CEBU BIONIC G.R. No.

154366 This Petition for Review on Certiorari[1] under Rule

BUILDERS
SUPPLY, INC. and Present: 45 of the Rules of Court assails the Resolution[2] dated
LYDIA SIA, February 5, 2002 and the Amended Decision[3] dated
Petitioners, CORONA, C.J., July 5, 2002 of the Court of Appeals in CA-G.R. CV
Chairperson,
No. 57216. In the Resolution dated February 5, 2002,
VELASCO, JR.,
- versus - LEONARDO-DE the Court of Appeals admitted the Motion for
CASTRO, Reconsideration[4] of herein respondents Development
PERALTA,* and
Bank of the Philippines (DBP), Jose To Chip, Patricio
DEVELOPMENT PEREZ, JJ.
BANK OF THE Yap and Roger Balila, notwithstanding the fact that
PHILIPPINES, JOSE Promulgated: the same was filed more than six months beyond the
TO CHIP, PATRICIO reglementary period. Said motion prayed for the
YAP and ROGER November 17, 2010
BALILA, reversal of the Court of Appeals Decision[5] dated
Respondents. February 14, 2001, which affirmed the
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Decision[6] dated April 25, 1997 of the Regional Trial
- - - - - - - - - - - - - -x
Court (RTC) of Cebu, Branch 8, in Civil Case No.
CEB-10104 that ruled in favor of petitioners. In the
DECISION Amended Decision of July 5, 2002, the Court of
Appeals reversed its previous Decision dated
February 14, 2001 and dismissed the petitioners
LEONARDO DE CASTRO, J.:
complaint for lack of merit.

The facts leading to the instant petition are as follows:

On June 2, 1981, the spouses Rudy R. Robles, Jr. and
Elizabeth R. Robles entered into a mortgage
contract[7] with DBP in order to secure a loan from
the said bank in the amount of P500,000.00. The
properties mortgaged were a parcel of land situated in
Tabunoc, Talisay, Cebu, which was then covered by
Transfer Certificate of Title (TCT) No. T- 47783 of
the Register of Deeds of Cebu, together with all the
existing improvements, and the commercial building
to be constructed thereon[8] (subject properties). Upon
completion, the commercial building was named the
State Theatre Building.
On October 28, 1981, Rudy Robles executed
a contract of lease in favor of petitioner Cebu Bionic
Builders Supply, Inc. (Cebu Bionic), a domestic
corporation engaged in the construction business, as
well as the sale of hardware materials. The contract
pertinently provides:
CONTRACT OF LEASE
KNOW ALL MEN BY THESE PRESENTS:
This Lease Contract made and entered into, by
and between:
RUDY ROBLES, JR., Filipino, of legal age,
married and resident of 173 Maria Cristina Ext.,
Cebu City, hereinafter referred to as the
LESSOR,
- and -
CEBU BIONIC BUILDER SUPPLY,
represented by LYDIA SIA, Filipino, of legal
age, married and with address at 240
Magallanes St., Cebu City hereinafter known as
the LESSEE;
WITNESSETH:
The LESSOR is the owner of a commercial
building along Tabunok, Talisay, Cebu, known
as the State Theatre Building.
The LESSOR agrees to lease unto the LESSEE
and the LESSEE accepts the lease from the
LESSOR, a portion of the ground floor thereof,
consisting of one (1) unit/store space under the
following terms and conditions:
 1. The LESSEE shall pay a monthly
rental of One Thousand (P1,000.00) Pesos,
thus, prompted to effect extrajudicial foreclosure on
Philippine Currency. The rental is payable in the subject properties.[10] On February 6, 1987, DBP
advance within the first five (5) days of the
month, without need of demand;
was the lone bidder in the foreclosure sale and thereby
acquired ownership of the mortgaged subject
2. That the term of this agreement
shall start on November 1, 1981 and shall properties.[11] On October 13, 1988, a final Deed of
terminate on the last day of every month Sale[12] was issued in favor of DBP.
thereafter; provided however that this
contract shall be automatically renewed on a
month to month basis if no notice, in writing, Meanwhile, on June 18, 1987, DBP sent a letter to
is sent to the other party to terminate this
agreement after fifteen (15) days from receipt Bonifacio Sia, the husband of petitioner Lydia Sia
of said notice; who was then President of Cebu Bionic, notifying the
xxxx latter of DBPs acquisition of the State Theatre
Building. Said letter reads:
9. Should the LESSOR decide to sell
the property during the term of this lease
contract or immediately after the expiration June 18, 1987
of the lease, the LESSEE shall have the first
option to buy and shall match offers from Mr. Bonifacio Sia
outside parties.[9] (Emphases ours.) Bionic Builders Inc.
State Theatre Bldg.
Tabunok, Talisay, Cebu

The above contract was not registered by the parties Sir:

thereto with the Registry of Deeds of Cebu.
This refers to the commercial space you are
occupying in the acquired property of the Bank,
formerly owned by Rudy Robles, Jr.
Subsequently, the spouses Robles failed to
settle their loan obligation with DBP. The latter was,
Please be informed that said property has
been acquired through foreclosure on
February 6, 1987. Considering thereat, we
require you to remit the rental due for June
1987.
If you wish to continue on leasing the
property, we request you to come to the Bank
for the execution of a Contract of Lease, the
salient conditions of which are as follows:
1. The lease will be on month to
month basis, for a maximum
period of one (1) year;
2. Deposit equivalent to two (2) months
rental and advance of one (1)
month rental, and the remaining
amount for one year period
(equivalent to 9 months rental)
shall be secured by either surety
bond, cash bond or assigned time
deposit;
3. That in case there is a better offer or if
the property will be subject of a
purchase offer, within the term,
the lessor is given an option of
first refusal, otherwise he has to
vacate the premises within thirty
(30) days from date of notice.
We consider, temporarily, the current
monthly rental based on the six-month
receipts, which we require you to submit,
until such time when we will fix the amount
accordingly.
If the contract of lease is not executed within
thirty (30) days from date hereof, it is
construed that you are not interested in
leasing the premises and will vacate within
the said period.
Please be guided accordingly.
Truly yours,
(SGD)LUCILO S. REVILLAS
Branch Head[13] (Emphases ours.)
On July 7, 1987, the counsel of Bonifacio Sia replied
to the above letter, to wit:
July 7, 1987
Mr. Lucilo S. Revillas
Branch Head
Development Bank of the Philippines
Dear Mr. Revillas,
This has reference to your letter of 18 June 1987
which you sent to my client, Mr. Bonifacio Sia
 of Cebu Bionic Builders Supply the lessee of a
commercial space of the State Theatre Bldg.,
located at Tabunok, Talisay, Cebu.
My client is amenable to the terms contained in
your letter except the following:
1. In lieu of item no. 2 thereof, my
client will deposit with your bank the amount of
P10,000.00, as assigned time deposit;
2. The 30 days notice you mentioned in
your letter, (3), is too short. My client is
requesting for at least 60 days notice.
I sincerely hope that you will give due course to
this request.
Thank you.
Truly
yours,
(SGD) ANASTACIO T. MUNTUERTO, JR.[14]
Thereafter, on November 14, 1989, a Certificate of
Time Deposit[15] for P11,395.64 was issued in the
name of Bonifacio Sia and the same was allegedly
remitted to DBP as advance rental deposit.
For reasons unclear, however, no written contract of
lease was executed between DBP and Cebu Bionic.
In the meantime, subsequent to the acquisition
of the subject properties, DBP offered the same for
sale along with its other assets. Pursuant thereto, DBP
published a series of invitations to bid on such
properties, which were scheduled on January 19,
1989,[16] February 23, 1989,[17] April 13, 1989,[18] and
November 15, 1990.[19] As no interested bidder came
forward, DBP publicized an Invitation on Negotiated
Sale/Offer, the relevant terms and conditions of which
stated:
INVITATION ON NEGOTIATED
SALE/OFFER
The DEVELOPMENT BANK OF THE
PHILIPPINES, Cebu Branch, will receive
SEALED NEGOTIATED
OFFERS/PURCHASE PROPOSALS tendered
at its Branch Office, DBP Building, Osmea
Boulevard, Cebu City for the sale of its acquired
assets mentioned hereinunder within the 15-
Day-Acceptance-Period starting from
NOVEMBER 19, 1990 up to 12:00 oclock
noon of DECEMBER 3, 1990. Sealed offers
submitted shall be opened by the Committee on
Negotiated Offers at exactly 2:00 oclock in the
afternoon of the last day of the acceptance
period in order to determine the highest and/or Interested negotiated offerors are requested to
most advantageous offer. see Atty. Apolinar K. Panal, Jr., Acquired Asset
in Charge (Tel. No. 9-63-25), in order to secure
Item No. Description/Locatio Starting Price copies of the Letter-Offer form and Negotiated
n Sale Rules and Procedures.

xxxx NOTE: If no offer is received during the

above stated acceptance period, the
II Commercial land, Lot No. properties described above shall be
3681-C-3, having an area of sold to the first offeror who submits
396 sq. m., situated in an acceptable proposal on a First-
Tabunok, Talisay, Cebu and Come-First-Served basis.
covered by TCT No. T-
65199 (DBP), including the City of Cebu, Philippines, November 16, 1990.
commercial building P1,838,100.0
thereon. 0 (SGD.)
TIMOTEO
xxxx P.
OLARTE
A pre-numbered Acknowledgment Receipt Branch
duly signed by at least two (2) of the [20]
Head (Emphas
Committee members shall be issued to the es ours.)
offeror acknowledging receipt of such offer.
In the morning of December 3, 1990, the last day for
Negotiated offers may be made in CASH or
the acceptance of negotiated offers, petitioners
TERMS, the former requiring a deposit of
10% and the latter 20% of the starting price, submitted through their representative, Judy Garces, a
either in the form of cash or letter-offer form, offering to purchase the subject
cashiers/managers check to be enclosed in the properties for P1,840,000.00. Attached to the letter-
sealed offer. offer was a copy of the Negotiated Sale Rules and
Procedures issued by DBP and a managers check for
xxxx
the amount of P184,000.00, representing 10% of the
offered purchase price. This offer of petitioners was
not accepted by DBP, however, as the corresponding
deposit therefor was allegedly insufficient.
After the lapse of the above-mentioned 15-day
acceptance period, petitioners did not submit any
other offer/proposal to purchase the subject properties.
On December 17, 1990, respondents To Chip, Yap
and Balila presented their letter-offer[21] to purchase
the subject properties on a cash basis
for P1,838,100.00. Said offer was accompanied by a
downpayment of 10% of the offered purchase price,
amounting to P183,810.00. On even date, DBP
acknowledged the receipt of and accepted their
offer. On December 28, 1990, respondents To Chip,
Yap and Balila paid the balance of the purchase price
and DBP issued a Deed of Sale[22] over the subject
properties in their favor.
On January 11, 1991, the counsel of respondents To
Chip, Yap and Balila sent a letter[23] addressed to the
proprietor of Cebu Bionic, informing the latter of the
transfer of ownership of the subject properties. Cebu
Bionic was ordered to vacate the premises within
thirty (30) days from receipt of the letter and directed
to pay the rentals from January 1, 1991 until the end
of the said 30-day period.
The counsel of Cebu Bionic replied[24] that his client
received the above letter on January 11, 1991. He
stated that he has instructed Cebu Bionic to verify first
the ownership of the subject properties since it had the
preferential right to purchase the same. He likewise
requested that he be furnished a copy of the deed of
sale executed by DBP in favor of respondents To
Chip, Yap and Balila.
On February 15, 1991, respondent To Chip wrote a
letter[25] to the counsel of Cebu Bionic, insisting that
he and his co-respondents Yap and Balila urgently
needed the subject properties to pursue their business
plans. He also reiterated their demand for Cebu Bionic
to vacate the premises.
Shortly thereafter, on February 27, 1991, the counsel
of respondents To Chip, Yap and Balila sent its final
demand letter[26] to Cebu Bionic, warning the latter to
vacate the subject properties within seven (7) days
from receipt of the letter, otherwise, a case for
ejectment with damages will be filed against it.[27]
Despite the foregoing notice, Cebu Bionic still
paid[28] to DBP, on March 22, 1991, the amount
of P5,000.00 as monthly rentals on the unit of the
State Theatre Building it was occupying for period of
November 1990 to March 1991.
On April 10, 1991, petitioners filed against
respondents DBP, To Chip, Yap and Balila
a complaint[29] for specific performance, cancellation
of deed of sale with damages, injunction with a prayer
for the issuance of a writ of preliminary
injunction.[30] The complaint was docketed as Civil
Case No. CEB-10104 in the RTC.
Petitioners alleged, inter alia, that Cebu Bionic
was the lessee and occupant of a commercial space in
the State Theatre Building from October 1981 up to
the time of the filing of the complaint. During the
latter part of 1990, DBP advertised for sale the State
Theatre Building and the commercial lot on which the
same was situated. In the prior invitation to bid, the
bidding was scheduled on November 15, 1990; while
in the next, under the 15-day acceptance period, the
submission of proposals was to be made from
November 19, 1990 up to 12:00 noon of December 3,
1990. Petitioners claimed that, at about 10:00 a.m. on
December 3, 1990, they duly submitted to Atty.
Apolinar Panal, Jr., Chief of the Acquired Assets of
DBP, the following documents, namely:
6.1 Letter-offer form, offering to
purchase the property advertised, for the
price of P1,840,000, which was higher than the
starting price of P1,838,100.00 on cash basis. x
x x;
6.2 Negotiated Sale Rules and
Procedures, duly signed by plaintiff, x x x;
6.3 Managers check for the amount
of P184,000 representing 10% of the deposit
dated December 3, 1990 and issued by Allied
Banking Corp. in favor of the Development
Bank of the Philippines. x x x.[31] (Emphasis
ours.)
Petitioners asserted that the above documents
were initially accepted but later returned. DBP
allegedly advised petitioners that there was no urgent
need for the same x x x, considering that the property
will necessarily be sold to [Cebu Bionic] for the
reasons that there was no other interested party and
that [Cebu Bionic] was a preferred party being the
lessee and present occupant of the property subject of
the lease[.][32] Petitioners then related that, without
their knowledge, DBP sold the subject properties to
respondents To Chip, Yap and Balila. The sale was
claimed to be simulated and fictitious, as DBP still
received rentals from petitioners until March 1991. By
acquiring the subject properties, petitioners contended
that DBP was deemed to have assumed the contract of
lease executed between them and Rudy Robles. As
such, DBP was bound by the provision of the lease
contract, which stated that:
 9. Should the Lessor decide to sell the
property during the term of this lease contract or
immediately after the expiration of the lease, the
Lessee shall have the first option to buy and
shall match offers from outside parties.[33]
Petitioners sought the rescission of the contract
of sale between DBP and respondents To Chip, Yap
and Balila. Petitioners also prayed for the issuance of
a writ of preliminary injunction, restraining
respondents To Chip, Yap and Balila from registering
the Deed of Sale in the latters favor and from
undertaking the ejectment of petitioners from the
subject properties. Likewise, petitioners entreated that
DBP be ordered to execute a deed of sale covering the
subject properties in their name and to pay damages
and attorneys fees.
In its answer,[34] DBP denied the existence of a
contract of lease between itself and petitioners. DBP
countered that the letter-offer of petitioners was
actually not accepted as their offer to purchase was on
a term basis, which therefore required a 20%
deposit. The 10% deposit accompanying the
petitioners letter-offer was declared insufficient. DBP
stated that the letter-offer form was not completely
filled out as the Term and Mode of Payment fields
were left blank. DBP then informed petitioner Lydia
Sia of the inadequacy of her offer. After ascertaining
that there was no other offeror as of that time, Lydia
Sia allegedly summoned back her representative who
did not leave a copy of the letter-offer and the
attached documents. DBP maintained that petitioners
documents did not show that the same were received
and approved by any approving authority of the
bank. The letter-offer attached to the complaint, which
indicated that the mode of payment was on a cash
basis, was allegedly not the document shown to
DBP. In addition, DBP argued that there was no
assumption of the lease contract between Rudy Robles
and petitioners since it acquired the subject properties
through the involuntary mode of extrajudicial
foreclosure and its request to petitioners to sign a new
lease contract was simply ignored. DBP, therefore,
insisted that petitioners occupancy of the unit in the
State Theatre Building was merely upon its
acquiescence. The petitioners payment of rentals on
March 22, 1991 was supposedly made in bad faith as
they were made to a mere teller who had no
knowledge of the sale of the subject properties to
respondents To Chip, Yap and Balila. DBP, thus,
prayed for the dismissal of the complaint and, by way
of counterclaim, asked that petitioners be ordered to
pay damages and attorneys fees.
Respondents To Chip, Yap and Balila no longer
filed a separate answer, adopting instead the answer of
DBP.[35]

