G.R. No. 158622 Spouses Limso and Davao Sunrise had difficulty in paying their loan.

Spouses Limso and Davao Sunrise had difficulty in paying their loan. In 1999, they requested that their loan be
SPOUSES ROBERT ALAN L. and NANCY LEE LIMSO, Petitioners, restructured. After negotiations, Spouses Limso, Davao Sunrise, and Philippine National Bank executed a
vs. Conversion, Restructuring and Extension Agreement.7
PHILIPPINE NATIONAL BANK and THE REGISTER OF DEEDS OF DAVAO CITY, Respondents. The principal obligation in the restructured agreement totalled ₱1.067 billion. This included ₱217.15 million unpaid
x-----------------------x interest.8
G.R. No. 169441 The restructured loan was divided into two (2) parts. Loan I was for the principal amount of ₱583.18 million, while
DAVAO SUNRISE INVESTMENT AND DEVELOPMENT CORPORATION and SPOUSES ROBERT ALAN and Loan II was for the principal amount of ₱483.78 million.9 The restructured loan was secured by the same real estate
NANCY LIMSO, Petitioners, mortgage over four (4) parcels of land in the original loan agreement. All the properties were registered in the name
vs. of Davao Sunrise.10
HON. JESUS V. QUITAIN, in his capacity as Presiding Judge of Regional Trial Court, Davao City, Branch 15 The terms of the restructured loan agreement state:
and PHILIPPINE NATIONAL BANK, Respondents. SECTION 1. TERMS OF THE CONVERSION, RESTRUCTURING AND EXTENSION
x-----------------------x 1.01 The Conversion/Restructuring/Extension. Upon compliance by the Borrowers with the conditions precedent
G.R. No. 172958 provided herein, the Obligations shall be converted, restructured and/or its term extended effective January 1, 1999
DAVAO SUNRISE INVESTMENT AND DEVELOPMENT CORPORATION represented by its President ROBERT (the "Effectivity Date") in the form of term loans (the "Loans") as follows:
ALAN L. LIMSO, and SPOUSES ROBERT ALAN and NANCY LEE LIMSO, Petitioners, (a) The Credit Line portion of the Obligations is hereby converted and restructured into a Seven-
vs. Year Long Term Loan (the "Loan I") in the principal amount of ₱583.18 Million;
HON. JESUS V. QUITAIN, in his capacity as Presiding Judge of Regional Trial Court, Davao City, Branch 15 (b) The original term of the Loan is hereby extended for another four (4) years (from September
and PHILIPPINE NATIONAL BANK, Respondents. 1, 2001 to December 31, 2005), and interest portion of the Obligations (including the interest
x-----------------------x accruing on the Credit Line and Loan up to December 31, 1998 estimated at ₱49.83 Million) are
G.R. No. 173194 hereby capitalized. Accordingly, both the Loan and Interest portions of the Obligations are
PHILIPPINE NATIONAL BANK, Petitioner, hereby consolidated into a Term Loan (the "Loan II") in the aggregate principal amount of
vs. ₱483.78 Million;
DAVAO SUNRISE INVESTMENT AND DEVELOPMENT CORPORATION and SPOUSES ROBERT ALAN LIMSO SECTION 2. TERMS OF LOAN I
and NANCY LEE LIMSO, Respondents. 2.01 Amount of Loan I. Loan I shall be in the principal amount not exceeding PESOS: FIVE
x-----------------------x HUNDRED EIGHTY THREE MILLION ONE HUNDRED EIGHTY THOUSAND
G.R. No. 196958 (₱583,180,000.00).
PHILIPPINE NATIONAL BANK, Petitioner, 2.02 Promissory Note. Loan I shall be evidenced by a promissory note (the "Note I") to be issued
vs. by the Borrowers in favor of the Bank in form and substance satisfactory to the Bank.
DAVAO SUNRISE INVESTMENT AND DEVELOPMENT CORPORATION and SPOUSES ROBERT ALAN L. 2.03 Principal Repayment. The Borrowers agree to repay Loan I within a period of seven (7)
LIMSO and NANCY LEE LIMSO, Respondents. years (inclusive of a one (1) year grace period) in monthly amortizations with the first
x-----------------------x amortization to commence on January 2000 and a balloon payment on or before the end of the
G.R. No. 197120 7th year on December 2005.
DAVAO SUNRISE INVESTMENT AND DEVELOPMENT CORPORATION and SPOUSES ROBERT ALAN AND 2.04 Interest. (a) The Borrowers agree to pay the Bank interest on Loan I from the Effective
NANCY LEE LIMSO, Petitioners, Date, until the date of full payment thereof at the rate per annum to be set by the Bank. The
vs. interest rate shall be reset by the Bank every month.
PHILIPPINE NATIONAL BANK, Respondent. (b) The interest provided in clause (a) above shall be payable monthly in arrears to
x-----------------------x commence on January, 1999.
G.R. No. 205463 SECTION 3. TERMS OF LOAN II
IN THE MATTER OF THE PETITION EX-PARTE FOR THE ISSUANCE OF THE WRIT OF POSSESSION UNDER 3.01 Amount of Loan II. Loan II shall be in the principal amount not exceeding PESOS: FOUR
LRC RECORD NO. 12973, 18031 AND LRC RECORD NO. 317, PHILIPPINE NATIONAL BANK, HUNDRED EIGHTY THREE MILLION SEVEN HUNDRED EIGHTY THOUSAND
DECISION (₱483,780,00.00).
LEONEN, J.: 3.02 Promissory Note. Loan II shall be evidenced by a promissory note (the "Note II") to be
There is no mutuality of contract when the interest rate in a loan agreement is set at the sole discretion of one party. issued by the Borrowers in favor of the Bank in form and substance satisfactory to the Bank.
Nor is there any mutuality when there is no reasonable means by which the other party can determine the applicable 3.03 Principal Repayment. The Borrowers agree to repay Loan II within a period of seven (7)
interest rate. These types of interest rates stipulated in the loan agreement are null and void. However, the nullity of years (inclusive of a one (1) year grace period) in monthly amortizations with the first
the stipulated interest rate does not automatically nullify the provision requiring payment of interest. Certainly, it does amortization to commence on January 2000 and a balloon payment on or before December
not nullify the obligation to pay the principal loan obligation. 2005.
These consolidated cases arose from three related actions filed before the trial courts of Davao City. 3.04 Interest. (a) The Borrowers agree to pay the Bank interest on Loan II from the Effective
In 1993, Spouses Robert Alan L. Limso and Nancy Lee Limso (Spouses Limso)1 and Davao Sunrise Investment and Date, until the date of full payment thereof at the rate per annum to be set by the Bank. The
Development Corporation (Davao Sunrise) took out a loan secured by real estate mortgages from Philippine National interest rate shall be reset by the Bank every month.
Bank.2 (b) The interest provided in clause (a) above shall be payable monthly in arrears to
The loan was in the total amount of P700 million, divided into two (2) kinds of loan accommodations: a revolving commence on January 1999.11 (Emphasis provided)
credit line of P300 million, and a seven-year long-term loan of P400 million.3 Spouses Limso and Davao Sunrise executed promissory notes, both dated January 5, 1999, in Philippine National
To secure the loan, real estate mortgages were constituted on four (4) parcels of land registered with the Registry of Bank’s favor. The promissory notes bore the amounts of ₱583,183,333.34 and ₱483,811,798.93. 12 The promissory
Deeds of Davao City.4 The parcels of land covered by TCT Nos. T-147820, T-151138, and T-147821 were registered note for Loan II includes interest charges because one of the preambular clauses of the Conversion, Restructuring
in the name of Davao Sunrise, while the parcel of land covered by TCT No. T-140122 was registered in the name of and Extension Agreement states that:
Spouses Limso.5 WHEREAS, the Borrowers acknowledge that they have outstanding obligations (the "Obligations") with the Bank
In 1995, Spouses Limso sold the parcel of land covered by TCT No. T-140122 to Davao Sunrise.6 broken down as follows:
 (i) Credit Line – ₱583.18 Million (as of September 30, 1998);
(ii) Loan – ₱266.67 Million (as of September 30, 1998); and
(iii) Interest – ₱217.15 Million (as of December 31, 1998)[.]13
Spouses Limso and Davao Sunrise encountered financial difficulties. Despite the restructuring of their loan, they
were still unable to pay.14 Philippine National Bank sent demand letters. Still, Spouses Limso and Davao Sunrise
failed to pay.15
On August 21, 2000, Philippine National Bank filed a Petition for Extrajudicial Foreclosure of Real Estate Mortgage
before the Sheriff’s Office in Davao City.16 The Notice of Foreclosure was published. The bank allegedly complied
with all the other legal requirements under Act No. 3135.17 The auction sale was held on October 26, 2000. Ball Park
Realty Corporation, through its representative Samson G. To, submitted its bid in the amount of
₱1,521,045,331.49.18 Philippine National Bank’s bid was in the amount of ₱1,521,055,331.49. Thus, it was declared
the highest bidder.19
After the foreclosure sale, but before the Sheriff could issue the Provisional Certificate of Sale, 20 Spouses Limso and
Davao Sunrise filed a Complaint for Reformation or Annulment of contract against Philippine National Bank, Atty.
Marilou D. Aldevera, in her capacity as Ex-Officio Provincial Sheriff of Davao City, and the Register of Deeds of
Davao City.21 The Complaint was filed on October 30, 2000, raffled to Branch 17 of the Regional Trial Court of Davao
City, and docketed as Civil Case No. 28,170-2000.22 It prayed for:
[the] declaration of nullity of unilateral imposition and increases of interest rates, crediting of illegal interests collected
to [Spouses Limso and Davao Sunrise’s] account; elimination of all uncollected illegal interests; reimposition of new
interest rates at 12% per annum only from date of filing of Complaint, total elimination of penalties; elimination also of
attorney’s fees or its reduction; declaration of nullity of auction sale and the foreclosure proceedings; reduction of
both loan accounts; reformation or annulment of contract, reconveyance, damages and injunction and restraining
order.23
Immediately after the Complaint was filed, the Executive Judge24 of the Regional Trial Court of Davao City issued a
72-hour restraining order preventing Philippine National Bank from taking possession and selling the foreclosed
properties.25
Spouses Limso subsequently filed an amended Complaint.26 The prayer in the amended Complaint stated:
PRAYER
WHEREFORE, it is respectfully prayed that judgment issue in favor of plaintiffs and against the defendants:
ON THE TEMPORARY RESTRAINING ORDER
1. That, upon the filing of the above-entitled case, a TEMPORARY RESTRAINING ORDER be
maintained enjoining the defendants from executing the provisional Certificate of Sale and final
Deed of Absolute Sale; confirmation of such sale; taking immediate possession thereof and from
selling to third parties those properties covered by TCT Nos. T-147820, T-147821,T-246386 and
T-247012 and its improvements nor to mortgage or pledge the same prior to the final outcome of
the above-entitled case, including other additional acts of foreclosure;.
2. That, plaintiffs’ application for the issuance of the [Writ of Preliminary Injunction] be concluded
within the 20 days lifetime period of the [Temporary Restraining Order], and
AFTER TRIAL ON THE MERITS
3. To declare the injunction as final;
4. Declaring that the unilateral increases of interest rates imposed by the defendant bank over
and above the stipulated interest rates provided for in the Promissory Notes, be also
considered as null and void and thereafter lowering the same to 12% per annum only, from the
date of the filing of the Complaint;
5. Declaring also that all illegally imposed interest rates and penalty charges be considered
eliminated and/or deducted from any account balance of plaintiffs;
6. Declaring also either the complete elimination of attorney’s fees, or in the alternative, reducing
the same to P500,000.00 only;
7. Declaring the reduction of the loan account balance to P827,012,149.50 only;
8. That subsequent thereto, ordering a complete reformation of the loan agreement and Real
Estate Mortgage which will now embody the lawful terms and conditions adjudicated by this
Honorable Court, or in the alternative, ordering its annulment, as may be warranted under the
provision of Article 1359 of the New Civil Code;
9. Ordering the defendant Register of Deeds to refrain from issuing a new title in favor of third
parties, and to execute the necessary documents necessary for the reconveyance of the
properties now covered by TCT Nos. T-147820, T-147821, T-246386 and T-247012 from the
defendant bank in favor of the plaintiffs upon payment of the recomputed loan accounts;
10. Ordering also the defendant bank to pay to the plaintiffs the sum of at least P500,000.00
representing business losses and loss of income by the later [sic] arising from the improvident
and premature institution of extrajudicial foreclosure proceedings against the plaintiffs;
11. Ordering again the defendant bank to pay to the plaintiffs the sum of P400,000.00 as
attorney’s fees and the additional sum of P100,000.00 for expenses incident to litigation; and
12. To pay the costs and for such other reliefs just and proper under the
circumstances.27(Underscoring in the original)
Through the Order28 dated November 20, 2000, Branch 17 of the Regional Trial Court of Davao City denied Spouses
Limso’s application for the issuance of a writ of preliminary injunction. 29
Spouses Limso moved for reconsideration. On December 4, 2000, Branch 17 of the Regional Trial Court of Davao
City set aside its November 20, 2000 Order and issued a writ of preliminary injunction. 30
Philippine National Bank then moved for reconsideration of the trial court’s December 4, 2000 Order. The bank’s
Motion was denied on December 21, 2000. Hence, Philippine National Bank filed before the Court of Appeals a
Petition for Certiorari assailing the December 4, 2000 and December 21, 2000 Orders of the trial court. This was
docketed as CA G.R. SP. No. 63351.31
In the meantime, Branch 17 continued with the trial of the Complaint for Reformation or Annulment of Contract with
Damages.32
On January 10, 2002, the Court of Appeals issued the Decision33 in CA G.R. SP. No. 63351 setting aside and
annulling the Orders dated December 4, 2000 and December 21, 2000 and dissolving the writ of preliminary
injunction.34
Spouses Limso and Davao Sunrise moved for reconsideration of the Court of Appeals’ January 2, 2002 Resolution in
CA G.R. SP No. 63351 but the motion was denied.35 They then filed a Petition for Review on Certiorari before this
court.36 Their Petition was docketed as G.R. No. 152812, which was denied on procedural grounds. 37
In view of the dissolution of the writ of preliminary injunction, Acting Clerk of Court and Ex-officio Provincial Sheriff
Rosemarie T. Cabaguio issued the Sheriff’s Provisional Certificate of Sale dated February 4, 2002 in the amount of
₱1,521,055,331.49.38 However, the Sheriff’s Provisional Certificate of Sale39 did not state the applicable redemption
period and the redemption price payable by the mortgagor or redemptioner. 40
On the same date, Philippine National Bank presented the Sheriff’s Provisional Certificate of Sale to the Register of
Deeds of Davao City in order that the title to the foreclosed properties could be consolidated and registered in
Philippine National Bank’s name. The presentation was recorded in the Primary Entry Book of Davao City’s Registry
of Deeds under Act No. 496 and entered as Entry Nos. 4762 to 4765. 41
On February 5, 2002, the registration of the Certificate of Sale was elevated en consulta by Atty. Florenda T.
Patriarca (Atty. Patriarca) , Acting Register of Deeds of Davao City, to the Land Registration Authority in Manila. This
was docketed as Consulta No. 3405.42
Acting on the consulta, the Land Registration Authority issued the Resolution dated May 21, 2002, which states: 43
"WHEREFORE, in view of the foregoing, the Sheriff’s Provisional Certificate of Sale dated February 4, 2002 is
registrable on TCT Nos. T-147820, T-147386, T-247012 provided all other registration requirements are complied
with."44
Meanwhile, on March 25, 2002, the Spouses Limso filed a Petition for Declaratory Relief with Prayer for Temporary
Restraining Order/Injunction on March 25, 2002 against Philippine National Bank, Atty. Rosemarie T. Cabaguio, in
her capacity as Ex-Officio Provincial Sheriff, and the Register of Deeds of Davao City (Petition for Declaratory
Relief). The Sheriff’s Provisional Certificate of Sale allegedly did not state any redemption price and period for
redemption. This case was raffled to Branch 14 of the Regional Trial Court of Davao City and docketed as Civil Case
No. 29,036-2002.45
The Petition for Declaratory Relief was filed while the Complaint for Reformation or Annulment with Damages was
still pending before Branch 17 of the Regional Trial Court of Davao City.
Spouses Limso subsequently filed an Amended Petition for Declaratory Relief, alleging:
6. That Petitioners with the continuing crisis and the unstable interest rates imposed by respondent PNB admittedly
failed to pay their loan, the demand letters were sent to both debtors-mortgagors separately, one addressed to the
Petitioners and another addressed to DSIDC, the last of which was dated April 12, 2000 xxx;
7. That on August 21, 200(0), respondent PNB filed a Petition for Extrajudicial Foreclosure of the mortgaged
properties against the petitioners-mortgagors-debtors and DSIDC;
8. That on October 26, 2000, the mortgaged properties were auctioned with the respondent PNB as the highest
bidder;
9. That on February 4, 2002, a Sheriff’s Provisional Certificate of Sale was issued by respondent Sheriff who certified
xxxx
10. That the said Sheriff’s Provisional Certificate of Sale did not contain a provision usually contained in a regular
Sheriff’s Provisional Certificate of Sale as regards the period of redemption and the redemption price to be raised
within the ONE (1) YEAR redemption period in accordance with Act 3135, under which same law the extrajudicial
petition for sale was conducted as mentioned in the Certificate;
11. That the Sheriff’s Provisional Certificate of Sale has not yet been registered with the office of respondent
Register of Deeds yet; that petitioners and DSIDC are still in actual possession of the subject properties;
12. That sometime in the middle part of year 2000, Republic Act No. 8791 otherwise known as General Banking
Laws of 2000 was approved and finally passed on April 12, 2000 and took effect sometime thereafter;
13. That among the provisions of the said law particularly, Section 47 dealt with Foreclosure of Real Estate
Mortgage, quoted verbatim hereunder as follows:
"Sec. 47. Foreclosure of Real Estate Mortgage. – In the event of foreclosure, whether judicially or extrajudicially, or
any mortgage on real estate which is security for any loan or other credit accommodation granted, the mortgagor or
debtor whose real property has been sold for the full or partial payment of his obligation shall have the right within
one year after the sale of the real estate, to redeem the property by paying the amount due under the mortgage
deed, with interest thereon at rate specified in the mortgage, and all the costs and expenses incurred by the bank or
institution from the sale and custody of said property less the income derived therefrom. However, the purchaser at
the auction sale concerned whether in a judicial or extra-judicial foreclosure shall have the right to enter upon and
take possession of such property immediately after the date of the confirmation of the auction sale and administer
the same in accordance with law. Any petition in court to enjoin or restrain the conduct of foreclosure proceedings
instituted pursuant to this provision shall be given due course only upon the filing by the petitioner of a bond in an
amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by the enjoining or
the restraint of the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure,
shall have the right to redeem the property in accordance with this provision until, but not after, the registration of the
certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3)
months after foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale prior to the
effectivity of this Act shall retain their redemption rights until their expiration."
14. That it is clear and evident that the absence of provisions as to redemption period and price in the Sheriff’s
Provisional Certificate of Sale issued by respondent Sheriff, that respondent PNB and Sheriff intended to apply the
provisions of Section 47 of Republic Act No. 8791 which reduced the period of redemption of a juridical person
whose property is being sold pursuant to an extrajudicial foreclosure sale until but not after the registration of the
Certificate of Sale with the applicable Register of Deeds which in no case shall be more than three (3) months after
foreclosure, whichever is earlier;
15. That Petitioners in this subject mortgage are Natural Persons who are principal mortgagors-debtors and at the
same time registered owners of some properties at the time of the mortgage;
16. That the provisions of Republic Act No. 8791 do not make mention nor exceptions to this situation where the
Real Estate Mortgage is executed by both Juridical and Natural Persons; hence, the need to file this instant case of
Declaratory Relief under Rule 63 of the Revised Rules of Court of the Philippines;
....
PRAYER
WHEREFORE, it is respectfully prayed that judgment in favor of petitioners and against the respondent-PNB;
1. That upon the filing of the above-entitled case, a TEMPORARY RESTRAINING INJUNCTION be issued
immediately ordering a status quo, enjoining the Register of Deeds and defendant-PNB from registering the subject
Provisional Certificate of Sale from consolidating the title of the property covered by Transfer Certificate of Title Nos.
T-147820, T-147821, T-246386, T-24712 and Land Improvement, Etc.
2. That petitioners’ application of the issuance of the Writ of Preliminary Injunctions be considered and granted within
20 days lifetime period of the TRO.
AFTER TRIAL ON THE MERITS
3. To declare the injunction as final;
4. Ordering the Register of Deeds to refrain from registering the Sheriff’s Certificate of Sale and further from
consolidating the titles of the said properties in its name and offering to sell the same to interested buyers during the
pendency of the above entitled case, while setting the date of hearing on the propriety of the issuance of such Writ of
Preliminary Injunction.
ON THE MAIN CASE
5. To declare the petitioners’ right as principal mortgagors/owner jointly with a juridical person to redeem within a
period of 1 year the properties foreclosed by respondent PNB still protected and covered by Act 3135.
6. To declare the provisions on Foreclosure of Real Estate Mortgage under Republic Act 8791 or General Banking
Laws of 2000 discriminating and therefore unconstitutional.
OTHER RELIEFS AND REMEDIES are likewise prayed for.46
Branch 14 of the Regional Trial Court of Davao City issued a temporary restraining order47 on April 10, 2002. This
temporary restraining order enjoined the Register of Deeds from registering the Sheriff’s Provisional Certificate of
Sale.48
The temporary restraining order was issued without first hearing the parties to the case. Hence, the temporary
restraining order was recalled by the same trial court in the Order49 dated April 16, 2002.
During the hearing for the issuance of a temporary restraining order in the Petition for Declaratory Relief, Spouses
Limso presented several exhibits, which included: Philippine National Bank’s demand letter dated April 12, 2000;
Philippine National Bank’s letter to the Acting Register of Deeds of Davao City dated February 4, 2002 requesting
the immediate registration of the Sheriff’s Provisional Certificate of Sale; and the Notice of Foreclosure dated
September 5, 2000.50
Counsel for Philippine National Bank objected to the purpose of the presentation of the exhibits and argued that
since Spouses Limso were Davao Sunrise’s co-debtors, they "were notified as a matter of formality[.]"51
On May 3, 2002, Branch 14 granted the prayer for the issuance of the writ of preliminary injunction enjoining the
registration of the Sheriff’s Provisional Certificate of Sale.52
Branch 14 reasoned as follows:
This Court finds no merit in the claims advanced by private respondent Bank for the following reasons:
1. That the primary ground why the Court of Appeals dissolved the preliminary injunction granted
by Branch 17 of this Court was because the ground upon which the same was issued was based
on a pleading which was not verified;
2. That Civil Case No. 28,170-2000 and Civil Case No. 29,036-2002 while involving substantially
the same parties, the same do not involved [sic] the same issues as the former involves nullity of
unilateral imposition and increases of interest rates, etc. nullity of foreclosure proceedings,
reduction of both loan accounts, reformation or annulment of contract, reconveyance and
damages, whereas the issues raised in the instant petition before this Court is the right and duty
of the petitioners under the last paragraph of Sec. 47, Republic Act No. 8791 and whether the
said section of said law is applicable to the petitioners considering that the mortgage contract
was executed when Act No. 3135 was the controlling law and was in fact made part of the
contract;
3. That the petition, contrary to the claim of private respondent Bank, clearly states a cause of
action; and
4. That since petitioners are parties to the mortgage contract they, therefore, have locus standi
to file the instant petition.
If Section 7 of Republic Act 8791 were made to apply to the petitioners, the latter would have a shorter period of
three (3) months to exercise the right of redemption after the registration of the Certificate of Sale, hence, the
registration of the Sheriff’s Provisional Certificate of Sale would cause great and irreparable injury to them as their
rights to the properties sold at public auction would be lost forever if the registration of the same is not enjoined. 53
Spouses Limso posted an injunction bond that was approved by the trial court in the Order dated May 6, 2002. Thus,
the writ of preliminary prohibitory injunction was issued.54
Philippine National Bank moved for reconsideration of the Orders dated May 3, 2002 and May 6, 2002. 55
Around this time, Judge William M. Layague (Judge Layague), Presiding Judge of Branch 14, was on
leave.56Philippine National Bank’s Motion for Reconsideration was granted by the Pairing Judge, Judge Jesus V.
Quitain (Judge Quitain),57 and the writ of preliminary prohibitory injunction was dissolved in the Order dated May 23,
2002.58
On May 30, 2002, Philippine National Bank’s lawyers went to the Register of Deeds of Davao City "to inquire on the
status of the registration of the Sheriff’s Provisional Certificate of Sale."59
Philippine National Bank’s lawyers were informed that the documents they needed "could not be found and that the
person in charge thereof, Deputy Register of Deeds Jorlyn Paralisan, was absent." 60
Philippine National Bank contacted Jorlyn Paralisan at her residence. She informed Philippine National Bank that the
documents they were looking for were all inside Atty. Patriarca’s office. 61
Subsequently, Atty. Patriarca informed the representatives of Philippine National Bank that the Register of Deeds
"would not honor certified copies of [Land Registration Authority] resolutions even if an official copy of the [Land
Registration Authority] Resolution was already received by that Office through mail."62
On May 31, 2002, Philippine National Bank’s representatives returned to the Register of Deeds of Davao City and
learned that Atty. Patriarca, the Acting Register of Deeds, had not affixed her signature, which was necessary to
complete the registration of the Sheriff’s Certificate of Sale. 63
Subsequently, Judge Layague reinstated the writ of preliminary prohibitory injunction in the Order64 dated June 24,
2002.
Aggrieved, Philippine National Bank filed before the Court of Appeals a Petition for Certiorari, Prohibition and
Mandamus with Prayer for Temporary Restraining Order and Writ of Preliminary Injunction, both Prohibitory and
Mandatory, docketed as CA G.R. SP No. 71527. The Petition assailed the June 24, 2002 Order of Branch 14 of the
Regional Trial Court, which reinstated the writ of preliminary prohibitory injunction. 65
On July 3, 2002, Philippine National Bank inspected the titles and found that correction fluid had been applied over
Atty. Patriarca’s signature on the titles.66
Also on July 3, 2002, Philippine National Bank filed before the Regional Trial Court of Davao City a Petition for
Issuance of the Writ of Possession under Act No. 3135, as amended, and Section 47 of Republic Act No. 8791. 67This
was docketed as Other Case No. 124-2002 and raffled to Branch 15 of the Regional Trial Court of Davao City,
presided by Judge Quitain.68
Davao Sunrise filed a Motion to Expunge and/or Dismiss Petition for Issuance of Writ of Possession dated July 12,
2002.69 In the Motion to Expunge, Davao Sunrise pointed out that Branch 1470 (in the Petition for Declaratory Relief
docketed as Civil Case No. 29,036-2002) issued a writ of preliminary injunction "enjoining the Provincial Sheriff, the
Register of Deeds of Davao City[,] and [Philippine National Bank] from registering the Sheriff’s Provisional Certificate
of Sale and, if registered, enjoining [Philippine National Bank] to refrain from consolidating the title of the said
property in its name and/or offering to sell the same to interested buyers during the pendency of the case."71
On July 18, 2002, Spouses Limso filed a Motion to Intervene72 in Other Case No. 124-2002.73
In the Resolution dated August 13, 2002, the Court of Appeals granted the temporary restraining order prayed for by
Philippine National Bank (in CA G.R. SP No. 71527) enjoining the implementation of Judge Layague’s Orders dated
May 3, 2002 and June 24, 2002. These Orders pertained to the writ of preliminary injunction enjoining the
registration of the Sheriff’s Provisional Certificate of Sale.74
Spouses Limso filed a Motion for Reconsideration with Prayers for the Dissolution of Temporary Restraining Order
and to Post Counter Bond.75
The Court of Appeals granted Philippine National Bank’s Petition for Certiorari in the Decision 76 dated December 11,
2002. The dispositive portion of the Decision states:
WHEREFORE, premises considered, the writ prayed for in the herein petition is GRANTED and the assailed Orders
of respondent judge dated May 3 and June 24, 2002 granting the writ of preliminary injunction are SET ASIDE. Civil
Case No. 29,036-2002 is hereby ordered DISMISSED and respondent Register of Deeds of Davao City is hereby
ordered to register petitioner PNB’s Sheriff’s Provisional Certificate of Sale and cause its annotation on TCT Nos. T-
147820, T-147821, T-246386 and T-247012.77
Spouses Limso filed a Motion to Reconsider Decision and To Call Case For Hearing on Oral Argument, which was
opposed by Philippine National Bank.78 Oral arguments were conducted on March 19, 2003.79
On June 10, 2003, the Court of Appeals denied Spouses Limso’s Motion for Reconsideration. 80
Spouses Limso then filed a Petition for Review on Certiorari81 before this court, questioning the Decision in CA G.R.
SP No. 71527, which ordered the Register of Deeds to register the Sheriff’s Provisional Certificate of Sale. This was
docketed as G.R. No. 158622.82
With regard to the Complaint for Reformation or Annulment of Contract with Damages, Branch 17 of the Regional
Trial Court of Davao City promulgated its Decision83 on June 19, 2002.
Branch 17 ruled in favor of Spouses Limso and Davao Sunrise. It found the interest rate provisions in the loan
agreement to be unreasonable and unjust because the imposable interest rates were to be solely determined by
Philippine National Bank. The arbitrary imposition of interest rates also had the effect of increasing the total loan
obligation of Spouses Limso and Davao Sunrise to an amount that would be beyond their capacity to pay. 84
The dispositive portion of the Decision in the Complaint for Reformation or Annulment with Damages states:
WHEREFORE, finding the evidence of plaintiffs corporation through counsel, more than sufficient, to constitute a
preponderance to prove the various unilateral impositions of increased interest rates by defendant bank, such
usurious, unreasonable, arbitrary, unilateral imposition of interest rates, are declared, null and void.
Accordingly, decision is issued in favor of the defendant bank, in a reduced amount based on the following:
1. The amount of One Hundred Twenty Seven Million, One Hundred Fifty Thousand (P127,150,000.00)
Pesos, representing illegal interest rate, the amount of One Hundred Seventy Six Million, Ninety Eight
Thousand, Forty Five and 95/100 (P176,098,045.95) Pesos, representing illegal penalty charges and the
amount of One Hundred Thirty Six Million, Nine Hundred Thousand, Nine Hundred Twenty Eight and
85/100 (P136,900,928.85) Pesos, as unreasonable 10% Attorney’s fees or in the total amount of Four
Hundred Forty Million, One Hundred Forty Eight Thousand, Nine Hundred Seventy Four and 79/100
(P440,148,974.79) Pesos, are declared null and void, rescending [sic] and/or altering the loan agreement
of parties, on the ground of fraud, collusion, mutual mistake, breach of trust, misconduct, resulting to gross
inadequacy of consideration, in favor of plaintiffs corporation, whose total reduced and remaining principal
loan obligation with defendant bank, shall only be the amount of Eight Hundred Eighty Two Million, Twelve
Thousand, One Hundred Forty Nine and 50/100 (P882,012,149.50) Pesos, as outstanding remaining loan
obligation of plaintiffs corporation, with defendant bank, to be deducted from the total payments so far paid
by plaintiffs corporation with defendant bank as already stated in this decision.
2. That thereafter, the above-amount as ordered reduced, shall earn an interest of 12% per annum, the
lawful rate of interest that should legitimately be imposed by defendant bank to the outstanding remaining
reduced principal loan obligation of plaintiffs corporation.
3. Notwithstanding, defendant bank, is entitled to a reduced Attorney’s fees of Five Hundred Thousand
(P500,000.00) Pesos, as a reasonable Attorney’s fees, subject to subsequent pronouncement as to the
real status of defendant bank, on whether or not, said institution is now a private agency or still a
government instrumentality in its capacity to be entitled or not of the said Attorney’s fees.
4. The prayer of defendant bank for award of moral damages and exemplary damages, are denied, for lack
of factual and legal basis.
SO ORDERED.85 (Emphasis in the original)
Philippine National Bank moved for reconsideration of the Decision, while Spouses Limso and Davao Sunrise filed a
Motion for partial clarification of the Decision.86
Branch 17 of the Regional Trial Court of Davao City subsequently issued the Order87 dated August 13, 2002
clarifying the correct amount of Spouses Limso and Davao Sunrise’s obligation, thus:
WHEREFORE, finding the motion for reconsideration of defendant bank through counsel, to the decision of the
court, grossly bereft of merit, merely a reiteration and rehash of the arguments already set forth during the hearing,
including therein matters not proved during the trial on the merits, and considered admitted, is denied.
To provide a clarification of the decision of this court, relative to plaintiffs motion for partial clarification with comment
of defendant bank through counsel, the correct remaining balance of plaintiffs account with defendant bank, pursuant
to the decision of this court, in pages 17 and 18, dated June 19, 2002, is Two Hundred Five Million Eighty Four
Thousand Six Hundred Eighty Two Pesos & 61/100 (P205,084,682.61), as above-clarified.
SO ORDERED.88
Philippine National Bank appealed the Decision and Order in the Complaint for Reconstruction or Annulment with
Damages by filing a Notice of Appeal on August 16, 2002.89 The Notice of Appeal was approved by the trial court in
the Order dated September 25, 2002.90 The appeal was docketed as CA-G.R. CV No. 79732.91
On August 20, 2002,92 Spouses Limso and Davao Sunrise filed, in Other Case No. 124-2002 (Petition for Issuance of
Writ of Possession), a Motion to Inhibit the Presiding Judge (referring to Judge Quitain, before whom the Petition for
Issuance of Writ of Possession was pending) because his wife, Gladys Isla Quitain, was a long-time Philippine
National Bank employee who had retired.93 Spouses Limso and Davao Sunrise also heard rumors that Gladys Isla
Quitain had been serving as consultant for Philippine National Bank even after retirement.94 Davao Sunrise also
filed a Motion to Expunge and/or Dismiss Petition and argued that the person who signed for Philippine National
Bank was not authorized because no Board Resolution was attached to the Verification and Certification against
Forum Shopping.
In the Order95 dated March 21, 2003, Judge Quitain denied three motions:
(1) The Motion to Intervene filed by Spouses Robert Alan Limso and Nancy Limso;
(2) The Motion to Expunge and/or Dismiss Petition for the Issuance of Writ of Possession filed by Davao
Sunrise Investment and Development Corporation; and
(3) The Motion for Voluntary Inhibition filed by Davao Sunrise Investment and Development Corporation. 96
Judge Quitain denied the Motion to Inhibit on the ground that the allegations against him were mere suspicions and
conjectures.97 The Motion to Intervene was denied on the ground that Spouses Limso have no interest in the case,
not being the owners of the property.98
The Motion to Expunge and/or Dismiss filed by Davao Sunrise was also denied for lack of merit. Judge Quitain ruled
that "PNB Vice President Leopoldo is clearly clothed with authority to represent and sign in behalf of the petitioner
[referring to Philippine National Bank] as shown by the Verification and Certification of the said petition as well as the
Secretary’s Certificate."99
Spouses Limso and Davao Sunrise filed a Motion for Reconsideration100 of the Order dated March 21, 2003. Judge
Quitain denied the Motion for Reconsideration in an Order dated September 1, 2003, only with regard to the Motion
to Intervene and Motion for Voluntary Inhibition. The Motion to Expunge and/or Dismiss was not mentioned in the
September 1, 2003 Order.101
Spouses Limso and Davao Sunrise questioned the denial of the Motion for Inhibition by filing a Petition for Certiorari
before the Court of Appeals on September 26, 2003. This was docketed as CA G.R. SP No. 79500. 102 Spouses
Limso and Davao Sunrise subsequently filed a Supplemental Petition for Certiorari before the Court of Appeals on
October 3, 2003.103
In the meantime, Other Case No. 124-2002 (Petition for Issuance of Writ of Possession) was set for an ex-parte
hearing on October 10, 2003.104
However, on October 8, 2003, the Court of Appeals granted the prayer for the issuance of a temporary restraining
order in CA G.R. SP No. 79500 "enjoining public respondent Judge Quitain from proceeding with Other Case No.
124-2002 for a period of sixty (60) days from receipt by respondents thereof." 105
The temporary restraining order was effective from October 10, 2003 to December 9, 2003.106
On December 12, 2003, Judge Quitain issued the Order allowing Philippine National Bank to present evidence ex-
parte on December 18, 2003 despite the pendency of other incidents to be resolved. 107
Spouses Limso and Davao Sunrise filed an Urgent Motion for Cancellation of the December 18, 2003 hearing due to
the pendency of CA G.R. SP No. 79500.108
Judge Quitain reset the hearing for Other Case No. 124-2002 to January 23, 2004. The hearing was subsequently
reset to January 30, 2004. In the January 30, 2004 hearing, Judge Quitain heard the arguments of parties regarding
the Urgent Motion to Cancel Hearing.109
In the Order dated March 12, 2004, Judge Quitain "resolved the pending Urgent Motion to Cancel Hearing and
[Davao Sunrise’s] Motion to Re-schedule Newly Scheduled Hearing Date."110
The March 12, 2004 Order also stated that "the Spouses Limso have no right to intervene because they are no
longer owners of the subject foreclosed property."111
Spouses Limso treated the March 12, 2004 Order as a denial of their Motion for Reconsideration regarding their
Motion to Intervene. Thus, they, together with Davao Sunrise, filed a Petition for Certiorari before the Court of
Appeals, which was docketed as CA G.R. SP No. 84279.112
CA G.R. SP No. 84279 was denied by the Court of Appeals in the Decision113 dated September 20, 2004.
Spouses Limso and Davao Sunrise filed a Motion for Reconsideration114 dated September 13, 2004, which was
denied in the Resolution115 dated July 8, 2005.
Spouses Limso and Davao Sunrise then filed a Petition for Review on Certiorari dated July 26, 2005 before this
court. This was docketed as G.R. No. 168947.116
Despite the pendency of Spouses Limso and Davao Sunrise’s Motion for Reconsideration of the Order denying
Davao Sunrise’s Motion to Expunge and/or Dismiss, Philippine National Bank filed a Motion for Reception of
Evidence and/or Resume Hearing dated March 30, 2004 in Other Case No. 124-2002.117
Judge Quitain granted the Motion "and set the hearing for reception of petitioner’s evidence on 06 April 2004 at 2:00
p.m."118
Spouses Limso and Davao Sunrise filed an Extremely Urgent Manifestation and Motion dated April 5, 2004. They
prayed for the cancellation of the hearing for the reason that the March 12, 2004 Order was not yet final and that
Davao Sunrise had a pending Motion for Reconsideration of the Order denying its Motion to Expunge and/or
Dismiss.119
Judge Quitain cancelled the April 6, 2004 hearing due to the Manifestation and Motion filed by Spouses Limso and
Davao Sunrise.120
Spouses Limso filed a Motion for Reconsideration of the March 12, 2004 Order because it addressed issues other
than those raised in the Motion for Intervention.121
On April 20, 2004, Judge Quitain issued the Order and reset the case for hearing to May 7, 2004, even though the
Motion for Reconsideration of the Order denying the Motion to Expunge and/or Dismiss had not been acted upon. 122
During the May 7, 2004 hearing, counsel for Spouses Limso and Davao Sunrise pointed out to Judge Quitain the
pendency of the Motion for Reconsideration of the Order denying the Motion to Expunge and/or Dismiss. 123
Judge Quitain issued the Order dated July 5, 2004 denying Spouses Limso and Davao Sunrise’s Motion for
Reconsideration to the March 12, 2004 Order (referring to the denial of Spouses Limso’s Motion to Intervene).
Judge Quitain also set hearing dates on August 4 and 5, 2004 for the reception of Philippine National Bank’s
evidence. Once again, the hearings were scheduled even though the Motion to Expunge and/or Dismiss had yet to
be resolved.124
Davao Sunrise then filed a Motion to Transfer Case or in the Alternative to Dismiss the Same on July 30, 2004.
Davao Sunrise reiterated the arguments in its Motion to Expunge and/or Dismiss.125
Subsequently, Spouses Limso and Davao Sunrise filed an Extremely Urgent Manifestation and Motion dated August
3, 2004 asking that the hearings scheduled for August 4 and 5, 2004 be cancelled, considering that Davao Sunrise’s
Motion to Dismiss/Expunge the Petition was still unresolved.126
On August 4, 2004, Judge Quitain took cognizance of the Extremely Urgent Manifestation and Motion dated August
3, 2004 and a Very Urgent Motion for Intervention filed by a third party. Thus, Judge Quitain cancelled the hearings
scheduled on August 4 and 5, 2004, reset the hearing to August 11, 2004, and "impressed upon the parties that he
would be able to resolve all pending incidents by that time."127
Spouses Limso and Davao Sunrise alleged that the pending incidents were hastily acted upon by Judge Quitain, as
follows:
[O]n 11 August 2004, at around 11:45 a.m., petitioners’ counsel was furnished a copy of public
respondent’s Order allegedly dated 06 August 2004 which declared as submitted for resolution the following
incidents, to wit: (a) petitioner DSIDC’s Motion to Transfer the Case to Branch 17; (b) Petitioner DSIDC’s Motion to
Postpone Hearing; (c) Motion for Intervention filed by a certain Karlan Lou Ong; (d) petitioners’ (DSIDC and Spouses
Limso) Extremely Urgent Manifestation and Motion; and (e) Petitioner DSIDC’s Manifestation.
. . . And then, at around 2:10 p.m. of the same day, 11 August 2004, when petitioners’ counsel was already in court
for the said hearing, he was furnished by a staff of public respondent Judge Quitain a copy of an Order dated 11
August 2004 and consisting of two (2) pages, the dispositive portion of which reads as follows:
"WHEREFOREM(sic), the Court hereby resolves the following motions: 1) DSIDC’s motion to transfer case to
Branch 17 or dismiss the same is denied for lack of merit. 2) DSIDC’s (sic) motion to postpone the hearing is denied
for lack of merit. 3) The motion of Karla Ong to intervene is denied for lack of merit. 4) The August 5 manifestation of
DSIDC is noted."128 (Emphasis in the original)
Spouses Limso and Davao Sunrise also claimed that the Order dated August 11, 2004 was done hastily so that
Philippine National Bank would be able to present its evidence without objection. 129
Spouses Limso and Davao Sunrise alleged that the August 11, 2004 Order contained factual findings not supported
by the record. When counsel for Spouses Limso and Davao Sunrise pointed out the errors, Judge Quitain
acknowledged the mistake and reset the August 11, 2004 hearing to August 27, 2004.130
Because of Judge Quitain’s actions, Spouses Limso and Davao Sunrise filed a Motion for Compulsory
Disqualification on the ground that Judge Quitain was biased in Philippine National Bank’s favor. 131
In the Order132 dated March 10, 2005, Judge Quitain denied the Motion for Compulsory Disqualification.
Spouses Limso and Davao Sunrise moved for reconsideration of the March 10, 2005 Order, while Philippine National
Bank filed an Opposition to the Motion for Reconsideration.133
The August 11, 2004 Order also denied Davao Sunrise’s Motion to Transfer Case to Branch 17 or Dismiss the
Same. Since the Motion to Transfer is a rehash of Davao Sunrise’s Motion to Expunge and/or Dismiss Petition, the
denial of the Motion to Transfer is tantamount to the denial of Davao Sunrise’s Motion to Expunge and/or
Dismiss.134The August 11, 2004 Order did not specifically state that Spouses Limso and Davao Sunrise’s Motion for
Reconsideration dated March 28, 2003 was denied, but since the issues raised in the Motion to Reconsideration
were also raised in the Motion to Expunge, the August 11, 2004 Order also effectively denied the Motion for
Reconsideration.135
Thus, Spouses Limso and Davao Sunrise filed a Petition136 for Certiorari before the Court of Appeals, which was
docketed as CA G.R. SP No. 85847.137 Spouses Limso and Davao Sunrise assailed the March 21, 2003 Order
denying Davao Sunrise’s Motion to Expunge and/or Dismiss Petition for Issuance of Writ of Possession, as well as
the August 11, 2004 Order denying Davao Sunrise’s Motion to Dismiss. 138
On September 1, 2004, the Court of Appeals promulgated its Decision139 in CA G.R. No. 79500140 denying Spouses
Limso and Davao Sunrise’s Petition, which assailed Judge Quitain’s denial of their Motion to Inhibit. 141 The Court of
Appeals ruled that Judge Quitain’s reversal of Judge Layague’s Orders "may constitute an error of judgment . . . but
it is not necessarily an evidence of bias and partiality."142
Spouses Limso and Davao Sunrise moved for reconsideration on September 23, 2004. The Motion was denied in
the Resolution143 dated August 11, 2005.144
While the cases between Spouses Limso, Davao Sunrise, and Philippine National Bank were pending, Philippine
National Bank, through counsel, filed administrative145 and criminal complaints146 against Atty. Patriarca.
The administrative case against Atty. Patriarca was docketed as Administrative Case No. 02-13.147
In the Resolution148 dated January 12, 2005, the Land Registration Authority found Atty. Patriarca guilty of grave
misconduct and dismissed her from the service.149 Included in the Resolution are the following pronouncements:
The registration of these documents became complete when respondent affixed her signature below these
annotations. Whatever information belatedly gathered thereafter relative to the circumstances as to the registrability
of these documents, respondent cannot unilaterally take judicial notice thereof and proceed to lift at her whims and
caprices what has already been officially in force and effective, by erasing thereon her signature. With her years of
experience in the Registry, not to mention her being a lawyer, respondent should have taken the appropriate steps in
filing a query to this Authority regarding the matter or should have consulted Section 117 of PD 1529 in relation to
Section 12 of Rule 43. The deplorable act of Respondent was fraught with partiality to favor the DSIDC and Sps.
Limso.150
Atty. Asteria E. Cruzabra (Atty. Cruzabra) replaced Atty. Patriarca as Register of Deeds of Davao City.151 Philippine
National Bank wrote a letter to Atty. Cruzabra, arguing "that the Sheriff’s Provisional Certificate of Sale was already
validly registered[,]"152 and the unauthorized application of correction fluid153 to cover the original signature of the
Acting Register of Deeds "did not deprive the Bank of its rights under the registered documents." 154
Meanwhile, on February 10, 2005, as CA-G.R. CV No. 79732, which was an appeal from Civil Case No. 28,170-2000
(Petition for Reformation and Annulment of Contract with Damages), was still pending, Philippine National Bank filed
the following applications before the Court of Appeals Nineteenth Division: 155
 a. Application to Hold Davao Sunrise Investment and Development Corporation, the Spouses Robert Alan
L. Limso and Nancy Lee Limso and Wellington Insurance Company, Inc. Jointly and Severally liable for
Damages on the Injunction Bond; and
b. Application for the Appointment of PNB as Receiver[.]156
Spouses Limso and Davao Sunrise filed their opposition to Philippine National Bank’s application on March 29,
2005.157 Philippine National Bank filed its Reply to the Opposition on May 5, 2005. 158
On March 2, 2006, the Court of Appeals denied Philippine National Bank’s applications, reasoning that:
It is a settled rule that the procedure for claiming damages on account of an injunction wrongfully issued shall be the
same as that prescribed in Section 20 of Rule 57 of the Revised Rules of Court. Section 20 provides:
Sec. 20. Claim for damages on account of improper, irregular or excessive attachment. - An application for damages
on account of improper, irregular or excessive attachment must be filed before the trial or before appeal is perfected
or before the judgment becomes executory, with due notice to the attaching obligee or his surety or sureties, setting
forth the facts showing his right to damages and the amount thereof. Such damages may be awarded only after
proper hearing and shall be included in the judgment on the main case.
If the judgment of the appellate court be favorable to the party against whom the attachment was issued, he must
claim damages sustained during the pendency of the appeal by filing an application in the appellate court with notice
to the party in whose favor the attachment was issued or his surety or sureties, before the judgment of the appellate
court becomes executory. The appellate court may allow the application to be heard and decided by the trial court.
Nothing herein contained shall prevent the party against whom the attachment was issued from recovering in the
same action the damages awarded to him from any property of the attaching obligee not exempt from execution
should the bond or deposit given by the latter be insufficient or fail to fully satisfy the award.
Records show that when this Court annulled the RTC’s order of injunction, Davao Sunrise thereafter elevated the
matter to the Supreme Court. On July 24, 2002, the Supreme Court denied its petition for having been filed out of
time and an Entry of Judgment was issued on Sept. 11, 2002.
PNB’s instant application however was filed only on February 17, 2005 and/or in the course of its appeal on the main
case – about two (2) years and five (5) months after the judgment annulling the injunction order attained finality.
Clearly, despite that it already obtained a favorable judgment on the injunction matter, PNB failed to file (before the
court a quo) an application for damages against the bond before judgment was rendered in the main case by the
court a quo. Thus, even for this reason alone, Davao Sunrise and its bondsman are relieved of further liability
thereunder.159 (Citations omitted)
The Court of Appeals also denied Philippine National Bank’s application to be appointed as receiver for failure to
fulfill the requirements to be appointed as receiver and for failure to prove the grounds for receivership. 160 It
discussed that to appoint Philippine National Bank as receiver would violate the rule that "neither party to a litigation
should be appointed as receiver without the consent of the other because a receiver should be a person indifferent to
the parties and should be impartial and disinterested."161 The Court of Appeals noted that Philippine National Bank
was not an impartial and disinterested party, and Davao Sunrise objected to Philippine National Bank’s appointment
as receiver.162
In addition, Rule 59, Section 1(a)163 of the 1997 Rules of Court requires that the "property or fund involved is in
danger of being lost, removed, or materially injured." The Court of Appeals found that the properties involved were
"not in danger of being lost, removed[,] or materially injured."164 Further, Philippine National Bank’s application was
premature since the loan agreement was still pending appeal and "a receiver should not be appointed to deprive a
party who is in possession of the property in litigation."165
The dispositive portion of the Court of Appeals Resolution166 states:
WHEREFORE, above premises considered, the Philippine National Bank’s Application to Hold Davao Sunrise
Investment and Development Corporation, the Spouses Robert Alan L. Limso and Nancy Lee Limso and Wellington
Insurance Company, Inc. Jointly and Severally Liable for Damages on the Injunction Bond and its Application for the
Appointment of PNB as Receiver are hereby both DENIED. And, for the reasons above set forth, the Plaintiff-
Appellees’ Motion to Dismiss is likewise DENIED.
With the filing of the Appellants’ and the Appellees’ respective Brief(s), this case is considered SUBMITTED for
Decision and ORDERED re-raffled to another justice for study and report.
SO ORDERED.167
Philippine National Bank filed a Motion for Reconsideration on March 28, 2006, which was denied in the
Resolution168 dated May 26, 2006.169
Thus, on July 21, 2006, Philippine National Bank filed before this
court a Petition for Review170 on Certiorari questioning the Court of
Appeals’ denial of its applications.171 This was docketed as G.R. No. 173194.172
On February 16, 2007, Philippine National Bank’s Ex-Parte Petition for Issuance of a Writ of Possession docketed as
Other Case No. 124-2002 was dismissed173 based on the following grounds:
(1) For purposes of the issuance of the writ of possession, Petitioner should complete the entire process in
extrajudicial foreclosure . . .
(2) The records disclose the [sic] contrary to petitioner’s claim, the Certificate of Sale covering the subject
properties has not been registered with the Registry of Deeds of Davao City as the Court finds no
annotation thereof. As such, the sale is not considered perfected to entitled petitioner to the writ of
possession as a matter of rights [sic].174
Philippine National Bank filed a Motion for Reconsideration with Motion for Evidentiary Hearing. 175
Acting on the Motion for Reconsideration, the trial court required the Registry of Deeds to comment on the matter. 176
The trial court eventually denied the Motion for Reconsideration.177
Philippine National Bank appealed the trial court Decision dismissing the Petition for Issuance of a Writ of
Possession by filing a Rule 41 Petition before the Court of Appeals, which was docketed as CA-G.R. CV No. 01464-
MIN.178
Meanwhile, when CA-G.R. CV No. 79732 was re-raffled,179 it was redocketed as CA-G.R. CV No. 79732-MIN.180
In CA-G.R. CV No. 79732-MIN, the Court of Appeals resolved the issue of "whether or not there has been mutuality
between the parties, based on their essential equality, on the subject imposition of interest rates on plaintiffs-
appellees’ loan obligation, i.e., the original loan and the restructured loan."181
On August 13, 2009, the Court of Appeals promulgated its Decision182 in CA-G.R. CV No. 79732-MIN. It held that
there was no mutuality between the parties because the interest rates were unilaterally determined and imposed by
Philippine National Bank.183
The Court of Appeals further explained that the contracts between Spouses Limso and Davao Sunrise, on one hand,
and Philippine National Bank, on the other, did not specify the applicable interest rates. The contracts merely stated
the interest rate to be "at a rate per annum that is determined by the bank[;]" 184 "at the rate that is determined by the
Bank to be the Bank’s prime rate in effect at the Date of Drawdown[;]" 185 and "at the rate per annum to be set by the
Bank. The interest rate shall be reset by the Bank every month."186 In addition, the interest rate would depend on the
prime rate, which was "to be determined by the bank[.]"187 It was also discussed that:
But it even gets worse. After appellant bank had unilaterally determined the imposable interest on plaintiffs-appellees
loans and after the latter had been notified thereof, appellant bank unilaterally increased the interest rates. Further
aggravating the matter, appellant bank did not increase the interest rate only once but on numerous occasions.
Appellant bank unilaterally and arbitrarily increased the already arbitrarily imposed interest rate within intervals of
only seven (7) days and/or one (1) month.
....
The interests imposed under the Conversion, Restructuring and Extension Agreement, is not a valid imposition.
DSIDC and Spouses Limso have no choice except to assent to the conditions therein as they are heavily indebted to
PNB. In fact, the possibility of the foreclosure of their mortgage securities is right in their doorsteps. Thus it cannot be
considered "contracts" between the parties, as the borrower’s participation thereat has been reduced to an
unreasonable alternative that is to "take it or leave it." It has been used by PNB to raise interest rates to levels which
have enslaved appellees or have led to a hemorrhaging of the latter’s assets. Hence, for being an exploitation of the
weaker party, the borrower, the alleged letter-contracts should also be struck down for being violative of the principle
of mutuality of contracts under Article 1308.188 (Emphasis in the original)
Thus, the Court of Appeals nullified the interest rates imposed by Philippine National Bank:
We reiterate that since the unilateral imposition of rates of interest by appellant bank is not only violative of the
principle of mutuality of contracts, but also were found to be unconscionable, iniquitous and unreasonable, it is as if
there was no express contract thereon. Thus, the interest provisions on the (a) revolving credit line in the amount of
three hundred (300) million pesos, (b) seven-year long term loan in the amount of four hundred (400) million pesos;
and (c) Conversions, Restructuring and Extension Agreement, Real Estate Mortgage, promissory notes, and all other
loan documents executed contemporaneous with or subsequent to the execution of the said agreements are hereby
declared null and void.
Such being the case, We apply the ruling of the Supreme Court in the case of United Coconut Planters Bank vs.
Spouses Samuel and Odette Beluso which stated:
"We see, however, sufficient basis to impose a 12% legal interest in favor of petitioner in the
case at bar, as what we have voided is merely the stipulated rate of interest and not the
stipulation that the loan shall earn interest."189 (Citation omitted)
As to the trial court’s reduction of the penalty charges and attorney’s fees, the Court of Appeals affirmed the trial
court’s ruling and stated that Article 1229190 of the Civil Code allows for the reduction of penalty charges that are
unconscionable.191 The Court of Appeals discussed that:
The penalties imposed by PNB are clearly unconscionable. Any doubt as to this fact can be removed by simply
glancing at the penalties charged by defendant-appellant which . . . already amounted to an incredibly huge amount
of P176,098,045.94 despite payments that already exceeded the amount of the loan as of 1998.
With respect to attorney’s fees, the Supreme Court had consistently and invariably 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 Docket Original Case Assailed Order/Decision
when the amount thereof appears to be unconscionable or unreasonable. Again, the fact that the attorney’s fees Number
imposed by PNB are unconscionable and unreasonable can clearly be seen. The attorney’s fees imposed similarly
G.R. No. 158622 Petition for Declaratory Relief with Prayer for Court of Appeals Decision dated December 11,
points to an incredibly huge sum of P136,900,928.85 as of October 30, 2000. Therefore, its reduction in the assailed
the Issuance of Preliminary Injunction and 2002 dismissing the Petition for Certiorari filed
decision is well-grounded.192 (Citation omitted)
Application for Temporary Restraining Order221 by Philippine National Bank. The Petition for
The dispositive portion of the Court of Appeals Decision states:
Certiorari questioned the issuance of a writ of
WHEREFORE, the assailed Decision dated June 19, 2002 and Order dated August 13, 2002 of the Regional Trial
preliminary injunction in favor of Spouses Limso
Court of Davao City, Branch 17 in Civil Case No. 28,170-2000 declaring the unilateral imposition of interest rates by
and Davao Sunrise.222
defendant-appellant PNB as null and void appealed from are AFFIRMED with the MODIFICATION that the
obligation of plaintiffs-appellees arising from the Loan and Revolving Credit Line and subsequent Conversion,
G.R. No. 169441 Ex-Parte Petition223 for Issuance of Writ of Court of Appeals Decision dated September 1,
Restructuring and Extension Agreement as Loan I and Loan II shall earn interest at the legal rate of twelve percent
Possession under Act No. 3135 filed by 2004 and Resolution dated August 11,
(12%) per annum computed from September 1, 1993, until fully paid and satisfied.
Philippine National Bank, praying that it be 2005.224 Spouses Limso and Davao Sunrise
SO ORDERED.193 (Emphasis in the original)
granted possession over four (4) parcels of land filed a Motion to Inhibit Judge Quitain, which
Philippine National Bank moved for reconsideration on September 3, 2009,194 arguing that the interest rates were
owned by Davao Sunrise was denied by Judge Quitain. Thus, Spouses
"mutually agreed upon[;]"195 that Spouses Limso and Davao Sunrise "never questioned the . . . interest rates[;]" 196and
Limso and Davao Sunrise questioned the denial
that they "acknowledged the total amount of their debt (inclusive of loan principal and accrued interest) to [Philippine
of their Motion before the Court of Appeals.225
National Bank] in the Conversion, Restructuring and Extension Agreement which restructured their obligation to
[Philippine National Bank] in the amount of P1.067 Billion[.]"197
G.R. No. 172958 Ex-Parte Petition226 for Issuance of the Writ of Court of Appeals Decision227 dated September
Spouses Limso and Davao Sunrise moved for partial reconsideration on September 9, 2009, 198 pointing out that their
Possession under Act No. 3135 filed by 1, 2005 and Resolution228 dated May 26, 2006.
obligation to Philippine National Bank was only ₱205,084,682.61, as stated in the trial court’s Order dated August 13,
Philippine National Bank, praying that it be The Petition for Certiorari and Prohibition filed
2002 in Civil Case No. 28,170-2000.199
granted possession over four (4) parcels of land by Spouses Limso and Davao Sunrise assailed
Both Motions were denied by the Court of Appeals in the Resolution200 dated May 18, 2011.
owned by Davao Sunrise two Orders of Judge Quitain, which denied their
The Court of Appeals held that Philippine National Bank’s Motion for Reconsideration raised issues that were a mere
Motion to Expunge and/or Dismiss Petition for
rehash of the issues already ruled upon.201
Issuance of Writ of Possession.229
With regard to Spouses Limso and Davao Sunrise’s Motion for Partial
Reconsideration, the Court of Appeals ruled that:
G.R. No. 173194 Petition for Reformation or Annulment of Court of Appeals Resolution231dated March 2,
Since the appellees did not appeal from the decision of the lower court, they are not entitled to any award of
Contract with Damages filed by Spouses Limso 2006, which denied Philippine National Bank’s
affirmative relief. It is well settled that an appellee who has not himself appealed cannot obtain from the appellate
and Davao Sunrise230 (1) Application to Hold [Spouses Limso and
court any affirmative relief other than those granted in the decision of the court below. The appellee can only
Davao Sunrise] and the Surety Bond Company
advance any argument that he may deem necessary to defeat the appellant’s claim or to uphold the decision that is
Jointly and Severally Liable for Damages on the
being disputed. . . . Thus, the lower court’s finding that the appellees have an unpaid obligation with PNB, and not
Injunction Bond, and (2) Application for the
the other way around, should stand. It bears stressing that appellees even acknowledged their outstanding
Appointment of [Philippine National Bank] as
indebtedness with the PNB when they filed their "Urgent Motion for Execution Pending Appeal" of the August 13,
Receiver. Also assailed was the Court of
2002 Order of the lower court decreeing that appellees’ remaining obligation with PNB is P205,084,682.61. They
Appeals Resolution232 dated May 26, 2006,
cannot now claim that PNB is the one indebted to them in the amount of P15,915,588.89. 202
which denied the Motion for Reconsideration
Philippine National Bank filed a Petition for Review on Certiorari203 assailing the Decision in CA-G.R. CV No. 79732-
filed by Philippine National Bank.
MIN. Philippine National Bank argues that there was mutuality of contracts between the parties, and that the interest
rates imposed were valid in view of the escalation clauses in their contract. 204 Philippine National Bank’s Petition for
G.R. No. 196958 Petition for Reformation or Annulment of Court of Appeals Decision234 dated August 13,
Review was docketed as G.R. No. 196958.205
Contract with Damages filed by Davao Sunrise 2009 and Court of Appeals Resolution235 dated
Spouses Limso and Davao Sunrise also filed a Petition for Review206 on Certiorari questioning the ruling of the Court
and Spouses Limso233 May 18, 2011 docketed as CA-G.R. CV No.
of Appeals in CA-G.R. CV No. 79732-MIN that their outstanding obligation was ₱803,185,411.11.207 Spouses Limso
79732-Min. The decision dated August 13,
and Davao Sunrise argue that they "made overpayments in the amount of P15,915,588.89." 208 This was docketed as
2009 affirmed with modification the decision of
G.R. No. 197120.209
the trial court in Civil Case No. 28,170-
On January 21, 2013, the Court of Appeals dismissed Philippine National Bank’s appeal docketed as CA-G.R. CV
2000.236 The Resolution dated May 18, 2011 in
No. 01464-MIN (referring to the Petition for the Issuance of a Writ of Possession) on the ground that Philippine
CA-G.R. CV No. 79732-Min denied the Motion
National Bank availed itself of the wrong remedy.210 What the Philippine National Bank should have filed was a
for Reconsideration filed by Philippine National
"petition for review under Rule 45 and not an appeal under Rule 41[.]"211
Bank and also denied the Motion for Partial
On March 15, 2013, the Philippine National Bank filed a Petition for Review on Certiorari212 before this court,
Reconsideration filed by Spouses Limso and
assailing the dismissal of its appeal before the Court of Appeals and praying that the Decision of the trial court—that
Davao Sunrise.237 The Rule 41 appeal was
the Sheriff’s Provisional Certificate of Sale was not signed by the Register of Deeds and was not registered—be
filed by Philippine National Bank.238
reversed and set aside. The Petition was docketed as G.R. No. 205463. 213
G.R. No. 158622 was filed on July 1, 2003;214 G.R. No. 169441 was filed on September 14, 2005;215 G.R. No.
G.R. No. 197120 Petition239 for Reformation or Annulment of Court of Appeals Decision240 dated August 13,
172958 was filed on June 26, 2006;216 G.R. No. 173194 was filed on July 21, 2006;217 G.R. No. 196958 was filed on Contract with Damages filed by Spouses Limso 2009 and Court of Appeals Resolution241 dated
June 17, 2011;218 G.R. No. 197120 was filed on June 22, 2011;219 and G.R. No. 205463 was filed on March 15,
and Davao Sunrise May 18, 2011. Spouses Limso and Davao
2013.220
Sunrise assailed the portion of the Court of

