. It must be so patent and gross as to amount to an evasion of positive duty or to a virtual refusal to
perform the duty enjoined or to act at all in contemplation of law. While it is the general policy of the Court to
43

sustain the decisions of administrative authorities, not only on the basis of the doctrine of separation of powers but
also for their presumed expertise in the laws they are entrusted to enforce, when said decisions and orders are
tainted with unfairness or arbitrariness that would amount to grave abuse of discretion, the Courts are duty-bound to
entertain petitions questioning the former’s rulings or actions.
44

In the present case, the Court finds that BCDA gravely abused its discretion for having acted arbitrarily and contrary
to its contractual commitment to SMLI, to the damage and prejudice of the latter. It veritably desecrated the rules the
Government itself set in the award of public contracts.
To review, We have demonstratedthat the BCDA is duty-bound to proceed with and complete the competitive
challenge if the detailed negotiations proved successful. Afterwards, it becomes mandatory for the competitive
challenge to proceed. Whatever rights and obligations that may have accrued to the parties by that time can no
longer be altered by a new disposition process. At most, the reservation clause in the TOR can only serve to alter
the rules of the eligibility process under the Competitive Challenge.
In the case at bar, however, BCDA, in its mistaken reliance on the reservation clause, aborted not just the eligibility
process of the Competitive Challenge but the entire Swiss Challenge. Even though the language of Supplemental
Notice No. 5 at first blush appears to limit its application to the Third Stage of the framework, BCDA’s actuations say
otherwise. Worthy of reiteration at this point is the fact that after BCDA issued the assailed notice, the agency also
returned through registeredmail the security posted by SMLI. Coupled with the factthat BCDA subjected the property
instead to straight bidding, it becomes obvious that BCDA no longer intends to comply with its obligations to SMLI
and that it abandoned the Swiss Challenge process altogether, in contravention of its statutory and contractual
obligations.
Moreover, the asseveration of the BCDA in its last ditch effort to salvage its position––that the withdrawal is justified
since it allegedly found that the revised SMLI proposal shall not yield the best value for the government ––deserves
45

scant consideration. On the contrary, the BCDA’s statements have been inconsistentwhen it comes to identifying the
procurement process that would best serve the interest of the state.
Noticeably, in its November 8, 2010 Memorandum, the BCDA posited that competitive challenge is more
advantageous to the government than straight bidding, to wit:
The price of the Bonifacio South properties has already been set by the winning price in the bidding for the joint
venture development of the JUSMAG property (₱31,111/sq.m.). Thus, BCDA has established the benchmark for the
price of the remaining Bonifacio South properties, of which the JUSMAG property is the most prime. Logically the
minimum bid price under straight bidding for the BNS/PMC/ASCOM/SSU property, which is a far less inferior
property, would be ₱31,111/sq.m. However, with SM’s submission of a revised unsolicited proposal at ₱31,732/sq.m.
and later further revised to ₱32,500/sq.m., BCDA saw the opportunity to negotiate for better terms and eventually
arrived at a higher price of ₱36,900/sq.m. In this case, BCDA deemed that going into Competitive Challenge was
more advantageous to the government than Competitive Selection (straight bidding) because of the opportunity to
increase the price.
Furthermore, subjecting the price tosubsequent price challenge will possibly drive up the price even higher than
₱38,900/sq.m. These opportunities cannot be taken advantage of under a straight bidding where failure of bidding
would likely ensue if in case BCDA immediately sets the price of the property too high. The competition in the real
estate industry and as experienced by BCDA issuch that the other developers will usually challenge the original
proposal to "up the ante" as they cannot allow the original proponent to get the property easily. 46

Despite this testament, the BCDA, over a year later, made a complete turnaround stating that straight bidding will be
best for the Government. As can be gleaned from the BCDA’s Memorandum to the Presidentdated February 13,
47

2012, respondents themselves recommended to the President that the selection proceedings be terminated. To
reiterate:
In view of the foregoing, may we respectfully recommend the President’s approval for BCDA to terminate the
proceedings for the privatization and development of the BNS/PMC/ASCOM/SSU Properties in Bonifacio South
through Competitive Challenge and proceed with the bidding of the property. 48

The BCDA offered no explanation to reconcile its opposing positions. It also neglected to inform SMLI of the
provisions in its proposal that it deemed disadvantageous to the government. The sweeping statement of the BCDA
that the terms are disadvantageous cannot be accepted at face value, bearing in mind that a fruitful in-
depthnegotiation necessarily implies that BCDA found the terms offered by SMLI acceptable. Consider also that
should the Competitive Challenge prove to be unsuccessful, it has no other recourse but to award the project
toSMLI, the Original Proponent. This caveat forces BCDA to ensure that the terms agreed upon during the detailed
negotiations are advantageousto it, lest it run the risk of being bound to a project that is not beneficial to the
government in the first place.
Overall, the foregoing goes to showthat the BCDA failed to establish a justifiable reason for its refusal to proceed
with the Competitive Challenge and for canceling the entire Swiss Challenge. Because of BCDA’s mistaken reliance
on the TOR provision, and by changing its stand on the conduct of the Competitive Challenge without pointing out
with specificity the socalled unfavorable terms, Weare left to believe that the cancellation of the Swiss Challenge
was only due to BCDA’s whims and caprices.
Acceptance of Unsolicited Proposal vis-à-vis Estoppel
Lastly, respondents argue that the government cannot be estopped by the mistakes or errors of its agents, implying
that when it issued the Certification, it committed a lapse of judgment as it later discovered that the terms of the
proposal allegedly turnedout to be disadvantageous to the Government. Thus, according to them, it cannot be
compelled to proceed with the Competitive Challenge.
We are very much aware of the time-honored rule that "the government cannot be estopped by the mistakes or
errors of its agents." Suffice it to state, however, that this precept is not absolute. As jurisprudence teaches, this
49

rule on estoppel cannot be used to perpetrate an injustice. 50

In the case at bar, it is evident that to allow BCDA to renege on its statutory and contractual obligationswould cause
grave prejudice to petitioner, who already invested time, effort, and resources in the study and formulation of the
proposal, in the adjustment thereof, as well as in the negotiations. To permit BCDA to suddenly cancel the
procurement process and strip SMLI of its earlier-enumerated rights as an Original Proponent at this point––after
the former has already benefited from SMLI’s proposal through the acquisition of information and ideas for the
development of the subject property––would unjustly enrich the agency through the efforts of petitioner. What is
worse, to do so would be contrary to BCDA’s representations and assurances that it will respect SMLI’s earlier
acquired rights, which statements SMLI reasonably and innocently believed.
All told, the BCDA’s acceptance ofthe unsolicited proposal and the successful in-depth negotiation cannot be written
off as mere mistake or error that respondents claim to be reversible and not susceptible to the legal bar of estoppel.
The subsequent cancellation of the Competitive Challenge on grounds that infringe the contractual rights of SMLI
and violate the NEDA JV Guidelines cannot be shrouded with legitimacy by invoking the above-cited rule.
Conclusion
To increase government prospects, participation in joint ventures has been incentivized by granting rightsand
advantages to the Original Proponent in the Competitive Challenge phase of a Swiss Challenge. Faithful
observance of these provisions oflaw that grant the aforesaid rights, may it be sourced from a bilateral contract or
executive edict, aids in improving government reliability. This, in turn, heavily correlates with greater availability of
options when entering into future joint venture agreements with private sector entities via public-private enterprises
as it will attract investors to contribute in formulating a roadmap towards a nationwide infrastructure development.
Needless to say, allowing government agencies to retract their commitments to the project proponents will
essentially render inutile the incentives offered to and have accrued in favor of the private sector entity. Without
securing these rights, the business community will be wary when it comes to forging contracts with the government.
Simply put, the failure of the government to abide by the rules ititself set would have detrimental effects on the
private sector’s confidence that the government will comply with its statutory and contractual obligations to the letter.
In the case at bench, considering the undisputed facts presented before Us, We cannot sustain the BCDA’s
arguments that its withdrawal from the negotiations is permissible and was not done with grave abuse of discretion.
Being an instrumentality of the government, it is incumbent upon the BCDA to abide by the laws, rules and
regulations, and perform its obligations with utmost good faith. It cannot, under the guise of protecting the public
interest, disregard the clear mandate of the NEDA JV Guidelines and unceremoniously disregard the very
commitments it made to the prejudice of the SMLI that innocently relied on such promises. It is in instances such as
51

this––where an agency, instrumentality or officer of the government evades the performance of a positive duty
enjoined by law ––wherein the exercise of judicial power is warranted. Consistent with Our solemn obligation to
52

afford protection by ensuring that grave abuses of discretion on the part of a branch or instrumentality of the
government do not go unchecked, the Petition for Certiorari must be granted and the corresponding injunctive relief
be made permanent.
As a final note, it is worth mentioning that the foreseeable repercussion of a contrary ponenciaencompasses the
reduction of the number of interested private sector entities that would bewilling to submit suo motoproposals and
invest in government projects. After all, what would be the point of developing ideas and allocating resources in the
formulation of PPP projects when one’s rights asan Original Proponent, under the NEDA JV Guidelines and the
agreement between the parties, can easily be wiped out should the agency decide tolevel the playing field and
conduct straight bidding instead? Evidently, this would not attract but would, in contrast, repel investors from
tendering offers. In addition, even if potential investors do submit unsolicited or comparative proposals, the terms
therein might be driven to become less competitive due to the adjustment in the balance of risks and returns on
investment. Taking into account the increased possibility of the development project not pushing through, investors
might not be too keen in guaranteeing a high amount of secured payments for the same. These considerations
1âwphi1

further validate the need to secure the private sector’s trust and confidence in the government.
WHEREFORE, premises considered, the petition is hereby GRANTED. The assailed Supplemental Notice No. 5
dated August 6, 2012 issued by the BCDA is hereby ANULLED and SET ASIDE. The Temporary Restraining Order
issued bythis Court on January 9, 2013 is hereby madePERMANENT.
Respondent Bases Conversion and Development Authority and Arnel Paciano D. Casanova, or whoever assumes
the position of president of BCDA, are hereby ORDEREDto conduct and complete the Competitive Challenge
pursuant to the Certification, TOR, and NEDA JV Guidelines.
Specifically, the BCDA and/or the JV-SC are DIRECTEDto carry out the following:
1. Publish, within seven (7) calendar days from finality of this Decision, the "Invitation to Apply for Eligibility
and to Submit a Comparative Proposal" (IAESCP) in three (3) newspapers of general nationwide circulation
for two (2) consecutive weeks, and in the BCDA website (www.bcda.gov.ph), in accordance with Section
III.2. (Publication of Invitation to Apply for Eligibility and to Submit Proposal), Section III (Project Rationale),
Item 5 of the TOR, and Section III (General Information), Item 2 (Publication of Invitation for Comparative
Proposals) of the TOR;
2. Immediately make the necessary adjustments to the timetable of activities set forth in Supplemental
Notice No. 1, considering that the periods specified therein have already lapsed, without awaiting the lapse
of the period for publication;
3. Strictly adhere to the TOR, Supplemental Notice No. 1, as adjusted, the Certification of Successful
Negotiations, and the NEDA JV Guidelines, in the conduct and completion of the Swiss Challenge procedure
on SM Land Inc.’s unsolicited proposal accepted by the BCDA; and
 4. Perform any and all acts necessary to carry out and complete Stage Three of the Swiss Challenge
pursuant to the provisions of the TOR and NEDA JV Guidelines, including, but not limited to, subjecting
petitioner's unsolicited proposal to a competitive challenge.
In the event that SM Land, Inc. already obtained from BCDA the amount representing its Proposal Security, SM
Land, Inc. is hereby DIRECTED to re-post the Proposal Security, in the same amount as the previous one, on the
first day of the publication of the invitation for comparative proposals, per the NEDA JV Guidelines.
SO ORDERED.

G.R. No. 162090 January 31, 2007

SPOUSES HOWARD T. CO CHIEN and SUSAN Y. CO CHIEN, Petitioners,
vs.
STA. LUCIA REALTY & DEVELOPMENT, INC., and ALSONS LAND CORPORATION, Respondents.
DECISION
PUNO, CJ.:
This case is a Petition for Certiorari under Rule 45 of the Revised Rules of Court appealing the decision of the Court
of Appeals in CA G.R. SP No. 78161 entitled "Spouses Howard T. Co Chien & Susan Y. Co Chien v. Sta. Lucia
Realty & Development, Inc. and Alsons Land Corporation."
The facts are undisputed.
Sometime in December 1995, private respondents Sta. Lucia Realty & Development, Inc. (Sta. Lucia) and Alsons
Land Corporation (Alsons) offered for sale to the general public parcels of land and golf shares to the Eagle Ridge
Golf and Residential Estates (Eagle Ridge) in General Trias, Cavite.1 Sta. Lucia, as the developer, owns 60% of
Eagle Ridge while Alsons, the owner of the land, owns the remaining 40% by virtue of a joint venture agreement. Fil-
Estate Realty Corporation (Fil-Estate) was commissioned to sell the subdivision lots and/or golf shares under an
Exclusive Marketing Agreement executed on December 5, 1995.2
On December 20, 1995, Sta. Lucia and Alsons entered into a Contract to Sell, including an addendum to the same,
with the petitioners, spouses Howard T. Co Chien and Susan Y. Co Chien (Spouses Co Chien). According to the
Contract to Sell, Spouses Co Chien shall purchase Lot No. 16, Block No. 1, Phase I of Eagle Ridge with an area of
three hundred one (301) square meters for a lump sum price of one million two hundred ninety three thousand three
hundred pesos (P1,293,300.00), with one half of the purchase price as down payment to be paid upon signing the
contract and the balance upon delivery of the title to the land to Spouses Co Chien. The petitioners were also given
a 10% discount on the purchase price and thereafter they paid a down payment of five hundred eighty one thousand
five hundred thirty five pesos (P581,535.00), after the discount. It was also agreed in the addendum to the Contract
to Sell that the 10% discount deducted from the down payment shall be forfeited and added to the balance, should
Spouses Co Chien fail to pay the said balance within seven (7) days from notice that the title to the subject property
is ready for delivery.3
At the time the Contract to Sell was executed, the private respondents did not possess a License to Sell and a
Certificate of Registration from the Housing and Land Use Regulatory Board (HLURB) as required under Sections 4
and 5 of Presidential Decree No. 957 (P.D. 957). The License and Certificate were issued only in July 1997, one
year and six months after the execution of the Contract to Sell between the petitioners and the private respondents.4
On January 19, 1998, Sta. Lucia informed the petitioners that the title to the property was ready for delivery and
demanded the payment of the balance of the purchase price. Instead of paying the balance, Spouses Co Chien
tried to negotiate for a further discount or, in the alternative, to exchange the property for a better lot in Eagle Ridge.
When Spouses Co Chien failed to pay within seven days from notice of the availability of the title, the private
respondents forfeited the 10% discount previously given to the petitioners in accordance with the contract and its
addendum.5
On June 16, 1999, Spouses Co Chien sent a written demand to Sta. Lucia for the refund of their down payment on
the ground that the Contract to Sell was void for the reason that at the time of its execution, December 20, 1995, the
private respondents had no Certificate of Registration and License to Sell as required by Sections 4 and 5 of P.D.
957.6 On July 6, 1999, failing to receive a favorable response from the private respondents, Spouses Co Chien filed
a complaint with the HLURB.7
On May 30, 2001, the HLURB Arbiter ruled in favor of Spouses Co Chien ordering Sta. Lucia and Alsons to refund
the down payment with legal interest from July 6, 1999 and to further pay the petitioners P10,000.00 as attorney’s
fees. The HLURB Arbiter ruled that the lack of Certificate of Registration and License to Sell at the time of execution
of the Contract to Sell resulted in the nullification of the contract.8
On appeal, the HLURB Board of Commissioners (the HLURB Board) reversed the HLURB Arbiter’s decision and
held that the Contract to Sell was valid and ordered Spouses Co Chien to pay the private respondents the balance
of P646,150.00 without penalty interest. The HLURB Board also ordered Sta. Lucia and Alsons to pay jointly and
severally an administrative fine of P20,000.00 for two counts of violation of Section 4 of P.D. 957 and
another P20,000.00 for two counts of violation of Section 5 of the same decree.9
Spouses Co Chien then appealed to the Office of the President. In a decision dated June 10, 2003, the Office of the
President affirmed the decision of the HLURB Board in toto. Not satisfied with the aforementioned ruling, Spouses
Co Chien filed a Petition for Review with the Court of Appeals.10
On February 10, 2004, the Court of Appeals denied the petition and affirmed the decision of the Office of the
President.11
Hence, this petition.
The primary issues in this case are as follows: (1) whether the absence of the Certificate of Registration and License
to Sell at the time of execution rendered the Contract to Sell and its addendum null and void; and (2) whether the
petitioners are guilty of laches or estoppel.
We will discuss the issues seriatim.
It is the contention of the petitioners that the lack of Certificate of Registration (the Certificate) and License to Sell
(the License) on the part of the private respondents at the time the contract was executed rendered the Contract to
Sell null and void, thus, entitling them to a refund of their down payment. Spouses Co Chien aver that the use of the
words "shall not" and the phrase "unless he shall have first obtained a license to sell within two weeks from the
registration of such project" in Section 5 of P.D. 957 indicate that the absence of the Certificate and License render
the contract null and void.12 The private respondents, on the other hand, state that the provision of law invoked by
Spouses Co Chien does not provide that the absence of the Certificate and License at the time the contract was
executed would automatically invalidate the contract.13 The private respondents assert that the Sec. 5, P.D. 957 is
merely directory as it does not affect substantial rights, does not relate to the essence of a sale and compliance
therewith is simply a matter of administrative convenience.14
Sections 4 and 5 of P.D. 957 state:
Sec. 4. Registration of Projects
....
The owner or the real estate dealer interested in the sale of lots or units, respectively, in such subdivision project or
condominium project shall register the project with the Authority by filing therewith a sworn registration
statement containing the following information:
....
The subdivision project of the condominium project shall be deemed registered upon completion of the above
publication requirement. The fact of such registration shall be evidenced by a registration certificate to be
issued to the applicant-owner or dealer.
Sec. 5. License to Sell. - Such owner or dealer to whom has been issued a registration certificate shall not,
however, be authorized to sell any subdivision lot or condominium unit in the registered project unless he
shall have first obtained a license to sell the project within two weeks from the registration of such project.
The Authority, upon proper application therefor, shall issue to such owner or dealer of a registered project a
license to sell the project if, after an examination of the registration statement filed by said owner or dealer and all
the pertinent documents attached thereto, he is convinced that the owner or dealer is of good repute, that his
business is financially stable, and that the proposed sale of the subdivision lots or condominium units to the
public would not be fraudulent.15
The same decree further states:
Sec. 38. Administrative Fines. - The Authority may prescribe and impose fines not exceeding ten thousand pesos for
violations of the provisions of this Decree or of any rule or regulation thereunder. Fines shall be payable to the
Authority and enforceable through writs of execution in accordance with the provisions of the Rules of Court.
Sec. 39. Penalties. - Any person who shall violate any of the provisions of this Decree and/or any rule or regulation
that may be issued pursuant to this Decree shall, upon conviction, be punished by a fine of not more than twenty
thousand (P20,000.00) pesos and/or imprisonment of not more than ten years: Provided, That in the case of
corporations, partnership, cooperatives, or associations, the President, Manager or Administrator or the person who
has charge of the administration of the business shall be criminally responsible for any violation of this Decree
and/or the rules and regulations promulgated pursuant thereto.16
P.D. 957 is a law that seeks to regulate the sale of subdivision lots and condominiums in view of the increasing
number of incidents wherein "real estate subdivision owners, developers, operators, and/or sellers have reneged on
their representations and obligations to provide and maintain properly"17 the basic requirements and amenities, as
well as "reports of alarming magnitude…of swindling and fraudulent manipulations perpetrated by unscrupulous
subdivision and condominium sellers and operators."18 As such, P.D. 957 requires the registration not just of the
developers, sellers, brokers and/or owners of the project but also of the project itself.19 Upon registration of the
project, a license to sell must be obtained prior to the sale of the subdivision lots or condominium units therein.20 The
law also provides for the suspension and revocation of the registration and license in certain instances, as well as
the procedure to be observed in the event thereof. 21 Finally, the law provides for administrative fines and other
penalties in case of violation of, or non-compliance with its provisions.22
A review of the relevant provisions of P.D. 957 reveals that while the law penalizes the selling of subdivision lots and
condominium units without prior issuance of a Certificate of Registration and License to Sell by the HLURB, it does
not provide that the absence thereof will automatically render a contract, otherwise validly entered, void. The penalty
imposed by the decree is the general penalty provided for the violation of any of its provisions.23 It is well-settled in
this jurisdiction that the clear language of the law shall prevail.24 This principle particularly enjoins strict compliance
with provisions of law which are penal in nature, or when a penalty is provided for the violation thereof. With regard
to P.D. 957, nothing therein provides for the nullification of a contract to sell in the event that the seller, at the time
the contract was entered into, did not possess a certificate of registration and license to sell.25 Absent any specific
sanction pertaining to the violation of the questioned provisions (Secs. 4 and 5), the general penalties provided in
the law shall be applied. The general penalties for the violation of any provisions in P.D. 957 are provided for in
Sections 38 and 39. As can clearly be seen in the aforequoted provisions, the same do not include the nullification
of contracts that are otherwise validly entered.
As found by the Court of Appeals, in the case at bar, the requirements of Sections 4 and 5 of P.D. 957 do not go into
the validity of the contract, such that the absence thereof would automatically render the contract null and void. It is
rather more of an administrative convenience in order to allow for a more effective regulation of the industry.26 While
it is the intent of the prohibition in Section 5 of P.D. 957 "to prevent cases of swindling and fraudulent manipulations
perpetrated by unscrupulous subdivision and condominium sellers and operators"27 and to ensure that "penalties be
imposed on fraudulent practices and manipulations committed in connection therewith,"28 such does not obtain in
this case, as it is undisputed that the title to the subject property has been available for more than a year, and the
Eagle Ridge project was almost 100% completed, before Spouses Co Chien decided to have the Contract declared
void and to seek a refund of their down payment. Contrary to Spouses Co Chien’s bare allegations of bad faith on
the part of the private respondents, the Court of Appeals found that at the time the Contract to Sell was executed,
the applications for the Certificate and the License were already pending with the HLURB but were only issued
several months thereafter.29 More importantly, when Spouses Co Chien received notice of the availability of the title
to the subject property, the private respondents had long since been issued the Certificate and License. It was in
fact Spouses Co Chien who, instead of paying the balance as required in the contract, sought to renegotiate the
same, and failing therein, sought to nullify the contract a year and a half after notice that the title to the subject
property, free from any liens and encumbrance, was already available for delivery.
One of the purposes of P.D. 957 is to discourage and prevent unscrupulous owners, developers, agents and sellers
from reneging on their obligations and representations to the detriment of innocent purchasers. The law mandates
HLURB to closely regulate, supervise and monitor the real estate industry, particularly residential developments
such as subdivisions and condominium projects. To this end, P.D. 957 provides for the issuance, suspension,
revocation and even the outright denial of registration and license to developers, agents and the project itself, as
well as penalties for the non-compliance with the requirements provided therein. It does not, however, provide for
the nullification of a contract, due to the lack of registration and license at the moment of execution, which in this
case was thereafter undisputedly issued by HLURB. As correctly averred by respondent Alsons, the requirement for
registration and license is primarily directed at preventing fraudulent schemes from being perpetrated on the public
who seek to have their own abode.30 No fraud has been alleged, much less proven, by Spouses Co Chien in the
present case. The lack of certificate and registration, without more, while penalized under the law, is not in and of
itself sufficient to render a contract void. Such a deficiency, however, together with other relevant factors may be
duly considered in nullifying a contract, should the circumstances so demand.
The second issue in the instant petition is whether or not estoppel bars the claim of Spouses Co Chien. There are
generally three kinds of estoppel: (1) estoppel in pais; (2) estoppel by deed; and (3) estoppel by laches. In the first
classification, a person is considered in estoppel if by his conduct, representations or admissions or silence when he
ought to speak out, whether intentionally or through culpable negligence, "causes another to believe certain facts to
exist and such other rightfully relies and acts on such belief, as a consequence of which he would be prejudiced if
the former is permitted to deny the existence of such facts."31 Estoppel by deed, on the other hand, occurs when a
party to a deed and his privies are precluded from denying any material fact stated in the said deed as against the
other party and his privies.32 Estoppel by laches is considered an equitable estoppel wherein a person who failed or
neglected to assert a right for an unreasonable and unexplained length of time is presumed to have abandoned or
otherwise declined to assert such right and cannot later on seek to enforce the same, to the prejudice of the other
party, who has no notice or knowledge that the former would assert such rights and whose condition has so
changed that the latter cannot, without injury or prejudice, be restored to his former state.33
In the present case, Spouses Co Chien only demanded a refund and alleged the nullity of the Contract due to lack
of the Certificate and License after it failed to renegotiate for a better lot or a bigger discount, or three and a half (3-
1/2) years after the execution of the contract, and one and a half (1-1/2) years from notice of the availability of the
title and the demand for full payment. Due to the unexplained delay in the assertion of their rights despite the
opportunity to do so, Spouses Co Chien are now estopped from raising the issue of lack of the Certificate and
License, particularly since the same have long since been issued to the private respondents. In fact, there is nothing
left for the fulfillment of the obligations set forth in the Contract to Sell and its addendum, except for the payment of
the balance by Spouses Co Chien so that the title to the property can finally be transferred in their name. Further,
the act of renegotiating the Contract to Sell may be considered a tacit ratification of whatever defect the contract
allegedly suffers from.
It is well-settled that the terms of a contract have the force of law between the parties. 34 As such, the terms thereof
shall govern their relationship, rights and obligations in connection with the same. Obligations arising from contracts
should be complied with in good faith. Unless the stipulations in the contract are contrary to law, morals, good
customs, public order or public policy, the same are binding as between the parties. 35 In the instant case, as
previously discussed, the Contract to Sell between Spouses Co Chien and private respondents Sta. Lucia and
Alsons has all the essential requisites of a valid and binding contract. While there is non-compliance with the
requirements in Sections 4 and 5 of P.D. 957 due to the lack of the Certificate and License at the moment of
execution, such defect does not affect the intrinsic validity of the contract, particularly in this case wherein the said
Certificate and License have been issued prior to the demand for the payment of the balance of the purchase price
and the project is almost 100% complete and operational.
IN VIEW WHEREOF, the petition is DENIED. The decision of the Court of Appeals in CA-G.R. SP No. 78161 is
AFFIRMED in toto.
Costs against petitioners.
SO ORDERED.

G.R. No. L-42571-72 July 25, 1983

VICENTE DE LA CRUZ, RENATO ALIPIO, JOSE TORRES III, LEONCIO CORPUZ, TERESITA CALOT, ROSALIA
FERNANDEZ, ELIZABETH VELASCO, NANETTE VILLANUEVA, HONORATO BUENAVENTURA, RUBEN DE
CASTRO, VICENTE ROXAS, RICARDO DAMIAN, DOMDINO ROMDINA, ANGELINA OBLIGACION, CONRADO
GREGORIO, TEODORO REYES, LYDIA ATRACTIVO, NAPOLEON MENDOZA, PERFECTO GUMATAY,
ANDRES SABANGAN, ROSITA DURAN, SOCORRO BERNARDEZ, and PEDRO GABRIEL, petitioners,
vs.
THE HONORABLE EDGARDO L. PARAS, MATIAS RAMIREZ as the Municipal Mayor, MARIO MENDOZA as
the Municipal Vice-Mayor, and THE MUNICIPAL COUNCIL OF BOCAUE, BULACAN, respondents.
Federico N. Alday for petitioners.
Dakila F. Castro for respondents.

FERNANDO, C.J.:
The crucial question posed by this certiorari proceeding is whether or not a municipal corporation, Bocaue, Bulacan,
represented by respondents, can, prohibit the exercise of a lawful trade, the operation of night clubs, and the
1

pursuit of a lawful occupation, such clubs employing hostesses. It is contended that the ordinance assailed as
invalid is tainted with nullity, the municipality being devoid of power to prohibit a lawful business, occupation or
calling, petitioners at the same time alleging that their rights to due process and equal protection of the laws were
violated as the licenses previously given to them was in effect withdrawn without judicial hearing. 2

The assailed ordinance is worded as follows: "Section 1.— Title of Ordinance.— This Ordinance shall be known
3

and may be cited as the [Prohibition and Closure Ordinance] of Bocaue, Bulacan. Section 2. — Definitions of Terms
— (a) 'Night Club' shall include any place or establishment selling to the public food or drinks where customers are
allowed to dance. (b) 'Cabaret' or 'Dance Hall' shall include any place or establishment where dancing is permitted
to the public and where professional hostesses or hospitality girls and professional dancers are employed. (c)
'Professional hostesses' or 'hospitality girls' shall include any woman employed by any of the establishments herein
defined to entertain guests and customers at their table or to dance with them. (d) 'Professional dancer' shall include
any woman who dances at any of the establishments herein defined for a fee or remuneration paid directly or
indirectly by the operator or by the persons she dances with. (e) 'Operator' shall include the owner, manager,
administrator or any person who operates and is responsible for the operation of any night club, cabaret or dance
hall. Section 3. — Prohibition in the Issuance and Renewal of Licenses, Permits. — Being the principal cause in the
decadence of morality and because of their other adverse effects on this community as explained above, no
operator of night clubs, cabarets or dance halls shall henceforth be issued permits/licenses to operate within the
jurisdiction of the municipality and no license/permit shall be issued to any professional hostess, hospitality girls and
professional dancer for employment in any of the aforementioned establishments. The prohibition in the issuance of
licenses/permits to said persons and operators of said establishments shall include prohibition in the renewal
thereof. Section 4.— Revocation of Permits and Licenses.— The licenses and permits issued to operators of night
clubs, cabarets or dance halls which are now in operation including permits issued to professional hostesses,
hospitality girls and professional dancers are hereby revoked upon the expiration of the thirty-day period given them
as provided in Section 8 hereof and thenceforth, the operation of these establishments within the jurisdiction of the
municipality shall be illegal. Section 5.— Penalty in case of violation. — Violation of any of the provisions of this
Ordinance shall be punishable by imprisonment not exceeding three (3) months or a fine not exceeding P200.00 or
both at the discretion of the Court. If the offense is committed by a juridical entity, the person charged with the
management and/or operation thereof shall be liable for the penalty provided herein. Section 6. — Separability
Clause.— If, for any reason, any section or provision of this Ordinance is held unconstitutional or invalid, no other
section or provision hereof shall be affected thereby. Section 7.— Repealing Clause.— All ordinance, resolutions,
circulars, memoranda or parts thereof that are inconsistent with the provisions of this Ordinance are hereby
repealed. Section 8.— Effectivity.— This Ordinance shall take effect immediately upon its approval; provided,
however, that operators of night clubs, cabarets and dance halls now in operation including professional hostesses,
hospitality girls and professional dancers are given a period of thirty days from the approval hereof within which to
wind up their businesses and comply with the provisions of this Ordinance." 4

On November 5, 1975, two cases for prohibition with preliminary injunction were filed with the Court of First Instance
of Bulacan. The grounds alleged follow:
5

1. Ordinance No. 84 is null and void as a municipality has no authority to prohibit a lawful business, occupation or
calling.
2. Ordinance No. 84 is violative of the petitioners' right to due process and the equal protection of the law, as the
license previously given to petitioners was in effect withdrawn without judicial hearing. 3. That under Presidential
Decree No. 189, as amended, by Presidential Decree No. 259, the power to license and regulate tourist-oriented
businesses including night clubs, has been transferred to the Department of Tourism." The cases were assigned to
6

respondent Judge, now Associate Justice Paras of the Intermediate Appellate Court, who issued a restraining order
on November 7, 1975. The answers were thereafter filed. It was therein alleged: " 1. That the Municipal Council is
authorized by law not only to regulate but to prohibit the establishment, maintenance and operation of night clubs
invoking Section 2243 of the RAC, CA 601, Republic Acts Nos. 938, 978 and 1224. 2. The Ordinance No. 84 is not
violative of petitioners' right to due process and the equal protection of the law, since property rights are subordinate
to public interests. 3. That Presidential Decree No. 189, as amended, did not deprive Municipal Councils of their
jurisdiction to regulate or prohibit night clubs." There was the admission of the following facts as having been
7

established: "l. That petitioners Vicente de la Cruz, et al. in Civil Case No. 4755-M had been previously issued
licenses by the Municipal Mayor of Bocaue-petitioner Jose Torres III, since 1958; petitioner Vicente de la Cruz, since
1960; petitioner Renato Alipio, since 1961 and petitioner Leoncio Corpuz, since 1972; 2. That petitioners had
invested large sums of money in their businesses; 3. That the night clubs are well-lighted and have no partitions, the
tables being near each other; 4. That the petitioners owners/operators of these clubs do not allow the hospitality
girls therein to engage in immoral acts and to go out with customers; 5. That these hospitality girls are made to go
through periodic medical check-ups and not one of them is suffering from any venereal disease and that those who
fail to submit to a medical check-up or those who are found to be infected with venereal disease are not allowed to
work; 6. That the crime rate there is better than in other parts of Bocaue or in other towns of Bulacan." Then came
8

on January 15, 1976 the decision upholding the constitutionality and validity of Ordinance No. 84 and dismissing the
cases. Hence this petition for certiorari by way of appeal.
In an exhaustive as well as scholarly opinion, the lower court dismissed the petitions. Its rationale is set forth in the
opening paragraph thus: "Those who lust cannot last. This in essence is why the Municipality of Bocaue, Province of
Bulacan, stigmatized as it has been by innuendos of sexual titillation and fearful of what the awesome future holds
for it, had no alternative except to order thru its legislative machinery, and even at the risk of partial economic
dislocation, the closure of its night clubs and/or cabarets. This in essence is also why this Court, obedient to the
mandates of good government, and cognizant of the categorical imperatives of the current legal and social
revolution, hereby [upholds] in the name of police power the validity and constitutionality of Ordinance No. 84,
Series of 1975, of the Municipal Council of Bocaue, Bulacan. The restraining orders heretofore issued in these two
cases are therefore hereby rifted, effective the first day of February, 1976, the purpose of the grace period being to
enable the petitioners herein to apply to the proper appellate tribunals for any contemplated redress." This Court is,
9

however, unable to agree with such a conclusion and for reasons herein set forth, holds that reliance on the police
power is insufficient to justify the enactment of the assailed ordinance. It must be declared null and void.
1. Police power is granted to municipal corporations in general terms as follows: "General power of council to enact
ordinances and make regulations. - The municipal council shall enact such ordinances and make such regulations,
not repugnant to law, as may be necessary to carry into effect and discharge the powers and duties conferred upon
it by law and such as shall seem necessary and proper to provide for the health and safety, promote the prosperity,
improve the morals, peace, good order, comfort, and convenience of the municipality and the inhabitants thereof,
and for the protection of property therein." It is practically a reproduction of the former Section 39 of Municipal
10

Code. An ordinance enacted by virtue thereof, according to Justice Moreland, speaking for the Court in the leading
11

case of United States v. Abendan "is valid, unless it contravenes the fundamental law of the Philippine Islands, or
12

an Act of the Philippine Legislature, or unless it is against public policy, or is unreasonable, oppressive, partial,
discriminating, or in derogation of common right. Where the power to legislate upon a given subject, and the mode
of its exercise and the details of such legislation are not prescribed, the ordinance passed pursuant thereto must be
a reasonable exercise of the power, or it will be pronounced invalid." In another leading case, United States v.
13

Salaveria, the ponente this time being Justice Malcolm, where the present Administrative Code provision was
14

applied, it was stated by this Court: "The general welfare clause has two branches: One branch attaches itself to the
main trunk of municipal authority, and relates to such ordinances and regulations as may be necessary to carry into
effect and discharge the powers and duties conferred upon the municipal council by law. With this class we are not
here directly concerned. The second branch of the clause is much more independent of the specific functions of the
council which are enumerated by law. It authorizes such ordinances as shall seem necessary and proper to provide
for the health and safety, promote the prosperity, improve the morals, peace, good order, comfort, and convenience
of the municipality and the inhabitants thereof, and for the protection of property therein.' It is a general rule that
ordinances passed by virtue of the implied power found in the general welfare clause must be reasonable,
consonant with the general powersand purposes of the corporation, and not inconsistent with the laws or policy of
the State." If night clubs were merely then regulated and not prohibited, certainly the assailed ordinance would
15

pass the test of validity. In the two leading cases above set forth, this Court had stressed reasonableness,
consonant with the general powers and purposes of municipal corporations, as well as consistency with the laws or
policy of the State. It cannot be said that such a sweeping exercise of a lawmaking power by Bocaue could qualify
under the term reasonable. The objective of fostering public morals, a worthy and desirable end can be attained by
a measure that does not encompass too wide a field. Certainly the ordinance on its face is characterized by
overbreadth. The purpose sought to be achieved could have been attained by reasonable restrictions rather than by
an absolute prohibition. The admonition in Salaveria should be heeded: "The Judiciary should not lightly set aside
legislative action when there is not a clear invasion of personal or property rights under the guise of police
regulation." It is clear that in the guise of a police regulation, there was in this instance a clear invasion of personal
16

or property rights, personal in the case of those individuals desirous of patronizing those night clubs and property in
terms of the investments made and salaries to be earned by those therein employed.
2. The decision now under review refers to Republic Act No. 938 as amended. It was originally enacted on June
17

20, 1953. It is entitled: "AN ACT GRANTING MUNICIPAL OR CITY BOARDS AND COUNCILS THE POWER TO
REGULATE THE ESTABLISHMENT, MAINTENANCE AND OPERATION OF CERTAIN PLACES OF AMUSEMENT
WITHIN THEIR RESPECTIVE TERRITORIAL JURISDICTIONS.' Its first section insofar as pertinent reads: "The
18

municipal or city board or council of each chartered city shall have the power to regulate by ordinance the
establishment, maintenance and operation of night clubs, cabarets, dancing schools, pavilions, cockpits, bars,
saloons, bowling alleys, billiard pools, and other similar places of amusement within its territorial jurisdiction: ...
" Then on May 21, 1954, the first section was amended to include not merely "the power to regulate, but likewise
19

"Prohibit ... " The title, however, remained the same. It is worded exactly as Republic Act No. 938. It is to be
20

admitted that as thus amended, if only the above portion of the Act were considered, a municipal council may go as
far as to prohibit the operation of night clubs. If that were all, then the appealed decision is not devoid of support in
law. That is not all, however. The title was not in any way altered. It was not changed one whit. The exact wording
was followed. The power granted remains that of regulation, not prohibition. There is thus support for the view
advanced by petitioners that to construe Republic Act No. 938 as allowing the prohibition of the operation of night
clubs would give rise to a constitutional question. The Constitution mandates: "Every bill shall embrace only one
subject which shall be expressed in the title thereof. " Since there is no dispute as the title limits the power to
21

regulating, not prohibiting, it would result in the statute being invalid if, as was done by the Municipality of Bocaue,
the operation of a night club was prohibited. There is a wide gap between the exercise of a regulatory power "to
provide for the health and safety, promote the prosperity, improve the morals, in the language of the Administrative
22

Code, such competence extending to all "the great public needs, to quote from Holmes, and to interdict any
23

calling, occupation, or enterprise. In accordance with the well-settled principle of constitutional construction that
between two possible interpretations by one of which it will be free from constitutional infirmity and by the other
tainted by such grave defect, the former is to be preferred. A construction that would save rather than one that would
affix the seal of doom certainly commends itself. We have done so before We do so again. 24

3. There is reinforcement to the conclusion reached by virtue of a specific provision of the recently-enacted Local
Government Code. The general welfare clause, a reiteration of the Administrative Code provision, is set forth in the
25

first paragraph of Section 149 defining the powers and duties of the sangguniang bayan. It read as follows: "(a)
Enact such ordinances and issue such regulations as may be necessary to carry out and discharge the
responsibilities conferred upon it by law, and such as shall be necessary and proper to provide for the health, safety,
comfort and convenience, maintain peace and order, improve public morals, promote the prosperity and general
welfare of the municipality and the inhabitants thereof, and insure the protection of property therein; ..." There are
26

in addition provisions that may have a bearing on the question now before this Court. Thus the sangguniang
bayan shall "(rr) Regulate cafes, restaurants, beer-houses, hotels, motels, inns, pension houses and lodging
houses, except travel agencies, tourist guides, tourist transports, hotels, resorts, de luxe restaurants, and tourist
inns of international standards which shall remain under the licensing and regulatory power of the Ministry of
Tourism which shall exercise such authority without infringing on the taxing or regulatory powers of the municipality;
(ss) Regulate public dancing schools, public dance halls, and sauna baths or massage parlors; (tt) Regulate the
establishment and operation of billiard pools, theatrical performances, circuses and other forms of
entertainment; ..." It is clear that municipal corporations cannot prohibit the operation of night clubs. They may be
27

regulated, but not prevented from carrying on their business. It would be, therefore, an exercise in futility if the
decision under review were sustained. All that petitioners would have to do is to apply once more for licenses to
operate night clubs. A refusal to grant licenses, because no such businesses could legally open, would be subject to
judicial correction. That is to comply with the legislative will to allow the operation and continued existence of night
clubs subject to appropriate regulations. In the meanwhile, to compel petitioners to close their establishments, the
necessary result of an affirmance, would amount to no more than a temporary termination of their business. During
such time, their employees would undergo a period of deprivation. Certainly, if such an undesirable outcome can be
avoided, it should be. The law should not be susceptible to the reproach that it displays less than sympathetic
concern for the plight of those who, under a mistaken appreciation of a municipal power, were thus left without
employment. Such a deplorable consequence is to be avoided. If it were not thus, then the element of arbitrariness
enters the picture. That is to pay less, very much less, than full deference to the due process clause with its
mandate of fairness and reasonableness.
4. The conclusion reached by this Court is not to be interpreted as a retreat from its resolute stand sustaining police
power legislation to promote public morals. The commitment to such an Ideal forbids such a backward step.
Legislation of that character is deserving of the fullest sympathy from the judiciary. Accordingly, the judiciary has not
been hesitant to lend the weight of its support to measures that can be characterized as falling within that aspect of
the police power. Reference is made by respondents to Ermita-Malate Hotel and Motel Operators Association, Inc.
v. City Mayor of Manila. There is a misapprehension as to what was decided by this Court. That was a regulatory
28

measure. Necessarily, there was no valid objection on due process or equal protection grounds. It did not prohibit
motels. It merely regulated the mode in which it may conduct business in order precisely to put an end to practices
which could encourage vice and immorality. This is an entirely different case. What was involved is a measure not
embraced within the regulatory power but an exercise of an assumed power to prohibit. Moreover, while it was
pointed out in the aforesaid Ermita-Malate Hotel and Motel Operators Association, Inc. decision that there must be a
factual foundation of invalidity, it was likewise made clear that there is no need to satisfy such a requirement if a
statute were void on its face. That it certainly is if the power to enact such ordinance is at the most dubious and
under the present Local Government Code non-existent.
WHEREFORE, the writ of certiorari is granted and the decision of the lower court dated January 15, 1976 reversed,
set aside, and nullied. Ordinance No. 84, Series of 1975 of the Municipality of Bocaue is declared void and
unconstitutional. The temporary restraining order issued by this Court is hereby made permanent. No costs.

G.R. No. 122899 June 8, 2000

METROPOLITAN BANK & TRUST COMPANY, petitioner,
vs.
COURT OF APPEALS and G.T.P. DEVELOPMENT CORPORATION, respondents.
BUENA, J.
This petition for review on certiorari under Rule 45 of the Rules of Court assails (1) the amended decision of public
respondent Court of Appeals dated 03 July 1995 in CA-GR CV No. 33395 affirming the trial court's judgment
1

ordering herein petitioner Metropolitan Bank and Trust Company (hereafter, METROBANK) to release/cancel the
real estate mortgage constituted over the subject property, and (2) the respondent court's resolution dated 04
December 1995 denying petitioner METROBANK's motion for reconsideration.
The subject property is a parcel of land in Diliman, Quezon City consisting of six hundred ninety (690) square
meters originally owned by businessman Tomas Chia under Transfer Certificate of Title No. RT-16753 (106901) of
the Registry of Deeds for Quezon City. Saddled with debts and business reverses, Mr. Chia offered the subject
property for sale to private respondent G.T.P. Development Corporation (hereafter, GTP), with assumption of the
mortgage indebtedness in favor of petitioner METROBANK secured by the subject property.
Pending negotiations for the proposed sale, Atty. Bernardo Atienza, acting in behalf of respondent GTP, went to the
METROBANK branch in Quiapo, Manila sometime in the last week of August 1980 to inquire on Mr. Chia's
remaining balance on the real estate mortgage. METROBANK obliged with a statement of account of Mr. Chia
amounting to about P115,000.00 as of August, 1980.
The deed of sale and the memorandum of agreement between Mr. Chia and respondent GTP were eventually
2 3

executed and signed on 04 September 1980 in the office of Atty. Atienza. Twelve (12) days later, or on 16
September 1980, Atty. Atienza went to METROBANK Quiapo Branch and paid one hundred sixteen thousand four
hundred sixteen pesos and seventy-one centavos (P116,416.71), for which METROBANK issued an official receipt
4

acknowledging payment.
This notwithstanding, petitioner METROBANK refused to release the real estate mortgage on the subject property
despite repeated requests from Atty. Atienza, thus prompting respondent GTP to file on October 17, 1980 an action
for specific performance against petitioner METROBANK and Mr. Chia.
In answer to the complaint, Mr. Chia denied having executed any deed of sale in favor of respondent GTP involving
the subject property. Petitioner for its part justified its non-release of the real estate mortgage (1) upon the advise of
Mr. Chia that he never executed any sales agreement with respondent GTP, and (2) by the fact that there are other
loans incurred by Mr. Chia which are also secured by the subject property.
After trial, judgment was rendered by the regional trial court on 11 December 1990 granting the reliefs prayed for by
respondent GTP as plaintiff, viz:
 WHEREFORE, after a careful and thorough study of the record, this Court holds that in view of the facts
contained in the records, judgment is hereby rendered in favor of plaintiff and against defendants, ordering
—
1. Defendant Metropolitan Bank & Trust Co. to execute the release or cancellation of the real estate
mortgages executed by the deceased defendant Tomas Chia and his wife, defendant Vicenta Chia,
over the property described in TCT No. 106901 of the registry of deeds for Quezon City;
2. Defendants to surrender or deliver the owner's duplicate copy of said TCT No. 106991; and,
3. Defendants to pay, jointly and severally, the sum of P10,000.00 as and for attorney's fees, plus
costs of suit.
The counterclaims set up by both defendants are dismissed.
IT IS SO ORDERED. 5

On appeal, respondent Court of Appeals rendered a Decision dated 24 October 1994 reversing the trial court's 11
6

December 1990 judgment, ruling in the main that the one hundred sixteen thousand four hundred sixteen pesos and
seventy-one centavos (P116,416.71) paid by respondent GTP to petitioner METROBANK did not extinguish the real
estate mortgage inasmuch as there are other unliquidated past due loans secured by the subject property.
With this unfavorable turn of events, respondent GTP, on 07 November 1994, filed before respondent Court of
7

Appeals a "motion for reconsideration with alternative prayer to require METROBANK to furnish appellee (GTP) of
the alleged unpaid balance of Mr. Chia." At the re-scheduled date of oral arguments on 08 March 1995 where
METROBANK was supposed to bring before the respondent Court the current statement of the mortgage debt of Mr.
Chia secured by the deeds of mortgage sought to be released, METROBANK's counsel did not appear; only the
lawyers of respondent GTP and Mr. Chia appeared. Thus, the Court required GTP's counsel to file a memorandum
in lieu of oral arguments in support of its motion for reconsideration. GTP filed its memorandum on March 17,
8

1995 to which a reply memorandum was filed by METROBANK on April 10, 1995.
9 10

On 03 July 1995, the now assailed amended decision was rendered reconsidering the original 24 October 1994
11

Decision and thus affirming the 11 December 1990 judgment of the regional trial court. Respondent Court of
Appeals took a second hard look at the evidence on hand and seriously considered METROBANK's refusal to
specify any unpaid debt secured by the subject property, in concluding anew that "the present case for specific
performance is well-grounded, absent indubitable showing that the aforesaid amount of P116,416.71 paid by
appellee on September 16, 1980 did not suffice to pay in full the mortgage debt assumed under the Deed of
Absolute Sale, with assumption of mortgage, it inked with the late Tomas Chia. There is therefore merit in its motion
for reconsideration at bench." Petitioner METROBANK is now before us after its motion for reconsideration of the 03
July 1995 amended decision was denied by respondent Court of Appeals per Resolution of 04 December 1995. 12

We find no compelling reasons to disturb the assailed decision.

We quote with favor the following pronouncements of respondent Court of Appeals in the Amended Decision, thus:
. . . . In the case under scrutiny, we are convinced that We erred in reversing the appealed judgment despite
the finding that subject property covered by TCT 106901 — Quezon City had been sold, in a manner
absolute and irrevocable, by the spouses, Tomas Chia and Vicenta Chan, to plaintiff-appellee, and on
September 16, 1980, the latter complied with its contractual obligation thereunder by paying the total
mortgage debt it assumed, amounting according to Metrobank itself, to P116,416.71, as of September 16,
1980.
All things studiedly viewed in proper perspective, we are of the opinion, and so rule, that whatever debts or
loans mortgagor Chia contracted with Metrobank after September 4, 1980, without the conformity of plaintiff-
appellee, could not be adjudged as part of the mortgage debt the latter so assumed. We are persuaded that
the contrary ruling on this point in Our October 24, 1994 decision would be unfair and unjust to plaintiff-
appellee because, before buying subject property and assuming the mortgage debt thereon, the latter
inquired from Metrobank about the exact amount of the mortgage debt involved.
The stipulation in subject Deeds of Mortgage that mortgagors' debts subsequently obtained would be
covered by the same security became inapplicable, when mortgagor sold to appellee the mortgaged
property with the knowledge of the mortgagee bank. Thus, since September 4, 1980, it was obvious that
whatever additional loan mortgagor got from Metrobank, the same was not chargeable to and collectible
from plaintiff-appellee. It is then decisively clear that Metrobank is without any valid cause or ground not to
release the Deeds of Mortgage in question, despite full payment of the mortgage debt assumed by
appellee. 13

Petitioner METROBANK is estopped from refusing the discharge of the real estate mortgage on the claim that the
subject property still secures "other unliquidated past due loans." In Maneclang vs. Baun, this Court enumerated
14

the requisites for estoppel by conduct to operate, to wit:

1. there must have been a representation or concealment of material facts;
2. the representation must have been with knowledge of the facts;
3. the party to whom it was made must have been ignorant of the truth of the matter; and
4. it must have been with the intention that the other party would act upon it.
Respondent GTP, thru Atty. Atienza, requested from METROBANK that he be furnished a copy of the full
indebtedness secured by the real estate mortgage. In response thereto, petitioner METROBANK issued a
15

statement of account as of September 15, 1980 which amount was immediately settled and paid the next day
16

amounting to P116,416.71. Petitioner METROBANK is thus barred from taking a stand inconsistent with its
representation upon which respondent GTP, as an innocent third person to the real mortgage agreement, placed
exclusive reliance. Respondent GTP had the reasonable right to rely upon such representations as true, considering
that it had no participation whatsoever in the mortgage agreement and the preparation of the statement of account,
coupled with the expectation that a reputable banking institution such as petitioner METROBANK do conduct their
business concerns in the highest standards of efficiency and professionalism. For an admission or representation is
rendered conclusive upon the person making it, and cannot be denied or disproved as against a person relying
thereon. A party may not go back on his own acts and representations to the prejudice of the other party who relied
upon them. In the law of evidence, whenever a party has, by his own declaration, act or omission, intentionally and
deliberately led another to believe a particular thing true, and to act upon such belief, he cannot, in any litigation
arising out of such declaration, act, or omission, be permitted to falsify it.
17

Just as decisive is petitioner METROBANK's failure to bring before respondent Court of Appeals the current
statement evidencing what it claims as "other unliquidated past due loans" at the scheduled hearing of 8 March
1995. It was a golden opportunity, so to speak, lost for petitioner METROBANK to defend its non-release of the real
estate mortgage. Thus, the following pronouncements of this Court in Manila Bay Club Corporation vs. Court of
Appeals et. al, speaking thru Mr. Justice Ricardo Francisco, find rightful application, viz. —
18 19

It is a well-settled rule that when the evidence tends to prove a material fact which imposes a liability on a
party, and he has it in his power to produce evidence which from its very nature must overthrow the case
made against him if it is not founded on fact, and he refuses to produce such evidence, the presumption
arises that the evidence, if produced would operate to his prejudice, and support the case of his
adversary. . . .
No rule of law is better settled than that a party having it in his power to prove a fact, if it exists, which, if
proved, would benefit him, his failure to prove it must be taken as conclusive that the fact does not exist.
xxx xxx xxx
Where facts are in evidence affording legitimate inferences going to establish the ultimate fact that the
evidence is designed to prove, and the party to be affected by the proof, with an opportunity to do so, fails to
deny or explain them, they may well be taken as admitted with all the effect of the inferences afforded. . . .
The ordinary rule is that one who has knowledge peculiarly within his own control, and refuses to divulge it,
cannot complain if the court puts the most unfavorable construction upon his silence, and infers that a
disclosure would have shown the fact to be as claimed by the opposing party.
Verily, petitioner METROBANK's omission to present its evidence only created an adverse inference against its
cause. Therefore, it cannot now be heard to complain since respondent Court extended a reasonable opportunity to
petitioner METROBANK that it did not avail. 1avvphi1

WHEREFORE, the petition is DENIED. The amended decision of respondent Court of Appeals dated 3 July 1995 as
well as its resolution of 4 December 1995 is AFFIRMED, with costs against petitioner.
SO ORDERED.
G.R. No. 108228 February 1, 2001
SPOUSES MANUEL and SALVACION DEL CAMPO, petitioners,
vs.
HON. COURT OF APPEALS and HEIRS OF JOSE REGALADO, SR., respondents.
QUISUMBING, J.:
This is a petition for review on certiorari of a decision of the Court of Appeals which affirmed the judgment of the
Regional Trial Court of Roxas City, Branch 15 in Civil Case No. V-5369, ordering the dismissal of the action for
repartition, resurvey and reconveyance filed by petitioners.
Pure questions of law are raised in this appeal as the following factual antecedents are undisputed:
Salome, Consorcia, Alfredo, Maria, Rosalia, Jose, Quirico and Julita, all surnamed Bornales, were the original co-
owners of Lot 162 of the Cadastral Survey of Pontevedra, Capiz under Original Certificate of Title No. 18047. As
appearing therein, the lot, which consisted of a total area of 27,179 square meters was divided in aliquot shares
among the eight (8) co-owners as follows:

Salome Bornales 4/16

Consorcia Bornales 4/16

Alfredo Bornales 2/16

Maria Bornales 2/16

Jose Bornales 1/16

Quirico Bornales 1/16

Rosalia Bornales 1/16

Julita Bornales 1/16

On July 14, 1940, Salome sold part of her 4/16 share in Lot 162 for P200.00 to Soledad Daynolo. In the Deed of
Absolute Sale signed by Salome and two other co-owners, Consorcia and Alfredo, the portion of Lot 162 sold to
Soledad was described as having more or less the following measurements:
63-1/2 meters from point "9" to "10", 35 meters from point "10" to point "11", 30 meters from point "11" to a
certain point parallel to a line drawn from points "9" to "10"; and then from this "Certain Point" to point "9"
and as shown in the accompanying sketch, and made an integral part of this deed, to SOLEDAD
DAYNOLO, her heirs and assigns.1
Thereafter, Soledad Daynolo immediately took possession of the land described above and built a house thereon. A
few years later, Soledad and her husband, Simplicio Distajo, mortgaged the subject portion of Lot 162 as security for
a P400.00 debt to Jose Regalado, Sr. This transaction was evidenced by a Deed of Mortgage2 dated May 1, 1947.
On April 14, 1948, three of the eight co-owners of Lot 162, specifically, Salome, Consorcia and Alfredo, sold 24,993
square meters of said lot to Jose Regalado, Sr.
On May 4, 1951, Simplicio Distajo, heir of Soledad Daynolo who had since died, paid the mortgage debt and
redeemed the mortgaged portion of Lot 162 from Jose Regalado, Sr. The latter, in turn, executed a Deed of
Discharge of Mortgage3 in favor of Soledad’s heirs, namely: Simplicio Distajo, Rafael Distajo and Teresita Distajo-
Regalado. On same date, the said heirs sold the redeemed portion of Lot 162 for P1,500.00 to herein petitioners,
the spouses Manuel Del Campo and Salvacion Quiachon. 1âwphi1.nêt

Meanwhile, Jose Regalado, Sr. caused the reconstitution of Original Certificate of Title No. 18047. The reconstituted
OCT No. RO-4541 initially reflected the shares of the original co-owners in Lot 162. However, title was transferred
later to Jose Regalado, Sr. who subdivided the entire property into smaller lots, each covered by a respective title in
his name. One of these small lots is Lot No. 162-C-6 with an area of 11,732 square meters which was registered on
February 24, 1977 under TCT No. 14566.
In 1987, petitioners Manuel and Salvacion del Campo brought this complaint for "repartition, resurvey and
reconveyance" against the heirs of the now deceased Jose Regalado, Sr. Petitioners claimed that they owned an
area of 1,544 square meters located within Lot 162-C-6 which was erroneously included in TCT No. 14566 in the
name of Regalado. Petitioners alleged that they occupied the disputed area as residential dwelling ever since they
purchased the property from the Distajos way back in 1951. They also declared the land for taxation purposes and
paid the corresponding taxes.
On April 1, 1987, summons were served on Regalado’s widow, Josefina Buenvenida, and two of her children,
Rosemarie and Antonio. Josefina and Rosemarie were declared in default on May 10, 1989 because only Antonio
filed an answer to the complaint.
During trial, petitioners presented the Deed of Absolute Sale4 executed between Soledad Daynolo and Salome
Bornales as well as the Deed of Mortgage 5 and Deed of Discharge6 signed by Jose Regalado, Sr. The Deed of
Absolute Sale7 showing the purchase by the Del Campos of the property from the Distajos was likewise given in
evidence.
Despite the filing of an answer, Antonio failed to present any evidence to refute the claim of petitioners. Thus, after
considering Antonio to have waived his opportunity to present evidence, the trial court deemed the case submitted
for decision.
On November 20, 1990, the trial court rendered judgment dismissing the complaint. It held that while Salome could
alienate her pro-indiviso share in Lot 162, she could not validly sell an undivided part thereof by meters and bounds
to Soledad, from whom petitioners derived their title. The trial court also reasoned that petitioners could not have a
better right to the property even if they were in physical possession of the same and declared the property for
taxation purposes, because mere possession cannot defeat the right of the Regalados who had a Torrens title over
the land.
On appeal, the Court of Appeals affirmed the trial court’s judgment, with no pronouncement as to costs.8
Petitioners now seek relief from this Court and maintain that:
I.
THE FACT THAT THE SALE OF THE SUBJECT PORTION CONSTITUTES A SALE OF A CONCRETE OR
DEFINITE PORTION OF LAND OWNED IN COMMON DOES NOT ABSOLUTELY DEPRIVE HEREIN
PETITIONERS OF ANY RIGHT OR TITLE THERETO;
II.
IN ANY EVENT, HEREIN PRIVATE RESPONDENTS ARE ALL ESTOPPED FROM DENYING THE RIGHT
AND TITLE OF HEREIN PETITIONERS.9
In resolving petitioners’ appeal, we must answer the following questions: Would the sale by a co-owner of a physical
portion of an undivided property held in common be valid? Is respondent estopped from denying petitioners’ right
and title over the disputed area? Under the facts and circumstances duly established by the evidence, are
petitioners entitled to ‘repartition, resurvey and reconveyance’ of the property in question?
On the first issue, it seems plain to us that the trial court concluded that petitioners could not have acquired
ownership of the subject land which originally formed part of Lot 162, on the ground that their alleged right springs
from a void sale transaction between Salome and Soledad. The mere fact that Salome purportedly transferred a
definite portion of the co-owned lot by metes and bounds to Soledad, however, does not per se render the sale a
nullity. This much is evident under Article 49310 of the Civil Code and pertinent jurisprudence on the matter. More
particularly in Lopez vs. Vda. De Cuaycong, et. al.11 which we find relevant, the Court, speaking through Mr. Justice
Bocobo, held that:
…The fact that the agreement in question purported to sell a concrete portion of the hacienda does not
render the sale void, for it is a well-established principle that the binding force of a contract must be
recognized as far as it is legally possible to do so. "Quando res non valet ut ago, valeat quantum valere
potest." (When a thing is of no force as I do it, it shall have as much force as it can have.)12
Applying this principle to the instant case, there can be no doubt that the transaction entered into by Salome and
Soledad could be legally recognized in its entirety since the object of the sale did not even exceed the ideal shares
held by the former in the co-ownership. As a matter of fact, the deed of sale executed between the parties expressly
stipulated that the portion of Lot 162 sold to Soledad would be taken from Salome’s 4/16 undivided interest in said
lot, which the latter could validly transfer in whole or in part even without the consent of the other co-owners.
Salome’s right to sell part of her undivided interest in the co-owned property is absolute in accordance with the well-
settled doctrine that a co-owner has full ownership of his pro-indiviso share and has the right to alienate, assign or
mortgage it, and substitute another person in its enjoyment 13 Since Salome’s clear intention was to sell merely part
of her aliquot share in Lot 162, in our view no valid objection can be made against it and the sale can be given effect
to the full extent.
We are not unaware of the principle that a co-owner cannot rightfully dispose of a particular portion of a co-owned
property prior to partition among all the co-owners. However, this should not signify that the vendee does not
acquire anything at all in case a physically segregated area of the co-owned lot is in fact sold to him. Since the co-
owner/vendor’s undivided interest could properly be the object of the contract of sale between the parties, what the
vendee obtains by virtue of such a sale are the same rights as the vendor had as co-owner, in an ideal share
equivalent to the consideration given under their transaction. In other words, the vendee steps into the shoes of the
vendor as co-owner and acquires a proportionate abstract share in the property held in common.
Resultantly, Soledad became a co-owner of Lot 162 as of the year 1940 when the sale was made in her favor. It
follows that Salome, Consorcia and Alfredo could not have sold the entire Lot 162 to Jose Regalado, Sr. on April 14,
1948 because at that time, the ideal shares held by the three co-owners/vendors were equivalent to only 10/16 of
the undivided property less the aliquot share previously sold by Salome to Soledad. Based on the principle that "no
one can give what he does not have,"14 Salome, Consorcia and Alfredo could not legally sell the shares pertaining to
Soledad since a co-owner cannot alienate more than his share in the co-ownership. We have ruled many times that
even if a co-owner sells the whole property as his, the sale will affect only his own share but not those of the other
co-owners who did not consent to the sale. Since a co-owner is entitled to sell his undivided share, a sale of the
entire property by one co-owner will only transfer the rights of said co-owner to the buyer, thereby making the buyer
a co-owner of the property.15
In this case, Regalado merely became a new co-owner of Lot 162 to the extent of the shares which Salome,
Consorcia and Alfredo could validly convey. Soledad retained her rights as co-owner and could validly transfer her
share to petitioners in 1951. The logical effect on the second disposition is to substitute petitioners in the rights of
Soledad as co-owner of the land. Needless to say, these rights are preserved notwithstanding the issuance of TCT
No. 14566 in Regalado’s name in 1977.
Be that as it may, we find that the area subject matter of this petition had already been effectively segregated from
the ‘mother lot’ even before title was issued in favor of Regalado. It must be noted that 26 years had lapsed from the
time petitioners bought and took possession of the property in 1951 until Regalado procured the issuance of TCT
No. 14566. Additionally, the intervening years between the date of petitioners’ purchase of the property and 1987
when petitioners filed the instant complaint, comprise all of 36 years. However, at no instance during this time did
respondents or Regalado, for that matter, question petitioners’ right over the land in dispute. In the case of Vda. De
Cabrera vs. Court of Appeals,16 we had occasion to hold that where the transferees of an undivided portion of the
land allowed a co-owner of the property to occupy a definite portion thereof and had not disturbed the same for a
period too long to be ignored, the possessor is in a better condition or right than said transferees. (Potior est
condition possidentis). Such undisturbed possession had the effect of a partial partition of the co-owner property
which entitles the possessor to the definite portion which he occupies. Conformably, petitioners are entitled to the
disputed land, having enjoyed uninterrupted possession thereof for a total of 49 years up to the present.
The lower court’s reliance on the doctrine that mere possession cannot defeat the right of a holder of a
registered Torrens title over property is misplaced, considering that petitioners were deprived of their dominical
rights over the said lot through fraud and with evident bad faith on the part of Regalado. Failure and intentional
omission to disclose the fact of actual physical possession by another person during registration proceedings
constitutes actual fraud. Likewise, it is fraud to knowingly omit or conceal a fact, upon which benefit is obtained to
the prejudice of a third person.17 In this case, we are convinced that Regalado knew of the fact that he did not have a
title to the entire lot and could not, therefore, have validly registered the same in his name alone because he was
aware of petitioners’ possession of the subject portion as well as the sale between Salome and Soledad.
That Regalado had notice of the fact that the disputed portion of Lot 162 was under claim of ownership by
petitioners and the latter’s predecessor is beyond question. Records show that the particular area subject of this
case was mortgaged by Soledad and her husband to Jose Regalado, Sr. as early as May 1, 1947 or one year prior
to the alienation of the whole lot in favor of the latter. Regalado never questioned the ownership of the lot given by
Soledad as security for the P400.00 debt and he must have at least known that Soledad bought the subject portion
from Salome since he could not have reasonably accepted the lot as security for the mortgage debt if such were not
the case. By accepting the said portion of Lot 162 as security for the mortgage obligation, Regalado had in fact
recognized Soledad’s ownership of this definite portion of Lot 162. Regalado could not have been ignorant of the
fact that the disputed portion is being claimed by Soledad and subsequently, by petitioners, since Regalado even
executed a Release of Mortgage on May 4, 1951, three years after the entire property was supposedly sold to him.
It would certainly be illogical for any mortgagee to accept property as security, purchase the mortgaged property
and, thereafter, claim the very same property as his own while the mortgage was still subsisting.
Consequently, respondents are estopped from asserting that they own the subject land in view of the Deed of
Mortgage and Discharge of Mortgage executed between Regalado and petitioners’ predecessor-in-interest. As
petitioners correctly contend, respondents are barred from making this assertion under the equitable principle
of estoppel by deed, whereby a party to a deed and his privies are precluded from asserting as against the other
and his privies any right or title in derogation of the deed, or from denying the truth of any material fact asserted in
it.18 A perusal of the documents evidencing the mortgage would readily reveal that Soledad, as mortgagor, had
declared herself absolute owner of the piece of land now being litigated. This declaration of fact was accepted by
Regalado as mortgagee and accordingly, his heirs cannot now be permitted to deny it.
Although Regalado’s certificate of title became indefeasible after the lapse of one year from the date of the decree
of registration, the attendance of fraud in its issuance created an implied trust in favor of petitioners and gave them
the right to seek reconveyance of the parcel wrongfully obtained by the former. An action for reconveyance based
on an implied trust ordinarily prescribes in ten years. But when the right of the true and real owner is recognized,
expressly or implicitly such as when he remains undisturbed in his possession, the said action is imprescriptible, it
being in the nature of a suit for quieting of title. 19 Having established by clear and convincing evidence that they are
the legal owners of the litigated portion included in TCT NO. 14566, it is only proper that reconveyance of the
property be ordered in favor of petitioners. The alleged incontrovertibility of Regalado’s title cannot be successfully
invoked by respondents because certificates of title merely confirm or record title already existing and cannot be
used to protect a usurper from the true owner or be used as a shield for the commission of fraud.20
WHEREFORE, the petition is GRANTED. The assailed decision of the Court of Appeals in CA-G.R. CV No. 30438
is REVERSED and SET ASIDE. The parties are directed to cause a SURVEY for exact determination of their
respective portions in Lot 162-C-6. Transfer Certificate of Title No. 14566 is declared CANCELLED and the Register
of Deeds of Capiz is ordered to ISSUE a new title in accordance with said survey, upon finality of this decision.
Costs against respondents. 1âwphi1.nêt

SO ORDERED.

G.R. No. 149844 October 13, 2004

MIGUEL CUENCO, Substituted by MARIETTA C. CUYEGKENG, petitioner,
vs.
CONCEPCION CUENCO Vda. DE MANGUERRA, respondent.
DECISION
PANGANIBAN, J.:
Inasmuch as the facts indubitably and eloquently show an implied trust in favor of respondent, the Court of Appeals
did not err in affirming the Decision of the Regional Trial Court ordering petitioner to convey the subject property to
her. That Decision satisfied the demands of justice and prevented unjust enrichment.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of Court, challenging the August 22, 2001 Decision2 of
1

the Court of Appeals (CA) in CA-GR CV No. 54852. The assailed Decision disposed as follows:
"WHEREFORE, the decision appealed from is AFFIRMED."3
On the other hand, the Regional Trial Court (RTC) Decision affirmed by the CA disposed as follows:
"WHEREFORE, considering that this action is essentially one for reconveyance or enforcement of a trust,
judgment is hereby rendered ordering the substituted defendant Marietta Cuenco Cuyegkeng to reconvey or
transfer, in a duly registrable public instrument, Lot No 903-A-6 under TCT No. 113781 of the Registry of
Deeds of Cebu City, of the Banilad Estate with an area of 834 square meters, in favor of plaintiff Concepcion
Cuenco Vda. De Manguerra; or should the substituted defendant, for one reason or another, fail to execute
the necessary instrument once the decision becomes final, the Clerk of Court of this Court (RTC) is hereby
instructed, in accordance with the Rules of Court, to prepare and execute the appropriate and requisite
conveyance and instrument in favor of herein plaintiff which, in either case, shall be registered with the
Office of the Register of Deeds of Cebu City.
 Without costs in this instance."4
The Facts
The facts were summarized by the appellate court as follows:
"On September 19, 1970, the [respondent] filed the initiatory complaint herein for specific performance
against her uncle [Petitioner] Miguel Cuenco which averred, inter alia that her father, the late Don Mariano
Jesus Cuenco (who became Senator) and said [petitioner] formed the ‘Cuenco and Cuenco Law Offices’;
that on or around August 4, 1931, the Cuenco and Cuenco Law Offices served as lawyers in two (2) cases
entitled ‘Valeriano Solon versus Zoilo Solon’ (Civil Case 9037) and ‘Valeriano Solon versus Apolonia Solon’
(Civil Case 9040) involving a dispute among relatives over ownership of lot 903 of the Banilad Estate which
is near the Cebu Provincial Capitol; that records of said cases indicate the name of the [petitioner] alone as
counsel of record, but in truth and in fact, the real lawyer behind the success of said cases was the
influential Don Mariano Jesus Cuenco; that after winning said cases, the awardees of Lot 903 subdivided
said lot into three (3) parts as follows:
Lot 903-A: 5,000 [square meters]: Mariano Cuenco’s attorney’s fees
Lot 903-B: 5,000 [square meters]: Miguel Cuenco’s attorney’s fees
Lot 903-C: 54,000 [square meters]: Solon’s retention
"That at the time of distribution of said three (3) lots in Cebu, Mariano Jesus Cuenco was actively practicing
law in Manila, and so he entrusted his share (Lot 903-A) to his brother law partner (the [petitioner]); that on
September 10, 1938, the [petitioner] was able to obtain in his own name a title for Lot 903-A (Transfer
Certificate of Title [TCT] RT-6999 [T-21108]); that he was under the obligation to hold the title in trust for his
brother Mariano’s children by first marriage; that sometime in 1947, the Cuenco family was anticipating
Mariano’s second marriage, and so on February 1, 1947, they partitioned Lot 903-A into six (6) sub-lots
(Lots 903-A-1 to 903-A-6) to correspond to the six (6) children of Mariano’s first marriage (Teresita, Manuel,
Lourdes, Carmen, Consuelo, and Concepcion); that the [petitioner] did not object nor oppose the partition
plan; that on June 4, 1947, the [petitioner] executed four (4) deeds of donation in favor of Mariano’s four (4)
children: Teresita, Manuel, Lourdes, and Carmen, pursuant to the partition plan (per notary documents 183,
184, 185, 186, Book III, Series 1947 of Cebu City Notary Public Candido Vasquez); that on June 24, 1947,
the [petitioner] executed the fifth deed of donation in favor of Mariano’s fifth child – Consuelo (per notary
document 214, Book III, Series 1947 of Cebu City Notary Public Candido Vasquez) (Exhibits ‘2’ to ‘5’); that
said five (5) deeds of donation left out Mariano’s sixth child – Concepcion – who later became the
[respondent] in this case; that in 1949, [respondent] occupied and fenced a portion of Lot 903-A-6 for
taxation purposes (Exhibit ‘F’, Exhibit ‘6’); that she also paid the taxes thereon (Exhibit ‘G’); that her father
died on February 25, 1964 with a Last Will and Testament; that the pertinent portion of her father’s Last Will
and Testament bequeaths the lot.
‘… near the Cebu provincial capitol, which were my attorney’s fees from my clients, Victoria Rallos
and Zoilo Solon, respectively – have already long been disposed of, and distributed by me, through
my brother, Miguel, to all my said children in the first marriage;’
"That on June 3, 1966, the [petitioner] wrote a letter petitioning the Register of Deeds of Cebu to transfer Lot
903-A-6 to his name on the ground that Lot 903-A-6 is a portion of Lot 903-A; that on April 6, 1967, the
[respondent] requested the Register of Deeds to annotate an affidavit of adverse claim against the
[petitioner’s] TCT RT-6999 (T-21108) which covers Lot 903-A; that on June 3, 1967, the Register of Deeds
issued TCT 35275 covering Lot 903-A-6 in the name of the [petitioner] but carrying the earlier annotation of
adverse claim; that in 1969, the [petitioner] tore down the wire fence which the [respondent] constructed on
Lot 903-A-6 which compelled the latter to institute the instant complaint dated August 20, 1970 on
September 19, 1970.
"On December 5, 1970, the answer with counterclaim dated December 3, 1970 of [petitioner] Miguel Cuenco
was filed where he alleged that he was the absolute owner of Lot 903-A-6; that this lot was a portion of Lot
903-A which in turn was part of Lot 903 which was the subject matter of litigation; that he was alone in
defending the cases involving Lot 903 without the participation of his brother Mariano Cuenco; that he
donated five (5) of the six (6) portions of Lot 903-A to the five (5) children of his brother Mariano out of
gratitude for the love and care they exhibited to him (Miguel) during the time of his long sickness; that he did
not give or donate any portion of the lot to the [respondent] because she never visited him nor took care of
him during his long sickness; that he became critically ill on February 11, 1946 and was confined at the
Singian’s Clinic in Manila and then transferred to Cebu where he nearly died in 1946; that his wife Fara
Remia Ledesma Cuenco had an operation on January 1951 and was confined at the University of Santo
Tomas Hospital and John Hopkins Hospital in the United States; that two of his children died at the
University of Santo Tomas Hospital in 1951 and 1952; and that his wife was blind for many months due to
malignant hypertension but [respondent] never remembered her nor did she commiserate with him and his
wife in their long period of sorrow.
"[Petitioner] Miguel Cuenco took the witness stand as early as September 13, 1974. His self-conducted
direct examination lasted until 1985, the last one on November 22, 1985. Unfortunately, he died5 before he
was able to submit himself for cross-examination and so his testimony had to be stricken off the record. His
only surviving daughter, Marietta Cuyegkeng, stood as the substitute [petitioner] in this case. She testified
that she purchased Lot 903-A-6 (the property subject matter of this case) from her late father sometime in
 1990 and constructed a house thereon in the same year; that she became aware of this case because her
late father used to commute to Cebu City to attend to this case; and that Lot 903-A-6 is in her name per
Transfer Certificate of Title #113781 of the Registry of Deeds for Cebu."6
Ruling of the Court of Appeals
The CA found respondent’s action not barred by res judicata, because there was "no identity of causes of action
between the Petition for cancellation of adverse claim in L.R.C. Records 5988 and the Complaint for specific
performance to resolve the issue of ownership in Civil Case No. R-11891."
The appellate court further found no reason to disturb the findings of the trial court that respondent "has the legal
right of ownership over lot 903-A-6." The CA ruled that the subject land "is part of the attorney’s fees of Don Mariano
Cuenco, predecessor-in-interest of [Respondent] Concepcion Cuenco vda. de Manguerra and [petitioner] merely
holds such property in trust for [her], his title there[to] notwithstanding."
Finally, the CA held that the right of action of respondent "has not yet prescribed as she was in possession of the lot
in dispute and the prescriptive period to file the case commences to run only from the time she acquired knowledge
of an adverse claim over [her] possession."
Hence, this Petition.7
The Issues
In her Memorandum, petitioner raises the following issues for our consideration:
"I.
On question of law, the Court of Appeals failed to consider facts of substance and significance which, if
considered, will show that the preponderance of evidence is in favor of the petitioner.
"II.
On question of law, the Court of Appeals failed to appreciate the proposition that, contrary to the position
taken by the trial court, no constructive or implied trust exists between the parties, and neither is the action
one for reconveyance based upon a constructive or implied trust.
"III.
On question of law, the Court of Appeals erred in not finding that even where implied trust is admitted to
exist the respondent’s action for relief is barred by laches and prescription.
"IV.
On question of law, the trial court and the appellate court erred in expunging from the records the testimony
of Miguel Cuenco."8
This Court’s Ruling
The Petition has no merit.
First Issue:
Evaluation of Evidence
Petitioner asks us to appreciate and weigh the evidence offered in support of the finding that Lot 903-A-6 constituted
a part of Mariano Cuenco’s share in the attorney’s fees. In other words, she seeks to involve us in a reevaluation of
the veracity and probative value of the evidence submitted to the lower court. What she wants us to do is contrary to
the dictates of Rule 45 that only questions of law may be raised and resolved in a petition for review. "Absent any
whimsical or capricious exercise of judgment, and unless the lack of any basis for the conclusions made by the
lower courts be amply demonstrated, the Supreme Court will not disturb such factual findings."9
As a rule, findings of fact of the Court of Appeals affirming those of the trial court are binding and conclusive.
Normally, such factual findings are not disturbed by this Court, to which only questions of law may be raised in an
appeal by certiorari.10 This Court has consistently ruled that these questions "must involve no examination of the
probative value of the evidence presented by the litigants or any of them."11 Emphasizing the difference between the
two types of question, it has explained that "there is a question of law in a given case when the doubt or difference
arises as to what the law is pertaining to a certain state of facts, and there is a question of fact when the doubt
arises as the truth or the falsity of alleged facts."12
Indeed, after going over the records of the present case, we are not inclined to disturb the factual findings of the trial
and the appellate courts, just because of the insistent claim of petitioner. His witnesses allegedly testified that Civil
Case No. 9040 involving Lot 903 had not been handled by Mariano for defendants therein -- Apolonia Solon, Zoilo
Solon, et al. It has sufficiently been proven, however, that these defendants were represented by the Cuenco and
Cuenco Law Office, composed of Partners Mariano Cuenco and Miguel Cuenco.
Given as attorney’s fees was one hectare of Lot 903, of which two five-thousand square meter portions were
identified as Lot 903-A and Lot 903-B. That only Miguel handled Civil Case No. 9040 does not mean that he alone is
entitled to the attorney’s fees in the said cases. "When a client employs the services of a law firm, he does not
employ the services of the lawyer who is assigned to personally handle the case. Rather, he employs the entire law
firm."13 Being a partner in the law firm, Mariano -- like Miguel -- was likewise entitled14 to a share in the attorney’s
fees from the firm’s clients. Hence, the lower courts’ finding that Lot 903-A was a part of Mariano Cuenco’s
attorney’s fees has ample support.
 Second Issue:
Implied Trust
Petitioner then contends that no constructive or implied trust exists between the parties.
A trust is a legal relationship between one having an equitable ownership in a property and another having legal title
to it.15
Trust relations between parties may either be express or implied.16 Express trusts are created by the direct and
positive acts of the parties, indicated through some writing, deed, will, or words evidencing an intention to create a
trust.17 On the other hand, implied trusts are those that, "without being express, are deducible from the nature of the
transaction as matters of intent[;] or which are superinduced on the transaction by operation of law as a matter of
equity, independently of the particular intention of the parties. Implied trusts may either be resulting or constructive
trusts, both coming into being by operation of law."18
Resulting trusts are presumed to have been contemplated by the parties and are based on the equitable doctrine
that valuable consideration, not legal title, determines the equitable title or interest.19 These trusts arise from the
nature of or the circumstances involved in a transaction, 20 whereby legal title becomes vested in one person, who is
obligated in equity to hold that title for the benefit of another.
Constructive trusts are "created by the construction of equity in order to satisfy the demands of justice and prevent
unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence,
obtains or holds the legal right to property which he ought not, in equity and good conscience, to hold."21
A review of the records shows that indeed there is an implied trust between the parties.
Although Lot 903-A was titled in Miguel’s name, the circumstances surrounding the acquisition and the subsequent
partial dispositions of this property eloquently speak of the intent that the equitable or beneficial ownership of the
property should belong to Mariano and his heirs.
First, Lot 903-A was one half of the one-hectare portion of Lot 903 given as attorney’s fees by a client of the
law firm of Partners Miguel and Mariano Cuenco. It constituted the latter’s share in the attorney’s fees and
thus equitably belonged to him, as correctly found by the CA. That Lot 903-A had been titled in the name of
Miguel gave rise to an implied trust between him and Mariano, specifically, the former holds the property in
trust for the latter. In the present case, it is of no moment that the implied trust arose from the circumstance
-- a share in the attorney’s fees -- that does not categorically fall under Articles 1448 to 1456 of the Civil
Code. The cases of implied trust enumerated therein "does not exclude others established by the general
law of trust."22
Second, from the time it was titled in his name in 1938,23 Lot 903-A remained undivided and untouched24 by
Miguel. Only on February 3, 1947, did Lourdes Cuenco,25 upon the instruction of Mariano, have it surveyed
and subdivided into six almost equal portions -- 903-A-1 to 903-A-6. Each portion was specifically allocated
to each of the six children of Mariano with his first wife.26
Third, Miguel readily surrendered his Certificate of Title27 and interposed no objection28 to the subdivision and
the allocation of the property to Mariano’s six children, including Concepcion.
Fourth, Mariano’s children, including Concepcion,29 were the ones who shouldered the expenses incurred for the
subdivision of the property.
Fifth, after the subdivision of the property, Mariano’s children -- including Concepcion30 -- took possession of their
respective portions thereof.
Sixth, the legal titles to five portions of the property were transferred via a gratuitous deed of conveyance to
Mariano’s five children, following the allocations specified in the subdivision plan prepared for Lourdes Cuenco.31
With respect to Lot 903-A-6 in particular, the existence of Concepcion’s equitable ownership thereof is bolstered, not
just by the above circumstances, but also by the fact that respondent fenced the portion allocated to her and planted
trees thereon.32
More significantly, she also paid real property taxes on Lot 903-A-6 yearly, from 1956 until 1969 33 -- the year when
she was dispossessed of the property. "Although tax declarations or realty tax payments of property are not
conclusive evidence of ownership, nevertheless, they are good indicia of possession in the concept of owner, for no
one in his right mind would be paying taxes for a property that is not in his actual or at least constructive
possession."34 Such realty tax payments constitute proof that the holder has a claim of title over the property.
Tellingly, Miguel started paying real property taxes on Lot 903-A-6 only on April 4, 1964, 35 after the death of
Mariano.36 This fact shows that it was only in that year that he was emboldened to claim the property as his own and
to stop recognizing Mariano’s, and subsequently Concepcion’s, ownership rights over it. It was only by then that the
one who could have easily refuted his claim had already been silenced by death. Such a situation cannot be
permitted to arise, as will be explained below.
Estoppel
From the time Lot 903-A was subdivided and Mariano’s six children -- including Concepcion -- took possession as
owners of their respective portions, no whimper of protest from petitioner was heard until 1963. By his acts as well
as by his omissions, Miguel led Mariano and the latter’s heirs, including Concepcion, to believe that Petitioner
Cuenco respected the ownership rights of respondent over Lot 903-A-6. That Mariano acted and relied on Miguel’s
tacit recognition of his ownership thereof is evident from his will, executed in 1963, which states:
 "I hereby make it known and declare that x x x all properties which my first wife and I had brought to, or
acquired during our marriage, or which I had acquired during the years I was a widower – including jewelry,
war damage compensation, and two other lots also located at Cebu City, one near the South-Western
University and the other near the Cebu provincial capitol, which were my attorney’s fees from my clients,
Victoria Rallos and Zoilo Solon, respectively – have already long been disposed of, and distributed by me,
through my brother, Miguel, to all my said six children in the first marriage."37 (emphasis supplied)
Indeed, as early as 1947, long before Mariano made his will in 1963, Lot 903-A -- situated along Juana Osmeña
Extension, Kamputhaw, Cebu City,38 near the Cebu Provincial Capitol -- had been subdivided and distributed to his
six children in his first marriage. Having induced him and his heirs to believe that Lot 903-A-6 had already been
distributed to Concepcion as her own, petitioner is estopped from asserting the contrary and claiming ownership
thereof.
The principle of estoppel in pais applies when -- by one’s acts, representations, admissions, or silence when there is
a need to speak out -- one, intentionally or through culpable negligence, induces another to believe certain facts to
exist; and the latter rightfully relies and acts on such belief, so as to be prejudiced if the former is permitted to deny
the existence of those facts.39
Third Issue:
Laches
Petitioner claims that respondent’s action is already barred by laches.
We are not persuaded. Laches is negligence or omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to it has either abandoned or declined to assert it. 40 In the present case,
respondent has persistently asserted her right to Lot 903-A-6 against petitioner.
Concepcion was in possession as owner of the property from 1949 to 1969.41 When Miguel took steps to have it
separately titled in his name, despite the fact that she had the owner’s duplicate copy of TCT No. RT-6999 -- the title
covering the entire Lot 903-A -- she had her adverse claim annotated on the title in 1967. When petitioner ousted
her from her possession of the lot by tearing down her wire fence in 1969, 42 she commenced the present action on
September 19, 1970,43 to protect and assert her rights to the property. We find that she cannot be held guilty of
laches, as she did not sleep on her rights.
Fourth Issue:
Expunging of Testimony
Petitioner Cuyegkeng questions the expunging of the direct testimony of Miguel Cuenco. Respondent points out that
this issue was not raised before the CA. Neither had petitioner asked the trial court to reconsider its Order
expunging the testimony. Hence, this issue cannot for the first time be raised at this point of the appeal. Issues,
arguments and errors not adequately and seriously brought below cannot be raised for the first time on
appeal.44 "Basic considerations of due process impel this rule."45
WHEREFORE, the Petition is DENIED, and the assailed Decision AFFIRMED. Costs against petitioner. SO
ORDERED.

