G.R. No.
200558 Aurora was shocked to learn that the subject property
CONSUELO V. PANGASINAN and ANNABELLA V.
BORROMEO, Petitioners,
vs.
CRISTINA DISONGLOALMAZORA, RENILDA
ALMAZORA-CASUBUAN, RODOLFO CASUBUAN,
SUSANA ALMAZORAMENDIOLA, CARLOS
MENDIOLA, CECILIO ALMAZORA and NENITA
ALMAZORA, Respondents.
DECISION
MENDOZA, J.:
The present case demonstrates the legal principle that
the law aids the vigilant, not those who slumber on
their rights. Vigilantibus, sed non dormientibus Jura
subverniunt.
This is a petition for review on certiorari seeking to
reverse and set aside the July 28, 2011 Decision1 and
the February 3, 2012 Resolution2 of the Court of
Appeals (CA), in CA-G.R. CV 84529, which affirmed
the June 29, 2004 Decision3 of the Regional Trial
Court, Branch 259, Parañaque City (RTC) in Civil Case
No. 96-0206, a case for damages.
The Facts
The subject property is a parcel of land with an area
of 572 square meters located in Brgy. Sto. Domingo,
Biñan, Laguna. It was registered in the name of
Aquilina Martinez (Aquilina) under Transfer Certificate
of Title (TCT) No. T-18729 by the Register of Deeds of
Laguna on July 29, 1939.4
After the liberation of Manila from the Japanese
military occupation in 1945, Aquilina and her maternal
grandmother, Leoncia Almendral (Leoncia), learned
that their house on Zabala Street, Tondo, Manila, was
ruined by the war. To rebuild their house, they
borrowed money from their relative, Conrado
Almazora (Conrado). Thus, their house was
reconstructed. In return, Leoncia entrusted to
Contrado the owner’s duplicate copy of TCT No. T-
18729 covering the subject property in Biñan, Laguna.
Consequently, Conrado and his family remained in the
said property.
Following the death of Aquilina on July 19, 1949, the
title of the subject property was transferred to Aurora
Morales-Vivar (Aurora), as her sole heir. Accordingly,
TCT No. T-35280 was issued in the name of
Aurora5 after TCT No. T-18729 was cancelled. On
February 7, 1972, Conrado passed away.
Sometime in 1994, Aurora learned from Cristina
Almazora (Cristina), the widowed spouse of Conrado,
that the title of the subject property had long been
transferred in the name of Conrado and that the
subject property had been sold to Fullway
Development Corporation (Fullway) by the heirs of
Conrado in consideration of P4,000,000.00.6
was already transferred to Conrado and sold for a
meager amount. On October 30, 1995, she sent a
letter to the heirs of Conrado demanding the delivery
of the payment they received for the sale of the
subject property; but it was unheeded.
On May 9, 1996, Aurora together with her husband,
Arturo, filed a complaint for damages7 against Cristina
and the other heirs of Conrado (respondents) before
the RTC. They contended that the owner’s duplicate
copy of TCT No. T-18729 was only given to Conrado
for safekeeping. The complaint, however, admitted
that the family of Conrado had been staying on, and
using, the subject property since 1912 with the
permission and generosity of Aquilina and Leoncia.8
Aurora asserted that, through the years, she
repeatedly asked Conrado to return the owner’s copy
of the title but the latter procrastinated, giving all
kinds of excuses, until he died in 1972; that
thereafter, Aurora asked Cristina for the copy of the
title but the latter also ignored her request; that the
subsequent sale of the subject property to Fullway
was without Aurora’s authorization, and, thus, the
payment received by respondents for the sale of the
subject property should be turned over to her; and
that she prayed for moral and exemplary damages.9
On June 24, 1996, respondents filed their answer with
compulsory counterclaim. They countered that the
subject property was properly transferred to Conrado
under TCT No. 35282, and, thereafter, in the names
of the heirs of Conrado under TCT No. T-114352.
Respondents averred that the imputation of fraud on
the part of Conrado in the registration of the subject
property was baseless and this assertion of fraud was
not transmissible from Conrado to his heirs, who
merely acquired the property through succession.10
Respondents raised some special and affirmatives
defenses, among others, that the complaint stated no
cause of action and was barred by prescription. A
preliminary hearing for the said defenses was set by
the RTC.11 In the Order,12 dated May 27, 1999, the
RTC ruled that the complaint stated a cause of action.
Respondents filed a petition for certiorari 13 to assail
the said interlocutory order of the RTC before the CA.
In its Decision,14 dated February 24, 1999, the CA
denied the same and held that the complaint stated a
cause of action, which was an action for damages
arising from fraud committed by Conrado, as trustee,
against Aurora, as cestui que trust. The CA further
held that the complaint, on its face, did not show that
the action had prescribed.
Meanwhile, the RTC continued the proceedings and
set the case for trial on the merits. After the parties
adduced their respective pieces of evidence, the RTC
required them to submit their memoranda. Only
respondents filed a memorandum.15
The RTC Ruling
In its Decision, dated June 29, 2004, the RTC
dismissed the complaint. The trial court held that,
after a thorough evaluation of the records, Aurora
miserably failed to prove her right to the subject
property. It explained that even if Aurora had a claim
on the subject property, she was guilty of laches. For
many years, Aurora slept on her right over the
questioned property and failed to exhaust all means,
legal or administrative, to retrieve what was rightfully
hers at the earliest possible time.
The RTC determined that Conrado was able to transfer
the title of the subject property in his name on June
17, 1965 by virtue of a document denominated as
"Adjudication and Absolute Sale of a Parcel of
Registered Land,"16dated January 9, 1949, signed by
Aurora and her husband. The signatures of Aurora and
her husband, affixed on the deed of sale, were not
properly controverted by her. The trial court found
that her allegations of repeated pleas to Conrado to
return the copy of the title deserved scant
consideration. It concluded that Aurora was not
entitled to damages because there were no clear and
cogent grounds to award the same. The decretal
portion of the decision reads:
WHEREFORE, premises considered, plaintiffs having
failed to prove its case for damages, the same is
hereby ordered DISMISSED for lack of merit.
SO ORDERED.17
Aggrieved, Aurora appealed to the CA. On June 4,
2009, the children of Aurora, namely, Consuelo V.
Pangasinan, Lucio M. Vivar and Annabella V.
Borromeo (petitioners), filed a motion for substitution
of party18 after her death on March 26, 2008. In its
Resolution,19 dated July 15, 2010, the CA granted the
motion.
The CA Ruling
In the assailed Decision, dated July 28, 2011, the CA
denied the appeal of petitioners. It held that it took
Aurora more than 50 years to act on Conrado’s
withholding of the title covering the subject property.
As early as 1945, the title was already in the
possession of Conrado. The CA ruled that petitioners
were barred by laches as Aurora should have been
impervious in asserting her ownership and made
judicial demands to return the title and the property.
The appellate court added that even on the aspect of
prescription of actions, the case would not prosper
either. It explained that the prescriptive period to
recover property obtained through fraud or mistake
giving rise to an implied trust under Article 1456 of
the Civil Code was 10 years, pursuant to Article 1144.
This 10-year prescriptive period began from the time
the land was registered on June 17, 1965.
Accordingly, Aurora had only until June 17, 1975
within which to file her action. Evidently, the suit was
commenced only on May 12, 1996, beyond its
prescription period. The dispositive portion of the
decision states:
WHEREFORE, premises considered, the instant
petition is DENIED and the Decision dated June 29,
2004 of the Regional Trial Court of Parañaque City,
Branch 259 in Civil Case No. 96-0206 is hereby
AFFIRMED.
SO ORDERED.20
Petitioners moved for reconsideration, but their
motion was denied by the CA in the assailed
Resolution, dated February 3, 2012.
Hence, this petition, raising the following
ISSUES
I
THE COURT OF APPEALS GRAVELY ERRED IN
AFFIRMING THE DECISION OF THE LOWER
COURT DISMISSING THE COMPLAINT FOR
DAMAGES FILED BY AURORA MORALESVIVAR,
WHICH DECISIONS ARE ALL CONTRARY TO LAW;
II
THE COURT OF APPEALS SERIOUSLY ERRED IN
NOT RULING THAT THE ACQUISITION OF
CONRADO ALMAZORA, RESPONDENTS’
PREDECESSOR-IN-INTEREST, OF THE SUBJECT
PROPERTY, IS INVALID AND PRODUCED NO
EFFECT WHATSOEVER BECAUSE NOT ALL THE
ELEMENTS OF LACHES, AS TO DEPRIVE AURORA
MORALES-VIVAR OF HER OWNERSHIP, ARE
PRESENT IN THE CASE AT BAR.21
Petitioners assert that they are not guilty of laches.
When Aurora was told that the subject property was
already in the name of Conrado in April 1994, she
immediately filed a complaint for damages on May 2,
1996. Petitioners also claim that prescription is not a
valid defense to defeat the title of Aurora. Section 47
of Presidential Decree (P.D.) No. 1529 states that no
title to registered land in derogation of the title of the
registered owner shall be acquired by prescription or
adverse possession.
On September 24, 2012, respondents filed their
Comment,22 arguing that petitioners’ assertions were
tenuous. Aurora slept on her rights for more than 50
years, impervious in asserting her ownership of the
subject property, thereby losing the same by laches.
On December 11, 2012, petitioners filed their
Reply,23 claiming that the CA observed that
respondents might have manipulated the said title to
their benefit and advantage. Respondents’ hands were
unclean because of their bad faith and
misrepresentation.
The Court’s Ruling
The petition is bereft of merit.
The petition raises
questions of fact
As a general rule, the Court’s jurisdiction in a Rule 45
petition is limited to the review of pure questions of
law. A question of law arises when the doubt or
difference exists as to what the law is on a certain
state of facts. Negatively put, Rule 45 does not allow
the review of questions of fact. A question of fact
exists when the doubt or difference arises as to the
truth or falsity of the alleged facts.24
Petitioners challenge the findings of laches,
prescription and lack of bad faith by the CA. To answer
these questions, the Court must review the records to
determine whether the lower courts properly
appreciated the evidence in concluding its findings.
Clearly, the questions raised are factual. On this
ground alone, the present petition under Rule 45 is
dismissible. In the interest of substantial justice,
however, the Court deems it proper to reevaluate the
records.
Petitioners are barred by
laches
Laches is defined as the failure or neglect for an
unreasonable and unexplained length of time to do
that which, by exercising due diligence, could or
should have been done earlier; it is negligence or
omission to assert a right within a reasonable time,
warranting a presumption that the party entitled to
assert it either has abandoned it or declined to assert
it.25
The principle of laches is a creation of equity which,
as such, is applied not really to penalize neglect or
sleeping upon one's right, but rather to avoid
recognizing a right when to do so would result in a
clearly inequitable situation.26 The time-honored rule
anchored on public policy is that relief will be denied
to a litigant whose claim or demand has become
"stale," or who has acquiesced for an unreasonable
length of time, or who has not been vigilant or who
has slept on his rights either by negligence, folly or
inattention. In other words, public policy requires, for
peace of society, the discouragement of claims grown
stale for non-assertion; thus laches is an impediment
to the assertion or enforcement of a right which has
become, under the circumstances, inequitable or
unfair to permit.27
The four (4) elements of laches, as first prescribed by
this Court in Go Chi Gun v. Co Cho28 are as follows:
(1) conduct on the part of the defendant, or
of one under whom he claims, giving rise to
the situation of which complaint is made for
which the complaint seeks a remedy;
(2) delay in asserting the complainant’s
rights, the complainant having had
knowledge or notice, of the defendant’s
conduct and having been afforded an
opportunity to institute a suit;
(3) lack of knowledge or notice on the part of
the defendant that the complainant would
assert the right on which he bases his suit;
and
(4) injury or prejudice to the defendant in the
event relief is accorded to the complainant,
or the suit is not held to be barred.29
In the case at bench, the CA correctly held that all the
elements of laches were present. First, Aurora and her
family entrusted to Conrado the owner’s duplicate of
the certificate of title of the subject property in 1945.
In their complaint, petitioners even admitted that
Conrado’s family had been staying in the subject
property since 1912.30Second, it took five decades,
from 1945 to 1996, before Aurora and petitioners
decided to enforce their right
thereon. Third, respondents who lived all their lives in
the disputed property apparently were not aware that
Aurora would one day come out and claim ownership
thereon. Fourth, there was no question that
respondents would be prejudiced in the event that the
suit would be allowed to prosper.1avvphi1
The contention of petitioners that they were not in
delay in claiming their rights over the subject property
is specious. For 50 years, Aurora and her heirs did not
take any legal step to uphold their claim over the
subject property, despite being fully aware that
Conrado and his family were occupying the same for
a very long time. Even petitioner Consuelo Vivar-
Pangasinan testified that Conrado had been using the
property for 30 years31 and that Aurora had never
shown her any evidence of ownership of the
property.32
In their complaint, Aurora claimed that she repeatedly
reminded Conrado to return the copy of the title. This,
however, is a self-serving allegation without any
evidentiary substantiation. The two belated demand
letters, dated October 30, 1995 and March 5, 1996,
sent by Aurora’s lawyer before the institution of the
present action, are the only tangible assertions of their
claim to the property.33 Indeed, not a scintilla of proof
was presented by Aurora and her heirs to establish
that, for 50 years, they actively manifested to reclaim
the title and possession of the subject property.
A person, endowed with properties and entitlements,
but chose to lie quietly as decades passed by,
watching his property wither away, allowing innocent
bystanders to pick the fruits of his unguarded trees,
instead of safeguarding his rights through the
accessibly and necessary legal means, does not
deserve the protection of equity. The law aids the
vigilant, not those who slumber on their rights.
The action has prescribed
On the basis of prescription of actions, the pending
petition must also be denied. Petitioners argue that
prescription shall not lie against their action because
a registered land under Section 47 of P.D. No. 1529
cannot be acquired through prescription.34 The
argument is patently erroneous.
There are two kinds of prescription provided in the
Civil Code. One is acquisitive, that is, the acquisition
of a right by the lapse of time as expounded in
paragraph 1, Article 1106.35 Acquisitive prescription is
also known as adverse possession and usucapcion.
The other kind is extinctive prescription whereby
rights and actions are lost by the lapse of time as
defined in paragraph 2, Article 1106 and Article
1139.36 Another name for extinctive prescription is
litigation of action. These two kinds of prescription
should not be interchanged.37
In a plethora of cases,38 the Court has held that
Section 47 of P.D. No. 1529 covers acquisitive
prescription. A registered land therein can never be
acquired by adverse possession. In the case at bench,
however, it was extinctive prescription, and not
acquisitive prescription, which barred the action of
petitioners. As the CA correctly held, the action must
fail, not because respondents adversely occupied the
property, but because petitioners failed to institute
their suit within the prescriptive period under Article
1144 of the Civil Code.
To determine the applicable period of extinctive
prescription, the nature and circumstances of the case
should be considered. According to petitioners, the
owner’s duplicate certificate of title was given to
Conrado for safekeeping in 1945. Allegedly, Conrado
employed fraud and bad faith when he drafted the
Adjudication and Absolute Sale of a Parcel of
Registered Land39 on January 9, 1949, and transferred
the title of the land to his name with the issuance of
TCT No. 3528240 on June 17, 1965; and because of
the purported fraud committed by Conrado against
petitioners, an implied constructive trust was created
by operation of law, with Conrado as trustee and
Aurora as cestui que trust.
Constructive trusts are created by the construction of
equity in order to satisfy the demands of justice and
prevent unjust enrichment.41 Article 1456 of the Civil
Code provides that a person acquiring property
through fraud becomes, by operation of law, a trustee
of an implied trust for the benefit of the real owner of
the property.42 It is now well-settled that the
prescriptive period to recover property obtained by
fraud or mistake, giving rise to an implied trust under
Article 1456 of the Civil Code, is 10 years pursuant to
Article 1144.43 The prescriptive period to enforce the
constructive trust shall be counted from the alleged
fraudulent registration or date of issuance of the
certificate of title over the property.44 The ten-year
prescriptive period applies only if there is an actual
need to reconvey the property as when the plaintiff is
not in possession of the property.45
In this case, the ten-year prescriptive period is
squarely applicable because Conrado and his family,
not petitioners, were in possession of the property.
The subject property was registered in the name of
Conrado on June 17, 1965, and this should be the
starting point of the ten-year period. Petitioners, thus,
had until June 17, 1975 to enforce the implied trust
and assert their claim over the land. As properly held
by the CA, petitioners belatedly instituted their judicial
claim over the land on May 9, 1996. Indeed, with the
lapse of the prescriptive period to file an action,
petitioners could no longer seek relief from the courts.
Fraud was not proven
Granting, for the sake of argument, that the present
case was not barred by laches and had not prescribed,
it must still fail on its merits. The basis of the action
for damages of petitioners would be the fraud, bad
faith and misrepresentation allegedly committed by
Conrado in transferring the title of the subject
property to his name. Petitioners, however, drastically
failed to prove the fact of fraud with clear and
convincing evidence.
Fraud must be proven by clear and convincing
evidence and not merely by a preponderance
thereof.46 Clear and convincing proof is more than
mere preponderance, but not to extent of such
certainty as is required beyond reasonable doubt as in
criminal cases.47 The imputation of fraud in a civil case
requires the presentation of clear and convincing
evidence. Mere allegations will not suffice to sustain
the existence of fraud. The burden of evidence rests
on the part of the plaintiff or the party alleging fraud.48
Here, the Adjudication and Absolute Sale of a Parcel
of Registered Land, which was signed by Aurora and
her husband, transferred the ownership of the subject
property from Aurora to Conrado. Petitioners,
however, failed to assail the validity of such deed. As
written by the RTC, petitioners could have questioned
the authenticity of the document and submitted the
same to the National Bureau of Investigation for
comparison of the signatures. This, they failed to do.49
In fine, the Adjudication and Absolute Sale of a Parcel
of Registered Land, being a notarized document,
enjoys the presumption of regularity. Even assuming
that Conrado truly employed fraud, no proof was
presented that respondents, as heirs of Conrado, were
in privy and had knowledge of the misrepresentations.
In the absence of evidence of fraud, the transfer to
Conrado of the title of the subject property, and the
subsequent transfer to respondents by virtue of
succession,50 must be upheld.
Even on the subject of ownership, petitioners failed to
substantiate their claim. Petitioners had nothing,
other than their bare allegations, that they
continuously owned the subject property. For
decades, petitioners lacked the possession and
interest to 'recover the subject property. The trial
court even noted that petitioners could not present a
single tax declaration receipt as an indicia of their
ownership. Based on the foregoing, petitioners are
certainly not entitled to damages on the basis of their
misplaced claim of ownership over the subject
property.
WHEREFORE, the petition is DENIED. The July 28,
2011 Decision and the February 3, 2012 Resolution of
the Court of Appeals in CA-G.R. CV No. 122153
are AFFIRMED in toto.
SO ORDERED.
[ GR Nos. 170746-47, Mar 07, 2016 ]
CALTEX LIMITED v. MA. FLOR A. SINGZON
AGUIRRE +
DECISION

REYES, J.:
Facts
Dubbed as the Asia's Titanic,[1] the M/V Dona Paz was
an inter-island passenger vessel owned and operated
by Sulpicio Lines, Inc. (Sulpicio) traversing its Leyte
to Manila route on the night of December 20, 1987,
when it collided with M/T Vector, a commercial tanker
owned and operated by Vector Shipping Corporation,
Inc., (Vector Shipping). On that particular voyage,
M/T Vector was chartered by Caltex (Philippines)
Inc., et al.[2] (petitioners) to transport petroleum
products. The collision brought forth an inferno at sea
with an estimate of about 4,000 casualties, and was
described as the "world's worst peace time maritime
disaster."[3] It precipitated the filing of numerous
lawsuits, the instant case included.
In December 1988, the heirs of the victims of the
tragedy (respondents), instituted a class action with
the Civil District Court for the Parish of Orleans, State
of Louisiana, United States of America (Louisiana
Court), docketed as Civil Case No. 88-24481 entitled
"Sivirino Carreon, et al. v. Caltex (Philippines), Inc.,
et al."[4] On November 30, 2000, the Louisiana Court
entered a conditional judgment dismissing the said
case on the ground of forum non-conveniens.[5] This
led the respondents, composed of 1,689 claimants, to
file on March 6, 2001 a civil action for damages for
breach of contract of carriage and quasi-delict with
the Regional Trial Court (RTC) of Catbalogan, Samar,
Branch 28 (RTC of Catbalogan), against the herein
petitioners, Sulpicio, Vector Shipping, and Steamship
Mutual Underwriting Association, Bermuda Limited
(Steamship). This was docketed as Civil Case No.
7277 entitled "Ma. Flor Singzon-Aguirre, et al. v.
Sulpicio Lines, Inc., et al."[6]
In its Order[7] dated March 28, 2001, the RTC of
Catbalogan, motu proprio dismissed the complaint
pursuant to Section 1, Rule 9 of the 1997 Rules of Civil
Procedure as the respondents' cause of action had
already prescribed. In an unusual turn of events
however, the petitioners as defendants therein, who
were not served with summons, filed a motion for
reconsideration, alleging that they are waiving their
defense of prescription, among others. The RTC of
Catbalogan, however, merely noted the petitioners'
motion.[8]
The dismissal of the complaint prompted the
respondents to have the case reinstated with the
Louisiana Court. The petitioners, as defendants,
however argued against it and contended that the
Philippines offered a more convenient forum for the
parties, specifically the RTC of Manila, Branch 39 (RTC
of Manila), where three consolidated
cases[9] concerning the M/V Dona Paz collision were
pending.[10]
In its Judgment[11] dated March 27, 2002, the
Louisiana Court once again conditionally dismissed the
respondents' action, ordering the latter to bring their
claims to the RTC of Manila by intervening in the
consolidated cases filed before the latter court. It was
also stated in the judgment that the Louisiana Court
will allow the reinstatement of the case if the
Philippine court "is unable to assume jurisdiction over
the parties or does not recognize such cause of action
or any cause of action arising out of the same
transaction or occurrence."[12]
Following the Louisiana Court's order, the respondents
filed a motion for intervention on May 6, 2002, and a
complaint in intervention on May 13, 2002 with the
pending consolidated cases before the RTC of Manila.
Also, co-defendants in the consolidated cases, Sulpicio
and Steamship were furnished with a copy of the
respondents' motion to intervene.
In their Manifestation[13] dated April 24, 2002, the
petitioners unconditionally waived the defense of
prescription of the respondents' cause of action. The
petitioners also reiterated a similar position in their
Comment/Consent to Intervention[14] dated May 16,
2002. Likewise, Sulpicio and Steamship filed their
Manifestation of No Objection dated May 30, 2002 and
Manifestation dated June 20, 2002 with the RTC of
Manila, expressing concurrence with the
petitioners.[15]
On July 2, 2002, the RTC of Manila issued its
Order[16] denying the respondents' motion to
intervene for lack of merit. The RTC of Manila ruled
that the RTC of Catbalogan had already dismissed the
case with finality; that a final and executory prior
judgment is a bar to the filing of the complaint in
intervention of the respondents; and that the waivers
of the defense of prescription made by the petitioners,
Sulpicio and Steamship are of no moment.[17] The
motion for reconsideration filed by the petitioners,
Sulpicio and Steamship was denied as well on August
30, 2002.[18]
On September 25, 2002, the petitioners instituted a
petition for certiorari before the Court of Appeals (CA)
docketed as CA-G.R. SP No. 72994. On November 12,
2002, Sulpicio and Steamship also filed a separate
petition docketed as CA-G.R. SP No. 73793. These
petitions were consolidated in an order of the CA dated
March 31, 2004.[19]
On April 27, 2005, the CA dismissed[20] the
consolidated petitions in this wise:
WHEREFORE, premises considered, the consolidated
petitions under consideration are hereby DISMISSED.
Accordingly, the assailed orders of the [RTC of Manila]
dated July 2, 2002 and August 30, 2002 are
AFFIRMED. No pronouncement as to costs.
SO ORDERED.[21]
The CA concurred with the RTC of Manila that the
finality of the Order dated March 28, 2001 issued by
the RTC of Catbalogan has the effect of res judicata,
which barred the respondents' motion to intervene
and complaint-in-intervention with the RTC of
Manila.[22] The CA also considered the filing of motion
for reconsideration by the petitioners before the RTC
of Catbalogan as tantamount to voluntary submission
to the jurisdiction of the said court over their
person.[23] The CA rationalized that "[i]t is basic that
as long as the party is given the opportunity to defend
his interests in due course, he would have no reason ON THE GROUND OF BAR BY PRIOR
to complain, for it is this opportunity to be heard that JUDGMENT.[37]
makes up the essence of due process."[24]

The motions for reconsideration having been denied

by the CA in its Order[25] dated December 8, 2005,
Ruling of the Court
only the petitioners elevated the matter before this
Court by way of petition for review
on certiorari[26] under Rule 45.
The petition lacks merit.

The petitioners cannot be permitted to assert their

The Parties' Arguments
right to waive the defense of prescription when they
had foregone the same through their own omission,
The petitioners contended that not all the elements
as will be discussed below.
of res judicata are present in this case which would
warrant its application as the RTC of Catbalogan did
The Court shall first discuss the prescription of the
not acquire jurisdiction over their persons and that the
respondents' cause of action against the petitioners.
judgment therein is not one on the merits.[27] It was
Article 1106 of the Civil Code provides that "[b]y
also adduced that only the respondents were heard in
prescription, one acquires ownership and other real
the RTC of Catbalogan because when the petitioners
rights through the lapse of time in the manner and
filed their motion for reconsideration, the order of
under the conditions laid down by law. In the same
dismissal was already final and executory.[28] The
way, rights and conditions are lost by prescription."
petitioners also bewailed that other complaints were
The first sentence refers to acquisitive prescription,
accepted by the RTC of Manila in the consolidated
which is a mode of "acquisition of ownership and other
cases despite prescription of the cause of
real rights through the lapse of time in the manner
action[29] and that the real issue of merit is whether
and under the conditions provided by law." The second
the defense of prescription that has matured can be
sentence pertains to extinctive prescription "whereby
waived.[30] They explained that they were not able to
rights and actions are lost by the lapse of time."[38] It
file for the annulment of judgment or order of the RTC
is also called limitation of action.[39]
of Catbalogan since the respondents precluded them
from seeking such remedy by filing a motion for
This case involves the latter type of prescription, the
intervention in the consolidated cases before the RTC
purpose of which is to protect the diligent and vigilant,
of Manila.[31]
not the person who sleeps on his rights, forgetting
them and taking no trouble of exercising them one
On the other side, the respondents maintained that
way or another to show that he truly has such
the waiver on prescription is not the issue but bar by
rights.[40] The rationale behind the prescription of
prior judgment is, because when they filed their
actions is to suppress fraudulent and stale claims from
motion for intervention, the dismissal meted out by
springing up at great distances of time when all the
the RTC of Catbalogan was already final.[32]According
proper vouchers and evidence are lost or the facts
to the respondents, if the petitioners intended to have
have become obscure from the lapse of time or
the dismissal reversed, the latter should have
defective memory or death or removal of
appealed from the order of the RTC of Catbalogan or
witnesses.[41]
filed a petition for certiorari against the said order or
an action to nullify the same.[33]The respondents also
There is no dispute that the respondents' cause of
elucidated that they could not have precluded the
action against the petitioners has prescribed under the
petitioners from assailing the RTC of Catbalogan's
Civil Code.[42] In fact, the same is evident on the
orders because it was not until May 6, 2002 when the
complaint itself. The respondents brought their claim
respondents filed a motion for intervention with the
before a Philippine court only on March 6, 2001, more
consolidated cases before the RTC of Manila[34] and
than 13 years after the collision occurred.[43] Article
only in deference to the 2nd order of dismissal of the
1139 of the Civil Code states that actions prescribe by
Louisiana Court.[35] Finally, for the respondents, the
the mere lapse of time fixed by law. Accordingly, the
CA correctly held that the petitioners cannot
RTC of Catbalogan cannot be faulted for the motu
collaterally attack the final order of the RTC of
proprio dismissal of the complaint filed before it. It is
Catbalogan, the reason being that a situation wherein
settled that prescription may be considered by the
there could be two conflicting rulings between two co-
courts motu proprio if the facts supporting the ground
equal courts must be avoided.[36]
are apparent from the pleadings or the evidence on
record.[44]
Essentially, the issues can be summed up as follows:
The peculiarity in this case is that the petitioners, who
were the defendants in the antecedent cases before
the RTCs of Catbalogan and Manila, are most adamant
I. WHETHER THE CA ERRED IN RULING THAT in invoking their waiver of the defense of prescription
THE ORDERS OF THE RTC OF CATBALOGAN while the respondents, to whom the cause of action
BARRED THE FILING OF THE MOTION AND belong, have acceded to the dismissal of their
COMPLAINT FOR INTERVENTION BEFORE complaint. The petitioners posit that there is a conflict
THE RTC OF MANILA; and between a substantive law and procedural law in as
much as waiver of prescription is allowed under Article
II. WHETHER THE CA ERRED IN AFFIRMING THE 1112 of the Civil Code, a substantive law even though
RTC OF MANILA'S DISREGARD OF THE the motu proprio dismissal of a claim that has
PETITIONERS' WAIVER OF PRESCRIPTION prescribed is mandated under Section 1, Rule 9 of the
Rules of Court.[45]

The Court has previously held that the right to
prescription may be waived or renounced pursuant to
Article 1112 of the Civil Code:[46]
Art. 1112. Persons with capacity to alienate property
may renounce prescription already obtained, but not
the right to prescribe in the future.
Prescription is deemed to have been tacitly renounced
when the renunciation results from acts which imply
the abandonment of the right acquired.
In the instant case, not only once did the petitioners
expressly renounce their defense of prescription.
Nonetheless, the Court cannot consider such waiver
as basis in order to reverse the rulings of the courts
below as the dismissal of the complaint had become
final and binding on both the petitioners and the
respondents.
It is not contested that the petitioners were not served
with summons by the RTC of Catbalogan prior to
the motu proprio dismissal of the respondents'
complaint. It is basic that courts acquire jurisdiction
over the persons of defendants or respondents, by a
valid service of summons or through their voluntary
submission.[47] Not having been served with
summons, the petitioners were not initially considered
as under the jurisdiction of the court. However, the
petitioners voluntarily submitted themselves under
the jurisdiction of the RTC of Catbalogan by filing their
motion for reconsideration.
Section 20, Rule 14 of the 1997 Rules of Court states:
Sec. 20. Voluntary appearance. - The defendant's
voluntary appearance in the action shall be equivalent
to service of summons. The inclusion in a motion to
dismiss of other grounds aside from lack of jurisdiction
over the person of the defendant shall not be deemed
a voluntary appearance.
In Philippine Commercial International Bank v.
Spouses Dy Hong Pi, et al.,[48] the Court explained the
following:
(1) Special appearance operates as an exception to
the general rule on voluntary appearance;
(2) Accordingly, objections to the jurisdiction of the
court over the person of the defendant must be
explicitly made, i.e., set forth in an unequivocal
manner; and
(3) Failure to do so constitutes voluntary submission
to the jurisdiction of the court, especially in instances
where a pleading or motion seeking affirmative relief
is filed and submitted to the court for resolution.[49]
Previous to the petitioners' filing of their motion for
reconsideration, the RTC of Catbalogan issued an
Entry of Final Judgment[50] stating that its Order dated
March 28, 2001 became final and executory on April
13, 2001. The petitioners claimed that for this reason,
they could not have submitted themselves to the
jurisdiction of the RTC of Catbalogan by filing such a
belated motion.[51]
But the petitioners cannot capitalize on the supposed
finality of the Order dated March 28, 2001 to repudiate
their submission to the jurisdiction of the RTC of
Catbalogan. It must be emphasized that before the
filing of their motion for reconsideration, the
petitioners were not under the RTC of Catbalogan's
jurisdiction. Thus, although the order was already final
and executory with regard to the respondents; it was
not yet, on the part of the petitioners. As opposed to
the conclusion reached by the CA, the Order dated
March 28, 2001 cannot be considered as final and
executory with respect to the petitioners. It was only
on July 2, 2001, when the petitioners filed a motion
for reconsideration seeking to overturn the
aforementioned order, that they voluntarily submitted
themselves to the jurisdiction of the court. On
September 4, 2001, the RTC of Catbalogan noted the
petitioners' motion for reconsideration on the flawed
impression that the defense of prescription cannot be
waived.[52]
Consequently, it was only after the petitioners' failure
to appeal or seek any other legal remedy to challenge
the subsequent Order dated September 4, 2001, that
the dismissal became final on their part. It was from
the date of the petitioners' receipt of this particular
order that the reglementary period under the Rules of
Court to assail it commenced to run for the petitioners.
But neither the petitioners nor the respondents
resorted to any action to overturn the orders of the
RTC of Catbalogan, which ultimately led to their
finality. While the RTC of Catbalogan merely noted the
motion for reconsideration in its Order dated
September 4, 2001, the effect is the same as a denial
thereof, for the intended purpose of the motion, which
is to have the complaint reinstated, was not realized.
This should have prompted the petitioners to explore
and pursue other legal measures to have the dismissal
reversed. Instead, nothing more was heard from the
parties until a motion for intervention was filed by the
respondents before the RTC of Manila, in conformity
with the order of the Louisiana Court. As the CA
espoused in its decision:
We concur with the observation of the [RTC of Manila]
that the petitioners' predicament was of their own
making. The petitioners should have exhausted the
other available legal remedies under the law after the
[RTC of Catbalogan] denied their motion for
reconsideration. Under Section 9, Rule 37 of the
[Rules of Court], the remedy against an order denying
a motion for reconsideration is not to appeal the said
order of denial but to appeal from the judgment or
final order of the court. Moreover, the petitioners
could have availed of an action for annulment of
judgment for the very purpose of having the final and
executory judgment be set aside so that there will be
a renewal of litigation. An action for annulment of
judgment is grounded only on two justifications: (1)
extrinsic fraud; and (2) lack of jurisdiction or denial of
due process. All that herein petitioners have to prove
was that the trial court had no jurisdiction; that they
were prevented from having a trial or presenting their
case to the trial court by some act or conduct of the
private respondents; or that they have been denied
due process of law. Seasonably, the petitioners could
have also interposed a petition for certiorari under
Rule 65 of the Rules [of Court] imputing grave abuse
of discretion on the part of the trial court judge in
issuing the said order of dismissal. For reasons
undisclosed in the records, the petitioners did not
bother to mull over and consider the said legal
avenues, which they could have readily availed of
during that time.[53]
The RTC of Manila denied the respondents' motion for
intervention on the ground of the finality of the order
of the RTC of Catbalogan, there being no appeal or
any other legal remedy perfected in due time by either
the petitioners or the respondents. Since the dismissal
of the complaint was already final and executory, the
RTC of Manila can no longer entertain a similar action
from the same parties. The bone of contention is not
regarding the petitioners' execution of waivers of the
defense of prescription, but the effect of finality of an
order or judgment on both parties.
"Settled is the rule that a party is barred from assailing
the correctness of a judgment not appealed from by
him" because the "presumption [is] that a party who
did not interject an appeal is satisfied with the
adjudication made by the lower court."[54]Whether the
dismissal was based on the merits or technicality is
beside the point. "[A] dismissal on a technicality is no
different in effect and consequences from a dismissal
on the merits."[55]
The petitioners attempted to justify their failure to file
an action to have the orders of the RTC of Catbalogan
annulled by ratiocinating that the respondents
precluded them from doing so when the latter filed
their complaint anew with the RTC of Manila. This is
untenable, as it is clear that the respondents filed the
said complaint-in-intervention with the RTC of Manila
more than a year after the case was ordered
dismissed by the RTC of Catbalogan.[56] Aside from
this, the petitioners offered no other acceptable
excuse on why they did not raise their oppositions
against the orders of the RTC of Catbalogan when they
had the opportunity to do so. Thus, the only logical
conclusion is that the petitioners abandoned their
right to waive the defense of prescription.
Lastly, the Court takes judicial notice of its ruling
in Vector Shipping Corporation, et al. v. Macasa, et
al.[57] and Caltex (Philippines) Inc., v. Sulpicio Lines,
Inc.[58]wherein the petitioners, as a mere voyage
charterer, were exonerated from third party liability in
the M/V Doña Paz collision. Should this Court allow the
reinstatement of the complaint against the
petitioners, let the trial proceedings take its course,
and decide the same on the merits in favor of the
respondents, then it would have led to the
promulgation of conflicting decisions. On the other
hand, if this Court were to decide this matter on the
merits in favor of the petitioners, then the same result
would be obtained as with a dismissal now.
WHEREFORE, the petition is denied for lack of merit.
SO ORDERED.
G.R. No. 171514 July 18, 2012
REPUBLIC OF THE PHILIPPINES, Petitioner,
vs.
DOMINGO ESPINOSA, Respondent.
DECISION
REYES, J.:
This is a petition for review on certiorari from the
Decision1 dated November 11, 2004 and
Resolution2 dated February 13, 2006 of the Court of
Appeals in CA-G.R. CV No. 72456.
On March 3, 1999, respondent Domingo Espinosa
(Espinosa) tiled with the Municipal Trial Court (MTC)
of Consolacion, Cebu an application3 for land
registration covering a parcel of land with an area of
5,525 square meters and situated in Barangay
Cabangahan, Consolacion, Cebu. In support of his
application, which was docketed as LRC Case No. N-
81, Espinosa alleged that: (a) the property, which is
more particularly known as Lot No. 8499 of Cad. 545-
D (New), is alienable and disposable; (b) he
purchased the property from his mother, Isabel
Espinosa (Isabel), on July 4, 1970 and the latter’s
other heirs had waived their rights thereto; and (c) he
and his predecessor-in-interest had been in
possession of the property in the concept of an owner
for more than thirty (30) years.
Espinosa submitted the blueprint of Advanced Survey
Plan 07-0008934 to prove the identity of the land. As
proof that the property is alienable and disposable, he
marked as evidence the annotation on the advance
survey plan made by Cynthia L. Ibañez, Chief of the
Map Projection Section, stating that "CONFORMED
PER L.C. MAP NOTATION L.C. Map No. 2545 Project
No. 28 certified on June 25, 1963, verified to be within
Alienable & Disposable Area".5 Espinosa also
presented two (2) tax declarations for the years 1965
and 1974 in Isabel’s name – Tax Declaration Nos.
013516 and 06137 – to prove that she had been in
possession of the property since 1965. To support his
claim that he had been religiously paying the taxes
due on the property, Espinosa presented a
Certification6 dated December 1, 1998 issued by the
Office of the Treasurer of Consolacion, Cebu and three
(3) tax declarations for the years 1978, 1980 and
1985 – Tax Declaration Nos. 14010, 17681 and
010717 .8
Petitioner opposed Espinosa’s application, claiming
that: (a) Section 48(b) of Commonwealth Act No. 141
otherwise known as the "Public Land Act" (PLA) had
not been complied with as Espinosa’s predecessor-in-
interest possessed the property only after June 12,
1945; and (b) the tax declarations do not prove that
his possession and that of his predecessor-in-interest
are in the character and for the length of time required
by law.
On August 18, 2000, the MTC rendered a
Judgment9 granting Espinosa’s petition for
registration, the dispositive portion of which states:
WHEREFORE, and in view of all the foregoing,
judgment is hereby rendered ordering for the
registration and the confirmation of title of Espinosa
over Lot No. 8499, Cad 545-D (New), situated at
Barangay Cabangahan, Consolacion, Cebu,
Philippines, containing an area of 5,525 square meters
and that upon the finality of this decision, let a
corresponding decree of registration be issued in favor
of the herein applicant in accordance with Section 39,
P.D. 1529.
SO ORDERED.10
According to the MTC, Espinosa was able to prove that
the property is alienable and disposable and that he
complied with the requirements of Section 14(1) of
Presidential Decree (P.D.) No. 1529. Specifically:
After a careful consideration of the evidence presented
in the above-entitled case, the Court is convinced, and
so holds, that Espinosa was able to establish his
ownership and possession over the subject lot which
is within the area considered by the Department of
Environment and Natural Resources (DENR) as
alienable and disposable land of the public domain.
The Court is likewise convinced that the applicant and
that of predecessor-in-interest have been in open,
actual, public, continuous, adverse and under claim of
title thereto within the time prescribed by law (Sec.
14, sub-par. 1, P.D. 1529) and/or in accordance with
the Land Registration Act.11
Petitioner appealed to the CA and pointed Espinosa’s
failure to prove that his possession and that of his
predecessor-in-interest were for the period required
by law. As shown by Tax Declaration No. 013516,
Isabel’s possession commenced only in 1965 and not
on June 12, 1945 or earlier as required by Section
48(b) of the PLA. On the other hand, Espinosa came
into possession of the property only in 1970 following
the sale that transpired between him and his mother
and the earliest tax declaration in his name was for
the year 1978. According to petitioner, that Espinosa
and his predecessor-in-interest were supposedly in
possession for more than thirty (30) years is
inconsequential absent proof that such possession
began on June 12, 1945 or earlier.12
Petitioner also claimed that Espinosa’s failure to
present the original tracing cloth of the survey plan or
a sepia copy thereof is fatal to his application. Citing
Del Rosario v. Republic of the Philippines13 and
Director of Lands v. Judge Reyes,14 petitioner argued
that the submission of the original tracing cloth is
mandatory in establishing the identity of the land
subject of the application.15
Further, petitioner claimed that the annotation on the
advance survey plan is not the evidence admissible to
prove that the subject land is alienable and
disposable.16
By way of the assailed decision, the CA dismissed
petitioner’s appeal and affirmed the MTC Decision
dated August 18, 2000. The CA ruled that possession
for at least thirty (30) years, despite the fact that it
commenced after June 12, 1945, sufficed to convert
the property to private. Thus:
The contention of petitioner is not meritorious on the
following grounds:
a) The record of the case will show that Espinosa has
successfully established valid title over the subject
land and that he and his predecessor-in-interest have
been in continuous, adverse, public and undisturbed
possession of said land in the concept of an owner for
more than 30 years before the filing of the application.
Established jurisprudence has consistently
pronounced that "open, continuous and exclusive
possession for at least 30 years of alienable public
land ipso jure converts the same into private property
(Director of Lands vs. Intermediate Appellate Court,
214 SCRA 604). This means that occupation and
cultivation for more than 30 years by applicant and his
predecessor-in-interest vests title on such applicant
so as to segregate the land from the mass of public
land (National Power Corporation vs. Court of Appeals,
218 SCRA 41); and
b) It is true that the requirement of possession since
June 12, 1945 is the latest amendment of Section
48(b) of the Public Land Act (C.A. No. 141), but a strict
implementation of the law would in certain cases
result in inequity and unfairness to Espinosa. As wisely
stated by the Supreme Court in the case of Republic
vs. Court of Appeals, 235 SCRA 567:
"Following the logic of the petitioner, any transferee is
thus foreclosed to apply for registration of title over a
parcel of land notwithstanding the fact that the
transferor, or his predecessor-in-interest has been in
open, notorious and exclusive possession thereof for
thirty (30) years or more."17
The CA also ruled that registration can be based on
other documentary evidence, not necessarily the
original tracing cloth plan, as the identity and location
of the property can be established by other competent
evidence.
Again, the aforesaid contention of [the petitioner] is
without merit. While the best evidence to identify a
piece of land for registration purposes may be the
original tracing cloth plan from the Land Registration
Commission, the court may sufficiently order the
issuance of a decree of registration on the basis of the
blue print copies and other evidence (Republic of the
Philippines vs. Intermediate Appellate Court, G.R. No.
L-70594, October 10, 1986). The said case provides
further:
"The fact that the lower court finds the evidence of the
applicant sufficient to justify the registration and
confirmation of her titles and did not find it necessary
to avail of the original tracing cloth plan from the Land
Registration Commission for purposes of comparison,
should not militate against the rights of the applicant.
Such is especially true in this case where no clear,
strong, convincing and more preponderant proof has
been shown by the oppositor to overcome the
correctness of said plans which were found both by
the lower court and the Court of Appeals as conclusive
proofs of the description and identities of the parcels
of land contained therein."
There is no dispute that, in case of Del Rosario vs.
Republic, supra¸ the Supreme Court pronounced that
the submission in evidence of the original tracing cloth
plan, duly approved by the Bureau of Lands, in cases
for application of original registration of land is a
mandatory requirement, and that failure to comply
with such requirement is fatal to one’s application for
registration. However, such pronouncement need not
be taken as an iron clad rule nor to be applied strictly
in all cases without due regard to the rationale behind
the submission of the tracing cloth plan.
x x x:
xxxx
As long as the identity of and location of the lot can
be established by other competent evidence like a
duly approved blueprint copy of the advance survey
plan of Lot 8499 and technical description of Lot 8499,
containing and identifying the boundaries, actual area
and location of the lot, the presentation of the original
tracing cloth plan may be excused.18
Moreover, the CA ruled that Espinosa had duly proven
that the property is alienable and disposable:
Espinosa has established that Lot 8499 is alienable
and disposable. In the duly approved Advance Survey
Plan As-07-0000893 (sic) duly approved by the Land
Management Services, DENR, Region 7, Cebu City, it
is certified/verified that the subject lot is inside the
alienable and disposable area of the disposable and
alienable land of the public domain.19
Petitioner moved for reconsideration but this was
denied by the CA in its Resolution20 dated February 13,
2006.
Petitioner’s Case
Petitioner entreats this Court to reverse and set aside
the CA’s assailed decision and attributes the following
errors: (a) Espinosa failed to prove by competent
evidence that the subject property is alienable and
disposable; (b) jurisprudence dictates that a survey
plan identifies the property in preparation for a judicial
proceeding but does not convert the property into
alienable, much less, private; (c) under Section 17 of
P.D. No. 1529, the submission of the original tracing
cloth plan is mandatory to determine the exact metes
and bounds of the property; and (d) a blueprint copy
of the survey plan may be admitted as evidence of the
identity and location of the property only if it bears the
approval of the Director of Lands.
Issues
The resolution of the primordial question of whether
Espinosa has acquired an imperfect title over the
subject property that is worthy of confirmation and
registration is hinged on the determination of the
following issues:
a. whether the blueprint of the advanced
survey plan substantially complies with
Section 17 of P.D. No. 1529; and
b. whether the notation on the blueprint copy
of the plan made by the geodetic engineer
who conducted the survey sufficed to prove
that the land applied for is alienable and
disposable.
Our Ruling
The lower courts were unanimous in holding that
Espinosa’s application is anchored on Section 14(1) of
P.D. No. 1529 in relation to Section 48(b) of the PLA
and the grant thereof is warranted in view of evidence
supposedly showing his compliance with the
requirements thereof.
This Court is of a different view.
Based on Espinosa’s allegations and his supporting
documents, it is patent that his claim of an imperfect
title over the property in question is based on Section
14(2) and not Section 14(1) of P.D. No. 1529 in
relation to Section 48(b) of the PLA. Espinosa did not
allege that his possession and that of his predecessor-
in-interest commenced on June 12, 1945 or earlier as
prescribed under the two (2) latter provisions. On the
contrary, Espinosa repeatedly alleged that he acquired
title thru his possession and that of his predecessor-
in-interest, Isabel, of the subject property for thirty
(30) years, or through prescription. Therefore, the
rule that should have been applied is Section 14(2) of
P.D. No. 1529, which states:
Sec. 14. Who may apply. – The following persons may
file in the proper Court of First Instance an application
for registration of title to land, whether personally or
through their duly authorized representatives:
xxxx
(2) Those who have acquired ownership of private
lands by prescription under the provision of existing
laws.
Obviously, the confusion that attended the lower
courts’ disposition of this case stemmed from their
failure to apprise themselves of the changes that
Section 48(b) of the PLA underwent over the years.
Section 48(b) of the PLA originally states:
Sec. 48. The following described citizens of the
Philippines, occupying lands of the public domain or
claiming to own any such lands or an interest therein,
but whose titles have not been perfected or
completed, may apply to the Court of First Instance of
the province where the land is located for confirmation
of their claims and the issuance of a certificate of title
therefor, under the Land Registration Act, to wit:
xxxx
(b) Those who by themselves or through their
predecessors-in-interest have been in the open,
continuous, exclusive and notorious possession and
occupation of agricultural lands of the public domain,
under a bona fide claim of acquisition or ownership,
except as against the Government, since July twenty-
sixth, eighteen hundred and ninety-four, except when
prevented by war or force majeure. These shall be
conclusively presumed to have performed all the
conditions essential to a Government grant and shall
be entitled to a certificate of title under the provisions
of this chapter.
Thus, the required possession and occupation for
judicial confirmation of imperfect title was since July
26, 1894 or earlier.
On June 22, 1957, Republic Act (R.A.) No. 1942
amended Section 48(b) of the PLA by providing a
thirty (30)-year prescriptive period for judicial
confirmation of imperfect title. Thus:
(b) Those who by themselves or through their
predecessors-in-interest have been in the open,
continuous, exclusive and notorious possession and
occupation of agricultural lands of the public domain,
under a bona fide claim of acquisition or ownership,
for at least thirty years immediately preceding the
filing of the application for confirmation of title except
when prevented by war or force majeure. These shall
be conclusively presumed to have performed all the
conditions essential to a Government grant and shall
be entitled to a certificate of title under the provisions
of this chapter.
On January 25, 1977, P.D. No. 1073 was issued,
changing the requirement for possession and
occupation for a period of thirty (30) years to
possession and occupation since June 12, 1945 or
earlier. Section 4 of P.D. No. 1073 states:
Sec. 4. The provisions of Section 48(b) and Section
48(c), Chapter VIII of the Public Land Act are hereby
amended in the sense that these provisions shall apply
only to alienable and disposable lands of the public
domain which have been in open, continuous,
exclusive and notorious possession and occupation by
the applicant himself or thru his predecessor-in-
interest, under a bona fide claim of acquisition of
ownership, since June 12, 1945.
On June 11, 1978, P.D. No. 1529 was enacted.
Notably, the requirement for possession and
occupation since June 12, 1945 or earlier was adopted
under Section 14(1) thereof.
P.D. No. 1073, in effect, repealed R.A. No. 1942 such
that applications under Section 48(b) of the PLA filed
after the promulgation of P.D. No. 1073 should allege
and prove possession and occupation that dated back
to June 12, 1945 or earlier. However, vested rights
may have been acquired under Section 48(b) prior to
its amendment by P.D. No. 1073. That is, should
petitions for registration filed by those who had
already been in possession of alienable and disposable
lands of the public domain for thirty (30) years at the
time P.D. No. 1073 was promulgated be denied
because their possession commenced after June 12,
1945? In Abejaron v. Nabasa,21 this Court resolved
this legal predicament as follows:
However, as petitioner Abejaron’s 30-year period of
possession and occupation required by the Public Land
Act, as amended by R.A. 1942 ran from 1945 to 1975,
prior to the effectivity of P.D. No. 1073 in 1977, the
requirement of said P.D. that occupation and
possession should have started on June 12, 1945 or
earlier, does not apply to him. As the Susi doctrine
holds that the grant of title by virtue of Sec. 48(b)
takes place by operation of law, then upon Abejaron’s
satisfaction of the requirements of this law, he would
have already gained title over the disputed land in
1975. This follows the doctrine laid down in Director
of Lands v. Intermediate Appellate Court, et al., that
the law cannot impair vested rights such as a land
grant. More clearly stated, "Filipino citizens who by
themselves or their predecessors-in-interest have
been, prior to the effectivity of P.D. 1073 on January
25, 1977, in open, continuous, exclusive and
notorious possession and occupation of agricultural
lands of the public domain, under a bona fide claim of
acquisition of ownership, for at least 30 years, or at
least since January 24, 1947" may apply for judicial
confirmation of their imperfect or incomplete title
under Sec. 48(b) of the Public Land Act.22 (Citations
omitted)
Consequently, for one to invoke Section 48(b) and
claim an imperfect title over an alienable and
disposable land of the public domain on the basis of a
thirty (30)-year possession and occupation, it must be
demonstrated that such possession and occupation
commenced on January 24, 1947 and the thirty (30)-
year period was completed prior to the effectivity of
P.D. No. 1073.
There is nothing in Section 48(b) that would suggest
that it provides for two (2) modes of acquisition. It is
not the case that there is an option between
possession and occupation for thirty (30) years and
possession and occupation since June 12, 1945 or
earlier. It is neither contemplated under Section 48(b)
that if possession and occupation of an alienable and
disposable public land started after June 12, 1945, it
is still possible to acquire an imperfect title if such
possession and occupation spanned for thirty (30)
years at the time of the filing of the application.
In this case, the lower courts concluded that Espinosa
complied with the requirements of Section 48(b) of
the PLA in relation to Section 14(1) of P.D. No. 1529
based on supposed evidence that he and his
predecessor-in-interest had been in possession of the
property for at least thirty (30) years prior to the time
he filed his application. However, there is nothing on
record showing that as of January 25, 1977 or prior to
the effectivity of P.D. No. 1073, he or Isabel had
already acquired title by means of possession and
occupation of the property for thirty (30) years. On
the contrary, the earliest tax declaration in Isabel’s
name was for the year 1965 indicating that as of
January 25, 1977, only twelve (12) years had lapsed
from the time she first came supposedly into
possession.
The CA’s reliance on Director of Lands v. Intermediate
Appellate Court23 is misplaced considering that the
application therein was filed on October 20, 1975 or
before the effectivity of P.D. No. 1073. The same can
be said with respect to National Power Corporation v.
Court of Appeals.24 The petition for registration therein
was filed on August 21, 1968 and at that time, the
prevailing rule was that provided under Section 48(b)
as amended by R.A. No. 1942.
In Republic v. Court of Appeals,25 the applicants
therein entered into possession of the property on
June 17, 1978 and filed their application on February
5, 1987. Nonetheless, there is evidence that the
individuals from whom the applicant purchased the
property, or their predecessors-in-interest, had been
in possession since 1937. Thus, during the effectivity
of Section 48(b) as amended by R.A. No. 1942, or
while the prevailing rule was possession and
occupation for thirty (30) years, or prior to the
issuance of P.D. No. 1073, the thirty (30)-year
prescriptive period was already completed.
Thus, assuming that it is Section 48(b) of the PLA in
relation to Section 14(1) of P.D. No. 1529 that should
apply in this case, as the lower courts held, it was
incumbent upon Espinosa to prove, among other
things, that Isabel’s possession of the property dated
back at least to June 12, 1945. That in view of the
established fact that Isabel’s alleged possession and
occupation started much later, the lower courts should
have dismissed Espinosa’s application outright.
In sum, the CA, as well as the MTC, erred in not
applying the present text of Section 48(b) of the PLA.
That there were instances wherein applications were
granted on the basis of possession and occupation for
thirty (30) years was for the sole reason discussed
above. Regrettably, such reason does not obtain in
this case.
Being clear that it is Section 14(2) of P.D. No. 1529
that should apply, it follows that the subject property
being supposedly alienable and disposable will not
suffice. As Section 14(2) categorically provides, only
private properties may be acquired thru prescription
and under Articles 420 and 421 of the Civil Code, only
those properties, which are not for public use, public
service or intended for the development of national
wealth, are considered private. In Heirs of Mario
Malabanan v. Republic,26 this Court held that there
must be an official declaration to that effect before the
property may be rendered susceptible to prescription:
Nonetheless, Article 422 of the Civil Code states that
"property of public dominion, when no longer intended
for public use or for public service, shall form part of
the patrimonial property of the State." It is this
provision that controls how public dominion property
may be converted into patrimonial property
susceptible to acquisition by prescription. After all,
Article 420(2) makes clear that those property "which
belong to the State, without being for public use, and
are intended for some public service or for the
development of the national wealth" are public
dominion property. For as long as the property
belongs to the State, although already classified as
alienable or disposable, it remains property of the
public dominion if when it is "intended for some public
service or for the development of the national wealth."
(Emphasis supplied)
Accordingly, there must be an express declaration by
the State that the public dominion property is no
longer intended for public service or the development
of the national wealth or that the property has been
converted into patrimonial. Without such express
declaration, the property, even if classified as
alienable or disposable, remains property of the public
dominion, pursuant to Article 420(2), and thus
incapable of acquisition by prescription. It is only
when such alienable and disposable lands are
expressly declared by the State to be no longer
intended for public service or for the development of
the national wealth that the period of acquisitive
prescription can begin to run. Such declaration shall
be in the form of a law duly enacted by Congress or a
Presidential Proclamation in cases where the President
is duly authorized by law.27
Thus, granting that Isabel and, later, Espinosa
possessed and occupied the property for an aggregate
period of thirty (30) years, this does not operate to
divest the State of its ownership. The property, albeit
allegedly alienable and disposable, is not patrimonial.
As the property is not held by the State in its private
capacity, acquisition of title thereto necessitates
observance of the provisions of Section 48(b) of the
PLA in relation to Section 14(1) of P.D. No. 1529 or
possession and occupation since June 12, 1945. For
prescription to run against the State, there must be
proof that there was an official declaration that the
subject property is no longer earmarked for public
service or the development of national wealth.
Moreover, such official declaration should have been
issued at least ten (10) or thirty (30) years, as the
case may be, prior to the filing of the application for
registration. The period of possession and occupation
prior to the conversion of the property to private or
patrimonial shall not be considered in determining
completion of the prescriptive period. Indeed, while a
piece of land is still reserved for public service or the
development of national wealth, even if the same is
alienable and disposable, possession and occupation
no matter how lengthy will not ripen to ownership or
give rise to any title that would defeat that of the
State’s if such did not commence on June 12, 1945 or
earlier.
At any rate, as petitioner correctly pointed out, the
notation on the survey plan does not constitute
incontrovertible evidence that would overcome the
presumption that the property belongs to the
inalienable public domain.
All lands of the public domain belong to the State,
which is the source of any asserted right to any
ownership of land. All lands not appearing to be clearly
within private ownership are presumed to belong to
the State. Accordingly, public lands not shown to have
been reclassified or released as alienable agricultural
land, or alienated to a private person by the State,
remain part of the inalienable public domain. The
burden of proof in overcoming the presumption of
State ownership of the lands of the public domain is
on the person applying for registration (or claiming
ownership), who must prove that the land subject of
the application is alienable or disposable. To overcome
this presumption, incontrovertible evidence must be
established that the land subject of the application (or
claim) is alienable or disposable.28
In Republic v. Sarmiento,29 this Court reiterated the
earlier ruling in Menguito v. Republic30 that the
notation made by a surveyor-geodetic engineer that
the property surveyed is alienable and disposable is
not the positive government act that would remove
the property from the inalienable domain. Neither it is
the evidence accepted as sufficient to controvert the
presumption that the property is inalienable:
To discharge the onus, respondent relies on the blue
print copy of the conversion and subdivision plan
approved by the DENR Center which bears the
notation of the surveyor-geodetic engineer that "this
survey is inside the alienable and disposable area,
Project No. 27-B. L.C. Map No. 2623, certified on
January 3, 1968 by the Bureau of Forestry."
Menguito v. Republic teaches, however, that reliance
on such a notation to prove that the lot is alienable is
insufficient and does not constitute incontrovertible
evidence to overcome the presumption that it remains
part of the inalienable public domain.
"To prove that the land in question formed part of the
alienable and disposable lands of the public domain,
petitioners relied on the printed words which read:
"This survey plan is inside Alienable and Disposable
Land Area, Project No. 27-B as per L.C. Map No. 2623,
certified by the Bureau of Forestry on January 3,
1968," appearing on Exhibit "E" (Survey Plan No.
Swo-13-000227).
This proof is not sufficient. Section 2, Article XII of the
1987 Constitution, provides: "All lands of the public
domain, waters, minerals, coal, petroleum, and other
mineral oils, all forces of potential energy, fisheries,
forests or timber, wildlife, flora and fauna, and other
natural resources are owned by the State. . . ."
For the original registration of title, the applicant
(petitioners in this case) must overcome the
presumption that the land sought to be registered
forms part of the public domain. Unless public land is
shown to have been reclassified or alienated to a
private person by the State, it remains part of the
inalienable public domain. Indeed, "occupation
thereof in the concept of owner, no matter how long,
cannot ripen into ownership and be registered as a
title." To overcome such presumption,
incontrovertible evidence must be shown by the
applicant. Absent such evidence, the land sought to
be registered remains inalienable.
In the present case, petitioners cite a surveyor
geodetic engineer’s notation in Exhibit "E" indicating
that the survey was inside alienable and disposable
land. Such notation does not constitute a positive
government act validly changing the classification of
the land in question.
Verily, a mere surveyor has no authority to reclassify
lands of the public domain. By relying solely on the
said surveyor’s assertion, petitioners have not
sufficiently proven that the land in question has been
declared alienable."31 (Citations omitted and
underscoring supplied)
Therefore, even if Espinosa’s application may not be
dismissed due to his failure to present the original
tracing cloth of the survey plan, there are numerous
grounds for its denial. The blueprint copy of the
advanced survey plan may be admitted as evidence of
the identity and location of the subject property if: (a)
it was duly executed by a licensed geodetic engineer;
(b) it proceeded officially from the Land Management
Services (LMS) of the DENR; and (c) it is accompanied
by a technical description of the property which is
certified as correct by the geodetic surveyor who
conducted the survey and the LMS of the DENR. As
ruled in Republic v. Guinto-Aldana,32 the identity of
the land, its boundaries and location can be
established by other competent evidence apart from
the original tracing cloth such as a duly executed
blueprint of the survey plan and technical description:
Yet if the reason for requiring an applicant to adduce
in evidence the original tracing cloth plan is merely to
provide a convenient and necessary means to afford
certainty as to the exact identity of the property
applied for registration and to ensure that the same
does not overlap with the boundaries of the adjoining
lots, there stands to be no reason why a registration
application must be denied for failure to present the
original tracing cloth plan, especially where it is
accompanied by pieces of evidence—such as a duly
executed blueprint of the survey plan and a duly
executed technical description of the property—which
may likewise substantially and with as much certainty
prove the limits and extent of the property sought to
be registered.33
However, while such blueprint copy of the survey plan
may be offered as evidence of the identity, location
and the boundaries of the property applied for, the
notation therein may not be admitted as evidence of
alienability and disposability. In Republic v. Heirs of
Juan Fabio,34 this Court enumerated the documents
that are deemed relevant and sufficient to prove that
the property is already outside the inalienable public
domain as follows:
In Republic v. T.A.N. Properties, Inc., we ruled that it
is not enough for the Provincial Environment and
Natural Resources Office (PENRO) or CENRO to certify
that a land is alienable and disposable. The applicant
for land registration must prove that the DENR
Secretary had approved the land classification and
released the land of the public domain as alienable
and disposable, and that the land subject of the
application for registration falls within the approved
area per verification through survey by the PENRO or
CENRO. In addition, the applicant must present a copy
of the original classification of the land into alienable
and disposable, as declared by the DENR Secretary,
or as proclaimed by the President. Such copy of the
DENR Secretary’s declaration or the President’s
proclamation must be certified as a true copy by the
legal custodian of such official record.1âwphi1 These
facts must be established to prove that the land is
alienable and disposable.35 (Citation omitted)
Based on the foregoing, it appears that Espinosa
cannot avail the benefits of either Section 14(1) of
P.O. No. 1529 in relation to Section 48(b) of the PLA
or Section 14(2) of P.O. No. 1529. Applying Section
14(1) of P.O. No. 1529 and Section 48(b) of the PLA,
albeit improper, Espinosa failed to prove that: (a)
Isabel's possession of the property dated back to June
12, 1945 or earlier; and (b) the property is alienable
and disposable. On the other hand, applying Section
14(2) of P.O. No. 1529, Espinosa failed to prove that
the property is patrimonial. As to whether Espinosa
was able to prove that his possession and occupation
and that of Isabel were of the character prescribed by
law, the resolution of this issue has been rendered
unnecessary by the foregoing considerations.
WHEREFORE, premises considered, the petition is
GIVEN DUE COURSE and GRANTED. The Decision
dated November 11, 2004 and Resolution dated
February 13, 2006 of the Court of Appeals in CA-G.R.
CV No. 72456 are REVERSED and SET ASIDE and
Domingo Espinosa's application for registration of title
over Lot No. 8499 of Cad. 545-D (New) located at
Barangay Cabangahan, Consolacion, Cebu is hereby
DENIED for lack of merit. No pronouncement as to
costs.
SO ORDERED.
G.R. No. 193618, November 28, 2016
HEIRS OF LEOPOLDO DELFIN AND SOLEDAD
DELFIN, NAMELY EMELITA D. FABRIGAR AND
LEONILO C. DELFIN, Petitioners, v. NATIONAL
HOUSING AUTHORITY, Respondent.
DECISION
LEONEN, J.:
Under Commonwealth Act No. 141, a claimant may
acquire alienable and disposable public land upon
evidence of exclusive and notorious possession of the
land since June 12, 1945. The period to acquire public
land by acquisitive prescription under Presidential
Decree No. 1529 begins to run only after the
promulgation of a law or a proclamation by the
President stating that the land is no longer intended
for public use or the development of national wealth.
This resolves a Petition for Review on Certiorari1 under
Rule 45 of the 1997 Rules of Civil Procedure praying
that the assailed February 26, 2010 Decision2 and July
2, 2010 Resolution3 of the Court of Appeals in CA-G.R.
CV No. 80017 be reversed, and that the May 20, 2002
Decision4 of the Regional Trial Court in Civil Case No.
II-1801 be reinstated.
The Regional Trial Court's May 20, 2002 Decision
awarded compensation to Leopoldo and Soledad
Delfin (Delfin Spouses) for an Iligan City property
subsequently occupied by respondent National
Housing Authority.
The assailed Court of Appeals Decision reversed the
Regional Trial Court's May 20, 2002 Decision and
dismissed the Delfin Spouses' complaint seeking
compensation. The assailed Court of Appeals
Resolution denied their Motion for Reconsideration.
In a Complaint for "Payment of Parcel(s) of Land and
Improvements and Damages"5 the Delfin Spouses
claimed that they were the owners of a 28,800 square
meter parcel of land in Townsite, Suarez, Iligan City
(the "Iligan Property").6 They allegedly bought the
property in 1951 from Felix Natingo and Carlos
Carbonay, who, allegedly, had been in actual
possession of the property since time
immemorial.7 The Delfin Spouses had been declaring
the Iligan Property in their names for tax purposes
since 1952,8 and had been planting it with mangoes,
coconuts, corn, seasonal crops, and vegetables.9
They farther alleged that, sometime in 1982,
respondent National Housing Authority forcibly took
possession of a 10,798 square meter portion of the
property.10 Despite their repeated demands for
compensation, the National Housing Authority failed
to pay the value of the property.11 The Delfin Spouses
thus, filed their Complaint.12
They asserted that the property's reasonable market
value was not less than P40 per square meter13 and
that its improvements consisting of fruit-bearing trees
should be valued at P13,360.00 at the time of
taking.14 They similarly claimed that because the
National Housing Authority occupied the property,
they were deprived of an average net yearly income
of P10,000.00.15
In its Answer,16 the National Housing Authority alleged
that the Delfin Spouses' property was part of a military
reservation area.17 It cited Proclamation No. 2151
(actually, Proclamation No. 2143, the National
Housing Authority made an erroneous citation) as
having supposedly reserved the area in which
property is situated for Iligan City's slum improvement
and resettlement program, and the relocation of
families who were dislocated by the National Steel
Corporation's five-year expansion program.18
According to the National Housing Authority,
Proclamation No. 2151 also mandated it to determine
the improvements' valuation.19 Based on the study of
the committee it created, the value of the property
was supposedly only P4.00 per square meter,
regardless of the nature of the improvements on it.20
It emphasized that among all claimants, only the
Delfin Spouses and two others remained unpaid
because of their disagreement on the property's
valuation.21
The National Housing Authority failed to appear during
the pre-trial conference.22 Upon the Delfin Spouses'
motion, the Regional Trial Court declared the National
Housing Authority in default.23 The case was set for
the ex-parte reception of the Delfin Spouses'
evidence.24
On May 20, 2002, the Regional Trial Court rendered a
Decision in favor of the Delfin
Spouses.25cralawred The dispositive portion of the
Decision read:
chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, and by virtue of
the existence of preponderance of evidence, the Court
hereby enters a judgment in favor of spouses-
plaintiffs Leopoldo Delfin and Soledad Delfin against
defendant National Housing Authority, its agents or
representative/s ordering to pay the former the
following, to wit:
1) P400,000.00 representing the reasonable
market value of a portion of the land taken
by the defendant containing an area of
10,000 square meters at the rate of P40.00
per square meters plus legal interest per
annum from the filing in Court of the
complaint until fully paid;
2) P13,360.00 representing the value of the
permanent improvements that were
damaged and destroyed plus legal interest
per annum from the time of the filing of this
case until fully paid;
National Housing Authority already conceded that the
property is disposable public land by citing
Proclamation No. 2151, which characterized the
property as "a certain disposable parcel of public
land."31However, the Delfin Spouses supposedly failed
to establish their possession of the property since June
12, 1945, as required in Section 48(b) of the Public
Land Act.32
During the pendency of their petition before the Court
of Appeals. Both Leopoldo and Soledad Delfin both
passed away. Lepoldo passed away on February 3,
2005 and Soledad on June 22, 2004. Their surviving
heirs, Emelita D. Fabrigar and Leonilo C. Delfin filed a
Motion for Substitution before the Court of Appeals,
which was not acted upon.33
In its assailed July 2, 2010 Resolution,34 the Court of
Appeals denied the Motion for Reconsideration filed by
the heirs of the Delfin Spouses.

Hence, this petition which was filed by the surviving

heirs of the Delfin Spouses, Emelita D. Fabrigar and
3) P10,000.00, representing attorney's fees; Leonilo C. Delfin (petitioners).35

For resolution is the issue of whether petitioners are

entitled to just compensation for the Iligan City
4) The costs of this suit.26 property occupied by respondent National Housing
Authority.chanroblesvirtuallawlibrary
The Regional Trial Court stated that it had no reason
to doubt the evidence presented by the Delfin I
Spouses:
chanRoblesvirtualLawlibrary The right to be justly compensated whenever private
On this regards (sic), the Court finds no reason to property is taken for public use cannot be disputed.
doubt the veracity of the plaintiff['s evidence], there Article III, Section 9 of the 1987 Constitution states
being none to controvert the same. If said. evidence that
did not ring true, the defendant should have and could Section 9. Private property shall not be taken for
have easily destroyed their probatory value. Such public use without just
indifference can only mean that defendant had not compensation.ChanRoblesVirtualawlibrary
(sic) equitable rights to protect or assert over the
disputed property together with all the improvements The case now hinges on whether the petitioners and
existing thereon. This, the defendant did not do so and their predecessors-in-interests have been in
the Court finds no cogent reasons to disbelieve or possession of the Iligan Property for such duration and
reject the plaintiffs categorical declarations on the under such circumstances as will enable them to claim
witness stand under a solemn oath, for the same are ownership.
entitled to full faith and credence. Indeed, if the
defendant National Housing Authority have been Petitioners argue that they and their predecessors-in-
blinded with the consequence of their neglect and interests' open, continuous, exclusive, and notorious
apathy, then defendant have no right to pass on to possession of the Iligan Property for more than 30
the spouses-plaintiffs of their negligence and expect years converted the property from public to
the Court to come to their rescue. For it is now much private.36 They then posit that they acquired
too late in the day to assail the decision which has ownership of the property through acquisitive
become final and prescription under Section 14(2) of Presidential
executory.27ChanRoblesVirtualawlibrary Decree No. 1529.37

The National Housing Authority filed a Motion for Petitioners also assert that the Court of Appeals
Reconsideration, but this was denied in the Regional disregarded certifications and letters from
trial Court's September 10, 2002 Resolution.28 government agencies, which support their claims,
particularly, their and their predecessors-in-interest's
On the National Housing Authority's appeal, the Court possession since June 12, 1945.38
of Appeals rendered the assailed February 26, 2010
Decision reversing the Regional Trial Court:29 Respondent counters, citing the Court of Appeals
WHEREFORE, the appeal is GRANTED. The assailed Decision, that petitioners cannot rely on'Section 14(2)
Decision is REVERSED and SET ASIDE. Consequently, of Presidential Decree No. 1529 because the property
appellees' complaint for compensation is DISMISSED was not yet declared private land when they filed their
for lack of merit. The property taken by appellant NHA Complaint.39chanroblesvirtuallawlibrary
and for which compensation is sought by appellees is
hereby DECLARED land of the public
II
domain.30ChanRoblesVirtualawlibrary
The Court of Appeals ruled that the characterization of Petitioners are erroneously claiming title based on
the property is no longer an issue because the acquisitive prescription under Section 14(2) of
Presidential Decree No. 1529.
Section 14 reads in full:
chanRoblesvirtualLawlibrary
Section 14. Who may apply. The following persons
may file in the proper Court of First Instance an
application for registration of title to land, whether
personally or through their duly authorized
representatives:
(1) Those who by themselves or through their
predecessors-in-interest have been in open,
continuous, exclusive and notorious
possession and occupation of alienable and
disposable lands of the public domain under
a bona fide claim of ownership since June
12, 1945, or earlier.
(2) Those who have acquired ownership of
private lands by prescription under the
provision of existing laws.
(3) Those who have acquired ownership of
private lands or abandoned river beds by
right of accession or accretion under the
existing laws.
(4) Those who have acquired ownership of land
in any other manner provided for by law.
Where the land is owned in common, all the co-owners
shall file the application jointly.
Where the land has been sold under pacto de retro,
the vendor a retro may file an application for the
original registration of the land, provided, however,
that should the period for redemption expire during
the pendency of the registration proceedings and
ownership to the property consolidated in the vendee
a retro, the latter shall be substituted for the applicant
and may continue the proceedings.
A trustee on behalf of his principal may apply for
original registration of any land held in trust by him,
unless prohibited by the instrument creating the trust.
[Emphasis supplied]ChanRoblesVirtualawlibrary
For acquisitive prescription to set in pursuant to
Section 14(2) of Presidential Decree No. 1529, two (2)
requirements must be satisifled: first, the property is
established to be private in character; and second the
applicable prescriptive period under existing laws had
passed.
Property - such as land - is either of public dominion
or private ownership.40
"Land is considered of public dominion if it either: (a)
is intended for public use; or (b) belongs to the State,
without being for public use, and is intended for some
public service or for the development of the national
wealth."41 Land that belongs to the state but which is
not or is no longer intended for public use, for some
public service or for the development of the national
wealth, is patrimonial property;42 it is property owned
by the State in its private capacity. Provinces, cities,
and municipalities may also hold patrimonial lands.43
Private property "consists of all property belonging to
private persons, either individually or
collectively,"44 as well as "the patrimonial property of
the State, provinces, cities, and municipalities."45
Accordingly, only publicly owned lands which are
patrimonial in character are susceptible to prescription
under Section 14(2) of Presidential Decree No. 1529.
Consistent with this, Article 1113 of Civil Code
demarcates properties of the state, which are not
patrimonial in character, as being not susceptible to
prescription:
chanRoblesvirtualLawlibrary
Art. 1113. All things which are within the commerce
of men are susceptible of prescription, unless
provided. Property of the State or any of its
subdivisions not patrimonial in character shall not be
the object of prescription.ChanRoblesVirtualawlibrary
Contrary to petitioners' theory then, for prescription
to be viable, the publicly-owned land must be
patrimonial or private in character at the onset.
Possession for thirty (30) years does not convert it
into patrimonial property.
For land of the public domain to be converted into
patrimonial property, there must be an express
declaration - "in the form of a law duly enacted by
Congress or a Presidential Proclamation in cases
where the President is duly authorized by law"46 - that
"the public dominion property is no longer intended
for public service or the development of the national
wealth or that the property has been converted into
patrimonial."47
This Court's 2009 Decision in Heirs of Malabanan v.
Republic48 explains:
chanRoblesvirtualLawlibrary
Nonetheless, Article 422 of the Civil Code states that
"[p]roperty of public dominion, when no longer
intended for public use or for public service, shall form
part of the patrimonial property of the State". It is this
provision that controls how public dominion property
may be converted into patrimonial properly
susceptible to acquisition by prescription. After all,
Article 420 (2) makes clear that those property "which
belong to the State, without being for public use, and
are intended for some public service or for the
development of the national wealth" are public
dominion property. For as long as the property
belongs to the State, although already classified as
alienable or disposable, it remains property of the
public dominion if when * it is "intended for some
public service or for the development of the national
wealth".
Accordingly, there must be an express declaration by
the State that the public dominion property is no
longer intended for public service or the development
of the national wealth or that the property has been
converted into patrimonial. Without such express
declaration, the property, even if classified as
alienable or disposable, remains property of the public
dominion, pursuant to Article 420 (2), and thus
incapable of acquisition by prescription. It is only
when such alienable and disposable lands are
expressly declared by the State to be no longer
intended for public service or for the development of
the national wealth that the period of acquisitive
prescription can begin to run. Such declaration shall
be in the form of a law duly enacted by Congress or a
Presidential Proclamation in cases where the President
is duly authorized by
law.49ChanRoblesVirtualawlibrary
This was reiterated in this Court's 2013 Resolution
in Heirs of Malabanan v. Republic:50
[W]hen public land is no longer intended for public
service or for the development of the national wealth,
thereby effectively removing the land from the ambit
of public dominion, a declaration of such conversion
must be made in the form of a law duly enacted by
Congress or by a Presidential proclamation in cases
where the President is duly authorized by law to that
effect.51ChanRoblesVirtualawlibrary
Attached to the present Petition was a copy of a May
18, 1988 supplemental letter to the Director of the
Land Management Bureau.52 This referred to an
executive order, which stated that petitioners'
property was no longer needed for any public or quasi-
public purposes:
chanRoblesvirtualLawlibrary
That it is very clear in the 4th Indorsement of the
Executive Secretary dated April 24, 1954 the portion
thereof that will not be needed for any public or quasi-
public purposes, be disposed in favor of the actual
occupants under the administration of the Bureau of
Lands (copy of the Executive Order is herewith
attached for ready
reference)53ChanRoblesVirtualawlibrary
However, a mere indorsement of the executive
secretary is not the law or presidential proclamation
required for converting land of the public domain into
patrimonial property and rendering it susceptible to
prescription. There then was no viable declaration
rendering the Iligan property to have been patrimonial
property at the onset. Accordingly, regardless of the
length of petitioners' possession, no title could vest on
them by way of
prescription.chanroblesvirtuallawlibrary
III
While petitioners may not claim title by prescription,
they may, nevertheless, claim title pursuant to
Section 48 (b) of Commonwealth Act No. 141 (the
Public Land Act).
Section 48 enabled the confirmation of claims and
issuance of titles in favor of citizens occupying or
claiming to own lands of the public domain or an
interest therein. Section 48 (b) specifically pertained
to those who "have been in open, continuous,
exclusive, and notorious possession and, occupation
of agricultural lands of the public domain, under a
bona fide claim of acquisition or ownership, since June
12, 1945":
chanRoblesvirtualLawlibrary
Sec. 48. The following-described citizens of the
Philippines, occupying lands of the public domain or
claiming to own any such lands or an interest therein,
but whose titles have not been perfected or
completed, may apply to the Court of First Instance of
the province where the land is located for confirmation
of their claims and the issuance of a certificate of title
therefor under the Land Registration Act, to wit:
(b) Those who by themselves or through their
predecessors-in-interest have been in open,
continuous, exclusive, and notorious
possession and, occupation of agricultural
lands of the public domain, under a bona fide
claim of acquisition or ownership, since June
12, 1945, immediately preceding the filing
of the application for confirmation of title,
except when prevented by war or force
majeure. These shall be conclusively
presumed to have performed all the
conditions essential to a government grant
and shall be entitled to a certificate of title
under the provisions of this chapter. (As
amended by PD 1073.)
Section 48(b) of the Public Land Act therefore requires
that two (2) requisites be satisfied before claims of
title to public domain lands may be confirmed: first,
that the land subject of the claim is agricultural land;
and second, open, continuous, notorious, and
exclusive possession of the land since June 12, 1945.
The need for the land subject of the claim to have
been classified as agricultural is in conformity with the
constitutional precept that "[a]lienable lands of the
public domain shall be limited to agricultural
lands."54As explained in this Court's 2013 Resolution
in Heirs of Malabanan v. Republic:
chanRoblesvirtualLawlibrary
Whether or not land of the public domain is alienable
and disposable primarily rests on the classification of
public lands made under the Constitution. Under the
1935 Constitution, lands of the public domain were
classified into three, namely, agricultural, timber and
mineral. Section 10, Article XTV of the 1973
Constitution classified lands of the public domain into
seven, specifically, agricultural, industrial or
commercial, residential, resettlement, mineral, timber
or forest, and grazing land, with the reservation that
the law might provide other classifications. The 1987
Constitution adopted the classification under the 1935
Constitution into agricultural, forest or timber, and
mineral, but added national parks. Agricultural lands
may be further classified by law according to the uses
to which they may be devoted. The identification of
lands according to their legal classification is done
exclusively by and through a positive act of the
Executive Department.
Based on the foregoing, the Constitution places a limit
on the type of public land that may be alienated.
Under Section 2, Article XII of the 1987 Constitution,
only agricultural lands of the public domain may be
alienated; all other natural resources may not be.
Alienable and disposable lands of the State fall into
two categories, to wit: (a) patrimonial lands of the
State, or those classified as lands of private ownership
under Article 425 of the Civil Code, without limitation;
and (b) lands of the public domain, or the public lands
as provided by the Constitution, but with the limitation
that the lands must only be agricultural.
Consequently, lands classified as forest or timber,
mineral, or national parks are not susceptible of
alienation or disposition unless they are reclassified as
agricultural. A positive act of the Government is
necessary to enable such reclassification, and the
exclusive prerogative to classify public lands under
existing laws is vested in the Executive Department,
not in the courts.55ChanRoblesVirtualawlibrary
As the Court of Appeals emphasized, respondent has
conceded that the Iligan property was alienable and
disposable land:
chanRoblesvirtualLawlibrary
As to the first requirement: There was no need for
appellees to establish that the property involved was
alienable and disposable public land. This
characterization of the property is conceded by
[respondent] who cites Proclamation No. 2151 as
declaring that the disputed property was a certain
disposable parcel of public
land.56ChanRoblesVirtualawlibrary
That the Iligan property was alienable and disposable,
agricultural land, has been admitted. What is claimed
instead is that petitioners' possession is debunked by
how the Iligan Property was supposedly part of a
military reservation area57 which was subsequently
reserved for Iligan City's slum improvement and
resettlement program, and the relocation of families
who were dislocated by the National Steel
Corporation's five-year expansion program.58
Indeed, by virtue of Proclamation No. 2143
(erroneously referred to by respondent as
Proclamation No. 2151) certain parcels of land in
Barrio Suarez, Iligan City were reserved for slum-
improvement and resettlement program
purposes.59 The proclamation characterized the
covered area as "disposable parcel of public land":
chanRoblesvirtualLawlibrary
WHEREAS, a certain disposable parcel of public land
situated at Barrio Suarez, Iligan City consisting of one
million one hundred seventy-four thousand eight
hundred fifty-three (1,174,853) square meters, more
or less, has been chosen by National Steel Corporation
and the City Government of Iligan with the conformity
of the National Housing/Authority, as the most
suitable site for the relocation of the families to be
affected/dislocated as a result of National Steel
Corporation's program and for the establishment of a
slum improvement and resettlement project in the
City of Iligan;60ChanRoblesVirtualawlibrary
However, even if the Iligan Property was subsumed by
Proclamation No. 2143, the same proclamation
recognized private rights, which may have already
attached, and the rights of qualified free patent
applicants:
chanRoblesvirtualLawlibrary
NOW, THEREFORE, I, FERDINAND E. MARCOS,
President of the Philippines, by virtue of the powers
vested in me by law, do hereby reserve for relocation
of the families to be affected/dislocated by the 5-year
expansion program of the National Steel Corporation
and for the slum improvement and resettlement
project of the City of Iligan under the administration
and disposition of the National Housing Authority,
subject to private rights, if any there be, Lot 5258
(portion) of the Iligan Cadastre, which parcel of land
is of the public domain, situated in Barrio Suarez, City
of Iligan and more particularly described as follows:
....
This Proclamation is subject to the condition that the
qualified free patent applicants occupying portions of
the aforedescribed parcel of land, if any, may be
compensated for the value of their respective portions
and existing improvements thereon, as may be
determined by the National Housing
Authority.61ChanRoblesVirtualawlibrary
Whatever rights petitioners (and their predecessors-
in-interest) may have had over the Iligan property
was, thus, not obliterated by Proclamation No. 2143.
On the contrary, the Proclamation itself facilitated
compensation.
More importantly, there is documentary evidence to
the effect that the Iligan Property was not even within
the area claimed by respondent. In a letter62 to the
Director of Lands, dated December 22, 1987, Deputy
Public Land Inspector Pio Lucero, Jr. noted that:
chanRoblesvirtualLawlibrary
That this land known as Lot No. 5258, Cad. 292, Iligan
Cadastre which portion was claimed also by the
Human Settlement and/or National Housing
Authority; but the area applied for by Leopoldo Delfin
is outside the claim of the said agency as per
certification issued dated June 10, 1988; copy of
which is herewith attached for ready
reference;63ChanRoblesVirtualawlibrary
The same letter likewise indicated that the Iligan
Property was already occupied by June 1945 and that
it had even been released for agricultural purposes in
favor of its occupants.64 Accordingly, the Deputy
Public Land Inspector recommended the issuance of a
patent in favor of petitioner Leopoldo Delfin:65
Upon investigation conducted by the undersigned in
the premises of the land, it was found and ascertained
that the land applied for by Leopoldo Delfrn was first
entered, occupied, possessed and cultivated by him
since the year June, 1945 up to the present; he have
already well improved the land and introduced some
considerable improvements such as coconut trees and
different kinds of fruit trees which are presently all
fruit bearing trees; declared the same for taxation
purposes and taxes have been paid every year; and
that there is no other person or persons who bothered
him in his peaceful occupation and cultivation
thereof;chanrobleslaw
Records of this Office show that said land was
surveyed and claimed by the Military Reservation, but
the portion of which has been released in favor of the
actual occupants and the area of Leopoldo Delfin is
one of the portions released for agricultural
purposes;chanrobleslaw
....
That the applicant caused the survey of the land under
Sgs-12-000099, approved by the Regional Land
Director, Region XII, Bureau of Lands, Cotabato City
on April 3, 1979 (see approved plan attached
hereof);chanrobleslaw
In view hereof, it is therefore respectfully
recommended that the entry of the application be now
confirmed and that patent be yes issued in favor of
Leopoldo Delfin.66ChanRoblesVirtualawlibrary
A May 18, 1988 supplemental letter to the Director of
the Land Management Bureau further stated:
chanRoblesvirtualLawlibrary
That the land applied for by Leopoldo Delfin is a
portion of Lot No. 5258, Cad. 292, Iligan Cadastre
which was entered, occupied and possessed by the
said applicant since the year June 1945 up to the
present; well improved the same and introduced some
considerable improvements such as different kinds of
fruit trees, coconut trees and other permanent
improvements thereon;chanrobleslaw
....
That is very clear in the 4th Indorsement of the
Executive Secretary dated April 24, 1954 the portion
thereof that will not be needed for any public or quasi-
public purposes, be disposed in favor of the actual
occupants under the administration of the Bureau of
Lands[.]67ChanRoblesVirtualawlibrary
Clearly then, petitioners acquired title over the Iligan
Property pursuant to Section 48(b) of the Public Land
Act.
First, there is no issue that the Iligan Property had
already been declared to be alienable and disposable
land. Respondent has admitted this and Deputy Public
Land Inspector Pio Lucero, Jr.'s letters to the Director
of Land attest to this.
Second, although the Delfin Spouses' testimonial
evidence and tax declarations showed that their
possession went only as far back as 1952, Deputy
Public Land Inspector Pio Lucero, Jr.'s letters to the
Director of Land nevertheless attest to a previous
finding that the property had already been occupied
as early as June 1945.
Having shown that the requisites of Section 48(b) of
the Public Land Act have been satisfied and having
established their rights to the Iligan Property, it
follows that petitioners must be compensated for its
taking.
WHEREFORE, the Petition is GRANTED. The assailed
Court of Appeals Decision dated February 26, 2010
and Resolution dated July 2, 2010 in CA-G.R. CV No.
80017 are REVERSED and SET ASIDE. The Regional
Trial Court's Decision dated May 20, 2002 in Civil Case
No. II-1801 is REINSTATED.
SO ORDERED.cralawlawlibrary
[ GR No. 194260, Apr 13, 2016 ]
HEIRS OF FELICIANO YAMBAO v. HEIRS OF
HERMOGENES YAMBAO +
RESOLUTION
REYES, J.:
This is a petition for review on certiorari[1] under Rule
45 of the Rules of Court seeking to annul and set aside
the Decision[2] dated October 22, 2010 issued by the
Court of Appeals (CA) in CA-G.R. CV No. 92755, which
reversed and set aside the Decision dated December
23, 2008 of the Regional Trial Court (RTC) of Iba,
Zambales, Branch 69, in SP. Civil Case No. RTC-88-I.
Facts
The subject of this case is a parcel of land located in
Barangay Bangan, Botolan, Zambales, which was
originally possessed by Macaria De
Ocampo (Macaria). Macaria's nephew, Hermogenes
Yambao (Hermogenes), acted as the administrator of
the property and paid realty taxes therefor.
Hermogenes has eight children, namely: Ulpiano,
Dominic, Teofilo, Feliciano, Asesclo, Delia, Amelia, and
Melinda, all surnamed Yambao.[3]
After Hermogenes died, it was claimed that all of his
heirs were free to pick and harvest from the fruit-
bearing trees planted on the subject property. Eleanor
Yambao (Eleanor), Ulpiano's daughter, even
constructed a house on the subject property.
However, sometime in 2005, the communal and
mutual use of the subject property by the heirs of
Hermogenes ceased when the heirs of Feliciano,
herein petitioners, prohibited them from entering the
property. The heirs of Feliciano even ejected Eleanor
from the subject property.[4]
This prompted the heirs of Hermogenes, herein
respondents, to file with the RTC a complaint for
partition, declaration of nullity of title/documents, and
damages against the heirs of Feliciano. The heirs of
Hermogenes alleged that they and the heirs of
Feliciano are co-owners of the subject property,
having inherited the right thereto from Hermogenes.[5]
The heirs of Feliciano denied the allegations of the
heirs of Hermogenes and claimed that their father,
Feliciano, was in possession of the subject property in
the concept of owner since time immemorial.
Accordingly, Feliciano was awarded a free patent
thereon for which Original Certificate of Title (OCT)
No. P-10737 was issued. They also averred that the
cause of action in the complaint filed by the heirs of
Hermogenes, which questioned the validity of OCT No.
P-10737, prescribed after the lapse of one year from
its issuance on November 29, 1989.[6]
Ruling of the RTC
On December 23, 2008, the RTC rendered a Decision
dismissing the complaint filed by the heirs of
Hermogenes. The RTC opined that the heirs of
Hermogenes failed to show that the subject property
is owned by Macaria, stating that tax declarations and
receipts in Macaria's name are not conclusive evidence
of ownership. The RTC further held that even if
Macaria owned the subject property, the heirs of
Hermogenes failed to show that Hermogenes had the
right to succeed over the estate of Macaria.
Ruling of the CA

On appeal, the CA, in its Decision[7] dated October 22,
2010, reversed and set aside the RTC's Decision dated
December 23, 2008. The CA found that the RTC, in
hastily dismissing the complaint for partition, failed to
determine first whether the subject property is indeed
co-owned by the heirs of Hermogenes and the heirs of
Feliciano. The CA pointed out that:
[A] review of the records of the case shows that in
Feliciano's application for free patent, he
acknowledged that the source of his claim of
possession over the subject property was
Hermogenes's possession of the real property in
peaceful, open, continuous, and adverse manner and
more importantly, in the concept of an owner, since
1944. Feliciano's claim of sole possession in his
application for free patent did not therefore extinguish
the fact of co-ownership as claimed by the children of
Hermogenes.[8] (Citation omitted and emphasis
deleted)
Accordingly, the CA, considering that the parties are
co-owners of the subject property, ruled that the RTC
should have conducted the appropriate proceedings
for partition.[9]
Aggrieved, the heirs of Feliciano filed with the Court
this petition for review alleging that the CA erred in
ruling that there is co-ownership between them and
the heirs of Hermogenes. The heirs of Feliciano
likewise averred that the CA also erred in ordering the
partition of the subject property since it amounts to a
collateral attack on the validity of OCT No. P-10737.[10]
Ruling of the Court
The petition is denied.
As pointed out by the CA, the RTC overlooked the fact
that the subject property is co-owned by the parties
herein, having inherited the same from Hermogenes.
Feliciano's free patent application indicated that he
merely tacked his possession of the subject property
from Hermogenes, his father, who held the property
in peaceful, open, continuous, and adverse manner in
the concept of an owner since 1944. This is an implicit
recognition of the fact that Feliciano merely co-owns
the subject property with the other heirs of
Hermogenes. Indeed, the heirs of Feliciano have not
presented any evidence that would show that
Hermogenes bequeathed the subject property solely
to Feliciano.
A co-ownership is a form of trust, with each owner
being a trustee for each other. Mere actual possession
by one will not give rise to the inference that the
possession was adverse because a co-owner is, after
all, entitled to possession of the property. Thus, as a
rule, prescription does not run in favor of a co-heir or
co-owner as long as he expressly or impliedly
recognizes the co-ownership; and he cannot acquire
by prescription the share of the other co-owners,
absent a clear repudiation of the co-ownership. An
action to demand partition among co-owners is
imprescriptible, and each co-owner may demand at
any time the partition of the common property.[11]
Prescription may nevertheless run against a co-owner
if there is adverse, open, continuous and exclusive
possession of the co-owned property by the other co-
owner/s. In order that a co-owners possession may be
deemed adverse to the cestui que trust or other co-
owners, the following requisites must concur: (1) that
he has performed unequivocal acts of repudiation
amounting to an ouster of the cestui que trust or other
co-owners; (2) that such positive acts of repudiation
have been made known to the cestui que trust or
other co-owners; and (3) that the evidence thereon
must be clear and convincing.[12]
The issuance of the certificate of title would constitute
an open and clear repudiation of any trust.[13] In such
a case, an action to demand partition among co-
owners prescribes in 10 years, the point of reference
being the date of the issuance of certificate of title
over the property. But this rule applies only when the
plaintiff is not in possession of the property, since if a
person claiming to be the owner thereof is in actual
possession of the property, the right to demand
partition does not prescribe.[14]
Although OCT No. P-10737 was registered in the name
of Feliciano on November 29, 1989, the prescriptive
period within which to demand partition of the subject
property, contrary to the claim of the heirs of
Feliciano, did not begin to run. At that time, the heirs
of Hermogenes were still in possession of the
property. It was only in 2005 that the heirs of Feliciano
expressly prohibited the heirs of Hermogenes from
entering the property. Thus, as aptly ruled by the CA,
the right of the heirs of Hermogenes to demand the
partition of the property had not yet prescribed.
Accordingly, the RTC committed a reversible error
when it dismissed the complaint for partition that was
filed by the heirs of Hermogenes.
There is likewise no merit to the claim that the action
for partition filed by the heirs of Hermogenes
amounted to a collateral attack on the validity of OCT
No. P-10737. The complaint for partition filed by the
heirs of Hermogenes seeks first, a declaration that
they are a co-owners of the subject property, and
second, the conveyance of their lawful shares. The
heirs of Hermogenes do not attack the title of
Feliciano; they alleged no fraud, mistake, or any other
irregularity that would justify a review of the
registration decree in their favor. Their theory is that
although the subject property was registered solely in
Feliciano's name, they are co-owners of the property
and as such is entitled to the conveyance of their
shares. On the premise that they are co-owners, they
can validly seek the partition of the property in co-
ownership and the conveyance to them of their
respective shares.[15]
Moreover, when Feliciano registered the subject
property in his name, to the exclusion of the other
heirs of Hermogenes, an implied trust was created by
force of law and he was considered a trustee of the
undivided shares of the other heirs of Hermogenes in
the property. As trustees, the heirs of Feliciano cannot - versus -
be permitted to repudiate the trust by relying on the
registration.[16] "A trustee who obtains a Torrens title Pro
over a property held in trust for him by another cannot
repudiate the trust by relying on the registration."[17] HEIRS OF VICENTE TORIO, namely: PUBLIO TORIO,
LIBORIO TORIO, VICTORINA TORIO, ANGEL TORIO, De
WHEREFORE, in light of the foregoing disquisitions, LADISLAO TORIO, PRIMO TORIO and NORBERTO
the petition is hereby DENIED. The Decision dated TORIO,
October 22, 2010 issued by the Court of Appeals in
CA-G.R. CV No. 92755 is AFFIRMED.
Respondents.

SO ORDERED.

Velasco, Jr., (Chairperson), Perez, and Jardeleza, JJ., x----------------------------------------------------------

concur. -------------------------------x
Peralta, J., on official leave.

DECISION

PERALTA, J.:
April 29, 2016

Before the Court is a petition for review

on certiorari seeking to set aside the Decision1 dated

June 30, 2006 and Resolution2 dated November 13,

NOTICE OF JUDGMENT
2006 by the Court of Appeals (CA) in CA-G.R. SP No.

91887. The assailed Decision reversed and set aside

Sirs / Mesdames:
the Decision3 dated June 14, 2005 of the Regional
Please take notice that on April 13, 2016 a
Trial Court (RTC) of Lingayen, Pangasinan, Branch 69,
Resolution, copy attached hereto, was rendered by
the Supreme Court in the above-entitled case, the while the questioned Resolution denied petitioners'
original of which was received by this Office on April
29, 2016 at 1:47 p.m. Motion for Reconsideration.

Very truly yours,

The factual and procedural antecedents of the case
(SGD)WILFREDO V. LAPITAN
Division Clerk of Court are as follows:

JAIME ABALOS and SPOUSES FELIX SALAZAR and

G.R. No. 175444
CONSUELO SALAZAR, GLICERIO ABALOS, HEIRS OF
AQUILINO ABALOS, namely: SEGUNDA BAUTISTA,
ROGELIO ABALOS, DOLORES A. ROSARIO, FELICIDAD
On Present:
July 24, 1996, herein respondents filed a
ABALOS, ROBERTO ABALOS, JUANITO ABALOS, TITA
ABALOS, LITA A. DELA CRUZ AND HEIRS OF AQUILINA
Complaint for Recovery of Possession and Damages
ABALOS, namely: ARTURO BRAVO, PURITA B.
MENDOZA, LOURDES B. AGANON, CONSUELO B. with the Municipal Trial Court (MTC) of Binmaley,
SALAZAR, PRIMA B. DELOS SANTOS, THELMA VELASCO, JR., J., Chairperson,
APOSTOL and GLECERIO ABALOS, Pangasinan against Jaime Abalos (Jaime) and the
PERALTA,

Petitioners, spouses Felix and Consuelo Salazar. Respondents

ABAD,
MENDOZA,
contended andare the children and heirs of one
that: they
PERLAS-BERNABE, JJ.
Vicente Torio (Vicente) who died intestate on
September 11, 1973; at the time of the death of On the same date as the filing of defendants' Answer

Vicente, he left behind a parcel of land measuring with Counterclaim, herein petitioners filed their

2,950 square meters, more or less, which is located Answer in Intervention with Counterclaim. Like the

at San Isidro Norte, Binmaley, Pangasinan; during the defendants, herein petitioners claimed that their

lifetime of Vicente and through his tolerance, Jaime predecessors-in-interest were the absolute and

and the Spouses Salazar were allowed to stay and exclusive owners of the land in question; that

build their respective houses on the subject parcel of petitioners and their predecessors had been in

land; even after the death of Vicente, herein possession of the subject lot since time immemorial

respondents allowed Jaime and the Spouses Salazar up to the present; they have paid real property taxes

to remain on the disputed lot; however, in 1985, and introduced improvements thereon.6

respondents asked Jaime and the Spouses Salazar to

vacate the subject lot, but they refused to heed the

demand of respondents forcing respondents to file the

After the issues were joined, trial ensued.
complaint.4

On December 10, 2003, the MTC issued a Decision,

Jaime and the Spouses Salazar filed their Answer with
the dispositive portion of which reads as follows:
Counterclaim, denying the material allegations in the

Complaint and asserting in their Special and

Affirmative Defenses that: respondents' cause of WHEREFORE, in view of the

foregoing consideration[s], the
action is barred by acquisitive prescription; the court a Court adjudged the case in favor of
the plaintiffs and against the
quo has no jurisdiction over the nature of the action
defendants and defendants-
and the persons of the defendants; the absolute and intervenors are ordered to turn over
the land in question to the plaintiffs
exclusive owners and possessors of the disputed lot (Lot Nos. 869 and 870, Cad. 467-D.
Binmaley Cadastre located in Brgy.
are the deceased predecessors of defendants; San Isidro Norte, Binmaley,
Pangasinan with an area of 2,950
defendants and their predecessors-in-interest had sq. m., more or less, bounded and
described in paragraph 3 of the
been in actual, continuous and peaceful possession of Complaint[)]; ordering the
defendants and defendants-
the subject lot as owners since time immemorial; intervenors to remove their
respective houses standing on the
defendants are faithfully and religiously paying real
land in dispute; further ordering the
property taxes on the disputed lot as evidenced by defendants and defendants-
intervenors, either singly or jointly
Real Property Tax Receipts; they have continuously to pay the plaintiffs land rent in the
amount of P12,000.00 per year to
introduced improvements on the said land, such as be reckoned starting the year 1996
until defendants and defendants-
houses, trees and other kinds of ornamental plants intervenors will finally vacate the
premises; furthermore, defendants
which are in existence up to the time of the filing of and defendants-intervenors are also
ordered to pay, either singly or
their Answer.5 jointly, the amount of P10,000.00
as and by way of attorney's fees and
costs of suit.

SO ORDERED.7
Jaime and the Spouses Salazar appealed the Decision Hence, the instant petition based on a sole assignment

of the MTC with the RTC of Lingayen, of error, to wit:

Pangasinan.8Herein petitioners, who were

THE COURT OF APPEALS ERRED IN
intervenors, did not file an appeal. NOT APPRECIATING THAT THE
PETITIONERS HEREIN ARE NOW
THE ABSOLUTE AND EXCLUSIVE
OWNERS OF THE LAND IN
QUESTION BY VIRTUE OF
ACQUISITIVE PRESCRIPTION.10
In its Decision dated June 14, 2005, the RTC ruled in

favor of Jaime and the Spouses Salazar, holding that

The main issue raised by petitioners is whether they
they have acquired the subject property through
and their predecessors-in-interest possessed the
prescription. Accordingly, the RTC dismissed herein
disputed lot in the concept of an owner, or whether
respondents' complaint.
their possession is by mere tolerance of respondents

and their predecessors-in-interest. Corollarily,

petitioners claim that the due execution and

Aggrieved, herein respondents filed a petition for authenticity of the deed of sale upon which

review with the CA assailing the Decision of the RTC. respondents' predecessors-in-interest derived their

ownership were not proven during trial.

On June 30, 2006, the CA promulgated its questioned The petition lacks merit.

Decision, the dispositive portion of which reads, thus:

Preliminarily, the Court agrees with the observation of

WHEREFORE, the petition is
respondents that some of the petitioners in the instant
GRANTED. The Decision dated June
14, 2005 of the Regional Trial Court, petition were the intervenors11 when the case was
Branch 69, Lingayen, Pangasinan is
hereby REVERSED and SET ASIDE. filed with the MTC. Records would show that they did
In its stead, a new one is entered
reinstating the Decision dated not appeal the Decision of the MTC.12 The settled rule
December 10, 2003 of the Municipal
Trial Court of Binmaley, Pangasinan. is that failure to perfect an appeal renders the

judgment final and executory.13 Hence, insofar as the

SO ORDERED.9
intervenors in the MTC are concerned, the judgment

of the MTC had already become final and executory.

Jaime and the Spouses Salazar filed a Motion for

It also bears to point out that the main issue raised in
Reconsideration, but the same was denied by the CA
the instant petition, which is the character or nature
in its Resolution dated November 13, 2006.
of petitioners' possession of the subject parcel of land,

is factual in nature.
 (k) When the CA manifestly
Settled is the rule that questions of fact are not overlooked certain relevant
facts not disputed by the
reviewable in petitions for review on certiorari under parties, which, if properly
considered, would justify a
Rule 45 of the Rules of Court.14 Section 1 of Rule 45
different conclusion.15
states that petitions for review on certiorari shall raise

only questions of law which must be distinctly set

In the present case, the findings of fact of the MTC and
forth.
the CA are in conflict with those of the RTC.

Doubtless, the issue of whether petitioners possess

the subject property as owners, or whether they After a review of the records, however, the Court finds
occupy the same by mere tolerance of respondents, is that the petition must fail as it finds no error in the
a question of fact. Thus, it is not reviewable. findings of fact and conclusions of law of the CA and

the MTC.

Nonetheless, the Court has, at times, allowed

exceptions from the abovementioned restriction. Petitioners claim that they have acquired ownership
Among the recognized exceptions are the following: over the disputed lot through ordinary acquisitive

prescription.

(a) When the findings are grounded

Acquisitive prescription of dominion and other real
entirely on speculation,
surmises, or conjectures; rights may be ordinary or extraordinary.16 Ordinary
(b) When the inference made is
manifestly mistaken, absurd, acquisitive prescription requires possession in good
or impossible;
faith and with just title for ten (10) years.17 Without
(c) When there is grave abuse of
discretion; good faith and just title, acquisitive prescription can

(d) When the judgment is based on only be extraordinary in character which requires
a misapprehension of facts;
uninterrupted adverse possession for thirty (30)
(e) When the findings of facts are
conflicting; years.18
(f) When in making its findings the
CA went beyond the issues of
the case, or its findings are
contrary to the admissions of
Possession in good faith consists in the reasonable
both the appellant and the
appellee;
belief that the person from whom the thing is received
(g) When the CAs findings are
contrary to those by the trial has been the owner thereof, and could transmit his
court;
ownership.19 There is just title when the adverse
(h) When the findings are
conclusions without citation of claimant came into possession of the property through
specific evidence on which
they are based; one of the modes recognized by law for the acquisition

(i) When the facts set forth in the of ownership or other real rights, but the grantor was
petition as well as in the
petitioners main and reply not the owner or could not transmit any right.20
briefs are not disputed by the
respondent;
(j) When the findings of fact are
premised on the supposed In the instant case, it is clear that during their
absence of evidence and
contradicted by the evidence possession of the property in question, petitioners
on record; or
acknowledged ownership thereof by the immediate petitioners' possession upon service of summons on

predecessor-in-interest of respondents. This is clearly them.24 Thus, petitioners possession also did not ripen

shown by the Tax Declaration in the name of Jaime for into ownership, because they failed to meet the

the year 1984 wherein it contains a statement required statutory period of extraordinary

admitting that Jaime's house was built on the land of prescription.

Vicente, respondents' immediate predecessor-in-

interest.21 Petitioners never disputed such an

This Court has held that the evidence relative to the
acknowledgment. Thus, having knowledge that they
possession upon which the alleged prescription is
nor their predecessors-in-interest are not the owners
based, must be clear, complete and conclusive in
of the disputed lot, petitioners' possession could not
order to establish the prescription.25 In the present
be deemed as possession in good faith as to enable
case, the Court finds no error on the part of the CA in
them to acquire the subject land by ordinary
holding that petitioners failed to present competent
prescription. In this respect, the Court agrees with the
evidence to prove their alleged good faith in neither
CA that petitioners' possession of the lot in question
possessing the subject lot nor their adverse claim
was by mere tolerance of respondents and their
thereon. Instead, the records would show that
predecessors-in-interest. Acts of possessory character
petitioners' possession was by mere tolerance of
executed due to license or by mere tolerance of the
respondents and their predecessors-in-interest.
owner are inadequate for purposes of acquisitive

prescription.22 Possession, to constitute the Finally, as to the issue of whether the due execution

foundation of a prescriptive right, must be en and authenticity of the deed of sale upon which

concepto de dueo, or, to use the common law respondents anchor their ownership were not proven,

equivalent of the term, that possession should be the Court notes that petitioners did not raise this

adverse, if not, such possessory acts, no matter how matter in their Answer as well as in their Pre-Trial

long, do not start the running of the period of Brief. It was only in their Comment to respondents'

prescription.23 Petition for Review filed with the CA that they raised

this issue. Settled is the rule that points of law,

theories, issues, and arguments not adequately

Moreover, the CA correctly held that even if the
brought to the attention of the trial court need not be,
character of petitioners' possession of the subject
and ordinarily will not be, considered by a reviewing
property had become adverse, as evidenced by their
court.26 They cannot be raised for the first time on
declaration of the same for tax purposes under the
appeal. To allow this would be offensive to the basic
names of their predecessors-in-interest, their
rules of fair play, justice and due process.27
possession still falls short of the required period of

thirty (30) years in cases of extraordinary acquisitive

prescription. Records show that the earliest Tax Even granting that the issue of due execution and

Declaration in the name of petitioners was in 1974. authenticity was properly raised, the Court finds no

Reckoned from such date, the thirty-year period was cogent reason to depart from the findings of the CA,

completed in 2004. However, herein respondents' to wit:

xxxx
complaint was filed in 1996, effectively interrupting

Based on the foregoing,
respondents [Jaime Abalos and the
Spouses Felix and Consuelo
Salazar] have not inherited the
disputed land because the same
was shown to have already been
validly sold to Marcos Torio, who,
thereupon, assigned the same to his
son Vicente, the father of
petitioners [herein respondents]. A
valid sale was amply established
and the said validity subsists
because the deed evidencing the
same was duly notarized.
There is no doubt that the deed of
sale was duly acknowledged before
a notary public. As a notarized
document, it has in its favor the
presumption of regularity and it
carries the evidentiary weight
conferred upon it with respect to its
due execution. It is admissible in
evidence without further proof of its
authenticity and is entitled to full
faith and credit upon its face.28
Indeed, settled is the rule in our jurisdiction that a
notarized document has in its favor the presumption
of regularity, and to overcome the same, there must
be evidence that is clear, convincing and more than
merely preponderant; otherwise, the document
should be upheld. 29
In the instant case, petitioners'
bare denials will not suffice to overcome
presumption of regularity of the assailed deed of sale.
WHEREFORE, the petition is DENIED. The assailed
Decision and Resolution of the Court of Appeals in CA-
G.R. SP No. 91887 are AFFIRMED.
SO ORDERED.
G.R. No. 198356, April 20, 2015
ESPERANZA SUPAPO AND THE HEIRS OF ROMEO
SUPAPO, NAMELY: ESPERANZA, REX EDWARD,
RONALD TROY, ROMEO, JR., SHEILA LORENCE,
ALL SURNAMED SUPAPO, AND SHERYL FORTUNE
SUPAPO-SANDIGAN, Petitioners, v. SPOUSES
ROBERTO AND SUSAN DE JESUS, MACARIO
BERNARDO, AND THOSE PERSONS CLAIMING
RIGHTS UNDER THEM, Respondent.
DECISION
BRION, J.:
We resolve the petition for review on certiorari1 filed
by petitioners Esperanza Supapo and Romeo
Supapo2 (Spouses Supapo) to assail the February 25,
2011 decision3 and August 25, 2011 resolution4 of the
Court of Appeals (CA) in CA-G.R. SP No. 111674.
Factual Antecedents
The Spouses Supapo filed a complaint5 for accion
publiciana against Roberto and Susan de Jesus
(Spouses de Jesus), Macario Bernardo (Macario), and
persons claiming rights under them (collectively,
the respondents), with the Metropolitan Trial Court
(MeTC) of Caloocan City.
The complaint sought to compel the respondents to
vacate a piece of land located in Novaliches, Quezon
City, described as Lot 40, Block 5 (subject lot). The
subject lot is covered by Transfer Certificate of Title
(TCT) No. C-284416 registered and titled under the
Spouses Supapo's names. The land has an assessed
value of thirty-nine thousand nine hundred eighty
pesos (39,980.00) as shown in the Declaration of Real
Property Value (tax declaration) issued by the Office
of the City Assessor of Caloocan.7
The Spouses Supapo did not reside on the subject lot.
They also did not employ an overseer but they made
sure to visit at least twice a year.8 During one of their
visits in 1992, they saw two (2) houses built on the
subject lot. The houses were built without their
knowledge and permission. They later learned that the
Spouses de Jesus occupied one house while Macario
occupied the other one.9
The Spouses Supapo demanded from the respondents
the
the immediate surrender of the subject lot by bringing
the dispute before the appropriate Lupong
Tagapamayapa. The Lupon issued a Katibayan Upang
Makadulog sa Hukuman (certificate to file action) for
failure of the parties to settle amicably.10
The Spouses Supapo then filed a criminal
case11 against the respondents for violation of
Presidential Decree No. 772 or the Anti-Squatting
Law.12 The trial court convicted the respondents. The
dispositive portion of the decision reads:
WHEREFORE, in view of all the foregoing, this Court
finds accused ROBERTO DE JESUS, SUSAN DE JESUS
and MACARIO BERNARDO, GUILTY beyond reasonable
doubt for Violation of Presidential Decree No. 772, and
each accused is hereby ordered to pay a fine of ONE
THOUSAND PESOS (P1,000.00), and to vacate the
subject premises.
SO ORDERED.13 (Emphasis supplied.)
The respondents appealed their conviction to the
CA.14 While the appeal was pending, Congress
enacted Republic Act (RA) No. 8368, otherwise known
as "An Act Repealing Presidential Decree No. 772,"
which resulted to the dismissal of the criminal case.15 (ii) accion publiciana falls within the exclusive
jurisdiction of the RTC.
On April 30, 1999, the CA's dismissal of the criminal
case became final.16 It held that in cases where the only issue involved is
possession, the MeTC has jurisdiction if the action for
Notwithstanding the dismissal, the Spouses Supapo forcible entry or unlawful detainer is filed within one
moved for the execution of the respondents' civil (1) year from the time to demand to vacate was
liability, praying that the latter vacate the subject lot. made. Otherwise, the complaint for recovery of
The Regional Trial Court (RTC) granted the motion and possession should be filed before the RTC.
issued the writ of execution. The respondents moved
for the quashal of the writ but the RTC denied the The dispositive portion of the RTC decision reads:
same. The RTC also denied the respondents' motion
for reconsideration. WHEREFORE, premises considered, the instant
petition is hereby GRANTED.
The respondents thus filed with the CA a petition
for certiorari to challenge the RTC's orders denying The Orders dated October 24, 2008 and February 23,
the quashal of the writ and the respondent's motion 2009 are hereby declared NULL and VOID.
for reconsideration.17 The CA granted the petition and
held that with the repeal of the Anti-Squatting Law, The Public Respondent is hereby directed
the respondents' criminal and civil liabilities were to DISMISS Civil Case No. 08-29245 for lack of
extinguished.18 The dispositive portion of the decision jurisdiction.
reads:
SO ORDERED.26
WHEREFORE, premises considered, the petition for
certiorari with prayer for injunction is GRANTED. The
In their motion for reconsideration,27 the Spouses
orders dated June 5, 2003 and July 24, 2003 of Branch
Supapo emphasized that the court's jurisdiction over
131 of the Regional Trial Court of Caloocan City in
an action involving title to or possession of land is
Criminal Case No. C-45610 are REVERSED and SET
determined by its assessed value; that the RTC does
ASIDE. Said court is hereby
not have an exclusive jurisdiction on all complaints
permanently ENJOINED from further executing or
for accion publiciana; and that the assessed value of
implementing its decision dated March 18, 1996.
the subject lot falls within MeTC's jurisdiction.
SO ORDERED.
The RTC denied the petitioners' motion for
reconsideration.
The CA, however, underscored that the repeal of
the Anti-Squatting Law does not mean that people It held that although the MeTC had jurisdiction based
now have unbridled license to illegally occupy lands on the assessed value of the subject lot, the Spouses
they do not own, and that it was not intended to Supapos' cause of action had already prescribed, the
compromise the property rights of legitimate action having been filed beyond the ten (l0)-year
landowners.19 In cases of violation of their property prescriptive period under Article 555 of the Civil
rights, the CA noted that recourse may be had in court Code.28 As it was not proven when the actual demand
by filing the proper action for recovery of possession. to vacate was made, the RTC ruled that the reckoning
period by which the ejectment suit should have been
The Spouses Supapo thus filed the complaint filed is counted from the time the certificate to file
for action publiciana.20 action was issued. The certificate to file action was
issued on November 25, 1992, while the complaint
After filing their Answer,21 the respondents moved to for accion publiciana was filed only on March 7, 2008,
set their affirmative defenses for preliminary or more than ten (10) years thereafter.
hearing22 and argued that: (1) there is another action
pending between the same parties; (2) the complaint Dissatisfied with the RTC ruling, the Spouses Supapo
for accion publiciana is barred by statute of appealed to the CA.29
limitations; and (3) the Spouses Supapo's cause of
action is barred by prior judgment. The CA Ruling30

The MeTC Ruling23
The MeTC denied the motion to set the affirmative
defenses for preliminary hearing. It ruled that the
arguments advanced by the respondents are
evidentiary in nature, which at best can be utilized in
the course of the trial. The MeTC likewise denied the
respondents' motion for reconsideration.
From the MeTC's ruling, the respondents filed a
petition for certiorari with the RTC.24
The RTC Ruling25
The RTC granted the petition for certiorari on two
grounds, viz.: (i) the action has prescribed; and
The CA dismissed the appeal and held that the
complaint for accion publiciana should have been
lodged before the RTC and that the period to file the
action had prescribed.
The dispositive portion of the CA decision reads:
WHEREFORE, the appeal is DENIED. The Decision
dated June 30, 2009 and Order dated October 19,
2009 are AFFIRMED.
SO ORDERED
The Spouses Supapo moved31 but failed32 to secure a
reconsideration of the CA decision; hence, they came
to us through the present petition.
The Petition
In seeking reversal of the CA's ruling, the Spouses
Supapo essentially argue that:
resolving the issue of possession, where the issue of
ownership is inseparably linked to the issue of
possession. The adjudication of the issue of
ownership, being provisional, is not a bar to an action
between the same parties involving title to the
property. The adjudication, in short, is not conclusive
on the issue of ownership.36

Thus, while we will dissect the Spouses Supapo's claim

(1) the MeTC exercises exclusive original jurisdiction
of ownership over the subject property, we will only
over accion publiciana where the assessed value
do so to determine if they or the respondents should
of the property does not exceed P20,000.00, or
have the right of possession.
P50,000.00 if the property is located in Metro
Manila; and that
Having thus determined that the dispute involves
(2) prescription had not yet set in because their
possession over a real property, we now resolve which
cause of action is imprescriptible under the
court has the jurisdiction to hear the case.
Torrens system.
Under Batas Pambansa Bilang 129,37 the jurisdiction
The Respondents' Case33
of the RTC over actions involving title to or possession
of real property is plenary.38
The respondents argue that the complaint for accion
publiciana was (1) filed in the wrong court; (2) barred
RA No. 7691,39 however, divested the RTC of a portion
by prescription; and (3) barred by res judicata.
of its jurisdiction and granted the Metropolitan Trial
Courts, Municipal Trial Courts and Municipal Circuit
Issues Trial Courts the exclusive and original jurisdiction to
hear actions where the assessed value of the property
The issues for resolution are: does not exceed Twenty Thousand Pesos
(P20,000.00), or Fifty Thousand Pesos (P50,000.00),
I. Whether the MeTC properly acquired if the property is located in Metro Manila.
jurisdiction;
II. Whether the cause of action has prescribed; Section 1 of RA No. 7691 states:
and
III. Whether the complaint for accion Section 1. Section 19 of Batas Pambansa Blg. 129,
publiciana is barred by res judicata. otherwise known as the "Judiciary Reorganization Act
of 1980," is hereby amended to read as follows:
Section. 19. Jurisdiction in civil cases. - Regional
Our Ruling Trial Courts shall exercise exclusive original
jurisdiction:
The petition is meritorious.
(2) In all civil actions which involve the title to,
We hold that: (1) the MeTC properly acquired or possession of, real property, or any interest
jurisdiction; (2) the cause of action has not therein, where the assessed value of the property
prescribed; and (3) the complaint is not barred by res involved exceeds Twenty thousand pesos
judicata. (P20,000.00) or, for civil actions in Metro
Manila, where such value exceeds Fifty thousand
Accion Publiciana and pesos (P50,000.00) x x x. (Emphasis supplied.)
the Jurisdiction of the
MeTC Section 3 of the same law provides:
Section. 3. Section 33 of the same law is hereby
Accion publiciana is an ordinary civil proceeding to amended to read as follows:
determine the better right of possession of realty Section. 33. Jurisdiction of Metropolitan Trial Courts,
independent of title. It refers to an ejectment suit filed Municipal Trial Courts and Municipal Circuit Trial
after the expiration of one year from the accrual of the Courts in Civil Cases. - Metropolitan Trial Courts,
cause of action or from the unlawful withholding of Municipal Trial Courts, and Municipal Circuit
possession of the realty.34 Trial Courts shall exercise:

In the present case, the Spouses Supapo filed an xxxx

action for the recovery of possession of the subject lot
but they based their better right of possession on a
claim of ownership.
This Court has held that the objective of the plaintiffs
in accion publiciana is to recover possession only, not
ownership. However, where the parties raise the issue
of ownership, the courts may pass upon the issue to
determine who between the parties has the right to
possess the property.35
This adjudication is not a final determination of the
issue of ownership; it is only for the purpose of
(3) Exclusive original jurisdiction in all civil actions
which involve title to, or possession of, real
property, or any interest therein where the assessed
value of the property or interest therein does not
exceed Twenty thousand pesos (P20,000.00) or,
in civil actions in Metro Manila, where such
assessed value does not exceed Fifty thousand
pesos (P50,000.00) exclusive of interest, damages
of whatever kind, attorney's fees, litigation expenses
and costs x x x. (Emphasis supplied.)

In view of these amendments, jurisdiction over
actions involving title to or possession of real property
is now determined by its assessed value.40 The
assessed value of real property is its fair market value
multiplied by the assessment level. It is synonymous
to taxable value.41
In Quinagoran v. Court of Appeals,42 we explained:
[D]oes the RTC have jurisdiction over all cases of
recovery of possession regardless of the value of the
property involved?
The answer is no. The doctrine on which the RTC
anchored its denial of petitioner's Motion to Dismiss,
as affirmed by the CA — that all cases of recovery of
possession or accion publiciana lies with the regional
trial courts regardless of the value of the property —
no longer holds true. As tilings now stand, a
distinction must be made between those
properties the assessed value of which is below
P20,000.00, if outside Metro Manila; and
P50,000.00, if within.43 (Emphasis supplied.)
In this regard, the complaint must allege the assessed
value of the real property subject of the complaint or
the interest thereon to determine which court has
jurisdiction over the action. This is required because
the nature of the action and the court with original and
exclusive jurisdiction over the same is determined by
the material allegations of the complaint, the type of
relief prayed for by the plaintiff, and the law in effect
when the action is filed, irrespective of whether the
plaintiffs are entitled to some or all of the claims
asserted therein.44
In the present case, the Spouses Supapo alleged that
the assessed value of the subject lot, located in Metro
Manila, is P39,980.00. This is proven by the tax
declaration45 issued by the Office of the City Assessor
of Caloocan. The respondents do not deny the
genuineness and authenticity of this tax declaration.
Given that the Spouses Supapo duly complied with the
jurisdictional requirements, we hold that the MeTC of
Caloocan properly acquired jurisdiction over the
complaint for accion publiciana.
The cause of action
has not prescribed
The respondents argue that the complaint for accion
publiciana is dismissible for being filed out of time.
They invoke Article 555 of the Civil Code, which
states: Art. 555. A possessor may lose his possession:
xxxx
(4) By the possession of another, subject to the
provisions of Article 537, if the new possession has
lasted longer than one year. But the real right of
possession is not lost till after the lapse of ten
years. (Emphasis supplied.)
The respondents point out that the Spouses Supapo
filed the complaint for accion publiciana on March 7,
2008 or more than ten (10) years after the certificate
to file action was issued on November 25, 1992. The
respondents contend that the Spouses Supapo may
no longer recover possession of the subject property,
the complaint having been filed beyond the period
provided by law.
Further, while the respondents concede that the
Spouses Supapo hold a TCT over the subject property,
and assuming a Torrens title is imprescriptible and
indefeasible, they posit that the latter have lost their
right to recover possession because of laches.
On their part, the Spouses Supapo admit that they
filed the complaint for accion publiciana more than ten
(10) years after the certificate to file action was
issued. Nonetheless, they argue that their cause of
action is imprescriptible since the subject property is
registered and titled under the Torrens system.
We rule that the Spouses Supapo's position is legally
correct.
At the core of this controversy is a parcel of land
registered under the Torrens system. The Spouses
Supapo acquired the TCT on the subject lot in
1979.46 Interestingly, the respondents do not
challenge the existence, authenticity and
genuineness of the Supapo's TCT.47
In defense, the respondents rest their entire case on
the fact that they have allegedly been in actual, public,
peaceful and uninterrupted possession of the subject
property in the concept of an owner since 1992. The
respondents contend that they built their houses on
the subject lot in good faith. Having possessed the
subject lot for more than ten (10) years, they claim
that they can no longer be disturbed in their
possession.48
Under the undisputed facts of this case, we find that
the respondents' contentions have no legal basis.
In a long line of cases, we have consistently ruled
that lands covered by a title cannot be acquired
by prescription or adverse possession. We have
also held that a claim of acquisitive prescription is
baseless when the land involved is a registered land
because of Article 112649 of the Civil Code in relation
to Act 496 [now, Section 47 of Presidential Decree
(PD) No. 152950].51
The Spouses Supapo (as holders of the TCT) enjoy a
panoply of benefits under the Torrens system. The
most essential insofar as the present case is
concerned is Section 47 of PD No. 1529 which states:
Section 47. Registered land not subject to
prescriptions. No title to registered land in derogation
of the title of the registered owner shall be acquired
by prescription or adverse possession.
In addition to the imprescriptibility, the person who
holds a Torrens Title over a land is also entitled to the
possession thereof.52 The right to possess and occupy
the land is an attribute and a logical consequence of
ownership.53 Corollary to this rule is the right of the
holder of the Torrens Title to eject any person illegally
occupying their property. Again, this right is
imprescriptible.54
In Bishop v. CA,55 we held that even if it be supposed
that the holders of the Torrens Title were aware of the
other persons' occupation of the
property, regardless of the length of that
possession, the lawful owners have a right to
demand the return of their property at any time as
long as the possession was unauthorized or merely
tolerated, if at all.56
Even if the defendant attacks the Torrens Title
because of a purported sale or transfer of the
property, we still rule in favor of the holder of the
Torrens Title if the defendant cannot adduce, in
addition to the deed of sale, a duly-registered
certificate of title proving the alleged transfer or sale.
A case in point is Umpoc v. Mercado57 in which we
gave greater probative weight to the plaintiffs TCT vis-
a-vis the contested unregistered deed of sale of the
defendants. Unlike the defendants in Umpoc,
however, the respondents did not adduce a single
evidence to refute the Spouses Supapo's TCT. With
more reason therefore that we uphold the
indefeasibility and imprescriptibility of the Spouses
Supapo's title.
By respecting the imprescriptibility and indefeasibility
of the Spouses Supapo's TCT, this Court merely
recognizes the value of the Torrens System in
ensuring the stability of real estate transactions and
integrity of land registration.
We reiterate for the record the policy behind the
Torrens System, viz.:
The Government has adopted the Torrens system due
to its being the most effective measure to guarantee
the integrity of land titles and to protect their
indefeasibility once the claim of ownership is
established and recognized. If a person purchases a
piece of land on the assurance that the seller's title
thereto is valid, he should not run the risk of being
told later that his acquisition was ineffectual after all,
which will not only be unfair to him as the purchaser,
but will also erode public confidence in the system and
will force land transactions to be attended by
complicated and not necessarily conclusive
investigations and proof of ownership. The further
consequence will be that land conflicts can be even
more abrasive, if not even violent.58
With respect to the respondents' defense59 of laches,
suffice it to say that the same is evidentiary in nature
and cannot be established by mere allegations in the
pleadings.60 In other words, the party alleging laches
must adduce in court evidence proving such
allegation. This Court not being a trier of facts cannot
rule on this issue; especially so since the lower courts
did not pass upon the same.
Thus, without solid evidentiary basis, laches cannot be
a valid ground to deny the Spouses Supapo's
petition.61 On the contrary, the facts as culled from
the records show the clear intent of the Spouses
Supapo to exercise their right over and recover
possession of the subject lot, viz.: (1) they brought
the dispute to the appropriate Lupon; (2) they
initiated the criminal complaint for squatting; and (3)
finally, they filed the action publiciana. To our mind,
these acts negate the allegation of laches.
With these as premises, we cannot but rule that the
Spouses Supapo's right to recover possession of the
subject lot is not barred by prescription.
The action is not barred
by prior judgment
As a last-ditch effort to save their case, the
respondents invoke res judicata. They contend that
the decision of the CA in CA-G.R. SP No. 78649 barred
the filing of the action publiciana.
To recall, CA-G.R. SP No. 78649 is the petition
for certiorari filed by the respondents to challenge the
RTC's issuance of the writ enforcing their civil liability
(i.e., to vacate the subject property) arising from their
conviction under the Anti-Squatting Law. The CA
granted the petition and permanently enjoined the
execution of the respondents' conviction because their
criminal liability had been extinguished by the repeal
of the law under which they were tried and convicted.
It follows that their civil liability arising from the crime
had also been erased.
The respondents' reliance on the principle of res
judicata is misplaced.
Res judicata embraces two concepts: (1) bar by prior
judgment as enunciated in Rule 39, Section 47(b) of
the Rules of Civil Procedure; and (2) conclusiveness of
judgment in Rule 39, Section 47(c).62
"Bar by prior judgment" means that when a right or
fact had already been judicially tried on the merits and
determined by a court of competent jurisdiction, the
final judgment or order shall be conclusive upon the
parties and those in privity with them and constitutes
an absolute bar to subsequent actions involving the
same claim, demand or cause of action.63
The requisites64 for res judicata under the concept of
bar by prior judgment are:
(1) The former judgment or order must be final;
(2) It must be a judgment on the merits;
(3) It must have been rendered by a court having
jurisdiction over the subject matter and the parties;
and
(4) There must be between the first and second
actions, identity of parties, subject matter, and
cause of action.
Res judicata is not present in this case.
While requisites one to three may be present, it is
obvious that the there is no identity of subject matter,
parties and causes of action between the criminal
case prosecuted under the Anti-Squatting Law and
the civil action for the recovery of the subject
property.
First, there is no identity of parties. The criminal
complaint, although initiated by the Spouses Supapo,
was prosecuted in the name of the people of the
Philippines. The accion publiciana, on the other hand,
was filed by and in the name of the Spouses Supapo.
Second, there is no identity of subject matter. Carpio, (Chairperson), Del Castillo,
The criminal case involves the prosecution of a crime Mendoza, and Leonen, JJ., concur.
under the Anti-Squatting Law while the accion
publiciana is an action to recover possession of the
G.R. No. 170671, August 19, 2015
subject property.

And third, there is no identity of causes of FILADELFA T. LAUSA, LORETA T. TORRES,

action. The people of the Philippines filed the criminal PRIMITIVO TUGOT AND ANACLETO T.
case to protect and preserve governmental interests CADUHAY, Petitioners, v. MAURICIA QUILATON,
by prosecuting persons who violated the statute. The RODRIGO Q. TUGOT, PURIFICACION T.
Spouses Supapo filed the accion publiciana to protect CODILLA, TEOFRA T. SADAYA, ESTRELLITA T.
their proprietary interests over the subject property GALEOS AND ROSITA T. LOPEZ, Respondents.
and recover its possession.
DECISION
Even casting aside the requirement of identity of
causes of action, the defense of res judicata has still
no basis. BRION, J.:

The concept of "conclusiveness of judgment" does not Before us is a Petition for review on certiorari assailing
require that there is identity of causes of action the Court of Appeals (CA) Decision in CA-G.R. CV No.
provided that there is identity of issue and identity of 63248. The CA reversed the decision of the Regional
parties.65 Trial Court (RTC) of Cebu City, Branch 15 in Civil Case
No. CEB - 17857, and. upheld the validity of Transfer
Under this particular concept of res judicata, any Certificate Title (TCT) No. 571.
right, fact, or matter in issue directly adjudicated or
necessarily involved in the determination of an action Factual Antecedents
before a competent court in which judgment is
rendered on the merits is conclusively settled by the The main issue in the present case involves the title
judgment therein and cannot again be litigated to Lot No. 557, a parcel of land situated in V. Ranudo
between the parties and their privies, whether or not and D. Jakosalem Streets, Cogon Central, Cebu City.
the claim, demand, purpose, or subject matter of the
two actions is the same.66 The petitioners and the respondents are relatives
residing in Lot No. 557.
As already explained, there is no identity of parties
between the criminal complaint under the Anti- Petitioners Filadelfa T. Lausa, Loreta T. Torres,
Squatting law and the civil action for accion Primitivo Tugot, and Anacleto T. Caduhay are the
publiciana. For this reason alone, "collusiveness of cousins of respondents Rodrigo Tugot, Purificacion
judgment" does not apply. Codilla, Teofra Sadaya, and Estrellita Galeos; while
Mauricia Quilaton is the respondents' mother and the
Even if we assume, for the sake of argument, that petitioners' aunt-in-law.
there is identity of parties, "conclusiveness of
judgment" still does not apply because there is no The respondent Rosita T. Lopez, on the other hand,
identity of issues. The issue in the criminal case is acquired the rights of Rodrigo when he mortgaged Lot
whether the respondents (accused therein) committed No. 557-A, a portion of Lot No. 557, to her. Rodrigo
the crime alleged in the information, while the only subsequently defaulted on his loan.
issue in accion publiciana is whether the Spouses
Supapo have a better right than the respondents to The petitioners and respondents, with the exception
possess and occupy the subject property. of Mauricia and Rosita, are all grandchildren of
Alejandro Tugot. Alejandro had possessed Lot No. 557
For all these reasons, the defense of res judicata is since September 13, 1915, after it was assigned to
baseless. him by Martin Antonio.