Appeals Decision stating that their outstanding
obligation was ₱803,185,411.11.242
G.R. No. 205463 Ex-Parte Petition for Issuance of the Writ of Court of Appeals Decision244 dated January 21,
Possession under Act No. 3135 filed by 2013 dismissing the appeal under Rule 41 filed
Philippine National Bank, praying that it be by Philippine National Bank for being the wrong
granted possession over four parcels of land remedy.
owned by Davao Sunrise243
In the Manifestation and Motion245 dated May 26, 2006, Davao Sunrise prayed that it be allowed to withdraw G.R.
No. 169441 since the issues in the Petition had become moot and academic.
In the Resolution246 dated August 7, 2006, this court consolidated G.R. Nos. 172958, 173194, and 169441, with G.R.
No. 158622 as the lowest-numbered case.
Davao Sunrise’s Manifestation and Motion dated May 26, 2006, which prayed that it be allowed to withdraw G.R. No.
169441, was granted in the Resolution247 dated October 16, 2006. Thus, G.R. No. 169441 was deemed closed and
terminated as of October 16, 2006.248
In the Resolution249 dated March 7, 2007 in G.R. No. 173194, this court required respondents Spouses Limso and
Davao Sunrise to file their comment.
In the Resolution250 dated July 4, 2011, G.R. No. 197120 was consolidated with G.R. No. 196958.
On May 17, 2012, counsel for Spouses Limso and Davao Sunrise notified this court of the death of Robert Alan L.
Limso.251
On October 9, 2013, Spouses Limso and Davao Sunrise filed a Motion to Withdraw Petitions in G.R. Nos. 172958,
169441 and 158622.252 Davao Sunrise and Spouses Limso, through counsel, explained that G.R. No. 169441 had
been mooted by Judge Quitain’s voluntary inhibition from hearing and deciding Other Case No. 124-2002.253
After Judge Quitain had inhibited, Other Case No. 124-2002 was re-raffled to Branch 16 of the Regional Trial Court
of Davao City.254 Other Case No. 124-2002 was dismissed in the Order255 dated February 16, 2007. Since Other
Case No. 124-2002 was dismissed, G.R. No. 172958 was mooted as well. 256
With regard to G.R. No. 158622, counsel for Spouses Limso and Davao Sunrise explained:
It is clear, however, that the ruling of the Regional Trial Court of Davao City in Civil Case No. 28,170-2000 and the
Court of Appeals in CA G.R. No. 79732 already rendered Civil Case No. 29,036-2002 moot and academic. Under the
premises, there is no need for this Honorable Court to rule on the propriety of the dismissal of the said action
for Declaratory Relief as the loan agreements --- from which the entire case stemmed --- had already been
declared NULL AND VOID.257 (Emphasis in the original)
In the Resolution258 dated March 12, 2014, this court granted the Motion to Withdraw Petitions with regard to G.R.
Nos. 172958 and 158622. The prayer for the withdrawal of G.R. No. 169441 was noted without action since G.R. No.
169441 was deemed closed and terminated in this court’s Resolution dated October 16, 2006. 259
On April 2, 2014, Spouses Limso and Davao Sunrise filed an "Omnibus Motion for Leave [1] To Intervene; [2] To
File/ Admit Herein Attached Comment-in-Intervention; and [3] To Consolidate Cases"260 in G.R. No. 205463.
Spouses Limso and Davao Sunrise argue that they were allowed to participate in Other Case No. 124-2002, and that
Philippine National Bank was in bad faith when it did not furnish Nancy Limso and Davao Sunrise copies of the
Petition for Review it had filed.261
In the Resolution262 dated April 2, 2014, this court gave due course to the Petition and required the parties to submit
their memoranda.
On April 15, 2014, Spouses Limso and Davao Sunrise filed a Motion to Dismiss the Petition in G.R. No. 173194 on
the ground that the issues raised by Philippine National Bank are moot and academic. Spouses Limso and Davao
Sunrise also reiterated that Philippine National Bank availed of the wrong remedy.263
In the Resolution264 dated July 9, 2014, this court recommended the consolidation of G.R. No. 205463 with G.R. Nos.
158622, 169441, 172958, 173194, 196958, and 197120.
In the Resolution265 dated October 13, 2014, this court noted and granted the Omnibus Motion for Leave to Intervene
filed by counsel for Nancy Limso and Davao Sunrise.266 This court also noted the memoranda filed by counsel for
Philippine National Bank, the Office of the Solicitor General, and counsel for Spouses Limso and Davao Sunrise. 267
The remaining issues for resolution are those raised in G.R. Nos. 173194, 196958, 197120, and 205463, which are:
First, whether the Philippine National Bank’s Petition for Review on Certiorari in G.R. No. 173194 is the wrong
remedy to assail the March 2, 2006 Court of Appeals Resolution,268 which denied Philippine National Bank’s (1)
Application to Hold [Spouses Limso and Davao Sunrise] and the Surety Bond Company Jointly and Severally Liable
for Damages on the Injunction Bond, and (2) Application for the Appointment of [Philippine National Bank] as
Receiver;
Second, whether Philippine National Bank committed forum shopping when it filed an ex-parte Petition for the
Issuance of a Writ of Possession and an Application to be Appointed as Receiver;
Third, whether the Court of Appeals erred in ruling that the interest rates imposed by Philippine National Bank were
usurious and unconscionable;
Fourth, whether the Conversion, Restructuring and Extension Agreement executed in 1999 novated the original Loan
and Credit Agreement executed in 1993;
Fifth, whether the Court of Appeals erred in dismissing the appeal under Rule 41 filed by Philippine National Bank,
which assailed the Court of Appeals Decision dated January 21, 2013 in CA-G.R. CV No. 01464-MIN, for being the
wrong remedy;
Sixth, whether the Sheriff’s Provisional Certificate of Sale should be considered registered in view of the entry made
by the Register of Deeds in the Primary Entry Book; and
Lastly, whether Philippine National Bank is entitled to a writ of possession.
I
The Petition for Review in G.R. No. 173194 should be denied.
The Petition docketed as G.R. No. 173194, filed by Philippine National Bank, questions the Court of Appeals
Resolutions in CA- G.R. CV No. 79732-MIN dated March 2, 2006 and May 26, 2006, which denied Philippine
National Bank’s applications for damages on the injunction bond and to be appointed as receiver. 269
The assailed Resolutions in G.R. No. 173194 are interlocutory orders and are not appealable.
Rule 41, Section 1270 of the Rules of Court provides:
SECTION 1. Subject of Appeal. — An appeal may be taken from a judgment or final order that completely disposes
of the case, or of a particular matter therein when declared by these Rules to be appealable.
No appeal may be taken from:
....
(b) An interlocutory order;
....
In any of the foregoing circumstances, the aggrieved party may file an appropriate special civil action as provided in
Rule 65.
In addition, Rule 45, Section 1 of the Rules of Court provides:
SECTION 1. Filing of Petition with Supreme Court. — A party desiring to appeal by certiorari from a judgment, final
order or resolution of the Court of Appeals, the Sandiganbayan, the Court of Tax Appeals, the Regional Trial Court or
other courts, whenever authorized by law, may file with the Supreme Court a verified petition for review on
certiorari[.] (Emphasis supplied)
The difference between an interlocutory order and a final order was discussed in United Overseas Bank v. Judge
Ros:271
The word interlocutory refers to something intervening between the commencement and the end of the suit which
decides some point or matter but is not a final decision of the whole controversy. This Court had the occasion to
distinguish a final order or resolution from an interlocutory one in the case of Investments, Inc. v. Court of Appeals,
thus:
x x x A "final" judgment or order is one that finally disposes of a case, leaving nothing more to be done by the Court
in respect thereto, e.g., an adjudication on the merits which, on the basis of the evidence presented on the trial,
declares categorically what the rights and obligations of the parties are and which party is in the right; or a judgment
or order that dismisses an action on the ground, for instance, of res judicata or prescription. Once rendered, the task
of the Court is ended, as far as deciding the controversy or determining the rights and liabilities of the litigants is
concerned. Nothing more remains to be done by the Court except to await the parties’ next move (which among
others, may consist of the filing of a motion for new trial or reconsideration, or the taking of an appeal) and ultimately,
of course, to cause the execution of the judgment once it becomes "final" or, to use the established and more
distinctive term, "final and executory."
xxx xxx xxx
Conversely, an order that does not finally dispose of the case, and does not end the Court's task of adjudicating the
parties’ contentions and determining their rights and liabilities as regards each other, but obviously indicates that
other things remain to be done by the Court, is "interlocutory" e.g., an order denying motion to dismiss under Rule 16
of the Rules, or granting of motion on extension of time to file a pleading, or authorizing amendment thereof, or
granting or denying applications for postponement, or production or inspection of documents or things, etc. Unlike a
"final" judgment or order, which is appealable, as above pointed out, an "interlocutory" order may not be questioned
on appeal except only as part of an appeal that may eventually be taken from the final judgment rendered in the
case.272 (Citations omitted)
The Resolutions denying Philippine National Bank’s applications were interlocutory orders since the Resolutions did
not dispose of the merits of the main case.
CA-G.R. CV No. 79732-MIN originated from Civil Case No. 28,170-2000, which involved the issues regarding the
interest rates imposed by Philippine National Bank. Hence, the denial of Philippine National Bank’s applications did
not determine the issues on the interest rates imposed by Philippine National Bank.
The proper remedy for Philippine National Bank would have been to file a petition for certiorari under Rule 65 or, in
the alternative, to await the outcome of the main case and file an appeal, raising the denial of its applications as an
assignment of error.
In any case, we continue to resolve the arguments raised in G.R. No. 173194.
Philippine National Bank argues in its Petition for Review docketed as G.R. No. 173194 that its application to hold
the injunction bond liable for damages was filed on time. It points out that the phrase "before the judgment becomes
executory" found in Section 20273 of Rule 57 refers to the judgment in the main case, which, in this case, refers to
CA-G.R. CV No. 79732.274
Philippine National Bank also argues that the Court of Appeals erred in denying its application to be appointed as
receiver because although the Sheriff’s Provisional Certificate of Sale was not registered, the Certificate of Sale
"provides the basis for [Philippine National Bank] to claim ownership over the foreclosed properties."275 As the
highest bidder, Philippine National Bank had the right to receive the rental income of the foreclosed properties. 276
Spouses Limso and Davao Sunrise filed their Comment,277 countering that the Court of Appeals did not err in
denying Philippine National Bank’s applications to hold the injunction bond liable for damages and to be appointed
as receiver.278 They cite San Beda College v. Social Security System,279 where this court ruled that "the claim for
damages for wrongful issuance of injunction must be filed before the finality of the decree dissolving the questioned
writ."280
They highlight Philippine National Bank’s admission that the writ of preliminary injunction was dissolved in January
2002, and that the Decision281 dissolving the writ attained finality on September 11, 2002.282
Spouses Limso and Davao Sunrise further point out that while CA-G.R. CV No. 79732 was still pending before the
Court of Appeals, "the decree dissolving the questioned Writ of Preliminary Injunction had already become
final."283Thus, Philippine National Bank filed its application out of time.284
They argue that in any case, Philippine National Bank cannot claim damages on the injunction bond since it was
unable to secure a judgment in its favor in Civil Case No. 28,170-2000.285
They further argue that the Court of Appeals was correct in denying Philippine National Bank’s application to be
appointed as receiver on the ground that Philippine National Bank is a party to the case and hence, it cannot be
appointed as receiver.286
Spouses Limso and Davao Sunrise then allege that Philippine National Bank is guilty of forum shopping. They argue
that Philippine National Bank’s ex-parte Petition for the issuance of a writ of possession, docketed as Other Case No.
124-2002, and the application to be appointed as receiver have the same purpose: to obtain possession of the
properties.287
Philippine National Bank, through counsel, filed its Reply, countering that San Beda College was decided when the
1964 Rules of Court was still in effect.288 It argues that the cited case is no longer applicable because the 1964 Rules
was superseded by the 1997 Rules of Civil Procedure.289 The applicable case is Hanil Development Co., Ltd. v.
Intermediate Appellate Court,290 where this court ruled that "the judgment against the attachment bond could be
included in the final judgment of the main case."291
Philippine National Bank also argued that under the 1997 Rules of Civil Procedure, the applicant for damages does
not have to be the winning party.292
Philippine National Bank further argues that it did not commit forum shopping since "there is no identity of parties
between CA G.R. CV No. 79732 . . . and Other Case No. 124-2002."293 The causes of action and reliefs sought in
the two cases are different.294 It points out that its application to be appointed as receiver is a provisional remedy
under Rule 59 of the 1997 Rules of Civil Procedure, while its prayer for the issuance of a writ of possession in Other
Case No. 124-2002 is based on its right to possess the properties involved. 295
We rule that the Court of Appeals properly denied Philippine National Bank’s application to hold the injunction bond
liable for damages and be appointed as receiver. We also rule that no forum shopping was committed by Philippine
National Bank. However, the Court of Appeals erred in ruling that Philippine National Bank filed its application to hold
the injunction bond liable for damages out of time.
The Court of Appeals, in its Resolution dated March 2, 2006, explained:
Records show that when this Court annulled the RTC’s order of injunction, Davao Sunrise thereafter elevated the
matter to the Supreme Court. On July 24, 2002, the Supreme Court denied its petition for having been filed out of
time and an Entry of Judgment was issued on Sept[ember] 11, 2002.
PNB’s instant application however was filed only on February 17, 2005 and/or in the course of its appeal on the main
case – about two (2) years and five (5) months after the judgment annulling the injunction order attained finality.
Clearly, despite that it already obtained a favorable judgment on the injunction matter, PNB failed to file (before the
court a quo) an application for damages against the bond before judgment was rendered in the main case by the
court a quo. Thus, even for this reason alone, Davao Sunrise and its bondsman are relieved of further liability
thereunder.296 (Citations omitted)
The Petition referred to by the Court of Appeals in the quoted Resolution was docketed as G.R. No. 152812 and was
entitled Davao Sunrise Investment and Development Corporation, et al. v. Court of Appeals, et al.297 G.R. No.
152812 originated from CA G.R. SP No. 63351.298 CA G.R. SP No. 63351 was a Petition for Certiorari filed by
Philippine National Bank, which questioned the issuance of a writ of preliminary injunction in Civil Case No. 28,170-
2000.299
In the Decision300 dated January 10, 2002, the Court of Appeals granted Philippine National Bank’s Petition for
Certiorari and held that:
In the case at bar, respondents’ claim to a right to preliminary injunction based on PNB’s purported unilateral
imposition of interest rates and subsequent increases thereof, is not a right warranting the issuance of an injunction
to halt the foreclosure proceedings. On the contrary, it is petitioner bank which has proven its right to foreclose
respondents’ mortgaged properties, especially since respondents have admitted their indebtedness to PNB and
merely questioning the interest rates imposed by the bank. . . .
....
Above all, the core and ultimate issue raised in the main case below is the interest stipulation in the loan agreements
between the petitioner and private respondents, the validity of which is still to be determined by the lower court.
Injunctive relief cannot be made to rest on the assumption that said interest stipulation is void as it would preempt
the merits of the main case.
WHEREFORE, premises considered, the assailed Orders of respondent judge dated December 4 and 21, 2000 are
hereby ANNULLED and SET ASIDE, and the Order dated November 20, 2000 denying private respondents prayer
for the issuance of a writ of preliminary injunction is REINSTATED.
SO ORDERED.301
Spouses Limso and Davao Sunrise assailed the Decision in CA-G.R. SP No. 63351 and filed before this court a
Petition for Review, docketed as G.R. No. 152812. However, the Petition for Review was denied in the
Resolution302dated July 24, 2002 for being filed out of time, and Entry of Judgment 303 was made on September 11,
2002.
The issuance of the writ of preliminary injunction in Civil Case No. 28,170-2000 was an interlocutory order, and was
properly questioned by Philippine National Bank through a Petition for Certiorari.
However, the Court of Appeals erred in ruling that Philippine National Bank’s application was filed out of time.
Section 20 of Rule 57 of the Rules of Civil Procedure provides: SECTION 20. Claim for Damages on Account of
Improper, Irregular or Excessive Attachment. — An application for damages on account of improper, irregular or
excessive attachment must be filed before the trial or before appeal is perfected or before the judgment becomes
executory, with due notice to the attaching party and his surety or sureties, setting forth the facts showing his right to
damages and the amount thereof. Such damages may be awarded only after proper hearing and shall be included in
the judgment on the main case.
If the judgment of the appellate court be favorable to the party against whom the attachment was issued, he must
claim damages sustained during the pendency of the appeal by filing an application in the appellate court, with notice
to the party in whose favor the attachment was issued or his surety or sureties, before the judgment of the appellate
court becomes executory. The appellate court may allow the application to be heard and decided by the trial court.
Nothing herein contained shall prevent the party against whom the attachment was issued from recovering in the
same action the damages awarded to him from any property of the attaching party not exempt from execution should
the bond or deposit given by the latter be insufficient or fail to fully satisfy the award.
The judgment referred to in Section 20 of Rule 57 should mean the judgment in the main case. In Carlos v.
Sandoval:304
Section 20 essentially allows the application to be filed at any time before the judgment becomes
executory. It should be filed in the same case that is the main action, and cannot be instituted separately. It
should be filed with the court having jurisdiction over the case at the time of the application. The remedy
provided by law is exclusive and by failing to file a motion for the determination of the damages on time
and while the judgment is still under the control of the court, the claimant loses his right to
damages.305 (Citations omitted)
In this case, Philippine National Bank filed its application306 during the pendency of the appeal before the Court of
Appeals. The application was dated January 12, 2005,307 while the appeal in the main case, docketed as CA-G.R.
CV No. 79732-MIN, was decided on August 13, 2009.308 Hence, Philippine National Bank’s application to hold the
injunction bond liable for damages was filed on time.
The Court of Appeals properly denied Philippine National Bank’s application to be appointed as a receiver.
Rule 59, Section 1 provides the grounds when a receiver may be appointed:
SECTION 1. Appointment of Receiver. — Upon a verified application, one or more receivers of the property subject
of the action or proceeding may be appointed by the court where the action is pending, or by the Court of Appeals or
by the Supreme Court, or a member thereof, in the following cases:
(a) When it appears from the verified application, and such other proof as the court may require,
that the party applying for the appointment of a receiver has an interest in the property or fund
which is the subject of the action or proceeding, and that such property or fund is in danger of
being lost, removed, or materially injured unless a receiver be appointed to administer and
preserve it;
(b) When it appears in an action by the mortgagee for the foreclosure of a mortgage that the
property is in danger of being wasted or dissipated or materially injured, and that its value is
probably insufficient to discharge the mortgage debt, or that the parties have so stipulated in the
contract of mortgage;
(c) After judgment, to preserve the property during the pendency of an appeal, or to dispose of it
according to the judgment, or to aid execution when the execution has been returned unsatisfied
or the judgment obligor refuses to apply his property in satisfaction of the judgment, or otherwise
to carry the judgment into effect;
(d) Whenever in other cases it appears that the appointment of a receiver is the most convenient
and feasible means of preserving, administering, or disposing of the property in litigation.
During the pendency of an appeal, the appellate court may allow an application for the appointment of a receiver to
be filed in and decided by the court of origin and the receiver appointed to be subject to the control of said court.
In Commodities Storage & Ice Plant Corporation v. Court of Appeals:309
The general rule is that neither party to a litigation should be appointed as receiver without the consent of the other
because a receiver should be a person indifferent to the parties and should be impartial and disinterested. The
receiver is not the representative of any of the parties but of all of them to the end that their interests may be equally
protected with the least possible inconvenience and expense.310(Citations omitted)
The Court of Appeals cited Spouses Limso and Davao Sunrise’s
objection to Philippine National Bank’s application to be appointed as
receiver as one of the grounds why the application should fail.311
Also, the Court of Appeals found that the mortgaged properties of Spouses Limso and Davao Sunrise were earning
approximately ₱12,000,000.00 per month. This proves that the properties were being administered properly and did
not require the appointment of a receiver. Also, to appoint Philippine National Bank as receiver would be premature
since the trial court’s Decision was pending appeal.312
Philippine National Bank did not commit forum shopping when it filed an ex-parte Petition for the issuance of a writ of
possession and an application for appointment as receiver.
The elements of forum shopping are:
(a) identity of parties, or at least such parties as represent the same interests in both actions;
(b) identity of rights asserted and relief prayed for, the relief being founded on the same facts; and
(c) the identity of the two preceding particulars, such that any judgment rendered in the other action will,
regardless of which party is successful, amount to res judicata in the action under
consideration.313 (Citation omitted)
There is no identity of parties because the party to the Petition for Issuance of Writ of Possession is Philippine
National Bank only, while there are two parties to application for appointment as receiver: Philippine National Bank
on one hand, and Spouses Limso and Davao Sunrise on the other.
The causes of action are also different. In the Petition for Issuance of Writ of Possession, Philippine National Bank
prays that it be granted a writ of possession over the foreclosed properties because it is the winning bidder in the
foreclosure sale.314 On the other hand, Philippine National Bank’s application to be appointed as receiver is for the
purpose of preserving these properties pending the resolution of CA-G.R. CV No. 79732.315 While the issuance of a
writ of possession or the appointment as receiver would have the same result of granting possession of the
foreclosed properties to Philippine National Bank, Philippine National Bank’s right to possess these properties as the
winning bidder in the foreclosure sale is different from its interest as creditor to preserve these properties.
II
There is no mutuality of contracts when the determination or imposition of interest rates is at the sole discretion of a
party to the contract. Further, escalation clauses in contracts are void when they allow the creditor to unilaterally
adjust the interest rates without the consent of the debtor.
The Petitions docketed as G.R. Nos. 196958 and 197120 assail the Decision in CA-G.R. CV No. 79732-MIN.316
Philippine National Bank argues that the principle of mutuality of contracts was not violated because Spouses Limso
and Davao Sunrise were notified as to the applicable interest rates, and their consent was obtained before the
effectivity of the agreement.317 There was no unilateral imposition of interest rates since the rates were dependent on
the prevailing market rates.318
Philippine National Bank also argues that Spouses Limso and Davao Sunrise were regularly informed by Philippine
National Bank of the interest rates imposed on their loan, as shown by Robert Alan L. Limso’s signatures on the
letters sent by Philippine National Bank.319
Philippine National Bank further argues that loan agreements with escalation clauses, by their nature, "would not
indicate the exact rate of interest applicable to a loan precisely because it is made to depend by the parties to
external factors such as market indicators and/or government regulations affecting the cost of money." 320
Philippine National Bank cites Solidbank Corp., (now Metropolitan Bank and Trust Company) v. Permanent Homes,
Incorporated,321 where this court held that "contracts with escalation clause do not violate the principle of mutuality of
contracts."322
Philippine National Bank contends that the Conversion, Restructuring and Extension Agreement novated the
previous contracts with Spouses Limso and Davao Sunrise. In addition, the alleged infirmities in the previous
contracts were set aside upon the execution of the Conversion, Restructuring and Extension Agreement. 323
On the other hand, Spouses Limso and Davao Sunrise argue that the Court of Appeals did not err in ruling that the
interest rates were imposed unilaterally. Spouses Limso and Davao Sunrise allege that the interest rates were not
stipulated in writing, in violation of Article 1956 of the Civil Code. 324 Also, the Court of Appeals did not err in reducing
the penalties and attorney’s fees since Article 2227 of the Civil Code states: 325
Article 2227. Liquidated damages, whether intended as an indemnity or a penalty, shall be equitably reduced if they
are iniquitous or unconscionable.
Spouses Limso and Davao Sunrise add that the letters sent by Philippine National Bank to Davao Sunrise were not
agreements but mere notices that the interest rates were increased by Philippine National Bank. 326 Moreover, the
letters were received by Davao Sunrise’s employees who were not authorized to receive such letters. 327 Some of the
letters did not even appear to have been received by anyone at all.328
Spouses Limso and Davao Sunrise allege that Philippine National Bank admitted that the penalties stated in the
agreements were in the nature of liquidated damages.329 Nevertheless, Spouses Limso and Davao Sunrise
question the Court of Appeals’ ruling insofar as it held that their remaining obligation to Philippine National Bank is
₱803,185,411.11 as of September 1, 2008. According to Spouses Limso and Davao Sunrise, they have overpaid
Philippine National Bank in the amount of ₱15,915,588.89.330
Philippine National Bank counters that Davao Sunrise and Spouses Limso’s promissory notes had a provision
stating:
[T]he rate of interest shall be set at the start of every Interest Period. For this purpose, I/We agree that the rate of
interest herein stipulated may be increased or decreased for the subsequent Interest Periods, with PRIOR NOTICE
TO THE BORROWER in the event of changes in the interest rate prescribed by law or the Monetary Board of
Central Bank of the Philippines or in the Bank’s overall cost of funds. I/We hereby agree that IN THE EVENT I/WE
ARE NOT AGREEABLE TO THE INTEREST RATE FIXED FOR ANY INTEREST PERIOD, I/WE HAVE THE
OPTION TO PREPAY THE LOAN OR CREDIT FACILITY WITHOUT PENALTY within ten (10) calendar days from
the Interest Setting Date.331 (Emphasis in the original)
As to the letters sent by Philippine National Bank, these letters were received by the Chief Finance Officer,
Chairman, and President of Davao Sunrise. In addition, assuming that the employees who allegedly received the
letters were not authorized to do so, the unauthorized acts were ratified by Spouses Limso and Davao Sunrise when
they used the proceeds of the loan.332
We rule that there was no mutuality of contract between the parties since the interest rates imposed were based on
the sole discretion of Philippine National Bank.333 Further, the escalation clauses in the real estate mortgage "[did]
not specify a fixed or base interest[.]"334 Thus, the interest rates are invalid.
The principle of mutuality of contracts is stated in Article 1308 of the Civil Code as follows:
Article 1308. The contract must bind both contracting parties; its validity or compliance cannot be left to the will of
one of them.
The importance of the principle of mutuality of contracts was discussed in Juico v. China Banking Corporation:335
The binding effect of any agreement between parties to a contract is premised on two settled principles: (1) that any
obligation arising from contract has the force of law between the parties; and (2) that there must be mutuality
between the parties based on their essential equality. Any contract which appears to be heavily weighed in favor of
one of the parties so as to lead to an unconscionable result is void. Any stipulation regarding the validity or
compliance of the contract which is left solely to the will of one of the parties, is likewise, invalid. 336 (Citation omitted)
When there is no mutuality between the parties to a contract, it means that the parties were not on equal footing
when the terms of the contract were negotiated. Thus, the principle of mutuality of contracts dictates that a contract
must be rendered void when the execution of its terms is skewed in favor of one party. 337
The Court of Appeals also noted that since the interest rates imposed were at the sole discretion of Philippine
National Bank, and that Spouses Limso and Davao Sunrise were merely notified when there were changes in the
interest rates, Philippine National Bank violated the principle of mutuality of contracts. 338 The Court of Appeals ruled
that:
We cannot subscribe to appellant bank’s allegation that plaintiffs-appellees agreed to these interest rates by
receiving various letters from PNB. Those letters cannot be construed as agreements as a simple reading of those
letters would show that they are mere notices informing plaintiffs-appellees that the bank, through its top
management, had already imposed interest rates on their loan. The uniform wordings of the said letters go this way:
This refers to your existing credit facility in the principal amount of P850.0 MM granted by the Philippine National
Bank by and under the terms and conditions of that Credit Agreement dated 12.2.97 (Renewal of Credit Facility).
We wish to advise you that the top management has approved an interest rate of 20.756% which will be used in
computing the interest due on your existing peso and redenominated availments against the credit facility for the
period July 20 to August 19, 1998.
If you are amenable to this arrangement, please signify your conformity on the space provided below and return to
us the original copy of the document. If we receive no written objection by the end of 10 days from date of receipt of
this letter, we will take it to mean that you agree to the new interest rate we quote. On the other hand, if you disagree
with the quoted rate, you will have to pay the loan in full within the same ten-day period otherwise, the entire loan will
be considered due and demandable.339 (Citation omitted)
The contents of the letter quoted by the Court of Appeals show that there was no room for negotiation among
Philippine National Bank, Spouses Limso, and Davao Sunrise when it came to the applicable interest rate. Since
there was no room for negotiations between the parties with regard to the increases of the rates of interest, the
principle of mutuality of contracts was violated. There was no meeting of the minds between Spouses Limso, Davao
Sunrise, and Philippine National Bank because the increases in the interest rates were imposed on them unilaterally.
Meeting of the minds between parties to a contract is manifested when the elements of a valid contract are all
present.340 Article 1318 of the Civil Code provides:
Article 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
When one of the elements is wanting, no contract can be perfected.341 In this case, no consent was given by
Spouses Limso and Davao Sunrise as to the increase in the interest rates. Consequently, the increases in the
interest rates are not valid.
Even the promissory notes contained provisions granting Philippine National Bank the sole discretion to set the
interest rate:
[Promissory Note] NO. 0015138516350115 . . .
....
. . . I/We, jointly and severally, promise to pay to the order of the Philippine National Bank (the ‘Bank’) at its office
in cm recto avenue davao city [sic], Philippines, the sum of PHILIPPINE PESOS: 583,183,333.34 (P583,183,333.34)
together with interest thereon for the current Interest Period at a rate of to be set by mgt. [management]. Interest
Period shall mean the period commencing on the date hereof and having a duration not exceeding monthly (____)
days and each similar period thereafter commencing upon the expiry of the immediately preceding Interest Period.
The rate of interest shall be set at the start of every Interest Period. For this purpose, I/We agree that the rate of
interest herein stipulated may be increased or decreased for the subsequent Interest Periods, with prior notice to the
Borrower in the event of changes in interest rate prescribed by law or the Monetary Board of the Central Bank of the
Philippines, or in the Bank’s overall cost of funds. I/We hereby agree that in the event I/We are not agreeable to the
interest rate fixed for any Interest Period, I/we shall have the option to prepay the loan or credit facility without
penalty within ten (10) calendar days from the Interest Setting Date. 342
Promissory Note No. 0015138516350116343 contained the same provisions, differing only as to the amount of the
obligation.
Assuming that Davao Sunrise and Spouses Limso agreed to the increase in interest rates, the interest rates are still
null and void for being unreasonable.344
This court has held that while the Usury Law was suspended by Central Bank Circular No. 905, Series of 1982,
unconscionable interest rates may be declared illegal.345 The suspension of the Usury Law did not give creditors an
unbridled right to impose arbitrary interest rates. To determine whether an interest rate is unconscionable, we are
guided by the following pronouncement:
In determining whether the rate of interest is unconscionable, the mechanical application of pre-established floors
would be wanting. The lowest rates that have previously been considered unconscionable need not be an
impenetrable minimum. What is more crucial is a consideration of the parties’ contexts. Moreover, interest rates must
be appreciated in light of the fundamental nature of interest as compensation to the creditor for money lent to
another, which he or she could otherwise have used for his or her own purposes at the time it was lent. It is not the
default vehicle for predatory gain. As such, interest need only be reasonable. It ought not be a supine mechanism for
the creditor’s unjust enrichment at the expense of another.346
A reading of the interest provisions in the original agreement and the Conversion, Restructuring and Extension
Agreement shows that the interest rates imposed by Philippine National Bank were usurious and unconscionable.
In the original credit and loan agreements executed in 1993, the interest provisions provide:
CREDIT AGREEMENT
....
1.04 Interest on Availments. (a) The Borrowers agree to pay interest on each availment from date of each availment
up to, but not including the date of full payment thereof at a rate per annum that is determined by the Bank to be
equivalent to the Bank’s prime rate less 1.0% in effect as of the date of the relevant Availment, subject to quarterly
review and to maintenance of deposits with ADB of at least 5% of the amount availed in its savings and current
account. Non compliance of ADB requirement shall subject the credit line to regular interest rate which is the prime
rate plus applicable spread.347
LOAN AGREEMENT
....
1.03 Interest. (a) The Borrowers hereby agree to pay interest on the loan from the date of Drawdown up to
Repayment Date at the rate that is determined by the Bank to be the Bank’s prime rate in effect at the Date of
Drawdown less 1.0% and which shall be reset every 90 days to coincide with interest payments.
(b) The determination by the Bank of the amount of interest due and payable hereunder shall be conclusive and
binding on the borrower in the absence of manifest error in the computation.348(Emphasis supplied, underscoring in
the original)
In the Conversion, Restructuring and Extension Agreement, the interest provisions state:
SECTION 2. TERMS OF LOAN I
....
2.04 Interest. (a) The Borrowers agree to pay the Bank interest on Loan I from the Effective Date, until the date of full
payment thereof at the rate per annum to be set by the Bank. The interest rate shall be reset by the Bank every
month.
....
SECTION 3. TERMS OF LOAN II
....
3.04 Interest. (a) The Borrowers agree to pay the Bank interest on Loan II from the Effective Date, until the date of
full payment thereof at the rate per annum to be set by the Bank. The interest rate shall be reset by the Bank every
month.349 (Emphasis supplied, underscoring in the original)
From the terms of the loan agreements, there was no way for Spouses Limso and Davao Sunrise to determine the
interest rate imposed on their loan because it was always at the discretion of Philippine National Bank.
Nor could Spouses Limso and Davao Sunrise determine the exact amount of their obligation because of the frequent
changes in the interest rates imposed.
As found by the Court of Appeals, the loan agreements merely stated that interest rates would be imposed.
However, the specific interest rates were not stipulated, and the subsequent increases in the interest rates were all at
the discretion of Philippine National Bank.350
Also invalid are the escalation clauses in the real estate mortgage and promissory notes. The escalation clause in
the real estate mortgage states:
"(k) INCREASE OF INTEREST RATE:
"The rate of interest charged on the obligation secured by this mortgage as well as the interest on the amount which
may have been advanced by the mortgagee, in accordance with the provisions hereof shall be subject during the life
of this contract to such an increase within the rate allowed by law, as the Board of Directors of the MORTGAGEE
