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INSULAR INVESTMENT AND G.R. No.

183308
TRUST CORPORATION,
Petitioner, Present:

VELASCO, JR., J., Chairperson,


PERALTA,
- versus - ABAD,
MENDOZA, and
PERLAS-BERNABE, JJ.
CAPITAL ONE EQUITIES
CORP. (now known as CAPITAL
ONE HOLDINGS CORP.) and
PLANTERS DEVELOPMENT Promulgated:
BANK,
Respondents. April 25, 2012

x ---------------------------------------------------------------------------------------- x

DECISION

MENDOZA, J.:

This is a petition for review on certiorari under Rule 45 of the 1997 Revised Rules of
Civil Procedure assailing the June 6, 2008 Decision1 of the Court of Appeals (CA) in C.A.-G.R.
CV No. 79320 entitled Insular Investment and Trust Corporation v. Capital One Equities
Corporation (now known as Capital One Holdings Corporation) and Planters Development
Bank.

THE FACTS

Based on the records of the case and on the September 2, 1999 Partial Stipulation of
Facts and Documents2 (the Partial Stipulation) agreed upon by the parties, the facts are as
follows:

Petitioner Insular Investment and Trust Corporation (IITC) and respondents Capital One
Equities Corporation (COEC) and Planters Development Bank (PDB) are regularly engaged in
the trading, sale and purchase of Philippine treasury bills.

On various dates in 1994, IITC purchased from COEC treasury bills with an aggregate
face value of P260,683,392.51 (the IITC T-Bills), as evidenced by the confirmations of purchase
issued by IITC. The purchase price for the said treasury bills were fully paid by IITC to COEC
which was able to deliver P121,050,000.00 worth of treasury bills to IITC.

1
Rollo, pp. 249-276; penned by Associate Justice Agustin S. Dizon and concurred in by Associate Justice Regalado E. Maambong and
Associate Justice Celia C. Librea-Leagogo of the Sixteenth Division of the Court of Appeals.
2
Id. at 434-441.
On May 2, 1994, COEC purchased treasury bills with a face value of P186,774,739.49
(the COEC T-Bills). IITC issued confirmations of sale in favor of COEC covering the said
transaction. COEC paid the purchase price by issuing the following checks:

Check No. Payee Amount

(1) City Trust Managers Planters Development P154,802,341.59


Check No. 001180 Bank
(2) UCPB-Ayala Managers Planters Development P16,975,883.89
Check No. AYLO43841 Bank
(3) UCPB-Ayala Managers Planters Development P10,413,043.78
Check No. AYLO43840 Bank
(4) UCPB-Ayala Check No. Insular Investment and P24,116.11
AYL213346 Trust Corporation

Both IITC and PDB received the proceeds of the checks.

On May 2, 1994, PDB issued confirmations of sale in favor of IITC for the sale of
treasury bills and IITC, in turn, issued confirmations of purchase in favor of PDB over treasury
bills with a total face value of P186,790,000.00.

Thereafter, PDB sent a letter3 dated May 4, 1994 to IITC undertaking to deliver treasury
bills worth P186,790,000.00, which IITC purchased from PDB on May 2, 1994, as soon as they
would be available.

On May 10, 1994, COEC wrote a letter to IITC demanding the physical delivery of the
treasury bills which the former purchased from the latter on May 2, 1994.

In its May 18, 1994 Letter4 to PDB, IITC requested, on behalf of COEC, the delivery to
IITC of treasury bills worth P186,790,000.00 which had been paid in full by COEC. COEC was
furnished with a copy of the said letter.

On May 30, 1994, COEC protested the tenor of IITCs letter to PDB and took exception to
IITCs assertion that it merely acted as a facilitator with regard to the sale of the treasury bills.

IITC sent COEC a letter5 dated June 3, 1994, demanding that COEC deliver to it (IITC)
the P139,833,392.00 worth of treasury bills or return the full purchase price. In either case, it
also demanded that COEC (1) pay IITC the amount of P1,729,069.50 representing business
opportunity lost due to the non-delivery of the treasury bills, and (2) deliver treasury bills worth
P121,050,000 with the same maturity dates originally purchased by IITC.

COEC sent a letter-reply6 dated June 9, 1994 to IITC in which it acknowledged its
obligation to deliver the treasury bills worth P139,833,392.007 which it sold to IITC and
formally demanded the delivery of the treasury bills worth P186,774,739.49 which it purchased
from IITC. COEC also demanded the payment of lost profits in the amount of P3,253,250.00.
Considering that COEC and IITC both have claims against each other for the delivery of

3
Id. at 309.
4
Id. at 383.
5
Id. at 310.
6
Id. at 313.
7
The correct amount is Php139,633,392 (based on COECs admission in its Answer dated April 10, 1995; id. at 425).
treasury bills, COEC proposed that a legal set-off be effected, which would result in IITC
owing COEC the difference of P46,941,446.49.

In its June 13, 1994 letter to COEC, IITC rejected the suggestion for a legal setting-off of
obligations, alleging that it merely acted as a facilitator between PDB and COEC.

On June 27, 1994, COEC replied to IITCs letter, reiterating its demand and its position
stated in its June 9, 1994 letter.

On July 1, 1994, IITC, COEC and PDB entered into a Tripartite Agreement8 (the
Tripartite Agreement) wherein PDB assigned to IITC, which in turn assigned to COEC, Central
Bank Bills with a total face value of P50,000,000.00. These assignments were made in
consideration of (a) IITC relinquishing all its rights to claim delivery under the confirmation of
sale issued by PDB to IITC to the extent of P50,000,000.00 (face value) and (b) COEC
relinquishing all its rights to claim delivery of the COEC T-Bills under the IITC confirmations
of sale to COEC to the extent of P50,000,000.00 (face value).

On the same day, COEC and IITC entered into an Agreement9 (the COEC-IITC
Agreement) whereby COEC reassigned to IITC the Central Bank bills subject of the Tripartite
Agreement to the extent of P20,000,000.00 in consideration of which IITC relinquished all its
rights to claim from COEC the IITC T-Bills covered by the COEC confirmation of sale to the
extent of an aggregate P20,000,000.00 face value.

Despite repeated demands, however, PDB failed to deliver the balance of


P136,790,000.00 worth of treasury bills which IITC purchased from PDB allegedly for COEC.
COEC was likewise unable to deliver the remaining IITC T-Bills amounting to
P119,633,392.00. Neither PDB and COEC returned the purchase price for the duly paid
treasury bills.10

This prompted IITC to file the Amended Complaint11 dated March 20, 1995 before the
Regional Trial Court, Branch 138, Makati City (RTC), praying that COEC be ordered to deliver
treasury bills worth P119,633,392.00 to IITC or pay the monetary equivalent plus legal
interests; and, in the alternative, that PDB be ordered to comply with its obligations under the
conduit transaction involving treasury bills worth P136,790,000.00 by delivering the treasury
bills to IITC, in addition to actual and exemplary damages and attorneys fees.

COEC filed its Answer to Amended Complaint12 dated April 10, 1995, admitting that it
owed IITC treasury bills worth P119,633,392.00. It countered, however, that IITC had an
outstanding obligation to deliver to COEC treasury bills worth P136,774,739.49.13 COEC
prayed that IITC be required to deliver P17,141,347.49 (the amount IITC still owed COEC after
a legal off-setting of their debts against each other) to COEC in addition to moral and
exemplary damages and attorneys fees.14

PDB, for its part, insisted in its Answer Ad Cautelam15 that it had no knowledge or
participation in the sale by IITC of treasury bills to COEC. It admitted that it sent a letter dated
May 4, 1994 to IITC, undertaking to deliver treasury bills worth P186,790,000.00 which IITC
purchased from PDB. PDB posited, however, that IITC was not entitled to the delivery of the
8
Rollo, pp. 314-318.
9
Id. at 319-322.
10
Id. at 182.
11
Id. at 323-337.
12
Id. at 421-427.
13
Id. at 425.
14
Id. at 426a.
15
Id. at 428-433.
said treasury bills because IITC did not remit payment to PDB. Neither did the subject
securities become available to PDB.

In its Judgment16 dated June 16, 2003, the RTC found that COEC still owed IITC
P119,633,392.00 worth of treasury bills, pursuant to their transaction in early 1994. As regards
the sale of treasury bills by IITC to COEC, however, the RTC determined that IITC was not
merely a conduit in the purchase a sale of treasury bills between PDB and COEC. Rather, IITC
acted as a principal in two transactions: as a buyer of treasury bills from PDB and as a seller to
COEC. Taking into consideration the Tripartite Agreement, IITC was still liable to pay COEC
the sum of P136,790,000.00. Since IITC and COEC were both debtors and creditors of each
other, the RTC off-set their debts, resulting in a difference of 17,056,608.00 in favor of
COEC. As to PDBs liability, it ruled that PDB had the obligation to pay P136,790,000.00 to
IITC. Thus, the trial court ordered (a) IITC to pay COEC P17,056,608.00 with interest at the
rate of 6% from June 10, 1994 until full payment and (b) PDB to pay IITC P136,790,000.00
with interest at the rate of 6% from March 21, 1995 until full payment.

Aggrieved, all parties appealed to the CA which promulgated its decision on June 6,
2008. The CA affirmed the RTC finding that IITC was not a mere conduit but rather a direct
seller to COEC of the treasury bills.17 The CA, however, absolved PDB from any liability,
ruling that because PDB was not involved in the transactions between IITC and COEC, IITC
should have alleged and proved that PDB sold treasury bills to IITC.18 Moreover, PDB only
undertook to deliver treasury bills worth P186,790,000.00 to IITC as soon as they are
available.19 But, the said treasury bills did not become available. Neither did IITC remit
payment to PDB. As such, PDB incurred no obligation to deliver P186,790,000.00 worth of
treasury bills to IITC.

Hence, this petition.

THE ISSUES

IITC raises the following grounds for the grant of its petition:
A. The petition is not dismissible. The issue of whether IITC acted as a conduit is a
question of law. Assuming for the sake of argument that the petition involves questions
of fact, the Supreme Court may take cognizance of the petition under exceptional
circumstances.

B. The Court of Appeals gravely erred and acted contrary to law and jurisprudence and
the evidence on record in holding that IITC did not act as a conduit of Capital One and
Plantersbank in the 2 May 1994 sale of COEC T-bills.

C. The Court of Appeals erred and acted contrary to law and the evidence on record in
ruling that Plantersbank did not have any obligation to delivery the COEC T-Bills to
IITC under IITCs alternative cause of action.

D. The Court of Appeals erred and acted contrary to law in holding that Capital One
could validly set off its claims for the undelivered COEC T-Bills against the fully paid
IITC T-Bills.

E. The Court of Appeals further erred and acted contrary to law in holding that Capital
One and Plantersbank were not guilty of fraud.

16
Id. at 444-462; penned by Judge Sixto Marella, Jr. of the Regional Trial Court Branch 138, Makati City.
17
Id. at 268.
18
Id. at 270.
19
Id. at 271.
F. The Court of Appeals violated IITCs right to due process in affirming, without citing
any basis whatsoever, the erroneous holding of the trial court that there was insufficient
evidence to prove the actual and consequential damages sustained by IITC.20

COEC puts forth the following issues:


Whether the Court of Appeals correctly held that IITC did not act as a conduit of Capital
One and Plantersbank in the May 2, 1994 sale of the COEC T-Bills by IITC to Capital
One.

Whether the Court of Appeals correctly held that Capital One may validly set off its
claim for the undelivered COEC T-Bills against the balance of the IITC T-Bills.

Whether the Court of Appeals correctly affirmed the holding of the trial court that
Capital One and Plantersbank are not guilty of fraud.

Whether the Petition raises questions of fact, and whether it is defective.

Whether Capital One is entitled to the correction of the mathematical error in the
computation of the money judgment in its favor.21

For its part, PDB identifies the principal issue to be whether it was obliged to deliver to
petitioner Insular the treasury bills which the latter sold, as principal, to Capital One, and/or pay
the value thereof.22 The following are stated as corollary issues:
Whether petitioner Insular was acting as facilitator or conduit in the May 2, 1994 sales
of the treasury bills;

Whether petitioner Insular may raise in this petition the issue of it being merely as
facilitator or conduit after the Trial Court and Court of Appeals found that petitioner
Insular was not a facilitator or conduit.

Whether respondents Plantersbank and Capital One were guilty of fraud in their
transactions with petitioner Insular.

Whether petitioner Insular was entitled to actual and consequential damages. 23

The numerous issues can be simplified as follows:

(1) Whether IITC acted as a conduit in the transaction between COEC and
PDB;

(2) Whether COEC can set-off its obligation to IITC as against the latters
obligation to it; and

(3) Whether PDB has the obligation to deliver treasury bills to IITC.

THE COURTS RULING

The petition is partly meritorious.

20
Id. at 2587-2588.
21
Id. at 2350.
22
Id. at 2497.
23
Id. at 2497-2498.
Question of fact;
IITC did not act as conduit

Petitioner IITC insists that the issue of whether it acted as a conduit is a question of law
which can properly be the subject of a petition for review before this Court. Because the parties
already entered into a stipulation of facts and documents, the facts are no longer at issue; rather,
the court must now determine the applicable law based on the admitted facts, thereby making it
a question of law. Even assuming that the determination of IITCs role in the two transactions is
a pure question of fact, it falls under the exceptions when the Court may decide to review a
question of fact.24

Respondent COEC, on the other hand, argues that IITC raises questions of fact. An issue
is one of fact when: (a) there is a doubt or difference as to the truth or falsehood of the alleged
facts, (b) the issues raised invite a calibration, assessment, re-examination and re-evaluation of
the evidence presented, (c) it questions the probative value of evidence presented or the proofs
presented by one party are clear, convincing and adequate. Because the question of whether
IITC was merely a conduit satisfies all the conditions enumerated, then it is a question of fact
which this Court cannot pass upon. In addition, COEC calls attention to the principle that
findings of fact of the trial court, especially when approved by the Court of Appeals, are
binding and conclusive on the Supreme Court.25

PDB also maintains that the finding of the RTC that IITC did not act as a conduit
between PDB and COEC was supported by substantial evidence and was sustained by the CA.
Thus, it is already binding and conclusive upon this Court, whose jurisdiction is limited to
reviewing only errors of law and not of fact.26

Respondents are correct.

The issue raised by IITC is factual in nature as it requires the Court to delve into the
records and review the evidence presented by the parties to determine the validity of the
findings of both the RTC and the CA as to IITCs role in the transactions in question. These are
purely factual issues which this Court cannot review.27 Well-established is the principle that
factual findings of the trial court, when adopted and confirmed by the Court of Appeals, are
binding and conclusive on this Court and will generally not be reviewed on appeal.28

As discussed in The Insular Life Assurance Company, Ltd. v. Court of Appeals:29

It is a settled rule that in the exercise of the Supreme Courts power of review, the Court
is not a trier of facts and does not normally undertake the re-examination of the
evidence presented by the contending parties during the trial of the case considering
that the findings of facts of the CA are conclusive and binding on the Court. However,
the Court had recognized several exceptions to this rule, to wit: (1) when the findings
are grounded entirely on speculation, surmises or conjectures; (2) when the inference
made is manifestly mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of facts; (5) when the
findings of facts are conflicting; (6) when in making its findings the Court of Appeals
went beyond the issues of the case, or its findings are contrary to the admissions of both
the appellant and the appellee; (7) when the findings are contrary to the trial court; (8)
when the findings are conclusions without citation of specific evidence on which they

24
Id. at 2588-2594.
25
Id. at 2431-2435.
26
Id. at 2508.
27
Dimaranan v. Heirs of Spouses Arayata, G.R. No. 184193, March 29, 2010, 617 SCRA 101,112.
28
Eterton Multi-Resources Corporation v. Filipino Pipe and Foundry Corporation, G.R. No. 179812, July 6, 2010, 624 SCRA
148,154.
29
G.R. No. 126850, April 28, 2004, 428 SCRA 79.
are based; (9) when the facts set forth in the petition as well as in the petitioners main
and reply briefs are not disputed by the respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and contradicted by the evidence on
record; and (11) when the Court of Appeals manifestly overlooked certain relevant facts
not disputed by the parties, which, if properly considered, would justify a different
conclusion.30

Contrary to IITCs claim, the circumstances surrounding the case at bench do not justify
the application of any of the exceptions. At any rate, even if the Court would be willing to
disregard this time-honored principle, the inevitable conclusion would be the same as that made
by the RTC and the CA that IITC did not act as a conduit but rather as a principal in two
separate transactions, one as the purchaser of treasury bills from PDB and, in another, as the
seller of treasury bills to COEC.

The evidence against IITC cannot be denied.

The confirmations of sale issued by IITC to COEC unmistakably show that the former, as
principal, sold the treasury bills to the latter:31

Gentlemen:

As principal, we confirm having sold to you on a without recourse basis the following
securities against which you shall pay us clearing funds on value date.

IITCs confirmations of purchase to PDB likewise reflect that it acted as the principal in
the transaction:32

Gentlemen:

As principal, we confirm having purchased from you on a without recourse basis the
following securities against which we shall pay you clearing funds on value date.

There is nothing in these documents which mentions that IITC merely acted as a conduit
in the sale and purchase of treasury bills between PDB and COEC. On the contrary, the
confirmations of sale and of purchase all clearly and expressly indicate that IITC acted as a
principal seller to COEC and as a principal buyer from PDB.

IITC then tries to shift the blame to PDB and COEC by alleging that it was the two
parties which conceptualized the two-step or conduit transaction and dictated the documents to
be used. As such, they cannot be allowed to take advantage of the ambiguity created by the
documentation which it, in conspiracy with Plantersbank, concocted to render IITC, an innocent
party, liable.33

This argument is far-fetched and borders on the incredible. At the outset, it should be
pointed out that there is no ambiguity whatsoever in the language of the documents used. The
confirmations of sale and purchase unequivocally state that IITC acted as a principal buyer and
seller of treasury bills. The language used is as clear as day and cannot be more explicit. Thus,
because the words of the documents in question are clear and readily understandable by any

30
Id. at 85-86 (previous citations omitted).
31
Rollo, pp. 303-304.
32
Id. at 301-302.
33
Id. at 2609.
ordinary reader, there is no need for the interpretation or construction thereof.34 This was
emphasized in the case of Pichel v. Alonzo:35

Xxx. To begin with, We agree with petitioner that construction or interpretation of the
document in question is not called for. A perusal of the deed fails to disclose any
ambiguity or obscurity in its provisions, nor is there doubt as to the real intention of the
contracting parties. The terms of the agreement are clear and unequivocal, hence the
literal and plain meaning thereof should be observed. Such is the mandate of the Civil
Code of the Philippines which provides that:

Art. 1370. If the terms of a contract are clear and leave no doubt upon the
intention of the contracting parties, the literal meaning of its stipulation
shall control

Pursuant to the aforequoted legal provision, the first and fundamental duty of the courts is
the application of the contract according to its express terms, interpretation being resorted
to only when such literal application is impossible.36 (Emphases supplied)

COEC and PDB did not take advantage of any vagueness in the documents in question.
They only seek to enforce the intention of the parties, in accordance with the terms of the
confirmations of sale and purchase voluntarily entered into by the parties.

The Court also finds it hard to believe that an entity would carelessly and imprudently
expose itself to liability in the amount of millions of pesos by failing to ensure that the
documents used in the transaction would be a faithful account of its true nature. It is important
to note that the confirmations of sale were issued by IITC itself using its own documents.
Therefore, it defies imagination how COEC and PDB could have foisted off these forms on
IITC against its will.

In addition, a comparison of the confirmations of sale issued by IITC in favor of COEC


as against the confirmations of sale issued by PDB in favor of IITC indicates that there is a
difference in the interest rates of the treasury bills and in the face values:

PDB Confirmations of Sale to IITC37

Maturity Date Yield Face Value Total Price


July 13, 1994 17.150% P44,170,000.00 P42,998,169.00
July 6, 1994 17.150% 142,620,000.00 139,193,100.56
P186,790,000.00 P182,191,269.56

IITC Confirmations of Sale to COEC38

Maturity Date Yield Face Value Total Price


July 13, 1994 17.0% P 44,161,700.44 P 43,000,000.00
July 6, 1994 17.0% 142,613,039.05 139,215,385.70
P186,774,739.49 P182,215,385.70

IITC offered a lower interest rate of 17% to COEC, in contrast to the 17.15% interest rate
given to it by PDB. There is also a notable difference in the face value of the treasury bills and
in the total price paid for each set. If, as IITC insists, it only acted as a conduit to the sale
34
Henson v. Intermediate Appellate Court, 232 Phil. 12 (1987), citing San Mauricio Mining Company v. Ancheta, 192 Phil. 624
(1981).
35
G.R. No. L-36902, January 30, 1982, 111 SCRA 341.
36
Id.
37
Rollo, pp. 299-300.
38
Id. at 303-304.
between PDB and COEC, then there should be no disparity in the terms (the interest rate, the
face value and the total price) of the sale of the treasury bills. Obviously, this is not the case.
The figures lead to no other conclusion but that there were two separate transactions in both of
which IITC played a principal role as a buyer from PDB of treasury bills with an aggregate face
value of P186,790,000.00 at an interest rate of 17.15% and as a seller to COEC of treasury bills
with an aggregate face value of P186,774,739.49 at an interest rate of 17%.

Again, IITC attempts to hold PDB and COEC responsible for this questionable variation,
alleging that it was PDB and COEC which dictated the details of the purchase and sale of the
treasury bills. IITC heavily relies on the fact that COEC directly paid PDB the amount of
P182,191,269.26 representing the amount covered in the confirmations of sale issued by PDB to
strengthen its position that it merely acted as a conduit between PDB and COEC. 39 This was
further supported by the internal trading sheets of IITC where the following handwritten
notations were made: (1) in Purchase Trading Sheet No. 10856 covering the purchase of
treasury bills by IITC from PDB: dont prepare any check; payment will come from Capital One
(See STS 10811), and (2) in Sale Trading Sheet No. 10811 covering the sale of treasury bills by
IITC to COEC: for STS 10810 and 10811 will receive 2 checks payable to the ff: 1. Planters
Devt Bank - P182,191,269.59 2. IITC - 24,116.11

The Court is not convinced. That COEC directly paid PDB is of no moment and does not
necessarily mean that COEC recognized IITCs conduit role in the transaction. Neither does it
disprove the findings of both the RTC and the CA that IITC acted as principal in the two
transactions the purchase of treasury bills from PDB and the subsequent sale thereof to COEC.
The Court agrees with the explanation of the RTC:

The Court is aware that in the trading business, agreements are concluded even
before the goods being traded are received by the would be seller. Buyers in turn
conclude their transactions even before they are paid. For this reason, the mere fact that
in document for internal use, the instruction that payment will come from Capital One
will not, by itself, prove that plaintiff was a mere conduit. Neither could it be considered
as circumstantial to establish the fact in issue. At most, the instructions merely
identified the source of funds but whether those funds are to be received by the plaintiff
as purchase price or for remittance to whoever is entitled to it, none was indicated. The
Court may look at the instruction differently if the entries were no payment required;
COEC to pay PDB directly or this is a conduit transaction; servicing to be done by COEC
or COEC to pay PDB directly.40

IITC also insists that the fact that the P24,116.11 which it claims to be a facilitation fee is
exactly the difference between the principal amounts of the treasury bills purchased from PDB
and the treasury bills sold to COEC constitutes the smoking gun or the veritable elephant in the
living room.41 To IITC, it is apparent that the amount is a facilitation fee, adding credence to its
contention that it only acted as a conduit.

The Court cannot sustain that view. There is nothing to prove that the amount of
P24,116.11 received by IITC from COEC was a facilitation fee. As explained by COEC, the
amount could easily have been the margin or spread earned by IITC in the buy-and-sell
transaction.42 This is, however, not for the Court to determine. As such, the Court relies on the
findings of the RTC on this matter:
Plaintiffs other evidence to prove its conduit role was the delivery to it by COEC
by way of its corporate check of P24,116.11 in payment of plaintiffs conduit fee. The

39
Id. at 2604-2606.
40
Id. at 454.
41
Id. at 2617.
42
Id. at 2393.
Court is hesitant to give probative value to this proof because nowhere does it appear in
the trading sheets or any other document that it was collected by plaintiff and received
by it from COEC in that concept. Business practice is to issue an official receipt because
it is an income, but none was presented. The testimonial evidence was refuted. COEC
presented controverting evidence on the original mode of payment which was requested
to be changed by witness Bombaes. COEC presented the unsigned check and voucher.
The latter was duly accomplished and bears the signatures or initials of the approving
officers. On this particular issue, COECs evidence deserves more weight.43

Finally, as correctly observed by the RTC, the actions of IITC after the transaction were
not those of a conduit but of a principal:
The Court notes with particular interest the events which transpired on May 4,
1994, two (2) days after plaintiff through witness Mendoza learned of the non-delivery
by PDB of the treasury bills. Witness Mendoza went to the office of PDB and secured
the letter, Exhibit E, which contains the undertaking of PDB to deliver the treasury bills.
This was procured by plaintiff and addressed to the plaintiff. The language used by PDB
was purchase[d] from us and plaintiff accepted it.

Plaintiff failed to explain the reason for demanding delivery of the treasury bills
when it was not the buyer as it so claims. It also failed to object to the use by PDB of the
words purchase[d] from us, something which it could easily do or should do considering
the amount involved.

The conduct of the plaintiff after concluding the May 2, 1994 transaction [was]
[that] of a buyer.44

From the foregoing, it is clear that IITC acted as principal purchaser from PDB and
principal seller to COEC, and not simply as a conduit between PDB and COEC.

Set-off allowed

IITC argues that the RTC and the CA erred in holding that COEC can validly set off its
claims for the undelivered IITC T-Bills against the COEC T-Bills.45 IITC reiterates that COEC
did not become a creditor of IITC because the former did not pay the latter for the purchased
treasury bills. Rather, it was PDB which received the proceeds of the payment from COEC.46 In
addition, their obligations do not consist of a sum or money. Neither are they of the same kind
because the obligations call for the delivery of specific determinate things treasury bills with
specific maturity dates and various interest rates. Thus, legal compensation cannot take place.47

COEC, on the other hand, points out that it has already unquestionably proven that IITC
acted as a principal, and not as a conduit, in the sale of treasury bills to COEC. 48 Furthermore, it
asserts that the treasury bills in question are generic in nature because the confirmations of sale
and purchase do not mention specific treasury bills with serial numbers. 49 The securities were
sold as indeterminate objects which have a monetary equivalent, as acknowledged by the parties
in the Tripartite Agreement.50 As such, because both IITC and COEC are principal creditors of
the other over debts which consist of consumable things or a sum of money, the RTC correctly
ruled that COEC may validly set-off its claims for undelivered treasury bills against that of
IITCs claims.51
43
Id. at 455.
44
Id. at 458.
45
Id. at 2637.
46
Id. at 2637.
47
Id. at 2638.
48
Id. at 2406.
49
Id. at 2408.
50
Id. at 2409.
51
Id. at 2410.
The Court finds in favor of respondent COEC.

The applicable provisions of law are Articles 1278, 1279 and 1290 of the Civil Code of
the Philippines:
Art. 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other.

Art. 1279. In order that compensation may be proper, it is necessary:

(1) That each one of the obligors be bound principally, and that he be at the same
time a principal creditor of the other;

(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.

xxx

Art. 1290. When all the requisites 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.

Based on the foregoing, in order for compensation to be valid, the five requisites
mentioned in the abovequoted Article 1279 should be present, as in the case at bench. The
lower courts have already determined, to which this Court concurs, that IITC acted as a
principal in the purchase of treasury bills from PDB and in the subsequent sale to COEC of the
COEC T-Bills. Thus, COEC and IITC are principal creditors of each other in relation to the sale
of the COEC T-Bills and IITC T-Bills, respectively.

IITC also claims that the COEC T-Bills cannot be set-off against the IITC T-Bills
because the latter are specific determinate things which consist of treasury bills with specific
maturity dates and various interest rates.52 IITCs actions belie its own assertion. The fact that
IITC accepted the assignment by COEC of Central Bank Bills with an aggregate face value of
P20,000,000.00 as payment of part of the IITC T-Bills is evidence of IITCs willingness to
accept other forms of security as satisfaction of COECs obligation. It should be noted that the
second requisite only requires that the thing be of the same kind and quality. The COEC T-Bills
and the IITC T-Bills are both government securities which, while having differing interest rates
and dates of maturity, have each been assigned a certain face value to determine their monetary
equivalent. In fact, in the Tripartite Agreement, the COEC-IITC Agreement and in the
memoranda of the parties, the parties recognized the monetary value of the treasury bills in
question, and, in some instances, treated them as sums of money. 53 Thus, they are of the same
kind and are capable of being subject to compensation.

The third, fourth and fifth requirements are clearly present and are not denied by the
parties. Both debts are due and demandable because both remain unsatisfied, despite payment

52
Id. at 2638.
53
Id. at 314, 319, 2304, 2481, 2560.
made by IITC for the IITC T-Bills and by COEC for the COEC T-Bills. Moreover, COEC
readily admits that it has an outstanding balance in favor of IITC.54 Conversely, IITC has been
found by the lower courts to be liable, as principal seller, for the delivery of the COEC T-Bills.55
The debts are also liquidated because their existence and amount are determined. 56 Finally, there
exists no retention or controversy over the COEC T-Bills and the IITC T-Bills.

Because all the stipulations under Article 1279 are present in this case, compensation can
take place. COEC is allowed to set-off its obligation to deliver the IITC T-Bills against IITCs
obligation to deliver the COEC T-Bills.

Correction of the amount due

Having established that compensation or set-off is allowed between COEC and IITC, the
Court will now delve into the proper amount of the award and the applicable interest rates.

The RTC, in its Judgment, ordered IITC to pay COEC the amount of P17,056,608 with
interest at the rate of 6% per annum until full payment. In arriving at the said amount, the trial
court used, as its basis, COECs claim against IITC for P186,790,000 worth of treasury bills less
P50,000,000 which it received under the Tripartite Agreement. Then it deducted from this the
P139,633,392.00 face value of the undelivered treasury bills by COEC to IITC less the
P20,000,000 which COEC assigned to IITC pursuant to the COEC-IITC Agreement.57

As correctly pointed out by COEC, there was a mistake in the arithmetic subtraction
made by the RTC. Using the figures provided by the lower court, the correct result should have
been P17,156,608.00, P100,000.00 more than what was adjudged in favor of COEC. To
illustrate:

The trial courts computation

COECs counterclaim against IITC P186,790,000.00


Amount assigned by IITC to COEC (50,000,000.00)
Subtotal P136,790,000.00
IITCs claim against COEC P139,633,392.00
Amount reassigned by COEC to IITC (20,000,000.00)

Subtotal P119,633,392.00

TOTAL P17,156,608.00

Aside from the error in the RTCs mathematical computation, a review of the records,
particularly the March 20, 1995 Amended Complaint filed by IITC, the April 10, 1995 Answer
to Amended Complaint (With Counterclaim) filed by COEC and the September 2, 1999 Partial
Stipulation of Facts and Documents submitted by IITC, COEC and PDB to the trial court,
reveals that there was some confusion as to the correct basis to be used for calculating the
amount due to COEC. In COECs Answer and in the Partial Stipulation, it explicitly stated that it
purchased from IITC treasury bills with a face value of P186,774,739.49, as evidenced by the
Confirmations of Sale issued by IITC. If this figure is used in computing COECs award, the
resulting amount would be P17,141,347.49, which is consistent with COECs counterclaim.
54
Id. at 2304.
55
Id. at 268.
56
Montemayor v. Millora, G.R. No. 168251, July 27, 2011, citing Tolentino, Arturo M., IV Commentaries and Jurisprudence on the
Civil Code of the Philippines, 2002 ed., p. 371.
57
Rollo, p. 460.
The revised computation

COECs counterclaim against IITC P186,774,739.49


Amount assigned by IITC to COEC (50,000,000.00)
Subtotal P136,774,739.49
IITCs claim against COEC P139,633,392.00
Amount reassigned by COEC to IITC (20,000,000.00)

Subtotal P119,633,392.00

TOTAL P17,141,347.49

Lastly, as regards the legal interest which should be imposed on the award, the Court
directs the attention of the parties to the case of Eastern Shipping Lines v. Court of Appeals,58

1. When the obligation is breached, and it consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the interest due should be that which may have
been stipulated in writing. Furthermore, the interest due shall itself earn legal interest
from the time it is judicially demanded. In the absence of stipulation, the rate of interest
shall be 12% per annum to be computed from default, i.e., from judicial or extrajudicial
demand under and subject to the provisions of Article 1169 of the Civil Code.

2. When an obligation, not constituting a loan or forbearance of money, is breached, an


interest on the amount of damages awarded may be imposed at the discretion of the court
at the rate of 6% per annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be established with reasonable
certainty. Accordingly, where the demand is established with reasonable certainty, the
interest shall begin to run from the time the claim is made judicially or extrajudicially
(Art. 1169, Civil Code) but when such certainty cannot be so reasonably established at
the time the demand is made, the interest shall begin to run only from the date the
judgment of the court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for the computation of
legal interest shall, in any case, be on the amount finally adjudged.

3. When the judgment of the court awarding a sum of money becomes final and executory,
the rate of legal interest, whether the case falls under paragraph 1 or paragraph 2, above,
shall be 12% per annum from such finality until its satisfaction, this interim period being
deemed to be by then an equivalent to a forbearance of credit.59 (Emphases supplied)

Because the obligation arose from a contract of sale and purchase of government
securities, and not from a loan or forbearance of money, the applicable interest rate is 6% from
June 10, 1994, when IITC received the demand letter from COEC.60 After the judgment
becomes final and executory, the legal interest rate increases to 12% until the obligation is
satisfied.

In sum, the Court finds that after compensation is effected, IITC still owes COEC
P17,141,347.49 worth of treasury bills, subject to the interest rate of 6% per annum from June
10, 1994, then subsequently to the increased interest rate of 12% from the date of finality of this
decision until full payment.

PDB has an obligation to deliver

58
G.R. No. 97412, July 12, 1994, 234 SCRA 78.
59
Id. at 95-96.
60
Rollo, p. 388.
the treasury bills to IITC

The CA, in absolving PDB from all liability, reasoned that: (1) PDB was not involved in
the transactions for the purchase and sale of treasury bills between IITC and COEC; (2) IITC
failed to allege in its Amended Complaint and prove during the trial that PDB directly and
principally sold to IITC P186,790,000 worth of treasury bills; (3) while PDB undertook, in its
May 4, 1994 letter to deliver to IITC the said treasury bills, the obligation did not ripen because
the bills did not become available to PDB and IITC did not remit any payment to PDB; (4) IITC
did not demand delivery of the treasury bills; (5) IITC merely sued PDB as an alternative
defendant, implying that IITC did not have a principal and direct cause of action against PDB
on the treasury bills; and (6) there was nothing in the records to support the trial courts finding
that PDB owed IITC P186,790,000 worth of treasury bills.61

PDB essentially echoes the reasons set forth by the CA and reiterated that because IITC
did not pay for the treasury bills subject of its (PDB) May 4 undertaking, then IITC had no right
to demand delivery of the said securities from PDB. Moreover, the check payments made by
COEC to PDB were not in payment of the treasury bills purchased by IITC from PDB, but for
COECs other obligations with PDB. The total amount of the checks P182,191,269.26 did not
correspond to the treasury bills worth P186,790,000 which COEC allegedly purchased from
PDB with IITC acting as conduit. PDB also points out that COEC did not interpose a cross-
claim against it precisely because COEC was aware that it had no claim against PDB.62 Also, the
checks clearly indicated that they were made in payment for the account of COEC.63

IITC insists that it alleged in its Amended Complaint (by way of alternative cause of
action) that PDB directly and principally sold to IITC treasury bills worth P186,790,000.00. By
suing PDB as an alternative defendant, IITC did not acknowledge that PDB could not be held
principally liable. On the contrary, by bringing suit against PDB under an alternative cause of
action, IITC set forth a claim against PDB as the principal seller of the treasury bills. In
addition, IITC categorically refuted PDBs allegation that the former did not pay for the treasury
bills purchased from the latter. The judicial admissions of PDB during the course of the trial
and in the Partial Stipulation, that PDB received the proceeds of the managers checks issued by
COEC as payment for COECs purchase of treasury bills from IITC, contradict PDBs defense
that no payment was made by IITC for the said treasury bills. Payment by COEC to PDB, upon
IITCs instructions, should be treated as a payment by a third person with the knowledge of the
debtor, under Article 1236 of the Civil Code. Thus, when PDB accepted COECs checks, it
became duty bound to deliver the treasury bills sold to IITC as the principal buyer.64

Lastly, IITC points out the absurdity of the CA decision in allowing COEC to offset its
liability to IITC against its liability to deliver the treasury bills purchased by COEC. The parties
do not deny that COEC paid for the purchase price of the subject treasury bills by issuing
managers checks in the name of PDB and IITC. As such, unless COECs payment to PDB is
credited as payment by IITC to PDB for the securities purchased by IITC, under that theory that
IITC acted as a principal buyer, there would be no obligation on the part of IITC against which
a set-off can be effected by COEC.65

On this point, the Court agrees with IITC.

First, while it is true that PDB was not involved in the sale of the COEC T-Bills, it is
irrelevant to the issue because it is IITC which interposed a claim, albeit an alternative one,
61
Id. at 269-274.
62
Id. at 2538.
63
Id. at 2534-2538.
64
Id. at 2629-2635.
65
Id. at 2636.
against PDB for having sold to IITC treasury bills worth P186,790,000.00. This was alleged in
IITCs Amended Complaint and was deemed by the RTC to have been successfully proven. 66
The findings of the RTC are supported by the confirmations of sale issued by PDB in favor of
IITC and PDBs letter dated May 4, 1994 undertaking to deliver the treasury bills worth
P186,790,000.00 to IITC.67 The due execution and the veracity of the contents of the aforesaid
documents have been admitted by the parties.68

Second, it is erroneous to say that IITC never made any demand upon PDB. IITCs letter
dated May 18, 1994 addressed to PDB confirms that it demanded delivery by PDB of the
treasury bills covered by the confirmations of sale issued by PDB in its favor. Although the
demand was made on behalf of COEC, which allegedly purchased the treasury bills from PDB,
consistent with IITCs assertion that it only facilitated the sale, it was nevertheless a demand for
delivery. Even if this were to be considered an invalid demand because it was not made by IITC
as the principal party to the transaction with PDB, the filing of the Amended Complaint by IITC
is equivalent to demand, in keeping with the rule that the filing of a complaint constitutes
judicial demand.69

Third, the CA ruling that IITC impliedly did not have a principal cause of action because
it merely sued PDB as an alternative defendant is an extremely flawed and baseless supposition
which runs counter to established law and jurisprudence. The filing of a suit against an
alternative defendant and under an alternative cause of action should not be taken against IITC.
Section 13, Rule 3 and Section 2, Rule 8 of the Rules of Civil Procedure explicitly allows such
filing:

Rule 13, Section 13: Alternative defendants. Where the plaintiff is uncertain against who
of several persons he is entitled to relief, he may join any or all of them as defendants in
the alternative, although a right to relief against one may be inconsistent with a right of
relief against the other. (13a)

Rule 8, Section 2: Alternative causes of action or defenses. A party may set forth two or
more statements of a claim or defense alternatively or hypothetically, either in one
cause of action or defense or in separate causes of action or defenses. When two or
more statements are made in the alternative and one of them if made independently
would be sufficient, the pleading is not made insufficient by the insufficiency of one or
more of the alternative statements.