Final Note Lot No. 557 formed part of the Banilad Friar Estate
Lands, which had been bought by the government
As a final note, we stress that our ruling in this case through Act No. 1120 for distribution to its occupants.
is limited only to the issue of determining who Antonio had initially been Lot No. 557's beneficiary,
between the parties has a better right to possession. but subsequently assigned his rights over Lot No. 557
This adjudication is not a final and binding to Alejandro.
determination of the issue of ownership. As such, this
is not a bar for the parties or even third persons to file Since then, Alejandro possessed Lot No. 557 until his
an action for the determination of the issue of death; thereafter, his children and grandchildren
ownership. continued to reside in the lot. The present controversy
arose when the respondents, claiming to be its
WHEREFORE, premises considered, we GRANT the registered owners, attempted to eject the petitioners
petition, and consequently REVERSE and SET from Lot No. 557.
ASIDE the February 25, 2011 decision and August
25, 2011 resolution of the Court of Appeals in CA-G.R. On January 1993, Mauricia filed before the RTC of
SP No. 111674. Cebu City Branch 17 a petition for the issuance of a
new owner's duplicate of TCT No. 571, which
SO ORDERED. purportedly covers Lot No. 557. Mauricia claimed to
own TCT No. 571, but lost her owner's duplicate
during a strong typhoon sometime in 1946. The RTC,
after due hearing, granted Quilaton's petition and
directed the issuance of a new owner's duplicate of
TCT No. 571.
On September 27, 1994, Mauricia donated Lot No. 557
to her children Rodrigo, Purificacion, Teofra and
Estrellita. Thus, TCT No. 571 was cancelled, and re-
issued as TCT Nos. 130517, 130518, 130519, 130520
and 130521 in the names of Mauricia's
children.1cralawrednad
Mauricia's children subsequently performed several
acts of ownership over Lot 571: first, Rodrigo, on
March 23, 1995, mortgaged TCT No. 130517 to Lopez
as security for a loan he obtained from the latter.
Rodrigo subsequently defaulted on his loan,
prompting the foreclosure of TCT No. 130517. The
land covered by TCT No. 130517 was thereafter sold
by public auction to Lopez, for which she was issued
TCT No. 143511 on March 31, 1997.
Second, Mauricia's children filed a complaint for
ejectment against the petitioners, docketed as Civil
Case No. R-35137, on August 4, 1995.
In response, the petitioners filed Civil Case No. CEB-
17857 for the annulment of TCT No. 571 and the
subsequent titles that originate from TCT No. 571, as
well as criminal complaints2 for falsification and
perjury against the respondents.
The Regional Trial Court's ruling
The RTC found TCT No. 571 to be a forgery, and
declared it and all titles originating from it to be null
and void ab initio. The RTC gave the following reasons
as basis for this
conclusion:ChanRoblesvirtualLawlibrary
First, the RTC noted several discrepancies in TCT No.
571 indicating that it is a validity of TCT No. 571 and all the titles originating
forgery, viz.:ChanRoblesvirtualLawlibrary
(i) The TCTs issued before and after TCT No. 571, that
is, TCT No. 570 and TCT No. 572, both use a
different and more recent form than TCT No. 571.
TCT Nos. 570 and 572 use Judicial Form No. 109,
which was issued in June 1945, while TCT No. 571
uses Judicial Form No. 140-D, which was issued in
April 1936.
(ii) TCT Nos. 570 and 572 was signed by Martina L.
Arnoco as Register of Deeds, while TCT No. 571
was signed by Gervasio Lavilles as Acting Register
of Deeds.
(iii)There are distinct differences in Lavilles' signature
as it appears in TCT No. 571 from his signatures in
other TCTs, such as TCT Nos. 525 and 526.
Second, Mauricia's previous acts show that she
acknowledged Alejandro's ownership over Lot No.
557. Prior to instituting a petition for issuance of a new
owner's duplicate in 1993, Mauricia had been paying
Alejandro (and subsequently Aurea) contributions for
the real estate taxes due on Lot No. 557.
Third, Mauricia exercised acts of full ownership over
Lot No. 557 only in 1994, after she had filed a petition
for the issuance of a new owner's duplicate, even as
she claimed to have owned the lot since 1946.
Fourth, Mauricia failed to present evidence showing
how she acquired title to Lot No. 557. If indeed the
land was purchased from Martin Antonio, she could
have secured a copy of its document of sale from the
Archives Office, Manila.
Additionally, the RTC held that the petitioners had
better title to Lot No. 557 than the respondents. The
RTC found that Lot No. 557 had been in the possession
of Alejandro since September 13, 1915, when the lot's
owner, Martin Antonio, executed a Deed of
Assignment in favor of Alejandro. This conveyance,
together with Alejandro and his heirs' continuous
payment of Lot No. 557's real estate taxes since 1928,
amounts to more than thirty years of adverse
possession, so that ownership over the lot vested in
him.
As Alejandro's heirs, both the petitioners and
respondents are entitled to a share in Lot No. 557.
Lastly, the RTC declared Lopez's TCT No. 143511,
which she acquired when she purchased TCT No.
130517, to be null and void. TCT No. 130517 covers
Lot No. 557-A, and had been annotated with a Notice
of Lis Pendens at the time Lopez purchased it. Thus,
Lopez had knowledge of the dispute over the
ownership of the lot she bought, and could not claim
the defense of a purchaser in good faith. She acquired
no greater title to the lot than Rodrigo, who
mortgaged TCT No. 130517.
The respondents filed a motion for reconsideration
contesting the RTC's decision. After the RTC denial of
the motion, the respondents appealed to the CA.
The Court of Appeals' ruling
The CA reversed the RTC's decision, and upheld the
from it.
In upholding the validity of TCT No. 571 (and all the
titles originating from it), the CA emphasized the
existence of a copy of TCT No. 571 in the custody of
the Office of the Register of Deeds of Cebu City, and
noted that it is presumed by law to have been issued
in a regular manner. The application of this
presumption is called for by the purpose of the Torrens
system, which is to promote the stability and integrity
of land titles.
According to the CA, the petitioners have failed to
disprove this presumption of regularity. The pieces of
evidence that the petitioners presented (i.e., the tax
receipts and Antonio's Deed of Assignment of Lot No.
557 to Alejandro) do not prove with clear, positive,
and convincing evidence that TCT No. 571 had been
fraudulently issued. The payment of real estate taxes
over Lot No. 557 does not prove ownership. The Deed
of Assignment, on the other hand, had been
subsequently cancelled, as shown by the Friar Lands
Sale Certificate Register on file with the DENR. It
proves that the lot had been earlier assigned to
Alejandro, but because the assignment was canceled,
the ownership of Lot No. 557 remained with Antonio.
The CA also noted that the lot that Alejandro appears
to have owned was not Lot No. 557 but Lot No. 357.
The description of Lot No. 557 - as set forth by the
petitioners in their original complaint - substantially
varies from the actual and precise technical
description of Lot No. 557. Additionally, some of the
documentary evidence in the case (such as tax
declarations, tax receipts and notices of tax
delinquency) show that what Alejandro owned was Lot
No. 357, not Lot No. 557.
The CA also pointed out that Alejandro could not have
acquired Lot 557 through acquisitive prescription for
two reasons: first, Mauricia had been in possession of
the property since 1946; and second, a lot registered
under the Torrens system cannot be acquired through
acquisitive prescription. Records show that the lands
comprising the Banilad Friar Lands Estate, of which Lot
No. 557 was a part, had been brought under the
operation of the Torrens system on September 23,
1913.
The CA found Lopez to be an innocent purchaser for
value. Applying the Court's ruling in Bank of the
Philippine Islands v. Noblejas, the CA held that Lopez's
good faith as a mortgagee extends to her eventual
purchase of the lot during its foreclosure. Since TCT
No. 130517 had no notice of any adverse claim at the
time it was mortgaged to Lopez, then the subsequent
annotation of Notice of Lis Pendensprior to TCT No.
130517's foreclosure should not affect her status as a
mortgagee-in-good-faith. The clean title presented to
Lopez at the time TCT No. 130517 was mortgaged to
her maintains this status at the time of its foreclosure,
and cannot be prejudiced by the subsequent
annotation of a claim to it before the lot is foreclosed.
Lastly, the CA found that the RTC erred when it did
not immediately dismiss the petitioners' complaint, as
their cause of action had been barred by prescription
and laches. An action for the annulment of title to land
prescribes in ten years. The petitioners filed their
complaint only on September 20, 1995, almost fifty
years after Mauricia had been issued TCT No. 571 on
July 16, 1946. Thus, the petitioners had slept on their
claimed right over Lot 557; consequently, they are
now barred by laches from seeking redress before the
courts.
The petitioners filed a motion for reconsideration
assailing the CA's decision, which motion the CA
denied. The denial opened the way for the present
petition for review on certiorari before this Court.
The present petition
In their present petition, the petitioners seek the
reversal of the CA's decision through their assertion
that they have acquired ownership over Lot No. 557
by acquisitive prescription.
The petitioners claim that the CA committed the
following errors:ChanRoblesvirtualLawlibrary
First, the CA erred in upholding the validity of TCT No.
571, which is a fake and fabricated title;
Second, the CA erred in finding that Mauricia owned
and possessed Lot No. 557, as it was Alejandro who
exercised acts of exclusive ownership and possession
over the lot since it was assigned to him in 1915. The
lot Antonio assigned to Alejandro covered Lot No. 557,
although earlier tax declarations indicated the areas
of the lot to be Lot No. 357. This error was corrected
in subsequent tax declarations by the City of Cebu
Assessor's Office in 1997.
Third, the CA erred in holding that Lopez is an
innocent purchaser in good faith, as she knew that the
portion of Lot No. 557 being mortgaged to her was in
the possession of Filadelfa, and not Rodrigo. She knew
of this possession before she executed the real estate
mortgage contract over the property with Rodrigo.
Fourth, the CA erred in finding the petitioners' cause
of action barred by prescription and laches, as they
discovered the existence of TCT No. 571 only in
August 1995, when Mauricia and her children
instituted ejectment proceedings against them.
In response, the respondents argue that the
petitioners have no cause of action against them
because Alejandro's tax declarations cover Lot No.
357, and not Lot No. 557, which is covered by their
TCTs. They also cited the CA's decision, and argued
that the CA committed no error of law in upholding the
validity of their TCTs.
Lopez, on the other hand, asserted that her status as
an innocent purchaser or mortgagor in good faith had
not been included in the petitioners' amended
complaint including her as an indispensible party, and
should thus not have been considered as an issue in
the case. In any case, Lopez asserts that her title to
Lot No. 557-A is valid because she is an innocent
purchaser in good faith.
Issues:
The issues, having been properly joined, present to us
the following questions:ChanRoblesvirtualLawlibrary
(1)Whether the CA erred in finding that the lot that
the petitioners claim to own covers Lot No. 357,
and not Lot No. 557;
(2)Whether the CA erred in finding that the
respondents, and not the petitioners, are the
owners and possessors of Lot No. 557;
(3)Whether the CA erred in finding Lopez an innocent
purchaser in good faith; and
(4)Whether the CA erred in finding the petitioners'
cause of action to have been barred by prescription
and laches.
The Court's Ruling
We find the petition meritorious.
We note at the outset that the Court is not a trier of
facts, and our jurisdiction in cases brought before us
from the appellate court is limited to the review of
errors of law.
We have, however, recognized several exceptional
situations that call for a re-evaluation of the CA's
factual conclusions, among them, the situation when
the CA's findings are contrary to that of the trial court,
and when the CA manifestly overlooks relevant facts
not disputed by the parties and which, if properly
considered, would lead to a different
conclusion.3cralawrednad
We find these circumstances in the present case,
prompting us to re-examine the records of the case
and to reverse the CA's decision after due
consideration of the records.
The CA erred in finding that the lot that the
petitioners claim to own is Lot No. 357, and not
Lot No. 557
The CA, in upholding the validity of Mauricia's title and
ownership over Lot No. 557, pointed out that the lot
that Alejandro claimed to own was not Lot No. 557,
but Lot No. 357.
The CA based this conclusion on several tax
documents in the name of Alejandro Tugot, which
indicate that the lot covered is Lot No. 357, and not
Lot No. 557.
In so doing, the CA overlooked several key pieces of
evidence presented before the RTC, which had led the
latter to conclude that the designation of Lot No. 357
in Alejandro's tax declarations actually pertained to
Lot No. 557. These pieces of evidence are as
follows:ChanRoblesvirtualLawlibrary
First, the testimony of Mr. Antonio Abellana of the
City of Cebu Assessor's Office established that he
issued a Certification of Correction to change
Alejandro's tax declarations, which initially covered
Lot No. 357, to Lot No. 557.
According to Abellana, Lot No. 357 is located in a
barangay different from the address found in
Alejandro's tax declaration. The base map of Cebu
locates Lot No. 357 to be in Barangay Day-as, almost
five meters from Sikatuna Street, while the address in
Alejandro's erroneous tax declaration indicates that
Lot No. 357 is located in Jakosalem Street.
Second, records of the Cebu City Assessor's Office
show that Lot No. 357 is covered by another tax
declaration with an address corresponding to the city's
base map. In this tax declaration, Lot No. 357 is
owned by a certain Antonio Yap.
Third, the deed of donation4 of Lot No. 558, which
adjoins Lot Nos. 557 and 559, recognized Alejandro
Tugot as the owner of Lot No. 557.
We find that these pieces of evidence sufficiently
explain that the lot in Alejandro and Aurea's tax
declarations actually covered Lot No. 557, and its
initial designation as Lot No. 357 was an error. The
Assessor's Office of Cebu City, which had the
responsibility of classifying, appraising, and assessing
real property in Cebu, had acknowledged this
designation to be erroneous, and subsequently made
rectification. This acknowledgment is not only entitled
to the presumption of regularity; it is also
corroborated by the Deed of Donation of an adjoining
lot.
Additionally, we also found other pieces of evidence
supporting the conclusion of the Cebu City Assessor's
Office. The tax declarations in Alejandro and
(subsequently) Aurea's names indicate that they
covered the same address as the Lot No. 557
described in the Deed of Assignment that Antonio
executed in Alejandro's favor in 1915. The identity of
the addresses in these two documents show that what
the petitioners intended to pay real property tax for,
was the lot covered in the Deed of Assignment, which
was Lot No. 557. Thus, the tax declarations that
placed Lot No. 357 under Alejandro's name actually
pertained to the lot covered by Lot No. 557; its
designation as covered by Lot No. 357 was an error
that the Cebu City Assessor's Office eventually
discovered and corrected.
In the same vein, the court-approved subdivision plan
for Lot No. 557 indicated it to be found along
Jakosalem Street, the address of the lot covered by
Alejandro and Aurea's tax declarations. The plan was
commissioned for Alejandro and his children, including
Romualdo (Mauricia's husband and the father of her
children), in 1960. That the address of Lot No. 557 in
the subdivision plan is identical to the address in
Alejandro and Aurea's tax declarations establishes
that what they actually claim to own is Lot No. 557,
and not Lot No. 357.
With this foundation established, we now resolve the
issue of who among them have the better right over
Lot No. 557.
The CA erred in finding that the petitioners failed
to prove that TCT No. 571 is a fabricated title
In upholding the validity of Mauricia's TCT No. 571,
the CA held that the petitioners failed to overcome the
presumption of regularity that attended its issuance.
The CA emphasized that a copy of TCT No. 571 is
currently with the Register of Deeds, and that the
documents that the petitioners presented do not
prove their ownership over the lot.
The CA's conclusion, however, overlooked the
evidence that the petitioners presented before the
RTC to prove that TCT No. 571 is a fabricated title.
These pieces of evidence include the TCTs issued
immediately before and after TCT No. 571; TCT No.
16534 (the TCT from which TCT No. 571 allegedly
originated); and several TCTs that contain the
signature of the Acting Register of Deeds who signed
TCT No. 571. Taken together, all these pieces of
evidence sufficiently prove, by preponderance of
evidence, that TCT No. 571 is a fabricated title.
We cite with approval the RTC's factual observations
and conclusions, viz:ChanRoblesvirtualLawlibrary
First, the text of TCT No. 571 contains glaring
discrepancies with TCT No. 16534, the title indicated
in TCT No. 571 as its precursor.
TCT No. 16534 covered a different area from TCT No.
571. TCT No. 16534 covered Lot 7005-E-2, which has
an area of 3,311 square meters, while TCT No. 571
covers Lot No. 557 with an area of 525 square meters.
Too, TCT No. 16534 was issued in September 1957,
or almost ten years after the title it supposedly gave
rise to was issued in 1946.
Second, TCT No. 571 contains discrepancies when
compared with TCT Nos. 570 and 572, the TCTs that
were supposedly issued before and after TCT No. 571.
These discrepancies are as
follows:ChanRoblesvirtualLawlibrary
(i) TCT Nos. 570 and 572 had both been issued on
February 26, 1947, almost a year after TCT No.
571 was issued on July 16, 1946. Since TCT No.
571 was an intervening title between TCT No. 570
and 572, then it should have also been issued on
February 26, 1947.
(ii) TCT No. 571 used an old form, Judicial Form No.
140-D, which was revised in June 1945 by Judicial
Form No. 109. Since TCT No. 571 shows that it was
issued in 1946, then it should have used Judicial
Form No. 109. Notably, both TCT Nos. 570 and 572
used the updated Judicial Form No. 109, as they
were issued in 1947.
(iv)TCT Nos. 570 and 572 were signed by Martina L.
Arnoco as Register of Deeds, while TCT No. 571
was signed by Gervasio Lavilles as Acting Register
of Deeds.
(v) There are distinct differences in Lavilles' signature
as it appears in TCT No. 571, compared with his
signatures in other TCTs, such as TCT Nos. 525
and 526.
Additionally, we note that Mauricia's claim that she
bought Lot No. 557 from Antonio is contradicted by
the contents of TCT No. 16534.
For a new TCT to be issued, the owner's duplicate of
the seller should have been surrendered to the
Registry of Deeds, along with a copy of the TCT's Deed
of Sale. Thus, the seller's TCT would be cancelled, and
the new TCT of the buyer would indicate the seller's
TCT as its TCT of origin.
The text of TCT No. 571 shows that it originated from
TCT No. 16534. If indeed TCT No. 571 was issued to
Mauricia because the latter bought Lot No. 557 from
Antonio, then TCT No. 16534 should have reflected
this transaction.
However, instead of reflecting Antonio's title to Lot No.
557, TCT No. 16534 shows that it pertained to
a different lot, and had been issued ten years
after the issuance of TCT No. 571 to a certain
Crispina Lopez.
The original certificate of title from which TCT No. 571
and TCT No. 16534 originated are also different: TCT
No. 571 originated from Original Certificate of Title
(OCT) No. 251-253, while TCT No. 16534 originated
fromOCTNo. 11375.
These discrepancies, taken together with its variations
from the other titles issued around the same time and
Mauricia's failure to present proof of how she acquired
the lot from Antonio, reasonably establish that TCT
No. 571 is a fabricated title.
We now proceed to determine whether Alejandro was
Lot No. 557's rightful owner.
The CA erred in relying on a fabricated title as
basis to deny Alejandro's claim to acquisitive
prescription
The CA, in reversing the RTC's decision recognizing
Alejandro's ownership over Lot No. 571, held that Lot
No. 557 could no longer be acquired through
prescription because it had already been brought
under the Torrens system, in Registry Book No. A-3.
Registry Book No. A-3 refers to the registry book
where OCT No. 251-253 is registered, as indicated in
TCT No. 571. Thus, the CA concluded that Lot No. 557
has been brought under the Torrens system because
TCT No. 571 is already covered by the system. But as
TCT No. 571 is a fabricated title, the CA erred in
relying on its contents to conclude that Lot No. 557
has already been brought under the Torrens system.
Alejandro Tugot did not acquire Lot No. 557
through acquisitive prescription
We agree with the CA's conclusion that Lot No. 557
cannot be acquired through prescription, but for a
different reason.
In the present case, the Deed of Assignment between
Antonio and Alejandro was cancelled three months
after it was executed. The Deed, executed on
September 13, 1915, was inscribed with the phrase:
"Cancelled December 21, 1915. See letter # 12332."
Both the trial court and the CA found this inscription
to be sufficient proof that the Deed of Assignment had
been cancelled three months after its execution. As a
consequence, the Deed of Assignment could not have
vested Antonio's rights over Lot No. 557 to Alejandro.
Thus, Lot No. 557 reverted to its original status after
the Deed of Assignment was cancelled. It remained
subject to the conditional sale5 between the
government and Antonio; under the Certificate of Sale
between the Bureau of Lands and Antonio, the
government should transfer title to Lot No. 557 to
Antonio upon full payment of the lot's purchase price.
The nature of the contract of sale between Antonio
and the government is in line with Section 15 of Act
No. 1120, which provides for the administration,
temporary lease, and sale of friar lands that the
government bought through sections 63 to 65 of "An
Act temporarily to provide for the administration of
the affairs of civil government in the Philippine
Islands, and for other purposes." These friar lands
included the Banilad Estate Friar Lands, from where
Lot No. 557 originated.
Section 15 of Act No. 1120 that applied to Lot No. 557
provides:cralawlawlibrary
Sec. 15. The Government hereby reserves the
title to each and every parcel of land sold under
the provisions of this Act until the full payment
of all installments or purchase money and
interest by the purchaser has been made, and
any sale or encumbrance made by him shall be invalid
as against the Government of the Philippine Islands
and shall be in all respects subordinate to its prior
claim.
xxxx
According to jurisprudence, Section 15 of Act No. 1120
reserves to the government the naked title to the friar
lands, until its beneficiaries have fully paid their
purchase price. Since the intent of Act No. 1120 was
to transfer ownership of the friar lands to its actual
occupants, the equitable and beneficial title to the
land passes to them the moment the first installment
is paid and a certificate of sale is issued. This right is
subject to the resolutory condition that the sale may
be rescinded if the agreed price shall not be paid in
full.
When the Certificate of Sale was executed, Antonio
obligated himself to pay P9.00 as the final installment
to purchase Lot No. 557. His previous lease payments
to the lot were applied as initial installments for the
payment of the lot's purchase price of PI5.16. Upon
full payment of the installment and its annual 4%
interest, the government was bound to transfer full
ownership of Lot No. 557 to Antonio under Section 122
of Act No. 496.
While the records of the case do not show any
documents or paper trail showing the actions of the
parties to the Certificate of Sale after the Deed of
Assignment was cancelled, we can, with certainty, rule
out the possibility that Alejandro acquired title to it
through prescription.
Three scenarios could have happened after the Deed
of Assignment was cancelled - all of which forego the
possibility of acquisitive prescription.
First, Antonio could have completed payment of the
purchase price of Lot No. 557. Upon full payment, the
lot would have then been registered in Antonio's
name.
The Certificate of Sale between Antonio and the
government requires registration under Section 122 of
Act No. 496, or the Land Registration Act of 1902, for
the ownership over Lot No. 557 to be transferred to
Antonio. Section 122 of Act No. 496
provides:cralawlawlibrary
Section 122. Whenever public lands in the Philippine
Islands belonging to the Government of the United
States or to the Government of the Philippine Islands
are alienated, granted, or conveyed to persons or to
public or private corporations, the same shall be
brought forthwith under the operation of this Act and
shall become registered lands. It shall be the duty of
the official issuing the instrument of alienation, grant,
or conveyance in behalf of the Government to cause
such instrument, before its delivery to the grantee, to
be filed with the register of deeds for the province
where the land lies and to be there registered like
other deeds and conveyances, whereupon a certificate
shall be entered as in other cases of registered land,
and an owner's duplicate certificate issued to the
grantee. The deed, grant, or instrument of
conveyance from the Government to the grantee
shall not take effect as a conveyance or bind the
land, but shall operate as a contract between the
Government and the grantee and as evidence of
authority to the clerk or register of deeds to
make registration. The act of registration shall
be the operative act to convey and affect the
lands, and in all cases under this Act registration
shall be made in the office of the register of
deeds for the province where the land lies. The
fees for registration shall be paid by the grantee. After
due registration and issue of the certificate and
owner's duplicate such land shall be registered land
for all purposes under this Act.
Thus, the government could have registered the title
to Lot No. 557 in Antonio's name only after he had
paid the purchase price in full. Had Antonio eventually
completed the payment of Lot No. 557's purchase
price, it would have been registered under the Torrens
system, through Section 122 of Act No. 496.
Land registered under the Torrens system cannot be
acquired through prescription. As early as 1902,
Section 46 of Act No. 496 categorically declared that
lands registered under the Torrens system cannot be
acquired by prescription, viz:cralawlawlibrary
Section 46. No title to registered land in derogation to
that of the registered owner shall be acquired by
prescription or adverse possession.
Second, Antonio could have failed to complete
payment of Lot No. 557's purchase price; thus, the
naked title to Lot No. 557 remains with the
government.
Under Act No. 1120, the Chief of the Bureau of Public
Lands is required to register title to the friar lands
acquired by the government through Act No. 496.
Section 6 of Act No. 1120, in particular,
provides:cralawlawlibrary
SECTION 6. The title, deeds and instruments of
conveyance pertaining to the lands in each province,
when executed and delivered by said grantors to the
Government and placed in the keeping of the Chief of
the Bureau of Public Lands, as above provided, shall
be by him transmitted to the register of deeds of each
province in which any part of said lands lies, for
registration in accordance with law. But before
transmitting the title, deeds, and instruments of
conveyance in this section mentioned to the register
of deeds of each province for registration, the Chief of
the Bureau of Public Lands shall record all such deeds
and instruments at length in one or more books to be
provided by him for that purpose and retained in the
Bureau of Public Lands, when duly certified by him
shall be received in all courts of the Philippine Islands
as sufficient evidence of the contents of the
instrument so recorded whenever it is not practicable
to produce the originals in court.
The law on land registration at that time was Act No.
496, which established the Torrens system in the
Philippines. As earlier pointed out, a piece of land,
once registered under the Torrens system, can no
longer be the subject of acquisitive prescription.
No certificate of title pertaining to the government's
transfer of ownership of Lot No. 557 was ever
presented in evidence. Assuming, however, that the
Chief of the Bureau of Public Lands failed to register
Lot No. 557, the lot could not have been acquired by
Alejandro through prescription, under the rule that
prescription does not lie against the government.
Third, Antonio could have sold his rights to Lot No.
557 to another person. Assuming he did, only that
person could have stepped into his shoes, and could
have either completed payment of the purchase price
of Lot No. 557 and had it registered in his name; or,
he could have failed to pay the purchase price in full,
in which case the naked title to the lot remains
government property.
In all three scenarios, Alejandro could not have
acquired ownership over Lot No. 557 through
prescription.
Republic Act No. 9443 and the friar lands
The Court is not unaware of the enactment of Republic
Act No. 9443, which confirms the validity of titles
covering any portion of the Banilad Friar Lands with
Certificates of Sale and Assignment of Sale that do not
contain the signature of the then Secretary of the
Interior and/or Chief of the Bureau of Public Lands. It
does not apply to TCTs that have been fraudulently
issued and registered.
Republic Act No. 9443, however, does not validate any
of the parties' claims of ownership over Lot No. 557.
Mauricia's title, as earlier established, is fabricated;
thus, her situation falls within the exception expressed
under Section 1 of RA No. 9443, viz:cralawlawlibrary
This confirmation and declaration of validity shall in all
respects be entitled to like effect and credit as a
decree of registration, binding the land and quieting
the title thereto and shall be' conclusive upon and
against all persons, including the national government
and all branches thereof; except when, in a given
case involving a certificate of title or a
reconstituted certificate of title, there is a clear
evidence that such certificate of title or
reconstituted certificate of title was obtained
through fraud, in which case the solicitor general or
his duly designated representative shall institute the
necessary judicial proceeding to cancel the certificate
of title or reconstituted certificate of title as the case
may be, obtained through such fraud.
With respect to Alejandro, his claim to Lot No. 557
rests on the Deed of Assignment executed between
him and Antonio, which had been cancelled; hence, it
cannot be confirmed through Republic Act No. 9443.
Effects of the nullity of TCT No. 571
After establishing that neither Mauricia nor Alejandro
has title over Lot No. 557, we now resolve the validity
of the TCTs that originated from TCTNo. 571.
As a general rule, a person transmits only the rights
that he possesses. When innocent third persons,
however, purchase or acquire rights over the property
relying on the correctness of its certificate of title,
courts cannot disregard the rights they acquired and
order the cancellation of the certificate. As the third
paragraph of section 53 of Presidential Decree No.
1529, otherwise known as the Property Registration
Decree, provides:cralawlawlibrary
Section 53. xxx
xxxx
In all cases of registration procured by fraud, the
owner may pursue all his legal and equitable remedies
against the parties to such fraud without prejudice,
however, to the rights of any innocent holder for
value of a certificate of title. After the entry of the
decree of registration on the original petition or
application, any subsequent registration procured by
the presentation of a forged duplicate certificate of
title, or a forged deed or other instrument, shall be
null and void.
Thus, innocent purchasers in good faith may safely
rely on the correctness of the certificate of title issued
therefor, and neither the law nor the courts can oblige
them to go behind the certificate and investigate again
the true condition of the property. They are only
charged with notice of the liens and encumbrances on
the property that are noted on the certificate.
Jurisprudence defines innocent purchaser for value as
"one who buys the property of another, without
notice that some other person has a right or
interest in such property and pays a full price for
the same, at the time of such purchase or before
he has notice of the claims or interest of some other
person in the property."
PD 1529 has expanded the definition of an innocent
purchaser for value to include an innocent lessee,
mortgagee, or other encumbrancer for value.
Neither PD 1529 nor jurisprudence, however, has
included an innocent donee to the definition, and for
good reason. An innocent purchaser for value pays for
the full price of the property, while a donee receives
the property out of the donor's liberality. Additionally,
what the law does not include, it excludes, and a
donee is not included in the expansion of the term
innocent purchaser for value.
Applying these principles of law in the case at hand,
we hold that the Deed of Donation Mauricia issued in
favor of her children immediately after getting a copy
of TCT No. 571 could not have transferred ownership
over Lot No. 557 to her children. Since TCT No. 571 is
a fabricated title, it does not indicate ownership over
Lot No. 557; thus, the Deed of Donation involving TCT
No. 571 could not have conveyed the ownership of Lot
No. 557 to Mauricia's children.
Neither could her children claim the status of an
innocent purchaser in good faith, as they received the
property through donation.
The TCTs issued to Mauricia's children pursuant to the
donation should thus be cancelled, as they do not
signify ownership over Lot No. 557.
We also note several circumstances that cast doubt
over the ignorance of Mauricia's children regarding the
fabricated nature of TCT No. 571, viz: (1) the
petitioners are their close relatives, who have been
residing in Lot No. 557 as early as 1928; (2) their
father, Romualdo, signed and recognized a
subdivision plan of Lot No. 557 that would divide the
lot among all of Alejandro's heirs, including the
petitioners; (3) their mother executed the deed of
donation as soon as she acquired a copy of TCT No.
571; (4) their mother's nonpayment of taxes due Lot
No. 557 since 1946; and (5) the payment of real
property taxes only to facilitate the subdivision of Lot
No. 557 among them.
Lopez is not an innocent purchaser for value of
Lot 5 57-A
We now determine Lopez's claim that she is an
innocent purchaser for value of Lot No. 557-A, and
should thus be allowed to keep her title over it.
The CA, in affirming Lopez's title over Lot No. 557-A,
held that she was an innocent mortgagee for value.
According to the CA, TCT No. 130517 had no
encumbrances and liens at the time it was mortgaged
to Lopez, and this status extended to the time that
TCT No. 130517 was foreclosed to answer for
Rodrigo's loan.
We cannot agree with the CA's conclusion.
As a general rule, a person dealing with registered
land has a right to rely on the Torrens certificate of
title and to dispense with the need of further inquiring
over the status of the lot.
Jurisprudence has established exceptions to the
protection granted to an innocent purchaser for value,
such as when the purchaser has actual knowledge of
facts and circumstances that would compel a
reasonably cautious man to inquire into the status of
the lot; or of a defect or the lack of title in his vendor;
or of sufficient facts to induce a reasonably prudent
man to inquire into the status of the title of the
property in litigation.
The presence of anything that excites or arouses
suspicion should then prompt the vendee to look
beyond the certificate and investigate the title of the
vendor appearing on the face of the certificate. One
who falls within the exception can neither be
denominated as innocent purchaser for value nor a
purchaser in good faith, and hence does not merit the
protection of the law.
In particular, the Court has consistently held that that
a buyer of a piece of land that is in the actual
possession of persons other than the seller must be
wary and should investigate the rights of those in
possession. Without such inquiry, the buyer can
hardly be regarded as a buyer in good faith.
We find that Lopez knew of circumstances that should
have prodded her to further investigate the Lot No.
557-A's status before she executed a mortgage
contract over it with Rodrigo.
In the pre-trial brief she submitted before the trial
court, Lopez made the following
admissions:cralawlawlibrary
xxx Only after these checking did an actual inspection
of the properties took (sic) place, but on this occasion,
unfortunately, none of the plaintiffs, especially
plaintiff Filadelfa T. Lausa, who is found lately to be
residing nearby, furnished her the information of the
present claims.
She likewise made the same admission in an
affidavit, viz:cralawlawlibrary
6. The properties which were mortgaged were
checked and no one at that time, even plaintiff
Filadelfa T. Lausa who is just residing nearby, disputed
that the absolute owners thereof were the spouses
Rodrigo and Ligaya Tugot.
While these admissions pertain to the petitioners' act
of not telling Lopez of the status of Lot No. 557-A, it
implies that she had inspected the property, and
accordingly found that Rodrigo did not reside in Lot
No. 557-A.
Records of the case show that Filadelfa resided in Lot
No. 557-A at the time Lopez executed the real estate
mortgage with Rodrigo. In August 1995, Rodrigo and
his siblings filed an ejectment case against the
petitioners Filadelfa Lausa and Anacleto Caduhay -
Filadelfa resides in Lot No. 557-A while Anacleto's in
Lot 557-B. Notably, this ejectment case was filed five
months after Lopez had entered into the real estate
mortgage contract. Thus, at the time Lopez inspected
Lot No. 557, she would have found Filadelfa residing
in it, and not Rodrigo.
That Filadelfa - and not Rodrigo - resided in Lot No.
557-A should have prompted Lopez to make further
inquiries over its status. Further inquiries with the lot
owners of surrounding property could have informed
her of its actual status. Instead, she contented herself
with checking the copy of the title to Lot No. 557-A
against the copy in the Registry of Deeds of Cebu,
which she had done prior to the actual inspection of
Lot No. 557-A. The law cannot protect Lopez's rights
to Lot 557-A given her complacency.
Further, the status of an innocent-purchaser for value
or innocent mortgagor for value is established by the
person claiming it, an onus probandi that Lopez failed
to meet.
In her memorandum, Lopez urged the Court to
acknowledge her rights over Lot No. 557-A, arguing
that the declaration of her status as an innocent-
purchaser and innocent mortgagor is a non-issue
because it was never pleaded in her co-respondents'
amended complaint. She also pointed out that a valid
title can emerge from a fabricated title, and essentially
invoked the innocent purchaser for value doctrine.
The amended complaint alleges that Lopez's status as
current owner of Lot 557-A prejudices the rights of the
petitioners, who are its true owners. The
circumstances regarding how Lopez acquired
ownership over Lot No. 557-A had also been pleaded
therein.
Verily, the amended complaint does not need to allege
Lopez's status as an innocent purchaser or mortgagor
in good faith precisely because it was incumbent upon
her to allege and prove this to defend her title to Lot
No. 557-A. It merely needed to allege a cause of
action against Lopez, (which it did by alleging the
circumstances surrounding Lopez's ownership of Lot
No. 557-A) and that it prejudices the petitioners'
rights as its true owners.
Further, Lopez chose to ignore in her Memorandum
the petitioners' contention that she knew that Filadelfa
Lausa, and not Rodrigo, resided in Lot No. 557-A. To
reiterate, Lopez has the burden of proving her status
as an innocent purchaser for value in order to invoke
its application. Failing in this, she cannot avail of the
protection the law grants to innocent purchasers for
value.
The CA erred in finding that the petitioners'
claim of ownership over Lot No. 557 had been
barred by prescription and laches
The outcome of the present case dispenses with the
need for a discussion regarding extinctive prescription
and laches.
We note, however, that the CA erred in applying the
principle of prescription and laches to the petitioners'
cause of action involving Lot No. 557.
An action for annulment of title or reconveyance based
on fraud is imprescriptible where the plaintiff is in
possession of the property subject of the fraudulent
acts. One who is in actual possession of a piece of land
on a claim of ownership thereof may wait until his
possession is disturbed or his title is attacked before
taking steps to vindicate his right.
The records of the case show that the petitioners
resided in the property at the time they learned about
TCT No. 571. Being in possession of Lot No. 557, their
claim for annulment of title had not expired. Their
ownership of Lot No. 571, however, is a different
matter.
Effects of the Court's decision
Our decision in the present case does not settle the
ownership of Lot No. 557. To recapitulate, our
examination of the records and the evidence
presented by the petitioners and the respondents lead
us to conclude that neither of them own Lot No. 557.
Despite the intent of Act No. 1120 and Republic Act
No. 9443 to transfer ownership of the Banilad Friar
Estate Lands to its occupants, we cannot settle the
ownership of Lot No. 557 in the present case.
Indeed, the petitioners and the respondents are the
actual occupants of Lot No. 557, and they and their
families (with the exception of Rosita Lopez) have
resided in the lot since 1915.
However, as we have discussed above, neither party
had been able to establish their right of ownership,
much less possession, of Lot No. 557. The petitioners
anchor their claim on acquisitive prescription, which
does not lie against registered land or the
government. The respondents, on the other hand,
presented spurious TCTs. Thus, no amount of liberal
interpretation of Act No. 1120 or Republic Act No.
9443 could give either party the right over the lot.
Neither can we ignore the evidence showing that none
of them could rightfully own Lot No. 557. The
petitioners' cancelled deed of assignment and tax
declarations cannot establish their ownership over Lot
No. 557; especially since the operation of pertinent
laws prevented the possibility of acquisitive
prescription. The respondents' TCT No. 571, on the
other hand, had several discrepancies indicating that
it was a fake.
The exercise of the Court's judicial power settles
actual controversies between parties, through which
the Court establishes their legally enforceable and
demandable rights. We determine the parties' rights
based on the application of the law to the facts
established through the pieces of evidence submitted
by the parties. The application of the law on the facts
of the present case establishes that neither party has
a legally enforceable right over Lot No. 557.
Given this situation, we direct that the records of the
case be transmitted to the Land Management
Bureau6 for further investigation and appropriate
action over Lot No. 557 of the Banilad Friar Estate
Lands.
Additionally, we direct that a copy of the records of
the case be transmitted to the Ombudsman, for
further investigation regarding how the fake TCTs
covering Lot No. 557 ended up in the Registry of
Deeds of Cebu City, and for the criminal and
administrative investigation of government officials
liable for them.
WHEREFORE, premises considered, the instant
Petition for Review on Certiorari is PARTIALLY
GRANTED. The Court of Appeals Decision in CA-G.R.
CV No. 63248 is MODIFIED, and the following titles
are declared null and void: (1) TCT No. 571 issued to
Mauricia Quilaton; (2) TCT No. 130517 issued to
Rodrigo Tugot; (3) TCT No. 130518 issued to
Purificacion Codilla; (4) TCT No. 130519 issued to
Teofra Sadaya; (5) TCT No. 130520 issued to Estrellita
Galeos; (5) TCT No. 130521 issued to Rodrigo Tugot;
and (6) TCT No. 143511 issued to Rosita Lopez.
The claim of the petitioners Filadelfa T. Lausa, Loreta
T. Torres, Primitivo Tugot and Anacleto T. ]Caduhay
for recognition of their ownership over Lot No. 557
is DENIED.
We DIRECT that a copy of the records of the case be
transmitted to the Land Management Bureau and the
Ombudsman for further investigation and appropriate
action.
SO ORDERED.chanrobles virtuallawlibrary
Carpio, (Chairperson), Del Castillo, Mendoza,
and Leonen, JJ., concur.ChanRoblesVirtualawlibrary
Endnotes:
1
TCT No. 130517 was issued in Rodrigo's name; TCT
No. 130518 in Purificacion's name; TCT No. 130519 in
Teofra's name; TCT No. 130520 in Estrellita's name;
and TCT No. 130521 in Rodrigo's name.
2
A criminal complaint for falsification of TCT No. 571
against the respondents Rodrigo, Purificacion, Teofra,
Estrellita and Mauricia. They also filed a criminal
complaint for three counts of perjury against Mauricia
for perjuring statements in her petition for issuance of
a new owner's duplicate of TCT No. 571.
3
G.R. No. 171982, August 18, 2010, 628 SCRA 404.
4
This Deed of Donation, whereby Sotero Codilla
donated Lot No. 558 to Encarnacion Codilla in 1934,
included Lot No. 557 as one of Lot No. 558's
boundaries.
5
In the sale of friar lands, upon execution of the
contract to sell, a certificate of sale is delivered to the
vendee and such act is considered as a conveyance of
ownership, subject only to the resolutory condition
that the sale may be rescinded if the agreed price shall
not be paid in full.
6
The Land Management Bureau is the government
agency responsible for administering, surveying,
managing, and disposing alienable and disposable
lands of the government.
G.R. No. 76564 May 25, 1990
SOUTH CITY HOMES, INC., petitioner,
vs.
REPUBLIC OF THE PHILIPPINES and COURT OF
APPEALS, respondents.
Jose S. Santos, Jr. for petitioner.

CRUZ, J.:
The subject of this dispute is a strip of land between
two lots owned by the petitioner. It has an area of 613
square meters and is situated in Calabuso, Biñan,
Laguna. It was discovered only in 1983 after a survey
conducted by the Bureau of Lands and is now
identified as Lot No. 5005 of the Binan
Estate.1 Registration thereof in the name of the
petitioner was decreed in 1984 by the trial court
pursuant to the Property Registration Law. 2 On
appeal, the order was reversed by a special division of
the respondent court, with two members
dissenting.3 The petitioner is now before us, claiming
that the reversal was erroneous.
The two lots bordering the subject property are Lot
No. 2381, containing an area of 36,672 square
meters, and Lot No. 2386- A, containing an area of
32,011 square meters. Both are now registered in the
name of the petitioner. The history of these lots is
described by the trial court as follows:
The record shows that Lot 2381 was purchased on
installment basis by Basilia Dimaranan, and Lot 2386
was acquired under similar condition by Fernando
Guico, both from the Friar Lands Division of the
Bureau of Lands (Exhs. "S" and "R") in the year 1910.
Eight (8) years thereafter, installment-payment for
Lot 2386 was completed in favor of Basilia Dimaranan.
On the other hand, Lot 2381 was on September 12,
1911 assigned to Bartolome Peña who continued and
completed the installment payments culminating into
the issuance in his name of Patent No. 19138 on
September 26,1919. From Bartolome Pena, Lot 2381
was acquired by Fidel M. Cabrera, Sr. and the title was
transferred to his name (Exh. "F") while Lot 2386 was
acquired by the Garcias (Exh. "J-2") On August
27,1981, Lot 2386-A was sold by the Garcias to the
applicant South City Homes, Inc. (Exh. "J"). Lot 2381
was on February 25,1977 sold by Fidel M. Cabrera, Sr.
to Koo Jun Eng (Exh. "G") who in turn assigned the
property to the applicant in February of 1981 (Exh.
"H"). 4
It is the position of the petitioner that Lot No. 5005
should be registered in its name for either of two
reasons. The first is that the disputed strip of land
really formed part of Lots 2381 and 2386-A but was
omitted therefrom only because of the inaccuracies of
the old system of cadastral surveys. The second is that
it had acquired the property by prescription through
uninterrupted possession thereof in concept of owner,
by itself and its predecessors-in-interest, for more
than forty years.
For its part, the Republic of the Philippines argues that
the elongated piece of land between the two lots now
owned by the petitioner used to be a canal which could
not have been appropriated by the purchasers of the
adjacent lots or their successors-in-interest. Neither
could it be deemed included in the lots now owned by
the petitioner because their respective technical
descriptions indicate otherwise. Prescription is also
not applicable because the petitioner has not
established the requisite possession of the lot, as to
manner and length, to justify judicial confirmation of
title in its name.
The parties also differ on the nature of the disputed
lot. The petitioner insists it is patrimonial property of
the State, being part of the so-called Friar Lands,
while the Republic maintains it is part of the public
domain and cannot therefore be acquired by a private
corporation. But this disagreement is irrelevant, as
will appear later.
The Court has considered the issues and the
arguments of the parties and finds that the petition
has no merit .
To argue that Lot No. 5005 is really a part of the other
two lots owned by the petitioner is to oppose the
obvious. What is obvious is the technical descriptions
of the two lots whose areas do not include the strip of
land between them. The petitioner points to the
original survey of the lands in 1906 which states that
the two lots adjoin each other, without mention of
what is now Lot No. 5005. But it forgets that it has
itself suggested that the old surveys were inaccurate,
which could explain the omission.
If it is true that there was no canal between the two
lots at the time of their survey, then the disputed strip
of land should have been included as part of either of
the two adjoining lots. It was not. The petitioner itself
insists that the canal, if there ever was one, had
disappeared after it had been filled with silt and dirt.
The result was the segregation of a third and separate
lot, now known as Lot No. 5005. Notably, the area of
that dried-up canal is not negligible as to come under
what the petitioner calls the allowable margin of error
in the original survey.
The Republic submits that the petitioner and its
predecessors-in-interest could not have appropriated
the strip of land because it used to be a canal over
which they could not have acquired any exclusive
right. The applicable law is Act No. 1120, otherwise
known as the Friar Lands Act, providing in its Section
19 as follows:
No purchaser or lessee under this Act shall acquire any
exclusive rights to any canal, ditch, reservoir, or other
irrigation works, or to any water supply upon which
such irrigation works are or may be dependent, but all
of such irrigation works and water supplies shall
remain under the exclusive control of the Government
of the Philippine Islands and be administered under
the direction of the Chief of the Bureau of Public Lands
for the common benefit of those interest dependent
upon them. And the Government reserves as a part of
the contract of sale in each instance the right to levy
an equitable contribution or tax for the maintenance
of such irrigation works, the assessment of which shall
be based upon the amount of benefits received, and
each purchaser under this Act, by accepting the
certificate of sale or deed herein provided to be given,
shall be held to assent thereto. And it is further
provided that all lands leased or conveyed under this
Act shall remain subject to the right of such irrigation
canals, ditches, and reservoirs as now exist or as the
Government may hereafter see fit to construct.
According to the respondent court, the fact that the of land that you
canal had been filled up did not change its nature as were working
a canal; it was still a canal although it had dried up. then, there is a
We do not think so. A canal without water is not a strip of land
canal. The status of a canal is not perpetual. included in the
Consequently, the above provision is not applicable area you were
and cannot defeat the petitioner's claim to the working which is
disputed property either as part of two other lots or as not included in
a separate lot. the title to the
two parcels of
riceland?
As we have already rejected the contention that the
third lot was part of the other two lots, the petitioner
must fall back on its claim of acquisitive prescription A Yes, sir, I came
over it as a separate lot. Its submission is that its to know that. As a
possession of the lot dates back to "time immemorial," matter of fact,
by which tired phrase it is intended to convey the idea when I became
that the start of such possession can no longer be tenant, my
recollected. Indeed, it can be. The petitioner's predecessor used
possession does not in fact go back to "time to tell me that
immemorial," but only to the recent remembered there is a strip in
past. between the two
parcels of riceland
which I was
The petitioner presented only two witnesses whose
working on. They
testimony regarding its supposed possession of Lot
even told me that
No. 5005 is essentially hearsay and inherently
the owners of the
inadequate. Thus, Rogelio Constantino, an employee
adjoining Lots
of the petitioner, declared on the stand:
2381 and 2386
were lucky
A. Yes sir, as a matter of fact we because there
were duly informed that since the was added to
beginning even from the time of their property a
their predecessors-in-interest, such strip of land which
strip of land was believed to be they produced
forming part of the two parcels of also rice but
land and since the beginning they which is not
have been cultivating the same and included in their
treating the said strip of land as title.
their own, publicly, notoriously and
in the concept of owner. 5
According to them, it happened this way that from
time immemorial, there was an irrigation canal
The other witness, Meliton Casunuran, was more constructed on this strip of land. After the cadastral
explicit but his testimony is largely hearsay also, let survey of the lots in Biñan, this canal gradually
alone the fact that the possession he sought to disappeared by the filing up of dirt and silt until such
establish is likewise insufficient. According to him, he time that no one could notice anymore a canal on this
worked as a tenant on the land for the previous strip of land, such that the same was taken possession
owners of the other two lots before these were of by both the owners of Lot 2381 and Lot 2386 and
acquired by the petitioner and that the subject had it planted with rice in the same way that the two
property was regarded as part of their lots by their parcels of riceland were planted at that time. And I
respective owners. Thus he declared: was likewise informed by my predecessor that I have
also to till the strip of land, the same having been
Q Now, since you considered as properly owned and forming part and
testified that you parcel of Lots 2381 and 2386 and owned by the
worked both on respective owners. 6
Lot 2381 and Lot
2386-A as tenant The underscored portions stress the unreliableness of
thereof, did you these declarations, which, in the case of Constantino,
as a tenant recall is also suspect as self-serving.
that you
cultivated these
The testimony falls short of establishing the manner
two particular
and length of possession required by law to vest
parcels of land in
prescriptive title in the petitioner to Lot No. 5005. For
its entirety?
one thing, as the Solicitor General points out in his
Comment, the claim of adverse ownership to the strip
A Yes, sir. of land between their respective lots was not exclusive
but shared by the predecessors-in-interest of the
Q Do you know petitioner. For another, and more importantly, the
that between length of possession claimed by the petitioner is not
these two parcels sufficient to vest prescriptive title in it.
Casunurans allegation that the claim of the (1) The present possessor may complete the period
petitioner's predecessors-in- interest to the disputed necessary for prescription by tacking his possession to
strip of land was "in the concept of owner, open, public that of his grantor or predecessor- in interest.
and adversely against the whole world" was fed to him
with a leading question during the ex parte hearing,
However, tacking of possession is allowed only when
thus:
there is a privity of contract or relationship between
the previous and present possessors. In the absence
MENDOZA of such privity, the possession of the new occupant
should be counted only from the time it actually began
and cannot be lengthened by connecting it with the
Q So you mean to convey to this
possession of the former possessors. Thus it has been
Honorable Court that from the time
held:
of your predecessor up to your time
as tenant, the owners of Lots 2381
and 2386-A have been in A deed, in itself, creates no privity as to land outside
possession of this strip of land its calls. Nor is privity created by the bare taking of
containing an area of 613 square possession of land previously occupied by the grantor.
meters more or less in the concept It is therefore the rule, although sharply limited,
of owner, open, public and that a deed does not of itself create privity between
adversely against the whole world? the grantor and the grantee as to land not described
in the deed but occupied by the grantor in connection
therewith, although the grantee enters into
A Yes, sir.7
possession of the land not described and uses it in
connection with that conveyed. 9
The witness was a farmer and could hardly be
expected to understand the legal significance of the
Where a grantor conveys a specific piece of property,
question, to which he could have give only the short
the grantee may not tack onto the period of his
and simple answer "Yes." He did not and was not
holding of an additional piece of property the period of
asked to elaborate. The statement was also not
his grantor's occupancy thereof to make up the
corroborated by other witnesses or supported by
statutory period. His grantor has not conveyed such
documents showing that, indeed, the former owners
property or his interest therein, and there is no
of the two lots also asserted claims of ownership over
privity. 10
the land in question. In fact, the only other evidence
of such claim is the tax declaration on the said lot,
which was made only in 1980. 8 It is said, in Hanlon v. Ten Hove supra, that this rule
is not harsh, the court using the following language:
"If A purchases and by adverse possession obtains
But the more telling consideration, as the Court sees
title to an adjoining 40 acres, it would hardly be
it, is this. By the testimony of the two witnesses, the
contended that a conveyance by him of the 40
petitioner obviously meant to tack the possession of
acquired by deed would carry with it title to the 40
the two lots by the previous owners to its own
acquired by adverse possession. So if A acquires by
possession. There was no need for this because the
deed a 40 acres and obtains an adjoining strip 2 rods
petitioner acquired ownership of Lot No. 2381 by
wide or some interest in it, his conveyance of the 40
assignment and Lot No. 2386-A by purchase; and
acquired by deed does not carry with it his interest in
such ownership includes the right of possession. The
the adjoining strip. If the sole defense here was that
petitioner is not claiming prescriptive rights to these
of adverse possession, we would be obliged to hold
two lots, which had previously been registered in the
that it had not been made out.11
name of the transferors The lot it is claiming by
prescription is Lot No. 5005, which it did not acquire
from the owner of the other two lots, or from any It should also be noted that, according to Article 1135
previous private registered owner of the lot, as there of the Civil Code:
was none.
In case the adverse claimant possesses by mistake an
Neither of the owners of Lots Nos. 2381 or 2386-A, in area greater, or less, than that expressed in his title,
their respective deeds, transferred Lot No. 5005 to the prescription shall be based on the possession.
petitioner; as already explained, Lot No. 5005 was not
part of either of the two lots. The petitioner merely
This possession, following the above quoted rulings,
occupied the disputed strip of land believing it to be
should be limited only to that of the successor-in-
included in the two lots it had acquired from Koo Jun
interest; and in the case of the herein petitioner, it
Eng and the Garcia spouses. However, even if it be
should begin from 1981 when it acquired the two
conceded that the previous owners of the other two
adjacent lots and occupied as well the lot in question
lots possessed the disputed lot, their possession
thinking it to be part of the other two.
cannot be tacked to the possession of the
petitioner. The simple reason is that the possession of
the said lot was not and could not have been It follows that when the application for registration of
transferred to the petitioner when it acquired Lots the lot in the name of the petitioner was filed in 1983,
Nos. 2381 and 2386-A because these two lots did not the applicant had been in possession of the property
include the third lot. Article 1138 of the Civil Code for less than three years. This was far too short of the
provides that — prescriptive period required for acquisition of
immovable property, which is ten years if the
possession is in good faith and thirty years if in bad
faith, or if the land is public.
The weakness of the petitioner's position prevents this
Court from affirming the claim to the lot in question
either as part of the two other lots or by virtue of
acquisitive prescription. And having made this ruling,
we find it unnecessary to determine whether the land
is patrimonial in nature or part of the public domain.
The case of Director of Lands v. Intermediate
Appellate Court, 12 on which the petitioner relied so
strongly (to the point of simply invoking it in a
supplemental petition instead of filing its
memorandum), is not applicable. That decision, which
reversed the case of Manila Electric Co. v. Castro-
Bartolome, 13 involved a situation where the public
land automatically became private as a result of
prescription clearly and indubitably established by the
claimant. In the case at bar, the petitioner's claim is
rejected not because it is a private corporation barred
from acquiring public land but because it has failed to
establish its title to the disputed lot, whatever its
nature.
WHEREFORE, the petition is DENIED, with costs
against the petitioner.
SO ORDERED.
G.R. No. 194516, June 17, 2015
BALDOMERA FOCULAN-
FUDALAN, Petitioner, v. SPOUSES DANILO OCIAL
AND DAVIDICA BONGCARAS-OCIAL, EVAGRIA F.
BAGCAT, CRISTINA G. DOLLISEN, EULALIA F.
VILLACORA, TEOFREDO FUDERANAN, JAIME
FUDERANAN, MARIANO FUDERANAN,
FILADELFO FUDERANAN, MUSTIOLA F.
MONTEJO, CORAZON LOGMAO, DIONESIO
FUDERANAN, EUTIQUIA FUDERANAN, ASTERIA
FUDERANAN, ANTONIO FUDERANAN, ROMEO
FUDERANAN, FLORENTINO FUDERANAN,
DOMECIANO FUDERANAN, ERLINDA
SOMONTAN, FELICIANA FUDERANAN,
BONIFACIO FUDERANAN, QUIRINO
FUDERANAN, MA. ASUNCION FUDERANAN,
MARCELINA ARBUTANTE, SALOME GUTUAL,
LEONARDO LUCILLA, IMELDA L. ESTOQUE,
CIRILA OLANDRIA, TITA G. BONGAY AND
MUNICIPAL ASSESSOR OF PANGLAO,
BOHOL, Respondents.
DECISION
MENDOZA, J.:
Before this Court is a petition for review under Rule 45
of the Rules of Court assailing the November 5, 2009
Resolution1 of the Court of Appeals (CA), in CA-G.R.
CEB-CV No. 01733, which granted the respondents'
"Urgent Motion to Dismiss Appeal,"2 dated September
23, 2009, on the ground that petitioner Baldomera
Foculan-Fudalan (Baldomera) failed to file her
appellant's brief within the non-extendible period of
forty-five (45) days; and the October 26, 2010
Resolution3 which denied her "Omnibus Motion for
Reconsideration of the Resolution dated November 5,
2009, with Leave of Court to Admit Appellant's Brief
for the Intervenor-Third Party
Plaintiff."4chanrobleslaw
The Antecedents
The present controversy began when the spouses
Danilo Ocial and Davidica Bongcaras-Ocial (Spouses
Ocial), represented by their Attorney-in-Fact,
Marcelino Bongcaras, filed an action for the
declaration of validity of partition and sale, recovery
of ownership and possession and damages against
Flavio Fudalan (Flavio) and Cristobal Fudalan
(Cristobal) before the Regional Trial Court, Branch 3,
Tagbilaran City (RTC), docketed as Civil Case No.
6672.
Later, Baldomera, the wife of Flavio and mother of
Cristobal, intervened as 3rd party plaintiff against
third-party defendants, Heirs of Pedro and Ulpiano
Fuderanan (the Fuderanans), the predecessors-in-
interest of Spouses Ocial.
The subject of the said action was a parcel of land
designated as Cad. Lot No. 56-A located at Tangnan,
Panglao, Bohol, which was a portion of Lot No. 56, Cad
705-D, Panglao Cadastre, in the name of Juana
Fuderanan (Juana).
Spouses Ocial alleged in their complaint5 that on
March 13, 2001, the heirs of Juana executed the
Extrajudicial Settlement Among Heirs with
Simultaneous Deed of Absolute Sale over Lot 56-A
including two (2) fruit bearing mango trees in their
favor as lawful vendees; that as the new owners of
the subject land, they caused the planting of thirty
(30) gemelina seedlings, twenty (20) mahogany
seedlings, and two (2) mango seedlings, and in
October 2001, they claimed the landowner's share of
the mango produce from Maximo Bolongaita who had
been taking care of the two (2) fruit-bearing mango
trees; that in October 2001, they caused the
placement of a "no-trespassing" sign on one of the
mango trees; that they also caused the processing of
the Deed of Extrajudicial Settlement Among Heirs with
Simultaneous Sale for the cancellation of Tax
Declaration No. 93-009-00247 and the issuance of a
new tax declaration in their favor; that in June 2001,
the Fudalans, without any lawful right or
authorization, surreptitiously planted "ubi" on a
portion of Lot No. 56-A and they also claimed the
landowner's share of the mango produce from Maximo
Bolongaita who refused to give the same and instead
deposited the amount in a bank in Tagbilaran City;
that in November 2001, the Fudalans illegally placed
two "no-trespassing" signs inside the questioned
property; that for this reason, they complained to the
barangay captain of Tangnan, Panglao, Bohol, who
conducted conciliation proceedings on November 14
and 29, 2001; that no settlement was reached
between the parties; that the Office of the Lupong
Tagapamayapa later on issued the Certification to File
Action; and that they learned that on December 14
and 15, 2001, while the Lupong Tagapamayapa had
not yet issued the required Certification to File Action,
the Fudalans unjustifiably caused the installation of a
fence consisting of barbed wires with cemented posts
around Lot No. 56-A, without the necessary permit
from the barangay captain of Tangnan and the
municipal officials of Panglao, Bohol.6chanrobleslaw
 After a perusal of the evidence, the Court
The Fudalans, on the other hand, claimed that they acknowledges the right of third party defendants Heirs
were the rightful owners of the subject land having of Pedro and Ulpiano Fuderanan to sell the land in
purchased the same from the Fuderanans on question to plaintiffs Ocial spouses and upholds the
November 4, 1983; that the sale was evidenced by a validity of the sale. The claim of intervenor Baldomera
private document printed in a blue paper; that as Fucolan-Fudalan that the land was purchased by her
owners, they planted "ubi," posted two "no- parents from Juana Fuderanan in 1935 is not only
trespassing" signs and installed a barb wire fence doubtful being oral but more than that, it is
around the land; that since their purchase, they had unenforceable under the Statute of Frauds as provided
been in possession of the land in the concept of in Art. 1403 (e) of the Civil Code, as
owners and had been paying the real property taxes follows:chanRoblesvirtualLawlibrary
religiously; and that it was for this reason that they "Art. 1403. The following contracts are unenforceable,
insisted that if there was any deed of extrajudicial unless they are ratified:ChanRoblesVirtualawlibrary
settlement of estate and simultaneous sale of the land
by the Fuderanans, the same was null and void for xxxx
being without legal basis.7chanrobleslaw
(e) An agreement for the leasing for a longer period
On May 6, 2002, Baldomera filed, with leave of court, than one year, or for the sale of real property or of an
an Answer in Intervention with Third-Party interest therein;
Complaint against the Fuderanans for specific
No efforts were exerted by the intervenor and her
performance, quieting of title and nullification of the
predecessor parents for the ratification of the sale
deed of extra-judicial settlement with simultaneous
despite the lapse of considerable time so that their
sale in favor of Spouses Ocial. She alleged therein
failure and neglect to do it amounts to laches and
that, although still declared in the name of the late
equitable estoppel on their part to lay claim of
Juana Fuderanan, the property was absolutely owned
ownership of the land. Furthermore, upon a perusal of
by her parents, the late Spouses Eusebio Fucolan and
the tax declarations of the land from 1940 to 1985 the
Catalina Bolias,8 who acquired the property in 1935
administrators mentioned therein were Modesta
and thereafter took actual possession of the land. She
Bongcaras, Ulpiano Fuderanan and Leoncia Estoreras,
averred that the possession was continuous, peaceful,
who took turn in its administration. There was no
open, public, adverse, and in the concept of an owner
mention of the predecessor parents of Baldomera as
which was never disturbed by any person until
one of the administrators which would only fairly
Spouses Ocial, through their Attorney-in-Fact,
suggest that they were never in possession of the
informed the Fudalans and Baldomera that they had
land. It was only in 1994 when Flavio Fudalan
already bought the land from the
came to be named as its administrator per TD-
Fuderanans.9chanrobleslaw
93-009-00247 evidently after the execution of
the blue paper receipt of P1,000.00 by Teofredo
Baldomera also claimed that sometime in 1983, two
and Teofista Fuderanan in their favor. And it was
of the Fuderanans, Teofredo and Eutiquia, approached
also only then that the Fudalans started paying
her and her husband. They represented themselves as
taxes thereto, as shown by the numerous
the duly authorized representatives of their coheirs
receipts submitted. Thus, the parents of
and agreed to settle their claims over the subject lot
Baldomera could not have paid taxes to the land
in their favor for the amount of P1,000.00. This
before that period for being not in actual
agreement was evidenced by a memorandum, dated
possession of the land contrary to their claim. It
November 4, 1983.10chanrobleslaw
could be for this reason that defendants and
intervenor agreed to buy the land from the heirs
Baldomera further claimed that in the year 2000, a
of Pedro and Ulpiano Fuderanan to whom the
certain Salome Getual, supposedly another heir of
land was adjudicated which act was tantamount
Juana, told her that all the heirs of Juana were
to an abandonment of their claim.
claiming their rights of inheritance over the land but
were willing to enter into a settlement if the price
xxx Besides, it is to be noted from the testimony of
would be acceptable. Unfortunately, no agreement
Baldomera Fucolan-Fudalan in her direct examination
was reached which prompted Spouses Ocial to file an
on July 13, 2005 when she acknowledged that the
action before the barangay chairman of the place
amount of P1,000.00 as mentioned in the blue paper
where the property was situated. A mediation
receipt was not actually a payment of the land but was
proceeding was conducted between the parties where
given to Toribio and Juana Fuderanan as a
an amicable settlement was reached. Baldomera
consideration for them to prepare the deed of sale for
agreed to pay the Fuderanans the amount of
the land in their favor but to which the latter did not
P50,000.00 as purchase price of the lot. The latter,
comply. Instead, they filed a complaint along with the
however, did not comply with their obligation in the
other heirs before the barangay captain of Tangnan,
agreed settlement. Instead, they sold the land to
Panglao, Bohol for the repossession and partition of
Spouses Ocial for P20,000.00.11chanrobleslaw
the property among the heirs. This admission of
Baldomera Fucolan-Fudalan is credible for the amount
The RTC Decision
of P1,000.00 is grossly inadequate to be a
consideration for the sale of the whole lot of 7,334 sq.
On August 22, 2006, the RTC rendered a
m. or even for the combined shares of Teofredo and
Decision,12 confirming the validity of the extrajudicial
Teofista of their common property of 1,018 sq. m.
settlement with simultaneous sale, thus, recognizing
Furthermore, the alleged agreement was not signed
the right of the third-party defendants, the
by the parties as required by the Local Government
Fuderanans, to sell the land in question to the Spouses
Code for its validity and no time or period was set for
Ocial. The trial court explained its conclusion in this
its compliance, thus, leaving it to the Fudalans the
wise:chanRoblesvirtualLawlibrary
choice as to when they would pay the purchase price
of the land which is against the provision of Art. 1308
of the Civil Code on the qualifications of a valid
contract.
On the alleged promise of the heirs of Pedro and
Ulpiano Fuderanan to sell the property to defendants
Fudalan for P50,000.00 as shown in the minutes of the
mediation proceedings before the barangay captain of
Tangnan, Panglao, Bohol of which they did not
comply, there is no evidence of tender of payment
made by the defendants. In fact, in the testimony of
Maria Salome Gutual in the witness stand during her
cross-examination on March 10, 2003 which was not
refuted by defendants, the Fudalans did not allegedly
comply with their promise to buy the land, and
instead, they even signified refusal to pay it claiming
that they had already bought it from Teofredo and
Teofista Fuderanan so that the heirs of Pedro and
Ulpiano Fuderanan were forced to sell the land to
herein plaintiffs Ocial spouses. Their act of selling the
land to the plaintiffs was therefore justified as it was
the defendants who first reneged from their
agreement. Moreover, as there was no tender of
payment or earnest money given by defendants as a
consideration therefor, no contract to sell was
perfected that would bind the parties to it (Art. 1479,
par. 2, Civil Code) nor is there any basis for an action
of specific performance which defendants only
initiated lately upon the filing of the third-party
complaint.13chanrobleslaw
[Emphasis Supplied]
Consequently, the Fudalans and Baldomera were
ordered to vacate the subject land. Thus, the decretal
portion of the decision
reads:chanRoblesvirtualLawlibrary
WHEREFORE, in view of all the foregoing, the Court
hereby confirms the Deed of Extra-Judicial Settlement
with Simultaneous Sale executed by the Heirs of Pedro
Fuderanan and Ulpiano Fuderanan of Lot 56-A to
herein plaintiffs Danilo Ocial and Davidica Bongcaras-
Ocial as one valid and enforceable. Consequently,
herein defendants Flavio Fudalan, Cristobal Fudalan
and Intervenor Baldomera Fucolan-Fudalan are
hereby ordered to vacate from the premises of Lot 56-
A CAD 705-D of Panglao Cadastre which is located at
barangay Tangnan, Panglao, Bohol having an area of
6,316 sq. m. Furthermore, defendants and intervenor
are hereby ordered to pay jointly and severally
reasonable attorney's fee in the amount of P30,000.00
and the costs of the proceedings which shall earn legal
interest from the filing of the complaint until the same
shall have been fully paid. The landowner shares of
the fruits of the two mango trees which are deposited
in the bank are hereby adjudicated to plaintiffs if the
same are found to be within Lot 56-A.
SO ORDERED.14
Not in conformity, the Fudalans and Baldomera filed
their respective notices of appeal with the trial court.
The CA Decision
On March 18, 2009, upon receipt of the records, the
CA issued a Resolution,15 requiring the Fudalans and
Baldomera, as well as Spouses Ocial; and Evagra F.
Bagcat, as third-party defendants, to file their
respective briefs within the non-extendible period of
forty-five (45) days.
In their Urgent Motion to Dismiss Appeal, dated
September 23, 2009, Spouses Ocial prayed for the
dismissal of the appeal for failure of the appellants to
file the required appellants' brief within the prescribed
non-extendible period of 45 days.
Acting thereon, the CA granted the motion and
dismissed the appeal in its November 5, 2009
Resolution, which in its entirety
reads:chanRoblesvirtualLawlibrary
Finding merit in appellee's Urgent Motion to Dismiss
Appeal dated September 23, 2009, citing as ground
therein appellants' failure to file their respective
appeal briefs within the non-extendible period
required under Resolution, dated March 18, 2009, the
court resolves to grant the same. Accordingly, the
case is considered closed and terminated.
SO ORDERED.16
Baldomera filed her Omnibus Motion for
Reconsideration of the Resolution dated November 5,
2009 with Leave of Court to Admit Appellant's Brief for
the Intervenor-Third Party Plaintiff. On October 26,
2010, however, the CA issued another resolution
denying her motion, to
wit:chanRoblesvirtualLawlibrary
WHEREFORE, the Omnibus Motion for
Reconsideration of the Resolution dated November 5,
2009 with Leave of Court to Admit Appellant's Brief for
the Intervenor-Third Party Plaintiff is DENIED.
SO ORDERED.17
According to the CA, "[b]laming the failure to file the
required brief on counsel's heavy workload, on the
mistake or ignorance of his client, and excusable
neglect on his part is not acceptable."18 What
happened was simply the negligence of the counsel in
the monitoring of notices and resolutions from the
courts. The attendant circumstances did not make a
case of gross negligence that would fall under the
exception to the rule that the inadvertence of counsel
could be considered as an adequate excuse to call for
the court's leniency. The CA further stated that "the
delay in the filing of the brief, 206 days after the last
day to file the same which is May 22, 2009, is
unreasonably long."19chanrobleslaw
Hence, this petition.
Petitioner Baldomera states, among others, that the
main reason for the late filing of the appellant's brief
was both her mistake and simple negligence and that
of her counsel; and that the CA should have been
lenient in the application of technical rules in resolving
the appeal considering their peculiar situation.
Spouses Ocial, on the other hand, counter that the CA
was correct in denying the omnibus motion for
reconsideration because the records were bereft of
any factual justification for Baldomera's failure to file
the required appellant's brief. Furthermore, even
granting arguendo, that the CA gravely abused its
discretion in promulgating the November 5, 2009 and
October 26, 2010 Resolutions, still the subject petition
must be dismissed because abuse of discretion is not
among the allowable grounds for a petition for review
under Rule 45 to prosper.
The Court's Ruling

The Court finds the petitioner's contention wanting in
merit.
There was inexcusable negligence where a brief was
filed 206 days late
It appears from the record that the counsel for
Baldomera received a copy of the March 18, 2009 CA
Resolution on April 7, 2009, thus, giving him until May
22, 2009 to file the appellant's brief; that he did not
file any motion for extension of the period to file the
brief; that he did not file either a comment or
opposition to the Urgent Motion to Dismiss Appeal,
filed by Spouses Ocial on September 24, 2009, a copy
of which he was furnished by mail; and that he filed
the brief for his client only at the time he filed the
omnibus motion for reconsideration on December 14,
2009, or 206 days late.20chanrobleslaw
In this regard, Section 1 (e), Rule 50 of the Rules of
Court succinctly provides
that:chanRoblesvirtualLawlibrary
Section l. Grounds for dismissal of appeal. - An appeal
may be dismissed by the Court of Appeals, on its own
motion or on that of the appellee, on the following
grounds:ChanRoblesVirtualawlibrary
x x x x
(e) Failure of the appellant to serve and file the
required number of copies of his brief or memorandum
within the time provided by these Rules; x x x
Baldomera posits that it was erroneous for the CA to
dismiss her appeal on the ground that she failed to file
her appellant's brief on time. She cited the case
of Sebastian v. Morales21 where it was written that
liberal construction of the rules is the controlling
principle to effect substantial justice.
Nevertheless, the Court in the same case made
qualifications with respect to the application of the
said principle. It was held therein,
Litigation is not a game of technicalities, but every
case must be prosecuted in accordance with the
prescribed procedure so that issues may be properly
presented and justly resolved. Hence, rules of
procedure must be faithfully followed except only
when for persuasive reasons, they may be
relaxed to relieve a litigant of an injustice not
commensurate with his failure to comply with
the prescribed procedure. Concomitant to a liberal
application of the rules of procedure should be an
effort on the part of the party invoking liberality
to explain his failure to abide by the
rules.22chanrobleslaw
[Emphases and Underscoring Supplied]
In other words, procedural rules are not to be belittled
or dismissed simply because their non-observance
may have resulted in prejudice to a party's
substantive rights. Like all rules, they are required to
be followed except only for the most persuasive of
reasons when they may be relaxed to relieve a litigant
of an injustice not commensurate with the degree of
his thoughtlessness in not complying with the
procedure prescribed.23 Besides, as the oft quoted
quip would put it, the bare invocation of "in the
interest of substantial justice" is not a magic wand
that will automatically compel this Court to suspend
procedural rules.24chanrobleslaw
Although the authority of the CA to dismiss an appeal
for failure to file the appellant's brief is a matter of
judicial discretion, a dismissal based on this ground is
neither mandatory nor ministerial; the fundamentals
of justice and fairness must be observed, bearing in
mind the background and web of circumstances
surrounding the case.25chanrobleslaw
Petitioner's assertion that her counsel is partly to be
blamed for her legal predicament is not persuasive.
Indeed, there have been myriad of instances when the
Court has relaxed the rule on the binding effect of
counsel's negligence and allowed a litigant another
chance to present his case, to wit: (1) where the
reckless or gross negligence of counsel deprives the
client of due process of law; (2) when application of
the rule will result in outright deprivation of the client's
liberty or property; or (3) where the interests of
justice so require. Unfortunately, none of these
exceptions obtain here.26chanrobleslaw
For a claim of counsel's gross negligence to prosper,
nothing short of clear abandonment of the client's
cause must be shown. Here, petitioner's counsel failed
to file the appellant's brief. While this omission can
plausibly qualify as simple negligence, it does not
amount to gross negligence to justify the annulment
of the proceeding.27chanrobleslaw
Baldomera herself should have exerted some efforts
to inquire as to the status of her appeal. She should
not have been complacent. "While this Court has
recognized that a non-lawyer litigant is not expected
to be familiar with the intricacies of the legal
procedures, a layman nonetheless must not be
allowed to conveniently profit from his improvident
mistakes. Thus, it has been equally stressed that
litigants represented by counsel should not expect
that all they need to do is sit back, relax and await the
outcome of the case; instead, they should give the
necessary assistance to their counsel for what is at
stake is ultimately their interest."28chanrobleslaw
Even on the merits, the petition must fail
Even on the merits, the petitioner's quest must fail.
In essence, Baldomera claims that because they have
been in adverse possession for the requisite period,
their possession has now ripened into ownership
through acquisitive prescription.
Baldomera's argument fails to convince the Court.
Prescription, as a mode of acquiring ownership and
other real rights over immovable property, is
concerned with lapse of time in the manner and under
conditions laid down by law, namely, that the
possession should be in the concept of an owner,
public, peaceful, uninterrupted, and adverse.
Acquisitive prescription of real rights may be ordinary
or extraordinary. Ordinary acquisitive prescription
requires possession in good faith and with just title for
10 years.29 When the Court speaks of possession in
"good faith," it consists in the reasonable belief that
the person from whom the thing is received has been
the owner thereof, and can transmit his ownership.
There is "just title," on the other hand, when the
adverse claimant comes into possession of the
property through one of the modes recognized by law intervenor agreed to buy the land from the heirs of
for the acquisition of ownership or other real rights, Pedro and Ulpiano Fuderanan to whom the land was
but the grantor is not the owner or cannot transmit adjudicated which act was tantamount to an
any right.30chanrobleslaw abandonment of their claim.35
Taking cue from the foregoing, Baldomera's alleged
In the present controversy, aside from Baldomera's
possession could not have amounted to an ownership
bare allegation that her family had been in possession
by way of extraordinary acquisitive prescription.
of the subject property since it was sold to her
According to the factual findings of the trial court, it
parents, no other evidence, documentary or
was only in 1994 that her husband, Flavio was named
otherwise, showing that the title to the subject
administrator; that it was also then that they started
property was indeed transferred from Juana to her
paying taxes; and that it was also then that they
parents was presented. In fact, she never denied that
started occupying the subject property. This
the tax declaration of the property was still in the
observation of the trial court was contrary to her
name of Juana Fuderanan. As such, for lack of "just
assertion that they had been paying taxes and had
title," she could not have acquired the disputed
been in possession of the land even before the said
property by ordinary prescription through possession
period. On this note, the thirty-year period would only
often (10) years. Occupation or use alone, no matter
be completed in the year 2024. Also, the records
how long, cannot confer title by prescription or
would reveal that as early as November 2001, her
adverse possession unless coupled with the element
possession was effectively interrupted when Spouses
of hostility towards the true owner, that is, possession
Ocial filed a complaint before the barangay captain of
under the claim of title.31chanrobleslaw
Tangnan, Panglao, Bohol, where conciliation
proceedings were held although no settlement was
Even the allegation that sometime on November 4,
reached.36chanrobleslaw
1983, a blue paper was executed wherein Teofredo
and Eutiquia, allegedly the duly authorized
Finally, Baldomera also assails the jurisdiction of the
representatives of the heirs of Juana to settle their
RTC over the case. According to her, since the action
claims over the land, acknowledged to have received
involves ownership and possession of real property,
the sum of P1,000.00,32 cannot be considered a valid
jurisdiction is determined by the assessed value of the
basis for a possession in good faith and just title. The
property in contention. Considering that the assessed
alleged agreement which is, at best, a compromise
value of Lot 56-A was only P1,930.00 as indicated in
agreement cannot be made as the foundation of a
Tax Declaration No. 93-009-00247, it should have
conclusion that Baldomera is a possessor in good faith
been the first level court, and not the RTC, which
and with just title who acquired the property through
should have exercised jurisdiction to hear actions
ordinary acquisitive prescription. By the nature of a
involving title to, or possession of real property or any
compromise agreement, which brings the parties to
interest in it, as provided in Sections 19 and 33
agree to something that neither of them may actually
of Batas Pambansa (B.P.) 129, as
want, but for the peace it will bring them without a
amended.37chanrobleslaw
protracted litigation, no right can arise therefrom
because the parties executed the same only to buy
This argument cannot be sustained.
peace and to write finis to the controversy. It did not
create or transmit ownership rights over the subject
Even if the Court would treat the complaint filed by
property.33chanrobleslaw
Spouses Ocial as falling under the jurisdiction of the
first level court under Sec. 33 of B.P. 129, as the
That being settled, the next question now is: Can
assessed value was way below the P20,000.00
Baldomera acquire the property through extraordinary
threshold, still Baldomera's postulation that it is the
acquisitive prescription?
first level court, and not the RTC, which has
jurisdiction, would not hold water. As observed,
The Court is still constrained to rule in the negative.
Baldomera had voluntarily participated in the
proceedings before the RTC and aggressively
In extraordinary prescription, ownership and other
defended her position. Although she questioned the
real rights over immovable property are acquired
jurisdiction of the trial court as early as in the trial
through uninterrupted adverse possession for 30
level, she actively participated in the proceeding when
years even without need of title or of good
she filed an ANSWER IN INTERVENTION WITH THIRD-
faith.34chanrobleslaw
PARTY COMPLAINT38 where she interposed
counterclaims, and asked for affirmative reliefs.
As observed by the trial court,
Simply put, considering the extent of her participation
There was no mention of the predecessor parents of
in the case, she is estopped from invoking lack of
Baldomera as one of the administrators which would
jurisdiction as a ground for the dismissal of the
only fairly suggest that they were never in possession
action.39chanrobleslaw
of the land. It was only in 1994 when Flavio
Fudalan came to be named as its administrator
WHEREFORE, the petition is DENIED. The assailed
per TD-93-009-00247 evidently after the
November 5, 2009 and October 26, 2010 Resolutions
execution of the blue paper receipt of P1,000.00
of the Court of Appeals in CA-G.R. CV No. 01733
by Teofredo and Teofista Fuderanan in their
are AFFIRMED.
favor. And it was only then that the Fudalans
started paying taxes thereto, as shown by the
SO ORDERED.cralawlawlibrary
numerous receipts submitted. Thus, the parents
of Baldomera could not have paid taxes to the
Carpio, (Chairperson), Brion, Del Castillo,
land before that period for being not in actual
and Jardeleza,*JJ., concur.
possession of the land contrary to their claim. It
could be for this reason that defendants and
G.R. No. 201405, August 24, 2015
LIWAYWAY ANDRES, RONNIE ANDRES, AND
PABLO B. FRANCISCO, Petitioners, v. STA. LUCIA
REALTY & DEVELOPMENT,
INCORPORATED, Respondent.
DECISION
DEL CASTILLO, J.:
Not all may demand for an easement of right-of-way.
Under the law, an easement of right-of-way may only
be demanded by the owner of an immovable property
or by any person who by virtue of a real right may
cultivate or use the same.
This Petition for Review on Certiorari assails the
November 17, 2011 Decision1 of the Court of Appeals
in CA-G.R. CV No. 87715, which reversed and set
aside the May 22, 2006 Decision2 of the Regional Trial
Court (RTC), Binangonan, Rizal, Branch 68 granting
petitioners Pablo B. Francisco (Pablo), Liwayway
Andres (Liwayway), Ronnie Andres (Ronnie) and their
co-plaintiff Liza Andres (Liza) a 50-square meter right-
of-way within the subdivision of respondent Sta. Lucia
Realty and Development, Incorporated (respondent).
Likewise assailed is the March 27, 2012 CA
Resolution3 which denied petitioners and Liza's Motion
for Reconsideration thereto.
Factual Antecedents
Petitioners and Liza filed a Complaint4 for Easement of
Right-of-Way against respondent before the RTC on
November 28,2000. They alleged that they are co-
owners and possessors for more than 50 years of
three parcels of unregistered agricultural land in Pag-
asa, Binangonan, Rizal with a total area of more or
less 10,500 square meters (subject property). A few
years back, however, respondent acquired the lands
surrounding the subject property, developed the same
into a residential subdivision known as the
Binangonan Metropolis East, and built a concrete
perimeter fence around it such that petitioners and
Liza were denied access from subject property to the
nearest public road and vice versa. They thus prayed
for a right-of-way within Binangonan Metropolis East
in order for them to have access to Col. Guido Street,
a public road.
In its Answer,5 respondent denied knowledge of any
property adjoining its subdivision owned by
petitioners and Liza. At any rate, it pointed out that
petitioners and Liza failed to sufficiently allege in their
complaint the existence of the requisites for the grant
of an easement of right-of-way.
During trial, Pablo testified that he bought a 4,000-
square meter-portion of the subject property from
Carlos Andres (Carlos), the husband of Liwayway and
father of Ronnie and Liza.6 According to Pablo, he and
his co-plaintiffs are still in possession of the subject
property as evidenced by an April 13, 1998
Certification7 issued by the Barangay Chairman of
Pag-asa.8 Further, Pablo clarified that the easement of
right-of-way that they are asking from respondent
would traverse the latter's subdivision for about 50
meters from the subject property all the way to
another subdivision that he co-owns, Victoria Village,
which in turn, leads to Col. Guido Street.9 He claimed
that the prevailing market value of lands in the area
is about P600.00 per square meter. Pablo also
explained that the subject property is still not
registered under the Land Registration Act since no
tax declaration over the same has been issued to them
despite application with the Municipal Assessor of
Binangonan.10 When required by the court to submit
documents regarding the said application,11 Pablo
attached in his Compliance,12 among others, Carlos'
letter13 of Maty 18, 1998 to the Municipal Assessor of
Binangonan requesting for the issuance of a tax
declaration and the reply thereto dated August 5,
199814 of the Provincial Assessor of Rizal. In the
aforesaid reply, the Provincial Assessor denied the
request on the ground that the subject property was
already declared for taxation purposes under the
name of Juan Diaz and later, in the name of
Juanito15Blanco, et al. (the Blancos).
Liwayway testified next. According to her, she and her
children Ronnie and Liza are the surviving heirs of the
late Carlos who owned the subject property.16 Carlos
acquired ownership over the same after he had been
in continuous, public and peaceful possession thereof
for 50 years,17 the circumstances of which he narrated
in a Sinumpaang Salaysay18 that he executed while he
was still alive. Carlos stated therein that even before
he was born in 1939, his father was already in
possession and working on the subject property; that
in 1948, he started to help his father in tilling the land;
that when his father became weak and eventually
died, he took over the land; and, that he already
sought to register his ownership of the property with
the Department of Environment and Natural
Resources (DENR) and to declare the same for
taxation purposes.
For its part, respondent presented as a lone witness
the then Municipal Assessor of Binangonan, Virgilio
Flordeliza (Flordeliza). Flordeliza confirmed that
Carlos wrote him a letter-request for the issuance of
a tax declaration.19 He, however, referred the matter
to the Provincial Assessor of Rizal since the property
for which the tax declaration was being applied for was
already declared for taxation purposes in the name of
one Juan Diaz.20 Later, the tax declaration of Juan
Diaz was cancelled and in lieu thereof, a tax
declaration in the name of the Blancos was
issued.21 For this reason, the Provincial Assessor of
Rizal denied Carlos' application for issuance of tax
declaration.22cralawrednad
Ruling of the Regional Trial Court
The RTC rendered its Decision23 on May 22, 2006. It
observed that petitioners and Liza's allegation in their
Complaint that they were in possession of the subject
property for more than 50 years was not denied by
respondent in its Answer. Thus, the same is deemed
to have been impliedly admitted by the latter. It then
ratiocinated that based on Article 113724 of the Civil
Code, petitioners and Liza are considered owners of
the subject property through extraordinary
prescription. Having real right over the same,
therefore, they are entitled to demand an easement
of right-of-way under Article 64925cralawred of the
Civil Code.
The RTC further held that Pablo's testimony
sufficiently established: (1) that the subject property
was surrounded by respondent's property; (2) the
area and location of the right-of-way sought; (3) the
value of the land on which the right-of-way is to be
constituted which was P600.00 per square meter; and
(4) petitioners and Liza's possession of the subject
property up to the present time.
In the ultimate, said court concluded that petitioners
and Liza are entitled to an easement of right-of-way,
thus:cralawlawlibrary
WHEREFORE, judgment is hereby rendered giving the
plaintiffs a right of way of 50 square meters to reach
Victoria Village towards Col. Guido Street. Defendant
Sta. Lucia is hereby ordered to grant the right of way
to the plaintiffs as previously described upon payment
of an indemnity equivalent to the market value of the
[50-square meter right of way].
SO ORDERED.26
Respondent filed a Notice of Appeal27 which was given
due course by the RTC in an Order28 dated June 27,
2006.
Ruling of the Court of Appeals
On appeal, respondent argued mat petitioners and
Liza were neither able to prove that they were owners
nor that they have any real right over the subject
property intended to be the dominant estate. Hence,
they are not entitled to demand an easement of right-
of-way. At any rate, they likewise failed to establish
that the only route available from their property to
Col. Guido Street is through respondent's subdivision.
In a Decision29 dated November 17, 2011, the CA held
that the evidence adduced by petitioners and Liza
failed to sufficiently establish their asserted ownership
and possession of the subject property. Moreover, it
held that contrary to the RTC's observation,
respondent in fact denied in its Answer the allegation
of petitioners and Liza that they have been in
possession of subject property for more than 50 years.
In view of these, the CA concluded that petitioners and
Liza have no right to demand an easement of right-of-
way from respondent, thus:cralawlawlibrary
WHEREFORE, in view of the foregoing, the appeal is
hereby GRANTED. Accordingly, the May 22, 2006
Decision of the Regional Trial Court of Binangonan,
Rizal, Branch 68 is REVERSED and SET ASIDE. Civil
Case No. 00-037-B is ordered DISMISSED.
SO ORDERED.30
Petitioners and Liza's Motion for
Reconsideration31 was denied in the CA
Resolution32 dated March 27, 2012.
Hence, petitioners seek recourse to this Court through
this Petition for Review on Certiorari.
Issue
Whether petitioners are entitled to demand an
easement of right-of-way from respondent.
Our Ruling
The Petition has no merit.
Under Article 649 of the Civil Code, an easement of
right-of-way may be demanded by the owner of an
immovable or by any person who by virtue of a real
right may cultivate or use the same.
Here, petitioners argue that they are entitled to
demand an easement of right-of-way from respondent
because they are the owners of the subject property
intended to be the dominant estate. They contend that
they have already acquired ownership of the subject
property through ordinary acquisitive
prescription.33 This is considering that their
possession became adverse as against the Blancos
(under whose names the subject property is declared
for taxation) when Carlos formally registered his claim
of ownership with the DENR and sought to declare the
subject property for taxation purposes in 1998. And
since more than 10 years34 had lapsed from that time
without the Blancos doing anything to contest their
continued possession of the subject property,
petitioners aver that ordinary acquisitive prescription
had already set in their favor and against the Blancos.
In the alternative, petitioners assert that they have
already become owners of the subject property
through extraordinary acquisitive prescription since
(1) they have been in open, continuous and peaceful
possession thereof for more than 50 years; (2) the
subject property, as depicted in the Survey Plan they
caused to be prepared is alienable and disposable; (3)
Carlos filed a claim of ownership over the property
with the DENR, the agency charged with the
administration of alienable public land; and (4) Carlos'
manifestation of willingness to declare the property for
taxation purposes not only had the effect of giving
notice of his adverse claim on the property but also
strengthened his bona fide claim of ownership over
the same.
It must be stressed at the outset that contrary to
petitioners' allegations, there is no showing that
Carlos filed a claim of ownership over the subject
property with the DENR. His April 13, 1998 letter35 to
the said office which petitioners assert to be an
application for the registration of such claim is actually
just a request for the issuance of certain documents
and nothing more. Moreover, while Carlos indeed
attempted to declare the subject property for taxation
purposes, his application, as previously mentioned,
was denied because a tax declaration was already
issued to the Blancos.
Anent petitioners' invocation of ordinary acquisitive
prescription, the Court notes that the same was raised
for the first time on appeal. Before the RTC,
petitioners based their claim of ownership on
extraordinary acquisitive prescription under Article
1137 of the Civil Code36 such that the said court
declared them owners of the subject property by
virtue thereof in its May 22, 2006 Decision.37 Also with
the CA, petitioners initially asserted ownership
through extraordinary acquisitive prescription.38 It
was only later in their Motion for
Reconsideration39 therein that they averred that their
ownership could also be based on ordinary acquisitive
prescription.40 "Settled is the rule that points of law,
theories, issues and arguments not brought to the
attention of the lower court need not be considered by
a reviewing court, as they cannot be raised for the first
time at that late stage. Basic considerations of fairness
and due process impel this rule."41cralawrednad
Even if timely raised, such argument of petitioners, as
well as with respect to extraordinary acquisitive
prescription, fails. "Prescription is one of the modes of
acquiring ownership under the Civil Code."42 There are
two modes of prescription through which immovables
may be acquired - ordinary acquisitive prescription
which requires possession in good faith and just title
for 10 years and, extraordinary prescription wherein
ownership and other real rights over immovable
property are acquired through uninterrupted adverse
possession for 30 years without need of title or of good
faith.43 However, it was clarified in the Heirs of Mario
Malabanan v. Republic of the Philippines,44 that only
lands of the public domain subsequently classified or
declared as no longer intended for public use or for
the development of national wealth, or removed from
the sphere of public dominion and are considered
converted into patrimonial lands or lands of private
ownership, may be alienated or disposed through any
of the modes of acquiring ownership under the Civil
Code.45 And if the mode of acquisition is prescription,
whether ordinary or extraordinary, it must first be
shown that the land has already been converted to
private ownership prior to the requisite acquisitive
prescriptive period. Otherwise, Article 1113 of the
Civil Code, which provides that property of the State
not patrimonial in character shall not be the subject of
prescription, applies.46cralawrednad
Sifting through petitioners' allegations, it appears that
the subject property is an unregistered public
agricultural land. Thus, being a land of the public
domain, petitioners, in order to validly claim
acquisition thereof through prescription, must first be
able to show that the State has -
expressly declared through either a law enacted by
Congress or a proclamation issued by the President
that the subject [property] is no longer retained for
public service or the development of the national
wealth or that the property has been converted into
patrimonial. Consequently, without an express
declaration by the State, the land remains to be a
property of public dominion and hence, not
susceptible to acquisition by virtue of prescription.47
In the absence of such proof of declaration in this
case, petitioners' claim of ownership over the subject
property based on prescription necessarily crumbles.
Conversely, they cannot demand an easement of
right-of-way from respondent for lack of personality.
All told, the Court finds no error on the part of the CA
in reversing and setting aside the May 22, 2006
Decision of the RTC and in ordering the dismissal of
petitioners' Complaint for Easement of Right-of-Way
against respondent.
WHEREFORE, the Petition is DENIED. The
November 17, 2011 Decision and March 27, 2014
Resolution of the Court of Appeals in CA-G.R. CV No.
87715 are AFFIRMED.
SO ORDERED.chanrobles virtuallawlibrary
Carpio, (Chairperson), Mendoza, and Jardeleza,*JJ.,
concur.ChanRoblesVirtualawlibrary
Leonen, J., see separate concurring opinion.
G.R. No. 213014, October 14, 2015
MAYBANK PHILIPPINES, INC. (FORMERLY PNB-
REPUBLIC BANK1), Petitioner, v. SPOUSES OSCAR
AND NENITA TARROSA, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari2 are
the Decision3 dated November 29, 2013 and the
Resolution4 dated May 13, 2014 of the Court of
Appeals (CA) in CA-G.R. CV No. 02211, which affirmed
the Decision5 dated June 16, 2005 of the Regional
Trial Court of Bacolod City, Branch 41 (RTC) in Civil
Case No. 98-10451 declaring the extrajudicial
foreclosure sale of the property covered by Transfer
Certificate of Title (TCT) No. T-5649 as null and void
for being barred by prescription.
The Facts
On December 15, 1980, respondents-spouses Oscar
and Nenita Tarrosa (Sps. Tarrosa) obtained from then
PNB-Republic Bank, now petitioner Maybank
Philippines, Inc. (Maybank), a loan in the amount of
P91,000.00. The loan was secured by a Real Estate
Mortgage6 dated January 5, 1981 (real estate
mortgage) over a 500-square meter parcel of land
situated in San Carlos City, Negros Occidental (subject
property), covered by TCT No. T-5649,7 and the
improvements thereon.8
After paying the said loan, or sometime in March
1983, Sps. Tarrosa obtained another loan from
Maybank in the amount of P60,000.00 (second
loan),9 payable on March 11, 1984.10 However, Sps.
Tarrosa failed to settle the second loan upon
maturity.11
Sometime in April 1998, Sps. Tarrosa received a Final
Demand Letter12 dated March 4, 1998 (final demand
letter) from Maybank requiring them to settle their
outstanding loan in the aggregate amount of
P564,579.91, inclusive of principal, interests, and
penalty charges.13 They offered to pay a lesser
amount, which Maybank refused.14 Thereafter, or on
June 25, 1998, Maybank commenced extrajudicial
foreclosure proceedings15 before the office of Ex-
Officio Provincial Sheriff Ildefonso Villanueva, Jr.
(Sheriff Villanueva). The subject property was
eventually sold in a public auction sale held on July
29, 199816 for a total bid price of P600,000.00, to the
highest bidder, Philmay Property, Inc. (PPI), which
was thereafter issued a Certificate of Sale17 dated July
30, 1998.18
On September 7, 1998, Sps. Tarrosa filed a
complaint19 for declaration of nullity and invalidity of
the foreclosure of real estate and of public auction sale
proceedings and damages with prayer for preliminary
injunction against Maybank, PPI, Sheriff Villanueva,
and the Registry of Deeds of San Carlos City, Negros
Occidental (RD-San Carlos), before the RTC, docketed
as Civil Case No. 98-10451. They averred, inter
alia, that: (a) the second loan was a clean or
unsecured loan; (b) after receiving the final demand
letter, they tried to pay the second loan, including the
agreed interests and charges, but Maybank unjustly
refused their offers of payment; and (c) Maybank's
right to foreclose had prescribed or is barred by
laches.20
On the other hand, Maybank and PPI countered21 that:
(a) the second loan was secured by the same real
estate mortgage under a continuing security provision
therein; (b) when the loan became past due, Sps.
Tarrosa promised to pay and negotiated for a
restructuring of their loan, but failed to pay despite
demands; and (c) Sps. Tarrosa's positive
acknowledgment and admission of their indebtedness
controverts the defense of prescription.
The RTC Ruling
In a Decision23 dated June 16, 2005, the RTC held that
the second loan was subject to the continuing security
provision in the real estate mortgage.24 However, it
ruled that Maybank's right to foreclose, reckoned from
the time the mortgage indebtedness became due and
payable on March 11, 1984, had already prescribed,
considering the lack of any timely judicial action,
written extrajudicial demand or written
acknowledgment by the debtor of his debt that could
interrupt the prescriptive period.25Accordingly, it
declared the extrajudicial foreclosure proceedings
affecting the subject property as null and void, and
ordered Maybank to pay Sps. Tarrosa moral and
exemplary damages, as well as attorney's fees and
litigation expenses.26
Maybank filed a motion for reconsideration27 which
was, however, denied in an Order28 dated December
9, 2005, prompting it to appeal29 to the CA.
The CA Ruling
In a Decision30 dated November 29, 2013, the CA
affirmed the RTC ruling that Maybank's right to
foreclose the real estate mortgage over the subject
property is already barred by prescription. It held that
the prescriptive period should be reckoned from March
11, 1984 when the second loan had become past due
and remained unpaid since demand was not a
condition sine qua non for the accrual of the latter's
right to foreclose under paragraph 5 of the real estate
mortgage. It observed that Maybank failed to present
evidence of any timely written extrajudicial demand or
written acknowledgment by the debtors of their debt
that could have effectively interrupted the running of
the prescriptive period.31
Undaunted, Maybank moved for
reconsideration,32 which was denied in a or refusal to comply with the obligation secured, which
Resolution33 dated May 13, 2014; hence this petition.
The Issues Before the Court
The essential issue for the Court's resolution is
whether or not the CA committed reversible error in
finding that Maybank's right to foreclose the real
estate mortgage over the subject property was barred
by prescription.chanrobleslaw
The Court's Ruling
The petition is meritorious.
An action to enforce a right arising from a
mortgage should be enforced within ten (10)
years from the time the right of action
accrues, i.e., when the mortgagor defaults in the
payment of his obligation to the mortgagee;
otherwise, it will be barred by prescription and
the mortgagee will lose his rights under the
mortgage.34 However, mere delinquency in payment
does not necessarily mean delay in the legal concept.
To be in default is different from mere delay in the
grammatical sense, because it involves the beginning
of a special condition or status which has its own
peculiar effects or results.35
In order that the debtor may be in default, it is
necessary that: (a) the obligation be demandable and
already liquidated; (b) the debtor delays
performance; and (c) the creditor requires the
performance judicially or extrajudicially,36unless
demand is not necessary - i.e., when there is an
express stipulation to that effect; where the law so
provides; when the period is the controlling motive or
the principal inducement for the creation of the
obligation; and where demand would be useless.
Moreover, it is not sufficient that the law or obligation
fixes a date for performance; it must further state
expressly that after the period lapses, default will
commence. Thus, it is only when demand to pay is
unnecessary in case of the aforementioned
circumstances, or when required, such demand
is made and subsequently refused that the
mortgagor can be considered in default and the
mortgagee obtains the right to file an action to
collect the debt or foreclose the mortgage.38
In the present case, both the CA and the RTC
reckoned the accrual of Maybank's cause of action to
foreclose the real estate mortgage over the subject
property from the maturity of the second loan on May
11, 1984. The CA further held that demand was
unnecessary for the accrual of the cause of action in
light of paragraph 5 of the real estate mortgage, which
pertinently provides:
5. In the event that the Mortgagor herein should fail
or refuse to pay any of the sums of money secured by
this mortgage, or any part thereof, in accordance with
the terms and conditions herein set forth, or should
he/it fail to perform any of the conditions stipulated
herein, then and in any such case, the Mortgagee shall
have the right, at its election to foreclose this
mortgage, [x x x].39
However, this provision merely articulated Maybank's
right to elect foreclosure upon Sps. Tarrosa's failure
is one of the rights duly accorded to mortgagees in a
similar situation.40 In no way did it affect the general
parameters of default, particularly the need of prior
demand under Article 116941 of the Civil Code,
considering that it did not expressly declare: (a) that
demand shall not be necessary in order that the
mortgagor may be in default; or (b) that default shall
commence upon mere failure to pay on the maturity
date of the loan. Hence, the CA erred in construing the
above provision as one through which the parties had
dispensed with demand as a condition sine qua
non for the accrual of Maybank's right to foreclose the
real estate mortgage over the subject property, and
thereby, mistakenly reckoned such right from the
maturity date of the loan on March 11, 1984. In the
absence of showing that demand is unnecessary for
the loan obligation to become due and demandable,
Maybank's right to foreclose the real estate mortgage
accrued only after the lapse of the period indicated in
its final demand letter for Sps. Tarrosa to pay, i.e.,
after the lapse of five (5) days from receipt of the final
demand letter dated March 4, 1998.42 Consequently,
both the CA and the RTC committed reversible error
in declaring that Maybank's right to foreclose the real
estate mortgage had already prescribed.
Thus, considering that the existence of the loan had
been admitted, the default on the part of the debtors-
mortgagors had been duly established, and the
foreclosure proceedings had been initiated within the
prescriptive period as afore-discussed, the Court finds
no reason to nullify the extrajudicial foreclosure sale
of the subject property.
WHEREFORE, the petition is GRANTED. The
Decision dated
November 29, 2013 and the Resolution dated May 13,
2014 of the Court of Appeals in CA-G.R. CV No. 02211
are hereby REVERSED AND SET ASIDE. The
complaint in Civil Case No. 98-10451 is DISMISSED.
SO ORDERED.
Sereno, C.J., (Chairperson), Leonardo-De Castro,
Bersamin, and Perez, JJ., concur.
[G.R. No. 128991. April 12, 2000]
YOLANDA ROSELLO-BENTIR, SAMUEL PORMIDA
and CHARITO
PORMIDA, petitioners, vs. HONORABLE MATEO
M. LEANDA, in his capacity as Presiding Judge of
RTC, Tacloban City, Branch 8, and LEYTE GULF
TRADERS, INC., respondents.
DECISION
KAPUNAN, J.:
Reformation of an instrument is that remedy in equity
by means of which a written instrument is made or
construed so as to express or conform to the real
intention of the parties when some error or mistake
has been committed.[1] It is predicated on the
equitable maxim that equity treats as done that which
ought to be done.[2] The rationale of the doctrine is
that it would be unjust and unequitable to allow the
enforcement of a written instrument which does not
reflect or disclose the real meeting of the minds of the
parties.[3] However, an action for reformation must be
brought within the period prescribed by law,
otherwise, it will be barred by the mere lapse of time.
The issue in this case is whether or not the complaint
for reformation filed by respondent Leyte Gulf
Traders, Inc. has prescribed and in the negative,
whether or not it is entitled to the remedy of
reformation sought.Oldmiso
On May 15, 1992, respondent Leyte Gulf Traders, Inc.
(herein referred to as respondent corporation) filed a
complaint for reformation of instrument, specific
performance, annulment of conditional sale and
damages with prayer for writ of injunction against
petitioners Yolanda Rosello-Bentir and the spouses
Samuel and Charito Pormida. The case was docketed
as Civil Case No. 92-05-88 and raffled to Judge Pedro
S. Espina, RTC, Tacloban City, Branch 7. Respondent
corporation alleged that it entered into a contract of
lease of a parcel of land with petitioner Bentir for a
period of twenty (20) years starting May 5, 1968.
According to respondent corporation, the lease was
extended for another four (4) years or until May 31,
1992. On May 5, 1989, petitioner Bentir sold the
leased premises to petitioner spouses Samuel
Pormada and Charito Pormada. Respondent
corporation questioned the sale alleging that it had a
right of first refusal. Rebuffed, it filed Civil Case No.
92-05-88 seeking the reformation of the expired
contract of lease on the ground that its lawyer
inadvertently omitted to incorporate in the contract of
lease executed in 1968, the verbal agreement or
understanding between the parties that in the event
petitioner Bentir leases or sells the lot after the
expiration of the lease, respondent corporation has
the right to equal the highest offer. Ncm
In due time, petitioners filed their answer alleging that
the inadvertence of the lawyer who prepared the lease
contract is not a ground for reformation. They further
contended that respondent corporation is guilty of
laches for not bringing the case for reformation of the
lease contract within the prescriptive period of ten
(10) years from its execution.
Respondent corporation then filed its reply and on
November 18, 1992, filed a motion to admit amended
complaint. Said motion was granted by the lower
court.[4]
Thereafter, petitioners filed a motion to dismiss
reiterating that the complaint should be dismissed on
the ground of prescription.
On December 15, 1995, the trial court through Judge
Pedro S. Espina issued an order dismissing the
complaint premised on its finding that the action for
reformation had already prescribed. The order
reads: Scjuris
ORDER
Resolved here is the defendants
MOTION TO DISMISS PLAINTIFFS
complaint on ground of prescription
of action.
It is claimed by plaintiff that he and
defendant Bentir entered into a
contract of lease of a parcel of land
on May 5, 1968 for a period of 20
years (and renewed for an
additional 4 years thereafter) with
the verbal agreement that in case
the lessor decides to sell the
property after the lease, she shall
give the plaintiff the right to equal
the offers of other prospective
buyers. It was claimed that the
lessor violated this right of first
 refusal of the plaintiff when she
sureptitiously (sic) sold the land to
co-defendant Pormida on May 5,
1989 under a Deed of Conditional
Sale. Plaintiffs right was further
violated when after discovery of the
final sale, plaintiff ordered to equal
the price of co-defendant Pormida
was refused and again defendant
Bentir surreptitiously executed a
final deed of sale in favor of co-
defendant Pormida in December 11,
1991.
The defendant Bentir denies that
she bound herself to give the
plaintiff the right of first refusal in
case she sells the property. But
assuming for the sake of argument
that such right of first refusal was
made, it is now contended that
plaintiffs cause of action to reform
the contract to reflect such right of
first refusal, has already prescribed
after 10 years, counted from May 5,
1988 when the contract of lease
incepted. Counsel for defendant
cited Conde vs. Malaga, L-9405 July
31, 1956 and Ramos vs. Court of
Appeals, 180 SCRA 635, where the
Supreme Court held that the
prescriptive period for reformation
of a written contract is ten (10)
years under Article 1144 of the Civil
Code.
This Court sustains the position of
the defendants that this action for
reformation of contract has
prescribed and hereby orders the
dismissal of the case.
SO ORDERED.[5]
On December 29, 1995, respondent corporation filed
a motion for reconsideration of the order dismissing
the complaint. Juris
On January 11, 1996, respondent corporation filed an
urgent ex-parte motion for issuance of an order
directing the petitioners, or their representatives or
agents to refrain from taking possession of the land in
question.
Considering that Judge Pedro S. Espina, to whom the
case was raffled for resolution, was assigned to the
RTC, Malolos, Bulacan, Branch 19, Judge Roberto A.
Navidad was designated in his place. Manikan
On March 28, 1996, upon motion of herein petitioners,
Judge Navidad inhibited himself from hearing the
case. Consequently, the case was re-raffled and
assigned to RTC, Tacloban City, Branch 8, presided by
herein respondent judge Mateo M. Leanda.
On May 10, 1996, respondent judge issued an order
reversing the order of dismissal on the grounds that
the action for reformation had not yet prescribed and
the dismissal was "premature and precipitate",
denying respondent corporation of its right to
procedural due process. The order reads: Suprema
ORDER
Stated briefly, the principal
objectives of the twin motions
submitted by the plaintiffs, for
resolution are:
(1) for the reconsideration of the
Order of 15 December 1995 of the
Court (RTC, Br. 7), dismissing this
case, on the sole ground of
prescription of one (1) of the five (5)
causes of action of plaintiff in its
complaint for "reformation" of a
contract of lease; and,
(2) for issuance by this Court of an
Order prohibiting the defendants
and their privies-in-interest, from
taking possession of the leased
premises, until a final court order
issues for their exercise of dominical
or possessory right thereto.
The records of this case reveal that
co-defendant BENTER (Yolanda)
and plaintiff Leyte Gulf Traders
Incorporation, represented by
Chairman Benito Ang, entered into
a contract of lease of a parcel of
land, denominated as Lot No. 878-
D, located at Sagkahan District,
Tacloban City, on 05 May 1968, for
a period of twenty (20) years, (later
renewed for an additional two (2)
years). Included in said covenant of
lease is the verbal understanding
and agreement between the
contracting parties, that when the
defendant (as lessor) will sell the
subject property, the plaintiff as
(lessee) has the "right of first
refusal", that is, the right to equal
the offer of any other prospective
third-party buyer. This agreement
(sic) is made apparent by paragraph
4 of the lease agreement stating:
"4. IMPROVEMENT. The
lessee shall have the right
to erect on the leased
premises any building or
structure that it may desire
without the consent or
approval of the Lessor x x
x provided that any
improvements existing at
the termination of the
lease shall remain as the
property of the Lessor
without right to
reimbursement to the
 Lessee of the cost or value
thereof."
That the foregoing provision has
been included in the lease
agreement if only to convince the
defendant-lessor that plaintiff
desired a priority right to acquire
the property (ibid) by purchase,
upon expiration of the effectivity of
the deed of lease.
In the course of the interplay of
several procedural moves of the
parties herein, the defendants filed
their motion to admit their amended
answer to plaintiffs amended
complaint. Correspondingly, the
plaintiff filed its opposition to said
motion. The former court branch
admitted the amended answer, to
which order of admission, the
plaintiff seasonably filed its motion
for reconsideration. But, before the
said motion for reconsideration was
acted upon by the court, the latter
issued an Order on 15 December
1995, DISMISSING this case on the
lone ground of prescription of the
cause of action of plaintiffs
complaint on "reformation" of the
lease contract, without anymore
considering the remaining cause of
action, viz.: (a) on Specific
Performance; (b) an Annulment of
Sale and Title; (c) on Issuance of a
Writ of Injunction, and (d) on
Damages.
With due respect to the judicial
opinion of the Honorable Presiding
Judge of Branch 7 of this Court, the
undersigned, to whom this case was
raffled to after the inhibition of
Judge Roberto Navidad, as acting
magistrate of Branch 7, feels not
necessary any more to discuss at
length that even the cause of action
for "reformation" has not, as yet,
prescribed.
To the mind of this Court, the
dismissal order adverted to above,
was obviously premature and
precipitate, thus resulting denial
upon the right of plaintiff that
procedural due process. The other
remaining four (4) causes of action
of the complaint must have been
deliberated upon before that court
acted hastily in dismissing this case.
WHEREFORE, in the interest of
substantial justice, the Order of the
court, (Branch 7, RTC) dismissing
this case, is hereby ordered
RECONSIDERED and SET ASIDE.
Let, therefore, the motion of
plaintiff to reconsider the Order
admitting the amended answer and
the Motion to Dismiss this case
(ibid), be set for hearing on May 24,
1996, at 8:30 oclock in the morning.
Service of notices must be effected
upon parties and counsel as early as
possible before said scheduled date.
Concomitantly, the defendants and
their privies-in-interest or agents,
are hereby STERNLY WARNED not
to enter, in the meantime, the
litigated premises, before a final
court order issues granting them
dominical as well as possessory
right thereto.
To the motion or petition for
contempt, filed by plaintiff, thru
Atty. Bartolome C. Lawsin, the
defendants may, if they so desire,
file their answer or rejoinder
thereto, before the said petition will
be set for hearing. The latter are
given ten (10) days to do so, from
the date of their receipt of a copy of
this Order.
SO ORDERED.[6]
On June 10, 1996, respondent judge issued an order
for status quo ante, enjoining petitioners to desist
from occupying the property.[7]
Aggrieved, petitioners herein filed a petition
for certiorari to the Court of Appeals seeking the
annulment of the order of respondent court with
prayer for issuance of a writ of preliminary injunction
and temporary restraining order to restrain
respondent judge from further hearing the case and
to direct respondent corporation to desist from further
possessing the litigated premises and to turn over
possession to petitioners.
On January 17, 1997, the Court of Appeals, after
finding no error in the questioned order nor grave
abuse of discretion on the part of the trial court that
would amount to lack, or in excess of jurisdiction,
denied the petition and affirmed the questioned
order.[8] A reconsideration of said decision was,
likewise, denied on April 16, 1997.[9]
Thus, the instant petition for review based on the
following assigned errors, viz:
6.01 THE COURT OF APPEALS
ERRED IN HOLDING THAT AN
ACTION FOR REFORMATION IS
PROPER AND JUSTIFIED UNDER
THE CIRCUMSTANCES OF THE
PRESENT CASE;
6.02 THE COURT OF APPEALS
ERRED IN HOLDING THAT THE
 ACTION FOR REFORMATION HAS
NOT YET PRESCRIBED;
6.03 THE COURT OF APPEALS
ERRED IN HOLDING THAT AN
OPTION TO BUY IN A CONTRACT OF
LEASE IS REVIVED FROM THE
IMPLIED RENEWAL OF SUCH
LEASE; AND,
6.04 THE COURT OF APPEALS
ERRED IN HOLDING THAT A
STATUS QUO ANTE ORDER IS NOT
AN INJUNCTIVE RELIEF THAT
SHOULD COMPLY WITH THE
PROVISIONS OF RULE 58 OF THE
RULES OF COURT.[10]
The petition has merit. Scsdaad
The core issue that merits our consideration is
whether the complaint for reformation of instrument
has prescribed. Sdaad
The remedy of reformation of an instrument is
grounded on the principle of equity where, in order to
express the true intention of the contracting parties,
an instrument already executed is allowed by law to
be reformed. The right of reformation is necessarily
an invasion or limitation of the parol evidence rule
since, when a writing is reformed, the result is that an
oral agreement is by court decree made legally
effective.[11] Consequently, the courts, as the agencies
authorized by law to exercise the power to reform an
instrument, must necessarily exercise that power
sparingly and with great caution and zealous care.
Moreover, the remedy, being an extraordinary one,
must be subject to limitations as may be provided by
law. Our law and jurisprudence set such limitations,
among which is laches. A suit for reformation of an
instrument may be barred by lapse of time. The
prescriptive period for actions based upon a written
contract and for reformation of an instrument is ten
(10) years under Article 1144 of the Civil
Code.[12] Prescription is intended to suppress stale and
fraudulent claims arising from transactions like the
one at bar which facts had become so obscure from
the lapse of time or defective memory.[13] In the case
at bar, respondent corporation had ten (10) years
from 1968, the time when the contract of lease was
executed, to file an action for reformation. Sadly, it
did so only on May 15, 1992 or twenty-four (24) years
after the cause of action accrued, hence, its cause of
action has become stale, hence, time-
barred. Sdaamiso
In holding that the action for reformation has not
prescribed, the Court of Appeals upheld the ruling of
the Regional Trial Court that the 10-year prescriptive
period should be reckoned not from the execution of
the contract of lease in 1968, but from the date of the
alleged 4-year extension of the lease contract after it
expired in 1988. Consequently, when the action for
reformation of instrument was filed in 1992 it was
within ten (10) years from the extended period of the
lease. Private respondent theorized, and the Court of
Appeals agreed, that the extended period of lease was
an "implied new lease" within the contemplation of
Article 1670 of the Civil Code,[14] under which
provision, the other terms of the original contract
were deemed revived in the implied new lease.
We do not agree. First, if, according to respondent
corporation, there was an agreement between the
parties to extend the lease contract for four (4) years
after the original contract expired in 1988, then Art.
1670 would not apply as this provision speaks of an
implied new lease (tacita reconduccion) where at the
end of the contract, the lessee continues to enjoy the
thing leased "with the acquiescence of the lessor", so
that the duration of the lease is "not for the period of
the original contract, but for the time established in
Article 1682 and 1687." In other words, if the
extended period of lease was expressly agreed upon
by the parties, then the term should be exactly what
the parties stipulated, not more, not less. Second,
even if the supposed 4-year extended lease be
considered as an implied new lease under Art. 1670,
"the other terms of the original contract"
contemplated in said provision are only those terms
which are germane to the lessees right of continued
enjoyment of the property leased.[15] The prescriptive
period of ten (10) years provided for in Art.
1144[16] applies by operation of law, not by the will of
the parties. Therefore, the right of action for
reformation accrued from the date of execution of the
contract of lease in 1968.
Even if we were to assume for the sake of argument
that the instant action for reformation is not time-
barred, respondent corporations action will still not
prosper. Under Section 1, Rule 64 of the New Rules of
Court,[17] an action for the reformation of an
instrument is instituted as a special civil action for
declaratory relief. Since the purpose of an action for
declaratory relief is to secure an authoritative
statement of the rights and obligations of the parties
for their guidance in the enforcement thereof, or
compliance therewith, and not to settle issues arising
from an alleged breach thereof, it may be entertained
only before the breach or violation of the law or
contract to which it refers.[18] Here, respondent
corporation brought the present action for reformation
after an alleged breach or violation of the contract was
already committed by petitioner Bentir. Consequently,
the remedy of reformation no longer lies. Ncmmis
We no longer find it necessary to discuss the other
issues raised considering that the same are predicated
upon our affirmative resolution on the issue of the
prescription of the action for reformation.
WHEREFORE, the petition is hereby GRANTED. The
Decision of the Court of Appeals dated January 17,
1997 is REVERSED and SET ASIDE. The Order of the
Regional Trial Court of Tacloban City, Branch 7, dated
December 15, 1995 dismissing the action for
reformation is REINSTATED. Scncm
SO ORDERED.
Davide, Jr., C.J., (Chairman), Puno,
Pardo, and Ynares-Santiago, JJ., concur.