may prescribe for its debtors."351
The escalation clause in the promissory notes352 states:
For this purpose, I/We agree that the rate of interest herein stipulated may be increased or decreased for the
subsequent Interest Periods, with prior notice to the Borrower in the event of changes in interest rate prescribed by
law or the Monetary Board or the Central Bank of the Philippines, or in the Bank’s overall cost of funds. 353
Banco Filipino Savings and Mortgage Bank v. Judge Navarro354 defined an escalation clause as "one which the
contract fixes a base price but contains a provision that in the event of specified cost increases, the seller or
contractor may raise the price up to a fixed percentage of the base."355
This court has held that escalation clauses are not always void since they serve "to maintain fiscal stability and to
retain the value of money in long term contracts."356 However:
[A]n escalation clause "which grants the creditor an unbridled right to adjust the interest independently and upwardly,
completely depriving the debtor of the right to assent to an important modification in the agreement" is void. A
stipulation of such nature violates the principle of mutuality of contracts. Thus, this Court has previously nullified the
unilateral determination and imposition by creditor banks of increases in the rate of interest provided in loan
contracts.
....
. . . [W]e hold that the escalation clause is . . . void because it grants respondent the power to impose an increased
rate of interest without a written notice to petitioners and their written consent. Respondent’s monthly telephone calls
to petitioners advising them of the prevailing interest rates would not suffice. A detailed billing statement based on
the new imposed interest with corresponding computation of the total debt should have been provided by the
respondent to enable petitioners to make an informed decision. An appropriate form must also be signed by the
petitioners to indicate their conformity to the new rates. Compliance with these requisites is essential to preserve the
mutuality of contracts. For indeed, one-sided impositions do not have the force of law between the parties, because
such impositions are not based on the parties' essential equality.357 (Citations omitted)
The interest rate provisions in Philippine National Bank’s loan agreements and real estate mortgage contracts have
been nullified by this court in several cases. Even the escalation clauses in Philippine National Bank’s contracts were
noted to be violative of the principle of mutuality of contracts.358
The original loan agreement in this case was executed in 1993. Prior
to the execution of the original loan agreement, this court promulgated a Decision in 1991 ruling that "the unilateral
action of the [Philippine National Bank] in increasing the interest rate on the private respondent’s loan, violated the
mutuality of contracts ordained in Article 1308 of the Civil Code[.]"359
In Philippine National Bank v. Court of Appeals,360 the interest rate provisions were nullified because these allowed
Philippine National Bank to unilaterally increase the interest rate.361 The nullified interest rate provisions were worded
as follows:
"The Credit Agreement provided inter alia, that—
‘(a) The BANK reserves the right to increase the interest rate within the limits allowed by law at any time depending
on whatever policy it may adopt in the future: Provided, that the interest rate on this accommodation shall be
correspondingly decreased in the event that the applicable maximum interest is reduced by law or by the Monetary
Board. In either case, the adjustment in the interest rate agreed upon shall take effect on the effectivity date of the
increase or decrease in the maximum interest rate.’
"The Promissory Note, in turn, authorized the PNB to raise the rate of interest, at any time without notice, beyond the
stipulated rate of 12% but only ‘within the limits allowed by law.’
The Real Estate Mortgage contract likewise provided that—
‘(k) INCREASE OF INTEREST RATE: The rate of interest charged on the obligation secured by this mortgage as
well as the interest on the amount which may have been advanced by the MORTGAGEE, in accordance with the
provision hereof, shall be subject during the life of this contract to such an increase within the rate allowed by law, as
the Board of Directors of the MORTGAGEE may prescribe for its debtors.’ 362
This court explained that:
Similarly, contract changes must be made with the consent of the contracting parties. The minds of all the parties
must meet as to the proposed modification, especially when it affects an important aspect of the agreement. In the
case of loan contracts, it cannot be gainsaid that the rate of interest is always a vital component, for it can make or
break a capital venture. Thus, any change must be mutually agreed upon, otherwise, it is bereft of any binding
effect.363
In a subsequent case364 also involving Philippine National Bank, this court likewise nullified the interest rate
provisions of Philippine National Bank and discussed:
In this case no attempt was made by PNB to secure the conformity of private respondents to the successive
increases in the interest rate. Private respondents’ assent to the increases cannot be implied from their lack of
response to the letters sent by PNB, informing them of the increases. For as stated in one case, no one receiving a
proposal to change a contract is obliged to answer the proposal. 365 (Citation omitted)
However, only the interest rate imposed is nullified; hence, it is deemed not written in the contract. The agreement on
payment of interest on the principal loan obligation remains. It is a basic rule that a contract is the law between
contracting parties.366 In the original loan agreement and the Conversion, Restructuring and Extension Agreement,
Spouses Limso and Davao Sunrise agreed to pay interest on the loan they obtained from Philippine National Bank.
Such obligation was not nullified by this court. Thus, their obligation to pay interest in their loan obligation subsists. 367
Spouses Abella v. Spouses Abella368 involved a simple loan with an agreement to pay interest. Unfortunately, the
applicable interest rate was not stipulated by the parties. This court discussed that in cases where the parties fail to
specify the applicable interest rate, the legal rate of interest applies. This court also discussed that the applicable
legal rate of interest shall be the prevailing rate at the time when the agreement was entered into: 369
This is so because interest in this respect is used as a surrogate for the parties’ intent, as expressed as of the time of
the execution of their contract. In this sense, the legal rate of interest is an affirmation of the contracting parties’
intent; that is, by their contract’s silence on a specific rate, the then prevailing legal rate of interest shall be the cost of
borrowing money. This rate, which by their contract the parties have settled on, is deemed to persist regardless of
shifts in the legal rate of interest. Stated otherwise, the legal rate of interest, when applied as conventional interest,
shall always be the legal rate at the time the agreement was executed and shall not be susceptible to shifts in rate. 370
Further, Spouses Abella cited Article 2212371 of the Civil Code and the ruling in Nacar v. Gallery Frames,372 which
both state that "interest due shall itself earn legal interest from the time it is judicially demanded:"373
[T]he interest due on conventional interest shall be at the rate of 12% per annum from [date of judicial demand] to
June 30, 2013. Thereafter, or starting July 1, 2013, this shall be at the rate of 6% per annum. 374
In this case, the Conversion, Restructuring and Extension Agreement was executed on January 28, 1999. Thus, the
applicable interest rate on the principal loan obligation (conventional interest) is at 12% per annum. With regard to
the interest due on the conventional interest, judicial demand was made on August 21, 2000 when Philippine
National Bank filed a Petition375 for Extrajudicial Foreclosure of Real Estate Mortgage.376 Thus, from August 21, 2000
to June 30, 2013, the interest rate on conventional interest shall be at 12%. From July 1, 2013 until full payment, the
applicable interest rate on conventional interest shall be at 6%.
III
The Conversion, Restructuring and Extension Agreement novated the original agreement executed in 1993.
However, the nullified interest rate provisions in the original loan agreement cannot be deemed as having been
legitimized, ratified, or set aside.
Philippine National Bank argues that the Conversion, Restructuring and Extension Agreement novated the original
loan agreement and that the novation effectively set aside the infirmities in the original loan agreement.377
The Civil Code provides that:
Article 1292. In order that an obligation may be extinguished by another which substitutes the same, it is imperative
that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible
with each other.
Novation has been defined as:
Novation may either be express, when the new obligation declares in unequivocal terms that the old obligation is
extinguished, or implied, when the new obligation is on every point incompatible with the old one. The test of
incompatibility lies on whether the two obligations can stand together, each one with its own independent existence.
For novation, as a mode of extinguishing or modifying an obligation, to apply, the following requisites must concur:
1) There must be a previous valid obligation.
2) The parties concerned must agree to a new contract.
3) The old contract must be extinguished.
4) There must be a valid new contract.378 (Citations omitted)
The original Credit Agreement379 was executed on September 1, 1993, 380 while the Conversion, Restructuring and
Extension Agreement381 was executed on January 28, 1999.382
Pertinent portions of the Conversion, Restructuring and Extension Agreement state:
WITNESSETH: That –
....
WHEREAS, the Borrowers [referring to DSIDC and spouses Limso] acknowledge that they have outstanding
obligations (the "Obligations") with the Bank broken down as follows:
(i) Credit Line – ₱583.18 Million (as of September 30, 1998);
(ii) Loan – ₱266.67 Million (as of September 30, 1998); and
(iii) Interest – ₱217.15 Million (as of December 31, 1998);
WHEREAS, at the request of the Borrowers, the Bank has approved (a) the conversion and restructuring of the
Credit Line portion of the Obligations into a term loan, (b) the extension of the term of the Loan for another four (4)
years, (c) the capitalization on accrued interest (up to December 31, 1998) on the Obligations, (d) the waiver of the
penalties charges (if any) accruing on the Obligations, and (e) the partial release of chattel mortgage on stock
inventories, subject to the terms and conditions hereinafter set forth;
....
SECTION 2. TERMS OF LOAN I
2.01 Amount of Loan I. Loan I shall be in the principal amount not exceeding PESOS: FIVE HUNDRED EIGHTY
THREE MILLION ONE HUNDRED EIGHTY THOUSAND (₱583,180,000.00)
....
SECTION 3. TERMS OF LOAN II
3.01 Amount of Loan II. Loan II shall be in the principal amount not exceeding PESOS: FOUR HUNDRED EIGHTY
THREE MILLION SEVEN HUNDRED EIGHTY THOUSAND (₱483,780,000.00).383
In this case, the previous valid obligation of Spouses Limso and Davao Sunrise was the payment of a loan in the
total amount of ₱700 million, plus interest.
Upon the request of Spouses Limso and Davao Sunrise, Philippine National Bank agreed to restructure the original
loan agreement.384
Philippine National Bank summarized the Conversion, Restructuring and Extension Agreement as follows:
(a) The conversion of the Revolving Credit Line into a Term Loan in the principal amount of 583.18 Million
and denominated as "Loan I".
(b) The Extension for another four (4) years of the original long term loan (from 01 September 2001 to 31
December 2005);
(c) The capitalization of the accrued interest on both the Revolving Credit Line and the Long Term Loan up
to 31 December 1998;
(d) The consolidation of the accrued interest and the outstanding obligation of the original Long Term Loan
to form "Loan 2" with the total principal amount of P483.82 Million;
(e) Waiver of penalty charges;
(f) Partial release of chattel mortgage on the stock inventories;
(g) Both "Loan I" and "Loan II" were made payable within seven (7) years in monthly amortization and a
balloon payment on or before December 2005.385
When the loan agreement was restructured, the principal obligation of Spouses Limso and Davao Sunrise became
₱1.067 billion.
The Conversion, Restructuring and Extension Agreement novated the original credit agreement because the
principal obligation itself changed.
Important provisions of the original agreement were altered. For example, the penalty charges were waived and the
terms of payment were extended.
Further, the preambular clauses of the Conversion, Restructuring and Extension Agreement show that Spouses
Limso and Davao Sunrise sought to change the terms of the original agreement and that they themselves
acknowledged their obligation to be ₱1.067 billion. They are now estopped from claiming that their obligation should
be based on the original agreement when it was through their own actions that the loan was restructured.
Thus, the Court of Appeals in CA-G.R. CV No. 79732-MIN erred in not declaring that the Conversion, Restructuring
and Extension Agreement novated the original agreement and in computing Spouses Limso and Davao Sunrise’s
obligation based on the original agreement.
Since the Conversion, Restructuring and Extension Agreement novated the original credit agreement, we modify the
Court of Appeals Decision in that the outstanding obligation of Spouses Limso and Davao Sunrise should be
computed on the basis of the Conversion, Restructuring and Extension Agreement.
In the Court of Appeals Decision dated August 13, 2009:
Computing the interest at 12% per annum on the principal amount of 700 Million Pesos, the interest should be 84
Million Pesos per annum. Multiplying 84 Million Pesos by 15 years from September 1, 1993 to September 1, 2008,
the interest for the 15-year period would be One Billion Two Hundred Sixty Million Pesos (P1,260,000,000.00). Then,
by adding the interest of P1,260,000,000.00 to the principal amount of 700 Million Pesos, the total obligation of
plaintiffs-appellees would be One Billion Nine Hundred Sixty Million Pesos (P1,960,000,000.00) by September 1,
2008. And since plaintiffs-appellees has paid a total amount of One Billion One Hundred Fifty Six Million Eight
Hundred Fourteen Thousand Five Hundred Eighty Eight Pesos and 89/100 (P1,156,814,588.89) to appellant PNB as
of December 5, 1998, as per PNB’s official computation of payments per official receipts, then, plaintiffs-appellees
would still have an outstanding balance of about Eight Hundred Three Million One Hundred Eighty Five Thousand
Four Hundred Eleven and 11/100 Pesos (P 803,185,411.11) as of September 1, 2008. The amount of P
803,185,411.11 will earn interest at the legal rate of 12% per annum from September 1, 2008 until fully paid.
....
WHEREFORE, the assailed Decision dated June 19, 2002 and Order dated August 13, 2002 of the Regional Trial
Court of Davao City, Branch 17 in Civil Case No. 28,170-2000 declaring the unilateral imposition of interest rates by
defendant-appellant PNB as null and void appealed from are AFFIRMED with the MODIFICATION that the
obligation of plaintiffs-appellees arising from the Loan and Revolving Credit Line and subsequent Conversion,
Restructuring and Extension Agreement as Loan I and Loan II shall earn interest at the legal rate of twelve percent
(12%) per annum computed from September 1, 1993, until fully paid and satisfied.
SO ORDERED.386
Notably, in the body of the Court of Appeals Decision, Spouses Limso and Davao Sunrise’s obligation was computed
on the basis of the original loan agreement, while in the dispositive portion, the Court of Appeals cited both the
original loan agreement and the Conversion, Restructuring and Extension Agreement.
The general rule is that:
Where there is a conflict between the dispositive part and the opinion of the court contained in the text or body of the
decision, the former must prevail over the latter on the theory that the dispositive portion is the final order, while the
opinion is merely a statement ordering nothing.387 (Citation omitted)
To avoid confusion, we also rule that the interest rate provisions and the escalation clauses in the Conversion,
Restructuring and Extension Agreement are nullified insofar as they allow Philippine National Bank to unilaterally
determine and increase the imposable interest rates.
Article 1409388 of the Civil Code provides that void contracts cannot be ratified. Hence, the void interest rate
provisions in the original loan agreement could not have been ratified by the execution of the Conversion,
Restructuring and Extension Agreement.
IV
The proper remedy to assail a decision on pure questions of law is to file a petition for review on certiorari under Rule
45, not an appeal under Rule 41 of the 1997 Rules of Civil Procedure.
One of the issues raised by Philippine National Bank in G.R. No. 205463 is the dismissal of its appeal under Rule 41
by the Court of Appeals in its Decision dated January 21, 2013.389
Philippine National Bank, through counsel, argues that Rule 41 is the proper remedy because its Petition raises
questions of fact and of law.390 For example, the issue of whether there is an annotation of encumbrance on the titles
of the mortgaged properties is a question of fact.391
Denying Philippine National Bank’s appeal under Rule 41, the Court of Appeals stated that:
[Philippine National Bank] simply takes issue against the conclusions made by the court a quo which pertains to the
matter of whether mere entry in the Primary Entry Book, sans the signature of the registrar, already completes
registration. It does not question the weight and probative value of the fact that the signature of Atty. Patriarcha [sic]
was previously entered in the records then revoked by her. What PNB seeks, therefore, is a review of the decision of
the court a quo dismissing its petition, without delving into the weight of the evidence, but on the correctness of the
court a quo’s conclusions based on the evidence presented before it. This is clearly a question of law.
....
To the mind of this Court, PNB seeks to harp repeatedly on the issue of the court a quo’s failure to consider that the
certificate of sale has been duly registered on February 4, 2002 upon mere entry in the Primary Entry Book, even
without the signature of the then register of deeds. Though couched in different creative presentations, all the errors
assigned by PNB point to one vital question: What completes registration? To answer it, this Court is not asked to
calibrate the evidence presented, or gauge the truth or falsity, but to apply the appropriate law to the situation. This is
clearly a question of law.392 (Emphasis in the original)
In Land Bank of the Philippines v. Yatco Agricultural Enterprises,393 this court discussed the difference between
questions of law and questions of fact:
As a general rule, the Court’s jurisdiction in a Rule 45 petition is limited to the review of pure questions of law. A
question of law arises when the doubt or difference exists as to what the law is on a certain state of facts. Negatively
put, Rule 45 does not allow the review of questions of fact. A question of fact exists when the doubt or difference
arises as to the truth or falsity of the alleged facts.
The test in determining whether a question is one of law or of fact is "whether the appellate court can determine the
issue raised without reviewing or evaluating the evidence, in which case, it is a question of law[.]" Any question that
invites calibration of the whole evidence, as well as their relation to each other and to the whole, is a question of fact
and thus proscribed in a Rule 45 petition.394 (Citations omitted)
Based on the foregoing, there was no error on the part of the Court of Appeals when it dismissed Philippine National
Bank’s Petition for being the wrong remedy. Indeed, Philippine National Bank was not questioning the probative
value of the evidence. Instead, it was questioning the conclusion of the trial court that registration had not been
perfected based on the evidence presented.
V
The registration of the Sheriff’s Provisional Certificate of Sale was completed.
Philippine National Bank argues that the registration was completed, and restates the doctrine in National Housing
Authority v. Basa, Jr., et al.:395
Once the Certificate of Sale is entered in the Primary Book of Entry of the Registry of Deeds with the registrant
having paid all the required fees and accomplished all that is required of him under the law to cause registration, the
registration is complete.396
Philippine National Bank further argues that "[t]he records of all the transactions are recorded in the Primary Entry
Book and the annotation on the titles of the transaction do not control registration. It is the recording in the Primary
Entry Book which controls registration."397
Philippine National Bank adds that though the annotation of a certificate of sale at the back of the certificates of title
is immaterial in the perfection of registration, the evidence shows that the Certificate of Sale was annotated. 398
Philippine National Bank alleges that registration was completed because Atty. Patriarca, the Register of Deeds at
that time, affixed her signature but would later erase it.399
Philippine National Bank cites Atty. Cruzabra’s Comment, which alleges that the Sheriff’s Provisional Certificate of
Sale and other documents relative to the sale were registered in the Primary Entry Book of the Registry of Deeds of
Davao City.400 The Comment also states that:
3. The Sheriff’s Provisional Certificate of Sale was annotated at the back of the aforementioned titles but it does not
bear the signature of the former Registrar of Deeds. Noted however is that the portion below the annotation of the
Provisional Sheriff’s [sic] Certificate of Sale there appears to be erasures ("snowpake"), and [Atty. Cruzabra] is not in
a position to conclude as to the circumstances [relative to said erasures], for lack of personal knowledge as to what
transpired at that time.401 (Citation omitted)
Philippine National Bank also cites the Decision in Administrative Case No. 02-13 dated January 12, 2005, which
was the case against Atty. Patriarca for Grave Misconduct and Conduct Unbecoming of a Public Official. In the
Decision, the Land Registration Authority found that:
Respondent herein likewise admits that she finally signed the PNB transaction annotated on the subject titles when
she was informed that the motion for reconsideration was denied by this Authority, but she subsequently erased her
signature when she subsequently found out that an appeal was filed by the Limso spouses.
....
The registration of these documents became complete when respondent affixed her signature below these
annotations. Whatever information belatedly gathered thereafter relative to the circumstances as to the registrability
of these documents, respondent can not unilaterally take judicial notice thereof and proceed to lift at her whims and
caprices what has already been officially in force and effective, by erasing thereon her signature.402
In addition, Philippine National Bank argues that the erasure of Atty. Patriarca’s signature using correction fluid could
not have revoked, cancelled, or annulled the registration since under Section 108 of Presidential Decree 1529, only a
court order can revoke registration.403
Philippine National Bank alleges that it has complied with the requirements under Section 7 of Act No. 3135 and
Section 47 of Republic Act No. 8791.404 Thus, it is entitled to a writ of possession.405
The Office of the Solicitor General filed its Comment,406 quoting the dispositive portion of the Land Registration
Authority’s Consulta No. 3405 dated May 21, 2002:407
WHEREFORE, in view of the foregoing, the Sheriff’s Provisional Certificate of Sale dated February 04, 2002 is
registerable on TCT Nos. T-147820, T-147386, and T-247012, provided all other registration requirements are
complied with.408 (Emphasis supplied)
The Office of the Solicitor General also quotes the dispositive portion of the Land Registration Authority’s Resolution
in the Motion for Reconsideration:409
WHEREFORE, in view of the foregoing[,] the Sheriff’s Provisional Certificate of Sale dated February 4, 2002 is
registrable on TCT Nos. T-147820, T-147821, T-147386 and T-247012, provided all other registration requirements
are complied with.410 (Emphasis supplied)
The Office of the Solicitor General then cites National Housing Authority and Autocorp Group and Autographics, Inc.
v. Court of Appeals411 and discusses that when all the requirements for registration of annotation has been complied
with, it is ministerial upon the Register of Deeds to register the annotation. 412 The Register of Deeds is not authorized
"to make an appraisal of proofs outside of the documents sought to be registered."413
For the Office of the Solicitor General, the Register of Deeds’ refusal to affix the annotation on the foreclosed
properties’ titles "should not preclude the completion of the registration of any applicant who has complied with the
requirements of the law to register its right or interest in registered lands." 414
Spouses Limso and Davao Sunrise, as intervenors-oppositors, filed a Memorandum.415 They cite Section 117416 of
Presidential Decree No. 1529417 and argue that registration of the Certificate of Sale in the Primary Entry Book is a
preliminary step in registration.418 Since Philippine National Bank withdrew the documents it submitted to the
Register of Deeds of Davao City, the Sheriff’s Provisional Certificate of Sale was not registered. 419
Further, Philippine National Bank’s argument that "entry . . . in the Primary Entry Book is equivalent to
registration"420 is not in accordance with Section 56421 of Presidential Decree No. 1529.422 Moreover, "[t]he signature
of the Register of Deeds is crucial to the completeness of the registration process."423
Spouses Limso and Davao Sunrise posit that Philippine National Bank admitted that the Certificate of Sale is not
registered in various hearings.424
These admissions are judicial admissions that should be binding on Philippine National Bank. 425
Spouses Limso and Davao Sunrise allege that during the oral arguments held on March 19, 2003 at the Court of
Appeals in CA G.R. SP No. 71527, counsel for Philippine National Bank stated:426
ATTY. [BENILDA A.] TEJADA:
Yes, we can show the documents which we are going to file your Honors.
We would like to state also your Honors the fact of why no registration was ever made in this case. Counsel forgot to
mention that the fact of no registration is simply because the Register of Deeds refused to register our Certificate of
Sale. We have a pending case against them Sir before the LRA and before the Ombudsman fore [sic] refusal to
register our Certificate of Sale. Now, we have filed this case because inspite [sic] of the fact the Register of Deeds
addressed a consulta to the Land Registration Authority on the registerity of the Certificate of Sale your Honors[,] [i]t
was at their instance that there was a consulta.
And then, the Land Registration Authority has already rendered its opinion that the document is registrable. Despite
that your Honors, the document has never been registered. So that was the subject of our case against them. We do
not understand the intransigencies we do not understand the refusal.427
In addition, the Court of Appeals correctly dismissed Philippine National Bank’s appeal because the issue raised
involved a question of law, specifically "whether or not mere entry in the Primary Entry Book is considered as
registration of the subject Certificate of Sale."428
Section 56 of Presidential Decree No. 1529 states:
SECTION 56. Primary Entry Book; Fees; Certified Copies. — Each Register of Deeds shall keep a primary entry
book in which, upon payment of the entry fee, he shall enter, in the order of their reception, all instruments including
copies of writs and processes filed with him relating to registered land. He shall, as a preliminary process in
registration, note in such book the date, hour and minute of reception of all instruments, in the order in which they
were received. They shall be regarded as registered from the time so noted, and the memorandum of each
instrument, when made on the certificate of title to which it refers, shall bear the same date: Provided, that the
national government as well as the provincial and city governments shall be exempt from the payment of such fees in
advance in order to be entitled to entry and registration. (Emphasis supplied)
In this case, Philippine National Bank filed the Sheriff’s Provisional Certificate of Sale, which was duly approved by
the Executive Judge, before the Registry of Deeds of Davao City. Entries were made in the Primary Entry Book.
Hence, the Sheriff’s Provisional Certificate of Sale should be considered registered.
Autocorp Group and Autographics, Inc. involved an extrajudicial foreclosure of mortgaged property and the
registration of a Sheriff’s Certificate of Sale. Autocorp sought the issuance of a writ of injunction "to prevent the
register of deeds from registering the subject certificate of sale[.]" 429
This court explained that a Sheriff’s Certificate of Sale is an involuntary instrument and that a writ of injunction will no
longer lie because of the following reasons:
[F]or the registration of an involuntary instrument, the law does not require the presentation of the owner’s duplicate
certificate of title and considers the annotation of such instrument upon the entry book, as sufficient to affect the real
estate to which it relates.
...
....
It is a ministerial duty on the part of the Register of Deeds to annotate the instrument on the certificate of sale after a
valid entry in the primary entry book.1awp++i1 P.D. No. 1524 provides:
SEC. 63. Foreclosure of Mortgage. — x x x
(b) If the mortgage was foreclosed extrajudicially, a certificate of sale executed by the officer who conducted the
sale shall be filed with the Register of Deeds who shall make a brief memorandum thereof on the certificate of title.
In fine, petitioner’s prayer for the issuance of a writ of injunction, to prevent the register of deeds from registering the
subject certificate of sale, had been rendered moot and academic by the valid entry of the instrument in the primary
entry book. Such entry is equivalent to registration.430 (Emphasis supplied, citation omitted)
Based on the records of this case, the Sheriff’s Certificate of Sale filed by Philippine National Bank was already
recorded in the Primary Entry Book.
The refusal of the Register of Deeds to annotate the registration on the titles of the properties should not affect
Philippine National Bank’s right to possess the properties.
As to the argument that Philippine National Bank admitted in open court that the Certificate of Sale was not
registered, it is evident from Spouses Limso and Davao Sunrise’s Memorandum that Philippine National Bank
immediately explained that the non-registration was due to the Register of Deeds’ refusal. Thus, the alleged non-
registration was not due to Philippine National Bank’s fault.
It appears on record that Philippine National Bank already complied with the requirements for registration. Thus,
there was no reason for the Register of Deeds to persistently refuse the registration of the Certificate of Sale.
At any rate, the Land Registration Authority stated in its Resolution in Administrative Case No. 02-13 that Atty.
Patriarca herself admitted that she already affixed her signature on the annotation at the back of the certificate of
titles, and that she subsequently erased her signature.431 This finding of fact in the administrative case supports the
argument of Philippine National Bank and the opinion of the Office of the Solicitor General that the Certificate of Sale
should be considered registered.
With regard to the issue of whether Philippine National Bank is entitled to a writ of possession, the trial court in Other
Case No. 124 2002 denied the application for the writ of possession and explained:
Portion of Sec. 47 of RA No. 8791 is quoted:
x x x the purchaser at the auction sale concerned whether in a judicial or extra judicial foreclosure shall have the
right to enter upon and take possession of such property immediately after the date of the confirmation of the auction
sale and administer the same in accordance with law x x x.
From the quoted provision, one can readily conclude that before the sale is confirmed, it is not considered final or
perfected to entitle the purchaser at the auction sale to the writ of possession as a matter of right. .
...
In extra-judicial foreclosure, there is technically no confirmation of the auction sale in the manner provided for by
Sec. 7 of Rule 68. The process though involves an application, preparation of the notice of extrajudicial sale, the
extra-judicial foreclosure sale, issuance of the certificate of sale, approval of the Executive Judge or in the latter’s
absence, the Vice-Executive Judge and the registration of the certificate of sale with the Register of Deeds.
While it may be true that as found by the CA in the case earlier cited that DSIDC had only until January 24, 2001 to
redeem its properties and that the registration of the certificate of foreclosure sale is no longer relevant in the
reckoning of the redemption period, for purposes of the issuance of the writ of possession, petitioner to this Court’s
belief should complete the entire process in extra-judicial foreclosure. Otherwise the sale may not be considered
perfected and the application for writ of possession may be denied.
The records disclose that contrary to petitioner’s claim, the Certificate of Sale covering the subject properties has not
been registered with the Registry of Deeds of Davao City as the Court finds no annotation thereof. As such, the sale
is not considered perfected to entitle petitioner to the writ of possession as a matter of right.
Accordingly, for reason stated, the petition is DISMISSED. With the dismissal of the petition, PNB’s Motion for
Reception and Admission of PNB’s Ex-parte Testimonial and Documentary Evidence is DENIED.
SO ORDERED.432
However, Philippine National Bank is applying for the writ of possession on the ground that it is the winning bidder
during the auction sale, and not because it consolidated titles in its name. As such, the applicable provisions of law
are Section 47 of Republic Act No. 8791433 and Section 7 of Act No. 3135.434
Section 47 of Republic Act No. 8791 provides:
SECTION 47. Foreclosure of Real Estate Mortgage. — In the event of foreclosure, whether judicially or
extrajudicially, of any mortgage on real estate which is security for any loan or other credit accommodation granted,
the mortgagor or debtor whose real property has been sold for the full or partial payment of his obligation shall have
the right within one year after the sale of the real estate, to redeem the property by paying the amount due under the
mortgage deed, with interest thereon at the rate specified in the mortgage, and all the costs and expenses incurred
by the bank or institution from the sale and custody of said property less the income derived therefrom. However, the
purchaser at the auction sale concerned whether in a judicial or extrajudicial foreclosure shall have the right to enter
upon and take possession of such property immediately after the date of the confirmation of the auction sale and
administer the same in accordance with law. Any petition in court to enjoin or restrain the conduct of foreclosure
proceedings instituted pursuant to this provision shall be given due course only upon the filing by the petitioner of a
bond in an amount fixed by the court conditioned that he will pay all the damages which the bank may suffer by the
enjoining or the restraint of the foreclosure proceeding.
Notwithstanding Act 3135, juridical persons whose property is being sold pursuant to an extrajudicial foreclosure,
shall have the right to redeem the property in accordance with this provision until, but not after, the registration of the
certificate of foreclosure sale with the applicable Register of Deeds which in no case shall be more than three (3)
months after foreclosure, whichever is earlier. Owners of property that has been sold in a foreclosure sale prior to the
effectivity of this Act shall retain their redemption rights until their expiration. (Emphasis supplied)
Section 7 of Act No. 3135 provides:
SECTION 7. In any sale made under the provisions of this Act, the purchaser may petition the Court of First Instance
of the province or place where the property or any part thereof is situated, to give him possession thereof during the
redemption period, furnishing bond in an amount equivalent to the use of the property for a period of twelve months,
to indemnify the debtor in case it be shown that the sale was made without violating the mortgage or without
complying with the requirements of this Act. Such petition shall be made under oath and filed in form of an ex parte
motion in the registration or cadastral proceedings if the property is registered, or in special proceedings in the case
of property registered under the Mortgage Law or under section one hundred and ninety-four of the Administrative
Code, or of any other real property encumbered with a mortgage duly registered in the office of any register of deeds
in accordance with any existing law, and in each case the clerk of the court shall, upon the filing of such petition,
collect the fees specified in paragraph eleven of section one hundred and fourteen of Act Numbered Four hundred
and ninety-six, as amended by Act Numbered Twenty-eight hundred and sixty-six, and the court shall, upon approval
of the bond, order that a writ of possession issue, addressed to the sheriff of the province in which the property is
situated, who shall execute said order immediately.1avvphi1
The rule under Section 7 of Act No. 3135 was restated in Nagtalon v. United Coconut Planters Bank:435
During the one-year redemption period, as contemplated by Section 7 of the above-mentioned law, a purchaser may
apply for a writ of possession by filing an ex parte motion under oath in the registration or cadastral proceedings if
the property is registered, or in special proceedings in case the property is registered under the Mortgage Law. In
this case, a bond is required before the court may issue a writ of possession. 436
On the other hand, a writ of possession may be issued as a matter of right when the title has been consolidated in
the buyer’s name due to nonredemption by the mortgagor. Under this situation, the basis for the writ of possession is
ownership of the property.437
The Sheriff’s Provisional Certificate of Sale should be deemed registered. However, Philippine National Bank must
still file a bond before the writ of possession may be issued.
VI
To fully dispose of all the issues in these consolidated cases, this court shall also rule on one of the issues raised in
G.R. No. 158622. In G.R. No. 158622, Spouses Limso and Davao Sunrise allege that the Sheriff’s Provisional
Certificate of Sale does not state the appropriate redemption period; thus, they filed a Petition for Declaratory Relief,
which was docketed as Civil Case No. 29,036-2002.438
In the loan agreement, natural and juridical persons are co-debtors, while the properties mortgaged to secure the
loan are owned by Davao Sunrise.
Act No. 3135 provides that the period of redemption is one (1) year after the sale.439 On the other hand, Republic Act
No. 8791 provides a shorter period of three (3) months to redeem in cases involving juridical persons. 440
We rule that the period of redemption for this case should be not more than three (3) months in accordance with
Section 47 of Republic Act No. 8791. The mortgaged properties are all owned by Davao Sunrise. Section 47 of