[36]
In an Order dated July 31, 1991, the RTC
granted the prayer of petitioners for the issuance of a
writ of preliminary injunction.[37]
On April 25, 1997, the RTC rendered judgment
in Civil Case No. CEB-10104, finding meritorious the
complaint of the petitioners. Explained the trial court:
It is a fact on record that [petitioners] complied
with the requirements of deposit and advance
rental as conditions for constitution of lease
between the parties. [Petitioners] in complying
with the requirements, issued a time deposit in
the amount of P11,395.64 and remitted
faithfully its monthly rentals until April, 1991,
which monthly rental was no longer accepted by
the DBP.Although there was no formal
written contract executed between
[respondent] DBP and the [petitioners], it is
very clear that DBP opted to continue the old
and previous contract including the terms
thereon by accepting the requirements
contained in paragraph 2 of its letter dated
June 18, 1987. It is also a fact on record that
under the lease contract continued by the DBP
on the [petitioners], it is provided in paragraph 9
thereof that the lessee shall have the first option
to buy and shall match offers from outside
parties. And yet, [respondent] DBP never
gave [petitioners] the first option to buy or to
match offers from outside parties, more
specifically [respondents] To Chip, Balila and
Yap. It is also a fact on record that [respondent]
DBP in its letter dated June 18, 1987 to
[petitioners] wrote in paragraph 3 thereof, that
in case there is better offer or if a property will
be subject of purchase offer, within the term, the
lessee is given the option of first refusal,
otherwise, he has to vacate the premises within
thirty (30) days. Yet, [respondent] DBP never
informed [petitioners] that there was an
interested party to buy the property,
meaning, [respondents To Chip, Yap and
Balila], thus depriving [petitioners] of the
opportunity of first refusal promised to them
in its letter dated June 18, 1987. x x
x.[38] (Emphases ours.)
As regards the offer of petitioners to purchase the
subject properties from DBP, the RTC gave more
credence to the petitioners version of the facts, to wit:
It is also a fact on record that when [respondent]
DBP offered the property for negotiated sale
under the 15-day acceptance period[, which]
ended at noon of December 3, 1991, [Cebu
Bionic] submitted its offer, complete with [the
required documents.] x x x.
xxxx
These requirements, however, were
unceremoniously returned by [respondent] bank
with the assurance that since there was no other
bidder of the said property, there was no
urgency for the same and that [Cebu Bionic]
also, in all events, is entitled to first option
being the present lessee.
The declaration of Atty. Panal to the effect that
Cebu Bionic wanted to buy the property on
installment terms, such that the deposit
of P184,000.00 was insufficient being only 10%
of the offer, could not be given much credence
as it is refuted by Exh. H which is the negotiated
offer to purchase form under the 15-day
acceptance period accomplished by [petitioners]
which shows clearly the written word Cash after
the printed words Term and Mode of Payment,
Exhibit J, the Managers check issued by Allied
Banking Corporation dated December 3, 1990
in the amount of P184,000.00 representing 10%
of the offer showing the mode of payment is for
cash; Exhibit K which is the application for
Managers check in the amount of P184,000.00
dated December 3, 1990 showing the
beneficiary as DBP. If it is true that the offer
of [petitioners] was for installment payments,
then in the ordinary course of human
behavior, it would not have wasted effort in
securing a Managers check in the amount
of P184,000.00 which was insufficient for
20% deposit as required for installment
payments. More credible is the explanation
[given by] witness Judy Garces when she said
that DBP through Atty. Panal returned the
documents submitted by her, saying that
there was no urgency for the same as there
was no other bidder of [the said] property
and that Cebu Bionic was entitled to a first
option to buy being the present lessee. In the
letter also of [respondent] bank dated June 18,
1987, it is important to note that aside from
requiring Cebu Bionic to comply with certain
requirements of time deposit and advance rental,
as condition for constitution of lease between
the parties and which was complied by Cebu
Bionic[,] said letter further states in paragraph 3
thereof that in case there is [a] better offer or if
the property will be subject of a purchase offer,
within the term, the lessee is given the option of
first refusal, otherwise, he has to vacate the
premises within thirty days. In answer to the
Courts question, however, Atty. Panal admitted
that he did not tell [petitioners] that there was
another party who was willing to purchase the
property, in violation of [petitioners] right of
first refusal.[39] (Emphasis ours.)
Likewise, the RTC found that respondents To Chip,
Yap and Balila were aware of the lease contract
involving the subject properties before they purchased
the same from DBP.Thus:
[Respondent] Jose To Chip lamely pretends
ignorance that [petitioners] are lessees of the
property, subject matter of this case. He states
that he and his partners, the other [respondents],
were given assurances by Atty. Panal of the
DBP that [Lydia Sia] is not a lessee, although he
knew that [petitioners] were presently
occupying the property and that it was
possessed by [petitioners] even before it was
owned by the DBP. x x x.
The trial court, therefore, concluded that:
xxxx
[Respondent] Roger Balila, in his testimony,
likewise pretended ignorance that he knew that
[Lydia Sia] was a lessee of the property. x x x.
xxxx
Upon further questioning by the Court, he
admitted that [Lydia Sia] was not possessing the
building freely; that she was a lessee of Rudy
Robles, the former owner, but cleverly insisted
in disowning knowledge that [Lydia Sia] was a
lessee, denying knowledge that [Lydia Sia] was
paying rentals to [respondent] bank. His
pretended ignorance x x x was a way of evading
[Cebu Bionics] right of first priority to buy the
property under the contract of lease. x x x The
Court is convinced that [respondents To Chip,
Yap and Balila] knew that [Cebu Bionic] was
the present lessee of the property before they
bought the same from [respondent]
bank. Common observation, knowledge and
experience dictates that as a prudent
businessman, it was but natural that he ask
Lydia Sia what her status was in occupying the
property when he went to talk to her, that he ask
her if she was a lessee. But he said, all he asked
her was whether she was interested to buy the
property. x x x.[40]
From the foregoing facts on record, it is thus
clear that [petitioner] Cebu Bionic is the present
lessee of the property, the lease contract having
been continued by [respondent] DBP when it
received rental payments up to March of 1991
as well as the advance rental for one year
represented by the assigned time deposit which
is still in [respondent] banks possession. The
provision, therefore, in the lease contract, on the
right of first option to buy and the right of first
refusal contained in [respondent] banks letter
dated June 18, 1987, are still subsisting and
binding up to the present, not only on
[respondent] bank but also on [respondents To
Chip, Yap and Balila]. x x x.
xxxx
WHEREFORE, THE FOREGOING
PREMISES CONSIDERED, judgment is
hereby rendered:
(1) Rescinding the Deed of Sale dated
December 28, 1990 between
[respondent] Development Bank of
the Philippines and [respondents]
 Roger Balila, Jose To Chip and
Patricio Yap; The RTC determined, upon evidence on
record after a careful evaluation of the witnesses
(2) Ordering the [respondent] and their testimonies during the trial that indeed
Development Bank of the [petitioners] right of first option was violated
Philippines to execute a Deed of Sale and thus, rescission of the sale made by DBP to
over the property, subject matter of [respondents To Chip, Yap and Balila] are in
this case upon payment by order.
[petitioners] of the whole
consideration involved and to xxxx
complete all acts or documents
necessary to have the title over said Apparently, DBP accepted [the
property transferred to the name of documents submitted by petitioners] and
[petitioners]; thereafter, through Atty. Panal (of DBP),
returned all of it to the [petitioners] with the
(3) Costs against [respondents].[41] assurance that since there was no other bidder of
the said property, there was no urgency for the
same and that [Cebu Bionic] also, in all events,
DBP forthwith filed a Notice of is entitled to first option being the present
[42]
Appeal. Respondents To Chip, Yap and Balila filed lessee.
a Motion for Reconsideration[43] of the above
[DBP] maintains that the return of the
decision, but the RTC denied the same in an documents [submitted by petitioners] was in
Order[44] dated July 4, 1997. Said respondents then order since the [petitioners] offered to buy the
filed their Notice of Appeal.[45] property in question on installment basis
requiring a higher 20% deposit. This, however,
On February 14, 2001, the Court of Appeals was correctly rejected by the trial court[.] x x x
promulgated its Decision,[46] pronouncing that:
The binding effect of the lease
agreement upon the [respondents To Chip, Yap
We find nothing erroneous with the and Balila] must be sustained since from
judgment rendered by the trial court. Perforce, existing jurisprudence cited by the lower court,
We sustain it and dismiss the [respondents] it was determined during trial that:
submission.

... [respondents To
Chip, Yap and Balila] knew
that [Cebu Bionic] was the
present lessee of the property
before they bought the same
from [respondent]
bank.Common observation,
knowledge and experience
dictates that as a prudent
businessman, it was but
natural that he ask Lydia Sia
what her status was in
occupying the property when
he went to talk to her, that he
ask her if she was a lessee. But
he said, all he asked her was
whether she was interested to
buy the property. x x x.
Moreover, We find that the submissions
presented by the [respondents] in their
respective briefs argue against questions of facts
as found and determined by the lower court. The
respondents contentions consist of crude
attempts to question the assessment and
evaluation of testimonies and other evidence
gathered by the trial court.
It must be remembered that findings of
fact as determined by the trial court are entitled
to great weight and respect from appellate
courts and should not be disturbed on appeal
unless for [strong] and cogent reasons. These
findings generally, so long as supported by
evidence on record, are not to be disturbed
unless there are some facts or evidence which
the trial court has misappreciated or overlooked,
and which if considered would have altered the
results of the entire case. Sad to say for the
[respondents], We see no reason to depart from
this well-settled legal principle.
WHEREFORE, in view of the
foregoing, the judgment of the Regional Trial
Court of Cebu City, Branch 8, in Civil Case No.
10104 is hereby AFFIRMED in toto.[47]
On October 1, 2001, petitioners filed a Motion
for Issuance of Entry of Judgment.[48] Petitioners
stressed that, based on the records of the case,
respondents were served a copy of the Court of
Appeals Decision dated February 14, 2001 sometime
on March 7, 2001. However, petitioners discovered
that respondents have not filed any motion for
reconsideration of the said decision within the
reglementary period therefor, nor was there any
petition for certiorari or appeal filed before the
Supreme Court.
In response to the above motion, respondents
To Chip, Yap and Balila filed on October 8, 2001 a
Motion to Admit Motion for Reconsideration.[49] Atty.
Francis M. Zosa, the counsel for respondents To Chip,
Yap and Balila, explained that he sent copies of the
motion for reconsideration to petitioners and
DBP via personal delivery. On the other hand, the
copies of the motion to be filed with the Court of
Appeals were purportedly sent to Mr. Domingo Tan, a
friend of Atty. Zosa in Quezon City, who agreed to
file the same personally with the appellate court in
Manila. When Atty. Zosa inquired if the motion for
reconsideration was accordingly filed, Mr. Tan
allegedly answered in the affirmative. To his surprise,
Atty. Zosa received a copy of petitioners Motion for
Issuance of Entry of Judgment. Atty. Zosa, thus,
attributed the failure of his clients to file a motion for
reconsideration on the mistake, excusable negligence
and/or fraud committed by Mr. Tan.
In the assailed Resolution dated February 5,
2002, the Court of Appeals granted the motion of
respondents To Chip, Yap and Balila and admitted the
motion for reconsideration attached therewith in the
higher interest of substantial justice.[50]
On July 5, 2002, the Court of Appeals reversed
its original Decision dated February 14, 2001,
reasoning thus:
After a judicious review and
reevaluation of the evidence and facts on record,
we are convinced that DBP had terminated the
Robles lease contract. From its letter of June 18,
1987, DBP had expressly notified [petitioners]
that (I)f they wish to continue on leasing the
property x x x to come to the Bank for the
execution of a Contract of Lease, the salient
conditions of which are as follows:
1. The lease will be on a month to
month basis for a maximum period of one (1)
year;
2. Deposit equivalent to two (2)
months rental and advance of one (1) month
rental, and the remaining amount for one
year (equivalent to 9 months rental) shall be
secured by either surety bond, cash bond or
assigned time deposit;
3. That in case there is a better offer
or if the property will be subject of a
purchase offer, within the term, the lessor is
given an option of first refusal, otherwise he
has to vacate the premises within thirty (30)
days from date of notice.
We consider, temporarily, the current
monthly rental based on the six-month receipts,
which we require you to submit, until such time
when we will fix the amount accordingly.
Evidently, except for the remittance of
the monthly rentals up to March 1991, the
conditions imposed by DBP have never been
complied with. [Petitioners] did not go to the
Bank to sign any new written contract of lease
with DBP. [Petitioners] also did not put up a
surety bond nor cash bond nor assign a time
deposit to secure the payment of rental for nine
(9) months, although the [petitioners] opened a
time deposit but did not assign it to DBP.
But even with the remittance and
acceptance of the deposit made by [petitioners]
equivalent to two (2) months rental and advance
of one (1) month rental it does not necessarily
follow that DBP opted to continue with the
Robles lease. This is because the Robles
contract provides:
That the term of the
agreement shall start on
November 1, 1981 and shall
terminate on the last day of
every month thereafter,
provided however, that this
contract shall be automatically
renewed on a month to month
basis if no notice in writing is
sent to the other party to
determine to terminate this
agreement after fifteen (15)
days from the receipt of said
notice.
Here, a notice was sent to [petitioners] on June
18, 1987, informing them that if they wish to
continue on leasing the property, we request you
to come to the Bank for the execution of a
Contract of Lease x x x.
[Petitioners] failed to enter into the
contract of lease required by DBP for it to
continue occupying the leased premises.
Because of [petitioners] failure to
comply with the conditions embodied in the 18
June 1987 letter, it cannot be said that
[petitioners] entered into a new contract with
DBP where they were given the first option to
buy the leased property and to match offers
from outside parties.
xxxx
Be that as it may, DBP continued to
accept the monthly rentals based on the old
Robles contract despite the fact that the
[petitioners] failed to enter into a written lease
contract with it.Corollarily, the relations
between the parties is now governed by Article
1670 of the New Civil Code, thus:
Art. 1670. If at the end of
contract the lessee should
continue enjoying the thing
leased for fifteen days with the
acquiescence of the lessor, and
 unless a notice to the contrary by
either party has previously been
given, it is understood that there
is an implied new lease, not for
the period of the original
contract, but for the time
established in Articles 1682 and
1687. The other terms of the
original contract shall be revived.
xxxx
x x x [T]he acceptance by DBP of the
monthly rentals does not mean that the terms of
the Robles contract were revived. In the case
of Dizon vs. Court of Appeals, the Supreme
Court declared that:
The other terms of the
original contract of lease which
are revived in the implied new
lease under Article 1670 of the
New Civil Code are only those
terms which are germane to the
lessees right [of] continued
enjoyment of the property leased
an implied new lease does
not ipso facto carry with it any
implied revival of any option to
purchase the leased premises.
In view of the foregoing, it is clear that
[petitioners] had no right to file a case
for rescission of the deed of sale executed by
DBP in favor of [respondents To Chip, Yap and
Balila] because said deed of sale did not violate
their alleged first option to buy or match offers
from outside parties which is legally non-
existent and which was not impliedly renewed
under Article 1670 of the Civil Code.
WHEREFORE, premises considered,
the 14 February 2001 Decision is
hereby RECONSIDERED and another one
is issued REVERSING the 25 April 1997
Decision of the Regional Trial Court, Branch 8,
Cebu City in Civil Case No. CEB-10104 and
the complaint of [petitioners]
is DISMISSED for lack of merit.[51]
Without seeking a reconsideration of the above
decision, petitioners filed the instant petition. In their
Comment, respondents opposed the petition on both
procedural and substantive grounds.
In petitioners Memorandum, they summarized
the issues to be resolved in the present case as
follows:
A) PRELIMINARY ISSUES:
I
WHETHER OR NOT THE
VERIFICATION (AND
CERTIFICATION OF NON-FORUM
SHOPPING) IN THE INSTANT WHETHER OR NOT THE HON. COURT
PETITION WAS PROPER AND VALID OF APPEALS ERRED IN DECLARING
DESPITE ITS BEING SIGNED BY THAT PETITIONERS DID NOT ENTER
ONLY ONE OF THE TWO INTO CONTRACT WITH
PETITIONERS. RESPONDENT DBP CONTINUING
THE TERMS OF THE ROBLES
II CONTRACT
WHETHER OR NOT ONLY III
QUESTIONS OF LAW AND NOT OF
FACT CAN BE RAISED IN THE WHETHER OR NOT THE HON. COURT
INSTANT PETITION BEFORE THIS OF APPEALS ERRED WHEN IT
HON. SUPREME COURT. DECLARED THAT THE
CONTINUATION BY RESPONDENT
DBP OF THE LEASE CONTRACT DID
B) MAIN AND PRINCIPAL ISSUES IN NOT CONTAIN THE RIGHT OF FIRST
THE INSTANT PETITION: REFUSAL
I IV

WHETHER OR NOT THE HON. COURT
OF APPEALS ERRED IN ADMITTING
RESPONDENTS MOTION FOR
RECONSIDERATION DESPITE ITS
BEING FILED OUT OF TIME
WHETHER OR NOT THE HON. COURT
OF APPEALS ERRED WHEN IT
DECLARED THAT THE LEASE
CONTRACT IS GOVERNED BY ART.
1670 OF THE NEW CIVIL CODE

