SECOND DIVISION

[G.R. No. 146322. December 6, 2006.]

ERNESTO RAMAS UYPITCHING and RAMAS UYPITCHING
SONS, INC., petitioners, vs. ERNESTO QUIAMCO, respondent.

DECISION

CORONA, J :
p

Honeste vivere, non alterum laedere et jus suum cuique tribuere. To live virtuously, not
to injure others and to give everyone his due. These supreme norms of justice are the
underlying principles of law and order in society. We reaffirm them in this petition for
review on certiorari assailing the July 26, 2000 decision 1 and October 18, 2000
resolution of the Court of Appeals (CA) in CA-G.R. CV No. 47571.
In 1982, respondent Ernesto C. Quiamco was approached by Juan Davalan, 2 Josefino
Gabutero and Raul Generoso to amicably settle the civil aspect of a criminal case for
robbery 3 filed by Quiamco against them. They surrendered to him a red Honda XL-100
motorcycle and a photocopy of its certificate of registration. Respondent asked for the
original certificate of registration but the three accused never came to see him again.
Meanwhile, the motorcycle was parked in an open space inside respondent's business
establishment, Avesco-AVNE Enterprises, where it was visible and accessible to the
public.
It turned out that, in October 1981, the motorcycle had been sold on installment basis to
Gabutero by petitioner Ramas Uypitching Sons, Inc., a family-owned corporation
managed by petitioner Atty. Ernesto Ramas Uypitching. To secure its payment, the
motorcycle was mortgaged to petitioner corporation. 4
When Gabutero could no longer pay the installments, Davalan assumed the obligation
and continued the payments. In September 1982, however, Davalan stopped paying the
remaining installments and told petitioner corporation's collector, Wilfredo Verao, that
the motorcycle had allegedly been "taken by respondent's men."
Nine years later, on January 26, 1991, petitioner Uypitching, accompanied by policemen,
5 went to Avesco-AVNE Enterprises to recover the motorcycle. The leader of the police
team, P/Lt. Arturo Vendiola, talked to the clerk in charge and asked for respondent.

While P/Lt. Vendiola and the clerk were talking, petitioner Uypitching paced back and
forth inside the establishment uttering "Quiamco is a thief of a motorcycle."
On learning that respondent was not in Avesco-AVNE Enterprises, the policemen left to
look for respondent in his residence while petitioner Uypitching stayed in the
establishment to take photographs of the motorcycle. Unable to find respondent, the
policemen went back to Avesco-AVNE Enterprises and, on petitioner Uypitching's
instruction and over the clerk's objection, took the motorcycle.
EDIHSC

On February 18, 1991, petitioner Uypitching filed a criminal complaint for qualified theft
and/or violation of the Anti-Fencing Law 6 against respondent in the Office of the City
Prosecutor of Dumaguete City. 7 Respondent moved for dismissal because the complaint
did not charge an offense as he had neither stolen nor bought the motorcycle. The Office
of the City Prosecutor dismissed the complaint 8 and denied petitioner Uypitching's
subsequent motion for reconsideration.
Respondent filed an action for damages against petitioners in the RTC of Dumaguete
City, Negros Oriental, Branch 37. 9 He sought to hold the petitioners liable for the
following: (1) unlawful taking of the motorcycle; (2) utterance of a defamatory remark
(that respondent was a thief) and (3) precipitate filing of a baseless and malicious
complaint. These acts humiliated and embarrassed the respondent and injured his
reputation and integrity.
On July 30, 1994, the trial court rendered a decision 10 finding that petitioner Uypitching
was motivated with malice and ill will when he called respondent a thief, took the
motorcycle in an abusive manner and filed a baseless complaint for qualified theft and/or
violation of the Anti-Fencing Law. Petitioners' acts were found to be contrary to Articles
19 11 and 20 12 of the Civil Code. Hence, the trial court held petitioners liable to
respondent for P500,000 moral damages, P200,000 exemplary damages and P50,000
attorney's fees plus costs.
Petitioners appealed the RTC decision but the CA affirmed the trial court's decision with
modification, reducing the award of moral and exemplary damages to P300,000 and
P100,000, respectively. 13 Petitioners sought reconsideration but it was denied. Thus, this
petition.
In their petition and memorandum, petitioners submit that the sole (allegedly) issue to be
resolved here is whether the filing of a complaint for qualified theft and/or violation of
the Anti-Fencing Law in the Office of the City Prosecutor warranted the award of moral
damages, exemplary damages, attorney's fees and costs in favor of respondent.
Petitioners' suggestion is misleading. They were held liable for damages not only for
instituting a groundless complaint against respondent but also for making a slanderous

remark and for taking the motorcycle from respondent's establishment in an abusive
manner.
CORRECTNESS OF THE FINDINGS
OF THE RTC AND CA
As they never questioned the findings of the RTC and CA that malice and ill will
attended not only the public imputation of a crime to respondent 14 but also the taking of
the motorcycle, petitioners were deemed to have accepted the correctness of such
findings. This alone was sufficient to hold petitioners liable for damages to respondent.
Nevertheless, to address petitioners' concern, we also find that the trial and appellate
courts correctly ruled that the filing of the complaint was tainted with malice and bad
faith. Petitioners themselves in fact described their action as a "precipitate act." 15
Petitioners were bent on portraying respondent as a thief. In this connection, we quote
with approval the following findings of the RTC, as adopted by the CA:
. . . There was malice or ill-will [in filing the complaint before the City
Prosecutor's Office] because Atty. Ernesto Ramas Uypitching knew or ought to
have known as he is a lawyer, that there was no probable cause at all for filing a
criminal complaint for qualified theft and fencing activity against [respondent].
Atty. Uypitching had no personal knowledge that [respondent] stole the
motorcycle in question. He was merely told by his bill collector ([i.e.] the bill
collector of Ramas Uypitching Sons, Inc.)[,] Wilfredo Verao[,] that Juan
Dabalan will [no longer] pay the remaining installment(s) for the motorcycle
because the motorcycle was taken by the men of [respondent]. It must be noted
that the term used by Wilfredo Verao in informing Atty. Ernesto Ramas
Uypitching of the refusal of Juan Dabalan to pay for the remaining installment
was [']taken['], not [']unlawfully taken['] or 'stolen.' Yet, despite the double
hearsay, Atty. Ernesto Ramas Uypitching not only executed the [complaintaffidavit] wherein he named [respondent] as 'the suspect' of the stolen
motorcycle but also charged [respondent] of 'qualified theft and fencing activity'
before the City [Prosecutor's] Office of Dumaguete. The absence of probable
cause necessarily signifies the presence of malice. What is deplorable in all
these is that Juan Dabalan, the owner of the motorcycle, did not accuse
[respondent] or the latter's men of stealing the motorcycle[,] much less
bother[ed] to file a case for qualified theft before the authorities. That Atty.
Uypitching's act in charging [respondent] with qualified theft and fencing
activity is tainted with malice is also shown by his answer to the question of
Cupid Gonzaga 16 [during one of their conversations] "why should you still
file a complaint? You have already recovered the motorcycle. . ."[:] "Aron
motagam ang kawatan ug motor." ("To teach a lesson to the thief of
motorcycle.") 17

Moreover, the existence of malice, ill will or bad faith is a factual matter. As a rule,
findings of fact of the trial court, when affirmed by the appellate court, are conclusive on
this Court. We see no compelling reason to reverse the findings of the RTC and the CA.
SEIcHa

PETITIONERS ABUSED THEIR

RIGHT OF RECOVERY AS
MORTGAGEE(S)
Petitioners claim that they should not be held liable for petitioner corporation's exercise
of its right as seller-mortgagee to recover the mortgaged vehicle preliminary to the
enforcement of its right to foreclose on the mortgage in case of default. They are clearly
mistaken.
True, a mortgagee may take steps to recover the mortgaged property to enable it to
enforce or protect its foreclosure right thereon. There is, however, a well-defined
procedure for the recovery of possession of mortgaged property: if a mortgagee is unable
to obtain possession of a mortgaged property for its sale on foreclosure, he must bring a
civil action either to recover such possession as a preliminary step to the sale, or to
obtain judicial foreclosure. 18
Petitioner corporation failed to bring the proper civil action necessary to acquire legal
possession of the motorcycle. Instead, petitioner Uypitching descended on respondent's
establishment with his policemen and ordered the seizure of the motorcycle without a
search warrant or court order. Worse, in the course of the illegal seizure of the
motorcycle, petitioner Uypitching even mouthed a slanderous statement.
No doubt, petitioner corporation, acting through its co-petitioner Uypitching, blatantly
disregarded the lawful procedure for the enforcement of its right, to the prejudice of
respondent. Petitioners' acts violated the law as well as public morals, and transgressed
the proper norms of human relations.
The basic principle of human relations, embodied in Article 19 of the Civil Code,
provides:
Art. 19. Every person must in the exercise of his rights and in the performance
of his duties, act with justice, give every one his due, and observe honesty and
good faith.

Article 19, also known as the "principle of abuse of right," prescribes that a person should
not use his right unjustly or contrary to honesty and good faith, otherwise he opens
himself to liability. 19 It seeks to preclude the use of, or the tendency to use, a legal right
(or duty) as a means to unjust ends.

There is an abuse of right when it is exercised solely to prejudice or injure another. 20

The exercise of a right must be in accordance with the purpose for which it was
established and must not be excessive or unduly harsh; there must be no intention to harm
another. 21 Otherwise, liability for damages to the injured party will attach.
In this case, the manner by which the motorcycle was taken at petitioners' instance was
not only attended by bad faith but also contrary to the procedure laid down by law.
Considered in conjunction with the defamatory statement, petitioners' exercise of the
right to recover the mortgaged vehicle was utterly prejudicial and injurious to respondent.
On the other hand, the precipitate act of filing an unfounded complaint could not in any
way be considered to be in accordance with the purpose for which the right to prosecute a
crime was established. Thus, the totality of petitioners' actions showed a calculated
design to embarrass, humiliate and publicly ridicule respondent. Petitioners acted in an
excessively harsh fashion to the prejudice of respondent. Contrary to law, petitioners
willfully caused damage to respondent. Hence, they should indemnify him. 22
WHEREFORE, the petition is hereby DENIED. The July 26, 2000 decision and October
18, 2000 resolution of the Court of Appeals in CA-G.R. CV No. 47571 are AFFIRMED.
Triple costs against petitioners, considering that petitioner Ernesto Ramas Uypitching is a
lawyer and an officer of the court, for his improper behavior.
SDIaHE

SO ORDERED.
Puno, Sandoval-Gutierrez, Azcuna and Garcia, JJ., concur.
|||

(Uypitching v. Quiamco, G.R. No. 146322, [December 6, 2006], 539 PHIL 227-236)

THIRD DIVISION
[G.R. No. 139442. December 6, 2006.]
LOURDES DELA CRUZ, petitioner, vs. HON. COURT OF APPEALS
and MELBA TAN TE, respondents.