Republic Act No. 8791 states: "the mortgagor or debtor whose real property has been sold" and "juridical persons
whose property is being sold[.]" Clearly, the law itself provides that the right to redeem belongs to the owner of the
property mortgaged. As the mortgaged properties all belong to Davao Sunrise, the shorter period of three (3) months
is the applicable redemption period.
The policy behind the shorter redemption period was explained in Goldenway Merchandising Corporation v.
Equitable PCI Bank:441
The difference in the treatment of juridical persons and natural persons was based on the nature of the
properties foreclosed—whether these are used as residence, for which the more liberal one-year
redemption period is retained, or used for industrial or commercial purposes, in which case a shorter term
is deemed necessary to reduce the period of uncertainty in the ownership of property and enable
mortgagee-banks to dispose sooner of these acquired assets. It must be underscored that the General
Banking Law of 2000, crafted in the aftermath of the 1997 Southeast Asian financial crisis, sought to
reform the General Banking Act of 1949 by fashioning a legal framework for maintaining a safe and sound
banking system. In this context, the amendment introduced by Section 47 embodied one of such safe and
sound practices aimed at ensuring the solvency and liquidity of our banks. 442 (Citation omitted)
To grant a longer period of redemption on the ground that a co-debtor is a natural person defeats the purpose of
Republic Act No. 8791. In addition, the real properties mortgaged by Davao Sunrise appear to be used for
commercial purposes.443
WHEREFORE, the Petition for Review on Certiorari in G.R. No. 173194 is DENIED.
The Petition docketed as G.R. No. 196958 is PARTIALLY GRANTED, while the Petition docketed as G.R. No.
197120 is DENIED.
The Decision of the Court of Appeals in CA-G.R. CV No. 79732-MIN is AFFIRMED with MODIFICATION.
The Conversion, Restructuring and Extension Agreement executed in 1999 is deemed to have novated the Credit
Agreement and Loan Agreement executed in 1993. Thus, the principal loan obligation of Davao Sunrise Investment
and Development Corporation and Spouses Robert Alan and Nancy Limso shall be computed on the basis of the
amounts indicated in the Conversion, Restructuring and Extension Agreement.
Interest on the principal loan obligation shall be at the rate of 12% per annum and computed from January 28, 1999,
the date of the execution of the Conversion, Restructuring and Extension Agreement. Interest rate on the
conventional interest shall be at the rate of 12% per annum from August 21, 2000, the date of judicial demand, to
June 30, 2013. From July 1, 2013 until full satisfaction, the interest rate on the conventional interest shall be
computed at 6% per annum in view of this court’s ruling in Nacar v. Gallery Frames.444
This case is ordered REMANDED to Branch 17 of the Regional Trial Court of Davao City for the computation of the
total amount of Davao Sunrise Investment and Development Corporation and Spouses Robert Alan and Nancy
Limso's remaining obligation.
The Petition docketed as G.R. No. 205463 is PARTIALLY GRANTED. The Sheriffs Provisional Certificate of Sale is
deemed to have been registered. In view of the facts of this case, the applicable period of redemption shall be three
(3) months as provided under Republic Act No. 8791.
In case the final computation shows that Davao Sunrise Investment and Development Corporation and Spouses
Robert Alan and Nancy Limso overpaid Philippine National Bank, Philippine National Bank must return the excess
amount.
The writ of possession prayed for by Philippine National Bank may only be issued after all the requirements for the
issuance of a writ of possession are complied with.
SO ORDERED.
G.R. No. 152347 June 21, 2006
UNION BANK OF THE PHILIPPINES, Petitioner,
vs.
SPS. ALFREDO ONG AND SUSANA ONG and JACKSON LEE, Respondents.
DECISION
GARCIA, J.:
By this petition for review under Rule 45 of the Rules of Court, petitioner Union Bank of the Philippines (Union Bank)
seeks to set aside the decision1 dated December 5, 2001 of the Court of Appeals (CA) in CA-G.R. No. 66030
reversing an earlier decision of the Regional Trial Court (RTC) of Pasig City in Civil Case No. 61601, a suit thereat
commenced by the petitioner against the herein respondents for annulment or rescission of sale in fraud of creditors.
The facts:
Herein respondents, the spouses Alfredo Ong and Susana Ong, own the majority capital stock of Baliwag Mahogany
Corporation (BMC). On October 10, 1990, the spouses executed a Continuing Surety Agreement in favor of Union
Bank to secure a P40,000,000.00-credit line facility made available to BMC. The agreement expressly stipulated a
solidary liability undertaking.
On October 22, 1991, or about a year after the execution of the surety agreement, the spouses Ong,
for P12,500,000.00, sold their 974-square meter lot located in Greenhills, San Juan, Metro Manila, together with the
house and other improvements standing thereon, to their co-respondent, Jackson Lee (Lee, for short). The following
day, Lee registered the sale and was then issued Transfer Certificate of Title (TCT) No. 4746-R. At about this time,
BMC had already availed itself of the credit facilities, and had in fact executed a total of twenty-two (22) promissory
notes in favor of Union Bank.
On November 22, 1991, BMC filed a Petition for Rehabilitation and for Declaration of Suspension of Payments with
the Securities and Exchange Commission (SEC). To protect its interest, Union Bank lost no time in filing with the
RTC of Pasig City an action for rescission of the sale between the spouses Ong and Jackson Lee for purportedly
being in fraud of creditors.
In its complaint, docketed as Civil Case No. 61601 and eventually raffled to Branch 157 of the court, Union Bank
assailed the validity of the sale, alleging that the spouses Ong and Lee entered into the transaction in question for
the lone purpose of fraudulently removing the property from the reach of Union Bank and other creditors. The
fraudulent design, according to Union Bank, is evidenced by the following circumstances: (1) insufficiency of
consideration, the purchase price of P12,500,000.00 being below the fair market value of the subject property at that
time; (2) lack of financial capacity on the part of Lee to buy the property at that time since his gross income for the
year 1990, per the credit investigation conducted by the bank, amounted to only P346,571.73; and (3) Lee did not
assert absolute ownership over the property as he allowed the spouses Ong to retain possession thereof under a
purported Contract of Lease dated October 29, 1991.
Answering, herein respondents, as defendants a quo, maintained, in the main, that both contracts of sale and lease
over the Greenhills property were founded on good and valid consideration and executed in good faith. They also
scored Union Bank for forum shopping, alleging that the latter is one of the participating creditors in BMC’s petition
for rehabilitation.
Issues having been joined, trial followed. On September 27, 1999, the trial court, applying Article 1381 of the Civil
Code and noting that the evidence on record "present[s] a holistic combination of circumstances distinctly
characterized by badges of fraud," rendered judgment for Union Bank, the Deed of Sale executed on October 22,
1991 by the spouses Ong in favor of Lee being declared null and void.
Foremost of the circumstances adverted to relates to the execution of the sale against the backdrop of the spouses
Ong, as owners of 70% of BMC's stocks, knowing of the company’s insolvency. This knowledge was the reason why,
according to the court, the spouses Ong disposed of the subject property leaving the bank without recourse to
recover BMC's indebtedness. The trial court also made reference to the circumstances which Union Bank mentioned
in its complaint as indicia of conveyance in fraud of creditors.
Therefrom, herein respondents interposed an appeal to the CA which docketed their recourse as CA-G.R. No.
66030.
In its Decision dated December 5, 2001, the CA reversed and set aside the trial court's ruling, observing that the
contract of sale executed by the spouses Ong and Lee, being complete and regular on its face, is clothed with the
prima facie presumption of regularity and legality. Plodding on, the appellate court said:
In order that rescission of a contract made in fraud of creditors may be decreed, it is necessary that the complaining
creditors must prove that they cannot recover in any other manner what is due them. xxx.
There is no gainsaying that the basis of liability of the appellant spouses in their personal capacity to Union Bank is
the Continuing Surety Agreement they have signed … on October 10, 1990. However, the real debtor of Union Bank
is BMC, which has a separate juridical personality from appellants Ong. Granting that BMC was already insolvent at
the time of the sale, still, there was no showing that at the time BMC filed a petition for suspension of payment that
appellants Ong were themselves bankrupt. In the case at bench, no attempt was made by Union Bank, not even a
feeble or half-hearted one, to establish that appellants spouses have no other property from which Union Bank, as
creditor of BMC, could obtain payment. While appellants Ong may be independently liable directly to Union Bank
under the Continuing Surety Agreement, all that Union Bank tried to prove was that BMC was insolvent at the time of
the questioned sale. No competent evidence was adduced showing that appellants Ong had no leviable assets other
than the subject property that would justify challenge to the transaction. 2
Petitioner moved for a reconsideration of the above decision but its motion was denied by the appellate court in its
resolution of February 21, 2002.3
Hence, petitioner’s present recourse on its submission that the appellate court erred:
I. xxx WHEN IT CONSIDERED THAT THE SALE TRANSACTION BETWEEN [ RESPONDENTS SPOUSES ONG
AND LEE] ENJOYS THE PRESUMPTION OF REGULARITY AND LEGALITY AS THERE EXISTS ALSO A
PRESUMPTION THAT THE SAID SALE WAS ENTERED IN FRAUD OF CREDITORS. PETITIONER THEREFORE
NEED NOT PROVE THAT RESPONDENTS SPOUSES ONG DID NOT LEAVE SUFFICIENT ASSETS TO PAY
THEIR CREDITORS. BUT EVEN THEN, PETITIONER HAS PROVEN THAT THE SPOUSES HAVE NO OTHER
ASSETS.
II. IN CONCLUDING, ASSUMING EX-GRATIA ARGUMENTI THAT THE SALE BETWEEN DEFENDANT-
APPELLANTS ENJOY THE PRESUMPTION OF REGULARITY AND LEGALITY, THAT THE EVIDENCE
ADDUCED BY THE PETITIONER … WAS NOT SUFFICIENT TO OVERCOME THE PRESUMPTION.
III. xxx IN FINDING THAT IT WAS [RESPONDENT] LEE WHO HAS SUFFICIENTLY PROVEN THAT THERE WAS
A VALID AND SUFFICIENT CONSIDERATION FOR THE SALE.
IV. xxx IN NOT FINDING THAT JACKSON LEE WAS IN BAD FAITH WHEN HE PURCHASED THE PROPERTY. 4
Petitioner maintains, citing China Banking Corporation vs. Court of Appeals, 5 that the sale in question, having been
entered in fraud of creditor, is rescissible. In the same breath, however, petitioner would fault the CA for failing to
consider that the sale between the Ongs and Lee is presumed fraudulent under Section 70 of Act No. 1956, as
amended, or the Insolvency Law. Elaborating on this point, petitioner states that the subject sale occurred thirty (30)
days prior to the filing by BMC of a petition for suspension of payment before the SEC, thus rendering the sale not
merely rescissible but absolutely void.
We resolve to deny the petition.
In effect, the determinative issue tendered in this case resolves itself into the question of whether or not the Ong-Lee
contract of sale partakes of a conveyance to defraud Union Bank. Obviously, this necessitates an inquiry into the
facts and this Court eschews factual examination in a petition for review under Rule 45 of the Rules of Court, save
when, as in the instant case, a clash between the factual findings of the trial court and that of the appellate court
exists,6 among other exceptions.
As between the contrasting positions of the trial court and the CA, that of the latter commends itself for adoption,
being more in accord with the evidence on hand and the laws applicable thereto.
Essentially, petitioner anchors its case on Article 1381 of the Civil Code which lists as among the rescissible
contracts "[T]hose undertaken in fraud of creditors when the latter cannot in any other manner collect the claim due
them."
Contracts in fraud of creditors are those executed with the intention to prejudice the rights of creditors. They should
not be confused with those entered into without such mal-intent, even if, as a direct consequence thereof, the
creditor may suffer some damage. In determining whether or not a certain conveying contract is fraudulent, what
comes to mind first is the question of whether the conveyance was a bona fide transaction or a trick and contrivance
to defeat creditors.7 To creditors seeking contract rescission on the ground of fraudulent conveyance rest the onus of
proving by competent evidence the existence of such fraudulent intent on the part of the debtor, albeit they may fall
back on the disputable presumptions, if proper, established under Article 1387 of the Code. 8
In the present case, respondent spouses Ong, as the CA had determined, had sufficiently established the validity
and legitimacy of the sale in question. The conveying deed, a duly notarized document, carries with it the
presumption of validity and regularity. Too, the sale was duly recorded and annotated on the title of the property
owners, the spouses Ong. As the transferee of said property, respondent Lee caused the transfer of title to his name.
There can be no quibbling about the transaction being supported by a valid and sufficient consideration. Respondent
Lee’s account, while on the witness box, about this angle of the sale was categorical and straightforward. An excerpt
of his testimony:
Atty. De Jesus :
Before you prepared the consideration of this formal offer, as standard operating procedure of buy and sell, what
documents were prepared?
xxx xxx xxx
Jackson Lee:
A. There is a downpayment.
Q. And how much was the downpayment?
A. P2,500,000.00.
Q. Was that downpayment covered by a receipt signed by the seller?
A. Yes, Sir, P500,000.00 and P2,000,000.00
xxx xxx xxx
Q. Are you referring to the receipt dated October 19, 1991, how about the other receipt dated October 21, 1991?
A. Yes, Sir, this is the same receipt.
xxx xxx xxx
Q. Considering that the consideration of this document is for P12,000,000.00 and you made mention only
of P2,500,000.00, covered by the receipts, do you have evidence to show that, finally, Susana Ong received the
balance of P10,000,000.00?
A. Yes, Sir.
Q. Showing to you a receipt denominated as Acknowledgement Receipt, dated October 25, 1991, are you referring
to this receipt to cover the balance of P10,000,000.00?
A. Yes, sir.9
The foregoing testimony readily proves that money indeed changed hands in connection with the sale of the subject
property. Respondent Lee, as purchaser, paid the stipulated contract price to the spouses Ong, as vendors. Receipts
presented in evidence covered and proved such payment. Accordingly, any suggestion negating payment and
receipt of valuable consideration for the subject conveyance, or worse, that the sale was fictitious must simply be
rejected.
In a bid to attach a badge of fraud on the transaction, petitioner raises the issue of inadequate consideration, alleging
in this regard that only P12,500,000.00 was paid for property having, during the period material, a fair market value
of P14,500,000.00.
We do not agree.
The existence of fraud or the intent to defraud creditors cannot plausibly be presumed from the fact that the price
paid for a piece of real estate is perceived to be slightly lower, if that really be the case, than its market value. To be
sure, it is logical, even expected, for contracting minds, each having an interest to protect, to negotiate on the price
and other conditions before closing a sale of a valuable piece of land. The negotiating areas could cover various
items. The purchase price, while undeniably an important consideration, is doubtless only one of them. Thus, a
scenario where the price actually stipulated may, as a matter of fact, be lower than the original asking price of the
vendor or the fair market value of the property, as what perhaps happened in the instant case, is not out of the
ordinary, let alone indicative of fraudulent intention. That the spouses Ong acquiesced to the price
of P12,500,000.00, which may be lower than the market value of the house and lot at the time of alienation, is
certainly not an unusual business phenomenon.
Lest it be overlooked, the disparity between the price appearing in the conveying deed and what the petitioner
regarded as the real value of the property is not as gross to support a conclusion of fraud. What is more, one Oliver
Morales, a licensed real estate appraiser and broker, virtually made short shrift of petitioner’s claim of gross
inadequacy of the purchase price. Mr. Morales declared that there exists no gross disparity between the market
value of the subject property and the price mentioned in the deed as consideration. He explained why:
ATTY. EUFEMIO:
Q. I am showing to you the said two (2) exhibits Mr. Morales and I would like you to go over the terms and conditions
stated therein and as an expert in real estate appraiser (sic) and also as a real estate broker, can you give this
Honorable Court your considered opinion whether the consideration stated therein P12,500,000.00 in the light of all
terms and conditions of the said Deed of Absolute Sale and Offer to Purchase could be deemed fair and
reasonable?
xxx xxx xxx
MR. MORALES:
A. My opinion generally a Deed of Absolute Sale indicated prescribed not only the amount of the consideration.
There are also other expenses involved in the sales. I do not see here other payment of who takes care of capital
gains stocks (sic) in this Deed of Sale neither who shouldered the documentary stamps or even transfer tax. That is
my comment regarding this.
Q. Precisely Mr. Witness we have also shown to you the Offer to Purchase which has been marked as Exhibit "9" as
to the terms which we are asking?
xxx xxx xxx
A. Well, it says here in item C of the conditions the Capital Gains Stocks (sic), documentary stamps, transfer tax
registration and broker’s fee for the buyer’s account. I do not know how much is this worth. If at all in condition (sic)
to the 12.5 million which is the selling price, may I, therefore aside (sic) how much is the total cost pertaining to this.
The capital gains tax on (sic), documentary stamps, transfer tax are all computed on the basis of the consideration
which is P12.5 M, the capital gain stocks (sic) is 5%, 5% of 12.5 M.
xxx xxx xxx
Yes sir if the 5% capital gains tax and documentary stamps respectively shall be added to the 12.5 Million before the
inclusion of the transfer tax, the amount will be already in the vicinity of P13,250.000.
Q. With such consideration Mr. Witness and in the light of the terms and conditions in the said Offer to Purchase and
Deed of Absolute Sale could you give your opinion as to whether the consideration is fair and reasonable.
xxx xxx xxx
A. With our proposal of P14.5 M as compared now to P13,250,000.00 may I give my opinion that generally there will
be two appraisers. In fairness to the situation, they should not vary by as much as 7% down so we are playing at a
variance actually of about 15%. In my experience in this profession for the last 27 years as I have said in fairness if
there is another appraisal done by another person, that kind of difference is very marginal should at least indicate the
fairness of the property and so therefore the only way to find out is to determine the difference between the P14.5 M
and the P13,250,000.00. My computation indicates that it is close to 10% something like that difference. What is the
question again?
Q. Whether it is fair and reasonable under the circumstances.
A. I have answered already the question and I said maximum of 15%.
Q. So based on your computation this is about 10% which is fair and reasonable.
A That is right sir.10
Withal, the consideration of the sale is fair and reasonable as would justify the conclusion that the sale is
undoubtedly a true and genuine conveyance to which the parties thereto are irrevocably and undeniably bound.
It may be stressed that, when the validity of sales contract is in issue, two veritable presumptions are relevant: first,
that there was sufficient consideration of the contract 11 ; and, second, that it was the result of a fair and regular
private transaction.12 If shown to hold, these presumptions infer prima facie the transaction's validity, except that it
must yield to the evidence adduced13 which the party disputing such presumptive validity has the burden of
overcoming. Unfortunately for the petitioner, it failed to discharge this burden. Its bare allegation respecting the sale
having been executed in fraud of creditors and without adequate consideration cannot, without more, prevail over the
respondents' evidence which more than sufficiently supports a conclusion as to the legitimacy of the transaction and
the bona fides of the parties.
Parenthetically, the rescissory action to set aside contracts in fraud of creditors is accion pauliana, essentially a
subsidiary remedy accorded under Article 1383 of the Civil Code which the party suffering damage can avail of only
when he has no other legal means to obtain reparation for the same.14 In net effect, the provision applies only when
the creditor cannot recover in any other manner what is due him.
It is true that respondent spouses, as surety for BMC, bound themselves to answer for the latter’s debt. Nonetheless,
for purposes of recovering what the eventually insolvent BMC owed the bank, it behooved the petitioner to show that
it had exhausted all the properties of the spouses Ong. It does not appear in this case that the petitioner sought other
properties of the spouses other than the subject Greenhills property. The CA categorically said so. Absent proof,
therefore, that the spouses Ong had no other property except their Greenhills home, the sale thereof to respondent
Lee cannot simplistically be considered as one in fraud of creditors.
Neither was evidence adduced to show that the sale in question peremptorily deprived the petitioner of means to
collect its claim against the Ongs. Where a creditor fails to show that he has no other legal recourse to obtain
satisfaction for his claim, then he is not entitled to the rescission asked.15
For a contract to be rescinded for being in fraud of creditors, both contracting parties must be shown to have acted
maliciously so as to prejudice the creditors who were prevented from collecting their claims. 16 Again, in this case,
there is no evidence tending to prove that the spouses Ong and Lee were conniving cheats. In fact, the petitioner did
not even attempt to prove the existence of personal closeness or business and professional interdependence
between the spouses Ong and Lee as to cast doubt on their true intent in executing the contract of sale. With the
view we take of the evidence on record, their relationship vis-à-vis the subject Greenhills property was no more than
one between vendor and vendee dealing with each other for the first time. Any insinuation that the two colluded to
gyp petitioner bank is to read in a relationship something which, from all indications, appears to be purely business.
It cannot be overemphasized that rescission is generally unavailing should a third person, acting in good faith, is in
lawful possession of the property,17 that is to say, he is protected by law against a suit for rescission by the
registration of the transfer to him in the registry.
As recited earlier, Lee was - and may still be - in lawful possession of the subject property as the transfer to him was
by virtue of a presumptively valid onerous contract of sale. His possession is evidenced by no less than a certificate
of title issued him by the Registry of Deeds of San Juan, Metro Manila, after the usual registration of the
corresponding conveying deed of sale. On the other hand, the bona fides of his acquisition can be deduced from his
conduct and outward acts previous to the sale. As testified to by him and duly noted by the CA, respondent Lee
undertook what amounts to due diligence on the possible defects in the title of the Ongs before proceeding with the
sale. As it were, Lee decided to buy the property only after being satisfied of the absence of such defects.18
Time and again, the Court has held that one dealing with a registered parcel of land need not go beyond the
certificate of title as he is charged with notice only of burdens which are noted on the face of the register or on the
certificate of title.19 The Continuing Surety Agreement, it ought to be particularly pointed out, was never recorded nor
annotated on the title of spouses Ong. There is no evidence extant in the records to show that Lee had knowledge,
prior to the subject sale, of the surety agreement adverted to. In fine, there is nothing to remotely suggest that the
purchase of the subject property was characterized by anything other than good faith.
Petitioner has made much of respondent Lee not taking immediate possession of the property after the sale, stating
that such failure is an indication of his participation in the fraudulent scheme to prejudice petitioner bank.
We are not persuaded.
Lee, it is true, allowed the respondent spouses to continue occupying the premises even after the sale. This
development, however, is not without basis or practical reason. The spouses' continuous possession of the property
was by virtue of a one-year lease20 they executed with respondent Lee six days after the sale. As explained by the
respondent spouses, they insisted on the lease arrangement as a condition for the sale in question. And pursuant to
the lease contract aforementioned, the respondent Ongs paid and Lee collected rentals at the rate of P25,000.00 a
month. Contrary thus to the petitioner’s asseveration, respondent Lee, after the sale, exercised acts of dominion over
the said property and asserted his rights as the new owner. So, when the respondent spouses continued to occupy
the property after its sale, they did so as mere tenants. While the failure of the vendee to take exclusive possession
of the property is generally recognized as a badge of fraud, the same cannot be said here in the light of the existence
of what appears to be a genuine lessor-lessee relationship between the spouses Ong and Lee. To borrow from
Reyes vs. Court of Appeals,21 possession may be exercised in one’s own name or in the name of another; an owner
of a piece of land has possession, either when he himself physically occupies the same or when another person who
recognizes his right as owner is in such occupancy.
Petitioner’s assertion regarding respondent Lee’s lack of financial capacity to acquire the property in question since
his income in 1990 was only P346,571.73 is clearly untenable. Assuming for argument that petitioner got its figure
right, it is clearly incorrect to measure one’s purchasing capacity with one’s income at a given period. But the more
important consideration in this regard is the uncontroverted fact that respondent Lee paid the purchase price of said
property. Where he sourced the needed cash is, for the nonce, really of no moment.
The cited case of China Banking22 cannot plausibly provide petitioner with a winning card. In that case, the Court,
applying Article 1381 (3) of the Civil Code, rescinded an Assignment of Rights to Redeem owing to the failure of the
assignee to overthrow the presumption that the said conveyance/assignment is fraudulent. In turn, the presumption
was culled from Article 1387, par. 2, of the Code pertinently providing that "[A]lienation by onerous title are also
presumed fraudulent when made by persons against whom some judgment has been rendered in any instance or
some writ of attachment has been issued."
Indeed, when the deed of assignment was executed in China Banking, the assignor therein already faced at that
time an adverse judgment. In the same case, moreover, the Court took stock of other signs of fraud which tainted the
transaction therein and which are, significantly, not obtaining in the instant case. We refer, firstly, to the element of
kinship, the assignor, Alfonso Roxas Chua, being the father of the assignee, Paulino. Secondly, Paulino admitted
knowing his father to be insolvent. Hence, the Court, rationalizing the rescission of the assignment of rights, made
the following remarks:
The mere fact that the conveyance was founded on valuable consideration does not necessarily negate the
presumption of fraud under Article 1387 of the Civil Code. There has to be valuable consideration and the
transaction must have been made bona fide.23
There lies the glaring difference with the instant case.
Here, the existence of fraud cannot be presumed, or, at the very least, what were perceived to be badges of fraud
have been proven to be otherwise. And, unlike Alfonso Roxas Chua in China Banking, a judgment has not been
rendered against respondent spouses Ong or that a writ of attachment has been issued against them at the time of
the disputed sale.
In a last-ditch attempt to resuscitate a feeble cause, petitioner cites Section 70 of the Insolvency Law which, unlike
the invoked Article 1381 of the Civil Code that deals with a valid but rescissible contract, treats of a contractual
infirmity resulting in nullity no less of the transaction in question. Insofar as pertinent, Section 70 of the Insolvency
Law provides:
Sec. 70. If any debtor, being insolvent, or in contemplation of insolvency, within thirty days before the filing of a
petition by or against him, with a view to giving a preference to any creditor or person having a claim against him xxx
makes any xxx sale or conveyance of any part of his property, xxx such xxx sale, assignment or conveyance is void,
and the assignee, or the receiver, may recover the property or the value thereof, as assets of such insolvent debtor.
xxx. Any payment, pledge, mortgage, conveyance, sale, assignment, or transfer of property of whatever character
made by the insolvent within one (1) month before the filing of a petition in insolvency by or against him, except for a
valuable pecuniary consideration made in good faith shall be void. xxx. (Emphasis added)
Petitioner avers that the Ong-Lee sales contract partakes of a fraudulent transfer and is null and void in
contemplation of the aforequoted provision, the sale having occurred on October 22, 1991 or within thirty (30) days
before BMC filed a petition for suspension of payments on November 22, 1991.
Petitioner's reliance on the afore-quoted provision is misplaced for the following reasons:
First, Section 70, supra, of the Insolvency Law specifically makes reference to conveyance of properties
made by a "debtor" or by an "insolvent" who filed a petition, or against whom a petition for insolvency has
been filed. Respondent spouses Ong have doubtlessly not filed a petition for a declaration of their own
insolvency. Neither has one been filed against them. And as the CA aptly observed, it was never proven
that respondent spouses are likewise insolvent, petitioner having failed to show that they were down to
their Greenhills property as their only asset.
It may be that BMC had filed a petition for rehabilitation and suspension of payments with the SEC. The
nagging fact, however is that BMC is a different juridical person from the respondent spouses. Their
seventy percent (70%) ownership of BMC’s capital stock does not change the legal situation. Accordingly,
the alleged insolvency of BMC cannot, as petitioner postulates, extend to the respondent spouses such
that transaction of the latter comes within the purview of Section 70 of the Insolvency Law.
Second, the real debtor of petitioner bank in this case is BMC. The fact that the respondent spouses
bound themselves to answer for BMC’s indebtedness under the surety agreement referred to at the outset
is not reason enough to conclude that the spouses are themselves debtors of petitioner bank. We have
already passed upon the simple reason for this proposition. We refer to the basic precept in this jurisdiction
that a corporation, upon coming into existence, is invested by law with a personality separate and distinct
from those of the persons composing it.24 Mere ownership by a single or small group of stockholders of
nearly all of the capital stock of the corporation is not, without more, sufficient to disregard the fiction of
separate corporate personality.25
Third, Section 70 of the Insolvency Law considers transfers made within a month after the date of cleavage
void, except those made in good faith and for valuable pecuniary consideration. The twin elements of good
faith and valuable and sufficient consideration have been duly established. Given the validity and the basic
legitimacy of the sale in question, there is simply no occasion to apply Section 70 of the Insolvency Law to
nullify the transaction subject of the instant case.
All told, we are far from convinced by petitioner’s argumentation that the circumstances surrounding the sale of the
subject property may be considered badges of fraud. Consequently, its failure to show actual fraudulent intent on the
part of the spouses Ong defeats its own cause.
WHEREFORE, the instant petition is DENIED and the assailed decision of the Court of Appeals is AFFIRMED.
Costs against petitioner.
SO ORDERED.
G.R. No. 196182 September 1, 2014
ECE REALTY AND DEVELOPMENT INC., Petitioner,
vs.
RACHEL G. MANDAP, Respondent.
DECISION
PERALTA, J.:
Before the Court is a petition for review on certiorari assailing the Decision1 and Resolution2 of the Court of Appeals
(CA), dated July 21, 2010 and March 15, 2011, respectively, in CA-G.R. SP No. 100741.
The factual and procedural antecedents of the case are as follows:
Herein petitioner is a corporation engaged in the building and development of condominium units. Sometime in 1995,
it started the construction of a condominium project called Central Park Condominium Building located along Jorge
St., Pasay City. However, printed advertisements were made indicating therein that the said project was to be built in
Makati City.3 In December 1995, respondent, agreed to buy a unit from the above project by paying a reservation
fee and, thereafter, downpayment and monthly installments. On June 18, 1996, respondent and the representatives
of petitioner executed a Contract to Sell.4 In the said Contract, it was indicated that the condominium project is
located in Pasay City.
More than two years after the execution of the Contract to Sell, respondent, through her counsel, wrote petitioner a
letter dated October 30, 1998 demanding the return of ₱422,500.00, representing the payments she made, on the
ground that she subsequently discovered that the condominium project was being built in Pasay City and not in
Makati City as indicated in its printed advertisements.5
However, instead of answering respondent's letter, petitioner sent her a written communication dated November 30,
1998 informing her that her unit is ready for inspection and occupancy should she decide to move in.6
Treating the letter as a form of denial of her demand for the return of the sum she had paid to petitioner, respondent
filed a complaint with the Expanded National Capital Region Field Office (ENCRFO) of the Housing and Land Use
Regulatory Board (HLURB) seeking the annulment of her contract with petitioner, the return of her payments, and
damages.7
On September 30, 2005, the ENCRFO dismissed respondent's complaint for lack of merit and directedthe parties to
resume the fulfillment of the terms and conditions of their sales contract. The ENCRFO held that respondent "failed
to show or substantiate the legal grounds that consist of a fraudulent or malicious dealing with her by the [petitioner],
such as, the latter's employment of insidious words or machinations which induced or entrapped her into the contract
and which, without them, would not have encouraged her to buy the unit."8
Respondent filed a petition for review with the HLURB Board of Commissioners questioning the decision of the
ENCRFO. On April 25, 2006, the HLURB Board of Commissioners rendered judgment dismissing respondent's
complaint and affirming the decision of the ENCRFO.9 Giving credence to the Contract to Sell executed by petitioner
and respondent, the Board of Commissioners held that when the parties reduced their contract in writing, their rights
and duties must befound in their contract and neither party can place a greater obligation than what the contract
provides.
Aggrieved, respondent filed an appeal with the Office of the President. On June 21, 2007, the Office of the President
dismissed respondent's appeal and affirmed in totothe decision of the HLURB Board of Commissioners.10
Respondent filed a Motion for Reconsideration,11 but the Office of the President denied it in a Resolution12 dated
August 29, 2007.
Respondent then filed a petition for review with the CA.13
On July 21, 2010, the CA promulgated its assailed Decision, the dispositive portion of which reads, thus:
WHEREFORE, premises considered, We hereby REVERSEand SET ASIDEthe Decision and the Resolution dated
June 21, 2007 and August 29, 2007, respectively, issued by the Office of the President in OP Case No. 06-F-224.
Accordingly, the contract between Rachel G. Mandap and ECE Realty is hereby ANNULLED. Consequently, ECE
Realty is ordered to return the total amountof ₱422,500.00 representing payments made by Rachel G. Mandap on
reservation fee, [downpayment] and monthly installments on the condominium unit, with legal interest thereon at
twelve percent (12%) per annumfrom the date of filing of action until fully paid.
No costs.
SO ORDERED.14
The CA held that petitioner employed fraud and machinations to induce respondent to enter into a contract with it.
The CA also expressed doubt on the due execution of the Contract to Sell between the parties.
Petitioner filed a Motion for Reconsideration, but the CA denied it in its March 15, 2011 Resolution.
Hence, the present petition for review on certiorariwith the following Assignment of Errors:
I
The Court of Appeals gravely erred in ruling that there was fraud in the execution of the subject contract to sell and
declaring the same as annulled and ordering petitioner ECE to refund all payments made by respondent.
II
The Court of Appeals erred in ordering the award of legal interest at the rate of 12% per annum starting from the
filing of the complaint until fully paid when legal interest should have been pegged at 6%.15
The Court finds the petition meritorious.
The basic issue in the present caseis whether petitioner was guilty of fraud and if so, whether such fraud is sufficient
ground to nullify its contract with respondent.
Article 1338 of the Civil Code provides that "[t]here is fraud when through insidious words or machinationsof one of
the contracting parties, the other is induced to enter into a contract which, without them, he would not have agreed
to."
In addition, under Article 1390 of the same Code, a contract is voidable or annullable "where the consent is vitiated
by mistake, violence, intimidation, undue influence or fraud."
Also, Article 1344 of the same Codeprovides that "[i]n order that fraud may make a contract voidable, it should be
serious and should not have been employed by both contracting parties." Jurisprudence has shown that in order to
constitute fraud that provides basis to annul contracts, it must fulfill two conditions.
First, the fraud must be dolo causanteor it must be fraud in obtaining the consent of the party.16 This is referred to as
causal fraud. The deceit must be serious. The fraud is serious when it is sufficient to impress, or to lead an ordinarily
prudent person into error; that which cannot deceive a prudent person cannot be a ground for nullity.17 The
circumstances of each case should be considered, taking into account the personal conditions of the victim.18
Second, the fraud must be proven by clear and convincing evidence and not merely by a preponderance thereof.19

