G.R. No. L-21507 June 7, 1971 Appellant's contention is untenable.
Appellant's contention is untenable. The abovementioned legal provision does not apply to its case, because the same speaks of
PEOPLE OF THE PHILIPPINES, plaintiff-appellee,
vs.
NATIVIDAD FRANKLIN, accused, ASIAN SURETY & INSURANCE COMPANY, INC., bondsman-appellant.
Office of the Solicitor General Arturo A. Alafriz, Acting Solicitor General Isidro C. Borromeo and Solicitor Antonio M. Consing
for plaintiff-appellee.
Advincula, Astraquillo, Villa & Ramos for bondsman-appellant.
DIZON, J.:
Appeal taken by the Asian Surety & Insurance Company, Inc. from the decision of the Court of First Instance of Pampanga dated
April 17, 1963, forfeiting the bail bond posted by it for the provisional release of Natividad Franklin, the accused in Criminal
Case No. 4300 of said court, as well as from the latter's orders denying the surety company's motion for a reductions of bail, and
its motion for reconsideration thereof.
It appears that an information filed with the Justice of the Peace Court of Angeles, Pampanga, docketed as Criminal Case No.
5536, Natividad Franklin was charged with estafa. Upon a bail bond posted by the Asian Surety & Insurance Company, Inc. in
the amount of P2,000.00, she was released from custody.
After the preliminary investigation of the case, the Justice of the Peace Court elevated it to the Court of First Instance of
Pampanga where the Provincial Fiscal filed the corresponding information against the accused. The Court of First Instance then
set her arraignment on July 14, 1962, on which date she failed to appear, but the court postponed the arraignment to July 28 of
the same year upon motion of counsel for the surety company. The accused failed to appear again, for which reason the court
ordered her arrest and required the surety company to show cause why the bail bond posted by it should not be forfeited.
On September 25, 1962, the court granted the surety company a period of thirty days within which to produce and surrender the
accused, with the warning that upon its failure to do so the bail bond posted by it would be forfeited. On October 25, 1962 the
surety company filed a motion praying for an extension of thirty days within which to produce the body of the accused and to
show cause why its bail bond should not be forfeited. As not withstanding the extension granted the surety company failed to
produce the accused again, the court had no other alternative but to render the judgment of forfeiture.
Subsequently, the surety company filed a motion for a reduction of bail alleging that the reason for its inability to produce and
surrender the accused to the court was the fact that the Philippine Government had allowed her to leave the country and proceed
to the United States on February 27, 1962. The reason thus given not being to the satisfaction of the court, the motion for
reduction of bail was denied. The surety company's motion for reconsideration was also denied by the lower court on May 27,
1963, although it stated in its order that it would consider the matter of reducing the bail bond "upon production of the accused."
The surety company never complied with this condition.
Appellant now contends that the lower court should have released it from all liability under the bail bond posted by it because its
failure to produce and surrender the accused was due to the negligence of the Philippine Government itself in issuing a passport
to said accused, thereby enabling her to leave the country. In support of this contention the provisions of Article 1266 of the New
Civil Code are invoked.
1
the relation between a debtor and a creditor, which does not exist in the case of a surety upon a bail bond, on the one hand, and
the State, on the other.
In U.S. vs. Bonoan, et al., 22 Phil., p. 1, We held that:
The rights and liabilities of sureties on a recognizance or bail bond are, in many respects,
different from those of sureties on ordinary bonds or commercial contracts. The former can
discharge themselves from liability by surrendering their principal; the latter, as a general rule,
can only be released by payment of the debt or performance of the act stipulated.
In the more recent case of Uy Tuising, 61 Phil. 404, We also held that:
By the mere fact that a person binds himself as surety for the accused, he takes charge of, and
absolutely becomes responsible for the latter's custody, and under such circumstances it is
incumbent upon him, or rather, it is his inevitable obligation not merely a right, to keep the
accused at all times under his surveillance, inasmuch as the authority emanating from his
character as surety is no more nor less than the Government's authority to hold the said accused
under preventive imprisonment. In allowing the accused Eugenio Uy Tuising to leave the
jurisdiction of the Philippines, the appellee necessarily ran the risk of violating and in fact it
clearly violated the terms of its bail bonds because it failed to produce the said accused when
on January 15, 1932, it was required to do so. Undoubtedly, the result of the obligation
assumed by the appellee to hold the accused at all times to the orders and processes of the
lower court was to prohibit said accused from leaving the jurisdiction of the Philippines
because, otherwise, said orders and processes would be nugatory and inasmuch as the
jurisdiction of the court from which they issued does not extend beyond that of the Philippines,
they would have no binding force outside of said jurisdiction.
It is clear, therefore, that in the eyes of the law a surety becomes the legal custodian and jailer of the accused, thereby assuming
the obligation to keep the latter at all times under his surveillance, and to produce and surrender him to the court upon the latter's
demand.
That the accused in this case was able to secure a Philippine passport which enabled her to go to the United States was, in fact,
due to the surety company's fault because it was its duty to do everything and take all steps necessary to prevent that departure.
This could have been accomplished by seasonably informing the Department of Foreign Affairs and other agencies of the
government of the fact that the accused for whose provisional liberty it had posted a bail bond was facing a criminal charge in a
particular court of the country. Had the surety company done this, there can be no doubt that no Philippine passport would have
been issued to Natividad Franklin.
UPON ALL THE FOREGOING, the decision appealed from is affirmed in all its parts, with costs.
Concepcion C.J., Reyes, J.B.L., Makalintal, Zaldivar, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.
Castro, J., took no part.
G.R. No. L-23546 August 29, 1974
LAGUNA TAYABAS BUS COMPANY and BATANGAS TRANSPORTATION COMPANY, petitioners,
vs.
FRANCISCO C. MANABAT, as assignee of Bian Transportation Company, Insolvent, respondent.
Domingo E. de Lara for petitioners.
M. A. Concordia & V.A. Guevarra for respondent.
MAKASIAR, J.:p
This is an appeal by certiorari from a judgment of the Court of Appeals dated August 31, 1964, which WE AFFIRM.
The undisputed facts are recounted by the Court of Appeals through then Associate Justice Salvador Esguerra thus:
On January 20, 1956, a contract was executed whereby the Bian Transportation Company
leased to the Laguna-Tayabas Bus Company at a monthly rental of P2,500.00 its certificates of
public convenience over the lines known as Manila-Bian, Manila-Canlubang and Sta. Rosa-
Manila, and to the Batangas Transportation Company its certificate of public convenience over
the line known as Manila-Batangas Wharf, together with one "International" truck, for a period
of five years, renewable for another similar period, to commence from the approval of the lease
contract by the Public Service Commission. On the same date the Public Service Commission
provisionally approved the lease contract on condition that the lessees should operate on the
leased lines in accordance with the prescribed time schedule and that such approval was
subject to modification or cancellation and to whatever decision that in due time might be
rendered in the case.
Sometime after the execution of the lease contract, the plaintiff Bian Transportation Company
was declared insolvent in Special Proceedings No. B-30 of the Court of First Instance of
Laguna, and Francisco C. Manabat was appointed as its assignee. From time to time, the
defendants paid the lease rentals up to December, 1957, with the exception of the rental for
August 1957, from which there was deducted the sum of P1,836.92 without the consent of the
plaintiff. This deduction was based on the ground that the employees of the defendants on the
leased lines went on strike for 6 days in June and another 6 days in July, 1957, and caused a
loss of P500 for each strike, or a total of P1,000.00; and that in Civil Case No. 696 of the Court
of First Instance of Batangas, Branch II, judgment was rendered in favor of defendant Batangas
Transportation Company against the Bian Transportation Company for the sum of P836.92.
The assignee of the plaintiff objected to such deduction, claiming that the contract of lease
would be suspended only if the defendants could not operate the leased lines due to the action
of the officers, employees or laborers of the lessor but not of the lessees, and that the
deduction of P836.92 amounted to a fraudulent preference in the insolvency proceedings as
whatever judgment might have been rendered in favor of any of the lessees should have been
filed as a claim in said proceedings. The defendants neither refunded the deductions nor paid
the rentals beginning January, 1958, notwithstanding demands therefor made from time to
time. At first, the defendants assured the plaintiff that the lease rentals would be paid, although
it might be delayed, but in the end they failed to comply with their promise.
2
On February 18, 1958, the Batangas Transportation Company and Laguna-Tayabas Bus
Company separately filed with the Public Service Commission a petition for authority to
suspend the operation on the lines covered by the certificates of public convenience leased to
each of them by the Bian Transportation Company. The defendants alleged as reasons the
reduction in the amount of dollars allowed by the Monetary Board of the Central Bank of the
Philippines for the purchase of spare parts needed in the operation of their trucks, the alleged
difficulty encountered in securing said parts, and their procurement at exorbitant costs, thus
rendering the operation of the leased lines prohibitive. The defendants further alleged that the
high cost of operation, coupled with the lack of passenger traffic on the leased lines resulted in
financial losses. For these reasons they asked permission to suspend the operation of the leased
lines until such time as the operating expenses were restored to normal levels so as to allow the
lessees to realize a reasonable margin of profit from their operation.
Plaintiff's assignee opposed the petition on the ground that the Public Service Commission had
no jurisdiction to grant the relief prayed for as it should involve the interpretation of the lease
contract, which act falls exclusively within the jurisdiction of the ordinary courts; that the
petitioners had not asked for the suspension of the operation of the lines covered by their own
certificates of public convenience; that to grant the petition would amount to an impairment of
the obligation of contract; and that the defendants have no legal personality to ask for
suspension of the operation of the leased lines since they belonged exclusively to the
plaintiffwho is the grantee of the corresponding certificate of public convenience. Aside from
the assignee, the Commissioner of the Internal Revenue and other creditors of the Bian
Transportation Company, like the Standard Vacuum Oil Co. and Parsons Hardware Company,
filed oppositions to the petitions for suspension of operation.
On October 15, 1958, the Public Service Commission overruled all oppositions filed by the
assignee and other creditors of the insolvent, holding that upon its approval of the lease
contract, the lessees acquired the operating rights of the lessor and assumed full responsibility
for compliance with all the terms and conditions of the certificate of public convenience. The
Public Service Commission further stated that the petition to suspend operation did not pertain
to any act of dominion or ownership but only to the use of the certificate of public convenience
which had been transferred by the plaintiff to the defendants, and that the suspension prayed
for was but an incident of the operation of the lines leased to the defendants. The Public
Service Commission further ruled that being a quasi-judicial body of limited jurisdiction, it had
no authority to interpret contracts, which function belongs to the exclusive domain of the
ordinary courts, but the petition did not call for interpretation of any provision of the lease
contract as the authority of the Public Service Commission to grant or deny the prayer therein
was derived from its regulatory power over the leased certificates of public convenience.
While proceedings before the Public Service Commission were thus going on, as a consequence of the continuing failure of the
lessees to fulfill their earlier promise to pay the accruing rentals on the leased certificates,
On May 19, 1959, plaintiff Bian Transportation Company represented by Francisco C.
Manabat, assignee, filed this action against defendants Laguna Tayabas Bus Company and
Batangas Transportation Company for the recovery of the sum of P42,500 representing the
accrued rentals for the lease of the certificates of public convenience of the former to the latter,
corresponding to the period from January 1958, to May 1959, inclusive, plus the sum of
P1,836.92 which was deducted by the defendants from the rentals due for August, 1957,
together with all subsequent rentals from June, 1959, that became due and payable; P5,000.00
for attorney's fees and such corrective and exemplary damages as the court may find
reasonable.
 The defendants moved to dismiss the complaint for lack of jurisdiction over the subject matter
of the action, there being another case pending in the Public Service Commission between the
same parties for the same cause. ... (pp. 20-21, rec.; pp. 54-55, ROA).
The motion to dismiss was, however, denied. Meanwhile
The Public Service Commission delegated its Chief Attorney to receive evidence of the parties
on the petition of the herein defendants for authority to suspend operation on the lines leased to
them by the plaintiff. The defendants, the assignee of the plaintiff and other creditors of the
insolvent presented evidence before the Chief Attorney and the hearing was concluded on June
29, 1959. On October 20, 1959, the Public Service Commission issued an order the dispositive
part of which reads as follows:
In view of the foregoing, the petitioners herein are authorized to suspend
their operation of the trips of the Bian Transportation Company
between Batangas Piers-Manila, Bian-Manila, Sta. Rosa-Manila and
Canlubang-Manila authorized in the aforementioned cases from the date
of the filing of their petition on February 18, 1958, until December 31,
1959. (p. 25, rec.; pp. 60-61, ROA).
Going back to the Court of First Instance of Laguna
... The motion (to dismiss) having been denied, the defendants answered the complaint,
alleging among others, that the Public Service Commission authorized the suspension of
operation over the leased lines from February 18, 1950, up to December 31, 1959, and hence
the lease contract should be deemed suspended during that period; that plaintiff failed to place
defendants in peaceful and adequate enjoyment and possession of the things leased; that as a
result of the plaintiff being declared insolvent the lease contract lost further force and effect
and payment of rentals thereafter was made under a mistake and should be refunded to the
defendants. (p. 21; rec.; p. 55, ROA).
The Court of Appeals proceeded to state that
After hearing in the court a quo and presentation by the parties herein of their respective
memoranda, the trial court on March 18, 1960, rendered judgment in favor of plaintiff,
ordering the defendants jointly and severally to pay to the former the sum of P65,000.00 for the
rentals of the certificates of public convenience corresponding to the period from January,
1958, to February, 1960, inclusive, including the withheld amount of P836.92 from the rentals
for August, 1957, plus the rentals that might become due and payable beginning March, 1960,
at the rate of P2,500.00 a month, with interest on the sums of P42,500 and P836.92 at the rate
of 6% per annum from the date of the filing of the complaint, with interest on the subsequent
rentals at the same rate beginning the first of the following month, plus the sum of P3,000.00
as attorney's fees, and the cost of the suit. (pp. 25-26, rec.)
From the decision of the Court of First Instance, defendants appealed to the Court of Appeals, which affirmed the same in toto in
its decision dated August 31, 1964. Said decision was received by the appellants on September 7, 1964.
On September 21, 1964, appellants filed the present appeal, raising the following questions of law:
1. Considering that the Court of Appeals found that the Public Service Commission
provisionally approved the lease contract of January 20, 1956 between petitioners and Bian
3
Transportation Company upon the condition, amongothers, that such approval was subject to
modification and cancellation and towhatever decision that in due time might be rendered in
the case, the Court ofAppeals erred in giving no legal effect and significance whatever to the
suspension of operations later granted by the Public Service Commission after due hearing
covering the lines leased to petitioners thereby nullifying, contrary to law and decisions of this
Honorable Court, the authority and powersconferred on the Public Service Commission.
2. The Court of Appeals misapplied the statutory rules on interpreting contracts and erred in its
construction of the clauses in the lease agreement authorizing petitioners to suspend operation
without the corresponding liability for rentals during the period of suspension.
3. Contrary to various decisions of this Honorable Court relieving the lessee from the
obligation to pay rent where there is failure to use or enjoy the thing leased, the Court of
Appeals erroneously required petitioners to pay rentals, with interest, during the period of
suspension of the lease from January, 1958 up to the expiration of the agreement on January
20, 1961. (p. 7, rec.)
On October 12, 1964, the Supreme Court issued a resolution dismissing said petition "for lack of merit." (p. 43, rec.). Said
resolution was received by petitioners on October 16, 1964.
On October 31, 1964, the day the Court's resolution was to become final, petitioners filed a "Motion to Admit Amended Petition
and to Give Due Course Thereto." In said motion, petitioners explained
... The amendment includes an alternative ground relating to petitioners' prayer for the
reduction of the rentals payable by them. This alternative petition was not included in the
original one as petitioners where genuinely convinced that they should have been absolved
from all liabilities whatever. However, in view of the apparent position taken by this Honorable
Court, as implied in its resolution on October 12, 1964, notice of which was received on
October 16, 1964, petitioners now squarely submit their alternative position for consideration.
There is decisional authority for the reduction of rentals payable (see Reyes v. Caltex, 47 O.G.
1193, 1203-1204) (p. 44, rec).
The new question raised is presented thus:
xxx xxx xxx
IV
This Honorable Court is authorized to equitably reduce the rentals payableby the petitioners,
should this Honorable Court adopt the position of the Courtof Appeals and the lower court that
petitioners have not been releived from thepayment of rentals on the leased lines. (p. 7
Amended Petition for Certiorari,pp. 46, 52, rec.).
On November 5, 1964, the Supreme Court required respondents herein to file an answer to the
amended petition. On the same date, respondents filed, quite belatedly, an opposition to the
motion of the petitioners. Said opposition was later "noted" by the Court in its resolution dated
December 1, 1964.
I
First, it must be pointed out that the first three questions of law raised by petitioners were already disposed of in Our resolution
dated October 12, 1964 dismissing the original petition for lack of merit, which in effect affirmed the appealed decision of the
Court of of Appeals. Although, in their motion to admit amended petition dated October 31, 1964, petitioners sought a
reconsideration of the said resolution not only in the light of the fourth legal issue raised but also on the said first three legal
questions, the petitioners advanced no additional arguments nor cited new authorities in support of their stand on the first three
questions of law. They merely reproduced verbatim from their original petition their discussion on said questions.
To the extent therefore that the motion filed by the petitioner seeks a reconsideration of our order of dismissal by submitting
anew, through the amended petition, the very same arguments already dismissed by this Court, the motion shall be considered
pro forma, (See Estrada v. Sto. Domingo, 28 SCRA 890, 905-906, 911) and hence is without merit.
Consequently, we limit the resolution of this case solely on the discussions on the last (fourth) question of law raised, taking into
consideration the discussion on the first three questions only insofar as they place the petitioners' discussion on the fourth
question in its proper context and perspective.
II
The undisguised object of petitioners' discussion on the fourth question of law raised is to justify their plea for a reduction of the
rentals on the ground that the subject matter of the lease was allegedly not used by them as a result of the suspension of
operations on the lines authorized by the Public Service Commission.
In support of said plea, petitioners invoke article 1680 of the Civil Code which grants lessees of rural lands a right to a reduction
of rentals whenever the harvest on the land leased is considerably damaged by an extraordinary fortuitous event. Reliance was
also placed by the petitioners on Our decision in Reyes v. Caltex (Phil.) Inc., 84 Phil. 654, which supposedly applied said article
by analogy to a lease other than that covered by said legal provision.
The authorities from which the petitioners draw support, however, are not applicable to the case at bar.
Article 1680 of the Civil Code reads thus:
Art. 1680. The lessee shall have no right to a reduction of the rent on accountof the sterility of
the land leased, or by reason of the loss of fruits due toordinary fortuitous events; but he shall
have such right in case of the loss ofmore than one-half of the fruits through extraordinary and
unforeseen fortuitous events, save always when there is a specific stipulation to the contrary.
Extraordinary fortuitous events are understood to be: fire, war, pestilence, unusual flood,
locusts, earthquake, or others which are uncommon, and which thecontracting parties could not
have reasonably foreseen.
Article 1680, it will be observed is a special provision for leases of rural lands. No other legal provision makes it applicable to
ordinary leases. Had theintention of the lawmakers been so, they would have placed the article among the general provisions on
lease. Nor can the article be applied analogously to ordinary leases, for precisely because of its special character, it was meant to
apply only to a special specie of lease. It is a provision of social justice designed to relieve poor farmers from the harsh
consequences of their contracts with rich landowners. And taken in that light, the article provides no refuge to lessees whose
financial standing or social position is equal to, or even better than, the lessor as in the case at bar.
Even if the cited article were a general rule on lease, its provisions nevertheless do not extend to petitioners. One of its requisites
is that the cause of loss of the fruits of the leased property must be an "extraordinary and unforeseen fortuitous event." The
circumstances of the instant case fail tosatisfy such requisite. As correctly ruled by the Court of Appeals, the alleged causes for
the suspension of operations on the lines leased, namely, the high prices of spare parts and gasoline and the reduction of the
dollar allocations, "already existed when the contract of lease was executed" (p. 11, Decision; p. 30, rec.; Cuyugan v. Dizon, 89
4
Phil. 80). The cause of petitioners' inability to operate on the lines cannot, therefore, be ascribed to fortuitous events or
circumstances beyond their control, but to their own voluntary desistance (p. 13, Decision; p. 32, rec.).
If the petitioners would predicate their plea on the basis solely of their inability to use the certificates of public convenience,
absent the requisite of fortuitous event, the cited article would speak strongly against their plea.Article 1680 opens with the
statement: "The lessee shall have no right to reduction of the rent on account of the sterility of the land leased ... ." Obviously, no
reduction can be sustained on the ground that the operation of the leased lines was suspended upon the mere speculation that it
would yield no substantial profit for the lessee bus company. Petitioners' profits may be reduced due to increase operating costs;
but the volume of passenger traffic along the leased lines not only remains same but may even increase as the tempo of the
movement of population is intensified by the industrial development of the areas covered or connected by the leased routes.
Moreover, upon proper showing, the Public Service Commission might have granted petitioners an increase in rates, as it has
done so in several instances, so that public interest will always be promoted by a continuous flow of transportation facilities to
service the population and the economy. The citizenry and the economy will suffer by reason of any disruption in the
transportation facilities.
Furthermore, we are not at all convinced that the lease contract brought no material advantage to the lessor for the period of
suspension. It must be recalled that the lease contract not only stipulated for the transfer of the lessor's right to operate the lines
covered by the contract, but also for a forbearance on the part of the lessor to operate transportation business along the same
lines and to hold a certificate for that purpose. Thus, even if the lessee would not actually make use of the lessor's certificates
over the leased lines, the contractual commitment of the lessor not to operate on the lines would sufficiently insure added profit
to the lessees on account of the lease contract. In other words, the commitment alone of the lessor under the contract would
enable the lessees to reap full benefits therefrom since the commuting public would, after all, be forced at their inconvenience
and prejudice to patronize petitioner's remaining buses.
Contrary to what petitioners want to suggest, WE refused in the Reyes case, supra, to apply by analogy Article 1680 and
consequently, WE denied the plea oflessee therein for an equitable reduction of the stipulated rentals, holding that:
The general rule on performance of contracts is graphically set forth in American treatises
which is also the rule, in our opinion, obtaining under the Civil Code.
Where a person by his contract charges himself with an obligation possible to be performed, he
must perform it, unless the performance is rendered impossible by the act of God, by the law,
or by the other party, it being the rule that in case the party desires to be excused from the
performance in the event of contingencies arising, it is his duty to provide therefor in his
contract. Hence, performance is not excused by subsequent inability to perform, by unforeseen
difficulties, by unusual or unexpected expenses, by danger, by inevitable accident, by breaking
of machinery, by strikes, by sickness, by failure of a party to avail himself of the benefits tobe
had under the contract, by weather conditions, by financial stringency or bystagnation of
business. Neither is performance excused by the fact that the contract turns out to be hard and
improvident, unprofitable, or impracticable, ill-advised, or even foolish, or less profitable,
unexpectedly burdensome. (17 CJS 946-948) (Reyes vs. Caltex, supra, 664. Emphasis
supplied).
Also expressed in said case is a ruling in American jurisprudence, which found relevance again in the case at bar, to wit:
"(S)ince, by the lease, the lessee was to have the advantage of casual profits of the leased premises, he should run the hazard of
casual losses during the term and not lay the whole burden upon the lessor." (Reyes vs. Caltex, supra, 664).
Militating further against a grant of reduction of the rentals to the petitioners is the petitioners' conduct which is not in accord
with the rules of fair play and justice. Petitioners, it must be recalled, promised to pay the accrued rentals in due time. Later,
however, when they believed they found a convenient excuse for escaping their obligation, they reneged on their earlier promise.
Moreover, petitioners' option to suspend operation on the leased lines appears malicious. Thus, Justice Esguerra, speaking for the
Court of Appeals, propounded the following questions: "If it were true that thecause of the suspension was the high prices of
spare parts, gasoline and needed materials and the reduction of the dollar allocation, why was it that only plaintiff-appellee's
certificate of public convenience was sought to be suspended? Why did not the defendants-appellants ask for a corresponding
reduction or suspension under their own certificate along the same route? Suppose the prices of the spare parts and needed
materials were cheap, would the defendants-appellants have paid more than what is stipulated in the lease contract? We believe
not. Hence, the suspension of operation on the leased lines was conceived as a scheme to lessen operation costs with the
expectation of greater profit." (p. 14, Decision).

Indeed, petitioners came to court with unclean hands, which fact militates against their plea for equity.

WHEREFORE, THE ORIGINAL AND AMENDED PETITIONS ARE HEREBY DISMISSED, AND THE DECISION OF
THE COURT OF APPEALS DATED AUGUST 31, 1964 IS HEREBY AFFIRMED, WITH COSTS AGAINST PETITIONERS.

Makalintal, C.J., Castro, Teehankee and Muoz Palma, JJ., concur.

Esguerra, J., took no part.

5
G.R. No. L-44349 October 29, 1976
JESUS V. OCCENA and EFIGENIA C. OCCENA, petitioners,
vs.
HON. RAMON V. JABSON, Presiding Judge of the Court Of First Instance of Rizal, Branch XXVI; COURT OF
APPEALS and TROPICAL HOMES, INC., respondents.
Occena Law Office for petitioners.
Serrano, Diokno & Serrano for respondents.
TEEHANKEE, J.:
The Court reverses the Court of Appeals appealed resolution. The Civil Code authorizes the release of an obligor when the
service has become so difficult as to be manifestly beyond the contemplation of the parties but does not authorize the courts to
modify or revise the subdivision contract between the parties or fix a different sharing ratio from that contractually stipulated
with the force of law between the parties. Private respondent's complaint for modification of the contract manifestly has no basis
in law and must therefore be dismissed for failure to state a cause of action. On February 25, 1975 private respondent Tropical
Homes, Inc. filed a complaint for modification of the terms and conditions of its subdivision contract with petitioners
(landowners of a 55,330 square meter parcel of land in Davao City), making the following allegations:
"That due to the increase in price of oil and its derivatives and the concomitant worldwide spiralling of prices, which are not
within the control of plaintiff, of all commodities including basis raw materials required for such development work, the cost of
development has risen to levels which are unanticipated, unimagined and not within the remotest contemplation of the parties at
the time said agreement was entered into and to such a degree that the conditions and factors which formed the original basis of
said contract, Annex 'A', have been totally changed; 'That further performance by the plaintiff under the contract.
That further performance by the plaintiff under the contract,Annex 'S', will result in situation
where defendants would be unustly enriched at the expense of the plaintiff; will cause an
inequitous distribution of proceeds from the sales of subdivided lots in manifest actually result
in the unjust and intolerable exposure of plaintiff to implacable losses, all such situations
resulting in an unconscionable, unjust and immoral situation contrary to and in violation of the
primordial concepts of good faith, fairness and equity which should pervade all human
relations.
Under the subdivision contract, respondent "guaranteed (petitioners as landowners) as the latter's fixed and sole share and
participation an amount equivalent to forty (40%) percent of all cash receifpts fromthe sale of the subdivision lots"
Respondent pray of the Rizal court of first instance that "after due trial, this Honorable Court render judgment modifying the
terms and conditions of the contract ... by fixing the proer shares that shouls pertain to the herein parties out of the gross
proceeds from the sales of subdivided lots of subjects subdivision".
Petitioners moved to dismiss the complaint principally for lack of cause of action, and upon denial thereof and of reconsideration
by the lower court elevated the matter on certiorari to respondent Court of Appeals.
Respondent court in its questioned resolution of June 28, 1976 set aside the preliminary injunction previously issued by it and
dimissed petition on the ground that under Article 1267 of the Civil Code which provides that
6
ART. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in part. 1
... a positive right is created in favor of the obligor to be released from the performance of an
obligation in full or in part when its performance 'has become so difficult as to be manifestly
beyond the contemplation of the parties.
Hence, the petition at abar wherein petitioners insist that the worldwide increase inprices cited by respondent does not constitute
a sufficient casue of action for modification of the subdivision contrct. After receipt of respondent's comment, the Court in its
Resolution of September 13, 1976 resolved to treat the petition as special civil actionand declared the case submitted for
decision.
The petition must be granted.
While respondent court correctly cited in its decision the Code Commission's report giving the rationale for Article 1267 of the
Civil Code, to wit;
The general rule is that impossibility of performance releases the obligor. However, it is
submitted that when the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the court should be authorized to release the obligor in whole or
in part. The intention of the parties should govern and if it appears that the service turns out to
be so difficult as have been beyond their contemplation, it would be doing violence to that
intention to hold the obligor still responsible. ... 2
It misapplied the same to respondent's complaint.
If respondent's complaint were to be released from having to comply with the subdivision contract, assuming it could show at the
trial that the service undertaken contractually by it had "become so difficult as to be manifestly beyond the contemplation of the
parties", then respondent court's upholding of respondet's complaint and dismissal of the petition would be justifiable under the
cited codal article. Without said article, respondent would remain bound by its contract under the theretofore prevailing doctrine
that performance therewith is ot excused "by the fact that the contract turns out to be hard and improvident, unprofitable, or
unespectedly burdensome", 3 since in case a party desires to be excuse from performance in the event of such contingencies
arising, it is his duty to provide threfor in the contract.
But respondent's complaint seeks not release from the subdivision contract but that the court "render judgment I modifying the
terms and Conditions of the Contract by fixing the proper shares that should pertain to the herein parties out of the gross
proceed., from the sales of subdivided lots of subject subdivision". The cited article does not grant the courts this authority to
remake, modify or revise the contract or to fix the division of shares between the parties as contractually stipulated with the force
of law between the parties, so as to substitute its own terms for those covenanted by the partiesthemselves. Respondent's
complaint for modification of contract manifestly has no basis in law and therefore states no cause of action. Under the particular
allegations of respondent's complaint and the circumstances therein averred, the courts cannot even in equity grant the relief
sought.
A final procedural note. Respondent cites the general rule that an erroneous order denying a motion to dismiss is interlocutory
and should not be corrected by certiorari but by appeal in due course. This case however manifestly falls within the recognized
exception that certiorari will lie when appeal would not prove to be a speedy and adequate remedy.' Where the remedy of appeal
would not, as in this case, promptly relieve petitioners from the injurious effects of the patently erroneous order maintaining
respondent's baseless action and compelling petitioners needlessly to go through a protracted trial and clogging the court dockets
by one more futile case, certiorari will issue as the plain, speedy and adequate remedy of an aggrieved party.
ACCORDINGLY, the resolution of respondent appellate court is reversed and the petition for certiorari is granted and private
respondent's complaint in the lower court is ordered dismissed for failure to state a sufficient cause of action. With costs in all
instances against private respondent.