DECISION

VELASCO, JR., J :
p

For unto every one that hath shall be given, and he shall have abundance: but
from him that hath not shall be taken away even that which he hath.
Holy Bible, Matthew 25:29

The Case
This petition for review seeks to nullify the April 30, 1999 Decision and the July 16, 1999
Resolution of the Court of Appeals in CA-G.R. SP No. 49097, which reversed the Decision
of the Manila Regional Trial Court (RTC), Branch 35, in Civil Case No. 98-89174, and
reinstated the Decision of the Manila Metropolitan Trial Court (MeTC), Branch 20, which
ordered petitioner Dela Cruz to vacate the subject lot in favor of respondent Tan Te. 1
The Facts
The Reyes family, represented by Mr. Lino Reyes, owned the lot located at No. 1332
Lacson Street (formerly Gov. Forbes Street), Sampaloc, Manila. Petitioner Lourdes Dela
Cruz was one of their lessees, and she religiously paid rent over a portion of the lot for well
over 40 years. Sometime in 1989, a fire struck the premises and destroyed, among others,
petitioner's dwelling. After the fire, petitioner and some tenants returned to the said lot and
rebuilt their respective houses; simultaneously, the Reyes family made several verbal
demands on the remaining lessees, including petitioner, to vacate the lot but the latter did
not comply. On February 21, 1994, petitioner was served a written demand to vacate said
lot but refused to leave. Despite the setback, the Reyes family did not initiate court
proceedings against any of the lessees.
On November 26, 1996, the disputed lot was sold by the Reyeses to respondent Melba Tan
Te by virtue of the November 26, 1996 Deed of Absolute Sale. Respondent bought the lot
in question for residential purposes. Despite the sale, petitioner Dela Cruz did not give up
the lot.
HSIaAT

On January 14, 1997, petitioner was sent a written demand to relinquish the premises which
she ignored, prompting respondent Tan Te to initiate conciliation proceedings at the
barangay level. While respondent attempted to settle the dispute by offering financial
assistance, petitioner countered by asking PhP 500,000.00 for her house. Respondent
rejected the counter offer which she considered unconscionable. As a result, a certificate
to file action was issued to Tan Te.
On September 8, 1997, respondent Tan Te filed an ejectment complaint with damages
before the Manila MeTC, entitled Melba Tan Te v. Lourdes Dela Cruz and docketed as
Civil Case No. 156730-CV. The complaint averred that: (1) the previous owners, the
Reyeses were in possession and control of the contested lot; (2) on November 26, 1996, the
lot was sold to Tan Te; (3) prior to the sale, Dela Cruz forcibly entered the property with
strategy and/or stealth; (4) the petitioner unlawfully deprived the respondent of physical
possession of the property and continues to do so; and, (5) the respondent sent several
written demands to petitioner to vacate the premises but refused to do so.
On October 24, 1997, petitioner filed her answer and alleged that: (1) the MeTC had no
jurisdiction over the case because it falls within the jurisdiction of the RTC as more than
one year had elapsed from petitioner's forcible entry; (2) she was a rent-paying tenant
protected by PD 20; 2 (3) her lease constituted a legal encumbrance upon the property; and
(4) the lot was subject of expropriation.
The Ruling of the Manila MeTC
On April 3, 1998, the MeTC decided as follows:
WHEREFORE, judgment is hereby rendered in favor of the plaintiff as follows:
1. Ordering the defendant and all persons claiming right under her to vacate the
premises situated at 1332 Lacson Street (formerly Gov. Forbes Street), Sampaloc,
Manila and peacefully return possession thereof to plaintiff;
THaDAE

2. Ordering the defendant to pay the plaintiff the amount of P360.00 a month from
December 1996 to November 1997; P432.00 a month from December 1997 to
November 1998, plus 20% for each subsequent year until the premises shall have
been vacated and turned over to the plaintiff;
3. Ordering the defendant to pay the plaintiff the amount of P10,000.00 as
attorney's fees; and, the costs of the suit.
SO ORDERED. 3

The Ruling of the Regional Trial Court

Unconvinced, petitioner Dela Cruz appealed the Decision of the MeTC in the Manila RTC
and the appeal was docketed as Civil Case No. 98-89174. On September 1, 1998, the RTC
rendered its judgment setting aside the April 3, 1998 Decision of the Manila MeTC and
dismissed respondent Tan Te's Complaint on the ground that it was the RTC and not the
MeTC which had jurisdiction over the subject matter of the case. The RTC believed that
since Tan Te's predecessor-in-interest learned of petitioner's intrusion into the lot as early
as February 21, 1994, the ejectment suit should have been filed within the one-year
prescriptive period which expired on February 21, 1995. Since the Reyes did not file the
ejectment suit and respondent Tan Te filed the action only on September 8, 1997, then the
suit had become an accion publiciana cognizable by the RTC.
The Ruling of the Court of Appeals
Disappointed at the turn of events, respondent Tan Te appealed the adverse Decision to the
Court of Appeals (CA) which was docketed as CA-G.R. SP No. 49097. This time, the CA
rendered a Decision in favor of respondent Tan Te reversing the Manila RTC September
1, 1998 Decision and reinstated the Manila MeTC April 3, 1998 Decision.
Petitioner tried to have the CA reconsider its Decision but was rebutted in its July 16, 1999
Resolution.
Unyielding to the CA Decision and the denial of her request for reconsideration, petitioner
Dela Cruz now seeks legal remedy through the instant Petition for Review on Certiorari
before the Court.
The Issues
Petitioner Dela Cruz claims two (2) reversible errors on the part of the appellate court, to
wit:
EAISDH

A
THE HON. COURT OF APPEALS, WITH DUE RESPECT, WENT BEYOND
THE ISSUES OF THE CASE AND CONTRARY TO THOSE OF THE TRIAL
COURT.
B
THE HON. COURT OF APPEALS, WITH DUE RESPECT, ERRED IN
REVERSING THE DECISION OF THE RTC AND IN EFFECT,
REINSTATING THE DECISION OF THE [MeTC] WHICH IS
CONTRADICTED BY THE EVIDENCE ON RECORD. 4

The Court's Ruling

Discussion on Rule 45
Before we dwell on the principal issues, a few procedural matters must first be resolved.
Petitioner Dela Cruz asks the Court to review the findings of facts of the CA, a course of
action proscribed by Section 1, Rule 45. Firm is the rule that findings of fact of the CA are
final and conclusive and cannot be reviewed on appeal to this Court provided they are
supported by evidence on record or substantial evidence. Fortunately for petitioner, we will
be liberal with her petition considering that the CA's factual findings contradict those of
the RTC, and there was an asseveration that the court a quo went beyond the issues of the
case. Indeed, these grounds were considered exceptions to the factual issue bar rule.
Secondly, the petition unnecessarily impleaded the CA in violation of Section 4, Rule 45.
We will let this breach pass only because there is a need to entertain the petition due to the
conflicting rulings between the lower courts; however, a repetition may result to sanctions.
The actual threshold issue is which court, the Manila RTC or the Manila MeTC, has
jurisdiction over the Tan Te ejectment suit. Once the jurisdictional issue is settled, the heart
of the dispute is whether or not respondent is entitled to the ejectment of petitioner Dela
Cruz from the premises.
ECaITc

However, the petition is bereft of merit.

On the Issue of Jurisdiction
Jurisdiction is the power or capacity given by the law to a court or tribunal to entertain,
hear and determine certain controversies. 5 Jurisdiction over the subject matter is conferred
by law.
Section 33 of Chapter III on Metropolitan Trial Courts, Municipal Trial Courts, and
Municipal Circuit Trial Courts of B. P. No. 129 6 provides:
Section 33. Jurisdiction of Metropolitan Trial Courts, Municipal Trial Courts
and Municipal Circuit Trial Courts in civil cases. Metropolitan Trial Courts,
Municipal Trial Courts, and Municipal Circuit Trial Courts shall exercise:
xxx xxx xxx
(2) Exclusive original jurisdiction over cases of forcible entry and unlawful
detainer: Provided, That when, in such cases, the defendant raises the question of
ownership in his pleadings and the question of possession cannot be resolved
without deciding the issue of ownership, the issue of ownership shall be resolved
only to determine the issue of possession.

Thus exclusive, original jurisdiction over ejectment proceedings (accion interdictal) is

lodged with the first level courts. This is clarified in Section 1, Rule 70 of the 1997 Rules
of Civil Procedure that embraces an action for forcible entry (detentacion), where one is
deprived of physical possession of any land or building by means of force, intimidation,
threat, strategy, or stealth. In actions for forcible entry, three (3) requisites have to be met
for the municipal trial court to acquire jurisdiction. First, the plaintiffs must allege their
prior physical possession of the property. Second, they must also assert that they were
deprived of possession either by force, intimidation, threat, strategy, or stealth. Third, the
action must be filed within one (1) year from the time the owners or legal possessors
learned of their deprivation of physical possession of the land or building.
TAIESD

The other kind of ejectment proceeding is unlawful detainer (desahucio), where one
unlawfully withholds possession of the subject property after the expiration or termination
of the right to possess. Here, the issue of rightful possession is the one decisive; for in such
action, the defendant is the party in actual possession and the plaintiff's cause of action is
the termination of the defendant's right to continue in possession. 7 The essential requisites
of unlawful detainer are: (1) the fact of lease by virtue of a contract express or implied; (2)
the expiration or termination of the possessor's right to hold possession; (3) withholding by
the lessee of the possession of the land or building after expiration or termination of the
right to possession; (4) letter of demand upon lessee to pay the rental or comply with the
terms of the lease and vacate the premises; and (5) the action must be filed within one (1)
year from date of last demand received by the defendant.

A person who wants to recover physical possession of his real property will prefer an
ejectment suit because it is governed by the Rule on Summary Procedure which allows
immediate execution of the judgment under Section 19, Rule 70 unless the defendant
perfects an appeal in the RTC and complies with the requirements to stay execution; all of
which are nevertheless beneficial to the interests of the lot owner or the holder of the right
of possession.
On the other hand, Section 19, of Chapter II of B.P. No. 129 on Regional Trial Courts
provides:
Section 19. Jurisdiction in civil cases. Regional Trial Courts shall exercise
exclusive original jurisdiction:
xxx xxx xxx
(2) In all civil actions which involve the title to, or possession of, real property,
or any interest therein, except actions for forcible entry into and unlawful detainer
of lands or buildings, original jurisdiction over which is conferred upon

Metropolitan Trial Courts, Municipal Trial Courts and Municipal Circuit Trial
Courts.