G.R. No. 150931 July 16, 2008

DR. CECILIA DE LOS SANTOS, Petitioner,
vs.
DR. PRISCILA BAUTISTA VIBAR, Respondent.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review on certiorari1 assailing the Decision2 dated 29 June 2001 and
Resolution3 dated 21 November 2001 of the Court of Appeals in CA-G.R. CV No. 66605.
The Facts
Petitioner Cecilia de los Santos (Cecilia) and respondent Priscila Bautista Vibar (Priscila) were former co-workers in
the Medical Department of the Social Security System. They were close and trusted friends for 33 years.
Sometime in 1994, Cecilia introduced Jose de Leon (de Leon) to Priscila. De Leon needed money and borrowed
₱100,000 from Priscila. De Leon issued a promissory note dated 2 June 1994 and bound himself to pay the loan
three months from date with a monthly interest rate of 3%.4 Cecilia signed as a guarantor of de Leon’s loan.
On 28 June 1995, de Leon asked Priscila for another loan. Together with Cecilia and Avelina Conte, de Leon went to
Priscila’s house. Priscila and her sister, Atty. Josefina Bautista (Atty. Bautista), were present in the same gathering.
After some discussion, they all agreed that the outstanding ₱100,000 loan together with the accrued interest would
be deducted from the new loan of ₱500,000.5
De Leon signed a typewritten promissory note, which he brought with him, acknowledging the debt of ₱500,000
payable within 12 months from 28 August 1995, at a fixed monthly interest rate of 3% and a penalty of 2% per
month in case of default.6 Then, Cecilia signed as a witness under the phrase "signed in the presence of." However,
Atty. Bautista brought up the need for Cecilia to sign as guarantor. Thereupon, de Leon, in his own handwriting,
inserted the word "guarantor" besides Cecilia’s name, as Cecilia nodded her head to what de Leon was doing. De
Leon also added the phrase, "as security for this loan this TCT No. T-47375, Registry of Baguio City, is being
submitted by way of mortgage."
On maturity date, de Leon failed to pay any of the monthly installments. Priscila made several verbal demands on
de Leon for payment but to no avail. Priscila’s counsel then sent de Leon a demand letter dated 17 July 1996 asking
for payment of the principal loan with interest and penalties.7 De Leon failed to respond. On 4 September 1996,
Priscila’s counsel again sent a demand letter not only to de Leon as principal debtor, but also to Cecilia. 8 Cecilia was
being made to answer for de Leon’s debt as the latter’s guarantor. Cecilia then remitted to Priscila ₱15,000 to pay
one month’s interest on the loan.9 However, this was the only payment Cecilia made to Priscila as Cecilia claimed
she had no money to pay the full amount of the loan.
After several failed attempts to collect the loan, Priscila filed with the Registry of Deeds of Baguio City an adverse
claim on the property registered under TCT No. T-47375. However, the Register of Deeds denied the registration of
Priscila’s claim on several grounds:10
(a) the issue involved is a money claim which does not fall within Section 70 of Presidential Decree No.
1529;11
(b) the annexes were not marked;
(c) the family names of Jose and Evangeline, registered owners, do not tally with those on the title;12 and
(d) there is no statement that there is no other provision in the Property Registration Decree for registering
the same.
On 20 November 1996, Priscila filed an action for recovery of money with the Regional Trial Court of Quezon City,
Branch 100, against de Leon and Cecilia.13 De Leon did not file an answer and the trial court declared him in default.
Cecilia, on the other hand, filed an answer denying that she signed as guarantor of de Leon’s loan.
On 26 November 1999, the trial court ruled in favor of Cecilia and dismissed the complaint for insufficiency of
evidence.14 On 12 January 2000, Priscila filed a Motion for Reconsideration on the grounds that the trial court erred
in (a) dismissing the complaint against de Leon despite his being declared in default; and (b) finding that Cecilia was
not a guarantor of de Leon’s loan.
In an Order dated 8 February 2000,15 the trial court modified its decision and ruled that de Leon acted fraudulently or
in bad faith in refusing to pay his debt to Priscila. However, the trial court affirmed its decision dismissing the
complaint against Cecilia. The trial court ruled that there was no express consent given by Cecilia binding her as
guarantor. The dispositive portion of the Order provides:
WHEREFORE, in view of the foregoing, the Decision of the Court dated November 26, 1999, is hereby amended as
follows:
WHEREFORE, judgment is hereby rendered in favor of plaintiff Dra. Priscila Vibar and against defendant Jose de
Leon, and hereby orders the latter to pay the plaintiff the following amounts:
(1) ₱500,000.00 representing the total amount of the loan extended with interest at 3% per month and
penalty of 2% per month (due to default) from July 17, 1996 until the obligation is fully paid;
(2) ₱30,000.00 representing moral damages;
(3) ₱20,000.00 representing attorney's fees; and
(4) costs of suit.
Further, the Court hereby DISMISSES the instant complaint against defendant Dra. Cecilia de los Santos for
insufficiency of evidence. No pronouncement as to costs.
SO ORDERED.
Priscila filed an appeal with the Court of Appeals, docketed as CA-G.R. CV No. 66605.
The Ruling of the Court of Appeals
On 29 June 2001, the appellate court affirmed the trial court’s ruling against de Leon but modified the same with
respect to Cecilia.16 The appellate court declared Cecilia as guarantor of de Leon’s loan. The relevant portions of the
Decision state:
x x x The conduct of defendant-appellee de los Santos during the signing, however, belies her intention to act
merely as a witness. It cannot be gainsaid that she did not react when she heard Atty. Bautista’s protest about her
signing the promissory note in the capacity only of a witness and not as a guarantor. Neither did defendant-appellee
de los Santos object when defendant-appellee de Leon got back the promissory note and wrote the word
"guarantor" after her signature in full view of all those present, including defendant-appellee de los Santos. In fact,
said appellee nodded, signifying approval, when defendant-appellee de Leon placed the word "guarantor" after her
signature on the promissory note.
xxxx
In this factual milieu, if defendant-appellee de los Santos intended only to sign as a witness, she should have
reacted when the word "guarantor" was written on the note in her presence. She should have expressed her strong
and firm objections to such imposition of liability. But defendant-appellee de los Santos kept mum. Such silence can
lead to no other conclusion that she has impliedly given her consent to be the guarantor of de Leon’s loan.
Moreover, defendant-appellee de los Santos is estopped from claiming otherwise. Estoppel in pais arises x x x.
Moreover, one can imply from defendant-appellee de los Santos’ letter dated May 5, 1996 addressed to the Register
of Deeds, City of Baguio that defendant-appellee de los Santos agreed to be bound as guarantor x x x.
It is significant to note that she made no statement therein repudiating her having signed the same in the capacity of
a guarantor, contrary to what she now claims in her defense. Her failure to correct or refute such statement
reinforces the claim that indeed she guaranteed payment of the loan in question, and that writing was to her interest
considering her liabilities under the note as guarantor.
x x x Thus, defendant-appellee de los Santos can be compelled to pay plaintiff-appellant Vibar the judgment debt if it
remains unsatisfied after execution is enforced against the properties of the principal debtor, defendant-appellee
Jose de Leon. x x x
Cecilia filed a Motion for Reconsideration which the appellate court denied in a Resolution dated 21 November
2001.17
Hence, this petition.
The Issue
The main issue for resolution is whether Cecilia is liable as guarantor of de Leon’s loan from Priscila.
Cecilia contends that she is not liable as guarantor. Her behavior, as when she allegedly "kept mum" or "nodded her
head and smiled," was not an implied consent as guarantor. She insists that the law is clear that a guaranty is not
presumed and that there must be a concrete positive act of acceptance or consent to the guaranty. Thus, without
such knowledge or consent, there is no estoppel in pais.
Priscila, on the other hand, maintains that from the totality of Cecilia’s acts, she consented to be bound as guarantor
of de Leon’s loan. Her nod of approval and non-objection to the insertion of the word "guarantor" at the signing of
the second promissory note show that she agreed to be a guarantor, just like in the first promissory note. Even after
discovering that the loan was unpaid and already overdue, Cecilia did not contest that she was a guarantor and
even paid partially to Priscila. Instead, Cecilia claimed she had no money to pay the entire loan. It was only after the
case was filed that Cecilia challenged the insertions in the promissory note. Hence, Priscila insists that Cecilia is
estopped from denying that she is a guarantor.
The Court’s Ruling
The issue before us is a question of fact, the determination of which is beyond this Court’s power of review for it is
not a trier of facts.18 However, there are instances when questions of fact may be reviewed by this Court, as when
the findings of the Court of Appeals are contrary to those of the trial court.19 In the present case, the trial court and
the Court of Appeals made conflicting findings of fact. Thus, a review of such factual findings is in order.
Here, the controversy centers on whether there exists a contract of guaranty to hold Cecilia liable for the loan of de
Leon, the principal debtor. The trial court found that Cecilia had no knowledge of, and did not consent to, the
guaranty. On the other hand, the appellate court ruled that Cecilia’s conduct during the signing of the promissory
note and her non-objection to the insertion of the word "guarantor" show that she acted as guarantor. Cecilia’s
nodding of her head upon the insertion of the word "guarantor" signified her consent to be a guarantor.
We rule that Cecilia was a guarantor of de Leon’s loan.
Cecilia denies that she had actual knowledge of the guaranty. However, Priscila points to the promissory note and
Cecilia’s actions as the best evidence to prove that Cecilia signed as guarantor. The promissory note indicates that
Cecilia signed as a witness, as manifested by the typewritten format. However, the word "guarantor" as handwritten
beside Cecilia’s name makes Cecilia a guarantor. From the records of the case and the evidence presented, we are
convinced that the insertion was made with the express consent of Cecilia.
Firstly, Cecilia’s act of "nodding her head" signified her assent to the insertion of the word "guarantor." The word
"guarantor" could have been inserted by Cecilia herself, or by someone authorized by Cecilia. In either case, Cecilia
would be bound as guarantor. In this case, Cecilia, by nodding her head, authorized de Leon, who prepared the
promissory note, to insert the word "guarantor." Since de Leon made the insertion only after Atty. Bautista had raised
the need for Cecilia to be a guarantor, a positive or negative reaction was expected from Cecilia, who responded by
giving her nod of approval. Otherwise, Cecilia should have immediately expressed her objection to the insertion of
the word "guarantor." Cecilia’s act of nodding her head showed her consent to be a guarantor.
Secondly, Priscila would not have extended a loan to de Leon without the representations of Cecilia. Cecilia
arranged for de Leon and Priscila to meet so that de Leon could borrow money from Priscila. Cecilia vouched for de
Leon’s capacity to pay. As a friend and common link between the borrower and lender, Cecilia took active part in the
first loan of ₱100,000 and even signed as guarantor. On the second promissory note, the word "guarantor" again
appears, admitted by both Cecilia and Priscila as an insertion made by de Leon at the time of signing. The first loan
of ₱100,000, which Cecilia guaranteed, was paid from the proceeds of the second loan. As shown by the
intervention of Atty. Bautista in bringing up the need for Cecilia to act as guarantor, Priscila would not have granted
the second bigger loan of ₱500,000 without the guaranty of Cecilia. It was only natural for Priscila to commit to the
second bigger loan subject at least to the same guarantee as the first smaller loan.
Thirdly, Cecilia claimed ignorance of the guaranty only after this case was filed. However, the records show that
Cecilia had several meetings with Priscila and the latter’s counsel before the demand letters were sent.20 In these
meetings, Cecilia acknowledged her liability as guarantor but simply claimed that she had no money to pay
Priscila.21 In fact, Cecilia made an initial payment of ₱15,000 as partial compliance of her obligation as guarantor.
This only shows that Cecilia never denied her liability to Priscila as guarantor until this case was filed in court.
Lastly, Cecilia wrote a letter to the Register of Deeds of Baguio City inquiring on the status of the property
mentioned in the promissory note as a mortgage security for de Leon’s loan.22 The letter states:
May 5, 1996
The Register of Deeds
City of Baguio
Sir:
This is relative to a "Promissory Note" dated June 28, 1995 x x x.
In the aforestated "Promissory Note", the undersigned appears to be a "Guarantor" and it is a condition therein that
"as security for this loan this TCT No. 47375, Registry of Baguio City, is being submitted, by way of mortgage".
However, information has been received that said registered owners, individually or collectively, have executed and
filed with your Office an "affidavit of loss" of said duplicate owner’s copy. If such information is correct, may I request
for a "certification" to said effect, and possibly, a certified true copy of such document.
xxxx
Here, Cecilia clearly stated that she "appears to be a guarantor" in the promissory note. This serves as a written
admission that Cecilia knew she was a guarantor. During the trial, Cecilia did not impugn the letter or its contents. In
fact, Cecilia submitted this letter in evidence.23 Cecilia wrote the Register of Deeds to protect her interest, hoping
that the property covered by TCT No. T-47375 could answer for de Leon’s loan and save her from personally paying
as guarantor. This explains Cecilia’s letter admitting that she appears as a guarantor in the promissory note. It is
axiomatic that the written word "guarantor" prevails over the typewritten word "witness." In case of conflict, the
written word prevails over the printed word. Section 15 of Rule 130 provides: Sec. 15. Written words control printed.
- When an instrument consists partly of written words and partly of a printed form, and the two are inconsistent, the
former controls the latter. The rationale for this rule is that the written words are the latest expression of the will of
the parties. Thus, in this case, the latest expression of Cecilia’s will is that she signed the promissory note as
1avvphi1

guarantor. We agree with the Court of Appeals that estoppel in pais arose in this case. Generally, estoppel is a
doctrine that prevents a person from adopting an inconsistent position, attitude, or action if it will result in injury to
another.24 One who, by his acts, representations or admissions, or by his own silence when he ought to speak out,
intentionally or through culpable negligence, induces another to believe certain facts to exist and such other
rightfully relies and acts on such belief, can no longer deny the existence of such fact as it will prejudice the latter.25
Cecilia’s conduct in the course of the negotiations and contract signing shows that she consented to be a guarantor
of the loan as witnessed by everyone present. Her act of "nodding her head," and at the same time even smiling,
expressed her voluntary assent to the insertion of the word "guarantor" after her signature. It is the same as saying
that she agreed to the insertion. Also, Cecilia’s acts of making the partial payment of ₱15,000 and writing the letter
to the Register of Deeds sustain the ruling that Cecilia affirmed her obligation as de Leon’s guarantor to the loan.
Thus, Cecilia is now estopped from denying that she is a guarantor.
WHEREFORE, we DENY the petition. We AFFIRM the 29 June 2001 Decision and 21 November 2001 Resolution
of the Court of Appeals in CA-G.R. CV No. 66605. SO ORDERED.

G.R. No. 137774 October 4, 2002

SPOUSES MANUEL R. HANOPOL and BEATRIZ T. HANOPOL, petitioners,
vs.
SHOEMART INCORPORATED, Represented by Executive Vice President,
SENEN T. MENDIOLA, respondent.
-----------------------------
G.R. No. 148185 October 4, 2002]
SPOUSES MANUEL R. HANOPOL and BEATRIA T. HANOPOL, petitioners,
vs.
HON. COURT OF APPEALS and SHOEMART, INC., Represented by SENEN T. MENDIOLA, respondents.
DECISION
AUSTRIA-MARTINEZ, J.:
Before us are consolidated petitions for review on certiorari filed under Rule 45 of the Rules of Court seeking to set
aside the decisions of the Court of Appeals in CA-G.R. CV Nos. 45500[1] and 56691.[2]
Shoemart, Inc., is a corporation duly organized and existing under the laws of the Philippines engaged in the
operation of department stores. On December 4, 1985, Shoemart, through its Executive Vice-President, Senen T.
Mendiola, and spouses Manuel R. Hanopol and Beatriz T. Hanopol executed a Contract of Purchase on Credit.[3]
Under the terms of the contract, Shoemart extended credit accommodations, in the amount of Three Hundred
Thousand Pesos (P300,000.00), for purchases on credit made by holders of SM Credit Card issued by spouses
Hanopol for one year, renewable yearly thereafter.[4] Spouses Hanopol were given a five percent (5%) discount on
all purchases made by their cardholders, deductible from the semi-monthly payments to be made to Shoemart by
spouses Hanopol.[5]
In consideration of the credit accommodations, spouses Hanopol executed a Deed of Real Estate Mortgage in favor
of Shoemart on their properties covered by TCT Nos. (S-60763) 15079-A and (S-60762) 15078-A, situated in Barrio
San Dionisio, Municipality of Parañaque, Province of Rizal.[6]
For failure of spouses Hanopol to pay the principal amount of One Hundred Twenty-Four Thousand Five Hundred
Seventy-One Pesos and Eighty-Nine Centavos (P124,571.89) as of October 6, 1987, Shoemart instituted
extrajudicial foreclosure proceedings against the mortgaged properties.
On March 29, 1989, to enjoin Shoemart and the Sheriff from proceeding with the scheduled foreclosure sale on April
6, 1989, spouses Hanopol instituted Civil Case No. 89-48355 for breach of contract, refund, release/cancellation of
real estate mortgage, damages with injunction before the Regional Trial Court of Manila.[7] Spouses Hanopol
alleged that Shoemart breached the contract when the latter failed to furnish the former with the requisite
documents by which the former’s liability shall be determined, namely: charge invoices, purchase booklets and
purchase journal, as provided in their contract; that without the requisite documents, spouses Hanopol had no way
of knowing that, in fact, they had already paid, even overpaid, whatever they owed to Shoemart; that despite said
breach, Shoemart even had the audacity to apply for extrajudicial foreclosure with the Sheriff.
On April 4, 1989, at the preliminary hearing for the petition for the issuance of a writ of preliminary injunction or
restraining order, spouses Hanopol and Shoemart agreed to suspend the scheduled auction sale.[8]
On April 11, 1989, Shoemart filed its Answer with Counterclaim[9] denying the material allegations of the complaint.
The trial court subsequently formed a Commission, composed of three (3) members, one representative from each
party and Atty. Raymundo G. Vallega, the Branch Clerk of Court of Branch 25, RTC Manila, as Chairman of the
Commission, for the accounting of each party’s records of account with the corresponding receipts, charge invoices
and other evidence of indebtedness or payment.[10]
The Report of the Chairman of the Commission dated January 7, 1991, reads in part:[11]
"That plaintiffs, thru their commissioner, submitted to the commission a total of 153 receipts and drawn checks.
Twelve (12) of the drawn checks were reconciled by the commission, thru defendant’s commissioner and both
parties agreed. This leaves 141 official receipts with a total of P1,895,699.20 tending to prove that plaintiffs Hanopol
had paid to Shoemart. This amount of P1,895,699.20 includes check AF/DA No. 91434, dated 9-11-87 in the amount
of P50,000.00 which seems to cover O.R. No. 167729 which plaintiffs denied. Both parties failed to reconcile this
check with O.R. No. 167729. In the event that check AF/DA No. 91434, dated 9-11-87 is covered by O.R. No.
167729, then plaintiffs’ total payment to Shoemart is only P1,845,699.20. This is evidently shown in the Summary of
Payments (Annexes "A" to "A-6") and the corresponding copies of the official receipts (Annexes "B" to "B-46" which
is also marked as Annexes "C" to "C-46" of the memorandum/manifestation filed by the plaintiffs, dated November
12, 1990).
"Defendant, despite repeated plea of the undersigned Chairman, did not present or submit any proof of
indebtedness or charge invoices for accounting purposes to support its position/claim, claiming that plaintiffs are
now barred by estoppel and laches from demanding the charge invoices covering all their transactions with
Shoemart, Inc. way back December 4, 1985 in pursuance of paragraph 6 of the contract on purchase on credit.
Defendant’s commissioner with the assistance of counsel merely submitted a statement of account (ledger
consisting of 17 pages herein marked as Annexes "C" to "C-16").
"In effect, defendant Shoemart reiterated its position/claim in its answer with counterclaim that plaintiffs have still an
outstanding obligation/indebtedness (to it) in the amount of P178,095.47 as of December 31, 1988 inclusive of
penalty charges being collected from them (No. 10 of special and affirmative defenses, page 7 of answer with
counterclaim)."
Thereafter trial on the merits ensued with plaintiffs presenting the lone testimony of Manuel Hanopol;[12] and
defendant Shoemart presenting four (4) employees of Shoemart, namely, Antoinette P. Garcia, Credit Manager;[13]
Consuelo Cadelina, Accountant Manager;[14] Atty. Epitacio B. Borcedes, Jr., Corporate Secretary;[15] and
Mercedes M. Alonzo, Credit Officer.[16]
On March 21, 1994, the Regional Trial Court of Manila (Branch 25) rendered a Decision[17] in favor of spouses
Hanopol, ordering Shoemart, as represented to by its Executive Vice-President, Senen T. Mendiola, to effect the
cancellation of the real estate mortgage executed by spouses Hanopol in favor of Shoemart and refund the amount
of Three Hundred Twenty-One Thousand Eight Hundred One Pesos and Two Centavos (P321,801.02) which
represents overpayment, with interest at the legal rate from the time when the complaint was instituted on March 29,
1989 until full payment thereof. In addition, Shoemart was ordered to pay moral and exemplary damages in the
amount of Thirty Thousand Pesos (P30,000.00), attorney’s fees in the amount of Twenty Thousand Pesos
(P20,000.00), and the actual costs and expenses of the suit.
Shoemart appealed the decision to the Court of Appeals which is docketed as CA-G.R. CV No. 45500. In a
Decision[18] dated November 27, 1996, the appellate court reversed and set aside the lower court’s decision and, in
its stead, the real estate mortgage was reinstated and spouses Hanopol were ordered to pay Ten Thousand Pesos
(P10,000.00) as attorney’s fees.
Spouses Hanopol sought reconsideration of the decision. Pending its resolution, Shoemart, on January 31, 1997,
filed a petition for extrajudicial foreclosure of mortgage over the same properties with the office of Ex-Officio Sheriff
of Parañaque. A foreclosure sale was set on March 4, 1997 at 10:00 a.m.
To enjoin the scheduled foreclosure, spouses Hanopol filed a petition for injunction with temporary restraining order
and damages, docketed as Civil Case No. 97-059 in the Regional Trial Court of Parañaque (Branch 260).[19]
Shoemart sought the dismissal of the same on grounds of litis pendentia and forum shopping.[20] The RTC of
Parañaque issued a temporary restraining order enjoining the scheduled foreclosure sale.[21] Subsequently,
however, in an Order[22] dated September 29, 1997, the RTC of Parañaque granted Shoemart’s motion to dismiss.
Spouses Hanopol appealed to the Court the Appeals which is docketed as CA-G.R. CV 56691.
On May 21, 1998, the Court of Appeals rendered an Amended Decision[23] in CA-G.R. CV No. 45500. It
reconsidered its Decision dated November 27, 1996 and affirmed with modification the judgment of the trial court,
setting the amount to be refunded or returned to spouses Hanopol at Seventy Thousand Seven Hundred Forty-
Three Pesos (P70,743.00). On June 15, 1998, Shoemart filed a motion for reconsideration of the said Amended
Decision.
On January 4, 1999, the Court of Appeals reconsidered its Amended Decision of May 21, 1998 and reinstated its
Decision of November 27, 1996.[24] Spouses Hanopol sought reconsideration of said Resolution but the appellate
court denied the same in its Resolution dated March 9, 1999. Hence, the petition for review on certiorari subject of
G.R. No. 137774.
On December 29, 2000, the Court of Appeals rendered a Decision in CA-G.R. SP No. 56691, sustaining the Order
of the RTC of Parañaque which dismissed Civil Case No. 97-059 on the grounds of litis pendentia and forum-
shopping.[25] Spouses Hanopol sought reconsideration[26] but the appellate court in its Resolution dated May 23,
2001 denied the same.[27] Hence, the petition subject of G.R. No. 148185.
Upon motion of spouses Hanopol,[28] G.R. Nos. 137774 and 148185 were consolidated.[29]
In G.R. No. 137774, petitioners spouses Hanopol question the factual findings and conclusions of law of the Court
of Appeals contending that: the appellate court made a serious misapprehension of facts; such findings are even
conflicting and contrary to the findings of the trial court; the findings of credibility of a witness by the trial court cannot
be overturned by the appellate court; the appellate court gravely erred when it did not consider the doctrine of
estoppel against Shoemart on the report of the commission on accounting, referred to by adversarial counsel "as
the best evidence"; and the appellate court misappreciated the evidentiary weight of the unsupported open-ended,
forged so-called "ledger" which cannot overcome the validity and admissibility of primary evidence "composed of
detailed statement of account and the official receipts of payment both issued by Shoemart and Sps. Hanopol".
In petitions for review, the jurisdiction of this Court in cases brought before it from the Court of Appeals 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.[30] The Supreme Court is not a trier of facts; it is not our function to analyze or weigh
evidence all over again. Accordingly, findings of fact of the appellate court are generally conclusive on the Supreme
Court.
However, this rule is not without exceptions, to wit: (1) when the conclusion is a finding grounded entirely on
speculations, 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 finding of fact are conflicting; (6) when the Court of Appeals, in making its findings, went beyond the issues
of the case and the same is contrary to the admissions of both appellant and appellee; (7) when the findings of the
Court of Appeals are contrary to those of the trial court; (8) when the findings of fact are conclusions without citation
of specific evidence on which they are based; (9) when the Court of Appeals manifestly overlooked certain relevant
facts not disputed by the parties, which, if properly considered, would justify a different conclusion; and (10) when
the findings of facts of the Court of Appeals are premised on the absence of evidence and are contradicted by the
evidence on record.[31]
Petitioners submit that their case fall within the exceptions. A thorough dissection of the records, the transcripts of
stenographic notes and the evidence adduced by each party leads us to the conclusion the extant evidence could
not support a solid conclusion that there was overpayment to Shoemart by spouses Hanopol. Thus, we find that
there is no reason to reverse the factual findings and conclusions of law of the appellate court.
In civil cases, the burden of proof to be established by preponderance of evidence is on the plaintiff who is the party
asserting the affirmative of an issue. He has the burden of presenting evidence required to obtain a favorable
judgment, and he, having the burden of proof, will be defeated if no evidence were given on either side.[32]
Petitioners claim overpayment to Shoemart. As such, they had the burden of proof. The following communications
between the parties reveal a different picture of what actually transpired between them:
(a) Letter dated February 13, 1987 from Cesar S. Valdez, Credit Collection Manager, informing Beatriz
Hanopol that the ten (10) checks she issued were returned unpaid for insufficient funds and advising her to
make payments via Manager’s Check to improve her payment record;[33]
 (b) Letter dated March 23, 1987 from Antoinette P. Garcia informing Beatriz Hanopol that her checks were
returned twice for insufficiency of funds and that she should make her payment via Manager’s Check;[34]
(c) Letter dated May 30, 1987 from Antoinette P. Garcia informing Beatriz Hanopol of the approval of her
repayment plan in connection with her past due accounts, and likewise informing her of the terms and
conditions thereof;[35]
(d) Letter dated September 4, 1987 from Antoinette P. Garcia advising Beatriz Hanopol of her failure to
comply with the terms and conditions of her repayment plan and demanding that she update her accounts
with Shoemart;[36]
(e) Letter dated December 4, 1987, confirming Manuel Hanopol’s commitment to submit to Shoemart a final
payment proposal for his total past due obligations as of December 2, 1987.[37]
(f) Letter dated December 9, 1987 addressed to Cesar Valdez from Atty. Jose Torregoza, counsel for Manuel
Hanopol, advising Shoemart that they will avail of the Banco de Oro (BDO) loan to pay their accountabilities
instead of the repayment plan earlier proposed;[38]
(g) Memorandum dated December 14, 1987 from Antoinette Garcia addressed to BDO Manager Tessie Sy
Coson seeking the approval of the BDO loan to be secured by Beatriz Hanopol to enable her to pay her
principal obligation with Shoemart;[39]
(h) Letter dated February 2, 1988 addressed to Cesar Valdez from Elisa O. Go, Manager of Retail Banking
Unit-Account Management Group, and Violeta V. Luym, Senior Vice-President of Marketing of Banco de
Oro, informing Mr. Valdez that the executive committee of BDO has approved the proposed loan in favor of
the spouses Hanopol;[40]
(i) Letter dated February 15, 1988 addressed to Wilhelmina Guico, Account Manager of Shoemart, from
Manuel Hanopol requesting for copies of detailed products and items purchased by their credit cardholders
in preparation for the signing of their loan with Banco de Oro;[41]
(j) Letter dated February 29, 1988 addressed to Beatriz Hanopol from Cesar Valdez formalizing the
agreement to provide the spouses Hanopol with copies of all charge invoices covering their principal
indebtedness subject to the conditions that the invoices shall be released only after six (6) to twelve (12)
months from the date of the letter and that spouses will shoulder the cost of retrieving the said invoices,
inasmuch as the documents have long been stored in the warehouses together with the invoices of other
cardholders/principals and the sorting process would require additional personnel;[42]
(k) Letter dated March 9, 1988 addressed to Cesar Valdez from Manuel Hanopol stating that he is not
denying his responsibility with Shoemart, and explaining that he is requesting for copies of charge invoices
of items purchased by his cardholders for the purpose of filing a legal action against his delinquent
cardholders;[43]
(l) Letter dated March 25, 1988 addressed to Manuel Hanopol from Cesar Valdez explaining the discrepancy
in the billings to the spouses Hanopol and informing him of the cost that will be incurred in retrieving the
charge invoices which he requested;[44]
(m) Letter dated June 10, 1988 addressed to Atty. Borcelis from Manuel Hanopol stating that he needed the
charge invoices for the purpose of filing legal action against his delinquent cardholders;[45]
(n) Letter dated June 30, 1988 addressed to Atty. Borcelis from Alipio Abrenica, counsel for the spouses
Hanopol, stating that he needed the charge invoices requested to enable him to know how much worth of
goods his cardholders purchased;[46]
(o) Letter dated October 19, 1988 addressed to Manuel Hanopol from Cesar Valdez asking the former to
acknowledge receipt of all the SM charge invoices which were retrieved pursuant to his request covering the
period from March 15, 1987 up to October 6, 1987;[47]
(p) Letter dated January 21, 1989 addressed to Atty. Borcelis from Atty. Yadao, counsel for the spouses
Hanopol, informing Shoemart that they are interested in settling the account, except that the spouses
Hanopol are out of town.;[48]
(q) Letter dated February 16, 1989 addressed to Atty. Borcelis from Atty. Yadao requesting for more records
to support of the total purchases of Mr. Hanopol’s cardholders, this time, from December 4, 1985, when the
spouses Hanopol became a guarantor of Shoemart, up to January 15, 1988;[49]
(r) Letter dated March 20, 1989 addressed to Atty. Borcelis from Atty. Yadao stating that they did not receive
additional records of all purchases made by all their cardholders and demanding that the excess payments
made by Mr. Hanopol be reimbursed, and demanding further, that all his collaterals be released."[50]
What is clear from the extant evidence is that in the year 1987 and early part of 1988, it was petitioner Beatriz T.
Hanopol who was the party dealing with Shoemart. She was the one who applied as guarantor for credit
cardholders with Shoemart,[51] received the documents relative to the account[52] and dealt with the payments of
the account.[53] Verily, petitioner Beatriz T. Hanopol was the party most knowledgeable with the credit transactions
of her cardholders and her obligations with Shoemart. Surprisingly, she was never presented as a witness to shed
light into her transactions with Shoemart to bolster petitioners’ claim against the latter.
Petitioner Manuel R. Hanopol, who was the only witness presented by petitioners, appears to have become involved
personally only after the spouses already had problems settling their obligations. In a letter dated December 4, 1987
addressed to Manuel R. Hanopol, Antoinette P. Garcia, then Assistant Credit Manager of Shoemart, had confirmed
the commitment of the former to submit a final payment proposal for total past due obligations.[54] Prior thereto, all
communications were addressed solely to petitioner Beatriz T. Hanopol. When petitioner Manuel R. Hanopol started
communicating with Shoemart, the latter never dealt with petitioner Beatriz T. Hanopol nor was anything heard from
her again.
Furthermore, as to the allegation of the petitioners that Shoemart breached the contract when the latter failed to
furnish them with the requisite documents by which their liability may be determined, namely: charge invoices,
purchase booklets and purchase journal, as provided in their contract -- We have thoroughly perused the contract
between the parties and found that nowhere is it stated therein that Shoemart is obliged to provide spouses Hanopol
with charge invoices and purchase booklets. The contract simply provides for a provision relative to the Statement of
Account, which reads:
"STATEMENT OF ACCOUNT. – A periodic statement of account due from the PRINCIPAL shall be prepared by
SHOEMART which indicates the total amounts due from the PRINCIPAL.
"The PRINCIPAL, or his authorized representative, shall pick up the purchase journal of all purchases made from
the 1st to the 15th day of the month on or before the 25th day of the same month, and for purchases made from the
16th to the last day of the month on or before the 10th day of the succeeding month from the office of SHOEMART
at 400 C. Palanca Sr. Street, San Miguel, Manila, or at such other place that may later be designated by
SHOEMART.
"Unless written exception is made by the PRINCIPAL on the correctness of the Statement of Account within three (3)
days from receipt thereof, the correctness of the Statement of Account shall be considered conclusive against the
principal".[55]
It is clear from the foregoing provision that spouses Hanopol had three (3) days to question the correctness of the
Statement of Account and their failure to do so would render the Statement conclusive.
Likewise, a Memorandum dated October 30, 1984 advised all principals, such as petitioners, that if their cardholders
should have any question about a particular charge invoice, the principal should advise Shoemart within three (3)
months after the date of their transaction, otherwise, their queries may not be satisfied because all invoices will be
stored only for three (3) months after which they shall be disposed of permanently.
Petitioners failed to explain their failure to question or take action regarding any discrepancies in the Statement of
Account they received, doing so only when they had difficulty settling their account with Shoemart. They never
raised their claim of overpayment throughout the entire duration of the contract.
In fact, in a letter dated March 9, 1988, petitioner Manuel R. Hanopol declared that they are not denying their liability
as guarantor but merely requesting charge invoices for legal action they will take against delinquent cardholders.[56]
In subsequent letters, petitioners spouses Hanopol reiterated the purpose of their request for the charge
invoices[57] and that they intend to settle their account with Shoemart.[58] Only when informed in the letter dated
March 20, 1989[59] of the impossibility of retrieving the charge invoices from December 4, 1985 up to January 15,
1988 (which petitioners had requested in a letter dated February 16, 1989[60]) did petitioners first bring up the issue
of overpayment. From the foregoing sequence of events, it can be fairly inferred that it was only then that petitioner
Manuel R. Hanopol was emboldened to claim overpayment since Shoemart had no documents to refute the
former’s claim.[61]
By their silence and inaction, petitioners are deemed to have admitted the correctness of the Statement of Account
of Shoemart. They are estopped from questioning the veracity of the same and claim overpayment. Shoemart has in
its favor the presumption that acquiescence resulted from a belief that the thing acquiesced in was conformable to
the law or fact.[62]
Petitioners should not, after the opportunity to enjoy the benefits of the contract with Shoemart, be allowed to later
disown the arrangement with belated allegations of overpayment when the terms thereof ultimately would prove to
operate against their hopeful expectations.
The principle of estoppel in pais applies wherein when one, by his acts, representations or admissions, or by his
own silence when he ought to speak out, intentionally or through culpable negligence, induces another to believe
certain facts to exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former
is permitted to deny the existence of such facts.[63]
Contrary to the claim of petitioners, the doctrine of estoppel cannot be applied to Shoemart with respect to the
Report of the Chairman of the Commission on the accounting aspect which its own counsel considered "as the best
evidence." Such statement was taken out of context. The respondents’ counsel merely submitted that the Report of
the Commission should be read as it is. Indeed, such declaration must be interpreted together with the contents of
the Report itself. The Report simply states the details of the hearing conducted by the Commission and its failure to
reach a conclusion on the accounting aspect of the case.[64]
All the foregoing considered, we need not delve further on the proposition of petitioners that the "unsupported open-
ended, forged so-called ’ledger’" cannot overcome the validity and admissibility of their primary evidence "composed
of detailed statement of account and the official receipts of payment both issued by them and Shoemart.
As the burden of proof fell upon them, petitioners must rely upon the strength of their own evidence and not upon
the weakness of Shoemart’s defense.
Ultimately, spouses Hanopol failed to rebut two (2) presumptions Shoemart had in its favor, to wit: (a) that private
transactions have been fair and regular, and, (b) that the ordinary course of business had been followed.[65] We
opine and so hold that the claim of overpayment was voiced out more as an afterthought, with no purpose other
than to thwart Shoemart’s claim against them for payment of their outstanding account and to forestall the
extrajudicial foreclosure of the real estate mortgage.
We come now to the matters raised in G.R. No. 148185. Petitioners take exception from the decision of the Court of
Appeals sustaining the Order dated September 29, 1997 of the RTC of Parañaque to dismiss the complaint for
injunction with damages on the grounds of litis pendentia and forum-shopping, ascribing to the appellate court bias
and prejudiced attitude and grave abuse of discretion amounting to lack or excess of jurisdiction. They contend that
Shoemart acted with manifest bad faith in pursuing with the foreclosure and auction sale of the property of spouses
Hanopol, and, accordingly, should be held liable for damages.
We are not convinced. We find no reversible error in the decision of the Court of Appeals in CA-G.R. CV 56691
sustaining the Order dated September 29, 1997 of the Regional Trial Court of Parañaque which dismissed Civil
Case No. 97-059 on the ground of litis pendentia and forum shopping.
All the three (3) elements for litis pendentia as a ground for dismissal of an action are present, namely: (a) identity of
parties, or at least such parties who represent the same interest in both actions; (b) identity of rights asserted and
relief prayed for, the relief being founded on the same facts; and (c) the identity, with respect to the two (2)
preceding particulars in the two (2) cases, in such that any judgment that may be rendered in the pending case,
regardless of which party is successful, would amount to res judicata in the other.[66]
In the case at bench, the parties are the same; the relief sought in the case before the Court of Appeals and the trial
court are the same, that is, to permanently enjoin the foreclosure of the real estate mortgage executed by spouses
Hanopol in favor of Shoemart; and, both are premised on the same facts. The judgment of the Court of Appeals
would constitute a bar to the suit before the trial court.
It has been held that where a litigant sues the same party against whom the same action, or actions, for the alleged
violation of the same right, and the enforcement of the same relief is/are still pending, the defense of litis pendentia
in one case is a bar to the other, and a final judgment in one would constitute res judicata and thus, would cause the
dismissal of the rest.[67] Spouses Hanopol may not simply ignore a prior action and bring a second, independent
action on the same set of facts while the original action is pending.
Inasmuch as the elements of litis pendentia are present, forum shopping exists. Forum shopping is the institution of
two (2) or more actions or proceedings on the same cause on the supposition that either one or the other court
would make a favorable disposition.[68] A party is not permitted to pursue simultaneous remedies in two (2) different
courts. This is a practice which ridicules the judicial process, plays havoc with the rules on orderly procedure, and is
vexatious and unfair to the other parties to the case. [69]
Considering that spouses Hanopol had a pending motion for reconsideration before the Court of Appeals in CA-G.R.
CV No. 45500 relating to the foreclosure proceedings of the real estate mortgage executed by the spouses Hanopol
in favor of Shoemart, said spouses Hanopol should have raised the issue of Shoemart’s alleged manifest bad faith
in pursuing with the foreclosure sale and directed their motion for an injunctive order in the appellate court which still
had jurisdiction over the case and the subject matter thereof.
Lastly, the allegation of bias and prejudiced attitude on the part of the appellate court is bereft of proof. Partiality and
bad faith cannot be presumed but must be proved by clear and convincing evidence.[70] Thus, the appellate court is
presumed to have acted regularly and with impartiality.
In sum, we find that the Court of Appeals committed no reversible error in issuing the Decisions in CA-G.R. CV Nos.
45500 and 56691.
WHEREFORE, the consolidated petitions are hereby DENIED. The assailed Decisions of the Court of Appeals in
CA-G.R. CV Nos. 45500 and 56691 are AFFIRMED. No pronouncement as to costs.
SO ORDERED.

G.R. No. 177526 July 3, 2008

PHILIPPINE SAVINGS BANK, petitioner,
vs.
CHOWKING FOOD CORPORATION, respondent.
DECISION
REYES, R.T., J.:
IT is the peculiar quality of a fool to perceive the fault of others and to forget his own. Ang isang kakatuwang
katangian ng isang hangal ay punahin ang kamalian ng iba at kalimutan naman ang sa kanya.
This is a petition for review on certiorari of the Decision1 of the Court of Appeals (CA) reinstating the Decision of the
Regional Trial Court (RTC), Manila, Branch 5. The RTC ordered petitioner Philippine Savings Bank (PSBank) and its
Bustos Branch Head, Erlinda O. Santos, to reimburse respondent Chowking Food Corporation (Chowking) the
amount corresponding to five (5) illegally encashed checks.
The Facts
Between March 15, 1989 and August 10, 1989, Joe Kuan Food Corporation issued in favor of Chowking five (5)
PSBank checks with the following numbers, dates and denominations:

Check No. Amount Date

017069 P 44,120.00 15 March 1989

053528 P135,052.87 09 May 1989

074602 P160,138.12 08 August 1989

074631 P159,634.13 08 August 1989

017096 P 60,036.74 10 August 19892

The total amount of the subject checks reached P556,981.86.

On the respective due dates of each check, Chowking's acting accounting manager, Rino T. Manzano, endorsed
and encashed said checks with the Bustos branch of respondent PSBank.3
All the five checks were honored by defendant Santos, even with only the endorsement of Manzano approving
them. The signatures of the other authorized officers of respondent corporation were absent in the five (5) checks,
contrary to usual banking practice.4 Unexpectedly, Manzano absconded with and misappropriated the check
proceeds.5
When Chowking found out Manzano's scheme, it demanded reimbursement from PSBank.6 When PSBank refused
to pay, Chowking filed a complaint7 for a sum of money with damages before the RTC. Likewise impleaded were
PSBank's president, Antonio S. Abacan, and Bustos branch head, Santos.8
Both PSBank and Santos filed cross claims and third party complaints against Manzano.9 Despite all diligent efforts,
summonses were not served upon third party defendant Manzano. Santos did not take any further action and her
third party complaint was archived.10
Meanwhile, petitioner caused the service of its summons on the cross-claim and third party complaints through
publication. On its subsequent motion, Manzano was declared in default for failure to file a responsive pleading.11
Respondent filed a motion for summary judgment. Petitioner opposed the motion. On February 1, 1995, the trial
court denied the motion via an order of even date.12
In its Answer, petitioner did not controvert the foregoing facts, but denied liability to respondent for the encashed
checks.13 Petitioner bank maintained it exercised due diligence in the supervision of all its employees. It even
dismissed defendant Santos after she was found guilty of negligence in the performance of her duties.14
Defendant Santos, on the other hand, denied that she had been negligent in her job. She averred that she merely
followed the bank's practice of honoring respondent's checks even if accompanied only by Manzano's
endorsement.15
Defendant Abacan likewise denied any liability to respondent. He alleged that, as president and officer of petitioner
bank, he played no role in the transactions complained of.16 Thus, respondent has no cause of action against him.
Petitioner, Santos and Abacan were unanimous in asserting that respondent is estopped from claiming
reimbursement and damages since it was negligent in allowing Manzano to take hold, endorse, and encash its
checks. Petitioner pointed out that the proximate cause of respondent's loss was its own negligence.17
RTC Disposition
On August 24, 1998, the RTC rendered judgment in favor of respondent, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff and as against
defendant Philippine Savings Bank and Erlinda O. Santos ordering the said defendants to pay plaintiff,
jointly and severally:
1. The amount of P556,981.86 plus interest at the rate of 12% per annum from August 15, 1989 until said
amount shall have been paid;
2. 20% of the total amount due plaintiff as attorney's fees;
3. The sum of P100,000.00 as exemplary damages;
4. The sum of P1,000,000.00 for plaintiff's unrealized profits.
 The complaint with respect to defendant Antonio Abacan, Jr. as well as his counterclaim and cross claim are
hereby DISMISSED.
With respect to the cross claim of defendant PSBank against Erlinda Santos and its third-party complaint
against Rino T. Manzano, both Santos and Manzano are hereby ordered to jointly and severally, reimburse
defendant PSBank whatever amount the latter shall be constrained to pay plaintiff in connection with this
case.
SO ORDERED.18
Aggrieved, petitioner filed a motion for reconsideration. Through an Order dated January 11, 1999, the RTC
reversed its earlier ruling and held that it was respondent's own negligence that was the proximate cause of the
loss. The fallo of the amended RTC decision now reads:
In light of the foregoing grounds and observations, the Decision of August 24, 1998, by this Court is
accordingly modified as follows:
1. Ordering the dismissal of the complaint by the plaintiff Chowking Food Corporation against the
defendants, Philippine Savings Bank (PSBank) and Erlinda Santos for lack of basis in fact and law;
2. Ordering the third party defendant, Regino or Rino T. Manzano to pay the plaintiff Chowking Food
Corporation, the following:
a. To reimburse the plaintiff the amount of P556,981.86 plus interest at the rate of 12% per annum
from August 15, 1989, until said amount has been fully satisfied;
b. To pay an attorney's fee equivalent to 20% of the total amount due the plaintiff;
c. To pay an amount of P100,000.00 the plaintiff for actual and compensatory damages, plus the
costs of this suit.
SO ORDERED.19
Dissatisfied with the modified ruling of the RTC, respondent appealed to the CA.
CA Disposition
In its appeal, respondent Chowking contended, inter alia, that the RTC erred in ruling that the proximate cause of
the loss was its own negligence; and that its claim was barred by estoppel.
On January 31, 2007, the CA granted the appeal, disposing as follows:
WHEREFORE, the instant appeal is GRANTED. The order appealed from is hereby SET ASIDE and the 24
August 1998 decision is consequently REINSTATED with modification that the awards of attorney's fees,
exemplary damages, and alleged P1,000,000.00 unrealized profits of the appellant are DELETED.
IT IS SO ORDERED.20
The CA held that both petitioner PSBank and Santos should bear the loss. Said the appellate court:
It is admitted that PSB cashed, over the counter, the checks of the appellant indorsed by Manzano alone.
Since there is no more dispute on the negligent act of Santos in honoring the appellant's checks, over the
counter, despite the proper indorsements, the categorical finding of negligence against her, remaining
unrebutted, is deemed established. This in effect warrants a finding that Santos is liable for damages to the
appellant. The lower court therefore erred in dismissing the complaint against her.21
Further, the CA held that:
Contrary to PSB's contention that it should not be held liable because it neither consented to nor had
knowledge of Santos' (sic) violations, such liability of Santos is solidary with PSB pursuant to Article 2176 in
relation to Article 2180 of the Civil Code which states:
"Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence,
is obliged to pay for the damage done....
Art. 2180. The obligation imposed by Art. 2176 is demandable not only for one's own acts or
omissions but also for those of persons for whom one is responsible.
xxxx
Employers shall be liable for the damage caused by their employees and household helpers acting
within the scope of their assigned tasks even though the former are not engaged in any business or
activity.
xxxx
The responsibility treated of in this article shall cease when the persons herein mentioned prove that
they observed all the diligence of a good father of a family to prevent damage."
x x x However, with banks like PSB, the degree of diligence required is more than that of a good father of a
family considering that the business of banking is imbued with public interest due to the nature of its
functions. Highest degree of diligence is needed which PSB, in this case, failed to observe.
x x x Its argument that it should no be held responsible for the negligent acts of Santos because those were
independent acts x x x perpetrated without its knowledge and consent is without basis in fact and in law.
 Assuming that PSB did not err in hiring Santos for her position, its lack of supervision over her made it
solidarily liable for the unauthorized encashment of the checks involved. In the supervision of employees,
the employer must formulate standard operating procedures, monitor their implementation and impose
disciplinary measures for the breach thereof. The appellee, in this case, presented no evidence that it
formulated rules/guidelines for the proper performance of functions of its employees and that it strictly
implemented and monitored compliance therewith. x x x22
The CA also disagreed with petitioner's contention that respondent's own negligence was the proximate cause of its
loss. The CA opined that even assuming that respondent was also negligent in allowing Manzano to encash its
checks, petitioner had the last clear chance to avert injury and loss to respondent. This could have been done if
petitioner, through Santos, faithfully and carefully observed its encashment rules and procedures.
The CA ratiocinated:
x x x Had Santos not been remiss in verifying the indorsements of the checks involved, she would not have
cashed the same because Manzano, whose only signature appears therein, is apparently not an authorized
signatory of the appellant x x x had every means to determine the validity of those indorsements but for one
reason or another she was neglectful of her duty x x x as admitted by PSB, such over the counter
encashments are not even sanctioned by its policies but Santos simply ignored the same. It appears clear
that Santos let the opportunity slip by when an exercise of ordinary prudence expected of bank employees
would have sufficed to prevent the loss.23
Issues
Petitioner has resorted to the present recourse and assigns to the CA the following errors:
I
THE HONORABLE COURT OF APPEALS ERRED IN NOT RULING THAT RESPONDENT WAS
ESTOPPED FROM ASSERTING ITS CLAIM AGAINST PETITIONER.
II
THE HONORABLE COURT OF APPEALS ERRED WHEN IT DID NOT RULE THAT RESPONDENT'S
NEGLIGENCE WAS THE PROXIMATE CAUSE OF ITS OWN LOSS. (Underscoring supplied)
Our Ruling
The doctrine of equitable estoppel or estoppel in pais finds no application in the present case. The equitable
doctrine of estoppel was explained by this Court in Caltex (Philippines), Inc. v. Court of Appeals:24
Under the doctrine of estoppel, an admission or representation is rendered conclusive upon the person
making it, and cannot be denied or disproved as against the person relying thereon. A party may not go back
on his own acts and representations to the prejudice of the other party who relied upon them. In the law of
evidence, whenever a party has, by his own declaration, act, or omission, intentionally and deliberately led
another to believe a particular thing true, to act upon such belief, he cannot, in any litigation arising out of
such declaration, act, or omission, be permitted to falsify it.25
The principle received further elaboration in Maneclang v. Baun:26
In estoppel by pais, as related to the party sought to be estopped, it is necessary that there be a
concurrence of the following requisites: (a) conduct amounting to false representation or concealment of
material facts or at least calculated to convey the impression that the facts are otherwise than, and
inconsistent with, those which the party subsequently attempts to assert; (b) intent, or at least expectation
that this conduct shall be acted upon, or at least influenced by the other party; and (c) knowledge, actual or
constructive of the actual facts.27
Estoppel may vary somewhat in definition, but all authorities agree that a party invoking the doctrine must have
been misled to one's prejudice. That is the final and, in reality, most important of the elements of equitable
estoppel.28 It is this element that is lacking here.
We agree with the CA that Chowking did not make any false representation or concealment of material facts in
relation to the encashments of the previous checks. As adverted to earlier, respondent may have allowed Manzano
to previously encash its checks, but it has always been accompanied with the endorsements of the other authorized
signatories. Respondent did not allow petitioner to have its checks encashed without the signature of all of its
authorized signatories.
The CA pointed out:
We find at the back of those checks, whereon indorsement usually appears, the signature of
Manzano together with other signature/signatures though mostly are illegible. It appears then that, assuming
the appellant impliedly tolerated the act of Manzano in indorsing the checks, it did not allow Manzano
"alone" to indorse its checks as what actually happened in this case because his previous indorsements
were coupled with other indorsements of the appellant's signatories. There is, therefore, no sufficient
evidence to sustain PSB's submission. On this score alone, the defense of estoppel must
fail.29 (Underscoring and emphasis supplied)
Neither can estoppel be appreciated in relation to petitioner itself. In Kalalo v. Luz,30 the Court enumerated the
elements of estoppel in this wise:
 x x x As related to the party claiming the estoppel, the essential elements are (1) lack of knowledge and of
the means of knowledge of the truth as the facts in question; (2) reliance, in good faith, upon the conduct
and statements of the party to be estopped; (3) action or inaction based thereon of such character as to
change the position or status of the party claiming the estoppel, to his injury, detriment or prejudice.31
Here, the first two elements are wanting. Petitioner has knowledge of the truth and the means to it as to the proper
endorsements necessary in encashing respondent's checks. Respondent has an account with petitioner bank and,
as such, is privy to the proper signatories to endorse respondent's checks.
Neither can petitioner claim good faith.
It is elementary that estoppel cannot be sustained in doubtful inference. Absent the conclusive proof that its
essential elements are present, estoppel must fail. Because estoppel, when misapplied, becomes a most effective
weapon to accomplish an injustice, inasmuch as it shuts a man's mouth from speaking the truth.32
Petitioner failed to prove that it has observed the due diligence required of banks under the law. Contrary to
petitioner's view, its negligence is the proximate cause of respondent's loss.
It cannot be over emphasized that the banking business is impressed with public interest. Of paramount importance
1avvphi1

is the trust and confidence of the public in general in the banking industry. Consequently, the diligence required of
banks is more than that of a Roman pater familias or a good father of a family.33 The highest degree of diligence is
expected.34
In its declaration of policy, the General Banking Law of 200035 requires of banks the highest standards of integrity
and performance. Needless to say, a bank is "under obligation to treat the accounts of its depositors with meticulous
care."36 The fiduciary nature of the relationship between the bank and the depositors must always be of paramount
concern.37
Petitioner, through Santos, was clearly negligent when it honored respondent's checks with the lone endorsement of
Manzano. In the similar case of Philippine Bank of Commerce v. Court of Appeals,38 an employee of Rommel's
Marketing Corporation (RMC) was able to illegally deposit in a different account the checks of the corporation. This
Court found that it was the bank teller's failure to exercise extraordinary diligence to validate the deposit slips that
caused the crime to be perpetrated.
The Court held thus:
Negligence here lies not only on the part of Ms. Mabayad but also on the part of the bank itself in its
lackadaisical selection and supervision of Ms. Mabayad. This was exemplified in the testimony of Mr. Romeo
Bonifacio, then Manager of the Pasig Branch of the petitioner bank and now its Vice-President, to the effect
that, while he ordered the investigation of the incident, he never came to know that blank deposit slips were
validated in total disregard of the bank's validation procedures, viz.:
Q: Did he ever tell you that one of your cashiers affixed the stamp mark of the bank on the deposit
slips and they validated the same with the machine, the fact that those deposit slips were unfilled up,
is there any report similar to that?
A: No, it was not the cashier but the teller.
Q: The teller validated the blank deposit slip?
A: No it was not reported.
Q: You did not know that any one in the bank tellers or cashiers validated the blank deposit slip?
A: I am not aware of that.
Q: It is only now that you are aware of that?
A: Yes, Sir.
xxxx
It was this negligence x x x coupled by the negligence of the petitioner bank in the selection and supervision
of its bank teller, which was the proximate cause of the loss suffered by private respondent, and not the
latter's act of entrusting cash to a dishonest employee, as insisted by the petitioners.39
Proximate cause is determined by the facts of the case. It is that cause which, in natural and continuous sequence,
unbroken by any efficient intervening cause, produces the injury, and without which the result would not have
occurred.40
Measured by the foregoing yardstick, the proximate cause of the loss is not respondent's alleged negligence in
allowing Manzano to take hold and encash respondent's checks. The proximate cause is petitioner's own
negligence in the supervision of its employees when it overlooked the irregular practice of encashing checks even
without the requisite endorsements.
In Bank of the Philippine Islands v. Casa Montessori Internationale,41 this Court similarly held:
For allowing payment on the checks to a wrongful and fictitious payee, BPI - the drawee bank - becomes
liable to its depositor-drawer. Since the encashing bank is one of its branches, BPI can easily go after it and
hold it liable for reimbursement. x x x In both law and equity, when one of two innocent persons "must suffer
by the wrongful act of a third person, the loss must be borne by the one whose negligence was the
proximate cause of the loss or who put it into the power of the third person to perpetrate the wrong."42
Further, the Court ruled:
Pursuant to its prime duty to ascertain well the genuineness of the signatures of its client-depositors on
checks being encashed, BPI is "expected to use reasonable business prudence." In the performance of that
obligation, it is bound by its internal banking rules and regulations that form part of the contract it enters into
with its depositors.
Unfortunately, it failed in that regard. x x x Without exercising the required prudence on its part, BPI
accepted and encashed the eight checks presented to it. As a result, it proximately contributed to the
fraud and should be held primarily liable for the "negligence of its officers or agents when acting
within the course and scope of their employment." It must bear the loss.43
WHEREFORE, the petition is DENIED for lack of merit.
SO ORDERED.

G.R. No. 156038 October 11, 2010

SPOUSES VICTORIANO CHUNG and DEBBIE CHUNG, Petitioners,
vs.
ULANDAY CONSTRUCTION, INC.,* Respondent.
DECISION
BRION, J.:
We resolve the petition for review on certiorari1 filed by petitioners Spouses Victoriano Chung and Debbie Chung
(petitioners) to challenge the decision2 and resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 61583.4
FACTUAL BACKGROUND
The facts of the case, gathered from the records, are briefly summarized below.
In February 1985, the petitioners contracted with respondent Ulanday Construction, Inc. (respondent) to construct,
within a 150-day period,5 the concrete structural shell of the former’s two-storey residential house in Urdaneta
Village, Makati City at the contract price of ₱3,291,142.00.6
The Contract7 provided that: (a) the respondent shall supply all the necessary materials, labor, and equipment
indispensable for the completion of the project, except for work to be done by other contractors; 8 (b) the petitioners
shall pay a ₱987,342.609 downpayment, with the balance to be paid in progress payments based on actual work
completed;10 (c) the Construction Manager or Architect shall check the respondent’s request for progress payment
and endorse it to the petitioners for payment within 3 days from receipt; 11 (d) the petitioners shall pay the
respondents within 7 days from receipt of the Construction Manager’s or Architect’s certificate; (e) the respondent
cannot change or alter the plans, specifications, and works without the petitioners’ prior written approval; 12 (f) a
penalty equal to 0.01% of the contract amount shall be imposed for each day of delay in completion, but the
respondent shall be granted proportionate time extension for delays caused by the petitioners; 13 (g) the respondent
shall correct, at its expense, defects appearing during the 12-month warranty period after the petitioners’ issuance of
final acceptance of work.14
Subsequently, the parties agreed to exclude from the contract the roofing and flushing work, for
₱321,338.00,15 reducing the contract price to ₱2,969,804.00. On March 17, 1995, the petitioners paid the
₱987,342.60 downpayment,16 with the balance of ₱1,982,461.40 to be paid based on the progress billings. While the
building permit was issued on April 10, 1995,17 actual construction started on March 7, 1995.18
As the actual construction went on, the respondent submitted 12 progress billings.19 While the petitioners settled the
first 7 progress billings, amounting to ₱1,270,641.59,20 payment was made beyond the seven (7)-day period
provided in the contract. The petitioner subsequently granted the respondent a ₱100,000.00 cash advance,21 leaving
the unpaid progress billings at ₱445,922.13.22
During the construction, the respondent also effected 19 change orders
without the petitioners’ prior written approval, amounting to ₱912,885.91.23 The petitioners, however, paid
₱42,298.61 for Change Order No. 124 and partially paid ₱130,000.00 for Change Order Nos. 16 and 17.25 Petitioner
Debbie Chung acknowledged in writing that the balance for Change Order Nos. 16 and 17 would be paid upon
completion of the contract.26 The outstanding balance on the change orders totaled ₱740,587.30.
On July 4, 1995, the respondent notified the petitioners that the delay in the payment of progress billings delays the
accomplishment of the contract work.27 The respondent made similar follow-up letters between July 1995 to
February 1996.28 On March 28, 1996, the respondent demanded full payment for progress billings and change
orders.29 On April 8, 1996, the respondent demanded payment of ₱1,310,670.56 as outstanding balance on
progress billings and change orders.30
In a letter dated April 16, 1996, the petitioners denied liability, asserting that the respondent violated the contract
provisions by, among others, failing to finish the contract within the 150-day stipulated period, failing to comply with
the provisions on change orders, and overstating its billings.31
On May 8, 1996, the respondent filed a complaint with the Regional Trial Court (RTC), Branch 145, Makati City, for
collection of the unpaid balance of the contract and the unpaid change orders, plus damages and attorney’s fees.32
In their answer with counterclaim,33 the petitioners complained of the respondent’s delayed and defective work. They
demanded payment of liquidated damages for delay in the completion, the construction errors, loss or non-usage of
specified construction materials, unconstructed and non-completed works, plus damages and attorney’s fees.
THE RTC RULING
In a decision dated December 11, 1997, the RTC found that both parties have not complied strictly with the
34

requirements of the contract. It observed that change orders were made without the parties’ prescribed written
agreement, and that each party should bear their respective costs. It noted that the respondent could not demand
from the petitioners the payment for change orders undertaken upon instruction of the project architect without the
petitioners’ written approval. Applying Article 1724 of the Civil Code, the RTC found that when the respondent
performed the change orders without the petitioners’ written agreement, it did so at its own risk and it could not
compel the petitioners to pay.
The RTC noted that the petitioners were nonetheless liable for ₱130,000.00 under Change Order Nos. 16 and 17,
because petitioner Debbie Chung ratified and acknowledged that such amount was still due upon completion. It also
noted that the respondent should not be faulted or penalized for the delay in the completion of the contract within
the 150-day period due to the petitioners’ delay in the payment of the progress billings. It found, however, that the
petitioners are liable for the construction defect on the roof leak traceable to the shallow concrete gutter.
Thus, the RTC ordered the respondent to repair, at its expense, the defective concrete gutter of the petitioners’
house and to restore other affected structures according to the architectural plans and specifications. It likewise
ordered the petitioners to pay the respondent ₱629,819.84 as unpaid balance on the progress billings and
₱130,000.00 as unpaid balance on the ratified change orders.
Both parties elevated the case to the CA by way of ordinary appeal under Rule 41 of the Rules of Court. The
respondent averred that the RTC failed to consider evidence of the petitioners’ bad faith in violating the contract,
while the petitioners argued that the RTC should have quantified the cost of the repairs and simply ordered the
respondent to reimburse the petitioners’ expenses.
THE CA RULING
The CA decided the appeal on June 28, 2002. It found Article 1724 inapplicable because the provision pertains to
35

disputes arising from the higher cost of labor and materials, while the respondent demands payment of change
order billings and there was no demand for increase in the costs of labor and materials. Applying the principle of
estoppel in pais, the appellate court noted that the petitioners impliedly consented or tacitly ratified the change
orders by payment of several change order billings and their inaction or non-objection to the construction of the
projects covered by the change orders.
Thus, the CA affirmed the RTC decision, but increased the payment on the unpaid balance of the change orders to
₱740,587.11. It likewise ordered the petitioners to pay 6% interest on the unpaid amounts from the day of formal
demand and until the finality of the decision, and 12% interest after finality of the decision, plus ₱50,000.00 as
exemplary damages.
Both parties filed motions for reconsideration. On November 15, 2002, the CA issued a resolution denying the
petitioners’ motion for reconsideration, but partially granting the respondent’s motion for reconsideration by awarding
it attorney’s fees equal to 10% of the total award. 36
Hence, the petitioners came to us through the present petition.
THE PETITION
The petitioners insist that the CA should have quantified the cost of the repairs on the defective gutter and simply
ordered the respondent to reimburse the petitioners’ expenses because repairing the defective gutter requires the
demolition of the existing cement gutter, the removal of the entire roofing and the dismantling of the second floor
steel trusses; they are entitled to liquidated damages for the unjust delay in the completion of the construction within
the 150-day contract period; the award of ₱629,819.84 for progress billings is unwarranted since only ₱545,920.00
is supported by the respondent’s evidence; the respondent’s construction errors should set-off or limit the
petitioners’ liability, if any; the CA misinterpreted Article 1724 of the Civil Code and misapplied the principle of
estoppel in pais since the contract specifically provides the petitioners’ prior written approval for change orders; the
respondent is not entitled to exemplary damages and attorney’s fees since the respondent was at fault for the
defective gutter.
THE CASE FOR THE RESPONDENT
The respondent submits that the petition is merely dilatory since it seeks to review the lower courts’ factual findings
and conclusions, and it raised no legal issue cognizable by this Court. 37
THE ISSUE
The core issue is whether the CA erred in: (a) affirming the RTC decision for payment of progress billings; (b) in
increasing the amount due for change orders; and, (c) in awarding exemplary damages and attorney’s fees to the
respondent.
OUR RULING
We find the petition meritorious.
This Court is not a trier of facts. However, when the inference drawn by the CA from the facts is manifestly mistaken,
as in the present case, we can review the evidence to allow us to arrive at the correct factual conclusions based on
the record.38
Contract is the law between the parties
In contractual relations, the law allows the parties leeway and considers their agreement as the law between
them.39 Contract stipulations that are not contrary to law, morals, good customs, public order or public policy shall be
binding40 and should be complied with in good faith. 41 No party is permitted to change his mind or disavow and go
back upon his own acts, or to proceed contrary thereto, to the prejudice of the other party.42 In the present case, we
find that both parties failed to comply strictly with their contractual stipulations on the progress billings and change
orders that caused the delays in the completion of the project.
Amount awarded for unpaid progress billings is unsupported by evidence
There is no dispute that the petitioners failed to pay progress billings nos. 8 to 12. However, we find no basis to hold
the petitioners liable for ₱629,819.84, the balance of the total contract price, without deducting the discount of
₱18,000.00 granted by the respondent. The petitioners likewise cannot be held liable for the balance of the total
contract price because that amount is clearly unsupported by the evidence; only ₱545,922.1343 is actually supported
by progress billings nos. 8 to 12. Deducting the respondent’s ₱100,000.00 cash advance, 44 the unpaid progress
billings amount to only ₱445,922.13.
Article 1724 of the Civil Code applies
The CA erred in ruling that Article 1724 of the Civil Code does not apply because the provision pertains to disputes
arising from the higher cost of labor and materials and there was no demand for increase in the costs of labor and
materials.
Article 172445 governs the recovery of additional costs in contracts for
a stipulated price (such as fixed lump-sum contracts), and the increase in price for additional work due to change in
plans and specifications. Such added cost can only be allowed upon the: (a) written authority from the developer or
project owner ordering or allowing the written changes in work, and (b) written agreement of parties with regard to
the increase in price or cost due to the change in work or design modification. Compliance with these two requisites
is a condition precedent for the recovery. The absence of one or the other condition bars the recovery of additional
costs. Neither the authority for the changes made nor the additional price to be paid therefor may be proved by any
other evidence.46
In the present case, Article I, paragraph 6, of the Contract incorporates this provision:
The CONTRACTOR shall make no change or alteration in the plans, and specifications as well as in the works
subject hereof without the prior written approval of the OWNER. A mere act of tolerance shall not constitute
approval.47
Significantly, the respondent did not secure the required written approval of the petitioners before making the
changes in the plans, specifications and works. Thus, for undertaking change orders without the stipulated written
approval of the petitioners, the respondent cannot claim the additional costs it incurred, save for the change orders
the petitioners accepted and paid for as discussed below.
CA misapplied the principle of estoppel in pais
The petitioners’ payment of Change Order Nos. 1, 16, and 17 and their non-objection to the other change orders
effected by the respondent cannot give rise to estoppel in pais that would render the petitioners liable for the
payment of all change orders.
Estoppel in pais, or equitable estoppel, arises when one, by his acts, representations or admissions or by his silence
when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to
exist and the other rightfully relies and acts on such beliefs so that he will be prejudiced if the former is permitted to
deny the existence of such facts.48 The real office of the equitable norm of estoppel is limited to supplying deficiency
in the law, but it should not supplant positive law.49
In this case, the requirement for the petitioners’ written consent to any change or alteration in the specifications,
plans and works is explicit in Article 1724 of the Civil Code and is deemed written in the contract between the
parties.50 The contract also expressly provides that a mere act of tolerance does not constitute approval. Thus, the
petitioners did not, by accepting and paying for Change Order Nos. 1, 16, and 17, do away with the contractual term
on change orders nor with the application of Article 1724. The payments for Change Order Nos. 1, 16, and 17 are, at
best, acts of tolerance on the petitioners’ part that could not modify the contract.
Consistent with this ruling, the petitioners are still liable for the ₱130,000.00 balance on Change Order Nos. 16 and
17 that, to date, remain unpaid.51
Accordingly, the petitioners’ outstanding liabilities amount to ₱445,922.13 for the unpaid progress billings and
₱130,000.00 for the ratified change orders, or a total of ₱575,922.13.
Award of exemplary damages and attorney’s fees is unwarranted.
We cannot allow the award for exemplary damages and attorney’s fees. It is a requisite in the grant of exemplary
damages that the act of the offender must be accompanied by bad faith or done in a wanton, fraudulent, or
malevolent manner.52 On the other hand, attorney’s fees may be awarded only when a party is compelled to litigate
or to incur expenses to protect his interest by reason of an unjustified act of the other party, as when the defendant
acted in gross and evident bad faith in refusing the plaintiff’s plainly valid, just and demandable claim.53 We do not
see the presence of these circumstances in the present case. As previously discussed, the petitioners’ refusal to pay
the change orders was based on a valid ground – lack of their prior written approval. There, too, is the matter of
defective construction discussed below.
Petitioners’ liability is set-off by respondent’s construction defect
We cannot sustain the lower courts’ order to repair the defective concrete gutter. The considerable lapse of time
between the filing of the complaint in May 1996 and the final resolution of the present case renders the order to
repair at this time highly impractical, if not manifestly absurd. Besides, under the contract, the respondent’s repair of
construction defects, at its expense, pertains to the 12-month warranty period after the petitioners’ issuance of the
final acceptance of work.54 This provision does not apply since the petitioners have not even issued a certificate of
completion and final acceptance of work.
Under the circumstances, fairness and reason dictate that we simply order the set-off of the petitioners’ contractual
liabilities totaling ₱575,922.13 against the repair cost for the defective gutter, pegged at ₱717,524.00,55 leaving the
amount of ₱141,601.87 still due from the respondent. Support in law for this ruling for partial legal compensation
proceeds from Articles 1278,56 1279,57 1281,58 and 128359 of the Civil Code. In short, both parties are creditors and
debtors of each other, although in different amounts that are already due and demandable.
Monetary award is subject to legal interest
Pursuant to our definitive ruling in Eastern Shipping Lines, Inc. v. Court of Appeals, 60 we hold that the amount of
₱141, 601.87 is subject to the legal interest of 6% per annum computed from the time the RTC rendered judgment
on December 11, 1997 since it was the respondent who filed the complaint.61 After the finality of this decision, the
judgment award inclusive of interest shall bear interest at 12% per annum until full satisfaction.
WHEREFORE, the petition is hereby GRANTED. The assailed decision and resolution of the Court of Appeals in
CA-G.R. CV Nos. 61583 are REVERSED and SET ASIDE. The respondent is ORDERED to pay the petitioners
₱141,601.87 representing the balance of the repair costs for the defective gutter in the petitioners’ house, with
interest at 6% per annum to be computed from the date of the filing of the complaint until finality of this decision and
12% per annum thereafter until full payment.
No pronouncement as to costs.
SO ORDERED.

G.R. No. 123807 December 13, 2005

PACIFIC MILLS, INC. and CLOVER MANUFACTURING CORPORATION, Petitioners,
vs.
THE HON. COURT OF APPEALS, THE DEVELOPMENT BANK OF THE PHILIPPINES and THE ASSET
PRIVATIZATION TRUST (now substituted by the Privatization and Management Office), Respondents.
DECISION
CHICO-NAZARIO, J.:
Before Us is a petition for review on certiorari, which assails the Decision and Resolution of the Court of Appeals in
1 2 3

CA-G.R. CV No. 35108, dated 24 August 1995 and 31 January 1996, respectively. Said Decision and Resolution
reversed and set aside the ruling of the Regional Trial Court, Branch 101, Quezon City which held that the
petitioners have fully paid their loan with private respondent Development Bank of the Philippines (DBP).
THE FACTS
The facts, as summed up by the court a quo, are as follows:
Plaintiffs, which are sister companies, contracted several loans from defendant DBP. As securities for said loans,
plaintiffs mortgaged to defendant DBP several parcels of land covered by TCT Nos. 136639, 136640, 136641,
134249 and 134252, with a total area of 44,321 square meters and their improvements, and the acrylic, spinning
and finishing equipments [sic]. On June 30, 1986, the accounts of plaintiffs were transferred to defendant APT, but
the Remedial Management Group of defendant DBP still handled the accounts for defendant APT. In defendant
DBP’s letter, dated July 17, 1987, to plaintiffs, the latter’s indebtedness was pegged at P4,165,756.21, which was
later on reduced to P3,984,881.91 per defendant DBP’s letter, dated August 6, 1987 (Exhibits C and D). In a letter,
dated August 20, 1987, defendant DBP informed plaintiffs that the Central Bank, per their debt-equity swap
arrangement, credited to its account P4,165,756.29, which amount was used to pay the remaining balance of
plaintiffs, including additional charges thereon, amounting to P4,018,940.67 as of August 12, 1987; that the excess
amount of P146,815.62 shall be refunded to plaintiffs by way of credit to the savings account to be set up for plaintiff
Pacific Mills, Inc. with defendant DBP; and that the Legal Department of defendant DBP was preparing the
necessary deed of cancellation of mortgage, which document would be released after the clearance of plaintiff’s
accounts with the Transaction Processing department of defendant DBP (Exhibit E). In the letters, dated September
30, 1987 and October 16, 1987, of defendant DBP to plaintiffs, the former reiterated that there existed an excess
payment by plaintiffs by virtue of the debt-equity swap arrangement in the amount of P146,815.62, which amount
defendant DBP proposed to refund by setting up a savings account (Exhibits A and B, pre-trial order). Thereafter, in
the letter, dated October 5, 1987, plaintiffs, among other things, demanded from the latter to return the excess
amount of P146,815.62, with interest (Exhibit F). The claim for refund was referred by defendant DBP to the Central
Bank for approval (Exhibit G). However, per post-audit of plaintiffs’ accounts by the Commission on Audit, there
existed an unpaid balance of P4,855,910.67. Defendant DBP informed plaintiffs about the existence of the said
balance and demanded immediate payment thereof in the letter, dated January 6, 1988 (Exhibit 2). In the letter,
dated March 21, 1988, defendant DBP explained that the balance was discovered after post-audit adjustment of the
accounts of plaintiffs preparatory to their final settlement and eventual closure; and that there was a mistake in the
previous computation (Exhibit 3). The statement of account of plaintiffs showed that as of August 12, 1987, the
outstanding obligations of plaintiffs, after the debt-equity swap arrangement with the Central Bank, was
P5,152,916.98, the amount determined after computation of the interests, advances and the payments made by the
plaintiffs from 1985 to 1987 (Exhibits 4 and 5). Due to the refusal of defendants to cancel the mortgages on the
properties of plaintiffs, the latter instituted the present suit.
4

The case instituted by herein petitioners in the trial court was one for cancellation of mortgages and release of the
originals of the owner’s duplicate transfer certificates of title. The trial court ruled in favor of herein petitioners in its
Decision dated 25 July 1991. Part of the trial court’s decision declared:
. . . [T]he Court finds nothing substantial to defeat its [DBP’s] own admission unequivocally stated in Exh. "E"/"1"
that indeed plaintiffs have paid in full its total balance obligation with an excess payment even of ₱146,815.62. 5

The dispositive portion of the trial court’s decision is reproduced hereunder:

WHEREFORE, premises above considered, finding that plaintiffs have paid in full their last remaining obligation in
the amount of P4,018,940.67 as admitted by defendants in their communication as of August 20, 1987, Exhibits "E"
and also "1", said defendants are hereby ordered to cancel the Deed of Mortgage constituted on their T.C.T. Nos.
136639, 136640, 136641, 134249 and 134252, and for the defendants to release the said titles to plaintiffs, together
with the improvements thereon, namely: acrylic, spinning and finishing equipments.
Further, the defendants are likewise ordered to reimburse plaintiffs the amount of ₱146,815.62 which is plaintiff’s
excess payment with interest of 14% per annum from date plaintiffs made demand therefore.
Defendants are likewise ordered to pay the attorney’s fees of plaintiffs in the amount of ₱30,000.00, plus the costs
of suit.
6

The trial court’s decision was fundamentally based on the letter dated 20 August 1987 sent by DBP to the
petitioners, viz:
August 20, 1987
Clover Manufacturing Corporation
28 Novaliches, Balintawak
Quezon City
Attention: Mr. Joseph U. Lim
Acting President
Gentlemen:
This refers to your letter of August 17, 1987 indicating that the Central Bank has credited our account for
₱4,495,700.00 in full settlement of the remaining balance of Clover’s account including additional charges thereon
which as of August 12, 1987 amounted to ₱4,018,940.67.
The credit advice we received from the Central Bank, however, indicates a credit of only ₱4,165,756.29; hence, the
excess amount is ₱146,815.62. As previously agreed, the excess shall be refunded to you by way of credit to the
savings account to be set up for Pacific Mills, Inc. with DBP. Herewith are the application/specimen signature forms
and the list of other requirements.
With regards to the remaining assets of Clover mortgaged with DBP, our Legal Department is now preparing the
necessary Deed of Cancellation of Mortgage. This document shall be released after clearance of your account with
our Transaction Processing Department.
Thank you.
Very truly yours,
(SGD)AMANDA S. GUIAM
Senior Manager 7

Herein private respondents, not satisfied with the ruling of the trial court, interposed an appeal with the Court of
Appeals. It was docketed as CA-G.R. CV No. 35108. The court a quo, in its decision dated 24 August 1995,
reversed and set aside the ruling of the trial court, the dispositive portion of which is quoted hereunder:
WHEREFORE, the Decision, dated July 25, 1991, of the RTC-Quezon City, Branch 101, in Civil Case No. Q-53552
is hereby REVERSED and SET ASIDE. Plaintiffs Pacific Mills, Inc. and Clover Manufacturing Corporation are
hereby ordered to pay their obligations to defendants Development Bank of the Philippines (DBP) and Asset
Privatization Trust (APT), which, as of August 12, 1987, amounted to P5,152,916.98, subject to interest and
penalties until fully paid. Costs against plaintiffs Pacific Mills, Inc. and Clover Manufacturing Corporation.
8

A Motion for Reconsideration was filed by the petitioners but was denied by the Court of Appeals in its Resolution
dated 31 January 1996.
Undeterred, the petitioners instituted the present action before this Court under Rule 45 of the 1997 Rules on Civil
Procedure.
The instant petition was given due course per our Resolution dated 20 November 1996. 9

A Manifestation with Entry of Appearance was filed by the Privatization and Management Office (PMO) dated 01
February 2001. In it, the PMO alleged that under Republic Act No. 8758, the term of existence of Asset Privatization
10

Trust (APT) expired on 31 December 2000. It alleged further that by virtue of the issuance of Executive Order No.
323 by the President of the Philippines, it has assumed the powers, functions, duties and responsibilities of private
11

respondent APT, as well as over all the latter’s properties, real or personal. It prayed that it be substituted as private
respondent in the instant case in lieu of the defunct APT. Per Resolution of this Court dated 26 February 2001, the
12 13

PMO’s prayer was granted.

