G.R. No.

199852 November 12, 2014

SPS. FELIPE SOLITARIOS and JULIA TORDA,Petitioners,

vs.
SPS. GASTON JAQUE and LILIA JAQUE,Respondents.

DECISION

VELASCO, JR., J.:

Nature of the Case

In this Petition for Review on Certiorari under Rule 45 of the Rules of Court, petitioners spouses Felipe Solitarios and Julia Torda
(spouses Solitarios) seek the reversal of the August 31, 2010 Decision and November 24, 2011 Resolution of the Court of Appeals
(CA) in CA-G.R. CEB-CV No. 00112, which in tum set aside the Decision of the Regional Trial Court of Calbayog City, Branch 31
(RTC), in Civil Case No. 772.

The Facts

The property subject of this suit is a parcel of agricultural land designated as Lot 4089, consisting of 40,608 square meters (sq.
m.), and located in Calbayog, Samar. It was originally registered in the name of petitioner Felipe Solitarios under Original
Certificate of Title (OCT) No. 1249, and, thereafter, in the name of the respondents, spouses Gaston and Lilia Jaque (the Jaques),
under Transfer Certificate of Title (TCT) No. 745.

In a Complaint for Ownership and Recovery of Possession with the RTC of Calbayog City, the respondents spouses Jaque alleged
that they purchased Lot 4089 from the petitioners, spouses Solitarios in stages. According to respondents, they initially bought
one-half of Lot No. 4089 for ₱7,000.00. This sale is allegedly evidenced by a notarized Deed of Sale dated May 8, 1981. Two
months later, the spouses Solitarios supposedly mortgaged the remaining half of Lot 4089 to the Jaques via a Real Estate
Mortgage (REM) dated July 15, 1981, to securea loan amounting to ₱3,000.00.

After almost two (2) years, the spouses Solitarios finally agreed to sell the mortgaged half. However, instead of executing a
separate deed of sale for the second half, they executed a Deed of Sale dated April 26, 1983 for the whole lot to save on taxes,
by making it appear that the consideration for the sale of the entire lot was only ₱12,000.00 when the Jaques actually paid
₱19,000.00 in cash and condoned the spouses Solitarios’ ₱3,000.00 loan.

On the basis of this second notarized deed, the Jaques had OCT No. 1249 cancelled and registered Lot 4089 in their name under
Transfer Certificate of Title (TCT) No. 745.

In spite of the sale, the Jaques, supposedly out of pity for the spouses Solitarios, allowed the latter to retain possession of Lot
4089, subject only to the condition that the spouses Solitarioswill regularly deliver a portion of the property’s produce. In an
alleged breach of their agreement, however, the spouses Solitarios stopped delivering any produce sometime in 2000. Worse,
the spouses Solitarios even claimed ownership over Lot 4089. Thus, the Jaques filed the adverted complaint with the RTC.

For their part, the spouses Solitarios denied selling Lot 4089 and explained that they merely mortgaged the same to the Jaques
after the latter helped them redeem the land from the Philippine National Bank (PNB).

The spouses Solitarios narrated that, way back in 1975, they obtained a loan from PNB secured by a mortgage over Lot 4089.
They were able to pay this loan and redeem their property with their own funds. Shortly thereafter, in 1976, they again mortgaged
their property to PNB to secure a ₱5,000.00 loan. This time, the Jaques volunteered to pay the mortgage indebtedness, including
interests and charges and so gave the spouses Solitarios ₱7,000.00 for this purpose. However, this accommodation was made,
so the spouses Solitarios add, with the understanding that they would pay back the Jaques by delivering to them a portion of the
produce of Lot 4089, in particular, onehalf of the produce of the rice land and one-fourth of the produce of the coconut land. The
spouses Solitarios contended that this agreement was observed by the parties until May 2000, when Gaston Jaque informed
them that he was taking possession of Lot 4089 as owner. And to their surprise, Gaston Jaque showed them the Deeds of Sale
dated May 8, 1981 and April 26, 1983, the REM contract dated July 15, 1981, and TCT No. 745 to prove his claim. The spouses
Solitarios contended that these deeds of sale were fictitious and their signatures therein forged. Further, the spouses Solitarios
challenge the validity of TCT No. 745, alleging thatthe Jaques acquired it through fraud and machinations and by taking advantage
of their ignorance and educational deficiency. Thus, they prayed that the RTC: (1) cancel TCT No. 745; (2) declare the adverted
deeds of sales dated May 8, 1981 and April 26, 1983 as null and void; (3) declare them the true and lawful owners of Lot 4089;
and (4) award them moral and actual damages.

During the course of the trial, and in compliance with the February 7, 2001 Order of the RTC, the spouses Solitarios deposited
with the court a quothe Jaques’ purported share in the produce of Lot 4089 for the years 2001-2003, which amounted to
16,635.60.1

On April 15, 2004, the RTC rendered a Decision2upholding the validity of the deeds of sale in question and TCT No. 745, rejecting
the allegations of forgery and fraud. However, in the same breath, the RTC declared that what the parties entered into was
actually an equitable mortgage as defined under Article 1602 in relation to Article 1604 of the New Civil Code, and not a sale.
Consequently, the RTC ordered, among others, the reformation of the Deeds ofSale dated May 9,1981 and April 26, 1983, and
the cancellation of TCT No. 745 in the name of the Jaques. The dispositive portion of the RTC Decision reads:

WHEREFORE, this Court dismisses the instant case and pronounces Judgment against plaintiffs and hereby orders the following:

1. Reformation of the Deed of Sale dated May 9, 1981 (Exhibit "E") and the Deed of Sale dated April 26, 1983 (Exhibit
"G") into contracts of mortgage;

2. Cancellation of TCT No. 745 in the name of spouses Gaston Jaque and Lilia Laure Jaque;

3. Considering the total mortgage debt of Php 12,000.00 as totally paid pursuant to Article 1602 of the New Civil Code;

4. Release of the amounts deposited to the Court by defendants to them minus lawful charges for their safekeeping, if
any; and

5. Payment of costs of the proceedings by the plaintiffs.

SO ORDERED.3

The RTC anchored its holding on the nature of the pertinent contracts in question on its findings that: (1) after the alleged sale,
the spouses Solitarios remained in possession ofthe land; (2) the Jaques did not physically occupy Lot 4089; (3) the consideration
for the sale of the whole land as stated in the Deed of Sale dated April 26, 1983, was only ₱12,000.00, an amount grossly
inadequate for a titled coconut and rice lands consisting of 40,608 sq. m.; (3) the Jaques did not disturb the possession of Lot
4089 by Leonora Solitarios, Felipe’s sister-in-law, who resided therein; and (4) the Jaques never had a tenant in the subject
property.

On appeal, the CA4 reversed and set aside the RTC Decision, rejecting the trial court’s holding that the contract between the
parties constituted an equitable mortgage.

The CA noted that the allegation thatthe transaction is an equitable mortgage and not one of sale was not presented before the
trial court and was raised belatedly on appeal. Even then, the CA held that the spouses Solitarios failed to convincingly prove that
the deeds of sale were sham, noting that their bare denial as to their authenticity was insufficient to overcome the positive value
of the notarized deeds of sale. The CA further found that the spouses Solitarios’ claim of inadequacy of the purchase price is
unsupported by any evidence on record and that the spouses Solitarios’ possession of Lot 4089 after the sale was not in the
concept of an owner. In addition, the appellate court gave weight to the fact that the Jaques paid the taxes on Lot 4089 since
1984. The CA, thus, concluded that based on the parties’ actuations before, during, and after the transactions, it was unmistakable
that they had no other intention but to enter into a contract of sale of Lot 4089.

Their Motion for Reconsideration having thereafter been denied by the CA in its Resolution dated November 24, 2011, the
spouses Solitarios5 have filed the instant petition.

Issue
From the foregoing narration of facts,it is abundantly clear that the only material point of inquiry is whether the parties effectively
entered into a contract of absolute sale or anequitable mortgage of Lot 4089.

The Court's Ruling

The petition is impressed with merit.

At the outset, We note that, contrary to the finding of the CA, petitioner spouses Solitarios actually presented before the RTC
their position that the real agreement between the parties was a mortgage, and not a sale. Being unlettered, petitioners may
have averred that the deeds of sale and TCT presented by respondents were forgeries, obtained as they were through fraud and
machination. However, their saying that the sale instruments were "fictitious" and their signatures thereon were "forged"
amounts to alleging that they never agreed to the sale of their lot, and they never intended to sign such conveyances. This reality
is supported by the testimony of petitioner Felipe Solitarios that was offered to prove the true intention of the parties ―that Lot
4089 was only mortgaged, not sold, to the Jaques. Before Felipe’s direct examination, his counsel stated thus-

"ATTY. MARTIRES

With the permission of the Court.This witness is one of the defendants; he will testify that the land was just mortgaged to the
plaintiff contrary to the claim of the plaintiff that the defendants sold the same to the plaintiffs; he will also testify that the
defendants never executed deed of sale in favor of the plaintiffs; he will also testify that ½ of the produce of the cocoland subject
of this case was delivered by the defendants to the plaintiffs and with regards to the riceland, ¼ of the produce was also delivered
to the plaintiffs; and he will also testify other matters related to this case."6

The Court is, therefore, not precluded from looking into the real intentions of the parties in order to resolve the present
controversy. For that reason, the Court takes guidance from Article 1370 of the Civil Code, which instructs that "if the words [of
a contract] appear to be contrary to the evident intention of the parties, the latter shall prevail over the former." Indeed, it is
firmly settled that clarity of contract terms and the name given to it does not bar courts from determining the true intent of the
parties. In Zamora vs. Court of Appeals,7 the Court elucidated that —

In determining the nature of a contract, courts are not bound by the title or name given by the parties. The decisive factor in
evaluating such agreement is the intention of the parties, as shown not necessarily by the terminology used in the contract but
by their conduct, words, actions and deeds prior to, during and immediately after executing the agreement. As such therefore,
documentary and parol evidence may be submitted and admitted to prove such intention. 8 Further, in resolving this kind of
controversy, the doctrinal teaching of Reyes vs. Court of Appeals9 impels us to give utmost consideration to the intention of the
parties in light of the relative situation of each, and the circumstances surrounding the execution of the contract, thus: In
determining whether a deed absolute in form is a mortgage, the court is not limited to the written memorials of the transaction.
The decisive factor in evaluating such agreement is the intention of the parties, as shown not necessarily bythe terminology used
in the contract but by all the surrounding circumstances, such as the relative situation of the parties at that time, the attitude,
acts, conduct, declarations of the parties, the negotiations between them leading to the deed, and generally, all pertinent facts
having a tendency to fix and determine the real nature of their design and understanding. x x x

There is no single conclusive test to determine whether a deed of sale, absolute on its face, is really a simple loan accommodation
secured by a mortgage.10 However, Article 1602 in relation to Article 1604 of the Civil Code enumerates several instances whena
contract, purporting to be, and in fact styled as, an absolute sale, is presumed to be an equitable mortgage, thus:

Art. 1602. The contract shall be presumed to be an equitable mortgage, in any of the following cases:

(1) When the price of a sale withright to repurchase is unusually inadequate;

(2) When the vendor remains inpossession as lessee or otherwise;

(3) When upon or after the expiration of the right to repurchase another instrument extending the period of
redemption or granting a new period is executed;

(4) When the purchaser retains for himself a part of the purchase price;
 (5) When the vendor binds himself to pay the taxes on the thing sold;

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall
secure the payment of a debt or the performance of any other obligation.

In any of the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be
considered as interest which shall be subject to the usury laws.11 Art. 1604. The provisions of Article 1602 shall also apply to a
contract purporting to be an absolute sale.

As evident from Article 1602 itself, the presence of anyof the circumstances set forth therein suffices for a contract to be deemed
an equitable mortgage. No concurrence or an overwhelming number is needed.12

With the foregoing in mind, We thus declare that the transaction between the parties of the present case is actually one of
equitable mortgage pursuant to the foregoing provisions ofthe Civil Code. It has never denied by respondents that the petitioners,
the spouses Solitarios, have remained in possession of the subject property and exercised acts of ownership over the said lot
even after the purported absolute sale of Lot 4089. This fact is immediately apparent from the testimonies of the parties and the
evidence extant on record, showing that the real intention of the parties was for the transaction to secure the payment of a debt.
Nothing more.

Petitioner’s Possession of the Subject Property after the Purported Sale

During pre-trial, the Jaques admitted that the spouses Solitarios were in possession of the subject property. 13 Gaston Jaque
likewise confirmed that petitioners were allowed to produce copra and till the rice field, which comprise one-half of the lot that
was previously covered by the real estate mortgage, after said portion was allegedly sold to them.14

This Court had held that a purportedcontract of sale where the vendor remains in physical possession of the land, as lessee or
otherwise, is an indiciumof an equitable mortgage.15 In Rockville v. Sps. Culla,16 We explained that the reason for this rule lies in
the legal reality that in a contract of sale, the legal title to the property is immediately transferred to the vendee. Thus, retention
by the vendor of the possession of the property is inconsistent with the vendee’s acquisition of ownership under a true sale. It
discloses, in the alleged vendee, a lack of interest in the property that belies the truthfulness of the sale.

During the period material to the present controversy, the petitioners, spouses Solitarios, retained actual possession of the
property. This was never disputed. If the transaction had really been one of sale, as the Jaques claim, they should have asserted
their rights for the immediate delivery and possession of the lot instead of allowing the spouses Solitarios to freely stay in the
premises for almost seventeen (17) years from the time of the purported sale until their filing ofthe complaint. Human conduct
and experience reveal that an actual owner of a productive land will not allow the passage of a long period of time, as in this case,
without asserting his rights of ownership.