Two (2) kinds of action to recover possession of real property which fall under the
jurisdiction of the RTC are: (1) the plenary action for the recovery of the real right of
possession (accion publiciana) when the dispossession has lasted for more than one year
or when the action was filed more than one (1) year from date of the last demand received
by the lessee or defendant; and (2) an action for the recovery of ownership (accion
reivindicatoria) which includes the recovery of possession.
TCaADS

These actions are governed by the regular rules of procedure and adjudication takes a
longer period than the summary ejectment suit.
To determine whether a complaint for recovery of possession falls under the jurisdiction
of the MeTC (first level court) or the RTC (second level court), we are compelled to go
over the allegations of the complaint. The general rule is that what determines the nature
of the action and the court that has jurisdiction over the case are the allegations in the
complaint. These cannot be made to depend upon the defenses set up in the answer or
pleadings filed by the defendant. 8
This general rule however admits exceptions. In Ignacio v. CFI of Bulacan, it was held
"that while the allegations in the complaint make out a case for forcible entry, where
tenancy is averred by way of defense and is proved to be the real issue, the case should be
dismissed for lack of jurisdiction as the case should properly be filed with the then Court
of Agrarian Relations." 9
The cause of action in a complaint is not what the designation of the complaint states, but
what the allegations in the body of the complaint define and describe. The designation or
caption is not controlling, more than the allegations in the complaint themselves are, for it
is not even an indispensable part of the complaint. 10
Let us refer to the allegations of the complaint filed in the Manila MeTC in Civil Case No.
98-89174, which we quote verbatim:
3. That plaintiff is the absolute and registered owner of a parcel of land located at
No. 1332, Lacson Street, Sampaloc, Manila now being occupied by defendant;
4. That plaintiff purchased the above-said parcel of land together with its
improvements from the legal heirs of the late EMERLINDA DIMAYUGA
REYES on November 26, 1996, under and by virtue of a Deed of Absolute Sale
. . .;
DTIaHE

5. That pursuant to the said deed of sale, the title to the land and all its
improvements was transferred in plaintiff's name as evidenced by Transfer

Certificate of Title No. 233273 issued by the Register of Deeds of Manila on April
22, 1997 . . .;
6. That prior to said sale, the previous owners, represented by Mr. Lino Reyes,
husband of the said deceased Emerlinda D. Reyes and the administrator of her
estate, was in possession and control of the property subject of this complaint;
7. That also prior to said sale, defendant, without the knowledge and consent of
Mr. Lino Reyes, surreptitiously and by means of stealth and strategy entered, used
and occupied the said premises thus depriving the former of rightful possession
thereof;
8. That on February 21, 1994, Mr. Lino Reyes, through Atty. Alejo Sedico, his
lawyer, furnished the defendants a letter formally demanding that defendant
vacate the premises . . .;
9. That, however, defendant failed and refused to vacate despite just and legal
demand by Mr. Lino Reyes;
10. That after the sale to plaintiff of said premises, plaintiff has several times
demanded of defendants to vacate the premises, the last demand having been
made on them personally and in writing on January 14, 1997 . . .;
11. That defendant failed and refused and still fails and refuses to vacate the
premises without legal cause or justifiable reason whatsoever; 11

The answer of petitioner averred:

4. The Court has no jurisdiction over the case, having been filed by plaintiff more
than the reglementary one year period to commence forcible entry case, which is
reckoned from the date of the alleged unlawful entry of defendant by the use of
stealth and strategy into the premises;
5. For more than four decades now, defendant has been and still is a rent-paying
tenant of the subject land occupied by their residential house, dating back to the
original owner-lessor, the Dimayuga family. Her lease with no definite duration,
commenced with a rent at P60.00 per month until it was gradually increased in
the ensuing years. As of November 1996, it stood at P300.00 a month;
ESAHca

6. In this circumstances [sic], defendant enjoys the protective mantle of P.D. 20

and the subsequent rental control status against dispossession. She cannot be
ejected other than for causes prescribed under B.P. Blg. 25. Further, in case of
sale of the land, she has the right of first refusal under the express provision of
P.D. 1571;

7. Throughout the years of her tenancy, defendant has been updated in her rental
payment until the collector of the original owner-lessor no longer came around as
she has done theretofore;
7.1. As a result, she was compelled to file a petition for consignation of
rent before the Metropolitan Trial Court of Manila;
8. A bona fide tenant within the ambit if [sic] P.D. 20 and the subsequent rental
control status, including B.P. Blg. 25, under its terms, cannot be ousted on a plea
of expiration of her monthly lease;
9. Her lease constitutes a legal encumbrance upon the property of the
lessor/owner and binds the latter's successor-in-interest who is under obligation
to respect it;
10. The land at bench is the subject of a pending expropriation proceedings;
11. Plaintiff being a married woman cannot sue or be sued without being joined
by her husband; 12

Undeniably, the aforequoted allegations of the complaint are vague and iffy in revealing
the nature of the action for ejectment.
The allegations in the complaint show that prior to the sale by Lino Reyes, representing the
estate of his wife Emerlinda Reyes, he was in possession and control of the subject lot but
were deprived of said possession when petitioner, by means of stealth and strategy, entered
and occupied the same lot. These circumstances imply that he had prior physical possession
of the subject lot and can make up a forcible entry complaint.
ECcTaH

On the other hand, the allegation that petitioner Dela Cruz was served several demands to
leave the premises but refused to do so would seem to indicate an action for unlawful
detainer since a written demand is not necessary in an action for forcible entry. It is a fact
that the MeTC complaint was filed on September 8, 1997 within one (1) year from the date
of the last written demand upon petitioner Dela Cruz on January 14, 1997.
As previously discussed, the settled rule is jurisdiction is based on the allegations in the
initiatory pleading and the defenses in the answer are deemed irrelevant and immaterial in
its determination. However, we relax the rule and consider the complaint at bar as an
exception in view of the special and unique circumstances present. First, as inIgnacio v.
CFI of Bulacan, 13 the defense of lack of jurisdiction was raised in the answer wherein
there was an admission that petitioner Dela Cruz was a lessee of the former owners of the
lot, the Reyeses, prior to the sale to respondent Tan Te. The fact that petitioner was a tenant
of the predecessors-in-interest of respondent Tan Te is material to the determination of
jurisdiction. Since this is a judicial admission against the interest of petitioner, such

admission can be considered in determining jurisdiction. Second, the ejectment suit was
filed with the Manila MeTC on September 8, 1997 or more than nine (9) years ago. To
dismiss the complaint would be a serious blow to the effective dispensation of justice as
the parties will start anew and incur additional legal expenses after having litigated for a
long time. Equitable justice dictates that allegations in the answer should be considered to
aid in arriving at the real nature of the action. Lastly, Section 6, Rule 1 of the Rules of
Court clearly empowers the Court to construe Rule 70 and other pertinent procedural
issuances "in a liberal manner to promote just, speedy, and inexpensive disposition of every
action and proceeding."
Based on the complaint and the answer, it is apparent that the Tan Te ejectment complaint
is after all a complaint for unlawful detainer. It was admitted that petitioner Dela Cruz was
a lessee of the Reyeses for around four (4) decades. Thus, initially petitioner as lessee is
the legal possessor of the subject lot by virtue of a contract of lease. When fire destroyed
her house, the Reyeses considered the lease terminated; but petitioner Dela Cruz persisted
in returning to the lot and occupied it by strategy and stealth without the consent of the
owners. The Reyeses however tolerated the continued occupancy of the lot by petitioner.
Thus, when the lot was sold to respondent Tan Te, the rights of the Reyeses, with respect
to the lot, were transferred to their subrogee, respondent Tan Te, who for a time also
tolerated the stay of petitioner until she decided to eject the latter by sending several
demands, the last being the January 14, 1997 letter of demand. Since the action was filed
with the MeTC on September 8, 1997, the action was instituted well within the one (1) year
period reckoned from January 14, 1997. Hence, the nature of the complaint is one of
unlawful detainer and the Manila MeTC had jurisdiction over the complaint.
IHEAcC

Thus, an ejectment complaint based on possession by tolerance of the owner, like the Tan
Te complaint, is a specie of unlawful detainer cases.
As early as 1913, case law introduced the concept of possession by tolerance in ejectment
cases as follows:
It is true that the landlord might, upon the failure of the tenant to pay the stipulated
rents, consider the contract broken and demand immediate possession of the
rented property, thus converting a legal possession into illegal possession. Upon
the other hand, however, the landlord might conclude to give the tenant credit for
the payment of the rents and allow him to continue indefinitely in the possession
of the property. In other words, the landlord might choose to give the tenant credit
from month to month or from year to year for the payment of their rent, relying
upon his honesty of his financial ability to pay the same. During such period the
tenant would not be in illegal possession of the property and the landlord could
not maintain an action of desahucio until after he had taken steps to convert the
legal possession into illegal possession. A mere failure to pay the rent in
accordance with the contract would justify the landlord, after the legal notice, in

bringing an action of desahucio. The landlord might, however, elect to recognize

the contract as still in force and sue for the sums due under it. It would seem to
be clear that the landlord might sue for the rents due and [unpaid, without electing
to terminate the contract of tenancy;] [w]hether he can declare the contract of
tenancy broken and sue in an action desahucio for the possession of the property
and in a separate actions for the rents due and damages, etc. 14

The concept of possession by tolerance in unlawful detainer cases was further refined and
applied in pertinent cases submitted for decision by 1966. The rule was articulated as
follows:
Where despite the lessee's failure to pay rent after the first demand, the lessor did
not choose to bring an action in court but suffered the lessee to continue
occupying the land for nearly two years, after which the lessor made a second
demand, the one-year period for bringing the detainer case in the justice of the
peace court should be counted not from the day the lessee refused the first demand
for payment of rent but from the time the second demand for rents and surrender
of possession was not complied with. 15

In Calubayan v. Pascual, a case usually cited in subsequent decisions on ejectment, the

concept of possession by tolerance was further elucidated as follows:
In allowing several years to pass without requiring the occupant to vacate the
premises nor filing an action to eject him, plaintiffs have acquiesced to
defendant's possession and use of the premises. It has been held that a person
who occupies the land of another at the latter's tolerance or permission,
without any contract between them, is necessarily bound by an implied
promise that he will vacate upon demand, failing which a summary action for
ejectment is the proper remedy against them. The status of the defendant is
analogous to that of a lessee or tenant whose term of lease has expired but whose
occupancy continued by tolerance of the owner. In such a case, the unlawful
deprivation or withholding of possession is to be counted from the date of the
demand to vacate. 16 (Emphasis supplied.)
HDacIT