ASSIGNMENT OF ERRORS
The petitioners raise as errors the following:
I
THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND
APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT REVERSED AND SET ASIDE THE FINDING
OF THE TRIAL COURT THAT THE REPEATED AND UNEQUIVOCAL ACKNOWLEDGMENTS AND ADMISSIONS
BY RESPONDENTS OF THE FULL PAYMENT OF THE REMAINING ACCOUNTS OF PETITIONERS
CONSTITUTED SUFFICIENT PROOF THAT PETITIONERS’ ACCOUNTS WERE NOT ONLY FULLY PAID AND
SETTLED, BUT THERE WAS EVEN AN OVERPAYMENT OF ₱146,815.62
II
THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND
APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT REVERSED AND SET ASIDE THE FINDING
OF THE TRIAL COURT THAT THE STATEMENT OF ACCOUNTS AND WORKING SHEETS PRESENTED BY
RESPONDENTS TO OVERCOME THEIR ADMISSIONS WERE NOTHING MORE THAN MERE CONCLUSIONS
BEREFT OF SUPPORTING DOCUMENTS
III
THE COURT OF APPEALS DECIDED A QUESTION OF SUBSTANCE NOT IN ACCORD WITH LAW AND
APPLICABLE DECISIONS OF THE HONORABLE COURT WHEN IT DID NOT ORDER THE CANCELLATION OF
THE MORTGAGE DESPITE FULL PAYMENT OF PETITIONERS’ OBLIGATIONS TO RESPONDENTS
IV
THE COURT OF APPEALS ERRED WHEN IT SET ASIDE THE GRANT OF ATTORNEY’S FEES TO
PETITIONERS. 14

ISSUE
Gathered from the above assignment of errors, it is fairly apparent that the sole issue that must be resolved is:
WHETHER OR NOT THE RESPONDENT DBP IS ALREADY ESTOPPED FROM CLAIMING THAT THE
OBLIGATION OF THE PETITIONERS IS NOT FULLY SETTLED WHEN IT ISSUED ITS LETTER DATED 20
AUGUST 1987.
THE COURT’S RULING
The petitioners contend in the main that acknowledgments made by the DBP constitute sufficient evidence that their
obligation has been discharged necessitating the cancellation of the mortgages. These admissions, according to
petitioners, should now bar DBP from assailing as false and incorrect the accounts which they themselves
prepared. The petitioners cite our earlier rulings in the cases of Gonzales v. Harty and Hartigan and Herman v.
15 16

Radio Corporation of the Philippines. 17

In Gonzales, we held in part:

Revision of accounts that have already been approved may be demanded only in the cases in which the law so
permits for justifiable reasons, and as was said in the decision of Pastor v. Nicasio (6 Phil. Rep. 152), such revision
will not be permitted unless the plaintiff can show that there was fraud, deceit, error, or mistake in the approval of the
accounts.
The plaintiff is now barred from assailing as false and incorrect the accounts approved by him for the years 1907 to
1910, inasmuch as he made no objection and took no exception to them before their acceptance and approval, nor
has he shown that he was deceived for the purpose of obtaining his approval thereof. Even if the accounts were
erroneous, they could not now be revised, since the plaintiff, by stating in his receipt that the sum received by him
was the liquidated balance of, and full satisfaction for, all the revenues that appertained or might appertain to him,
has explicitly and completely waived all right, he might have had to any amounts he may then have failed to collect. 18

In Herman, we held:
. . . [W]henever a party has, by his own declaration, act, or omission, intentionally and deliberately led another to
believe a particular thing true, and to act upon such belief, he cannot, in any litigation arising out of such declaration,
act, or omission, be permitted to falsify it.
19

In response to this, private respondent DBP contends that the petitioners did not submit any accounting records to
prove full payment of their loans, much more overpayment. It further asserted that the petitioners merely capitalized
on the letter from Senior Manager Ms. Amanda S. Guiam dated 20 August 1987 to prove that they have fully paid
their loans to DBP. While the authenticity and due execution of aforesaid letter were never an issue, the correctness
of its content had been squarely raised by the private respondents DBP and APT in their respective answers for
being erroneous and a clear case of mistake in computation. 20

Respondent APT, on the other hand, in its Comment, underscores that nowhere in the petition for review did
petitioners point out any particular provision of law that was actually contravened by the Court of Appeals in
resolving the issues presented. APT further argues that our ruling in Gonzales does not squarely apply in the instant
case. Gonzales was anchored on an approved account and on the principle of estoppel. In the instant case,
according to APT, there was no final approval of petitioners’ account with DBP. The principle of estoppel, therefore,
finds no application.21

Part of the decision of the Court of Appeals declared:

The lower court ruled that by virtue of this letter defendant DBP is now estopped to claim otherwise and ask for the
payment of the alleged balance. However, it is clear from the third paragraph that the cancellation of the mortgages
constituted in favor of defendant DBP was subject to the clearance or approval of plaintiffs’ accounts by the
Transaction Processing Department (TPD). The latter’s approval can only be made after verification of the complete
payment of the loans by plaintiffs. There was no clearance issued by the TPD since it was found out later on that
there was a mistake in the computation of the accounts of plaintiffs. As succinctly explained by defendant DBP in its
letter, dated March 21, 1988, the mistake was discovered in the course of the processing of plaintiffs’ accounts
preparatory to their eventual closure.22

We find no compelling reason to reverse the decision of the court a quo, and therefore, the instant petition must fail.
The reliance of petitioners in the Gonzalez case is misplaced, for, as ingeniously pointed out by the private
respondents, it does not squarely apply herein. In Gonzalez, the petitioner approved certain accounts for a period of
three (3) years. He made no objection and took no exception to them before their acceptance and approval. He did
not show that he was deceived for the purpose of obtaining his approval thereof.
In the instant case, the letter of DBP dated 20 August 1987, which supposedly declared that the obligations of
petitioners have been fully complied with, was corrected by the former after a period of five (5) months only. This
five-month period was devoted by DBP in processing all the clearances needed for the closure of petitioners’
accounts. It was during this time that the mistake in the computation was discovered during post audit adjustments.
A letter dated 06 January 1988 was sent by DBP communicating to petitioners about the remaining balance still due
23

from the latter. Another letter dated 21 March 1988 was again sent by DBP to petitioners explaining that the mistake
24

was discovered in the course of the processing of petitioners’ accounts which was preparatory to their eventual
closure. The petitioners were even invited to reconcile the accounts with the Transaction Processing Department
(TPD). In addition to all these, the third paragraph of the letter dated 20 August 1987 stated that the account must
be cleared first with the TPD. Conspicuously, no clearance was issued by the TPD. This was admitted by the
witness for the petitioners, Paulino Lim, during cross-examination, viz:
Q: The last paragraph thereof which was quoted earlier states that the "legal department is now preparing the
necessary Deed of Cancellation of Mortgage", further this document states that "this document shall be released
after clearance of your account with our Transaction Processing Department." Did you receive any clearance from
DBP?
A: I don’t recall, I am not sure.
Q: Despite the fact that you asked your lawyer to send a letter on your behalf requesting for the release of
collaterals?
A: Yes.
Q: You have no cancellation of mortgage or clearance from the Transaction Processing Department that your
account has been fully settled except for the letter that you received?
A: Yes. 25

The petitioners, likewise, assert that the private respondents are guilty of estoppel for the former were misled to their
prejudice by the latter. 26

In Dizon v. Suntay, we held that:

27

. . . For estoppel to exist though, it is indispensable that there be a declaration, act or omission by the party who is
sought to be bound. Nor is this all. It is equally a requisite that he, who would claim the benefits of such a principle,
must have altered his position, having been so intentionally and deliberately led to comport himself thus, by what
was declared or what was done or failed to be done. . .
In estoppel by pais, as related to the party sought to be estopped, it is necessary that there be a concurrence of the
28

following requisites: (a) conduct amounting to false representation or concealment of material facts or at least
calculated to convey the impression that the facts are otherwise than, and inconsistent with, those which the party
subsequently attempts to assert; (b) intent, or at least expectation that this conduct shall be acted upon, or at least
influenced by the other party; and (c) knowledge, actual or constructive, of the actual facts.29

In the instant case, it cannot be concluded that the private respondents are guilty of estoppel in pais for the
requisites are not attendant. There was no false representation or concealment of any material fact on the part of
the private respondents. There was likewise no intent to deceive the petitioners because the inaccuracy was
admitted by the private respondents. During the time that the letter dated 20 August 1987 was sent by DBP to
petitioners, the former had no knowledge that there was an error. The mistake in the computation, when discovered
by DBP, was communicated and explained to the petitioners.
Petitioners intensely lean on the third paragraph of the letter dated 20 August 1987, thus:
With (sic) regards to the remaining assets of Clover mortgaged with DBP, our Legal Department is now preparing
the necessary Deed of Cancellation of Mortgage. This document shall be released after clearance of your account
with the Transaction Processing Department. 30

The observation of the court a quo relative to the above is worth reviving:
The lower court in finding that plaintiffs had fully paid their loans and overpaid the same by ₱146,815.62 relied upon
the letter, dated August 20, 1987 of Amanda S. Guiam, Senior Manager of Remedial Management Group of
defendant DBP, the contents of which are as follows:
...
The lower court ruled that by virtue of this letter defendant DBP is now estopped to claim otherwise and ask for the
payment of the alleged balance. However, it is clear from the third paragraph that the cancellation of the mortgages
constituted in favor of defendant DBP was subject to the clearance or approval of plaintiffs’ accounts by the
Transaction Processing Department (TPD). The latter’s approval can only be made after verification of the complete
payment of the loans by plaintiffs. There was no clearance issued by TPD since it was found out later on that there
was a mistake in the computation of the accounts of plaintiffs. . .
31

It is crystal clear that a clearance was to be secured with the TPD. It is likewise definite that no clearance was ever
issued. Since there was no clearance, it could not be expected of DBP to release the Deed of Cancellation of
Mortgage.
The petitioners cannot capitalize on the unpremeditated mistake on the part of DBP in the computation of the
accounts. In the same vein, DBP cannot be expected to cancel the mortgages when the accounts of petitioners
have not been fully settled.
WHEREFORE, in view of all the foregoing, the Decision and Resolution of the Court of Appeals in CA-G.R. CV No.
35108, dated 24 August 1995 and 31 January 1996, respectively, are AFFIRMED. Costs against petitioners.
SO ORDERED.
G.R. No. 116710 June 25, 2001
DANILO D. MENDOZA, also doing business under the name and style of ATLANTIC EXCHANGE
PHILIPPINES, petitioner,
vs.
COURT OF APPEALS, PHILIPPINE NATIONAL BANK, FERNANDO MARAMAG, JR., RICARDO G. DECEPIDA
and BAYANI A. BAUTISTA, respondents.
DE LEON, JR., J.:
Before us is a petition for review on certiorari of the Decision1 dated August 8, 1994 of the respondent Court of
Appeals (Tenth Division) in CA-G.R. CV No. 38036 reversing the judgment 2 of the Regional Trial Court (RTC) and
dismissing the complaint therein.
Petitioner Danilo D. Mendoza is engaged in the domestic and international trading of raw materials and chemicals.
He operates under the business name Atlantic Exchange Philippines (Atlantic), a single proprietorship registered
with the Department of Trade and Industry (DTI). Sometime in 1978 he was granted by respondent Philippine
National Bank (PNB) a Five Hundred Thousand Pesos (P500,000.00) credit line and a One Million Pesos
(P1,000,000.00) Letter of Credit/Trust Receipt (LC/TR) line.
As security for the credit accommodations and for those which may thereinafter be granted, petitioner mortgaged to
respondent PNB the following: 1) three (3) parcels of land3 with improvements in F. Pasco Avenue, Santolan, Pasig;
2) his house and lot in Quezon City; and 3) several pieces of machinery and equipment in his Pasig coco-chemical
plant.
The real estate mortgage4 provided the following escalation clause:
(f) The rate of interest charged on the obligation secured by this mortgage as well as the interest on the
amount which may have been advanced by the Mortgagee in accordance with paragraph (d) of the
conditions herein stipulated shall be subject during the life of this contract to such increase within the rates
allowed by law, as the Board of Directors of the Mortgagee may prescribe for its debtors.
Petitioner executed in favor of respondent PNB three (3) promissory notes covering the Five Hundred Thousand
Pesos (P500,000.00) credit line, one dated March 8, 1979 for Three Hundred Ten Thousand Pesos (P310,000.00);
another dated March 30, 1979 for Forty Thousand Pesos (P40,000.00); and the last dated September 27, 1979 for
One Hundred Fifty Thousand Pesos (P150,000.00). The said 1979 promissory notes uniformly stipulated: "with
interest thereon at the rate of 12% per annum, until paid, which interest rate the Bank may, at any time, without
notice, raise within the limits allowed by law xxx."5
Petitioner made use of his LC/TR line to purchase raw materials from foreign importers. He signed a total of eleven
(11) documents denominated as "Application and Agreement for Commercial Letter of Credit," 6 on various dates
from February 8 to September 11, 1979, which uniformly contained the following clause: "Interest shall be at the rate
of 9% per annum from the date(s) of the draft(s) to the date(s) of arrival of payment therefor in New York. The Bank,
however, reserves the right to raise the interest charges at any time depending on whatever policy it may follow in
the future."7
In a letter dated January 3, 1980 and signed by Branch Manager Fil S. Carreon Jr., respondent PNB advised
petitioner Mendoza that effective December 1, 1979, the bank raised its interest rates to 14% per annum, in line with
Central Bank's Monetary Board Resolution No. 2126 dated November 29, 1979.
On March 9, 1981, he wrote a letter to respondent PNB requesting for the restructuring of his past due accounts into
a five-year term loan and for an additional LC/TR line of Two Million Pesos (P2,000,000.00).8 According to the letter,
because of the shut-down of his end-user companies and the huge amount spent for the expansion of his business,
petitioner failed to pay to respondent bank his LC/TR accounts as they became due and demandable.
Ceferino D. Cura, Branch Manager of PNB Mandaluyong replied on behalf of the respondent bank and required
petitioner to submit the following documents before the bank would act on his request: 1) Audited Financial
Statements for 1979 and 1980; 2) Projected cash flow (cash in - cash out) for five (5) years detailed yearly; and 3)
List of additional machinery and equipment and proof of ownership thereof. Cura also suggested that petitioner
reduce his total loan obligations to Three Million Pesos (P3,000,000.00) "to give us more justification in
recommending a plan of payment or restructuring of your accounts to higher authorities of the Bank."9
On September 25, 1981, petitioner sent another letter addressed to PNB Vice-President Jose Salvador, regarding
his request for restructuring of his loans. He offered respondent PNB the following proposals: 1) the disposal of
some of the mortgaged properties, more particularly, his house and lot and a vacant lot in order to pay the overdue
trust receipts; 2) capitalization and conversion of the balance into a 5-year term loan payable semi-annually or on
annual installments; 3) a new Two Million Pesos (P2,000,000.00) LC/TR line in order to enable Atlantic Exchange
Philippines to operate at full capacity; 4) assignment of all his receivables to PNB from all domestic and export sales
generated by the LC/TR line; and 5) maintenance of the existing Five Hundred Thousand Pesos (P500,000.00)
credit line.
The petitioner testified that respondent PNB Mandaluyong Branch found his proposal favorable and recommended
the implementation of the agreement. However, Fernando Maramag, PNB Executive Vice-President, disapproved
the proposed release of the mortgaged properties and reduced the proposed new LC/TR line to One Million Pesos
(P1,000,000.00).10 Petitioner claimed he was forced to agree to these changes and that he was required to submit a
new formal proposal and to sign two (2) blank promissory notes.
In a letter dated July 2, 1982, petitioner offered the following revised proposals to respondent bank: 1) the
restructuring of past due accounts including interests and penalties into a 5-year term loan, payable semi-annually
with one year grace period on the principal; 2) payment of Four Hundred Thousand Pesos (P400,000.00) upon the
approval of the proposal; 3) reduction of penalty from 3% to 1%; 4) capitalization of the interest component with
interest rate at 16% per annum; 5) establishment of a One Million Pesos (P1,000,000.00) LC/TR line against the
mortgaged properties; 6) assignment of all his export proceeds to respondent bank to guarantee payment of his
loans.
According to petitioner, respondent PNB approved his proposal. He further claimed that he and his wife were asked
to sign two (2) blank promissory note forms. According to petitioner, they were made to believe that the blank
promissory notes were to be filled out by respondent PNB to conform with the 5-year restructuring plan allegedly
agreed upon. The first Promissory Note,11 No. 127/82, covered the principal while the second Promissory Note, 12 No.
128/82, represented the accrued interest.
Petitioner testified that respondent PNB allegedly contravened their verbal agreement by 1) affixing dates on the two
(2) subject promissory notes to make them mature in two (2) years instead of five (5) years as supposedly agreed
upon; 2) inserting in the first Promissory Note No. 127/82 an interest rate of 21% instead of 18%; 3) inserting in the
second Promissory Note No. 128/82, the amount stated therein representing the accrued interest as One Million
Five Hundred Thirty Six Thousand Four Hundred Ninety Eight Pesos and Seventy Three Centavos (P1,536,498.73)
when it should only be Seven Hundred Sixty Thousand Three Hundred Ninety Eight Pesos and Twenty Three
Centavos (P760,398.23) and pegging the interest rate thereon at 18% instead of 12%.
The subject Promissory Notes Nos. 127/82 and 128/82 both dated December 29, 1982 in the principal amounts of
Two Million Six Hundred Fifty One Thousand One Hundred Eighteen Pesos and Eighty Six Centavos
(P 2,651,118.86) and One Million Five Hundred Thirty Six Thousand Seven Hundred Ninety Eight and Seventy
Three Centavos (P1,536,798.73) respectively and marked Exhibits "BB" and "CC" respectively, were payable on
equal semi-annual amortization and contained the following escalation clause:
x x x which interest rate the BANK may increase within the limits allowed by law at any time depending on
whatever policy it may adopt in the future; Provided, that, the interest rate on this note shall be
correspondingly decreased in the event that the applicable maximum interest rate is reduced by law or by
the Monetary Board. In either case, the adjustment in the interest rate agreed upon shall take effect on the
effectivity date of the increase or decrease in the maximum interest rate. x x x
It appears from the record that the subject Promissory Notes Nos. 127/82 and 128/82 superseded and novated the
three (3) 1979 promissory notes and the eleven (11) 1979 "Application and Agreement for Commercial Letter of
Credit" which the petitioner executed in favor of respondent PNB.
According to the petitioner, sometime in June 1983 the new PNB Mandaluyong Branch Manager Bayani A. Bautista
suggested that he sell the coco-chemical plant so that he could keep up with the semi-annual amortizations. On
three (3) occasions, Bautista even showed up at the plant with some unidentified persons who claimed that they
were interested in buying the plant.
Petitioner testified that when he confronted the PNB management about the two (2) Promissory Notes Nos. 127/82
and 128/82 (marked Exhibits "BB" and "CC" respectively) which he claimed were improperly filled out, Bautista and
Maramag assured him that the five-year restructuring agreement would be implemented on the condition that he
assigns 10% of his export earnings to the Bank.13 In a letter dated August 22, 1983, petitioner Mendoza consented
to assign 10% of the net export proceeds of a Letter of Credit covering goods amounting to One Hundred Fourteen
Thousand Dollars ($114,000.00).14 However, petitioner claimed that respondent PNB subsequently debited 14%
instead of 10% from his export proceeds.15
Pursuant to the escalation clauses of the subject two (2) promissory notes, the interest rate on the principal amount
in Promissory Note No. 127/82 was increased from 21% to 29% on May 28, 1984, and to 32% on July 3, 1984 while
the interest rate on the accrued interest per Promissory Note No. 128/82 was increased from 18% to 29% on May
28, 1984, and to 32% on July 3, 1984.
Petitioner failed to pay the subject two (2) Promissory Notes Nos. 127/82 and 128/82 (Exhibits "BB" and "CC") as
they fell due. Respondent PNB extra-judicially foreclosed the real and chattel mortgages, and the mortgaged
properties were sold at public auction to respondent PNB, as highest bidder, for a total of Three Million Seven
Hundred Ninety Eight Thousand Seven Hundred Nineteen Pesos and Fifty Centavos (P3,798,719.50).
The petitioner filed in the RTC in Pasig, Rizal a complaint for specific performance, nullification of the extra-judicial
foreclosure and damages against respondents PNB, Fernando Maramag Jr., Ricardo C. Decepida, Vice-President
for Metropolitan Branches, and Bayani A. Bautista. He alleged that the Extrajudicial Foreclosure Sale of the
mortgaged properties was null and void since his loans were restructured to a five-year term loan; hence, it was not
yet due and demandable; that the escalation clauses in the subject two (2) Promissory Notes Nos. 127/82 and
128/82 were null and void, that the total amount presented by PNB as basis of the foreclosure sale did not reflect
the actual loan obligations of the plaintiff to PNB; that Bautista purposely delayed payments on his exports and
caused delays in the shipment of materials; that PNB withheld certain personal properties not covered by the chattel
mortgage; and that the foreclosure of his mortgages was premature so that he was unable to service his foreign
clients, resulting in actual damages amounting to Two Million Four Thousand Four Hundred Sixty One Pesos
(P 2,004,461.00).
On March 16, 1992, the trial court rendered judgment in favor of the petitioner and ordered the nullification of the
extrajudicial foreclosure of the real estate mortgage, the Sheriff’s sale of the mortgaged real properties by virtue of
consolidation thereof and the cancellation of the new titles issued to PNB; that PNB vacate the subject premises in
Pasig and turn the same over to the petitioner; and also the nullification of the extrajudicial foreclosure and sheriff's
sale of the mortgaged chattels, and that the chattels be returned to petitioner Mendoza if they were removed from
his Pasig premises or be paid for if they were lost or rendered unserviceable.
The trial court also ordered respondent PNB to restructure to five-years petitioner's principal loan of Two Million Six
Hundred Fifty One Thousand One Hundred Eighteen Pesos and Eighty Six Centavos (P2,651,118.86) and the
accumulated capitalized interest on the same in the amount of Seven Hundred Sixty Thousand Three Hundred
Eighty Nine Pesos and Twenty Three Centavos (P760,389.23) as of December 1982, and that respondent PNB
should compute the additional interest from January 1983 up to October 15, 1984 only when respondent PNB took
possession of the said properties, at the rate of 12% and 9% respectively.
The trial court also ordered respondent PNB to grant petitioner Mendoza an additional Two Million Pesos
(P2,000,000.00) loan in order for him to have the necessary capital to resume operation. It also ordered
respondents PNB, Bayani A. Bautista and Ricardo C. Decepida to pay to petitioner actual damages in the amount of
Two Million One Hundred Thirteen Thousand Nine Hundred Sixty One Pesos (P2,113,961.00) and the peso
equivalent of Six Thousand Two Hundred Fifteen Dollars ($6,215.00) at the prevailing foreign exchange rate on
October 11, 1983; and exemplary damages in the amount of Two Hundred Thousand Pesos (P200,000.00).
Respondent PNB appealed this decision of the trial court to the Court of Appeals. And the Court of Appeals reversed
the decision of the trial court and dismissed the complaint. Hence, this petition.
It is the petitioner’s contention that the PNB management restructured his existing loan obligations to a five-year
term loan and granted him another Two Million Pesos (P2,000,000.00) LC/TR line; that the Promissory Notes Nos.
127/82 and 128/82 evidencing a 2-year restructuring period or with the due maturity date "December 29, 1984" were
filled out fraudulently by respondent PNB, and contrary to his verbal agreement with respondent PNB; hence, his
indebtedness to respondent PNB was not yet due and the extrajudicial foreclosure of his real estate and chattel
mortgages was premature. On the other hand, respondent PNB denies that petitioner's loan obligations were
restructured to five (5) years and maintains that the subject two (2) Promissory Notes Nos. 127/82 and 128/82 were
filled out regularly and became due as of December 29, 1984 as shown on the face thereof.
Respondent Court of Appeals held that there is no evidence of a promise from respondent PNB, admittedly a
banking corporation, that it had accepted the proposals of the petitioner to have a five-year restructuring of his
overdue loan obligations. It found and held, on the basis of the evidence adduced, that "appellee's (Mendoza)
communications were mere proposals while the bank's responses were not categorical that the appellee's request
had been favorably accepted by the bank."
Contending that respondent PNB had allegedly approved his proposed five-year restructuring plan, petitioner
presented three (3) documents executed by respondent PNB officials. The first document is a letter dated March 16,
1981 addressed to the petitioner and signed by Ceferino D. Cura, Branch Manager of PNB Mandaluyong, which
states:
x x x In order to study intelligently the feasibility of your above request, please submit the following
documents/papers within thirty (30) days from the date thereof, viz:
1. Audited Financial Statements for 1979 and 1980;
2. Projected cash flow (cash in - cash out) for five years detailed yearly; and
3. List of additional machinery and equipment and proof of ownership thereof.
We would strongly suggest, however, that you reduce your total obligations to at least P3 million (principal
and interest and other charges) to give us more justification in recommending a plan of payment or
restructuring of your accounts to higher authorities of this bank.
The second document is a letter dated May 11, 1981 addressed to Mr. S. Pe Benito, Jr., Managing Director of the
Technological Resources Center and signed by said PNB Branch Manager, Ceferino D. Cura. According to
petitioner, this letter showed that respondent PNB seriously considered the restructuring of his loan obligations to a
five-year term loan, to wit:
xxx
At the request of our client, we would like to furnish you with the following information pertinent to his
accounts with us:
xxx
We are currently evaluating the proposal of the client to re-structure his accounts with us into a five-
year plan.
We hope that the above information will guide you in evaluating the proposals of Mr. Danilo Mendoza.
xxx
The third document is a letter dated July 8, 1981 addressed to petitioner and signed by PNB Assistant Vice-
President Apolonio B. Francisco.
xxx
Considering that your accounts/accommodations were granted and carried in the books of our Mandaluyong
Branch, we would suggest that your requests and proposals be directed to Ceferino Cura, Manager of our
said Branch.
We feel certain that Mr. Cura will be pleased to discuss matters of mutual interest with you.
xxx
Petitioner also presented a letter which he addressed to Mr. Jose Salvador, Vice-President of the Metropolitan
Branches of PNB, dated September 24, 1981, which reads:
Re: Restructuring of our Account into a 5-year Term Loan and Request for the Establishment of a P2.0
Million LC/TR Line
Dear Sir:
In compliance with our discussion last September 17, we would like to formalize our proposal to support our
above requested assistance from the Philippine National Bank.
xxx
Again we wish to express our sincere appreciation for your open-minded approach towards the solution of
this problem which we know and will be beneficial and to the best interest of the bank and mutually
advantageous to your client.
xxx
Petitioner argues that he submitted the requirements according to the instructions given to him and that upon
submission thereof, his proposed five-year restructuring plan was deemed automatically approved by respondent
PNB.
We disagree.
Nowhere in those letters is there a categorical statement that respondent PNB had approved the petitioner’s
proposed five-year restructuring plan. It is stretching the imagination to construe them as evidence that his proposed
five-year restructuring plan has been approved by the respondent PNB which is admittedly a banking corporation.
Only an absolute and unqualified acceptance of a definite offer manifests the consent necessary to perfect a
contract.16 If anything, those correspondences only prove that the parties had not gone beyond the preparation
stage, which is the period from the start of the negotiations until the moment just before the agreement of the
parties.17
There is nothing in the record that even suggests that respondent PNB assented to the alleged five-year restructure
of petitioner’s overdue loan obligations to PNB. However, the trial court ruled in favor of petitioner Mendoza, holding
that since petitioner has complied with the conditions of the alleged oral contract, the latter may not renege on its
obligation to honor the five-year restructuring period, under the rule of promissory estoppel. Citing Ramos v. Central
Bank,18 the trial court said:
The broad general rule to the effect that a promise to do or not to do something in the future does not work
an estoppel must be qualified, since there are numerous cases in which an estoppel has been predicated on
promises or assurances as to future conduct. The doctrine of ‘promissory estoppel’ is by no means new,
although the name has been adopted only in comparatively recent years. According to that doctrine, an
estoppel may arise from the making of a promise, even though without consideration, if it was intended that
the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be
virtually to sanction the perpetration of fraud or would result in other injustice. In this respect, the reliance by
the promisee is generally evidenced by action or forbearance on his part, and the idea has been expressed
that such action or forbearance would reasonably have been expected by the promissor. xxx
The doctrine of promissory estoppel is an exception to the general rule that a promise of future conduct does not
constitute an estoppel. In some jurisdictions, in order to make out a claim of promissory estoppel, a party bears the
burden of establishing the following elements: (1) a promise reasonably expected to induce action or forebearance;
(2) such promise did in fact induce such action or forebearance, and (3) the party suffered detriment as a result.19
It is clear from the forgoing that the doctrine of promissory estoppel presupposes the existence of a promise on the
part of one against whom estoppel is claimed. The promise must be plain and unambiguous and sufficiently specific
so that the Judiciary can understand the obligation assumed and enforce the promise according to its terms. 20 For
petitioner to claim that respondent PNB is estopped to deny the five-year restructuring plan, he must first prove that
respondent PNB had promised to approve the plan in exchange for the submission of the proposal. As discussed
earlier, no such promise was proven, therefore, the doctrine does not apply to the case at bar. A cause of action for
promissory estoppel does not lie where an alleged oral promise was conditional, so that reliance upon it was not
reasonable.21 It does not operate to create liability where it does not otherwise exist.22
Since there is no basis to rule that petitioner's overdue loan obligations were restructured to mature in a period of
five (5) years, we see no other option but to respect the two-year period as contained in the two (2) subject
Promissory Notes Nos. 127/82 and 128/82, marked as Exhibits "BB" and "CC" respectively which superseded and
novated all prior loan documents signed by petitioner in favor of respondent PNB. Petitioner argues, in his
memorandum, that "respondent Court of Appeals had no basis in saying that the acceptance of the five-year
restructuring is totally absent from the record."23 On the contrary, the subject Promissory Notes Nos. 127/82 and
128/82 are clear on their face that they were due on December 29, 1984 or two (2) years from the date of the
signing of the said notes on December 29, 1982.
Petitioner claims that the two (2) subject Promissory Notes Nos. 127/82 and 128/82 were signed by him in blank
with the understanding that they were to be subsequently filled out to conform with his alleged oral agreements with
PNB officials, among which is that they were to become due only after five (5) years. If petitioner were to be
believed, the PNB officials concerned committed a fraudulent act in filling out the subject two (2) promissory notes in
question. Private transactions are presumed to be fair and regular. 24 The burden of presenting evidence to overcome
this presumption falls upon petitioner. Considering that petitioner imputes a serious act of fraud on respondent PNB,
which is a banking corporation, this court will not be satisfied with anything but the most convincing evidence.
However, apart from petitioner's self-serving verbal declarations, we find no sufficient proof that the subject two (2)
Promissory Notes Nos. 127/82 and 128/82 were completed irregularly. Therefore, we rule that the presumption has
not been rebutted.
Besides, it could be gleaned from the record that the petitioner is an astute businessman who took care to reduce in
writing his business proposals to the respondent bank. It is unthinkable that the same person would commit the
careless mistake of leaving his subject two (2) promissory notes in blank in the hands of other persons. As the
respondent Court of Appeals correctly pointed out:
Surely, plaintiff-appellee who is a C.P.A and a Tax Consultant (p. 3 TSN, January 9, 1990) will insist that the
details of the two promissory notes he and his wife executed in 1982 should be specific to enable them to
make the precise computation in the event of default as in the case at bench. In fact, his alleged omission as
a C.P.A. and a Tax Consultant to insist that the two promissory notes be filled up on important details like the
rates of interest is inconsistent with the legal presumption of a person who takes ordinary care of his
concerns (Section 3 (c), Rule 131, Revised Rules on Evidence).
As pointed out by the Court of Appeals, Orlando Montecillo, Chief, Loans and Discounts, PNB Mandaluyong Branch,
testified that the said Promissory Notes Nos. 127/82 and 128/82 were completely filled out when Danilo Mendoza
signed them (Rollo, p. 14).
In a last-ditch effort to save his five-year loan restructuring theory, petitioner contends that respondent PNB's action
of withholding 10% from his export proceeds is proof that his proposal had been accepted and the contract had
been partially executed. He claims that he would not have consented to the additional burden if there were no
corresponding benefit. This contention is not well taken. There is no credible proof that the 10% assignment of his
export proceeds was not part of the conditions of the two-year restructuring deal. Considering that the resulting
amount obtained from this assignment of export proceeds was not even enough to cover the interest for the
corresponding month,25 we are hard-pressed to construe it as the required proof that respondent PNB allegedly
approved the proposed five-year restructuring of petitioner’s overdue loan obligations.
It is interesting to note that in his Complaint, petitioner made no mention that the assignment of his export proceeds
was a condition for the alleged approval of his proposed five-year loan restructuring plan. The Complaint merely
alleged that "plaintiff in a sincere effort to make payments on his obligations agreed to assign 10% of his export
proceeds to defendant PNB." This curious omission leads the court to believe that the alleged link between the
petitioner’s assignment of export proceeds and the alleged five-year restructuring of his overdue loans was more
contrived than real.
It appears that respondent bank increased the interest rates on the two (2) subject Promissory Notes Nos. 127/82
and 128/82 without the prior consent of the petitioner. The petitioner did not agree to the increase in the stipulated
interest rate of 21% per annum on Promissory Note No. 127/82 and 18% per annum on Promissory Note No.
128/82. As held in several cases, the unilateral determination and imposition of increased interest rates by
respondent bank is violative of the principle of mutuality of contracts ordained in Article 1308 of the Civil Code.26 As
held in one case:27
It is basic that there can be no contract in the true sense in the absence of the element of agreement, or of
mutual assent of the parties. If this assent is wanting on the part of one who contracts, his act has no more
efficacy than if it had been done under duress or by a person of unsound mind.
Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the
parties must meet as to the proposed modification, especially when it affects an important aspect of the
agreement. In the case of loan contracts, it cannot be gainsaid that the rate of interest is always a vital
component, for it can make or break a capital venture.
It has been held that no one receiving a proposal to change a contract to which he is a party is obliged to answer
the proposal, and his silence per se cannot be construed as an acceptance. 28 Estoppel will not lie against the
petitioner regarding the increase in the stipulated interest on the subject Promissory Notes Nos. 127/82 and 128/82
inasmuch as he was not even informed beforehand by respondent bank of the change in the stipulated interest
rates. However, we also note that the said two (2) subject Promissory Notes Nos. 127/82 and 128/82 expressly
provide for a penalty charge of 3% per annum to be imposed on any unpaid amount when due.
Petitioner prays for the release of some of his movables29 being withheld by respondent PNB, alleging that they were
not included among the chattels he mortgaged to respondent bank. However, petitioner did not present any proof as
to when he acquired the subject movables and hence, we are not disposed to believe that the same were "after-
acquired" chattels not covered by the chattel and real estate mortgages.
In asserting its rights over the subject movables, respondent PNB relies on a common provision in the two (2)
subject Promissory Notes Nos. 127/82 and 128/82 which states:
In the event that this note is not paid at maturity or when the same becomes due under any of the provisions
hereof, we hereby authorized the BANK at its option and without notice, to apply to the payment of this note,
any and all moneys, securities and things of value which may be in its hands on deposit or otherwise
belonging to me/us and for this purpose. We hereby, jointly and severally, irrevocably constitute and appoint
the BANK to be our true Attorney-in-Fact with full power and authority for us in our name and behalf and
without prior notice to negotiate, sell and transfer any moneys securities and things of value which it may
hold, by public or private sale and apply the proceeds thereof to the payment of this note.
It is clear, however, from the above-quoted provision of the said promissory notes that respondent bank is
authorized, in case of default, to sell "things of value" belonging to the mortgagor "which may be on its hands for
deposit or otherwise belonging to me/us and for this purpose." Besides the petitioner executed not only a chattel
mortgage but also a real estate mortgage to secure his loan obligations to respondent bank.
A stipulation in the mortgage, extending its scope and effect to after-acquired property is valid and binding where the
after-acquired property is in renewal of, or in substitution for, goods on hand when the mortgage was executed, or is
purchased with the proceeds of the sale of such goods.30 As earlier pointed out, the petitioner did not present any
proof as to when the subject movables were acquired.
More importantly, respondent bank makes a valid argument for the retention of the subject movables. Respondent
PNB asserts that those movables were in fact "immovables by destination" under Art. 415 (5) of the Civil Code. 31 It is
an established rule that a mortgage constituted on an immovable includes not only the land 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.32
Petitioner also contends that respondent PNB’s bid prices for this foreclosed properties in the total amount of Three
Million Seven Hundred Ninety Eight Thousand Seven Hundred Nineteen Pesos and Fifty Centavos (P3,798,719.50),
were allegedly "unconscionable and shocking to the conscience of men". He claims that the fair market appraisal of
his foreclosed plant site together with the improvements thereon located in Pasig, Metro Manila amounted to Five
Million Four Hundred Forty One Thousand Six Hundred Fifty Pesos (P5,441,650.00) while that of his house and lot
in Quezon City amounted to Seven Hundred Twenty Two Thousand Pesos (P722,000.00) per the appraisal report
dated September 20, 1990 of Cuervo Appraisers, Inc.33 That contention is not well taken considering that:
1. The total of the principal amounts alone of petitioner’s subject Promissory Notes Nos. 127/82 and 128/82
which are both overdue amounted to Four Million One Hundred Eighty Seven Thousand Nine Hundred
Seventeen Pesos and Fifty Nine Centavos (P 4,187,917.59).
2. While the appraisal of Cuervo Appraisers, Inc. was undertaken in September 1990, the extrajudicial
foreclosure of petitioner’s real estate and chattel mortgages have been effected way back on October 15,
1984, October 23, 1984 and December 21, 1984.34 Common experience shows that real estate values
especially in Metro Manila tend to go upward due to developments in the locality. 1âwphi1.nêt

3. In the public auction/foreclosure sales, respondent PNB, as mortgagee, was not obliged to bid more than
its claims or more than the amount of petitioner’s loan obligations which are all overdue. The foreclosed real
estate and chattel mortgages which petitioner earlier executed are accessory contracts covering the
collaterals or security of his loans with respondent PNB. The principal contracts are the Promissory Notes
Nos. 127/82 and 128/82 which superseded and novated the 1979 promissory notes and the 1979 eleven
(11) Applications and Agreements for Commercial Letter of Credit.
Finally, the record shows that petitioner did not even attempt to tender any redemption price to respondent PNB, as
highest bidder of the said foreclosed real estate properties, during the one-year redemption period.
In view of all the foregoing, it is our view and we hold that the extrajudicial foreclosure of petitioner’s real estate and
chattel mortgages was not premature and that it was in fact legal and valid.
WHEREFORE, the petition is hereby DENIED. The challenged Decision of the Court of Appeals in CA-G.R. CV No.
38036 is AFFIRMED with modification that the increase in the stipulated interest rates of 21% per annum and 18%
per annum appearing on Promissory Notes Nos. 127/82 and 128/82 respectively is hereby declared null and void.
SO ORDERED.
G.R. No. 135639 February 27, 2002
TERMINAL FACILITIES AND SERVICES CORPORATION, petitioner,
vs.
PHILIPPINE PORTS AUTHORITY and PORT MANAGER, and PORT DISTRICT OFFICER OF DAVAO
CITY, respondents.
x-----------------------x
G.R. No. 135826
PHILIPPINE PORTS AUTHORITY and PORT MANAGER, and PORT DISTRICT OFFICER OF DAVAO
CITY, petitioners,
vs.
TERMINAL FACILITIES AND SERVICES CORPORATION, respondent.
DECISION
DE LEON, JR., J.:
Before us are two (2) consolidated petitions for review, one filed by the Terminal Facilities and Services Corporation
(TEFASCO) (G.R. No. 135639) and the other by the Philippine Ports Authority (PPA) (G.R. No. 135826), of the
Amended Decision dated September 30, 1998 of the former Special Second Division of the Court of Appeals in CA-
1

G.R. CV No. 47318 ordering the PPA to pay TEFASCO: (1) Fifteen Million Eight Hundred Ten Thousand Thirty-Two
Pesos and Seven Centavos (₱15,810,032.07) representing fifty percent (50%) wharfage dues and Three Million
Nine Hundred Sixty-One Thousand Nine Hundred Sixty-Four Pesos and Six Centavos (₱3,961,964.06) representing
thirty percent (30%) berthing fees from 1977 to 1991, which amounts TEFASCO could have earned had not PPA
illegally imposed one hundred percent (100%) wharfage and berthing fees, and (2) the sum of Five Hundred
Thousand Pesos (₱500,000.00) as attorney’s fees. No pronouncement was made as to costs of suit.
In G.R. No. 135639 TEFASCO assails the declaration of validity of the government share and prays for
reinstatement in toto of the decision of the trial court. In G.R. No. 135826 PPA impugns the Amended Decision for
awarding the said two (2) amounts for loss of private port usage fees as actual damages, plus attorney's fees.
TEFASCO is a domestic corporation organized and existing under the laws of the Philippines with principal place of
business at Barrio Ilang, Davao City. It is engaged in the business of providing port and terminal facilities as well as
arrastre, stevedoring and other port-related services at its own private port at Barrio Ilang.
Sometime in 1975 TEFASCO submitted to PPA a proposal for the construction of a specialized terminal complex
with port facilities and a provision for port services in Davao City. To ease the acute congestion in the government
ports at Sasa and Sta. Ana, Davao City, PPA welcomed the proposal and organized an inter-agency committee to
study the plan. The committee recommended approval thereof and its report stated that -
TEFASCO Terminal is a specialized terminal complex. The specialized matters intended to be captured are: (a)
bananas in consideration of the rate of spoilage; (b) sugar; (c) fertilizers; (d) specialized movement of beer in pallets
containerized handling lumber and plywood.
3.2 Limitations of the government facilities -
The government port facilities are good for general cargoes only. Both ports are not equipped to handle specialized
cargoes like bananas and container cargoes. Besides the present capacity, as well as the planned improvements,
cannot cope with the increasing volume of traffic in the area. Participation of the private sector, therefore, involving
private financing should be encouraged in the area.
3.3 Project Viability -
3.3.1 Technical Aspect - From the port operations point of view, the project is technically feasible. It is within a well-
protected harbor and it has a sufficient depth of water for berthing the ships it will service. The lack of back up area
can be supplied by the 21-hectare industrial land which will be established out of the hilly land area which is to be
scrapped and leveled to be used to fill the area for reclamation.
3.3.2 Economic Aspect - The international port of Sasa and the domestic port of Sta. Ana are general cargo type
ports. They are facing serious ship and cargo congestion problems brought about mainly by the faster growth of
shipping industry than the development of the ports. They do not possess the special cargo handling facilities which
TFSC plans to put up at the proposed terminal.
xxx The proposed project expects to get a 31% market slice. It will service domestic and foreign vessels. Main
products to be handled initially will be bananas in the export trade and beer in the domestic traffic. Banana exporters
in Davao, like Stanfilco and Philippine Packing Corporation have signified their intentions to use the port.
Negotiations between TFSC and banana exporters on whether the former or the latter should purchase the
mechanical loading equipment have not yet been formed up xxx.
Easing the problems at these two ports would result in savings on cost of the operation as cargo storage and on
damages and losses. It would also give relief to passengers from time-delay, inconvenience and exposure to
hazards in commuting between the pier and ship at anchor.
Furthermore, it would redound to better utilization of the government piers, therefore greater revenue from port
operations.
At the bigger scale, more economic benefits in terms of more employment, greater productivity, increased per capita
income in the Davao region, and in light of the limited financial resources of the government for port development
the TFSC proposal would be beneficial to the country.
On April 21, 1976 the PPA Board of Directors passed Resolution No. 7 accepting and approving TEFASCO's project
proposal. PPA resolved to -
xxx [a]pprove, xxx the project proposal of the Terminal Facilities and Services Corporation, Inc. for the construction
of specialized port facilities and provision of port services in Davao City, subject to the terms and conditions set forth
in the report of the Technical Committee created by the Board in its meeting of January 30, 1975, and to the usual
government rules and regulations.
PPA relayed its acceptance of the project terms and conditions to TEFASCO in the letter dated May 7, 1976 of
2

Acting General Manager Mariano Nicanor which affirmed that -

We are pleased to inform you that the Board of Directors, Philippine Ports Authority, approved the project proposal
of the Terminal Facilities and Services Corporation to construct a specialized port facilities and provision of port
services in Davao City as follows:
1) Docking Facilities for Ocean Going and Interisland vessels with containerized cargo.
2) Stevedoring and Arrastre for above.
3) Warehousing;
4) Container yard and warehouse for containerizing cargoes or breaking up cargoes for containers.
5) Bulk handling and silos for corn, in cooperation with the NGA.
6) Bulk handling for fertilizer.
7) Bulk handling or conveyor system for banana exports.
8) Bulk handling for sugar.
9) Bonded warehousing.
The approval is subject to the terms and conditions set forth at enclosure.
You are hereby authorized to start work immediately taking into account national and local laws and regulations
pertaining to the project construction and operation.
The enclosure referred to in the letter above-quoted stipulated the "Terms and Conditions of PPA Board Approval of
the Project Proposal," particularly -
3

(1) That all fees and/or permits pertinent to the construction and operation of the proposed project shall be
paid to and/or secured from the proper authorities.
(2) That the plans shall not be altered without the prior approval of the Bureau of Public Works in
coordination with the PPA.
(3) That [any] damage to public and private property arising from the construction and operation of the
project shall be the sole responsibility of the applicant-company.
(4) That the Director of Public Works shall be notified five (5) days before the start of the construction works
and that the Director of Public Works or his representative shall be authorized to inspect the works and
premises while the work is in progress and even after the completion thereof.
(5) That the applicant shall construct and complete the structure under the proposed project within eighteen
(18) months after the approval of the permit, otherwise the permit shall be null and void.
(6) That the facility shall handle general cargoes that are loaded as filler cargoes on bulk/container ships
calling at the facility.
(7) That the applicant shall build up its banana export traffic to replace the probable loss of its container
traffic five (5) years from now because of the plan of PPA to put up a common user type container terminal at
the port of Sasa.
(8) That all charges payable to the Bureau of Customs will continue to apply upon take over of port
operations by the PPA of the Port of Davao from the Bureau of Customs and direct control and regulations of
operations of private port facilities in the general area of that port.
Under the foregoing terms and conditions, TEFASCO contracted dollar loans from private commercial institutions
abroad to construct its specialized terminal complex with port facilities and thereafter poured millions worth of
investments in the process of building the port. Long after TEFASCO broke ground with massive infrastructure work,
the PPA Board curiously passed on October 1, 1976 Resolution No. 50 under which TEFASCO, without asking for
one, was compelled to submit an application for construction permit. Without the consent of TEFASCO, the
application imposed additional significant conditions -
(1) This Permit to Construct (PTC) will entitle the applicant to operate the facility for a period of fifteen (15) years,
without jeopardy to negotiation for a renewal for a period not exceeding ten (10) years. At the expiration of the
permit, all improvements shall automatically become the property of the Authority. Thereafter, any interested party,
including the applicant, may lease it under new conditions; (2) In the event that the Foreshore Lease Application
expires or is disapproved/canceled, this permit shall also be rendered null and void; xxx (7) All other fees and/or
permits pertinent to the construction and operation of the proposed project shall be paid to and/or secured from the
proper authorities; xxx (9) Unless specifically authorized, no general cargo shall be handled through the facility; (10)
All rates and charges to be derived from the use of said facility or facilities shall be approved by the Authority; xxx
(12) An application fee in the amount of one-tenth or one percent of the total estimated cost of the proposed
improvement/structure shall be paid upon advice; (13) Other requirements of the law shall be complied by the
applicant.
NOTE: Subject further to the terms and conditions as approved by PPA Board under Resolution No. 7 of 21 April
1976, except that PPA shall take over the role of the Bureau of Public Works and of the Bureau of Customs
stipulated in the said approval.
TEFASCO played along with this needless exercise as PPA approved the awkward application in a letter stating -
We are returning herewith your application for Permit to Construct No. 77-19 dated 18 October 1977, duly approved
(validation of the original permit to construct approved by the PPA Board under Resolution No. 7 of 21 April 1976),
for the construction of your port facilities in Bo. Ilang, Davao City, subject to the conditions stipulated under the
approved permit and in accordance with the attached approved set of plans and working drawings.
It is understood that this permit is still subject to the terms and conditions under the original permit except that this
Authority takes over the role of the Bureau of Public Works and of the Bureau of Customs as stipulated thereon.
The series of PPA impositions did not stop there. Two (2) years after the completion of the port facilities and the
commencement of TEFASCO's port operations, or on June 10, 1978, PPA again issued to TEFASCO another
permit, designated as Special Permit No. CO/CO-1-067802, under which more onerous conditions were foisted on
TEFASCO’s port operations. In the purported permit appeared for the first time the contentious provisions for ten
4

percent (10%) government share out of arrastre and stevedoring gross income and one hundred percent (100%)
wharfage and berthing charges, thus -
Pursuant to the provisions of Presidential Decree No. 857, otherwise known as the Revised Charter of the Philippine
Ports Authority, and upon due consideration of the formal written application and its enclosures in accordance with
PPA Memorandum Order No. 21 dated May 27, 1977, PPA Administrative Order No. 22-77 dated December 9,
1977, and other pertinent policies and guidelines, a Special Permit is hereby granted to TERMINAL FACILITIES
AND SERVICES CORPORATION (TEFASCO), with address at Slip 3, Pier 4, North Harbor, Manila to provide its
arrastre/stevedoring services at its own private wharf located at Barrio Ilang, Davao City, subject to the following
conditions:
xxx xxx xxx
2. Grantee shall render arrastre/stevedoring services on cargoes of vessels under the agency of Retla
Shipping/Transcoastal Shipping, Solid Shipping, Sea Transport and other commercial vessels which cannot
be accommodated in government piers at PMU-Davao due to port congestion which shall be determined by
the Port Manager/Harbor Master/Port Operations Officer whose decision shall be conclusive;
3. Grantee shall promptly submit its latest certified financial statement and all statistical and other data
required by the Authority from time to time;
4. Grantee shall strictly comply with all applicable PPA rules and regulations now in force or to be
promulgated hereafter and other pertinent rules and regulations promulgated by other agency of the
government and other applicable laws, orders or decrees;
5. Grantee shall remit to the government an amount equivalent to ten (10%) percentum of the handling rates
chargeable on similar cargo in government piers/wharves within the jurisdiction of PMU-Davao on or before
the 5th working day of every month provided, however, that in case of delay, grantee shall pay a penalty of
one (1%) percentum of the accumulated total amount due for every day of delay; provided, further, that said
rate shall be reasonably adjusted if and when warranted by the financial conditions of the Grantee;
6. Grantee shall settle with the Authority its back accounts on the 10% government share from the start of its
arrastre/stevedoring operation plus 6% legal interest per annum as provided by law;
7. That cargoes and vessels diverted to TEFASCO wharf shall be subject to 100% wharfage and berthing
charges respectively;
8. Grantee shall hold the Authority free from any liability arising out of the maintenance and operation
thereof;
9. Grantee shall not in any manner pose a competition with any port or port facility owned by the
government. Rates of charges shall in no case be lower than those prevailing at the Government Port of
Davao.
 xxx xxx xxx
This Special Permit is non-transferable and shall remain valid from the date of issuance hereof until December 31,
1978; provided, however, that at any time prior to the expiration thereof, the same may be revoked for violation of
any of the conditions herein set forth or for cause at the discretion of the PPA General Manager or his duly
authorized representative.
Subsequent exactions of PPA included: (a) Admin. Order 09-81, s. 1981, notifying all arrastre and stevedoring
5

operators, whether they do business in government owned port facilities, that special services income be subjected
to "government share" equivalent to ten percent (10%) thereof; and, (b) Memo. Circ. 36-82, s. 1982, mandating an
6

assessment of one hundred percent (100%) wharfage dues on commercial and third-party cargoes regardless of
extent of use of private port facilities and one hundred percent (100%) berthing charges on every foreign vessel
docking at private wharves loading or discharging commercial or third-party cargoes. TEFASCO repeatedly asked
PPA for extensions to pay these additional obligations and for reduction in the rates. But the PPA's response was
final and non-negotiable statements of arrears and current accounts and threats of business closure in case of
failure to pay them. The trial court summed up the documentary evidence on this point -
7

xxx [w]hen TEFASCO requested for the structuring of its account of P3.5 million, resulting to a memorandum, issued
by PPA General Manager to its internal control, to verify the specific assessment of TEFASCO, coming out in the
specific amount of P3,143,425.67 which became a subject of TEFASCO various and series of letters-protest to PPA,
for reconsideration of its ultimatum, to enforce TEFASCO’s back account, dated June 1, 1983, marked Exh. "32" for
defendant, after a series of letters for reconsideration of TEFASCO and reply of PPA, marked Exh. "26" to "31" for
the defendants, an ultimatum letter of PPA was issued followed by another series of letters of protest,
reconsideration and petition of TEFASCO and reply of PPA, correspondingly marked Exh. "40" – "51" for the
defendants, until ultimately, the execution of a memorandum of agreement, marked Exh. "52" for the defendant,
dated February 10, 1984.
Most alarming was the receipt of defendants communication by TEFASCO, in its letter dated June 1, 1983, a cease
and desist order of PPA for TEFASCO, to stop its commercial port operation xxx. 8

On February 10, 1984 TEFASCO and PPA executed a Memorandum of Agreement (MOA) providing among others
for (a) acknowledgment of TEFASCO's arrears in government share at Three Million Eight Hundred Seven
Thousand Five Hundred Sixty-Three Pesos and Seventy-Five Centavos (₱3,807,563.75) payable monthly, with
default penalized by automatic withdrawal of its commercial private port permit and permit to operate cargo handling
services; (b) reduction of government share from ten percent (10%) to six percent (6%) on all cargo handling and
related revenue (or arrastre and stevedoring gross income); (c) opening of its pier facilities to all commercial and
third-party cargoes and vessels for a period coterminous with its foreshore lease contract with the National
Government; and, (d) tenure of five (5) years extendible by five (5) more years for TEFASCO's permit to operate
cargo handling in its private port facilities. In return PPA promised to issue the necessary permits for TEFASCO’s
port activities. TEFASCO complied with the MOA and paid the accrued and current government share. 9

On August 30, 1988 TEFASCO sued PPA and PPA Port Manager, and Port Officer in Davao City for refund of
government share it had paid and for damages as a result of alleged illegal exaction from its clients of one hundred
percent (100%) berthing and wharfage fees. The complaint also sought to nullify the February 10, 1984 MOA and all
other PPA issuances modifying the terms and conditions of the April 21, 1976 Resolution No. 7 above-mentioned. 10

The RTC, Branch 17, Davao City, in its decision dated July 15, 1992 in Civil Case No. 19216-88, ruled for
TEFASCO, (a) nullifying the MOA and all PPA issuances imposing government share and one hundred percent
(100%) berthing and wharfage fees or otherwise modifying PPA Resolution No. 7, and, (b) awarding Five Million
Ninety-Five Thousand Thirty Pesos and Seventeen Centavos (₱5,095,030.17) for reimbursement of government
share and Three Million Nine Hundred Sixty-One Thousand Nine Hundred Sixty-Four Pesos and Six Centavos
(₱3,961,964.06) for thirty percent (30%) berthing charges and Fifteen Million Eight Hundred Ten Thousand Thirty-
Two Pesos and Seven Centavos (₱15,810,032.07) for fifty percent (50%) wharfage fees which TEFASCO could
have earned as private port usage fee from 1977 to 1991 had PPA not collected one hundred percent (100%) of
these fees; Two Hundred Forty-Eight Thousand Seven Hundred Twenty-Seven Pesos (₱248,727.00) for dredging
and blasting expenses; One Million Pesos (₱1,000,000.00) in damages for blatant violation of PPA Resolution No. 7;
and, Five Hundred Thousand Pesos (₱500,000.00) for attorneys fees, with twelve percent (12%) interest per annum
on the total amount awarded. 11

PPA appealed the decision of the trial court to the Court of Appeals. The appellate court in its original decision
recognized the validity of the impositions and reversed in toto the decision of the trial court. TEFASCO moved for
12

reconsideration which the Court of Appeals found partly meritorious. Thus the Court of Appeals in its Amended
Decision partially affirmed the RTC decision only in the sense that PPA was directed to pay TEFASCO (1) the
amounts of Fifteen Million Eight Hundred Ten Thousand Thirty-Two Pesos and Seven Centavos (₱15,810,032.07)
representing fifty percent (50%) wharfage fees and Three Million Nine Hundred Sixty-One Thousand Nine Hundred
Sixty-Four Pesos and Six Centavos (₱3,961,964.06) representing thirty percent (30%) berthing fees which
TEFASCO could have earned as private port usage fee from 1977 to 1991 had PPA not illegally imposed and
collected one hundred percent (100%) of wharfage and berthing fees and (2) Five Hundred Thousand Pesos
(₱500,000.00) for attorney’s fees. The Court of Appeals held that the one hundred percent (100%) berthing and
wharfage fees were unenforceable because they had not been approved by the President under Secs. 19 and 20,
P.D. No. 857, and discriminatory since much lower rates were charged in other private ports as shown by PPA
issuances effective 1995 to 1997. Both PPA and TEFASCO were unsatisfied with this disposition hence these
petitions.
In G.R. No. 135639 TEFASCO prays to reinstate in toto the decision of the trial court. Its grounds are: (a) PPA
Resolution No. 7 and the terms and conditions thereunder constitute a contract that PPA could not change at will; (b)
the MOA between PPA and TEFASCO indicating the schedule of TEFASCO arrears and reducing the rate of
government share is void for absence of consideration; and, (c) government share is neither authorized by PPA
Resolution No. 7 nor by any law, and in fact, impairs the obligation of contracts.
In G.R. No. 135826 PPA seeks to set aside the award of actual damages for wharfage and berthing fees and for
attorney’s fees. PPA anchors its arguments on the following: (a) that its collection of one hundred percent (100%)
wharfage and berthing fees is authorized by Secs. 6 (b, ix) and 39 (a), P.D. No. 857, under which the imposable
rates for such fees are within the sole power and authority of PPA; (b) that absence of evidentiary relevance of PPA
issuances effective 1995 to 1997 reducing wharfage, berthing and port usage fees in private ports; (c) that
TEFASCO's lack of standing to claim alleged overpayments of wharfage and berthing fees; and, (d) that lack of legal
basis for the award of fifty percent (50%) wharfage and thirty percent (30%) berthing fees as actual damages in
favor of TEFASCO for the period from 1977 to 1991, and for attorney’s fees.
In a nutshell, the issues in the two (2) consolidated petitions are centered on: (a) the character of the obligations
between TEFASCO and PPA; (b) the validity of the collection by PPA of one hundred percent (100%) wharfage fees
and berthing charges; (c) the propriety of the award of fifty percent (50%) wharfage fees and thirty percent (30%)
berthing charges as actual damages in favor of TEFASCO for the period from 1977 to 1991; (d) the legality of the
imposed government share and the MOA stipulating a schedule of TEFASCO's arrears for and imposing a reduced
rate of government share; and, (e) the propriety of the award of attorney’s fees and damages.
Firstly, it was not a mere privilege that PPA bestowed upon TEFASCO to construct a specialized terminal complex
with port facilities and provide port services in Davao City under PPA Resolution No. 7 and the terms and conditions
thereof. Rather, the arrangement was envisioned to be mutually beneficial, on one hand, to obtain business
opportunities for TEFASCO, and on the other, enhance PPA's services -
The international port of Sasa and the domestic port of Sta. Ana are general cargo type ports. They are facing
serious ship and cargo congestion problems brought about mainly by the faster growth of shipping industry than the
development of the ports. They do not possess the special cargo handling facilities which TFSC plans to put up at
the proposed terminal.13

It is true that under P.D. No. 857 (1975) as amended, the construction and operation of ports are subject to
14

licensing regulations of the PPA as public utility. However, the instant case did not arise out of pure beneficence on
15

the part of the government where TEFASCO would be compelled to pay ordinary license and permit fees.
TEFASCO accepted and performed definite obligations requiring big investments that made up the valuable
consideration of the project. The inter-agency committee report that recommended approval of TEFASCO port
construction and operation estimated investments at Sixteen Million Pesos (₱16,000,000.00) (1975/1976 price
levels) disbursed within a construction period of one year and covered by foreign loans of Two Million Four Hundred
16

Thirty-Four Thousand US Dollars (US$2,434,000.00) with interests of up to Ten Million Nine Hundred Sixty-Five
Thousand Four Hundred Sixty-Five Pesos (₱10,965,465.00) for the years 1979 to 1985. In 1987 the total
17

investment of TEFASCO in the project was valued at One Hundred Fifty-Six Million Two Hundred Fifty-One
Thousand Seven Hundred Ninety-Eight Pesos (₱156,251,798.00). The inter-agency committee report also listed
18

the costly facilities TEFASCO would build, and which in fact it has already built -
xxx The terminal complex will provide specialized mechanical cargo handling facilities for bananas, sugar, beer,
grain and fertilizer, and containerized cargo operations. The marginal wharf could accommodate two ocean-going
ships and one inter-island vessel at a time. The essential structures and facilities to be provided are: (1) 400-meter
concrete wharf; (2) Back-up area (3.8 hectare reclaimed area plus a 21-hectare inland industrial zone); (3) Two
warehouses with total floor area of 5,000 sq. meters; (4) mechanized banana loading equipment; (5) container
yard.19

With such considerable amount of money spent in reliance upon the promises of PPA under Resolution No. 7 and
the terms and conditions thereof, the authorization for TEFASCO to build and operate the specialized terminal
complex with port facilities assumed the character of a truly binding contract between the grantor and the
grantee. It was a two-way advantage for both TEFASCO and PPA, that is, the business opportunities for the former
20

and the decongestion of port traffic in Davao City for the latter, which is also the cause of consideration for the
existence of the contract. The cases of Ramos v. Central Bank of the Philippines and Commissioner of Customs v.
21

Auyong Hian are deemed precedents. In Ramos, the Central Bank (CB) committed itself to support the Overseas
22

Bank of Manila (OBM) and avoid its liquidation in exchange for the execution of a voting trust agreement turning
over the management of OBM to CB and a mortgage of its properties to CB to cover OBM’s overdraft balance. This
agreement was reached in CB’s capacity as the regulatory agency of banking operations. After OBM accepted and
performed in good faith its obligations, we deemed as perfected contract the relation between CB and OBM from
which CB could not retreat and in the end prejudice OBM and its depositors and creditors -
Bearing in mind that the communications, xxx as well as the voting trust agreement xxx had been prepared by the
CB, and the well-known rule that ambiguities therein are to be construed against the party that caused them, the
record becomes clear that, in consideration of the execution of the voting trust agreement by the petitioner
stockholders of OBM, and of the mortgage or assignment of their personal properties to the CB, xxx the CB had
agreed to announce its readiness to support the new management "in order to allay the fears of depositors and
creditors" xxx and to stave off liquidation "by providing adequate funds for the rehabilitation, normalization and
stabilization" of the OBM, in a manner similar to what the CB had previously done with the Republic Bank xxx. While
no express terms in the documents refer to the provision of funds by CB for the purpose, the same is necessarily
implied, for in no other way could it rehabilitate, normalize and stabilize a distressed bank. xxx
The deception practiced by the Central Bank, not only on petitioners but on its own management team, was in
violation of Articles 1159 and 1315 of the Civil Code of the Philippines:
Art. 1159. Obligations arising from contracts have the force of law between the contracting parties and should be
complied with in good faith.
Art. 1315. Contracts are perfected by mere consent, and from that moment the parties are bound not only to the
fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature,
may be in keeping with good faith, usage and law. 23

Auyong Hian involved an importation of old newspapers in four (4) shipments under a "no-dollar" arrangement
pursuant to a license issued by the Import Control Commission. When the last shipment arrived in Manila, the
customs authorities seized the importation on the ground that it was made without the license required by Central
Bank Circular No. 45. While the seizure proceedings were pending before the Collector of Customs, the President of
the Philippines through its Cabinet canceled the aforesaid license for the reason that it was illegally issued "in that
no fixed date of expiration is stipulated." On review, this Court held -
xxx [W]hile the Cabinet, acting for the President, can pass on the validity of a license issued by the Import Control
Commission, that power cannot be arbitrarily exercised. The action must be founded on good ground or reason and
must not be capricious or whimsical. This principle is so clear to require further elaboration.
xxx In fact, if the cancellation were to prevail, the importer would stand to lose the license fee he paid amounting to
₱12,000.00, plus the value of the shipment amounting to ₱21,820.00. This is grossly inequitable. Moreover, "it has
been held in a great number of cases that a permit or license may not arbitrarily be revoked xxx where, on the faith
of it, the owner has incurred material expense."
It has also been held that "where the licensee has acted under the license in good faith, and has incurred expense
in the execution of it, by making valuable improvements or otherwise, it is regarded in equity as an executed
contract and substantially an easement, the revocation of which would be a fraud on the licensee, and therefore the
licensor is estopped to revoke it xxx It has also been held that the license cannot be revoked without reimbursing
the licensee for his expenditures or otherwise placing him in status quo." 24

For a regulatory permit to be impressed with contractual character we held in Batchelder v. Central Bank that the
25

administrative agency in issuing the permit must have assumed such obligation on itself. The facts certainly bear out
the conclusion that PPA passed Resolution No. 7 and the terms and conditions thereof with a view to decongesting
port traffic in government ports in Davao City and engaging TEFASCO to infuse its own funds and skills to operate
another port therein. As acceptance of these considerations and execution thereof immediately followed, it is too
late for PPA to change the rules of engagement with TEFASCO as expressed in the said Resolution and other
relevant documents.
The terms and conditions binding TEFASCO are only those enumerated or mentioned in the inter-agency committee
report, PPA Resolution No. 7 and PPA letter dated May 7, 1976 and its enclosure. With due consideration for the
policy that laws of the land are written into every contract, the said documents stand to be the only source of
26

obligations between the parties. That being the case, it was arbitrary, unreasonable and unfair for PPA to add new
burdens and uncertainties into their agreement of which TEFASCO had no prior knowledge even in the context of
regulation.
Lowell v. Archambault is persuasive on this issue. In that case, the defendant was engaged in the business of an
27

undertaker who wanted to erect on his land a stable to be used in connection therewith. He then applied to the
board of health for a license to permit him to occupy and use the building when completed for the stabling of eight
(8) horses. His application was granted and a license was issued to him permitting the exercise of this privilege.
Upon receiving it, he at once had plans prepared and began the erection of a stable on a site from which he had, at
a pecuniary loss, removed another building. After the work had begun but before its completion, the board of health
acting on a petition of residents in the immediate vicinity rescinded their former vote and canceled the license. The
court held -
xxxUpon application for permission to erect a stable, which, in the absence of a restricting statute, would be a
legitimate improvement in the enjoyment of his property, the applicant is entitled to know the full measure of
immunity that can be granted to him before making the expenditure of money required to carry out his purpose. A
resort to the general laws relating to the subject, or to ordinances or regulations made pursuant to them, should
furnish him with the required information. When this has been obtained, he has a right to infer that he can safely act,
with the assurance that, so long as he complies with the requirements under which it is proposed to grant the
privilege, he has a constitutional claim to protection, until the legislature further restricts or entirely abolishes the
right bestowed. A license should not be subjected to the uncertainties that constantly would arise if unauthorized
limitations, of which he can have no knowledge, are subsequently and without notice to be read into his license, at
the pleasure of the licensing board. Besides, all reasonable police regulations enacted for the preservation of the
public health or morality, where a penalty is provided for their violation, while they may limit or prevent the use or
enjoyment of property except under certain restrictions, and are constitutional, create statutory misdemeanors,
which are not to be extended by implication. xxx. It was not within the power of the board of health, even after a
hearing, in the absence of an authority conferred upon them by legislative sanction, to deprive him of the privilege
they had unreservedly granted. 28
The record shows that PPA made express representations to TEFASCO that it would authorize and support its port
project under clear and categorical terms and conditions of an envisioned contract. TEFASCO complied with its
obligation which ultimately resulted to the benefit of PPA. And the PPA accepted the project as completed and
authorized TEFASCO to operate the same. Under these circumstances, PPA is estopped from reneging on its
commitments and covenants as exclusively contained in the inter-agency committee report, PPA Resolution No. 7
and PPA letter dated May 7, 1976 and its enclosure. As this Court explained in Ramos v. Central Bank of the
Philippines - 29

xxx[A]n estoppel may arise from the making of a promise even though without consideration, if it was intended that
the promise should be relied upon and in fact it was relied upon, and if a refusal to enforce it would be virtually to
sanction the perpetration of fraud or would result in other injustice. In this respect, the reliance by the promisee is
generally evidenced by action or forbearance on his part, and the idea has been expressed that such action or
forbearance would reasonably have been expected by the promisor. xxx
But even assuming arguendo that TEFASCO relied upon a mere privilege granted by PPA, still the terms and
conditions between them as written in the documents approving TEFASCO's project proposal should indubitably
remain the same. Under traditional form of property ownership, recipients of privileges or largesses from the
government could be said to have no property rights because they possessed no traditionally recognized proprietary
interest therein. The cases of Vinco v. Municipality of Hinigaran and Pedro v. Provincial Board of Rizal holding that
30 31

a license to operate cockpits would be a mere privilege belonged to this vintage. But the right-privilege dichotomy
came to an end when courts realized that individuals should not be subjected to the unfettered whims of
government officials to withhold privileges previously given them. Indeed to perpetuate such distinction would leave
32

the citizens at the mercy of State functionaries, and worse, threaten the liberties protected by the Bill of Rights. Thus
in Kisner v. Public Service Commission wherein the US Public Service Commission reduced the number of vehicles
33

which appellant Kisner was authorized to operate under his certificate of convenience and necessity when no limit
was stipulated therein, it was ruled -
It appears from the record in this case that after the issuance of the initial certificate the appellant took steps to
procure vehicles in addition to the one he already owned. He changed his position in reliance upon the original
certificate authorizing him to operate an unlimited number of vehicles. xxx For the purpose of due process analysis,
a "property interest" includes not only the traditional notions of real and personal property, but also extends to those
benefits to which an individual may be deemed to have a legitimate claim of entitlement under existing rules and
regulations. xxx The right of the appellant in the case at bar to operate more than one vehicle under the certificate of
convenience and necessity, as originally issued, clearly constituted a benefit to the appellant and that benefit may
be deemed to be a legitimate claim of entitlement under existing rules and regulations.
Even if PPA granted TEFASCO only a license to construct and operate a specialized complex terminal with port
facilities, the fact remains that PPA cannot unilaterally impose conditions that find no basis in the inter-agency
committee report, PPA Resolution No. 7 and PPA letter dated May 7, 1976 and its enclosure.
Secondly, we hold that PPA's imposition of one hundred percent (100%) wharfage fees and berthing charges is
void. It is very clear from P.D. No. 857 as amended that wharfage and berthing rates collectible by PPA "upon the
coming into operation of this Decree shall be those now provided under Parts 1, 2, 3 and 6 of Title VII of Book II
of The Tariff and Customs Code, until such time that the President upon recommendation of the Board may order
that the adjusted schedule of dues are in effect." PPA cannot unilaterally peg such rates but must rely on either The
34

Tariff and Customs Code or the quasi-legislative issuances of the President in view of the legislative prerogative of
rate-fixing.
35

Accordingly, P.D. No. 441 (1974) amending The Tariff and Customs Code fixed wharfage dues at fixed amounts per
specified quantity brought into or involving national ports or at fifty percent (50%) of the rates provided for herein in
case the articles imported or exported from or transported within the Philippines are loaded or unloaded offshore, in
midstream, or in private wharves where no loading or unloading facilities are owned and maintained by the
government. Inasmuch as the TEFASCO port is privately owned and maintained, we rule that the applicable rate for
imported or exported articles loaded or unloaded thereat is not one hundred percent (100%) but only fifty percent
(50%) of the rates specified in P.D. No. 441.
As regard berthing charges, this Court has ruled in Commissioner of Customs v. Court of Tax Appeals that "subject
36

vessels, not having berthed at a national port but at the Port of Kiwalan, which was constructed, operated, and
continues to be maintained by private respondent xxx are not subject to berthing charges, and petitioner should
refund the berthing fees paid by private respondent." The berthing facilities at Port of Kiwalan were constructed,
improved, operated and maintained solely by and at the expense of a private corporation, the Iligan Express. On
various dates, vessels using the berthing facilities therein were assessed berthing fees by the Collector of Customs
which were paid by private respondent under protest. We nullified the collection and ordered their refund -
The only issue involved in this petition for review is: Whether a vessel engaged in foreign trade, which berths at a
privately owned wharf or pier, is liable to the payment of the berthing charge under Section 2901 of the Tariff and
Customs Code, which, as amended by Presidential Decree No. 34, reads:
Sec. 2901. Definition. - Berthing charge is the amount assessed against a vessel for mooring or berthing at a pier,
wharf, bulk-head-wharf, river or channel marginal wharf at any national port in the Philippines; or for mooring or
making fast to a vessel so berthed; or for coming or mooring within any slip, channel, basin, river or canal under the
jurisdiction of any national port of the Philippines: Provided, however, That in the last instance, the charge shall be
fifty (50%) per cent of rates provided for in cases of piers without cargo shed in the succeeding sections. The owner,
agent, operator or master of the vessel is liable for this charge.
Petitioner Commissioner of Customs contends that the government has the authority to impose and collect berthing
fees whether a vessel berths at a private pier or at a national port. On the other hand, private respondent argues
that the right of the government to impose berthing fees is limited to national ports only.
The governing law classifying ports into national ports and municipal ports is Executive Order No. 72, Series of 1936
(O.G. Vol. 35, No. 6, pp. 65-66). A perusal of said executive order discloses the absence of the port of Kiwalan in the
list of national ports mentioned therein.
Furthermore, Paragraph 1 of Executive Order No. 72 expressly provides that "the improvement and maintenance of
national ports shall be financed by the Commonwealth Government, and their administration and operation shall be
under the direct supervision and control of the Insular Collector of Customs." It is undisputed that the port of Kiwalan
was constructed and improved and is operated and maintained solely by and at the expense of the Iligan Express
Corporation, and not by the National Government of the Republic or any of its agencies or instrumentalities. xxx The
port of Kiwalan not being included in the list of national ports appended to Customs Memorandum Circular No. 33-
73 nor in Executive Order No. 72, it follows inevitably as a matter of law and legal principle that this Court may not
properly consider said port as a national port. To do otherwise would be to legislate on our part and to arrogate unto
ourselves powers not conferred on us by the Constitution. xxx
Plainly, therefore, the port of Kiwalan is not a national port. xxx
Section 2901 of the Tariff and Customs Code prior to its amendment and said section as amended by Presidential
Decree No. 34 are hereunder reproduced with the amendments duly highlighted:
Sec. 2901. Definition. - Berthing charge is the amount assessed against a vessel for mooring or berthing at a pier,
wharf, bulkhead-wharf, river or channel marginal wharf at any port in the Philippines; or for mooring or making fast to
a vessel so berthed; or for coming or mooring within any slip, channel, basin, river or canal under the jurisdiction of
any port of the Philippines (old TCC).
Sec. 2901. Definition. - Berthing charge is the amount assessed a vessel for mooring or berthing at a pier, wharf,
bulkhead-wharf, river or channel marginal wharf AT ANY NATIONAL PORT IN THE PHILIPPINES; for mooring or
making fast to a vessel so berthed; or for coming or mooring within any slip, channel, basin, river or canal under the
jurisdiction of ANY NATIONAL port of the Philippines; Provided, HOWEVER, THAT IN THE LAST INSTANCE, THE
CHARGE SHALL BE FIFTY (50%) PER CENT OF RATES PROVIDED FOR IN CASES OF PIERS WITHOUT
CARGO SHED IN THE SUCCEEDING SECTIONS. (emphasis in the original).
It will thus be seen that the word "national" before the word "port" is inserted in the amendment. The change in
phraseology by amendment of a provision of law indicates a legislative intent to change the meaning of the
provision from that it originally had (Agpalo, supra, p. 76). The insertion of the word "national" before the word "port"
is a clear indication of the legislative intent to change the meaning of Section 2901 from what it originally meant, and
not a mere surplusage as contended by petitioner, in the sense that the change "merely affirms what customs
authorities had been observing long before the law was amended" (p. 18, Petition). It is the duty of this Court to give
meaning to the amendment. It is, therefore, our considered opinion that under Section 2901 of The Tariff and
Customs Code, as amended by Presidential Decree No. 34, only vessels berthing at national ports are liable for
berthing fees. It is to be stressed that there are differences between national ports and municipal ports, namely: (1)
the maintenance of municipal ports is borne by the municipality, whereas that of the national ports is shouldered by
the national government; (2) municipal ports are created by executive order, while national ports are usually created
by legislation; (3) berthing fees are not collected by the government from vessels berthing at municipal ports, while
such berthing fees are collected by the government from vessels moored at national ports. The berthing fees
imposed upon vessels berthing at national ports are applied by the national government for the maintenance and
repair of said ports. The national government does not maintain municipal ports which are solely maintained by the
municipalities or private entities which constructed them, as in the case at bar. Thus, no berthing charges may be
collected from vessels moored at municipal ports nor may berthing charges be imposed by a municipal council xxx. 37

PPA has not cited - nor have we found - any law creating the TEFASCO Port as a national port or converting it into
one. Hence, following case law, we rule that PPA erred in collecting berthing fees from vessels that berthed at the
privately funded port of petitioner TEFASCO.
It also bears stressing that one hundred percent (100%) wharfage dues and berthing charges are void for failing to
comply with Sec. 19, P.D. No. 857 as amended, requiring presidential approval of any increase or decrease of such
38

dues.
In Philippine Interisland Shipping Association of the Philippines v. CA we ruled that PPA cannot override the
39

statutory rates for dues by lowering rates of pilotage fees and leaving the fees to be paid for pilotage to agreement
of parties, and further stated that -
There is, therefore, no legal basis for PPA's intransigence, after failing to get the new administration of President
Aquino to revoke the order by issuing its own order in the form of A.O. NO. 02-88. It is noteworthy that if President
Marcos had legislative power under Amendment No. 6 of the 1973 Constitution so did President Aquino under the
Provisional (Freedom) Constitution who could, had she thought E.O. No. 1088 to be a mere "political gimmick," have
just as easily revoked her predecessor's order. It is tempting to ask if the administrative agency would have shown
the same act of defiance of the President's order had there been no change of administration. What this Court said
in La Perla Cigar and Cigarette Factory v. Capapas, mutatis mutandis, - may be applied to the cases at bar:
Was it within the powers of the then Collector Ang-angco to refuse to collect the duties that must be paid? That is
the crucial point of inquiry. We hold that it was not.
Precisely, he had to give the above legal provisions, quite explicit in character, force and effect. His obligation was to
collect the revenue for the government in accordance with existing legal provisions, executive agreements and
executive orders certainly not excluded. He would not be living up to his official designation if he were permitted to
act otherwise. He was not named Collector of Customs for nothing…
Certainly, if the President himself were called upon to execute the laws faithfully, a Collector of Customs, himself a
subordinate executive official, cannot be considered as exempt in any wise from such an obligation of fealty.
Similarly, if the President cannot suspend the operation of any law, it would be presumptuous in the extreme for one
in the position of then Collector Ang-angco to consider himself as possessed of such a prerogative… 40

Thirdly, PPA argues that the courts a quo wrongly awarded to TEFASCO fifty percent (50%) and thirty percent
(30%) of the wharfage dues and berthing charges, respectively, as actual damages representing private port usage
fees from 1977 to 1991. It claims that TEFASCO has no cause of action to ask for a portion of these fees since they
were collected from "the owner, agent, operator or master of the vessel" for the berthing charge and "the owner or
consignee of the article, or the agent of either" for the wharfage dues.
We find no merit in this argument. The cause of action of TEFASCO is the injury it suffered as a result of the illegal
imposition on its clientele of such dues and charges that should have otherwise gone to it as private port usage fee.
TEFASCO is asserting injury to its right to collect valuable consideration for the use of its facilities and wrongdoing
on the part of PPA prejudicing such right. This is especially true in the light of PPA’s practice of collecting one
hundred percent (100%) of the wharfage and berthing dues by cornering the cargoes and vessels, as it were, even
before they were landed and berthed at TEFASCO’s privately owned port. It is aggravated by the fact that these
unlawful rates were collected by PPA long after the port facilities of TEFASCO had been completed and functioning.
Considering these pleaded facts, TEFASCO’s cause of action has been sufficiently alleged and proven. We quote
with approval the following ruling of the Court of Appeals -
xxx As earlier stated, TEFASCO is only trying to recover income it has to forego because of the excessive
collections imposed by PPA. By doing what it was prohibited to do under an existing law, PPA cannot be allowed to
enjoy the fruits of its own illegal act. To be sure, TEFASCO suffered real damage as a result of such illegal act
requiring indemnification xxx.41

There is also no basis for PPA’s assertion that there was lack of evidence to support the award in favor of TEFASCO
of Fifteen Million Eight Hundred Ten Thousand Thirty-Two Pesos and Seven Centavos (₱15,810,032.07)
representing fifty percent (50%) wharfage dues and Three Million Nine Hundred Sixty-One Thousand Nine Hundred
Sixty-Four Pesos and Six Centavos (₱3,961,964.06) for thirty percent (30%) berthing charges from 1977 to 1991.
According to the appellate court, the determination was based on the "actual summarized list of cargoes and
vessels which went through TEFASCO’s port, which were under obligation to pay usage fees, multiplied by the
applicable tariff rates." The trial court explained in more detail the preponderant evidence for the judgment -
42

Another harassment is the issuance of Memorandum Circular No. 36-82, authorizing collection of 100% wharfage
fees, instead of only 50% and also 100% berthing fees, instead of only 70% as provided for in PD 441, marked Exh.
"LL" for plaintiff, and a copy of Letter of Instruction No. 8001-A, marked Exh. "NN" for plaintiff, in the process, the
total collection of PPA for wharfage fees, amounted to ₱10,582,850.00 and berthing fee, amounted to
₱6,997,167.00 in the latter case, berthing fee collected was marked Exh. "PP" for plaintiff, otherwise if PPA collected
only 70% as provided, it could have collected only ₱4,898,018.03, equally TEFASCO could have earned the
remainder of ₱2,099,150.90 while in the case of wharfage fee, if PPA collected only 50%, TEFASCO would have
earned the other half of ₱5,291,042.00, 50% by way of rentals. xxx
In cases of berthing and wharfage fees prior to the issuance of the injunction order from this court, PPA charges
100% the totality or summary of claims from PPA, from 1977 to 1991, was shown and marked Exhibit KKK and
submarkings, showing TEFASCO is supposed to collect, if PPA collects only 50% wharfage, the other 50% goes
with TEFASCO in case of berthing 70%, the remainder of 30% could have been collected by TEFASCO. 43

Under Arts. 2199 and 2200 of the Civil Code, actual or compensatory damages are those awarded in satisfaction of
or in recompense for loss or injury sustained. They proceed from a sense of natural justice and are designed to
44

repair the wrong done. In Producers Bank of the Philippines v. CA we succinctly explain the kinds of actual
45

damages, thus-
There are two kinds of actual or compensatory damages: one is the loss of what a person already possesses, and
the other is the failure to receive as a benefit that which would have pertained to him x x x. In the latter instance, the
familiar rule is that damages consisting of unrealized profits, frequently referred as "ganacias frustradas" or "lucrum
cessans,’ are not to be granted on the basis of mere speculation, conjecture, or surmise, but rather by reference to
some reasonably definite standard such as market value, established experience, or direct inference from known
circumstances xxx.
It is not necessary to prove with absolute certainty the amount of ganacias frustradas or lucrum cessans.
In Producers Bank of the Philippines we ruled that -
xxx the benefit to be derived from a contract which one of the parties has absolutely failed to perform is of necessity
to some extent, a matter of speculation, but the injured party is not to be denied for this reason alone. He must
produce the best evidence of which his case is susceptible and if that evidence warrants the inference that he has
been damaged by the loss of profits which he might with reasonable certainty have anticipated but for the
defendant’s wrongful act, he is entitled to recover. 46

Applying the test aforequoted, we find that TEFASCO has proved with clear and convincing evidence its loss of
wharfage and berthing fees. There was basis for the courts a quo in awarding to TEFASCO, as actual damages, the
sums equivalent to fifty percent (50%) and thirty percent (30%) of the wharfage dues and berthing charges,
respectively. It has not been denied that TEFASCO was forced to reluctantly let go of such fees to avoid the unwise
business practice of financially overburdening the users of its port by requiring them to pay beyond one hundred
percent (100%) of such dues. It has not also been disproved that this loss of TEFASCO was the direct result of the
collection of one hundred percent (100%) wharfage and berthing dues by PPA, an imposition that left nothing more
for TEFASCO to charge for the use of its port and terminal facilities. Consequently, there is merit in TEFASCO's
claim that had the PPA imposition been limited to the fifty percent (50%) wharfage dues and seventy percent (70%)
berthing charges, TEFASCO could have received the remainder as port usage fees since the amounts were
disbursed by its clients for that purpose. Significantly, in regard to berthing charges, TEFASCO's cause of action and
evidence presented before the trial court as well as its assigned error on appeal on that point were limited to thirty
percent (30%) of such charges.
Fourthly, we also declare void the imposition by PPA of ten percent (10%), later reduced to six percent (6%),
government share out of arrastre and stevedoring gross income of TEFASCO. This exaction was never mentioned
in the contract, much less is it a binding prestation, between TEFASCO and PPA. What was clearly stated in the
terms and conditions appended to PPA Resolution No. 7 was for TEFASCO to pay and/or secure from the proper
authorities "all fees and/or permits pertinent to the construction and operation of the proposed project." The
government share demanded and collected from the gross income of TEFASCO from its arrastre and stevedoring
activities in TEFASCO's wholly owned port is certainly not a fee or in any event a proper condition in a
regulatory permit. Rather it is an onerous "contractual stipulation" which finds no root or basis or reference even in
47

the contract aforementioned.

We stress that the cause of the contract between TEFASCO and PPA was, on the part of the former, to engage in
the business of operating its privately owned port facilities, and for the latter, to decongest port traffic in Davao City
and concomitantly to enhance regional trade. The records of the project acceptance made by PPA indicate that the
contract was executed not to earn income for PPA or the government as justification for the subsequent and unfair
imposition of government share in the arrastre and stevedoring gross income of TEFASCO. Hence this charge was
obviously an after-thought conceived by PPA only after the TEFASCO port had already begun its operations. The
sharing scheme only meant that PPA would piggy back unreasonably on the substantial investment and labor of
TEFASCO. As the scheme was subsequently stipulated on percentage of gross income, it actually penalized
TEFASCO for its hand work and substantial capital expenditures in the TEFASCO port and terminal.
Moreover, PPA is bereft of any authority to impose whatever amount it pleases as government share in the gross
income of TEFASCO from its arrastre and stevedoring operations. As an elementary principle of law, license
taxation must not be "so unreasonable to show a purpose to prohibit a business which is not itself injurious to public
health or morals." In the case at bar, the absurd and confiscatory character of government share is convincingly
48

proved by PPA's decision itself to abandon the disadvantageous scheme through Administrative Order No. 06-95
dated 4 December 1995, Liberalized Regulation on Private Ports Construction, Development, and Operation . The 49

PPA issuance scrapped government share in the income of private ports where no government facilities had been
installed and in place thereof imposed a one-time privilege fee of ₱20,000.00 per annum for commercial ports and
₱10,000.00 yearly for non-commercial ports. In passing, we believe that this impost is more in consonance with the
description of government share as consideration for the "supervision inherent in the upgrading and improvement of
port operations, of which said services are an integral part."50

We do not also agree that TEFASCO subsequently acceded to paying the government share in its gross income
from its arrastre and stevedoring operations, and in recognizing arrears for such charge. The Memorandum of
Agreement (MOA) which it subsequently signed with PPA did not give TEFASCO any benefit so that we cannot
conclude that there was indeed a voluntary settlement between them. Rather it could be described aptly as an
imposition under actual threats of closure of TEFASCO's port. Verily the MOA was meant to cloak semblance of
validity upon that particular charge since there was nothing in the original TEFASCO-PPA contract authorizing the
PPA to collect any share in the gross income of TEFASCO in its arrastre and stevedoring operations.
The MOA is invalid for want of consideration and consent. As such, it is an invalid novation of the original
51 52

agreement between TEFASCO and PPA as embodied in the inter-agency committee report, PPA Resolution No. 7
and PPA letter dated May 7, 1976 and its enclosure. Truly, the MOA was a set of stipulations executed under undue
pressure on TEFASCO of permanent closure of its port and terminal. As the TEFASCO investment was worth
millions of dollars in loans and equities, PPA's posture of prohibiting it from engaging in the bulk of its business
presented it with no reasonable freedom of choice but to accept and sign the MOA. Furthermore, the MOA suffers
from utter want of consideration since nothing more could have been stipulated in the agreement when every detail
of port operation had already been previously spelled out and sanctioned in the original contract. The belated MOA
citations of PPA’s recognition of TEFASCO's facility as a private port and provision of arrastre and stevedoring and
repair services were all part of the agreement from 1976 when the project proposal was approved by the PPA
Board. Under these circumstances, it cannot be said that TEFASCO embraced voluntarily the unfair imposition in
the MOA that inevitably would cause, as it did, its own bankruptcy.
In sum, TEFASCO is entitled to Five Million Ninety-Five Thousand Thirty Pesos and Seventeen Centavos
(₱5,095,030.17) for reimbursement of what PPA illegally collected as "government share" in the gross income of
TEFASCO's arrastre and stevedoring operations for 1977 to 1991.
Fifthly, we affirm the award of Five Hundred Thousand Pesos (₱500,000.00) as attorney’s fees. Attorney’s fees may
be awarded when a party is compelled to litigate or incur expenses to protect his interest by reason of an unjustified
act of the other party. In the instant case, attorney’s fees were warranted by PPA's unfair exaction of exorbitant
53
wharfage and berthing dues from TEFASCO and threats to close its port. These adverse actions correctly drove the
latter to institute the present proceedings to protect its rights and remedy the unfair situation.
However, we set aside the award of Two Hundred Forty-Eight Thousand Seven Hundred Twenty-Seven Pesos
(₱248,727.00) for dredging and blasting expenses. The trial court justified the award on the ground that this activity
was allegedly the responsibility of PPA under Sec. 37 of P.D. No. 857 as amended which TEFASCO in good faith
54

undertook. This is not correct. More precisely, the law obliged PPA to fund construction and dredging works only in
"public ports vested in the Authority." Clearly the construction of the TEFASCO port was not the responsibility of the
PPA and does not fall under Sec. 37 of P.D. No. 857. The dredging and blasting done by TEFASCO augmented the
viability of its port, and therefore the same were part and parcel of the contractual obligations it agreed to undertake
when it accepted the terms and conditions of the project.
It is also erroneous to set legal interest on the damages awarded herein at twelve percent (12%) yearly computed
from the filing of the complaint. In Crismina Garments, Inc. v. CA , it was held that
HYPERLINK "https://lawphil.net/judjuris/juri2002/feb2002/gr_135639_2002.html"55

interest on damages, other than loan or forbearance of money, is six percent (6%) annually computed from
determination with reasonable certainty of the amount demanded. Thus, applying that rule in the case at bar, the
interest would be six percent (6%) per annum from the date of promulgation of the decision of the trial court in Civil
Cases Nos. 19216-88 on July 15, 1992.
To recapitulate: PPA is liable to TEFASCO for Fifteen Million Eight Hundred Ten Thousand Thirty-Two Pesos and
Seven Centavos (₱15,810,032.07) representing fifty percent (50%) wharfage fees and Three Million Nine Hundred
Sixty-One Thousand Nine Hundred Sixty-Four Pesos and Six Centavos (₱3,961,964.06) for thirty percent (30%)
berthing charges from 1977 to 1991 and Five Million Ninety-Five Thousand Thirty Pesos and Seventeen Centavos
(₱5,095,030.17) for reimbursement of the unlawfully collected government share in TEFASCO’s gross income from
its arrastre and stevedoring operations during the same period. The said principal amounts herein ordered shall
earn interest at six percent (6%) annually from July 15, 1992, date of promulgation of the Decision of the Regional
Trial Court of Davao in Civil Cases Nos. 19216-88. The PPA shall also pay TEFASCO the amount of Five Hundred
1âwphi1

Thousand Pesos (₱500,000.00) for and as attorney’s fees.