Makasiar, Muoz Palma, Concepcion, Jr., and Martin JJ., concur.

7
G.R. No. L-22490 May 21, 1969

GAN TION, petitioner,

vs.
HON. COURT OF APPEALS, HON. JUDGE AGUSTIN P. MONTESA, as Judge of the Court of First Instance of
Manila, ONG WAN SIENG and THE SHERIFF OF MANILA, respondents.

Burgos and Sarte for petitioner.

Roxas, Roxas, Roxas and Associates for respondents.

MAKALINTAL, J.:

The sole issue here is whether or not there has been legal compensation between petitioner Gan Tion and respondent Ong Wan
Sieng.

Ong Wan Sieng was a tenant in certain premises owned by Gan Tion. In 1961 the latter filed an ejectment case against the
former, alleging non-payment of rents for August and September of that year, at P180 a month, or P360 altogether. The
defendant denied the allegation and said that the agreed monthly rental was only P160, which he had offered to but was refused
by the plaintiff. The plaintiff obtained a favorable judgment in the municipal court (of Manila), but upon appeal the Court of
First Instance, on July 2, 1962, reversed the judgment and dismissed the complaint, and ordered the plaintiff to pay the defendant
the sum of P500 as attorney's fees. That judgment became final.

On October 10, 1963 Gan Tion served notice on Ong Wan Sieng that he was increasing the rent to P180 a month, effective
November 1st, and at the same time demanded the rents in arrears at the old rate in the aggregate amount of P4,320.00,
corresponding to a period from August 1961 to October 1963.lwphi1.et

In the meantime, over Gan Tion's opposition, Ong Wan Sieng was able to obtain a writ of execution of the judgment for
attorney's fees in his favor. Gan Tion went on certiorari to the Court of Appeals, where he pleaded legal compensation, claiming
that Ong Wan Sieng was indebted to him in the sum of P4,320 for unpaid rents. The appellate court accepted the petition but
eventually decided for the respondent, holding that although "respondent Ong is indebted to the petitioner for unpaid rentals in
an amount of more than P4,000.00," the sum of P500 could not be the subject of legal compensation, it being a "trust fund for
the benefit of the lawyer, which would have to be turned over by the client to his counsel." In the opinion of said court, the
requisites of legal compensation, namely, that the parties must be creditors and debtors of each other in their own right (Art.
1278, Civil Code) and that each one of them must be bound principally and at the same time be a principal creditor of the other
(Art. 1279), are not present in the instant case, since the real creditor with respect to the sum of P500 was the defendant's
counsel.

This is not an accurate statement of the nature of an award for attorney's fee's. The award is made in favor of the litigant, not of
his counsel, and is justified by way of indemnity for damages recoverable by the former in the cases enumerated in Article 2208
of the Civil Code.1 It is the litigant, not his counsel, who is the judgment creditor and who may enforce the judgment by
execution. Such credit, therefore, may properly be the subject of legal compensation. Quite obviously it would be unjust to
compel petitioner to pay his debt for P500 when admittedly his creditor is indebted to him for more than P4,000.

WHEREFORE, the judgment of the Court of Appeals is reversed, and the writ of execution issued by the Court of First Instance
of Manila in its Civil Case No. 49535 is set aside. Costs against respondent.

Reyes, J.B.L., Dizon, Zaldivar, Sanchez, Fernando and Capistrano, JJ., concur.
Teehankee and Barredo JJ., took no part.
Concepcion, C.J., and Castro, J., are on leave.

8
G.R. No. L-69255 February 27, 1987 On the other hand, PNB's claim to the two-million-peso deposit in question is made to rest on an agreement between it and
ISABELA in virtue of which, according to PNB: (1) the deposit was made by ISABELA as "collateral" in connection with its
indebtedness to PNB as to which it (ISABELA) had assumed certain contractual undertakings; and (2) in the event of
PHILIPPINE NATIONAL BANK, petitioner,
ISABELA's failure to fulfill those undertakings, PNB was empowered to apply the deposit to the payment of that indebtedness.
vs.
The facts upon which PNB's theory stands are summarized in the Order of CFI Judge Solano dated October 1, 1982, 5 relevant
GLORIA G. VDA. DE ONG ACERO, ARNOLFO ONG ACERO & SOLEDAD ONG ACERO CHUA, respondents.
portions of which are here reproduced:

Leopoldo E. Petilla for respondents.

On October 13, 1977, Isabela Wood Construction and Development Corporation ** entered
into a Credit Agreement with PNB. Under the agreement PNB, having approved the
application of defendant (Isabela & c.) for the establishment for its account of a deferred letter
of credit in the amount of DM 4,695,947.00 in favor of the Machinenfabric Augsburg Nunberg
(MAN) of Germany from whom defendant purchased thirty-five (35) units of MAN trucks,
NARVASA, J.: defendant corporation agreed to put up, as collaterals, among others, the following:

Savings Account No. 010-5878868-D of Isabela Wood Construction & Development Corporation, opened with the Philippine 4. The CLIENT shall assign to the BANK the proceeds of its contract
National Bank on March 9, 1979 in the amount of P2 million is the subject of two (2) conflicting claims, sought to be with the Department of Public Works for the construction of Nagapit
definitively resolved in the proceedings at bar. 1 One claim is asserted by the ACEROS Gloria G. Vda. de Ong Acero, Arnolfo Suspension Bridge (Substructure) in Cagayan.
Ong Acero and Soledad Ong Acero-Chua, judgment creditors of the depositor (hereafter simply referred to as ISABELA)
who seek to enforce against said savings account the final and executory judgment rendered in their favor by the Court of First
Instance of Rizal QC Br. XVI). The other claim has been put forth by the Philippine National Bank (hereafter, simply PNB) This particular proviso in the aforesaid agreement was to be subsequently confirmed by
which claims that since ISABELA was at some point in time both its debtor and creditor-ISABELA's deposit being deemed a Faustino Dy, Jr., as president of defendant corporation, in a letter to the PNB, dated February
loan to it (PNB)-there had occurred a mutual set-off between them, which effectively precluded the ACEROS' recourse to that 21, 1970, quoted in full as follows:
deposit.
Gentlemen:
The controversy was decided by the Intermediate Appellate Court adversely to the PNB. It is this decision that the PNB would
have this Court reverse.
This is to confirm our arrangement that the treasury warrant in the
amount of P2,704 millon in favor of Isabela Wood Construction and
The ACEROS' claim to the bank deposit is more specifically founded upon the garnishment thereof by the sheriff, effected in Development Corporation to be delivered either by the Commission on
execution of the partial judgment rendered by the CFI at Quezon City in their favor on November 18, 1979. The partial judgment Audit or the Ministry of Public Highways, shall be placed in a savings
ordered payment by ISABELA to the ACEROS of the amount of P1,532,000.07. 2 Notice of garnisment was served on the PNB account with your bank to the extent of P 2 million.
on January 9, 1980, pursuant to the writ of execution dated December 23, 1979. 3 This was followed by an Order issued on
February 15, 1980 directing PNB to hand over this amount of P1,532,000.07 to the sheriff for delivery, in turn, to the ACEROS.
The said amount shall remain in the savings account until we are able to
Not quite two months later, or on April 8, 1980, a second (and the final and complete judgment) was promulgated by the CFI in
comply with the delivery and registration of the mortgage in favor of the
favor of the ACEROS and against ISABELA, the dispositive part of which is as follows:
Philippine National Bank of our Paranaque property, and the securing
from Metropolitan Bank and Home Owners Savings and Loan
WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiffs and Association to snow PNB a second mortgage on the properties of Isabela
against the defendant: Wood Construction Group, Inc., presently under first mortgage with
them.
1. Reiterating the dispositive portion of the partial judgment issued by this Court, dated
November 16, 1979, ordering the defendant to pay to the plaintiff the amount of P1,532,000.07 Thus, on March 9, 1970, pursuant to paragraph 4 of the Credit Agreement, quoted above, PNB
as principal, with interest at 12% per annum from December 11, 1975 until the whole amount thru its International Department opened the savings account in question, under Account No.
is fully paid; 010-58768-D, with an initial deposit of P2,000,000.00, proceeds of a treasury warrant
delivered to PNB (EXHIBIT 3-A).
2. Ordering defendant to pay the plaintiffs the amount of P207,148.00 as compensatory
damages, with legal interest thereon from the filing of the complaint until the whole amount is xxx xxx xxx
fully paid;
Since defendant corporation failed to deliver to PNB by way of mortgage its Paranaque
3. Ordering defendant to pay plaintiffs the amount of P383,000.00 as and by way of attorneys property, neither was defendant corporation able to secure from Metropolitan Bank and Home
fees. 4 Owners Savings and Loan Association its consent to allow PNB a second mortgage, and
considering that the obligation of defendant corporation to PNB have been due and unsettled,
PNB applied the amount of P 2,102804.11 in defendant's savings account of PNB.

9
It was upon this version of the facts, and its theory thereon based on a mutual set-off, or compensation, between it and ISABELA
in accordance with Articles 1278 et al. of the Civil Code that PNB intervened in the action between the ACEROS and
ISABELA on or about February 28, 1980 and moved for reconsideration of the Order of February 15, 1980 (requiring it to turn
over to the sheriff the sum of P1,532,000.07, supra: fn. 2). But its motion met with no success. It was denied by the Lower Court
(Hon. Judge Apostol, presiding) by Order dated May 14, 1980. 6 And a motion for the reconsideration of that Order of May 14,
1980 was also denied, by Order dated August 11, 1980.
PNB again moved for reconsideration, this time of the Order of August 11, 1980; it also pleaded for suspension in the meantime
of the enforcement of the Orders of February 15, and May 14, 1980. Its persistence seemingly paid off. For the Trial Court (now
presided over by Hon. Judge Solano), directed on October 9, 1980 the setting aside of the said Orders of May 14, and August 11,
1980, and set for hearing PNB's first motion for the reconsideration of the Order of February 15, 1980. 7 Several months
afterwards, or more precisely on October 1, 1982, the Order of February 15, 1980 was itself also struck down, 8 the Lower Court
opining that under the circumstances, there had been a valid assignment by ISABELA to PNB of the amount deposited, which
effectively placed that amount beyond the reach of the ACE ROS, viz:
When the two million or so treasury warrant, proceeds of defendant's contract with the
government was delivered to PNB, said amount, per agreement aforequoted, had already been
assigned by defendant corporation to PNB, as collateral.
The said amount is not a pledge.
The assignment is valid. The defendant need not be the owner thereof at the time of
assignment.
An assignment of credit and other incorporeal rights shall be perfected in
accordance with the provisions of Article 1475.
The contract of sale is perfected at the moment there is a meeting of the
minds upon the thing which is the object of the interest and upon its
price.
It is not necessary for the perfection of the contract of sale that the thing be delivered and that
the price be paid. Neither is it necessary that the thing should belong to the vendor at the time
of the perfection of the contract, it being sufficient that the vendor has the right to transfer
ownership thereof at the time it is delivered.
3. That intervenor PNB must pay attorney's fees and expenses of litigation to appellants in the
amount of P10,000.00 plus the costs of suit. 9
This dispositive part was subsequently modified at the ACEROS' instance, by Resolution dated November 8, 1984 which inter
alia "additionally ** (ordered) PNB to likewise deliver to appellants the balance of the deposit of Isabela Wood Construction and
Development Corporation after first deducting the amount applied to the partial judgment of P1,532,000.00 in satisfaction of
appeallants' final judgment." 10
PNB's main thesis is that when it opened a savings account for ISABELA on March 9, 1979 in the amount of P 2M, it (PNB)
became indebted to ISABELA in that amount. 11 So that when ISABELA itself subsequently came to be indebted to it on account
of ISABELA's breach of the terms of the Credit Agreement of October 13, 1977, and therefore ISABELA and PNB became at
the same time creditors and debtors of each other, compensation automatically took place between them, in accordance with
Article 1278 of the Civil Code. The amounts due from each other were, in its view, applied by operation of law to satisfy and
extinguish their respective credits. More specifically, the P2M owed by PNB to ISABELA was automatically applied in payment
and extinguishment of PNB's own credit against ISABELA. This having taken place, that amount of P2M could no longer be
levied on by any other creditor of ISABELA, as the ACEROS attempted to do in the case at bar, in order to satisfy their
judgment against ISABELA.
Article 1278 of the Civil Code does indeed provide that "Compensation shall take when two persons, in their own right, are
creditors and debtors of each other. " Also true is that compensation may transpire by operation of law, as when all the requisites
therefor, set out in Article 1279, are present. Nonetheless, these legal provisions can not apply to PNB's advantage under the
circumstances of the case at bar.
The insuperable obstacle to the success of PNB's cause is the factual finding of the IAC, by which upon firmly established rules
even this Court is bound, 12 that it has not proven by competent evidence that it is a creditor of ISABELA. The only evidence
present by PNB towards this end consists of two (2) documents marked in its behalf as Exhibits 1 and 2, But as the IAC has
cogently observed, these documents do not prove any indebtedness of ISABELA to PNB. All they do prove is that a letter of
credit might have been opened for ISABELA by PNB, but not that the credit was ever availed of (by ISABELA's foreign
correspondent MAN, or that the goods thereby covered were in fact shipped, and received by ISABELA.
Quite obviously, as the IAC has further observed, the most persuasive evidence of these facts i.e., ISABELA's availment of
the credit, as well as the actual delivery of the goods covered by and shipped pursuant to the letter of credit-assuming these facts
to have occurred, would naturally and logically have been in PNB's possession and could have been readily submitted to the
Court, to wit:
1. The document of availment by the foreign creditor of the letter of credit.

The shoe was now on the other foot. It was the ACEROS' turn to move for reconsideration, which they did as regards this Order
2. The document of release of the amounts mentioned in the agreement.
of October 1, 1982; but by Order promulgated on December 14, 1982, the Court declined to modify its resolution.

3. The documents showing that the trucks (transported to the Philippines by the foreign creditor
The ACEROS then appealed to the Intermediate Appellate Court which, after due proceedings, sustained them. On September
[MAN] were shipped to ** and received by Isabela.
14, 1984, it rendered judgment the dispositive part whereof reads as follows:

4. The trust receipts by which possession was given to Isabela of the 35 (Imported) trucks.
WHEREFORE, the Orders of October 1 and December 14, 1982 of the Court a quo are hereby
REVERSED and SET ASIDE, and in their stead, it is hereby adjudged:
5. The chattel mortgages over the trucks required under No. 3 of II Collaterals of the Credit
Agreement (Exhibit 1).
1. That the Order of February 15, 1980 of the Court a quo is hereby ordered reinstated;

6. The receipt by Isabela of the standing accounts sent by PNB.

2. That intervenor PNB must deliver the amount stated in the Order of February 15, 1980 with
interest thereon at 12% from February 15, 1980 until delivered to appellants, the amount of
interest to be paid by PNB and not to be deducted from the deposit of Isabela Wood; 7. There receipt of the letter of demand by Isabela Wood. 13

10
It bears stressing that PNB did not at all lack want for opportunity to produce these documents, if it does indeed have them. PNB that it had been authorized to assume ownership of the fund upon the coming into being of ISABELA s indebtedness is
Judge Solano, it should be recalled, specifically allowed PNB to introduce evidence in relation to its Motion for Reconsideration void ab initio, it being in the nature of a pactum commisoruim proscribed as contrary to public policy. 21
filed on August 26, 1980, 14 and thus furnished the occasion for PNB to prove, among others, ISABELA's debt to it. PNB
unaccountably failed to do so. Moreover, PNB never even attempted to offer or exhibit such evidence, in the course of the
WHEREFORE, the judgment of the Intermediate Appellate Court subject of the instant appeal, being fully in accord with the
appellate proceedings before the IAC, which is a certain indication, in that Court's view, that PNB does not really have these
facts and the law, is hereby affirmed in toto. Costs against petitioner.
proofs at ala

SO ORDERED.
For this singular omission PNB offers no explanation except that it saw no necessity to submit the Documents in evidence,
because sometime on March 14, 1980, the ACEROS's attorney had been shown those precise documents setting forth
ISABELA's loan obligations, such as the import bills and the sight draft covering drawings on the L/C for ISABELA's account
and after all, the ACEROS had not really put this indebtedness in issue. 15The explanation cannot be taken seriously. In the
picturesque but forceful language of the Appellate Court, the explanation "is silly as you do not prove a fact in issue by showing
evidence in support thereof to the opposing counsel; you prove it by submitting evidence to the proper court." The fact is that the
record does not disclose that the ACEROS have ever admitted the asserted theory of ISABELA's indebtedness to PNB. At any
rate, not being privies to whatever transactions might have generated that indebtedness, they were clearly not in a position to
make any declaration on the matter. The fact is, too, that the avowed indebtedness of ISABELA was an essential element of
PNB's claim to the former's P2 million deposit and hence, it was incumbent on the latter to demonstrate it by competent evidence
if it wished its claim to be judicially recognized and enforced. This, it has failed to do. The failure is fatal to its claim.

PNB has however deposited an alternative theory, which is that the P2M deposit had been assigned to it by ISABELA as
"collateral," although not by way of pledge; that ISABELA had explicitly authorized it to apply the P2M deposit in payment of
its indebtedness; and that PNB had in fact applied the deposit to the payment of ISABELA's debt on February 26, 1980, in
concept of voluntary compensation. 16 This second, alternative theory, is as untenable as the first.

In the first place, there being no indebtedness to PNB on ISABELA's part, there is in consequence no occasion to speak of any
mutual set-off, or compensation, whether it be legal, i.e., which automatically occurs by operation of law, or voluntary, i.e.,
which can only take place by agreement of the parties. 17

In the second place, the documents indicated by PNB as constitutive of the claimed assignment do not in truth make out any such
transaction. While the Credit Agreement of October 13, 1977 (Exh. 1) declares it to be ISABELA's intention to "assign to the
BANK the proceeds of its contract with the Department of Public Works for the construction of Nagapit Suspension Bridge
(Substructure) in Cagayan," 18 it does not appear that that intention was adhered to, much less carried out. The letter of
ISABELA's president dated February 21, 1979 (Exh. 2) would on the contrary seem to indicate the abandonment of that
intention, in the light of the statements therein that the amount of P2M (representing the bulk of the proceeds of its contract
referred to) "shall be placed in a savings account" and that "said amount shall remain in the savings account until ** (ISABELA
is) able to comply with" specified commitments these being: the constitution and registration of a mortgage in PNB's favor
over its "Paranaque property," and the obtention from the first mortgage thereof of consent for the creation of a second lien on
the property. 19 These statements are to be sure inconsistent with the notion of an assignment of the money. In addition, there is
yet another circumstance militating against the actuality of such an assignment-the "most telling argument" against it, in fact, in
the line of the Appellate Court-and that is, that PNB itself, through its International Department, deposited the whole amount of ?
2 million, not in its name, but in the name of ISABELA, 20 without any accompanying statement even remotely intimating that it
(PNB) was the owner of the deposit, or that an assignment thereof was intended, or that some condition or lien was meant to
burden it.

Even if it be assumed that such an assignment had indeed been made, and PNB had been really authorized to apply the P2M
deposit to the satisfaction of ISABELA's indebtedness to it, nevertheless, since the record reveals that the application was
attempted to be made by PNB only on February 26, 1980, that essayed application was ineffectual and futile because at that
time, the deposit was already in custodia legis, notice of garnishment thereof having been served on PNB on January 9, 1980
(pursuant to the writ of execution issued by the Court of First Instance on December 23, 1979 for the enforcement of the partial
judgment in the ACEROS' favor rendered on November 18,1979).

One final factor precludes according validity to PNB's arguments. On the assumption that the P 2M deposit was in truth assigned
as some sort of "collateral" to PNB although as PNB insists, it was not in the form of a pledge the agreement postulated by

11
G.R. No. L-67649 June 28, 1988 (b) The plaintiff to pay defendant Ho Fernandez the sum of P1,000.00 as
attorney's fees. (p. 30, Record on Appeal)
ENGRACIO FRANCIA, petitioner,
vs. The Intermediate Appellate Court affirmed the decision of the lower court in toto.
INTERMEDIATE APPELLATE COURT and HO FERNANDEZ, respondents.
Hence, this petition for review.

Francia prefaced his arguments with the following assignments of grave errors of law:
GUTIERREZ, JR., J.:
I
The petitioner invokes legal and equitable grounds to reverse the questioned decision of the Intermediate Appellate Court, to set
aside the auction sale of his property which took place on December 5, 1977, and to allow him to recover a 203 square meter lot
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE ERROR OF LAW IN NOT HOLDING
which was, sold at public auction to Ho Fernandez and ordered titled in the latter's name.
PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR SUPPOSED TAX DELINQUENCY WAS SET-OFF BY THE
AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS INDEBTED TO THE FORMER.
The antecedent facts are as follows:
II
Engracio Francia is the registered owner of a residential lot and a two-story house built upon it situated at Barrio San Isidro, now
District of Sta. Clara, Pasay City, Metro Manila. The lot, with an area of about 328 square meters, is described and covered by
RESPONDENT INTERMEDIATE APPELLATE COURT COMMITTED A GRAVE AND SERIOUS ERROR IN NOT
Transfer Certificate of Title No. 4739 (37795) of the Registry of Deeds of Pasay City.
HOLDING THAT PETITIONER WAS NOT PROPERLY AND DULY NOTIFIED THAT AN AUCTION SALE OF HIS
PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977 TO SATISFY AN ALLEGED TAX DELINQUENCY OF
On October 15, 1977, a 125 square meter portion of Francia's property was expropriated by the Republic of the Philippines for P2,400.00.
the sum of P4,116.00 representing the estimated amount equivalent to the assessed value of the aforesaid portion.
III
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate taxes. Thus, on December 5, 1977, his property was sold at
public auction by the City Treasurer of Pasay City pursuant to Section 73 of Presidential Decree No. 464 known as the Real
RESPONDENT INTERMEDIATE APPELLATE COURT FURTHER COMMITTED A SERIOUS ERROR AND GRAVE
Property Tax Code in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez was the highest bidder for the property.
ABUSE OF DISCRETION IN NOT HOLDING THAT THE PRICE OF P2,400.00 PAID BY RESPONTDENT HO
FERNANDEZ WAS GROSSLY INADEQUATE AS TO SHOCK ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A
Francia was not present during the auction sale since he was in Iligan City at that time helping his uncle ship bananas. DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS OF LAW, AND CONSEQUENTLY, THE AUCTION SALE
MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo)
On March 3, 1979, Francia received a notice of hearing of LRC Case No. 1593-P "In re: Petition for Entry of New Certificate of
Title" filed by Ho Fernandez, seeking the cancellation of TCT No. 4739 (37795) and the issuance in his name of a new We gave due course to the petition for a more thorough inquiry into the petitioner's allegations that his property was sold at
certificate of title. Upon verification through his lawyer, Francia discovered that a Final Bill of Sale had been issued in favor of public auction without notice to him and that the price paid for the property was shockingly inadequate, amounting to fraud and
Ho Fernandez by the City Treasurer on December 11, 1978. The auction sale and the final bill of sale were both annotated at the deprivation without due process of law.
back of TCT No. 4739 (37795) by the Register of Deeds.
A careful review of the case, however, discloses that Mr. Francia brought the problems raised in his petition upon himself. While
On March 20, 1979, Francia filed a complaint to annul the auction sale. He later amended his complaint on January 24, 1980. we commiserate with him at the loss of his property, the law and the facts militate against the grant of his petition. We are
constrained to dismiss it.
On April 23, 1981, the lower court rendered a decision, the dispositive portion of which reads:
Francia contends that his tax delinquency of P2,400.00 has been extinguished by legal compensation. He claims that the
government owed him P4,116.00 when a portion of his land was expropriated on October 15, 1977. Hence, his tax obligation
WHEREFORE, in view of the foregoing, judgment is hereby rendered dismissing the amended
had been set-off by operation of law as of October 15, 1977.
complaint and ordering:

There is no legal basis for the contention. By legal compensation, obligations of persons, who in their own right are reciprocally
(a) The Register of Deeds of Pasay City to issue a new Transfer
debtors and creditors of each other, are extinguished (Art. 1278, Civil Code). The circumstances of the case do not satisfy the
Certificate of Title in favor of the defendant Ho Fernandez over the
requirements provided by Article 1279, to wit:
parcel of land including the improvements thereon, subject to whatever
encumbrances appearing at the back of TCT No. 4739 (37795) and
ordering the same TCT No. 4739 (37795) cancelled. (1) that each one of the obligors be bound principally and that he be at the same time a
principal creditor of the other;

12
 xxx xxx xxx The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine that:

(3) that the two debts be due. xxx xxx xxx

xxx xxx xxx
This principal contention of the petitioner has no merit. We have consistently ruled that there can be no off-setting of taxes
against the claims that the taxpayer may have against the government. A person cannot refuse to pay a tax on the ground that the
government owes him an amount equal to or greater than the tax being collected. The collection of a tax cannot await the results
of a lawsuit against the government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this Court ruled that Internal Revenue Taxes can not be the
subject of set-off or compensation. We stated that:
A claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-off
under the statutes of set-off, which are construed uniformly, in the light of public policy, to
exclude the remedy in an action or any indebtedness of the state or municipality to one who is
liable to the state or municipality for taxes. Neither are they a proper subject of recoupment
since they do not arise out of the contract or transaction sued on. ... (80 C.J.S., 7374). "The
general rule based on grounds of public policy is well-settled that no set-off admissible against
demands for taxes levied for general or local governmental purposes. The reason on which the
general rule is based, is that taxes are not in the nature of contracts between the party and party
but grow out of duty to, and are the positive acts of the government to the making and
enforcing of which, the personal consent of individual taxpayers is not required. ..."
... [D]ue process of law to be followed in tax proceedings must be established by proof and the
general rule is that the purchaser of a tax title is bound to take upon himself the burden of
showing the regularity of all proceedings leading up to the sale. (emphasis supplied)
There is no presumption of the regularity of any administrative action which results in depriving a taxpayer of his property
through a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular Government, 19 Phil. 261). This is actually an
exception to the rule that administrative proceedings are presumed to be regular.
But even if the burden of proof lies with the purchaser to show that all legal prerequisites have been complied with, the petitioner
can not, however, deny that he did receive the notice for the auction sale. The records sustain the lower court's finding that:
[T]he plaintiff claimed that it was illegal and irregular. He insisted that he was not properly
notified of the auction sale. Surprisingly, however, he admitted in his testimony that he
received the letter dated November 21, 1977 (Exhibit "I") as shown by his signature (Exhibit
"I-A") thereof. He claimed further that he was not present on December 5, 1977 the date of the
auction sale because he went to Iligan City. As long as there was substantial compliance with
the requirements of the notice, the validity of the auction sale can not be assailed ... .
We quote the following testimony of the petitioner on cross-examination, to wit:

Q. My question to you is this letter marked as Exhibit I for Ho

We stated that a taxpayer cannot refuse to pay his tax when called upon by the collector because he has a claim against the
Fernandez notified you that the property in question shall be sold at
governmental body not included in the tax levy.
public auction to the highest bidder on December 5, 1977 pursuant to
Sec. 74 of PD 464. Will you tell the Court whether you received the
This rule was reiterated in the case of Corders v. Gonda (18 SCRA 331) where we stated that: "... internal revenue taxes can not original of this letter?
be the subject of compensation: Reason: government and taxpayer are not mutually creditors and debtors of each other' under
Article 1278 of the Civil Code and a "claim for taxes is not such a debt, demand, contract or judgment as is allowed to be set-
A. I just signed it because I was not able to read the same. It was just
off."
sent by mail carrier.

There are other factors which compel us to rule against the petitioner. The tax was due to the city government while the
Q. So you admit that you received the original of Exhibit I and you
expropriation was effected by the national government. Moreover, the amount of P4,116.00 paid by the national government for
signed upon receipt thereof but you did not read the contents of it?
the 125 square meter portion of his lot was deposited with the Philippine National Bank long before the sale at public auction of
his remaining property. Notice of the deposit dated September 28, 1977 was received by the petitioner on September 30, 1977.
The petitioner admitted in his testimony that he knew about the P4,116.00 deposited with the bank but he did not withdraw it. It A. Yes, sir, as I was in a hurry.
would have been an easy matter to withdraw P2,400.00 from the deposit so that he could pay the tax obligation thus aborting the
sale at public auction.
Q. After you received that original where did you place it?

Petitioner had one year within which to redeem his property although, as well be shown later, he claimed that he pocketed the
A. I placed it in the usual place where I place my mails.
notice of the auction sale without reading it.