In the present case, this Court finds that petitioner is guilty of false representation of a fact. This is evidenced by its
printed advertisements indicating that its subject condominium project is located in Makati City when, in fact, it is in
Pasay City. The Court agrees with the Housing and Land Use Arbiter, the HLURB Board ofCommissioners, and the
Office of the President, in condemning petitioner's deplorable act of making misrepresentations in its
advertisementsand in issuing a stern warning that a repetition of this act shall bedealt with more severely.
However, insofar as the present case is concerned, the Court agrees with the Housing and Land Use Arbiter, the
HLURB Board of Commissioners, and the Office of the President, that the misrepresentation made by petitioner in its
advertisements does not constitute causal fraud which would have been a valid basis in annulling the Contract to
Sell between petitioner and respondent.
In his decision, the Housing and Land Use Arbiter found that respondent failed to show that "the essential and/or
moving factor that led the [respondent] to give her consent and agree to buy the unit was precisely the project's
advantageous or uniquelocation in Makati [City] – to the exclusion of other places or cityx x x." Both the HLURB
Board of Commissioners and the Office of the President affirmed the finding of the Arbiter and unanimously held that
respondent failed to prove that the location of the said project was the causal consideration or the principal
inducement which led her into buyingher unit in the said condominium project. The Court finds no cogent reason to
depart from the foregoing findings and conclusion of the above agencies. Indeed, evidence shows that respondent
proceeded to sign the Contract to Sell despite information contained therein that the condominium is located in
Pasay City. This only means that she still agreed to buy the subject property regardless of the fact that it is located in
a place different from what she was originally informed. If she had a problem with the property's location, she should
not havesigned the Contract to Sell and, instead, immediately raised this issue with petitioner. But she did not. As
correctly observed by the Office of the President, it took respondent more than two years from the execution of the
Contract to Sell to demand the return of the amount she paid on the ground that she was misled into believing that
the subject property islocated in Makati City. In the meantime, she continued to make payments.
The Court is not persuaded by the ruling of the CA which expresses doubt on the due execution of the Contractto
Sell. The fact remains that the said Contract to Sell was notarized. Itis settled that absent any clear and convincing
proof to the contrary, a notarized document enjoys the presumption of regularity and is conclusive as to the
truthfulness of its contents.20 Neither does the Court agree thatthe presumption of regularity accorded to the
notarized Contract to Sell was overcome by evidence to the contrary. Respondent's allegation that she signed the
said Contract to Sell with several blank spaces, and which allegedly did not indicate the location of the condominium,
was not supported by proof. The basic rule is that mere allegation is not evidence and is not equivalent to proof.21 In
addition, the fact that respondent made several payments prior to the execution of the subject Contract to Sell is not
the kind of evidence needed to overcome such presumption of regularity.
With respect to the foregoing discussions, the Court quotes with approval the disquisition of the Office of the
President on the credibility of the claims of petitioner and respondent, to wit:
xxxx
We give credence to the version of [petitioner] ECE Realty considering that there is no cogent reason why this Office
could not rely on the truth and veracity of the notarized Contract to Sell. "Being a notarized document, it had in its
favorthe presumption of regularity, and to overcome the same, there must be evidence that is clear, convincing and
more than merely preponderant; otherwise, the document should be upheld. [Respondent] Mandap failed to
overcome this presumption.
The contention that Mandap signed the Contract to Sell in-blank, and [that] it was ECE Realty that supplied the
details on it is remarkably threadbare for no evidence was submitted to support such claim in all the proceedings
before the ENCRFO and the Board of Commissioners. It is only now that Mandap has belatedly submitted the
Affidavit of Lorenzo G. Tipon. This cannot be done without running afoul with the well-settled principle barring a party
from introducing fresh defenses and facts at the appellate stage. Moreover, the infirmity of affidavits as evidence is a
matter of judicial experience. It issettled that no undue importance shall be given to a sworn statement or affidavit as
a piece of evidence because being taken ex parte, an affidavit is almost always incomplete and inaccurate. Thus,
absent, as here, of (sic) any controverting evidence, it is reasonable to presume that Mandap knew the contents of
the Contract to Sell which was executed with legal formalities. The ruling in Bernardo vs. Court of Appeals is
enlightening in this wise:
x x x. The rule that one who signs a contract is presumed to know its contentshas been applied even to contract of
illiterate persons on the ground that if such persons are unable to read, they are negligent if they fail to have the
contract read to them. If a person cannot read the instrument, it is as much his duty to procure some reliable persons
to read and explain it tohim, before he signs it, as it would be to read it before he signed it if he were able to do so
and his failure to obtain a reading and explanation of it is such gross negligence as will estop him from avoiding it on
the ground that he was ignorant of its contents.22
In any case, even assuming that petitioner’s misrepresentation consists of fraud which could bea ground for
annulling their Contract to Sell, respondent's act of affixing her signatureto the said Contract, after having acquired
knowledge of the property's actual location, can be construed as an implied ratification thereof.
Ratification of a voidable contract is defined under Article 1393 of the Civil Code as follows:
Art. 1393. Ratification may be effected expressly or tacitly.1âwphi1 It is understood that there is a tacit ratification if,
with knowledge of the reason which renders the contract voidable and such reason having ceased, the person who
has a right to invoke it should execute an act which necessarily implies an intention to waive his right.
Implied ratification may take diverse forms, such as by silence or acquiescence; by acts showing approval or
adoption of the contract; or by acceptance and retention of benefits flowing therefrom.23
Under Article 1392 of the Civil Code, "ratification extinguishes the action to annul a voidable contract." In addition,
Article 1396 of the same Code provides that "[r]atification cleanses the contract from all its defects from the moment
it was constituted."
Hence, based on the foregoing, the findings and conclusions of the Housing and Land Use Arbiter, the HLURB
Board of Commissioners and the Office of the President, should be sustained.
WHEREFORE, the instant petition is GRANTED. The Decision and Resolution of the Court of Appeals, dated July
21, 2010 and March 15, 2011, respectively, are REVERSEDand SET ASIDE. The September 30, 2005 Decision of
the Expanded National Capital Region Field Office of the Housing and Land Use Regulatory Board, which dismisses
respondent's complaint and directs petitioner and respondent to resume the fulfillment of their sales contract, is
REINSTATED.
SO ORDERED.
G.R. No. 179597 February 3, 2014
IGLESIA FILIPINA INDEPENDIENTE, Petitioner,
vs.
HEIRS of BERNARDINO TAEZA, Respondents.
DECISION
PERALTA, J.:
This deals with the Petition for Review on Certiorari under Rule 45 of the Rules of Court praying that the Decision1 of
the Court of Appeals (CA), promulgated on June 30, 2006, and the Resolution2 dated August 23, 2007, denying
petitioner's motion for reconsideration thereof, be reversed and set aside.
The CA's narration of facts is accurate, to wit:
The plaintiff-appellee Iglesia Filipina Independiente (IFI, for brevity), a duly registered religious corporation, was the
owner of a parcel of land described as Lot 3653, containing an area of 31,038 square meters, situated at Ruyu (now
Leonarda), Tuguegarao, Cagayan, and covered by Original Certificate of Title No. P-8698. The said lot is subdivided
as follows: Lot Nos. 3653-A, 3653-B, 3653-C, and 3653-D.
Between 1973 and 1974, the plaintiff-appellee, through its then Supreme Bishop Rev. Macario Ga, sold Lot 3653-D,
with an area of 15,000 square meters, to one Bienvenido de Guzman.
On February 5, 1976, Lot Nos. 3653-A and 3653-B, with a total area of 10,000 square meters, were likewise sold by
Rev. Macario Ga, in his capacity as the Supreme Bishop of the plaintiff-appellee, to the defendant Bernardino Taeza,
for the amount of ₱100,000.00, through installment, with mortgage to secure the payment of the balance.
Subsequently, the defendant allegedly completed the payments.
In 1977, a complaint for the annulment of the February 5, 1976 Deed of Sale with Mortgage was filed by the Parish
Council of Tuguegarao, Cagayan, represented by Froilan Calagui and Dante Santos, the President and the
Secretary, respectively, of the Laymen's Committee, with the then Court of First Instance of Tuguegarao, Cagayan,
against their Supreme Bishop Macario Ga and the defendant Bernardino Taeza.
The said complaint was, however, subsequently dismissed on the ground that the plaintiffs therein lacked the
personality to file the case.
After the expiration of Rev. Macario Ga's term of office as Supreme Bishop of the IFI on May 8, 1981, Bishop Abdias
dela Cruz was elected as the Supreme Bishop. Thereafter, an action for the declaration of nullity of the elections was
filed by Rev. Ga, with the Securities and Exchange Commission (SEC).
In 1987, while the case with the SEC is (sic) still pending, the plaintiff-appellee IFI, represented by Supreme Bishop
Rev. Soliman F. Ganno, filed a complaint for annulment of the sale of the subject parcels of land against Rev. Ga
and the defendant Bernardino Taeza, which was docketed as Civil Case No. 3747. The case was filed with the
Regional Trial Court of Tuguegarao, Cagayan, Branch III, which in its order dated December 10, 1987, dismissed the
said case without prejudice, for the reason that the issue as to whom of the Supreme Bishops could sue for the
church had not yet been resolved by the SEC.
On February 11, 1988, the Securities and Exchange Commission issued an order resolving the leadership issue of
the IFI against Rev. Macario Ga.
Meanwhile, the defendant Bernardino Taeza registered the subject parcels of land. Consequently, Transfer
Certificate of Title Nos. T-77995 and T-77994 were issued in his name.
The defendant then occupied a portion of the land. The plaintiff-appellee allegedly demanded the defendant to
vacate the said land which he failed to do.
In January 1990, a complaint for annulment of sale was again filed by the plaintiff-appellee IFI, this time through
Supreme Bishop Most Rev. Tito Pasco, against the defendant-appellant, with the Regional Trial Court of Tuguegarao
City, Branch 3.
On November 6, 2001, the court a quo rendered judgment in favor of the plaintiff-appellee.1âwphi1 It held that the
deed of sale executed by and between Rev. Ga and the defendant-appellant is null and void.3
The dispositive portion of the Decision of Regional Trial Court of Tuguegarao City (RTC) reads as follows:
WHEREFORE, judgment is hereby rendered:
1) declaring plaintiff to be entitled to the claim in the Complaint;
2) declaring the Deed of Sale with Mortgage dated February 5, 1976 null and void;
3) declaring Transfer Certificates of Title Numbers T-77995 and T-77994 to be null and void ab initio;
4) declaring the possession of defendant on that portion of land under question and ownership thereof as unlawful;
5) ordering the defendant and his heirs and successors-in-interest to vacate the premises in question and surrender
the same to plaintiff; [and]
6) condemning defendant and his heirs pay (sic) plaintiff the amount of ₱100,000.00 as actual/consequential
damages and ₱20,000.00 as lawful attorney's fees and costs of the amount (sic).4
Petitioner appealed the foregoing Decision to the CA. On June 30, 2006, the CA rendered its Decision reversing and
setting aside the RTC Decision, thereby dismissing the complaint.5 The CA ruled that petitioner, being a corporation
sole, validly transferred ownership over the land in question through its Supreme Bishop, who was at the time the
administrator of all properties and the official representative of the church. It further held that "[t]he authority of the
then Supreme Bishop Rev. Ga to enter into a contract and represent the plaintiff-appellee cannot be assailed, as
there are no provisions in its constitution and canons giving the said authority to any other person or entity."6
Petitioner then elevated the matter to this Court via a petition for review on certiorari, wherein the following issues are
presented for resolution:
A.) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING THE FEBRUARY 5, 1976 DEED OF
SALE WITH MORTGAGE AS NULL AND VOID;
B.) ASSUMING FOR THE SAKE OF ARGUMENT THAT IT IS NOT VOID, WHETHER OR NOT THE COURT OF
APPEALS ERRED IN NOT FINDING THE FEBRUARY 5, 1976 DEED OF SALE WITH MORTGAGE AS
UNENFORCEABLE, [and]
C.) WHETHER OR NOT THE COURT OF APPEALS ERRED IN NOT FINDING RESPONDENT TAEZA HEREIN AS
BUYER IN BAD FAITH.7
The first two issues boil down to the question of whether then Supreme Bishop Rev. Ga is authorized to enter into a
contract of sale in behalf of petitioner.
Petitioner maintains that there was no consent to the contract of sale as Supreme Bishop Rev. Ga had no authority
to give such consent. It emphasized that Article IV (a) of their Canons provides that "All real properties of the Church
located or situated in such parish can be disposed of only with the approval and conformity of the laymen's
committee, the parish priest, the Diocesan Bishop, with sanction of the Supreme Council, and finally with the
approval of the Supreme Bishop, as administrator of all the temporalities of the Church." It is alleged that the sale of
the property in question was done without the required approval and conformity of the entities mentioned in the
Canons; hence, petitioner argues that the sale was null and void.
In the alternative, petitioner contends that if the contract is not declared null and void, it should nevertheless be found
unenforceable, as the approval and conformity of the other entities in their church was not obtained, as required by
their Canons.
Section 113 of the Corporation Code of the Philippines provides that:
Sec. 113. Acquisition and alienation of property. - Any corporation sole may purchase and hold real estate and
personal property for its church, charitable, benevolent or educational purposes, and may receive bequests or gifts
for such purposes. Such corporation may mortgage or sell real property held by it upon obtaining an order for that
purpose from the Court of First Instance of the province where the property is situated; x x x Provided, That in cases
where the rules, regulations and discipline of the religious denomination, sect or church, religious society or order
concerned represented by such corporation sole regulate the method of acquiring, holding, selling and mortgaging
real estate and personal property, such rules, regulations and discipline shall control, and the intervention of the
courts shall not be necessary.8
Pursuant to the foregoing, petitioner provided in Article IV (a) of its Constitution and Canons of the Philippine
Independent Church,9 that "[a]ll real properties of the Church located or situated in such parish can be disposed of
only with the approval and conformity of the laymen's
committee, the parish priest, the Diocesan Bishop, with sanction of the Supreme Council, and finally with the
approval of the Supreme Bishop, as administrator of all the temporalities of the Church."
Evidently, under petitioner's Canons, any sale of real property requires not just the consent of the Supreme Bishop
but also the concurrence of the laymen's committee, the parish priest, and the Diocesan Bishop, as sanctioned by
the Supreme Council. However, petitioner's Canons do not specify in what form the conformity of the other church
entities should be made known. Thus, as petitioner's witness stated, in practice, such consent or approval may be
assumed as a matter of fact, unless some opposition is expressed.10
Here, the trial court found that the laymen's committee indeed made its objection to the sale known to the Supreme
Bishop.11 The CA, on the other hand, glossed over the fact of such opposition from the laymen's committee, opining
that the consent of the Supreme Bishop to the sale was sufficient, especially since the parish priest and the
Diocesan Bishop voiced no objection to the sale.12
The Court finds it erroneous for the CA to ignore the fact that the laymen's committee objected to the sale of the lot in
question. The Canons require that ALL the church entities listed in Article IV (a) thereof should give its approval to
the transaction. Thus, when the Supreme Bishop executed the contract of sale of petitioner's lot despite the
opposition made by the laymen's committee, he acted beyond his powers.
This case clearly falls under the category of unenforceable contracts mentioned in Article 1403, paragraph (1) of the
Civil Code, which provides, thus:
Art. 1403. The following contracts are unenforceable, unless they are ratified:
(1) Those entered into in the name of another person by one who has been given no authority or legal
representation, or who has acted beyond his powers;
In Mercado v. Allied Banking Corporation,13 the Court explained that:
x x x Unenforceable contracts are those which cannot be enforced by a proper action in court, unless they are
ratified, because either they are entered into without or in excess of authority or they do not comply with the statute
of frauds or both of the contracting parties do not possess the required legal capacity. x x x.14
Closely analogous cases of unenforceable contracts are those where a person signs a deed of extrajudicial partition
in behalf of co-heirs without the latter's authority;15 where a mother as judicial guardian of her minor children,
executes a deed of extrajudicial partition wherein she favors one child by giving him more than his share of the
estate to the prejudice of her other children;16 and where a person, holding a special power of attorney, sells a
property of his principal that is not included in said special power of attorney.17
In the present case, however, respondents' predecessor-in-interest, Bernardino Taeza, had already obtained a
transfer certificate of title in his name over the property in question. Since the person supposedly transferring
ownership was not authorized to do so, the property had evidently been acquired by mistake. In Vda. de Esconde v.
Court of Appeals,18 the Court affirmed the trial court's ruling that the applicable provision of law in such cases is
Article 1456 of the Civil Code which states that "[i]f property is acquired through mistake or fraud, the person
obtaining it is, by force of law, considered a trustee of an implied trust for the benefit of the person from whom the
property comes." Thus, in Aznar Brothers Realty Company v. Aying,19 citing Vda. de Esconde,20 the Court clarified
the concept of trust involved in said provision, to wit:
Construing this provision of the Civil Code, in Philippine National Bank v. Court of Appeals, the Court stated:
A deeper analysis of Article 1456 reveals that it is not a trust in the technical sense for in a typical trust, confidence is
reposed in one person who is named a trustee for the benefit of another who is called the cestui que trust, respecting
property which is held by the trustee for the benefit of the cestui que trust. A constructive trust, unlike an express
trust, does not emanate from, or generate a fiduciary relation. While in an express trust, a beneficiary and a trustee
are linked by confidential or fiduciary relations, in a constructive trust, there is neither a promise nor any fiduciary
relation to speak of and the so-called trustee neither accepts any trust nor intends holding the property for the
beneficiary.
The concept of constructive trusts was further elucidated in the same case, as follows:
. . . implied trusts are those which, without being expressed, are deducible from the nature of the transaction as
matters of intent or which are superinduced on the transaction by operation of law as matters of equity,
independently of the particular intention of the parties. In turn, implied trusts are either resulting or constructive trusts.
These two are differentiated from each other as follows:
Resulting trusts are based on the equitable doctrine that valuable consideration and not legal title determines the
equitable title or interest and are presumed always to have been contemplated by the parties. They arise from the
nature of circumstances of the consideration involved in a transaction whereby one person thereby becomes
invested with legal title but is obligated in equity to hold his legal title for the benefit of another. On the other hand,
constructive trusts are created by the construction of equity in order to satisfy the demands of justice and prevent
unjust enrichment. They arise contrary to intention against one who, by fraud, duress or abuse of confidence, obtains
or holds the legal right to property which he ought not, in equity and good conscience, to hold. (Italics supplied)
A constructive trust having been constituted by law between respondents as trustees and petitioner as beneficiary of
the subject property, may respondents acquire ownership over the said property? The Court held in the same case
of Aznar,21 that unlike in express trusts and resulting implied trusts where a trustee cannot acquire by prescription
any property entrusted to him unless he repudiates the trust, in constructive implied trusts, the trustee may acquire
the property through prescription even if he does not repudiate the relationship. It is then incumbent upon the
beneficiary to bring an action for reconveyance before prescription bars the same.
In Aznar,22 the Court explained the basis for the prescriptive period, to wit:
x x x under the present Civil Code, we find that just as an implied or constructive trust is an offspring of the law (Art.
1456, Civil Code), so is the corresponding obligation to reconvey the property and the title thereto in favor of the true
owner. In this context, and vis-á-vis prescription, Article 1144 of the Civil Code is applicable.