Henceforth, PPA shall collect only such dues and charges as are duly authorized by the applicable provisions of The
Tariff and Customs Code and presidential issuances pursuant to Sec. 19, P.D. No. 857. PPA shall strictly observe
only the legally imposable rates. Furthermore, PPA has no authority to charge government share in the gross
income of TEFASCO from its arrastre and stevedoring operations within its subject private port in Davao City.
TEFASCO's port operations including cargo handling services shall be co-terminous with its foreshore lease
contract with the National Government and any extension of the said foreshore lease contract shall similarly
lengthen the duration of its port operations. It is clear from the inter-agency committee report, PPA Resolution No. 7
and PPA letter dated May 7, 1976 and its enclosure that the intention of the parties under their contract is to
integrate port operations of TEFASCO so that all services therein, including arrastre and stevedoring operations,
shall end at the same time. The subsequent and onerous MOA did not change the tenure of its port operations,
there being no clear and convincing showing of TEFASCO's free and voluntary amenability thereto. In no case,
however, shall such port operations of TEFASCO exceed fifty (50) years which is the maximum period of foreshore
lease contracts with the National Government.
WHEREFORE, the Amended Decision of the Court of Appeals dated September 30, 1998 in case CA-G.R. CV No.
47318 is MODIFIED as follows:
1. The Philippine Ports Authority (PPA) is held liable and hereby ordered to pay and reimburse to Terminal
Facilities and Services Corporation (TEFASCO) the amounts of Fifteen Million Eight Hundred Ten Thousand
Thirty-Two Pesos and Seven Centavos (₱15,810,032.07) and Three Million Nine Hundred Sixty-One
Thousand Nine Hundred Sixty-Four Pesos and Six Centavos (₱3,961,964.06) representing fifty percent
(50%) wharfage fees and thirty percent (30%) berthing charges respectively, from 1977 to 1991, and the
sum of Five Million Ninety-Five Thousand Thirty Pesos and Seventeen Centavos (₱5,095,030.17)
representing PPA’s unlawfully collected "government share" in the gross income of TEFASCO's arrastre and
stevedoring operations during the said period;
2. The said principal amounts herein ordered to be paid by PPA to TEFASCO shall earn interest at six
percent (6%) per annum from July 15, 1992, date of promulgation of the Decision of the Regional Trial
Court, Branch 17 of Davao City in Civil Case No. 19216-88; and
3. The PPA is also ordered to pay TEFASCO the sum of Five Hundred Thousand Pesos (₱500,000.00) for
and as attorney’s fees.
Costs against the Philippine Ports Authority.
SO ORDERED.
G.R. No. 150283 April 16, 2008
RYUICHI YAMAMOTO, petitioner,
vs.
NISHINO LEATHER INDUSTRIES, INC. and IKUO NISHINO, respondents.
DECISION
CARPIO MORALES, J.:
In 1983, petitioner, Ryuichi Yamamoto (Yamamoto), a Japanese national, organized under Philippine laws Wako
Enterprises Manila, Incorporated (WAKO), a corporation engaged principally in leather tanning, now known as
Nishino Leather Industries, Inc. (NLII), one of herein respondents.
In 1987, Yamamoto and the other respondent, Ikuo Nishino (Nishino), also a Japanese national, forged a
Memorandum of Agreement under which they agreed to enter into a joint venture wherein Nishino would acquire
such number of shares of stock equivalent to 70% of the authorized capital stock of WAKO.
Eventually, Nishino and his brother1 Yoshinobu Nishino (Yoshinobu) acquired more than 70% of the authorized
capital stock of WAKO, reducing Yamamoto’s investment therein to, by his claim, 10%, 2 less than 10% according to
Nishino.3
The corporate name of WAKO was later changed to, as reflected earlier, its current name NLII.
Negotiations subsequently ensued in light of a planned takeover of NLII by Nishino who would buy-out the shares of
stock of Yamamoto. In the course of the negotiations, Yoshinobu and Nishino’s counsel Atty. Emmanuel G. Doce
(Atty. Doce) advised Yamamoto by letter dated October 30, 1991, the pertinent portions of which follow:
Hereunder is a simple memorandum of the subject matters discussed with me by Mr. Yoshinobu Nishino
yesterday, October 29th, based on the letter of Mr. Ikuo Nishino from Japan, and which I am now transmitting
to you.4
xxxx
12. Machinery and Equipment:
The following machinery/equipment have been contributed by you to the company:

Splitting machine - 1 unit

Samming machine - 1 unit

Forklift - 1 unit

Drums - 4 units

Toggling machine - 2 units

Regarding the above machines, you may take them out with you (for your own use and sale) if you
want, provided, the value of such machines is deducted from your and Wako’s capital contributions, which
will be paid to you.
Kindly let me know of your comments on all the above, soonest.
x x x x5 (Emphasis and underscoring supplied)
On the basis of such letter, Yamamoto attempted to recover the machineries and equipment which were, by
Yamamoto’s admission, part of his investment in the corporation,6 but he was frustrated by respondents, drawing
Yamamoto to file on January 15, 1992 before the Regional Trial Court (RTC) of Makati a complaint7 against them for
replevin.
Branch 45 of the Makati RTC issued a writ of replevin after Yamamoto filed a bond. 8
In their Answer with Counterclaim,9 respondents claimed that the machineries and equipment subject of replevin
form part of Yamamoto’s capital contributions in consideration of his equity in NLII and should thus be treated as
corporate property; and that the above-said letter of Atty. Doce to Yamamoto was merely a proposal, "conditioned on
[Yamamoto’s] sell-out to . . . Nishino of his entire equity,"10 which proposal was yet to be authorized by the
stockholders and Board of Directors of NLII.
By way of Counterclaim, respondents, alleging that they suffered damage due to the seizure via the implementation
of the writ of replevin over the machineries and equipment, prayed for the award to them of moral and exemplary
damages, attorney’s fees and litigation expenses, and costs of suit.
The trial court, by Decision of June 9, 1995, decided the case in favor of Yamamoto,11 disposing thus:
WHEREFORE, judgment is hereby rendered: (1) declaring plaintiff as the rightful owner and possessor of
the machineries in question, and making the writ of seizure permanent; (2) ordering defendants to pay
plaintiff attorney’s fees and expenses of litigation in the amount of Fifty Thousand Pesos (P50,000.00),
Philippine Currency; (3) dismissing defendants’ counterclaims for lack of merit; and (4) ordering defendants
to pay the costs of suit.
SO ORDERED.12 (Underscoring supplied)
On appeal,13 the Court of Appeals held in favor of herein respondents and accordingly reversed the RTC decision
and dismissed the complaint.14 In so holding, the appellate court found that the machineries and equipment claimed
by Yamamoto are corporate property of NLII and may not thus be retrieved without the authority of the NLII Board of
Directors;15 and that petitioner’s argument that Nishino and Yamamoto cannot hide behind the shield of corporate
fiction does not lie,16 nor does petitioner’s invocation of the doctrine of promissory estoppel.17 At the same time, the
Court of Appeals found no ground to support respondents’ Counterclaim.18
The Court of Appeals having denied19 his Motion for Reconsideration,20 Yamamoto filed the present petition,21 faulting
the Court of Appeals
A.
x x x IN HOLDING THAT THE VEIL OF CORPORATE FICTION SHOULD NOT BE PIERCED IN THE CASE
AT BAR.
B.
x x x IN HOLDING THAT THE DOCTRINE OF PROMISSORY ESTOPPEL DOES NOT APPLY TO THE
CASE AT BAR.
C.
x x x IN HOLDING THAT RESPONDENTS ARE NOT LIABLE FOR ATTORNEY’S FEES.22
The resolution of the petition hinges, in the main, on whether the advice in the letter of Atty. Doce that Yamamoto
may retrieve the machineries and equipment, which admittedly were part of his investment, bound the corporation.
The Court holds in the negative.
Indeed, without a Board Resolution authorizing respondent Nishino to act for and in behalf of the corporation, he
cannot bind the latter. Under the Corporation Law, unless otherwise provided, corporate powers are exercised by
the Board of Directors.23
Urging this Court to pierce the veil of corporate fiction, Yamamoto argues, viz:
During the negotiations, the issue as to the ownership of the Machiner[ies] never came up. Neither did the
issue on the proper procedure to be taken to execute the complete take-over of the Company come up
since Ikuo, Yoshinobu, and Yamamoto were the owners thereof, the presence of other stockholders being
only for the purpose of complying with the minimum requirements of the law.
What course of action the Company decides to do or not to do depends not on the "other members of the
Board of Directors". It depends on what Ikuo and Yoshinobu decide. The Company is but a mere
instrumentality of Ikuo [and] Yoshinobu.24
xxxx
x x x The Company hardly holds board meetings. It has an inactive board, the directors are directors in
name only and are there to do the bidding of the Nish[i]nos, nothing more. Its minutes are paper minutes. x x
x 25
xxxx
The fact that the parties started at a 70-30 ratio and Yamamoto’s percentage declined to 10% does not
mean the 20% went to others. x x x The 20% went to no one else but Ikuo himself. x x x Yoshinobu is the
younger brother of Ikuo and has no say at all in the business. Only Ikuo makes the decisions. There
were, therefore, no other members of the Board who have not given their approval.26 (Emphasis and
underscoring supplied)
While the veil of separate corporate personality may be pierced when the corporation is merely an adjunct, a
business conduit, or alter ego of a person,27 the mere ownership by a single stockholder of even all or nearly all of
the capital stocks of a corporation is not by itself a sufficient ground to disregard the separate corporate
personality.28
The elements determinative of the applicability of the doctrine of piercing the veil of corporate fiction follow:
"1. Control, not mere majority or complete stock control, but complete domination, not only of finances but
of policy and business practice in respect to the transaction attacked so that the corporate entity as to this
transaction had at the time no separate mind, will or existence of its own;
2. Such control must have been used by the defendant to commit fraud or wrong, to perpetuate the violation
of a statutory or other positive legal duty, or dishonest and unjust act in contravention of the plaintiff’s legal
rights; and
3. The aforesaid control and breach of duty must proximately cause the injury or unjust loss complained of.
The absence of any one of these elements prevents "piercing the corporate veil." In applying the
‘instrumentality’ or ‘alter ego’ doctrine, the courts are concerned with reality and not form, with how the
corporation operated and the individual defendant’s relationship to that operation." 29 (Italics in the original;
emphasis and underscoring supplied)
In relation to the second element, to disregard the separate juridical personality of a corporation, the wrongdoing or
unjust act in contravention of a plaintiff’s legal rights must be clearly and convincingly established; it cannot be
presumed.30 Without a demonstration that any of the evils sought to be prevented by the doctrine is present, it does
not apply.31
In the case at bar, there is no showing that Nishino used the separate personality of NLII to unjustly act or do wrong
to Yamamoto in contravention of his legal rights.
Yamamoto argues, in another vein, that promissory estoppel lies against respondents, thus:
Under the doctrine of promissory estoppel, x x x estoppel may arise from the making of a promise, even
though without consideration, if it was intended that the promise should be relied upon and in fact it was
relied upon, and if a refusal to enforce it would be virtually to sanction the perpetration of fraud or would
result in other injustice.
x x x Ikuo and Yoshinobu wanted Yamamoto out of the Company. For this purpose negotiations were had
between the parties. Having expressly given Yamamoto, through the Letter and through a subsequent
meeting at the Manila Peninsula where Ikuo himself confirmed that Yamamoto may take out the Machinery
from the Company anytime, respondents should not be allowed to turn around and do the exact opposite of
what they have represented they will do.
In paragraph twelve (12) of the Letter, Yamamoto was expressly advised that he could take out the
Machinery if he wanted to so, provided that the value of said machines would be deducted from his capital
contribution x x x.
xxxx
Respondents cannot now argue that they did not intend for Yamamoto to rely upon the Letter. That was the
purpose of the Letter to begin with. Petitioner[s] in fact, relied upon said Letter and such reliance was further
strengthened during their meeting at the Manila Peninsula.
To sanction respondents’ attempt to evade their obligation would be to sanction the perpetration of fraud and
injustice against petitioner.32 (Underscoring supplied)
It bears noting, however, that the aforementioned paragraph 12 of the letter is followed by a request for Yamamoto
to give his "comments on all the above, soonest."33
What was thus proffered to Yamamoto was not a promise, but a mere offer, subject to his acceptance. Without
acceptance, a mere offer produces no obligation.34
Thus, under Article 1181 of the Civil Code, "[i]n 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." In the case at bar, there is no showing of compliance with the condition for allowing Yamamoto to
take the machineries and equipment, namely, his agreement to the deduction of their value from his capital
contribution due him in the buy-out of his interests in NLII. Yamamoto’s allegation that he agreed to the
condition35 remained just that, no proof thereof having been presented.
The machineries and equipment, which comprised Yamamoto’s investment in NLII, 36 thus remained part of the
capital property of the corporation.37
It is settled that the property of a corporation is not the property of its stockholders or members. 38 Under the trust
fund doctrine, the capital stock, property, and other assets of a corporation are regarded as equity in trust for the
payment of corporate creditors which are preferred over the stockholders in the distribution of corporate
assets.39 The distribution of corporate assets and property cannot be made to depend on the whims and caprices of
the stockholders, officers, or directors of the corporation unless the indispensable conditions and procedures for the
protection of corporate creditors are followed.40
WHEREFORE, the petition is DENIED.
Costs against petitioner.
SO ORDERED.

G.R. No. 71694 August 16, 1991

NYCO SALES CORPORATION, petitioner,
vs.
BA FINANCE CORPORATION, JUDGE ROSALIO A. DE LEON—REGIONAL TRIAL COURT, BR. II,
INTERMEDIATE APPELLATE COURT, FIRST CIVIL CASES DIVISION, respondents.
ABC Law Offices for petitioner.
Valera, Urmeneta & Associates for private respondent.

PARAS, J.:
In this petition for review on certiorari, petitioner challenges the April 22, 1985 decision and the July 16, 1985
*

resolution of the then Intermediate Appellate Court in AC-G.R. CV No. 02553 entitled "BA Finance Corporation v.
*

Nyco Sales Corporation, et al." which affirmed with modification the July 20, 1983 decision of the Regional Trial
**

Court, National Capital Region, Manila, Branch II in the same case docketed as Civil Case No. 125909 ordering
petitioner to pay respondent the amount of P60,000.00 as principal obligation plus corresponding interest, the sum
of P10,000.00 as and for, attomey's fees and 1/3 of the costs of suit.
It appears on record that petitioner Nyco Sales Corporation (hereinafter referred to as Nyco) whose president and
general manager is Rufino Yao, is engaged in the business of selling construction materials with principal office in
Davao City. Sometime in 1978, the brothers Santiago and Renato Fernandez (hereinafter referred to as the
Fernandezes), both acting in behalf of Sanshell Corporation, approached Rufino Yao for credit accommodation.
They requested Nyco, thru Yao, to grant Sanshell discounting privileges which Nyco had with BA Finance
Corporation (hereinafter referred to as BA Finance). Yao apparently acquiesced, hence on or about November 15,
1978, the Fernandezes went to Yao for the purpose of discounting Sanshell's post-dated check which was a BPI-
Davao Branch Check No. 499648 dated February 17, 1979 for the amount of P60,000.00. The said check was
payable to Nyco. Following the discounting process agreed upon, Nyco, thru Yao, endorsed the check in favor of BA
Finance. Thereafter, BA Finance issued a check payable to Nyco which endorsed it in favor of Sanshell. Sanshell
then made use of and/or negotiated the check. Accompanying the exchange of checks was a Deed of Assignment
executed by Nyco in favor of BA Finance with the conformity of Sanshell. Nyco was represented by Rufino Yao,
while Sanshell was represented by the Fernandez brothers. Under the said Deed, the subject of the discounting was
the aforecited check (Rollo, pp- 26-28). At the back thereof and of every deed of assignment was the Continuing
Suretyship Agreement whereby the Fernandezes unconditionally guaranteed to BA Finance the full, faithful and
prompt payment and discharge of any and all indebtedness of Nyco (Ibid., pp. 36, 46). The BPI check, however, was
dishonored by the drawee bank upon presentment for payment. BA Finance immediately reported the matter to the
Fernandezes who thereupon issued a substitute check dated February 19,1979 for the same amount in favor of BA
Finance. It was a Security Bank and Trust Company check bearing the number 183157, which was again
dishonored when it was presented for payment. Despite repeated demands, Nyco and the Fernandezes failed to
settle the obligation with BA Finance, thus prompting the latter to institute an action in court (Ibid., p 28). Nyco and
the Fernandezes, despite having been served with summons and copies of the complaint, failed to file their answer
and were consequently declared in default. On May 16, 1980, the lower court ruled in favor of BA Finance ordering
them to pay the former jointly and severally, the sum of P65,536.67 plus 14% interest per annum from July 1, 1979
and attorney's fees in the amount of P3, 000. 00 as well as the costs of suit (Rollo, pp. 51-52). Nyco, however,
moved to set aside the order of default, to have its answer admitted and to be able to implead Sanshell. The prayer
was granted through an order dated June 23, 1980, wherein the decision of the court was set aside only as regards
Nyco. Trial ensued once more until the court reached a second decision which states:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant Nyco Sales
Corporation by ordering the latter to pay the former the following:
1) P60,000.00 as principal obligation, plus interest thereon at the rate of 14% per annum from February 1,
1979 until fully paid;
2) The amount of P100,000.00 as and for attorney's fees; and
3) One-third (1/3) of the costs of this suit.
With respect to defendants Santiago and Renato Fernandez, the decision of May 16, 1980 stands.
The cross-claim of defendant Nyco Sales Corporation against codefendants Santiago B. Fernandez and
Renato B. Fernandez is hereby denied, as there is no showing that Nyco's Answer with cross-claim dated
May 29, 1980 was ever received by said Fernandez brothers, even as it is noted that the latter have not
been declared in default with respect to said cross-claim, nor were evidence adduced in connection
therewith.
As to the would-be litigant Sanshell Construction and Development Corporation, defendant Nyco Sales
Corporation did not properly implead said corporation which should have been by way of a third-party
complaint instead of a mere cross-claim. The same observations are noted as regard this cross-claim
against Sanshell as those made with respect to the Fernandez brothers.
SO ORDERED.
On appeal, the appellate court also upheld BA Finance but modified the lower court's decision by ordering that the
interest should run from February 19, 1979 until paid and not from February 1, 1979. Nyco's subsequent motion for
reconsideration was denied (Ibid., pp. 33, 62). Hence, the present recourse.
The crux of the controversy is whether or not the assignor is liable to its assignee for its dishonored checks.
For its defense, Nyco anchors its arguments on the following premises: a) that the appellate court erred in affirming
its liability for the BPI check despite a similar finding of liability for the SBTC check rendered by the same lower
court; b) that it was actually discharged of its liability over the SBTC check when BA Finance failed to give it a notice
of dishonor; c) that there was novation when BA Finance accepted the SBTC check in replacement of the BPI
check; and d) that it cannot be held liable for its Presidents unauthorized acts.
The petition is devoid of merit.
An assignment of credit is the process of transferring the right of the assignor to the assignee, who would then be
allowed to proceed against the debtor. It may be done either gratuitously or generously, in which case, the
assignment has an effect similar to that of a sale.
According to Article 1628 of the Civil Code, the assignor-vendor warrants both the credit itself (its existence and
legality) and the person of the debtor (his solvency), if so stipulated, as in the case at bar. Consequently, if there be
any breach of the above warranties, the assignor-vendor should be held answerable therefor. There is no question
then that the assignor-vendor is indeed liable for the invalidity of whatever he as signed to the assignee-vendee.
Considering now the facts of the case at bar, it is beyond dispute that Nyco executed a deed of assignment in favor
of BA Finance with Sanshell Corporation as the debtor-obligor. BA Finance is actually enforcing said deed and the
check covered thereby is merely an incidental or collateral matter. This particular check merely evidenced the credit
which was actually assigned to BA Finance. Thus, the designation is immaterial as it could be any other check. Both
the lower and the appellate courts recognized this and so it is utterly misplaced to say that Nyco is being held liable
for both the BPI and the SBTC checks. It is only what is represented by the said checks that Nyco is being asked to
pay. Indeed, nowhere in the dispositive parts of the decisions of the courts can it be gleaned that BA Finance may
recover from the two checks.
Nyco's pretension that it had not been notified of the fact of dishonor is belied not only by the formal demand letter
but also by the findings of the trial court that Rufino Yao of Nyco and the Fernandez Brothers of Sanshell had
frequent contacts before, during and after the dishonor (Rollo, p. 40). More importantly, it fails to realize that for as
long as the credit remains outstanding, it shall continue to be liable to BA Finance as its assignor. The dishonor of
an assigned check simply stresses its liability and the failure to give a notice of dishonor will not discharge it from
such liability. This is because the cause of action stems from the breach of the warranties embodied in the Deed of
Assignment, and not from the dishonoring of the check alone (See Art. 1628, Civil Code).
Novation is the third defense set up by petitioner Nyco. It insists that novation took place when BA Finance
1âwphi1

accepted the SBTC check in replacement of the BPI cheek. Such is manifestly untenable.
There are only two ways which indicate the presence of novation and thereby produce the effect of extinguishing an
obligation by another which substitutes the same. First, novation must be explicitly stated and declared in
unequivocal terms as novation is never presumed (Mondragon v. Intermediate Appellate Court, G.R. No. 71889,
April 17, 1990; Caneda Jr. v. Court of Appeals, G.R. No. 81322, February 5, 1990). Secondly, the old and the new
obligations must be incompatible on every point. The test of incompatibility is whether or not the two obligations can
stand together, each one having its independent existence If they cannot, they are incompatible and the latter
obligation novates the first (Mondragon v. Intermediate Appellate Court, supra; Caneda Jr. v. Court of
Appeals, supra). In the instant case, there was no express agreement that BA Finance's acceptance of the SBTC
check will discharge Nyco from liability. Neither is there incompatibility because both checks were given precisely to
terminate a single obligation arising from Nyco's sale of credit to BA Finance. As novation speaks of two distinct
obligations, such is inapplicable to this case.
Finally, Nyco disowns its President's acts claiming that it never authorized Rufino Yao (Nyco's President) to even
apply to BA Finance for credit accommodation. It supports its argument with the fact that it did not issue a Board
resolution giving Yao such authority. However, the very evidence on record readily belies Nyco's contention. Its
corporate By-Laws clearly provide for the powers of its President, which include, inter alia, executing contracts and
agreements, borrowing money, signing, indorsing and delivering checks, all in behalf of the corporation.
Furthermore, the appellate court correctly adopted the lower court's observation that there was already a previous
transaction of discounting of checks involving the same personalities wherein any enabling resolution from Nyco
was dispensed with and yet BA Finance was able to collect from Nyco and Sanshell was able to discharge its own
undertakings. Such effectively places Nyco under estoppel in pais which arises when one, by his acts,
representations or admissions, or by his silence when he ought to speak out, intentionally or through culpable
negligence, induces another to believe certain facts to exist and such other rightfully relies and acts on such belief,
so that he will be prejudiced if the former is permitted to deny the existence of such facts (Panay Electric Co., Inc. v.
Court of Appeals, G.R. No. 81939, June 29,1989). Nyco remained silent in the course of the transaction and spoke
out only later to escape liability. This cannot be countenanced. Nyco is estopped from denying Rufino Yao's
authority as far as the latter's transactions with BA Finance are concerned.
PREMISES CONSIDERED, the decision appealed from is AFFIRMED.
SO ORDERED.

G.R. No. 116682 January 2, 1997

ROBLETT INDUSTRIAL CONSTRUCTION CORPORATION, petitioner,
vs.
COURT OF APPEALS and CONTRACTORS EQUIPMENT CORPORATION, respondents.

BELLOSILLO, J.:
On 23 September 1986 respondent Contractors Equipment Corporation (CEC) instituted an action for a sum of
money against petitioner Roblett Industrial Construction Corporation (RICC) before the Regional Trial Court of
Makati alleging that in 1985 it leased to the latter various construction equipment which it used in its projects. As a
result RICC incurred unpaid accounts amounting to P342,909.38.
On 19 December 1985 RICC through its Assistant Vice President for Finance Candelario S. Aller Jr. entered into an
Agreement with CEC where it confirmed petitioner's account. As an off-setting arrangement respondent received
1

from petitioner construction materials worth P115,000.00 thus reducing petitioner's balance to P227,909.38.
A day before the execution of their Agreement, or on 18 December 1985, RICC paid CEC P10,000.00 in postdated
checks which when deposited were dishonored. As a consequence the latter debited the amount to petitioner's
account of P227,909.38 thus increasing its balance to P237,909.38.
On 24 July 1986 Mariano R. Manaligod Jr., General Manager of CEC, sent a letter of demand to petitioner through
its Vice President for Finance regarding the latter's overdue account of P237,909.38 and sought settlement thereof
on or before 31 July 1986. In reply, petitioner requested for thirty (30) days to have enough time to look for funds to
substantially settle its account.
Traversing the allegations of respondent, Candelario S. Aller Jr. declared that he signed the Agreement with the real
intention of having proof of payment. In fact Baltazar Banlot, Vice President for Finance of petitioner, claimed that
after deliberation and audit it appeared that petitioner overpaid respondent by P12,000.00 on the basis of the latter's
Equipment Daily Time Reports for 2 May to 14 June 1985 which reflected a total obligation of only P103,000.00. He
claimed however that the Agreement was not approved by the Board and that he did not authorize Aller Jr. to sign
thereon.
On rebuttal, Manaligod Jr. declared that petitioner had received a statement of account covering the period from 28
March to 12 July 1985 in the amount of P376,350.18 which it never questioned. From this amount P3,440.80, based
on respondent's account with petitioner and P30,000.00, representing payments made by the latter, were deducted
thus leaving a balance of P342,909.38 as mentioned in the Agreement.
On 19 December 1990 the trial court rendered judgment ordering petitioner to pay respondent: (a) P237,909.38 plus
legal interest from 31 July 1986 until full payment; (b) P2,000.00 as litigation expenses; (c) 20% of the sum due and
payable as attorney's fees and, (d) cost of suit. Its ruling is anchored on its finding that —
2

1. The Court finds the Agreement (EXHIBIT "A," EXHIBIT "I") between the parties valid and that it
reflects the true intention of the parties. It must be emphasized that the same agreement was used
by plaintiff as the basis for claiming defendant's obligation of P237,909.38 and also used by
defendant as the same basis for its alleged payment in full of its obligation to plaintiff. But while
plaintiff treats the entire agreement as valid, defendant wants the court to treat that portion which
treats of the offsetting of P115,000.00 as valid, whereas it considers the other terms and conditions
as "onerous, illegal and want of prior consent and Board approval." This Court cannot agree to
defendant's contention. It must be stressed that defendant's answer was not made under oath, and
 therefore, the genuineness and due execution of the agreement (EXHIBIT "A," EXHIBIT "I") which
was the basis for plaintiff's claim is deemed admitted (Section 8, Rule 8, Rules of Court). Such
admission, under the principle of estoppel, is rendered conclusive upon defendant and cannot be
denied or disproved as against plaintiff (Art. 1431, Civil Code). Either the agreement (EXHIBIT "A,"
EXHIBIT "I") is valid or void. It must be treated as a whole and not to be divided into parts and
consider only those provisions which favor one party (in this case the defendant). Contracts must
bind both contracting parties, its validity or compliance cannot be left to the will of one of them (Art.
1308, New Civil Code).
Defendant further contends that the agreement did not reflect the real intention of the parties.
However, when plaintiff wrote defendant in its letter dated July 24, 1986 (EXHIBIT "F") that it be
given thirty (30) days to substantially settle the same, clearly, at this point in time, defendant did not
question its account with plaintiff, nor did it question the validity nor the contents of the Agreement
(EXHIBIT "A," EXHIBIT "I"). This Court is not convinced that the Agreement (EXHIBIT "A," EXHIBIT
"I") does not reflect the true intention of the parties. On the contrary, it does.
2. To the issue that defendant has fully paid its obligation to plaintiff by way of offset for the
P115,000.00 construction materials received by plaintiff, this Court finds the contention of defendant
without basis in fact. Defendant's presentation of evidence (EXHIBITS "2," "2-A" up to "2-Z") merely
consists of daily time reports of plaintiff consisting of 191 hours only, the period May 2, 1985 to June
14, 1985 and does not reflect the entire period of the lease agreement (EXHIBIT "L"), while plaintiff
accurately reflects in Exhibits "I," "J, "K" and its submarkings the entire period, covered by the lease
agreement (EXHIBIT "L"), which is from March 28, 1985 to July 12, 1985 and correctly states the
amount due plaintiff from defendant in the amount of P376,350.18. 3

On 29 July 1994 respondent Court of Appeals affirmed the decision of the trial court. 4

Petitioner imputes the following errors to respondent court: (1) in not holding that, insofar as it fixed petitioner's
alleged obligation to respondent at P342,909.38, the Agreement is unenforceable for being in the nature of an
unauthorized contract; and, (2) in not holding that petitioner's obligation to respondent had been fully paid and that
petitioner even overpaid respondent by P12,000.00.
As regards the first error, petitioner asserts that the Agreement is unenforceable for having been executed by
Candelario S. Aller Jr. without authority.
Significantly, in the proceedings before respondent Court of Appeals, petitioner assigned a lone error allegedly
committed by the trial court, i.e., full payment, if not overpayment by P12,000.00, of the obligation referred to in the
second issue raised in the petition therein. Quite obviously, having limited itself to that particular issue to the
exclusion of any other, petitioner can no longer be permitted to assail the finding of the trial court on the validity of
the Agreement. 5

As regards the factual issue on the correctness of the amount of petitioner's obligation, or whether it has been fully
paid, petitioner insists that from a perusal of Exhs. "2," "2-A" to "2-Z" all of which refer to respondent's Equipment
Daily Time Reports for 2 May to 14 June 1985, it was established that the equipment leased was actually used for
only 191 hours. Multiplying 191 hours by the rental rate of P540.00 per hour will amount to P103,140.00 which is
petitioner's correct rental obligation to respondent. Taking into account the construction materials worth P115,000.00
received by respondent from petitioner an overpayment of P12,000.00 more or less results. In the absence of any
showing that the trial court failed to appreciate facts and circumstances of weight and substance that would have
altered its conclusion, no compelling reason exists for this Court to impinge upon matters more appropriately within
its province. Consequently, we sustain the finding of the trial court that the evidence relied upon by petitioner is
6

incomplete as it does not reflect the entire period of the lease agreement which, on the basis of respondent's
evidence, covered the period of 28 March to 12 July 1985.
Furthermore, estoppel in pais arises when one, by his acts, representations or admissions, or by his own silence
when he ought to speak out, intentionally or through culpable negligence, induces another to believe certain facts to
exist and such other rightfully relies and acts on such belief, so that he will be prejudiced if the former is permitted to
deny the existence of such facts. This doctrine obtains in the present case. A statement of account for P376,350.18
7

covering the period above mentioned was received from respondent by petitioner with nary a protest from the latter.
Neither did petitioner controvert the demand letter concerning the overdue account of P237,909.38; on the contrary,
it asked for ample time to source funds to substantially settle the account.
WHEREFORE, the petition is DENIED. The decision of respondent Court of Appeals dated 29 July 1994 affirming
that of the Regional Trial Court of Makati dated 19 December 1990 is AFFIRMED. Costs against petitioner.
SO ORDERED.
G.R. No. 179909 January 25, 2010
FAR EAST BANK AND TRUST COMPANY (NOW BANK OF THE PHILIPPINE ISLANDS) AND ROLANDO
BORJA, DEPUTY SHERIFF, Petitioners,
vs.
SPS. ERNESTO AND LEONOR C. CAYETANO, Respondents.
DECISION
VILLARAMA, JR., J.:
This is a petition for review1 under Rule 45 of the 1997 Rules of Civil Procedure, as amended, of the December 8,
2006 Decision2 of the Court of Appeals in CA-G.R. CV No. 76382 which affirmed the May 24, 2002 Decision 3 of the
Regional Trial Court (RTC) of Naga City, Branch 61 and dismissed petitioner Far East Bank and Trust Company’s
appeal. The appellate court likewise denied its motion for reconsideration in a Resolution4 dated September 6, 2007.
The undisputed facts of the case are summarized as follows:
Respondent Leonor C. Cayetano (Cayetano) executed a special power of attorney in favor of her daughter Teresita
C. Tabing (Tabing) authorizing her to contract a loan from petitioner in an amount not more than three hundred
thousand pesos (₱300,000.00) and to mortgage her two (2) lots located in Barangay Carolina, Naga City with
Transfer Certificate of Title Nos. 12304 and 11621.5 For the approval of the loan, Cayetano also executed an
affidavit of non-tenancy.6 Petitioner loaned Tabing one hundred thousand pesos (₱100,000.00) secured by two (2)
promissory notes and a real estate mortgage over Cayetano’s two (2) properties. 7 The mortgage document was
signed by Tabing and her husband as mortgagors in their individual capacities, without stating that Tabing was
executing the mortgage contract for and in behalf of the owner (Cayetano).8
Petitioner foreclosed the mortgage for failure of the respondents and the spouses Tabing to pay the loan. A notice of
public auction sale, to be conducted on September 18, 1991,9 was sent to respondents. The latter’s lawyer
responded with a letter10 to petitioner requesting that the public auction be postponed. Respondents’ letter went
unheeded and the public auction was held as scheduled wherein the subject properties were sold to petitioner for
one hundred sixty thousand pesos (₱160,000.00).11 Subsequently, petitioner consolidated its title and obtained new
titles in its name after the redemption period lapsed without respondents taking any action.
More than five (5) years later, Tabing, on behalf of Cayetano, sent a letter dated September 10, 1996 to petitioner
expressing the intent to repurchase the properties for two hundred fifty thousand pesos (₱250,000.00) with
proposed terms of payment.12 Petitioner refused the offer stating that the minimum asking price for the properties
was five hundred thousand pesos (₱500,000.00) and it was not amenable to the proposed terms of payment.
Petitioner nevertheless gave respondents the chance to buy back the properties by joining a bidding to be set in
some future date.13 However, respondents filed on December 18, 1996 a complaint for annulment of mortgage and
extrajudicial foreclosure of the properties with damages in the RTC of Naga City. Respondents sought nullification of
the real estate mortgage and extrajudicial foreclosure sale, as well as the cancellation of petitioner’s title over the
properties.14
After trial, the RTC rendered judgment in favor of the respondents, holding that the principal (Cayetano) cannot be
bound by the real estate mortgage executed by the agent (Tabing) unless it is shown that the same was made and
signed in the name of the principal; hence, the mortgage will bind the agent only. The trial court also found that there
was no compliance with the requirement of publication of the foreclosure sale in a newspaper of general circulation
as provided in Act No. 3135, as amended. Such requisite must be strictly complied with as any slight deviation
therefrom will render the sale voidable.15
The Court of Appeals affirmed the RTC’s ruling. It held that it must be shown that the real estate mortgage was
executed by the agent on-behalf of the principal, otherwise the agent may be deemed to have acted on his own and
the mortgage is void. However, the appellate court further declared that the principal loan agreement was not
affected, which had become an unsecured credit. The Court of Appeals denied petitioner’s motion for
reconsideration.16
Hence, the present petition.
The only issue before us is whether or not the principal is bound by the real estate mortgage executed by the
authorized agent in her own name without indicating the principal.
The issue is not novel. The RTC and the Court of Appeals are both correct in holding that our decision in The
Philippine Sugar Estates Development Co., Ltd., Inc. v. Poizat, et al.17 (Poizat Case), as reiterated in the case of
Rural Bank of Bombon (Camarines Sur), Inc. v. Court of Appeals 18 (Bombon Case), finds application in the instant
case. The factual circumstances of said cases are similar to the case at bar, where an authorized agent executed a
real estate mortgage on the principal’s property in her own name without indicating that she was acting on behalf of
the principal.
In the Poizat Case, Gabriela Andrea de Coster (Coster) executed a general power of attorney authorizing her
husband, Juan Poizat (Poizat), to obtain a loan and to secure the same with mortgage, pledge or personal
securities. Poizat obtained a credit of ten thousand (10,000) Pounds Sterling from petitioner therein, and executed a
mortgage upon the real property of his wife. Although the provisions of the real estate mortgage mentioned that it
was entered also in Poizat’s capacity as attorney-in-fact of Coster, Poizat signed the contract in his own name
without any indication that he also signed it as the attorney-in-fact of his wife. For failure to pay the loan, the
petitioner foreclosed on the mortgage but this was opposed by Coster. The Court ruled on the legal force and effect
of the real estate mortgage in question, by whom and for whom it was executed, and whether or not it was void as to
Coster, in this wise:
It is a general rule in the law of agency that, in order to bind the principal by a mortgage on real property executed
by an agent, it must upon its face purport to be made, signed and sealed in the name of the principal, otherwise, it
will bind the agent only. It is not enough merely that the agent was in fact authorized to make the mortgage, if he has
not acted in the name of the principal. Neither is it ordinarily sufficient that in the mortgage the agent describes
himself as acting by virtue of a power of attorney, if in fact the agent has acted in his own name and has set his own
hand and seal to the mortgage. This is especially true where the agent himself is a party to the instrument. However
clearly the body of the mortgage may show and intend that it shall be the act of the principal, yet, unless in fact it is
executed by the agent for and on behalf of his principal and as the act and deed of the principal, it is not valid as to
the principal. [EMPHASIS SUPPLIED]
Thus, while Poizat may have had the authority to borrow money and mortgage the real property of his wife, the law
specifies how and in what manner it must be done, and the stubborn fact remains that, as to the transaction in
question, that power was never exercised. The mortgage in question was executed by him and him only, and for
such reason, it is not binding upon the wife, and as to her, it is null and void.
In Bombon, respondent Ederlinda M. Gallardo (Gallardo) authorized Rufino S. Aquino (Aquino) to contract a loan
from any bank and secure it with mortgage on her property. Gallardo also delivered her owner’s copy of Transfer
Certificate of Title to Aquino. Aquino obtained a loan from petitioner bank and executed a deed of real estate
mortgage without indicating that he was acting in behalf of Gallardo. At the beginning of the mortgage deed, it was
mentioned that the mortgage was executed by Aquino, attorney-in-fact of Gallardo, together with a description of his
legal capacity to contract. Gallardo and her husband filed a complaint for annulment of mortgage against the
petitioner and Aquino and one (1) of the grounds raised was that the mortgagor in the deed was Aquino instead of
Gallardo. The trial court ordered the suspension of the foreclosure of the real estate mortgage until after the decision
in the annulment case shall have become final and executory. The dismissal of the complaint for annulment of
mortgage was appealed to the Court of Appeals which reversed the trial court and declared the mortgage contract
void and unenforceable against Gallardo. Upon elevation to this Court, we held that "Aquino’s act of signing the
Deed of Real Estate Mortgage in his name alone as mortgagor, without any indication that he was signing for and in
behalf of the property owner, Ederlinda M. Gallardo, bound himself alone in his personal capacity as a debtor of the
petitioner Bank and not as the agent or attorney-in-fact of Gallardo."19
In the fairly recent case of Gozun v. Mercado,20 respondent Mercado denied having authorized his sister-in-law
(Lilian) to borrow money from petitioner who gave her "cash advance" of ₱253,000.00 allegedly for allowances of
poll watchers. Petitioner sued respondent to collect on various sums due from the latter including the "cash
advance" obtained by Lilian. The trial court found for the petitioner and ordered the respondent to pay all amounts
being claimed by the petitioner. The Court of Appeals reversed the trial court’s decision and dismissed the complaint
for lack of cause of action. When the case reached this Court, petitioner argued that respondent had informed him
that he had authorized Lilian to obtain the loan and hence, following Macke v. Camps which held that one who
clothes another with apparent authority as his agent, and holds him out to the public as such, respondent cannot be
permitted to deny the authority. We sustained the Court of Appeals’ ruling on the matter and held that respondent
was not liable for the "cash advance" given by petitioner to Lilian who signed the receipt in her name alone, without
indicating therein that she was acting for and in behalf of respondent. She thus bound herself in her personal
capacity and not as an agent of respondent or anyone for that matter.21
Notwithstanding the nullity of the real estate mortgage executed by Tabing and her husband, we find that the equity
principle of laches is applicable in the instant case. Laches 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.22 Its essential elements are: (1) conduct on the part of the defendant, or of one under whom he claims,
giving rise to the situation complained of; (2) delay in asserting complainant’s right after he had knowledge of the
defendant’s conduct and after he has an opportunity to sue; (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.231avvphi1

There is no absolute rule on what constitutes laches. It is a creation of equity and applied not really to penalize
neglect or sleeping upon one’s rights but rather to avoid recognizing a right when to do so would result in a clearly
inequitable situation. The question of laches, we said, is addressed to the sound discretion of the court and each
case must be decided according to its particular circumstances.24 Verily, in a number of cases, it had been held that
laches, the essence of which is the neglect to assert a right over a long period of time, may prevent recovery of a
titled property.25
In the present case, records clearly show that respondents could have filed an action to annul the mortgage on their
properties, but for unexplained reasons, they failed to do so. They only questioned the loan and mortgage
transactions in December 1996, or after the lapse of more than five (5) years from the date of the foreclosure sale. It
bears noting that the real estate mortgage was registered and annotated on the titles of respondents, and the latter
were even informed of the extrajudicial foreclosure and the scheduled auction. Instead of impugning the real estate
mortgage and opposing the scheduled public auction, respondents’ lawyer wrote a letter to petitioner and merely
asked that the scheduled auction be postponed to a later date. Even after five (5) years, respondents still failed to
oppose the foreclosure and the subsequent transfer of titles to petitioner when their agent, Tabing, acting in behalf of
Cayetano, sent a letter proposing to buy back the properties. It was only when the negotiations failed that
respondents filed the instant case. Clearly, respondents slept on their rights.26
WHEREFORE, the petition is GRANTED. The Decision dated December 8, 2006 and the Resolution dated
September 6, 2007 of the Court of Appeals in CA-G.R. CV No. 76382, as well as the Decision dated May 24, 2002
in Civil Case No. 96-3684 of the Regional Trial Court, Branch 61, Naga City, are hereby SET ASIDE.
The complaint for annulment of mortgage and extrajudicial foreclosure with damages and cancellation of titles filed
by respondents is hereby DISMISSED.No costs. SO ORDERED
G.R. No. 182148 June 8, 2011
SIME DARBY PILIPINAS, INC., Petitioner,
vs.
GOODYEAR PHILIPPINES, INC. and MACGRAPHICS CARRANZ INTERNATIONAL
CORPORATION, Respondents.
x - - - - - - - - - - - - - - - - - - - - - - -x
G.R. No. 183210
GOODYEAR PHILIPPINES, INC., Petitioner,
vs.
SIME DARBY PILIPINAS, INC. and MACGRAPHICS CARRANZ INTERNATIONAL
CORPORATION, Respondents.
DECISION
MENDOZA, J.:
This disposition covers two petitions for review filed separately by Sime Darby Pilipinas, Inc. (Sime Darby) and
Goodyear Philippines, Inc. (Goodyear) assailing the February 13, 2008 Decision1 of the Court of Appeals (CA) and
its March 13, 20082 and May 28, 20083 Resolutions in CA-G.R. CV No. 86032. The assailed issuances affirmed the
November 8, 2004 Decision4 and the July 20, 2005 Order5 of the Regional Trial Court, Branch 61, Makati City (RTC),
in Civil Case No. 97-561 entitled Goodyear Philippines, Inc. v. Sime Darby Pilipinas, Inc., and/or Macgraphics
Carranz International Corporation, for Partial Rescission of a Deed of Assignment plus Damages and which
essentially: [1] granted Goodyear’s complaint for partial rescission against Sime Darby; and [2] ordered Goodyear to
pay respondent Macgraphics Carranz International Corporation (Macgraphics) attorney’s fees with legal interest
thereon.
The Facts:
Macgraphics owned several billboards across Metro Manila and other surrounding municipalities, one of which was
a 35’ x 70’ neon billboard located at the Magallanes Interchange in Makati City. The Magallanes billboard
was leased by Macgraphics to Sime Darby in April 1994 at a monthly rental of ₱120,000.00. 6 The lease had a term
of four years and was set to expire on March 30, 1998. Upon signing of the contract, Sime Darby paid Macgraphics
a total of ₱1.2 million representing the ten-month deposit which the latter would apply to the last ten months of the
lease. Thereafter, Macgraphics configured the Magallanes billboard to feature Sime Darby’s name and logo.
On April 22, 1996, Sime Darby executed a Memorandum of Agreement7 (MOA) with Goodyear, whereby it agreed to
sell its tire manufacturing plants and other assets to the latter for a total of ₱1.5 billion.
Just a day after, on April 23, 1996, Goodyear improved its offer to buy the assets of Sime Darby from ₱1.5 billion to
₱1.65 billion. The increase of the purchase price was made in consideration, among others, of the assignment by
Sime Darby of the receivables in connection with its billboard advertising in Makati City and Pulilan, Bulacan.
On May 9, 1996, Sime Darby and Goodyear executed a deed entitled "Deed of Assignment in connection with
Microwave Communication Facility and in connection with Billboard Advertising in Makati City and Pulilan,
Bulacan" (Deed of Assignment),8 through which Sime Darby assigned, among others, its leasehold rights and
deposits made to Macgraphics pursuant to its lease contract over the Magallanes billboard.
Sime Darby then notified Macgraphics of the assignment of the Magallanes billboard in favor of Goodyear through a
letter-notice9 dated May 3, 1996.
After submitting a new design for the Magallanes billboard to feature its name and logo, Goodyear requested that
Macgraphics submit its proposed quotation for the production costs of the new design. In a letter 10 dated June 21,
1996 Macgraphics informed Goodyear that the monthly rental of the Magallanes billboard is ₱250,000.00 and
explained that the increase in rental was in consideration of the provisions and technical aspects of the submitted
design.
Goodyear replied on July 8, 1996 stating that due to budget constraints, it could not accept Macgraphics’ offer to
integrate the cost of changing the design to the monthly rental. Goodyear stated that it intended to honor the
₱120,000.00 monthly rental rate given by Macgraphics to Sime Darby. It then requested that Macgraphics send its
quotation for the simple background repainting and re-lettering of the neon tubing for the Magallanes billboard.11
Macgraphics then sent a letter12 to Sime Darby, dated July 11, 1996, informing the latter that it could not give its
consent to the assignment of lease to Goodyear. Macgraphics explained that the transfer of Sime Darby’s leasehold
rights to Goodyear would necessitate drastic changes to the design and the structure of the neon display of the
Magallanes billboard and would entail the commitment of manpower and resources that it did not foresee at the
inception of the lease.
Attaching a copy of this letter to a correspondence13 dated July 15, 1996, Macgraphics advised Goodyear that any
advertising service it intended to get from them would have to wait until after the expiration or valid pre-termination
of the lease then existing with Sime Darby.
On September 23, 1996, due to Macgraphics’ refusal to honor the Deed of Assignment, Goodyear sent Sime Darby
a letter,14 via facsimile, demanding partial rescission of the Deed of Assignment and the refund of ₱1,239,000.00, the
pro-rata value of Sime Darby’s leasehold rights over the Magallanes billboard.
As Sime Darby refused to accede to Goodyear’s demand for partial rescission, the latter commenced Civil Case No.
97-561 with the RTC. In its complaint,15 Goodyear alleged that Sime Darby [1] was unable to deliver the object of the
Deed of Assignment and [2] was in breach of its warranty under Title VII, Section B, paragraph 2 of the MOA, stating
that "no consent of any third party with whom Sime Darby has a contractual relationship is required in connection
with the execution and delivery of the MOA, or the consummation of the transactions contemplated therein."16
Including Macgraphics as an alternative defendant, Goodyear argued that should the court find the partial rescission
of the Deed of Assignment not proper, it must be declared to have succeeded in the rights and interest of Sime
Darby in the contract of lease and Macgraphics be ordered to pay it the amount of ₱1,239,000.00.
After trial and the submission of the parties of their respective memoranda, the RTC rendered its decision and
disposed the case in the following manner:
WHEREFORE, premises considered, the Deed of Assignment of Receivables (Exh. "C") is hereby partially
rescinded and defendant Sime Darby Pilipinas, Inc. is directed to pay plaintiff Goodyear Philippines, Inc. the amount
of ₱1,239,000.00 with legal interest thereon from June 1996 until fully paid. Plaintiff Goodyear Philippines, Inc. is
directed to pay defendant Macgraphics the amount of ₱50,000.00 as attorney’s fees with legal interest thereon from
the filing of the complaint until fully paid.
SO ORDERED.
The trial court was of the considered view that Sime Darby should have secured the consent of Macgraphics to the
assignment of the lease before it could be effective against the latter. The trial court noted that the contract of lease
between Sime Darby and Macgraphics made no mention of any clause that would grant Sime Darby the right to
unilaterally assign the lease. Thus, following Article 1649 of the New Civil Code,17 the trial court ruled that absent any
stipulation to the contrary, the assignment of the lease without the consent of Macgraphics was not valid. The RTC
also stated that as far as Macgraphics was concerned, its relationship with Goodyear was that of a new client.
With Sime Darby’s failure to secure the consent of Macgraphics, the trial court considered that it failed to deliver the
object of the Deed of Assignment. The RTC, thus, ruled that following Article 1191 of the New Civil Code,18 Goodyear
was entitled to demand rescission of the assignment of the lease over the billboard.
Granting the counterclaim of Macgraphics, the trial court found that Goodyear had no legal basis to file the
complaint against it. According to the trial court, the consent of Macgraphics was required before any assignment of
the lease over the billboard could be effective against it, there being no stipulation allowing Sime Darby to do
otherwise.
Not satisfied, both Goodyear and Sime Darby sought partial reconsideration of the decision. Their respective pleas,
however, were denied by the RTC in its July 20, 2005 Order.19
Sime Darby and Goodyear thereafter sought relief from the CA. In its February 13, 2008 Decision, however, the CA
echoed the findings and conclusions of the trial court and affirmed its decision in toto. The decretal portion of the
decision reads:
WHEREFORE, premises considered, the reliefs prayed for in the instant appeal are hereby DENIED. Accordingly,
the assailed Decision of the Court a quo dated 08 November 2004 and Order dated 20 July 2005, respectively,
STAND.
SO ORDERED.
Both Sime Darby and Goodyear sought partial reconsideration of the CA decision, but their motions were denied.
Unable to seek relief from the CA, Sime Darby and Goodyear filed their respective petitions before the Court. Sime
Darby’s petition was docketed as G.R. No. 182148, while Goodyear’s petition was docketed as G.R. No. 183210.
On July 8, 2008, G.R. No. 182148 and G.R. No. 183210 were consolidated.
In its Memorandum,20 Sime Darby insists that Goodyear has no right to rescind the Deed of Assignment as
Macgraphics impliedly consented to the assignment of the lease. It argues that Macgraphics, after being notified of
the assignment, entertained Goodyear’s request for a quotation on the cost of a new design for the Magallanes
billboard. The fact that there was a negotiation, Sime Darby posits, means that Macgraphics did not really care who
the lessee was for as long as it got paid for the lease of the Magallanes billboard.
Sime Darby also asserts that Macgraphics, despite refusing to give its consent to the assignment, still entertained
Goodyear’s request to have its logo featured in the Magallanes billboard. In fact, on July 23, 1996, it sent Goodyear
another quotation21 of the cost to make changes on the billboard design.
Further, Sime Darby argues that Macgraphics’ delay of 69 days before its July 11, 1996 letter declining to give its
consent to the assignment is unreasonably long. Considering also the lack of explanation on the part of
Macgraphics for the reason of the delay, Sime Darby claims that laches has set in.
On the other hand, both Goodyear and Macgraphics pray for the affirmance of the decisions of the courts below that
rescission is proper. In addition, Goodyear assails the petition of Sime Darby claiming that it raises only questions of
fact since the petition essentially revolves around the truth or falsity of the findings of the courts below that
Macgraphics never consented to the assignment of Sime Darby’s leasehold rights. Goodyear also insists that it is
entitled to attorneys’ fees due to the unjustified refusal of Sime Darby to rescind the Deed of Assignment.
Goodyear, however, asserts that it should not be held liable for the attorney’s fees in favor of Macgraphics because
it merely impleaded the latter when Sime Darby argued that fault and liability lie with it (Macgraphics).
Synthesized, the issues proffered by the two petitions are:
[1] Whether partial rescission of the Deed of Assignment is proper; and
[2] Whether Macgraphics is entitled to an award of attorney’s fees.
The Court finds no merit in the petitions.
Well-settled is the rule that a petition for review on certiorari under Rule 45 of the Rules of Court should only include
questions of law since questions of fact are not reviewable. A question of law arises when there is doubt as to what
the law is on a certain state of facts, while a question of fact exists when the doubt arises as to the truth or falsity of
the alleged facts. For a question to be one of law, it must not involve an examination of the probative value of the
evidence presented by any of the litigants. The resolution of the issue must rest solely on what the law provides
under a given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, then
the question posed is one of fact. Thus, the test of whether a question is one of law or of fact is not the appellation
given to such question by the party raising the same; rather, it is whether the appellate court resolve the question
raised without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise it is a question
of fact.22
Likewise well-settled is the principle that absent grave abuse of discretion, the Court will not disturb the factual
findings of the CA. The Court will only exercise its power of review in known exceptions such as gross
misappreciation of evidence or a total void of evidence.23
Whether Macgraphics gave its consent to the assignment of leasehold rights of Sime Darby is a question of fact. It is
not reviewable. On this score alone, the petition of Sime Darby fails.
Even if the Court should sidestep this otherwise fatal miscue, the petition of Sime Darby remains bereft of any merit.
Article 1649 of the New Civil Code provides:
Art. 1649. The lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the
contrary. (n)
In an assignment of a lease, there is a novation by the substitution of the person of one of the parties – the
lessee.24 The personality of the lessee, who dissociates from the lease, disappears. Thereafter, a new juridical
relation arises between the two persons who remain – the lessor and the assignee who is converted into the new
lessee. The objective of the law in prohibiting the assignment of the lease without the lessor’s consent is to protect
the owner or lessor of the leased property.25
Broadly, a novation may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by
the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation
subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation results either by
changing the object or principal conditions (objective or real), or by substituting the person of the debtor or
subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would
have dual functions—one to extinguish an existing obligation, the other to substitute a new one in its place. This
requires a conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties
concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new obligation.26
While there is no dispute that the first requisite is present, the Court, after careful consideration of the facts and the
evidence on record, finds that the other requirements of a valid novation are lacking. A review of the lease contract
between Sime Darby and Macgraphics discloses no stipulation that Sime Darby could assign the lease without the
consent of Macgraphics.
Moreover, contrary to the assertions of Sime Darby, the records are bereft of any evidence that clearly shows that
Macgraphics consented to the assignment of the lease. As aptly found by the RTC and the CA, Macgraphics was
never part of the negotiations between Sime Darby and Goodyear. Neither did it give its conformity to the
assignment after the execution of the Deed of Assignment.
The consent of the lessor to an assignment of lease may indeed be given expressly or impliedly. It need not be
given simultaneously with that of the lessee and of the assignee. Neither is it required to be in any specific or
particular form.27 It must, however, be clearly given. In this case, it cannot be said that Macgraphics gave its implied
consent to the assignment of lease. As aptly explained by the CA in its decision:
xxx
Neither are We convinced with Appellant SIME DARBY's argument that Appellee MACGRAPHICS impliedly
consented to the questioned assignment when it negotiated with Appellant GOODYEAR for the redesigning of
Magallanes billboard. In fact, thru its letter dated 11 July 1996 to Appellant SIME DARBY, the Appellee made formal
its refusal to give consent to the transfer/assignment to Appellant GOODYEAR of its right in the lease over the
billboard located in Magallanes, Makati. The letter reads:
xxx
RE: Your BILLBOARD LEASE
We refer to your letter dated May 23, 1996 notifying us of the assignment and transfer to Goodyear Philippines, Inc.
of all your rights in the lease over the billboard located at Wells Photo Building, Magallanes, Makati City.
As anticipated, the transfer of your rights over the lease will necessitate drastic changes to the design and
structure of the neon spectacular display advertised in the billboard, which would thus entail commitment
of manpower and resources which we did not foresee at the inception of the lease. Much as we would like
to accommodate you, these reasons constrained us to decline giving consent to the transfer. We hope that
you will understand our position. (Emphasis included)
On 15 July 1996, the Appellee likewise sent a letter to Appellant GOODYEAR informing the latter of its refusal to the
assignment of the subject lease. The letter essentially states:
xxx
ATTENTION: MR. CARLOS Q. CARBALLO
Manager
Distribution, Development & Advertising
Gentlemen:
In response to your letter dated July 08, 1996, we are furnishing you with a copy of the letter we sent to Sime Darby
Pilipinas, Inc., the content of which is self-explanatory.
We look forward to servicing your advertising needs at the billboards presently leased to Sime Darby but only after
the latter's existing lease thereon has expired or been validly pre-terminated. Until then, we are bound to abide by
the terms of the existing lease contract.
Should you desire, we have other choice locations which might suit your needs. Please let us know.
xxx
In the assertion of implied consent allegedly made by the Appellee to the assignment, the Court a quo ratiocinated
in this wise:
xxx
On the issue of whether or not the negotiations between Macgraphics and Goodyear is a separate negotiation or
still included in the lease, the Court rules that from the very start of the negotiations between Goodyear and
Macgraphics, the relationship between them, as far as Macgraphics is concerned, was that of Goodyear as a new
client. Nonetheless, whether the negotiations is separate or included in the lease between Sime Darby and
Macgraphics, the fact remains that Macgraphics did not give its consent to the assignment of the lease.
xxx
Clearly, there is no implied consent based on the factual backdrop of this case. Evidently, what transpired between
Appellant GOODYEAR and the Appellee was a negotiation between a willing service provider and a probable new
client. On this regard, the president of the Appellee, ALVIN M. CARRANZA (hereinafter CARRANZA), confirmed on
direct examination the contents of his judicial affidavit submitted before the Court a quo in lieu of direct examination.
The said judicial affidavit pertinently states viz:
xxx
Q: Do you know plaintiff?
A: Yes.
Q: How do you know the plaintiff?
A: I know the plaintiff Goodyear because after Sime Darby sent us the letter dated 03 May 1996, Goodyear
requested for a price quote on the cost of changing the billboard design on the Magallanes Interchange. They asked
how much the cost would be if Sime Darby's billboard were changed and Goodyear's advertisement displayed
instead.
Q: What was your reaction to this request?
A: Goodyear is a big company, so we tried to be as accommodating as possible in order to attract it as a
client. (Underlining supplied)
xxx
As aptly pointed out by Appellant GOODYEAR in its Brief filed in response to the appeal filed by the Appellant SIME
DARBY, the fact that the Appellee dealt with Appellant GOODYEAR as a new client is corroborated by the testimony
of APOLLO DE GALA (hereinafter DE GALA), Acting Manager for Advertising of Appellant GOODYEAR, to wit:
Re-direct examination
Q: You mentioned during cross-examination that you started negotiating with Macgraphics Carranz for the make-
over of the billboard in Magallanes, is it not?
A: Yes, sir.
Q: And this negotiation was without the participation of Sime Darby?
A: Yes, sir.
Q: Now, why did you not include Sime Darby in the negotiation?
A: I do not really have any reason to include them that time, because considering that it was just a change over, we
were willing to pay for the change over. The thing that included Sime Darby was that Carranz refused to honor. Well,
Carranz proposed another scheme for the billboard. In fact, they proposed to us that we do the whole thing over,
sir. A new set not considering the Sime Darby logo and Sime
Darby agreement, Carranz and Sime Darby. To Carranz, it was already new set of client. xxx
(Underlining supplied)
Indeed, Macgraphics and Goodyear never came to terms as to the conditions that would govern their relationship.
While it is true, that Macgraphics and Goodyear exchanged proposals, there was never a meeting of minds between
them. Contrary to the assertions of Sime Darby, the negotiations between Macgraphics and Goodyear did not
translate to its (Macgraphics’) consent to the assignment. Negotiations is just a part or a preliminary phase to the
birth of an obligation.
"In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and consummation.
Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends
at the moment of agreement of the parties. Perfection or birth of the contract takes place when the parties agree
upon the essential elements of the contract. Consummation occurs when the parties fulfill or perform the terms
agreed upon in the contract, culminating in the extinguishment thereof."28
Regarding laches, it is an issue raised by Sime Darby for the first time only in this Court. Basic is the rule that issues
not raised below cannot be raised for the first time on appeal. Points of law, theories, issues and arguments not
brought to the attention of the lower court need not be, and ordinarily will not be, considered by the reviewing court,
as they cannot be raised for the first time at that late stage. Basic considerations of due process impel the adoption
of this rule.29
Notwithstanding, the Court finds that the doctrine of laches cannot be applied in this case.
Laches is 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 the presumption that the party entitled to assert it either has abandoned or declined to
assert it.30 There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be
determined according to its particular circumstances, with the question of laches addressed to the sound discretion
of the court. Because laches is an equitable doctrine, its application is controlled by equitable considerations and
should not be used to defeat justice or to perpetuate fraud or injustice.31
From the records, it appears that Macgraphics first learned of the assignment when Sime Darby sent its letter-notice
dated May 3, 1996. From the letters sent by Macgraphics to Goodyear, it is apparent that Macgraphics had to study
and determine both the legal and practical implications of entertaining Goodyear as a client. After review,
Macgraphics found that consenting to the assignment would entail the commitment of manpower and resources that
it did not foresee at the inception of the lease. It thereafter communicated its non-conformity to the assignment. To
the mind of the Court, there was never a delay.
In sum, it is clear that by its failure to secure the consent of Macgraphics to the assignment of lease, Sime Darby
failed to perform what was incumbent upon it under the Deed of Assignment. The rescission of the Deed of
Assignment pursuant to Article 1191 of the New Civil Code is, thus, justified.
With regard to the two issues raised by Goodyear on attorney’s fees, the Court agrees with the CA which correctly
proferred the following ratiocination:
The award of attorney's fees is the exception rather than the rule, and it must have some factual, legal and equitable
bases. Nevertheless, Art. 2208 of the Civil Code authorizes an award of attorney's fees and expenses of litigation,
other than judicial costs, when as in this case the plaintiff's act or omission has compelled the defendant to litigate
and to incur expenses of litigation to protect her interest (par. 2), and where the Court deems it just and equitable
that attorney's fees and expenses of litigation should be recovered (par. 11).
In the case at bar, even before the filing of the instant case before the Court a quo, it was clear that Appellee
MACGRAPHICS was not part of the Deed of Assignment being assailed by the Appellant GOODYEAR. It was also
established during the trial that the consent of Appellee MACGRAPHICS was not secured prior to the execution of
the subject deed between the Appellants. Thus, it is only equitable that Appellant GOODYEAR be made liable for
the unnecessary attorney's fees spent by Appellee MACGRAPHICS to protect its rights and interest due to the filing
of a baseless complaint by Appellant GOODYEAR. To stress, attorney's fees may be awarded when a party is
compelled to litigate or to incur expenses to protect its interest by reason of an unjustified act by the other.
As to the claim of Appellant GOODYEAR that Appellant SIME DARBY be made liable to pay the former attorney's
fees, We rule to deny the same.
The grant of attorney's fees depends on the circumstances of each case and lies within the discretion of the court.
We are of the view that although the Court a quo was correct in ordering the partial rescission of the deed of
assignment, it does not necessarily follow that the award of attorney's fees is a natural consequence. They are not
awarded every time a party wins a suit. In the absence of a stipulation, attorney's fees are ordinarily not recoverable;
otherwise a premium shall be placed on the right to litigate. Since the Appellant GOODYEAR's claim from Appellant
SIME DARBY, to deliver its leasehold rights with Appellee MACGRAPHICS cannot altogether be considered as
demandable claim due to latter's lack of consent, Appellant SIME DARBY cannot be made liable to answer for
attorney's fees. [Emphases supplied]
In view of all the foregoing, the Court finds no legal, factual, or equitable justification to disturb the findings and
conclusions of the courts below.
WHEREFORE, the petitions are hereby DENIED.
SO ORDERED.

G.R. No. 181812 June 8, 2011

FELICIANO GAITERO and NELIA GAITERO, Petitioners,
vs.
GENEROSO ALMERIA and TERESITA ALMERIA, Respondents.
DECISION
ABAD, J.:
Will laches, a rule of equity, benefit one who himself slept on his supposed right?
The Facts and the Case
Following a cadastral survey in Barangay Ysulat, Tobias Fornier, Antique, a land registration court issued an original
certificate of title1 to Rosario O. Tomagan (Tomagan) covering a 10,741 square-meter land, designated as Lot
9960.2 Subsequently in 1993, Tomagan subdivided the lot awarded to her into four: Lot 9960-A3 covering 3,479 sq
m; Lot 9960-B covering 1,305 sq m; Lot 9960-C4 covering 3,073 sq m; and Lot 9960-D covering the remaining 2,884
sq m. Tomagan waived her rights over Lots 9960-A and 9960-C in favor of petitioner Feliciano Gaitero (Gaitero) and
Lot 9960-B in favor of Barangay Ysulat, Tobias Fornier. She retained Lot 9960-D.5
Lot 9960-A that went to Gaitero adjoined Lot 9964 which belonged to respondent spouses Generoso and Teresita
Almeria (the Almerias) and was covered by OCT P-14556. In June 2000, the Almerias commissioned a relocation
survey of their lot and were astonished to find that Gaitero, who owned adjoining Lot 9960-A, intruded into their lot
by as much as 737 sq m (the disputed area).
On August 9, 2000, apparently to settle the dispute, the Almerias waived their rights over a 158 sq m portion of the
disputed area in Gaitero’s favor but maintained their claim over the remaining 579 sq m. Subsequently, however,
Gaitero filed an affidavit of adverse claim on the Almerias’ title over the remaining 579 sq m.6
When barangay conciliation proceedings failed to settle the differences between the two neighbors, Gaitero filed an
action for recovery of possession against the Almerias7 before the Municipal Circuit Trial Court (MCTC) of Tobias
Fornier-Anini-Y-Hamtic. Gaitero prayed for the return of the possession of the remaining 579 sq m, moral damages
of ₱100,000.00, exemplary damages of ₱25,000.00, attorney’s fees of ₱15,000.00, and litigation expenses of
₱10,000.00.
Gaitero claimed that he was the registered owner of Lot 9960-A, which was covered by TCT T-2544 and had an
assessed value of ₱11,050.00; that he inherited the same from his mother, Maria Obay, who in turn inherited it from
her father, Bonifacio Obay; that before the cadastral survey, Lot 9960-A was erroneously lumped with Lot 9960 in
Tomagan’s name; that, acknowledging the mistake, Tomagan subdivided Lot 9960 into four lots and waived her
rights over Lots 9960-A and 9960-C in Gaitero’s favor; that the Almerias claimed a portion of Lot 9960-A by virtue of
a relocation survey and fenced it close to Gaitero’s house, obstructing the latter’s passageway; and that while the
Almerias returned 158 sq m of the disputed portion, they refused to return to him the remaining 579 sq m.
Answering the complaint and instituting a counterclaim, the Almerias alleged that they bought Lot 9964 8 in 1985 by
virtue of an Extra-Judicial Settlement of Estate and Sale; that it was Gaitero who unlawfully encroached on the 737
sq m portion of Lot 9964; and that, while they had waived a portion of the disputed area, Gaitero’s incessant claim to
the remaining 579 sq m prompted them to cancel their previous waiver of the 158 sq m. 9 The Almerias prayed for
the dismissal of the complaint and the award of damages in their favor.
In his reply, Gaitero claimed that the cadastral survey was erroneous in that it included a 737 sq m portion of Lot
9960-A into Lot 9964.
After trial, on December 9, 2002 the MCTC rendered a decision, dismissing the complaint and ordering Gaitero to
pay the Almerias ₱20,000.00 in moral damages and ₱20,000.00 in attorney’s fees. The MCTC held that the
Almerias were entitled to the possession of the disputed area considering that it is included in the technical
description of their registered title. Further, the MCTC held that Gaitero acknowledged the true boundaries of 9960-A
when Lot 9960 was subdivided in 1993. Indeed, the subdivision plan clearly shows that the disputed area is
excluded from 9960-A.
On appeal,10 the Regional Trial Court (RTC) reversed the decision of the MCTC.11 The RTC held that, while the
Almerias were the rightful owners of the disputed area, laches prevented them from asserting their right over the
same since it took them 15 years before they did so. The RTC also ordered the Almerias to pay Gaitero moral
damages of ₱50,000.00, attorney’s fees of ₱15,000.00 and litigation expenses of ₱30,000.00.
On review,12 the Court of Appeals (CA) rendered judgment on May 21, 2007, reversing the decision of the RTC and
reinstating that of the MCTC. The CA held that the Almerias owned the disputed area since, between a registered
title and a verbal claim of ownership, the former must prevail. The CA did not consider the Almerias in laches since
no one had lodge a claim of ownership against their title to the disputed property. On motion for reconsideration, the
CA deleted the award of moral damages, litigation expenses, and attorney’s fees in its resolution of February 11,
2008.
The Issue Presented
The sole issue presented to the Court is whether or not the CA erred in holding that the Almerias are entitled to the
possession of the disputed area as against Gaitero.
The Court’s Ruling
Possession is an essential attribute of ownership. Necessarily, whoever owns the property has the right to possess
it.13 Here, between the Almerias’ registered title of ownership and Gaitero’s verbal claim to the same, the former’s
title is far superior.
As the MCTC, the RTC, and the CA found, the disputed area forms part of the Almerias’ registered title. Upon
examination, this fact is also confirmed by the subdivision plan which partitioned Tomagan’s original Lot 9960. The
evidence shows that the Almerias bought Lot 9964, which includes the disputed area, from the Asenjo heirs in
whose names the land was originally registered. Since Gaitero was unable to prove that fraud attended the titling of
the disputed area, the Almerias’ right over the same became indefeasible and incontrovertible a year from
registration.14
The Court cannot consider Gaitero’s claim of ownership of the disputed area, based on his alleged continuous
possession of the same, without running afoul of the rule that bars collateral attacks of registered titles. 15 Gaitero’s
action before the MCTC is one for recovery of possession of the disputed area. An adjudication of his claim of
ownership over the same would be out of place in such kind of action. A registered title cannot be impugned,
altered, changed, modified, enlarged, or diminished, except in a direct proceeding permitted by law. Otherwise,
reliance on registered titles would be lost.16 Gaitero’s action is prohibited by law and should be dismissed.1awphi1

Gaitero’s theory of laches cannot vest on him the ownership of the disputed area. To begin with, laches is a
consideration in equity17 and therefore, anyone who invokes it must come to court with clean hands, for he who has
done inequity shall not have equity.18 Here, Gaitero’s claim of laches against the Almerias can be hurled against him.
When the lot that the Almerias acquired (Lot 9964) was registered in 1979, Gaitero had constructive, if not actual,
notice that the cadastral survey included the disputed area as part of the land that Leon Asenjo claimed. Yet, neither
Gaitero nor his mother complained or objected to such inclusion.
Worse, when Gaitero saw the subdivision plan covering Tomagan’s original Lot 9960 in 1993, it showed that the
disputed area fell outside the boundaries of Lot 9960-A which he claimed. Still, Gaitero did nothing to correct the
alleged mistake. He is by his inaction clearly estopped from claiming ownership of the disputed area. He cannot
avail himself of the law of equity.
WHEREFORE, the Court DISMISSES the petition and AFFIRMS the decision and resolution of the Court of Appeals
in CA-G.R. SP 80285 dated May 21, 2007 and February 11, 2008, respectively.
SO ORDERED.

G.R. No. 170023 November 27, 2009

KINGS PROPERTIES CORPORATION, Petitioner,
vs.
CANUTO A. GALIDO, Respondent.
DECISION
CARPIO, J.:
The Case
Kings Properties Corporation (petitioner) filed this Petition for Review on Certiorari 1 assailing the Court of Appeals’
Decision 2 dated 20 December 2004 in CA-G.R. CV No. 68828 as well as the Resolution 3 dated 10 October 2005
denying the Motion for Reconsideration. In the assailed decision, the Court of Appeals reversed the Regional Trial
Court’s Decision 4 dated 4 July 2000. This case involves an action for cancellation of certificates of title, registration
of deed of sale and issuance of certificates of title filed by Canuto A. Galido (respondent) before Branch 71 of the
Regional Trial Court of Antipolo City (trial court).
The Facts
On 18 April 1966, the heirs of Domingo Eniceo, namely Rufina Eniceo and Maria Eniceo, were awarded with
Homestead Patent No. 112947 consisting of four parcels of land located in San Isidro, Antipolo, Rizal (Antipolo
property) and particularly described as follows:
1. Lot No. 1 containing an area of 96,297 square meters;
Lot No. 3 containing an area of 25,170 square meters;
Lot No. 4 containing an area of 26,812 square meters; and
Lot No. 5 containing an area of 603 square meters.
The Antipolo property with a total area of 14.8882 hectares was registered under Original Certificate of Title (OCT)
No. 535. 5 The issuance of the homestead patent was subject to the following conditions:
To have and to hold the said tract of land, with the appurtenances thereunto of right belonging unto the said Heirs of
Domingo Eniceo and to his heir or heirs and assigns forever, subject to the provisions of sections 118, 121, 122 and
124 of Commonwealth Act No. 141, as amended, which provide that except in favor of the Government or any of its
branches, units or institutions, the land hereby acquired shall be inalienable and shall not be subject to incumbrance
for a period of five (5) years next following the date of this patent, and shall not be liable for the satisfaction of any
debt contracted prior to the expiration of that period; that it shall not be alienated, transferred or conveyed after five
(5) years and before twenty-five (25) years next following the issuance of title, without the approval of the Secretary
of Agriculture and Natural Resources; that it shall not be incumbered, alienated, or transferred to any person,
corporation, association, or partnership not qualified to acquire public lands under the said Act and its amendments;
xxx6
On 10 September 1973, a deed of sale covering the Antipolo property was executed between Rufina Eniceo and
Maria Eniceo as vendors and respondent as vendee. Rufina Eniceo and Maria Eniceo sold the Antipolo property to
respondent for ₱250,000. 7 A certain Carmen Aldana delivered the owner’s duplicate copy of OCT No. 535 to
respondent. 8
Petitioner alleges that when Maria Eniceo died in June 1975, Rufina Eniceo and the heirs of Maria Eniceo (Eniceo
heirs), 9 who continued to occupy the Antipolo property as owners, thought that the owner’s duplicate copy of OCT
No. 535 was lost. 10
On 5 April 1988, the Eniceo heirs registered with the Registry of Deeds of Marikina City (Registry of Deeds) a Notice
of Loss dated 2 April 1988 of the owner’s copy of OCT No. 535. The Eniceo heirs also filed a petition for the
issuance of a new owner’s duplicate copy of OCT No. 535 with Branch 72 of the Regional Trial Court (RTC) of
Antipolo, Rizal. The case was docketed as LRC Case No. 584-A. 11
On 31 January 1989, the RTC rendered a decision finding that the certified true copy of OCT No. 535 contained no
annotation in favor of any person, corporation or entity. The RTC ordered the Registry of Deeds to issue a second
owner’s copy of OCT No. 535 in favor of the Eniceo heirs and declared the original owner’s copy of OCT NO. 535
cancelled and considered of no further value. 12
On 6 April 1989, the Registry of Deeds issued a second owner’s copy of OCT No. 535 in favor of the Eniceo heirs. 13
Petitioner states that as early as 1991, respondent knew of the RTC decision in LRC Case No. 584-A because
respondent filed a criminal case against Rufina Eniceo and Leonila Bolinas (Bolinas) for giving false testimony upon
a material fact during the trial of LRC Case No. 584-A. 14
Petitioner alleges that sometime in February 1995, Bolinas came to the office of Alberto Tronio Jr. (Tronio),
petitioner’s general manager, and offered to sell the Antipolo property. During an on-site inspection, Tronio saw a
house and ascertained that the occupants were Bolinas’ relatives. Tronio also went to the Registry of Deeds to verify
the records on file. Tronio ascertained that OCT No. 535 was clean and had no lien and encumbrances. After the
necessary verification, petitioner decided to buy the Antipolo property. 15
On 14 March 1995, respondent caused the annotation of his adverse claim in OCT No. 535. 16
On 20 March 1995, the Eniceo heirs executed a deed of absolute sale in favor of petitioner covering lots 3 and 4 of
the Antipolo property for ₱500,000. 17
On the same date, Transfer Certificate of Title (TCT) Nos. 277747 and 277120 were issued. TCT No. 277747
covering lots 1 and 5 of the Antipolo property was registered in the names of Rufina Eniceo, Ambrosio Eniceo,
Rodolfo Calove, Fernando Calove and Leonila Calove Bolinas. 18 TCT No. 277120 covering lots 3 and 4 of the
Antipolo property was registered in the name of petitioner. 19
On 5 April 1995, the Eniceo heirs executed another deed of sale in favor of petitioner covering lots 1 and 5 of the
Antipolo property for ₱1,000,000. TCT No. 278588 was issued in the name of petitioner and TCT No. 277120 was
cancelled. 20
On 17 August 1995, the Secretary of the Department of Environment and Natural Resources (DENR Secretary)
approved the deed of sale between the Eniceo heirs and respondent. 21
On 16 January 1996, respondent filed a civil complaint with the trial court against the Eniceo heirs and petitioner.
Respondent prayed for the cancellation of the certificates of title issued in favor of petitioner, and the registration of
the deed of sale and issuance of a new transfer certificate of title in favor of respondent. 22
On 4 July 2000, the trial court rendered its decision dismissing the case for lack of legal and factual basis. 23
Respondent appealed to the Court of Appeals (CA). On 20 December 2004, the CA rendered a decision reversing
the trial court’s decision. 24 Respondent filed a motion for reconsideration, which the CA denied in its Resolution
dated 10 October 2005.
Aggrieved by the CA’s decision and resolution, petitioner elevated the case before this Court.
The Ruling of the Trial Court
The trial court stated that although respondent claims that the Eniceo heirs sold to him the Antipolo property,
respondent did not testify in court as to the existence, validity and genuineness of the purported deed of sale and
his possession of the duplicate owner’s copy of OCT No. 535. The trial court stated that as owner of a property
consisting of hectares of land, respondent should have come to court to substantiate his claim and show that the
allegations of the Eniceo heirs and petitioner are mere fabrications. 25
The trial court noticed that respondent did not register the deed of sale with the Register of Deeds immediately after
its alleged execution on 10 September 1973. Further, respondent waited for 22 long years before he had the sale
approved by the DENR Secretary. The trial court declared that respondent slept on his rights. The trial court
concluded that respondent’s failure to register the sale and secure the cancellation of OCT No. 535 militates against
his claim of ownership. The trial court believed that respondent has not established the preponderance of evidence
necessary to justify the relief prayed for in his complaint. 26
The trial court stated that Bolinas was able to prove that the Eniceo heirs have remained in actual possession of the
land. The filing of a petition for the issuance of a new owner’s duplicate copy requires the posting of the petition in
three different places which serves as a notice to the whole world. Respondent’s failure to oppose this petition can
be deemed as a waiver of his right, which is fatal to his cause. 27
The trial court noted that petitioner is a buyer in good faith and for value because petitioner has exercised due
diligence in inspecting the property and verifying the title with the Register of Deeds. 28
The trial court held that even if the court were to believe that the deed of sale in favor of respondent were genuine,
still it could not be considered a legitimate disposition of property, but merely an equitable mortgage. The trial court
stated that respondent never obtained possession of the Antipolo property at any given time and a buyer who does
not take possession of a property sold to him is presumed to be a mortgagee only and not a vendee. 29
The Ruling of the Court of Appeals
The CA ruled that the deed of sale in favor of respondent, being a notarized document, has in its favor the
presumption of regularity and carries the evidentiary weight conferred upon it with respect to its due execution. The
CA added that whoever asserts forgery has the burden of proving it by clear, positive and convincing evidence
because forgery can never be presumed. The CA found that petitioner and the Eniceo heirs have not substantiated
the allegation of forgery. 30
The CA pointed out that laches has not set in. One of the requisites of laches, which is injury or prejudice to the
defendant in the event relief is accorded to the complainant or the suit is not held to be barred, is wanting in the
instant case. The CA added that unrecorded sales of land brought under the Torrens system are valid between
parties because registration of the instrument is merely intended to bind third persons. 31
The CA declared that petitioner’s contention regarding the validity of the questioned deed on the ground that it was
executed without the approval of the DENR Secretary is untenable. The DENR Secretary approved the deed of sale
on 17 August 1995. However, even supposing that the sale was not approved, the requirement for the DENR
Secretary’s approval is merely directory and its absence does not invalidate any alienation, transfer or conveyance
of the homestead after 5 years and before 25 years from the issuance of the title which can be complied with at any
time in the future. 32
The CA ruled that petitioner is a buyer in bad faith because it purchased the disputed properties from the Eniceo
heirs after respondent had caused the inscription on OCT No. 535 of an adverse claim. Registration of the adverse
claim serves as a constructive notice to the whole world. Petitioner cannot feign ignorance of facts which should
have put it on guard and then claim that it acted under the honest belief that there was no defect in the title of the
vendors. Knowing that an adverse claim was annotated in the certificates of title of the Eniceo heirs, petitioner was
forewarned that someone is claiming an interest in the disputed properties. 33
The CA found no merit in petitioner’s contention that the questioned deed of sale is an equitable mortgage. The CA
stated that for the presumption of an equitable mortgage to arise, one must first satisfy the requirement that the
parties entered into a contract denominated as a contract of sale and that their intention was to secure an existing
debt by way of mortgage. 34
The CA stated that the execution of the notarized deed of sale, even without actual delivery of the disputed
properties, transferred ownership from the Eniceo heirs to respondent. The CA held that respondent’s possession of
the owner’s duplicate copy of OCT No. 535 bolsters the contention that the Eniceo heirs sold the disputed properties
to him by virtue of the questioned deed. 35
The CA reversed the trial court’s decision. The dispositive portion of the CA decision reads:
WHEREFORE, the appealed decision of the Regional Trial Court of Rizal (Antipolo, Branch 71) is REVERSED and
SET ASIDE and another rendered as follows:
1. Declaring null and void Transfer Certificates of Titles Nos. 277747, 277120 and 278588 of the Registry of Deeds
of Marikina City (the last two in the name of defendant-appellee Kings Properties Corporation), the derivative titles
thereof and the instruments which were the bases of the issuance of said certificates of title; and
2. Declaring plaintiff-appellant Canuto A. Galido the owner of fee simple of Lot Nos. 1, 3, 4, 5 formerly registered
under Original Certificate of Title No. 535 in the name of the Heirs of Domingo Eniceo, represented by Rufina
Eniceo, and ordering the Register of Deeds of Marikina City to issue new transfer certificates of title for said parcels
of land in the name of plaintiff-appellant Canuto A. Galido, upon payment of the proper fees and presentation of the
deed of sale dated September 10, 1973 executed by Rufina Eniceo and Maria Eniceo, as sole heirs of the late
Domingo Eniceo, in favor of the latter. 36
The Issues
Petitioner raises two issues in this petition:
1. Whether the adverse claim of respondent over the Antipolo property should be barred by laches; 37 and
2. Whether the deed of sale delivered to respondent should be presumed an equitable mortgage pursuant to
Article 1602(2) and 1604 of the Civil Code. 38
The Ruling of the Court
Validity of the deed of sale to respondent
The contract between the Eniceo heirs and respondent executed on 10 September 1973 was a perfected contract of
sale. A contract is perfected once there is consent of the contracting parties on the object certain and on the cause
of the obligation. 39 In the present case, the object of the sale is the Antipolo property and the price certain is
₱250,000.
The contract of sale has also been consummated because the vendors and vendee have performed their respective
obligations under the contract. In a contract of sale, the seller obligates himself to transfer the ownership of the
determinate thing sold, and to deliver the same to the buyer, who obligates himself to pay a price certain to the
seller. 40 The execution of the notarized deed of sale and the delivery of the owner’s duplicate copy of OCT No. 535
to respondent is tantamount to a constructive delivery of the object of the sale. In Navera v. Court of Appeals, the
Court ruled that since the sale was made in a public instrument, it was clearly tantamount to a delivery of the land
resulting in the symbolic possession thereof being transferred to the buyer. 41
Petitioner alleges that the deed of sale is a forgery. The Eniceo heirs also claimed in their answer that the deed of
sale is fake and spurious. 42 However, as correctly held by the CA, forgery can never be presumed. The party
alleging forgery is mandated to prove it with clear and convincing evidence. 43 Whoever alleges forgery has the
burden of proving it. In this case, petitioner and the Eniceo heirs failed to discharge this burden.
Petitioner invokes the belated approval by the DENR Secretary, made within 25 years from the issuance of the
homestead, to nullify the sale of the Antipolo property. The sale of the Antipolo property cannot be annulled on the
ground that the DENR Secretary gave his approval after 21 years from the date the deed of sale in favor of
respondent was executed. Section 118 of Commonwealth Act No. 141 or the Public Land Act (CA 141), as amended
by Commonwealth Act No. 456, 44 reads:
SEC. 118. Except in favor of the Government or any of its branches, units, or institutions, or legally constituted
banking corporations, lands acquired under free patent or homestead provisions shall not be subject to
encumbrance or alienation from the date of the approval of the application and for a term of five years from and after
the date of the issuance of the patent or grant x x x
No alienation, transfer, or conveyance of any homestead after five years and before twenty-five years after the
issuance of title shall be valid without the approval of the Secretary of Agriculture and Natural Resources, 45 which
approval shall not be denied except on constitutional and legal grounds.
In Spouses Alfredo v. Spouses Borras, 46 the Court explained the implications of Section 118 of CA 141. Thus:
A grantee or homesteader is prohibited from alienating to a private individual a land grant within five years from the
time that the patent or grant is issued. A violation of this prohibition renders a sale void. This , however, expires on
the fifth year. From then on until the next 20 years, the land grant may be alienated provided the Secretary of
Agriculture and Natural Resources approves the alienation. The Secretary is required to approve the alienation
unless there are "constitutional and legal grounds" to deny the approval. In this case, there are no apparent or legal
grounds for the Secretary to disapprove the sale of the Subject Land.
The failure to secure the approval of the Secretary does not ipso factomake a sale void. The absence of approval by
the Secretary does not a sale made after the expiration of the 5-year period, for in such event the requirement of
Section 118 of the Public Land Act becomes merely directory or a formality. The approval may be secured later,
producing the effect of ratifying and adopting the transaction as if the sale had been previously authorized.
(Underscoring supplied)
Equitable Mortgage
Petitioner contends that the deed of sale in favor of respondent is an equitable mortgage because the Eniceo heirs
remained in possession of the Antipolo property despite the execution of the deed of sale.
An equitable mortgage is "one which although lacking in some formality, or form or words, or other requisites
demanded by a statute, nevertheless reveals the intention of the parties to charge real property as security for a
debt, and contains nothing impossible or contrary to law." 47 The essential requisites of an equitable mortgage are:
1. The parties entered into a contract denominated as a contract of sale; and
2. Their intention was to secure existing debt by way of a mortgage. 48
In Lim v. Calaguas, 49 the Court held that in order for the presumption of equitable mortgage to apply, there must be:
(1) something in the language of the contract; or (2) in the conduct of the parties which shows clearly and beyond
doubt that they intended the contract to be a mortgage and not a pacto de retro sale. 50 Proof by parol evidence
should be presented in court. Parol evidence is admissible to support the allegation that an instrument in writing,
purporting on its face to transfer the absolute title to property, was in truth and in fact given merely as security for the
payment of a loan. The presumption of equitable mortgage under Article 1602 of the Civil Code is not conclusive. It
may be rebutted by competent and satisfactory proof of the contrary. 51
Petitioner claims that an equitable mortgage can be presumed because the Eniceo heirs remained in possession of
the Antipolo property. Apart from the fact that the Eniceo heirs remained in possession of the Antipolo property,
petitioner has failed to substantiate its claim that the contract of sale was intended to secure an existing debt by way
of mortgage. In fact, mere tolerated possession is not enough to prove that the transaction was an equitable
mortgage. 52
Furthermore, petitioner has not shown any proof that the Eniceo heirs were indebted to respondent. On the contrary,
the deed of sale executed in favor of respondent was drafted clearly to convey that the Eniceo heirs sold and
transferred the Antipolo property to respondent. The deed of sale even inserted a provision about defrayment of
registration expenses to effect the transfer of title to respondent.
In any event, as pointed out by respondent in his Memorandum, this defense of equitable mortgage is available only
to petitioner’s predecessors-in-interest who should have demanded, but did not, for the reformation of the deed of
sale. 53 A perusal of the records shows that the Eniceo heirs never presented the defense of equitable mortgage
before the trial court. In their Answer 54 and Memorandum 55 filed before the trial court, the Eniceo heirs claimed that
the alleged deed of sale dated 10 September 1973 between Rufina Eniceo and Maria Eniceo was fake and
spurious. The Eniceo heirs contended that even assuming there was a contract, no consideration was involved. It
was only in the Appellees’ Brief 56 filed before the CA that the Eniceo heirs claimed as an alternative defense that the
deed should be presumed as an equitable mortgage.
In Philippine Ports Authority v. City of Iloilo, 57 we ruled that a party who adopts a certain theory upon which the case
is tried and decided by the lower court will not be permitted to change the theory on appeal. A theory of the case not
brought to the attention of the lower court will not be considered by a reviewing court, as a new theory cannot be
raised for the first time at such late stage.
Although petitioner raised the defense of equitable mortgage in the lower court, he cannot claim that the deed was
an equitable mortgage because petitioner was not a privy to the deed of sale dated 10 September 1973. Petitioner
merely stepped into the shoes of the Eniceo heirs. Petitioner, who merely acquired all the rights of its predecessors,
cannot espouse a theory that is contrary to the theory of the case claimed by the Eniceo heirs.
The Court notes that the Eniceo heirs have not appealed the CA’s decision, hence, as to the Eniceo heirs, the CA’s
decision that the contract was a sale and not an equitable mortgage is now final. Since petitioner merely assumed
the rights of the Eniceo heirs, petitioner is now estopped from questioning the deed of sale dated 10 September
1973.
Petitioner is not a buyer in good faith
Petitioner maintains that the subsequent sale must be upheld because petitioner is a buyer in good faith, having
exercised due diligence by inspecting the property and the title sometime in February 1995.
In Agricultural and Home Extension Development Group v. Court of Appeals, 58 a buyer in good faith is defined as
"one who buys the property of another without notice that some other person has a right to or interest in such
property and pays a full and fair price for the same at the time of such purchase or before he has notice of the claim
or interest of some other person in the property."
In Balatbat v. Court of Appeals, 59 the Court held that in the realm of double sales, the registration of an adverse
claim places any subsequent buyer of the registered land in bad faith because such annotation was made in the title
of the property before the Register of Deeds and he could have discovered that the subject property was already
sold. 60 The Court explained further, thus:
A purchaser of a valued piece of property cannot just close his eyes to facts which should put a reasonable man
upon his guard and then claim that he acted in good faith and under the belief that there were no defect in the title of
the vendor. One who purchases real estate with knowledge of a defect or lack of title in his vendor cannot claim that
he has acquired title thereto in good faith as against the true owner of the land or of an interest therein; and the
same rule must be applied to one who has knowledge of facts which should have put him upon such inquiry and
investigation as be necessary to acquaint him with the defects in the title of his vendor. 61
Petitioner does not dispute that respondent registered his adverse claim with the Registry of Deeds on 14 March
1995. The registration of the adverse claim constituted, by operation of law, notice to the whole world. 62 From that
date onwards, subsequent buyers were deemed to have constructive notice of respondent’s adverse claim.
Petitioner purchased the Antipolo property only on 20 March 1995 and 5 April 1995 as shown by the dates in the
deeds of sale. On the same dates, the Registry of Deeds issued new TCTs in favor of petitioner with the annotated
adverse claim. Consequently, the adverse claim registered prior to the second sale charged petitioner with
constructive notice of the defect in the title of Eniceo heirs. Therefore, petitioner cannot be deemed as a purchaser
in good faith when they bought and registered the Antipolo property.
In Carbonell v. Court of Appeals, 63 this Court ruled that in double sales, the first buyer always has priority rights over
subsequent buyers of the same property. Being the first buyer, he is necessarily in good faith compared to
subsequent buyers. The good faith of the first buyer remains all throughout despite his subsequent acquisition of
knowledge of the subsequent sale. On the other hand, the subsequent buyer, who may have entered into a contract
of sale in good faith, would become a buyer in bad faith by his subsequent acquisition of actual or constructive
knowledge of the first sale. 64 The separate opinion of then Justice Teehankee is instructive, thus:
The governing principle here is prius tempore, potior jure(first in time, stronger in right). Knowledge gained by the
first buyer of the second sale cannot defeat the first buyer’s rights except only as provided by the Code and that is
where the second buyer first registers in good faith the second sale ahead of the first. Such knowledge of the first
buyer does bar her from availing of her rights under the law, among them, to first her purchase as against the
second buyer. But in converso knowledge gained by the second buyer of the first sale defeats his rights even if he is
first to register the second sale, since such knowledge taints his prior registration with bad faith.
This is the price exacted by Article 1544 of the Civil Code for the second buyer being able to displace the first buyer:
that before the second buyer can obtain priority over the first, he must show that he acted in good faith throughout
(i.e., in ignorance of the first sale and of the first buyer’s rights) – from the time of acquisition until the title is
transferred to him by registration or failing registration, by delivery of possession. The second buyer must show
continuing good faith and innocence or lack of knowledge of the first sale until his contract ripens into full ownership
through prior registration as provided by law. 65
Laches
Petitioner contends that respondent is guilty of laches because he slept on his rights by failing to register the sale of
the Antipolo property at the earliest possible time. Petitioner claims that despite respondent’s knowledge of the
subsequent sale in 1991, respondent still failed to have the deed of sale registered with the Registry of Deeds.
The essence of laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that
which, through due diligence, could have been done earlier, thus giving rise to a presumption that the party entitled
to assert it had either abandoned or declined to assert it. 66
Respondent discovered in 1991 that a new owner’s copy of OCT No. 535 was issued to the Eniceo heirs.
Respondent filed a criminal case against the Eniceo heirs for false testimony. When respondent learned that the
Eniceo heirs were planning to sell the Antipolo property, respondent caused the annotation of an adverse claim. On
16 January 1996, when respondent learned that OCT No. 535 was cancelled and new TCTs were issued,
respondent filed a civil complaint with the trial court against the Eniceo heirs and petitioner. Respondent’s actions
negate petitioner’s argument that respondent is guilty of laches.
True, unrecorded sales of land brought under Presidential Decree No. 1529 or the Property Registration Decree (PD
1529) are effective between and binding only upon the immediate parties. The registration required in Section 51 of
PD 1529 is intended to protect innocent third persons, that is, persons who, without knowledge of the sale and in
good faith, acquire rights to the property. 67 Petitioner, however, is not an innocent purchaser for value.
WHEREFORE, we DENY the petition. We AFFIRM the 20 December 2004 Decision and 10 October 2005
Resolution of the Court of Appeals in CA-G.R. CV No. 68828.
SO ORDERED.