Further, Gaston Jaque first claimed possession of the subject property through his mother-in-law, and then through hired workers
when the latter passed away;17 not personally. It is also undisputed that the Jaques never installed a tenant on Lot 4089 and did
not disturb the Solitarios’ possession of the same.18On this note, We agree with the finding of the RTC that the Jaques’ alleged
possession of the subject property is suspect and unsubstantial, and they never possessed the same in the concept of owners,
viz:

Even as to the first half portion of the land allegedly sold by the defendants to the plaintiffs, the evidence too tends to show that
the plaintiffs did not really possess it asowners. Plaintiffs’ evidence with regards to their possession over this portion is very
doubtful. According to plaintiff Gaston Jaque when he testified in Court, they possessed this portion through his mother-in-law
till she died in 1992 or 1992: that when she died, they possessed it already through hired workers. However, in the statement of
facts of the resolution of the public prosecutor in the case of Qualified Theft which plaintiffs filed against the defendants, it is
clearly shown that the plaintiffs stated thatthe defendants took possession of the entire property since 1983 yet.

On the other hand, in this case, they are now claiming that it was actually in the year 2000 that the defendants bid claim on this
land.

xxxx
Third, the fact that defendants’ witness Leonora Solitarios [Felipe’s sister] resides and has a house in the land in question without
having been disturbed by the plaintiffs and the fact that the plaintiffs never have a tenant in the land even if they reside in Cebu
City also show in some manner that they are not really the owners of the land, but the defendants.19

Not only is there a presumption that the deeds of sale are an equitable mortgage, it has been amply demonstrated by petitioners
that the deed of sale is intended to be one of mortgage based on the proof presented by petitioners and propped up even by the
admissions of respondents. The intention of the parties was for the transaction to secure the payment of a debt

To stress, Article 1602(6) of the Civil Code provides that a transaction is presumed to be an equitable mortgage:

(6) In any other case where it may be fairly inferred that the real intention of the parties is that the transaction shall secure the
payment of a debt or the performance of any other obligation.

This provision may very well be applied in this case. There is sufficient basis to indulge in the presumption that the transaction
between the parties was that of an equitable mortgage and that the spouses Solitarios never wanted to sell the same to the
Jaques.

The foregoing presumption finds support in the following: First, the very testimony of Gaston Jaque and the documents he
presented establish the existence of two loans, which the Jaques extended to the spouses Solitarios, that were secured by the
subject property; and, second, the testimonies of the parties reveal that they came to an agreement as to how these loans would
be paid.

The first loan was contracted when Gaston Jaque gave the spouses Solitarios ₱7,000.00 to help them redeem the subject property
from PNB.20 In effect, by extending the ₱7,000.00 financial assistance to the spouses Solitarios, Gaston Jaque took over the loan,
became the lender and assumed the role of mortgagee in place of PNB.

Thereafter, the spouses Solitarios obtained a second loan from the Jaques amounting to ₱3,000.00. This is evidenced by an REM
dated July 15, 1981 by virtue of which the spouses Solitarios mortgaged one-half of the subject property to the Jaques to secure
the payment of said loan.

The parties testified that they entered into a verbal agreement on the sharing of the produce of the subject property. For his part,
it seemed that Gaston Jaque wanted to impress upon the lower court that this sharing agreement was fixed as a condition for his
allowing the Solitarios’ continued possession and cultivation of the subject property. However, there is a strong reason to believe
that this arrangement was, in fact, a payment scheme for the debts that the spouses Solitarios incurred.

During his testimony, Felipe Solitarios explained that after the Jaques gave him funds to redeemthe property from PNB, they
entered into an agreement on the sharing of the produce and that this arrangement would last until they shall have redeemed
the land from the Jaques. We note that this assertion by Felipe Solitarios was never refuted on cross or re-cross examination.
Felipe Solitarios explained–

DIRECT EXAMINATION BY

ATTY. MELINDA MARTIRES

Q When did Lilia Jaque give you the money to redeem the mortgage indebtedness from the Philippine National Bank?

A In 1976

Q How much did she give you?

A ₱5,000.00

Q After giving you the amount of 5,000.00 to be used to redeem the mortgage indebtedness, was there any agreement between
you and Lilia Jaque?
A Our agreement was, on the produce of the riceland, she will be given 1/4 and on the coconut land 1/2. 21

xxx xxx xxx

Q Where were the spouses when the land was already redeemed from the PNB?

A They were in Cebu.

Q So, to whom did you deliver their share of the produce of the land?

A To Yaning, the mother of Ma Lilia.

Q When did you start delivering the share of the plaintiff of the land in question?

A From the time I mortgaged this land to them.

Q You mean to say from 1976?

A Yes.

Q How many times did you deliver tothe parents of the plaintiffs the share of the plaintiffs ofthe produce of the land?

A Every harvest, we deliver their share and everytime we make copra, we also deliver their share to Ma Yaning.

xxx xxx xxx

ATTY. MARTIRES

Q Per condition with the plaintiffs which you have told us a while ago, for how long will you deliver their share?

A Every harvest we have to give their share because we have not yet redeemed the land.

Q So there was no duration of your giving their share of the land?

A If I desire to redeem the land from them.22

Furthermore, Gaston Jaque himself testified receiving a portion of the produce of the subject property preciselybecause of the
loan covered by the July 15, 1981 REM.23

It is, thus, clear from the foregoing that the Jaques extended two loans to the spouses Solitarios, who in exchange, offered tothe
former the subject property, not to transfer ownership thereto, but to merely secure the payment of their debts. This may be
deduced from the testimonies of both Felipe Solitarios and Gaston Jaque, revealing the fact that they agreed upon terms for the
payment of the loans, in particular, the sharing in the produce of the lot.

Verily, the fact that the parties agreed on payment terms is inconsistent with the claim of the Jaques that when the spouses
Solitarios executed the questioned deeds of sale they had no other intention but to transfer ownership over the subject property.

Thus, there is ground to presume that the transaction between the parties was an equitable mortgage and not a sale. There is
nothing in the records sufficient enough to overturn this presumption.

The contracts of sale and mortgage are of doubtful veracity

Furthermore, an examination of the transaction documents casts doubts on their validity. As alleged by petitioners, their
signatures therein appear to be forged. We distinctlyobserve that each of the three (3) documents bears different versions of
petitioner Julia Solitarios’ signatures. First, on the first page of the 1981 Deed of Sale, particularly on the space provided for Julia
Solitarios to express her marital consent to the sale, the signature "Julia Torda Solitarios" appears.24 What is strange is that in the
acknowledgement page of the very same document, Julia Solitarios purportedly signed as "Julia T. Solitarios,"25 which is obviously
different from the signature appearing on the first page. Further, while the 1981 REM document contains the signature "Julia
Turda,"26 the 1983 Deed of Sale bears the signature "Julia Torda." These discrepancies suggest that the documents were signed
by different persons.

Nevertheless, assuming arguendo that these documents were really signed by petitioners, there is reason to believe that they
did so without understanding their real nature and thatthe Jaques never explained to them the effects and consequencesof
signing the same.

In negotiating the transactions, the parties did not deal with each other on equal terms

The Civil Code provisions that consider certain types of sales as equitable mortgages are intended for the protection of the
unlettered such as the spouses Solitarios, who are penurious vis-à-vis their creditors.27 In Cruz v. Court of Appeals,28 the Court
held -

Vendors covered by Art. 1602 usually find themselves in an unequal position when bargaining with the vendees, and will readily
sign onerous contracts to get the money they need. Necessitous men are not really free men in the sense that toanswer a pressing
emergency they will submit to any terms that the crafty may impose on them. This is precisely the evil that Art. 1602 seeks to
guard against. The evident intent of the provision is to give the supposed vendor maximum safeguards for the protection of his
legal rights under the true agreement of the parties.

Without doubt, the spouses Solitarios need the protection afforded by the Civil Code provisions on equitable mortgage. Certainly,
the parties were negotiating on unequal footing. As opposed to the uneducated29 and impoverished farmer, Felipe
Solitarios,30 Gaston Jaque, was a 2nd Lieutenant of the Armed Forces of the Philippines when he retired. 31 Further, Felipe
Solitarios was constantly infinancial distress. He was constantly in debt and in dire financial need. That he borrowed money from
the PNB twice, first in 1975 then in 1976, and mortgaged the subject property to the Jaques suggest as much.

While Felipe Solitarios was able to settle his 1975 loan and redeem the mortgage with his own money,32 he no longer had enough
funds to redeem the subject property after obtaining a loan in 1976. Thus, he was impelled to borrow money from the Jaques to
get his property back in 1981. Shortly after, on July 15, 1981, Felipe Solitarios, again indesperate need, borrowed money from
Gaston Jaque and mortgaged to the latter a portion of the subject property.

It is, therefore, not difficult to imagine that Felipe Solitarios quickly consented to arrangements proposed to him by a seemingly
trustworthy Gaston Jaque, and mindlessly signed instrumental documents that were never explained to him and he never fully
understood but nonetheless assured him of fast cash and easy payment terms. What the court a quo wrote in this regard merits
concurrence:

Still another fact which militates against plaintiffs’ cause is their failure to prove during trial that they really endeavored to explain
to the defendants the real nature of the contract they were entering into, it appearing that the defendants are of low education
compared to them especially plaintiff Gaston Jaque who is a retired military officer. The law requires that in case one of the
partiesto a contract is unable to read (or maybe of low education), and fraud isalleged, the person enforcing the contract must
show that the term thereof have been fully explained to the former (Spouses Nena Arriola and Francisco Adolfo, et.al. vs.
Demetrio Lolita, Pedro, Nena, Braulio and Dominga, all surnamed Mahilum, et. al. G.R. No. 123490, August 9, 2000). 33

The law favors the least transmission of rights

It is further established that when doubt exists as to the true nature of the parties’ transaction, courts must construe such
transaction purporting to be a sale as an equitable mortgage, as the latter involves a lesser transmission of rights and interests
over the property in controversy.34 Thus, in several cases, the Court has not hesitated to declare a purported contract of sale to
be an equitable mortgage based solely on one of the enumerated circumstances under Article 1602. So it should be in the present
case.
In Sps. Raymundo v. Sps. Bandong,35 the Court observed that it is contrary to human experience that a person would easily part
with his property after incurring a debt. Rather, he would first look for means to settle his obligation, and the selling of a
propertyon which the house that shelters him and his family stands, would be his last resort.

Here, the Court finds the spouses Solitarios’ alleged sale of the subject property in favor of the Jaques simply contrary to normal
human behavior. Be it remembered that the spouses Solitarios depended much on this property as source of income and
livelihood. Further, they made use of it to obtain and secure badly needed loans. This property was so important to them that
they had to borrow money from the Jaques to raise funds to ensure its redemption. Furthermore, even after the supposed sale,
the spouses Solitarios remained tied to this land asthey never left it to live in another place and continued tilling and cultivating
the same. Thus, considering how valuable this land was to the spouses Solitarios, being their main, if not, only source of income,
it is hard to believe that they would easily part with it and sell the same to another.

Furthermore, it is also difficult to understand why, after going through all the complications in redeeming the property from PNB,
the spouses Solitarios would simply transfer this tothe Jaques. It is inconceivable that the spouses Solitarios would sell their
property just to pay the PNB loan. It is more believable that, if at all, they conveyed their land on a temporary basis only, without
any intention to transfer ownership thereto and with the assurance that upon the payment of their debts, the same would be
returned to them.

The only reasonable conclusion that may be derived from the execution of the Deeds of Sale in favor of the Jaques is to ensure
that the Solitarios will pay their obligation.

The transfer of the subject property is a pactum commissorium

Further, We cannot allow the transfer of ownership ofLot 4098 to the Jaques as it would amount to condoning the prohibited
practice of pactum comissorium. Article 2088 of the Civil Code clearly provides that a creditor cannot appropriate or consolidate
ownership over a mortgaged property merely upon failure of the mortgagor to pay a debt obligation, 36 viz.:

Art. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or dispose of them. Any stipulation to
the contrary is null and void.

The essence of pactum commissorium is that ownership of the security will pass to the creditor by the mere default of the debtor.
This Court has repeatedly declared such arrangements as contrary to morals and public policy.37

As We have repeatedly held, the only right of a mortgagee in case of non-payment of debt secured by mortgage would be to
foreclose the mortgage and have the encumbered property sold to satisfy the outstanding indebtedness. The mortgagor’s default
does not operate to automatically vest on the mortgagee the ownership of the encumbered property, for any such effect is
against public policy, as earlier indicated.38

Applying the principle of pactum commissorium to equitable mortgages, the Court, in Montevirgen vs. CA, 39 enunciated that the
consolidation of ownership in the person of the mortgagee in equity, merely upon failure of the mortgagor in equityto pay the
obligation, would amount to a pactum commissorium.The Court further articulated that if a mortgagee in equity desires to obtain
title to a mortgaged property, the mortgagee’s proper remedy is to cause the foreclosure of the mortgage in equity and buy it at
a foreclosure sale.

In Sps. Cruz vs. CA,40 the Court again reiteratedthat, in an equitable mortgage, perfect title over the mortgaged property may not
be secured in a pactum commissorium fashion, but only by causing the foreclosure of the mortgage and buying the same in an
auction sale. The Court held –

Indeed, all the circumstances, taken together, are familiar badges of an equitable mortgage. Private respondents could not in a
pactum commissorium fashion appropriate the disputed property for themselves as they appeared to have done; otherwise, their
act will not be countenanced by this Court being contrary to goodmorals and public policy hence void. If they wish to secure a
perfect title over the mortgaged property, they should do so in accordance with law, i.e., by foreclosing the mortgage and buying
the property in the auction sale.
It does not appear, under the premises, that the Jaques availed themselves of the remedy of foreclosure, or that they bought the
subject property in an auction sale after the spouses Solitarios failed to pay their debt obligation. What seems clear is that the
Jaques took advantage of the spouses Solitarios’ intellectual and educational deficiency and urgent need of money and made it
appear that the latter executed in their favor the questioned Deeds of Sale, thereby automatically appropriating unto themselves
the subject property upon their debtors’ default. The amount reflected in the 1981 Deedof Sale is telling. The sum of ₱7,000.00
representing the alleged purchase price of one-half of the subject property in the 1981 Deed of Sale is actually the amount
advanced to the spouses Solitarios by way of loan. Other than the testimony of Gaston Jaque, there is no evidence showing that
this purchase price was actually paid or that the subject property was bought in a foreclosure sale.