Petitioner, therefore, was notified about the auction sale. It was negligence on his part when he ignored such notice. By his very
Petitioner contends that "the auction sale in question was made without complying with the mandatory provisions of the statute
own admission that he received the notice, his now coming to court assailing the validity of the auction sale loses its force.
governing tax sale. No evidence, oral or otherwise, was presented that the procedure outlined by law on sales of property for tax
delinquency was followed. ... Since defendant Ho Fernandez has the affirmative of this issue, the burden of proof therefore rests
upon him to show that plaintiff was duly and properly notified ... .(Petition for Review, Rollo p. 18; emphasis supplied)

We agree with the petitioner's claim that Ho Fernandez, the purchaser at the auction sale, has the burden of proof to show that
there was compliance with all the prescribed requisites for a tax sale.

13
Petitioner's third assignment of grave error likewise lacks merit. As a general rule, gross inadequacy of price is not material (De WHEREFORE, IN VIEW OF THE FOREGOING, the petition for review is DISMISSED. The decision of the respondent court
Leon v. Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 is affirmed.
Phil. 917 Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals (109 SCRA 388) we held that "alleged gross inadequacy
of price is not material when the law gives the owner the right to redeem as when a sale is made at public auction, upon the
SO ORDERED.
theory that the lesser the price, the easier it is for the owner to effect redemption." In Velasquez v. Coronel (5 SCRA 985), this
Court held:

... [R]espondent treasurer now claims that the prices for which the lands were sold are
unconscionable considering the wide divergence between their assessed values and the
amounts for which they had been actually sold. However, while in ordinary sales for reasons of
equity a transaction may be invalidated on the ground of inadequacy of price, or when such
inadequacy shocks one's conscience as to justify the courts to interfere, such does not follow
when the law gives to the owner the right to redeem, as when a sale is made at public auction,
upon the theory that the lesser the price the easier it is for the owner to effect the redemption.
And so it was aptly said: "When there is the right to redeem, inadequacy of price should not be
material, because the judgment debtor may reacquire the property or also sell his right to
redeem and thus recover the loss he claims to have suffered by reason of the price obtained at
the auction sale."

The reason behind the above rulings is well enunciated in the case of Hilton et. ux. v. De Long, et al. (188 Wash. 162, 61 P. 2d,
1290):

If mere inadequacy of price is held to be a valid objection to a sale for taxes, the collection of
taxes in this manner would be greatly embarrassed, if not rendered altogether impracticable. In
Black on Tax Titles (2nd Ed.) 238, the correct rule is stated as follows: "where land is sold for
taxes, the inadequacy of the price given is not a valid objection to the sale." This rule arises
from necessity, for, if a fair price for the land were essential to the sale, it would be useless to
offer the property. Indeed, it is notorious that the prices habitually paid by purchasers at tax
sales are grossly out of proportion to the value of the land. (Rothchild Bros. v. Rollinger, 32
Wash. 307, 73 P. 367, 369).

In this case now before us, we can aptly use the language of McGuire, et al. v. Bean, et al. (267 P. 555):

Like most cases of this character there is here a certain element of hardship from which we
would be glad to relieve, but do so would unsettle long-established rules and lead to
uncertainty and difficulty in the collection of taxes which are the life blood of the state. We are
convinced that the present rules are just, and that they bring hardship only to those who have
invited it by their own neglect.

We are inclined to believe the petitioner's claim that the value of the lot has greatly appreciated in value. Precisely because of the
widening of Buendia Avenue in Pasay City, which necessitated the expropriation of adjoining areas, real estate values have gone
up in the area. However, the price quoted by the petitioner for a 203 square meter lot appears quite exaggerated. At any rate, the
foregoing reasons which answer the petitioner's claims lead us to deny the petition.

And finally, even if we are inclined to give relief to the petitioner on equitable grounds, there are no strong considerations of
substantial justice in his favor. Mr. Francia failed to pay his taxes for 14 years from 1963 up to the date of the auction sale. He
claims to have pocketed the notice of sale without reading it which, if true, is still an act of inexplicable negligence. He did not
withdraw from the expropriation payment deposited with the Philippine National Bank an amount sufficient to pay for the back
taxes. The petitioner did not pay attention to another notice sent by the City Treasurer on November 3, 1978, during the period of
redemption, regarding his tax delinquency. There is furthermore no showing of bad faith or collusion in the purchase of the
property by Mr. Fernandez. The petitioner has no standing to invoke equity in his attempt to regain the property by belatedly
asking for the annulment of the sale.

14
G.R. No. L-30240 March 25, 1988
REPUBLIC OF THE PHILIPPINES as Lessor, ZOILA DE CHAVEZ, assisted by her husband Col. Isaac Chavez,
DEOGRACIAS MERCADO, ROSENDO IBANEZ and GUILLERMO MERCADO, as permittees and/or Lessees of
public fishponds, petitioners,
vs.
HON. JUDGE JAIME DE LOS ANGELES of the court of First Instance of Batangas, (BR. III, Balayan) [later replaced
by JUDGE JESUS ARLEGUI] SHERIFF OF BATANGAS, ENRIQUE ZOBEL and THE REGISTER OF DEEDS AT
BALAYAN, BATANGAS, respondents.
TEEHANKEE, C.J.:
The moment of truth is finally at hand. It is about time to cause the execution in favor of the Republic of the Philippines of the
1965 final and executory judgment of this Court (Republic vs. Ayala y Cia ) 1affirming that of the CFI of Batangas in Civil Case
No. 373 thereof and to recover for the Republic what "Ayala y Cia Hacienda de Calatagan and/or Alfonso Zobel had illegally
expanded [in] the original area of their TCT No. 722 (derived from OCT No. 20) from 9,652.583 hectares to about 12,000
hectares thereby usurping about 2,000 hectares consisting of portions of the territorial sea, the foreshore, the beach and navigable
waters properly belong(ing) to the public domain." 2
The Court's decision in said case found that
We have gone over the evidence presented in this case and found no reason to disturb the
factual findings of the trial court. It has been established that certain areas originally portions
of the navigable water or of the foreshores of the bay were converted into fishponds or sold by
defendant company to third persons. There is also no controversy as to the fact that the said
defendant was able to effect these sales after it has obtained a certificate of title (TCT No. 722)
and prepared a "composite plan" wherein the aforesaid foreshore areas appeared to be parts of
Hacienda Calatagan. Defendants- appellants do not deny that there is an excess in area
between those delimited as boundaries of the hacienda in TCT No. 722 and the plan prepared
by its surveyor. This, however, was justified by claiming that it could have been caused by the
system (magnetic survey) used in the preparation of the original titles, and, anyway, the excess
in area (536 hectares, according to defendants) is within the allowable margin given to a
magnetic survey.
But even assuming for the sake of argument that this contention is correct, the fact remains that
the areas in dispute (those covered by permits issued by the Bureau of Fisheries), were found to
be portions of the foreshore, beach, or of the navigable water itself And, it is an elementary
principle of law that said areas not being capable of registration, their inclusion in a
certificate of title does not convert the same into properties of private ownership or confer title
on the registrant. 3
The Solicitor General's Memorandum 4 further points out
... that the modus operandi in said usurpation, i.e. grabbing lands of the public domain, was
expressly made of record in the case of Dizon v. Rodriguez, 13 SCRA 704 (April 30, 1965),
where it was recounted that Hacienda de Calatagan, owned by Alfonso and Jacobo Zobel, was
originally covered by TCT No. 722, and that in 1948, upon the cessation of their sugar mill
operations, the hacienda owners converted the pier (used by vessels loading sugar) which
15
stretched to about 600 meters off the shore into the navigable waters of the Pagaspas Bay" into
a fishpond dike by enclosing 30 and 37 hectares of the bay on both sides of the pier in the
process.
Subsequently, in 1949, the owners of the hacienda ordered its subdivision which enabled them
to acquire titles to the subdivided lots which were outside the hacienda's perimeter. Thus, these
subdivided lots, which were converted into fishponds were illegally absorbed as part of the
hacienda and titled in the name of Jacobo Zobel which were subsequently sold and transferred
to the Dizons, Gocos and others. In said Dizon case, "this Honorable Court affirmed the court a
quo's findings that the subdivision plan was prepared not in accordance with the technical
description in TCT No. 722 but in disregard of it." And that the appropriated fishpond lots "are
actually part of the territorial waters and belong to the State.
But all through the years, as stressed in the Republic's memorandum, "the technical maneuvers employed by Ayala and Zobel [of
which the instant petition is an off-shoot] .... undercut the Republic's efforts to execute the aforesaid 1965 final judgment" 5 to
recover the estimated 2,000 hectares of territorial sea, foreshore, beach and navigable waters and marshy land of the public
domain.
It may seem incredible that execution of such 1965 final judgment in favor of the Republic no less could have been thwarted for
twenty-three years now. But the Republic's odyssey and travails since 1965 through the martial law regime to now are recorded
in the annals of our jurisprudence. Suffice it to point out that upon petition of the Republic and its co- petitioners (as permittees
and/or lessees of the Republic), mandamus was issued on June 30, 1967 by unanimous decision with one abstention in Republic
vs. De los Angeles, 6 overruling the therein respondent-judge's refusal to issue a writ of execution of the aforesaid 1965 final
judgment and ordering him to issue such writ. The Court denied reconsideration on September 19, 1967, but on a second and
supplemental motion for reconsideration, it set aside the original decision of Jane 30, 1967 and dismissed the petition for
mandamus and denied execution, per its Resolution of October 4, 1971 by a split 6-3-2 vote. 7 The court denied the Republic, et
al motions for reconsideration by the same split 6-3-2 vote per its Resolution of April 11, 1972. 8 An undermanned Court
subsequently denied the Republic's co-petitioner Tolentino's second motion for reconsideration for lack of necessary votes per its
Resolution of April 27, 1973. 9
Parenthetically, the complexity magnitude and persistence of respondents' maneuvers are set forth in the series of decisions and
extended resolutions and majority and dissenting opinions reported in the Supreme Court Reports Annotated as per the citations
hereinabove given. A reading of said reports together with the Memorandum for Granting of the Petition at bar (and giving
the case's backgrounder) which I had circulated in the Court as against the proposed contrary draft of Justice Estanislao A.
Fernandez (which did not gain the concurrence of the majority of the Court during his seventeen-month incumbency from
October 20, 1973 to March 28, 1975) shows the full extent background and scope of these maneuvers, particularly those in the
present case. For the sake of brevity and conciseness, I attach the said Memorandum as Annex A hereof and make the same an
integral part of this decision, instead of reproducing the same in the body of this opinion.
Pending respondents' maneuvers in this Court for thwarting the issuance of a writ for execution of the aforesaid 1965 final
judgment for the Republic's recovery of land and waters of the public domain in the 1967 mandamus case brought by the
Republic, supra, they intensified their maneuvers to defeat the Republic's judgment for recovery of the public lands and waters
when they got the trial judge, notwithstanding this Court's final 1965 judgment for reversion of the public lands, to uphold their
refusal to recognize the rights of the Republic's public fishponds permittees and/or lessees to the lands leased by the Republic to
them. Thus, the Republic as lessor and said permittees/lessees as co-petitioners filed through then Solicitor General Antonio P.
Barredo their Amended Complaint of August 2, 1967 in Civil Case No. 653 against herein respondent Enrique Zobel as
defendant and the Register of Deeds of Batangas. As summarized by the Solicitor General in his Memorandum of June 1, 1984:
Respondent Zobel had ousted Zoila de Chavez, a government's fishpond permittee from a portion of the subject fishpond lot
described as Lot 33 of Plan Swo-30999 (also known as Lots 55 and 66 of subdivision TCT No. 3699) by bulldozing the same,
and threatened to eject fishpond permittees Zoila de Chavez, Guillermo Mercado, Deogracias Mercado and Rosendo Ibaez
from their respective fishpond lots described as Lots 4, 5, 6 and 7 and Lots 55 and 56, of Plan Swo-30999, embraced in the void
subdivision titles TCT No. 3699 and TCT No. 9262 claimed by said respondent. Thus, on August 2, 1967, the Republic filed an
Amended Complaint captioned Accion Reinvidicatoria with Preliminary Injunction" against respondent Zobel and the Register
of Deeds of Batangas, docketed as Civil Case No. 653, for cancellation of Zobel's void subdivision titles TCT No. 3699 and TCT
No. 9262, and the reconveyance of the same to the government; to place aforenamed fishpond permittees in peaceful and
adequate possession thereof; to require respondent Zobel to pay back rentals to the Republic; and to enjoin said respondent from
usurping and exercising further acts of dominion and ownership over the subject land of public domain;
Respondent Zobel, however, filed a Motion to Dismiss Amended Complaint, dated August 16, 1967, contending inter alia that
said Amended Complaint (Civil Case No. 653) is barred by prior judgment in Civil Case No. 373 (G.R. No. 20950, the 1965
final judgment in favor of the Republic), and arguing that "if TCT Nos. T-3699 and T-9262 had been declared null and void in
Civil Case No. 373, the proper procedure would be to secure the proper execution of the decision in the same proceedings and
not thru the filing of a new case." He further contended "that there is another action pending between the same parties for the
same cause," and points to the abovementioned mandamus case, G.R. No. 26112 anent execution of Civil Case No. 373 as the
said pending case. His aforesaid motion, however, was denied by the trial court in its order of December 13, 1967, and
accordingly he was required to file his answer.
But in his answer with counterclaim, respondent Zobel averred, among others, that the subject TCT Nos. 3699 and 9262
registered in his name are valid and subsisting since in the decision under G. R. No. L-20950 "only TCT No. T-9550 was
specifically declared as null and void and no other;" and that when Civil Case No. 373 was docketed, respondent Enrique Zobel
"was and still is at present one of the members and managing .ng partners of Ayala y Cia one of the defendants in the 91 said
civil case, and, therefore, privy thereto." He then prayed for a writ of preliminary mandatory injunction restoring to him
possession of the subject land, and further prayed for judgment ordering Zoila de Chavez and Guillermo Mercado to vacate the
premises in question and to surrender possession thereof to defendant Zobel. This was unfortunately granted by respondent
Judge De los Angeles per the impugned order at bar of October 1, 1968. (Annex D, petition). Hence, the filing of the instant
petition.
On March 7, 1969, the Court issued a restraining order in the case at bar, enjoining respondent judge from enforcing the writ of
preliminary mandatory injunction until further orders.
While G.R. No. L-26112 re: execution) and G.R. No. L-30240 (the case at bar) were pending, the Republic filed its motion of
July 8, 1970 in Civil Case No. 373, for authority to conduct the necessary resurvey of the lands affected so as to properly
segregate from Ayala and Zobel's private land originally covered by TCT No. 722 the areas outside thereof comprising about
2,000 hectares of public land, beach, foreshore and territorial sea. Ayala and Zobel vigorously opposed the same, contending
again that the proper step for the government was to ask for a writ of execution; that no other subdivision titles, besides TCT No.
T- 9550 were really declared null and void in the 1965 judgment; and that the lower court could not make a ruling on the motion
for resurvey "without requiring the presentation of additional evidence, and that, in effect, would be tantamount to reopening a
case where the judgment is already final and executory and that the Government's failure to seek a "clarification of the decision
to find out what other titles should have been declared null and void" precludes it from doing so now, I since the decision is now
final and executory." The respondent judge, having earlier denied execution of the 1965 final judgment, issued his order of
October 27, 1970 denying the Government's motion for authority to conduct such prerequisite re-survey;
Ayala and Zobel's technical maneuvers to impede execution of the 1965 final judgment again bore fruit, as above indicated,
when their second motion for reconsideration in G.R. No. L26112 was granted by a split Court in a Resolution dated October 4,
1971 (41 SCRA 422). As a result, the earlier decision of June 30, 1967 directing the issuance of the writ of execution was set
aside and the Republic's petition for certiorari and mandamus impugning the lower court's quashal and denial of the writ of
execution was dismissed.
While the Court's new majority denied the Republic's motion for reconsideration of aforesaid resolution, per its resolution of
April 11, 1972, it, however, made the important modification that said denial "does not constitute a denial of the right of the
Republic to the cancellation of the titles nullified by the decision of Judge Tengco (in Civil Case No. 373) affirmed by this Court
(in G.R. No. L-20950)." It also stated that: "(E)ven the (trial court's) order of October 27, 1970 about the resurvey merely held
the remedy to be premature until the decision in this case has become final. Of course, it is understood that in such eventuality,
the resurvey requested by the Provincial Fiscal would be in order and as soon as the same is completed, the proper writ of
16
execution for the delivery of possession of the portions found to be public land should issue." (G.R. No. I, 26112, 44 SCRA 255,
262 [19721) Thus, the majority's denial of the motions for reconsideration was made expressly "with the clarification aforemade
of the rights of the Republic."
[Note: My attached Memorandum, Annex A hereof (at pages 2 to 6 thereof), quotes more extensively the same pronouncements
of the ponente, Justice Villamor, speaking for the majority, that the Resolution simply cancelled out the final damage award in
favor of intervenor Tolentino, as government permittee/lessee it covers as well similar pronouncements from Justice Makalintal
in his separate concurrence that "The resolution in no way affects the rights of the Government as declared in the decision," and
Justice Barredo's separate concurrence that "I am sure that the five justices whom I am joining in denying Petitioners motion for
reconsideration are as firm as the three distinguished dissenters in the resolution not to allow this Court to be an instrument of
land-grabbing as they are against the reversal or even modification in any substantial degree of any final and executory
judgment whether of this Court or any other court in this country, and, that if there were such possibilities in consequence of the
resolution of October 4, 1971 and the present resolution of denial, they would not give their assent to said resolutions. We are
certain that in deciding against Petitioner Tolentino, We are not condoning nor permitting that the lands in question remain with
the Dizons or with "the Ayalas."
In my dissenting opinion, I expressed gratification that the dissents (submitted by then Chief Justice Roberto Concepcion and
myself, both concurred in by Justice J.B.L. Reyes) had contributed to the overriding clarification "that the majority's position
although it denies reconsideration and maintains reversal of the June 30, 1967 decision at bar-is that the Government may now
finally effect reversion and recover possession of all usurped areas of the public domain "outside (Ayala's) private land covered
by TCT No. 722, which including the lots in T-9550 (Lots 360, 362, 363 and 182) are hereby reverted to public dominion."
(Paragraph [al of 1965 judgment). 10
After said G.R. No. L-26112 was finally disposed of, herein petitioner filed in Civil Case No. 373, a "Motion to Re-survey." This
was granted in an Order dated August 21, 1973, as well as in the Orders of December 27, 1973 and February 26, 1974,
respectively. About three (3) years later, a Report on the Re-survey dated August 5, 1977 (Annex "A" to Republic's Comment
dated March 30, 1981), as well as the "Final Report" thereon dated September 2, 1977 and the "Resurvey Plan" (Annexes "B"
and "C", Ibid.) were approved by the Director of Lands and the Secretary of Agriculture and Natural Resources. The Re-survey
further confirmed the uncontroverted fact that the disputed areas in the case at bar form part of the expanded area already
reverted to public dominion.
Upon approval of said Re-survey Plan and Report, petitioner submitted the same to the trial court in Civil Case No. 373.
However, notwithstanding its approval by the Director of Lands, and the Secretary of Agriculture and Natural Resources, Judge
Jesus P. Arlegui [who had been assigned to respondent Judge De los Angeles" court in Batangas upon the latter's retirement]
arrogating unto himself the function which properly belongs to the Director of Lands, disapproved the said Report and Re-
survey Plan, thereby preventing execution of the subdivision (a) of the decision in Civil Case No. 373. In effect, such disapproval
by Judge Arlegui was intended to negate the earlier resolution in G.R. No. L-26112 (44 SCRA 255, 263) that as soon as resurvey
"is completed the proper writ of execution for the delivery of possession of the portions found to be public land should issue;"
Earlier, in Civil Case No. 653, respondent Zobel filed on July 10, 1969 a Motion to Suspend Further Hearing, etc., praying that
the hearings in said Civil Case be indefinitely suspended until the case at bar is resolved by this Honorable Court. He contended
that the issues raised in the case at bar are the very issues pending in the case below, Civil Case No. 653, and that the decision
that the Court renders here "would greatly affect the respective claims of said parties in (said) case." (G.R. No. 1, 46396, Record,
pp. 128-130)
The aforesaid motion was followed by respondent Zobel's Motion for Immediate Resolution of Defendant-Movant's Motion to
Suspend, etc., dated August 20, 1969. An opposition thereto was filed by plaintiff therein and a reply was filed in turn by
respondent Zobel on July 30, 1 969. Acting on the said motions, the trial court issued an order on September 2, 1969 giving the
parties certain periods to file their pleadings and cancelling a scheduled hearing until it shall have resolved the motion to
suspend.
Since that time, however, the trial court chose not, or failed, to act formally on the aforesaid motion to suspend hearings. Then
after five (5) years, with the trial court now presided by Judge Arlegui, respondent Zobel flip-flopped and filed a Motion to
Dismiss the case below dated January 14, 1976, claiming alleged failure to prosecute and res judicata, which was vigorously
opposed by herein petitioner. Judge Arlegui, robot-like, nonetheless dismissed the Republic's complaint for Zobel's alleged
grounds of failure to prosecute for an unreasonable length of time and res judicata per his order of January 12, 1977.
A 35-page motion for reconsideration thereof was filed by Petitioner within the extended period sought for in an earlier motion.
The then Presiding Judge Arlegui summarily denied the motion for extension of time earlier filed, per its order of March 3, 1977.
The "Motion for Reconsideration of Order" dated March 3, 1977, and "Supplement to Motion for Reconsideration of Order"
dated March 3,1977, were similarly denied by Judge Arlegui in his order dated June 14, 1977. Petitioner Republic thus elevated
the matter to this Court by certiorari and mandamus which was docketed as G.R. No. L-46396 11 and asked that it be
consolidated with the case at bar which from the beginning was assigned to the Court en banc. However, G.R. No. L-46396 was
somehow assigned to the Second Division of the Court which peremptorily dismissed the petition per its minute resolution dated
December 1 7, 1977, which reads:
Acting on the petition for certiorari and mandamus in this case as well as the comment thereon
of the private respondent and the reply of petitioner and rejoinder thereto of said respondent,
the Court resolved to DISMISS the petition, considering that although the motion for extension
of time to file a motion for reconsideration of petitioner dated February 19, 1977 may be
deemed as filed within the reglementary period for appeal, the same did not suspend said
period which expired on February 21, 1977 (Gibbs v. Court of First Instance of Manila, 80
Phil. 160, where the appeal albeit late by one day, was nevertheless allowed on the ground that
under the peculiar circumstances of the case showing utmost effort on the part of appellant to
make the same on time, there was excusable neglect, which does not obtain here) because "the
petition for extension of time should not .interrupt the period fixed by law for the taking of the
appeal" on the ground that "the only purpose of said petition is to ask the court to grant an
additional period to that fixed by law to that end." (Alejandro v. Endencia 64 Phil, 321)
Soon after the dismissal of the petition in G.R. No. 46396, respondent Zobel filed in this case a "Motion to Dismiss Petition" and
"Manifestation and Motion to Lift Temporary Restraining Order" issued on March 7, 1969, and another supplemental motion, on
the ground that the instant case has become moot and academic by the dismissal of the complaint in Civil Case No. 653 in the
court below. This was refuted by the herein petitioner in its Comment dated March 30, 1981.
On December 15, 1981, Judge Arlegui precipitately rendered in Civil Case No. 653 a decision on the Counterclaim of herein
respondent Zobel, declaring him the true, absolute and registered owner of the lands covered by Transfer Certificate of Title Nos.
3699, T-7702 and 9262 (now No. 10031) and directing the Government's licensees and permittees occupying the same to vacate
the lands held by them.
Subsequently, on March 9, 1982, Judge Arlegui issued a writ of execution in Civil Case No. 653, prompting the heirs of
Guillermo Mercado to file in this case an Urgent Motion dated March 22,1982 to stay the same. Acting on the Urgent Motion,
the "Court issued another restraining order dated June 17, 1982, emphasizing the necessity therefor in this wise:
... the issuance of the restraining order now prayed for by movants-heirs of Guillermo Mercado
is necessary to retain the status quo since whatever rights they have are only in representation
of the petitioner Republic who claims the said lands by virtue of their reversion to the public
dominion as specifically adjudged by this court in G.R. No. L- 26112.,
Respondent Zobel then moved for a reconsideration and lifting of aforesaid restraining order. The heirs of intervenor Zoila de
Chavez on the other hand, moved for a preliminary mandatory injunction to restore them in possession of a Portion of the land in
dispute from where they had been ousted by virtue of the writ of execution issued in Civil Case No. 653.
17
In a Consolidated Comment dated September 30, 1982, petitioner Republic opposed the said motion of respondent Zobel, and at
the same time concurred with the motion filed by the heirs of Zoila de Chavez for the issuance of a writ of preliminary
mandatory injunction.
On or about November 8, 1983, the heirs of intervenor Guillermo Mercado filed an "Urgent Motion for Contempt and Issuance
of a Temporary Restraining Order, etc.," as respondent Zobel's representative, in spite of the restraining order enjoining them
from enforcing the writ of execution, had begun to acquire possession of the land in question by cutting off trees in the
undeveloped fishpond being leased by Mercado from the 7 government.
On November 10, 1983, the Court issued the corresponding restraining order prayed for "enjoining respondent Enrique Zobel or
his duly authorized representative from further cutting off the trees in the undeveloped fishpond of Guillermo Mercado having
an area of two (2) hectares, more or less, and from hauling the big trees already cut off costing P10,000.00 "Resolution dated
November 13, 1983).
On or about November 23, 1983, the heirs of Guillermo Mercado filed a "Second Urgent Motion for Contempt and a Second
Restraining Order, etc." since, in spite of the foregoing restraining order issued by this Court, respondent Zobel and his agent
were still cutting off the trees in the disputed areas.
On December 6, 1983, after the hearing en banc of this case on the merits, a resolution was rendered by this Court "to ISSUE a
second temporary restraining order enjoining respondent Enrique Zobel and his agents, representatives and/or any other person
or persons acting on his behalf to desist from cutting off or removing any tree in the questioned areas which were declared
reverted to the public domain and which are claimed by the Republic, effective immediately and until further orders by the
Court.
Against this background, respondent Zobel now contends that his TCT No. 3699 and TCT No. 9262 (now T-10031) are valid and
subsisting as said titles "cannot be considered automatically annulled" by the decision in G.R. No. L-20950; that the decision in
G.R. No. L-20950 annulled only TCT No. 9550 and no other; that he cannot be bound by the decision in said G.R. No. L-20950
since he was not a party thereto; that the dismissal of Civil Case No. 653 and of the appeal therefrom by the Republic has quieted
his questioned titles and has rendered the instant petition moot and academic; that the decision on his counterclaim in Civil Case
No. 653 declaring him to be the true and registered owner of the subject land had long become final and executory, and that
under the principle of res judicata the present petition ought to be dismissed; and that intervenors Mercado and Chavez have no
right of possession over the land in question.
The Republic's petition is patently meritorious.
1. On the original issue at bar brought against respondent Judge Angeles" issuance of preliminary mandatory injunction per the
questioned Order of October 1, 1968, petitioner Republic and its co-petitioner licensees are manifestly entitled to the restraining
orders issued by the Court on March 7, 1969 enjoining respondent judge from enforcing the preliminary mandatory injunction
that he had issued that would oust the Republic and its licensees from the public lands in question and transfer possession thereof
to respondent Zobel; that issued on June 17, 1982 enjoining enforcement of respondent Judge Arlegui's writ of execution issued
on March 9, 1982 declaring without trial respondent Zobel (on his counterclaim to the dismissed complaint) as the true and
registered owner of the lands covered by TCT Nos. 3699, 7702 and 9262 (now 10031) and directing the Republic's licensees to
vacate the same; and that issued on December 6, 1983 after the hearing on the merits, "enjoining respondent Enrique Zobel and
his agents, representatives and/ or any other person or persons acting on his behalf to desist from cutting off or removing any tree
in the questioned areas which were declared reverted to the public domain and which are claimed by the Republic."
Respondent Judge Arlegui, after he succeeded Judge Angeles as presiding judge, committed the gravest abuse of discretion,
when, instead of granting the preliminary injunction sought by the Republic and its co-petitioners to enjoin respondent Zobel
from usurping lands of the public domain covered by his voided expanded subdivision titles, he dismissed the complaint on
January 12, 1977 and almost four years later on December 15, 1981, without any trial, granted said respondent's counter prayer
in his Answer to the complaint in Civil Case No. 653 for the issuance of a mandatory injunction upon a P10,000.00 bond to oust
petitioner Republic and its permittees and/or lessees from the property and to deliver possession thereof to respondent Zobel. It
is settled doctrine that as a preliminary mandatory injunction usually tends to do more than to maintain the status quo, it is
generally improper to issue such an injunction prior to the final hearing and that it may issue only in cases of extreme urgency,
where the right is very clear. 12
Contrary to respondent Zobel's assertion, the 1965 final judgment in favor of the Republic declared as null and void, not only
TCT No. 9550, but also "other subdivision titles" issued over the expanded areas outside the private land of Hacienda Calatagan
covered by TCT No. 722. As shown at the outset, 13 after respondents ordered subdivision of the Hacienda Calatagan which
enabled them to acquire titles to and "illegally absorb" the subdivided lots which were outside the hacienda's perimeter, they
converted the same into fishponds and sold them to third parties, But as the Court stressed in the 1965 judgment and time and
again in other cases, 'it is an elementary principle of law that said areas not being capable of registration, their inclusion in a
certificate of title does not convert the same into properties of private ownership or confer title on the registrant." 14 This is
crystal clear from the dispositive portion or judgment which reads:
WHEREFORE, judgment is hereby rendered as follows:
(a) Declaring as null and void Transfer Certificate of Title No. T 550 (or Exhibit "24") of the
Register of Deeds of the Province of Batangas and other subdivision titles issued in favor of
Ayala y Cia and/or Hacienda de Calatagan over the areas outside its private land covered by
TCT No. 722, which including the lots in T-9550 (lots 360, 362, 363 and 182) are hereby
reverted to public dominion."
This final 1965 judgment reverting to public dominion all public lands unlawfully titled by respondent Zobel and Ayala and/or
Hacienda Calatagan is now beyond question, review or reversal by any court, although as sadly shown hereinabove, respondents'
tactics and technical maneuvers have all these 23 long years thwarted its execution petition and the Republic's recovery of the
lands and waters of the public domain.
Respondent Zobel is bound by his admission in his Answer to the Complaint below that when Civil Case No. 373 was docketed,
he "was and still is at present one of the members and managing partners of Ayala y Cia one of the defendants in the said civil
case, and, therefore. privy thereto."
Clearly, the burden of proof lies on respondent Zobel and other transferees to show that his subdivision titles are not among the
unlawful expanded subdivision titles declared null and void by the said 1965 judgment. Respondent Zobel not only -did not
controvert the Republic's assertion that his titles are embraced within the phrase "other subdivision titles" ordered cancelled but
failed to show that the sub division titles in his name cover lands within the original area covered by Ayala's TCT No. 722
(derived from OCT No. 20) and not part of the beach, foreshore and territorial sea belonging and ordered reverted to public
dominion in the aforesaid 1965 judgment.
2. The issues at bar have been expanded by the parties, as shown by the voluminous records of the case (which have expanded to
2,690 pages in three volumes), to cover the questioned actions of respondent Judge Arlegui (a) in dismissing the Republic's
complaint in Civil Case No. 653 of his court per his Order of January 12, 1977 (subject of the Court's Second Division's
Resolution of December 17, 1979 dismissing the Republic's petition for review in Case G.R. No. L,46396); and (b) his decision
of December 15, 1981, after almost four years, on respondent Zobel's counterclaim in the same case, declaring him the true and
registered owner of the lands covered by some three subdivision titles in his name, 15 as well as (c) the resurvey of the lands
affected so as to properly segregate from Ayala's expanded TCT No. 722 the estimated 2,000 hectares of territorial sea,
foreshore, and navigable waters, etc., of the public domain and enforcement and execution of the 1965 final judgment reverting
these usurped public areas to public dominion. 16
3. On the first question of the precipitate dismissal of the Republic's complaint in the case below, Civil Case No. 653, the .
records show respondent judge's action to have been capricious , arbitrary and whimsical. His first ground of non-prosecution of
the action by the Republic is belied by his very Order which shows that the proceedings had been suspended all the while since
its filing in 1967 upon insistent motions of respondent Zobel. against petitioner's vigorous opposition, that it was necessary as a
cuestion previa to await the Court's resolution of the case at bar.
18
His second ground of res judicata is likewise devoid of logic and reason. The first case (the 1965 judgment in Case L-20950)
decreeing the reversion to public dominion of the public lands and waters usurped by respondent's unlawfully expanded titles
-and ordering the cancellation of all such titles and their transfers could not possibly be invoked as res judicata in the case at bar
on respondent Zobel's untenable submission that his unlawfully expanded titles were not specifically mentioned in the 1965
judgment. The Court in said 1965 judgment had stressed the elementary rule that the generally incontestable and indefeasible
character of a Torrens Certificate of Title does not operate when the land covered thereby is not capable of registration, as in this
case, being part of the sea, beach, foreshore or navigable water or other public lands incapable of registration. 17 It should be
noted further that the doctrine of estoppel or laches does not apply when the Government sues as a Sovereign or asserts
governmental rights, nor does estoppel or laches validate an act that contravenes law or public policy 18 and that res judicata is to
be disregarded if its application would involve the sacrifice of justice to technicality. 19
Respondent Judge Arlegui's refusal to grant the Republic a simple 15-day extension of time to file a Motion for Reconsideration
on the ground that such motion was filed on the last day (following a Sunday) and he could no longer act thereon within the
original period per his Orders of March 3, 1977 and June 14, 1977 20 depict an incomprehensible disregard of the cardinal
principle that procedural rules are supposed to help and not hinder the administration of justice and crass indifference, if not
outright hostility against the public interest.
At any rate, such dismissal of the complaint and dismissal on December 17, 1979 of the petition for certiorari thereof by the
Court's Second Division, based on purely procedural and technical grounds, does not and cannot in any way have any legal
significance or prejudice the Republic's case. Such dismissal by the Second Division cannot in any way affect, much less render
nugatory, the final and executory 1965 judgment in G.R. No. L-20950 reverting the public lands and waters to public dominion.
Much more so when we take into account the mandatory provisions of Article VIII, Section 4(3) of the 1987 Constitution (and
its counterpart Article X, Section 2(3) of the 1973 Constitution) to the effect that only the Supreme Court en banc may modify or
reverse a doctrine or principle of law or ruling laid down by the Court in a decision rendered en banc or in division.
3. Respondent judge's "decision" on respondent Zobel's counterclaim and declaring him, four years after dismissal of the
Republic's complaint, as the true owner of the lands unlawfully titled in Zobel's name is properly before the Court in the case at
bar. We declare the same null and void for want of jurisdiction over the subject properties which were reverted to public
dominion in the final 1965 judgment which annulled all expanded titles unlawfully secured by respondents and their transferees
to public waters and lands.
4. As to the third and most important question of finally executing and enforcing the 1965 judgment in favor of the Republic and
reverting all usurped areas to public dominion, the Solicitor General has complained rightfully in his Memorandum that "mass
usurpation of public domain remains unabated . ... for almost (23) years now execution of the 1965 final judgment in G.R. No.
L-20950, ordering the cancellation of the subdivision titles covering the expanded areas outside the private lands of Hacienda
Calatagan, is being frustrated by respondent Zobel, the Ayala and/or Hacienda Calatagan. As a consequence, the mass usurpation
of lands of public domain consisting of portions of the territorial sea, the foreshore, beach and navigable water bordering
Balayan Bay, Pagaspas Bay and the China Sea, still remain unabated . ... (T)he efforts of Ayala and Zobel to prevent execution of
said final judgment are evident from the heretofore-mentioned technical maneuvers they have resorted to. In brief, they moved to
quash and secured the quashal of the writ of execution, succeeded in opposing the issuance of another writ of execution, opposed
the motion to conduct re-survey, opposed the approval and secured a disapproval of resurvey plan, moved to dismiss and got a
dismissal of Civil Case No. 653, ousted government fishpond permittees from the subject lands and threatened to eject the other
permittees therefrom, and secured from the lower court a declaration of validity of their void titles. Also, in this case, respondent
Zobel is trying to prevent the cancellation of his void titles by resorting to frivolous technicalities thus flouting this Honorable
Court's decision in G.R. No. L-20950 . " 21
We heed the Republic's pleas that
"It bears stressing that the Re-survey Plan (Annex "C", together with Annexes "A" and "B" of Republic's Comment dated March
30,1981, being a Report on the Re-survey dated August 5,1977 and the "Final Report" dated September 2, 1977, respectively)
delineating the expanded areas covered by subdivision titles derived from TCT No. 722 has been prepared by a Committee
created by the Secretary of Agriculture and Natural Resources wherein Ayala and/or Hacienda Calatagan was represented by
Engineer Tomas Sanchez, Jr. and approved by the Director of Lands. Well to recall that under G.R. No. 26112 (44 SCRA 255,
263), this Honorable Court, in a Resolution dated April 11, 1972, declared that as soon as said resurvey Is completed the proper 1. Annulling the questioned mandatory injunction of October 1, 1968 issued by respondent-judge and making permanent the
writ of execution for the delivery of possession of the portion found to be public land should issue." Thus: [See pages 3-5 of restraining orders issued by the Court;
Annex "A" hereof for text of Resolution.]
2. Declaring as null and void the questioned decision of December 15, 1981, as well as the corresponding writ of execution
"By virtue of the aforesaid resolution, therefore, there should no longer be any legal impediment against the execution of the therefore having been issued by respondent judge with grave abuse of discretion and without jurisdiction, and for being in
final judgment in Civil Case No. 373 (G.R. No. L-20950), the issuance of which is purely ministerial the dubious decision in contravention of the final 1965 decision in Civil Case No. 373 as affirmed in G.R. No. L-20950;
Civil Case No. 653 notwithstanding. Accordingly, to give legal significance to the earlier decision and resolution of this
Honorable Court in G.R. No. L-20950 and 26112, respectively, and to foreclose any further legal obstacle on the matter, we pray
3. Declaring the Re-survey Plan duly approved by the Director of Lands as sufficient basis for the execution of the final
this Honorable Court to declare the proceedings conducted by respondent judge in Civil Case No. 653 null and void ab initio,
judgment in the aforesaid Civil Case No. 373 as affirmed in G.R. No. L- 20950; and
and to consider the resurvey plan as sufficient basis for the immediate issuance of the corresponding writ of execution in Civil
Case No. 373. For it is only upon said execution that the oft revived issues of ownership and possession over the land in
question, as well as over all other lots covered by the subdivision titles outside the private land covered by TCT No. 722, may be 4. Directing the Clerk of this Court to forthwith issue the corresponding writ of execution in the case at bar for Civil Case No.
finally laid to rest. Indeed, under the facts and circumstances obtaining in the case at bar, execution of the final judgment in Civil 373 of the Regional Trial Court (formerly Court of First Instance) of Batangas (Balayan Branch) reverting to public dominion
Case No. 373 is long overdue ." 22 and delivering to the duly authorized representatives of the Republic all public lands and lots, fishponds, territorial bay waters,
rivers, manglares foreshores and beaches, etc. as delineated in the aforesaid duly approved Re-survey Plan (Annex "C") and any
supplemental Re-survey Plan as may be found necessary * and duly approved by the Secretary of Agriculture. This decision is
To allow repetition after repetition of the maneuvers hereinabove set forth in detail, notwithstanding the final 1965 judgment in
IMMEDIATELY EXECUTORY and no motion for extension of time to file a motion for reconsideration will be granted.
favor of the Republic, and to protract further the return to the Republic of the usurped lands pertaining to the public domain
would be to sanction a legal abomination As stated by the late Chief Justice Roberto Concepcion, to frustrate delivery and return
of the usurped lands to the Republic would: Yap, Fernan, Narvasa, Melencio-Herrera, Gutierrez, Jr., Cruz, Paras, Feliciano, Gancayco, Bidin, Sarmiento and Cortes, JJ.,
concur.
(1) Establish a precedent-fraught with possibilities tending to impair the stability of judicial
decisions and affording a means to prolong court proceedings or justify the institution of new Padilla, J., and Grio-Aquino, J., took no part.
ones, despite the finality of the judgment or decree rendered in the main case, by sanctioning a
departure from the clear, plain and natural meaning of said judgment or decree;
MEMORANDUM FOR GRANTING OF PETITION