G.R. No. 156403. March 31, 2005

JOSEPHINE PAHAMOTANG and ELEANOR PAHAMOTANG-BASA, Petitioners,
vs.
THE PHILIPPINE NATIONAL BANK (PNB) and the HEIRS OF ARTURO ARGUNA, Respondents.
DECISION
GARCIA, J.:
Assailed and sought to be set aside in this appeal by way of a petition for review on certiorari under Rule 45 of the
Rules of Court are the following issuances of the Court of Appeals in CA-G.R. CV No. 65290, to wit:
1. Decision dated March 20, 2002,1 granting the appeal and reversing the appealed August 7, 1998 decision of the
Regional Trial Court at Davao City; and
2. Resolution dated November 20, 2002, denying herein petitioners' motion for reconsideration.2
The factual background:
On July 1, 1972, Melitona Pahamotang died. She was survived by her husband Agustin Pahamotang, and their
eight (8) children, namely: Ana, Genoveva, Isabelita, Corazon, Susana, Concepcion and herein
petitioners Josephine and Eleonor, all surnamed Pahamotang.
On September 15, 1972, Agustin filed with the then Court of First Instance of Davao City a petition for issuance of
letters administration over the estate of his deceased wife. The petition, docketed as Special Case No. 1792, was
raffled to Branch VI of said court, hereinafter referred to as the intestate court.
In his petition, Agustin identified petitioners Josephine and Eleonor as among the heirs of his deceased spouse. It
appears that Agustin was appointed petitioners' judicial guardian in an earlier case - Special Civil Case No. 1785 –
also of the CFI of Davao City, Branch VI.
On December 7, 1972, the intestate court issued an order granting Agustin’s petition.
On July 6, 1973, respondent Philippine National Bank (PNB) and Agustin executed an Amendment of Real and
Chattel Mortgages with Assumption of Obligation. It appears that earlier, or on December 14, 1972, the intestate
court approved the mortgage to PNB of certain assets of the estate to secure an obligation in the amount of
₱570,000.00. Agustin signed the document in behalf of (1) the estate of Melitona; (2) daughters Ana and Corazon;
and (3) a logging company named Pahamotang Logging Enterprises, Inc. (PLEI) which appeared to have an
interest in the properties of the estate. Offered as securities are twelve (12) parcels of registered land, ten (10) of
which are covered by transfer certificates of title (TCT) No. 2431, 7443, 8035, 11465, 21132, 4038, 24327, 24326,
31226 and 37786, all of the Registry of Deeds of Davao City, while the remaining two (2) parcels by TCTs No.
(3918) 1081 and (T-2947) 562 of the Registry of Deeds of Davao del Norte and Davao del Sur, respectively.
On July 16, 1973, Agustin filed with the intestate court a Petition for Authority To Increase Mortgage on the
above mentioned properties of the estate.
In an Order dated July 18, 1973, the intestate court granted said petition.
On October 5, 1974, Agustin again filed with the intestate court another petition, Petition for Declaration of Heirs
And For Authority To Increase Indebtedness, whereunder he alleged the necessity for an additional loan from
PNB to capitalize the business of the estate, the additional loan to be secured by additional collateral in the form of
a parcel of land covered by Original Certificate of Title (OCT) No. P-7131 registered in the name of Heirs of Melitona
Pahamotang. In the same petition, Agustin prayed the intestate court to declare him and Ana, Genoveva, Isabelita,
Corazon, Susana, Concepcion and herein petitioners Josephine and Eleonor as the only heirs of Melitona.
In an Order of October 19, 1974, the intestate court granted Agustin authority to seek additional loan from PNB in
an amount not exceeding ₱5,000,000.00 to be secured by the land covered by OCT No. P-7131 of the Registry of
Deeds of Davao Oriental, but denied Agustin’s prayer for declaration of heirs for being premature.
On October 22, 1974, a real estate mortgage contract for ₱4,500,000.00 was executed by PNB and Agustin in his
several capacities as: (1) administrator of the estate of his late wife; (2) general manager of PLEI; (3) attorney-in-fact
of spouses Isabelita Pahamotang and Orlando Ruiz, and spouses Susana Pahamotang and Octavio Zamora; and
(4) guardian of daughters Concepcion and Genoveva and petitioners Josephine and Eleonor. Offered as securities
for the additional loan are three (3) parcels of registered land covered by TCTs No. T-21132, 37786 and 43264.
On February 19, 1980, Agustin filed with the intestate court a Petition (Request for Judicial Authority To Sell
Certain Properties of the Estate), therein praying for authority to sell to Arturo Arguna the properties of the estate
covered by TCTs No. 7443, 8035, 11465, 24326 and 31226 of the Registry of Deeds of Davao City, and also TCT
No. (T-3918) T-1081 of the Registry of Deeds of Davao del Norte.
On February 27, 1980, Agustin yet filed with the intestate court another petition, this time a Petition To Sell the
Properties of the Estate, more specifically referring to the property covered by OCT No. P-7131, in favor of PLEI.
In separate Orders both dated February 25, 1980, the intestate court granted Agustin authority to sell estate
properties, in which orders the court also required all the heirs of Melitona to give their express conformity to the
disposal of the subject properties of the estate and to sign the deed of sale to be submitted to the same court.
Strangely, the two (2) orders were dated two (2) days earlier than February 27, 1980, the day Agustin supposedly
filed his petition.
In a motion for reconsideration, Agustin prayed the intestate court for the amendment of one of its February 25,
1980 Orders by canceling the requirement of express conformity of the heirs as a condition for the disposal of the
aforesaid properties.
In its Order of January 7, 1981, the intestate court granted Agustin’s prayer.
Hence, on March 4, 1981, estate properties covered by TCTs No. 7443,11465, 24326, 31226, 8035, (T-2947) 662
and (T-3918) T-1081, were sold to respondent Arturo Arguna, while the property covered by OCT No. P-7131 was
sold to PLEI. Consequent to such sales, vendees Arguna and PLEI filed witt the intestate court a motion for the
approval of the corresponding deeds of sale in their favor. And, in an Order dated March 9, 1981, the intestate court
granted the motion.
Thereafter, three (3) daughters of Agustin, namely, Ana, Isabelita and Corazon petitioned the intestate court for the
payment of their respective shares from the sales of estate properties, which was granted by the intestate court.
Meanwhile, the obligation secured by mortgages on the subject properties of the estate was never satisfied. Hence,
on the basis of the real estate mortgage contracts dated July 6, 1973 and October 22, 1974, mortgagor PNB filed a
petition for the extrajudicial foreclosure of the mortgage.
Petitioner Josephine filed a motion with the intestate court for the issuance of an order restraining PNB from
extrajudicially foreclosing the mortgage. In its Order dated August 19, 1983, the intestate court denied Josephine’s
motion. Hence, PNB was able to foreclose the mortgage in its favor.
Petitioners Josephine and Eleanor, together with their sister Susana Pahamatong-Zamora, filed motions with the
intestate court to set aside its Orders of December 14, 1972 [Note: the order dated July 18, 1973 contained
reference to an order dated December 14, 1972 approving the mortgage to PNB of certain properties of the
estate], July 18, 1973, October 19, 1974 and February 25, 1980.
In an Order dated September 5, 1983, the intestate court denied the motions, explaining:
"Carefully analyzing the aforesaid motions and the grounds relied upon, as well as the opposition thereto, the Court
holds that the supposed defects and/or irregularities complained of are mainly formal or procedural and not
substantial, for which reason, the Court is not persuaded to still disturb all the orders, especially that interests of the
parties to the various contracts already authorized or approved by the Orders sought to be set aside will be
adversely affected".3
Such was the state of things when, on March 20, 1984, in the Regional Trial Court at Davao City, petitioners
Josephine and Eleanor, together with their sister Susana, filed their complaint for Nullification of Mortgage
Contracts and Foreclosure Proceedings and Damages against Agustin, PNB, Arturo Arguna, PLEI, the Provincial
Sheriff of Mati, Davao Oriental, the Provincial Sheriff of Tagum, Davao del Norte and the City Sheriff of Davao City.
In their complaint, docketed as Civil Case No. 16,802 which was raffled to Branch 12 of the court, the sisters
Josephine, Eleanor and Susana prayed for the following reliefs:
"1.) The real estate mortgage contracts of July 6, 1973 and that of October 2, 1974, executed by and between
defendants PNB AND PLEI be declared null and void ab initio;
2.) Declaring the foreclosure proceedings conducted by defendants-sheriffs, insofar as they pertain to the assets of
the estate of Melitona L. Pahamotang, including the auction sales thereto, and any and all proceedings taken
thereunder, as null and void ab initio;
3.) Declaring the Deed of Absolute Sale, Doc. No. 473; Page No.96; Book No.VIII, Series of 1981 of the Notarial
Registry of Paquito G. Balasabas of Davao City evidencing the sale/transfer of the real properties described therein
to defendant Arturo S. Arguna, as null and void ab initio;
4.) Declaring the Deed of Absolute Sale, Doc. No. 474; Page No. 96, Book No. VIII, series of 1981 of the Notarial
Registry of Paquito G. Balasabas of Davao City, evidencing the sale/transfer of real properties to PLEI as null and
void ab initio;
5.) For defendants to pay plaintiffs moral damages in such sums as may be found to be just and equitable under the
premises;
6.) For defendants to pay plaintiffs, jointly and severally, the expenses incurred in connection with this litigation;
7.) For defendants to pay plaintiffs, jointly and severally attorney's fees in an amount to be proven during the trial;
8.) For defendants to pay the costs of the suit".4
PNB moved to dismiss the complaint, which the trial court granted in its Order of January 11, 1985.
However, upon motion of the plaintiffs, the trial court reversed itself and ordered defendant PNB to file its answer.
Defendant PNB did file its answer with counterclaim, accompanied by a cross-claim against co-defendants Agustin
and PLEI.
During the ensuing pre-trial conference, the parties submitted the following issues for the resolution of the trial court,
to wit:
"1. Whether or not the Real Estate Mortgage contracts executed on July 6, 1973 and October 2, 1974 (sic) by and
between defendants Pahamotang Logging Enterprises, Inc. and the Philippine National Bank are null and void?
2. Whether or not the foreclosure proceedings conducted by defendants-Sheriffs, insofar as they affect the assets of
the Estate of Melitona Pahamotang, including the public auction sales thereof, are null and void?
3. Whether or not the Deed of Absolute Sale in favor of defendant Arturo Arguna entered as Doc. No. 473; Page No.
96; Book No. VIII, series of 1981 of the Notarial Register of Notary Public Paquito Balasabas is null and void?
4. Whether or not the Deed of Absolute Sale in favor of defendant Pahamotang Logging Enterprises, Inc. entered as
Doc. No. 474; Page No. 96; Book No. VIII, series of 1981 of the Notarial Register of Notary Public Paquito
Balasabas is null and void?
5. On defendant PNB's cross-claim, in the event the mortgage contracts and the foreclosure proceedings are
declared null and void, whether or not defendant Pahamotang Logging Enterprises, Inc. is liable to the PNB?
6. Whether or not the defendants are liable to the plaintiffs for damages?
7. Whether or not the plaintiffs are liable to the defendants for damages"?5
With defendant Arturo Arguna’s death on October 31, 1990, the trial court ordered his substitution by his heirs: Heirs
of Arturo Alguna.
In a Decision dated August 7, 1998, the trial court in effect rendered judgment for the plaintiffs. We quote the
decision’s dispositive portion:
"WHEREFORE, in view of all the foregoing, judgment is hereby rendered as follows:
1. Declaring the Mortgage Contracts of July 6, 1973 and October 22, 1974, as well as the foreclosure proceedings,
void insofar as it affects the share, interests and property rights of the plaintiffs in the assets of the estate of Melitona
Pahamotang, but valid with respect to the other parties;
2. Declaring the deeds of sale in favor of defendants Pahamotang Logging Enterprises, Inc. and Arturo Arguna as
void insofar as it affects the shares, interests and property rights of herein plaintiffs in the assets of the estate of
Melitona Pahamotang but valid with respect to the other parties to the said deeds of sale.
3. Denying all the other claims of the parties for lack of strong, convincing and competent evidence.
No pronouncement as to costs.
SO ORDERED".6
From the aforementioned decision of the trial court, PNB, PLEI and the Heirs of Arturo Arguna went on appeal to the
Court of Appeals in CA-G.R. CV No. 65290. While the appeal was pending, the CA granted the motion of Susana
Pahamatong-Zamora to withdraw from the case.
As stated at the threshold hereof, the Court of Appeals, in its Decision dated March 20, 2002,7 reversed the
appealed decision of the trial court and dismissed the petitioners’ complaint in Civil Case No. 16,802, thus:
WHEREFORE, the appeal is hereby GRANTED. The assailed August 07, 1998 Decision rendered by the Regional
Trial Court of Davao City, Branch 12, is hereby REVERSED and SET ASIDE and a new one is entered
DISMISSING the complaint filed in Civil Case No. 16,802.
SO ORDERED.
The appellate court ruled that petitioners, while ostensibly questioning the validity of the contracts of mortgage and
sale entered into by their father Agustin, were essentially attacking collaterally the validity of the four (4) orders of
the intestate court in Special Case No. 1792, namely:
1. Order dated July 18, 1973, granting Agustin’s Petition for Authority to Increase Mortgage;
2. Order dated October 19, 1974, denying Agustin’s petition for declaration of heirs but giving him authority to seek
additional loan from PNB;
3. Order dated February 25, 1980, giving Agustin permission to sell properties of the estate to Arturo Arguna and
PLEI; and
4. Order dated January 7, 1981, canceling the requirement of express conformity by the heirs as a condition for the
disposal of estate properties.
To the appellate court, petitioners committed a fatal error of mounting a collateral attack on the foregoing orders
instead of initiating a direct action to annul them. Explains the Court of Appeals:
"A null and void judgment is susceptible to direct as well as collateral attack. A direct attack against a judgment is
made through an action or proceeding the main object of which is to annul, set aside, or enjoin the enforcement of
such judgment, if not carried into effect; or if the property has been disposed of, the aggrieved party may sue for
recovery. A collateral attack is made when, in another action to obtain a different relief, an attack on the judgment is
made as an incident in said action. This is proper only when the judgment, on its fact, is null and void, as where it is
patent that the court which rendered such judgment has no jurisdiction. A judgment void on its face may also be
attacked directly.
xxx xxx xxx
Perusing the above arguments and comparing them with the settled ruling, the plaintiffs-appellees [now petitioners],
we believe had availed themselves of the wrong remedy before the trial court. It is clear that they are collaterally
attacking the various orders of the intestate court in an action for the nullification of the subject mortgages, and
foreclosure proceedings in favor of PNB, and the deeds of sale in favor of Arguna. Most of their arguments stemmed
from their allegations that the various orders of the intestate court were issued without a notification given to them.
An examination, however, of the July 18, 1973 order shows that the heirs of Melitona have knowledge of the petition
to increase mortgage filed by Agustin, thus:
`The petitioner testified that all his children including those who are of age have no objection to this petition and, as
matter of fact, Ana Pahamotang, one of the heirs of Melitona Pahamotang, who is the vice-president of the logging
corporation, is the one at present negotiating for the increase of mortgage with the Philippine National Bank.'
The presumption arising from those statements of the intestate court is that the heirs were notified of the petition for
the increase of mortgage.
The same can be seen in the October 19, 1974 order:
`The records show that all the known heirs, namely Ana, Isabelita, Corazon, Susana, including the incompetent
Genoveva, and the minors Josephine, Eleanor and Concepcion all surnamed were notified of the hearing of the
petition.'
On the other hand, the February 25, 1980 order required Agustin to obtain first express conformity from the heirs
before the subject property be sold to Arguna. The fact that this was reconsidered by the intestate court in its
January 07, 1981 is of no moment. The questioned orders are valid having been issued in accordance with law and
procedure. The problem with the plaintiffs-appellees is that, in trying to nullify the subject mortgages and the
foreclosure proceedings in favor of PNB and the deeds of sale in favor of Arguna, they are assailing the aforesaid
orders of the intestate court and in attacking the said orders, they attached documents that they believe would
warrant the conclusion that the assailed orders are null and void. This is a clear collateral attack of the orders of the
intestate court which is not void on its face and which cannot be allowed in the present action. The defects alleged
by the plaintiff-appellees are not apparent on the face of the assailed orders. Their recourse is to ask for the
declaration of nullity of the said orders, not in a collateral manner, but a direct action to annul the same".8
The same court added that petitioners’ failure to assail said orders at the most opportune time constitutes laches:
"In their complaint below, plaintiffs, appellees are assailing in their present action, four orders of the intestate court
namely: July 18, 1973, October 19, 1974, February 25, 1980 and January 07, 1981 orders which were then issued
by Judge Martinez. It should be recalled that except for the January 07, 1981 order, Judge Jacinto, upon taking over
Sp. No. 1792, denied the motion of the plaintiffs-appellees to set aside the aforesaid orders. Aside from their motion
before Judge Jacinto, nothing on the records would show that the plaintiffs-appellees availed of other remedies to
set aside the questioned orders. Further, the records would not show that the plaintiffs-appellees appealed the order
of Judge Jacinto. If an interval of two years, seven months and ninety nine days were barred by laches, with more
reason should the same doctrine apply to the present case, considering that the plaintiffs-appellees did not avail of
the remedies provided by law in impugning the various orders of the intestate court. Thus, the questioned orders of
the intestate court, by operation of law became final. It is a fundamental principle of public policy in every jural
system that at the risk of occasional errors, judgments of courts should become final at some definite time fixed by
law (interest rei publicae ut finis sit litum). The very object of which the courts were constituted was to put an end to
controversies. Once a judgment or an order of a court has become final, the issues raised therein should be laid to
rest. To date, except as to the present action which we will later discuss as improper, the plaintiff-appellees have not
availed themselves of other avenues to have the orders issued by Judge Martinez and Judge Jacinto annulled and
set aside. In the present case, when Judge Jacinto denied the motion of the plaintiffs-appellees, the latter had
remedies provided by the rules to assail such order. The ruling by Judge Jacinto denying plaintiffs-appellees motion
to set aside the questioned orders of Judge Martinez has long acquired finality. It is well embedded in our
jurisprudence, that judgment properly rendered by a court vested with jurisdiction, like the RTC, and which has
acquired finality becomes immutable and unalterable, hence, may no longer be modified in any respect except only
to correct clerical errors or mistakes. Litigation must have and always has an end. If not, judicial function will lose its
relevance".
In time, petitioners moved for a reconsideration but their motion was denied by the appellate court in its Resolution
of November 20, 2002.
Hence, petitioners’ present recourse, basically praying for the reversal of the CA decision and the reinstatement of
that of the trial court.
We find merit in the petition.
It is petitioners’ posture that the mortgage contracts dated July 6, 1973 and October 22, 1974 entered into by
Agustin with respondent PNB, as well as his subsequent sale of estate properties to PLEI and Arguna on March 4,
1981, are void because they [petitioners] never consented thereto. They assert that as heirs of their mother
Melitona, they are entitled to notice of Agustin's several petitions in the intestate court seeking authority to mortgage
and sell estate properties. Without such notice, so they maintain, the four orders of the intestate court dated July 18,
1973, October 19, 1974, February 25, 1980 and January 7, 1981, which allowed Agustin to mortgage and sell
estate properties, are void on account of Agustin’s non-compliance with the mandatory requirements of Rule 89 of
the Rules of Court.
Prescinding from their premise that said orders are completely void and hence, could not attain finality, petitioners
maintain that the same could be attacked directly or collaterally, anytime and anywhere.
For its part, respondent PNB asserts that petitioners cannot raise as issue in this proceedings the validity of the
subject orders in their desire to invalidate the contracts of mortgage entered into by Agustin. To PNB, the validity of
the subject orders of the intestate court can only be challenged in a direct action for such purpose and not in an
action to annul contracts, as the petitioners have done. This respondent adds that the mortgage on the subject
properties is valid because the same was made with the approval of the intestate court and with the knowledge of
the heirs of Melitona, petitioners included.9
Upon the other hand, respondent Heirs of Arturo Arguna likewise claim that petitioners knew of the filing with the
intestate court by Agustin of petitions to mortgage and sell the estate properties. They reecho the CA’s ruling that
petitioners are barred by laches in filing Civil Case No. 16,802.10
As we see it, the determinative question is whether or not petitioners can obtain relief from the effects of contracts of
sale and mortgage entered into by Agustin without first initiating a direct action against the orders of the intestate
court authorizing the challenged contracts.
We answer the question in the affirmative.
It bears emphasizing that the action filed by the petitioners before the trial court in Civil Case No. 16,802 is for the
annulment of several contracts entered into by Agustin for and in behalf of the estate of Melitona, namely: (a)
contract of mortgage in favor of respondent PNB, (b) contract of sale in favor of Arguna involving seven (7) parcels
of land; and (c) contract of sale of a parcel of land in favor of PLEI.
The trial court acquired jurisdiction over the subject matter of the case upon the allegations in the complaint that
said contracts were entered into despite lack of notices to the heirs of the petition for the approval of those contracts
by the intestate court.
Contrary to the view of the Court of Appeals, the action which petitioners lodged with the trial court in Civil Case No.
16,802 is not an action to annul the orders of the intestate court, which, according to CA, cannot be done
collaterally. It is the validity of the contracts of mortgage and sale which is directly attacked in the action.
And, in the exercise of its jurisdiction, the trial court made a factual finding in its decision of August 7, 1998 that
petitioners were, in fact, not notified by their father Agustin of the filing of his petitions for permission to mortgage/sell
the estate properties. The trial court made the correct conclusion of law that the challenged orders of the intestate
court granting Agustin’s petitions were null and void for lack of compliance with the mandatory requirements of Rule
89 of the Rules of Court, particularly Sections 2, 4, 7 thereof, which respectively read:
"Sec. 2. When court may authorize sale, mortgage, or other encumbrance of realty to pay debts and legacies
through personalty not exhausted. - When the personal estate of the deceased is not sufficient to pay the debts,
expenses of administration, and legacies, or where the sale of such personal estate may injure the business or
other interests of those interested in the estate, and where a testator has not otherwise made sufficient provision for
the payment of such debts, expenses, and legacies, the court, on the application of the executor or administrator
and on written notice to the heirs, devisees, and legatees residing in the Philippines, may authorize the executor
or administrator to sell, mortgage, or otherwise encumber so much as may be necessary of the real estate, in lieu of
personal estate, for the purpose of paying such debts, expenses, and legacies, if it clearly appears that such sale,
mortgage, or encumbrance would be beneficial to the persons interested; and if a part cannot be sold, mortgaged,
or otherwise encumbered without injury to those interested in the remainder, the authority may be for the sale,
mortgage, or other encumbrance of the whole of such real estate, or so much thereof as is necessary or beneficial
under the circumstances".
"Sec. 4. When court may authorize sale of estate as beneficial to interested persons. Disposal of proceeds. - When
it appears that the sale of the whole or a part of the real or personal estate, will be beneficial to the heirs, devisees,
legatees, and other interested persons, the court may, upon application of the executor or administrator and
on written notice to the heirs, devisees and legatees who are interested in the estate to be sold, authorize the
executor or administrator to sell the whole or a part of said estate, although not necessary to pay debts, legacies, or
expenses of administration; but such authority shall not be granted if inconsistent with the provisions of a will. In
case of such sale, the proceeds shall be assigned to the persons entitled to the estate in the proper proportions".
"Sec. 7. Regulations for granting authority to sell, mortgage, or otherwise encumber estate. - The court having
jurisdiction of the estate of the deceased may authorize the executor or administrator to sell personal estate, or to
sell, mortgage, or otherwise encumber real estate; in cases provided by these rules and when it appears necessary
or beneficial, under the following regulations:
(a) The executor or administrator shall file a written petition setting forth the debts due from the deceased, the
expenses of administration, the legacies, the value of the personal estate, the situation of the estate to be sold,
mortgaged, or otherwise encumbered, and such other facts as show that the sale, mortgage, or other encumbrance
is necessary or beneficial;
(b) The court shall thereupon fix a time and place for hearing such petition, and cause notice stating the nature of
the petition, the reason for the same, and the time and place of hearing, to be given personally or by mail to the
persons interested, and may cause such further notice to be given, by publication or otherwise, as it shall deem
proper; (Emphasis supplied)".
xxx xxx xxx
Settled is the rule in this jurisdiction that when an order authorizing the sale or encumbrance of real property was
issued by the testate or intestate court without previous notice to the heirs, devisees and legatees as required by the
Rules, it is not only the contract itself which is null and void but also the order of the court authorizing the same.11
Thus, in Maneclang vs. Baun,12 the previous administrator of the estate filed a petition with the intestate court
seeking authority to sell portion of the estate, which the court granted despite lack of notice of hearing to the heirs of
the decedent. The new administrator of the estate filed with the Regional Trial Court an action for the annulment of
the sales made by the previous administrator. After trial, the trial court held that the order of the intestate court
granting authority to sell, as well as the deed of sale, were void. On appeal directly to this Court, We held that
without compliance with Sections 2, 4 and 7 of Rule 89 of the Rules of Court, "the authority to sell, the sale itself
and the order approving it would be null and void ab initio".
In Liu vs. Loy, Jr.,13 while the decedent was still living, his son and attorney-in-fact sold in behalf of the alleged
decedent certain parcels of land to Frank Liu. After the decedent died, the son sold the same properties to two
persons. Upon an ex parte motion filed by the 2nd set of buyers of estate properties, the probate court approved
the sale to them of said properties. Consequently, certificates of title covering the estate properties were cancelled
and new titles issued to the 2nd set of buyers. Frank Liu filed a complaint for reconveyance/ annulment of title with
the Regional Trial Court. The trial court dismissed the complaint and the Court of Appeals affirmed the dismissal.
When the case was appealed to us, we set aside the decision of the appellate court and declared the probate
court's approval of the sale as completely void due to the failure of the 2nd set of buyers to notify the heir-
administratrix of the motion and hearing for the sale of estate property.
Clearly, the requirements of Rule 89 of the Rules of Court are mandatory and failure to give notice to the heirs would
invalidate the authority granted by the intestate/probate court to mortgage or sell estate assets.
Here, it appears that petitioners were never notified of the several petitions filed by Agustin with the intestate court to
mortgage and sell the estate properties of his wife.
According to the trial court, the "[P]etition for Authority to Increase Mortgage" and "[P]etition for Declaration
of Heirs and for Authority to Increase Indebtedness", filed by Agustin on July 16, 1973 and October 5, 1974,
respectively, do not contain information that petitioners were furnished with copies of said petitions. Also, notices of
hearings of those petitions were not sent to the petitioners.14 The trial court also found in Civil Case No. 16,802 that
Agustin did not notify petitioners of the filing of his petitions for judicial authority to sell estate properties to Arturo
Arguna and PLEI.15
As it were, the appellate court offered little explanation on why it did not believe the trial court in its finding that
petitioners were ignorant of Agustin’s scheme to mortgage and sell the estate properties.
Aside from merely quoting the orders of July 18, 1973 and October 19, 1974 of the intestate court, the Court of
Appeals leaves us in the dark on its reason for disbelieving the trial court. The appellate court did not publicize its
appraisal of the evidence presented by the parties before the trial court in the matter regarding the knowledge, or
absence thereof, by the petitioners of Agustin’s petitions. The appellate court cannot casually set aside the findings
of the trial court without stating clearly the reasons therefor. Findings of the trial court are entitled to great weight,
and absent any indication to believe otherwise, we simply cannot adopt the conclusion reached by the Court of
Appeals.
Laches is negligence or omission to assert a right within a reasonable time, warranting the presumption that the
party entitled to assert it has either abandoned or declined the right.16 The essential elements of laches are: (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 and 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 barred.17
In the present case, the appellate court erred in appreciating laches against petitioners. The element of delay in
questioning the subject orders of the intestate court is sorely lacking. Petitioners were totally unaware of the plan of
Agustin to mortgage and sell the estate properties. There is no indication that mortgagor PNB and vendee Arguna
had notified petitioners of the contracts they had executed with Agustin. Although petitioners finally obtained
knowledge of the subject petitions filed by their father, and eventually challenged the July 18, 1973, October 19,
1974, February 25, 1980 and January 7, 1981 orders of the intestate court, it is not clear from the challenged
decision of the appellate court when they (petitioners) actually learned of the existence of said orders of the
intestate court. Absent any indication of the point in time when petitioners acquired knowledge of those orders, their
alleged delay in impugning the validity thereof certainly cannot be established. And the Court of Appeals cannot
simply impute laches against them.
WHEREFORE, the assailed issuances of the Court of Appeals are hereby REVERSED and SET ASIDE and the
decision dated August 7, 1998 of the trial court in its Civil Case No. 16,802 REINSTATED.
SO ORDERED.

G.R. No. 159571. July 15, 2005

DELFINA Vda. de RIGONAN and Spouses VALERIO LAUDE and VISMINDA LAUDE, Petitioners,
vs.
ZOROASTER DERECHO Representing the Heirs of RUBEN DERECHO, ABEL DERECHO, HILARION
DERECHO, NUNELA D. PASAOL, EFRAIM DERECHO, NOEL DERECHO, CORAZON D. OCARIZA
Representing the Heirs of Marcial Derecho, LANDILINO D. PRIETO Representing the Heirs of Pilar D. Prieto,
JUSTA D. BUENO, ADA D. MAPA, EMMANUEL DERECHO, POMPOSO DERECHO Representing the Heirs of
Apolinar Derecho, VICENTE D. RIGONAN, RUFA D. JAYME Representing the Heirs of Gerardo Derecho,
MARDONIO D. HERMOSILLA Representing the Heirs of Oliva D. Hermosilla, Respondents.
DECISION
PANGANIBAN, J.:
Owners who, for a long period of time, fail to assert their rights to unregistered real property may be deprived of it
through prescription. Although the present respondents initially owned part of the subject property by virtue of
succession, their inaction for several decades bars them from recovering it from petitioners who have possessed it
as owners since 1928. The purpose of prescription is to protect the diligent and vigilant, not those who sleep on their
rights.
The Case
Before us is a Petition for Review1 under Rule 45 of the Rules of Court, challenging the July 28, 2003 Decision 2 of
the Court of Appeals (CA) in CA-GR CV No. 62535. The assailed Decision disposed as follows:
"WHEREFORE, premises considered, the instant appeal is hereby DISMISSED for lack of merit. The assailed
decision of the court a quo dated October 26, 1998 is AFFIRMED WITH THE MODIFICATION that its declaration of
the [petitioners] as lawful heirs of Dolores Derecho-Rigonan, and indicating their lawful share equivalent to the share
of one child of the deceased Hilarion Derecho is DELETED.
"Costs against the [petitioners]."3
The trial court’s Decision, modified by the CA, had disposed as follows:
"WHEREFORE, premises considered, judgment is hereby rendered in favor of [respondents], declaring the Affidavit
of Adjudication executed by Leandro Rigonan on April 24, 1980 and the Deed of Sale executed by Teodoro Rigonan
in favor of Valerio Laude null and void; ordering the cancellation of Tax Dec. No. 00667 in the name of Valerio
Laude; ordering the [petitioners] to pay [respondents], jointly and severally, moral damages in the sum of
₱10,000.00 and litigation expenses in the sum of ₱5,000.00.
"[Petitioners] are hereby ordered to give-up and deliver the possession and ownership of the parcel of land in
question to [respondents]. [Petitioners] being the heirs of the late Dolores Derecho are entitled to the rightful share
equivalent to the share of one child of deceased Hilarion Derecho."4
The Facts
The instant controversy revolves around a parcel of land located at Tuburan Sur, Danao City, originally owned by
Hilarion Derecho. When Hilarion died long before World War II, his eight children -- Leonardo, Apolinar, Andres,
Honorata, Dolores, Gerardo, Agaton, and Oliva -- became pro indiviso co-owners of the subject property by
intestate succession. Subsequently, Tax Declaration No. 002675 was issued under the name "Heirs of Hilarion."
On July 16, 1921, five of the co-owners -- Leonardo, Apolinar, Andres, Honorata, and Dolores -- sold the inherited
property to Francisco Lacambra, subject to a five-year redemption clause. 6 Notably, the three other Derecho heirs --
Gerardo, Agaton, and Oliva -- were not parties to the pacto de retro sale.
Sometime in 1928, two years after the period for redemption expired, Dolores -- together with her husband, Leandro
Rigonan -- purchased7 the land from Lacambra and immediately occupied it.8
More than five decades passed without any controversy. On April 24, 1980, Leandro Rigonan executed the assailed
Affidavit of Adjudication in favor of his son, Teodoro Rigonan (the deceased husband of Petitioner Delfina vda. de
Rigonan).9 Under this instrument, Leandro declared himself to be the sole heir of Hilarion, 10 while Teodoro obtained
the cancellation of Tax Declaration No. 00267,11 and acquired Tax Declaration No. 00667 in his own name.12
During the same year, Teodoro mortgaged the subject property to the Rural Bank of Compostela of Cebu. Dreading
foreclosure, he settled his obligations with the bank13 by securing the aid of Spouses Valerio and Visminda Laude.
On April 5, 1984, Teodoro executed the assailed Deed of Absolute Sale of Unregistered Land in favor of Valerio
Laude,14 who then obtained Tax Declaration No. 00726 under the latter’s name on May 10, 1984.15
On November 10, 1993, respondents -- as the alleged heirs of Hilarion and pro indiviso owners of the subject realty
-- brought an action before the Regional Trial Court (RTC) of Danao City (Branch 25), first, to recover the property;
and, second, to annul the Deed of Sale in favor of Laude 16 and the Affidavit of Adjudication, whose validity and
authenticity they assailed on the ground of fraud. They likewise maintained that the subject property had not been
partitioned among the heirs; thus, it was still co-owned at the time it was conveyed to Petitioner Laude.17
Petitioners did not deny the imputed fraud in the execution of the Affidavit of Adjudication. They, however, averred
that the document had no bearing on their claim of ownership, which had long pertained to the Rigonan spouses
following the 1928 conveyance from the absolute owner, Lacambra.18 They theorized that the co-ownership over the
property ended when the period for redemption lapsed without any action on the part of the co-owners.19 Therefore,
the Rigonan spouses bought the property as legitimate vendees for value and in good faith, not in the capacity of
redeeming co-owners.20
Petitioners likewise argued that they and their predecessors-in-interest had continuously owned and possessed the
subject property for 72 years. Accordingly, acquisitive prescription had allegedly set in, in their favor, when the case
was filed in 1993.21
Lastly, petitioners maintained that they were entitled to the equitable defense of laches. Respondents and their
forebears were rebuked for not asserting their rights over the property for the past 72 years. They supposedly did so
only after finding that the land had been developed, and that it had appreciated in value.22
Ruling of the Court of Appeals
On appeal, the CA held that the Affidavit of Adjudication and the Deed of Absolute Sale were both void. The Affidavit
was deemed fraudulent because of the undisputed factual finding that some of the heirs of Hilarion were still alive at
the time of its execution; hence, the statement that Leandro was the sole heir was indubitably false. 23 The Deed of
Sale in favor of Laude was held void because the vendor, Teodoro, had no legal right to dispose of the entire co-
owned property. Moreover, the appellate court found that the evident purpose of the Contract was to deprive the
other lawful heirs of their claims over the realty. Under Article 1409 (pars. 1 & 2), of the Civil Code, the Contract was
considered void ab initio.24
As the Contracts were void, the defense of prescription was inapplicable. Article 1410 of the Civil Code states that
actions for the declaration of the inexistence of a contract do not prescribe.25
As for the defense that the co-ownership ended when the period to redeem expired, the CA ruled that the
redemption or repurchase by the Rigonan spouses did not end the state of co-ownership. At most, the repurchase
gave rise to an implied trust in favor of the other co-owners.26
The CA added that prescription was inapplicable, because it did not run in favor of a co-owner as long as the latter
recognized the co-ownership. In the present case, petitioners failed to show that the co-heirs, except Dolores, had
repudiated their rights over the inherited property.27
The appellate court further ruled that Valerio Laude was not a buyer in good faith for two reasons; one, he had been
forewarned by Respondent Ruben Derecho that the property was still co-owned; and, two, Valerio had admitted
seeing the cancelled Tax Declaration under the name of the heirs of Hilarion. These matters should have alerted
Valerio, who should have then exercised prudence as a buyer.28
Finally, the appellate court held that the action for recovery prescribed within ten years from the issuance of the
Certificate of Title, which operated as a constructive notice. Considering, however, that the subject property was
unregistered, the CA ruled that the prescriptive period should be reckoned from the issuance of the Tax Declaration
on May 10, 1984. It concluded that the action was filed well within the period allowed by law for its recovery.29
Hence, this Petition.30
Issues
Petitioners raise the following issues for our consideration:
"1. Respondent Court of Appeals erred in holding that the land subject matter hereof is property held in common by
the Heirs of Hilarion Derecho and an [i]mplied [t]rust was created by the act of repurchase.
"2. Respondent Court of Appeals erred in holding that the action for the recovery of possession and ownership is not
time-barred by prescription and/or laches.
"3. Respondent Court of Appeals erred in holding that respondents’ action for annulment of the Deed of Sale and
Affidavit of Adjudication is not time-barred by prescription and/or laches.
"4. Respondent Court of Appeals erred in holding that Petitioner Valerio Laude is not a buyer in good faith and
cannot be considered as legitimate and lawful owner of the subject property.
"5. Respondent Court of Appeals erred in resolving the case with an award of litigation expenses and attorney’s
fees.
"6. Respondent Court of Appeals acted with grave abuse of discretion when it ruled on the issue of [h]eirship."31
Simply stated, the issues are as follows:
1. Whether at the time of the purchase in 1928, co-ownership still subsisted among the heirs of Hilarion Derecho
2. Whether an implied trust was created
3. Whether the action in the RTC was barred by prescription and laches
The Court’s Ruling
The Petition has merit.
First Issue:
Co-Ownership
Petitioners argue that the co-ownership ended when the heirs entered into a sale with the right to repurchase and
subsequently failed to redeem the property within the stipulated period. Consequently, when the Rigonan spouses
bought the subject land from Lacambra, it was a conveyance to the spouses in their personal capacities, not as co-
owners.32
On the other hand, respondents merely adopted33 the CA’s disquisitions discussed earlier.
Since the Spanish Civil Code was still in effect when Hilarion died long before the outbreak of the Second World
War34 and when the sale was executed on July 16, 1921, it is evident that the said law governed both the co-
ownership and the pacto de retro sale.
Pacto de Retro and
Failure to Redeem
Under a pacto de retro sale, title to and ownership of property are immediately vested in the vendee a retro, subject
only to the resolutory condition that the vendor repurchases it within the stipulated period. Pending the redemption,
the vendor loses all ownership rights over the property, save for the right to repurchase it upon compliance with the
requirements provided in Article 1518 of the Spanish Civil Code.35
In a number of cases, this Court has held that once the vendor fails to redeem the property within the stipulated
period, irrevocable title shall be vested in the vendee by operation of law.36
In the instant case, the parties to the contract stipulated a five-year redemption period, which expired on July 16,
1926. The failure of the sellers to redeem the property within the stipulated period indubitably vested absolute title
and ownership in the vendee, Lacambra. Consequently, barring any irregularities in the sale, the vendors definitively
lost all title, rights and claims over the thing sold. To all intents and purposes, therefore, the vendors a retro ceased
to be co-owners on July 16, 1926.
Clearly then, the parties to the sale -- Leonardo, Apolinar, Andres, and Honorata (but not Dolores, as will be
explained later), as well as all their successors-in-interest -- no longer had any legal interest in the disputed property,
none that they could have asserted in this action.
Purchase Beyond the
Redemption Period
As for Dolores, she reacquired legal interest in the property by virtue of the purchase in 1928, two years after the
period to redeem had already expired.37
This purchase cannot be considered as a redemption in the concept of a pacto de retro sale, which would imply that
the period to redeem was extended long after it had already expired. Such automatic extension is not possible
because, as succinctly stated by Manresa, "if the extension is made after the expiration of the period, then it is void
and of no effect because there is nothing to extend."38
Adiarte v. Tumaneng39 illustrates the legal effect of the expiration of the stipulated period for redemption. In that
case, Amanda Madamba sold two parcels of land to Spouses Cirilo Agudong and Emiliana Tumaneng. However,
she reserved for herself the right to repurchase the lots within ten years. Five years after the period expired,
Agudong executed a Contract promising to resell the land to Madamba. When the former died without fulfilling his
promise, the latter filed a suit to compel the widow to execute a deed of sale in the plaintiff’s favor. The widow
argued that Madamba could no longer redeem the property, because the period for redemption had already expired.
In debunking the widow’s defense, this Court ruled that the Contract did not constitute a promise to resell, because
the right to repurchase had been lost after the expiration of the stipulated period. The original Contract of Sale with a
right of repurchase no longer existed at the time Agudong made the promise to sell. Therefore, the parties entered
into an entirely new and independent agreement to sell, which was binding on the widow.
In Umale v. Fernandez,40 the Court ruled that the vendors were entitled to redeem the property despite the lapse of
the period for redemption, inasmuch as the vendees had renounced their right. On April 13, 1905, a parcel of land
was sold a retro by Emigdio Umale and his wife to Spouses Fernandez, without fixing any period for redemption. On
June 12, 1909, Fernandez executed a Contract allowing the Umale spouses to redeem the land despite the lapse of
the four-year period of redemption. This period was mandated by Article 1508 41 of the Spanish Civil Code for cases
in which no period had been stipulated. In 1911, Emigdio Umale redeemed the land and took possession of it.
He then sued to compel the Fernandez couple to execute the instrument of redemption. The defendants countered
that the land belonged to them, because the vendors had failed to redeem it within the term allowed by law. The
Court ruled:
"In the absence of an express stipulation with regard to the period of redemption, the purchaser, in the exercise of
the freedom to make contracts that is possessed by all, has the power to extend the period allowed by law, provided
that the new period stipulated does not exceed the ten years fixed by article 1508 of the code. For nothing in this
article prohibits an extension, by agreement, of the four years, which is the period prescribed by law in cases where,
in sales with right of repurchase, no period for redemption has been fixed by the parties."42 [Emphasis supplied]
In his Concurring Opinion,43 Justice Torres arrived at the same conclusion, but on a different ground. He explained
that the contracting parties had no right to extend the legal period for redemption after it had already lapsed; and
that, when the vendees alienated and returned the property afterwards, they did so by virtue of a new Contract of
Sale, independent of and distinct from the previous one already terminated.
It is clear from Adiarte and Umale that after the expiration of the period for redemption, the parties could either (1)
enter into an entirely new contract involving the same property; or (2) if they did not expressly stipulate the period,
extend the time for redemption, provided the extension did not exceed the maximum period of ten years allowed by
Article 1508.44
In the present case, Lacambra and the heirs stipulated a five-year redemption period. When it lapsed, the vendee
acquired absolute title, while the five co-owners-sellers were stripped of their co-ownership of the property.
Therefore, when Dolores repurchased the property in 1928, she did so in her personal capacity, no longer as a co-
owner-seller. Following the ruling in Adiarte, she is deemed to have entered into an entirely new contract,
independent of the 1921 pacto de retro sale.
Second Issue:
Implied Trust
Petitioners contend that the appellate court erred in holding that an implied trust had arisen from the 1928
repurchase by the Rigonan spouses. They argue that the sale was a conveyance of the absolute ownership of
Lacambra over the land, which he had acquired by virtue of a failure to redeem. Therefore, when he sold it, the
spouses likewise acquired absolute ownership.45
We clarify.
Satisfy Demands of
Justice and Equity
An implied trust arises, not from any presumed intention of the parties, but by operation of law in order to satisfy the
demands of justice and equity and to protect against unfair dealing or downright fraud.46 Under Article 1456 of the
new Civil Code, "if property is acquired through mistake or fraud, the person obtaining it is, by force of law,
considered a trustee of an implied trust for the benefit of the person from whom the property comes." Although this
provision is not retroactive in character, and thus inapplicable to the 1928 purchase, it merely expresses a rule
already recognized by our courts prior to the effectivity of the Code.47
In the present case, the implied trust arose in 1921, when five of the eight co-owners assumed ownership of the
whole inherited property and sold it in its entirety to Lacambra. The sale clearly defrauded the three other co-heirs
who were not parties to the transaction -- Gerardo, Agaton, and Oliva -- and unlawfully deprived them of their
undivided shares in the inheritance. Thus, to the extent of their participation, the property is deemed to have been
acquired through fraud; and the person who acquired it, a trustee for the benefit of the person from whom it was
acquired.48
In the present case, Lacambra was the trustee who held the property partly for the benefit of the three mentioned
heirs (cestuis que trustent).
The CA, however, erred in finding that the implied trust had arisen in 1928, when the Rigonan spouses repurchased
the property from Lacambra.49 By then, Petitioners Rigonan were merely stepping into the shoes of Lacambra as
trustee.
Third Issue:
Prescription or Laches
Petitioners argue that even if an implied trust existed, acquisitive prescription is still applicable. They rely on the
pronouncement in Medina v. Court of Appeals50 that acquisitive prescription applies to implied trusts, provided there
is continuous adverse possession of property in the concept of owner.51
Petitioners maintain that they obtained absolute ownership of the subject land through acquisitive prescription. They
point out that the heirs did not impugn the validity of the documents of sale until after seventy-two years, in 1993
when the case was filed before the trial court.52
Petitioners are correct.
It is settled in this jurisdiction that prescription,53 as well as laches,54 supervenes in the enforcement of implied trusts.
Prescription of Action
Possession of the property by petitioners commenced way back in 1928, 55 when the prescriptive periods applicable
were those provided in Act 190 (Code of Civil Procedure). Their argument finds basis in Article 1116 of the new Civil
Code, which states that "prescription already running before the effectivity of this Code shall be governed by laws
previously in force x x x."
Under Section 40 of the Code of Civil Procedure, an action for recovery of real property, or of an interest therein,
can be brought only within ten years after the cause of action accrues.56
The cause of action of respondents accrued in 1928, when they lost possession of the property to the forebears of
petitioners. These predecessors-in-interest took possession from 192857 until 1980 when Laude, their successor-in-
interest, continued possession up to the present. During this entire time, respondents inexcusably failed to take
action to recover the property. In 1993, they finally rose from their seeming slumber when they filed the present suit.
Unfortunately, 65 years had already lapsed and, by that time, their right of action had clearly been barred by
extinctive prescription.
Acquisitive Prescription
Moreover, petitioners acquired title to the subject property by prescription. Section 41 of Act 190 (Code of Civil
Procedure) provides:
"Title to land by prescription. -- Ten years actual adverse possession by any person claiming to be the owner for that
time of any land or interest in land, uninterruptedly continued for ten years by occupancy, descent, grants, or
otherwise, in whatever way such occupancy may have commenced or continued, shall vest in every actual occupant
or possessor of such land a full and complete title, saving to the person under disabilities the rights secured by the
next section. In order to constitute such title by prescription or adverse possession, the possession by the claimant
or by the person under or through whom he claims must be actual, open, public, continuous, under a claim of title
exclusive of any other right and adverse to all claimants x x x."
This provision, as authoritatively and consistently interpreted by this Court, allows adverse possession
in any character to ripen into ownership after the lapse of ten years. 58 "Prescription lies under the said section even
in the absence of good faith and just title."59
In the instant case, the Rigonan spouses possessed the property in the concept of owners after their purchase in
1928. They peacefully occupied it, were never ousted from it, and never prevented from enjoying its fruits.
Furthermore, possession by the Rigonan spouses was adverse to the other heirs, as shown by the
following: one, the former obtained the cancellation of the Tax Declaration in the latter’s name; two, the spouses
executed the Affidavit of Adjudication, claiming that Leandro Rigonan was the sole heir; three, petitioners did not
share with respondents the enjoyment of the property for a half-century; and four, Teodoro sold the property to
Laude. Respondents were aware of these facts and of their rightful share in the land. Therefore, they knew that
petitioners were holding the property adverse to their interests.
As petitioners have been in continuous possession and enjoyment of the disputed land since 1928, a length of time
that has never been questioned, there can be no doubt that they obtained title to it by acquisitive prescription.
To stress the folly of respondents’ protracted inaction, may we add that the present action would still be barred, even
if the Court were to apply the thirty-year period fixed by the present Civil Code for the acquisition of ownership by
extraordinary prescription60 or for the extinction of the right of action over immovables.61
Action to Annul Contracts
Imprescriptible, but Recovery
of Realty Barred by Acquisitive
Prescription
The CA dismissed petitioners’ defense of prescription on the ground that the action for annulment of contracts was
imprescriptible, as mandated by Article 1410 of the Civil Code.62
There is no question that the said action does not prescribe, but the principal question in this case is the recovery of
the subject property, which is the ultimate goal of respondents. They seek the nullification of the Contracts, merely
as a means or prelude to the recovery of the property. Unfortunately for them, acquisitive prescription has already
set in to bar the recovery.
As stated in Bargayo v. Camumot,63 "the prescription of an action and the acquisitive prescription of ownership
cannot and should not be confounded. They are two different and distinct things, although equally transcendent,
being of identical result and effect."
In that case, the Complaint filed by the heirs was one for partition, which did not prescribe, while the defendant
raised the defense of acquisitive prescription. This Court took a moment to explain that the law spoke only of the
imprescriptibility of the action, not of ownership. It explained thus: "x x x [I]t is evident that to deny the prescription of
the ownership of an inheritance, because Article 1965 of the Civil Code declares the action for its partition
imprescriptible, is to confound the prescription of ownership and that of an action x x x."64 But the Court overruled
the defense, because the defendant had failed to prove adverse possession, an essential element of acquisitive
prescription.
Similarly, the imprescriptibility of an action to annul a contract does not mean that the present respondents are
perpetually allowed to recover the property, the subject of the void contract. They may file the action to annul, but
their right to recover based on ownership is contingent on the premise that they still own the property. Ownership
may have been lost in the interval during which they remained inactive. For this reason, the Court constantly
reminds parties to remain vigilant over their rights.
This matter is likewise illuminated by Heirs of Maningding v. CA.65 In that case, Ramon owned two parcels of land in
Pangasinan. When he died intestate, his four children -- Roque, Segunda, Juan, and Maria -- inherited the
contested properties. While Juan and Maria renounced their rights to the inheritance, Roque claimed the land as his
own by virtue of a donation propter nuptias, previously executed in his favor by their father. Having been excluded
from the enjoyment of the property, the heirs of Segunda filed an action for partition against Roque, as well as for
the annulment of the conveyance documents.
The Court ruled that the parcels of land had devolved to the children of Ramon by right of succession. Roque did
not acquire exclusive ownership of those properties by virtue of the Deed of Donation, which was null and void.
Nevertheless, the Court held that his thirty-six years of exclusive possession and enjoyment of the property sufficed
to confer ownership through acquisitive prescription. The heirs of Segunda were thus barred from recovering their
shares in the inheritance.
It will be noted that Maningding sustained the defense of acquisitive prescription despite the imprescriptibility of the
actions for annulment of contracts and partition. Simply put, the imprescriptibility of an action is distinct from the
prescription of ownership and rights.
In the present case, we hold that respondents can no longer recover the property despite the nullity of the assailed
contracts, because they have lost their ownership by reason of prescription.
Laches
Assuming arguendo that the action does not prescribe, laches would still bar respondents from belatedly asserting
their claim. The defense of laches, which is a question of inequity in permitting a claim to be enforced, applies
independently of prescription, which is a question of time.66 Prescription is statutory; laches is equitable.67
In Miguel v. Catalino,68 Bacaquio sold a parcel of land to Catalino in 1928. The latter possessed it and enjoyed its
fruits from then until 1962, when the heirs of Bacaquio filed a complaint for recovery of possession of the property.
The heirs asserted that the sale was void for lacking the requisite executive approval. The Court held that, despite
the nullity of the sale and the fact that no prescription had run against the title of the heirs, the action was already
barred by laches due to their passivity and inaction for more than thirty-four years.
Again in Mejia de Lucas v. Gamponia,69 the Court held that while the legal defense of prescription did not lie, the
equitable defense of laches did.
In that case, Domingo sold a parcel of registered land to Zacarias, who immediately took possession of it and
enjoyed its fruits. When the heirs of Domingo filed an action for the annulment of the sale, Gamponia -- Zacarias’
successor-in-interest -- proffered the defense of prescription. The lower court overruled the defense on the ground
that registered lands could not be acquired by prescription.
The lower court was reversed by this Court. Although Gamponia could not be deemed to have acquired title by
virtue of the fact that he and his predecessors had long and continued possession of the property for thirty-seven
years, the owners’ right to recover it as well as the title to it was held to have been converted into a stale demand by
their inaction and negligence.
Laches is defined as the failure to assert a right for an unreasonable and unexplained length of time, warranting a
presumption that the party entitled to assert it has either abandoned or declined to assert it. This equitable defense
is based upon grounds of public policy, which requires the discouragement of stale claims for the peace of society. 70
As previously mentioned, an action to enforce an implied trust may be circumscribed by laches. Under this
circumstance, repudiation is not even required,71 unless the facts that give rise to the trust are concealed. This
principle holds because of the nature of an implied trust, which involves a certain antagonism between the cestui
que trust and the trustee.72 There is neither promise nor fiduciary relation; the trustee does not recognize any trust
and has no intention of holding the property for the beneficiary; therefore, the latter is not justified in delaying action
to recover the property. Having incurred unreasonable delay, the beneficiary is estopped by laches.73
Coming to the present case, the record does not reveal, and respondents do not even assert, that there was a
concealment of the 1921 sale of the property to Lacambra. Although three of the co-heirs were not parties to that
transaction, there is no showing whatsoever that they interjected any objection to the conveyance. There is no
allegation, either, that respondents were unaware of the sale in favor of Dolores or of her family’s possession of the
property since 1928. On the contrary, Respondent Ruben Derecho warned Laude not to buy the land because it had
not been partitioned.74 This fact shows that respondents were aware that Teodoro intended to sell the land, a move
that was clearly an act of dominion over the entire property. Their cognizance of these facts eliminates the need for
a repudiation on the part of petitioners.
It was held in Go Chi Gun v. Co Cho75 that four elements had to be shown in order to use laches as a defense: (1)
conduct on the part of the defendant, or of one under whom a claim is made, giving rise to a situation for which a
complaint is filed and a remedy sought; (2) delay in asserting the rights of the complainant, who has knowledge or
notice of the defendant’s conduct and has been afforded an opportunity to institute a suit; (3) lack of knowledge or
notice on the part of the defendant that the complainant will assert the right on which the latter has based the suit;
and (4) injury or prejudice to the defendant in the event that the complainant is granted a relief or the suit is not
deemed barred.
The four requisites are present in the instant case. First, the five co-owners’ act of selling the entire property
deprived respondents’ predecessors of the enjoyment of their rightful shares in the inheritance. This deprivation was
the basis of the Complaint filed by respondents.
Second, respondents waited more than six decades to file a suit without offering any excuse for the long delay in
the assertion of their rights. They do not at all claim that they were unaware of their co-heirs’ actions. They could
have instituted an action to annul in 1921 or to recover the property in 1928, since they were legally presumed to
know of the invalidity of the sale as to their shares; they did not have to wait for sixty-five years to institute this suit.
Third, after being allowed more than six decades of peaceful possession of the property, petitioners were certainly
not expecting respondents to reclaim it. Although Ruben Derecho warned Laude not to buy the land because it was
still co-owned, the former still took no immediate action to prevent Teodoro from selling the entire property or to
recover it. Respondents even allowed nine more years to pass before rising from their stupor to institute the
Complaint.
Fourth, there is no doubt that petitioners will suffer if respondents are allowed to recover the property. The former
have already developed, invested in, and religiously paid the taxes for it for at least a half-century. On the other
hand, respondents nonchalantly allowed petitioners to continue with their possession and enjoyment of the property,
and then pounced upon them when the latter least expected it.
Although we condemn the fraudulent acts of Leandro and the five co-owners in their scheme to deprive their
relatives of the latter’s rightful shares in the inheritance, the fact remains that respondents and their forebears
wasted their opportunity through a lifetime of indifference and apathy. They cannot now be permitted to recover
property that others have possessed, developed, and invested in for sixty-five years. It would be sheer injustice to
allow the latter to reap benefits after generations of predecessors passively slept on their rights. The Court aptly
stated in Miguel v. Catalino:
"x x x. Courts cannot look with favor at parties who, by their silence, delay, and inaction, knowingly induce another to
spend time, effort, and expense in cultivating the land, paying taxes and making improvements thereon x x x only to
spring from ambush and claim title when the possessor’s efforts and the rise of land values offer an opportunity to
make easy profit at his expense."76
To grant respondents relief when they have not even offered any justifiable excuse for their inaction would be unjust.
It is certainly beyond our comprehension how they could have remained silent for more than 50 years. They have
only themselves to blame if the Court at this late hour can no longer afford them relief against the inequities they
allegedly suffered.
Considering the undisputed facts, not only had laches set in when respondents instituted their action for
reconveyance in 1993, but their right to enforce the constructive trust had already prescribed as well.
WHEREFORE, the Petition is GRANTED. The assailed July 28, 2003 Decision of the Court of Appeals is
hereby REVERSED and SET ASIDE. The Complaint before the Regional Trial Court of Danao City is
hereby DISMISSED. No costs.
SO ORDERED.

G.R. No. 133895 October 2, 2001

ZENAIDA M. SANTOS, petitioner,
vs.
CALIXTO SANTOS, ALBERTO SANTOS, ROSA SANTOS-CARREON and ANTONIO SANTOS, respondents.
QUISUMBING, J.:
This petition for review1 seeks to annul and set aside the decision date March 10, 1998 of the Court of Appeals that
affirmed the decision of the Regional Trial Court of Manila, Branch 48, dated March 17, 1993. Petitioner also seeks
to annul the resolution that denied her motion for reconsideration.
Petitioner Zenaida M. Santos is the widow of Salvador Santos, a brother of private respondents Calixto, Alberto,
Antonio, all surnamed Santos and Rosa Santos-Carreon.
The spouses Jesus and Rosalia Santos owned a parcel of land registered under TCT No. 27571 with an area of 154
square meters, located at Sta. Cruz Manila. On it was a four-door apartment administered by Rosalia who rented
them out. The spouses had five children, Salvador, Calixto, Alberto, Antonio and Rosa.
On January 19, 1959, Jesus and Rosalia executed a deed of sale of the properties in favor of their children Salvador
and Rosa. TCT No. 27571 became TCT No. 60819. Rosa in turn sold her share to Salvador on November 20, 1973
which resulted in the issuance of a new TCT No. 113221. Despite the transfer of the property to Salvador, Rosalia
continued to lease receive rentals form the apartment units. 1âwphi1.nêt

On November 1, 1979, Jesus died. Six years after or on January 9, 1985, Salvador died, followed by Rosalia who
died the following month. Shortly after, petitioner Zenaida, claiming to be Salvador's heir, demanded the rent from
Antonio Hombrebueno,2 a tenant of Rosalia. When the latter refused to pay, Zenaida filed and ejectment suit against
him with the Metropolitan Trial Court of Manila, Branch 24, which eventually decided in Zenaida's favor.
On January 5, 1989, private respondents instituted an action for reconveyance of property with preliminary
injunction against petitioner in the Regional Trial Court of Manila, where they alleged that the two deeds of sale
executed on January 19, 1959 and November 20, 1973 were simulated for lack of consideration. They were
executed to accommodate Salvador in generation funds for his business and providing him with greater business
flexibility.
In her Answer, Zenaida denied the material allegations in the complaint as special and affirmative defenses, argued
that Salvador was the registered owner of the property, which could only be subjected to encumbrances or liens
annotated on the title; that the respondents' right to reconveyance was already barred by prescription and laches;
and that the complaint state no cause of action.
On March 17, 1993, the trial court decided in private respondents' favor, thus:
WHEREFORE, viewed from all the foregoing considerations, judgment is hereby made in favor of the
plaintiffs and against the defendants:
a) Declaring Exh. "B", the deed of sale executed by Rosalia Santos and Jesus Santos on January 19, 1959,
as entirely null and void for being fictitious or stimulated and inexistent and without any legal force and
effect:
b) Declaring Exh. "D", the deed of sale executed by Rosa Santos in favor of Salvador Santos on November
20, 1973, also as entirely null and void for being likewise fictitious or stimulated and inexistent and without
any legal force and effect;
c) Directing the Register of Deeds of Manila to cancel Transfer Certificate of Title No. T-113221 registered in
the name of Salvador Santos, as well as, Transfer Certificate of Title No. 60819 in the names of Salvador
Santos, Rosa Santos, and consequently thereafter, reinstating with the same legal force and effect as if the
same was not cancelled, and which shall in all respects be entitled to like faith and credit; Transfer
Certificate of Title No. T-27571 registered in the name of Rosalia A. Santos, married to Jesus Santos, the
same to be partitioned by the heirs of the said registered owners in accordance with law; and
d) Making the injunction issued in this case permanent.
Without pronouncement as to costs.
SO OREDERED.3
The trial court reasoned that notwithstanding the deeds of sale transferring the property to Salvador, the spouses
Rosalia and Jesus continued to possess the property and to exercise rights of ownership not only by receiving the
monthly rentals, but also by paying the realty taxes. Also, Rosalia kept the owner's duplicate copy of the title even
after it was already in the name of Salvador. Further, the spouses had no compelling reason in 1959 to sell the
property and Salvador was not financially capable to purchase it. The deeds of sale were therefore fictitious. Hence,
the action to assail the same does not prescribe.4
Upon appeal, the Court of Appeals affirmed the trial court's decision dated March 10, 1998. It held that in order for
the execution of a public instrument to effect tradition, as provided in Article 1498 of the Civil Code, 5 the vendor shall
have had control over the thing sold, at the moment of sale. It was not enough to confer upon the purchaser the
ownership and the right of possession. The thing sold must be placed in his control. The subject deeds of sale did
not confer upon Salvador the ownership over the subject property, because even after the sale, the original vendors
remained in dominion, control, and possession thereof. The appellate court further said that if the reason for
Salvador's failure to control and possess the property was due to his acquiescence to his mother, in deference to
Filipino custom, petitioner, at least, should have shown evidence to prove that her husband declared the property for
tax purposes in his name or paid the land taxes, acts which strongly indicate control and possession. The appellate
court disposed:
WHEREFORE, finding no reversible error in the decision appealed from, the same is hereby AFFIRMED. No
pronouncement as to costs.
 SO ORDERED.6
Hence, this petition where petitioner avers that the Court of Appeals erred in:
I.
… HOLDING THAT THE OWNERSHIP OVER THE LITIGATED PROPERTY BY THE LATE HUSBAND OF
DEFENDANT-APPELLANT WAS AFFECTED BY HIS FAILURE TO EXERCISE CERTAIN ATTRIBUTES OF
OWNERSHIP.
II.
…HOLDING THAT DUE EXECUTION OF A PUBLIC INSTRUMENT IS NOT EQUIVALENT TO DELIVERY
OF THE LAND IN DISPUTE.
III.
…NOT FINDING THAT THE CAUSE OF ACTION OF ROSALIA SANTOS HAD PRESCRIBED AND/OR
BARRED BY LACHES.
IV.
… IGNORING PETITIONER'S ALLEGATION TO THE EFFECT THAT PLAINTIFF DR. ROSA [S.]
CARREON IS NOT DISQUALIFIED TO TESTIFY AS TO THE QUESTIONED DEEDS OF SALE
CONSIDERING THAT SALVADOR SANTOS HAS LONG BEEN DEAD.7
In this petition, we are asked to resolve the following:
1. Are payments of realty taxes and retention of possession indications of continued ownership by the
original owners?
2. Is a sale through a public instrument tantamount to delivery of the thing sold?
3. Did the cause of action of Rosalia Santos and her heirs prescribe?
4. Can petitioner invoke the "Dead Man's Statute?"8
On the first issue, petitioner contends that the Court of Appeals erred in holding that despite the deeds of sale in
Salvador's favor, Jesus and Rosalia still owned the property because the spouses continued to pay the realty taxes
and possess the property. She argues that tax declarations are not conclusive evidence of ownership when not
supported by evidence. She avers that Salvador allowed his mother to possess the property out of respect to her in
accordance with Filipino values.
It is true that neither tax receipts nor declarations of ownership for taxation purposes constitute sufficient proof of
ownership. They must be supported by other effective proofs.9 These requisite proofs we find present in this case.
As admitted by petitioner, despite the sale, Jesus and Rosalia continued to possess and administer the property and
enjoy its fruits by leasing it to third persons. 10 Both Rosa and Salvador did not exercise any right of ownership over
it.11 Before the second deed of sale to transfer her ½ share over the property was executed by Rosa, Salvador still
sought she permission of his mother.12 Further, after Salvador registered the property in his name, he surrendered
the title to his mother.13 These are clear indications that ownership still remained with the original owners. In Serrano
vs. CA, 139 SCRA 179, 189 (1985), we held that the continued collection of rentals from the tenants by the seller of
realty after execution of alleged deed of sale is contrary to the notion of ownership.
Petitioner argues that Salvador, in allowing her mother to use the property even after the sale, did so out of respect
for her and out of generosity, a factual matter beyond the province of this Court. 14 Significantly, in Alcos vs. IAC 162
SCRA 823, 837 (1988), we noted that the buyer's immediate possession and occupation of the property
corroborated the truthfulness and authenticity of the deed of sale. Conversely, the vendor's continued possession of
the property makes dubious the contract of sale between the parties.
On the second issue, is a sale through a public instrument tantamount to delivery of the thing sold? Petitioner in her
memorandum invokes Article 147715 of the Civil Code which provides that ownership of the thing sold is transferred
to the vendee upon its actual or constructive delivery. Article 1498, in turn, provides that when the sale is made
through a public instrument, its execution is equivalent to the delivery of the thing subject of the contract. Petitioner
avers that applying said provisions to the case, Salvador became the owner of the subject property by virtue of the
two deeds of sale executed in his favor.
Nowhere in the Civil Code, however, does it provide that execution of a deed of sale is a conclusive presumption of
delivery of possession. The Code merely said that the execution shall be equivalent to delivery. The presumption
can be rebutted by clear and convincing evidence. 16 Presumptive delivery can be negated by the failure of the
vendee to take actual possession of the land sold.17
In Danguilan vs. IAC, 168 SCRA 22, 32 (1988), we held that for the execution of a public instrument to effect
tradition, the purchaser must be placed in control of the thing sold. When there is no impediment to prevent the thing
sold from converting to tenancy of the purchaser by the sole will of the vendor, symbolic delivery through the
execution of a public instrument is sufficient. But if, notwithstanding the execution of the instrument, the purchaser
cannot have the enjoyment and material tenancy nor make use of it himself or through another in his name, then
delivery has not been effected.
As found by both the trial and appellate courts and amply supported by the evidence on record, Salvador was never
placed in control of the property. The original sellers retained their control and possession. Therefore, there was no
real transfer of ownership.
Moreover, in Norkis Distributors, Inc. vs. CA, 193 SCRA 694, 698-699 (1991), citing the land case of Abuan vs.
Garcia, 14 SCRA 759 (1965), we held that the critical factor in the different modes of effecting delivery, which gives
legal effect to the act is the actual intention of the vendor to deliver, and its acceptance by the vendee. Without that
intention, there is no tradition. In the instant case, although the spouses Jesus and Rosalia executed a deed of sale,
they did not deliver the possession and ownership of the property to Salvador and Rosa. They agreed to execute a
deed of sale merely to accommodate Salvador to enable him to generate funds for his business venture.
On the third issue, petitioner argues that from the date of the sale from Rosa to Salvador on November 20, 1973, up
to his death on January 9, 1985, more or less twelve years had lapsed, and from his death up to the filing of the
case for reconveyance in the court a quo on January 5, 1989, four years had lapsed. In other words, it took
respondents about sixteen years to file the case below. Petitioner argues that an action to annul a contract for lack
of consideration prescribes in ten years and even assuming that the cause of action has not prescribed,
respondents are guilty of laches for their inaction for a long period of time.
Has respondents' cause of action prescribed? In Lacsamana vs. CA, 288 SCRA 287, 292 (1998), we held that the
right to file an action for reconveyance on the ground that the certificate of title was obtained by means of a fictitious
deed of sale is virtually an action for the declaration of its nullity, which does not prescribe. This applies squarely to
the present case. The complaint filed by respondent in the court a quo was for the reconveyance of the subject
property to the estate of Rosalia since the deeds of sale were simulated and fictitious. The complaint amounts to a
declaration of nullity of a void contract, which is imprescriptible. Hence, respondents' cause of action has not
prescribed.
Neither is their action barred by laches. The elements of laches are: 1) conduct on the part of the defendant, or of
one under whom he claims, giving rise to the situation of which the complaint seeks a remedy; 2) delay in asserting
the complainant's rights, the complainant having had knowledge or notice of the defendant's conduct as having
been afforded an opportunity to institute a suit; 3) lack of knowledge or notice on the part of the defendant that the
complainant would assert the right in which 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 barred. 18 These elements must all be proved positively.
The conduct which caused the complaint in the court a quo was petitioner's assertion of right of ownership as heir of
Salvador. This started in December 1985 when petitioner demanded payment of the lease rentals from Antonio
Hombrebueno, the tenant of the apartment units. From December 1985 up to the filing of the complaint for
reconveyance on January 5, 1989, only less than four years had lapsed which we do not think is unreasonable
delay sufficient to bar respondents' cause of action. We likewise find the fourth element lacking. Neither petitioner
nor her husband made considerable investments on the property from the time it was allegedly transferred to the
latter. They also did not enter into transactions involving the property since they did not claim ownership of it until
December 1985. Petitioner stood to lose nothing. As we held in the same case of Lacsamana vs. CA, cited above,
the concept of laches is not concerned with the lapse of time but only with the effect of unreasonble lapse. In this
case, the alleged 16 years of respondents' inaction has no adverse effect on the petitioner to make respondents
guilty of laches.
Lastly, petitioner in her memorandum seeks to expunge the testimony of Rosa Santos-Carreon before the trial court
in view of Sec. 23, Rule 130 of the Revised Rules of Court, otherwise known as the "Dead Man's Statute."19 It is too
late for petitioner, however, to invoke said rule. The trial court in its order dated February 5, 1990, denied petitioner's
motion to disqualify respondent Rosa as a witness. Petitioner did not appeal therefrom. Trial ensued and Rosa
testified as a witness for respondents and was cross-examined by petitioner's counsel. By her failure to appeal from
the order allowing Rosa to testify, she waived her right to invoke the dean man's statute. Further, her counsel cross-
examined Rosa on matters that occurred during Salvadors' lifetime. In Goñi vs. CA, 144 SCRA 222, 231 (1986) we
held that protection under the dead man's statute is effectively waived when a counsel for a petitioner cross-
examines a private respondent on matters occurring during the deceased's lifetime. The Court of appeals cannot be
faulted in ignoring petitioner on Rosa's disqualification.
1âwphi1.nêt

WHEREFORE, the instant petition is DENIED. The assailed decision dated March 10, 1998 of the Court of Appeals,
which sustained the judgment of the Regional Trial Court dated March 17, 1993, in favor of herein private
respondents, is AFFIRMED. Costs against petitioner.
SO ORDERED.

G.R. No. L-23072 November 29, 1968

SIMEON B. MIGUEL, ET AL., plaintiffs-appellants,
vs.
FLORENDO CATALINO, defendant-appellee.
Bienvenido L. Garcia for plaintiffs-appellants.
Moises P. Cating for defendant-appellee.
REYES, J.B.L., J.:
Direct appeal from the judgment in Civil Case No. 1090 of the Court of First Instance of Baguio, dismissing the
plaintiffs' complaint for recovery of possession of a parcel of land, registered under Act 496, in the name of one
Bacaquio,1 a long-deceased illiterate non-Christian resident of Mountain Province, and declaring the defendant to be
the true owner thereof.
On January 22, 1962, appellants Simeon, Emilia and Marcelina Miguel, and appellant Grace Ventura brought suit in
the Court below against Florendo Catalino for the recovery of the land above-described, plaintiffs claiming to be the
children and heirs of the original registered owner, and averred that defendant, without their knowledge or consent,
had unlawfully taken possession of the land, gathered its produce and unlawfully excluded plaintiffs therefrom.
Defendant answered pleading ownership and adverse possession for 30 years, and counterclaimed for attorney's
fees. After trial the Court dismissed the complaint, declared defendant to be the rightful owner, and ordered the
Register of Deeds to issue a transfer certificate in lieu of the original. Plaintiffs appealed directly to this Court,
assailing the trial Court's findings of fact and law.
As found by the trial Court, the land in dispute is situated in the Barrio of San Pascual, Municipality of Tuba,
Benguet, Mountain Province and contains an area of 39,446 square meters, more or less. It is covered by Original
Certificate of Title No. 31, which was issued on 28 December 1927 in the name of Bacaquio (or Bakakew), a
widower. No encumbrance or sale has ever been annotated in the certificate of title.
The plaintiff-appellant Grace Ventura2 is the only child of Bacaquio by his first wife, Debsay, and the other plaintiffs-
appellants, Simeon, Emilia and Marcelina, all surnamed "Miguel", are his children by his third wife, Cosamang. He
begot no issue with his second wife, Dobaney. The three successive wives have all died.
Bacaquio, who died in 1943, acquired the land when his second wife died and sold it to Catalino Agyapao, father of
the defendant Florendo Catalino, for P300.00 in 1928. Of the purchase price P100.00 was paid and receipted for
when the land was surveyed, but the receipt was lost; the balance was paid after the certificate of title was issued.
No formal deed of sale was executed, but since the sale in 1928, or for more than 30 years, vendee Catalino
Agyapao and his son, defendant-appellee Florendo Catalino, had been in possession of the land, in the concept of
owner, paying the taxes thereon and introducing improvements.
On 1 February 1949, Grace Ventura, by herself alone, "sold" (as per her Transferor's Affidavit, Exhibit "6") anew the
same land for P300.00 to defendant Florendo Catalino.
In 1961, Catalino Agyapao in turn sold the land to his son, the defendant Florendo Catalino.
This being a direct appeal from the trial court, where the value of the property involved does not exceed
P200,000.00, only the issues of law are reviewable by the Supreme Court, the findings of fact of the court a
quo being deemed conceded by the appellant (Jacinto v. Jacinto, 105 Phil. 1218; Del Castillo v. Guerro, L-11994, 25
July 1960; Abuyo, et al. v. De Suazo, L-21202, 29 Oct. 1966; 18 SCRA 600, 601). We are thus constrained to
discard appellant's second and third assignments of error.
In their first assignment, appellants assail the admission in evidence over the objection of the appellant of Exhibit
"3". This exhibit is a decision in favor of the defendant-appellee against herein plaintiff-appellant Grace Ventura, by
the council of Barrio of San Pascual, Tuba, Benguet, in its Administrative Case No. 4, for the settlement of
ownership and possession of the land. The decision is ultra vires because barrio councils, which are not courts,
have no judicial powers (Sec. 1, Art. VIII, Constitution; see Sec. 12, Rep. Act 2370, otherwise known as the Barrio
Charter). Therefore, as contended by appellants, the exhibit is not admissible in a judicial proceeding as evidence
for ascertaining the truth respecting the fact of ownership and possession (Sec. 1, Rule 128, Rules of Court).
Appellants are likewise correct in claiming that the sale of the land in 1928 by Bacaquio to Catalino Agyapao,
defendant's father, is null and void ab initio, for lack of executive approval (Mangayao et al. vs. Lasud, et al., L-
19252, 29 May 1964). However, it is not the provisions of the Public Land Act (particularly Section 118 of Act 2874
and Section 120 of Commonwealth Act 141) that nullify the transaction, for the reason that there is no finding, and
the contending parties have not shown, that the land titled in the name of Bacaquio was acquired from the public
domain (Palad vs. Saito, 55 Phil. 831). The laws applicable to the said sale are: Section 145(b) of the Administrative
Code of Mindanao and Sulu, providing that no conveyance or encumbrance of real property shall be made in that
department by any non-christian inhabitant of the same, unless, among other requirements, the deed shall bear
indorsed upon it the approval of the provincial governor or his representative duly authorized in writing for the
purpose; Section 146 of the same Code, declaring that every contract or agreement made in violation of Section
145 "shall be null and void"; and Act 2798, as amended by Act 2913, extending the application of the above
provisions to Mountain Province and Nueva Vizcaya.
Since the 1928 sale is technically invalid, Bacaquio remained, in law, the owner of the land until his death in 1943,
when his title passed on, by the law on succession, to his heirs, the plaintiffs-appellants.
Notwithstanding the errors aforementioned in the appealed decision, we are of the opinion that the judgment in favor
of defendant-appellee Florendo Catalino must be sustained. For despite the invalidity of his sale to Catalino
Agyapao, father of defendant-appellee, the vendor Bacaquio suffered the latter to enter, possess and enjoy the land
in question without protest, from 1928 to 1943, when the seller died; and the appellants, in turn, while succeeding
the deceased, also remained inactive, without taking any step to reivindicate the lot from 1944 to 1962, when the
present suit was commenced in court. Even granting appellants' proposition that no prescription lies against their
father's recorded title, their passivity and inaction for more than 34 years (1928-1962) justifies the defendant-
appellee in setting up the equitable defense of laches in his own behalf. As a result, the action of plaintiffs-appellants
must be considered barred and the Court below correctly so held. Courts can not look with favor at parties who, by
their silence, delay and inaction, knowingly induce another to spend time, effort and expense in cultivating the land,
paying taxes and making improvements thereon for 30 long years, only to spring from ambush and claim title when
the possessor's efforts and the rise of land values offer an opportunity to make easy profit at his expense. In Mejia
de Lucas vs. Gamponia, 100 Phil. 277, 281, this Court laid down a rule that is here squarely applicable:
Upon a careful consideration of the facts and circumstances, we are constrained to find, however, that while
no legal defense to the action lies, an equitable one lies in favor of the defendant and that is, the equitable
defense of laches. We hold that the defense of prescription or adverse possession in derogation of the title
of the registered owner Domingo Mejia does not lie, but that of the equitable defense of laches. Otherwise
stated, we hold that while defendant may not be considered as having acquired title by virtue of his and his
predecessors' long continued possession for 37 years, the original owner's right to recover back the
possession of the property and title thereto from the defendant has, by the long period of 37 years and by
patentee's inaction and neglect, been converted into a stale demand.
As in the Gamponia case, the four elements of laches are present in the case at bar, namely: (a) conduct on the part
of the defendant, or of one under whom he claims, giving rise to the situation of which complaint is made and for
which the complaint seeks a remedy; (b) 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; (c) 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 (d) injury or prejudice to the defendant in the event relief is accorded to the complainant, or the suit is
not held to be barred. In the case at bar, Bacaquio sold the land in 1928 but the sale is void for lack of the
governor's approval. The vendor, and also his heirs after him, could have instituted an action to annul the sale from
that time, since they knew of the invalidity of the sale, which is a matter of law; they did not have to wait for 34 years
to institute suit. The defendant was made to feel secure in the belief that no action would be filed against him by
such passivity, and also because he "bought" again the land in 1949 from Grace Ventura who alone tried to question
his ownership; so that the defendant will be plainly prejudiced in the event the present action is not held to be
barred.
The difference between prescription and laches was elaborated in Nielsen & Co., Inc. vs. Lepanto Consolidated
Mining Co., L-21601, 17 December 1966, 18 SCRA p. 1040, as follows:
Appellee is correct in its contention that the defense of laches applies independently of prescription. Laches
is different from the statute of limitations. Prescription is concerned with the fact of delay, whereas laches is
concerned with the effect of delay. Prescription is a matter of time; laches is principally a question of inequity
of permitting a claim to be enforced, this inequity being founded on some change in the condition of the
property or the relation of the parties. Prescription is statutory; laches is not. Laches applies in equity,
whereas prescription applies at law. Prescription is based on fixed time laches is not, (30 C.J.S., p. 522. See
also Pomeroy's Equity Jurisprudence, Vol. 2, 5th ed., p. 177) (18 SCRA 1053).
With reference to appellant Grace Ventura, it is well to remark that her situation is even worse than that of her co-
heirs and co-plaintiffs, in view of her executing an affidavit of transfer (Exh. 6) attesting under oath to her having sold
the land in controversy to herein defendant-appellee, and the lower Court's finding that in 1949 she was paid
P300.00 for it, because she, "being a smart woman of enterprise, threatened to cause trouble if the defendant failed
to give her P300.00 more, because her stand (of being the owner of the land) was buttressed by the fact that
Original Certificate of Title No. 31 is still in the name of her father, Bacaquio" (Decision, Record on Appeal, p. 24).
This sale, that was in fact a quitclaim, may not be contested as needing executive approval; for it has not been
shown that Grace Ventura is a non-christian inhabitant like her father, an essential fact that cannot be assumed
(Sale de Porkan vs. Yatco, 70 Phil. 161, 175).
Since the plaintiffs-appellants are barred from recovery, their divestiture of all the elements of ownership in the land
is complete; and the Court a quo was justified in ordering that Bacaquio's original certificate be cancelled, and a new
transfer certificate in the name of Florendo Catalino be issued in lieu thereof by the Register of Deeds.
FOR THE FOREGOING REASONS, the appealed decision is hereby affirmed, with costs against the plaintiffs-
appellants.