G.R. No. 169442, October 14, 2015
REPUBLIC OF THE PHILIPPINES, REPRESENTED
BY THE PRIVATIZATION AND MANAGEMENT
OFFICE (PMO), Petitioner, v. ANTONIO V. BAÑEZ,
LUISITA BAÑEZ VALERA, NENA BAÑEZ HOJILLA,
AND EDGARDO B. HOJILLA, JR., Respondents.
DECISION
PEREZ, J.:
Assailed and sought to be annulled in this Petition for
Review on Certiorari under Rule 45 of the 1997 Rules
of Civil Procedure is the Decision1 of the Court of
Appeals dated 23 August 2005 in CA-G.R. CV No.
70137, entitled "Cellophil Resources Corporation v.
Antonio V. Bañez, Luisita Bañez Valera, Nena Bañez
Hojilla and Edgar do B. Hojilla, Jr.," which affirmed the
Order2 of the Regional Trial Court (RTC), Branch 1,
Bangued, Abra, dated 16 August 2000, that dismissed
the complaint of petitioner Republic of the Philippines,
represented by Privatization and Management Office
(PMO), for specific performance, recovery of
possession, and damages against respondents
Antonio V. Bañez, Luisita Bañez Valera, Nena Bañez
Hojilla and Edgardo B. Hojilla, Jr., docketed as Civil
Case No. 1853.
The facts as culled from the records are as follows:
In 1976, Antonio V. Bañez, Luisita Bañez Valera, and
Nena Bañez Hojilla (collectively, respondents) offered
for sale a parcel of land (subject property), with an
area of 20,000 sq m in Barangay Calaba, Bangued,
Abra to Cellophil Resources Corporation (CRC).
Pursuant to the offer to sell on 7 December 1981,
respondents executed a Letter Agreement irrevocably
giving CRC the option to purchase the subject
property, which CRC accepted. The pertinent portion
of the Letter Agreement (hereinafter referred to as
Contract), to wit:
1. The purchase price shall be Twenty Pesos xxx per
square meter or a total amount of Four Hundred
Thousand Pesos (P400,000.00).
2. The co-owners shall take all necessary steps
to cause the CRC Portion to be brought under the
operation of Republic Act No. 496, as amended,
and to cause the issuance in their name of the
corresponding original certificate of title, all of
the foregoing to be accomplished within a
reasonable time from date hereof. xxx
x x x x
7. The co-owners hereby confirm their agreement and
permission to CRC's entry into, construction of
building[s] and improvements, and occupancy of, any
portion of the Property, and xxx waive any right of
action they may have against CRC respecting such
entry, construction, or occupancy by the latter of any
Portion of the Property.
8. An absolute deed of sale containing the above
provisions and standard warranties on
conveyances of real property shall be executed
by the co-owners in favor of CRC or its
assignee/s and the same delivered to the latter
together with the original certificate of title upon
payment of the purchase price less the advances
made by CRC in accordance with Paragraphs 2 and 3
above; provided, that payment shall be made by
CRC only upon presentation by the co-owners to
CRC of certificate/s and/or clearances, with
corresponding receipts, issued by the
appropriate government office/s or agency/ies
to the effect that capital gains tax, real estate
taxes on the Property and local transfer tax and
other taxes, fees or charges due on the
transaction and/or on the Property have been
paid.
9. This option shall be effective from [the] date of your
acceptance as indicated by your conformity below and
for a period of one (1) month from and after CRC shall
have been notified in writing by the co-owners that an
original certificate of title has been issued in their
names and that they are ready to execute the xxx
deed of sale.3
Respondents asked for several cash advances which
reached the total amount of, more or less, Two
Hundred Seventeen Thousand Pesos (P217,000.00),
to be deducted from the purchase price of Four
Hundred Thousand Pesos (P400,000.00). After paying
cash advances to respondents, CRC constructed staff
houses and introduced improvements on the subject
property. As respondents would be staying abroad for
a time, they executed a Special Power of Attorney
(SPA) in favor of Edgardo B. Hojilla (Hojilla). The SPA
authorized Hojilla to perform the following:
1. To take all steps necessary to cause a portion of the
lot covered by Tax Declaration No. 40185 in the name
of Urbano Bañez which is the subject of our "Offer to
Sell" to Cellophil Resources Corporation containing an
area xxx to be brought under the operation of Republic
Act No. 496, as amended, and to cause the issuance
in our name of the corresponding original certificate of
title.
2. To do all acts and things and to execute all papers
and documents of whatever nature or kind required
for the accomplishments of the aforesaid purpose.
HEREBY GRANTING AND GIVING unto our said
attorney full power and authority whatsoever requisite
or necessary or proper to be done in or about the
premises as fully to all intents and purposes as we
might or could lawfully do if personally present (with
power of substitution and revocation), and hereby
ratifying and confirming all that our said attorney shall
do or cause to be done under and by virtue of these
presents.4ChanRoblesVirtualawlibrary
However, CRC stopped its operation. The
Development Bank of the Philippines and National
Development Company took over CRC's operation and
turned over CRC's equity to Asset Privatization Trust
(APT), which is a government agency created by
virtue of Proclamation No. 50, as amended. The APT's
function is to take title to and possession of,
provisionally manage and dispose of nonperforming
assets of government financial institutions. Upon the
expiration of APT's term on 31 December 2000, the
government issued Executive Order (E.O.) No. 323,
which created the Privatization and Management
Office (PMO). By virtue of E.O. No. 323, the powers,
functions, and duties of APT were transferred to the
PMO. Thus, the original party, CRC, is now
represented by the Republic of the Philippines through
the PMO (hereinafter referred to as petitioner), the
successor of the defunct APT.
As alleged by petitioner, respondents declared
afterwards the subject property as Urbano Bañez
property, rented out to third parties the staff houses
petitioner constructed, and ordered its guards to
prohibit the petitioner from entering the compound,
which impelled petitioner to file a complaint for
specific performance, recovery of possession, and
damages against respondents, including Hojilla, on 10
April 2000. Among others, the complaint prayed for
respondents to surrender and deliver the title of the
subject property, and execute a deed of absolute sale
in favor of petitioner upon full payment. It mentioned
three letters sent to respondents on 29 May 1991, 24
October 1991, and 6 July 1999.
In the Complaint, it was alleged that:
"[t]here is no justification, legal or otherwise for the
[respondents] to dispossess (sic) the [petitioner] from
the subject property. [Petitioner] is more than willing
and able to pay the [respondents] the balance of the
purchase price of the subject parcel of land but its
inability to do so was due to the [respondents'] failure
to produce the original certificate of title of the subject
parcel of land and to execute the pertinent deed of
sale, as well as the unjustified occupation by the
[respondents] of the property and [of] the staff
houses built by [petitioner and that] such actions of
the [respondents] are contrary to their undertaking
under condition no. 7 of the subject letter agreement,
that is, for [respondents] to permit [petitioner's] entry
into and occupancy of any portion of the subject
property and their waiver of any right of action they
may have against [petitioner] respecting such entry
and occupancy of any portion of the property. And
despite repeated demands made by [petitioner] upon
the [respondents] for them to vacate and turnover the
subject parcel of land and the staff houses to
[petitioner], the last of which was in a letter dated July
6, 1999, the said [respondents] have failed and
neglected and still fail and neglect to do so up to the
present time."5ChanRoblesVirtualawlibrary
Ruling of the RTC
On 23 June 2000, Hojilla filed a Motion to Dismiss on
the grounds that he was not a real party-in-interest
and that the action was barred by the Statute of
Limitations, which Motion the RTC granted in an Order
dated 16 August 2000 based on Article 1144(1) of the
Civil Code, which bars actions filed beyond ten (10)
years upon the execution of the written contract.
According to the RTC, the letters petitioner sent to
respondents were not demands for respondents to
comply with their obligation to deliver the title as to
interrupt the running of the prescriptive period. The
pertinent portion of the RTC Order reads:
In the instant case, the defendants were given
[enough] time from December 7, 1981 to comply with
their obligation, hence, after a reasonable period of
time, the plaintiff should have demanded compliance
of defendants' undertakings or initiated any other
action to protect its interest without waiting for the
statute of limitations to bar their claim.6
The RTC resolved that because the written contract
was executed on 7 December 1981, then the
complaint that was filed more than eighteen (18)
years since the contract was executed was beyond the
10-year prescriptive period. Within that 18-year
period, there was no act on the part of petitioner,
whether judicial or extrajudicial, to interrupt
prescription.
While petitioner paid cash advances to respondents
for the processing of the registration of the title,
"which totaled to more or less P217,000.00 as of
September 7, 1984 xxx to the filing of this suit,
[petitioner] has not demanded compliance by
[respondents] of their obligation, that is, the
execution of the absolute deed of sale and the delivery
of the Original Certificate of Title to the property to
[petitioner] upon payment of the purchase price
stipulated. There were letters addressed to
[respondents] but these were not demands for
compliance of [respondents'] obligation and which is
not sufficient under the law to interrupt the
prescriptive period."7
The RTC further stated that:
"[t]he parties could not have contemplated that the
delivery of the property and the payment thereof
could be made indefinitely and render uncertain the
status of the land. The failure of either [of the] parties
to demand performance of the obligation of the other
for an unreasonable length of time renders the
contract ineffective."8
The motion for reconsideration was likewise denied in
an Order dated 5 January 2001.
On appeal, petitioner argued that the RTC erred when
it dismissed the complaint. Petitioner averred that: (1)
its claim was not yet barred by prescription; (2) the
period of prescription had been interrupted by
extrajudicial demand; (3) the Statute of Limitation did
not run against the State; (4) petitioner's claim not
having prescribed, laches could not have set in; (5)
the laches of one nullified the laches of the other; and
(6) laches cannot be used to defeat justice or to
perpetuate fraud and injustice.chanrobleslaw
Ruling of the Court of Appeals
The Court of Appeals affirmed the ruling of the RTC in
a Decision dated 23 August 2005 on the ground that
the complaint was barred by the Statute of
Limitations. Contrary to petitioner's arguments, the
Court of Appeals found that the extrajudicial demand
to respondents did not serve to toll the running of the
prescriptive period. The Court of Appeals ruled that
the record is bereft of evidence that would attest that
written extrajudicial demands were sent to
respondents. While petitioner sent demand letters
dated 29 May 1991 and 24 October 1991, these
demand letters were not considered as demand letters
because the letters simply called the attention of
Hojilla to return the properties and unlock the gates.
As regards the letter dated 6 July 1999, the Court of
Appeals ruled that because the letter was addressed
to Hojilla, who was only an attorney-in-fact authorized
to register the property, it was not binding upon the
respondents. The Court of Appeals also gave no
probative value to the 6 July 1999 letter for having no
proof of service.
With regard to the issue of running of prescriptive
period against the State, the Court of Appeals opined
that because the subject property is a patrimonial
property of the State when APT became the controlling
stockholder of CRC, prescription may run against the
State. Thus, the reasonable period within which to
register the property is three (3) years. According to
the Court of Appeals, the cause of action of petitioner
accrued three (3) years from the time the Contract
was executed on 7 December 1981 or, to say the
least, on 15 August 1984 when Hojilla sent the
acknowledgment letter dated 15 August 1984, at
which time it became clear that respondents could no
longer fulfill their obligation.
Hence, petitioner is before us raising the following
arguments:
A. The Court of Appeals erred in ruling
that the running of the prescriptive
period was not interrupted when
respondents acknowledged their
still unfulfilled obligation to initiate
proceedings for the registration of
title of the subject property and at
the same time committed that they
will only claim the full payment of
the property upon presentation of a
clean title and execution of a Deed
of Sale signed by the heirs as stated
in the letter dated August 15, 1984.
B. The Court of Appeals erred in
affirming the outright dismissal of
petitioner's suit for specific
performance, recovery of
possession and damages on the
basis of prescription even as it is
evident that there is a need to fix a
period considering that the
performance of the condition or
obligation is dependent upon the
will of respondents.
C. The Court of Appeals erred in
ignoring certain manifest equitable
considerations which militate
against a resort to a purely
mathematical computation of the
prescriptive period and in
disregarding the provision of the
irrevocable offer that the option
remains effective for a period of one
month from and after notice that a
certificate of title has been issued.9
The main issue is whether or not the complaint for
specific performance was filed beyond the prescriptive
period.chanrobleslaw
Petitioner's Arguments
The petitioner argues that although there is a 10-year
limitation within which to file a case based on a written
contract, the period was interrupted due to a written
acknowledgment of respondents' obligation and
demand by petitioner. The argument is based on
Article 1155 of the Civil Code, which provides that the
running of the prescriptive period is interrupted when
there is a written extrajudicial demand by the
creditors, and when there is any written
acknowledgment of the debt by the debtor.
The petitioner referred to the letter sent by Hojilla to
the former dated 15 August 1984, and letters given
by petitioner to Hojilla dated 29 May 1991, 24 October
1991, and 6 July 1999. In the letter dated 15 August
1984, respondents affirmed their undertaking that
they will claim full payment of the property upon
presentation of a clean title and the execution of the
Absolute Deed of Sale, which reads, "[t]he Bañez heirs
will only claim for the full payment of the property
upon presentation of a clean title and execution of a
Deed of Sale signed by the heirs."10
Based on Hojilla's representation as stated in the
letter dated 15 August 1984, petitioner argues that
Hojilla is estopped by his own acts and for misleading
petitioner because "respondents not only failed to
comply with their commitment to deliver a certificate
of title but where [sic] they also [misled] petitioner
into believing that they were working on the title of
subject property even as they had[,] at the back of
their mind[s], the running of the statute of limitations
as an arsenal once petitioner demands the fulfillment
of their obligation."11
The petitioner further added that because there was
no period fixed for the fulfillment or performance of
the obligation to deliver the title, the least the court
should have done was to fix the period pursuant to
Article 1197 of the Civil Code.
Finally, the petitioner posits that pursuant to
paragraph 9 of the Contract, its obligation is
conditioned upon respondents' obligation, which is to
deliver the title. Thus, because the respondents failed
to deliver such, the obligation of petitioner never
ripened.chanrobleslaw
Respondents' Arguments
The arguments of respondents, which are aligned with
the reasons of the lower courts, rely on Article 1144
of the Civil Code, which provides that actions upon a
written contract must be brought within ten (10) years
from execution. Because the complaint was filed
beyond the 10-year prescriptive period, the action
was already barred by the Statute of Limitations.
Further, during such period, petitioner failed to act
either judicially or extrajudicially to effectively
interrupt the running of the prescriptive period. Thus,
the complaint must be dismissed for having been
extinguished by the Statute of
Limitations.chanrobleslaw
Our Ruling
We rule in favor of the petitioner.
We deem material, for the resolution of the issues in
this case, the letters that were exchanged by the
parties.
We shall discuss each letter in seriatim.
Hojilla 's letter dated 15 August 1984
In Hojilla's letter to petitioner dated 15 August 1984,
Hojilla updated petitioner of the status of the subject
property's title, in this wise:
The preparation of the advance survey plan, technical
description and Engineer's Certificate pursuant to
Land Administrative Order No. 10-4 has been
submitted to the Regional Land Office, and approved
by the Regional Director.
Atty. Valera is now in the process of preparing the
petition papers of the Calaba property for submission
to the local court.12
There is no other logical conclusion but that the 15
August 1984 letter is an acknowledgment of
respondents' commitment under the Contract. The
letter served to update petitioner of the status of the
subject property's title, an obligation agreed upon by
the parties in the Contract. It would be specious to
argue that respondents did not acknowledge the
existence of the Contract and yet, send
correspondence to petitioner updating it of the status
of the application for title on the subject property.
Therefore, the letter dated 15 August 1984 served as
a written acknowledgment of debt or obligation of
respondents.
In Philippine National Railways v. NLRC,13 it was
stated that a written acknowledgment of debt or
obligation effectively interrupts the running of the
prescriptive period and sets the same running
anew.14Hence, because Hojilla's letter dated 15
August 1984 served as a written acknowledgement of
the respondents' debt or obligation, it interrupted the
running of the prescriptive period and set the same
running anew with a new expiry period of 15 August
1994.
Petitioner's letters dated 29 May
1991 and 24 October 1991
With regard to the letters petitioner sent to Hojilla
dated 29 May 1991 and 24 October 1991, the RTC
ruled that these letters were insufficient under the law
to interrupt the prescriptive period because these
were not demand letters. We lift the pertinent portion
from the letter dated 29 May 1991, which demanded
respondents to return the properties and to unlock the
gates:
Under the agreement to purchase the lot, APT-CRC
shall pay the whole of the purchase price thereof when
the certificate of title and other documents
enumerated therein are presented to it. Clearly, the
consummation of the sale is within your control, x x x
In view of the foregoing, demand is hereby
made upon you and your principals, the heirs of
Urbano Bañez, to return the properties
withdrawn and to unlock the gates leading to the
staffhouses (sic), within fifteen (15) days from
receipt thereof, otherwise we will be
constrained to institute the necessary action to
protect the interest of APT-CRC.15 (Emphasis and
underscoring ours)
In the same vein, the letter dated 24 October 1991
demanded respondents to discontinue the
construction, repair, demolition, and occupancy of
several staff houses. A pertinent portion of the 24
October 1991 letter reads:
Considering that these action (sic) are unauthorized,
they constitute violations of the irrevocable option to
purchase dated December 7, 1981, which remains
valid, binding and effective to this day. Demand is
hereby made upon you to discontinue such
unauthorized acts and vacate the premises
within fifteen (15) days from receipt hereof.16 x
x x (Emphasis and underscoring ours)
We do not agree with the lower courts. Clearly, the 29
May 1991 and 24 October 1991 letters demanded
respondents to return the properties, discontinue the
construction, repair, demolition and occupancy of
several staff houses, and unlock the gates, which is to
enforce respondents' obligations pursuant to
paragraph 7 of the Contract which reads:
7. The co-owners hereby confirm their agreement and
permission to CRC's entry into, construction of
building and improvements, and occupancy of, any
portion of the Property, and hereby accordingly waive
any right of action they may have against CRC
respecting such entry, construction, or occupancy by
the latter of any Portion of the Property.17
The letters dated 29 May 1991 and 24 October 1991
are deemed demand letters as contemplated under
Article 1155. They are demand letters to enforce
respondents' obligation under the Contract, which is
to cede possession to petitioner. The letters
interrupted the running of the prescriptive period
which commenced to run anew.
Petitioner's letter dated 6 July 1999
Compared to the letters dated 29 May and 24 October
1991, which demanded Hojilla to surrender
possession of the subject property, this time, in
petitioner's letter to Hojilla dated 6 July 1999,
petitioner demanded Hojilla to produce the title of the
subject property. However, despite the fact that the
letter was a clear demand of the nature contemplated
by law that would interrupt the prescriptive period, the
Court of Appeals found that (1) the letter did not
effectively interrupt the prescriptive period because
the complaint had long prescribed; (2) the letter was
addressed to the wrong party; and, finally, (3) the
letter did not bear any proof of service or receipt.
We do not agree.
Hojilla's SPA
We refer to the SPA, which granted the authority of
Hojilla.
When respondents went abroad pending the
performance of their obligations in the Contract, they
authorized Hojilla to register the subject property— a
single obligation in the whole range of obligations in
the Contract. The SPA appeared to have left no
representative to fulfill respondents' obligations in the
Contract on their behalf except for Hojilla's authority
to register the subject property. The pertinent portion
of the SPA reads:
1. To take all steps necessary to cause a portion
of the lot covered by Tax Declaration No. 40185
in the name of Urbano Baflez which is the
subject of our "Offer to Sell" to Cellophil
Resources Corporation containing an area xxx to
be brought under the operation of Republic Act
No. 496, as amended, and to cause the issuance
in our name of the corresponding original
certificate of title.
2. To do all acts and things and to execute all papers
and documents of whatever nature or kind required
for the accomplishments of the aforesaid purpose.
HEREBY GRANTING AND GIVING unto our said
attorney full power and authority whatsoever requisite
or necessary or proper to be done in or about the
premises as fully to all intents and purposes as we
might or could lawfully do if personally present (with
power of substitution and revocation), and hereby
ratifying and confirming all that our said attorney shall
do or cause to be done under and by virtue of these
presents.18 (Emphasis and underscoring ours)
This was read simply by the lower courts as limiting
Hojilla's authority to the registration of the subject
property under the name of his principal, and all the
necessary acts for such purpose. It observed that
nowhere in the SPA was Hojilla authorized as
administrator or agent of respondents with respect to
the execution of the Contract.
In the case at bar, the reliefs prayed for by petitioner
include the execution of the Contract such as delivery
of the subject title, recovery of possession of the
subject property, execution of the deed of sale or
transfer of absolute ownership upon full payment of
the balance, and damages for alleged violation of
respondents of the Contract for non-delivery of the
title and refusal to vacate the subject property.
Indeed, following the reading of the lower courts of
the scope of Hojilla's authority, Hojilla is neither the
proper party to execute the Contract nor the proper
party to receive the demand letters on behalf of
respondents.
This strict construction of the tenor of the SPA will
render the obligatory force of the Contract ineffective.
Construction is not a tool to prejudice or commit fraud
or to obstruct, but to attain justice. Ea Est Accipienda
Interpretatio Quae Vitio Caret. To favor the lower
court's interpretation of the scope of Hojilla's power is
to defeat the juridical tie of the Contract—
the vinculum juris of the parties. As no one was
authorized to represent respondents in the Contract,
then petitioner cannot enforce the Contract, as it
were. This is an absurd interpretation of the SPA. It
renders the Contract ineffective for lack of a party to
execute the Contract.
Contrary to the findings of the lower court, the present
case is a case of an express agency, where, Hojilla,
the agent, binds himself to represent another, the
principal, who are herein respondents, with the
latter's express consent or authority.19 In a contract of
agency, the agent acts for and in behalf of the
principal on matters within the scope of the authority
conferred upon him, such that, the acts of the agent
have the same legal effect as if they were personally
done by the principal.20 Because there is an express
authority granted upon Hojilla to represent the
respondents as evidenced by the SPA, Hojilla's actions
bind the respondents.
As agent, the representations and guarantees of
Hojilla are considered representations and guarantees
of the principal. This is the principle of agency by
promissory estoppel. We refer to the evidence on
record. It was Hojilla who administered and/or
managed the subject property.21 Based on Hojilla's
letter dated 15 August 1984 to petitioner, Hojilla made
the representation that besides being the attorney-in-
fact of the respondents with limited authority to
register the property, he was also their agent with
regard to respondents' other obligations related to the
Contract. The pertinent portion of the 15 August 1984
letter of Hojilla to petitioner reads:
Regarding our loan with the National Electrification
Administration (NEA), Hon. Mel Mathay who is helping
the Bafiez heirs has initiated negotiations with NEA for
Abreco to purchase our lot in front of the Provincial
Jail to offset our loan with NEA.22
Also, one glaring fact that cannot escape us is Hojilla's
representation and guarantee that petitioner's
obligation will only arise upon presentation of a clean
title and execution of a Deed of Sale signed by the
respondents' heirs, which reads, "[t]he Bañez heirs
will only claim for the full payment of the
property upon presentation of a clean title and
execution of a Deed of Sale signed by the
heirs."23
If Hojilla knew that he had no authority to execute the
Contract and receive the letters on behalf of
respondents, he should have opposed petitioner's
demand letters. However, having received the several
demand letters from petitioner, Hojilla continuously
represented himself as the duly authorized agent of
respondents, authorized not only to administer and/or
manage the subject property, but also authorized to
register the subject property and represent the
respondents with regard to the latter's obligations in
the Contract. Hojilla also assured petitioner that
petitioner's obligation to pay will arise only upon
presentation of the title.
Clearly, the respondents are estopped by the acts and
representations of their agent. Falling squarely in the
case at bar is our pronouncement in Philippine
National Bank v. IAC (First Civil Cases
Div.),24 "[h]aving given that assurance, [Hojilla] may
not turn around and do the exact opposite of what
[he] said [he] would do. One may not take
inconsistent positions. A party may not go back on his
own acts and representations to the prejudice of the
other party who relied upon them."25cralawred
Assuming further that Hojilla exceeded his authority,
the respondents are still solidarity liable because they
allowed Hojilla to act as though he had full powers by
impliedly ratifying Hojilia's actions—through action by
omission.26 This is the import of the principle of
agency by estoppel or the doctrine of apparent
authority.
In an agency by estoppel or apparent authority, "[t]he
principal is bound by the acts of his agent with the
apparent authority which he knowingly permits the
agent to assume, or which he holds the agent out to
the public as possessing."27
The respondents' acquiescence of Hojilla's acts was
made when they failed to repudiate the latter's acts.
They knowingly permitted Hojilla to represent them
and petitioners were clearly misled into believing
Hojilla's authority. Thus, the respondents are now
estopped from repudiating Hojilla's authority, and
Hojilla's actions are binding upon the respondents.
Receipt of the Letters
Time and time again, this Court has reiterated it is not
a trier of facts and parties may raise only questions of
law. The jurisdiction of the Court is limited to
reviewing errors of law and findings of fact of the
Court of Appeals are conclusive because it is not the
Court's function to review, examine, and evaluate or
weigh the evidence all over again.28 The rule,
however, is not without exceptions, viz.:
(1) [W]hen the [conclusion is a finding] grounded
entirely on speculations, surmises [and]
conjectures;cralawlawlibrary
In the case at bar, the findings of the RTC and the
Court of Appeals are contradictory: the RTC did not
make any finding on the receipt of the demand letters
by Hojilla, while the Court of Appeals resolved that
assuming arguendo that the letters were demand
letters contemplated under Article 1155 of the Civil
Code, the same are unavailing because the letters do
not bear any proof of service of receipt by
respondents.
A perusal of the records reveals that only the 24
October 1991 letter has no proof of receipt.30 The
demand letters dated 29 May 199131 and 6 July
199932 contain proofs of receipt.
Thus, the core issue of whether or not the action has
prescribed.
An action based on a written contract must be brought
within ten (10) years from the time the right of action
accrued. Accordingly, a cause of action on a written
contract accrues only when an actual breach or
violation thereof occurs.33 A cause of action has three
elements, to wit: (1) a right in favor of the plaintiff by
whatever means and under whatever law it arises or
is created; (2) an obligation on the part of the named
defendant to respect or not to violate such right; and
(3) an act or omission on the part of such defendant
violative of the right of the plaintiff or constituting a
breach of the obligation of the defendant to the
plaintiff.34

(2) [W]hen the inference made is manifestly By the contract between the herein parties, the cause
mistaken, absurd or impossible;cralawlawlibrary of action accrued at the point when the reasonable
time within which to present the title lapsed. The
(3) [W]hen there is grave abuse of parties did not determine the date when the
discretion;cralawlawlibrary respondents must present the title and other
documents to the petitioner. The parties only agreed
(4) [W]hen the judgment is based on a that the respondents must present the same within a
misapprehension of facts;cralawlawlibrary "reasonable time." Reasonable time means "so much
time as is necessary under the circumstances for a
(5) [W]hen the findings of fact are conflicting; reasonably prudent and diligent man to do,
conveniently, what the contract or duty requires that
(6) [W]hen xxx the Court of Appeals[, in making its should be done, having a regard for the rights and
findings,] went beyond the issues of the case [and the possibility of loss, if any, to the other party."35 Such
same is] contrary to the admissions of both the reasonable time was determined by the respondents
appellant and the appellee;cralawlawlibrary through the letter dated 15 August 1984. The
respondents acknowledged their obligation to deliver
(7) [W]hen the findings are contrary to [those] the title and asked for a new period to do so. It states:
of the trial court;
The preparation of the advance survey plan, technical
(8) [W]hen the findings [of fact] are conclusions description and Engineer's Certificate pursuant to
without citation of specific evidence on which they are Land Administrative Order No. 10-4 has been
based;cralawlawlibrary submitted to the Regional Land Office, and approved
by the Regional Director.
(9) [W]hen the facts set forth in the petition as well
as in the petitioner's main and reply briefs are not Arty. Valera is now in the process of preparing the
disputed by the respondents;cralawlawlibrary petition papers of the Calaba property for submission
to the local court.
(10) [w]hen the findings of fact [of the Court of
Appeals] are premised on the supposed absence x x x x
of evidence and contradicted by the evidence on
record and The Bañez heirs will only claim for the full payment of
the property upon presentation of a clean title and
(11) [When] the Court of Appeals manifestly execution of a Deed of Sale signed by the heirs.36
overlooked certain irrelevant facts not disputed by the
parties, which, if properly considered, would justify a
The accrual of the cause of action to demand the titling
different conclusion.29
of the land cannot be earlier than 15 August 1984. So
that, the petitioner can sue on the contract until 15
August 1994. Prior to the expiration of the aforesaid
period, the petitioner sent a demand letter to Hojilla
dated 29 May 1991. A few months thereafter,
petitioner sent another demand letter to Hojilla dated
24 October 1991.37 The prescriptive period was
interrupted on 29 May 1991.
The consequence is stated in Article 1155 of the Civil
Code. It states, "[t]he prescription of actions is
interrupted when they are filed before the court, when
there is a written extrajudicial demand by the
creditors, and when there is any written
acknowledgment of the debt by the debtor."
Following the law, the new ten-year period for the
filing of a case by the petitioner should be counted
from 29 May 1991, ending on 29 May 2001. The
complaint at bar was filed on 10 April 2000, well within
the required period.
Notably, before the expiration of the new prescriptive
period, the petitioner again sent a new demand letter
on 6 July 1999, which again caused the same to run
anew, which will expire on 6 July 2009. The complaint
filed on 10 April 2000 was timely.
The Contract and True Intent of the Parties
Based on the stipulation in the Contract, the parties
agreed that payment shall be made only upon
presentation of the title and other documents of the
subject property to petitioner. Paragraph 8 of the
Contract reads:
8. An absolute deed of sale containing the above
provisions and standard warranties on conveyances of
real property shall be executed by the co-owners in
favor of CRC or its assignee/s and the same delivered
to the latter together with the original certificate of
title upon payment of the purchase price less the
advances made by CRC in accordance with Paragraphs
2 and 3 above; provided, that payment shall be
made by CRC only upon presentation by the co-
owners to CRC of certificate/s and/or
clearances, with corresponding receipts, issued
by the appropriate government office/s or
agency/ies to the effect that capital gains tax,
real estate taxes on the Property and local
transfer tax and other taxes, fees or charges due
on the transaction and/or on the Property have
been paid.38 (Emphasis and underscoring ours)
The true intent of the parties is further enunciated in
Hojilla's letter to petitioner dated 15 August 1984,
which stated, "[t]he Bañez heirs will only claim for
the full payment of the property upon
presentation of a clean title and execution of a
Deed of Sale signed by the heirs."39
To rule in favor of respondents despite their failure to
perform their obligations is the height of injustice.
Respondents cannot benefit from their own inaction
and failure to comply with their obligations in the
Contract and let the petitioner suffer from
respondents' own default.
WHEREFORE, the petition is GRANTED. The
Decision of the Court of Appeals dated 23 August 2005
in CA-G.R. CV No. 70137, affirming the Order of the
Regional Trial Court, which ruled that the action has
prescribed, is reversed and set aside. Let the records
of this case be REMANDED to the court of origin,
which is DIRECTED to admit the Answer with
Counterclaim of the petitioner for further trial on the
merits. The respondents are further ordered to return
possession of the subject property to petitioner. No
pronouncement as to costs.
SO ORDERED.chanroblesvirtuallawlibrary
[G.R. No. 165420. June 30, 2005]
CONCEPCION R. AINZA, substituted by her legal
heirs, DR. NATIVIDAD A. TULIAO,
CORAZON A. JALECO and LILIA A.
OLAYON, petitioners, vs. SPOUSES
ANTONIO PADUA and EUGENIA
PADUA, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review on certiorari assails the
February 24, 2004 decision of the Court of Appeals in
CA-G.R. CV No. 70239,[1] and its September 28, 2004
resolution, denying reconsideration thereof.[2]
In her complaint for partition of real property,
annulment of titles with damages,[3] Concepcion Ainza
(Concepcion) alleged that respondent-spouses
Eugenia (Eugenia) and Antonio Padua (Antonio)
owned a 216.40 sq. m. lot with an unfinished
residential house located at No. 85-A Durian corner
Pajo Sts., Barangay Quirino 2-C, Project 2, Quezon
City, covered by Transfer Certificate of Title No.
271935. Sometime in April 1987, she bought one-half
of an undivided portion of the property from her
daughter, Eugenia and the latters husband, Antonio,
for One Hundred Thousand Pesos (P100,000.00).
No Deed of Absolute Sale was executed to
evidence the transaction, but cash payment was
received by the respondents, and ownership was
transferred to Concepcion through physical delivery to
her attorney-in-fact and daughter, Natividad Tuliao
(Natividad). Concepcion authorized Natividad and the
latters husband, Ceferino Tuliao (Ceferino) to occupy
the premises, and make improvements on the
unfinished building.
Thereafter, Concepcion alleged that without her
consent, respondents caused the subdivision of the
property into three portions and registered it in their
names under TCT Nos. N-155122, N-155123 and N-
155124 in violation of the restrictions annotated at the
back of the title.
On the other hand, Antonio averred that he
bought the property in 1980 and introduced
improvements thereon. Between 1989 and 1990, he
and his wife, Eugenia, allowed Natividad and Ceferino
to occupy the premises temporarily. In 1994, they
caused the subdivision of the property and three (3)
separate titles were issued.
 Thereafter, Antonio requested Natividad to
vacate the premises but the latter refused and claimed
that Concepcion owned the property. Antonio thus
filed an ejectment suit on April 1, 1999. Concepcion,
represented by Natividad, also filed on May 4, 1999 a
civil case for partition of real property and annulment
of titles with damages.
Antonio claimed that his wife, Eugenia, admitted
that Concepcion offered to buy one third (1/3) of the
property who gave her small amounts over several
years which totaled P100,000.00 by 1987 and for
which she signed a receipt.
On January 9, 2001, the Regional Trial Court of
Quezon City, Branch 85, rendered judgment[4] in favor
of Concepcion, the dispositive portion of which states:
WHEREFORE, premises considered, judgment is
hereby rendered in favor of the plaintiff and against
the defendants and ordering:
1. the subdivision of the subject property
between the said plaintiff and
defendants in equal shares with one-
half of the property, including the
portion occupied by the spouses
Severino and Natividad Tuliao to be
awarded to the plaintiff;
2. the cancellation of Transfer Certificates
of Title Nos. N-155122, N-155123, N-
155124 of the Registry of Deeds of
Quezon City;
3. the defendants to pay to the plaintiff
P50,000.00 as attorneys fees.
SO ORDERED.[5]
The trial court upheld the sale between Eugenia
and Concepcion. It ruled that the sale was
consummated when both contracting parties complied
with their respective obligations. Eugenia transferred
possession by delivering the property to Concepcion
who in turn paid the purchase price. It also declared
that the transfer of the property did not violate the
Statute of Frauds because a fully executed contract
does not fall within its coverage.
On appeal by the respondents, the Court of
Appeals reversed the decision of the trial court, and
declared the sale null and void. Applying Article 124
of the Family Code, the Court of Appeals ruled that
since the subject property is conjugal, the written
consent of Antonio must be obtained for the sale to be
valid. It also ordered the spouses Padua to return the
amount of P100,000.00 to petitioners plus interest.[6]
The sole issue for resolution in this petition for
review is whether there was a valid contract of sale
between Eugenia and Concepcion.
A contract of sale is perfected by mere consent,
upon a meeting of the minds on the offer and the
acceptance thereof based on subject matter, price and
terms of payment.[7]
In this case, there was a perfected contract of
sale between Eugenia and Concepcion. The records
show that Eugenia offered to sell a portion of the
property to Concepcion, who accepted the offer and
agreed to pay P100,000.00 as consideration. The
contract of sale was consummated when both parties
fully complied with their respective obligations.
Eugenia delivered the property to Concepcion, who in
turn, paid Eugenia the price of One Hundred Thousand
Pesos (P100,000.00), as evidenced by the receipt
which reads:
RECEIPT
Received the amount of ONE HUNDRED THOUSAND
PESOS (P100,000.00) as payment for the lot on 85-A
Durian St., Project 2, Quezon City, from Mrs.
Concepcion R. Ainza, on April, 1987.
____
___(
Sgd.
)___
___
Mrs..
Euge
nia
A.
Padu
a[8]
The verbal contract of sale between Eugenia and
Concepcion did not violate the provisions of the
Statute of Frauds that a contract for the sale of real
property shall be unenforceable unless the contract or
some note or memorandum of the sale is in writing
and subscribed by the party charged or his
agent.[9] When a verbal contract has been completed,
executed or partially consummated, as in this case, its
enforceability will not be barred by the Statute of
Frauds, which applies only to an executory
agreement.[10] Thus, where one party has performed
his obligation, oral evidence will be admitted to prove
the agreement.[11]
In the instant case, the oral contract of sale
between Eugenia and Concepcion was evidenced by a
receipt signed by Eugenia. Antonio also stated that his
wife admitted to him that she sold the property to
Concepcion.
It is undisputed that the subject property was
conjugal and sold by Eugenia in April 1987 or prior to
the effectivity of the Family Code on August 3, 1988,
Article 254 of which repealed Title V, Book I of the
Civil Code provisions on the property relations
between husband and wife. However, Article 256
thereof limited its retroactive effect only to cases
where it would not prejudice or impair vested or
acquired rights in accordance with the Civil Code or
other laws. In the case at bar, vested rights of
Concepcion will be impaired or prejudiced by the
application of the Family Code; hence, the provisions
of the Civil Code should be applied.
In Felipe v. Heirs of Aldon, et al.,[12] the legal
effect of a sale of conjugal properties by the wife
without the consent of the husband was clarified, to
wit:
The legal ground which deserves attention is the legal
effect of a sale of lands belonging to the conjugal
partnership made by the wife without the consent of
the husband.
It is useful at this point to re-state some elementary
rules: The husband is the administrator of the
conjugal partnership. (Art. 165, Civil Code) Subject to
certain exceptions, the husband cannot alienate or
encumber any real property of the conjugal
partnership without the wifes consent. (Art.
166, Idem.) And the wife cannot bind the conjugal
partnership without the husbands consent, except in
cases provided by law. (Art. 172, Idem.).
In the instant case, Gimena, the wife, sold lands
belonging to the conjugal partnership without the
consent of the husband and the sale is not covered by
the phrase except in cases provided by law. The Court
of Appeals described the sale as invalid a term which
is imprecise when used in relation to contracts
because the Civil Code uses specific names in
designating defective contracts,
namely: rescissible (Arts. 1380 et
seq.), voidable (Arts. 1390 et
seq.), unenforceable (Arts. 1403, et seq.), and void
or inexistent (Arts. 1409 et seq.).
The sale made by Gimena is certainly a defective
contract but of what category? The answer: it is
a voidable contract.
According to Art. 1390 of the Civil Code, among the
voidable contracts are [T]hose where one of the
parties is incapable of giving consent to the contract.
(Par. 1.) In the instant case Gimena had no capacity
to give consent to the contract of sale. The capacity to
give consent belonged not even to the husband alone
but to both spouses.
The view that the contract made by Gimena is a
voidable contract is supported by the legal
provision that contracts entered by the husband
without the consent of the wife when such
consent is required, are annullable at her
instance during the marriage and within ten
years from the transaction questioned. (Art.
173, Civil Code).
Gimenas contract is not rescissible for in such a
contract all the essential elements are untainted but
Gimenas consent was tainted. Neither can the
contract be classified as unenforceable because it does
not fit any of those described in Art. 1403 of the Civil
Code. And finally, the contract cannot be void or
inexistent because it is not one of those mentioned in
Art. 1409 of the Civil Code. By process of elimination,
it must perforce be a voidable contract.
The voidable contract of Gimena was subject to
annulment by her husband only during the marriage
because he was the victim who had an interest in the
contract. Gimena, who was the party responsible for
the defect, could not ask for its annulment. Their
children could not likewise seek the annulment of the
contract while the marriage subsisted because they
merely had an inchoate right to the lands sold.
(Emphasis supplied)
The consent of both Eugenia and Antonio is
necessary for the sale of the conjugal property to be
valid. Antonios consent cannot be
presumed.[13] Except for the self-serving testimony of
petitioner Natividad, there is no evidence that Antonio
participated or consented to the sale of the conjugal
property. Eugenia alone is incapable of giving consent
to the contract. Therefore, in the absence of Antonios
consent, the disposition made by Eugenia is
voidable.[14]
The contract of sale between Eugenia and
Concepcion being an oral contract, the action to annul
the same must be commenced within six years from
the time the right of action accrued.[15] Eugenia sold
the property in April 1987 hence Antonio should have
asked the courts to annul the sale on or before April
1993. No action was commenced by Antonio to annul
the sale, hence his right to seek its annulment was
extinguished by prescription.
Even assuming that the ten (10)-year
prescriptive period under Art. 173 should apply,
Antonio is still barred from instituting an action to
annul the sale because since April 1987, more than
ten (10) years had already lapsed without any such
action being filed.
In sum, the sale of the conjugal property by
Eugenia without the consent of her husband is
voidable. It is binding unless annulled. Antonio failed
to exercise his right to ask for the annulment within
the prescribed period, hence, he is now barred from
questioning the validity of the sale between his wife
and Concepcion.
WHEREFORE, the petition is GRANTED. The
decision dated February 24, 2004 of the Court of
Appeals in CA-G.R. CV No. 70239 and its resolution
dated September 28, 2004 are REVERSED and SET
ASIDE. The decision dated January 9, 2001 of the
Regional Trial Court of Quezon City, Branch 85, in Civil
Case No. Q-99-37529, is REINSTATED.
SO ORDERED.
[ GR No. 190828, Mar 16, 2015 ]
ONOFRE V. MONTERO v. TIMES TRANSPORTATION
CO. +
DECISION
REYES, J.:
This appeal by petition for review[1] seeks to annul and
set aside the Decision[2] dated August 28, 2009 and
Resolution[3] dated December 11, 2009 of the Court of
Appeals (CA) in CA-G.R. SP No. 106260, which
affirmed the Decision[4] dated March 31, 2008 of the
National Labor Relations Commission (NLRC) in NLRC
CA No. 046325-05 (08), and its Resolution[5] dated
September 5, 2008, denying the petitioner's Motion
for Reconsideration. The NLRC decision vacated and
set aside the Decision[6] dated June 29, 2005 of the
Labor Arbiter (LA) on the ground that the consolidated For a second time, on October 17, 1997, TEU declared
complaints for illegal dismissal, unfair labor practice a strike against TTCI, but the latter merely reiterated
and money claims have already prescribed. the earlier return-to-work order of the Labor
Secretary. For disregarding the said return-to-work
order, Santiago issued two notices of termination
dated October 26, 1997[12] terminating some 106
The Facts workers and a revised list dated November 24,
1997[13] increasing the number of dismissed
employees to 119, for participating in the illegal
Respondent Times Transportation Co., Inc., (TTCI) is
strike.[14]
a company engaged in the business of land
transportation for passengers and goods serving the
On December 4, 1997, Santiago served to the
Ilocos Region to Metro Manila route. TTCI employed
Department of Labor and Employment Regional Office
the herein 21 petitioners as bus drivers, conductors,
I a notice that TTCI would be closing its operations
mechanics, welders, security guards and utility
due to heavy business losses.[15]
personnel, namely: Onofre V. Montero (Montero),
Edgardo N. Estrañero (Estrañero), Rening P. Padre
On May 14, 1998, petitioners Estrañero, Pajarillo,
(Padre), Gabriel A. Madera (Madera), Herminio T.
Padre, Avila, Avila, Jr., Tupasi, Cuenta, Dulay, Yago,
Tacla, Nelson C. Viloria, Demetrio Q. Pajarillo
and Aganon filed several complaints against TTCI and
(Pajarillo), Alfredo R. Aganon (Aganon), Reynaldo
MENCORP before the NLRC. The complaints were
Avila (Avila), Albert T. Ruiz, Nestor Y. Yago (Yago),
thereafter consolidated under the case entitled
Harty M. Tupasi (Tupasi), Agustin R. Avila, Jr. (Avila,
"Malana v. TTCI" docketed as NLRC RAB-I-01-
Jr.), Bonifacio B. Gaano (Gaano), Joselito D. Cuenta
1007.[16] However, this case was withdrawn on March
(Cuenta), Jonas P. Estilong (Estilong), Dominador C.
4, 1999 upon motion by the TEU's counsel which was
Canaria (Canaria), Genaro C. Rondaris (Genaro),
given due course on March 22, 1999.[17]
Herardo M. Dulay (Dulay), Franklin A. Ravina, Jr.
(Ravina), and Ruben C. Cabello (Cabello)
Four years later, several complaints for unfair labor
(petitioners).[7]
practice, illegal dismissal with money claims, damages
and attorney's fees were filed against TTCI, Santiago,
Sometime in 1995, the rank-and-file employees of
MENCORP and its General Manager Virginia Mendoza,
TTCI formed a union named as Times Employees
including the latter's husband Reynaldo Mendoza
Union (TEU) which was later certified as the sole and
(collectively called the respondents), before the LA
exclusive bargaining unit within TTCI.[8]
from June to July 2002.[18] Accordingly, these
complaints were consolidated.
In March 1997, members of TEU went on strike; but
when former Labor Secretary Leonardo A. Quisimbing
In response, TTCI asserted that the petitioners' cause
assumed jurisdiction over the labor dispute and
of action had already been barred by prescription
certified the same for compulsory arbitration, a
because the complaints were filed only in June 2002
return-to-work Order dated March 10, 1997 was
or after almost five years from the date of their
issued which ended the strike and enjoined the parties
dismissal. MENCORP, on the other hand, raised the
from committing any other act that may intensify the
defense of lack of employer-employee relationship
situation.[9]
since it never engaged the services of the petitioners
when TTCI sold to them its buses and the Certificates
On August 23, 1997, TTCI Board of Directors approved
of Public Convenience.[19]
a resolution confirming the authority given to
respondent Santiago Rondaris (Santiago), TTCI
On June 9, 2005, the LA rendered a Decision
President and Chairman of the Board of Directors, to
dismissing the petitioners' claim for unfair labor
gradually dispose the assets of the TTCI as a result of
practice and money claims on the ground of
its unabated increase of the cost of operations and
prescription. However, with regard to the issue of
losses for the last two years. TTCI also adopted a
illegal dismissal, only the complaints of Montero,
company-wide retrenchment program, which will take
Ravina, Cabello, Genaro, Madera, Gaano, Arsenio
effect on October 1, 1997, where Santiago was given
Donato and Estilong were dismissed for having been
the authority to determine the number of excess
barred by prescription.[20]
employees who would be the subject of
retrenchment.[10]
The LA found that petitioners Estrañero, Pajarillo,
Aganon, Padre, Dulay, Cuenta, Canaria, Yago, Avila
The sale of 25 buses of TTCI, as well as the Certificates
and Avila, Jr. were illegally dismissed and were
of Public Convenience for the operation of the buses,
awarded their separation pay and backwages.
were likewise approved and subsequently transferred
According to the LA, the complaints of these 10
to respondent Mencorp Transport Systems, Inc.,
petitioners were timely filed in June 2002 because the
(MENCORP) by virtue of a Deed of Sale dated
eight-month period during which their cases were
December 12, 1997. Thereafter, several union
pending should be excluded from the four-year
members received notices that they were being
prescriptive period.[21]
retrenched effective 30 days from September 16,
1997.[11]
Disagreeing with the LA decision, all parties
interposed an appeal before the NLRC. However, said
appeals have both been denied for non-perfection,
particularly for failure of the petitioners to verify their
appeal, and for failure of the respondent to post the
required cash or surety bond. In a Decision[22] dated
March 31, 2008, the NLRC vacated and set aside the
findings of the LA, upon finding that the petitioners'
complaints had already been barred by prescription.
The dispositive part of which reads:
WHEREFORE, IN VIEW OF THE FOREGOING, the
decision appealed from is hereby VACATED and SET
ASIDE, and the complaints dismissed on ground of
prescription.
SO ORDERED.[23]
The NLRC observed that the LA had ignored the rule
on prescription, and chose to be selective in awarding
relief to the 10 complainants by stating in his decision
that the period during which the labor cases were
pending should be deducted from the period of
prescription. According to the NLRC:
We have thoroughly examined the records and find no
justification for the [LA] to rule that the pendency of
the cases has worked in favor of the complainants to
whom he awarded separation pay and backwages.
The [LA] has not at all indicated in his decision when
the eight (8)[-]month period of pendency he alluded
to commenced and when it ended. As a matter of fact,
these cases took almost three (3) years from filing of
the complaints to the rendition of the appealed
decision.[24]
The NLRC added that the application of the principle
of prescription should not be done on a selective basis,
especially when the dates of accrual of the causes of
action and the filing of the complaints readily show
that prescription has set in.[25]
The petitioners filed a motion for
reconsideration[26] dated May 16, 2008, but it was
denied.[27] Hence, they filed a petition for
certiorari[28] before the CA.
On August 28, 2009, the CA Decision dismissed the
petition.[29] In sustaining the NLRC decision, the
appellate court ratiocinated:
Here, the illegal dismissal case was filed only in June
2002 or for more than four (4) years and seven (7)
months from the time petitioners received the notices
of their dismissal in November and October 1997.
Clearly, the four-year prescriptive period has already
elapsed.
Moreover, there is likewise no merit in petitioners'
contention that the period when they filed a complaint
on May 14, 1998 but withdrawn on March 30, 1998
should be excluded from the computation of the four-
year prescriptive [period] for illegal dismissal cases.
The prescriptive period continues even after the
withdrawal of the case as though no action has been
filed at all. This was clarified in the case
of Intercontinental Broadcasting Corporation vs.
Panganiban, where the Supreme Court held that
although the commencement of an action stops the
running of the statute of prescription or limitations, its
dismissal or voluntary abandonment by plaintiff leaves
the parties in exactly the same position as though no
action had been commenced at all. x x x.[30]
Aggrieved by the foregoing disquisition, the
petitioners moved for reconsideration[31]but it was
denied by the CA.[32] Hence, the present petition for
review on certiorari.[33]
The Issue
The main issue in this case is whether or not the
petitioners' complaints for illegal dismissal have
already prescribed.
Ruling of the Court
The petition is bereft of merit.
"It should be emphasized at the outset that as a rule,
this Court is not a trier of facts and this applies with
greater force in labor cases. Hence, factual findings of
quasi-judicial bodies like the NLRC, particularly when
they coincide with those of the [LA] and if supported
by substantial evidence, are accorded respect and
even finality by this Court. But where the findings of
the NLRC and the [LA] are contradictory, as in the
present case, this Court may delve into the records
and examine for itself the questioned findings."[34]
Nevertheless, the Court has thoroughly reviewed the
records in this case and finds that the NLRC did not
commit any grave abuse of its discretion amounting
to lack or in excess of jurisdiction in rendering its
decision in favor of the respondents. The CA acted in
accord with the evidence on record and case law when
it dismissed the petition and affirmed the assailed
decision and resolution of the NLRC.
In the case at bar, October 26, 1997 and November
24, 1997 appear on record to be the dates when the
petitioners' employment were terminated by TTCI.
The antecedent facts that gave rise to the petitioners'
dismissal from employment are not disputed in this
case. There is no question about the fact that the
petitioners' complaints for unfair labor practice and
money claims have already prescribed. The
petitioners however argue that their complaints for
illegal dismissal were duly filed within the four-year
prescriptive period since the period during which their
cases were pending should be deducted from the
period of prescription. On the other hand, the
respondents insist that said complaints have already
prescribed. Hence, the pivotal question in resolving
the issues hinges on the resolution of whether the
period during which the petitioners' cases were
pending should be excluded from the period of labor. The management also has its own rights. Out
prescription. of concern for the less privileged in life, this Court, has
more often than not inclined, to uphold the cause of
Settled is the rule that when one is arbitrarily and the worker in his conflict with the employer. Such
unjustly deprived of his job or means of livelihood, the leaning, however, does not blind the Court to the rule
action instituted to contest the legality of one's that justice is in every case for the deserving, to be
dismissal from employment constitutes, in essence, dispensed in the light of the established facts and
an action predicated upon an injury to the rights of applicable law and doctrine.[42]
the plaintiff, as contemplated under Article 1146[35] of
the New Civil Code, which must be brought within four WHEREFORE, the Decision dated August 28, 2009
years.[36] and Resolution dated December 11, 2009 of the Court
of Appeals in CA-G.R. SP No. 106260 are AFFIRMED.
The petitioners contend that the period when they
filed a labor case on May 14, 1998 but withdrawn on SO ORDERED.
March 22, 1999 should be excluded from the
computation of the four-year prescriptive period for
illegal dismissal cases. However, the Court had
already ruled that the prescriptive period continues G.R. No. 175949, January 30, 2017
even after the withdrawal of the case as though no
action has been filed at all. The applicability of Article UNITED ALLOY PHILIPPINES CORPORATION,
1155[37] of the Civil Code in labor cases was upheld in SPOUSES DAVID C. CHUA AND LUTEN
the case of Intercontinental Broadcasting Corporation CHUA, Petitioners, v. UNITED COCONUT
v. Panganiban[38] where the Court held that "although PLANTERS BANK, Respondent.
the commencement of a civil action stops the running
of the statute of prescription or limitations, its DECISION
dismissal or voluntary abandonment by plaintiff leaves
the parties in exactly the same position as though no
PERALTA, J.:
action had been commenced at all."[39]

In like manner, while the filing of the complaint for
illegal dismissal before the LA interrupted the running
of the prescriptive period, its voluntary withdrawal left
the petitioners in exactly the same position as though
no complaint had been filed at all. The withdrawal of
their complaint effectively erased the tolling of the
reglementary period.
A prudent review of the antecedents of the claim
reveals that it has in fact prescribed due to the
petitioners' withdrawal of their labor case docketed as
NLRC RAB-I-01-1007.[40] Hence, while the filing of the
said case could have interrupted the running of the
four-year prescriptive period, the voluntary
withdrawal of the petitioners effectively cancelled the
tolling of the prescriptive period within which to file
their illegal dismissal case, leaving them in exactly the
same position as though no labor case had been filed
at all. The running of the four-year prescriptive period
not having been interrupted by the filing of NLRC RAB-
I-01-1007, the petitioners' cause of action had already
prescribed in four years after their cessation of
employment on October 26, 1997 and November 24,
1997. Consequently, when the petitioners filed their
complaint for illegal dismissal, separation pay,
retirement benefits, and damages in 2002, their
claim, clearly, had already been barred by
prescription.[41]
Sadly, the petitioners have no one but themselves to
blame for their own predicament. By their own
allegations in their respective complaints, they have
barred their remedy and extinguished their right of
action. Although the Constitution is committed to the
policy of social justice and the protection of the
working class, it does not necessary follow that every
labor dispute will be automatically decided in favor of
Before the Court is a petition for review
on certiorari seeking the reversal and setting aside of
the Decision1 and Resolution2 of the Court of
Appeals (CA), dated September 21, 2006 and
December 11, 2006, respectively, in CA-G.R. CV No.
81079. The assailed Decision affirmed the Decision of
the Regional Trial Court (RTC) of Makati City, Branch
135, in Civil Case No. 01-1332, while the questioned
Resolution denied petitioners' Motion for
Reconsideration.
The pertinent factual and procedural antecedents of
the case are as follows:chanRoblesvirtualLawlibrary
On December 18, 2000, herein petitioner corporation,
United Alloy Philippines
Corporation (UNIALLOY) applied for and was granted
a credit accommodation by herein respondent United
Coconut Planters Bank (UCPB) in the amount of
PhP50,000,000.00, as evidenced by a Credit
Agreement.3 Part of UNIALLOY's obligation under the
Credit Agreement was secured by a Surety
Agreement,4 dated December 18, 2000, executed by
UNIALLOY Chairman, Jakob Van Der Sluis (Van Der
Sluis), UNIALLOY President, David Chua and his
spouse, Luten Chua (Spouses Chua), and one Yang
Kim Eng (Yang). Six (6) Promissory Notes,5were later
executed by UNIALLOY in UCPB's favor, to
wit:chanRoblesvirtualLawlibrary
1) #8111-00-20031-1, executed on December 18,
2000, in the amount of US$110,000.00;
2) #8111-00-00110-6, executed on December 18,
2000, in the amount of PhP6,000,000.00;
3) #8111-00-00112-2, executed on December 27,
2000, in the amount of PhP3,900,000.00;
4) #8111-01-20005-6, executed on February 7, 2001,
in the amount of US$320,000.00;
5) #8111-01-00009-0, executed on February 26,
2001, in the amount of PhP1,600,000.00;
6) #8111-01-00030-8, executed on April 30, 2001, in
the amount of PhP16,029,320.88.
In addition, as part of the consideration for the credit
accommodation, UNIALLOY and UCPB also entered
into a "lease-purchase" contract wherein the former
assured the latter that it will purchase several real
properties which UCPB co-owns with the Development
Bank of the Philippines.
Subsequently, UNIALLOY failed to pay its loan
obligations. As a result, UCPB filed against UNIALLOY,
the spouses Chua, Yang and Van Der Sluis an action
for Sum of Money with Prayer for Preliminary
Attachment6 on August 27, 2001. The collection case
was filed with the Regional Trial Court of Makati
City (RTC of Makati) and docketed as Civil Case No.
01-1332. Consequently, UCPB also unilaterally
rescinded its lease-purchase contract with UNIALLOY.
On the other hand, on even date, UNIALLOY filed
against UCPB, UCPB Vice-President Robert Chua and
Van Der Sluis a complaint for Annulment and/or
Reformation of Contract with Damages, with Prayer
for a Writ of Preliminary Injunction or Temporary
Restraining Order.7 Claiming that it holds office and
conducts its business operations in Tagoloan, Misamis
Oriental, UNIALLOY filed the case with the Regional
Trial Court of Cagayan De Oro City (RTC of CDO) and
was docketed as Civil Case No. 2001-219. UNIALLOY
contended that Van Der Sluis, in cahoots with UCPB
Vice-President Robert Chua, committed fraud,
manipulation and misrepresentation to obtain the
subject loan for their own benefit. UNIALLOY prayed,
among others, that three (3) of the six (6) Promissory
Notes it executed be annulled or reformed or that it
be released from liability thereon.
On September 12, 2001, UNIALLOY filed an Urgent
Motion to Dismiss8 the collection case (Civil Case No.
01-1332) filed by UCPB on the ground of litis
pendentia and forum shopping. UNIALLOY contended
that its complaint for annulment of contract (Civil Case
No. 2001-219) and the collection case filed by UCPB
involves the same parties and causes of action. On
October 31, 2001, the RTC of Makati issued an
Order9denying UNIALLOY's motion to dismiss.
In the meantime, UCPB and its co-defendants also
filed a Motion to Dismiss UNIALLOY's complaint for
annulment of contract on the grounds of improper
venue, forum shopping, litis pendentia, and
harassment or nuisance suit. On September 13, 2001,
the RTC of CDO issued an Order10 dismissing
UNIALLOY's complaint for annulment of contract. The
dispositive portion of the Order reads,
thus:chanRoblesvirtualLawlibrary
ACCORDINGLY, finding meritorious that the venue is
improperly laid and the complain[ant] engaged in
forum-shopping and harassment of defendant Jakob
Van Der Sluis, this case is hereby DISMISSED
rendering the prayer for issuance of a writ of
preliminary injunction moot and academic, and
ordering plaintiff to turn over possession of the subject
premises of the properties in question at Barangay
Gracia, Tagoloan, Misamis Oriental to defendant
United Coconut Planters Bank.
SO ORDERED.11
Thereafter, on motion, the RTC of CDO issued an
Order of Execution, dated September 14, 2001,
directing UNIALLOY to tum over to UCPB the property
subject of their lease-purchase agreement.
UNIALLOY then filed a petition
for certiorari and mandamus with the CA questioning
the September 13 and September 14, 2001 Orders of
the RTC of CDO. UNIALLOY also prayed for the
issuance of a writ of preliminary injunction. The case
was docketed as CA G.R. SP. No. 67079.
On February 18, 2002, the CA promulgated a
Resolution12 granting UNIALLOY's prayer for the
issuance of a writ of preliminary injunction. UCPB
questioned the above CA Resolution by filing a petition
for certiorariwith this Court, which was docketed as
G.R. No. 152238. On March 18, 2002, this Court
issued a Resolution which restrained the CA from
enforcing its February 18, 2002 Resolution.
On January 28, 2005, this Court, rendered its Decision
in G.R. No. 152238 denying UCPB's petition
for certiorari and affirming the CA Resolution granting
the writ of preliminary injunction.
Thereafter, on August 17, 2007, the CA promulgated
a Decision dismissing UNIALLOY's certiorari petition
and affirming the September 13 and September 14,
2001 Orders of the RTC of CDO. UNIALLOY then filed
a petition for review on certiorari challenging the
above CA Decision. The case was docketed as G.R. No.
179257.
On November 23, 2015, this Court promulgated a
Decision in G.R. No. 179257 denying UNIALLOY's
petition. This Court held that the CA did not err in
affirming the dismissal of UNIALLOY's complaint on
the grounds of improper venue, forum shopping and
for being a harassment suit. This Court also ruled that
the August 17, 2007 Decision of the CA neither
violated this Court's January 28, 2005 Decision in G.R.
No. 152238 nor contradicted the CA's February 18,
2002 Resolution granting the preliminary injunction
prayed for by UNIALLOY because the dismissal of
UNIALLOY's main action carried with it the dissolution
of any ancillary relief previously granted in the said
case, such as the abovementioned preliminary
injunction. Subsequently, this Court's Decision in G.R.
No. 179257 became final and executory per Entry of
Judgment dated January 20, 2016.
Meanwhile, on March 15, 2002, UNIALLOY filed with
the RTC of Makati an omnibus motion praying for the
suspension of the proceedings of the collection case in
the said court on the ground of pendency of
the certiorari petition it filed with this
Court.13 However, the RTC denied UNIALLOY's motion
in its Order14dated August 19, 2002.
Subsequently, on June 17, 2003, the RTC of Makati
rendered Judgment in the collection case in favor of
UCPB. The dispositive portion of the RTC Decision
reads, thus:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, judgment is
hereby rendered in favor of plaintiff. Defendants are
hereby ordered to pay plaintiff the
following:chanRoblesvirtualLawlibrary
a. The sum of US DOLLARS: (US$435,494.44) with
interest and penalty charges from August 1, 2001 until
fully paid.
b. The sum of P26,940,950.80 with interest and
penalty charges from August 1, 2001 until fully paid.
c. Attorney's fees in the amount of P1,000,000.00.
d. Costs of suit.
SO ORDERED.15
UNIALLOY appealed the above RTC Decision with the
CA.
On September 21, 2006, the CA rendered its assailed
judgment denying UNIALLOY's appeal and affirming
the questioned RTC Decision.
Hence, the instant petition raising the following
issues:chanRoblesvirtualLawlibrary
5.01 THE HONORABLE COURT OF APPEALS
COMMITTED A SERIOUS, REVERSIBLE ERROR, IF NOT
GRAVE ABUSE OF DISCRETION, IN REFUSING TO
RESOLVE AS TO –
I a resident defendant where he may be found, at the
WHETHER OR NOT THE TRIAL COURT ERRED IN
DENYING PETITIONERS' URGENT MOTION TO
DISMISS
II
WHETHER OR NOT THE TRIAL COURT ERRED IN
DENYING PETITIONERS' OMNIBUS MOTION TO
SUSPEND PROCEEDINGS AND TO LIFT WRIT OF
PRELIMINARY ATTACHMENT
III
WHETHER OR NOT THE TRIAL COURT ERRED AND/OR
COMMITTED GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR IN EXCESS OF
JURISDICTION IN RENDERING THE ASSAILED
QUESTIONED DECISION WHEN THERE IS A PENDING
CIVIL ACTION BEFORE THE REGIONAL TRIAL COURT
OF CAGAYAN DE ORO, BRANCH 40, INVOLVING THE
SAME PARTIES AND SUBJECT MATTER WHICH CASE,
IS NOW PENDING AND ASSAILED BY THE PLAINTIFF-
APPELLEE VIA PETITION BEFORE THE HONORABLE
SUPREME COURT.
5.02 THE HONORABLE COURT OF APPEALS
COMMITTED A SERIOUS, REVERSIBLE ERROR IF NOT
GRAVE ABUSE OF DISCRETION, IN DENYING
PETITIONERS' URGENT MOTION FOR
RECONSIDERATION WITHOUT STATING CLEARLY
AND DISTINCTLY THE FACTUAL AND LEGAL BASIS
THEREOF.16
Petitioners' basic argument is that the resolution of
the instant petition basically hinges on the outcome of
the petition filed under G.R. No. 179257. Considering
that the promissory notes subject of G.R. No. 179257
are among the promissory notes which are also
involved in the present case, petitioner contends that
a judgment by this Court in G.R. No. 179257 that
reverses the Decision of the RTC of Cagayan de Oro
City, which in effect would declare the nullity of the
subject promissory notes, may conflict with the
Decision of this Court in the present petition, which
involves the collection of the sum being represented
in the same promissory notes. Thus, petitioner prays
for the dismissal of the collection case (Civil Case No.
01-1332) filed by UCPB or the suspension of
proceedings therein pending resolution of its petition
in G.R. No. 179257.
However, as mentioned above, on November 23,
2015, the 2nd Division of this Court already came up
with a Decision in G.R. No. 179257 which affirmed the
RTC's dismissal of UNIALLOY's complaint. Pertinent
portions of the said Decision read as
follows:chanRoblesvirtualLawlibrary
CA CDO did not err in affirming the
dismissal of UniAiloy's Complaint on the
grounds of improper venue, forum shopping
and for being a harassment suit
The RTC was correct in dismissing UniAlloy's
Complaint on the ground of improper venue. In
general, personal actions must be commenced and
tried (i) where the plaintiff or any of the principal
plaintiffs resides, (ii) where the defendant or any of
the principal defendants resides, or (III) in the case of
election of the plaintiff. Nevertheless, the parties may
agree in writing to limit the venue of future actions
between them to a specified place.
In the case at bench, paragraph 18 of the LPA
expressly provides that "[a]ny legal action arising out
of or in connection with this Agreement shall be
brought exclusively in the proper courts of Makati
City, Metro Manila." Hence, UniAlloy should have filed
its complaint before the RTC of Makati City, and not
with the RTC of Cagayan de Oro City.
But to justify its choice of venue, UniAlloy insists that
the subject matter of its Complaint in Civil Case No.
2001-219 is not the LPA, but the fictitious loans that
purportedly matured on April 17, 2001.
UniAlloy's insistence lacks merit. Its Complaint
unequivocally sought to declare "as null and void the
unilateral rescission made by defendant UCPB of its
subsisting Lease Purchase Agreement with
[UniAlloy]." What UCPB unilaterally rescinded is the
LPA and without it there can be no unilateral rescission
to speak of. Hence, the LPA is the subject matter or at
least one of the subject matters of the Complaint.
Moreover, and to paraphrase the aforecited paragraph
18 of the LPA, as long as the controversy arises out of
or is connected therewith, any legal action should be
filed exclusively before the proper courts of Makati
City. Thus, even assuming that the LPA is not the main
subject matter, considering that what is being sought
to be annulled is an act connected and inseparably
related thereto, the Complaint should have been filed
before the proper courts in Makati City.
With regard forum-shopping, our review of the
records of this case revealed that UniAlloy did not
disclose in the Verification/Certification of the
Complaint the pendency of Civil Case No. 2001-156
entitled "Ernesto Paraiso and United Alloy Philippines
Corporation v. Jakob Van Der Sluis." The trial court
took judicial notice of its pendency as said case is also
assigned and pending before it. Thus, we adopt the
following unrebutted finding of the
RTC:chanRoblesvirtualLawlibrary
These two civil cases have identical causes of action
or issues against defendant Jakob Van Der Sluis for
having misrepresented to plaintiff and its stockholders
that he can extend financial assistance in running the
operation of the corporation, such that on April 6,
2001 plaintiff adopted a Stockholders Resolution
making defendant Jakob chairman of the corporation
for having the financial capability to provide the
financial needs of plaintiff and willing to finance the
operational needs thereof; that a Memorandum of
Agreement was subsequently entered between the
parties whereby defendant Jakob obligated to provide
sufficient financial loan to plaintiff to make it
profitable; that Jakob maliciously and willfiilly reneged
[on] his financial commitments to plaintiff prompting
the stockholders to call his attention and warned him
of avoiding the said agreement; that defendant who
had then complete control of plaintiffs bank account
with defendant UCPB, through fraudulent
machinations and manipulations, was able to
maliciously convince David C. Chua to pre-sign several
checks; that defendant Jakob facilitated several huge
loans purportedly obtained by plaintiff which
defendant himself could not even account and did not
even pay the debts of the corporation but instead
abused and maliciously manipulated plaintiffs
account.
Forum-shopping indeed exists in this case, for both
actions involve the same transactions and same
essential facts and circumstances as well as identical
causes of action, subject matter and issues, x x x
As mentioned above, this Court's Decision m the
above case has become final and executory on
January 20, 2016.
Thus, contrary to petitioners' position, there is no
longer any possibility that the Decision of the RTC of
CDO may conflict with the disposition of the present
case because UNIALLOY's complaint for annulment of
contract has already been dismissed with finality. This
Court will, thus, proceed to resolve the merits of the
instant case.
The fundamental issue here is whether or not herein
petitioners, together with their co-defendants Van Der
Sluis and Yang, are liable to pay respondent the
amounts awarded by the RTC of Makati City in its June
17, 2003 Decision.17
The Court rules in the affirmative.
As ruled upon by both the RTC and the CA, UNIALLOY
failed to pay its obligations under the above
promissory notes and that herein petitioner Spouses
Chua, together with their co-defendants Van Der Sluis
and Yang freely executed a Surety Agreement
whereby they bound themselves jointly and severally
with UNIALLOY, to pay the latter's loan obligations
with UCPB. Pertinent portions of the said Surety
Agreement are reproduced hereunder, to
wit:chanRoblesvirtualLawlibrary
x x x x
ARTICLE I
LIABILITIES OF SURETIES
Section 1.01. The SURETIES, jointly and severally
with the PRINCIPAL, hereby unconditionally and
irrevocably guarantee the full and complete payment
when due, whether at stated maturity, by acceleration
or otherwise, of all sums payable by
the PRINCIPAL under the Credit Agreement, the
Note/s and other related documents or instruments
referred to therein (hereinafter referred to collectively
as the "Loan Documents") the terms and conditions
of which are hereby deemed incorporated by
reference.
The liability of the SURETIES shall not be limited to
the aggregate principal amount of FIFTY MILLION
PESOS (P50,000,000.00), Philippine Currency,
or its foreign currency equivalent, but shall
include such interest, fees, penalties and other
charges due thereon, as well as any and all renewals,
extensions, restructurings or conversions of
the Accommodation or any portion thereof, as may
appear in the books and records of account of
the BANK.
Such extension/s, renewal/s, restructuring/s, or
conversion/s of the Accommodation or any portion
thereof, including any increase in the principal amount
thereof, or the imposable interest rates and other
bank charges, shall be binding upon
the SURETIES under the terms of this SURETY
AGREEMENT, without need of any further notice to
or consent or conformity of the SURETIES, all of
which are hereby expressly waived.
Section 1.02. This SURETY AGREEMENT is a
guarantee of payment and not merely of collection
and is intended to be a perfect and continuing
indemnity in favor of the BANK for the amounts and
to the extent stated above. For this purpose,
the SURETIES hereby commit that for as long as
this SURETY AGREEMENT is in effect,
the SURETIES shall not sell, lease, transfer, assign or
encumber any of its present and future properties
without the written consent of the BANK, which
consent will not be unreasonably withheld.
The liability of the SURETIES shall be absolute,
irrevocable, unconditional, direct, immediate and not
contingent upon the pursuit by the BANK of whatever
remedies it may have against the PRINCIPAL or the
other sureties for the Accommodation, and shall be
performed by the SURETIES strictly in accordance
with the terms hereof and under any and all
circumstances, including the existence of any claim,
set-off, defense or other rights which
the SURETIES or any person or entity may have at
any time against the BANK for any reason
whatsoever, whether or not related to this SURETY
AGREEMENT, the Loan Documents or under such
other documents executed in relation thereto, or
contemplated hereunder.
ARTICLE II
TERM
Section 2.01. This SURETY AGREEMENT shall
remain in full force and effect until payment in full of
all amount for which the PRINCIPAL is or may be
liable as set forth in ARTICLE I hereof, regardless of
the absence of any further or other assent or
conformity of, or notice to the SURETIES, or any
circumstance, or provision of law which might
otherwise constitute a defense or discharge of
the SURETIES, all of which are hereby expressly
waived.
ARTICLE III
DEFAULT
Section 3.01. If the BANK shall declare the obligation
of the PRINCIPAL to be due and payable because of
the happening of any of the event of default as defined
in the Credit Agreement, the SURETIES, upon
receipt of written notice from the BANK, shall
forthwith pay to the BANK the full amount of the said
obligations, without need of demand, protest or notice
of any kind, other than the notice provided herein, all
of which are likewise expressly waived by
the SURETIES.
In this connection, the BANK is hereby given full
power and authority to apply whatever moneys or
things of value belonging to the SURETIES which
may be in the possession or control of the BANK in
payment of the obligations mentioned above.
ARTICLE IV
BINDING EFFECT
Section 4.01. This SURETY AGREEMENT shall
except upon the other SURETIES, if any whose
liability(ies) is/are extinguished by way of compromise
or otherwise be binding upon the SURETIES, their
heirs and successors in interest and shall inure to the
benefit of and be enforceable by the BANK, its assigns
and successors in interest. For this purpose,
the SURETIES have agreed, as they hereby agree,
that an extinguishment of liability(ies) of any of
the SURETIES shall not be an obstacle to
the BANK from demanding payment from the
other SURETIES, if any, so long as
the Accommodation has not been fully collected.
x x x x18
Petitioners do not deny their liability under the
abovequoted Surety Agreement.
As correctly held by both the RTC and the CA, Article
1159 of the Civil Code expressly provides that
"[o]bligations arising from contracts have the force of
law between the contracting parties and should be
complied with in good faith." The RTC as well as the
CA found nothing which would justify or excuse
petitioners from non-compliance with their obligations
under the contract they have entered into. Thus, it
becomes apparent that petitioners are merely
attempting to evade or, at least, delay the inevitable
performance of their obligation to pay under the
Surety Agreement and the subject promissory notes
which were executed in respondent's favor.
The Court notes, however, that the interest rates
imposed on the subject promissory notes were made
subject to review and adjustment at the sole
discretion and under the exclusive will of UCPB.
Moreover, aside from the Consolidated Statement of
Account attached to the demand letters addressed to
petitioner spouses Chua and their co-defendants,19 no
other competent evidence was shown to prove the
total amount of interest due on the above promissory
notes. In fact, based on the attached Consolidated
Statement of Account, UCPB has already imposed a
24% interest rate on the total amount due on
respondents' peso obligation for a short period of six
months. Settled is the rule that any contract which
appears to be heavily weighed in favor of one of the
parties so as to lead to an unconscionable result is
void.19 Any stipulation regarding the validity or
compliance of the contract which is left solely to the
will of one of the parties, is likewise, invalid.20
Moreover, courts have the authority to strike down or
to modify provisions in promissory notes that grant
the lenders unrestrained power to increase interest
rates, penalties and other charges at the latter's sole
discretion and without giving prior notice to and
securing the consent of the borrowers.21 This
unilateral authority is anathema to the mutuality of
contracts and enable lenders to take undue advantage
of borrowers.22 Although the Usury Law has been
effectively repealed, courts may still reduce iniquitous
or unconscionable rates charged for the use of
money.23 Furthermore, excessive interests, penalties
and other charges not revealed in disclosure
statements issued by banks, even if stipulated in the
promissory notes, cannot be given effect under the
Truth in Lending Act.24
The Court, thus, finds it proper to modify the interest
rates imposed on respondents' obligation. Pursuant to
the ruling in Nacar v. Gallery Frames, et. al.,25 the
sums of US$435,494.44 and PhP26,940,950.80 due
to UCPB shall earn interest at the rate of 12% per
annum from the date of default, on August, 1, 2001,
until June 30, 2013 and thereafter, at the rate of 6%
per annum, from July 1, 2013 until finality of this
Decision. The total amount owing to UCPB as set forth
in this Decision shall further earn legal interest at the
rate of 6% per annum from its finality until full
payment thereof, this interim period being deemed to
be by then an equivalent to a forbearance of credit.
Finally, pursuant to the parties' Credit Agreement as
well as the subject Promissory Notes, respondents are
also liable to pay a penalty charge at the rate of 1%
per month or 12% per annum.
WHEREFORE, the instant petition is DENIED. The
Decision and Resolution of the Court of Appeals, dated
September 21, 2006 and December 11, 2006,
respectively, in CA-G.R. CV No. 81079,
are AFFIRMED with MODIFICATION by directing
petitioners and their co-defendants to pay respondent
UCPB the following:chanRoblesvirtualLawlibrary
(1) the principal amounts of US$435,494.44 and
PhP26,940,950.80;chanrobleslaw
(2) legal interest of 12% per annum on the above
principal amounts reckoned from August 1, 2001 until
June 30, 2013;chanrobleslaw
(3) penalty charge of 12% per annum from August 1,
2001 until fully paid; and
(4) an interest of 6% from July 1, 2013 until fully paid.
SO ORDERED.chanroblesvirtuallawlibrary
G.R. No. 189316 June 1, 2013
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
SPOUSES BERNARD and CRESENCIA
MARANON, Respondents.
RESOLUTION
REYES, J.:
This is a petition for review on certiorari1 under Rule
45 of the Rules of Court, assailing the Decision2 dated
June 18, 2008 and Resolution3 dated August 10, 2009
of the Court of Appeals (CA) in CA-G.R. SP No. 02513,
which affirmed in toto the Orders dated September 8,
20064 and December 6, 20065 of the Regional Trial
Court (RTC) of Bacolod City, Branch 54, directing
petitioner Philippine National Bank (PNB) to release in
favor of Spouses Bernard and Cresencia Marafion
(Spouses Marafion) the rental fees it received
amounting to Thirty Thousand Pesos (₱30,000.00).
The Facts
The controversy at bar involves a 152-square meter
parcel of land located at Cuadra-Smith Streets,
Downtown, Bacolod (subject lot) erected with a
building leased by various tenants. The subject lot was
among the properties mortgaged by Spouses Rodolfo
and Emilie Montealegre (Spouses Montealegre) to PNB
as a security for a loan. In their transactions with PNB,
Spouses Montealegre used Transfer Certificate of Title
(TCT) No. T-156512 over the subject lot purportedly
registered in the name of Emilie Montealegre
(Emilie).6
When Spouses Montealegre failed to pay the loan, PNB
initiated foreclosure proceedings on the mortgaged
properties, including the subject lot. In the auction
sale held on August 16, 1991, PNB emerged as the
highest bidder. It was issued the corresponding
Certificate of Sale dated December 17, 19917 which
was subsequently registered on February 4, 1992.8
Before the expiration of the redemption period or on
July 29, 1992, Spouses Marañon filed before the RTC
a complaint for Annulment of Title, Reconveyance and
Damages9 against Spouses Montealegre, PNB, the
Register of Deeds of Bacolod City and the Ex-Officio
Provincial Sheriff of Negros Occidental. The complaint,
docketed as Civil Case No. 7213, alleged that Spouses
Marañon are the true registered owners of the subject
lot by virtue of TCT No. T-129577 which was illegally
cancelled by TCT No. T-156512 under the name of
Emilie who used a falsified Deed of Sale bearing the
forged signatures of Spouse Marañon10 to effect the
transfer of title to the property in her name.
In its Answer,11 PNB averred that it is a mortgagee in
good faith and for value and that its mortgage lien on
the property was registered thus valid and binding
against the whole world.
As reflected in the Pre-trial Order12 dated March 12,
1996, the parties stipulated, among others, that the
period for legal redemption of the subject lot has
already expired.
While the trial proceedings were ongoing, Paterio
Tolete (Tolete), one of the tenants of the building
erected on the subject lot deposited his rental
payments with the Clerk of Court of Bacolod City
which, as of October 24, 2002, amounted to
₱144,000.00.
On June 2, 2006, the RTC rendered its Decision13 in
favor of the respondents after finding, based on the
expert testimony of Colonel Rodolfo Castillo, Head of
the Forensic Technology Section of Bacolod City
Philippine National Police, that the signatures of
Spouses Marañon in the Deed of Sale presented by
Spouses Montealegre before the Register of Deeds to
cause the cancellation of TCT No. T-129577 were
forged. Hence, the RTC concluded the sale to be null
and void and as such it did not transfer any right or
title in law. PNB was adjudged to be a mortgagee in
good faith whose lien on the subject lot must be
respected. Accordingly, the Decision disposed as
follows:
WHEREFORE, judgment is hereby rendered in favor of
the plaintiffs herein respondents:
1. The cancellation of TCT No. 129577 over
Lot 177-A-1 Bacolod Cadastre in the name of
Bernard Marañon and the issuance of new
TCT No. 156512 in the name of defendant
Emilie Montealegre are hereby declared null
and void;
2. The defendant Emilie Montealegre is
ordered to reconvey the title over Lot No.
177-A-1, Bacolod Cadastre back to the
plaintiffs Marañon herein respondents;
3. The Real Estate Mortgage lien of the
Philippine National Bank registered on the
title of Lot No. 177-A-1 Bacolod Cadastre
shall stay and be respected; and
4. The defendants - Emilie Montealegre and
spouse are ordered to pay attorney’s fees in
the sum of Php50,000.00, and to pay the
costs of the suit.
SO ORDERED.14
Neither of the parties sought a reconsideration of the
above decision or any portion thereof nor did they
elevate the same for appellate review.
What precipitated the controversy at hand were the
subsequent motions filed by Spouses Marañon for
release of the rental payments deposited with the
Clerk of Court and paid to PNB by Tolete.
On June 13, 2006, Spouses Marañon filed an Urgent
Motion for the Withdrawal of Deposited
Rentals15 praying that the ₱144,000.00 rental fees
deposited by Tolete with the Clerk of Court be released
in their favor for having been adjudged as the real
owner of the subject lot. The RTC granted the motion
in its Order16 dated June 28, 2006.
On September 5, 2006, Spouses Marañon again filed
with the RTC an Urgent Ex-Parte Motion for
Withdrawal of Deposited Rentals17 praying that the
₱30,000.00 rental fees paid to PNB by Tolete on
December 12, 1999 be released in their favor. The
said lease payments were for the five (5)-month
period from August 1999 to December 1999 at the
monthly lease rate of ₱6,000.00.
The RTC granted the motion in its Order18 dated
September 8, 2006 reasoning that pursuant to its
Decision dated June 2, 2006 declaring Spouses
Marañon to be the true registered owners of the
subject lot, they are entitled to its fruits.
The PNB differed with the RTC’s ruling and moved for
reconsideration averring that as declared by the RTC
in its Decision dated June 2, 2006, its mortgage lien
should be carried over to the new title reconveying the
lot to Spouses Marañon. PNB further argued that with
the expiration of the redemption period on February
4, 1993, or one (1) year from the registration of the
certificate of sale, PNB is now the owner of the subject
lot hence, entitled to its fruits. PNB prayed that (1)
the Order dated September 8, 2006 be set aside, and
(2) an order be issued directing Spouses Marañon to
turn over to PNB the amount of ₱144,000.00 released
in their favor by the Clerk of Court.19
On November 20, 2006, the RTC issued an Order
again directing PNB to release to Spouses Marañon the
₱30,000.00 rental payments considering that they
were adjudged to have retained ownership over the
property.20
On December 6, 2006, the RTC issued another Order
denying PNB’s motion for reconsideration and
reiterating the directives in its Order dated September
8, 2006.21
Aggrieved, PNB sought recourse with the CA via a
petition for certiorari and mandamus22 claiming that
as the lawful owner of the subject lot per the RTC’s
judgment dated June 2, 2006, it is entitled to the fruits
of the same such as rentals paid by tenants hence, the
ruling that "the real estate mortgage lien of the PNB
registered on the title of Lot No. 177-A-1 Bacolod
Cadastre shall stay and be respected." PNB also
contended that it is an innocent mortgagee.
In its Decision23 dated June 18, 2008, the CA denied
the petition and affirmed the RTC’s judgment
ratiocinating that not being parties to the mortgage
transaction between PNB and Spouses Montealegre,
Spouses Marañon cannot be deprived of the fruits of
the subject lot as the same will amount to deprivation
of property without due process of law. The RTC
further held that PNB is not a mortgagee in good faith
because as a financial institution imbued with public
interest, it should have looked beyond the certificate
of title presented by Spouses Montealegre and
conducted an inspection on the circumstances
surrounding the transfer to Spouses Montealegre. The
decretal portion of the Decision thus read:
WHEREFORE, in view of the foregoing, the petition is
hereby DISMISSED. The Orders dated September 8,
2006 and December 6, 2006, rendered by the
respondent Presiding Judge of the Regional Trial
Court, Branch 54, Bacolod City, in Civil Case NO. 7213
directing the release of the deposited rental in the
amount of THIRTY THOUSAND PESOS ([P]30,000.00)
to private respondents are hereby AFFIRMED.
SO ORDERED.24
PNB moved for reconsideration25 but the motion was
denied in the CA Resolution dated August 10,
2009.26 Hence, the present recourse whereby PNB
argues that the RTC Decision dated June 2, 2006
lapsed into finality when it was not appealed or
submitted for reconsideration. As such, all conclusions
therein are immutable and can no longer be modified
by any court even by the RTC that rendered the same.
The CA however erroneously altered the RTC Decision
by reversing the pronouncement that PNB is a
mortgagee-in-good-faith.
PNB further asseverates that its mortgage lien was
carried over to the new title issued to Spouses
Marañon and thus it retained the right to foreclose the
subject lot upon non-payment of the secured debt.
PNB asserts that it is entitled to the rent because it
became the subject lot’s new owner when the
redemption period expired without the property being
redeemed.
Ruling of the Court
We deny the petition.
It is readily apparent from the facts at hand that the
status of PNB’s lien on the subject lot has already been
settled by the RTC in its Decision dated June 2, 2006
where it was adjudged as a mortgagee in good faith
whose lien shall subsist and be respected. The
decision lapsed into finality when neither of the parties
moved for its reconsideration or appealed.
Being a final judgment, the dispositions and
conclusions therein have become immutable and
unalterable not only as against the parties but even
the courts. This is known as the doctrine of
immutability of judgments which espouses that a
judgment that has acquired finality becomes
immutable and unalterable, and may no longer be
modified in any respect even if the modification is
meant to correct erroneous conclusions of fact or law
and whether it will be made by the court that rendered
it or by the highest court of the land.27 The
significance of this rule was emphasized in Apo Fruits
Corporation v. Court of Appeals,28 to wit:
The reason for the rule is that if, on the application of
one party, the court could change its judgment to the
prejudice of the other, it could thereafter, on
application of the latter, again change the judgment
and continue this practice indefinitely. The equity of a
particular case must yield to the overmastering need
of certainty and unalterability of judicial
pronouncements.
The doctrine of immutability and inalterability of a
final judgment has a two-fold purpose: (1) to avoid
delay in the administration of justice and thus,
procedurally, to make orderly the discharge of judicial
business and (2) to put an end to judicial
controversies, at the risk of occasional errors, which
is precisely why courts exist. Controversies cannot
drag on indefinitely. The rights and obligations of
every litigant must not hang in suspense for an
indefinite period of time. The doctrine is not a mere
technicality to be easily brushed aside, but a matter
of public policy as well as a time-honored principle of
procedural law.29 (Citations omitted)
Hence, as correctly argued by PNB, the issue on its
status as a mortgagee in good faith have been
adjudged with finality and it was error for the CA to
still delve into and, worse, overturn, the same. The CA
had no other recourse but to uphold the status of PNB
as a mortgagee in good faith regardless of its defects
for the sake of maintaining stability of judicial
pronouncements. "The main role of the courts of
justice is to assist in the enforcement of the law and
in the maintenance of peace and order by putting an
end to judiciable controversies with finality. Nothing
better serves this role than the long established
doctrine of immutability of judgments."30
Further, it must be remembered that what reached
the CA on certiorari were RTC resolutions issued long
after the finality of the Decision dated June 2, 2006.
The RTC Orders dated September 8, 2006 and
December 6, 2006 were implements of the
pronouncement that Spouses Marañon are still the
rightful owners of the subject lot, a matter that has
been settled with finality as well. This
notwithstanding, the Court agrees with the ultimate
outcome of the CA’s assailed resolutions.
Rent is a civil fruit31 that belongs to the owner of the
property32 producing it by right of accession33.34 The
rightful recipient of the disputed rent in this case
should thus be the owner of the subject lot at the time
the rent accrued. It is beyond question that Spouses
Marañon never lost ownership over the subject lot.
This is the precise consequence of the final and
executory judgment in Civil Case No. 7213 rendered
by the RTC on June 3, 2006 whereby the title to the
subject lot was reconveyed to them and the cloud
thereon consisting of Emilie’s fraudulently obtained
title was removed. Ideally, the present dispute can be
simply resolved on the basis of such pronouncement.
However, the application of related legal principles
ought to be clarified in order to settle the intervening
right of PNB as a mortgagee in good faith.
The protection afforded to PNB as a mortgagee in good
faith refers to the right to have its mortgage lien
carried over and annotated on the new certificate of
title issued to Spouses Marañon35 as so adjudged by
the RTC. Thereafter, to enforce such lien thru
foreclosure proceedings in case of non-payment of the
secured debt,36 as PNB did so pursue. The principle,
however, is not the singular rule that governs real
estate mortgages and foreclosures attended by
fraudulent transfers to the mortgagor.
Rent, as an accessory follow the principal.37 In fact,
when the principal property is mortgaged, the
mortgage shall include all natural or civil fruits and
improvements found thereon when the secured
obligation becomes due as provided in Article 2127 of
the Civil Code, viz:
Art. 2127. The mortgage extends to the natural
accessions, to the improvements, growing fruits, and
the rents or income not yet received when the
obligation becomes due, and to the amount of the
indemnity granted or owing to the proprietor from the
insurers of the property mortgaged, or in virtue of
expropriation for public use, with the declarations,
amplifications and limitations established by law,
whether the estate remains in the possession of the
mortgagor, or it passes into the hands of a third
person.
Consequently, in case of non-payment of the secured
debt, foreclosure proceedings shall cover not only the
hypothecated property but all its accessions and
accessories as well. This was illustrated in the early
case of Cu Unjieng e Hijos v. Mabalacat Sugar
Co.38 where the Court held:
That a mortgage constituted on a sugar central
includes not only the land on which it is built but also
the buildings, machinery, and accessories installed at
the time the mortgage was constituted as well as the
buildings, machinery and accessories belonging to the
mortgagor, installed after the constitution thereof x x
x .39
Applying such pronouncement in the subsequent case
of Spouses Paderes v. Court of Appeals,40 the Court
declared that the improvements constructed by the
mortgagor on the subject lot are covered by the real
estate mortgage contract with the mortgagee bank
and thus included in the foreclosure proceedings
instituted by the latter.41
However, the rule is not without qualifications. In
Castro, Jr. v. CA42 the Court explained that Article
2127 is predicated on the presumption that the
ownership of accessions and accessories also belongs
to the mortgagor as the owner of the principal. After
all, it is an indispensable requisite of a valid real estate
mortgage that the mortgagor be the absolute owner
of the encumbered property, thus:
All improvements subsequently introduced or owned judgment. This is the clear import of the ruling in
by the mortgagor on the encumbered property are Unionbank of the Philippines v. Court of Appeals:45
deemed to form part of the mortgage. That the
improvements are to be considered so incorporated
This is because as purchaser at a public auction,
only if so owned by the mortgagor is a rule that can
UNIONBANK is only substituted to and acquires the
hardly be debated since a contract of security,
right, title, interest and claim of the judgment debtors
whether, real or personal, needs as an indispensable
or mortgagors to the property at the time of levy.
element thereof the ownership by the pledgor or
Perforce, the judgment in the main action for
mortgagor of the property pledged or mortgaged. x x
reconveyance will not be rendered ineffectual by the
x.43 (Citation omitted)
consolidation of ownership and the issuance of title in
the name of UNIONBANK.46 (Citation omitted)
Otherwise stated, absent an adverse claimant or any
evidence to the contrary, all accessories and
Nonetheless, since the present recourse stemmed
accessions accruing or attached to the mortgaged
from a mere motion claiming ownership of rent and
property are included in the mortgage contract and
not from a main action for annulment of the
may thus also be foreclosed together with the
foreclosure sale or of its succeeding incidents, the
principal property in case of non-payment of the debt
Court cannot proceed to make a ruling on the bearing
secured.
of the CA's Decision dated June 18, 2008 to PNB's
standing as a purchaser in the public auction. Such
Corollary, any evidence sufficiently overthrowing the matter will have to be threshed out in the proper
presumption that the mortgagor owns the mortgaged forum.
property precludes the application of Article 2127.
Otherwise stated, the provision is irrelevant and
All told, albeit the dispositive portions of the assailed
inapplicable to mortgages and their resultant
CA decision and resolution are differently premised,
foreclosures if the mortgagor is later on found or
they ought to be upheld as they convey the similar
declared to be not the true owner of the property, as
conclusion that Spouses Marañon are the rightful
in the instant case.1âwphi1
owners of the rent earned by the building on the
subject lot.
It is beyond question that PNB’s mortgagors, Spouses
Montealegre, are not the true owners of the subject
WHEREFORE, foregoing considered, the petition is
lot much less of the building which produced the
hereby DENIED. The Decision dated June 18, 2008
disputed rent. The foreclosure proceedings on August
and Resolution dated August 10, 2009 of the Court of
16, 1991 caused by PNB could not have, thus,
Appeals in CA-G.R. SP No. 02513 are AFFIRMED.
included the building found on the subject lot and the
rent it yields. PNB’s lien as a mortgagee in good faith
pertains to the subject lot alone because the rule that SO ORDERED.
improvements shall follow the principal in a mortgage
under Article 2127 of the Civil Code does not apply
under the premises. Accordingly, since the building
was not foreclosed, it remains a property of Spouses
Marañon; it is not affected by non-redemption and is [ G.R. No. 187013, April 22, 2015 ]
excluded from any consolidation of title made by PNB
over the subject lot. Thus, PNB’s claim for the rent
SPOUSES MAGDALINO AND CLEOFE BADILLA,
paid by Tolete has no basis.
PETITIONERS, VS. FE BRAGAT, RESPONDENT.

It must be remembered that there is technically no DECISION

juridical tie created by a valid mortgage contract that
PERALTA, J.:
binds PNB to the subject lot because its mortgagor
was not the true owner. But by virtue of the This is a petition for review on certiorari, under Rule
mortgagee in good faith principle, the law allows PNB 45 of the Rules of Court, assailing the Decision dated
to enforce its lien. We cannot, however, extend such October 9, 2008 and Resolution dated February 12,
principle so as to create a juridical tie between PNB
2009 of the Court of Appeals rendered in CA-G.R. CV
and the improvements attached to the subject lot
No. 70423-MIN.
despite clear and undeniable evidence showing that
no such juridical tie exists.
The case involves the issue of ownership of the subject
real property.
Lastly, it is worthy to note that the effects of the
foreclosure of the subject lot is in fact still contentious
The facts follow.
considering that as a purchaser in the public sale, PNB
was only substituted to and acquired the right, title,
interest and claim of the mortgagor to the property as Azur Pastrano and his wife Profitiza Ebaning (Spouses
of the time of the levy.44 There being already a final Pastrano) were the original owners of Lot No. 19986
judgment reconveying the subject lot to Spouses (subject property), located at Tablon, Cagayan de Oro
Marañon and declaring as null and void Emilie's City. Its Original Certificate of Title (OCT) No. P-2035,
purported claim of ownership, the legal consequences consisting of 1,015 sq. m. was issued on November
of the foreclosure sale, expiration of the redemption 18, 1980.[1] The OCT was in the name of Azur
period and even the consolidation of the subject lot's Pastrano.[2]
title in PNB's name shall be subjected to such final
Before the issuance of the OCT, however, the Spouses
Pastrano, on November 18, 1968, sold the lot to
Eustaquio P. Ledesma, Jr. (Ledesma), as evidenced by
a Deed of Definite Sale of Unregistered Coconut and
Residential Land.[3]
The petitioners, the spouses Magdalino and Cleofe
Badilla (Spouses Badilla) claimed that in 1970,
Ledesma sold to them, "on installment" basis, a
portion amounting to 200 sq. m. of Lot No. 19986
(subject property). The sale was not reduced in
writing, however, possession of the portion sold was
transferred to the Badillas, which portion the Badillas
claim was designated as Lot No. 19986-B.[4]
On April 18, 1978, the spouses Florito Bragat and Fe
Bragat (Spouses Bragat) bought 991 sq. m. of the
property from Ledesma and his wife, via a Deed of
Absolute Sale of a Residential Lot.[5] Two (2) tax
declarations were allegedly issued as a result of the
sale: one designated a lot as Lot No. 19986-A with an
area of 642 sq. m.,[6] while another designated the
other lot as Lot No. 19986-B with an area of 349 sq.
m.[7]
On May 5, 1984, the Spouses Pastrano executed
another Deed of Absolute Sale of Registered Land in
favor of herein petitioner Fe Bragat (Bragat), covered
by OCT No. P-2035 and with an area of 1,015 sq.
m.[8] On the same date, Azur Pastrano executed an
Affidavit of Loss reporting the loss of the owner's
duplicate copy of OCT No. P-2035.[9]
It was Bragat, however, who petitioned the court for
the issuance of a new owner's duplicate copy of OCT
No. P-2035. Thus, on July 24, 1987, the RTC ordered
the issuance of a new owner's copy of OCT No. P-
2035.[10]
On October 2, 1987, the Spouses Pastrano executed
yet another Deed of Sale of Registered Land in favor
of Bragat, which land is again covered by OCT No. P-
2035 with an area of 1,015 sq. m.[11] As a result, OCT
No. P-2035 was canceled and TCT No. T-47759 was
issued in the name of Bragat.[12]
On March 7, 1991, Bragat, through her counsel, made
a written demand to vacate against the Spouses
Badilla. In response, the Spouses Badilla, also through
their counsel's letter, refused the demand and raised
the earlier sale made by the Spouses Pastrano to
Ledesma and the subsequent sale by Ledesma to the
Badillas.[13]
Hence, the parties filed their respective complaints
within days of each other.
Bragat filed her Complaint for Recovery of Posession
and Damages against the spouses Magdalino and
Cleofe Badilla on June 5, 1992, alleging therein that
she is the absolute owner of Lot No. 19986, covered
by TCT No. T-47759. She claimed to have purchased
the property, first, from Eustaquio Ledesma, Jr., but
later, when she found out that Ledesma was
"unauthorized" to sell, she again allegedly made
another purchase of the same property from Azur
Pastrano, on May 5, 1984. This led to the cancellation
of Pastrano's OCT No. P-2035 and the issuance of
Bragat's TCT No. T-47759. Thus, she prays for the
Spouses Badilla to be ordered to vacate the around
149-square-meter portion that they occupy in the
property.[14]
Just six days later, on June 11, 1992, the Spouses
Badilla filed their own Complaint for Quieting of Title,
Declaration of Nullity of TCT No. T-47759 and
Damages against Bragat, claiming that the Spouses
Badilla are the lawful owners and possessors of Lot
No. 19986-B (a portion of Lot No. 19986), having
acquired it in 1970 from Ledesma. The latter, on his
part, allegedly bought the bigger Lot No. 19986 from
Pastrano earlier on November 18, 1968. The Spouses
Badilla alleged that they took possession of and built
a house on the property upon their purchase thereof
from Ledesma and has since remained in possession.
However, they claimed that Pastrano was
subsequently able to obtain a free patent and a title,
OCT No. P-2035, over Lot No. 19986. According to the
Badillas, Pastrano made a sale to Bragat on October
2, 1987, but such sale is not valid since Pastrano was
no longer the owner of the property on that date.
Consequently, the Spouses Badilla prayed that TCT
No. T-47759 issued to Bragat pursuant to that sale be
declared null and void.[15]
After Answers were filed for both complaints, the two
cases were consolidated and heard by one court,
Branch 25 of the RTC of Cagayan de Oro City, as they
involved exactly the same parties and subject lot.
After trial, the RTC found for Bragat, noting that the
sketch map shows the 152-square-meter portion
occupied by the Spouses .Badilla is within the titled
property of Bragat.[16] It also found Bragat's title as
valid for what it saw as the result of a purchase in
good faith and. for value.[17] In contrast, the trial court
observed a lack of evidence of the Spouses Badilla.
The latter allegedly presented handwritten and
typewritten receipts which were purportedly signed by
Ledesma, dated March 5, 1989, March 1, 1991 and
March 23, 1991 acknowledging Ledesma's receipt of
certain amounts, but the court claimed that it found
no evidence of (Ledesma's) absolute ownership on
these dates. The court noted that Ledesma had sold
previously to the Spouses Bragat via a Deed of
Absolute Sale of Residential Land dated April 18,
1978. Hence, in the trial court's view, on March 5,
1989, March 1, 1991 and March 23, 1991, Ledesma
no longer owned the land and transferred nothing to
the Badillas.[18] The dispositive portion of the RTC
decision states:
IN THE LIGHT OF THE FOREGOING, by preponderance
of evidence, judgment is hereby rendered in favor of
Spouses Fe Bragat and Florito Bragat and against
Spouses Magdalino and Cleofe Badilla and dismissing
Civil Case No. 92-287 for failure of Spouses Magdalino
and Cleofe Badilla to substantiate their complaint and
for lack of merit and ordering defendants Cleofe
Badilla and Magdalino Badilla in Civil Case No. 92-273:
 to vacate immediately the 152-square-meter
a) property they are occupying as shown in Exh. N-2-
A, P;
to pay Twenty Thousand Pesos (P20,000.00) by
b)
way of moral damages;
to pay a reasonable rental of One Hundred Pesos
c) (P100.00) a month from March 1, 1991 at 6% legal
interest until they vacate the premises;
to reimburse Ten Thousand Pesos (P10,000.00)
attorney's fees and Five Thousand Pesos
d)
(P5,000.00) as expenses for litigation as part of
consequential damages; and
e) pay the costs.
SO ORDERED.[19]
Upon appeal to the CA, the appellate court affirmed
the RTC's decision but modified the same on a finding
that Ledesma sold only 991 sq. of the property to
Bragat in 1978; hence, it held that the remaining 24
sq. of the 1,015-sq.-m. property was validly sold to
the Badillas in 1991 and, therefore, must be
reconveyed to the latter.[20] It also removed the award
of damages. The dispositive portion of the CA's
decision is as follows:
WHEREFORE, the instant appeal is PARTIALLY
GRANTED. The January 14, 2001 Judgment (of the
RTC) is MODIFIED in that:
appellants are ordered to VACATE 128 square
meters of the disputed lot and appellee is ordered
a)
to RECONVEY 24 square meters of the disputed lot
to appellants, and
the reimbursement of attorney's fees and expenses
b)
of litigation and the payment of costs are DELETED.
This case is REMANDED to the court of origin for the
purpose of determining the 24-square-meter lot to be
reconveyed to appellants.
SO ORDERED. [21]
Hence, this petition.
Petitioners Spouses Badijla contend that ownership of
the 200-sq.-m. portion was transferred to them when
they purchased the same and possession was
delivered to them by Ledesma in 1970.[22] They also
contend that when OCT No. P-2035 was actually
issued in 1980, it was first delivered by Pastrano to
Ledesma and, the latter delivered the same to them
(the Badillas).[23] Thus, Bragat allegedly falsely
claimed the "loss" of the title when she petitioned the
court for a new duplicate original, because such title
was not lost but had been with the Badillas all
along.[24] Another fraud that Bragat allegedly
committed was the Deed of Sale dated October 2,
1987, in which Profitiza Pastrano signed (in marital
consent) although she had been dead since March 30,
1985.[25]
In her Comment, Bragat claims that the sale of
October 2, 1987 was only a "re-execution" of the sale
of May 5, 1984, in order to avoid tax
surcharges.[26] Further, she alleges that the Badillas1
documentary evidence were all executed only after
she had the property titled to her name.[27]
The Court resolves to GRANT the petition.
The issue is one of ownership of the subject property.
This Court notes that the arguments raised call for a
re-examination of the factual findings of the trial court
and the appellate court. It must be stressed that it is
a time-honored rule that in a petition for review
on certiorari under Rule 45, only questions of law may
be raised.[28] Certainly, it is equally observed that
factual findings of the Court of Appeals, affirming
those of the trial court, are binding on this Court.[29]
However, these rules admit of certain exceptions,
such as when the judgment of the Court of Appeals is
premised on a misapprehension of facts, or is belied
by the evidence on record, or fails to notice certain
relevant facts which, if properly considered, will justify
a different conclusion.[30] After a thorough
examination of the findings of the trial court and Court
of Appeals, this Court concludes that the case falls
under these exceptional situations. Such findings
must be reversed.
The error of the courts below is in misapprehending
the fact that ownership' passed to the Spouses Badilla
upon their purchase of the subject property from
Eustaquio Ledesma.
It is not disputed that the spouses Azur and Profitiza
Pastrano had previously sold on November 18, 1968,
via a Deed of Definite Sale of Unregistered Coconut
and Residential Land, the property to Eustaquio
Ledesma.[31] Therefore, as early as such date, it is
established that the Pastranos no longer had
ownership over the property.
Then, as Ledesma subsequently sold, in 1970, a
portion of the property to the petitioner Spouses
Badilla, who immediately took delivery and
possession, ownership of this portion had also been
transferred to the said spouses. Although that sale
appears to be merely verbal, and payment therefor
was to be made on installment, it is a partially
consummated sale, with the Badillas paying the initial
purchase price and Ledesma surrendering
possession.[32] That the parties intended for ownership
to be transferred may be inferred from their lack of
any agreement stipulating that ownership of the
property is reserved by the seller and shall not pass
to the buyer until the latter has fully paid the purchase
price.[33] The fact is, Ledesma even delivered to the
Badillas the owner's duplicate copy of OCT No. P-
2035.[34] The Civil Code states that ownership of the
thing sold is transferred to the vendee upon the actual
or constructive delivery of the same.[35] And the thing
is understood as delivered when it is placed in the
control and possession of the vendee.[36] Payment of
the purchase price is not essential to the transfer of
ownership as long as the property sold has been
delivered; and such delivery (traditio) operated to
divest the vendor of title to the property which may
not be regained or recovered until and unless the
contract is resolved or rescinded in accordance with
law.[37]
The same is true even if the sale is a verbal one,
because it is held that when a verbal contract has been
completed, executed or partially consummated, its
enforceability will not be barred by the Statute of
Frauds, which applies only to an executory
agreement.[38] Thus, where a party has performed his
obligation, oral evidence will be admitted to prove the
agreement. And, where it was proven that one party
had delivered the thing sold to another, then the
contract was partially executed and the Statute of
Frauds does not apply.[39]
Therefore, with the Spouses Bad ilia owning and
occupying the said 152-square-meter portion since
1970, it may be concluded that TCT No. T-47759
(which canceled OCT No. P-2035) covering the said
portion has been wrongfully issued.[40]
In addition, TCT No. T-47759 was issued to Fe Bragat
on the strength of a Deed of Sale of Registered Land
dated October 2, 1987.[41] This deed of sale, however,
is void for being simulated, since both the vendor
(Pastrano) and the vendee (Bragat) knew at the time
of its execution of the vendor's lack of ownership over
Lot No. 19986, the property being sold. At that time,
it was not Pastrano but Ledesma who was absolute
owner of the property by virtue of the latter's earlier
purchase of Lot No. 19986 from the Spouses Pastrano
on November 18, 1968, via a Deed of Definite Sale of
Unregistered Coconut and Residential Land.[42] Bragat
herself knew this, as she and her husband themselves
first bought the property from Ledesma through a
Deed of Absolute Sale of Residential Land dated April
18, 1978.[43]
In fact, it is from this sale in 1978 that Fe Bragat
derives title on the property and not from tjhe Deeds
of Sale dated May 5, 1984 and October 2, 1987
executed between her as vendee and Pastrano as
vendor. Pastrano could no longer sell any part of the
property to Bragat on such later dates since he had
already sold the same as early as November 18, 1968
to Ledesma. Well-settled is the rule that no one can
give what one does not have - nemodat quod non
habet - and, accordingly, one can sell only what one
owns or is authorized to sell, and the buyer acquires
no better title than the seller.[44]Thus, the sales made
on the dates May 5, 1984 and October 2, 1987 are
void for being [simulated and for lack of a subject
matter. On these sales, Bragat cannot clajim good
faith as she herself knew of Pastrano's lack of
ownership.
It needs emphasis, however, that Bragat's property
bought from Ledesma in 1978 does not include the
152-sq.-m. portion that was already bought by the
Badillas.
Therefore, Fe Bragat is entitled to a new transfer
certificate of title issued in her name, but on the basis
of the Deed of Absolute Sale dated April 18, 1978, and
excluding the 152 sq. m. in area that the Spouses
Badilla have already bought and have been occupying
since 1970, but which are currently covered by
Bragat's existing title, TCT No. T-47759. Hence,
Bragat's TCT No. T-47759 (which canceled OCT No. P-
2035), covering 1,015 sq. m., should be declared void
and cancelled and, in its place, two (2) new ones
should be issued: (1) in the name of the spouses
Magdalino and Cleofe Badilla, covering the 152 sq. m.
that they are occupying, and (2) in the name of Fe
Bragat, covering [the remaining 863 sq. m. The metes
and bounds of these two lots are to be based on the
survey plans already submitted by appointed
commissioners to the lower court during trial, which
are: the Commissioner's Relocation Survey Report
(Exhibit "N")[45] signed by Engr. Benigno B.
Manlangiti et al., as well as the accompanying
Relocation Sketch Plan (Exhibit "N-2")[46] prepared by
the same commissioner.
This ruling is compelled by the involvement in this
case of not just one instance of double sales but a
series of such sales made by two different
vendors. First, it is admitted that Pastrano sold the
property to Ledesma in 1968; then, Pastrano sold it
again to Bragat in 1984 and 1987. But Ledesma, too,
sold part of the property to the Spouses Badilla in
1970 and then the entire lot to the Spouses; Bragat in
1978. In such a situation of multiple sales, Article
1544 of the Civil Code relates that ownership shall
belong to the person acquiring the property who, in
good faith, first recorded such
acquisition.[47] Presently, however, it cannot be said
that Bragat's recording of her 1987 purchase was in
good faith because that sale was simulated and Bragat
was aware of other persons who have an interest on
the property. That the 1987 sale is void is further
revealed by evidence to show that one of its
signatories, Profitiza Pastrano was already dead when
it was executed.[48] Bragat herself also admitted that
she knew of the Spouses Badillas' occupation prior to
her purchase.[49] In that case, the same Article 1544
of the Civil Code provides that when neither buyer
registered, in good faith, the sale of the properties
with the register of deeds, the one who took prior
possession of the properties shall be the lawful owner
thereof.[50] Such prior possessors, at least with
respect to the 152-sq.-m. portion, are indisputably
the Spouses Badilla.
WHEREFORE, premises considered, the petition
is GRANTED. The assailed Decision dated October 9,
2008 and Resolution dated February 12, 2009 of the
Court of Appeals in CA-G.R. CV No. 70423 -MM are
hereby REVERSED and SET ASIDE. Transfer
Certificate of Title No. T-47759 is DECLARED VOID,
and, in its place, two (2) new transfer certificates of
titles are ORDERED ISSUED, namely: (1) in the
name of the Spouses Magdalino and Cleofe Badilla,
covering the 152 sq. m. that they are occupying, and
(2) in the name of Fe Bragat, covering the remaining
863 sq. m. of the property, of which measurements
are to be based on Exhibits "N"[51] and Exhibit "N- (P107,750.00) as the total purchase price of the lot.
2".[52] The manner of paying the total purchase price was as
follows:
SO ORDERED.
"The sum of TEN THOUSAND SEVEN
Velasco, Jr., (Chairperson), Villarama, Jr., Reyes, HUNDRED SEVENTY FIVE (P10,775.00)
and Jardeleza, JJ., concur. PESOS, shall be paid at the signing of this
contract as DOWN PAYMENT, the balance of
NINETY SIX THOUSAND NINE HUNDRED
SEVENTY FIVE PESOS (P96,975.00) shall be
paid within a period of TEN (10) years at a
monthly amortization of P1,747.30 to begin
from December 7, 1985 with interest at
eighteen per cent (18%) per annum based
on balances."4
August 20, 2015
The contract also provided for a grace period of one
month within which to make payments, together with
the one corresponding to the month of grace. Should
the month of grace expire without the installments for
both months having been satisfied, an interest of 18%
NOTICE OF JUDGMENT per annum will be charged on the unpaid
installments.5

Should a period of ninety (90) days elapse from the

Sirs / Mesdames:
Please take notice that on April 22, 2015 a Decision,
copy attached hereto, was rendered by the Supreme
Court in the above-entitled case, the original of which
was received by this Office on August 20, 2015 at
10:58 a.m.
G.R. No. 129018 November 15, 2001
CARMELITA LEAÑO, assisted by her husband
GREGORIO CUACHON, petitioner,
vs.
COURT OF APPEALS and HERMOGENES
FERNANDO, respondents.
PARDO, J.:
The Case
The case is a petition for review on certiorari of the
decision1 of the Court of Appeals affirming that of the
Regional Trial Court, Malolos, Branch 72 ordering
petitioner Leaño to pay respondent Hermogenes
Fernando the sum of P183,687.70 corresponding to
her outstanding obligations under the contract to sell,
with interest and surcharges due thereon, attorney's
fees and costs.1âwphi1.nêt
The Facts
On November 13, 1985, Hermogenes Fernando, as
vendor and Carmelita Leaño, as vendee executed a
contract to sell involving a piece of land, Lot No. 876-
B, with an area of 431 square meters, located at Sto.
Cristo, Baliuag, Bulacan.3
In the contract, Carmelita Leaño bound herself to pay
Hermogenes Fernando the sum of one hundred seven
thousand and seven hundred and fifty pesos
expiration of the grace period without the overdue and
unpaid installments having been paid with the
corresponding interests up to that date, respondent
Fernando, as vendor, was authorized to declare the
contract cancelled and to dispose of the parcel of land,
as if the contract had not been entered into. The
payments made, together with all the improvements
made on the premises, shall be considered as rents
paid for the use and occupation of the premises and
as liquidated damages.6
After the execution of the contract, Carmelita Leaño
made several payments in lump sum.7 Thereafter, she
constructed a house on the lot valued at
P800,000.00.8 The last payment that she made was
on April 1, 1989.
On September 16, 1991, the trial court rendered a
decision in an ejectment case9 earlier filed by
respondent Fernando ordering petitioner Leaño to
vacate the premises and to pay P250.00 per month by
way of compensation for the use and occupation of the
property from May 27, 1991 until she vacated the
premises, attorney's fees and costs of the suit.10 On
August 24, 1993, the trial court issued a writ of
execution which was duly served on petitioner Leaño.
On September 27, 1993, petitioner Leaño filed with
the Regional Trial Court of Malolos, Bulacan a
complaint for specific performance with preliminary
injunction.11 Petitioner Leaño assailed the validity of
the judgment of the municipal trial court12 for being
violative of her right to due process and for being
contrary to the avowed intentions of Republic Act No.
6552 regarding protection to buyers of lots on
installments. Petitioner Leaño deposited P18,000.00
with the clerk of court, Regional Trial Court, Bulacan,
to cover the balance of the total cost of Lot 876-B.13
On November 4, 1993, after petitioner Leaño posted
a cash bond of P50,000.00,14 the trial court issued a
writ of preliminary injunction15 to stay the
enforcement of the decision of the municipal trial
court.16
On February 6, 1995, the trial court rendered a
decision, the dispositive portion of which reads:
"WHEREFORE, judgment is hereby rendered
as follows:
"1. The preliminary injunction issued by this
court per its order dated November 4, 1993
is hereby made permanent;
"2. Ordering the plaintiff to pay to the
defendant the sum of P103,090.70
corresponding to her outstanding obligations
under the contract to sell (Exhibit "A" –
Exhibit "B") consisting of the principal of said
obligation together with the interest and
surcharges due thereon as of February 28,
1994, plus interest thereon at the rate of
18% per annum in accordance with the
provision of said contract to be computed
from March 1, 1994, until the same becomes
fully paid;
"3. Ordering the defendant to pay to plaintiff
the amount of P10,000 as and by way of
attorney's fees;
"4. Ordering the defendant to pay to plaintiff
the costs of the suit in Civil Case No. 1680
aforementioned.
"SO ORDERED.
"Malolos, Bulacan, February 6, 1995.
"(sgd.) DANILO A. MANALASTAS
Judge"17
On February 21, 1995, respondent Fernando filed a
motion for reconsideration18 and the
supplement thereto. The trial court increased the
19
amount of P103,090.70 to P183,687.00 and ordered
petitioner Leaño ordered to pay attorney's fees.20
According to the trial court, the transaction between
the parties was an absolute sale, making petitioner
Leaño the owner of the lot upon actual and
constructive delivery thereof. Respondent Fernando,
the seller, was divested of ownership and cannot
recover the same unless the contract is rescinded
pursuant to Article 1592 of the Civil Code which
requires a judicial or notarial demand. Since there had
been no rescission, petitioner Leaño, as the owner in
possession of the property, cannot be evicted.
On the issue of delay, the trial court held:
"While the said contract provides that the
whole purchase price is payable within a ten-
year period, yet the same contract clearly
specifies that the purchase price shall be
payable in monthly installments for which the
corresponding penalty shall be imposed in
case of default. The plaintiff certainly cannot
ignore the binding effect of such stipulation
by merely asserting that the ten-year period
for payment of the whole purchase price has
not yet lapsed. In other words, the plaintiff
has clearly defaulted in the payment of the
amortizations due under the contract as
recited in the statement of account (Exhibit
"2") and she should be liable for the payment
of interest and penalties in accordance with
the stipulations in the contract pertaining
thereto."21
The trial court disregarded petitioner Leaños claim
that she made a downpayment of P10,000.00, at the
time of the execution of the contract.
The trial court relied on the statement of
account22 and the summary23 prepared by respondent
Fernando to determine petitioner Leaño's liability for
the payment of interests and penalties.
The trial court held that the consignation made by
petitioner Leaño in the amount of P18,000.00 did not
produce any legal effect as the same was not done in
accordance with Articles 1176, 1177 and 1178 of the
Civil Code.
In time, petitioner Leaño appealed the decision to the
Court of Appeals.24 On January 22, 1997, Court of
Appeals promulgated a decision affirming that of the
Regional Trial Court in toto.25 On February 11, 1997,
petitioner Leaño filed a motion for
reconsideration.26 On April 18, 1997, the Court of
Appeals denied the motion.27
Hence, this petition.28
The Issues
The issues to be resolved in this petition for review are
(1) whether the transaction between the parties in an
absolute sale or a conditional sale; (2) whether there
was a proper cancellation of the contract to sell; and
(3) whether petitioner was in delay in the payment of
the monthly amortizations.
The Court's Ruling
Contrary to the findings of the trial court, the
transaction between the parties was a conditional sale
not an absolute sale. The intention of the parties was
to reserve the ownership of the land in the seller until
the buyer has paid the total purchase price.
Consider the following:
First, the contract to sell makes the sale, cession and
conveyance "subject to conditions" set forth in the
contract to sell.29
Second, what was transferred was the possession of
the property, not ownership. The possession is even
limited by the following: (1) that the vendee may
continue therewith "as long as the VENDEE complies
with all the terms and conditions mentioned, and (2)
that the buyer may not sell, cede, assign, transfer or
mortgage or in any way encumber any right, interest
or equity that she may have or acquire in and to the
said parcel of land nor to lease or to sublease it or give
possession to another person without the written
consent of the seller.30
Finally, the ownership of the lot was not transferred
to Carmelita Leaño. As the land is covered by a torrens
title, the act of registration of the deed of sale was the
operative act that could transfer ownership over the
lot.31 There is not even a deed that could be registered
since the contract provides that the seller will execute
such a deed "upon complete payment by the VENDEE
of the total purchase price of the property" with the
stipulated interest.32
In a contract to sell real property on installments, the
full payment of the purchase price is a positive
suspensive condition, the failure of which is not
considered a breach, casual or serious, but simply an
event that prevented the obligation of the vendor to
convey title from acquiring any obligatory force.33 The
transfer of ownership and title would occur after full
payment of the price.34
In the case at bar, petitioner Leaño's non-payment of
the installments after April 1, 1989, prevented the
obligation of respondent Fernando to convey the
property from arising. In fact, it brought into effect
the provision of the contract on cancellation.
Contrary to the findings of the trial court, Article 1592
of the Civil Code is inapplicable to the case at
bar.35 However, any attempt to cancel the contract to
sell would have to comply with the provisions of
Republic Act No. 6552, the "Realty Installment Buyer
Protection Act."
R.A. No. 6552 recognizes in conditional sales of all
kinds of real estate (industrial, commercial,
residential) the right of the seller to cancel the
contract upon non-payment of an installment by the
buyer, which is simply an event that prevents the
obligation of the vendor to convey title from acquiring
binding force.36 The law also provides for the rights of
the buyer in case of cancellation. Thus, Sec. 3 (b) of
the law provides that:
"If the contract is cancelled, the seller shall
refund to the buyer the cash surrender value
of the payments on the property equivalent
to fifty percent of the total payments made
and, after five years of installments, an
additional five percent every year but not to
exceed ninety percent of the total payment
made: Provided, That the actual cancellation
of the contract shall take place after thirty
days from receipt by the buyer of the notice
of cancellation or the demand for rescission
of the contract by a notarial act and upon full
payment of the cash surrender value to the
buyer." [Emphasis supplied]
The decision in the ejectment case37 operated as the
notice of cancellation required by Sec. 3(b). As
petitioner Leaño was not given then cash surrender
value of the payments that she made, there was still
no actual cancellation of the contract. Consequently,
petitioner Leaño may still reinstate the contract by
updating the account during the grace period and
before actual cancellation.38
Should petitioner Leaño wish to reinstate the contract,
she would have to update her accounts with
respondent Fernando in accordance with the
statement of account39 which amount was
P183,687.00.40
On the issue of whether petitioner Leaño was in delay
in paying the amortizations, we rule that while the
contract provided that the total purchase price was
payable within a ten-year period, the same contract
specified that the purchase price shall be paid in
monthly installments for which the corresponding
penalty shall be imposed in case of default. Petitioner
Leaño cannot ignore the provision on the payment of
monthly installments by claiming that the ten-year
period within which to pay has not elapsed.
Article 1169 of the Civil Code provides that in
reciprocal obligations, neither party incurs in delay if
the other does not comply or is not ready to comply
in a proper manner with what is incumbent upon him.
From the moment one of the parties fulfills his
obligation, delay by the other begins.1âwphi1.nêt
In the case at bar, respondent Fernando performed
his part of the obligation by allowing petitioner Leaño
to continue in possession and use of the property.
Clearly, when petitioner Leaño did not pay the
monthly amortizations in accordance with the terms
of the contract, she was in delay and liable for
damages.41 However, we agree with the trial court
that the default committed by petitioner Leaño in
respect of the obligation could be compensated by the
interest and surcharges imposed upon her under the
contract in question.42
It is a cardinal rule in the interpretation of contracts
that if the terms of a contract are clear and leave no
doubt upon the intention of the contracting parties,
the literal meaning of its stipulation shall
control.43 Thus, as there is no ambiguity in the
language of the contract, there is no room for
construction, only compliance.
The Fallo
IN VIEW WHEREOF, we DENY the petition
and AFFIRM the decision of the Court of Appeals44 in
toto.
No costs.
SO ORDERED.
[G.R. No. 127695. December 3, 2001]
HEIRS OF LUIS BACUS, namely: CLARA RESMA
BACUS, ROQUE R. BACUS, SR.,
SATURNINO R. BACUS, PRISCILA VDA.
DE CABANERO, CARMELITA B. SUQUIB,
BERNARDITA B. CARDENAS, RAUL R.
BACUS, MEDARDO R. BACUS, ANSELMA
B. ALBAN, RICARDO R. BACUS,
FELICISIMA B. JUDICO, and
DOMINICIANA B. TANGAL, petitioners,
vs. HON. COURT OF APPEALS and
SPOUSES FAUSTINO DURAY and
VICTORIANA DURAY, respondents.
DECISION
QUISUMBING, J.:
This petition assails the decision dated
November 29, 1996, of the Court of Appeals in CA-
G.R. CV No. 37566, affirming the decision dated
August 3, 1991, of the Regional Trial Court of Cebu
City, Branch 6, in Civil Case No. CEB-8935.
The facts, as culled from the records, are as
follows:
On June 1, 1984, Luis Bacus leased to private
respondent Faustino Duray a parcel of agricultural
land in Bulacao, Talisay, Cebu.Designated as Lot No.
3661-A-3-B-2, it had an area of 3,002 square meters,
covered by Transfer Certificate of Title No. 48866. The
lease was for six years, ending May 31, 1990. The
contract contained an option to buy clause. Under said
option, the lessee had the exclusive and irrevocable
right to buy 2,000 square meters of the property
within five years from a year after the effectivity of
the contract, at P200 per square meter. That rate shall
be proportionately adjusted depending on the peso
rate against the US dollar, which at the time of the
execution of the contract was fourteen pesos. [1]
Close to the expiration of the contract, Luis
Bacus died on October 10, 1989. Thereafter, on March
15, 1990, the Duray spouses informed Roque Bacus,
one of the heirs of Luis Bacus, that they were willing
and ready to purchase the property under the option
to buy clause. They requested Roque Bacus to prepare
the necessary documents, such as a Special Power of
Attorney authorizing him to enter into a contract of
sale,[2] on behalf of his sisters who were then abroad.
On March 30, 1990, due to the refusal of
petitioners to sell the property, Faustino Durays
adverse claim was annotated by the Register of Deeds
of Cebu, at the back of TCT No. 63269, covering the
segregated 2,000 square meter portion of Lot No.
3661-A-3-B-2-A.[3]
Subsequently, on April 5, 1990, Duray filed a
complaint for specific performance against the heirs of
Luis Bacus with the Lupon Tagapamayapa of
Barangay Bulacao, asking that he be allowed to
purchase the lot specifically referred to in the lease
contract with option to buy. At the hearing, Duray
presented a certification[4] from the manager of
Standard Chartered Bank, Cebu City, addressed to
Luis Bacus, stating that at the request of Mr. Lawrence
Glauber, a bank client, arrangements were being
made to allow Faustino Duray to borrow funds of
approximately P700,000 to enable him to meet his
obligations under the contract with Luis Bacus.[5]
Having failed to reach an agreement before
the Lupon, on April 27, 1990, private respondents
filed a complaint for specific performance with
damages against petitioners before the Regional Trial
Court, praying that the latter, (a) execute a deed of
sale over the subject property in favor of private
respondents; (b) receive the payment of the purchase
price; and (c) pay the damages.
On the other hand, petitioners alleged that
before Luis Bacus death, private respondents
conveyed to them the formers lack of interest to
exercise their option because of insufficiency of funds,
but they were surprised to learn of private
respondents demand. In turn, they requested private
respondents to pay the purchase price in full but the
latter refused. They further alleged that private
respondents did not deposit the money as required by
the Lupon and instead presented a bank certification
which cannot be deemed legal tender.
On October 30, 1990, private respondents
manifested in court that they caused the issuance of
a cashiers check in the amount of P650,000[6] payable
to petitioners at anytime upon demand.
On August 3, 1991, the Regional Trial Court
ruled in favor of private respondents, the dispositive
portion of which reads:
Premises considered, the court finds for the plaintiffs
and orders the defendants to specifically perform their
obligation in the option to buy and to execute a
document of sale over the property covered by
Transfer Certificate of Title # T-63269 upon payment
by the plaintiffs to them in the amount of Six Hundred
Seventy-Five Thousand Six Hundred Seventy-Five
(P675,675.00) Pesos within a period of thirty (30)
days from the date this decision becomes final.
SO ORDERED.[7]
Unsatisfied, petitioners appealed to the
respondent Court of Appeals which denied the appeal
on November 29, 1996, on the ground that the private
respondents exercised their option to buy the leased
property before the expiration of the contract of
lease. It held:
... After a careful review of the entire records of this
case, we are convinced that the plaintiffs-appellees
validly and effectively exercised their option to buy the
subject property. As opined by the lower court, the
readiness and preparedness of the plaintiff on his part,
is manifested by his cautionary letters, the prepared
bank certification long before the date of May 31,
1990, the final day of the option, and his filing of this
suit before said date. If the plaintiff-appellee Francisco
Duray had no intention to purchase the property, he
would not have bothered to write those letters to the
defendant-appellants (which were all received by
them) and neither would he be interested in having
his adverse claim annotated at the back of the T.C.T.
of the subject property, two (2) months before the
expiration of the lease. Moreover, he even went to the
extent of seeking the help of the Lupon
Tagapamayapa to compel the defendants-appellants
to recognize his right to purchase the property and for
them to perform their corresponding obligation.[8]
xxx
We therefore find no merit in this appeal.
WHEREFORE, the decision appealed from is hereby
AFFIRMED.[9]
Hence, this petition where petitioners aver that
the Court of Appeals gravely erred and abused its
discretion in:
I. ...UPHOLDING THE TRIAL COURTS
RULING IN THE SPECIFIC
PERFORMANCE CASE BY ORDERING
PETITIONERS (DEFENDANTS THEREIN)
TO EXECUTE A DOCUMENT OF SALE
OVER THE PROPERTY IN QUESTION
(WITH TCT NO. T-63269) TO THEM IN
THE AMOUNT OF P675,675.00 WITHIN
THIRTY (30) DAYS FROM THE DATE THE
DECISION BECOMES FINAL;
II. ...DISREGARDING LEGAL PRINCIPLES,
SPECIFIC PROVISIONS OF LAW AND
JURISPRUDENCE IN UPHOLDING THE
DECISION OF THE TRIAL COURT TO
THE EFFECT THAT PRIVATE
RESPONDENTS HAD EXERCISED THEIR
RIGHT OF OPTION TO BUY ON TIME;
THUS THE PRESENTATION OF THE
CERTIFICATION OF THE BANK
MANAGER OF A BANK DEPOSIT IN THE
NAME OF ANOTHER PERSON FOR LOAN
TO RESPONDENTS WAS EQUIVALENT
TO A VALID TENDER OF PAYMENT AND
A SUFFICIENT COMPLAINCE (SIC) OF A
CONDITION FOR THE EXERCISE OF THE
OPTION TO BUY; AND
III UPHOLDING THE TRIAL COURTS
RULING THAT THE PRESENTATION OF
A CASHERS (SIC) CHECK BY THE
RESPONDENTS IN THE AMOUNT OF
P625,000.00 EVEN AFTER THE
TERMINATION OF THE TRIAL ON THE
MERITS WITH BOTH PARTIES ALREADY
HAVING RESTED THEIR CASE, WAS
STILL VALID COMPLIANCE OF THE
CONDITION FOR THE PRIVATE
RESPONDENTS (PLAINTIFFS THEREIN)
EXERCISE OF RIGHT OF OPTION TO
BUY AND HAD A FORCE OF VALID AND
FULL TENDER OF PAYMENT WITHIN
THE AGREED PERIOD.[10]
Petitioners insist that they cannot be compelled
to sell the disputed property by virtue of the
nonfulfillment of the obligation under the option
contract of the private respondents.
Private respondents first aver that petitioners
are unclear if Rule 65 or Rule 45 of the Rules of Court
govern their petition, and that petitioners only raised
questions of facts which this Court cannot properly
entertain in a petition for review. They claim that even
assuming that the instant petition is one under Rule
45, the same must be denied for the Court of Appeals
has correctly determined that they had validly
exercised their option to buy the leased property
before the contract expired.
In response, petitioners state that private
respondents erred in initially classifying the instant
petition as one under Rule 65 of the Rules of
Court. They argue that the petition is one under Rule
45 where errors of the Court of Appeals, whether
evidentiary or legal in nature, may be reviewed.
We agree with private respondents that in a
petition for review under Rule 45, only questions of
law may be raised.[11] However, a close reading of
petitioners arguments reveal the following legal issues
which may properly be entertained in the instant
petition:
a) When private respondents opted to buy
the property covered by the lease
contract with option to buy, were they
already required to deliver the money
or consign it in court before petitioner
executes a deed of transfer?
b) Did private respondents incur in delay
when they did not deliver the purchase
price or consign it in court on or before
the expiration of the contract?
On the first issue, petitioners contend that
private respondents failed to comply with their
obligation because there was neither actual delivery
to them nor consignation in court or with the
Municipal, City or Provincial Treasurer of the purchase
price before the contract expired. Private respondents
bank certificate stating that arrangements were being
made by the bank to release P700,000 as a loan to
private respondents cannot be considered as legal
tender that may substitute for delivery of payment to
petitioners nor was it a consignation.
Obligations under an option to buy are reciprocal
obligations.[12] The performance of one obligation is
conditioned on the simultaneous fulfillment of the
other obligation.[13] In other words, in an option to
buy, the payment of the purchase price by the creditor
is contingent upon the execution and delivery of a
deed of sale by the debtor. In this case, when private
respondents opted to buy the property, their
obligation was to advise petitioners of their decision
and their readiness to pay the price. They were not
yet obliged to make actual payment. Only upon
petitioners actual execution and delivery of the deed
of sale were they required to pay. As earlier stated,
the latter was contingent upon the former. In Nietes
vs. Court of Appeals, 46 SCRA 654 (1972), we held
that notice of the creditors decision to exercise his
option to buy need not be coupled with actual
payment of the price, so long as this is delivered to
the owner of the property upon performance of his
part of the agreement. Consequently, since the
obligation was not yet due, consignation in court of
the purchase price was not yet required.
Consignation is the act of depositing the thing
due with the court or judicial authorities whenever the
creditor cannot accept or refuses to accept payment
and it generally requires a prior tender of payment. In
instances, where no debt is due and owing,
consignation is not proper.[14] Therefore, petitioners
contention that private respondents failed to comply
with their obligation under the option to buy because
they failed to actually deliver the purchase price or On July 7, 1995, petitioner Megaworld Globus Asia,
consign it in court before the contract expired and
before they execute a deed, has no leg to stand on. Inc. (Megaworld) and respondent Mila S. Tanseco

Corollary, private respondents did not incur in (Tanseco) entered into a Contract to Buy and Sell[1] a
delay when they did not yet deliver payment nor make
a consignation before the expiration of the 224 square-meter (more or less) condominium unit at
contract. In reciprocal obligations, neither party
a pre-selling project, The Salcedo Park, located along
incurs in delay if the other does not comply or is not
ready to comply in a proper manner with what is Senator Gil Puyat Avenue, Makati City.
incumbent upon him. Only from the moment one of
the parties fulfills his obligation, does delay by the
other begin.[15]
The purchase price was P16,802,037.32, to be paid as
In this case, private respondents, as early as
March 15, 1990, communicated to petitioners their follows: (1) 30% less the reservation fee of P100,000,
intention to buy the property and they were at that
time undertaking to meet their obligation before the or P4,940,611.19, by postdated check payable on July
expiration of the contract on May 31, 1990. However,
petitioners refused to execute the deed of sale and it 14, 1995; (2) P9,241,120.50 through 30 equal
was their demand to private respondents to first
deliver the money before they would execute the monthly installments of P308,037.35 from August 14,
same which prompted private respondents to institute
a case for specific performance in the Lupong 1995 to January 14, 1998; and (3) the balance
Tagapamayapa and then in the RTC. On October 30,
of P2,520,305.63 on October 31, 1998, the stipulated
1990, after the case had been submitted for decision
but before the trial court rendered its decision, private delivery date of the unit; provided that if the
respondents issued a cashiers check in petitioners
favor purportedly to bolster their claim that they were construction is completed earlier, Tanseco would pay
ready to pay the purchase price. The trial court
considered this in private respondents favor and we the balance within seven days from receipt of a notice
believe that it rightly did so, because at the time the
check was issued, petitioners had not yet executed a of turnover.
deed of sale nor expressed readiness to do so.
Accordingly, as there was no compliance yet with what
was incumbent upon petitioners under the option to
Section 4 of the Contract to Buy and Sell provided for
buy, private respondents had not incurred in delay
when the cashiers check was issued even after the the construction schedule as follows:
contract expired.

WHEREFORE, the instant petition is

4. CONSTRUCTION
DENIED. The decision dated November 29, 1996 of
SCHEDULE The construction of the
the Court of Appeals is hereby AFFIRMED.
Project and the unit/s herein
Costs against petitioners. purchased shall be completed and
delivered not later than October 31,
SO ORDERED. 1998 with additional grace period of
six (6) months within which to
complete the Project and the
unit/s, barring delays due to fire,
MEGAWORLD GLOBUS ASIA, INC., G.R. No. 181206
earthquakes, the elements, acts of
Petitioner,
God, war, civil disturbances, strikes
Present:
or other labor disturbances,
* government and economic controls
CORONA, J.,
making it, among others,
- versus - CARPIO MORALES,**
impossible or difficult to obtain the
Acting Chairperson,
necessary materials, acts of third
NACHURA,***
person, or any other cause or
BRION, and
conditions beyond the control of the
MILA S. TANSECO, ABAD, JJ.
SELLER. In this event, the
Respondent.
completion and delivery of the unit
Promulgated:
are deemed extended accordingly
October 9, 2009
without liability on the part of the
x---------------------------------
SELLER. The foregoing
-----------------x
notwithstanding, the SELLER
reserves the right to withdraw from
DECISION
this transaction and refund to the
BUYER without interest the
amounts received from him under
CARPIO MORALES, J.: this contract if for any reason not
attributable to SELLER, such as but
 not limited to fire, storms, floods,
earthquakes, rebellion, demand for delivery before receipt of the notice of
insurrection, wars, coup de etat,
civil disturbances or for other turnover.[6]
reasons beyond its control, the
Project may not be completed or it
can only be completed at a financial By Decision of May 28, 2003,[7] the HLURB Arbiter
loss to the SELLER. In any event, all
construction on or of the Project dismissed Tansecos complaint for lack of cause of
shall remain the property of the
SELLER. (Underscoring supplied) action, finding that Megaworld had effected delivery

by the notice of turnover before Tanseco made a

demand. Tanseco was thereupon ordered to pay

Tanseco paid all installments due up to January, 1998,
Megaworld the balance of the purchase price,
leaving unpaid the balance of P2,520,305.63 pending
plus P25,000 as moral damages, P25,000 as
delivery of the unit.[2] Megaworld, however, failed to
exemplary damages, and P25,000 as attorneys fees.
deliver the unit within the stipulated period on October

31, 1998 or April 30, 1999, the last day of the six-
On appeal by Tanseco, the HLURB Board of
month grace period.
Commissioners, by Decision of November 28,

2003,[8] sustained the HLURB Arbiters Decision on the

A few days shy of three years later, Megaworld, by
ground of laches for failure to demand rescission when
notice dated April 23, 2002 (notice of turnover),
the right thereto accrued. It deleted the award of
informed Tanseco that the unit was ready for
damages, however. Tansecos Motion for
inspection preparatory to delivery.[3] Tanseco replied
Reconsideration having been denied,[9] she appealed
through counsel, by letter of May 6, 2002, that in view
to the Office of the President which dismissed the
of Megaworlds failure to deliver the unit on time, she
appeal by Decision of April 28, 2006[10] for failure to
was demanding the return of P14,281,731.70
show that the findings of the HLURB were tainted with
representing the total installment payment she had
grave abuse of discretion. Her Motion for
made, with interest at 12% per annum from April 30,
Reconsideration having been denied by Resolution
1999, the expiration of the six-month grace
dated August 30, 2006,[11] Tanseco filed a Petition for
period. Tanseco pointed out that none of the excepted
Review under Rule 43 with the Court of Appeals.[12]
causes of delay existed.[4]

By Decision of September 28, 2007,[13] the

Her demand having been unheeded, Tanseco filed on
appellate court granted Tansecos petition, disposing
June 5, 2002 with the Housing and Land Use
thus:
Regulatory Boards (HLURB) Expanded National

Capital Region Field Office a complaint against WHEREFORE, premises

considered, petition is
Megaworld for rescission of contract, refund of hereby GRANTED and the assailed
May 28, 2003 decision of the HLURB
payment, and damages.[5] Field Office, the November 28, 2003
decision of the HLURB Board of
Commissioners in HLURB Case No.
In its Answer, Megaworld attributed the delay to the REM-A-030711-0162, the April 28,
2006 Decision and August 30,
1997 Asian financial crisis which was beyond its 2006 Resolution of the Office of the
President in O.P. Case No. 05-I-
control; and argued that default had not set in, 318, are
hereby REVERSED and SET
Tanseco not having made any judicial or extrajudicial ASIDE and a new one entered:
 (1) RESCINDING, as prayed for by
TANSECO, the aggrieved party, the Tanseco, on the other hand, maintained her position
contract to buy and sell;
(2) DIRECTING MEGAWORLD TO too, and citing Megaworlds bad faith which became
PAY TANSECO the amount she had
evident when it insisted on making the delivery
paid totaling P14,281,731.70
with Twelve (12%) Percent interest despite the long delay,[16] insisted that she deserved
per annum from October 31, 1998;
(3) ORDERINGMEGAWORLD TO the award of damages and attorneys fees.
PAY TANSECO P200,000.00 by
way of exemplary damages;
(4) ORDERING MEGAWORLD TO
PAY TANSECO P200,000.00 as Article 1169 of the Civil Code provides:
attorneys fees; and
(5) ORDERING MEGAWORLD TO
PAY TANSECO the cost of Art. 1169. Those obliged
suit.(Emphasis in the to deliver or to do something incur
original; underscoring supplied) in delay from the time the obligee
judicially or extrajudicially demands
from them the fulfillment of their
obligation.

The appellate court held that under Article 1169 of the However, the demand by
the creditor shall not be necessary
Civil Code, no judicial or extrajudicial demand is in order that delay may exist:
needed to put the obligor in default if the contract, as (1) When the obligation or
the law expressly so declares; or
in the herein parties contract, states the date when

the obligation should be performed; that time was of (2) When from the nature
and the circumstances of the
the essence because Tanseco relied on Megaworlds obligation it appears that the
designation of the time when the
promise of timely delivery when she agreed to part thing is to be delivered or the
service is to be rendered was a
with her money; that the delay should be reckoned controlling motive for the
establishment of the contract; or
from October 31, 1998, there being no force
(3) When demand would
majeure to warrant the application of the April 30,
be useless, as when the obligor has
1999 alternative date; and that specific performance rendered it beyond his power to
perform.
could not be ordered in lieu of rescission as the right

to choose the remedy belongs to the aggrieved party. In reciprocal obligations,

neither party incurs in delay if the
other does not comply or is not
ready to comply in a proper manner
The appellate court awarded with what is incumbent upon
him. From the moment one of the
Tanseco exemplary damages on a finding of bad faith parties fulfills his obligation, delay
by the other begins. (Underscoring
on the part of Megaworld in forcing her to accept its
supplied)
long-delayed delivery; and attorneys fees, she having

been compelled to sue to protect her rights.

The Contract to Buy and Sell of the parties

Its Motion for Reconsideration having been denied by contains reciprocal obligations, i.e., to complete and

Resolution of January 8, 2008,[14] Megaworld filed the deliver the condominium unit on October 31, 1998 or

present Petition for Review on Certiorari, echoing its six months thereafter on the part of Megaworld, and

position before the HLURB, adding that Tanseco had to pay the balance of the purchase price at or about

not shown any basis for the award of damages and the time of delivery on the part of

attorneys fees.[15] Tanseco. Compliance by Megaworld with its obligation

is determinative of compliance by Tanseco with her

obligation to pay the balance of the purchase obligation to deliver within the stipulated period. A

price. Megaworld having failed to comply with its circumspect weighing of equitable considerations thus

obligation under the contract, it is liable therefor.[17] tilts the scale of justice in favor of Tanseco.

That Megaworlds sending of a notice of Pursuant to Section 23 of Presidential Decree

turnover preceded Tansecos demand for refund does No. 957 [21]
which reads:

not abate her cause.For demand would have

Sec. 23. Non-Forfeiture of
been useless, Megaworld admittedly having failed in Payments. - No installment
payment made by a buyer in a
its obligation to deliver the unit on the agreed date. subdivision or condominium project
for the lot or unit he contracted to
buy shall be forfeited in favor of the
Article 1174 of the Civil Code provides: owner or developer when the buyer,
after due notice to the owner or
developer, desists from further
Art. 1174. Except in cases payment due to the failure of the
expressly specified by the law, or owner or developer to develop the
when it is otherwise declared by subdivision or condominium project
stipulation, or when the nature of according to the approved plans
the obligation requires the and within the time limit for
assumption of risk, no person shall complying with the same.
be responsible for those events Such buyer may, at his option,
which could not be foreseen, or be reimbursed the total amount
which, though foreseen, were paid including amortization int
inevitable.[18] erests but excluding delinquency
interests, with interest thereon a
t the legal rate. (Emphasis and
underscoring supplied),

The Court cannot generalize the 1997 Asian financial

crisis to be unforeseeable and beyond the control of a

Tanseco is, as thus prayed for, entitled to be
business corporation. A real estate enterprise
reimbursed the total amount she paid Megaworld.
engaged in the pre-selling of condominium units is

concededly a master in projections on commodities

While the appellate court correctly
and currency movements, as well as business
awarded P14,281,731.70 then, the interest rate
risks. The fluctuating movement of the Philippine peso
should, however, be 6% per annum accruing from the
in the foreign exchange market is an everyday
date of demand on May 6, 2002, and then 12% per
occurrence, hence, not an instance of caso
annum from the time this judgment becomes final and
fortuito.[19]Megaworlds excuse for its delay does not
executory, conformably with Eastern Shipping Lines,
thus lie.
Inc. v. Court of Appeals.[22]

The award of P200,000 attorneys fees and of

As for Megaworlds argument that Tansecos
costs of suit is in order too, the parties having
claim is considered barred by laches on account of her
stipulated in the Contract to Buy and Sell that these
belated demand, it does not lie too. Laches is a
shall be borne by the losing party in a suit based
creation of equity and its application is controlled by
thereon,[23] not to mention that Tanseco was
equitable considerations.[20] It bears noting that
compelled to retain the services of counsel to protect
Tanseco religiously paid all the installments due up to
her interest. And so is the award of exemplary
January, 1998, whereas Megaworld reneged on its
damages. With pre-selling ventures mushrooming in
the metropolis, there is an increasing need to correct

the insidious practice of real estate companies of

SO ORDERED.
proffering all sorts of empty promises to entice

innocent buyers and ensure the profitability of their

CONCHITA CARPIO MORALES
projects. Associate Justice

The Court finds the appellate courts award

of P200,000 as exemplary damages excessive,

however. Exemplary damages are imposed not to

enrich one party or impoverish another but to serve

WE CONCUR:
as a deterrent against or as a negative incentive to

curb socially deleterious actions.[24] The Court finds

that P100,000 is reasonable in this case. RENATO C. CORONA ANTONIO EDUARDO B. N

Associate Justice Associate Justice

Finally, since Article 1191[25] of the Civil Code

does not apply to a contract to buy and sell,ARTURO

the D. BRION ROBERTO
Associate Justice Associate J
suspensive condition of full payment of the purchase

price not having occurred to trigger the obligation to

convey title, cancellation,not rescission, of the ATTESTATION

contract is thus the correct remedy in the premises.[26]

I attest that the conclusions in the above Decision had

WHEREFORE, the challenged Decision of the been reached in consultation before the case was

Court of Appeals is, in light of the foregoing, assigned to the writer of the opinion of the Courts

AFFIRMED with MODIFICATION. Division.

CONCHITA CARPIO MORALES

Associate Justice
As modified, the dispositive portion of the Acting Chairperson

Decision reads:

CERTIFICATION
The July 7, 1995 Contract
to Buy and Sell between the parties
is cancelled. Petitioner, Megaworld
Globus Asia, Inc., is directed to pay Pursuant to Section 13, Article VIII of the Constitution,
respondent, Mila S. Tanseco, the
amount of P14,281,731.70, to and the Division Chairpersons Attestation, I certify
bear 6% interest per annum
starting May 6, 2002 and 12% that the conclusions in the above decision had been
interest per annum from the time
the judgment becomes final and reached in consultation before the case was assigned
executory; and to pay P200,000
attorneys to the writer of the opinion of the Courts Division.
fees, P100,000 exemplary
damages, and costs of suit.