From the foregoing jurisprudence, it is unequivocal that petitioner's possession after she
intruded into the lot after the fire was by tolerance or leniency of the Reyeses and hence,
the action is properly an unlawful detainer case falling under the jurisdiction of the Manila
MeTC.
Even if we concede that it is the RTC and not the MeTC that has jurisdiction over the Tan
Te complaint, following the reasoning that neither respondent nor her predecessor-ininterest filed an ejectment suit within one (1) year from February 21, 1994 when the
Reyeses knew of the unlawful entry of petitioner, and hence, the complaint is transformed
into an accion publiciana, the Court deems it fair and just to suspend its rules in order to
render efficient, effective, and expeditious justice considering the nine (9) year pendency

of the ejectment suit. More importantly, if there was uncertainty on the issue of jurisdiction
that arose from the averments of the complaint, the same cannot be attributed to respondent
Tan Te but to her counsel who could have been confused as to the actual nature of the
ejectment suit. The lawyer's apparent imprecise language used in the preparation of the
complaint without any participation on the part of Tan Te is sufficient special or compelling
reason for the grant of relief.
The case of Barnes v. Padilla 17 elucidates the rationale behind the exercise by this Court
of the power to relax, or even suspend, the application of the rules of procedure:
Let it be emphasized that the rules of procedure should be viewed as mere tools
designed to facilitate the attainment of justice. Their strict and rigid application,
which would result in technicalities that tend to frustrate rather than promote
substantial justice, must always be eschewed. Even the Rules of Court reflect this
principle. The power to suspend or even disregard rules can be so pervasive and
compelling as to alter even that which this Court itself has already declared to be
final . . . .
The emerging trend in the rulings of this Court is to afford every party litigant the
amplest opportunity for the proper and just determination of his cause, free from
the constraints of technicalities. Time and again, this Court has consistently held
that rules must not be applied rigidly so as not to override substantial justice. 18

Moreover, Section 8, Rule 40 authorizes the RTC in case of affirmance of an order of

the municipal trial court dismissing a case without trial on the merits and the ground of
dismissal is lack of jurisdiction over the subject matter to try the case on the merits as
if the case was originally filed with it if the RTC has jurisdiction over the case. In the same
vein, this Court, in the exercise of its rule-making power, can suspend its rules with respect
to this particular case (pro hac vice), even if initially, the MeTC did not have jurisdiction
over the ejectment suit, and decide to assume jurisdiction over it in order to promptly
resolve the dispute.
cEHSTC

The issue of jurisdiction settled, we now scrutinize the main issue.

At the heart of every ejectment suit is the issue of who is entitled to physical possession of
the lot or possession de facto.
We rule in favor of respondent Tan Te for the following reasons:
1. Petitioner admitted in her Answer that she was a rent-paying tenant of the Reyeses,
predecessors-in-interest of respondent Tan Te. As such, she recognized the ownership of
the lot by respondent, which includes the right of possession.

2. After the fire raged over the structures on the subject lot in late 1989 the contracts of
lease expired, as a result of which Lino Reyes demanded that all occupants, including
petitioner, vacate the lot but the latter refused to abandon the premises. During the duration
of the lease, petitioner's possession was legal but it became unlawful after the fire when the
lease contracts were deemed terminated and demands were made for the tenants to return
possession of the lot.
3. Petitioner's possession is one by the Reyeses' tolerance and generosity and later by
respondent Tan Te's.
Petitioner fully knows that her stay in the subject lot is at the leniency and magnanimity of
Mr. Lino Reyes and later of respondent Tan Te; and her acquiescence to such use of the lot
carries with it an implicit and assumed commitment that she would leave the premises the
moment it is needed by the owner. When respondent Tan Te made a last, written demand
on January 14, 1997 and petitioner breached her promise to leave upon demand, she lost
her right to the physical possession of the lot. Thus, respondent Tan Te should now be
allowed to occupy her lot for residential purposes, a dream that will finally be realized after
nine (9) years of litigation.
Petitioner raises the ancillary issue that on March 15, 1998, the Manila City Council passed
and approved Ordinance No. 7951:
DHaECI

[a]uthorizing the Manila City Mayor to acquire either by negotiation or

expropriation certain parcels of land covered by Transfer Certificates of Title
Nos. 233273, 175106 and 140471, containing an area of One Thousand Four
Hundred Twenty Five (1,425) square meters, located at Maria Clara and
Governor Forbes Streets, Sta. Cruz, Manila, for low cost housing and award to
actual bonafide residents thereat and further authorizing the City Mayor to avail
for that purpose any available funds of the city and other existing funding
facilities from other government agencies . . . . 19

It readily appears that this issue was not presented before the Court of Appeals in CA-G.R.
SP No. 49097 despite the fact that the respondent's petition was filed on September 25,
1998, six months after the ordinance was passed. Thus, this issue is proscribed as are all
issues raised for the first time before the Court are proscribed.
Even granting for the sake of argument that we entertain the issue, we rule that the intended
expropriation of respondent's lot (TCT No. 233273) by the city government of Manila will
not affect the resolution of this petition. For one thing, the issue can be raised by petitioner
in the appropriate legal proceeding. Secondly, the intended expropriation might not even
be implemented since it is clear from the ordinance that the City Mayor will still locate
available funds for project, meaning the said expense is not a regular item in the budget.

WHEREFORE, this petition is DENIED for lack of merit. The April 30, 1999 Decision of
the Court of Appeals reinstating the April 3, 1998 MeTC Decision in Civil Case No.
156730-CV and the July 16, 1999 Resolution in CA-G.R. SP No. 49097 are hereby
AFFIRMED IN TOTO.

No costs.
SO ORDERED.
Quisumbing, Carpio, Carpio Morales and Tinga, JJ., concur.
(Dela Cruz v. Court of Appeals, G.R. No. 139442, [December 6, 2006], 539 PHIL 158181)
|||

FIRST DIVISION
[G.R. No. 146120. January 27, 2006.]
DEPARTMENT OF HEALTH, petitioner, vs. HTMC ENGINEERS
COMPANY, respondent.

DECISION

CHICO-NAZARIO, J :
p

Before Us is a Petition for Review on Certiorari under Rule 45 of the Rules of Civil
Procedure assailing the Court of Appeals' Decision 1 denying petitioner's petition for
review of the Decision 2 of the Construction Industry Arbitration Commission (CIAC)
awarding respondent's claim against petitioner in the total amount of P4,430,174.00 with
interest, as well as the Resolution dated 20 November 2000 denying petitioner's Motion
for Reconsideration.
On various dates in May 1996, petitioner Department of Health (DOH) entered into four
Owner-Consultant Agreements with respondent HTMC Engineers Company (HTMC)
involving various infrastructure projects for East Avenue Medical Center, Rizal Medical
Center, Amang Rodriguez Medical Center, and Tondo Medical Center.
All four consultancy agreements for the above-named hospitals were similarly-worded,
indicating therein that said contracts were intended for the preparation of architectural
and engineering (A & E) design plans and bid documents/requirements, and for
construction supervision (CS). Moreover, Under Article 5.1 of the consultancy contracts,
the professional fee of HTMC is 7.5% of the project fund allocation.
Sometime in July and August 1996, respondent was able to complete the A & E services
for all four hospitals and the necessary documents were submitted to petitioner in
accordance with the consultancy agreements. Thus, on 07 October 1996, DOH
Undersecretary Milagros L. Fernandez issued a Memorandum Circular to the Chiefs of
Hospital of the four hospitals advising them to facilitate the payment for the Consultancy
Service Contract of the 1995 various infrastructure projects of their respective hospitals
once the copy of the approved contract has been forwarded to their office. Thereafter,
Arch. Ma. Rebecca Penafiel, Director III, Health Infrastructure Services, DOH, on 15
October 1996, wrote to the Chiefs of Hospital advising the latter that respondent had
submitted the required contract documents and were therefore requested to facilitate the
corresponding payment of 70% of the consultancy fee as stipulated in the contracts.

On 29 November 1996, petitioner requested the following amendments to the

consultancy agreements pursuant to the guidelines issued by the National Economic
Development Authority (NEDA):
1. To divide the scope of works under the original contracts into two (2)
separate contracts:
a. Preparation of Detailed Architecture and Engineering Plans, Technical
Specifications and Detailed Estimates; and
cITaCS

b. Full time construction supervision.

2. To breakdown the original professional fee of 7.5% based on the project fund
allocation into two and to change the basis of payment, thus:
a. 6% based on the project contract cost (PCC) shall be paid to the
claimant for the 1st scope of work (A & E service); and
b. 1.5% based on the project contract cost shall be paid to the claimant
for the 2nd scope of work (CS services).
3. To define the project contract cost as to the cost of the winning bid price.

In response to the proposed amendments, on 24 January 1997, HTMC sent the DOH a
position paper expressing their opinion on the matter. Among the contents of said
position paper are the following:
1. In order that the intent of the TOR (Terms of Reference), being the basis of
the award will not be disturbed, the 7.5% consultant's fee for the Regular
A&E and CS shall be retained, splitting this to 6% for Regular A&E and
1.5% for CS is acceptable, on certain qualifying breakdown and
schedules, to wit:
a) The 7.5% shall be based on the a [sic] Project Contract Cost which
includes any adjustments (negative or positive variations);
b) The 6% A&E Consultant's fee shall be paid in accordance with the
following payment schedule:
10% of Project Allotment Fund, upon signing of contract
30% to complete all payments to 40% of the roughly
estimated Project Construction Cost, upon 50%
completion of design works

45% to complete all payments to 85% of the detailed

estimated Project Construction Cost, upon completion
and submission of the contract documents
15% to complete the payments to 100% of the Project Contact
Cost, upon periodic inspection during the construction of
the project, further broken to 10% upon 50% completion
and 5% upon owner's acceptance of substantial
completion
xxx xxx xxx
e) The 1.5% for CS shall be paid in accordance with the following terms
of payment as per industry practice:
15% of the Project Contract Cost; upon signing of the
contract.
Remaining balance shall be paid on an equal monthly
installments [sic] and within the original construction contract
schedule
xxx xxx xxx
h) The combined 6% A&E and 1.5% CS or a total of 7.5% of the Project
Contract Cost shall be paid in accordance with the following:
10% of the Project Allotment Fund (temporary basis), upon
signing of the contract
60% to complete all payments to 70% of the detailed
estimated Project Construction Cost, upon completion
and submission of the contract documents
AHaETS

30% to complete all payments to 100% of the Project

Contract Cost, upon completion of the construction of the
project, further broken down to 10% upon 50%
completion and 20% upon owner's acceptance of
substantial completion

Meanwhile, in compliance with the Memorandum Circular issued by DOH

Undersecretary Fernandez, the Amang Rodriguez Medical Center paid HTMC the
amount of P1,870,312.00 on 19 December 1996, while the Rizal Medical Center paid
HTMC P498,400.00 on 26 December 1996. Thereafter, the Tondo Medical Center paid
respondent the amount of P2,119,687.00 on 10 February 1997, and the East Avenue
Medical Center, the amount of P249,131.00 on 18 June 1997.