Further, it can be gleaned from the testimony of Gaston Jaque that when the spouses Solitarios failed to pay their loan of
₱3,000.00, reflected in the July 15, 1981 REM covering the remaining half of the subject property,41 the Jaques did not foreclose
the mortgage and purchase the said lot in an auction sale. Rather, they supposedly bought the lot directly from the spouses
Solitarios and offset the loan amount against a portion of the supposed purchase price they agreed upon. 42

Indubitably, the subject property was transferred to the Jaques in a prohibited pactum commisorium manner and, therefore,
void. Thus, the foregoing transaction and the registration of the deeds of sale, by virtue of which the Jaques were able to obtain
the impugned TCT No. 745 must be declared void.43

Furthermore, given that the transaction between the parties is an equitable mortgage, this means that the title to the subject
property actually remained with Felipe Solitarios, as owner-mortgagor, conformably with the well-established doctrine that the
mortgagee does not become the owner of the mortgaged property because the ownership remains with the mortgagor.44 Thus,
Felipe Solitarios’ ownership over the subject property is not affected by the fact that the same was already registered in the name
of the Jaques. The pronouncement in Montevirgen v. Court of Appeals is instructive:

x x x Equity looks through the form and considers the substance, and no kind of engagement can be allowed which will enable
the parties to escape from the equitable doctrine adverted to. In other words, a conveyance of land, accompanied by registration
in the name of the transferee and the issuance of a new certificate, is no more secured from the operation of this equitable
doctrine than the most informal conveyance that could be devised.

Finally, the circumstance that the original transaction was subsequently declared to be an equitable mortgage must mean that
the title to the subject landwhich had been transferred to private respondents actually remained or is transferred back to
petitioners herein as ownersmortgagors, conformably to the well-established doctrine that the mortgagee does not become the
owner of the mortgaged property because the ownership remains with the mortgagor (Art. 2088, New Civil Code). 45

Finally, We agree with the RTC that the mortgage debt of the spouses Solitarios had been fully paid.1âwphi1This holds true
whether the amount of the debt is ₱12,000.00, as found by the RTC or ₱22,000.00, the amount which the Jaques claim they paid
for the subject property. The RTC elucidated as follows -

2. The total mortgage debt of Php12,000.00 which was the consideration in Exh. "G" is deemed totally paid.

This finding is based on the last paragraph of Article 1602 of the New Civil Code of the Philippines which provides that "In any of
the foregoing cases, any money, fruits, or other benefit to be received by the vendee as rent or otherwise shall be considered as
interest which shall be subject to the usury laws." (underscoring ours)

If this Court will take at its face value plaintiffs’ claim in their complaint that they get Php10,000.00 every quarter or Php40,000.00
a year from the coconut portion and Php5,000.00 every planting season or Php10,000.00 a year from the rice land portion of the
subject land, then plaintiffs could have earned Php50,000.00 a year or more or less one million pesos already when they filed this
case in the year 2000.

But this Court has given more credence to defendants’ assertion that from 1976 to 2000, hewas giving the one-half share of the
plaintiffs from the proceeds of the copras and rice land to plaintiffs’ alleged caretaker, Yaning. So, if the produce of the land in
question as claimed by the plaintiffs is about Php50,000.00 a year, one-half (1/2) of it would be Php25,000.00 which is 25 times
higher than the Php1,000.00 interest at 12% per year for the alleged purchase price of Php12,000.00 of the land in question. The
Php24,000.00 excess interest would have already been sufficient to pay even the principal of Php12,000.00. Thus, clearly, the
Php12,000.00 purchase price of the land should now be considered fully paid.
 WHEREFORE, premises considered, the petition is GRANTED. The assailed August 31, 2010 Decision and November 24, 2011
Resolution of the Court of Appeals in CA-G.R. CEB-CV No. 00112 are, thus, SET ASIDE. The Decision of the Regional Trial Court,
Calbayog City Branch 21 in Civil Case No. 772 is REINSTATED, with modification that the reformation of the Deeds of Absolute
Sale dated May 9, 1981 and April 26, 1983 is deleted as it is unnecessary, and that the transfer of the title to the name of
petitioners shall be exempt from registration fees and taxes and other charges. As Modified, the Decision of the trial court shall
read:

WHEREFORE, this Court dismisses the instant case and pronounces Judgment against plaintiffs and hereby orders the following:

1. TCT No. 745 in the name of spouses Gaston Jaque and Lilia Laure Jaque is declared void and cancelled. Furthermore,
the Register of Deeds of the City of Calbayog is ordered to issue a new title in the name of petitioners Felipe Solitarios
and Julia Torda without need of payment of registration fees, taxes, and other charges;

2. The total mortgage debt is considered and deemed totally paid pursuant to Article 1602 of the New Civil Code;

3. The amounts deposited to the Court by defendants Solitarios are ordered released to plaintiffs Spouses Gaston and
Lilia Jaque minus lawful charges for their safekeeping, if any; and

4. The costs of the proceedings shall be paid by the plaintiffs.

SO ORDERED.

assisted by her

-G.R. CV No. 03269 which affirmed the decision of the trial court in favor of the private respondents in an action to recover the petitioners' time deposits in the respond

ereafter "CAMS Trading" for brevity). To guaranty payment for her cement withdrawals, she executed in favor of Cams Trading deeds of assignment of her time deposit

d CAMS TRADING ENTERPRISES, INC. on account of my cement withdrawal from said company, per separate contract executed between us.
It asked that it be allowed to encash the time deposit certificates which had been assigned to it by Mrs. Chu. It submitted to the Bank a letter dated July 18, 1980 of M
encash the certificates.It delivered to Cams Trading the sum of P283,737.75 only, as one time deposit certificate (No. 0048120954) lacked the proper signatures. Upon b
Regional Trial Court of Makati, Metro Manila (then CFI of Rizal, Pasig Branch XIX), as Civil Case No. 38861.

r an exchange of "peso for peso," the provision in Article 2112 of the Civil Code for the sale of the thing pledged at public auction to convert it into money to satisfy the

e. A pacto commissorio is a provision for the automatic appropriation of the pledged or mortgaged property by the creditor in payment of the loan upon its maturity. The
ase, the security for the debt is also money deposited in a bank, the amount of which is even less than the debt, it was not illegal for the creditor to encash the time dep

nd not to have been proven for the evidence which the debtor sought to present on appeal, were receipts for payments made prior to July 18, 1980. Since the petitioner
e creditor to secure the payment of her debt, was proper. The Court of Appeals did not commit a reversible error in holding that it was so.

ROBERTO C. SICAM and AGENCIA G.R. NO.159617

de R.C. SICAM, INC.,

Petitioners,

Present:

YNARES-SANTIAGO, J.,

Chairperson,

- versus - AUSTRIA-MARTINEZ,

CHICO-NAZARIO, and

NACHURA, JJ.

LULU V. JORGE and CESAR

JORGE, Promulgated:

Respondents. August 8, 2007

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

DECISION

AUSTRIA-MARTINEZ, J.:

Before us is a Petition for Review on Certiorari filed by Roberto C. Sicam, Jr. (petitioner Sicam) and Agencia de R.C. Sicam, Inc.

(petitioner corporation) seeking to annul the Decision[1] of the Court of Appeals dated March 31, 2003, and its Resolution[2] dated
August 8, 2003, in CA G.R. CV No. 56633.

It appears that on different dates from September to 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 Homes Paraaque, Metro Manila, to secure a loan in the

total amount of P59,500.00.

On October 19, 1987, two armed men entered the pawnshop and took away whatever cash and jewelry were found inside the
pawnshop vault. The incident was entered in the police blotter of the Southern Police District, Paraaque Police Station as follows:
 Investigation shows that at above TDPO, while victims were inside the office, two (2) male unidentified persons
entered into the said office with guns drawn. Suspects(sic) (1) went straight inside and poked his gun toward
Romeo Sicam and thereby tied him with an electric wire while suspects (sic) (2) poked his gun
toward Divina Mata and IsabelitaRodriguez and ordered them to lay (sic) face flat on the floor. Suspects asked
forcibly the case and assorted pawned jewelries items mentioned above.

Suspects after taking the money and jewelries fled on board a Marson Toyota unidentified plate number.[3]

Petitioner Sicam sent respondent Lulu a letter dated October 19, 1987 informing her of the loss of her jewelry due to the robbery

incident in the pawnshop. On November 2, 1987, respondent Lulu then wrote a letter[4]to petitioner Sicam expressing disbelief

stating that when the robbery happened, all jewelry pawned were deposited with Far East Bank near the pawnshop since it had

been the practice that before they could withdraw, advance notice must be given to the pawnshop so it could withdraw the

jewelry from the bank. Respondent Lulu then requested petitioner Sicam to prepare the pawned jewelry for withdrawal
on November 6, 1987 but petitioner Sicam failed to return the jewelry.

On September 28, 1988, respondent Lulu joined by her husband, Cesar Jorge, filed a complaint against petitioner Sicam with the

Regional Trial Court of Makati seeking indemnification for the loss of pawned jewelry and payment of actual, moral and
exemplary damages as well as attorney's fees. The case was docketed as Civil Case No. 88-2035.

Petitioner Sicam filed his Answer contending that he is not the real party-in-interest as the pawnshop was incorporated on April
20, 1987 and known as Agencia de R.C. Sicam, Inc; that petitioner corporation had exercised due care and diligence in the
safekeeping of the articles pledged with it and could not be made liable for an event that is fortuitous.

Respondents subsequently filed an Amended Complaint to include petitioner corporation.

Thereafter, petitioner Sicam filed a Motion to Dismiss as far as he is concerned considering that he is not the real party-in-interest.
Respondents opposed the same. The RTC denied the motion in an Order dated November 8, 1989.[5]
After trial on the merits, the RTC rendered its Decision[6] dated January 12, 1993, dismissing respondents complaint as well as

petitioners counterclaim. The RTC held that petitioner Sicam could not be made personally liable for a claim arising out of a

corporate transaction; that in the Amended Complaint of respondents, they asserted that plaintiff pawned assorted jewelries in

defendants' pawnshop; and that as a consequence of the separate juridical personality of a corporation, the corporate debt or

credit is not the debt or credit of a stockholder.

The RTC further ruled that petitioner corporation could not be held liable for the loss of the pawned jewelry since it had not been

rebutted by respondents that the loss of the pledged pieces of jewelry in the possession of the corporation was occasioned by

armed robbery; that robbery is a fortuitous event which exempts the victim from liability for the loss, citing the case of Austria v.

Court of Appeals;[7] and that the parties transaction was that of a pledgor and pledgee and under Art. 1174 of the Civil Code, the
pawnshop as a pledgee is not responsible for those events which could not be foreseen.

Respondents appealed the RTC Decision to the CA. In a Decision dated March 31, 2003, the CA reversed the RTC,
the dispositiveportion of which reads as follows:

WHEREFORE, premises considered, the instant Appeal is GRANTED, and the Decision dated January 12, 1993,of
the Regional Trial Court of Makati, Branch 62,is hereby REVERSED and SET ASIDE, ordering the appellees to pay
appellants the actual value of the lost jewelry amounting to P272,000.00, and attorney' fees of P27,200.00.[8]

In finding petitioner Sicam liable together with petitioner corporation, the CA applied the doctrine of piercing the veil of corporate

entity reasoning that respondents were misled into thinking that they were dealing with the pawnshop owned by

petitioner Sicam as all the pawnshop tickets issued to them bear the words Agencia de R.C. Sicam; and that there was no

indication on the pawnshop tickets that it was the petitioner corporation that owned the pawnshop which explained why
respondents had to amend their complaint impleading petitioner corporation.

The CA further held that the corresponding diligence required of a pawnshop is that it should take steps to secure and protect

the pledged items and should take steps to insure itself against the loss of articles which are entrusted to its custody as it derives
earnings from the pawnshop trade which petitioners failed to do; that Austria is not applicable to this case since the robbery

incident happened in 1961 when the criminality had not as yet reached the levels attained in the present day; that they are at

least guilty of 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 CA concluded that both petitioners should be jointly and severally held liable to respondents for the loss of the pawned
jewelry.

Petitioners motion for reconsideration was denied in a Resolution dated August 8, 2003.

Hence, the instant petition for review with the following assignment of errors:

THE COURT OF APPEALS ERRED AND WHEN IT DID, IT OPENED ITSELF TO REVERSAL, WHEN IT ADOPTED
UNCRITICALLY (IN FACT IT REPRODUCED AS ITS OWN WITHOUT IN THE MEANTIME ACKNOWLEDGING IT) WHAT
THE RESPONDENTS ARGUED IN THEIR BRIEF, WHICH ARGUMENT WAS PALPABLY UNSUSTAINABLE.