ANTONIO T. CARPIO
Acting Chief Justice

Costs against petitioner.

 period being deemed to be by then an equivalent
*
Additional member per Special Order No. 718 dated to a forbearance of credit.
October 2, 2009. xxxx
**
Designated Acting Chairperson per Special Order [23]
HLURB records, p. 166.
No. 690 dated September 4, 2009. [24]
Bataan Seedling Association, Inc. v. Republic of
***
Additional member per Special Order No. 730 the Philippines, G.R. No. 141009, July 2, 2002,
dated October 5, 2009. 383 SCRA 590, 600-601.
[1]
HLURB records, pp. 164-169. [25]
Article 1191. The power to rescind obligations is
[2]
Id. at 148-163. implied in reciprocal ones in case one of the
[3]
Id. at 22. obligors should not comply with what is
[4]
Id. at 146-147. incumbent upon him.
[5]
Id. at 13-19. The injured party may choose between
[6]
Id. at 24-31. the fulfillment and the rescission of the obligation,
[7]
Id. at 136-139. with the payment of damages in either case. He
[8]
Id. at 247-250. may also seek rescission, even after he has
[9]
Id. at 304-305. chosen fulfillment, if the latter should become
[10]
Rollo, pp. 260-263. possible.
[11]
Id. at 264. The court shall decree the rescission
[12]
CA rollo, pp. 8-55. claimed, unless there be just cause authorizing
[13]
Penned by Associate Justice Vicente Q. Roxas, with the fixing of a period.
the concurrence of Associate Justices Josefina This is understood to be without
Guevara-Salonga and Ramon R. Garcia; prejudice to the rights of third persons who have
CA rollo, pp. 692-714. acquired the thing, in accordance with Articles
[14]
Id. at 816. 1385 and 1388 and the Mortgage Law.
[15]
Vide Petition, rollo, pp. 29-74.
[16]
Vide Comment, id. at 432-465.
[17]
Vide Leao v. Court of Appeals, 420 Phil. 836, 848
GENERAL MILLING CORPORATION, G.R. No.
(2001). Article 1170 of the Civil Code provides:
Petitioner,
Art. 1170. Those who in the
Present:
performance of their obligations are
guilty of fraud, negligence, or delay, and
CARPIO,
those who in any manner contravene
- versus - VELASCO
the tenor thereof, are liable for
LEONARD
damages.
ABAD, an
[18]
Mondragon Leisure and Resorts Corporation v.
MENDOZA
Court of Appeals, 499 Phil. 268, 279 (2005).
SPS. LIBRADO RAMOS and REMEDIOS RAMOS,
[19]
Fil-Estate Properties, Inc., v. Go, G.R. No.
Respondents. Promulga
165164, August 17, 2007, 530 SCRA 621, 628.
[20]
Heirs of Tranquilino Labiste v. Heirs of Jose
July 20, 2
Labiste, G.R. No. 162033, May 8, 2009.
[21]
REGULATING THE SALE OF SUBDIVISION LOTS x----------------------------------------------------------
AND CONDOMINIUMS, PROVIDING PENALTIES -------------------------------x
FOR VIOLATIONS THEREOF.
[22]
G.R. No. 97412, July 12, 1994, 234 SCRA 78, 96-
97. The Court, in this case, suggested rules on
the award of interest, viz: DECISION
xxxx
VELASCO, JR., J.:
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on
the amount of damages awarded may be imposed
at the discretion of the court at the rate of 6% per The Case
annum. No interest, however, shall be adjudged
on unliquidated claims or damages except when
or until the demand can be established with This is a petition for review of the April 15, 2010
reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, Decision of the Court of Appeals (CA) in CA-G.R. CR-
the interest shall begin to run from the time the
claim is made judicially or extrajudicially (Art. H.C. No. 85400 entitled Spouses Librado Ramos &
1169, Civil Code) but when such certainty cannot Remedios Ramos v. General Milling Corporation, et
be so reasonably established at the time the
demand is made, the interest shall begin to run al., which affirmed the May 31, 2005 Decision of the
only from the date the judgment of the court is
made (at which time the quantification of Regional Trial Court (RTC), Branch 12 in Lipa City, in
damages may be deemed to have been
Civil Case No. 00-0129 for Annulment and/or
reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, Declaration of Nullity of Extrajudicial Foreclosure Sale
be on the amount finally adjudged.
3. When the judgment of the court awarding a with Damages.
sum of money becomes final and executory, the
rate of legal interest . . . shall be 12% per annum
from such finality until its satisfaction, this interim
The Facts

On March 31, 1997, the counsel for GMC notified

On August 24, 1989, General Milling Corporation Spouses Ramos that GMC would institute foreclosure

(GMC) entered into a Growers Contract with spouses proceedings on their mortgaged property.[4]

Librado and Remedios Ramos (Spouses Ramos).

Under the contract, GMC was to supply broiler On May 7, 1997, GMC filed a Petition for Extrajudicial

chickens for the spouses to raise on their land Foreclosure of Mortgage. On June 10, 1997, the

in Barangay Banaybanay, Lipa City, Batangas. [1]

To property subject of the foreclosure was subsequently

guarantee full compliance, the Growers Contract was sold by public auction to GMC after the required

accompanied by a Deed of Real Estate Mortgage over posting and publication.[5] It was foreclosed for PhP

a piece of real property upon which their conjugal 935,882,075, an amount representing the losses on

home was built. The spouses further agreed to put up chicks and feeds exclusive of interest at 12% per

a surety bond at the rate of PhP 20,000 per 1,000 annum and attorneys fees.[6] To complicate matters,

chicks delivered by GMC. The Deed of Real Estate on October 27, 1997, GMC informed the spouses that

Mortgage extended to Spouses Ramos a maximum its Agribusiness Division had closed its business and

credit line of PhP 215,000 payable within an indefinite poultry operations.[7]

period with an interest of twelve percent (12%) per

annum.[2] On March 3, 2000, Spouses Ramos filed a Complaint

The Deed of Real Estate Mortgage contained the for Annulment and/or Declaration of Nullity of the

following provision: Extrajudicial Foreclosure Sale with Damages. They

contended that the extrajudicial foreclosure sale on

WHEREAS, the MORTGAGOR/S
has/have agreed to guarantee and June 10, 1997 was null and void, since there was no
secure the full and faithful compliance with the requirements of posting and
compliance of
[MORTGAGORS] obligation/s with publication of notices under Act No. 3135, as
the MORTGAGEE by a First Real
Estate Mortgage in favor of the amended, or An Act to Regulate the Sale of Property
MORTGAGEE, over a 1 parcel of
under Special Powers Inserted in or Annexed to Real
land and the improvements existing
thereon, situated in the Barrio/s Estate Mortgages. They likewise claimed that there
of Banaybanay, Municipality of Lipa
City, Province of Batangas, was no sheriffs affidavit to prove compliance with the
Philippines, his/her/their title/s
requirements on posting and publication of notices. It
thereto being evidenced by Transfer
Certificate/s No./s T-9214 of the was further alleged that the Deed of Real Estate
Registry of Deeds for the Province of
Batangas in the amount of TWO Mortgage had no fixed term. A prayer for moral and
HUNDRED FIFTEEN THOUSAND (P
215,000.00), Philippine Currency, exemplary damages and attorneys fees was also
which the maximum credit line included in the complaint.[8] Librado Ramos alleged
payable within a x x x day term and
to secure the payment of the same that, when the property was foreclosed, GMC did not
plus interest of twelve percent
(12%) per annum. notify him at all of the foreclosure.[9]

During the trial, the parties agreed to limit the issues

Spouses Ramos eventually were unable to
to the following: (1) the validity of the Deed of Real
settle their account with GMC. They alleged that they
Estate Mortgage; (2) the validity of the extrajudicial
suffered business losses because of the negligence of
foreclosure; and (3) the party liable for damages.[10]
GMC and its violation of the Growers Contract. [3]
 Corporation is ordered to pay
In its Answer, GMC argued that it repeatedly reminded Spouses Librado and Remedios
Spouses Ramos of their liabilities under the Growers Ramos attorneys fees in the total
amount of P 57,000.00 representing
Contract. It argued that it was compelled to foreclose acceptance fee of P30,000.00 and
P3,000.00 appearance fee for nine
the mortgage because of Spouses Ramos failure to (9) trial dates or a total appearance
fee of P 27,000.00;
pay their obligation. GMC insisted that it had observed

all the requirements of posting and publication of 4. The claims for moral
and exemplary damages are denied
notices under Act No. 3135.[11] for lack of merit.
The Ruling of the Trial Court
IT IS SO ORDERED.[13]
Holding in favor of Spouses Ramos, the trial court

ruled that the Deed of Real Estate Mortgage was valid

even if its term was not fixed. Since the duration of The Ruling of the Appellate Court

the term was made to depend exclusively upon the

will of the debtors-spouses, the trial court cited On appeal, GMC argued that the trial court erred in:

jurisprudence and said that the obligation is not due (1) declaring the extrajudicial foreclosure proceedings

and payable until an action is commenced by the null and void; (2) ordering GMC to pay Spouses

mortgagee against the mortgagor for the purpose of Ramos attorneys fees; and (3) not awarding damages

having the court fix the date on and after which the in favor of GMC.

instrument is payable and the date of maturity is fixed

in pursuance thereto.[12] The CA sustained the decision of the trial court but

anchored its ruling on a different ground. Contrary to

The trial court held that the action of GMC in moving the findings of the trial court, the CA ruled that the

for the foreclosure of the spouses properties was requirements of posting and publication of notices

premature, because the latters obligation under their under Act No. 3135 were complied with. The CA,

contract was not yet due. however, still found that GMCs action against Spouses

Ramos was premature, as they were not in default

The trial court awarded attorneys fees because of the when the action was filed on May 7, 1997.[14]

premature action taken by GMC in filing extrajudicial

foreclosure proceedings before the obligation of the

spouses became due.

The CA ruled:

In this case, a careful scrutiny of the

The RTC ruled, thus: evidence on record shows that
defendant-appellant GMC made no
demand to spouses Ramos for the
WHEREFORE, premises considered, full payment of their obligation.
judgment is rendered as follows: While it was alleged in the Answer
as well as in the Affidavit
1. The Extra-Judicial constituting the direct testimony of
Foreclosure Proceedings under Joseph Dominise, the principal
docket no. 0107-97 is hereby witness of defendant-appellant
declared null and void; GMC, that demands were sent to
spouses Ramos, the documentary
2. The Deed of Real Estate evidence proves otherwise. A
Mortgage is hereby declared valid perusal of the letters presented and
and legal for all intents and offered as evidence by defendant-
puposes; appellant GMC did not demand but
only request spouses Ramos to go
3. Defendant- to the office of GMC to discuss the
corporation General Milling settlement of their account.[15]
 The Ruling of this Court

According to the CA, however, the RTC erroneously Can the CA consider matters not alleged?

awarded attorneys fees to Spouses Ramos, since the

presumption of good faith on the part of GMC was not GMC asserts that since the issue on the existence of

overturned. the demand letter was not raised in the trial court, the

CA, by considering such issue, violated the basic

The CA disposed of the case as follows: requirements of fair play, justice, and due process.[18]

WHEREFORE, and in view of the

foregoing considerations, the In their Comment,[19] respondents-spouses aver that
Decision of
the Regional Trial Court of Lipa City the CA has ample authority to rule on matters not
, Branch 12, dated May 21, 2005 is
assigned as errors on appeal if these are indispensable
hereby AFFIRMED with
MODIFICATION by deleting the or necessary to the just resolution of the pleaded
award of attorneys fees to plaintiffs-
appellees spouses Librado Ramos issues.
and Remedios Ramos.[16]

In Diamonon v. Department of Labor and

Hence, We have this appeal. Employment, [20]
We explained that an appellate court

has a broad discretionary power in waiving the lack of

The Issues assignment of errors in the following instances:

(a) Grounds not assigned

A. WHETHER [THE CA] MAY as errors but affecting the
CONSIDER ISSUES NOT jurisdiction of the court over the
subject matter;
ALLEGED AND DISCUSSED IN
THE LOWER COURT AND (b) Matters not assigned as
LIKEWISE NOT RAISED BY THE errors on appeal but are evidently
plain or clerical errors within
PARTIES ON APPEAL,
contemplation of law;
THEREFORE HAD DECIDED THE
CASE NOT IN ACCORD WITH (c) Matters not assigned as
LAW AND APPLICABLE errors on appeal but consideration
of which is necessary in arriving at
DECISIONS OF THE SUPREME a just decision and complete
COURT. resolution of the case or to serve the
interests of a justice or to avoid
dispensing piecemeal justice;
B. WHETHER [THE CA] ERRED IN
RULING THAT PETITIONER (d) Matters not specifically
GMC MADE NO DEMAND TO assigned as errors on appeal but
raised in the trial court and are
RESPONDENT SPOUSES FOR
matters of record having some
THE FULL PAYMENT OF THEIR bearing on the issue submitted
OBLIGATION CONSIDERING which the parties failed to raise or
THAT THE LETTER DATED which the lower court ignored;

MARCH 31, 1997 OF (e) Matters not assigned as

PETITIONER GMC TO errors on appeal but closely related
RESPONDENT SPOUSES IS to an error assigned;
TANTAMOUNT TO A FINAL
(f) Matters not assigned as
DEMAND TO PAY, THEREFORE errors on appeal but upon which the
IT DEPARTED FROM THE determination of a question
properly assigned, is dependent.
ACCEPTED AND USUAL
COURSE OF JUDICIAL
PROCEEDINGS.[17] Paragraph (c) above applies to the instant case, for

there would be a just and complete resolution of the

appeal if there is a ruling on whether the Spouses

Ramos were actually in default of their obligation to

As the contract in the instant case carries no such
GMC.
provision on demand not being necessary for delay to

exist, We agree with the appellate court that GMC

Was there sufficient demand?
should have first made a demand on the spouses

before proceeding to foreclose the real estate

We now go to the second issue raised by GMC. GMC
mortgage.
asserts error on the part of the CA in finding that no

demand was made on Spouses Ramos to pay their

Development Bank of the Philippines v. Licuanan finds
obligation. On the contrary, it claims that its March 31,
application to the instant case:
1997 letter is akin to a demand.

The issue of whether

We disagree. demand was made before the
foreclosure was effected is
essential. If demand was made and
duly received by the respondents
There are three requisites necessary for a finding of and the latter still did not pay, then
they were already in default and
default. First, the obligation is demandable and
foreclosure was proper.However, if
liquidated; second, the debtor delays performance; demand was not made, then the
loans had not yet become due and
and third, the creditor judicially or extrajudicially demandable. This meant that
respondents had not defaulted in
requires the debtors performance.[21]
their payments and the foreclosure
by petitioner was
premature. Foreclosure is valid
According to the CA, GMC did not make a demand on only when the debtor is in
default in the payment of his
Spouses Ramos but merely requested them to go to obligation.[22]
GMCs office to discuss the settlement of their account.

In spite of the lack of demand made on the spouses, In turn, whether or not demand was made is a
however, GMC proceeded with the foreclosure question of fact.[23] This petition filed under Rule 45 of
proceedings. Neither was there any provision in the the Rules of Court shall raise only questions of law.
Deed of Real Estate Mortgage allowing GMC to For a question to be one of law, it must not involve an
extrajudicially foreclose the mortgage without need of examination of the probative value of the evidence
demand. 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

Indeed, Article 1169 of the Civil Code on delay evidence presented, the question posed is one of
requires the following: fact.[24] It need not be reiterated that this Court is not

Those obliged to deliver or to do a trier of facts.[25] We will defer to the factual findings
something incur in delay from the
time the obligee judicially or of the trial court, because petitioner GMC has not
extrajudicially demands from them
shown any circumstances making this case an
the fulfilment of their obligation.
However, the demand by the exception to the rule.
creditor shall not be necessary in
order that delay may exist:

(1) When the obligation

or the law expressly so
declares; x x x

WHEREFORE, the petition is DENIED. The
CA Decision in CA-G.R. CR-H.C. No. 85400
is AFFIRMED.
SO ORDERED.
G.R. No. 191431 March 13, 2013
RODOLFO G. CRUZ and ESPERANZA
IBIAS, Petitioners,
vs.
ATTY. DELFIN GRUSPE, Respondent.
DECISION
BRION, J.:
Before the Court is the petition for review on
certiorari1 filed under Rule 45 of the Rules of Court,
assailing the decision2 dated July 30, 2009 and the
resolution3 dated February 19, 2010 of the Court of
Appeals (CA) in CA-G.R. CV No. 86083. The CA rulings
affirmed with modification the decision dated
September 27, 2004 of the Regional Trial Court (RTC)
of Bacoor, Cavite, Branch 19, in Civil Case No. BCV-
99-146 which granted respondent Atty. Delfin Grupe’s
claim for payment of sum of money against petitioners
Rodolfo G. Cruz and Esperanza Ibias.4
THE FACTUAL BACKGROUND
The claim arose from an accident that occurred on
October 24, 1999, when the mini bus owned and
operated by Cruz and driven by one Arturo Davin
collided with the Toyota Corolla car of Gruspe;
Gruspe’s car was a total wreck. The next day, on
October 25, 1999, Cruz, along with Leonardo Q. Ibias
went to Gruspe’s office, apologized for the incident,
and executed a Joint Affidavit of Undertaking
promising jointly and severally to replace the Gruspe’s
damaged car in 20 days, or until November 15, 1999,
of the same model and of at least the same quality;
or, alternatively, they would pay the cost of Gruspe’s
car amounting to ₱350,000.00, with interest at
12% per month for any delayed payment after
November 15, 1999, until fully paid.5 When Cruz and
Leonardo failed to comply with their undertaking,
Gruspe filed a complaint for collection of sum of
money against them on November 19, 1999 before
the RTC.
In their answer, Cruz and Leonardo denied Gruspe’s
allegation, claiming that Gruspe, a lawyer, prepared
the Joint Affidavit of Undertaking and forced them to
affix their signatures thereon, without explaining and
informing them of its contents; Cruz affixed his
signature so that his mini bus could be released as it
was his only means of income; Leonardo, a barangay
official, accompanied Cruz to Gruspe’s office for the
release of the mini bus, but was also deceived into
signing the Joint Affidavit of Undertaking.
Leonardo died during the pendency of the case and
was substituted by his widow, Esperanza. Meanwhile,
Gruspe sold the wrecked car for ₱130,000.00.
In a decision dated September 27, 2004, the RTC
ruled in favor of Gruspe and ordered Cruz and
Leonardo to pay ₱220,000.00,6 plus 15% per annum
from November 15, 1999 until fully paid, and the cost
of suit.
On appeal, the CA affirmed the RTC decision, but
reduced the interest rate to 12% per annum pursuant
to the Joint Affidavit of Undertaking.7 It declared that
despite its title, the Joint Affidavit of Undertaking is a
contract, as it has all the essential elements of
consent, object certain, and consideration required
under Article 1318 of the Civil
Code. The CA further said that Cruz and Leonardo
failed to present evidence to support their contention
of vitiated consent. By signing the Joint Affidavit of
Undertaking, they voluntarily assumed the obligation
for the damage they caused to Gruspe’s car;
Leonardo, who was not a party to the incident, could
have refused to sign the affidavit, but he did not.
THE PETITION
In their appeal by certiorari with the Court, Cruz and
Esperanza assail the CA ruling, contending that the
Joint Affidavit of Undertaking is not a contract that can
be the basis of an obligation to pay a sum of money
in favor of Gruspe. They consider an affidavit as
different from a contract: an affidavit’s purpose is
simply to attest to facts that are within his knowledge,
while a contract requires that there be a meeting of
the minds between the two contracting parties.
Even if the Joint Affidavit of Undertaking was
considered as a contract, Cruz and Esperanza claim
that it is invalid because Cruz and Leonardo’s consent
thereto was vitiated; the contract was prepared by
Gruspe who is a lawyer, and its contents were never
explained to them. Moreover, Cruz and Leonardo were
simply forced to affix their signatures, otherwise, the
mini van would not be released.
Also, they claim that prior to the filing of the complaint
for sum of money, Gruspe did not make any demand
upon them. Hence, pursuant to Article 1169 of the
Civil Code, they could not be considered in default.
Without this demand, Cruz and Esperanza contend
that Gruspe could not yet take any action.
THE COURT’S RULING
The Court finds the petition partly meritorious and
accordingly modifies the judgment of the CA.
Contracts are obligatory no matter what their forms
may be, whenever the essential requisites for their
validity are present. In determining whether a
document is an affidavit or a contract, the Court looks
beyond the title of the document, since the
denomination or title given by the parties in their
document is not conclusive of the nature of its
contents.8 In the construction or interpretation of an
instrument, the intention of the parties is primordial
and is to be pursued. If the terms of the document are
clear and leave no doubt on the intention of the
contracting parties, the literal meaning of its
stipulations shall control. If the words appear to be
contrary to the parties’ evident intention, the latter
shall prevail over the former.9
A simple reading of the terms of the Joint Affidavit of
Undertaking readily discloses that it contains
stipulations characteristic of a contract. As quoted in
the CA decision,10 the Joint Affidavit of Undertaking
contained a stipulation where Cruz and Leonardo
promised to replace the damaged car of Gruspe, 20
days from October 25, 1999 or up to November 15,
1999, of the same model and of at least the same
quality. In the event that they cannot replace the car
within the same period, they would pay the cost of
Gruspe’s car in the total amount of ₱350,000.00, with
interest at 12% per month for any delayed payment
after November 15, 1999, until fully paid. These, as
read by the CA, are very simple terms that both Cruz
and Leonardo could easily understand.
There is also no merit to the argument of vitiated
consent.1âwphi1 An allegation of vitiated consent
must be proven by preponderance of evidence; Cruz
and Leonardo failed to support their allegation.
Although the undertaking in the affidavit appears to
be onerous and lopsided, this does not necessarily
prove the alleged vitiation of consent. They, in fact,
admitted the genuineness and due execution of the
Joint Affidavit and Undertaking when they said that
they signed the same to secure possession of their
vehicle. If they truly believed that the vehicle had
been illegally impounded, they could have refused to
sign the Joint Affidavit of Undertaking and filed a
complaint, but they did not. That the release of their
mini bus was conditioned on their signing the Joint
Affidavit of Undertaking does not, by itself, indicate
that their consent was forced – they may have given
it grudgingly, but it is not indicative of a vitiated
consent that is a ground for the annulment of a
contract.
Thus, on the issue of the validity and enforceability of
the Joint Affidavit of Undertaking, the CA did not
commit any legal error that merits the reversal of the
assailed decision.
Nevertheless, the CA glossed over the issue of
demand which is material in the computation of
interest on the amount due. The RTC ordered Cruz and
Leonardo to pay Gruspe "₱350,000.00 as cost of the
car xxx plus fifteen percent (15%) per annum from
November 15, 1999 until fully paid."11 The 15%
interest (later modified by the CA to be 12%) was
computed from November 15, 1999 – the date
stipulated in the Joint Affidavit of Undertaking for the
payment of the value of Gruspe’s car. In the absence
of a finding by the lower courts that Gruspe made a
demand prior to the filing of the complaint, the
interest cannot be computed from November 15, 1999
because until a demand has been made, Cruz and
Leonardo could not be said to be in default.12 "In order
that the debtor may be in default, it is necessary that
the following requisites be present: (1) that the
obligation be demandable and already liquidated; (2)
that the debtor delays performance; and (3) that the
creditor requires the performance judicially and
extrajudicially."13 Default generally begins from the
moment the creditor demands the performance of the
obligation. In this case, demand could be considered
to have been made upon the filing of the complaint on
November 19, 1999, and it is only from this date that
the interest should be computed.
Although the CA upheld the Joint Affidavit of
Undertaking, we note that it imposed interest rate on
a per annum basis, instead of the per month basis that
was stated in the Joint Affidavit of Undertaking
without explaining its reason for doing so.14 Neither
party, however, questioned the change. Nonetheless,
the Court affirms the change in the interest rate from
12% per month to 12% per annum, as we find the
interest rate agreed upon in the Joint Affidavit of
Undertaking excessive.15
WHEREFORE, we AFFIRM the decision dated July 30,
2009 and the resolution dated February 19, 2010 of
the Court of Appeals in CA-G.R. CV No. 86083, subject
to the Modification that the twelve percent (12%) per
annum interest imposed on the amount due shall
accrue only from November 19, 1999, when judicial
demand was made.
SO ORDERED.
G.R. No. 125536 March 16, 2000
PRUDENTIAL BANK, petitioner,
vs.
COURT OF APPEALS and LETICIA TUPASI-
VALENZULA joined by husband Francisco
Valenzuela,respondents.
QUISUMBING, J.:
This appeal by certiorari under Rule 45 of the Rules of
Court seeks to annul and set aside the Decision dated
January 31, 1996, and the Resolution dated July 2,
1997, of the Court of Appeals in CA G.R. CV No.
35532, which reversed the judgment of the Regional
Trial Court of Valenzuela, Metro Manila, Branch 171,
in Civil Case No. 2913-V-88, dismissing the private
respondent's complaint for damages.1
In setting aside the trial court's decision, the Court of
Appeals disposed as follows:
WHEREFORE, the appealed decision is hereby
REVERSED and SET ASIDE and, another
rendered ordering the appellee bank to pay
appellant the sum of P100,000.00 by way of
moral damages; P50,000.00 by way of
exemplary damages, P50,000.00 for and as
attorney's fees; and to pay the costs.
SO ORDERED.2
The facts of the case on record are as follows:
Private respondent Leticia Tupasi-Valenzuela opened
Savings Account No. 5744 and Current Account No.
01016-3 in the Valenzuela Branch of petitioner
Prudential Bank, with automatic transfer of funds from
the savings account to the current account.
On June 1, 1988, herein private respondent deposited
in her savings account Check No. 666B (104561 of
even date) the amount of P35,271.60, drawn against
the Philippine Commercial International Bank (PCIB).
Taking into account that deposit and a series of
withdrawals, private respondent as of June 21, 1988
had a balance of P35,993.48 in her savings account
and P776.93 in her current account, or total deposits
of P36,770.41, with petitioner.
Thereafter, private respondent issued Prudential Bank
Check No. 983395 in the amount of P11,500.00 post-
dated June 20, 1988, in favor of one Belen Legaspi. It
was issued to Legaspi as payment for jewelry which
private respondent had purchased. Legaspi, who was
in jewelry trade, endorsed the check to one Philip
Lhuillier, a businessman also in the jewelry business.
When Lhuillier deposited the check in his account with
the PCIB, Pasay Branch, it was dishonored for being
drawn against insufficient funds. Lhuillier's secretary
informed the secretary of Legaspi of the dishonor. The
latter told the former to redeposit the check, Legaspi's
secretary tried to contact private respondent but to no
avail.
Upon her return from the province, private respondent
was surprised to learn of the dishonor of the check.
She went to the Valenzuela Branch of Prudential Bank
on July 4, 1988, to inquire why her check was
dishonored. She approached one Albert Angeles
Reyes, the officer in charge of current account, and
requested him for the ledger of her current account.
Private respondent discovered a debit of P300.00
penalty for the dishonor of her Prudential Check No.
983395. She asked why her check was dishonored
when there were sufficient funds in her account as
reflected in her passbook. Reyes told her that there
was no need to review the passbook because the bank
ledger was the best proof that she did not have
sufficient funds. Then, he abruptly faced his typewriter
and started typing.
Later, it was found out that the check in the amount
of P35,271.60 deposited by private respondent on
June 1, 1988, was credited in her savings account only
on June 24, 1988, or after a period of 23 days. Thus
the P11,500.00 check was redeposited by Lhuillier on
June 24, 1988, and properly cleared on June 27, 1988.
Because of this incident, the bank tried to mollify
private respondent by explaining to Legaspi and
Lhuillier that the bank was at fault. Since this was not
the first incident private respondent had experienced
with the bank, private respondent was unmoved by
the bank's apologies and she commenced the present
suit for damages before the RTC of Valenzuela.
After trial, the court rendered a decision on August 30,
1991, dismissing the complaint of private respondent,
as well as the counterclaim filed by the defendant,
now petitioner.
Undeterred, private respondent appealed to the Court
of Appeals. On January 31, 1996, respondent
appellate court rendered a decision in her favor,
setting aside the trial court's decision and ordering
herein petitioner to pay private respondent the sum of
P100,000.00 by way of moral damages; P50,000.00
exemplary damages; P50,000.00 for and as attorney's
fees; and to pay the costs.3
Petitioner filed a timely motion for reconsideration but
it was denied. Hence, this petition, raising the
following issues:
I. WHETHER OR NOT THE RESPONDENT
COURT OF APPEALS ACTED WITH GRAVE
ABUSE OF DISCRETION AMOUNTING TO
LACK OF JURISDICTION IN DEVIATING
FROM ESTABLISHED JURISPRUDENCE IN
REVERSING THE DISMISSAL JUDGMENT OF
THE TRIAL COURT AND INSTEAD AWARDED
MORAL DAMAGES, EXEMPLARY DAMAGES
AND ATTORNEY'S FEES.
II. WHETHER OR NOT THE RESPONDENT
COURT OF APPEALS ACTED IN GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION WHERE, EVEN IN THE
ABSENCE OF EVIDENCE AS FOUND BY THE
TRIAL COURT, AWARDED MORAL DAMAGES
IN THE AMOUNT OF P100,000.00.
III. WHETHER OR NOT THE RESPONDENT
COURT OF APPEALS ACTED IN GRAVE ABUSE
OF DISCRETION AMOUNTING TO LACK OF
JURISDICTION, WHERE, EVEN IN THE
ABSENCE OF EVIDENCE AS FOUND BY THE
TRIAL COURT, AWARDED P50,000.00 BY
WAY OF EXEMPLARY DAMAGES.
IV. WHETHER OR NOT THE RESPONDENT
COURT OF APPEALS ACTED WITH GRAVE
ABUSE OF DISCRETION WHERE EVEN IN THE
ABSENCE OF EVIDENCE, AWARDED
ATTORNEY'S FEES.
Simply stated, the issue is whether the respondent
court erred and gravely abused its discretion in
awarding moral and exemplary damages and
attorney's fees to be paid by petitioner to private
respondent.
Petitioner claims that generally the factual findings of
the lower courts are final and binding upon this Court.
However, there are exceptions to this rule. One is
where the trial court and the Court of Appeals had
arrived at diverse factual findings.4 Petitioner faults
the respondent court from deviating from the basic
rule that finding of facts by the trial court is entitled
to great weight, because the trial court had the
opportunity to observe the deportment of witness and
the evaluation of evidence presented during the trial.
Petitioner contends that the appellate court gravely
abused its discretion when it awarded damages to the
plaintiff, even in the face of lack of evidence to prove
such damages, as found by the trial court.
Firstly, petitioner questions the award of moral
damages. It claims that private respondent did not
suffer any damage upon the dishonor of the check.
Petitioner avers it acted in good faith. It was an honest
mistake on its part, according to petitioner, when
misposting of private respondent's deposit on June 1,
1988, happened. Further, petitioner contends that
private respondent may not "claim" damages because
the petitioner's manager and other employees had
profusely apologized to private respondent for the
error. They offered to make restitution and apology to
the payee of the check, Legaspi, as well as the alleged
endorsee, Lhuillier. Regrettably, it was private
respondent who declined the offer and allegedly said,
that there was nothing more to it, and that the matter
had been put to rest.5
Admittedly, as found by both the respondent appellate
court and the trial court, petitioner bank had
committed a mistake.1âwphi1.nêt It misposted
private respondent's check deposit to another account
and delayed the posting of the same to the proper
account of the private respondent. The mistake
resulted to the dishonor of the private respondent's
check. The trial court found "that the misposting of
plaintiff's check deposit to another account and the
delayed posting of the same to the account of the
plaintiff is a clear proof of lack of supervision on the
part of the defendant bank."6 Similarly, the appellate
court also found that "while it may be true that the
bank's negligence in dishonoring the properly funded
check of appellant might not have been attended with
malice and bad faith, as appellee [bank] submits,
nevertheless, it is the result of lack of due care and
caution expected of an employee of a firm engaged in
so sensitive and accurately demanding task as
banking."7
In Simex International (Manila), Inc. vs. Court of
Appeals, 183 SCRA 360, 367 (1990), and Bank of
Philippine Islands vs. IAC, et al., 206 SCRA 408, 412-
413 (1992), this Court had occasion to stress the
fiduciary nature of the relationship between a bank
and its depositors and the extent of diligence expected
of the former in handling the accounts entrusted to its
care, thus:
In every case, the depositor expects the bank
to treat his account with the utmost fidelity,
whether such account consists only of a few
hundred pesos or of millions. The bank must
record every single transaction accurately,
down to the last centavo, and as promptly as
possible. This has to be done if the account
is to reflect at any given time the amount of
money the depositor can dispose of as he
sees fit, confident that the bank will deliver it
as and to whomever he directs. A blunder on
the part of bank, such as the dishonor of a
check without good reason, can cause the
depositor not a little embarrassment if not
also financial loss and perhaps even civil and
criminal litigation.
The paint is that as a business affected with
public interest and because of the nature of
its functions, the bank is under obligation to
treat the accounts of its depositors with
meticulous care, always having in mind the
fiduciary nature of their relationship. . . .
In the recent case of Philippine National Bank vs.
Court of Appeals,8 we held that "a bank is under
obligation to treat the accounts of its depositors with
meticulous care whether such account consists only of
a few hundred pesos or of millions of pesos.
Responsibility arising from negligence in the
performance of every kind of obligation is
demandable. While petitioner's negligence in this case
may not have been attended with malice and bad
faith, nevertheless, it caused serious anxiety,
embarrassment and humiliation". Hence we ruled that
the offended party in said case was entitled to recover
reasonable moral damages.
Even if malice or bad faith was not sufficiently proved
in the instant case, the fact remains that petitioner
has committed a serious mistake. It dishonored the
check issued by the private respondent who turned
out to have sufficient funds with petitioner. The bank's
negligence was the result of lack of due care and
caution required of managers and employees of a firm
engaged in so sensitive and demanding business as
banking. Accordingly, the award of moral damages by
the respondent Court of Appeals could not be said to
be in error nor in grave abuse of its discretion.
There is no hard-and-fast rule in the determination of
what would be a fair amount of moral damages since
each case must be governed by its own peculiar facts.
The yardstick should be that it is not palpably and
scandalously excessive. In our view, the award of
P100,000.00 is reasonable, considering the reputation
and social standing of private respondent Leticia T.
Valenzuela.9
The law allows the grant of exemplary damages by
way of example for the public good. 10 The public relies
on the banks' sworn profession of diligence and
meticulousness in giving irreproachable service. The
level of meticulousness must be maintained at all
times by the banking sector. Hence, the Court of
Appeals did not err in awarding exemplary damages.
In our view, however, the reduced amount of
P20,000.00 is more appropriate.
The award of attorney's fees is also proper when
exemplary damages are awarded and since private
respondent was compelled to engage the services of
a lawyer and incurred expenses to protect her
interest. 11 The standards in fixing attorney's fees are:
(1) the amount and the character of the services
rendered; (2) labor, time and trouble involved; (3) the
nature and importance of the litigation and business
in which the services were rendered; (4) the
responsibility imposed; (5) the amount of money and
the value of the property affected by the controversy
or involved in the employment; (6) the skill and the
experience called for in the performance of the
services; (7) the professional character and the social
standing of the attorney; (8) the results secured, it
being a recognized rule that an attorney may properly
charge a much larger fee when it is contingent than
when it is not. 12 In this case, all the aforementioned
weighed, and considering that the amount involved in
the controversy is only P36,770.41, the total deposit
of private respondent which was misposted by the
bank, we find the award of respondent court of
P50,000.00 for attorney's fees, excessive and reduce
the same to P30,000.00.
WHEREFORE, the assailed DECISION of the Court of
Appeals is hereby AFFIRMED, with MODIFICATION.
The petitioner is ordered to pay P100,000.00 by way
of moral damages in favor of private respondent
Leticia T. Valenzuela. It is further ordered to pay her
exemplary damages in the amount of P20,000.00 and
P30,000.00, attorney's fees.
Costs against petitioner.
SO ORDERED.
[ GR No. 191636, Jan 16, 2017 ]
PRUDENTIAL BANK v. RONALD RAPANOT +
DECISION
CAGUIOA, J:
Only questions of law may be raised in petitions for
review on certiorari brought before this Court under
Rule 45, since this Court is not a trier of facts. While
there are recognized exceptions which warrant review
of factual findings, mere assertion of these exceptions
does not suffice. It is incumbent upon the party
seeking review to overcome the burden of
demonstrating that review is justified under the
circumstances prevailing in his case.
The Case
Before the Court is an Appeal by Certiorari[1] under
Rule 45 of the Rules of Court (Petition) of the
Decision[2] dated November 18, 2009 (questioned
Decision) rendered by the Court of Appeals - Seventh
Division (CA). The questioned Decision stems from a
complaint filed by herein private respondent Ronald
Rapanot (Rapanot) against Golden Dragon Real Estate
Corporation (Golden Dragon), Golden Dragon's
President Ma. Victoria M. Vazquez[3] and herein
petitioner, Bank of the Philippine Islands, formerly
known as Prudential Bank[4] (Bank) for Specific
Performance and Damages (Complaint) before the
Housing and Land Use Regulatory Board (HLURB).[5]
The Petition seeks to reverse the questioned Decision
insofar as it found that the Bank (i) was not deprived
of due process when the Housing and Land Use Arbiter
(Arbiter) issued his Decision dated July 3, 2002
without awaiting submission of the Bank's position
paper and draft decision, and (ii) cannot be deemed a
mortgagee in good faith with respect to Unit 2308-B2
mortgaged by Golden Dragon in its favor as
collateral.[5-a]
The Facts
Golden Dragon is the developer of Wack-Wack Twin
Towers Condominium, located in Mandaluyong City.
On May 9, 1995, Rapanot paid Golden Dragon the
amount ofP453,329.64 as reservation fee for a
41.1050-square meter unit in said condominium,
particularly designated as Unit 2308-B2,[6] and
covered by Condominium Certificate of Title (CCT) No.
2383 in the name of Golden Dragon.[7]
On September 13, 1995, the Bank extended a loan to
Golden Dragon amounting to P50,000,000.00[8] to be
utilized by the latter as additional working
capital.[9] To secure the loan, Golden Dragon executed
a Mortgage Agreement in favor of the Bank, which had
the effect of constituting a real estate mortgage over
several condominium units owned and registered
under Golden Dragon's name. Among the units
subject of the Mortgage Agreement was Unit 2308-
B2.[10] The mortgage was annotated on CCT No. 2383
on September 13, 1995.[11]
On May 21, 1996, Rapanot and Golden Dragon
entered into a Contract to Sell covering Unit 2308-B2.
On April 23, 1997, Rapanot completed payment of the
full purchase price of said unit amounting to
P1,511,098.97.[12] Golden Dragon executed a Deed of
Absolute Sale in favor of Rapanot of the same
date.[13] Thereafter, Rapanot made several verbal
demands for the delivery of Unit 2308-B2.[14]
Prompted by Rapanot's verbal demands, Golden
Dragon sent a letter to the Bank dated March 17,
1998, requesting for a substitution of collateral for the
purpose of replacing Unit 2308-B2 with another unit
with the same area. However, the Bank denied Golden
Dragon's request due to the latter's unpaid
accounts.[15] Because of this, Golden Dragon failed to
comply with Rapanot's verbal demands.
Thereafter, Rapanot, through his counsel, sent several
demand letters to Golden Dragon and the Bank,
formally demanding the delivery of Unit 2308-B2 and
its corresponding CCT No. 2383, free from all liens and
encumbrances.[16] Neither Golden Dragon nor the
Bank complied with Rapanot's written demands.[17]
Proceedings before the HLURB
On April 27, 2001, Rapanot filed a Complaint with the
Expanded National Capital Region Field Office of the
HLURB.[18] The Field Office then scheduled the
preliminary hearing and held several conferences with
a view of arriving at an amicable settlement. However,
no settlement was reached.[19]
Despite service of summons to all the defendants
named in the Complaint, only the Bank filed its
Answer.[20] Thus, on April 5, 2002, the Arbiter issued
an order declaring Golden Dragon and its President
Maria Victoria Vazquez in default, and directing
Rapanot and the Bank to submit their respective
position papers and draft decisions (April 2002
Order).[21] Copies of the April 2002 Order were served
on Rapanot and the Bank via registered
mail.[22] However, the envelope bearing the copy sent
to the Bank was returned to the Arbiter, bearing the
notation "refused to receive".[23]
Rapanot complied with the April 2002 Order and
personally served copies of its position paper and draft
decision on the Bank on May 22, 2002 and May 24,
2002, respectively.[24] In the opening statement of
Rapanot's position paper, Rapanot made reference to
the April 2002 Order.[25]
 Subsequently, the Bank received a copy of Rapanot's
On July 3, 2002, the Arbiter rendered a decision Motion for Execution dated September 2, 2002,[29] to
(Arbiter's Decision) in favor of Rapanot, the which it filed an Opposition dated September 4,
dispositive portion of which reads: 2002.[30]

WHEREFORE, premises considered, judgment is Meanwhile, the Bank's Manifestation and Motion for
hereby rendered as follows: Clarification remained unresolved despite the lapse of
five (5) months from the date of filing. This prompted
the Bank to secure a certified true copy of the Arbiter's
Decision from the HLURB.[31]
1. Declaring the mortgage over the
condominium unit No. 2308-B2 covered by
On January 16, 2003, the Bank filed a Petition for
Condominium Certificate of Title No. 2383 in
Review with the HLURB Board of Commissioners
favor of respondent Bank as null and void for
(HLURB Board) alleging, among others, that it had
violation of Section 18 of Presidential Decree
been deprived of due process when the Arbiter
No. 957[;]
rendered a decision without affording the Bank the
opportunity to submit its position paper and draft
2. Ordering respondent Bank to cancel the
decision.
mortgage on the subject condominium unit,
and accordingly, release the title thereof to
The HLURB Board modified the Arbiter's Decision by:
the complainant;
(i) reducing the award for moral damages from
P100,000.00 to P50,000.00, (ii) deleting the award for
3. Ordering respondents to pay jointly and
exemplary damages, (iii) reducing the award for
severally the complainant the following
attorney's fees from P50,000.00 to P20,000.00, and
sums:
(iv) directing Golden Dragon to pay the Bank all the
damages the latter is directed to pay thereunder, and
settle the mortgage obligation corresponding to Unit
a. P100,000.00 as moral damages,
2308-B2.[32]
b. P100,000.00 as exemplary
Anent the issue of due process, the HLURB Board held,
damages,
as follows:
c. P50,000.00 as attorney's fees,
x x x x
d. The costs of litigations (sic), and
With respect to the first issue, we find the same
untenable. Records show that prior to the rendition of
e. An administrative fine of TEN
its decision, the office below has issued and duly sent
THOUSAND PESOS (P10,000.00)
an Order to the parties declaring respondent GDREC
payable to this Office fifteen (15)
in default and directing respondent Bank to submit its
days upon receipt of this decision,
position paper. x x x[33] (Underscoring omitted)
for violation of Section 18 in relation
to Section 38 of PD 957; Proceedings before the Office of the President

The Bank appealed the decision of the HLURB Board

to the Office of the President (OP). On October 10,
2005, the OP issued a resolution denying the Bank's
4. Directing the Register of Deeds of
appeal. In so doing, the OP adopted the BLURB's
Mandaluyong City to cancel the aforesaid
findings.[34] The Bank filed a Motion for
mortgage on the title of the subject
Reconsideration, which was denied by the OP in an
condominium unit; and
Order dated March 3, 2006.[35]
5. Immediate[ly] upon receipt by the
Proceedings before the CA
complainant of the owner's duplicate
Condominium Certificate of Title of Unit
The Bank filed a Petition for Review with the CA on
2308-B2, delivery of CCT No. 2383 over Unit
April 17, 2006 assailing the resolution and subsequent
2308-B2 in favor of the complainant free
order of the OP. The Bank argued, among others, that
from all liens and encumbrances.
the OP erred when it found that the Bank (i) was not
denied due process before the HLURB, and (ii) is
SO ORDERED.[26] jointly and severally liable with Golden Dragon for
damages due Rapanot.[36]
On July 25, 2002, the Bank received a copy of
Rapanot's Manifestation dated July 24, 2002, stating After submission of the parties' respective
that he had received a copy of the Arbiter's memoranda, the CA rendered the questioned Decision
Decision.[27] On July 29, 2002, the Bank filed a dismissing the Bank's Petition for Review. On the issue
Manifestation and Motion for of due process, the CA held:
Clarification,[28] requesting for the opportunity to file
its position paper and draft decision, and seeking Petitioner asserts that it was denied due process
confirmation as to whether a decision had indeed been because it did not receive any notice to file its position
rendered notwithstanding the fact that it had yet to paper nor a copy of the Housing Arbiter's Decision.
file such submissions. Rapanot, meanwhile, contends that the Housing
Arbiter sent petitioner a copy of the April 5, 2002
Order to file position paper by registered mail, as
evidenced by the list of persons furnished with a copy
thereof. However, according to Rapanot, petitioner
"refused to receive" it.
x x x x
In the instant case, there is no denial of due process.
Petitioner filed its Answer where it was able to explain
its side through its special and affirmative defenses.
Furthermore, it participated in the preliminary hearing
and attended scheduled conferences held to resolve
differences between the parties. Petitioner was also
served with respondent's position paper and draft
decision. Having received said pleadings of
respondent, petitioner could have manifested before
the Housing Arbiter that it did not receive, if correct,
its order requiring the submission of its pleadings and
therefore prayed that it be given time to do so. Or, it
could have filed its position paper and draft decision
without awaiting the order to file the same. Under the
circumstances, petitioner was thus afforded and
availed of the opportunity to present its side. It cannot
make capital of the defense of denial of due process
as a screen for neglecting to avail of opportunities to
file other pleadings.[37]
With respect to the Bank's liability for damages, the
CA held thus:
Section 18 of PD 957, requires prior written authority
of the HLURB before the owner or developer of a
subdivision lot or condominium unit may enter into a
contract of mortgage. Hence, the jurisdiction of the
HLURB is broad enough to include complaints for
annulment of mortgage involving violations of PD 957.
Petitioner argues that, as a mortgagee in good faith
and for value, it must be accorded protection and
should not be held jointly and severally liable with
Golden Dragon and its President, Victoria Vasquez.
It is true that a mortgagee in good faith and for value
is entitled to protection, as held in Rural Bank of
Compostela vs. Court of Appeals but petitioner's
dependence on this ruling is misplaced as it cannot be
considered a mortgagee in good faith.
The doctrine of "mortgagee in good faith" is based on
the rule that all persons dealing with property covered
by a certificate of title, as mortgagees, are not
required to go beyond what appears on the face of the
title.
However, while a mortgagee is not under obligation to
look beyond the certificate of title, the nature of
petitioner's business requires it to take further steps
to assure that there are no encumbrances or liens on
the mortgaged property, especially since it knew that
it was dealing with a condominium developer. It
should have inquired deeper into the status of the
properties offered as collateral and verified if the
HLURB's authority to mortgage was in fact previously
obtained. This it failed to do.
It has been ruled that a bank, like petitioner, cannot
argue that simply because the titles offered as
security were clean of any encumbrances or lien, it
was relieved of taking any other step to verify the
implications should the same be sold by the
developer. While it is not expected to conduct an
exhaustive investigation of the mortgagor's title, it
cannot be excused from the duty of exercising the due
diligence required of banking institutions, for banks
are expected to exercise more care and prudence than
private individuals in their dealings, even those
involving registered property, for their business is
affected with public interest.
As aforesaid, petitioner should have ascertained that
the required authority to mortgage the condominium
units was obtained from the HLURB before it approved
Golden Dragon's loan. It cannot feign lack of
knowledge of the sales activities of Golden Dragon
since, as an extender of credit, it is aware of the
practices, both good or bad, of condominium
developers. Since petitioner was negligent in its duty
to investigate the status of the properties offered to it
as collateral, it cannot claim that it was a mortgagee
in good faith.[38]
The Bank filed a Motion for Reconsideration, which
was denied by the CA in a Resolution dated March
17,2010.[39] The Bank received a copy of the
resolution on March 22, 2010.[39-a]
On April 6, 2010, the Bank filed with the Court a
motion praying for an additional period of 30 days
within which to file its petition for review
on certiorari.[39-b]
On May 6, 2010, the Bank filed the instant Petition.
Rapanot filed his Comment to the Petition on
September 7, 2010.[40] Accordingly, the Bank filed its
Reply on January 28, 2011.[41]
Issues
Essentially, the Bank requests this Court to resolve
the following issues:
1. Whether or not the CA erred when it affirmed
the resolution of the OP finding that the Bank
had been afforded due process before the
HLURB; and
2. Whether or not the CA erred when it affirmed
the resolution of the OP holding that the Bank
cannot be considered a mortgagee in good
faith.
The Court's Ruling
In the instant Petition, the Bank avers that the CA
misappreciated material facts when it affirmed the
OP's resolution which denied its appeal. The Bank
contends that the CA committed reversible error when
it concluded that the Bank was properly afforded due
process before the HLURB, and when it failed to
recognize the Bank as a mortgagee in good faith. The
Bank concludes that these alleged errors justify the
reversal of the questioned Decision, and ultimately
call for the dismissal of the Complaint against it.
The Court disagrees.
Time and again, the Court has emphasized that review
of appeals under Rule 45 is "not a matter of right, but
of sound judicial discretion."[42] Thus, a petition for
review on certiorari shall only be granted on the basis
of special and important reasons.[43]
As a general rule, only questions of law may be raised
in petitions filed under Rule 45.[44] However, there are
recognized exceptions to this general rule, namely:
(1) when the findings are grounded entirely on
speculation, surmises or conjectures; (2) when the
inference made is manifestly mistaken, absurd
or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a
misapprehension of facts; (5) when the findings of
facts are conflicting; (6) when in making its findings
the Court of Appeals went beyond the issues of the
case, or its findings are contrary to the admissions of
both the appellant and the appellee; (7) when the
findings are contrary to the trial court; (8) when the
findings are conclusions without citation of specific
evidence on which they are based; (9) when the facts
set forth in the petition as well as in the petitioner's
main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and
contradicted by the evidence on record; and
(11) when the Court of Appeals manifestly
overlooked certain relevant facts not disputed
by the parties, which, if properly considered,
would justify a different conclusion. x x
x[45] (Emphasis supplied)
The Bank avers that the second, fourth and eleventh
exceptions above are present in this case. However,
after a judicious examination of the records of this
case and the respective submissions of the parties,
the Court finds that none of these exceptions apply.
The Bank was not deprived of due process before the
HLURB.
The Bank asserts that it never received the April2002
Order. It claims that it was taken by surprise on July
25, 2002, when it received a copy of Rapanot's
Manifestation alluding to the issuance of the Arbiter's
Decision on July 3, 2002. Hence, the Bank claims that
it was deprived of due process, since it was not able
to set forth its "valid and meritorious" defenses for the
Arbiter's consideration through its position paper and
draft decision.[46]
The Court finds these submissions untenable.
"The essence of due process is to be heard."[47] In
administrative proceedings, due process entails "a fair
and reasonable opportunity to explain one's side, or
an opportunity to seek a reconsideration of the action
or ruling complained of. Administrative due process
cannot be fully equated with due process in its strict
judicial sense, for in the former a formal or trial-type
hearing is not always necessary, and technical rules of
procedure are not strictly applied."[48]
As correctly pointed out by the CA in the questioned
Decision, the Bank was able to set out its position by
participating in the preliminary hearing and the
scheduled conferences before the Arbiter.[49] The Bank
was likewise able to assert its special and affirmative
defenses in its Answer to Rapanot's Complaint.[50]
The fact that the Arbiter's Decision was rendered
without having considered the Bank's position paper
and draft decision is of no moment. An examination of
the 1996 Rules of Procedure of the HLURB[51] then
prevailing shows that the Arbiter merely acted in
accordance therewith when he rendered his decision
on the basis of the pleadings and records submitted
by the parties thus far. The relevant rules provide:
RULE VI - PRELIMINARY CONFERENCE AND
RESOLUTION
x x x x
Section 4. Position Papers. - If the parties fail to settle
within the period of preliminary conference, then
they will be given a period of not more than
thirty (30) calendar days to file their respective
verified position papers, attaching thereto the
affidavits of their witnesses and documentary
evidence.
In addition, as provided for by Executive Order
No. 26, Series of 1992, the parties shall be
required to submit their respective draft
decisions within the same thirty (30)-day
period.
Said draft decision shall state clearly and distinctly the
findings of facts, the issues and the applicable law and
jurisprudence on which it is based. The arbiter may
adopt in whole or in part either of the parties' draft
decision, or reject both and prepare his own decision.
The party who fails to submit a draft decision shall be
fined P2,000.00.
Section 5. Summary Resolution - With or without
the position paper and draft decision[,] the
Arbiter shall summarily resolve the case on the
basis of the verified pleadings and pertinent
records of the Board.(Emphasis and underscoring
supplied)
Clearly, the Arbiter cannot be faulted for rendering his
Decision, since the rules then prevailing required him
to do so.
The Bank cannot likewise rely on the absence of proof
of service to further its cause. Notably, while the Bank
firmly contends that it did not receive the copy of the
April 2002 Order, it did not assail the veracity of the
notation "refused to receive" inscribed on the
envelope bearing said order. In fact, the Bank only
offered the following explanation respecting said
notation:
9. The claim that the Bank "refused to receive" the
envelope that bore the Order cannot be given
credence and is belied by the Bank's act of
immediately manifesting before the Housing Arbiter
that it had not yet received an order for filing the
position paper and draft decision.[52]
This is specious, at best. More importantly, the
records show that the Bank gained actual notice of the
Arbiter's directive to file their position papers and draft
decisions as early as May 22, 2002, when it was
personally served a copy of Rapanot's position paper
which made reference to the April 2002 Order.[53] This
shows as mere pretense the Bank's assertion that it
learned of the Arbiter's Decision only through
Rapanot's Manifestation.[54] Worse, the Bank waited
until the lapse of five (5) months before it took steps
to secure a copy of the Arbiter's Decision directly from
the HLURB for the purpose of assailing the same
before the OP.
The Mortgage Agreement is null and void as against
Rapanot, and thus cannot be enforced against him.
The Bank avers that contrary to the CA's conclusion in
the questioned Decision, it exercised due diligence
before it entered into the Mortgage Agreement with
Golden Dragon and accepted Unit 2308-B2, among
other properties, as collateral.[55] The Bank stressed
that prior to the approval of Golden Dragon's loan, it
deployed representatives to ascertain that the
properties being offered as collateral were in order.
Moreover, it confirmed that the titles corresponding to
the properties offered as collateral were free from
existing liens, mortgages and other
encumbrances.[56]Proceeding from this, the Bank
claims that the CA overlooked these facts when it
failed to recognize the Bank as a mortgagee in good
faith.
The Court finds the Bank's assertions indefensible.
First of all, under Presidential Decree No. 957 (PD
957), no mortgage on any condominium unit may be
constituted by a developer without prior written
approval of the National Housing Authority, now
HLURB.[57] PD 957 further requires developers to
notify buyers of the loan value of their corresponding
mortgaged properties before the proceeds of the
secured loan are released. The relevant provision
states:
Section 18. Mortgages. - No mortgage on any unit or
lot shall be made by the owner or developer without
prior written approval of the Authority. Such approval
shall not be granted unless it is shown that the
proceeds of the mortgage loan shall be used for the
development of the condominium or subdivision
project and effective measures have been provided to
ensure such utilization. The loan value of each lot or
unit covered by the mortgage shall be determined and
the buyer thereof, if any, shall be notified before the
release of the loan. The buyer may, at his option, pay
his installment for the lot or unit directly to the
mortgagee who shall apply the payments to the
corresponding mortgage indebtedness secured by the
particular lot or unit being paid for, with a view to
enabling said buyer to obtain title over the lot or unit
promptly after full payment thereof.
In Far East Bank & Trust Co. v. Marquez,[58] the Court
clarified the legal effect of a mortgage constituted in
violation of the foregoing provision, thus:
The lot was mortgaged in violation of Section 18 of PD
957. Respondent, who was the buyer of the property,
was not notified of the mortgage before the release of
the loan proceeds by petitioner. Acts executed against
the provisions of mandatory or prohibitory laws shall
be void. Hence, the mortgage over the lot is null
and void insofar as private respondent is
concerned.[59] (Emphasis supplied)
The Court reiterated the foregoing pronouncement in
the recent case of Philippine National Bank v.
Lim[60] and again in United Overseas Bank of the
Philippines, Inc. v. Board of Commissioners-HLURB.[61]
Thus, the Mortgage Agreement cannot have the effect
of curtailing Rapanot's right as buyer of Unit 2308-B2,
precisely because of the Bank's failure to comply with
PD 957.
Moreover, contrary to the Bank's assertions, it cannot
be considered a mortgagee in good faith. The Bank
failed to ascertain whether Golden Dragon secured
HLURB's prior written approval as required by PD 957
before it accepted Golden Dragon's properties as
collateral. It also failed to ascertain whether any of the
properties offered as collateral already had
corresponding buyers at the time the Mortgage
Agreement was executed.
The Bank cannot harp on the fact that the Mortgage
Agreement was executed before the Contract to Sell
and Deed of Absolute Sale between Rapanot and
Golden Dragon were executed, such that no amount
of verification could have revealed Rapanot's right
over Unit 2308-B2.[62] The Court particularly notes
that Rapanot made his initial payment for Unit 2308-
B2 as early as May 9, 1995, four (4) months prior to
the execution of the Mortgage Agreement. Surely, the
Bank could have easily verified such fact if it had
simply requested Golden Dragon to confirm if Unit
2308-B2 already had a buyer, given that the nature of
the latter's business inherently involves the sale of
condominium units on a commercial scale.
It bears stressing that banks are required to exercise
the highest degree of diligence in the conduct of their
affairs. The Court explained this exacting requirement
in the recent case of Philippine National Bank v.
Vila,[63] thus:
In Land Bank of the Philippines v. Belle Corporation,
the Court exhorted banks to exercise the highest
degree of diligence in its dealing with properties
offered as securities for the loan obligation:
When the purchaser or the mortgagee is a bank, the
rule on innocent purchasers or mortgagees for value
is applied more strictly. Being in the business of
extending loans secured by real estate mortgage,
banks are presumed to be familiar with the rules on
land registration. Since the banking business is
impressed with public interest, they are expected to
be more cautious, to exercise a higher degree of
diligence, care and prudence, than private individuals
in their dealings, even those involving registered
lands. Banks may not simply rely on the face of the
certificate of title. Hence, they cannot assume that, x
x x the title offered as security is on its face free of
any encumbrances or lien, they are relieved of the
responsibility of taking further steps to verify the title
and inspect the properties to be mortgaged. As
expected, the ascertainment of the status or condition
of a property offered to it as security for a loan must
be a standard and indispensable part of the bank's
operations. x x x (Citations omitted)
We never fail to stress the remarkable
significance of a banking institution to
commercial transactions, in particular, and to
the country's economy in general. The banking
system is an indispensable institution in the
modern world and plays a vital role in the
economic life of every civilized nation. Whether
as mere passive entities for the safekeeping and
saving of money or as active instruments of
business and commerce, banks have become an
ubiquitous presence among the people, who
have come to regard them with respect and even
gratitude and, most of all, confidence.
Consequently, the highest degree of diligence is
expected, and high standards of integrity and
performance are even required, of
it.[64] (Emphasis and underscoring supplied)
In loan transactions, banks have the particular
obligation of ensuring that clients comply with all the
documentary requirements pertaining to the approval
of their loan applications and the subsequent release
of their proceeds.[65]
If only the Bank exercised the highest degree of
diligence required by the nature of its business as a
financial institution, it would have discovered that (i)
Golden Dragon did not comply with the approval
requirement imposed by Section 18 of PD 957, and (ii)
that Rapanot already paid a reservation fee and had
made several installment payments in favor of Golden
Dragon, with a view of acquiring Unit 2308-B2.[66]
The Bank's failure to exercise the diligence required of
it constitutes negligence, and negates its assertion
that it is a mortgagee in good faith. On this point, this
Court's ruling in the case of Far East Bank & Trust Co.
v. Marquez[67] is instructive:
Petitioner argues that it is an innocent mortgagee
whose lien must be respected and protected, since the
title offered as security was clean of any encumbrance
or lien. We do not agree.
"x x x As a general rule, where there is nothing on the
certificate of title to indicate any cloud or vice in the
ownership of the property, or any encumbrance
thereon, the purchaser is not required to explore
further than what the Torrens Title upon its face
indicates in quest for any hidden defect or inchoate
right that may subsequently defeat his right thereto.
This rule, however, admits of an exception as where
the purchaser or mortgagee has knowledge of a defect
or lack of title in the vendor, or that he was aware of
sufficient facts to induce a reasonably prudent man to
inquire into the status of the property in litigation."
Petitioner bank should have considered that it was
dealing with a town house project that was already in
progress. A reasonable person should have been
aware that, to finance the project, sources of funds
could have been used other than the loan, which was
intended to serve the purpose only partially. Hence,
there was need to verity whether any part of the
property was already the subject of any other contract
involving buyers or potential buyers. In granting the
loan, petitioner bank should not have been
content merely with a clean title, considering
the presence of circumstances indicating the
need for a thorough investigation of the
existence of buyers like respondent.Having been
wanting in care and prudence, the latter cannot be
deemed to be an innocent mortgagee.
Petitioner cannot claim to be a mortgagee in
good faith. Indeed it was negligent, as found by
the Office of the President and by the CA.
Petitioner should not have relied only on the
representation of the mortgagor that the latter
had secured all requisite permits and licenses
from the government agencies concerned. The
former should have required the submission of
certified true copies of those documents and
verified their authenticity through its own
independent effort.
Having been negligent in finding out what
respondent's rights were over the lot, petitioner
must be deemed to possess constructive
knowledge of those rights. (Emphasis supplied)
The Court can surely take judicial notice of the fact
that commercial banks extend credit accommodations
to real estate developers on a regular basis. In the
course of its everyday dealings, the Bank has surely
been made aware of the approval and notice
requirements under Section 18 of PD 957. At this
juncture, this Court deems it necessary to stress that
a person who deliberately ignores a significant fact
that could create suspicion in an otherwise reasonable
person cannot be deemed a mortgagee in good
faith.[68] The nature of the Bank's business precludes
it from feigning ignorance of the need to confirm that
such requirements are complied with prior to the
release of the loan in favor of Golden Dragon, in view
of the exacting standard of diligence it is required to
exert in the conduct of its affairs.
Proceeding from the foregoing, we find that neither
mistake nor misapprehension of facts can be ascribed
to the CA in rendering the questioned Decision. The
Court likewise finds that contrary to the Bank's claim,
the CA did not overlook material facts, since the
questioned Decision proceeded from a thorough
deliberation of the facts established by the
submissions of the parties and the evidence on record.
For these reasons, we resolve to deny the instant
Petition for lack of merit.
WHEREFORE, premises considered, the Petition for
Review on Certiorari is DENIED. The Decision dated
November 18, 2009 and Resolution dated March 17,
2010 of the Court of Appeals in CA-G.R. SP No. 93862
are hereby AFFIRMED.
SO ORDERED.
NOTE: THE NEXT 2 CASES, I DON’T KNOW WHICH
ONE BUT THE TITLE IS PAL VS CA AND BOTH
CONTAIN FORTUITOUS EVENT SO PLEASE CLARIFY
THANKS!
G.R. No. L-82619 September 15, 1993
PHILIPPINE AIRLINES, INC., petitioner,
vs.
COURT OF APPEALS and PEDRO
ZAPATOS, respondents.
Leighton R. Liazon for petitioner.
Balmes L. Ocampo for private respondent.

BELLOSILLO, J.:
This petition for review in certiorari seeks to annul and
set aside the decision of the then Intermediate
Appellant Court,1 now Court of Appeals, dated 28
February 1985, in AC-G.R. CV No. 69327 ("Pedro
Zapatos v. Philippine Airlines, Inc.") affirming the
decision of the then Court of first Instance, now
Regional Trial Court, declaring Philippine Airlines, Inc.,
liable in damages for breach of contract.
On 25 November 1976, private respondent filed a
complaint for damages for breach of contract of
carriage2 against Philippine Airlines, Inc. (PAL), before
the then Court of First Instance, now Regional Trial
Court, of Misamis Occidental, at Ozamiz City.
According to him, on 2 August 1976, he was among
the twenty-one (21) passengers of PAL Flight 477 that
took off from Cebu bound for Ozamiz City. The routing
of this flight was Cebu-Ozamiz-Cotabato. While on
flight and just about fifteen (15) minutes before
landing at Ozamiz City, the pilot received a radio
message that the airport was closed due to heavy
rains and inclement weather and that he should
proceed to Cotabato City instead.
Upon arrival at Cotabato City, the PAL Station Agent
informed the passengers of their options to return to
Cebu on flight 560 of the same day and thence to
Ozamiz City on 4 August 1975, or take the next flight
to Cebu the following day, or remain at Cotabato and
take the next available flight to Ozamiz City on 5
August 1975.3 The Station Agent likewise informed
them that Flight 560 bound for Manila would make a
stop-over at Cebu to bring some of the diverted
passengers; that there were only six (6) seats
available as there were already confirmed passengers
for Manila; and, that the basis for priority would be
the check-in sequence at Cebu.
Private respondent chose to return to Cebu but was
not accommodated because he checked-in as
passenger No. 9 on Flight 477. He insisted on being
given priority over the confirmed passengers in the
accommodation, but the Station Agent refused private
respondent's demand explaining that the latter's
predicament was not due to PAL's own doing but to be
a force majeure.4
Private respondent tried to stop the departure of Flight
560 as his personal belongings, including a package
containing a camera which a certain Miwa from Japan
asked him to deliver to Mrs. Fe Obid of Gingoog City,
were still on board. His plea fell on deaf ears. PAL then
issued to private respondent a free ticket to Iligan city,
which the latter received under protest.5 Private
respondent was left at the airport and could not even
hitch a ride in the Ford Fiera loaded with PAL
personnel.6 PAL neither provided private respondent
with transportation from the airport to the city proper
nor food and accommodation for his stay in Cotabato
City.
The following day, private respondent purchased a
PAL ticket to Iligan City. He informed PAL personnel
that he would not use the free ticket because he was
filing a case against PAL.7 In Iligan City, private
respondent hired a car from the airport to
Kolambugan, Lanao del Norte, reaching Ozamiz City
by crossing the bay in a launch.8 His personal effects
including the camera, which were valued at P2,000.00
were no longer recovered.
On 13 January 1977, PAL filed its answer denying that
it unjustifiably refused to accommodate private
respondent.9It alleged that there was simply no more
seat for private respondent on Flight 560 since there
were only six (6) seats available and the priority of
accommodation on Flight 560 was based on the
check-in sequence in Cebu; that the first six (6)
priority passengers on Flight 477 chose to take Flight
560; that its Station Agent explained in a courteous
and polite manner to all passengers the reason for
PAL's inability to transport all of them back to Cebu;
that the stranded passengers agreed to avail of the
options and had their respective tickets exchanged for
their onward trips; that it was
only the private respondent who insisted on being
given priority in the accommodation; that pieces of
checked-in baggage and had carried items of the
Ozamiz City passengers were removed from the
aircraft; that the reason for their pilot's inability to
land at Ozamis City airport was because the runway
was wet due to rains thus posing a threat to the safety
of both passengers and aircraft; and, that such reason
of force majeure was a valid justification for the pilot
to bypass Ozamiz City and proceed directly to
Cotabato City.
On 4 June 1981, the trial court rendered its
decision 10 the dispositive portion of which states:
WHEREFORE, judgment is hereby
rendered in favor of the plaintiff and
against the defendant Philippine
AirLines, Inc. ordering the latter to
pay:
(1) As actual damages, the sum of
Two Hundred Pesos (P200.00)
representing plaintiff's expenses for
transportation, food and
accommodation during his stranded
stay at Cotabato City; the sum of
Forty-Eight Pesos (P48.00)
representing his flight fare from
Cotabato City to Iligan city; the sum
of Five Hundred Pesos (P500.00)
representing plaintiff's
transportation expenses from Iligan
City to Ozamiz City; and the sum of
Five Thousand Pesos (P5,000.00) as
loss of business opportunities
during his stranded stay in Cotabato
City;
(2) As moral damages, the sum of
Fifty Thousand Pesos (P50,000.00)
for plaintiff's hurt feelings, serious
anxiety, mental anguish and unkind
and discourteous treatment
perpetrated by defendant's
employees during his stay as
stranded passenger in Cotabato
City;
 (3) As exemplary damages, the sum amount of thirty thousand
of Ten Thousand Pesos (P30,000.00) Pesos.
(P10,000.00) to set a precedent to
the defendant airline that it shall
To substantiate this aspect of apathy, private
provide means to give comfort and
respondent testified 15
convenience to stranded
passengers;
A I did not even
notice that I was I
(4) The sum of Three Thousand
think the last
Pesos (P3,000.00) as attorney's
passenger or the
fees;
last person out of
the PAL
(5) To pay the costs of this suit. employees and
army personnel
that were left
PAL appealed to the Court of Appeals which on 28
there. I did not
February 1985, finding no reversible error, affirmed
notice that when I
the judgment of the court a quo. 11
was already
outside of the
PAL then sought recourse to this Court by way of a building after our
petition for review on certiorari 12 upon the following conversation.
issues: (1) Can the Court of Appeals render a decision
finding petitioner (then defendant-appellant in the
Q What did you do
court below) negligent and, consequently, liable for
next?
damages on a question of substance which was
neither raised on a question nor proved at the trial?
(2) Can the Court of Appeals award actual and moral A I banished (sic)
damages contrary to the evidence and established because it seems
jurisprudence? 13 that there was a
war not far from
the airport. The
An assiduous examination of the records yields no
sound of guns and
valid reason for reversal of the judgment on appeal;
the soldiers were
only a modification of its disposition.
plenty.

In its petition, PAL vigorously maintains that private

Q After that what
respondent's principal cause of action was its alleged
did you do?
denial of private respondent's demand for priority over
the confirmed passengers on Flight 560. Likewise, PAL
points out that the complaint did not impute to PAL A I tried to look
neglect in failing to attend to the needs of the diverted for a
passengers; and, that the question of negligence was transportation
not and never put in issue by the pleadings or proved that could bring
at the trial. me down to the
City of Cotabato.
Contrary to the above arguments, private
respondent's amended complaint touched on PAL's Q Were you able
indifference and inattention to his predicament. The to go there?
pertinent portion of the amended complaint 14 reads:
A I was at about
10. That by virtue of the refusal of 7:00 o'clock in
the defendant through its agent in the evening more
Cotabato to accommodate (sic) and or less and it was
allow the plaintiff to take and board a private jeep
the plane back to Cebu, and by that I boarded. I
accomodating (sic) and allowing was even
passengers from Cotabato for Cebu questioned why I
in his stead and place, thus forcing and who am (sic)
the plaintiff against his will, to be I then. Then I
left and stranded in Cotabato, explained my side
exposed to the peril and danger of that I am (sic)
muslim rebels plundering at the stranded
time, the plaintiff, as a passenger. Then
consequence, (have) suffered they brought me
mental anguish, mental torture, downtown at
social humiliation, bismirched Cotabato.
reputation and wounded feeling, all
amounting to a conservative
Q During your
conversation with
 the Manager were were in Cotabato,
you not offered is that right?
any vehicle or
transportation to
Private
Cotabato airport
respondent:
downtown?

A Yes.
A In fact I told
him (Manager)
now I am by- Q Did you ask
passed passenger them to help you
here which is not regarding any
my destination offer of
what can you transportation or
offer me. Then of any other
they answered, matter asked of
"it is not my fault. them?
Let us forget
that." A Yes, he (PAL
PERSONNEL) said
Q In other words what is? It is not
when the our fault.
Manager told you
that offer was Q Are you not
there a vehicle aware that one
ready? fellow passenger
even claimed that
A Not yet. Not he was given
long after that the Hotel
Ford Fiera loaded accommodation
with PAL because they
personnel was have no money?
passing by going
to the City of xxx xxx xxx
Cotabato and I
stopped it to take
me a ride because A No, sir, that was
there was no never offered to
more available me. I said, I tried
transportation to stop them but
but I was not they were already
accommodated. riding that PAL
pick-up jeep, and
I was not
Significantly, PAL did not seem to mind the accommodated.
introduction of evidence which focused on its alleged
negligence in caring for its stranded passengers. Well-
settled is the rule in evidence that the protest or Having joined in the issue over the alleged lack of care
objection against the admission of evidence should be it exhibited towards its passengers, PAL cannot now
presented at the time the evidence is offered, and that turn around and feign surprise at the outcome of the
the proper time to make protest or objection to the case. When issues not raised by the pleadings are
admissibility of evidence is when the question is tried by express or implied consent of the parties, they
presented to the witness or at the time the answer shall be treated in all respects as if they had been
thereto is given. 16 There being no objection, such raised in the pleadings. 19
evidence becomes property of the case and all the
parties are amenable to any favorable or unfavorable With regard to the award of damages affirmed by the
effects resulting from the evidence. 17 appellate court, PAL argues that the same is
unfounded. It asserts that it should not be charged
PAL instead attempted to rebut the aforequoted with the task of looking after the passengers' comfort
testimony. In the process, it failed to substantiate its and convenience because the diversion of the flight
counter allegation for want of concrete proof 18 — was due to a fortuitous event, and that if made liable,
an added burden is given to PAL which is over and
beyond its duties under the contract of carriage. It
Atty. Rubin O. submits that granting arguendo that negligence
Rivera — PAL's exists, PAL cannot be liable in damages in the absence
counsel: of fraud or bad faith; that private respondent failed to
apprise PAL of the nature of his trip and possible
Q You said PAL business losses; and, that private respondent himself
refused to help is to be blamed for unreasonably refusing to use the
you when you free ticket which PAL issued.
The contract of air carriage is a peculiar one. Being
imbued with public interest, the law requires common
carriers to carry the passengers safely as far as
human care and foresight can provide, using the
utmost diligence of very cautious persons, with due
regard for all the circumstances. 20 In Air France
v. Carrascoso, 21 we held that —
A contract to transport passengers
is quite different in kind and degree
from any other contractual relation.
And this, because of the relation
which an air carrier sustains with
the public. Its business is mainly
with the travelling public. It invites
people to avail of the comforts and
advantages it offers. The contract of
air carriage, therefore, generates a
relation attended with a public duty
. . . . ( emphasis supplied).
The position taken by PAL in this case clearly
illustrates its failure to grasp the exacting standard
required by law. Undisputably, PAL's diversion of its
flight due to inclement weather was a fortuitous event.
Nonetheless, such occurrence did not terminate PAL's
contract with its passengers. Being in the business of
air carriage and the sole one to operate in the country,
PAL is deemed equipped to deal with situations as in
the case at bar. What we said in one case once again
must be stressed, i.e., the relation of carrier and
passenger continues until the latter has been landed
at the port of destination and has left the carrier's
premises. 22 Hence, PAL necessarily would still have to
exercise extraordinary diligence in safeguarding the
comfort, convenience and safety of its stranded
passengers until they have reached their final
destination. On this score, PAL grossly failed
considering the then ongoing battle between
government forces and Muslim rebels in Cotabato City
and the fact that the private respondent was a
stranger to the place. As the appellate court correctly
ruled —
While the failure of plaintiff in the
first instance to reach his
destination at Ozamis City in
accordance with the contract of
carriage was due to the closure of
the airport on account of rain and
inclement weather which was
radioed to defendant 15 minutes
before landing, it has not been
disputed by defendant airline that
Ozamis City has no all-weather
airport and has to cancel its flight to
Ozamis City or by-pass it in the
event of inclement weather.
Knowing this fact, it becomes the
duty of defendant to provide all
means of comfort and convenience
to its passengers when they would
have to be left in a strange place in
case of such by-passing. The steps
taken by defendant airline company
towards this end has not been put
in evidence, especially for those 7
others who were not accommodated
in the return trip to Cebu, only 6 of
the 21 having been so
accommodated. It appears that
plaintiff had to leave on the next
flight 2 days later. If the cause of
non-fulfillment of the contract is due
to a fortuitous event, it has to be the
sole and only cause (Art. 1755 CC.,
Art. 1733 C.C.) Since part of the
failure to comply with the obligation
of common carrier to deliver its
passengers safely to their
destination lay in the defendant's
failure to provide comfort and
convenience to its stranded
passengers using extra-ordinary
diligence, the cause of non-
fulfillment is not solely and
exclusively due to fortuitous event,
but due to something which
defendant airline could have
prevented, defendant becomes
liable to plaintiff. 23
While we find PAL remiss in its duty of extending
utmost care to private respondent while being
stranded in Cotabato City, there is no sufficient basis
to conclude that PAL failed to inform him about his
non-accommodation on Flight 560, or that it was
inattentive to his queries relative thereto.
On 3 August 1975, the Station Agent reported to his
Branch Manager in Cotabato City that —
3. Of the fifteen stranded
passengers two pax elected to take
F478 on August 05, three pax opted
to take F442 August 03. The
remaining ten (10) including subject
requested that they be instead
accommodated (sic) on F446 CBO-
IGN the following day where they
intended to take the surface
transportation to OZC. Mr. Pedro
Zapatos had by then been very
vocal and boiceterous (sic) at the
counter and we tactfully managed
to steer him inside the Station
Agent's office. Mr. Pedro Zapatos
then adamantly insisted that all the
diverted passengers should have
been given priority over the
originating passengers of F560
whether confirmed or otherwise. We
explained our policies and after
awhile he seemed pacified and
thereafter took his ticket (in-lieued
(sic) to CBO-IGN, COCON basis), at
the counter in the presence of five
other passengers who were waiting
for their tickets too. The rest of the
diverted pax had left earlier after
being assured their tickets will be
ready the following day. 24
Aforesaid Report being an entry in the course of
business is prima facie evidence of the facts therein
stated. Private respondent, apart from his testimony,
did not offer any controverting evidence. If indeed PAL
omitted to give information about the options
available to its diverted passengers, it would have
been deluged with complaints. But, only private xxx xxx xxx
respondent complained —
A There were
Atty. Rivera (for plenty of
PAL) argument and I
was one of those
talking about my
Q I understand
case.
from you Mr.
Zapatos that at
the time you were Q Did you hear
waiting at anybody
Cotabato Airport complained (sic)
for the decision of that he has not
PAL, you were not been informed of
informed of the the decision
decision until before the plane
after the airplane left for Cebu?
left is that
correct?
A No. 25

A Yes.
Admittedly, private respondent's insistence on being
given priority in accommodation was unreasonable
COURT: considering the fortuitous event and that there was a
sequence to be observed in the booking, i.e., in the
order the passengers checked-in at their port of
Q What do you
origin. His intransigence in fact was the main cause
mean by "yes"?
for his having to stay at the airport longer than was
You meant you
necessary.
were not
informed?
Atty. Rivera:
A Yes, I was not
informed of their Q And, you were
decision, that saying that
they will only despite the fact
accommodate that according to
few passengers. your testimony
there were at
least 16
Q Aside from you
passengers who
there were many
were stranded
other stranded
there in Cotabato
passengers?
airport according
to your
A I believed, yes. testimony, and
later you said that
Q And you want there were no
us to believe that other people left
PAL did not there at that
explain (to) any time, is that
of these correct?
passengers about
the decision A Yes, I did not
regarding those see anyone there
who will board the around. I think I
aircraft back to was the only
Cebu? civilian who was
left there.
A No, Sir.
Q Why is it that it
Q Despite these took you long
facts Mr. Zapatos time to leave that
did any of the place?
other passengers
complained (sic) A Because I was
regarding that arguing with the
incident? PAL personnel. 26
Anent the plaint that PAL employees were
disrespectful and inattentive toward private
respondent, the records are bereft of evidence to
support the same. Thus, the ruling of respondent
Court of Appeals in this regard is without basis. 27 On
the contrary, private respondent was attended to not
only by the personnel of PAL but also by its
Manager." 28
In the light of these findings, we find the award of
moral damages of Fifty Thousand Pesos (P50,000.00)
unreasonably excessive; hence, we reduce the same
to Ten Thousand Pesos (P10,000.00). Conformably
herewith, the award of exemplary damages is also
reduced to five Thousand Pesos (5,000.00). Moral
damages are not intended to enrich the private
respondent. They are awarded only to enable the
injured party to obtain means, diversion or
amusements that will serve to alleviate the moral
suffering he has undergone by reason of the
defendant's culpable action. 29
With regard to the award of actual damages in the
amount of P5,000.00 representing private
respondent's alleged business losses occasioned by
his stay at Cotabato City, we find the same
unwarranted. Private respondent's testimony that he
had a scheduled business "transaction of shark liver
oil supposedly to have been consummated on August
3, 1975 in the morning" and that "since (private
respondent) was out for nearly two weeks I missed to
buy about 10 barrels of shark liver oil,"30 are purely
speculative. Actual or compensatory damages cannot
be presumed but must be duly proved with reasonable
degree of certainty. A court cannot rely on
speculation, conjecture or guesswork as to the fact
and amount of damages, but must depend upon
competent proof that they have suffered and on
evidence of the actual amount thereof. 31
WHEREFORE the decision appealed from is AFFIRMED
with modification however that the award of moral
damages of Fifty Thousand Pesos (P50,000.00) is
reduced to Ten Thousand Pesos (P10,000.00) while
the exemplary damages of Ten Thousand Pesos
(P10,000.00) is also reduced to Five Thousand Pesos
(P5,000.00). The award of actual damages in the
amount Five Thousand Pesos (P5,000.00)
representing business losses occasioned by private
respondent's being stranded in Cotabato City is
deleted.
SO ORDERED.
G.R. No. 50504-05 August 13, 1990
PHILIPPINE AIRLINES, INC., petitioner,
vs.
COURT OF APPEALS, ADELINA BAGADIONG and
ROSARIO STO. TOMAS, respondents.
Ricardo V. Puno, Jr., Wilfredo M. Chato & Marceliano
C. Calica for petitioner.
Antonio N. Gerona for private respondents.
Romeo N. Gumba for Sto. Tomas.
REGALADO, JR.:
Petitioner seeks the review of the decision of the Court
of Appeals, 1 promulgated on April 25, 1979 in CA-
G.R. Nos. 58345-46-R, affirming with modifications
the decision of the Court of First Instance of
Camarines Sur, Branch 1, under the following decretal
portion:
WHEREFORE, the dispositive part of
the decision appealed from is
modified as follows:
WHEREFORE, judgment is hereby
rendered:
(A) Defendant Philippine Airlines,
Inc. in Civil Case No. 7047, is
ordered to pay the plaintiffs, Adelina
Bagadiong and Rosario Sto. Tomas,
the sum of P30,000.00, Philippine
Currency, each, as moral damages
and exemplary damages; and the
sum of P6,000.00, Philippine
Currency, as attorney's fees;
(B) Defendant Philippine Airlines,
Inc. in Civil Case No. 7307 is
ordered to pay the plaintiff Ladislao
Santos the sum of P30,000.00,
Philippine Currency, as moral
damages and exemplary damages;
and the sum of P6,000.00,
Philippine Currency, as attorney's
fees;
(C) To pay the plaintiffs the interest
at the legal rate of 6% per annum
on moral and exemplary damages
aforestated, from the date of this
amended decision until said
damages are fully paid;
(D) Defendants are further ordered
to pay the costs of these suits. The
counter-claim(s) of defendant in
both cases are dismissed.
SO ORDERED 2
On December 11, 1970, private respondents Adelina
Bagadiong and Rosario Sto. Tomas, filed an action for
damages against petitioner in the Court of First
Instance of Camarines Sur, docketed therein as Civil
Case No. 7047. On May 18, 1972, a similar action,
Civil Case No. 7307, was filed in the same court by the
other private respondent, Ladislao Santos. On
February 9, 1973, considering that these two cases
arose from the same incident and involved the same
defendant and counsel for plaintiffs in both cases, a
joint hearing of these cases was ordered and
conducted by the lower court upon motion of both
parties. 3
Considering the significant role of evidentially-
supported factual findings of the lower courts in the
decisional processes of appellate courts, we find it
necessary to reproduce the same, as reported in these
cases by respondent court, together with the
proceedings in the court a quo:
The amended complaint in Civil
Case No. 7047 alleges, inter alia,
that on November 16, 1970,
plaintiffs Adelina Bagadiong and
Rosario Sto. Tomas, now appellees,
made reservations with, and bought
two plane tickets from, defendant
(Naga City branch station), now
appellant, a common carrier
engaged in the business of
transporting passengers by air for
compensation, for Naga-Manila
flight on November 26, 1970; that
on November 24, 1970, plaintiffs
went back to defendant Naga City
branch station and paid the fare for
two round trip tickets; that plaintiffs
were not only issued their round
trips tickets, but also their
reservation in defendant's 3:40
o'clock afternoon Naga-Manila flight
on November 26, 1970 were
expressly confirmed by the Naga
City branch station; that at three
o'clock in the afternoon
November 26, 1970, or forty-five
minutes before the scheduled
departure time of the Naga-Manila
flight, plaintiffs checked in at the Pili
airport counter of defendant and
there the latter's agent
employees got the tickets of the
plaintiffs allegedly for the purpose
of issuing to them a boarding pass;
that few minutes before departure
time, plaintiffs' luggage was loaded
to (sic) the plane, but plaintiffs were
not given back their tickets and
were not allowed by defendant's
agent or employees to board the
plane; and that after the plane had
taken off from the Pili airport with
the luggage of plaintiffs, in spite of
their complaint, all that defendant's
agent or employees did at the Naga
City branch station was to refined
plaintiffs' fares.
Contending that defendant common
carrier acted in bad faith in the
breach of its contract with them,
plaintiffs claimed for moral damages
"in the amount of no less than
P10,000.00 each," exemplary
damages and actual damages. It is
prayed that defendant be ordered to
pay plaintiffs, among others, "the
sum of P20,000.00 for moral
damages" and P6,000.00 by way of
expenses of litigation including
attorney's fees.
In Civil Case No. 7307, the
complaint alleges, among others,
that on November 24, 1970, when
plaintiff Ladislao Santos, now
appellee, bought a plane ticket at
the branch station of defendant in
Naga City for Flight 296 from Naga
to Manila scheduled on the
afternoon of November 26, 1970,
he was assured by the employees of
defendant that his reservation for
the flight was confirmed; that at two
o'clock in the afternoon of
November 29, 1970, one hour and
forty minutes before the scheduled
departure time of Fligth 296,
plaintiff checked in at the Pili airport
counter and then and there the
employees of defendant asked for
his ticket, allegedly for the purpose
of issuing to him a boarding pass;
that about three minutes before
departure of Flight 296, the ticket
was returned to plaintiff by
defendants employee, informing
him that there was no more seat
available and he could not ride on
that flight to Manila; that the
employees of the defendant acted
rudely and discourteously to his
embarrassment in the presence of
so many people who were at the
airport at that time; that it was very
of
important and urgent for plaintiff to
be in Manila on the afternoon of
November 26, 1970, because he
had an appointment with an eye
specialist for medical treatment of
his eye and he and his brother were
or
"to close a contract they entered
into to supply shrimps to some
restaurants and market vendors in
Manila; and that he and his brother
failed to close the contract to supply
shrimps, as it was on December 1,
1970, that he was finally able to
reach Manila by train.
Likewise, claiming that defendant
acted in bad faith in the breach of
its contract with him, plaintiff
Ladislao Santos has claimed for
moral damages "in the amount of no
less than P70,000.00," exemplary
damages and actual damages in
"the sum of P20,000.00 . . . which
include(s) attorney's fees and
expenses of litigation."
In its answer to the amended
complaint, as well as to the
complaint of other plaintiff-
appellee, defendant-appellant
common carrier interposed, among
others, the following common
special and affirmative defenses:
that the aircraft used for Flight
296R/26 November 1970 (Virac-
Naga-Manila) is a 44-seater; that
due to the cancellation of its
morning flight from Virac, some of
its passengers for said flight took
Flight 296R; that on the
representations of Governor Alberto
of Catanduanes, one of those
manifested in the cancelled morning
flight, its (defendant's) employees
at its Virac station were constrained
"to allow the Governor to take Flight
296R together with several
companions" with the assurance of
the Governor that two (2) of his
companions would deplane in Naga;
that on arrival in Naga, the two
companions of the Governor refused
to deplane despite repeated pleas
and entreaties of its employees;
that unable to persuade the two
Virac passengers to deplane in Naga
and "compelled by a reasonable and
well-grounded fear that an
untoward incident may ensue
should the two (2) be forced to
leave the aircraft," its employee
"had to act in a manner dictated by
the circumstances and by reasons of
safety both of the passenger and
the aircraft and crew;" that its
failure to carry plaintiffs on board
the plane "was necessitated by
reason of safety and/or compliance
with applicable lawsregulations, or
orders, and the same are valid
grounds for refusal to carry plaintiffs
in accordance with its Domestic
Passenger Tariff No. 2 (Section A,
Rule 8[a]) which is incorporated by
reference into the conditions of
carriage as expressly provided for in
plaintiffs" plane tickets; and that
the error of its employees was an
honest mistake or constitutes
excusable negligence.
After trial on the merits, specifically
on June 25, 1975, the lower court
rendered a decision which, in part,
is herein reproduced as follows:
From the foregoing, the Court is of
the opinion that:
(a) There was a contract of carriage
to furnish plaintiffs passage from
Naga (Pili airport) to Manila on
Flight 296R on the afternoon of
November 26, 1970.
(b) The said contract was breached
when defendant failed to
accommodate plaintiffs in Flight
296R.
(c) The breach of contract of
carriage was in bad faith even
granting the mistakes advanced by
the defendant the same would still
amount to negligence so gross and
reckless as to amount to malice
and/or bad faith.
(d) Due to the acts of the employees
of the defendant in "bumping off the
plaintiffs, the latter suffered
embarrassment and humiliations,
thereby causing them mental
anguish, serious anxiety, wounded
feeling and social humiliation,
resulting in moral damages.
WHEREFORE, judgment is hereby
entered:
(a) Ordering the defendant in Civil
Case No. 7047 to pay plaintiff
Adelina Bagadiong the sum of
P10,000.00, as moral damages; to
pay plaintiff Rosario Sto. Tomas the
sum of P10,000.00 as moral
damages; to pay each plaintiff the
sum of P10,000.00 by way of
exemplary damages, and the sum
of P6,000.00 as attorney's fees;
(b) Ordering the defendant in Civil
Case No. 7307 to pay plaintiff
Ladislao Santos the sum of
P60,000.00 for moral damages;
P20,000.00 by way of actual
damages; the sum of P10,000.00 as
exemplary damages and P6,000.00
for attorney's fees;
(c) Interest at the legal rate of 6%
per annum on the moral and
exemplary damages aforestated,
from the date of this decision until
said damages are fully paid;
(d) Ordering the defendant to pay
the costs of these suits.
Counterclaim of the defendant in
both cases are hereby dismissed.
SO ORDERED.
Under date of July 19, 1975,
plaintiffs in Civil Case No. 7047 filed
a Motion for Reconsideration of the
decision, . . .
xxx xxx xxx
On July 30, 1975, the lower court
granted the motion for
reconsideration in its order which, in
part states:
In the case of Ortigas vs. Lufthansa
(Case Digest of the Bulletin issue of
July 19, 1975), the Supreme Court,
speaking thru Mr. Justice Antonio P.
Barredo, increased the moral
damages awarded to Ortigas by the
CFI of Manila from P100,000.00 to
P150,000.00 and the exemplary
damages from P30,000.00 to
P100,000.00. The ground of the
Supreme Court in ordering the
increase of the exemplary damages
from P30,000.00 to P100,000.00,
was that, "the airline should be
made to pay an amount that can
really serve as a deterrent against a
seeming pattern of indifference and
unconcern, and what is worse, of
discrimination for racial reasons,
discernible in the treatment of air
passengers."
In the present case, this Court
found clear evidence of
discrimination by employees of the
Philippine Airlines (PAL) when for
unexplained and unwarranted
reasons — evidently the desire to
cater to the good graces of a
"politico" — they unceremoniously
"bumped off herein plaintiffs from
the flight.
xxx xxx xxx
The dispositive part of the decision
of this Court on these Civil Cases
Nos. 7047 and 7304 dated July 1,
1975 is hereby amended and to
read as follows, to wit:
Wherefore,
judgment is
hereby rendered:
(A) Defendant Philippine Airlines,
Inc., in Civil Case No. 7047, is
ordered to pay the plaintiffs, Adelina
Bagadiong and Rosario Sto. Tomas,
the sum of P60,000.00, Philippine
Currency, each as moral damages;
the sum of P60,000.00, Philippine
Currency, each, by way of
exemplary damages, and the sum
of P10,000.00, Philippine Currency,
as attorney's fees;
(B) Defendant Philippine Airlines,
Inc., in Civil Case No. 7307 is
ordered to pay the plaintiff Ladislao
Santos the sum of P60,000.00,
Philippine Currency, as moral
damages; the sum of P20,000.00,
Philippine Currency, by way of
actual damages; the sum of
P60,000.00, Philippine Currency, as
exemplary damages, and the sum
of P10,000.00, Philippine Currency,
as attorney's fees;
(C) To pay the plaintiffs the interest
at the legal rate of 6% per annum
on moral and exemplary damages
aforestated, from the date of this
amended decision until said
damages are fully paid.
(D) Defendants are further ordered
to pay the coasts of these suits. The
counter-claims of defendant in both
cases are dismissed.
SO ORDERED 4
As earlier stated, on appeal respondent court affirmed
with modifications said decision of the lower court.
Hence, this petition raising the following questions:
1. Is a passenger in a contract of air transportation
entitled to moral damages when the failure of the
carrier to accommodate the passenger resulted from
unlawful acts of third parties against the carrie's
personnel?
2. Are respondents entitled to exemplary damages
when there is no sufficient evidence to show, and
neither the appellate court nor the trial court found
facts showing reckless, oppressive or malevolent
conduct by the carrier?
3. Can a passenger in a contract of air transportation
validly claim damages when she could have taken the
flight had she not instead opted, of her own volition,
to give her confirmed seat to another passenger who
was accommodated by the carrier in her place?
4. May a trial court, in a motion for reconsideration,
increase the damages it awarded in the original
decision to an amount drastically over that it initially
found to be warranted and significantly more than
claimed by plaintiffs themselves? 5
We have constantly ruled in a number of cases that
moral damages are recoverable in a breach of contract
of carriage where the air carrier through its agents
acted fraudulently or in bad faith. 6 In the case at bar,
the trial court and the Court of Appeals are in
agreement that petitioner through its agents acted in
bad faith in "bumping off" private respondents. As
aptly found by the Court of Appeals, the failure of
petitioner to accommodate private respondents was
not the result of an honest mistake, because its
employees knew and were aware that what they were
doing was wrong. Hence, respondent court held that
there was a "dishonest purpose" and "conscious doing
of wrong" on the part of petitioner's employees in
"bumping off" private respondents from the flight; and
that the lower court did not err in holding that the
failure of petitioner to accommodate private
respondents on Flight 296R was attended by bad
faith. 7
The said pronouncement was based on the following
findings in the decision of the trial court, which we are
not inclined to disturb, the same having evidentiary
foundation:
The employees of the defendant
knew that there was a heavy
booking of passengers on November
26, 1970 because of the coming of
the Pope. Why did the Virac station
overbooked (sic) two passengers,
Gov. Alberto and Mayor Antonio, on
Flight 296R, knowing all the time
that these two passengers could not
possibly obtain confirmed
reservations in Naga? Knowing
further the political stature of Gov.
Alberto, Mr. Borjal, the branch
supervisor of Virac, should had (sic)
foreseen that should Gov. Alberto
and Mayor Antonio refuse to
deplane in Naga, should they failed
to obtain confirmed reservations he,
(Borjal) would create a situation
wherein the defendant would be
placed in a position to violate its
contract of carriage with passengers
with confirmed reservations who
would not be accommodated
because of Gov. Alberto and Mayor
Antonio. This whole incident could
have been avoided had Borjal not
recklessly took (sic) a chance on the
two overbooked passengers in
getting confirmed reservation in
Naga.
The situation was, however,
aggravated by the employees of the
defendant at Pili airport, particularly
Mr. Azuela who seemed to be the
one who was making decisions at
the airport. Knowing already that
Flight 296R was overbooked by two
passengers and the allocations in
Legaspi and Naga were also fully
booked of passengers with
confirmed reservations and
plaintiffs were begging and pleading
to be allowed to take Flight 296R as
they had confirmed reservations
and the luggage of Mrs. Bagadiong
and Miss Sto. Tomas were already
loaded in the plane, Mr. Azuela and
his co- employees still allowed and
gave preference to the two
passengers (Fr. Laban and Miss
Franca) to board and take Flight
296R notwithstanding the fact that
Mr. Azuela and his co-employees at
the airport knew and was (sic)
aware at that time that the
Sorsogon branch had no allocation
in Flight 296R and that the flight of
the Sorsogon passengers was
already cancelled earlier. The
employees of the defendant
knowingly and deliberately
disregarded the rights of the
plaintiffs to board the plane and
took (sic) Flight 296R by virtue of
their being holders of tickets duly
issued and paid for with confirmed
reservations on Flight 296R. The
employees of the defendant knew
that by not allowing the plaintiffs to
take Flight 296R they were violating
the contract of carriage the
defendant had with the plaintiffs.
Even granting all the mistakes
advanced by the defendant, still
there would at least be negligence
so gross and reckless that it
amounts to malice or bad faith in its
breach of contract with the plaintiffs
(Lopez, et al. versus Pan American
World Airways, No. L-22415, March
30, 1966, citing Fores vs. Miranda
L-12163, March 4, 1959; Necesito
vs. Paras, L-10605, June 30, 1958
16 SCRA 431).
The argument that the Sorsogon
passengers arrived first and
checked in earlier than the plaintiffs
at the airport ticket counter of the
defendant is not a valid reason to
give them preference over the
plaintiffs considering that the latter
had confirmed reservations and
they arrived on time at the airport
and checked in at the defendant's
ticket counter. If issuance of tickets
duly paid for and with confirmed
reservations is no guarantee that
the passengers to whom it is (sic)
issued would be accommodated,
then air passengers would be placed
in the hollow of the hands of the
airlines and its employees. What
security then can a passenger have?
. . .8
In the case of Korean Airlines, Co., Ltd. vs. Hon. Court
of Appeals, et al., 9 with a similar factual setting, we
held:
We are satisfied from the findings of
the respondent court (and of the
trial court) that the private
respondent was, in the language of
the airline industry, "bumped off".
She had a confirmed ticket. She
arrived at the airport on time.
However, she was not allowed to
board because her seat had already
been given to another passenger.
As a result, she suffered damages
for which the petitioner should be
held liable.
A contract to transport passengers is quite different in
kind and degree from any other contractual relation.
And this, because of the relation which an air-carrier
with the public. Its business is mainly with the
travelling public. It invites people to avail of the
comforts and advantages it offers. The contract of air
carriage, therefore, generates a relation attended with
a public duty. Neglect or malfeasance of the carrier's
employees naturally could give ground for an action
for damages. 10
The operation of a common carrier is a business
affected with public interest and must be directed to
serve the comfort and convenience of the passengers.
In case of breach in bad faith of a contract of carriage,
award of damages is in order. We have ruled that bad
faith which would justify an award of moral and
exemplary damages for breach of contract of carriage
means a breach of a known duty through some motive
of interest or illwill. 11 That pronouncement is
applicable to these cases.
The contention of petitioner that its failure to
accommodate private respondents was due to the
unlawful acts of third persons and, constitutes caso
fortuito, is untenable. To constitute a caso
fortuito that would exempt a person from
responsibility, it is essential that (a) the event must
be independent of the will of the obligor; (b) it must
be either unforseeable or inevitable; (c) its occurrence
renders it impossible for the obligor to fulfill his
obligation in a normal manner; and (d) the obligor
must be free from any participation in the aggravation
of the injury resulting to the obligee or creditor. 12
One essential characteristic of a fortuitous event is
that it was independent of the will of the obligor or of
his employees, which fact is lacking in this case. The
alleged fortuitous event, supposedly consisting of the
unlawful acts of Governor Alberto and Mayor Antonio,
is not independent of the will of herein petitioner as
the obligor but was caused by the very act of its
agents in allowing the governor and the mayor to
board Flight 296R in excess of the number of
passengers allotted to them and with full knowledge
that the said flight for Manila was fully booked. The
impossibility of their being accommodated was
necessarily forseeable. The claim of petitioner that
there was a prior arrangement between its agent in
Virac and the governor and the mayor that the latter
would be accommodated only up to Naga is belied by
the passengers' manifest wherein it is stated that the
place of destination of both the governor and the
mayor was Manila . 13
Again, we quote respondent Court of Appeals:
The fear spoken of by witness
Azuela is speculative, fanciful and
remote. The statement attributed to
Governor Alberto and/or the
mayors, that "if we cannot board
the plane there will be something
that will happen," is vague. The
threat, if ever it was, was not of
such a serious character and
imminence as to create in the mind
of defendant-appellant's employees
fear of greater injury if they would
not allow Governor Alberto and the
mayors to remain in the plane which
was then scheduled to fly to Manila.
It is difficult to believe that
Governor Alberto and the mayors
would make any threat or
intimidation to keep their seats in
the plane. They were provincial and
municipal executives with a
common duty to maintain peace
and order and to prevent the
commission of crimes. The cited
cases involving Hukbalahaps and
robbers are misplaced, because
they are known to be ruthless
killers, whose intimidation or the
violence they employed is sufficient
to produce in the mind of their
victims real, imminent or
reasonable fear. As correctly
observed by the lower court from
the evidence of record, defendant-
appellant's employees "bumped off
plaintiffs from the flight in their
desire" "to cater to the good graces
of a politico" (Governor Alberto). 14
Petitioner's agents, by giving permission to board
Flight 296R to persons who were not among those
with valid confirmations and who consequently had no
right to be given preference in taking said flight,
deliberately created a situation that would place, as it
did place, petitioner in arrant violation of its contract
with private respondents who were "bumped off" by
reason thereof. Petitioner, having unlawfully deprived
private respondents of their seats, without any regard
at all to their feelings and convenience just so it could
accommodate other persons who had no better right
thereto, cannot now relieve itself from liability by
invoking a fortuitous event, a defense as erroneous as
it is contrived.
As we stressed in Ortigas, Jr. vs. Lufthansa German
Airlines.15
. . . Nobody, much less a common
carrier who is under constant
special obligation to give utmost
consideration to the convenience of
its customers, may be permitted to
relieve itself from any difficult
situation created by its own lack of
diligence in the conduct of its affairs
in a manner prejudicial to such
customers. It is Our considered view
that when it comes to contracts of
common carriage, inattention and
lack of care on the part of the carrier
resulting in the failure of the
passengers to be accommodated in
the class contracted for amounts to
bad faith or fraud which entitles the
passengers to the award of moral
damages in accordance with Article
2220 of the Civil Code. . . .
We, therefore, find no error on the part of respondent
Court of Appeals in awarding moral and exemplary
damages as well as attorney's fees. The findings that
petitioner had breached its contract of carriage in bad
faith and in wanton disregard of private respondents'
rights as passengers lay the basis and justification for
such awards. The imposition of exemplary damages is
necessary to deter petitioner or other airlines from
committing similar breaches of contract in the future,
although there are still reported instances thereof.
With respect to the third issue, we also find the same
to be without merit for being based on specious and
strained reasoning. The fact that respondent
Bagadiong relinquished her seat in favor of her son is
of no moment, considering that her son was also a
confirmed passenger who had a right to demand
accommodation from petitioner. As noted by
respondent court, the act of respondent Bagadiong
was motivated solely by her concern for her son who
also risked being denied accommodation but who was
then returning to school in Manila. Such sacrifice was
not voluntary on her part, and her inability to take the
fligth was the consequence of the wrongful act of
petitioner's employees for which it has to answer. 16
On the last issue regarding the propriety of the lower
court's increasing the award of damages it awarded in
the original decision, petitioner's allegation that
respondent court passed upon the matter sub
silentio is not correct.
Respondent court precisely resolved said issue by
modifying the decision of the lower court, awarding
each respondent instead an aggregate amount of
P30,000.00 as moral and exemplary damages, plus
P6,000.00 as attorney's fees. The award of moral and
exemplary damages in an aggregate amount may not
be the usual way of awarding said damages. However,
there can be no question that the entitlement to moral
damages having been established, exemplary
damages may be awarded; and exemplary damages
may be awarded even though not so expressly
pleaded in the complaint nor proved . 17
Nor can petitioner accurately claim that the award
made by respondent court exceeded the amounts
prayed for by respondents Bagadiong and Sto. Tomas
in their complaint. A reading of said complaint shows
that only their claims for moral damages and
attorney's fees were limited to P20,000.00 and
P6,000.00, respectively; the award of exemplary
damages was left to the discretion of the lower
court. 18
The amount of exemplary damages need not be
pleaded in the complaint because the same cannot be
predetermined. 19 One can merely ask that it be
determined by the court as the evidence may warrant
and be awarded at its discretion. This is exactly what
private respondents did. Awards for moral and
exemplary damages, as well as attorney's fees are left
to the sound discretion of the court. 20 Such
discretion, if wen exercised, will not be disturbed on
appeal.21
Parenthetically, in a special appearance "only for the
purpose of the filing of this notice of death of party'
received by the Court on May 22, 1990, 22 Atty.
Romeo M. Gumba submitted a certified true copy of
the death certificate of private respondent Rosario
Sto. Tomas, attesting to her death on January 20,
1988, with said counsel informing the Court that
decedent's surviving heirs are Salvacion Sto. Tomas
Gerona and Cecilia Sto. Tomas Pardo, both with
addresses at Monterey Subdivision, Naga City. This
matter should be taken into account in the executory
processes consequent to this decision.
WHEREFORE, the assailed decision of respondent
Court of Appeals is hereby AFFIRMED in toto, with
costs against petitioner.
SO ORDERED.
[G.R. No. 126389. July 10, 1998]
SOUTHEASTERN COLLEGE, INC., petitioner,
vs. COURT OF APPEALS, JUANITA DE
JESUS VDA. DE DIMAANO, EMERITA
DIMAANO, REMEDIOS DIMAANO,
CONSOLACION DIMAANO and
MILAGROS DIMAANO, respondents.
DECISION
PURISIMA, J.:
Petition for review under Rule 45 of the Rules of
Court seeking to set aside the Decision[1] promulgated
on July 31, 1996, and Resolution[2] dated September
12, 1996 of the Court of Appeals[3] in CA-G.R. No.
41422, entitled Juanita de Jesus vda. de Dimaano, et
al. vs. Southeastern College, Inc., which reduced the
moral damages awarded below from P1,000,000.00
to P200,000.00.[4] The Resolution under attack denied
petitioners motion for reconsideration.
Private respondents are owners of a house at
326 College Road, Pasay City, while petitioner owns a
four-storey school building along the same College
Road. On October 11, 1989, at about 6:30 in the
morning, a powerful typhoon Saling hit Metro
Manila. Buffeted by very strong winds, the roof of
petitioners building was partly ripped off and blown
away, landing on and destroying portions of the
roofing of private respondents house. After the
typhoon had passed, an ocular inspection of the
destroyed buildings was conducted by a team of
engineers headed by the city building official, Engr.
Jesus L. Reyna. Pertinent aspects of the latters
Report[5] dated October 18, 1989 stated, as follows:
5. One of the factors that may have led to this
calamitous event is the formation of the buildings in
the area and the general direction of the
wind. Situated in the peripheral lot is an almost U-
shaped formation of 4-storey building. Thus, with the
strong winds having a westerly direction, the general
formation of the buildings becomes a big funnel-like
structure, the one situated along College Road,
receiving the heaviest impact of the strong winds.
Hence, there are portions of the roofing, those located
on both ends of the building, which remained intact
after the storm.
6. Another factor and perhaps the most likely reason
for the dislodging of the roofings structural trusses is
the improper anchorage of the said trusses to the roof
beams. The 1/2 diameter steel bars embedded on the
concrete roof beams which serve as truss anchorage
are not bolted nor nailed to the trusses. Still, there are
other steel bars which were not even bent to the
trusses, thus, those trusses are not anchored at all to
the roof beams.
It then recommended that to avoid any further loss
and damage to lives, limbs and property of persons
living in the vicinity, the fourth floor of subject school
building be declared as a structural hazard.
 In their Complaint[6] before the Regional Trial
Court of Pasay City, Branch 117, for damages based
on culpa aquiliana, private respondents alleged that
the damage to their house rendered the same
uninhabitable, forcing them to stay temporarily in
others houses. And so they sought to recover from
petitioner P117,116.00, as actual
damages, P1,000,000.00, as moral
damages, P300,000.00, as exemplary damages
and P100,000.00, for and as attorneys fees; plus
costs.
In its Answer, petitioner averred that subject
school building had withstood several devastating
typhoons and other calamities in the past, without its
roofing or any portion thereof giving way; that it has
not been remiss in its responsibility to see to it that
said school building, which houses school children,
faculty members, and employees, is in tip-top
condition; and furthermore, typhoon Saling was an
act of God and therefore beyond human control such
that petitioner cannot be answerable for the damages
wrought thereby, absent any negligence on its part.
The trial court, giving credence to the ocular
inspection report to the effect that subject school
building had a defective roofing structure, found that,
while typhoon Saling was accompanied by strong
winds, the damage to private respondents house
could have been avoided if the construction of the roof
of [petitioners] building was not faulty. The dispositive
portion of the lower courts decision[7] reads thus:
WHEREFORE, in view of the foregoing, the Court
renders judgment (sic) in favor of the plaintiff (sic)
and against the defendants, (sic) ordering the latter
to pay jointly and severally the former as follows:
a) P117,116.00, as actual damages, plus litigation
expenses;
b) P1,000,000.00 as moral damages;
c) P100,000.00 as attorneys fees;
d) Costs of the instant suit.
The claim for exemplary damages is denied for the
reason that the defendants (sic) did not act in a
wanton fraudulent, reckless, oppressive or malevolent
manner.
In its appeal to the Court of Appeals, petitioner
assigned as errors,[8] that:
I
THE TRIAL COURT ERRED IN HOLDING
THAT TYPHOON SALING, AS AN ACT OF
GOD, IS NOT THE SOLE AND ABSOLUTE
REASON FOR THE RIPPING-OFF OF THE
SMALL PORTION OF THE ROOF OF
SOUTHEASTERNS FOUR (4) STOREY
SCHOOL BUILDING.
II
THE TRIAL COURT ERRED IN HOLDING
THAT THE CONSTRUCTION OF THE ROOF
OF DEFENDANTS SCHOOL BUILDING WAS
FAULTY NOTWITHSTANDING THE
ADMISSION THAT THERE WERE
TYPHOONS BEFORE BUT NOT AS GRAVE
AS TYPHOON SALING WHICH IS THE
DIRECT AND PROXIMATE CAUSE OF THE
INCIDENT.
III
THE TRIAL COURT ERRED IN
AWARDING ACTUAL AND MORAL
DAMAGES AS WELL AS ATTORNEYS FEES
AND LITIGATION EXPENSES AND COSTS
OF SUIT TO DIMAANOS WHEN THEY HAVE
NOT INCURRED ACTUAL DAMAGES AT ALL
AS DIMAANOS HAVE ALREADY SOLD
THEIR PROPERTY, AN INTERVENING
EVENT THAT RENDERS THIS CASE MOOT
AND ACADEMIC.
IV
THE TRIAL COURT ERRED IN
ORDERING THE ISSUANCE OF THE WRIT
OF EXECUTION INSPITE OF THE
PERFECTION OF SOUTHEASTERNS APPEAL
WHEN THERE IS NO COMPELLING REASON
FOR THE ISSUANCE THERETO.
As mentioned earlier, respondent Court of
Appeals affirmed with modification the trial courts
disposition by reducing the award of moral damages
from P1,000,000.00 to P200,000.00. Hence,
petitioners resort to this Court, raising for resolution
the issues of:
1. Whether or not the award of actual damage [sic] to
respondent Dimaanos on the basis of speculation or
conjecture, without proof or receipts of actual
damage, [sic] legally feasible or justified.
2. Whether or not the award of moral damages to
respondent Dimaanos, without the latter having
suffered, actual damage has legal basis.
3. Whether or not respondent Dimaanos who are no
longer the owner of the property, subject matter of
the case, during its pendency, has the right to pursue
their complaint against petitioner when the case was
already rendered moot and academic by the sale of
the property to third party.
4. Whether or not the award of attorneys fees when
the case was already moot and academic [sic] legally
justified.
5. Whether or not petitioner is liable for damage
caused to others by typhoon Saling being an act of
God.
6. Whether or not the issuance of a writ of execution
pending appeal, ex-parte or without hearing, has
support in law.
The pivot of inquiry here, determinative of the
other issues, is whether the damage on the roof of the
building of private respondents resulting from the
impact of the falling portions of the school buildings
roof ripped off by the strong winds of typhoon Saling,
was, within legal contemplation, due to fortuitous
event? If so, petitioner cannot be held liable for the
damages suffered by the private respondents. This
conclusion finds support in Article 1174 of the
Civil Code, which provides:
Art 1174. Except in cases expressly specified by the
law, or when it is otherwise declared by stipulation, or
when the nature of the obligation requires the
assumption of risk, no person shall be responsible for
those events which could not be foreseen, or which,
though foreseen, were inevitable.
The antecedent of fortuitous event or caso
fortuito is found in the Partidas which defines it as an
event which takes place by accident and could not
have been foreseen.[9] Escriche elaborates it as an
unexpected event or act of God which could neither be
foreseen nor resisted.[10] Civilist Arturo M. Tolentino
adds that [f]ortuitous events may be produced by two
general causes: (1)by nature, such as earthquakes,
storms, floods, epidemics, fires, etc. and (2) by the
act of man, such as an armed invasion, attack by
bandits, governmental prohibitions, robbery, etc.[11]
In order that a fortuitous event may exempt a
person from liability, it is necessary that he be free
from any previous negligence or misconduct by reason
of which the loss may have been occasioned.[12] An act
of God cannot be invoked for the protection of a
person who has been guilty of gross negligence in not
trying to forestall its possible adverse
consequences.When a persons negligence concurs
with an act of God in producing damage or injury to
another, such person is not exempt from liability by
showing that the immediate or proximate cause of the
damage or injury was a fortuitous event. When the
effect is found to be partly the result of the
participation of man whether it be from active
intervention, or neglect, or failure to act the whole
occurrence is hereby humanized, and removed from
the rules applicable to acts of God.[13]
In the case under consideration, the lower court
accorded full credence to the finding of the
investigating team that subject school buildings
roofing had no sufficient anchorage to hold it in
position especially when battered by strong
winds. Based on such finding, the trial court imputed
negligence to petitioner and adjudged it liable for
damages to private respondents.
After a thorough study and evaluation of the
evidence on record, this Court believes otherwise,
notwithstanding the general rule that factual findings
by the trial court, especially when affirmed by the
appellate court, are binding and conclusive upon this
Court.[14] After a careful scrutiny of the records and
the pleadings submitted by the parties, we find
exception to this rule and hold that the lower courts
misappreciated the evidence proffered.
There is no question that a typhoon or storm is
a fortuitous event, a natural occurrence which may be
foreseen but is unavoidable despite any amount of
foresight, diligence or care.[15] In order to be exempt
from liability arising from any adverse consequence
engendered thereby, there should have been no
human participation amounting to a negligent
act.[16] In other words, the person seeking
exoneration from liability must not be guilty of
negligence. Negligence, as commonly understood, is
conduct which naturally or reasonably creates undue
risk or harm to others. It may be the failure to observe
that degree of care, precaution, and vigilance which
the circumstances justly demand,[17] or the omission
to do something which a prudent and reasonable man,
guided by considerations which ordinarily regulate the
conduct of human affairs, would do.[18] From these
premises, we proceed to determine whether petitioner
was negligent, such that if it were not, the damage
caused to private respondents house could have been
avoided?
At the outset, it bears emphasizing that a person
claiming damages for the negligence of another has
the burden of proving the existence of fault or
negligence causative of his injury or loss. The facts
constitutive of negligence must be affirmatively
established by competent evidence,[19] not merely by
presumptions and conclusions without basis in
fact. Private respondents, in establishing the
culpability of petitioner, merely relied on the
aforementioned report submitted by a team which
made an ocular inspection of petitioners school
building after the typhoon. As the term imparts, an
ocular inspection is one by means of actual sight or
viewing.[20] What is visual to the eye though, is not
always reflective of the real cause behind. For
instance, one who hears a gunshot and then sees a
wounded person, cannot always definitely conclude
that a third person shot the victim. It could have been
self-inflicted or caused accidentally by a stray
bullet. The relationship of cause and effect must be
clearly shown.
In the present case, other than the said ocular
inspection, no investigation was conducted to
determine the real cause of the partial unroofing of
petitioners school building. Private respondents did
not even show that the plans, specifications and
design of said school building were deficient and
defective. Neither did they prove any substantial
deviation from the approved plans and
specifications. Nor did they conclusively establish that
the construction of such building was basically
flawed.[21]
On the other hand, petitioner elicited from one
of the witnesses of private respondents, city building
official Jesus Reyna, that the original plans and design
of petitioners school building were approved prior to
its construction. Engr. Reyna admitted that it was a
legal requirement before the construction of any
building to obtain a permit from the city building
official (city engineer, prior to the passage of the
Building Act of 1977). In like manner, after
construction of the building, a certification must be
secured from the same official attesting to the
readiness for occupancy of the edifice. Having
obtained both building permit and certificate of
occupancy, these are, at the very least, prima
facie evidence of the regular and proper construction
of subject school building.[22]
Furthermore, when part of its roof needed
repairs of the damage inflicted by typhoon Saling, the
same city official gave the go-signal for such repairs
without any deviation from the original design and
subsequently, authorized the use of the entire fourth
floor of the same building. These only prove that
subject building suffers from no structural defect,
contrary to the report that its U-shaped form was trial court a quo is ordered DISMISSED and the writ of
structurally defective. Having given his execution issued on April 1, 1993 in said case is SET
unqualified imprimatur, the city building official is ASIDE. Accordingly, private respondents are
presumed to have properly performed his duties[23] in ORDERED to return to petitioner any amount or
connection therewith. property received by them by virtue of said writ. Costs
against the private respondents.
In addition, petitioner presented its vice
president for finance and administration who testified SO ORDERED.
that an annual maintenance inspection and repair of
subject school building were regularly
undertaken. Petitioner was even willing to present its
maintenance supervisor to attest to the extent of such
regular inspection but private respondents agreed to
dispense with his testimony and simply stipulated that
it would be corroborative of the vice presidents [G.R. No. 147324. May 25, 2004]
narration.

Moreover, the city building official, who has been

in the city government service since 1974, admitted
in open court that no complaint regarding any defect PHILIPPINE COMMUNICATIONS SATELLITE
on the same structure has ever been lodged before his CORPORATION, petitioner, vs. GLOBE
office prior to the institution of the case at bench. It is TELECOM, INC. (formerly and Globe
a matter of judicial notice that typhoons are common Mckay Cable and Radio
occurrences in this country. If subject school buildings Corporation), respondents.
roofing was not firmly anchored to its trusses,
obviously, it could not have withstood long years and
several typhoons even stronger than Saling.

In light of the foregoing, we find no clear and [G.R. No. 147334. May 25, 2004]
convincing evidence to sustain the judgment of the
appellate court. We thus hold that petitioner has not
been shown negligent or at fault regarding the
construction and maintenance of its school building in
question and that typhoon Saling was the proximate GLOBE TELECOM, INC., petitioner,
cause of the damage suffered by private respondents vs. PHILIPPINE COMMUNICATION
house. SATELLITE CORPORATION, respondent.