G.R. No. 147406 July 14, 2008

VENANCIO FIGUEROA y CERVANTES,1 Petitioner,
vs.
PEOPLE OF THE PHILIPPINES, Respondent.
DECISION
NACHURA, J.:
When is a litigant estopped by laches from assailing the jurisdiction of a tribunal? This is the paramount issue raised
in this petition for review of the February 28, 2001 Decision2 of the Court of Appeals (CA) in CA-G.R. CR No. 22697.
Pertinent are the following antecedent facts and proceedings:
On July 8, 1994, an information3 for reckless imprudence resulting in homicide was filed against the petitioner before
the Regional Trial Court (RTC) of Bulacan, Branch 18.4 The case was docketed as Criminal Case No. 2235-M-
94.5 Trial on the merits ensued and on August 19, 1998, the trial court convicted the petitioner as charged. 6 In his
appeal before the CA, the petitioner questioned, among others, for the first time, the trial court’s jurisdiction.7
The appellate court, however, in the challenged decision, considered the petitioner to have actively participated in
the trial and to have belatedly attacked the jurisdiction of the RTC; thus, he was already estopped by laches from
asserting the trial court’s lack of jurisdiction. Finding no other ground to reverse the trial court’s decision, the CA
affirmed the petitioner’s conviction but modified the penalty imposed and the damages awarded.8
Dissatisfied, the petitioner filed the instant petition for review on certiorari raising the following issues for our
resolution:
a. Does the fact that the petitioner failed to raise the issue of jurisdiction during the trial of this case, which
was initiated and filed by the public prosecutor before the wrong court, constitute laches in relation to the
doctrine laid down in Tijam v. Sibonghanoy, notwithstanding the fact that said issue was immediately raised
in petitioner’s appeal to the Honorable Court of Appeals? Conversely, does the active participation of the
petitioner in the trial of his case, which is initiated and filed not by him but by the public prosecutor, amount
to estoppel?
b. Does the admission of the petitioner that it is difficult to immediately stop a bus while it is running at 40
kilometers per hour for the purpose of avoiding a person who unexpectedly crossed the road, constitute
enough incriminating evidence to warrant his conviction for the crime charged?
c. Is the Honorable Court of Appeals justified in considering the place of accident as falling within Item 4 of
Section 35 (b) of the Land Transportation and Traffic Code, and subsequently ruling that the speed limit
thereto is only 20 kilometers per hour, when no evidence whatsoever to that effect was ever presented by
the prosecution during the trial of this case?
d. Is the Honorable Court of Appeals justified in convicting the petitioner for homicide through reckless
imprudence (the legally correct designation is "reckless imprudence resulting to homicide") with violation of
the Land Transportation and Traffic Code when the prosecution did not prove this during the trial and, more
importantly, the information filed against the petitioner does not contain an allegation to that effect?
e. Does the uncontroverted testimony of the defense witness Leonardo Hernal that the victim unexpectedly
crossed the road resulting in him getting hit by the bus driven by the petitioner not enough evidence to acquit
him of the crime charged?9
Applied uniformly is the familiar rule that the jurisdiction of the court to hear and decide a case is conferred by the
law in force at the time of the institution of the action, unless such statute provides for a retroactive application
thereof.10 In this case, at the time the criminal information for reckless imprudence resulting in homicide with violation
of the Automobile Law (now Land Transportation and Traffic Code) was filed, Section 32(2) of Batas Pambansa
(B.P.) Blg. 12911 had already been amended by Republic Act No. 7691.12 The said provision thus reads:
Sec. 32. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in Criminal
Cases.—Except in cases falling within the exclusive original jurisdiction of Regional Trial Courts and the
Sandiganbayan, the Metropolitan Trial Courts, Municipal Trial Courts, and Municipal Circuit Trial Courts shall
exercise:
xxxx
(2) Exclusive original jurisdiction over all offenses punishable with imprisonment not exceeding six (6) years
irrespective of the amount of fine, and regardless of other imposable accessory or other penalties, including the civil
liability arising from such offenses or predicated thereon, irrespective of kind, nature, value or amount thereof:
Provided, however, That in offenses involving damage to property through criminal negligence, they shall have
exclusive original jurisdiction thereof.
As the imposable penalty for the crime charged herein is prision correccional in its medium and maximum periods or
imprisonment for 2 years, 4 months and 1 day to 6 years,13 jurisdiction to hear and try the same is conferred on the
Municipal Trial Courts (MTCs). Clearly, therefore, the RTC of Bulacan does not have jurisdiction over Criminal Case
No. 2235-M-94.
While both the appellate court and the Solicitor General acknowledge this fact, they nevertheless are of the position
that the principle of estoppel by laches has already precluded the petitioner from questioning the jurisdiction of the
RTC—the trial went on for 4 years with the petitioner actively participating therein and without him ever raising the
jurisdictional infirmity. The petitioner, for his part, counters that the lack of jurisdiction of a court over the subject
matter may be raised at any time even for the first time on appeal. As undue delay is further absent herein, the
principle of laches will not be applicable.
To settle once and for all this problem of jurisdiction vis-à-vis estoppel by laches, which continuously confounds the
bench and the bar, we shall analyze the various Court decisions on the matter.
As early as 1901, this Court has declared that unless jurisdiction has been conferred by some legislative act, no
court or tribunal can act on a matter submitted to it.14 We went on to state in U.S. v. De La Santa15 that:
It has been frequently held that a lack of jurisdiction over the subject-matter is fatal, and subject to objection at any
stage of the proceedings, either in the court below or on appeal (Ency. of Pl. & Pr., vol. 12, p. 189, and large array of
cases there cited), and indeed, where the subject-matter is not within the jurisdiction, the court may dismiss the
proceeding ex mero motu. (4 Ill., 133; 190 Ind., 79; Chipman vs. Waterbury, 59 Conn., 496.)
Jurisdiction over the subject-matter in a judicial proceeding is conferred by the sovereign authority which organizes
the court; it is given only by law and in the manner prescribed by law and an objection based on the lack of such
jurisdiction can not be waived by the parties. x x x16
Later, in People v. Casiano,17 the Court explained:
4. The operation of the principle of estoppel on the question of jurisdiction seemingly depends upon whether the
lower court actually had jurisdiction or not. If it had no jurisdiction, but the case was tried and decided upon the
theory that it had jurisdiction, the parties are not barred, on appeal, from assailing such jurisdiction, for the same
"must exist as a matter of law, and may not be conferred by consent of the parties or by estoppel" (5 C.J.S., 861-
863). However, if the lower court had jurisdiction, and the case was heard and decided upon a given theory, such,
for instance, as that the court had no jurisdiction, the party who induced it to adopt such theory will not be permitted,
on appeal, to assume an inconsistent position—that the lower court had jurisdiction. Here, the principle of estoppel
applies. The rule that jurisdiction is conferred by law, and does not depend upon the will of the parties, has no
bearing thereon. Thus, Corpus Juris Secundum says:
Where accused has secured a decision that the indictment is void, or has been granted an instruction based on its
defective character directing the jury to acquit, he is estopped, when subsequently indicted, to assert that the former
indictment was valid. In such case, there may be a new prosecution whether the indictment in the former
prosecution was good or bad. Similarly, where, after the jury was impaneled and sworn, the court on accused's
motion quashed the information on the erroneous assumption that the court had no jurisdiction, accused cannot
successfully plead former jeopardy to a new information. x x x (22 C.J.S., sec. 252, pp. 388-389; italics ours.)
Where accused procured a prior conviction to be set aside on the ground that the court was without jurisdiction, he
is estopped subsequently to assert, in support of a defense of previous jeopardy, that such court had jurisdiction."
(22 C.J.S. p. 378.)18
But in Pindañgan Agricultural Co., Inc. v. Dans,19 the Court, in not sustaining the plea of lack of jurisdiction by the
plaintiff-appellee therein, made the following observations:
It is surprising why it is only now, after the decision has been rendered, that the plaintiff-appellee presents the
question of this Court’s jurisdiction over the case. Republic Act No. 2613 was enacted on August 1, 1959. This case
was argued on January 29, 1960. Notwithstanding this fact, the jurisdiction of this Court was never impugned until
the adverse decision of this Court was handed down. The conduct of counsel leads us to believe that they must
have always been of the belief that notwithstanding said enactment of Republic Act 2613 this Court has jurisdiction
of the case, such conduct being born out of a conviction that the actual real value of the properties in question
actually exceeds the jurisdictional amount of this Court (over ₱200,000). Our minute resolution in G.R. No. L-10096,
Hyson Tan, et al. vs. Filipinas Compaña de Seguros, et al., of March 23, 1956, a parallel case, is applicable to the
conduct of plaintiff-appellee in this case, thus:
x x x that an appellant who files his brief and submits his case to the Court of Appeals for decision, without
questioning the latter’s jurisdiction until decision is rendered therein, should be considered as having voluntarily
waived so much of his claim as would exceed the jurisdiction of said Appellate Court; for the reason that a contrary
rule would encourage the undesirable practice of appellants submitting their cases for decision to the Court of
Appeals in expectation of favorable judgment, but with intent of attacking its jurisdiction should the decision be
unfavorable: x x x20
Then came our ruling in Tijam v. Sibonghanoy 21 that a party may be barred by laches from invoking lack of
jurisdiction at a late hour for the purpose of annulling everything done in the case with the active participation of said
party invoking the plea. We expounded, thus:
A party may be estopped or barred from raising a question in different ways and for different reasons. Thus, we
speak of estoppel in pais, of estoppel by deed or by record, and of estoppel by laches.
Laches, in a general sense, is 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.
The doctrine of laches or of "stale demands" is based upon grounds of public policy which requires, for the peace of
society, the discouragement of stale claims and, unlike the statute of limitations, is not a mere question of time but is
principally a question of the inequity or unfairness of permitting a right or claim to be enforced or asserted.
It has been held that a party cannot invoke the jurisdiction of a court to secure affirmative relief against his opponent
and, after obtaining or failing to obtain such relief, repudiate or question that same jurisdiction (Dean vs. Dean, 136
Or. 694, 86 A.L.R. 79). In the case just cited, by way of explaining the rule, it was further said that the question
whether the court had jurisdiction either of the subject matter of the action or of the parties was not important in such
cases because the party is barred from such conduct not because the judgment or order of the court is valid and
conclusive as an adjudication, but for the reason that such a practice cannot be tolerated—obviously for reasons of
public policy.
Furthermore, it has also been held that after voluntarily submitting a cause and encountering an adverse decision
on the merits, it is too late for the loser to question the jurisdiction or power of the court (Pease vs. Rathbun-Jones
etc., 243 U.S. 273, 61 L. Ed. 715, 37 S.Ct. 283; St. Louis etc. vs. McBride, 141 U.S. 127, 35 L. Ed. 659). And in
Littleton vs. Burgess, 16 Wyo. 58, the Court said that it is not right for a party who has affirmed and invoked the
jurisdiction of a court in a particular matter to secure an affirmative relief, to afterwards deny that same jurisdiction to
escape a penalty.
Upon this same principle is what We said in the three cases mentioned in the resolution of the Court of Appeals of
May 20, 1963 (supra)—to the effect that we frown upon the "undesirable practice" of a party submitting his case for
decision and then accepting the judgment, only if favorable, and attacking it for lack of jurisdiction, when adverse—
as well as in Pindañgan etc. vs. Dans et al., G.R. L-14591, September 26, 1962; Montelibano et al. vs. Bacolod-
Murcia Milling Co., Inc., G.R. L-15092; Young Men Labor Union etc. vs. The Court of Industrial Relations et al., G.R.
L-20307, Feb. 26, 1965, and Mejia vs. Lucas, 100 Phil. p. 277.
The facts of this case show that from the time the Surety became a quasi-party on July 31, 1948, it could have
raised the question of the lack of jurisdiction of the Court of First Instance of Cebu to take cognizance of the present
action by reason of the sum of money involved which, according to the law then in force, was within the original
exclusive jurisdiction of inferior courts. It failed to do so. Instead, at several stages of the proceedings in the court a
quo, as well as in the Court of Appeals, it invoked the jurisdiction of said courts to obtain affirmative relief and
submitted its case for a final adjudication on the merits. It was only after an adverse decision was rendered by the
Court of Appeals that it finally woke up to raise the question of jurisdiction. Were we to sanction such conduct on its
part, We would in effect be declaring as useless all the proceedings had in the present case since it was
commenced on July 19, 1948 and compel the judgment creditors to go up their Calvary once more. The inequity and
unfairness of this is not only patent but revolting.22
For quite a time since we made this pronouncement in Sibonghanoy, courts and tribunals, in resolving issues that
involve the belated invocation of lack of jurisdiction, have applied the principle of estoppel by laches. Thus, in
Calimlim v. Ramirez,23 we pointed out that Sibonghanoy was developing into a general rule rather than the
exception:
A rule that had been settled by unquestioned acceptance and upheld in decisions so numerous to cite is that the
jurisdiction of a court over the subject-matter of the action is a matter of law and may not be conferred by consent or
agreement of the parties. The lack of jurisdiction of a court may be raised at any stage of the proceedings, even on
appeal. This doctrine has been qualified by recent pronouncements which stemmed principally from the ruling in the
cited case of Sibonghanoy. It is to be regretted, however, that the holding in said case had been applied to situations
which were obviously not contemplated therein. The exceptional circumstance involved in Sibonghanoy which
justified the departure from the accepted concept of non-waivability of objection to jurisdiction has been ignored and,
instead a blanket doctrine had been repeatedly upheld that rendered the supposed ruling in Sibonghanoy not as the
exception, but rather the general rule, virtually overthrowing altogether the time-honored principle that the issue of
jurisdiction is not lost by waiver or by estoppel.
In Sibonghanoy, the defense of lack of jurisdiction of the court that rendered the questioned ruling was held to be
barred by estoppel by laches. It was ruled that the lack of jurisdiction having been raised for the first time in a motion
to dismiss filed almost fifteen (15) years after the questioned ruling had been rendered, such a plea may no longer
be raised for being barred by laches. As defined in said case, laches is "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 has abandoned it or declined to assert it.24
In Calimlim, despite the fact that the one who benefited from the plea of lack of jurisdiction was the one who invoked
the court’s jurisdiction, and who later obtained an adverse judgment therein, we refused to apply the ruling in
Sibonghanoy. The Court accorded supremacy to the time-honored principle that the issue of jurisdiction is not lost
by waiver or by estoppel.
Yet, in subsequent cases decided after Calimlim, which by sheer volume are too plentiful to mention, the
Sibonghanoy doctrine, as foretold in Calimlim, became the rule rather than the exception. As such, in Soliven v.
Fastforms Philippines, Inc.,25 the Court ruled:
While it is true that jurisdiction may be raised at any time, "this rule presupposes that estoppel has not supervened."
In the instant case, respondent actively participated in all stages of the proceedings before the trial court and
invoked its authority by asking for an affirmative relief. Clearly, respondent is estopped from challenging the trial
court’s jurisdiction, especially when an adverse judgment has been rendered. In PNOC Shipping and Transport
Corporation vs. Court of Appeals, we held:
Moreover, we note that petitioner did not question at all the jurisdiction of the lower court x x x in its answers to both
the amended complaint and the second amended complaint. It did so only in its motion for reconsideration of the
decision of the lower court after it had received an adverse decision. As this Court held in Pantranco North Express,
Inc. vs. Court of Appeals (G.R. No. 105180, July 5, 1993, 224 SCRA 477, 491), participation in all stages of the case
before the trial court, that included invoking its authority in asking for affirmative relief, effectively barred petitioner by
estoppel from challenging the court’s jurisdiction. Notably, from the time it filed its answer to the second amended
complaint on April 16, 1985, petitioner did not question the lower court’s jurisdiction. It was only on December 29,
1989 when it filed its motion for reconsideration of the lower court’s decision that petitioner raised the question of the
lower court’s lack of jurisdiction. Petitioner thus foreclosed its right to raise the issue of jurisdiction by its own
inaction. (italics ours)
Similarly, in the subsequent case of Sta. Lucia Realty and Development, Inc. vs. Cabrigas, we ruled:
In the case at bar, it was found by the trial court in its 30 September 1996 decision in LCR Case No. Q-60161(93)
that private respondents (who filed the petition for reconstitution of titles) failed to comply with both sections 12 and
13 of RA 26 and therefore, it had no jurisdiction over the subject matter of the case. However, private respondents
never questioned the trial court’s jurisdiction over its petition for reconstitution throughout the duration of LCR Case
No. Q-60161(93). On the contrary, private respondents actively participated in the reconstitution proceedings by
filing pleadings and presenting its evidence. They invoked the trial court’s jurisdiction in order to obtain affirmative
relief – the reconstitution of their titles. Private respondents have thus foreclosed their right to raise the issue of
jurisdiction by their own actions.
The Court has constantly upheld the doctrine that while jurisdiction may be assailed at any stage, a litigant’s
participation in all stages of the case before the trial court, including the invocation of its authority in asking for
affirmative relief, bars such party from challenging the court’s jurisdiction (PNOC Shipping and Transport
Corporation vs. Court of Appeals, 297 SCRA 402 [1998]). A party cannot invoke the jurisdiction of a court to secure
affirmative relief against his opponent and after obtaining or failing to obtain such relief, repudiate or question that
same jurisdiction (Asset Privatization Trust vs. Court of Appeals, 300 SCRA 579 [1998]; Province of Bulacan vs.
Court of Appeals, 299 SCRA 442 [1998]). The Court frowns upon the undesirable practice of a party participating in
the proceedings and submitting his case for decision and then accepting judgment, only if favorable, and attacking it
for lack of jurisdiction, when adverse (Producers Bank of the Philippines vs. NLRC, 298 SCRA 517 [1998], citing
Ilocos Sur Electric Cooperative, Inc. vs. NLRC, 241 SCRA 36 [1995]). (italics ours)26
Noteworthy, however, is that, in the 2005 case of Metromedia Times Corporation v. Pastorin,27 where the issue of
lack of jurisdiction was raised only in the National Labor Relations Commission (NLRC) on appeal, we stated, after
examining the doctrines of jurisdiction vis-à-vis estoppel, that the ruling in Sibonghanoy stands as an exception,
rather than the general rule. Metromedia, thus, was not estopped from assailing the jurisdiction of the labor arbiter
before the NLRC on appeal.28 1avvphi1

Later, in Francel Realty Corporation v. Sycip,29 the Court clarified that:

Petitioner argues that the CA’s affirmation of the trial court’s dismissal of its case was erroneous, considering that a
full-blown trial had already been conducted. In effect, it contends that lack of jurisdiction could no longer be used as
a ground for dismissal after trial had ensued and ended.
The above argument is anchored on estoppel by laches, which has been used quite successfully in a number of
cases to thwart dismissals based on lack of jurisdiction. Tijam v. Sibonghanoy, in which this doctrine was espoused,
held that a party may be barred from questioning a court’s jurisdiction after being invoked to secure affirmative relief
against its opponent. In fine, laches prevents the issue of lack of jurisdiction from being raised for the first time on
appeal by a litigant whose purpose is to annul everything done in a trial in which it has actively participated.
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."
The ruling in Sibonghanoy on the matter of jurisdiction is, however, the exception rather than the rule. Estoppel by
1avvphi1

laches may be invoked to bar the issue of lack of jurisdiction only in cases in which the factual milieu is analogous to
that in the cited case. In such controversies, laches should be clearly present; that is, lack of jurisdiction must have
been raised so belatedly as to warrant the presumption that the party entitled to assert it had abandoned or declined
to assert it. That Sibonghanoy applies only to exceptional circumstances is clarified in Calimlim v. Ramirez, which
we quote:
A rule that had been settled by unquestioned acceptance and upheld in decisions so numerous to cite is that the
jurisdiction of a court over the subject-matter of the action is a matter of law and may not be conferred by consent or
agreement of the parties. The lack of jurisdiction of a court may be raised at any stage of the proceedings, even on
appeal. This doctrine has been qualified by recent pronouncements which stemmed principally from the ruling in the
cited case of Sibonghanoy. It is to be regretted, however, that the holding in said case had been applied to situations
which were obviously not contemplated therein. The exceptional circumstance involved in Sibonghanoy which
justified the departure from the accepted concept of non-waivability of objection to jurisdiction has been ignored and,
instead a blanket doctrine had been repeatedly upheld that rendered the supposed ruling in Sibonghanoy not as the
exception, but rather the general rule, virtually overthrowing altogether the time-honored principle that the issue of
jurisdiction is not lost by waiver or by estoppel.
Indeed, the general rule remains: a court’s lack of jurisdiction may be raised at any stage of the proceedings, even
on appeal. The reason is that jurisdiction is conferred by law, and lack of it affects the very authority of the court to
take cognizance of and to render judgment on the action. Moreover, jurisdiction is determined by the averments of
the complaint, not by the defenses contained in the answer.30
Also, in Mangaliag v. Catubig-Pastoral,31 even if the pleader of lack of jurisdiction actively took part in the trial
proceedings by presenting a witness to seek exoneration, the Court, reiterating the doctrine in Calimlim, said:
Private respondent argues that the defense of lack of jurisdiction may be waived by estoppel through active
participation in the trial. Such, however, is not the general rule but an exception, best characterized by the peculiar
circumstances in Tijam vs. Sibonghanoy. In Sibonghanoy, the party invoking lack of jurisdiction did so only after
fifteen years and at a stage when the proceedings had already been elevated to the CA. Sibonghanoy is an
exceptional case because of the presence of laches, which was defined therein as 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 the negligence or omission to assert a right within a reasonable time, warranting a
presumption that the party entitled to assert has abandoned it or declined to assert it.32
And in the more recent Regalado v. Go,33 the Court again emphasized that laches should be clearly present for the
Sibonghanoy doctrine to be applicable, thus:
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 length of time, warranting a presumption that the party entitled to assert it either has abandoned it or
declined to assert it."
The ruling in People v. Regalario that was based on the landmark doctrine enunciated in Tijam v. Sibonghanoy on
the matter of jurisdiction by estoppel is the exception rather than the rule. Estoppel by laches may be invoked to bar
the issue of lack of jurisdiction only in cases in which the factual milieu is analogous to that in the cited case. In such
controversies, laches should have been clearly present; that is, lack of jurisdiction must have been raised so
belatedly as to warrant the presumption that the party entitled to assert it had abandoned or declined to assert it.
In Sibonghanoy, the defense of lack of jurisdiction was raised for the first time in a motion to dismiss filed by the
Surety almost 15 years after the questioned ruling had been rendered. At several stages of the proceedings, in the
court a quo as well as in the Court of Appeals, the Surety invoked the jurisdiction of the said courts to obtain
affirmative relief and submitted its case for final adjudication on the merits. It was only when the adverse decision
was rendered by the Court of Appeals that it finally woke up to raise the question of jurisdiction.
Clearly, the factual settings attendant in Sibonghanoy are not present in the case at bar. Petitioner Atty. Regalado,
after the receipt of the Court of Appeals resolution finding her guilty of contempt, promptly filed a Motion for
Reconsideration assailing the said court’s jurisdiction based on procedural infirmity in initiating the action. Her
compliance with the appellate court’s directive to show cause why she should not be cited for contempt and filing a
single piece of pleading to that effect could not be considered as an active participation in the judicial proceedings
so as to take the case within the milieu of Sibonghanoy. Rather, it is the natural fear to disobey the mandate of the
court that could lead to dire consequences that impelled her to comply.34
The Court, thus, wavered on when to apply the exceptional circumstance in Sibonghanoy and on when to apply the
general rule enunciated as early as in De La Santa and expounded at length in Calimlim. The general rule should,
however, be, as it has always been, that the issue of jurisdiction may be raised at any stage of the proceedings,
even on appeal, and is not lost by waiver or by estoppel. Estoppel by laches, to bar a litigant from asserting the
court’s absence or lack of jurisdiction, only supervenes in exceptional cases similar to the factual milieu of Tijam v.
Sibonghanoy. Indeed, the fact that a person attempts to invoke unauthorized jurisdiction of a court does not estop
him from thereafter challenging its jurisdiction over the subject matter, since such jurisdiction must arise by law and
not by mere consent of the parties. This is especially true where the person seeking to invoke unauthorized
jurisdiction of the court does not thereby secure any advantage or the adverse party does not suffer any harm.35
Applying the said doctrine to the instant case, the petitioner is in no way estopped by laches in assailing the
jurisdiction of the RTC, considering that he raised the lack thereof in his appeal before the appellate court. At that
time, no considerable period had yet elapsed for laches to attach. True, delay alone, though unreasonable, will not
sustain the defense of "estoppel by laches" unless it further appears that the party, knowing his rights, has not
sought to enforce them until the condition of the party pleading laches has in good faith become so changed that he
cannot be restored to his former state, if the rights be then enforced, due to loss of evidence, change of title,
intervention of equities, and other causes.36 In applying the principle of estoppel by laches in the exceptional case of
Sibonghanoy, the Court therein considered the patent and revolting inequity and unfairness of having the judgment
creditors go up their Calvary once more after more or less 15 years. 37 The same, however, does not obtain in the
instant case.
We note at this point that estoppel, being in the nature of a forfeiture, is not favored by law. It is to be applied rarely
—only from necessity, and only in extraordinary circumstances. The doctrine must be applied with great care and
the equity must be strong in its favor.38 When misapplied, the doctrine of estoppel may be a most effective weapon
for the accomplishment of injustice.39 Moreover, a judgment rendered without jurisdiction over the subject matter is
void.40 Hence, the Revised Rules of Court provides for remedies in attacking judgments rendered by courts or
tribunals that have no jurisdiction over the concerned cases. No laches will even attach when the judgment is null
and void for want of jurisdiction.41 As we have stated in Heirs of Julian Dela Cruz and Leonora Talaro v. Heirs of
Alberto Cruz,42
It is axiomatic that the jurisdiction of a tribunal, including a quasi-judicial officer or government agency, over the
nature and subject matter of a petition or complaint is determined by the material allegations therein and the
character of the relief prayed for, irrespective of whether the petitioner or complainant is entitled to any or all such
reliefs. Jurisdiction over the nature and subject matter of an action is conferred by the Constitution and the law, and
not by the consent or waiver of the parties where the court otherwise would have no jurisdiction over the nature or
subject matter of the action. Nor can it be acquired through, or waived by, any act or omission of the parties.
Moreover, estoppel does not apply to confer jurisdiction to a tribunal that has none over the cause of action. x x x
Indeed, the jurisdiction of the court or tribunal is not affected by the defenses or theories set up by the defendant or
respondent in his answer or motion to dismiss. Jurisdiction should be determined by considering not only the status
or the relationship of the parties but also the nature of the issues or questions that is the subject of the controversy.
x x x x The proceedings before a court or tribunal without jurisdiction, including its decision, are null and void, hence,
susceptible to direct and collateral attacks.43
With the above considerations, we find it unnecessary to resolve the other issues raised in the petition.
WHEREFORE, premises considered, the petition for review on certiorari is GRANTED. Criminal Case No. 2235-M-
94 is hereby DISMISSED without prejudice.
SO ORDERED.
G.R. No. 187661 December 4, 2013
MODESTO SANCHEZ, Petitioner,
vs.
ANDREW SANCHEZ, Respondent.
DECISION
PEREZ, J.:
In this Petition for review on Ceryiorari, Modesto Sanchez (Modesto) substituted by Juanita Y. Sanchez, assails the
1

16 July 2008 Decision of the Thirteenth Division of the Court of Appeals (CA) in CA-G.R. CV No. 88531 reversing
2

the 28 December 2006 Order of the Regional Trial Court (RTC) of Manila, Branch 39, which dismissed respondent
3

Andrew Sanchez’s (Andrew) complaint for Annulment of Deed of Sale, Cancellation of New Title and Reconveyance
of Title on the grounds of prescription and laches.
The factual antecedents were summarized by the CA as follows:
4

The instant controversy was brought to fore because of the Deed of Absolute Sale, dated November 25, 1981,
5

which expressly states that the parcel of land registered in the name of [Andrew] and covered by Transfer Certificate
of Title (TCT) No. 143744 has been conveyed to his brother, [Modesto] through a sale. [Andrew] assailed the said
6

document as sham and replete with falsehood and fraudulent misrepresentations.

While [Andrew] admitted that he sent the said pre-signed deed of sale to [Modesto] in response to the latter’s offer
to buy his abovementioned property, he however, alleged that the said transaction did not push through because
[Modesto] did not have the financial means to purchase the property at that time. He also stated that he sent the
said document undated and not notarized. He alleged that he tried to retrieve the said deed from [Modesto], but the
latter failed to return it despite several reminders. [Andrew] further alleged that he continued to allow [Modesto] to
occupy his property since their ancestral home was built thereon.
This alleged liberality of [Andrew] was later extended to [Modesto’s] live-in partner, Juanita H. Yap (Yap), as
evidenced by the Bequest of Usufruct, which the former had executed. In 2000, [Modesto], through Yap, allegedly
7

offered again to buy the said property, but [Andrew] already refused to part with his lot. [Andrew] later discovered
that his certificate of title was missing.
Thus, he filed an Affidavit of Loss with the Registry of Deeds of Manila. Subsequently, he learned that a Petition for
8

Reconstitution of TCT No. 143744 was filed by [Modesto] on the basis of the said deed of sale, which already
appeared to have been notarized in 1981. Thus, [Andrew] filed the case below to seek for the annulment of the said
document. During the pendency of the case, [Andrew’s] certificate of title was cancelled and a new one in the name
of [Modesto] was issued. Hence, the amendment of his complaint to include Cancellation Of New Title And
Reconveyance Of Title. By way of affirmative and special defences, [Modesto] alleged lack of cause of action,
prescription, and laches. He filed a motion to set his affirmative defences for a hearing. [Andrew] file an Opposition
To The Defendant’s Affirmative Defenses while [Modesto] filed his Reply thereto.
Thereafter, the RTC issued the assailed order.
RTC Ruling
The RTC issued an order dismissing the complaint on the grounds of prescription and laches. The RTC took note of
9

the lapse of time between the date of the assailed document and the filing of the case and concluded that Andrew’s
action was time-barred because a person desiring to file an action based on a written contract has only 10 years to
do so. Moreover, the RTC held that the failure of Andrew to offer any valid reason for the delay in asserting his right
made him guilty of laches. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the instant complaint filed by plaintiff is hereby DISMISSED. The
counterclaims of the defendant are likewise DISMISSED. 10

CA Decision
Aggrieved, Andrew elevated the case to the CA. The appeal was premised on the sole issue of whether or not the
lower court erred in dismissing Andrew’s complaint on the grounds of prescription and laches. For the appellate
court, there was a need to determine whether the subject deed of sale is void, voidable or valid; and such could be
ascertained only if the parties are allowed to go on trial. The CA held that the trial court erred in dismissing the
complaint of Andrew without the benefit of a trial. The dispositive portion of the appellate court’s decision reads:
WHEREFORE, premises considered, the instant appeal is GRANTED. The assailed order dated December 28,
2006 of the court a quo is REVERSED and SET ASIDE. The case is REMANDED to the Regional Trial Court of
Manila, Branch 39 for trial and judgment on the merits. No pronouncement as to costs. 11

Our Ruling
The petition is bereft of merit. We agree with the CA’s ruling. It is apparent from the records that the RTC did not
conduct a hearing to receive evidence proving that Andrew was guilty of prescription or laches. There was no full-
blown trial. The case was simply dismissed on the basis of the pleadings submitted by the parties. We note that the
RTC admitted the Amended Complaint and gave Andrew fifteen (15) days to comment on Modesto’s Motion to
Dismiss based on affirmative defenses and likewise gave Modesto the same period to file his rejoinder, after which,
it considered the matter submitted for resolution. 12

The Court has consistently held that the affirmative defense of prescription does not automatically warrant the
dismissal of a complaint under Rule 16 of the Rules of Civil Procedure. An allegation of prescription can effectively
be used in a motion to dismiss only when the complaint on its face shows that indeed the action has already
prescribed. If the issue of prescription is one involving evidentiary matters requiring a full-blown trial on the merits, it
cannot be determined in a motion to dismiss. 13

Those issues must be resolved at the trial of the case on the merits wherein both parties will be given ample
opportunity to prove their respective claims and defenses. 14

Contrary to Modesto’s contention, it is not apparent from the complaint that the action had already prescribed.
Furthermore, it should be noted that it is the relief based on the facts alleged, and not the relief demanded, which is
taken into consideration in determining the cause of action. Therefore, in terms of classifying the deed, whether it is
valid, void or voidable, it is of no significance that the relief prayed for was Annulment of Deed of Absolute Sale. The
issue of prescription hinges on the determination of whether the sale was valid, void or voidable. We agree with the
Court of Appeals that the issue of prescription in this case is best ventilated in a full-blown proceeding before the
trial court where both parties can substantiate their claims. The trial court is in the best position to ascertain the
credibility of both parties.
15

Upon closer inspection of the complaint, it would seem that there are several possible scenarios that may have
16

occurred given the limited set of facts. The statement "transaction did not push through since defendant did not
have the financial herewithal to purchase the subject property" creates confusion and allows for several different
interpretations.
On one side, it can be argued that said contract is void and consequently, the right to challenge such contract is
imprescriptible. The ruling of this Court in
Montecillo v. Reynes supports this argument:
17

Where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of
sale is null and void ab initio for lack of consideration. 1âwphi1

Such ruling of the Court would mean that when the deed of sale declares that the price has been paid, when in fact
it has never been paid, that would be considered as a "badge of simulation" and would render the contract void and
consequently, the right to challenge the same is imprescriptible. 18

In the case at bar, by merely basing analysis on the pleadings submitted, in particular, the complaint, it would be an
impossibility to deduce the truth as to whether the price stated in the deed was in fact paid. The only way to prove
this is by going to trial. On the other hand, a different analysis of the statement "transaction did not push through
since defendant did not have the financial wherewithal to purchase the subject property" may yield another
interpretation. One can also deduce that what actually transpired was a simple non-payment of purchase price,
which will not invalidate a contract and could only give rise to other legal remedies such as rescission or specific
performance. In this scenario, the contract remains valid and therefore subject to prescription.
It is also apparent from the pleadings that both parties denied each other’s allegations. It is then but logical to review
more evidence on disputed matters. On this score alone, it is apparent that the complaint on its face does not readily
show that the action has already prescribed. We emphasize once more that a summary or outright dismissal of an
action is not proper where there are factual matters in dispute, which require presentation and appreciation of
evidence. 19

Furthermore, well settled is the rule that the elements of laches must be proven positively. Laches is evidentiary in
nature, a fact that cannot be established by mere allegations in the pleadings and cannot be resolved in a motion to
dismiss. At this stage therefore, the dismissal of the complaint on the ground of laches is premature. Those issues
must be resolved at the trial of the case on the merits, wherein both parties will be given ample opportunity to prove
their respective claims and defenses. 20

WHEREFORE, in light of the foregoing, we resolve to DENY the instant petition. The 16 July 2008 Decision of the
Court of Appeals is AFFIRMED. The case is REMANDED to the Regional Trial Court of Manila, Branch 39 for trial
and judgment on the merits.
SO ORDERED.
G.R. No. 187661 December 4, 2013
MODESTO SANCHEZ, Petitioner,
vs.
ANDREW SANCHEZ, Respondent.
DECISION
PEREZ, J.:
In this Petition for review on Ceryiorari, Modesto Sanchez (Modesto) substituted by Juanita Y. Sanchez, assails the
1

16 July 2008 Decision of the Thirteenth Division of the Court of Appeals (CA) in CA-G.R. CV No. 88531 reversing
2

the 28 December 2006 Order of the Regional Trial Court (RTC) of Manila, Branch 39, which dismissed respondent
3

Andrew Sanchez’s (Andrew) complaint for Annulment of Deed of Sale, Cancellation of New Title and Reconveyance
of Title on the grounds of prescription and laches.
The factual antecedents were summarized by the CA as follows:
4

The instant controversy was brought to fore because of the Deed of Absolute Sale, dated November 25, 1981,
5

which expressly states that the parcel of land registered in the name of [Andrew] and covered by Transfer Certificate
of Title (TCT) No. 143744 has been conveyed to his brother, [Modesto] through a sale. [Andrew] assailed the said
6

document as sham and replete with falsehood and fraudulent misrepresentations.

While [Andrew] admitted that he sent the said pre-signed deed of sale to [Modesto] in response to the latter’s offer
to buy his abovementioned property, he however, alleged that the said transaction did not push through because
[Modesto] did not have the financial means to purchase the property at that time. He also stated that he sent the
said document undated and not notarized. He alleged that he tried to retrieve the said deed from [Modesto], but the
latter failed to return it despite several reminders. [Andrew] further alleged that he continued to allow [Modesto] to
occupy his property since their ancestral home was built thereon.
This alleged liberality of [Andrew] was later extended to [Modesto’s] live-in partner, Juanita H. Yap (Yap), as
evidenced by the Bequest of Usufruct, which the former had executed. In 2000, [Modesto], through Yap, allegedly
7

offered again to buy the said property, but [Andrew] already refused to part with his lot. [Andrew] later discovered
that his certificate of title was missing.
Thus, he filed an Affidavit of Loss with the Registry of Deeds of Manila. Subsequently, he learned that a Petition for
8

Reconstitution of TCT No. 143744 was filed by [Modesto] on the basis of the said deed of sale, which already
appeared to have been notarized in 1981. Thus, [Andrew] filed the case below to seek for the annulment of the said
document. During the pendency of the case, [Andrew’s] certificate of title was cancelled and a new one in the name
of [Modesto] was issued. Hence, the amendment of his complaint to include Cancellation Of New Title And
Reconveyance Of Title. By way of affirmative and special defences, [Modesto] alleged lack of cause of action,
prescription, and laches. He filed a motion to set his affirmative defences for a hearing. [Andrew] file an Opposition
To The Defendant’s Affirmative Defenses while [Modesto] filed his Reply thereto.
Thereafter, the RTC issued the assailed order.
RTC Ruling
The RTC issued an order dismissing the complaint on the grounds of prescription and laches. The RTC took note of
9

the lapse of time between the date of the assailed document and the filing of the case and concluded that Andrew’s
action was time-barred because a person desiring to file an action based on a written contract has only 10 years to
do so. Moreover, the RTC held that the failure of Andrew to offer any valid reason for the delay in asserting his right
made him guilty of laches. The dispositive portion of the decision reads:
WHEREFORE, premises considered, the instant complaint filed by plaintiff is hereby DISMISSED. The
counterclaims of the defendant are likewise DISMISSED. 10

CA Decision
Aggrieved, Andrew elevated the case to the CA. The appeal was premised on the sole issue of whether or not the
lower court erred in dismissing Andrew’s complaint on the grounds of prescription and laches. For the appellate
court, there was a need to determine whether the subject deed of sale is void, voidable or valid; and such could be
ascertained only if the parties are allowed to go on trial. The CA held that the trial court erred in dismissing the
complaint of Andrew without the benefit of a trial. The dispositive portion of the appellate court’s decision reads:
WHEREFORE, premises considered, the instant appeal is GRANTED. The assailed order dated December 28,
2006 of the court a quo is REVERSED and SET ASIDE. The case is REMANDED to the Regional Trial Court of
Manila, Branch 39 for trial and judgment on the merits. No pronouncement as to costs. 11

Our Ruling
The petition is bereft of merit. We agree with the CA’s ruling. It is apparent from the records that the RTC did not
conduct a hearing to receive evidence proving that Andrew was guilty of prescription or laches. There was no full-
blown trial. The case was simply dismissed on the basis of the pleadings submitted by the parties. We note that the
RTC admitted the Amended Complaint and gave Andrew fifteen (15) days to comment on Modesto’s Motion to
Dismiss based on affirmative defenses and likewise gave Modesto the same period to file his rejoinder, after which,
it considered the matter submitted for resolution. 12

The Court has consistently held that the affirmative defense of prescription does not automatically warrant the
dismissal of a complaint under Rule 16 of the Rules of Civil Procedure. An allegation of prescription can effectively
be used in a motion to dismiss only when the complaint on its face shows that indeed the action has already
prescribed. If the issue of prescription is one involving evidentiary matters requiring a full-blown trial on the merits, it
cannot be determined in a motion to dismiss. 13

Those issues must be resolved at the trial of the case on the merits wherein both parties will be given ample
opportunity to prove their respective claims and defenses. 14

Contrary to Modesto’s contention, it is not apparent from the complaint that the action had already prescribed.
Furthermore, it should be noted that it is the relief based on the facts alleged, and not the relief demanded, which is
taken into consideration in determining the cause of action. Therefore, in terms of classifying the deed, whether it is
valid, void or voidable, it is of no significance that the relief prayed for was Annulment of Deed of Absolute Sale. The
issue of prescription hinges on the determination of whether the sale was valid, void or voidable. We agree with the
Court of Appeals that the issue of prescription in this case is best ventilated in a full-blown proceeding before the
trial court where both parties can substantiate their claims. The trial court is in the best position to ascertain the
credibility of both parties.
15

Upon closer inspection of the complaint, it would seem that there are several possible scenarios that may have
16

occurred given the limited set of facts. The statement "transaction did not push through since defendant did not
have the financial herewithal to purchase the subject property" creates confusion and allows for several different
interpretations.
On one side, it can be argued that said contract is void and consequently, the right to challenge such contract is
imprescriptible. The ruling of this Court in
Montecillo v. Reynes supports this argument:
17

Where the deed of sale states that the purchase price has been paid but in fact has never been paid, the deed of
sale is null and void ab initio for lack of consideration. 1âwphi1

Such ruling of the Court would mean that when the deed of sale declares that the price has been paid, when in fact
it has never been paid, that would be considered as a "badge of simulation" and would render the contract void and
consequently, the right to challenge the same is imprescriptible. 18

In the case at bar, by merely basing analysis on the pleadings submitted, in particular, the complaint, it would be an
impossibility to deduce the truth as to whether the price stated in the deed was in fact paid. The only way to prove
this is by going to trial. On the other hand, a different analysis of the statement "transaction did not push through
since defendant did not have the financial wherewithal to purchase the subject property" may yield another
interpretation. One can also deduce that what actually transpired was a simple non-payment of purchase price,
which will not invalidate a contract and could only give rise to other legal remedies such as rescission or specific
performance. In this scenario, the contract remains valid and therefore subject to prescription.
It is also apparent from the pleadings that both parties denied each other’s allegations. It is then but logical to review
more evidence on disputed matters. On this score alone, it is apparent that the complaint on its face does not readily
show that the action has already prescribed. We emphasize once more that a summary or outright dismissal of an
action is not proper where there are factual matters in dispute, which require presentation and appreciation of
evidence. 19

Furthermore, well settled is the rule that the elements of laches must be proven positively. Laches is evidentiary in
nature, a fact that cannot be established by mere allegations in the pleadings and cannot be resolved in a motion to
dismiss. At this stage therefore, the dismissal of the complaint on the ground of laches is premature. Those issues
must be resolved at the trial of the case on the merits, wherein both parties will be given ample opportunity to prove
their respective claims and defenses. 20

WHEREFORE, in light of the foregoing, we resolve to DENY the instant petition. The 16 July 2008 Decision of the
Court of Appeals is AFFIRMED. The case is REMANDED to the Regional Trial Court of Manila, Branch 39 for trial
and judgment on the merits.
SO ORDERED.
G.R. No. 171904 August 7, 2013
BOBBY TAN, PETITIONER,
vs.
GRACE ANDRADE, PROCESO ANDRADE, JR., CHARITY A. SANTIAGO, HENRY ANDRADE, ANDREW
ANDRADE, JASMIN BLAZA, GLORY ANDRADE, MIRIAM ROSE ANDRADE, AND JOSEPH
ANDRADE, RESPONDENTS.
x-----------------------x
G.R. No. 172017
GRACE ANDRADE, CHARITY A. SANTIAGO, HENRY ANDRADE, ANDREW ANDRADE, JASMIN BLAZA,
MIRIAM ROSE ANDRADE, AND JOSEPH ANDRADE, PETITIONERS,
vs.
BOBBY TAN, RESPONDENT.
DECISION
PERLAS-BERNABE, J.:
Before the Court are consolidated petitions for review on certiorari 1 assailing the Decision2 dated July 26, 2005 and
Resolution3 dated March 3, 2006 of the Court of Appeals (CA) in CA-G.R. CV No. 71987 which affirmed with
modification the Judgment[4] dated April 6, 2001 of the Regional Trial Court of Cebu City, Branch 19 (RTC) in Civil
Case No. CEB 20969.
The Facts
Rosario Vda. De Andrade (Rosario) was the registered owner of four parcels of land known as Lots 17, 18, 19, and
205 situated in Cebu City (subject properties) which she mortgaged to and subsequently foreclosed by one
Simon6 Diu (Simon).7 When the redemption period was about to expire, Rosario sought the assistance of Bobby Tan
(Bobby) who agreed to redeem the subject properties.8 Thereafter, Rosario sold the same to Bobby and her son,
Proceso Andrade, Jr. (Proceso, Jr.), for ₱100,000.00 as evidenced by a Deed of Absolute Sale9 dated April 29, 1983
(subject deed of sale). On July 26, 1983, Proceso, Jr. executed a Deed of Assignment, 10 ceding unto Bobby his
rights and interests over the subject properties in consideration of ₱50,000.00. The Deed of Assignment was signed
by, among others, Henry Andrade (Henry), one of Rosario’s sons, as instrumental witness. Notwithstanding the
aforementioned Deed of Assignment, Bobby extended an Option to Buy 11 the subject properties in favor of Proceso,
Jr., giving the latter until 7:00 in the evening of July 31, 1984 to purchase the same for the sum of ₱310,000.00.
When Proceso, Jr. failed to do so, Bobby consolidated his ownership over the subject properties, and the
TCTs12 therefor were issued in his name.
On October 7, 1997, Rosario’s children, namely, Grace, Proceso, Jr., Henry, Andrew, Glory, Miriam Rose, Joseph
(all surnamed Andrade), Jasmin Blaza, and Charity A. Santiago (Andrades), filed a complaint13 for reconveyance and
annulment of deeds of conveyance and damages against Bobby before the RTC, docketed as Civil Case No. CEB
20969. In their complaint, they alleged that the transaction between Rosario and Bobby (subject transaction) was
not one of sale but was actually an equitable mortgage which was entered into to secure Rosario’s indebtedness
with Bobby. They also claimed that since the subject properties were inherited by them from their father, Proceso
Andrade, Sr. (Proceso, Sr.), the subject properties were conjugal in nature, and thus, Rosario had no right to
dispose of their respective shares therein. In this light, they argued that they remained as co-owners of the subject
properties together with Bobby, despite the issuance of the TCTs in his name.
In his defense, Bobby contended that the subject properties were solely owned by Rosario per the TCTs issued in
her name14 and that he had validly acquired the same upon Proceso, Jr.’s failure to exercise his option to buy back
the subject properties.15 He also interposed the defenses of prescription and laches against the Andrades.16
The RTC Ruling
On April 6, 2001, the RTC rendered a Judgment dismissing the Andrades’ complaint.
17

It ruled that the subject transaction was a bona fide sale and not an equitable mortgage as can be gleaned from its
terms and conditions, noting further that the subject deed of sale was not even questioned by the Andrades at the
time of its execution. As Proceso, Jr. failed to exercise his option to buy back the subject properties, the titles thereto
were validly consolidated in Bobby’s favor, resulting to the issuance of TCTs in his name which are deemed to be
conclusive proof of his ownership thereto.18 As regards the nature of the subject properties, the RTC found that they
"appeared to be the exclusive properties of Rosario."19 Finally, it found that the Andrades’ claim over the subject
properties had already prescribed and that laches had already set in.20
Dissatisfied, the Andrades elevated the matter on appeal.
The CA Ruling
On July 26, 2005, the CA rendered the assailed Decision21 upholding in part the RTC’s ruling.
It found that the subject deed of sale was indeed what it purports to be, i.e., a bona fide contract of sale. In this
accord, it denied the Andrades’ claim that the subject transaction was an equitable mortgage since their allegation
that the purchase price was unusually low was left unsupported by any evidence. Also, their averment that they
have been in continuous possession of the subject properties was belied by the testimony of Andrew Andrade
(Andrew) who stated that Bobby was already in possession of the same. 22
Nevertheless, the CA ruled that the subject properties belong to the conjugal partnership of Rosario and her late
husband, Proceso, Sr., and thus, she co-owned the same together with her children, the Andrades. 23 In this respect,
the sale was valid only with respect to Rosario’s pro-indiviso share in the subject properties and it cannot prejudice
the share of the Andrades since they did not consent to the sale.24 In effect, a resulting trust was created between
Bobby and the Andrades25 and, as such, prescription and/or laches has yet to set in so as to bar them from
instituting the instant case.26 Accordingly, the CA ordered Bobby to reconvey to the Andrades their share in the
subject properties.27
In view of the CA’s pronouncement, the parties filed their respective motions for reconsideration. For the Andrades’
part, they sought the reconsideration of the CA’s finding as to its characterization of the subject transaction as one of
sale, insisting that it is actually an equitable mortgage.28 As for Bobby’s part, he maintained that the sale should have
covered the entirety of the subject properties and not only Rosario’s pro-indiviso share. 29 Both motions for
reconsideration were, however, denied by the CA in a Resolution30 dated March 3, 2006.
Hence, the present consolidated petitions.
Issues Before the Court
The present controversy revolves around the CA’s characterization of the subject properties as well as of the subject
transaction between Rosario and Bobby.
In G.R. No. 172017, the Andrades submit that the CA erred in ruling that the subject transaction is in the nature of a
sale, while in G.R. No. 171904, Bobby contends that the CA erred in ruling that the subject properties are conjugal
in nature.
The Court’s Ruling
A. Characterization of the subject transaction.
Settled is the rule that when the trial court's factual findings have been affirmed by the CA, said findings are
generally conclusive and binding upon the Court, and may no longer be reviewed on Rule 45 petitions. 31 While there
exists exceptions to this rule – such as when the CA’s and RTC’s findings are in conflict with each other 32 – the Court
observes that none applies with respect to the ruling that the subject transaction was one of sale and not an
equitable mortgage. Records readily reveal that both the RTC and the CA observed that there is no clear and
convincing evidence to show that the parties agreed upon a mortgage. Hence, absent any glaring error therein or
any other compelling reason to hold otherwise, this finding should now be deemed as conclusive and perforce must
stand. As echoed in the case of Ampo v. CA:33
x x x Factual findings of the Court of Appeals are conclusive on the parties and not reviewable by this Court – and
they carry even more weight when the Court of Appeals affirms the factual findings of the trial court, and in the
absence of any showing that the findings complained of are totally devoid of support in the evidence on record, or
that they are so glaringly erroneous as to constitute serious abuse of discretion, such findings must stand.34
Consequently, the Andrades’ petition in G.R. No. 172017 must therefore be denied.
B. Characterization of the subject properties.
With respect to the nature of the subject properties, the courts a quo were at variance such that the RTC, on the one
hand, ruled that the said properties were exclusive properties of Rosario, 35 while the CA, on the other hand,
pronounced that they are conjugal in nature.36 In this regard, the consequent course of action would be for the Court
to conduct a re-examination of the evidence if only to determine which among the two is correct, 37 as an exception
to the proscription in Rule 45 petitions.
Pertinent to the resolution of this second issue is Article 160 of the Civil Code38 which states that "[a]ll property of the
marriage is presumed to belong to the conjugal partnership, unless it be proved that it pertains exclusively to the
husband or to the wife." For this presumption to apply, the party invoking the same must, however, preliminarily
prove that the property was indeed acquired during the marriage. As held in Go v. Yamane:39
x x x As a condition sine qua non for the operation of [Article 160] in favor of the conjugal partnership, the party who
invokes the presumption must first prove that the property was acquired during the marriage.
In other words, the presumption in favor of conjugality does not operate if there is no showing of when the property
alleged to be conjugal was acquired. Moreover, the presumption may be rebutted only with strong, clear, categorical
and convincing evidence. There must be strict proof of the exclusive ownership of one of the spouses, and the
burden of proof rests upon the party asserting it.40 (Citations omitted)
Corollarily, as decreed in Valdez v. CA,41 the presumption under Article 160 cannot be made to apply where there is
no showing as to when the property alleged to be conjugal was acquired:
x x x The issuance of the title in the name solely of one spouse is not determinative of the conjugal nature of the
property, since there is no showing that it was acquired during the marriage of the Spouses Carlos Valdez, Sr. and
Josefina L. Valdez. The presumption under Article 160 of the New Civil Code, that property acquired during marriage
is conjugal, does not apply where there is no showing as to when the property alleged to be conjugal was acquired.
The presumption cannot prevail when the title is in the name of only one spouse and the rights of innocent third
parties are involved. Moreover, when the property is registered in the name of only one spouse and there is no
showing as to when the property was acquired by same spouse, this is an indication that the property belongs
exclusively to the said spouse.
In this case, there is no evidence to indicate when the property was acquired by petitioner Josefina. Thus, we agree
1âwphi1

with petitioner Josefina’s declaration in the deed of absolute sale she executed in favor of the respondent that she
was the absolute and sole owner of the property. x x x.42
In this case, records reveal that the conjugal partnership of Rosario and her husband was terminated upon the
latter’s death on August 7, 197843 while the transfer certificates of title over the subject properties were issued on
September 28, 1979 and solely in the name of "Rosario Vda. de Andrade, of legal age, widow, Filipino." 44 Other than
their bare allegation, no evidence was adduced by the Andrades to establish that the subject properties were
procured during the coverture of their parents or that the same were bought with conjugal funds. Moreover,
Rosario’s declaration that she is the absolute owner of the disputed parcels of land in the subject deed of sale 45 was
not disputed by her son Proceso, Jr., who was a party to the same. Hence, by virtue of these incidents, the Court
upholds the RTC’s finding46 that the subject properties were exclusive or sole properties of Rosario.
Besides, the Court observes that laches had already set in, thereby precluding the Andrades from pursuing their
claim. Case law defines laches as the "failure to assert a right for an unreasonable and unexplained length of time,
warranting a presumption that the party entitled to assert it has either abandoned or declined to assert it."47
Records disclose that the Andrades took 14 years before filing their complaint for reconveyance in 1997. The
argument that they did not know about the subject transaction is clearly belied by the facts on record. It is
undisputed that Proceso, Jr. was a co-vendee in the subject deed of sale,48 while Henry was an instrumental witness
to the Deed of Assignment49 and Option to Buy50 both dated July 26, 1983. Likewise, Rosario’s sons, Proceso, Jr.
and Andrew, did not question the execution of the subject deed of sale made by their mother to Bobby. 51 These
incidents can but only lead to the conclusion that they were well-aware of the subject transaction and yet only
pursued their claim 14 years after the sale was executed.
Due to the above-stated reasons, Bobby’s petition in G.R. No. 171904 is hereby granted.
WHEREFORE, the Court hereby (a) GRANTS the petition of Bobby Tan in G.R. No. 171904; and (b) DENIES the
petition of Grace Andrade, Charity A. Santiago, Henry Andrade, Andrew Andrade, Jasmin Blaza, Miriam Rose
Andrade, and Joseph Andrade in G.R. No. 172017. Accordingly, the Decision dated July 26, 2005 and Resolution
dated March 3, 2006 of the Court of Appeals in CA-G.R. CV No. 71987 are hereby REVERSED and SET ASIDE,
and the April 6, 2001 Decision of the Regional Trial Court of Cebu City, Branch 19 in Civil Case No. CEB 20969 is
REINSTATED.
SO ORDERED.
G.R. No. 186069 January 30, 2013
SPOUSES JESUS L. CABAHUG AND CORONACION M. CABAHUG, Petitioners,
vs.
NATIONAL POWER CORPORATION, Respondent.
DECISION
PEREZ, J.:
This Rule 45 Petition for Review on Certiorari seeks the reversal of (a) the 16 May 2007 Decision1 rendered by the
Eighteenth Division of the Court of Appeals (CA) in CA-G.R. CV No. 67331 which reversed the 14 March 2000
Decision rendered by the Regional Trial Court (RTC), Branch 17, Palompon, Leyte, in Civil Case No. PN-0213 and
ordered the dismissal of the complaint for just compensation tiled by petitioners Spouses Jesus L. Cabahug and
Coronacion M. Cabahug (Spouses Cabahug) against respondent National Power Corporation (NPC);2 and (b) the
CA's Resolution dated 9 January 2009, denying the motion for reconsideration of the 16 May 2007 Decision for lack
of merit.3
The facts are not in dispute.
The Spouses Cabahug are the owners of two parcels of land situated in Barangay Capokpok, Tabango, Leyte,
registered in their names under Transfer Certificate of Title (TCT) Nos. T-9813 and T-1599 of the Leyte provincial
registry.4 They were among the defendants in Special Civil
Action No. 0019-PN, a suit for expropriation earlier filed by NPC before the RTC, in connection with its Leyte-Cebu
Interconnection Project. The suit was later dismissed when NPC opted to settle with the landowners by paying an
easement fee equivalent to 10% of value of their property in accordance with Section 3-A of Republic Act (RA) No.
6395.5 In view of the conflicting land values presented by the affected landowners, it appears that the Leyte
Provincial Appraisal Committee, upon request of NPC, fixed the valuation of the affected properties at P45.00 per
square meter.6
On 9 November 1996, Jesus Cabahug executed two documents denominated as Right of Way Grant in favor of
NPC. For and in consideration of the easement fees in the sums of P112,225.50 and P21,375.00, Jesus Cabahug
granted NPC a continuous easement of right of way for the latter’s transmissions lines and their appurtenances over
24,939 and 4,750 square meters of the parcels of land covered by TCT Nos. T-9813 and T-1599, respectively. By
said grant, Jesus Cabahug agreed not to construct any building or structure whatsoever, nor plant in any area within
the Right of Way that will adversely affect or obstruct the transmission line of NPC, except agricultural crops, the
growth of which will not exceed three meters high. Under paragraph 4 of the grant, however, Jesus Cabahug
reserved the option to seek additional compensation for easement fee, based on the Supreme Court’s 18 January
1991 Decision in G.R. No. 60077, entitled National Power Corporation v. Spouses Misericordia Gutierrez and
Ricardo Malit, et al. (Gutierrez).7
On 21 September 1998, the Spouses Cabahug filed the complaint for the payment of just compensation, damages
and attorney’s fees against NPC which was docketed as Civil Case No. PN-0213 before the RTC. Claiming to have
been totally deprived of the use of the portions of land covered by TCT Nos. T-9813 and T-1599, the Spouses
Cabahug alleged, among other matters, that in accordance with the reservation provided under paragraph 4 of the
aforesaid grant, they have demanded from NPC payment of the balance of the just compensation for the subject
properties which, based on the valuation fixed by the Leyte Provincial Appraisal Committee, amounted to
P1,202,404.50.8 In its answer, on the other hand, NPC averred that it already paid the full easement fee mandated
under Section 3-A of RA 6395 and that the reservation in the grant referred to additional compensation for easement
fee, not the full just compensation sought by the Spouses Cabahug.9
Acting on the motion for judgment on the pleadings that was filed by the Spouses Cabahug, the RTC went on to
render a Decision dated 14 March 2000. Brushing aside NPC’s reliance on Section 3-A of RA 6395, the RTC applied
the ruling handed down by this Court in Gutierrez to the effect that NPC’s easement of right of way which indefinitely
deprives the owner of their proprietary rights over their property falls within the purview of the power of eminent
domain.10 As a consequence, the RTC disposed of the complaint in the following wise:
WHEREFORE, premises considered, judgment is hereby rendered for the Spouses Cabahug and against NPC,
ordering NPC:
1. To pay the Spouses Cabahug the sum of ONE MILLION THREE HUNDRED THIRTY SIX THOUSAND
and FIVE PESOS (P1,336,005.00) together with the legal rate of interest thereon per annum reckoned from
January 3, 1997 less the amount previously paid by NPC to the Spouses Cabahug for easement fee only;
2. To pay the Spouses Cabahug the sum equivalent to FIVE (5%) PERCENT of the amount mentioned in the
next preceding paragraph for attorney’s fees; and
 3. To pay the Spouses Cabahug the sum of TWENTY THOUSAND (P20,000.00) PESOS for actual
damages and litigation expenses plus costs of the proceedings.
SO ORDERED.11
Aggrieved by the foregoing decision, the NPC perfected the appeal which was docketed as CA-G.R. CV No. 67331
before the CA which, on 16 May 2007, rendered the herein assailed decision, reversing and setting aside the RTC’s
appealed decision. Finding that the facts of a case are different from those obtaining in Gutierrez and that Section 3-
A of RA 6395 only allows NPC to acquire an easement of right of way over properties traversed by its transmission
lines,12 the CA succinctly ruled as follows:
Unfortunately, the Spouses Cabahug had already accepted the payment of easement fee, pursuant to R.A. 6395, as
amended, way back in 1996. Therefore, NPC’s easement of right of way has for all legal intents and purposes, been
established as far back as 1996. Since vested right has already accrued in favor of NPC, to allow the Spouses
Cabahug to pursue this case when the easement of right of way had already been consummated would be in
violation of the contract. The contracting parties, the Spouses Cabahug and NPC had already conformed with the
terms and conditions of the agreement. To allow the Spouses Cabahug to again collect from NPC payment of just
compensation would amount to unjust enrichment at the expense of NPC and would sanction violation of the parties’
contract, which the Spouses Cabahug cannot do in the case at bench. Further, the award of attorney’s fees and
litigation expenses and the costs of suit in favor of the Spouses Cabahug cannot be justified in the case at bar since
it appears that the complaint actually has no legal basis.13
The Spouses Cabahug’s motion for reconsideration of the 16 May 2007 Decision14 was denied for lack of merit in
the CA’s Resolution dated 9 January 2009. Hence, this petition for review on certiorari.15 In urging the reversal of the
CA’s assailed Decision and Resolution, the Spouses Cabahug argue that the CA erred: (a) in disregarding
paragraph 4 of the Grant of Right of Way whereby Jesus Cabahug reserved the right to seek additional
compensation for easement fee; and (b) in not applying this Court’s ruling in Gutierrez case. 16 In representation of
NPC, on the other hand, the Office of the Solicitor General (OSG) argues that the sums paid in 1996 by way of
easement fees represent the full amount allowed by law and agreed upon by the parties. Considering that Gutierrez
concerned the payment of just compensation for property expropriated by the NPC, the OSG maintains the CA did
not err in according scant consideration to the Spouses Cabahug’s invocation of the ruling in said case.17
We find the petition impressed with merit.
The CA regarded the Grant of Right of Way executed by Jesus Cabahug in favor of NPC as a valid and binding
contract between the parties, a fact affirmed by the OSG in its 8 October 2009 Comment to the petition at
bench.18 Given that the parties have already agreed on the easement fee for the portions of the subject parcels
traversed by NPC’s transmissions lines, the CA ruled that the Spouses Cabahug’s attempt to collect further sums by
way of additional easement fee and/or just compensation is violative of said contract and tantamount to unjust
enrichment at the expense of NPC. As correctly pointed out by the Spouses Cabahug, however, the CA’s ruling
totally disregards the fourth paragraph of the Grant executed by Jesus Cabahug which expressly states as follows:
That I hereby reserve the option to seek additional compensation for Easement Fee, based on the Supreme Court
Decision in G.R. No. 60077, promulgated on January 18, 1991, which jurisprudence is designated as "NPC vs.
Gutierrez" case.19
From the foregoing reservation, it is evident that the Spouses Cabahug’s receipt of the easement fee did not bar
them from seeking further compensation from NPC. Even by the basic rules in the interpretation of contracts, we
find that the CA erred in holding that the payment of additional sums to the Spouses Cabahug would be violative of
the parties’ contract and amount to unjust enrichment. Indeed, the rule is settled that a contract constitutes the law
between the parties who are bound by its stipulations 20 which, when couched in clear and plain language, should be
applied according to their literal tenor.21 Courts cannot supply material stipulations, read into the contract words it
does not contain22 or, for that matter, read into it any other intention that would contradict its plain import.23 Neither
can they 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 the terms
which he voluntarily consented to, or impose on him those which he did not.24
Considering that Gutierrez was specifically made the point of reference for Jesus Cabahug’s reservation to seek
further compensation from NPC, we find that the CA likewise erred in finding that the ruling in said case does not
apply to the case at bench. Concededly, the NPC was constrained to file an expropriation complaint in Gutierrez due
to the failure of the negotiations for its acquisition of an easement of right of way for its transmission lines. The issue
that was eventually presented for this Court’s resolution, however, was the propriety of making NPC liable for the
payment of the full market value of the affected property despite the fact that transfer of title thereto was not required
by said easement. In upholding the landowners’ right to full just compensation, the Court ruled that the power of
eminent domain may be exercised although title is not transferred to the expropriator in an easement of right of way.
Just compensation which should be neither more nor less than the money equivalent of the property is, moreover,
due where the nature and effect of the easement is to impose limitations against the use of the land for an indefinite
period and deprive the landowner its ordinary use.
Even without the reservation made by Jesus Cabahug in the Grant of Right of Way, the application of Gutierrez to
this case is not improper as NPC represents it to be. Where the right of way easement, as in this case, similarly
involves transmission lines which not only endangers life and limb but restricts as well the owner's use of the land
traversed thereby, the ruling in Gutierrez remains doctrinal and should be applied. 25 It has been ruled that the owner
should be compensated for the monetary equivalent of the land if, as here, the easement is intended to perpetually
or indefinitely deprive the owner of his proprietary rights through the imposition of conditions that affect the ordinary
use, free enjoyment and disposal of the property or through restrictions and limitations that are inconsistent with the
exercise of the attributes of ownership, or when the introduction of structures or objects which, by their nature,
create or increase the probability of injury, death upon or destruction of life and property found on the land is
necessary.26 Measured not by the taker’s gain but the owner’s loss, just compensation is defined as the full and fair
equivalent of the property taken from its owner by the expropriator.271âwphi1

Too, the CA reversibly erred in sustaining NPC’s reliance on Section 3-A of RA 6395 which states that only 10% of
the market value of the property is due to the owner of the property subject to an easement of right of way. Since
said easement falls within the purview of the power of eminent domain, NPC’s utilization of said provision has been
repeatedly struck down by this Court in a number of cases.28 The determination of just compensation in eminent
domain proceedings is a judicial function and no statute, decree, or executive order can mandate that its own
determination shall prevail over the court's findings.29 Any valuation for just compensation laid down in the statutes
may serve only as a guiding principle or one of the factors in determining just compensation, but it may not
substitute the court's own judgment as to what amount should be awarded and how to arrive at such
amount.30 Hence, Section 3A of R.A. No. 6395, as amended, is not binding upon this Court.31
In this case, the Leyte Provincial Appraisal Committee fixed the valuation of the affected properties at P45.00 per
square meter at the instance of NPC. Considering that the installation of the latter’s transmission lines amounted to
the taking of 24,939 and 4,750 square meters from the parcels of land covered by TCT Nos. T-9813 and T-1599 or a
total of 29,689 square meters, the RTC correctly determined that the Spouses Cabahug are entitled to
P1,336,005.00 (29,689 x P45.00) by way of just compensation for their properties. Inasmuch as NPC had already
paid the sums of P112,225.50 and P21,375.00 as easement fee, the sum of P133,600.50 should be deducted from
P1,336,005.00 for a remaining balance of P1,202,404.50. To this latter sum, the RTC also correctly imposed legal
interest since the Spouses Cabahug, as landowners, are entitled to the payment of legal interest on the
compensation for the subject lands from the time of the taking of their possession up to the time that full payment is
made by petitioner. In accordance with jurisprudence, the legal interest allowed in payment of just compensation for
lands expropriated for public use is six percent (6%) per annum.32
For want of a statement of the rationale for the award in the body of the RTC’s 14 March 2000 Decision, we are
constrained, however, to disallow the grant of attorney’s fees in favor of the Spouses Cabahug in an amount
equivalent to 5% of the just compensation due as well as the legal interest thereon. Considered the exception rather
than the general rule, the award of attorney’s fees is not due every time a party prevails in a suit because of the
policy that no premium should be set on the right to litigate.33 The RTC's award of litigation expenses should likewise
be deleted since, like attorney's fees, the award thereof requires that the reasons or grounds therefor must be set
forth in the decision of the court.34 This is particularly true in this case where the litigation expenses awarded were
alternatively categorized by the RTC as actual damages which, by jurisprudence, should be pleaded and adequately
proved. Time and again, it has been ruled that the fact and amount of actual damages cannot be based on
speculation, conjecture or guess work, but must depend on actual proof.35
WHEREFORE, premises considered, the petition is GRANTED and the CA's assailed 16 May 2007 Decision and 9
January 2009 Resolution are, accordingly, REVERSED and SET ASIDE. In lieu thereof, another is entered
REINSTATING the RTC's 14 March 2000 Decision, subject to the MODIFICATION that the awards of attorney's
fees, actual damages and/or litigation expenses are DELETED.
SO ORDERED.
G.R. No. 195117 August 14, 2013
HUR TIN YANG, PETITIONER
vs.
PEOPLE OF THE PHILIPPINES, RESPONDENT.
RESOLUTION
VELASCO JR., J.:
This is a motion for reconsideration of our February 1, 2012 Minute Resolution1 sustaining the July 28, 2010
Decision2 and December 20, 2010 Resolution3 of the Court of Appeals (CA) in CA-G.R. CR No. 30426, finding
petitioner Hur Tin Yang guilty beyond reasonable doubt of the crime of Estafa under A11icle 315, paragraph 1 (b) of
the Revised Penal Code (RPC) in relation to Presidential Decree No. 115 (PD 115) or the Trust Receipts Law.
In twenty-four (24) consolidated Informations, all dated March 15, 2002, petitioner Hur Tin Yang was charged at the
instance of the same complainant with the crime of Estafa under Article 315, par. 1(b) of the RPC,4 in relation to PD
115,5 docketed as Criminal Case Nos. 04-223911 to 34 and raffled to the Regional Trial Court of Manila, Branch 20.
The 24 Informations––differing only as regards the alleged date of commission of the crime, date of the trust
receipts, the number of the letter of credit, the subject goods and the amount––uniformly recite:
That on or about May 28, 1998, in the City of Manila, Philippines, the said accused being then the authorized officer
of SUPERMAX PHILIPPINES, INC., with office address at No. 11/F, Global Tower, Gen Mascardo corner M. Reyes
St., Bangkal, Makati City, did then and there willfully, unlawfully and feloniously defraud the METROPOLITAN BANK
AND TRUST COMPANY (METROBANK), a corporation duly organized and existing under and by virtue of the laws
of the Republic of the Philippines, represented by its Officer in Charge, WINNIE M. VILLANUEVA, in the following
manner, to wit: the said accused received in trust from the said Metropolitan Bank and Trust Company reinforcing
bars valued at ₱1,062,918.84 specified in the undated Trust Receipt Agreement covered by Letter of Credit No. MG-
LOC 216/98 for the purpose of holding said merchandise/goods in trust, with obligation on the part of the accused to
turn over the proceeds of the sale thereof or if unsold, to return the goods to the said bank within the specified
period agreed upon, but herein accused once in possession of the said merchandise/goods, far from complying with
his aforesaid obligation, failed and refused and still fails and refuses to do so despite repeated demands made upon
him to that effect and with intent to defraud and with grave abuse of confidence and trust, misappropriated,
misapplied and converted the said merchandise/goods or the value thereof to his own personal use and benefit, to
the damage and prejudice of said METROPOLITAN BANK AND TRUST COMPANY in the aforesaid amount of
₱1,062,918.84, Philippine Currency.
Contrary to law.6
Upon arraignment, petitioner pleaded "not guilty." Thereafter, trial on the merits then ensued.
The facts of these consolidated cases are undisputed:
Supermax Philippines, Inc. (Supermax) is a domestic corporation engaged in the construction business. On various
occasions in the month of April, May, July, August, September, October and November 1998, Metropolitan Bank and
Trust Company (Metrobank), Magdalena Branch, Manila, extended several commercial letters of credit (LCs) to
Supermax. These commercial LCs were used by Supermax to pay for the delivery of several construction materials
which will be used in their construction business. Thereafter, Metrobank required petitioner, as representative and
Vice-President for Internal Affairs of Supermax, to sign twenty-four (24) trust receipts as security for the construction
materials and to hold those materials or the proceeds of the sales in trust for Metrobank to the extent of the amount
stated in the trust receipts.
When the 24 trust receipts fell due and despite the receipt of a demand letter dated August 15, 2000, Supermax
failed to pay or deliver the goods or proceeds to Metrobank. Instead, Supermax, through petitioner, requested the
restructuring of the loan. When the intended restructuring of the loan did not materialize, Metrobank sent another
demand letter dated October 11, 2001. As the demands fell on deaf ears, Metrobank, through its representative,
Winnie M. Villanueva, filed the instant criminal complaints against petitioner.
For his defense, while admitting signing the trust receipts, petitioner argued that said trust receipts were demanded
by Metrobank as additional security for the loans extended to Supermax for the purchase of construction equipment
and materials. In support of this argument, petitioner presented as witness, Priscila Alfonso, who testified that the
construction materials covered by the trust receipts were delivered way before petitioner signed the corresponding
trust receipts.7 Further, petitioner argued that Metrobank knew all along that the construction materials subject of the
trust receipts were not intended for resale but for personal use of Supermax relating to its construction business.8
The trial court a quo, by Judgment dated October 6, 2006, found petitioner guilty as charged and sentenced him as
follows:
His guilt having been proven and established beyond reasonable doubt, the Court hereby renders judgment
CONVICTING accused HUR TIN YANG of the crime of estafa under Article 315 paragraph 1 (a) of the Revised
Penal Code and hereby imposes upon him the indeterminate penalty of 4 years, 2 months and 1 day of prision
correccional to 20 years of reclusion temporal and to pay Metropolitan Bank and Trust Company, Inc. the amount of
Php13,156,256.51 as civil liability and to pay cost.
SO ORDERED.9
Petitioner appealed to the CA. On July 28, 2010, the appellate court rendered a Decision, upholding the findings of
the RTC that the prosecution has satisfactorily established the guilt of petitioner beyond reasonable doubt, including
the following critical facts, to wit: (1) petitioner signing the trust receipts agreement; (2) Supermax failing to pay the
loan; and (3) Supermax failing to turn over the proceeds of the sale or the goods to Metrobank upon demand.
Curiously, but significantly, the CA also found that even before the execution of the trust receipts, Metrobank knew
or should have known that the subject construction materials were never intended for resale or for the manufacture
of items to be sold.10
The CA ruled that since the offense punished under PD 115 is in the nature of malum prohibitum, a mere failure to
deliver the proceeds of the sale or goods, if not sold, is sufficient to justify a conviction under PD 115. The fallo of the
CA Decision reads:
WHEREFORE, in view of the foregoing premises, the appeal filed in this case is hereby DENIED and, consequently,
DISMISSED. The assailed Decision dated October 6, 2006 of the Rregional Trial Court, Branch 20, in the City of
Manila in Criminal Cases Nos. 04223911 to 223934 is hereby AFFIRMED.
SO ORDERED.
Petitioner filed a Motion for Reconsideration, but it was denied in a Resolution dated December 20, 2010. Not
satisfied, petitioner filed a petition for review under Rule 45 of the Rules of Court. The Office of the Solicitor General
(OSG) filed its Comment dated November 28, 2011, stressing that the pieces of evidence adduced from the
testimony and documents submitted before the trial court are sufficient to establish the guilt of petitioner.11
On February 1, 2012, this Court dismissed the Petition via a Minute Resolution on the ground that the CA committed
no reversible error in the assailed July 28, 2010 Decision. Hence, petitioner filed the present Motion for
Reconsideration contending that the transactions between the parties do not constitute trust receipt agreements but
rather of simple loans.
On October 3, 2012, the OSG filed its Comment on the Motion for Reconsideration, praying for the denial of said
motion and arguing that petitioner merely reiterated his arguments in the petition and his Motion for Reconsideration
is nothing more than a mere rehash of the matters already thoroughly passed upon by the RTC, the CA and this
Court.12
The sole issue for the consideration of the Court is whether or not petitioner is liable for Estafa under Art. 315, par.
1(b) of the RPC in relation to PD 115, even if it was sufficiently proved that the entruster (Metrobank) knew
beforehand that the goods (construction materials) subject of the trust receipts were never intended to be sold but
only for use in the entrustee’s construction business.
The motion for reconsideration has merit.
In determining the nature of a contract, courts are not bound by the title or name given by the parties. The decisive
factor in evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used
in the contract but by their conduct, words, actions and deeds prior to, during and immediately after executing the
agreement. As such, therefore, documentary and parol evidence may be submitted and admitted to prove such
intention.13
In the instant case, the factual findings of the trial and appellate courts reveal that the dealing between petitioner
and Metrobank was not a trust receipt transaction but one of simple loan. Petitioner’s admission––that he signed the
trust receipts on behalf of Supermax, which failed to pay the loan or turn over the proceeds of the sale or the goods
to Metrobank upon demand––does not conclusively prove that the transaction was, indeed, a trust receipts
transaction. In contrast to the nomenclature of the transaction, the parties really intended a contract of loan. This
Court––in Ng v. People14 and Land Bank of the Philippines v. Perez,15 cases which are in all four corners the same
as the instant case––ruled that the fact that the entruster bank knew even before the execution of the trust receipt
agreements that the construction materials covered were never intended by the entrustee for resale or for the
manufacture of items to be sold is sufficient to prove that the transaction was a simple loan and not a trust receipts
transaction.
The petitioner was charged with Estafa committed in what is called, under PD 115, a "trust receipt transaction,"
which is defined as:
Section 4. What constitutes a trust receipts transaction.—A trust receipt transaction, within the meaning of this
Decree, is any transaction by and between a person referred to in this Decree as the entruster, and another person
referred to in this Decree as entrustee, whereby the entruster, who owns or holds absolute title or security interests
over certain specified goods, documents or instruments, releases the same to the possession of the entrustee upon
the latter’s execution and delivery to the entruster of a signed document called a "trust receipt" wherein the
entrustee binds himself to hold the designated goods, documents or instruments in trust for the entruster and to sell
or otherwise dispose of the goods, documents or instruments with the obligation to turn over to the entruster the
proceeds thereof to the extent of the amount owing to the entruster or as appears in the trust receipt or the goods,
documents or instruments themselves if they are unsold or not otherwise disposed of, in accordance with the terms
and conditions specified in the trust receipt, or for other purposes substantially equivalent to any of the following:
1. In the case of goods or documents: (a) to sell the goods or procure their sale; or (b) to manufacture or
process the goods with the purpose of ultimate sale: Provided, That, in the case of goods delivered under
trust receipt for the purpose of manufacturing or processing before its ultimate sale, the entruster shall retain
its title over the goods whether in its original or processed form until the entrustee has complied full with his
obligation under the trust receipt; or (c) to load, unload, ship or transship or otherwise deal with them in a
manner preliminary or necessary to their sale; or
2. In the case of instruments: (a) to sell or procure their sale or exchange; or (b) to deliver them to a
principal; or (c) to effect the consummation of some transactions involving delivery to a depository or
register; or (d) to effect their presentation, collection or renewal.
Simply stated, a trust receipt transaction is one where the entrustee has the obligation to deliver to the entruster the
price of the sale, or if the merchandise is not sold, to return the merchandise to the entruster. There are, therefore,
two obligations in a trust receipt transaction: the first refers to money received under the obligation involving the duty
to turn it over (entregarla) to the owner of the merchandise sold, while the second refers to the merchandise
received under the obligation to "return" it (devolvera) to the owner. 16 A violation of any of these undertakings
constitutes Estafa defined under Art. 315, par. 1(b) of the RPC, as provided in Sec. 13 of PD 115, viz:
Section 13. Penalty Clause.—The failure of an entrustee to turn over the proceeds of the sale of the goods,
documents or instruments covered by a trust receipt to the extent of the amount owing to the entruster or as
appears in the trust receipt or to return said goods, documents or instruments if they were not sold or disposed of in
accordance with the terms of the trust receipt shall constitute the crime of estafa, punishable under the provisions of
Article Three hundred fifteen, paragraph one (b) of Act Numbered Three thousand eight hundred and fifteen, as
amended, otherwise known as the Revised Penal Code. x x x (Emphasis supplied.)
Nonetheless, when both parties enter into an agreement knowing fully well that the return of the goods subject of
the trust receipt is not possible even without any fault on the part of the trustee, it is not a trust receipt transaction
penalized under Sec. 13 of PD 115 in relation to Art. 315, par. 1(b) of the RPC, as the only obligation actually agreed
upon by the parties would be the return of the proceeds of the sale transaction. This transaction becomes a mere
loan, where the borrower is obligated to pay the bank the amount spent for the purchase of the goods.17
In Ng v. People, Anthony Ng, then engaged in the business of building and fabricating telecommunication towers,
applied for a credit line of PhP 3,000,000 with Asiatrust Development Bank, Inc. Prior to the approval of the loan,
Anthony Ng informed Asiatrust that the proceeds would be used for purchasing construction materials necessary for
the completion of several steel towers he was commissioned to build by several telecommunication companies.
Asiatrust approved the loan but required Anthony Ng to sign a trust receipt agreement. When Anthony Ng failed to
pay the loan, Asiatrust filed a criminal case for Estafa in relation to PD 115 or the Trust Receipts Law. This Court
acquitted Anthony Ng and ruled that the Trust Receipts Law was created to "to aid in financing importers and retail
dealers who do not have sufficient funds or resources to finance the importation or purchase of merchandise, and
who may not be able to acquire credit except through utilization, as collateral, of the merchandise imported or
purchased." Since Asiatrust knew that Anthony Ng was neither an importer nor retail dealer, it should have known
that the said agreement could not possibly apply to petitioner, viz:
The true nature of a trust receipt transaction can be found in the "whereas" clause of PD 115 which states that a
trust receipt is to be utilized "as a convenient business device to assist importers and merchants solve their
financing problems." Obviously, the State, in enacting the law, sought to find a way to assist importers and
merchants in their financing in order to encourage commerce in the Philippines.
[A] trust receipt is considered a security transaction intended to aid in financing importers and retail dealers who do
not have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be
able to acquire credit except through utilization, as collateral, of the merchandise imported or purchased. Similarly,
American Jurisprudence demonstrates that trust receipt transactions always refer to a method of "financing
importations or financing sales." The principle is of course not limited in its application to financing importations,
since the principle is equally applicable to domestic transactions. Regardless of whether the transaction is foreign or
domestic, it is important to note that the transactions discussed in relation to trust receipts mainly involved sales.
Following the precept of the law, such transactions affect situations wherein the entruster, who owns or holds
absolute title or security interests over specified goods, documents or instruments, releases the subject goods to the
possession of the entrustee. The release of such goods to the entrustee is conditioned upon his execution and
delivery to the entruster of a trust receipt wherein the former binds himself to hold the specific goods, documents or
instruments in trust for the entruster and to sell or otherwise dispose of the goods, documents or instruments with
the obligation to turn over to the entruster the proceeds to the extent of the amount owing to the entruster or the
goods, documents or instruments themselves if they are unsold. x x x [T]he entruster is entitled "only to the
proceeds derived from the sale of goods released under a trust receipt to the entrustee."
Considering that the goods in this case were never intended for sale but for use in the fabrication of steel
communication towers, the trial court erred in ruling that the agreement is a trust receipt transaction.
xxxx
To emphasize, the Trust Receipts Law was created to "to aid in financing importers and retail dealers who do not
have sufficient funds or resources to finance the importation or purchase of merchandise, and who may not be able
to acquire credit except through utilization, as collateral, of the merchandise imported or purchased." Since Asiatrust
knew that petitioner was neither an importer nor retail dealer, it should have known that the said agreement could
not possibly apply to petitioner.18
Further, in Land Bank of the Philippines v. Perez, the respondents were officers of Asian Construction and
Development Corporation (ACDC), a corporation engaged in the construction business. On several occasions,
respondents executed in favor of Land Bank of the Philippines (LBP) trust receipts to secure the purchase of
construction materials that they will need in their construction projects. When the trust receipts matured, ACDC
failed to return to LBP the proceeds of the construction projects or the construction materials subject of the trust
receipts. After several demands went unheeded, LBP filed a complaint for Estafa or violation of Art. 315, par. 1(b) of
the RPC, in relation to PD 115, against the respondent officers of ACDC. This Court, like in Ng, acquitted all the
respondents on the postulate that the parties really intended a simple contract of loan and not a trust receipts
transaction, viz:
When both parties enter into an agreement knowing that the return of the goods subject of the trust receipt is not
possible even without any fault on the part of the trustee, it is not a trust receipt transaction penalized under Section
13 of P.D. 115; the only obligation actually agreed upon by the parties would be the return of the proceeds of the
sale transaction. This transaction becomes a mere loan, where the borrower is obligated to pay the bank the amount
spent for the purchase of the goods.
xxxx
Thus, in concluding that the transaction was a loan and not a trust receipt, we noted in Colinares that the industry or
line of work that the borrowers were engaged in was construction. We pointed out that the borrowers were not
importers acquiring goods for resale. Indeed, goods sold in retail are often within the custody or control of the
trustee until they are purchased. In the case of materials used in the manufacture of finished products, these
finished products – if not the raw materials or their components – similarly remain in the possession of the trustee
until they are sold. But the goods and the materials that are used for a construction project are often placed under
the control and custody of the clients employing the contractor, who can only be compelled to return the materials if
they fail to pay the contractor and often only after the requisite legal proceedings. The contractor’s difficulty and
uncertainty in claiming these materials (or the buildings and structures which they become part of), as soon as the
bank demands them, disqualify them from being covered by trust receipt agreements.19
Since the factual milieu of Ng and Land Bank of the Philippines are in all four corners similar to the instant case, it
behooves this Court, following the principle of stare decisis,20 to rule that the transactions in the instant case are not
trust receipts transactions but contracts of simple loan. The fact that the entruster bank, Metrobank in this case,
knew even before the execution of the alleged trust receipt agreements that the covered construction materials were
never intended by the entrustee (petitioner) for resale or for the manufacture of items to be sold would take the
transaction between petitioner and Metrobank outside the ambit of the Trust Receipts Law.
For reasons discussed above, the subject transactions in the instant case are not trust receipts transactions. Thus,
1âwphi1

the consolidated complaints for Estafa in relation to PD 115 have really no leg to stand on.
The Court’s ruling in Colinares v. Court of Appeals21 is very apt, thus:
The practice of banks of making borrowers sign trust receipts to facilitate collection of loans and place them under
the threats of criminal prosecution should they be unable to pay it may be unjust and inequitable. if not
reprehensible. Such agreements are contracts of adhesion which borrowers have no option but to sign lest their
loan be disapproved. The resort to this scheme leaves poor and hapless borrowers at the mercy of banks and is
prone to misinterpretation x x x.
Unfortunately, what happened in Colinares is exactly the situation in the instant case. This reprehensible bank
practice described in Colinares should be stopped and discouraged. For this Court to give life to the constitutional
provision of non-imprisonment for nonpayment of debts,22 it is imperative that petitioner be acquitted of the crime of
Estafa under Art. 315, par. 1 (b) ofthe RPC, in relation to PD 115.
WHEREFORE, the Resolution dated February 1, 2012, upholding theCA's Decision dated July 28, 2010 and
Resolution dated December 20, 2010 in CA-G.R. CR No. 30426, is hereby RECONSIDERED. Petitioner Hur Tin
Yang is ACQUITTED of the charge of violating Art. 315, par. 1 (b) of the RPC, in relation to the pertinent provision of
PD 115 in Criminal Case Nos. 04-223911 to 34.
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 resolution3 dated February 19, 2010 of the Court of Appeals (CA) in CA-G.R.
CV No. 86083. The CA rulings affirmed with modification the decision dated September 27, 2004 of the Regional
Trial Court (RTC) of Bacoor, Cavite, Branch 19, in Civil Case No. BCV-99-146 which granted respondent Atty. Delfin
Grupe’s 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. An allegation of vitiated consent must be proven by
1âwphi1