THE COURT OF APPEALS ERRED, ANDWHEN IT DID, IT OPENED ITSELF TO REVERSAL BY THIS HONORABLE
COURT, WHEN IT AGAIN ADOPTED UNCRITICALLY (BUT WITHOUT ACKNOWLEDGING IT) THE SUBMISSIONS OF
THE RESPONDENTS IN THEIR BRIEF WITHOUT ADDING ANYTHING MORE THERETO DESPITE THE FACT THAT THE
SAID ARGUMENT OF THE RESPONDENTS COULD NOT HAVE BEEN SUSTAINED IN VIEW OF UNREBUTTED
EVIDENCE ON RECORD.[9]

Anent the first assigned error, petitioners point out that the CAs finding that petitioner Sicam is personally liable for the loss of
the pawned jewelries is a virtual and uncritical reproduction of the arguments set out on pp. 5-6 of the Appellants brief.[10]

Petitioners argue that the reproduced arguments of respondents in their Appellants Brief suffer from infirmities, as follows:

(1) Respondents conclusively asserted in paragraph 2 of their Amended Complaint that Agencia de
R.C. Sicam, Inc. is the present owner of Agencia de R.C. SicamPawnshop, and therefore, the CA cannot rule
against said conclusive assertion of respondents;

(2) The issue resolved against petitioner Sicam was not among those raised and litigated in the trial court;
and
 (3) By reason of the above infirmities, it was error for the CA to have pierced the corporate veil since a
corporation has a personality distinct and separate from its individual stockholders or members.

Anent the second error, petitioners point out that the CA finding on their negligence is likewise an unedited reproduction of
respondents brief which had the following defects:

(1) There were unrebutted evidence on record that petitioners had observed the diligence
required of them, i.e, they wanted to open a vault with a nearby bank for purposes of safekeeping the
pawned articles but was discouraged by the Central Bank (CB) since CB rules provide that they can only store
the pawned articles in a vault inside the pawnshop premises and no other place;

(2) Petitioners were adjudged negligent as they did not take insurance against the loss of the
pledged jelweries, but it is judicial notice that due to high incidence of crimes, insurance companies refused
to cover pawnshops and banks because of high probability of losses due to robberies;

(3) In Hernandez v. Chairman, Commission on Audit (179 SCRA 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.

Respondents filed their Comment and petitioners filed their Reply thereto. The parties subsequently submitted their respective
Memoranda.

We find no merit in the petition.

To begin with, although it is true that indeed the CA findings were exact reproductions of the arguments raised in respondents

(appellants) brief filed with the CA, we find the same to be not fatally infirmed. Upon examination of the Decision, we find that it

expressed clearly and distinctly the facts and the law on which it is based as required by Section 8, Article VIII of the Constitution.

The discretion to decide a case one way or another is broad enough to justify the adoption of the arguments put forth by one of
the parties, as long as these are legally tenable and supported by law and the facts on records.[11]
Our jurisdiction under Rule 45 of the Rules of Court is limited to the review of errors of law committed by the appellate

court.Generally, the findings of fact of the appellate court are deemed conclusive and we are not duty-bound to analyze and

calibrate all over again the evidence adduced by the parties in the court a quo.[12]This rule, however, is not without exceptions,

such as where the factual findings of the Court of Appeals and the trial court are conflicting or contradictory [13] as is obtaining in
the instant case.

However, after a careful examination of the records, we find no justification to absolve petitioner Sicam from liability.

The CA correctly pierced the veil of the corporate fiction and adjudged petitioner Sicam liable together with petitioner
corporation. The rule is that the veil of corporate fiction may be pierced when made as a shield to perpetrate fraud and/or confuse
legitimate issues. [14] The theory of corporate entity was not meant to promote unfair objectives or otherwise to shield them. [15]

Notably, the evidence on record shows that at the time respondent Lulu pawned her jewelry, the pawnshop was owned by

petitioner Sicam himself. As correctly observed by the CA, in all the pawnshop receipts issued to respondent Lulu in September

1987, all bear the words Agenciade R. C. Sicam, notwithstanding that the pawnshop was allegedly incorporated in April 1987. The

receipts issued after such alleged incorporation were still in the name of Agencia de R. C. Sicam, thus inevitably misleading, or at

the very least, creating the wrong impression to respondents and the public as well, that the pawnshop was owned solely by
petitioner Sicam and not by a corporation.

Even petitioners counsel, Atty. Marcial T. Balgos, in his letter[16] dated October 15, 1987 addressed to the Central Bank, expressly

referred to petitioner Sicam as the proprietor of the pawnshop notwithstanding the alleged incorporation in April 1987.

We also find no merit in petitioners' argument that since respondents had alleged in their Amended Complaint that petitioner
corporation is the present owner of the pawnshop, the CA is bound to decide the case on that basis.

Section 4 Rule 129 of the Rules of Court provides that an admission, verbal or written, made by a party in the course of the

proceedings in the same case, does not require proof. The admission may be contradicted only by showing that it was made
through palpable mistake or that no such admission was made.
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.[17]

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 shows that 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 diligence 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 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. SicamPawnshop 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.

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 business initiated by him was incorporated and known as Agenciade R.C. Sicam. In the pre-trial brief filed

by petitioner Sicam, he submitted that as far as he was concerned, the basic issue was whether he is the real party in interest

against whom the complaint should be directed.[20] In fact, he subsequently moved for the dismissal of the complaint as to him

but was not favorably acted upon by the trial court. Moreover, the issue was squarely passed upon, although erroneously, by the
trial court in its Decision in this manner:

x x x The defendant Roberto Sicam, Jrlikewise denies liability as far as he is concerned for the reason that he
cannot be made personally liable for a claim arising from a corporate transaction.

This Court sustains the contention of the defendant Roberto C. Sicam, Jr. The amended complaint itself
asserts that plaintiff pawned assorted jewelries in defendant's pawnshop. It has been held that as a
consequence of the separate juridical personality of a corporation, the corporate debt or credit is not the
debt or credit of the stockholder, nor is the stockholder's debt or credit that of a corporation. [21]

Clearly, in view of the alleged incorporation of the pawnshop, the issue of whether petitioner Sicam is personally liable is

inextricably connected with the determination of the question whether the doctrine of piercing the corporate veil should or
should not apply to the case.

The next question is whether petitioners are liable for the loss of the pawned articles in their possession.

Petitioners insist that they are not liable since robbery is a fortuitous event and they are not negligent at all.
We are not persuaded.

Article 1174 of the Civil Code 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.

Fortuitous events by definition are extraordinary events not foreseeable or avoidable. 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. [22]

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. [23]

The burden of proving that the loss was due to a fortuitous event rests on him who invokes it.[24] And, in order for a fortuitous

event to exempt one from liability, it is necessary that one has committed no negligence or misconduct that may have occasioned
the loss. [25]

It has been held that an act of God cannot be invoked to protect a person who has failed to take steps to forestall the possible

adverse consequences of such a loss. One's negligence may have concurred with an act of God in producing damage and injury

to another; nonetheless, showing that the immediate or proximate cause of the damage or injury was a fortuitous event would

not exempt one from liability. When the effect is found to be partly the result of a person's participation -- whether by active

intervention, neglect or failure to act -- the whole occurrence is humanized and removed from the rules applicable to acts of
God. [26]
Petitioner Sicam had testified that there was a security guard in their pawnshop at the time of the robbery. He likewise testified

that when he started the pawnshop business in 1983, he thought of opening a vault with the nearby bank for the purpose of

safekeeping the valuables but was discouraged by the Central Bank since pawned articles should only be stored in a vault inside

the pawnshop. The very measures which petitioners had allegedly adopted show that to them the possibility of robbery was not

only foreseeable, but actually foreseen and anticipated. Petitioner Sicams testimony, in effect, contradicts petitioners defense of
fortuitous event.

Moreover, petitioners failed to show that they were free from any negligence by which the loss of the pawned jewelry may have
been occasioned.

Robbery per se, just like carnapping, is not a fortuitous event. It does not foreclose the possibility of negligence on the part of
herein petitioners. In Co v. Court of Appeals,[27] the Court held:

It is not a defense for a repair shop of motor vehicles to escape liability simply because the damage
or loss of a thing lawfully placed in its possession was due 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 of carnapping, does not automatically give rise to a fortuitous event. To be
considered as such, carnapping entails more than the mere forceful taking of another's property. It must
be proved and established that the event was an act of God or was done solely by third parties and that
neither the claimant nor the person alleged to be negligent has any participation. In accordance with the
Rules of Evidence, the burden of proving that the loss was due to a fortuitous event rests on him who
invokes it which in this case is the private respondent. However, other than the police report of the
alleged carnapping incident, no other evidence was presented by private respondent to the effect that the
incident was not due to its fault. A police report of an alleged crime, to which only private respondent is
privy, does not suffice to establish the carnapping. Neither does it prove that there was no fault on the part
of private respondent notwithstanding the parties' agreement at the pre-trial that the car
was carnapped. Carnapping does not foreclose the possibility of fault or negligence on the part of private
respondent.[28]

Just like in Co, petitioners merely presented the police report of the ParaaquePolice Station on the robbery committed

based on the report of petitioners' employees which is not sufficient to establish robbery. Such report also does not prove that
petitioners were not at fault.

On the contrary, by the very evidence of petitioners, the CA did not err in finding that petitioners are guilty of concurrent or
contributory negligence as provided in Article 1170 of the Civil Code, to wit:

Art. 1170. Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are liable for damages.[29]
Article 2123 of the Civil Code provides that with regard to pawnshops and other establishments which are engaged in making

loans secured by pledges, the special laws and regulations concerning them shall be observed, and subsidiarily, the provisions on
pledge, mortgage and antichresis.

The provision on pledge, particularly Article 2099 of the Civil Code, provides that the creditor shall take care of the thing pledged

with the diligence of a good father of a family. This means that petitioners must take care of the pawns the way a prudent person
would as to his own property.

In this connection, Article 1173 of the Civil Code further provides:

Art. 1173. The fault or negligence of the obligor consists in the omission of that diligence which is required by
the nature of the obligation and corresponds with the circumstances of the persons, of time and of the place.
When negligence shows bad faith, the provisions of Articles 1171 and 2201, paragraph 2 shall apply.

If the law or contract does not state the diligence which is to be observed in the performance, that
which is expected of a good father of a family shall be required.

We expounded in Cruz v. Gangan[30] that negligence is the omission to do something which a reasonable man, guided

by those considerations which ordinarily regulate the conduct of human affairs, would do; or the doing of something which a
prudent and reasonable man would not do.[31] It is want of care required by the circumstances.

A review of the records clearly shows that petitioners failed to exercise reasonable care and caution that an ordinarily prudent

person would have used in the same situation. Petitioners were guilty of negligence in the operation of their pawnshop business.
Petitioner Sicamtestified, thus:

Court:

Q. Do you have security guards in your pawnshop?

A. Yes, your honor.

 Q. Then how come that the robbers were able to enter the premises when according to you there was a security
guard?

A. Sir, if these robbers can rob a bank, how much more a pawnshop.

Q. I am asking you how were the robbers able to enter despite the fact that there was a security guard?

A. At the time of the incident which happened about 1:00 and 2:00 o'clock inthe afternoon and it happened on
a Saturday and everything was quiet in the area BF Homes Paraaque they pretended to pawn an article in
the pawnshop, so one of my employees allowed him to come in and it was only when it was announced
that it was a hold up.

Q. Did you come to know how the vault was opened?

A. When the pawnshop is official (sic)open your honor the pawnshop is partly open. The combination is off.

Q. No one open (sic) the vault for the robbers?

A. No one your honor it was open at the time of the robbery.

Q. It is clear now that at the time of the robbery the vault was open the reason why the robbers were able to
get all the items pawned to you inside the vault.

A. Yes sir.[32]

revealing that there were no security measures adopted by petitioners in the operation of the pawnshop. Evidently, no sufficient
precaution and vigilance were adopted by petitioners to protect the pawnshop from unlawful intrusion. There was no clear

showing that there was any security guard at all. Or if there was one, that he had sufficient training in securing a

pawnshop. Further, there is no showing that the alleged security guard exercised all that was necessary to prevent any untoward

incident or to ensure that no suspicious individuals were allowed to enter the premises. In fact, it is even doubtful that there was

a security guard, since it is quite impossible that he would not have noticed that the robbers were armed with caliber .45 pistols

each, which were allegedly poked at the employees.[33] Significantly, the alleged security guard was not presented at all to

corroborate petitioner Sicam's claim; not one of petitioners' employees who were present during the robbery incident testified
in court.
Furthermore, petitioner Sicam's admission that the vault was open at the time of robbery is clearly a proof of petitioners' failure

to observe the care, precaution and vigilance that the circumstances justly demanded. Petitioner Sicam testified that once the

pawnshop was open, the combination was already off. Considering petitioner Sicam's testimony that the robbery took place on

a Saturday afternoon and the area in BF Homes Paraaque at that time was quiet, there was more reason for petitioners to have

exercised reasonable foresight and diligence in protecting the pawned jewelries. Instead of taking the precaution to protect them,
they let open the vault, providing no difficulty for the robbers to cart away the pawned articles.

We, however, do not agree with the CA when it found petitioners negligent for not taking steps to insure themselves against loss
of thepawned jewelries.

Under Section 17 of Central Bank Circular No. 374, Rules and Regulations for Pawnshops, which took effect on July 13, 1973, and

which was issued pursuant to Presidential Decree No. 114, Pawnshop Regulation Act, it is provided that pawns pledged must be
insured, to wit:

Sec. 17. Insurance of Office Building and Pawns- The place of business of a pawnshop and the pawns pledged
to it must be insured against fire and against burglary as well as for the latter(sic), by an insurance company
accredited by the Insurance Commissioner.

However, this Section was subsequently amended by CB Circular No. 764 which took effect on October 1, 1980, to wit:

Sec. 17 Insurance of Office Building and Pawns The office building/premises and pawns of a pawnshop must
be insured against fire. (emphasis supplied).

where the requirement that insurance against burglary was deleted. Obviously, the Central Bank considered it not feasible
to require insurance of pawned articles against burglary.

The robbery in the pawnshop happened in 1987, and considering the above-quoted amendment, there is no statutory duty

imposed on petitioners to insure the pawned jewelry in which case it was error for the CA to consider it as a factor in concluding
that petitioners were negligent.