With this disposition on the pivotal issue, private

respondents claim for actual and moral damages as
well as attorneys fees must fail.[24] Petitioner cannot
be made to answer for a purely fortuitous
event.[25] More so because no bad faith or willful act
to cause damage was alleged and proven to warrant
moral damages.
Private respondents failed to adduce adequate
and competent proof of the pecuniary loss they
actually incurred.[26] It is not enough that the damage
be capable of proof but must be actually proved with
a reasonable degree of certainty, pointing out specific
facts that afford a basis for measuring whatever
compensatory damages are borne.[27] Private
respondents merely submitted an estimated amount
needed for the repair of the roof of their subject
building. What is more, whether the necessary repairs
were caused ONLY by petitioners alleged negligence
in the maintenance of its school building, or included
the ordinary wear and tear of the house itself, is an
essential question that remains indeterminable.
The Court deems unnecessary to resolve the
other issues posed by petitioner.
As regards the sixth issue, however, the writ of
execution issued on April 1, 1993 by the trial court is
hereby nullified and set aside. Private respondents are
ordered to reimburse any amount or return to
petitioner any property which they may have received
by virtue of the enforcement of said writ.
WHEREFORE, the petition is GRANTED and the
challenged Decision is REVERSED. The complaint of
private respondents in Civil Case No. 7314 before the
DECISION
TINGA, J.:
Before the Court are two Petitions for
Review assailing the Decision of the Court of Appeals,
dated 27 February 2001, in CA-G.R. CV No. 63619.[1]
The facts of the case are undisputed.
For several years prior to 1991, Globe Mckay
Cable and Radio Corporation, now Globe Telecom, Inc.
(Globe), had been engaged in the coordination of the
provision of various communication facilities for the
military bases of the United States of America (US) in
Clark Air Base, Angeles, Pampanga and Subic Naval
Base in Cubi Point, Zambales. The said
communication facilities were installed and configured
for the exclusive use of the US Defense
Communications Agency (USDCA), and for security
reasons, were operated only by its personnel or those
of American companies contracted by it to operate
said facilities. The USDCA contracted with said
American companies, and the latter, in turn,
contracted with Globe for the use of the
communication facilities. Globe, on the other hand,
contracted with local service providers such as the
Philippine Communications Satellite Corporation
(Philcomsat) for the provision of the communication
facilities.
On 07 May 1991, Philcomsat and Globe entered
into an Agreement whereby Philcomsat obligated itself
to establish, operate and provide an IBS Standard B
earth station (earth station) within Cubi Point for the
exclusive use of the USDCA.[2] The term of the
contract was for 60 months, or five (5) years.[3] In
turn, Globe promised to pay Philcomsat monthly
rentals for each leased circuit involved.[4]
At the time of the execution of the Agreement,
both parties knew that the Military Bases Agreement
between the Republic of the Philippines and the US
(RP-US Military Bases Agreement), which was the
basis for the occupancy of the Clark Air Base and Subic
Naval Base in Cubi Point, was to expire in 1991. Under
Section 25, Article XVIII of the 1987 Constitution,
foreign military bases, troops or facilities, which
include those located at the US Naval Facility in Cubi
Point, shall not be allowed in the Philippines unless a
new treaty is duly concurred in by the Senate and
ratified by a majority of the votes cast by the people
in a national referendum when the Congress so
requires, and such new treaty is recognized as such
by the US Government.
Subsequently, Philcomsat installed and
established the earth station at Cubi Point and the
USDCA made use of the same.
On 16 September 1991, the Senate passed and
adopted Senate Resolution No. 141, expressing its
decision not to concur in the ratification of the Treaty
of Friendship, Cooperation and Security and its
Supplementary Agreements that was supposed to
extend the term of the use by the US of Subic Naval
Base, among others.[5] The last two paragraphs of the
Resolution state:
FINDING that the Treaty constitutes a defective
framework for the continuing relationship between the
two countries in the spirit of friendship, cooperation
and sovereign equality: Now, therefore, be it
Resolved by the Senate, as it is hereby resolved, To
express its decision not to concur in the ratification of
the Treaty of Friendship, Cooperation and Security
and its Supplementary Agreements, at the same time
reaffirming its desire to continue friendly relations
with the government and people of the United States
of America.[6]
On 31 December 1991, the Philippine
Government sent a Note Verbale to the US
Government through the US Embassy, notifying it of
the Philippines termination of the RP-US Military Bases
Agreement. The Note Verbale stated that since the
RP-US Military Bases Agreement, as amended, shall
terminate on 31 December 1992, the withdrawal of all
US military forces from Subic Naval Base should be
completed by said date.
In a letter dated 06 August 1992, Globe notified
Philcomsat of its intention to discontinue the use of
the earth station effective 08 November 1992 in view
of the withdrawal of US military personnel from Subic
Naval Base after the termination of the RP-US Military
Bases Agreement. Globe invoked as basis for the
letter of termination Section 8 (Default) of the
Agreement, which provides:
Neither party shall be held liable or deemed to be in
default for any failure to perform its obligation under
this Agreement if such failure results directly or
indirectly from force majeure or fortuitous
event. Either party is thus precluded from performing
its obligation until such force majeure or fortuitous
event shall terminate. For the purpose of this
paragraph, force majeure shall mean circumstances
beyond the control of the party involved including, but
not limited to, any law, order, regulation, direction or
request of the Government of the Philippines, strikes
or other labor difficulties, insurrection riots, national
emergencies, war, acts of public enemies, fire, floods,
typhoons or other catastrophies or acts of God.
Philcomsat sent a reply letter dated 10 August
1992 to Globe, stating that we expect [Globe] to know
its commitment to pay the stipulated rentals for the
remaining terms of the Agreement even after [Globe]
shall have discontinue[d] the use of the earth station
after November 08, 1992.[7] Philcomsat referred to
Section 7 of the Agreement, stating as follows:
7. DISCONTINUANCE OF SERVICE
Should [Globe] decide to discontinue with the use of
the earth station after it has been put into operation,
a written notice shall be served to PHILCOMSAT at
least sixty (60) days prior to the expected date of
termination. Notwithstanding the non-use of the earth
station, [Globe] shall continue to pay PHILCOMSAT for
the rental of the actual number of T1 circuits in use,
but in no case shall be less than the first two (2) T1
circuits, for the remaining life of the
agreement. However, should PHILCOMSAT make use
or sell the earth station subject to this agreement, the
obligation of [Globe] to pay the rental for the
remaining life of the agreement shall be at such
monthly rate as may be agreed upon by the parties.[8]
After the US military forces left Subic Naval
Base, Philcomsat sent Globe a letter dated 24
November 1993 demanding payment of its
outstanding obligations under the Agreement
amounting to US$4,910,136.00 plus interest and
attorneys fees.However, Globe refused to heed
Philcomsats demand.
On 27 January 1995, Philcomsat filed with the
Regional Trial Court of Makati a Complaint against
Globe, praying that the latter be ordered to pay
liquidated damages under the Agreement, with legal
interest, exemplary damages, attorneys fees and
costs of suit. The case was raffled to Branch 59 of said
court.
Globe filed an Answer to the Complaint, insisting
that it was constrained to end the Agreement due to
the termination of the RP-US Military Bases
Agreement and the non-ratification by the Senate of
the Treaty of Friendship and Cooperation, which
events constituted force majeure under the
Agreement. Globe explained that the occurrence of
said events exempted it from paying rentals for the
remaining period of the Agreement.
On 05 January 1999, the trial court rendered
its Decision, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is
hereby rendered as follows:
 1. Ordering the defendant to pay the
plaintiff the amount of Ninety
Two Thousand Two Hundred
Thirty Eight US Dollars
(US$92,238.00) or its
equivalent in Philippine
Currency (computed at the
exchange rate prevailing at
the time of compliance or
payment) representing rentals
for the month of December
1992 with interest thereon at
the legal rate of twelve percent
(12%) per annum starting
December 1992 until the
amount is fully paid;
2. Ordering the defendant to pay the
plaintiff the amount of Three
Hundred Thousand
(P300,000.00) Pesos as and
for attorneys fees;
3. Ordering the DISMISSAL of
defendants counterclaim for
lack of merit; and
4. With costs against the defendant.
SO ORDERED.[9]
Both parties appealed the trial courts Decision to
the Court of Appeals.
Philcomsat claimed that the trial court erred in
ruling that: (1) the non-ratification by the Senate of
the Treaty of Friendship, Cooperation and Security
and its Supplementary Agreements constitutes force
majeure which exempts Globe from complying with its
obligations under the Agreement; (2) Globe is not
liable to pay the rentals for the remainder of the term
of the Agreement; and (3) Globe is not liable to
Philcomsat for exemplary damages.
Globe, on the other hand, contended that the
RTC erred in holding it liable for payment of rent of
the earth station for December 1992 and of attorneys
fees. It explained that it terminated Philcomsats
services on 08 November 1992; hence, it had no
reason to pay for rentals beyond that date.
On 27 February 2001, the Court of Appeals
promulgated its Decision dismissing Philcomsats
appeal for lack of merit and affirming the trial courts
finding that certain events constituting force
majeure under Section 8 the Agreement occurred and
justified the non-payment by Globe of rentals for the
remainder of the term of the Agreement.
The appellate court ruled that the non-
ratification by the Senate of the Treaty of Friendship,
Cooperation and Security, and its Supplementary
Agreements, and the termination by the Philippine
Government of the RP-US Military Bases Agreement
effective 31 December 1991 as stated in the Philippine
Governments Note Verbale to the US Government,
are acts, directions, or requests of the Government of
the Philippines which constitute force majeure. In
addition, there were circumstances beyond the control
of the parties, such as the issuance of a formal order
by Cdr. Walter Corliss of the US Navy, the issuance of
the letter notification from ATT and the complete
withdrawal of all US military forces and personnel
from Cubi Point, which prevented further use of the
earth station under the Agreement.
However, the Court of Appeals ruled that
although Globe sought to terminate Philcomsats
services by 08 November 1992, it is still liable to pay
rentals for the December 1992, amounting to
US$92,238.00 plus interest, considering that the US
military forces and personnel completely withdrew
from Cubi Point only on 31 December 1992.[10]
Both parties filed their respective Petitions for
Review assailing the Decision of the Court of Appeals.
In G.R. No. 147324,[11] petitioner Philcomsat
raises the following assignments of error:
A. THE HONORABLE COURT OF APPEALS ERRED
IN ADOPTING A DEFINITION OF FORCE
MAJEURE DIFFERENT FROM WHAT ITS
LEGAL DEFINITION FOUND IN ARTICLE
1174 OF THE CIVIL CODE, PROVIDES,
SO AS TO EXEMPT GLOBE TELECOM
FROM COMPLYING WITH ITS
OBLIGATIONS UNDER THE SUBJECT
AGREEMENT.
B. THE HONORABLE COURT OF APPEALS ERRED
IN RULING THAT GLOBE TELECOM IS
NOT LIABLE TO PHILCOMSAT FOR
RENTALS FOR THE REMAINING TERM OF
THE AGREEMENT, DESPITE THE CLEAR
TENOR OF SECTION 7 OF THE
AGREEMENT.
C. THE HONORABLE OCURT OF APPEALS ERRED
IN DELETING THE TRIAL COURTS
AWARD OF ATTORNEYS FEES IN FAVOR
OF PHILCOMSAT.
D. THE HONORABLE COURT OF APPEALS ERRED
IN RULING THAT GLOBE TELECOM IS
NOT LIABLE TO PHILCOMSAT FOR
EXEMPLARY DAMAGES.[12]
Philcomsat argues that the termination of the
RP-US Military Bases Agreement cannot be considered
a fortuitous event because the happening thereof was
foreseeable. Although the Agreement was freely
entered into by both parties, Section 8 should be
deemed ineffective because it is contrary to Article
1174 of the Civil Code. Philcomsat posits the view that
the validity of the parties definition of force majeure in
Section 8 of the Agreement as circumstances beyond
the control of the party involved including, but not
limited to, any law, order, regulation, direction or
request of the Government of the Philippines, strikes
or other labor difficulties, insurrection riots, national
emergencies, war, acts of public enemies, fire, floods,
typhoons or other catastrophies or acts of God, should
be deemed subject to Article 1174 which defines
fortuitous events as events which could not be
foreseen, or which, though foreseen, were
inevitable.[13]
Philcomsat further claims that the Court of
Appeals erred in holding that Globe is not liable to pay
for the rental of the earth station for the entire term
of the Agreement because it runs counter to what was
plainly stipulated by the parties in Section 7
thereof. Moreover, said ruling is inconsistent with the
appellate courts pronouncement that Globe is liable to
pay rentals for December 1992 even though it
terminated Philcomsats services effective 08
November 1992, because the US military and
personnel completely withdrew from Cubi Point only
in December 1992. Philcomsat points out that it was
Globe which proposed the five-year term of the
Agreement, and that the other provisions of the
Agreement, such as Section 4.1[14] thereof, evince the
intent of Globe to be bound to pay rentals for the
entire five-year term.[15]
Philcomsat also maintains that contrary to the
appellate courts findings, it is entitled to attorneys
fees and exemplary damages.[16]
In its Comment to Philcomsats Petition, Globe
asserts that Section 8 of the Agreement is not
contrary to Article 1174 of the Civil Code because said
provision does not prohibit parties to a contract from
providing for other instances when they would be
exempt from fulfilling their contractual
obligations. Globe also claims that the termination of
the RP-US Military Bases Agreement constitutes force
majeure and exempts it from complying with its
obligations under the Agreement.[17] On the issue of
the propriety of awarding attorneys fees and
exemplary damages to Philcomsat, Globe maintains
that Philcomsat is not entitled thereto because in
refusing to pay rentals for the remainder of the term
of the Agreement, Globe only acted in accordance with
its rights.[18]
In G.R. No. 147334,[19] Globe, the petitioner
therein, contends that the Court of Appeals erred in
finding it liable for the amount of US$92,238.00,
representing rentals for December 1992, since
Philcomsats services were actually terminated on 08
November 1992.[20]
In its Comment, Philcomsat claims that Globes
petition should be dismissed as it raises a factual issue
which is not cognizable by the Court in a petition for
review on certiorari.[21]
On 15 August 2001, the Court issued
a Resolution giving due course to
Philcomsats Petition in G.R. No. 147324 and
required the parties to submit their respective
memoranda.[22]
Similarly, on 20 August 2001, the Court issued
a Resolution giving due course to the Petition filed by
Globe in G.R. No. 147334 and required both parties
to submit their memoranda.[23]
Philcomsat and Globe thereafter filed their
respective Consolidated Memoranda in the two
cases, reiterating their arguments in their respective
petitions.
The Court is tasked to resolve the following
issues: (1) whether the termination of the RP-US
Military Bases Agreement, the non-ratification of the
Treaty of Friendship, Cooperation and Security, and
the consequent withdrawal of US military forces and
personnel from Cubi Point constitute force
majeure which would exempt Globe from complying
with its obligation to pay rentals under its Agreement
with Philcomsat; (2) whether Globe is liable to pay
rentals under the Agreement for the month of
December 1992; and (3) whether Philcomsat is
entitled to attorneys fees and exemplary damages.
No reversible error was committed by the Court
of Appeals in issuing the assailed Decision; hence the
petitions are denied.
There is no merit is Philcomsats argument that
Section 8 of the Agreement cannot be given effect
because the enumeration of events constituting force
majeure therein unduly expands the concept of a
fortuitous event under Article 1174 of the Civil Code
and is therefore invalid.
In support of its position, Philcomsat contends
that under Article 1174 of the Civil Code, an event
must be unforeseen in order to exempt a party to a
contract from complying with its obligations therein. It
insists that since the expiration of the RP-US Military
Bases Agreement, the non-ratification of the Treaty of
Friendship, Cooperation and Security and the
withdrawal of US military forces and personnel from
Cubi Point were not unforeseeable, but were
possibilities known to it and Globe at the time they
entered into the Agreement, such events cannot
exempt Globe from performing its obligation of paying
rentals for the entire five-year term thereof.
However, Article 1174, which exempts an obligor
from liability on account of fortuitous events or force
majeure, refers not only to events that are
unforeseeable, but also to those which are
foreseeable, but inevitable:
Art. 1174. Except in cases specified by the law, or
when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption
of risk, no person shall be responsible for those events
which, could not be foreseen, or which, though
foreseen were inevitable.
A fortuitous event under Article 1174 may either
be an act of God, or natural occurrences such as floods
or typhoons,[24] or an act of man, such as riots, strikes
or wars.[25]
Philcomsat and Globe agreed in Section 8 of the
Agreement that the following events shall be deemed
events constituting force majeure:
1. Any law, order, regulation, direction or
request of the Philippine
Government;
2. Strikes or other labor difficulties;
3. Insurrection;
4. Riots;
5. National emergencies;
6. War;
7. Acts of public enemies;
8. Fire, floods, typhoons or other
catastrophies or acts of God;
 9. Other circumstances beyond the control
of the parties.
Clearly, the foregoing are either unforeseeable,
or foreseeable but beyond the control of the
parties. There is nothing in the enumeration that runs
contrary to, or expands, the concept of a fortuitous
event under Article 1174.
Furthermore, under Article 1306[26] of the Civil
Code, parties to a contract may establish such
stipulations, clauses, terms and conditions as they
may deem fit, as long as the same do not run counter
to the law, morals, good customs, public order or
public policy.[27]
Article 1159 of the Civil Code also provides that
[o]bligations arising from contracts have the force of
law between the contracting parties and should be
complied with in good faith.[28] Courts cannot stipulate
for the parties nor amend their agreement where the
same does not contravene law, morals, good customs,
public order or public policy, for to do so would be to
alter the real intent of the parties, and would run
contrary to the function of the courts to give force and
effect thereto.[29]
Not being contrary to law, morals, good
customs, public order, or public policy, Section 8 of
the Agreement which Philcomsat and Globe freely
agreed upon has the force of law between them.[30]
In order that Globe may be exempt from non-
compliance with its obligation to pay rentals under
Section 8, the concurrence of the following elements
must be established: (1) the event must be
independent of the human will; (2) the occurrence
must render it impossible for the debtor to fulfill the
obligation in a normal manner; and (3) the obligor
must be free of participation in, or aggravation of, the
injury to the creditor.[31]
The Court agrees with the Court of Appeals and
the trial court that the abovementioned requisites are
present in the instant case. Philcomsat and Globe had
no control over the non-renewal of the term of the RP-
US Military Bases Agreement when the same expired
in 1991, because the prerogative to ratify the treaty
extending the life thereof belonged to the Senate.
Neither did the parties have control over the
subsequent withdrawal of the US military forces and
personnel from Cubi Point in December 1992:
Obviously the non-ratification by the Senate of the RP-
US Military Bases Agreement (and its Supplemental
Agreements) under its Resolution No. 141. (Exhibit 2)
on September 16, 1991 is beyond the control of the
parties. This resolution was followed by the sending
on December 31, 1991 o[f] a Note Verbale (Exhibit
3) by the Philippine Government to the US
Government notifying the latter of the formers
termination of the RP-US Military Bases Agreement
(as amended) on 31 December 1992 and that
accordingly, the withdrawal of all U.S. military forces
from Subic Naval Base should be completed by said
date. Subsequently, defendant [Globe] received a
formal order from Cdr. Walter F. Corliss II Commander
USN dated July 31, 1992 and a notification from ATT
dated July 29, 1992 to terminate the provision of T1s
services (via an IBS Standard B Earth Station)
effective November 08, 1992. Plaintiff [Philcomsat]
was furnished with copies of the said order and letter
by the defendant on August 06, 1992.
Resolution No. 141 of the Philippine Senate and the
Note Verbale of the Philippine Government to the US
Government are acts, direction or request of the
Government of the Philippines and circumstances
beyond the control of the defendant. The formal order
from Cdr. Walter Corliss of the USN, the letter
notification from ATT and the complete withdrawal of
all the military forces and personnel from Cubi Point
in the year-end 1992 are also acts and circumstances
beyond the control of the defendant.
Considering the foregoing, the Court finds and so
holds that the afore-narrated circumstances
constitute force majeure or fortuitous event(s) as
defined under paragraph 8 of the Agreement.
From the foregoing, the Court finds that the defendant
is exempted from paying the rentals for the facility for
the remaining term of the contract.
As a consequence of the termination of the RP-US
Military Bases Agreement (as amended) the continued
stay of all US Military forces and personnel from Subic
Naval Base would no longer be allowed, hence,
plaintiff would no longer be in any position to render
the service it was obligated under the Agreement. To
put it blantly (sic), since the US military forces and
personnel left or withdrew from Cubi Point in the year
end December 1992, there was no longer any
necessity for the plaintiff to continue maintaining the
IBS facility. [32] (Emphasis in the original.)
The aforementioned events made impossible the
continuation of the Agreement until the end of its five-
year term without fault on the part of either party. The
Court of Appeals was thus correct in ruling that the
happening of such fortuitous events rendered Globe
exempt from payment of rentals for the remainder of
the term of the Agreement.
Moreover, it would be unjust to require Globe to
continue paying rentals even though Philcomsat
cannot be compelled to perform its corresponding
obligation under the Agreement. As noted by the
appellate court:
We also point out the sheer inequity of PHILCOMSATs
position. PHILCOMSAT would like to charge GLOBE
rentals for the balance of the lease term without there
being any corresponding telecommunications service
subject of the lease. It will be grossly unfair and
iniquitous to hold GLOBE liable for lease charges for a
service that was not and could not have been rendered
due to an act of the government which was clearly
beyond GLOBEs control. The binding effect of a
contract on both parties is based on the principle that
the obligations arising from contracts have the force
of law between the contracting parties, and there
must be mutuality between them based essentially on
their equality under which it is repugnant to have one
party bound by the contract while leaving the other
party free therefrom (Allied Banking Corporation v.
Court of Appeals, 284 SCRA 357).[33]
 With respect to the issue of whether Globe is
liable for payment of rentals for the month of
December 1992, the Court likewise affirms the
appellate courts ruling that Globe should pay the
same.
Although Globe alleged that it terminated the
Agreement with Philcomsat effective 08 November
1992 pursuant to the formal order issued by Cdr.
Corliss of the US Navy, the date when they actually
ceased using the earth station subject of the
Agreement was not established during the
trial.[34] However, the trial court found that the US
military forces and personnel completely withdrew
from Cubi Point only on 31 December 1992.[35] Thus,
until that date, the USDCA had control over the earth
station and had the option of using the
same. Furthermore, Philcomsat could not have
removed or rendered ineffective said communication
facility until after 31 December 1992 because Cubi
Point was accessible only to US naval personnel up to
that time. Hence, the Court of Appeals did not err
when it affirmed the trial courts ruling that Globe is
liable for payment of rentals until December 1992.
Neither did the appellate court commit any error
in holding that Philcomsat is not entitled to attorneys
fees and exemplary damages.
The award of attorneys fees is the exception
rather than the rule, and must be supported by
factual, legal and equitable justifications.[36] In
previously decided cases, the Court awarded
attorneys fees where a party acted in gross and
evident bad faith in refusing to satisfy the other partys
claims and compelled the former to litigate to protect
his rights;[37] when the action filed is clearly
unfounded,[38] or where moral or exemplary damages
are awarded.[39] However, in cases where both parties
have legitimate claims against each other and no
party actually prevailed, such as in the present case
where the claims of both parties were sustained in
part, an award of attorneys fees would not be
warranted.[40]
Exemplary damages may be awarded in cases
involving contracts or quasi-contracts, if the erring
party acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.[41] In the present
case, it was not shown that Globe acted wantonly or
oppressively in not heeding Philcomsats demands for
payment of rentals. It was established during the trial
of the case before the trial court that Globe had valid
grounds for refusing to comply with its contractual
obligations after 1992.
WHEREFORE, the Petitions are DENIED for lack
of merit. The assailed Decision of the Court of Appeals
in CA-G.R. CV No. 63619 is AFFIRMED.
SO ORDERED.
G.R. No. 147839 June 8, 2006
GAISANO CAGAYAN, INC. Petitioner,
vs.
INSURANCE COMPANY OF NORTH
AMERICA, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari
of the Decision1 dated October 11, 2000 of the Court
of Appeals (CA) in CA-G.R. CV No. 61848 which set
aside the Decision dated August 31, 1998 of the
Regional Trial Court, Branch 138, Makati (RTC) in Civil
Case No. 92-322 and upheld the causes of action for
damages of Insurance Company of North America
(respondent) against Gaisano Cagayan, Inc.
(petitioner); and the CA Resolution dated April 11,
2001 which denied petitioner's motion for
reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker
of Wrangler Blue Jeans. Levi Strauss (Phils.) Inc.
(LSPI) is the local distributor of products bearing
trademarks owned by Levi Strauss & Co.. IMC and
LSPI separately obtained from respondent fire
insurance policies with book debt endorsements. The
insurance policies provide for coverage on "book debts
in connection with ready-made clothing materials
which have been sold or delivered to various
customers and dealers of the Insured anywhere in the
Philippines."2 The policies defined book debts as the
"unpaid account still appearing in the Book of Account
of the Insured 45 days after the time of the loss
covered under this Policy."3 The policies also provide
for the following conditions:
1. Warranted that the Company shall not be
liable for any unpaid account in respect of the
merchandise sold and delivered by the
Insured which are outstanding at the date of
loss for a period in excess of six (6) months
from the date of the covering invoice or
actual delivery of the merchandise whichever
shall first occur.
2. Warranted that the Insured shall submit to
the Company within twelve (12) days after
the close of every calendar month all amount
shown in their books of accounts as unpaid
and thus become receivable item from their
customers and dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of
IMC and LSPI. On February 25, 1991, the Gaisano
Superstore Complex in Cagayan de Oro City, owned
by petitioner, was consumed by fire. Included in the
items lost or destroyed in the fire were stocks of
ready-made clothing materials sold and delivered by
IMC and LSPI.
On February 4, 1992, respondent filed a complaint for
damages against petitioner. It alleges that IMC and
LSPI filed with respondent their claims under their
respective fire insurance policies with book debt
endorsements; that as of February 25, 1991, the
unpaid accounts of petitioner on the sale and delivery
of ready-made clothing materials with IMC
was P2,119,205.00 while with LSPI it
was P535,613.00; that respondent paid the claims of
IMC and LSPI and, by virtue thereof, respondent was
subrogated to their rights against petitioner; that
respondent made several demands for payment upon
petitioner but these went unheeded.5
In its Answer with Counter Claim dated July 4, 1995,
petitioner contends that it could not be held liable
because the property covered by the insurance
policies were destroyed due to fortuities event or force
majeure; that respondent's right of subrogation has
no basis inasmuch as there was no breach of contract
committed by it since the loss was due to fire which it
could not prevent or foresee; that IMC and LSPI never
communicated to it that they insured their properties;
that it never consented to paying the claim of the
insured.6
At the pre-trial conference the parties failed to arrive
at an amicable settlement.7 Thus, trial on the merits
ensued.
On August 31, 1998, the RTC rendered its decision
dismissing respondent's complaint.8 It held that the
fire was purely accidental; that the cause of the fire
was not attributable to the negligence of the
petitioner; that it has not been established that
petitioner is the debtor of IMC and LSPI; that since the
sales invoices state that "it is further agreed that
merely for purpose of securing the payment of
purchase price, the above-described merchandise
remains the property of the vendor until the purchase
price is fully paid", IMC and LSPI retained ownership
of the delivered goods and must bear the loss.
Dissatisfied, petitioner appealed to the CA.9 On
October 11, 2000, the CA rendered its decision setting
aside the decision of the RTC. The dispositive portion
of the decision reads:
WHEREFORE, in view of the foregoing, the appealed
decision is REVERSED and SET ASIDE and a new one
is entered ordering defendant-appellee Gaisano
Cagayan, Inc. to pay:
1. the amount of P2,119,205.60
representing the amount paid by the
plaintiff-appellant to the insured Inter Capitol
Marketing Corporation, plus legal interest
from the time of demand until fully paid;
2. the amount of P535,613.00 representing
the amount paid by the plaintiff-appellant to
the insured Levi Strauss Phil., Inc., plus legal
interest from the time of demand until fully
paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale,
being detailed statements of the nature, quantity and
cost of the thing sold; that loss of the goods in the fire
must be borne by petitioner since
the proviso contained in the sales invoices is an
exception under Article 1504 (1) of the Civil Code, to
the general rule that if the thing is lost by a fortuitous
event, the risk is borne by the owner of the thing at
the time the loss under the principle of res perit
domino; that petitioner's obligation to IMC and LSPI is
not the delivery of the lost goods but the payment of
its unpaid account and as such the obligation to pay is
not extinguished, even if the fire is considered a
fortuitous event; that by subrogation, the insurer has
the right to go against petitioner; that, being a fire
insurance with book debt endorsements, what was
insured was the vendor's interest as a creditor.11
Petitioner filed a motion for reconsideration12 but it
was denied by the CA in its Resolution dated April 11,
2001.13
Hence, the present petition for review on certiorari
anchored on the following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT
THE INSURANCE IN THE INSTANT CASE WAS ONE
OVER CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT
ALL RISK OVER THE SUBJECT GOODS IN THE
INSTANT CASE HAD TRANSFERRED TO PETITIONER
UPON DELIVERY THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT
THERE WAS AUTOMATIC SUBROGATION UNDER ART.
2207 OF THE CIVIL CODE IN FAVOR OF
RESPONDENT.14
Anent the first error, petitioner contends that the
insurance in the present case cannot be deemed to be
over credit since an insurance "on credit" belies not
only the nature of fire insurance but the express terms
of the policies; that it was not credit that was insured
since respondent paid on the occasion of the loss of
the insured goods to fire and not because of the non-
payment by petitioner of any obligation; that, even if
the insurance is deemed as one over credit, there was
no loss as the accounts were not yet due since no prior
demands were made by IMC and LSPI against
petitioner for payment of the debt and such demands
came from respondent only after it had already paid
IMC and LSPI under the fire insurance policies.15
As to the second error, petitioner avers that despite
delivery of the goods, petitioner-buyer IMC and LSPI
assumed the risk of loss when they secured fire
insurance policies over the goods.
Concerning the third ground, petitioner submits that
there is no subrogation in favor of respondent as no
valid insurance could be maintained thereon by IMC
and LSPI since all risk had transferred to petitioner
upon delivery of the goods; that petitioner was not
privy to the insurance contract or the payment
between respondent and its insured nor was its
consent or approval ever secured; that this lack of
privity forecloses any real interest on the part of
respondent in the obligation to pay, limiting its
interest to keeping the insured goods safe from fire.
For its part, respondent counters that while ownership
over the ready- made clothing materials was
transferred upon delivery to petitioner, IMC and LSPI
have insurable interest over said goods as creditors
who stand to suffer direct pecuniary loss from its
destruction by fire; that petitioner is liable for loss of
the ready-made clothing materials since it failed to
overcome the presumption of liability under Article
126516 of the Civil Code; that the fire was caused
through petitioner's negligence in failing to provide
stringent measures of caution, care and maintenance
on its property because electric wires do not usually
short circuit unless there are defects in their
installation or when there is lack of proper
maintenance and supervision of the property; that
petitioner is guilty of gross and evident bad faith in
refusing to pay respondent's valid claim and should be
liable to respondent for contracted lawyer's fees,
litigation expenses and cost of suit.17
As a general rule, in petitions for review, the
jurisdiction of this Court in cases brought before it
from the CA is limited to reviewing questions of law
which involves no examination of the probative value
of the evidence presented by the litigants or any of
them.18 The Supreme Court is not a trier of facts; it is
not its function to analyze or weigh evidence all over
again.19 Accordingly, findings of fact of the appellate
court are generally conclusive on the Supreme
Court.20
Nevertheless, jurisprudence has recognized several
exceptions in which factual issues may be resolved by
this Court, such as: (1) when the findings are
grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is
manifestly mistaken, absurd or impossible; (3) when
there is grave abuse of discretion; (4) when the
judgment is based on a misapprehension of facts; (5)
when the findings of facts are conflicting; (6) when in
making its findings the CA went beyond the issues of
the case, or its findings are contrary to the admissions
of both the appellant and the appellee; (7) when the
findings are contrary to the trial court; (8) when the
findings are conclusions without citation of specific
evidence on which they are based; (9) when the facts
set forth in the petition as well as in the petitioner's
main and reply briefs are not disputed by the
respondent; (10) when the findings of fact are
premised on the supposed absence of evidence and
contradicted by the evidence on record; and (11)
when the CA manifestly overlooked certain relevant
facts not disputed by the parties, which, if properly
considered, would justify a different
conclusion.21 Exceptions (4), (5), (7), and (11) apply
to the present petition.
At issue is the proper interpretation of the questioned
insurance policy. Petitioner claims that the CA erred in
construing a fire insurance policy on book debts as one
covering the unpaid accounts of IMC and LSPI since
such insurance applies to loss of the ready-made
clothing materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are
plain and readily understood, there is no room for
construction.22 In this case, the questioned insurance
policies provide coverage for "book debts in
connection with ready-made clothing materials which
have been sold or delivered to various customers and
dealers of the Insured anywhere in the
Philippines."23 ; and defined book debts as the "unpaid
account still appearing in the Book of Account of the
Insured 45 days after the time of the loss covered
under this Policy."24 Nowhere is it provided in the
questioned insurance policies that the subject of the
insurance is the goods sold and delivered to the
customers and dealers of the insured.
Indeed, when the terms of the agreement are clear
and explicit that they do not justify an attempt to read
into it any alleged intention of the parties, the terms
are to be understood literally just as they appear on
the face of the contract.25 Thus, what were insured
against were the accounts of IMC and LSPI with
petitioner which remained unpaid 45 days after the
loss through fire, and not the loss or destruction of the
goods delivered.
Petitioner argues that IMC bears the risk of loss
because it expressly reserved ownership of the goods
by stipulating in the sales invoices that "[i]t is further
agreed that merely for purpose of securing the
payment of the purchase price the above described
merchandise remains the property of the vendor until
the purchase price thereof is fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1),
Article 1504 of the Civil Code:
ART. 1504. Unless otherwise agreed, the goods
remain at the seller's risk until the ownership therein
is transferred to the buyer, but when the ownership
therein is transferred to the buyer the goods are at
the buyer's risk whether actual delivery has been
made or not, except that:
(1) Where delivery of the goods has been made to the
buyer or to a bailee for the buyer, in pursuance of the
contract and the ownership in the goods has been
retained by the seller merely to secure performance
by the buyer of his obligations under the contract, the
goods are at the buyer's risk from the time of such
delivery; (Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure
that the buyer will pay its debt, the risk of loss is borne
by the buyer.27 Accordingly, petitioner bears the risk
of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the
goods. They have an insurable interest until full
payment of the value of the delivered goods. Unlike
the civil law concept of res perit domino, where
ownership is the basis for consideration of who bears
the risk of loss, in property insurance, one's interest
is not determined by concept of title, but whether
insured has substantial economic interest in the
property.28
Section 13 of our Insurance Code defines insurable
interest as "every interest in property, whether real or
personal, or any relation thereto, or liability in respect
thereof, of such nature that a contemplated peril
might directly damnify the insured." Parenthetically,
under Section 14 of the same Code, an insurable
interest in property may consist in: (a) an existing
interest; (b) an inchoate interest founded on existing
interest; or (c) an expectancy, coupled with an
existing interest in that out of which the expectancy
arises.
Therefore, an insurable interest in property does not
necessarily imply a property interest in, or a lien upon,
or possession of, the subject matter of the insurance,
and neither the title nor a beneficial interest is
requisite to the existence of such an interest, it is
sufficient that the insured is so situated with reference
to the property that he would be liable to loss should
it be injured or destroyed by the peril against which it
is insured.29 Anyone has an insurable interest in
property who derives a benefit from its existence or
would suffer loss from its destruction.30Indeed, a
vendor or seller retains an insurable interest in the
property sold so long as he has any interest therein,
in other words, so long as he would suffer by its
destruction, as where he has a vendor's lien.31 In this
case, the insurable interest of IMC and LSPI pertain to
the unpaid accounts appearing in their Books of
Account 45 days after the time of the loss covered by
the policies.
The next question is: Is petitioner liable for the unpaid
accounts?
Petitioner's argument that it is not liable because the
fire is a fortuitous event under Article 117432 of the
Civil Code is misplaced. As held earlier, petitioner
bears the loss under Article 1504 (1) of the Civil Code.
Moreover, it must be stressed that the insurance in
this case is not for loss of goods by fire but for
petitioner's accounts with IMC and LSPI that remained
unpaid 45 days after the fire. Accordingly, petitioner's
obligation is for the payment of money. As correctly
stated by the CA, where the obligation consists in the
payment of money, the failure of the debtor to make
the payment even by reason of a fortuitous event shall
not relieve him of his liability.33 The rationale for this
is that the rule that an obligor should be held exempt
from liability when the loss occurs thru a fortuitous
event only holds true when the obligation consists in
the delivery of a determinate thing and there is no
stipulation holding him liable even in case of fortuitous
event. It does not apply when the obligation is
pecuniary in nature.34
Under Article 1263 of the Civil Code, "[i]n an
obligation to deliver a generic thing, the loss or
destruction of anything of the same kind does not
extinguish the obligation." If the obligation is generic
in the sense that the object thereof is designated
merely by its class or genus without any particular
designation or physical segregation from all others of
the same class, the loss or destruction of anything of
the same kind even without the debtor's fault and
before he has incurred in delay will not have the effect
of extinguishing the obligation.35 This rule is based on
the principle that the genus of a thing can never
perish. Genus nunquan perit.36 An obligation to pay
money is generic; therefore, it is not excused by
fortuitous loss of any specific property of the debtor.37
Thus, whether fire is a fortuitous event or petitioner
was negligent are matters immaterial to this case.
What is relevant here is whether it has been
established that petitioner has outstanding accounts
with IMC and LSPI.
With respect to IMC, the respondent has adequately
established its claim. Exhibits "C" to "C-22"38 show
that petitioner has an outstanding account with IMC in
the amount of P2,119,205.00. Exhibit "E"39 is the
check voucher evidencing payment to IMC. Exhibit
"F"40 is the subrogation receipt executed by IMC in
favor of respondent upon receipt of the insurance
proceeds. All these documents have been properly
identified, presented and marked as exhibits in court.
The subrogation receipt, by itself, is sufficient to
establish not only the relationship of respondent as
insurer and IMC as the insured, but also the amount
paid to settle the insurance claim. The right of
subrogation accrues simply upon payment by the
insurance company of the insurance
claim.41 Respondent's action against petitioner is
squarely sanctioned by Article 2207 of the Civil Code
which provides:
Art. 2207. If the plaintiff's property has been insured,
and he has received indemnity from the insurance
company for the injury or loss arising out of the wrong
or breach of contract complained of, the insurance
company shall be subrogated to the rights of the
insured against the wrongdoer or the person who has
violated the contract. x x x
Petitioner failed to refute respondent's evidence.
As to LSPI, respondent failed to present sufficient
evidence to prove its cause of action. No evidentiary
weight can be given to Exhibit "F Levi Strauss",42 a
letter dated April 23, 1991 from petitioner's General
Manager, Stephen S. Gaisano, Jr., since it is not an
admission of petitioner's unpaid account with LSPI. It
only confirms the loss of Levi's products in the amount
of P535,613.00 in the fire that razed petitioner's
building on February 25, 1991.
Moreover, there is no proof of full settlement of the
insurance claim of LSPI; no subrogation receipt was
offered in evidence. Thus, there is no evidence that
respondent has been subrogated to any right which
LSPI may have against petitioner. Failure to
substantiate the claim of subrogation is fatal to
petitioner's case for recovery of the amount
of P535,613.00.
WHEREFORE, the petition is partly GRANTED. The
assailed Decision dated October 11, 2000 and
Resolution dated April 11, 2001 of the Court of
Appeals in CA-G.R. CV No. 61848 are AFFIRMED with
the MODIFICATION that the order to pay the
amount of P535,613.00 to respondent
is DELETED for lack of factual basis.
No pronouncement as to costs.
SO ORDERED.
ROBERTO C. SICAM and AGENCIA G.R. NO. 159617 and Isabelita Rodriguez and ordered
de R.C. SICAM, INC., them to lay (sic) face flat on the
Petitioners, floor. Suspects asked forcibly the
Present: case and assorted pawned jewelries
items mentioned above.
YNARES-SANTIAGO, J.,
Chairperson, Suspects after taking the money and
- versus - AUSTRIA-MARTINEZ, jewelries fled on board
CHICO-NAZARIO, and a Marson Toyota unidentified plate
NACHURA, JJ. number.[3]

LULU V. JORGE and CESAR

JORGE, Promulgated: Petitioner Sicam sent respondent Lulu a letter
Respondents. August 8, 2007
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - dated October 19, 1987 informing her of the loss of
------------------x
her jewelry due to the robbery incident in the

pawnshop. On November 2, 1987, respondent Lulu

DECISION
then wrote a letter[4] to petitioner Sicamexpressing
AUSTRIA-MARTINEZ, J.:
disbelief stating that when the robbery happened, all
Before us is a Petition for Review on Certiorari filed by
jewelry pawned were deposited with Far East Bank
Roberto C. Sicam, Jr. (petitioner Sicam)
near the pawnshop since it had been the practice that
and Agencia de R.C. Sicam, Inc. (petitioner
before they could withdraw, advance notice must be
corporation) seeking to annul the Decision[1] of the
given to the pawnshop so it could withdraw the
Court of Appeals dated March 31, 2003, and its
jewelry from the bank. Respondent Lulu then
Resolution[2] dated August 8, 2003, in CA G.R. CV No.
requested petitioner Sicam to prepare the pawned
56633.
jewelry for withdrawal on November

6, 1987 but petitioner Sicam failed to return the

It appears that on different dates from September to
jewelry.
October 1987, Lulu V. Jorge (respondent Lulu)

pawned several pieces of jewelry with Agencia de R.

C. Sicam located at No. 17 Aguirre Ave., BF

On September 28, 1988, respondent Lulu joined by
Homes Paraaque, Metro Manila, to secure a loan in the
her husband, Cesar Jorge, filed a complaint against
total amount of P59,500.00.
petitioner Sicamwith the Regional Trial Court

of Makati seeking indemnification for the loss of

On October 19, 1987, two armed men entered the pawned jewelry and payment of actual, moral and

pawnshop and took away whatever cash and jewelry exemplary damages as well as attorney's fees. The

were found inside the pawnshop vault. The incident case was docketed as Civil Case No. 88-2035.

was entered in the police blotter of the Southern Police

District, Paraaque Police Station as follows: Petitioner Sicam filed his Answer contending that he is

not the real party-in-interest as the pawnshop was

Investigation shows that at above
TDPO, while victims were inside the incorporated on April 20, 1987 and known
office, two (2) male unidentified
persons entered into the said office as Agencia de R.C. Sicam, Inc; that petitioner
with guns drawn. Suspects(sic) (1)
went straight inside and poked his corporation had exercised due care and diligence in
gun toward Romeo Sicam and
the safekeeping of the articles pledged with it and
thereby tied him with an electric wire
while suspects (sic) (2) poked his could not be made liable for an event that is fortuitous.
gun toward Divina Mata
 Respondents appealed the RTC Decision to the CA. In

Respondents subsequently filed an Amended a Decision dated March 31, 2003, the CA reversed the

Complaint to include petitioner corporation. RTC, the dispositive portion of which reads as follows:

WHEREFORE, premises considered,

the instant Appeal is GRANTED, and
Thereafter, petitioner Sicam filed a Motion to Dismiss the Decision dated January 12,
1993,of the Regional Trial Court
as far as he is concerned considering that he is not the
of Makati, Branch 62, is hereby
real party-in-interest. Respondents opposed the REVERSED and SET ASIDE, ordering
the appellees to pay appellants the
same. The RTC denied the motion in an Order actual value of the lost jewelry
amounting to P272,000.00, and
dated November 8, 1989.[5] attorney' fees of P27,200.00.[8]

After trial on the merits, the RTC rendered its

Decision[6] dated January 12, 1993, dismissing

respondents complaint as well as petitioners In finding petitioner Sicam liable together with

counterclaim. The RTC held that petitioner corporation, the CA applied the doctrine of

petitioner Sicam could not be made personally liable piercing the veil of corporate entity reasoning that

for a claim arising out of a corporate respondents were misled into thinking that they were

transaction; that in the Amended Complaint of dealing with the pawnshop owned by

respondents, they asserted that plaintiff pawned petitioner Sicam as all the pawnshop tickets issued to

assorted jewelries in defendants' pawnshop; and that them bear the words Agencia de R.C. Sicam; and that

as a consequence of the separate juridical personality there was no indication on the pawnshop tickets that

of a corporation, the corporate debt or credit is not the it was the petitioner corporation that owned the

debt or credit of a stockholder. pawnshop which explained why respondents had to

amend their complaint impleading petitioner

The RTC further ruled that petitioner corporation could corporation.

not be held liable for the loss of the pawned jewelry

since it had not been rebutted by respondents that the The CA further held that the corresponding diligence

loss of the pledged pieces of jewelry in the possession required of a pawnshop is that it should take steps to

of the corporation was occasioned by armed robbery; secure and protect the pledged items and should take

that robbery is a fortuitous event which exempts the steps to insure itself against the loss of articles which

victim from liability for the loss, citing the case are entrusted to its custody as it derives earnings from

of Austria v. Court of Appeals;[7] and that the parties the pawnshop trade which petitioners failed to do;

transaction was that that Austria is not applicable to this case since the

of a pledgor and pledgee andunder Art. 1174 of the robbery incident happened in 1961 when the

Civil Code, the pawnshop as a pledgee is not criminality had not as yet reached the levels attained

responsible for those events which could not be in the present day; that they are at least guilty of

foreseen. contributory negligence and should be held liable for

the loss of jewelries; and that robberies and hold-ups

are foreseeable risks in that those engaged in the

pawnshop business are expected to foresee.

 the present owner of Agencia de
R.C. Sicam Pawnshop, and
therefore, the CA cannot rule
The CA concluded that both petitioners should be against said conclusive assertion of
respondents;
jointly and severally held liable to respondents for the

loss of the pawned jewelry. (2) The issue resolved against

petitioner Sicam was not among
those raised and litigated in the trial
court; and
Petitioners motion for reconsideration was
(3) By reason of the above
denied in a Resolution dated August 8, 2003. infirmities, it was error for the CA to
have pierced the corporate veil
since a corporation has a
personality distinct and separate
Hence, the instant petition for review with the from its individual stockholders or
members.
following assignment of errors:

THE COURT OF APPEALS ERRED AND

WHEN IT DID, IT OPENED ITSELF TO Anent the second error, petitioners point out that the
REVERSAL, WHEN IT ADOPTED
UNCRITICALLY (IN FACT IT CA finding on their negligence is likewise an unedited
REPRODUCED AS ITS OWN WITHOUT
IN THE MEANTIME ACKNOWLEDGING reproduction of respondents brief which had the
IT) WHAT THE RESPONDENTS
ARGUED IN THEIR BRIEF, WHICH following defects:
ARGUMENT WAS PALPABLY
UNSUSTAINABLE.
(1) There
THE COURT OF APPEALS were unrebutted evidence on
ERRED, AND WHEN IT DID, IT record that petitioners had
OPENED ITSELF TO REVERSAL BY observed the diligence
THIS HONORABLE COURT, WHEN IT required of them, i.e, they wanted
AGAIN ADOPTED UNCRITICALLY to open a vault with a nearby bank
(BUT WITHOUT ACKNOWLEDGING for purposes of safekeeping the
IT) THE SUBMISSIONS OF THE pawned articles but was
RESPONDENTS IN THEIR BRIEF discouraged by the Central Bank
WITHOUT ADDING ANYTHING MORE (CB) since CB rules provide that
THERETO DESPITE THE FACT THAT they can only store the pawned
THE SAID ARGUMENT OF THE articles in a vault inside the
RESPONDENTS COULD NOT HAVE pawnshop premises and no other
BEEN SUSTAINED IN VIEW OF place;
UNREBUTTED EVIDENCE ON
RECORD.[9] (2) Petitioners were adjudged
negligent as they did not take
insurance against the loss of the
Anent the first assigned error, petitioners point out pledged jelweries, but it is judicial
notice that due to high incidence of
that the CAs finding that petitioner Sicam is crimes, insurance companies
refused to cover pawnshops and
personally liable for the loss of the pawned jewelries banks because of high probability
of losses due to robberies;
is a virtual and uncritical reproduction of the
(3) In Hernandez v. Chairman,
arguments set out on pp. 5-6 of the Appellants
Commission on Audit (179 SCRA
brief.[10] 39, 45-46), the victim of robbery
was exonerated from liability for the
sum of money belonging to others
and lost by him to robbers.
Petitioners argue that the reproduced arguments of

respondents in their Appellants Brief suffer from

Respondents filed their Comment and petitioners filed
infirmities, as follows:
their Reply thereto. The parties subsequently

(1) Respondents conclusively submitted their respective Memoranda.

asserted in paragraph 2
of their Amended Complaint
that Agencia de R.C. Sicam, Inc. is
 meant to promote unfair objectives or otherwise to
We find no merit in the petition.
shield them.[15]

To begin with, although it is true that indeed the CA

Notably, the evidence on record shows that at the
findings were exact reproductions of the arguments
time respondent Lulu pawned her jewelry, the
raised in respondents (appellants) brief filed with the
pawnshop was owned by petitioner Sicam himself.
CA, we find the same to be not fatally infirmed. Upon
As correctly observed by the CA, in all the pawnshop
examination of the Decision, we find that it expressed
receipts issued to respondent Lulu in September 1987,
clearly and distinctly the facts and the law on which it
all bear the words Agencia de R. C. Sicam,
is based as required by Section 8, Article VIII of the
notwithstanding that the pawnshop was allegedly
Constitution. The discretion to decide a case one way
incorporated in April 1987. The receipts issued after
or another is broad enough to justify the adoption of
such alleged incorporation were still in the name
the arguments put forth by one of the parties, as long
of Agencia de R. C. Sicam, thus inevitably misleading,
as these are legally tenable and supported by law and
or at the very least, creating the wrong impression to
the facts on records.[11]
respondents and the public as well, that the pawnshop

was owned solely by petitioner Sicam and not by a

Our jurisdiction under Rule 45 of the Rules of Court is
corporation.
limited to the review of errors of law committed by the

appellate court. Generally, the findings of fact of the

Even petitioners counsel, Atty. Marcial T. Balgos, in
appellate court are deemed conclusive and we are not
his letter[16] dated October 15, 1987 addressed to the
duty-bound to analyze and calibrate all over again the

evidence adduced by the parties in the court a Central Bank, expressly referred to

quo.[12] This rule, however, is not without exceptions, petitioner Sicam as the proprietor of the pawnshop

such as where the factual findings of the Court of notwithstanding the alleged incorporation in April
Appeals and the trial court are conflicting or
1987.
contradictory[13] as is obtaining in the instant case.
We also find no merit in petitioners' argument that

However, after a careful examination of the records, since respondents had alleged in their Amended

we find no justification to absolve Complaint that petitioner corporation is the present

petitioner Sicam from liability. owner of the pawnshop, the CA is bound to decide the

case on that basis.

The CA correctly pierced the veil of the corporate

fiction and adjudged petitioner Sicam liable together Section 4 Rule 129 of the Rules of Court provides that

with petitioner corporation. The rule is that the veil of an admission, verbal or written, made by a party in

corporate fiction may be pierced when made as a the course of the proceedings in the same case, does

shield to perpetrate fraud and/or confuse legitimate not require proof. The admission may be contradicted

issues. [14]
The theory of corporate entity was not only by showing that it was made through palpable

mistake or that no such admission was made.

Thus, the general rule that a judicial admission is
conclusive upon the party making it and does not
require proof, admitsof two exceptions, to wit: (1)
when it is shown that such admission was made
through palpable mistake, and (2) when it is shown
that no such admission was in fact made. The latter
exception allows one to contradict an admission
by denying that he made such an admission.
The Committee on the Revision of the Rules of Court
explained the second exception in this wise:
x x x if a party invokes an
admission by an adverse party, but
cites the admission out of context,
then the one making the admission
may show that he made no such
admission, or that his admission
was taken out of context.
x x x that the party can also
show that he made no such
admission, i.e., not in the sense
in which the admission is made
to appear.
That is the reason for the modifier
such because if the rule simply
states that the admission may be
contradicted by showing that no
admission was made, the rule would
not really be providing for a
contradiction of the admission but
just a denial.[18](Emphasis
supplied).
While it is true that respondents alleged in their
Amended Complaint that petitioner corporation is the
present owner of the pawnshop, they did so only
because petitioner Sicam alleged in his Answer to the
original complaint filed against him that he was not
the real party-in-interest as the pawnshop was
incorporated in April 1987. Moreover, a reading of the
Amended Complaint in its entirety
respondents referred to both petitioner Sicam and
petitioner corporation where they (respondents)
pawned their assorted pieces of jewelry and ascribed
to both the failure to observe due
commensurate with the business which resulted in the
loss of their pawned jewelry.
Markedly, respondents, in their Opposition to
petitioners Motion to Dismiss Amended Complaint,
insofar as petitioner Sicam is concerned, averred as
[17]
follows:
Roberto C. Sicam was named the
defendant in the original complaint
because the pawnshop tickets
involved in this case did not show
that the R.C. Sicam Pawnshop was a
corporation. In paragraph 1 of his
Answer, he admitted the allegations
in paragraph 1 and 2 of the
Complaint. He merely added that
defendant is not now the real party
in interest in this case.
It was defendant Sicam's omission
to correct the pawnshop tickets used
in the subject transactions in this
case which was the cause of the
instant action. He cannot now ask
for the dismissal of the
complaint against him simply on the
mere allegation that his pawnshop
business is now incorporated. It is a
matter of defense, the merit of
which can only be reached after
consideration of the evidence to be
presented in due course.[19]
Unmistakably, the alleged admission made in
respondents' Amended Complaint was taken out of
context by petitioner Sicam to suit his own purpose.
Ineluctably, the fact that petitioner Sicam continued
to issue pawnshop receipts under his name and not
under the corporation's name militates for the piercing
of the corporate veil.
We likewise find no merit in petitioners' contention
that the CA erred in piercing the veil of corporate
fiction of petitioner corporation, as it was not
an issue raised and litigated before the RTC.
shows that
Petitioner Sicam had alleged in his Answer filed with
the trial court that he was not the real party-in-
interest because since April 20, 1987, the pawnshop
diligence
business initiated by him was incorporated and known
as Agencia de R.C. Sicam. In the pre-trial brief filed
Art. 1174. Except in cases expressly
by petitioner Sicam, he submitted that as far as he specified by the law, or when it is
otherwise declared by stipulation, or
was concerned, the basic issue was whether he is the when the nature of the obligation
requires the assumption of risk, no
real party in interest against whom the complaint
person shall be responsible for those
should be directed.[20] In fact, he subsequently moved events which could not be foreseen
or which, though foreseen, were
for the dismissal of the complaint as to him but was inevitable.

not favorably acted upon by the trial court. Moreover,

the issue was squarely passed upon, although

Fortuitous events by definition are extraordinary
erroneously, by the trial court in its Decision in this
events not foreseeable or avoidable. It is therefore,
manner:
not enough that the event should not have been
x x x The defendant
Roberto Sicam, Jr likewise denies foreseen or anticipated, as is commonly believed but
liability as far as he is concerned for
it must be one impossible to foresee or to avoid. The
the reason that he cannot be made
personally liable for a claim arising mere difficulty to foresee the happening is not
from a corporate transaction.
impossibility to foresee the same. [22]

This Court sustains the contention

of the defendant Roberto C. Sicam,
Jr. The amended complaint itself
asserts that plaintiff pawned To constitute a fortuitous event, the following
assorted jewelries in defendant's
pawnshop. It has been held elements must concur: (a) the cause of the
that as a consequence of the
unforeseen and unexpected occurrence or of the
separate juridical personality of a
corporation, the corporate debt or failure of the debtor to comply with obligations must
credit is not the debt or credit of the
stockholder, nor is the stockholder's be independent of human will; (b) it must be
debt or credit that of a
corporation.[21] impossible to foresee the event that constitutes

the caso fortuito or, if it can be foreseen, it must be

Clearly, in view of the alleged incorporation of the impossible to avoid; (c) the occurrence must be such

pawnshop, the issue of whether petitioner Sicam is as to render it impossible for the debtor to fulfill

personally liable is inextricably connected with the obligations in a normal manner; and, (d) the obligor

determination of the question whether the doctrine of must be free from any participation in the aggravation

piercing the corporate veil should or should not apply of the injury or loss. [23]

to the case. The burden of proving that the loss was due to a

fortuitous event rests on him who invokes it.[24] And,

The next question is whether petitioners are liable for in order for a fortuitous event to exempt one from

the loss of the pawned articles in their possession. liability, it is necessary that one has committed no

negligence or misconduct that may have occasioned

Petitioners insist that they are not liable since robbery the loss. [25]

is a fortuitous event and they are not negligent at all.

It has been held that an act of God cannot be invoked

We are not persuaded. to protect a person who has failed to take steps to

forestall the possible adverse consequences of such a

Article 1174 of the Civil Code provides: loss. One's negligence may have concurred with an act
 of carnapping, does not
of God in producing damage and injury to another; automatically give rise to a
fortuitous event. To be
nonetheless, showing that the immediate or considered as
such, carnapping entails more
proximate cause of the damage or injury was a
than the mere forceful taking
fortuitous event would not exempt one from liability. of another's property. It must
be proved and established that
When the effect is found to be partly the result of a the event was an act of God or
was done solely by third
person's participation -- whether by active parties and that neither the
claimant nor the person
intervention, neglect or failure to act -- the whole alleged to be negligent has any
participation. In accordance
occurrence is humanized and removed from the rules with the Rules of Evidence, the
burden of proving that the loss
applicable to acts of God. [26]
was due to a fortuitous event
rests on him who invokes it
which in this case is the private
Petitioner Sicam had testified that there was a respondent. However, other than
the police report of the
security guard in their pawnshop at the time of the alleged carnapping incident, no
other evidence was presented by
robbery. He likewise testified that when he started the private respondent to the effect
that the incident was not due to its
pawnshop business in 1983, he thought of opening a fault. A police report of an alleged
crime, to which only private
vault with the nearby bank for the purpose of respondent is privy, does not
suffice to establish the carnapping.
safekeeping the valuables but was discouraged by the Neither does it prove that there
was no fault on the part of private
Central Bank since pawned articles should only be
respondent notwithstanding the
stored in a vault inside the pawnshop. The very parties' agreement at the pre-trial
that the car
measures which petitioners had allegedly adopted was carnapped. Carnapping does
not foreclose the possibility of fault
show that to them the possibility of robbery was not or negligence on the part of private
respondent.[28]
only foreseeable, but actually foreseen and
Just like in Co, petitioners merely presented
anticipated. Petitioner Sicams testimony, in effect,
the police report of the Paraaque Police Station on the
contradicts petitioners defense of fortuitous event.
robbery committed based on the

report of petitioners' employees which is not sufficient

Moreover, petitioners failed to show that they were
to establish robbery. Such report also does not prove
free from any negligence by which the loss of the
that petitioners were not at fault.
pawned jewelry may have been occasioned.

On the contrary, by the very evidence of petitioners,

Robbery per se, just like carnapping, is not a
the CA did not err in finding that petitioners are guilty
fortuitous event. It does not foreclose the possibility
of concurrent or contributory negligence as provided
of negligence on the part of herein petitioners. In Co
in Article 1170 of the Civil Code, to wit:
v. Court of Appeals,[27] the Court held:
Art. 1170. Those who in the
It is not a defense for a performance of their obligations are
repair shop of motor vehicles to guilty of fraud, negligence, or delay,
escape liability simply because the and those who in any manner
damage or loss of a thing lawfully contravene the tenor thereof, are
placed in its possession was due liable for damages.[29]
to carnapping. Carnapping per se
cannot be considered as a
fortuitous event. The fact that a
thing was unlawfully and
forcefully taken from another's
rightful possession, as in cases
Article 2123 of the Civil Code provides that with regard in the operation of their pawnshop business.

to pawnshops and other establishments which are Petitioner Sicam testified, thus:

engaged in making loans secured by pledges, the

special laws and regulations concerning them shall be

Court:
observed, and subsidiarily, the provisions on pledge, Q. Do you have security guards in
your pawnshop?
mortgage and antichresis.
A. Yes, your honor.

Q. Then how come that the robbers

The provision on pledge, particularly Article 2099 of were able to enter the premises
when according to you there was
the Civil Code, provides that the creditor shall take a security guard?
A. Sir, if these robbers can rob a
care of the thing pledged with the diligence of a good bank, how much more a pawnshop.

father of a family. This means that petitioners must Q. I am asking you how were the
robbers able to enter despite the
take care of the pawns the way a prudent person
fact that there was a security
guard?
would as to his own property.
A. At the time of the incident which
happened about 1:00 and
2:00 o'clock in the afternoon
In this connection, Article 1173 of the Civil Code and it happened on a Saturday
and everything was quiet in the
further provides: area BF Homes Paraaque they
pretended to pawn an article in
the pawnshop, so one of my
Art. 1173. The fault or negligence of employees allowed him to come
the obligor consists in the omission in and it was only when it was
of that diligence which is required by announced that it was a hold up.
the nature of the obligation and
corresponds with the circumstances Q. Did you come to know how the
of the persons, of time and of the vault was opened?
place. When negligence shows bad A. When the pawnshop is official
faith, the provisions of Articles 1171 (sic) open your honor the
and 2201, paragraph 2 shall apply. pawnshop is partly open. The
combination is off.
If the law or contract does
not state the diligence which is to be Q. No one open (sic) the vault for the
observed in the performance, that robbers?
which is expected of A. No one your honor it was open at
a good father of a family shall be the time of the robbery.
required.

We expounded in Cruz v. Gangan[30] that Q. It is clear now that at the time of

the robbery the vault was open
negligence is the omission to do something which a
the reason why the robbers were
reasonable man, guided by those considerations able to get all the items pawned
to you inside the vault.
which ordinarily regulate the conduct of human A. Yes sir.[32]

affairs, would do; or the doing of something which a

prudent and reasonable man would not do.[31] It is

revealing that there were no security measures
want of care required by the circumstances.
adopted by petitioners in the operation of the

pawnshop. Evidently, no sufficient precaution and

A review of the records clearly shows that petitioners
vigilance were adopted by petitioners to protect the
failed to exercise reasonable care and caution that an
pawnshop from unlawful intrusion. There was no clear
ordinarily prudent person would have used in the
showing that there was any security guard at all. Or if
same situation. Petitioners were guilty of negligence
there was one, that he had sufficient training in
securing a pawnshop. Further, there is no showing pursuant to Presidential Decree No. 114, Pawnshop

that the alleged security guard exercised all that was Regulation Act, it is provided that pawns pledged must

necessary to prevent any untoward incident or to be insured, to wit:

ensure that no suspicious individuals were allowed to Sec. 17. Insurance

of Office Building and Pawns- The
enter the premises. In fact, it is even doubtful that place of business of a pawnshop and
the pawns pledged to it must be
there was a security guard, since it is quite impossible
insured against fire and against
that he would not have noticed that the robbers were burglary as well as for
the latter(sic), by an insurance
armed with caliber .45 pistols each, which were company accredited by the
Insurance Commissioner.
allegedly poked at the employees.[33] Significantly, the

alleged security guard was not presented at all to

corroborate petitioner Sicam's claim; not However, this Section was subsequently amended by

one of petitioners' employees who were present CB Circular No. 764 which took effect on October 1,

during the robbery incident testified in court. 1980, to wit:

Sec. 17 Insurance of Office Building

Furthermore, petitioner Sicam's admission that the and Pawns The office
building/premises and pawns of a
vault was open at the time of robbery is clearly a proof pawnshop must be
insured against
of petitioners' failure to observe the care, precaution fire. (emphasis supplied).
and vigilance that the circumstances justly demanded. where the requirement that insurance against
Petitioner Sicam testified that once the pawnshop was burglary was deleted. Obviously, the Central Bank
open, the combination was already off. Considering considered it not feasible to require insurance of
petitioner Sicam's testimony that the robbery took pawned articles against burglary.
place on a Saturday afternoon and the area in BF The robbery in the pawnshop happened in 1987, and
Homes Paraaque at that time was quiet, there was considering the above-quoted amendment, there is no
more reason for petitioners to have exercised statutory duty imposed on petitioners to insure the
reasonable foresight and diligence in protecting the pawned jewelry in which case it was error for the CA
pawned jewelries. Instead of taking the precaution to to consider it as a factor in concluding that petitioners
protect them, they let open the vault, providing no were negligent.
difficulty for the robbers to cart away the pawned

articles. Nevertheless, the preponderance of evidence shows

that petitioners failed to exercise the diligence

We, however, do not agree with the CA when it required of them under the Civil Code.
found petitioners negligent for not taking steps to The diligence with which the law requires the
insure themselves against loss of the pawned individual at all times to govern his conduct varies
jewelries. with the nature of the situation in which he is placed

and the importance of the act which he is to

Under Section 17 of Central Bank Circular No. 374, perform.[34] Thus, the cases of Austria v. Court of
Rules and Regulations for Pawnshops, which took Appeals,[35] Hernandez v. Chairman, Commission on
effect on July 13, 1973, and which was issued Audit[36] and Cruz v. Gangan[37] cited by petitioners in
their pleadings, where the victims of robbery were jewelry of considerable value would have been

exonerated from liability, find no application to the negligence per se and would not exempt her from

present case. responsibility in the case of robbery. However we did

not hold Abad liable for negligence since, the robbery

In Austria, Maria Abad received from happened ten years previously; i.e., 1961, when

Guillermo Austria a pendant with diamonds to be sold criminality had not reached the level of incidence

on commission basis, but which Abad failed to obtaining in 1971.

subsequently return because of a robbery committed In contrast, the robbery in this case took place in 1987

upon her in 1961. The incident became the subject of when robbery was already prevalent and petitioners

a criminal case filed against several in fact had already foreseen it as they wanted to

persons. Austria filed an action against Abad and her deposit the pawn with a nearby bank for safekeeping.

husband (Abads) for recovery of the pendant or its Moreover, unlike in Austria, where no negligence was

value, but the Abads set up the defense that the committed, we found petitioners negligent in securing

robbery extinguished their obligation. The RTC ruled their pawnshop as earlier discussed.

in favor of Austria, as the Abads failed to prove

robbery; or, if committed, that Maria Abad was guilty In Hernandez, Teodoro Hernandez was the OIC and

of negligence. The CA, however, reversed the RTC special disbursing officer of the Ternate Beach Project

decision holding that the fact of robbery was duly of the Philippine Tourism in Cavite. In the morning

established and declared the Abads not responsible of July 1, 1983, a Friday, he went

for the loss of the jewelry on account of a fortuitous to Manila to encash two checks covering the wages of

event. We held that for the Abads to be relieved from the employees and the operating expenses of the

the civil liability of returning the pendant under Art. project. However for some reason, the processing of

1174 of the Civil Code, it would only be sufficient that the check was delayed and was completed at about 3

the unforeseen event, the robbery, took place without p.m. Nevertheless, he decided to encash the check

any concurrent fault on the debtors part, and this can because the project employees would be waiting for

be done by preponderance of evidence; that to be free their pay the following day; otherwise, the workers

from liability for reason of fortuitous event, the debtor would have to wait until July 5, the earliest time, when

must, in addition to the casus itself, be free of any the main office would open. At that time, he had two

concurrent or contributory fault or negligence.[38] choices: (1) return to Ternate, Cavite that same

afternoon and arrive early evening; or (2) take the

We found in Austria that under the circumstances money with him to his house in Marilao, Bulacan,

prevailing at the time the Decision was promulgated spend the night there, and leave for Ternate the

in 1971, the City of Manila and its suburbs had a high following day. He chose the second option, thinking it

incidence of crimes against persons and property that was the safer one. Thus, a little past 3 p.m., he took

rendered travel after nightfall a matter to be a passenger jeep bound for Bulacan. While the jeep

sedulously avoided without suitable precaution and was on Epifanio de los Santos Avenue, the jeep was

protection; that the conduct of Maria Abad in held up and the money kept by Hernandez was taken,

returning alone to her house in the evening carrying and the robbers jumped out of the jeep and ran.
Hernandez chased the robbers and caught up with one

robber who was subsequently charged with robbery In Cruz, Dr. Filonila O. Cruz, Camanava District

and pleaded guilty. The other robber who held the Director of Technological Education and Skills

stolen money escaped. The Commission on Audit Development Authority (TESDA), boarded the Light

found Hernandez negligent because he had not Rail Transit (LRT)

brought the cash proceeds of the checks to his office from Sen. Puyat Avenue to Monumento when her

in Ternate, Cavite for safekeeping, which is the handbag was slashed and the contents were stolen by

normal procedure in the handling of funds. We held an unidentified person. Among those stolen were her

that Hernandez was not negligent in deciding wallet and the government-issued cellular phone. She

to encash the check and bringing it home then reported the incident to the police

to Marilao, Bulacan instead of Ternate, Cavite due to authorities; however, the thief was not located, and

the lateness of the hour for the following reasons: (1) the cellphone was not recovered. She also reported

he was moved by unselfish motive for his co- the loss to the Regional Director of TESDA, and she

employees to collect their wages and salaries the requested that she be freed from accountability for

following day, a Saturday, a non-working, because the cellphone. The Resident Auditor denied her

to encash the check on July 5, the next working day request on the ground that she lacked the diligence

after July 1, would have caused discomfort to laborers required in the custody of government property and

who were dependent on their wages for sustenance; was ordered to pay the purchase value in the total

and (2) that choosing Marilao as a safer destination, amount of P4,238.00. The COA found no sufficient

being nearer, and in view of the comparative hazards justification to grant the request for relief from

in the trips to the two places, said decision seemed accountability. We reversed the ruling and found that

logical at that time. We further held that the fact that riding the LRT cannot per se be denounced as a

two robbers attacked him in broad daylight in the jeep negligent act more so because Cruzs mode of transit

while it was on a busy highway and in the presence of was influenced by time and money

other passengers could not be said to be a result of considerations; that she boarded the LRT to be able to

his imprudence and negligence. arrive in Caloocan in time for her 3 pm meeting; that

any prudent and rational person under similar

Unlike in Hernandez where the robbery happened in a circumstance can reasonably be expected to do the

public utility, the robbery in this case took place in the same; that possession of a cellphone should not

pawnshop which is under the control of petitioners. hinder one from boarding the LRT coach as Cruz did

Petitioners had the means to screen the persons who considering that whether she rode a jeep or bus, the

were allowed entrance to the premises and to protect risk of theft would have also been present; that

itself from unlawful intrusion. Petitioners had failed to because of her relatively low position and pay, she

exercise precautionary measures in ensuring that the was not expected to have her own vehicle or to ride a

robbers were prevented from entering taxicab; she did not have a government assigned

the pawnshop and for keeping the vault open for the vehicle; that placing the cellphone in a bag away from

day, which paved the way for the robbers to easily covetous eyes and holding on to that bag as she did

cart away the pawned articles. is ordinarily sufficient care of a cellphone while

traveling on board the LRT; that the records did not
show any specific act of negligence on her part and
negligence can never be presumed.
Unlike in the Cruz case, the robbery in this
On various dates and for different amounts, Metro
Concast, a corporation duly organized and existing
under and by virtue of Philippine laws and engaged in
the business of manufacturing steel,5 through its
officers, herein individual petitioners, obtained several
loans from Allied Bank. These loan transactions were
covered by a promissory note and separate letters of
credit/trust receipts, the details of which are as
follows:

case happened in petitioners' pawnshop and they

Date Document Amount

were negligent in not exercising the precautions justly December Promissory Note
13, 1996 No. 96-213016 ₱2,000,000.00
demanded of a pawnshop.
November 7, Trust Receipt No.
1995 96-2023657 ₱608,603.04

WHEREFORE, except for the insurance May 13, Trust Receipt No.
1996 96-9605228 ₱3,753,777.40
aspect, the Decision of the Court of Appeals May 24, Trust Receipt No.
1996 96-9605249 ₱4,602,648.08
dated March 31, 2003 and its Resolution dated August
March 21, Trust Receipt No.
8, 2003, are AFFIRMED. 1997 97-20472410 ₱7,289,757.79

Trust Receipt No.

June 7, 1996 96-20328011 ₱17,340,360.73
Costs against petitioners.
July 26, Trust Receipt No.
1995 95-20194312 ₱670,709.24
SO ORDERED.
August 31, Trust Receipt No.
1995 95-20205313 ₱313,797.41

November Trust Receipt No.

G.R. No. 177921 December 4, 2013 16, 1995 96-20243914 ₱13,015,109.87

Trust Receipt No.

METRO CONCAST STEEL CORPORATION, July 3, 1996 96-20355215 ₱401,608.89
SPOUSES JOSE S. DYCHIAO AND TIUOH YAN,
SPOUSES GUILLERMO AND MERCEDES June 20, Trust Receipt No.
DYCHIAO, AND SPOUSES VICENTE AND 1995 95-20171016 ₱750,089.25
FILOMENA DYCHIAO, Petitioners,
vs. December Trust Receipt No.
ALLIED BANK CORPORATION, Respondent. 13, 1995 96-37908917 ₱92,919.00

December Trust Receipt No.

RESOLUTION
13, 1995 96/20258118 ₱224,713.58

PERLAS-BERNABE, J.:
The interest rate under Promissory Note No. 96-21301
was pegged at 15.25% per annum (p.a.), with penalty
Assailed in this petition for review on certiorari1 are
charge of 3% per month in case of default; while the
the Decision2 dated February 12, 2007 and the
twelve (12) trust receipts uniformly provided for an
Resolution3dated May 10, 2007 of the Court of Appeals
interest rate of 14% p.a. and 1% penalty charge. By
(CA) in CA-G.R. CV No. 86896 which reversed and set
way of security, the individual petitioners executed
aside the Decision4 dated January 17, 2006 of the
several Continuing Guaranty/Comprehensive Surety
Regional Trial Court of Makati, Branch 57 (RTC) in Civil
Agreements19 in favor of Allied Bank. Petitioners failed
Case No. 00-1563, thereby ordering petitioners Metro
to settle their obligations under the aforementioned
Concast Steel Corporation (Metro Concast), Spouses
promissory note and trust receipts, hence, Allied
Jose S. Dychiao and Tiu Oh Yan, Spouses Guillermo
Bank, through counsel, sent them demand
and Mercedes Dychiao, and Spouses Vicente and
letters,20 all dated December 10, 1998, seeking
Filomena Duchiao (individual petitioners) to solidarily
payment of the total amount of ₱51,064,093.62, but
pay respondent Allied Bank Corporation (Allied Bank)
to no avail. Thus, Allied Bank was prompted to file a
the aggregate amount of ₱51,064,094.28, with
applicable interests and penalty charges. complaint for collection of sum of money21 (subject
complaint) against petitioners before the RTC,
docketed as Civil Case No. 00-1563. In their
The Facts second22 Amended Answer,23petitioners admitted
their indebtedness to Allied Bank but denied liability
for the interests and penalties charged, claiming to
have paid the total sum of ₱65,073,055.73 by way of
interest charges for the period covering 1992 to
1997.24
They also alleged that the economic reverses suffered
by the Philippine economy in 1998 as well as the
devaluation of the peso against the US dollar
contributed greatly to the downfall of the steel
industry, directly affecting the business of Metro
Concast and eventually leading to its cessation.
Hence, in order to settle their debts with Allied Bank,
petitioners offered the sale of Metro Concast’s
remaining assets, consisting of machineries and
equipment, to Allied Bank, which the latter, however,
refused. Instead, Allied Bank advised them to sell the
equipment and apply the proceeds of the sale to their
outstanding obligations. Accordingly, petitioners
offered the equipment for sale, but since there were
no takers, the equipment was reduced into ferro scrap
or scrap metal over the years. In 2002, Peakstar Oil
Corporation (Peakstar), represented by one Crisanta
Camiling (Camiling), expressed interest in buying the
scrap metal. During the negotiations with Peakstar,
petitioners claimed that Atty. Peter Saw (Atty. Saw),
a member of Allied Bank’s legal department, acted as
the latter’s agent. Eventually, with the alleged
conformity of Allied Bank, through Atty. Saw, a
Memorandum of Agreement25 dated November 8,
2002 (MoA) was drawn between Metro Concast,
represented by petitioner Jose Dychiao, and Peakstar,
through Camiling, under which Peakstar obligated
itself to purchase the scrap metal for a total
consideration of ₱34,000,000.00, payable as follows:
(a) ₱4,000,000.00 by way of earnest money
– ₱2,000,000.00 to be paid in cash and the
other ₱2,000,000.00 to be paid in two (2)
post-dated checks of ₱1,000,000.00
each;26 and
(b) the balance of ₱30,000,000.00 to be paid
in ten (10) monthly installments of
₱3,000,000.00, secured by bank guarantees
from Bankwise, Inc. (Bankwise) in the form
of separate post-dated checks.27
Unfortunately, Peakstar reneged on all its obligations
under the MoA.1âwphi1 In this regard, petitioners
asseverated that:
(a) their failure to pay their outstanding loan
obligations to Allied Bank must be considered
as force majeure ; and
(b) since Allied Bank was the party that
accepted the terms and conditions of
payment proposed by Peakstar, petitioners
must therefore be deemed to have settled
their obligations to Allied Bank. To bolster
their defense, petitioner Jose Dychiao (Jose
Dychiao) testified28 during trial that it was
Atty. Saw himself who drafted the MoA and
subsequently received29 the ₱2,000,000.00
cash and the two (2) Bankwise post-dated
checks worth ₱1,000,000.00 each from
Camiling. However, Atty. Saw turned over
only the two (2) checks and ₱1,500,000.00
in cash to the wife of Jose Dychiao.30
Claiming that the subject complaint was falsely and
maliciously filed, petitioners prayed for the award of
moral damages in the amount of ₱20,000,000.00 in
favor of Metro Concast and at least ₱25,000,000.00
for each individual petitioner, ₱25,000,000.00 as
exemplary damages, ₱1,000,000.00 as attorney’s
fees, ₱500,000.00 for other litigation expenses,
including costs of suit.
The RTC Ruling
After trial on the merits, the RTC, in a Decision31 dated
January 17, 2006, dismissed the subject complaint,
holding that the "causes of action sued upon had been
paid or otherwise extinguished." It ruled that since
Allied Bank was duly represented by its agent, Atty.
Saw, in all the negotiations and transactions with
Peakstar – considering that Atty. Saw
(a) drafted the MoA,
(b) accepted the bank guarantee issued by
Bankwise, and
(c) was apprised of developments regarding
the sale and disposition of the scrap metal –
then it stands to reason that the MoA
between Metro Concast and Peakstar was
binding upon said bank.
The CA Ruling
Allied Bank appealed to the CA which, in a
Decision32 dated February 12, 2007, reversed and set
aside the ruling of the RTC, ratiocinating that there
was "no legal basis in fact and in law to declare that
when Bankwise reneged its guarantee under the
[MoA], herein [petitioners] should be deemed to be
discharged from their obligations lawfully incurred in
favor of [Allied Bank]."33
The CA examined the MoA executed between Metro
Concast, as seller of the ferro scrap, and Peakstar, as
the buyer thereof, and found that the same did not
indicate that Allied Bank intervened or was a party
thereto. It also pointed out the fact that the post-
dated checks pursuant to the MoA were issued in favor
of Jose Dychiao. Likewise, the CA found no sufficient
evidence on record showing that Atty. Saw was duly
and legally authorized to act for and on behalf of Allied
Bank, opining that the RTC was "indulging in
hypothesis and speculation"34 when it made a
contrary pronouncement. While Atty. Saw received
the earnest money from Peakstar, the receipt was
signed by him on behalf of Jose Dychiao.35
It also added that "[i]n the final analysis, the aforesaid
checks and receipts were signed by [Atty.] Saw either
as representative of [petitioners] or as partner of the
latter’s legal counsel, and not in anyway as
representative of [Allied Bank]."36
Consequently, the CA granted the appeal and directed
petitioners to solidarily pay Allied Bank their
corresponding obligations under the aforementioned
promissory note and trust receipts, plus interests,
penalty charges and attorney’s fees. Petitioners
sought reconsideration37 which was, however, denied
in a Resolution38 dated May 10, 2007. Hence, this
petition.
The Issue Before the Court
At the core of the present controversy is the sole issue
of whether or not the loan obligations incurred by the
petitioners under the subject promissory note and
various trust receipts have already been extinguished.
The Court’s Ruling
Article 1231 of the Civil Code states that obligations
are extinguished either by payment or performance,
the loss of the thing due, the condonation or remission
of the debt, the confusion or merger of the rights of
creditor and debtor, compensation or novation.
In the present case, petitioners essentially argue that
their loan obligations to Allied Bank had already been
extinguished due to Peakstar’s failure to perform its
own obligations to Metro Concast pursuant to the MoA.
Petitioners classify Peakstar’s default as a form of
force majeure in the sense that they have, beyond
their control, lost the funds they expected to have
received from the Peakstar (due to the MoA) which
they would, in turn, use to pay their own loan
obligations to Allied Bank. They further state that
Allied Bank was equally bound by Metro Concast’s MoA
with Peakstar since its agent, Atty. Saw, actively
represented it during the negotiations and execution
of the said agreement. Petitioners’ arguments are
untenable. At the outset, the Court must dispel the
notion that the MoA would have any relevance to the
performance of petitioners’ obligations to Allied Bank.
The MoA is a sale of assets contract, while petitioners’
obligations to Allied Bank arose from various loan
transactions. Absent any showing that the terms and
conditions of the latter transactions have been, in any
way, modified or novated by the terms and conditions
in the MoA, said contracts should be treated
separately and distinctly from each other, such that
the existence, performance or breach of one would not
depend on the existence, performance or breach of
the other. In the foregoing respect, the issue on
whether or not Allied Bank expressed its conformity to
the assets sale transaction between Metro Concast
and Peakstar (as evidenced by the MoA) is actually
irrelevant to the issues related to petitioners’ loan
obligations to the bank. Besides, as the CA pointed
out, the fact of Allied Bank’s representation has not
been proven in this case and hence, cannot be
deemed as a sustainable defense to exculpate
petitioners from their loan obligations to Allied Bank.
Now, anent petitioners’ reliance on force majeure,
suffice it to state that Peakstar’s breach of its
obligations to Metro Concast arising from the MoA
cannot be classified as a fortuitous event under
jurisprudential formulation. As discussed in Sicam v.
Jorge:39
Fortuitous events by definition are extraordinary
events not foreseeable or avoidable.1âwphi1 It is
therefore, not enough that the event should not have
been foreseen or anticipated, as is commonly believed
but it must be one impossible to foresee or to avoid.
The mere difficulty to foresee the happening is not
impossibility to foresee the same. To constitute a
fortuitous event, the following elements must concur:
(a) the cause of the unforeseen and unexpected
occurrence or of the failure of the debtor to comply
with obligations must be independent of human
will; (b) it must be impossible to foresee the event
that constitutes the caso fortuito or, if it can be
foreseen, it must be impossible to avoid; (c) the
occurrence must be such as to render it
impossible for the debtor to fulfill obligations in
a normal manner; and (d) the obligor must be free
from any participation in the aggravation of the injury
or loss.40(Emphases supplied)
While it may be argued that Peakstar’s breach of the
MoA was unforseen by petitioners, the same us clearly
not "impossible"to foresee or even an event which is
independent of human will." Neither has it been shown
that said occurrence rendered it impossible for
petitioners to pay their loan obligations to Allied Bank
and thus, negates the former’s force majeure theory
altogether. In any case, as earlier stated, the
performance or breach of the MoA bears no relation to
the performance or breach of the subject loan
transactions, they being separate and distinct sources
of obligations. The fact of the matter is that
petitioners’ loan obligations to Allied Bank remain
subsisting for the basic reason that the former has not
been able to prove that the same had already been
paid41 or, in any way, extinguished. In this regard,
petitioners’ liability, as adjudged by the CA, must
perforce stand. Considering, however, that Allied
Bank’s extra-judicial demand on petitioners appears
to have been made only on December 10, 1998, the
computation of the applicable interests and penalty
charges should be reckoned only from such date.
WHEREFORE, the petition is DENIED. The Decision
dated February 12, 2007 and Resolution dated May
10, 2007 of the Court of Appeals in CA-G.R. CV No.
86896 are hereby AFFIRMED with MODIFICATION
reckoning the applicable interests and penalty charges
from the date of the extrajudicial demand or on
December 10, 1998. The rest of the appellate court’s
dispositions stand.
SO ORDERED.
[G.R. No. 118180. September 20, 1996]
DEVELOPMENT BANK OF THE PHILIPPINES,
petitioner, vs. COURT OF APPEALS, Sps.
NORMY D. CARPIO and CARMEN
ORQUISA; Sps. ROLANDO D. CARPIO
and RAFAELA VILLANUEVA; Sps. ELISEO
D. CARPIO and ANUNCIACION del
 ROSARIO; LUZ C. REYES, MARIO C.
REYES, JULIET REYES-
RUBIN, respondents.
DECISION
PADILLA, J.:
This is a petition for review on certiorari under
Rule 45 of the Rules of Court which seeks to set aside
the decision[1] of the Court of Appeals (CA) dated 28
February 1994 in C.A.-G.R. CV No. 37158, as well as
the resolution dated 11 August 1994denying
petitioner's motion for reconsideration.
The facts are undisputed:
Private respondents were the original owners of
a parcel of agricultural land covered by TCT No. T-
1432, situated in Barrio Capucao, Ozamis City, with
an area of 113,695 square meters, more or less.
On 30 May 1977, private respondents
mortgaged said land to petitioner. When private
respondents defaulted on their obligation, petitioner
foreclosed the mortgage on the land and emerged as
sole bidder in the ensuing auction sale.Consequently,
Transfer Certificate of Title No. T-10913 was
eventually issued in petitioner's name.
On 6 April 1984, petitioner and private
respondents entered into a Deed of Conditional Sale
wherein petitioner agreed to reconvey the foreclosed
property to private respondents.
The pertinent stipulations of the Deed provided
that:
"WHEREAS, the VENDOR acquired a parcel of land in
an auction sale by the City Sheriff of Ozamiz City,
pursuant to Act 3135, as amended, and subject to the
redemption period pursuant to CA 141, described as
follows:
xxx xxx xxx
WHEREAS, the VENDEES offered to repurchase and
the VENDOR agreed to sell the above-described
property, subject to the terms and stipulations as
hereinafter stipulated, for the sum of SEVENTY THREE
THOUSAND SEVEN HUNDRED ONLY (P73,700.00),
with a down payment of P8,900.00 and the balance
of P64,800 shall be payable in six (6) years on equal
quarterly amortization plan at 18% interest per
annum. The first quarterly amortization of P4,470.36
shall be payable three months from the date of the
execution of the documents and all subsequent
amortization shall be due and payable every quarter
thereafter.
xxx xxx xxx
That, upon completion of the payment herein
stipulated and agreed, the Vendor agrees to deliver to
the Vendee/s(,) his heirs, administrators and
assigns(,) a good and sufficient deed of conveyance
covering the property, subject matter of this deed of
conditional sale, in accordance with the provisions of
law." (Exh. "A", p. 5, Records)[2]
On 6 April 1990, upon completing the payment
of the full repurchase price, private respondents
demanded from petitioner the execution of a Deed of
Conveyance in their favor.
Petitioner then informed private respondents
that the prestation to execute and deliver a deed of
conveyance in their favor had become legally
impossible in view of Sec. 6 of Rep. Act 6657 (the
Comprehensive Agrarian Reform Law or CARL)
approved 10 June 1988, and Sec. 1 of E.O. 407 issued
10 June 1990.
Aggrieved, private respondents filed a complaint
for specific performance with damages against
petitioner before
the Regional Trial Court of Ozamis City, Branch
XV. During the pre-trial, the trial court narrowed down
the issue to whether or not Sec. 6 of the CARL (Rep.
Act 6657) had rendered legally impossible compliance
by petitioner with its obligation to execute a deed of
conveyance of the subject land in favor of private
respondents. The trial court ordered both parties to
file their separate memorandum and deemed the case
submitted for decision thereafter.
On 30 January 1992, the trial court rendered
judgment, the dispositive part of which reads:
"WHEREFORE, judgment is rendered ordering
defendant to execute and deliver unto plaintiffs a deed
of final sale of the land subject of their deed of
conditional sale - Lot 5259-A, to pay
plaintiffs P10,000.00 as nominal damages, P5,000.00
as attorney's fees, P3,000.00 as litis expenses and
costs."[3]
The trial court held that petitioner interpreted
the fourth paragraph of Sec. 6, Rep. Act 6657 literally
in conjunction with Sec. 1 of E.O. 407.
The fourth paragraph of Sec. 6, Rep. Act 6657
states that:
"Upon the effectivity of this Act, any sale disposition,
lease, management contract or transfer of possession
of private lands executed by the original landowner in
violation of this act shall be null and void; Provided,
however, that those executed prior to this act shall be
valid only when registered with the Register of Deeds
after the effectivity of this Act. Thereafter, all Register
of Deeds shall inform the DAR within 320 days of any
transaction involving agricultural lands in excess of
five hectares."
while Sec. 1 of E.O. 407 states that:
"Sec. 1. All government instrumentalities but not
limited to x x x financial institutions such as the DBP
x x x shall immediately execute deeds of transfer in
favor of the Republic of the Philippines as represented
by the Department of Agrarian Reform and surrender
to the department all landholdings suitable for
agriculture."
The court a quo noted that Sec. 6 of Rep. Act
6657, taken in its entirety, is a provision dealing
primarily with retention limits in agricultural land
allowed the landowner and his family and that the
fourth paragraph, which nullifies any sale x x x by
the original landowner in violation of the Act, does not
cover the sale by petitioner (not the original land
owner) to private respondents.
On the other hand, according to the trial court,
E.O. 407 took effect on 10 June 1990. But private
respondents completed payment of the price for the
property, object of the conditional sale, as early as 6
April 1990. Hence, with the fulfillment of the condition
for the sale, the land covered thereby, was detached
from the mass of foreclosed properties held by DBP,
and, therefore, fell beyond the ambit or reach of E.O.
407.
Dissatisfied, petitioner appealed to the Court of
Appeals (CA), still insisting that its obligation to
execute a Deed of Sale in favor of private respondents
had become a legal impossibility and that the non-
impairment clause of the Constitution must yield to
the demands of police power.
On 28 February 1994, the CA rendered
judgment dismissing petitioner's appeal on the basis
of the following disquisitions:
"It is a rule that if the obligation depends upon a
suspensive condition, the demandability as well as the
acquisition or effectivity of the rights arising from the
obligation is suspended pending the happening or
fulfillment of the fact or event which constitutes the
condition. Once the event which constitutes the
condition is fulfilled resulting in the effectivity of the
obligation, its effects retroact to the moment when the
essential elements which gave birth to the obligation
have taken place (8 Manresa, 5th Ed. Bk.
1, pa. 33). Applying this precept to the case, the full
payment by the appellee on April 6, 1990 retroacts to
the time the contract of conditional sale was executed
on April 6, 1984. From that time, all elements of the
contract of sale were present. Consequently, the
contract of sale was perfected. As such, the said sale
does not come under the coverage of R.A. 6657.
It is likewise interesting to note that despite the
mandate of Sec. 1, R.A. 6657, appellant continued to
accept the payments made by the appellee until it was
fully paid on April 6, 1990. All that the appellant has
to do now is to execute the final deed of sale in favor
of the appellee. To follow the line of argument of the
appellant would only result in an unconscionable
injury to the appellee. Obligations arising from
contracts have the force of law between the
contracting parties and should be complied with in
good faith (Flavio Macasaet & Associates, Inc. vs.
Commission on Audit, 173 SCRA 352).
Going now to E.O. 407, We hold that the same can
neither affect appellant's obligation under the deed of
conditional sale. Under the said law, appellant is
required to transfer to the Republic of
the Philippines 'all lands foreclosed' effective June 10,
1990. Under the facts obtaining, the subject property
has ceased to belong to the mass of foreclosed
property falling within the reach of said law. As earlier
explained, the property has already been sold to
herein appellees even before the said E.O. has been
enacted. On this same reason, We therefore need not
delve on the applicability of DBP Circular No. 11."[4]
In the present petition for review on certiorari,
petitioner still insists on its position that Rep. Act
6657, E.O. 407 and DBP Circular No. 11 rendered its
obligation to execute a Deed of Sale to private
respondents "a legal impossibility."[5] Petitioner also
questions the award of attorney's fees, nominal
damages, and costs in favor of private respondents,
as not in accord with law and the evidence.[6]
We rule in favor of private respondents.
In conditional obligations, the acquisition of
rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of
the event which constitutes the condition.[7]
The deed of conditional sale between petitioner
and private respondents was executed on 6 April
1984. Private respondents had religiously paid the
agreed installments on the property until they
completed payment on 6 April 1990. Petitioner, in
fact, allowed private respondents to fulfill the
condition of effecting full payment, and invoked
Section 6 of Rep. Act 6657 only afterprivate
respondents, having fully paid the repurchase price,
demanded the execution of a Deed of Sale in their
favor.
It will be noted that Rep. Act 6657 was enacted
on 10 June 1988. Following petitioner's argument in
this case, its prestation to execute the deed of sale
was rendered legally impossible by Section 6 of said
law. In other words, the deed of conditional sale was
extinguished by a supervening event, giving rise to an
impossibility of performance.
We reject petitioner's contention as we rule - as
the trial court and CA have correctly ruled - that
neither Sec. 6 of Rep. Act 6657 nor Sec. 1 of E.O. 407
was intended to impair the obligation of contract
petitioner had much earlier concluded with private
respondents.
More specifically, petitioner cannot invoke the
last paragraph of Sec. 6 of Rep. Act 6657 to set aside
its obligations already existing prior to its
enactment. In the first place, said last paragraph
clearly deals with "any sale, lease, management
contract or transfer or possession of private lands
executed by the original land owner." The original
owner in this case is not the petitioner but the private
respondents. Petitioner acquired the land through
foreclosure proceedings but agreed thereafter to
reconvey it to private respondents, albeit
conditionally.
As earlier stated, Sec. 6 of Rep. Act 6657 in its
entirety deals with retention limits allowed by law to
small landowners. Since the property here involved is
more or less ten (10) hectares, it is then within the
jurisdiction of the Department of Agrarian Reform
(DAR) to determine whether or not the property can
be subjected to agrarian reform. But this necessitates
an entirely different proceeding.
The CARL (Rep. Act 6657) was not intended to
take away property without due process of law. Nor is
it intended to impair the obligation of contracts. In the
same manner must E.O. 407 be regarded. It was
enacted two (2) months after private respondents had
legally fulfilled the condition in the contract of
conditional sale by the payment of all installments on
their due dates. These laws cannot have retroactive
effect unless there is an express provision in them to
that effect.[8]
As to petitioner's contention, however, that the
CA erred in affirming the trial court's decision
awarding nominal damages, and attorney's fees to
private respondents, we rule in favor of petitioner.
It appears that the core issue in this case, being
a pure question of law, did not reach the trial stage as
the case was submitted for decision after pre-trial.
The award of attorney's fees under Article 2208
of the Civil Code is more of an exception to the general
rule that it is not sound policy to place a penalty on
the right to litigate. While judicial discretion in the
award of attorney's fees is not entirely left out, the
same, as a rule, must have a factual, legal or equitable
justification. The matter cannot and should not be left
to speculation and conjecture.[9]
As aptly stated in the Mirasol case:
"x x x The matter of attorney's fees cannot be touched
once and only in the dispositive portion of the
decision. The text itself must expressly state the
reason why attorney's fees are being awarded. The
court, after reading through the text of the appealed
decision, finds the same bereft of any findings of fact
and law to justify the award of attorney's fees. The
matter of such fees was touched but once and appears
only in the dispositive portion of the decision. Simply
put, the text of the decision did not state the reason
why attorney's fees are being awarded, and for this
reason, the Court finds it necessary to disallow the
same for being conjectural."[10]
While DBP committed egregious error in
interpreting Sec. 6 of RA 6657, the same is not
equivalent to gross and evident bad faith when it
refused to execute the deed of sale in favor of private
respondents.
For the same reasons stated above, the award of
nominal damages in the amount of P10,000.00 should
also be deleted.
The amount of P3,000.00 as litigation expenses
and costs against petitioner must remain.
WHEREFORE, premises considered, the petition
is hereby DENIED, and the decision of the CA is hereby
AFFIRMED, for lack of any reversible error, with the
MODIFICATION that attorney's fees and nominal
damages awarded to private respondents are hereby
DELETED.
SO ORDERED.
G.R. No. 112127 July 17, 1995
CENTRAL PHILIPPINE UNIVERSITY, petitioner,
vs.
COURT OF APPEALS, REMEDIOS FRANCO,
FRANCISCO N. LOPEZ, CECILIA P. VDA. DE
LOPEZ, REDAN LOPEZ AND REMARENE
LOPEZ, respondents.
BELLOSILLO, J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition
for review on certiorari of the decision of the Court of
Appeals which reversed that of the Regional Trial
Court of Iloilo City directing petitioner to reconvey to
private respondents the property donated to it by their
predecessor-in-interest.
Sometime in 1939, the late Don Ramon Lopez, Sr.,
who was then a member of the Board of Trustees of
the Central Philippine College (now Central Philippine
University [CPU]), executed a deed of donation in
favor of the latter of a parcel of land identified as Lot
No. 3174-B-1 of the subdivision plan Psd-1144, then
a portion of Lot No. 3174-B, for which Transfer
Certificate of Title No. T-3910-A was issued in the
name of the donee CPU with the following annotations
copied from the deed of donation —
1. The land described shall be
utilized by the CPU exclusively for
the establishment and use of a
medical college with all its buildings
as part of the curriculum;
2. The said college shall not sell,
transfer or convey to any third party
nor in any way encumber said land;
3. The said land shall be called
"RAMON LOPEZ CAMPUS", and the
said college shall be under
obligation to erect a cornerstone
bearing that name. Any net income
from the land or any of its parks
shall be put in a fund to be known
as the "RAMON LOPEZ CAMPUS
FUND" to be used for improvements
of said campus and erection of a
building thereon.1
On 31 May 1989, private respondents, who are the
heirs of Don Ramon Lopez, Sr., filed an action for
annulment of donation, reconveyance and damages
against CPU alleging that since 1939 up to the time
the action was filed the latter had not complied with
the conditions of the donation. Private respondents
also argued that petitioner had in fact negotiated with
the National Housing Authority (NHA) to exchange the
donated property with another land owned by the
latter.
In its answer petitioner alleged that the right of
private respondents to file the action had prescribed;
that it did not violate any of the conditions in the deed
of donation because it never used the donated
property for any other purpose than that for which it
was intended; and, that it did not sell, transfer or
convey it to any third party.
On 31 May 1991, the trial court held that petitioner
failed to comply with the conditions of the donation
and declared it null and void. The court a quo further
directed petitioner to execute a deed of the
reconveyance of the property in favor of the heirs of
the donor, namely, private respondents herein.
Petitioner appealed to the Court of Appeals which on
18 June 1993 ruled that the annotations at the back
of petitioner's certificate of title were resolutory
conditions breach of which should terminate the rights
of the donee thus making the donation revocable.
The appellate court also found that while the first
condition mandated petitioner to utilize the donated
property for the establishment of a medical school, the
donor did not fix a period within which the condition
must be fulfilled, hence, until a period was fixed for
the fulfillment of the condition, petitioner could not be
considered as having failed to comply with its part of
the bargain. Thus, the appellate court rendered its
decision reversing the appealed decision and
remanding the case to the court of origin for the
determination of the time within which petitioner
should comply with the first condition annotated in the
certificate of title.
Petitioner now alleges that the Court of Appeals erred:
(a) in holding that the quoted annotations in the
certificate of title of petitioner are onerous obligations
and resolutory conditions of the donation which must
be fulfilled non-compliance of which would render the
donation revocable; (b) in holding that the issue of
prescription does not deserve "disquisition;" and, (c)
in remanding the case to the trial court for the fixing
of the period within which petitioner would establish a
medical college.2
We find it difficult to sustain the petition. A clear
perusal of the conditions set forth in the deed of
donation executed by Don Ramon Lopez, Sr., gives us
no alternative but to conclude that his donation was
onerous, one executed for a valuable consideration
which is considered the equivalent of the donation
itself, e.g., when a donation imposes a burden
equivalent to the value of the donation. A gift of land
to the City of Manila requiring the latter to erect
schools, construct a children's playground and open
streets on the land was considered an onerous
donation.3 Similarly, where Don Ramon Lopez
donated the subject parcel of land to petitioner but
imposed an obligation upon the latter to establish a
medical college thereon, the donation must be for an
onerous consideration.
Under Art. 1181 of the Civil Code, on conditional
obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall
depend upon the happening of the event which
constitutes the condition. Thus, when a person
donates land to another on the condition that the
latter would build upon the land a school, the condition
imposed was not a condition precedent or a
suspensive condition but a resolutory one.4 It is not
correct to say that the schoolhouse had to be
constructed before the donation became effective,
that is, before the donee could become the owner of
the land, otherwise, it would be invading the property
rights of the donor. The donation had to be valid
before the fulfillment of the condition.5 If there was no
fulfillment or compliance with the condition, such as
what obtains in the instant case, the donation may
now be revoked and all rights which the donee may
have acquired under it shall be deemed lost and
extinguished.
The claim of petitioner that prescription bars the
instant action of private respondents is unavailing.
The condition imposed by the donor, i.e., the
building of a medical school upon the land
donated, depended upon the exclusive will of
the donee as to when this condition shall be
fulfilled. When petitioner accepted the
donation, it bound itself to comply with the
condition thereof. Since the time within
which the condition should be fulfilled
depended upon the exclusive will of the
petitioner, it has been held that its absolute
acceptance and the acknowledgment of its
obligation provided in the deed of donation
were sufficient to prevent the statute of
limitations from barring the action of private
respondents upon the original contract which
was the deed of donation.6
Moreover, the time from which the cause of action
accrued for the revocation of the donation and
recovery of the property donated cannot be
specifically determined in the instant case. A cause of
action arises when that which should have been done
is not done, or that which should not have been done
is done.7 In cases where there is no special provision
for such computation, recourse must be had to the
rule that the period must be counted from the day on
which the corresponding action could have been
instituted. It is the legal possibility of bringing the
action which determines the starting point for the
computation of the period. In this case, the starting
point begins with the expiration of a reasonable period
and opportunity for petitioner to fulfill what has been
charged upon it by the donor.
The period of time for the establishment of a medical
college and the necessary buildings and
improvements on the property cannot be quantified in
a specific number of years because of the presence of
several factors and circumstances involved in the
erection of an educational institution, such as
government laws and regulations pertaining to
education, building requirements and property
restrictions which are beyond the control of the donee.
Thus, when the obligation does not fix a period but
from its nature and circumstances it can be inferred
that a period was intended, the general rule provided
in Art. 1197 of the Civil Code applies, which provides
that the courts may fix the duration thereof because
the fulfillment of the obligation itself cannot be
demanded until after the court has fixed the period for
compliance therewith and such period has arrived.8
This general rule however cannot be applied
considering the different set of circumstances existing
in the instant case. More than a reasonable period of
fifty (50) years has already been allowed petitioner to
avail of the opportunity to comply with the condition
even if it be burdensome, to make the donation in its
favor forever valid. But, unfortunately, it failed to do
so. Hence, there is no more need to fix the duration
of a term of the obligation when such procedure would
be a mere technicality and formality and would serve
no purpose than to delay or lead to an unnecessary
and expensive multiplication of suits. 9 Moreover,
under Art. 1191 of the Civil Code, when one of the
obligors cannot comply with what is incumbent upon
him, the obligee may seek rescission and the court
shall decree the same unless there is just cause
authorizing the fixing of a period. In the absence of
any just cause for the court to determine the period
of the compliance, there is no more obstacle for the
court to decree the rescission claimed.
Finally, since the questioned deed of donation herein
is basically a gratuitous one, doubts referring to
incidental circumstances of a gratuitous contract
should be resolved in favor of the least transmission
of rights and interests. 10Records are clear and facts
are undisputed that since the execution of the deed of
donation up to the time of filing of the instant action,
petitioner has failed to comply with its obligation as
donee. Petitioner has slept on its obligation for an
unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already
ineffective and, for all purposes, revoked so that
petitioner as donee should now return the donated
property to the heirs of the donor, private respondents
herein, by means of reconveyance.
WHEREFORE, the decision of the Regional Trial Court
of Iloilo, Br. 34, of 31 May 1991 is REINSTATED and
AFFIRMED, and the decision of the Court of Appeals of
18 June 1993 is accordingly MODIFIED. Consequently,
petitioner is directed to reconvey to private
respondents Lot No. 3174-B-1 of the subdivision plan
Psd-1144 covered by Transfer Certificate of Title No.
T-3910-A within thirty (30) days from the finality of
this judgment.
Costs against petitioner.
SO ORDERED.
Quiason and Kapunan, JJ., concur.
Separate Opinions
DAVIDE, JR., J., dissenting:
I agree with the view in the majority opinion that the
donation in question is onerous considering the
conditions imposed by the donor on the donee which
created reciprocal obligations upon both parties.
Beyond that, I beg to disagree.
First of all, may I point out an inconsistency in the
majority opinion's description of the donation in
question. In one part, it says that the donation in
question is onerous. Thus, on page 4 it states:
We find it difficult to sustain the
petition. A clear perusal of the
conditions set forth in the deed of
donation executed by Don Ramon
Lopez, Sr., give us no alternative
but to conclude that his donation
was onerous, one executed for a
valuable consideration which is
considered the equivalent of the
donation itself, e.g., when a
donation imposes a burden
equivalent to the value of the
donation . . . . (emphasis supplied)
Yet, in the last paragraph of page 8 it states
that the donation is basically a gratuitous
one. The pertinent portion thereof reads:
Finally, since the questioned deed of
donation herein is basically a
gratuitous one, doubts referring to
incidental circumstances of
a gratuitous contract should be
resolved in favor of the least
transmission of rights and interest .
. . (emphasis supplied)
Second, the discussion on conditional obligations is
unnecessary. There is no conditional obligation to
speak of in this case. It seems that the "conditions"
imposed by the donor and as the word is used in the
law of donations is confused with "conditions" as used
in the law of obligations. In his annotation of Article
764 of the Civil Code on Donations, Arturo M.
Tolentino, citing the well-known civilists such as
Castan, Perez Gonzalez and Alguer, and Colin &
Capitant, states clearly the context within which the
term "conditions" is used in the law of donations, to
wit:
The word "conditions" in this article
does not refer to uncertain events
on which the birth or
extinguishment of a juridical
relation depends, but is used in the
vulgar sense of obligations or
chargesimposed by the donor on
the donee. It is used, not in its
technical or strict legal sense, but in
its broadest sense.1 (emphasis
supplied)
Clearly then, when the law and the deed of donation
speaks of "conditions" of a donation, what are referred
to are actually the obligations, charges or burdens
imposed by the donor upon the donee and which
would characterize the donation as onerous. In the
present case, the donation is, quite obviously,
onerous, but it is more properly called a "modal
donation." A modal donation is one in which the donor
imposes a prestation upon the donee. The
establishment of the medical college as the condition
of the donation in the present case is one such
prestation.
The conditions imposed by the donor Don Ramon
Lopez determines neither the existence nor the
extinguishment of the obligations of the donor and the
donee with respect to the donation. In fact, the
conditions imposed by Don Ramon Lopez upon the
donee are the very obligations of the donation — to
build the medical college and use the property for the
purposes specified in the deed of donation. It is very
clear that those obligations are unconditional, the
fulfillment, performance, existence or extinguishment
of which is not dependent on any future or uncertain
event or past and unknown event, as the Civil Code
would define a conditional obligation.2
Reliance on the case of Parks vs. Province of
Tarlac3 as cited on page 5 of the majority opinion is
erroneous in so far as the latter stated that the
condition in Parks is a resolutory one and applied this
to the present case. A more careful reading of this
Court's decision would reveal that nowhere did we
say, whether explicitly or impliedly, that the donation
in that case, which also has a condition imposed to
build a school and a public park upon the property
donated, is a resolutory condition.4 It is incorrect to
say that the "conditions" of the donation there or in
the present case are resolutory conditions because,
applying Article 1181 of the Civil Code, that would
mean that upon fulfillment of the conditions, the rights
already acquired will be extinguished. Obviously, that
could not have been the intention of the parties.
What the majority opinion probably had in mind was
that the conditions are resolutory because if they
are notcomplied with, the rights of the donee as such
will be extinguished and the donation will be revoked.
To my mind, though, it is more accurate to state that
the conditions here are not resolutory conditions but,
for the reasons stated above,
are the obligations imposed by the donor.
Third, I cannot subscribe to the view that the
provisions of Article 1197 cannot be applied here. The
conditions/obligations imposed by the donor herein
are subject to a period. I draw this conclusion based
on our previous ruling which, although made almost
90 years ago, still finds application in the present
case. In Barretto vs. City of Manila,5 we said that
when the contract of donation, as the one involved
therein, has no fixed period in which the condition
should be fulfilled, the provisions of what is now Article
1197 (then Article 1128) are applicable and it is the
duty of the court to fix a suitable time for its
fulfillment. Indeed, from the nature and
circumstances of the conditions/obligations of the
present donation, it can be inferred that a period was
contemplated by the donor. Don Ramon Lopez could
not have intended his property to remain idle for a
long period of time when in fact, he specifically
burdened the donee with the obligation to set up a
medical college therein and thus put his property to
good use. There is a need to fix the duration of the
time within which the conditions imposed are to be
fulfilled.
It is also important to fix the duration or period for the
performance of the conditions/obligations in the
donation in resolving the petitioner's claim that
prescription has already barred the present action. I
disagree once more with the ruling of the majority that
the action of the petitioners is not barred by the
statute of limitations. There is misplaced reliance
again on a previous decision of this Court in Osmeña
vs. Rama.6 That case does not speak of a deed of
donation as erroneously quoted and cited by the
majority opinion. It speaks of a contract for a sum of
money where the debtor herself imposed a condition
which will determine when she will fulfill her obligation
to pay the creditor, thus, making the fulfillment of her
obligation dependent upon her will. What we have
here, however, is not a contract for a sum of money
but a donation where the donee has not imposed any
conditions on the fulfillment of its obligations.
Although it is admitted that the fulfillment of the
conditions/obligations of the present donation may be
dependent on the will of the donee as to when it will
comply therewith, this did not arise out of a condition
which the donee itself imposed. It is believed that the
donee was not meant to and does not have absolute
control over the time within which it will perform its
obligations. It must still do so within a reasonable
time. What that reasonable time is, under the
circumstances, for the courts to determine. Thus, the
mere fact that there is no time fixed as to when the
conditions of the donation are to be fulfilled does
not ipso facto mean that the statute of limitations will
not apply anymore and the action to revoke the
donation becomes imprescriptible.
Admittedly, the donation now in question is an
onerous donation and is governed by the law on
contracts (Article 733) and the case of Osmeña, being
one involving a contract, may apply. But we must not
lose sight of the fact that it is still a donation for which
this Court itself applied the pertinent law to resolve
situations such as this. That the action to revoke the
donation can still prescribe has been the
pronouncement of this Court as early as 1926 in the
case of Parks which, on this point, finds relevance in
this case. There, this Court said,
[that] this action [for the revocation
of the donation] is prescriptible,
there is no doubt. There is no legal
provision which excludes this class
of action from the statute of
limitations. And not only this, the
law itself recognizes the
prescriptibility of the action for the
revocation of a donation, providing
a special period of [four] years for
the revocation by the subsequent
birth of children [Art. 646, now Art.
763], and . . . by reason of
ingratitude. If no special period is
provided for the prescription of the
action for revocation for
noncompliance of the conditions of
the donation [Art. 647, now Art.
764], it is because in this respect
the donation is considered onerous
and is governed by the law of
contracts and the general rules of
prescription.7
More recently, in De Luna v. Abrigo,8 this Court
reiterated the ruling in Parks and said that:
 It is true that under Article 764 of
the New Civil Code, actions for the
revocation of a donation must be
brought within four (4) years from
the non-compliance of the
conditions of the donation.
However, it is Our opinion that said
article does not apply to onerous
donations in view of the specific
provision of Article 733 providing
that onerous donations are
governed by the rules on contracts.
In the light of the above, the rules
on contracts and the general rules
on prescription and not the rules on
donations are applicable in the case
at bar.
The law applied in both cases is Article 1144(1). It
refers to the prescription of an action upon a written
contract, which is what the deed of an onerous
donation is. The prescriptive period is ten years from
the time the cause of action accrues, and that is, from
the expiration of the time within which the donee must
comply with the conditions/obligations of the
donation. As to when this exactly is remains to be
determined, and that is for the courts to do as reposed
upon them by Article 1197.
For the reasons expressed above, I register my
dissent. Accordingly, the decision of the Court of
Appeals must be upheld, except its ruling that the
conditions of the donation are resolutory.
Padilla, J., dissents
Separate Opinions
DAVIDE, JR., J., dissenting:
I agree with the view in the majority opinion that the
donation in question is onerous considering the
conditions imposed by the donor on the donee which
created reciprocal obligations upon both parties.
Beyond that, I beg to disagree.
First of all, may I point out an inconsistency in the
majority opinion's description of the donation in
question. In one part, it says that the donation in
question is onerous. Thus, on page 4 it states:
We find it difficult to sustain the
petition. A clear perusal of the
conditions set forth in the deed of
donation executed by Don Ramon
Lopez, Sr., give us no alternative
but to conclude that his donation
was onerous, one executed for a
valuable consideration which is
considered the equivalent of the
donation itself, e.g., when a
donation imposes a burden
equivalent to the value of the
donation . . . . (emphasis supplied)
Yet, in the last paragraph of page 8 it states
that the donation is basically a gratuitous
one. The pertinent portion thereof reads:
Finally, since the questioned deed of
donation herein is basically a
gratuitous one, doubts referring to
incidental circumstances of
a gratuitous contract should be
resolved in favor of the least
transmission of rights and interest .
. . (emphasis supplied)
Second, the discussion on conditional obligations is
unnecessary. There is no conditional obligation to
speak of in this case. It seems that the "conditions"
imposed by the donor and as the word is used in the
law of donations is confused with "conditions" as used
in the law of obligations. In his annotation of Article
764 of the Civil Code on Donations, Arturo M.
Tolentino, citing the well-known civilists such as
Castan, Perez Gonzalez and Alguer, and Colin &
Capitant, states clearly the context within which the
term "conditions" is used in the law of donations, to
wit:
The word "conditions" in this article
does not refer to uncertain events
on which the birth or
extinguishment of a juridical
relation depends, but is used in the
vulgar sense of obligations or
chargesimposed by the donor on
the donee. It is used, not in its
technical or strict legal sense, but in
its broadest sense.1 (emphasis
supplied)
Clearly then, when the law and the deed of donation
speaks of "conditions" of a donation, what are referred
to are actually the obligations, charges or burdens
imposed by the donor upon the donee and which
would characterize the donation as onerous. In the
present case, the donation is, quite obviously,
onerous, but it is more properly called a "modal
donation." A modal donation is one in which the donor
imposes a prestation upon the donee. The
establishment of the medical college as the condition
of the donation in the present case is one such
prestation.
The conditions imposed by the donor Don Ramon
Lopez determines neither the existence nor the
extinguishment of the obligations of the donor and the
donee with respect to the donation. In fact, the
conditions imposed by Don Ramon Lopez upon the
donee are the very obligations of the donation — to
build the medical college and use the property for the
purposes specified in the deed of donation. It is very
clear that those obligations are unconditional, the
fulfillment, performance, existence or extinguishment
of which is not dependent on any future or uncertain
event or past and unknown event, as the Civil Code
would define a conditional obligation.2
Reliance on the case of Parks vs. Province of
Tarlac3 as cited on page 5 of the majority opinion is
erroneous in so far as the latter stated that the
condition in Parks is a resolutory one and applied this
to the present case. A more careful reading of this
Court's decision would reveal that nowhere did we
say, whether explicitly or impliedly, that the donation
in that case, which also has a condition imposed to
build a school and a public park upon the property
donated, is a resolutory condition.4 It is incorrect to
say that the "conditions" of the donation there or in
the present case are resolutory conditions because,
applying Article 1181 of the Civil Code, that would
mean that upon fulfillment of the conditions, the rights
already acquired will be extinguished. Obviously, that
could not have been the intention of the parties.
What the majority opinion probably had in mind was
that the conditions are resolutory because if they
are notcomplied with, the rights of the donee as such
will be extinguished and the donation will be revoked.
To my mind, though, it is more accurate to state that
the conditions here are not resolutory conditions but,
for the reasons stated above,
are the obligations imposed by the donor.
Third, I cannot subscribe to the view that the
provisions of Article 1197 cannot be applied here. The
conditions/obligations imposed by the donor herein
are subject to a period. I draw this conclusion based
on our previous ruling which, although made almost
90 years ago, still finds application in the present
case. In Barretto vs. City of Manila,5 we said that
when the contract of donation, as the one involved
therein, has no fixed period in which the condition
should be fulfilled, the provisions of what is now Article
1197 (then Article 1128) are applicable and it is the
duty of the court to fix a suitable time for its
fulfillment. Indeed, from the nature and
circumstances of the conditions/obligations of the
present donation, it can be inferred that a period was
contemplated by the donor. Don Ramon Lopez could
not have intended his property to remain idle for a
long period of time when in fact, he specifically
burdened the donee with the obligation to set up a
medical college therein and thus put his property to
good use. There is a need to fix the duration of the
time within which the conditions imposed are to be
fulfilled.
It is also important to fix the duration or period for the
performance of the conditions/obligations in the
donation in resolving the petitioner's claim that
prescription has already barred the present action. I
disagree once more with the ruling of the majority that
the action of the petitioners is not barred by the
statute of limitations. There is misplaced reliance
again on a previous decision of this Court in Osmeña
vs. Rama.6 That case does not speak of a deed of
donation as erroneously quoted and cited by the
majority opinion. It speaks of a contract for a sum of
money where the debtor herself imposed a condition
which will determine when she will fulfill her obligation
to pay the creditor, thus, making the fulfillment of her
obligation dependent upon her will. What we have
here, however, is not a contract for a sum of money
but a donation where the donee has not imposed any
conditions on the fulfillment of its obligations.
Although it is admitted that the fulfillment of the
conditions/obligations of the present donation may be
dependent on the will of the donee as to when it will
comply therewith, this did not arise out of a condition
which the donee itself imposed. It is believed that the
donee was not meant to and does not have absolute
control over the time within which it will perform its
obligations. It must still do so within a reasonable
time. What that reasonable time is, under the
circumstances, for the courts to determine. Thus, the
mere fact that there is no time fixed as to when the
conditions of the donation are to be fulfilled does
not ipso facto mean that the statute of limitations will
not apply anymore and the action to revoke the
donation becomes imprescriptible.
Admittedly, the donation now in question is an
onerous donation and is governed by the law on
contracts (Article 733) and the case of Osmeña, being
one involving a contract, may apply. But we must not
lose sight of the fact that it is still a donation for which
this Court itself applied the pertinent law to resolve
situations such as this. That the action to revoke the
donation can still prescribe has been the
pronouncement of this Court as early as 1926 in the
case of Parks which, on this point, finds relevance in
this case. There, this Court said,
[that] this action [for the revocation
of the donation] is prescriptible,
there is no doubt. There is no legal
provision which excludes this class
of action from the statute of
limitations. And not only this, the
law itself recognizes the
prescriptibility of the action for the
revocation of a donation, providing
a special period of [four] years for
the revocation by the subsequent
birth of children [Art. 646, now Art.
763], and . . . by reason of
ingratitude. If no special period is
provided for the prescription of the
action for revocation for
noncompliance of the conditions of
the donation [Art. 647, now Art.
764], it is because in this respect
the donation is considered onerous
and is governed by the law of
contracts and the general rules of
prescription.7
More recently, in De Luna v. Abrigo,8 this Court
reiterated the ruling in Parks and said that:
It is true that under Article 764 of
the New Civil Code, actions for the
revocation of a donation must be
brought within four (4) years from
the non-compliance of the
conditions of the donation.
However, it is Our opinion that said
article does not apply to onerous
donations in view of the specific
provision of Article 733 providing
that onerous donations are
governed by the rules on contracts.
In the light of the above, the rules
on contracts and the general rules
on prescription and not the rules on
donations are applicable in the case
at bar.
The law applied in both cases is Article 1144(1). It
refers to the prescription of an action upon a written
contract, which is what the deed of an onerous
donation is. The prescriptive period is ten years from
the time the cause of action accrues, and that is, from
the expiration of the time within which the donee must
comply with the conditions/obligations of the
donation. As to when this exactly is remains to be
determined, and that is for the courts to do as reposed
upon them by Article 1197.
For the reasons expressed above, I register my
dissent. Accordingly, the decision of the Court of
Appeals must be upheld, except its ruling that the
conditions of the donation are resolutory.
Padilla, J., dissents
G.R. No. 169694, December 09, 2015
MEGAWORLD PROPERTIES AND HOLDINGS,
INC., EMPIRE EAST LAND HOLDINGS, INC., AND
ANDREW L. TAN, Petitioners, v. MAJESTIC
FINANCE AND INVESTMENT CO., INC., RHODORA
LOPEZ-LIM, AND PAULINA CRUZ, Respondents.
DECISION
BERSAMIN, J.:
This case arises from a dispute on whether either
party of a joint venture agreement to develop
property into a residential subdivision has already
performed its obligation as to entitle it to demand the
performance of the other's reciprocal
obligation.chanRoblesvirtualLawlibrary
The Case
Under review is the decision promulgated on April 27,
2005,1 whereby the Court of Appeals (CA) upheld the
order issued on November 5, 2002 by the Regional
Trial Court, Branch 67, in Pasig City (RTC) in Civil Case
No. 67813 directing the defendants (petitioners
herein) to perform their obligation to provide round-
the-clock security for the property under
development.2 Also appealed is the resolution
promulgated on September 12, 2005 denying the
petitioners' motion for
reconsideration.3chanRoblesvirtualLawlibrary
Antecedents
On September 23, 1994, Megaworld Properties and
Holdings, Inc. (developer) entered into a Joint Venture
Agreement (JVA)4 with Majestic Finance and
Investment Co., Inc. (owner) for the development of
the residential subdivision located in Brgy. Alingaro,
General Trias, Cavite. According to the JVA, the
development of the 215 hectares of land belonging to
the owner (joint venture property) would be for the
sole account of the developer;5 and that upon
completion of the development of the subdivision, the
owner would compensate the developer in the form of
saleable residential subdivision lots.6 The JVA further
provided that the developer would advance all the
costs for the relocation and resettlement of the
occupants of the joint venture property, subject to
reimbursement by the owner;7 and that the developer
would deposit the initial amount of P10,000,000.00 to
defray the expenses for the relocation and settlement,
and the costs for obtaining from the Government the
exemptions and conversion permits, and the required
clearances.8chanroblesvirtuallawlibrary
On September 24, 1994, the developer and owner
agreed, through the addendum to the JVA,9 to
increase the initial deposit for the settlement of claims
and the relocation of the tenants from P10,000,000.00
to P60,000,000.00.
On October 27, 1994, the developer, by deed of
assignment,10 transferred, conveyed and assigned to
Empire East Land Holdings, Inc. (developer/assignee)
all its rights and obligations under the JVA including
the addendum.
On February 29, 2000, the owner filed in the RTC a
complaint for specific performance with damages
against the developer, the developer/assignee, and
respondent Andrew Tan, who are now the petitioners
herein. The complaint, docketed as Civil Case No.
67813, was mainly based on the failure of the
petitioners to comply with their obligations under the
JVA,11 including the obligation to maintain a strong
security force to safeguard the entire joint venture
property of 215 hectares from illegal entrants and
occupants.
Following the joinder of issues by the petitioners'
answer with counterclaim, and by the respondents'
reply with answer to the counterclaim, the RTC set the
pre-trial of the case. At the conclusion of the pre-trial
conference, the presentation of the owner's evidence
was suspended because of the parties' manifestation
that they would settle the case amicably. It appears
that the parties negotiated with each other on how to
implement the JVA and the addendum.
On September 16, 2002, the owner filed in the RTC a
manifestation and motion,12 praying therein that the
petitioners be directed to provide round-the-clock
security for the joint venture property in order to
defend and protect it from the invasion of
unauthorized persons. The petitioners opposed the
manifestation and motion,13 pointing out that: (1) the
move to have them provide security in the properties
was premature; and (2) under the principle of
reciprocal obligations, the owner could not compel
them to perform their obligations under the JVA if the
owner itself refused to honor its obligations under the
JVA and the addendum.
On November 5, 2002, the RTC issued its first assailed
order,14 directing the developer to provide sufficient
round-the-clock security for the protection of the joint
venture property, as follows:
For consideration is a "Manifestation and Motion" filed
by plaintiff, through counsel, defendants having filed
their Opposition thereto, the incident is now ripe for
resolution.
After a careful examination of the records of this case,
the Court believes that the defendants should provide
security for the 215 hectares land subject of the joint
venture agreement to protect it from unlawful
elements as well as to avoid undue damage which may
be caused by the settling of squatters. As specified in
Article III par. (j) of the joint venture agreement
which was entered into by plaintiffs and defendants,
the latter shall at its exclusive account and sole
expense secure the land in question from the influx of
squatters and/or unauthorized settlers, occupants,
tillers, cultivators and the likes from date of execution
of this agreement.
WHEREFORE, and as prayed for, the Court hereby
directs the defendants to provide sufficient round the
clock security for the protection of the 215 hectares
land subject of the joint venture agreement during the
pendency of this case.
SO ORDERED.
The petitioners sought the reconsideration of the
November 5, 2002 order,15 but the RTC denied the
motion on May 19, 2003,16 observing that there was
no reason to reverse the order in question considering
that the allegations in the motion for reconsideration,
being a mere rehash of those made earlier, had
already been passed upon.
On August 4, 2003, the petitioners instituted a special
civil action for certiorari in the CA,17 claiming therein
that the RTC thereby gravely abused its discretion
amounting to lack or excess of jurisdiction in issuing
the order of November 5, 2002, specifying the
following grounds, namely:
THE PUBLIC RESPONDENT GRAVELY ABUSED HIS
DISCRETION AMOUNTING TO LACK OR EXCESS OF
JURISDICTION IN DIRECTING PETITIONERS TO
PROVIDE ROUND THE CLOCK SECURITY GUARDS ON
THE SUBJECT PROPERTIES.
I. THE PUBLIC RESPONDENT ARBITRARILY AND
PREMATURELY DISPOSED OF ONE OF THE RELIEF[S]
PRAYED FOR BY PRIVATE RESPONDENTS IN THEIR
COMPLAINT WHEN TRIAL HAS NOT EVEN STARTED.
II. PUBLIC RESPONDENT ARBITRARILY
DISREGARDED THE FACT THAT THE PARTIES ARE
DISCUSSING HOW TO PURSUE THE JVA.
III. PUBLIC RESPONDENT ARBITRARILY
DISREGARDED THE PRINCIPLE OF "RECIPROCAL
OBLIGATIONS" UNDER THE CIVIL CODE.
On April 27, 2005, the CA promulgated its assailed
decision dismissing the petitioner's petition
for certiorari,18 ruling thusly:
On the merits of the petition, our examination of the
records shows nothing whimsical or arbitrary in the
respondent judge's order directing the petitioners to
provide security over the joint venture property. Like
the respondent judge, we believe that the obligation
of the petitioners under the JVA to provide security in
the area, as spelled out under Article II, par. (c) and
Article III, paragraphs (h) and (j), is well established,
thus:
x x x x
These clear and categorical provisions in the JVA -
which petitioners themselves do not question -
obviously belie their contention that the respondent
judge's order to provide security for the property is
premature at this stage. The petitioner's obligation to
secure the property under the JVA arose upon the
execution of the Agreement, or as soon as the
petitioners acquired possession of the joint venture
property in 1994, and is therefore already
demandable. The settled rule is that "contracts are the
laws between the contracting parties, and if their
terms are clear and leave no room for doubt as to their
intentions, the contracts are obligatory no matter
what their forms may be, whenever the essential
requisites for their validity are present." Thus, unless
the existence of this particular obligation - i.e., to
secure the joint venture property - is challenged,
petitioners are bound to respect the terms of the
Agreement and of his obligation as the law between
them and MAJESTIC.
We stress along this line that the complaint MAJESTIC
filed below is for specific performance and is not for
rescission of contract. The complaint presupposes
existing obligations on the part of the petitioners that
MAJESTIC seeks to be carried out in accordance with
the terms of the Agreement. Significantly, MAJESTIC
did not pray in the complaint that petitioners be
ordered to secure the area from the influx of illegal
settlers and squatters because petitioner's obligation
in this regard commenced upon the execution of the
JVA and hence, is already an existing obligation. What
it did ask is for the petitioners to maintain a strong
security force at all times over the area, in keeping
with their commitment to secure the area from the
influx of illegal settlers and occupant. To be sure, to
"maintain" means "to continue", "to carry on", to "hold
or keep in any particular state or condition" and
presupposes an obligation that already began. Thus,
contrary to petitioner's submissions, the question of
whether or not they have the obligation to provide
security in the area is not at all an issue in the case
below. The issue MAJESTIC presented below is
whether or not petitioner should be ordered to
maintain a strong security force within the joint
venture property. Hence, in issuing the assailed
orders, the public respondent prejudged no issue that
is yet to be resolved after the parties shall have
presented their evidence.
Our conclusion (that the petitioner's obligation to
secure and protect the joint venture property is a non-
issue in the case below) necessarily explains why the
first assailed order -although not in the form of a
preliminary mandatory injunction -is nonetheless
legally justified. As an established and undisputed
interim measure pending the resolution of the case on
the merits, we do not see its enforcement as
hindrance to whatever negotiations the parties may
undertake to settle their dispute.
Nor do we find the principle of reciprocal obligations a
justification for petitioner's refusal to perform their
commitment of safeguarding the joint venture
property. For, while it is true that the JVA gives rise to
reciprocal obligations from both parties, these
obligations are not necessarily demandable at the
same time. MAJESTIC's initial obligation under the JVA
is to deliver or surrender to the petitioners the
possession of the joint venture property -an obligation
it fulfilled upon the execution of the Agreement.
MAJESTIC's obligation under the JVA to deliver to the
petitioners the titles to the joint venture property and
to reimburse them for tenant-related expenses are
demandable at later stages of the contract or upon
completion of the development, and therefore may
not be used by the petitioners as an excuse for not
complying with their own currently demandable
obligation.
All told, we believe that securing and protecting the
area from unlawful elements benefits both the
developer and the landowner who are equally keen in
safeguarding their interests in the project. Otherwise
stated, incursion by unlawful settlers into an
unsecured and unprotected joint venture property can
only cause great loss and damage to both parties.
Reasons of practicality within legal parameters, rather
than grave abuse of discretion, therefore underlie the
respondent judge's challenged orders.
WHEREFORE, premises considered, we hereby
DISMISS the petition for lack of merit.
SO ORDERED.19 (Emphasis omitted)
On May 26, 2005, the petitioners filed a motion for
reconsideration,20 but the CA denied the motion on
September 12, 2005.21chanroblesvirtuallawlibrary
Hence, this appeal by petition for review
on certiorari.chanRoblesvirtualLawlibrary
Issues
The petitioner submits the following issues:
a. Whether or not the petitioners are
obligated to perform their
obligations under the JVA, including
that of providing round-the-clock
security for the subject properties,
despite respondents' failure or
refusal to acknowledge, or perform
their reciprocal obligations there;
b. Whether or not the RTC gravely
abused its discretion in directing the
petitioners to perform their
obligations under the JVA, including
that of providing round-the-clock
security for the subject properties,
although the JVA had been
suspended due to the parties'
disagreement as to how to
implement the same;
c. Whether or not the RTC gravely
abused its discretion in issuing the
first and second assailed orders and
prematurely resolving and disposing
of one of the causes of action of the
respondents, which was to provide
round-the-clock security for the
subject properties, an issue
proposed by the respondents, even
before the termination of the pre-
trial;
d. Whether or not the RTC gravely
abused its discretion in issuing the
first and second assailed orders in
clear disregard of the mandatory
requirements of Rule 58 of
the Rules of
Court.22chanroblesvirtuallawlibrary
Ruling of the Court
The appeal is meritorious. The CA erred in upholding
the November 5, 2002 order of the RTC.
The obligations of the parties under the JVA were
unquestionably reciprocal. Reciprocal obligations are
those that arise from the same cause, and in which
each party is a debtor and a creditor of the other at
the same time, such that the obligations of one are
dependent upon the obligations of the other. They are
to be performed simultaneously, so that the
performance by one is conditioned upon the
simultaneous fulfillment by the other.23 As the Court
has expounded in Consolidated Industrial Gases, Inc.
v. Alabang Medical
Center:24chanroblesvirtuallawlibrary
Reciprocal obligations are those which arise from the
same cause, and in which each party is a debtor and
a creditor of the other, such that the obligation of one
is dependent upon the obligation of the other. They
are to be performed simultaneously, so that the
performance of one is conditioned upon the
simultaneous fulfillment of the other. In reciprocal
obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the
moment one of the parties fulfills his obligation, delay
by the other begins.
x x x x
In reciprocal obligations, before a party can demand
the performance of the obligation of the other, the
former must also perform its own obligation. For its
failure to turn over a complete project in accordance
with the terms and conditions of the installation
contracts, CIGI cannot demand for the payment of the
contract price balance from AMC, which, in turn,
cannot legally be ordered to pay.25chanrobleslaw
The determination of default on the part of either of
the parties depends on the terms of the JVA that
clearly categorized the parties' several obligations into
two types.
The first type related to the continuous
obligations that would be continuously performed
from the moment of the execution of the JVA until the
parties shall have achieved the purpose of their joint
venture. The continuous obligations under the JVA
were as follows: (1) the developer would secure the
joint venture property from unauthorized
occupants;26 (2) the owner would allow the developer
to take possession of the joint venture property;27 (3)
the owner would deliver any and all documents
necessary for the accomplishment of each
activity;28 and (4) both the developer and the owner
would pay the real estate
taxes.29chanroblesvirtuallawlibrary
The second type referred to the activity obligations.
The following table shows the activity obligations of
Art. III(a)
the parties under the JVA, to wit:
par. 2
Deposit
P10M in a
SEQUENCE OF ACTIVITIES (Article XIV of the
joint account
JVA)
of parties.
ACTIVITY OWNER DEVELOPER
DEVELOPE Art. II(b) Art. V par. 2
OBLIGATION OBLIGATIO
R to Deliver any and all Pay real
N
relocate documents estate taxes
and required for the Art. III(c)
Signing of Sign JVA Sign JVA
transfer all successful Take
JVA. Art. II(b) Art. V par. 2
the development of the possession of
Deliver any and all Pay real
tenants, Project the parcels of
documents estate taxes
settlers, Art. V par. 2 land
required for the Art. IIIa
occupants, Pay real estate Art. III(j)
successful par. 2
tillers, taxes Secure
development of the Deposit
cultivators Art. II(d) property
Project P10M
of the land Agree to allocate from
Art. V par. 2
to their and aggregate a invasion of
Pay real estate
relocation resettlement site squatters
taxes
site, and within the property and other
Art. II(g)
shall subject to mutually elements
Warrant absolute
endeavor to accepted Art. III(a)
ownership
fulfill the conditions. par. 1
same and Art. VI Advance
DEVELOPE Art. II(b) Art. V par. 2 the two Must consent on expense for
R to Deliver any and all Pay real immediatel the reasonableness settlement
negotiate documents estate taxes y preceding of the expenses. and
immediatel required for the Art. II(c) paragraphs relocation
y with all successful Take (b & c) up Art.
tenants, development of the possession of to the III(a)par. 2
settlers, Project the parcels of extent of Deposit
occupants, Art. V par. 2 land 75% P10M in a
tillers, Pay real estate Art. III (j) accomplish joint account
cultivators taxes Secure ment of OWNER
of the land Art. II(c) property thereof and
in question. Allow DEVELOPER from within a DEVELOPER
to take possession invasion of period of Art. III(c)
of subject property squatters one (1) Relocate the
and other year from occupants
elements date of
Art. III (c) execution
To negotiate of this
with Agreement.
occupants The
remaining
DEVELOPE Art. II(b) Art. V par. 2 25% of the
R to pay Deliver any and all Pay real same
and settle documents estate taxes requiremen
all required for the Art. II(c) ts shall be
monetary successful Take fully
claims of all development of the possession of accomplish
tenants, Project the parcels of ed within
settlers, Art. V par. 2 land another 6
occupants, Pay real estate Art. III (j) months
tillers, taxes Secure from date
cultivators Art. VI property of
of the land. Must consent on from expiration
the reasonableness invasion of of the
of the expenses. squatters original
and other one-year
elements period.
Art. III(a)
par. 1 DEVELOPE Art. II(b) Art. V par. 2
Advance R to apply Deliver any and all Pay real
expense for for and documents estate taxes
settlement secure required for the Art. II(c)
and exemption successful Take
relocation or development of the possession of
conversion Project the parcels of years from
permit and Art. V par. 2 land date of
such other Pay real estate Art. III (j) execution
related taxes Secure of this
requiremen Art. II(f) property Agreement.
ts needed Assist DEVELOPER from
for the secure exemption invasion of DEVELOPE Art. II(b) Art. V par. 2
approval of from CARL and squatters R Deliver any and all Pay real
exemption conversion/reclassi and other constructio documents estate taxes
or fication of subject elements n required for the Art. II(c)
conversion property Art. III(a) stage/grou successful Take
application Art. III(b) Advance nd breaking development of the possession of
of the land Give DEVELOPER expenses for to Project the parcels of
in question authority to apply exemption, commence Art. V par. 2 land
within a for exemption, conversion, after Pay real estate Art. III (j)
period of conversion and re- re- release of taxes Secure
one and a classification. classification DAR property
half (1 1/2) Art. VI expenses. exemption from
years from Must consent on Art.III(b) s permit or invasion of
date of the reasonableness ecure conversion squatters
execution of the expenses. exemption clearance and other
of this and and elements
Agreement conversion approval of Art. III(e)
subject to a permit other Mobilize
six (6) required development
month permits by work and
extension. pertinent solely pay its
agencies of expenses
DEVELOPE Art.III(i) Art. III(d) the Art. III(f)
R to lay out Give written Complete governmen Develop the
a complete conformity to the comprehensi t. property and
Developme development plan ve solely pay its
nt Plan development expenses on
plan (within necessary
6 months to permits
one year
from the DEVELOPE Art. II(b) Art. V par. 2
execution of R to secure Deliver any and all Pay real
the JVA) approval of documents estate taxes
subdivision required for the Art. II(c)
DEVELOPE Art. II(b) Art. V par. 2 plan and successful Take
R to apply Deliver any and all Pay real technical development of the possession of
for and documents estate taxes description Project the parcels of
secure all required for the Art. II(c) from the Art. V par. 2 land
necessary successful Take Bureau of Pay real estate Art. III (j)
developme development of the possession of Lands taxes Secure
nt permit, Project the parcels of based on Art. II(a) property
performanc Art. V par. 2 land the Deliver titles to from
e bonds, Pay real estate Art. III (j) approved DEVELOPER invasion of
environmen taxes Secure scheme and Art. II(a) squatters
tal property thereafter Execute Deed of and other
compliance from to petition, Assignment elements
certificate, invasion of follow-up Art. III(a) Art. III(k)
license to squatters and secure Pay all expenses Process
sell and all and other the release for settlement of titling of lots
other elements of claims, relocation,
related Art. III(f) individual application for
requiremen Secure titles for all exemption,
t from the development lots in the conversion, re-
pertinent permit, ECC, project in classification.
Municipal License to the
Governmen Sell, etc. respective
t, DENR, names of
HLURB and the parties
other form the
governmen register of
tal agencies deeds.
concerned
within a
period of 2