II WHETHER OR NOT THE HON. COURT

OF APPEALS ERRED WHEN IT
FAILED TO RECOGNIZE
 PETITIONERS RIGHT OF FIRST
REFUSAL TO WHICH RESPONDENTS
WERE BOUND
VI
WHETHER OR NOT THE HON. COURT
OF APPEALS ERRED WHEN IT
FAILED TO DECLARE THAT
RESPONDENT DBP HAD VIOLATED
PETITIONERS RIGHTS
VII
WHETHER OR NOT THE HON. COURT OF
APPEALS ERRED IN REVERSING ITS OWN
JUDGMENT AND DISMISSING
PETITIONERS CLAIM FOR RESCISSION[52]
We shall first resolve the preliminary issues.
Respondents To Chip, Yap and Balila argue that the
instant petition should be dismissed outright as the
verification and certification of non-forum shopping
was executed only by petitioner Lydia Sia in her
personal capacity, without the participation of Cebu
Bionic.
The Court is not persuaded.
Except for the powers which are expressly
conferred on it by the Corporation Code and those that
are implied by or are incidental to its existence, a
corporation has no powers. It exercises its powers
through its board of directors and/or its duly
authorized officers and agents. Thus, its power to sue
and be sued in any court is lodged with the board of
directors that exercises its corporate
[53]
powers. Physical acts, like the signing of
documents, can be performed only by natural persons
duly authorized for the purpose by corporate by-laws
or by a specific act of the board of directors.[54]
In this case, respondents To Chip, Yap and
Balila obviously overlooked the Secretarys
Certificate[55] attached to the instant petition, which
was executed by the Corporate Secretary of Cebu
Bionic. Unequivocally stated therein was the fact that
the Board of Directors of Cebu Bionic held a special
meeting on July 26, 2002 and they thereby approved a
Resolution authorizing Lydia Sia to elevate the
present case to this Court in behalf of Cebu Bionic, to
wit:
Whereas, the board appointed LYDIA I.
SIA to act and in behalf of the corporation to
file the CERTIORARI with the Supreme Court
in relations to the decision of the Court of
Appeals dated July 5, 2002 which reversed its
 own judgment earlier promulgated on February
14, 2001 entitled CEBU BIONIC BUILDERS
SUPPLY, INC. and LYDIA SIA, (Petitioners-
Appellants) versus THE DEVELOPMENT
BANK OF THE PHILIPPINES, JOSE TO
CHIP, PATRICIO YAP and ROGER BALILA
(Respondents- Appelles), docketed CA-G.R.
NO. 57216.
Whereas, on mass unanimously motion
of all members of directors present hereby
approved the appointment of LYDIA I. SIA to
act and sign all papers in connection of CA-G.R.
NO. 57216.
Resolved and it is hereby resolve to
appoint and authorized LYDIA I. SIA to sign
and file with the SUPREME COURT in
connection to decision of the Court of Appeals
as above mention.[56]
Respondents To Chip, Yap and Balila next
argue that the instant petition raises questions of fact,
which are not allowed in a petition for review
on certiorari. They, therefore, submit that the factual
findings of the Court of Appeals are binding on this
Court.
Section 1, Rule 45 of the Rules of Court
categorically states that the petition filed thereunder
shall raise only questions of law, which must be
distinctly set forth. A question of law arises when
there is doubt as to what the law is on a certain state
of facts, while there is a question of fact when the
doubt arises as to the truth or falsity of the alleged
facts. For a question to be one of law, the same must
not involve an examination of the probative value of
the evidence presented by the litigants or any of
them. The resolution of the issue must rest solely on
what the law provides on the given set of
circumstances. Once it is clear that the issue invites a
review of the evidence presented, the question posed
is one of fact.[57]
The above rule, however, admits of certain
exceptions,[58] one of which is when the findings of
the Court of Appeals are contrary to those of the trial
court. As will be discussed further, this exception is
attendant in the case at bar.
We now determine the principal issues put
forward by petitioners.
First off, petitioners fault the Court of Appeals
for admitting the Motion for Reconsideration of its
Decision dated February 14, 2001, which was filed by
respondents To Chip, Yap and Balila more than six
months after receipt of the said decision. The motion
was eventually granted and the Court of Appeals
issued its assailed Amended Decision, ruling in favor
of respondents.
Indeed, the appellate courts Decision dated
February 14, 2001 would have ordinarily attained
finality for failure of respondents to seasonably file
their Motion for Reconsideration thereon. However,
we agree with the Court of Appeals that the higher
interest of substantial justice will be better served if
respondents procedural lapse will be excused.
Verily, we had occasion to apply this liberality
in the application of procedural rules in Barnes v.
Padilla[59] where we aptly declared that
The failure of the petitioner to file his motion
for reconsideration within the period fixed by
law renders the decision final and
executory. Such failure carries with it the result
that no court can exercise appellate jurisdiction
to review the case. Phrased elsewise, a final and
executory judgment can no longer be attacked
by any of the parties or be modified, directly or
indirectly, even by the highest court of the land.
However, this Court has relaxed this rule
in order to serve substantial justice considering
(a) matters of life, liberty, honor or property, (b)
the existence of special or compelling
circumstances, (c) the merits of the case, (d) a
cause not entirely attributable to the fault or
negligence of the party favored by the
suspension of the rules, (e) a lack of any
showing that the review sought is merely
frivolous and dilatory, and (f) the other party
will not be unjustly prejudiced thereby.[60]
In this case, what are involved are the property
rights of the parties given that, ultimately, the
fundamental issue to be determined is who among the
petitioners and respondents To Chip, Yap and Balila
has the better right to purchase the subject
properties. More importantly, the merits of the case
sufficiently called for the suspension of the rules in
order to settle conclusively the rights and obligations
of the parties herein.
In essence, the questions that must be resolved
are: 1) whether or not there was a contract of lease
between petitioners and DBP; 2) if in the affirmative,
whether or not this contract contained a right of first
refusal in favor of petitioners; and 3) whether or not
respondents To Chip, Yap and Balila are likewise
bound by such right of first refusal.
Petitioners contend that there was a contract of
lease between them and DBP, considering that they
had been allowed to occupy the premises of the
subject property from 1987 up to 1991 and DBP
received their rental payments corresponding to the
said period. Petitioners claim that DBP were aware of
their lease on the subject property when the latter
foreclosed the same and the acquisition of the subject
properties through foreclosure did not terminate the
lease. Petitioners subscribe to the ruling of the RTC
that even if there was no written contract of lease,
DBP chose to continue the existing contract of lease
between petitioners and Rudy Robles by accepting the
requirements set down by DBP on the letter dated
June 18, 1987. Petitioners likewise posit that the
contract of lease between them and Rudy Robles
never expired, inasmuch as the contract did not have a
definite term and none of the parties thereto
terminated the same. In view of the continuation of
the lease contract between petitioners and Rudy
Robles, petitioners submit that Article 1670 of the
Civil Code on implied lease is not applicable on the
instant case.
We are not persuaded.
In Uy v. Land Bank of the Philippines,[61] the
Court held that [i]n respect of the lease on the
foreclosed property, the buyer at the foreclosure sale
merely succeeds to the rights and obligations of the
pledgor-mortgagor subject to the provisions of Article
1676 of the Civil Code on its possible
termination. This article provides that [t]he purchaser
of a piece of land which is under a lease that is not
recorded in the Registry of Property may terminate
the lease, save when there is a stipulation to the
contrary in the contract of sale, or when the purchaser
knows of the existence of the lease. In short, the buyer
at the foreclosure sale, as a rule, may terminate an
unregistered lease except when it knows of the
existence of the lease.
In the instant case, the lease contract between
petitioners and Rudy Robles was not
[62]
registered. During trial, DBP denied having any
knowledge of the said lease contract.[63] It asserted
that the lease was merely presumed in view of the
existence of tenants in the subject
[64]
property. Nevertheless, DBP recognized and
acknowledged this lease contract in its letter dated
June 18, 1987, which was addressed to Bonifacio Sia,
then President of Cebu Bionic. DBP even required Sia
to pay the monthly rental for the month of June 1987,
thereby exercising the right of the previous lessor,
Rudy Robles, to collect the rental payments from the
lessee. In the same letter, DBP extended an offer to
Cebu Bionic to continue the lease on the subject
property, outlining the provisions of the proposed
contract and specifically instructing the latter to come
to the bank for the execution of the same. DBP
likewise gave Cebu Bionic a 30-day period within
which to act on the said contract execution. Should
Cebu Bionic fail to do so, it would be deemed
uninterested in continuing with the lease. In that
eventuality, the letter states that Cebu Bionic should
vacate the premises within the said period.
Instead of acceding to the terms of the
aforementioned letter, the counsel of Cebu Bionic sent
a counter-offer to DBP dated July 7, 1987, suggesting
a different mode of payment for the rentals and
requesting for a 60-day period within which time the
parties will execute a new contract of lease.
The parties, however, failed to execute a
written contract of lease. Petitioners put the blame on
DBP, asserting that no contract was signed because
DBP did not prepare it for them. DBP, on the other
hand, counters that it was petitioners who did not
positively act on the conditions for the execution of
the lease contract. In view of the counter-offer of
petitioners, DBP and respondents To Chip, Yap and
Balila argue that there was no meeting of minds
between DBP and petitioners, which would have
given rise to a new contract of lease.
The Court rules that, indeed, no new contract of
lease was ever perfected between petitioners and
DBP.
In Metropolitan Manila Development Authority
v. JANCOM Environmental Corporation,[65] we
emphasized that:
Under Article 1305 of the Civil Code,
[a] contract is a meeting of minds between two
persons whereby one binds himself, with respect
to the other, to give something or to render some
service. A contract undergoes three distinct
stages preparation or negotiation, its perfection,
and finally, its consummation. Negotiation
begins from the time the prospective contracting
parties manifest their interest in the contract and
ends at the moment of agreement of the
parties. The perfection or birth of the contract
takes place when the parties agree upon the
essential elements of the contract. The last stage
is the consummation of the contract wherein the
parties fulfill or perform the terms agreed upon
in the contract, culminating in the
extinguishment thereof (Bugatti vs. CA, 343
SCRA 335 [2000]). Article 1315 of the Civil
Code, provides that a contract is perfected by
mere consent. Consent, on the other hand, is
manifested by the meeting of the offer and the
acceptance upon the thing and the cause which
are to constitute the contract (See Article 1319,
Civil Code). x x x.[66]
In the case at bar, there was no concurrence of
offer and acceptance vis--vis the terms of the proposed
lease agreement. In fact, after the reply of petitioners
counsel dated July 7, 1987, there was no indication
that the parties undertook any other action to pursue
the execution of the intended lease
contract. Petitioners even admitted that they merely
waited for DBP to present the contract to them,
despite being instructed to come to the bank for the
execution of the same.[67]
Contrary to the ruling of the RTC, the Court is
also not convinced that DBP opted to continue the
existing lease contract between petitioners and Rudy
Robles.
The findings of the RTC that DBP supposedly
accepted the requirements the latter set forth in its
letter dated June 18, 1987 is not well taken. To
recapitulate, the third paragraph of the letter reads:
If you wish to continue on leasing the
property, we request you to come to the Bank
for the execution of a Contract of Lease, the
salient conditions of which are as follows:
1. The lease will be on month to
month basis, for a maximum
period of one (1) year;
2. Deposit equivalent to two (2) months
rental and advance of one (1)
month rental, and the remaining
amount for one year period
(equivalent to 9 months rental)
shall be secured by either surety
bond, cash bond or assigned time
deposit;
3. That in case there is a better
offer or if the property will be
subject of a purchase offer,
within the term, the lessor is
given an option of first refusal,
otherwise he has to vacate the
premises within thirty (30) days
from date of notice.[68]
The so-called requirements enumerated in the
above paragraph are not really requirements to be
complied with by the petitioners for the execution of
the proposed lease contract, as apparently considered
by the RTC and the petitioners. A close reading of the
letter reveals that the items enumerated therein were
in fact the salient terms and conditions of the
proposed contract of lease, which the DBP and the
petitioners were to execute if the latter were so
willing. Also, the Certificate of Time Deposit in the
amount of P11,395.64, which was allegedly paid to
DBP as advance rental deposit pursuant to the said
requirements, was not even clearly established as such
since it was neither secured by a security bond or a
cash bond, nor was it assigned to DBP.
The contention that the lease contract between
petitioners and Rudy Robles did not expire, given that
it did not have a definite term and the parties thereto
failed to terminate the same, deserves scant
consideration. To recall, the second paragraph of the
terms and conditions of the contract of lease between
petitioners and Rudy Robles reads:
2. That the term of this agreement shall start on
November 1, 1981 and shall terminate on
the last day of every month thereafter;
provided however that this contract shall be
automatically renewed on a month to month
basis if no notice, in writing, is sent to the
other party to terminate this agreement after
fifteen (15) days from receipt of said
notice.[69] (Emphases ours.)
Crystal clear from the above provision is that
the lease is on a month-to-month basis. Relevantly,
the well-entrenched principle is that a lease from
month-to-month is with a definite period and expires
at the end of each month upon the demand to vacate
by the lessor.[70] As held by the Court of Appeals in
the assailed Amended Decision, the above-mentioned
lease contract was duly terminated by DBP by virtue
of its letter dated June 18, 1987. We reiterate that the
letter explicitly directed the petitioners to come to the
office of the DBP if they wished to enter into a new
lease agreement with the said bank. Otherwise, if no
contract of lease was executed within 30 days from
the date of the letter, petitioners were to be considered
uninterested in entering into a new contract and were
thereby ordered to vacate the property. As no new
contract was in fact executed between petitioners and
DBP within the 30-day period, the directive to vacate,
thus, took effect. DBPs letter dated June 18, 1987,
therefore, constituted the written notice that was
required to terminate the lease agreement between
petitioners and Rudy Robles. From then on, the
petitioners continued possession of the subject
property could be deemed to be without the consent of
DBP.
Thusly, petitioners assertion that Article 1670
of the Civil Code is not applicable to the instant case
is correct. The reason, however, is not that the
existing contract was continued by DBP, but because
the lease was terminated by DBP, which termination
was accompanied by a demand to petitioners to vacate
the premises of the subject property.
Article 1670 states that [i]f at the end of the
contract the lessee should continue enjoying the thing
leased for fifteen days with the acquiescence of the
lessor, and unless a notice to the contrary by either
party has previously been given, it is understood that
there is an implied new lease, not for the period of the
original contract, but for the time established in
Articles 1682 and 1687. The other terms of the
original contract shall be revived. In view of the order
to vacate embodied in the letter of DBP dated June 18,
1987 in the event that no new lease contract is entered
into, the petitioners continued possession of the
subject properties was without the acquiescence of
DBP, thereby negating the constitution of an implied
lease.
Contrary to the ruling of the RTC, DBPs
acceptance of petitioners rental payments
of P5,000.00 for the period of November 1990 to
March 1991 did not likewise give rise to an implied
lease between petitioners and DBP. In Tagbilaran
Integrated Settlers Association (TISA) Incorporated v.
Court of Appeals,[71] we held that the subsequent
acceptance by the lessor of rental payments does not,
absent any circumstance that may dictate a contrary
conclusion, legitimize the unlawful character of their
possession. In the present case, the petitioners rental
payments to DBP were made in lump sum on March
22, 1991. Significantly, said payments were remitted
only after petitioners were notified of the sale of the
subject properties to respondents To Chip, Yap and
Balila and after the petitioners were given a final
demand to vacate the properties. These facts
substantially weaken, if not controvert, the finding of
the RTC and the argument of petitioners that the latter
were faithfully remitting their rental payments to DBP
until the year 1991.
Thus, having determined that the petitioners
and DBP neither executed a new lease agreement, nor
entered into an implied lease contract, it follows that
petitioners claim of entitlement to a right of first
refusal has no leg to stand on. Furthermore, even if we
were to grant, for the sake of argument, that an
implied lease was constituted between petitioners and
the DBP, the right of first refusal that was contained
in the prior lease contract with Rudy Robles was not
renewed therewith. This is in accordance with the
ruling in Dizon v. Magsaysay,[72] which involved the
issue of whether a provision regarding a preferential
right to purchase is revived in an implied lease under
Article 1670, to wit:
[T]he other terms of the original contract which
are revived in the implied new lease under
Article 1670 are only those terms which are
germane to the lessees right of continued
enjoyment of the property leased. This is a
reasonable construction of the provision, which
is based on the presumption that when the lessor
allows the lessee to continue enjoying
possession of the property for fifteen days after
 the expiration of the contract he is willing that and the Amended Decision dated July 5, 2002 of the
such enjoyment shall be for the entire period Court of Appeals in CA-G.R. CV No. 57216 are
corresponding to the rent which is customarily
hereby AFFIRMED. No costs.
paid in this case up to the end of the month
because the rent was paid monthly. Necessarily,
if the presumed will of the parties refers to the SO ORDERED.
enjoyment of possession the presumption covers GOVERNMENT SERVICE G.R. Nos. 158090
the other terms of the contract related to such INSURANCE SYSTEM (GSIS), Present:
possession, such as the amount of rental, the Petitioner,
date when it must be paid, the care of the
VELASCO, JR.,*
property, the responsibility for repairs, etc. But
no such presumption may be indulged in with NACHURA,** J., Act
respect to special agreements which by nature - versus - Chairperson,
are foreign to the right of occupancy or PERALTA,
enjoyment inherent in a contract of lease.[73] MENDOZA, and
SERENO,*** JJ.
HEIRS OF FERNANDO F.
DBP cannot, therefore, be accused of violating
CABALLERO, represented by his Promulgated:
the rights of petitioners when it offered the subject October 4, 2010
daughter, JOCELYN G.
properties for sale, and eventually sold the same to
CABALLERO,
respondents To Chip, Yap and Balila, without first Respondents.
notifying petitioners. Neither were the said x----------------------------------------------------------------
respondents bound by any right of first refusal in -------------------------x
favor of petitioners. Consequently, the sale of the
subject properties to respondents was
valid. Petitioners claim for rescission was properly
DECISION
dismissed.