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. 174286 June 5, 2009
TRADERS ROYAL BANK, Petitioner,
vs.
CUISON LUMBER CO., INC., and JOSEFA JERODIAS VDA. DE CUISON, Respondents.
DECISION
BRION, J.:
We review in this petition for review on certiorari 1 the decision2 and resolution3 of the Court of Appeals (CA) in CA-
G.R. CV No. 49900. The CA affirmed with modifications the decision 4 of the Regional Trial Court (RTC), Davao City,
Branch 13. The RTC ruled in favor of respondents Cuison Lumber Co., Inc. (CLCI) and Josefa Vda. De Cuison (Mrs.
Cuison), collectively referred to as respondents, in the action they commenced for breach of contract, specific
performance, damages, and attorney’s fees, with prayer for the issuance of a writ of preliminary injunction against
petitioner Traders Royal Bank (bank).
THE BACKGROUND FACTS
On July 14, 1978 and December 9, 1979, respectively, CLCI, through its then president, Roman Cuison Sr.,
obtained two loans from the bank. The loans were secured by a real estate mortgage over a parcel of land covered
by Transfer Certificate of Title No. 10282 (subject property). CLCI failed to pay the loan, prompting the bank to
extrajudicially foreclose the mortgage on the subject property. The bank was declared the highest bidder at the
public auction that followed, conducted on August 1, 1985. A Certificate of Sale and a Sheriff’s Final Certificate of
Sale were subsequently issued in the bank’s favor.
In a series of written communications between CLCI and the bank, CLCI manifested its intention to restructure its
loan obligations and to repurchase the subject property. On July 31, 1986, Mrs. Cuison, the widow and
administratrix of the estate of Roman Cuison Sr., wrote the bank’s Officer-in-Charge, Remedios Calaguas, a letter
indicating her offered terms of repurchase. She stated:
1. That I will pay the interest of ₱115,538.66, plus the additional expenses of ₱17,293.69, the total
amount of which is ₱132,832.35 on August 8, 1986;
2. That I will pay 20% of the bid price of ₱949,632.84, plus whatever interest accruing within sixty
(60) days from August 8, 1986;
3. That whatever remaining balance after the above two (2) payments shall be amortized for five (5)
years on equal monthly installments including whatever interest accruing lease on diminishing
balance.5
CLCI paid the bank ₱50,000.00 (on August 8, 1986) and ₱85,000.00 (on September 3, 1986). The bank received
and regarded these amounts as "earnest money" for the repurchase of the subject property. On October 20, 1986,
the bank sent Atty. Roman Cuison, Jr. (Atty. Cuison), as the president and general manager of CLCI, a letter
informing CLCI of the bank’s board of directors’ resolution of October 10, 1986 (TRB Repurchase Agreement),
laying down the conditions for the repurchase of the subject property:
This is to formally inform you that our Board of Directors, in its regular meeting held on October 10, 1986, passed a
resolution for the repurchase of your property acquired by the bank, subject to the following terms and conditions,
viz:
1. That the repurchase price shall be at total bank’s claim as of the date of implementation;
2. That client shall initially pay ₱132,000.00 within fifteen (15) days from the expiration of the
redemption period (August 8, 1986) and further payment of ₱200,632.84, representing 20% of the
bid price, to be remitted on or before October 31, 1986;
3. That the balance of ₱749,000.00 to be paid in three (3) years in twelve (12) quarterly
amortizations, with interest rate at 26% computed on diminishing balance;
4. That all the interest and other charges starting from August 8, 1986 to date of approval shall be
paid first before implementation of the request; interest as of October 31, 1986 is ₱65,669.53;
5. Possession of the property shall be deemed transferred after signing of the Contract to Sell.
However, title to the property shall be delivered only upon full payment of the repurchase
price via Deed of Absolute Sale;
 6. Registration fees, documentary stamps, transfer taxes at the date of sale and other similar
government impost shall be for the exclusive account of the buyer;
7. The improvement of the property shall at all times be covered by insurance against loss with a
policy to be obtained from a reputable company which designates the bank as beneficiary but
premiums shall be paid by the client;
8. That the sale is good for thirty (30) days from the buyer’s receipt of notice of approval of the offer;
otherwise, sale is automatically cancelled;
9. Effective upon signing of the Contract to Sell, all realty taxes which will become due on the
property shall be for the account of the buyer;
10. That the first quarterly installment shall be due within ninety (90) days of approval hereof, and
the succeeding installment shall be due every three (3) months thereafter;
11. Upon default of the buyer to pay two (2) successive quarterly installments, contract is
automatically cancelled at the Bank’s option and all payments already made shall be treated as
rentals or as liquidated damages; and
12. Other terms and conditions that the bank may further impose to protect its interest.
Should you agree with the above terms and conditions please sign under "Conforme" on the space provided below.
We attach herewith your Statement of Account6 as of October 31, 1986, for your reference.
Thank you.
Very truly yours,
(Signed)
Conforme: (Not signed)7
CLCI failed to comply with the above terms notwithstanding the extensions of time given by the bank. Nevertheless,
CLCI tendered, on February 3, 1987, a check for ₱135,091.57 to cover fifty percent (50%) of the twenty percent
(20%) bid price. The check, however, was returned for "insufficiency of funds." On May 13, 1987, CLCI tendered an
additional ₱50,000.00.8 On May 29, 1987, the bank sent Atty. Cuison a letter informing him that the ₱185,000.00
CLCI paid was not a deposit, but formed part of the earnest money under the TRB Repurchase Agreement. On
August 28, 1987, Atty. Cuison, by letter, requested that CLCI’s outstanding obligation of ₱1,221,075.61 (as of July
31, 1987) be reduced to ₱1 million, and the amount of ₱221,075.61 be condoned by the bank. To show its
commitment to the request, CLCI paid the bank ₱100,000.00 and ₱200,000.00 on August 28, 1987. The bank
credited both payments as earnest money.
A year later, CLCI inquired about the status of its request. The bank responded that the request was still under
consideration by the bank’s Manila office. On September 30, 1988, the bank informed CLCI that it would resell the
subject property at an offered price of ₱3 million, and gave CLCI 15 days to make a formal offer; otherwise, the bank
would sell the subject property to third parties. On October 26, 1988, CLCI offered to repurchase the subject
property for ₱1.5 million, given that it had already tendered the amount of ₱400,000.00 as earnest money.
CLCI subsequently claimed that the bank breached the terms of repurchase, as it had wrongly considered its
payments (in the amounts of ₱140,485.18, ₱200,000.00 and ₱100,000.00) as earnest money, instead of applying
them to the purchase price. Through its counsel, CLCI demanded that the bank rectify the repurchase agreement to
reflect the true consideration agreed upon for which the earnest money had been given. The bank did not act on the
demand. Instead, it informed CLCI that the amounts it received were not earnest money, and that the bank was
willing to return these sums, less the amounts forfeited to answer for the unremitted rentals on the subject property.
In view of these developments, CLCI and Mrs. Cuison, on February 10, 1989, filed with the RTC a complaint for
breach of contract, specific performance, damages, and attorney’s fees against the bank. On April 20, 1989, the
bank filed its Answer alleging that the TRB repurchase agreement was already cancelled given CLCI’s failure to
comply with its provisions; by way of counterclaim, the bank also demanded the payment of the accrued rentals in
the subject property as of January 31, 1989, and the award of moral damages and exemplary damages as well as
attorney’s fees and litigation expenses for the unfounded suit instituted against the bank by CLCI. 9 After trial on the
merits, the RTC ruled in respondents’ favor. The dispositive portion of its November 4, 1994 Decision states:
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs and against the defendant
bank, ordering said defendant bank to:
1. Execute and consummate a Contract to Sell which is reflective of the true consideration indicated in the
Resolution of the Board of Directors of Traders Royal Bank held on October 10, 1986 (Exhibit "F" and
Exhibit "13"), duly accrediting the amount of ₱435,000 as earnest money to be part of the price, the mode of
payment being on quarterly installment, but the period within which the first quarterly payment being on
quarterly payment shall be made to commence upon the execution of said Contract to Sell;
2. Pay to plaintiffs the amounts of ₱50,000.00 in concept of moral damages, ₱20,000.00 as exemplary
damages;
3. Pay attorney’s fees of ₱20,000.00; and
4. Pay litigation expenses in the amount of ₱2,000.00.
The counterclaim of defendant bank is hereby dismissed.
SO ORDERED.
On appeal to the CA, the bank pointed out the misappreciation of facts the RTC committed and argued that: first, the
repurchase agreement did not ripen into a perfected contract; and second, even assuming that there was a
perfected repurchase agreement, the bank had the right to revoke it and apply the payments already made to the
rentals due for the use of the subject property, or as liquidated damages under paragraph 11 of the TRB
Repurchase Agreement, since CLCI violated its terms and conditions. Further, the bank contended that CLCI had
abandoned the TRB Repurchase Agreement in its letters dated August 28, 1987 and October 26, 1988 when it
proposed to repurchase the subject property for ₱1 million and ₱1.5 million, respectively. Lastly, the bank objected
to the award of damages in the plaintiffs’ favor.
THE CA DECISION
On March 31, 2006, the CA issued the challenged Decision and affirmed the RTC’s factual findings and legal
conclusions. Although it deleted the awards of attorney’s fees, moral and exemplary damages, the CA ruled that
there was a perfected contract to repurchase the subject property given the bank’s acceptance (as stated in the
letter dated October 20, 1986) of CLCI’s proposal contained in Mrs. Cuison’s letter of July 31, 1986. The CA
distinguished between a condition imposed on the perfection of the contract and a condition imposed on the
performance of an obligation, and declared that the conditions laid down in the letter dated October 20, 1986 merely
relate to the manner the obligation is to be performed and implemented; failure to comply with the latter obligation
does not result in the failure of the contract and only gives the other party the options and/or remedies to protect its
interest. The CA held that the same conclusion obtains even if the letter of October 20, 1986 is considered a
counter-offer by the bank; CLCI’s payment of ₱135,000.00 operated as an implied acceptance of the bank’s
counter-offer, notwithstanding CLCI’s failure to expressly manifest its conforme. In light of these findings, the CA
went on to acknowledge the validity of the terms of paragraph 11 of the TRB Repurchase Agreement, but
nonetheless held that CLCI has not yet violated its terms given the bank’s previous acts (i.e., the grant of extensions
to pay), which showed that it had waived the agreement’s original terms of payment.
The CA rejected the theory that CLCI had abandoned the terms of the TRB Repurchase Agreement and found no
incompatibility between the agreement and the contents of the August 28, 1987 and October 26, 1988 letters which
did not show an implied abandonment by CLCI, nor the latter’s expressed intent to cancel or abandon the perfected
repurchase agreement. In the same manner, the CA struck down the bank’s position that CLCI’s payments were
"deposits" rather than earnest money. The appellate court reasoned that while the amounts tendered cannot be
strictly considered as earnest money under Article 1482 of the New Civil Code,10 they were nevertheless within the
concept of earnest money under this Court’s ruling in Spouses Doromal, Sr. v. CA,11 since they were paid as a
guarantee so that the buyer would not back out of the contract.
The CA however ruled that the award of moral and exemplary damages, attorney’s fees and litigation expenses
lacked factual and legal support. The CA found that the bank acted in good faith and based its actions on the
erroneous belief that CLCI had already abandoned the repurchase agreement. Likewise, the award of moral
damages was not in order as there was no showing that CLCI’s reputation was debased or besmirched by the
bank’s action of applying the previous payments made to the interest and rentals due on the subject property;
neither is Mrs. Cuison entitled to moral damages without any evidence to justify this award. The CA also ruled that
there was nothing in the records to warrant the awards of exemplary damages and attorney’s fees.
The bank subsequently moved but failed to secure a reconsideration of the CA decision. The bank thus came to us
with the following –
ISSUES
I.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN APPREHENDING THE SIGNIFICATION (SIC) OF
THE TERM "OFFER" ON THE ONE HAND AND "ACCEPTANCE" ON THE OTHER HAND IN SALES CONTRACT
WHICH ERROR LED IT TO ARRIVE AT A WRONG CONCLUSION OF LAW.
II.
THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN ITS INTERPRETATION OF THE STIPULATIONS
AND TERMS AND CONDITIONS EMBODIED IN THE PROPOSED REPURCHASE AGREEMENT xxx WHICH LED
IT TO ERRONEOUSLY CONCLUDE THAT THERE WAS A "PERFECTED" REPURCHASE AGREEMENT
BETWEEN RESPONDENTS AND PETITIONER AND WHICH INTERPRETATION IS NOT IN ACCORDANCE WITH
THE APPLICABLE LAW AND ESTABLISHED JURISPRUDENCE.
Reduced to the most basic, the main issue posed is whether or not a perfected contract of repurchase existed and
can be enforced between the parties.
THE COURT’S RULING
We GRANT the petition.
The case presents to us as threshold issue the presence or absence of consent as a requisite for a perfected
contract to repurchase the subject property. The RTC ruled that a perfected contract existed based mainly on the
following facts: first, the existence of the TRB Repurchase Agreement which "clearly depicts the repurchase
agreement of the subject property under the terms therein embodied"; and second, the payment of earnest money
in the total amount of ₱435,000.00 which forms part of the price and, as initial payment, is proof of the perfection of
the contract.12 In concurring with the foregoing findings on appeal, the CA, in turn, declared that there was a meeting
of the minds between the parties on the offer and acceptance for the repurchase of the subject property under the
following quoted facts:
It may be recalled that it was Mrs. Cuison, through her letter of July 31, 1986, who proposed to repurchase the
foreclosed property. She in fact had tendered right away an amount of ₱50,000.00 as partial payment of the
₱132,000.00 she had promised to pay as initial payment. In response, TRB sent a letter dated October 20, 1986 to
Atty. Cuison informing him of the resolution passed by the Board of Directors of TRB acknowledging the proposal of
Ms. Cuison to repurchase the property. Under the circumstance, the proposal made by Ms. Cuison constituted the
"offer" contemplated by law, and the reply of TRB was the corresponding "acceptance" of the proposal-offer.
xxx
Conceding arguendo that TRB’s letter-response October 20, 1986 constituted a counter-offer or politacion, CLCI’s
ensuing remittance of ₱135,000.00 as initial payment of the price, operates effectively as an implied acceptance of
TRB’s counter-offer. The absence of a signature to signify plaintiff’s conforme to the repurchase agreement is of no
moment. While the conforme portion of the subject repurchase agreement indeed bears no signature at all, this fact,
however, does not detract from the accomplished fact that plaintiffs had acquiesced or assented to the standing
"conditional counter-offer" of TRB. Plaintiffs’ "conforme" would at best be a mere formality considering that the
repurchase agreement had already been perfected, if impliedly.13
Based on these findings, the crucial points that the lower courts apparently considered were Mrs. Cuison’s letter of
July 31, 1986 to the bank; the bank’s letter of October 20, 1986 to CLCI; and the parties’ subsequent conduct
showing their acknowledgement of the existence of their agreement, specifically, the respondents’ payments
(designated as earnest money) and the bank’s acceptance of these payments. However, unlike the RTC’s
conclusion that relied on CLCI’s payment and the bank’s acceptance of the payment as "earnest money," the CA
concluded that there was a perfected contract, either because of the bank’s acceptance of CLCI’s offer (made
through Mrs. Cuison’s letter of July 31, 1986), or by CLCI’s implied acceptance indicated by its initial payments in
compliance with the terms of the TRB Repurchase Agreement.
The petitioner bank, of course, argues differently and concludes that the undisputed facts of the case show that
there was no meeting of the minds between the parties given CLCI’s failure to give its consent and conformity to the
bank’s letter of October 20, 1986, confirmed by the testimony of Atty. Cuison, no less, when he denied that CLCI
consented to the agreement’s terms of implementation.
Our task in this petition for review on certiorari is not to review the factual findings of the CA and the RTC, but to
determine whether or not, on the basis of the said findings, the conclusions of law reached by the said courts are
correct.
Under the law, a contract is perfected by mere consent, that is, from the moment that there is a meeting of the offer
and the acceptance upon the thing and the cause that constitute the contract.14 The law requires that the offer must
be certain and the acceptance absolute and unqualified.15 An acceptance of an offer may be express and implied; a
qualified offer constitutes a counter-offer.16 Case law holds that an offer, to be considered certain, must be
definite,17 while an acceptance is considered absolute and unqualified when it is identical in all respects with that of
the offer so as to produce consent or a meeting of the minds.18 We have also previously held that the ascertainment
of whether there is a meeting of minds on the offer and acceptance depends on the circumstances surrounding the
case.19
In Villonco Realty Co. v. Bormacheco,20 the Court found a perfected contract of sale between the parties after
considering the parties’ written communications showing the offer (counter-offer) and acceptance by the seller who
formally manifested his conformity with the offer in the buyer’s letter. We took note of the acts of the parties – the
payment of the buyer of an amount representing the partial payment under the contract; the acceptance of the
partial payment by the seller; the allowance of the buyer for the seller to encash the check containing the partial
payment; the subsequent return of the amount representing the partial payment by the buyer with the corresponding
interest stated in the buyer’s letter (offer) – and considered them evidence of the perfection of the sale. Under these
circumstances, we also declared that a change in a phrase in the offer to purchase, that does not essentially change
the terms of the offer, does not amount to a rejection of the offer and the tender of a counter-offer.
In Schuback & Sons Philippine Trading Corp. v. CA,21 we declared a meeting of minds between the vendor and the
vendee even though the quantity of goods purchased had not been fully determined. We noted that the vendee,
after expressing his intention to purchase the merchandise, simultaneously enclosed a purchase order whose
receipt prompted the vendor to immediately order the merchandise. We also took into account the act of the vendee
in requesting for a discount as proof of his acceptance of the quoted price.
Yuviengco v. Dacuycuy22 yielded a different result, as we considered that the letter and telegrams sent by the parties
to each other showed that there was no meeting of minds in the absence of an unconditional acceptance to the
terms of the contract of sale; otherwise, the buyers would not have included the phrase "to negotiate details" when
they agreed to the property that was subject of the proposed contract.
Similarly, in Philippine National Bank v. CA,23 we ruled that there was no perfected contract of sale because the
specified terms and conditions imposed under the facts of the case constituted counter-offers against each other
that were not accepted by either of the parties. This case involved a first contract, involving the same property,
which the parties mutually cancelled; we said that the terms of this earlier contract cannot be considered in
determining the acceptance and compliance with the terms of a proposed second contract – a distinct and separate
contract from the one earlier aborted.
The incomplete details of the agreement led us to conclude in Insular Life Assurance Co. Ltd. v. Assets Builders
Corp.24 that no perfected contract existed; there were "other matters or details – in addition to the subject matter and
the consideration – [that] would be stipulated and agreed." We likewise considered the subsequent acts between
the parties and the existence of a second proposal which belied the perfection of any initial contract.
The recent Navarra v. Planters Development Bank25 is another case where we saw no perfected contract, as the
offer was incomplete for lack of agreed details on the manner of paying the purchase price; there was also no
acceptance as the letter of Planters Development Bank indicated the need to discuss other details of the
transaction.1awphil

All these cases illustrate the rule that the concurrence of the offer and acceptance is vital to the birth and the
perfection of a contract. The clear and neat principle is that the offer must be certain and definite with respect to the
cause or consideration and object of the proposed contract, while the acceptance of this offer – express or implied –
must be unmistakable, unqualified, and identical in all respects to the offer. The required concurrence, however, may
not always be immediately clear and may have to be read from the attendant circumstances; in fact, a binding
contract may exist between the parties whose minds have met, although they did not affix their signatures to any
written document.26
The facts of the present case, although ambivalent in some respects, point on the whole to the conclusion that both
parties agreed to the repurchase of the subject property.
A reading of the petitioner’s letter of October 20, 1986 informing CLCI that the bank’s board of directors "passed a
resolution for the repurchase of [your] property" shows that the tenor of acceptance, except for the repurchase price,
was subject to conditions not identical in all respects with the CLCI’s letter-offer of July 31, 1986. In this sense, the
bank’s October 20, 1986 letter was effectively a counter-offer that CLCI must be shown to have accepted absolutely
and unqualifiedly in order to give birth to a perfected contract. Evidence exists showing that CLCI did not sign any
document to show its conformity with the bank’s counter-offer. Testimony also exists explaining why CLCI did not
sign; Atty. Cuison testified that CLCI did not agree with the implementation of the repurchase transaction since the
bank made a wrong computation.27
These indicators notwithstanding, we find that CLCI accepted the terms of the TRC Repurchase Agreement and
thus unqualifiedly accepted the bank’s counter-offer under the TRB Repurchase Agreement and, in fact, partially
executed the agreement, as shown from the following undisputed evidence:
(a) The letter-reply dated November 29, 1986 of Atty. Cuison, as president and general manager of CLCI, to
the bank (in response to the bank’s demand letter dated November 27, 1986 to pay 20% of the bid price);
CLCI requested an extension of time, until the end of December 1986, to pay its due obligation;28
(b) Mrs. Cuison’s letter-reply of February 3, 1987 (to the bank’s letter of January 13, 1987) showed that she
acknowledged CLCI’s failure to comply with its requested extension and proposed a new payment scheme
that would be reasonable given CLCI’s critical economic difficulties; Mrs. Cuizon tendered a check for
₱135,091.57, which represented 50% of the 20% bid price;29
(c) The CLCI’s continuous payments of the repurchase price after their receipt of the bank’s letter of October
20, 1986;
(d) CLCI’s possession of the subject property pursuant to paragraph 5 of the TRB Repurchase Agreement,
notwithstanding the absence of a signed contract to sell between the parties;
xxx
We counted the following facts, too, as indicators leading to the conclusion that a perfected contract existed: CLCI
did not raise any objection to the terms and conditions of the TRB Repurchase Agreement, and instead,
unconditionally paid without protests or objections30 ; CLCI’s acknowledgment of their obligations under the TRB
Repurchase Agreement (as shown by Atty. Cuison’s letter of November 29, 1986); and Atty. Cuison’s admission that
the TRB Repurchase Agreement was already a negotiated agreement between CLCI and the bank, as shown by the
following testimony:
Q When you received this document, this Exh. "F" from the defendant bank, did you already consider this as an
agreement?
A We consider that as a negotiated agreement pending the documentation of the formal contract to sell which is
stated under the repurchase agreement.
Q In other words, at the time you received this document Exh. "F," which was on October 23, 1986 date of receipt,
was there already a meeting of the minds between the parties?
A That is precisely we put [sic] the earnest money because we were of the opinion that the bank is already
agreeable to the implementation of the repurchase agreement.
xxx
COURT
Q Insofar as Exh. "F" is concerned?
A There was initially, that is precisely we [sic] deposited in consideration of the repurchase agreement.31
The bank, for its part, showed its recognition of the existence of a repurchase agreement between itself and CLCI by
the following acts:
 (a) The letter dated November 27, 1986 of the bank, reminding CLCI that it was remiss in its commitments to
pay 20% of the bid price under the terms of the TRB Repurchase Agreement;
(b) In the same letter, the bank gave CLCI an extension of time (until November 30, 1986) to comply with its
past due obligations under the agreement;
(c) The bank’s acceptance of CLCI’s payments as earnest money for the repurchase of the property;
(d) CLCI’s continued possession of the subject property with the bank’s consent;
(e) The bank’s grant of extensions to CLCI for the payment of its obligations under the contract;
(f) The Statement of Account dated July 31, 1987 showing that the bank applied CLCI’s payments according
to the terms of the TRB Repurchase Agreement;
(g) The letter of January 26, 1989 of the bank’s counsel, Atty. Abarquez, addressed to CLCI’s counsel,
showing the bank’s recognition that there was an agreement between the bank and CLCI, which the latter
failed to honor; and
(h) The testimonies of the bank’s witnesses – Mr. Eulogio Giramis32 and Ms. Arlene Aportadera,33 the bank’s
employees who handled the CLCI transactions – who admitted the existence of the repurchase agreement
with CLCI and the latter’s failure to comply with the agreement’s terms.
Admittedly, some evidence on record may be argued to point to the absence of a meeting of the minds (more
particularly, the previous offers made by CLCI to change the payment scheme of the repurchase of the subject
property which was not accepted; the bank’s expressed intent to offer the subject property for sale to third persons
at a higher price; and the unaccepted counter-offer by the respondents after the bank increased the purchase
price).34 These incidents, however, were the results of CLCI’s failure to comply with its obligations to pay the
amounts due on the stipulated time and were made after the parties’ minds had met on the terms of the contract.
The seemingly contrary indications, therefore, do not go into and affect the perfection of the contract; they came
after the contract had been perfected and, as discussed below, were indicative of the bank’s cancellation of the
repurchase agreement.
In light of this conclusion, we now determine the consequential rights, obligations and liabilities of the parties. It is at
this point that we diverge from the conclusions of the CA and the RTC, as we conclude that while there was a
perfected contract between the parties, the bank effectively cancelled the contract when it communicated with CLCI
that it would sell the subject property at a higher price to third parties, giving CLCI 15 days to make a formal offer,
and disregarding CLCI’s counter-offer to buy the subject property for ₱1.5 million. We arrive at this conclusion after
considering the following reasons:
First, the bank communicated its intent not to proceed with the repurchase as above outlined and formally cancelled
the TRB Repurchase Agreement in its letters dated January 11 and 30, 1989 to CLCI. 35 Thus, CLCI’s rights acquired
under the TRB Repurchase Agreement to repurchase the subject property have been defeated by its own failure to
comply with its obligations under the agreement. The right to cancel for breach is provided under paragraph 11 of
the TRB Repurchase Agreement, as follows:
11. Upon default of the buyer to pay two (2) successive quarterly installments, contract is automatically cancelled at
the Bank’s option and all payments already made shall be treated as rentals or as liquidated damages;
We note, additionally, that the TRB Repurchase Agreement is in the nature of a contract to sell where the title to the
subject property remains in the bank’s name, as the vendor, and shall only pass to the respondents, as vendees,
upon the full payment of the repurchase price.36 The settled rule for contracts to sell is that the full payment of the
purchase price is a positive suspensive condition; the failure to pay in full is not to be considered a breach, casual or
serious, but simply an event that prevents the obligation of the vendor to convey title from acquiring any obligatory
force.37 Viewed in this light, the bank cannot be compelled to perform its obligations under the TRB Repurchase
Agreement that has been rendered ineffective by the respondents’ non-performance of their own obligations.
Second, the respondents violated the terms and conditions of the TRB Repurchase Agreement when they failed to
pay their obligations under the agreement as these obligations fell due. Paragraphs 2 and 10 of the TRB
Repurchase Agreement are clear on the respondents’ obligation to pay the bid price and the quarterly installments.
Paragraphs 2 and 10 state:
2. That client shall initially pay ₱132,000.00 within fifteen (15) days from the expiration of the redemption period
(August 8, 1986) and further payment of ₱200,632.84 representing 20% of the bid price to be remitted on or before
October 31, 1986;
xxx xxx xxx
10. That the first quarterly installment shall be due within ninety (90) days of approval hereof, and the succeeding
installment shall be due every three (3) months thereafter;
The approval referred to under paragraph 10 is the approval by the bank of the repurchase of the subject property,
as indicated in the bank’s letter of October 20, 1986 which states, "This is to formally inform you that our Board of
Directors in its regular meeting held on October 10, 1986, passed a resolution for the repurchase of your property
acquired by the bank…." It was on the basis of this approval and the quoted terms of the agreement that the bank
issued its Statement of Account dated July 31, 1987 indicating that the respondents were already in default, not only
with respect to the 20% of the bid price, but also with the three quarterly installments. lavvphi1
Third, the respondents themselves claim that the bank violated the agreement when it applied the respondents’
payments to the interest and penalties due without the respondents’ consent, instead of applying these to the
repurchase price for the subject property.38 An examination of the provisions of the TRB Repurchase Agreement
reveals that the bank is allowed to apply the respondents’ payments first to the amounts due as interests and other
charges, before applying any payment to the repurchase price. Paragraph 4 of the agreement provides:
4. That all the interest and other charges starting from August 8, 1986 to date of approval shall be paid first before
implementation of the request; interest as of October 31, 1986 is ₱65,669.53;
Under these terms, the bank cannot be faulted for the application of payments it made. Likewise, the bank cannot
be faulted for the application of other amounts paid as rentals as this is allowed under paragraph 11, quoted above,
of the agreement.
Fourth, the petitioner bank cannot be said, as the CA ruled, to have already waived the terms of the TRB
Repurchase Agreement by extending the time to pay and subsequently accepting late payments. The CA’s
conclusion lacks factual and legal basis taking into account that the Statement of Account of July 31, 1987,
heretofore cited, which shows that the bank considered the respondents already in default. At this point, Atty.
Cuison, by letter, requested that part of its outstanding obligation be condoned by the bank, paying ₱300,000.00 as
of August 31, 1987, which amount the bank accepted as earnest money. For one whole year thereafter, neither party
moved. Significantly, the respondents, who had continuing payments to make and who had the burden of complying
with the terms of the agreement, failed to act except to ask the bank for the status of its requested condonation.
Under these facts, a continuing breach of the agreement took place, even granting that a waiver had intervened as
of August 31, 1987. Thus, the bank was well within its right to consider the agreement cancelled when, in
September 1988, it changed the repurchase terms to ₱3.0 million. We find it significant that the respondents,
instead of asserting its rights under the TRB Repurchase Agreement, counter-offered ₱1.5 million with the
₱400,000.00 already paid as part of the purchase price. At that point, it was clear that even the respondents
themselves considered the TRB Repurchase Agreement cancelled.
Lastly, the perfected repurchase agreement itself provides for the respondents’ possession of the subject property;
in fact, the respondents have been in continuous possession of the subject property since October 1986, despite the
absence of a contract to sell apparently with the bank’s consent. The agreement also provides under its paragraph
11 that upon the respondents’ default and the cancellation of the agreement, all payments already made shall be
treated as rentals or as liquidated damages.
The undisputed facts show that the bank has been deprived of the use and benefit of its property that has been in
the possession of the respondents for the latter’s use and benefit without paying any rentals thereon. The records
reveal that until now, the respondents are still in possession of the subject property.39
We note that subsequent to the bank’s counterclaim for the payment of rentals due as of January 31, 1989, the bank
also seeks to recover the rentals that accrued after January 31, 1989, which as of August 8, 1993 amounted to
₱1,123,500.00 as shown by the evidence presented by the bank before the RTC and in the pleadings it had filed
before the RTC, CA, and the Court.40 Although this claim was not alleged in the bank’s Answer being an after-
acquired claim which was only raised during the trial proper through the testimony dated August 17, 1993 of Ms.
Arlene Aportadera,41 the bank is not barred from recovering these rentals. As we explained in Banco de Oro
Universal Bank v. CA,42 a party is not barred from setting up a claim even after the filing of the answer if the claim did
not exist or had not matured at the time said party filed its answer. Moreover, we note that the respondents did not
object to the presentation of this evidence, hence, the issue of rentals from August 8, 1993 and onwards was tried
with the implied consent of the parties; applying Section 5, Rule 10 of the 1997 Rules of Civil Procedure,43 the issue
should be treated in all respects as if it had been raised in the pleadings. 44 Given the implied consent, judgment may
be validly rendered on this issue even if no motion had been filed and no amendment had been ordered.45
In National Power Corporation v. CA,46 we held that where there is a variance in the defendant’s pleadings and the
evidence adduced by it at the trial, the Court may treat the pleading as amended to conform to the evidence.
Additionally, the respondents are also liable to pay interest by way of damages for their failure to pay the rentals due
for the use of the subject property. In Eastern Shipping Lines v. CA,47 we laid down the following guidelines with
respect to the award and the computation of legal interest, as follows:
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 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
 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. [Emphasis supplied]
The records are unclear on when the bank made a demand outside of the judicial proceedings for the rentals on the
subject property.48 However, the records show that the bank made a counterclaim for the payments of the rentals
due as of January 31, 1989 in its Answer and subsequently, a claim for the after-acquired rentals was made by the
bank through the testimony of Ms. Arlene Aportadera. Applying Eastern Shipping Lines, the payment of interest for
the rentals shall be reckoned from the date the judicial demand was made by the bank or on April 20, 1989 when
the bank set up its counterclaim for rentals in the subject property.
Under the circumstances, we can impose a 6% interest on the rentals from April 20, 1989 up to the finality of this
decision. Thereafter, the interest shall be computed at 12% per annum from such finality up to full satisfaction.
We find no basis for the award of exemplary damages. Article 2232 of the Civil Code declares:
Article 2232. In contracts and quasi-contracts, the court may award exemplary damages if the defendant acted in a
wanton, fraudulent, reckless, oppressive, or malevolent manner.
Considering the factual circumstances we have discussed above, we can hardly characterize respondents’ act of
insisting on the enforcement of the repurchase agreement as wanton, fraudulent, reckless, oppressive, or
malevolent.
As there is no basis for an award of exemplary damages, the awards of attorney’s fees and litigation expenses to
the bank are not justified under Article 2208 of the Civil Code.
WHEREFORE, premises considered, we hereby GRANT the petition. The Decision dated March 31, 2006 and
Resolution dated August 11, 2006 of the Court of Appeals in CA-G.R. CV No. 49900 are
hereby REVERSED and SET ASIDE.
The complaint in Civil Case No. 19416-89 for breach of contract, specific performance, damages, and attorney’s
fees, with preliminary injunction filed by Cuison Lumber Co., Inc. and Mrs. Cuison against Traders Royal Bank is
hereby DISMISSED. The respondents are ordered to vacate the subject property and to restore its possession to
the petitioner bank.
The respondents are further ordered to pay reasonable compensation, for the use and occupation of the subject
property in the amount of ₱1,123,500.00, representing the accrued rentals as of August 8, 1993, less the amount of
₱485,000.00 representing deposits paid by the respondents. In additiodn, respondents are also ordered to pay the
amount of ₱13,700.00 a month by way of rentals starting from August 8, 1993 until they vacate the subject property.
The rentals shall earn a corresponding legal interest of six percent (6%) per annum to be computed from April 20,
1989 until the finality of this decision. After this decision becomes final and executory, the rate of legal interest shall
be computed at twelve percent (12%) per annum from such finality until its satisfaction.
Costs against the respondents.
SO ORDERED.
G.R. No. 173562 January 22, 2008
CENTRAL CEMENT CORPORATION (now Union Cement Corporation), petitioner,
vs.
MINES ADJUDICATION BOARD and ROCK AND ORE INDUSTRIES, INC., respondents.
DECISION
REYES, R.T., J.:
PROMPT disposition of cases is a prime duty not only of the courts but also of quasi-judicial bodies. But what
should be done if a party requests deferment of disposition until the parties submit a joint motion to dismiss? What is
the measure of a valid compromise agreement fit for execution?
We take up the twin questions in this petition to review on certiorari under Rule 45 the Decision1 of the Court of
Appeals (CA) affirming that of the Mines Adjudication Board (MAB),2 which dismissed the appeal of petitioner
Central Cement Corporation (CCC).
The Facts
Petitioner CCC and private respondent Rock and Ore Industries, Inc. (ROII) are domestic mining companies
incorporated under Philippine law.3
In 1992, petitioner CCC filed Mineral Production Sharing Agreement (MPSA), MPSA-P-III-24 and MPSA-P-III-31,
with the Department of Environment and Natural Resources (DENR) covering some 4,000 hectares
at Barangay Akle, Narra and Alagao in San Ildefonso, Bulacan. Private respondent ROII filed its own MPSA-P-111-
117 application over areas in Akle in 1995.4
The application of private respondent ROII was duly published and posted. Petitioner opposed and filed an adverse
claim to the application of private respondent with the Panel of Arbitrators of the DENR claiming that private
respondent's MPSA-P-III-117 was in conflict with its MPSA-P-III-24. A third company, Neutron Construction (NC),
filed an intervention complaining that its own MPSA-P-III-26 also overlapped private respondent's MPSA
application.5
On February 24, 2000, the Panel of Arbitrators rendered a decision dismissing the opposition of petitioner and the
intervention of NC. The Panel of Arbitrators ruled, among others, that the adverse claim of petitioner was filed
beyond the 30-day reglementary period as provided under DENR Administrative Order No. 96-40. It also upheld the
MPSA application of private respondent.6
Petitioner appealed to the MAB. On January 4, 2001, the MAB affirmed7 the decision of the Panel of Arbitrators. The
MAB agreed with the ruling of the Panel of Arbitrators that the adverse claim of petitioner was filed beyond the
reglementary period and that petitioner was estopped from challenging the application of private respondent.8
Petitioner moved for reconsideration9 of the MAB's decision.
During the pendency of the motion for reconsideration, the President of private respondent, Manny Teng, 10 brought
to the attention of MAB that two companies, Union Cement Corporation (UCC) and Eagle Cement Corporation
(ECC), had executed a Memorandum of Understanding (MOU)11 which amicably settled the differences between the
parties. The MOU was signed by Francisco Viray, for UCC, and Ramon Ang, for ECC. The MOU essentially
provided for reciprocal cession of claims and ownership of lands in the mining dispute before the MAB by swapping
of mining claims and rights. Teng prayed for the resolution of the MAB appeal on the ground that both parties had
already resolved the issue by virtue of the executed MOU.12
On June 10, 2002, the MAB13 directed private respondent to comment on why it should act on the request of Teng
for the resolution of the appeal, considering that the MOU was entered into between corporations not parties to the
case.
Private respondent responded14 to the MAB order stating that the claims which were the subject matter of the MOU
between UCC and ECC were the very same claims covered by the case between it and petitioner and that private
respondent had authorized ECC to execute the MOU on its behalf.
In a Manifestation and Comment15 dated July 13, 2002, petitioner acknowledged that it had merged with UCC and
that it was bound by the MOU. The pertinent portions of the manifestation and comment state:
Appellant does not deny the existence, genuineness, and due execution of the Memorandum of
Understanding (MOU) between UNION CEMENT (UCC) AND EAGLE CEMENT CORPORATION (ECC);
that it is a corporation which was subsequently merged into UNION CEMENT CORPORATION, the surviving
corporation and that it is bound by the MOU; that it recognizes that Rock and Ore Industries, Inc., and ECC
have identical controlling interests; and that both parties have agreed to settle this case, upon the swapping
contemplated under the MOU.16
Petitioner, however, resisted the resolution of the appeal on the ground of prematurity. While admitting that it was
bound by the MOU, it claims that the swapping of the claims that was at the heart of the MOU had yet to be
consummated by the submission by private respondent of data that petitioner would compare with its own. Petitioner
also reported that the parties agreed to prepare and submit a joint motion to dismiss to terminate the litigation. It
prayed that the MAB hold in abeyance the dismissal of the appeal on the basis of the MOU until a joint motion of the
parties is submitted.17
On August 2, 2002, the MAB18 treated the comment filed by petitioner as an opposition and required the parties to
iron out their differences and submit a joint motion for its consideration.
On August 12, 2002, Teng wrote a letter19 to the MAB seeking an early resolution of the MAB case on the basis of
the comment and manifestation submitted by the parties.
On August 29, 2002, the MAB handed down a dismissal resolution denominated as a decision, 20 with the
following fallo:
WHEREFORE, the foregoing premises considered, the herein Motion for Reconsideration filed by the
Appellant is hereby DISMISSED.
SO ORDERED.21
A reading of the MAB decision reveals that what was under consideration was the letter of Teng praying for the
resolution of the case on the ground that the parties had already resolved the issue by virtue of the execution of the
MOU. What was disposed by the MAB, however, was the motion for reconsideration filed by petitioner. At any rate,
the MAB stated that after the parties failed to respond to its order for them to iron out their differences and file a joint
motion, it had no other recourse but to resolve private respondent's plea to deny the motion for reconsideration. The
MAB stated:
Notwithstanding the two (2) Orders of the Chief of the MAB Secretariat, records show that the parties failed
to answer the said Order, giving the MAB no other recourse but to resolve the Motion by Rock and Ore to
dismiss the pending Motion for Reconsideration of Central Cement Corporation.
A thorough examination of the MOU shows that the same is duly executed between the parties. Such
genuineness and due execution was expressly recognized and admitted by the Counsel of Central Cement
in his Manifestation/Comment dated July 13, 2002. The relationship of the parties to the MOU and the
parties of the case is also established. Union Cement Corporation is the surviving corporation of Central
Cement while Eagle Cement Corporation is duly authorized by Rock and Ore to execute the MOU. In
substance, the MOU hammered out certain points of convergence that have rendered moot and academic
the issues in the instant case. Although the Appellant thru Counsel prays for holding in abeyance the
resolution of the case in view of some internal matters that has to be ironed out by the parties, the Board is
of the position that such matters can not, in any way, affect the agreements reached under the MOU.22
Petitioner filed a second motion for reconsideration23 which was denied.24 It then appealed to the CA.25
CA Disposition
On March 2, 2006, the CA rendered a decision affirming that of the MAB, disposing as follows:
IN VIEW OF THE FOREGOING, the MAB issuances of August 29, 2002 and December 10, 2002 are
AFFIRMED, with the directive that the parties observe the terms of the MOU dated September 26, 2001 as
their compromise agreement.
SO ORDERED.26
The CA duly noted the oversight in the MAB's disposition, thus:
On August 29, 2002, only 27 days after its order to the parties, the MAB handed down the controversial
resolution, which it calls a Decision, with this cryptic disposition: Wherefore, the foregoing premises
considered, the motion for reconsideration filed by the appellant is dismissed.
This resolution opens with the statement that for consideration was the letter dated May 14, 2002 of the
respondent's Teng praying for the resolution of the case on the ground that the parties have already resolved
the issue by virtue of the execution of the MOU, and ends by denying the petitioner's motion for
reconsideration. Motion for reconsideration of what? The resolution seems to labor under the impression
that the respondent's letter was asking for the denial of the motion for reconsideration of the petitioner with
respect to the MAB's original decision of January 4, 2001 affirming the Panel of Arbitrators – an
interpretation that is not borne out by its language. As the words make clear, the respondent was only
seeking a resolution of the case on the ground that the parties have already resolved the issue between
them by virtue of the MOU. This is not the same as saying that it wanted the denial of the motion for
 reconsideration of the decision of January 4, 2001. But in the context in which it looked at the May 14, 2002
letter, the MAB held that after the parties failed to respond to its order to them to iron out their differences
and file a motion, it had no other recourse than to resolve the respondent's plea to deny the motion for
reconsideration.27
In deciding for the validity of the MOU as a compromise agreement between petitioners and private respondent, the
CA ratiocinated:
As we said, we have perceived that the MAB's original decision on the merits of January 4, 2001 is no
longer in question here. While it is true that the petitioner filed a motion for reconsideration of this decision,
the parties had since then come to an amicable settlement in the form of the MOU. The dispute had
funneled into the narrow question of whether the resolution of the case on the basis of the MOU should be
held in abeyance until the parties ironed out their differences under the agreement. The objective of the
petition for certiorari is, at root, the maintenance of the Order of August 2, 2002, in effect, allowing the
parties time to dispose of the case through a joint motion.
The reasons underlying a plea for the deferment of the resolution of the case are not convincing. The
petitioner claims that the MAB had acted capriciously when it resolved the case unilaterally against its earlier
order to give the parties the right to file the joint motion. But as incisively observed by the Solicitor General,
the fact that the MAB came out with a resolution of the motion for reconsideration only 27 days after
directing the parties to resolve their differences and file a motion does not reflect an arbitrary and whimsical
change of judgment. The records bear out that the MAB endeavored to have the parties resolve their
differences by themselves and only when they failed to submit the motion for resolution of the case did the
MAB issue its decision. The lapse of a period of 27 days before it acted was well within the range of a
reasonable discretion considering that this was an administrative case that had to be resolved with dispatch.
The motion that was resolved was ripe for resolution before the parties even began to set the mechanics of
settlement in motion. The MAB surely had the right and duty to resolve the case at once given the failure of
the parties to act promptly on its directive.
The Solicitor General has concluded that the MAB ruled for the denial of the motion for reconsideration on
the ground that the parties had arrived at a resolution of their controversy through the MOU. Everybody
seems to agree. The respondent said that the motion for reconsideration was denied by MAB on August 29,
2002 because the MOU rendered the dispute moot and academic. This has been the constant refrain
throughout the discussion. The MAB's intent to consider the case mooted by the MOU may be drawn from
its final statement in the August 29, 2002 resolution that whatever internal matters must be ironed out by the
parties, they do not affect the agreements reached under the MOU.
It is hard to ignore the logical and legal implications of this ruling. It can only mean that the original MAB
decision of January 4, 2001 has become functus officio, the rights and obligations of the parties thereunder
being substituted by the rights and obligations of the parties under the MOU. The MOU, in a word, was a
compromise agreement. This is the view of the respondent, and we agree. A compromise agreement is a
contract where the parties undertake reciprocal obligations to avoid a litigation or put an end to one already
commenced. San Antonio v. Court of Appeals, 371 SCRA 536. If the MOU is to be properly understood, the
two parties to the case had freely entered into it for the purpose of undertaking reciprocal obligations to put
an end to a controversy between them. Once the compromise was perfected, the parties were bound to
abide by it in good faith. Ramnani v. Court of Appeals, 360 SCRA 645.
Under Article 2037 of the Civil Code, a compromise has upon the parties the effect and authority of res
judicata, but there will be no execution except in compliance with a judicial compromise. Although the MAB
did not categorically declare the MOU as approved, it achieved this result when it denied the motion for
reconsideration and held that the MOU was not affected by the fact that there were still matters to be
threshed out within its framework. We only regret that the MAB could not be as articulate as the situation
would demand to make clear a very important right. It is for us in the interest of justice to bridge the divide.
In coming this far, we have actually passed upon the issues raised in the second motion for
reconsideration.28
As already intimated, petitioner's motion for reconsideration was denied with finality on July 13, 2006.29 Hence, the
present recourse.
Issues
Petitioner ascribes the following errors to the CA:
I.
The Honorable Court of Appeals, it is respectfully submitted, committed reversible error when it ruled that
the Mines Adjudication Board did not commit grave abuse of discretion amounting to lack or excess of
jurisdiction in dismissing the first Motion for Reconsideration of its decision on the merits dated January 4,
2001 which, in effect, reinstated the decision of the Panel of Arbitrators adjudicating MPSA-P-III-117 to
respondent Rock and Ore Industries, Inc., under the guise of implementing a judgment on a compromise
agreement in the form of a Memorandum of Understanding, thereby denying herein petitioner of property
without due process of law in contravention of its constitutional rights.
II.
 Assuming without conceding the validity of the Memorandum of Understanding which stipulates for the
swapping and adjudication of mining rights as upheld by the Mines Adjudication Board, the Honorable Court
of Appeals erred in not finding grave abuse of discretion amounting to lack or excess of jurisdiction on the
part of the Mines Adjudication Board when it reached a unilateral, one-sided and biased adjudication in favor
of respondent Rock and Ore Industries, Inc., in violation of the letter and spirit of the Memorandum of
Understanding as a contract between the parties and thereby impaired the petitioner's constitutional
guarantee of the obligations of contracts.
III.
In any event, the Honorable Court of Appeals committed reversible error when it ruled that, in effect, there
was an implementation of a judgment on compromise in the form of a Memorandum of Understanding when
the said agreement was conditioned upon the performance of contractual obligations by the respective
parties. Besides, by its very provisions, the Memorandum of Understanding has already expired without any
of its conditions having been fulfilled.30 (Underscoring supplied)
On October 2, 2006, private respondent filed a Comment31 on the petition. The Solicitor General also filed a
comment32 on behalf of the MAB essentially batting for the affirmance of the CA decision.
Our Ruling
The petition is devoid of merit.
Essentially, based on its discussion, petitioner raises two issues for Our consideration. The first is the procedural
question of whether or not the CA erred in affirming the MAB dismissal of the appeal, without any joint motion to
dismiss filed by petitioner CCC and private respondent ROII. The second is the substantive issue of whether or not
the CA erred in upholding the MOU between petitioner and private respondent as a valid compromise agreement,
which had the effect of finally terminating the case between them.
I. Resolution of a motion can be deferred
but not indefinitely; speedy or efficient
disposition of cases is a constitutional
duty of all courts and administrative bodies.
In its bid to invalidate the MAB dismissal of its appeal, petitioner harps on the absence of the parties' joint motion to
dismiss. It argues that the absence of the joint motion shows that there was no valid compromise agreement
between the parties.33 Petitioner insists that the MAB should have deferred the dismissal of the appeal until after a
joint motion to dismiss is filed by it and private respondent.
We are not persuaded. It was well within the power of the MAB to dispose of the appeal even without a joint motion
to dismiss filed by petitioner and private respondent. Records disclose that an MOU had been executed between
petitioner and private respondent. This was brought to the attention of the MAB. The MOU is a compromise
agreement that finally settled the dispute between them. Petitioner does not contest the validity and due execution
of the MOU. It even admitted that it was bound by the terms of the MOU. On the basis of the MOU and the
admission of the parties, the MAB may dismiss the appeal outright because the issues raised in the appeal have
become moot and academic.
That the MAB deferred to the request of petitioner to await a joint motion to dismiss before it resolves the appeal
should not be interpreted as a condition precedent to its power to order the dismissal of the appeal. This applies
even more because petitioner and private respondent failed to comply with the MAB order to submit a joint motion to
dismiss. The MAB certainly cannot wait indefinitely for the joint motion in order to resolve the appeal. That would put
the wheels of justice on hold and leave the resolution of cases to the whims and caprices of the parties. We cannot
let that happen. The MAB correctly resolved the case on the basis of the MOU after the parties failed to file a joint
motion to dismiss.
The speedy resolution of cases is a constitutional duty.34 In a litany of cases, We have consistently held that courts
and administrative bodies must resolve cases speedily and efficiently. The speedy disposition of cases is paramount
in the administration of justice. It is a truism that justice delayed is justice denied.
In Lopez v. Office of the Ombudsman,35 this Court stated:
The constitutional right to a "speedy disposition of cases" is not limited to the accused in criminal
proceedings but extends to all parties in all cases, including civil and administrative cases, and in all
proceedings, including judicial and quasi-judicial hearings. Hence, under the Constitution, any party to a
case may demand expeditious action on all officials who are tasked with the administration of justice.
The need to observe the said constitutional duty was reiterated in Republic v. Sandiganbayan,36 thus:
The law looks with disfavor on long, protracted and expensive litigation and encourages the speedy and
prompt disposition of cases. That is why the law and the rules provide for a number of devices to ensure the
speedy disposition of cases.
We apply the same principle here. The MAB, as a quasi-judicial body, is constitutionally required to resolve the
appeal efficiently and with dispatch. We find that there is more reason that the MAB speedily resolve the appeal
because the parties have already amicably settled their dispute. There is no justification why the MAB should still
await a joint motion to comply with its constitutional duty. We note that the parties were given ample opportunity to
submit a joint motion but they ignored the MAB order. The MAB had no other recourse but to resolve the appeal
based on records and the admission of the parties.
We agree with the position of the Solicitor General that the MAB did not gravely abuse its discretion in resolving
petitioner's motion for reconsideration. The Solicitor General contended:
The MAB's August 2, 2002 Order in which it stated that it gave substance and credence to petitioner's
opposition must not be construed as a source of substantive right for petitioner.
The MAB merely acknowledged petitioner's opposition. But to say that the MAB is thereafter constrained to
decide it only in petitioner's favor is to improperly stretch one's imagination to false insinuations.
The MAB's resolution was only rendered after a thorough evaluation of the pertinent pleadings before them.
It reasonably ruled for the dismissal of the motion for reconsideration on the ground that the parties have
substantially arrived at a resolution to the pending controversy.
The fact that petitioner is apprehensive of a possibility that its agreement with private respondent will
uneventfully not materialize does validate its accusation against the MAB that it committed grave abuse of
discretion in rendering the questioned decision. Furthermore, the MAB must not be faulted if petitioner was
taken by surprise by its rendered decision. Having submitted itself to the jurisdiction of the MAB, petitioner
must respectfully abide by its ruling which was arrived at after a deliberate consideration of the issue.
Certiorari under Rule 65 of the Revised Rules of Court is not the proper remedy to contest a judgment,
which is unfavorable to ones cause of action, absent any showing of grave abuse of discretion.37
Worth quoting with Our approval is the observation of the CA along this line:
The reasons underlying a plea for the deferment of the resolution of the case are not convincing. The
petitioner claims that the MAB had acted capriciously when it resolved the case unilaterally against its earlier
order to give the parties the right to file the joint motion. But as incisively observed by the Solicitor General,
the fact that the MAB came out with a resolution of the motion for reconsideration only 27 days after
directing the parties to resolve their differences and file a motion does not reflect an arbitrary and whimsical
change of judgment. The records bear out that the MAB endeavored to have the parties resolve their
differences by themselves and only when they failed to submit the motion for resolution of the case did the
MAB issue its decision. The lapse of a period of 27 days before it acted was well within the range of a
reasonable discretion considering that this was an administrative case that had to be resolved with dispatch.
The motion that was resolved was ripe for resolution before the parties even began to set the mechanics of
settlement in motion. The MAB surely had the right and duty to resolve the case at once given the failure of
the parties to act promptly on its directive.38
II. A memorandum of understanding
with the requisites of a contract
is a valid compromise agreement;
it can be executed upon its perfection,
not consummation.
Petitioner claims that there are outstanding matters, such as deeds of assignment 39 and other pertinent data,40 which
need to be prepared and submitted by the parties before the MOU can be regarded as a binding agreement
between them. Petitioner argues that these matters render the MOU conditional. Since these conditions were not
fulfilled, petitioner contends that the MOU was not perfected.41
Article 2028 of the Civil Code spells out the nature of a compromise as a contract whereby the parties, by making
reciprocal concessions, avoid litigation or put an end to one already commenced.42 Parties to a compromise are
motivated by the hope of gaining, balanced by the dangers of losing. 43 It contemplates mutual concessions and
mutual gains to avoid the expenses of litigation, or, when litigation has already begun, to end it because of the
uncertainty of the result.44
As a contract, a compromise agreement must comply with the following basic elements: (1) consent of the
contracting parties; (2) object certain which is the subject matter of the contract; and (3) cause of the obligation
which is established.45
All these elements are present in this case.
First, petitioner and private respondent freely and voluntarily entered into the MOU. Petitioner admits that it
authorized Francisco Viray to sign the MOU,46 while private respondent was duly represented by Ramon Ang.47 The
authority of the agents is evidenced by duly executed board resolutions of the respective companies.
Second, there is identity of the parties and subject matter. Petitioner admits that it has merged with CCC, which
entered into the MOU. In its Manifestation48 dated July 13, 2002, petitioner acknowledged:
Appellant does not deny the existence, genuineness, and due execution of the Memorandum of
Understanding (MOU) between UNION CEMENT (UCC) and EAGLE CEMENT CORPORATION (ECC); that
it is a corporation which was subsequently merged into UNION CEMENT CORPORATION, the surviving
corporation and that it is bound by the MOU; that it recognizes that Rock and Ore Industries, Inc., and ECC
have identical controlling interests; and that both parties have agreed to settle this case, upon the swapping
contemplated under the MOU.49
The mining claims, MPSA-P-III-117 and MPSA-P-III-24, which are the subject matter of the MOU are the same
claims covered by the MAB case between the parties. The pertinent portions of the MOU provide:
 This Memorandum of Understanding made and entered into this 26th day of September, 2001, by and
between:
UNION CEMENT CORPORATION, a corporation duly organized and existing under and by virtue of
the laws of the Philippines with principal office address at 166 Salcedo Street, Legaspi Village,
Makati City, represented herein by its Senior Executive Vice-President, Dr. Francisco L. Viray,
hereinafter referred to as "UCC";
EAGLE CEMENT CORPORATION, a corporation duly organized and existing under and by virtue of
the laws of the Philippines with principal office address at Ground Floor, Alegria Building, 2229
Pasong Tamo St., Makati City, represented herein by Ramon S. Ang, hereinafter referred to as
"ECC."
WHEREAS, UCC has in its favor Mineral Production Sharing Agreement (MPSA) No. P-III-31 covering
certain parcels of land located in San Ildefonso, Bulacan;
WHEREAS, UCC has in its favor MPSA No. 161-2000-III (previously numbered P-III-24), covering certain
parcels of land also located in San Ildefonso, Bulacan;
WHEREAS, UCC and ECC have overlapping mining claims and/or surface ownership rights over certain
parcels of land located in San Ildefonso, particularly on the following:
A: Land Ownership – Lot Nos. 3153 and 3977
B: Mining Claims – MPSA 161-2000-III; MPSA-P-III-31; MPSA-P-III-11650
Third, the parties intended the MOU as a compromise agreement to amicably settle the mining dispute with the
MAB. This is clear from the MOU itself, which provides:
WHEREAS, the parties hereto wish to amicably settle their overlapping claims in a fair and equitable
manner;
WHEREAS, the parties hereto also wish to consolidate their ownership of certain contiguous parcels of land,
necessitating the transfer of certain lots or portions of lots owned by a party to the other party and vice-
versa;
WHEREAS, they further wish to maintain the present access road branching from the provincial road and
leading to UCC's cement plant by donating the same to the Municipality of San Ildefonso as road lot/s.51
Fourth, both parties are bound by the terms of the MOU. Petitioner admitted this in its Manifestation and
Comment.52
In fine, all the basic elements of a contract are present. The MOU is a valid compromise agreement between
petitioner and private respondent.
Article 1315 of the Civil Code provides that a contract is perfected by mere consent, which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute the contract. Here,
there is no dispute that the MOU was already "perfected" as manifested by the parties' assent to it. They freely and
voluntarily signed the MOU.
Petitioner confuses the concept of "perfection" of contract with the "consummation" of contract. A contract
undergoes three distinct stages: (1) preparation or negotiation; (2) perfection; and (3) consummation. Negotiation
begins from the time the prospective contracting parties manifest their interest in the contract and ends at the
moment of agreement of the parties. The perfection or birth of the contract takes place when the parties agree upon
the essential elements of the contract. The last stage is the consummation of the contract wherein the parties fulfill
or perform the terms agreed upon in the contract, culminating in its extinguishment.53
The delivery of pertinent data and the execution of the Deeds of Assignment are not part of the "perfection" stage.
They are part of the "consummation" stage of the MOU. This is clear from the MOU itself. A reading of the MOU
shows that the manifest intention of the parties was the consolidation of rights to certain mining areas to be vested
in a single party. To this end, petitioner and private respondent agreed to swap mining rights for certain parcels of
land. This was the essence of the compromise agreement. The pertinent portions of the MOU provide:
1. Assignment of UCC's Mining Rights/Claims – In order to settle the conflicting mining rights and claims of
the parties, UCC shall assign in favor of ECC such portions of its various mining rights and/or claims within
MPSA 161-2000-III and MPSA P-III-31 as indicated in Annex B-1, and more particularly described as that
area bounded by coordinates defines in Annex B-2. UCC is amenable to allow ECC to quarry and extract
shale raw materials from the lots that may still be owned by ECC but situated within MPSA 161-2000-III and
MPSA P-III-31, under terms and conditions that will be defined later.
2. Assignment of ECC's Mining Rights/Claims – ECC shall reciprocally assign in favor of UCC, all its various
mining rights and claims, including those named under its nominees or other entities or persons under its
control, over lots or parcels of land whose areas are in conflict with or located within MPSA 161-2000-III and
MPSA P-III-31, after excluding therefrom the areas of the mining rights and/or claims assigned and
transferred pursuant to Part III, paragraph 1 above, as indicated in Annex C-1, and more particularly
described as those areas bounded by coordinates defined in Annex C-2.
3. Consolidation of Rights in Each Area – It is understood that the parties intend that surface rights and
mining rights shall be both vested in a single party for each particular area. Consequently, ECC shall sell to
UCC the remaining parcels of land over which the former holds ownership or other rights or interests, and
 which parcels are covered by the UCC's MPSA 161-2000-III and P-III-31, excluding the shale areas
mentioned in Part III, Item 1 and those earlier assigned by UCC to ECC. Reciprocally, UCC shall sell to ECC
such parcels of land over which it has ownership or other rights or interests that are covered by ECC's
mining claims or agreements.54
Nor are the execution of the deeds of assignment and the delivery of pertinent data conditions precedent to the
validity of the MOU. This is inferable from Section 5, Part IV of the MOU which provides:
5. The parties agree to execute and deliver such further deeds, documents, and instruments and to perform
such further acts that are or may be necessary to fully implement and effectuate the transactions
contemplated in this MOU.55
The above clause requires the parties to execute deeds and perform acts that will be necessary to effectuate the
agreement. They are performed after the contract is perfected. Here, the execution of the necessary Deeds of
Assignment and the delivery of pertinent data are acts that go into the consummation of the MOU. They are not
conditions precedent to its validity.
To put it mildly, petitioner prefers certain matters to be completed before the MAB may dismiss the appeal. It wants
private respondent to first deliver some pertinent data which it will compare with its own and then decide on whether
to agree to the dismissal of its pending appeal. If We accept this position, the MAB will have to wait indefinitely until
after all the terms of the MOU have been completed before it may dismiss the appeal. This is certainly absurd
because the consummation of the terms56 of the MOU will take a minimum of two years. By the reckoning of
petitioner, the MAB should archive the appeal for at least two years before it is resolved. This is certainly contrary to
the main objective of a compromise agreement which is the amicable resolution of the pending case expeditiously.
Prescinding from Our ruling that the MOU was a valid compromise agreement between petitioner and private
respondent, the terms of the MOU must be enforced. The MOU substitutes for a judgment on the merits and binds
the parties. It is enforceable by a writ of execution. In Magbanua v. Uy,57 the Court ruled:
When a compromise agreement is given judicial approval, it becomes more than a contract binding upon the
parties. Having been sanctioned by the court, it is entered as a determination of a controversy and has the
force and effect of a judgment. It is immediately executory and not appealable, except for vices of consent or
forgery. The nonfulfillment of its terms and conditions justifies the issuance of a writ of execution; in such an
instance, execution becomes a ministerial duty of the court.
Accordingly, if the parties fail to comply with the terms of the MOU, the proper remedy is to apply for a writ of
execution. Petitioner may apply for a writ to compel private respondent to perform its part of the bargain under the
MOU. Private respondent, in turn, may compel petitioner to execute deeds and documents in accordance with the
terms of the MOU.
Again, We sustain the holding and observation of the CA on the legal implications of the execution of the MOU, thus:
It is hard to ignore the logical and legal implications of this ruling. It can only mean that the original MAB
decision of January 4, 2001 has become functus officio, the rights and obligations of the parties thereunder
being substituted by the rights and obligations of the parties under the MOU. The MOU, in a word, was a
compromise agreement. This is the view of the respondent, and we agree. A compromise agreement is a
contract where the parties undertake reciprocal obligations to avoid a litigation or put an end to one already
commenced. San Antonio v. Court of Appeals, 371 SCRA 536. If the MOU is to be properly understood, the
two parties to the case had freely entered into it for the purpose of undertaking reciprocal obligations to put
an end to a controversy between them. Once the compromise was perfected, the parties were bound to
abide by it in good faith. Ramnani v. Court of Appeals, 360 SCRA 645.
Under Article 2037 of the Civil Code, a compromise has upon the parties the effect and authority of res
judicata, but there will be no execution except in compliance with a judicial compromise. Although the MAB
did not categorically declare the MOU as approved, it achieved this result when it denied the motion for
reconsideration and held that the MOU was not affected by the fact that there were still matters to be
threshed out within its framework. We only regret that the MAB could not be as articulate as the situation
would demand to make clear a very important right. It is for us in the interest of justice to bridge the divide.
In coming this far, we have actually passed upon the issues raised in the second motion for
reconsideration.58
WHEREFORE, the petition is hereby DENIED. The Court of Appeals Decision is AFFIRMED in full.
SO ORDERED.
G.R. No. 145483 November 19, 2004
LORENZO SHIPPING CORP., petitioner,
vs.
BJ MARTHEL INTERNATIONAL, INC., respondent.

DECISION

CHICO-NAZARIO, J.:
This is a petition for review seeking to set aside the Decision of the Court of Appeals in CA-G.R. CV No. 54334 and
1

its Resolution denying petitioner's motion for reconsideration.

The factual antecedents of this case are as follows:
Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged in coastwise shipping. It used to own
the cargo vessel M/V Dadiangas Express.
Upon the other hand, respondent BJ Marthel International, Inc. is a business entity engaged in trading, marketing,
and selling of various industrial commodities. It is also an importer and distributor of different brands of engines and
spare parts.
From 1987 up to the institution of this case, respondent supplied petitioner with spare parts for the latter's marine
engines. Sometime in 1989, petitioner asked respondent for a quotation for various machine parts. Acceding to this
request, respondent furnished petitioner with a formal quotation, thus:
2

May 31, 1989

MINQ-6093
LORENZO SHIPPING LINES
Pier 8, North Harbor
Manila
SUBJECT: PARTS FOR ENGINE MODEL
MITSUBISHI 6UET 52/60
Dear Mr. Go:
We are pleased to submit our offer for your above subject requirements.
 Description Qty. Unit Price Total Price

Nozzle Tip 6 pcs. P 5,520.00 33,120.00

Plunger & Barrel 6 pcs. 27,630.00 165,780.00

Cylinder Head 2 pcs. 1,035,000.00 2,070,000.00

Cylinder Liner 1 set 477,000.00

TOTAL PRICE FOB P2,745,900.00

MANILA ___________

DELIVERY: Within 2 months after receipt of firm order.

TERMS: 25% upon delivery, balance payable in 5 bi-monthly equal
Installment[s] not to exceed 90 days.
We trust you find our above offer acceptable and look forward to your most valued order.

Very truly yours,

(SGD) HENRY PAJARILLO
Sales Manager

Petitioner thereafter issued to respondent Purchase Order No. 13839, dated 02 November 1989, for the
3

procurement of one set of cylinder liner, valued at P477,000, to be used for M/V Dadiangas Express. The purchase
order was co-signed by Jose Go, Jr., petitioner's vice-president, and Henry Pajarillo. Quoted hereunder is the
pertinent portion of the purchase order:

Name of Description Qty. Amount

CYL. LINER M/E 1 SET P477,000.00

NOTHING FOLLOW

INV. #

TERM OF PAYMENT: 25% DOWN PAYMENT

5 BI-MONTHLY INSTALLMENT[S]

Instead of paying the 25% down payment for the first cylinder liner, petitioner issued in favor of respondent ten
postdated checks to be drawn against the former's account with Allied Banking Corporation. The checks were
4

supposed to represent the full payment of the aforementioned cylinder liner.

Subsequently, petitioner issued Purchase Order No. 14011, dated 15 January 1990, for yet another unit of cylinder
5

liner. This purchase order stated the term of payment to be "25% upon delivery, balance payable in 5 bi-monthly
equal installment[s]." Like the purchase order of 02 November 1989, the second purchase order did not state the
6

date of the cylinder liner's delivery.

On 26 January 1990, respondent deposited petitioner's check that was postdated 18 January 1990, however, the
same was dishonored by the drawee bank due to insufficiency of funds. The remaining nine postdated checks were
eventually returned by respondent to petitioner.
The parties presented disparate accounts of what happened to the check which was previously dishonored.
Petitioner claimed that it replaced said check with a good one, the proceeds of which were applied to its other
obligation to respondent. For its part, respondent insisted that it returned said postdated check to petitioner.
Respondent thereafter placed the order for the two cylinder liners with its principal in Japan, Daiei Sangyo Co. Ltd.,
by opening a letter of credit on 23 February 1990 under its own name with the First Interstate Bank of Tokyo.
On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's warehouse in North Harbor, Manila. The
sales invoices evidencing the delivery of the cylinder liners both contain the notation "subject to verification" under
7

which the signature of Eric Go, petitioner's warehouseman, appeared.

Respondent thereafter sent a Statement of Account dated 15 November 1990 to petitioner. While the other items
8

listed in said statement of account were fully paid by petitioner, the two cylinder liners delivered to petitioner on 20
April 1990 remained unsettled. Consequently, Mr. Alejandro Kanaan, Jr., respondent's vice-president, sent a
demand letter dated 02 January 1991 to petitioner requiring the latter to pay the value of the cylinder liners subjects
9

of this case. Instead of heeding the demand of respondent for the full payment of the value of the cylinder liners,
petitioner sent the former a letter dated 12 March 1991 offering to pay only P150,000 for the cylinder liners. In said
10

letter, petitioner claimed that as the cylinder liners were delivered late and due to the scrapping of the M/V
Dadiangas Express, it (petitioner) would have to sell the cylinder liners in Singapore and pay the balance from the
proceeds of said sale.
Shortly thereafter, another demand letter dated 27 March 1991 was furnished petitioner by respondent's counsel
11

requiring the former to settle its obligation to respondent together with accrued interest and attorney's fees.
Due to the failure of the parties to settle the matter, respondent filed an action for sum of money and damages
before the Regional Trial Court (RTC) of Makati City. In its complaint, respondent (plaintiff below) alleged that
12

despite its repeated oral and written demands, petitioner obstinately refused to settle its obligations. Respondent
prayed that petitioner be ordered to pay for the value of the cylinder liners plus accrued interest of P111,300 as of
May 1991 and additional interest of 14% per annum to be reckoned from June 1991 until the full payment of the
principal; attorney's fees; costs of suits; exemplary damages; actual damages; and compensatory damages.
On 25 July 1991, and prior to the filing of a responsive pleading, respondent filed an amended complaint with
preliminary attachment pursuant to Sections 2 and 3, Rule 57 of the then Rules of Court. Aside from the prayer for
13

the issuance of writ of preliminary attachment, the amendments also pertained to the issuance by petitioner of the
postdated checks and the amounts of damages claimed.
In an Order dated 25 July 1991, the court a quo granted respondent's prayer for the issuance of a preliminary
14

attachment. On 09 August 1991, petitioner filed an Urgent Ex-Parte Motion to Discharge Writ of
Attachment attaching thereto a counter-bond as required by the Rules of Court. On even date, the trial court issued
15

an Order lifting the levy on petitioner's properties and the garnishment of its bank accounts.
16

Petitioner afterwards filed its Answer alleging therein that time was of the essence in the delivery of the cylinder
17

liners and that the delivery on 20 April 1990 of said items was late as respondent committed to deliver said items
"within two (2) months after receipt of firm order" from petitioner. Petitioner likewise sought counterclaims for moral
18

damages, exemplary damages, attorney's fees plus appearance fees, and expenses of litigation.
Subsequently, respondent filed a Second Amended Complaint with Preliminary Attachment dated 25 October
1991. The amendment introduced dealt solely with the number of postdated checks issued by petitioner as full
19

payment for the first cylinder liner it ordered from respondent. Whereas in the first amended complaint, only nine
postdated checks were involved, in its second amended complaint, respondent claimed that petitioner actually
issued ten postdated checks. Despite the opposition by petitioner, the trial court admitted respondent's Second
Amended Complaint with Preliminary Attachment. 20

Prior to the commencement of trial, petitioner filed a Motion (For Leave To Sell Cylinder Liners) alleging therein that
21

"[w]ith the passage of time and with no definite end in sight to the present litigation, the cylinder liners run the risk of
obsolescence and deterioration" to the prejudice of the parties to this case. Thus, petitioner prayed that it be
22

allowed to sell the cylinder liners at the best possible price and to place the proceeds of said sale in escrow. This
motion, unopposed by respondent, was granted by the trial court through the Order of 17 March 1991. 23

After trial, the court a quo dismissed the action, the decretal portion of the Decision stating:
WHEREFORE, the complaint is hereby dismissed, with costs against the plaintiff, which is ordered to pay
P50,000.00 to the defendant as and by way of attorney's fees. 24

The trial court held respondent bound to the quotation it submitted to petitioner particularly with respect to the terms
of payment and delivery of the cylinder liners. It also declared that respondent had agreed to the cancellation of the
contract of sale when it returned the postdated checks issued by petitioner. Respondent's counterclaims for moral,
exemplary, and compensatory damages were dismissed for insufficiency of evidence.
Respondent moved for the reconsideration of the trial court's Decision but the motion was denied for lack of merit. 25

Aggrieved by the findings of the trial court, respondent filed an appeal with the Court of Appeals which reversed and
26

set aside the Decision of the court a quo. The appellate court brushed aside petitioner's claim that time was of the
essence in the contract of sale between the parties herein considering the fact that a significant period of time had
lapsed between respondent's offer and the issuance by petitioner of its purchase orders. The dispositive portion of
the Decision of the appellate court states:
WHEREFORE, the decision of the lower court is REVERSED and SET ASIDE. The appellee is hereby
ORDERED to pay the appellant the amount of P954,000.00, and accrued interest computed at 14% per
annum reckoned from May, 1991. 27

The Court of Appeals also held that respondent could not have incurred delay in the delivery of cylinder liners as no
demand, judicial or extrajudicial, was made by respondent upon petitioner in contravention of the express provision
of Article 1169 of the Civil Code which provides:
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.
Likewise, the appellate court concluded that there was no evidence of the alleged cancellation of orders by
petitioner and that the delivery of the cylinder liners on 20 April 1990 was reasonable under the circumstances.
On 22 May 2000, petitioner filed a motion for reconsideration of the Decision of the Court of Appeals but this was
denied through the resolution of 06 October 2000. Hence, this petition for review which basically raises the issues
28

of whether or not respondent incurred delay in performing its obligation under the contract of sale and whether or
not said contract was validly rescinded by petitioner.
That a contract of sale was entered into by the parties is not disputed. Petitioner, however, maintains that its
obligation to pay fully the purchase price was extinguished because the adverted contract was validly terminated
due to respondent's failure to deliver the cylinder liners within the two-month period stated in the formal quotation
dated 31 May 1989.
The threshold question, then, is: Was there late delivery of the subjects of the contract of sale to justify petitioner to
disregard the terms of the contract considering that time was of the essence thereof?
In determining whether time is of the essence in a contract, the ultimate criterion is the actual or apparent intention
of the parties and before time may be so regarded by a court, there must be a sufficient manifestation, either in the
contract itself or the surrounding circumstances of that intention. Petitioner insists that although its purchase orders
29

did not specify the dates when the cylinder liners were supposed to be delivered, nevertheless, respondent should
abide by the term of delivery appearing on the quotation it submitted to petitioner. Petitioner theorizes that the
30

quotation embodied the offer from respondent while the purchase order represented its (petitioner's) acceptance of
the proposed terms of the contract of sale. Thus, petitioner is of the view that these two documents "cannot be
31

taken separately as if there were two distinct contracts." We do not agree.

32

It is a cardinal rule in interpretation of contracts that if the terms thereof are clear and leave no doubt as to the
intention of the contracting parties, the literal meaning shall control. However, in order to ascertain the intention of
33

the parties, their contemporaneous and subsequent acts should be considered. While this Court recognizes the
34

principle that contracts are respected as the law between the contracting parties, this principle is tempered by the
rule that the intention of the parties is primordial and "once the intention of the parties has been ascertained, that
35

element is deemed as an integral part of the contract as though it has been originally expressed in unequivocal
terms." 36

In the present case, we cannot subscribe to the position of petitioner that the documents, by themselves, embody
the terms of the sale of the cylinder liners. One can easily glean the significant differences in the terms as stated in
the formal quotation and Purchase Order No. 13839 with regard to the due date of the down payment for the first
cylinder liner and the date of its delivery as well as Purchase Order No. 14011 with respect to the date of delivery of
the second cylinder liner. While the quotation provided by respondent evidently stated that the cylinder liners were
supposed to be delivered within two months from receipt of the firm order of petitioner and that the 25% down
payment was due upon the cylinder liners' delivery, the purchase orders prepared by petitioner clearly omitted these
significant items. The petitioner's Purchase Order No. 13839 made no mention at all of the due dates of delivery of
the first cylinder liner and of the payment of 25% down payment. Its Purchase Order No. 14011 likewise did not
indicate the due date of delivery of the second cylinder liner.
In the case of Bugatti v. Court of Appeals, we reiterated the principle that "[a] contract undergoes three distinct
37

stages – preparation or negotiation, its perfection, and finally, its consummation. Negotiation begins from the time
the prospective contracting parties manifest their interest in the contract and ends at the moment of agreement of
the parties. The perfection or birth of the contract takes place when the parties agree upon the essential elements of
the contract. The last stage is the consummation of the contract wherein the parties fulfill or perform the terms
agreed upon in the contract, culminating in the extinguishment thereof."
In the instant case, the formal quotation provided by respondent represented the negotiation phase of the subject
contract of sale between the parties. As of that time, the parties had not yet reached an agreement as regards the
terms and conditions of the contract of sale of the cylinder liners. Petitioner could very well have ignored the offer or
tendered a counter-offer to respondent while the latter could have, under the pertinent provision of the Civil
Code, withdrawn or modified the same. The parties were at liberty to discuss the provisions of the contract of sale
38

prior to its perfection. In this connection, we turn to the testimonies of Pajarillo and Kanaan, Jr., that the terms of the
offer were, indeed, renegotiated prior to the issuance of Purchase Order No. 13839.
During the hearing of the case on 28 January 1993, Pajarillo testified as follows:
Q: You testified Mr. Witness, that you submitted a quotation with defendant Lorenzo Shipping Corporation
dated rather marked as Exhibit A stating the terms of payment and delivery of the cylinder liner, did you not?
A: Yes sir.
Q: I am showing to you the quotation which is marked as Exhibit A there appears in the quotation that the
delivery of the cylinder liner will be made in two months' time from the time you received the confirmation of
the order. Is that correct?
A: Yes sir.
Q: Now, after you made the formal quotation which is Exhibit A how long a time did the defendant make a
confirmation of the order?
A: After six months.
Q: And this is contained in the purchase order given to you by Lorenzo Shipping Corporation?
A: Yes sir.
Q: Now, in the purchase order dated November 2, 1989 there appears only the date the terms of payment
which you required of them of 25% down payment, now, it is stated in the purchase order the date of
delivery, will you explain to the court why the date of delivery of the cylinder liner was not mentioned in the
purchase order which is the contract between you and Lorenzo Shipping Corporation?
 A: When Lorenzo Shipping Corporation inquired from us for that cylinder liner, we have inquired [with] our
supplier in Japan to give us the price and delivery of that item. When we received that quotation from our
supplier it is stated there that they can deliver within two months but we have to get our confirmed order
within June.
Q: But were you able to confirm the order from your Japanese supplier on June of that year?
A: No sir.
Q: Why? Will you tell the court why you were not able to confirm your order with your Japanese supplier?
A: Because Lorenzo Shipping Corporation did not give us the purchase order for that cylinder liner.
Q: And it was only on November 2, 1989 when they gave you the purchase order?
A: Yes sir.
Q: So upon receipt of the purchase order from Lorenzo Shipping Lines in 1989 did you confirm the order
with your Japanese supplier after receiving the purchase order dated November 2, 1989?
A: Only when Lorenzo Shipping Corporation will give us the down payment of 25%. 39

For his part, during the cross-examination conducted by counsel for petitioner, Kanaan, Jr., testified in the
following manner:
WITNESS: This term said 25% upon delivery. Subsequently, in the final contract, what was agreed upon by
both parties was 25% down payment.
Q: When?
A: Upon confirmation of the order.
...
Q: And when was the down payment supposed to be paid?
A: It was not stated when we were supposed to receive that. Normally, we expect to receive at the earliest
possible time. Again, that would depend on the customers. Even after receipt of the purchase order which
was what happened here, they re-negotiated the terms and sometimes we do accept that.
Q: Was there a re-negotiation of this term?
A: This offer, yes. We offered a final requirement of 25% down payment upon delivery.
Q: What was the re-negotiated term?
A: 25% down payment
Q: To be paid when?
A: Supposed to be paid upon order. 40

The above declarations remain unassailed. Other than its bare assertion that the subject contracts of sale did not
undergo further renegotiation, petitioner failed to proffer sufficient evidence to refute the above testimonies of
Pajarillo and Kanaan, Jr.
Notably, petitioner was the one who caused the preparation of Purchase Orders No. 13839 and No. 14011 yet it
utterly failed to adduce any justification as to why said documents contained terms which are at variance with those
stated in the quotation provided by respondent. The only plausible reason for such failure on the part of petitioner is
that the parties had, in fact, renegotiated the proposed terms of the contract of sale. Moreover, as the obscurity in
the terms of the contract between respondent and petitioner was caused by the latter when it omitted the date of
delivery of the cylinder liners in the purchase orders and varied the term with respect to the due date of the down
payment, said obscurity must be resolved against it.
41 42

Relative to the above discussion, we find the case of Smith, Bell & Co., Ltd. v. Matti, instructive. There, we held that
43

–
When the time of delivery is not fixed or is stated in general and indefinite terms, time is not of the essence
of the contract. . . .
In such cases, the delivery must be made within a reasonable time.
The law implies, however, that if no time is fixed, delivery shall be made within a reasonable time, in the absence of
anything to show that an immediate delivery intended. . . .
We also find significant the fact that while petitioner alleges that the cylinder liners were to be used for dry dock
repair and maintenance of its M/V Dadiangas Express between the later part of December 1989 to early January
1990, the record is bereft of any indication that respondent was aware of such fact. The failure of petitioner to notify
respondent of said date is fatal to its claim that time was of the essence in the subject contracts of sale.
In addition, we quote, with approval, the keen observation of the Court of Appeals:
. . . It must be noted that in the purchase orders issued by the appellee, dated November 2, 1989 and
January 15, 1990, no specific date of delivery was indicated therein. If time was really of the essence as
claimed by the appellee, they should have stated the same in the said purchase orders, and not merely
 relied on the quotation issued by the appellant considering the lapse of time between the quotation issued
by the appellant and the purchase orders of the appellee.
In the instant case, the appellee should have provided for an allowance of time and made the purchase
order earlier if indeed the said cylinder liner was necessary for the repair of the vessel scheduled on the first
week of January, 1990. In fact, the appellee should have cancelled the first purchase order when the
cylinder liner was not delivered on the date it now says was necessary. Instead it issued another purchase
order for the second set of cylinder liner. This fact negates appellee's claim that time was indeed of the
essence in the consummation of the contract of sale between the parties. 44

Finally, the ten postdated checks issued in November 1989 by petitioner and received by the respondent as full
payment of the purchase price of the first cylinder liner supposed to be delivered on 02 January 1990 fail to impress.
It is not an indication of failure to honor a commitment on the part of the respondent. The earliest maturity date of
the checks was 18 January 1990. As delivery of said checks could produce the effect of payment only when they
have been cashed, respondent's obligation to deliver the first cylinder liner could not have arisen as early as 02
45

January 1990 as claimed by petitioner since by that time, petitioner had yet to fulfill its undertaking to fully pay for
the value of the first cylinder liner. As explained by respondent, it proceeded with the placement of the order for the
cylinder liners with its principal in Japan solely on the basis of its previously harmonious business relationship with
petitioner.
As an aside, let it be underscored that "[e]ven where time is of the essence, a breach of the contract in that respect
by one of the parties may be waived by the other party's subsequently treating the contract as still in
force." Petitioner's receipt of the cylinder liners when they were delivered to its warehouse on 20 April 1990 clearly
46

indicates that it considered the contract of sale to be still subsisting up to that time. Indeed, had the contract of sale
been cancelled already as claimed by petitioner, it no longer had any business receiving the cylinder liners even if
said receipt was "subject to verification." By accepting the cylinder liners when these were delivered to its
warehouse, petitioner indisputably waived the claimed delay in the delivery of said items.
We, therefore, hold that in the subject contracts, time was not of the essence. The delivery of the cylinder liners on
20 April 1990 was made within a reasonable period of time considering that respondent had to place the order for
the cylinder liners with its principal in Japan and that the latter was, at that time, beset by heavy volume of work. 47

There having been no failure on the part of the respondent to perform its obligation, the power to rescind the
contract is unavailing to the petitioner. Article 1191 of the New Civil Code runs as follows:
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 law explicitly gives either party the right to rescind the contract only upon the failure of the other to perform the
obligation assumed thereunder. The right, however, is not an unbridled one. This Court in the case of University of
48

the Philippines v. De los Angeles, speaking through the eminent civilist Justice J.B.L. Reyes, exhorts:
49

Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of
infractions by the other contracting party must be made known to the other and is always provisional, being ever
subject to scrutiny and review by the proper court. If the other party denied that rescission is justified, it is free to
resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing,
decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in
the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.
(Emphasis supplied)
In other words, the party who deems the contract violated may consider it resolved or rescinded, and act
accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law.
But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait
for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's
breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final
judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its
own damages. 50

Here, there is no showing that petitioner notified respondent of its intention to rescind the contract of sale between
them. Quite the contrary, respondent's act of proceeding with the opening of an irrevocable letter of credit on 23
February 1990 belies petitioner's claim that it notified respondent of the cancellation of the contract of sale. Truly, no
prudent businessman would pursue such action knowing that the contract of sale, for which the letter of credit was
opened, was already rescinded by the other party.
WHEREFORE, premises considered, the instant Petition for Review on Certiorari is DENIED. The Decision of the
Court of Appeals, dated 28 April 2000, and its Resolution, dated 06 October 2000, are hereby AFFIRMED. No costs.
SO ORDERED.
G.R. No. 181833 January 26, 2011
INTERNATIONAL FREEPORT TRADERS, INC., Petitioner,
vs.
DANZAS INTERCONTINENTAL, INC.,Respondent.
DECISION
ABAD, J.:
This case involves the liability of the consignee for electric charges, demurrage, and storage fees based on a
contract for lease of services that it entered into with a cargo handler.
The Facts and the Case
In March 1997 petitioner International Freeport Traders, Inc. (IFTI) ordered a shipment of Toblerone chocolates and
assorted confectioneries from Jacobs Suchard Tobler Ltd. of Switzerland (Jacobs) through its Philippine agent,
Colombo Merchants Phils., Inc., under the delivery term "F.O.B. Ex-Works."
To ship the goods, Jacobs dealt with Danmar Lines of Switzerland (Danmar) which issued to Jacobs negotiable
house bills of lading1 signed by its agent, respondent Danzas Intercontinental, Inc. (Danzas). The bills of lading
stated that the terms were "F.O.B." and "freight payable at destination," with Jacobs as the shipper, China Banking
Corporation as the consignee, and IFTI as the party to be notified of the shipment. The shipment was to be
delivered at the Clark Special Economic Zone with Manila as the port of discharge. The goods were also covered by
Letters of Credit MK-97/0467 and MK-97/0468 under a "freight collect" arrangement.
Since Danmar did not have its own vessel, it contracted Orient Overseas Container Line (OOCL) to ship the goods
from Switzerland. OOCL issued a non-negotiable master bill of lading,2 stating that the freight was prepaid with
Danmar as the shipper and Danzas as the consignee and party to be notified. The shipment was to be delivered at
Angeles City in Pampanga. Danmar paid OOCL an arbitrary fee of US$425.00 to process the release of the goods
from the port and ship the same to Clark in Angeles City. The fee was to cover brokerage, trucking, wharfage,
arrastre, and processing expenses.
The goods were loaded on board the OOCL vessel on April 20, 1997 and arrived at the port of Manila on May 14,
1997. Upon learning from Danmar that the goods had been shipped, Danzas immediately informed IFTI of its arrival.
IFTI prepared the import permit needed for the clearing and release of the goods from the Bureau of Customs and
advised Danzas on May 20, 1997 to pick up the document. Danzas got the import permit on May 26, 1997. At the
same time, it asked IFTI to 1) surrender the original bills of lading to secure the release of the goods, and 2) submit
a bank guarantee inasmuch as the shipment was consigned to China Banking Corporation to assure Danzas that it
will be compensated for freight and other charges.
But IFTI did not provide Danzas a bank guarantee, claiming that letters of credit already covered the shipment. IFTI
insisted that Danzas should already endorse the import permit and bills of lading to OOCL since the latter had been
paid an arbitrary fee. But Danzas did not do this.
Because IFTI did not provide Danzas with the original bills of lading and the bank guarantee, the latter withheld the
processing of the release of the goods. Danzas reiterated to IFTI that it could secure the release of the goods only if
IFTI submitted a bank guarantee. Ultimately, IFTI yielded to the request and applied for a bank guarantee which was
approved on May 23, 1997. It claimed to have advised Danzas on even date of its availability for pick up but Danzas
secured it only on June 6, 1997.
In a letter dated June 6, 1997, Danzas told IFTI that the issuance of a promissory note would assure the delivery of
the goods to Clark. On June 10, 1997 IFTI faxed a letter to Danzas, stating that Edwin Mabazza of OOCL confirmed
that it had been paid an arbitrary fee. IFTI maintained, however, that it was not in a position to decide whether
Danzas was to be liable for the charges. Nonetheless, IFTI issued a promissory note and requested that the goods
be released to avoid any further charges.
Minutes later, IFTI faxed another letter reiterating its request that the goods be released pending payment of
whatever charges Danzas had incurred for the release and delivery of the goods to Clark. IFTI promised to pay
Danzas any charges within five days upon delivery of the goods as soon as the investigation as to which company
will shoulder the expenses is settled.
On June 13, 1997 Danzas secured the release of the goods and delivered the same to IFTI at Clark on June 16,
1997. IFTI faxed a letter to Danzas, confirming the delivery. IFTI also said that Danzas’ General Manager and
OOCL’s Mabazza visited IFTI’s office to settle the charges on the goods. Danzas agreed to charge IFTI only the
electric charges and storage fees totaling ₱56,000.00 (or roughly US$2,210.00) from the original billing of about
US$7,000.00. In turn, IFTI agreed to give Danzas another opportunity to service its account and requested it to
disregard IFTI’s June 10, 1997 fax letter where it said that it would no longer employ Danzas for its future shipments
for Subic and Clark.
On January 19, 1998, however, Danzas wrote IFTI, demanding payment of ₱181,809.45 for its handling of the
shipment. IFTI ignored the demand. On March 26, 1998 Danzas filed separate complaints for sum of money against
IFTI and OOCL before the Metropolitan Trial Court (MeTC) of Parañaque City, Branch 78. The court subsequently
dismissed the complaint against OOCL after it settled the case amicably.
In the main, Danzas claimed that IFTI engaged its services for ₱181,809.45 to process the release of the goods
from the port and deliver it to IFTI at Clark but the latter reneged on its obligation, compelling Danzas to file the suit.
IFTI countered that it had no liability to Danzas since IFTI was not privy to the hiring of Danzas. Following normal
procedure, IFTI coursed the import permit to Danzas since it was the party that issued the house bills of lading. IFTI
added that under arbitrary shipments, imported goods are allowed to stay free of charge in the port for three working
days and in the storage for five to six calendar days. Storage fees, electricity charges, and demurrage become due
only after such period. In this case, IFTI informed Danzas on May 20, 1997 to pick up the import permit but Danzas
picked it up only on May 26, 1997. And instead of endorsing it with the bills of lading to OOCL, Danzas itself
processed the release of the goods. Since Danzas failed to process the release or transshipment of the goods
within the three-day period, then it should shoulder all the charges from May 20, 1997 to June 13, 1999.
On January 2, 2002,3 the MeTC rendered a decision in favor of Danzas and ordered IFTI to pay (1) ₱181,809.45
plus legal interest to be computed from March 26, 1998 until fully paid; (2) ₱25,000.00 as attorney’s fees; and (3)
the costs of suit. On appeal, however, the Regional Trial Court (RTC) 4 of Parañaque City, Branch 274, dismissed the
complaint.
Danzas elevated the case to the Court of Appeals (CA) 5 which reversed the RTC decision. The CA ruled that IFTI’s
fax letters dated June 10, 1997 showed the parties engaged in negotiation stage. When IFTI heeded Danzas’
request for a bank guarantee, its action brought about a perfected contract of lease of service. The bank guarantee,
procured by IFTI, contained all the requisites of a perfected contract. The cause of the contract was the release of
the goods from the port and its delivery at Clark; the consideration was the compensation for the release and
delivery of the goods to IFTI.
The Issues Presented
Two issues are presented:
1. Whether or not a contract of lease of service exists between IFTI and Danzas; and
2. Whether or not IFTI is liable to Danzas for the costs of the delay in the release of the goods from the port.
The Court’s Rulings
One. The facts show the existence of several contracts: one between IFTI and Jacobs, another between Jacobs
and Danmar, and still another between Danmar and OOCL. IFTI bought chocolates and confectioneries from
Jacobs; Jacobs got Danmar to deliver the goods to its destination; Danmar got OOCL to carry the goods for it by
ship to Manila. For this purpose, Danmar paid OOCL an arbitrary fee to process the release of the goods from the
port of Manila and deliver the same to Clark. In all these transactions, Danzas acted as an agent of Danmar who
signed the house bills of lading in favor of Jacobs.
In short, the combined services of different carriers were used for the delivery of the goods: Danmar, as the initial
carrier, assumed the responsibility of conveyance when it received the goods for transportation; OOCL, as the
forwarding carrier, had the duty to deliver the goods to Danzas which was designated as the consignee in the
master bill of lading; and Danzas, being the agent of Danmar, assumed the responsibility for delivering the goods
from Manila to IFTI at Clark.6 Evidently, although Danmar intended the arbitrary fee that it paid OOCL to cover the
latter’s delivery of the goods all the way to Danzas, the latter had no notion of and was not a party to such
arrangement. Since the last leg of the delivery of the goods to IFTI at Clark devolved on Danzas, the latter insisted
that it was entitled to collect a separate fee following the terms of the sale (F.O.B. Ex-Works) and the house bills of
lading (F.O.B. and freight payable at destination).
At first, IFTI did not want to pay more but when Danzas would not move the goods until it was assured that it would
be paid, IFTI eventually negotiated with Danzas for its services. IFTI prepared the import permit and advised
Danzas to pick up the document. But Danzas told IFTI that it also needed the house bills of lading and the bank
guarantee. If IFTI believed that it was OOCL’s responsibility to deliver the goods at its doorsteps, then it should not
have asked Danzas to pick up the import permit and submit to it the bank guarantee and promissory note that it
required. IFTI should have instead addressed its demand to OOCL for the delivery of the goods.
What is clear to the Court is that, by acceding to all the documentary requirements that Danzas imposed on it, IFTI
voluntarily accepted its services. The bank guarantee IFTI gave Danzas assured the latter that it would eventually
be paid all freight and other charges arising from the release and delivery of the goods to it.
Another indication that IFTI recognized its contract with Danzas is when IFTI requested Danzas to have the goods
released pending payment of whatever expenses the latter would incur in obtaining the release and delivery of the
goods at Clark. It also admitted that it initially settled with Danzas’ General Manager and OOCL’s Mabazza the issue
regarding the charges on the goods after Danzas agreed to bill IFTI for the electric charges and storage fees
totaling ₱56,000.00. Certainly, this concession indicated that their earlier agreement did not push through.
Every contract has the elements of (1) consent of the contracting parties; (2) object certain which is the subject
matter of the contract; and (3) cause of the obligation which is established. A contract is perfected by mere consent,
which is manifested by the meeting of the offer and the acceptance upon the thing and the cause which are to
constitute the contract.7
Generally, contracts undergo three distinct stages: (1) preparation or negotiation; (2) perfection; and (3)
consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the
contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place
when the parties agree upon the essential elements of the contract. The last stage is the consummation of the
contract where the parties fulfill or perform the terms they agreed on, culminating in its extinguishment. 8 Here, there
is no other conclusion than that the parties entered into a contract of lease of service for the clearing and delivery of
the imported goods.
Two. There is no dispute that under arbitrary shipments, imported goods are allowed to stay, free of charge, in the
port for three working days, and in the storage for five to six calendar days. Beyond this period, storage fees, electric
charges, and the demurrage are due.
Since the goods arrived at the Port of Manila on May 14, 1997, they could remain there until May 20, 1997 free of
charge. The fact that IFTI had the import permit ready by May 20, 1997 was immaterial since it had not yet given the
bank guarantee required of it. The Court is not convinced that IFTI had the bank guarantee ready as early as May
23, 1997 for, if that were the case, surely it did not make sense for it not to hand over such document to Danzas
when the latter claimed the import permit on May 26, 1997.
Since the delay in the processing of the release of the goods was due to IFTI’s fault, the CA rightly adjudged it liable
for electric charges, demurrage, and storage fees of ₱122,191.75 from May 20, 1997 to June 13, 1999.
WHEREFORE, the Court DENIES the petition and AFFIRMS the decision dated October 25, 2007 of the Court of
Appeals in CA-G.R. SP 79597.
SO ORDERED.
G.R. No. 177783 January 23, 2013

HEIRS OF FAUSTO C. IGNACIO, namely MARFEL D. IGNACIO-MANALO, MILFA D. IGNACIO-MANALO AND

FAUSTINO D. IGNACIO, Petitioners,
vs.
HOME BANKERS SAVINGS AND TRUST COMPANY, SPOUSES PHILLIP AND THELMA RODRIGUEZ,
CATHERINE, REYNOLD & JEANETTE, all surnamed ZUNIGA, Respondents.