It would seem, however, that no clear settlement had been reached by the parties in
connection with petitioner's proposed amendments to the consultancy agreements, thus,
the DOH refused to issue the necessary notices to proceed with the construction
supervision in favor of HTMC.
On 22 April 1998, respondent's counsel sent a letter to the DOH stating that:
In the stated Owner-Consultant Agreements, my client had completed the
Detailed Architectural and Engineering Plans, Technical Specifications and
Detailed Estimates, and was paid 10% and 60% of the "Construction Contract
Cost" as downpayment and for the completed documents, respectively.
The above-referred projects had already been awarded to different Contractors
and construction works are on-going, but my client is not allowed to undertake
the Construction Supervision, inspite [sic] of repeated inquiry and request for
the Notice to Proceed from the DOH Infrastructure Service Office and the DOH
PEAC.
The Owner-Consultant Agreement, in its Article 5, provides that the
Consultant's Fee is based on the "project fund allocation" which should have
been the basis of the percentages of payments as partially done.
The documents (plans, specifications, estimates, etc.), which my client had
undertaken for the East Avenue Medical Center, include the complete Cold
Water Supply Rehabilitation, Standard Fire Protection, New Hot Water Supply
and Distribution, and Improvement of Storm Drainage System with a total
estimated construction cost in 1996 of P44M. The documents, which my client
had undertaken for the Rizal Medical Center, include Phase I and Phase II with
a total estimated construction cost in 1996 of P30.68M.
The project fund allocation for the above-referred projects had a total of
P91,200,000.00 with a total Consultant's Fee of P6,840,000.00 based on Article
5 of the Owner-Consultant Agreement. However, only the gross amount of
P4,737,530.72 had been paid.
In spite of my client's various demands, you did not issue any Notice to Proceed
for the Construction Supervision of the above-referred projects, and that you
insisted to pay on the percentage basis of the 'construction contract cost' in
violation of the Owner-Consultant Agreement.
In view of all the above, it is hereby requested that the balance of the
Consultant's Fee for the above four (4) referred projects in the amount of
P2,102,469.28 be paid in full to my client.
Further, it is requested that the Consultant's Fee in the amount of P4,461,000.00
for the other works undertaken by my client for the East Avenue and the Rizal

Medical Centers, which are awaiting project fund allocations, be likewise paid
in full to my client.
Should you fail to settle with my client, the above-requested amounts within ten
(10) days from receipt hereof, we will be constrained to resort to Arbitration in
pursuance to Article 12 of the Owner-Consultant Agreement. 3

For petitioner's continued refusal to heed respondent's demand for payment and issuance
of notices to proceed, on 26 October 1998, HTMC filed a claim against DOH and
requested for arbitration with the CIAC.
On 30 March 1999, Arbitrator Custodio Parlade issued the assailed Decision in favor of
HTMC, the dispositive portion of which states:
AWARD
In summary, award is hereby made in favor of the claimant ordering the
respondent to pay claimant the amount of P3,543,630 due for A&E services, to
reimburse claimant for its expenses for salaries to the three engineers who were
engaged by HTMC to perform construction supervision work in the amount of
P576,000.00, and to pay as damages unrealized profit as a result of the nonperformance of the this [sic] work in the amount of P310,544.00 or the total
amount of P4,430,174.00 with interest at the rate of 6% per annum from the
time of the promulgation of this decision and 12% per annum on the amount
due [principal plus accrued interest] from the date this decision becomes final.
All other claims are hereby denied. 4

On 27 April 2000, petitioner filed a petition for review on certiorari with the Court of
Appeals, which petition was subsequently denied for lack of merit by the appellate court
on 28 September 2000. According to the Court of Appeals:

The instant petition is without merit.

Anent the issue of jurisdiction, respondent arbitrator correctly assumed
jurisdiction over CIAC Case No. 33-98. The owner-consultant agreement
provides in paragraphs 12.1 and 12.2:
12.1 Disputes
Any dispute concerning any question arising under this
Agreement which is not disposed of by agreement between the

parties, shall be decided by the Secretary of Health who shall

furnish the CONSULTANT a written copy of his decision.

TDCAHE

12.2 Arbitration
The decision of the Secretary of Health shall be final and
conclusive unless within thirty (30) days from the date of receipt
thereof, the CONSULTANT shall deliver to OWNER a written
notice addressed to the Secretary of Health stating its desire to
submit the controversy to arbitration. In such event, the dispute
shall be decided in accordance with the provisions of the Rules
of Procedure in the Construction Industry Arbitration Law under
EO 1008.
Thus, when petitioner continued not to act on HTMC's request for the
observance of the provisions of the agreement, private respondent HTMC
properly submitted the claim with the CIAC for arbitration.
Petitioner's posture that the referral of the case to the CIAC is premature
deserves scant consideration. Respondent had demanded that petitioner comply
with the agreement. The latter, through the Secretary of Health, failed to act on
the request. Later, a demand letter was sent to petitioner. Still, it did not comply.
Thus, in order to protect its right, HTMC properly submitted its claim with the
CIAC, it being the eventual forum of their agreement as mandated by E.O. No.
1008.
Petitioner's reliance and interpretation of the Supreme Court's ruling in Jesco
Services Incorporated vs. Vera is misplaced. The same was clarified in a
subsequent resolution of the Third Division of the Supreme Court dated
September 30, 1996 in G.R. No. 125706 entitled "China Chang Jiang Energy
Corporation (Philippines) versus Rosal Infrastructure Builders, represented by
its General Manager, Alberto S. Surla, Construction Industry Arbitration
Commission, Prudencio F. Baranda, and the Court of Appeals." In effect, the
owner-consultant agreement entered into by petitioner and private respondents
did not divest CIAC of jurisdiction over the case. For even if they elected
another forum, their agreement will remain to be within the jurisdiction of
CIAC. In so doing, they may not unilaterally divest CIAC of its jurisdiction as
provided for by law.
Coming now to the monetary award made by respondent arbitrator. We find the
same to be in accord with the tenor of the agreement of the parties. The
agreement being the law between them, the Court will leave it as it is. Absent
any abuse in the mathematical computation of the monetary award, the same
should be respected. In the present case, the computation is based on the
provisions of the agreement entered into by the parties.

Anent the allegation of partiality on the part of respondent arbitrator, there is

nothing on record that would show that respondent arbitrator had tilted the
scales of justice. The regularity in the conduct of official duties must therefore
be continued to be presumed, as no act of irregularity much less partiality has
been shown. The insinuations against respondent arbitrator [are] without basis.
In view of the foregoing, this Court finds it unnecessary to have the present case
consolidated with CA G.R. SP No. 58994, as this would unnecessarily delay the
decision in this case.
IATSHE

WHEREFORE, the instant petition is hereby DENIED due course for lack of
merit. 5

Petitioner's Motion for Reconsideration was also denied in a Resolution issued by the
appellate court on 20 November 2000.
Hence, the instant petition containing two issues for consideration of this Court, to wit:
I. Whether or not the Court of Appeals erred in stating that the Construction
Industry Arbitration Commission (CIAC) had jurisdiction over the
claim;
II. Whether or not the Court of Appeals erred in stating that the monetary award
by the CIAC arbitrator was in accord with the tenor of the consultancy
agreements.

We find no merit in the instant petition.

Contrary to the claim of the DOH, CIAC has jurisdiction over the claim of HTMC. As
stated in Section 4 of Executive Order No. 1008, also known as the "Construction
Industry Arbitration Law":
SECTION 4. Jurisdiction. The CIAC shall have original and exclusive
jurisdiction over disputes arising from, or connected with, contracts entered into
by parties involved in construction in the Philippines, whether the disputes
arises before or after the completion of the contract, or after the abandonment or
breach thereof. These disputes may involve government or private contracts.
For the Board to acquire jurisdiction, the parties to a dispute must agree to
submit the same to voluntary arbitration.

Furthermore, Article III, Section 1 of the CIAC Rules of Procedure Governing

Construction Arbitration provides:
SECTION 1. Submission to CIAC Jurisdiction. An arbitration clause in a
construction contract or a submission to arbitration of a construction dispute

shall be deemed an agreement to submit an existing or future controversy to

CIAC jurisdiction, notwithstanding the reference to a different arbitration
institution or arbitral body in such contract or submission. When a contract
contains a clause for the submission of a future controversy to arbitration, it is
not necessary for the parties to enter into a submission agreement before the
claimant may invoke the jurisdiction of CIAC.

It is undisputed that Article 12 of the four similarly-worded consultancy agreements

provides for submission to arbitration of any dispute arising from said agreements. Said
Article states:
ARTICLE 12. DISPUTES, ARBITRATION, AND TERMINATION
12.1 Disputes
Any dispute concerning any question arising under this Agreement which is not
disposed of by agreement between the parties, shall be decided by the Secretary
of Health who shall furnish the CONSULTANT a written copy of his decision.
12.2 Arbitration
The decision of the Secretary of Health shall be final and conclusive unless
within thirty (30) days from the date of receipt thereof, the CONSULTANT
shall deliver to OWNER a written notice addressed to the Secretary of Health
stating its desire to submit the controversy to arbitration. In such event, the
dispute shall be decided in accordance with the provisions of the Rules of
Procedure in the Construction Industry Arbitration Law under EO 1008.
TSacAE

Therefore, upon the signing of said agreements in May 1996 by DOH and HTMC, both
parties have explicitly agreed that after a dispute arising from said agreements has been
passed upon by the Health Secretary, said controversy involving the consultancy
agreements shall be submitted to voluntary arbitration, jurisdiction over which is granted
by law to the CIAC.
From the facts of the case, it is clear that prior to the filing of the controversy for
arbitration before the CIAC, HTMC, through counsel, had repeatedly appealed the matter
before the DOH, through the Department Secretary, but the latter failed to act upon
HTMC's request. In the letter sent to the DOH by HTMC dated 22 April 1998, it was
even made clear that should the DOH fail to address HTMC's requests, the latter shall
resort to arbitration in pursuance to the provisions of the consultancy agreements. 6 Thus,
We agree in the conclusion of the appellate court that when petitioner continued not to
act on HTMC's request for the observance of the provisions of the agreement, respondent
HTMC properly submitted the claim with the CIAC for arbitration. As correctly stated by
the Court of Appeals, petitioner's posture that the referral of the case to the CIAC is
premature deserves scant consideration. Respondent had demanded that petitioner

comply with the agreement. The latter, through the Secretary of Health, failed to act on
the request. Later, a demand letter was sent to petitioner. Still, it did not comply. Thus, in
order to protect its right, HTMC properly submitted its claim with the CIAC, it being the
eventual forum of their agreement as mandated by E.O. No. 1008. 7
From the argument espoused by the DOH in its petition that there was no basis for the
continuation of the agreement as respondent failed to signify its intention to agree with
the amended contract, 8 it seems that petitioner is belaboring under the mistaken notion
that HTMC's refusal to accede to the former's request for amendment of the consultancy
contracts resulted in the rescission of the original agreements, and that such rescission
gave the DOH and its personnel the right to take over the construction supervision of the
projects and to refuse the payment of any amount due HTMC under the agreements.
It must be stressed at this point that HTMC's failure to accept the amendment proposed
by the DOH did not, in any way, affect the validity and the subsistence of the four
consultancy contracts which bound both parties upon its perfection as early as May 1996.
A contract properly executed between parties continue to be the law between said parties
and should be complied with in good faith. 9 There being a perfected contract, DOH
cannot revoke or renounce the same without the consent of the other party. Just as
nobody can be forced to enter into a contract, in the same manner, once a contract is
entered into, no party can renounce it unilaterally or without the consent of the other. 10
It is a general principle of law that no one may be permitted to change his mind or
disavow and go back upon his own acts, or to proceed contrary thereto, to the prejudice
of the other party. 11 As no revision to the original agreement was ever arrived at, the
terms of the original contract shall continue to govern over both the HTMC and the DOH
with respect to the infrastructure projects as if no amendments were ever initiated. In the
absence of a new perfected contract between HTMC and DOH, both parties shall
continue to be bound by the stipulations of the original contract and all its natural effects.
12