Nevertheless, the preponderance of evidence shows that petitioners failed to exercise the diligence required of them under the
Civil Code.
The diligence with which the law requires the individual at all times to govern his conduct varies with the nature of the situation

in which he is placed and the importance of the act which he is to perform. [34] Thus, the cases of Austria v. Court of

Appeals,[35] Hernandez v. Chairman, Commission on Audit[36] and Cruz v. Gangan[37] cited by petitioners in their pleadings, where
the victims of robbery were exonerated from liability, find no application to the present case.

In Austria, Maria Abad received from Guillermo Austria a pendant with diamonds to be sold on commission basis, but

which Abad failed to subsequently return because of a robbery committed upon her in 1961.The incident became the subject of

a criminal case filed against several persons. Austria filed an action against Abad and her husband (Abads) for recovery of the

pendant or its value, but the Abads set up the defense that the robbery extinguished their obligation. The RTC ruled in favor

of Austria, as the Abads failed to prove robbery; or, if committed, that Maria Abad was guilty of negligence. The CA, however,

reversed the RTC decision holding that the fact of robbery was duly established and declared the Abadsnot responsible for the

loss of the jewelry on account of a fortuitous event. We held that for the Abads to be relieved from the civil liability of returning

the pendant under Art. 1174 of the Civil Code, it would only be sufficient that the unforeseen event, the robbery, took place

without any concurrent fault on the debtors part, and this can be done by preponderance of evidence; that to be free from

liability for reason of fortuitous event, the debtor must, in addition to the casus itself, be free of any concurrent or contributory
fault or negligence.[38]

We found in Austria that under the circumstances prevailing at the time the Decision was promulgated in 1971, the City of Manila

and its suburbs had a high incidence of crimes against persons and property that rendered travel after nightfall a matter to be

sedulously avoided without suitable precaution and protection; that the conduct of Maria Abad in returning alone to her house

in the evening carrying jewelry of considerable value would have been negligence per se and would not exempt her from

responsibility in the case of robbery. However we did not hold Abad liable for negligence since, the robbery happened ten years
previously; i.e., 1961, when criminality had not reached the level of incidence obtaining in 1971.

In contrast, the robbery in this case took place in 1987 when robbery was already prevalent and petitioners in fact had already

foreseen it as they wanted to deposit the pawn with a nearby bank for safekeeping. Moreover, unlike in Austria, where no
negligence was committed, we found petitioners negligent in securing their pawnshop as earlier discussed.

In Hernandez, Teodoro Hernandez was the OIC and special disbursing officer of the Ternate Beach Project of the Philippine

Tourism in Cavite. In the morning of July 1, 1983, a Friday, he went to Manila to encashtwo checks covering the wages of the

employees and the operating expenses of the project. However for some reason, the processing of the check was delayed and

was completed at about 3 p.m. Nevertheless, he decided to encash the check because the project employees would be waiting
for their pay the following day; otherwise, the workers would have to wait until July 5, the earliest time, when the main office
would open. At that time, he had two choices: (1) return to Ternate, Cavite that same afternoon and arrive early evening; or (2)

take the money with him to his house in Marilao, Bulacan, spend the night there, and leave for Ternate the following day. He

chose the second option, thinking it was the safer one. Thus, a little past 3 p.m., he took a passenger jeep bound for Bulacan.

While the jeep was on Epifanio de los Santos Avenue, the jeep was held up and the money kept by Hernandez was taken, 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 and pleaded guilty. The other robber who held the stolen money escaped. The Commission on Audit found

Hernandez negligent because he had not brought the cash proceeds of the checks to his office in Ternate, Cavite for safekeeping,

which is the normal procedure in the handling of funds. We held that Hernandez was not negligent in deciding to encash the

check and bringing it home to Marilao, Bulacan instead of Ternate, Cavite due to the lateness of the hour for the following

reasons: (1) he was moved by unselfish motive for his co-employees to collect their wages and salaries the following day, a

Saturday, a non-working, because to encash the check on July 5, the next working day after July 1, would have caused discomfort
to laborers who were dependent on their wages for sustenance; and (2) that choosing Marilao as a safer destination, being

nearer, and in view of the comparative hazards in the trips to the two places, said decision seemed logical at that time. We further

held that the fact that two robbers attacked him in broad daylight in the jeep while it was on a busy highway and in the presence
of other passengers could not be said to be a result of his imprudence and negligence.

Unlike in Hernandez where the robbery happened in a public utility, the robbery in this case took place in the pawnshop which is

under the control of petitioners. Petitioners had the means to screen the persons who were allowed entrance to the premises

and to protect itself from unlawful intrusion. Petitioners had failed to exercise precautionary measures in ensuring that the

robbers were prevented from entering the pawnshop and for keeping the vault open for the day, which paved the way for the
robbers to easily cart away the pawned articles.

In Cruz, Dr. Filonila O. Cruz, CamanavaDistrict Director of Technological Education and Skills Development Authority (TESDA),

boarded the Light Rail Transit (LRT) fromSen. Puyat Avenue to Monumento when her handbag was slashed and the contents were

stolen by an unidentified person. Among those stolen were her wallet and the government-issued cellular phone. She then

reported the incident to the police authorities; however, the thief was not located, and the cellphone was not recovered. She

also reported the loss to the Regional Director of TESDA, and she requested that she be freed from accountability for

the cellphone. The Resident Auditor denied her request on the ground that she lacked the diligence required in the custody of

government property and was ordered to pay the purchase value in the total amount of P4,238.00. The COA found no sufficient

justification to grant the request for relief from accountability. We reversed the ruling and found that riding the LRT cannot per

se be denounced as a negligent act more so because Cruzs mode of transit was influenced by time and money considerations; that

she boarded the LRT to be able to arrive in Caloocan in time for her 3 pm meeting; that any prudent and rational person under
similar circumstance can reasonably be expected to do the same; that possession of a cellphone should not hinder one from

boarding the LRT coach as Cruz did considering that whether she rode a jeep or bus, the risk of theft would have also been
present; that because of her relatively low position and pay, she was not expected to have her own vehicle or to ride a taxicab;

she did not have a government assigned vehicle; that placing the cellphone in a bag away from covetous eyes and holding on to

that bag as she did 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 case happened in petitioners' pawnshop and they were negligent in not

exercising the precautions justly demanded of a pawnshop.

WHEREFORE, except for the insurance aspect, the Decision of the Court of Appeals dated March 31, 2003 and its

Resolution dated August 8, 2003, are AFFIRMED.

Costs against petitioners.

SO ORDERED.

LIM TAY, petitioner vs., COURT OF APPEALS, GO FAY AND CO. INC., SY GUIOK, and THE ESTATE OF ALFONSO LIM, respondents.

DECISION

PANGANIBAN, J.:

The duty of a corporate secretary to record transfers of stocks is ministerial. However, he cannot be compelled to do so
when the transferees title to said shares has no prima facievalidity or is uncertain. More specifically, a pledgee, prior to
foreclosure and sale, does not acquire ownership rights over the pledged shares and thus cannot compel the corporate secretary
to record his alleged ownership of such shares on the basis merely of the contract of pledge.Similarly, the SEC does not acquire
jurisdiction over a dispute when a partys claim to being a shareholder is, on the face of the complaint, invalid or inadequate or is
otherwise negated by the very allegations of such complaint.Mandamus will not issue to establish a right, but only to enforce one
that is already established.

Statement of the Case

These are the principles used by this Court in resolving this Petition for Review on Certiorari before us assailing the October
24, 1996 Decision[1] of the Court of Appeals[2] in CA-GR SP No. 40832, the dispositive portion of which reads:
IN THE LIGHT OF ALL THE FOREGOING, the Petition at bench is DENIED DUE COURSE and is hereby DISMISSED. With costs against
the [p]etitioner.[3]

By the foregoing disposition, the Court of Appeals effectively affirmed the March 7, 1996 Decision[4] of the Securities and
Exchange Commission (SEC) en banc:

WHEREFORE, in view of all the foregoing, judgment is hereby rendered dismissing the appeal on the ground that mandamus will
only issue upon a clear showing of ownership over the assailed shares of stock, [t]he determination of which, on the basis of the
foregoing facts, is within the jurisdiction of the regular courts and not with the SEC.[5]

The SEC en banc upheld the August 16, 1993 Decision[6] of SEC Hearing Officer Rolando C. Malabonga, which dismissed the
action for mandamus filed by petitioner.

The Facts

As found by the Court of Appeals, the facts of the case are as follows:

x x x On January 8, 1980, Respondent-Appellee Sy Guiok secured a loan from the [p]etitioner in the amount of P40,000 payable
within six (6) months. To secure the payment of the aforesaid loan and interest thereon, Respondent Guiok executed a Contract
of Pledge in favor of the [p]etitioner whereby he pledged his three hundred (300) shares of stock in the Go Fay & Company Inc.,
Respondent Corporation, for brevitys sake. Respondent Guiok obliged himself to pay interest on said loan at the rate of 10% per
annum from the date of said contract of pledge. On the same date, Alfonso Sy Lim secured a loan from the [p]etitioner in the
amount of P40,000 payable in six (6) months. To secure the payment of his loan, Sy Lim executed a Contract of Pledge covering
his three hundred (300) shares of stock in Respondent Corporation. Under said contract, Sy Lim obliged himself to pay interest
on his loan at the rate of 10% per annum from the date of the execution of said contract.

Under said Contracts of Pledge, Respondent[s] Guiok and Sy Lim covenanted, inter alia, that:

3. In the event of the failure of the PLEDGOR to pay the amount within a period of six (6) months from the date hereof, the
PLEDGEE is hereby authorized to foreclose the pledge upon the said shares of stock hereby created by selling the same at public
or private sale with or without notice to the PLEDGOR, at which sale the PLEDGEE may be the purchaser at his option; and the
PLEDGEE is hereby authorized and empowered at his option to transfer the said shares of stock on the books of the corporation
to his own name and to hold the certificate issued in lieu thereof under the terms of this pledge, and to sell the said shares to
issue to him and to apply the proceeds of the sale to the payment of the said sum and interest, in the manner hereinabove
provided;

4. In the event of the foreclosure of this pledge and the sale of the pledged certificate, any surplus remaining in the hands of the
PLEDGEE after the payment of the said sum and interest, and the expenses, if any, connected with the foreclosure sale, shall be
paid by the PLEDGEE to the PLEDGOR;

5. Upon payment of the said amount and interest in full, the PLEDGEE will, on demand of the PLEDGOR, redeliver to him the said
shares of stock by surrendering the certificate delivered to him by the PLEDGOR or by retransferring each share to the PLEDGOR,
in the event that the PLEDGEE, under the option hereby granted, shall have caused such shares to be transferred to him upon
the books of the issuing company. (idem, supra)

Respondent Guiok and Sy Lim endorsed their respective shares of stock in blank and delivered the same to the
[p]etitioner.[7]

However, Respondent Guiok and Sy Lim failed to pay their respective loans and the accrued interests thereon to the
[p]etitioner. In October, 1990, the [p]etitioner filed a Petition for Mandamus against Respondent Corporation, with the SEC
entitled Lim Tay versus Go Fay & Company, Inc., SEC Case No. 03894, praying that:
PRAYER

WHEREFORE, premises considered, it is respectfully prayed that an order be issued directing the corporate secretary of
[R]espondent Go Fay & Co., Inc. to register the stock transfers and issue new certificates in favor of Lim Tay. It is likewise prayed
that [R]espondent Go Fay & Co., Inc[.] be ordered to pay all dividends due and unclaimed on the said certificates to [P]laintiff Lim
Tay.

Plaintiff further prays for such other relief just and equitable in the premises. (page 34, Rollo)

The [p]etitioner alleged, inter alia, in his Petition that the controversy between him as stockholder and the Respondent
Corporation was intra-corporate in view of the obstinate refusal of the corporate secretary of Respondent Corporation to record
the transfer of the shares of stock of Respondent Guiok and Sy Lim in favor of and under the name of the [p]etitioner and to issue
new certificates of stock to the [p]etitioner.

The Respondent Corporation filed its Answer to the Complaint and alleged, as Affirmative Defense, that:

AFFIRMATIVE DEFENSE

7. Respondent repleads and incorporates herein by reference the foregoing allegations.

8. The Complaint states no cause of action against [r]espondent.

9. Complainant is not a stockholder of [r]espondent. Hence, the Honorable Commission has no jurisdiction to enter the present
controversy since their [sic] is no intracorporate relationship between complainant and respondent.