WHEREFORE, the Petition for Review PERALTA, J.:

on Certiorari under Rule 45 of the Rules of Court
is DENIED. The Resolution dated February 5, 2002
Before this Court is a petition for review
on certiorari under Rule 45 of the Rules of Court
seeking to set aside the Decision[1] and the
Resolution,[2] dated December 17, 2002 and April 29,
2003, respectively, of the Court of Appeals (CA) in
CA-G.R. CV. No. 49300.
The antecedents are as follows:
Respondent Fernando C. Caballero (Fernando) was
the registered owner of a residential lot designated as
Lot No. 3355, Ts-268, covered by TCT No. T-16035
of the Register of Deeds of Cotabato, containing an
area of 800 square meters and situated at Rizal Street,
Mlang, Cotabato. On the said lot, respondent built a
residential/commercial building consisting of two (2)
stories.
On March 7, 1968, Fernando and his wife, Sylvia
Caballero, secured a loan from petitioner Government
Service Insurance System (GSIS) in the amount
of P20,000.00, as evidenced by a promissory
note. Fernando and his wife likewise executed a real
estate mortgage on the same date, mortgaging the
afore-stated property as security.
Fernando defaulted on the payment of his loan with
the GSIS. Hence, on January 20, 1973, the mortgage
covering the subject property was foreclosed, and on
March 26, 1973, the same was sold at a public auction
where the petitioner was the only bidder in the amount
of P36,283.00. For failure of Fernando to redeem the
said property within the designated period, petitioner
executed an Affidavit of Consolidation of Ownership
on September 5, 1975. Consequently, TCT No. T-
16035 was cancelled and TCT No. T-45874 was
issued in the name of petitioner.
On November 26, 1975, petitioner wrote a letter to
Fernando, informing him of the consolidation of title
in its favor, and requesting payment of monthly rental
in view of Fernando's continued occupancy of the
subject property. In reply, Fernando requested that he
be allowed to repurchase the same through partial
payments. Negotiation as to the repurchase by
Fernando of the subject property went on for several
years, but no agreement was reached between the
parties.
On January 16, 1989, petitioner scheduled the subject
property for public bidding. On the scheduled date of
bidding, Fernando's daughter, Jocelyn Caballero,
submitted a bid in the amount of P350,000.00, while
Carmelita Mercantile Trading Corporation (CMTC)
submitted a bid in the amount of P450,000.00. Since
CMTC was the highest bidder, it was awarded the
subject property. On May 16, 1989, the Board of
Trustees of the GSIS issued Resolution No. 199
confirming the award of the subject property to
CMTC for a total consideration of P450,000.00.
Thereafter, a Deed of Absolute Sale was executed
between petitioner and CMTC on July 27, 1989,
transferring the subject property to
CMTC.Consequently, TCT No. T-45874 in the name
of GSIS was cancelled, and TCT No. T-76183 was
issued in the name of CMTC.
Due to the foregoing, Fernando, represented by his
daughter and attorney-in-fact, Jocelyn Caballero, filed
with the Regional Trial Court (RTC) of Kabacan,
Cotabato a Complaint[3] against CMTC, the GSIS and
its responsible officers, and the Register of Deeds of
Kidapawan, Cotabato. Fernando prayed, among
others, that judgment be rendered: declaring GSIS
Board of Trustees Resolution No. 199, dated May 16,
1989, null and void; declaring the Deed of Absolute
Sale between petitioner and CMTC null and void ab
initio; declaring TCT No. 76183 of the Register of
Deeds of Kidapawan, Cotabato, likewise, null and
void ab initio; declaring the bid made by Fernando in
the amount ofP350,000.00 for the repurchase of his
property as the winning bid; and ordering petitioner to
execute the corresponding Deed of Sale of the subject
property in favor of Fernando. He also prayed for
payment of moral damages, exemplary damages,
attorney's fees and litigation expenses.
In his complaint, Fernando alleged that there were
irregularities in the conduct of the bidding. CMTC
misrepresented itself to be wholly owned by Filipino
citizens. It misrepresented its working capital. Its
representative Carmelita Ang Hao had no prior
authority from its board of directors in an appropriate
board resolution to participate in the bidding. The
corporation is not authorized to acquire real estate or
invest its funds for purposes other than its primary
purpose. Fernando further alleged that the GSIS
allowed CMTC to bid despite knowledge that said
corporation has no authority to do so. The GSIS also
disregarded Fernando's prior right to buy back his
family home and lot in violation of the laws. The
Register of Deeds of Cotabato acted with abuse of
power and authority when it issued the TCT in favor
of CMTC without requiring the CMTC to submit its
supporting papers as required by the law.
Petitioner and its officers filed their Answer with
Affirmative Defenses and Counterclaim.[4] The GSIS
alleged that Fernando lost his right of redemption. He
was given the chance to repurchase the property;
however, he did not avail of such option compelling
the GSIS to dispose of the property by public bidding
as mandated by law. There is also no prior right to
buy back that can be exercised by Fernando. Further,
it averred that the articles of incorporation and other
papers of CMTC were all in order. In its counterclaim,
petitioner alleged that Fernando owed petitioner the
sum of P130,365.81, representing back rentals,
including additional interests from January 1973 to
February 1987, and the additional amount
of P249,800.00, excluding applicable interests,
representing rentals Fernando unlawfully collected
from Carmelita Ang Hao from January 1973 to
February 1988.
After trial, the RTC, in its Decision[5] dated September
27, 1994, ruled in favor of petitioner and dismissed
the complaint. In the same decision, the trial court
granted petitioner's counterclaim and directed
Fernando to pay petitioner the rentals paid by CMTC
in the amount of P249,800.00. The foregoing amount
was collected by Fernando from the CMTC and
represents payment which was not turned over to
petitioner, which was entitled to receive the rent from prayed that they be allowed to be substituted for the
the date of the consolidation of its ownership over the deceased, as respondents in this case.
subject property.
Petitioner enumerated the following grounds in
Fernando filed a motion for reconsideration, which support of its petition:
was denied by the RTC in an Order dated March 27,
1995. I
THE HONORABLE COURT OF APPEALS
COMMITTED AN ERROR OF LAW IN
Aggrieved by the Decision, respondent filed a Notice HOLDING THAT GSIS' COUNTERCLAIM,
of Appeal.[6] The CA, in its Decision dated December AMONG OTHERS, OF P249,800.00
REPRESENTING RENTALS COLLECTED
17, 2002, affirmed the decision of the RTC with the BY PRIVATE RESPONDENT FROM
modification that the portion of the judgment ordering CARMELITA MERCANTILE TRADING
CORPORATION IS IN THE NATURE OF A
Fernando to pay rentals in the amount of P249,800.00, PERMISSIVE COUNTERCLAIM WHICH
in favor of petitioner, be deleted. Petitioner filed a REQUIRED THE PAYMENT BY GSIS OF
DOCKET FEES BEFORE THE TRIAL
motion for reconsideration, which the CA denied in a COURT CAN ACQUIRE JURISDICTION
Resolution dated April 29, 2003. Hence, the instant OVER SAID COUNTERCLAIM.

petition.

II
An Ex Parte Motion for Substitution of Party,[7] dated THE HONORABLE COURT OF APPEALS
July 18, 2003, was filed by the surviving heirs of COMMITTED AN ERROR OF LAW IN
HOLDING THAT GSIS' DOCUMENTARY
Fernando, who died on February 12, 2002. They EVIDENCE SUPPORTING ITS CLAIM
 OF P249,800.00 LACKS PROPER
IDENTIFICATION. [8] These additional averments cannot be taken
cognizance by the Court, because they were
substantially respondents arguments in their petition
The petition of the GSIS seeks the review of the CA's
for review on certiorari earlier filed before Us and
Decision insofar as it deleted the trial court's award
docketed as G.R. No. 156609. Records show that said
of P249,800.00 in its favor representing rentals
petition was denied by the Court in a
collected by Fernando from the CMTC.
Resolution[9] dated April 23, 2003, for petitioners
(respondents herein) failure to sufficiently show that
In their Memorandum, respondents claim that CMTC
the Court of Appeals committed any reversible error
cannot purchase real estate or invest its funds in any
in the challenged decision as to warrant the exercise
purpose other than its primary purpose for which it
by this Court of its discretionary appellate
was organized in the absence of a corporate board
jurisdiction.[10] Said resolution became final and
resolution; the bid award, deed of absolute sale and
executory on June 9, 2003.[11] Respondents attempt to
TCT No. T-76183, issued in favor of the CMTC,
re-litigate claims already passed upon and resolved
should be nullified; the trial court erred in concluding
with finality by the Court in G.R. No. 156609 cannot
that GSIS personnel have regularly performed their
be allowed.
official duty when they conducted the public bidding;
Fernando, as former owner of the subject property and
Going now to the first assigned error, petitioner
former member of the GSIS, has the preemptive right
submits that its counterclaim for the rentals collected
to repurchase the foreclosed property.
by Fernando from the CMTC is in the nature of a
compulsory counterclaim in the original action of
Fernando against petitioner for annulment of bid
award, deed of absolute sale and TCT No. 76183.
Respondents, on the other hand, alleged that
petitioner's counterclaim is permissive and its failure
to pay the prescribed docket fees results into the
dismissal of its claim.
To determine whether a counterclaim is compulsory
or not, the Court has devised the following tests: (a)
Are the issues of fact and law raised by the claim and
by the counterclaim largely the same? (b)
Would res judicata bar a subsequent suit on
defendants claims, absent the compulsory
counterclaim rule? (c) Will substantially the same
evidence support or refute plaintiffs claim as well as
the defendants counterclaim? and (d) Is there any
logical relation between the claim and the
counterclaim? A positive answer to all four questions
would indicate that the counterclaim is compulsory.[12]
Tested against the above-mentioned criteria, this
Court agrees with the CA's view that petitioner's
counterclaim for the recovery of the amount
representing rentals collected by Fernando from the
CMTC is permissive. The evidence needed by
Fernando to cause the annulment of the bid award,
deed of absolute sale and TCT is different from that
required to establish petitioner's claim for the
recovery of rentals.
The issue in the main action, i.e., the nullity or
validity of the bid award, deed of absolute sale and
TCT in favor of CMTC, is entirely different from the
issue in the counterclaim,i.e., whether petitioner is
entitled to receive the CMTC's rent payments over the
subject property when petitioner became the owner of
the subject property by virtue of the consolidation of
ownership of the property in its favor.
The rule in permissive counterclaims is that for the
trial court to acquire jurisdiction, the counterclaimant
is bound to pay the prescribed docket fees.[13] This,
petitioner did not do, because it asserted that its claim
for the collection of rental payments was a
compulsory counterclaim. Since petitioner failed to
pay the docket fees, the RTC did not acquire
jurisdiction over its permissive counterclaim. The
judgment rendered by the RTC, insofar as it ordered
Fernando to pay petitioner the rentals which he
collected from CMTC, is considered null and void.
Any decision rendered without jurisdiction is a total
nullity and may be struck down at any time, even on
appeal before this Court.[14]
Petitioner further argues that assuming that its
counterclaim is permissive, the trial court has
jurisdiction to try and decide the same, considering
petitioner's exemption from all kinds of fees.
In In Re: Petition for Recognition of the Exemption of
the Government Service Insurance System from
Payment of Legal Fees,[15] the Court ruled that the
provision in the Charter of the GSIS, i.e., Section 39
of Republic Act No. 8291, which exempts it from all
taxes, assessments, fees, charges or duties of all kinds,
cannot operate to exempt it from the payment of legal
fees. This was because, unlike the 1935 and 1973
Constitutions, which empowered Congress to repeal,
alter or supplement the rules of the Supreme Court
concerning pleading, practice and procedure, the 1987
Constitution removed this power from
Congress. Hence, the Supreme Court now has the sole
authority to promulgate rules concerning pleading,
practice and procedure in all courts.
In said case, the Court ruled that:
The separation of powers among the
three co-equal branches of our government has
erected an impregnable wall that keeps the
power to promulgate rules of pleading, practice
and procedure within the sole province of this
Court. The other branches trespass upon this
prerogative if they enact laws or issue orders
that effectively repeal, alter or modify any of the
procedural rules promulgated by this Court.
Viewed from this perspective, the claim of a
legislative grant of exemption from the payment
of legal fees under Section 39 of RA 8291
necessarily fails.
Congress could not have carved out an
exemption for the GSIS from the payment of
legal fees without transgressing another equally
important institutional safeguard of the Court's
independence − fiscal autonomy. Fiscal
 autonomy recognizes the power and authority of
the Court to levy, assess and collect fees,
including legal fees. Moreover, legal fees under
Rule 141 have two basic components, the
Judiciary Development Fund (JDF) and the
Special Allowance for the Judiciary Fund
(SAJF). The laws which established the JDF and
the SAJF expressly declare the identical purpose
of these funds to "guarantee the independence of
the Judiciary as mandated by the Constitution
and public policy." Legal fees therefore do not
only constitute a vital source of the Court's
financial resources but also comprise an
essential element of the Court's fiscal
independence. Any exemption from the
payment of legal fees granted by Congress to
government-owned or controlled corporations
and local government units will necessarily
reduce the JDF and the SAJF. Undoubtedly,
such situation is constitutionally infirm for it
impairs the Court's guaranteed fiscal autonomy
and erodes its independence.
Petitioner also invoked our ruling in Sun Insurance
Office, Ltd. v. Judge Asuncion,[16] where the Court
held that:
xxxx
3. Where the trial court acquires
jurisdiction over a claim by the filing of the
appropriate pleading and payment of the
prescribed filing fee but, subsequently, the
judgment awards a claim not specified in the
pleading, or if specified the same has been left
for determination by the court, the additional
filing fee therefor shall constitute a lien on the
judgment. It shall be the responsibility of the
Clerk of Court or his duly authorized deputy to
enforce said lien and assess and collect the
additional fee.
In Ayala Corporation v. Madayag,[17] the Court,
in interpreting the third rule laid down in Sun
Insurance Office, Ltd. v. Judge Asuncion regarding
awards of claims not specified in the pleading, held
that the same refers only to damages arising after the
filing of the complaint or similar pleading as to which
the additional filing fee therefor shall constitute a lien
on the judgment.
The amount of any claim for damages,
therefore, arising on or before the filing of the
complaint or any pleading should be specified.
While it is true that the determination of certain
damages as exemplary or corrective damages is
left to the sound discretion of the court, it is the
duty of the parties claiming such damages to
specify the amount sought on the basis of which
the court may make a proper determination, and
for the proper assessment of the appropriate
docket fees. The exception contemplated as to
 claims not specified or to claims although LIBRADA M. AQUINO, G.R. No. 153567
specified are left for determination of the
court is limited only to any damages that may Petitioner, Present:
arise after the filing of the complaint or
similar pleading for then it will not be
possible for the claimant to specify nor
YNARES-SANTIA
speculate as to the amount thereof. (Emphasis
supplied.) Chairperson,
AUSTRIA-MARTINE

Petitioner's claim for payment of rentals collected by CHICO-NAZARIO,

Fernando from the CMTC did not arise after the filing NACHURA, and
of the complaint; hence, the rule laid down in Sun
Insurance finds no application in the present case. REYES, JJ.
- versus -
Due to the non-payment of docket fees on petitioner's
counterclaim, the trial court never acquired
jurisdiction over it and, thus, there is no need to
discuss the second issue raised by petitioner. Promulgated:
WHEREFORE, the petition is DENIED.
The Decision and the Resolution, dated December 17,
2002 and April 29, 2003, respectively, of the Court of February 18, 2008
Appeals in CA-G.R. CV. No.
49300, are AFFIRMED. ERNEST S. AURE[1],
Respondent.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
SO ORDERED.
- - - - - - - - - - -x