Market and Fix selling date Fix selling
Sell the date
property
Owner to
reimburse
and pay the
DEVELOPE
R not performed, all the other remaining obligations
The activities under the JVA fell into seven major
categories, specifically: (l)the relocation of the
occupants; (2) the completion of the development
plan; (3) the securing of exemption and conversion
permits; (4) the obtention of the development permits
from government agencies; (5) the development of
the subject land; (6) the issuance of titles for the
subdivided lots; and (7) the selling of the subdivided
lots and the reimbursement of the advances.
For the first activity (i.e., the relocation of the
occupants), the developer was obliged to negotiate
with the occupants, to advance payment for
disturbance compensation, and to relocate the
occupants to an area within the subject land, while the
owner was obliged to agree to and to allocate the
resettlement site within the property, and to approve
the expenses to be incurred for the process. Should
the owner fail to allocate the site for the resettlement,
the obligation of the developer to relocate would not
be demandable. Conversely, should the developer fail
to negotiate with the occupants, the owner's
obligation to allocate the resettlement site would not
become due.
As to the second activity (i.e., the completion of the
development plan), the developer had the obligation
to lay out the plan, but the owner needed to conform
to the plan before the same was finalized. Accordingly,
the final development plan would not be generated
should the owner fail to approve the lay-out plan; nor
would the owner be able to approve if no such plan
had been initially laid out by the developer.
In each activity, the obligation of each party was
dependent upon the obligation of the other. Although
their obligations were to be performed
simultaneously, the performance of an activity
obligation was still conditioned upon the fulfillment of
the continuous obligation, and vice versa. Should
either party cease to perform a continuous obligation,
the other's subsequent activity obligation would not
accrue. Conversely, if an activity obligation was not
performed by either party, the continuous obligation
of the other would cease to take effect. The
performance of the continuous obligation was subject
to the resolutory condition that
the precedent obligation of the other party, whether
continuous or activity, was fulfilled as it became due.
Otherwise, the continuous obligation would be
extinguished.
According to Article 1184 of the Civil Code, the
condition that some event happen at a determinate
time shall extinguish the obligation as soon as the
time expires, or if it has become indubitable that the
event will not take place. Here, the common cause of
the parties in entering into the joint venture was the
development of the joint venture property into the
residential subdivision as to eventually profit
therefrom. Consequently, all of the obligations under
the JVA were subject to the happening of the complete
development of the joint venture property, or if it
would become indubitable that the completion would
not take place, like when an obligation, whether
continuous or activity, was not performed. Should any
of the obligations, whether continuous or activity, be
would not ripen into demandable obligations while
those already performed would cease to take effect.
This is because every single obligation of each party
under the JVA rested on the common cause of
profiting from the developed subdivision.
It appears that upon the execution of the JVA, the
parties were performing their respective obligations
until disagreement arose between them that affected
the subsequent performance of their accrued
obligations. Being reciprocal in nature, their
respective obligations as the owner and the developer
were dependent upon the performance by the other of
its obligations; hence, any claim of delay or non-
performance against the other could prosper only if
the complaining party had faithfully complied with its
own correlative
obligation.30chanroblesvirtuallawlibrary
A respected commentator has cogently observed in
this connection:31chanroblesvirtuallawlibrary
§ 135. Same; consequences of simultaneous
performance. As a consequence of the rule of
simultaneous performance, if the party who has not
performed his obligation demands performance from
the other, the latter may interpose the defense of
unfulfilled contract (exceptio non adimpleli contraclus)
by virtue of which he cannot be obliged to perform
while the other's obligation remains unfulfilled. Hence,
the Spanish Supreme Court has ruled that the non-
performance of one party is justified if based on the
non-performance of the other; that the party who has
failed to perform cannot demand performance from
the other; and that judicial approval is not necessary
to release a party from his obligation, the non-
performance of the other being a sufficient defense
against any demand for performance by the guilty
party.
Another consequence of simultaneous performance is
the rule of compensatio morae, that is to say that
neither party incurs in delay if the other does not or is
not ready to comply in a proper manner with what is
incumbent upon him. From the moment one of the
parties fulfills his obligations, delay by the other
begins.
Yet, the record is bereft of the proof to support the
lower courts' unanimous conclusion that the owner
had already performed its correlative obligation under
the JVA as to place itself in the position to demand
that the developer should already perform its
obligation of providing the round-the-clock security on
the property. In issuing its order of November 5,
2002, therefore, the RTC acted whimsically because it
did not first ascertain whether or not the precedent
reciprocal obligation of the owner upon which the
demanded obligation of the developer was dependent
had already been performed. Without such showing
that the developer had ceased to perform a
continuous obligation to provide security over the joint
venture property despite complete fulfillment by the
owner of all its accrued obligations, the owner had no
right to demand from the developer the round-the-
clock security over the 215 hectares of land.
The CA further gravely erred in characterizing the
order for the petitioners to implement the round-the-
clock security provision of the JVA and the addendum
as an established and undisputed interim measure
that could be issued pending the resolution of the case
on the merits.
Apart from the provisional remedies expressly
recognized and made available under Rule 56 to Rule
61 of the Rules of Court, the Court has sanctioned only
the issuance of the status quo ante order but only to
maintain the last, actual, peaceable and uncontested
state of things that preceded the controversy.32 The
eminent Justice Florenz D. Regalado,33 an authority on
remedial law, has delineated the nature of the status
quo ante order, and distinguished it from the
provisional remedy of temporary restraining order, as
follows:
There have been instances when the Supreme Court
has issued a status quo order which, as the very term
connotes, is merely intended to maintain the last,
actual, peaceable and uncontested state of things
which preceded the controversy. This was resorted to
when the projected proceedings in the case made the
conservation of the status quo desirable or essential,
but the affected party neither sought such relief or the
allegations in his pleading did not sufficiently make
out a case for a temporary restraining order. The
status quo order was thus issued motu proprio on
equitable considerations. Also, unlike a temporary
restraining order or a preliminary injunction, a status
quo order is more in the nature of a cease and desist
order, since it neither directs the doing or undoing of
acts as in the case of prohibitory or mandatory
injunctive relief. The further distinction is provided by
the present amendment in the sense that, unlike the
amended rule on restraining orders, astatus quo order
does not require the posting of a bond.
The order of November 5, 2002, by directing the
developer to provide sufficient round-the-clock
security for the protection of the joint venture
property during the pendency of the case, was not of
the nature of the status quo ante order because the
developer, as averred in the complaint, had not yet
provided a single security watchman to secure the
entire 215 hectares of land for several years.34 Also,
the owner stated in the comment to the petition that
the developer had dismissed all the security guards
posted in the property since 1997.35 At the time of the
filing of the complaint for specific performance on
February 29, 2000, therefore, the last actual,
peaceable and uncontested state of things preceding
the controversy was the absence of such security, not
the installation of the security personnel/measures. In
fact, the failure of the developer to provide the round-
the-clock security itself became the controversy that
impelled the owner to bring the action against the
petitioners.
By preliminarily directing the developer to provide
sufficient round-the-clock security for the protection
of the joint venture property during the pendency of
the case, the November 5, 2002 order of the RTC did
not come under the category of the status quo
ante order that would issue upon equitable
consideration, or even of an injunctive relief that
would issue under Rule 58 of the Rules of Court.
Hence, the issuance of the order constituted a blatant
jurisdictional error that needed to be excised. Verily,
a jurisdictional error is one by which the act
complained of was issued by the court without or in
excess of jurisdiction.36Without jurisdiction means
that the court acted with absolute want of
jurisdiction. Excess of jurisdiction means that the
court has jurisdiction but has transcended the same
or acted without any statutory
authority.37chanroblesvirtuallawlibrary
Although the RTC undoubtedly had jurisdiction to hear
and decide the principal action for specific
performance as well as to act on the motions
submitted to it in the course of the proceedings, the
distinction between jurisdiction over the case and
jurisdiction to issue an interlocutory order as an
ancillary remedy incident to the principal action should
be discerned. We have frequently declared that a
court may have jurisdiction over the principal action
but may nevertheless act irregularly or in excess of its
jurisdiction in the course of its proceedings by the
granting of an auxiliary remedy.38 In Leung Ben v.
O'Brien,39 for instance, this Court has thus clarified:
It may be observed in this connection that the word
"jurisdiction" as used in attachment cases, has
reference not only to the authority of the court to
entertain the principal action but also to its authority
to issue the attachment, as dependent upon the
existence of the statutory ground. (6 C. J., 89.) This
distinction between jurisdiction to issue the
attachment as an ancillary remedy incident to the
principal litigation is of importance; as a court's
jurisdiction over the main action may be complete,
and yet it may lack authority to grant an attachment
as ancillary to such action. This distinction between
jurisdiction over the ancillary has been recognized by
this court in connection with actions involving the
appointment of a receiver. Thus in Rocha & Co. vs.
Crossfield and Figueras (6 Phil. Rep., 355), a receiver
had been appointed without legal justification. It was
held that the order making the appointment was
beyond the jurisdiction of the court; and though the
court admittedly had jurisdiction of the main cause,
the order was vacated by this court upon application
a writ of certiorari. (See Blanco vs. Ambler, 3 Phil.
Rep., 358, Blanco vs. Ambler and McMicking 3 Phil.
Rep., 735, Yangco vs. Rohde, 1 Phil. Rep., 404.)
By parity of reasoning it must follow that when a court
issues a writ of attachment for which there is no
statutory authority, it is acting irregularly and in
excess of its jurisdiction, in the sense necessary to
justify the Supreme Court in granting relief by the writ
of certiorari.
WHEREFORE, the Court GRANTS the petition for
review on certiorari; REVERSES and SETS
ASIDE the decision promulgated on April 27, 2005
and the resolution promulgated on September 12,
2005; NULLIFIES the orders issued on November 5,
2002 and May 19, 2003 in Civil Case No. 67813 by the
Regional Trial Court, Branch 67, in Pasig
City; DIRECTS the Regional Trial Court, Branch 67, in
Pasig City to resume the proceedings in Civil Case No.
67813 with dispatch; and ORDERS the respondents
to pay the costs of suit.
SO ORDERED.cralawlawlibrary
Sereno, C.J., Leonardo-De Castro, Perez, and Perlas-
Bernabe, JJ., concur.
Endnotes:
G.R. No. 96053 March 3, 1993
JOSEFINA TAYAG, RICARDO GALICIA, TERESITA
GALICIA, EVELYN GALICIA, JUAN GALICIA, JR.
and RODRIGO GALICIA, petitioners,
vs.
COURT OF APPEALS and ALBRIGIDO
LEYVA, respondents.
Facundo T. Bautista for petitioners.
Jesus T. Garcia for private respondent.
MELO, J.:
The deed of conveyance executed on May 28, 1975 by
Juan Galicia, Sr., prior to his demise in 1979, and
Celerina Labuguin, in favor of Albrigido Leyva
involving the undivided one-half portion of a piece of
land situated at Poblacion, Guimba, Nueva Ecija for
the sum of P50,000.00 under the following terms:
1. The sum of PESOS: THREE
THOUSAND (P3,000.00) is HEREBY
acknowledged to have been paid
upon the execution of this
agreement;
2. The sum of PESOS: TEN
THOUSAND (P10,000.00) shall be
paid within ten (10) days from and
after the execution of this
agreement;
3. The sum of PESOS: TEN
THOUSAND (P10,000.00)
represents the VENDORS'
indebtedness with the Philippine
Veterans Bank which is hereby
assumed by the VENDEE; and
4. The balance of PESOS: TWENTY
SEVEN THOUSAND (P27,000.00.)
shall be paid within one (1) year
from and after the execution of this
instrument. (p. 53, Rollo)
is the subject matter of the present litigation between
the heirs of Juan Galicia, Sr. who assert breach of the
conditions as against private respondent's claim
anchored on full payment and compliance with the
stipulations thereof.
The court of origin which tried the suit for specific
performance filed by private respondent on account of
the herein petitioners' reluctance to abide by the
covenant, ruled in favor of the vendee (p. 64, Rollo)
while respondent court practically agreed with the trial
court except as to the amount to be paid to petitioners
and the refund to private respondent are concerned
(p. 46, Rollo).
There is no dispute that the sum of P3,000.00 listed
as first installment was received by Juan Galicia, Sr.
According to petitioners, of the P10,000.00 to be paid
within ten days from execution of the instrument, only
P9,707.00 was tendered to, and received by, them on
numerous occasions from May 29, 1975, up to
November 3, 1979. Concerning private respondent's
assumption of the vendors' obligation to the Philippine
Veterans Bank, the vendee paid only the sum of
P6,926.41 while the difference the indebtedness came
from Celerina Labuguin (p. 73, Rollo). Moreover,
petitioners asserted that not a single centavo of the
P27,000.00 representing the remaining balance was
paid to them. Because of the apprehension that the
heirs of Juan Galicia, Sr. are disavowing the contract
inked by their predecessor, private respondent filed
the complaint for specific performance.
In addressing the issue of whether the conditions of
the instrument were performed by herein private
respondent as vendee, the Honorable Godofredo
Rilloraza, Presiding Judge of Branch 31 of the Regional
Trial Court, Third Judicial Region stationed at Guimba,
Nueva Ecija, decided to uphold private respondent's
theory on the basis of constructive fulfillment under
Article 1186 and estoppel through acceptance of
piecemeal payments in line with Article 1235 of the
Civil Code.
Anent the P10,000.00 specified as second installment,
the lower court counted against the vendors the
candid statement of Josefina Tayag who sat on the
witness stand and made the admission that the check
issued as payment thereof was nonetheless paid on a
staggered basis when the check was dishonored (TSN,
September 1, 1983, pp. 3-4; p. 3, Decision; p.
66, Rollo). Regarding the third condition, the trial
court noted that plaintiff below paid more than
P6,000.00 to the Philippine Veterans Bank
but Celerina Labuguin, the sister and co-vendor of
Juan Galicia, Sr. paid P3,778.77 which circumstance
was construed to be a ploy under Article 1186 of the
Civil Code that "prematurely prevented plaintiff from
paying the installment fully" and "for the purpose of
withdrawing the title to the lot". The acceptance by
petitioners of the various payments even beyond the
periods agreed upon, was perceived by the lower court
as tantamount to faithful performance of the
obligation pursuant to Article 1235 of the Civil Code.
Furthermore, the trial court noted that private
respondent consigned P18,520.00, an amount
sufficient to offset the remaining balance, leaving the
sum of P1,315.00 to be credited to private
respondent.
On September 12, 1984, judgment was rendered:
 1. Ordering the defendants — heirs As to how the foregoing directive was arrived at, the
of Juan Galicia, to execute the Deed appellate court declared:
of Sale of their undivided ONE HALF
(1/2) portion of Lot No. 1130,
With respect to the fourth condition
Guimba Cadastre, covered by TCT
stipulated in the contract, the period
No. NT-120563, in favor of plaintiff
indicated therein is deemed
Albrigido Leyva, with an equal
modified by the parties when the
frontage facing the national road
heirs of Juan Galicia, Sr. accepted
upon finality of judgment; that, in
payments without objection up to
their default, the Clerk of Court II,
November 3, 1979. On the basis of
is hereby ordered to execute the
receipts presented by appellee
deed of conveyance in line with the
commencing from August 8, 1975
provisions of Section 10, Rule 39 of
up to November 3, 1979, a total
the Rules of Court;
amount of P13,908.25 has been
paid, thereby leaving a balance of
2. Ordering the defendants, heirs of P13,091.75. Said unpaid balance
Juan Galicia, jointly and severally to plus the amount reimbursable to
pay attorney's fees of P6,000.00 appellant in the amount of
and the further sum of P3,000.00 P3,778.77 will leave an unpaid total
for actual and compensatory of P16,870.52. Since appellee
damages; consigned in court the sum of
P18,500.00, he is entitled to get the
excess of P1,629.48. Thus, when
3. Ordering Celerina Labuguin and
the heirs of Juan Galicia, Sr.
the other defendants herein to
(obligees) accepted the
surrender to the Court the owner's
performance, knowing its
duplicate of TCT No. NT-120563,
incompleteness or irregularity and
province of Nueva Ecija, for the use
without expressing any protest or
of plaintiff in registering the portion,
objection, the obligation is deemed
subject matter of the instant suit;
fully complied with (Article 1235,
Civil Code). (p. 50, Rollo)
4. Ordering the withdrawal of the
amount of P18,520.00 now
Petitioners are of the impression that the decision
consigned with the Court, and the
appealed from, which agreed with the conclusions of
amount of P17,204.75 be delivered
the trial court, is vulnerable to attack via the recourse
to the heirs of Juan Galicia as
before Us on the principal supposition that the full
payment of the balance of the sale
consideration of the agreement to sell was not paid by
of the lot in question, the
private respondent and, therefore, the contract must
defendants herein after deducting
be rescinded.
the amount of attorney's fees and
damages awarded to the plaintiff
hereof and the delivery to the The suggestion of petitioners that the covenant must
plaintiff of the further sum of be cancelled in the light of private respondent's so-
P1,315.25 excess or over payment called breach seems to overlook petitioners' demeanor
and, defendants to pay the cost of who, instead of immediately filing the case precisely
the suit. (p. 69, Rollo) to rescind the instrument because of non-compliance,
allowed private respondent to effect numerous
payments posterior to the grace periods provided in
and following the appeal interposed with respondent
the contract. This apathy of petitioners who even
court, Justice Dayrit with whom Justices Purisima and
permitted private respondent to take the initiative in
Aldecoa, Jr. concurred, modified the fourth paragraph
filing the suit for specific performance against them,
of the decretal portion to read:
is akin to waiver or abandonment of the right to
rescind normally conferred by Article 1191 of the Civil
4. Ordering the withdrawal of the Code. As aptly observed by Justice Gutierrez, Jr.
amount of P18,500.00 now in Angeles vs. Calasanz (135 SCRA 323 [1985];
consigned with the Court, and that 4 Paras, Civil Code of the Philippines Annotated,
the amount of P16,870.52 be Twelfth Ed. [1989], p. 203:
delivered to the heirs of Juan
Galicia, Sr. as payment to the
. . . We agree with the plaintiffs-
unpaid balance of the sale, including
appellees that when the
the reimbursement of the amount
defendants-appellants, instead of
paid to Philippine Veterans Bank,
availing of their alleged right to
minus the amount of attorney's fees
rescind, have accepted and received
and damages awarded in favor of
delayed payments of installments,
plaintiff. The excess of P1,649.48
though the plaintiffs-appellees have
will be returned to plaintiff. The
been in arrears beyond the grace
costs against defendants. (p.
period mentioned in paragraph 6 of
51, Rollo)
the contract, the defendants-
appellants have waived, and are
 now estopped from exercising their
alleged right of rescission . . .
In Development Bank of the Philippines vs. Sarandi (5
CAR (25) 811; 817-818; cited in 4 Padilla, Civil Code
Annotated, Seventh Ed. [1987], pp. 212-213) a
similar opinion was expressed to the effect that:
In a perfected contract of sale of
land under an agreed schedule of
payments, while the parties may
mutually oblige each other to
compel the specific performance of
the monthly amortization plan, and
upon failure of the buyer to make
the payment, the seller has the right
to ask for a rescission of the
contract under Art. 1191 of the Civil
Code, this shall be deemed waived
by acceptance of posterior
payments.
Both the trial and appellate courts were, therefore,
correct in sustaining the claim of private respondent
anchored on estoppel or waiver by acceptance of
delayed payments under Article 1235 of the Civil Code
in that:
When the obligee accepts the
performance, knowing its
incompleteness or irregularity, and
without expressing any protest or
objection, the obligation is deemed
fully complied with.
considering that the heirs of Juan Galicia, Sr.
accommodated private respondent by accepting the
latter's delayed payments not only beyond the grace
periods but also during the pendency of the case for
specific performance (p. 27, Memorandum for
petitioners; p. 166, Rollo). Indeed, the right to rescind
is not absolute and will not be granted where there
has been substantial compliance by partial payments
(4 Caguioa, Comments and Cases on Civil Law, First
Ed. [1968] p. 132). By and large, petitioners'
actuation is susceptible of but one construction — that
they are now estopped from reneging from their
commitment on account of acceptance of benefits
arising from overdue accounts of private respondent.
Now, as to the issue of whether payments had in fact
been made, there is no doubt that the second
installment was actually paid to the heirs of Juan
Galicia, Sr. due to Josefina Tayag's admission in
judicio that the sum of P10,000.00 was fully
liquidated. It is thus erroneous for petitioners to
suppose that "the evidence in the records do not
support this conclusion" (p. 18, Memorandum for
Petitioners; p. 157, Rollo). A contrario, when the court
of origin, as well as the appellate court, emphasized
the frank representation along this line of Josefina
Tayag before the trial court (TSN, September l, 1983,
pp. 3-4; p. 5, Decision in CA-G.R. CV No. 13339, p.
50, Rollo; p. 3, Decision in Civil Case No. 681-G, p.
66, Rollo), petitioners chose to remain completely
mute even at this stage despite the opportunity
accorded to them, for clarification. Consequently, the
prejudicial aftermath of Josefina Tayag's spontaneous
reaction may no longer be obliterated on the basis of
estoppel (Article 1431, Civil Code; Section 4, Rule
129; Section 2(a), Rule 131, Revised Rules on
Evidence).
Insofar as the third item of the contract is concerned,
it may be recalled that respondent court applied
Article 1186 of the Civil Code on constructive
fulfillment which petitioners claim should not have
been appreciated because they are the obligees while
the proviso in point speaks of the obligor. But,
petitioners must concede that in a reciprocal
obligation like a contract of purchase, (Ang vs. Court
of Appeals, 170 SCRA 286 [1989]; 4 Paras, supra, at
p. 201), both parties are mutually obligors and also
obligees (4 Padilla, supra, at p. 197), and any of the
contracting parties may, upon non-fulfillment by the
other privy of his part of the prestation, rescind the
contract or seek fulfillment (Article 1191, Civil Code).
In short, it is puerile for petitioners to say that they
are the only obligees under the contract since they are
also bound as obligors to respect the stipulation in
permitting private respondent to assume the loan with
the Philippine Veterans Bank which petitioners
impeded when they paid the balance of said loan. As
vendors, they are supposed to execute the final deed
of sale upon full payment of the balance as
determined hereafter.
Lastly, petitioners argue that there was no valid
tender of payment nor consignation of the sum of
P18,520.00 which they acknowledge to have been
deposited in court on January 22, 1981 five years after
the amount of P27,000.00 had to be paid (p. 23,
Memorandum for Petitioners; p. 162, Rollo). Again
this suggestion ignores the fact that consignation
alone produced the effect of payment in the case at
bar because it was established below that two or more
heirs of Juan Galicia, Sr. claimed the same right to
collect (Article 1256, (4), Civil Code; pp. 4-5, Decision
in Civil Case No. 681-G; pp. 67-68, Rollo). Moreover,
petitioners did not bother to refute the evidence on
hand that, aside from the P18,520.00 (not P18,500.00
as computed by respondent court) which was
consigned, private respondent also paid the sum of
P13,908.25 (Exhibits "F" to "CC"; p. 50, Rollo). These
two figures representing private respondent's
payment of the fourth condition amount to
P32,428.25, less the P3,778.77 paid by petitioners to
the bank, will lead us to the sum of P28,649.48 or a
refund of P1,649.48 to private respondent as
overpayment of the P27,000.00 balance.
WHEREFORE, the petition is hereby DISMISSED and
the decision appealed from is hereby AFFIRMED with
the slight modification of Paragraph 4 of the
dispositive thereof which is thus amended to read:
4. ordering the withdrawal of the
sum of P18,520.00 consigned with
the Regional Trial Court, and that
the amount of P16,870.52 be
delivered by private respondent
with legal rate of interest until fully
paid to the heirs of Juan Galicia, Sr.
as balance of the sale including
reimbursement of the sum paid to
the Philippine Veterans Bank, minus
the attorney's fees and damages
 awarded in favor of private and the Philippine National Construction Corporation
respondent. The excess of (PNCC).9
P1,649.48 shall be returned to
private respondent also with legal
Galleon experienced financial difficulties and had to
interest until fully paid by
take out several loans from different sources such as
petitioners. With costs against
foreign financial institutions, its shareholders (Sta.
petitioners.
Ines, Cuenca Investment, Universal Holdings, Cuenca,
and Tinio), and other entities "with whom it had
SO ORDERED. ongoing commercial relationships."10

DBP guaranteed Galleon's foreign loans.11 In return,

Galleon and its stockholders Sta. Ines, Cuenca
Investment, Universal Holdings, Cuenca, and Tinio,
G.R. No. 193068
executed a Deed of Undertaking12 on October 10,
1979 and obligated themselves to guarantee DBP's
DEVELOPMENT BANK OF THE potential liabilities.13
PHILIPPINES, Petitioner
vs.
To secure DBP's guarantee, Galleon undertook to
STA. INES MELALE FOREST PRODUCTS
secure a first mortgage on its five new vessels and two
CORPORATION, RODOLFO CUENCA, MANUEL
second-hand vessels.14 However, despite the loans
TINIO, CUENCA INVESTMENT CORPORATION
extended to it, "[Galleon's] financial condition did not
and UNIVERSAL HOLDINGS CORPORATION,
improve."15
Respondents

Cuenca, as Galleon's president, wrote to the members

x-----------------------x
of the Cabinet Standing Committee "for the
consideration of a policy decision to support a liner
G.R. No. 193099 service."16 Cuenca also wrote then President
Ferdinand Marcos and asked for assistance.17
NATIONAL DEVELOPMENT
CORPORATION, Petitioner, On July 21, 1981, President Marcos issued Letter of
vs. Instructions No. 115518 addressed to the NDC, DBP,
STA. INES MELALE FOREST PRODUCTS and the Maritime Industry Authority. Letter of
CORPORATION, RODOLFO M. CUENCA, MANUEL Instructions No. 1155 reads:
I. TINIO, CUENCA INVESTMENT CORPORATION
and UNIVERSAL HOLDINGS
TO : Development Bank of the Philippines
CORPORATION, Respondents.
National Development Company
Maritime Industry Authority
DECISION
DIRECTING A REHABILITATION PLAN FOR
LEONEN, J.: GALLEON SHIPPING CORPORATION

A condition shall be deemed fulfilled when the obligor WHEREAS, Galleon Shipping Corporation is presently
voluntarily prevents its fulfilment and a debtor loses in a distressed state in view of the unfavorable
the right to make use of the period when a condition developments in the liner shipping business;
is violated, making the obligation immediately
demandable.1
WHEREAS, the exposure of the Philippine government
financial institutions is substantial;
This resolves the consolidated Petitions for Review
filed by the Development Bank of the Philippines
WHEREAS, it is a policy of government to provide a
(DBP)2 and the National Development Corporation
reliable liner service between the Philippines and its
(NDC)3 assailing the Court of Appeals Decision4 dated
major trading partners;
March 24, 2010 and Court of Appeals
Resolution5 dated July 21, 2010, which affirmed with
modifications the Decision6 dated September 16, WHEREAS, it is a policy to have a Philippine national
2003 of Branch 137, Regional Trial Court of Makati flag liner service to compete with other heavily
City.7 subsidized national shipping companies of other
countries;
Sometime in 1977, National Galleon Shipping
Corporation (Galleon), "formerly known as Galleon NOW, THEREFORE, I, FERDINAND E. MARCOS,
Shipping Corporation, was organized to operate a liner President of the Philippines, do hereby direct the
service between the Philippines and its ... trading following:
partners."8 Galleon's major stockholders were
respondents Sta. Ines Melale Forest Products
1. NDC shall acquire 100% of the
Corporation (Sta. Ines), Cuenca Investment
shareholdings of Galleon Shipping
Corporation (Cuenca Investment), Universal Holdings
Corporation from its present owners
Corporation (Universal Holdings), Galleon's President
for the amount of P46. 7 million
Rodolfo M. Cuenca (Cuenca), Manuel I. Tinio (Tinio),
 which is the amount originally Minister Roberto V. Ongpin (hereinafter called
contributed by the present "Buyer").
shareholders, payable after five
years with no interest cost.
WITNESSETH: That-

2. NDC to immediately infuse P30

million into Galleon Shipping
Corporation in lieu of its previously
approved subscription to Philippine
National Lines. In addition, NDC is
to provide additional equity to
Galleon as may be required.
3. DBP to advance for a period of
three years from date hereof both
the principal and the interest on
Galleon's obligations falling due and
to convert such advances into 12%
preferred shares in Galleon
Shipping Corporation.
4. DBP and NDC to negotiate a
restructuring of loans extended by
foreign creditors of
Galleon.1avvphi1
5. MARINA to provide assistance to
Galleon by mandating a rational
liner shipping schedule considering
existing freight volume and to
immediately negotiate a bilateral
agreement with the United States in
accordance with UNCTAD
resolutions.
These instructions are to take effect immediately.19
WHEREAS, Sellers and Buyer desire to implement
immediately Letter of Instructions No. 1155, dated
July 21, 1981, which directs that Buyer acquire 100%
of the shareholdings of Galleon Shipping Corporation
("GSC") from Sellers who are the present owners.
WHEREAS, Sellers have consented to allow Buyer to
assume actual control over the management and
operations of GSC prior to the execution of a formal
share purchase agreement and the transfer of all the
shareholdings of Sellers to Buyer.
NOW, THEREFORE, the parties agree as follows:
1. Within seven (7) days after the
signing hereof, Sellers shall take all
steps necessary to cause five (5)
persons designated by Buyer to be
elected directors of GSC, it being
understood that Sellers shall retain
the remaining two (2) seats in the
GSC board subject to the condition
hereafter stated in clause 7(b ).
2. The new board to be created
pursuant to clause 1 above shall
elect Antonio L. Carpio as Chairman
and Chief Executive Officer and
Rodolfo M. Cuenca as President. All
other officers will be nominated and
appointed by Buyer.

On August 10, 1981,20 pursuant to Letter of

3. As soon as possible, but not more
Instructions No. 1155, Galleon's stockholders,
than 60 days after the signing
represented by Cuenca, and NDC, through its then
hereof, the parties shall endeavor to
Chairman of the Board of Directors, Roberto V. Ongpin
prepare and sign a share purchase
(Ongpin) entered into a Memorandum of
agreement covering 100% of the
Agreement,21 where NDC and Galleon undertook to
shareholdings of Sellers in GSC to
prepare and sign a share purchase agreement
be transferred to Buyer, i.e.
covering 100% of Galleon's equity for
10,000,000 fully paid common
₱46,740,755.00.22 The purchase price was to be paid
shares of the par value of ₱l.00 per
after five years from the execution of the share
share and subscription of an
purchase agreement.23 The share purchase
additional 100,000,000 common
agreement also provided for the release of Sta. Ines,
shares of the par value of ₱l.00 per
Cuenca, Tinio and Construction Development
share of which ₱36,740,755.00 has
Corporation of the Philippines from the personal
been paid, but not yet issued.
counter-guarantees they issued in DBP's favor under
the Deed of Undertaking.24
4. Sellers hereby warrant that
₱46,740,755[.00] had been actually
The Memorandum of Agreement reads:
paid to Galleon Shipping
Corporation, which amount
KNOW ALL MEN BY THESE PRESENTS: represents payment of Sellers for
46,740,755 common shares of said
Corporation. This warranty shall be
This Memorandum of Agreement made and entered
verified by Buyer, the results of
into this __ day of August, 1981, at Makati, Metro
which will determine the final
Manila, Philippines, by and between the stockholders
purchase price to be paid to Sellers.
of Galleon Shipping Corporation listed in Annex A
hereof, represented herein by their duly authorized
attorney-in-fact, Mr. Rodolfo M. Cuenca (hereinafter The purchase price directed by LOI
called "Sellers") and National Development Company, 1155 to be paid to Sellers shall be
represented herein by its Chairman of the Board, Hon. paid after five (5) years from date
of the share purchase agreement
with no interest cost to buyer.
5. As security for the payment of the
aforementioned purchase price,
Buyer shall issue to each of the GSC
stockholders listed in Annex A a
negotiable promissory note in the
amount corresponding to the
respective paid-up capital in GSC of
each of such stockholders and with
maturity on the date of the fifth
annual anniversary of the share
purchase agreement.
6. Notwithstanding the provisions of
clauses 4 and 5 above, upon the
signing of the share purchase
agreement, it is understood that
Sellers shall deliver to Buyer all the
stock certificates covering
10,000,000 common shares of GSC,
and duly and validly endorsed for
transfer, free from any and all liens
and encumbrances whatsoever. It is
likewise understood that Buyer shall
at that time acquire all the
subscription rights to 100,000,000
common shares of which
₱36,740,755.00 has been paid by
Sellers, and shall assume the
obligation to pay the unpaid portion
of such subscription.
7. The stock purchase agreement to
be prepared and signed by the
parties within sixty (60) days from
date hereof shall contain, among
other things:
(a) standard warranties of
seller including, but not
limited to, warranties
pertaining to the accuracy
of financial and other
statements of GSC;
disclosure of liabilities;
payment of all taxes,
duties, licenses and fees;
non-encumbrance of
corporate assets; valid
contracts with third
parties, etc. including an
indemnity clause covering
any breach thereof.
(b) provisions that Buyer
shall retain 2 liabilities of GSC which are the
representatives of Sellers
in the board of GSC only
for as long as Sellers have
not been paid, or have not
negotiated or discounted
any of the promissory
notes referred to in clause
5 above.
(c) provisions whereby
Construction Development
Corporation of the
Philippines, Sta. Ines
Melale Forest Products
Corporation, Mr. Rodolfo
M. Cuenca and Mr. Manuel
I. Tinio shall be released
from counter-guarantees
they have issued in favor
of DBP and other financial
institutions in connection
with GSC's various credit
accommodations.
(d) provisions for
arbitration as a means of
settling disputes and
differences of opinion
regarding the stock
purchase agreement.
8. Sellers hereby make a special
warranty that:
(a) any and all liabilities
and obligations as
disclosed in the financial
statements of Galleon
Shipping Corporation are
valid, regular, normal and
incurred in the ordinary
course of business of
Galleon Shipping
Corporation, and Buyer will
verify this warranty and
conduct an audit of Galleon
Shipping Corporation as of
March 31 and July 31,
1981; liabilities that do not
fall under the above
definition are to be for the
account of the Seller; and
(b) from July 31, 1981 to
the date of the election of
Buyers' representatives to
the Board of GSC, GSC has
not and shall not enter into
any contract and has not
and shall not incur any
liability except what is
normal and usual in the
ordinary course of shipping
business.
9. Valid and duly authorized
subject of a meritorious lawsuit, or
which have been arranged and
guaranteed by Mr. Rodolfo M.
Cuenca, may be considered by
Buyer for priority in the repayment
of accounts, provided that, upon
review, the Buyer shall determine
these to be legitimate and were
validly incurred in the ordinary
course of GSC's principal business.
IN WITNESS HEREOF, the parties have signed this
Memorandum of Agreement this _ day of August
1981, in Makati, Metro Manila.
STOCKHOLDERS
GALLEON SHIPPING CORPORATION
By:
2) NDC shall discharge such
maritime liens as it may deem
necessary to allow the foreclosed
vessels to engage in the
international shipping business;
OF
3) Any provision of LOI No. 1155
inconsistent with this Letter of
Instructions is hereby rescinded.

(signed)
RODOLFO M. CUENCA
NATIONAL DEVELOPMENT COMPANY
By:
(signed)
ROBERTO V. ONGPIN25
Acting as Galleon's guarantor, DBP paid off Galleon's
debts to its foreign bank creditor and, on January 25,
1982, pursuant to the Deed of Undertaking, Galleon
executed a mortgage contract26 over seven of its
vessels in favor of DBP.
NDC took over Galleon's operations "even prior to the
signing of a share purchase agreement."27 However,
despite NDC's takeover, the share purchase
agreement was never formally executed.28
On February 10, 1982, or barely seven months from
the issuance of Letter of Instructions No. 1155,
President Marcos issued Letter of Instructions No.
1195,29 which reads:
TO : Development Bank of the Philippines
National Development Company
RE : Galleon Shipping Corporation
WHEREAS, NDC has assumed management of
Galleon's operations pursuant to LOI No. 1155;
WHEREAS, the original terms under which Galleon
acquired or leased the vessels were such that Galleon
would be unable to pay from its cash flows the
resulting debt service burden;
These instructions are to take effect immediately.30
On April 22, 1985, respondents Sta. Ines, Cuenca,
Tinio, Cuenca Investment and Universal Holdings filed
a Complaint with Application for the Issuance of a
Temporary Restraining Order or Writ of Preliminary
Injunction.31 The Complaint was amended several
times to imp lead new parties and to include new
claims/counterclaims.32
In their Complaint, Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings alleged that NDC,
"without paying a single centavo, took over the
complete, total, and absolute ownership,
management, control, and operation of defendant
[Galleon] and all its assets, even prior to the formality
of signing a share purchase agreement, which was
held in abeyance because the defendant NDC was
verifying and confirming the amounts paid by plaintiffs
to Galleon, and certain liabilities of Galleon to
plaintiffs[.]"33
Sta. Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings also alleged that NDC tried to delay
"the formal signing of the share purchase agreement
in order to interrupt the running of the 5-year period
to pay ... the purchase of the shares in the amount of
₱46,740,755[.00] and the execution of the negotiable
promissory notes to secure payment[.]"34
As for DBP, Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings claimed that "DBP
can no longer go after [them] for any deficiency
judgment [since] NDC had been subrogated [in their
place] as borrower[s], hence the Deed of Undertaking
between [Sta. Ines, Cuenca Investment, Universal
Holdings, Cuenca, and Tinio and DBP] had been
extinguished and novated[.]"35

Meanwhile, on December 8, 1986, Proclamation No.

WHEREAS, in such a situation the financial exposure
of the Government will continue to increase and
therefore the appropriate steps must be taken to limit
and protect the Government's exposure;
NOW, THEREFORE, I, FERDINAND E. MARCOS,
President of the Philippines, do hereby direct the
following:
1) The DBP and the NDC shall take
immediate steps, including
foreclosure of Galleon vessels and
other assets, as may be deemed
necessary to limit and protect the
Government's exposure;
50 created the Asset Privatization Trust.36 The Asset
Privatization Trust was tasked to "take title to and
possession of, conserve, provisionally manage and
dispose of, assets which have been identified for
privatization or disposition and transferred to the TI-
List for [that] purpose."37
Under Administrative Order No. 14 issued by then
President Corazon C. Aquino, certain assets of DBP,
which included Galleon's loan accounts, "were
identified for transfer to the National Government."38
On February 27, 1987, a Deed of Transfer was
executed providing for the transfer of the Galleon loan
account from DBP to the National Government.39 The
Asset Privatization Trust was "constituted as [the
National Government's] trustee over the transferred (4) ordering defendants National Development
accounts and assets[.]"40 Corporation, Development Bank of the Philippines and
National Galleon Shipping Corporation, jointly and
severally, to pay each plaintiff and defendant
On September 16, 2003, the Regional Trial Court
Philippine National Construction Corporation,
upheld the validity of Letter of Instructions No. 1155
₱10,000.00 as moral damages; and ₱10,000.00 as
and the Memorandum of Agreement executed by NDC
exemplary damages.
and Galleon's stockholders, pursuant to Letter of
Instructions No. 1155.41
SO ORDERED.45
The Regional Trial Court also held that Letter of
Instructions No. 1195 did not supersede or impliedly On February 23, 2003, the Regional Trial Court issued
repeal Letter of Instructions No. 1155, and assuming an Order46 partially reconsidering and modifying the
that it did impliedly repeal Letter of Instructions No. September 16, 2003 Decision by categorically
1155, it would be void and unconstitutional for declaring Sta. Ines, Cuenca, Tinio, Cuenca
violating the non-impairment clause.42 Investment, and Universal Holdings free from liability
under the mortgage contract with DBP and the
deficiency claim of DBP.47 The Regional Trial Court
As regards NDC's argument that Sta. Ines, Cuenca,
also deleted the award of US$2.3 million to Sta. Ines,
Tinio, Cuenca Investment, and Universal Holdings had
Cuenca, Tinio, Cuenca Investment, and Universal
no basis to compel it to pay Galleon's shares of stocks
Holdings since they failed to include the same in their
because no share purchase agreement was executed,
fourth amended complaint.48 The dispositive portion
the Regional Trial Court held that the NDC was in
of the Regional Trial Court Order, as amended, reads:
estoppel since it prevented the execution of the share
purchase agreement and had admitted to being
Galleon's owner.43 WHEREFORE, judgment is hereby rendered (1)
ordering defendants National Development
Corporation and National Galleon Shipping
The Regional Trial Court also ruled that Sta. Ines,
Corporation, jointly and severally, to pay plaintiffs
Cuenca, Tinio, Cuenca Investment, and Universal
Sta. Ines Melale Forest Products Corporation, Rodolfo
Holdings' liability to DBPunder the Deed of
M. Cuenca, Manuel I. Tinio, Cuenca Investment
Undertaking had been extinguished due to novation,
Corporation and Universal Holdings Corporation, the
with NDC replacing them and PNCC as debtors.44 The
amount of ₱l5,150,000.00 representing the amount of
dispositive of the Regional Trial Court's Decision
advances made by plaintiffs in behalf of defendant
reads:
NGSC, plus legal interest at the rate of 6% per
annum from the date of filing of this case on 22 April
WHEREFORE, judgment is hereby rendered (1) 1985 up to full payment;
ordering defendants National Development
Corporation and National Galleon Shipping
(2) ordering defendants National Development
Corporation, jointly and severally, to pay plaintiffs
Corporation and National Galleon Shipping
Sta. Ines Melale Forest Products Corporation, Rodolfo
Corporation, jointly and severally, to pay plaintiffs
M. Cuenca, Manuel I. Tinio, Cuenca Investment
Sta. Ines Melale Forest Products Corporation, Rodolfo
Corporation and Universal Holdings Corporation, the
M. Cuenca, Manuel I. Tinio, Cuenca Investment
amounts of ₱15,150,000.00 and US$2.3 million,
Corporation and Universal Holdings Corporation, the
representing the amount of advances made by
amount of ₱46,740,755.00, representing the price of
plaintiffs in behalf of defendant Galleon, plus legal
the shares of stock of plaintiffs and defendant PNCC in
interest at the rate of 6% per annum from the date of
defendant NGSC, plus legal interest at the rate of
filing of this case on 22 April 1985 up to full payment;
6% per annum from the date of filing of this case on
22 April 1985 up to full payment;
(2) ordering defendants National Development
Corporation and National Galleon Shipping
(3) ordering defendants National Development
Corporation, jointly and severally, to pay plaintiffs
Corporation and National Galleon Shipping
Sta. Ines Melale Forest Products Corporation, Rodolfo
Corporation, jointly and severally, to pay plaintiffs
M. Cuenca, Manuel I. Tinio, Cuenca Investment
Sta. Ines Melale Forest Products Corporation, Rodolfo
Corporation and Universal Holdings Corporation, the
M. Cuenca, Manuel I. Tinio, Cuenca Investment
amount of ₱46,740,755.00, representing the price of
Corporation and Universal Holdings Corporation,
the shares of stock of plaintiffs and defendant PNCC in
attorney's fees equivalent to 10% of the amount due;
defendant Galleon, plus legal interest at the rate of
and costs of suit;
6% per annum from the date of filing of this case on
22 April 1985 up to full payment;
(4) ordering defendants National Development
Corporation and National Galleon Shipping
(3) ordering defendants National Development
Corporation, jointly and severally, to pay to each
Corporation and National Galleon Shipping
plaintiff and defendant Philippine National
Corporation, jointly and severally, to pay plaintiffs
Construction Corporation, ₱10,000.00 as moral
Sta. Ines Melale Forest Products Corporation, Rodolfo
damages; and ₱10,000.00 as exemplary damages;
M. Cuenca, Manuel I. Tinio, Cuenca Investment
and
Corporation and Universal Holdings Corporation,
attorney's fees equivalent to 10% of the amount due;
and costs of suit; and (5) declaring plaintiffs Sta. Ines Melale Forest
Products Corporation, Rodolfo M. Cuenca, Manuel I.
Tinio, Cuenca Investment Corporation and Universal
Holdings Corporation and defendant Philippine
National Construction Corporation to be no longer
liable to defendants National Development
Corporation, Development Bank of the Philippines and
Asset Privatization Trust under the deed of
undertaking, pledge, mortgages, and other accessory
contracts between the parties; and consequently,
permanently enjoining defendant DBP or APT from
filing a deficiency claim against plaintiffs and
defendant PNCC.
SO ORDERED.49
of Galleon were transferred to the Asset Privatization
Trust.58
The fallo of the Court of Appeals Decision reads:
WHEREFORE, in view of the foregoing premises, the
assailed Decision, as well as, assailed Order, appealed
from is
hereby AFFIRMED with MODIFICATIONS such
that, as modified, the dispositive portion thereof shall
now read as follows:

"WHEREFORE, judgment is hereby rendered (1)

On March 9, 2004 and March 16, 2004, DBP and NDC
ordering defendants National Development
filed their respective notices of appeal to the Court of
Corporation and National Galleon Shipping
Appeals.50
Corporation jointly and severally, to pay plaintiffs Sta.
Ines Melale Forest Products Corporation, Rodolfo M.
In its assailed Decision dated March 24, 2010, the Cuenca, Manuel I. Tinio, Cuenca Investment
Court of Appeals upheld the Regional Trial Court's Corporation and Universal Holdings Corporation, the
findings that the Memorandum of Agreement between amount of ₱15,150,000.00 representing the amount
NDC and Cuenca (representing Sta. Ines, Cuenca, of advances made by plaintiffs in behalf of defendant
Tinio, Cuenca Investment, and Universal Holdings) NGSC, plus interest at the rate of twelve percent
was a perfected contract, which bound the (12%) per annum from the date of filing of this case
parties,51 thus: on 22 April 1985 until instant Decision becomes final
and executory, thereafter the said amount shall earn
an interest at the rate of twelve (12%) percent per
Although the Supreme Court ruled in the Poliand case
annum from such finality until its satisfaction;
that LOI No. 1155 is a mere administrative issuance
and, as such, cannot be a valid source of obligation,
the defendant-appellant NDC cannot escape its (2) ordering the defendants National Development
liabilities to the plaintiffs-appellees considering that Corporation and National Galleon Shipping
the Memorandum of Agreement that it executed with [C]orporation, jointly and severally, to pay plaintiffs
the plaintiffs-appellees created certain rights and Sta. Ines Melale Forest Products Corporation, Rodolfo
obligations between the parties which may be M. Cuenca, Manuel I. Tinio, Cuenca Investment
enforced by the parties against each other. The Corporation and Universal Holdings Corporation, the
situation in the Poliand case is different because amount of ₱46,740,755.00, representing the price of
Poliand was not a party to the Memorandum of the shares of stock of plaintiffs and defendant PNCC in
Agreement.52 defendant NGSC, plus interest at the rate of twelve
percent (12%) per annum from the date of filing of
this case on 22 April 1985 until
The Court of Appeals ruled that NDC is estopped from
instant Decision becomes final and executory,
claiming that there was no agreement between it and
thereafter the said amount shall earn an interest at
Cuenca since the agreement had already been
the rate of twelve percent (12%) per annum from
partially executed after NDC took over the control and
such finality until its satisfaction;
management of Galleon.53

(3) ordering the defendants National Development

The Court of Appeals also rejected NDC's argument
Corporation and National Galleon Shipping
that it should not be held liable for the payment of
Corporation, jointly and severally, to pay plaintiffs
Galleon's shares.54 The Court of Appeals held that
Sta. Ines Melale Forest Products Corporation, Rodolfo
NDC "voluntarily prevented the execution of a share
M. Cuenca, Manuel I. Tinio, Cuenca Investment
purchase agreement when it reneged on its various
Corporation and Universal Holdings Corporation,
obligations under the Memorandum of Agreement."55
attorney's fees equivalent to 10% of the amount due;
and costs of suit;
The Court of Appeals likewise affirmed the Regional
Trial Court's ruling that novation took place when NDC
(4) ordering the defendants National Development
agreed to be substituted in place of Sta. Ines, Cuenca,
Corporation and National Galleon Shipping
Tinio, Cuenca Investment, and Universal Holdings in
Corporation, jointly and severally, to pay to each
the counter-guarantees they issued in favor of DBP.56
plaintiffs and defendant Philippine National
Construction Corporation, ₱10,000.00 as moral
The Court of Appeals ruled that DBP was privy to the damages; and ₱10,000.00 as exemplary damages;
Memorandum of Agreement between NDC and Sta. and
Ines, Cuenca, Tinio, Cuenca Investment, and
Universal Holdings, since Ongpin was concurrently
(5) declaring plaintiffs Sta. Ines Melale Forest
Governor of DBP and chairman of the NDC Board at
Products Corporation, Rodolfo M. Cuenca, Manuel I.
the time the Memorandum of Agreement was
Tinio, Cuenca Investment Corporation and Universal
signed.57
Holdings Corporation and defendant Philippine
National Construction Corporation to be no longer
The Court of Appeals further held that DBPwas no liable to defendants National Development
longer the real party-in-interest as the loan accounts Corporation, Development Bank of the Philippines and
Asset Privatization Trust under the deed of Bautista v. Court of Appeals72 instructs that where the
undertaking, pledge, mortgages, and other accessory language of a contract is plain and unambiguous, the
contracts between the parties; and consequently, contract must be taken at its face value, thus:
permanently enjoining defendant DBP or APT from
filing a deficiency claim against plaintiffs and
The rule is that where the language of a contract is
defendant PNCC.
plain and unambiguous, its meaning should be
determined without reference to extrinsic facts or
SO ORDERED.59 (Emphasis and underscoring in the aids. The intention of the parties must be gathered
original) from that language, and from that language alone.
Stated differently, where the language of a written
contract is clear and unambiguous, the contract must
On September 16, 2010, NDC appealed the Court of
be taken to mean that which, on its face, it purports
Appeals Decision to this Court. In its Petition for
to mean, unless some good reason can be assigned to
Review,60NDC maintains that the Memorandum of
show that the words used should be understood in a
Agreement does not bind it, since Ongpin was not
different sense. Courts cannot make for the parties
equipped with authority from the NDC Board to sign
better or more equitable agreements than they
the Memorandum of Agreement on NDC's
themselves have been satisfied to make, or rewrite
behalf.61 NDC also denies that it took over the control
contracts because they operate harshly or inequitably
and management of Galleon or that it "prevented the
as to one of the parties, or alter them for the benefit
execution of the [s]hare [p]urchase [a]greement[.]"62
of one party and to the detriment of the other, or by
construction, relieve one of the parties from terms
NDC asserts that even assuming that the which he voluntarily consented to, or impose on him
Memorandum of Agreement was binding, what was those which he did not.73
agreed upon was that the parties shall execute a share
purchase agreement within a certain period of
It is not disputed that NDC and respondents Sta. Ines,
time.63 The Memorandum of Agreement was only a
Cuenca, Tinio, Cuenca Investment, and Universal
preliminary agreement between Cuenca and Ongpin
Holdings executed a Memorandum of Agreement
for NDC's "intended purchase of Galleon's equity[,]
pursuant to the directives of Letter of Instructions No.
pursuant to [Letter of Instructions No.] 1155."64 The
1155.
Memorandum of Agreement cannot "be considered as
the executing agreement or document for the
purchase of the shares."65 Under the Memorandum of Agreement, NDC, as the
Buyer, undertook to:
On September 13, 2010, DBP filed its Petition for
Review66 before this Court. DBP insisted that novation a) implement Letter of Instructions No. 1155
did not take place because: (a) there was no second and acquire 100% of Galleon's
binding contract designed to replace the Deed of shareholdings;
Undertaking; (b) it did not give its consent to the
substitution of debtors under the Memorandum of
b) assume actual control over Galleon's
Agreement; and (c) there was no agreement that
management and operations prior to the
unequivocally declared novation by substitution of
execution of a formal share purchase
debtors.67
agreement and prior to the transfer to NDC
of Galleon's shareholdings;
The issues raised for the resolution of this Court are
as follows:
c) designate five persons to sit in Galleon's
Board of Directors;
a) Whether the Memorandum of Agreement
obligates NDC to purchase Galleon's shares
d) pay Galleon's stockholders the share
of stocks and pay the advances made by
purchase price after five years from the date
respondents in Galleon's favor;68
of the share purchase agreement;

b) Whether the Memorandum of Agreement

e) issue each Galleon stockholder a
novated the Deed of Undertaking executed
negotiable promissory note with maturity on
between DBP and respondents;69 and
the date of the fifth annual anniversary of the
share purchase agreement;
c) Whether the computation of legal interest
should be at the rate of 6% per annum,
f) verify Galleon's special warranty on its
instead of the 12% per annum pegged by the
liabilities and obligations by conducting an
Court of Appeals.70
audit; and

I
When the "terms of a contract are clear and leave no
doubt upon the intention of the contracting parties,
the literal meaning of its stipulations shall control."71
g) consider for priority in the repayment of
accounts, Galleon's valid and duly authorized
liabilities which are the subject of meritorious
lawsuit or which have been arranged and
guaranteed by Cuenca. While respondents,
Galleon's stockholders, as the Sellers,
undertook to:
 a) implement Letter of Instructions No. 1155
by allowing NDC to purchase 100% of their
shareholdings;
b) consent for NDC to assume actual control
over Galleon's management and operations
prior to the execution of a formal share
purchase agreement and prior to the transfer
to NDC of Galleon's shareholdings;
c) elect NDC's designated five persons to
Galleon's Board of Directors;
d) warrant that ₱46,740,755.00 had been
actually paid to Galleon, representing
payment of 46,740,755 common shares to
Galleon;
e) deliver to NDC, upon signing of the share
purchase agreement, 10,000,000 common
shares of Galleon, duly and validly endorsed
for transfer, free from any and all liens and
encumbrances whatsoever; and
f) make special warranties under clause 8.
As parties to the Memorandum of Agreement, NDC
and respondents jointly undertook to:
a) immediately implement Letter of
Instructions No. 1155;
b) endeavor to prepare and sign a share
purchase agreement covering 100% of
Galleon's shareholdings not more than 60
days after the signing of the Memorandum of
Agreement; and
c) incorporate the conditions listed down in
clause 7 in the share purchase agreement.
The law is categorical that "various stipulations of a
contract shall be interpreted together, attributing to
the doubtful ones that sense which may result from all
of them taken jointly."74 Fernandez v. Court of
Appeals75further emphasizes that " [t]he important
task in contract interpretation is always the
ascertainment of the intention of the contracting
parties and that task is of course to be discharged by
looking to the words they used to project that
intention in their contract, all the words not just a
particular word or two, and words in context not
words standing alone."76
The Court of Appeals found that the Memorandum of
Agreement between NDC and Galleon was a perfected
contract for NDC to purchase 100% of Galleon's
shareholdings. However, a careful reading of the
Memorandum of Agreement shows that what the
parties agreed to was the execution of a share
purchase agreement to effect the transfer of 100% of
Galleon's shareholdings to NDC, as seen in clause 3:
3. As soon as possible, but not more than 60 days
after the signing hereof, the parties shall endeavor to
prepare and sign a share purchase agreement
covering 100% of the shareholdings of Sellers in GSC
to be transferred to Buyer, i.e. 10,000,000 fully paid
common shares of the par value of ₱1.00 per share
and subscription of an additional 100,000,000
common shares of the par value of ₱1.00 per share of
which ₱36,740,755.00 has been paid, but not yet
issued.
The second paragraph of clause 4 likewise makes the
execution of a share purchase agreement a condition
before the purchase price can be paid to respondents,
since the payment of the purchase price becomes due
only after five years from the date of execution of the
share purchase agreement:
4. Sellers hereby warrant that ₱46,740,755[.00] had
been actually paid to Galleon Shipping Corporation,
which amount represents payment of Sellers for
46,740,755 common shares of said Corporation. This
warranty shall be verified by Buyer, the results of
which will determine the final purchase price to be
paid to Sellers.
The purchase price directed by LOI 1155 to be paid to
Sellers shall be paid after five (5) years from date of
the share purchase agreement with no interest cost to
buyer. (Emphasis supplied)
NDC asserts that the Memorandum of Agreement was
only a preliminary agreement between Galleon,
represented by Cuenca, and NDC, represented by
Ongpin, for the intended purchase of Galleon's equity
pursuant to Letter of Instructions No. 1155,77 thus:
It merely prescribed the manner, terms and
conditions of said purchase. In fact, the
[Memorandum of Agreement] provided for a time
frame for the execution of the share purchase
agreement which is within sixty (60) days from the
signing thereof. By no means can it be considered as
the executing agreement or document for the
purchase of the shares.78
NDC's assertion that the Memorandum of Agreement
was merely a preliminary agreement that was
separate and distinct from the share purchase
agreement, finds support in clause 7 of the
Memorandum of Agreement, which lists down the
terms and conditions to be included in the share
purchase agreement as follows:
7. The stock purchase agreement to be prepared and
signed by the parties within sixty (60) days from date
hereof shall contain, among other things:
(a) standard warranties of seller including, but not
limited to, warranties pertaining to the accuracy of
financial and other statements of GSC; disclosure of
liabilities; payment of all taxes, duties, licenses and
fees; non-encumbrance of corporate assets; valid
contracts with third parties, etc. including an
indemnity clause covering any breach thereof.
(b) provisions that Buyer shall retain 2
representatives of Sellers in the board of GSC only for
as long as Sellers have not been paid, or have not
negotiated or discounted any of the promissory notes
referred to in clause 5 above.
(c) provisions whereby Construction Development
Corporation of the Philippines, Sta. Ines Melale Forest
Products Corporation, Mr. Rodolfo M. Cuenca and Mr.
Manuel I. Tinio shall be released from counter-
guarantees they have issued in favor of DBP and other
financial institutions in connection with GSC's various
credit accommodations.
(d) provisions for arbitration as a means of settling
disputes and differences of opinion regarding the
stock purchase agreement.
Under clause 7 of the Memorandum of Agreement,
NDC and respondents agreed to include in the still-to-
be-executed share purchase agreement, provisions
on: (a) standard warranties, including warranties on
the accuracy of Galleon's financials, disclosure of
liabilities, etc; (b) the retention of Galleon's
representatives in Galleon's board of directors prior to
the payment of the share purchase price; (c) the
release of respondents from the counter-guarantees
they made in favor of DBP and other financial
institutions in connection with Galleon's various credit
accommodations; and (d) arbitration as a means of
settling disputes and differences of opinion regarding
the stock purchase agreement.
Taking the provisions of the Memorandum of
Agreement as a whole, it is clear that while there was
an intention to follow the directives of Letter of
Instructions No. 1155, the transfer of shares from
respondents to NDC was to be effected only with the
execution of the share purchase agreement, the terms
and conditions of which were laid out in the
Memorandum of Agreement.
NDC and the respondents undertook to prepare and
sign a share purchase agreement over 100% of
respondents' shares in Galleon not more than sixty
days after the signing of the Memorandum of
Agreement:
3. As soon as possible, but not more than 60 days
after the signing hereof, the parties shall endeavor to
prepare and sign a share purchase agreement
covering 100% of the shareholdings of Sellers in GSC
to be transferred to Buyer, i.e. 10,000,000 fully paid
common shares of the par value of ₱1.00 per share
and subscription of an additional 100,000,000
common shares of the par value of ₱1.00 per share of
which ₱36,740,755.00 has been paid, but not yet
issued.
The execution of a share purchase agreement was a
condition precedent to the transfer of Galleon's shares
to NDC. However, the Court of Appeals found that the
NDC prevented its execution by deliberately delaying
its review of Galleon's financial accounts:
From the foregoing, it is evident that the period for
the payment of the purchase price is entirely
dependent on the execution of a share purchase
agreement by the parties. The evidence on record,
however, show that the defendant-appellant NDC
itself voluntarily prevented the execution of a share
purchase agreement when it reneged on its various
obligations under the Memorandum of
Agreement. The evidence on record show that the
share purchase agreement was not formally executed
because then Minister Roberto Ongpin claimed that
the accounts of defendant Galleon had to be reviewed
and cleared up before the share purchase agreement
is signed. While defendant Galleon made its financial
records available to defendant-appellant NDC for their
review, the latter never made any serious effort to
review the financial accounts of the defendant
Galleon, hence, effectively preventing the execution of
the share purchase agreement. Consequently, the
condition for the running of the period for the payment
of the purchase price of the shares of stocks in
defendant Galleon by the defendant-appellant
NDC, i.e., the execution of the Share Purchase
Agreement, was deemed fulfilled as it was the
defendant-appellant NDC itself which prevented it
from happening. Under Article 1186 of the Civil Code,
a "condition shall be deemed fulfilled when the obligor
voluntarily prevents its fulfilment." This applies in the
instant case.79 (Emphasis supplied)
The Regional Trial Court likewise found that
respondent Cuenca, as Galleon's representative,
initiated moves for the preparation and execution of
the share purchase agreement and NDC's takeover of
Galleon.80 Nonetheless, despite Cuenca's efforts, the
share purchase agreement was never formally
executed:
Assuming that the share purchase agreement was a
condition for the effectivity of the Memorandum of
Agreement (dated 10 August 1981 ), said condition is
deemed fulfilled by virtue of Art. 1186 of the Civil
Code, which provides that "the condition shall be
deemed fulfilled when the obligor voluntarily prevents
its fulfillment." Plaintiff Cuenca, as representative of
the former shareholders of defendant Galleon, in order
to clear up the accounts preparatory to the execution
of the share purchase agreement, created a team to
prepare a statement of defendant Galleon's
outstanding accounts which statement of account was
intended to be included as part of the annexes of the
said share purchase agreement. Another team with
representatives from both parties, that is, the former
stockholders of defendant Galleon and defendant
NDC, had to be created for a smoother turnover.
However, despite said efforts done by plaintiff Cuenca
the share purchase agreement was not formally
executed.81 (Emphasis in the original)
NDC denies that it caused the delay in the execution
of the share purchase agreement and argues that it
was Cuenca who caused the delay for insisting on the
payment first of the advances made in Galleon's favor
before executing the share purchase agreement and
relinquishing control over Galleon.82
NDC's bare denials cannot succeed in light of the
preponderance of evidence submitted by respondents.
In his Affidavit83 dated June 17, 1999, Cuenca
narrated the preparations the Galleon stockholders
undertook for the execution of the share purchase
agreement with NDC:
168. Q: What happened to the share purchase
agreement referred to in the Memorandum of
Agreement dated August 1981 (Exhibit "J")?
A: The share purchase agreement was never drawn
up despite persistent attempts by myself to see it
prepared and executed. In fact, we continually
negotiated with NDC and DBP throughout 1982 and
1983 on the matter.
169. Q: Why was it never executed?
A: Minister Ongpin kept claiming that the accounts
had to be cleared up before any formal agreement
could be signed.
170. Q: What steps, if any, did the parties take to clear
up the accounts preparatory to the signing of the
share purchase agreement?
A: During the transition period, prior to the signing of
the share purchase agreement, I created a team to
prepare a statement of Galleon's outstanding
accounts which we intended to include as part of the
annexes of the share purchase agreement. Another
team with representatives from both parties, i.e., the
former stockholders of Galleon and NDC, had to be
created for a smoother turn-over. In short, we did all
that was possible and required of us under the
Memorandum of Agreement. We negotiated with NDC
in good faith for years but NDC kept stonewalling the
execution of the share purchase
agreement.84 (Emphasis supplied)
On April 26, 1982, Antonio L. Carpio, NDC's General
Manager,85 sent Ongpin a Memorandum,86 where
Carpio acknowledged reviewing Galleon's outstanding
accounts submitted by Cuenca.87 This supports
Cuenca's statement that they submitted a statement
of Galleon's outstanding accounts for NDC's review, as
per Ongpin's request, a fact not denied by NDC.
Upon receiving Galleon's outstanding accounts, NDC
and Sta. Ines, Cuenca, Tinio, Cuenca Investment and
Universal Holdings should have initiated the execution
of the share purchase agreement. However, the share
purchase agreement was never executed, through no
fault of Galleon's stockholders.
In clause 4 of the Memorandum of Agreement, NDC
as the buyer was to verify the warranty of the Galleon
shareholders that ₱46,740,755.00 was paid for
Ga1leon's 46,740,755 common shares with par value
of ₱1.00 per share. The results of the verification
would have determined the final purchase price to be
paid to the Galleon shareholders. Nonetheless, despite
the verification still to be done, both parties agreed to
execute the share purchase agreement as soon as
possible but not more than sixty days from the signing
of the Memorandum of Agreement.
We uphold the Court of Appeals' finding that the
failure to execute the share purchase agreement was
brought about by NDC's delay in reviewing the
financial accounts submitted by Galleon's
stockholders. The Memorandum of Agreement was
executed on August 10, 1981, giving the parties no
more than sixty days or up to October 9, 1981, to
prepare and sign the share purchase agreement.
However, it was only on April 26, 1982, or more than
eight months after the Memorandum of Agreement
was signed, did NDC's General Director submit his
recommendation on Galleon's outstanding account.
Even then, there was no clear intention to execute a
share purchase agreement as compliance with the
Memorandum of Agreement. Article 1186 of the Civil
Code is categorical that a "condition shall be deemed
fulfilled when the obligor voluntarily prevents its
fulfilment." Considering NDC's delay, the execution of
the share purchase agreement should be considered
fulfilled with NDC as the new owner of 100% of
Galleon's shares of stocks.
The due execution of the share purchase agreement
is further bolstered by Article 1198(4) of the Civil
Code, which states that the debtor loses the right to
make use of the period when a condition is violated,
making the obligation immediately demandable:
Article 1198. The debtor shall lose every right to make
use of the period:
(1) When after the obligation has been contracted, he
becomes insolvent, unless he gives a guaranty or
security for the debt;
(2) When he does not furnish to the creditor the
guaranties or securities which he has promised;
(3) When by his own acts he has impaired said
guaranties or securities after their establishment, and
when through a fortuitous event they disappear,
unless he immediately gives new ones equally
satisfactory;
(4) When the debtor violates any undertaking, in
consideration of which the creditor agreed to the
period;
(5) When the debtor attempts to abscond. (Emphasis
supplied)
Well-settled is the rule that findings of fact made by a
trial court and the Court of Appeals are accorded the
highest degree of respect by this Court, and, absent a
clear disregard of the evidence before it that can
otherwise affect the results of the case, those findings
should not be ignored.88
II
The Regional Trial Court found that the advances
made by respondents in Galleon's behalf covered
legitimate expenses in the ordinary course of
business,89 making NDC liable under clause 9 of the
Memorandum of Agreement, which states:
9. Valid and duly authorized liabilities of GSC which
are the subject of a meritorious lawsuit, or which have
been arranged and guaranteed by Mr. Rodolfo M.
Cuenca, may be considered by Buyer for priority in the
repayment of accounts, provided that, upon review,
the Buyer shall determine these to be legitimate and
were validly incurred in the ordinary course of GSC's
principal business.
NDC's liability for the advances made in Galleon's
behalf was upheld by the Court of Appeals, which held
that the advances made were valid and authorized
liabilities incurred by Galleon in the course of its
business, thus:
In the instant case, the advances being claimed by
[respondents] are in the nature of guarantee fees in
consideration for the personal undertakings of the
[respondents] to secure the potential liabilities of
defendant-appellant DBP in favor of defendant
Galleon's foreign creditors, advances to cover
payments of interest, security and management fees
arising out of a mortgage contract, charter line
payments, bare boat hire payments, fuel and ship
franchise payments, salaries and wages and
advertising expenses[. ]90
Ordinary and necessary business expenses are those
that are "directly attributable to, the development,
management, operation and/or conduct of the trade,
business or exercise of a profession[.]"91
In Carpio's Memorandum to Ongpin dated April 26,
1982, he recommended that the guarantee fees being
claimed by Galleon's stockholders should not be paid.
Carpio also questioned the ₱1,400,000.00 interest
being charged by Sta. Ines from the ₱6,650,000.00
cash advances it made in Galleon's behalf. Carpio
likewise questioned the charge of ₱600,000.00 being
claimed as Galleon's share for the Construction
Development Corporation of the Philippine's
basketball team with the Philippine Basketball
Association.92
We see no reason to disturb the findings of fact made
by the trial court and the Court of Appeals considering
that the same are duly supported by substantial
evidence.
III
Novation is a mode of extinguishing an obligation by
"[c]hanging [its] object or principal conditions[,]
[s]ubstituting the person of the debtor [or]
[s]ubrogating a third person in the rights of the
creditor."93 While novation, "which consists in
substituting a new debtor in the place of the original
one may be made even without the knowledge or
against the will of the latter, [it must be with] the
consent of the creditor."94
Testate Estate of Mota v. Serra95 instructs that for
novation to have legal effect, the creditor must
expressly consent to the substitution of the new
debtor:
It should be noted that in order to give novation its
legal effect, the law requires that the creditor should
consent to the substitution of a new debtor.
This consent must be given expressly for the reason
that, since novation extinguishes the personality of
the first debtor who is to be substituted by new one,
it implies on the part of the creditor a waiver of the
right that he had before the novation, which waiver
must be express under the principle that renuntiatio
non prcesumitur, recognized by the law in declaring
that a waiver of right may not be performed unless
the will to waive is indisputably shown by him who
holds the right.96 (Emphasis supplied)
The Court of Appeals erred when it ruled that DBP was
privy to the Memorandum of Agreement since Ongpin
was concurrently Governor of DBP and chairman of
NDC Board of Directors at the time the Memorandum
of Agreement was signed.97
The general rule is that, "[i]n the absence of an
authority from the board of directors, no person, not
even the officers of the corporation, can validly bind
the corporation."98 A corporation is a juridical person,
separate and distinct from its stockholders and
members, having "powers, attributes and properties
expressly authorized by law or incident to its
existence."99
Section 23100 of the Corporation Code provides that
"the corporate powers of all corporations ... shall be
exercised, all business conducted and all property of
such corporations [shall] be controlled and held by the
board of directors[.]"
Peoples Aircargo and Warehousing Co. Inc. v. Court of
Appeals101 explains that under Section 23 of the
Corporation Code, the power and responsibility to bind
a corporation can be delegated to its officers,
committees, or agents. Such delegated authority is
derived from law, corporate bylaws, or authorization
from the board:
Under this provision, the power and the responsibility
to decide whether the corporation should enter into a
contract that will bind the corporation is lodged in the
board, subject to the articles of incorporation, bylaws,
or relevant provisions of law. However, just as a
natural person may authorize another to do certain
acts for and on his behalf, the board of directors may
validly delegate some of its functions and powers to
officers, committees or agents. The authority of such
individuals to bind the corporation is generally derived
from law, corporate bylaws or authorization from the
board, either expressly or impliedly by habit, custom
or acquiescence in the general course of
business, viz.:
"A corporate officer or agent may represent and bind
the corporation in transactions with third persons to
the extent that [the] authority to do so has been
conferred upon him, and this includes powers which
have been intentionally conferred, and also such
powers as, in the usual course of the particular
business, are incidental to, or may be implied from,
the powers intentionally conferred, powers added by
custom and usage, as usually pertaining to the
particular officer or agent, and such apparent powers
as the corporation has caused persons dealing with
the officer or agent to believe that it has
conferred."102 (Emphasis supplied)
Aside from Ongpin being the concurrent head of DBP
and NDC at the time the Memorandum of Agreement
was executed, there was no proof presented that
Ongpin was duly authorized by the DBP to give
consent to the substitution by NDC as a co-guarantor
of Galleon's debts. Ongpin is not DBP, therefore, it is
wrong to assume that DBP impliedly gave its consent
to the substitution simply by virtue of the personality
of its Governor.
Novation is never presumed. The animus
novandi, whether partial or total, "must appear by
express agreement of the parties, or by their acts
which are too clear and unequivocal to be
mistaken."103
There was no such animus novandi in the case at bar
between DBP and respondents, thus, respondents
have not been discharged as Galleon's co-guarantors
under the Deed of Undertaking and they remain liable
to DBP.
IV
On the issue of attorney's fees and moral and
exemplary damages awarded to Sta. Ines, Cuenca,
Tinio, Cuenca Investment, and Universal Holdings, the
Court of Appeals upheld the findings of the Regional
Trial Court for being just, reasonable, and supported
by the evidence on record.104
We see no reason to disturb the findings of the lower
courts.
However, on the issue of compensatory interest as
damages, where the Regional Trial Court imposed an
interest rate of six percent (6%) per annum on the
advances made and the payment due for the shares
of stock,105 the Court of Appeals modified the Regional
Trial Court's ruling insofar as the interest rate to be
imposed was concemed.106The Court of Appeals ruled
that the advances made by Sta. Ines, Cuenca, Tinio,
Cuenca Investment, and Universal Holdings and the
payment due them for the Galleon shares of stocks
were loans or forbearances of money that should earn
interest of 12% from the date the case was
filed.107 Furthermore, the Court of Appeals held that
these amounts should likewise earn an additional 12%
interest per annum from finality until its
satisfaction.108
Estores v. Spouses Supangan109 defined forbearance
as an arrangement other than a loan where a person
agrees to the temporary use of his money, goods, or
credits subject to the fulfilment of certain
conditions.110
In this case, Sta. Ines, Cuenca, Tinio, Cuenca
Investment, and Universal Holdings advanced money
in Galleon's favor and agreed to turn over
management and control of Galleon to NDC even
before receiving payment for their shares of stocks.
They were deprived of the use of their money in both
cases for the periods pending fulfillment of the agreed
conditions. When those conditions were not met, they
became entitled not only to the return of their
advances and payment of their shares of stocks, but
also to the compensation for the use of their money
and property. The unwarranted withholding of the
money, which rightfully pertains to Sta. Ines, Cuenca,
Tinio, Cuenca Investment, and Universal Holdings,
amounts to forbearance of money.
Sunga-Chan v. Court of Appeals,111 citing Eastern
Shipping Lines, Inc. v. Court of Appeals,112 reiterated
the rule on application of interest:
Eastern Shipping Lines, Inc. synthesized the rules on
the imposition of interest, if proper, and the applicable
rate, as follows: The 12% per annum rate under CB
Circular No. 416 shall apply only to loans or
forbearance of money, goods, or credits, as well as to
judgments involving such loan or forbearance of
money, goods, or credit, while the 6% per
annum under Art. 2209 of the Civil Code applies
"when the transaction involves the payment of
indemnities in the concept of damage arising from the
breach or a delay in the performance of obligations in
general," with the application of both rates reckoned
"from the time the complaint was filed until the
[adjudged] amount is fully paid." In either instance,
the reckoning period for the commencement of the
running of the legal interest shall be subject to the
condition "that the courts are vested with discretion,
depending on the equities of each case, on the award
of interest."
Otherwise formulated, the norm to be followed in the
future on the rates and application thereof is:
I. When an obligation, regardless of its source, is
breached, the contravenor can be held liable for
damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the
measure of recoverable damages.
II. With regard particularly to an award of interest in
the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation breached consists in the
payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that
which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be
12% per annum to be computed from
default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of
the Civil Code.
....
3. When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 12% per annum from
such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a
forbearance of credit.113 (Emphasis supplied, citations
omitted)
On May 16, 2013, the Monetary Board of the Bangko
Sentral ng Pilipinas issued Resolution No. 796, which
revised the interest rate to be imposed for the loan or
forbearance of any money, goods, or credits. This was
implemented by Bangko Sentral ng Pilipinas Circular
No. 799,114 Series of 2013, which reads:
The Monetary Board, in its Resolution No. 796 dated
16 May 2013, approved the following revisions
governing the rate of interest in the absence of
stipulation in loan contracts, thereby amending
Section 2 of Circular No. 905, Series of 1982:
Section 1. The rate of interest for the loan or
forbearance of any money, goods or credits and the
rate allowed in judgments, in the absence of an
express contract as to such rate of interest, shall be
six percent (6%) per annum.
Section 2. In view of the above, Subsection X305.l of
the Manual of Regulations for Banks and Sections
4305Q.1, 4305S.3 and 4303P. l of the Manual of
Regulations for Non-Bank Financial Institutions are
hereby amended accordingly.
This Circular shall take effect on 1 July 2013.
Nacar v. Gallery Frames, et al.115 then modified the
guidelines laid down in Eastern Shipping Lines to
embody Bangko Sentral ng Pilipinas Circular No. 799,
thus:
I. When an obligation, regardless of its
source, i.e., law, contracts, quasicontracts, delicts or
quasi-delicts is breached, the contravenor can be held
liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the
measure of recoverable damages.
II. With regard particularly to an award of interest in
the concept of actual and compensatory damages, the
rate of interest, as well as the accrual thereof, is
imposed, as follows:
1. When the obligation is breached, and it consists in
the payment of a sum of money, i.e., a loan or
forbearance of money, the interest due should be that
which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In the
absence of stipulation, the rate of interest shall be
6% per annum to be computed from
default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of
the Civil Code.
2. When an obligation, not constituting a loan or
forbearance of money, is breached, an interest on the
amount of damages awarded may be imposed at the
discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on
unliquidated claims or damages, except when or until
the demand can be established with reasonable
certainty. Accordingly, where the demand is
established with reasonable certainty, the interest
shall begin to run from the time the claim is made
judicially or extrajudicially (Art. 1169, Civil Code), but
when such certainty cannot be so reasonably
established at the time the demand is made, the
interest shall begin to run only from the date the
judgment of the court is made (at which time the
quantification of damages may be deemed to have
been reasonably ascertained). The actual base for the
computation of legal interest shall, in any case, be on
the amount finally adjudged.
3. When the judgment of the court awarding a sum of
money becomes final and executory, the rate of legal
interest, whether the case falls under paragraph 1 or
paragraph 2, above, shall be 6% per annum from
such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a
forbearance of credit.
And, in addition to the above, judgments that have
become final and executory prior to July 1, 2013, shall
not be disturbed and shall continue to be implemented
applying the rate of interest fixed therein.116
Applying these guidelines, the Court of Appeals' ruling
must be modified to reflect the ruling in Nacar. The
award of the advances made by Sta. Ines, Cuenca,
Tinio, Cuenca Investment, and Universal Holdings in
Galleon's favor and payment for their shares of stocks
in Galleon shall earn an interest rate of l 2% per
annum from the date of filing of this case on April 22,
1985117 until June 30, 2013. After June 30, 2013,
these amounts shall earn interest at six percent
(6%) per annum until the Decision becomes final and
executory. An interest of six percent (6%) per
annumshall be imposed on such amounts from the
finality of the Decision until its satisfaction.
Finally, DBP's claims for damages are denied since it
failed to support its claims of malicious prosecution
and a deliberate act of Sta. Ines, Cuenca, Tinio,
Cuenca Investment, and Universal Holdings to cause
loss or injury to DBP.
WHEREFORE, the March 24, 2010 Decision and July
21, 2010 Resolution of the Court of Appeals in CA-G.R.
CV No. 85385 are AFFIRMED with the
following MODIFICATIONS:
(1) Sta. Ines Melale Forest Products
Corporation, Rodolfo M. Cuenca, Manuel I.
Tinio, Cuenca Investment Corporation,
Universal Holdings Corporation, and the
Philippine National Construction Corporation
are declared LIABLE to the National
Development Corporation, the Development
Bank of the Philippines, and the Asset
Privatization Trust under the deed of
undertaking, pledge, mortgages, and other
accessory contracts among the parties; and
(2) The award of the advances made by Sta.
Ines Melale Forest Products Corporation,
Rodolfo M. Cuenca, Manuel L. Tinio, Cuenca
Investment Corporation, and Universal
Holdings Corporation in Galleon's favour, as
well as the award of the payment for their
shares of stocks in Galleon, shall earn an
interest rate of 12% per annum from the
date of the filing of this case on April 22,
1985 until June 30, 2013, after which, they
shall earn interest at the rate of 6% per
 annum until the Decision becomes final and
executory.
These amounts shall earn interest at the rate of
6% per annum from the finality of this Decision until
its satisfaction.
SO ORDERED.
[G.R. No. 108346. July 11, 2001]
Spouses MARIANO Z. VELARDE and AVELINA D.
VELARDE, petitioners, vs. COURT OF
APPEALS, DAVID A. RAYMUNDO and
GEORGE RAYMUNDO, respondents.
DECISION
PANGANIBAN, J.:
A substantial breach of a reciprocal obligation,
like failure to pay the price in the manner prescribed
by the contract, entitles the injured party to rescind
the obligation. Rescission abrogates the contract from
its inception and requires a mutual restitution of
benefits received.
The Case
Before us is a Petition for Review on
Certiorari[1] questioning the Decision[2] of the Court of
Appeals (CA) in CA-GR CV No. 32991 dated October
9, 1992, as well as its Resolution[3] dated December
29, 1992 denying petitioners motion for
reconsideration.[4]
The dispositive portion of the assailed Decision
reads:
WHEREFORE, the Order dated May 15, 1991 is hereby
ANNULLED and SET ASIDE and the Decision dated
November 14, 1990 dismissing the [C]omplaint is
REINSTATED. The bonds posted by plaintiffs-
appellees and defendants-appellants are hereby
RELEASED.[5]
The Facts
The factual antecedents of the case, as found by
the CA, are as follows:
x x x. David Raymundo [herein private respondent] is
the absolute and registered owner of a parcel of land,
together with the house and other improvements
thereon, located at 1918 Kamias St., Dasmarias
Village, Makati and covered by TCT No.
142177. Defendant George Raymundo [herein private
respondent] is Davids father who negotiated
with plaintiffs Avelina and Mariano Velarde [herein
petitioners] for the sale of said property, which was,
however, under lease (Exh. 6, p. 232, Record of Civil
Case No. 15952).
On August 8, 1986, a Deed of Sale with Assumption
of Mortgage (Exh. A; Exh. 1, pp. 11-12, Record) was
executed by defendant David Raymundo, as vendor,
in favor of plaintiff Avelina Velarde, as vendee, with
the following terms and conditions:
xxxxxxxxx
That for and in consideration of the amount of EIGHT
HUNDRED THOUSAND PESOS (P800,000.00),
Philippine currency, receipt of which in full is hereby
acknowledged by the VENDOR from the VENDEE, to
his entire and complete satisfaction, by these presents
the VENDOR hereby SELLS, CEDES, TRANSFERS,
CONVEYS AND DELIVERS, freely and voluntarily, with
full warranty of a legal and valid title as provided by
law, unto the VENDEE, her heirs, successors and
assigns, the parcel of land mentioned and described
above, together with the house and other
improvements thereon.
That the aforesaid parcel of land, together with the
house and other improvements thereon, were
mortgaged by the VENDOR to the BANK OF THE
PHILIPPINE ISLANDS, Makati, Metro Manila, to secure
the payment of a loan of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS (P1,800,000.00),
Philippine currency, as evidenced by a Real Estate
Mortgage signed and executed by the VENDOR in
favor of the said Bank of the Philippine Islands,
on______ and which Real Estate Mortgage was
ratified before Notary Public for Makati, _______, as
Doc. No. ____, Page No. ___, Book No. ___, Series of
1986 of his Notarial Register.
That as part of the consideration of this sale, the
VENDEE hereby assumes to pay the mortgage
obligations on the property herein sold in the amount
of ONE MILLION EIGHT HUNDRED THOUSAND PESOS
(P1,800,000.00), Philippine currency, in favor of Bank
of the Philippine Islands, in the name of the VENDOR,
and further agrees to strictly and faithfully comply
with all the terms and conditions appearing in the Real
Estate Mortgage signed and executed by the VENDOR
in favor of BPI, including interests and other charges
for late payment levied by the Bank, as if the same
were originally signed and executed by the VENDEE.
It is further agreed and understood by the parties
herein that the capital gains tax and documentary
stamps on the sale shall be for the account of the
VENDOR; whereas, the registration fees and transfer
tax thereon shall be for the account of the VENDEE.
(Exh. A, pp. 11-12, Record).
On the same date, and as part of the above-
document, plaintiff Avelina Velarde, with the consent
of her husband, Mariano, executed an Undertaking
(Exh. C, pp. 13-14, Record), the pertinent portions of
which read, as follows:
xxxxxxxxx
Whereas, as per Deed of Sale with Assumption of
Mortgage, I paid Mr. David A. Raymundo the sum of
EIGHT HUNDRED THOUSAND PESOS (P800,000.00),
Philippine currency, and assume the mortgage
obligations on the property with the Bank of the
Philippine Islands in the amount of ONE MILLION
EIGHT HUNDRED THOUSAND PESOS
(P1,800,000.00), Philippine currency, in accordance
with the terms and conditions of the Deed of Real
Estate Mortgage dated _________, signed and
executed by Mr. David A. Raymundo with the said
Bank, acknowledged before Notary Public for Makati,
_____, as Doc. No. ___, Page No. ___, Book No. __,
Series of 1986 of his Notarial Register.
WHEREAS, while my application for the assumption of
the mortgage obligations on the property is not yet
approved by the mortgagee Bank, I have agreed to
pay the mortgage obligations on the property with the
Bank in the name of Mr. David A. Raymundo, in
accordance with the terms and conditions of the said
Deed of Real Estate Mortgage, including all interests
and other charges for late payment.
WHEREAS, this undertaking is being executed in favor
of Mr. David A. Raymundo, for purposes of attesting
and confirming our private understanding concerning
the said mortgage obligations to be assumed.
NOW, THEREFORE, for and in consideration of the
foregoing premises, and the assumption of the
mortgage obligations of ONE MILLION EIGHT
HUNDRED THOUSAND PESOS (P1,800,000.00),
Philippine currency, with the Bank of the Philippine
islands, I, Mrs. Avelina D. Velarde, with the consent of
my husband, Mariano Z. Velarde, do hereby bind and
obligate myself, my heirs, successors and assigns, to
strictly and faithfully comply with the following terms
and conditions:
1. That until such time as my assumption of the
mortgage obligations on the property purchased is
approved by the mortgagee bank, the Bank of the
Philippine Islands, I shall continue to pay the said loan
in accordance with the terms and conditions of the
Deed of Real Estate Mortgage in the name of Mr. David
A. Raymundo, the original Mortgagor.
2. That, in the event I violate any of the terms and
conditions of the said Deed of Real Estate Mortgage, I
hereby agree that my downpayment of P800,000.00,
plus all payments made with the Bank of the Philippine
Islands on the mortgage loan, shall be forfeited in
favor of Mr. David A. Raymundo, as and by way of
liquidated damages, without necessity of notice or any
judicial declaration to that effect, and Mr. David A
Raymundo shall resume total and complete ownership
and possession of the property sold by way of Deed of
Sale with Assumption of Mortgage, and the same shall
be deemed automatically cancelled and be of no
further force or effect, in the same manner as if (the)
same had never been executed or entered into.
3. That I am executing this Undertaking for purposes
of binding myself, my heirs, successors and assigns,
to strictly and faithfully comply with the terms and
conditions of the mortgage obligations with the Bank
of the Philippine Islands, and the covenants,
stipulations and provisions of this Undertaking.
That, David A. Raymundo, the vendor of the property
mentioned and identified above, [does] hereby
confirm and agree to the undertakings of the Vendee
pertinent to the assumption of the mortgage
obligations by the Vendee with the Bank of the
Philippine Islands. (Exh. C, pp. 13-14, Record).
This undertaking was signed by Avelina and Mariano
Velarde and David Raymundo.
It appears that the negotiated terms for the payment
of the balance of P1.8 million was from the proceeds
of a loan that plaintiffs were to secure from a bank
with defendants help. Defendants had a standing
approved credit line with the Bank of the Philippine
Islands (BPI). The parties agreed to avail of this,
subject to BPIs approval of an application for
assumption of mortgage by plaintiffs. Pending BPIs
approval o[f] the application, plaintiffs were to
continue paying the monthly interests of the loan
secured by a real estate mortgage.
Pursuant to said agreements, plaintiffs paid BPI the
monthly interest on the loan secured by the
aforementioned mortgage for three (3) months as
follows: September 19, 1986 at P27,225.00; October
20, 1986 at P23,000.00; and November 19, 1986
at P23,925.00 (Exh. E, H & J, pp. 15, 17 and 18,
Record).
On December 15, 1986, plaintiffs were advised that
the Application for Assumption of Mortgage with BPI
was not approved (Exh. J, p. 133, Record). This
prompted plaintiffs not to make any further payment.
On January 5, 1987, defendants, thru counsel, wrote
plaintiffs informing the latter that their non-payment
to the mortgage bank constitute[d] non-performance
of their obligation (Exh. 3, p. 220, Record).
In a Letter dated January 7, 1987, plaintiffs, thru
counsel, responded, as follows:
This is to advise you, therefore, that our client is
willing to pay the balance in cash not later than
January 21, 1987 provided: (a) you deliver actual
possession of the property to her not later than
January 15, 1987 for her immediate occupancy; (b)
you cause the release of title and mortgage from the
Bank of P.I. and make the title available and free from
any liens and encumbrances; and (c) you execute an
absolute deed of sale in her favor free from any liens
or encumbrances not later than January 21, 1987.
(Exhs. K, 4, p. 223, Record).
On January 8, 1987, defendants sent plaintiffs a
notarial notice of cancellation/rescission of the
intended sale of the subject property allegedly due to
the latters failure to comply with the terms and
conditions of the Deed of Sale with Assumption of
Mortgage and the Undertaking (Exh. 5, pp. 225-226,
Record).[6]
 Consequently, petitioners filed on February 9,
1987 a Complaint against private respondents for
specific performance, nullity of cancellation, writ of
possession and damages. This was docketed as Civil
Case No. 15952 at the Regional Trial Court of Makati,
Branch 149.The case was tried and heard by then
Judge Consuelo Ynares-Santiago (now an associate
justice of this Court), who dismissed the Complaint in
a Decision dated November 14, 1990.[7] Thereafter,
petitioners filed a Motion for Reconsideration.[8]
Meanwhile, then Judge Ynares-Santiago was
promoted to the Court of Appeals and Judge Salvador
S. A. Abad Santos was assigned to the sala she
vacated. In an Order dated May 15, 1991,[9] Judge
Abad Santos granted petitioners Motion for
Reconsideration and directed the parties to proceed
with the sale. He instructed petitioners to pay the
balance of P1.8 million to private respondents who, in
turn, were ordered to execute a deed of absolute sale
and to surrender possession of the disputed property
to petitioners.
Private respondents appealed to the CA.
Ruling of the Court of Appeals
The CA set aside the Order of Judge Abad Santos
and reinstated then Judge Ynares-Santiagos earlier
Decision dismissing petitioners Complaint. Upholding
the validity of the rescission made by private
respondents, the CA explained its ruling in this wise:
In the Deed of Sale with Assumption of Mortgage, it
was stipulated that as part of the consideration of this
sale, the VENDEE (Velarde) would assume to pay the
mortgage obligation on the subject property in the
amount of P1.8 million in favor of BPI in the name of
the Vendor (Raymundo). Since the price to be paid by
the Vendee Velarde includes the downpayment
of P800,000.00 and the balance of P1.8 million, and
the balance of P1.8 million cannot be paid in cash,
Vendee Velarde, as part of the consideration of the
sale, had to assume the mortgage obligation on the
subject property. In other words, the assumption of
the mortgage obligation is part of the obligation of
Velarde, as vendee, under the contract. Velarde
further agreed to strictly and faithfully comply with all
the terms and conditions appearing in the Real Estate
Mortgage signed and executed by the VENDOR in
favor of BPI x x x as if the same were originally signed
and executed by the Vendee. (p.2, thereof, p.12,
Record). This was reiterated by Velarde in the
document entitled Undertaking wherein the latter
agreed to continue paying said loan in accordance with
the terms and conditions of the Deed of Real Estate
Mortgage in the name of Raymundo. Moreover, it was
stipulated that in the event of violation by Velarde of
any terms and conditions of said deed of real estate
mortgage, the downpayment of P800,000.00 plus all
payments made with BPI or the mortgage loan would
be forfeited and the [D]eed of [S]ale with
[A]ssumption of [M]ortgage would thereby be
cancelled automatically and of no force and effect
(pars. 2 & 3, thereof, pp. 13-14, Record).
From these 2 documents, it is therefore clear that part
of the consideration of the sale was the assumption by
Velarde of the mortgage obligation of Raymundo in
the amount of P1.8 million. This would mean that
Velarde had to make payments to BPI under the
[D]eed of [R]eal [E]state [M]ortgage in the name of
Raymundo. The application with BPI for the approval
of the assumption of mortgage would mean that, in
case of approval, payment of the mortgage obligation
will now be in the name of Velarde. And in the event
said application is disapproved, Velarde had to pay in
full. This is alleged and admitted in Paragraph 5 of the
Complaint. Mariano Velarde likewise admitted this fact
during the hearing on September 15, 1997 (p. 47,
t.s.n., September 15, 1987; see also pp. 16-26, t.s.n.,
October 8, 1989). This being the case, the non-
payment of the mortgage obligation would result in a
violation of the contract. And, upon Velardes failure to
pay the agreed price, the[n] Raymundo may choose
either of two (2) actions - (1) demand fulfillment of
the contract, or (2) demand its rescission (Article
1191, Civil Code).
The disapproval by BPI of the application for
assumption of mortgage cannot be used as an excuse
for Velardes non-payment of the balance of the
purchase price. As borne out by the evidence, Velarde
had to pay in full in case of BPIs disapproval of the
application for assumption of mortgage. What Velarde
should have done was to pay the balance of P1.8
million. Instead, Velarde sent Raymundo a letter
dated January 7, 1987 (Exh. K, 4) which was strongly
given weight by the lower court in reversing the
decision rendered by then Judge Ynares-Santiago. In
said letter, Velarde registered their willingness to pay
the balance in cash but enumerated 3 new conditions
which, to the mind of this Court, would constitute a
new undertaking or new agreement which is subject
to the consent or approval of Raymundo. These 3
conditions were not among those previously agreed
upon by Velarde and Raymundo. These are mere
offers or, at most, an attempt to novate. But then
again, there can be no novation because there was no
agreement of all the parties to the new contract
(Garcia, Jr. vs. Court of Appeals, 191 SCRA 493).
It was likewise agreed that in case of violation of the
mortgage obligation, the Deed of Sale with
Assumption of Mortgage would be deemed
automatically cancelled and of no further force and
effect, as if the same had never been executed or
entered into. While it is true that even if the contract
expressly provided for automatic rescission upon
failure to pay the price, the vendee may still pay, he
may do so only for as long as no demand for rescission
of the contract has been made upon him either
judicially or by a notarial act (Article 1592, Civil
Code). In the case at bar, Raymundo sent Velarde a
notarial notice dated January 8, 1987 of
cancellation/rescission of the contract due to the
latters failure to comply with their obligation. The
rescission was justified in view of Velardes failure to
pay the price (balance) which is substantial and
fundamental as to defeat the object of the parties in
making the agreement. As adverted to above, the
agreement of the parties involved a reciprocal
obligation wherein the obligation of one is a resolutory
condition of the obligation of the other, the non-
fulfillment of which entitles the other party to rescind
the contract (Songcuan vs. IAC, 191 SCRA 28). Thus,
the non-payment of the mortgage obligation by
appellees Velarde would create a right to demand
payment or to rescind the contract, or to criminal
prosecution (Edca Publishing & Distribution
Corporation vs. Santos, 184 SCRA 614). Upon
appellees failure, therefore, to pay the balance, the
contract was properly rescinded (Ruiz vs. IAC, 184
SCRA 720). Consequently, appellees Velarde having
violated the contract, they have lost their right to its
enforcement and hence, cannot avail of the action for
specific performance (Voysaw vs. Interphil
Promotions, Inc., 148 SCRA 635).[10]
Hence, this appeal.[11]
The Issues
Petitioners, in their Memorandum,[12] interpose
the following assignment of errors:
I.
The Court of Appeals erred in holding that the
non-payment of the mortgage obligation
resulted in a breach of the contract.
II.
The Court of Appeals erred in holding that the
rescission (resolution) of the contract by private
respondents was justified.
III.
The Court of Appeals erred in holding that
petitioners January 7, 1987 letter gave three
new conditions constituting mere offers or an
attempt to novate necessitating a new
agreement between the parties.
The Courts Ruling
The Petition is partially meritorious.
First Issue:
Breach of Contract
Petitioners aver that their nonpayment of private
respondents mortgage obligation did not constitute a
breach of contract, considering that their request to
assume the obligation had been disapproved by the
mortgagee bank. Accordingly, payment of the
monthly amortizations ceased to be their obligation
and, instead, it devolved upon private respondents
again.
However, petitioners did not merely stop paying
the mortgage obligations; they also failed to pay the
balance of the purchase price. As admitted by both
parties, their agreement mandated that petitioners
should pay the purchase price balance of P1.8 million
to private respondents in case the request to assume
the mortgage would be disapproved. Thus, on
December 15, 1986, when petitioners received notice
of the banks disapproval of their application to assume
respondents mortgage, they should have paid the
balance of the P1.8 million loan.
Instead of doing so, petitioners sent a letter to
private respondents offering to make such payment
only upon the fulfillment of certain conditions not
originally agreed upon in the contract of sale. Such
conditional offer to pay cannot take the place of actual
payment as would discharge the obligation of a buyer
under a contract of sale.
In a contract of sale, the seller obligates itself to
transfer the ownership of and deliver a determinate
thing, and the buyer to pay therefor a price certain in
money or its equivalent.[13] Private respondents had
already performed their obligation through the
execution of the Deed of Sale, which effectively
transferred ownership of the property to petitioner
through constructive delivery. Prior physical delivery
or possession is not legally required, and the
execution of the Deed of Sale is deemed equivalent to
delivery.[14]
Petitioners, on the other hand, did not perform
their correlative obligation of paying the contract price
in the manner agreed upon. Worse, they wanted
private respondents to perform obligations beyond
those stipulated in the contract before fulfilling their
own obligation to pay the full purchase price.
Second Issue
Validity of the Rescission
Petitioners likewise claim that the rescission of
the contract by private respondents was not justified,
inasmuch as the former had signified their willingness
to pay the balance of the purchase price only a little
over a month from the time they were notified of the
disapproval of their application for assumption of
mortgage. Petitioners also aver that the breach of the
contract was not substantial as would warrant a
rescission. They cite several cases[15] in which this
Court declared that rescission of a contract would not
be permitted for a slight or casual breach. Finally, they
argue that they have substantially performed their
obligation in good faith, considering that they have
already made the initial payment of P800,000 and
three (3) monthly mortgage payments.
As pointed out earlier, the breach committed by
petitioners was not so much their nonpayment of the
mortgage obligations, as their nonperformance of
their reciprocal obligation to pay the purchase price
under the contract of sale. Private respondents right
to rescind the contract finds basis in Article 1191 of
the Civil Code, which explicitly provides as follows:
Art. 1191. -- The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between fulfillment and
the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission
even after he has chosen fulfillment, if the latter
should become impossible.
The right of rescission of a party to an obligation
under Article 1191 of the Civil Code is predicated on a
breach of faith by the other party who violates the
reciprocity between them.[16] The breach
contemplated in the said provision is the obligors
failure to comply with an existing obligation.[17] When
the obligor cannot comply with what is incumbent
upon it, the obligee may seek rescission and, in the
absence of any just cause for the court to determine
the period of compliance, the court shall decree the
rescission.[18]
In the present case, private respondents validly
exercised their right to rescind the contract, because
of the failure of petitioners to comply with their
obligation to pay the balance of the purchase
price. Indubitably, the latter violated the very essence
of reciprocity in the contract of sale, a violation that
consequently gave rise to private respondents right to
rescind the same in accordance with law.
True, petitioners expressed their willingness to
pay the balance of the purchase price one month after
it became due; however, this was not equivalent to
actual payment as would constitute a faithful
compliance of their reciprocal obligation. Moreover,
the offer to pay was conditioned on the performance
by private respondents of additional burdens that had
not been agreed upon in the original contract. Thus, it
cannot be said that the breach committed by
petitioners was merely slight or casual as would
preclude the exercise of the right to rescind.
Misplaced is petitioners reliance on the
cases[19] they cited because the factual circumstances
in those cases are not analogous to those in the
present one. In Song Fo there was, on the part of the
buyer, only a delay of twenty (20) days to pay for the
goods delivered. Moreover, the buyers offer to pay
was unconditional and was accepted by the
seller. In Zepeda, the breach involved a mere one-
week delay in paying the balance of P1,000, which
was actually paid. In Tan, the alleged breach was
private respondents delay of only a few days, which
was for the purpose of clearing the title to the
property; there was no reference whatsoever to the
nonpayment of the contract price.
In the instant case, the breach committed did
not merely consist of a slight delay in payment or an
irregularity; such breach would not normally defeat
the intention of the parties to the contract. Here,
petitioners not only failed to pay the P1.8 million
balance, but they also imposed upon private
respondents new obligations as preconditions to the
performance of their own obligation. In effect, the
qualified offer to pay was a repudiation of an existing
obligation, which was legally due and demandable
under the contract of sale. Hence, private respondents
were left with the legal option of seeking rescission to
protect their own interest.
Mutual Restitution
Required in Rescission
As discussed earlier, the breach committed by
petitioners was the nonperformance of a reciprocal
obligation, not a violation of the terms and conditions
of the mortgage contract. Therefore, the automatic
rescission and forfeiture of payment clauses stipulated
in the contract does not apply. Instead, Civil Code
provisions shall govern and regulate the resolution of
this controversy.
Considering that the rescission of the contract is
based on Article 1191 of the Civil Code, mutual
restitution is required to bring back the parties to their
original situation prior to the inception of the
contract. Accordingly, the initial payment of P800,000
and the corresponding mortgage payments in the
amounts of P27,225, P23,000 and P23,925
(totaling P874,150.00) advanced by petitioners
should be returned by private respondents, lest the
latter unjustly enrich themselves at the expense of the
former.
Rescission creates the obligation to return the
object of the contract. It can be carried out only when
the one who demands rescission can return whatever
he may be obliged to restore.[20] To rescind is to
declare a contract void at its inception and to put an
end to it as though it never was. It is not merely to
terminate it and release the parties from further
obligations to each other, but to abrogate it from the
beginning and restore the parties to their relative
positions as if no contract has been made.[21]
Third Issue
Attempt to Novate
In view of the foregoing discussion, the Court
finds it no longer necessary to discuss the third issue
raised by petitioners. Suffice it to say that the three
conditions appearing on the January 7, 1987 letter of
petitioners to private respondents were not part of the
original contract. By that time, it was already
incumbent upon the former to pay the balance of the
sale price. They had no right to demand preconditions
to the fulfillment of their obligation, which had become
due.
WHEREFORE, the assailed Decision is
hereby AFFIRMED with the MODIFICATION that
private respondents are ordered to return to
petitioners the amount of P874,150, which the latter
paid as a consequence of the rescinded contract, with
legal interest thereon from January 8, 1987, the date
of rescission. No pronouncement as to costs.
SO ORDERED.
[G.R. No. 139523. May 26, 2005]
SPS. FELIPE AND LETICIA CANNU, petitioners,
vs. SPS. GIL AND FERNANDINA GALANG
 AND NATIONAL HOME MORTGAGE (P250,000.00), Philippine Currency, receipt of which
FINANCE CORPORATION, respondents. is hereby acknowledged by the Vendors and the
assumption of the mortgage obligation, the Vendors
hereby sell, cede and transfer unto the Vendees, their
DECISION
heirs, assigns and successor in interest the above-
CHICO-NAZARIO, J.: described property together with the existing
improvement thereon.

Before Us is a Petition for Review

on Certiorari which seeks to set aside the decision[1] of It is a special condition of this contract that the
the Court of Appeals dated 30 September 1998 which Vendees shall assume and continue with the payment
affirmed with modification the decision of Branch 135 of the amortization with the National Home Mortgage
of the Regional Trial Court (RTC) of Makati City, Finance Corporation Inc. in the outstanding balance
dismissing the complaint for Specific Performance and of P_______________, as of __________ and shall
Damages filed by petitioners, and its comply with and abide by the terms and conditions of
Resolution[2] dated 22 July 1999 denying petitioners the mortgage document dated Feb. 27, 1989 and
motion for reconsideration. identified as Doc. No. 82, Page 18, Book VII, S. of
1989 of Notary Public for Quezon City Marites Sto.
A complaint[3] for Specific Performance and Tomas Alonzo, as if the Vendees are the original
Damages was filed by petitioners-spouses Felipe and signatories.
Leticia Cannu against respondents-spouses Gil and
Fernandina Galang and the National Home Mortgage
Petitioners immediately took possession and
Finance Corporation (NHMFC) before Branch 135 of
occupied the house and lot.
the RTC of Makati, on 24 June 1993. The case was
docketed as Civil Case No. 93-2069. Petitioners made the following payments to the
NHMFC:
The facts that gave rise to the aforesaid
complaint are as follows: Date Amount Receipt No.
Respondents-spouses Gil and Fernandina Galang July 9, 1990 P 14,312.47 D-503986[11]
obtained a loan from Fortune Savings & Loan March 12, 8,000.00 D-729478[12]
Association for P173,800.00 to purchase a house and 1991
lot located at Pulang Lupa, Las Pias, with an area of February 4, 10,000.00 D-999127[13]
150 square meters covered by Transfer Certificate of 1992
Title (TCT) No. T-8505 in the names of respondents- March 31, 6,000.00 E-563749[14]
spouses. To secure payment, a real estate mortgage 1993
was constituted on the said house and lot in favor of April 19, 10,000.00 E-582432[15]
Fortune Savings & Loan Association. In early 1990, 1993
NHMFC purchased the mortgage loan of respondents- April 27, 7,000.00 E-618326[16]
spouses from Fortune Savings & Loan Association 1993
for P173,800.00. P 55,312.47
Respondent Fernandina Galang authorized[4] her Petitioners paid the equity or second mortgage
attorney-in-fact, Adelina R. Timbang, to sell the to CERF Realty.[17]
subject house and lot.
Despite requests from Adelina R. Timbang and
Petitioner Leticia Cannu agreed to buy the Fernandina Galang to pay the balance of P45,000.00
property for P120,000.00 and to assume the balance or in the alternative to vacate the property in
of the mortgage obligations with the NHMFC and with question, petitioners refused to do so.
CERF Realty[5] (the Developer of the property).
In a letter[18] dated 29 March 1993, petitioner
Of the P120,000.00, the following payments Leticia Cannu informed Mr. Fermin T. Arzaga, Vice
were made by petitioners: President, Fund Management Group of the NHMFC,
that the ownership rights over the land covered by
Date Amount Paid
TCT No. T-8505 in the names of respondents-spouses
July 19, 1990 P40,000.00 [6]
had been ceded and transferred to her and her
March 13, 1991 15,000.00 [7]
husband per Deed of Sale with Assumption of
April 6, 1991 15,000.00 [8]
Mortgage, and that they were obligated to assume the
November 28, 1991 5,000.00[9] mortgage and pay the remaining unpaid loan balance.
Total P75,000.00 Petitioners formal assumption of mortgage was not
approved by the NHMFC.[19]
Thus, leaving a balance of P45,000.00.
Because the Cannus failed to fully comply with
A Deed of Sale with Assumption of Mortgage their obligations, respondent Fernandina Galang, on
Obligation[10] dated 20 August 1990 was made and 21 May 1993, paid P233,957.64 as full payment of her
entered into by and between spouses Fernandina and remaining mortgage loan with NHMFC.[20]
Gil Galang (vendors) and spouses Leticia and Felipe
Cannu (vendees) over the house and lot in question Petitioners opposed the release of TCT No. T-
which contains, inter alia, the following: 8505 in favor of respondents-spouses insisting that
the subject property had already been sold to them.
Consequently, the NHMFC held in abeyance the
NOW, THEREFORE, for and in consideration of the sum
release of said TCT.
of TWO HUNDRED FIFTY THOUSAND PESOS
 Thereupon, a Complaint for Specific Performance
and Damages was filed asking, among other things,
that petitioners (plaintiffs therein) be declared the
owners of the property involved subject to
reimbursements of the amount made by respondents-
spouses (defendants therein) in preterminating the
mortgage loan with NHMFC.
Respondent NHMFC filed its Answer.[21] It
claimed that petitioners have no cause of action
against it because they have not submitted the formal
requirements to be considered assignees and
successors-in-interest of the property under litigation.
In their Answer,[22] respondents-spouses alleged
that because of petitioners-spouses failure to fully pay
the consideration and to update the monthly
amortizations with the NHMFC, they paid in full the
existing obligations with NHMFC as an initial step in
the rescission and annulment of the Deed of Sale with
Assumption of Mortgage. In their counterclaim, they
maintain that the acts of petitioners in not fully
complying with their obligations give rise to rescission
of the Deed of Sale with Assumption of Mortgage with
the corresponding damages.
After trial, the lower court rendered its decision
ratiocinating:
On the basis of the evidence on record, testimonial
and documentary, this Court is of the view that
plaintiffs have no cause of action either against the
spouses Galang or the NHMFC. Plaintiffs have
admitted on record they failed to pay the amount of
P45,000.00 the balance due to the Galangs in
consideration of the Deed of Sale With Assumption of
Mortgage Obligation (Exhs. C and 3). Consequently,
this is a breach of contract and evidently a failure to
comply with obligation arising from contracts. . . In
this case, NHMFC has not been duly informed due to
lack of formal requirements to acknowledge plaintiffs
as legal assignees, or legitimate tranferees and,
therefore, successors-in-interest to the property,
plaintiffs should have no legal personality to claim any
right to the same property.[23]
The decretal portion of the decision reads:
Premises considered, the foregoing complaint has not
been proven even by preponderance of evidence, and,
as such, plaintiffs have no cause of action against the
defendants herein. The above-entitled case is ordered
dismissed for lack of merit.
Judgment is hereby rendered by way of counterclaim,
in favor of defendants and against plaintiffs, to wit:
1. Ordering the Deed of Sale With Assumption of
Mortgage Obligation (Exhs. C and 3) rescinded and
hereby declared the same as nullified without
prejudice for defendants-spouses Galang to return the
partial payments made by plaintiffs; and the plaintiffs
are ordered, on the other hand, to return the physical
and legal possession of the subject property to
spouses Galang by way of mutual restitution;
2. To pay defendants spouses Galang and NHMFC,
each the amount of P10,000.00 as litigation expenses,
jointly and severally;
3. To pay attorneys fees to defendants in the amount
of P20,000.00, jointly and severally; and
4. The costs of suit.
5. No moral and exemplary damages awarded.[24]
A Motion for Reconsideration[25] was filed, but
same was denied. Petitioners appealed the decision of
the RTC to the Court of Appeals. On 30 September
1998, the Court of Appeals disposed of the appeal as
follows:
Obligations arising from contract have the force of law
between the contracting parties and should be
complied in good faith. The terms of a written contract
are binding on the parties thereto.
Plaintiffs-appellants therefore are under obligation to
pay defendants-appellees spouses Galang the sum of
P250,000.00, and to assume the mortgage.
Records show that upon the execution of the Contract
of Sale or on July 19, 1990 plaintiffs-appellants paid
defendants-appellees spouses Galang the amount of
only P40,000.00.
The next payment was made by plaintiffs-appellants
on March 13, 1991 or eight (8) months after the
execution of the contract. Plaintiffs-appellants paid
the amount of P5,000.00.
The next payment was made on April 6, 1991 for
P15,000.00 and on November 28, 1991, for another
P15,000.00.
From 1991 until the present, no other payments were
made by plaintiffs-appellants to defendants-appellees
spouses Galang.
Out of the P250,000.00 purchase price which was
supposed to be paid on the day of the execution of
contract in July, 1990 plaintiffs-appellants have
paid, in the span of eight (8) years, from 1990 to
present, the amount of only P75,000.00. Plaintiffs-
appellants should have paid the P250,000.00 at the
time of the execution of contract in 1990. Eight (8)
years have already lapsed and plaintiffs-appellants
have not yet complied with their obligation.
We consider this breach to be substantial.
The tender made by plaintiffs-appellants after the
filing of this case, of the Managerial Check in the
amount of P278,957.00 dated January 24, 1994
cannot be considered as an effective mode of
payment.
Performance or payment may be effected not by
tender of payment alone but by both tender and
consignation. It is consignation which is essential in
order to extinguish plaintiffs-appellants obligation to
pay the balance of the purchase price.
In addition, plaintiffs-appellants failed to comply with
their obligation to pay the monthly amortizations due
on the mortgage.
In the span of three (3) years from 1990 to 1993,
plaintiffs-appellants made only six payments. The
payments made by plaintiffs-appellants are not even
sufficient to answer for the arrearages, interests and
penalty charges.
On account of these circumstances, the rescission of
the Contract of Sale is warranted and justified.
...
WHEREFORE, foregoing considered, the appealed
decision is hereby AFFIRMED with modification.
Defendants-appellees spouses Galang are hereby
ordered to return the partial payments made by
plaintiff-appellants in the amount of P135,000.00.
No pronouncement as to cost.[26]
The motion for reconsideration[27] filed by
petitioners was denied by the Court of Appeals in a
Resolution[28] dated 22 July 1999.
Hence, this Petition for Certiorari.
Petitioners raise the following assignment of
errors:
1. THE HONORABLE COURT OF APPEALS ERRED
WHEN IT HELD THAT PETITIONERS BREACH OF THE
OBLIGATION WAS SUBSTANTIAL.
2. THE HONORABLE COURT OF APPEALS ERRED
WHEN IN EFFECT IT HELD THAT THERE WAS NO
SUBSTANTIAL COMPLIANCE WITH THE OBLIGATION
TO PAY THE MONTHLY AMORTIZATION WITH NHMFC.
3. THE HONORABLE COURT OF APPEALS ERRED
WHEN IT FAILED TO CONSIDER THE OTHER FACTS
AND CIRCUMSTANCES THAT MILITATE AGAINST
RESCISSION.
4. THE HONORABLE COURT OF APPEALS ERRED
WHEN IT FAILED TO CONSIDER THAT THE ACTION
FOR RESCISSION IS SUBSIDIARY.[29]
Before discussing the errors allegedly committed
by the Court of Appeals, it must be stated a priori that
the latter made a misappreciation of evidence
regarding the consideration of the property in
litigation when it relied solely on the Deed of Sale with
Assumption of Mortgage executed by the
respondents-spouses Galang and petitioners-spouses
Cannu.
As above-quoted, the consideration for the
house and lot stated in the Deed of Sale with
Assumption of Mortgage is P250,000.00, plus the
assumption of the balance of the mortgage loan with
NHMFC. However, after going over the record of the
case, more particularly the Answer of respondents-
spouses, the evidence shows the consideration
therefor is P120,000.00, plus the payment of the
outstanding loan mortgage with NHMFC, and of the
equity or second mortgage with CERF Realty
(Developer of the property).[30]
Nowhere in the complaint and answer of the
petitioners-spouses Cannu and respondents-spouses
Galang shows that the consideration is P250,000.00.
In fact, what is clear is that of the P120,000.00 to be
paid to the latter, only P75,000.00 was paid to Adelina
Timbang, the spouses Galangs attorney-in-fact. This
debunks the provision in the Deed of Sale with
Assumption of Mortgage that the amount
of P250,000.00 has been received by petitioners.
Inasmuch as the Deed of Sale with Assumption
of Mortgage failed to express the true intent and
agreement of the parties regarding its consideration,
the same should not be fully relied upon. The
foregoing facts lead us to hold that the case on hand
falls within one of the recognized exceptions to the
parole evidence rule. Under the Rules of Court, a party
may present evidence to modify, explain or add to the
terms of the written agreement if he puts in issue in
his pleading, among others, its failure to express the
true intent and agreement of the parties thereto.[31]
In the case at bar, when respondents-spouses
enumerated in their Answer the terms and conditions
for the sale of the property under litigation, which is
different from that stated in the Deed of Sale with
Assumption with Mortgage, they already put in issue
the matter of consideration. Since there is a difference
as to what the true consideration is, this Court has
admitted evidence aliunde to explain such
inconsistency. Thus, the Court has looked into the
pleadings and testimonies of the parties to thresh out
the discrepancy and to clarify the intent of the parties.
As regards the computation[32] of petitioners as
to the breakdown of the P250,000.00 consideration,
we find the same to be self-serving and unsupported
by evidence.
On the first assigned error, petitioners argue that
the Court erred when it ruled that their breach of the
obligation was substantial.
Settled is the rule that rescission or, more
accurately, resolution,[33] of a party to an obligation
under Article 1191[34] is predicated on a breach of faith
by the other party that violates the reciprocity
between them.[35] Article 1191 reads:
Art. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
Rescission will not be permitted for a slight or
casual breach of the contract. Rescission may be had
only for such breaches that are substantial and
fundamental as to defeat the object of the parties in
making the agreement.[36] The question of whether a
breach of contract is substantial depends upon the
attending circumstances[37] and not merely on the
percentage of the amount not paid.
In the case at bar, we find petitioners failure to
pay the remaining balance of P45,000.00 to be
substantial. Even assuming arguendo that only said
amount was left out of the supposed consideration
of P250,000.00, or eighteen (18%) percent thereof,
this percentage is still substantial. Taken together
with the fact that the last payment made was on 28
November 1991, eighteen months before the
respondent Fernandina Galang paid the outstanding
balance of the mortgage loan with NHMFC, the
intention of petitioners to renege on their obligation is
utterly clear.
Citing Massive Construction, Inc. v.
Intermediate Appellate Court,[38] petitioners ask that
they be granted additional time to complete their
obligation. Under the facts of the case, to give
petitioners additional time to comply with their
obligation will be putting premium on their blatant
non-compliance of their obligation. They had all the
time to do what was required of them (i.e., pay the
P45,000.00 balance and to properly assume the
mortgage loan with the NHMFC), but still they failed
to comply. Despite demands for them to pay the
balance, no payments were made.[39]
The fact that petitioners tendered a Managers
Check to respondents-spouses Galang in the amount
of P278,957.00 seven months after the filing of this
case is of no moment. Tender of payment does not by
itself produce legal payment, unless it is completed by
consignation.[40] Their failure to fulfill their obligation
gave the respondents-spouses Galang the right to
rescission.
Anent the second assigned error, we find that
petitioners were not religious in paying the
amortization with the NHMFC. As admitted by them,
in the span of three years from 1990 to 1993, their
payments covered only thirty months.[41] This, indeed,
constitutes another breach or violation of the Deed of
Sale with Assumption of Mortgage. On top of this,
there was no formal assumption of the mortgage
obligation with NHMFC because of the lack of approval
by the NHMFC[42] on account of petitioners non-
submission of requirements in order to be considered
as assignees/successors-in-interest over the property
covered by the mortgage obligation.[43]
On the third assigned error, petitioners claim
there was no clear evidence to show that respondents-
spouses Galang demanded from them a strict and/or
faithful compliance of the Deed of Sale with
Assumption of Mortgage.
We do not agree.
There is sufficient evidence showing that
demands were made from petitioners to comply with
their obligation. Adelina R. Timbang, attorney-in-fact
of respondents-spouses, per instruction of respondent
Fernandina Galang, made constant follow-ups after
the last payment made on 28 November 1991, but
petitioners did not pay.[44] Respondent Fernandina
Galang stated in her Answer[45] that upon her arrival
from America in October 1992, she demanded from
petitioners the complete compliance of their obligation
by paying the full amount of the consideration
(P120,000.00) or in the alternative to vacate the
property in question, but still, petitioners refused to
fulfill their obligations under the Deed of Sale with
Assumption of Mortgage. Sometime in March 1993,
due to the fact that full payment has not been paid
and that the monthly amortizations with the NHMFC
have not been fully updated, she made her intentions
clear with petitioner Leticia Cannu that she will rescind
or annul the Deed of Sale with Assumption of
Mortgage.
We likewise rule that there was no waiver on the
part of petitioners to demand the rescission of the
Deed of Sale with Assumption of Mortgage. The fact
that respondents-spouses accepted, through their
attorney-in-fact, payments in installments does not
constitute waiver on their part to exercise their right
to rescind the Deed of Sale with Assumption of
Mortgage. Adelina Timbang merely accepted the
installment payments as an accommodation to
petitioners since they kept on promising they would
pay. However, after the lapse of considerable time (18
months from last payment) and the purchase price
was not yet fully paid, respondents-spouses exercised
their right of rescission when they paid the
outstanding balance of the mortgage loan with
NHMFC. It was only after petitioners stopped paying
that respondents-spouses moved to exercise their
right of rescission.
Petitioners cite the case of Angeles v.
Calasanz[46] to support their claim that respondents-
spouses waived their right to rescind. We cannot apply
this case since it is not on all fours with the case before
us. First, in Angeles, the breach was only slight and
casual which is not true in the case before us. Second,
in Angeles, the buyer had already paid more than the
principal obligation, while in the instant case, the
buyers (petitioners) did not pay P45,000.00 of the
P120,000.00 they were obligated to pay.
We find petitioners statement that there is no
evidence of prejudice or damage to justify rescission
in favor of respondents-spouses to be unfounded. The
damage suffered by respondents-spouses is the effect
of petitioners failure to fully comply with their
obligation, that is, their failure to pay the remaining
P45,000.00 and to update the amortizations on the
mortgage loan with the NHMFC. Petitioners have in
their possession the property under litigation. Having
parted with their house and lot, respondents-spouses
should be fully compensated for it, not only
monetarily, but also as to the terms and conditions
agreed upon by the parties. This did not happen in the
case before us.
Citing Seva v. Berwin & Co., Inc.,[47] petitioners
argue that no rescission should be decreed because
there is no evidence on record that respondent
Fernandina Galang is ready, willing and able to comply
with her own obligation to restore to them the total
payments they made. They added that no allegation
to that effect is contained in respondents-spouses
Answer.
We find this argument to be misleading.
First, the facts obtaining in Seva case do not fall
squarely with the case on hand. In the former, the
failure of one party to perform his obligation was the
fault of the other party, while in the case on hand,
failure on the part of petitioners to perform their
obligation was due to their own fault.
 Second, what is stated in the book of Justice
Edgardo L. Paras is [i]t (referring to the right to
rescind or resolve) can be demanded only if the
plaintiff is ready, willing and able to comply with his
own obligation, and the other is not. In other words,
if one party has complied or fulfilled his obligation, and
the other has not, then the former can exercise his
right to rescind. In this case, respondents-spouses
complied with their obligation when they gave the
possession of the property in question to petitioners.
Thus, they have the right to ask for the rescission of
the Deed of Sale with Assumption of Mortgage.
On the fourth assigned error, petitioners, relying
on Article 1383 of the Civil Code, maintain that the
Court of Appeals erred when it failed to consider that
the action for rescission is subsidiary.
Their reliance on Article 1383 is misplaced.
The subsidiary character of the action for
rescission applies to contracts enumerated in Articles
1381[48] of the Civil Code. The contract involved in the
case before us is not one of those mentioned therein.
The provision that applies in the case at bar is Article
1191.
In the concurring opinion of Justice Jose B.L.
Reyes in Universal Food Corp. v. Court of
Appeals,[49] rescission under Article 1191 was
distinguished from rescission under Article 1381.
Justice J.B.L. Reyes said:
. . . The rescission on account of breach of stipulations
is not predicated on injury to economic interests of the
party plaintiff but on the breach of faith by the
defendant, that violates the reciprocity between the
parties. It is not a subsidiary action, and Article 1191
may be scanned without disclosing anywhere that the
action for rescission thereunder is subordinated to
anything other than the culpable breach of his
obligations by the defendant. This rescission is a
principal action retaliatory in character, it being unjust
that a party be held bound to fulfill his promises when
the other violates his. As expressed in the old Latin
aphorism: Non servanti fidem, non est fides servanda.
Hence, the reparation of damages for the breach is
purely secondary.
On the contrary, in the rescission by reason
of lesion or economic prejudice, the cause of action is
subordinated to the existence of that prejudice,
because it is the raison d tre as well as the measure
of the right to rescind. Hence, where the defendant
makes good the damages caused, the action cannot
be maintained or continued, as expressly provided in
Articles 1383 and 1384. But the operation of these two
articles is limited to the cases of rescission
for lesion enumerated in Article 1381 of the Civil Code
of the Philippines, and does not apply to cases under
Article 1191.
From the foregoing, it is clear that rescission
(resolution in the Old Civil Code) under Article 1191 is
a principal action, while rescission under Article 1383
is a subsidiary action. The former is based on breach
by the other party that violates the reciprocity
between the parties, while the latter is not.
In the case at bar, the reciprocity between the
parties was violated when petitioners failed to fully
pay the balance of P45,000.00 to respondents-
spouses and their failure to update their amortizations
with the NHMFC.
Petitioners maintain that inasmuch as
respondents-spouses Galang were not granted the
right to unilaterally rescind the sale under the Deed of
Sale with Assumption of Mortgage, they should have
first asked the court for the rescission thereof before
they fully paid the outstanding balance of the
mortgage loan with the NHMFC. They claim that such
payment is a unilateral act of rescission which violates
existing jurisprudence.
In Tan v. Court of Appeals,[50] this court said:
. . . [T]he power to rescind obligations is implied in
reciprocal ones in case one of the obligors should not
comply with what is incumbent upon him is clear from
a reading of the Civil Code provisions. However, it is
equally settled that, in the absence of a stipulation to
the contrary, this power must be invoked judicially; it
cannot be exercised solely on a partys own judgment
that the other has committed a breach of the
obligation. Where there is nothing in the contract
empowering the petitioner to rescind it without resort
to the courts, the petitioners action in unilaterally
terminating the contract in this case is unjustified.
It is evident that the contract under
consideration does not contain a provision authorizing
its extrajudicial rescission in case one of the parties
fails to comply with what is incumbent upon him. This
being the case, respondents-spouses should have
asked for judicial intervention to obtain a judicial
declaration of rescission. Be that as it may, and
considering that respondents-spouses Answer (with
affirmative defenses) with Counterclaim seeks for the
rescission of the Deed of Sale with Assumption of
Mortgage, it behooves the court to settle the matter
once and for all than to have the case re-litigated
again on an issue already heard on the merits and
which this court has already taken cognizance of.
Having found that petitioners seriously breached the
contract, we, therefore, declare the same is rescinded
in favor of respondents-spouses.
As a consequence of the rescission or, more
accurately, resolution of the Deed of Sale with
Assumption of Mortgage, it is the duty of the court to
require the parties to surrender whatever they may
have received from the other. The parties should be
restored to their original situation.[51]
The record shows petitioners paid respondents-
spouses the amount of P75,000.00 out of the
P120,000.00 agreed upon. They also made payments
to NHMFC amounting to P55,312.47. As to the
petitioners alleged payment to CERF Realty of
P46,616.70, except for petitioner Leticia Cannus bare
allegation, we find the same not to be supported by
competent evidence. As a general rule, one who
pleads payment has the burden of proving
it.[52] However, since it has been admitted in
respondents-spouses Answer that petitioners shall
assume the second mortgage with CERF Realty in the
amount of P35,000.00, and that Adelina Timbang,
respondents-spouses very own witness,
testified[53] that same has been paid, it is but proper
to return this amount to petitioners. The three
amounts total P165,312.47 -- the sum to be returned
to petitioners.
WHEREFORE, premises considered, the
decision of the Court of Appeals is hereby AFFIRMED
with MODIFICATION. Spouses Gil and Fernandina
Galang are hereby ordered to return the partial
payments made by petitioners in the amount of
P165,312.47. With costs.
SO ORDERED.
G.R. No. 202205 March 6, 2013
FOREST HILLS GOLF & COUNTRY
CLUB, Petitioner,
vs.
VERTEX SALES AND TRADING, INC., Respondent.
DECISION
BRION, J.:
Before the Court is a petition for review on
certiorari,1 filed under Rule 45 of the Rules of Court,
assailing the decision2 dated February 22, 2012 and
the resolution3dated May 31, 2012 of the Court of
Appeals (CA) in CA-G.R. CV No. 89296.
The Facts
Petitioner Forest Hills Golf & Country Club (Forest
Hills) is a domestic non-profit stock corporation that
operates and maintains a golf and country club facility
in Antipolo City. Forest Hills was created as a result of
a joint venture agreement between Kings Properties
Corporation (Kings) and Fil-Estate Golf and
Development, Inc. (FEGDI). Accordingly, Kings and
FEGDI owned the shares of stock of Forest Hills,
holding 40% and 60% of the shares, respectively.
In August 1997, FEGDI sold to RS Asuncion
Construction Corporation (RSACC) one (1) Class "C"
common share of Forest Hills for ₱1.1 million. Prior to
the full payment of the purchase price, RSACC
transferred its interests over FEGDI's Class "C"
common share to respondent Vertex Sales and
Trading, Inc. (Vertex).4 RSACC advised FEGDI of the
transfer and FEGDI, in turn, requested Forest Hills to
recognize Vertex as a shareholder. Forest Hills
acceded to the request, and Vertex was able to enjoy
membership privileges in the golf and country club.
Despite the sale of FEGDI's Class "C" common share
to Vertex, the share remained in the name of FEGDI,
prompting Vertex to demand for the issuance of a
stock certificate in its name.5 As its demand went
unheeded, Vertex filed a complaint6 for rescission with
damages against defendants Forest Hills, FEGDI, and
Fil-Estate Land, Inc. (FELI) – the developer of the
Forest Hills golf course. Vertex averred that the
defendants defaulted in their obligation as sellers
when they failed and refused to issue the stock
certificate covering the Class "C" common share. It
prayed for the rescission of the sale and the return of
the sums it paid; it also claimed payment of actual
damages for the defendants’ unjustified refusal to
issue the stock certificate.
Forest Hills denied transacting business with Vertex
and claimed that it was not a party to the sale of the
share; FELI claimed the same defense. While
admitting that no stock certificate was issued, FEGDI
alleged that Vertex nonetheless was recognized as a
stockholder of Forest Hills and, as such, it exercised
rights and privileges of one. FEGDI added that during
the pendency of Vertex's action for rescission, a stock
certificate was issued in Vertex's name,7 but Vertex
refused to accept it.
The RTC Ruling
In its March 1, 2007 decision,8 the Regional Trial Court
(RTC) dismissed Vertex's complaint after finding that
the failure to issue a stock certificate did not constitute
a violation of the essential terms of the contract of
sale that would warrant its rescission. The RTC noted
that the sale was already consummated
notwithstanding the non-issuance of the stock
certificate. The issuance of a stock certificate is a
collateral matter in the consummated sale of the
share; the stock certificate is not essential to the
creation of the relation of a shareholder. Hence, the
RTC ruled that the non-issuance of the stock
certificate is a mere casual breach that would not
entitle Vertex to rescind the sale.9
The CA Ruling
Vertex appealed the RTC's dismissal of its complaint.
In its February 22, 2012 decision,10 the CA reversed
the RTC. It declared that "in the sale of shares of
stock, physical delivery of a stock certificate is one of
the essential requisites for the transfer of ownership
of the stocks purchased."11 It based its ruling on
Section 63 of the Corporation Code,12 which requires
for a valid transfer of stock –
(1) the delivery of the stock certificate;
(2) the endorsement of the stock certificate
by the owner or his attorney-in-fact or other
persons legally authorized to make the
transfer; and
(3) to be valid against third parties, the
transfer must be recorded in the books of the
corporation.
Without the issuance of the stock certificate and
despite Vertex’s full payment of the purchase price,
the share cannot be considered as having been validly
transferred. Hence, the CA rescinded the sale of the
share and ordered the defendants to return the
amount paid by Vertex by reason of the sale. The
dispositive portion reads:
WHEREFORE, in view of the foregoing premises, the
appeal is hereby GRANTED and the March 1, 2007
Decision of the Regional Trial Court, Branch 161, Pasig
City in Civil Case No. 68791 is hereby REVERSED AND
SET ASIDE. Accordingly, the sale of x x x one (1) Class
"C" Common Share of Forest Hills Golf and Country
Club is hereby rescinded and defendants-appellees
are hereby ordered to return to Vertex Sales and
Trading, Inc. the amount it paid by reason of the said
sale.13 (emphasis ours)
The CA denied Forest Hills' motion for reconsideration
in its resolution of May 31, 2012.14
The Parties’ Arguments
Forest Hills filed the present petition for review on
certiorari to assail the CA rulings. It argues that
rescission should be allowed only for substantial
breaches that would defeat the very object of the
parties making the agreement.
The delay in the issuance of the stock certificate could
not be considered as a substantial breach, considering
that Vertex was recognized as, and enjoyed the
privileges of, a stockholder.
Forest Hills also objects to the CA ruling that required
it to return the amount paid by Vertex for the share of
stock. It claims that it was not a party to the contract
of sale; hence, it did not receive any amount from
Vertex which it would be obliged to return on account
of the rescission of the contract.
In its comment to the petition,15 Vertex disagrees and
claims that its compliance with its obligation to pay
the price and the other fees called into action the
defendants’ compliance with their reciprocal obligation
to deliver the stock certificate, but the defendants
failed to discharge this obligation. The defendants’
three (3)-year delay in issuing the stock certificate
justified the rescission of the sale of the share of
stock. On account of the rescission, Vertex claims that
mutual restitution should take place. It argues that
Forest Hills should be held solidarily liable with FEGDI
and FELI, since the delay was caused by Forest Hills’
refusal to issue the share of FEGDI, from whom Vertex
acquired its share.
The Court’s Ruling Payee
FEGDI
The assailed CA rulings (a) declared the rescission of
the sale of one (1) Class "C" common share of Forest
Hills to Vertex and (b) ordered theFEGDI
return by Forest
Hills, FEGDI, and FELI to Vertex of the amount the
Forest Hills
latter paid by reason of the sale. While Forest Hills
argues that the ruling rescinding the sale of the share
FELI
is erroneous, its ultimate prayer was for the reversal
and setting aside of the ruling holding it liable to
return the amount paid by Vertex for the sale.16
FEGDI
The Court finds Forest Hills’ prayer justified.
Ruling on rescission of sale is a back to their original situation prior to the inception of
settled matter
At the outset, we declare that the question of
rescission of the sale of the share is a settled matter
that the Court can no longer review in this petition.
While Forest Hills questioned and presented its
arguments against the CA ruling rescinding the sale of
the share in its petition, it is not the proper party to
appeal this ruling.
As correctly pointed out by Forest Hills, it was not a
party to the sale even though the subject of the sale
was its share of stock. The corporation whose shares
of stock are the subject of a transfer transaction
(through sale, assignment, donation, or any other
mode of conveyance) need not be a party to the
transaction, as may be inferred from the terms of
Section 63 of the Corporation Code. However, to bind
the corporation as well as third parties, it is necessary
that the transfer is recorded in the books of the
corporation. In the present case, the parties to the
sale of the share were FEGDI as the seller and Vertex
as the buyer (after it succeeded RSACC). As party to
the sale, FEGDI is the one who may appeal the ruling
rescinding the sale. The remedy of appeal is available
to a party who has "a present interest in the subject
matter of the litigation and is aggrieved or
prejudiced by the judgment. A party, in turn, is
deemed aggrieved or prejudiced when his interest,
recognized by law in the subject matter of the
lawsuit, is injuriously affected by the judgment,
order or decree."17 The rescission of the sale does
not in any way prejudice Forest Hills in such a manner
that its interest in the subject matter – the share of
stock – is injuriously affected. Thus, Forest Hills is in
no position to appeal the ruling rescinding the sale of
the share. Since FEGDI, as party to the sale, filed no
appeal against its rescission, we consider as final the
CA’s ruling on this matter.
Ruling on return of amounts paid by
reason of the sale modified
The CA’s ruling ordering the "return to [Vertex] the
amount it paid by reason of the sale"18 did not specify
in detail what the amount to be returned consists of
and it did not also state the extent of Forest Hills,
FEGDI, and FELI’s liability with regard to the amount
to be returned. The records, however, show that the
following amounts were paid by Vertex to Forest Hills,
FEGDI, and FELI by reason of the sale:
Date of Payment Purpose Amount Paid
February 9, 1999 Purchase price for one (1) ₱780,000.0019
Class "C" common share
February 9, 1999 Transfer fee P 60,000.0020
February 23, 1999 Membership fee P 150,000.0021
September 25, 2000 Documentary P 6,300.0022
Stamps
September 25, 2000 Notarial fees P 200.0023
A necessary consequence of rescission is restitution:
the parties to a rescinded contract must be brought
the contract; hence, they must return what they
received pursuant to the contract.24 Not being a party
to the rescinded contract, however, Forest Hills is
under no obligation to return the amount paid by
Vertex by reason of the sale. Indeed, Vertex failed to
present sufficient evidence showing that Forest Hills
received the purchase price for the share or any other
fee paid on account of the sale (other than the
membership fee which we will deal with after) to make
Forest Hills jointly or solidarily liable with FEGDI for
restitution.
Although Forest Hills received ₱150,000.00 from The first contract partly
Vertex as membership fee, it should be allowed to reads:5chanroblesvirtualawlibrary
retain this amount. For three years prior to the
rescission of the sale, the nominees of Vertex enjoyed
That in consideration of the payment herein
membership privileges and used the golf course and
mentioned to be made by the First Party (defendant),
the amenities of Forest Hills.25 We consider the
the Second Party agrees to furnish, supply, install and
amount paid as sufficient consideration for the
integrate the most modern INTEGRATED BRIDGE
privileges enjoyed by Vertex's nominees as members
SYSTEM located at Northwestern University MOCK
of Forest Hills.
BOAT in accordance with the general conditions, plans
and specifications of this contract.
WHEREFORE, in view of the foregoing, the Court
PARTIALLY GRANTS the petition for review on
SUPPLY & INSTALLATION OF THE
certiorari. The decision dated February 22, 2012 and
FOLLOWING:chanroblesvirtualawlibrary
the resolution dated May 31, 2012 of the Court of
Appeals in CA-G.R. CV No. 89296 are hereby
MODIFIED. Petitioner Forest Hills Golf & Country Club INTEGRATED BRIDGE SYSTEM
is ABSOLVED from liability for any amount paid by
Vertex Sales and Trading, Inc. by reason of the A. 2-RADAR SYSTEM
rescinded sale of one (1) Class "C" common share of
Forest Hills Golf & Country Club.
B. OVERHEAD CONSOLE MONITORING SYSTEM

SO ORDERED.
C. ENGINE TELEGRAPH SYSTEM

D. ENGINE CONTROL SYSTEM

G.R. NO. 188986 : March 20, 2013

E. WEATHER CONTROL SYSTEM

GALILEO A. MAGLASANG, doing business under

the name GL F. ECDIS SYSTEM
Enterprises, Petitioner, v.NORTHWESTERN INC.,
UNIVERSITY, Respondent. G. STEERING WHEEL SYSTEM

DECISION H. BRIDGE CONSOLE

SERENO, C.J.:
Php
TOTAL COST:
3,800,000.00
Before this Court is a Rule 45 Petition, seeking a
review of the 27 July 2009 Court of Appeals (CA) LESS: OLD MARITIME
Decision in CA-G.R. CV No. 88989,1 which modified EQUIPMENT TRADE-IN VALUE 1,000,000.00
the Regional Trial Court (RTC) Decision of 8 January
2007 in Civil Case No. Q-04-53660.2 The CA held that DISCOUNT 100,000.00
petitioner substantially breached its contracts with
respondent for the installation of an integrated bridge PROJECT COST (MATERIALS & PhP
system (IBS). INSTALLATION) 2,700,000.00

(Emphasis in the original)

The antecedent .facts are as
follows:3chanroblesvirtualawlibrary
The second contract essentially contains the same
On 10 June 2004, respondent Northwestern University terms and conditions as
(Northwestern), an educational institution offering follows:6chanroblesvirtualawlibrary
maritime-related courses, engaged the services of a
Quezon City-based firm, petitioner GL Enterprises, to
That in consideration of the payment herein
install a new IBS in Laoag City. The installation of an
mentioned to be made by the First Party (defendant),
IBS, used as the students' training laboratory, was
the Second Party agrees to furnish, supply, install &
required by the Commission on Higher Education
integrate the most modern INTEGRATED BRIDGE
(CHED) before a school could offer maritime
SYSTEM located at Northwestern University MOCK
transportation programs.4chanroblesvirtualawlibrary
BOAT in accordance with the general conditions, plans
and specifications of this contract.
Since its IBS was already obsolete, respondent
required petitioner to supply and install specific
SUPPLY & INSTALLATION OF THE
components in order to form the most modern IBS
FOLLOWING:chanroblesvirtualawlibrary
that would be acceptable to CHED and would be
compliant with the standards of the International
Maritime Organization (IMO). For this purpose, the 1. ARPA RADAR SIMULATION ROOM
parties executed two contracts.
xxx
2. GMDSS SIMULATION ROOM
xxx
TOTAL COST: PhP 270,000.00
(Emphasis in the original)
Common to both contracts are the following
provisions: (1) the IBS and its components must be
compliant with the IMO and CHED standard and with
manuals for simulators/major equipment; (2) the
contracts may be terminated if one party commits a
substantial breach of its undertaking; and (3) any
dispute under the agreement shall first be settled
mutually between the parties, and if settlement is not
obtained, resort shall be sought in the courts of law.
Subsequently, Northwestern paid P1 million as down
payment to GL Enterprises. The former then assumed
possession of Northwestern's old IBS as trade-in
payment for its service. Thus, the balance of the
contract price remained at P1.97
million.7chanroblesvirtualawlibrary
Two months after the execution of the contracts, GL
Enterprises technicians delivered various materials to
the project site. However, when they started installing
the components, respondent halted the operations.
GL Enterprises then asked for an
explanation.8chanroblesvirtualawlibrary
Northwestern justified the work stoppage upon its
finding that the delivered equipment were
substandard.9 It explained further that GL Enterprises
violated the terms and conditions of the contracts,
since the delivered components (1) were old; (2) did
not have instruction manuals and warranty
certificates; (3) contained indications of being
reconditioned machines; and (4) did not meet the IMO
and CHED standards. Thus, Northwestern demanded
compliance with the agreement and suggested that GL
Enterprises meet with the former's representatives to
iron out the situation.
Instead of heeding this suggestion, GL Enterprises
filed on 8 September 2004 a Complaint10 for breach of
contract and prayed for the following sums: P1.97
million, representing the amount that it would have
earned, had Northwestern not stopped it from
performing its tasks under the two contracts; at
least P100,000 as moral damages; at least P100,000
by way of exemplary damages; at least P100,000 as
attorney's fees and litigation expenses; and cost of
suit. Petitioner alleged that Northwestern breached
the contracts by ordering the work stoppage and thus
preventing the installation of the materials for the IBS.
Northwestern denied the allegation. In its defense, it
asserted that since the equipment delivered were not
in accordance with the specifications provided by the
contracts, all succeeding works would be futile and
would entail unnecessary expenses. Hence, it prayed
for the rescission of the contracts and made a
compulsory counterclaim for actual, moral, and
exemplary damages, and attorney's fees.
The RTC held both parties at fault. It found that
Northwestern unduly halted the operations, even if
the contracts called for a completed project to be
evaluated by the CHED. In turn, the breach committed
by GL Enterprises consisted of the delivery of
substandard equipment that were not compliant with
IMO and CHED standards as required by the
agreement.
Invoking the equitable principle that "each party must
bear its own loss," the trial court treated the contracts
as impossible of performance without the fault of
either party or as having been dissolved by mutual
consent. Consequently, it ordered mutual restitution,
which would thereby restore the parties to their
original positions as
follows:11chanroblesvirtualawlibrary
Accordingly, plaintiff is hereby ordered to restore to
the defendant all the equipment obtained by reason of
the First Contract and refund the downpayment
of P1,000,000.00 to the defendant; and for the
defendant to return to the plaintiff the equipment and
materials it withheld by reason of the non-continuance
of the installation and integration project. In the event
that restoration of the old equipment taken from
defendant's premises is no longer possible, plaintiff is
hereby ordered to pay the appraised value of
defendant's old equipment at P1,000,000.00.
Likewise, in the event that restoration of the
equipment and materials delivered by the plaintiff to
the defendant is no longer possible, defendant is
hereby ordered to pay its appraised value
at P1,027,480.00.
Moreover, plaintiff is likewise ordered to restore and
return all the equipment obtained by reason of the
Second Contract, or if restoration or return is not
possible, plaintiff is ordered to pay the value thereof
to the defendant.
SO ORDERED.
Aggrieved, both parties appealed to the CA. With each
of them pointing a finger at the other party as the
violator of the contracts, the appellate court ultimately
determined that GL Enterprises was the one guilty of
substantial breach and liable for attorney's fees.
The CA appreciated that since the parties essentially
sought to have an IBS compliant with the CHED and
IMO standards, it was GL Enterprises' delivery of
defective equipment that materially and substantially
breached the contracts. Although the contracts
contemplated a completed project to be evaluated by
CHED, Northwestern could not just sit idly by when it
was apparent that the components delivered were
substandard.
The CA held that Northwestern only exercised
ordinary prudence to prevent the inevitable rejection
of the IBS delivered by GL Enterprises. Likewise, the
appellate court disregarded petitioner's excuse that
the equipment delivered might not have been the
components intended to be installed, for it would be
contrary to human experience to deliver equipment
from Quezon City to Laoag City with no intention to
use it.
This time, applying Article 1191 of the Civil Code, the
CA declared the rescission of the contracts. It then
proceeded to affirm the RTC's order of mutual
restitution. Additionally, the appellate court
granted P50,000 to Northwestern by way of attorney's
fees.
Before this Court, petitioner rehashes all the
arguments he had raised in the courts a quo.12 He
maintains his prayer for actual damages equivalent to
the amount that he would have earned, had
respondent not stopped him from performing his tasks
under the two contracts; moral and exemplary
damages; attorney's fees; litigation expenses; and
cost of suit.
Hence, the pertinent issue to be resolved in the instant
appeal is whether the CA gravely erred in (1) finding
substantial breach on the part of GL Enterprises; (2)
refusing petitioner's claims for damages, and (3)
awarding attorney's fees to Northwestern.
RULING OF THE COURT
Substantial Breaches of the Contracts
Although the RTC and the CA concurred in ordering
restitution, the courts a quo, however, differed on the
basis thereof. The RTC applied the equitable principle
of mutual fault, while the CA applied Article 1191 on
rescission.
The power to rescind the obligations of the injured
party is implied in reciprocal obligations, such as in
this case. On this score, the CA correctly applied
Article 1191, which provides
thus:chanroblesvirtualawlibrary
The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
The two contracts require no less than substantial
breach before they can be rescinded. Since the
contracts do not provide for a definition of substantial
breach that would terminate the rights and obligations
of the parties, we apply the definition found in our
jurisprudence.
This Court defined in Cannu v. Galang13 that
substantial, unlike slight or casual breaches of
contract, are fundamental breaches that defeat the
object of the parties in entering into an agreement,
since the law is not concerned with
trifles.14chanroblesvirtualawlibrary
The question of whether a breach of contract is
substantial depends upon the attending
circumstances.15chanroblesvirtualawlibrary
In the case at bar, the parties explicitly agreed that
the materials to be delivered must be compliant with
the CHED and IMO standards and must be complete
with manuals. Aside from these clear provisions in the
contracts, the courts a quo similarly found that the
intent of the parties was to replace the old IBS in order
to obtain CHED accreditation for Northwestern's
maritime-related courses.
According to CHED Memorandum Order (CMO) No. 10,
Series of 1999, as amended by CMO No. 13, Series of
2005, any simulator used for simulator-based training
shall be capable of simulating the operating
capabilities of the shipboard equipment concerned.
The simulation must be achieved at a level of physical
realism appropriate for training objectives; include the
capabilities, limitations and possible errors of such
equipment; and provide an interface through which a
trainee can interact with the equipment, and the
simulated environment.
Given these conditions, it was thus incumbent upon
GL Enterprises to supply the components that would
create an IBS that would effectively facilitate the
learning of the students.
However, GL Enterprises miserably failed in meeting
its responsibility. As contained in the findings of the
CA and the RTC, petitioner supplied substandard
equipment when it delivered components that (1)
were old; (2) did not have instruction manuals and
warranty certificates; (3) bore indications of being
reconditioned machines; and, all told, (4) might not
have met the IMO and CHED standards. Highlighting
the defects of the delivered materials, the CA quoted
respondent's testimonial evidence as
follows:16chanroblesvirtualawlibrary
Q: In particular which of these equipment of CHED
requirements were not complied with?
A: The Radar Ma'am, because they delivered only 10-
inch PPI, that is the monitor of the Radar. That is 16-
inch and the gyrocompass with two (2) repeaters and
the history card. The gyrocompass - there is no
marker, there is no model, there is no serial number,
no gimbal, no gyroscope and a bulb to work it properly
to point the true North because it is very important to
the Cadets to learn where is the true North being
indicated by the Master Gyrocompass.
xxx
Q: Mr. Witness, one of the defects you noted down in
this history card is that the master gyrocompass had
no gimbals, gyroscope and balls and was replaced
with an ordinary electric motor. So what is the
Implication of this?
A: Because those gimbals, balls and the gyroscope it
let the gyrocompass to work so it will point the true
North but they being replaced with the ordinary motor
used for toys so it will not indicate the true North.
Q: So what happens if it will not indicate the true pertaining to the installation of an IBS compliant with
North? the CHED and IMO standards.