Based on the preceding discussion, We have established that the perfected consultancy
agreements between DOH and HTMC are valid, and therefore, under the stipulations
contained therein, DOH is under obligation to pay HTMC the unpaid sum of its
consultancy fees which according to the findings of the CIAC, as affirmed by the
appellate court, amounts to P3,543,630.00.
Furthermore, as has been stressed earlier, from the moment of perfection, the parties are
bound not only to the fulfillment of what has been expressly stipulated, but also to all the
consequences which, according to their nature may be in keeping with good faith, usage,
and law, 13 thus, for the refusal of the DOH to issue the necessary notices to proceed,
effectively preventing HTMC from performing the construction supervision on the

infrastructure projects, DOH must be held liable for any damages or expense incurred by
HTMC as a natural result of any breach of the consultancy contract. Therefore, we agree
in the findings of both the CIAC and the appellate court in awarding damages in the form
of unrealized profit as a result of the non-performance of the construction supervision and
in granting reimbursement for the expenses for salaries of the three engineers engaged by
HTMC for the supposed construction supervision.
TAIESD

Lastly, in its Memorandum, petitioner assails, for the first time, the validity of the
consultancy agreements for the alleged failure of respondent to include in the contracts a
certification of availability of funds as required under existing laws. However, at this late
a stage in the proceedings, said issue not having been raised before the CIAC nor the
Court of Appeals, fair play, justice and due process dictate that this Court cannot now, for
the first time on appeal, pass upon this question. 14 They must be raised seasonably in the
proceedings before the lower court. 15 Questions raised on appeal must be within the
issues framed by the parties; consequently, issues not raised before the trial court cannot
be raised for the first time on appeal. 16
WHEREFORE, premises considered, the petition is hereby DENIED. The Decision of
the Court of Appeals in CA-G.R. SP No. 52539 affirming the decision of the
Construction Industry Arbitration Commission in CIAC Case No. 33-98 awarding
respondent HTMC its claim for payment of A & E services in the amount of
P3,543,630.00, reimbursement for the salaries of the three engineers engaged by HTMC
to perform construction supervision in the amount of P576,000.00, and damages in the
form of unrealized profit in the amount of P310,544.00, or the total amount of
P4,430,174.00 with interest, is hereby AFFIRMED. No Costs.
SO ORDERED.
Ynares-Santiago, Austria-Martinez and Callejo, Sr., JJ., concur.
Panganiban, C.J., took no part. Former partner of the CIAC Arbitrator.
(DOH v. HTMC Engineers Co., G.R. No. 146120, [January 27, 2006], 516 PHIL 94109)
|||

THIRD DIVISION
[G.R. No. 160324. November 15, 2005.]
INTERNATIONAL FINANCE CORPORATION, Petitioner, vs.
IMPERIAL TEXTILE MILLS, INC., ** respondent.

DECISION

PANGANIBAN, J :
p

The terms of a contract govern the rights and obligations of the contracting parties. When
the obligor undertakes to be "jointly and severally" liable, it means that the obligation is
solidary. If solidary liability was instituted to "guarantee" a principal obligation, the law
deems the contract to be one of suretyship.
The creditor in the present Petition was able to show convincingly that, although
denominated as a "Guarantee Agreement," the Contract was actually a surety.
Notwithstanding the use of the words "guarantee" and "guarantor," the subject Contract
was indeed a surety, because its terms were clear and left no doubt as to the intention of
the parties.
The Case
Before us is a Petition for Review 1 under Rule 45 of the Rules of Court, assailing the
February 28, 2002 Decision 2 and September 30, 2003 Resolution 3 of the Court of
Appeals (CA) in CA-GR CV No. 58471. The challenged Decision disposed as follows:
"WHEREFORE, the appeal is PARTIALLY GRANTED. The decision of the
trial court is MODIFIED to read as follows:
"1. Philippine Polyamide Industrial Corporation is ORDERED to pay
[Petitioner] International Finance Corporation, the following amounts:
'(a) US$2,833,967.00 with accrued interests as provided in the Loan
Agreement;
'(b) Interest of 12% per annum on accrued interest, which shall be
counted from the date of filing of the instant action up to the
actual payment;

'(c) P73,340.00 as attorney's fees;

'(d) Costs of suit.'
"2. The guarantor Imperial Textile Mills, Inc. together with Grandtex is HELD
secondarily liable to pay the amount herein adjudged to [Petitioner]
International Finance Corporation." 4

The assailed Resolution denied both parties' respective Motions for Reconsideration.
The Facts
The facts are narrated by the appellate court as follows:
"On December 17, 1974, [Petitioner] International Finance Corporation (IFC)
and [Respondent] Philippine Polyamide Industrial Corporation (PPIC) entered
into a loan agreement wherein IFC extended to PPIC a loan of
US$7,000,000.00, payable in sixteen (16) semi-annual installments of
US$437,500.00 each, beginning June 1, 1977 to December 1, 1984, with
interest at the rate of 10% per annum on the principal amount of the loan
advanced and outstanding from time to time. The interest shall be paid in US
dollars semi-annually on June 1 and December 1 in each year and interest for
any period less than a year shall accrue and be pro-rated on the basis of a 360day year of twelve 30-day months.
"On December 17, 1974, a 'Guarantee Agreement' was executed with . . .
Imperial Textile Mills, Inc. (ITM), Grand Textile Manufacturing Corporation
(Grandtex) and IFC as parties thereto. ITM and Grandtex agreed to guarantee
PPIC's obligations under the loan agreement.
"PPIC paid the installments due on June 1, 1977, December 1, 1977 and June 1,
1978. The payments due on December 1, 1978, June 1, 1979 and December 1,
1979 were rescheduled as requested by PPIC. Despite the rescheduling of the
installment payments, however, PPIC defaulted. Hence, on April 1, 1985, IFC
served a written notice of default to PPIC demanding the latter to pay the
outstanding principal loan and all its accrued interests. Despite such notice,
PPIC failed to pay the loan and its interests.
"By virtue of PPIC's failure to pay, IFC, together with DBP, applied for the
extrajudicial foreclosure of mortgages on the real estate, buildings, machinery,
equipment plant and all improvements owned by PPIC, located at Calamba,
Laguna, with the regional sheriff of Calamba, Laguna. On July 30, 1985, the
deputy sheriff of Calamba, Laguna issued a notice of extrajudicial sale. IFC and
DBP were the only bidders during the auction sale. IFC's bid was for
P99,269,100.00 which was equivalent to US$5,250,000.00 (at the prevailing
exchange rate of P18.9084 = US$1.00). The outstanding loan, however,

AHCTEa

amounted to US$8,083,967.00 thus leaving a balance of US$2,833,967.00.

PPIC failed to pay the remaining balance.
"Consequently, IFC demanded ITM and Grandtex, as guarantors of PPIC, to
pay the outstanding balance. However, despite the demand made by IFC, the
outstanding balance remained unpaid.
"Thereafter, on May 20, 1988, IFC filed a complaint with the RTC of Manila
against PPIC and ITM for the payment of the outstanding balance plus interests
and attorney's fees.
"The trial court held PPIC liable for the payment of the outstanding loan plus
interests. It also ordered PPIC to pay IFC its claimed attorney's fees. However,
the trial court relieved ITM of its obligation as guarantor. Hence, the trial court
dismissed IFC's complaint against ITM.
xxx xxx xxx
"Thus, apropos the decision dismissing the complaint against ITM, IFC
appealed [to the CA]." 5

Ruling of the Court of Appeals

The CA reversed the Decision of the trial court, insofar as the latter exonerated ITM from
any obligation to IFC. According to the appellate court, ITM bound itself under the
"Guarantee Agreement" to pay PPIC's obligation upon default. 6 ITM was not discharged
from its obligation as guarantor when PPIC mortgaged the latter's properties to IFC. 7
The CA, however, held that ITM's liability as a guarantor would arise only if and when
PPIC could not pay. Since PPIC's inability to comply with its obligation was not
sufficiently established, ITM could not immediately be made to assume the liability. 8
The September 30, 2003 Resolution of the CA denied reconsideration. 9 Hence, this
Petition. 10
The Issues
Petitioner states the issues in this wise:
"I. Whether or not ITM and Grandtex 11 are sureties and therefore, jointly and
severally liable with PPIC, for the payment of the loan.
TaIHEA

"II. Whether or not the Petition raises a question of law.