As discussed earlier, the Court is not granting IITCs primary cause of action against
COEC because IITC acted, not as a mere conduit for the sale of shares by PDB to COEC as
alleged by IITC, but rather as a principal purchaser of securities from PDB and then later as a
principal seller to COEC. By reason of this determination, COEC is allowed to offset its
outstanding obligation to deliver the remaining IITC T-Bills against the latters obligation to
deliver the COEC T-Bills. Consequently, IITCs alternative action against the alternative
defendant PDB should be considered in order for IITC to be able to recover from PDB the
P186,790,000.00 worth of treasury bills which had already been fully paid for.

To ascertain whether IITC was able to adequately state an alternative cause of action
against PDB in its Amended Complaint, the Court refers to Perpetual Savings Bank v. Fajardo70
where the test for determining the existence of a cause of action was extensively discussed:

The familiar test for determining whether a complaint did or did not state a cause of
action against the defendants is whether or not, admitting hypothetically the truth of the

66
Id. at 330 and 458.
67
Id. at 299-300 and 309.
68
Id. at 437-438.
69
Oceaneering Contractors (Phils.), Inc. v. Barretto, G.R. No. 184215, February 9, 2011, 642 SCRA 596, 609.
70
G.R. No. 79760, June 28, 1993, 223 SCRA 720.
allegations of fact made in the complaint, a judge may validly grant the relief demanded in
the complaint. In Rava Development Corporation v. Court of Appeals, the Court
elaborated on this established standard in the following manner:

The rule is that a defendant moving to dismiss a complaint on the ground


of lack of cause of action is regarded as having hypothetically admitted all the
averments thereof. The test of the sufficiency of the facts found in a petition as
constituting a cause of action is whether or not, admitting the facts alleged, the
court can render a valid judgment upon the same in accordance with the prayer
thereof (Consolidated Bank and Trust Corp. v. Court of Appeals, 197 SCRA 663
[1991]).

In determining the existence of a cause of action, only the statements in the


complaint may properly be considered. It is error for the court to take cognizance
of external facts or hold preliminary hearings to determine their existence. If the
allegation in a complaint furnish sufficient basis by which the complaint may be
maintained, the same should not be dismissed regardless of the defenses that
may be assessed by the defendants (supra).

A careful review of the records of this case reveals that the allegations set
forth in the complaint sufficiently establish a cause of action. The following are
the requisites for the existence of a cause of action: (1) a right in favor of the
plaintiff by whatever means and under whatever law it arises or is created; (2) an
obligation on the part of the named defendant to respect, or not to violate such
right; and (3) an act or omission on the part of the said defendants constituting a
violation of the plaintiff's right or a breach of the obligation of the defendant to the
plaintiff (Heirs of Ildefonso Coscolluela, Sr., Inc. v. Rico General Insurance
Corporation, 179 SCRA 511 [1989]).71 (Emphases supplied)

Following the disquisition above, IITCs Amended Complaint, while not a model of
superb draftsmanship in its struggle to maintain IITCs conduit theory, adequately sets forth a
cause of action against PDB. Under its claim against PDB as alternative defendant, IITC alleged
that, even if it acted as a direct buyer from PDB, (1) IITC is entitled to the delivery of the
treasury bills worth P186,790,000.00 covered by the confirmations of sale issued by PDB, (2)
PDB has an obligation to deliver the same to IITC, and (3) PDB failed to deliver the said
securities to IITC.72

It would be the height of injustice to hold IITC accountable for the delivery of the COEC
T-Bills to COEC without similarly holding PDB liable for the release of the treasury bills worth
P186,790,000.00 to IITC, which cannot be accomplished without allowing IITCs alternative
cause of action against PDB to prosper.

The Court now tackles the main argument of PDB for sustaining the ruling of the CA
absolving it from liability that IITC allegedly failed to make the required payment for the
purchase. PDB claims that the managers checks which it received from COEC were payment by
the latter for its other obligations to the former. Conspicuously, PDB failed to elaborate on the
supposed obligations of COEC.

This flimsy allegation is patently untrue. In its Memorandum,73 COEC denied that the
checks were payment for an account which it had with PDB, as PDB so desperately alleges.
COEC clarified that the managers checks payable to PDB were issued by COEC upon the
instructions of IITC in payment for the COEC T-Bills. PDBs theory was negated by COEC
itself as the issuer of the checks. Moreover, PDB already judicially admitted, through the Partial

71
Id. at 728, citing Rava Development Corporation v. Court of Appeals, G.R. No. 96825, July 3, 1992, 211 SCRA 144.
72
Rollo, p. 330.
73
Id. at 2303-2453.
Stipulation, that the checks were given by COEC as payment for the COEC T-Bills. Section 4,
Rule 129 of the Revised Rules of Evidence provides that:

Sec. 4. Judicial admissions. An admission, verbal or written, made by a party in the


course of the proceedings in the same case, does not require proof. The admission may
be contradicted only by showing that it was made through palpable mistake or that no
such admission was made.

As such, PDB cannot now gainsay itself by claiming that the checks were payment by
COEC for certain unidentified obligations to PDB. It is well-settled that judicial admissions
cannot be contradicted by the admitter who is the party himself and binds the person who makes
the same, and absent any showing that this was made thru palpable mistake, no amount of
rationalization can offset it.74

Since it has been sufficiently established that it was IITC which instructed that payment
be made to PDB, it is apparent that the said checks were delivered to PDB in consideration of a
transaction between PDB and IITC. On May 2, 1994, the same date the checks were issued,
IITC purchased treasury bills with a combined face value of P186,790,000.00 from PDB for the
total price of P182,191,269.56. The Court notes that the P182,191,269.26 aggregate amount of
the checks issued by COEC to PDB is almost exactly equal to the total price of the treasury bills
which IITC purchased from PDB.75 The payment by COEC on behalf of IITC can be considered
as payment made by a third-party to the transaction between IITC and PDB which is allowed
under Article 1236 of the Civil Code of the Philippines.76

The Court finds no logical reason either for PDB to execute the May 4, 1994 Letter to
IITC undertaking to deliver treasury bills worth P186,790,000.00 if it had not received the
payment from IITC. Especially so because there is nothing in the letter to indicate that PDB was
still awaiting payment for the said securities. There is no other reasonable conclusion but that
PDB received payment, in the form of three managers checks issued by COEC, for the treasury
bills purchased by IITC, and that having failed to promptly deliver the treasury bills despite
having encashed the checks, PDB then executed the foregoing letter of undertaking.

Also telling is PDBs participation in the Tripartite Agreement with IITC and COEC
where it assigned P50,000,000 worth of Central Bank Bills to IITC, in consideration of which,
IITC relinquished its right to claim delivery under the confirmations of sale issued by PDB to
the extent of P50,000,000. While the agreement stipulated that it was not in any way an
admission of any liability by any one of them against another, the fact that PDB agreed to
execute such an agreement is indicative of the existence of its obligation to IITC. In its Answer
Ad Cautelam filed before the RTC, PDB explained that it gave up P50,000,000 worth of Central
Bank Bills simply to assist COEC and IITC meet their financial difficulties. The Court finds
this allegation highly inconceivable, preposterous and even ludicrous because no company in its
right mind would willingly part with such a huge amount of bank bills for no consideration
whatsoever except for solely altruistic reasons.

Finally, PDBs argument that it had no obligation to deliver the treasury bills purchased
by IITC because the same did not become available to PDB is evidently a frantic last ditch
attempt to evade liability. That the subject securities did not become available to PDB should

74
Landoil Resources Corporation v. Al Rabiah Lighting Company, G.R. No. 174720, September 7, 2011, citing Spouses Binarao v.
Plus Builders, Inc., 524 Phil. 361 (2006).
75
Rollo, pp. 299-302 and 305-308.
76
Art. 1236. The creditor is not bound to accept payment or performance by a third person who has no interest in the fulfilment of the
obligation, unless there is a stipulation to the contrary.
Whoever pays for another may demand from the debtor what he has paid, except that if he paid without the knowledge or
against the will of the debtor, he can recover only insofar as the payment has been beneficial to the debtor.
not be the concern of IITC. For as long as payment was made, PDB was obliged to deliver the
securities subject of its confirmations of sale.

PDBs adroit maneuvering coupled with IITCs poorly conceived conduit theory led the
CA to reach an erroneous conclusion. This Court, however, will not be similarly blinded. There
is simply an incongruity in the CA decision. Accordingly, this Court rules that PDB should be
liable for the delivery of P186,790,000.00 worth of treasury bills to IITC, or payment of the
same, reduced by P50,000,000.00 which the former assigned to the latter under the Tripartite
Agreement. The total liability of PDB is P136,790,000.00, computed as follows:

PDBs Liability

Amount of treasury bills purchased by IITC P186,790,000.00


Amount assigned by PDB to IITC 50,000,000.00

TOTAL P136,790,000.00

This shall be subject to interest at the rate of 6% per annum from the date of the filing of the
Amended Complaint on March 21, 1995, considered as the date of judicial demand, then to
12% per annum from the date of finality of this decision until full payment.

To rule otherwise would be to allow unjust enrichment on the part of PDB to the
detriment of IITC. Article 22 of the Civil Code of the Philippines provides that:
Art. 22. Every person who through an act of performance by another, or any other
means, acquires or comes into possession of something at the expense of the latter
without just or legal ground, shall return the same to him.

In the recent case of Flores v. Spouses Lindo,77 this Court expounded on the subject
matter:
There is unjust enrichment when a person unjustly retains a benefit to the loss of
another, or when a person retains money or property of another against the
fundamental principles of justice, equity and good conscience. The principle of unjust
enrichment requires two conditions: (1) that a person is benefited without a valid basis
or justification, and (2) that such benefit is derived at the expense of another.

The main objective of the principle against unjust enrichment is to prevent one from
enriching himself at the expense of another without just cause or consideration. 78

The Court cannot condone a decision which is manifestly partial. Neither shall the Court
be a party to the perpetration of injustice. As the last bastion of justice, this Court shall always
rule pursuant to the precepts of fairness and equity in order to dispel any doubt in the integrity
and competence of the Judiciary.

WHEREFORE, the petition is PARTIALLY GRANTED. The June 6, 2008 Decision


of the Court of Appeals in C.A.-G.R. CV No. 79320 is SET ASIDE. Accordingly, the June 16,
2003 RTC Decision is REINSTATED though MODIFIED to read as follows:

77
G.R. No. 183984, April 13, 2011, 648 SCRA 772.
78
Id. at 782-783.
FOR THE REASONS GIVEN, judgment is hereby rendered -
a] ordering Planters Development Bank to pay plaintiff 136,790,000.00
with interest at the rate of six (6%) percent per annum from March 21, 1995 until
full payment;
b] ordering Insular and Trust Investment Corporation to pay Capital One
Equities Corporation 17,156,608.00 with legal interest at the rate of six (6%)
percent per annum from June 10, 1994 until full payment; and
c] dismissing the counterclaim of Planters Development Bank.

Any amount not paid upon the finality of this decision shall be subject to
interest at the increased rate of twelve (12%) percent per annum reckoned from
the date of finality of this decision until full payment thereof.

No pronouncement as to costs.

SO ORDERED.

G.R. No. 166704 December 20, 2006

AGRIFINA AQUINTEY, petitioner,


vs.
SPOUSES FELICIDAD AND RICO TIBONG, respondents.

DECISION

CALLEJO, SR., J.:

Before us is a petition for review under Rule 45 of the Revised Rules on Civil Procedure of the Decision1 of the
Court of Appeals in CA-G.R. CV No. 78075, which affirmed with modification the Decision2 of the Regional Trial
Court (RTC), Branch 61, Baguio City, and the Resolution3 of the appellate court denying reconsideration thereof.

The Antecedents

On May 6, 1999, petitioner Agrifina Aquintey filed before the RTC of Baguio City, a complaint for sum of money and
damages against the respondents, spouses Felicidad and Rico Tibong. Agrifina alleged that Felicidad had secured
loans from her on several occasions, at monthly interest rates of 6% to 7%. Despite demands, the spouses Tibong
failed to pay their outstanding loan, amounting to P773,000.00 exclusive of interests. The complaint contained the
following prayer:

WHEREFORE, premises considered, it is most respectfully prayed of this Honorable Court, after due notice
and hearing, to render judgment ordering defendants to pay plaintiff the following:

a). SEVEN HUNDRED SEVENTY-THREE THOUSAND PESOS (P773,000.00) representing the


principal obligation of the defendants with the stipulated interests of six (6%) percent per month from
May 11, 1999 to date and or those that are stipulated on the contracts as mentioned from paragraph
two (2) of the complaint.

b). FIFTEEN PERCENT (15%) of the total accumulated obligations as attorney's fees.

c). Actual expenses representing the filing fee and other charges and expenses to be incurred during
the prosecution of this case.

Further prays for such other relief and remedies just and equitable under the premises.4
Agrifina appended a copy of the Counter-Affidavit executed by Felicidad in I.S. No. 93-334, as well as copies of the
promissory notes and acknowledgment receipts executed by Felicidad covering the loaned amounts.5

In their Answer with Counterclaim,6 spouses Tibong admitted that they had secured loans from Agrifina. The
proceeds of the loan were then re-lent to other borrowers at higher interest rates. They, likewise, alleged that they
had executed deeds of assignment in favor of Agrifina, and that their debtors had executed promissory notes in
Agrifina's favor. According to the spouses Tibong, this resulted in a novation of the original obligation to Agrifina.
They insisted that by virtue of these documents, Agrifina became the new collector of their debtors; and the
obligation to pay the balance of their loans had been extinguished.

The spouses Tibong specifically denied the material averments in paragraphs 2 and 2.1 of the complaint. While they
did not state the total amount of their loans, they declared that they did not receive anything from Agrifina without
any written receipt.7 They prayed for that the complaint be dismissed.

In their Pre-Trial Brief, the spouses Tibong maintained that they have never obtained any loan from Agrifina without
the benefit of a written document.8

On August 17, 2000, the trial court issued a Pre-Trial Order where the following issues of the case were defined:

Whether or not plaintiff is entitled to her claim of P773,000.00;

Whether or not plaintiff is entitled to stipulated interests in the promissory notes; and

Whether or not the parties are entitled to their claim for damages.9

The Case for Petitioner

Agrifina and Felicidad were classmates at the University of Pangasinan. Felicidad's husband, Rico, also happened
to be a distant relative of Agrifina. Upon Felicidad's prodding, Agrifina agreed to lend money to Felicidad. According
to Felicidad, Agrifina would be earning interests higher than those given by the bank for her money. Felicidad told
Agrifina that since she (Felicidad) was engaged in the sale of dry goods at the GP Shopping Arcade, she would use
the money to buy bonnels and thread.10 Thus, Agrifina lent a total sum of P773,000.00 to Felicidad, and each loan
transaction was covered by either a promissory note or an acknowledgment receipt.11Agrifina stated that she had
lost the receipts signed by Felicidad for the following amounts: P100,000.00, P34,000.00 and P2,000.00.12 The
particulars of the transactions are as follows:

Amount Date Obtained Interest Per Due Date


Mo.
P 100,000.00 May 11, 1989 6% August 11, 1989
4,000.00 June 8, 1989 - -
50,000.00 June 13, 1989 6% On demand
60,000.00 Aug. 16, 1989 7% January 1990
205,000.00 Oct. 13, 1989 7% January 1990
128,000.00 Oct. 19, 1989 7% January 1990
2,000.00 Nov. 12, 1989 6% April 28, 1990
10,000.00 June 13, 1990 - -
80,000.00 Jan. 4, 1990 - -
34,000.00 - 6% October 19, 1989
100,000.00 July 14, 1989 5% October 198913

According to Agrifina, Felicidad was able to pay only her loans amounting to P122,600.00.14

In July 1990, Felicidad gave to Agrifina City Trust Bank Check No. 126804 dated August 25, 1990 in the amount
of P50,000.00 as partial payment.15 However, the check was dishonored for having been drawn against insufficient
funds.16 Agrifina then filed a criminal case against Felicidad in the Office of the City Prosecutor. An Information for
violation of Batas Pambansa Bilang 22 was filed against Felicidad, docketed as Criminal Case No. 11181-R. After
trial, the court ordered Felicidad to pay P50,000.00. Felicidad complied and paid the face value of the check.17

In the meantime, Agrifina learned that Felicidad had re-loaned the amounts to other borrowers.18 Agrifina sought the
assistance of Atty. Torres G. A-ayo who advised her to require Felicidad to execute deeds of assignment over
Felicidad's debtors. The lawyer also suggested that Felicidad's debtors execute promissory notes in Agrifina's favor,
to "turn over" their loans from Felicidad. This arrangement would facilitate collection of Felicidad's account. Agrifina
agreed to the proposal.19 Agrifina, Felicidad, and the latter's debtors had a conference20 where Atty. A-ayo explained
that Agrifina could apply her collections as payments of Felicidad's account.21
From August 7, 1990 to October, 1990, Felicidad executed deeds of assignment of credits (obligations)22 duly
notarized by Atty. A-ayo, in which Felicidad transferred and assigned to Agrifina the total amount of P546,459.00
due from her debtors.23 In the said deeds, Felicidad confirmed that her debtors were no longer indebted to her for
their respective loans. For her part, Agrifina conformed to the deeds of assignment relative to the loans of Virginia
Morada and Corazon Dalisay.24 She was furnished copies of the deeds as well as the promissory notes.25

The following debtors of Felicidad executed promissory notes where they obliged themselves to pay directly to
Agrifina:

Debtors Account Date of Instrument Date Payable


Juliet & Tommy Tibong P50,000.00 August 7, 1990 November 4, 1990 and February
4, 1991
Corazon Dalisay 8,000.00 August 7, 1990 No date
Rita Chomacog 4,480.00 August 8, 1990 September 23, 1990
Antoinette Manuel 12,000.00 October 19, 1990 March 30, 1991
Rosemarie Bandas 8,000.00 August 8, 1990 February 3, 1991
Fely Cirilo 63,600.00 September 13, 1990 No date
Virginia Morada 62,379.00 August 9, 1990 February 9, 1991
Carmelita Casuga 59,000.00 August 28, 1990 February 28, 1991
Merlinda Gelacio 17,200.00 August 29, 1990 November 29, 199026
Total P284,659.00

Agrifina narrated that Felicidad showed to her the way to the debtors' houses to enable her to collect from them.
One of the debtors, Helen Cabang, did not execute any promissory note but conformed to the Deed of Assignment
of Credit which Felicidad executed in favor of Agrifina.27 Eliza Abance conformed to the deed of assignment for and
in behalf of her sister, Fely Cirilo.28 Edna Papat-iw was not able to affix her signature on the deed of assignment nor
sign the promissory note because she was in Taipei, Taiwan.29

Following the execution of the deeds of assignment and promissory notes, Agrifina was able to collect the total
amount of P301,000.00 from Felicidad's debtors.30 In April 1990, she tried to collect the balance of Felicidad's
account, but the latter told her to wait until her debtors had money.31 When Felicidad reneged on her promise,
Agrifina filed a complaint in the Office of the Barangay Captain for the collection of P773,000.00. However, no
settlement was arrived at.32

The Case for Respondents

Felicidad testified that she and her friend Agrifina had been engaged in the money-lending business.33 Agrifina
would lend her money with monthly interest,34 and she, in turn, would re-lend the money to borrowers at a higher
interest rate. Their business relationship turned sour when Agrifina started complaining that she (Felicidad) was
actually earning more than Agrifina.35 Before the respective maturity dates of her debtors' loans, Agrifina asked her
to pay her account since Agrifina needed money to buy a house and lot in Manila. However, she told Agrifina that
she could not pay yet, as her debtors' loan payments were not yet due.36 Agrifina then came to her store every
afternoon to collect from her, and persuaded her to go to Atty. Torres G. A-ayo for legal advice.37 The lawyer
suggested that she indorse the accounts of her debtors to Agrifina so that the latter would be the one to collect from
her debtors and she would no longer have any obligation to Agrifina.38 She then executed deeds of assignment in
favor of Agrifina covering the sums of money due from her debtors. She signed the deeds prepared by Atty. A-ayo in
the presence of Agrifina.39 Some of the debtors signed the promissory notes which were likewise prepared by the
lawyer. Thereafter, Agrifina personally collected from Felicidad's debtors.40Felicidad further narrated that she
received P250,000.00 from one of her debtors, Rey Rivera, and remitted the payment to Agrifina.41

Agrifina testified, on rebuttal, that she did not enter into a re-lending business with Felicidad. When she asked
Felicidad to consolidate her loans in one document, the latter told her to seek the assistance of Atty. A-ayo.42 The
lawyer suggested that Felicidad assign her credits in order to help her collect her loans.43 She agreed to the deeds
of assignment to help Felicidad collect from the debtors.44

On January 20, 2003, the trial court rendered its Decision45 in favor of Agrifina. The fallo of the decision reads:

WHEREFORE, judgment is rendered in favor of the plaintiff and against the defendants ordering the latter to
pay the plaintiffs (sic) the following amounts:

1. P472,000 as actual obligation with the stipulated interest of 6% per month from May 11, 1999 until the
said obligation is fully paid. However, the amount of P50,000 shall be deducted from the total accumulated
interest for the same was already paid by the defendant as admitted by the plaintiff in her complaint,

2. P25,000 as attorney's fees,

3. [T]o pay the costs.


SO ORDERED.46

The trial court ruled that Felicidad's obligation had not been novated by the deeds of assignment and the promissory
notes executed by Felicidad's borrowers. It explained that the documents did not contain any express agreement to
novate and extinguish Felicidad's obligation. It declared that the deeds and notes were separate contracts which
could stand alone from the original indebtedness of Felicidad. Considering, however, Agrifina's admission that she
was able to collect from Felicidad's debtors the total amount of P301,000.00, this should be deducted from the
latter's accountability.47 Hence, the balance, exclusive of interests, amounted to P472,000.00.

On appeal, the CA affirmed with modification the decision of the RTC and stated that, based on the promissory
notes and acknowledgment receipts signed by Felicidad, the appellants secured loans from the appellee in the total
principal amount of only P637,000.00, not P773,000.00 as declared by the trial court. The CA found that, other than
Agrifina's bare testimony that she had lost the promissory notes and acknowledgment receipts, she failed to present
competent documentary evidence to substantiate her claim that Felicidad had, likewise, borrowed the amounts
of P100,000.00, P34,000.00, and P2,000.00. Of the P637,000.00 total account, P585,659.00 was covered by the
deeds of assignment and promissory notes; hence, the balance of Felicidad's account amounted to
only P51,341.00. The fallo of the decision reads:

WHEREFORE, in view of the foregoing, the decision dated January 20, 2003 of the RTC, Baguio City,
Branch 61 in Civil Case No. 4370-R is hereby MODIFIED. Defendants-appellants are hereby ordered to pay
the balance of the total indebtedness in the amount of P51,341.00 plus the stipulated interest of 6% per
month from May 11, 1999 until the finality of this decision.

SO ORDERED.48

The appellate court sustained the trial court's ruling that Felicidad's obligation to Agrifina had not been novated by
the deeds of assignment and promissory notes executed in the latter's favor. Although Agrifina was subrogated as a
new creditor in lieu of Felicidad, Felicidad's obligation to Agrifina under the loan transaction remained; there was no
intention on their part to novate the original obligation. Nonetheless, the appellate court held that the legal effects of
the deeds of assignment could not be totally disregarded. The assignments of credits were onerous, hence, had the
effect of payment, pro tanto, of the outstanding obligation. The fact that Agrifina never repudiated or rescinded such
assignments only shows that she had accepted and conformed to it. Consequently, she cannot collect both from
Felicidad and her individual debtors without running afoul to the principle of unjust enrichment. Agrifina's primary
recourse then is against Felicidad's individual debtors on the basis of the deeds of assignment and promissory
notes.

The CA further declared that the deeds of assignment executed by Felicidad had the effect of payment of her
outstanding obligation to Agrifina in the amount of P585,659.00. It ruled that, since an assignment of credit is in the
nature of a sale, the assignors remained liable for the warranties as they are responsible for the existence and
legality of the credit at the time of the assignment.

Both parties moved to have the decision reconsidered,49 but the appellate court denied both motions on December
21, 2004.50

Agrifina, now petitioner, filed the instant petition, contending that

1. The Honorable Court of Appeals erred in ruling that the deeds of assignment in favor of petitioner has the
effect of payment of the original obligation even as it ruled out that the original obligation and the assigned
credit are distinct and separate and can stand independently from each other;

2. The Honorable Court of Appeals erred in passing upon issues raised for the first time on appeal; and

3. The Honorable Court of Appeals erred in resolving fact not in issue.51

Petitioner avers that the appellate court erred in ruling that respondents' original obligation amounted to
only P637,000.00 (instead of P773,000.00) simply because she lost the promissory notes/receipts which evidenced
the loans executed by respondent Felicidad Tibong. She insists that the issue of whether Felicidad owed her less
than P773,000.00 was not raised by respondents during pre-trial and in their appellate brief; the appellate court was
thus proscribed from taking cognizance of the issue.

Petitioner avers that respondents failed to deny, in their verified answer, that they had secured the P773,000.00
loan; hence, respondents are deemed to have admitted the allegation in the complaint that the loans secured by
respondent from her amounted to P773,000.00. As gleaned from the trial court's pre-trial order, the main issue is
whether or not she should be made to pay this amount.

Petitioner further maintains that the CA erred in deducting the total amount of P585,659.00 covered by the deeds of
assignment executed by Felicidad and the promissory notes executed by the latter's debtors, and that the balance
of respondents' account was only P51,341.00. Moreover, the appellate court's ruling that there was no novation runs
counter to its holding that the primary recourse was against Felicidad's debtors. Petitioner avers that of the 11 deeds
of assignment and promissory notes, only two bore her signature.52 She insists that she is not bound by the deeds
which she did not sign. By assigning the obligation to pay petitioner their loan accounts, Felicidad's debtors merely
assumed the latter's obligation and became co-debtors to petitioner. Respondents were not released from their
obligation under their loan transactions, and she had the option to demand payment from them or their debtors.
Citing the ruling of this Court in Magdalena Estates, Inc. v. Rodriguez,53 petitioner insists that the first debtor is not
released from responsibility upon reaching an agreement with the creditor. The payment by a third person of the first
debtor's obligation does not constitute novation, and the creditor can still enforce the obligation against the original
debtor. Petitioner also cites the ruling of this Court in Guerrero v. Court of Appeals.54

In their Comment on the petition, respondents aver that by virtue of respondent Felicidad's execution of the deeds of
assignment, and the original debtors' execution of the promissory notes (along with their conformity to the deeds of
assignment with petitioner's consent), their loan accounts with petitioner amounting to P585,659.00 had been
effectively extinguished. Respondents point out that this is in accordance with Article 1291, paragraph 2, of the Civil
Code. Thus, the original debtors of respondents had been substituted as petitioner's new debtors.

Respondents counter that petitioner had been subrogated to their right to collect the loan accounts of their debtors.
In fact, petitioner, as the new creditor of respondents' former debtors had been able to collect the latter's loan
accounts which amounted to P301,000.00. The sums received by respondents' debtors were the same loans which
they obliged to pay to petitioner under the promissory notes executed in petitioner's favor.

Respondents aver that their obligation to petitioner cannot stand or exist separately from the original debtors'
obligation to petitioner as the new creditor. If allowed to collect from them as well as from their original debtors,
petitioner would be enriching herself at the expense of respondents. Thus, despite the fact that petitioner had
collected P172,600.00 from respondents and P301,000.00 from the original debtors, petitioner still sought to
collect P773,000.00 from them in the RTC. Under the deeds of assignment executed by Felicidad and the original
debtors' promissory notes, the original debtors' accounts were assigned to petitioner who would be the new creditor.
In fine, respondents are no longer liable to petitioner for the balance of their loan account inclusive of interests.
Respondents also insist that petitioner failed to prove that she (petitioner) was merely authorized to collect the
accounts of the original debtors so as to to facilitate the payment of respondents' loan obligation.

The Issues

The threshold issues are: (1) whether respondent Felicidad Tibong borrowed P773,000.00 from petitioner; and (2)
whether the obligation of respondents to pay the balance of their loans, including interest, was partially extinguished
by the execution of the deeds of assignment in favor of petitioner, relative to the loans of Edna Papat-iw, Helen
Cabang, Antoinette Manuel, and Fely Cirilo in the total amount of P371,000.00.

The Ruling of the Court

We have carefully reviewed the brief of respondents as appellants in the CA, and find that, indeed, they had raised
the issue of whether they received P773,000.00 by way of loans from petitioner. They averred that, as gleaned from
the documentary evidence of petitioner in the RTC, the total amount they borrowed was only P673,000.00. They
asserted that petitioner failed to adduce concrete evidence that they received P773,000.00 from her.55

We agree, however, with petitioner that the appellate court erred in reversing the finding of the RTC simply because
petitioner failed to present any document or receipt signed by Felicidad.

Section 10, Rule 8 of the Rules of Civil Procedure requires a defendant to "specify each material allegation of fact
the truth of which he does not admit and, whenever practicable, x x x set forth the substance of the matters upon
which he relies to support his denial.56

Section 11, Rule 8 of the same Rules provides that allegations of the complaint not specifically denied are deemed
admitted.57

The purpose of requiring the defendant to make a specific denial is to make him disclose the matters alleged in the
complaint which he succinctly intends to disprove at the trial, together with the matter which he relied upon to
support the denial. The parties are compelled to lay their cards on the table.58

A denial is not made specific simply because it is so qualified by the defendant. A general denial does not become
specific by the use of the word "specifically." When matters of whether the defendant alleges having no knowledge
or information sufficient to form a belief are plainly and necessarily within the defendant's knowledge, an alleged
"ignorance or lack of information" will not be considered as a specific denial. Section 11, Rule 8 of the Rules also
provides that material averments in the complaint other than those as to the amount of unliquidated damages shall
be deemed admitted when not specifically denied.59 Thus, the answer should be so definite and certain in its
allegations that the pleader's adversary should not be left in doubt as to what is admitted, what is denied, and what
is covered by denials of knowledge as sufficient to form a belief.60

In the present case, petitioner alleged the following in her complaint:


2. That defendants are indebted to the plaintiff in the principal amount of SEVEN HUNDRED SEVENTY-
THREE THOUSAND PESOS (P773,000.00) Philippine Currency with a stipulated interest which are broken
down as follows. The said principal amounts was admitted by the defendants in their counter-affidavit
submitted before the court. Such affidavit is hereby attached as Annex "A;"61

xxxx

H) The sum of THIRTY FOUR THOUSAND PESOS (P34,000.00) with interest at six (6%) per cent per
month and payable on October 19, 1989, however[,] the receipt for the meantime cannot be recovered as it
was misplaced by the plaintiff but the letter of defendant FELICIDAD TIBONG is hereby attached as Annex
"H" for the appreciation of the Honorable court;

I) The sum of ONE HUNDRED THOUSAND PESOS (P100,000.00) with interest at five (5%) percent per
month, obtained on July 14, 1989 and payable on October 14, 1989. Such receipt was lost but admitted by
the defendants in their counter-affidavit as attached [to] this complaint and marked as Annex "A" mentioned
in paragraph one (1); x x x62

In their Answer, respondents admitted that they had secured loans from petitioner. While the allegations in
paragraph 2 of the complaint were specifically denied, respondents merely averred that petitioner and respondent
Felicidad entered into an agreement for the lending of money to interested borrowers at a higher interest rate.
Respondents failed to declare the exact amount of the loans they had secured from petitioner. They also failed to
deny the allegation in paragraph 2 of the complaint that respondent Felicidad signed and submitted a counter-
affidavit in I.S. No. 93-334 where she admitted having secured loans from petitioner in the amount of P773,000.00.
Respondents, likewise, failed to deny the allegation in paragraph 2(h) of the complaint that respondents had
secured a P34,000.00 loan payable on October 19, 1989, evidenced by a receipt which petitioner had misplaced.
Although respondents specifically denied in paragraph 2.11 of their Answer the allegations in paragraph 2(I) of the
complaint, they merely alleged that "they have not received sums of money from the plaintiff without any receipt
therefor."

Respondents, likewise, failed to specifically deny another allegation in the complaint that they had secured
a P100,000.00 loan from petitioner on July 14, 1989; that the loan was payable on October 14, 1989; and evidenced
by a receipt which petitioner claimed to have lost. Neither did respondents deny the allegation that respondents
admitted their loan of P100,000.00 in the counter-affidavit of respondent Felicidad, which was appended to the
complaint as Annex "A." In fine, respondents had admitted the existence of their P773,000.00 loan from petitioner.

We agree with the finding of the CA that petitioner had no right to collect from respondents the total amount
of P301,000.00, which includes more than P178,980.00 which respondent Felicidad collected from Tibong, Dalisay,
Morada, Chomacog, Cabang, Casuga, Gelacio, and Manuel. Petitioner cannot again collect the same amount from
respondents; otherwise, she would be enriching herself at their expense. Neither can petitioner collect from
respondents more than P103,500.00 which she had already collected from Nimo, Cantas, Rivera, Donguis,
Fernandez and Ramirez.

There is no longer a need for the Court to still resolve the issue of whether respondents' obligation to pay the
balance of their loan account to petitioner was partially extinguished by the promissory notes executed by Juliet
Tibong, Corazon Dalisay, Rita Chomacog, Carmelita Casuga, Merlinda Gelacio and Antoinette Manuel because, as
admitted by petitioner, she was able to collect the amounts under the notes from said debtors and applied them to
respondents' accounts.

Under Article 1231(b) of the New Civil Code, novation is enumerated as one of the ways by which obligations are
extinguished. Obligations may be modified by changing their object or principal creditor or by substituting the person
of the debtor.63 The burden to prove the defense that an obligation has been extinguished by novation falls on the
debtor.64 The nature of novation was extensively explained in Iloilo Traders Finance, Inc. v. Heirs of Sps. Oscar
Soriano, Jr.,65 as follows:

Novation may either be extinctive or modificatory, much being dependent on the nature of the change and
the intention of the parties. Extinctive novation is never presumed; there must be an express intention to
novate; in cases where it is implied, the acts of the parties must clearly demonstrate their intent to dissolve
the old obligation as the moving consideration for the emergence of the new one. Implied novation
necessitates that the incompatibility between the old and new obligation be total on every point such that the
old obligation is completely superseded by the new one. The test of incompatibility is whether they can stand
together, each one having an independent existence; if they cannot and are irreconciliable, the subsequent
obligation would also extinguish the first.

An extinctive novation would thus have the twin effects of, first, extinguishing an existing obligation and,
second, creating a new one in its stead. This kind of novation presupposes a confluence of four essential
requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3)
the extinguishment of the old obligation; and (4) the birth of a valid new obligation. Novation is merely
modificatory where the change brought about by any subsequent agreement is merely incidental to the main
obligation (e.g., a change in interest rates or an extension of time to pay); in this instance, the new
agreement will not have the effect of extinguishing the first but would merely supplement it or supplant some
but not all of its provisions.66 (Citations Omitted)

Novation which consists in substituting a new debtor (delegado) in the place of the original one (delegante) may be
made even without the knowledge or against the will of the latter but not without the consent of the creditor.
Substitution of the person of the debtor may be effected by delegacion, meaning, the debtor offers, and the creditor
(delegatario), accepts a third person who consents to the substitution and assumes the obligation. Thus, the
consent of those three persons is necessary.67 In this kind of novation, it is not enough to extend the juridical relation
to a third person; it is necessary that the old debtor be released from the obligation, and the third person or new
debtor take his place in the relation.68 Without such release, there is no novation; the third person who has assumed
the obligation of the debtor merely becomes a co-debtor or a surety. If there is no agreement as to solidarity, the first
and the new debtor are considered obligated jointly.69

In Di Franco v. Steinbaum,70 the appellate court ruled that as to the consideration necessary to support a contract of
novation, the rule is the same as in other contracts. The consideration need not be pecuniary or even beneficial to
the person promising. It is sufficient if it be a loss of an inconvenience, such as the relinquishment of a right or the
discharge of a debt, the postponement of a remedy, the discontinuance of a suit, or forbearance to sue.

In City National Bank of Huron, S.D. v. Fuller,71 the Circuit Court of Appeals ruled that the theory of novation is
that the new debtor contracts with the old debtor that he will pay the debt, and also to the same effect with
the creditor, while the latter agrees to accept the new debtor for the old. A novation is not made by showing
that the substituted debtor agreed to pay the debt; it must appear that he agreed with the creditor to do
so. Moreover, the agreement must be based on the consideration of the creditor's agreement to look to the
new debtor instead of the old. It is not essential that acceptance of the terms of the novation and release of the
debtor be shown by express agreement. Facts and circumstances surrounding the transaction and the subsequent
conduct of the parties may show acceptance as clearly as an express agreement, albeit implied.72

We find in this case that the CA correctly found that respondents' obligation to pay the balance of their account with
petitioner was extinguished, pro tanto, by the deeds of assignment of credit executed by respondent Felicidad in
favor of petitioner.

An assignment of credit is an agreement by virtue of which the owner of a credit, known as the assignor, by a legal
cause, such as sale, dation in payment, exchange or donation, and without the consent of the debtor, transfers his
credit and accessory rights to another, known as the assignee, who acquires the power to enforce it to the same
extent as the assignor could enforce it against the debtor.73 It may be in the form of sale, but at times it may
constitute a dation in payment, such as when a debtor, in order to obtain a release from his debt, assigns to his
creditor a credit he has against a third person.74

In Vda. de Jayme v. Court of Appeals,75 the Court held that dacion en pago is the delivery and transmission of
ownership of a thing by the debtor to the creditor as an accepted equivalent of the performance of the obligation. It
is a special mode of payment where the debtor offers another thing to the creditor who accepts it as equivalent of
payment of an outstanding debt. The undertaking really partakes in one sense of the nature of sale, that is, the
creditor is really buying the thing or property of the debtor, payment for which is to be charged against the debtor's
obligation. As such, the essential elements of a contract of sale, namely, consent, object certain, and cause or
consideration must be present. In its modern concept, what actually takes place in dacion en pago is an objective
novation of the obligation where the thing offered as an accepted equivalent of the performance of an obligation is
considered as the object of the contract of sale, while the debt is considered as the purchase price. In any case,
common consent is an essential prerequisite, be it sale or novation, to have the effect of totally extinguishing the
debt or obligation.76

The requisites for dacion en pago are: (1) there must be a performance of the prestation in lieu of payment (animo
solvendi) which may consist in the delivery of a corporeal thing or a real right or a credit against the third person; (2)
there must be some difference between the prestation due and that which is given in substitution (aliud pro alio);
and (3) there must be an agreement between the creditor and debtor that the obligation is immediately extinguished
by reason of the performance of a prestation different from that due.77

All the requisites for a valid dation in payment are present in this case. As gleaned from the deeds, respondent
Felicidad assigned to petitioner her credits "to make good" the balance of her obligation. Felicidad testified that she
executed the deeds to enable her to make partial payments of her account, since she could not comply with
petitioner's frenetic demands to pay the account in cash. Petitioner and respondent Felicidad agreed to relieve the
latter of her obligation to pay the balance of her account, and for petitioner to collect the same from respondent's
debtors.