DECISION
CHICO-NAZARIO, J.:
Before this Court is a Petition for Review
on Certiorari[2] under Rule 45 of the Revised Rules of
Court filed by petitioner Librada M. Aquino (Aquino),
seeking the reversal and the setting aside of the
Decision[3] dated 17 October 2001 and the
Resolution[4] dated 8 May 2002 of the Court of
Appeals in CA-G.R. SP No. 63733. The appellate court,
in its assailed Decision and Resolution, reversed the
Decision[5] of the Regional Trial Court (RTC) of Quezon
City, Branch 88, affirming the Decision[6] of the
Metropolitan Trial Court (MeTC) of Quezon City,
Branch 32, which dismissed respondent Ernesto
Aures (Aure) complaint for ejectment on the
ground, inter alia, of failure to comply with barangay
conciliation proceedings.
The subject of the present controversy is a parcel of
land situated in Roxas District, Quezon City, with an
area of 449 square meters and covered by Transfer
Certificate of Title (TCT) No. 205447 registered with
the Registry of Deeds of Quezon City (subject
property).[7]
Aure and E.S. Aure Lending Investors, Inc. (Aure
Lending) filed a Complaint for ejectment against
Aquino before the MeTC docketed as Civil Case No.
17450. In their Complaint, Aure and Aure Lending
alleged that they acquired the subject property from
Aquino and her husband Manuel (spouses Aquino) by
virtue of a Deed of Sale[8]executed on 4 June
1996. Aure claimed that after the spouses Aquino
received substantial consideration for the sale of the
subject property, they refused to vacate the same.[9]
 In her Answer,[10] Aquino countered that the
Complaint in Civil Case No. 17450 lacks cause of
action for Aure and Aure Lending do not have any
legal right over the subject property. Aquino
admitted that there was a sale but such was
governed by the Memorandum of
[11]
Agreement (MOA) signed by Aure. As stated in the
MOA, Aure shall secure a loan from a bank or
financial institution in his own name using the subject
property as collateral and turn over the proceeds
thereof to the spouses Aquino. However, even after
Aure successfully secured a loan, the spouses Aquino
did not receive the proceeds thereon or benefited
therefrom.
On 20 April 1999, the MeTC rendered a
Decision in Civil Case No. 17450 in favor of Aquino
and dismissed the Complaint for ejectment of Aure
and Aure Lending for non-compliance with the
barangay conciliation process, among other
grounds. The MeTC observed that Aure and Aquino
are residents of the same barangay but there is no
showing that any attempt has been made to settle
the case amicably at the barangay level. The MeTC
further observed that Aure Lending was improperly
included as plaintiff in Civil Case No. 17450 for it did
not stand to be injured or benefited by the
suit. Finally, the MeTC ruled that since the question
of ownership was put in issue, the action was
converted from a mere detainer suit to one incapable
of pecuniary estimation which properly rests within
the original exclusive jurisdiction of the RTC. The
dispositive portion of the MeTC Decision reads:
WHEREFORE, premises considered,
let this case be, as it is, hereby ordered
DISMISSED. [Aquinos] counterclaim is
likewise dismissed.[12]
On appeal, the RTC affirmed the dismissal of
the Complaint on the same ground that the dispute
was not brought before the Barangay Council for
conciliation before it was filed in court. In a Decision
dated 14 December 2000, the RTC stressed that
the barangay conciliation process is a conditio sine
qua non for the filing of an ejectment complaint
involving residents of the same barangay, and failure
to comply therewith constitutes sufficient cause for
the dismissal of the action. The RTC likewise
validated the ruling of the MeTC that the main issue
involved in Civil Case No. 17450 is incapable of
pecuniary estimation and cognizable by the
RTC. Hence, the RTC ruled:
WHEREFORE, finding no reversible
error in the appealed judgment, it is
hereby affirmed in its entirety.[13]
Aures Motion for Reconsideration was denied by the
RTC in an Order[14] dated 27 February 2001.
Undaunted, Aure appealed the adverse RTC
Decision with the Court of Appeals arguing that the
lower court erred in dismissing his Complaint for lack
of cause of action.Aure asserted that misjoinder of
parties was not a proper ground for dismissal of his
Complaint and that the MeTC should have only
ordered the exclusion of Aure Lending as plaintiff
without prejudice to the continuation of the
proceedings in Civil Case No. 17450 until the final
determination thereof. Aure further asseverated that
mere allegation of ownership should not divest the
MeTC of jurisdiction over the ejectment suit since
jurisdiction over the subject matter is conferred by
law and should not depend on the defenses and
objections raised by the parties. Finally, Aure
contended that the MeTC erred in dismissing his
Complaint with prejudice on the ground of non-
compliance with barangay conciliation process. He
was not given the opportunity to rectify the
procedural defect by going through
the barangay mediation proceedings and, thereafter,
refile the Complaint.[15]
On 17 October 2001, the Court of Appeals
rendered a Decision, reversing the MeTC and RTC
Decisions and remanding the case to the MeTC for
further proceedings and final determination of the
substantive rights of the parties. The appellate court
declared that the failure of Aure to subject the
matter to barangay conciliation is not a jurisdictional
flaw and it will not affect the sufficiency of Aures
Complaint since Aquino failed to seasonably raise
such issue in her Answer. The Court of Appeals
further ruled that mere allegation of ownership does
not deprive the MeTC of jurisdiction over the
ejectment case for jurisdiction over the subject
matter is conferred by law and is determined by the
allegations advanced by the plaintiff in his
complaint. Hence, mere assertion of ownership by
the defendant in an ejectment case will not oust the
MeTC of its summary jurisdiction over the same. The
decretal part of the Court of Appeals Decision reads:
WHEREFORE, premises considered,
the petition is hereby GRANTED - and the
decisions of the trial courts below
REVERSED and SET ASIDE. Let the records
be remanded back to the court a quo for
further proceedings for an eventual
decision of the substantive rights of the
disputants.[16]
In a Resolution dated 8 May 2002, the Court of
Appeals denied the Motion for Reconsideration
interposed by Aquino for it was merely a rehash of
the arguments set forth in her previous pleadings
which were already considered and passed upon by
the appellate court in its assailed Decision.
Aquino is now before this Court via the Petition at
bar raising the following issues:
I.
WHETHER OR NOT NON-COMPLIANCE
WITH THE BARANGAY CONCILIATION
PROCEEDINGS IS A JURISDICTIONAL
DEFECT THAT WARRANTS THE DISMISSAL
OF THE COMPLAINT.
II.
WHETHER OR NOT ALLEGATION OF OWNERSHIP
OUSTS THE MeTC OF ITS JURISDICTION
OVER AN EJECTMENT CASE.
The barangay justice system was established
primarily as a means of easing up the congestion of
cases in the judicial courts. This could be
accomplished through a proceeding before
the barangay courts which, according to the
conceptor of the system, the late Chief Justice Fred
Ruiz Castro, is essentially arbitration in character, and
to make it truly effective, it should also be
compulsory. With this primary objective of
the barangay justice system in mind, it would be
wholly in keeping with the underlying philosophy of
Presidential Decree No. 1508, otherwise known as
the Katarungang Pambarangay Law, and the policy
behind it would be better served if an out-of-court
settlement of the case is reached voluntarily by the
parties.[17]
The primordial objective of Presidential Decree No.
1508 is to reduce the number of court litigations and
prevent the deterioration of the quality of justice
which has been brought by the indiscriminate filing of
cases in the courts.[18] To ensure this objective,
Section 6 of Presidential Decree No. 1508[19] requires
the parties to undergo a conciliation process before
the Lupon Chairman or the Pangkat ng
Tagapagkasundo as a precondition to filing a
complaint in court subject to certain
[20]
exceptions which are inapplicable to this case. The
said section has been declared compulsory in
nature.[21]
Presidential Decree No. 1508 is now
incorporated in Republic Act No. 7160, otherwise
known as The Local Government Code, which took
effect on 1 January 1992.
The pertinent provisions of the Local
Government Code making conciliation a precondition
to filing of complaints in court, read:
 SEC. 412. Conciliation.- (a) Pre-
condition to filing of complaint in court.
(2) Where a person has otherwise
No complaint, petition, action, or
been deprived of personal liberty calling
proceeding involving any matter within
for habeas corpus proceedings;
the authority of the lupon shall be filed or
instituted directly in court or any other
government office for adjudication, unless
(3) Where actions are coupled with
there has been a confrontation between
provisional remedies such as preliminary
the parties before the lupon chairman or
injunction, attachment, delivery of
the pangkat, and that no conciliation or
personal property, and support pendente
settlement has been reached as certified
lite; and
by the lupon secretary or pangkat
secretary as attested to by the lupon
chairman or pangkat chairman or unless
(4) Where the action may
the settlement has been repudiated by
otherwise be barred by the statute of
the parties thereto.
limitations.
(b) Where parties may go directly to court.
(c) Conciliation among members of
The parties may go directly to court in the
indigenous cultural communities. The
following instances:
customs and traditions of indigenous
cultural communities shall be applied in
settling disputes between members of the
(1) Where the accused is under
cultural communities.
detention;
 SEC. 408. Subject Matter for
Amicable Settlement; Exception Therein.
(d) Offenses where there is no
The lupon of each barangay shall have
private offended party;
authority to bring together the parties
actually residing in the same city or
municipality for amicable settlement of all
(e) Where the dispute involves real
disputes except:
properties located in different cities or
municipalities unless the parties thereto
agree to submit their differences to
(a) Where one party is the
amicable settlement by an appropriate
government or any subdivision or
lupon;
instrumentality thereof;

(f) Disputes involving parties who

(b) Where one party is a public
actually reside in barangays of different
officer or employee, and the dispute
cities or municipalities, except where such
relates to the performance of his official
barangay units adjoin each other and the
functions;
parties thereto agree to submit their
differences to amicable settlement by an
appropriate lupon;
(c) Offenses punishable by
imprisonment exceeding one (1) year or a
fine exceeding Five thousand pesos
(g) Such other classes of disputes
(P5,000.00);
which the President may determine in the
 interest of justice or upon the
recommendation of the Secretary of
Justice.
There is no dispute herein that the present
case was never referred to the Barangay Lupon for
conciliation before Aure and Aure Lending instituted
Civil Case No. 17450.In fact, no allegation of
such barangay conciliation proceedings was made in
Aure and Aure Lendings Complaint before the
MeTC. The only issue to be resolved is whether non-
recourse to the barangay conciliation process is a
jurisdictional flaw that warrants the dismissal of the
ejectment suit filed with the MeTC.
Aquino posits that failure to resort
to barangay conciliation makes the action for
ejectment premature and, hence, dismissible. She
likewise avers that this objection was timely raised
during the pre-trial and even subsequently in her
Position Paper submitted to the MeTC.
We do not agree.
It is true that the precise technical effect of
failure to comply with the requirement of Section
412 of the Local Government Code
on barangay conciliation (previously contained in
Section 5 of Presidential Decree No. 1508) is much
the same effect produced by non-exhaustion of
administrative remedies -- the complaint becomes
afflicted with the vice of pre-maturity; and the
controversy there alleged is not ripe for judicial
determination. The complaint becomes vulnerable to
a motion to dismiss.[22] Nevertheless, the conciliation
process is not a jurisdictional requirement, so that
non-compliance therewith cannot affect the
jurisdiction which the court has otherwise acquired
over the subject matter or over the person of the
defendant.[23]
As enunciated in the landmark case of Royales
v. Intermediate Appellate Court[24]:
 participated in the trial of the case by
cross-examining respondent Planas. Upon
Ordinarily, non-compliance with the
this premise, petitioners cannot now be
condition precedent prescribed by P.D.
allowed belatedly to adopt an
1508 could affect the sufficiency of the
inconsistent posture by attacking the
plaintiff's cause of action and make his
jurisdiction of the court to which they
complaint vulnerable to dismissal on
had submitted themselves voluntarily. x x
ground of lack of cause of action or
x (Emphasis supplied.)
prematurity; but the same would not
prevent a court of competent jurisdiction
from exercising its power of adjudication
over the case before it, where the
defendants, as in this case, failed to In the case at bar, we similarly find that Aquino
object to such exercise of jurisdiction in cannot be allowed to attack the jurisdiction of the
their answer and even during the entire MeTC over Civil Case No. 17450 after having
proceedings a quo. submitted herself voluntarily thereto. We have
scrupulously examined Aquinos Answer before the
MeTC in Civil Case No. 17450 and there is utter lack
While petitioners could have of any objection on her part to any deficiency in the
prevented the trial court from exercising complaint which could oust the MeTC of its
jurisdiction over the case by seasonably jurisdcition.
taking exception thereto, they instead
invoked the very same jurisdiction by
filing an answer and seeking affirmative
We thus quote with approval the disquisition
of the Court of Appeals:
relief from it. What is more, they

Moreover, the Court takes note
that the defendant [Aquino] herself did
not raise in defense the aforesaid lack of
conciliation proceedings in her answer,
which raises the exclusive affirmative
defense of simulation. By this
acquiescence, defendant [Aquino] is
deemed to have waived such objection. As
held in a case of similar circumstances, the
failure of a defendant [Aquino] in an
ejectment suit to specifically allege the
fact that there was no compliance with
the barangay conciliation procedure
constitutes a waiver of that defense. x x
x.[25]
By Aquinos failure to seasonably object to the
deficiency in the Complaint, she is deemed to have
already acquiesced or waived any defect attendant
thereto. Consequently, Aquino cannot thereafter
move for the dismissal of the ejectment suit for Aure
and Aure Lendings failure to resort to
the barangay conciliation process, since she is
already precluded from doing so. The fact that
Aquino raised such objection during the pre-trial and
in her Position Paper is of no moment, for the issue
of non-recourse to barangaymediation proceedings
should be impleaded in her Answer.
As provided under Section 1, Rule 9 of the
1997 Rules of Civil Procedure:
Sec. 1. Defenses and objections not
pleaded. Defenses and objections not
pleaded either in a motion to dismiss or
in the answer are deemed
waived. However, when it appears from
the pleadings or the evidence on record
that the court has no jurisdiction over the
subject matter, that there is another
action pending between the same parties
for the same cause, or that the action is
barred by a prior judgment or by statute
 of limitations, the court shall dismiss the
claim. (Emphasis supplied.)
While the aforequoted provision applies to a
pleading (specifically, an Answer) or a motion to
dismiss, a similar or identical rule is provided for all
other motions in Section 8 of Rule 15 of the same
Rule which states:
Sec. 8. Omnibus Motion. - Subject to the
provisions of Section 1 of Rule 9, a motion
attacking a pleading, order, judgment, or
proceeding shall include all objections
then available, and all objections not so
included shall be deemed waived.
The spirit that surrounds the foregoing statutory
norm is to require the party filing a pleading or
motion to raise all available exceptions for relief
during the single opportunity so that single or
multiple objections may be avoided.[26] It is clear and
categorical in Section 1, Rule 9 of the Revised Rules
of Court that failure to raise defenses and objections
in a motion to dismiss or in an answer is deemed a
waiver thereof; and basic is the rule in statutory
construction that when the law is clear and free from
any doubt or ambiguity, there is no room for
construction or interpretation.[27] As has been our
consistent ruling, where the law speaks in clear and
categorical language, there is no occasion for
interpretation; there is only room for
[28]
application. Thus, although Aquinos defense of
non-compliance with Presidential Decree No. 1508 is
meritorious, procedurally, such defense is no longer
available for failure to plead the same in the Answer
as required by the omnibus motion rule.
Neither could the MeTC dismiss Civil Case No.
17450 motu proprio. The 1997 Rules of Civil
Procedure provide only three instances when the
court may motu proprio dismiss the claim, and that is
when the pleadings or evidence on the record show
that (1) the court has no jurisdiction over the subject
matter; (2) there is another cause of action pending
between the same parties for the same cause; or (3)
where the action is barred by a prior judgment or by
a statute of limitations. Thus, it is clear that a court
may not motu propriodismiss a case on the ground of
failure to comply with the requirement
for barangay conciliation, this ground not being
among those mentioned for the dismissal by the trial
court of a case on its own initiative.
Aquino further argues that the issue of possession in
the instant case cannot be resolved by the MeTC
without first adjudicating the question of ownership,
since the Deed of Sale vesting Aure with the legal
right over the subject property is simulated.
Again, we do not agree. Jurisdiction in
ejectment cases is determined by the allegations
pleaded in the complaint. As long as these allegations
demonstrate a cause of action either for forcible
entry or for unlawful detainer, the court acquires
jurisdiction over the subject matter. This principle
holds, even if the facts proved during the trial do not
support the cause of action thus alleged, in which
instance the court -- after acquiring jurisdiction --
may resolve to dismiss the action for insufficiency of
evidence.
The necessary allegations in a Complaint for
ejectment are set forth in Section 1, Rule 70 of the
Rules of Court, which reads:
SECTION 1. Who may institute
proceedings, and when. Subject to the
provisions of the next succeeding section,
a person deprived of the possession of
any land or building by force, intimidation,
threat, strategy, or stealth, or a lessor,
vendor, vendee, or other person against
whom the possession of any land or
building is unlawfully withheld after the
expiration or termination of the right to
hold possession, by virtue of any contract,
express or implied, or the legal
representatives or assigns of any such
lessor, vendor, vendee, or other person
may at any time within one (1) year after
such unlawful deprivation or withholding
of possession, bring an action in the
 proper Municipal Trial Court against the
person or persons unlawfully withholding
or depriving of possession, or any person
or persons claiming under them, for the
restitution of such possession, together
with damages and costs.
In the case at bar, the Complaint filed by Aure and
Aure Lending on 2 April 1997, alleged as follows:
2. [Aure and Aure Lending] became
the owners of a house and lot located at
No. 37 Salazar Street corner Encarnacion
Street, B.F. Homes, Quezon City by virtue
of a deed of absolute sale executed by
[the spouses Aquino] in favor of [Aure and
Aure Lending] although registered in the
name of x x x Ernesto S. Aure; title to the
said property had already been issued in
the name of [Aure] as shown by a transfer
Certificate of Title , a copy of which is
hereto attached and made an integral part
hereof as Annex A;
together with Aure Lending, sought the possession of
3. However, despite the sale thus
transferring ownership of the subject
premises to [Aure and Aure Lending] as
above-stated and consequently
terminating [Aquinos] right of possession
over the subject property, [Aquino]
together with her family, is continuously
occupying the subject premises
notwithstanding several demands made
by [Aure and Aure Lending] against
[Aquino] and all persons claiming right
under her to vacate the subject premises
and surrender possession thereof to [Aure
and Aure Lending] causing damage and
prejudice to [Aure and Aure Lending] and
making [Aquinos] occupancy together
with those actually occupying the subject
premises claiming right under her,
illegal.[29]
It can be inferred from the foregoing that Aure,
the subject property which was never surrendered by
Aquino after the perfection of the Deed of Sale,
which gives rise to a cause of action for an ejectment
suit cognizable by the MeTC. Aures assertion of
possession over the subject property is based on his
ownership thereof as evidenced by TCT No. 156802
bearing his name. That Aquino impugned the validity
of Aures title over the subject property and claimed
that the Deed of Sale was simulated should not divest
the MeTC of jurisdiction over the ejectment case.[30]
As extensively discussed by the eminent jurist Florenz
D. Regalado in Refugia v. Court of Appeals[31]:
As the law on forcible entry and unlawful
detainer cases now stands, even where
the defendant raises the question of
ownership in his pleadings and the
question of possession cannot be resolved
without deciding the issue of ownership,
the Metropolitan Trial Courts, Municipal
Trial Courts, and Municipal Circuit Trial
Courts nevertheless have the undoubted
competence to resolve the issue of
ownership albeit only to determine the
issue of possession.
x x x. The law, as revised, now provides
instead that when the question of
possession cannot be resolved without
deciding the issue of ownership, the issue
of ownership shall be resolved only to
determine the issue of possession. On its
face, the new Rule on Summary Procedure
was extended to include within the
jurisdiction of the inferior courts
ejectment cases which likewise involve
the issue of ownership. This does not
mean, however, that blanket authority to
adjudicate the issue of ownership in
ejectment suits has been thus conferred
on the inferior courts.
At the outset, it must here be
stressed that the resolution of this
 particular issue concerns and applies only
to forcible entry and unlawful detainer
cases where the issue of possession is
intimately intertwined with the issue of
ownership. It finds no proper application
where it is otherwise, that is, where
ownership is not in issue, or where the
principal and main issue raised in the
allegations of the complaint as well as the
relief prayed for make out not a case for
ejectment but one for recovery of
ownership.
Apropos thereto, this Court ruled in Hilario v. Court of
Appeals[32]:
Thus, an adjudication made therein
regarding the issue of ownership should
be regarded as merely provisional and,
therefore, would not bar or prejudice an
action between the same parties involving
title to the land. The foregoing doctrine is
a necessary consequence of the nature of
forcible entry and unlawful detainer cases
where the only issue to be settled is the
physical or material possession over the
real property, that is, possession de
facto and not possession de jure.
In other words, inferior courts are now conditionally
vested with adjudicatory power over the issue of title
or ownership raised by the parties in an ejectment
suit. These courts shall resolve the question of
ownership raised as an incident in an ejectment case
where a determination thereof is necessary for a
proper and complete adjudication of the issue of
possession.[33]
WHEREFORE, premises considered, the instant
Petition is DENIED. The Court of Appeals Decision
dated 17 October 2001 and its Resolution dated 8
May 2002 in CA-G.R. SP No. 63733 are DECISION
hereby AFFIRMED. Costs against the petitioner.
CARPIO, J.:

SO ORDERED. The Case

This petition for review on certiorari[1] assails the 30

DORIS U. SUNBANUN, G.R. No. 163280 September 2003 Decision[2] and the 18 March 2004
Petitioner, Resolution[3] of the Court of Appeals in CA-G.R. CV
Present: No. 67836.
CARPIO, J.,
Chairperson,
The Facts
CORONA,*
- versus - BRION,
DEL CASTILLO, and Petitioner Doris U. Sunbanun is the owner of a
PEREZ, JJ. residential house located at No. 68-F Junquera Street,
Cebu City. On 7 July 1995, respondent Aurora B. Go
AURORA B. GO, leased the entire ground floor of petitioners residential
Respondent. house for one year which was to expire on 7 July
Promulgated: 1996. As required under the lease contract, respondent
February 2, 2010 paid a deposit of P16,000 to answer for damages and
unpaid rent. To earn extra income, respondent
x------------------------------------ accepted lodgers, mostly her relatives, from whom she
--------------x received a monthly income of P15,000. Respondent
paid the monthly rental until March 1996 when
petitioner drove away respondents lodgers by telling
them that they could stay on the rented premises only
until 15 April 1996 since she was terminating the
lease. The lodgers left the rented premises by 15 April
1996, and petitioner then padlocked the rooms
vacated by respondents lodgers.
On 10 May 1996, respondent filed an action for
damages against petitioner. Respondent alleged that
she lost her income from her lodgers for the months of
April, May, and June 1996 totaling P45,000.
Respondent, who worked in Hongkong, also incurred
expenses for plane fares and other travel expenses in
coming to the Philippines and returning to Hongkong.
On the other hand, petitioner argued that respondent
violated the lease contract when she subleased the
rented premises. Besides, the lease contract was not
renewed after its expiration on 7 July 1996; thus,
respondent had no more right to stay in the rented
premises. Petitioner also moved to dismiss the
complaint in the trial court for failure to comply with
prior barangay conciliation.
During the pre-trial, petitioner moved for the case to
be submitted for judgment on the pleadings
considering that the only disagreement between the
parties was the correct interpretation of the lease
contract. Respondent did not object to petitioners
motion. The trial court then directed the parties to
submit their respective memoranda, after which the
case would be considered submitted for decision.[4]
In its decision dated 28 March 2000, the trial court
held that the case is not covered by the barangay
conciliation process since respondent is a resident of
Hongkong. The trial court noted that petitioner did not
controvert respondents allegation that petitioner
ejected respondents lodgers sometime in March 1996
even if the contract of lease would expire only on 7
July 1996. The trial court found untenable petitioners
contention that subleasing the rented premises
violated the lease contract. The trial court held that
respondents act of accepting lodgers was in
accordance with the lease contract which allows the
lessee to use the premises as a dwelling or as lodging
house. Thus, the trial court ordered petitioner to pay
respondent actual damages of P45,000 for respondents
lost income from her lodgers for the months of April,
May, and June 1996, and attorneys fees of P8,000.
Both parties appealed before the Court of Appeals. On
30 September 2003, the Court of Appeals rendered its
decision in favor of respondent and modified the trial
courts decision. Aside from actual damages and
attorneys fees, the Court of Appeals also ordered
petitioner to pay moral and exemplary damages and
the cost of the suit. The dispositive portion of the
Court of Appeals decision reads:

WHEREFORE, premises considered, the
assailed Decision of the trial court is
hereby MODIFIED by ordering defendant-
appellant [Doris U. Sunbanun] to pay
plaintiff-appellant [Aurora B. Go] the
following amounts:
1. P45,000.00 as compensation for actual damages;
2. P50,000.00 as moral damages;
3. P50,000.00 as exemplary damages;
4. P8,000.00 as Attorneys Fees;
5. Cost of the suit.
which shows bad faith on the part of petitioner. The
Court of Appeals also awarded respondent P50,000 as
exemplary damages for petitioners oppressive act.
The Issues
Petitioner raises the following issues:
I. THE COURT OF APPEALS ERRED
IN AFFIRMING THE AWARD OF
ACTUAL DAMAGES BY THE
TRIAL COURT.

SO ORDERED.[5]
II. THE COURT OF APPEALS ERRED
The Court of Appeals Ruling IN MODIFYING THE JUDGMENT
OF THE TRIAL COURT AND
The Court of Appeals held that petitioners act of AWARDING MORAL AND
forcibly ejecting respondents lodgers three months EXEMPLARY DAMAGES AND
prior to the termination of the lease contract without COSTS OF SUIT IN FAVOR OF
valid reason constitutes breach of contract. Petitioner RESPONDENT.
also violated Article 1654 of the Civil Code which
states that the lessor is obliged to maintain the lessee III. THE COURT OF APPEALS
in the peaceful and adequate enjoyment of the lease ERRED IN AFFIRMING THE
for the duration of the contract. The Court of Appeals AWARD OF ATTORNEYS FEES
awarded P50,000 as moral damages to respondent for IN FAVOR OF RESPONDENT.[6]
breach of contract and for petitioners act of pre-
terminating the lease contract without valid reason, The Ruling of the Court

We find the petition without merit.
In this case, the trial court rendered a judgment on the
pleadings. Section 1, Rule 34 of the Rules of Court
reads:
SECTION 1. Judgment on the pleadings. Where
an answer fails to tender an issue, or otherwise
admits the material allegations of the adverse
partys pleading, the court may, on motion of that
party, direct judgment on such pleading.
However, in actions for declaration of nullity or
annulment of marriage or for legal separation,
the material facts alleged in the complaint shall
always be proved.
The trial court has the discretion to grant a motion for
judgment on the pleadings filed by a party if there is
no controverted matter in the case after the answer is
filed.[7] A judgment on the pleadings is a judgment on
the facts as pleaded,[8] and is based exclusively upon
the allegations appearing in the pleadings of the
parties and the accompanying annexes.
This case is unusual because it was petitioner, and not
the claimant respondent, who moved for a judgment
on the pleadings during the pre-trial. This is clear
from the trial courts Order[9] dated 7 October 1997
which reads:
ORDER
When this case was called for pre-trial, parties
appeared together with counsel. Defendant
[Doris U. Sunbanun] moved that considering
that there is no dispute as far as the contract
is concerned and the only disagreement
between the parties is on the interpretation of
the contract so that the issue boils down on to
which of the parties are correct on their
interpretation. With the conformity of the
plaintiff [Aurora B. Go], this case is therefore
considered closed and submitted for judgment
on the pleadings. x x x (Emphasis supplied)
Petitioner, in moving for a judgment on the pleadings
without offering proof as to the truth of her own
allegations and without giving respondent the
opportunity to introduce evidence, is deemed to have
admitted the material and relevant averments of the
complaint, and to rest her motion for judgment based
on the pleadings of the parties.[10] As held in Tropical
Homes, Inc. v. CA:[11]
As to the amount of damages awarded as a
consequence of this violation of plaintiffs
rights, the lower court based its award
from the allegations and prayer contained
 in the complaint. The defendant, however,
questions this award for the reason that,
according to the defendant, the plaintiff, in
moving for judgment on the pleadings, did
not offer proof as to the truth of his own
allegations with respect to the damages
claimed by him, and gave no opportunity
for the appellant to introduce evidence to
refute his claims. We find this objection
without merit. It appears that when the
plaintiff moved to have the case decided
on the pleadings, the defendant interposed
no objection and has practically assented
thereto. The defendant, therefore, is
deemed to have admitted the allegations of
fact of the complaint, so that there was no
necessity for plaintiff to submit evidence
of his claim.
In this case, it is undisputed that petitioner ejected
respondents lodgers three months before the
expiration of the lease contract on 7 July 1996.
Petitioner maintains that she had the right to terminate
the contract prior to its expiration because respondent
allegedly violated the terms of the lease contract by
subleasing the rented premises. Petitioners assertion is
belied by the provision in the lease contract[12] which
states that the lessee can use the premises as a
dwelling or as lodging house. Furthermore the lease
contract clearly provides that petitioner leased to
respondent the ground floor of her residential house
for a term of one year commencing from 7 July 1995.
Thus, the lease contract would expire only on 7 July
1996. However, petitioner started ejecting respondents
lodgers in March 1996 by informing them that the
lease contract was only until 15 April 1996. Clearly,
petitioners act of ejecting respondents lodgers resulted
in respondent losing income from her lodgers. Hence,
it was proper for the trial court and the appellate court
to order petitioner to pay respondent actual damages
in the amount of P45,000.
We likewise sustain the award of moral damages in
favor of respondent. In this case, moral damages may
be recovered under Article 2219 and Article 2220 of
the Civil Code in relation to Article 21. The pertinent
provisions read:
Art. 2219. Moral damages may be
recovered in the following and analogous
cases:
xxx
(10) Acts and actions referred to in articles 21, 26, 27,
28, 29, 30, 32, 34, and 35.
Art. 2220. Wilfull injury to property may
be a legal ground for awarding moral
 damages if the court should find that,
under the circumstances, such damages
are justly due. The same rule applies to
breaches of contract where the
defendant acted fraudulently or in bad
faith. (Emphasis supplied)
Art. 21. Any person who wilfully causes loss or injury
to another in a manner that is contrary to morals, good
customs or public policy shall compensate the latter for
the damage.
fraudulent, reckless, oppressive, or malevolent
manner which would justify an award of exemplary
damages under Article 2232[14] of the Civil
Code.[15] Since the award of exemplary damages is
proper in this case, attorneys fees and cost of the suit
may also be recovered as provided under Article
2208[16] of the Civil Code.[17]
WHEREFORE, the Court DENIES the petition.
The Court AFFIRMS the 30 September 2003
Decision and the 18 March 2004 Resolution of the
Court of Appeals in CA-G.R. CV No. 67836.

SO ORDERED.
We agree with the appellate court that petitioners act
of ejecting respondents lodgers three months before
CRISANTA ALCARAZ MIGUEL, G.R. No. 191336
the lease contract expired without valid reason
Petitioner,
constitutes bad faith. What aggravates the situation
Present:
was that petitioner did not inform respondent, who
was then working in Hongkong, about petitioners plan CARPIO, J.,
to pre-terminate the lease contract and evict Chairperson,
- versus -
respondents lodgers. Moral damages may be awarded PEREZ,
when the breach of contract was attended with bad SERENO,
faith.[13] REYES, and
PERLAS-BERNAB
Furthermore, we affirm the award of exemplary
damages and attorneys fees. Exemplary damages may
JERRY D. MONTANEZ, Promulgated:
be awarded when a wrongful act is accompanied by
Respondent.
bad faith or when the defendant acted in a wanton,
 January 25, 2012
x--------------------------------------------------------------
----------------------x
DECISION
REYES, J.:
Before this Court is a Petition for Review
on Certiorari under Rule 45 of the Rules of Court.
Petitioner Crisanta Alcaraz Miguel (Miguel) seeks the
reversal and setting aside of the September 17, 2009
[1] [2]
Decision and February 11, 2010 Resolution of the
Court of Appeals (CA) in CA-G.R. SP No. 100544,
entitled Jerry D. Montanez v. Crisanta Alcaraz
Miguel.
Antecedent Facts
On February 1, 2001, respondent Jerry Montanez
(Montanez) secured a loan of One Hundred Forty-
Three Thousand Eight Hundred Sixty-Four Pesos
(P143,864.00), payable in one (1) year, or until
February 1, 2002, from the petitioner. The respondent
gave as collateral therefor his house and lot located at
Block 39 Lot 39 Phase 3, Palmera Spring,
Bagumbong, Caloocan City.
Due to the respondents failure to pay the loan,
the petitioner filed a complaint against the respondent
before the Lupong Tagapamayapa of Barangay San
Jose, Rodriguez, Rizal. The parties entered into
a Kasunduang Pag-aayos wherein the respondent
agreed to pay his loan in installments in the amount of
Two Thousand Pesos (P2,000.00) per month, and in
the event the house and lot given as collateral is sold,
the respondent would settle the balance of the loan in
full. However, the respondent still failed to pay, and
on December 13, 2004, the Lupong
Tagapamayapa issued a certification to file action in
court in favor of the petitioner.
On April 7, 2005, the petitioner filed before the
Metropolitan Trial Court (MeTC) of Makati City,
Branch 66, a complaint for Collection of Sum of
Money. In his Answer with Counterclaim,[3] the
respondent raised the defense of improper venue
considering that the petitioner was a resident of
Bagumbong, Caloocan City while he lived in San
Mateo, Rizal.
 After trial, on August 16, 2006, the MeTC Decision,[6] the RTC affirmed the MeTC Decision,
rendered a Decision,[4] which disposes as follows: disposing as follows:

WHEREFORE, premises considered[,] WHEREFORE, finding no cogent

judgment is hereby rendered ordering reason to disturb the findings of the court a
defendant Jerry D. Montanez to pay quo, the appeal is hereby DISMISSED,
plaintiff the following: and the DECISION appealed from is
hereby AFFIRMED in its entirety for
1. The amount of being in accordance with law and
[Php147,893.00] evidence.
representing the
obligation with legal SO ORDERED.[7]
rate of interest from
February 1, 2002 which
was the date of the loan Dissatisfied, the respondent appealed to the CA
maturity until the raising two issues, namely, (1) whether or not venue
account is fully paid;
was improperly laid, and (2) whether or not
2. The amount of the Kasunduang Pag-aayos effectively novated the
Php10,000.00 as and by loan agreement. On September 17, 2009, the CA
way of attorneys fees; rendered the assailed Decision, disposing as follows:
and the costs.
WHEREFORE, premises
SO ORDERED. [5] considered, the petition is
hereby GRANTED. The appealed
Decision dated March 14, 2007 of the
On appeal to the Regional Trial Court (RTC) Regional Trial Court (RTC)
of Makati City, Branch 146, the respondent raised the of Makati City, Branch 146,
same issues cited in his Answer. In its March 14, 2007 is REVERSED and SET ASIDE. A new
 judgment is entered dismissing in the terms of payment which is not
respondents complaint for collection of incompatible with the old agreement. In
sum of money, without prejudice to her other words, the Kasunduang Pag-
right to file the necessary action to enforce aayos merely supplemented the old
the Kasunduang Pag-aayos. agreement.[9]

SO ORDERED.[8]
The CA went on saying that since the parties
entered into a Kasunduang Pag-aayos before
Anent the issue of whether or not there is the Lupon ng Barangay, such settlement has the force
novation of the loan and effect of a court judgment, which may be
contract, the CA ruled in the negative. It ratiocinated enforced by execution within six (6) months from the
as follows: date of settlement by the Lupon ng Barangay, or by
court action after the lapse of such
Judging from the terms of
time.[10]Considering that more than six (6) months had
the Kasunduang Pag-aayos, it is clear that
no novation of the old obligation has taken elapsed from the date of settlement, the CA ruled that
place. Contrary to petitioners assertion, the remedy of the petitioner was to file an action for
there was no reduction of the term or the execution of the Kasunduang Pag-aayos in court
period originally stipulated. The original and not for collection of sum of
period in the first agreement is one (1) year [11]
money. Consequently, the CA deemed it
to be counted from February 1, 2001, or unnecessary to resolve the issue on venue.[12]
until January 31, 2002. When the
complaint was filed before
the barangay on February 2003, the period The petitioner now comes to this Court.
of the original agreement had long expired
without compliance on the part of Issues
petitioner. Hence, there was nothing to
reduce or extend. There was only a change
 (1) Whether or not a complaint for sum of petitioner can
money is the proper remedy for the petitioner, insist on his
notwithstanding the Kasunduang Pag-aayos;[13] and original
demand.
Perforce, the
complaint for
(2) Whether or not the CA should have decided collection of
the case on the merits sum of money
rather than remand the case for the enforcement of is the proper
the Kasunduang Pag-aayos.[14] remedy.