A: It is very big problem for my cadets because they
must, to learn into school where is the true North and
what is that equipment to be used on board.
Q: One of the defects is that the steering wheel was
that of an ordinary automobile. And what is the
implication of this?
A: Because. on board Ma am, we are using the real
steering wheel and the cadets will be implicated if they
will notice that the ship have the same steering wheel
as the car so it is not advisable for them.
Consequently, the CA correctly found substantial
breach on the part of petitioner.
In contrast, Northwestern's breach, if any, was
characterized by the appellate court as slight or
casual.21By way of negative definition, a breach is
considered casual if it does not fundamentally defeat
the object of the parties in entering into an
agreement. Furthermore, for there to be a breach to
begin with, there must be a "failure, without legal
excuse, to perform any promise which forms the
whole or part of the
contract."22chanroblesvirtualawlibrary

Q:. And another one is that the gyrocompass repeater

Here, as discussed, the stoppage of the installation
was only refurbished and it has no serial number.
was justified. The action of Northwestern constituted
What is wrong with that?
a legal excuse to prevent the highly possible rejection
of the IBS. Hence, just as the CA concluded, we find
A: It should be original Ma am because this gyro that Northwestern exercised ordinary prudence to
repeater, it must to repeat also the true North being avert a possible wastage of time, effort, resources and
indicated by the Master Gyro Compass so it will not also of the P2.9 million representing the value of the
work properly, I don t know it will work properly. new IBS.
(Underscoring supplied)
Actual Damages, Moral and Exemplary Damages, and
Evidently, the materials delivered were less likely to Attorney's Fees
pass the CHED standards, because the navigation
system to be installed might not accurately point to
As between the parties, substantial breach can clearly
the true north; and the steering wheel delivered was
be attributed to GL Enterprises. Consequently, it is not
one that came from an automobile, instead of one
the injured party who can claim damages under Article
used in ships. Logically, by no stretch of the
1170 of the Civil Code. For this reason, we concur in
imagination could these form part of the most modern
the result of the CA's Decision denying petitioner
IBS compliant with the IMO and CHED standards.
actual damages in the form of lost earnings, as well
as moral and exemplary damages.
Even in the instant appeal, GL Enterprises does not
refute that the equipment it delivered was
With respect to attorney's fees, Article 2208 of the
substandard. However, it reiterates its rejected
Civil Code allows the grant thereof when the court
excuse that Northwestern should have made an
deems it just and equitable that attorney's fees should
assessment only after the completion of the
be recovered. An award of attorney's fees is proper if
IBS.17 Thus, petitioner stresses that it was
one was forced to litigate and incur expenses to
Northwestern that breached the agreement when the
protect one's rights and interest by reason of an
latter halted the installation of the materials for the
unjustified act or omission on the part of the party
IBS, even if the parties had contemplated a completed
from whom the award is
project to be evaluated by CHED. However, as aptly
sought.23chanroblesvirtualawlibrary
considered by the CA, respondent could not just "sit
still and wait for such day that its accreditation may
not be granted by CHED due to the apparent Since we affirm the CA's finding that it was not
substandard equipment installed in the bridge Northwestern but GL Enterprises that breached the
system."18The appellate court correctly emphasized contracts without justification, it follows that the
that, by that time, both parties would have incurred appellate court correctly awarded attorney's fees to
more costs for nothing. respondent. Notably, this litigation could have
altogether been avoided if petitioner heeded
respondent's suggestion to amicably settle; or, better
Additionally, GL Enterprises reasons that, based on
yet, if in the first place petitioner delivered the right
the contracts, the materials that were hauled all the
materials as required by the contracts.
way from Quezon City to Laoag City under the custody
of the four designated installers might not have been
the components to be used.19 Without belaboring the IN VIEW THEREOF, the assailed 27 July 2009 Decision
point, we affirm the conclusion of the CA and the RTC of the Court of Appeals in CA-G.R. CV No. 88989 is
that the excuse is untenable for being contrary to hereby AFFIRMED.
human experience.20chanroblesvirtualawlibrary
SO ORDERED.
Given that petitioner, without justification, supplied
substandard components for the new IBS, it is thus
clear that its violation was not merely incidental, but
directly related to the essence of the agreement
G.R. No. 207133, March 09, 2015
SWIRE REALTY DEVELOPMENT
CORPORATION, Petitioner, v. JAYNE
YU, Respondent.
DECISION
PERALTA, J.:
This is a Petition for Review on Certiorari under Rule
45 of the 1997 Rules of Civil Procedure which seeks to
reverse and set aside the Decision 1 dated January 24,
2013 and Resolution 2 dated April 30, 2013 of the
Court of Appeals (CA) in CA-G.R. SP No. 121175.
The facts follow.
Respondent Jayne Yu and petitioner Swire Realty
Development Corporation entered into a Contract to
Sell on July 25, 1995 covering one residential
condominium unit, specifically Unit 3007 of the Palace
of Makati, located at P. Burgos corner Caceres Sts.,
Makati City, with an area of 137.30 square meters for
the total contract price of P7,519,371.80, payable in
equal monthly installments until September 24, 1997.
Respondent likewise purchased a parking slot in the
same condominium building for P600,000.00.
On September 24, 1997, respondent paid the full
purchase price of P7,519,371.80 for the unit while
making a down payment of P20,000.00 for the parking
lot. However, notwithstanding full payment of the
contract price, petitioner failed to complete and
deliver the subject unit on time. This prompted
respondent to file a Complaint for Rescission of
Contract with Damages before the Housing and Land
Use Regulatory Board (HLURB) Expanded National
Capital Region Field Office (ENCRFO).
On October 19, 2004, the HLURB ENCRFO rendered a
Decision 3 dismissing respondent’s complaint. It ruled
that rescission is not permitted for slight or casual
breach of the contract but only for such breaches as
are substantial and fundamental as to defeat the
object of the parties in making the agreement. It
disposed of the case as
follows:chanRoblesvirtualLawlibrary
WHEREFORE, PREMISES CONSIDERED, judgment is
hereby rendered ordering [petitioner] the following:
1. To finish the subject unit as pointed
out in the inspection Report
2. To pay [respondent] the following:
a. the amount of P100,000 as
compensatory damages for
the minor irreversible
defects in her unit
[respondent], or, in the
alternative, conduct the
necessary repairs on the
subject unit to conform to
the intended
specifications;
b. moral damages of
P20,000.00
c. Attorney’s fees of
P20,000.00
On the other hand, [respondent] is hereby directed to
immediately update her account insofar as the parking
slot is concerned, without interest, surcharges or
penalties charged therein.
All other claims and counterclaims are hereby
dismissed for lack of merit.
IT IS SO ORDERED. 4cralawlawlibrary
Respondent then elevated the matter to the HLURB
Board of Commissioners.
In a Decision 5 dated March 30, 2006, the HLURB
Board of Commissioners reversed and set aside the
ruling of the HLURB ENCRFO and ordered the
rescission of the Contract to Sell,
ratiocinating:chanRoblesvirtualLawlibrary
We find merit in the appeal. The report on the ocular
inspection conducted on the subject condominium
project and subject unit shows that the amenities
under the approved plan have not yet been provided
as of May 3, 2002, and that the subject unit has not
been delivered to [respondent] as of August 28, 2002,
which is beyond the period of development of
December 1999 under the license to sell. The delay in
the completion of the project as well as of the delay in
the delivery of the unit are breaches of statutory and
contractual obligations which entitles [respondent] to
rescind the contract, demand a refund and payment
of damages.
The delay in the completion of the project in
accordance with the license to sell also renders
[petitioner] liable for the payment of administrative
fine.
Wherefore, the decision of the Office below is set aside
and a new decision is rendered as follows:
1. Declaring the contract to sell as
rescinded and directing [petitioner]
to refund to [respondent] the
amount of P7,519,371.80 at 6% per
annum from the time of
extrajudicial demand on January
05, 2001: subject to computation
and payment of the correct filing
fee;ChanRoblesVirtualawlibrary
2. Directing [petitioner] to pay
respondent attorney’s fees in the
amount of
P20,000.00;ChanRoblesVirtualawlib
rary
3. Directing [petitioner] to pay an
administrative fine of P10,000.00
for violation of Section 20, in
relation to Section 38 of P.D. 957:
SO ORDERED. 6cralawred
cralawlawlibrary
Petitioner moved for reconsideration, but the same
was denied by the HLURB Board of Commissioners in
a Resolution 7 dated June 14, 2007.
 was more in accord with facts, law and jurisprudence
Unfazed, petitioner appealed to the Office of the relevant to the case.
President (OP) on August 7, 2007. Thus:chanRoblesvirtualLawlibrary

In a Decision 8 dated November 21, 2007, the OP, WHEREFORE, premises considered, the instant
through then Deputy Executive Secretary Manuel Motion for Reconsideration is hereby GRANTED. The
Gaite, dismissed petitioner’s appeal on the ground Decision and Resolution of the HLURB Third Division
that it failed to promptly file its appeal before the OP. Board of Commissioners, dated March 30, 2006 and
It held:chanRoblesvirtualLawlibrary June 14, 2007, respectively, are hereby SET ASIDE,
and the HLURB ENCRFO Decision dated October 19,
Records show that [petitioner] received its copy of the 2004 is hereby REINSTATED.
30 March 2006 HLURB Decision on 17 April 2006 and
instead of filing an appeal, it opted first to file a Motion SO ORDERED. 11
cralawred
for Reconsideration on 28 April 2006 or eleven (11) cralawlawlibrary
days thereafter. The said motion interrupted the 15-
day period to appeal.
Respondent sought reconsideration of said resolution,
however, the same was denied by the OP in a
On 23 July 2007, [petitioner] received the HLURB
Resolution 12 dated August 18, 2011.
Resolution dated 14 June 2007 denying the Motion for
Reconsideration.
Consequently, respondent filed an appeal to the CA.
Based on the ruling in United Overseas Bank
In a Decision dated January 24, 2013, the CA granted
Philippines, Inc. v. Ching (486 SCRA 655), the
respondent’s appeal and reversed and set aside the
period to appeal decisions of the HLURB Board of
Order of the OP. The fallo of its decision
Commissioners to the Office of the President is 15
reads:chanRoblesvirtualLawlibrary
days from receipt thereof pursuant to Section 15 of
P.D. No. 957 and Section 2 of P.D. No. 1344 which are
special laws that provide an exception to Section 1 of WHEREFORE, the Petition is hereby GRANTED. The
Administrative Order No. 18. assailed Resolution dated 17 February 2009
and Order dated 18 August 2011 of the Office of the
Corollary thereto, par. 2, Section 1 of Administrative President, in O.P. Case No. 07-H-283, are
Order No. 18, Series of 1987 provides that: hereby REVERSED and SET ASIDE. Accordingly, the
The time during which a motion for reconsideration Decision dated 30 March 2006 and Resolution dated
has been pending with the Ministry/Agency concerned 14 June 2007 of the HLURB Board of Commissioners
shall be deducted from the period of appeal. But in HLURB Case No. REM-A-050127-0014,
where such a motion for reconsideration has been filed are REINSTATED.
during office hours of the last day of the period herein
provided, the appeal must be made within the day SO ORDERED.cralawlawlibrary 13
cralawred
following receipt of the denial of said motion by the cralawlawlibrary
appealing party. (Underscoring supplied)
Petitioner moved for reconsideration, however, the CA
xxxx denied the same in a Resolution dated April 30, 2013.
Accordingly, the [petitioner] had only four (4) days
from receipt on 23 July 2007 of HLURB Resolution Hence, the present petition wherein petitioner raises
dated 14 June 2007, or until 27 July 2007 to file the the following grounds to support its
Notice of Appeal before this Office. However, petition:chanRoblesvirtualLawlibrary
[petitioner] filed its appeal only on 7 August 2007 or
eleven (11) days late. THE COURT OF APPEALS GRAVELY ERRED IN
IGNORING THE LEGAL PRECEPTS THAT:
Thus, this Office need not delve on the merits of the
appeal filed as the records clearly show that the said
1. TECHNICAL RULES ARE NOT
appeal was filed out of time.
BINDING UPON ADMINISTRATIVE
AGENCIES; and
WHEREFORE, premises considered, [petitioner]’s
appeal is hereby DISMISSED, and the HLURB
Decision dated 30 March 2006 and HLURB Resolution 2. RESCISSION WILL BE ORDERED
dated 14 June 2007 are hereby AFFIRMED. ONLY WHERE THE BREACH
COMPLAINED OF IS SUBSTANTIAL
SO ORDERED. 9cralawlawlibrary AS TO DEFEAT THE OBJECT OF THE
PARTIES IN ENTERING INTO THE
AGREEMENT. 14
Immediately thereafter, petitioner filed a motion for
reconsideration against said decision.
cralawlawlibrary
In a Resolution dated February 17, 2009, the OP,
10

through then Executive Secretary Eduardo Ermita, In essence, the issues are: (1) whether petitioner’s
granted petitioner’s motion and set aside Deputy appeal was timely filed before the OP; and (2) whether
Executive Secretary Gaite’s decision. It held that after rescission of the contract is proper in the instant case.
a careful and thorough evaluation and study of the
records of the case, the OP was more inclined to agree We shall resolve the issues in seriatim.
with the earlier decision of the HLURB ENCRFO as it
First, the period to appeal the decision of the HLURB
Board of Commissioners to the Office of the President
has long been settled in the case of SGMC Realty
Corporation v. Office of the President, 15 as reiterated
in the cases of Maxima Realty Management and
Development Corporation v. Parkway Real Estate
Development Corporation 16 and United Overseas
Bank Philippines, Inc. v. Ching. 17cralawred
In the aforementioned cases, we ruled that the period
to appeal decisions of the HLURB Board of
Commissioners is fifteen (15) days from receipt
thereof pursuant to Section 15 18 of PD No. 957 19 and
Section 2 20 of PD No. 1344 21 which are special laws
that provide an exception to Section 1 of
Administrative Order No. 18. Thus, in the SGMC
Realty Corporation v. Office of the President case, the
Court explained:chanRoblesvirtualLawlibrary
As pointed out by public respondent, the aforecited
administrative order allows aggrieved party to file its
appeal with the Office of the President within thirty
(30) days from receipt of the decision complained of.
Nonetheless, such thirty-day period is subject to the
qualification that there are no other statutory periods
of appeal applicable. If there are special laws
governing particular cases which provide for a shorter
or longer reglementary period, the same shall prevail
over the thirty-day period provided for in the
administrative order. This is in line with the rule in
statutory construction that an administrative rule or
regulation, in order to be valid, must not contradict
but conform to the provisions of the enabling law.
We note that indeed there are special laws that
mandate a shorter period of fifteen (15) days within
which to appeal a case to public respondent. First,
Section 15 of Presidential Decree No. 957 provides
that the decisions of the National Housing Authority
(NHA) shall become final and executory after the lapse
of fifteen (15) days from the date of receipt of the
decision. Second, Section 2 of Presidential Decree No.
1344 states that decisions of the National Housing
Authority shall become final and executory after the
lapse of fifteen (15) days from the date of its receipt.
The latter decree provides that the decisions of the
NHA is appealable only to the Office of the President.
Further, we note that the regulatory functions of NHA
relating to housing and land development has been
transferred to Human Settlements Regulatory
Commission, now known as HLURB. x x
x 22cralawlawlibrary
Records show that petitioner received a copy of the
HLURB Board of Commissioners’ decision on April 17,
2006. Correspondingly, it had fifteen days from April
17, 2006 within which to file its appeal or until May 2,
2006. However, on April 28, 2006, or eleven days
after receipt of the HLURB Board of Commissioner’s
decision, it filed a Motion for Reconsideration, instead
of an appeal.
Concomitantly, Section 1 of Administrative Order No.
18 23 provides that the time during which a motion for
reconsideration has been pending with the ministry or
agency concerned shall be deducted from the period
for appeal. Petitioner received the HLURB Board
Resolution denying its Motion for Reconsideration on
July 23, 2007 and filed its appeal only on August 7,
2007. Consequently therefore, petitioner had only
four days from July 23, 2007, or until July 27, 2007,
within which to file its appeal to the OP as the filing of
the motion for reconsideration merely suspended the
running of the 15-day period. However, records reveal
that petitioner only appealed to the OP on August 7,
2007, or eleven days late. Ergo, the HLURB Board of
Commissioners’ decision had become final and
executory on account of the fact that petitioner did not
promptly appeal with the OP.
In like manner, we find no cogent reason to exempt
petitioner from the effects of its failure to comply with
the rules.
In an avuncular case, we have held that while the
dismissal of an appeal on purely technical grounds is
concededly frowned upon, it bears emphasizing that
the procedural requirements of the rules on appeal are
not harmless and trivial technicalities that litigants can
just discard and disregard at will. Neither being a
natural right nor a part of due process, the rule is
settled that the right to appeal is merely a statutory
privilege which may be exercised only in the manner
and in accordance with the provisions of the
law. 24cralawred
Time and again, we have held that rules of procedure
exist for a noble purpose, and to disregard such rules,
in the guise of liberal construction, would be to defeat
such purpose. Procedural rules are not to be disdained
as mere technicalities. They may not be ignored to suit
the convenience of a party. 25 The reason for the
liberal application of the rules before quasi-judicial
agencies cannot be used to perpetuate injustice and
hamper the just resolution of the case. Neither is the
rule on liberal construction a license to disregard the
rules of procedure. 26cralawred
Thus, while there may be exceptions for the relaxation
of technical rules principally geared to attain the ends
of justice, petitioner’s fatuous belief that it had a fresh
15-day period to elevate an appeal with the OP is not
the kind of exceptional circumstance that merits
relaxation.
Second, Article 1191 of the Civil Code sanctions the
right to rescind the obligation in the event that specific
performance becomes impossible, to
wit:chanRoblesvirtualLawlibrary
Article 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the
Mortgage Law.cralawlawlibrary
Basic is the rule that the right of rescission of a party
to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party who f. At the time of inspection,
violates the reciprocity between them. The breach amenities such as
contemplated in the said provision is the obligor’s swimming pool and change
failure to comply with an existing obligation. When the room are seen at the
obligor cannot comply with what is incumbent upon it, 31st floor only. These
the obligee may seek rescission and, in the absence amenities are reflected on
of any just cause for the court to determine the period the 27th floor plan of the
of compliance, the court shall decree the approved condominium
rescission. 27cralawred plans. Health spa for men
and women, Shiatsu
In the instant case, the CA aptly found that the Massage Room, Two-Level
completion date of the condominium unit was Sky Palace Restaurant and
November 1998 pursuant to License No. 97-12-3202 Hall for games and
dated November 2, 1997 but was extended to entertainments, replete
December 1999 as per License to Sell No. 99-05-3401 with billiard tables, a bar,
dated May 8, 1999. However, at the time of the ocular indoor golf with
inspection conducted by the HLURB ENCRFO, the unit spectacular deck and
was not yet completely finished as the kitchen karaoke rooms were not
cabinets and fixtures were not yet installed and the yet provided by the
agreed amenities were not yet available. Said [petitioner].
inspection report states:chanRoblesvirtualLawlibrary
g. The [master’s] bedroom
1. The unit of the [respondent] is Unit door bore sign of poor
3007, which was labeled as P2-07, quality of workmanship as
at the Palace of Makati, located at seen below.
the corner of P. Burgos Street and
Caceres Street, Poblacion, Makati h. The stairs have been
City. Based on the approved plans, installed in such manner
the said unit is at the 26thFloor. acceptable to the
2. During the time of inspection, the undersigned.
said unit appears to be completed
except for the installation of kitchen i. Bathrooms and powder
cabinets and fixtures. room have been installed
in such manner acceptable
3. Complainant pinpointed to the to the undersigned. 28
undersigned the deficiencies as
follows:
cralawlawlibrary

a. The delivered unit has high

density fiber (HDF)
floorings instead of narra
wood parquet.
b. The [petitioners] have also
installed baseboards as
borders instead of pink
porrino granite boarders.
c. Walls are newly painted by
the respondent and the
alleged obvious signs of
cladding could not be
determined.
d. Window opening at the
master bedroom conforms
to the approved plans. As a
result it leaves a 3 inches
(sic) gap between the
glass window and
partitioning of the master’s
bedroom.
e. It was verified and
confirmed that a square
column replaced the round
column, based on the
approved plans.
From the foregoing, it is evident that the report on the
ocular inspection conducted on the subject
condominium project and subject unit shows that the
amenities under the approved plan have not yet been
provided as of May 3, 2002, and that the subject unit
has not been delivered to respondent as of August 28,
2002, which is beyond the period of development of
December 1999 under the license to sell.
Incontrovertibly, petitioner had incurred delay in the
performance of its obligation amounting to breach of
contract as it failed to finish and deliver the unit to
respondent within the stipulated period. The delay in
the completion of the project as well as of the delay in
the delivery of the unit are breaches of statutory and
contractual obligations which entitle respondent to
rescind the contract, demand a refund and payment
of damages.
WHEREFORE, premises considered, the instant
petition is DENIED. The Decision dated January 24,
2013 and Resolution dated April 30, 2013 of the Court
of Appeals in CA-G.R. SP No. 121175 are
hereby AFFIRMED, with MODIFICATION that
moral damages be awarded in the amount of
P20,000.00
SO ORDERED.cralawlawlibrary
Velasco, Jr., (Chairperson), Villarama, Jr.,
Reyes, and Jardeleza, JJ., Concur.
Endnotes:

G.R. No. 185592, June 15, 2015

1
Penned by Associate Justice Japar B. Dimaampao,
with Associate Justices Elihu A. Ybañez and Edwin D.
GEORGE C. FONG, Petitioner, v. JOSE V.
Sorongon, concurring; rollo, pp. 43-52.
DUEÑAS, Respondent.
2
Id. at 54-55.
DECISION
3
Id. at 75-79.
BRION, J.:
4
Id. at 78-79.

5
Id. at 66-68. We resolve in this petition for review on certiorari1 the
challenge to the September 16, 2008 decision2 and
6
Id. at 67-68. the December 8, 2008 resolution3 of the Court of
Appeals (CA) in CA-G.R. CV No. 88396.
7
Id. at 71-73.
These assailed CA rulings annulled the June 27, 2006
8
Id. at 80-82. decision4 and October 30, 2006 order5 of the Regional
Trial Court of Makati, Branch 64 (trial court), which
9
Id. at 81-82. (Emphasis in the original) directed respondent Jose V. Dueñas (Dueñas) to pay
Five Million Pesos (P5 Million) to petitioner George C.
10
Id. at 56-61. Fong (Fong), and imposed a six percent (6%) annual
interest on this amount.
11
Id. at 61. (Emphasis in the original)
Factual Antecedents
12
Id. at 62-64.
Dueñas is engaged in the bakery, food manufacturing,
13
Id. at 51. (Emphasis in the original) and retailing business, which are all operated under
his two companies, D.C. DANTON, Inc. (Danton) and
14
Id. at 23. Bakcom Food Industries, Inc. (Bakcom). He was an
old acquaintance of Fong as they were former
15
393 Phil. 697 (2000). schoolmates at the De La Salle
University.6chanrobleslaw
16
467 Phil. 190 (2004).
Sometime in November 1996, Dueñas and Fong
17
521 Phil. 146 (2006). entered into a verbal joint venture contract where
they agreed to engage in the food business and to
18
Section 15. Decision. The case shall be decided incorporate a holding company under the name
within thirty (30) days from the time the same is Alliance Holdings, Inc. (Alliance or the proposed
submitted for decision. The Decision may order the corporation). Its capitalization would be Sixty Five
revocation of the registration of the subdivision or Million Pesos (P65 Million), to which they would
condominium project, the suspension, cancellation, or contribute in equal parts.7chanrobleslaw
revocation of the license to sell and/or forfeiture, in
whole or in part, of the performance bond mentioned The parties agreed that Fong would contribute Thirty
in Section 6 hereof. In case forfeiture of the bond is Two Million and Five Hundred Thousand Pesos (P32.5
ordered, the Decision may direct the provincial or city Million) in cash while Dueñas would contribute all his
engineer to undertake or cause the construction of Danton and Bakcom shares which he valued at P32.5
roads and other requirements for the subdivision or Million.8 Fong required Dueñas to submit the financial
condominium as stipulated in the bond, chargeable to documents supporting the valuation of these shares.
the amount forfeited. Such decision shall be
immediately executory and shall become final after On November 25, 1996, Fong started remitting in
the lapse of 15 days from the date of receipt of the tranches his share in the proposed corporation’s
Decision. capital. He made the remittances under the
impression that his contribution would be applied as
REGULATING THE SALE OF SUBDIVISION LOTS AND
19
his subscription to fifty percent (50%) of Alliance’s
CONDOMINIUMS, PROVIDING PENALTIES FOR total shareholdings. On the other hand, Dueñas
VIOLATIONS THEREOF. started processing the Boboli9international license
that they would use in their food business. Fong’s cash
20
Section 2. The decision of the National Housing contributions are summarized below.10cralawred
Authority shall become final and executory after the Date Amount
lapse of fifteen (15) days from the date of its receipt. November 25, 1996 P1,980,475.20
It is appealable only to the President of the Philippines
January 14, 1997 P1,000,000.00
and in the event the appeal is filed and the decision is
not reversed and/or amended within a period of thirty February 8, 1997 P500,000.00
(30) days, the decision is deemed affirmed. Proof of March 7, 1997 P100,000.00
the appeal of the decision must be furnished the April 28, 1997 P500,000.00
National Housing Authority. June 13, 1997 P919,524.80
Total P5,000,000.00
On June 13, 1997, Fong sent a letter to Dueñas
informing him of his decision to limit his total
contribution from P32.5 Million to P5
Million. This letter reads:chanRoblesvirtualLawlibrary
June 13, 1997
Mr. Jose Dueñas
c/o Camira Industries
Re: Proposed JV in Bakcom, D.C. Danton and Boboli
Dear Jojit,
Enclosed is our check for P919,534.80 representing
our additional advances to subject company in
process of incorporation. This will make our total
advances to date amounting to P5 million.
Since we agreed in principal late last year to pursue
subject matter, the delays in implementing the joint
venture have caused us to rethink our position. First,
we were faced with the ‘personal’ factor which was
explained to you one time. This has caused us to turn
down a number of business opportunities. Secondly,
since last year, the operation of Century 21 has been
taking more time from us than anticipated. That is
why we decided to relinquish our original plan to
manage and operate ‘Boboli’ knowing this limitation.
For us, it does not make sense anymore to go for a
significant shareholding when we cannot be hands on
and participate actively as originally planned. For your
information, we will probably be giving up our subway
franchise too.
Together with our business advisers and legal
counsel, we came to a decision to hold our
commitment (from advances to investment) at
P5 million only for now from the original plan of
P32.5 million, if this is acceptable to you.
We know that our decision will somewhat upset the
overall plans. But it will probably be more problematic
for us in the long run if we continue full speed. We
have put our money down in trust and good faith
despite the much delayed financials. We continue
to believe in your game plan and capabilities to
achieve the desired goals for subject undertaking.
Please permit us instead to be just a modest silent
investor now with a take out plan when time and price
is right.
Thank you for your kind understanding and
consideration.
With best regards.
(Signed) George Fong11
Fong observed that despite his P5 Million
contribution, Dueñas still failed to give him the
financial documents on the valuation of the
Danton and Bakcom shares. Thus, except for
Dueñas’ representations, Fong had nothing to rely on
to ensure that these shares were really valued at
P32.5 Million. Moreover, Dueñas failed to
incorporate and register Alliance with the
Securities and Exchange Commission
(SEC).12chanrobleslaw
These circumstances convinced Fong that Dueñas
would no longer honor his obligations in their joint
venture agreement.13 Thus, on October 30, 1997,
Fong wrote Dueñas informing him of his decision to
cancel the joint venture agreement. He also asked for
the refund of the P5 Million that he advanced.14In
response, Dueñas admitted that he could not
immediately return the money since he used it
to defray the business expenses of Danton and
Bakcom.15chanrobleslaw
To meet Fong’s demand, Dueñas proposed several
schemes for payment of the P5 Million.16 However,
Fong did not accept any of these proposed schemes.
On March 25, 1998, Fong wrote a final letter of
demand17informing Dueñas that he would file a
judicial action against him should he still fail to pay
after receipt of this written demand.
Since Dueñas did not pay, Fong filed a complaint
against him for collection of a sum of money and
damages18on April 24, 1998.
The Trial Court’s Ruling
In its June 27, 2006 decision, the trial court ruled in
favor of Fong and held that a careful examination of
the complaint shows that although it was labeled as
an action for collection of a sum of money, it was
actually an action for rescission.19chanrobleslaw
The trial court noted that Dueñas’ failure to furnish
Fong with the financial documents on the valuation of
the Danton and Bakcom shares, as well as the almost
one year delay in the incorporation of Alliance, caused
Fong to rescind the joint venture
agreement.20 According to the trial court, these are
adequate and acceptable reasons for rescission.
The trial court also held that Dueñas erroneously
invested Fong’s cash contributions in his two
companies, Danton and Bakcom. The signed
receipts,21 presented as evidence, expressly provided
that each remittance should be applied as
advance subscription to Fong’s shareholding in
Alliance. Thus, Dueñas’ investment of the money in
Danton and Bakcom was clearly unauthorized and
contrary to the parties’ agreement.
Since Dueñas was unjustly enriched by Fong’s
advance capital contributions, the trial court ordered
him to return the money amounting to P5 Million and
to pay ten percent (10%) of this amount in attorney’s
fees, as well as the cost of the suit.22chanrobleslaw
Fong filed a partial motion for reconsideration from
the trial court’s June 27, 2006 decision and asked for
the imposition of a six percent (6%) annual interest,
computed from the date of extrajudicial demand until
full payment of the award. The trial court granted this
prayer in its October 30, 2006 order.23chanrobleslaw
The CA’s Ruling
Dueñas responded to the trial court’s ruling through
an appeal with the CA, which granted the appeal and
annulled the trial court’s ruling.
The CA ruled that Fong’s June 13, 1997 letter
evidenced his intention to convert his cash
contributions from “advances” to the proposed
corporation’s shares, to mere “investments.” Thus,
contrary to the trial court’s ruling, Dueñas correctly
invested Fong’s P5 Million contribution to Bakcom and
Danton. This did not deviate from the parties’ original
agreement as eventually, the shares of these two
companies would form part of Alliance’s
capital.24chanrobleslaw
Lastly, the CA held that the June 13, 1997 letter
showed that Fong knew all along that he could not
immediately ask for the return of his P5 Million
investment. Thus, whether the action filed was a
complaint for collection of a sum of money, or
rescission, it must still fail.25chanrobleslaw
The Petition
Fong submits that the CA erred when it ruled that his
June 13, 1997 letter showed his intent to convert his
contributions from advance subscriptions to Alliance’s
shares, to investments in Dueñas’ two companies.
Contrary to the CA’s findings, the receipts and the
letter expressly mentioned that his contributions
should all be treated as his share subscription to
Alliance.26chanrobleslaw
Also, Fong argues that Dueñas’ unjustified retention
of the P5 Million and its appropriation to his (Dueñas’)
own business, amounted to unjust enrichment; and
that he contributed to fund Alliance’s capital and
incorporation, not to pay for Danton and Bakcom’s
business expenses.27chanrobleslaw
The Case for Dueñas
Dueñas contends that he could no longer refund the
P5 Million since he had already applied it to his two
companies; that this is proper since Danton and
Bakcom’s shares would also form part of his capital
contribution to Alliance.28chanrobleslaw
Moreover, the incorporation did not push through
because Fong unilaterally rescinded the joint venture
agreement by limiting his investment from P32.5
Million to P5 Million.29 Thus, it was Fong who first
breached the contract, not he. Consequently, Fong’s
failure to comply with his undertaking disqualified him
from seeking the agreement’s
rescission.30chanrobleslaw
The Court’s Ruling
We resolve to GRANT the petition.
At the outset, the Court notes that the parties’ joint
venture agreement to incorporate a company that
would hold the shares of Danton and Bakcom and that
would serve as the business vehicle for their food
enterprise, is a valid agreement. The failure to reduce
the agreement to writing does not affect its validity or
enforceability as there is no law or regulation which
provides that an agreement to incorporate must be in
writing.
With this as premise, we now address the related
issues raised by the parties.
The body rather than the title of the complaint
determines the nature of the action.
A well-settled rule in procedural law is that the
allegations in the body of the pleading or the
complaint, and not its title, determine the nature of an
action.31chanrobleslaw
An examination of Fong’s complaint shows
that although it was labeled as an action for a
sum of money and damages, it was actually a
complaint for rescission. The following allegations
in the complaint support this
finding:chanRoblesvirtualLawlibrary
9. Notwithstanding the aforesaid remittances,
defendant failed for an unreasonable length of
time to submit a valuation of the equipment of
D.C. Danton and Bakcom x x x.
10. Worse, despite repeated reminders from
plaintiff, defendant failed to accomplish the
organization and incorporation of the proposed
holding company, contrary to his representation to
promptly do so.
x x x x
17. Considering that the incorporation of the
proposed holding company failed to materialize,
despite the lapse of one year and four months
from the time of subscription, plaintiff has
the right to revoke his pre-incorporation
subscription. Such revocation entitles plaintiff to
a refund of the amount of P5,000,000.00 he
remitted to defendant, representing advances
made in favor of defendant to be considered as
payment on plaintiff’s subscription to the proposed
holding company upon its incorporation, plus interest
from receipt by defendant of said amount until fully
paid. [Emphasis supplied.]
Fong’s allegations primarily pertained to his
cancellation of their verbal agreement because
Dueñas failed to perform his obligations to
provide verifiable documents on the valuation of
the Danton’s and Bakcom’s shares, and to
incorporate the proposed corporation. These
allegations clearly show that what Fong sought was
the joint venture agreement’s rescission.
As a contractual remedy, rescission is available when
one of the parties substantially fails to do what he has
obligated himself to perform.32 It aims to address the
breach of faith and the violation of reciprocity between
two parties in a contract.33 Under Article 1191 of the
Civil Code, the right of rescission is inherent in
reciprocal
obligations, viz:chanRoblesvirtualLawlibrary
The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
[Emphasis supplied.]
Dueñas submits that Fong’s prayer for the return of
his cash contribution supports his claim that Fong’s
complaint is an action for collection of a sum of
money. However, Dueñas failed to appreciate that the
ultimate effect of rescission is to restore the
parties to their original status before they
entered in a contract. As the Court ruled in Unlad
Resources v. Dragon:34cralawred
Rescission has the effect of “unmaking a contract, or
its undoing from the beginning, and not merely its
termination.” Hence, rescission creates
the obligation to return the object of the
contract. It can be carried out only when the one who
demands rescission can return whatever he may be
obliged to restore. To rescind is to declare a contract
void at its inception and to put an end to it as though
it never was. It is not merely to terminate it and
release the parties from further obligations to each
other, but to abrogate it from the beginning and
restore the parties to their relative positions as if no
contract has been made.
Accordingly, when a decree for rescission is
handed down, it is the duty of the court to
require both parties to surrender that which
they have respectively received and to place
each other as far as practicable in his original
situation.35 [Emphasis supplied.]
In this light, we rule that Fong’s prayer for the return
of his contribution did not automatically convert the
action to a complaint for a sum of money. The
mutual restitution of the parties’ original
contributions is only a necessary consequence of
their agreement’s rescission.
Rescission under Art. 1191 is applicable in the
present case
Reciprocal obligations are those which arise from the
same cause, in which each party is a debtor and a
creditor of the other, such that the obligation of one is
dependent on the obligation of the
other.36chanrobleslaw
Fong and Dueñas’ execution of a joint venture
agreement created between them reciprocal
obligations that must be performed in order to fully
consummate the contract and achieve the purpose for
which it was entered into.
Both parties verbally agreed to incorporate a company
that would hold the shares of Danton and Bakcom and
which, in turn, would be the platform for their food
business. Fong obligated himself to contribute half of
the capital or P32.5 Million in cash. On the other hand,
Dueñas bound himself to shoulder the other half by
contributing his Danton and Bakcom shares, which
were allegedly also valued at P32.5 Million. Aside from
this, Dueñas undertook to process Alliance’s
incorporation and registration with the SEC.
When the proposed company remained
unincorporated by October 30, 1997, Fong cancelled
the joint venture agreement and demanded the return
of his P5 Million contribution.
For his part, Dueñas explained that he could not
immediately return the P5 Million since he had
invested it in his two companies. He found nothing
irregular in this as eventually, the Danton and Bakcom
shares would form part of Alliance’s capital.
Dueñas’ assertion is erroneous.
The parties never agreed that Fong would invest his
money in Danton and Bakcom. Contrary to Dueñas’
submission, Fong’s understanding was that his money
would be applied to his shareholdings in Alliance. As
shown in Fong’s June 13, 1997 letter, this fact
remained to be true even after he limited his
contribution to P5
Million, viz:chanRoblesvirtualLawlibrary
Dear Jojit,
Enclosed is our check for P919,534.80 representing
our additional advances to subject company in
process of incorporation. This will make our total
advances to date amounting to P5
million.37 [Emphasis supplied.]
Moreover, under the Corporation Code, before a stock
corporation may be incorporated and registered, it is
required that at least twenty five percent (25%) of its
authorized capital stock as stated in the articles of
incorporation, be first subscribed at the time of
incorporation, and at least twenty five percent (25%)
of the total subscription, be paid upon
subscription.38chanrobleslaw
To prove compliance with this requirement, the SEC
requires the incorporators to submit a treasurer’s
affidavit and a certificate of bank deposit, showing the
existence of an amount compliant with the prescribed
capital subscription.39chanrobleslaw
In this light, we conclude that Fong’s cash
contributions play an indispensable part in
Alliance’s incorporation. The process necessarily
requires the money not only to fund Alliance’s
registration with the SEC but also its initial capital
subscription. This is evident in the receipts which
Dueñas himself executed, one of which
provides:chanRoblesvirtualLawlibrary
I, JOSE V. DUEÑAS, hereby acknowledge the receipt
on January 14, 1997 of the amount of One Million
Pesos (Php 1,000,000.00) Check No. 118 118 7014
Metro Bank, Pasong Tamo branch dated January 13,
1997 from Mr. George Fong, which amount shall
constitute an advance of the contribution or
investment of Mr. Fong in the joint venture
which he and I are in the process of organizing.
Specifically, this amount will be considered as part of
Mr. Fong’s subscription to the shares of stock of the
joint venture company which we will incorporate to
embody and carry out our joint venture.40 [Emphasis
supplied.]
Thus, Dueñas erred when he invested Fong’s
contributions in his two companies. This money should
have been used in processing Alliance’s registration.
Its incorporation would not materialize if there would
be no funds for its initial capital. Moreover, Dueñas
represented that Danton and Bakcom’s shares were
valued at P32.5 Million. If this was true, then there
was no need for Fong’s additional P5 Million
investment, which may possibly increase the value of
the Danton and Bakcom shares.
Under these circumstances, the Court agrees with the
trial court that Dueñas violated his agreement with
Fong. Aside from unilaterally applying Fong’s
contributions to his two companies, Dueñas also
failed to deliver the valuation documents of the
Danton and Bakcom shares to prove that the
combined values of their capital contributions
actually amounted to P32.5 Million.
These acts led to Dueñas’ delay in incorporating
the planned holding company, thus resulting in
his breach of the contract.
On this basis, Dueñas’ breach justified Fong’s
rescission of the joint venture agreement under Article
1191. As the Court ruled in Velarde v. Court of
Appeals:41cralawred
The right of rescission of a party to an obligation
under Article 1191 of the Civil Code is predicated on
a breach of faith by the other party who violates
the reciprocity between them. The breach
contemplated in the said provision is the obligor’s
failure to comply with an existing obligation. When
the obligor cannot comply with what is
incumbent upon it, the obligee may seek
rescission and in the absence of any just cause for
the court to determine the period of compliance, the
court shall decree the rescission.
In the present case, private respondents validly
exercised their right to rescind the contract,
because of the failure of petitioners to comply
with their obligation to pay the balance of the
purchase price. Indubitably, the latter violated the
very essence of reciprocity in the contract of sale, a
violation that consequently gave rise to private
respondents’ right to rescind the same in accordance
with law.42 [Emphasis supplied.]
However, the Court notes that Fong also
breached his obligation in the joint venture
agreement.
In his June 13, 1997 letter, Fong expressly informed
Dueñas that he would be limiting his cash contribution
from P32.5 Million to P5 Million because of the
following reasons which we quote
verbatim:chanRoblesvirtualLawlibrary
1. First, we were faced with the
‘personal’ factor which was
explained to you one time. This has
caused us to turn down a number of
business opportunities;
2. Secondly, since last year, the
operation of Century 21 has been
taking more time from us than
anticipated. That is why we decided
to relinquish our original plan to
manage and operate ‘Boboli’
knowing this limitation. For us, it
does not make sense anymore to go
for a significant shareholding when
we cannot be hands on and
participate actively as originally
planned.43 x x x.
Although these reasons appear to be valid, they
do not erase the fact that Fong still reneged on
his original promise to contribute P32.5
Million. The joint venture agreement was not reduced
to writing and the evidence does not show if the
parties agreed on valid causes that would justify the
limitation of the parties’ capital contributions. Their
only admission was that they obligated themselves to
contribute P32.5 Million each.
Hence, Fong’s diminution of his capital share to
P5 Million also amounted to a substantial breach
of the joint venture agreement, which breach
occurred before Fong decided to rescind his
agreement with Dueñas. Thus, Fong also
contributed to the non-incorporation of Alliance that
needed P65 Million as capital to operate.
Fong cannot entirely blame Dueñas since the
substantial reduction of his capital contribution also
greatly impeded the implementation of their
agreement to engage in the food business and to
incorporate a holding company for it.
As both parties failed to comply with their respective
reciprocal obligations, we apply Article 1192 of the
Civil Code, which
provides:chanRoblesvirtualLawlibrary
Art. 1192. In case both parties have committed a
breach of the obligation, the liability of the first
infractor shall be equitably tempered by the courts. If
it cannot be determined which of the parties first
violated the contract, the same shall be deemed
extinguished, and each shall bear his own
damages. [Emphasis supplied.]
Notably, the Court is not aware of the schedule of
performance of the parties’ obligations since the joint
venture agreement was never reduced to writing. The
facts, however, show that both parties began
performing their obligations after executing the joint
venture agreement. Fong started remitting his share
while Dueñas started processing the Boboli
international license for the proposed corporation’s
food business.
The absence of a written contract renders the Court
unsure as to whose obligation must be performed
first. It is possible that the parties agreed that Fong
would infuse capital first and Dueñas’ submission of
the documents on the Danton and Bakcom shares
would just follow. It could also be the other way
around. Further, the parties could have even agreed
to simultaneously perform their respective
obligations.
Despite these gray areas, the fact that both Fong
and Dueñas substantially contributed to the
non-incorporation of Alliance and to the failure
of their food business plans remains certain.
As the Court cannot precisely determine who between
the parties first violated the agreement, we apply the
second part of Article 1192 which states: “if it cannot
be determined which of the parties first violated the
contract, the same shall be deemed
extinguished, and each shall bear his own
damages.”
In these lights, the Court holds that the joint venture
agreement between Fong and Dueñas is deemed
extinguished through rescission under Article
1192 in relation with Article 1191 of the Civil
Code. Dueñas must therefore return the P5 Million
that Fong initially contributed since rescission requires
mutual restitution.44After rescission, the parties
must go back to their original status before they
entered into the agreement. Dueñas cannot keep
Fong’s contribution as this would constitute unjust
enrichment.
No damages shall be awarded to any party in
accordance with the rule under Article 1192 of the Civil
Code that in case of mutual breach and the first
infractor of the contract cannot exactly be determined,
each party shall bear his own damages.
WHEREFORE, premises considered, we
hereby GRANT the petition and reverse the
September 16, 2008 decision and December 8, 2008
resolution of the Court of Appeals in CA-G.R. CV No.
88396. Respondent Jose V. Dueñas is ordered
to RETURN Five Million Pesos to petitioner George C.
Fong. This amount shall incur an interest of six
percent (6%) per annum from the date of finality of
this judgment until fully paid.45 The parties’ respective
claims for damages are
deemed EXTINGUISHED and each of them shall
bear his own damages.
SO ORDERED.cralawlawlibrary
G.R. No. 210215, December 09, 2015
ROGELIO S. NOLASCO, NICANORA N. GUEVARA,
LEONARDA N. ELPEDES, HEIRS OF ARNULFO S.
NOLASCO, AND REMEDIOS M. NOLASCO,
REPRESENTED BY ELENITA M.
NOLASCO Petitioners, v. CELERINO S. CUERPO,
JOSELITO ENCABO, JOSEPH ASCUTIA, AND
DOMILO LUCENARIO, Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are
the Decision2 dated June 17, 2013 and the
Resolution3 dated November 19, 2013 of the Court of
Appeals (CA) in CA-G.R. CV No. 95353, which
affirmed in toto the Decision4 dated March 1, 2010 of
the Regional Trial Court of Quezon City, Branch 81
(RTC) in Civil Case No. Q-08-63860 ordering the
rescission of the Contract to Sell executed by herein
parties and the return of the amounts already paid by
respondents Celerino S. Cuerpo, Joselito Encabo,
Joseph Ascutia, and Domilo Lucenario (respondents)
to petitioners Rogelio S. Nolasco, Nicanora N.
Guevara, Leonarda N. Elpedes, Heirs of Arnulfo S.
Nolasco, and Remedios M. Nolasco, represented by
Elenita M. Nolasco (petitioners), as well as the
remaining post-dated checks issued by respondent
Celerino S. Cuerpo representing the remaining
monthly amortizations, all in connection with the said
contract.
The Facts
On July 22, 2008, petitioners and respondents entered
into a Contract to Sell5 (subject contract) over a
165,775-square meter parcel of land located in
Barangay San Isidro, Rodriguez, Rizal covered by
Original Certificate of Title No. 152 (subject
land).6 The subject contract provides, inter alia, that:
(a) the consideration for the sale is P33,155,000.00
payable as follows: down payment in the amount of
P11,604,250.00 inclusive of the amount of
P2,000,000.00 previously paid by respondents as
earnest money/reservation fee, and the remaining
balance of P21,550,750.00 payable in 36 monthly
installments, each in the amount of P598,632.00
through post-dated checks; (b) in case any of the
checks is dishonored, the amounts already paid shall
be forfeited in petitioners' favor, and the latter shall
be entitled to cancel the subject contract without
judicial recourse in addition to other appropriate legal
action; (c) respondents are not entitled to possess the
subject land until full payment of the purchase price;
(d) petitioners shall transfer the title over the subject
land from a certain Edilberta N. Santos to petitioners'
names, and, should they fail to do so, respondents
may cause the said transfer and charge the costs
incurred against the monthly amortizations; and (e)
upon full payment of the purchase price, petitioners
shall transfer title over the subject land to
respondents.7 However, respondents sent petitioners
a letter8 dated November 7, 2008 seeking to rescind
the subject contract on the ground of financial
difficulties in complying with the same. They also
sought the return of the amount of P12,202,882.00
they had paid to petitioners.9 As their letter went
unheeded, respondents filed the instant
complaint10 for rescission before the RTC.11
In their defense,12 petitioners countered that
respondents' act is a unilateral cancellation of the
subject contract as the former did not consent to it.
Moreover, the ground of financial difficulties is not
among the grounds provided by law to effect a valid
rescission.13
In view of petitioners' failure to file the required pre-
trial brief, they were declared "as in default" and,
consequently, respondents were allowed to present
their evidence ex-parte.14
The RTC Ruling
In a Decision15 dated March 1, 2010, the RTC ruled in
favor of respondents and, accordingly, ordered: (a)
the rescission of the subject contract; and (b) the
return of the amounts already paid by respondents to
petitioners, as well as the remaining post-dated
checks issued by respondent Celerino S. Cuerpo
representing the remaining monthly amortizations.16
It found petitioners to have substantially breached
paragraph 7 of the subject contract which states that
"[t]he [petitioners] shall, within ninety (90) days from
the signing of [the subject contract] cause the
completion of the transfer of registration of title of the
property subject of [the said contract], from Edilberta
N. Santos to their names, at [petitioners'] own
expense."17 As such, respondents were entitled to
rescission under Article 1191 of the Civil Code.18
Dissatisfied, petitioners appealed19 to the CA.
The CA Ruling
In a Decision20 dated June 17, 2013, the CA affirmed
the RTC ruling. It agreed with the RTC that petitioners
substantially breached paragraph 7 of the subject
contract when they did not effect the transfer of the
subject land from Edilberta N. Santos to petitioners'
names within ninety (90) days from the execution of
said contract, thus, entitling respondents to rescind
the same. In this relation, the CA held that under the
present circumstances, the forfeiture of the payments
already made by respondents to petitioners is clearly
improper and unwarranted.21
Aggrieved, petitioners moved for
reconsideration,22 which was denied in a
Resolution23 dated November 19, 2013; hence, this
petition.
The Issue Before the Court
The core issue for the Court's resolution is whether or
not the CA correctly affirmed the rescission of the
subject contract and the return of the amounts
already paid by respondents to petitioners, as well as
the remaining post-dated checks issued by
respondent Celerino S. Cuerpo representing the
remaining monthly amortizations.
The Court's Ruling
The petition is partially meritorious.
In reciprocal obligations, either party may rescind - or
more appropriately, resolve - the contract upon the
other party's substantial breach of the obligation/s he
had assumed thereunder.24 This is expressly provided
for in Article 1191 of the Civil Code which states:
Art. 1191. The power to rescind obligations is implied
in reciprocal ones, in case one of the obligors should
not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with Articles 1385 and 1388 and the
Mortgage Law.
"More accurately referred to as resolution, the right of
rescission under Article 1191 is predicated on a breach
of faith that violates the reciprocity between the
parties to the contract. This retaliatory remedy is
given to the contracting party who suffers the
injurious breach on the premise that it is 'unjust that
a party be held bound to fulfill his promises when the
other violates his.'"25 Note that the rescission (or
resolution) of a contract will not be permitted for a
slight or casual breach, but only for such substantial
and fundamental violations as would defeat the very
object of the parties in making the
agreement.26Ultimately, the question of whether a
breach of contract is substantial depends upon the
attending circumstances.27
In the instant case, both the RTC and the CA held that
petitioners were in substantial breach of paragraph 7
of the subject contract as they did not cause the
transfer of the property to their names from one
Edilberta N. Santos within 90 days from the execution
of said contract.28
The courts a quo are mistaken.
Paragraph 7 of the subject contract state in full:
7. [Petitioners] shall, within ninety (90) days from the
signing of [the subject contract], cause the completion
of the transfer of registration of title of the property
subject of [the subject contract], from Edilberta N.
Santos to their names, at [petitioners'] own
expense. Failure on the part of [petitioners] to
undertake the foregoing within the prescribed
period shall automatically authorize
[respondents] to undertake the same in behalf
of [petitioners] and charge the costs incidental
to the monthly amortizations upon due
date. (Emphasis and underscoring supplied)
A plain reading of paragraph 7 of the subject contract
reveals that while the RTC and the CA were indeed
correct in finding that petitioners failed to perform
their obligation to effect the transfer of the title to the
subject land from one Edilberta N. Santos to their
names within the prescribed period, said courts erred
in concluding that such failure constituted a
substantial breach that would entitle respondents to
rescind (or resolve) the subject contract. To reiterate,
for a contracting party to be entitled to rescission (or
resolution) in accordance with Article 1191 of the Civil
Code, the other contracting party must be in
substantial breach of the terms and conditions of their
contract. A substantial breach of a contract, unlike
slight and casual breaches thereof, is a fundamental
breach that defeats the object of the parties in
entering into an agreement.29 Here, it cannot be said
that petitioners' failure to undertake their obligation
under paragraph 7 defeats the object of the parties in
entering into the subject contract, considering that the
same paragraph provides respondents contractual
recourse in the event of petitioners' non-performance
of the aforesaid obligation, that is, to cause such
transfer themselves in behalf and at the expense of
petitioners.
Indubitably, there is no substantial breach of
paragraph 7 on the part of petitioners that would
necessitate a rescission (or resolution) of the subject
contract. As such, a reversal of the rulings of the RTC
and the CA is in order.
The foregoing notwithstanding, the Court cannot grant
petitioners' prayer in the instant petition to order the
cancellation of the subject contract and the forfeiture
of the amounts already paid by respondents on
account of the latter's failure to pay its monthly
amortizations,30 simply because in their Answer with
Compulsory Counterclaim and Motion for Summary
Judgment31 filed before the RTC, petitioners neither
prayed for this specific relief nor argued that they
were entitled to the same. Worse, petitioners were
declared "as in default" for failure to file the required
pre-trial brief and, thus, failed to present any evidence
in support of their defense.32 It is settled that "[w]hen
a party deliberately adopts a certain theory and the
case is decided upon that theory in the court below,
he will not be permitted to change the same on
appeal, because to permit him to do so would be unfair
to the adverse party."33 The Court's pronouncement
in Peña v. Spouses Tolentino34 is instructive on this
matter, to wit:
Indeed, the settled rule in this jurisdiction, according
to Mon v. Court of Appeals, is that a party cannot
change his theory of the case or his cause of action on
appeal. This rule affirms that "courts of justice have
no jurisdiction or power to decide a question not in
issue." Thus, a judgment that goes beyond the issues
and purports to adjudicate something on which the
court did not hear the parties is not only irregular but
also extrajudicial and invalid. The legal theory
under which the controversy
was heardand decided in the trial court should
be the same theory under which the review on
appeal is conducted. Otherwise, prejudice will
result to the adverse party. We stress that points
of law, theories, issues, and arguments not
adequately brought to the attention of the lower
court will not be ordinarily considered by a
reviewing court, inasmuch as they cannot be
raised for the first time on appeal. This would be
offensive to the basic rules of fair play, justice,
and due process.35(Emphasis and underscoring
supplied)
WHEREFORE, the petition is PARTIALLY
GRANTED. Accordingly, the Decision dated June 17,
2013 and the Resolution dated November 19, 2013 of
the Court of Appeals in CA-G.R. CV No. 95353 are
hereby REVERSED and SET ASIDE. The Contract to
Sell executed by the parties on July 22, 2008
remains VALID and SUBSISTING.
SO ORDERED.chanroblesvirtuallawlibrary
G.R. No. 202947, December 09, 2015
ASB REALTY
CORPORATION, Petitioner, v. ORTIGAS & x
COMPANY LIMITED PARTNERSHIP, Respondent.
DECISION
BERSAMIN, J.:
This appeal seeks the review and reversal of the
amended decision promulgated on January 9,
2012,1whereby the Court of Appeals (CA) disposed
thusly:chanRoblesvirtualLawlibrary
WHEREFORE, premises considered, judgment is
rendered:chanRoblesvirtualLawlibrary
1. Granting the appeal of plaintiff-appellant and herein
movant Ortigas and Company Limited Partnership,
and reversing the Decision of the court a quo dated
December 14, 2009;
2. Rescinding the June 24, 1994 Deed of Sale between
Ortigas and Company Limited Partnership and
Amethyst Pearl Corporation in view of the material
breached (sic) thereof by AMETHYST;
3. Ordering ASB Realty Corporation, by way of mutual
restitution, the RECONVEYANCE to ORTIGAS of the
subject property covered by TCT No. PT-105797 upon
payment by ORTIGAS to ASB of the amount of Two
Million Twenty Four Thousand Pesos (PhP
2,024,000.00) plus legal interest at the rate of 6% per
annum from the time of the finality of this judgment
until the same shall have been fully paid; and
4. Ordering the Register of Deeds of Pasig City to
cancel TCT No. PT-105797 and issue a new title over
the subject property under the name of ORTIGAS &
COMPANY LIMITED PARTNERSHIP.
No pronouncement as to cost.
SO ORDERED.2
The petitioner also assails the resolution promulgated
on July 26, 2012,3 whereby the CA denied its Motion
for Reconsideration.
Antecedents
On June 29, 1994, respondent Ortigas & Company
Limited Partnership (Ortigas) entered into a Deed of
Sale with Amethyst Pearl Corporation (Amethyst)
involving the parcel of land with an area of 1,012
square meters situated in Barrio Oranbo, Pasig City
and registered under Transfer Certificate of Title (TCT)
No. 65118 of the Register of Deeds of Rizal4 for the
consideration of P2,024,000.00. The Deed of
Sale5 contained the following stipulations, among
others:
COVENANTS, CONDITIONS AND RESTRICTIONS
This lot has been segregated by ORTIGAS from its
subdivisions to form part of a zonified BUILDING AREA
pursuant to its controlled real estate development
project and subdivision scheme, and is subject to the
following covenants which form part of the
consideration of ORTIGAS' sale to VENDEE and its
assigns, namely:chanRoblesvirtualLawlibrary
x x x
B. BUILDING WORKS AND ARCHITECTURE:
1. The building to be constructed on the lot shall be of
reinforced concrete, cement hollow blocks and other
high-quality materials and shall be of the following
height of not more than: fourteen (14) storeys plus
one penthouse.
x x x x
L. SUBMISSION OF PLANS:
The final plans and specifications of the said building
shall be submitted to ORTIGAS for approval not later
than six (6) months from date hereof. Should
ORTIGAS object to the same, it shall notify and specify
to the VENDEE in writing the amendments required to
conform with its building restrictions and VENDEE
shall submit the amended plans within sixty (60) days
from receipt of said notice.
M. CONSTRUCTION AND COMPLETION OF BUILDING:
The VENDEE shall finish construction of its building
within four (4) years from December 31,
1991.6ChanRoblesVirtualawlibrary
As a result, the Register of Deeds of Rizal cancelled
TCT No. 65118 and issued TCT No. PT-94175 in the
name of Amethyst.7 The conditions contained in
the Deed of Sale were also annotated on TCT No. PT-
94175 as encumbrances.8
On December 28, 1996, Amethyst assigned the
subject property to its sole stockholder, petitioner ASB
Realty Corporation (the petitioner), under a so-
called Deed of Assignment in Liquidation in
consideration of 10,000 shares of the petitioner's
outstanding capital stock.9 Thus, the property was
transferred to the petitioner free from any liens or
encumbrances except those duly annotated on TCT
No. PT-94175.10 The Register of Deeds of Rizal
cancelled TCT No. PT-94175 and issued TCT No. PT-
105797 in the name of the petitioner with the same
encumbrances annotated on TCT No. PT-94175.11
On July 7, 2000, Ortigas filed its complaint for specific
performance against the petitioner,12 which was
docketed as Civil Case No. 67978 of the Regional Trial
Court (RTC) in Pasig City.13 Ortigas amended the
complaint, and alleged,14 among others, that:
5. Defendant has violated the terms of the Deed of
Absolute Sale (Annex "A") in the following manner:
a. While the lot may be used only "for office and
residential purposes", defendant introduced
constructions on the property which are commercial in
nature, like restaurants, retail stores and the like (see
par. A, Deed of Absolute Sale, Annex "A").
b. The commercial structures constructed by
defendant on the property extend up to the boundary
lines of the lot in question violating the setbacks
established in the contract (see par. B.A., ibid).
c. Defendant likewise failed to submit the final plans
and specifications of its proposed building not later
than six (6) months from June 29, 1994 and to
complete construction of the same within four (4)
years from December 31, 1991. (see pars. L and M,
ibid).
d. Being situated in a first-class office building area, it
was agreed that no advertisements or any kind of
commercial signs shall be allowed on the lot or the
improvements therein but this was violated by
defendant when it put up commercial signs and
advertisements all over the area, (see par. F, ibid).
6. Any of the afore-described violations committed by
the defendant empower the plaintiff to sue under
parangraph "N. Unilateral Cancellation", plaintiff may
have the Deed of Absolute Sale (Annex "A") cancelled
and the property reverted to it by paying the
defendant the amount it has paid less the items
indicated therein.15ChanRoblesVirtualawlibrary
For reliefs, Ortigas prayed for the reconveyance of the
subject property, or, alternatively, for the demolition
of the structures and improvements thereon, plus the
payment of penalties, attorney's fees and costs of
suit.16
During the pendency of the proceedings in the RTC,
the petitioner amended its Articles of Incorporation to
change its name to St. Francis Square Realty
Corporation.17
After trial on the merits, the RTC rendered its decision
on December 14, 2009,18 and dismissed the
complaint, pertinently holding as follows:
Ortigas sold the property [to] Amethyst on 29 June
1994. Amethyst was supposed to finish construction
on 31 December 1995. Yet, up to the time the
property was transferred to ASB on 28 December
1996, Ortigas never initiated any action against
Amethyst to enforce said provision. Ortigas is
therefore guilty of laches or negligence or omission to
assert a right within a reasonable time, warranting a
presumption that the party entitled to assert it either
has abandoned it or declined to assert it. (Tijam v.
Sibonghanoy, L-21450, 15 April 1968, 23 SCRA 29).
It is worth mentioning that the restrictions annotated
in TCT No. 94175 (in the name of Amethyst Pearl
Corporation) and TCT No. PT-105797 (in the name of
ASB) repeatedly and consistently refer to the VENDEE.
The term VENDEE in the said restrictions obviously
refer to Amethyst Pearls Corporation considering the
fact that the date referred to in Paragraph N thereof
(Construction and Completion of Building), which is
four (4) years from December 31, 1991, obviously
refer to the plaintiffs VENDEE Amethyst Pearl
Corporation. Definitely, it cannot refer to the
defendant ASB which is not a vendee of the plaintiff.
Therefore, all references to VENDEE in the restrictions
evidently refer to Amethyst Pearl Corporation, the
VENDEE in the sale from the plaintiff. Such
explanation is more consistent with logic than the
plaintiffs convoluted assertions that the said
restrictions apply to the defendant ASB.
Reconveyance of the property to Ortigas necessarily
implies rescission of the sale or transfer from
Amethyst to ASB and from Ortigas to Amethyst. But
Amethyst was not made a party to the case.
Reconveyance of the property to the original seller
(Ortigas) applies only on the sale to the original
vendee (Amethyst) and not to subsequent vendees to
whom the property was sold (Ayala Corp. v. Rosa
Diana Realty and Dev. Corp., G.R. No. 134284, Dec.
1, 2000, 346 SCRA 663).
The non-compliance by the plaintiff with the requisites
of its own restrictions further proves that it had
no intention whatsoever to enforce or implement the
same. If at all, this evinces an afterthought of the
plaintiff to belatedly and unjustifiably single out the
defendant for alleged non compliance of the said
restrictions which are not applicable to it anyway.
WHEREFORE, foregoing premises considered, the
present complaint is hereby dismissedfor lack of
basis.
SO ORDERED.19ChanRoblesVirtualawlibrary
Ortigas appealed to the CA, which initially affirmed the
RTC under the decision promulgated on September 6,
2011,20 ruling thusly:
x x x x ORTIGAS can no longer enforce the said
restrictions as against ASB.
The "Covenants, Conditions and Restrictions" of
ORTIGAS with respect to the property clearly states
the following purpose:
"This lot has been segregated by ORTIGAS from its
subdivisions to form part of a zonified BUILDING AREA
pursuant to its controlled real estate development
project and subdivision scheme. x x x"
However, it appears from the circumstances obtaining
in this case that ORTIGAS failed to pursue the
aforequoted purpose. It never filed a complaint
against its vendee, AMETHYST, notwithstanding that
it required the latter to complete construction of the
building within four (4) years from the execution of
the Deed of Sale. Neither did it make a demand to
enforce the subject restriction. Moreover, while it
imposed a restriction on the registration and issuance
of title in the name of the vendee under Paragraph
"P" on "Registration of Sale", to
wit:chanRoblesvirtualLawlibrary
"P. REGISTRATION OF SALE:
The VENDEE hereby agrees that, for the time being,
this Deed will not be registered and that its title shall
not be issued until the satisfactory construction of the
contemplated Office Building and VENDEE's be transgressed. Such a silence or inaction, which in
compliance with all conditions therein. x x x" effect led ASB to believe that ORTIGAS no longer
sought the enforcement of the restrictions on the
AMETHYST was nonetheless able to procure the title contract, therefore bars ORTIGAS from enforcing the
to the property in its name, and subsequently, restriction it imposed on the subject property.
assigned the same to ASB.
x x x x
Besides, records show that there are registered
owner-corporations of several properties within the WHEREFORE, premises considered, the instant
Ortigas area, where the subject property is located, appeal is DENIED. The assailed Decision is
that have likewise failed to comply with the restriction hereby AFFIRMED.
on building construction notwithstanding the fact of its
annotation on the titles covering their properties. In SO ORDERED.21ChanRoblesVirtualawlibrary
fact, the tax declarations covering these properties in
Acting on Ortigas' Motion for Reconsideration,
the respective names of UNIMART INC., CHAILEASE
however, the CA promulgated its assailed amended
DEVELOPMENT CO. INC., CANOGA PARK
decision on January 9, 2012,22 whereby it reversed
DEVELOPMENT CORPORATION, and MAKATI
the decision promulgated on September 6, 2011. It
SUPERMARKET CORPORATION reveal that no
observed and ruled as follows:
improvements or buildings have been erected
It is not disputed that AMETHYST failed to finish
thereon.
construction within the period stated in the 1994 Deed
of Sale. As correctly pointed out by ORTIGAS, in
Notwithstanding such blatant non-compliance,
accordance with Article 1144 of the Civil Code, the
however, records are bereft of evidence to prove that
prescriptive period within which to enforce remedies
ORTIGAS took steps to demand observance of the said
under the 1994 Deed of sale is ten (10) years from
restriction from these corporations, or that it opted to
the time the right of action accrues.
institute any case against them in order to enforce its
rights as seller. Thus, while ORTIGAS effectively
ORTIGAS, therefore, had ten (10) years from 31
tolerated the non-compliance of these other
December 1995 or until 31 December 2005 within
corporations, it nonetheless proceeded with the filing
which to file suit to enforce the restriction. ORTIGAS
of the Complaint a quo against ASB, seeking the
filed the present complaint on 07 July 2000 well
rescission of the original Deed of Sale on the ground
within the prescriptive period for filing the
of non-compliance of the very same restriction being
same.
violated by other property owners similarly situated.
ASB contends that it could not have complied with the
On the basis of the foregoing acts or omissions of
particular restriction to finish construction of the
ORTIGAS, and the factual milieu of the present case,
building as the period to finish the same had already
it cannot be pretended that it failed to actively pursue
lapsed by the time ASB acquired the property by way
the attainment of its objective of having a "controlled
of a Deed of Assignment in Liquidation between
real estate development project and subdivision
AMETHYST and ASB on 28 December 1996. We hold,
scheme". The Court thus concurs with the
however, that the mere assignment or transfer
ratiocinations of the RTC when it posited that the
of the subject property from AMETHYST to ASB
restrictions imposed by ORTIGAS on ASB have been
does not serve to defeat the vested right of
"rendered obsolete and inexistent" for failure of
ORTIGAS to avail of remedies to enforce the
ORTIGAS to enforce the same uniformly and
subject restriction within the applicable
indiscriminately against all non-complying property
prescriptive period.
owners. If the purpose of ORTIGAS for imposing the
restrictions was for its "controlled real estate
x x x x
development project and subdivision scheme", then it
should have sought compliance from all property
As to the argument that the inaction of ORTIGAS with
owners that have violated the restriction on building
respect to other non-compliant properties in the
completion. As things stand, ASB would appear to
Ortigas area is tantamount to consenting to such non-
have been singled out by ORTIGAS, rendering the
compliance, it must be mentioned that it is the sole
present action highly suspect and a mere
prerogative and discretion of Ortigas to initiate any
afterthought.
action against the violators of the deed restrictions.
This Court cannot interfere with the exercise of such
Consequently, while it may be true that ASB was
prerogative/discretion. Furthermore, We cannot
bound by the restrictions annotated on its title,
sustain estoppel in doubtful inference. Absent the
specifically the restriction on building completion,
conclusive proof that its essential elements are
ORTIGAS is now effectively estopped from enforcing
present, estoppel must fail. Estoppel, when
the same by virtue of its inaction and silence.
misapplied, becomes an effective weapon to
accomplish an injustice, inasmuch as it shuts a man's
x x x x
mouth from speaking the
truth.23ChanRoblesVirtualawlibrary
In this case, ORTIGAS acquiesced to the conveyance
of the property from AMETHYST to ASB with nary a By its resolution promulgated on July 26, 2012, the
demand, reservation or complaint for the enforcement CA denied the petitioner's Motion for
of the restriction on building construction. It allowed Reconsideration24 for being filed out of
the four-year period within which to construct a time.25cralawred
building to lapse before it decided that it wanted, after
all, to enforce the restriction, which cannot be allowed Issues
lest the property rights of the registered owner, ASB,
Hence, this appeal in which ASB submits: (1) that
its Motion for Reconsideration vis-a-vis the CA's
amended decision was filed on time; and (2) that the
amended decision promulgated on January 9, 2012 by
CA be reversed and set aside, and the decision
promulgated on September 6, 2011 be reinstated.26
The petitioner essentially seeks the resolution of the
issue of whether or not Ortigas validly rescinded
the Deed of Sale due to the failure of Amethyst and
its assignee, the petitioner, to fulfil the covenants
under the Deed of Sale.
Ruling of the Court
The petition for review is meritorious.
1.
Petitioner's motion for reconsideration vis-a-vis
the amended decision of the CA was timely filed
In denying the petitioner's Motion for Reconsideration,
the CA concluded as follows:
Per allegation of material dates, the Motion for
Reconsideration filed by Balgos Gumara & Jalandoni,
co-counsel with Jose, Mendoza & Associates, on
January 30, 2012 appears to have been filed on time.
However, per registry return attached at the back of
p. 212 of the Rollo, the Motion for Reconsideration
was filed three (3) days late considering that the
Amended Decision was received by defendant
appellee's counsel of record, Jose, Mendoza &
Associates, on January 12,
2012.27ChanRoblesVirtualawlibrary
The conclusion of the CA was unwarranted because
the petitioner established that its filing of the Motion
for Reconsideration was timely.
It is basic that the party who asserts a fact or the
affirmative of an issue has the burden of proving
it.28Here, that party was the petitioner. To comply with
its burden, it attached to its petition for review
on certiorari: (1) the affidavit executed by Noel S.R.
Rose, Senior Partner of Jose, Mendoza & Associates
attesting that he had requested the postmaster of the
Mandaluyong City Post Office to certify the date when
Jose, Mendoza & Associates had received the copy of
the amended decision of the CA;29 and (2) the
certification issued on August 15, 2012 by Postmaster
Rufino C. Robles, and Letter Carrier, Jojo Salvador,
both of the Mandaluyong Central Post Office, certifying
that Registered Letter No. MVC 457 containing the
copy of the amended decision had been delivered to
and received on January 18, 2012 by Jose, Mendoza
& Associates, through Ric Ancheta.30 It thereby sought
to prove that it had received the copy of the amended
decision only on January 18, 2012, not January 12,
2012 as stated in the registry return card on record.
Thus, it had until February 2, 2012, or 15 days from
January 18, 2012, within which to file the same. In
contrast, Ortigas relied only on the copy of the registry
return to refute the petitioner's assertion.31 Under the
circumstances, the filing on January 30, 2012 of
the Motion for Reconsideration was timely.
2.
Ortigas' action for rescission could not prosper
The petitioner reiterates that although the restrictions
and covenants imposed by Ortigas under the Deed of
Sale with Amethyst, particularly with regard to the
construction of the building, were similarly imposed
on Ortigas' other buyers and annotated on the latter's
respective certificates of title,32 Ortigas never took to
task such other buyers and Amethyst for failing to
construct the buildings within the periods
contractually imposed.33 It maintains, therefore, that
Ortigas slept on its rights because it did not take any
action against Amethyst during the period prescribed
in the Deed of Sale.34 It argues that even assuming
that it was bound by the terms of the Deed of Sale,
certain circumstances occurred in the interim that
rendered it impossible for the petitioner to comply
with the covenants embodied in the Deed of Sale,
namely: (1) the delay in the petitioner's possession of
the property resulted from the complaint for forcible
entry it had filed in the Metropolitan Trial Court in
Pasig City; (2) at the time the property was
transferred to the petitioner, the period within which
to construct the building had already expired without
Ortigas enforcing the obligation against Amethyst;
and (3) the petitioner was placed under corporate
rehabilitation by the Securities and Exchange
Commission (SEC) by virtue of which a stay order was
issued on May 4, 2000.35
In contrast, Ortigas contends that it had the sole
discretion whether or not to commence any action
against a party who violated a restriction in the Deed
of Sale;36 and that it could not be estopped because
the Deed of Sale with Amethyst and the deeds of sale
with its other buyers contained a uniform provision to
the effect that "any inaction, delay or tolerance by
OCLP (Ortigas) in respect to violation of any of the
covenants and restrictions committed by these buyers
shall not bar or estop the institution of an action to
enforce them."37
In asserting its right to rescind, Ortigas insists that the
petitioner was bound by the covenants of the Deed of
Sale annotated on TCT No. PT-10597 in the name of
the petitioner;38 and that the petitioner's privity to
the Deed of Sale was by virtue of its being the
successor-in-interest or assignee of Amethyst.39
After evaluating the parties' arguments and the
records of the case, the Court holds that Ortigas could
not validly demand the reconveyance of the property,
or the demolition of the structures thereon through
rescission.
The Deed of Assignment in Liquidation executed
between Amethyst and the petitioner expressly
stated, in part, that:
x x x x [T]he ASSIGNOR hereby assigns,
transfers and conveys unto the ASSIGNEE, its
successors and assigns, free from any lien or
encumbrance except those that are duly annotated on
the Transfer Certificate of Title (TCT), one parcel of
real property (with improvements). x x x.
x x x x
The ASSIGNEE in turn in consideration of the
foregoing assignment of assets to it, hereby
surrenders to ASSIGNOR, Amethyst Pearl
Corporation, Stock Certificate Nos. (006, 007, 008,
009, 010, 011), covering a total of TEN THOUSAND
SHARES (10,000) registered in the name of the
ASSIGNEE and its nominees in the books of
ASSIGNOR, receipt of which is hereby acknowledged,
and in addition hereby releases ASSIGNOR from any
and all claims.40ChanRoblesVirtualawlibrary
The express terms of the Deed of Assignment in
Liquidation, supra, indicate that Amethyst transferred
to the petitioner only the tangible asset consisting of
the parcel of land covered by TCT No. PT-94175
registered in the name of Amethyst. By no means did
Amethyst assign the rights or duties it had assumed
under the Deed of Sale. The petitioner thus became
vested with the ownership of the parcel of land "free
from any lien or encumbrance except those that are
duly annotated on the [title]" from the time Amethyst
executed the Deed of Assignment in Liquidation.
Although the Deed of Sale stipulated that:
3. The lot, together with any improvements thereon,
or any rights thereto, shall not be transferred, sold or
encumbered before the final completion of the
building as herein provided unless it is with the prior
express written approval of ORTIGAS.41
x x x x
The VENDEE hereby agrees that, for the time being,
this Deed will not be registered and that its title shall
not be issued until the satisfactory construction of the
contemplated Office Building and VENDEE's
compliance with all conditions herein. x x
x42ChanRoblesVirtualawlibrary
Ortigas apparently recognized without any
reservation the issuance of the new certificate of title
in the name of Amethyst and the subsequent transfer
by assignment from Amethyst to the petitioner that
resulted in the issuance of the new certificate of title
under the name of the petitioner. As such, Ortigas was
estopped from assailing the petitioner's acquisition
and ownership of the property.
The application of estoppel was appropriate. The
doctrine of estoppel was based on public policy, fair
dealing, good faith and justice, and its purpose was to
forbid a party to speak against his own act or
omission, representation, or commitment to the injury
of another to whom the act, omission, representation,
or commitment was directed and who reasonably
relied thereon. The doctrine sprang from equitable
principles and the equities in the case, and was
designed to aid the law in the administration of justice
where without its aid injustice would result. Estoppel
has been applied by the Court wherever and whenever
special circumstances of the case so demanded.43
Yet, the query that persists is whether or not the
covenants annotated on TCT No. PT-10597 bound the
petitioner to the performance of the obligations
assumed by Amethyst under the Deed of Sale.
We agree with Ortigas that the annotations on TCT No.
PT-10597 bound the petitioner but not to the extent
that rendered the petitioner liable for the non-
performance of the covenants stipulated in the Deed
of Sale.
Section 39 of Act No. 496 (The Land Registration Act)
requires that every person receiving a certificate of
title in pursuance of a decree of registration, and
every subsequent purchaser of registered land who
takes a certificate of title for value in good faith shall
hold the same free of all encumbrances except those
noted on said certificate. An encumbrance in the
context of the provision is "anything that impairs the
use or transfer of property; anything which constitutes
a burden on the title; a burden or charge upon
property; a claim or lien upon property."44 It denotes
"any right to, or interest in, land which may subsist in
another to the diminution of its value, but consistent
with the passing of the fee by conveyance."45 An
annotation, on the other hand, is "a remark, note,
case summary, or commentary on some passage of a
book, statutory provision, court decision, of the like,
intended to illustrate or explain its meaning."46 The
purpose of the annotation is to charge the purchaser
or title holder with notice of such burden and
claims.47 Being aware of the annotation, the purchaser
must face the possibility that the title or the real
property could be subject to the rights of third
parties.48
By acquiring the parcel of land with notice of the
covenants contained in the Deed of Sale between the
vendor (Ortigas) and the vendee (Amethyst), the
petitioner bound itself to acknowledge and respect the
encumbrance. Even so, the petitioner did not step into
the shoes of Amethyst as a party in the Deed of Sale.
Thus, the annotation of the covenants contained in
the Deed of Sale did not give rise to a liability on the
part of the petitioner as the purchaser/successor-in-
interest without its express assumption of the duties
or obligations subject of the annotation. As stated, the
annotation was only the notice to the
purchaser/successor-in-interest of the burden, claim
or lien subject of the annotation. In that respect, the
Court has observed in Garcia v. Villar:49
The sale or transfer of the mortgaged property cannot
affect or release the mortgage; thus the purchaser or
transferee is necessarily bound to acknowledge and
respect the encumbrance.
x x x x
x x x However, Villar, in buying the subject property
with notice that it was mortgaged, only undertook to
pay such mortgage or allow the subject property to be
sold upon failure of the mortgage creditor to obtain
payment from the principal debtor once the debt
matures. Villar did not obligate herself to replace the
debtor in the principal obligation, and could not do so
in law without the creditors consent. Article 1293 of
the Civil Code provides:
Art. 1293. Novation which consists in substituting a
new debtor in the place of the original one, may be
made even without the knowledge or against the will
of the latter, but not without the consent of the
creditor. Payment by the new debtor gives him the
rights mentioned in articles 1236 and 1237.
Therefore, the obligation to pay the mortgage
indebtedness remains with the original debtors Galas
and Pingol. x x x
To be clear, contractual obligations, unlike contractual
rights or benefits, are generally not assignable. But
there are recognized means by which obligations may
be transferred, such as by sub-contract and novation.
In this case, the substitution of the petitioner in the
place of Amethyst did not result in the novation of
the Deed of Sale. To start with, it does not appear
from the records that the consent of Ortigas to the
substitution had been obtained despite its essentiality
to the novation. Secondly, the petitioner did not
expressly assume Amethyst's obligations under
the Deed of Sale, whether through the Deed of
Assignment in Liquidation or another document. And,
thirdly, the consent of the new obligor (i.e., the
petitioner), which was as essential to the novation as
that of the obligee (i.e., Ortigas), was not obtained.50
Even if we would regard the petitioner as the assignee
of Amethyst as far as the Deed of Sale was concerned,
instead of being the buyer only of the subject
property, there would still be no express or implied
indication that the petitioner had assumed Amethyst's
obligations. In short, the burden to perform the
covenants under the Deed of Sale, or the liability for
the non-performance thereof, remained with
Amethyst. As held in an American case:
The mere assignment of a bilateral executory contract
may not be interpreted as a promise by the assignee
to the assignor to assume the performance of the
assignor's duties, so as to have the effect of creating
a new liability on the part of the assignee to the other
party to the contract assigned. The assignee of the
vendee is under no personal engagement to the
vendor where there is no privity between them.
(Champion v. Brown, 6 Johns. Ch. 398; Anderson v.
N. Y. & H. R. R. Co., 132 App. Div. 183, 187, 188;
Hugel v. Habel, 132 App. Div. 327, 328.) The assignee
may, however, expressly or impliedly, bind himself to
perform the assignor's duties. This he may do by
contract with the assignor or with the other party to
the contract. It has been held (Epstein v. Gluckin, 233
N. Y. 490) that where the assignee of the vendee
invokes the aid of a court of equity in an action for
specific performance, he impliedly binds himself to
perform on his part and subjects himself to the
conditions of the judgment appropriate thereto. "He
who seeks equity must do equity." The converse of
the proposition, that the assignee of the vendee would
be bound when the vendor began the action, did not
follow from the decision in that case. On the contrary,
the question was wholly one of remedy rather than
right and it was held that mutuality of remedy is
important only so far as its presence is essential to the
attainment of the ends of justice. This holding was
necessary to sustain the decision. No change was
made in the law of contracts nor in the rule for the
interpretation of an assignment of a contract.
A judgment requiring the assignee of the vendee to
perform at the suit of the vendor would operate as the
imposition of a new liability on the assignee which
would be an act of oppression and injustice, unless the
assignee had, expressly or by implication, entered into
a personal and binding contract with the assignor or
with the vendor to assume the obligations of the
assignor.51ChanRoblesVirtualawlibrary
Is rescission the proper remedy for Ortigas to recover
the subject property from the petitioner?
The Civil Code uses rescission in two different
contexts, namely: (1) rescission on account of breach
of contract under Article 1191; and (2) rescission by
reason of lesion or economic prejudice under Article
1381. Cogently explaining the differences between the
contexts of rescission in his concurring opinion
in Universal Food Corp. v. Court of Appeals,52 the
eminent Justice J.B.L. Reyes observed:
x x x The rescission on account of breach of
stipulations is not predicated on injury to economic
interests of the party plaintiff but on the breach of
faith by the defendant, that violates the reciprocity
between the parties. It is not a subsidiary action, and
Article 1191 may be scanned without disclosing
anywhere that the action for rescission thereunder is
subordinated to anything; other than the culpable
breach of his obligations by the defendant. This
rescission is in principal action retaliatory in character,
it being unjust that a party be held bound to fulfill his
promises when the other violates his, as expressed in
the old Latin aphorism: "Non servanti fidem, non est
fides servanda." Hence, the reparation of damages for
the breach is purely secondary.
On the contrary, in the rescission by reason
of lesion or economic prejudice, the cause of action is
subordinated to the existence of that prejudice,
because it is the raison d'etre as well as the measure
of the right to rescind. Hence, where the defendant
makes good the damages caused, the action cannot
be maintained or continued, as expressly provided in
Articles 1383 and 1384. But the operation of these two
articles is limited to the cases of rescission
for lesion enumerated in Article 1381 of the Civil Code
of the Philippines, and does not apply to cases under
Article 1191.
Based on the foregoing, Ortigas' complaint was
predicated on Article 1191 of the Civil Code, which
provides:
Article 1191. The power to rescind obligations is
implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.
The injured party may choose between the fulfillment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfillment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights
of third persons who have acquired the thing, in
accordance with articles 1385 and 1388 and the
Mortgage Law.
Rescission under Article 1191 of the Civil Code is
proper if one of the parties to the contract commits a
substantial breach of its provisions. It abrogates the
contract from its inception and requires the mutual
restitution of the benefits received;53 hence, it can be
carried out only when the party who demands
rescission can return whatever he may be obliged to
restore.
Considering the foregoing, Ortigas did not have a
cause of action against the petitioner for the rescission
of the Deed of Sale. Under Section 2, Rule 2 of
the Rules of Court, a cause of action is the act or
omission by which a party violates a right of another.
The essential elements of a cause of action are: (1) a
right in favor of the plaintiff by whatever means and
under whatever law it arises or is created; (2) an
obligation on the part of the defendant not to violate
such right; and (3) an act or omission on the part of
the defendant in violation of the right of the plaintiff
or constituting a breach of the obligation of the
defendant to the plaintiff for which the latter may
maintain an action for recovery of damages or other
relief. It is only upon the occurrence of the last
element that the cause of action arises, giving the
plaintiff the right to file an action in court for the
recovery of damages or other relief.54
The second and third elements were absent herein.
The petitioner was not privy to the Deed of Sale
because it was not the party obliged thereon. Not
having come under the duty not to violate any
covenant in the Deed of Sale when it purchased the
subject property despite the annotation on the title,
its failure to comply with the covenants in the Deed of
Sale did not constitute a breach of contract that gave
rise to Ortigas' right of rescission. It was rather
Amethyst that defaulted on the covenants under
the Deed of Sale; hence, the action to enforce the
provisions of the contract or to rescind the contract
should be against Amethyst. In other words,
rescission could not anymore take place against the
petitioner once the subject property legally came into
the juridical possession of the petitioner, who was a
third party to the Deed of Sale.55
In view of the outcome, we consider to be superfluous
any discussion of the other matters raised in the
petition, like the effects of the petitioner's corporate
rehabilitation and whether Ortigas was guilty of
laches.
WHEREFORE, the Court GRANTS the petition for
review on certiorari; ANNULS and REVERSES the
amended decision promulgated on January 9, 2012
and the resolution promulgated on July 26, 2012 by
the Court of Appeals in C.A.-G.R. CV No.
94997; DISMISSES Civil Case No. 67978 for lack of
cause of action; and ORDERS respondent ORTIGAS
& COMPANY LIMITED PARTNERSHIP to pay the
costs of suit.
SO ORDERED.chanroblesvirtuallawlibrary
G.R. No. 72275 November 13, 1991
PACIFIC BANKING CORPORATION, petitioner,
vs.
HON INTERMEDIATE APPELLATE COURT AND
ROBERTO REGALA, JR., respondents.
Ocampo, Dizon & Domingo for petitioner.
Angara, Concepcion, Regala & Cruz for private
respondent.
MEDIALDEA, J.:
This is a petition for review on certiorari of the
decision (pp 21-31, Rollo) of the Intermediate
Appellate Court (now Court of Appeals) in AC-G.R.
C.V. No. 02753, 1 which modified the decision of the
trial court against herein private respondent Roberto
Regala, Jr., one of the defendants in the case for sum
of money filed by Pacific Banking Corporation.
The facts of the case as adopted by the respondent
appellant court from herein petitioner's brief before
said court are as follows:
On October 24, 1975, defendant Celia Syjuco
Regala (hereinafter referred to as Celia
Regala for brevity), applied for and obtained
from the plaintiff the issuance and use of
Pacificard credit card (Exhs. "A", "A-l",),
under the Terms and Conditions Governing
the Issuance and Use of Pacificard (Exh. "B"
and hereinafter referred to as Terms and
Conditions), a copy of which was issued to
and received by the said defendant on the
date of the application and expressly agreed
that the use of the Pacificard is governed by
said Terms and Conditions. On the same
date, the defendant-appelant Robert Regala,
Jr., spouse of defendant Celia Regala,
executed a "Guarantor's Undertaking" (Exh.
"A-1-a") in favor of the appellee Bank,
whereby the latter agreed "jointly and
severally of Celia Aurora Syjuco Regala, to
pay the Pacific Banking Corporation upon
demand, any and all indebtedness,
obligations, charges or liabilities due and
incurred by said Celia Aurora Syjuco Regala
with the use of the Pacificard, or renewals
thereof, issued in her favor by the Pacific
Banking Corporation". It was also agreed
that "any changes of or novation in the terms
and conditions in connection with the
issuance or use of the Pacificard, or any
extension of time to pay such obligations,
charges or liabilities shall not in any manner
release me/us from responsibility hereunder,
it being understood that I fully agree to such
charges, novation or extension, and that this
understanding is a continuing one and shall
subsist and bind me until the liabilities of the
said Celia Syjuco Regala have been fully
satisfied or paid.
Plaintiff-appellee Pacific Banking Corporation
has contracted with accredited business
establishments to honor purchases of goods
and/or services by Pacificard holders and the
cost thereof to be advanced by the plaintiff-
appellee for the account of the defendant
cardholder, and the latter undertook to pay
any statements of account rendered by the
plaintiff-appellee for the advances thus made
within thirty (30) days from the date of the
statement, provided that any overdue
account shall earn interest at the rate of 14%
per annum from date of default.
The defendant Celia Regala, as such
Pacificard holder, had purchased goods
and/or services on credit (Exh. "C", "C-l" to
"C-112") under her Pacificard, for which the
plaintiff advanced the cost amounting to
P92,803.98 at the time of the filing of the
complaint.
In view of defendant Celia Regala's failure to
settle her account for the purchases made
thru the use of the Pacificard, a written
demand (Exh. "D") was sent to the latter and
 also to the defendant Roberto Regala, Jr.
(Exh. " ") under his "Guarantor's
Undertaking."
A complaint was subsequently filed in Court
for defendant's (sic) repeated failure to settle
their obligation. Defendant Celia Regala was
declared in default for her failure to file her
answer within the reglementary period.
Defendant-appellant Roberto Regala, Jr., on
the other hand, filed his Answer with
Counterclaim admitting his execution of the
"Guarantor's Understanding", "but with the
understanding that his liability would be
limited to P2,000.00 per month."
In view of the solidary nature of the liability
of the parties, the presentation of
evidence ex-parte as against the defendant
Celia Regala was jointly held with the trial of
the case as against defendant Roberto
Regala.
After the presentation of plaintiff's
testimonial and documentary evidence, fire
struck the City Hall of Manila, including the
court where the instant case was pending, as
well as all its records.
Upon plaintiff-appellee's petition for
reconstitution, the records of the instant case
were duly reconstituted. Thereafter, the case
was set for pre-trial conference with respect
to the defendant-appellant Roberto Regala
on plaintiff-appellee's motion, after
furnishing the latter a copy of the same. No
opposition thereto having been interposed by
defendant-appellant, the trial court set the
case for pre-trial conference. Neither did said
defendant-appellant nor his counsel appear
on the date scheduled by the trial court for
said conference despite due notice.
Consequently, plaintiff-appellee moved that
the defendant-appellant Roberto Regala he
declared as in default and that it be allowed
to present its evidence ex-parte, which
motion was granted. On July 21, 1983,
plaintiff-appellee presented its evidence ex-
parte. (pp. 23-26, Rollo)
After trial, the court a quo rendered judgment on
December 5, 1983, the dispositive portion of which
reads:
WHEREFORE, the Court renders judgment for
the plaintiff and against the defendants
condemning the latter, jointly and severally,
to pay said plaintiff the amount of
P92,803.98, with interest thereon at 14%
per annum, compounded annually, from the
time of demand on November 17, 1978 until
said principal amount is fully paid; plus 15%
of the principal obligation as and for
attorney's fees and expense of suit; and the
costs.
The counterclaim of defendant Roberto
Regala, Jr. is dismissed for lack of merit.
SO ORDERED. (pp. 22-23, Rollo)
The defendants appealed from the decision of the
court a quo to the Intermediate Appellate Court.
On August 12, 1985, respondent appellate court
rendered judgment modifying the decision of the trial
court. Private respondent Roberto Regala, Jr. was
made liable only to the extent of the monthly credit
limit granted to Celia Regala, i.e., at P2,000.00 a
month and only for the advances made during the one
year period of the card's effectivity counted from
October 29, 1975 up to October 29, 1976. The
dispositive portion of the decision states:
WHEREFORE, the judgment of the trial court
dated December 5, 1983 is modified only as
to appellant Roberto Regala, Jr., so as to
make him liable only for the purchases made
by defendant Celia Aurora Syjuco Regala
with the use of the Pacificard from October
29, 1975 up to October 29, 1976 up to the
amount of P2,000.00 per month only, with
interest from the filing of the complaint up to
the payment at the rate of 14% per annum
without pronouncement as to costs. (p.
32, Rollo)
A motion for reconsideration was filed by Pacific
Banking Corporation which the respondent appellate
court denied for lack of merit on September 19, 1985
(p. 33, Rollo).
On November 8, 1985, Pacificard filed this petition.
The petitioner contends that while the appellate court
correctly recognized Celia Regala's obligation to
Pacific Banking Corp. for the purchases of goods and
services with the use of a Pacificard credit card in the
total amount of P92,803.98 with 14% interest per
annum, it erred in limiting private respondent Roberto
Regala, Jr.'s liability only for purchases made by Celia
Regala with the use of the card from October 29, 1975
up to October 29, 1976 up to the amount of P2,000.00
per month with 14% interest from the filing of the
complaint.
There is merit in this petition.
The pertinent portion of the "Guarantor's
Undertaking" which private respondent Roberto
Regala, Jr. signed in favor of Pacific Banking
Corporation provides:
I/We, the undersigned, hereby agree, jointly
and severally with Celia Syjuco Regala to pay
the Pacific Banking Corporation upon
demand any and all indebtedness,
obligations, charges or liabilities due and
incurred by said Celia Syjuco Regala with the
use of the Pacificard or renewals thereof
issued in his favor by the Pacific Banking
Corporation. Any changes of or Novation in
the terms and conditions in connection with
the issuance or use of said Pacificard, or any
extension of time to pay such obligations,
charges or liabilities shall not in any manner
release me/us from the responsibility
 hereunder, it being understood that the . . . Any changes of or novation in the terms
undertaking is a continuing one and shall and conditions in connection with the
subsist and bind me/us until all the liabilities issuance or use of said Pacificard, or any
of the said Celia Syjuco Regala have been extension of time to pay such obligations,
fully satisfied or paid. (p. 12, Rollo) charges or liabilities shall not in any manner
release me/us from the responsibility
hereunder, it being understood that the
The undertaking signed by Roberto Regala, Jr.
undertaking is a continuing one and shall
although denominated "Guarantor's Undertaking,"
subsist and bind me/us until all the liabilities
was in substance a contract of surety. As distinguished
of the said Celia Syjuco Regala have been
from a contract of guaranty where the guarantor binds
fully satisfied or paid. (p. 12, supra;
himself to the creditor to fulfill the obligation of the
emphasis supplied)
principal debtor only in case the latter should fail to
do so, in a contract of suretyship, the surety binds
himself solidarily with the principal debtor (Art. 2047, Private respondent Roberto Regala, Jr. had been made
Civil Code of the Philippines). aware by the terms of the undertaking of future
changes in the terms and conditions governing the
issuance of the credit card to his wife and that,
We need not look elsewhere to determine the nature
notwithstanding, he voluntarily agreed to be bound as
and extent of private respondent Roberto Regala, Jr.'s
a surety. As in guaranty, a surety may secure
undertaking. As a surety he bound himself jointly and
additional and future debts of the principal debtor the
severally with the debtor Celia Regala "to pay the
amount of which is not yet known (see Article
Pacific Banking Corporation upon demand, any and all
2053, supra).
indebtedness, obligations, charges or liabilities due
and incurred by said Celia Syjuco Regala with the use
of Pacificard or renewals thereof issued in (her) favor The application by respondent court of the ruling in
by Pacific Banking Corporation." This undertaking was Government v. Tizon, supra is misplaced. It was held
also provided as a condition in the issuance of the in that case that:
Pacificard to Celia Regala, thus:
. . . although the defendants bound
5. A Pacificard is issued to a Pacificard-holder themselves in solidum, the liability of the
against the joint and several signature of a Surety under its bond would arise only if its
third party and as such, the Pacificard holder co-defendants, the principal obligor, should
and the guarantor assume joint and several fail to comply with the contract. To
liabilities for any and all amount arising out paraphrase the ruling in the case of
of the use of the Pacificard. (p. 14, Rollo) Municipality of Orion vs. Concha, the liability
of the Surety is "consequent upon the
liability" of Tizon, or "so dependent on that of
The respondent appellate court held that "all the other
the principal debtor" that the Surety "is
rights of the guarantor are not thereby lost by the
considered in law as being the same party as
guarantor becoming liable solidarily and therefore a
the debtor in relation to whatever is
surety." It further ruled that although the surety's
adjudged, touching the obligation of the
liability is like that of a joint and several debtor, it does
latter"; or the liabilities of the two defendants
not make him the debtor but still the guarantor (or the
herein "are so interwoven and dependent as
surety), relying on the case of Government of the
to be inseparable." Changing the expression,
Philippines v. Tizon. G.R. No. L-22108, August 30,
if the defendants are held liable, their liability
1967, 20 SCRA 1182. Consequently, Article 2054 of
to pay the plaintiff would be solidary, but the
the Civil Code providing for a limited liability on the
nature of the Surety's undertaking is such
part of the guarantor or debtor still applies.
that it does not incur liability unless and until
the principal debtor is held liable.
It is true that under Article 2054 of the Civil Code, "(A)
guarantor may bind himself for less, but not for more
A guarantor or surety does not incur liability unless
than the principal debtor, both as regards the amount
the principal debtor is held liable. It is in this sense
and the onerous nature of the conditions. 2 It is
that a surety, although solidarily liable with the
likewise not disputed by the parties that the credit
principal debtor, is different from the debtor. It does
limit granted to Celia Regala was P2,000.00 per month
not mean, however, that the surety cannot be held
and that Celia Regala succeeded in using the card
liable to the same extent as the principal debtor. The
beyond the original period of its effectivity, October
nature and extent of the liabilities of a guarantor or a
29, 1979. We do not agree however, that Roberto Jr.'s
surety is determined by the clauses in the contract of
liability should be limited to that extent. Private
suretyship(see PCIB v. CA, L-34959, March 18, 1988,
respondent Roberto Regala, Jr., as surety of his
159 SCRA 24).
wife, expressly bound himself up to the extent of the
debtor's (Celia) indebtedness likewise expressly
waiving any "discharge in case of any change or ACCORDINGLY, the petition is GRANTED. The
novation of the terms and conditions in connection questioned decision of respondent appellate court is
with the issuance of the Pacificard credit SET ASIDE and the decision of the trial court is
card." Roberto, in fact, made his commitment as a REINSTATED.
surety a continuing one, binding upon himself until all
the liabilities of Celia Regala have been fully paid. All
SO ORDERED.
these were clear under the "Guarantor's Undertaking"
Roberto signed, thus:
[G.R. No. 101723. May 11, 2000] claims are hereby Dismiss (sic) for
lack of merit. Jjs-c
INDUSTRIAL MANAGEMENT INTERNATIONAL
DEVELOPMENT CORP. (INIMACO), petitioner, "SO ORDERED.
vs. NATIONAL LABOR RELATIONS COMMISSION,
(Fourth Division) Cebu City, and ENRIQUE
"Cebu City, Philippines.
SULIT, SOCORRO MAHINAY, ESMERALDO
PEGARIDO, TITA BACUSMO, GINO NIERE,
VIRGINIA BACUS, ROBERTO NEMENZO, DARIO "10 March 1987."0[1]
GO, and ROBERTO ALEGARBES, respondents.
No appeal was filed within the reglementary period
DECISION thus, the above Decision became final and executory.
On June 16, 1987, the Labor Arbiter issued a writ of
execution but it was returned unsatisfied. On August
BUENA, J.:
26, 1987, the Labor Arbiter issued an Alias Writ of
Execution which ordered thus: Ed-pm-is
This is a petition for certiorari assailing the Resolution
dated September 4, 1991 issued by the National Labor
"NOW THEREFORE, by virtue of the
Relations Commission in RAB-VII-0711-84 on the
powers vested in me by law, you are
alleged ground that it committed a grave abuse of
hereby commanded to proceed to
discretion amounting to lack of jurisdiction in
the premises of respondents
upholding the Alias Writ of Execution issued by the
Antonio Gonzales/Industrial
Labor Arbiter which deviated from the dispositive
Management Development
portion of the Decision dated March 10, 1987, thereby
Corporation (INIMACO) situated at
holding that the liability of the six respondents in the
Barangay Lahug, Cebu City, in front
case below is solidary despite the absence of the word
of La Curacha
"solidary" in the dispositive portion of the Decision,
Restaurant, and/or to Filipinas
when their liability should merely be joint. S-jcj
Carbon and Mining corporation and
Gerardo Sicat at 4th Floor Universal
The factual antecedents are undisputed: Supr-eme RE-Bldg. 106 Paseo de Roxas,
Legaspi Village, Makati Metro Manila
and at Philippine National Bank,
In September 1984, private respondent Enrique Sulit,
Escolta, Manila respectively, and
Socorro Mahinay, Esmeraldo Pegarido, Tita Bacusmo,
collect the aggregate award of ONE
Gino Niere, Virginia Bacus, Roberto Nemenzo,
HUNDRED THIRTY-EIGHT
Dariogo, and Roberto Alegarbes filed a complaint with
THOUSAND FIVE HUNDRED
the Department of Labor and Employment, Regional
EIGHTY-EIGHT PESOS AND THIRTY
Arbitration Branch No. VII in Cebu City against
ONE CENTAVOS (P138,588.31) and
Filipinas Carbon Mining Corporation, Gerardo Sicat,
thereafter turn over said amount to
Antonio Gonzales, Chiu Chin Gin, Lo Kuan Chin, and
complainants ENRIQUE SULIT,
petitioner Industrial Management Development
ESMERALDO PEGARIDO, ROBERTO
Corporation (INIMACO), for payment of separation
NEMENZO AND DARIO GO or to this
pay and unpaid wages. Sc-jj
Office for appropriate disposition.
Should you fail to collect the said
In a Decision dated March 10, 1987, Labor Arbiter sum in cash, you are hereby
Bonifacio B. Tumamak held that: authorized to cause the satisfaction
of the same on the movable or
"RESPONSIVE, to all the foregoing, immovable property(s) of
judgment is hereby entered, respondents not exempt from
ordering respondents Filipinas execution. You are to return this
Carbon and Mining Corp. Gerardo writ sixty (6) (sic) days from your
Sicat, Antonio Gonzales/Industrial receipt hereof, together with your
Management Development Corp. corresponding report.
(INIMACO), Chiu Chin Gin and Lo
Kuan Chin, to pay complainants "You may collect your legal
Enrique Sulit, the total award of expenses from the respondents as
P82,800.00; ESMERALDO provided for by law.
PEGARIDO the full award of
P19,565.00; Roberto Nemenzo the
"SO ORDERED."[2]
total sum of P29,623.60 and DARIO
GO the total award of P6,599.71, or
the total aggregate award of ONE On September 3, 1987, petitioner filed a "Motion to
HUNDRED THIRTY-EIGHT Quash Alias Writ of Execution and Set Aside
THOUSAND FIVE HUNDRED Decision,"[3] alleging among others that the alias writ
EIGHTY-EIGHT PESOS AND 31/100 of execution altered and changed the tenor of the
(P138,588.31) to be deposited with decision by changing the liability of therein
this Commission within ten (10) respondents from joint to solidary, by the insertion of
days from receipt of this Decision the words "AND/OR" between "Antonio
for appropriate disposition. All other Gonzales/Industrial Management Development
Corporation and Filipinas Carbon and Mining
Corporation, et al." However, in an order dated
September 14, 1987, the Labor Arbiter denied the
motion. Mis-oedp
On October 2, 1987, petitioner appealed[4] the Labor
Arbiters Order dated September 14, 1987 to the
respondent NLRC. Mis-edp
The respondent NLRC dismissed the appeal in a
Decision[5] dated August 31, 1988, the pertinent
portions of which read:
"In matters affecting labor rights
and labor justice, we have always
adopted the liberal approach which
favors the exercise of labor rights
and which is beneficial to labor as a
means to give full meaning and
import to the constitutional
mandate to afford protection to
labor. Considering the factual
circumstances in this case, there is
no doubt in our mind that the
respondents herein are called upon
to pay, jointly and severally, the
claims of the complainants as was
the latters prayers. Inasmuch as
respondents herein never
controverted the claims of the
complainants below, there is no
reason why complainants prayer
should not be granted. Further, in
line with the powers granted to the
Commission under Article 218 (c) of
the Labor code, to waive any error,
defect or irregularity whether in
substance or in form in a proceeding
before Us, We hold that the Writ of
Execution be given due course in all
respects." Ed-p
On July 31, 1989, petitioner filed a "Motion To Compel
Sheriff To Accept Payment Of P23,198.05
Representing One Sixth Pro Rata Share of Respondent
INIMACO As Full and Final Satisfaction of Judgment As
to Said Respondent."[6] The private respondents
opposed the motion. In an Order[7] dated August 15,
1989, the Labor Arbiter denied the motion ruling thus:
"WHEREFORE, responsive to the
foregoing respondent INIMACOs
Motions are hereby DENIED. The
Sheriff of this Office is order (sic) to
accept INIMACOs tender payment
(sic) of the sum of P23,198.05, as
partial satisfaction of the judgment
and to proceed with the
enforcement of the Alias Writ of
Execution of the levied properties,
now issued by this Office, for the full
and final satisfaction of the
monetary award granted in the
instant case.
"SO ORDERED." Ed-psc
Petitioner appealed the above Order of the Labor
Arbiter but this was again dismissed by the
respondent NLRC in its Resolution[8] dated September
4, 1991 which held that:
"The arguments of respondent on
the finality of the dispositive portion
of the decision in this case is beside
the point. What is important is that
the Commission has ruled that the
Writ of Execution issued by the
Labor Arbiter in this case is proper.
It is not really correct to say that
said Writ of Execution varied the
terms of the judgment. At most,
considering the nature of labor
proceedings there was, an
ambiguity in said dispositive portion
which was subsequently clarified by
the Labor Arbiter and the
Commission in the incidents which
were initiated by INIMACO itself. By
sheer technicality and unfounded
assertions, INIMACO would now
reopen the issue which was already
resolved against it. It is not in
keeping with the established rules
of practice and procedure to allow
this attempt of INIMACO to delay
the final disposition of this case.
"WHEREFORE, in view of all the
foregoing, this appeal is DISMISSED
and the Order appealed from is
hereby AFFIRMED. Sce-dp
"With double costs against
appellant."
Dissatisfied with the foregoing, petitioner filed the
instant case, alleging that the respondent NLRC
committed grave abuse of discretion in affirming the
Order of the Labor Arbiter dated August 15, 1989,
which declared the liability of petitioner to be solidary.
The only issue in this petition is whether petitioners
liability pursuant to the Decision of the Labor Arbiter
dated March 10, 1987, is solidary or not. Calrs-pped
Upon careful examination of the pleadings filed by the
parties, the Court finds that petitioner INIMACOs
liability is not solidary but merely joint and that the
respondent NLRC acted with grave abuse of discretion
in upholding the Labor Arbiters Alias Writ of Execution
and subsequent Orders to the effect that petitioners
liability is solidary.
A solidary or joint and several obligation is one in
which each debtor is liable for the entire obligation,
and each creditor is entitled to demand the whole
obligation.[9] In a joint obligation each obligor answers
only for a part of the whole liability and to each obligee
belongs only a part of the correlative rights.[10]
Well-entrenched is the rule that solidary obligation
cannot lightly be inferred.[11] There is a solidary
liability only when the obligation expressly so states,
when the law so provides or when the nature of the and Gerardo Sicat," which makes the liability
obligation so requires.[12] solidary. Ca-lrsc

In the dispositive portion of the Labor Arbiter, the WHEREFORE, the petition is hereby GRANTED. The
word "solidary" does not appear. The Resolution dated September 4, 1991 of the
said fallo expressly states the following respondents respondent National Labor Relations is hereby
therein as liable, namely: Filipinas Carbon and Mining declared NULL and VOID. The liability of the
Corporation, Gerardo Sicat, Antonio Gonzales, respondents in RAB-VII-0711-84 pursuant to the
Industrial Management Development Corporation Decision of the Labor Arbiter dated March 10, 1987
(petitioner INIMACO), Chiu Chin Gin, and Lo Kuan should be, as it is hereby, considered joint and
Chin. Nor can it be inferred therefrom that the liability petitioners payment which has been accepted
of the six (6) respondents in the case below is considered as full satisfaction of its liability, without
solidary, thus their liability should merely be joint. prejudice to the enforcement of the award, against the
other five (5) respondents in the said case. Sppedsc
Moreover, it is already a well-settled doctrine in this
jurisdiction that, when it is not provided in a judgment SO ORDERED.
that the defendants are liable to pay jointly and
severally a certain sum of money, none of them may
Bellosillo, (Chairman), Mendoza, and Quisumbing,
be compelled to satisfy in full said judgment.
JJ., concur.
In Oriental Commercial Co. vs. Abeto and
Mabanag[13] this Court held:
De Leon, Jr., J., on leave.
"It is of no consequence that, under
the contract of suretyship executed
by the parties, the obligation
contracted by the sureties was joint
and several in character. The final
judgment, which superseded the
action for the enforcement of said
contract, declared the obligation to
[G.R. No. 144134. November 11, 2003]
be merely joint, and the same
cannot be executed otherwise."[14]

Granting that the Labor Arbiter has committed a

mistake in failing to indicate in the dispositive portion MARIVELES SHIPYARD CORP., petitioner,
that the liability of respondents therein is solidary, the vs. HON. COURT OF APPEALS,
correction -- which is substantial -- can no longer be LUIS REGONDOLA, MANUELIT
allowed in this case because the judgment has already GATALAN, ORESCA AGAPITO, NOEL
become final and executory. Scc-alr ALBADBAD, ROGELIO PINTUAN, DANILO
CRISOSTOMO, ROMULO MACALINAO,
NESTOR FERER, RICKY CUESTA, ROLLY
It is an elementary principle of procedure that the ANDRADA, LARRY ROGOLA, FRANCISCO
resolution of the court in a given issue as embodied in LENOGON, AUGUSTO QUINTO, ARFE
the dispositive part of a decision or order is the BERAMO, BONIFACIO TRINIDAD,
controlling factor as to settlement of rights of the ALFREDO ASCARRAGA, ERNESTO
parties.[15] Once a decision or order becomes final and MAGNO, HONORARIO HORTECIO,
executory, it is removed from the power or jurisdiction NELBERT PINEDA, GLEN ESTIPULAR,
of the court which rendered it to further alter or FRANCISCO COMPUESTO, ISABELITO
amend it.[16] It thereby becomes immutable and CORTEZ, MATURAN ROSAURO, SAMSON
unalterable and any amendment or alteration which CANAS, FEBIEN ISIP, JESUS RIPARIP,
substantially affects a final and executory judgment is ALFREDO SIENES, ADOLAR ALBERT,
null and void for lack of jurisdiction, including the HONESTO CABANILLAS, AMPING
entire proceedings held for that purpose.[17] An order CASTILLO and ELWIN
of execution which varies the tenor of the judgment REVILLA, respondents.
or exceeds the terms thereof is a nullity.[18]

DECISION
None of the parties in the case before the Labor
Arbiter appealed the Decision dated March 10, 1987, QUISUMBING, J.:
hence the same became final and executory. It was,
therefore, removed from the jurisdiction of the Labor
Arbiter or the NLRC to further alter or amend it. Thus, For review on certiorari is the
the proceedings held for the purpose of amending or Resolution,[1] dated December 29, 1999, of the Court
altering the dispositive portion of the said decision are of Appeals in CA-G.R. SP No. 55416, which dismissed
null and void for lack of jurisdiction. Also, the Alias outright the petition for certiorari of Mariveles
Writ of Execution is null and void because it varied the Shipyard Corp., due to a defective certificate of non-
tenor of the judgment in that it sought to enforce the forum shopping and non-submission of the required
final judgment against "Antonio Gonzales/Industrial documents to accompany said petition. Mariveles
Management Development Corp. Shipyard Corp., had filed a special civil action
(INIMACO) and/or Filipinas Carbon and Mining Corp. for certiorari with the Court of Appeals to nullify the
resolution[2] of the National Labor Relations
Commission (NLRC), dated April 22, 1999, in NLRC On May 22, 1998, the Labor Arbiter decided
NCR Case No. 00-09-005440-96-A, which affirmed NLRC NCR Case No. 00-09-005440-96-A, to wit:
the Labor Arbiters decision,[3] dated May 22, 1998,
holding petitioner jointly and severally liable with
WHEREFORE, conformably with the foregoing,
Longest Force Investigation and Security Agency,
judgment is hereby rendered ordering the
Inc., for the underpayment of wages and overtime pay
respondents as follows:
due to the private respondents. Likewise challenged in
the instant petition is the resolution[4] of the Court of
Appeals, dated July 12, 2000, denying petitioners 1. DECLARING respondents Longest Force
motion for reconsideration. Investigation & Security Agency, Inc. and Mariveles
Shipyard Corporation jointly and severally liable to
The facts, as culled from records, are as follows: pay the money claims of complainants representing
underpayment of wages and overtime pay in the total
Sometime on October 1993, petitioner Mariveles amount of P2,700,623.40 based on the PADPAO rates
Shipyard Corporation engaged the services of Longest of pay covering the period from October 16, 1993 up
Force Investigation and Security Agency, Inc. to April 29, 1995 broken down as follows:
(hereinafter, Longest Force) to render security
services at its premises. Pursuant to their agreement,
Longest Force deployed its security guards, the UNDERPAYMENT OF WAGES:
private respondents herein, at the petitioners shipyard
in Mariveles, Bataan. PERIOD MONTHLY
COVERED PADPAO ACTUAL UNDERPAYMENT
According to petitioner, it religiously complied
RATES SALARY FOR TH
with the terms of the security contract with Longest
E Wage
Force, promptly paying its bills and the contract rates
(8 hrs.
of the latter. However, it found the services being
duty) RECEIVED PERIO
rendered by the assigned guards unsatisfactory and
D DIFFERENTIALS
inadequate, causing it to terminate its contract with
Longest Force on April 1995.[5] Longest Force, in turn, Oct. 16-
terminated the employment of the security guards it Dec. P5,485.00 P5,000 P 485.00 P970.00
had deployed at petitioners shipyard. 15/93 (2 mos.)
On September 2, 1996, private respondents filed Dec. 16/93-
a case for illegal dismissal, underpayment of wages Mar. 6,630.00 5,000 1,630.00 5,705.00
pursuant to the PNPSOSIA-PADPAO rates, non- 31/94 (3.5 mos.)
payment of overtime pay, premium pay for holiday
and rest day, service incentive leave pay, 13th month Apr. 1-Dec. 7,090.00 5,810 1,280.00 11,520.00
pay and attorneys fees, against both Longest Force 31/94 (9 mos.)
and petitioner, before the Labor Arbiter. Docketed as
NLRC NCR Case No. 00-09-005440-96-A, the case Jan. 1-Apr. 7,220.00 5,810 1,410.00 5,597.70
sought the guards reinstatement with full backwages 29/95 (3.97 mos.)
and without loss of seniority rights.
TOTAL
For its part, Longest Force filed a cross- UNDERPAYMENTS - - - -
claim[6] against the petitioner. Longest Force admitted - - - - - - - - - - -
that it employed private respondents and assigned - P23,792.70
them as security guards at the premises of petitioner
from October 16, 1993 to April 30, 1995, rendering a OVERTIME:
12 hours duty per shift for the said period. It likewise
admitted its liability as to the non-payment of the
alleged wage differential in the total amount Oct. 16-Dec. 15/93 P5,485 x 2 = P 5,485.00
of P2,618,025 but passed on the liability to petitioner (2 mos.) 2
alleging that the service fee paid by the latter to it was
way below the PNPSOSIA and PADPAO rate, thus, Dec. 16/93-Mar. 6,630 x 3.5 = 11,602.50
contrary to the mandatory and prohibitive laws 31/94 (3.5 mos.) 2
because the right to proper compensation and benefits
provided under the existing labor laws cannot be
Apr. 1-Dec. 7,090 x 9 = 31,905.00
waived nor compromised.
31/94 (9 mos.) 2
The petitioner denied any liability on account of
the alleged illegal dismissal, stressing that no Jan. 1-Apr. 7,220 x 3.97 = 14,331.70
employer-employee relationship existed between it 29/95 (3.97 mos.) 2
and the security guards. It further pointed out that it
would be the height of injustice to make it liable again
for monetary claims which it had already paid. Anent TOTAL OVERTIME- - - - - - - -
the cross-claim filed by Longest Force against it, - P63,324.20
petitioner prayed that it be dismissed for lack of merit.
Petitioner averred that Longest Force had benefited Sub-Total of Underpayments and
from the contract, it was now estopped from Overtime P87,116.90
questioning said agreement on the ground that it had
made a bad deal.
1. Luis Regondula (the same) P 87,116.90
2. Manolito Catalan (the same) 87,116.90
 3. Oresca Agapito (the same) 87,116.90 TOTAL P 126,684.40[7]
4. Noel Alibadbad (the same) 87,116.90
5. Rogelio Pintuan (the same) 87,116.90
1. Luis Regondula (same) P 126,684.40[8]
6. Danilo Crisostomo (the
2. Manolito Catalan (same) 126,684.40
same) 87,116.90
3. Oresca Agapito (same) 126,684.40
7. Romulo Macalinao (the
4. Noel Alibadbad (same) 126,684.40
same) 87,116.90
5. Rogelio Pintuan (same) 126,684.40
8. Nestor Ferrer (the same) 87,116.90
6. Danilo Crisostomo (same) 126,684.40
9. Ricky Cuesta (the same) 87,116.90
7. Romulo Macalinao (same) 126,684.40
10. Andrada Ricky (the same) 87,116.90
8. Nestor Ferrer (same) 126,684.40
11. Larry Rogola (the same) 87,116.90
9. Ricky Cuesta (same) 126,684.40
12. Francisco Lenogon (the
10. Andrada Rolly (same) 126,684.40
same) 87,116.90
11. Larry Rogola (same) 126,684.40
13. Augosto Quinto (the same) 87,116.90
12. Francisco Lenogon (same) 126,684.40
14. Arfe Beramo (the same) 87,116.90
13. Augosto Quinto (same) 126,684.40
15. Bonifacio Trinidad (the
14. Arfe Beramo (same) 126,684.40
same) 87,116.90
15. Bonifacio Trinidad (same) 126,684.40
16. Alfredo Azcarraga (the
16. Alfredo Azcarraga (same) 126,684.40
same) 87,116.90
17. Ernesto Magno (same) 126,684.40
17. Ernesto Magno (the same) 87,116.90
18. Honario Hortecio (same) 126,684.40
18. Honario Hortecio (the
19. Nelbert Pineda (same) 126,684.40
same) 87,116.90
20. Glen Estipular (same) 126,684.40
19. Nelbert Pineda (the same) 87,116.90
21. Francisco Compuesto (same) 126,684.
20. Glen Estipular (the same) 87,116.90
40
21. Francisco Compuesto (the
22. Isabelito Cortes (same) 126,684.40
same) 87,116.90
23. Maturan Rosauro (same) 126,684.40
22. Isabelito Cortes (the same) 87,116.90
24. Samson Canas (same) 126,684.40
23. Maturan Rosauro (the
25. Febien Isip (same) 126,684.40
same) 87,116.90
26. Jesus Riparip (same) 126,684.40
24. Samson Canas (the same) 87,116.90
27. Alfredo Sienes (same) 126,684.40
25. Febien Isip (the same) 87,116.90
28. Adolar Albert (same) 126,684.40
26. Jesus Riparip (the same) 87,116.90
29. Cabanillas Honesto (same) 126,684.4
27. Alfredo Sienes (the same) 87,116.90
0
28. Adolar Albert (the same) 87,116.90
30. Castillo Amping (same) 126,684.40
29. Cabanillas Honesto (the
31. Revilla Elwin (same) 126,684.40
same) 87,116.90
GRAND TOTAL P3,927,216.40[9]
30. Castillo Amping (the same) 87,116.90
31. Revilla Elwin (the same) 87,116.90
4. ORDERING said Longest Force Investigation &
Security Agency, Inc. to pay attorneys fees equivalent
GRAND TOTAL P 2,700,623.90
to ten (10%) percent of the total award recovered
representing backwages in the amount
2. DECLARING both respondents liable to pay of P392,721.64.[10]
complainants attorneys fees equivalent to ten (10%)
percent of the total award recovered or the sum
5. DISMISSING all other claims for lack of legal basis.
of P270,062.34.