Admittedly, some of respondents' debtors, like Edna Papat-iw, were not able to affix their conformity to the deeds. In
an assignment of credit, however, the consent of the debtor is not essential for its perfection; the knowledge thereof
or lack of it affecting only the efficaciousness or inefficaciousness of any payment that might have been made. The
assignment binds the debtor upon acquiring knowledge of the assignment but he is entitled, even then, to raise
against the assignee the same defenses he could set up against the assignor78 necessary in order that assignment
may fully produce legal effects. Thus, the duty to pay does not depend on the consent of the debtor. The purpose of
the notice is only to inform that debtor from the date of the assignment. Payment should be made to the assignee
and not to the original creditor.

The transfer of rights takes place upon perfection of the contract, and ownership of the right, including all
appurtenant accessory rights, is acquired by the assignee79 who steps into the shoes of the original creditor as
subrogee of the latter80 from that amount, the ownership of the right is acquired by the assignee. The law does not
require any formal notice to bind the debtor to the assignee, all that the law requires is knowledge of the
assignment. Even if the debtor had not been notified, but came to know of the assignment by whatever means, the
debtor is bound by it. If the document of assignment is public, it is evidence even against a third person of the facts
which gave rise to its execution and of the date of the latter. The transfer of the credit must therefore be held valid
and effective from the moment it is made to appear in such instrument, and third persons must recognize it as such,
in view of the authenticity of the document, which precludes all suspicion of fraud with respect to the date of the
transfer or assignment of the credit.81

As gleaned from the deeds executed by respondent Felicidad relative to the accounts of her other debtors, petitioner
was authorized to collect the amounts of P6,000.00 from Cabang, and P63,600.00 from Cirilo. They obliged
themselves to pay petitioner. Respondent Felicidad, likewise, unequivocably declared that Cabang and Cirilo no
longer had any obligation to her.

Equally significant is the fact that, since 1990, when respondent Felicidad executed the deeds, petitioner no longer
attempted to collect from respondents the balance of their accounts. It was only in 1999, or after nine (9) years had
elapsed that petitioner attempted to collect from respondents. In the meantime, petitioner had collected from
respondents' debtors the amount of P301,000.00.

While it is true that respondent Felicidad likewise authorized petitioner in the deeds to collect the debtors' accounts,
and for the latter to pay the same directly, it cannot thereby be considered that respondent merely authorized
petitioner to collect the accounts of respondents' debtors and for her to apply her collections in partial payments of
their accounts. It bears stressing that petitioner, as assignee, acquired all the rights and remedies passed by
Felicidad, as assignee, at the time of the assignment.82 Such rights and remedies include the right to collect her
debtors' obligations to her.

Petitioner cannot find solace in the Court's ruling in Magdalena Estates. In that case, the Court ruled that the mere
fact that novation does not follow as a matter of course when the creditor receives a guaranty or accepts payments
from a third person who has agreed to assume the obligation when there is no agreement that the first debtor would
be released from responsibility. Thus, the creditor can still enforce the obligation against the original debtor.

In the present case, petitioner and respondent Felicidad agreed that the amounts due from respondents' debtors
were intended to "make good in part" the account of respondents. Case law is that, an assignment will, ordinarily, be
interpreted or construed in accordance with the rules of construction governing contracts generally, the primary
object being always to ascertain and carry out the intention of the parties. This intention is to be derived from a
consideration of the whole instrument, all parts of which should be given effect, and is to be sought in the words and
language employed.83

Indeed, the Court must not go beyond the rational scope of the words used in construing an assignment, words
should be construed according to their ordinary meaning, unless something in the assignment indicates that they
are being used in a special sense. So, if the words are free from ambiguity and expressed plainly the purpose of the
instrument, there is no occasion for interpretation; but where necessary, words must be interpreted in the light of the
particular subject matter.84 And surrounding circumstances may be considered in order to understand more perfectly
the intention of the parties. Thus, the object to be accomplished through the assignment, and the relations and
conduct of the parties may be considered in construing the document.

Although it has been said that an ambiguous or uncertain assignment should be construed most strictly against the
assignor, the general rule is that any ambiguity or uncertainty in the meaning of an assignment will be resolved
against the party who prepared it; hence, if the assignment was prepared by the assignee, it will be construed most
strictly against him or her.85 One who chooses the words by which a right is given ought to be held to the strict
interpretation of them, rather than the other who only accepts them.86

Considering all the foregoing, we find that respondents still have a balance on their account to petitioner in the
principal amount of P33,841.00, the difference between their loan of P773,000.00 less P585,659.00, the payment of
respondents' other debtors amounting to P103,500.00, and the P50,000.00 payment made by respondents.

IN LIGHT OF ALL THE FOREGOING, the petition is DENIED. The Decision and Resolution of the Court of Appeals
are AFFIRMED with MODIFICATION in that the balance of the principal account of the respondents to the petitioner
is P33,841.00. No costs.

SO ORDERED.
ROMEO D. MARIANO, G.R. No. 169438
Petitioner,
Present:
CARPIO, J., Chairperson,
BRION,
PERALTA,*
- versus - DEL CASTILLO, and
PEREZ, JJ.

PETRON CORPORATION, Promulgated:


Respondent. January 21, 2010
x --------------------------------------------------------------------------------------- x

DECISION

CARPIO, J.:

The Case

For review[1] is the Decision[2] of the Court of Appeals upholding the lease contract between
petitioner Romeo D. Mariano and respondent Petron Corporation.

The Facts

On 5 November 1968,[3] Pacita V. Aure, Nicomedes Aure Bundac, and Zeny Abundo (Aure
Group), owners of a 2,064 square meter parcel of land in Tagaytay City[4] (Property), leased the
Property to ESSO Standard Eastern, Inc., (ESSO Eastern), a foreign corporation doing business
in the country through its subsidiary ESSO Standard Philippines, Inc. (ESSO Philippines). The
lease period is 90 years[5] and the rent is payable monthly for the first 10 years, and annually for
the remaining period.[6] The lease contract (Contract) contained an assignment veto clause
barring the parties from assigning the lease without prior consent of the other.[7] Excluded from
the prohibition were certain corporations to whom ESSO Eastern may unilaterally assign its
leasehold right.[8]

On 23 December 1977, ESSO Eastern sold ESSO Philippines to the Philippine National Oil
Corporation (PNOC).[9] Apparently, the Aure Group was not informed of the sale. ESSO
Philippines, whose corporate name was successively changed to Petrophil Corporation then to
Petron Corporation (Petron), took possession of the Property.

On 18 November 1993, petitioner Romeo D. Mariano (petitioner) bought the Property from the
Aure Group and obtained title to the Property issued in his name bearing an annotation of ESSO
Easterns lease.[10]
On 17 December 1998, petitioner sent to Petron a notice to vacate the Property. Petitioner
informed Petron that Presidential Decree No. 471 (PD 471),[11]DATED 24 May 1974, reduced
the Contracts duration from 90 to 25 years, ending on 13 November 1993. [12] Despite receiving
the notice to vacate on 21 December 1998, Petron remained on the Property.

On 18 March 1999, petitioner sued Petron in the Regional Trial Court of Tagaytay City, Branch
18, (trial court) to rescind the Contract and recover possession of the Property. Aside from
invoking PD 471, petitioner alternatively theorized that the Contract was terminated on 23
December 1977 when ESSO Eastern sold ESSO Philippines to PNOC, thus assigning to PNOC
its lease on the Property, without seeking the Aure Groups prior consent.
In its Answer, Petron countered that the Contract was not breached because PNOC merely
acquired ESSO Easterns shares in ESSO Philippines, a separate corporate entity. Alternatively,
Petron argued that petitioners suit, filed on 18 March 1999, was barred by prescription under
Article 1389 and Article 1146(1) of the Civil Code as petitioner should have sought rescission
within four years from PNOCs purchase of ESSO Philippines on 23 December 1977 [13] or
before 23 December 1981.[14]

To dispense with the presentation of evidence, the parties submitted a Joint Motion for
Judgment (Joint Motion) containing the following stipulation:

5. On December 23, 1977, the Philippine National Oil Co. (PNOC), a corporation
wholly owned by the Philippine Government, acquired ownership of ESSO Standard
Philippines, Inc., including its leasehold right over the land in question, through
the acquisition of its shares of stocks.[15] (Emphasis supplied)

The Ruling of the Trial Court

In its Decision dated 30 May 2000, the trial court ruled for petitioner, rescinded the Contract,
ordered Petron to vacate the Property, and cancelled the annotation on petitioners title of
Petrons lease.[16] The trial court ruled that ESSO Easterns sale to PNOC of its interest in ESSO
Philippines included the assignment to PNOC of ESSO Easterns lease over the Property, which,
for lack of the Aure Groups consent, breached the Contract, resulting in its termination.
However, because the Aure Group (and later petitioner) tolerated ESSO Philippines continued
use of the Property by receiving rental payments, the law on implied new lease governs the
relationship of the Aure Group (and later petitioner) and Petron, creating for them an implied
new lease terminating on 21 December 1998 upon Petrons receipt of petitioners notice to
vacate.[17]

Petron appealed to the Court of Appeals, distancing itself from its admission in the Joint Motion
that in buying ESSO Philippines from ESSO Eastern, PNOC also acquired ESSO Easterns
leasehold right over the Property. Petron again invoked its separate corporate personality to
distinguish itself from PNOC.

The Ruling of the Court of Appeals

In its Decision dated 29 October 2004, the Court of Appeals found merit in Petrons appeal, set
aside the trial courts ruling, declared the Contract subsisting until 13 November 2058[18] and
ordered petitioner to pay Petron P300,000 as attorneys fees. The Court of Appeals found no
reason to pierce ESSO Philippines corporate veil, treating PNOCs buy-out of ESSO Philippines
as mere change in ESSO Philippines stockholding. Hence, the Court of Appeals rejected the
trial courts conclusion that PNOC acquired the leasehold right over the Property. Alternatively,
the Court of Appeals found petitioners suit barred by the four-year prescriptive period under
Article 1389 and Article 1146 (1) of the Civil Code, reckoned from PNOCs buy-out of ESSO
Philippines on 23 December 1977 (for Article 1389) or the execution of the Contract on 13
November 1968[19] (for Article 1146 [1]).[20]

Petitioner sought reconsideration but the Court of Appeals denied his motion in its Resolution
of 26 August 2005.

Hence, this petition.


The Issue

The question is whether the Contract subsists between petitioner and Petron.

The Ruling of the Court

We hold in the affirmative and thus sustain the ruling of the Court of Appeals.

ESSO Eastern Assigned to PNOC its


Leasehold Right over the Property, Breaching the Contract

PNOCs buy-out of ESSO Philippines was total and unconditional, leaving no residual rights to
ESSO Eastern. Logically, this change of ownership carried with it the transfer to PNOC of any
proprietary interest ESSO Eastern may hold through ESSO Philippines, including ESSO
Easterns lease over the Property. This is the import of Petrons admission in the Joint Motion
that by PNOCs buy-out of ESSO Philippines [PNOC], x x x acquired ownership of ESSO
Standard Philippines, Inc., including its leasehold right over the land in question, through
the acquisition of its shares of stocks. As the Aure Group gave no prior consent to the
transaction between ESSO Eastern and PNOC, ESSO Eastern violated the Contracts assignment
veto clause.

Petrons objection to this conclusion, sustained by the Court of Appeals, is rooted on its reliance
on its separate corporate personality and on the unstated assumption that ESSO Philippines (not
ESSO Eastern) initially held the leasehold right over the Property. Petron is wrong on both
counts.

Courts are loathe to pierce the fictive veil of corporate personality, cognizant of the core
doctrine in corporation law vesting on corporations legal personality distinct from their
shareholders (individual or corporate) thus facilitating the conduct of corporate business.
However, fiction gives way to reality when the corporate personality is foisted to justify wrong,
protect fraud, or defend crime, thwarting the ends of justice.[21] The fiction even holds lesser
sway for subsidiary corporations whose shares are wholly if not almost wholly owned by its
parent company. The structural and systems overlap inherent in parent and subsidiary relations
often render the subsidiary as mere local branch, agency or adjunct of the foreign parent
corporation.[22]

Here, the facts compel the conclusion that ESSO Philippines was a mere branch of ESSO
Eastern in the execution and breach of the Contract. First, by ESSO Easterns admission in the
Contract, it is a foreign corporation organized under the laws of the State of Delaware, U.S.A.,
duly licensed to transact business in the Philippines, and doing business therein under the
business name and style of Esso Standard Philippines x x x. In effect, ESSO
Eastern was ESSO Philippines for all of ESSO Easterns Philippine business.
Second, the Contract was executed by ESSO Eastern, not ESSO Philippines, as lessee,
with the Aure Group as lessor. ESSO Eastern leased the Property for the use of ESSO
Philippines, acting as ESSO Easterns Philippine branch. Consistent with such status, ESSO
Philippines took possession of the Property after the execution of the Contract. Thus, for
purposes of the Contract, ESSO Philippines was a mere alter ego of ESSO Eastern.
The Lessors Continued Acceptance of Lease Payments
Despite Breach of Contract Amounted to Waiver

The breach of contract notwithstanding, we hold that the Contract subsists. Contrary to the trial
courts conclusion that ESSO Easterns violation of the assignment veto clause extinguished the
Contract, replaced by a new implied lease with a monthly term, [23] we hold that the breach
merely gave rise to a cause of action for the Aure Group to seek the lessees ejectment as
provided under Article 1673, paragraph 3 of the Civil Code.[24] Although the records do not
show that the Aure Group was formally notified of ESSO Philippines sale to PNOC, the
successive changes in the lessees name (from ESSO Philippines to Petrophil Corporation then
to Petron) suffice to alert the Aure Group of a likely change in the personality of the lessee,
which, for lack of the Aure Groups prior consent, was in obvious breach of the Contract. Thus,
the continued receipt of lease payments by the Aure Group (and later by petitioner) despite the
contractual breach amounted to a waiver of their option to eject the lessee.

Petitioners Suit Barred by Prescription

Petitioners waiver of Petrons contractual breach was compounded by his long inaction to seek
judicial redress. Petitioner filed his complaint nearly 22 years after PNOC acquired the
leasehold rights to the Property and almost six years after petitioner bought the Property from
the Aure Group. The more than two decades lapse puts this case well within the territory of the
10 year prescriptive bar to suits based upon a written contract under Article 1144 (1) of the
Civil Code.[25]

WHEREFORE, we DENY the petition. The DecisionDATED 29 October 2004 and the
Resolution dated 26 August 2005 of the Court of Appeals are AFFIRMED.

SO ORDERED.

[G.R. No. 133345. March 9, 2000]

JOSEFA CH. MAESTRADO, as substituted by her daughter LOURDES


MAESTRADO-LAVIA and CARMEN CH. ABAYA, petitioners, vs. THE HONORABLE
COURT OF APPEALS, Ninth Division and JESUS C. ROA, JR., RAMON P. CHAVES
and NATIVIDAD S. SANTOS, respondents. xl-aw

[G.R. No. 133324. March 9, 2000]

JOSEFA CHAVEZ MAESTRADO and CARMEN CHAVES ABAYA, petitioners,


vs. JESUS C. ROA, JR., RAMON P. CHAVES and NATIVIDAD S.
SANTOS, respondents. x-sc

DECISION

DE LEON, JR., J.:


Before us are two (2) consolidated petitions for review on certiorari of the Decision of the
[1]

Court of Appeals DATED November 28, 1997 declaring Lot No. 5872, located in
[2]

Kauswagan, Cagayan de Oro City, as common property of the heirs of the deceased
spouses, Ramon and Rosario Chaves, and ordering its equal division among all the co-
owners. The Court of Appeals affirmed the Decision of the Regional Trial Court, Branch 23
of Cagayan de Oro City, which dismissed petitioners action against the private
respondents for Quieting of Title over the said lot.

The pertinent facts are the following: Sc

These consolidated cases involve the status of Lot No. 5872 and the rights of the
contending parties thereto. The said lot which has an area of 57.601 square meters,
however, is still registered in the name of the deceased spouses Ramon and Rosario
Chaves. The spouses Ramon and Rosario died intestate in 1943 and 1944, respectively.
They were survived by the following heirs, namely: Carmen Chaves-Abaya, Josefa
Chaves-Maestrado, Angel Chaves, Amparo Chaves-Roa, Concepcion Chaves-
Sanvictores and Salvador Chaves.

To settle the estate of the said deceased spouses, Angel Chaves initiated intestate
proceedings in the Court of First Instance of Manila and was appointed administrator of
[3]

said estates in the process. An inventory of the estates was made and thereafter, the heirs
agreed on a project of partition. Thus, they filed an action for partition before the Court of
[4]

First Instance of Misamis Oriental. The court appointed Hernando Roa, husband of
Amparo Chaves-Roa, as receiver. On June 6, 1956, the court rendered a decision
approving the project of partition. However, the records of said case are missing and
although respondents claimed otherwise, they failed to present a copy of said decision.

This notwithstanding, the estate was actually divided in this wise: (1) Lot No. 3046
situated in Bulalong, Cagayan de Oro City, consisting of 44 hectares of coconut land was
distributed equally among four (4) heirs, namely: (a) Concepcion Chaves-Sanvictores; (b)
Angel Chaves; (c) Amparo Chaves-Roa; and (d) Ramon Chaves, while (2) Lot Nos. 5925,
5934, 1327 and 5872, all located in Kauswagan, Cagayan de Oro City and consisting of
an aggregate area of 14 hectares was distributed equally between petitioners (a) Josefa
Chaves-Maestrado; and (b) Carmen Chaves-Abaya. Scmis

At the time of the actual partition, Salvador Chaves had already died. His share was given
to his only son, Ramon, who is the namesake of Salvadors father. In 1956, the year the
partition case was decided and effected, receiver Hernando Roa delivered the respective
shares of said heirs in accordance with the above scheme. Subsequently, Concepcion
sold her share to Angel, while Ramon sold his share to Amparo. Hence, one-half (1/2) of
Lot No. 3046 went to Angel and the other half to Amparo.

Significantly, Lot No. 5872 was not included in any of the following documents: (1) the
inventory of properties of the estate submitted to the court in the proceedings for the
settlement of said estate; (2) the project of partition submitted to the court for approval; (3)
the properties receiver Hernando Roa had taken possession of, which he listed in the
"Constancia" submitted to the court; and (4) the court order approving the partition.
Decedent Ramon Chaves acquired Lot No. 5872 from Felomino Bautista, Sr. but he
subsequently delivered it to the spouses Hernando Roa and Amparo Chaves-Roa . It was [5]

thereafter delivered to petitioners during the actual partition in 1956, and petitioners have
been in possession of the same since then. Missc

As to the omission of Lot No. 5872 in the inventory and project of partition, the parties
offer different explanations. Respondents claim that due to the series of transactions
involving the said lot, the heirs were unsure if it belonged to the decedents estate at all. As
a result, they deferred its inclusion in the inventory of the properties of the estate and its
distribution pending the investigation of its status. In fact, administrator Angel Chaves filed
a motion in the proceedings for the settlement of the estate to include the said lot in the
inventory but the court did not act on it. Petitioners, on the other hand, insist that the
omission was inadvertent and the inaction of the court on the motion was due to the
compromise agreement entered into by the heirs . [6]

Petitioners thesis consists of the existence of an oral partition agreement entered into by
all heirs soon after the death of their parents. The proposed project of partition was
allegedly based on it but the courts order of partition failed to embody such oral
agreement due to the omission of Lot No. 5872. For some reason, however, the actual
partition of the estate conformed to the alleged oral agreement.

Petitioners claim that they failed to notice the non-inclusion of Lot No. 5872 in the courts
order. They only realized such fact after the death in 1976 of Silvino Maestrado, the
husband of petitioner Josefa. They discovered among Silvinos belongings, the partition
order and found out that Lot No. 5872 was not included therein. [7]

In an effort to set things right, petitioners prepared a quitclaim to confirm the alleged oral
agreement. On August 16, 1977, Angel, Concepcion and Ramon signed a notarized
quitclaim in favor of petitioners. Amparo was unable to sign because she had an accident
and had passed away on the following day. It was her heirs who signed a similarly worded
and notarized quitclaim on September 8, 1977. Misspped
[8]

Respondents dispute the voluntariness of their consent or the consent of their


predecessors-in-interest to the quitclaims. Ramon claims to have been betrayed by his
lawyer, Francisco Velez, who is the son-in-law of petitioner Josefa Maestrado. He
allegedly signed the quitclaim without reading it because his lawyer had already read it.
He believed that since his lawyer was protecting his interests, it was all right to sign it after
hearing no objections from said lawyer. On the other hand, Angel signed the quitclaim "out
of respect" for petitioners. On the other hand, Concepcion signed because she was misled
by alleged misrepresentations in the "Whereas Clauses" of the quitclaim to the effect that
the lot was inadvertently omitted and not deliberately omitted due to doubts on its
status. Spped
[9]

Six (6) years after the execution of the quitclaims, respondents discovered that Lot No.
5872 is still in the name of the deceased spouses Ramon and Rosario Chaves. Thus, on
October 14, 1983, respondent Ramon Chaves, the sole heir of Salvador Chaves, and
respondent Jesus Roa, the son of Amparo Chaves-Roa, wrote a letter to their uncle Angel
Chaves to inform him that said property, which they claim to belong to the estate of their
deceased grandparents, has not yet been distributed to the concerned heirs. Hence, they
requested Angel Chaves to distribute and deliver it to the heirs. On October 24, 1983,
[10]

respondent Natividad Santos, daughter and attorney-in-fact of Concepcion Chaves-


Sanvictores, also wrote a similar letter to Angel Chaves. On December 1, 1983, Angel
Chaves transmitted the said letters to petitioner Carmen Abaya and requested her to
respond.

In response, petitioners filed, on December 22, 1983, an action for Quieting of


Title against respondents in the Regional trial Court of Cagayan de Oro. On April 10,
[11]

1995, the trial court rendered its Decision in favor of respondents, the dispositive portion
of which reads as follows:

"In view of these facts, the court therefore considers the property, Lot 5872
still common property. Consequently, the property must be divided in six (6)
parts, there being six heirs. But since the group of Jesus Roa already
quitclaimed in favor of plaintiffs and the same is true with Angel Chaves, the
defendants Natividad Santos and Ramon Chaves shall receive one-sixth (1/6)
each out of Lot 5872 and the balance will be divided equally by the plaintiffs
Josefa Chaves-Maestrado represented by her daughters and the other half to
Carmen Chaves-Abaya.

With no other pronouncements. Josp-ped

SO ORDERED."

The petitioners appealed to the Court of Appeals which in a Decision, promulgated on


November 28,1997, sustained the said Decision of the trial court, in this wise:

"WHEREFORE, in view of the foregoing premises, the Decision dated April


10, 1995 subject of the appeal, is hereby AFFIRMED in toto.

Costs against the plaintiffs-appellants. Spp-edjo

SO ORDERED."

On May 29, 1998, petitioner Lourdes Maestrado-Lavina, in substitution of her deceased


mother, Josefa Chaves-Maestrado, filed a petition for review on certiorari with this
Court. Petitioner Carmen Chaves-Abaya also filed her own petition for review
[12]

on certiorari on June 1, 1998. Since the two petitions involve the same facts and issues,
[13]

we decided in a Resolution to consolidate the said cases.


[14]

Petitioner Maestrado-Lavina assigns the following errors:

I. THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURTS


DECISION DECLARING LOT 5872 AS STILL COMMON PROPERTY,
THEREBY EFFECTIVELY NULLIFYING THE VERBAL PARTITION
AGREEMENT REACHED AND IMPLEMENTED BY THE CHILDREN/HEIRS
OF DECEDENTS RAMON AND ROSARIO CHAVES WAY BACK IN 1956;

II. THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURTS


DECISION DECLARING LOT 5872 AS STILL COMMON PROPERTY UPON
ITS CONCLUSION THAT THE SIGNATURES OF RESPONDENTS ON THE
DULY NOTARIZED QUITCLAIMS WERE OBTAINED THROUGH FRAUD; Mi-so

III. THE COURT OF APPEALS ERRED IN ITS LEGAL CONCLUSION THAT,


ON THE BASIS ALONE OF THE CLAIMS THAT (A) RAMON CHAVES
SIGNED THE QUITCLAIM WITHOUT READING IT; AND THAT (B) ANGEL
CHAVES SIGNED THE QUITCLAIM OUT OF RESPECT, THERE WAS
FRAUD AS WOULD VITIATE RESPONDENTS CONSENT TO THE
QUITCLAIMS;

IV. THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURTS


CONCLUSION THAT PETITIONERS HAVE NO CAPACITY TO SUE FOR
QUIETING OF TITLE OR REMOVAL OF CLOUD THEREON ON THE BASIS
ALONE THAT PETITIONERS ARE NOT THE REGISTERED OWNERS OF
LOT 5872;

V. IT BEING UNDISPUTED THAT THE FACTS GIVING RISE TO CLOUD ON


JOSEFAS AND CARMENS OWNERSHIP OVER LOT 5872 SURFACED
ONLY IN 1983 AND PETITIONERS FILED THE CORRESPONDING ACTION
TO QUIET TITLE OR REMOVE CLOUD THEREON ALSO IN 1983, THE
COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL COURTS
CONCLUSION THAT PETITIONERS ARE GUILTY OF LACHES." Ne-xold [15]
Petitioner Carmen Chaves-Abaya, on the other hand, assigns the following errors:

I. THE HONORABLE COURT OF APPEALS COMMITTED A CLEAR ERROR


IN THE INTERPRETATION OF LAW IN HOLDING THAT THERE WAS
FRAUD IN OBTAINING THE CONSENT OF PRIVATE RESPONDENT
RAMON P. CHAVES AND CONCEPCION CHAVES SANVICTORES, THE
MOTHER OF PRIVATE RESPONDENT NATIVIDAD SANTOS, TO THE
DEEDS OF QUITCLAIM;

II. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT THE


ACTION FOR QUIETING OF TITLE WAS NOT BROUGHT BY THE PERSON
IN WHOSE NAME THE TITLE IS ISSUED; Man-ikx

III. THE HONORABLE COURT OF APPEALS ERRED IN RULING THAT


PETITIONERS WERE GUILTY OF LACHES FOR HAVING SLEPT ON
THEIR RIGHTS FOR MORE THAN 25 YEARS." [16]

We grant the consolidated petitions, the same being impressed with merit.

First. Petitioners are proper parties to bring an action for quieting of title. Persons having
legal as well as equitable title to or interest in a real property may bring such action and
"title" here does not necessarily denote a certificate of title issued in favor of the person
filing the suit. Moreover, if the plaintiff in an action for quieting of title is in possession of
[17]

the property being litigated, such action is imprescriptible. One who is in actual
[18]

possession of a land, claiming to be the owner thereof may wait until his possession is
disturbed or his title is attacked before taking steps to vindicate his right because his
undisturbed possession gives him a continuing right to seek the aid of the courts to
ascertain the nature of the adverse claim and its effects on his title. Manik-s
[19]

Although prescription and laches are distinct concepts, we have held, nonetheless, that in
some instances, the doctrine of laches is inapplicable where the action was filed within the
prescriptive period provided by law. Thus, laches does not apply in this case because
[20]

petitioners possession of the subject lot has rendered their right to bring an action for
quieting of title imprescriptible and, hence, not barred by laches. Moreover, since laches is
a creation of equity, acts or conduct alleged to constitute the same must be intentional and
unequivocal so as to avoid injustice. Laches operates not really to penalize neglect or
[21]

sleeping on ones rights, but rather to avoid recognizing a right when to do so would result
in a clearly inequitable situation. Man-ikan
[22]

In this case at bench, the cloud on petitioners title to the subject property came about only
on December 1, 1983 when Angel Chaves transmitted respondents letters to petitioners,
while petitioners action was filed on December 22, 1983. Clearly, no laches could set in
under the circumstances since petitioners were prompt and vigilant in protecting their
rights.

Second. Lot No. 5872 is no longer common property of the heirs of the deceased
spouses Ramon and Rosario Chaves. Petitioners ownership over said lot was
acquired by reason of the oral partition agreed upon by the deceased spouses heirs
sometime before 1956. That oral agreement was confirmed by the notarized
quitclaims executed by the said heirs on August 16, 1977 and September 8,
1977, supra.

It appeared that the decision in Civil Case No. 867, which ordered the partition of the
decedents estate, was not presented by either party thereto. The existence of the oral
partition together with the said quitclaims is the bone of contention in this case. It
appeared, however, that the actual partition of the estate conformed to the alleged oral
partition despite a contrary court order. Despite claims of private respondents that Lot No.
5872 was mistakenly delivered to the petitioners, nothing was done to rectify it for a period
of twenty-seven (27) years from 1983. Ol-dmiso

We are convinced, however, that there was indeed an oral agreement of partition entered
into by the heirs/parties. This is the only way we can make sense out of the actual partition
of the properties of the estate despite claims that a court order provided otherwise. Prior to
the actual partition, petitioners were not in possession of Lot No. 5872 but for some
reason or another, it was delivered to them. From 1956, the year of the actual partition of
the estate of the deceased Chaves spouses, until 1983, no one among the heirs
questioned petitioners possession of or ownership over said Lot No. 5872. Hence, we are
convinced that there was indeed an oral agreement of partition among the said heirs and
the distribution of the properties was consistent with such oral agreement. In any event,
the parties had plenty of time to rectify the situation but no such move was done until
1983.

A possessor of real estate property is presumed to have title thereto unless the adverse
claimant establishes a better right. In the instant case it is the petitioners, being the
[23]

possessors of Lot No. 5872, who have established a superior right thereto by virtue of the
oral partition which was also confirmed by the notarized quitclaims of the heirs.

Partition is the separation, division and assignment of a thing held in common among
those to whom it may belong. It may be effected extra-judicially by the heirs themselves
[24]

through a public instrument filed before the register of deeds. Nc-m


[25]

However, as between the parties, a public instrument is neither constitutive nor an


inherent element of a contract of partition. Since registration serves as constructive
[26]

notice to third persons, an oral partition by the heirs is valid if no creditors are
affected. Moreover, even the requirement of a written memorandum under the statute of
[27]

frauds does not apply to partitions effected by the heirs where no creditors are involved
considering that such transaction is not a conveyance of property resulting in change of
ownership but merely a designation and segregation of that part which belongs to each
heir. Nc-mmis
[28]

Nevertheless, respondent court was convinced that Lot No. 5872 is still common property
of the heirs of the deceased spouses Ramon and Rosario Chaves because the TCT
covering the said property is still registered in the name of the said deceased spouses.
Unfortunately, respondent court was oblivious to the doctrine that the act of registration of
a voluntary instrument is the operative act which conveys or affects registered land insofar
as third persons are concerned. Hence, even without registration, the contract is still valid
as between the parties. In fact, it has been recently held and reiterated by this Court that
[29]

neither a Transfer Certificate of Title nor a subdivision plan is essential to the validity of an
oral partition. [30]

In sum, the most persuasive circumstance pointing to the existence of the oral partition is
the fact that the terms of the actual partition and distribution of the estate are identical to
the sharing scheme in the oral partition. No one among the heirs disturbed this status
quo for a period of twenty-seven (27) years.

Finally. The said notarized quitclaims signed by the heirs in favor of petitioners are not
vitiated by fraud. Hence, they are valid.

Since the oral partition has been duly established, the notarized quitclaims confirmed such
prior oral agreement as well as the petitioners title of ownership over the subject Lot No.
5872. More importantly, independent of such oral partition, the quitclaims in the instant
case are valid contracts of waiver of property rights. Scnc-m
The freedom to enter into contracts, such as the quitclaims in the instant case, is
protected by law and the courts are not quick to interfere with such freedom unless the
[31]

contract is contrary to law, morals, good customs, public policy or public


order. Quitclaims, being contracts of waiver, involve the relinquishment of rights, with
[32]

knowledge of their existence and intent to relinquish them. The intent to waive rights
[33]

must be clearly and convincingly shown. Moreover, when the only proof of intent is the act
of a party, such act should be manifestly consistent and indicative of an intent to voluntary
relinquish a particular right such that no other reasonable explanation of his conduct is
possible. Sd-aamiso
[34]

In the instant case, the terms of the subject quitclaimsDATED August 16, 1977 and
September 8, 1977 are clear; and the heirs signatures thereon have no other significance
but their conformity thereto resulting in a valid waiver of property rights. Herein
[35]

respondents quite belatedly and vainly attempted to invoke alleged fraud in the execution
of the said quitclaims but we are not convinced. In other words, the said quitclaims being
duly notarized and acknowledged before a notary public, deserve full credence and are
valid and enforceable in the absence of overwhelming evidence to the contrary. In the [36]

case at bench, it is our view and we hold that the execution of the said quitclaims was not
fraudulent.

Fraud refers to all kinds of deception, whether through insidious machination,


manipulation, concealment or misrepresentation to lead another party into error. The [37]

deceit employed must be serious. It must be sufficient to impress or lead an ordinarily


prudent person into error, taking into account the circumstances of each case. Silence or
[38]

concealment, by itself, does not constitute fraud, unless there is a special duty to disclose
certain facts. Moreover, the bare existence of confidential relation between the parties,
[39]

standing alone, does not raise the presumption of fraud. S-daad


[40]

Dolo causante or fraud which attends the execution of a contract is an essential cause
that vitiates consent and hence, it is a ground for the annulment of a contract. Fraud is
[41]

never presumed, otherwise, courts would be indulging in speculations and surmises. It [42]

must be established by clear and convincing evidence but it was not so in the case at
bench. A mere preponderance of evidence is not even adequate to prove fraud. [43]

The instances of fraud allegedly committed in the case at bench are not the kind of fraud
contemplated by law. On the contrary, they constitute mere carelessness in the conduct of
the affairs of the heirs concerned. We have consistently denied relief to a party who seeks
to avoid the performance of an obligation voluntarily assumed because they turned out to
be disastrous or unwise contracts, even if there was a mistake of law or fact. Moreover,
[44]

we do not set aside contracts merely because solicitation, importunity, argument,


persuasion or appeal to affection were used to obtain the consent of the other party. [45]

In a nutshell, the quitclaims dated August 16, 1977 and September 8, 1977 in the case at
bench are valid, duly confirmed and undeniably established the title of ownership of the
petitioners over the subject Lot No. 5872. Scs-daad

WHEREFORE, the instant consolidated petitions are GRANTED. The Decision of the
Court of Appeals,DATED November 28, 1997, is hereby REVERSED and SET ASIDE.
The petitioners action praying for the quieting of their title of ownership over Lot No. 5872,
located in Kauswagan, Cagayan de Oro, is granted. Cost against respondents.

SO ORDERED.

G.R. No. 182148 June 8, 2011


SIME DARBY PILIPINAS, INC., Petitioner,
vs.
GOODYEAR PHILIPPINES, INC. and MACGRAPHICS CARRANZ INTERNATIONAL
CORPORATION, Respondents.

x - - - - - - - - - - - - - - - - - - - - - - -x

G.R. No. 183210

GOODYEAR PHILIPPINES, INC., Petitioner,


vs.
SIME DARBY PILIPINAS, INC. and MACGRAPHICS CARRANZ INTERNATIONAL
CORPORATION, Respondents.

DECISION

MENDOZA, J.:

This disposition covers two petitions for review filed separately by Sime Darby Pilipinas, Inc. (Sime Darby) and
Goodyear Philippines, Inc. (Goodyear) assailing the February 13, 2008 Decision1 of the Court of Appeals (CA) and
its March 13, 20082 and May 28, 20083 Resolutions in CA-G.R. CV No. 86032. The assailed issuances affirmed the
November 8, 2004 Decision4 and the July 20, 2005 Order5 of the Regional Trial Court, Branch 61, Makati
City (RTC), in Civil Case No. 97-561 entitled Goodyear Philippines, Inc. v. Sime Darby Pilipinas, Inc.,
and/or Macgraphics Carranz International Corporation, for Partial Rescission of a Deed of Assignment plus
Damages and which essentially: [1] granted Goodyears complaint for partial rescission against Sime Darby; and [2]
ordered Goodyear to pay respondent Macgraphics Carranz International Corporation (Macgraphics) attorneys fees
with legal interest thereon.

The Facts:

Macgraphics owned several billboards across Metro Manila and other surrounding municipalities, one of which was
a 35 x 70 neon billboard located at the Magallanes Interchange in Makati City. The Magallanes billboard wasleased
by Macgraphics to Sime Darby in April 1994 at a monthly rental of P120,000.00.6 The lease had a term of four years
and was set to expire on March 30, 1998. Upon signing of the contract, Sime Darby paid Macgraphics a total of P1.2
million representing the ten-month deposit which the latter would apply to the last ten months of the lease.
Thereafter, Macgraphics configured the Magallanes billboard to feature Sime Darbys name and logo.

On April 22, 1996, Sime Darby executed a Memorandum of Agreement7 (MOA) with Goodyear, whereby it agreed to
sell its tire manufacturing plants and other assets to the latter for a total of P1.5 billion.

Just a day after, on April 23, 1996, Goodyear improved its offer to buy the assets of Sime Darby from P1.5 billion
to P1.65 billion. The increase of the purchase price was made in consideration, among others, of the assignment by
Sime Darby of the receivables in connection with its billboard advertising in Makati City and Pulilan, Bulacan.

On May 9, 1996, Sime Darby and Goodyear executed a deed entitled "Deed of Assignment in connection with
Microwave Communication Facility and in connection with Billboard Advertising in Makati City and Pulilan,
Bulacan" (Deed of Assignment),8 through which Sime Darby assigned, among others, its leasehold rights and
deposits made to Macgraphics pursuant to its lease contract over the Magallanes billboard.

Sime Darby then notified Macgraphics of the assignment of the Magallanes billboard in favor of Goodyear through a
letter-notice9 dated May 3, 1996.

After submitting a new design for the Magallanes billboard to feature its name and logo, Goodyear requested that
Macgraphics submit its proposed quotation for the production costs of the new design. In a letter10 dated June 21,
1996 Macgraphics informed Goodyear that the monthly rental of the Magallanes billboard is P250,000.00 and
explained that the increase in rental was in consideration of the provisions and technical aspects of the submitted
design.

Goodyear replied on July 8, 1996 stating that due to budget constraints, it could not accept Macgraphics offer to
integrate the cost of changing the design to the monthly rental. Goodyear stated that it intended to honor
the P120,000.00 monthly rental rate given by Macgraphics to Sime Darby. It then requested that Macgraphics send
its quotation for the simple background repainting and re-lettering of the neon tubing for the Magallanes billboard.11

Macgraphics then sent a letter12 to Sime Darby, dated July 11, 1996, informing the latter that it could not give its
consent to the assignment of lease to Goodyear. Macgraphics explained that the transfer of Sime Darbys leasehold
rights to Goodyear would necessitate drastic changes to the design and the structure of the neon display of the
Magallanes billboard and would entail the commitment of manpower and resources that it did not foresee at the
inception of the lease.
Attaching a copy of this letter to a correspondence13 dated July 15, 1996, Macgraphics advised Goodyear that any
advertising service it intended to get from them would have to wait until after the expiration or valid pre-termination
of the lease then existing with Sime Darby.