Our Ruling
The petitioner contends that the CA erred in
Because the ruling that she should have followed the procedure for
respondent enforcement of the amicable settlement as provided in
failed to the Revised Katarungang Pambarangay Law, instead
comply with of filing a collection case. The petitioner points out
the terms of that the cause of action did not arise from
the Kasunduan the Kasunduang Pag-aayos but on the respondents
g Pag-aayos,
breach of the original loan agreement.[15]
said
agreement is
deemed This Court agrees with the petitioner.
rescinded
pursuant to It is true that an amicable settlement reached at
Article 2041 of the barangay conciliation proceedings, like
the New Civil the Kasunduang Pag-aayos in this case, is binding
Code and the between the contracting parties and, upon its
perfection, is immediately executory insofar as it is
not contrary to law, good morals, good
customs, public order and public policy.[16] This is in
accord with the broad precept of Article 2037 of the
Civil Code, viz:
A compromise has upon the parties
the effect and authority of res judicata; but
there shall be no execution except in
compliance with a judicial compromise.
Being a by-product of mutual concessions and
good faith of the parties, an amicable settlement has
the force and effect of res judicata even if not
judicially approved.[17] It transcends being a mere
contract binding only upon the parties thereto, and is
akin to a judgment that is subject to execution in
accordance with the Rules.[18] Thus, under Section 417
of the Local Government Code,[19] such amicable
settlement or arbitration award may be enforced by
execution by the Barangay Lupon within six (6)
months from the date of settlement, or by filing an
action to enforce such settlement in the appropriate
city or municipal court, if beyond the six-month
period.
Under the first remedy, the proceedings are
covered by the Local Government Code and
the Katarungang Pambarangay Implementing Rules
and Regulations. The Punong Barangay is called upon
during the hearing to determine solely the fact of non-
compliance of the terms of the settlement and to give
the defaulting party another chance at voluntarily
complying with his obligation under the settlement.
Under the second remedy, the proceedings are
governed by the Rules of Court, as amended. The
cause of action is the amicable settlement itself,
which, by operation of law, has the force and effect of
a final judgment.[20]
It must be emphasized, however, that
enforcement by execution of the amicable settlement,
either under the first or the second remedy, is only
applicable if the contracting parties have not
repudiated such settlement within ten (10) days from
the date thereof in accordance with Section 416 of the
Local Government Code. If the amicable settlement is
repudiated by one party, either expressly or impliedly,
the other party has two options, namely, to enforce the
compromise in accordance with the Local
Government Code or Rules of Court as the case may
be, or to consider it rescinded and insist upon his
original demand. This is in accord with Article 2041
of the Civil Code, which qualifies the broad
application of Article 2037, viz:
If one of the parties fails or refuses
to abide by the compromise, the other
party may either enforce the compromise
or regard it as rescinded and insist upon
his original demand.
In the case of Leonor v. Sycip,[21] the Supreme
Court (SC) had the occasion to explain this provision
of law. It ruled that Article 2041 does not require an
action for rescission, and the aggrieved party, by the
breach of compromise agreement, may just consider it
already rescinded, to wit:
It is worthy of notice, in this
connection, that, unlike Article 2039 of the
same Code, which speaks of "a cause of
annulment or rescission of the
compromise" and provides that "the
compromise may be annulled or
rescinded" for the cause therein specified,
thus suggesting an action for annulment or
rescission, said Article 2041 confers upon
the party concerned, not a "cause" for
rescission, or the right to "demand" the
rescission of a compromise, but the
authority, not only to "regard it as
rescinded", but, also, to "insist upon his
original demand". The language of this
Article 2041, particularly when
contrasted with that of Article 2039,
denotes that no action for rescission is
required in said Article 2041, and that
the party aggrieved by the breach of a
compromise agreement may, if he
chooses, bring the suit contemplated or
involved in his original demand, as if
there had never been any compromise
agreement, without bringing an action
for rescission thereof. He need not seek
a judicial declaration of rescission, for
he may "regard" the compromise
agreement already
[22]
"rescinded". (emphasis supplied)
As so well stated in the case of Chavez v. Court
of Appeals,[23] a party's non-compliance with the
amicable settlement paved the way for the application
of Article 2041 under which the other party may
either enforce the compromise, following the
procedure laid out in the Revised Katarungang
Pambarangay Law, or consider it as rescinded and before the Office of
insist upon his original demand. To quote: the Barangay Captain had the force and
effect of a final judgment of a court,
petitioner's non-compliance paved the
In the case at bar, the Revised
way for the application of Art. 2041
Katarungang Pambarangay Law provides
under which respondent may either
for a two-tiered mode of enforcement of an
enforce the compromise, following the
amicable settlement, to wit: (a) by
procedure laid out in the Revised
execution by the Punong Barangay which
Katarungang Pambarangay Law, or
is quasi-judicial and summary in nature on
regard it as rescinded and insist upon
mere motion of the party entitled thereto;
his original demand. Respondent chose
and (b) an action in regular form, which
the latter option when he instituted Civil
remedy is judicial. However, the mode of
Case No. 5139-V-97 for recovery of
enforcement does not rule out the right of
unrealized profits and reimbursement of
rescission under Art. 2041 of the Civil
advance rentals, moral and exemplary
Code. The availability of the right of
damages, and attorney's fees. Respondent
rescission is apparent from the wording of
was not limited to claiming P150,000.00
Sec. 417 itself which provides that the
because although he agreed to the amount
amicable settlement "may" be enforced by
in the "Kasunduan," it is axiomatic that a
execution by the lupon within six (6)
compromise settlement is not an admission
months from its date or by action in the
of liability but merely a recognition that
appropriate city or municipal court, if
there is a dispute and an impending
beyond that period. The use of the word
litigation which the parties hope to prevent
"may" clearly makes the procedure
by making reciprocal concessions,
provided in the Revised Katarungang
adjusting their respective positions in the
Pambarangay Law directory or merely
hope of gaining balanced by the danger of
optional in nature.
losing. Under the "Kasunduan," respondent
was only required to execute a waiver of
Thus, although the "Kasunduan"
all possible claims arising from the lease
executed by petitioner and respondent
contract if petitioner fully complies with
 his obligations thereunder. It is undisputed rescinded by
that herein petitioner did not.[24] (emphasis the non-
supplied and citations omitted) compliance of
the respondent
of the terms
In the instant case, the respondent did not thereof,
comply with the terms and conditions of remanding the
the Kasunduang Pag-aayos. Such non-compliance case to the
may be construed as repudiation because it denotes trial court for
that the respondent did not intend to be bound by the the
enforcement of
terms thereof, thereby negating the very purpose for
said
which it was executed. Perforce, the petitioner has the agreement is
option either to enforce the Kasunduang Pag- clearly
aayos, or to regard it as rescinded and insist upon his unwarranted.
original demand, in accordance with the provision of
Article 2041 of the Civil Code. Having instituted an
action for collection of sum of money, the petitioner The petitioner avers that the CA erred in
obviously chose to rescind the Kasunduang Pag- remanding the case to the
aayos. As such, it is error on the part of the CA to rule trial court for the enforcement of the Kasunduang
that enforcement by execution of said agreement is the Pag-aayos as it prolonged the process, thereby putting
appropriate remedy under the circumstances. off the case in an indefinite pendency.[25] Thus, the
petitioner insists that she should be allowed to
Considering ventilate her rights before this Court and not to repeat
that the same proceedings just to comply with the
the Kasunduan enforcement of the Kasunduang Pag-aayos, in order
g Pag-aayos is to finally enforce her right to payment.[26]
deemed