10. Granting arguendo that a pledge was constituted over the shareholdings of Sy Guiok in favor of the complainant and that the
former defaulted in the payment of his obligations to the latter, the same did not automatically vest [i]n complainant ownership
of the pledged shares. (page 37, Rollo)

In the interim, Sy Lim died. Respondents Guiok and the Intestate Estate of Alfonso Sy Lim, represented by Conchita Lim, filed their
Answer-In-Intervention with the SEC alleging, inter alia, that:

xxx

3. Deny specifically the allegation under paragraph 5 of the Complaint that, failure to pay the loan within the contract period
automatically foreclosed the pledged shares of stocks and that the share of stocks are automatically purchased by the plaintiff,
for being false and distorted, the truth being that pursuant to the [sic] paragraph 3 of the contract of pledges, Annexes A and B,
it is clear that upon failure to pay the amount within the stipulated period, the pledgee is authorized to foreclose the pledge and
thereafter, to sell the same to satisfy the loan. [H]owever, to this point in time, plaintiff has not performed any operative act of
foreclosing the shares of stocks of [i]ntervenors in accordance with the Chattel Mortgage law, [n]either was there any sale of
stocks -- by way of public or private auction -- made after foreclosure in favor of the plaintiff to speak about, and therefore, the
respondent company could not be force[d] to [sic] by way of mandamus, to transfer the subject shares of stocks from the name
of your [i]ntervenors to that of the plaintiff in the absence of clear and legal basis for such;

4. DENY specifically the allegations under paragraphs 6, 7 and 8 of the complaint as to the existence of the alleged intracorporate
dispute between plaintiff and company for being without proper and legal basis. In the first place, plaintiff is not a stockholder of
the respondent corporation; there was no foreclosure of shares executed in accordance with the Chattel Mortgage Law
whatsoever; there were no sales consumated that would transfer to the plaintiff the subject shares of stocks and therefore, any
demand to transfer the shares of stocks to the name of the plaintiff has no legal basis. In the second place, [i]ntervenors had
been in the past negotiating possible compromise and at the same time, had tendered payment of the loan secured by the subject
pledges but plaintiff refused unjustifiably to oblige and accept payment o[r] even agree on the computation of the principal
amount of the loan and interest on top of a substantial amount offered just to settle and compromise the indebtedness of
[i]ntervenors;

II. SPECIAL AFFIRMATIVE DEFENSES

Intervenors replead by way of reference all the foregoing allegations to form part of the special affirmative defenses;

5. This Honorable Commission has no jurisdiction over the person of the respondent and nature of the action, plaintiff having no
personality at all to compel respondent by way of mandamus to perform certain corporate function[s];

6. The complaint states no cause of action;

7. That respondent is not [a] real party in interest;

8. The appropriation of the subject shares of stocks by plaintiff, without compliance with the formality of law, amounted to
[p]actum commis[s]orium therefore, null and void;

9. Granting for the sake of argument only that there was a valid foreclosure and sale of the subject st[o]cks in favor of the plaintiff
-- which [i]ntervenors deny -- still paragraph 5 of the contract allows redemption, for which intervenors are willing to redeem the
share of stocks pledged;

10. Even the Chattel Mortgage law allowed redemption of the [c]hattel foreclosed;

11. As a matter of fact, on several occasions, [i]ntervenors had made representations with the plaintiff for the compromise and
settlement of all the obligations secured by the subject pledges -- even offering to pay compensation over and above the value
of the obligations, interest[s] and dividends accruing to the share of stocks but, plaintiff unjustly refused to accept the offer of
payment; (pages 39-42, Rollo)

The [r]espondents-[i]ntervenors prayed the SEC that judgment be rendered in their favor, as follows:

IV. PRAYER

It is respectfully prayed to this Honorable Commission after due hearing, to dismiss the case for lack of merit, ordering plaintiff
to accept payment for the loans secured by the subject shares of stocks and to pay plaintiff:

1. The sum of P50,000.00, as moral damages;

2. the sum of P50,000.00, as attorneys fees; and,

3. costs of suit.

Other reliefs just and equitable [are] likewise prayed for. (pages 42-43, Rollo)

After due proceedings, the [h]earing [o]fficer promulgated a Decision dismissing [p]etitioners Complaint on the ground that
although the SEC had jurisdiction over the action, pursuant to the Decision of the Supreme Court in the case of Rural Bank of
Salinas, et al. versus Court of Appeals, et al., 210 SCRA 510, he failed to prove the legal basis for the secretary of the Respondent
Corporation to be compelled to register stock transfers in favor of the [p]etitioner and to issue new certificates of stock under his
name (pages 67-77, Rollo). The [p]etitioner appealed the Decision of the [h]earing [o]fficer to the SEC, but, on March 7, 1996,
the SEC promulgated a Decision, dismissing [p]etitioners appeal on the grounds that: (a) the issue between the [p]etitioner and
the [r]espondents being one involving the ownership of the shares of stock pledged by Respondent Guiok and Sy Lim, the SEC
had no jurisdiction over the action filed by the [p]etitioner; (b) the latter had no cause of action for mandamus against the
Respondent Corporation, the right of ownership of the [p]etitioner over the 300 shares of stock pledged by Respondent Guiok
and Sy Lim not having been as yet, established, preparatory to the institution of said Petition for Mandamus with the SEC.

Ruling of the Court of Appeals

On the issue of jurisdiction, the Court of Appeals ruled:

In ascertaining whether or not the SEC had exclusive jurisdiction over [p]etitioners action, the [a]ppellate [c]ourt must delve into
and ascertain:(a) whether or not there is a need to enlist the expertise and technical know-how of the SEC in resolving the issue
of the ownership of the shares of stock; (b) the status of the relationships of the parties; [and] (c) the nature of the question that
is the subject of the controversy. Where the controversy is purely a civil matter resoluble by civil law principles and there is no
need for the application of the expertise and technical know-how of the SEC, then the regular courts have jurisdiction over the
action.[8] [citations omitted]

On the issue of whether mandamus can be availed of by the petitioner, the Court of Appeals agreed with the SEC, viz.:

x x x [T]he [p]etitioner failed to establish a clear and legal right to the writ of mandamus prayed for by him. x x x Mandamus will
not issue to enforce a right which is in substantial dispute or to which a substantial doubt exists x x x. The principal function of
the writ of mandamus is to command and expedite, and not to inquire and adjudicate and, therefore it is not the purpose of the
writ to establish a legal right, but to enforce one which has already been established. [9] [citations omitted]

The Court of Appeals debunked petitioners claim that he had acquired ownership over the shares by virtue of novation,
holding that respondents indorsement and delivery of the shares were pursuant to Articles 2093 and 2095 of the Civil Code and
that petitioners receipt of dividends was in compliance with Article 2102 of the same Code. Petitioners claim that he had acquired
ownership of the shares by virtue of prescription was likewise dismissed by Respondent Court in this wise:

The prescriptive period for the action of Respondent[s] Guiok and Sy Lim to recover the shares of stock from the [p]etitioner
accrued only from the time they paid their loans and the interests thereon and [made] a demand for their return. [10]

Hence, the petitioner brought before us this Petition for Review on Certiorari in accordance with Rule 45 of the Rules of
Court.[11]

Assignment of Errors

Petitioner submits, for the consideration of this Court, these issues:[12]

(a) Whether the Securities and Exchange Commission had jurisdiction over the complaint filed by the petitioner; and

(b) Whether the petitioner is entitled to the relief of mandamus as against the respondent Go Fay & Co., Inc.

In addition, petitioner contends that it has acquired ownership of the shares through extraordinary prescription, pursuant
to Article 1132 of the Civil Code, and through respondents subsequent acts, which amounted to a novation of the contracts of
pledge. Petitioner also claims that there was dacion en pago, in which the shares of stock were deemed sold to petitioner, the
consideration for which was the extinguishment of the loans and the interests thereon. Petitioner likewise claims that laches bars
respondents from recovering the subject shares.

The Courts Ruling

 The petition has no merit.

First Issue: Jurisdiction of the SEC

Claiming that the present controversy is intra-corporate and falls within the exclusive jurisdiction of the SEC, petitioner
relies heavily on Abejo v. De la Cruz,[13] which upheld the jurisdiction of the SEC over a suit filed by an unregistered stockholder
seeking to enforce his rights. He also seeks support from Rural Bank of Salinas, Inc. v. Court of Appeals,[14] which ruled that the
right of a transferee or an assignee to have stocks transferred to his name was an inherent right flowing from his ownership of
the said stocks.

The registration of shares in a stockholders name, the issuance of stock certificates, and the right to receive dividends which
pertain to the said shares are all rights that flow from ownership.The determination of whether or not ashareholder is entitled
to exercise the above-mentioned rights falls within the jurisdiction of the SEC. However, if ownership of the shares is not clearly
established and is still unresolved at the time the action for mandamus is filed, then jurisdiction lies with the regular courts.

Section 5 of Presidential Decree No. 902-A sets forth the jurisdiction of the SEC as follows:

SEC. 5. In addition to the regulatory and adjudicative functions of the Securities and Exchange Commission over corporations,
partnerships and other forms of associations registered with it as expressly granted under existing laws and decrees, it shall have
original and exclusive jurisdiction to hear and decide cases involving:

(a) Devices or schemes employed by or any acts of the board of directors, business associates, its officers or partners, amounting
to fraud and misrepresentation which may be detrimental to the interest of the public and/or of stockholders, partners, members
of associations or organizations registered with the Commission;

(b) Controversies arising out of intra-corporate or partnership relations, between and among stockholders, members, or
associates; between any or all of them and the corporation, partnership or association of which they are stockholders, members
or associates, respectively; and between such corporation, partnership or association and the State insofar as it concerns their
individual franchise or right to exist as such entity;

(c) Controversies in the election or appointment of directors, trustees, officers or managers of such corporations, partnerships or
associations.

(d) Petitions of corporations, partnerships or associations to be declared in the state of suspension of payments in cases where
the corporation, partnership or association possesses property to cover all its debts but foresees the impossibility of meeting
them when they respectively fall due or in cases where thecorporation, partnership or association has no sufficient assets to
cover its liabilities, but is under the Management Committee created pursuant to this decree.[15]

Thus, a controversy among stockholders, partners or associates themselves[16] is intra-corporate in nature and falls within
the jurisdiction of the SEC.

As a general rule, the jurisdiction of a court or tribunal over the subject matter is determined by the allegations in the
complaint.[17] In the present case, however, petitioners claim that he was the owner of the shares of stock in question has
no prima facie basis.

In his Complaint, petitioner alleged that, pursuant to the contracts of pledge, he became the owner of the shares when the
term for the loans expired. The Complaint contained the following pertinent averments:

xxx

3. On [J]anuary 8, 1990, under a Contract of Pledge, Lim Tay received three hundred (300) shares of stock of Go Fay & Co., Inc.,
from Sy Guiok as security for the payment of a loan of [f]orty [t]housand [p]esos (P40,000.00) Philippine currency, the sum of
which was payable within six (6) months [with interest] at ten percentum (10%)per annum from the date of the execution of the
contract; a copy of this Contract of Pledge is attached as Annex A and made part hereof;
4. On the same date January 8, 1980, under a similar Contract of Pledge, Lim Tay received three hundred (300) shares of stock of
Go Fay & Co., Inc. from Alfonso Sy Lim as security for the payment of a loan of [f]orty [t]housand [p]esos (P40,000.00) Philippine
currency, the sum of which was payable within six (6) months [with interest] at ten percentum (10%) per annum from the date
of the execution of the contract; a copy of this Contract of Pledge is attached as Annex B and made part hereof;

5. By the express terms of the agreements, upon failure of the borrowers to pay the stated amounts within the contract period,
the pledge is foreclosed and the shares of stock are purchased by [p]laintiff, who is expressly authorized and empowered to
transfer the duly endorsed shares of stock on the books of the corporation to his own name; x x x[18] (underscoring supplied)

However , the contracts of pledge, which were made integral parts of the Complaint, contain this common proviso:

3. In the event of the failure of the PLEDGOR to pay the amount within a period of six (6) months from the date hereof, the
PLEDGEE is hereby authorized to foreclose the pledge upon the said shares of stock hereby created by selling the same at public
or private sale with or without notice to the PLEDGOR, at which sale the PLEDGEE may be the purchaser at his option; and the
PLEDGEE is hereby authorized and empowered at his option, to transfer the said shares of stock on the books of the corporation
to his own name and to hold the certificate issued in lieu thereof under the terms of this pledge, and to sell the said shares to
issue to him and to apply the proceeds of the sale to the payment of the said sum and interest, in the manner hereinabove
provided;

This contractual stipulation, which was part of the Complaint, shows that plaintiff was merely authorized to foreclose the
pledge upon maturity of the loans, not to own them. Such foreclosure is not automatic, for it must be done in a public or private
sale. Nowhere did the Complaint mention that petitioner had in fact foreclosed the pledge and purchased the shares after such
foreclosure.His status as a mere pledgee does not, under civil law, entitle him to ownership of the subject shares. It is also
noteworthy that petitioners Complaint did not aver that said shares were acquired through extraordinary prescription, novation
or laches. Moreover, petitioners claim, subsequent to the filing of the Complaint, that he acquired ownership of the said shares
through these three modes is not indubitable and still has to be resolved. In fact, as will be shown, such allegation has no
merit. Manifestly, the Complaint by itself did not contain any prima facie showing that petitioner was the owner of the shares of
stocks. Quite the contrary, it demonstrated that he was merely a pledgee, not an owner. Accordingly, it failed to lay down a
sufficient basis for the SEC to exercise jurisdiction over the controversy. In fact, the very allegations of the Complaint and its
annexes negated the jurisdiction of the SEC.

Petitioners reliance on the doctrines set forth in Abejo v. De la Cruz and Rural Bank of Salinas, Inc. v. Court of Appeals is
misplaced. In Abejo, the Abejo spouses sold to Telectronic Systems, Inc. shares of stock in Pocket Bell Philippines, Inc.Subsequent
to such contract of sale, the corporate secretary, Norberto Braga, refused to record the transfer of the shares in the corporate
books and instead asked for the annulment of the sale, claiming that he and his wife had a preemptive right over some of the
shares, and that his wifes shares were sold without consideration or consent.

At the time the Bragas questioned the validity of the sale, the contract had already been perfected, thereby demonstrating
that Telectronic Systems, Inc. was already the prima facie owner of the shares and, consequently, a stockholder of Pocket Bell
Philippines, Inc. Even if the sale were to be annulled later on, Telectronic Systems, Inc. had, in the meantime, title over the shares
from the time the sale was perfected until the time such sale was annulled. The effects of an annulment operate prospectively
and do not, as a rule retroact to the time the sale was made. Therefore, at the time the Bragas questioned the validity of the
transfers made by the Abejos, Telectronic Systems, Inc. was already a prima facieshareholder of the corporation, thus making the
dispute between the Bragas and the Abejos intra-corporate in nature. Hence, the Court held that the issue is not on ownership
of shares but rather the non-performance by the corporate secretary of the ministerial duty of recording transfers of shares of
stock of the corporation of which he is secretary.[19]

Unlike Abejo, however, petitioners ownership over the shares in this case was not yet perfected when the Complaint was
filed. The contract of pledge certainly does not make him the owner of the shares pledged. Further, whether prescription
effectively transferred ownership of the shares, whether there was a novation of the contracts of pledge, and whether laches
had set in were difficult legal issues, which were unpleaded and unresolved when herein petitioner asked the corporate secretary
of Go Fay to effect the transfer, in his favor, of the shares pledged to him.