On September 23, 1996, due to Macgraphics refusal to honor the Deed of Assignment, Goodyear sent Sime Darby
a letter,14 via facsimile, demanding partial rescission of the Deed of Assignment and the refund of P1,239,000.00,
the pro-rata value of Sime Darbys leasehold rights over the Magallanes billboard.

As Sime Darby refused to accede to Goodyears demand for partial rescission, the latter commenced Civil Case No.
97-561 with the RTC. In its complaint,15 Goodyear alleged that Sime Darby [1] was unable to deliver the object of the
Deed of Assignment and [2] was in breach of its warranty under Title VII, Section B, paragraph 2 of the MOA, stating
that "no consent of any third party with whom Sime Darby has a contractual relationship is required in connection
with the execution and delivery of the MOA, or the consummation of the transactions contemplated therein."16

Including Macgraphics as an alternative defendant, Goodyear argued that should the court find the partial rescission
of the Deed of Assignment not proper, it must be declared to have succeeded in the rights and interest of Sime
Darby in the contract of lease and Macgraphics be ordered to pay it the amount of P1,239,000.00.

After trial and the submission of the parties of their respective memoranda, the RTC rendered its decision and
disposed the case in the following manner:

WHEREFORE, premises considered, the Deed of Assignment of Receivables (Exh. "C") is hereby partially
rescinded and defendant Sime Darby Pilipinas, Inc. is directed to pay plaintiff Goodyear Philippines, Inc. the amount
of P1,239,000.00 with legal interest thereon from June 1996 until fully paid. Plaintiff Goodyear Philippines, Inc. is
directed to pay defendant Macgraphics the amount of P50,000.00 as attorneys fees with legal interest thereon from
the filing of the complaint until fully paid.

SO ORDERED.

The trial court was of the considered view that Sime Darby should have secured the consent of Macgraphics to the
assignment of the lease before it could be effective against the latter. The trial court noted that the contract of lease
between Sime Darby and Macgraphics made no mention of any clause that would grant Sime Darby the right to
unilaterally assign the lease. Thus, following Article 1649 of the New Civil Code,17 the trial court ruled that absent
any stipulation to the contrary, the assignment of the lease without the consent of Macgraphics was not valid. The
RTC also stated that as far as Macgraphics was concerned, its relationship with Goodyear was that of a new client.

With Sime Darbys failure to secure the consent of Macgraphics, the trial court considered that it failed to deliver the
object of the Deed of Assignment. The RTC, thus, ruled that following Article 1191 of the New Civil
Code,18Goodyear was entitled to demand rescission of the assignment of the lease over the billboard.

Granting the counterclaim of Macgraphics, the trial court found that Goodyear had no legal basis to file the
complaint against it. According to the trial court, the consent of Macgraphics was required before any assignment of
the lease over the billboard could be effective against it, there being no stipulation allowing Sime Darby to do
otherwise.

Not satisfied, both Goodyear and Sime Darby sought partial reconsideration of the decision. Their respective pleas,
however, were denied by the RTC in its July 20, 2005 Order.19

Sime Darby and Goodyear thereafter sought relief from the CA. In its February 13, 2008 Decision, however, the CA
echoed the findings and conclusions of the trial court and affirmed its decision in toto. The decretal portion of the
decision reads:

WHEREFORE, premises considered, the reliefs prayed for in the instant appeal are hereby DENIED. Accordingly,
the assailed Decision of the Court a quo dated 08 November 2004 and Order dated 20 July 2005, respectively,
STAND.

SO ORDERED.

Both Sime Darby and Goodyear sought partial reconsideration of the CA decision, but their motions were denied.

Unable to seek relief from the CA, Sime Darby and Goodyear filed their respective petitions before the Court. Sime
Darbys petition was docketed as G.R. No. 182148, while Goodyears petition was docketed as G.R. No. 183210.
On July 8, 2008, G.R. No. 182148 and G.R. No. 183210 were consolidated.

In its Memorandum,20 Sime Darby insists that Goodyear has no right to rescind the Deed of Assignment as
Macgraphics impliedly consented to the assignment of the lease. It argues that Macgraphics, after being notified of
the assignment, entertained Goodyears request for a quotation on the cost of a new design for the Magallanes
billboard. The fact that there was a negotiation, Sime Darby posits, means that Macgraphics did not really care who
the lessee was for as long as it got paid for the lease of the Magallanes billboard.
Sime Darby also asserts that Macgraphics, despite refusing to give its consent to the assignment, still entertained
Goodyears request to have its logo featured in the Magallanes billboard. In fact, on July 23, 1996, it sent Goodyear
another quotation21 of the cost to make changes on the billboard design.

Further, Sime Darby argues that Macgraphics delay of 69 days before its July 11, 1996 letter declining to give its
consent to the assignment is unreasonably long. Considering also the lack of explanation on the part of
Macgraphics for the reason of the delay, Sime Darby claims that laches has set in.

On the other hand, both Goodyear and Macgraphics pray for the affirmance of the decisions of the courts below that
rescission is proper. In addition, Goodyear assails the petition of Sime Darby claiming that it raises only questions of
fact since the petition essentially revolves around the truth or falsity of the findings of the courts below that
Macgraphics never consented to the assignment of Sime Darbys leasehold rights. Goodyear also insists that it is
entitled to attorneys fees due to the unjustified refusal of Sime Darby to rescind the Deed of Assignment.

Goodyear, however, asserts that it should not be held liable for the attorneys fees in favor of Macgraphics because
it merely impleaded the latter when Sime Darby argued that fault and liability lie with it (Macgraphics).

Synthesized, the issues proffered by the two petitions are:

[1] Whether partial rescission of the Deed of Assignment is proper; and

[2] Whether Macgraphics is entitled to an award of attorneys fees.

The Court finds no merit in the petitions.

Well-settled is the rule that a petition for review on certiorari under Rule 45 of the Rules of Court should only include
questions of law since questions of fact are not reviewable. A question of law arises when there is doubt as to what
the law is on a certain state of facts, while a question of fact exists when the doubt arises as to the truth or falsity of
the alleged facts. For a question to be one of law, it must not involve an examination of the probative value of the
evidence presented by any of the litigants. The resolution of the issue must rest solely on what the law provides
under a given set of circumstances. Once it is clear that the issue invites a review of the evidence presented, then
the question posed is one of fact. Thus, the test of whether a question is one of law or of fact is not the appellation
given to such question by the party raising the same; rather, it is whether the appellate court resolve the question
raised without reviewing or evaluating the evidence, in which case, it is a question of law; otherwise it is a question
of fact.22

Likewise well-settled is the principle that absent grave abuse of discretion, the Court will not disturb the factual
findings of the CA. The Court will only exercise its power of review in known exceptions such as gross
misappreciation of evidence or a total void of evidence.23

Whether Macgraphics gave its consent to the assignment of leasehold rights of Sime Darby is a question of fact. It is
not reviewable. On this score alone, the petition of Sime Darby fails.

Even if the Court should sidestep this otherwise fatal miscue, the petition of Sime Darby remains bereft of any merit.
Article 1649 of the New Civil Code provides:

Art. 1649. The lessee cannot assign the lease without the consent of the lessor, unless there is a stipulation to the
contrary. (n)

In an assignment of a lease, there is a novation by the substitution of the person of one of the parties the
lessee.24 The personality of the lessee, who dissociates from the lease, disappears. Thereafter, a new juridical
relation arises between the two persons who remain the lessor and the assignee who is converted into the new
lessee. The objective of the law in prohibiting the assignment of the lease without the lessors consent is to protect
the owner or lessor of the leased property.25

Broadly, a novation may either be extinctive or modificatory. It is extinctive when an old obligation is terminated by
the creation of a new obligation that takes the place of the former; it is merely modificatory when the old obligation
subsists to the extent it remains compatible with the amendatory agreement. An extinctive novation results either by
changing the object or principal conditions (objective or real), or by substituting the person of the debtor or
subrogating a third person in the rights of the creditor (subjective or personal). Under this mode, novation would
have dual functionsone to extinguish an existing obligation, the other to substitute a new one in its place. This
requires a conflux of four essential requisites: (1) a previous valid obligation; (2) an agreement of all parties
concerned to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a valid new
obligation.26

While there is no dispute that the first requisite is present, the Court, after careful consideration of the facts and the
evidence on record, finds that the other requirements of a valid novation are lacking. A review of the lease contract
between Sime Darby and Macgraphics discloses no stipulation that Sime Darby could assign the lease without the
consent of Macgraphics.
Moreover, contrary to the assertions of Sime Darby, the records are bereft of any evidence that clearly shows that
Macgraphics consented to the assignment of the lease. As aptly found by the RTC and the CA, Macgraphics was
never part of the negotiations between Sime Darby and Goodyear. Neither did it give its conformity to the
assignment after the execution of the Deed of Assignment.

The consent of the lessor to an assignment of lease may indeed be given expressly or impliedly. It need not be
given simultaneously with that of the lessee and of the assignee. Neither is it required to be in any specific or
particular form.27 It must, however, be clearly given. In this case, it cannot be said that Macgraphics gave its implied
consent to the assignment of lease. As aptly explained by the CA in its decision:

xxx

Neither are We convinced with Appellant SIME DARBY's argument that Appellee MACGRAPHICS impliedly
consented to the questioned assignment when it negotiated with Appellant GOODYEAR for the redesigning of
Magallanes billboard. In fact, thru its letter dated 11 July 1996 to Appellant SIME DARBY, the Appellee made formal
its refusal to give consent to the transfer/assignment to Appellant GOODYEAR of its right in the lease over the
billboard located in Magallanes, Makati. The letter reads:

xxx

RE: Your BILLBOARD LEASE

We refer to your letter dated May 23, 1996 notifying us of the assignment and transfer to Goodyear Philippines, Inc.
of all your rights in the lease over the billboard located at Wells Photo Building, Magallanes, Makati City.

As anticipated, the transfer of your rights over the lease will necessitate drastic changes to the design and
structure of the neon spectacular display advertised in the billboard, which would thus entail commitment
of manpower and resources which we did not foresee at the inception of the lease. Much as we would like
to accommodate you, these reasons constrained us to decline giving consent to the transfer. We hope that
you will understand our position. (Emphasis included)

On 15 July 1996, the Appellee likewise sent a letter to Appellant GOODYEAR informing the latter of its refusal to the
assignment of the subject lease. The letter essentially states:

xxx

ATTENTION: MR. CARLOS Q. CARBALLO


Manager

Distribution, Development & Advertising

Gentlemen:

In response to your letter dated July 08, 1996, we are furnishing you with a copy of the letter we sent to Sime Darby
Pilipinas, Inc., the content of which is self-explanatory.

We look forward to servicing your advertising needs at the billboards presently leased to Sime Darby but only after
the latter's existing lease thereon has expired or been validly pre-terminated. Until then, we are bound to abide by
the terms of the existing lease contract.

Should you desire, we have other choice locations which might suit your needs. Please let us know.

xxx

In the assertion of implied consent allegedly made by the Appellee to the assignment, the Court a quo ratiocinated
in this wise:

xxx

On the issue of whether or not the negotiations between Macgraphics and Goodyear is a separate negotiation or still
included in the lease, the Court rules that from the very start of the negotiations between Goodyear and
Macgraphics, the relationship between them, as far as Macgraphics is concerned, was that of Goodyear as a new
client. Nonetheless, whether the negotiations is separate or included in the lease between Sime Darby and
Macgraphics, the fact remains that Macgraphics did not give its consent to the assignment of the lease.

xxx
Clearly, there is no implied consent based on the factual backdrop of this case. Evidently, what transpired between
Appellant GOODYEAR and the Appellee was a negotiation between a willing service provider and a probable new
client. On this regard, the president of the Appellee, ALVIN M. CARRANZA (hereinafter CARRANZA), confirmed on
direct examination the contents of his judicial affidavit submitted before the Court a quo in lieu of direct examination.
The said judicial affidavit pertinently states viz:

xxx

Q: Do you know plaintiff?

A: Yes.

Q: How do you know the plaintiff?

A: I know the plaintiff Goodyear because after Sime Darby sent us the letter dated 03 May 1996, Goodyear
requested for a price quote on the cost of changing the billboard design on the Magallanes Interchange. They asked
how much the cost would be if Sime Darby's billboard were changed and Goodyear's advertisement displayed
instead.

Q: What was your reaction to this request?

A: Goodyear is a big company, so we tried to be as accommodating as possible in order to attract it as a


client. (Underlining supplied)

xxx

As aptly pointed out by Appellant GOODYEAR in its Brief filed in response to the appeal filed by the Appellant SIME
DARBY, the fact that the Appellee dealt with Appellant GOODYEAR as a new client is corroborated by the
testimony of APOLLO DE GALA (hereinafter DE GALA), Acting Manager for Advertising of Appellant GOODYEAR,
to wit:

Re-direct examination

Q: You mentioned during cross-examination that you started negotiating with Macgraphics Carranz for the make-
over of the billboard in Magallanes, is it not?

A: Yes, sir.

Q: And this negotiation was without the participation of Sime Darby?

A: Yes, sir.

Q: Now, why did you not include Sime Darby in the negotiation?

A: I do not really have any reason to include them that time, because considering that it was just a change over, we
were willing to pay for the change over. The thing that included Sime Darby was that Carranz refused to honor. Well,
Carranz proposed another scheme for the billboard. In fact, they proposed to us that we do the whole thing over,
sir. A new set not considering the Sime Darby logo and Sime

Darby agreement, Carranz and Sime Darby. To Carranz, it was already new set of client. xxx

(Underlining supplied)

Indeed, Macgraphics and Goodyear never came to terms as to the conditions that would govern their relationship.
While it is true, that Macgraphics and Goodyear exchanged proposals, there was never a meeting of minds between
them. Contrary to the assertions of Sime Darby, the negotiations between Macgraphics and Goodyear did not
translate to its (Macgraphics) consent to the assignment. Negotiations is just a part or a preliminary phase to the
birth of an obligation.

"In general, contracts undergo three distinct stages, to wit: negotiation; perfection or birth; and consummation.
Negotiation begins from the time the prospective contracting parties manifest their interest in the contract and ends
at the moment of agreement of the parties. Perfection or birth of the contract takes place when the parties agree
upon the essential elements of the contract. Consummation occurs when the parties fulfill or perform the terms
agreed upon in the contract, culminating in the extinguishment thereof."28

Regarding laches, it is an issue raised by Sime Darby for the first time only in this Court. Basic is the rule that issues
not raised below cannot be raised for the first time on appeal. Points of law, theories, issues and arguments not
brought to the attention of the lower court need not be, and ordinarily will not be, considered by the reviewing court,
as they cannot be raised for the first time at that late stage. Basic considerations of due process impel the adoption
of this rule.29

Notwithstanding, the Court finds that the doctrine of laches cannot be applied in this case.

Laches is the failure or neglect, for an unreasonable and unexplained length of time, to do that which, by exercising
due diligence, could or should have been done earlier; it is negligence or omission to assert a right within a
reasonable time, warranting the presumption that the party entitled to assert it either has abandoned or declined to
assert it.30 There is no absolute rule as to what constitutes laches or staleness of demand; each case is to be
determined according to its particular circumstances, with the question of laches addressed to the sound discretion
of the court. Because laches is an equitable doctrine, its application is controlled by equitable considerations and
should not be used to defeat justice or to perpetuate fraud or injustice.31

From the records, it appears that Macgraphics first learned of the assignment when Sime Darby sent its letter-notice
dated May 3, 1996. From the letters sent by Macgraphics to Goodyear, it is apparent that Macgraphics had to study
and determine both the legal and practical implications of entertaining Goodyear as a client. After review,
Macgraphics found that consenting to the assignment would entail the commitment of manpower and resources that
it did not foresee at the inception of the lease. It thereafter communicated its non-conformity to the assignment. To
the mind of the Court, there was never a delay.

In sum, it is clear that by its failure to secure the consent of Macgraphics to the assignment of lease, Sime Darby
failed to perform what was incumbent upon it under the Deed of Assignment. The rescission of the Deed of
Assignment pursuant to Article 1191 of the New Civil Code is, thus, justified.

With regard to the two issues raised by Goodyear on attorneys fees, the Court agrees with the CA which correctly
proferred the following ratiocination:

The award of attorney's fees is the exception rather than the rule, and it must have some factual, legal and equitable
bases. Nevertheless, Art. 2208 of the Civil Code authorizes an award of attorney's fees and expenses of litigation,
other than judicial costs, when as in this case the plaintiff's act or omission has compelled the defendant to litigate
and to incur expenses of litigation to protect her interest (par. 2), and where the Court deems it just and equitable
that attorney's fees and expenses of litigation should be recovered (par. 11).

In the case at bar, even before the filing of the instant case before the Court a quo, it was clear that Appellee
MACGRAPHICS was not part of the Deed of Assignment being assailed by the Appellant GOODYEAR. It was also
established during the trial that the consent of Appellee MACGRAPHICS was not secured prior to the execution of
the subject deed between the Appellants. Thus, it is only equitable that Appellant GOODYEAR be made liable for
the unnecessary attorney's fees spent by Appellee MACGRAPHICS to protect its rights and interest due to the filing
of a baseless complaint by Appellant GOODYEAR. To stress, attorney's fees may be awarded when a party is
compelled to litigate or to incur expenses to protect its interest by reason of an unjustified act by the other.

As to the claim of Appellant GOODYEAR that Appellant SIME DARBY be made liable to pay the former attorney's
fees, We rule to deny the same.

The grant of attorney's fees depends on the circumstances of each case and lies within the discretion of the court.
We are of the view that although the Court a quo was correct in ordering the partial rescission of the deed of
assignment, it does not necessarily follow that the award of attorney's fees is a natural consequence. They are not
awarded every time a party wins a suit. In the absence of a stipulation, attorney's fees are ordinarily not recoverable;
otherwise a premium shall be placed on the right to litigate. Since the Appellant GOODYEAR's claim from Appellant
SIME DARBY, to deliver its leasehold rights with Appellee MACGRAPHICS cannot altogether be considered as
demandable claim due to latter's lack of consent, Appellant SIME DARBY cannot be made liable to answer for
attorney's fees. [Emphases supplied]

In view of all the foregoing, the Court finds no legal, factual, or equitable justification to disturb the findings and
conclusions of the courts below.

WHEREFORE, the petitions are hereby DENIED.

SO ORDERED.

[G.R. No. 131726. May 7, 2002]


YOLANDA PALATTAO, petitioner, vs. THE COURT OF APPEALS, HON. ANTONIO
J. FINEZA, as Presiding Judge of the Regional Trial Court of Caloocan City,
Branch 131 and MARCELO CO, respondents.

DECISION
YNARES-SANTIAGO, J.:

This is a petition for review under Rule 45 of the Rules of Court seeking to set aside the August
29, 1997 decision[1] and the November 28, 1997 resolution[2] of the Court of Appeals[3] in CA-G.R.
SP No. 40031, affirming the decision[4] of the Regional Trial Court of Caloocan City, Branch 131,
in Civil Case No. C-17033 which reversed the Decision[5] of the Metropolitan Trial Court of
Caloocan, Branch 53, in an ejectment suit docketed as Civil Case No. 21755.
The antecedent facts are as follows: Petitioner Yolanda Palattao entered into a lease contract
whereby she leased to private respondent a house and a 490-square-meter lot located in 101
Caimito Road, Caloocan City, covered by Transfer Certificate of Title No. 247536 and registered in
the name of petitioner. The duration of the lease contract was for three years, commencing from
January 1, 1991, to December 31, 1993, renewable at the option of the parties. The agreed monthly
rental was P7,500.00 for the first year; P8,000.00 for the second year; and P8,500.00 for the third
year. The contract gave respondent lessee the first option to purchase the leased property.[6]
During the last year of the contract, the parties began negotiations for the sale of the leased
premises to private respondent. In a letterDATED April 2, 1993, petitioner offered to sell to
private respondent 413.28 square meters of the leased lot at P7,800.00 per square meter, or for the
total amount of P3,223,548.00.[7] Private respondent replied on April 15, 1993 wherein he informed
petitioner that he shall definitely exercise [his] option [to buy] the leased property.[8] Private
respondent, however, manifested his desire to buy the whole 490-square-meter leased premises and
inquired from petitioner the reason why only 413.28 square meters of the leased lot were being
offered for sale. In a letter dated November 6, 1993, petitioner made a final offer to sell the lot at
P7,500.00 per square meter with a downpayment of 50% upon the signing of the contract of
conditional sale, the balance payable in one year with a monthly lease/interest payment of
P14,000.00 which must be paid on or before the fifth day of every month that the balance is still
outstanding.[9] On November 7, 1993, private respondent accepted petitioners offer and reiterated
his request for clarification as to the size of the lot for sale. [10] Petitioner acknowledged private
respondents acceptance of the offer in his letter dated November 10, 1993.
Petitioner gave private respondent on or before November 24, 1993, within which to pay the
50% downpayment in cash or managers check. Petitioner stressed that failure to pay the
downpayment on the stipulated period will enable petitioner to freely sell her property to
others. Petitioner likewise notified private respondent that she is no longer renewing the lease
agreement upon its expiration on December 31, 1993.[11]
Private respondent did not accept the terms proposed by petitioner. Neither was there any
documents of sale nor payment by private respondent of the required downpayment. Private
respondent wrote a letter to petitioner on November 29, 1993 manifesting his intention to exercise
his option to renew their lease contract for another three years, starting January 1, 1994 to
December 31, 1996.[12] This was rejected by petitioner, reiterating that she was no longer renewing
the lease. Petitioner demanded that private respondent vacate the premises, but the latter refused.
Hence, private respondent filed with the Regional Trial Court of Caloocan, Branch 127, a case
for specific performance, docketed as Civil Case No. 16287,[13] seeking to compel petitioner to sell
to him the leased property. Private respondent further prayed for the issuance of a writ of
preliminary injunction to prevent petitioner from filing an ejectment case upon the expiration of the
lease contract on December 31, 1993.
During the proceedings in the specific performance case, the parties agreed to maintain
the status quo. After they failed to reach an amicable settlement, petitioner filed the instant
ejectment case before the Metropolitan Trial Court of Caloocan City, Branch 53. [14] In his
answer,[15] private respondent alleged that he refused to vacate the leased premises because there
was a perfected contract of sale of the leased property between him and petitioner. Private
respondent argued that he did not abandon his option to buy the leased property and that his
proposal to renew the lease was but an alternative proposal to the sale. He further contended that
the filing of the ejectment case violated their agreement to maintain the status quo.
On July 28, 1995, the Metropolitan Trial Court rendered a decision in favor of petitioner. The
dispositive portion thereof states:

WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant,
ordering the defendant and all persons claiming right under him to pay the plaintiff as follows:

1. P12,000.00 per month representing reasonable monthly rental from January 1, 1994 and
months thereafter until defendants shall vacate the subject premises;

2. P10,000.00 representing attorneys fee;

3. To pay the cost of suit.

SO ORDERED.[16]

On appeal, the Regional Trial Court reversed the assailed decision, disposing as follows:

WHEREFORE, in view of all the foregoing, the assailed decision of the Metropolitan Trial Court,
Branch 53, this City, rendered on July 28, 1995, is hereby REVERSED and SET ASIDE, with costs
de officio.

SO ORDERED.[17]

Aggrieved, petitioner filed a petition for review with the Court of Appeals, which dismissed the
petition. Likewise, the motion for reconsideration was denied on August 29, 1997. Hence, the
instant petition anchored upon the following grounds:
I

THE COURT OF APPEALS AND RTC, CALOOCAN CITY, BRANCH 131, ERRED IN
DECLARING THAT PETITIONER IS GUILTY OF ESTOPPEL IN FILING AN EJECTMENT
CASE AGAINST RESPONDENT CO.
II

THE COURT OF APPEALS AND RTC, CALOOCAN CITY, BRANCH 131, ERRED IN
FINDING THAT AN INJUNCTIVE SUIT WILL BAR THE FILING OF EJECTMENT CASE
AGAINST RESPONDENT CO.
III

THE RTC, CALOOCAN CITY, BRANCH 131, ERRED IN DECLARING THAT THERE WAS
A PERFECTED CONTRACT OF SALE BETWEEN THE PARTIES OVER THE LEASED
PROPERTY.[18]

The petition is impressed with merit.


The Court of Appeals ruled that petitioner was estopped from filing the instant ejectment suit
against private respondent by the alleged status quo agreement reached in the specific performance
case filed by private respondent against petitioner. A reading, however, of the transcript of
stenographic notes taken during the January 21, 1994 hearing discloses that the agreement to
maintain the status quo pertained only to the duration of the negotiation for an amicable settlement
and was not intended to be operative until the final disposition of the specific performance
case. Thus:
xxxxxxxxx
Court
Before we go into the prayer for preliminary injunction and of the merit of the case I want to see if I can make the
parties settle their differences.
Atty. Siapan
We will in the meantime maintain the status quo on the matter pending further negotiation.
Court
As a matter of injunction, are you willing to maintain a status quo muna [?]
Atty. Mendez
Yes, your Honor.
Court
How about Atty. Uy are you willing?
Atty. Uy
Yes, your Honor.
Court
I will not issue any injunction but there will be a status quo and we will concentrate our efforts on letting the
parties to (sic) negotiate and enter into an agreement.[19]

xxxxxxxxx
I will give you the same facts of the case. I want to settle this and not go into trial because in due time I will not
finish the case, my stay here is only Acting Presiding Judge and there are other judges nominated for this sala and
once the judge will be (sic) appointed then I go, let us get advantage of settling the matter. I will have your
gentlemans agreement that there will be no adversarial attitude among you will (sic) never arrive at any
agreement.
Atty. Siapan
In the meantime, we will move for a resetting of this case your Honor.
Court
Anyway, this is a gentlemans agreement that there will be no new movement but the status quo will be
maintained.
Atty. Siapan, Atty. Mendez & Atty. Uy.
Yes, your Honor. (simultaneously (sic) in saying)[20]

The foregoing agreement to maintain the status quo pending negotiations was noted by the trial
court in its January 21, 1994 Order postponing the hearing to enable the parties to arrive at an
amicable settlement, to wit:

Upon agreement of the parties herein for postponement of todays schedule as there might be some
possibility of settling the claims herein, let the hearing today be cancelled.

In the meantime this case is set for hearing on February 28, 1994 at 8:30 a.m., should the parties
not arrive at any amicable settlement.[21]

It is beyond cavil therefore that the preservation of the status quo agreed upon by the parties
applied only during the period of negotiations for an amicable settlement and cannot be construed
to be effective for the duration of the pendency of the specific performance case. It is a settled rule
that injunction suits and specific performance cases, inter alia, will not preclude the filing of, or
abate, an ejectment case. Unlawful detainer and forcible entry suits under Rule 70 are designed to
summarily restore physical possession of a piece of land or building to one who has been illegally
or forcibly deprived thereof, without prejudice to the settlement of the parties' opposing claims of
juridical possession in appropriate proceedings. It has been held that these actions are intended to
avoid disruption of public order by those who would take the law in their hands purportedly to
enforce their claimed right of possession. In these cases, the issue is pure physical or de
facto possession, and pronouncements made on questions of ownership are provisional in nature.[22]
In Wilmon Auto Supply Corporation, et al., v. Court of Appeals, et al.,[23] the issue of whether or
not an ejectment case based on expiration of lease contract should be abated by an action to enforce
the right of preemption or prior purchase of the leased premises was resolved in the negative. The
Court outlined the following precedents:
1. Injunction suits instituted in the RTC by defendants in ejectment actions in the municipal trial courts or other
courts of the first level (Nacorda v. Yatco, 17 SCRA 920 [1966]) do not abate the latter; and neither do
proceedings on consignation of rentals (Lim Si v. Lim, 98 Phil. 868 [1956], citing Pue, et al. v. Gonzales, 87
Phil. 81 [1950]).
2. An "accion publiciana" does not suspend an ejectment suit against the plaintiff in the former (Ramirez v.
Bleza, 106 SCRA 187 [1981]).
3. A "writ of possession case" where ownership is concededly the principal issue before the Regional Trial
Court does not preclude nor bar the execution of the judgment in an unlawful detainer suit where the only
issue involved is the material possession or possession de facto of the premises (Heirs of F. Guballa, Sr. v.
C.A., et al.; etc., 168 SCRA 518 [1988]).
4. An action for quieting of title to property is not a bar to an ejectment suit involving the same property
(Quimpo v. de la Victoria, 46 SCRA 139 [1972]).
5. Suits for specific performance with damages do not affect ejectment actions (e.g., to compel renewal of a
lease contract) (Desamito v. Cuyegkeng, 18 SCRA 1184 [1966]; Rosales v. CFI, 154 SCRA 153 [1987];
Commander Realty, Inc. v. C.A., 161 SCRA 264 [1988]).
6. An action for reformation of instrument (e.g., from deed of absolute sale to one of sale with pacto de retro)
does not suspend an ejectment suit between the same parties (Judith v. Abragan, 66 SCRA 600 [1975]).
7. An action for reconveyance of property or "accion reivindicatoria" also has no effect on ejectment suits
regarding the same property (Del Rosario v. Jimenez, 8 SCRA 549 [1963]; Salinas v. Navarro, 126 SCRA
167; De la Cruz v. C.A., 133 SCRA 520 [1984]); Drilon v. Gaurana, 149 SCRA 352 [1987]; Ching v.
Malaya, 153 SCRA 412 [1987]; Philippine Feeds Milling Co., Inc. v. C.A., 174 SCRA 108; Dante v. Sison,
174 SCRA 517 [1989]; Guzman v. C.A. [annulment of sale and reconveyance], 177 SCRA 604 [1989];
Demamay v. C.A., 186 SCRA 608 [1990]; Leopoldo Sy v. C.A., et al., [annulment of sale and
reconveyance], G.R. No. 95818, Aug. 2, 1991).
8. Neither do suits for annulment of sale, or title, or document affecting property operate to abate ejectment
actions respecting the same property (Salinas v. Navarro [annulment of deed of sale with assumption of
mortgage and/or to declare the same an equitable mortgage], 126 SCRA 167 [1983]; Ang Ping v. RTC
[annulment of sale and title], 154 SCRA 153 [1987]; Caparros v. C.A. [annulment of title], 170 SCRA 758
[1989]; Dante v. Sison [annulment of sale with damages], 174 SCRA 517; Galgala v. Benguet Consolidated,
Inc. [annulment of document], 177 SCRA 288 [1989]).

The underlying reasons for the above ruling were that the actions in the Regional Trial Court did
not involve physical or de facto possession, and, on not a few occasions, that the case in the
Regional Trial Court was merely a ploy to delay disposition of the ejectment proceeding, or that the
issues presented in the former could quite as easily be set up as defenses in the ejectment action and
there resolved.

Only in rare instances is suspension allowed to await the outcome of the pending civil
action. In Wilmon, the Court recognized that Vda. De Legaspi v. Avendao[24] was an exception to the
general rule against suspension of an ejectment proceeding.[25] Thus:

x x x [A]s regards the seemingly contrary ruling in Vda. de Legaspi v. Avendano, 89 SCRA 135
(1977), this Court observed in Salinas v. Navarro, 126 SCRA 167, 172-173 (1983), that the
exception to the rule in this case of Vda. de Legaspi is based on strong reasons of equity not found
in the present petition. The right of the petitioner is not so seriously placed in issue in the
annulment case as to warrant a deviation, on equitable grounds, from the imperative nature of the
rule. In the Vda. de Legaspi case, execution of the decision in the ejectment case would also have
meant demolition of the premises, a factor not present in this petition.
In the case at bar, the continued occupation by private respondent of the leased premises is
conditioned upon his right to acquire ownership over said property. The factual milieu obtaining
here, however, hardly falls within the aforecited exception as the resolution of the ejectment suit
will not result in the demolition of the leased premises, as in the case of Vda. De Legaspi v.
Avendao. Verily, private respondent failed to show strong reasons of equity to sustain the
suspension or dismissal of the ejectment case. Argumentum a simili valet in lege. Precedents are
helpful in deciding cases when they are on all fours or at least substantially identical with previous
litigations.[26] Faced with the same scenario on which the general rule is founded, and finding no
reason to deviate therefrom, the Court adheres to the settled jurisprudence that suits involving
ownership may not be successfully pleaded in abatement of an action for ejectment.
Contracts that are consensual in nature, like a contract of sale, are perfected upon mere meeting
of the minds. Once there is concurrence between the offer and the acceptance upon the subject
matter, consideration, and terms of payment, a contract is produced. The offer must be certain. To
convert the offer into a contract, the acceptance must be absolute and must not qualify the terms of
the offer; it must be plain, unequivocal, unconditional, and without variance of any sort from the
proposal. A qualified acceptance, or one that involves a new proposal, constitutes a counter-offer
and is a rejection of the original offer. Consequently, when something is desired which is not
exactly what is proposed in the offer, such acceptance is not sufficient to generate consent because
any modification or variation from the terms of the offer annuls the offer. [27]
In the case at bar, while it is true that private respondent informed petitioner that he is accepting
the latters offer to sell the leased property, it appears that they did not reach an agreement as to the
extent of the lot subject of the proposed sale. This is evident from the April 15, 1993 reply-letter of
private respondent to petitioner, to wit:

I would like to inform you that I shall definitely exercise my option as embodied in Provision F
(First Option) of our Contract of Lease dated December 21, 1990. As per agreement, my first
option covers the 490 square meters site which I am currently leasing from you at 101 Caimito
Road, Caloocan City. Specifically, your Transfer Certificate of Title #247536 delineates the
property sizes as 492 square meters.

Your offer, however, states only 413.28 square meters are for sale to me. I trust that this is merely
an oversight on your part. Notwithstanding the rumors to the effect that part of the property have
already been sold to other parties, I would like to believe that you still retain absolute ownership
over the entire property covered by my Contract of Lease. Kindly enlighten me on this matter so
that we can proceed with the negotiations for the sale of your property to me.[28]

Likewise, in his November 7, 1993 reply-letter, private respondent stated that:

While it is true that you first offered your property for sale to me last April 14, 1993, it is also
equally true that you only correspond with me on this matter again on October 27, 1993. I answered
your April 14 offer with a registered mail on April 15, 1993. In it, I stated that I am definitely
exercising my first option to purchase your property in accordance with Provisions F of our
Contract of Lease dated December 21, 1990. Likewise, I requested you to explain the discrepancy
between the size of the property being offered for sale (413.28 square meters) as against the size
stated in my option which is 492 square meters. However, I did not get any reply from you on this
matter. Hence the negotiations got stalled. If anybody should be blamed for the prolonged
negotiation, then surely it is not all mine alone.[29]

The foregoing letters reveal that private respondent did not give his consent to buy only 413.28
square meters of the leased lot, as he desired to purchase the whole 490 square-meter-leased
premises which, however, was not what was exactly proposed in petitioners offer. Clearly,
therefore, private respondents acceptance of petitioners offer was not absolute, and will
consequently not generate consent that would perfect a contract.
Even assuming that the parties reached an agreement as to the size of the lot subject of the sale,
the records show that there was subsequently a mutual withdrawal from the contract.[30] This is so
because in the November 10, 1993 letter of petitioner, she gave private respondent until November
24, 1993 to pay 50% of the purchase price, with the caveat that failure to do so would authorize her
to sell to others the leased premises. The period within which to pay the downpayment is a new
term or a counter-offer in the contract which needs acceptance by private respondent.The latter,
however, failed to pay said downpayment, or to at least manifest his conformity to the period given
by petitioner. Neither did private respondent ask for an extension nor insist on the sale of the
subject lot. What appears in the record is private respondents November 29, 1993 letter informing
petitioner that he shall exercise or avail of the option to renew their lease contract for another three
years, starting January 1, 1994 to December 31, 1996. Evidently, there was a subsequent mutual
backing out from the contract of sale. Hence, private respondent cannot compel petitioner to sell
the leased property to him.
Considering that the lease contract was not renewed after its expiration on December 31, 1991,
private respondent has no more right to continue occupying the leased premises.Consequently, his
ejectment therefrom must be sustained.
As to the monthly rental to be paid by private respondent from the expiration of their contract
of lease until the premises is vacated, we find that the P12,000.00 awarded by the Metropolitan
Trial Court must be reduced to P8,500.00, it being the highest amount of monthly rental stated in
the lease contract.
WHEREFORE, the petition is GRANTED. The August 29, 1997 decision and the November
28, 1997 resolution of the Court of Appeals in CA-G.R. SP No. 40031 are SET ASIDE. The
Decision of the Metropolitan Trial Court of Caloocan, Branch 53, in Civil Case No. 21755 is
REINSTATED subject to the modification that the monthly rental to be paid by private respondent
from theDATE of the termination of the lease contract until the leased premises is vacated is
reduced to P8,500.00.
SO ORDERED.

G.R. No. 190823 April 4, 2011

DOMINGO CARABEO, Petitioner,


vs.
SPOUSES NORBERTO and SUSAN DINGCO, Respondents.

DECISION

CARPIO MORALES, J.:

On July 10, 1990, Domingo Carabeo (petitioner) entered into a contract denominated as "Kasunduan sa Bilihan ng
Karapatan sa Lupa"1 (kasunduan) with Spouses Norberto and Susan Dingco (respondents) whereby petitioner
agreed to sell his rights over a 648 square meter parcel of unregistered land situated in Purok III, Tugatog, Orani,
Bataan to respondents for P38,000.

Respondents tendered their initial payment of P10,000 upon signing of the contract, the remaining balance to be
paid on September 1990.

Respondents were later to claim that when they were about to hand in the balance of the purchase price, petitioner
requested them to keep it first as he was yet to settle an on-going "squabble" over the land.

Nevertheless, respondents gave petitioner small sums of money from time to time which totaled P9,100, on
petitioners request according to them; due to respondents inability to pay the amount of the remaining balance in
full, according to petitioner.

By respondents claim, despite the alleged problem over the land, they insisted on petitioners acceptance of the
remaining balance of P18,900 but petitioner remained firm in his refusal, proffering as reason therefor that he would
register the land first.
Sometime in 1994, respondents learned that the alleged problem over the land had been settled and that petitioner
had caused its registration in his name on December 21, 1993 under Transfer Certificate of Title No. 161806. They
thereupon offered to pay the balance but petitioner declined, drawing them to file a complaint before the Katarungan
Pambarangay. No settlement was reached, however, hence, respondent filed a complaint for specific performance
before the Regional Trial Court (RTC) of Balanga, Bataan.

Petitioner countered in his Answer to the Complaint that the sale was void for lack of object certain, the kasunduan
not having specified the metes and bounds of the land. In any event, petitioner alleged that if the validity of the
kasunduan is upheld, respondents failure to comply with their reciprocal obligation to pay the balance of the
purchase price would render the action premature. For, contrary to respondents claim, petitioner maintained that
they failed to pay the balance of P28,000 on September 1990 to thus constrain him to accept installment payments
totaling P9,100.