(2) Contribute to the further increase of the steadily mounting number of cases pending before
our courts of justice, and thus generate greater delay in the determination of said cases, as well
as offset the effect of legislative and administrative measures taken-some upon the suggestion
or initiative of the Supreme Court to promote the early disposal of such cases;
(3) Impair a normal and legitimate means to implement the constitutional mandate for the
protection and conservation of our natural resources and the patrimony of the nation; and
(4) Promote usurpations of the public domain, as well as the simulation of sales thereof by the
original usurper, by exempting him from responsibility for damage which would not have been
sustained were it not for the irregularities committed by him so long as he has conveyed the
subject matter thereof to a purchaser for value, in good faith. 23
24
As in Air Manila, Inc. v. CIR and several other cases in order to avoid further intolerable delay and finally bring to reality the
execution of the 1965 judgment that would enable the State to recover at last the estimated 2,000 hectares of lands and waters of
the public domain, the Court will order its Clerk of Court to issue directly the corresponding writ of execution of judgment
addressed to the sheriffs of the locality. We declare respondent judge's gratuitous "disapproval" of the Re-survey Plan and Report
duly approved by the Director of Lands and the then Secretary of Agriculture and Natural Resources as null and void for being
ultra vires and lack of jurisdiction over the same. It is well-recognized principle that purely administrative and discretionary
functions may not be interfered with by the courts. In general, courts have no supervising " power over the proceedings and
actions of the administrative departments of government. This is generally true with respect to acts involving the exercise of
judgment or discretion, and findings of fact. 25 There should be no thought of disregarding the traditional line separating judicial
and administrative competence, the former being entrusted with the determination of legal questions and the latter being limited
as a result of its expertise to the ascertainment of the decisive facts. 26
WHEREFORE, judgment is hereby rendered
Backgrounder
The case directly stems from Civil Case No. 653 of the Batangas court of first instance filed on August 2, 1967 by then Solicitor
General now Justice Antonio P. Barredo on behalf of the Republic of the Philippines and its co- petitioners as co-plaintiffs (as
permittees and/or lessees of public fishponds) for the cancellation of TCT Nos. 3699 and 9262 issued in the name of respondent
(defendant) Enrique Zobel (covering the fishponds granted in lease by the Republic) and for the reconveyance of the properties
covered in part thereby and of other properties of the public domain to the Republic, to enable it to maintain its co-plaintiffs in
peaceful possession of their respective fishponds. Besides, damages and back rentals, the complaint further prayed for the
issuance of a preliminary injunction restraining Zobel and his agents "from usurping and exercising further acts of dominion and
ownership over the land subject matter of this litigation.
The Republic's position is simple: By virtue of this Court's judgment in Republic vs. Ayala (14 SCRA 259, May 31, 1965)
affirming (with modification affecting the Dizons only as transferees of Ayala) the trial court's judgment in Civil Case 373, an
expanded subdivision titles of Ayala (derived from its TCT No. 722) covering an estimated excess of from 1,091 hectares to
2,500 hectares of the public domain, including over 400 hectares of the beach, foreshore and territorial sea which are manifestly
not capable of private appropriation or registration, were declared null and void, as follows:
WHEREFORE, judgment is hereby rendered as follows:
(a) Declaring as null and void Transfer Certificate of "title No. T-9550 (or Exhibit 24) of the
Register of Deeds of the Province of Batangas and other subdivision titles issued in favor of
Ayala y Cia. and/or Hacienda Calatagan over the areas outside its private land covered by CT
No 722 which, including the lots in T-9550 (Lots 360, 362, 363 and 182) are hereby reverted to
public dominion.
xxx xxx xxx

19
 (CFI judgment as affirmed by Supreme Court)
The Republic's position is supported by all the series of decisions and extended resolutions rendered subsequently (to its May 31,
1965 judgment in the basic case of Republic vs. Ayala) by this Court: Decision in Republic vs. Angeles (20 SCRA 608, June
30,1967) issuing a writ of mandamus ordering the court a quo to enforce the judgment; Resolution of October 4, 1971 reversing
on respondents" second and supplemental motion for reconsideration the decision of June 30, 1967 and dismissing the petition
for mandamus (41 SCRA 422); Resolution of April 11, 1972, denying petitioners" first motion for reconsideration (44 SCRA
255) and Resolution of April 27, 1973 denying petitioners' second motion for reconsideration "for lack of necessary votes" 1
unreported in SCRA). 1-a
Although the writ of mandamus for execution of judgment with a preliminary resurvey to determine specifically by metes and
bounds the huge excess area encroached and usurped by Ayala's expanded subdivision titles) was denied by this Court when the
majority of six reversed the original unanimous decision of June 30, 1967, still even the majority made it clear that its
disposition "does not affect at all the interests of the Republic but only those of intervenor Tolentino ... "
Thus, the ponente, Justice Villamor, stressed this for the majority in the Resolution of April 11, 1972 (in response to the point
raised in the dissenting opinion that there was "no justification for denying writ of execution for cancellation of void titles [of
Ayala and reversion of public lands covered thereby to public dominion. The writ of mandamus should issue at least for this
purpose as ordered in the original decision of June 30, 1967 now set aside," as follows:
At this juncture, it seems necessary to clarify a point, which surprisingly is not raised in the
motion for reconsideration of the Solicitor General, limited as it is to invoking or reiterating the
arguments advanced in the dissenting opinions of the Chief Justice and Justice Teehankee
justifying the award, not to the government but to petitioner Tolentino, namely, the effect of the
resolution of October 4, 1971, upon the refusal of the court a quo to issue, per its order of
February 8, 1966, the writ of execution prayed for by the Republic for the implementation of
paragraph (a) of the dispositive part of Judge Tengco decision of June 2, 1962 in Civil Case
No. 373, the said resolution having denied the petition for certiorari and mandamus
unqualifiedly. It is suggested in the motions for reconsideration of petitioner Tolentino that
such denial leaves the government practically with an empty victory, since it looks as if
respondent judge is determined not to give full effect to the annulment of the titles referred to
in the aforementioned paragraph (a) of Judge Tengco's judgment. In fact, the same
apprehensive suggestion may be gleaned from the "Reply to Opposition" dated January 31,
1972 of petitioner Tolentino wherein the attention of this Court is invited to a subsequent order
of respondent Judge of October 27, 1970 denying the motion filed by the Provincial Fiscal of
Batangas praying for authority to conduct a re-survey of the lands herein in question
preparatory to implementing the same paragraph of Judge Tengco's judgment already referred
to.
order that "it is clear that the Dizons being purchasers in good faith have the right to retain
possession of all the lots covered by TCT 9550 is obvious that such was the judgment of this
Court in G.R. No. L-20950, and it would have been a manifest error of His Honor had he ruled
otherwise. It is thus clear that even after the issuance of the order of February 8, 1966, nothing
adverse to the government or the Republic was being done by anyone that was not expressly
authorized by the final and executory decision of this Court.
Coming now to the order of October 27, 1970, which, incidentally, was never brought to the
attention of this Court before October 4, 1971, We cannot see how the same can be cause for
apprehension on the part of the Republic because as We read the same, it does not actually
deny the right of the government to a re-survey; rather, it simply held basically that it is only
wise, prudent and proper not to give due course to the instant motion (to re-survey) which .... is
tantamount to giving due course to a motion for execution even before the Supreme Court had
ruled on the matter of whether or not to grant the mandamus ordering the court to execute the
final decision in Civil Case 373." And having declared itself without authority to act in the
meanwhile, it stands to reason that anything else it might have said in the order which could
be interpreted as adversely affecting the government's position in any respect would be of no
consequence, the same being pure obiter dictum.
Upon these premises, We hold that even if the prayer for certiorari and mandamus in the basic
petition herein is denied, still it is clear that what this Court is disposing of in the present case
does not affect at all the interests of the Republic but only those of Intervenor Tolentino in
relation to the lower court's orders of January 18, 1966, February 2, 1966 and April 13, 1966.
As already explained, the order of February 8, 1966 does not constitute a denial of the right of
the Republic to the cancellation of the titles nullified by the decision of Judge Tengco affirmed
by this Court. Indeed, the respondent Judge expressly made the reservation for the Republic to
"resort" to the court should private respondents refuse or fail to have their titles cancelled.
Incidentally, even the order of October 27, 1970 about the resurvey merely held the remedy to
be premature until the decision in this case has become final. Of course it is understood that in
such eventuality, the resurvey requested by the Provincial Fiscal would be in order and as soon
as the same is completed the proper writ of execution for the delivery of possession of the
portions found to be public land should issue.
WHEREFORE, and with the clarification aforemade of the rights of the Republic, the motion
and supplemental motion for reconsideration of petitioner Tolentino are denied for lack of
merit. The motion for reconsideration of the Solicitor General, which is no more than a
duplication of Petitioner Tolentinos motions in support of his private claim for damages, is
likewise denied . 2

Then Justice Makalintal in his separate concurrence stressed that "The resolution in no way affects the rights of the Government
We do not believe there is real ground such fear, no matter how apparent it does appear that
as declared in the decision. 3
private respondents are very cautious in seeing to it that the implementation of Judge Tengco's
judgment does not go beyond what they feel it warrants or contemplates Examined objectively
and overlooking their infelicitous phraseology, We cannot discern from the orders in question Justice Barredo in his separate concurrence even more vigorously stressed also that
any repudiation by Judge de los Angeles of the declaration of nullity not only of TCT No. 9550,
covering lots 360, 362, 363 and 182, but also of other subdivision titles issued in favor of Ayala
... .If in any manner the dispositive portion of the resolution of October 4, 1971 denying the
v Cia. and/"or Hacienda Calatagan over the areas outside its private land covered TCT No
mandamus did give rise to apprehensions, the present resolution should serve to make it
722 . . . which are hereby reverted to public dominion" per Judge Tengco's decision. Surely, no
definitely clear that such denial cannot affect the Government adversely. I am sure that the five
one can deduce such a repudiation from the positive holding in the order of February 8, 1966
justices whom I am joining in denying Petitioner's motion for reconsideration are as firm as the
that "there is no need of issuing a writ of execution because the declaration of nullity in itself is
three distinguished dissenters in the resolution not to alow this Court to be an instrument of
already, executory. "One might perhaps question the legal correctness of such proposition, but
land-grabbing as they are against the reversal or even modification in any substantial degree of
it is clear to Us that there is here a reaffirmation rather than a denial of the rights of the
any final and executory judgment whether of this Court or any other court in this country, and,
Government in the premises, albeit His Honor could be mistaken in his view that it would be
that if there were such possibilities in consequence of the resolution of October 4, 1971 and the
only after private respondents and Dizon have refused or failed to surrender their titles for
present resolution of denial, they would not give their assent to said resolutions. We are certain
cancellation that "resort" to the court would be proper. And with respect to the holding in said

20
 that in deciding against Petitioner Tolentino, We are not condoning nor permitting that the
lands in question remain with the Dizons or with the Ayalas. What We see very clearly is that
the respondent Judge has not denied any right of the Government, and if he has refused to take
definite action so far, it is only because he disagrees with the procedure of execution pursued
by the representatives of the Government or is otherwise awaiting the final judgment of this
Court in deference to its superiority. 4
Respondent court, however, instead of granting the preliminary injunction sought by the Republic, et al. to enjoin Ayala from
usurping the lands of the public domain covered by Ayala's voided expanded subdivision titles, granted Zobel's (as Ayala's
transferee of said void title) counter-prayer in his answer to the complaint for the issuance of a mandatory injunction upon a
P10,000 bond per its orders of October 1 and 21, 1968 and of February 21, 1969 (denying reconsideration) to oust petitioner
Republic and its permittees and/or lessees (particularly Chavez and Mercado) from the fishponds in question and to restore
Zobel to the possession thereof, notwithstanding that the case of accion reivindicatoria filed below is still pending trial on the
merits.
Hence, the present petition for certiorari as filed on March 3, 1969 filed by then Solicitor General now Justice Felix V. Makasiar
on behalf of the Republic and its co-petitioners for the setting aside of such mandatory injunction. As prayed for, the Court
issued on March 7, 1969 a restraining order enjoining the enforcement of respondent court's mandatory injunction.
The issue
The issue as posed by Justice Fernandez" draft is "whether it is the private petitioners (particularly Chavez and Mercado) or the
private respondent Enrique Zobel, who at this stage of Civil Case No. 653 of the court a quo which is still pending trial on the
merits has a better right to the possession of certain areas constituting portions of properties covered by Transfer Certificates of
Title in the name of the latter [Zobel] but allegedly covered by fishpond permits and/or applications therefor in favor of the
former" (at pages 2-3) is incomplete as it goes and omits three essential factors:
1. The main protagonists are really the Republic of the Philippines on one side (with Chavez and Mercado as its permittees
and/or lessees) and Zobel on the other;
2. The lands in question are alleged to be lands of the public domain covered by void expanded subdivision titles wrongfully
secured by Ayala (Zobel's predecessor) and which were declared null and void and the lands ordered reverted to the public
domain by this Court's May 31, 1965 decision in Republic vs. Ayala, supra; and
3. The question at issue in the case below is not one merely of possession but of ownership as found and held by respondent
court itself in its order of December 13, 1967 (Annex B, petition) denying Zobel's motion to dismiss, in this wise: "the issue in
the instant case is ownership, "that is, whether defendant Enrique Zobel's Transfer Certificate of Title Nos. 3699 and 9262 can be
considered valid as it is alleged by plaintiffs that they actually cover portions of the territorial waters of the Philippines." 5
Reasons for Granting of Petition
Basic and fundamental reasons abound for maintaining the status quo and maintaining the possession by the Republic of the
lands in litigation (which it has placed with the lessees or permittees rather than respondent court's arbitrarily transferring
possession to Zobel by mandatory injunction while awaiting trial on the merits of the case below, among them the following:
1. As was stressed by the Solicitor-General in his comment of November 23, 1972 on Zobel's motion for modification and/or
dissolution of temporary restraining order filed on November 2, 1972 (Reno, p. 180), the property herein involved is "part of the
public domain;"this Court had in its May 31, 1965 decision affirmed the Batangas court of first instance decision dated June
2,1962 in Civil Case No. 373 "which orders the cancellation as null and void of all expanded subdivision titles secured by Ayala
y Cia. over the original area of Hacienda Calatagan as stated in TCT No. 722 and the reversion to public dominion of the public
lands usurped thereby . . . .;" "(I)t cannot be overemphasized that portions of the public domain are not subject to private
21
appropriation and, therefore, not registerable under the Torrens System" (cases cited); and that "it would certainly be condoning
an illegal act if the private respondent-movant is allowed to perpetuate what he has committed-an affront and an offense against
the State. What is asked for in the instant motion is a prayer which, if granted, would be to the prejudice of the Government. " 6
The Court per its resolution of January 23, 1973 after considering the pleadings of the parties consequently "Resolved to deny
the motion for lack of merit." 7
2. When Zobel renewed on December 18, 1973 under the guise of a "supplemental memorandum" his motion to dissolve the
same restraining order, the Solicitor General after invoking this Court's previous resolution of January 23, 1973 which denied
"for lack of merit" the same relief now sought again, underscored the following in his Opposition of January 4, 1974;
a) The alleged copy of a plan and aerial photograph submitted by Zobel as showing that the
lots possessed by co-petitioners Chavez and Mercado under permit from the Republic "are very
well within the boundaries of the parcel of land embraced in and covered by (Ayala's) Transfer
Certificate of Title No. 722" cannot serve to overturn the final and executory judgment of the
court of first instance in Civil Case No. 373 as affirmed by this Court's May 31, 1965 judgment
in Republic vs. Ayala and its subsequent resolutions of October 4, 1971 and April 11, 1972 in
Republic vs. Angeles, supra;
b) Respondent court's very order of October 1, 1968 (Annex D, petition) for the issuance of a
mandatory injunction justified the same on the premise that the judgment declaring Ayala's
expanded titles null and void "cannot as yet be executed because the matter of execution is still
the subject of a motion for reconsideration which is still pending in the Supreme Court." This
premise is no longer true-for both the majority and dissenting opinions in resolving the motion
for reconsideration left no doubt that all such expanded titles of Ayala were and are null and
void and cannot be honored;
c) Thus, Solicitor General stressed that "There is, to us, no question as it is obvious from the
record that the lots or fishponds herein involved were adjudged as included in those "other
subdivision titles" outside of Transfer Certificate of Title No. 722, and that, as described, the
transfer certificates of title, in the name of the private respondent concerning said lots encroach
upon and cover res publicae;" 8
d) The plan submitted by Zobel "merely illustrates what had been previously surveyed under
TCT No. 722 . . I . and the different surveys under fishpond permit applications" and cannot
overcome this Court's findings in Republic vs. Ayala affirming those of the court of first
instance decision in Civil Case 373 that even assuming to be true Ayala's contention that the
fishpond permit applications were for areas covered by its T.C.T. 722, nevertheless the areas in
dispute (covered by permits issued to Chavez, Mercado, et al. who were also parties in said
Case 373) "were found to be portions of the foreshore, beach or of the navigable water itself.
And it is an elementary principle of law that said areas not being capable of registration, their
inclusion in a certificate of title does not convert the same into properties of private ownership
or confer title on the registrant."
3. At any rate, it appears that such map and plan raise questions of fact as to the actual location of the fishponds and properties
which according to the Republic are part of the public domain and were reverted to the public dominion under the May 31, 1965
decision in Republic vs. Ayala wherein Ayala's (and Zobel's as successor-transferee) expanded subdivision titles were declared
null and void while Zobel as defendant claims the contrary in his answer. As far as the record shows, said map and plan have not
yet been presented to respondent court-which has yet to hold trial on the merits of petitioners' complaint below, but were
submitted to this Court only on December 18,1973 with Zobel's supplemental memo and second motion to dissolve restraining
order long (over 4 years) after this case was submitted for decision on June 25, 1969.
It is elementary that this Court is not a trier nor even a reviewer of facts and certainly cannot at this stage consider such map and
plan which have not yet even been presented to the court below.
4. Respondent court issued the mandatory injunction on the basis of the counterclaim in Zobel's answer that co-petitioners
Chavez and Mercado allegedly dispossessed him of the fishponds and properties in question by having illegally and forcibly
taken possession thereof in the first week of June, 1966. 9 Such a bare allegation is contrary to the admitted facts of record, as
witness respondent court's own order of December 13, 1967, wherein in denying Zobel's motion to dismiss, it made of record
that the Republic's co-petitioners and private plaintiffs "were entitled to be placed in possession" of the fishponds as "lessees of
the Republic of the Philippines," as follows:
The third ground is also untenable because the private plaintiffs in this case being lessees of the
Republic of the Philippines with regards to the areas covered by "Transfer Certificates of Title
Nos. 3699 and 9692, they are therefore entitled to be placed in possession thereof as their
applications had been duly approved. in fact it has been alleged that plaintiffs-lessees have
introduced substantial improvements and incurred expenses on their leased properties. 10
5. The previous successful action for ejectment of Zobel against Chavez, et al. on May 25, 1960 under color of his torrens
subdivision title (which had not yet been voided then by this Court's May 31, 1965 judgment in Republic vs. Ayala) and which
per his own averments was executed with the ouster of Chavez, et al. in 1961 patently has no relevance here. The situation has
completely changed since this Court's May 31, 1965 judgment voiding of all the expanded subdivision titles of Ayala and the
Zobels (Alfonso and Jacob, father of respondent Enrique here), whereby the Republic placed back the Chavezes, et al. in
possession of the fishponds as its permittees and lessees. Such leases as official acts of the Government have the presumption of
regularity and cannot be summarily, prematurely and capriciously set aside without trial as respondent court has done.
Furthermore, if it be true that the Chavezes et al. forcibly took possession of the fishponds in June 1966 as per Zobel's bare
allegation in his counterclaim, why did he not file an action for forcible entry within one year instead of just making such an
allegation in his answer with counterclaim dated January 12, 1968?
Since no forcible entry case was filed by Zobel, it is obvious no writ of preliminary mandatory injunction to restore him in his
alleged prior possession can issue, since the requirements of Article 539 11 for such issuance are not present.
The inference that by virtue of the ouster in 1961 by execution, of the judgment of forcible entry effected by Zobel against the
Chavezes, respondent court's mandatory injunction issued seven years later in a completely separate case for reinvindicacion
filed by the Republic as the judicially recognized owner of the lands of the public dominion encroached upon and usurped by
Zobel's expanded subdivision titles would serve 'to re-establish and maintain a pre-existing continuing relation between f the
parties, recently and arbitrarily interrupted by the defendant, than to establish a new relation 12 is manifestly untenable and
baseless.
A third party, the Republic, has stepped into the picture as the judicially recognized owner of the public domain usurped by
Zobel's expanded titles. The Chavezes are duly in possession of the fishponds as permittees/lessees of the Republic (as
respondent court itself recognizes in its order of December 13, 1967, supra at page 10). There is no "continuing relation"
between the Chavezes et al as the Government's lessees and Zobel that is "re-established and maintained" by respondent court's
arbitrary writ of mandatory injunction.
6. The whole prop of respondent court's mandatory writ, to wit that the titles of Zobel are presumed to be valid and must be
honored until judicially voided has thus been shown to be bereft of basis, in fact and in law.
It has no basis in fact because as indisputably shown above, all expanded subdivision titles of Ayala and the Zobels (cover-
ing an estimated 1,091 hectares to 2,500 hectares of public lands) in excess of the original area of Hacienda Calatagan as stated
in TCT 722 were declared null and void (not merely T- 9550 which covered only the Dizons" fishponds in Civil Case 373 as
Zobel would contend now in his answer below, 13 contrary to the express and undisputed holding of both majority and minority
22
in the supplemental case of Republic vs. Angeles, supra, at pages 3-6) and the lands ordered reverted to the public dominion
under this Court's final judgment of May 31, 1965 in Republic vs. Ayala.
It has no basis in law-because the burden has thus been ,4 shifted to Ayala and the Zobels to show that their subdivision titles are
not among the expanded titles declared null and void. Zobel's titles therefore do not enjoy the presumption of validity as
erroneously presumed by respondent court in view of the congenital infirmity of usurpation of inalienable lands of the public
domain which accompanied their wrongful issuance. Zobel's titles have to undergo the test of scrutiny and survey as to whether
they fall under the usurped public domain or within the original area of Hacienda Calatagan and this can only be determined
after due trial on the merits which has yet to be held.
7. Respondent court, in issuing the disputed mandatory injunction while awaiting trial on the merits utterly disregarding the
Republic's rights as judicially recognized owner of lands of the public domain usurped by Zobel's expanded titles and ordering in
effect that the Republic and its permittees/lessees be ousted from their lawful possession of the fishponds and that possession be
restored to Zobel despite its express and correct finding in its December 13, 1967 order Annex B) that the issue in the case below
is ownership (between the Republic of the Philippines and Zobel) and that the private petitioners are entitled to possession as
lessees of the government acted with grave abuse of discretion and in gross violation of elementary and fundamental principles
of injunctions (many of which principles respondent court correctly cited in its disputed basic order of October 1, 1968, Annex
D, but unfortunately failed to apply correctly and instead misapplied) as to call for the corrective process of certiorari, as
follows:
aA mandatory injunction will not issue in favor of a party whose rights are not clear and free from doubt or are as yet
undetermined;
bNo advantage may be unduly given to one litigant to the prejudice of the other, hence a court should not by preliminary
injunction transfer the property in litigation from the possession of one party to another where the legal title is in dispute and the
party having possession (the Republic) asserts ownership thereto by right of a final decision of the Supreme Court and claims the
lands involved as lands of the public domain.
cThe primary purpose of a preliminary injunction is the preservation of the status quo. The court must leave the parties where
they are until it is able to hold trial and determine the conflicting claims of ownership between the Republic and Zobel:
dRespondent court's mandatory injunction prematurely prejudged the Republic's complaint without trial or evidence by
arbitrarily ordering the restoration of possession of the fishponds in favor of Zobel (when Zobel had failed to even file a forcible
entry case against petitioners) and in gross disregard of this Court's final decisions and resolutions in Republic vs. Ayala (1965)
and Republic vs. Angeles (1967) et seq., supra) all declaring the nullity of Ayala's and the Zobel's expanded subdivision titles
which usurped the public domain;
eContrary to the mistaken assumption in Justice Fernandez" draft 14 that the judgment in Civil Case 373, as affirmed by this
Court, was limited to declaring void only TCT T-9550 of Ayala, the judgment proper, as affirmed by this Court, clearly and
indisputably declared null and void all "other subdivision titles (of Ayala and/or Hda Calatagan) over the areas outside its private
land covered by TCT No. 722 which ... are hereby reverted to public dominion." (Supra, at page 2).
Respondent court thus violated the fundamental rule that a party should not be deprived of possession until the court is prepared
to adjudicate the controverted light in favor of the adverse party (Zobel) and until the controverted question (of ownership) is
adjudicated, the status quo should be preserved and the party in possession (the Republic through its lessees, the private
plaintiffs) should not be ousted.
The question raised by Zobel that if all his expanded titles were declared null and void in the 1962 judgment of the lower court
as affirmed by this Court's May 31, 1965 judgment, then all that petitioners have to do is to have that decision executed without
need of the separate action below would be well taken, were it not for two factors: (1) The Republic did seek execution of the
judgment but the lower court hedged and refused on the ground that there was no need for execution "because the declaration of
nullity in itself is already executory" (supra, at page 4) and (2) The Republic filed mandamus for a writ of execution in Republic
vs. Angeles which was at first unanimously granted by this Court in its decision of June 30, 1967 but which underwent a series of
modificatory resolutions until April 27, 1973 (supra, at page 2,) but finally ended up with the pronouncement that such execution
would issue upon the finality of said April 27, 1973 resolution should further obstacles towards keeping Ayala and the Zobel' s in
possession of the usurped public lands come up supra at page 5)"