DECISION

VILLARAMA, JR., J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 assailing the Decision1 dated July 18, 2006
and Resolution2 dated May 2, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 73551. The CA reversed the
Decision3 dated June 15, 1999 of the Regional Trial Court (RTC) of Pasig City, Branch 151 in Civil Case No. 58980.

The factual antecedents:

In August 1981, petitioner Fausto C. Ignacio mortgaged two parcels of land to Home Savings Bank and Trust
Company, the predecessor of respondent Home Bankers Savings and Trust Company, as security for the
₱500,000.00 loan extended to him by said bank. These properties which are located in Cabuyao, Laguna are
covered by Transfer Certificate of Title Nos. (T-40380) T-8595 and (T-45804) T-8350 containing an area of 83,303
square meters and 120,110 square meters, respectively.4
When petitioner defaulted in the payment of his loan obligation, respondent bank proceeded to foreclose the real
estate mortgage. At the foreclosure sale held on January 26, 1983, respondent bank was the highest bidder for the
sum of ₱764,984.67. On February 8, 1983, the Certificate of Sale issued to respondent bank was registered with the
Registry of Deeds of Calamba, Laguna. With the failure of petitioner to redeem the foreclosed properties within one
year from such registration, title to the properties were consolidated in favor of respondent bank. Consequently, TCT
Nos. T-8595 and T-8350 were cancelled and TCT Nos. 111058 and 111059 were issued in the name of respondent
bank.5

Despite the lapse of the redemption period and consolidation of title in respondent bank, petitioner offered to
repurchase the properties. While the respondent bank considered petitioner's offer to repurchase, there was no
repurchase contract executed. The present controversy was fuelled by petitioner's stance that a verbal
repurchase/compromise agreement was actually reached and implemented by the parties.

In the meantime, respondent bank made the following dispositions of the foreclosed properties already titled in its
name:

TCT No. 111059 (Subdivided into six lots with individual titles - TCT Nos. 117771, 117772, 117773, 117774, 117775
and 117776)

A. TCT No. 117771 (16,350 sq.ms.) - Sold to Fermin Salvador and Bella Salvador under Deed of Absolute Sale
dated May 23, 1984 for the price of ₱150,000.00

B. TCT No. 11772 (82,569 sq.ms. subdivided into 2 portions

1) Lot 3-B-1 (35,447 sq.ms.) - Sold to Dr. Oscar Remulla and Natividad Pagtakhan, Dr. Edilberto Torres and Dra.
Rebecca Amores under Deed of Absolute Sale dated April 17, 1985 for the price of ₱150,000.00

2) Lot 3-B-2 covered by separate title TCT No. 124660 (Subdivided into 3 portions -

Lot 3-B-2-A (15,000 sq.ms.) - Sold to Dr. Myrna del Carmen Reyes under Deed of Absolute Sale dated March 23,
1987 for the price of ₱150,000.00

Lot 3-B-2-B (15,000 sq.ms.) - Sold to Dr. Rodito Boquiren under Deed of Absolute Sale dated March 23, 1987 for
the price of ₱150,000.00

Lot 3-B-2-C (17,122 sq.ms.) covered by TCT No. T-154568 -

C. TCT No.117773 (17,232 sq.ms.) - Sold to Rizalina Pedrosa under Deed of Absolute Sale dated June 4, 1984 for
the price of ₱150,000.00

The expenses for the subdivision of lots covered by TCT No. 111059 and TCT No. 117772 were shouldered by
petitioner who likewise negotiated the above-mentioned sale transactions. The properties covered by TCT Nos. T-
117774 to 117776 are still registered in the name of respondent bank.6

In a letter addressed to respondent bank dated July 25, 1989, petitioner expressed his willingness to pay the
amount of ₱600,000.00 in full, as balance of the repurchase price, and requested respondent bank to release to him
the remaining parcels of land covered by TCT Nos. 111058 and T-154658 ("subject properties").7 Respondent bank
however, turned down his request. This prompted petitioner to cause the annotation of an adverse claim on the said
titles on September 18, 1989.8

Prior to the annotation of the adverse claim, on August 24, 1989, the property covered by TCT No. 154658 was sold
by respondent bank to respondent spouses Phillip and Thelma Rodriguez, without informing the petitioner. On
October 6, 1989, again without petitioner's knowledge, respondent bank sold the property covered by TCT No T-
111058 to respondents Phillip and Thelma Rodriguez, Catherine M. Zuñiga, Reynold M. Zuñiga and Jeannette M.
Zuñiga.9
On December 27, 1989, petitioner filed an action for specific performance and damages in the RTC against the
respondent bank. As principal relief, petitioner sought in his original complaint the reconveyance of the subject
properties after his payment of ₱600,000.00.10 Respondent bank filed its Answer denying the allegations of
petitioner and asserting that it was merely exercising its right as owner of the subject properties when the same
were sold to third parties.

For failure of respondent bank to appear during the pre-trial conference, it was declared as in default and petitioner
was allowed to present his evidence ex parte on the same date (September 3, 1990). Petitioner simultaneously filed
an "Ex-Parte Consignation" tendering the amount of ₱235,000.00 as balance of the repurchase price.11 On
September 7, 1990, the trial court rendered judgment in favor of petitioner. Said decision, as well as the order of
default, were subsequently set aside by the trial court upon the filing of a motion for reconsideration by the
respondent bank.12

In its Order dated November 19, 1990, the trial court granted the motion for intervention filed by respondents Phillip
and Thelma Rodriguez, Catherine Zuñiga, Reynold Zuñiga and Jeannette Zuñiga. Said intervenors asserted their
status as innocent purchasers for value who had no notice or knowledge of the claim or interest of petitioner when
they bought the properties already registered in the name of respondent bank. Aside from a counterclaim for
damages against the petitioner, intervenors also prayed that in the event respondent bank is ordered to reconvey
the properties, respondent bank should be adjudged liable to the intervenors and return all amounts paid to it.13

On July 8, 1991, petitioner amended his complaint to include as alternative relief under the prayer for reconveyance
the payment by respondent bank of the prevailing market value of the subject properties "less whatever remaining
obligation due the bank by reason of the mortgage under the terms of the compromise agreement.14

On June 15, 1999, the trial court rendered its Decision, the dispositive portion of which reads:

WHEREFORE, findings [sic] the facts aver[r]ed in the complaint supported by preponderance of evidences
adduced, judgment is hereby rendered in favor of the plaintiff and against the defendant and intervenors by:

1. Declaring the two Deeds of Sale executed by the defendant in favor of the intervenors as null and void and the
Register of Deeds in Calamba, Laguna is ordered to cancel and/or annul the two Transfer Certificate of Titles No. T-
154658 and TCT No. T-111058 issued to the intervenors.

2. Ordering the defendant to refund the amount of ₱1,004,250.00 to the intervenors as the consideration of the sale
of the two properties.

3. Ordering the defendant to execute the appropriate Deed of Reconveyance of the two (2) properties in favor of the
plaintiff after the plaintiff pays in full the amount of ₱600,000.00 as balance of the repurchase price.

4. Ordering the defendant bank to pay plaintiff the sum of ₱50,000.00 as attorney's fees.

5. Dismissing the counterclaim of the defendant and intervenors against the plaintiff.

Costs against the defendant.

SO ORDERED.15

The trial court found that respondent bank deliberately disregarded petitioner's substantial payments on the total
repurchase consideration. Reference was made to the letter dated March 22, 1984 (Exhibit "I")16 as the authority for
petitioner in making the installment payments directly to the Universal Properties, Inc. (UPI), respondent bank's
collecting agent. Said court concluded that the compromise agreement amounts to a valid contract of sale between
petitioner, as Buyer, and respondent bank, as Seller. Hence, in entertaining other buyers for the same properties
already sold to petitioner with intention to increase its revenues, respondent bank acted in bad faith and is thus
liable for damages to the petitioner. Intervenors were likewise found liable for damages as they failed to exercise
due diligence before buying the subject properties.

Respondent bank appealed to the CA which reversed the trial court's ruling, as follows:
WHEREFORE, the foregoing premises considered, the instant appeal is hereby GRANTED. Accordingly, the
assailed decision is hereby REVERSED and SET ASIDE.

SO ORDERED.17

The CA held that by modifying the terms of the offer contained in the March 22, 1984 letter of respondent bank,
petitioner effectively rejected the original offer with his counter-offer. There was also no written conformity by
respondent bank's officers to the amended conditions for repurchase which were unilaterally inserted by petitioner.
Consequently, no contract of repurchase was perfected and respondent bank acted well within its rights when it sold
the subject properties to herein respondents-intervenors.

As to the receipts presented by petitioner allegedly proving the installment payments he had completed, the CA said
that these were not payments of the repurchase price but were actually remittances of the payments made by
petitioner's buyers for the purchase of the foreclosed properties already titled in the name of respondent bank. It
was noted that two of these receipts (Exhibits "K" and "K-1")18 were issued to Fermin Salvador and Rizalina
Pedrosa, the vendees of two subdivided lots under separate Deeds of Absolute Sale executed in their favor by the
respondent bank. In view of the attendant circumstances, the CA concluded that petitioner acted merely as a broker
or middleman in the sales transactions involving the foreclosed properties. Lastly, the respondents-intervenors were
found to be purchasers who bought the properties in good faith without notice of petitioner's interest or claim.
Nonetheless, since there was no repurchase contract perfected, the sale of the subject properties to respondents-
intervenors remains valid and binding, and the issue of whether the latter were innocent purchasers for value would
be of no consequence.

Petitioner's motion for reconsideration was likewise denied by the appellate court.

Hence, this petition alleging that:

A.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT THERE WAS A PERFECTED CONTRACT TO REPURCHASE BETWEEN
PETITIONER AND RESPONDENT-BANK.

B.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT PETITIONER DID NOT ACT AS BROKER IN THE SALE OF THE
FORECLOSED PROPERTIES AND THUS FAILED TO CONSIDER THE EXISTENCE OF OFFICIAL RECEIPTS
ISSUED IN THE NAME OF THE PETITIONER THAT ARE DULY NOTED FOR HIS ACCOUNT.

C.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT RESPONDENT-BANK DID NOT HAVE THE RIGHT TO DISPOSE THE
SUBJECT PROPERTIES.

D.

THE HONORABLE COURT OF APPEALS COMMITTED GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT RESPONDENTS-INTERVENORS ARE NOT INNOCENT PURCHASERS
FOR VALUE IN GOOD FAITH.19

It is to be noted that the above issues raised by petitioner alleged grave abuse of discretion committed by the CA,
which is proper in a petition for certiorari under Rule 65 of the 1997 Rules of Civil Procedure, as amended, but not in
the present petition for review on certiorari under Rule 45.
The core issue for resolution is whether a contract for the repurchase of the foreclosed properties was perfected
between petitioner and respondent bank.

The Court sustains the decision of the CA.

Contracts are perfected by mere consent, which is manifested by the meeting of the offer and the acceptance upon
the thing and the cause which are to constitute the contract.20 The requisite acceptance of the offer is expressed in
Article 1319 of the Civil Code which states:

ART. 1319. Consent is manifested by the meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract. The offer must be certain and the acceptance absolute. A qualified acceptance
constitutes a counter-offer.

In Palattao v. Court of Appeals,21 this Court held that if the acceptance of the offer was not absolute, such
acceptance is insufficient to generate consent that would perfect a contract. Thus:

Contracts that are consensual in nature, like a contract of sale, are perfected upon mere meeting of the minds. Once
there is concurrence between the offer and the acceptance upon the subject matter, consideration, and terms of
payment, a contract is produced. The offer must be certain. To convert the offer into a contract, the acceptance must
be absolute and must not qualify the terms of the offer; it must be plain, unequivocal, unconditional, and without
variance of any sort from the proposal. A qualified acceptance, or one that involves a new proposal, constitutes a
counter-offer and is a rejection of the original offer. Consequently, when something is desired which is not exactly
what is proposed in the offer, such acceptance is not sufficient to generate consent because any modification or
variation from the terms of the offer annuls the offer.22

The acceptance must be identical in all respects with that of the offer so as to produce consent or meeting of the
minds.23 Where a party sets a different purchase price than the amount of the offer, such acceptance was qualified
which can be at most considered as a counter-offer; a perfected contract would have arisen only if the other party
had accepted this counter-offer.24 In Villanueva v. Philippine National Bank25 this Court further elucidated on the
meaning of unqualified acceptance, as follows:

…While it is impossible to expect the acceptance to echo every nuance of the offer, it is imperative that it assents to
those points in the offer which, under the operative facts of each contract, are not only material but motivating as
well. Anything short of that level of mutuality produces not a contract but a mere counter-offer awaiting acceptance.
More particularly on the matter of the consideration of the contract, the offer and its acceptance must be unanimous
both on the rate of the payment and on its term. An acceptance of an offer which agrees to the rate but varies the
term is ineffective.26 (Emphasis supplied)

Petitioner submitted as evidence of a perfected contract of repurchase the March 22, 1984 letter (Exhibit "I")27 from
Rita B. Manuel, then President of UPI, a corporation formed by respondent bank to dispose of its acquired assets,
with notations handwritten by petitioner himself. Said letter reads:

March 22, 1984

Honorable Judge Fausto Ignacio

412 Bagumbayan Street, Pateros
Metro Manila

Dear Judge Ignacio:

Your proposal to repurchase your foreclosed properties located at Cabuyao, Laguna consisting of a total area of
203,413 square meters has been favorably considered subject to the following terms and conditions:

1) Total Selling Price shall be ₱950,000.00

2) Downpayment of ₱150,00000 with the balance
Payable in Three (3) equal installments
as follows:

1st Installment - P 266,667 - on or before May 31, '84

2nd Installment - P 266,667 - on or before Sept. 31, '84

3rd Installment - P 266,666 - on or before Jan. 30, '85

TOTAL - P 800,000.00

3) All expenses pertinent to the subdivision of the parcel of land consisting of 120,110 square meters shall be for
your account.

Thank you,

Very truly yours,

RITA B. MANUEL
President

According to petitioner, he wrote the notations in the presence of a certain Mr. Lazaro, the representative of Mrs.
Manuel (President), and a certain Mr. Fajardo, which notations supposedly represent their "compromise
agreement."28 These notations indicate that the repurchase price would be ₱900,000.00 which shall be paid as
follows: ₱150,000 - end of May '84; ₱150,000 - end of June '84; Balance - "Depending on financial position".
Petitioner further alleged the following conditions of the verbal agreement: (1) respondent bank shall release the
equivalent land area for payments made by petitioner who shall shoulder the expenses for subdivision of the land;
(2) in case any portion of the subdivided land is sold by petitioner, a separate document of sale would be executed
directly to the buyer; (3) the remaining portion of the properties shall not be subject of respondent bank's transaction
without the consent and authority of petitioner; (4) the petitioner shall continue in possession of the properties and
whatever portion still remaining, and attending to the needs of its tenants; and (5) payments shall be made directly
to UPI.29

The foregoing clearly shows that petitioner's acceptance of the respondent bank's terms and conditions for the
repurchase of the foreclosed properties was not absolute. Petitioner set a different repurchase price and also
modified the terms of payment, which even contained a unilateral condition for payment of the balance (₱600,000),
that is, depending on petitioner's "financial position." The CA thus considered the qualified acceptance by petitioner
as a counter-proposal which must be accepted by respondent bank. However, there was no evidence of any
document or writing showing the conformity of respondent bank's officers to this counter-proposal.

Petitioner contends that the receipts issued by UPI on his installment payments are concrete proof -- despite denials
to the contrary by respondent bank -- that there was an implied acceptance of his counter-proposal and that he did
not merely act as a broker for the sale of the subdivided portions of the foreclosed properties to third parties. Since
all these receipts, except for two receipts issued in the name of Fermin Salvador and Rizalina Pedrosa, were issued
in the name of petitioner instead of the buyers themselves, petitioner emphasizes that the payments were made for
his account. Moreover, petitioner asserts that the execution of the separate deeds of sale directly to the buyers was
in pursuance of the perfected repurchase agreement with respondent bank, such an arrangement being "an
accepted practice to save on taxes and shortcut paper works."

The Court is unconvinced.

In Adelfa Properties, Inc. v. CA,30 the Court ruled that:

x x x The rule is that except where a formal acceptance is so required, although the acceptance must be
affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may
be made either in a formal or an informal manner, and may be shown by acts, conduct, or words of the accepting
party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance
may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale.31

Even assuming that the bank officer or employee whom petitioner claimed he had talked to regarding the March 22,
1984 letter had acceded to his own modified terms for the repurchase, their supposed verbal exchange did not bind
respondent bank in view of its corporate nature. There was no evidence that said Mr. Lazaro or Mr. Fajardo was
authorized by respondent bank's Board of Directors to accept petitioner's counter-proposal to repurchase the
foreclosed properties at the price and terms other than those communicated in the March 22, 1984 letter. As this
Court ruled in AF Realty & Development, Inc. v. Dieselman Freight Services, Co.32

Section 23 of the Corporation Code expressly provides that the corporate powers of all corporations shall be
exercised by the board of directors. Just as a natural person may authorize another to do certain acts in his behalf,
so may the board of directors of a corporation validly

delegate some of its functions to individual officers or agents appointed by it.1âwphi1 Thus, contracts or acts of a
corporation must be made either by the board of directors or by a corporate agent duly authorized by the board.
Absent such valid delegation/authorization, the rule is that the declarations of an individual director relating to the
affairs of the corporation, but not in the course of, or connected with, the performance of authorized duties of such
director, are held not binding on the corporation.33

Thus, a corporation can only execute its powers and transact its business through its Board of Directors and through
its officers and agents when authorized by a board resolution or its by-laws.34

In the absence of conformity or acceptance by properly authorized bank officers of petitioner's counter-proposal, no
perfected repurchase contract was born out of the talks or negotiations between petitioner and Mr. Lazaro and Mr.
Fajardo. Petitioner therefore had no legal right to compel respondent bank to accept the ₱600,000 being tendered
by him as payment for the supposed balance of repurchase price.

A contract of sale is consensual in nature and is perfected upon mere meeting of the minds. When there is merely
an offer by one party without acceptance of the other, there is no contract.35 When the contract of sale is not
perfected, it cannot, as an independent source of obligation, serve as a binding juridical relation between the
parties.36

In sum, we find the ruling of the CA more in accord with the established facts and applicable law and jurisprudence.
Petitioner's claim of utmost accommodation by respondent bank of his own terms for the repurchase of his
foreclosed properties are simply contrary to normal business practice. As aptly observed by the appellate court:

The submission of the plaintiff-appellee is unimpressive.

First, if the counter-proposal was mutually agreed upon by both the plaintiff-appellee and defendant-appellant, how
come not a single signature of the representative of the defendant-appellant was affixed thereto. Second, it is
inconceivable that an agreement of such great importance, involving two personalities who are both aware and
familiar of the practical and legal necessity of reducing agreements into writing, the plaintiff-appellee, being a lawyer
and the defendant-appellant, a banking institution, not to formalize their repurchase agreement. Third, it is quite
absurd and unusual that the defendant-appellant could have acceded to the condition that the balance of the
payment of the repurchase price would depend upon the financial position of the plaintiff-appellee. Such
open[-]ended and indefinite period for payment is hardly acceptable to a banking institution like the defendant-
appellant whose core existence fundamentally depends upon its financial arrangements and transactions which,
most, if not all the times are intended to bear favorable outcome to its business. Last, had there been a repurchase
agreement, then, there should have been titles or deeds of conveyance issued in favor of the plaintiff-appellee. But
as it turned out, the plaintiff-appellee never had any land deeded or titled in his name as a result of the alleged
repurchase agreement. All these, reinforce the conclusion that the counter-proposal was unilaterally made and
inserted by the plaintiff-appellee in Exhibit "I" and could not have been accepted by the defendant-appellant, and
that a different agreement other than a repurchase agreement was perfected between them.37

Petitioner Fausto C. Ignacio passed away on November 11, 2008 and was substituted by his heirs, namely: Marfel
D. Ignacio-Manalo, Milfa D. Ignacio-Manalo and Faustino D. Ignacio.
WHEREFORE, the petition for review on certiorari is DENIED. The Decision dated July 18, 2006 and Resolution
dated May 2, 2007 of the Court of Appeals in CA-G.R. CV No. 73551 are hereby AFFIRMED.

With costs against the petitioners.

SO ORDERED.

G.R. No. 173622 March 11, 2013

ROBERN DEVELOPMENT CORPORATION and RODOLFO M. BERNARDO, JR., Petitioners,

vs.
PEOPLE'S LANDLESS ASSOCIATION represented by FLORIDA RAMOS and NARDO LABORA, Respondent.

DECISION

DEL CASTILLO, J.:

"This Court cannot presume the existence of a sale of land, absent any direct proof of it."1

Challenged in this Petition for Review on Certiorari are the August 16, 2005 Decision2 and May 30, 2006
Resolution3 of the Court of Appeals (CA) in CA-G.R. CV No. 66071, which ordered petitioner Robern Development
Corporation (Robern) to reconvey the 2,000-square meter lot it bought from Al-Amanah Islamic Development Bank
of the Philippines (Al-Amanah) to respondent People's Landless Association (PELA).

Factual Antecedents

Al-Amanah owned a 2000-square meter lot located in Magtu-od, Davao City and covered by Transfer Certificate of
Title (TCT) No. 138914.4 On December 12, 1992, Al-Amanah Davao Branch, thru its officer-in-charge Febe O. Dalig
(OIC Dalig), asked5 some of the members of PELA6 to desist from building their houses on the lot and to vacate the
same, unless they are interested to buy it. The informal settlers thus expressed their interest to buy the lot at
₱100.00 per square meter, which Al-Amanah turned down for being far below its asking price.7 Consequently, Al-
Amanah reiterated its demand to the informal settlers to vacate the lot.8

In a letter9 dated March 18, 1993, the informal settlers together with other members comprising PELA offered to
purchase the lot for ₱300,000.00, half of which shall be paid as down payment and the remaining half to be paid
within one year. In the lower portion of the said letter, Al-Amanah made the following annotation:

Note:

Subject offer has been acknowledged/received but processing to take effect upon putting up of the partial amt. of
₱150,000.00 on or before April 15, 1993.

By May 3, 1993, PELA had deposited ₱150,000.00 as evidenced by four bank receipts.10 For the first three
receipts, the bank labelled the payments as "Partial deposit on sale of TCT No. 138914", while it noted the 4th
receipt as "Partial/Full payment on deposit on sale of A/asset TCT No. 138914."

In the meantime, the PELA members remained in the property and introduced further improvements.

On November 29, 1993, Al-Amanah, thru Davao Branch Manager Abraham D. Ututalum-Al Haj, wrote then PELA
President Bonifacio Cuizon, Sr. informing him of the Head Office’s disapproval of PELA’s offer to buy the said 2,000-
square meter lot, viz:

Dear Mr. Cuizon, Sr.,

Please be inform[ed] that your offer to purchase the lot covered by TCT No. T-138914, containing an area of 2,000
square meters, located at Bakingan, Barangay Magtuod, Davao City for ₱300,000.00 has been turned down by the
top management, due to the reason that your offered price is way below the selling price of the Bank which is
₱500.00 per square meter, or negotiate but on Cash basis only.

You had been told regarding this matter, but you failed to counter offer since you have [conferred] with the Bank’s
local management. Despite x x x the time given to you to counter offer or to vacate the lot presently and illegally
occupied by you and the members of the association, still you refrain to hear our previous notices. You even
deliberately construct more residential structures without our permission. As such, you are finally instructed to
vacate the lot and remove all the house structures erected on the said lot within 15 days upon receipt of this letter.
Failure on your part including that of the members, the Bank will be constrained to take legal action against you.

Furthermore, you can withdraw the amount deposited in the name of your association anytime during banking
hours.11

Subsequently, Al-Amanah sent similarly worded letters,12 all dated December 14, 1993, to 19 PELA members
demanding that they vacate the lot.

In a letter13 dated December 20, 1993, PELA, through Atty. Pedro S. Castillo, replied that it had already reached an
agreement with Al-Amanah regarding the sale of the subject lot based on their offered price:

Dear Mr. Ututalum-Al-Haj,

The People’s Landless Association, Inc., through Mr. Bonifacio Cuizon, Sr. has requested us to assist them in
communicating with you anent your letter of 29 November 1993. According to Mr. Cuizon the present occupants of
the lot covered by T.C.T. No. T-138914 with an area of 2,000 square meters, had a definite agreement with the
Islamic Bank through its previous Manager or
Officer-in-Charge to buy this foreclosed property at ₱300,000.00. As a matter of fact their deposit of ₱150,000.00
was on that basis. For this reason, the occupants, who are members of the association, have already made lot
allocations among themselves and have improved their respective houses.

It would be most unfair if the Bank would now renege on its commitment and eject these occupants. In line with the
national policy of granting landless members of our society the opportunity of owning land and providing shelter to
their families, it would be equitable and socially justifiable to grant these occupants their occupied areas pursuant to
the earlier agreement with the Bank.

For the foregoing reasons we hope that the Islamic Bank, for legal, moral and social grounds would reconsider.

Meanwhile, acting on Robern’s undated written offer,14 Al-Amanah issued a Recommendation Sheet15 dated
December 27, 1993 addressed to its Board Operations Committee, indicating therein that Robern is interested to
buy the lot for ₱400,000.00; that it has already deposited 20% of the offered purchase price; that it is buying the lot
on "as is" basis; and, that it is willing to shoulder the relocation of all informal settlers therein. On December 29,
1993, the Head Office informed the Davao Branch Manager that the Board Operations Committee had accepted
Robern’s offer.16

Eight days later, Robern was informed of the acceptance. Al-Amanah stressed that it is Robern’s responsibility to
eject the occupants in the subject lot, if any, as well as the payment of the remaining amount within 15 days;
otherwise, the ₱80,000.00 deposit shall be forfeited.17

In a letter18 dated January 13, 1994, Robern expressed to Al-Amanah its uncertainty on the status of the subject lot,
viz.:

This is in connection with TCT No. 138914 which your bank offered to sell to us and which we committed to buy.

A group calling itself PEOPLE’S LANDLESS ASSOCIATION, INC. made representation with our office bringing with
them copies of official receipts totalling ₱150,000.00 issued by your bank which stated---"PARTIAL
PAYMENT/DEPOSIT on sale of TCT #138914".

While condition no. 6 in the sale of property to us states that the buyer shall be responsible for ejecting the squatters
of the property, the occupants of the said lot could hardly be categorized as squatters considering the supposed
transaction previously entered by your bank with them. We were greatly appalled that we should learn about this not
from the bank but from outside sources.1âwphi1

My company is ready to finalize our transaction provided, however, that the problem with this group is cleared. In
this connection, we are requesting for a definite statement from your bank on whether the official receipts being
brandished by this group are genuine or not, and if they were, were they ever invalidated by virtue of the return of
their deposit and whether there was a cancellation of your agreement with them.

In the meantime, please consider the 15-day period for us to pay the amount of ₱320,000.00 imposed by your bank
suspended until such time that the legal problem with the lot occupants is settled.

To convince Robern that it has no existing contract with PELA, Al-Amanah furnished it with copies of the Head
Office’s rejection letter of PELA’s bid, the demand letters to vacate, and the proof of consignment of PELA’s
₱150,000.00 deposit to the Regional Trial Court (RTC) of Davao City that PELA refused to withdraw.19 Thereafter,
on February 2, 1994, it informed Robern that should the latter fail to pay the balance by February 9, 1994, its
₱80,000.00 deposit will be forfeited and the lot shall be up for sale to other prospective buyers.20 Meanwhile, Al-
Amanah requested for assistance for the removal of the houses not only from the Office of the City Engineer of
Davao City21 but also from Mayor Rodrigo Duterte. Gaining a favorable legal opinion from the City Legal Officer, the
matter was indorsed to the Chief of Demolition Consensus of the Department of Public Services for action.22

On March 4, 1994, Robern paid the balance of the purchase price.23 The Deed of Sale24 over the realty was
executed on April 6, 1994 and TCT No. T-21298325 was issued in Robern’s name the following day.

A week later, PELA consigned ₱150,000.00 in the RTC of Davao City.26 Then on April 14, 1994, it wrote27 Al-
Amanah asking the latter to withdraw the amount consigned. Part of the letter states:
xxxx

On March 21, 1994 (almost one month before the April 15, 1994 deadline) we came to your bank to remit the
balance and full payment [for] the abovementioned lot. [Inasmuch] as you refuse[d] to accept the payment, we have
decided to deposit the amount consigned to your bank.

In our dialogue at your office in 1993, we have agreed that documents will be processed as soon as we pay the
₱150,000.00 initial deposit. [Inasmuch] as we have not only paid the deposit but have also made full payment of the
account, kindly facilitate processing of the documents to finalize transaction.

We have not been remiss in doing our part of the transaction; please do your share.

Thank you.

Very truly yours,

For the occupants/claimants

T.C.T. No. T-13891428

Three months later, as its members were already facing eviction and possible demolition of their houses, and in
order to protect their rights as vendees, PELA filed a suit for Annulment and Cancellation of Void Deed of Sale29
against Al-Amanah, its Director Engr. Farouk Carpizo (Engr. Carpizo), OIC Dalig, Robern, and Robern’s President
and General Manager, petitioner Rodolfo Bernardo (Bernardo) before the RTC of Davao City. It insisted that as early
as March 1993 it has a perfected contract of sale with Al-Amanah. However, in an apparent act of bad faith and in
cahoots with Robern, Al-Amanah proceeded with the sale of the lot despite the prior sale to PELA.

Incidentally, the trial court granted PELA’s prayer for a temporary restraining order.30 Subsequently, it issued on
August 12, 1994 an Order31 finding merit in the issuance of the writ of preliminary injunction, inter alia. The RTC’s
grant of injunctive relief was affirmed by the CA in CA-G.R. SP No. 3523832 when the factual and legal bases for its
issuance were questioned before the appellate court.

The respondents in the annulment case filed their respective Answers.33 Al-Amanah and Engr. Carpizo claimed that
the bank has every right to sell its lot to any interested buyer with the best offer and thus they chose Robern. They
clarified that the ₱150,000.00 PELA handed to them is not part of the payment but merely a deposit in connection
with its offer. They asserted that PELA was properly apprised that its offer to buy was subject to the approval of Al-
Amanah’s Head Office. They stressed that Al-Amanah never entered into a sale with PELA for there was no
perfected agreement as to the price since the Head Office rejected

PELA’s offer.

For their part, Robern and Bernardo asserted the corporation’s standing as a purchaser in good faith and for value
in the sale of the property, having relied on the clean title of Al-Amanah. They also alleged that the purported sale to
PELA is violative of the Statute of Frauds34 as there is no written agreement covering the same.

Ruling of the Regional Trial Court

In its August 10, 1999 Decision,35 the RTC dismissed PELA’s Complaint. It opined that the March 18, 1993 letter
PELA has been relying upon as proof of a perfected contract of sale was a mere offer which was already rejected.

Furthermore, the annotation appearing in the bottom part of the said letter could not be construed as an acceptance
because the same is a mere acknowledgment of receipt of the letter (not the offer) which will still be subject to
processing. The RTC likewise ruled that being a corporation, only Al-Amanah’s board of directors can bind the bank
with third persons involving the sale of its property. Thus, the purported offer made by Al-Amanah’s OIC, who was
never conferred authority by the board of directors to sell the lot, cannot bind the bank. In contrast, when the Head
Office accepted Robern’s offered price, it was duly approved by the board of directors, giving birth to a perfected
contract of sale between Al-Amanah and Robern.

Refusing to accept the Decision, PELA elevated its case to the CA.36

Ruling of the Court of Appeals

Reversing the RTC in its assailed Decision37 of August 16, 2005, the CA ruled that there was already a perfected
contract of sale between PELA and Al-Amanah. It held that the annotationon the lower portion of the March 18, 1993
letter could be construed to mean that for Al-Amanah to accept PELA’s offer, the sum of ₱150,000.00 must be first
put up. The CA also observed that the subsequent receipt by Al-Amanah of the amounts totalling ₱150,000.00, and
the annotation of "deposit on sale of TCT No. 138914," on the receipts it issued explicitly indicated an acceptance of
the association’s offer to buy. Consequently, the CA invalidated the sale between Robern and Al-Amanah.

The CA also concluded that Al-Amanah is guilty of bad faith in dealing with PELA because it took Al-Amanah almost
seven months to reject PELA’s offer while holding on to the ₱150,000.00 deposit. The CA thus adjudged PELA
entitled to moral and exemplary damages as well as attorney’s fees.

The dispositive portion of the CA Decision reads:

WHEREFORE, premises considered, the assailed Decision is SET ASIDE. Judgment is hereby rendered:

1. DECLARING the contract of sale between PELA and defendant Bank valid and subsisting.

2. ORDERING the defendant Bank to receive the balance of ₱150,000.00 of the purchase price from PELA as
consigned in court.

3. DECLARING the deed of sale executed by defendant Bank in favor or Robern Development Corporation as
invalid and, therefore, void.

4. ORDERING defendant Bank to return to Robern the full amount of ₱400,000.00 which Robern paid as the
purchase price of the subject property within ten (10) days from finality of this decision. It shall earn a legal interest
of twelve percent (12%) per annum from the tenth (10th) day aforementioned if there is delay in payment.

5. ORDERING Robern Development Corporation to reconvey the land covered by T.C.T. No. 212983 in favor of
People’s Landless Association within a similar period of ten (10) days from finality of this decision.

6. ORDERING defendant Bank to pay plaintiffs-appellants the following:

a. The sum of ₱100,000.00 as moral damages;

b. The sum of ₱30,000.00 as exemplary damages;

c. The sum of ₱30,000.00 as attorney’s fees;

d. A legal interest of SIX PERCENT (6%) per annum on the sums awarded in (a), (b), and (c) from the date of this
Decision up to the time of full payment thereof.

SO ORDERED.38

Robern and Bernardo filed a Motion for Reconsideration39 which Al-Amanah adopted. The CA, however, was firm in
its disposition and thus denied40 the same. Aggrieved, Robern and Al-Amanah separately filed Petitions for Review
on Certiorari before us. However, Al-Amanah’s Petition docketed as G.R. No. 173437, was denied on September
27, 2006 on procedural grounds.41 Al-Amanah’s Motion for Reconsideration of the said Resolution of dismissal was
denied with finality on December 4, 2006.42

Hence, only the Petition of Robern and Bernardo subsists.

Petitioners’ Arguments

Petitioners stress that there was no sale between PELA and Al-Amanah, for neither a deed nor any written
agreement was executed. They aver that Dalig was a mere OIC of Al-Amanah’s Davao Branch, who was never
vested with authority by the board of directors of Al-Amanah to sell the lot. With regard to the notation on the March
18, 1993 letter and the four bank receipts, Robern contends that these are only in connection with PELA’s offer.

Petitioners likewise contend that Robern is a purchaser in good faith. The PELA members are mere informal
settlers. The title to the lot was clean on its face, and at the time Al-Amanah accepted Robern’s offer, the latter was
unaware of the alleged transaction with PELA. And when PELA later represented to Robern that it entered into a
transaction with Al-Amanah regarding the subject lot, Robern even wrote Al-Amanah to inquire about PELA’s claim
over the property. And when informed by Al-Amanah that it rejected the offer of PELA and of its action of requesting
assistance from the local government to remove the occupants from the subject property, only then did Robern push
through with the sale.

Respondent’s Arguments

PELA, on the other hand, claims that petitioners are not the proper parties who can assail the contract of sale
between it and the bank. It likewise argues that the Petition should be dismissed because the petitioners failed to
attach the material portions of the records that would support its allegations, as required by Section 4, Rule 45 of the
Rules of Court.43

Aside from echoing the finding of the CA that Al-Amanah has a perfected contract of sale with PELA, the latter
further invokes the reasoning of the RTC and the CA (CA-G.R. SP No. 35238) in finding merit in the issuance of the
writ of preliminary injunction, that is, that there was ‘an apparent perfection of contract (of sale) between the Bank
and PELA.’44 Furthermore, PELA claims that Al-Amanah accepted its offered price and the ₱150,000.00, thus
barring the application of the Statute of Frauds as the contract was already partially executed. As to the non-
existence of a written contract evidencing the same, PELA ascribes fault on the bank claiming that nothing
happened despite its repeated follow-ups for the OIC of Al-Amanah to execute the deed after payment of the
₱150,000.00 in May 1993.

Issue

At issue before us is whether there was a perfected contract of sale between PELA and Al-Amanah, the resolution of
which will decide whether the sale of the lot to Robern should be sustained or not.

Our Ruling

We shall first briefly address some matters raised by PELA.

PELA’s contention that Robern cannot assail the alleged sale between PELA and Al-Amanah is untenable. Robern
is one of the parties who claim title to the disputed lot. As such, it is a real party in interest since it stands to be
benefited or injured by the judgment.45

Petitioners’ failure to attach the material portions of the record that would support the allegations in the Petition is
not fatal. We ruled in F.A.T. Kee Computer Systems, Inc. v. Online Networks International, Inc.,46 thus:

x x x However, such a requirement failure to attach material portions of the record was not meant to be an ironclad
rule such that the failure to follow the same would merit the outright dismissal of the petition. In accordance with
Section 7 of Rule 45, ‘the Supreme Court may require or allow the filing of such pleadings, briefs, memoranda or
documents as it may deem necessary within such periods and under such conditions as it may consider
appropriate.’ More importantly, Section 8 of Rule 45 declares that ‘[i]f the petition is given due course, the Supreme
Court may require the elevation of the complete record of the case or specified parts thereof within fifteen (15) days
from notice.’ x x x47

Anent the statement of the courts below that there was ‘an apparent perfection of contract (of sale) between Al-
Amanah and PELA’, we hold that the same is strictly confined to the resolution of whether a writ of preliminary
injunction should issue since the PELA members were then about to be evicted. PELA should not rely on such
statement as the same is not decisive of the rights of the parties and the merits of this case.

We shall now delve into the crucial issue of whether there was a perfected contract of sale between PELA and Al-
Amanah.

Essential Elements of a Contract of Sale

A contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the
contract and upon the price.48 Thus, for a contract of sale to be valid, all of the following essential elements must
concur: "a) consent or meeting of the minds; b) determinate subject matter; and c) price certain in money or its
equivalent."49

In the case at bench, there is no controversy anent the determinate subject matter, i.e., the 2,000-square meter lot.
This leaves us to resolve whether there was a concurrence of the remaining elements.

As for the price, fixing it can never be left to the decision of only one of the contracting parties.50 "But a price fixed
by one of the contracting parties, if accepted by the other, gives rise to a perfected sale."51

As regards consent, "when there is merely an offer by one party without acceptance of the other, there is no
contract."52 The decision to accept a bidder’s proposal must be communicated to the bidder.53 However, a binding
contract may exist between the parties whose minds have met, although they did not affix their signatures to any
written document,54 as acceptance may be expressed or implied.55 It "can be inferred from the contemporaneous
and subsequent acts of the contracting parties."56 Thus, we held:

x x x The rule is that except where a formal acceptance is so required, although the acceptance must be
affirmatively and clearly made and must be evidenced by some acts or conduct communicated to the offeror, it may
be made either in a formal or an informal manner, and may be shown by acts, conduct, or words of the accepting
party that clearly manifest a present intention or determination to accept the offer to buy or sell. Thus, acceptance
may be shown by the acts, conduct, or words of a party recognizing the existence of the contract of sale.57

There is no perfected contract of sale between PELA and Al-Amanah for want of consent and agreement on the
price.

After scrutinizing the testimonial and documentary evidence in the records of the case, we find no proof of a
perfected contract of sale between Al-Amanah and PELA. The parties did not agree on the price and no consent
was given, whether express or implied.

When PELA Secretary Florida Ramos (Ramos) testified, she referred to the March 18, 1993 letter which PELA sent
to Al-Amanah as the document supposedly embodying the perfected contract of sale.58 However, we find that the
March 18, 1993 letter referred to was merely an offer to buy, viz:

March 18, 1993

The Manager
Islamic Bank
Davao Branch

Davao City
Sir/Madam:

This has reference to the offer made by Messrs. Alejandro Padilla, Leonardo Labora, Boy Bartiana, Francisco Paig,
and Mr. Asterio Aki for the purchase of the acquired asset of the bank with an area of 2,000 square meters and
covered by T.C.T. No. T-138914, portions of which are occupied by their houses. These occupants have formed and
registered a group of x x x landless families who have occupied shoulders of National Highways, to be able to raise
an amount that would meet the approval of the Bank as the consideration for the purchase of the property. The
group which is known as PELA or People’s Landless Association, is offering the bank the amount of THREE
HUNDRED THOUSAND PESOS (₱300,000.00) for the whole 2,000 sq. meters. Of this amount the buyers will pay a
down payment of ONE HUNDRED FIFTY THOUSAND PESOS (₱150,000.00) and the balance payable in one (1)
year.

According to the plan of PELA, about 24 landless families can be accommodated in the property. We hope the Bank
can help these families own even a small plot for their shelter. This would be in line with the government’s program
of housing which the present administration promised to put in high gear this year.59 (Emphasis supplied)

Neither can the note written by the bank that "subject offer has been acknowledged/received but processing to take
effect upon putting up of the partial amount of ₱150,000.00 on or before April 15, 1993" be construed as acceptance
of PELA’s offer to buy. Taken at face value, the annotation simply means that the bank merely acknowledged receipt
of PELA’s letter-offer. Furthermore, by ‘processing,’ Al-Amanah only meant that it will ‘act on the offer’, i.e., it still has
to evaluate whether PELA’s offer is acceptable. Until and unless Al-Amanah accepts, there is as yet no perfected
contract of sale. Notably here, the bank never signified its ‘approval’ or ‘acceptance’ of the offer.

We cannot agree with the CA’s ratiocination that receipt of the amount, coupled with the phrase written on the four
receipts as "deposit on sale of TCT No. 138914," signified a tacit acceptance by Al-Amanah of PELA’s offer. For
sure, the money PELA gave was not in the concept of an earnest money. Besides, as testified to by then OIC Dalig,
it is the usual practice of Al-Amanah to require submission of a bid deposit which is acknowledged by way of bank
receipts before it entertains offers. Thus:

Atty. Bolcan:

Now, as far as you can remember, these receipts state that these are partial deposits, what do you mean by that?

WITNESS:

A: x x x, we normally request an offeror to submit or make deposit, actually the bank does not entertain any offer
without any deposit and just like that, during my time x x x in buying the property for those interested the bank does
not entertain any offer unless they make a deposit.

xxxx

Q: Why do you issue receipts as officer-in-charge stating only partial deposits?

A: Because there was no sale, there was no consu[m]mated sale, so any amount which you will give as a deposit
will be accepted by the bank for the offer and that if their offer will be disapproved we will return the deposit because
their offer was very low and this might be disapproved by the head office in Manila.60

xxxx

Atty. Taasan:

Do you confirm that based on the interest of the plaintiff to acquire the property they made a deposit with said bank,
as evidenced by the receipts that were shown to you by your counsel, correct?

A: Yes, sir.
Q: And according to you, the bank does not entertain any offer to buy the property without deposits?

A: Yes, sir.

Q: In this case since the plaintiffs made a deposit x x x they were properly entertained, correct?

A: Yes because it is under negotiation, now while their offer price is below the selling price of the bank.61

The absence of a perfected contract of sale was further buttressed by the testimony of PELA Secretary Ramos on
cross examination, viz:

Atty. Rabor:

Since it was x x x hard earned money you did not require the Amanah Bank when you gave that ₱150,000.00 to
reduce your agreement into writing regarding the sale of this property?

A: I insisted but she will not issue that.62

xxxx

Atty. Bolcan:

Now, on April 15, 1993 when the deposit was made, you were present?

A: Yes, sir.

Q: Now, after making the deposit of One Hundred Fifty Thousand (₱150,000.00) Pesos on April 15, 1993 did you not
request for the bank to execute a document to prove that actually you are buying the property?

A: I even said to the OIC or the manager that ma’am, now that you have received our money, where is our paper
that we were the ones to buy that property, sir.

Q: To whom are you referring to?

A: Febe Dalig, the OIC, sir.

Q: And this OIC Febe Dalig informed you that the Offer on your part to buy the property is subject for approval by
the head office in Manila, is that correct?

A: Yes she told me that it would be subject to approval in Manila x x x.

Q: And later on you were informed by the bank that your offer was not accepted by the head office in Manila, is that
correct?

A: She did not inform us but we kept on following it up with their office and she told us that it did not arrive yet, sir.63
(Emphasis supplied)

PELA Secretary Ramos’ testimony thus corroborated OIC Dalig’s consistent stand that it is the Head Office which
will decide whether Al-Amanah would accept PELA’s offer:

Atty. Bolcan:
And now, if there are interested persons making offer x x x what would you do?

A: Well, we have to screen the offer before we forward the offer to Manila for approval because…

Court:

What would you do before you forward that to Manila?

A: We will be screening the offer x x x.

Atty. Bolcan:

And you said that it is referred to Manila?

A: Yes, sir.

Q: Who will eventually approve the offer made by the interested persons to buy the property?

A: We have a committee in Manila to approve the sale of the property.

Q: Do you have any idea who will approve the offer of the property?

A: I have no idea but the president, rather it consists of the president I think and then signed also by the vice-
president and some officers in the office, sir.

xxxx

Q: Now, in case of offers of the property of the bank, x x x the officer-in-charge of the bank, Al-Amanah Bank
branch, usually refers this matter to the head office in Manila?

A: Yes, sir.

Q: And it is the head office that will decide whether the offer will be approved or not?

A: Yes as head of the branch, we have to forward the offer whether it was acceptable or not.64

It is thus undisputed, and PELA even acknowledges, that OIC Dalig made it clear that the acceptance of the offer,
notwithstanding the deposit, is subject to the approval of the Head Office. Recognizing the corporate nature of the
bank and that the power to sell its real properties is lodged in the higher authorities,65 she never falsely represented
to the bidders that she has authority to sell the bank’s property. And regardless of PELA’s insistence that she
execute a written agreement of the sale, she refused and told PELA to wait for the decision of the Head Office,
making it clear that she has no authority to execute any deed of sale.

Contracts undergo three stages: "a) negotiation which begins from the time the prospective contracting parties
indicate interest in the contract and ends at the moment of their agreement[; b) perfection or birth, x x x which takes
place when the parties agree upon all the essential elements of the contract x x x; and c) consummation, which
occurs when the parties fulfill or perform the terms agreed upon, culminating in the extinguishment thereof."66

In the case at bench, the transaction between Al-Amanah and PELA remained in the negotiation stage. The offer
never materialized into a perfected sale, for no oral or documentary evidence categorically proves that Al-Amanah
expressed amenability to the offered ₱300,000.00 purchase price. Before the lapse of the 1-year period PELA had
set to pay the remaining ‘balance,’ Al-Amanah expressly rejected its offered purchase price, although it took the
latter around seven months to inform the former and this entitled PELA to award of damages.67 Al-Amanah’s act of
selling the lot to another buyer is the final nail in the coffin of the negotiation with PELA. Clearly, there is no double
sale, thus, we find no reason to disturb the consummated sale between Al-Amanah and Robern.

At this juncture, it is well to stress that Al-Amanah’s Petition before this Court docketed as G.R. No. 173437 was
already denied with finality on December 4, 2006. Hence, we see no reason to disturb paragraph 6 of the CA’s
Decision ordering Al-Amanah to pay damages to PELA.

WHEREFORE, we PARTIALLY GRANT the Petition. Except for paragraph 6 of the Court of Appeals Decision which
had already been long settled,68 the rest of the judgment in the assailed August 16, 2005 Decision and May 30,
2006 Resolution of the Court of Appeals in CA-G.R. No. CV No. 66071 are hereby ANNULLED and SET ASIDE.
The August 10, 1999 Decision of the Regional Trial Court of Davao City, Branch 12, dismissing the Complaint for
Annulment and Cancellation of Void Deed of Sale filed by respondent People's Landless Association is
REINSTATED and AFFIRMED. The amount of Pesos: Three Hundred Thousand (₱300,000.00) consigned with the
Regional Trial Court of Davao City may now be withdrawn by People's Landless Association.

SO ORDERED.

G.R. No. 138113 October 17, 2000

EMILIO BUGATTI, petitioner,

vs.
COURT OF APPEALS and SPOUSES BEN BAGUILAT and MARIA BAGUILAT, respondents.

DECISION

GONZAGA-REYES, J.:

Before us is a petition for review on certiorari of the August 7, 1998 Decision of the Court of Appeals in CA-G.R. CV
No. 48900, reversing the July 15, 1994 Decision of the Regional Trial Court in Civil Case No. 348.

The present case traces its origins to an action for recovery of possession and damages filed by respondents Ben
and Maria Baguilat on July 11, 1989, with the Regional Trial Court of Lagawe, Ifugao against petitioner Emilio
Bugatti.1 In their complaint, respondents alleged that they are the owners of a parcel of land situated in Lagawa,
Ifugao and that sometime in December, 1987, petitioner offered to lease their land. According to respondents, they
discussed the terms and conditions of the lease with petitioner, particularly that petitioner will lease a portion of
respondents’ land for a period of nine (9) years in return for a monthly rental of P500.00; that petitioner will construct
a building on such land, the cost of which shall not exceed P40,000.00; that respondents shall reimburse petitioner
for the cost of the building by applying the rentals thereto; that after petitioner is fully reimbursed for the costs of
construction in the amount of P40,000.00, he shall continue to pay the monthly rental of P500.00 for the duration of
the lease; that upon the termination of the lease, the building shall belong to respondents. It was agreed by
petitioner and respondents that the aforesaid terms and conditions should be included in a written contract of lease
to be prepared by petitioner and presented to respondents for their approval. However, even before preparing the
contract of lease, petitioner occupied respondents’ land and began construction on January 18, 1988. Immediately
objecting to the construction, respondent Maria Baguilat demanded that the contract of lease should first be signed.
However, petitioner assured respondents that he was preparing the contract. Sometime in March, 1988, petitioner
finally presented the lease contract to respondents but it did not contain the terms and conditions previously agreed
upon. Respondents insisted that petitioner re-draft the contract in accordance with their discussions. The revised
document, presented to respondents sometime in April, 1988, contained counter-proposals. Respondents refused to
accede to such counter-proposals. Despite the fact that no contract was signed by the parties, petitioner continued
to occupy respondents’ land.

In an effort to resolve their differences, respondents resorted to extrajudicial measures, such as asking the
Barangay Captain to mediate in the hopes of arriving at an amicable settlement. However, petitioner was not
receptive and he walked out of the proceedings before the Barangay Captain. Respondents then sent petitioner a
demand letter dated November 23, 1988, asking him to vacate their property. Again, petitioner did not heed
respondents’ demands. Subsequent efforts of respondents to resolve the conflict proved equally futile. Eventually,
respondents obtained the services of counsel - Atty. Evelyn S. Dunuan, who sent petitioner a letter asking him to
desist from introducing any further improvements upon respondents’ property. Upon obtaining a certification from the
Barangay Captain, respondents filed the present case with the Regional Trial Court for recovery of the land in
question and damages.2

Contrary to respondents’ contentions, petitioner asserts that the lease contract which he prepared in fact embodied
the terms and conditions agreed upon, except for the cost of the building. Petitioner claimed that respondents had
agreed to the following terms - to lease their entire property to him for a period of nine (9) years at a monthly rental
of P500.00; that petitioner would construct a building of strong materials on respondents’ property, without any limit
as to the cost of construction; that it was later on decided by the parties to extend the period of the lease since the
cost of the building had exceeded the total amount of rentals for the nine year period; that the new lease period
would begin from the opening of petitioner’s business, and would continue at least until the recovery by petitioner of
the full amount incurred by him in the construction of the building; that petitioner will only pay rentals when he has
been fully reimbursed for construction costs; and finally, that upon the expiration of the lease contract, respondents
would own the building.

Petitioner claims that when he first submitted a draft of the lease contract to respondent Maria Baguilat, she did not
voice out any objection thereto. About two weeks later, Maria Baguilat told petitioner that she had lost the draft.
Petitioner then submitted a second draft, but respondents refused to accept it because it did not conform to the
terms and conditions agreed upon. Petitioner told respondents to wait until the building was completely finished
before he submitted another draft of the lease contract so that the price of the building could be incorporated
therein.

Petitioner claims that respondents did not object to the fact that he had started construction before the signing of the
lease contract. On the contrary, petitioner alleges that he felt that respondents had agreed to his proposals and that
they had actually given him verbal permission to begin erecting the building. According to petitioner, respondents did
not express their disapproval of the ongoing construction during any of their several visits to the construction site.
He claims that Ben Baguilat even assisted him in the levelling of the construction area; that Maria Baguilat made
suggestions as to the kind of materials that might be used; and that when petitioner informed Maria Baguilat that he
had already spent more than P90,000.00 for the construction, she advised him to keep all his receipts in order to
serve as a basis for the computation of the total costs of the building. Petitioner further claims that when the building
was completed in June, 1988, respondent Ben Baguilat invited him and his wife to their house for the drafting of the
contract. However, when petitioner told respondents that his expenses had reached P120,000.00, they pretended to
be shocked and refused to sign the lease contract.3

The trial court4 held that no contract of lease was perfected between the parties since the element of consent was
missing. The drafting of the contract - a task entrusted to petitioner - was deemed by respondents as a condition
precedent to the perfection of the lease contract and consequently, to any construction activity upon their land.
Although petitioner submitted two drafts , they did not contain the terms and conditions spoken of by the parties
during their negotiations and were accordingly rejected by respondents. However, despite the absence of a
perfected contract and in total disregard of respondents’ repeated objections, petitioner occupied respondents’ land
and commenced construction thereon, making him a builder in bad faith. The decretal portion of the trial court’s
decision provides -

WHEREFORE, premises considered, the Court hereby render[s] judgment ordering the defendant as follows, to wit:

1) To vacate the plaintiff’s land including the building thereon which is forfeited to the plaintiffs by virtue of this
decision;

2) To pay plaintiffs the sum of Twenty One Thousand (P21,000.00) Pesos by way of damages representing the
estimated cost of the building, and the reasonable compensation for the unjustified occupation and use by
defendant of plaintiffs’ land for a period of more than six (6) years;

3) To pay plaintiffs the sum of Fourteen Thousand (P14,000.00) Pesos as attorney’s fees, and

4) To pay the cost.

No pronouncement as to moral and exemplary damages as no evidence was introduced to prove the same.
SO ORDERED.5

Reversing the trial court’s decision, the Court of Appeals6 sustained the view that there was in fact a perfected
contract of lease between the parties, which was for a period of nine years, beginning on January, 1988.7
Accordingly, the appellate court held that petitioner was in good faith when he acquired possession of the land and
started construction thereon, and that he is entitled to reimbursement for the value of the improvements introduced
upon the subject property, pursuant to article 1678 of the Civil Code and principles of equity.8 However, since the
lease terminated on January, 1997, petitioner must vacate the property. The decretal portion of the assailed decision
states -

WHEREFORE, in view of the foregoing, the decision dated July 15, 1994 of the Regional Trial Court in Lagawe,
Ifugao (Branch 14) in Civil Case No. 348 is hereby REVERSED and SET ASIDE. The defendant-appellant and all
persons claiming rights under him are hereby ordered to immediately vacate the subject property and surrender the
possession thereof to the plaintiffs-appellees, and to pay to them (plaintiffs-appellees) rentals in arrears in
accordance with the fair rental value or reasonable compensation for the use and occupation of the property, which
monthly sum should be computed from January, 1988 until he has completely vacated the subject property. On the
other hand, the plaintiffs-appellees are ordered to pay the value of the improvement introduced by the defendant-
appellant. Further, the awards of attorney’s fees and costs are hereby DELETED. Consequently, let this case be
REMANDED to the Regional Trial Court for the determination of the current market value of the improvements made
by the defendant-appellant on the subject property, in accordance with Article 1678 of the New Civil Code, and the
fair rental value thereof. No pronouncement as to costs.

SO ORDERED.9

Petitioner contends that the Court of Appeals varied the terms of his contract with respondents. In his Memorandum,
petitioner summarizes the errors committed by the appellate court and asserts the terms which should have been
enforced instead, as follows -

The appellate court correctly reversed and set aside the decision of the trial court finding for the private respondents
as contrary to facts and applicable laws, but committed the error, with due respect, of fixing an [sic] entirely new
terms and conditions and imposed the same on the parties, such as:

a) for the petitioner to vacate the premises. But the lease, which was upheld by the appellate court, has not yet
expired or terminated;

b) to pay rental or compensation for the petitioner’s use of the property to be computed from January, 1988 until
petitioner vacated the property. There is no question as to payment of rentals [,] the parties having agreed [to] the
sum of P500.00 a month to be deducted from the P120,000 petitioner spent in constructing the building until
exhausted, not to be computed form the year January, 1988, but to commence on the date of the completion of the
building and start of petitioner’s business thereat.

c) the appellate court also ordered the private respondents to pay the value of the building to the petitioner, to to
[sic] this effect, ordered the case remanded back to the trial court to determine the value of the building or
improvement. The agreement of the parties is for the building to be owned by the private respondents after the
P120,000 cost of the building is exhausted by the deduction of P500.00 as monthly rental.

xxx xxx xxx

In lieu thereof, it is respectfully prayed that the petitioner and the private respondents be ordered to comply faithfully
and in good faith to the terms and conditions of their lease - the petitioner to erect a building on the leased property
and completed by him at a cost of P120,000 in March, 1988. Of this amount, the P500.00 monthly rental deducted
until exhausted, also to start March, 1988 [-] date petitioner commenced his business thereat. After exhaustion of
the P120,000 by way of monthly rentals, private respondents become owners of the building - which are clear and
not contrary to law, morals, good customs, public order, and public policy. Lease expires in March, 2008 therefor.10

The threshold issue in the present case is whether or not a contract of lease had been perfected. After receiving the
testimonial and documentary evidence of both parties, the trial court concluded that no contract of lease existed and
ruled in favor of respondents herein. The court explained its decision in this wise -
The Court after a careful evaluation of the foregoing portion of plaintiffs’ testimony cannot give its imprimatur to the
conclusion reached by defendant to the effect that plaintiffs allowed the defendant to enter into a portion of the land
in question and construct a building thereon, for such a conclusion is gratuitous as it does not portray the true
intention of the plaintiffs as alluded to by the defendant. A cursory reading of the testimony under consideration
indubitably show in its clear and unmistakable terms that it is not a blanket authority or permission for defendant to
enter the premises of the land in question, but is subject to proviso or terms and conditions to be embodied in
writing in the lease contract, which terms and conditions are elsewhere stated earlier in plaintiffs’ evidence. In this
regard, it is worthy and interesting to note, that at the inception of the work done by the defendant on the land in
question by levelling a portion of it, plaintiffs immediately protested and repeatedly demanded the defendant who
assumed to prepare the contract embodying the terms and conditions originally agreed upon for their approval
before defendant will start on the construction, which never happened due to the dilatory tactics employed by the
defendant, a circumstance which belied defendant’s contention that plaintiffs allowed defendant to occupy the land
and construct a building thereon even before the approval of the lease contract, which to the mind of this Court, is
an orchestrated scheme to dispossess the plaintiffs of their land as evidenced by defendant’s maneuvers in
successfully delaying by dubious means the finalization of a contract of lease embodying the true terms and
conditions agreed upon by the parties, furthermore, defendant instead of preparing the supposed lease contract,
and after gaining entry on the land in question and had constructed a building thereon, made counter-proposals
which were rejected by plaintiffs.

xxx xxx xxx

With the foregoing as a background, the Court ... is of the considered view, that no contract of lease was perfected
and/or consumated [sic] between the parties, ... all that was actually done was a negotiation of an intended lease
contract which did not actually materialize due to gross violation committed by the defendant of the terms and
conditions set or laid down by the plaintiffs in the course of the negotiation for which reason plaintiffs refused to sign
the draft prepared by the defendant. On the issue of perfection, and/or consummation of the alleged contract of
lease, the evidence on record speaks loud and clear that in the course of the negotiation defendant volunteered to
prepare and deliver to plaintiffs [the contract of lease] for their approval, but instead of preparing the intended
contract of lease incorporating the terms and conditions agreed upon, the defendant started the construction of a
building on plaintiffs’ land in January, 1988, whereupon plaintiff Maria Baguilat immediately protested to defendant
demanding that the contract of lease over the property should first be signed by the parties before defendant starts
any construction work on the land in question, which was adamantly ignored by the defendant. The fact that
defendant deliberately failed to prepare and finalize the supposed contract, and instead presented counter-
proposals in Exhibit "B" constitute in legal contemplation a unilateral abandonment and/or rejection by the defendant
of the terms and conditions originally agreed upon, without valid or legal ground which is indicia of his bad faith. xxx
11

xxx xxx xxx

Even assuming arguendo, that the proposal or offer made by the defendant to construct a building on the land in
question where he will later on conduct his business was allowed or permitted by the plaintiffs during the negotiation
stage between the parties as the defendant wanted to impress this Court, yet the bare fact as borne out by the
evidence remains, that the supposed permission extended to defendant is subject to the condition that the
defendant should first prepare and present to the plaintiffs the contract of lease embodying the terms and conditions
as proposed for the approval of the plaintiffs, which is clearly a condition precedent to be complied with by the
defendant. Hence, the acceptance on the part of the plaintiffs to the offer made by the defendant to lease the
property in question is not unqualified and absolute, and a qualified acceptance by express provision of Article 1319
of the New Civil Code constitutes a counter-offer. Incidentally, it has to be stressed that defendant instead of
complying with the qualified counter-offer of the plaintiffs, defendant made a counter-proposal (Exhibits "B" and "B-
1"), which contained the following, to wit:

1. Extension of period or

2. Buy the lot upon which it stands (referring to the building), or

3. Apply the remaining balance to the adjacent vacant lot, and emphasized in said exhibit, the provision of Articles
445, 447, 448, 453, and 454 of the New Civil Code.12

xxx xxx xxx

After a thorough and careful study of the records, the Court finds that the trial court was correct in ruling that no
contract of lease was perfected and accordingly, hold that the appellate court committed reversible error in ruling to
the contrary.

At the outset, it should be stated that the factual findings of the Court of Appeals are usually binding on the Supreme
Court unless there is a showing that: (1) the conclusion is a finding grounded on speculations, surmises or
conjectures; (2) the inference is manifestly mistaken, absurd and impossible; (3) where there is a grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the findings of fact are
conflicting; and (6) when the Court of Appeals, in making its findings, went beyond the issues of the case and the
same is contrary to the admission of both parties.13 We find that the assailed ruling of the appellate court is not
borne out by the evidence presented in this case. In support of its conclusion that a contract of lease was perfected,
the appellate court offered a lengthy ratiocination based merely on its own interpretation of the transcripts. However,
it is a well established principle that the evaluation of the testimonies of witnesses by the trial court is entitled to the
highest respect because such court has the direct opportunity to observe the witnesses - their demeanor and
manner of testifying - and thus, are in a better position to assess their credibility.14

Now, to the merits of the case. We agree with the trial court that when the parties met sometime in the latter part of
December, 1997 and in the first week of 1998 in order to discuss the terms and conditions of the lease, they were
merely negotiating. A contract undergoes three distinct stages - preparation or negotiation, its perfection, and finally,
its consummation. Negotiation begins from the time the prospective contracting parties manifest their interest in the
contract and ends at the moment of agreement of the parties. The perfection or birth of the contract takes place
when the parties agree upon the essential elements of the contract. The last stage is the consummation of the
contract wherein the parties fulfill or perform the terms agreed upon in the contract, culminating in the
extinguishment thereof.15 From the testimonies of respondent Maria Baguilat and petitioner it could clearly be
inferred that it was their intention that such terms and conditions were to be embodied in a lease contract to be
prepared by the latter and presented to respondents for their approval before either party could be considered
bound by the same. On direct examination, Maria Baguilat testified as follows -

ATTY. DUNUAN: (to the witness)

You mentioned that the defendant came to ask you to permit him to lease your property located at herein Lagawe?

A: Yes, Ma’m.

Q: When did he come to ask your permission?

A: Late December, 1987

Q: Where did he come to ask your permission?

A: He came to our residence.

Q: Who were present at the time he came to ask your permission?

A: My husband and myself were present.

Q: And what exactly what did the defendant ask from you?

A: When he came, he ask[ed] if we were the owner[s] of the lot located just beside the public highway and we said
"yes".

Q: What happened next after you informed him that you own the lot just beside the public highway?

A: Immediately he was asking or pleading if he could construct a little hut there for them to sell;
Q: What did your husband reply to such request?

A: We did not give him a definite yes or no. We said we will see first.

Q: What happen after that?

A: After a week, he came back asking for our final decision.

Q: This time what did you say to the request[?]

A: Because we decided with my husband, because of our relationship by affinity and because we did not like that
they’ll have a bad comment on us, we decided that we’ll permit him.

Q: What did you tell him?

A: We said to him that "you can construct a small hut but we are going to set some terms and conditions to be
followed: and he said "yes".

Q: When you said that you will allow him the defendant to construct in the land but you will set some terms and
conditions, what did you do after that?

A: When we permitted him, we discussed some terms and conditions and he acted as the secretary; he wrote down
the terms and conditions we wanted to be embodied in the contruct [sic].16

Upon cross-examination, Maria Baguilat repeatedly emphasized that she and her husband did not give petitioner
permission to occupy their property and to start construction thereon until after the written lease contract had met
with their approval. As proof of this, when petitioner started constructing upon respondents’ land before presenting
the written contract to the latter, Maria Baguilat repeatedly made known her objections to petitioner. She testified
thus -

A: We made the agreement first week of January and we advised him to type it within the first week of that month,
January, 1988.

Q: Within the second week of January, 1988, he already went to occupy a portion of your land?

A: Yes.

Q: Before he went to occupy a portion of your land, according to your testimony, he asked permission from you to
occupy that portion of your land?

A: That was verbal, when he came to ask permission.

Q: That permission was given after you gave him permission to prepare the lease agreement or simultaneously?

A: At the same time.

Q: So you gave him the authority to prepare the lease agreement at the same time the permission that he was going
to occupy that portion, you gave him the permission to occupy the land?

A: After. We are supposed to sign the contract before he start.

Q: That was your intention but earlier, you testified that simultaneously you allowed him to occupy a portion of you
land?

A: Yes. Allowed him.

COURT: (to the witness)

Q: After the first negotiation allowing him to get that paper for typing, did he come to you after that to ask permission
to occupy a portion of your land?

A: After the drafting of the lease contract, he did not come back but he started the work.

Q: You mean to impress the Court that even though there was no contract, he just went there to occupy a portion of
your property without your permission?

A: Yes.

ATTY. LUMASE:

You stated that he did not come back for permission. You mean there was a first permission?

A: At the time we made the agreement and he jot it down and he said he will type it, that was the time that we said
that you may occupy but we have to sign the lease agreement.

Q: So at the time he voluntarily offered his services to prepare the lease agreement, he asked you that in the
meantime he will occupy that portion of your land and you permitted him?

A: No, we did not but what he told us is: "I’m going to type this and bring it to you for your signature," no more.

COURT:

Q: You mean to imply to the Court that you did not give him authority yet to occupy the land in question before the
signing of the contract but what you wanted to be done is for you to sign the contract before occupying the
premises?

A: Yes.

ATTY. LUMASE:

Q: Now, before he brought the typewritten contract, you became aware that he occupied a portion of your land?

A: Yes.

Q: You became aware that he occupied the land because you allowed him?

A: We did not allow. I went to tell him to stop levelling.

Q: You stated that at the time you permitted him to draft the lease agreement, you permitted him to occupy, now
which is which?

A: There was no permission that he was going to start work before the signing of the contract.
Q: So what you said a while ago that you permitted him was not correct. May we go over the transcript. Did you
permit him or not?

COURT: (to the witness)

Q: Did you allow him to occupy before the signing?

A: We did not allow him to start. We allowed him after the contract but before the contract was signed, he started.

ATY. LUMASE:

Q: How did you come to know that he started? How?

A: I saw him already levelling the lot.

Q: And that was the first day when he started to level when you saw him?

A: No, there was a little part levelled.

Q: You and your husband went there and saw him levelling?

A: Yes.

Q: Aside from defendant, how many were helping, working with them?

A: There were two.

Q: After you saw them levelling, you returned to your house?

A: I told Emilio already, "Why did you start the leveling when there was no contract signed by us?"

Q: But nevertheless, he started to occupy and made levellings?

A: Yes, he continued despite my protest.

Q: So what you did was to make a verbal protest to stop him?

A: Yes.

Q: Until after the levelling, you saw that construction materials were brought to the area?

A: Yes.

Q: After you saw the materials, you saw that a building started to rise?

A: Yes.

Q: All the while you did not make objections?

A: I was the one always going to him but he still continued the construction.

Q: So you did not come with a desistance, you did not come to Court to stop him?

A: I did not. I’m always going to him telling him" please stop the construction" but I did not think of going to Court.

Q: From the time you saw him levelling and until a building was put up, how many months passed?

A: That was January-February and early part of March.

Q: And the building was first put up on what month?

A: Early part of March.

Q: When the building was constructed, you saw him occupy it, is it not?

A: I saw them staying there.

Q: So from January to March, the contract was not yet prepared by him and you did nothing to have the contract be
executed as construction of the building took place?

A: I always go to him.

Q: Aside from going to him, you did nothing more?

A: There was a time I went to a policeman to ask him to stop the construction of Bugatti and he said, "I do not have
the order to stop him." I do not know there was supposed to be an order before a policeman could go there, and
kept quiet.

Q: Now, what you did was go to the site and notice the construction and return home. How many times did that
happen?

A: Many times.17

[Underscoring supplied]

Aside from their verbal objections, respondents sent petitioner two demand letters. The first one, dated November
23, 1988 and signed and received by petitioner on December 13, 1988, asked him to vacate the property.18 A
second letter dated April 3, 1989 and received by petitioner on the same day demanded that petitioner terminate all
construction work upon respondents’ property.19 Respondents’ vehement protests against petitioner’s construction
activities are irreconcilable with the appellate court’s finding that the parties had entered into a lease contract. If
respondents had considered themselves bound by their discussions with petitioner, the former would not have
cause to object to the construction activities upon their land because such would have been in accordance with the
alleged terms of the lease. In this regard, neither could petitioner unequivocally declare that respondents’ allowed
him to commence construction prior to the drafting of the contract of lease. He stated that -

Q: According to the testimony of Mrs. Maria Baguilat, she said she did not allow you to occupy the land. What can
you say to that?

A: I do not know of such disallowance.

Q: What is the truth?

A: I feel there was concurrence to my proposal. In fact and in truth the husband joined in the earth moving.

Q: That permission to occupy or construct on their land, was it in writing?

A: Verbal.

Q: Who between the plaintiffs communicated to you and permitted you to start occupying their land?

A: I suppose both of them.20

In a contract of lease, one of the parties binds himself to give to another the enjoyment or use of a thing for a price
certain, and for a period which may be definite or indefinite.21 Being a consensual contract, a lease is perfected at
the moment there is a meeting of the minds upon the thing and the cause or consideration which are to constitute
the contract.22 The area of agreement must extend to all points that the parties deem material.23

In the case at bar, there is a great degree of divergence between the parties as to the terms of the lease.
Respondent Maria Baguilat testified that she and her husband were amenable to leasing out only a portion of their
property for a period of nine years to start in January, 1988. A monthly rental of P500.00 was to be set off against
the construction costs incurred by petitioner, which costs the parties had agreed to limit to P40,000.00. At the end of
the nine year period, ownership and possession of the building would be transferred to respondents.24

Meanwhile, petitioner claimed that the agreement with respondents covered the lease of the entire lot, to begin on
the date petitioner opened for business thereon. According to petitioner, the lease was initially intended to last for a
period of nine years, however, the same was subsequently extended for an indefinite period - up until he is fully
reimbursed for the full amount incurred in constructing the building (by virtue of the setting-off of the monthly rental
of P500.00 against such expenses). Petitioner insists that during his discussions with respondents no mention was
made of any limits upon his construction costs.25

The extensive degree of ambiguity, insofar as the terms of the intended contract were concerned, particularly with
regard to the area to be leased and the amount to be spent on the building to be constructed by him, was revealed
by the uncertain and evasive statements of petitioner during direct examination -

Q: By the way, you are going to lease their lot. Is that the entire lot?

A: What is in my mind is the entire lot.

Q: Did you communicate your desire to lease their lot?

A: Yes.

Q: What was their response?

A: Positive.

Q: When you said positive, what do you mean?

A: Yes.

Q: Who between the plaintiffs, Ben Baguilat and Maria Baguilat, did you communicate your desire about their lot?

A: Both of them.
Q: You said while ago, they answered yes. Did the two of them answered [sic] in the affirmative or only one of them?

A: Not exactly saying yes but the very good things that led to the drafting since both of them were receptive, their
answers were inclined- we will enter into that.

Q: In other words, they are amenable to lease their lot to you?

A: Yes.

Q: For how much monthly rental?

A: 500 a month.

Q: For how many months or years?

A: Nine years but the nine years later on was amended because the cost of the building was assessed after it was
finished and it exceeded the suppose rentals paid for nine years.

Q: Because it was amended, how long as to the lease of the lot?

A: Until, subject to the actual amount of expenses is fully paid.

Q: Do you recall when the lease started to consummate?

A: On the actual start of business, that was the agreement.

xxx xxx xxx

Q: According to the testimony of Mrs. Maria Baguilat, she confirms nine years, rentals of ₱500.00 but according to
her, she said what they wanted to lease to you was only a portion of the lot. What can you say to that?

A: I am not aware of that.

Q: What was exactly your agreement with regards to the area of the lot?

A: We have not agreed on the area. I was referring to the lot which is .5 by 20 meters.

xxx xxx xxx

ATTY LUMASE continuing:

Q: How about the plaintiffs, did they state to you also any particular area they are interested to lease to you?

A: None. No drawing plan.

Q: According to Maria Baguilat, she said that the amount of the materials to be used in the construction should not
exceed P40,000.00. What can you say to that?

A: I am not aware.
Q: You want to impress the Honorable Court, the plaintiffs did not tell you that?

A: Yes, sir.

Q: With respect to the amount to be spent in the construction of the improvements on the lease area, what is the
particular agreement you had with the plaintiffs regarding the amount?

A: Originally, it was not touch [sic] in the oral agreement. It was only later on when the construction was being
finished. I ran out of money and I tried to borrow from them. I understand I told her I spent that much.26

That the area of the property to be leased to petitioner and the amount of the construction costs, which would
ultimately determine the period of the lease, remained indeterminate only bolsters the trial court’s conclusion that
there has been no meeting of minds between the parties insofar as the essential conditions of the proposed contract
are concerned. It is difficult to believe that respondents would give petitioner unbridled discretion in determining
such important matters.

It is worth noting that petitioner actually admitted that he made counter-proposals to respondents. Sometime in
March, 1988, the first draft of the lease contract was presented by petitioner to respondents and promptly rejected
by the latter since it did not embody the terms and conditions as discussed by the parties. Respondents asked
petitioner to revise the draft so as to conform to their discussions; however, instead of re-writing the document,
petitioner came up with counter-proposals (Exhibit B).27 Petitioner’s acceptance obviously varied the terms of
respondents’ offer, thus giving rise to a counter-offer. This only proves that the element of consent is wanting, there
having been no concurrence of offer and acceptance with respect to the material points of the intended lease.

In retrospect, petitioner’s improper intentions have become evident. During negotiations, petitioner led respondents
to believe that he was amenable to their terms, but in truth, as clearly shown by the first draft he prepared (Exhibit A)
and his counter-proposals (Exhibit B), he harbored his own very different ideas regarding the essential terms and
conditions of the proposed lease. Although he was well aware that respondents were withholding their assent to the
lease until such time that the contract containing all the material terms and conditions previously discussed by the
parties had been drafted by petitioner and presented to them for their approval, petitioner occupied respondents’
property and began construction as early as January, 1988. By commencing construction of the building so soon
after the negotiations of the parties and before submitting the promised draft to respondents, petitioner wanted to
ensure that respondents would no longer be able to back out of the proposed contract.

Petitioner is undoubtedly a builder in bad faith for despite the absence of a perfected contract of lease and in utter
disregard of respondents’ numerous protests, he continued his construction activities upon respondents’ land. Under
articles 44928 and 45029 of the Civil Code, respondents have the following options: (1) to appropriate what
petitioner has built, without any obligation to pay indemnity; (2) to ask petitioner to remove what he has built; or (3)
to compel petitioner to pay the value of the land.30 In addition, respondents are entitled to damages,31 which shall
be equivalent to the fair rental value of the land beginning from January, 1988 until respondents recover possession
thereof. This case shall be remanded to the trial court for the determination of the proper amount of rentals.

WHEREFORE, the Petition is GRANTED and the Decision of the Court of Appeals promulgated on August 7, 1998
is hereby SET ASIDE.

SO ORDERED.