Article 1144. The following actions must be brought within ten years from the time the right of action accrues:

(1) Upon a written contract;

(2) Upon an obligation created by law;

(3) Upon a judgment.

xxx xxx xxx

An action for reconveyance based on an implied or constructive trust must perforce prescribe in ten years and not
otherwise. A long line of decisions of this Court, and of very recent vintage at that, illustrates this rule. Undoubtedly, it
is now well-settled that an action for reconveyance based on an implied or constructive trust prescribes in ten years
from the issuance of the Torrens title over the property.

It has also been ruled that the ten-year prescriptive period begins to run from the date of registration of the deed or
the date of the issuance of the certificate of title over the property, x x x.23

Here, the present action was filed on January 19, 1990,24 while the transfer certificates of title over the subject lots
were issued to respondents' predecessor-in-interest, Bernardino Taeza, only on February 7, 1990.25

Clearly, therefore, petitioner's complaint was filed well within the prescriptive period stated above, and it is only just
that the subject property be returned to its rightful owner.

WHEREFORE, the petition is GRANTED. The Decision of the Court of Appeals, dated June 30, 2006, and its
Resolution dated August 23, 2007, are REVERSED and SET ASIDE. A new judgment is hereby entered:

(1) DECLARING petitioner Iglesia Filipina Independiente as the RIGHTFUL OWNER of the lots covered by Transfer
Certificates of Title Nos. T-77994 and T-77995;

(2) ORDERING respondents to execute a deed reconveying the aforementioned lots to petitioner;

(3) ORDERING respondents and successors-in-interest to vacate the subject premises and surrender the same to
petitioner; and

(4) Respondents to PAY costs of suit.

SO ORDERED.
G.R. No. 173211 October 11, 2012
HEIRS OF DR. MARIO S. INTAC and ANGELINA MENDOZA-INTAC, Petitioners,
vs.
COURT OF APPEALS and SPOUSES MARCELO ROY, JR. and JOSEFINA MENDOZA-ROY and SPOUSES
DOMINADOR LOZADA and MARTINA MENDOZA-LOZADA, Respondents.
DECISION
MENDOZA, J.:
This is a Petition for Review on Certiorari under Rule 45 assailing the February 16, 2006 Decision1 of the Court of
Appeals (CA), in CA G.R. CV No. 75982, which modified the April 30, 2002 Decision2 of the Regional Trial Court,
Branch 220, Quezon City ( RTC), in Civil Case No. Q-94-19452, an action for cancellation of transfer certificate of
title and reconveyance of property.
The Facts
From the records, it appears that Ireneo Mendoza (Ireneo), married to Salvacion Fermin (Salvacion), was the owner
of the subject property, presently covered by TCT No. 242655 of the Registry of Deeds of Quezon City and situated
at No. 36, Road 8, Bagong Pag-asa, Quezon City, which he purchased in 1954. Ireneo had two children:
respondents Josefina and Martina (respondents), Salvacion being their stepmother. When he was still alive, Ireneo,
also took care of his niece, Angelina, since she was three years old until she got married. The property was then
covered by TCT No. 106530 of the Registry of Deeds of Quezon City. On October 25, 1977, Ireneo, with the consent
of Salvacion, executed a deed of absolute sale of the property in favor of Angelina and her husband, Mario (Spouses
Intac). Despite the sale, Ireneo and his family, including the respondents, continued staying in the premises and
paying the realty taxes. After Ireneo died intestate in 1982, his widow and the respondents remained in the
premises.3 After Salvacion died, respondents still maintained their residence there. Up to the present, they are in the
premises, paying the real estate taxes thereon, leasing out portions of the property, and collecting the rentals.4
The Dispute
The controversy arose when respondents sought the cancellation of TCT No. 242655, claiming that the sale was
only simulated and, therefore, void. Spouses Intac resisted, claiming that it was a valid sale for a consideration.
On February 22, 1994, respondents filed the Complaint for Cancellation of Transfer Certificate of Title (TCT) No.
2426555 against Spouses Intac before the RTC. The complaint prayed not only for the cancellation of the title, but
also for its reconveyance to them. Pending litigation, Mario died on May 20, 1995 and was substituted by his heirs,
his surviving spouse, Angelina, and their children, namely, Rafael, Kristina, Ma. Tricia Margarita, Mario, and Pocholo,
all surnamed Intac (petitioners).
Averments of the Parties
In their Complaint, respondents alleged, among others, that when Ireneo was still alive, Spouses Intac borrowed the
title of the property (TCT No. 106530) from him to be used as collateral for a loan from a financing institution; that
when Ireneo informed respondents about the request of Spouses Intac, they objected because the title would be
placed in the names of said spouses and it would then appear that the couple owned the property; that Ireneo,
however, tried to appease them, telling them not to worry because Angelina would not take advantage of the
situation considering that he took care of her for a very long time; that during his lifetime, he informed them that the
subject property would be equally divided among them after his death; and that respondents were the ones paying
the real estate taxes over said property.
It was further alleged that after the death of Ireneo in 1982, a conference among relatives was held wherein both
parties were present including the widow of Ireneo, Salvacion; his nephew, Marietto Mendoza (Marietto); and his
brother, Aurelio Mendoza (Aurelio). In the said conference, it was said that Aurelio informed all of them that it was
Ireneo’s wish to have the property divided among his heirs; that Spouses Intac never raised any objection; and that
neither did they inform all those present on that occasion that the property was already sold to them in 1977.6
Respondents further alleged that sometime in 1993, after the death of Salvacion, rumors spread in the neighborhood
that the subject property had been registered in the names of Spouses Intac; that upon verification with the Office of
the Register of Deeds of Quezon City, respondents were surprised to find out that TCT No. 106530 had indeed been
cancelled by virtue of the deed of absolute sale executed by Ireneo in favor of Spouses Intac, and as a result, TCT
No. 242655 was issued in their names; that the cancellation of TCT No. 106530 and the subsequent issuance of
TCT No. 242655 were null and void and had no legal effect whatsoever because the deed of absolute sale was a
fictitious or simulated document; that the Spouses Intac were guilty of fraud and bad faith when said document was
executed; that Spouses Intac never informed respondents that they were already the registered owners of the
subject property although they had never taken possession thereof; and that the respondents had been in
possession of the subject property in the concept of an owner during Ireneo’s lifetime up to the present.
In their Answer,7 Spouses Intac countered, among others, that the subject property had been transferred to them
based on a valid deed of absolute sale and for a valuable consideration; that the action to annul the deed of absolute
sale had already prescribed; that the stay of respondents in the subject premises was only by tolerance during
Ireneo’s lifetime because they were not yet in need of it at that time; and that despite respondents’ knowledge about
the sale that took place on October 25, 1977, respondents still filed an action against them.
Ruling of the RTC
On April 30, 2002, the RTC rendered judgment in favor of respondents and against Spouses Intac. The dispositive
portion of its Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered:
(1) Declaring the Deed of Absolute Sale executed by Ireneo Mendoza in favor of Mario and Angelina Intac dated
October 25, 1977 as an equitable mortgage;
(2) Ordering the Register of Deeds of Quezon City to cancel Transfer Certificate Title No. 242655 and, in lieu thereof,
issue a new Transfer Certificate of Title in the name of Ireneo Mendoza; and
(3) Ordering defendants to pay plaintiffs the amount of Thirty Thousand Pesos (Php30,000.00) as and for attorney’s
fees.
The other claims for damages are hereby denied for lack of merit.
SO ORDERED.8
The RTC ruled, among others, that the sale between Ireneo and Salvacion, on one hand, and Spouses Intac was
null and void for being a simulated one considering that the said parties had no intention of binding themselves at all.
It explained that the questioned deed did not reflect the true intention of the parties and construed the said document
to be an equitable mortgage on the following grounds: 1 the signed document did not express the real intention of
the contracting parties because Ireneo signed the said document only because he was in urgent need of funds; 2 the
amount of ₱60,000.00 in 1977 was too inadequate for a purchase price of a 240-square meter lot located in Quezon
City; 3 Josefina and Martina continued to be in possession of the subject property from 1954 and even after the
alleged sale took place in 1977 until this case was filed in 1994; and 4 the Spouses Intac started paying real estate
taxes only in 1999. The RTC added that the Spouses Intac were guilty of fraud because they effected the registration
of the subject property even though the execution of the deed was not really intended to transfer the ownership of
the subject property.
Ruling of the CA