8. In the writer's dissenting opinion against the April 11, 1972 resolution, he expressed gratification "that the majority's position-
although it denies reconsideration and maintains reversal of the June 30, 1967 decision at bar-is that the Government may now
finally effect reversion and recover possession of all usurped areas of the public domain outside (Ayala's) private land covered
by TCT No. 722, which including the lots in T9550 (Lots 360, 362, 363 and 182) are hereby reverted to public dominion
(Paragraph (a) of 1965 judgment) 15 hereinabove. 16

It would be, a terrible retrogression if these ringing pronouncements against further frustration of reversion of the public lands
and waters decreed in the May 31, 1965 judgment and further retention by Ayala and the Zobels and their purchasers and
transferees of usurped public lands were to be now negated by systaining the arbitrary, capricious and untenable disputed orders
of respondent court.

(In his same dissenting opinion, the writer did recount how up to then and up to now, Ayala and Zobel as its successor have
succesfully blocked at every turn the Government's efforts to enforce the 1965 judgment, contending that the proper step is for
the Government to ask for execution of the judgment and yet opposing the Government's motion to re-survey the lands affected
to determine the precise extent of their usurpation by expansion of their titles of lands and waters of the public domain and
taking below actions that are "diametrically the opposite of Ayala's posture before this Court of avowed adherence and
submission to the judgment reverting all its usurped lands to public dominion and declaring null and void its subdivision on titles
thereto .") 17

It would be incomprehensible if the claim to the lands and fishponds in question as lands of the public domain of the Republic of
the Philippines itself, fully supported by final j judgments of this Supreme Court were not to be given faith and credit and were
to be arbitrarily disregarded (without trial and evidence and on the basis of mere assumptions and conjectures of fact made by
this Court on the very lis mota, viz whether Zobel's expanded titles are for lands of the public domain duly voided by this Court's
1965 judgment) and instead the Republic would be arbitrarily ousted of the possession that it enjoys through its lessees and that
possession transferred pending trial on the merits to private respondent whose predecessor ,Ayala) has been found by final
judgment of this Supreme Court to be a usurper by unlawfal expanded subdivision titles immense areas of inalienable lands and
waters of the public domain.

The petition for certiorari should therefore be granted and the temporary restraining order issued by the Court against lie
enforcement of respondent court's disputed orders should be made permanent, With costs against private respondent.

23
G.R. No. L-50638 July 25, 1983 their predecessors, the spouses Tiburcio Lutero and Asuncion Magalona, leased to the plaintiff for a rental of P50,000.00 a year;
and that plaintiffs had failed to pay said rentals despite demands.
LORETO J. SOLINAP, petitioner,
vs. At the pre-trial, the parties defined the issues in that case as follows:
HON. AMELIA K. DEL ROSARIO, as Presiding Judge of Branch IV, Court of First Instance of Iloilo, SPOUSES
JUANITO and HARDEVI R. LUTERO, and THE PROVINCIAL SHERIFF OF ILOILO, respondents.
(1) Whether or not the defendants [Luteros] are indebted to the plaintiff and, if so, the amount
thereof;
Espeleta & Orleans Law Office for petitioner.
(2) Whether or not the defendants are the owners of one-half [1/2] of that parcel of land known
Simplicia Magahum, Offemaria & Sixto Demaisip Law Office for private respondents. as 'Hacienda Tambal' presently leased to the plaintiff and, therefore, entitled to collect from the
latter one-half [1/2] of its lease rentals; and in the affirmative, the amount representing the
unpaid rental by plaintiff in favor of the defendant. 1

On June 14, 1978, the respondent judge issued an order in Sp. Proc. No. 1870, granting the respondent Lutero's motion for
ESCOLIN; J.:
reimbursement from petitioner of the sum of P25,000.00 plus interest, as follows:

Posed for resolution in this petition is the issue of whether or not the obligation of petitioners to private respondents may be
WHEREFORE, Mr. Loreto Solinap is hereby directed to pay spouses Juanito Lutero and
compensated or set- off against the amount sought to be recovered in an action for a sum of money filed by the former against
Hardivi R. Lutero the sum of P25,000.00 with interest at 12% per annum from June 17, 1975
the latter.
until the same shall have been duly paid.

The facts are not disputed. On June 2, 1970, the spouses Tiburcio Lutero and Asuncion Magalona, owners of the Hacienda
Petitioner filed a petition for certiorari before this Court, docketed as G.R. No. L-48776, assailing the above order. This Court,
Tambal, leased the said hacienda to petitioner Loreto Solinap for a period of ten [10] years for the stipulated rental of P50,000.00
however, in a resolution dated January 4, 1979 dismissed the petition thus:
a year. It was further agreed in the lease contract that out of the aforesaid annual rental, the sum of P25,000.00 should be paid by
Solinap to the Philippine National Bank to amortize the indebtedness of the spouses Lutero with the said bank.
L-48776 [Loreto Solinap vs. CFI etc., et al.]- Acting on the petition in this case as well as the
comment thereon of respondents and the reply of petitioner to said comment, the Court
Tiburcio Lutero died on January 21, 1971. Soon after, his heirs instituted the testate estate proceedings of the deceased, docketed
Resolved to DISMISS the petition for lack of merit, anyway, the P25,000.00 to be paid by the
as Sp. Proc. No. 1870 of the Court of First Instance of Iloilo, presided by respondent Judge Amelia K. del Rosario. In the course
petitioner to the private respondent Luteros may well be taken up in the final liquidation of the
of the proceedings, the respondent judge, upon being apprized of the mounting interest on the unpaid account of the estate,
account between petitioner as and the subject estate as lessor.
issued an order, stating, among others, "that in order to protect the estate, the administrator, Judge Nicolas Lutero, is hereby
authorized to scout among the testamentary heirs who is financially in a position to pay all the unpaid obligations of the estate,
including interest, with the right of subrogation in accordance with existing laws." Thereafter the respondent Luteros filed with the respondent court a "Motion to Reiterate Motion for Execution of the Order
dated June 14, 1978." Petitioner filed a rejoinder to said motion, raising for the first time the thesis that the amount payable to
private respondents should be compensated against the latter's indebtedness to him amounting to P71,000.00. Petitioner attached
On the basis of this order, respondents Juanito Lutero [grandson and heir of the late Tiburcio] and his wife Hardivi R. Lutero
to his rejoinder copies of the pleadings filed in Civil Case No. 12397, then pending before Branch V of the Court of First
paid the Philippine National Bank the sum of P25,000.00 as partial settlement of the deceased's obligations. Whereupon the
Instance of Iloilo. This motion was denied by respondent judge on the ground that "the claim of Loreto Solinap against Juanito
respondents Lutero filed a motion in the testate court for reimbursement from the petitioner of the amount thus paid. They
Lutero in Civil Case No. 12397 is yet to be liquidated and determined in the said case, such that the requirement in Article 1279
argued that the said amount should have been paid by petitioner to the PNB, as stipulated in the lease contract he had entered
of the New Civil Code that both debts are liquidated for compensation to take place has not been established by the oppositor
into with the deceased Tiburcio Lutero; and that such reimbursement to them was proper, they being subrogees of the PNB.
Loreto Solinap."

Before the motion could be resolved by the court, petitioner on April 28, 1978 filed in the Court of First Instance of Iloilo a
separate action against the spouses Juanito Lutero and Hardivi R. Lutero for collection of the total amount of P71,000.00,
docketed as Civil Case No. 12397. Petitioner alleged in the complaint that on April 25, 1974 the defendants Lutero borrowed
from him the sum of P45,000.00 for which they executed a deed of real estate mortgage; that on July 2, 1974, defendants
obtained an additional loan of P3,000.00, evidenced by a receipt issued by them; that defendants are further liable to him for the
sum of P23,000.00, representing the value of certain dishonored checks issued by them to the plaintiff; and that defendants
refused and failed to settle said accounts despite demands.
In their answer, the respondents Lutero traversed the material averments of the complaint and set up legal and factual defenses.
They further pleaded a counterclaim against petitioners for the total sum of P 125,000.00 representing unpaid rentals on
Hacienda Tambal. Basis of the counterclaim is the allegation that they had purchased one-half [1/2] of Hacienda Tambal, which
Petition filed a motion for reconsideration of this order, but the same was denied.
Hence, this petition.
The petition is devoid of merit. Petitioner contends that respondent judge gravely abused her discretion in not declaring the
mutual obligations of the parties extinguished to the extent of their respective amounts. He relies on Article 1278 of the Civil
Code to the effect that compensation shall take place when two persons, in their own right, are creditors and debtors of each
other. The argument fails to consider Article 1279 of the Civil Code which provides that compensation can take place only if
both obligations are liquidated. In the case at bar, the petitioner's claim against the respondent Luteros in Civil Case No. 12379 is
still pending determination by the court. While it is not for Us to pass upon the merits of the plaintiffs' cause of action in that
case, it appears that the claim asserted therein is disputed by the Luteros on both factual and legal grounds. More, the

24
counterclaim interposed by them, if ultimately found to be meritorious, can defeat petitioner's demand. Upon this premise, his
claim in that case cannot be categorized as liquidated credit which may properly be set-off against his obligation. As this Court
ruled in Mialhe vs. Halili, 2 " compensation cannot take place where one's claim against the other is still the subject of court
litigation. It is a requirement, for compensation to take place, that the amount involved be certain and liquidated."

WHEREFORE, the petition is dismissed, with costs against petitioner.

SO ORDERED.

25
G.R. No. L-38711 January 31, 1985
FRANCISCO SYCIP, petitioner,
vs.
HONORABLE COURT OF APPEALS and PEOPLE OF THE PHILIPPINES, respondents.
RELOVA, J.:
On August 25, 1970, the then Court of First Instance of Manila rendered a decision convicting the herein petitioner Francisco
Sycip of the crime of estafa and sentencing him to an indeterminate penalty of three (3) months of arresto mayor, as minimum to
one (1) year and eight (8) months of prision correccional, as maximum; to indemnify complainant Jose K. Lapuz the sum of
P5,000.00, with subsidiary imprisonment in case of insolvency; and to pay the costs.
The then Court of Appeals affirmed the trial court's decision but deleted that part of the sentence imposing subsidiary
imprisonment.
The facts of the case as found by respondent appellate court read:
... [I]n April 1961, Jose K. Lapuz received from Albert Smith in Manila 2,000 shares of stock
of the Republic Flour Mills, Inc., covered by Certificate No. 57 in the name of Dwight Dill
who had left for Honolulu. Jose K. Lapuz "was supposed to sell his (the shares) at present
market value out of which I (he) was supposed to get certain commission." According to Jose
K. Lapuz, the accused-appellant approached him and told him that he had good connections in
the Stock Exchange, assuring him that he could sent them at a good price. Before accepting the
offer of the accused-appellant to sent the shares of stock, Jose K. Lapuz made it clear to him
that the shares of stock did not belong to him and were shortly entrusted to him for sale. He
then gave the shares of stock to the accused-appellant who put them in the market.
Thereafter, Jose K. Lapuz received a letter from the accused-appellant, dated April 25, 1961
(Exhibit "A"), the latter informing him that "1,758 shares has been sold for a net amount of
P29,000.00," but that the transaction could not be concluded until they received the Power of
Attorney duly executed by Dwight Dill, appointing a person to endorse the certificate of stock,
and a resolution from the Biochemical Research Laboratory, Inc., authorizing the transfer of
the certificate. Jose K. Lapuz signed his conformity to the contents of the letter.
Jose K. Lapuz declared that he "was able to secure a power of attorney of Dr. Dwight Dill, and
gave it to the accused-appellant." The power of attorney authorized the sale of 1,758 shares
only; the difference of 242 shares were given back to Biochemical Research Laboratory, Inc.
Of the 1,758 shares of stock, the accused-appellant sold 758 shares for P12,128.00 at P16.00 a
share, for which Jose K. Lapuz issued a receipt, dated May 23, 1961 (Exhibit "C"). On the
same day, Jose K. Lapuz turned over to Albert Smith the sum of P9,981.40 in payment of 758
shares of P14.00 a share (Exhibits "D" and "E").
On May 30, 1961, Jose K. Lapuz received a letter from the accused-appellant (Exhibit "F"), the
latter informing him that "although the deal (relative to the 1,000 shares) has been closed,
actual delivery has been withheld pending receipt of payment ..., I have chose(n) to return the
26
shares ...," enclosing Certificate No. 955 for 500 shares, Certificate No. 952 for 50 shares in
name of Felix Gonzales, and the photostat of Certificate No. 953 for 208 shares, which had
been sold to Trans Oceanic Factors and Company, for which a check would be issued "within
the next few days." He promised to deliver the 242 shares as soon as he would have received
them from one Vicente Chua. "The next day (May 31, 1961), Jose K. Lapuz wrote a letter to
the accused-appellant (Exhibit "C"), stating therein, "Per our conversation this morning, I
hereby authorize you to sell 1,000 shares of Republic Flour Mills."
Later, the accused-appellant wrote a letter to Jose K. Lapuz, dated June 1, 1961 (Exhibit "I"),
confirming their conversation on that date that "500 shares out of the 1,000 shares of the
Republic Flour ... has been sold," and stating further that "pending receipt of the payment,
expected next week, we are enclosing herewith our draft to cover the full value of 500 shares."
He asked in that letter, "Please give me the 50 shares in the name of Mr. Felix Gonzales and the
photostat of 208 shares in the name of Trans Oceanic Factors and Company."
The date of the letter (Exhibit "I") is disputed, the prosecution contending that it should be July
1, 1961, not June 1, 1961. The contention of the prosecution has the support of the date of the
draft (Exhibit "J") mentioned in the letter.
The accused-appellant sold and paid for the other 500 shares of stock, for the payment of
which Jose K. Lapuz issued in his favor a receipt, dated June 9, 1961 (Exhibit "H").
The draft (Exhibit "J") for P8,000.00, "the full value of the 500 shares' mentioned in the letter
of the accused-appellant (Exhibit "I"), was dishonored by the bank, for lack of funds. Jose K.
Lapuz then "discovered from the bookkeeper that he got the money and he pocketed it already,
so I (he) started hunting for Mr. Sycip" (accused-appellant). When he found the accused-
appellant, the latter gave him a check in the amount of P5,000.00, issued by his daughter on
July 12, 1961 (Exhibit "K"). This also was dishonored by the bank for lack of sufficient funds
to cover it (Exhibits "K-l" and "K-2").
When Jose K. Lapuz sent a wire to him, telling him that he would "file estafa case (in the)
fiscals office ... against him' unless he raise [the] balance left eight thousand" (Exhibit "L"), the
accused-appellant answered him by sending a wire, "P5,000 remitted ask boy check Equitable
(Exhibit "M"). But "the check was never made good," so Jose K. Lapuz testified. He had to pay
Albert Smith the value of the 500 shares of stock." (Petitioner's brief, pp. 58-62)
Coming to this Court on a petition for review on certiorari, petitioner claims that respondent appellate court erred (1) in denying
petitioner of a hearing, as provided under Section 9, Rule 124, Rules of Court; (2) in not upholding due process of law (Sections
1 and 17), Article IV, Bill of Rights, Constitution; (3) in refusing to uphold the provisions on compensation, Articles 1278 and
1279, Civil Code; (4) in not dismissing the complaint, even granting arguendo, that compensation does not apply; (5) in not
ruling that a consummated contract (Deed of Sale, Exhibit '10') is not covered by the Statute of Frauds and that its decision is not
in accordance with Section 4, Rule 51, Rules of Court; and, (6) in ignoring the ruling case promulgated by this Honorable
Supreme Court in People vs. Benitez, G.R. No. L-15923, June 29, 1960, in its applicability to offenses under Article 315,
paragraph 1 (b) of the Penal Code.
Petitioner in his first and second assigned errors argues that respondent Court of Appeals erred in denying him his day in court
notwithstanding his motion praying that the appealed case be heard. He invokes Section 9 of Rule 124 of the Revised Rules of
Court and relates it to Sections 1 and 17 of Article IV of the New Constitution. This contention is devoid of merit. Petitioner was
afforded the right to be present during every step in the trial before the Court of First Instance, that is, from the arraignment until
the sentence was promulgated. On appeal, he cannot assert as a matter of right to be present and to be heard in connection with
his case. It is the procedure in respondent court that within 30 days from receipt of the notice that the evidence is already
attached to the record, the appellant shall file 40 copies of his brief with the clerk accompanied by proof of service of 5 copies The delivery of a worthless check in the amount of P5,000.00 by the accused-appellant to Jose
upon the appellee (Section 3, Rule 124 of the Revised Rules of Court). Within 30 days from receipt of appellant's brief, the K, Lapuz, after the latter's "hunting" for him is even a circumstance indicating intent to commit
appellee shall file 40 copies of his brief with the clerk accompanied by proof of service of 5 copies upon the appellant (Section 4, fraud. (pp. 48-49, Rollo)
Rule 124 of the Revised Rules of Court). Each party may be allowed extensions of time to file brief for good and sufficient
cause. Thereafter, the appellate court may reverse, affirm or modify the judgment, increase or reduce the penalty imposed,
xxx xxx xxx
remand the case for new trial or re-trial or dismiss the case (Section 11, Rule 124 of the Revised Rules of Court). It is
discretionary on its part whether or not to set a case for oral argument. If it desires to hear the parties on the issues involved,
motu propio or upon petition of the parties, it may require contending parties to be heard on oral arguments. Stated differently, if His explanation of his inability to return the 500 shares of stock is not satisfactory. ... If it is
the Court of Appeals chooses not to hear the case, the Justices composing the division may just deliberate on the case, evaluate true that he gave the 500 shares of stock to his creditor, Tony Lim, he is nonetheless liable for
the recorded evidence on hand and then decide it. Accused-appellant need not be present in the court during its deliberation or the crane of estafa, he having received the 500 shares of stock to be sold on commission. By
even during the hearing of the appeal before the appellate court; it will not be heard in the manner or type of hearing giving the shares to his creditor, he thereby committed estafa by conversion. (pp. 49-50, Rollo)
contemplated by the rules for inferior or trial courts.
Indeed, Jose K. Lapuz demanded from petitioner the amount of P5,000.00 with a notice that in the event he (petitioner) would
In his third and fourth assigned errors, petitioner contends that respondent Court of Appeals erred in not applying the provisions fail to pay the amount, Lapuz would file an estafa case against him.
on compensation or setting-off debts under Articles 1278 and 1279 of the New Civil Code, despite evidence showing that Jose
K. Lapuz still owed him an amount of more than P5,000.00 and in not dismissing the appeal considering that the latter is not
By and large, respondent Court of Appeals has not overlooked facts of substance and value that, if considered, would alter the
legally the aggrieved party. This contention is untenable. Compensation cannot take place in this case since the evidence shows
result of the judgment.
that Jose K. Lapuz is only an agent of Albert Smith and/or Dr. Dwight Dill. Compensation takes place only when two persons in
their own right are creditors and debtors of each other, and that each one of the obligors is bound principally and is at the same
time a principal creditor of the other. Moreover, as correctly pointed out by the trial court, Lapuz did not consent to the off- WHEREFORE, for lack of merit the petition is hereby DISMISSED.
setting of his obligation with petitioner's obligation to pay for the 500 shares.
SO ORDERED.
Anent the fifth assigned error, petitioner argues that the appellate court erred in not ruling that the deed of sale is a consummated
contract and, therefore, not covered by the Statute of Frauds. It must be pointed out that the issue on whether or not the alleged
contract of sale is covered by the Statute of Frauds has not been raised in the trial court or with the Court of Appeals. It cannot
now be raised for the first time in this petition. Thus, there is no need for respondent court to make findings of fact on this
matter.

With respect to the sixth assigned error, petitioner points out that the Court of Appeals erred in affirming the decision of the trial
court convicting him of the crime charged. Petitioner mentions that in People vs. Benitez, G.R. No. L-15923, June 30, 1960 (108
Phil. 920), We have ruled that to secure conviction under Article 315, paragraph 1 (b), Revised Penal Code, it is essential that the
following requirements be present: (a) existence of fraud; (b) failure to return the goods on demand; and (c) failure to give any
reason or explanation to the foregoing. He claims that nowhere in the decision was he found to have any particular malice or
intent to commit fraud, or, that he failed to return the shares on any formal demand made by Jose K. Lapuz to him, and/or was he
unable to make any explanation thereto. On this score, We only have to quote from the decision of the respondent court, as
follows:

The "malice or intent to commit fraud" is indicated in that part of the decision herein before
quoted, that is, the accused- appellant "received from Jose K. Lapuz the 500 shares in question
(a part of 1,758 shares) for sale, and that, although the same had already been sold, the accused
... failed to turn over the proceeds thereof to Jose K. Lapuz." The abuse of confidence in
misappropriating the funds or property after they have come to the hands of the offender may
be said to be a fraud upon the person injured thereby (U.S. vs. Pascual, 10 Phil. 621).

xxx xxx xxx

The accused-appellant having informed Jose K. Lapuz that the "500 shares out of the 1000
shares ... has been sold" (Exhibit "I"), for which he issued a draft for P8,000.00 (Exhibit "J"),
the latter cannot be expected to make a demand for the return of the 500 shares. His demand
was for the payment of the shares when the draft was dishonored by the bank.