After the case was submitted for decision or on January 31, 2001,2 petitioner passed away. The records do not
show that petitioners counsel informed Branch 1 of the Bataan RTC, where the complaint was lodged, of his death
and that proper substitution was effected in accordance with Section 16, Rule 3, Rules of Court.3

By Decision of February 25, 2001,4 the trial court ruled in favor of respondents, disposing as follows:

WHEREFORE, premises considered, judgment is hereby rendered ordering:

1. The defendant to sell his right over 648 square meters of land pursuant to the contract dated July 10,
1990 by executing a Deed of Sale thereof after the payment of P18,900 by the plaintiffs;

2. The defendant to pay the costs of the suit.

SO ORDERED.5

Petitioners counsel filed a Notice of Appeal on March 20, 2001.

By the herein challenged Decision dated July 20, 2009,6 the Court of Appeals affirmed that of the trial court.

Petitioners motion for reconsideration having been denied by Resolution of January 8, 2010, the present petition for
review was filed by Antonio Carabeo, petitioners son,7 faulting the appellate court:

(A)

in holding that the element of a contract, i.e., an object certain is present in this case.

(B)

in considering it unfair to expect respondents who are not lawyers to make judicial consignation after
herein petitioner allegedly refused to accept payment of the balance of the purchase price.

(C)

in upholding the validity of the contract, "Kasunduan sa Bilihan ng Karapatan sa Lupa," despite the lack of
spousal consent, (underscoring supplied)

and proffering that

(D)

[t]he death of herein petitioner causes the dismissal of the action filed by respondents; respondents cause
of action being an action in personam. (underscoring supplied)

The petition fails.

The pertinent portion of the kasunduan reads:8

xxxx

Na ako ay may isang partial na lupa na matatagpuan sa Purok 111, Tugatog, Orani Bataan, na may sukat na 27 x
24 metro kuwadrado, ang nasabing lupa ay may sakop na dalawang punong santol at isang punong mangga, kayat
ako ay nakipagkasundo sa mag-asawang Norby Dingco at Susan Dingco na ipagbili sa kanila ang karapatan ng
nasabing lupa sa halagang P38,000.00.
x x x x (underscoring supplied)

That the kasunduan did not specify the technical boundaries of the property did not render the sale a nullity. The
requirement that a sale must have for its object a determinate thing is satisfied as long as, at the time the contract is
entered into, the object of the sale is capable of being made determinate without the necessity of a new or further
agreement between the parties.9 As the above-quoted portion of the kasunduan shows, there is no doubt that the
object of the sale is determinate.

Clutching at straws, petitioner proffers lack of spousal consent. This was raised only on appeal, hence, will not be
considered, in the present case, in the interest of fair play, justice and due process.10

Respecting the argument that petitioners death rendered respondents complaint against him dismissible, Bonilla v.
Barcena11 enlightens:

The question as to whether an action survives or not depends on the nature of the action and the damage sued for.
In the causes of action which survive, the wrong complained [of] affects primarily and principally property and
property rights, the injuries to the person being merely incidental, while in the causes of action which do not survive,
the injury complained of is to the person, the property and rights of property affected being incidental. (emphasis
and underscoring supplied)

In the present case, respondents are pursuing a property right arising from the kasunduan, whereas petitioner is
invoking nullity of the kasunduan to protect his proprietary interest. Assuming arguendo, however, that the
kasunduan is deemed void, there is a corollary obligation of petitioner to return the money paid by respondents, and
since the action involves property rights,12 it survives.
1avv phi 1

It bears noting that trial on the merits was already concluded before petitioner died. Since the trial court was not
informed of petitioners death, it may not be faulted for proceeding to render judgment without ordering his
substitution. Its judgment is thus valid and binding upon petitioners legal representatives or successors-in-interest,
insofar as his interest in the property subject of the action is concerned.13

In another vein, the death of a client immediately divests the counsel of authority.14 Thus, in filing a Notice of Appeal,
petitioners counsel of record had no personality to act on behalf of the already deceased client who, it bears
reiteration, had not been substituted as a party after his death. The trial courts decision had thereby become final
and executory, no appeal having been perfected.

WHEREFORE, the petition is DENIED.

HICOBLINO M. CATLY
(Deceased), Substituted by his G.R. No. 167239
wife, LOURDES A. CATLY,
Petitioner,
Present:

- versus -
CORONA, J.,
Chairperson,
WILLIAM NAVARRO, ISAGANI VELASCO, JR.,
NAVARRO, BELEN DOLLETON, NACHURA,
FLORENTINO ARCIAGA, PERALTA, and
BARTOLOME PATUGA, MENDOZA, JJ.
DIONISIO IGNACIO,
BERNARDINO ARGANA, AND
ERLINDA ARGANA-DELA Promulgated:
CRUZ, and AYALA LAND, INC.,
Respondents. May 5, 2010

x-----------------------------------------------------------------------------------------x

DECISION
PERALTA, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45 of the Rules of Court
seeking to set aside the Decision[1]DATED December 13, 2004 of the Regional Trial Court
(RTC), Branch 255, Las Pias City in Civil Case No. 93-3094, entitled William Navarro, Isagani
Navarro, Iluminada Legaspi, Belen Dolleton, Florentino Arciaga, Bartolome Patuga, Dionisio
Ignacio, Bernardino Argana, and Erlinda Argana-Dela Cruz [plaintiffs] v. Ayala Land, Inc.
(formerly Las Pias Ventures, Inc.), [defendant], and Estrellita Londonio, Emerita Feolino,
Porfirio Daen, and Timoteo Arciaga [intervenors], stating that petitioner Atty. Hicoblino M.
Catly will be entitled only to the reduced amount of P1,000,000.00 as additional attorneys fees,
not the entire amount of P20,000,000.00 as prayed for, and its Order[2]DATED March 1, 2005
denying reconsideration of the said decision.

Respondents Navarro, et al. (therein eight (8) plaintiffs) filed a Complaint[3] dated September 6,
1993 with the RTC, Branch 147, Makati City, against Las Pias Ventures, Inc. (therein
defendant, now substituted by herein respondent Ayala Land, Inc. [ALI]), for annulment of
Transfer Certificate of Title (TCT) No. T-5332 and recovery of possession with
damages. Respondents were represented by petitioner, now deceased and substituted in this case
by his wife, Lourdes A. Catly. In their Complaint, respondents alleged that they owned and
occupied 32 hectares of land which were registered in the name of their predecessors-in-interest
in 1920, as evidenced by tax declarations; that after conducting a relocation survey, a portion of
their land was included in a parcel of land covered by TCT No. T-5332, then registered in the
name of Las Pias Ventures, Inc., containing an area of 370,868 square meters, more or less; that
the parcel of land covered by TCT No. T-5332 originated from Original Certificate of Title
(OCT) No. 1421, pursuant to Decree No. N-60635 and issued in L.R.C. Record No. 45516,
Case No. 976 which, in a Partial Decision dated September 26, 1986 rendered by the RTC of
Pasig, Branch 167, was ordered cancelled and set aside; that since TCT No. T-5332 belonging
to Las Pias Ventures, Inc. originated from OCT No. 1421, the same must, consequently, be
cancelled and declared null and void; that respondents also filed a complaint before the
Commission on the Settlement of Land Problems (COSLAP), docketed as Case No. 027-90,
against Las Pias Ventures, Inc. for deliberately fencing the subject property, including a
government road to the area known as Daang Hari and, thus, depriving them access to their
property; that COSLAP noted in its resolution that per Sketch Plan SK-004, Lot 10, PSU-
80886, AP 4217, the subject property actually contained an area of only 70,868 sq. m., not
370,868 sq. m. which appeared in the title of Las Pias Ventures, Inc.; and that Las Pias
Ventures, Inc. and its predecessors-in-interest were in bad faith when they fraudulently,
forcibly, and stealthily acquired possession over their property by cutting and bulldozing 104
fruit-bearing mango trees so as to pave the way for the construction of subdivision roads. Thus,
respondents prayed that TCT No. T-5332 be declared null and void and that Las Pias Ventures,
Inc. be directed to open the gate leading to Daang Hariroad, and that Las Pias Ventures, Inc. be
ordered to restore possession of the property to the respondents and to pay the respondents
actual and moral damages, attorneys fees, and expenses of litigation.

On December 3, 1993, respondent ALI filed a Motion for Substitution[4] praying that it be
substituted in place of Las Pias Ventures, Inc. as party-defendant by virtue of the Certificate of
Filing of the Articles of Merger,[5] dated November 6, 1992, entered into between them. On
even date, it also filed a Motion to Dismiss[6]averring that the trial court has no jurisdiction over
the case as the respondents did not pay the proper amount of filing fees, that their complaint
failed to state a cause of action, and that their cause of action had already prescribed.

Meanwhile, respondents sought to declare respondent ALI in default,[7] which the latter
opposed. On December 27, 1993, pending the resolution of the said incidents, respondents filed
with the trial court a Motion to Prosecute Action as Pauper[8] on the ground that their individual
gross income did not exceed P4,000.00 a month.Moreover, respondents moved to admit their
Amended Complaint[9] dated December 27, 1993, adding that respondent ALI was named
therein as a party-defendant and the titles sought to be declared null and void would be TCT
Nos. T-36975 to T-36983, instead of TCT No. T-5332, as the land formerly under TCT No. T-
5332 had been subdivided and presently covered by TCT Nos. T-36975 to T-36983 which was
duly registered in the name of respondent ALI.

Thereafter, since the subject properties were located in Las Pias, the case was re-raffled to the
RTC of Las Pias City, Branch 255, then presided by Judge Florentino M. Alumbres.
In its Order[10] dated January 3, 1995, the trial court granted the motion of respondents to
prosecute the case as pauper litigants and exempted them from paying the legal fees.

In an Order[11] dated May 3, 1995, the trial court denied respondent ALIs Motion to Dismiss
Amended Complaint.[12]

In its Order[13] dated July 31, 1995, the trial court denied the motion of respondents to declare
respondent ALI in default for lack of merit.

In its Answer to Amended Complaint[14] dated August 18, 1995, respondent ALI countered that
the case involved a real action where the assessed value of the property, or if there be none, the
estimated value thereof, should have been stated and used as the basis for computation of the
filing fees to be paid by respondents; that respondents did not state the assessed value of the
property either in the body or prayer of the Amended Complaint; that using the conservative
figure of P1,000.00 per sq. m., the property claimed by respondents would be
worth P320,000,000.00 and, thus, the filing fees to be paid by them would have been at
least P1,602,350.00; that since respondents failed to pay the proper filing fees, the trial court did
not acquire jurisdiction over the case; that the amended complaint of respondents failed to state
a cause of action as the property subject of litigation was not properly identified; that
respondents invoked the September 24, 1986 Partial Decision[15] of therein trial court in favor of
one Jose Velasquez, but the same never became final and executory and was superseded by the
December 12, 1986 Judgment,[16] whereby Jose Velasquezs rights were quitclaimed and
transferred to International Corporate Bank and its transferees; that res judicata barred the
complaint of respondents, since the proceedings which led to the issuance of a decree in a land
case were proceedings in rem that would bind the whole world and, thus, the issuance of Decree
No. N-60635 in 1957 became binding upon respondents; that respondents cause of action to file
the complaint had prescribed, since an action to annul a decree of registration prescribes in one
year after its issuance, as in the case of Decree No. N-60635 and OCT No. 1421 which were
issued in 1957, but the complaint was filed only in 1993, or more than 30 years later; and that as
a consequence of this baseless suit, respondents should be ordered to pay moral and exemplary
damages, including attorneys fees and costs of suit.
Respondents and respondent ALI submitted their respective pre-trial briefs.[17] Respondent ALI
filed a Motion for Production of Documents[18] dated September 18, 1995 for the production of
survey plans and tax declarations alleged by respondents in their amended complaint and
Motion to Strike Out Amended Complaint[19]dated January 4, 1996 (which the trial court treated
as a third motion to dismiss) due to respondents non-payment of docket fees.

In its Order[20] dated March 4, 1996, the trial court denied respondent ALIs motions for lack of
merit and set the case for pre-trial on April 30, 1996 at 8:30 in the morning with a warning that
should respondent ALI file a fourth motion to dismiss, respondents would be allowed to present
their evidence ex-parte, and respondent ALIs counsel would be cited for contempt of court for
delaying the proceedings of the case.

Perceiving bias on the part of the trial judge, respondent ALI filed a Motion to
Inhibit[21] on March 25, 1996. The trial court, in its Order[22] dated May 27, 1996, also denied
respondent ALIs Motion to Inhibit then Presiding Judge Florentino M. Alumbres from hearing
the case as the grounds alleged therein did not fall under Section 1 of Rule 137 of the Rules of
Court and the filing of the same was solely for the purpose of delay.

On June 17, 1996, respondent ALI filed a Petition for Certiorari[23]with the Court of Appeals
(CA) assailing the trial courts Order dated January 3, 1995 (allowing respondents to litigate as
paupers) and Order dated March 4, 1996 (denying respondent ALIs motions). In its Decision
dated September 27, 1996, the CA dismissed respondent ALIs petition and, later, denied the
reconsideration thereof.

Respondent ALI then filed a Petition for Review on Certiorari, in G.R. No. 127079, with
this Court, alleging that the CA erred in holding that respondents are pauper-litigants and in
sustaining the trial courts Order denying its motion for inhibition and, later, a Supplemental
Petition for Certiorari (with Application for Temporary Restraining Order and Writ of
Preliminary Injunction) dated November 9, 2000 seeking to enjoin the trial court from
proceeding with the case insofar as the complaint-in-intervention of Porfirio A. Daen is
concerned.

On May 13, 1997, pending the resolution of respondent ALIs petitions, both parties executed a
Memorandum of Agreement (MOA),[24] where herein 8 respondents and 66 other therein
plaintiffs (heirs of Lorenzo dela Cruz, Florentino Navarro, Jose Dolleton, Patricio dela Cruz,
Ignacio Arciaga, Dionisio Dolleton, Leon Argana, Esteban Patuga, respectively), assisted by
petitioner, waive, renounce and cede in favor of respondent ALI, represented by its Senior Vice-
President and General Counsel Mercedita S. Nolledo and Assistant Vice-President Ricardo N.
Jacinto, and assisted by its counsel, any and all rights of exclusive ownership over the subject
properties. The said MOA provides that:

MEMORANDUM OF AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

This Memorandum of Agreement, made and entered into by and between:


The persons listed in Annex A [herein 8 respondents and 66 other therein
plaintiffs] hereof, all Filipino citizens, and residents of Muntinlupa,
Metro Manila, hereinafter referred to collectively as the Heirs;

and

AYALA LAND, INC., a corporation organized and existing under the


laws of the Philippines, with address at Tower One, Ayala Triangle,
Ayala Avenue, Makati City, Metro Manila, hereinafter referred to as
ALI and represented herein by its Senior Vice-President and General
Counsel, Ms. Mercedita S. Nolledo;

WHEREAS, the Heirs represent themselves to be the successors-in-interest of


Lorenzo [dela] Cruz, Jose Dolleton, Patricio [dela] Cruz, Dionisio Dolleton, Esteban
Patuga, Florentino Navarro, Ignacio Arciaga, and Leon Argana (collectively, the
Predecessors), with respect to their claims over Lot 10 of Psu-80886 (Ap 4217),
covering an area of approximately 370,868 square meters, more or less;
WHEREAS, ALI is the registered owner of several parcels of land in Las Pias,
Metro Manila under TCT Nos. T-36975 to T-36983, which titles were derived from
TCT No. T-5332 which, in turn, was derived from OCT No. 1421, as per Decree No.
N-60635, L.R.C. Record No. 45516, Case No. 976;

WHEREAS, Lot 10 of Psu-80886 is now under ALIs TCT Nos.


T-6975 to T-36983;

NOW, THEREFORE, for and in consideration of the mutual covenants hereinbelow


specified, the parties hereto hereby agree as follows:

1. For and in consideration of the sums to be paid by ALI as stated in par. 2 x x x


hereof, the Heirs hereby:
a) Waive, renounce and cede, in favor of ALI, any and all rights to exclusive
ownership or co-ownership, past, present or future, xxx

xxxx

2.1 First Tranche. The first tranche payment shall be in the amount of Ninety-
Nine Million Nine Hundred Ninety-Five Thousand Six Hundred Thirty Pesos and
Forty-Six Centavos (P99,995,630.46), Philippine Currency, which sum shall be, as it
is hereby, paid directly to the Heirs immediately upon execution of this Agreement;
and the receipt of which amount said Heirs hereby so acknowledge to their full
satisfaction, thereby rendering immediately operative the releases and waivers in
parcel hereof. Upon the collective request of the said Heirs, the said payment is
hereby broken down as follows.

xxxx

2.2 Second Tranche. The sum of Twenty Million Pesos (P20,000,000.00) shall
be payable to the payees named below ninety (90) days after the date of execution of
this Agreement. Likewise at the request of all the Heirs, the said payment should be
broken down as follows as and when it becomes due.
xxxx

2.3 The Heirs also unqualifiedly declare that their agreement with each other as
to the sharing of the proceeds of the settlement is exclusively between and among
themselves, and any dispute or controversy concerning the same does not affect this
Agreement or their Joint Motion for Judgment Based on Compromise to be signed
and filed in court by the parties hereto. Release of the balance referred to in par. 2.2
hereto by ALI to the Heirs shall completely and absolutely discharge all of ALIs
obligations under the said Joint Motion for Judgment Based on Compromise to the
Heirs.

3. Upon execution hereof, the Heirs and all persons claiming rights under them
shall immediately vacate the area comprising the Property, or any portion thereof
which they may still be occupying, if any. The failure of the Heirs and all persons
claiming rights under them to vacate the Property or any portion thereof which they
may still be occupying shall entitle ALI to secure a writ of execution to eject them
from any portion of the Properties.

4. The Heirs have entered into this Agreement in their respective personal
capacities and as successors-in-interest of their Predecessors. They hereby jointly and
severally warrant that they collectively constitute the totality of all the heirs of the
Predecessors and that no one has been left out or otherwise excluded. Any breach of
this warranty shall be deemed a substantial breach of this Agreement and each breach
hereof shall be deemed a breach by all the Heirs.

5. The Heirs expressly warrant that they own and possess all of the rights and
interests claimed by the Predecessors to the Properties, and that there are no other
claimants to the said rights and interests.

6. The Heirs warrant that they have not sold, leased, mortgaged or in any way
encumbered in favor of any third party or person whatsoever, nor have they otherwise
diminished their rights to the Properties by any act or omission [including but not
limited to the non-payment of realty taxes].

7. The Heirs expressly warrant that only they, individually and collectively,
have any claim to the Properties arising from the documents and decisions mentioned
in pars. 1 (a) and 1 (b) hereof as they relate to pars. 5 and 6 hereof.

8. All the foregoing warranties are to be treated as perpetual in character.

9. In case of breach of any of their warranties in pars. 5, 6 and 7, above and any
of their covenants elsewhere in this Memorandum of Agreement, the Heirs shall hold
ALI, its officers, stockholders, agents and assigns free and harmless, without regard to
the amount of damage or claims, from any claim or suit lodged or filed against them
by third parties claiming to be them or to be authorized by them, or in any manner
claiming rights to the Properties.

10. With the exception of the consideration described in par. 2 hereof, the Heirs
acknowledge that no representation, undertaking, promises or commitment of present
or future fact, opinion or event has been made by ALI to induce this Agreement. The
Heirs acknowledge that they have entered into this Agreement relying solely on their
own independent inquiry into all relevant facts and circumstances and with
knowledge, or with full opportunity to obtain such knowledge, of all the facts relating
to the allegations upon which their claims are based.

Accordingly, any law or jurisprudence purporting to give the Heirs the option
to either revive their original demand or enforce this Agreement in the event of breach
thereof, notwithstanding, the Heirs agree that their claims shall remain extinguished in
any event and shall not be revived for any reason and upon any ground whatsoever,
and that they shall be barred from asking for the rescission hereof and from annotating
any lis pendens or adverse claim on ALIs aforementioned titles.

11. On the other hand, ALI has entered into this Memorandum of Agreement
relying solely upon the Heirs representations in pars. 5, 6 and 7 hereof and their
waivers, obligations and undertakings in pars. 1 and 3 hereof. Accordingly, in the
event of the falsity of these representations and/or breach of these waivers, obligations
and undertakings, ALI shall, in addition to its rights under pars. 9 and 10 hereof which
shall, in any case, remain effective, have the right to rescind this Agreement, without
however and moreover waiving the releases made by the Heirs in its favor under par.
1 hereof.

12. The Heirs hereby likewise quitclaim and waive, in favor of ALIs
predecessors, any and all causes of action which they may have against such
predecessors.

13. All parties hereto acknowledge that each of them has read and understood
this Memorandum of Agreement or that the same has been read and explained to each
of them in a language that they understand by her/its respective counsel.

14. The Heirs hereby agree to execute such documents as may be required to
carry out the purpose of this Memorandum of Agreement.

IN WITNESS WHEREOF, the parties hereby set their hands this 13 th day of
May, 1997 at Makati City, Philippines.[25]

On the same day, May 13, 1997, therein plaintiffs (including herein respondents), as
successors-in-interest, and respondent ALI executed the Joint Motion for Judgment Based on
Compromise expressing their desire toward an amicable settlement. Thus,

JOINT MOTION FOR JUDGMENT


BASED ON COMPROMISE

WHEREAS, the plaintiffs represent themselves to be the sole and exclusive


successors-in-interest of Lorenzo dela Cruz, Jose Dolleton, Patricio dela Cruz,
Dionisio Dolleton, Esteban Patuga, Florentino Navarro, Ignacio Arciaga, and Leon
Argana (collectively, the Predecessors), with respect to their claims over Lot 10 of
Psu-80886 (Ap 4217), covering an area of approximately 370,868 square meters,
more or less;

WHEREAS, Ayala Land, Inc. (ALI) is the registered owner of several parcels of land
in Las Pias, Metro Manila under TCT Nos. T-36975 to T-36983, which titles were
derived from TCT No. T-5332 which, in turn, was derived from OCT No. 1421, as per
Decree No. N-60635, L.R.C. Record No. 45516, Case No. 976;

WHEREAS, Lot 10 of Psu-80886 is now under ALIs TCT Nos. T-36975 to T-36983;

NOW, THEREFORE, plaintiffs and defendant, assisted by their respective counsel[s],


and desiring to put an end to litigation between them, hereby respectfully request the
Honorable Court to render judgment based on the compromise reached by the parties
herein, upon the following terms and conditions:

1. For valuable consideration already fully and completely received, plaintiffs hereby:
a) Waive, renounce and cede, in favor of ALI, any and all rights to exclusive
ownership or co-ownership, past, present or future, which they may have
over those parcels of land known as Lot 10 of Plan Psu-80886 and/or
any amendment thereof, as recorded in Original Certificate of Title
(OCT) No. 1421 issued by the Register of Deeds of Rizal on November
26, 1957 pursuant to Decree No. N-60635, and now under Transfer
Certificate of Title (TCT) Nos. 36975 to 36983, and/or any portion of
what is now generally known as the Ayala Southvale Residential
Subdivision Project, regardless of the source basis of such
claim. Said Lot 10 and any and all other lots/portions and lands over
which plaintiffs may have any claim (whether or not arising from Psu-
80886) are hereafter referred to as the Properties.

b) Waive, renounce and cede, in favor of ALI, any and all rights of exclusive
ownership or co-ownership, past, present or future, which they may
have, pertaining to the Properties and arising from any and all other
judicial or administrative decisions from which they may derive any
rights of ownership or possession with respect to the Properties.

c) Expressly transfer and assign to ALI all of their rights indicated in items 1, a)
and 1, b) above.
d) Expressly acknowledge and affirm, in any case, the validity, efficacy and
superiority of ALI's Torrens Certificates of Title Nos. T-36975 to T-
36983 issued by the Register of Deeds of Las Pias, as well as all their
predecessor titles and any and all derivative titles which in the future
may be issued, over the area covered by Properties, in particular, Lot 10
of Plan Psu-80886, and any amendment thereof, over the area covered
by OCT No. 1421 and any other title derived therefrom.Plaintiffs'
intention herein, is to unqualifiedly declare, that they have absolutely no
other rights, claims, reservations or interests in the lands covered by
ALI's titles and/or any portion of what is now generally referred to as the
Ayala South[v]ale Residential Subdivision Project, whether or not
arising out of said Psu-80886 and/or any amendment thereof;

e) Expressly acknowledge and affirm that they have inspected and


verified the area presently being occupied and possessed by ALI and, by
these presents, unqualifiedly declare that their claim, which is assigned
and transferred to ALI in this Agreement, covers the very same area
presently occupied by ALI and that this Agreement resolves with finality
all issues concerning the location of the Properties vis--vis the area
covered by ALI's titles and which area is actually and physically
possessed by ALI.

2. Plaintiffs and all persons claiming rights under them shall immediately
vacate the area comprising the Property, or any portion thereof which they may still
be occupying. The failure of plaintiffs and all persons claiming rights under them to
vacate the Property or any portion thereof which they may still be occupying shall
entitle ALI to secure a writ of execution to eject them from any portion of the
Properties.

3. Plaintiffs and their co-heirs have entered into this Agreement in their
respective personal capacities and as successors-in-interest of their Predecessors. They
hereby jointly and severally warrant that they collectively constitute the totality of all
the heirs of the Predecessor and that no one has been left out or otherwise
excluded. Any breach of this warranty shall be deemed a substantial breach of this
Agreement, and each breach hereof shall be deemed a breach by all the Heirs.

4. Plaintiffs expressly warrant that they own and possess all of the rights and
interests claimed by the Predecessors to the Properties, and that there are no other
claimants to the said rights and interests.

5. Plaintiffs warrant that they have not sold, leased, mortgaged or in anyway
encumbered, in favor of any third party or person, or otherwise diminished their rights
to the Properties by any act or omission [including but not limited to the non-payment
of realty taxes].

6. Plaintiffs expressly warrant that there are no other claims to the Properties
arising from the documents and decisions mentioned in pars. 1(a) and 1(b) hereof as
they relate to pars. 4 and 5 hereof.

7. All the foregoing warranties are perpetual in character.

8. In case of breach of any of their warranties in pars. 4, 5 and 6 above and any
of their covenants in this Joint Motion for Judgment Based on Compromise, plaintiffs
shall hold ALI, its officers, stockholders, agents and assigns free and harmless,
without regard to the amount of damage or claims, from any claim or suit lodged or
filed against them by any of the plaintiffs, or third parties claiming to be authorized by
them, or in any manner claiming rights to the Properties.

9. With the exception of the consideration described in par. 1 hereof, plaintiffs


acknowledge that no representation, undertaking, promises, or commitment of present
or future fact, opinion or event has been made by ALI to induce this
Agreement. Plaintiffs acknowledge that they have entered into this Agreement relying
solely on their own independent inquiry into all relevant facts and circumstances and
with knowledge, or with full opportunity to obtain such knowledge, of all the facts
relating to the allegations upon which their claims are based.

Accordingly, any law or jurisprudence purporting to give plaintiffs the option to either
revive their original demand or enforce this Agreement in the event of breach thereof,
notwithstanding, the plaintiffs agree that their claims shall remain extinguished in any
event and shall not be revived for any reason and upon any ground whatsoever, and
that they shall be barred from asking for the rescission hereof and from annotating
any lis pendens or adverse claim on ALIs aforementioned titles.

10. On the other hand, ALI has entered into this Agreement relying solely upon
plaintiffs representations in paragraphs 4, 5 and 6 hereof and their waivers, obligations
and undertakings in pars. 1 and 2 hereof. Accordingly, in the event of the falsity of
these representations and/or breach of these waivers, obligations and undertakings,
and in addition to its rights under paragraphs 8 and 9 hereof which shall, in any case,
remain effective, ALI shall have the right to rescind this Compromise Agreement,
without, however, waiving the releases made by the plaintiffs in its favor under par. 1
hereof.

11. Plaintiffs hereby likewise quitclaim and waive, in favor of ALI and ALIs
predecessors, any and all causes of action which they may have against such
predecessors.
12. All parties hereto acknowledge that each of them has read and understood
this Agreement or that the same has been read and explained to each of them in a
language that they understand by his/her/its respective counsel.

13. Plaintiffs hereby agree to execute such documents as may be required to


carry out the purpose of this Compromise Agreement.

PRAYER

WHEREFORE, it is respectfully prayed that judgment be rendered by this Honorable


Court in accordance with the terms and conditions of the above Compromise
Agreement of the parties.

Other reliefs, just and equitable in the premises, are likewise prayed for.

Makati City for Las Pias, 13 May 1997.[26]

On May 14, 1997, petitioner filed a Manifestation and Motion[27] with the trial court alleging
that he was not consulted when therein heirs signed the MOA; that his Contract for Legal and
Other Valuable Services[28] dated September 3, 1993, wherein respondents engaged his services
as counsel, be noted on record; that should there be an amicable settlement of the case, his
attorneys fees should be awarded in full as stipulated in the contract to fully compensate his
efforts in representing herein respondents and therein heirs; and that the trial court issued an
order confirming his right to collect his attorneys fees to the exclusion of the other agents and
financiers. Petitioner also appended therein a copy of the Authority to Collect Attorneys Fee[s]
as Stipulated in the Contract for Legal Services and Other Valuable Considerations [29] which
stated that should there be an amicable settlement of the case by way of respondent ALI paying
respondents any amount which may be agreed upon by the parties, the respondents authorize
petitioner to directly collect from respondent ALI his 25% attorneys fees and that they authorize
respondent ALI to deduct the 25% attorneys fees from the total amount due them and to pay
and deliver the same to petitioner, his heirs or assigns.

On May 27, 1997, respondents, respondent ALI, and petitioner executed an Amendatory
Agreement incorporating the provision that, in addition to the P10,000,000.00 attorneys fees as
previously agreed upon, petitioner would also be entitled to the amount of Twenty Million
(P20,000,000.00) Pesos as additional attorneys fees, or a total amount of P30,000,000.00,
subject to the trial courts approval.

AMENDATORY AGREEMENT

KNOW ALL MEN BY THESE PRESENTS:

DIONISIO IGNACIO, WILLIAM NAVARRO, DIONISIO ARCIAGA,


ILUMINADA LEGASPI, BELEN DOLLETON, ISAGANI NAVARRO,
BERNARDINO ARGANA, BARTOLOME PATUGA (collectively, the Heads of the
Families), LEOPOLDO ESPIRITU. EMERITA FEOLINO, and ESPERANZA
ESPIRITU (collectively, the Brokers), ATTY. HICOBLINO M. CATLY (Atty.
Catly), and Ayala Land, Inc. (ALI), do hereby declare:

WHEREAS, the Heads of the Families are among the signatories to the 13 May
1997 Memorandum of Agreement (the MOA) with ALI;
WHEREAS, the Heads of the Families and the Brokers are collectively entitled
to the sum of Nineteen Million Pesos (P19,000,000.00) under the Second Tranche
payment of the MOA;
WHEREAS, under the terms of the MOA, ALI was authorized by the Heads of
the Families and their co-heirs to pay for their account Atty. Catly an aggregate
amount of Ten Million Pesos (P10,000,000.00) under the First and Second Tranche
payments of the MOA;

WHEREAS, Atty. Catly has claimed from the Heirs (as this term is defined in
the MOA), an additional Twenty Million Pesos (P20,000,000.00) for his attorneys
fees, which claim is pending resolution before Branch 255 of the Regional Trial Court
of Las Pias (the Las Pias Court) in Civil Case No. 93-3094 entitled William Navarro,
et al. v. Ayala Land, Inc. (Civil Case No. 93-3094);

NOW, THEREFORE, the parties declare and covenant as follows:

1. The respective amounts to be received by the following under the First


Tranche provided in Par. 2.1 of the MOA are hereby recomputed and adjusted as
follows:
From To
1. Dionisio Ignacio P9,086,345.98 P8,850,245.98
2. William Navarro 5,079,636.68 4,947,636.68
3. Dionisio Arciaga 651,333.74 634,433.74
4. Iluminada Legaspi 1,286,749.30 1,253,349.30
5. Belen Dolleton 1,415,875.84 1,379,075.84
6. Isagani Navarro 3,302,585.86 3,216,785.86
7. Bernardino Argana 922,224.90 898,224.90
8. Bartolome Patuga 1,741,572.23 1,696,272.23
9. Leopoldo Espiritu
(financier) 11,000,000.00 10,714,200.00
10. Emerita Feolino
(agent) 1,500,000.00 1,461,000.00
11. Esperanza Espiritu
(agent) 750,000.00 730,000.00
12. Leopoldo Espiritu
(agent) 1,750,000.00 1,704,500.00
13. Hicoblino Catly
(attorneys fees) 9,000,000.00 10,000,000.00

The recomputed and adjusted amounts set forth under the second column above shall
be in lieu of the amounts provided for under Par. 2.1 of the MOA.

2. The Heads of the Families, the Brokers and Atty. Catly agree to abide by the final
decision or resolution of the Las Pias Court in Civil Case No. 93-3094 on the total
amount of attorneys fees that should be paid to Atty. Catly. They agree to implement
the said decision or resolution, once it attains finality, immediately and without any
delay.
3. The provisions of Paragraph 2.2. of the MOA, notwithstanding, the Heads of the
Families and the Brokers authorize ALI to retain the sum of Twenty Million Pesos
(P20,000,000.00) provided under the Second Tranche of the MOA, which sum ALI
shall apply to the satisfaction of the claim of Atty. Catly for attorneys fees once this is
finally decided and resolved by the Las Pias Court and in such amount as such court
shall declare. Any balance remaining after the satisfaction of Atty. Catlys claim in
accordance with the decision or resolution of the Las Pias Court shall be paid by ALI
to the Heads of the Families and the Brokers in proportion to the amounts
corresponding to them as set forth in Paragraph 2.2 of the MOA upon the lapse of the
90-day period referred to in such agreement or theDATE of the finality of the Las
Pias Courts decision or resolution on Atty. Catlys claim, whichever is later.

4. Atty. Catly accepts the amount set forth in the MOA and such other amount, if any,
as the Las Pias Court may declare, as the final settlement of his claim for attorneys
fees and waives all other claims which he may have in connection with Civil Case No.
93-3094. In acknowledgment thereof, he shall affix his own signature on the MOA.

5. Upon signing this Amendatory Agreement, the Heads of the Families and Atty.
Catly shall turn over to ALI all documents in their possession, whether original or
otherwise, which support or which they intend to present as evidence in support of
their claim in Civil Case No. 93-3094.

6. By signing this Amendatory Agreement, the Heads of the Families, who are the
plaintiffs in Civil Case No. 93-3094 hereby unconditionally and irrevocably authorize
the cancellation of the notice of lis pendens annotated on ALIs TCT Nos. T-36975 to
T-36983 under Entry No. 758-11 dated 16 June 1994, which annotations were made at
the instance of Atty. Catly on behalf of the Heads of the Families. This Amendatory
Agreement constitutes an authority to ALI to effect the cancellation of the said notice
of lis pendens on behalf of the plaintiffs in Civil Case No. 93-3094.

7. Nothing herein shall be construed to amend, supersede or revoke to any extent the
terms and conditions of the MOA in any other respect, except as provided herein, and
only insofar as the signatoriers hereto are concerned.

IN WITNESS WHEREOF, we have signed this Declaration and Waiver this ____ day
of May, 1997 at Makati City.

DIONISIO IGNACIO WILLIAM NAVARRO

DIONISIO ARCIAGA ILUMINADA LEGASPI

BELEN DOLLETON ISAGANI NAVARRO

BERNARDINO ARGANA BARTOLOME PATUGA

LEOPOLDO ESPIRITU EMERITA FEOLINO

ESPERANZA ESPIRITU ATTY. HICOBLINO M. CATLY

AYALA LAND, INC.

By: Sgd.
MERCEDITA S. NOLLEDO

And

Sgd.
RICARDO JACINTO

Assisted by:

POBLADOR BAUTISTA & REYES


5th Floor, SEDCCO I Building
Rada cor. Legaspi Street
Legaspi Village, Makati City
By:
Sgd.
ALEXANDER J. POBLADOR
PTR No. 8002896/Makati/1-13-97
IBP No. 345214/Makati 3-1-93

DINO VIVENCIO A.A. TAMAYO


PTR No. 8003065/Makati/1-13-97
IBP No. 427804/Q.C./1-13-97

In his Motion to Withdraw Manifestation and MotionDATED May 27, 1997, filed on
July 9, 1997, petitioner stated that he would be withdrawing all objections to the May 13, 1997
MOA and prayed for the approval of the said MOA, without prejudice to his claim for attorneys
fees.
However, in an Order[30] dated June 10, 1997, the trial court held in abeyance its
resolution on the Joint Motion for Judgment Based on Compromise, pending the action of this
Court on respondent ALIs petition.

In its Order[31] dated June 23, 1997, the trial court directed the parties to formally submit a copy
of their amendatory agreement. In compliance therewith, the respondents submitted an
unnotarized but signed copy of the subject document, while respondent ALI later submitted the
notarized Amendatory Agreement dated May 27, 1997.

On July 14, 1997, respondent ALI filed a Manifestation and Motion informing the trial court
that it agreed to pay the 8 respondents and 66 other heirs (or a total of 74 claimants) the total
amount of P120,000,000.00, P10,000,000.00 of which would be paid to petitioner as attorneys
fees. It also stated that as petitioner claimed for a higher amount of attorneys fees, the parties
executed the amendatory agreement with the understanding that the issue of how much of the
additional P20,000,000.00, if any, that petitioner would be entitled to by way of attorneys fees,
would have to be resolved by the trial court.

On July 22, 1997, the trial court (per Judge Florentino M. Alumbres) rendered a Separate
Judgment in favor of the petitioner as follows:

SEPARATE JUDGMENT
Originally submitted to the Court for approval and judgment on June 9, 1997 is
the JOINT MOTION FOR JUDGMENT BASED ON COMPROMISEDATED May
13, 1997 of the parties, duly assisted by their counsels, Atty. Hicoblino M. Catly for
the plaintiffs and Atty. Alexander J. Poblador for the defendant.
During the hearing of the said motion on June 10, 1997, the parties discussed an
AMENDADORY AGREEMENT which relates to attorneys fees of Atty. Catly which
they alluded to as forming part of their compromise agreement, but the said
amendatory agreement has not yet been submitted to the Court. On June 23, 1997, an
order was issued directing the parties to submit the same for approval by the Court.

Thus, on June 27, 1997, in compliance with the said order, the plaintiffs
submitted their copy which is not notarized, while the defendant submitted its, duly
notarized, on July 4, 1997.
However, on July 15, 1997, this Court received a copy of defendants
MANIFESTATION AND MOTION dated July 14, 1997 which it filed with the
Honorable Supreme Court whereby it prayed that the Honorable Court itself approve
forthwith the parties Joint Motion for Judgment Based on Compromise dated 13 May
1997, without prejudice to the resolution by the Respondent Judge of Atty. Catlys
claim for attorneys fees. (Underlining supplied for emphasis). With that relief prayed
for before the High Court, what is left to be decided by this Court is on the matter of
the claim for a attorneys fees of Atty. Catly as contained in paragraphs 2, 3 and 4 of
the said Amendatory Agreement.