On appeal, the CA modified the decision of the RTC. The CA ruled that the RTC erred in first declaring the deed of
absolute sale as null and void and then interpreting it to be an equitable mortgage. The CA believed that Ireneo
agreed to have the title transferred in the name of the Spouses Intac to enable them to facilitate the processing of the
mortgage and to obtain a loan. This was the exact reason why the deed of absolute sale was executed. Marietto
testified that Ireneo never intended to sell the subject property to the Spouses Intac and that the deed of sale was
executed to enable them to borrow from a bank. This fact was confirmed by Angelina herself when she testified that
she and her husband mortgaged the subject property sometime in July 1978 to finance the construction of a small
hospital in Sta. Cruz, Laguna.
The CA further observed that the conduct of Spouses Intac belied their claim of ownership. When the deed of
absolute sale was executed, Spouses Intac never asserted their ownership over the subject property, either by
collecting rents, by informing respondents of their ownership or by demanding possession of the land from its
occupants. It was not disputed that it was respondents who were in possession of the subject property, leasing the
same and collecting rentals. Spouses Intac waited until Ireneo and Salvacion passed away before they disclosed the
transfer of the title to respondents. Hence, the CA was of the view that the veracity of their claim of ownership was
suspicious.
Moreover, wrote the CA, although Spouses Intac claimed that the purchase of the subject property was for a
valuable consideration (P60,000.00), they admitted that they did not have any proof of payment. Marietto, whose
testimony was assessed by the RTC to be credible, testified that there was no such payment because Ireneo never
sold the subject property as he had no intention of conveying its ownership and that his only purpose in lending the
title was to help Spouses Intac secure a loan. Thus, the CA concluded that the deed of absolute sale was a
simulated document and had no legal effect.
Finally, the CA stated that even assuming that there was consent, the sale was still null and void because of lack of
consideration. The decretal portion of the CA Decision reads:
WHEREFORE, in view of the foregoing premises, the decision of the Regional Trial Court of Quezon City, Branch
220, is AFFIRMED with modifications, as follows:
1. The Deed of Absolute Sale dated October 25, 1977 executed by Ireneo Mendoza and Salvacion Fermen in favor
of Spouses Mario and Angelina Intac is hereby declared NULL AND VOID;
2. the Register of Deed[s] of Quezon City is ordered to cancel TCT No. 242655 and, in lieu thereof, issue a new one
and reinstate Ireneo Mendoza as the registered owner;
3. The defendant appellants are hereby ordered to pay the plaintiff appellees the amount of thirty thousand pesos
(Php30,000.00) as and for attorney’s fees; and
4. The other claims for damages are denied for lack of merit.
SO ORDERED.9
Not in conformity, petitioners filed this petition for review anchored on the following
ASSIGNMENT OF ERRORS
I Intac, as vendees, involving the subject real property in Pagasa, Quezon City, was a simulated contract or a valid
THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT AFFIRMED THE DECISION OF THE
REGIONAL TRIAL COURT DATED FEBRUARY 16, 2006 WHICH WAS CONTRARY TO THE APPLICABLE LAWS
AND EXISTING JURISPRUDENCE.
II
THE HONORABLE COURT OF APPEALS GRAVELY ERRED WHEN IT CLEARLY OVERLOOKED,
MISUNDERSTOOD AND/OR MISAPPLIED THE EVIDENCE PRESENTED IN THE COURT A QUO.10
Petitioners’ position
Petitioners primarily argue that the subject deed of sale was a valid and binding contract between the parties. They
claim that all the elements of a valid contract of sale were present, to wit: [a] consent or meeting of the minds, that is,
consent to transfer ownership in exchange of price; [b] determinate subject matter; and [c] price certain in money or
its equivalent.
Petitioners claim that respondents have validly gave their consent to the questioned sale of the subject property. In
fact, it was Ireneo and Salvacion who approached them regarding their intention to sell the subject property. Ireneo
and Salvacion affixed their signatures on the questioned deed and never brought any action to invalidate it during
their lifetime. They had all the right to sell the subject property without having to inform their children of their intention
to sell the same. Ordinary human experience dictates that a party would not affix his or her signature on any written
instrument which would result in deprivation of one’s property right if there was really no intention to be bound by it. A
party would not keep silent for several years regarding the validity and due execution of a document if there was an
issue on the real intention of the vendors. The signatures of Ireneo and Salvacion meant that they had knowingly and
willfully entered into such agreement and that they were prepared for the consequences of their act.
Respondents’ Position
Respondents are of the position that the RTC and the CA were correct in ruling that the questioned deed of absolute
sale was a simulated one considering that Ireneo and Salvacion had no intention of selling the subject property. The
true intention rather was that Spouses Intac would just borrow the title of the subject property and offer it as a
collateral to secure a loan. No money actually changed hands.
According to respondents, there were several circumstances which put in doubt the validity of the deed of absolute
sale. First, the parties were not on equal footing because Angelina was a doctor by profession while Ireneo and
Salvacion were less educated people who were just motivated by their trust, love and affection for her whom they
considered as their own child. Second, if there was really a valid sale, it was just and proper for Spouses Intac to
divulge the conveyance to respondents, being compulsory heirs, but they did not. Third, Ireneo and Salvacion did
nothing to protect their interest because they banked on the representation of Spouses Intac that the title would only
be used to facilitate a loan with a bank. Fourth, Ireneo and Salvacion remained in possession of the subject property
without being disturbed by Spouses Intac. Fifth, the price of the sale was inadequate and inequitable for a prime
property located in Pag-asa, Quezon City. Sixth, Ireneo and Salvacion had no intention of selling the subject property
because they had heirs who would inherit the same. Seventh, the Spouses Intac abused the trust and affection of
Ireneo and Salvacion by arrogating unto themselves the ownership of the subject property to the prejudice of his own
children, Josefina and Martina.
Finally, petitioners could not present a witness to rebut Marietto’s testimony which was straightforward and truthful.
The Court’s Ruling
Basically, the Court is being asked to resolve the issue of whether the Deed of Absolute Sale,11 dated October 25,
1977, executed by and between Ireneo Mendoza and Salvacion Fermin, as vendors, and Mario Intac and Angelina
agreement.
The Court finds no merit in the petition.
A contract, as defined in the Civil Code, is a meeting of minds, with respect to the other, to give something or to
render some service. Article 1318 provides:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Accordingly, for a contract to be valid, it must have three essential elements: (1) consent of the contracting parties;
(2) object certain which is the subject matter of the contract; and (3) cause of the obligation which is established.12
All these elements must be present to constitute a valid contract. Consent is essential to the existence of a contract;
and where it is wanting, the contract is non-existent. In a contract of sale, its perfection is consummated at the
moment there is a meeting of the minds upon the thing that is the object of the contract and upon the price. Consent
is manifested by the meeting of the offer and the acceptance of the thing and the cause, which are to constitute the
contract.
In this case, the CA ruled that the deed of sale executed by Ireneo and Salvacion was absolutely simulated for lack
of consideration and cause and, therefore, void. Articles 1345 and 1346 of the Civil Code provide:
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not
intend to be bound at all; the latter, when the parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a
third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy
binds the parties to their real agreement.
If the parties state a false cause in the contract to conceal their real agreement, the contract is only relatively
simulated and the parties are still bound by their real agreement. Hence, where the essential requisites of a contract
are present and the simulation refers only to the content or terms of the contract, the agreement is absolutely binding
and enforceable between the parties and their successors in interest.13
In absolute simulation, there is a colorable contract but it has no substance as the parties have no intention to be
bound by it. "The main characteristic of an absolute simulation is that the apparent contract is not really desired or
intended to produce legal effect or in any way alter the juridical situation of the parties."14 "As a result, an absolutely
simulated or fictitious contract is void, and the parties may recover from each other what they may have given under
the contract."15
In the case at bench, the Court is one with the courts below that no valid sale of the subject property actually took
place between the alleged vendors, Ireneo and Salvacion; and the alleged vendees, Spouses Intac. There was
simply no consideration and no intent to sell it.
Critical is the testimony of Marietto, a witness to the execution of the subject absolute deed of sale. He testified that
Ireneo personally told him that he was going to execute a document of sale because Spouses Intac needed to
borrow the title to the property and use it as collateral for their loan application. Ireneo and Salvacion never intended
to sell or permanently transfer the full ownership of the subject property to Spouses Intac. Marietto was characterized
by the RTC as a credible witness.
Aside from their plain denial, petitioners failed to present any concrete evidence to disprove Marietto’s testimony.
They claimed that they actually paid P150,000.00 for the subject property. They, however, failed to adduce proof,
even by circumstantial evidence, that they did, in fact, pay it. Even for the consideration of P60,000.00 as stated in
the contract, petitioners could not show any tangible evidence of any payment therefor. Their failure to prove their
payment only strengthened Marietto’s story that there was no payment made because Ireneo had no intention to sell
the subject property.
Angelina’s story, except on the consideration, was consistent with that of Marietto. Angelina testified that she and her
husband mortgaged the subject property sometime in July 1978 to finance the construction of a small hospital in Sta.
Cruz, Laguna. Angelina claimed that Ireneo offered the property as he was in deep financial need.
Granting that Ireneo was in financial straits, it does not prove that he intended to sell the property to Angelina.
Petitioners could not adduce any proof that they lent money to Ireneo or that he shared in the proceeds of the loan
they had obtained. And, if their intention was to build a hospital, could they still afford to lend money to Ireneo? And if
Ireneo needed money, why would he lend the title to Spouses Intac when he himself could use it to borrow money
for his needs? If Spouses Intac took care of him when he was terminally ill, it was not surprising for Angelina to
reciprocate as he took care of her since she was three (3) years old until she got married. Their caring acts for him,
while they are deemed services of value, cannot be considered as consideration for the subject property for lack of
quantification and the Filipino culture of taking care of their elders.
Thus, the Court agrees with the courts below that the questioned contract of sale was only for the purpose of lending
the title of the property to Spouses Intac to enable them to secure a loan. Their arrangement was only temporary and
could not give rise to a valid sale. Where there is no consideration, the sale is null and void ab initio. In the case of
Lequin v. Vizconde,16 the Court wrote:
There can be no doubt that the contract of sale or Kasulatan lacked the essential element of consideration. It is a
well-entrenched rule that where the deed of sale states that the purchase price has been paid but in fact has never
been paid, the deed of sale is null and void ab initio for lack of consideration. Moreover, Art. 1471 of the Civil Code,
which provides that "if the price is simulated, the sale is void," also applies to the instant case, since the price
purportedly paid as indicated in the contract of sale was simulated for no payment was actually made.
Consideration and consent are essential elements in a contract of sale.1âwphi1 Where a party’s consent to a
contract of sale is vitiated or where there is lack of consideration due to a simulated price, the contract is null and
void ab initio. [Emphases supplied]
More importantly, Ireneo and his family continued to be in physical possession of the subject property after the sale
in 1977 and up to the present. They even went as far as leasing the same and collecting rentals. If Spouses Intac
really purchased the subject property and claimed to be its true owners, why did they not assert their ownership
immediately after the alleged sale took place? Why did they have to assert their ownership of it only after the death
of Ireneo and Salvacion? One of the most striking badges of absolute simulation is the complete absence of any
attempt on the part of a vendee to assert his right of dominion over the property.17
On another aspect, Spouses Intac failed to show that they had been paying the real estate taxes of the subject
property. They admitted that they started paying the real estate taxes on the property for the years 1996 and 1997
only in 1999. They could only show two (2) tax receipts (Real Property Tax Receipt No. 361105, dated April 21,
1999, and Real Property Tax Receipt No. 361101, dated April 21, 1999).18 Noticeably, petitioners’ tax payment was
just an afterthought. The non-payment of taxes was also taken against the alleged vendees in the case of Lucia
Carlos Aliño v. Heirs of Angelica A. Lorenzo.19 Thus,
Furthermore, Lucia religiously paid the realty taxes on the subject lot from 1980 to 1987.While tax receipts and
declarations of ownership for taxation purposes are not, in themselves, incontrovertible evidence of ownership, they
constitute at least proof that the holder has a claim of title over the property, particularly when accompanied by proof
of actual possession. They are good indicia of the possession in the concept of owner, for no one in his right mind
would be paying taxes for a property that is not in his actual or at least constructive possession. The voluntary
declaration of a piece of property for taxation purposes manifests not only one's sincere and honest desire to obtain
title to the property and announces his adverse claim against the State and all other interested parties, but also the
intention to contribute needed revenues to the Government. Such an act strengthens one's bona fide claim of
acquisition of ownership.
On the other hand, respondent heirs failed to present evidence that Angelica, during her lifetime, paid the realty
taxes on the subject lot. They presented only two tax receipts showing that Servillano, Sr. belatedly paid taxes due
on the subject lot for the years 1980-1981 and part of year 1982 on September 8, 1989, or about a month after the
institution of the complaint on August 3, 1989, a clear indication that payment was made as an afterthought to give
the semblance of truth to their claim.
Thus, the subsequent acts of the parties belie the intent to be bound by the deed of sale. [Emphases supplied]
The primary consideration in determining the true nature of a contract is the intention of the parties. If the words of a
contract appear to contravene the evident intention of the parties, the latter shall prevail. Such intention is
determined not only from the express terms of their agreement, but also from the contemporaneous and subsequent
acts of the parties.20 As heretofore shown, the contemporaneous and subsequent acts of both parties in this case,
point to the fact that the intention of Ireneo was just to lend the title to the Spouses Intac to enable them to borrow
money and put up a hospital in Sta. Cruz, Laguna. Clearly, the subject contract was absolutely simulated and,
therefore, void.
In view of the foregoing, the Court finds it hard to believe the claim of the Spouses Intac that the stay of Ireneo and
his family in the subject premises was by their mere tolerance as they were not yet in need of it. As earlier pointed
out, no convincing evidence, written or testimonial, was ever presented by petitioners regarding this matter. It is also
of no moment that TCT No. 106530 covering the subject property was cancelled and a new TCT (TCT No.
242655)21 was issued in their names. The Spouses Intac never became the owners of the property despite its
registration in their names. After all, registration does not vest title.
As a logical consequence, petitioners did not become the owners of the subject property even after a TCT had been
issued in their names. After all, registration does not vest title. Certificates of title merely confirm or record title
already existing and vested. They cannot be used to protect a usurper from the true owner, nor can they be used as
a shield for the commission of fraud, or to permit one to enrich oneself at the expense of others. Hence,
reconveyance of the subject property is warranted.22
The Court does not find acceptable either the argument of the Spouses Intac that respondents’ action for
cancellation of TCT No. 242655 and the reconveyance of the subject property is already barred by the Statute of
Limitations. The reason is that the respondents are still in actual possession of the subject property. It is a well-
settled doctrine that "if the person claiming to be the owner of the property is in actual possession thereof, the right to
seek reconveyance, which in effect seeks to quiet title to the property, does not prescribe."23 In Lucia Carlos Aliño, it
was also written:
The lower courts fault Lucia for allegedly not taking concrete steps to recover the subject lot, demanding its return
only after 10 years from the registration of the title. They, however, failed to consider that Lucia was in actual
possession of the property.
It is well-settled that an action for reconveyance prescribes in 10 years, the reckoning point of which is the date of
registration of the deed or the date of issuance of the certificate of title over the property. In an action for
reconveyance, the decree of registration is highly regarded as incontrovertible. What is sought instead is the transfer
of the property or its title, which has been erroneously or wrongfully registered in another person's name, to its
rightful or legal owner or to one who has a better right.
However, in a number of cases in the past, the Court has consistently ruled that if the person claiming to he the
owner of the property is in actual possession thereof, the right to seek reconveyance, which in effect seeks to quiet
title to the property, does not prescribe. The reason for this is that one who is in actual possession of a piece of 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. The reason being, that his undisturbed possession gives him the continuing right to seek the
aid of a court of equity to ascertain the nature of the adverse claim of a third party and its effect on his title, which
right can be claimed only by one who is in possession. Thus, considering that Lucia continuously possessed the
subject lot, her right to institute a suit to clear the cloud over her title cannot he barred by the statute of limitations.:24
[Emphases supplied]
WHEREFORE, the petition is DENED SO ORDERED.
[G.R. No. 153201. January 26, 2005]
JOSE MENCHAVEZ, JUAN MENCHAVEZ JR., SIMEON MENCHAVEZ, RODOLFO MENCHAVEZ, CESAR
MENCHAVEZ, REYNALDO, MENCHAVEZ, ALMA MENCHAVEZ, ELMA MENCHAVEZ, CHARITO M. MAGA, FE M.
POTOT, THELMA M. REROMA, MYRNA M. YBAEZ, and SARAH M. VILLABER, petitioners, vs. FLORENTINO
TEVES JR., respondent.
DECISION
PANGANIBAN, J.:
Avoid contract is deemed legally nonexistent. It produces no legal effect. As a general rule, courts leave parties to
such a contract as they are, because they are in pari delicto or equally at fault. Neither party is entitled to legal
protection.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court, assailing the February 28, 2001 Decision[2]
and the April 16, 2002 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 51144. The challenged Decision
disposed as follows:
WHEREFORE, the assailed decision is hereby MODIFIED, as follows:
1. Ordering [petitioners] to jointly and severally pay the [respondent] the amount of P128,074.40 as actual damages,
and P50,000.00 as liquidated damages;
2. Dismissing the third party complaint against the third party defendants;
3. Upholding the counterclaims of the third party defendants against the [petitioners. Petitioners] are hereby required
to pay [the] third party defendants the sum of P30,000.00 as moral damages for the clearly unfounded suit;
4. Requiring the [petitioners] to reimburse the third party defendants the sum of P10,000.00 in the concept of
attorneys fees and appearance fees of P300.00 per appearance;
5. Requiring the [petitioners] to reimburse the third party defendants the sum of P10,000.00 as exemplary damages
pro bono publico and litigation expenses including costs, in the sum of P5,000.00.[4]
The assailed Resolution denied petitioners Motion for Reconsideration.
The Facts
On February 28, 1986, a Contract of Lease was executed by Jose S. Menchavez, Juan S. Menchavez Sr., Juan S.
Menchavez Jr., Rodolfo Menchavez, Simeon Menchavez, Reynaldo Menchavez, Cesar Menchavez, Charito M.
Maga, Fe M. Potot, Thelma R. Reroma, Myrna Ybaez, Sonia S. Menchavez, Sarah Villaver, Alma S. Menchavez,
and Elma S. Menchavez, as lessors; and Florentino Teves Jr. as lessee. The pertinent portions of the Contract are
herein reproduced as follows:
WHEREAS, the LESSORS are the absolute and lawful co-owners of that area covered by FISHPOND
APPLICATION No. VI-1076 of Juan Menchavez, Sr., filed on September 20, 1972, at Fisheries Regional Office No.
VII, Cebu City covering an area of 10.0 hectares more or less located at Tabuelan, Cebu;
xxxxxxxxx
NOW, THEREFORE, for and in consideration of the mutual covenant and stipulations hereinafter set forth, the
LESSORS and the LESSEE have agreed and hereby agree as follows:
1. The TERM of this LEASE is FIVE (5) YEARS, from and after the execution of this Contract of Lease, renewable at
the OPTION of the LESSORS;
2. The LESSEE agrees to pay the LESSORS at the residence of JUAN MENCHAVEZ SR., one of the LESSORS
herein, the sum of FORTY THOUSAND PESOS (P40,000.00) Philippine Currency, annually x x x;
3. The LESSORS hereby warrant that the above-described parcel of land is fit and good for the intended use as
FISHPOND;
4. The LESSORS hereby warrant and assure to maintain the LESSEE in the peaceful and adequate enjoyment of
the lease for the entire duration of the contract;
5. The LESSORS hereby further warrant that the LESSEE can and shall enjoy the intended use of the leased
premises as FISHPOND FOR THE ENTIRE DURATION OF THE CONTRACT;
6. The LESSORS hereby warrant that the above-premises is free from all liens and encumbrances, and shall protect
the LESSEE of his right of lease over the said premises from any and all claims whatsoever;
7. Any violation of the terms and conditions herein provided, more particularly the warranties above-mentioned, the
parties of this Contract responsible thereof shall pay liquidated damages in the amount of not less than P50,000.00
to the offended party of this Contract; in case the LESSORS violated therefor, they bound themselves jointly and
severally liable to the LESSEE;
x x x x x x x x x.[5]
On June 2, 1988, Cebu RTC Sheriffs Gumersindo Gimenez and Arturo Cabigon demolished the fishpond dikes
constructed by respondent and delivered possession of the subject property to other parties.[6] As a result, he filed a
Complaint for damages with application for preliminary attachment against petitioners. In his Complaint, he alleged
that the lessors had violated their Contract of Lease, specifically the peaceful and adequate enjoyment of the
property for the entire duration of the Contract. He claimed P157,184.40 as consequential damages for the
demolition of the fishpond dikes, P395,390.00 as unearned income, and an amount not less than P100,000.00 for
rentals paid.[7]
Respondent further asserted that the lessors had withheld from him the findings of the trial court in Civil Case No.
510-T, entitled Eufracia Colongan and Paulino Pamplona v. Juan Menchavez Sr. and Sevillana S. Menchavez. In
that case involving the same property, subject of the lease, the Menchavez spouses were ordered to remove the
dikes illegally constructed and to pay damages and attorneys fees.[8]
Petitioners filed a Third Party Complaint against Benny and Elizabeth Allego, Albino Laput, Adrinico Che and
Charlemagne Arendain Jr., as agents of Eufracia Colongan and Paulino Pamplona. The third-party defendants
maintained that the Complaint filed against them was unfounded. As agents of their elderly parents, they could not
be sued in their personal capacity. Thus, they asserted their own counterclaims.[9]
After trial on the merits, the RTC ruled thus:
[The court must resolve the issues one by one.] As to the question of whether the contract of lease between Teves
and the [petitioners] is valid, we must look into the present law on the matter of fishponds. And this is Pres. Decree
No. 704 which provides in Sec. 24:
Lease of fishponds-Public lands available for fishpond development including those earmarked for family-size
fishponds and not yet leased prior to November 9, 1972 shall be leased only to qualified persons, associations,
cooperatives or corporations, subject to the following conditions.
1. The lease shall be for a period of twenty five years (25), renewable for another twenty five years;
2. Fifty percent of the area leased shall be developed and be producing in commercial scale within three years and
the remaining portion shall be developed and be producing in commercial scale within five years; both periods begin
from the execution of the lease contract;
3. All areas not fully developed within five years from the date of the execution of the lease contract shall
automatically revert to the public domain for disposition of the bureau; provided that a lessee who failed to develop
the area or any portion thereof shall not be permitted to reapply for said area or any portion thereof or any public land
under this decree; and/or any portion thereof or any public land under this decree;
4. No portion of the leased area shall be subleased.
The Constitution, (Sec. 2 & 3, Art. XII of the 1987 Constitution) states:
Sec. 2 - All lands of the public domain, waters, minerals, coal, petroleum and other mineral oils, all forces of potential
energy, fisheries, forests, or timber, wild life, flora and fauna and other natural resources are owned by the state.
Sec. 3 - Lands of the public domain are classified into agricultural, forest or timber, mineral lands and national parks.
Agricultural lands of the public domain may be further classified by law according to the uses to which they may be
devoted. Alienable lands of the public domain shall be limited to agricultural lands x x x.
As a consequence of these provisions, and the declared public policy of the State under the Regalian Doctrine, the
lease contract between Florentino Teves, Jr. and Juan Menchavez Sr. and his family is a patent nullity. Being a
patent nullity, [petitioners] could not give any rights to Florentino Teves, Jr. under the principle: NEMO DAT QUOD
NON HABET - meaning ONE CANNOT GIVE WHAT HE DOES NOT HAVE, considering that this property in
litigation belongs to the State and not to [petitioners]. Therefore, the first issue is resolved in the negative, as the
court declares the contract of lease as invalid and void ab-initio.
On the issue of whether [respondent] and [petitioners] are guilty of mutual fraud, the court rules that the [respondent]
and [petitioners] are in pari-delicto. As a consequence of this, the court must leave them where they are found. x x x.
xxxxxxxxx
x x x. Why? Because the defendants ought to have known that they cannot lease what does not belong to them for
as a matter of fact, they themselves are still applying for a lease of the same property under litigation from the
government.
On the other hand, Florentino Teves, being fully aware that [petitioners were] not yet the owner[s], had assumed the
risks and under the principle of VOLENTI NON FIT INJURIA NEQUES DOLUS - He who voluntarily assumes a risk,
does not suffer damage[s] thereby. As a consequence, when Teves leased the fishpond area from [petitioners]- who
were mere holders or possessors thereof, he took the risk that it may turn out later that his application for lease may
not be approved.
Unfortunately however, even granting that the lease of [petitioners] and [their] application in 1972 were to be
approved, still [they] could not sublease the same. In view therefore of these, the parties must be left in the same
situation in which the court finds them, under the principle IN PARI DELICTO NON ORITOR ACTIO, meaning[:]
Where both are at fault, no one can found a claim.
On the third issue of whether the third party defendants are liable for demolishing the dikes pursuant to a writ of
execution issued by the lower court[, t]his must be resolved in the negative, that the third party defendants are not
liable. First, because the third party defendants are mere agents of Eufracia Colongan and Eufenio Pamplona, who
are the ones who should be made liable if at all, and considering that the demolition was pursuant to an order of the
court to restore the prevailing party in that Civil Case 510-T, entitled: Eufracia Colongan v. Menchavez.
After the court has ruled that the contract of lease is null and void ab-initio, there is no right of the [respondent] to
protect and therefore[,] there is no basis for questioning the Sheriffs authority to demolish the dikes in order to
restore the prevailing party, under the principle VIDETUR NEMO QUISQUAM ID CAPERE QUOD EI NECESSE EST
ALII RESTITUERE - He will not be considered as using force who exercise his rights and proceeds by the force of
law.
WHEREFORE, in view of all foregoing [evidence] and considerations, this court hereby renders judgment as follows:
1. Dismissing the x x x complaint by the [respondent] against the [petitioners];
2. Dismissing the third party complaint against the third party defendants;
3. Upholding the counterclaims of the third party defendants against the [petitioners. The petitioners] are hereby
required to pay third party defendants the sum of P30,000.00 as moral damages for this clearly unfounded suit;
4. Requiring the [petitioners] to reimburse the third party defendants the sum of P10,000.00 in the concept of
attorneys fees and appearance fees of P300.00 per appearance;
5. Requiring the [petitioners] to pay to the third party defendants the sum of P10,000.00 as exemplary damages
probono publico and litigation expenses including costs, in the sum of P5,000.00.[10] (Underscoring in the original)
Respondent elevated the case to the Court of Appeals, where it was docketed as CA-GR CV No. 51144.
Ruling of the Court of Appeals
The CA disagreed with the RTCs finding that petitioners and respondent were in pari delicto. It contended that while
there was negligence on the part of respondent for failing to verify the ownership of the subject property, there was
no evidence that he had knowledge of petitioners lack of ownership.[11] It held as follows:
x x x. Contrary to the findings of the lower court, it was not duly proven and established that Teves had actual
knowledge of the fact that [petitioners] merely usurped the property they leased to him. What Teves admitted was
that he did not ask for any additional document other than those shown to him, one of which was the fishpond
application. In fact, [Teves] consistently claimed that he did not bother to ask the latter for their title to the property
because he relied on their representation that they are the lawful owners of the fishpond they are holding for lease.
(TSN, July 11, 1991, pp. 8-11)[12]
The CA ruled that respondent could recover actual damages in the amount of P128,074.40. Citing Article 1356[13] of
the Civil Code, it further awarded liquidated damages in the amount of P50,000, notwithstanding the nullity of the
Contract.[14]
Hence, this Petition.[15]
The Issues
Petitioners raise the following issues for our consideration:
1. The Court of Appeals disregarded the evidence, the law and jurisprudence when it modified the trial courts
decision when it ruled in effect that the trial court erred in holding that the respondent and petitioners are in pari
delicto, and the courts must leave them where they are found;
2. The Court of Appeals disregarded the evidence, the law and jurisprudence in modifying the decision of the trial
court and ruled in effect that the Regional Trial Court erred in dismissing the respondents Complaint.[16]
The Courts Ruling
The Petition has merit.
Main Issue:
Were the Parties in Pari Delicto?
The Court shall discuss the two issues simultaneously.
In Pari Delicto Rule
on Void Contracts
The parties do not dispute the finding of the trial and the appellate courts that the Contract of Lease was void.[17]
Indeed, the RTC correctly held that it was the State, not petitioners, that owned the fishpond. The 1987 Constitution
specifically declares that all lands of the public domain, waters, fisheries and other natural resources belong to the
State.[18] Included here are fishponds, which may not be alienated but only leased.[19] Possession thereof, no
matter how long, cannot ripen into ownership.[20]
Being merely applicants for the lease of the fishponds, petitioners had no transferable right over them. And even if
the State were to grant their application, the law expressly disallowed sublease of the fishponds to respondent.[21]
Void are all contracts in which the cause, object or purpose is contrary to law, public order or public policy.[22]
A void contract is equivalent to nothing; it produces no civil effect.[23] It does not create, modify or extinguish a
juridical relation.[24] Parties to a void agreement cannot expect the aid of the law; the courts leave them as they are,
because they are deemed in pari delicto or in equal fault.[25] To this rule, however, there are exceptions that permit
the return of that which may have been given under a void contract.[26] One of the exceptions is found in Article
1412 of the Civil Code, which states:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the
contract, or demand the performance of the others undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the
contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the
return of what he has given without any obligation to comply with his promise.
On this premise, respondent contends that he can recover from petitioners, because he is an innocent party to the
Contract of Lease.[27] Petitioners allegedly induced him to enter into it through serious misrepresentation.[28]
Finding of In Pari Delicto:
A Question of Fact

The issue of whether respondent was at fault or whether the parties were in pari delicto is a question of fact not
normally taken up in a petition for review on certiorari under Rule 45 of the Rules of Court.[29] The present case,
however, falls under two recognized exceptions to this rule.[30] This Court is compelled to review the facts, since the
CAs factual findings are (1) contrary to those of the trial court;[31] and (2) premised on an absence of evidence, a
presumption that is contradicted by the evidence on record.[32]
Unquestionably, petitioners leased out a property that did not belong to them, one that they had no authority to
sublease. The trial court correctly observed that petitioners still had a pending lease application with the State at the
time they entered into the Contract with respondent.[33]
Respondent, on the other hand, claims that petitioners misled him into executing the Contract.[34] He insists that he
relied on their assertions regarding their ownership of the property. His own evidence, however, rebuts his contention
that he did not know that they lacked ownership. At the very least, he had notice of their doubtful ownership of the
fishpond.
performance of the principal obligation, such damages are accessory and subsidiary obligations.[45] In the present
case, it was stipulated that the party responsible for the violation of the terms, conditions and warranties of the
Contract would pay not less than P50,000 as liquidated damages. Since the principal obligation was void, there was
no contract that could have been breached by petitioners; thus, the stipulation on liquidated damages was inexistent.
The nullity of the principal obligation carried with it the nullity of the accessory obligation of liquidated damages.[46]
As explained earlier, the applicable law in the present factual milieu is Article 1412 of the Civil Code. This law merely
allows innocent parties to recover what they have given without any obligation to comply with their prestation. No
damages may be recovered on the basis of a void contract; being nonexistent, the agreement produces no juridical
tie between the parties involved. Since there is no contract, the injured party may only recover through other sources
of obligations such as a law or a quasi-contract.[47] A party recovering through these other sources of obligations
may not claim liquidated damages, which is an obligation arising from a contract.
WHEREFORE, the Petition is GRANTED and the assailed Decision and Resolution SET ASIDE. The Decision of the
trial court is hereby REINSTATED.