27
G.R. No. L-50900 April 9, 1985 Subsequently, FROILAN appeared to have still incurred a series of defaults notwithstanding reconsiderations granted, so much
so that:
COMPAIA MARITIMA, petitioner,
vs. On February 21, 1949, the General Manager (of the Shipping Administration) directed its
COURT OF APPEALS and PAN ORIENTAL SHIPPING CO., respondents. officers ... to take immediate possession of the vessel and to suspend the unloading of all
cargoes on the same until the owners thereof made the corresponding arrangement with the
Shipping Administration. Pursuant to these instructions, the boat was, not only actually
G.R. No. L-51438 April 9, 1985
repossessed, but the title thereto was registered again in the name of the Shipping
Administration, thereby re-transferring the ownership thereof to the government.
REPUBLIC OF THE PHILIPPINES (BOARD OF LlQUIDATORS), petitioner,
vs.
On February 22, 1949, Pan Oriental Shipping Co., hereinafter referred to as Pan Oriental,
COURT OF APPEALS and PAN ORIENTAL SHIPPING CO., respondents.
offered to charter said vessel FS-197 for a monthly rent of P3,000.00. Because the government
was then spending for the guarding of the boat and subsistence of the crew members since
G.R. No. L-51463 April 9, 1985 repossession, the Slopping Administration on April 1, 1949, accepted Pan Oriental's offer "in
principle" subject to the condition that the latter shag cause the repair of the vessel advancing
the cost of labor and drydocking thereof, and the Shipping Administration to furnish the
PAN ORIENTAL SHIPPING CO., petitioner, necessary spare parts. In accordance with this charter contract, the vessel was delivered to the
vs. possession of Pan Oriental.
COURT OF APPEALS, COMPAIA MARITIMA and THE REPUBLIC OF THE PHILIPPINES (BOARD OF
LIQUIDATORS), respondents.
In the meantime, or on February 22, 1949, Froilan tried to explain his failure to comply with
the obligations he assumed and asked that he be given another extension up to March 15, 1949
Quisumbing, Caparas, Tobias, Alcantara y Mosqueda for Pan Oriental Shipping Co. Rafael Dinglasan for Compania Maritima. to file the necessary bond. Then on March 8, Froilan offered to pay all his overdue accounts.
However, as he failed to fulfill even these offers made by him in these two communications,
the Shipping Administration denied his petition for reconsideration (of the rescission of the
contract) on March 22, 1949. It should be noted that while his petition for reconsideration was
denied on March 22, it does not appear when he formally formulated his appeal. In the
MELENCIO-HERRERA, J.: meantime, as already stated, the boat has been repossessed by the Shipping Administration and
the title thereto re-registered in the name of the government, and delivered to the Pan Oriental
The above-entitled three (3) cases stemmed from the Decision of this Court, dated October 31, 1964, entitled "Fernando A. in virtue of the charter agreement. On June 2, 1949, Froilan protested to the President against
Froilan vs. Pan-Oriental Shipping Co., et al. 1 and our four (4) subsequent Resolutions of August 27, 1965, November 23, 1966, the charter of the vessel.
December 16, 1966, and January 5, 1967, respectively.
xxx xxx xxx
The antecedental background is narrated in the aforestated Decision, the pertinent portions of which read:
On June 4, 1949, the Shipping Administration and the Pan Oriental formalized the charter
agreement and signed a bareboat contract with option to purchase, containing the following
pertinent provisions:
On March 7, 1947, Fernando A. Froilan purchased from the Shipping Administration a boat
described as MV/FS-197 for the sum of P200,000.00, with a down payment of P50,000.00. To III. CHARTER HIRE, TIME OF PAYMENT. The CHARTERER shall pay to the owner a
secure payment of the unpaid balance of the purchase price, a mortgage was constituted on the monthly charter hire of THREE THOUSAND (P3,000.00) PESOS from date of delivery of the
vessel in favor of the Shipping Administration .... vessel, payable in advance on or before the 5th of every current month until the return of the
vessel to OWNER or purchase of the vessel by CHARTERER.
xxx xxx xxx
IV. RIGHT OF OPTION TO PURCHASE. The right of option to purchase the vessel at the
price of P150,000.00 plus the amount expended for its present repairs is hereby granted to the
Th(e) contract was duly approved by the President of the Philippines. CHARTERER within 120 days from the execution of this Contract, unless otherwise extended
by the OWNER. This right shall be deemed exercised only if, before the expiration of the said
Froilan appeared to have defaulted in spite of demands, not only in the payment of the first period, or its extension by the OWNER, the CHARTERER completes the payment, including
installment on the unpaid balance of the purchase price and the interest thereon when they fell any amount paid as Charter hire, of a total sum of not less than twenty-five percentum (25%)
due, but also failed in his express undertaking to pay the premiums on the insurance coverage of said price of the vessel.
of the vessel obliging the Shipping Administration to advance such payment to the insurance
company. ...

28
The period of option may be extended by the OWNER without in any way affecting the other Froilan's rights under the contract of sale, for the reason that when the vessel was delivered to
provisions, stipulations, and terms of this contract. it, the Shipping Administration had authority to dispose of the said property, Froilan having
already relinquished whatever rights he may have thereon. Froilan paid the required cash of
P10,000.00, and as Pan Oriental refused to surrender possession of the vessel, he filed an
If, for any reason whatsoever, the CHARTERER fails to exercise its option to purchase within
action for replevin in the Court of First Instance of Manila (Civil Case No. 13196) to recover
the period stipulated, or within the extension thereof by the OWNER, its right of option to
possession thereof and to have him declared the rightful owner of said property.
purchase shall be deemed terminated, without prejudice to the continuance of the Charter Party
provisions of this contract. The right to dispose of the vessel or terminate the Charter Party at
its discretion is reserved to the OWNER. Upon plaintiff's filing a bond of P400,000.00, the court ordered the seizure of the vessel from
Pan Oriental and its delivery to the plaintiff. Pan Oriental tried to question the validity of this
order in a petition for certiorari filed in this Court (G.R. No. L-4577), but the same was
XIII. TRANSFER OF OWNERSHIP OF THE VESSEL. After the CHARTERER has
dismissed for lack of merit by resolution of February 22, 1951. Defendant accordingly filed an
exercised his right of option as provided in the preceding paragraph (XII), the vessel shall be
answer, denying the averments of the complaint.
deemed conditionally sold to the purchaser, but the ownership thereof shag not be deemed
transferred unless and until all the price of the vessel, together with the interest thereon, and
any other obligation due and payable to the OWNER under this contract, have been fully paid The Republic of the Philippines, having been allowed to intervene in the proceeding, also
by the CHARTERER. prayed for the possession of the vessel in order that the chattel mortgage constituted thereon
may be foreclosed. Defendant Pari Oriental resisted said intervention, claiming to have a better
right to the possession of the vessel by reason of a valid and subsisting contract in its favor, and
xxx xxx xxx
of its right of retention, in view of the expenses it had incurred for the repair of the said vessel.
As counterclaim, defendant demanded of the intervenor to comply with the latter's obligation
XXI. APPROVAL OF THE PRESIDENT. This contract shall take effect only upon approval to deliver the vessel pursuant to the provisions of the charter contract.
of His Excellency, the President.
xxx xxx xxx
On September 6, 1949, the Cabinet revoked the cancellation of Froilan's contract of sale and
restored to him all his rights thereunder, on condition that he would give not less than
Subsequently, Compaia Maritima, as purchaser of the vessel from Froilan, was allowed to
P1,000.00 to settle partially as overdue accounts and that reimbursement of the expenses
intervene in the proceedings (in the lower court), said intervenor taking common cause with the
incurred for the repair and drydocking of the vessel performed by Pan Oriental was to be made
plaintiff Froilan. In its answer to the complaint in intervention, defendant set-up a counterclaim
in accordance with future adjustment between him and the Shipping Administration (Exh. I).
for damages in the sum of P50,000.00, alleging that plaintiff secured the Cabinet resolutions
Later, pursuant to this reservation, Froilan's request to the Executive Secretary that the
and the writ of replevin, resulting in its deprivation of possession of the vessel, at the
Administration advance the payment of the expenses incurred by Pan Oriental in the
instigation and inducement of Compania Maritima. This counterclaim was denied by both
drydocking and repair of the vessel, was granted on condition that Froilan assume to pay the
plaintiff and intervenor Maritima.
same and file a bond to cover said undertaking (EXH. III).

On September 28, 1956, the lower court rendered a decision upholding Froilan's (and
On September 7, 1949, the formal bareboat charter with option to purchase filed on June 4,
Compaia Maritima's) right to the ownership and possession of the FS-197.
1949, in favor of the Pan Oriental was returned to the General Manager of the Shipping
Administration without action (not disapproval), only because of the Cabinet resolution of
September 6, 1949 restoring Froilan to his rights under the conditions set forth therein, namely, xxx xxx xxx
the payment of P10,000.00 to settle partially his overdue accounts and the filing of a bond to
guarantee the reimbursement of the expenses incurred by the Pan Oriental in the drydocking
It is not disputed that appellant Pan Oriental took possession of the vessel in question after it
and repair of the vessel But Froilan again failed to comply with these conditions. And so the
had been repossessed by the Shipping Administration and title thereto reacquired by the
Cabinet, considering Froilan's consistent failure to comply with his obligations, including those
government, and operated the same from June 2, 1949 after it had repaired the vessel until it
imposed in the resolution of September 6, 1949, resolved to reconsider said previous resolution
was dispossessed of the property on February 3, 1951, in virtue of a bareboat charter contract
restoring him to his previous rights. And, in a letter dated December 3, 1949, the Executive
entered into between said company and the Shipping Administration. In the same agreement,
Secretary authorized the Administration to continue its charter contract with Pan Oriental in
appellant as charterer, was given the option to purchase the vessel, which may be exercised
respect to FS-197 and enforce whatever rights it may still have under the original contract with
upon payment of a certain amount within a specified period. The President and Treasurer of the
Froilan (Exh. 188).
appellant company, tendered the stipulated initial payment on January 16, l950. Appellant now
contends that having exercised the option, the subsequent Cabinet resolutions restoring
xxx xxx xxx Froilan's rights on the vessel, violated its existing rights over the same property. To the
contention of plaintiff Froffan that the charter contract never became effective because it never
received presidential approval as required therein, Pan Oriental answers that the letter of the
On August 25, 1950, the Cabinet resolved once more to restore Froilan to his rights under the
Executive Secretary dated December 3, 1949 (Exh. 118), authorizing the Shipping
original contract of sale, on condition that he shall pay the sum of P10,000.00 upon delivery of
Administration to continue its charter contract with appellant, satisfies such requirement (of
the vessel to him, said amount to be credited to his outstanding accounts; that he shall continue
presidential approval). It is to be noted, however, that said letter was signed by the Executive
paying the remaining installments due, and that he shall assume the expenses incurred for the
Secretary only and not under authority of the President. The same, therefore, cannot be
repair and drydocking of the vessel (Exh. 134). Pan Oriental protested to this restoration of

29
 considered to have attached unto the charter contract the required consent of the Chief
Executive for its validity.
xxx xxx xxx
(Emphasis supplied)
This Court then held:
In the circumstances of this case, therefore, the resulting situation is that neither Froilan nor the
Pan Oriental holds a valid contract over the vessel. However, since the intervenor Shipping
Administration, representing the government practically ratified its proposed contract with
Froilan by receiving the full consideration of the sale to the latter, for which reason the
complaint in intervention was dismissed as to Froilan, and since Pan Oriental has no capacity
to question this actuation of the Shipping Administration because it had no valid contract in its
favor, the of the lower court adjudicating the vessel to Froilan and its successor Maritima, must
be sus Nevertheless, under the already adverted to, Pan Oriental cannot be considered as in bad
faith until after the institution of the case. However, since it is not disputed that said made
useful and necessary expenses on the vessel, appellant is entitled to the refund of such
expenses with the light to retain the vessel until he has been reimbursed therefor (Art. 546,
Civil Code). As it is by the concerted acts of defendants and intervenor Republic of the
Philippines that appellant was deprived of the possession of the vessel over which appellant
had a lien for his expenses, appellees Froilan, Compaia Maritima, and the Republic of the
Philippines are declared liable for the reimbursement to appellant of its legitimate expenses, as
allowed by law, with legal interest from the time of disbursement.
Modified in this manner, the decision appealed from is affirmed, without costs. Case is
remanded to the lower court for further proceedings in the matter of expenses. So ordered.
(Emphasis supplied).
On August 27, 1965, this Court, in resolving a Motion for Reconsideration filed by FROILAN and MARITIMA, ruled:
In G.R. No. L-11897 (Fernando A. Froilan vs. Pan Oriental Shipping Co.); before us are (1) a
motion, filed by appellant Pan Oriental to reconsider the ruling made in this case sustaining
Froilan's right to ownership and possession of the vessel FS-197, and holding that there was
never a perfected contract between said movant and the intervenor Republic of the Philippines;
and (2) a motion by plaintiff-appellee Fernando A. Froilan, and intervenor-appellee Compaia
Maritima, for reconsideration of the decision insofar as it declared said movants, together with
intervenor Republic of the Philippines, liable for reimbursement to appellant Pan Oriental of
the latter's legitimate necessary expenses made on the vessel in question.
1. .Appellant Pan Oriental's Motion must be denied.
It may be remembered that in the instant case, the alleged approval of the charter contract or
permission to proceed with said contract was given by the Executive Secretary in his own
name and not under the authority of the President.
xxx xxx xxx
2. Anent, appellant's motion, considering that the writ of replevin, by virtue of which appellant
Pan Oriental was divested of possession of the vessel FS-197, was issued by the lower court on
30
February 8, 1951 at the instance of plaintiff Froilan and with the cooperation of intervenor
Republic of the Philippines, which accepted the payment tendered by him (Froilan)
notwithstanding its previous dealings with Pan Oriental; and whereas, the intervenor Compaia
Maritima acquired the same property only on December 1, 1951, it is clear that only plaintiff
Froilan and the intervenor Republic of the Philippines may be held responsible for the
deprivation of defendant of its right to the retention of the property until fully reimbursed of
the necessary expenditure made on the vessel. For this reason, Froilan and the Republic of the
Philippines are declared jointly and severally liable, not only for reimbursement to Pan
Oriental of the legitimate necessary expenses incurred on the vessel but also for payment of
legal interest thereon, computed from the date of the defendant's dispossession of the property.
However, as defendant was in actual possession of the vessel from April 1, 1949 to February 7,
1951, it must be required to pay reasonable rental for the use thereof, at the rate of P3,000.00
a month the same rate specified as rental in the imperfected charter contract which shall
be deductible from whatever may be due and owing the said party by way of reimbursable
necessary expenses and interest. This rental shall commence from the time defendant Pan
Oriental actually operated the vessel, which date shall be determined by the lower court.
Case is remanded to the court of origin for further proceedings on the matter of necessary
expenses, interest and rental, as directed in our decision and this resolution. (Emphasis
supplied).
On November 23, 1966, acting on a second Motion for Reconsideration filed by PAN ORIENTAL, this Court resolved:
In case G.R. No. L-11817, Fernando A, Froilan, et al., appellees, vs. Pan Oriental Shipping
Company, appellant, the latter filed a .second motion for reconsideration, alleging that the
Resolution of this Court of August 27, 1965 denying its motion for reconsideration of
December 16, 1964 is not in accordance with law; and that the modification of the judgment
following the ex-parte motion for reconsideration of appellee Froilan is contrary to due
process.
Considering that foregoing motion as well as the opposition thereto by plaintiff-appellee and
intervenor-appellee Compaia Maritima, the Court RESOLVED to amend the ruling in this
case by holding intervenor-appellee Compaia Maritima, because of its actual knowledge of
the circumstances surrounding the purchase by Froilan of the vessel in question from the
Shipping Administrator, jointly and severally liable with the other appellees, for reimbursement
to appellant of the necessary expenses incurred and expended by the latter on the said vessel,
minus the amount of rentals due from the appellant for the use thereof for the period it was
actually operated by Pan Oriental. The period of actual operation shall not include the time
when the vessel was drydocked.
On December 16,1966, acting on PAN ORIENTAL's Motion for Reconsideration or Application for Damages on account of the
wrongful issuance of the Writ of Replevin, this Court issued a Resolution as follows:
Before us again in Case G.R. No. 11897 (Fernando A. Froilan vs. Pan Oriental Shipping Co. et
al) is a motion for reconsideration or Application for damages filed by respondent Pan Oriental
Shipping Co., allegedly on account of the wrongful issuance of the writ of replevin, pursuant to
Rule 60, Section 10, in relation to Rule 57, Section 20 of the Revised Rules of Court.
Considering that by virtue of our resolution dated August 27, 1965, this case has been ordered
to be remanded to the Court of origin for further proceedings on the matter of necessary
expenses, interest and rentals, and since evidence would have to be presented if the application
for damages is allowed, the Court resolved, first, to deny the present motion for reconsideration
and, second, to refer the application to the trial court, there to be heard and decided as
prescribed by law and the Rules. (See last sentence, Section 20, Rule 57).
Pursuant thereto, the case was remanded to the Court of First Instance of Manila, Branch VI (Civil Case No. 13196). After the
evidence of the parties was received and assessed by a Commissioner, said Court issued an Order, dated June 4, 1975, the
dispositive portion of which reads:
WHEREFORE, in view of the foregoing consideration, the Court orders the intervenor
Compaia (plaintiff Fernando A. Froilan's successor-in-interest) and intervenor Republic of the
Philippines (Board of Liquidators) jointly and severally to pay defendant Pan Oriental
Shipping Company the sum of P6,937.72 a month from the time 'it was dispossessed on
February 3, 1951' until it is paid its useful and necessary expenses; the sum of P40,797.54
actual amount expended for the repairs and improvements prior to the operation of the vessel
on June 1, 1949 with legal interest from the time of disbursement of said legitimate expenses.
The Court also orders the intervenor Republic of the Philippines to return the sum of
P15,000.00 tendered by defendant Pan Oriental Shipping Company as provided in the option
with legal interest from January 16, 1950, the date it was paid by the latter.
SO ORDERED. 2
The amount of P6,937.72 ordered to be paid monthly represented the lower Court's computation of damages of PAN ORIENTAL
for deprivation of the right to retain the vessel. 3
On appeal by REPUBLIC and MARITIMA to the then Court of Appeals, judgment was promulgated decreeing.
WHEREFORE, in the light of the foregoing pronouncements, the judgment appealed from is
hereby MODIFIED as follows:
Ordering intervenors-appellants Republic and Compaia Maritima, jointly and severally, to pay
appellee Pan Oriental Shipping Company the sum of P40,797.54 with legal interest from
February 3, 1951 until fully paid but there shah be deducted therefrom the amount of
P59,500.00 representing the unpaid rentals due the Republic of the Philippines; and
AFFIRMED in all other respects.
In other words, (a) the date from which interest is to be paid on the amount of P40,797.54 is from February 3, 1951, the date of
dispossession, and not from the time of disbursement and (b) the unpaid rentals due the Republic are deductible from the amount
of expenses payable to PAN-ORIENTAL. It should be recalled that the deduction of rentals from the amount payable to PAN-
ORIENTAL by REPUBLIC was pursuant to this Court's Resolutions of August 27, 1965 and November 23, 1966, supra,
From the foregoing Decision, the parties filed their respective Petitions for Review now before us.
For clarity, the sums ordered to be paid by MARITIMA and the REPUBLIC, jointly and severally, to PAN-ORIENTAL are: (a)
the sum of P6,937.72 a month from February 3, 1951, the date of PAN-ORIENTAL's dispossession, in the concept of damages
for the deprivation of its right to retain the vessel, it until it is paid its useful and necessary expenses"; 4 (b) the sum of
P15,000.00, representing PAN-ORIENTAL's deposit with REPUBLIC for the purchase of the vessel, "with legal interest from
January 16, 1950," the date PAN-ORIENTAL had paid the same; 5 and (c) the sum of P40,797.54 representing the expenses for
repairs incurred by PAN-ORIENTAL, "with legal interest from February 3, 1951 until fully paid," minus the amount of
P59,500.00 representing the unpaid rentals due the REPUBLIC 6 The legal rate of interest is made payable only on the last two
amounts (b) and (c).
REPUBLIC attributes the following errors to the Appellate Court: (1) in not holding that compensation by operation of law took
place as between REPUBLIC and PAN-ORIENTAL as of the date of dispossession; (2) in not holding that the obligation of the
REPUBLIC to pay legal interest on the amount of useful and necessary expenses from February 3, 1951 had become stale and
ineffective; (3) in affirming the Order of the Trial Court that MARITIMA and REPUBLIC, jointly and severally, pay to PAN-
31
ORIENTAL the sum of P6,937.72 a month from the time it was dispossessed of the vessel on February 3, 1951 until it is paid its
useful and necessary expenses; and (4) in not holding that the Trial Court had no jurisdiction to order the return of P15,000.00 to
PAN-ORIENTAL. MARITIMA, for its part, aside from assailing the sums it was ordered to pay PAN-ORIENTAL, jointly and
severally, with REPUBLIC, echoed the theory of compensation and added that the question of damages on account of alleged
wrongful replevin was not a proper subject of inquiry by the Trial Court when it determined the matter of necessary expenses,
interest and rentals.
REPUBLIC's Submissions
1) REPUBLIC maintains that compensation or set-off took place between it and PAN-ORIENTAL as of February 3, 1951, the
date the latter was dispossessed of the vessel For compensation to take place, one of the elements necessary is that the debts be
liquidated. 7 In this case, all the elements for Compensation to take place were not present on the date of dispossession, or on
February 3, 1951. The amount expended for repairs and improvements had yet to be determined by the Trial Court pursuant to
the Decision of this Court promulgated on October 31, 1964. At the time of dispossession also, PAN-ORIENTAL was still
insisting on its right to purchase the vessel. The obligation of REPUBLIC to reimburse PAN-ORIENTAL for expenses arose
only after this Court had so ruled. Rentals for the use of the vessel by PAN- ORIENTAL were neither due and demandable at the
time of dispossession but only after this Court had issued its Resolution of August 27, 1965.
More, the legal interest payable from February 3, 1951 on the sum of P40,797.54, representing useful expenses incurred by
PAN-ORIENTAL, is also still unliquidated 8 since interest does not stop accruing "until the expenses are fully paid." 9 Thus, we
find without basis REPUBLIC's allegation that PAN- ORIENTAL's claim in the amount of P40,797.54 was extinguished by
compensation since the rentals payable by PAN-ORIENTAL amount to P59,500.00 while the expenses reach only P40,797.54.
Deducting the latter amount from the former, REPUBLIC claims that P18,702.46 would still be owing by PAN-ORIENTAL to
REPUBLIC. That argument loses sight of the fact that to the sum of P40,797.54 will still have to be added the legal rate of
interest "from February 3, 1951 until fully paid."
But although compensation by operation of law cannot take place as between REPUBLIC and PAN-ORIENTAL, by specific
pronouncement of this Court in its Resolution of November 23, 1966, supra, the rentals payable by PAN-ORIENTAL in the
amount of P59,500.00 should be deducted from the sum of useful expenses plus legal interest due, assuming that the latter
amount would still be greater. Otherwise, the corresponding adjustments can be made depending on the totality of the respective
amounts.
2) Since we are holding that the obligation of REPUBLIC to pay P40,797.54 to PAN-ORIENTAL was not extinguished by
compensation, the obligation of REPUBLIC to pay legal interest on said amount has neither become stale as REPUBLIC
contends. Of special note is the fact that payment of that interest was the specific ruling of this Court in its Resolution of August
27, 1965, thus:
... For this reason, Froilan and the REPUBLIC of the Philippines are declared jointly and
severally liable, not only for reimbursement to Pan Oriental, of the legitimate necessary
expenses incurred on the vessel, but also for payment of legal interest thereon, computed from
the date of the defendant's dispossession of the property ... .
3) The amount of P6,937.72 a month ordered to be paid by REPUBLIC and MARITIMA to PAN-ORIENTAL until the latter is
paid its useful and necessary expenses is likewise in order. That amount represents the damages for the wrongful issuance of the
Writ of Replevin and was computed as follows: P4,132.77 for loss of income by PAN-ORIENTAL plus P2,804.95 as monthly
depreciation of the vessel in lieu of the charter hire.
It should further be recalled that this Court, in acting on PAN- ORIENTAL's application for damages in its Resolution of
December 16, 1966, supra, did not deny the same but referred it instead to the Trial Court "there to be heard and decided" since
evidence would have to be presented. Moreover, this Court found that PAN-ORIENTAL was "deprived of the possession of the
vessel over which (it) had a lien for these expenses" 10 and that FROILAN and REPUBLIC "may be held responsible for the
deprivation of defendant (PANORIENTAL) of its right to retention of the property until fully reimbursed on the necessary
expenditures made on the vessel. " 11

4) There return of Pl5,000.00 ordered by the Trial Court and affirmed by the Appellate Court was but just and proper. As this
Court found, that sum was tendered to REPUBLIC "which together with its (PAN-ORIENTAL's) alleged expenses already made
on the vessel, cover 25% of the cost of the vessel, as provided in the option granted in the bareboat contract (Exhibit "C"). This
amount was accepted by the Administration as deposit ...." Since the purchase did not eventually materialize for reasons
attributable to REPUBLIC, it is but just that the deposit be returned. 12 It is futile to allege that PAN-ORIENTAL did not plead
for the return of that amount since its prayer included other reliefs as may be just under the premises. Courts may issue such
orders of restitution as justice and equity may warrant.

MARITIMA's Position

We find no merit in MARITIMA's contention that the alleged damages on account of wrongful replevin was barred by res
judicata, and that the application for damages before the lower Court was but a mere adoption of a different method of
presenting claims already litigated. For the records show that an application for damages for wrongful replevin was filed both
before this Court and thereafter before the Trial Court after this Tribunal specifically remanded the issue of those damages to the
Trial Court there to be heard and decided pursuant to Rule 60, Section 10 in relation to Rule 57, Section 20. 13

The matter of legal compensation which MARITIMA has also raised has been previously discussed.

Parenthetically, PAN-ORIENTAL can no longer raise the alleged error of the Trial Court in computing the necessary and useful
expenses at only P40,797.54 when they should be P87,267.30, since it did not appeal from that Court's Decision.

In a nutshell, we find that the appealed Decision of the Trial Court and of the then Court of Appeals is in consonance with the
Decision and Resolutions of this Court.

ACCORDINGLY, the judgment appealed from is hereby affirmed. No costs.

SO ORDERED.