The AMENDATORY AGREEMENT reads, as follows:

KNOW ALL MEN BY THESE PRESENTS:

DIONISIO IGNACIO, WILLIAM NAVARRO, DIONISIO ARCIAGA,


ILUMINADA LEGASPI, BELEN DOLLETON, ISAGANI NAVARRO,
BERNARDINO ARGANA, BARTOLOME PATUGA (collectively, the Heads of the
Families), LEOPOLDO ESPIRITU. EMERITA FEOLINO, and ESPERANZA
ESPIRITU (collectively, the Brokers), ATTY. HICOBLINO M. CATLY (Atty.
Catly), and Ayala Land, Inc. (ALI), do hereby declare:

WHEREAS, the Heads of the Families are among the signatories to the 13 May
1997 Memorandum of Agreement (the MOA) with ALI;

WHEREAS, the Heads of the Families and the Brokers are collectively entitled
to the sum of Nineteen Million Pesos (P19,000,000.00) under the Second Tranche
payment of the MOA;
WHEREAS, under the terms of the MOA, ALI was authorized by the Heads of
the Families and their co-heirs to pay for their account Atty. Catly an aggregate
amount of Ten Million Pesos (P10,000,000.00) under the First and Second Tranche
payments of the MOA;

WHEREAS, Atty. Catly has claimed from the Heirs (as this term is defined in
the MOA), an additional Twenty Million Pesos (P20,000,000.00) for his attorneys
fees, which claim is pending resolution before Branch 255 of the Regional Trial Court
of Las Pias (the Las Pias Court) in Civil Case No. 93-3094 entitled William Navarro,
et al. v. Ayala Land, Inc. (Civil Case No. 93-3094);

NOW, THEREFORE, the parties declare and covenant as follows:

1. The respective amounts to be received by the following under the First


Tranche provided in Par. 2.1 of the MOA are hereby recomputed and adjusted as
follows:
From To
14. Dionisio Ignacio P9,086,345.98 P8,850,245.98
15. William Navarro 5,079,636.68 4,947,636.68
16. Dionisio Arciaga 651,333.74 634,433.74
17. Iluminada Legaspi 1,286,749.30 1,253,349.30
18. Belen Dolleton 1,415,875.84 1,379,075.84
19. Isagani Navarro 3,302,585.86 3,216,785.86
20. Bernardino Argana 922,224.90 898,224.90
21. Bartolome Patuga 1,741,572.23 1,696,272.23
22. Leopoldo Espiritu
(financier) 11,000,000.00 10,714,200.00
23. Emerita Feolino
(agent) 1,500,000.00 1,461,000.00
24. Esperanza Espiritu
(agent) 750,000.00 730,000.00
25. Leopoldo Espiritu
(agent) 1,750,000.00 1,704,500.00
26. Hicoblino Catly
(attorneys fees) 9,000,000.00 10,000,000.00

The recomputed and adjusted amounts set forth under the second column above shall
be in lieu of the amounts provided for under Par. 2.1 of the MOA.

2. The Heads of the Families, the Brokers and Atty. Catly agree to abide by the final
decision or resolution of the Las Pias Court in Civil Case No. 93-3094 on the total
amount of attorneys fees that should be paid to Atty. Catly. They agree to implement
the said decision or resolution, once it attains finality, immediately and without any
delay.
3. The provisions of Paragraph 2.2. of the MOA, notwithstanding, the Heads of the
Families and the Brokers authorize ALI to retain the sum of Twenty Million Pesos
(P20,000,000.00) provided under the Second Tranche of the MOA, which sum ALI
shall apply to the satisfaction of the claim of Atty. Catly for attorneys fees once this is
finally decided and resolved by the Las Pias Court and in such amount as such court
shall declare. Any balance remaining after the satisfaction of Atty. Catlys claim in
accordance with the decision or resolution of the Las Pias Court shall be paid by ALI
to the Heads of the Families and the Brokers in proportion to the amounts
corresponding to them as set forth in Paragraph 2.2 of the MOA upon the lapse of the
90-day period referred to in such agreement or the date of the finality of the Las Pias
Courts decision or resolution on Atty. Catlys claim, whichever is later.

4. Atty. Catly accepts the amount set forth in the MOA and such other amount, if any,
as the Las Pias Court may declare, as the final settlement of his claim for attorneys
fees and waives all other claims which he may have in connection with Civil Case No.
93-3094. In acknowledgment thereof, he shall affix his own signature on the MOA.

5. Upon signing this Amendatory Agreement, the Heads of the Families and Atty.
Catly shall turn over to ALI all documents in their possession, whether original or
otherwise, which support or which they intend to present as evidence in support of
their claim in Civil Case No. 93-3094.

6. By signing this Amendatory Agreement, the Heads of the Families, who are the
plaintiffs in Civil Case No. 93-3094 hereby unconditionally and irrevocably authorize
the cancellation of the notice of lis pendens annotated on ALIs TCT Nos. T-36975 to
T-36983 under Entry No. 758-11DATED 16 June 1994, which annotations were
made at the instance of Atty. Catly on behalf of the Heads of the Families. This
Amendatory Agreement constitutes an authority to ALI to effect the cancellation of
the said notice of lis pendens on behalf of the plaintiffs in Civil Case No. 93-3094.

7. Nothing herein shall be construed to amend, supersede or revoke to any


extent the terms and conditions of the MOA in any other respect, except as provided
herein, and only insofar as the signatoriers hereto are concerned.

Finding the terms and conditions set forth under the Amendatory Agreement to
be freely agreed upon, and the same not being contrary to law, morals, public order
and public policy, the same are hereby approved.
WHEREFORE, judgment is hereby rendered on the basis of the terms and
conditions agreed upon under the Amendatory Agreement with emphasis on
Paragraphs 2, 3 and 4 thereof, and in accordance with Section 5, Rule 36 of the Rules
of Civil Procedure.

ACCORDINGLY, the defendant [respondent ALI] is directed to immediately


release the sum of Twenty Million (P20,000,000.00) Pesos in favor of Atty. Hicoblino
M. Catly representing his attorneys fees as herein approved by the Court.

SO ORDERED.[32]

On July 28, 1997, petitioner filed an Ex-Parte Motion to Issue Writ for Execution of
Judgment[33] with the trial court to enforce his claim for attorneys fees pursuant to the Separate
Judgment dated July 22, 1997 on the premise that said judgment is immediately executory. This
prompted the respondents to file, in G.R. No. 127079, an Urgent Application for the Issuance of
a Temporary Restraining Order[34] with this Court seeking to enjoin the trial court from
enforcing the said Separate Judgment, particularly with regard to the P30,000,000.00 award of
attorneys fees in favor of the petitioner. Respondent ALI also opposed the petitioners ex-
parte motion.

In its Order dated August 25, 1997, the trial court held in abeyance the resolution on petitioner's
motion for execution of the trial courts Separate Judgment dated July 22, 1997 until the
respondents application for the issuance of a temporary restraining order shall have been
resolved by this Court.

In the meantime, Estrellita Londonio,[35] Emerita Feolino,[36] Porfirio Daen,[37] and Timoteo
Arciaga[38] filed their individual Complaints-in-Intervention raising therein their respective
rights and interests with regard to the subject property. Respondent ALI also filed its Answers-
in-Intervention.[39] Likewise, respondents filed a joint Answer-in-Intervention.[40] All parties
filed their respective Pre-trial Briefs.

In a Decision dated May 7, 2004, this Court (Third Division), in G.R. No. 127079,
entitled Ayala Land, Inc. v. William Navarro, Isagani Navarro, Iluminada Legaspi, Belen
Dolleton, Florentino Arciaga, Bartolome Patuga, Dionisio Ignacio, Bernardino Argana, and
Erlinda Argana, dismissed the petition of therein petitioner (herein respondent ALI) for being
moot, and ordered the remand of the records of the case to the trial court for the determination
on the propriety of the award of P30,000,000.00 attorneys fees in favor of petitioner. The
pertinent portions of the Decision state:

We now go back to the issue raised in the instant petition, i.e., whether or not
the Court of Appeals erred (a) in allowing respondents to litigate as paupers; and, (b)
in sustaining the trial courts order denying petitioners motion for inhibition.

Obviously, with the execution of the May 13, 1997 MOA or compromise
agreement and the May 27, 1997 amendatory agreement, the parties resolved to settle
their differences and put an end to the litigation.[41] It bears reiterating that on July 22,
1997, the trial court rendered its Judgment approving this amendatory agreement.

We have consistently held that a compromise agreement, once approved by


final order of the court, has the force of res judicata between the parties and should
not be disturbed except for vices of consent or forgery. In Armed Forces of the
Philippines Mutual Benefit Association v. Court of Appeals,[42] we also held:

Once stamped with judicial imprimatur, it (compromise


agreement) becomes more than a mere contract binding upon the parties;
having the sanction of the court and entered as its determination of the
controversy, it has the force and effect of any other judgment. It has the
effect and authority of res judicata, although no execution may issue
until it would have received the corresponding approval of the court
where the litigation pends and its compliance with the terms of the
agreement is thereupon decreed. A judicial compromise is likewise
circumscribed by the rules of procedure.

Thus, by virtue of the trial courts Judgment approving the parties amendatory
agreement (or amendatory compromise agreement), the instant petition has become
moot and academic.

In City of Laoag vs. Public Service Commission,[43] we ruled that a petition may
be dismissed in view of the compromise agreement entered into by the parties.

Relative to Atty. Catlys attorneys fees of P30,000,000.00, while it was agreed


upon by both parties in their MOA and amendatory agreement, however, they are now
contesting its reasonableness. In fact, petitioner filed with the trial court an opposition
to Atty. Catlys motion for execution of Compromise Judgment on the ground that his
attorneys fee is excessive and unconscionable; while respondents filed with this Court
a motion for the issuance of a temporary restraining order to enjoin the trial court
from granting Atty. Catlys motion.

The issue of whether or not Atty. Catlys attorneys fee is reasonable should be
resolved by the trial court. For one, this incident stemmed from Atty. Catlys motion
for execution of the compromise Judgment filed with the trial court. As earlier
stated, petitioner filed its opposition, also with the trial court. For another, this
incident appears to be factual and is being raised before us only for the first
time. In De Rama v. Court of Appeals,[44] we held that issues or questions of fact
cannot be raised for the first time on appeal.

WHEREFORE, the instant petition, being moot, is DENIED. Nonetheless, let


the records be remanded to the trial court for the purpose of resolving with dispatch
the propriety of Atty. Hicoblino Catlys attorneys fee of P30,000,000.00 being assailed
by both parties before that court.

SO ORDERED.[45]

In a Decision dated December 1, 2004, the trial court (per Judge Raul Bautista Villanueva)
approved the parties Joint Motion for Judgment Based on Compromise dated May 13, 1997,
dismissed all the complaints-in-intervention by therein intervenors, and directed respondents to
pay respondent ALI the amount of P563,358.00 by way of attorneys fees which shall be taken
from the second tranche payment and deducted from their pro-rata share. The salient portions
of the said Decision state:
Thereafter, a Memorandum of Agreement (MOA) dated May 13, 1997 (Exh. 6) was
entered into by the plaintiffs and the defendant Ayala Land wherein the latter agreed,
among others, to pay in two (2) tranches the sum of P99,995,630.46
and P20,000,000.00, respectively, or the total amount of P119,995,630.46, to the
plaintiffs and their co-heirs in amounts broken down for each of them, thus:
xxx xxx xxx
2.1 First Tranche. The first tranche payment shall be in the amount of Ninety-Nine Million
Nine Hundred Ninety-Five Thousand Six Hundred Thirty Pesos and Forty-Six
Centavos (P99,995,630.46), Philippine Currency, which sum shall be, as it is hereby,
paid directly to the Heirs immediately upon execution of this Agreement, and the
receipt of which amount said Heirs hereby so acknowledge to their full satisfaction,
thereby rendering immediately operative the releases and waivers in par. 1
hereof. Upon the collective request of the said Heirs, the said payment is hereby
broken down as follows:

Payee Amount

A. Heirs of Lorenzo dela Cruz


1. Dionisio Ignacio 9,086,345.98
2. Alejandro dela Cruz 5,332,562.30
3. Lydia Arcega 5,332,562.30
4. Eugenia Arciaga 5,332,562.30
5. Melchor dela Cruz 1,185,000.25
6. Gertrudez dela Cruz 1,185,000.25

B. Heirs of Florentino Navarro


1. William Navarro 5,079,636.68
2. Antonio Navarro 400,000.00
3. Tanyag Navarro 400,000.00
4. Isagani Navarro 285,444.44
5. Rodolfo Navarro 285,444.44
6. Victoria Navarro 285,444.44
7. Leonora Navarro 285,444.44
8. Violeta Navarro 285,444.44
9. Ramon Navarro 285,444.44
10. Salud Navarro 285,444.44
11. Rosalina Navarro 285,444.44
12. Purita Navarro 500,000.00
13. Bayani Navarro 500,000.00
14. Dakila Navarro 500,000.00
15. Leonila Navarro 100,000.00
16. Johnny Navarro 100,000.00
17. Alexander Navarro 100,000.00
18. Soliman Navarro 2,000,000.00
19. Francis Hernandez 2,000,000.00

C. Heirs of Patricio dela Cruz

xxx xxx xxx

D. Heirs of Ignacio Arciaga


1. Iluminada Legaspi 1,286,749.30
2. Pedro Arciaga 304,722.22
3. Julia Bergado 304,722.22
4. Nieves Jover 304,722.22
5. Teresita Clamaa 304,722.22
6. Dolores Arciaga 304,722.22
7. Ernesto Arciaga 304,722.22

E. Heirs of Dionisio Dolleton


1. Belen Dolleton 1,415,875.84
2. Lucila Dolleton 100,000.00
3. Conrado Dolleton 100,000.00
4. Jerry Dolleton 100,000.00
5. Evelyn Dolleton 100,000.00
6. Susana Dolleton 100,000.00
7. Estrelita Agnabo 100,000.00
8. Imelda Dolleton 100,000.00
9. Mateo Dolleton, Jr. 250,000.00
10. Maria Venus Dolleton Gutierrez 250,000.00
11. Mariano Dolleton 250,000.00
12. Rosalina Dolleton 250,000.00
13. Encarnacion Dolleton 500,000.00
14. Dominga Dolleton 250,000.00
15. Hilardo Dolleton 250,000.00

F. Heirs of Jose Dolleton


1. Isagani Navarro 3,302,585.86
2. William Navarro 2,263,000.00
3. Tanyag Navarro 100,000.00
4. Antonio A. Navarro 100,000.00
5. Leonora Navarro 500,000.00
6. Salud Navarro 500,000.00
7. Rodolfo Navarro 500,000.00
8. Victoria Navarro 500,000.00
9. Rosalina Navarro 500,000.00
10. Ramon Navarro 500,000.00
11. Violeta Navarro 500,00.000
12. Purita Navarro 182,460.00
13. Dakila Navarro 182,460.00
14. Bayani Navarro 182,460.00
15. Leonila Navarro 36,492.00
16. Alexander Navarro 36,492.00
17. Johnny Navarro 36,492.00
18. Soliman Navarro 912,300.00
19. Francis Hernandez 912,300.00

G. Heirs of Leon Argana


1. Bernardino Argana 922,244.90
2. Benjamin Arciaga 100,000.00
3. Idelfonso Arciaga 100,000.00
4. Luciana Arciaga 100,000.00
5. Pedro Arciaga 100,000.00
6. Erlinda Arciaga 100,000.00
7. Brigida Argana 500,000.00
8. Renato A. Trozado 83,335.00
9. Natividad Marmeto 83,335.00
10. Josephine Trozado Espiritu 83,335.00
11. Teresita Trozado 83,335.00
12. Crecenciano Trozado Feolino 83,335.00
13. Buenaventura Trozado Espiritu 83,335.00

H. Heirs of Esteban Patuga


1. Bartolome Patuga 1,741,572.23
2. Rodrigo Patuga 554,555.55
3. Reynaldo Patuga 554,555.55
4. Lolita Patuga 554,555.55
5. Ofelia Patuga 554,555.55
6. Maria Patuga 2,347,151.40
7. Remedios Patuga 293,393.93
8. Melchor Patuga 293,393.93
9. Surbino Patuga 293,393.93
10. Ernesto Patuga 3,227,333.30

I. Others
1. Leopoldo P. Espiritu (financier) 11,000,000.00
2. Hicoblino Catly (attorneys fees) 9,000,000.00
3. Emerita Feolina (agent) 1,500,000.00
4. Esperanza Espiritu (agent) 750,000.00
5. Leopoldo Espiritu (agent) 1,750,000.00

2.2. Second Tranche. The sum of Twenty Million Pesos (P20,000,000.00) shall
be paid to the payees named below ninety (90) days after theDATE of execution of
this Agreement. Likewise at the request of all the Heirs, the said payment should be
broken down as follow as and when it becomes due:

Payee Amount
A.
1. Dionisio Ignacio 2,000,000.00
2. William Navarro 2,000,000.00
3. Dionisio Arciaga 500,000.00
4. Iluminada Legaspi 1,700,000.00
5. Belen Dolleton 1,700,000.00
6. Isagani Navarro 4,900,000.00
7. Bernardino Argana 1,700,000.00
8. Bartolome Patuga 2,000,000.00

B.
1. Leopoldo Espiritu 1,500,000.00
2. Hicoblino Catly 1,000,000.00
3. Emerita Feolino 500,000.00
4. Esperanza Espiritu 250,000.00
5. Leopoldo Espiritu 250,000.00

2.3. the Heirs also unqualifiedly declare that their agreement with each other as to the
sharing of the proceeds of the settlement is exclusively between and among
themselves, and any dispute or controversy concerning the same does not affect this
Agreement or the Joint Motion for Judgment Based on Compromise to be signed and
filed in court by the parties hereto. Release of the balance referred to in par. 2.2 hereof
by ALI to the Heirs shall completely and absolutely discharge all of ALIs obligations
under the said Joint Motion for Judgment Based on Compromise to the Heirs.

xxx xxx xxx

For one, and with the Decision of the Third Division of the Supreme Court
promulgated on 07 May 2004 in G.R. No. 127079 in the case entitled Ayala Land, Inc.
v. William Navarro, et al., there is no longer any impediment to the resolution of the
Joint Motion for Judgment Based on Compromise dated 09 June 1997. It must be
noted that the Court earlier suspended the approval of the said joint motion in its
Order dated 10 June 1997 (a)s there is no written order yet from the Supreme Court
dismissing the appeal in connection with this case. With the above Decision of the
Supreme Court, the subject Order of the Court is deemed moot and academic.

The Joint Motion for Judgment Based on Compromise dated June 9, 1997 and,
necessarily, the Memorandum of Agreement (MOA) dated 13 May 1997 (as amended
by the Amendatory Agreement) which it implements, are approved, there being no
showing that they are contrary to law, public policy or morals.

xxx xxx xxx

WHEREFORE, premises considered, judgment is hereby rendered as follows:

1. The Joint Motion for Judgment Based on Compromise dated 13 May 1997 is
hereby APPROVED, it reflecting the true, valid and lawful terms of settlement agreed
upon by the parties herein and being based on the Memorandum of Agreement also
dated 13 May 1997, as amended by the Amendatory Agreement, that the plaintiffs and
the defendant Ayala Land, Inc. have long bound themselves with and have, in fact,
already substantially implemented. Thus, and by reason thereof, the complaint of the
herein plaintiffs against the said defendant is deemed duly disposed of. Accordingly,
the parties to the above agreements are hereby enjoined to observe its terms, subject to
any necessary modifications arising herefrom;

2. The complaints-in-intervention of intervenors Timoteo Arciaga, Porfirio Daen,


Estrellita Londonio and Emerita Feolino are all DISMISSED, with prejudice, for utter
lack of merit.
3. Also, the complaint-in-intervention of the heirs of Leon Navarro is DISMISSED,
with prejudice, for having been abandoned and for failure to prosecute the same; and

4. The plaintiffs William Navarro, Dionisio Ignacio, Dionisio Arciaga, Iluminada


Legaspi, Belen Dolleton, Isagani Navarro, Bernardino Argana and Bartolome Patuga
are hereby directed to pay the defendant Ayala Land, Inc. the sum of P563,358.00 as
and by way of attorneys fees which shall be taken from the Second Tranche payment
to be made to them, if any, and shall be deducted from their share pro-rata.

SO ORDERED.[46]

In a Decision dated December 13, 2004, the trial court (per Judge Raul Bautista
Villanueva), acting on petitioner's claim for additional P20,000,000.00 attorneys fees in his Ex-
Parte Motion to Issue Writ for Execution of Judgment dated July 28, 1997 and Ex-
Parte Manifestation and Motion dated May 31, 2004, ruled that petitioner can execute judgment
on the additional attorneys fees, but only up to the amount of P1,000,000.00, not the
entire P20,000,000.00. The trial court explained the rationale as follows:

The Court, after taking into account the foregoing, finds that Atty. Catly is entitled to
additional attorney's fees. For one, the Court is convinced that Atty. Catly has duly
served the plaintiffs and protected their interests. The numerous pleadings he filed
before the Court, the Court of Appeals and Supreme Court shows that he pursued the
claims of the plaintiffs before the venues where these were being litigated or
assailed. In fact, he was successful in having the petitions of the defendant dismissed
before the Court of Appeals and, eventually, before the Supreme Court per the
Decision promulgated on 07 May 2004.

xxxx
Of course, with the Amendatory Agreement, the payment due to the said
persons in the second tranche is subject to the final decision or resolution of the Las
Pias Court in Civil Case No. 93-3094 on the total amount of attorney's fees that should
be paid to Atty. Catly. In such event, (a)ny balance remaining after the satisfaction of
Atty. Catly's claim in accordance with the decision or resolution of the Las Pias Court
shall be paid by ALI (the defendant Ayala Land) to the Heads of the Families and the
Brokers in proportion to the amounts corresponding to them as set forth in paragraph
2.2 of the MOA xxx.

However, the above notwithstanding, the Court holds that Atty. Catly is not entitled to
the full amount of P20,000,000.00 as awarded to him in the Separate Judgment dated
22 July 1997. To begin with, the settlement of the herein case resulting in the
plaintiffs and the defendant Ayala Land executing among others, the MOA wherein
the total consideration for the same under the first and second tranches of
payment P119,995,630.46 was not due to his own efforts. The records show that Atty.
Catly had no active participation in the negotiations involving the parties that resulted
in their compromise agreement.

More importantly, and despite the legal work he has done, Atty. Catly has not proven
yet the case of the plaintiffs regarding their supposed claim over the property subject
hereof. While the plaintiffs have documents which they used as basis in claiming
ownership of the properties of the defendant, these have not been formally presented
in Court. Of course, this is no longer necessary since the parties agreed to settle
among themselves.

xxxx
Admittedly, the clients of Atty. Catly are the original plaintiffs herein, namely,
William Navarro, Dionisio Ignacio, Dionisio Arciaga, Iluminada Legaspi, Belen
Dolleton, Ignacio (or Isagani) Navarro, Bernardino Argana and Bartolome
Patuga. Surely, he does not represent the co-heirs of the plaintiffs who were also
included in the compromise agreement or MOA and who shared in the above
settlement price, as well as the brokers or financiers named therein. Thus, he could not
base his claim on the entire amount of about P119,995,630.46.

The fact that Compromise Agreement dated 02 April 2001 was executed by Atty.
Catly and the alleged attorney-in-fact of the plaintiffs is of no moment. For one, this
does not include the other individuals who were named as payees for the second
tranche so their share amounting to about P2.5 million cannot just be given to
him. More importantly, the said agreement was never approved by the Court. As such,
it likewise became subject to the Decision dated 07 May 2004 promulgated by the
Supreme Court.

Added to this, Atty. Catly benefited immensely from the settlement of the above case
among the plaintiffs and the defendant Ayala Land. In fact, he received more than
what some of the plaintiffs have received. For him to get a total sum
of P30,000,000.00 would be downright unfair, especially since the settlement price
of P119,995,630.46 was not entirely allocated to his clients.

To the Court, getting an additional P20,000,000.00 is grossly unreasonable and


unconscionable. As mentioned above the 25% should not be imposed on the rounded
figure of P120 million, as the payees under the MOA were not just the original
plaintiffs, but also about 66 other persons who are not Atty. Catly's clients. There is no
contractual basis by which these third persons can be said to have agreed to share in
Atty. Catly's fees. If at all, only the sums to be received by the original plaintiffs, in
the estimated amount of P41.6 million, should be counted. Twenty five percent of that
is near the P10,000,000.00 Atty. Catly had already been paid or which he has
received.

Clearly, and considering the circumstances obtaining herein, Atty. Catly cannot lay
claim to the entire sum of P20,000,000.00 under the second tranche of
payment. Instead, the sharing provided for in the MOA dated 13 May 1997, Atty.
Catly should be the one implemented as this was what the parties really intended. By
doing so, the additional attorney's fees due to Atty. Catly is readily determined. And
to the Court, the amount of P1,000,000.00 appearing therein is the proper fees still due
to him considering the payment of P10,000,000.00 he already received and the legal
work he has done with respect to the herein case.

In the end, the Court sees no cogent reason to deprive the original plaintiffs and those
named as recipients of sums in the second tranche provided for in the MOA dated 13
May 1997 of what are due them and which they are deserving of.

WHEREFORE, the foregoing considered, the Ex-Parte Manifestation and Motion


dated 31 May 2004 and the earlier Ex-Parte Motion to Issue Writ for Execution of
Judgment dated 28 July 1997, both filed by Atty. Hicoblino M. Catly, are GRANTED,
but only up to the extent of executing the payment of the additional sum
of P1,000,000.00 in his favor.

Consequently, and as to the remaining P19,000,000.00 under the second tranche, the
same is ordered released in favor of the original plaintiffs, namely: Dionisio Ignacio,
William Navarro, Dionisio Arciaga, Iluminada Legaspi, Belen Dolleton, Isagani
Navarro, Bernardino Argana and Bartolome Patuga, as well as those others named
therein, such as Leopoldo Espiritu, Emerita Feolino and Esperanza Espiritu, in the
respective amounts earmarked for them.

SO ORDERED.[47]

Respondents filed a Motion to Order Defendant to Comply with the Delivery of the Sum
Due to Plaintiffs dated December 21, 2004 seeking payment from respondent ALI the amount
of P15,936,642.00 (according to the notarized order of payment to be submitted by the
respondents to respondent ALI, with a copy thereof furnished to the trial court), net of
the P563,358.00 attorneys fees to be taken from the second tranche of payment withheld by
respondent ALI.

On December 29, 2004, petitioner filed a motion for reconsideration of the trial courts
Order dated December 13, 2004 on the ground that there was no factual or legal basis for the
trial court to order the release of the P19,000,000.00 to the respondents and those persons
named in the second tranche as the amendatory agreement between the respondents and
respondent ALI had already been approved.

On March 1, 2005, the trial court issued an Order granting the motion of the respondents
and denying petitioner's motion for reconsideration. The trial court stated that:

As to his assertion that the Supreme Court wanted only the Court to determine as to
whether there had been vices of consent, forgery or irregularity in the preparation of
the AMENDATORY AGREEMENT, this is hardly convincing. On the contrary, it is
clear in the Decision of the Third Division of the Supreme Court promulgated on 07
May 2004 in G.R. No. 127079 entitled Ayala Land, Inc. v. William Navarro, et al. that
the issue of whether or not Atty. Catly's attorney's fees is reasonable should be
resolved by the trial court.In effect, the Separate Judgment dated 22 July 1997 will be
implemented only after the Court has determined the propriety of Atty. Hicoblino's
attorney's fees of P30,000,000.00 being assailed by both parties before that
court. Having done so in the questioned Order dated 13 December 2004, what remains
to be done now by the Court is to have the same executed.

On the award of attorney's fees in favor of the defendant per the Decision of the Court
dated 01 December 2004, the attempt of Atty. Catly to question the same is
misplaced. For one, this is not the subject of the Order dated 13 December 2004. More
importantly, the original plaintiffs are not assailing the same so much so that with
respect thereto it is binding on them.
xxxx
WHEREFORE, the foregoing considered, the Motion to Order Defendant to Comply
with the Delivery of the Sum Due to Plaintiffs dated 21 December 2004 submitted by
the original plaintiffs, namely: William Navarro, Dionisio Ignacio, Dionisio Arciaga,
Iluminada Legaspi, Belen Dolleton, Isagani Navarro, Bernardino Argana and
Bartolome Patuga is hereby GRANTED. Accordingly, let a writ of execution be
issued to implement the Separate Judgment dated 22 July 1997, as modified by the
Decision of the Supreme Court on 07 May 2004 in G.R. No. 127079, and pursuant to
the Order dated 13 December 2004 wherein they are entitled to the amount
of P14,936,642.00, not P15,936,642.00 as computed by them since the difference
of P1,000,000.00 pertains to the additional fees of Atty. Hicoblino Catly, and less the
sum of P563,358.00 which they recognize as owing to defendant Ayala Land, Inc., out
of the P20,000,000.00 provided for in the Amendatory Agreement dated 27 May
1997, and directing the said defendant to immediately pay and deliver the aforesaid
amount of P14,936,642.00 to the herein original plaintiffs.

On the Motion for Reconsideration dated 29 December 2004 filed by Atty. Hicoblino
Catly, the same is hereby DENIED for utter lack of merit.

SO ORDERED.[48]

Meanwhile, in the Resolution of December 3, 2008, the Court resolved, among others, to grant
the motion to substitute Lourdes A. Catly, wife of Atty. Catly, as party petitioner in the present
case, in view of the death of Atty. Catly on April 5, 2008, and to require the counsel for
petitioner to comply anew with the Resolution dated March 10, 2008 by submitting the new
addresses of the respondents, considering that according to the respondents former counsel,
Atty. Patrocinio S. Palanog, he is no longer the counsel of record of the respondents. In view of
petitioners manifestation, through counsel, that all efforts were exerted to locate the addresses
of the respondents but to no avail, the Court issued a Resolution on June 8, 2009 dispensing
with the filing by respondents of their comment on the petition for review on certiorari.
Hence, this present petition for review on certiorari.[49]

Petitioner anchors on the theory that the trial court, now presided by Judge Raul Bautista
Villanueva, acted with grave abuse of discretion amounting to excess of jurisdiction, and that
there is no appeal, or any plain, speedy and adequate remedy available in the ordinary course
of law. Petitioner alleges that the trial court erred in reopening the judgment on compromise
entered into by the parties, which was previously approved by the trial courts then Presiding
Judge Florentino M. Alumbres, and already partially executed in its Separate Judgment
dated July 22, 1997. Petitioner argues that said judgment has attained final and executory status
as respondents did not appeal from the said judgment nor did they question the Amendatory
Agreement dated May 27, 1997. Thus, petitioner prays that judgment be rendered by this Court
setting aside the trial courts Decision dated December 13, 2004 which reduced the award of the
additional attorneys fees to only P1,000,000.00, instead of P20,000,000.00; directing
respondent ALI to immediately release the sum of P20,000,000.00 as additional attorneys fees
of petitioner pursuant to the July 22, 1997 Separate Judgment; and enjoining the trial court from
implementing its Order dated March 1, 2005 which denied petitioners motion for
reconsideration.

On the other hand, respondent ALI counters that petitioners petition is improper and fatally
defective, whether treated as a petition for review on certiorari under Rule 45 of the Rules of
Court or a petition for certiorari under Rule 65, as petitioner does not raise questions of law and
that grave abuse of discretion is not an allowable ground under a Rule 45 petition. It avers that
even if the petition is to be treated as one filed under Rule 65, the petition should be outrightly
dismissed for being proscribed under the doctrine of hierarchy of courts, as the petition should
have been filed first with the Court of Appeals, instead of filing it directly with this
Court.Respondent ALI also argues that the trial court correctly reduced the petitioners claim
from P20,000,000.00 to P1,000,000.00 as additional attorneys fees, because the trial court can
control or moderate the amount of attorneys fees to be claimed, especially if the same is found
to be excessive and unreasonable.
I. Procedural misstep in filing the petition

Records show that on December 13, 2004, the trial court rendered a Decision finding that
petitioner can execute judgment on the additional attorneys fees but only up to the extent
of P1,000,000.00, not the entire amount of P20,000,000.00 as prayed for in his
petition. Petitioner received a copy of the assailed decision on December 22, 2004. Petitioner
moved for reconsideration on December 29, 2004, but the same was denied in the trial courts
Order dated March 1, 2005. Petitioner received a copy of the challenged order on March 7,
2005. On March 17, 2005, instead of appealing the assailed decision and order of the trial court
to the Court of Appeals via a notice of appeal under Section 2(a) of Rule 41 of the Rules,
petitioner filed a petition for review on certiorari directly with this Court, stating that the trial
court acted with grave abuse of discretion amounting to an excess of jurisdiction, and that there
is no appeal, or any plain, speedy and adequate remedy available in the ordinary course of law.

This is a procedural misstep. Although denominated as petition for review


on certiorari under Rule 45, petitioner, in questioning the decision and order of the trial court
which were rendered in the exercise of its original jurisdiction, should have taken the appeal to
the Court of Appeals within fifteen (15) days from notice of the trial courts March 1, 2005
Order, i.e., within 15 days counted from March 7, 2005 (date of receipt of the appealed order),
or until March 22, 2005, by filing a notice of appeal with the trial court which rendered the
decision and order appealed from and serving copies thereof upon the adverse party pursuant to
Sections 2(a) and 3 of Rule 41. Clearly, when petitioner sought to assail the decision and order
of the trial court, an appeal to the Court of Appeals was the adequate remedy which he should
have availed of, instead of filing a petition directly with this Court.
Even if the petition will be treated as a petition for certiorari under Rule 65, the same
should be dismissed. In Madrigal Transport, Inc. v. Lapanday Holdings Corporation,[50] which
has been often cited in subsequent cases,[51] the Court declared that where appeal is available to
the aggrieved party, the action for certiorari will not be entertained. Remedies of appeal
(including petitions for review) and certiorari are mutually exclusive, not alternative or
successive. Hence, certiorari is not and cannot be a substitute for an appeal, especially if ones
own negligence or error in ones choice of remedy occasioned such loss or lapse. One of the
requisites of certiorari is that there be no available appeal or any plain, speedy and adequate
remedy. Where an appeal is available, certiorari will not prosper, even if the ground therefor is
grave abuse of discretion.

Further, the petition should be denied for violation of hierarchy of courts as prior
recourse should have been made to the Court of Appeals, instead of directly with this Court. A
direct invocation of the Courts original jurisdiction to issue writs of certiorari should be
allowed only when there are special and important reasons therefor, clearly and specifically set
out in the petition. This is established policy. It is a policy that is necessary to prevent
inordinate demands upon the Courts time and attention which are better devoted to those
matters within its exclusive jurisdiction, and to prevent over-crowding of the Courts
docket.[52] As aptly pronounced in Santiago v. Vasquez,[53] the observance of the hierarchy of
courts should be respected as the Court will not entertain direct resort to it unless the redress
desired cannot be obtained in the appropriate court. Thus,

One final observation. We discern in the proceedings in this case a propensity


on the part of petitioner and, for that matter, the same may be said of a number of
litigants who initiate recourses before us, to disregard the hierarchy of courts in our
judicial system by seeking relief directly from this Court despite the fact that the same
is available in the lower courts in the exercise of their original or concurrent
jurisdiction, or is even mandated by law to be sought therein. This practice must be
stopped, not only because of the imposition upon the precious time of this Court but
also because of the inevitable and resultant delay, intended or otherwise, in the
adjudication of the case which often has to be remanded or referred to the lower court
as the proper forum under the rules of procedure, or as better equipped to resolve the
issues since this Court is not a trier of facts. We, therefore, reiterate the judicial policy
that this Court will not entertain direct resort to it unless the redress desired cannot be
obtained in the appropriate courts or where exceptional and compelling circumstances
justify availment of a remedy within and calling for the exercise of our primary
jurisdiction.

On the contrary, the direct recourse to this Court as an exception to the rule on hierarchy
of courts has been recognized because it was dictated by public welfare and the advancement of
public policy, or demanded by the broader interest of justice, or the orders complained of were
found to be patent nullities, or the appeal was considered as clearly an inappropriate
remedy.[54] Considering the merits of the present case, the Court sees the need to relax the iron
clad policy of strict observance of the judicial hierarchy of courts and, thus, takes cognizance
over the case. The trial court, in its Decisions dated December 1, 2004 and December 13,
2004 (per Presiding Judge Raul Bautista Villanueva), erred in motu proprio modifying the
Separate Judgment dated July 22, 1997 (per Presiding Judge Florentino M. Alumbres) by
reducing the entitlement of petitioners additional attorneys fees from P20,000,000.00
to P1,000,000.00.
II. Merit of the petition

Petitioner insists that when the amendatory agreement was executed among petitioner,
respondents, and respondent ALI and the same was submitted to the trial court for approval, the
primordial consideration of the parties was to honor the 25% contingent attorneys fees
agreement as provided in the retainer contract between the petitioner and his clients (herein
respondents).

This argument has factual and legal bases as the trial courts dispositions, in its December 1,
2004 and December 13, 2004 Decision, are erroneous.

Records show that on May 13, 1997, respondents (including therein plaintiffs) and
respondent ALI executed a MOA whereby they agreed to transfer to respondent ALI their rights
of ownership over the subject property for a consideration of P120,000,000.00, with a
stipulation therein that the amount of P10,000,000.00, representing attorneys fees of petitioner,
shall be deducted from the amount of P120,000,000.00. Then, the parties filed a Joint Motion
for Judgment Based on CompromiseDATED May 13, 1997. On May 27, 1997, petitioner,
respondents, and respondent ALI executed an Amendatory Agreement incorporating a provision
that, in addition to the P10,000,000.00 attorneys fees, petitioner would also be entitled to the
amount of P20,000,000.00 as additional attorneys fees, or a total amount of P30,000,000.00,
subject to the trial courts approval. In the Separate Judgment dated July 22, 1997, the trial court
(through Judge Florentino M. Alumbres) approved the parties Joint Motion for Judgment Based
on Compromise dated May 13, 1997 as the terms and conditions set forth under the
Amendatory Agreement was found to be freely agreed upon and not contrary to law, morals,
public order and public policy, and directed respondent ALI to immediately release the amount
of P20,000,000.00 in favor of petitioner as his additional attorneys fees. On July 28, 1997,
petitioner filed an Ex-Parte Motion to Issue Writ for Execution of Judgment alleging that the
Separate Judgment dated July 22, 1997 was immediately executory as there was no appeal from
such judgment; that said judgment was rendered in accordance with a compromise agreement,
denominated as amendatory agreement, which was signed by the parties, with the assistance of
their respective counsels, and approved by the trial court; and that a writ be issued for the
immediate execution of the said separate judgment. However, the execution of the judgment did
not come to fruition as this Court (Third Division), in G.R. No. 127079,[55] promulgated a
Decision on May 7, 2004 ordering the remand of the case to the trial court to determine with
dispatch whether the award of P30,000,000.00 as petitioners total attorneys fees would be
appropriate.