"III. Whether or not the Petition raises a theory not raised in the lower court." 12

The main issue is whether ITM is a surety, and thus solidarily liable with PPIC for the
payment of the loan.
The Court's Ruling
The Petition is meritorious.
Main Issue:
Liability of Respondent Under
the Guarantee Agreement
The present controversy arose from the following Contracts: (1) the Loan Agreement
dated December 17, 1974, between IFC and PPIC; 13 and (2) the Guarantee Agreement
dated December 17, 1974, between ITM and Grandtex, on the one hand, and IFC on the
other. 14
IFC claims that, under the Guarantee Agreement, ITM bound itself as a surety to PPIC's
obligations proceeding from the Loan Agreement. 15 For its part, ITM asserts that, by the
terms of the Guarantee Agreement, it was merely a guarantor 16 and not a surety.
Moreover, any ambiguity in the Agreement should be construed against IFC the party
that drafted it. 17
Language of the
Contract
The premise of the Guarantee Agreement is found in its preambular clause, which reads:
"Whereas,
"(A) By an Agreement of even date herewith between IFC and PHILIPPINE
POLYAMIDE INDUSTRIAL CORPORATION (herein called the
Company), which agreement is herein called the Loan Agreement, IFC
agrees to extend to the Company a loan (herein called the Loan) of seven
million dollars ($7,000,000) on the terms therein set forth, including a
provision that all or part of the Loan may be disbursed in a currency
other than dollars, but only on condition that the Guarantors agree to
guarantee the obligations of the Company in respect of the Loan as
hereinafter provided.
"(B) The Guarantors, in order to induce IFC to enter into the Loan Agreement,
and in consideration of IFC entering into said Agreement, have agreed
so to guarantee such obligations of the Company." 18

The obligations of the guarantors are meticulously expressed in the following provision:

"Section 2.01. The Guarantors jointly and severally, irrevocably, absolutely and
unconditionally guarantee, as primary obligors and not as sureties merely, the
due and punctual payment of the principal of, and interest and commitment
charge on, the Loan, and the principal of, and interest on, the Notes, whether at
stated maturity or upon prematuring, all as set forth in the Loan Agreement and
in the Notes." 19

The Agreement uses "guarantee" and "guarantors," prompting ITM to base its argument
on those words. 20 This Court is not convinced that the use of the two words limits the
Contract to a mere guaranty. The specific stipulations in the Contract show otherwise.
Solidary Liability
Agreed to by ITM
While referring to ITM as a guarantor, the Agreement specifically stated that the
corporation was "jointly and severally" liable. To put emphasis on the nature of that
liability, the Contract further stated that ITM was a primary obligor, not a mere surety.
Those stipulations meant only one thing: that at bottom, and to all legal intents and
purposes, it was a surety.
Indubitably therefore, ITM bound itself to be solidarily 21 liable with PPIC for the latter's
obligations under the Loan Agreement with IFC. ITM thereby brought itself to the level
of PPIC and could not be deemed merely secondarily liable.
SDAaTC

Initially, ITM was a stranger to the Loan Agreement between PPIC and IFC. ITM's
liability commenced only when it guaranteed PPIC's obligation. It became a surety when
it bound itself solidarily with the principal obligor. Thus, the applicable law is as follows:
"Article 2047. By guaranty, a person, called the guarantor binds himself to the
creditor to fulfill the obligation of the principal in case the latter should fail to
do so.
"If a person binds himself solidarily with the principal debtor, the provisions of
Section 4, Chapter 3, Title I of this Book shall be observed. In such case the
contract shall be called suretyship." 22

The aforementioned provisions refer to Articles 1207 to 1222 of the Civil Code on "Joint
and Solidary Obligations." Relevant to this case is Article 1216, which states:
"The creditor may proceed against any one of the solidary debtors or some or all
of them simultaneously. The demand made against one of them shall not be an
obstacle to those which may subsequently be directed against the others, so long
as the debt has not been fully collected."

Pursuant to this provision, petitioner (as creditor) was justified in taking action directly
against respondent.
No Ambiguity in the
Undertaking
The Court does not find any ambiguity in the provisions of the Guarantee Agreement.
When qualified by the term "jointly and severally," the use of the word "guarantor" to
refer to a "surety" does not violate the law. 23 As Article 2047 provides, a suretyship is
created when a guarantor binds itself solidarily with the principal obligor. Likewise, the
phrase in the Agreement "as primary obligor and not merely as surety" stresses that
ITM is being placed on the same level as PPIC. Those words emphasize the nature of
their liability, which the law characterizes as a suretyship.
The use of the word "guarantee" does not ipso facto make the contract one of guaranty. 24
This Court has recognized that the word is frequently employed in business transactions
to describe the intention to be bound by a primary or an independent obligation. 25 The
very terms of a contract govern the obligations of the parties or the extent of the obligor's
liability. Thus, this Court has ruled in favor of suretyship, even though contracts were
denominated as a "Guarantor's Undertaking" 26 or a "Continuing Guaranty." 27
Contracts have the force of law between the parties, 28 who are free to stipulate any
matter not contrary to law, morals, good customs, public order or public policy. 29 None
of these circumstances are present, much less alleged by respondent. Hence, this Court
cannot give a different meaning to the plain language of the Guarantee Agreement.
Indeed, the finding of solidary liability is in line with the premise provided in the
"Whereas" clause of the Guarantee Agreement. The execution of the Agreement was a
condition precedent for the approval of PPIC's loan from IFC. Consistent with the
position of IFC as creditor was its requirement of a higher degree of liability from ITM in
case PPIC committed a breach. ITM agreed with the stipulation in Section 2.01 and is
now estopped from feigning ignorance of its solidary liability. The literal meaning of the
stipulations control when the terms of the contract are clear and there is no doubt as to the
intention of the parties. 30
We note that the CA denied solidary liability, on the theory that the parties would not
have executed a Guarantee Agreement if they had intended to name ITM as a primary
obligor. 31 The appellate court opined that ITM's undertaking was collateral to and
distinct from the Loan Agreement. On this point, the Court stresses that a suretyship is
merely an accessory or a collateral to a principal obligation. 32 Although a surety contract
is secondary to the principal obligation, the liability of the surety is direct, primary and
absolute; or equivalent to that of a regular party to the undertaking. 33 A surety becomes

liable to the debt and duty of the principal obligor even without possessing a direct or
personal interest in the obligations constituted by the latter. 34
ITM's Liability as Surety
With the present finding that ITM is a surety, it is clear that the CA erred in declaring the
former secondarily liable. 35 A surety is considered in law to be on the same footing as
the principal debtor in relation to whatever is adjudged against the latter. 36 Evidently, the
dispositive portion of the assailed Decision should be modified to require ITM to pay the
amount adjudged in favor of IFC.
AaDSEC

Peripheral Issues
In addition to the main issue, ITM raised procedural infirmities allegedly justifying the
denial of the present Petition. Before the trial court and the CA, IFC had allegedly
instituted different arguments that effectively changed the corporation's theory on appeal,
in violation of this Court's previous pronouncements. 37 ITM further claims that the main
issue in the present case is a question of fact that is not cognizable by this Court. 38
These contentions deserve little consideration.
Alleged Change of
Theory on Appeal
Petitioner's arguments before the trial court (that ITM was a "primary obligor") and
before the CA (that ITM was a "surety") were related and intertwined in the action to
enforce the solidary liability of ITM under the Guarantee Agreement. We emphasize that
the terms "primary obligor" and "surety" were premised on the same stipulations in
Section 2.01 of the Agreement. Besides, both terms had the same legal consequences.
There was therefore effectively no change of theory on appeal. At any rate, ITM failed to
show to this Court a disparity between IFC's allegations in the trial court and those in the
CA. Bare allegations without proof deserve no credence.
Review of Factual
Findings Necessary
As to the issue that only questions of law may be raised in a Petition for Review, 39 the
Court has recognized exceptions, 40 one of which applies to the present case. The assailed
Decision was based on a misapprehension of facts, 41 which particularly related to
certain stipulations in the Guarantee Agreement stipulations that had not been disputed
by the parties. This circumstance compelled the Court to review the Contract firsthand
and to make its own findings and conclusions accordingly.

WHEREFORE, the Petition is hereby GRANTED, and the assailed Decision and
Resolution MODIFIED in the sense that Imperial Textile Mills, Inc. is declared a surety
to Philippine Polyamide Industrial Corporation. ITM is ORDERED to pay International
Finance Corporation the same amounts adjudged against PPIC in the assailed Decision.
No costs.
SO ORDERED.
Corona, Carpio Morales and Garcia, JJ., concur.
Sandoval-Gutierrez, J., is on official leave.
(International Finance Corp. v. Imperial Textile Mills Inc., G.R. No. 160324,
[November 15, 2005], 511 PHIL 591-605)
|||

THIRD DIVISION
[G.R. No. 173227. January 20, 2009.]
SEBASTIAN SIGA-AN, petitioner, vs. ALICIA VILLANUEVA,
respondent.

DECISION

CHICO-NAZARIO, J :
p

Before Us is a Petition 1 for Review on Certiorari under Rule 45 of the Rules of

Court seeking to set aside the Decision, 2 dated 16 December 2005, and Resolution, 3
dated 19 June 2006 of the Court of Appeals in CA-G.R. CV No. 71814, which affirmed
in toto the Decision, 4 dated 26 January 2001, of the Las Pias City Regional Trial
Court, Branch 255, in Civil Case No. LP-98-0068.
The facts gathered from the records are as follows:
On 30 March 1998, respondent Alicia Villanueva filed a complaint 5 for sum of
money against petitioner Sebastian Siga-an before the Las Pias City Regional Trial
Court (RTC), Branch 255, docketed as Civil Case No. LP-98-0068. Respondent alleged
that she was a businesswoman engaged in supplying office materials and equipments
to the Philippine Navy Office (PNO) located at Fort Bonifacio, Taguig City, while
petitioner was a military officer and comptroller of the PNO from 1991 to 1996.
Respondent claimed that sometime in 1992, petitioner approached her inside the
PNO and offered to loan her the amount of P540,000.00. Since she needed capital for
her business transactions with the PNO, she accepted petitioner's proposal. The loan
agreement was not reduced in writing. Also, there was no stipulation as to the payment
of interest for the loan. 6
IaDTES

On 31 August 1993, respondent issued a check worth P500,000.00 to petitioner

as partial payment of the loan. On 31 October 1993, she issued another check in the
amount of P200,000.00 to petitioner as payment of the remaining balance of the loan.
Petitioner told her that since she paid a total amount of P700,000.00 for the P540,000.00
worth of loan, the excess amount of P160,000.00 would be applied as interest for the
loan. Not satisfied with the amount applied as interest, petitioner pestered her to pay
additional interest. Petitioner threatened to block or disapprove her transactions with
the PNO if she would not comply with his demand. As all her transactions with the
PNO were subject to the approval of petitioner as comptroller of the PNO, and fearing
that petitioner might block or unduly influence the payment of her vouchers in the PNO,
she conceded. Thus, she paid additional amounts in cash and checks as interests for the

loan. She asked petitioner for receipt for the payments but petitioner told her that it was
not necessary as there was mutual trust and confidence between them. According to her
computation, the total amount she paid to petitioner for the loan and interest
accumulated to P1,200,000.00. 7
Thereafter, respondent consulted a lawyer regarding the propriety of paying
interest on the loan despite absence of agreement to that effect. Her lawyer told her that
petitioner could not validly collect interest on the loan because there was no agreement
between her and petitioner regarding payment of interest. Since she paid petitioner a
total amount of P1,200,000.00 for the P540,000.00 worth of loan, and upon being
advised by her lawyer that she made overpayment to petitioner, she sent a demand letter
to petitioner asking for the return of the excess amount of P660,000.00. Petitioner,
despite receipt of the demand letter, ignored her claim for reimbursement. 8
Respondent prayed that the RTC render judgment ordering petitioner to pay
respondent (1) P660,000.00 plus legal interest from the time of demand; (2)
P300,000.00 as moral damages; (3) P50,000.00 as exemplary damages; and (4) an
amount equivalent to 25% of P660,000.00 as attorney's fees. 9
In his answer 10 to the complaint, petitioner denied that he offered a loan to
respondent. He averred that in 1992, respondent approached and asked him if he could
grant her a loan, as she needed money to finance her business venture with the PNO.
At first, he was reluctant to deal with respondent, because the latter had a spotty record
as a supplier of the PNO. However, since respondent was an acquaintance of his
officemate, he agreed to grant her a loan. Respondent paid the loan in full. 11
jur2005