The CA took off on the wrong premise that
enforcement of the Kasunduang Pag-aayos is the
proper remedy, and therefore erred in its conclusion
that the case should be remanded to the trial court. The
fact that the petitioner opted to rescind
the Kasunduang Pag-aayos means that she is insisting
upon the undertaking of the respondent under the
original loan contract. Thus, the CA should have
decided the case on the merits, as an appeal before it,
and not prolong the determination of the issues by
remanding it to the trial court. Pertinently, evidence
abounds that the respondent has failed to comply with
his loan obligation. In fact, the Kasunduang Pag-
aayos is the well nigh incontrovertible proof of the
respondents indebtedness with the petitioner as it was
executed precisely to give the respondent a second
chance to make good on his undertaking. And since
the respondent still reneged in paying his
indebtedness, justice demands that he must be held
answerable therefor.
WHEREFORE, the petition is GRANTED.
The assailed decision of the Court of Appeals is SET
ASIDE and the Decision of the Regional Trial Court,
Branch 146, Makati City, dated March 14, 2007
is REINSTATED.
SO ORDERED.
MA. TERESA VIDAL, LULU MARQUEZ, and
CARLOS SOBREMONTE, petitioners, vs.
MA. TERESA O. ESCUETA, represented
by HERMAN O. ESCUETA, respondent.
DECISION
CALLEJO, SR., J.:
This is a petition for review of the
Decision dated July 23, 2002 of the Court of
[1]
Appeals in CA-G.R. SP NO. 68895 which affirmed
the decision of the Regional Trial Court (RTC)
[2]
of Mandaluyong City, Branch 208, which reversed
and set aside the decision of the Metropolitan
[3]
Trial Court of Mandaluyong City (MTC), Branch 60;
and granted the motion for execution filed by
private respondent Ma. Teresa O. Escueta in Civil
Case No. 17520.
The petition at bar stemmed from the following
antecedents:
When Abelardo Escueta died intestate
on December 3, 1994, he was survived by his
widow Remedios Escueta and their six children,
including Ma. Teresa O. Escueta and her brother
Herman O. Escueta. Part of his estate was a
parcel of land located at No. 14 Sierra Madre
corner Kanlaon Streets, Barangay Highway
Hills, Mandaluyong City, covered by Transfer
Certificate of Title (TCT) No. (77083) - 27568, and
the house thereon. The property was leased to
Rainier Llanera, who sublet the same to 25
persons. The heirs executed an extra-judicial
settlement of estate over the property. They also
executed a special power of attorney authorizing
Ma. Teresa Escueta to sell the said property.[4]
Sometime in 1999, Ma. Teresa Escueta, as a
co-owner of the property, filed an ejectment case
against Llanera and the sub-lessees before
the Lupon of Barangay Highway Hills, docketed as
Barangay Case No. 99-09. [5]
In the meantime, on April 15, 1999, the heirs of
Abelardo Escueta executed a deed of conditional
sale over the property including the house
[6]
thereon, to Mary Liza Santos for P13,300,000.00
payable as follows:
Down payment ONE MILLION FIVE HUNDRED
THOUSAND (P1,500,000.00) which the HEIRS-
SELLERS acknowledged receipt thereof with complete
and full satisfaction;
Second payment - TEN MILLION EIGHT HUNDRED
THOUSAND (P10,800,000.00) after publication of the
Extra-Judicial Settlement of the Estate of the late
Abelardo Escueta and payment of the taxes with the
Bureau of Internal Revenue by the Attorney-in-Fact;
and
The balance of ONE MILLION (P1,000,000.00) upon
vacation of all the occupants of the subject property
within SIX (6) months from date hereof. [7]
The parties further agreed that:
Ms. Maria Teresa Escueta shall deliver unto the
BUYER the Owners Duplicate Copy of the title upon
receipt of the down payment while the original copies of
the Special Power of Attorney shall be delivered upon
payment of the Second Payment stated above.
The ATTORNEY-IN-FACT-SELLER shall be
responsible for the ejectment of all the tenants in the
said subject property.
The ATTORNEY-IN-FACT-SELLER shall pay the
estate tax, capital gains tax and documentary stamp tax
including the telephone, water and Meralco bills and the
publication for the Extra-Judicial Settlement of the
estate of the late ABELARDO ESCUETA while the
registration and transfer fees shall be shouldered by the
BUYER. [8]
 On May 5, 1999, Escueta and Llanera, and the
sub-lessees, executed an Amicable
Settlement, where they agreed that (a) the owners
[9]
of the property would no longer collect the rentals
due from the respondents therein (lessee and sub-
lessees) starting May 1999, with the concomitant
obligation of the respondents to vacate the
property on or before December 1999; (b) time
was the essence of the agreement, and that
consequently, if the lessee and sub-lessees fail or
refuse to vacate the property on or before
December 1999, the barangay chairman was
authorized without any court order to cause the
eviction and removal of all the respondents on the
property. The amicable settlement was attested
[10]
by Pangkat Chairman Jose Acong. The parties did
not repudiate the amicable settlement within ten
days from the execution thereof. Neither did any of
the parties file any petition to repudiate the
settlement.
The vendees having paid the down payment
and second installment of the price of the property,
the vendors caused the cancellation on December
17, 1999, of TCT No. 27568 and the issuance
of TCT No. 15324 to and under the names of the
vendees Mary Liza Santos, Susana Lim and
Johnny Lim. However, Escueta and the other
[11]
vendors had yet to receive the balance of the
purchase price of P1,000,000.00 because the
respondents were still in the property.
Llanera vacated the leased premises. Later,
twenty of the sub-lessees also vacated the
property. By January 2000, five sub-lessees,
namely, Ma. Teresa Vidal, Lulu Marquez, Marcelo
Trinidad, Carlos Sobremonte, and Jingkee
[12]
Ang remained in the property, and requested
Escueta for extensions to vacate the
property. Escueta agreed, but despite the lapse of
the extensions granted them, the five sub-lessees
refused to vacate the property.
Escueta opted not to have the sub-lessees
evicted through the Punong Barangay as provided
for in the amicable settlement. Neither did she file
a motion with the Punong Barangay for the
enforcement of the settlement. Instead, she filed
on May 12, 2000, a verified Motion for Execution
against the recalcitrant sub-lessees with the MTC
for the enforcement of the amicable settlement and
the issuance of a writ of execution. The pleading
was docketed as Civil Case No. 17520, with
Teresa Escueta as plaintiff, and the sub-lessees as
defendants. [13]
The defendants opposed the motion alleging
[14]
that they were enveigled into executing the
amicable settlement despite the fact that they had
not violated any of the terms and conditions of the
verbal lease of the property; they were coerced
and forced to enter into such amicable settlement
as it was the only way of prolonging their stay in
the leased premises; and that they had been
paying faithfully and religiously the monthly rentals
in advance.
They also contended that the plaintiff came to
court with unclean hands, as the property had
been sold by the co-owners thereof on June 8,
1999, without notifying them. The real parties-in-
interest as plaintiffs, would be the new owners of
the property, and not the Escuetas. The
defendants further asserted that the amicable
settlement was not elevated to or approved by the
MTC as required by Section 419 of the Local
Government Code (LGC), nor approved by a
competent court; hence, there was no judgment to
enforce by a new motion for a writ of execution. As
such, the plaintiffs motion was premature and
procedurally improper. The defendants asserted
that the plaintiff must first secure a certification to
file action from the barangay and thereafter, file an
action for ejectment against them as required by
Section 417 of the LGC. The amicable settlement
of the parties before the Lupon cannot be a
substitute for an action for ejectment. Finally, they
averred that they had been sub-lessees for more
than ten years already; hence, had the right of first
refusal under Section 6 of the Urban Land Reform
Law (P.D. No. 1517). For her part, the plaintiff
asserted that there having been no execution of
the amicable settlement on or before November 6,
1999 by the Lupon, the settlement may now be
enforced by action in the proper city or municipal
court.
On February 22, 2001, the court issued an
Order denying the Motion for Execution. The
[15]
court held that the plaintiff was not the real party-
in-interest as the subject property had already
been sold and titled to Susana Lim, Johnny Lim
and Mary Liza Santos. Only the vendees had the
right to demand the ejectment of the defendants
from the said property. The court further ruled that
the defendants had the right of first refusal to
purchase the property under Presidential Decree
No. 1517. The MTC, however, did not rule on the
issue of whether or not the plaintiffs motion for
execution was premature.
Aggrieved, the plaintiff, now the appellant,
appealed the order to the RTC where she
contended that:
THE METROPOLITAN TRIAL COURT
COMMITTED THE REVERSIBLE ERROR IN
FINDING AND IN CONCLUDING THAT
PLAINTIFF IS NO LONGER THE REAL PARTY-IN-
INTEREST.
THE METROPOLITAN TRIAL COURT
COMMITTED THE REVERSIBLE ERROR IN
FINDING AND IN CONCLUDING THAT
DEFENDANTS CANNOT BE EJECTED AND CAN
EXERCISE THE RIGHT OF FIRST REFUSAL.
THE METROPOLITAN TRIAL COURT
COMMITTED THE REVERSIBLE ERROR IN NOT
FINDING AND IN NOT MAKING THE
CONCLUSION THAT DEFENDANTS HAVE
VIOLATED THE FINAL AND EXECUTORY THE
WRITTEN AMICABLE SETTLEMENT BETWEEN
PARTIES EXECUTED IN THEIR BARANGAY
CONFRONTATION.
THE METROPOLITAN TRIAL COURT
COMMITTED THE REVERSIBLE ERROR IN NOT
ORDERING THE EJECTMENT OF THE
DEFENDANTS AND IN NOT ORDERING SAID
DEFENDANTS TO PAY THEIR ARREARAGES IN
RENTAL PAYMENTS FROM MAY 1999 UP TO
THE DAY THEY ACTUALLY LEAVE THE
PREMISES AS WELL AS ATTORNEYS FEES AND
DAMAGES. [16]
On August 31, 2001, the RTC rendered a
decision holding that the plaintiff-appellant was still
the owner of the property when the ejectment case
was filed in the office of the barangay captain, and,
as such, was the real party-in-interest as the
plaintiff in the MTC. Moreover, under the deed of
conditional sale between her and the buyers, it
was stipulated therein that the purchase price
of P1,000,000.00 would be delivered to the
vendors only upon the vacation of all the
occupants of the subject property within six (6)
months from date hereof. She was duty-bound to
cause the eviction of the defendant from the
property; hence, the appellant, as a co-owner, had
a substantial interest in the property. The MTC
further held that the sale, having been executed
while the appellants complaint was pending with
the Lupon, the action in the MTC may be
continued by the plaintiff-appellant.
As to the right of first refusal being asserted by
the appellees, the court ruled that there was no
showing that the land leased had been proclaimed
to be within a specific Urban Land Reform Zone. In
fact, the Housing and Land Use Regulatory Board
had certified that the subject property was outside
the area for priority development; thus, the
appellees may not claim that they had been
deprived of their preemptive right when no such
right existed in the first place. The court did not
rule on the third and fourth issues on the ground
that the said issues were never raised by the
parties. The decretal portion of the RTC decision
reads as follows:
PREMISES CONSIDERED, the appeal is GRANTED.
The Order dated February 2, 2001 issued by
the Metropolitan Trial Court of Mandaluyong City,
Branch 60, in Civil Case No. 17520 is hereby
REVERSED and SET ASIDE, and a new one is entered
granting the Motion for Execution.
Let the Record of this case be remanded to the court a
quo for proper disposition.
SO ORDERED. [17]
A petition for review under Rule 42 was filed
with the Court of Appeals by three of the
appellees, now petitioners Ma. Teresa Vidal, Lulu
Marquez and Carlos Sobremonte. The court,
however, dismissed the petition on (1) procedural
grounds, and (2) for lack of merit. [18]
On procedural grounds, the CA ruled that the
petitioners failed to indicate the specific material
dates, showing that their petition was filed on time
as required by the rules, and in declaring that they
failed to justify their failure to do so.
On the merits of the petition, the appellate
court upheld the ruling of the RTC. The decretal
portion of the decision of the CA reads:
WHEREFORE, the instant petition is hereby
DISMISSED. The assailed Decision of
the Regional Trial Court of Mandaluyong City, Branch
208, rendered in Civil Case No. MC01-333-A,
dated August 31, 2001 is hereby AFFIRMED.
SO ORDERED. [19]
In their petition at bar, the petitioners assert
that the CA erred as follows: (1) in not applying the
rules of procedure liberally; (2) in declaring that
there was no need for the respondents to file an
ejectment case for the eviction of the petitioners;
(3) that the real parties-in-interest as plaintiffs in
the MTC were the new owners of the property,
Susana Lim, Johnny Lim and Mary Liza Santos;
(4) in not finding that the Amicable Settlement was
obtained through deceit and fraud; and (5) in ruling
that the petitioners had no right of first refusal in
the purchase and sale of the subject property
under Presidential Decree No. 1517.
The petition is bereft of merit.
On the procedural issue, the CA dismissed the petition
before it for the petitioners failure to comply with
Section 2, par. 1, Rule 42 of the 1997 Rules of Civil
Procedure. The CA ratiocinated that there was no
[20]
justification for a relaxation of the Rules, thus:
Petitioners cited decisions of the Supreme Court where
a relaxation of procedural rules was allowed. However,
a reading of those cases shows that they are not exactly
similar with the present case. In the case of Mactan
Cebu International Airport Authority vs. Francisco
Cuizon Mangubat, the Supreme Court allowed the late
payment of docket fee by the Solicitor General on the
ground that the 1997 Rules of Civil Procedure regarding
payment of docket fees was still new at that time. The
same cannot be said in the present case. The petition
was filed on February 28, 2002, almost five years from
the issuance of the 1997 Rules of Civil Procedure. The
circumstances of typhoon and holiday for failure to
obtain a certified true copy of the DOJs Decision, in the
case of Hagonoy Market Vendor Association
vs. Municipalityof Hagonoy, Bulacan, were present in
the instant petition. The case of Salazar vs. Court of
Appeals is also not similar with the present case.
[21]
The petitioners aver in this case that the failure
of their counsel to include the material dates in
their petition with the CA was, as stated in their
Amended Manifestation, because the said counsel
was suffering from a slight heart attack. The Court
finds the petitioners pretext flimsy. If the petitioners
counsel was able to prepare their petition despite
her condition, there was no valid reason why she
failed to include the material dates required under
the Rules of Court. Besides, the petitioners stated
in their petition that they had appended a copy of
their Amended Manifestation, but failed to do so. If
the rules were to be applied strictly, the CA could
not be faulted for dismissing the petition.
However, in order to promote their objective of
securing a just, speedy and inexpensive
dispensation of every action and proceedings, the
Rules are to be liberally construed. Rules of
[22]
procedure are intended to promote, not to defeat
substantial justice and, therefore, should not be
applied in a very rigid and technical sense. This
Court ruled in Buenaflor vs. Court of Appeals, et
al. that appeal is an essential part of our judicial
[23]
system and trial courts and the Court of Appeals
are advised to proceed with caution so as not to
deprive a party of the right to appeal and that every
party litigant should be afforded the amplest
opportunity for the proper and just disposition of
his cause, free from the constraints of
technicalities. The Court has given due course to
petitions where to do so would serve the demands
of substantial justice and in the exercise of its
equity jurisdiction. In this case, the Court opts to
[24]
apply the rules liberally to enable it to delve into
and resolve the cogent substantial issues posed by
the petitioners.
We agree with the contention of the petitioners
that under Section 416 of the LGC, the amicable
settlement executed by the parties before
the Lupon on the arbitration award has the force
and effect of a final judgment of a court upon the
expiration of ten (10) days from the date thereof,
unless the settlement is repudiated within the
period therefor, where the consent is vitiated by
force, violence or intimidation, or a petition to
nullify the award is filed before the proper city or
municipal court. The repudiation of the settlement
[25]
shall be sufficient basis for the issuance of a
certification to file a complaint.[26]
We also agree that the Secretary of
the Lupon is mandated to transmit the settlement
to the appropriate city or municipal court within the
time frame under Section 418 of the LGC and to
furnish the parties and the Lupon Chairman with
copies thereof. The amicable settlement which is
[27]
not repudiated within the period therefor may be
enforced by execution by the Lupon through
the Punong Barangay within a time line of six
months, and if the settlement is not so enforced by
the Lupon after the lapse of the said period, it may
be enforced only by an action in the proper city or
municipal court as provided for in Section 417 of
the LGC of 1991, as amended, which reads:
SEC. 417. Execution. The amicable settlement or
arbitration award may be enforced by execution by the
Lupon within six (6) months from the date of the
settlement. After the lapse of such time, the settlement
may be enforced by action in the proper city or
municipal court. (Underlining supplied).
Section 417 of the Local Government Code
provides a mechanism for the enforcement of a
settlement of the parties before
the Lupon. It provides for a two-tiered mode of
enforcement of an amicable settlement executed
by the parties before the Lupon, namely, (a) by
execution of the Punong Barangay which is quasi-
judicial and summary in nature on mere motion of
the party/parties entitled thereto; and (b) by an
[28]
action in regular form, which remedy is
judicial. Under the first remedy, the proceedings
are covered by the LGC and the Katarungang
Pambarangay Implementing Rules and
Regulations. The Punong Barangay is called upon
during the hearing to determine solely the fact of
non-compliance of the terms of the settlement and
to give the defaulting party another chance at
voluntarily complying with his obligation under the
settlement. Under the second remedy, the
proceedings are governed by the Rules of Court,
as amended. The cause of action is the amicable
settlement itself, which, by operation of law, has
the force and effect of a final judgment.
Section 417 of the LGC grants a party a period
of six months to enforce the amicable settlement
by the Lupon through the Punong Barangay before
such party may resort to filing an action with the
MTC to enforce the settlement. The raison d
etre of the law is to afford the parties during the
six-month time line, a simple, speedy and less
expensive enforcement of their settlement before
the Lupon.
The time line of six months is for the benefit not
only of the complainant, but also of the
respondent. Going by the plain words of Section
417 of the LGC, the time line of six months should
be computed from the date of settlement.
However, if applied to a particular case because of
its peculiar circumstance, the computation of the
time line from the date of the settlement may be
arbitrary and unjust and contrary to the intent of
the law. To illustrate: Under an amicable
settlement made by the parties before
the Lupon dated January 15, 2003, the
respondents were obliged to vacate the subject
property on or before September 15, 2003. If the
time line of six months under Section 417 were to
be strictly and literally followed, the complainant
may enforce the settlement through the Lupon only
up to July 15, 2003. But under the settlement, the
respondent was not obliged to vacate the property
on or before July 15, 2003; hence, the settlement
cannot as yet be enforced. The settlement could
be enforced only after September 15, 2003, when
the respondent was obliged to vacate the
property. By then, the six months under Section
417 shall have already elapsed. The complainant
can no longer enforce the settlement through
the Lupon, but had to enforce the same through an
action in the MTC, in derogation of the objective of
Section 417 of the LGC. The law should be
construed and applied in such a way as to reflect
the will of the legislature and attain its objective,
and not to cause an injustice. As Justice Oliver
Wendell Holmes aptly said, courts are apt to err by
sticking too closely to the words of the law where
these words support a policy that goes beyond
them. The Court should not defer to the latter that
killeth but to the spirit that vivifieth.
[29]
In light of the foregoing considerations, the time
line in Section 417 should be construed to mean
that if the obligation in the settlement to
be enforced is due and demandable on the date of
the settlement, the six-month period should be
counted from the date of the settlement; otherwise,
if the obligation to be enforced is due and
demandable on a date other than the date of the
settlement, the six-month period should be
counted from the date the obligation becomes due
and demandable.
Parenthetically, the Katarungang
Pambarangay Implementing Rules and
Regulations, Rule VII, Section 2 provides:
SECTION 2. Modes of Execution. - The amicable
settlement or arbitration award may be enforced by
execution by the Lupon within six [6] months from date
of the settlement or date of receipt of the award or from
the date the obligation stipulated in the settlement or
adjudged in the arbitration award becomes due and
demandable. After the lapse of such time, the settlement
or award may be enforced by the appropriate local trial
court pursuant to the applicable provisions of the Rules
of Court . An amicable settlement reached in a case
referred by the Court having jurisdiction over the case
to the Lupon shall be enforced by execution by the said
court. (Underlining supplied).
By express provision of Section 417 of the
LGC, an action for the enforcement of the
settlement should be instituted in the proper
municipal or city court. This is regardless of the
nature of the complaint before the Lupon, and the
relief prayed for therein. The venue for such
actions is governed by Rule 4, Section 1 of the
1997 Rules of Civil Procedure, as amended. An
action for the enforcement of a settlement is not
one of those covered by the Rules on Summary
Procedure in civil cases; hence, the rules on
[30]
regular procedure shall apply, as provided for in
Section 1, Rule 5 of the Rules of Civil Procedure,
as amended. [31]
As to the requisite legal fees for the filing of an
action in the first level court under Section 417 of
the Local Government Code, indigents-litigants (a)
whose gross income and that of their immediate
family do not exceed ten thousand (P10,000.00)
pesos a month if residing in Metro Manila, and five
thousand (P5,000.00) pesos a month if residing
outside Metro Manila, and (b) who do not own real
property with an assessed value of more than fifty
thousand (P50,000.00) pesos shall be exempt
from the payment of legal fees. Section 18, Rule
141 of the Revised Rules of Court, as amended by
A.M. No. 00-2-01-SC, is hereby further amended
accordingly.
In this case, the parties executed their
Amicable Settlement on May 5, 1999. However,
the petitioners were obliged to vacate the property
only in January 2000, or seven months after the
date of the settlement; hence, the respondent may
enforce the settlement through the Punong
Barangay within six months from January 2000 or
until June 2000, when the obligation of the
petitioners to vacate the property became due. The
respondent was precluded from enforcing the
settlement via an action with the MTC before June
2000. However, the respondent filed on May 12,
2000 a motion for execution with the MTC and not
with the Punong Barangay. Clearly, the respondent
adopted the wrong remedy. Although the MTC
denied the respondents motion for a writ of
execution, it was for a reason other than the
impropriety of the remedy resorted to by the
respondent. The RTC erred in granting the
respondents motion for a writ of execution, and the
CA erred in denying the petitioners petition for
review.
Normally, the Court would remand the case to
the Punong Barangay for further
proceedings. However, the Court may resolve the
issues posed by the petitioners, based on the
pleadings of the parties to serve the ends of
justice. It is an accepted rule of procedure for the
Court to strive to settle the existing controversy in
a single proceeding, leaving no root or branch to
bear the seeds of future litigation.[32]
In this case, there is no question that the
petitioners were obliged under the settlement to
vacate the premises in January 2000. They
refused, despite the extensions granted by the
respondent, to allow their stay in the property. For
the court to remand the case to the Lupon and
require the respondent to refile her motion for
execution with the Lupon would be an idle
ceremony. It would only unduly prolong the
petitioners unlawful retention of the premises. [33]
The RTC and the CA correctly ruled that the respondent
is the real party-in-interest to enforce amicable
settlement. Rule 3, Section 2 of the Rules of Court, as
amended, reads:
SEC. 2. Parties in interest. - A real party in interest is
the party who stands to be benefited or injured by the
judgment in the suit, or the party entitled to the avails of
the suit. Unless otherwise authorized by law or these
Rules, every action must be prosecuted or defended in
the name of the real party in interest.
The party-in-interest applies not only to the
plaintiff but also to the defendant. Interest within
the meaning of the rules means material interest,
an interest in issue and to be affected by the
decree as distinguished from mere interest in the
question involved, or a mere incidental interest. A [34]
real party in interest is one who has a legal
right. Since a contract may be violated only by
[35]
the parties thereto as against each other, in an
action upon that contract, the real parties-in-
interest, either as plaintiff or as defendant, must be
parties to the said contract. The action must be
[36]
brought by the person who, by substantive law,
possesses the right sought to be enforced. In this[37]
case, the respondent was the party in the amicable
settlement. She is the real party-in-interest to
enforce the terms of the settlement because
unless the petitioners vacate the property, the
respondent and the other vendors should not be
paid the balance of P1,000,000.00 of the purchase
price of the property under the Deed of Conditional
Sale.
 The petitioners are estopped from assailing the
amicable settlement on the ground of deceit and
fraud. First. The petitioners failed to repudiate the
settlement within the period therefor.Second. The
petitioners were benefited by the amicable
settlement. They were allowed to remain in the
property without any rentals therefor until
December 1998. They were even granted
extensions to continue in possession of the
property. It was only when the respondent filed the
motion for execution that the petitioners alleged for
the first time that the respondents deceived them
into executing the amicable settlement. [38]
On the petitioners claim that they were entitled
to the right of first refusal under P.D. No. 1517, we
agree with the disquisition of the trial court, as
quoted by the Court of Appeals:
We likewise find no reversible error on the part of [the]
RTC in rejecting that the petitioners have a right of first
refusal in the purchase and sale of the subject
property. As ratiocinated by the court:
xxx. Presidential Decree No. 1517 (The Urban Land
Reform Law) does not apply where there is no showing
that the land leased has been proclaimed to be within a
specific Urban Land Reform Zone. In the instant case,
the annex attached to the Proclamation 1967 creating
the areas declared as priority development and urban
land reform zone ... does not indicate that the barangay
where the subject property is located is included
therein. This is bolstered by the certification issued by
the Housing and Land Regulatory Board to the effect
that the location of the property is outside the area of
Priority Development. It is therefore a reversible error
for the lower court to conclude that defendants-
appellees were deprived of their preemptive right when
no right exists in the first place.
Indeed, before a preemptive right under PD 1517 can be
exercised, the disputed land should be situated in an
area declared to be both an APD (Areas for Priority
Development) and a ULRZ (Urban Land Reform
Zones). Records show, and as not disputed by the
petitioners, the disputed property is not covered by the
aforementioned areas and zones. [39]
IN LIGHT OF ALL THE FOREGOING, the
petition is DENIED. The petitioners and all those
acting for and in their behalf are directed to vacate,
at their own expense, the property covered by
Transfer Certificate of Title No. 15324 of the
Register of Deeds of Muntinlupa City and deliver
possession of the property to the vendees Mary
Liza Santos, Susana Lim and Johnny Lim. This is
without prejudice to the right of the vendees to
recover from the petitioners reasonable
compensation for their possession of the property
from January 2000 until such time that they vacate
the property. Costs against the petitioners.
SO ORDERED.