Said case, G.R. No. 127079, pointed out that with the execution of the May 13, 1997
MOA or compromise agreement and the May 27, 1997 Amendatory Agreement, the parties
resolved to settle their differences and put an end to the litigation, and the trial court (per
Presiding Judge Florentino M. Alumbres) had rendered the July 22, 1997 Separate Judgment
approving the said Amendatory Agreement. It also explained that with the Separate Judgment
of the trial court approving the parties Amendatory Agreement, therein respondent ALIs
petition was denied for being moot and academic. The reason why the Court ordered the
remand of the case to the trial court was for the purpose of resolving with dispatch the propriety
of petitioners attorneys fees of P30,000,000.00 which was being assailed by the parties.
On December 1, 2004, instead of conducting a hearing to determine the appropriate
amount of attorneys fees that petitioner should be entitled to, the trial court (per Judge Raul
Bautista Villanueva rendered a Decision stating that it approved the parties Joint Motion for
Judgment Based on CompromiseDATED May 13, 1997, dismissed therein intervenors
complaints-in-intervention, and directed respondents to pay respondent ALI the amount
of P563,358.00 by way of attorneys fees to be taken from the second tranche payment and
deducted from their pro-rata share. It provided that with the approval of the parties Joint
Motion for Judgment Based on Compromise dated May 13, 1997, there exists no hindrance to
the execution of the said compromise agreement. It stated that the said motion reflected the true,
valid, and lawful terms of settlement agreed upon by the parties pursuant to the MOA and the
amendatory agreement. Later, on December 13, 2004, the trial court (through Presiding Judge
Raul Bautista Villanueva), acting on petitioner's claim for additional P20,000,000.00 attorneys
fees in his Ex-Parte Motion to Issue Writ for Execution of Judgment dated July 28, 1997
and Ex-Parte Manifestation and Motion dated May 31, 2004, rendered a Decision stating that
petitioner can execute judgment only up to the amount of P1,000,000.00, not the
entire P20,000,000.00.

The said Decisions are erroneous. The trial court misrepresented certain facts by making
it appear that the approval of the parties Joint Motion for Judgment Based on Compromise
dated May 13, 1997 was a pending incident that needs to be resolved so as to define the rights
of the parties and, thus, proceeded to include it in its Decision dated December 1, 2004. The
ruling that it approved the same was a surplusage and inaccurate. There was no need for the trial
court to include in its disposition that it approved the parties Joint Motion for Judgment Based
on Compromise precisely because the same has been earlier approved in the Separate Judgment
dated July 22, 1997.

It bears stressing that the Decision dated May 7, 2004 of the Court, in G.R. No. 127079,
expressly acknowledged the existence of the compromise agreement among the parties,
designated as MOA and, later, the amendatory agreement, and also the validity of their Joint
Motion for Judgment Based on Compromise which it gave judicial imprimatur. It mentioned
that as to petitioners attorneys fees of P30,000,000.00, while it was the amount they agreed
upon in their MOA and amendatory agreement; however, they are now contesting its
reasonableness. Respondent ALI opposed petitioners motion to execute the compromise
judgment on the ground that his attorneys fees was excessive and unconscionable, while
respondents filed with this Court a motion for the issuance of a temporary restraining order to
enjoin the trial court from granting petitioners motion. We declared in said G.R. No. 127079
that the issue of whether or not petitioners claim for attorneys fees is reasonable should be
resolved by the trial court. Consequently, We denied respondent ALIs petition for being moot
and remanded the case to the trial court for the purpose of resolving with dispatch the propriety
of petitioners attorneys fees of P30,000,000.00 which was being assailed by both parties.

Clearly, in G.R. No. 127079, the Court ordered the trial court to resolve the issue of
whether petitioner should be entitled to the entire amount of P30,000,000.00 (the sum
of P10,000,000.00 was already received by the petitioner, plus the claim of the additional
amount of P20,000,000.00). This directive necessarily requires the duty of the trial court
(through Judge Raul Bautista Villanueva) to determine the appropriate amount of additional
attorneys fees to be awarded to petitioner, whether it should be the entire amount
of P20,000,000.00 (as claimed by petitioner) or a reduced amount (as claimed by respondent
ALI). If to the mind of the trial court, despite the Separate Judgment dated July 22, 1997 (per
Judge Florentino M. Alumbres) directing respondent ALI to release the amount
of P20,000,000.00 as additional attorneys fees of petitioner, the said amount appears to be
unreasonable, then it should have forthwith conducted a hearing with dispatch to resolve the
issue of the reasonable amount of attorneys fees on quantum meruit basis and, accordingly,
modify the said Separate Judgment dated July 22, 1997 to be incorporated in the Decision dated
December 1, 2004. This is in consonance with the ruling in Roldan v. Court of
Appeals[56] which states:

As a basic premise, the contention of petitioners that this Court may alter,
modify or change even an admittedly valid stipulation between the parties regarding
attorney's fees is conceded. The high standards of the legal profession as prescribed by
law and the Canons of Professional Ethics regulate if not limit the lawyer's freedom in
fixing his professional fees. The moment he takes his oath, ready to undertake his
duties first, as a practitioner in the exercise of his profession, and second, as an officer
of the court in the administration of justice, the lawyer submits himself to the
authority of the court. It becomes axiomatic therefore, that power to determine the
reasonableness or the unconscionable character of attorney's fees stipulated by the
parties is a matter falling within the regulatory prerogative of the courts (Panay
Electric Co., Inc. v. Court of Appeals, 119 SCRA 456 [1982]; De Santos v. City of
Manila, 45 SCRA 409 [1972]; Rolando v. Luz, 34 SCRA 337 [1970]; Cruz v. Court of
Industrial Relations, 8 SCRA 826 [1963]). And this Court has consistently ruled that
even with the presence of an agreement between the parties, the court may
nevertheless reduce attorney's fees though fixed in the contract when the amount
thereof appears to be unconscionable or unreasonable (Borcena v. Intermediate
Appellate Court, 147 SCRA 111 [1987]; Mutual Paper Inc. v. Eastern Scott Paper
Co., 110 SCRA 481 [1981]; Gorospe v. Gochango, 106 Phil. 425 [1959]; Turner v.
Casabar, 65 Phil. 490 [1938]; F.M. Yap Tico & Co. v. Alejano, 53 Phil. 986
[1929]). For the law recognizes the validity of stipulations included in documents such
as negotiable instruments and mortgages with respect to attorney's fees in the form of
penalty provided that they are not unreasonable or unconscionable (Philippine
Engineering Co. vs. Green, 48 Phil. 466). (Italics supplied)

The principle of quantum meruit (as much as he deserves) may be a basis for determining
the reasonable amount of attorneys fees. Quantum meruit is a device to prevent undue
enrichment based on the equitable postulate that it is unjust for a person to retain benefit
without paying for it. It is applicable even if there was a formal written contract for attorneys
fees as long as the agreed fee was found by the court to be unconscionable. In fixing a
reasonable compensation for the services rendered by a lawyer on the basis of quantum meruit,
factors such as the time spent, and extent of services rendered; novelty and difficulty of the
questions involved; importance of the subject matter; skill demanded; probability of losing
other employment as a result of acceptance of the proferred case; customary charges for similar
services; amount involved in the controversy and the benefits resulting to the client; certainty of
compensation; character of employment; and professional standing of the lawyer, may be
considered.[57] Indubitably entwined with a lawyers duty to charge only reasonable fee is the
power of the Court to reduce the amount of attorneys fees if the same is excessive and
unconscionable in relation to Sec. 24, Rule 138 of the Rules. Attorneys fees are unconscionable
if they affront ones sense of justice, decency or unreasonableness.[58]
Verily, the determination of the amount of reasonable attorneys fees requires the
presentation of evidence and a full-blown trial.[59] It would be only after due hearing and
evaluation of the evidence presented by the parties that the trial court can render judgment as to
the propriety of the amount to be awarded. The Decision dated December 1, 2004 did not
mention that there was a hearing conducted or that the parties were required to appear before
the trial court or that they submitted pleadings with regard to the issue of reasonableness of the
petitioners attorneys fees. The important thing that the trial court missed out is the fact that what
is suspended is merely the execution of the Separate Judgment dated July 22, 1997, pending the
determination of the propriety of the petitioners attorneys fees. The Decision in G.R. No.
127079 should never be construed as authorizing the trial court to amend or modify what the
parties have set forth in their compromise agreement (in the MOA and Amendatory
Agreement), which was duly approved in the Separate Judgment dated July 22, 1997.

What petitioner sought in his earlier pleadings, i.e., Ex-Parte Motion to Issue Writ for
Execution of JudgmentDATED July 28, 1997 and Ex-Parte Manifestation and Motion dated
May 31, 2004, was the execution and implementation of the July 22, 1997 Separate Judgment
(per Judge Florentino M. Alumbres) which declared that in view of the terms and conditions
agreed upon by the parties under the Amendatory Agreement dated May 27, 1997, respondent
ALI is directed to immediately release the sum of P20,000,000.00 in favor of the petitioner as
his attorneys fees.
The Court is surprised with the trial courts Decision dated December 13, 2004 justifying
the reduction of attorneys fees by stating that to allow petitioner to get the total sum
of P30,000,000.00 would be downright unfair, especially since the settlement price
of P119,995,630.46 was not entirely allocated to his clients. The trial court should have taken
the principle of quantum meruit with regard to engagement of petitioner as respondents
counsel vis--vis the concept of compromise agreement entered into by the parties. The amicable
settlement of P120,000,000.00 was paid not only to the 8 respondents, collectively referred to in
the amendatory agreement as Heads of the Families (who had signed a contract engaging
petitioner as their counsel), but also to 66 other individuals (who had no written contract with
petitioner, but was assisted by the petitioner in the execution of the MOA and the Joint Motion
for Judgment Based on Compromise). The respondents, designated as Heads of the Families,
represented all the heirs in the case. There was no need for the trial court, in its Decision
dated December 1, 2004, to enumerate individually the heirs being represented by herein
respondents. Petitioner actively represented the 8 respondents in their pleadings and other
proceedings with the trial court as stipulated in their Contract for Legal and Other Valuable
Services,[60] dated September 3, 1993, which stated that the 8 respondents engaged petitioner to
be their counsel in connection with the 32 hectare land located at Barangay Pugad Lawin, Las
Pias; that the said parcel of land, covered by TCT No. T-5332, was occupied by Las Pias
Ventures, Inc.; that the 8 respondents agreed to institute legal action for annulment of TCT No.
T-5332 and recovery of possession with damages against Las Pias Ventures, Inc.; and that for
and in consideration of the legal services rendered by petitioner, the 8 respondents shall, in
proportion to their respective shares, contribute 25% of the total area recovered from Las Pias
Ventures, Inc. or its equivalent in cash upon successful termination of court litigation; and that
all litigation expenses shall be on the account of the petitioners law firm. Hence, what bothers
this Court is the failure of the trial court to hear the parties, so as to render judgment based on
the outcome of the hearing and confirm the reasonableness of the attorneys fees in favor of
petitioner.
WHEREFORE, the petition is GRANTED. The Decisions dated December 1,
2004 and December 13, 2004 and the Order dated March 1, 2005 of the Regional Trial Court,
Branch 255, Las Pias City, in Civil Case No. 93-3094, are REVERSED and SET ASIDE. The
case is REMANDED to the trial court which shall forthwith conduct hearings with dispatch to
resolve the issue of the amount of reasonable attorneys fees, on quantum meruit basis, that
petitioner Hicoblino M. Catly, now deceased and substituted by his wife, Lourdes A. Catly,
would be entitled to.

SO ORDERED.

SPS. RAFAEL P. ESTANISLAO G.R. No. 178537


AND ZENAIDA ESTANISLAO,
Petitioners, Present:
Ynares-Santiago, J. (Chairperson),
- versus - Austria-Martinez,
Corona,*
Nachura, and
Reyes, JJ.
EAST WEST BANKING
CORPORATION, Promulgated:
Respondent.
February 11, 2008
x ---------------------------------------------------------------------------------------- x

DECISION
YNARES-SANTIAGO, J.:

This is a petition for review of the Decision[1] of the Court of AppealsDATED April 13,
2007 in CA-G.R. CV No. 87114 which reversed and set aside the Decision of
the Regional Trial Court of Antipolo City, Branch 73 in Civil Case No. 00-5731. The appellate
court entered a new judgment ordering petitioners spouses Estanislao to pay respondent East
West Banking Corporation P4,275,919.65 plus interest and attorneys fees. Also assailed is the
Resolution[2] dated June 25, 2007 denying the motion for reconsideration.

The facts are as follows:

On July 24, 1997, petitioners obtained a loan from the respondent in the amount of
P3,925,000.00 evidenced by a promissory note and secured by two deeds of chattel
mortgageDATED July 10, 1997: one covering two dump trucks and a bulldozer to secure the
loan amount of P2,375,000.00, and another covering bulldozer and a wheel loader to secure the
loan amount of P1,550,000.00. Petitioners defaulted in the amortizations and the entire
obligation became due and demandable.

On April 10, 2000, respondent bank filed a suit for replevin with damages, praying that
the equipment covered by the first deed of chattel mortgage be seized and delivered to it. In the
alternative, respondent prayed that petitioners be ordered to pay the outstanding principal
amount of P3,846,127.73 with 19.5% interest per annum reckoned from judicial demand until
fully paid, exemplary damages of P50,000.00, attorneys fees equivalent to 20% of the total
amount due, other expenses and costs of suit.

The case was filed in the Regional Trial Court of Antipolo and raffled to Branch 73
thereof.

Subsequently, respondent moved for suspension of the proceedings on account of an


earnest attempt to arrive at an amicable settlement of the case. The trial court suspended the
proceedings, and during the course of negotiations, a deed of assignment [3] dated August 16,
2000 was drafted by the respondent, which provides in part, that:

x x x the ASSIGNOR is indebted to the ASSIGNEE in the aggregate sum of


SEVEN MILLION THREE HUNDRED FIVE THOUSAND FOUR HUNDRED
FIFTY NINE PESOS and FIFTY TWO CENTAVOS (P7,305,459.52), Philippine
currency, inclusive of accrued interests and penalties as of August 16,
2000, and in full payment thereof, the ASSIGNOR does hereby ASSIGN,
TRANSFER and CONVEY unto the ASSIGNEE those motor vehicles, with all
their tools and accessories, more particularly described as follows:

Make : Isuzu Dump Truck


xxx
Make : Isuzu Dump Truck
xxx
Make : x x x Caterpillar Bulldozer x x x

That the ASSIGNEE hereby accepts the assignment in full payment of the
above-mentioned debt x x x. (Emphasis supplied)

Petitioners affixed their signatures on the deed of assignment. However, for some
unknown reason, respondent banks duly authorized representative failed to sign the deed.

On October 6, 2000 and March 8, 2001, respectively, petitioners completed the delivery
of the heavy equipment mentioned in the deed of assignment two dump trucks and a bulldozer
to respondent, which accepted the same without protest or objection.

However, on June 20, 2001, respondent filed a manifestation and motion to admit an
amended complaint for the seizure and delivery of two more heavy equipment the bulldozer and
wheel loader which are covered under the second deed of chattel mortgage. Respondent claimed
that its representative inadvertently failed to include the second deed of chattel mortgage among
the documents forwarded to its counsel when the original complaint was being
drafted. Respondent likewise claimed that petitioners were given a chance to submit a
refinancing scheme that would allow them to keep the remaining two heavy equipment, but
they failed to come up with such a scheme despite repeated promises to do so.

Respondents amended complaint for replevin alleged that petitioners outstanding


indebtedness as of June 14, 2001 stood at P4,275,919.61 which is more or less equal to the
aggregate value of the additional units of heavy equipment sought to be recovered. It also
prayed that, in the event the two heavy equipment could not be replevied, petitioners be ordered
to pay the outstanding sum of P3,846,127.73 with 19.5% interest per annum reckoned from
January 24, 1998, compound interest, exemplary damages of P50,000.00, attorneys fees
equivalent to 20% of the total amount due, other expenses and costs of suit.

Petitioners sought to dismiss the amended complaint. They alleged that their previous
payments on loan amortizations, the execution of the deed of assignment on August 16, 2000,
and respondents acceptance of the three units of heavy equipment, had the effect of full
payment or satisfaction of their total outstanding obligation which is a bar on respondent bank
from recovering any more amounts from them. By way of counterclaim, petitioners sought the
award of nominal damages in the amount of P500,000.00, moral damages in the amount of
P500,000.00, exemplary damages in the amount of P500,000.00, attorneys fees, litigation
expenses, interest and costs.

On March 14, 2006, the trial court dismissed the amended complaint for lack of merit. It
held that the deed of assignment and the petitioners delivery of the heavy equipment effectively
extinguished petitioners total loan obligation. It also held that respondent was estopped from
further collecting from the petitioners when it accepted, without any protest, delivery of the
three units of heavy equipment as full and complete satisfaction of the petitioners total loan
obligation. Respondent likewise failed to timely rectify its alleged mistake in the original
complaint and deed of assignment, taking almost a year to act.

Respondent bank appealed to the Court of Appeals, which reversed the trial courts
decision, the dispositive portion of which reads:

WHEREFORE, premises considered, the present appeal is hereby GRANTED.


The DecisionDATED March 14, 2006 of the Regional Trial Court of Antipolo City,
Branch 73 in Civil Case No. 00-5731 is hereby REVERSED and SET ASIDE. A new
judgment is hereby entered ordering the defendants-appellees to pay, jointly and
severally, plaintiff-appellant East West Banking Corporation the sum of FOUR
MILLION TWO HUNDRED SEVENTY FIVE THOUSAND NINE HUNDRED
NINETEEN and 69/100 (P4,275,919.69) per Statement of Account as of June 14,
2001 (Exh. E, Records, p.328) with interest at 12% per annum from June 15, 2001
until full payment thereof. Defendants-appellees are likewise ordered to pay the
plaintiff-appellant attorneys fees in the sum equivalent to ten per cent (10%) of the
total amount due.

No pronouncement as to costs.

SO ORDERED.[4]

The reversal of the lower courts decision hinges on: (1) the appellate courts finding that
the deed of assignment cannot bind the respondent because it did not sign the same. The
appellate court ruled that the assignment contract was never perfected although it was prepared
and drafted by the respondent; (2) respondent was not estopped by its own declarations in the
deed of assignment, because such declarations were the result of ignorance founded upon an
innocent mistake and plain oversight on the part of respondents staff in the banks loan
operations department, who failed to forward the complete documents pertaining to petitioners
account to the banks legal department, such that when the original complaint for replevin was
prepared, the second deed of chattel mortgage covering two other pieces of heavy equipment
was inadvertently excluded; (3) petitioners are aware that there were five pieces of heavy
equipment under chattel mortgage for an outstanding balance of over P7 million; and (4) the
appellate court held that even after the delivery of the heavy equipment covered by the deed of
assignment, the petitioners continued to negotiate with the respondent on a possible refinancing
scheme that will enable them to retain the two other units of heavy equipment still in their
possession and which are the subject of the second deed of chattel mortgage.

Petitioners argue that: a) the appellate court erred in ordering the payment of the principal
obligation in a replevin suit which it erroneously treated as a collection case; b) the deed of
assignment is binding between the parties although it was not signed by the respondent,
constituting as it did an offer which they validly accepted; and c) the respondent is estopped
from collecting or foreclosing on the second deed of chattel mortgage.

On the other hand, respondent argues that: a) the deed of assignment produced no legal
effect between the parties for failure of the respondent to sign the same; b) the deed was
founded on a mistake on its part because it honestly believed that only one chattel mortgage had
been constituted to secure the petitioners obligation; c) the non-inclusion of the second deed of
chattel mortgage in the original complaint was a case of plain oversight on the part of the loan
operations unit of respondent bank, which failed to forward to the legal department the
complete documents pertaining to the petitioners loan account; d) the continued negotiations in
August 2001 between the parties, after delivery of the three units of heavy equipment, proves
that petitioners acknowledged their continuing obligations to respondent under the second deed
of mortgage; and, e) the deed of assignment did not have the effect of novating the original loan
obligation.

The issue for resolution is: Did the deed of assignment which expressly provides that the
transfer and conveyance to respondent of the three units of heavy equipment, and its acceptance
thereof, shall be in full payment of the petitioners total outstanding obligation to the latter
operate to extinguish petitioners debt to respondent, such that the replevin suit could no longer
prosper?

We find merit in the petition.

The appellate court erroneously denominated the replevin suit as a collection case. A
reading of the original and amended complaints show that what the respondent initiated was a
pure replevin suit, and not a collection case. Recovery of the heavy equipment was the principal
aim of the suit; payment of the total obligation was merely an alternative prayer which
respondent sought in the event manual delivery of the heavy equipment could no longer be
made.

Replevin, broadly understood, is both a form of principal remedy and a provisional


relief. It may refer either to the action itself, i.e., to regain the possession of personal chattels
being wrongfully detained from the plaintiff by another, or to the provisional remedy that would
allow the plaintiff to retain the thing during the pendency of the action and hold it pendente
lite.[5]

The deed of assignment was a perfected agreement which extinguished petitioners total
outstanding obligation to the respondent. The deed explicitly provides that the assignor
(petitioners), in full payment of its obligation in the amount of P7,305,459.52, shall deliver the
three units of heavy equipment to the assignee (respondent), which accepts the assignment in
full payment of the above-mentioned debt. This could only mean that should petitioners
complete the delivery of the three units of heavy equipment covered by the deed, respondents
credit would have been satisfied in full, and petitioners aggregate indebtedness of
P7,305,459.52 would then be considered to have been paid in full as well.

The nature of the assignment was a dation in payment, whereby property is alienated to
the creditor in satisfaction of a debt in money. Such transaction is governed by the law on
sales.[6] Even if we were to consider the agreement as a compromise agreement, there was no
need for respondents signature on the same, because with the delivery of the heavy equipment
which the latter accepted, the agreement was consummated. Respondents approval may be
inferred from its unqualified acceptance of the heavy equipment.

Consent to contracts is manifested by the meeting of the offer and the acceptance of the
thing and the cause which are to constitute the contract; the offer must be certain and the
acceptance absolute.[7] The acceptance of an offer must be made known to the offeror, and
unless the offeror knows of the acceptance, there is no meeting of the minds of the parties, no
real concurrence of offer and acceptance.[8] Upon due acceptance, the contract is perfected, and
from that moment the parties are bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their nature, may be in keeping
with good faith, usage and law.[9]

With its years of banking experience, resources and manpower, respondent bank is
presumed to be familiar with the implications of entering into the deed of assignment, whose
terms are categorical and left nothing for interpretation. The alleged non-inclusion in the deed
of certain units of heavy equipment due to inadvertence, plain oversight or mistake, is
tantamount to inexcusable manifest negligence, which should not invalidate the juridical tie that
was created.[10]Respondent is presumed to have maintained a high level of meticulousness in its
dealings with petitioners. The business of a bank is affected with public interest; thus, it makes
a sworn profession of diligence and meticulousness in giving irreproachable service.[11]

Besides, respondents protestations of mistake and plain oversight are self-serving. The
evidence show that from August 16, 2000 DATE of the deed of assignment) up to March 8,
2001 (the date of delivery of the last unit of heavy equipment covered under the deed),
respondent did not raise any objections nor make any move to question, invalidate or rescind
the deed of assignment. It was not until June 20, 2001 that respondent raised the issue of its
alleged mistake by filing an amended complaint for replevin involving different chattels,
although founded on the same principal obligation.

The legal presumption is always on the validity of contracts. [12] In order to judge the
intention of the contracting parties, their contemporaneous and subsequent acts shall be
principally considered.[13] When respondent accepted delivery of all three units of heavy
equipment under the deed of assignment, there could be no doubt that it intended to be bound
under the agreement.

Since the agreement was consummated by the delivery on March 8, 2001 of the last unit
of heavy equipment under the deed, petitioners are deemed to have been released from all their
obligations to respondent.
Since there is no more credit to collect, no principal obligation to speak of, then there is
no more second deed of chattel mortgage that may subsist. A chattel mortgage cannot exist as
an independent contract since its consideration is the same as that of the principal
contract. Being a mere accessory contract, its validity would depend on the validity of the loan
secured by it.[14] This being so, the amended complaint for replevin should be dismissed,
because the chattel mortgage agreement upon which it is based had been rendered ineffectual.

WHEREFORE, the petition is GRANTED. The Decision of the Court of


AppealsDATED April 13, 2007 in CA-G.R. CV No. 87114 and its Resolution dated June 25,
2007 are hereby SET ASIDE. The March 14, 2006 decision of the Regional Trial Court of
Antipolo, Branch 73, which dismisses Civil Case No. 00-5731, is hereby REINSTATED.

SO ORDERED.

[G.R. No. 144169. March 28, 2001]

KHE HONG CHENG, alias FELIX KHE, SANDRA JOY KHE and RAY STEVEN
KHE, petitioners, vs. COURT OF APPEALS, HON. TEOFILO GUADIZ, RTC 147,
MAKATI CITY and PHILAM INSURANCE CO., INC., respondents.

DECISION
KAPUNAN, J.:

Before the Court is a Petition for Review on Certiorari under Rule 45, seeking to set aside the
decision of the Court of Appeals dated April 10, 2000 and its resolution dated July 11, 2000
denying the motion for reconsideration of the aforesaid decision. The original complaint that is the
subject matter of this case is an accion pauliana-- an action filed by Philam Insurance Company,
Inc. (respondent Philam) to rescind or annul the donations made by petitioner Khe Hong Cheng
allegedly in fraud of creditors. The main issue for resolution is whether or not the action to rescind
the donations has already prescribed. While the first paragraph of Article 1389 of the Civil Code
states: The action to claim rescission must be commenced within four years... the question is, from
which point or event does this prescriptive period commence to run?
The facts are as follows:
Petitioner Khe Hong Cheng, alias Felix Khe, is the owner of Butuan Shipping Lines. It appears
that on or about October 4, 1985, the Philippine Agricultural Trading Corporation shipped on board
the vessel M/V PRINCE ERIC, owned by petitioner Khe Hong Cheng, 3,400 bags of copra at
Masbate, Masbate, for delivery to Dipolog City, Zamboanga del Norte. The said shipment of copra
was covered by a marine insurance policy issued by American Home Insurance Company
(respondent Philam's assured). M/V PRINCE ERIC, however, sank somewhere between Negros
Island and Northeastern Mindanao, resulting in the total loss of the shipment. Because of the loss,
the insurer, American Home, paid the amount of P354,000.00 (the value of the copra) to the
consignee.
Having been subrogated into the rights of the consignee, American Home instituted Civil Case
No. 13357 in the Regional Trial Court (RTC) of Makati, Branch 147 to recover the money paid to
the consignee, based on breach of contract of carriage. While the case was still pending, or on
December 20, 1989, petitioner Khe Hong Cheng executed deeds of donations of parcels of land in
favor of his children, herein co-petitioners Sandra Joy and Ray Steven. The parcel of land with an
area of 1,000 square meters covered by Transfer Certificate of Title (TCT) No. T-3816 was donated
to Ray Steven. Petitioner Khe Hong Cheng likewise donated in favor of Sandra Joy two (2) parcels
of land located in Butuan City, covered by TCT No. RT-12838. On the basis of said deeds, TCT
No. T-3816 was cancelled and in lieu thereof, TCT No. T-5072 was issued in favor of Ray Steven
and TCT No. RT-12838 was cancelled and in lieu thereof, TCT No. RT-21054 was issued in the
name of Sandra Joy.
The trial court rendered judgment against petitioner Khe Hong Cheng in Civil Case No. 13357
on December 29, 1993, four years after the donations were made and the TCTs were registered in
the donees names. The decretal portion of the aforesaid decision reads:

Wherefore, in view of the foregoing, the Court hereby renders judgment in favor of the plaintiff and
against the defendant, ordering the latter to pay the former:

1) the sum of P354,000.00 representing the amount paid by the plaintiff to the Philippine
Agricultural Trading Corporation with legal interest at 12% from the time of the filing of the
complaint in this case;

2) the sum of P50,000.00 as attorneys fees;

3) the costs.[1]

After the said decision became final and executory, a writ of execution was forthwith issued on
September 14, 1995. Said writ of execution, however, was not served. An alias writ of execution
was, thereafter, applied for and granted in October 1996. Despite earnest efforts, the sheriff found
no property under the name of Butuan Shipping Lines and/or petitioner Khe Hong Cheng to levy or
garnish for the satisfaction of the trial court's decision. When the sheriff, accompanied by counsel
of respondent Philam, went to Butuan City on January 17, 1997, to enforce the alias writ of
execution, they discovered that petitioner Khe Hong Cheng no longer had any property and that he
had conveyed the subject properties to his children.
On February 25, 1997, respondent Philam filed a complaint with the Regional Trial Court of
Makati City, Branch 147, for the rescission of the deeds of donation executed by petitioner Khe
Hong Cheng in favor of his children and for the nullification of their titles (Civil Case No. 97-
415). Respondent Philam alleged, inter alia, that petitioner Khe Hong Cheng executed the aforesaid
deeds in fraud of his creditors, including respondent Philam.[2]
Petitioners subsequently filed their answer to the complaint a quo. They moved for its dismissal
on the ground that the action had already prescribed. They posited that the registration of the deeds
of donation on December 27, 1989 constituted constructive notice and since the complaint a
quo was filed only on February 25, 1997, or more than four (4) years after said registration, the
action was already barred by prescription.[3]
Acting thereon, the trial court denied the motion to dismiss. It held that respondent Philam's
complaint had not yet prescribed. According to the trial court, the prescriptive period began to run
only from December 29, 1993, the date of the decision of the trial court in Civil Case No. 13357. [4]
On appeal by petitioners, the CA affirmed the trial court's decision in favor of respondent
Philam. The CA declared that the action to rescind the donations had not yet prescribed. Citing
Articles 1381 and 1383 of the Civil Code, the CA basically ruled that the four year period to
institute the action for rescission began to run only in January 1997, and not when the decision in
the civil case became final and executory on December 29, 1993. The CA reckoned the accrual of
respondent Philam's cause of action on January 1997, the time when it first learned that the
judgment award could not be satisfied because the judgment creditor, petitioner Khe Hong Cheng,
had no more properties in his name. Prior thereto, respondent Philam had not yet exhausted all legal
means for the satisfaction of the decision in its favor, as prescribed under Article 1383 of the Civil
Code.[5]
The Court of Appeals thus denied the petition for certiorari filed before it, and held that the
trial court did not commit any error in denying petitioners' motion to dismiss. Their motion for
reconsideration was likewise dismissed in the appellate court's resolution dated July 11, 2000.
Petitioners now assail the aforesaid decision and resolution of the CA alleging that:
I

PUBLIC RESPONDENT GRAVELY ERRED AND ACTED IN GRAVE ABUSE OF


DISCRETION WHEN IT DENIED THE PETITION TO DISMISS THE CASE BASED ON
THE GROUND OF PRESCRIPTION.
II

PUBLIC RESPONDENT COURT OF APPEALS GRAVELY ERRED IN HOLDING THAT


PRESCRIPTION BEGINS TO RUN WHEN IN JANUARY 1997 THE SHERIFF WENT TO
BUTUAN CITY IN SEARCH OF PROPERTIES OF PETITIONER FELIX KHE CHENG TO
SATISFY THE JUDGMENT IN CIVIL CASE NO. 13357 AND FOUND OUT THAT AS
EARLY AS DEC. 20, 1989, PETITIONERS KHE CHENG EXECUTED THE DEEDS OF
DONATIONS IN FAVOR OF HIS CO-PETITIONERS THAT THE ACTION FOR
RESCISSION ACCRUED BECAUSE PRESCRIPTION BEGAN TO RUN WHEN THESE
DONATIONS WERE REGISTERED WITH THE REGISTER OF DEEDS IN DECEMBER
1989, AND WHEN THE COMPLAINT WAS FILED ONLY IN FEBRUARY 1997, MORE
THAN FOUR YEARS HAVE ALREADY LAPSED AND THEREFORE, IT HAS
ALREADY PRESCRIBED.[6]

Essentially, the issue for resolution posed by petitioners is this: When did the four (4) year
prescriptive period as provided for in Article 1389 of the Civil Code for respondent Philam to file
its action for rescission of the subject deeds of donation commence to run?
The petition is without merit.
Article 1389 of the Civil Code simply provides that, The action to claim rescission must be
commenced within four years. Since this provision of law is silent as to when the prescriptive
period would commence, the general rule, i.e, from the moment the cause of action accrues,
therefore, applies. Article 1150 of the Civil Code is particularly instructive:

Art. 1150. The time for prescription for all kinds of actions, when there is no special provision
which ordains otherwise, shall be counted from the day they may be brought.

Indeed, this Court enunciated the principle that it is the legal possibility of bringing the action
which determines the starting point for the computation of the prescriptive period for the
action.[7] Article 1383 of the Civil Code provides as follows:

Art. 1383. An action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same.

It is thus apparent that an action to rescind or an accion pauliana must be of last resort, availed
of only after all other legal remedies have been exhausted and have been proven futile. For
an accion pauliana to accrue, the following requisites must concur:

1) That the plaintiff asking for rescission has a credit prior to the alienation, although demandable
later; 2) That the debtor has made a subsequent contract conveying a patrimonial benefit to a third
person; 3) That the creditor has no other legal remedy to satisfy his claim, but would benefit by
rescission of the conveyance to the third person; 4) That the act being impugned is fraudulent; 5)
That the third person who received the property conveyed, if by onerous title, has been an
accomplice in the fraud.[8] (Emphasis ours)

We quote with approval the following disquisition of the CA on the matter:


An accion pauliana accrues only when the creditor discovers that he has no other legal remedy for
the satisfaction of his claim against the debtor other than an accion pauliana. The accion
pauliana is an action of a last resort. For as long as the creditor still has a remedy at law for the
enforcement of his claim against the debtor, the creditor will not have any cause of action against
the creditor for rescission of the contracts entered into by and between the debtor and another
person or persons. Indeed, an accion pauliana presupposes a judgment and the issuance by the trial
court of a writ of execution for the satisfaction of the judgment and the failure of the Sheriff to
enforce and satisfy the judgment of the court. It presupposes that the creditor has exhausted the
property of the debtor. The date of the decision of the trial court against the debtor is
immaterial. What is important is that the credit of the plaintiff antedates that of the fraudulent
alienation by the debtor of his property. After all, the decision of the trial court against the debtor
will retroact to the time when the debtor became indebted to the creditor.[9]

Petitioners, however, maintain that the cause of action of respondent Philam against them for
the rescission of the deeds of donation accrued as early as December 27, 1989, when petitioner Khe
Hong Cheng registered the subject conveyances with the Register of Deeds. Respondent Philam
allegedly had constructive knowledge of the execution of said deeds under Section 52 of
Presidential Decree No. 1529, quoted infra, as follows:

Section 52. Constructive knowledge upon registration. Every conveyance, mortgage, lease, lien,
attachment, order, judgment, instrument or entry affecting registered land shall, if registered, filed
or entered in the Office of the Register of Deeds for the province or city where the land to which it
relates lies, be constructive notice to all persons from the time of such registering, filing, or
entering.

Petitioners argument that the Civil Code must yield to the Mortgage and Registration Laws is
misplaced, for in no way does this imply that the specific provisions of the former may be all
together ignored. To count the four year prescriptive period to rescind an allegedly fraudulent
contract from the date of registration of the conveyance with the Register of Deeds, as alleged by
the petitioners, would run counter to Article 1383 of the Civil Code as well as settled jurisprudence.
It would likewise violate the third requisite to file an action for rescission of an allegedly fraudulent
conveyance of property, i.e., the creditor has no other legal remedy to satisfy his claim.
An accion pauliana thus presupposes the following: 1) A judgment; 2) the issuance by the trial
court of a writ of execution for the satisfaction of the judgment, and 3) the failure of the sheriff to
enforce and satisfy the judgment of the court. It requires that the creditor has exhausted the
property of the debtor. The date of the decision of the trial court is immaterial. What is important is
that the credit of the plaintiff antedates that of the fraudulent alienation by the debtor of his
property. After all, the decision of the trial court against the debtor will retroact to the time when
the debtor became indebted to the creditor.
Tolentino, a noted civilist, explained:

xxx[T]herefore, credits with suspensive term or condition are excluded, because the accion
pauliana presupposes a judgment and unsatisfied execution, which cannot exist when the debt is
not yet demandable at the time the rescissory action is brought. Rescission is a subsidiary action,
which presupposes that the creditor has exhausted the property of the debtor which is impossible in
credits which cannot be enforced because of a suspensive term or condition.

While it is necessary that the credit of the plaintiff in the accion pauliana must be prior to the
fraudulent alienation, the date of the judgment enforcing it is immaterial. Even if the judgment be
subsequent to the alienation, it is merely declaratory with retroactive effect to the date when the
credit was constituted.[10]

These principles were reiterated by the Court when it explained the requisites of an accion
pauliana in greater detail, to wit:
The following successive measures must be taken by a creditor before he may bring an action for
rescission of an allegedly fraudulent sale: (1) exhaust the properties of the debtor through levying
by attachment and execution upon all the property of the debtor, except such as are exempt from
execution; (2) exercise all the rights and actions of the debtor, save those personal to him (accion
subrogatoria); and (3) seek rescission of the contracts executed by the debtor in fraud of their rights
(accion pauliana). Without availing of the first and second remedies, i.e., exhausting the properties
of the debtor or subrogating themselves in Francisco Baregs transmissible rights and actions,
petitioners simply undertook the third measure and filed an action for annulment of sale. This
cannot be done.[11] (Emphasis ours)

In the same case, the Court also quoted the rationale of the CA when it upheld the dismissal of
the accion pauliana on the basis of lack of cause of action:

In this case, plaintiffs appellants had not even commenced an action against defendants-appellees
Bareng for the collection of the alleged indebtedness. Plaintiffs-appellants had not even tried to
exhaust the property of defendants-appellees Bareng. Plaintiffs-appellants, in seeking the rescission
of the contracts of sale entered into between defendants-appellees, failed to show and prove that
defendants-appellees Bareng had no other property, either at the time of the sale or at the time this
action was filed, out of which they could have collected this (sic) debts. (Emphasis ours)

Even if respondent Philam was aware, as of December 27, 1989, that petitioner Khe Hong
Cheng had executed the deeds of donation in favor of his children, the complaint against Butuan
Shipping Lines and/or petitioner Khe Hong Cheng was still pending before the trial court.
Respondent Philam had no inkling, at the time, that the trial court's judgment would be in its favor
and further, that such judgment would not be satisfied due to the deeds of donation executed by
petitioner Khe Hong Cheng during the pendency of the case. Had respondent Philam filed his
complaint on December 27, 1989, such complaint would have been dismissed for being premature.
Not only were all other legal remedies for the enforcement of respondent Philams claims not yet
exhausted at the time the deeds of donation were executed and registered. Respondent Philam
would also not have been able to prove then that petitioner Khe Hong Chneg had no more property
other than those covered by the subject deeds to satisfy a favorable judgment by the trial court.
It bears stressing that petitioner Khe Hong Cheng even expressly declared and represented that
he had reserved to himself property sufficient to answer for his debts contracted prior to this date:

That the DONOR further states, for the same purpose as expressed in the next preceding paragraph,
that this donation is not made with the object of defrauding his creditors having reserved to himself
property sufficient to answer his debts contracted prior to this date.[12]

As mentioned earlier, respondent Philam only learned about the unlawful conveyances made by
petitioner Khe Hong Cheng in January 1997 when its counsel accompanied the sheriff to Butuan
City to attach the properties of petitioner Khe Hong Cheng. There they found that he no longer had
any properties in his name. It was only then that respondent Philam's action for rescission of the
deeds of donation accrued because then it could be said that respondent Philam had exhausted all
legal means to satisfy the trial court's judgment in its favor. Since respondent Philam filed its
complaint for accion pauliana against petitioners on February 25, 1997, barely a month from its
discovery that petitioner Khe Hong Cheng had no other property to satisfy the judgment award
against him, its action for rescission of the subject deeds clearly had not yet prescribed.
A final point. Petitioners now belatedly raise on appeal the defense of improper venue claiming
that respondent Philams complaint is a real action and should have been filed with the RTC of
Butuan City since the property subject matter of the donations are located therein. Suffice it to say
that petitioners are already deemed to have waived their right to question the venue of the instant
case. Improper venue should be objected to as follows 1) in a motion to dismiss filed within the
time but before the filing of the answer;[13] or 2) in the answer as an affirmative defense over which,
in the discretion of the court, a preliminary hearing may be held as if a motion to dismiss had been
filed.[14] Having failed to either file a motion to dismiss on the ground of improper of venue or include
the same as an affirmative defense in their answer, petitioners are deemed to have their right to
object to improper venue.
WHEREFORE, premises considered, the petition is hereby DENIED for lack of merit.
SO ORDERED.