In Rural Bank of Salinas, Melenia Guerrero executed deeds of assignment for the shares in favor of the respondents in that
case. When the corporate secretary refused to register the transfer, an action for mandamus was instituted.Subsequently, a
motion for intervention was filed, seeking the annulment of the deeds of assignment on the grounds that the same were fictitious
and antedated, and that they were in fact donations because the considerations therefor were below the book value of the
shares.
 Like the Abejo spouses, the respondents in Rural Bank of Salinas were already prima facieshareholders when the deeds of
assignment were questioned. If the said deeds were to be annulled later on, respondents would still be considered shareholders
of the corporation from the time of the assignment until the annulment of such contracts.

Second Issue: Mandamus Will Not

Issue to Establish a Right

Petitioner prays for the issuance of a writ of mandamus, directing the corporate secretary of respondent corporation to
have the shares transferred to his name in the corporate books, to issue new certificates of stock and to deliver the corresponding
dividends to him.[20]

In order that a writ of mandamus may issue, it is essential that the person petitioning for the same has a clear legal right to
the thing demanded and that it is the imperative duty of the respondent to perform
the act required. It neither conferspowers nor imposes duties and is never issued in doubtful cases. It is simply a command to
exercise a power already possessed and to perform a duty already imposed.[21]

In the present case, petitioner has failed to establish a clear legal right. Petitioners contention that he is the owner of the
said shares is completely without merit. Quite the contrary and as already shown, he does not have any ownership rights at all. At
the time petitioner instituted his suit at the SEC, his ownership claim had no prima facie leg to stand on. At best, his contention
was disputable and uncertain. Mandamus will not issue to establish a legal right, but only to enforce one that is already clearly
established.

Without Foreclosure and

Purchase at Auction, Pledgee
Is Not the Owner of Pledged Shares

Petitioner initially argued that ownership of the shares pledged had passed to him, upon Respondents Sy Guiok and Sy Lims
failure to pay their respective loans. But on appeal, petitioner claimed that ownership over the shares had passed to him, not via
the contracts of pledge, but by virtue of prescription and by respondents subsequent acts which amounted to a novation of the
contracts of pledge. We do not agree.

At the outset, it must be underscored that petitioner did not acquire ownership of the shares by virtue of the contracts of
pledge. Article 2112 of the Civil Code states:

The creditor to whom the credit has not been satisfied in due time, may proceed before a Notary Public to the sale of the thing
pledged. This sale shall be made at a public auction, and with notification to the debtor and the owner of the thing pledged in a
proper case, stating the amount for which the public sale is to be held. If at the first auction the thing is not sold, a second one
with the same formalities shall be held; and if at the second auction there is no sale either, the creditor may appropriate the thing
pledged. In this case he shall be obliged to give an acquaintance for his entire claim.

Furthermore, the contracts of pledge contained a common proviso, which we quote again for the sake of clarity:

3. In the event of the failure of the PLEDGOR to pay the amount within a period of six (6) months from the date hereof, the
PLEDGEE is hereby authorized to foreclose the pledge upon the said shares of stock hereby created by selling the same at public
or private sale with or without notice to the PLEDGOR, at which sale the PLEDGEE may be the purchaser at his option; and the
PLEDGEE is hereby authorized and empowered at his option to transfer the said shares of stock on the books of the corporation
to his own name, and to hold the certificate issued in lieu thereof under the terms of this pledge, and to sell the said shares to
issue to him and to apply the proceeds of the sale to the payment of the said sum and interest, in the manner hereinabove
provided;[22]

There is no showing that petitioner made any attempt to foreclose or sell the shares through public or private auction, as
stipulated in the contracts of pledge and as required by Article 2112 of the Civil Code. Therefore, ownership of the shares could
not have passed to him. The pledgor remains the owner during the pendency of the pledge and prior to foreclosure and sale, as
explicitly provided by Article 2103 of the same Code:

Unless the thing pledged is expropriated, the debtor continues to be the owner thereof.

Nevertheless, the creditor may bring the actions which pertain to the owner of the thing pledged in order to recover it
from, or defend it against a third person.

No Ownership
by Prescription

Petitioner did not acquire the shares by prescription either. The period of prescription of any cause of action is reckoned
only from the date the cause of action accrued.

Since a cause of action requires as an essential element not only a legal right of the plaintiff and a correlative obligation of
the defendant, but also an act or omission of the defendant in violation of said legal right, the cause of action does not accrue
until the party obligated refuses, expressly or impliedly, to comply with its duty. [23]Accordingly, a cause of action on a written
contract accrues when a breach or violation thereof occurs.

Under the contracts of pledge, private respondents would have a right to ask for the redelivery of their certificates of stock
upon payment of their debts to petitioner, consonant with Article 2105 of the Civil Code, which reads:

The debtor cannot ask for the return of the thing pledged against the will of the creditor, unless and until he has paid the debt
and its interest, with expenses in a proper case.[24]

Thus, the right to recover the shares based on the written contract of pledge between petitioner and respondents would
arise only upon payment of their respective loans. Therefore, the prescriptive period within which to demand the return of the
thing pledged should begin to run only after the payment of the loan and a demand for the thing has been made, because it is
only then that respondents acquire a cause of action for the return of the thing pledged.

Prescription should not begin to run on the action to demand the return of the thing pledged while the loan still exists. This
is because the right to ask for the return of the thing pledged will not arise so long as the loan subsists. In the present case, the
prescriptive period did not begin to run when the loan became due. On the other hand, it is petitioners right to demand payment
that maybe in danger of prescription.

Petitioner contends that he can be deemed to have acquired ownership over the certificates of stock through extraordinary
prescription, as provided for in Article 1132 of the Civil Code which states:

Art. 1132. The ownership of movables prescribes through uninterrupted possession for four years in good faith.

The ownership of personal property also prescribes through uninterrupted possession for eight years, without need of any other
condition. x x x.

Petitioners argument is untenable. What is required by Article 1132 is possession in the concept of an owner. In the present
case, petitioners possession of the stock certificates came about because they were delivered to him pursuant to the contracts
of pledge. His possession as a pledgee cannot ripen into ownership by prescription. As aptly pointed out by Justice Jose C. Vitug:

Acquisitive prescription is a mode of acquiring ownership by a possessor through the requisite lapse of time. In order to ripen
into ownership, possession must be in the concept of an owner, public, peaceful and uninterrupted. Thus, possession with a
juridical title, such as by a usufructory, a trustee, a lessee, agent or a pledgee, not being in the concept of an owner, cannot ripen
into ownership by acquisitive prescription unless the juridical relation is first expressly repudiated and such repudiation has been
communicated to the other party.[25]
 Petitioner expressly repudiated the pledge, only when he filed his Complaint and claimed that he was not a mere pledgee,
but that he was already the owner of the shares. Based on the foregoing, petitioner has not acquired the certificates of stock
through extraordinary prescription.

No Novation
in Favor of Petitioner

Neither did petitioner acquire the shares by virtue of a novation of the contract of pledge.Novation is defined as the
extinguishment of an obligation by a subsequent one which terminates it, either by changing its object or principal conditions, by
substituting a new debtor in place of the old one, or by subrogating a third person to the rights of the creditor.[26] Novation of a
contract must not be presumed. In the absence of an express agreement, novation takes place only when the old and the new
obligations are incompatible on every point.[27]

In the present case, novation cannot be presumed by (a) respondents indorsement and delivery of the certificates of stock
covering the 600 shares, (b) petitioners receipt of dividends from 1980 to 1983, and (c) the fact that respondents have not
instituted any action to recover the shares since 1980.

Respondents indorsement and delivery of the certificates of stock were pursuant to paragraph 2 of the contract of pledge
which reads:

2. The said certificates had been delivered by the PLEDGOR endorsed in blank to be held by the PLEDGEE under the pledge as
security for the payment of the aforementioned sum and interest thereon accruing.[28]

This stipulation did not effect the transfer of ownership to petitioner. It was merely in compliance with Article 2093 of the
Civil Code,[29]which requires that the thing pledged be placed in the possession of the creditor or a third person of common
agreement; and Article 2095,[30] which states that if the thing pledged are shares of stock, then the instrument proving the right
pledged must be delivered to the creditor.

Moreover, the fact that respondents allowed the petitioner to receive dividends pertaining to the shares was not meant to
relinquish ownership thereof. As stated by respondent corporation, the same was done pursuant to an agreement between the
petitioner and Respondents Sy Guiok and Sy Lim, following Article 2102 of the Civil Code which provides:

If the pledge earns or produces fruits, income, dividends, or interests, the creditor shall compensate what he receives with those
which are owing him; but if none are owing him, or insofar as the amount may exceed that which is due, he shall apply it to the
principal. Unless there is a stipulation to the contrary, the pledge shall extend to the interest and the earnings of the right pledged.

Novation cannot be inferred from the mere fact that petitioner has not, since 1980, instituted any action to recover the
shares. Such action is, in fact, premature, as the loan is still outstanding. Besides, as already pointed out, novation is never
presumed or inferred.

No Dacion en Pago
in Favor of Petitioner

Neither can there be dacion en pago, in which the certificates of stock are deemed sold to petitioner, the consideration for
which is the extinguishment of the loans and the accrued interests thereon. Dacion en pago is a form of novation in which a
change takes place in the object involved in the original contract. Absent an explicit agreement, petitioner cannot simply
presume dacion en pago.

Laches Not
a Bar to Petitioner
 Petitioner submits that the inaction of the individual respondents with respect to the recovery of the shares of stock serves
to bar them from asserting rights over said shares on the basis of laches.[31]

Laches has been defined as the failure or neglect, for an unreasonable 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.[32]

In this case, it is in fact petitioner who may be guilty of laches. Petitioner had all the time to demand payment of the
debt. More important, under the contracts of pledge, petitioner could have foreclosed the pledges as soon as the loans became
due. But for still unknown or unexplained reasons, he failed to do so, preferring instead to pursue his baseless claim to ownership.

WHEREFORE, the petition is hereby DENIED and the assailed Decision is AFFIRMED. Costs against petitioner.

SO ORDERED.

CLEMENTINO IMPERIAL, petitioner, vs. MARIANO F. SANTIAGO, JR., Sheriff IV, RTC, Branch 139, Makati City, respondent.

DECISION

PER CURIAM:

In a sworn letter-complaint dated November 26, 1998,[1] Clementino Imperial, President and Chairman of the Board of
Laoang Shipping Corporation, charged respondent Mariano F. Santiago, Jr., Sheriff IV of the Regional Trial Court of Makati City
(Branch 139) with Grave Abuse of Authority and Grave Misconduct for the illegal foreclosure of a pledge on the vessel M/V Angela
Ceferina.

In his Comment dated April 29, 1999, respondent denies the alleged illegal foreclosure. He stressed that the foreclosure
and auction sale was done in a legal and appropriate manner and that he issued a Certificate of Sale dated July 9, 1998 attesting
that by virtue of a contract of pledge executed on November 7, 1995 by Richard Tang Tepace, for and in behalf of Laoang Shipping
Corporation, respondent sold the vessel M/V Angela Ceferina in a public auction held on July 9, 1998 to Zoilo Uy, the highest
bidder for Three Million Five Hundred Thousand Pesos (P3,500,000.00), conducted in front of the main entrance of the Gusali ng
Katarungan, Zobel St., Makati City.[2]

In his Reply, dated June 14, 1999, complainant contends that the alleged valid foreclosure is belied by a Certification dated
November 15, 1998 of Atty. Engracio M. Escasinas, Jr., Clerk of Court VII and Ex-Officio Sheriff, stating that: per records of the
court, the alleged foreclosure of pledge does not appear to have been filed or properly docketed in the record; the prescribed
filing and commission on sale fees does not appear to have been paid; the public sale of the vessel could not physically be done
in front of the Gusali ng Katarungan in Makati since the vessel could not be brought to said location; the pledge cannot be legally
foreclosed in Makati City since it was executed in the City of Manila; the pledge does not conform to the legal requirements; the
alleged publication of the notice of the Sheriffs sale did not pass through the raffle required before publication by any newspaper
could be had; there is no record in the Office of the Clerk of Court and Ex-Officio Sheriff of the raffle first being done because no
petition had been filed with the said office; the posting of Sheriffs sale does not appear to have been certified to and does not
comply with the requirements of Certification of the posting of Affidavit; Richard Tepace is no longer the President of Laoang
Shipping Corporation since he was ousted as hold-over president on April 6, 1998; Laoang Shipping Corporation which appears
in the Registration of Ownership to be the owner of the vessel, with address at Laoang, N. Samar, was never notified; there was
no notice made to MARINA where the vessel is registered; respondent could not feign that he advised Zoilo Uy to pay the
necessary fees required by the Office of the Clerk of Court after the auction sale; respondent issued a Certificate of Sale to Zoilo
Uy dated July 9, 1998 without ensuring that the said fees were actually and properly paid; and respondent conspired with Richard
Tepace and Zoilo Uy to deprive him (complainant) of his vessel by way of a false Certificate of Sale.[3]

On January 22, 2001, the administrative case was re-docketed as a regular administrative matter and referred to then
Executive Judge Florentino A. Thason, Jr., RTC (Branch 139) Makati City for investigation, report and recommendation. [4] In a
Resolution, dated March 19, 2001, the Court referred the case to the then First Vice Executive Judge Leticia P. Morales, RTC
(Branch 140) Makati City in lieu of Judge Tuason, Jr. because of the administrative case filed by him against respondent, docketed
as A.M. OCA IPI No. 00-791-P.[5]
 After conducting the necessary investigation, Judge Morales submitted her Report dated May 26, 2002. She found
respondent guilty of Grave Abuse of Authority and Grave Misconduct. She pointed out that respondent evidently treated an
extra-judicial foreclosure based on mortgage and a foreclosure based on a pledge as similar, if not the same; that such error
cannot be treated as insignificant since the law treats the two securities as different, and it was inexcusable negligence, if not
gross ignorance of the law on the part of the respondent to ignore such statutory differences. Judge Morales added that even
the foreclosure proceeding adopted by the respondent was invalid inasmuch as the Certification of the Clerk of Court VII affirmed
the non-existence of the foreclosure, the filing and recording, as well as payment of the necessary fees; and, that respondent in
fact admitted his negligence as regards the payment of the necessary filing and docket fees. However, Judge Morales did not
recommend a specific penalty to be meted out to the respondent.[6]

In its Memorandum dated August 30, 2002, the Office of the Court Administrator (OCA) adopted the findings of the
Investigating Judge and recommended to the Court the dismissal of respondent from the service.