Respondent himself admitted that he was aware that the petitioners lease application for the fishpond had not yet No pronouncement as to costs.
been approved.[35] Thus, he knowingly entered into the Contract with the risk that the application might be
disapproved. Noteworthy is the fact that the existence of a fishpond lease application necessarily contradicts a claim SO ORDERED.
of ownership. That respondent did not know of petitioners lack of ownership is therefore incredible.

The evidence of respondent himself shows that he negotiated the lease of the fishpond with both Juan Menchavez
Sr. and Juan Menchavez Jr. in the office of his lawyer, Atty. Jorge Esparagoza.[36] His counsels presence during the
negotiations, prior to the parties meeting of minds, further debunks his claim of lack of knowledge. Lawyers are
expected to know that fishponds belong to the State and are inalienable. It was reasonably expected of the counsel
herein to advise his client regarding the matter of ownership.

Indeed, the evidence presented by respondent demonstrates the contradictory claims of petitioners regarding their
alleged ownership of the fishpond. On the one hand, they claimed ownership and, on the other, they assured him
that their fishpond lease application would be approved.[37] This circumstance should have been sufficient to place
him on notice. It should have compelled him to determine their right over the fishpond, including their right to lease it.

The Contract itself stated that the area was still covered by a fishpond application.[38] Nonetheless, although
petitioners declared in the Contract that they co-owned the property, their erroneous declaration should not be used
against them. A cursory examination of the Contract suggests that it was drafted to favor the lessee. It can readily be
presumed that it was he or his counsel who prepared it -- a matter supported by petitioners evidence.[39] The
ambiguity should therefore be resolved against him, being the one who primarily caused it.[40]

The CA erred in finding that petitioners had failed to prove actual knowledge of respondent of the ownership status of
the property that had been leased to him. On the contrary, as the party alleging the fact, it was he who had the
burden of proving through a preponderance of evidence[41] -- that they misled him regarding the ownership of the
fishpond. His evidence fails to support this contention. Instead, it reveals his fault in entering into a void Contract. As
both parties are equally at fault, neither may recover against the other.[42]

Liquidated Damages

Not Proper

The CA erred in awarding liquidated damages, notwithstanding its finding that the Contract of Lease was void. Even
if it was assumed that respondent was entitled to reimbursement as provided under paragraph 1 of Article 1412 of
the Civil Code, the award of liquidated damages was contrary to established legal principles.

Liquidated damages are those agreed upon by the parties to a contract, to be paid in case of a breach thereof.[43]
Liquidated damages are identical to penalty insofar as legal results are concerned.[44] Intended to ensure the
Villegas vs rural bank
606 Phil. 427
NACHURA, J.:
This petition for review on certiorari under Rule 45 of the Rules of Court assails the Court of Appeals (CA)
Decision[1] in CA-G.R. CV No. 40613 which affirmed with modification the Regional Trial Court (RTC) Decision in
Civil Case No. 9570.[2]
The facts, as summarized by the CA, follow.
Sometime in June, 1982, [petitioners], spouses Joaquin and Emma Villegas, obtained an agricultural loan of
P350,000.00 from [respondent] Rural Bank of Tanjay, Inc. The loan was secured by a real estate mortgage on
[petitioners'] residential house and 5,229 - sq.m. lot situated in Barrio Bantayan, Dumaguete City and covered by
TCT No. 12389.
For failure of [petitioners] to pay the loan upon maturity, the mortgage was extrajudicially foreclosed. At the
foreclosure sale, [respondent], being the highest bidder, purchased the foreclosed properties for P367,596.16.
Thereafter, the Sheriff executed in favor of [respondent] a certificate of sale, which was subsequently registered with
the Registry of Deeds of Dumaguete City.
[Petitioners] failed to redeem the properties within the one-year redemption period.
In May, 1987, [respondent] and [petitioner] Joaquin Villegas, through his attorney-in-fact[,] Marilen Victoriano,
entered into an agreement denominated as "Promise to Sell," whereby [respondent] promised to sell to [petitioners]
the foreclosed properties for a total price of P713,312.72, payable within a period of five (5) years. The agreement
reads in part:
PROMISE TO SELL
xxxx
WITNESSETH:
xxxx
2) That for and in consideration of SEVEN HUNDRED THIRTEEN THOUSAND AND THREE HUNDRED TWELVE &
72/100 PESOS (P713,312.72), the VENDOR do hereby promise to sell, transfer, and convey unto the VENDEE, their
heirs, successors and assigns, all its rights, interests and participations over the above parcel of land with all the
improvements thereon and a residential house.
3) That upon signing of this Promise To Sell, the VENDEE shall agree to make payment of P250,000.00 (Philippine
Currency) and the balance of P463,312.72 payable in equal yearly installments plus interest based on the prevailing
rate counting from the date of signing this Promise to Sell for a period of five (5) years.
xxxx
5) Provided further, that in case of a delay in any yearly installment for a period of ninety (90) days, this sale will
become null and void and no further effect or validity; and provided further, that payments made shall be reimbursed
(returned) to the VENDEE less interest on the account plus additional 15% liquidated damages and charges.
Upon the signing of the agreement, [petitioners] gave [respondent] the sum of P250,000.00 as down payment.
[Petitioners], however, failed to pay the first yearly installment, prompting [respondent] to consolidate its ownership
over the properties. Accordingly, TCT No. 12389 was cancelled and a new one, TCT No. 19042, (Exh. 14) was
issued in [respondent's] name on November 8, 1989. Thereafter, [respondent] took possession of the properties.
Hence, the action by [petitioners for declaration of nullity of loan and mortgage contracts, recovery of possession of
real property, accounting and damages and, in the alternative, repurchase of real estate] commenced on January 15,
1990.
In resisting the complaint, [respondent] averred that [petitioners] have absolutely no cause of action against it, and
that the complaint was filed only to force it to allow [petitioners] to reacquire the foreclosed properties under
conditions unilaterally favorable to them.
xxxx
After trial on the merits, the [RTC] rendered a Decision dismissing the complaint, disposing as follows:
"In the light of the foregoing, it is considered opinion of this Court, that [petitioners] failed to prove by preponderance
of evidence their case and therefore the herein complaint is ordered dismissed. [Petitioners] are ordered to pay
[respondent] the sum of P3,000.00 as attorney's fees and to pay costs without pronouncement as to counterclaim.
SO ORDERED."[3]
On appeal by both parties, the CA affirmed with modification the RTC's ruling, thus:
WHEREFORE, the appealed Decision is hereby MODIFIED by (a) ORDERING [respondent] to reimburse
[petitioners] their down payment of P250,000.00 and (b) DELETING the award of attorney's fees to [respondent].
SO ORDERED.[4]
Hence, this appeal by certiorari raising the following issues:
(1) The Court of Appeals erred in not holding that the loan and mortgage contracts are null and void ab initio for
being against public policy;
(2) The Court of Appeals erred in not holding that, by reason of the fact that the loan and mortgage contracts are null
and void ab initio for being against public policy, the doctrine of estoppel does not apply in this case;
(3) The Court of Appeals erred in not finding that the addendum on the promissory notes containing an escalation
clause is null and void ab initio for not being signed by petitioner Emma M. Villegas, wife of petitioner Joaquin
Villegas, there being a showing that the companion real estate mortgage involves conjugal property. x x x.
(4) The Court of Appeals erred in not finding that the addendum on the promissory notes containing an escalation
clause is null and void ab initio for being so worded that the implementation thereof would deprive petitioners due
process guaranteed by [the] constitution, the petitioners not having been notified beforehand of said
implementation.[5]
Notwithstanding petitioners' formulation of the issues, the core issue for our resolution is whether petitioners may
recover possession of the mortgaged properties.
The petition deserves scant consideration and ought to have been dismissed outright. Petitioners are precluded from
seeking a declaration of nullity of the loan and mortgage contracts; they are likewise barred from recovering
possession of the subject property.
Petitioners insist on the nullity of the loan and mortgage contracts. Unabashedly, petitioners admit that the loan (and
mortgage) contracts were made to appear as several sugar crop loans not exceeding P50,000.00 each - even if they
were not - just so the respondent rural bank could grant and approve the same pursuant to Republic Act (R.A.) No.
720, the Rural Banks Act. Petitioners boldly enumerate the following circumstances that show that these loans were
obtained in clear contravention of R.A. No. 720:
(a)
The petitioners never planted sugar cane on any parcel of agricultural land;
(b)
The mortgaged real estate is residential, with a house, located in the heart of Dumaguete City, with an area of only
one-half (1/2) hectare;
(c)
Petitioners never planted any sugar cane on this one-half (1/2) hectare parcel of land;
(d)
Petitioners were never required to execute any chattel mortgage on standing crops;
(e)
To make it appear that the petitioners were entitled to avail themselves of loan benefits under Republic Act No. 720,
Rural Banks Act, respondent made them sign promissory notes for P350,000.00 in split amounts not exceeding
P50,000.00 each.[6]
In short, petitioners aver that the sugar crop loans were merely simulated contracts and, therefore, without any force
and effect.
Articles 1345 and 1346 of the Civil Code are the applicable laws, and they unmistakably provide:
Art. 1345. Simulation of a contract may be absolute or relative. The former takes place when the parties do not
intend to be bound at all; the latter, when the parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A relative simulation, when it does not prejudice a
third person and is not intended for any purpose contrary to law, morals, good customs, public order or public policy
binds the parties to their real agreement.
Given the factual antecedents of this case, it is obvious that the sugar crop loans were relatively simulated contracts
and that both parties intended to be bound thereby. There are two juridical acts involved in relative simulation-- the
ostensible act and the hidden act.[7] The ostensible act is the contract that the parties pretend to have executed
while the hidden act is the true agreement between the parties.[8] To determine the enforceability of the actual
agreement between the parties, we must discern whether the concealed or hidden act is lawful and the essential
requisites of a valid contract are present.
In this case, the juridical act which binds the parties are the loan and mortgage contracts, i.e., petitioners'
procurement of a loan from respondent. Although these loan and mortgage contracts were concealed and made to
appear as sugar crop loans to make them fall within the purview of the Rural Banks Act, all the essential requisites of
a contract[9] were present. However, the purpose thereof is illicit, intended to circumvent the Rural Banks Act
requirement in the procurement of loans.[10] Consequently, while the parties intended to be bound thereby, the
agreement is void and inexistent under Article 1409[11] of the Civil Code.
In arguing that the loan and mortgage contracts are null and void, petitioners would impute all fault therefor to
respondent. Yet, petitioners' averments evince an obvious knowledge and voluntariness on their part to enter into the
simulated contracts. We find that fault for the nullity of the contract does not lie at respondent's feet alone, but at
petitioners' as well. Accordingly, neither party can maintain an action against the other, as provided in Article 1412 of
the Civil Code:
Art. 1412. If the act in which the unlawful or forbidden cause consists does not constitute a criminal offense, the
following rules shall be observed:
(1) When the fault is on the part of both contracting parties, neither may recover what he has given by virtue of the
contract, or demand the performance of the other's undertaking;
(2) When only one of the contracting parties is at fault, he cannot recover what he has given by reason of the
contract, or ask for the fulfillment of what has been promised him. The other, who is not at fault, may demand the
return of what he has given without any obligation to comply with his promise.
Petitioners did not come to court with clean hands. They admit that they never planted sugarcane on any property,
much less on the mortgaged property. Yet, they eagerly accepted the proceeds of the simulated sugar crop loans.
Petitioners readily participated in the ploy to circumvent the Rural Banks Act and offered no objection when their
original loan of P350,000.00 was divided into small separate loans not exceeding P50,000.00 each. Clearly, both
petitioners and respondent are in pari delicto, and neither should be accorded affirmative relief as against the other.
In Tala Realty Services Corp. v. Banco Filipino Savings and Mortgage Bank,[12] we held that when the parties are in
pari delicto, neither will obtain relief from the court, thus:
The Bank should not be allowed to dispute the sale of its lands to Tala nor should Tala be allowed to further collect
rent from the Bank. The clean hands doctrine will not allow the creation or the use of a juridical relation such as a
trust to subvert, directly or indirectly, the law. Neither the bank nor Tala came to court with clean hands; neither will
obtain relief from the court as one who seeks equity and justice must come to court with clean hands. By not allowing
Tala to collect from the Bank rent for the period during which the latter was arbitrarily closed, both Tala and the Bank
will be left where they are, each paying the price for its deception.[13]
Petitioners stubbornly insist that respondent cannot invoke the pari delicto doctrine, ostensibly because of our obiter
in Enrique T. Yuchengco, Inc., et al. v. Velayo.[14]
In Yuchengco, appellant sold 70% of the subscribed and outstanding capital stock of a Philippine corporation, duly
licensed as a tourist operator, to appellees without the required prior notice and approval of the Department of
Tourism (DOT). Consequently, the DOT cancelled the corporation's Local Tour Operator's License. In turn, appellees
asked for a rescission of the sale and demanded the return of the purchase price.
We specifically ruled therein that the pari delicto doctrine is not applicable, because:
The obligation to secure prior Department of Tourism approval devolved upon the defendant (herein appellant) for it
was he as the owner vendor who had the duty to give clear title to the properties he was conveying. It was he alone
who was charged with knowing about rules attendant to a sale of the assets or shares of his tourist-oriented
organization. He should have known that under said rules and regulations, on pain of nullity, shares of stock in his
company could not be transferred without prior approval from the Department of Tourism. The failure to secure this
approval is attributable to him alone.[15]
Thus, we declared that even assuming both parties were guilty of the violation, it does not always follow that both
parties, being in pari delicto, should be left where they are. We recognized as an exception a situation when courts
must interfere and grant relief to one of the parties because public policy requires their intervention, even if it will
result in a benefit derived by a plaintiff who is in equal guilt with defendant.[16]
In stark contrast to Yuchengco, the factual milieu of the present case does not compel us to grant relief to a party
who is in pari delicto. The public policy requiring rural banks to give preference to bona fide small farmers in the grant
of loans will not be served if a party, such as petitioners, who had equal participation and equal guilt in the
circumvention of the Rural Banks Act, will be allowed to recover the subject property.
The following circumstances reveal the utter poverty of petitioners' arguments and militate against their bid to recover
the subject property:
As previously adverted to, petitioners readily and voluntarily accepted the proceeds of the loan, divided into small
loans, without question.
After failing to redeem the mortgaged subject property, thereby allowing respondent to consolidate title thereto,[17]
petitioners then entered into a Promise to Sell and made a down payment of P250,000.00.
Failing anew to comply with the terms of the Promise to Sell and pay the first yearly installment, only then did
petitioners invoke the nullity of the loan and mortgage contracts.
In all, petitioners explicitly recognized respondent's ownership over the subject property and merely resorted to the
void contract argument after they had failed to reacquire the property and a new title thereto in respondent's name
was issued.
We are not unmindful of the fact that the Promise to Sell ultimately allows petitioners to recover the subject property
which they were estopped from recovering under the void loan and mortgage contracts. However, the Promise to
Sell, although it involves the same parties and subject matter, is a separate and independent contract from that of
the void loan and mortgage contracts.
To reiterate, under the void loan and mortgage contracts, the parties, being in pari delicto, cannot recover what they
each has given by virtue of the contract.[18] Neither can the parties demand performance of the contract. No remedy
or affirmative relief can be afforded the parties because of their presumptive knowledge that the transaction was
tainted with illegality.[19] The courts will not aid either party to an illegal agreement and will instead leave the parties
where they find them.[20]
Consequently, the parties having no cause of action against the other based on a void contract, and possession and
ownership of the subject property being ultimately vested in respondent, the latter can enter into a separate and
distinct contract for its alienation. Petitioners recognized respondent's ownership of the subject property by entering
into a Promise to Sell, which expressly designates respondent as the vendor and petitioners as the vendees. At this
point, petitioners, originally co-owners and mortgagors of the subject property, unequivocally acquiesced to their new
status as buyers thereof. In fact, the Promise to Sell makes no reference whatsoever to petitioners' previous
ownership of the subject property and to the void loan and mortgage contracts.[21] On the whole, the Promise to
Sell, an independent contract, did not purport to ratify the void loan and mortgage contracts.

By its very terms, the Promise to Sell simply intended to alienate to petitioners the subject property according to the
terms and conditions contained therein. Article 1370 of the Civil Code reads:
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 stipulations shall control.
If the words appear to be contrary to the evident intention of the parties, the latter shall prevail over the former.

Thus, the terms and conditions of the Promise to Sell are controlling.

Paragraph 5 of the Promise to Sell provides:

5)
Provided further, that in case of a delay in any yearly installment for a period of ninety (90) days, this sale will
become null and void [without] further effect or validity; and provided further, that payments made shall be
reimbursed (returned to the VENDEE less interest on the account plus additional 15% liquidated damages and
charges.[22]
As stipulated in the Promise to Sell, petitioners are entitled to reimbursement of the P250,000.00 down payment. We
agree with the CA's holding on this score:
We note, however, that there is no basis for the imposition of interest and additional 15% liquidated damages and
charges on the amount to be thus reimbursed. The "Promise to Sell" is separate and distinct from the loan and
mortgage contracts earlier executed by the parties. Obviously, after the foreclosure, there is no more loan or account
to speak of to justify the said imposition.[23]
Finally, contrary to petitioners' contention, the CA, in denying petitioners' appeal, did not commit an error; it did not
ratify a void contract because void contracts cannot be ratified. The CA simply refused to grant the specific relief of
recovering the subject property prayed for by petitioners. Nonetheless, it ordered respondent to reimburse petitioners
for their down payment of P250,000.00 and disallowed respondent's claim for actual, moral and exemplary damages
and attorney's fees.

WHEREFORE, premises considered, the petition is hereby DENIED. The Decision of the Court of Appeals in CA-
G.R. CV No. 40613 is hereby AFFIRMED. Costs against petitioners.

SO ORDERED.
SPOUSES JOSELINA ALCANTARA
AND ANTONIO ALCANTARA, and
SPOUSES JOSEFINO RUBI AND
ANNIE DISTOR- RUBI,
Petitioners,
- versus -
BRIGIDA L. NIDO, as attorney-in-fact of REVELEN N. SRIVASTAVA,
Respondent.
G.R. No. 165133
The Case
Spouses Antonio and Joselina Alcantara and Spouses Josefino and Annie Rubi (petitioners) filed this Petition for
Review[1] assailing the Court of Appeals (appellate court) Decision[2] dated 10 June 2004 as well as the
Resolution[3] dated 17 August 2004 in CA-G.R. CV No. 78215. In the assailed decision, the appellate court reversed
the 17 June 2002 Decision[4] of Branch 69 of the Regional Trial Court of Binangonan, Rizal (RTC) by dismissing the
case for recovery of possession with damages and preliminary injunction filed by Brigida L. Nido (respondent), in her
capacity as administrator and attorney-in-fact of Revelen N. Srivastava (Revelen).
The Facts
Revelen, who is respondents daughter and of legal age, is the owner of an unregistered land with an area of 1,939
square meters located in Cardona, Rizal. Sometime in March 1984, respondent accepted the offer of petitioners to
purchase a 200-square meter portion of Revelens lot (lot) at P200 per square meter. Petitioners paid P3,000 as
downpayment and the balance was payable on installment. Petitioners constructed their houses in 1985. In 1986,
with respondents consent, petitioners occupied an additional 150 square meters of the lot. By 1987, petitioners had
already paid P17,500[5] before petitioners defaulted on their installment payments.
On 11 May 1994, respondent, acting as administrator and attorney-in-fact of Revelen, filed a complaint for recovery
of possession with damages and prayer for preliminary injunction against petitioners with the RTC.
The RTCs Ruling
The RTC stated that based on the evidence presented, Revelen owns the lot and respondent was verbally
authorized to sell 200 square meters to petitioners. The RTC ruled that since respondents authority to sell the land
was not in writing, the sale was void under Article 1874[6] of the Civil Code.[7] The RTC ruled that rescission is the
proper remedy.[8]
On 17 June 2002, the RTC rendered its decision, the dispositive portion reads:
WHEREFORE, judgment is rendered in favor of plaintiff and against the defendants, by -
1. Declaring the contract to sell orally agreed by the plaintiff Brigida Nido, in her capacity as representative or
agent of her daughter Revelen Nido Srivastava, VOID and UNENFORCEABLE.
2. Ordering the parties, upon finality of this judgment, to have mutual restitution the defendants and all persons
claiming under them to peacefully vacate and surrender to the plaintiff the possession of the subject lot covered by
TD No. 09-0742 and its derivative Tax Declarations, together with all permanent improvements introduced thereon,
and all improvements built or constructed during the pendency of this action, in bad faith; and the plaintiff, to return
the sum of P17,500.00, the total amount of the installment on the land paid by defendant; the fruits and interests
during the pendency of the condition shall be deemed to have been mutually compensated.
3. Ordering the defendants to pay plaintiff the sum of P20,000.00 as attorneys fees, plus P15,000.00 as actual
litigation expenses, plus the costs of suit.
SO ORDERED.[9]
The Appellate Courts Ruling
On 5 January 2004, petitioners appealed the trial courts Decision to the appellate court. In its decision dated 10 June
2004, the appellate court reversed the RTC decision and dismissed the civil case.[10]
The appellate court explained that this is an unlawful detainer case. The prayer in the complaint and amended
complaint was for recovery of possession and the case was filed within one year from the last demand letter. Even if
the complaint involves a question of ownership, it does not deprive the Municipal Trial Court (MTC) of its jurisdiction
over the ejectment case. Petitioners raised the issue of lack of jurisdiction in their Motion to Dismiss and Answer
before the RTC.[11] The RTC denied the Motion to Dismiss and assumed jurisdiction over the case because the
issues pertain to a determination of the real agreement between the parties and rescission of the contract to sell the
property.[12]
The appellate court added that even if respondents complaint is for recovery of possession or accion publiciana, the
RTC still has no jurisdiction to decide the case. The appellate court explained:
Note again that the complaint was filed on 11 May 1994. By that time, Republic Act No. 7691 was already in effect.
Said law took effect on 15 April 1994, fifteen days after its publication in the Malaya and in the Time Journal on 30
March 1994 pursuant to Sec. 8 of Republic Act No. 7691.

Accordingly, Sec. 33 of Batas Pambansa 129 was amended by Republic Act No. 7691 giving the Municipal Trial
Court the exclusive original jurisdiction over all civil actions involving title to, or possession of, real property, or any
interest therein where the assessed value of the property or interest therein does not exceed P20,000 or, in civil
actions in Metro Manila, where such assessed value does not exceed P50,000, exclusive of interest, damages of
whatever kind, attorneys fees, litigation expenses and costs.
At bench, the complaint alleges that the whole 1,939- square meter lot of Revelen N. Srivastava is covered by Tax
Declaration No. 09-0742 (Exh. B, p. 100, Records) which gives its assessed value of the whole lot of P4,890.00.
Such assessed value falls within the exclusive original prerogative or jurisdiction of the first level court and, therefore,
the Regional Trial Court a quo has no jurisdiction to try and decided the same.[13]
The appellate court also held that respondent, as Revelens agent, did not have a written authority to enter into such
contract of sale; hence, the contract entered into between petitioners and respondent is void. A void contract creates
no rights or obligations or any juridical relations. Therefore, the void contract cannot be the subject of rescission.[14]
Aggrieved by the appellate courts Decision, petitioners elevated the case before this Court.
Issues
Petitioners raise the following arguments:
1. The appellate court gravely erred in ruling that the contract entered into by respondent, in representation of her
daughter, and former defendant Eduardo Rubi (deceased), is void; and
2. The appellate court erred in not ruling that the petitioners are entitled to their counterclaims, particularly specific
performance.[15]
Ruling of the Court
We deny the petition.
Petitioners submit that the sale of land by an agent who has no written authority is not void but merely voidable given
the spirit and intent of the law. Being only voidable, the contract may be ratified, expressly or impliedly. Petitioners
argue that since the contract to sell was sufficiently established through respondents admission during the pre-trial
conference, the appellate court should have ruled on the matter of the counterclaim for specific performance.[16]
Respondent argues that the appellate court cannot lawfully rule on petitioners counterclaim because there is nothing
in the records to sustain petitioners claim that they have fully paid the price of the lot.[17] Respondent points out that
petitioners admitted the lack of written authority to sell. Respondent also alleges that there was clearly no meeting of
the minds between the parties on the purported contract of sale.[18]
Sale of Land through an Agent
Articles 1874 and 1878 of the Civil Code provide:
Art. 1874. When a sale of a piece of land or any interest therein is through an agent, the authority of the latter shall
be in writing; otherwise, the sale shall be void.
Art. 1878. Special powers of attorney are necessary in the following cases:
xxx
(5) To enter into any contract by which the ownership of an immovable is transmitted or acquired either gratuitously
or for a valuable consideration;
xxx
Article 1874 of the Civil Code explicitly requires a written authority before an agent can sell an immovable property.
Based on a review of the records, there is absolutely no proof of respondents written authority to sell the lot to
petitioners. In fact, during the pre-trial conference, petitioners admitted that at the time of the negotiation for the sale
of the lot, petitioners were of the belief that respondent was the owner of lot.[19] Petitioners only knew that Revelen
was the owner of the lot during the hearing of this case. Consequently, the sale of the lot by respondent who did not
have a written authority from Revelen is void. A void contract produces no effect either against or in favor of anyone
and cannot be ratified.[20] Unfortunately, the General Power of Attorney presented as Exhibit C[22] in the RTC cannot also be the basis of
respondents written authority to sell the lot.

A special power of attorney is also necessary to enter into any contract by which the ownership of an immovable is
transmitted or acquired for a valuable consideration. Without an authority in writing, respondent cannot validly sell Section 25, Rule 132 of the Rules of Court provides:
the lot to petitioners. Hence, any sale in favor of the petitioners is void.

Our ruling in Dizon v. Court of Appeals[21] is instructive:

Sec. 25. Proof of public or official record. An official record or an entry therein, when admissible for any purpose, may
be evidenced by an official publication thereof or by a copy attested by the officer having the legal custody of the
record, or by his deputy, and accompanied, if the record is not kept in the Philippines, with a certificate that such
When the sale of a piece of land or any interest thereon is through an agent, the authority of the latter shall be in officer has the custody. If the office in which the record is kept is in a foreign country, the certificate may be made by
writing; otherwise, the sale shall be void. Thus the authority of an agent to execute a contract for the sale of real a secretary of embassy or legation consul general, consul, vice consul, or consular agent or by any officer in the
estate must be conferred in writing and must give him specific authority, either to conduct the general business of the foreign service of the Philippines stationed in the foreign country in which the record is kept, and authenticated by the
principal or to execute a binding contract containing terms and conditions which are in the contract he did execute. A seal of his office.
special power of attorney is necessary to enter into any contract by which the ownership of an immovable is
transmitted or acquired either gratuitously or for a valuable consideration. The express mandate required by law to
enable an appointee of an agency (couched) in general terms to sell must be one that expressly mentions a sale or
that includes a sale as a necessary ingredient of the act mentioned. For the principal to confer the right upon an
agent to sell real estate, a power of attorney must so express the powers of the agent in clear and unmistakable
language. When there is any reasonable doubt that the language so used conveys such power, no such construction In Teoco v. Metropolitan Bank and Trust Company,[23] quoting Lopez v. Court of Appeals,[24] we explained:
shall be given the document.

From the foregoing provision, when the special power of attorney is executed and acknowledged before a notary
Further, Article 1318 of the Civil Code enumerates the requisites for a valid contract, namely: public or other competent official in a foreign country, it cannot be admitted in evidence unless it is certified as such
in accordance with the foregoing provision of the rules by a secretary of embassy or legation, consul general, consul,
1. consent of the contracting parties; vice consul, or consular agent or by any officer in the foreign service of the Philippines stationed in the foreign
country in which the record is kept of said public document and authenticated by the seal of his office. A city judge-
2. object certain which is the subject matter of the contract; notary who notarized the document, as in this case, cannot issue such certification.[25]

3. cause of the obligation which is established.

Respondent did not have the written authority to enter into a contract to sell the lot. As the consent of Revelen, the Since the General Power of Attorney was executed and acknowledged in the United States of America, it cannot be
real owner of the lot, was not obtained in writing as required by law, no contract was perfected. Consequently, admitted in evidence unless it is certified as such in accordance with the Rules of Court by an officer in the foreign
petitioners failed to validly acquire the lot. service of the Philippines stationed in the United States of America. Hence, this document has no probative value.

General Power of Attorney Specific Performance

On 25 March 1994, Revelen executed a General Power of Attorney constituting respondent as her attorney-in-fact Petitioners are not entitled to claim for specific performance. It must be stressed that when specific performance is
and authorizing her to enter into any and all contracts and agreements on Revelens behalf. The General Power of sought of a contract made with an agent, the agency must be established by clear, certain and specific proof.[26] To
Attorney was notarized by Larry A. Reid, Notary Public in California, U.S.A. reiterate, there is a clear absence of proof that Revelen authorized respondent to sell her lot.
Jurisdiction of the RTC

Section 33 of Batas Pambansa Bilang 129,[27] as amended by Republic Act No. 7691 provides:

Section 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts in Civil
Cases. Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial Courts shall exercise:

xxx

(3) Exclusive original jurisdiction in all civil actions which involve title to, possession of, real property, or any interest
therein where the assessed value of the property or interest therein does not exceed Twenty thousand pesos
(P20,000.00) or, in civil actions in Metro Manila, where such assessed value does not exceed Fifty thousand pesos
(P50,000.00) exclusive of interest, damages of whatever kind, attorneys fees, litigation expenses and costs: x x x

In Geonzon Vda. de Barrera v. Heirs of Vicente Legaspi,[28] the Court explained:

Before the amendments introduced by Republic Act No. 7691, the plenary action of accion publiciana was to be
brought before the regional trial court. With the modifications introduced by R.A. No. 7691 in 1994, the jurisdiction of
the first level courts has been expanded to include jurisdiction over other real actions where the assessed value does
not exceed P20,000, P50,000 where the action is filed in Metro Manila. The first level courts thus have exclusive
original jurisdiction over accion publiciana and accion reivindicatoria where the assessed value of the real property
does not exceed the aforestated amounts. Accordingly, the jurisdictional element is the assessed value of the
property.

Assessed value is understood to be the worth or value of property established by taxing authorities on the basis of
which the tax rate is applied. Commonly, however, it does not represent the true or market value of the property.

The appellate court correctly ruled that even if the complaint filed with the RTC involves a question of ownership, the
MTC still has jurisdiction because the assessed value of the whole lot as stated in Tax Declaration No. 09-0742 is
P4,890.[29] The MTC cannot be deprived of jurisdiction over an ejectment case based merely on the assertion of
ownership over the litigated property, and the underlying reason for this rule is to prevent any party from trifling with
the summary nature of an ejectment suit.[30]

The general rule is that dismissal of a case for lack of jurisdiction may be raised at any stage of the proceedings
since jurisdiction is conferred by law. The lack of jurisdiction affects the very authority of the court to take cognizance
of and to render judgment on the action; otherwise, the inevitable consequence would make the courts decision a
lawless thing.[31] Since the RTC has no jurisdiction over the complaint filed, all the proceedings as well as the
Decision of 17 June 2002 are void. The complaint should perforce be dismissed.

WHEREFORE, we DENY the petition. We AFFIRM the Decision and Resolution of the Court of Appeals in CA-G.R.
CV No. 78215.