3. ORDERING respondent Longest Force Investigation
& Security Agency, Inc. to reinstate all the herein
complainants to their former or equivalent positions
without loss of seniority rights and privileges with full
backwages which as computed as of the date of this
decision are as follows:
Backwages:
10/16 12/15/93 =2 mos.
P 5,485.00 x 2 mos. = P 10,970.00
12/16/93 3/31/94=3.5 mos.
P 6,630.00 x 3.5 mos. = 23,205.00
4/1 12/31/94 = 9 mos.
P 7,090.00 x 9 mos. = 63,810.00
1/1 4/29/95 = 3.97 mos.
P 7,220.00 x 3.97 mos. = 28,663.40
SO ORDERED.[11]
Petitioner appealed the foregoing to the NLRC in
NLRC NCR Case No. 00-09-005440-96-A. The labor
tribunal, however, affirmed in toto the decision of the
Labor Arbiter. Petitioner moved for reconsideration,
but this was denied by the NLRC.
The petitioner then filed a special civil action
for certiorari assailing the NLRC judgment for having
been rendered with grave abuse of discretion with the
Court of Appeals, docketed as CA-G.R. SP No. 55416.
The Court of Appeals, however, denied due course to
the petition and dismissed it outright for the following
reasons:
1. The verification and certification on non-
forum shopping is signed not by duly
authorized officer of petitioner
corporation, but by counsel (Section 1,
Rule 65, 1997 Rules of Civil Procedure).
2. The petition is unaccompanied by copies
of relevant and pertinent documents,
particularly the motion for
 reconsideration filed before the NLRC
(Section 1, Rule 65, 1997 Rules of Civil
Procedure).[12]
The petitioner then moved for reconsideration of
the order of dismissal. The appellate court denied the
motion, pointing out that under prevailing case law
subsequent compliance with formal requirements for
filing a petition as prescribed by the Rules, does
not ipso facto warrant a reconsideration. In any
event, it found no grave abuse of discretion on the
part of the NLRC to grant the writ of certiorari.
Hence, this present petition before us. Petitioner
submits that THE COURT OF APPEALS GRAVELY
ERRED:
1. .IN DISMISSING THE PETITION AND
DENYING THE MOTION FOR
RECONSIDERATION DESPITE THE FACT
THAT PETITIONER SUBSTANTIALLY
COMPLIED WITH THE REQUIREMENTS
OF SECTION 1, RULE 65, 1997 RULES
OF CIVIL PROCEDURE.
2. .IN RULING THAT PETITIONER WAS NOT
DENIED DUE PROCESS OF LAW.
3. .IN AFFIRMING THE DECISION OF THE
NATIONAL LABOR RELATIONS
COMMISSION THAT LONGEST FORCE
AND PETITIONER ARE JOINTLY AND
SEVERALLY LIABLE FOR PAYMENT OF
WAGES AND OVERTIME PAY DESPITE
THE CLEAR SHOWING THAT
PETITIONER HAVE ALREADY PAID THE
SECURITY SERVICES THAT WAS
RENDERED BY PRIVATE
RESPONDENTS.
4. WHEN IT FAILED TO RULE THAT ONLY
LONGEST FORCE SHOULD BE SOLELY
AND ULTIMATELY LIABLE IN THE
INSTANT CASE.[13]
We find the issues for our resolution to be: (1)
Was it error for the Court of Appeals to sustain its
order of dismissal of petitioners special civil action
for certiorari, notwithstanding subsequent compliance
with the requirements under the Rules of Court by the
petitioner? (2) Did the appellate court err in not
holding that petitioner was denied due process of law
by the NLRC? and (3) Did the appellate court
grievously err in finding petitioner jointly and severally
liable with Longest Force for the payment of wage
differentials and overtime pay owing to the private
respondents?
On the first issue, the Court of Appeals in
dismissing CA-G.R. SP No. 55416 observed that: (1)
the verification and certification of non-forum
shopping was not signed by any duly authorized
officer of petitioner but merely by petitioners counsel;
and (2) the petition was not accompanied by a copy
of motion for reconsideration filed before the NLRC,
thus violating Section 1,[14] Rule 65 of the Rules of
Court. Hence, a dismissal was proper under Section
3,[15] Rule 46 of the Rules.
In assailing the appellate courts ruling, the
petitioner appeals to our sense of compassion and
kind consideration. It submits that the certification
signed by its counsel and attached to its petition filed
with the Court of Appeals is substantial compliance
with the requirement. Moreover, petitioner calls our
attention to the fact that when it filed its motion for
reconsideration before the Court of Appeals, a joint
verification and certification of non-forum shopping
duly signed by its Personnel Manager[16] and a copy of
the Motion for Reconsideration[17] filed before the
NLRC were attached therein. Thus, petitioner prays
that we take a liberal stance to promote the ends of
justice.
Petitioners plea for liberality, however, cannot be
granted by the Court for reasons herein elucidated.
It is settled that the requirement in the Rules
that the certification of non-forum shopping should be
executed and signed by the plaintiff or the principal
means that counsel cannot sign said certification
unless clothed with special authority to do so.[18]The
reason for this is that the plaintiff or principal knows
better than anyone else whether a petition has
previously been filed involving the same case or
substantially the same issues. Hence, a certification
signed by counsel alone is defective and constitutes a
valid cause for dismissal of the petition.[19] In the case
of natural persons, the Rule requires the parties
themselves to sign the certificate of non-forum
shopping. However, in the case of the corporations,
the physical act of signing may be performed, on
behalf of the corporate entity, only by specifically
authorized individuals for the simple reason that
corporations, as artificial persons, cannot personally
do the task themselves.[20] In this case, not only was
the originally appended certification signed by
counsel, but in its motion for reconsideration, still
petitioner utterly failed to show that Ms. Rosanna
Ignacio, its Personnel Manager who signed the
verification and certification of non-forum shopping
attached thereto, was duly authorized for this
purpose. It cannot be gainsaid that obedience to the
requirements of procedural rule is needed if we are to
expect fair results therefrom. Utter disregard of the
rules cannot justly be rationalized by harking on the
policy of liberal construction.[21]
Thus, on this point, no error could be validly
attributed to respondent Court of Appeals. It did not
err in dismissing the petition for non-compliance with
the requirements governing the certification of non-
forum shopping.
Anent the second issue, petitioner avers that
there was denial of due process of law when the Labor
Arbiter failed to have the case tried on the
merits. Petitioner adds that the Arbiter did not
observe the mandatory language of the then Sec. 5(b)
Rule V (now Section 11, per amendment in Resolution
No. 01-02, Series of 2002) of the NLRC New Rules of
Procedure which provided that:
If the Labor Arbiter finds no necessity of further
hearing after the parties have submitted their position
papers and supporting documents, he shall issue an
Order to that effect and shall inform the parties,
stating the reasons therefor. [22]
Petitioners contention, in our view, lacks
sufficient basis. Well settled is the rule that the
essence of due process is simply an opportunity to be
heard, or, as applied to administrative proceedings,
an opportunity to explain ones side or an opportunity
to seek a reconsideration of the action or ruling
complained of.[23] Not all cases require a trial-type
hearing. The requirement of due process in labor
cases before a Labor Arbiter is satisfied when the
parties are given the opportunity to submit their
position papers to which they are supposed to attach
all the supporting documents or documentary
evidence that would prove their respective claims, in
the event the Labor Arbiter determines that no formal
hearing would be conducted or that such hearing was
not necessary.[24] In any event, as found by the NLRC,
petitioner was given ample opportunity to present its
side in several hearings conducted before the Labor
Arbiter and in the position papers and other
supporting documents that it had submitted.We find
that such opportunity more than satisfies the
requirement of due process in labor cases.
On the third issue, petitioner argues that it
should not be held jointly and severally liable with
Longest Force for underpayment of wages and
overtime pay because it had been religiously and
promptly paying the bills for the security services sent
by Longest Force and that these are in accordance
with the statutory minimum wage. Also, petitioner
contends that it should not be held liable for overtime
pay as private respondents failed to present proof that
overtime work was actually performed. Lastly,
petitioner claims that the Court of Appeals failed to
render a decision that finally disposed of the case
because it did not specifically rule on the immediate
recourse of private respondents, that is, the matter of
reimbursement between petitioner and Longest Force
in accordance with Eagle Security Agency Inc. v.
NLRC,[25] and Philippine Fisheries Development
Authority v. NLRC.[26]
Petitioners liability is joint and several with that
of Longest Force, pursuant to Articles 106, 107 and
109 of the Labor Code which provide as follows:
ART. 106. CONTRACTOR OR
SUBCONTRACTOR Whenever an employer enters
into a contract with another person for the
performance of the formers work, the employees of
the contractor and of the latters subcontractor, if any,
shall be paid in accordance with the provisions of this
Code.
In the event that the contractor or subcontractor fails
to pay the wages of his employees in accordance with
this Code, the employer shall be jointly and severally
liable with his contractor or subcontractor to such
employees to the extent of the work performed under
the contract, in the same manner and extent that he
is liable to employees directly employed by him.
xxx
ART. 107. INDIRECT EMPLOYER. The provisions of
the immediately preceding Article shall likewise apply
to any person, partnership, association or corporation
which, not being an employer, contracts with an
independent contractor for the performance of any
work, task, job or project.
ART. 109. SOLIDARY LIABILITY. The provisions of
existing laws to the contrary notwithstanding, every
employer or indirect employer shall be held
responsible with his contractor or subcontractor for
any violation of any provision of this Code. For
purposes of determining the extent of their civil
liability under this Chapter, they shall be considered
as direct employers.
In this case, when petitioner contracted for
security services with Longest Force as the security
agency that hired private respondents to work as
guards for the shipyard corporation, petitioner
became an indirect employer of private respondents
pursuant to Article 107 abovecited. Following Article
106, when the agency as contractor failed to pay the
guards, the corporation as principal becomes jointly
and severally liable for the guards wages. This is
mandated by the Labor Code to ensure compliance
with its provisions, including payment of statutory
minimum wage. The security agency is held liable by
virtue of its status as direct employer, while the
corporation is deemed the indirect employer of the
guards for the purpose of paying their wages in the
event of failure of the agency to pay them. This
statutory scheme gives the workers the ample
protection consonant with labor and social justice
provisions of the 1987 Constitution.[27]
Petitioner cannot evade its liability by claiming
that it had religiously paid the compensation of guards
as stipulated under the contract with the security
agency. Labor standards are enacted by the
legislature to alleviate the plight of workers whose
wages barely meet the spiraling costs of their basic
needs. Labor laws are considered written in every
contract. Stipulations in violation thereof are
considered null. Similarly, legislated wage increases
are deemed amendments to the contract. Thus,
employers cannot hide behind their contracts in order
to evade their (or their contractors or subcontractors)
liability for noncompliance with the statutory
minimum wage.[28]
However, we must emphasize that the solidary
liability of petitioner with that of Longest Force does
not preclude the application of the Civil Code provision
on the right of reimbursement from his co-debtor by
the one who paid.[29] As held in Del Rosario & Sons
Logging Enterprises, Inc. v. NLRC,[30] the joint and
several liability imposed on petitioner is without
prejudice to a claim for reimbursement by petitioner
against the security agency for such amounts as
petitioner may have to pay to complainants, the
private respondents herein. The security agency may
not seek exculpation by claiming that the principals
payments to it were inadequate for the guards lawful
compensation. As an employer, the security agency is
charged with knowledge of labor laws; and the
adequacy of the compensation that it demands for
contractual services is its principal concern and not
any others.[31]
On the issue of the propriety of the award of
overtime pay despite the alleged lack of proof thereof,
suffice it to state that such involves a determination
and evaluation of facts which cannot be done in a
petition for review. Well established is the rule that in
an appeal via certiorari, only questions of law may be
reviewed.[32]
One final point. Upon review of the award of
backwages and attorneys fees, we discovered certain
errors that happened in the addition of the amount of
individual backwages that resulted in the erroneous
total amount of backwages and attorneys fees.These
errors ought to be properly rectified now. Thus, the
correct sum of individual backwages should
be P126,648.40 instead of P126,684.40, while the
correct sum of total backwages awarded and
attorneys fees should
be P3,926,100.40 and P392,610.04, instead
of P3,927,216.40 and P392,721.64, respectively.
WHEREFORE, the Resolution of the Court of
Appeals in CA-G.R. SP No. 55416 is
AFFIRMED with MODIFICATION.Petitioner and
Longest Force are held liable jointly and severally for
underpayment of wages and overtime pay of the
security guards, without prejudice to petitioners right
of reimbursement from Longest Force Investigation
and Security Agency, Inc. The amounts payable to
complaining security guards, herein private
respondents, by way of total backwages and
attorneys fees are hereby set at P3,926,100.40
and P392,610.04, respectively. Costs against
petitioner.
SO ORDERED.
G.R. No. 147791 September 8, 2006
CONSTRUCTION DEVELOPMENT CORPORATION
OF THE PHILIPPINES, petitioner,
vs.
REBECCA G. ESTRELLA, RACHEL E. FLETCHER,
PHILIPPINE PHOENIX SURETY & INSURANCE
INC., BATANGAS LAGUNA TAYABAS BUS CO.,
and WILFREDO DATINGUINOO, respondents.
DECISION
YNARES-SANTIAGO, J.:
This petition for review assails the March 29, 2001
Decision1 of the Court of Appeals in CA-G.R. CV No.
46896, which affirmed with modification the February
9, 1993 Decision2 of the Regional Trial Court of Manila,
Branch 13, in Civil Case No. R-82-2137, finding
Batangas Laguna Tayabas Bus Co. (BLTB) and
Construction Development Corporation of the
Philippines (CDCP) liable for damages.
The antecedent facts are as follows:
On December 29, 1978, respondents Rebecca G.
Estrella and her granddaughter, Rachel E. Fletcher,
boarded in San Pablo City, a BLTB bus bound for Pasay
City. However, they never reached their destination
because their bus was rammed from behind by a
tractor-truck of CDCP in the South Expressway. The
strong impact pushed forward their seats and pinned
their knees to the seats in front of them. They
regained consciousness only when rescuers created a
hole in the bus and extricated their legs from under
the seats. They were brought to the Makati Medical
Center where the doctors diagnosed their injuries to
be as follows:
Medical Certificate of Rebecca Estrella
Fracture, left tibia mid 3rd
Lacerated wound, chin
Contusions with abrasions, left lower leg
Fracture, 6th and 7th ribs, right3
Medical Certificate of Rachel Fletcher
Extensive lacerated wounds, right leg
posterior aspect popliteal area
and antero-lateral aspect mid lower leg with
severance of muscles.
Partial amputation BK left leg with severance
of gastro-soleus and
antero-lateral compartment of lower leg.
Fracture, open comminuted, both tibial4
Thereafter, respondents filed a Complaint5 for
damages against CDCP, BLTB, Espiridion Payunan, Jr.
and Wilfredo Datinguinoo before the Regional Trial
Court of Manila, Branch 13. They alleged (1) that
Payunan, Jr. and Datinguinoo, who were the drivers
of CDCP and BLTB buses, respectively, were negligent
and did not obey traffic laws; (2) that BLTB and CDCP
did not exercise the diligence of a good father of a
family in the selection and supervision of their
employees; (3) that BLTB allowed its bus to operate
knowing that it lacked proper maintenance thus
exposing its passengers to grave danger; (4) that they
suffered actual damages amounting to P250,000.00
for Estrella and P300,000.00 for Fletcher; (5) that
they suffered physical discomfort, serious anxiety,
fright and mental anguish, besmirched reputation and
wounded feelings, moral shock, and lifelong social
humiliation; (6) that defendants failed to act with
justice, give respondents their due, observe honesty
and good faith which entitles them to claim for
exemplary damage; and (7) that they are entitled to
a reasonable amount of attorney's fees and litigation
expenses.
CDCP filed its Answer6 which was later amended to
include a third-party complaint against Philippine
Phoenix Surety and Insurance, Inc. (Phoenix).7
On February 9, 1993, the trial court rendered a
decision finding CDCP and BLTB and their employees
liable for damages, the dispositive portion of which,
states:
WHEREFORE, judgment is rendered:
In the Complaint –
1. In favor of the plaintiffs and against the
defendants BLTB, Wilfredo Datinguinoo,
Construction and Development Corporation
of the Philippines (now PNCC) and Espiridion
Payunan, Jr., ordering said defendants,
jointly and severally to pay the plaintiffs the
sum of P79,254.43 as actual damages and to
pay the sum of P10,000.00 as attorney's fees
or a total of P89,254.43;
2. In addition, defendant Construction and
Development Corporation of the Philippines
and defendant Espiridion Payunan, Jr., shall
pay the plaintiffs the amount of Fifty
 Thousand (P50,000.00) Pesos to plaintiff
Rachel Fletcher and Twenty Five Thousand
(P25,000.00) Pesos to plaintiff Rebecca
Estrella;
3. On the counterclaim of BLTB Co. and
Wilfredo Datinguinoo –
Dismissing the counterclaim;
4. On the crossclaim against Construction
and Development Corporation of the
Philippines (now PNCC) and Espiridion
Payunan, Jr. –
Dismissing the crossclaim;
5. On the counterclaim of Construction and
Development Corporation of the Philippines
(now PNCC) –
Dismissing the counterclaim;
6. On the crossclaim against BLTB –
Dismissing the crossclaim;
7. On the Third Party Complaint by
Construction and Development Corporation
of the Philippines against Philippine Phoenix
Surety and Insurance, Incorporated –
Dismissing the Third Party Complaint.
SO ORDERED.8
The trial court held that BLTB, as a common carrier,
was bound to observe extraordinary diligence in the
vigilance over the safety of its passengers. It must
carry the passengers safely as far as human care and
foresight provide, using the utmost diligence of very
cautious persons, with a due regard for all the
circumstances. Thus, where a passenger dies or is
injured, the carrier is presumed to have been at fault
or has acted negligently. BLTB's inability to carry
respondents to their destination gave rise to an action
for breach of contract of carriage while its failure to
rebut the presumption of negligence made it liable to
respondents for the breach.9
Regarding CDCP, the trial court found that the tractor-
truck it owned bumped the BLTB bus from behind.
Evidence showed that CDCP's driver was reckless and
driving very fast at the time of the incident. The gross
negligence of its driver raised the presumption that
CDCP was negligent either in the selection or in the
supervision of its employees which it failed to rebut
thus making it and its driver liable to respondents.10
Unsatisfied with the award of damages and attorney's
fees by the trial court, respondents moved that the
decision be reconsidered but was denied. Respondents
elevated the case11 to the Court of Appeals which
affirmed the decision of the trial court but modified
the amount of damages, the dispositive portion of
which provides:
WHEREFORE, the assailed decision dated
October 7, 1993 of the Regional Trial Court,
Branch 13, Manila is hereby AFFIRMED with
the following MODIFICATION:
1. The interest of six (6) percent per annum
on the actual damages of P79,354.43 should
commence to run from the time the judicial
demand was made or from the filing of the
complaint on February 4, 1980;
2. Thirty (30) percent of the total amount
recovered is hereby awarded as attorney's
fees;
3. Defendants-appellants Construction and
Development Corporation of the Philippines
(now PNCC) and Espiridion Payunan, Jr. are
ordered to pay plaintiff-appellants Rebecca
Estrella and Rachel Fletcher the amount of
Twenty Thousand (P20,000.00) each as
exemplary damages and P80,000.00 by way
of moral damages to Rachel Fletcher.
SO ORDERED.12
The Court of Appeals held that the actual or
compensatory damage sought by respondents for the
injuries they sustained in the form of hospital bills
were already liquidated and were ascertained.
Accordingly, the 6% interest per annum should
commence to run from the time the judicial demand
was made or from the filing of the complaint and not
from the date of judgment. The Court of Appeals also
awarded attorney's fees equivalent to 30% of the total
amount recovered based on the retainer agreement of
the parties. The appellate court also held that
respondents are entitled to exemplary and moral
damages. Finally, it affirmed the ruling of the trial
court that the claim of CDCP against Phoenix had
already prescribed.
Hence, this petition raising the following issues:
I
WHETHER OR NOT THE COURT OF APPEALS
GRAVELY ERRED IN NOT HOLDING
RESPONDENTS BLTB AND/OR ITS DRIVER
WILFREDO DATINGUINOO SOLELY LIABLE
FOR THE DAMAGES SUSTAINED BY HEREIN
RESPONDENTS FLETCHER AND ESTRELLA.
II
WHETHER OR NOT THE COURT OF APPEALS
GRAVELY ERRED IN AWARDING EXCESSIVE
OR UNFOUNDED DAMAGES, ATTORNEY'S
FEES AND LEGAL INTEREST TO
RESPONDENTS FLETCHER AND ESTRELLA.
III
 WHETHER OR NOT THE COURT OF APPEALS
GRAVELY ERRED IN NOT HOLDING
RESPONDENT PHOENIX LIABLE UNDER ITS
INSURANCE POLICY ON THE GROUND OF
PRESCRIPTION.
The issues for resolution are as follows: (1) whether
BLTB and its driver Wilfredo Datinguinoo are solely
liable for the damages sustained by respondents; (2)
whether the damages, attorney's fees and legal
interest awarded by the CA are excessive and
unfounded; (3) whether CDCP can recover under its
insurance policy from Phoenix.
Petitioner contends that since it was made solidarily
liable with BLTB for actual damages and attorney's
fees in paragraph 1 of the trial court's decision, then
it should no longer be held liable to pay the amounts
stated in paragraph 2 of the same decision. Petitioner
claims that the liability for actual damages and
attorney's fees is based on culpa contractual, thus,
only BLTB should be held liable. As regards paragraph
2 of the trial court's decision, petitioner claims that it
is ambiguous and arbitrary because the dispositive
portion did not state the basis and nature of such
award.
Respondents, on the other hand, argue that petitioner
is also at fault, hence, it was properly joined as a
party. There may be an action arising out of one
incident where questions of fact are common to all.
Thus, the cause of action based on culpa aquiliana in
the civil suit they filed against it was valid.
The petition lacks merit.
The case filed by respondents against petitioner is an
action for culpa aquiliana or quasi-delict under Article
2176 of the Civil Code.13 In this regard, Article 2180
provides that the obligation imposed by Article 2176
is demandable for the acts or omissions of those
persons for whom one is responsible. Consequently,
an action based on quasi-delict may be instituted
against the employer for an employee's act or
omission. The liability for the negligent conduct of the
subordinate is direct and primary, but is subject to the
defense of due diligence in the selection and
supervision of the employee.14 In the instant case, the
trial court found that petitioner failed to prove that it
exercised the diligence of a good father of a family in
the selection and supervision of Payunan, Jr.
The trial court and the Court of Appeals found
petitioner solidarily liable with BLTB for the actual
damages suffered by respondents because of the
injuries they sustained. It was established that
Payunan, Jr. was driving recklessly because of the skid
marks as shown in the sketch of the police
investigator.
It is well-settled in Fabre, Jr. v. Court of
Appeals,15 that the owner of the other vehicle which
collided with a common carrier is solidarily liable to
the injured passenger of the same. We held, thus:
The same rule of liability was applied in
situations where the negligence of the driver
of the bus on which plaintiff was riding
concurred with the negligence of a third party
who was the driver of another vehicle, thus
causing an accident. In Anuran v.
Buño, Batangas Laguna Tayabas Bus Co. v.
Intermediate Appellate Court, and Metro
Manila Transit Corporation v. Court of
Appeals, the bus company, its driver, the
operator of the other vehicle and the
driver of the vehicle were jointly and
severally held liable to the injured
passenger or the latter's heirs. The basis
of this allocation of liability was explained
in Viluan v. Court of Appeals, thus:
Nor should it make any difference that
the liability of petitioner [bus owner]
springs from contract while that of
respondents [owner and driver of other
vehicle] arises from quasi-delict. As
early as 1913, we already ruled in
Gutierrez vs. Gutierrez, 56 Phil. 177, that in
case of injury to a passenger due to the
negligence of the driver of the bus on which
he was riding and of the driver of another
vehicle, the drivers as well as the owners of
the two vehicles are jointly and severally
liable for damages. x x x
xxxx
As in the case of BLTB, private respondents
in this case and her co-plaintiffs did not stake
out their claim against the carrier and the
driver exclusively on one theory, much less
on that of breach of contract alone. After all,
it was permitted for them to allege
alternative causes of action and join as
many parties as may be liable on such
causes of action so long as private
respondent and her co-plaintiffs do not
recover twice for the same injury. What
is clear from the cases is the intent of the
plaintiff there to recover from both the carrier
and the driver, thus justifying the holding
that the carrier and the driver were jointly
and severally liable because their separate
and distinct acts concurred to produce the
same injury.16 (Emphasis supplied)
In a "joint" obligation, each obligor answers only for a
part of the whole liability; in a "solidary" or "joint and
several" obligation, the relationship between the
active and the passive subjects is so close that each
of them must comply with or demand the fulfillment
of the whole obligation. In Lafarge Cement v.
Continental Cement Corporation,17 we reiterated that
joint tort feasors are jointly and severally liable for the
tort which they commit. Citing Worcester v.
Ocampo,18 we held that:
x x x The difficulty in the contention of the
appellants is that they fail to recognize that
the basis of the present action is tort. They
fail to recognize the universal doctrine that
each joint tort feasor is not only individually
liable for the tort in which he participates, but
is also jointly liable with his tort feasors. x x
x
 It may be stated as a general rule that joint
tort feasors are all the persons who
command, instigate, promote, encourage,
advise, countenance, cooperate in, aid or
abet the commission of a tort, or who
approve of it after it is done, if done for their
benefit. They are each liable as principals, to
the same extent and in the same manner as
if they had performed the wrongful act
themselves. x x x
Joint tort feasors are jointly and severally
liable for the tort which they commit. The
persons injured may sue all of them or any
number less than all. Each is liable for the
whole damages caused by all, and all
together are jointly liable for the whole
damage. It is no defense for one sued alone,
that the others who participated in the
wrongful act are not joined with him as
defendants; nor is it any excuse for him that
his participation in the tort was insignificant
as compared to that of the others. x x x
Joint tort feasors are not liable pro rata. The
damages can not be apportioned among
them, except among themselves. They
cannot insist upon an apportionment, for the
purpose of each paying an aliquot part. They
are jointly and severally liable for the whole
amount. x x x
A payment in full for the damage done, by
one of the joint tort feasors, of course
satisfies any claim which might exist against
the others. There can be but satisfaction. The
release of one of the joint tort feasors by
agreement generally operates to discharge
all. x x x
Of course the court during trial may find that
some of the alleged tort feasors are liable and
that others are not liable. The courts may
release some for lack of evidence while
condemning others of the alleged tort
feasors. And this is true even though they are
charged jointly and severally.19
Petitioner's claim that paragraph 2 of the dispositive
portion of the trial court's decision is ambiguous and
arbitrary and also entitles respondents to recover
twice is without basis. In the body of the trial court's
decision, it was clearly stated that petitioner and its
driver Payunan, Jr., are jointly and solidarily liable for
moral damages in the amount of P50,000.00 to
respondent Fletcher and P25,000.00 to respondent
Estrella.20 Moreover, there could be no double
recovery because the award in paragraph 2 is for
moral damages while the award in paragraph 1 is for
actual damages and attorney's fees.
Petitioner next claims that the damages, attorney's
fees, and legal interest awarded by the Court of
Appeals are excessive.
Moral damages may be recovered in quasi-delicts
causing physical injuries.21 The award of moral
damages in favor of Fletcher and Estrella in the
amount of P80,000.00 must be reduced since
prevailing jurisprudence fixed the same at
P50,000.00.22 While moral damages are not intended
to enrich the plaintiff at the expense of the defendant,
the award should nonetheless be commensurate to
the suffering inflicted.23
The Court of Appeals correctly awarded respondents
exemplary damages in the amount of P20,000.00
each. Exemplary damages may be awarded in addition
to moral and compensatory damages.24 Article 2231
of the Civil Code also states that in quasi-delicts,
exemplary damages may be granted if the defendant
acted with gross negligence.25 In this case,
petitioner's driver was driving recklessly at the time
its truck rammed the BLTB bus. Petitioner, who has
direct and primary liability for the negligent conduct
of its subordinates, was also found negligent in the
selection and supervision of its employees. In Del
Rosario v. Court of Appeals,26 we held, thus:
ART. 2229 of the Civil Code also provides that
such damages may be imposed, by way of
example or correction for the public good.
While exemplary damages cannot be
recovered as a matter of right, they need not
be proved, although plaintiff must show that
he is entitled to moral, temperate or
compensatory damages before the court may
consider the question of whether or not
exemplary damages should be awarded.
Exemplary Damages are imposed not to
enrich one party or impoverish another but
to serve as a deterrent against or as a
negative incentive to curb socially
deleterious actions.
Regarding attorney's fees, we held in Traders Royal
Bank Employees Union-Independent v. National Labor
Relations Commission,27 that:
There are two commonly accepted concepts
of attorney's fees, the so-called ordinary and
extraordinary. In its ordinary concept, an
attorney's fee is the reasonable
compensation paid to a lawyer by his client
for the legal services he has rendered to the
latter. The basis of this compensation is the
fact of his employment by and his agreement
with the client.
In its extraordinary concept, an
attorney's fee is an indemnity for
damages ordered by the court to be paid
by the losing party in a litigation. The
basis of this is any of the cases provided by
law where such award can be made, such as
those authorized in Article 2208, Civil Code,
and is payable not to the lawyer but to
the client, unless they have agreed that
the award shall pertain to the lawyer as
additional compensation or as part
thereof.28 (Emphasis supplied)
In the instant case, the Court of Appeals correctly
awarded attorney's fees and other expenses of
litigation as they may be recovered as actual or
compensatory damages when exemplary damages
are awarded; when the defendant acted in gross and
evident bad faith in refusing to satisfy the plaintiff's
valid, just and demandable claim; and in any other
case where the court deems it just and equitable that
attorney's fees and expenses of litigation should be
recovered.29
Regarding the imposition of legal interest at the rate
of 6% from the time of the filing of the complaint, we
held in Eastern Shipping Lines, Inc. v. Court of
Appeals,30 that when an obligation, regardless of its
source, i.e., law, contracts, quasi-contracts, delicts or
quasi-delicts is breached, the contravenor can be held
liable for payment of interest in the concept of actual
and compensatory damages,31 subject to the following
rules, to wit –
1. When the obligation is breached, and it
consists in the payment of a sum of money,
i.e., a loan or forbearance of money, the
interest due should be that which may have
been stipulated in writing. Furthermore, the
interest due shall itself earn legal interest
from the time it is judicially demanded. In the
absence of stipulation, the rate of interest
shall be 12% per annum to be computed
from default, i.e., from judicial or
extrajudicial demand under and subject to
the provisions of Article 1169 of the Civil
Code.
2. When an obligation, not constituting a loan
or forbearance of money, is breached, an
interest on the amount of damages awarded
may be imposed at the discretion of the court
at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated
claims or damages except when or until the
demand can be established with reasonable
certainty. Accordingly, where the demand is
established with reasonable certainty, the
interest shall begin to run from the time the
claim is made judicially or extrajudicially
(Art. 1169, Civil Code) but when such
certainty cannot be so reasonably
established at the time the demand is
made, the interest shall begin to run only
from the date the judgment of the court
is made (at which time the
quantification of damages may be
deemed to have been reasonably
ascertained). The actual base for the
computation of legal interest shall, in any
case, be on the amount finally adjudged.
3. When the judgment of the court
awarding a sum of money becomes final
and executory, the rate of legal interest,
whether the case falls under paragraph
1 or paragraph 2, above, shall be 12%
per annum from such finality until its
satisfaction, this interim period being
deemed to be by then an equivalent to a
forbearance of credit.32 (Emphasis
supplied)
Accordingly, the legal interest of 6% shall begin to run
on February 9, 1993 when the trial court rendered
judgment and not on February 4, 1980 when the
complaint was filed. This is because at the time of the
filing of the complaint, the amount of the damages to
which plaintiffs may be entitled remains unliquidated
and unknown, until it is definitely ascertained,
assessed and determined by the court and only upon
presentation of proof thereon.33 From the time the
judgment becomes final and executory, the interest
rate shall be 12% until its satisfaction.
Anent the last issue of whether petitioner can recover
under its insurance policy from Phoenix, we affirm the
findings of both the trial court and the Court of
Appeals, thus:
As regards the liability of Phoenix, the court
a quo correctly ruled that defendant-
appellant CDCP's claim against Phoenix
already prescribed pursuant to Section 384
of P.D. 612, as amended, which provides:
Any person having any claim upon
the policy issued pursuant to this
chapter shall, without any
unnecessary delay, present to the
insurance company concerned a
written notice of claim setting forth
the nature, extent and duration of
the injuries sustained as certified by
a duly licensed physician. Notice of
claim must be filed within six
months from date of the accident,
otherwise, the claim shall be
deemed waived. Action or suit for
recovery of damage due to loss or
injury must be brought in proper
cases, with the Commissioner or
Courts within one year from denial
of the claim, otherwise, the
claimant's right of action shall
prescribe. (As amended by PD
1814, BP 874.)34
The law is clear and leaves no room for interpretation.
A written notice of claim must be filed within six
months from the date of the accident. Since petitioner
never made any claim within six months from the date
of the accident, its claim has already prescribed.
WHEREFORE, the instant petition is DENIED. The
Decision of the Court of Appeals in CA-G.R. CV No.
46896 dated March 29, 2001, which modified the
Decision of the Regional Trial Court of Manila, Branch
13, in Civil Case No. R-82-2137, is AFFIRMED with
the MODIFICATIONS that petitioner is held jointly
and severally liable to pay (1) actual damages in the
amount of P79,354.43; (2) moral damages in the
amount of P50,000.00 each for Rachel Fletcher and
Rebecca Estrella; (3) exemplary damages in the
amount of P20,000.00 each for Rebecca Estrella and
Rachel Fletcher; and (4) thirty percent (30%) of the
total amount recovered as attorney's fees. The total
amount adjudged shall earn interest at the rate of 6%
per annum from the date of judgment of the trial court
until finality of this judgment. From the time this
Decision becomes final and executory and the
judgment amount remains unsatisfied, the same shall
earn interest at the rate of 12% per annum until its
satisfaction.
SO ORDERED. 20
CA rollo, pp. 114-115.

Panganiban, C.J., Chairperson, Austria-Martinez, 21

CIVIL CODE, Art. 2219.
Callejo, Sr., Chico-Nazario, J.J., concur.
22
Macalinao v. Ong, G.R. No. 146635,
December 14, 2005, 477 SCRA 740, 759.

Footnotes 23
Valenzuela v. Court of Appeals, 323 Phil.
374, 399 (1996).
1
Penned by Associate Justice Remedios A.
Salazar-Fernando and concurred in by 24
ART. 2234. While the amount of the
Associate Justices Romeo A. Brawner and exemplary damages need not be proved, the
Rebecca De Guia-Salvador; rollo, pp. 30-47. plaintiff must show that he is entitled to
moral, temperate or compensatory damages
before the court may consider the question
2
CA rollo, pp. 89-116. Penned by Judge
of whether or not exemplary damages should
Cecilio F. Balagot.
be awarded. In case liquidated damages
have been agreed upon, although no proof of
3
Records, p. 538. loss is necessary in order that such liquidated
damages may be recovered, nevertheless,
4
Id. at 540. before the court may consider the question
of granting exemplary in addition to the
liquidated damages, the plaintiff must show
5
Id. at 3-10. that he would be entitled to moral, temperate
or compensatory damages were it not for the
6
Id. at 30-34. stipulation for liquidated damages.

7
Id. at 70-75.

8
CA rollo, pp. 115-116. G.R. No. 203133, February 18, 2015

9
Id. at 106-107. YULIM INTERNATIONAL COMPANY LTD., JAMES
YU, JONATHAN YU, AND ALMERICK TIENG
LIM, Petitioners, v. INTERNATIONAL EXCHANGE
10
Id. at 108-109. BANK (NOW UNION BANK OF THE
PHILIPPINES), Respondent.
11
Id. at 60-88.
DECISION
12
Rollo, pp. 46-47.
REYES, J.:
13
Art. 2176. Whoever by act or omission
causes damage to another, there being fault In the assailed Decision1 dated February 1, 2012 in
or negligence, is obliged to pay for the CA-G.R. CV No. 95522, the Court of Appeals (CA)
damage done. Such fault or negligence, if modified the Decision2 dated December 21, 2009 of
there is no pre-existing contractual relation the Regional Trial Court (RTC) of Makati City, Branch
between the parties, is called a quasi-delict 145, in Civil Case No. 02-749, holding that James Yu
and is governed by the provisions of this (James), Jonathan Yu (Jonathan) and Almerick Tieng
Chapter. Lim (Almerick), who were capitalist partners in Yulim
International Company Ltd. (Yulim), collectively called
14
Equitable Leasing Corporation v. Suyom, as the petitioners, were jointly and severally liable
437 Phil. 244, 253 (2002). with Yulim for its loan obligations with respondent
International Exchange Bank (iBank).
15
Fabre, Jr. v. Court of Appeals, 328 Phil.
774 (1996). The Facts

On June 2, 2000, iBank, a commercial bank, granted

16
Id. at 791-793. Yulim, a domestic partnership, a credit facility in the
form of an Omnibus Loan Line for P5,000,000.00, as
17
Lafarge Cement Philippines, Inc. v. evidenced by a Credit Agreement3 which was secured
Continental Cement Corporation, G.R. No. by a Chattel Mortgage4 over Yulim’s inventories in its
155173, November 23, 2004, 443 SCRA 522. merchandise warehouse at 106 4th Street, 9th
Avenue, Caloocan City. As further guarantee, the
partners, namely, James, Jonathan and Almerick,
18
22 Phil. 42 (1912). executed a Continuing Surety Agreement5 in favor of
iBank.
19
Supra note 17 at 544-545.
Yulim availed of its aforesaid credit facility with iBank,
as follows: Thus, the RTC ordered Yulim alone to pay iBank the
amount of P4,246,310.00, plus interest at 16.50% per
Promissory Face Value PN Date Date of annum from February 28, 2002 until fully paid, plus
Note No. Maturity costs of suit, and dismissed the complaint against
2110005852 P 10/26/2000 01/29/2001 petitioners James, Jonathan and Almerick, stating that
1,298,926.00 there was no iota of evidence that the loan proceeds
2110006026 1,152,963.0011/18/2000 02/05/2001 benefited their families.16
2110006344 499,890.00 12/04/2000 03/12/2001
2110006557 798,010.00 12/18/2000 04/23/2001 The petitioners moved for reconsideration on January
2110100189 496,521.00 01/11/2001 05/07/20016 12, 2010;17 iBank on January 19, 2010 likewise filed
a motion for partial reconsideration.18 In its Joint
The above promissory notes (PN) were later Order19 dated March 8, 2010, the RTC denied both
consolidated under a single promissory note, PN No. motions.
SADDK001014188, for P4,246,310.00, to mature on
February 28, 2002.7 Yulim defaulted on the said note. Ruling of the CA
On April 5, 2002, iBank sent demand letters to Yulim,
through its President, James, and through On March 23, 2010, Yulim filed a Notice of Partial
Almerick,8 but without success. iBank then filed a Appeal, followed on March 30, 2010 by iBank with a
Complaint for Sum of Money with Replevin9 against Notice of Appeal.
Yulim and its sureties. On August 8, 2002, the Court
granted the application for a writ of replevin. Pursuant Yulim interposed the following as errors of the court a
to the Sheriff’s Certificate of Sale dated November 7, quo:
2002,10 the items seized from Yulim’s warehouse were
worth only P140,000.00, not P500,000.00 as the
I. THE LOWER COURT ERRED IN
petitioners have insisted.11
ORDERING [YULIM] TO PAY [iBANK]
THE AMOUNT OF P4,246,310.00
On October 2, 2002, the petitioners moved to dismiss
WITH INTEREST AT 16.5% PER
the complaint insisting that their loan had been fully
ANNUM FROM FEBRUARY 28, 2002
paid after they assigned to iBank their Condominium
UNTIL FULLY PAID.
Unit No. 141, with parking space, at 20 Landsbergh
Place in Tomas Morato Avenue, Quezon City.12 They
claimed that while the pre-selling value of the II. THE LOWER COURT ERRED IN NOT
condominium unit was P3.3 Million, its market value ORDERING [iBANK] TO PAY
has since risen to P5.5 Million.13 The RTC, however, ATTORNEY’S FEES, MORAL
did not entertain the motion to dismiss for non- DAMAGES AND EXEMPLARY
compliance with Rule 15 of the Rules of Court. DAMAGES.20

On May 16, 2006, the petitioners filed their Answer

reiterating that they have paid their loan by way of For its part, iBank raised the following as errors of the
assignment of a condominium unit to iBank, as well as RTC:
insisting that iBank’s penalties and charges were
exorbitant, oppressive and unconscionable.14
I. THE TRIAL COURT ERRED IN NOT
HOLDING INDIVIDUAL
Ruling of the RTC [PETITIONERS JAMES, JONATHAN
AND ALMERICK] SOLIDARILY
After trial on the merits, the RTC rendered judgment LIABLE WITH [YULIM] ON THE
on December 21, 2009, the dispositive portion of BASIS OF THE CONTINUING
which reads, as follows: SURETYSHIP AGREEMENT
EXECUTED BY THEM.
WHEREFORE, in view of the foregoing
considerations, the Court finds the individual II. THE TRIAL COURT ERRED IN NOT
defendants James Yu, Jonathan Yu and Almerick Tieng HOLDING ALL THE [PETITIONERS]
Lim, not liable to the plaintiff, iBank, hence the LIABLE FOR PENALTY CHARGES
complaint against them is hereby DISMISSED for UNDER THE CREDIT AGREEMENT
insufficiency of evidence, without pronouncement as AND PROMISSORY NOTES SUED
to cost. UPON.

This court, however, finds defendant corporation

III. THE TRIAL COURT ERRED IN NOT
Yulim International Company Ltd. liable; and it hereby
HOLDING [THE PETITIONERS]
orders defendant corporation to pay plaintiff the sum
LIABLE TO [iBANK] FOR
of P4,246,310.00 with interest at 16.50% per annum
ATTORNEY’S FEES AND
from February 28, 2002 until fully paid plus cost of
INDIVIDUAL [PETITIONERS]
suit.
JOINTLY AND SEVERALLY LIABLE
WITH [YULIM] FOR COSTS OF SUIT
The counterclaims of defendants against plaintiff
INCURRED BY [iBANK] IN ORDER
iBank are hereby DISMISSED for insufficiency of
TO PROTECT ITS RIGHTS.21
evidence.

SO ORDERED.15

Chiefly, the factual issue on appeal to the CA, raised
by petitioners James, Jonathan and Almerick, was
whether Yulim’s loans have in fact been extinguished
with the execution of a Deed of Assignment of their
condominium unit in favor of iBank, while the corollary
legal issue, raised by iBank, was whether they should
be held solidarily liable with Yulim for its loans and
other obligations to iBank.
The CA ruled that the petitioners failed to prove that
they have already paid Yulim’s consolidated loan
obligations totaling P4,246,310.00, for which it issued
to iBank PN No. SADDK001014188 for the said
amount. It held that the existence of a debt having
been established, the burden to prove with legal
certainty that it has been extinguished by payment
devolves upon the debtors who have offered such
defense. The CA found the records bereft of any
evidence to show that Yulim had fully settled its
obligation to iBank, further stating that the so-called
assignment by Yulim of its condominium unit to iBank
was nothing but a mere temporary arrangement to
provide security for its loan pending the subsequent
execution of a real estate mortgage. Specifically, the
CA found nothing in the Deed of Assignment which
could signify that iBank had accepted the said
property as full payment of the petitioners’ loan. The
CA cited Manila Banking Corporation v. Teodoro,
Jr.22 which held that an assignment to guarantee an
obligation is in effect a mortgage and not an absolute
conveyance of title which confers ownership on the
assignee.
Concerning the solidary liability of petitioners James,
Jonathan and Almerick, the CA disagreed with the trial
court’s ruling that it must first be shown that the
proceeds of the loan redounded to the benefit of the
family of the individual petitioners before they can be
held liable. Article 161 of the Civil Code and Article
121 of the Family Code cited by the RTC apply only
where the liability is sought to be enforced against the
conjugal partnership itself. In this case, regardless of
whether the loan benefited the family of the individual
petitioners, they signed as sureties, and iBank sought
to enforce the loan obligation against them as sureties
of Yulim.
Thus, the appellate court granted the appeal of iBank,
and denied that of the petitioners, as follows:
WHEREFORE, the foregoing considered, [iBank’s]
appeal is PARTLY GRANTED while [the petitioners’]
appeal is DENIED. Accordingly, the appealed decision
is hereby MODIFIED in that [petitioners] James Yu,
Jonathan Yu and A[l]merick Tieng Lim are hereby held
jointly and severally liable with defendant-appellant
Yulim for the payment of the monetary awards. The
rest of the assailed decision is AFFIRMED.
SO ORDERED.23
Petition for Review to the Supreme Court
In the instant petition, the following assigned errors
are before this Court:
1. The CA erred in ordering petitioners James,
Jonathan and Almerick jointly and severally liable with
petitioner Yulim to pay iBank the amount of
P4,246,310.00 with interest at 16.5% per
annum from February 28, 2002 until fully paid.
2. The CA erred in not ordering iBank to pay the
petitioners moral damages, exemplary damages, and
attorney’s fees.24
The petitioners insist that they have paid their loan to
iBank. They maintain that the letter of iBank to them
dated May 4, 2001, which “expressly stipulated that
the petitioners shall execute a Deed of Assignment
over one condominium unit No. 141, 3rd Floor and a
parking slot located at 20 Landsbergh Place, Tomas
Morato Avenue, Quezon City,” was with the
understanding that the Deed of Assignment, which
they in fact executed, delivering also to iBank all the
pertinent supporting documents, would serve to
totally extinguish their loan obligation to iBank. In
particular, the petitioners state that it was their
understanding that upon approval by iBank of their
Deed of Assignment, the same “shall be considered as
full and final payment of the petitioners’ obligation.”
They further assert that iBank’s May 4, 2001 letter
expressly carried the said approval.
The petitioner invoked Article 1255 of the Civil Code,
on payment by cession, which provides:
Art. 1255. The debtor may cede or assign his property
to his creditors in payment of his debts. This cession,
unless there is stipulation to the contrary, shall only
release the debtor from responsibility for the net
proceeds of the thing assigned. The agreements
which, on the effect of the cession, are made between
the debtor and his creditors shall be governed by
special laws.
Ruling of the Court
The petition is bereft of merit.
Firstly, the individual petitioners do not deny that they
executed the Continuing Surety Agreement, wherein
they “jointly and severally with the PRINCIPAL
[Yulim], hereby unconditionally and irrevocably
guarantee full and complete payment when due,
whether at stated maturity, by acceleration, or
otherwise, of any and all credit accommodations that
have been granted” to Yulim by iBank, including
interest, fees, penalty and other charges.25 Under
Article 2047 of the Civil Code, these words are said to
describe a contract of suretyship. It states:
Art. 2047. By guaranty a person, called the guarantor,
binds himself to the creditor to fulfill the obligation of
the principal debtor in case the latter should fail to do
so.
If a person binds himself solidarily with the principal
debtor, the provisions of Section 4, Chapter 3, Title I
of this Book shall be observed. In such case the
contract is called a suretyship.
In a contract of suretyship, one lends his credit by
joining in the principal debtor’s obligation so as to
render himself directly and primarily responsible with
him without reference to the solvency of the
principal.26 According to the above Article, if a person
binds himself solidarily with the principal debtor, the
provisions of Articles 1207 to 1222, or Section 4,
Chapter 3, Title I, Book IV of the Civil Code on joint
and solidary obligations, shall be observed. Thus,
where there is a concurrence of two or more creditors
or of two or more debtors in one and the same
obligation, Article 1207 provides that among
them, “[t]here is a solidary liability only when the
obligation expressly so states, or when the law or the
nature of the obligation requires solidarity.”
“A surety is considered in law as being the same party
as the debtor in relation to whatever is adjudged
touching the obligation of the latter, and their
liabilities are interwoven as to be inseparable.”27 And
it is well settled that when the obligor or obligors
undertake to be “jointly and severally” liable, it means
that the obligation is solidary,28 as in this case. There
can be no mistaking the same import of Article I of the
Continuing Surety Agreement executed by the
individual petitioners:
ARTICLE I the repayment of any loan granted and those that may
LIABILITIES OF SURETIES
SECTION 1.01. The SURETIES, jointly and severally
with the PRINCIPAL, hereby unconditionally and
irrevocably guarantee full and complete payment
when due, whether at stated maturity, by
acceleration, or otherwise, of any and all credit
accommodations that have been granted or may be
granted, renewed and/or extended by the BANK to the
PRINCIPAL.
The liability of the SURETIES shall not be limited to
the maximum principal amount of FIVE MILLION
PESOS (P5,000,000.00) but shall include interest,
fees, penalty and other charges due thereon.
SECTION 1.02. This INSTRUMENT is a guarantee of
payment and not merely of collection and is intended
to be a perfect and continuing indemnity in favor of
the BANK for the amounts and to the extent stated
above.
The liability of the SURETIES shall be direct,
immediate and not contingent upon the pursuit of the
BANK of whatever remedies it may have against the
PRINCIPAL of the other securities for the
Accommodation.29
Thereunder, in addition to binding themselves “jointly
and severally” with Yulim to “unconditionally and
irrevocably guarantee full and complete payment” of
any and all credit accommodations that have been
granted to Yulim, the petitioners further warrant that
their liability as sureties “shall be direct, immediate
and not contingent upon the pursuit [by] the BANK of
whatever remedies it may have against the
PRINCIPAL of other securities.” There can thus be no
doubt that the individual petitioners have bound
themselves to be solidarily liable with Yulim for the
payment of its loan with iBank.
As regards the petitioners’ contention that iBank in its
letter dated May 4, 2001 had “accepted/approved” the
assignment of its condominium unit in Tomas Morato
Avenue as full and final payment of their various loan
obligations, the Court is far from persuaded. On the
contrary, what the letter accepted was only the
collaterals provided for the loans, as well as the
consolidation of the petitioners’ various PN’s under
one PN for their aggregate amount of P4,246,310.00.
The letter goes on to spell out the terms of the new
PN, such as, that its expiry would be February 28,
2002 or a term of 360 days, that interest would be
due every 90 days, and that the rate would be based
on the 91-day Treasury Bill rate or other market
reference.
Nowhere can it be remotely construed that the letter
even intimates an understanding by iBank that the
Deed of Assignment would serve to extinguish the
petitioners’ loan. Otherwise, there would have been
no need for iBank to mention therein the three
“collaterals” or “supports” provided by the petitioners,
namely, the Deed of Assignment, the Chattel
Mortgage and the Continuing Surety Agreement
executed by the individual petitioners. In fact, Section
2.01 of the Deed of Assignment expressly
acknowledges that it is a mere “interim security for
be granted in the future by the BANK to the
ASSIGNOR and/or the BORROWER, for compliance
with the terms and conditions of the relevant credit
and/or loan documents thereof.”30 The condominium
unit, then, is a mere temporary security, not a
payment to settle their promissory notes.31
Even more unmistakably, Section 2.02 of the Deed of
Assignment provides that as soon as title to the
condominium unit is issued in its name, Yulim
shall “immediately execute the necessary Deed of
Real Estate Mortgage in favor of the BANK to secure
the loan obligations of the ASSIGNOR and/or the
BORROWER.”32 This is a plain and direct
acknowledgement that the parties really intended to
merely constitute a real estate mortgage over the
property. In fact, the Deed of Assignment expressly
states, by way of a resolutory condition concerning the
purpose or use of the Deed of Assignment, that after
the petitioners have delivered or caused the delivery
of their title to iBank, the Deed of Assignment shall
then become null and void. Shorn of its legal efficacy
as an interim security, the Deed of Assignment would
then become functus officio once title to the
condominium unit has been delivered to iBank. This is
so because the petitioners would then execute a Deed
of Real Estate Mortgage over the property in favor of
iBank as security for their loan obligations.
Respondent iBank certainly does not share the
petitioners’ interpretation of its May 4, 2001 letter. Joy
Valerie Gatdula, Senior Bank Officer of iBank and the
Vice President of iBank’s Commercial Banking Group,
declared in her testimony that the purpose of the Deed
of Assignment was merely to serve as collateral for
their loan:
Q: And during the time that the defendant[,] James
Yu[,] was negotiating with your bank, [is it] not a fact
that the defendant offered to you a [condominium]
unit so that – that will constitute full payment of his
obligation?
A: No ma’am. It was not offered that way. It was
offered as security or collateral to pay the outstanding
loans. But the premise is, that he will pay x x x in
cash. So, that property was offered as a security or
collateral.
Q: That was your position? Rollo, p.
29
90.

A: That was the agreement and that was how the 30

Section 2.01. This ASSIGNMENT is executed as an
document was signed. It was worded out[.] interim security for the repayment of any loan granted
and those that may be granted in the future by the
x x x x BANK to the ASSIGNOR and/or the BORROWER, for
compliance with the terms and conditions of the
Q: Do you remember if a real estate mortgage was relevant credit and/or loan documents thereof x x x.
executed over this property that was being assigned
to the plaintiff? Rollo, pp.
31
427-428.

A: To my recollection, none at all. 32

Section 2.02. The ASSIGNOR hereby warrants and
undertakes that as soon as title to the Assigned
Q: Madam Witness, this Deed of Assignment was Property is issued in its name, it shall immediately
considered as full payment by the plaintiff bank, what execute the necessary Deed of Real Estate Mortgage
document was executed by the plaintiff bank? in favor of the BANK to secure the loan obligations of
the ASSIGNOR and/or the BORROWER. Likewise, it
A: It should have been a Dacion en Pago. undertakes to deliver or cause the delivery of the
covering title to the Assigned Property in favor of the
Q: Was there such document executed in this BANK. In such event, this Deed of Assignment shall
account? become null and void.” (Underlining ours)

A: None.33 33
Rollo, p. 427.

Philippine Bank of Commerce v. De Vera, 116 Phil.

34
To stress, the assignment being in its essence a
1326, 1329 (1962).
mortgage, it was but a security and not a satisfaction
of the petitioners’ indebtedness.34 Article 125535 of 35
Art. 1255. The debtor may cede or assign his
the Civil Code invoked by the petitioners contemplates
property to his creditors in payment of his debts. This
the existence of two or more creditors and involves
cession, unless there is stipulation to the contrary,
the assignment of the entire debtor’s property, not
shall only release the debtor from responsibility for the
a dacion en pago.36 Under Article 1245 of the Civil
net proceeds of the thing assigned. The agreements
Code, “[d]ation in payment, whereby property is
which, on the effect of the cession, are made between
alienated to the creditor in satisfaction of a debt in
the debtor and his creditors shall be governed by
money, shall be governed by the law on sales.”
special laws.
Nowhere in the Deed of Assignment can it be remotely
said that a sale of the condominium unit was 36
DBP v. CA, 348 Phil. 15, 29-30 (1998).
contemplated by the parties, the consideration for
which would consist of the amount of outstanding loan
due to iBank from the petitioners. G.R. No. 193890 March 11, 2015

WHEREFORE, premises considered, the petition ESTANISLAO and AFRICA

is DENIED. SINAMBAN, Petitioners,
vs.
SO ORDERED. CHINA BANKING CORPORATION, Respondent.
Velasco, Jr., (Chairperson), Peralta, Del
Castillo,* and Villarama, Jr., JJ., concur. DECISION

Endnotes: REYES, J.:

Before this Court is a Petition for Review on

*
Acting Member per Special Order No. 1934 dated Certiorari1 of the Decision2 dated May 19, 2010 of the
February 11, 2015 vice Associate Justice Francis H. Court of Appeals (CA) in CA-G.R. CV. No. 66274
Jardeleza. modifying the Decision3 dated July 30, 1999 of the
Regional Trial Court (RTC) of San Fernando City,
1
Penned by Associate Justice Josefina Guevara- Pampanga, Branch 45 for Sum of Money in Civil Case
Salonga, with Associate Justices Ramon M. Bato, Jr. No. 11708.
and Priscilla J. Baltazar-Padilla concurring; rollo pp.
420-431. Factual Antecedents
2
Issued by Acting Presiding Judge Cesar O. Untalan;
id. at 367-372. On February 19, 1990, the spouses Danilo and
Magdalena Manalastas (spouses Manalastas)
Philippine National Bank v. Hon. Pineda, etc., et al.,
27 executed a Real Estate Mortgage (REM)4 in favor of
274 Phil. 274, 282 (1991). respondent China Banking Corporation (Chinabank)
over two real estate properties covered by Transfer
28
Crystal v. Bank of the Philippine Islands, G.R. No. Certificate of Title Nos. 173532-R and 173533-R,
172428, November 28, 2008, 572 SCRA 697, 703. Registry of Deeds of Pampanga, to secure a loan from
See also Escano v. Ortigas, Jr., 553 Phil. 24 (2007). Chinabank of ₱700,000.00 intended as working capital
in their rice milling business. During the next few
years, they executed several amendments to the ₱156,541.58, or a total amount due of
mortgage contract progressively increasing their ₱369,258.50. Note that from the original
credit line secured by the aforesaid mortgage. Thus, amount of ₱1,300,000.00, the loan principal
from ₱700,000.00 in 1990, their loan limit was had been reduced to only ₱148,255.08 as of
increased to ₱1,140,000.00 on October 31, 1990, May 18, 1998.12
then to ₱1,300,000.00 on March 4, 1991, and then
to2,450,000.00 on March 23, 1994.5 The spouses
CHINA BANKING CORPORATION
Manalastas executed several promissory notes (PNs)
San Fernando, Pampanga
in favor of Chinabank. In two of the PNs, petitioners
SPS. DANILO & MAGDALENA
Estanislao and Africa Sinamban (spouses Sinamban)
MANALASTAS
signed as co-makers.
STATEMENT OF ACCOUNT
As of May 18, 1998
On November 18, 1998, Chinabank filed a
Complaint6 for sum of money, docketed as Civil Case
No. 11708, against the spouses Manalastas and the 36%
spouses Sinamban (collectivelyPNcalled the defendants)
NUMBER PRINCIPAL INTEREST PENALTY FEE TOTAL
before the RTC. The complaint -----------------------
alleged that they----------------------- ----------------------- ----------------------- ------------
reneged on their loan obligations under the PNs which
OACL 636-95
the spouses Manalastas executed in favor of325,000.00 184,679.00 258,050.00 767,729.0
Chinabank on different dates, OACL
namely:
634-95 1,800,000.00 1,035,787.50 1,429,200.00 4,264,987

CLF 005-93
1. PN No. OACL 634-95, dated April 24,148,255.08 64,461.84 156,541.58 369,258.5
1995, for a loan principal of ₱1,800,000.00,----------------------- ----------------------- ----------------------- ------------
with interest at 23% per annum; the spouses
TOTAL P2,273,255.08 1,284,928.34 1,843,791.58 5,401,975
Manalastas signed alone as makers.7
TOTAL AMOUNT DUE - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 5,401,975.
2. PN No. OACL 636-95, dated May 23, 1995,
PLUS 10% ATTORNEY’S FEE - - - - - - - - - - - - - - - - - - - - - - - - - - 540,197.50
for a loan principal of 325,000.00, with
------------
interest at 21% per annum; the spouses
Sinamban signed as solidary co-makers;8 5,942,172.

ADD: OTHER EXPENSES

3. PN No. CLF 5-93, dated February 26,
1991, for a loan principal of ₱1,300,000.00,INSURANCE PREMIUM 22,618.37
with interest at 22.5% per annum; only
POSTING OF NOTICE OF SALE 700.00
Estanislao Sinamban signed as solidary co-
maker. 9
PUBLICATION FEE 17,500.00

REGISTRATION OF CERTIFICATE OF SALE (MISC.) 1,000.00

All of the three promissory notes carried an
acceleration clause stating that if the borrowers failedREGISTRATION OF CERTIFICATE OF SALE (REGISTER OF DEEDS)
to pay any stipulated interest, installment or loan
amortization as they accrued, the notes shall, at the Registration fee 10,923.00
option of Chinabank and without need of notice,
immediately become due and demandable. A penalty Entry fee 30.00
clause also provides that an additional amount shall
be paid equivalent to 1/10 of 1% per day of the total Legal fund 20.00
amount due from date of default until fully paid, and BIR certification 60.00
the further sum of 10% of the total amount due,
inclusive of interests, charges and penalties, as and Doc. stamps tax 69,000.00
for attorney’s fees and costs.10
Capital Gains tax 276,000.00 356,033.00
------------
In Chinabank’s Statement of Account11 dated May 18,
1998, reproduced below, the outstanding balances ofEXPENSES INCURRED ON OCULAR INSPECTION MADE ON 404.00
the three loans are broken down, as follows: TCT#173532-R & TCT#173533-R

(a) PN No. OACL 636-95 has an outstandingATTORNEY’S FEE 18,000.00

principal of ₱325,000.00, cumulative interest
of ₱184,679.00, and cumulative penalties of 416,255.3
₱258,050.00, or a LESS:
total BID
amount
PRICEdue of 4,600,000
₱767,729.00; (b) PN No. OACL 634-95 has -------
an outstanding principal of ₱1,800,000.00,
cumulative interest GRAND
of ₱1,035,787.50,
TOTAL - - - -and
--------------------------------- 1,758,427.
cumulative penalties of 1,429,200.00, or a
total amount due of 4,264,987.50; and

On the basis of the above statement of

(c) PN No. CLF 5-93 has an outstanding
account, and pursuant to the promissory
principal of ₱148,255.08, cumulative interest
notes, Chinabank instituted extrajudicial
of ₱64,461.84, and cumulative penalties of
foreclosure proceedings against the
mortgage security. The foreclosure sale was
held on May 18, 1998, with Chinabank
offering the highest bid of ₱4,600,000.00,
but by then the defendants’ total obligations
on the three promissory notes had risen to
₱5,401,975.00, before attorney’s fees of
10% and auction expenses, leaving a loan
deficiency of ₱1,758,427.87.14 Thus, in the
complaint before the RTC, Chinabank prayed
to direct the defendants to jointly and
severally settle the said deficiency, plus 12%
interest per annum after May 18, 1998,15 the
date of the auction sale.16
The spouses Sinamban, in their
Answer17 dated February 26, 1999, averred
that they do not recall having executed PN
No. OACL 636-95 for ₱325,000.00 on May
23, 1995, or PN No. CLF 5-93 for
₱1,300,000.00 on February 26, 1991, and
had no participation in the execution of PN
No. OACL 634-95 for ₱1,800,000.00 on April
24, 1995. They however admitted that they
signed some PN forms as co-makers upon
the request of the spouses Manalastas who
are their relatives; although they insisted
that they derived no money or other benefits
from the loans. They denied knowing about
the mortgage security provided by the
spouses Manalastas, or that the latter
defaulted on their loans. They also refused to
acknowledge the loan deficiency of
₱1,758,427.87 on the PNs, insisting that the
mortgage collateral was worth more than
₱10,000,000.00, enough to answer for all the
loans, interests and penalties. They also
claimed that they were not notified of the
auction sale, and denied that they knew
about the Certificate of Sale18 and the
Statement of Account dated May 18, 1998,
and insisted that Chinabank manipulated the
foreclosure sale to exclude them therefrom.
By way of counterclaim, the Spouses
Sinamban prayed for damages and
attorney’s fees of 25%, plus litigation
expenses and costs of suit.
The spouses Manalastas were declared in
default in the RTC Order19 dated April 6,
1999, and Chinabank was allowed to present
evidence ex parte as against them, but at the
pre-trial conference held on July 5, 1999, the
spouses Sinamban and their counsel also did
not appear;20 hence, in the Order21 dated
July 5, 1999, the RTC allowed Chinabank to
present evidence ex parte against the
defendants before the Branch Clerk of Court.
During the testimony of Rosario D. Yabut,
Branch Manager of Chinabank-San Fernando
Branch, all the foregoing facts were adduced
and confirmed, particularly the identity of the
pertinent loan documents and the signatures
of the defendants. On July 21, 1999, the
court admitted the exhibits of Chinabank and
declared the case submitted for decision.22
Ruling of the RTC
On July 30, 1999, the RTC rendered its
Decision23 with the following dispositive
portion: WHEREFORE, premises considered,
judgment is hereby rendered in favor of
plaintiff China Banking Corporation and
against defendant Sps. Danilo and
Magdalena Manalastas and defendant Sps.
Estanislao and Africa Sinamban to jointly and
severally pay [Chinabank] the amount of
₱1,758,427.87, representing the deficiency
between the acquisition cost of the
foreclosed real estate properties and the
outstanding obligation of defendants at the
time of the foreclosure sale; interest at the
legal rate of 12% per annum from and after
May 18, 1998; attorney’s fees equivalent to
10% of the aforesaid deficiency amount and
the litigation and costs of suit.
SO ORDERED.24
On Motion for Reconsideration25 of the
spouses Sinamban dated August 27, 1999, to
which Chinabank filed an Opposition26 dated
September 14, 1999, the RTC in its
Order27 dated October 22, 1999 set aside the
Decision dated July 30, 1999 with respect to
the spouses Sinamban, in this wise:
As it is undisputed that Exhibit "B"
(Promissory Note dated April 24, 1995 in the
amount of ₱1,800,000.00), was not signed
by the Spouses Sinamban it would not be
equitable that the said defendants be made
solidarily liable for the payment of the said
note as co-makers of their co-defendants
Spouses Manalastas who are the one[s]
principally liable thereto. Prescinding from
this premise, the movant spouses could only
be held liable for the two (2) promissory
notes they have signed, Promissory Notes
dated May 23, 1995 in the amount of
₱325,000.00 and February 26, 1991 in the
amount of ₱1,300,000.00, Exhibits "A" and
"C", respectively. As the total amount of the
said notes is only ₱1,625,000.00, so even if
we would add the interests due thereon,
there is no way that the said outstanding loan
exceed[s] the acquisition cost of the
foreclosed real estate properties subject
hereof in the amount of ₱4,600,000.00.It
would appear then that the Spouses
Sinamban could not be held liable for the
deficiency in the amount of ₱1,758,427.87
which should justly be borne alone by the
defendant Spouses Manalastas. Guided by
law and equity on the matter, the court will
not hesitate to amend a portion of its assailed
decision to serve the interest of justice.
WHEREFORE, premises considered, the
decision dated July 30, 1999 is hereby
Reconsidered and Set Aside with respect to
the Spouses Estanislao and Africa Sinamban
hereby Relieving them from any liability
arising from the said Decision which is
affirmed in toto with respect to Spouses
Manalastas.
SO ORDERED.28 (Emphases ours) provided by the spouses Manalastas secured
all three PNs and thus also benefited them as
co-makers. But since they did not co-sign PN
The RTC ruled that the proceeds of the
No. OACL 634-95, the deficiency judgment
auction were sufficient to answer for the two
pertaining thereto will be the sole liability of
PNs co-signed by the spouses Sinamban,
the spouses Manalastas.
including interest and penalties thereon, and
therefore the spouses Manalastas should
solely assume the deficiency of Ruling of the CA
₱1,758,427.87. Chinabank moved for
reconsideration on November 11, 1999,29 to
From the Order dated December 8, 1999 of
which the spouses Sinamban filed their
the RTC, the spouses Sinamban appealed to
comment/opposition on November 23,
the CA on January 4, 2000, docketed as CA-
1999.30
G.R. CV. No. 66274, interposing the following
errors of the RTC, viz:
On December 8, 1999, the RTC set aside its
Order dated October 22, 1999 and reinstated
I
its Decision dated July 30, 1999, with
modification, as follows:31
THE LOWER COURT ERRED WHENIT HELD
DEFENDANTSAPPELLANTS SPS. SINAMBAN
WHEREFORE, premises considered, the
LIABLE TO PAY A PERCENTAGE OF
instant Motion for Reconsideration of plaintiff
₱1,758,427.87, JOINTLY AND SEVERALLY
is Granted.
WITH THE DEFENDANTS SPS. MANALASTAS
ON THE TWO PROMISSORY NOTES
Order dated October 22, 1999 is hereby Set (EXHIBITS ‘C’ AND ‘A’).
Aside.
II
Accordingly, the dispositive portion of the
Decision dated July 30, 1999 is hereby
THE LOWER COURT ERRED WHEN IT
Modified to read as follows:
RECONSIDERED AND SET ASIDE ITS
PREVIOUS ORDER DATED 22 OCTOBER 1999
WHEREFORE, premises considered, RELIEVING DEFENDANTS-APPELLANTS SPS.
judgment [is] hereby rendered in favor of SINAMBAN FROM ANY LIABILITY ARISING
plaintiff China Banking Corporation and FROM THE DECISION DATED 30 JULY 1999.
against the defendant Sps. Danilo and
Magdalena Manalastas and defendant Sps.
III
Estanislao and Africa Sinamban, ordering
them to pay as follows:
THE LOWER COURT ERRED WHEN IT
RENDERED THE VAGUE ORDER OF 8
1. For defendant Sps. Danilo and
DECEMBER 1999 (ANNEX ‘B’ HEREOF).33
Magdalena Manalastas, the amount
of ₱1,758,427.87, the deficiency
between the acquisition cost of the On May 19, 2010, the CA rendered judgment
foreclosed real properties and their denying the appeal, the fallo of which reads:
outstanding obligation; WHEREFORE, considering the foregoing
disquisition, the appeal is DENIED. The
Decision dated 30 July 1999 and the Order
2. For defendant Sps. Sinamban a
dated 08 December 1999 of the Regional
percentage of ₱1,758,427.87,
Trial Court of San Fernando, Pampanga,
jointly and severally with the
Branch 45 in Civil Case No. 11708are hereby
defendant Sps. [Manalastas] only
AFFIRMED with MODIFICATION in that:
on two (2) promissory notes;

1. Sps. Danilo and Magdalena

3. The corresponding interests
Manalastas are solidarily liable for
thereon at legal rate;
the deficiency amount of
Php507,741.62 (inclusive of 10%
4. Attorney’s fees; and attorney’s fees) on Promissory Note
No. OACL 634-95 dated 24 April
1995;
5. Costs of suit.

2. Sps. Estanislao and Africa

SO ORDERED.32
Sinamban are solidarily liable with
Sps. Danilo and Magdalena
This time the RTC held that the spouses Manalastas for the amount of
Sinamban must, solidarily with the spouses Php844,501.90 (inclusive of 10%
Manalastas, proportionately answer for the attorney’s fees) on Promissory Note
loan deficiency pertaining to the two PNs No. OACL00636-95 dated 23 May
they co-signed, since the mortgage security 1995;
 3. Estanislao Sinamban and Sps.
Danilo and Magdalena Manalastas
are solidarily liable for the amount
of Php406,184.35 (inclusive of 10%
attorney’s fees) on Promissory Note
No. CLF 5-93 dated 26 February
1991; and
4. The foregoing amounts shall bear
interest at the rate of 12% per
annum from 18 November 1998
until fully paid.
SO ORDERED.34 (Some emphasis ours)
Petition for Review to the Supreme Court
In this petition for review, the spouses
Sinamban seek to be completely relieved of
any liability on the PNs, solidary or otherwise,
by interposing the following issues:
5.1 Whether or not the Honorable
Court of Appeals erred in not
considering that the Sps.
Sinamban’s obligations under PN#
OACL 636-95 dated May 23, 1995 in
the principal sum of Php325,000.00
and PN# CLF 5-93 dated February
26, 1991 in the principal sum of
Php1,300,000.00 are more onerous
and burdensome on their part as
mere sureties (co-makers) of their
co-defendants-spouses Danilo and
Magdalena Manalastas’ (hereinafter
referred to as the "Sps.
Manalastas") obligations over the
same, compared to the Sps.
Manalastas’ sole obligation under
PN# OACL 634-95 dated 24 April
1995 in the principal amount of
Php1,800,000.00, such that the
proceeds of the auction sale of the
properties securing all the three (3)
promissory notes should first be
applied to satisfy the promissory
notes signed by the Sps. Sinamban;
and
5.2 Whether or not the Honorable
Court of Appeals erred in not
considering the facts indubitably
showing that it is the Sps.
Sinamban, as the debtors, and not
the respondent bank, who are given
the choice under Article 1252 of the
Civil Code to have the proceeds of
the auction sale applied as
payments to their obligations under
PN# OACL 636-95 dated 23 May
1995 and PN# CLF 5-93 dated 26
February 1991.35
Ruling of the Court
The Court modifies the CA decision.
A co-maker of a PN who binds
himself with the maker "jointly and
severally" renders himself directly
and primarily liable with the maker
on the debt, without reference to his
solvency.
"A promissory note is a solemn
acknowledgment of a debt and a formal
commitment to repay it on the date and
under the conditions agreed upon by the
borrower and the lender. A person who signs
such an instrument is bound to honor it as a
legitimate obligation duly assumed by him
through the signature he affixes thereto as a
token of his good faith. If he reneges on his
promise without cause, he forfeits the
sympathy and assistance of this Court and
deserves instead its sharp repudiation."36
Employing words of common commercial
usage and well-accepted legal significance,
the three subject PNs uniformly describe the
solidary nature and extent of the obligation
assumed by each of the defendants in Civil
Case No. 11708, to wit:
"FOR VALUE RECEIVED, I/We jointly and
severally promise to pay to the CHINA
BANKING CORPORATION or its order the sum
of PESOS x x x[.]"37 (Emphasis ours)
According to Article 2047 of the Civil
Code,38 if a person binds himself solidarily
with the principal debtor, the provisions of
Articles 1207 to 1222 of the Civil Code
(Section 4, Chapter 3,Title I, Book IV) on
joint and solidary obligations shall be
observed. Thus, where there is a concurrence
of two or more creditors or of two or more
debtors in one and the same obligation,
Article 1207 provides that among them,
"[t]here is a solidary liability only when the
obligation expressly so states, or when the
law or the nature of the obligation requires
solidarity." It is settled that when the obligor
or obligors undertake to be "jointly and
severally" liable, it means that the obligation
is solidary.39 In this case, the spouses
Sinamban expressly bound themselves to be
jointly and severally, or solidarily, liable with
the principal makers of the PNs, the spouses
Manalastas.
Moreover, as the CA pointed out, in
Paragraph 5 of the PNs, the borrowers and
their co-makers expressly authorized
Chinabank, as follows:
[T]o apply to the payment of this note and/or
any other particular obligation or obligations
of all or any one of us to the CHINA BANKING
CORPORATION as the said Corporation may
select, irrespective of the dates of maturity,
whether or not said obligations are then due,
any or all moneys, securities and things of
value which are now or which may hereafter
be in its hands on deposit or otherwise to the
credit of, or belonging to, all or any one of
us, and the CHINA BANKING CORPORATION
is hereby authorized to sell at public or
private sale such securities or things of value
for the purpose of applying their proceeds to
such payments.40
Pursuant to Article 1216 of the Civil
Code, as well as Paragraph 5 of the
PNs, Chinabank opted to proceed
against the co-debtors
simultaneously, as implied in its
May 18, 1998 statement of
account when it applied the entire
amount of its auction bid to the
aggregate amount of the loan
obligations.
The PNs were executed to acknowledge each
loan obtained from the credit line extended
by Chinabank, which the principal makers
and true beneficiaries, the spouses
Manalastas, secured with a REM they
executed over their properties. As the RTC
noted in its Order dated December 8, 1999,
"the real estate mortgage was constituted to
secure all the three (3) promissory notes,"
concluding that "[j]ust as the liability of the
[spouses] Sinamban was lessened by the
foreclosure proceedings, so must they also
share in the deficiency judgment, in
proportion to the PNs they co-signed with the
[spouses] Manalastas, but notthe entire
deficiency judgment of ₱1,758,427.87."41
Significantly, in modifying the RTC’s second
amended decision, which provides for the pro
rata distribution of the loan deficiency of
₱1,758,427.87, the CA first applied the entire
net proceeds of the auction sale of
₱4,183,744.63 (after auction expenses of
₱416,255.37), to PN No. OACL 634-95, which
on May 18, 1998 had an outstanding balance
of ₱4,264,987.50, inclusive of interest and
penalties, plus 10% attorney’s fees, or a total
of ₱4,691,486.25. Thus, ₱4,691,486.25 less
₱4,183,744.63 leaves a deficiency on PN No.
OACL 634-95 of ₱507,741.62, which is due
solely from the spouses Manalastas.
As for PN No. OACL 636-95, the CA ordered
the spouses Sinamban to pay, solidarily with
the spouses Manalastas, the entire amount
due thereon, ₱844,501.90, consisting of the
loan principal of ₱767,729.00 plus accrued
interest, penalties and 10% attorney’s fees;
concerning PN No. CLF 5-93, the CA ordered
the spouses Sinamban to pay, solidarily with
the spouses Manalastas, the amount of
₱406,184.35, consisting of the balance of the
loan principal of ₱369,258.50 plus accrued
interest, penalties and 10% attorney’s fees.
The CA further ordered the payment of 12%
interest per annum from November 18,
1998, the date of judicial demand, until fully
paid, on the above deficiencies.
Article 1216 of the Civil Code provides that
"[t]he creditor may proceed against any one
of the solidary debtors or some or all of them
simultaneously. The demand made against
one of them shall not be an obstacle to those
which may subsequently be directed against
the others, so long as the debt has not been
fully collected." Article 125242 of the Civil
Code does not apply, as urged by the
petitioners, because in the said article the
situation contemplated is that of a debtor
with several debts due, whereas the reverse
is true, with each solidary debt imputable to
several debtors.
While the CA correctly noted that the choice
is given to the solidary creditor to determine
against whom he wishes to enforce payment,
the CA stated that Chinabank, in the exercise
of the aforesaid option, chose to apply the
net proceeds of the extrajudicial foreclosure
sale first to the PN solely signed by spouses
Manalastas.43 Thus, the net proceeds were
applied first to PN No. OACL 634-95 in the
principal amount of ₱1,800,000.00, instead
of pro rata to all three PNs due.
The Court finds this factual conclusion of the
CA not supported by any evidence or any
previous arrangement.1âwphi1 To the
contrary, as clearly shown in its Statement of
Account dated May 18, 1998, Chinabank
opted to apply the entire auction proceeds to
the aggregate amount of the three PNs due,
₱5,401,975.00 (before attorney’s fees and
auction expenses). Had it chosen to enforce
the debts as ruled by the CA, the Statement
of Account would have shown that the loan
due on PN No. OACL 634-95 which is
₱4,691,486.25, should have been deducted
first from the net auction proceeds of
₱4,183,744.63, arriving at a deficiency of
₱507,741.62on PN No. OACL 634-95 alone;
thereby, leaving no remainder of the
proceeds available to partially settle the
other two PNs. As it appears, the auction
proceeds are not even sufficient to cover just
PN No. OACL 634-95 alone.
But as the Court has noted, by deducting the
auction proceeds from the aggregate amount
of the three loans due, Chinabank in effect
opted to apply the entire proceeds of the
auction simultaneously to all the three loans.
This implies that each PN will assume a pro
rata portion of the resulting deficiency on the
total indebtedness as bears upon each PN’s
outstanding balance. Contrary to the spouses
Sinamban’s insistence, none of the three PNs
is more onerous than the others to justify
applying the proceeds according to Article
1254 of the Civil Code, in relation to Articles
1252 and 1253.44 Since each loan,
represented by each PN, was obtained under
a single credit line extended by Chinabank for
the working capital requirements of the
spouses Manalastas’ rice milling business,
which credit line was secured also by a single
REM over their properties, then each PN is
simultaneously covered by the same
mortgage security, the foreclosure of which
will also benefit them proportionately. No PN
enjoys any priority or preference in payment
over the others, with the only difference
being that the spouses Sinamban are
solidarily liable for the deficiency on two of
them.
Pursuant, then, to the order or manner of
application of the auction proceeds chosen by
Chinabank, the solidary liability of the
defendants pertaining to each PN shall be as
follows:
a) PN No. OACL 634-95, with a
balance as of May 18, 1998 of
₱4,264,987.50: its share in the total
deficiency is computed as the ratio
of ₱4,264,987.50 to ₱5,401,975.00,
multiplied by ₱1,758,427.87, or
₱1,388,320.55, (not ₱507,741.62
as found by the CA);
b) PN No. OACL 636-95, with a
balance of ₱767,729.00 as of May
18, 1998: its share in the deficiency
is computed as the ratio of
₱767,729.00 to ₱5,401,975.00,
multiplied by ₱1,758,427.87, or
₱249,907.87, (not ₱844,501.90 as
computed by the CA);
c) PN No. CLF 5-93, with an
outstanding balance of ₱369,258.50
as of May 18, 1998: its share in the
deficiency is computed as the ratio
of ₱369,258.50 to ₱5,401,975.00,
multiplied by ₱1,758,427.87, or
₱120,199.45, (not ₱406,184.35 as
found by the CA).
In short, in the CA decision, the spouses
Manalastas would be solely liable on PN No.
OACL 634-95 for only ₱507,741.62(instead
of the much bigger amount of
₱1,388,320.55which this Court found),
whereas the spouses Sinamban would be
solidarily liable with the spouses Manalastas
for a total deficiency of ₱1,250,686.25 on PN
No. OACL 636-95 and PN No. CLF 5-93. But
under the Court’s interpretation, the spouses
Sinamban are solidarily liable with the
spouses Manalastas for only ₱370,107.32on
the said two PNs, for a significant difference
of ₱880,578.93.
Pursuant to Monetary Board
Circular No. 799, effective July 1,
2013, the rate of interest for the
loan or forbearance of any money,
goods or credits and the rate
allowed in judgments, in the
absence of an express contract as to
such rate of interest, has been
reduced to six percent (6%) per
annum.
The subject three PNs bear interests ranging
from 21% to 23% per annum, exclusive of
penalty of 1% on the overdue amount per
month of delay, whereas in its complaint,
Chinabank prayed to recover only the legal
rate of 12% on whatever judgment it could
obtain. Meanwhile, the Monetary Board of
the Bangko Sentral ng Pilipinas in its
Resolution No. 796 dated May 16, 2013, and
now embodied in Monetary Board Circular
No. 799, has effective July 1, 2013 reduced
to 6%, from 12%, the legal rate of interest
for the loan or forbearance of any money,
goods or credits and the rate allowed in
judgments, in the absence of
stipulation.45 Since Chinabank demanded
only the legal, not the stipulated, interest
rate on the deficiency and attorney’s fees
due, the defendants will solidarily pay
interest on their shares in the deficiency at
the rate of 12% from November 18, 1998 to
June 30, 2013, and 6% from July 1, 2013
until fully paid. WHEREFORE, the Decision of
the Court of Appeals dated May 19, 2010 in
CA-G.R. CV No. 66274 is MODIFIED. The
Decision dated July 30, 1999 and the Order
dated December 8, 1999 of the Regional Trial
Court of San Fernando City, Pampanga,
Branch 45 in Civil Case No. 11708 are hereby
AFFIRMED with MODIFICATIONS as follows:
1. Spouses Danilo and Magdalena
Manalastas are solidarily liable for
the deficiency amount of
1,388,320.55 (inclusive of 10%
attorney’s fees) on Promissory Note
No. OACL 634-95 dated April 24,
1995;
2. Spouses Estanislao and Africa
Sinamban are solidarily liable with
spouses Danilo and Magdalena
Manalastas for the deficiency
amount of ₱249,907.87(inclusive of
10% attorney’s fees) on Promissory
Note No. OACL 636-95 dated May
23, 1995;
3. Estanislao Sinamban and spouses
Danilo and Magdalena Manalastas
are solidarily liable for the deficiency
amount of ₱120,199.45 (inclusive of
10% attorney’s fees) on Promissory
Note No. CLF 5-93 dated February
26, 1991; and
4. The foregoing amounts shall bear
interest at the rate of twelve
percent (12%) per annum from
November 18, 1998 to June 30,
2013, and six percent (6%) per
annum from July 1, 2013 until fully
paid.
SO ORDERED.
G.R. No. 202322, August 19, 2015
LIGHT RAIL TRANSIT
AUTHORITY, Petitioner, v. ROMULO S. MENDOZA,
FRANCISCO S. MERCADO, ROBERTO M. REYES,
EDGARDO CRISTOBAL, JR., AND RODOLFO
ROMAN, Respondents.
DECISION
BRION, J.:
For resolution is the present petition for review
on certiorari1 which seeks the reversal of the January
31, 2012 Decision2 and June 15, 2012 Resolution3 of
the Court of Appeals in CA-G.R. SP No. 109224.
The Antecedents
The Light Rail Transit Authority (LRTA) is a
government-owned and -controlled corporation
created under Executive Order No. 603 for the
construction, operation, maintenance, and/or lease of
light rail transit systems in the Philippines.
To carry out its mandate, LRTA entered into a ten-year
operations and management (O & M) agreement4with
the Meralco Transit Organization, Inc. (MTOI) from
June 8, 1984, to June 8, 1994, for an annual fee of
P5,000,000.00. Subject to specified conditions, and in
connection with the operation and maintenance of the
system not covered by the O & M agreement, LRTA
undertook to reimburse MTOI such operating
expenses and advances to the revolving fund.
"Operating expenses" included "all salaries, wages
and fringe benefits (both direct and indirect) up to the
rank of manager, and a lump sum amount to be
determined annually as top management
compensation (above the rank of manager up to
president), subject to consultation with the LRTA."
MTOI hired the necessary employees for its operations
and forged collective bargaining agreements (CBAs)
with the employees' unions, with the LRTA's approval.
On June 9, 1989, the Manila Electric Company, who
owned 499,990 of MTOI shares of stocks, sold said
shares to the LRTA. Consequently, MTOI became a
wholly owned subsidiary of LRTA. MTOI changed its
corporate name to Metro Transit Organization,
Inc. (METRO), but maintained its distinct and separate
personality. LRTA and METRO renewed the O & M
agreement upon its expiration on June 8, 1994,
extended on a month-to-month basis.5cralawrednad
On July 25, 2000, the Pinag-isang Lakas ng
Manggagawa sa METRO, INC., the rank-and-file union
at METRO, staged an illegal strike over a bargaining
deadlock, paralyzing the operations of the light rail
transport system. On July 28, 2000, the LRTA Board
of Directors issued Resolution No. 00-446 where LRTA
agreed to shoulder METRO'S operating expenses for a
maximum of two months counted from August 1,
2000. It also updated the Employee Retirement
Fund.
Because of the strike, LRTA no longer renewed the O
& M agreement when it expired on July 31, 2000,
resulting in the cessation of METRO'S operations and
the termination of employment of its workforce,
including the respondents Romulo Mendoza,
Francisco Mercado, Roberto Reyes, Edgardo Cristobal,
Jr., and Rodolfo Roman.
On April 1, 2001, the METRO Board of Directors
authorized the payment of 50 % of the dismissed
employees' separation pay, to be sourced from the
retirement fund. In May 2001, respondents received
one half (1/2) of their separation pay. Dissatisfied,
they demanded from LRTA payment of the 50%
balance of their separation pay, but LRTA rejected the
demand, prompting them to file on August 31, 2004,
a formal complaint,7 before the labor arbiter, against
LRTA and METRO.
LRTA moved to dismiss the complaint on
grounds of absence of employer-employee
relationship with the respondents, lack of
jurisdiction and of merit, and prescription of
action.
The Compulsory Arbitration Rulings
In his decision8 dated August 8, 2005, Labor Arbiter
(LA) Arthur L. Amansec pierced the veil of METRO'S
corporate fiction, invoked the law against labor-only
contracting, and declared LRTA solidarity liable with
METRO for the payment of the remaining 50% of
respondents' separation pay. On appeal by the LRTA,
the National Labor Relations Commission (NLRC)
affirmed in its decision9 of December 23, 2008, LA
Amansec's ruling, thereby dismissing the appeal. It
also held that the case had not prescribed. LRTA
moved for reconsideration, but the NLRC denied the
motion in its resolution10 of March 30, 2009.
The Case before the CA
LRTA challenged the NLRC decision before the CA
through a petition for certiorari under Rule 65 of the
Rules of Court, contending that the labor tribunal
committed grave abuse of discretion when it (1)
assumed jurisdiction over the case; (2) held that it
was an indirect employer of the respondents with
solidary liability for their claim; and (3) took
cognizance of the case despite its being barred by
prescription.
LRTA argued that as a government-owned and -
controlled corporation, all actions against it should be
brought before the Civil Service Commission, not the
NLRC, pursuant to Article IX-B, Section 2 (1) of the
Constitution, as declared by this Court's decision in
the consolidated cases of LRTA v. Venus, Jr.,
and METRO v. Court of Appeals (Venus case).11 It
further argued that it could not be made solidarity
liable with METRO for the respondents' claim since
METRO is an independent job contractor.
In a different vein, LRTA stressed that its Resolution
No. 00-44 updating the retirement fund for METRO
employees was merely a financial assistance to
METRO, which neither created an employer-employee
relationship between it and the METRO employees,
nor did it impose a contractual obligation upon it for
the employees' separation pay. Lastly, it reiterated
that respondents' claim had already prescribed since
they filed the complaint beyond the three-year period
under Article 306 of the Labor Code (formerly Article
291; re-numbered by R.A. 10151, An Act Allowing
the Employment of Nightworkers).12cralawrednad
The respondents, for their part, prayed for the
dismissal of the petition, relying on an earlier case
involving the same cause of action decided by the
CA, LRTA v. NLRC and Ricardo B. Malanao, et al.,13and
which had become final and executory on February
21, 2006.14 In that case, they pointed out, LRTA was
held solidarity liable with METRO, as an indirect
employer, for the payment of the severance pay of
METRO'S separated employees.
In the meantime, or on June 3, 2010, LA Amansec
issued a Writ of Execution15 for his August 8, 2005
decision. On August 5, 2010, respondents filed
an Urgent Manifestation16 stating that pursuant to
the labor arbiter's order, LRTA's cash bond covered by
Check No. LB0000007505, dated September 20,
2005, for PI,082,929.16 had been released to them.
Thus, they considered the case to have become
academic.
The CA Decision
The CA affirmed the NLRC ruling that LRTA is solidarity
liable for the remaining 50% of respondents'
separation pay, but not squarely on the same
grounds. Unlike the NLRC, it considered inapplicable
the doctrine of piercing the veil of corporate fiction to
justify LRTA's solidary liability due to the absence of
fraud or wrongdoing on LRTA's part in relation to the
nonpayment of the balance of the respondents'
separation pay as this Court had stated in
the Venus case.17cralawrednad
The CA likewise disagreed with the NLRC's opinion
that METRO is a labor-only contractor so as to make
LRTA the respondents' direct employer. It explained
that METRO was a corporation with sufficient capital
and investment in tools and equipment, and its own
employees (who were even unionized) to undertake
the operation and management of the light rail transit
system, for which it was exclusively engaged by LRTA.
Neither did LRTA exercise the prerogatives of an
employer over the METRO employees. It thus
concluded that LRTA's solidary liability as an indirect
employer is limited to the payment of wages, and for
any violation of the Labor Code,18 excluding
backwages and separation pay which are punitive in
nature.19cralawrednad
The CA nonetheless held that LRTA cannot avoid
liability for respondents' separation pay as it is a
contractual obligation. It agreed with the NLRC
finding that LRTA provided METRO'S "operating
expenses" which included the employees' wages
and fringe benefits, and all other general and
administrative expenses relative to the
operation of the light rail transit system.
The CA found additional basis for its ruling in the letter
to the LRTA, dated July 12, 2001, of then Acting
Chairman of the METRO Board of Directors,
Wilfredo Trinidad, that "Funding provisions for the
retirement fund have always been considered
operating expenses of METRO. Pursuant to the O
& M Agreement, the LRTA had been reimbursing
METRO of all operating expenses, including the
funds set aside for the retirement fund. It
follows—now that circumstances call for Metro to pay
the full separation benefits—that LRTA should provide
the necessary funding to completely satisfy these
benefits."20cralawrednad
Also, the CA noted that "METRO'S November 17, 1997
Memorandum further revealed that the LRTA Board
approved 'the additional
retirement/resignation benefit of 7.65 days or a total
of 1.5 months' salary for every year of service' for
METRO'S rank-and-file employees and that lthe
granting of 1.5 months' salary for every year of
service as severance or resignation pay would
effectively amend the existing Employees' Retirement
Plan."21 This LRTA memorandum, together with its
July 28, 2000 Resolution No. 00-44, the CA believed,
was an indication that LRTA regularly financed the
retirement fund.
Accordingly, the CA stressed, the LRTA cannot argue
that the retirement fund was not meant to cover the
separation pay of the "terminated" employees of
METRO, and neither can it deny that it is bound to
comply with its undertaking to provide the necessary
funds to cover payment of the respondents' claim.
The CA brushed aside the prescription issue. It held
that the complaint is not time-barred, citing De
Guzman v. Court of Appeals,22 where the Court
affirmed the applicability of Article 1155 of the Civil
Code23 to an employee's claim for separation pay in
the absence of an equivalent Labor Code provision for
determining whether the period for such claim may be
interrupted. It agreed with the NLRC conclusion that
the prescriptive period for respondents' claim for
separation pay was interrupted by their letters to
LRTA24 (dated September 19, 2002 and October 14,
2002) demanding payment of the 50% balance of
their separation pay.
The Petition
Its motion for reconsideration having been denied by
the CA, LRTA now asks the Court for a reversal,
contending that the appellate court committed a
serious error of law when it affirmed the NLRC
decision.
It faults the CA for not ruling on the jurisdictional
question which, it contends, had been settled with
finality "in actions similar to the one at
bar."25cralawredcralawrednad
On the merits of the case, LRTA submits that no
liability, from whatever origin or source, was ever
attached to it insofar as the respondents' claim is
concerned. It disputes the CA opinion that its liability
for 50% of the respondents' separation pay is a
contractual obligation under METRO'S retirement
fund. It also assails the CA's reliance on its July 28,
2000 Resolution No. 00-44 as evidence of its
contractual obligation. It asserts it has no such
obligation.
Lastly, LRTA contends that while its board of directors
updated METRO'S retirement fund to cover the
retirement benefits of METRO'S employees, the
updating was a mere financial assistance or goodwill
to METRO. It did not execute, it stresses, any deed or
contract in favor of METRO, Avhich amended the O &
M agreement between them, or assumed any
obligation in favor of METRO or its employees; thus, it
has no contractual obligation for the unpaid balance
of respondents' separation pay.
The Respondents' Position
In their Comment26 dated October 8, 2012, the
respondents prayed that the petition be dismissed for
lack of merit as the CA had committed no error of law
when it affirmed the NLRC decision.
They stand firm on their position that LRTA is legally
bound to pay the balance of their separation pay as
evidenced by its official undertakings such as the Joint
Memorandum, dated June 6, 1989,27 with METRO, its
wholly owned subsidiary, providing, among others, for
the establishment of the Retirement Fund of METRO,
Inc., Employees; LRTA Board Resolution No. 00-44 of
July 28, 2000,28 authorizing the updating of the
retirement fund; and approving the collective
bargaining agreements entered into by METRO with its
unions containing terms and conditions of
employment and benefits for its employees.
They also cite the letter to LRTA,29 dated July 12,
2001, of the Acting Chairman of the METRO Board of
Directors stating that funding provisions for the
retirement fund have always been considered
operating expenses of METRO. In short, they
maintain, LRTA regularly financed the retirement fund
intended not only for the retirement benefit, but also
for the severance and/or resignation pay of METRO'S
employees.
The Court's Ruling
The jurisdictional issue
LRTA reiterates its position that the labor arbiter and
the NLRC had no jurisdiction over it in relation to the
respondents' claim, quoting the Venus ruling to prove
its point, thus: "x x x There should be no dispute
then that employment in petitioner LRTA should
be governed only by civil service rules, and not
the Labor Code and beyond the reach of the
Department of Labor and Employment, since
petitioner LRTA is a government-owned and -
controlled corporation with an original charter x
x x Petitioner METRO was originally organized
under the Corporation Code, and only became a
government-owned and -controlled corporation
after it was acquired by petitioner LRTA. Even
then, petitioner METRO has no original charter,
hence, it is the Department of Labor and
Employment, and not the Civil Service
Commission, which has jurisdiction over
disputes from the employment of its workers x x
x."30cralawrednad
We disagree. Under the facts of the present labor
controversy, LRTA's reliance on the Venus ruling is
misplaced. The ruling has no bearing on the
respondents' case. As we see it, the jurisdictional
issue should not have been brought up in the first
place because the respondents' claim does not involve
their employment with LRTA. There is no dispute on
this aspect of the case. The respondents were hired
by METRO and, were, therefore, its employees.
Rather, the controversy involves the question of
whether LRTA can be made liable by the labor
tribunals for the respondents' money claim, despite
the absence of an employer-employee relationship
between them and despite the fact that LRTA is a
government-owned and -controlled corporation with
an original charter.
The Court provided the answer in Phil. National Bank
v. Pabalan31 where it said: "By engaging in a particular
business through the instrumentality of a corporation,
the government divests itself pro hac vice of its
sovereign character, so as to render the corporation
subject of the rules governing private
corporations."32cralawrednad
The NLRC accordingly declared: "for having conducted
business through a private corporation, in this case,
respondent METRO, as its business conduit or alter
ego, respondent LRTA must submit itself to the
provisions governing private corporations, including
the Labor Code. Consequently, the Labor Arbiter
rightfully dismissed the Motion to Dismiss of
respondent LRTA."33cralawrednad
In this light, we find no grave abuse of discretion in
the labor tribunals' taking cognizance of the
respondents' money claim against LRTA.
The substantive aspect of the case
The petition is without merit, for the following
reasons:ChanRoblesvirtualLawlibrary
First. LRTA obligated itself to fund METRO'S
retirement fund to answer for the retirement or
severance/resignation of METRO employees as part of
METRO'S "operating expenses." Under Article
4.05.1 of the O & M agreement34 between LRTA and
Metro, "The Authority shall reimburse METRO for x x
x "OPERATING EXPENSES x x x" In the letter to
LRTA35 dated July 12, 2001, the Acting Chairman of
the METRO Board of Directors at the time, Wilfredo
Trinidad, reminded LRTA that "funding provisions for
the retirement fund have always been considered
operating expenses of Metro.36 The coverage
of operating expenses to include provisions for the
retirement fund has never been denied by LRTA.
In the same letter, Trinidad stressed that as a
consequence of the non-renewal of the O & M
agreement by LRTA, METRO was compelled to close
its business operations effective September 30,
2000. This created, Trinidad added, a legal
obligation to pay the qualified employees
separation benefits under existing company
policy and collective bargaining
agreements. The METRO Board of Directors
approved the payment of 50% of the employees'
separation pay because that was only what the
Employees' Retirement Fund could
accommodate.37cralawrednad
The evidence supports Trinidad's position. We
refer principally to Resolution No. 00-4438 issued by
the LRTA Board of Directors on July 28, 2000, in
anticipation of and in preparation for the expiration of
the O & M agreement with METRO on July 31, 2000.
Specifically, the LRTA anticipated and prepared for the
(1) non-renewal (at its own behest) of the agreement,
(2) the eventual cessation of METRO operations, and
(3) the involuntary loss of jobs of the METRO
employees; thus, (1) the extension of a two-
month bridging fund for METRO from August 1,
2000, to coincide with the agreement's
expiration on July 31, 2000; (2) METRO'S
cessation of operations—it closed on September
30, 2000, the last day of the bridging fund—and
most significantly to the employees adversely
affected; (3) the updating of the "Metro, Inc.,
Employee Retirement Fund with the Bureau of
Treasury to ensure that the fund fully covers all
retirement benefits yay able to the employees of
Metro, Inc."39cralawrednad
The clear language of Resolution No.00-44, to our
mind, established the LRTA's obligation for the 50%
unpaid balance of the respondents' separation pay.
Without doubt, it bound itself to provide the necessary
funding to METRO'S Employee Retirement Fund to
fully compensate the employees who had been
involuntary retired by the cessation of operations of
METRO. This is not at all surprising considering that
METRO was a wholly owned subsidiary of the LRTA.
Second. Even on the assumption that the LRTA did
not obligate itself to fully cover the separation benefits
of the respondents and others similarly situated, it still
cannot avoid liability for the respondents' claim. It is
solidarity liable as an indirect employer under
the law for the respondents' separation pay. This
liability arises from the O & M agreement it had with
METRO, which created a principal-job contractor
relationship between them, an arrangement it
admitted when it argued before the CA that METRO
was an independent job contractor40 who, it
insinuated, should be solely responsible for the
respondents' claim.
Under Article 107 of the Labor Code, an indirect
employer is "any person, partnership, association or
corporation which, not being an employer, contracts
with an independent contractor for the performance of
any work, task, job or project."
On the other hand, Article 109 on solidary liability,
mandates that x x x "every employer or indirect
employer shall be held responsible with his contractor
or subcontractor for any violation of any provisions of
this Code. For purposes of determining the extent of
their civil liability under this Chapter, they shall be
considered as direct employers."
Department Order No. 18-02, s. 2002, the rules
implementing Articles 106 to 109 of the Labor Code,
provides in its Section 19 that "the principal shall also
be solidarity liable in case the contract between the
principal is preterminated for reasons not attributable
to the contractor or subcontractor."
Although the cessation of METRO'S operations was
due to a non-renewal of the O & M agreement and not
a pretermination of the contract, the cause of the
nonrenewal and the effect on the employees are the
same as in the contract pretermination contemplated
in the rules. The agreement was not renewed through
no fault of METRO, as it was solely at the behest of
LRTA. The fact is, under the circumstances, METRO
really had no choice on the matter, considering that it
was a mere subsidiary of LRTA.
Nevertheless, whether it is a pretermination or a
nonrenewal of the contract, the same adverse effect
befalls the workers affected, like the respondents in
this case - the involuntary loss of their
employment, one of the contingencies addressed
and sought to be rectified by the rules.
In fine, we find no reversible error in the CA rulings.
WHEREFORE, premises considered, the petition for
review on certiorari is DISMISSED, for lack of merit.
The assailed decision and resolution of the Court of
Appeals are AFFIRMED. The decision dated May 8,
2005, of Labor Arbiter Arthur L. Amansec,
is REINSTATED.
SO ORDERED.chanrobles virtuallawlibrary
January 11, 2016
G.R. No. 167615
SPOUSES ALEXANDER AND JULIE LAM, Doing
Business Under the Name and Style
"COLORKWIK LABORATORIES" AND
"COLORKWIK PHOTO SUPPLY", Petitioners,
vs.
KODAK PHILIPPINES, LTD., Respondent.
DECISION
LEONEN, J.:
This is a Petition for Review on Certiorari filed on April
20, 2005 assailing the March 30, 2005 Decision1 and
September 9, 2005 Amended Decision2 of the Court of
Appeals, which modified the February 26, 1999
Decision3 of the Regional Trial Court by reducing the
amount of damages awarded to petitioners Spouses
Alexander and Julie Lam (Lam Spouses).4 The Lam
Spouses argue that respondent Kodak Philippines,
Ltd.’s breach of their contract of sale entitles them to
damages more than the amount awarded by the Court
of Appeals.5
I
On January 8, 1992, the Lam Spouses and Kodak
Philippines, Ltd. entered into an agreement (Letter
Agreement) for the sale of three (3) units of the Kodak
Minilab System 22XL6 (Minilab Equipment) in the
amount of ₱1,796,000.00 per unit,7 with the following
terms:
This confirms our verbal agreement for Kodak Phils.,
Ltd. To provide Colorkwik Laboratories, Inc. with three
(3) units Kodak Minilab System 22XL . . . for your
proposed outlets in Rizal Avenue (Manila), Tagum
(Davao del Norte), and your existing Multicolor photo
counter in Cotabato City under the following terms
and conditions:
1. Said Minilab Equipment packages will avail
a total of 19% multiple order discount based
on prevailing equipment price provided said
equipment packages will be purchased not
later than June 30, 1992.
2. 19% Multiple Order Discount shall be
applied in the form of merchandise and
 delivered in advance immediately after
signing of the contract.
* Also includes start-up packages worth
P61,000.00.
3. NO DOWNPAYMENT.
4. Minilab Equipment Package shall be
payable in 48 monthly installments at
THIRTY FIVE THOUSAND PESOS
(P35,000.00) inclusive of 24% interest rate
for the first 12 months; the balance shall be
re-amortized for the remaining 36 months
and the prevailing interest shall be applied.
5. Prevailing price of Kodak Minilab System
22XL as of January 8, 1992 is at ONE
MILLION SEVEN HUNDRED NINETY SIX
THOUSAND PESOS.
6. Price is subject to change without prior
notice.
*Secured with PDCs; 1st monthly
amortization due 45 days after
installation[.]8
On January 15, 1992, Kodak Philippines, Ltd.
delivered one (1) unit of the Minilab Equipment in
Tagum, Davao Province.9 The delivered unit was
installed by Noritsu representatives on March 9,
1992.10 The Lam Spouses issued postdated checks
amounting to ₱35,000.00 each for 12 months as
payment for the first delivered unit, with the first
check due on March 31, 1992.11
The Lam Spouses requested that Kodak Philippines,
Ltd. not negotiate the check dated March 31, 1992
allegedly due to insufficiency of funds.12 The same
request was made for the check due on April 30, 1992.
However, both checks were negotiated by Kodak
Philippines, Ltd. and were honored by the depository
bank.13 The 10 other checks were subsequently
dishonored after the Lam Spouses ordered the
depository bank to stop payment.14
Kodak Philippines, Ltd. canceled the sale and
demanded that the Lam Spouses return the unit it
delivered together with its accessories.15 The Lam
Spouses ignored the demand but also rescinded the
contract through the letter dated November 18, 1992
on account of Kodak Philippines, Ltd.’s failure to
deliver the two (2) remaining Minilab Equipment
units.16
On November 25, 1992, Kodak Philippines, Ltd. filed
a Complaint for replevin and/or recovery of sum of
money. The case was raffled to Branch 61 of the
Regional Trial Court, Makati City.17 The Summons and
a copy of Kodak Philippines, Ltd.’s Complaint was
personally served on the Lam Spouses.18
The Lam Spouses failed to appear during the pre-trial
conference and submit their pre-trial brief despite
being given extensions.19 Thus, on July 30, 1993, they
were declared in default.20 Kodak Philippines, Ltd.
presented evidence ex-parte.21 The trial court issued
the Decision in favor of Kodak Philippines, Ltd.
ordering the seizure of the Minilab Equipment, which
included the lone delivered unit, its standard
accessories, and a separate generator set.22 Based on
this Decision, Kodak Philippines, Ltd. was able to
obtain a writ of seizure on December 16, 1992 for the
Minilab Equipment installed at the Lam Spouses’ outlet
in Tagum, Davao Province.23 The writ was enforced on
December 21, 1992, and Kodak Philippines, Ltd.
gained possession of the Minilab Equipment unit,
accessories, and the generator set.24
The Lam Spouses then filed before the Court of
Appeals a Petition to Set Aside the Orders issued by
the trial court dated July 30, 1993 and August 13,
1993. These Orders were subsequently set aside by
the Court of Appeals Ninth Division, and the case was
remanded to the trial court for pre-trial.25
On September 12, 1995, an Urgent Motion for
Inhibition was filed against Judge Fernando V.
Gorospe, Jr.,26 who had issued the writ of
seizure.27 The ground for the motion for inhibition was
not provided. Nevertheless, Judge Fernando V.
Gorospe Jr. inhibited himself, and the case was
reassigned to Branch 65 of the Regional Trial Court,
Makati City on October 3, 1995.28
In the Decision dated February 26, 1999, the Regional
Trial Court found that Kodak Philippines, Ltd.
defaulted in the performance of its obligation under its
Letter Agreement with the Lam Spouses.29 It held that
Kodak Philippines, Ltd.’s failure to deliver two (2) out
of the three (3) units of the Minilab Equipment caused
the Lam Spouses to stop paying for the rest of the
installments.30 The trial court noted that while the
Letter Agreement did not specify a period within which
the delivery of all units was to be made, the Civil Code
provides "reasonable time" as the standard period for
compliance:
The second paragraph of Article 1521 of the Civil Code
provides:
Where by a contract of sale the seller is bound to send
the goods to the buyer, but no time for sending them
is fixed, the seller is bound to send them within a
reasonable time.
What constitutes reasonable time is dependent on the
circumstances availing both on the part of the seller
and the buyer. In this case, delivery of the first unit
was made five (5) days after the date of the
agreement. Delivery of the other two (2) units,
however, was never made despite the lapse of at least
three (3) months.31
Kodak Philippines, Ltd. failed to give a sufficient
explanation for its failure to deliver all three (3)
purchased units within a reasonable time.32
The trial court found:
Kodak would have the court believe that it did not
deliver the other two (2) units due to the failure of
defendants to make good the installments subsequent
to the second. The court is not convinced. First of all,
there should have been simultaneous delivery on
account of the circumstances surrounding the
transaction. . . . Even after the first delivery . . . no
delivery was made despite repeated demands from
the defendants and despite the fact no installments
were due. Then in March and in April (three and four
months respectively from the date of the agreement
and the first delivery) when the installments due were
both honored, still no delivery was made.
Second, although it might be said that Kodak was
testing the waters with just one delivery - determining
first defendants’ capacity to pay - it was not at liberty
to do so. It is implicit in the letter agreement that
delivery within a reasonable time was of the essence
and failure to so deliver within a reasonable time and
despite demand would render the vendor in default.
....
Third, at least two (2) checks were honored. If indeed
Kodak refused delivery on account of defendants’
inability to pay, non-delivery during the two (2)
months that payments were honored is unjustified.33
Nevertheless, the trial court also ruled that when the
Lam Spouses accepted delivery of the first unit, they
became liable for the fair value of the goods received:
On the other hand, defendants accepted delivery of
one (1) unit. Under Article 1522 of the Civil Code, in
the event the buyer accepts incomplete delivery and
uses the goods so delivered, not then knowing that
there would not be any further delivery by the seller,
the buyer shall be liable only for the fair value to him
of the goods received. In other words, the buyer is still
liable for the value of the property received.
Defendants were under obligation to pay the amount
of the unit. Failure of delivery of the other units did
not thereby give unto them the right to suspend
payment on the unit delivered. Indeed, in incomplete
deliveries, the buyer has the remedy of refusing
payment unless delivery is first made. In this case
though, payment for the two undelivered units have
not even commenced; the installments made were for
only one (1) unit.
Hence, Kodak is right to retrieve the unit delivered.34
The Lam Spouses were under obligation to pay for the
amount of one unit, and the failure to deliver the
remaining units did not give them the right to suspend
payment for the unit already delivered.35 However,
the trial court held that since Kodak Philippines, Ltd.
had elected to cancel the sale and retrieve the
delivered unit, it could no longer seek payment for any
deterioration that the unit may have suffered while
under the custody of the Lam Spouses.36
As to the generator set, the trial court ruled that
Kodak Philippines, Ltd. attempted to mislead the court
by claiming that it had delivered the generator set
with its accessories to the Lam Spouses, when the
evidence showed that the Lam Spouses had
purchased it from Davao Ken Trading, not from Kodak
Philippines, Ltd.37 Thus, the generator set that Kodak
Philippines, Ltd. wrongfully took from the Lam
Spouses should be replaced.38
The dispositive portion of the Regional Trial Court
Decision reads:
PREMISES CONSIDERED, the case is hereby
dismissed. Plaintiff is ordered to pay the following:
1) PHP 130,000.00 representing the amount
of the generator set, plus legal interest at
12% per annum from December 1992 until
fully paid; and
2) PHP 1,300,000.00 as actual expenses in
the renovation of the Tagum, Davao and
Rizal Ave., Manila outlets.
SO ORDERED.39
On March 31, 1999, the Lam Spouses filed their Notice
of Partial Appeal, raising as an issue the Regional Trial
Court’s failure to order Kodak Philippines, Ltd. to pay:
(1) ₱2,040,000 in actual damages; (2) ₱50,000,000
in moral damages; (3) ₱20,000,000 in exemplary
damages; (4) ₱353,000 in attorney’s fees; and (5)
₱300,000 as litigation expenses.40 The Lam Spouses
did not appeal the Regional Trial Court’s award for the
generator set and the renovation expenses.41
Kodak Philippines, Ltd. also filed an appeal. However,
the Court of Appeals42 dismissed it on December 16,
2002 for Kodak Philippines, Ltd.’s failure to file its
appellant’s brief, without prejudice to the continuation
of the Lam Spouses’ appeal.43 The Court of Appeals’
December 16, 2002 Resolution denying Kodak
Philippines, Ltd.’s appeal became final and executory
on January 4, 2003.44
In the Decision45 dated March 30, 2005, the Court of
Appeals Special Fourteenth Division modified the
February 26, 1999 Decision of the Regional Trial
Court:
WHEREFORE, PREMISES CONSIDERED, the
Assailed Decision dated 26 February 1999 of the
Regional Trial Court, Branch 65 in Civil Case No. 92-
3442 is hereby MODIFIED. Plaintiff-appellant is
ordered to pay the following:
1. P130,000.00 representing the amount of
the generator set, plus legal interest at 12%
per annum from December 1992 until fully
paid; and
2. P440,000.00 as actual damages;
3. P25,000.00 as moral damages; and
4. P50,000.00 as exemplary damages.
SO ORDERED.46 (Emphasis supplied)
The Court of Appeals agreed with the trial court’s
Decision, but extensively discussed the basis for the
modification of the dispositive portion.
The Court of Appeals ruled that the Letter Agreement
executed by the parties showed that their obligations
were susceptible of partial performance. Under Article
1225 of the New Civil Code, their obligations are
divisible:
In determining the divisibility of an obligation, the
following factors may be considered, to wit: (1) the
will or intention of the parties, which may be
expressed or presumed; (2) the objective or purpose
of the stipulated prestation; (3) the nature of the
thing; and (4) provisions of law affecting the
prestation.
Applying the foregoing factors to this case, We found
that the intention of the parties is to be bound
separately for each Minilab Equipment to be delivered
as shown by the separate purchase price for each of
the item, by the acceptance of Sps. Lam of separate
deliveries for the first Minilab Equipment and for those
of the remaining two and the separate payment
arrangements for each of the equipment. Under this
premise, Sps. Lam shall be liable for the entire amount
of the purchase price of the Minilab
Equipment delivered considering that Kodak had
already completely fulfilled its obligation to deliver the
same. . . .
Third, it is also evident that the contract is one that is
severable in character as demonstrated by the
separate purchase price for each of the minilab
equipment. "If the part to be performed by one party
consists in several distinct and separate items and the
price is apportioned to each of them, the contract will
generally be held to be severable. In such case, each
distinct stipulation relating to a separate subject
matter will be treated as a separate
contract." Considering this, Kodak's breach of its
obligation to deliver the other two (2) equipment
cannot bar its recovery for the full payment of the
equipment already delivered. As far as Kodak is
concerned, it had already fully complied with its
separable obligation to deliver the first unit of Minilab
Equipment.47 (Emphasis supplied)
The Court of Appeals held that the issuance of a writ
of replevin is proper insofar as the delivered Minilab
Equipment unit and its standard accessories are
concerned, since Kodak Philippines, Ltd. had the right
to possess it:48
The purchase price of said equipment is
P1,796,000.00 which, under the agreement is payable
with forty eight (48) monthly amortization. It is
undisputed that Sps. Lam made payments which
amounted to Two Hundred Seventy Thousand Pesos
(P270,000.00) through the following checks:
Metrobank Check Nos. 00892620 and 00892621 dated
31 March 1992 and 30 April 1992 respectively in the
amount of Thirty Five Thousand Pesos (P35,000.00)
each, and BPI Family Check dated 31 July 1992
amounting to Two Hundred Thousand Pesos
(P200,000.00). This being the case, Sps. Lam are still
liable to Kodak in the amount of One Million Five
Hundred Twenty Six Thousand Pesos
(P1,526,000.00), which is payable in several monthly
amortization, pursuant to the Letter
Agreement. However, Sps. Lam admitted that
sometime in May 1992, they had already ordered their
drawee bank to stop the payment on all the other
checks they had issued to Kodak as payment for the
Minilab Equipment delivered to them. Clearly then,
Kodak ha[d] the right to repossess the said
equipment, through this replevin suit. Sps. Lam
cannot excuse themselves from paying in full the
purchase price of the equipment delivered to them on
account of Kodak’s breach of the contract to deliver
the other two (2) Minilab Equipment, as contemplated
in the Letter Agreement.49(Emphasis supplied)
Echoing the ruling of the trial court, the Court of
Appeals held that the liability of the Lam Spouses to
pay the remaining balance for the first delivered unit
is based on the second sentence of Article 1592 of the
New Civil Code.50 The Lam Spouses’ receipt and use
of the Minilab Equipment before they knew that Kodak
Philippines, Ltd. would not deliver the two (2)
remaining units has made them liable for the unpaid
portion of the purchase price.51
The Court of Appeals noted that Kodak Philippines,
Ltd. sought the rescission of its contract with the Lam
Spouses in the letter dated October 14, 1992.52 The
rescission was based on Article 1191 of the New Civil
Code, which provides: "The power to rescind
obligations is implied in reciprocal ones, in case one of
the obligors should not comply with what is incumbent
upon him."53 In its letter, Kodak Philippines, Ltd.
demanded that the Lam Spouses surrender the lone
delivered unit of Minilab Equipment along with its
standard accessories.54
The Court of Appeals likewise noted that the Lam
Spouses rescinded the contract through its letter
dated November 18, 1992 on account of Kodak
Philippines, Inc.’s breach of the parties’ agreement to
deliver the two (2) remaining units.55
As a result of this rescission under Article 1191, the
Court of Appeals ruled that "both parties must be
restored to their original situation, as far as
practicable, as if the contract was never entered
into."56 The Court of Appeals ratiocinated that Article
1191 had the effect of extinguishing the obligatory
relation as if one was never created:57
To rescind is to declare a contract void in its inception
and to put an end to it as though it never were. It is
not merely to terminate it and to release parties from
further obligations to each other but abrogate it from
the beginning and restore parties to relative positions
which they would have occupied had no contract been
made.58
The Lam Spouses were ordered to relinquish
possession of the Minilab Equipment unit and its
standard accessories, while Kodak Philippines, Ltd.
was ordered to return the amount of ₱270,000.00,
tendered by the Lam Spouses as partial payment.59
As to the actual damages sought by the parties, the
Court of Appeals found that the Lam Spouses were
able to substantiate the following:
Incentive fee paid to Mr. Ruales in the amount of
P100,000.00; the rider to the contract of lease which
made the Sps. Lam liable, by way of advance
payment, in the amount of P40,000.00, the same
being intended for the repair of the flooring of the
leased premises; and lastly, the payment of
P300,000.00, as compromise agreement for the pre-
termination of the contract of lease with Ruales.60
The total amount is ₱440,000.00. The Court of
Appeals found that all other claims made by the Lam
Spouses were not supported by evidence, either
through official receipts or check payments.61
As regards the generator set improperly seized from
Kodak Philippines, Ltd. on the basis of the writ of
replevin, the Court of Appeals found that there was no
basis for the Lam Spouses’ claim for reasonable rental
of ₱5,000.00. It held that the trial court’s award of
12% interest, in addition to the cost of the generator
set in the amount of ₱130,000.00, is sufficient
compensation for whatever damage the Lam Spouses
suffered on account of its improper seizure.62
The Court of Appeals also ruled on the Lam Spouses’
entitlement to moral and exemplary damages, as well
as attorney’s fees and litigation expenses:
In seeking recovery of the Minilab Equipment, Kodak
cannot be considered to have manifested bad faith
and malevolence because as earlier ruled upon, it was
well within its right to do the same. However, with
respect to the seizure of the generator set, where
Kodak misrepresented to the court a quo its alleged
right over the said item, Kodak’s bad faith and abuse
of judicial processes become self-evident. Considering
the off-setting circumstances attendant, the amount
of P25,000.00 by way of moral damages is considered
sufficient.
In addition, so as to serve as an example to the public
that an application for replevin should not be
accompanied by any false claims and
misrepresentation, the amount of P50,000.00 by way
of exemplary damages should be pegged against
Kodak.
With respect to the attorney’s fees and litigation
expenses, We find that there is no basis to award Sps.
Lam the amount sought for.63
Kodak Philippines, Ltd. moved for reconsideration of
the Court of Appeals Decision, but it was denied for
lack of merit.64 However, the Court of Appeals noted
that the Lam Spouses’ Opposition correctly pointed
out that the additional award of ₱270,000.00 made by
the trial court was not mentioned in the decretal
portion of the March 30, 2005 Decision:
Going over the Decision, specifically page 12 thereof,
the Court noted that, in addition to the amount of Two
Hundred Seventy Thousand (P270,000.00) which
plaintiff-appellant should return to the
defendantsappellants, the Court also ruled that
defendants-appellants should, in turn, relinquish
possession of the Minilab Equipment and the standard
accessories to plaintiff-appellant. Inadvertently, these
material items were not mentioned in the decretal
portion of the Decision. Hence, the proper correction
should herein be made.65
The Lam Spouses filed this Petition for Review on April
14, 2005. On the other hand, Kodak Philippines, Ltd.
filed its Motion for Reconsideration66 before the Court
of Appeals on April 22, 2005.
While the Petition for Review on Certiorari filed by the
Lam Spouses was pending before this court, the Court
of Appeals Special Fourteenth Division, acting on
Kodak Philippines, Ltd.’s Motion for Reconsideration,
issued the Amended Decision67 dated September 9,
2005. The dispositive portion of the Decision reads:
WHEREFORE, premises considered, this Court
resolved that:
A. Plaintiff-appellant’s Motion for
Reconsideration is hereby DENIED for lack
of merit.
B. The decretal portion of the 30 March 2005
Decision should now read as follows:
"WHEREFORE, PREMISES CONSIDERED, the Assailed
Decision dated 26 February 1999 of the Regional Trial
Court, Branch 65 in Civil Cases No. 92-3442 is
hereby MODIFIED. Plaintiff-appellant is ordered to
pay the following:
a. P270,000.00 representing the partial
payment made on the Minilab equipment.
b. P130,000.00 representing the amount of
the generator set, plus legal interest at 12%
per annum from December 1992 until fully
paid;
c. P440,000.00 as actual damages;
d. P25,000.00 as moral damages; and
e. P50,000.00 as exemplary damages.
Upon the other hand, defendants-appellants are
hereby ordered to return to plaintiff-appellant the
Minilab equipment and the standard accessories
delivered by plaintiff-appellant.
SO ORDERED."
SO ORDERED.68 (Emphasis in the original)
Upon receiving the Amended Decision of the Court of
Appeals, Kodak Philippines, Ltd. filed a Motion for
Extension of Time to File an Appeal by Certiorari under
Rule 45 of the 1997 Rules of Civil Procedure before
this court.69
This was docketed as G.R. No. 169639. In the Motion
for Consolidation dated November 2, 2005, the Lam
Spouses moved that G.R. No. 167615 and G.R. No.
169639 be consolidated since both involved the same
parties, issues, transactions, and essential facts and
circumstances.70
In the Resolution dated November 16, 2005, this court
noted the Lam Spouses’ September 23 and
September 30, 2005 Manifestations praying that the
Court of Appeals’ September 9, 2005 Amended
Decision be considered in the resolution of the Petition
for Review on Certiorari.71 It also granted the Lam
Spouses’ Motion for Consolidation.72
In the Resolution73 dated September 20, 2006, this
court deconsolidated G.R No. 167615 from G.R. No.
169639 and declared G.R. No. 169639 closed and
terminated since Kodak Philippines, Ltd. failed to file
its Petition for Review.
II
We resolve the following issues:
First, whether the contract between petitioners
Spouses Alexander and Julie Lam and respondent
Kodak Philippines, Ltd. pertained to obligations that
are severable, divisible, and susceptible of partial
performance under Article 1225 of the New Civil Code;
and
Second, upon rescission of the contract, what the
parties are entitled to under Article 1190 and Article
1522 of the New Civil Code.
Petitioners argue that the Letter Agreement it
executed with respondent for three (3) Minilab
Equipment units was not severable, divisible, and
susceptible of partial performance. Respondent’s
recovery of the delivered unit was unjustified.74
Petitioners assert that the obligations of the parties
were not susceptible of partial performance since the
Letter Agreement was for a package deal consisting of
three (3) units.75 For the delivery of these units,
petitioners were obliged to pay 48 monthly payments,
the total of which constituted one debt.76 Having relied
on respondent’s assurance that the three units would
be delivered at the same time, petitioners
simultaneously rented and renovated three stores in
anticipation of simultaneous operations.77 Petitioners
argue that the divisibility of the object does not
necessarily determine the divisibility of the obligation
since the latter is tested against its susceptibility to a
partial performance.78 They argue that even if the
object is susceptible of separate deliveries, the
transaction is indivisible if the parties intended the
realization of all parts of the agreed obligation.79
Petitioners support the claim that it was the parties’
intention to have an indivisible agreement by
asserting that the payments they made to respondent
were intended to be applied to the whole package of
three units.80 The postdated checks were also
intended as initial payment for the whole
package.81 The separate purchase price for each item
was merely intended to particularize the unit prices,
not to negate the indivisible nature of their
transaction.82 As to the issue of delivery, petitioners
claim that their acceptance of separate deliveries of
the units was solely due to the constraints faced by
respondent, who had sole control over delivery
matters.83
With the obligation being indivisible, petitioners argue
that respondent’s failure to comply with its obligation
to deliver the two (2) remaining Minilab Equipment
units amounted to a breach. Petitioners claim that the
breach entitled them to the remedy of rescission and
damages under Article 1191 of the New Civil Code.84
Petitioners also argue that they are entitled to moral
damages more than the ₱50,000.00 awarded by the
Court of Appeals since respondent’s wrongful act of
accusing them of non-payment of their obligations
caused them sleepless nights, mental anguish, and
wounded feelings.85 They further claim that, to serve
as an example for the public good, they are entitled
to exemplary damages as respondent, in making false
allegations, acted in evident bad faith and in a wanton,
oppressive, capricious, and malevolent manner.86
Petitioners also assert that they are entitled to
attorney’s fees and litigation expenses under Article
2208 of the New Civil Code since respondent’s act of
bringing a suit against them was baseless and
malicious. This prompted them to engage the services
of a lawyer.87
Respondent argues that the parties’ Letter Agreement
contained divisible obligations susceptible of partial
performance as defined by Article 1225 of the New
Civil Code.88 In respondent’s view, it was the intention
of the parties to be bound separately for each
individually priced Minilab Equipment unit to be
delivered to different outlets:89
The three (3) Minilab Equipment are intended by
petitioners LAM for install[a]tion at their Tagum,
Davao del Norte, Sta. Cruz, Manila and Cotabato City
outlets. Each of these units [is] independent from one
another, as many of them may perform its own job
without the other. Clearly the objective or purpose of
the prestation, the obligation is divisible.
The nature of each unit of the three (3) Minilab
Equipment is such that one can perform its own
functions, without awaiting for the other units to
perform and complete its job. So much so, the nature
of the object of the Letter Agreement is susceptible of
partial performance, thus the obligation is divisible.90
With the contract being severable in character,
respondent argues that it performed its obligation
when it delivered one unit of the Minilab
Equipment.91 Since each unit could perform on its
own, there was no need to await the delivery of the
other units to complete its job.92 Respondent then is
of the view that when petitioners ordered the
depository bank to stop payment of the issued checks
covering the first delivered unit, they violated their
obligations under the Letter Agreement since
respondent was already entitled to full payment.93
Respondent also argues that petitioners benefited
from the use of the Minilab Equipment for 10 months—
from March to December 1992— despite having paid
only two (2) monthly installments.94 Respondent
avers that the two monthly installments amounting to
₱70,000.00 should be the subject of an offset against
the amount the Court of Appeals awarded to
petitioners.95
Respondent further avers that petitioners have no
basis for claiming damages since the seizure and
recovery of the Minilab Equipment was not in bad faith
and respondent was well within its right.96
III
The Letter Agreement contained an indivisible
obligation.
Both parties rely on the Letter Agreement97 as basis
of their respective obligations. Written by
respondent’s Jeffrey T. Go and Antonio V. Mines and
addressed to petitioner Alexander Lam, the Letter
Agreement contemplated a "package deal" involving
three (3) units of the Kodak Minilab System 22XL, with
the following terms and conditions:
This confirms our verbal agreement for Kodak Phils.,
Ltd. to provide Colorkwik Laboratories, Inc. with three
(3) units Kodak Minilab System 22XL . . . for your
proposed outlets in Rizal Avenue (Manila), Tagum
(Davao del Norte), and your existing Multicolor photo
counter in Cotabato City under the following terms
and conditions:
1. Said Minilab Equipment packages will avail
a total of 19% multiple order discount based
on prevailing equipment price provided said
equipment packages will be purchased not
later than June 30, 1992.
2. 19% Multiple Order Discount shall be
applied in the form of merchandise and
delivered in advance immediately after
signing of the contract.
* Also includes start-up packages worth
P61,000.00.
3. NO DOWNPAYMENT.
4. Minilab Equipment Package shall be
payable in 48 monthly installments at
THIRTY FIVE THOUSAND PESOS
(P35,000.00) inclusive of 24% interest rate
for the first 12 months; the balance shall be
re-amortized for the remaining 36 months
and the prevailing interest shall be applied.
5. Prevailing price of Kodak Minilab System
22XL as of January 8, 1992 is at ONE
MILLION SEVEN HUNDRED NINETY SIX
THOUSAND PESOS.
6. Price is subject to change without prior
notice.
*Secured with PDCs; 1st monthly
amortization due 45 days after
installation[.]98
Based on the foregoing, the intention of the parties is
for there to be a single transaction covering all three
(3) units of the Minilab Equipment. Respondent’s
obligation was to deliver all products purchased under
a "package," and, in turn, petitioners’ obligation was
to pay for the total purchase price, payable in
installments.
The intention of the parties to bind themselves to an
indivisible obligation can be further discerned through
their direct acts in relation to the package deal. There
was only one agreement covering all three (3) units of
the Minilab Equipment and their accessories. The
Letter Agreement specified only one purpose for the
buyer, which was to obtain these units for three
different outlets. If the intention of the parties were to
have a divisible contract, then separate agreements
could have been made for each Minilab Equipment unit
instead of covering all three in one package deal.
Furthermore, the 19% multiple order discount as
contained in the Letter Agreement was applied to all
three acquired units.99 The "no downpayment" term
contained in the Letter Agreement was also applicable
to all the Minilab Equipment units. Lastly, the fourth
clause of the Letter Agreement clearly referred to the
object of the contract as "Minilab Equipment
Package."
In ruling that the contract between the parties
intended to cover divisible obligations, the Court of
Appeals highlighted: (a) the separate purchase price
of each item; (b) petitioners’ acceptance of separate
deliveries of the units; and (c) the separate payment
arrangements for each unit.100 However, through the
specified terms and conditions, the tenor of the Letter
Agreement indicated an intention for a single
transaction. This intent must prevail even though the
articles involved are physically separable and capable
of being paid for and delivered individually, consistent
with the New Civil Code:
Article 1225. For the purposes of the preceding
articles, obligations to give definite things and those
which are not susceptible of partial performance shall
be deemed to be indivisible.
When the obligation has for its object the execution of
a certain number of days of work, the accomplishment
of work by metrical units, or analogous things which
by their nature are susceptible of partial performance,
it shall be divisible.
However, even though the object or service may be
physically divisible, an obligation is indivisible if so
provided by law or intended by the parties. (Emphasis
supplied)
In Nazareno v. Court of Appeals,101 the indivisibility of
an obligation is tested against whether it can be the
subject of partial performance:
An obligation is indivisible when it cannot be validly
performed in parts, whatever may be the nature of the
thing which is the object thereof. The indivisibility
refers to the prestation and not to the object
thereof. In the present case, the Deed of Sale of
January 29, 1970 supposedly conveyed the six lots to
Natividad. The obligation is clearly indivisible because
the performance of the contract cannot be done in
parts, otherwise the value of what is transferred is
diminished. Petitioners are therefore mistaken in
basing the indivisibility of a contract on the number of
obligors.102 (Emphasis supplied, citation omitted)
There is no indication in the Letter Agreement that the
units petitioners ordered were covered by three (3)
separate transactions. The factors considered by the
Court of Appeals are mere incidents of the execution
of the obligation, which is to deliver three units of the
Minilab Equipment on the part of respondent and
payment for all three on the part of petitioners. The
intention to create an indivisible contract is apparent
from the benefits that the Letter Agreement afforded
to both parties. Petitioners were given the 19%
discount on account of a multiple order, with the
discount being equally applicable to all units that they
sought to acquire. The provision on "no
downpayment" was also applicable to all units.
Respondent, in turn, was entitled to payment of all
three Minilab Equipment units, payable by
installments.
IV
With both parties opting for rescission of the contract
under Article 1191, the Court of Appeals correctly
ordered for restitution.
The contract between the parties is one of sale, where
one party obligates himself or herself to transfer the
ownership and deliver a determinate thing, while the
other pays a certain price in money or its
equivalent.103 A contract of sale is perfected upon the
meeting of minds as to the object and the price, and
the parties may reciprocally demand the performance
of their respective obligations from that point on.104
The Court of Appeals correctly noted that respondent
had rescinded the parties’ Letter Agreement through
the letter dated October 14, 1992.105 It likewise noted
petitioners’ rescission through the letter dated
November 18, 1992.106This rescission from both
parties is founded on Article 1191 of the New Civil
Code:
The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
The injured party may choose between the fulfilment
and the rescission of the obligation, with the payment
of damages in either case. He may also seek
rescission, even after he has chosen fulfilment, if the
latter should become impossible.
The court shall decree the rescission claimed, unless
there be just cause authorizing the fixing of a period.
Rescission under Article 1191 has the effect of mutual
restitution.107 In Velarde v. Court of Appeals:108
Rescission abrogates the contract from its inception
and requires a mutual restitution of benefits received.
....
Rescission creates the obligation to return the object
of the contract. It can be carried out only when the
one who demands rescission can return whatever he
may be obliged to restore. To rescind is to declare a
contract void at its inception and to put an end to it as
though it never was. It is not merely to terminate it
and release the parties from further obligations to
each other, but to abrogate it from the beginning and
restore the parties to their relative positions as if no
contract has been made.109 (Emphasis supplied,
citations omitted)
The Court of Appeals correctly ruled that both parties
must be restored to their original situation as far as
practicable, as if the contract was never entered into.
Petitioners must relinquish possession of the delivered
Minilab Equipment unit and accessories, while
respondent must return the amount tendered by
petitioners as partial payment for the unit received.
Further, respondent cannot claim that the two (2)
monthly installments should be offset against the
amount awarded by the Court of Appeals to
petitioners because the effect of rescission under
Article 1191 is to bring the parties back to their
original positions before the contract was entered into.
Also in Velarde:
As discussed earlier, the breach committed by
petitioners was the nonperformance of a reciprocal
obligation, not a violation of the terms and conditions
of the mortgage contract. Therefore, the automatic
rescission and forfeiture of payment clauses stipulated
in the contract does not apply. Instead, Civil Code
provisions shall govern and regulate the resolution of
this controversy.
Considering that the rescission of the contract is based
on Article 1191 of the Civil Code, mutual restitution is
required to bring back the parties to their original
situation prior to the inception of the contract.
Accordingly, the initial payment of ₱800,000 and the
corresponding mortgage payments in the amounts of
₱27,225, ₱23,000 and ₱23,925 (totaling
₱874,150.00) advanced by petitioners should be
returned by private respondents, lest the latter
unjustly enrich themselves at the expense of the
former.110 (Emphasis supplied)
When rescission is sought under Article 1191 of the
Civil Code, it need not be judicially invoked because
the power to resolve is implied in reciprocal
obligations.111 The right to resolve allows an injured
party to minimize the damages he or she may suffer
on account of the other party’s failure to perform what
is incumbent upon him or her.112 When a party fails to
comply with his or her obligation, the other party’s
right to resolve the contract is triggered.113 The
resolution immediately produces legal effects if the
non-performing party does not question the
resolution.114 Court intervention only becomes
necessary when the party who allegedly failed to
comply with his or her obligation disputes the
resolution of the contract.115 Since both parties in this
case have exercised their right to resolve under Article
1191, there is no need for a judicial decree before the
resolution produces effects.
V Since both parties were in default in the performance
The issue of damages is a factual one. A petition for
review on certiorari under Rule 45 shall only pertain
to questions of law.116 It is not the duty of this court
to re-evaluate the evidence adduced before the lower
courts.117Furthermore, unless the petition clearly
shows that there is grave abuse of discretion, the
findings of fact of the trial court as affirmed by the
Court of Appeals are conclusive upon this
court.118 In Lorzano v. Tabayag, Jr.:119
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.
....
For the same reason, we would ordinarily disregard
the petitioner’s allegation as to the propriety of the
award of moral damages and attorney’s fees in favor
of the respondent as it is a question of fact. Thus,
questions on whether or not there was a
preponderance of evidence to justify the award of
damages or whether or not there was a causal
connection between the given set of facts and the
damage suffered by the private complainant or
whether or not the act from which civil liability might
arise exists are questions of fact.
Essentially, the petitioner is questioning the award of
moral damages and attorney’s fees in favor of the
respondent as the same is supposedly not fully
supported by evidence. However, in the final analysis,
the question of whether the said award is fully
supported by evidence is a factual question as it would
necessitate whether the evidence adduced in support
of the same has any probative value. For a question
to be one of law, it must involve no examination of the
probative value of the evidence presented by the
litigants or any of them.120 (Emphasis supplied,
citations omitted)
The damages awarded by the Court of Appeals were
supported by documentary evidence.121 Petitioners
failed to show any reason why the factual
determination of the Court of Appeals must be
reviewed, especially in light of their failure to produce
receipts or check payments to support their other
claim for actual damages.122
Furthermore, the actual damages amounting to
₱2,040,000.00 being sought by petitioners123 must be
tempered on account of their own failure to pay the
rest of the installments for the delivered unit. This
failure on their part is a breach of their obligation, for
which the liability of respondent, for its failure to
deliver the remaining units, shall be equitably
tempered on account of Article 1192 of the New Civil
Code.124 In Central Bank of the Philippines v. Court of
Appeals:125
of their respective reciprocal obligations, that is,
Island Savings Bank failed to comply with its
obligation to furnish the entire loan and Sulpicio M.
Tolentino failed to comply with his obligation to pay
his ₱17,000.00 debt within 3 years as stipulated, they
are both liable for damages.
Article 1192 of the Civil Code provides that in case
both parties have committed a breach of their
reciprocal obligations, the liability of the first infractor
shall be equitably tempered by the courts. WE rule
that the liability of Island Savings Bank for damages
in not furnishing the entire loan is offset by the liability
of Sulpicio M. Tolentino for damages, in the form of
penalties and surcharges, for not paying his overdue
₱17,000.00 debt. The liability of Sulpicio M. Tolentino
for interest on his ₱17,000.00 debt shall not be
included in offsetting the liabilities of both parties.
Since Sulpicio M. Tolentino derived some benefit for
his use of the ₱17,000.00, it is just that he should
account for the interest thereon.126 (Emphasis
supplied)
The award for moral and exemplary damages also
appears to be sufficient. Moral damages are granted
to alleviate the moral suffering suffered by a party due
to an act of another, but it is not intended to enrich
the victim at the defendant’s expense.127 It is not
meant to punish the culpable party and, therefore,
must always be reasonable vis-a-vis the injury
caused.128 Exemplary damages, on the other hand,
are awarded when the injurious act is attended by bad
faith.129 In this case, respondent was found to have
misrepresented its right over the generator set that
was seized. As such, it is properly liable for exemplary
damages as an example to the public.130
However, the dispositive portion of the Court of
Appeals Amended Decision dated September 9, 2005
must be modified to include the recovery of attorney’s
fees and costs of suit in favor of petitioners.
In Sunbanun v. Go:131
Furthermore, we affirm the award of exemplary
damages and attorney’s fees. Exemplary damages
may be awarded when a wrongful act is accompanied
by bad faith or when the defendant acted in a wanton,
fraudulent, reckless, oppressive, or malevolent
manner which would justify an award of exemplary
damages under Article 2232 of the Civil Code. Since
the award of exemplary damages is proper in this
case, attorney’s fees and cost of the suit may also be
recovered as provided under Article 2208 of the Civil
Code.132 (Emphasis supplied, citation omitted)
Based on the amount awarded for moral and
exemplary damages, it is reasonable to award
petitioners ₱20,000.00 as attorney’s fees.
WHEREFORE, the Petition is DENIED. The Amended
Decision dated September 9, 2005 is AFFIRMED
with MODIFICATION. Respondent Kodak
Philippines, Ltd. is ordered to pay petitioners
Alexander and Julie Lam:

(a) P270,000.00, representing the partial

payment made on the Minilab Equipment;

(b) P130,000.00, representing the amount of

the generator set, plus legal interest at 12%
.per annum from December 1992 until fully
paid;

(c) P440,000.00 as actual damages;

(d) P25,000.00 as moral damages;

(e) P50,000.00 as exemplary damages; and

(f) P20,000.00 as attorney's fees.

Petitioners are ordered to return the Kodak Minilab

System 22XL unit and its standard accessories to
respondent.

SO ORDERED.