32
G.R. No. L-69560 June 30, 1988
THE INTERNATIONAL CORPORATE BANK INC., petitioner,
vs.
THE IMMEDIATE APPELLATE COURT, HON. ZOILO AGUINALDO, as presiding Judge of the Regional Trial Court
of Makati, Branch 143, NATIVIDAD M. FAJARDO, and SILVINO R. PASTRANA, as Deputy and Special Sheriff,
respondents.
PARAS, J.:
This is a petition for review on certiorari of the Decision of the Court of Appeals dated October 31, 1984 in AC-G.R. SP No.
02912 entitled "THE INTERNATIONAL CORPORATE BANK, INC. v. Hon. ZOILO AGUINALDO, et al.," dismissing
petitioner's petition for certiorari against the Regional Trial Court of Makati (Branch 143) for lack of merit, and of its Resolution
dated January 7, 1985, denying petitioner's motion for reconsideration of the aforementioned Decision.
Petitioner also prays that upon filing of the petition, a restraining order be issued ex-parte, enjoining respondents or any person
acting in their behalf, from enforcing or in any manner implementing the Order of the respondent trial court dated February 13
and March 9, 1984, and January 10 and January 11, 1985.
The facts of this case, as found by the trial court and subsequently adopted by the Court of Appeals, are as follows:
In the early part of 1980, private respondent secured from petitioner's predecessors-in-interest, the then Investment and
Underwriting Corp. of the Philippines and Atrium Capital Corp., a loan in the amount of P50,000,000.00. To secure this loan,
private respondent mortgaged her real properties in Quiapo, Manila and in San Rafael, Bulacan, which she claimed have a total
market value of P110,000,000.00. Of this loan, only the amount of P20,000,000.00 was approved for release. The same amount
was applied to pay her other obligations to petitioner, bank charges and fees. Thus, private respondent's claim that she did not
receive anything from the approved loan.
On September 11, 1980, private respondent made a money market placement with ATRIUM in the amount of P1,046,253.77 at
17% interest per annum for a period of 32 days or until October 13, 1980, its maturity date. Meanwhile, private respondent
allegedly failed to pay her mortgaged indebtedness to the bank so that the latter refused to pay the proceeds of the money market
placement on maturity but applied the amount instead to the deficiency in the proceeds of the auction sale of the mortgaged
properties. With Atrium being the only bidder, said properties were sold in its favor for only P20,000,000.00. Petitioner claims
that after deducting this amount, private respondent is still indebted in the amount of P6.81 million.
On November 17, 1982, private respondent filed a complaint with the trial court against petitioner for annulment of the sheriff's
sale of the mortgaged properties, for the release to her of the balance of her loan from petitioner in the amount of
P30,000,000,00, and for recovery of P1,062,063.83 representing the proceeds of her money market investment and for damages.
She alleges in her complaint, which was subsequently amended, that the mortgage is not yet due and demandable and
accordingly the foreclosure was illegal; that per her loan agreement with petitioner she is entitled to the release to her of the
balance of the loan in the amount of P30,000,000.00; that petitioner refused to pay her the proceeds of her money market
placement notwithstanding the fact that it has long become due and payable; and that she suffered damages as a consequence of
petitioner's illegal acts.
In its answer, petitioner denies private respondent's allegations and asserts among others, that it has the right to apply or set off
private respondent's money market claim of P1,062,063.83. Petitioner thus interposes counterclaims for the recovery of
P5,763,741.23, representing the balance of its deficiency claim after deducting the proceeds of the money market placement, and
for damages.
33
The trial court subsequently dismissed private respondent's cause of action concerning the annulment of the foreclosure sale, for
lack of jurisdiction, but left the other causes of action to be resolved after trial. Private respondent then filed separate complaints
in Manila and in Bulacan for annulment of the foreclosure sale of the properties in Manila and in Bulacan, respectively.
On December 15, 1983, private respondent filed a motion to order petitioner to release in her favor the sum of P1,062,063.83,
representing the proceeds of the money market placement, at the time when she had already given her direct testimony on the
merits of the case and was being cross-examined by counsel. On December 24, 1983, petitioner filed an opposition thereto,
claiming that the proceeds of the money market investment had already been applied to partly satisfy its deficiency claim, and
that to grant the motion would be to render judgment in her favor without trial and make the proceedings moot and academic.
However, at the hearing on February 9, 1984, counsel for petitioner and private respondent jointly manifested that they were
submitting for resolution said motion as well as the opposition thereto on the basis of the pleadings and of the evidence which
private respondent had already presented.
On February 13, 1984, respondent judge issued an order granting the motion, as follows:
IN VIEW OF THE FOREGOING, the defendant International Corporate Bank is hereby
ordered to deliver to the plaintiff Natividad M. Pajardo the amount of P1,062,063.83 covered
by the repurchase agreement with Serial No. AOY-14822 (Exhibit "A'), this amount
represented the principal of P1,046,253.77 which the plaintiff held including its interest as of
October 13, 1980, conditioned upon the plaintiff filing a bond amount to P1,062,063.83 to
answer for all damages which the said defendant bank may suffer in the event that the Court
should finally decide that the plaintiff was not entitled to the said amount.
Petitioner filed a motion for reconsideration to the aforesaid order, asserting among other things that said motion is not verified,
and therefore a mere scrap of paper. Private respondent however manifested that since she testified in open court and was cross-
examined by counsel for petitioner on the motion for release of the proceeds of the money market placement, the defect had
already been cured. On March 9, 1984, the respondent judge issued an order denying petitioner's motion for reconsideration.
(CA Decision, Rollo, pp. 109-111).
On March 13, 1984, petitioner filed a special civil action for certiorari and prohibition with preliminary injunction with the Court
of Appeals, (a) for the setting aside and annulment of the Orders dated February 13, 1984 and March 9,1984, issued by the
respondent trial court, and (b) for an order commanding or directing the respondent trial judge to desist from enforcing and/or
implementing and/or executing the aforesaid Orders. The temporary restraining order prayed for was issued by respondent Court
of Appeals on March 22, 1984. (Please see CA Decision, Rollo, p. 114, last paragraph).
In a decision rendered on October 31, 1984 (Rollo, pp. 109-14), the Court of Appeals dismissed said petition finding(a) that
while the Motion for the release of the proceeds of the money market investment in favor of private respondent was not verified
by her, that defect was cured when she testified under oath to substantiate her allegations therein: (b) that, petitioner cannot
validly claim it was denied due process for the reason that it was given ample time to be heard, as it was in fact heard when it
filed an Opposition to the motion and a motion for reconsideration; (c) that the circumstances of this case prevent legal
compensation from taking place because the question of whether private respondent is indebted to petitioner in the amount of
6.81 million representing the deficiency balance after the foreclosure of the mortgage executed to secure the loan extended to
her, is vigorously disputed; (d) that the release of the proceeds of the money market investment for private respondent will not
make the causes of action of the case pending before the trial court moot and academic nor will it cause irreparable damage to
petitioner, private respondent having filed her bond in the amount of P1,062,063.83 to answer for all damages which the former
may suffer in the event that the court should finally decide that private respondent is not entitled to the return of said amount
(CA Decision, Rello, pp. 112-114).
The dispositive portion of the aforementioned Decision reads:
 ... We hold that the respondent court cannot be successfully charged with grave abuse of
discretion amounting to lack of jurisdiction when it issued its Orders of February 13, 1984 and
March 9, 1984, based as they are on a correct appreciation of the import of the parties'
evidence and the applicable law.
IN VIEW WHEREOF, the petition is dismissed for lack of merit and the temporary restraining
order issued by this Court on March 22, 1984 is lifted. (Ibid., p. 114).
Petitioner moved for the reconsideration of the above decision (Annex "S", Rollo, pp. 116-124), but for the reason that the same
failed to raise any issue that had not been considered and passed upon by the respondent Court of Appeals, it was denied in a
Resolution dated January 7, 1985 (CA Resolution, Rollo, p. 126).
Having been affirmed by the Court of Appeals, the trial court issued a Writ of Execution to implement its Order of February 13,
1984 (Annex "BB", Rollo, p. 188) and by virtue thereof, a levy was made on petitioner's personal property consisting of 20
motor vehicles (Annex "U", Rollo, p. 127).
On January 9, 1985, herein private respondent (then plaintiff) filed in the trial court an ex-parte motion praying that the four
branches of the petitioner such as: Baclaran Branch, Paranaque, Metro Manila; Ylaya Branch, Divisoria, Metro Manila; Cubao
Branch, Quezon City and Binondo Branch, Sta. Cruz, Manila, be ordered to pay the amount of P250,000.00 each, and the main
office of the petitioner bank at Paseo de Roxas, Makati, Metro Manila, be ordered to pay the amount of P62,063.83 in order to
answer for the claim of private respondent amounting to P1,062,063.83.
Thereupon, on January 10, 1985, the trial court issued an Order (Annex "V", Rollo, p. 129) granting the above-mentioned
prayers.
Acting on the ex-parte motion by the plaintiff (now private respondent), the trial court, on January 11, 1984, ordered the
President of defendant International Corporate Bank (now petitioner) and all its employees and officials concemed to deliver to
the sheriff the 20 motor vehicles levied by virtue of the Writ of Execution dated December 12, 1984 (Annex "W", Rollo, p. 131).
The petitioner having failed to comply with the above-cited Order, the respondent trial court issued two (2) more Orders: the
January 16, 1985 (Annex "CC," Rollo, p. 190) and January 21, 1985 Orders (Annex "DD", Rollo, p. 191), directing several
employees mentioned therein to show cause wily they should not be cited in contempt.
Hence, this petition for review on certiorari with prayer for a restraining order and for a writ of preliminary injunction.
Three days after this petition was filed, or specifically on January 18, 1985, petitioner filed an urgent motion reiterating its
prayer for the issuance of an ex-parte restraining order (Rollo, p. 132).
Simultaneous with the filing of the present petition, petitioner, as defendant, filed with the trial court an ex-parte motion to
suspend the implementation of any and all orders and writs issued pursuant to Civil Case No. 884 (Annex "A", Rollo, p. 135).
This Court's resolution dated January 21, 1985, without giving due course to the petition, resolved (a) to require the respondents
to comment: (b) to issue, effective immediately and until further orders from this Court, a Temporary Restraining Order
enjoining the respondents from enforcing or in any manner implementing the questioned Orders dated February 13, 1984, March
9, 1984, January 10, 1985 and January 11 and 16, 1985, issued in Civil Case No. 884.
The corresponding writ was issued on the same day (Rollo, pp. 139-140).
As required, the Comment of private respondent was filed on January 28, 1985 (Rollo, pp. 141- 150).
34
Thereafter, petitioner moved for leave to file a supplemental petition on the ground that after it had filed this present petition,
petitioner discovered that the bond filed with, and approved by, the respondent lower court showed numerous material erasures,
alterations and/or additions (Rollo, p. 151), which the issuing insurance company certified as having been done without its
authority or consent (Annex "Z", Rollo, p. 178).
The Supplemental Petition was actually filed on February 1, 1985 (Rollo, pp. 154-171). It pointed out the erasures, alterations
and/or additions in the bond as follows:
a. below "Civil Case No. 884" after the words, "Plaintiff's Bond," the phrase "For Levying of
Attachment" was erased or deleted;
b. in lines 2 and 3 after the word "order," the phrase "approving plaintiff's motion dated Dec.
15, 1983, was inserted or added;
c. in line 3, the phrases "Of attachment" and "ordered that a writ of attachment issue' were
erased or deleted;
d also in line 3 after the words "the court has" the phrase "approved the Motion was likewise
inserted or added;
e. in line 9, the phrase "and of the levying of said attachment" was also erased or deleted;
f. in line 13, the word "attachment" was likewise erased or deleted;
g. also in line 13 after the deletion of word "attachment" the phrase "release of the
P1,062,063.83 to the plaintiff was similarly inserted or added."
Petitioner contended therein that in view of the foregoing facts, the genuineness, due execution and authenticity as well as the
validity and enforceability of the bond (Rello, p. 174) is now placed in issue and consequently, the bond may successfully be
repudiated as falsified and, therefore, without any force and effect and the bonding company may thereby insist that it has been
released from any hability thereunder.
Also, petitioner pointed as error the respondent trial court's motu proprio transferring Civil Case No. 884 to the Manila Branch
of the same Court arguing that improper venue, as a ground for, and unless raised in, a Motion to Dismiss, may be waived by the
parties and the court may not pre-empt the right of the parties to agree between or among themselves as to the venue of their
choice in litigating their justiciable controversy (Supplemental Petition, Rollo, p. 160).
On being required to comment thereon, (Rollo, p. 192) private respondent countered (Rollo, pp. 193-198) that bond forms are
ready-prepared forms and the bonding company used the form for "Levying of Attachment" because the company has no ready-
prepared form for the kind of bond called for or required in Civil Case 884. Whatever deletions or additions appear on the bond
were made by the Afisco Insurance Corporation itself for the purpose of accomplishing what was required or intended.
Nonetheless, on May 7, 1985, private respondent filed "Plaintiffs Bond" in the respondent trial court in the amount of
P1,062,063.83 a xerox copy of which was furnished this Court (Rollo, p. 219), and noted in the Court's Resolution dated May
29,1985 (Rollo, p. 225).
On March 11, 1985, petitioner was required to file a Consolidated Reply (Rollo, p. 199) which was filed on April 10, 1985
(Rollo, p. 201).
Thereafter, a Rejoinder (Rollo, p. 238) was filed by private respondent on September 18, 1985 after Atty. Advincula, counsel for
private respondents was required by this Court to show cause why he should not be disciplinarily dealt with or held in contempt
for his failure to comply on time (Rollo, p. 226) and on August 19, 1985 said lawyer was finally admonished (Rollo, p. 229) for
his failure to promptly apprise the Court of his alleged non-receipt of copy of petitioner's reply, which alleged non-receipt was
vehemently denied by petitioner in its Counter Manifestation (Rollo, p. 230) filed on August 5, 1985.
Petitioner now assails the motion of the plaintiff (now private respondent) filed in the trial court for the release of the proceeds of
the money market investment, arguing that it is deficient in form, the same being unverified (petitioner's Memorandum, Rollo, p.
266). On this score, it has been held that "as enjoined by the Rules of Court and the controlling jurisprudence, a liberal
construction of the rules and the pleadings is the controlling principle to effect substantial justice." (Maturan v. Araula, 111
SCRA 615 [1982]).

Finally, on October 7, 1985, this petition was given due course and both parties were required to submit simultaneous Finally, the filing of insufficient or defective bond does not dissolve absolutely and unconditionally the injunction issued.
memoranda (Rollo, p. 249) but before the same were filed, petitioner moved for leave to file sur-rejoinder (Rollo, p. 250), the Whatever defect the bond possessed was cured when private respondent filed another bond in the trial court.
sur-rejoinder was filed on October 14,1985 (Rollo, pp. 252-254).
PREMISES CONSIDERED, the questioned Decision and Resolution of the respondent Court of Appeals are hereby
Petitioner's memorandum was filed on December 28, 1985 (Rollo, pp. 264-292) while that of private respondent was submitted AFFIRMED.
on January 10, 1986 (Rollo, pp. 295-304).
SO ORDERED.
Petitioner again moved for leave to file a Reply Memorandum (Rollo, p. 307) which, despite permission from this Court, was not
filed and on August 22, 1986, private respondent prayed for early resolution of the petition (Rollo, p. 311).

In a resolution dated October 13, 1986 (Rollo, p. 314) this case was transferred to the Second Division of this Court, the same
being assigned to a member of that Division.

The crucial issue to be resolved in this case is whether or not there can be legal compensation in the case at bar.

Petitioner contends that after foreclosing the mortgage, there is still due from private respondent as deficiency the amount of
P6.81 million against which it has the right to apply or set off private respondent's money market claim of P1,062,063.83.

The argument is without merit.

As correctly pointed out by the respondent Court of Appeals

Compensation shall take place when two persons, in their own right, are creditors and debtors
of each other. (Art. 1278, Civil Code). "When all the requisites mentioned in Art. 1279 of the
Civil Code are present, compensation takes effect by operation of law, even without the
consent or knowledge of the debtors." (Art. 1290, Civil Code). Article 1279 of the Civil Code
requires among others, that in order that legal compensation shall take place, "the two debts be
due" and "they be liquidated and demandable." Compensation is not proper where the claim of
the person asserting the set-off against the other is not clear nor liquidated; compensation
cannot extend to unliquidated, disputed claim arising from breach of contract. (Compaia
General de Tabacos vs. French and Unson, 39 Phil. 34; Lorenzo & Martinez vs. Herrero, 17
Phil. 29).

There can be no doubt that petitioner is indebted to private respondent in the amount of
P1,062,063.83 representing the proceeds of her money market investment. This is admitted.
But whether private respondent is indebted to petitioner in the amount of P6.81 million
representing the deficiency balance after the foreclosure of the mortgage executed to secure the
loan extended to her, is vigorously disputed. This circumstance prevents legal compensation
from taking place. (CA Decision, Rollo, pp. 112-113).

It must be noted that Civil Case No. 83-19717 is still pending consideration at the RTC Manila, for annulment of Sheriffs sale on
extra-judicial foreclosure of private respondent's property from which the alleged deficiency arose. (Annex "AA", Rollo, pp.
181-189). Therefore, the validity of the extrajudicial foreclosure sale and petitioner's claim for deficiency are still in question, so
much so that it is evident, that the requirement of Article 1279 that the debts must be liquidated and demandable has not yet been
met. For this reason, legal compensation cannot take place under Article 1290 of the Civil Code.

35
G.R. No. L-62169 February 28, 1983
MINDANAO PORTLAND CEMENT CORPORATION, petitioner,
vs.
COURT OF APPEALS, PACWELD STEEL CORPORATION and ATTY. CASIANO P. LAQUIHON respondents.
Tolentino, Garcia, Cruz Reyes Law Office for petitioner.
Casiano P. Laquihon for respondents.
TEEHANKEE, J.:
The Court of Appeals (now Intermediate Appellate Court) certified petitioner's appeal therein as defendant-appellant, docketed
as C.A.-G.R. No. 65102 thereof, to this Court as involving only questions of law in its Resolution of August 31, 1982, reading as
follows:
The 'Statement of the Case and the Statement of Facts' contained in appellant's brief follow:
STATEMENT OF FACTS
On January 3, 1978, one Atty. Casiano P. Laquihon, in behalf of third-party defendant Pacweld
Steel Corporation (Pacweld for short) as the latter's attorney, filed a pleading addressed to the
defendant & Third-Party Plaintiff Mindanao Portland Cement Corporation (MPCC) for short),
herein appellant, entitled 'motion to direct payment of attorney's fee to counsel' (himself ),
invoking in his motion the fact that in the decision of the court of Sept. 14, 1976, MPCC was
adjudged to pay Pacweld the sum of P10,000.00 as attorney's fees (Record on Appeal, pp. 1, 6-
9).
On March 14, 1978, MPCC filed an opposition to Atty. Laquihon's motion, stating, as grounds
therefor, that said amount is set-off by a like sum of P10,000.00 which it MPCC has collectible
in its favor from Pacweld also by way of attorney's fees which MPCC recovered from the same
Court of First Instance of Manila (Branch XX) in Civil Case No. 68346, entitled Pacweld Steel
Corporation, et al. writ of execution to this effect having been issued by said court (Record on
Appeal, pp, 2,10- 14).
On June 26, 1978 the court issued the order appealed from (Record on Appeal, pp. 24-25) and
despite MPCCs motion for reconsideration of said order, citing the law applicable and Supreme
Court decisions (Record on Appeal, pp. 26-33), denied the same in its order of August 28, 1978
(Record on Appeal, p. 37), also subject matter of this appeal.
The writ of execution referred to above which MPCC has invoked to set- off the amount
sought to be collected by Pacweld through the latter's lawyer, Atty. Casiano P. Laquihon, is
hereunder quoted in full.
36
In his brief, appellee comments that the statements in appellant's brief are 'substantially
correct,' as follows:
STATEMENT OF THE CASE
This is an appeal from the Order of the Court of First Instance of Manila (Branch X dated June
26, 1978 ordering the appellant (MINDANAO PORTLAND CEMENT CORPORATION) to
pay the amount of P10,000.00 attorney's fees directly to Atty. Casiano B. Laquihon (Record on
Appeal, pp. 24-25) and from the Order dated August 28, 1978 denying appellant's motion for
reconsideration (Record on Appeal, p. 37).
There was no trial or submission of documentary evidence. Against the orders of June 26.
1978, and August 28, 1978, appellant has brought this appeal to this Court, contending that:
The lower court erred in not holding that the two obligations are extinguished reciprocally by
operation of law.' (p. 6, Appellant's Brief)
This appeal calls for the application of Arts. 1278, 1279 and 1290 of the Civil Code, as urged
by the appellant. Another question is: The judgment in Civil Case No. 75179 being already
final at the time the motion under consideration was filed, does not the order of June 26, 1976
constitute a change or alteration of the said judgment, though issued by the very same court
that rendered the judgment?
WHEREFORE, since only questions of law are involved and there is no factual issue left for us
to determine, let the records of the appeal in this case be certified to the Honorable Supreme
Court for determination.
After considering the briefs of the parties in the appellate court and the additional pleadings required of them by this Court, the
Court finds merit in the appeal and sets aside the appealed orders of June 26 and August 28, 1978 of the Court of First Instance
(now Regional Trial Court) of Manila, Branch XX.
It is clear from the record that both corporations, petitioner Mindanao Portland Cement Corporation (appellant) and respondent
Pacweld Steel Corporation (appellee), were creditors and debtors of each other, their debts to each other consisting in final and
executory judgments of the Court of First Instance in two (2) separate cases, ordering the payment to each other of the sum of
P10,000.00 by way of attorney's fees. The two (2) obligations, therefore, respectively offset each other, compensation having
taken effect by operation of law and extinguished both debts to the concurrent amount of P10,000.00, pursuant to the provisions
of Arts. 1278, 1279 and 1290 of the Civil Code, since all the requisites provided in Art. 1279 of the said Code for automatic
compensation "even though the creditors and debtors are not aware of the compensation" were duly present.**
Necessarily, the appealed order of June 26, 1978 granting Atty. Laquihon's motion for amendment of the judgment of September
14, 1976 against Mindanao Portland Cement Corporation so as to make the award therein of P10,000.00 as attorney's fees
payable directly to himself as counsel of Pacweld Steel Corporation instead of payable directly to said corporation as provided in
the judgment, which had become final and executory long before the issuance of said "amendatory" order was a void alteration
of judgment. It was a substantial change or amendment beyond the trial court's jurisdiction and authority and it could not defeat
the compensation or set-off of the two (2) obligations of the corporations to each other which had already extinguished both
debts by operation of law.
ACCORDINGLY. the appealed orders are hereby annulled and set aside. No costs.
G.R. No. 136202 January 25, 2007 WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff [private respondent Salazar] and
against the defendant [petitioner BPI] and ordering the latter to pay as follows:
BANK OF THE PHILIPPINE ISLANDS, Petitioner,
vs. 1. The amount of P267,707.70 with 12% interest thereon from September 16, 1991 until the said amount
COURT OF APPEALS, ANNABELLE A. SALAZAR, and JULIO R. TEMPLONUEVO, Respondents is fully paid;

DECISION 2. The amount of P30,000.00 as and for actual damages;

AZCUNA, J.: 3. The amount of P50,000.00 as and for moral damages;

This is a petition for review under Rule 45 of the Rules of Court seeking the reversal of the Decision 1 dated April 3, 1998, and 4. The amount of P50,000.00 as and for exemplary damages;
the Resolution2 dated November 9, 1998, of the Court of Appeals in CA-G.R. CV No. 42241.
5. The amount of P30,000.00 as and for attorneys fees; and
The facts3 are as follows:
6. Costs of suit.
A.A. Salazar Construction and Engineering Services filed an action for a sum of money with damages against herein petitioner
Bank of the Philippine Islands (BPI) on December 5, 1991 before Branch 156 of the Regional Trial Court (RTC) of Pasig City.
The counterclaim is hereby ordered DISMISSED for lack of factual basis.
The complaint was later amended by substituting the name of Annabelle A. Salazar as the real party in interest in place of A.A.
Salazar Construction and Engineering Services. Private respondent Salazar prayed for the recovery of the amount of Two
Hundred Sixty-Seven Thousand, Seven Hundred Seven Pesos and Seventy Centavos (P267,707.70) debited by petitioner BPI The third-party complaint [filed by petitioner] is hereby likewise ordered DISMISSED for lack of merit.
from her account. She likewise prayed for damages and attorneys fees.
Third-party defendants [i.e., private respondent Templonuevos] counterclaim is hereby likewise DISMISSED for lack of
Petitioner BPI, in its answer, alleged that on August 31, 1991, Julio R. Templonuevo, third-party defendant and herein also a factual basis.
private respondent, demanded from the former payment of the amount of Two Hundred Sixty-Seven Thousand, Six Hundred
Ninety-Two Pesos and Fifty Centavos (P267,692.50) representing the aggregate value of three (3) checks, which were allegedly
SO ORDERED.4
payable to him, but which were deposited with the petitioner bank to private respondent Salazars account (Account No. 0203-
1187-67) without his knowledge and corresponding endorsement.
On appeal, the Court of Appeals (CA) affirmed the decision of the RTC and held that respondent Salazar was entitled to the
proceeds of the three (3) checks notwithstanding the lack of endorsement thereon by the payee. The CA concluded that Salazar
Accepting that Templonuevos claim was a valid one, petitioner BPI froze Account No. 0201-0588-48 of A.A. Salazar and
and Templonuevo had previously agreed that the checks payable to JRT Construction and Trading 5 actually belonged to Salazar
Construction and Engineering Services, instead of Account No. 0203-1187-67 where the checks were deposited, since this
and would be deposited to her account, with petitioner acquiescing to the arrangement. 6
account was already closed by private respondent Salazar or had an insufficient balance.

Petitioner therefore filed this petition on these grounds:

Private respondent Salazar was advised to settle the matter with Templonuevo but they did not arrive at any settlement. As it
appeared that private respondent Salazar was not entitled to the funds represented by the checks which were deposited and
accepted for deposit, petitioner BPI decided to debit the amount of P267,707.70 from her Account No. 0201-0588-48 and the I.
sum of P267,692.50 was paid to Templonuevo by means of a cashiers check. The difference between the value of the checks
(P267,692.50) and the amount actually debited from her account (P267,707.70) represented bank charges in connection with the
issuance of a cashiers check to Templonuevo. The Court of Appeals committed reversible error in misinterpreting Section 49 of the Negotiable Instruments Law and Section 3
(r and s) of Rule 131 of the New Rules on Evidence.

In the answer to the third-party complaint, private respondent Templonuevo admitted the payment to him of P267,692.50 and
argued that said payment was to correct the malicious deposit made by private respondent Salazar to her private account, and II.
that petitioner banks negligence and tolerance regarding the matter was violative of the primary and ordinary rules of banking.
He likewise contended that the debiting or taking of the reimbursed amount from the account of private respondent Salazar by The Court of Appeals committed reversible error in NOT applying the provisions of Articles 22, 1278 and 1290 of the Civil
petitioner BPI was a matter exclusively between said parties and may be pursuant to banking rules and regulations, but did not in Code in favor of BPI.
any way affect him. The debiting from another account of private respondent Salazar, considering that her other account was
effectively closed, was not his concern.
III.

After trial, the RTC rendered a decision, the dispositive portion of which reads thus:

37
The Court of Appeals committed a reversible error in holding, based on a misapprehension of facts, that the account from which
BPI debited the amount of P267,707.70 belonged to a corporation with a separate and distinct personality.
IV.
The Court of Appeals committed a reversible error in holding, based entirely on speculations, surmises or conjectures, that there
was an agreement between SALAZAR and TEMPLONUEVO that checks payable to TEMPLONUEVO may be deposited by
SALAZAR to her personal account and that BPI was privy to this agreement.
V.
The Court of Appeals committed reversible error in holding, based entirely on speculation, surmises or conjectures, that
SALAZAR suffered great damage and prejudice and that her business standing was eroded.
VI.
The Court of Appeals erred in affirming instead of reversing the decision of the lower court against BPI and dismissing
SALAZARs complaint.
VII.
The Honorable Court erred in affirming the decision of the lower court dismissing the third-party complaint of BPI. 7
The issues center on the propriety of the deductions made by petitioner from private respondent Salazars account. Stated
otherwise, does a collecting bank, over the objections of its depositor, have the authority to withdraw unilaterally from such
depositors account the amount it had previously paid upon certain unendorsed order instruments deposited by the depositor to
another account that she later closed?
Petitioner argues thus:
1. There is no presumption in law that a check payable to order, when found in the possession of a person
who is neither a payee nor the indorsee thereof, has been lawfully transferred for value. Hence, the CA
should not have presumed that Salazar was a transferee for value within the contemplation of Section 49
of the Negotiable Instruments Law,8 as the latter applies only to a holder defined under Section 191of the
same.9
2. Salazar failed to adduce sufficient evidence to prove that her possession of the three checks was lawful
despite her allegations that these checks were deposited pursuant to a prior internal arrangement with
Templonuevo and that petitioner was privy to the arrangement.
3. The CA should have applied the Civil Code provisions on legal compensation because in deducting the
subject amount from Salazars account, petitioner was merely rectifying the undue payment it made upon
the checks and exercising its prerogative to alter or modify an erroneous credit entry in the regular course
of its business.
4. The debit of the amount from the account of A.A. Salazar Construction and Engineering Services was
proper even though the value of the checks had been originally credited to the personal account of Salazar
because A.A. Salazar Construction and Engineering Services, an unincorporated single proprietorship, had
no separate and distinct personality from Salazar.
38
5. Assuming the deduction from Salazars account was improper, the CA should not have dismissed
petitioners third-party complaint against Templonuevo because the latter would have the legal duty to
return to petitioner the proceeds of the checks which he previously received from it.
6. There was no factual basis for the award of damages to Salazar.
The petition is partly meritorious.
First, the issue raised by petitioner requires an inquiry into the factual findings made by the CA. The CAs conclusion that the
deductions from the bank account of A.A. Salazar Construction and Engineering Services were improper stemmed from its
finding that there was no ineffective payment to Salazar which would call for the exercise of petitioners right to set off against
the formers bank deposits. This finding, in turn, was drawn from the pleadings of the parties, the evidence adduced during trial
and upon the admissions and stipulations of fact made during the pre-trial, most significantly the following:
(a) That Salazar previously had in her possession the following checks:
(1) Solid Bank Check No. CB766556 dated January 30, 1990 in the amount of P57,712.50;
(2) Solid Bank Check No. CB898978 dated July 31, 1990 in the amount of P55,180.00; and,
(3) Equitable Banking Corporation Check No. 32380638 dated August 28, 1990 for the amount
of P154,800.00;
(b) That these checks which had an aggregate amount of P267,692.50 were payable to the order of JRT
Construction and Trading, the name and style under which Templonuevo does business;
(c) That despite the lack of endorsement of the designated payee upon such checks, Salazar was able to
deposit the checks in her personal savings account with petitioner and encash the same;
(d) That petitioner accepted and paid the checks on three (3) separate occasions over a span of eight
months in 1990; and
(e) That Templonuevo only protested the purportedly unauthorized encashment of the checks after the
lapse of one year from the date of the last check.10
Petitioner concedes that when it credited the value of the checks to the account of private respondent Salazar, it made a mistake
because it failed to notice the lack of endorsement thereon by the designated payee. The CA, however, did not lend credence to
this claim and concluded that petitioners actions were deliberate, in view of its admission that the "mistake" was committed
three times on three separate occasions, indicating acquiescence to the internal arrangement between Salazar and Templonuevo.
The CA explained thus:
It was quite apparent that the three checks which appellee Salazar deposited were not indorsed. Three times she deposited them
to her account and three times the amounts borne by these checks were credited to the same. And in those separate occasions, the
bank did not return the checks to her so that she could have them indorsed. Neither did the bank question her as to why she was
depositing the checks to her account considering that she was not the payee thereof, thus allowing us to come to the conclusion
that defendant-appellant BPI was fully aware that the proceeds of the three checks belong to appellee.
For if the bank was not privy to the agreement between Salazar and Templonuevo, it is most unlikely that appellant BPI (or any
bank for that matter) would have accepted the checks for deposit on three separate times nary any question. Banks are most
finicky over accepting checks for deposit without the corresponding indorsement by their payee. In fact, they hesitate to accept
indorsed checks for deposit if the depositor is not one they know very well.11
The CA likewise sustained Salazars position that she received the checks from Templonuevo pursuant to an internal
arrangement between them, ratiocinating as follows:
Transferees in this situation do not enjoy the presumption of ownership in favor of holders since they are neither payees nor
indorsees of such instruments. The weight of authority is that the mere possession of a negotiable instrument does not in itself
conclusively establish either the right of the possessor to receive payment, or of the right of one who has made payment to be
discharged from liability. Thus, something more than mere possession by persons who are not payees or indorsers of the
instrument is necessary to authorize payment to them in the absence of any other facts from which the authority to receive
payment may be inferred.18