The Court agrees with the OCA.

Respondent claims that he conducted a valid foreclosure on the vessel M/V Angela Ceferina as supported by an Affidavit of
Publication,[7]Certificate of Posting[8] and Certificate of Sale.[9]However, a close scrutiny of the extant evidence reveals otherwise.

The procedure for foreclosure of a pledge is set forth under Article 2112 of the Civil Code, to wit:

Art. 2112. The creditor to whom the credit has not been satisfied in due time, may proceed before a Notary Public to the sale of
the thing pledged. This sale shall be made at a public auction, and with notification to the debtor and the owner of the thing
pledged in a proper case, stating the amount for which the public sale is to be held. If at the first auction the thing is not sold, a
second one with the same formalities shall be held; and if at the second auction there is no sale either, the creditor may
appropriate the thing pledged. In this case he shall be obliged to give an acquittance for his entire claim. (Underscoring supplied)

Although it is only on February 12, 2001 that the Court in A.M. No. 01-1-01-0 clarified that the procedure in the foreclosure
of pledge before a notary public does not require the submission of a petition for extra-judicial foreclosure before the Executive
Judge of the appropriate Regional Trial Court, through the Clerk of Court/Ex-Officio Sheriff, it is expressly provided for in Article
2112, as above-quoted, that only a notary public can conduct a public auction after proper notice is sent to the debtor and owner
of the thing pledged.

The fault of respondent could have been regarded as simple ignorance of the proper procedure or an error of judgment on
his part but respondent sheriff betrayed himself and confirmed the charges against him when he testified during the investigation
conducted by the Investigating Judge:

Q - As a Sheriff, you know that in pledges, only the Notary Public can

conduct foreclosure, not the Sheriff?

A - What I know, I can.

Q - In this case, you conducted this alleged foreclosure and auction sale concerning the vessel mortgaged under R.A.
- (interrupted)

A - Pledge Contract.

Q - How long have you been a Sheriff?

A - Nine (9) to ten (10) years.

Q- So, you can distinguish between Pledge and Chattel mortgage?

A - Yes.

Q.- You know that in Pledges, only lawyers can conduct the foreclosure?

A - As far as I know, I can also conduct foreclosure.

Q.- In this case, you issued a Certificate of Sale on the same day, July 9, 1998, allegedly on the same day when the
auction sale was made?

A - Auction sale was in the morning.

 Q - So, you issued the certificate of Sale even knowing that there was no docket fees paid?

A - Thats why I issued the certificate of Sale and told them to pay the required fees.

Q - So, what you did, you first issued the Certificate of Sale and you told them to pay the legal fees?

A - Yes.

Q - When you issued the Certificate of Sale, the Certificate of Sale was not signed by Engracio Escasinas, Jr.?

A - Yes.

Q - And he has not even seen that Certificate of Sale?

A - Yes.

Q.- Nor the Certificate of Sale was even forwarded to the Office of the Clerk of Court?

A - Yes, sir. I told when they should pay - (interrupted)

Q - No, no, no. My question is, this Certificate of Sale was not even forwarded to the Office of the Clerk of Court?

A - Yes.

ATTY. SIRUELO:

That will be all.

COURT:

Q - As a matter of procedure, do you not forward the sale to the Clerk of Court?

A - I told them, maam, to go to the Office of the Clerk of Court to pay considering that the Certificate of Sale will be
registered.

Q - As a Sheriff, is it not your duty to bring the Certificate of Sale there to be noted by Atty. Engracio Escasinas, Jr.?

A - Its my fault, maam. I forgot to do it because of other tasks. [10]

In claiming that he followed the procedure required in the foreclosure of a chattel mortgage, and in admitting before the
Investigating Judge that he is well-aware that the proper requirement of law is that a petition for foreclosure of mortgage, real
estate or chattel, must be filed first with the Clerk of Court before foreclosure or auction may commence, [11] he sealed his fate.
This is because the records lay bare the following facts:

1. Respondent totally ignored the specific reference in paragraph 4 of the Pledge Agreement[12] that Article 2112 of the Civil Code
is the applicable law.

2. No petition for foreclosure of chattel mortgage was ever filed before the Clerk of Court. [13] Despite the lack of petition,
respondent proceeded with the auction sale.

3. The prescribed filing and commission on sale fees were not paid[14] yet respondent signed the certificate of sale merely because
he trusted that Tepace will pay the fees. The explanation of respondent that: its only on my good faith and thats only my
procedure because others usually pay[15], is absolutely weak and completely absurd.

4. The certificate of sale was not even forwarded to the Office of the Clerk of Court, and bears only the signature of respondent. [16]

5. When the Investigating Judge inquired why he did not recall the certification since no fees were paid, respondent replied that
he simply forgot the transaction.[17] Forgetfulness or failure to remember is never a rational or acceptable explanation.[18]

6. Respondent failed to controvert the amounts received by him totalling One Hundred Sixty-Five Thousand Pesos (P165,000.00),
as shown by the unofficial receipt issued and signed by him, to wit:

PETITION FOR PUBLIC AUCTION

PARTIAL RECEIPT

1. PUBLICATION P 20,000.00

2. POSTING P 5,000.00

3. NOTARIAL FEES P 35,000.00

4. JUDICIAL FUNDS P 70,000.00

5. SHERIFFS FEES P 35,000.00

RECEIVED the described amount from Mr. & Mrs. Uy for the implementation of the Extra-Judicial Foreclosure of M/V Ceferina.[19]

Respondent and his counsel, Atty. Salvador D. Abong, did not appear in the subsequent investigation despite being fully
notified and given the opportunity to explain on the amounts received. When the Investigating Judge required Process Server
Aldwin Atilon to call respondent, the latter refused to come. Respondent instead told Atilon that the case should be submitted
for resolution because he does not intend to present additional evidence other than the ones previously submitted and those
admitted by him during the investigation.[20]

Per Certification of the Clerk of Court, respondent did not remit said amounts nor did he secure the approval of the court.

Evidently, respondent grievously failed to comply with the requirements of Rule 141 of the Rules of Court, as follows:

SEC. 3. Persons authorized to collect legal fees. - Except as otherwise provided in this rule, the officers and persons hereinafter
mentioned, together with their assistants and deputies, may demand, receive, and take the several fees hereinafter mentioned
and allowed for any business by them respectively done by virtue of their several offices, and no more. All fees so collected shall
be forthwith remitted to the Supreme Court. The fees collected shall accrue to the general fund. However, all increases in the
legal fees prescribed in amendments to this rule shall pertain to the Judiciary Development Fund as established by law. The
persons herein authorized to collect legal fees shall be accountable officers and shall be required to post bond in such amount as
prescribed by law.

SEC. 9. Sheriff, and other persons serving processes.-

xxx xxx xxx

(h) For advertising a sale, besides cost of publication, fifty (P50.00) pesos;

xxx xxx xxx

(I) For money collected by him by order, execution, attachment, or any other process, judicial or extrajudicial, the following sums,
to wit:

1. On the first four thousand (P4,000.00) pesos, four (4%) per centum.

2. On all sums in excess of four thousand (P4,000.00) pesos two (2%) per centum.

In addition to the fees hereinabove fixed, the party requesting the process of any court. preliminary, incidental, or final, shall pay
the sheriffs expenses in serving or executing the process, or safeguarding the property levied upon, attached or seized, including
kilometrage for each kilometer of travel, guards fees, warehousing and similar charges, in an amount estimated by the sheriff,
subject to the approval of the court. Upon approval of said estimated expenses, the interested party shall deposit such amount
with the clerk of court and ex-officio sheriff, who shall disburse the same to the deputy sheriff assigned to effect the process,
subject to liquidation within the same period for rendering a return on the process. Any unspent amount shall be refunded to the
party making the deposit. A full report shall be submitted by the deputy sheriff assigned with his return, and the sheriffs expenses
shall be taxed as costs against the judgment debtor.[21] (Underscoring supplied)
It is clear that under the rule, sheriffs are authorized to collect certain specified fees in specified amounts. The sheriff has to
estimate the expenses to be incurred and upon the approval of the estimated expenses by the court, the interested party has to
deposit the amount with the Clerk of Court and the Ex-Officio Sheriff. These expenses shall then be disbursed to the executing
Sheriff subject to his liquidation within the same period for rendering a return on the process or writ. Any unspent amount shall
be refunded to the party who made the deposit.

Respondent did not prepare an estimate of expenses to be incurred in the auction, for which he should have sought the
approval of the Court. He did not render an accounting. He did not remit and report the amounts he received. [22] He blatantly
disregarded general auditing and accounting rules when he did not issue an official receipt for the total amount he received. His
willful failure to offer any explanation on what happened to the money he received leads to the inescapable conclusion that he
misappropriated the same for his own personal use.[23]

The Court has once held that when a judges inefficiency springs from a failure to consider so basic and elemental a rule, a
law or a principle in the discharge of his duties, he is either too incompetent and undeserving of the position and title he holds
or he is too vicious that the oversight or omission was deliberately done in bad faith and with grave abuse of judicial
authority.[24] There is no reason not to apply the same principle to respondent.

By his conduct, respondent gravely abused his authority to conduct auction sales. Respondent cannot feign ignorance of
the proper procedure to follow in case of pledge considering that he has been a sheriff for more than 10 years. [25] He wielded
authority where he had none and admitted disregarding the procedure in the foreclosure of a chattel mortgage. Respondent
knew his action to be wrong yet persisted in doing the same. Such grave abuse of authority amounts to grave misconduct.

Misconduct is a transgression of some established and definite rule of action, more particularly, unlawful behavior or gross
negligence by the public officer. To warrant dismissal from the service, the misconduct must be grave, serious, important,
weighty, momentous and not trifling. The misconduct must imply wrongful intention and not a mere error of judgment. The
misconduct must also have a direct relation to and be connected with the performance of his official duties amounting either to
maladministration or willful, intentional neglect or failure to discharge the duties of the office. [26]There must also be reliable
evidence showing that the judicial acts complained of were corrupt or inspired by an intention to violate the law. [27] All of these
requisites are met in this case.

Respondent grossly violated the yardstick of public service imposed in Section 1, Article XI of our Constitution that a public
office is a public trust; that public officers and employees must serve with the highest degree of responsibility, integrity, loyalty
and efficiency; and that they must at all times remain accountable to the people. No other office in the government service exacts
a greater demand for moral righteousness and uprightness from an employee than in the judiciary.[28]

The Court will not tolerate any Court employees conduct, act or omission that violates the norm of public accountability
and diminishes or tends to diminish the faith of the people in the judiciary.[29]By the very nature of their functions, sheriffs must
conduct themselves with propriety and decorum, and above all else, be above suspicion.[30] The Court has repeatedly stressed
that high standards are expected of sheriffs, thus:

At the grassroots of our judicial machinery, sheriffs and deputy sheriffs are indispensably in close contact with the litigants, hence,
their conduct should be geared towards maintaining the prestige and integrity of the court, for the image of a court of justice is
necessarily mirrored in the conduct, official or otherwise, of the men and women who work thereat, from the judge to the least
and lowest of its personnel; hence, it becomes the imperative sacred duty of each and everyone in the court to maintain its good
name and standing as a temple of justice.[31]

Respondents conduct fell far too short of the standard required of court employees. He allowed himself to be a pawn for
fraud and deceit, sowing injustice in exchange for One Hundred Sixty-Five Thousand Pesos (P165,000.00).

Grave misconduct is a malevolent act which threatens the very existence of the system of administration of justice. Because
of his misconduct, respondent does not deserve to stay a minute longer in the judicial service as he seriously lacks the integrity,
uprightness and honesty demanded of an employee in the judiciary.[32]

Clearly grave in character, said act is tainted by the element of corruption punishable under Section 46 (b), (4) of Book V of
the Executive Order No. 292, otherwise known as the Administrative Code of 1987. Under Section 23, Rule XIV of the Omnibus
Civil Service Rules and Regulations, Grave Misconduct is punishable with dismissal even in the first offense. This penalty is
reiterated in Civil Service Memorandum Circular No, 30, Series of 1989,[33] the prevailing rule at the time of the commission of
the complained acts in 1998.

Section 9, Rule XIV of. the Omnibus Rules and the aforecited circulars likewise provide that the penalty of dismissal from
the service shall carry with it cancellation of civil service eligibility, forfeiture of leave credits and retirement benefits, and
disqualification from any employment in the government service, unless otherwise provided in the decision, per Section 58 of
Civil Service Memorandum Circular No. 19, Series of 1999.

WHEREFORE, Mariano F. Santiago, Jr., Sheriff IV of the Regional Trial Court of Makati City (Branch 139) is found GUILTY of
GRAVE MISCONDUCT. He is DISMISSED from service with prejudice to re-employment in any government agency and
government-owned or controlled corporation and with forfeiture of all retirement benefits, except accrued leave credits.

This decision shall take effect immediately.

SO ORDERED.