G.R. No. L-12471 April 13, 1959

ROSARIO L. DE BRAGANZA, ET AL., petitioners,


vs.
FERNANDO F. DE VILLA ABRILLE, respondent.

Oscar M. Herrera for petitioners.


R. P. Sarandi and F. Valdez Anama for respondents.

BENGZON, J.:

Rosario L. de Braganza and her sons Rodolfo and Guillermo petition for review of the Court of Appeal's decision
whereby they were required solidarily to pay Fernando F. de Villa Abrille the sum of P10,000 plus 2 % interest from
October 30, 1944.

The above petitioners, it appears, received from Villa Abrille, as a loan, on October 30, 1944 P70,000 in Japanese
war notes and in consideration thereof, promised in writing (Exhibit A) to pay him P10,000 "in legal currency of the
P. I. two years after the cessation of the present hostilities or as soon as International Exchange has been
established in the Philippines", plus 2 % per annum.

Because payment had not been made, Villa Abrille sued them in March 1949.

In their answer before the Manila court of first Instance, defendants claimed to have received P40,000 only
instead of P70,000 as plaintiff asserted. They also averred that Guillermo and Rodolfo were minors when they
signed the promissory note Exhibit A. After hearing the parties and their evidence, said court rendered judgment,
which the appellate court affirmed, in the terms above described.

There can be no question about the responsibility of Mrs. Rosario L. Braganza because the minority of her
consigners note release her from liability; since it is a personal defense of the minors. However, such defense will
benefit her to the extent of the shares for which such minors may be responsible, (Art. 1148, Civil Code). It is not
denied that at the time of signing Exhibit A, Guillermo and Rodolfo Braganza were minors-16 and 18 respectively.
However, the Court of Appeals found them liable pursuant to the following reasoning:

. . . . These two appellants did not make it appears in the promissory note that they were not yet of legal
age. If they were really to their creditor, they should have appraised him on their incapacity, and if the
former, in spite of the information relative to their age, parted with his money, then he should be contended
with the consequence of his act. But, that was not the case. Perhaps defendants in their desire to acquire
much needed money, they readily and willingly signed the promissory note, without disclosing the legal
impediment with respect to Guillermo and Rodolfo. When minor, like in the instant case, pretended to be of
legal age, in fact they were not, they will not later on be permitted to excuse themselves from the fulfillment
of the obligation contracted by them or to have it annulled. (Mercado, et al. vs. Espiritu, 37 Phil., 215.)
[Emphasis Ours.]

We cannot agree to above conclusion. From the minors' failure to disclose their minority in the same promissory
note they signed, it does not follow as a legal proposition, that they will not be permitted thereafter to assert it. They
had no juridical duty to disclose their inability. In fact, according to Corpuz Juris Secundum, 43 p. 206;

. . . . Some authorities consider that a false representation as to age including a contract as part of the
contract and accordingly hold that it cannot be the basis of an action in tort. Other authorities hold that such
misrepresentation may be the basis of such an action, on the theory that such misrepresentation is not a
part of, and does not grow out of, the contract, or that the enforcement of liability for such misrepresentation
as tort does not constitute an indirect of enforcing liability on the contract. In order to hold infant liable,
however, the fraud must be actual and not constructure. It has been held that his mere silence when making
a contract as to age does not constitute a fraud which can be made the basis of an action of decit.
(Emphasis Ours.)

The fraud of which an infant may be held liable to one who contracts with him in the belief that he is of full
age must be actual not constructive, and mere failure of the infant to disclose his age is not sufficient. (27
American Jurisprudence, p. 819.)
The Mecado case1 cited in the decision under review is different because the document signed therein by the
minor specifically stated he was of age; here Exhibit A contained no such statement. In other words, in the Mercado
case, the minor was guilty of active misrepresentation; whereas in this case, if the minors were guilty at all, which
we doubt it is of passive (or constructive) misrepresentation. Indeed, there is a growing sentiment in favor of limiting
the scope of the application of the Mercado ruling, what with the consideration that the very minority which
incapacitated from contracting should likewise exempt them from the results of misrepresentation.

We hold, on this point, that being minors, Rodolfo and Guillermo Braganza could not be legally bound by their
signatures in Exhibit A.

It is argued, nevertheless, by respondent that inasmuch as this defense was interposed only in 1951, and inasmuch
as Rodolfo reached the age of majority in 1947, it was too late to invoke it because more than 4 years had elapsed
after he had become emancipated upon reaching the age of majority. The provisions of Article 1301 of the Civil
Code are quoted to the effect that "an action to annul a contract by reason of majority must be filed within 4 years"
after the minor has reached majority age. The parties do not specify the exact date of Rodolfo's birth. It is undenied,
however, that in October 1944, he was 18 years old. On the basis of such datum, it should be held that in October
1947, he was 21 years old, and in October 1951, he was 25 years old. So that when this defense was interposed in
June 1951, four years had not yet completely elapsed from October 1947.

Furthermore, there is reason to doubt the pertinency of the 4-years period fixed by Article 1301 of the Civil Code
where minority is set up only as a defense to an action, without the minors asking for any positive relief from the
contract. For one thing, they have not filed in this case an action for annulment.2 They merely interposed an excuse
from liability.

Upon the other hand, these minors may not be entirely absolved from monetary responsibility. In accordance with
the provisions of Civil Code, even if their written contact is unenforceable because of non-age, they shall make
restitution to the extent that they have profited by the money they received. (Art. 1340) There is testimony that the
funds delivered to them by Villa Abrille were used for their support during the Japanese occupation. Such being the
case, it is but fair to hold that they had profited to the extent of the value of such money, which value has been
authoritatively established in the so-called Ballantine Schedule: in October 1944, P40.00 Japanese notes were
equivalent to P1 of current Philippine money.

Wherefore, as the share of these minors was 2/3 of P70,000 of P46,666.66, they should now return
P1,166.67.3Their promise to pay P10,000 in Philippine currency, (Exhibit A) can not be enforced, as already stated,
since they were minors incapable of binding themselves. Their liability, to repeat, is presently declared without
regard of said Exhibit A, but solely in pursuance of Article 1304 of the Civil Code.

Accordingly, the appealed decision should be modified in the sense that Rosario Braganza shall pay 1/3 of P10,000
i.e., P3,333.334 plus 2% interest from October 1944; and Rodolfo and Guillermo Braganza shall pay jointly5 to the
same creditor the total amount of P1,166.67 plus 6% interest beginning March 7, 1949, when the complaint was
filed. No costs in this instance.

[G.R. No. 143958. July 11, 2003]

ALFRED FRITZ FRENZEL, petitioner, vs. EDERLINA P. CATITO, respondent.

DECISION
CALLEJO, SR., J.:

Before us is a petition for review of the Decision of the Court of Appeals in CA-G.R.
[1]

CV No. 53485 which affirmed the Decision of the Regional Trial Court of Davao City,
[2]

Branch 14, in Civil Case No. 17,817 dismissing the petitioners complaint, and the
resolution of the Court of Appeals denying his motion for reconsideration of the said
decision.

The Antecedents [3]


As gleaned from the evidence of the petitioner, the case at bar stemmed from the
following factual backdrop:
Petitioner Alfred Fritz Frenzel is an Australian citizen of German descent. He is an
electrical engineer by profession, but worked as a pilot with the New Guinea Airlines. He
arrived in the Philippines in 1974, started engaging in business in the country two years
thereafter, and married Teresita Santos, a Filipino citizen. In 1981, Alfred and Teresita
separated from bed and board without obtaining a divorce.
Sometime in February 1983, Alfred arrived in Sydney, Australia for a vacation. He
went to Kings Cross, a night spot in Sydney, for a massage where he met Ederlina Catito,
a Filipina and a native of Bajada, Davao City. Unknown to Alfred, she resided for a time in
Germany and was married to Klaus Muller, a German national. She left Germany and
tried her luck in Sydney, Australia, where she found employment as a masseuse in the
Kings Cross nightclub. She was fluent in German, and Alfred enjoyed talking with her. The
two saw each other again; this time Ederlina ended up staying in AlfredsHOTEL for three
days. Alfred gave Ederlina sums of money for her services. [4]

Alfred was so enamored with Ederlina that he persuaded her to stop working at Kings
Cross, return to the Philippines, and engage in a wholesome business of her own. He also
proposed that they meet in Manila, to which she assented. Alfred gave her money for her
plane fare to the Philippines. Within two weeks of Ederlinas arrival in Manila, Alfred joined
her. Alfred reiterated his proposal for Ederlina to stay in the Philippines and engage in
business, even offering to finance her business venture. Ederlina was delighted at the
idea and proposed to put up a beauty parlor. Alfred happily agreed.
Alfred told Ederlina that he was married but that he was eager to divorce his wife in
Australia. Alfred proposed marriage to Ederlina, but she replied that they should wait a
little bit longer.
Ederlina found a building at No. 444 M.H. del Pilar corner Arquiza Street, Ermita,
Manila, owned by one Atty. Jose Hidalgo who offered to convey his rights over the
property for P18,000.00. Alfred and Ederlina accepted the offer. Ederlina put up a beauty
parlor on the property under the business name Edorial Beauty Salon, and had it
registered with the Department of Trade and Industry under her name. Alfred paid Atty.
Hidalgo P20,000.00 for his right over the property and gave P300,000.00 to Ederlina for
the purchase of equipment and furnitures for the parlor. As Ederlina was going to
Germany, she executed a special power of attorney on December 13, 1983 appointing
[5]

her brother, Aser Catito, as her attorney-in-fact in managing the beauty parlor
business. She stated in the said deed that she was married to Klaus Muller. Alfred went
back to Papua New Guinea to resume his work as a pilot.
When Alfred returned to the Philippines, he visited Ederlina in her Manila residence
and found it unsuitable for her. He decided to purchase a house and lot owned byVictoria
Binuya Steckel in San Francisco del Monte, Quezon City, covered by Transfer Certificate
of Title No. 218429 for US$20,000.00. Since Alfred knew that as an alien he was
disqualified from owning lands in the Philippines, he agreed that only Ederlinas name
would appear in the deed of sale as the buyer of the property, as well as in the title
covering the same. After all, he was planning to marry Ederlina and he believed that after
their marriage, the two of them would jointly own the property. On January 23, 1984, a
Contract to Sell was entered into between Victoria Binuya Steckel as the vendor and
Ederlina as the sole vendee. Alfred signed therein as a witness. Victoria received from
[6]

Alfred, for and in behalf of Ederlina, the amount of US$10,000.00 as partial payment, for
which Victoria issued a receipt. When Victoria executed the deed of absolute sale over
[7]

the property on March 6, 1984, she received from Alfred, for and in behalf of Ederlina, the
[8]

amount of US$10,000.00 as final and full payment. Victoria likewise issued a receipt for
the said amount. After Victoria had vacated the property, Ederlina moved into her new
[9]
house. When she left for Germany to visit Klaus, she had her father Narciso Catito and
her two sisters occupy the property.
Alfred decided to stay in the Philippines for good and live with Ederlina. He returned to
Australia and sold his fiber glass pleasure boat to John Reid for $7,500.00 on May 4,
1984. He also sold his television and video business in Papua New Guinea for
[10]

K135,000.00 to Tekeraoi Pty. Ltd. He had his personal properties shipped to the
[11]

Philippines and stored at No. 14 Fernandez Street, San Francisco del Monte, Quezon
City. The proceeds of the sale were deposited in Alfreds account with the Hong Kong
Shanghai Banking Corporation (HSBC), Kowloon Branch under Bank Account No. 018-2-
807016. When Alfred was in Papua New Guinea selling his other properties, the bank
[12]

sent telegraphic letters updating him of his account. Several checks were credited to his
[13]

HSBC bank account from Papua New Guinea Banking Corporation, Westpac Bank of
Australia and New Zealand Banking Group Limited and Westpac BankPNG-Limited.
Alfred also had a peso savings account with HSBC, Manila, under Savings Account No.
01-725-183-01. [14]

Once, when Alfred and Ederlina were in Hong Kong, they opened another account
with HSBC, Kowloon, this time in the name of Ederlina, under Savings Account No. 018-0-
807950. Alfred transferred his deposits in Savings Account No. 018-2-807016 with the
[15]

said bank to this new account. Ederlina also opened a savings account with the Bank of
America Kowloon Main Office under Account No. 30069016. [16]

On July 28, 1984, while Alfred was in Papua New Guinea, he received a
LetterDATED December 7, 1983 from Klaus Muller who was then residing in Berlin,
Germany. Klaus informed Alfred that he and Ederlina had been married on October 16,
1978 and had a blissful married life until Alfred intruded therein. Klaus stated that he knew
of Alfred and Ederlinas amorous relationship, and discovered the same sometime in
November 1983 when he arrived in Manila. He also begged Alfred to leave Ederlina alone
and to return her to him, saying that Alfred could not possibly build his future on his
(Klaus) misfortune. [17]

Alfred had occasion to talk to Sally MacCarron, a close friend of Ederlina. He inquired
if there was any truth to Klaus statements and Sally confirmed that Klaus was married to
Ederlina. When Alfred confronted Ederlina, she admitted that she and Klaus were, indeed,
married. But she assured Alfred that she would divorce Klaus. Alfred was appeased. He
agreed to continue the amorous relationship and wait for the outcome of Ederlinas petition
for divorce. After all, he intended to marry her. He retained the services of Rechtsanwltin
Banzhaf with offices in Berlin, as her counsel who informed her of the progress of the
proceedings. Alfred paid for the services of the lawyer.
[18]

In the meantime, Alfred decided to purchase another house and lot, owned by Rodolfo
Morelos covered by TCT No. 92456 located in Pea Street, Bajada, Davao City. Alfred [19]

again agreed to have the deed of sale made out in the name of Ederlina. On September 7,
1984, Rodolfo Morelos executed a deed of absolute sale over the said property in favor of
Ederlina as the sole vendee for the amount of P80,000.00. Alfred paid US$12,500.00 for
[20]

the property.
Alfred purchased another parcel of land from one Atty. Mardoecheo Camporedondo,
located in Moncado, Babak, Davao, covered by TCT No. 35251. Alfred once more agreed
for the name of Ederlina to appear as the sole vendee in the deed of sale. On December
31, 1984, Atty. Camporedondo executed a deed of sale over the property for P65,000.00
in favor of Ederlina as the sole vendee. Alfred, through Ederlina, paid the lot at the cost
[21]

of P33,682.00 and US$7,000.00, respectively, for which the vendor signed receipts. On [22]

August 14, 1985, TCT No. 47246 was issued to Ederlina as the sole owner of the said
property. [23]

Meanwhile, Ederlina deposited on December 27, 1985, the total amount of


US$250,000 with the HSBC Kowloon under Joint Deposit Account No. 018-462341-145. [24]
The couple decided to put up a beach resort on a four-hectare land in Camudmud,
Babak, Davao, owned by spouses Enrique and Rosela Serrano. Alfred purchased the
property from the spouses for P90,000.00, and the latter issued a receipt therefor. A [25]

draftsman commissioned by the couple submitted a sketch of the beach resort. Beach [26]

houses were forthwith constructed on a portion of the property and were eventually rented
out by Ederlinas father, Narciso Catito. The rentals were collected by Narciso, while
Ederlina kept the proceeds of the sale of copra from the coconut trees in the property. By
this time, Alfred had already spent P200,000.00 for the purchase, construction and
upkeep of the property.
Ederlina often wrote letters to her family informing them of her life with Alfred. In a
Letter dated January 21, 1985, she wrote about how Alfred had financed the purchases of
some real properties, the establishment of her beauty parlor business, and her petition to
divorce Klaus. [27]

Because Ederlina was preoccupied with her business in Manila, she executed on July
8, 1985, two special powers of attorney appointing Alfred as attorney-in-fact to receive in
[28]

her behalf the title and the deed of sale over the property sold by the spouses Enrique
Serrano.
In the meantime, Ederlinas petition for divorce was denied because Klaus opposed the
same. A second petition filed by her met the same fate. Klaus wanted half of all the
properties owned by Ederlina in the Philippines before he would agree to a divorce.
Worse, Klaus threatened to file a bigamy case against Ederlina. [29]

Alfred proposed the creation of a partnership to Ederlina, or as an alternative, the


establishment of a corporation, with Ederlina owning 30% of the equity thereof. She
initially agreed to put up a corporation and contacted Atty. Armando Dominguez to
prepare the necessary documents. Ederlina changed her mind at the last minute when
she was advised to insist on claiming ownership over the properties acquired by them
during their coverture.
Alfred and Ederlinas relationship started deteriorating. Ederlina had not been able to
secure a divorce from Klaus. The latter could charge her for bigamy and could even
involve Alfred, who himself was still married. To avoid complications, Alfred decided to live
separately from Ederlina and cut off all contacts with her. In one of her letters to Alfred,
Ederlina complained that he had ruined her life. She admitted that the money used for the
purchase of the properties in Davao were his. She offered to convey the properties
deeded to her by Atty. Mardoecheo Camporedondo and Rodolfo Morelos, asking Alfred to
prepare her affidavit for the said purpose and send it to her for her signature. The last
[30]

straw for Alfred came on September 2, 1985, when someone smashed the front and rear
windshields of Alfreds car and damaged the windows. Alfred thereafter executed an
affidavit-complaint charging Ederlina and Sally MacCarron with malicious mischief. [31]

On October 15, 1985, Alfred wrote to Ederlinas father, complaining that Ederlina had
taken all his life savings and because of this, he was virtually penniless. He further
accused the Catito family of acquiring for themselves the properties he had purchased
with his own money. He demanded the return of all the amounts that Ederlina and her
family had stolen and turn over all the properties acquired by him and Ederlina during their
coverture.[32]

Shortly thereafter, Alfred filed a Complaint dated October 28, 1985, against Ederlina,
[33]

with the Regional Trial Court of Quezon City, for recovery of real and personal properties
located in Quezon City and Manila. In his complaint, Alfred alleged, inter alia, that
Ederlina, without his knowledge and consent, managed to transfer funds from their joint
account in HSBC Hong Kong, to her own account with the same bank. Using the said
funds, Ederlina was able to purchase the properties subject of the complaints. He also
alleged that the beauty parlor in Ermita was established with his own funds, and that the
Quezon City property was likewise acquired by him with his personal funds. [34]
Ederlina failed to file her answer and was declared in default. Alfred adduced his
evidence ex-parte.
In the meantime, on November 7, 1985, Alfred also filed a complaint against Ederlina [35]

with the Regional Trial Court, Davao City, for specific performance, declaration of
ownership of real and personal properties, sum of money, and damages. He alleged, inter
alia, in his complaint:

4. That during the period of their common-law relationship, plaintiff solely through his own efforts
and resources acquired in the Philippines real and personal properties valued more or less at
P724,000.00; The defendants common-law wife or live-in partner did not contribute anything
financially to the acquisition of the said real and personal properties. These properties are as
follows:

I. Real Properties

a. TCT No. T-92456 located at Bajada, Davao City, consisting of 286 square meters, (with residential
house) registered in the name of the original title owner Rodolfo M. Morelos but already fully paid
by plaintiff. Valued at P342,000.00;
b. TCT No. T-47246 (with residential house) located at Babak, Samal, Davao, consisting of 600
square meters, registered in the name of Ederlina Catito, with the Register of Deeds of Tagum,
Davao del Norte valued at P144,000.00;
c. A parcel of agricultural land located at Camudmud, Babak, Samal, Davao del Norte, consisting
of 4.2936 hectares purchased from Enrique Serrano and Rosela B. Serrano. Already paid in full by
plaintiff. Valued at P228,608.32;

II. Personal Properties:

a. Furniture valued at P10,000.00.

...

5. That defendant made no contribution at all to the acquisition of the above-mentioned properties
as all the monies (sic) used in acquiring said properties belonged solely to plaintiff; [36]

Alfred prayed that after hearing, judgment be rendered in his favor:

WHEREFORE, in view of the foregoing premises, it is respectfully prayed that judgment be


rendered in favor of plaintiff and against defendant:

a) Ordering the defendant to execute the corresponding deeds of transfer and/or conveyances in
favor of plaintiff over those real and personal properties enumerated in Paragraph 4 of this
complaint;
b) Ordering the defendant to deliver to the plaintiff all the above real and personal properties or their
money value, which are in defendants name and custody because these were acquired solely with
plaintiffs money and resources during the duration of the common-law relationship between plaintiff
and defendant, the description of which are as follows:
(1) TCT No. T-92456 (with residential house) located at Bajada, Davao City, consisting of 286 square
meters, registered in the name of the original title owner Rodolfo Morelos but already fully paid by
plaintiff. Valued at P342,000.00;
(2) TCT No. T-47246 (with residential house) located at Babak, Samal, Davao, consisting of 600
square meters, registered in the name of Ederlina Catito, with the Register of Deeds of Tagum,
Davao del Norte, valued at P144,000.00;
(3) A parcel of agricultural land located at Camudmud, Babak, Samal, Davao del Norte, consisting of
4.2936 hectares purchased from Enrique Serrano and Rosela B. Serrano. Already fully paid by
plaintiff. Valued at P228,608.32;
c) Declaring the plaintiff to be the sole and absolute owner of the above-mentioned real and personal
properties;
d) Awarding moral damages to plaintiff in an amount deemed reasonable by the trial court;
e) To reimburse plaintiff the sum of P12,000.00 as attorneys fees for having compelled the plaintiff to
litigate;
f) To reimburse plaintiff the sum of P5,000.00 incurred as litigation expenses also for having
compelled the plaintiff to litigate; and
g) To pay the costs of this suit;

Plaintiff prays for other reliefs just and equitable in the premises. [37]

In her answer, Ederlina denied all the material allegations in the complaint, insisting
that she acquired the said properties with her personal funds, and as such, Alfred had no
right to the same. She alleged that the deeds of sale, the receipts, and certificates of titles
of the subject properties were all made out in her name. By way of special and [38]

affirmative defense, she alleged that Alfred had no cause of action against her. She
interposed counterclaims against the petitioner. [39]

In the meantime, the petitioner filed a ComplaintDATED August 25, 1987, against the
HSBC in the Regional Trial Court of Davao City for recovery of bank deposits and
[40]

damages. He prayed that after due proceedings, judgment be rendered in his favor, thus:
[41]

WHEREFORE, plaintiff respectfully prays that the Honorable Court adjudge defendant bank, upon
hearing the evidence that the parties might present, to pay plaintiff:

1. ONE HUNDRED TWENTY SIX THOUSAND TWO HUNDRED AND THIRTY U.S.
DOLLARS AND NINETY EIGHT CENTS (US$126,230.98) plus legal interests, either of Hong
Kong or of the Philippines, from 20 December 1984 up to theDATE of execution or satisfaction
of judgment, as actual damages or in restoration of plaintiffs lost dollar savings;

2.The same amount in (1) above as moral damages;

3. Attorneys fees in the amount equivalent to TWENTY FIVE PER CENT (25%) of (1) and (2)
above;

4. Litigation expenses in the amount equivalent to TEN PER CENT (10%) of the amount in (1)
above; and

5. For such other reliefs as are just and equitable under the circumstances. [42]

On April 28, 1986, the RTC of Quezon City rendered its decision in Civil Case No. Q-
46350, in favor of Alfred, the decretal portion of which reads as follows:

WHEREFORE, premises considered, judgment is hereby rendered ordering the defendant to


perform the following:

(1) To execute a document waiving her claim to the house and lot in No. 14 Fernandez St., San
Francisco Del Monte, Quezon City in favor of plaintiff or to return to the plaintiff the acquisition
cost of the same in the amount of $20,000.00, or to sell the said property and turn over the proceeds
thereof to the plaintiff;

(2) To deliver to the plaintiff the rights of ownership and management of the beauty parlor located
at 444 Arquiza St., Ermita, Manila, including the equipment and fixtures therein;

(3) To account for the earnings of rental of the house and lot in No. 14 Fernandez St., San
Francisco Del Monte, Quezon City, as well as the earnings in the beauty parlor at 444 Arquiza St.,
Ermita, Manila and turn over one-half of the net earnings of both properties to the plaintiff;
(4) To surrender or return to the plaintiff the personal properties of the latter left in the house at San
Francisco Del Monte, to wit:

(1) Mamya automatic camera


(1) 12 inch Sonny T.V. set, colored with remote control.
(1) Micro oven
(1) Electric fan (tall, adjustable stand)
(1) Office safe with (2) drawers and safe
(1) Electric Washing Machine
(1) Office desk and chair
(1)DOUBLE BED suits
(1) Mirror/dresser
(1) Heavy duty voice/working mechanic
(1) Sony Beta-Movie camera
(1) Suitcase with personal belongings
(1) Cardboard box with belongings
(1) Guitar Amplifier
(1) Hanger with mens suit (white).

To return to the plaintiff, (1) Hi-Fi Stereo equipment left at 444 Arquiza Street, Ermita, Manila, as
well as the Fronte Suzuki car.

(4) To account for the monies (sic) deposited with the joint account of the plaintiff and defendant
(Account No. 018-0-807950); and to restore to the plaintiff all the monies (sic) spent by the
defendant without proper authority;

(5) To pay the amount of P5,000.00 by way of attorneys fees, and the costs of suit.

SO ORDERED. [43]

However, after due proceedings in the RTC of Davao City, in Civil Case No. 17,817,
the trial court rendered judgment on September 28, 1995 in favor of Ederlina, the
dispositive portion of which reads:

WHEREFORE, the Court cannot give due course to the complaint and hereby orders its dismissal.
The counterclaims of the defendant are likewise dismissed.

SO ORDERED. [44]

The trial court ruled that based on documentary evidence, the purchaser of the three
parcels of land subject of the complaint was Ederlina. The court further stated that even if
Alfred was the buyer of the properties, he had no cause of action against Ederlina for the
recovery of the same because as an alien, he was disqualified from acquiring and owning
lands in the Philippines. The sale of the three parcels of land to the petitioner was null and
void ab initio. Applying the pari delicto doctrine, the petitioner was precluded from
recovering the properties from the respondent.
Alfred appealed the decision to the Court of Appeals in which the petitioner posited
[45]

the view that although he prayed in his complaint in the court a quo that he be declared
the owner of the three parcels of land, he had no intention of owning the same
permanently. His principal intention therein was to be declared the transient owner for the
purpose of selling the properties at public auction, ultimately enabling him to recover the
money he had spent for the purchase thereof.
On March 8, 2000, the CA rendered a decision affirming in toto the decision of the
RTC. The appellate court ruled that the petitioner knowingly violated the Constitution;
hence, was barred from recovering the money used in the purchase of the three parcels of
land. It held that to allow the petitioner to recover the money used for the purchase of the
properties would embolden aliens to violate the Constitution, and defeat, rather than
enhance, the public policy. [46]

Hence, the petition at bar.


The petitioner assails the decision of the court contending that:

THE HONORABLE COURT OF APPEALS ERRED IN APPLYING THE RULE OF IN PARI


DELICTO IN THE INSTANT CASE BECAUSE BY THE FACTS AS NARRATED IN THE
DECISION IT IS APPARENT THAT THE PARTIES ARE NOT EQUALLY GUILTY BUT
RATHER IT WAS THE RESPONDENT WHO EMPLOYED FRAUD AS WHEN SHE DID NOT
INFORM PETITIONER THAT SHE WAS ALREADY MARRIED TO ANOTHER GERMAN
NATIONAL AND WITHOUT SUCH FRAUDULENT DESIGN PETITIONER COULD NOT
HAVE PARTED WITH HIS MONEY FOR THE PURCHASE OF THE PROPERTIES. [47]

and

THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE


INTENTION OF THE PETITIONER IS NOT TO OWN REAL PROPERTIES IN THE
PHILIPPINES BUT TO SELL THEM AT PUBLIC AUCTION TO BE ABLE TO RECOVER HIS
MONEY USED IN PURCHASING THEM. [48]

Since the assignment of errors are intertwined with each other, the Court shall resolve
the same simultaneously.
The petitioner contends that he purchased the three parcels of land subject of his
complaint because of his desire to marry the respondent, and not to violate the Philippine
Constitution. He was, however, deceived by the respondent when the latter failed to
disclose her previous marriage to Klaus Muller. It cannot, thus, be said that he and the
respondent are equally guilty; as such, the pari delicto doctrine is not applicable to him. He
acted in good faith, on the advice of the respondents uncle, Atty. Mardoecheo
Camporedondo. There is no evidence on record that he was aware of the constitutional
prohibition against aliens acquiring real property in the Philippines when he purchased the
real properties subject of his complaint with his own funds. The transactions were not
illegal per se but merely prohibited, and under Article 1416 of the New Civil Code, he is
entitled to recover the money used for the purchase of the properties. At any rate, the
petitioner avers, he filed his complaint in the court a quo merely for the purpose of having
him declared as the owner of the properties, to enable him to sell the same at public
auction. Applying by analogy Republic Act No. 133 as amended by Rep. Act No. 4381
[49]

and Rep. Act No. 4882, the proceeds of the sale would be remitted to him, by way of
refund for the money he used to purchase the said properties. To bar the petitioner from
recovering the subject properties, or at the very least, the money used for the purchase
thereof, is to allow the respondent to enrich herself at the expense of the petitioner in
violation of Article 22 of the New Civil Code.
The petition is bereft of merit.
Section 14, Article XIV of the 1973 Constitution provides, as follows:

Save in cases of hereditary succession, no private land shall be transferred or conveyed except to
individuals, corporations, or associations qualified to acquire or hold lands in the public domain.
[50]

Lands of the public domain, which include private lands, may be transferred or
conveyed only to individuals or entities qualified to acquire or hold private lands or lands of
the public domain. Aliens, whether individuals or corporations, have been disqualified from
acquiring lands of the public domain. Hence, they have also been disqualified from
acquiring private lands. [51]
Even if, as claimed by the petitioner, the sales in question were entered into by him as
the real vendee, the said transactions are in violation of the Constitution; hence, are null
and void ab initio. A contract that violates the Constitution and the law, is null and void
[52]

and vests no rights and creates no obligations. It produces no legal effect at all. The [53]

petitioner, being a party to an illegal contract, cannot come into a court of law and ask to
have his illegal objective carried out. One who loses his money or property by knowingly
engaging in a contract or transaction which involves his own moral turpitude may not
maintain an action for his losses. To him who moves in deliberation and premeditation, the
law is unyielding. The law will not aid either party to an illegal contract or agreement; it
[54]

leaves the parties where it finds them. Under Article 1412 of the New Civil Code, the
[55]

petitioner cannot have the subject properties deeded to him or allow him to recover the
money he had spent for the purchase thereof. Equity as a rule will follow the law and will
[56]

not permit that to be done indirectly which, because of public policy, cannot be done
directly. Where the wrong of one party equals that of the other, the defendant is in the
[57]

stronger position ... it signifies that in such a situation, neither a court of equity nor a court
of law will administer a remedy. The rule is expressed in the maxims: EX DOLO MALO
[58]

NON ORITUR ACTIO and IN PARI DELICTO POTIOR EST CONDITIO DEFENDENTIS. [59]

The petitioner cannot feign ignorance of the constitutional proscription, nor claim that
he acted in good faith, let alone assert that he is less guilty than the respondent. The
petitioner is charged with knowledge of the constitutional prohibition. As can be gleaned
[60]

from the decision of the trial court, the petitioner was fully aware that he was disqualified
from acquiring and owning lands under Philippine law even before he purchased the
properties in question; and, to skirt the constitutional prohibition, the petitioner had the
deed of sale placed under the respondents name as the sole vendee thereof:

Such being the case, the plaintiff is subject to the constitutional restrictions governing the
acquisition of real properties in the Philippines by aliens.

From the plaintiffs complaint before the Regional Trial Court, National Capital Judicial Region,
Branch 84, Quezon City in Civil Case No. Q-46350 he alleged:

xxx That on account that foreigners are not allowed by the Philippine laws to acquire real
properties in their name as in the case of my vendor Miss Victoria Vinuya (sic) although married to
a foreigner, we agreed and I consented in having the title to subject property placed in defendants
name alone although I paid for the whole price out of my own exclusive funds. (paragraph IV,
Exhibit W.)

and his testimony before this Court which is hereby quoted:

ATTY. ABARQUEZ:
Q. In whose name the said house and lot placed, by the way, where is his house and lot located?
A. In 14 Fernandez St., San Francisco, del Monte, Manila.
Q. In whose name was the house placed?
A. Ederlina Catito because I was informed being not a Filipino, I cannot own the property. (tsn, p. 11,
August 27, 1986).
xxx xxx xxx
COURT:
Q. So you understand that you are a foreigner that you cannot buy land in the Philippines?
A. That is correct but as she would eventually be my wife that would be owned by us later on. (tsn, p.
5, September 3, 1986)
xxx xxx xxx
Q. What happened after that?
A. She said you foreigner you are using Filipinos to buy property.
Q. And what did you answer?
A. I said thank you very much for the property I bought because I gave you a lot of money (tsn., p.
14, ibid).
It is evident that the plaintiff was fully aware that as a non-citizen of the Philippines, he was
disqualified from validly purchasing any land within the country.[61]

The petitioners claim that he acquired the subject properties because of his desire to
marry the respondent, believing that both of them would thereafter jointly own the said
properties, is belied by his own evidence. It is merely an afterthought to salvage a lost
cause. The petitioner admitted on cross-examination that he was all along legally married
to Teresita Santos Frenzel, while he was having an amorous relationship with the
respondent:
ATTY. YAP:
Q When you were asked to identify yourself on direct examination you claimed before this Honorable
Court that your status is that of being married, do you confirm that?
A Yes, sir.
Q To whom are you married?
A To a Filipina, since 1976.
Q Would you tell us who is that particular person you are married since 1976?
A Teresita Santos Frenzel.
Q Where is she now?
A In Australia.
Q Is this not the person of Teresita Frenzel who became an Australian citizen?
A I am not sure, since 1981 we were separated.
Q You were only separated, in fact, but not legally separated?
A Thru my counsel in Australia I filed a separation case.
Q As of the present you are not legally divorce[d]?
A I am still legally married.[62]

The respondent was herself married to Klaus Muller, a German citizen. Thus, the
petitioner and the respondent could not lawfully join in wedlock. The evidence on record
shows that the petitioner in fact knew of the respondents marriage to another man, but
nonetheless purchased the subject properties under the name of the respondent and paid
the purchase prices therefor. Even if it is assumed gratia arguendi that the respondent and
the petitioner were capacitated to marry, the petitioner is still disqualified to own the
properties in tandem with the respondent. [63]

The petitioner cannot find solace in Article 1416 of the New Civil Code which reads:

Art. 1416. When the agreement is not illegal per se but is merely prohibited, and the prohibition by
the law is designed for the protection of the plaintiff, he may, if public policy is thereby enhanced,
recover what he has paid or delivered. [64]

The provision applies only to those contracts which are merely prohibited, in order to
benefit private interests. It does not apply to contracts void ab initio. The sales of three
parcels of land in favor of the petitioner who is a foreigner is illegal per se. The
transactions are void ab initio because they were entered into in violation of the
Constitution. Thus, to allow the petitioner to recover the properties or the money used in
the purchase of the parcels of land would be subversive of public policy.
Neither may the petitioner find solace in Rep. Act No. 133, as amended by Rep. Act
No. 4882, which reads:
SEC. 1. Any provision of law to the contrary notwithstanding, private real property may be
mortgaged in favor of any individual, corporation, or association, but the mortgagee or his
successor-in- interest, if disqualified to acquire or hold lands of the public domain in the
Philippines, shall not take possession of the mortgaged property during the existence of the
mortgage and shall not take possession of mortgaged property except after default and for the sole
purpose of foreclosure, receivership, enforcement or other proceedings and in no case for a period
of more than five years from actual possession and shall not bid or take part in any sale of such real
property in case of foreclosure: Provided, That said mortgagee or successor-in-interest may take
possession of said property after default in accordance with the prescribed judicial procedures for
foreclosure and receivership and in no case exceeding five years from actual possession. [65]

From the evidence on record, the three parcels of land subject of the complaint were
not mortgaged to the petitioner by the owners thereof but were sold to the respondent as
the vendee, albeit with the use of the petitioners personal funds.
Futile, too, is petitioners reliance on Article 22 of the New Civil Code which reads:

Art. 22. Every person who through an act of performance by another, or any other means, acquires
or comes into possession of something at the expense of the latter without just or legal ground, shall
return the same to him. [66]

The provision is expressed in the maxim: MEMO CUM ALTERIUS DETER


DETREMENTO PROTEST (No person should unjustly enrich himself at the expense of
another). An action for recovery of what has been paid without just cause has been
designated as an accion in rem verso. This provision does not apply if, as in this case,
[67]

the action is proscribed by the Constitution or by the application of the pari


delicto doctrine. It may be unfair and unjust to bar the petitioner from filing an accion in
[68]

rem verso over the subject properties, or from recovering the money he paid for the said
properties, but, as Lord Mansfield stated in the early case of Holman vs. Johnson: The [69]

objection that a contract is immoral or illegal as between the plaintiff and the defendant,
sounds at all times very ill in the mouth of the defendant. It is not for his sake, however,
that the objection is ever allowed; but it is founded in general principles of policy, which
the defendant has the advantage of, contrary to the real justice, as between him and the
plaintiff.
IN LIGHT OF ALL THE FOREGOING, the petition is DISMISSED. The decision of the
Court of Appeals is AFFIRMED in toto.
Costs against the petitioner.
SO ORDERED.