If there was indeed no arrangement between Templonuevo and the plaintiff over the three questioned checks, it baffles us why it
The CA and the trial court surmised that the subject checks belonged to private respondent Salazar based on the pre-trial
was only on August 31, 1991 or more than a year after the third and last check was deposited that he demanded for the refund of
stipulation that Templonuevo incurred a one-year delay in demanding reimbursement for the proceeds of the same. To the
the total amount of P267,692.50.
Courts mind, however, such period of delay is not of such unreasonable length as to estop Templonuevo from asserting
ownership over the checks especially considering that it was readily apparent on the face of the instruments 19 that these were
A prudent man knowing that payment is due him would have demanded payment by his debtor from the moment the same crossed checks.
became due and demandable. More so if the sum involved runs in hundreds of thousand of pesos. By and large, every person, at
the very moment he learns that he was deprived of a thing which rightfully belongs to him, would have created a big fuss. He
In State Investment House v. IAC,20 the Court enumerated the effects of crossing a check, thus: (1) that the check may not be
would not have waited for a year within which to do so. It is most inconceivable that Templonuevo did not do this. 12
encashed but only deposited in the bank; (2) that the check may be negotiated only once - to one who has an account with a
bank; and (3) that the act of crossing the check serves as a warning to the holder that the check has been issued for a definite
Generally, only questions of law may be raised in an appeal by certiorari under Rule 45 of the Rules of Court.13 Factual findings purpose so that such holder must inquire if the check has been received pursuant to that purpose.
of the CA are entitled to great weight and respect, especially when the CA affirms the factual findings of the trial court. 14 Such
questions on whether certain items of evidence should be accorded probative value or weight, or rejected as feeble or spurious,
Thus, even if the delay in the demand for reimbursement is taken in conjunction with Salazars possession of the checks, it
or whether or not the proofs on one side or the other are clear and convincing and adequate to establish a proposition in issue, are
cannot be said that the presumption of ownership in Templonuevos favor as the designated payee therein was sufficiently
questions of fact. The same holds true for questions on whether or not the body of proofs presented by a party, weighed and
overcome. This is consistent with the principle that if instruments payable to named payees or to their order have not been
analyzed in relation to contrary evidence submitted by the adverse party may be said to be strong, clear and convincing, or
indorsed in blank, only such payees or their indorsees can be holders and entitled to receive payment in their own right. 21
whether or not inconsistencies in the body of proofs of a party are of such gravity as to justify refusing to give said proofs weight
all these are issues of fact which are not reviewable by the Court. 15
The presumption under Section 131(s) of the Rules of Court stating that a negotiable instrument was given for a sufficient
consideration will not inure to the benefit of Salazar because the term "given" does not pertain merely to a transfer of physical
This rule, however, is not absolute and admits of certain exceptions, namely: a) when the conclusion is a finding grounded
possession of the instrument. The phrase "given or indorsed" in the context of a negotiable instrument refers to the manner in
entirely on speculations, surmises, or conjectures; b) when the inference made is manifestly mistaken, absurd, or impossible; c)
which such instrument may be negotiated. Negotiable instruments are negotiated by "transfer to one person or another in such a
when there is a grave abuse of discretion; d) when the judgment is based on a misapprehension of facts; e) when the findings of
manner as to constitute the transferee the holder thereof. If payable to bearer it is negotiated by delivery. If payable to order it is
fact are conflicting; f) when the CA, in making its findings, went beyond the issues of the case and the same are contrary to the
negotiated by the indorsement completed by delivery." 22 The present case involves checks payable to order. Not being a payee or
admissions of both appellant and appellee; g) when the findings of the CA are contrary to those of the trial court; h) when the
indorsee of the checks, private respondent Salazar could not be a holder thereof.
findings of fact are conclusions without citation of specific evidence on which they are based; i) when the finding of fact of the
CA is premised on the supposed absence of evidence but is contradicted by the evidence on record; and j) when the CA
manifestly overlooked certain relevant facts not disputed by the parties and which, if properly considered, would justify a It is an exception to the general rule for a payee of an order instrument to transfer the instrument without indorsement. Precisely
different conclusion.16 because the situation is abnormal, it is but fair to the maker and to prior holders to require possessors to prove without the aid of
an initial presumption in their favor, that they came into possession by virtue of a legitimate transaction with the last holder.23
Salazar failed to discharge this burden, and the return of the check proceeds to Templonuevo was therefore warranted under the
In the present case, the records do not support the finding made by the CA and the trial court that a prior arrangement existed
circumstances despite the fact that Templonuevo may not have clearly demonstrated that he never authorized Salazar to deposit
between Salazar and Templonuevo regarding the transfer of ownership of the checks. This fact is crucial as Salazars entitlement
the checks or to encash the same. Noteworthy also is the fact that petitioner stamped on the back of the checks the words: "All
to the value of the instruments is based on the assumption that she is a transferee within the contemplation of Section 49 of the
prior endorsements and/or lack of endorsements guaranteed," thereby making the assurance that it had ascertained the
Negotiable Instruments Law.
genuineness of all prior endorsements. Having assumed the liability of a general indorser, petitioners liability to the designated
payee cannot be denied.
Section 49 of the Negotiable Instruments Law contemplates a situation whereby the payee or indorsee delivers a negotiable
instrument for value without indorsing it, thus:
Consequently, petitioner, as the collecting bank, had the right to debit Salazars account for the value of the checks it previously
credited in her favor. It is of no moment that the account debited by petitioner was different from the original account to which
Transfer without indorsement; effect of- Where the holder of an instrument payable to his order transfers it for value without the proceeds of the check were credited because both admittedly belonged to Salazar, the former being the account of the sole
indorsing it, the transfer vests in the transferee such title as the transferor had therein, and the transferee acquires in addition, the proprietorship which had no separate and distinct personality from her, and the latter being her personal account.
right to have the indorsement of the transferor. But for the purpose of determining whether the transferee is a holder in due
course, the negotiation takes effect as of the time when the indorsement is actually made. 17
The right of set-off was explained in Associated Bank v. Tan:24

It bears stressing that the above transaction is an equitable assignment and the transferee acquires the instrument subject to
A bank generally has a right of set-off over the deposits therein for the payment of any withdrawals on the part of a depositor.
defenses and equities available among prior parties. Thus, if the transferor had legal title, the transferee acquires such title and, in
The right of a collecting bank to debit a client's account for the value of a dishonored check that has previously been credited has
addition, the right to have the indorsement of the transferor and also the right, as holder of the legal title, to maintain legal action
fairly been established by jurisprudence. To begin with, Article 1980 of the Civil Code provides that "[f]ixed, savings, and
against the maker or acceptor or other party liable to the transferor. The underlying premise of this provision, however, is that a
current deposits of money in banks and similar institutions shall be governed by the provisions concerning simple loan."
valid transfer of ownership of the negotiable instrument in question has taken place.

39
Hence, the relationship between banks and depositors has been held to be that of creditor and debtor. Thus, legal compensation
under Article 1278 of the Civil Code may take place "when all the requisites mentioned in Article 1279 are present," as follows:
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor
of the other;
The act of the bank in freezing and later debiting the amount of P267,692.50 from the account of A.A. Salazar Construction and
Engineering Services caused plaintiff-appellee great damage and prejudice particularly when she had already issued checks
drawn against the said account. As can be expected, the said checks bounced. To prove this, plaintiff-appellee presented as
exhibits photocopies of checks dated September 8, 1991, October 28, 1991, and November 14, 1991 (Exhibits "D", "E" and "F"
respectively)30

(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.
While, however, it is conceded that petitioner had the right of set-off over the amount it paid to Templonuevo against the deposit
of Salazar, the issue of whether it acted judiciously is an entirely different matter.25 As businesses affected with public interest,
and because of the nature of their functions, banks are under obligation to treat the accounts of their depositors with meticulous
care, always having in mind the fiduciary nature of their relationship. 26 In this regard, petitioner was clearly remiss in its duty to
private respondent Salazar as its depositor.
To begin with, the irregularity appeared plainly on the face of the checks. Despite the obvious lack of indorsement thereon,
petitioner permitted the encashment of these checks three times on three separate occasions. This negates petitioners claim that
it merely made a mistake in crediting the value of the checks to Salazars account and instead bolsters the conclusion of the CA
that petitioner recognized Salazars claim of ownership of checks and acted deliberately in paying the same, contrary to ordinary
banking policy and practice. It must be emphasized that the law imposes a duty of diligence on the collecting bank to scrutinize
checks deposited with it, for the purpose of determining their genuineness and regularity. The collecting bank, being primarily
engaged in banking, holds itself out to the public as the expert on this field, and the law thus holds it to a high standard of
conduct.27 The taking and collection of a check without the proper indorsement amount to a conversion of the check by the
bank.28
These checks, it must be emphasized, were subsequently dishonored, thereby causing private respondent Salazar undue
embarrassment and inflicting damage to her standing in the business community. Under the circumstances, she was clearly not
given the opportunity to protect her interest when petitioner unilaterally withdrew the above amount from her account without
informing her that it had already done so.
For the above reasons, the Court finds no reason to disturb the award of damages granted by the CA against petitioner. This
whole incident would have been avoided had petitioner adhered to the standard of diligence expected of one engaged in the
banking business. A depositor has the right to recover reasonable moral damages even if the banks negligence may not have
been attended with malice and bad faith, if the former suffered mental anguish, serious anxiety, embarrassment and humiliation. 31
Moral damages are not meant to enrich a complainant at the expense of defendant. It is only intended to alleviate the moral
suffering she has undergone. The award of exemplary damages is justified, on the other hand, when the acts of the bank are
attended by malice, bad faith or gross negligence. The award of reasonable attorneys fees is proper where exemplary damages
are awarded. It is proper where depositors are compelled to litigate to protect their interest. 32
WHEREFORE, the petition is partially GRANTED. The assailed Decision dated April 3, 1998 and Resolution dated April 3,
1998 rendered by the Court of Appeals in CA-G.R. CV No. 42241 are MODIFIED insofar as it ordered petitioner Bank of the
Philippine Islands to return the amount of Two Hundred Sixty-seven Thousand Seven Hundred and Seven and 70/100 Pesos
(P267,707.70) to respondent Annabelle A. Salazar, which portion is REVERSED and SET ASIDE. In all other respects, the
same are AFFIRMED.
No costs.
SO ORDERED.

More importantly, however, solely upon the prompting of Templonuevo, and with full knowledge of the brewing dispute
between Salazar and Templonuevo, petitioner debited the account held in the name of the sole proprietorship of Salazar without
even serving due notice upon her. This ran contrary to petitioners assurances to private respondent Salazar that the account
would remain untouched, pending the resolution of the controversy between her and Templonuevo. 29 In this connection, the CA
cited the letter dated September 5, 1991 of Mr. Manuel Ablan, Senior Manager of petitioner banks Pasig/Ortigas branch, to
private respondent Salazar informing her that her account had been frozen, thus:

From the tenor of the letter of Manuel Ablan, it is safe to conclude that Account No. 0201-0588-48 will remain frozen or
untouched until herein [Salazar] has settled matters with Templonuevo. But, in an unexpected move, in less than two weeks
(eleven days to be precise) from the time that letter was written, [petitioner] bank issued a cashiers check in the name of Julio R.
Templonuevo of the J.R.T. Construction and Trading for the sum of P267,692.50 (Exhibit "8") and debited said amount from Ms.
Arcillas account No. 0201-0588-48 which was supposed to be frozen or controlled. Such a move by BPI is, to Our minds, a
clear case of negligence, if not a fraudulent, wanton and reckless disregard of the right of its depositor.

The records further bear out the fact that respondent Salazar had issued several checks drawn against the account of A.A. Salazar
Construction and Engineering Services prior to any notice of deduction being served. The CA sustained private respondent
Salazars claim of damages in this regard:

40
G.R. No. 191555 January 20, 2014
UNION BANK OF THE PHILIPPINES, Petitioner,
vs.
DEVELOPMENT BANK OF THE PHILIPPINES, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on Certiorari1 are the Decision2 dated November 3, 2009 and Resolution3 dated February 26,
2010 of the Court of Appeals (CA) in CA-G.R. SP No. 93833 which affirmed the Orders 4 dated November 9, 2005 and January
30, 2006 of the Regional Trial Court of Makati, Branch 585 (RTC) in Civil Case No. 7648 denying the motion to affirm legal
compensation6 filed by petitioner Union Bank of the Philippines (Union Bank) against respondent Development Bank of the
Philippines (DBP).
The Facts
Foodmasters, Inc. (FI) had outstanding loan obligations to both Union Banks predecessor-in-interest, Bancom Development
Corporation (Bancom), and to DBP.
On May 21, 1979, FI and DBP, among others, entered into a Deed of Cession of Property In Payment of Debt 7 (dacion en pago)
whereby the former ceded in favor of the latter certain properties (including a processing plant in Marilao, Bulacan [processing
plant]) in consideration of the following: (a) the full and complete satisfaction of FIs loan obligations to DBP; and (b) the direct
assumption by DBP of FIs obligations to Bancom in the amount of P17,000,000.00 (assumed obligations).8
On the same day, DBP, as the new owner of the processing plant, leased back9 for 20 years the said property to FI (Lease
Agreement) which was, in turn, obliged to pay monthly rentals to be shared by DBP and Bancom.
DBP also entered into a separate agreement10 with Bancom (Assumption Agreement) whereby the former: (a) confirmed its
assumption of FIs obligations to Bancom; and (b) undertook to remit up to 30% of any and all rentals due from FI to Bancom
(subject rentals) which would serve as payment of the assumed obligations, to be paid in monthly installments. The pertinent
portions of the Assumption Agreement reads as follows:
WHEREAS, DBP has agreed and firmly committed in favor of Bancom that the above obligations to Bancom which DBP has
assumed shall be settled, paid and/or liquidated by DBP out of a portion of the lease rentals or part of the proceeds of sale of
those properties of the Assignors conveyed to DBP pursuant to the [Deed of Cession of Property in Payment of Debt dated May
21, 1979] and which are the subject of [the Lease Agreement] made and executed by and between DBP and [FI], the last
hereafter referred to as the "Lessee" to be effective as of July 31, 1978.
xxxx
4. DBP hereby covenants and undertakes that the amount up to 30% of any and all rentals due from the Lessee pursuant to the
Lease Agreement shall be remitted by DBP to Bancom at the latters offices at Pasay Road, Makati, Metro Manila within five (5)
days from due dates thereof, and applied in payment of the Assumed Obligations. Likewise, the amount up to 30% of the
proceeds from any sale of the Leased Properties shall within the same period above, be remitted by DBP to Bancom and applied
in payment or prepayment of the Assumed Obligations. x x x.
41
Any balance of the Assumed Obligations after application of the entire rentals and or the entire sales proceeds actually received
by Bancom on the Leased Properties shall be paid by DBP to Bancom not later than December 29, 1998. (Emphases supplied)
Meanwhile, on May 23, 1979, FI assigned its leasehold rights under the Lease Agreement to Foodmasters Worldwide, Inc.
(FW);11 while on May 9, 1984, Bancom conveyed all its receivables, including, among others, DBPs assumed obligations, to
Union Bank.12
Claiming that the subject rentals have not been duly remitted despite its repeated demands, Union Bank filed, on June 20, 1984,
a collection case against DBP before the RTC, docketed as Civil Case No. 7648.13 In opposition, DBP countered, among others,
that the obligations it assumed were payable only out of the rental payments made by FI. Thus, since FI had yet to pay the same,
DBPs obligation to Union Bank had not arisen.14 In addition, DBP sought to implead FW as third party-defendant in its capacity
as FIs assignee and, thus, should be held liable to Union Bank. 15
In the interim, or on May 6, 1988, DBP filed a motion to dismiss on the ground that it had ceased to be a real-party-in-interest
due to the supervening transfer of its rights, title and interests over the subject matter to the Asset Privatization Trust (APT). Said
motion was, however, denied by the RTC in an Order dated May 27, 1988.16
The RTC Ruling in Civil Case No. 7648
Finding the complaint to be meritorious, the RTC, in a Decision17 dated May 8, 1990, ordered: (a) DBP to pay Union Bank the
sum of P4,019,033.59, representing the amount of the subject rentals (which, again, constitutes 30% of FIs [now FWs] total
rental debt), including interest until fully paid; and (b) FW, as third-party defendant, to indemnify DBP, as third- party plaintiff,
for its payments of the subject rentals to Union Bank. It ruled that there lies no evidence which would show that DBPs receipt of
the rental payments from FW is a condition precedent to the formers obligation to remit the subject rentals under the Lease
Agreement. Thus, when DBP failed to remit the subject rentals to Union Bank, it defaulted on its assumed obligations. 18 DBP
then elevated the case on appeal before the CA, docketed as CA-G.R. CV No. 35866.
The CA Ruling in CA-G.R. CV No. 35866
In a Decision19 dated May 27, 1994 (May 27, 1994 Decision), the CA set aside the RTCs ruling, and consequently ordered: (a)
FW to pay DBP the amount of P32,441,401.85 representing the total rental debt incurred under the Lease Agreement, including
P10,000.00 as attorneys fees; and (b) DBP, after having been paid by FW its unpaid rentals, to remit 30% thereof (i.e., the
subject rentals) to Union Bank.20
It rejected Union Banks claim that DBP has the direct obligation to remit the subject rentals not only from FWs rental payments
but also out of its own resources since said claim contravened the "plain meaning" of the Assumption Agreement which specifies
that the payment of the assumed obligations shall be made "out of the portion of the lease rentals or part of the proceeds of the
sale of those properties of [FI] conveyed to DBP." 21 It also construed the phrase under the Assumption Agreement that DBP is
obligated to "pay any balance of the Assumed Obligations after application of the entire rentals and/or the entire sales proceeds
actually received by [Union Bank] on the Leased Properties . . . not later than December 29, 1998" to mean that the lease rentals
must first be applied to the payment of the assumed obligations in the amount of P17,000,000.00, and that DBP would have to
pay out of its own money only in case the lease rentals were insufficient, having only until December 29, 1998 to do so.
Nevertheless, the monthly installments in satisfaction of the assumed obligations would still have to be first sourced from said
lease rentals as stipulated in the assumption agreement.22 In view of the foregoing, the CA ruled that DBP did not default in its
obligations to remit the subject rentals to Union Bank precisely because it had yet to receive the rental payments of FW.23
Separately, the CA upheld the RTCs denial of DBPs motion to dismiss for the reason that the transfer of its rights, title and
interests over the subject matter to the APT occurred pendente lite, and, as such, the substitution of parties is largely
discretionary on the part of the court.
At odds with the CAs ruling, Union Bank and DBP filed separate petitions for review on certiorari before the Court, respectively
docketed as G.R. Nos. 115963 and 119112, which were thereafter consolidated.
The Courts Ruling in G.R. Nos. 115963 & 119112
The Court denied both petitions in a Resolution24 dated December 13, 1995. First, it upheld the CAs finding that while DBP
directly assumed FIs obligations to Union Bank, DBP was only obliged to remit to the latter 30% of the lease rentals collected
from FW, from which any deficiency was to be settled by DBP not later than December 29, 1998.25 Similarly, the Court agreed
with the CA that the denial of DBPs motion to dismiss was proper since substitution of parties, in case of transfers pendente lite,
is merely discretionary on the part of the court, adding further that the proposed substitution of APT will amount to a novation of
debtor which cannot be done without the consent of the creditor.26
On August 2, 2000, the Courts resolution became final and executory.27
The RTC Execution Proceedings
On May 16, 2001, Union Bank filed a motion for execution28 before the RTC, praying that DBP be directed to pay the amount of
P9,732,420.555 which represents the amount of the subject rentals (i.e., 30% of the FWs total rental debt in the amount of
P32,441,401.85). DBP opposed29 Union Banks motion, contending that it sought to effectively vary the dispositive portion of
the CAs May 27, 1994 Decision in CA-G.R. CV No. 35866. Also, on September 12, 2001, DBP filed its own motion for
execution against FW, citing the same CA decision as its basis.
In a Consolidated Order30 dated October 15, 2001 (Order of Execution), the RTC granted both motions for execution. Anent
Union Banks motion, the RTC opined that the CAs ruling that DBPs payment to Union Bank shall be demandable only upon
payment of FW must be viewed in light of the date when the same was rendered. It noted that the CA decision was promulgated
only on May 27, 1994, which was before the December 29, 1998 due date within which DBP had to fully pay its obligation to
Union Bank under the Assumption Agreement. Since the latter period had already lapsed, "[i]t would, thus, be too strained to
argue that payment by DBP of its assumed obligation[s] shall be dependent on [FWs] ability, if not availability, to pay." 31 In
similar regard, the RTC granted DBPs motion for execution against FW since its liability to Union Bank and DBP remained
undisputed.
As a result, a writ of execution32 dated October 15, 2001 (October 15, 2001 Writ of Execution) and, thereafter, a notice of
garnishment33 against DBP were issued. Records, however, do not show that the same writ was implemented against FW.
DBP filed a motion for reconsideration34 from the Execution Order, averring that the latter issuance varied the import of the CAs
May 27, 1994 Decision in CA-G.R. CV No. 35866 in that it prematurely ordered DBP to pay the assumed obligations to Union
Bank before FWs payment. The motion was, however, denied on December 5, 2001.35 Thus, DBPs deposits were eventually
garnished.36 Aggrieved, DBP filed a petition for certiorari37 before the CA, docketed as CA-G.R. SP No. 68300.
The CA Ruling in CA-G.R. SP No. 68300
In a Decision38 dated July 26, 2002, the CA dismissed DBPs petition, finding that the RTC did not abuse its discretion when it
issued the October 15, 2001 Writ of Execution. It upheld the RTCs observation that there was "nothing wrong in the manner
how [said writ] was implemented," as well as "in the zealousness and promptitude exhibited by Union Bank" in moving for the
same. DBP appealed the CAs ruling before the Court, which was docketed as G.R. No. 155838.
The Courts Ruling in G.R. No. 155838
In a Decision39 dated January 13, 2004 (January 13, 2004 Decision), the Court granted DBPs appeal, and thereby reversed and
set aside the CAs ruling in CA-G.R. SP No. 68300. It found significant points of variance between the CAs May 27, 1994
42
Decision in CA-G.R. CV No. 35866, and the RTCs Order of Execution/October 15, 2001 Writ of Execution. It ruled that both
the body and the dispositive portion of the same decision acknowledged that DBPs obligation to Union Bank for remittance of
the lease payments is contingent on FWs prior payment to DBP, and that any deficiency DBP had to pay by December 29, 1998
as per the Assumption Agreement cannot be determined until after the satisfaction of FWs own rental obligations to DBP.
Accordingly, the Court: (a) nullified the October 15, 2001 Writ of Execution and all related issuances thereto; and (b) ordered
Union Bank to return to DBP the amounts it received pursuant to the said writ.40 Dissatisfied, Union Bank moved for
reconsideration which was, however, denied by the Court in a Resolution dated March 24, 2004 with finality. Thus, the January
13, 2004 Decision attained finality on April 30, 2004.41 Thereafter, DBP moved for the execution of the said decision before the
RTC. After numerous efforts on the part of Union Bank proved futile, the RTC issued a writ of execution (September 6, 2005
Writ of Execution), ordering Union Bank to return to DBP all funds it received pursuant to the October 15, 2001 Writ of
Execution.42
Union Banks Motion to Affirm Legal Compensation
On September 13, 2005, Union Bank filed a Manifestation and Motion to Affirm Legal Compensation, 43 praying that the RTC
apply legal compensation between itself and DBP in order to offset the return of the funds it previously received from DBP.
Union Bank anchored its motion on two grounds which were allegedly not in existence prior to or during trial, namely: (a) on
December 29, 1998, DBPs assumed obligations became due and demandable;44 and (b) considering that FWI became non-
operational and non-existent, DBP became primarily liable to the balance of its assumed obligation, which as of Union Banks
computation after its claimed set-off, amounted to P1,849,391.87.45
On November 9, 2005, the RTC issued an Order46 denying the above-mentioned motion for lack of merit, holding that Union
Banks stated grounds were already addressed by the Court in the January 13, 2004 Decision in G.R. No. 155838. With Union
Banks motion for reconsideration therefrom having been denied, it filed a petition for certiorari 47 with the CA, docketed as CA-
G.R. SP No. 93833.
Pending resolution, Union Bank issued Managers Check48 No. 099-0003192363 dated April 21, 2006 amounting to
P52,427,250.00 in favor of DBP, in satisfaction of the Writ of Execution dated September 6, 2005 Writ of Execution. DBP,
however, averred that Union Bank still has a balance of P756,372.39 representing a portion of the garnished funds of DBP,49
which means that said obligation had not been completely extinguished.
The CA Ruling in CA-G.R. SP No. 93833
In a Decision50 dated November 3, 2009, the CA dismissed Union Banks petition, finding no grave abuse of discretion on the
RTCs part. It affirmed the denial of its motion to affirm legal compensation considering that: (a) the RTC only implemented the
Courts January 13, 2004 Decision in G.R. No. 155838 which by then had already attained finality; (b) DBP is not a debtor of
Union Bank; and (c) there is neither a demandable nor liquidated debt from DBP to Union Bank. 51
Undaunted, Union Bank moved for reconsideration which was, however, denied in a Resolution 52 dated February 26, 2010;
hence, the instant petition.
The Issue Before the Court
The sole issue for the Courts resolution is whether or not the CA correctly upheld the denial of Union Banks motion to affirm
legal compensation.
The Courts Ruling
The petition is bereft of merit. Compensation is defined as a mode of extinguishing obligations whereby two persons in their
capacity as principals are mutual debtors and creditors of each other with respect to equally liquidated and demandable
obligations to which no retention or controversy has been timely commenced and communicated by third parties. 53 The requisites
therefor are provided under Article 1279 of the Civil Code which reads as follows:
Art. 1279. In order that compensation may be proper, it is necessary:
that [DBP] would have to pay out of its money only in case of insufficiency of the lease rentals having until December 29, 1998
to do so. In this sense, it is correct to say that the means of repayment of the assumed obligation is not limited to the lease
rentals. The monthly installments, however, would still have to come from the lease rentals since this was stipulated in the
"Agreement."

xxxx
(1) That each one of the obligors be bound principally, and that he be at the same time a principal creditor
of the other;
Since, as already stated, the monthly installments for the payment of the P17 million debt are to be funded from the lease rentals,
it follows that if the lease rentals are not paid, there is nothing for DBP to remit to [Union Bank], and thus [DBP] should not be
(2) That both debts consist in a sum of money, or if the things due are consumable, they be of the same
considered in default. It is noteworthy that, as stated in the appealed decision, "as regards plaintiffs claim for damages against
kind, and also of the same quality if the latter has been stated;
defendant for its alleged negligence in failing and refusing to enforce a lessors remedies against Foodmasters Worldwide, Inc.,
the Court finds no competent and reliable evidence of such claim."
(3) That the two debts be due;
xxxx
(4) That they be liquidated and demandable;
WHEREFORE, the decision appealed from is SET ASIDE and another one is RENDERED,
(5) That over neither of them there be any retention or controversy, commenced by third persons and
communicated in due time to the debtor.1awp++i1 (Emphases and underscoring supplied)
(i) Ordering third-party defendant-appellee Foodmasters Worldwide, Inc. to pay defendant and third-party
plaintiff-appellant Development Bank of the Philippines the sum of P32,441,401.85, representing the
The rule on legal54 compensation is stated in Article 1290 of the Civil Code which provides that "[w]hen all the requisites unpaid rentals from August 1981 to June 30, 1987, as well as P10,000.00 for attorneys fees; and
mentioned in Article 1279 are present, compensation takes effect by operation of law, and extinguishes both debts to the
concurrent amount, even though the creditors and debtors are not aware of the compensation."
(ii) Ordering defendant and third-party plaintiff-appellant Development Bank of the Philippines after
having been paid by third-party defendant-appellee the sum of P32,441,401.85, to remit 30% thereof to
In this case, Union Bank filed a motion to seek affirmation that legal compensation had taken place in order to effectively offset plaintiff-appellee Union Bank of the Philippines.
(a) its own obligation to return the funds it previously received from DBP as directed under the September 6, 2005 Writ of
Execution with (b) DBPs assumed obligations under the Assumption Agreement. However, legal compensation could not have
SO ORDERED.
taken place between these debts for the apparent reason that requisites 3 and 4 under Article 1279 of the Civil Code are not
present. Since DBPs assumed obligations to Union Bank for remittance of the lease payments are in the Courts words in its
Decision dated January 13, 2004 in G.R. No. 155838 " contingent on the prior payment thereof by [FW] to DBP," it cannot be In other words, both the body and the dispositive portion of the aforequoted decision acknowledged that DBPs obligation to
said that both debts are due (requisite 3 of Article 1279 of the Civil Code). Also, in the same ruling, the Court observed that any Union Bank for remittance of the lease payments is contingent on the prior payment thereof by Foodmasters to DBP.
deficiency that DBP had to make up (by December 29, 1998 as per the Assumption Agreement) for the full satisfaction of the
assumed obligations " cannot be determined until after the satisfaction of Foodmasters obligation to DBP." In this regard, it
A careful reading of the decision shows that the Court of Appeals, which was affirmed by the Supreme Court, found that only the
cannot be concluded that the same debt had already been liquidated, and thereby became demandable (requisite 4 of Article 1279
balance or the deficiency of the P17 million principal obligation, if any, would be due and demandable as of December 29, 1998.
of the Civil Code).
Naturally, this deficiency cannot be determined until after the satisfaction of Foodmasters obligation to DBP, for remittance to
Union Bank in the proportion set out in the 1994 Decision. (Emphases and underscoring supplied; citations omitted)
The aforementioned Court decision had already attained finality on April 30, 200455 and, hence, pursuant to the doctrine of
conclusiveness of judgment, the facts and issues actually and directly resolved therein may not be raised in any future case
xxxx
between the same parties, even if the latter suit may involve a different cause of action.56 Its pertinent portions are hereunder
quoted for ready reference:57
In fine, since requisites 3 and 4 of Article 1279 of the Civil Code have not concurred in this case, no legal compensation could
have taken place between the above-stated debts pursuant to Article 1290 of the Civil Code. Perforce, the petition must be
Both the body and the dispositive portion of the [CAs May 27, 1994 Decision in CA-G.R. CV No. 35866] correctly construed
denied, and the denial of Union Bank s motion to affirm legal compensation sustained.
the nature of DBPs liability for the lease payments under the various contracts, to wit:

WHEREFORE, the petition is DENIED. The Decision dated November 3, 2009 and Resolution dated February 26, 2010 of the
x x x Construing these three contracts, especially the "Agreement" x x x between DBP and Bancom as providing for the payment
Court of Appeals in CA-G.R. SP No. 93833 are hereby AFFIRMED.
of DBPs assumed obligation out of the rentals to be paid to it does not mean negating DBPs assumption "for its own account"
of the P17.0 million debt x x x. It only means that they provide a mechanism for discharging [DBPs] liability. This liability
subsists, since under the "Agreement" x x x, DBP is obligated to pay "any balance of the Assumed Obligations after application SO ORDERED.
of the entire rentals and or the entire sales proceeds actually received by [Union Bank] on the Leased Properties not later than
December 29, 1998." x x x It only means that the lease rentals must first be applied to the payment of the P17 million debt and

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