Subsequently, respondent again asked him to give her a loan. As respondent had
been able to pay the previous loan in full, he agreed to grant her another loan. Later,
respondent requested him to restructure the payment of the loan because she could not
give full payment on the due date. He acceded to her request. Thereafter, respondent
pleaded for another restructuring of the payment of the loan. This time he rejected her
plea. Thus, respondent proposed to execute a promissory note wherein she would
acknowledge her obligation to him, inclusive of interest, and that she would issue
several postdated checks to guarantee the payment of her obligation. Upon his approval
of respondent's request for restructuring of the loan, respondent executed a promissory
note dated 12 September 1994 wherein she admitted having borrowed an amount of
P1,240,000.00, inclusive of interest, from petitioner and that she would pay said amount
in March 1995. Respondent also issued to him six postdated checks amounting to
P1,240,000.00 as guarantee of compliance with her obligation. Subsequently, he
presented the six checks for encashment but only one check was honored. He demanded
that respondent settle her obligation, but the latter failed to do so. Hence, he filed
criminal cases for Violation of the Bouncing Checks Law (Batas Pambansa Blg. 22)
against respondent. The cases were assigned to the Metropolitan Trial Court of Makati
City, Branch 65 (MeTC). 12

Petitioner insisted that there was no overpayment because respondent admitted

in the latter's promissory note that her monetary obligation as of 12 September 1994
amounted to P1,240,000.00 inclusive of interests. He argued that respondent was
already estopped from complaining that she should not have paid any interest, because
she was given several times to settle her obligation but failed to do so. He maintained
that to rule in favor of respondent is tantamount to concluding that the loan was given
interest-free. Based on the foregoing averments, he asked the RTC to dismiss
respondent's complaint.
After trial, the RTC rendered a Decision on 26 January 2001 holding that
respondent made an overpayment of her loan obligation to petitioner and that the latter
should refund the excess amount to the former. It ratiocinated that respondent's
obligation was only to pay the loaned amount of P540,000.00, and that the alleged
interests due should not be included in the computation of respondent's total monetary
debt because there was no agreement between them regarding payment of interest. It
concluded that since respondent made an excess payment to petitioner in the amount of
P660,000.00 through mistake, petitioner should return the said amount to respondent
pursuant to the principle of solutio indebiti. 13
HEIcDT

The RTC also ruled that petitioner should pay moral damages for the sleepless
nights and wounded feelings experienced by respondent. Further, petitioner should pay
exemplary damages by way of example or correction for the public good, plus attorney's
fees and costs of suit.
The dispositive portion of the RTC Decision reads:
WHEREFORE, in view of the foregoing evidence and in the light of the
provisions of law and jurisprudence on the matter, judgment is hereby rendered
in favor of the plaintiff and against the defendant as follows:
(1) Ordering defendant to pay plaintiff the amount of P660,000.00 plus legal
interest of 12% per annum computed from 3 March 1998 until the amount is paid
in full;
(2) Ordering defendant to pay plaintiff the amount of P300,000.00 as moral
damages;
(3) Ordering defendant to pay plaintiff the amount of P50,000.00 as exemplary
damages;
CcAESI

(4) Ordering defendant to pay plaintiff the amount equivalent to 25% of

P660,000.00 as attorney's fees; and
(5) Ordering defendant to pay the costs of suit. 14

Petitioner appealed to the Court of Appeals. On 16 December 2005, the appellate

court promulgated its Decision affirming in toto the RTC Decision, thus:
WHEREFORE, the foregoing considered, the instant appeal is hereby DENIED
and the assailed decision [is] AFFIRMED in toto. 15

Petitioner filed a motion for reconsideration of the appellate court's decision but
this was denied. 16 Hence, petitioner lodged the instant petition before us assigning the
following errors:
I.
THE RTC AND THE COURT OF APPEALS ERRED IN RULING THAT NO
INTEREST WAS DUE TO PETITIONER;
aHcDEC

II.
THE RTC AND THE COURT OF APPEALS ERRED IN APPLYING THE
PRINCIPLE OF SOLUTIO INDEBITI. 17

Interest is a compensation fixed by the parties for the use or forbearance of

money. This is referred to as monetary interest. Interest may also be imposed by law or
by courts as penalty or indemnity for damages. This is called compensatory interest. 18
The right to interest arises only by virtue of a contract or by virtue of damages for delay
or failure to pay the principal loan on which interest is demanded. 19
Article 1956 of the Civil Code, which refers to monetary interest, 20 specifically
mandates that no interest shall be due unless it has been expressly stipulated in writing.
As can be gleaned from the foregoing provision, payment of monetary interest is
allowed only if: (1) there was an express stipulation for the payment of interest; and (2)
the agreement for the payment of interest was reduced in writing. The concurrence of
the two conditions is required for the payment of monetary interest. Thus, we have held
that collection of interest without any stipulation therefor in writing is prohibited by
law. 21
It appears that petitioner and respondent did not agree on the payment of interest
for the loan. Neither was there convincing proof of written agreement between the two
regarding the payment of interest. Respondent testified that although she accepted
petitioner's offer of loan amounting to P540,000.00, there was, nonetheless, no verbal
or written agreement for her to pay interest on the loan. 22
Petitioner presented a handwritten promissory note dated 12 September 1994 23
wherein respondent purportedly admitted owing petitioner "capital and interest".
Respondent, however, explained that it was petitioner who made a promissory note and
she was told to copy it in her own handwriting; that all her transactions with the PNO
were subject to the approval of petitioner as comptroller of the PNO; that petitioner

threatened to disapprove her transactions with the PNO if she would not pay interest;
that being unaware of the law on interest and fearing that petitioner would make good
of his threats if she would not obey his instruction to copy the promissory note, she
copied the promissory note in her own handwriting; and that such was the same
promissory note presented by petitioner as alleged proof of their written agreement on
interest. 24 Petitioner did not rebut the foregoing testimony. It is evident that respondent
did not really consent to the payment of interest for the loan and that she was merely
tricked and coerced by petitioner to pay interest. Hence, it cannot be gainfully said that
such promissory note pertains to an express stipulation of interest or written agreement
of interest on the loan between petitioner and respondent.
cCTAIE

Petitioner, nevertheless, claims that both the RTC and the Court of Appeals
found that he and respondent agreed on the payment of 7% rate of interest on the loan;
that the agreed 7% rate of interest was duly admitted by respondent in her testimony in
the Batas Pambansa Blg. 22 cases he filed against respondent; that despite such judicial
admission by respondent, the RTC and the Court of Appeals, citing Article 1956 of the
Civil Code, still held that no interest was due him since the agreement on interest was
not reduced in writing; that the application of Article 1956 of the Civil Code should not
be absolute, and an exception to the application of such provision should be made when
the borrower admits that a specific rate of interest was agreed upon as in the present
case; and that it would be unfair to allow respondent to pay only the loan when the latter
very well knew and even admitted in the Batas Pambansa Blg. 22 cases that there was
an agreed 7% rate of interest on the loan. 25
We have carefully examined the RTC Decision and found that the RTC did not
make a ruling therein that petitioner and respondent agreed on the payment of interest
at the rate of 7% for the loan. The RTC clearly stated that although petitioner and
respondent entered into a valid oral contract of loan amounting to P540,000.00, they,
nonetheless, never intended the payment of interest thereon. 26 While the Court of
Appeals mentioned in its Decision that it concurred in the RTC's ruling that petitioner
and respondent agreed on a certain rate of interest as regards the loan, we consider this
as merely an inadvertence because, as earlier elucidated, both the RTC and the Court
of Appeals ruled that petitioner is not entitled to the payment of interest on the loan.
The rule is that factual findings of the trial court deserve great weight and respect
especially when affirmed by the appellate court. 27 We found no compelling reason to
disturb the ruling of both courts.
Petitioner's reliance on respondent's alleged admission in the Batas Pambansa
Blg. 22 cases that they had agreed on the payment of interest at the rate of 7% deserves
scant consideration. In the said case, respondent merely testified that after paying the
total amount of loan, petitioner ordered her to pay interest. 28 Respondent did not
categorically declare in the same case that she and respondent made an express
stipulation in writing as regards payment of interest at the rate of 7%. As earlier
discussed, monetary interest is due only if there was an express stipulation in writing
for the payment of interest.
cSTCDA

There are instances in which an interest may be imposed even in the absence of
express stipulation, verbal or written, regarding payment of interest. Article 2209 of the
Civil Code states that if the obligation consists in the payment of a sum of money, and
the debtor incurs delay, a legal interest of 12% per annum may be imposed as indemnity
for damages if no stipulation on the payment of interest was agreed upon. Likewise,
Article 2212 of the Civil Code provides that interest due shall earn legal interest from
the time it is judicially demanded, although the obligation may be silent on this point.
All the same, the interest under these two instances may be imposed only as a
penalty or damages for breach of contractual obligations. It cannot be charged as a
compensation for the use or forbearance of money. In other words, the two instances
apply only to compensatory interest and not to monetary interest. 29 The case at bar
involves petitioner's claim for monetary interest.
Further, said compensatory interest is not chargeable in the instant case because
it was not duly proven that respondent defaulted in paying the loan. Also, as earlier
found, no interest was due on the loan because there was no written agreement as
regards payment of interest.
Apropos the second assigned error, petitioner argues that the principle of solutio
indebiti does not apply to the instant case. Thus, he cannot be compelled to return the
alleged excess amount paid by respondent as interest. 30
Under Article 1960 of the Civil Code, if the borrower of loan pays interest when
there has been no stipulation therefor, the provisions of the Civil Code concerning
solutio indebiti shall be applied. Article 2154 of the Civil Code explains the principle
of solutio indebiti. Said provision provides that if something is received when there is
no right to demand it, and it was unduly delivered through mistake, the obligation to
return it arises. In such a case, a creditor-debtor relationship is created under a quasicontract whereby the payor becomes the creditor who then has the right to demand the
return of payment made by mistake, and the person who has no right to receive such
payment becomes obligated to return the same. The quasi-contract of solutio indebiti
harks back to the ancient principle that no one shall enrich himself unjustly at the
expense of another. 31 The principle of solutio indebiti applies where (1) a payment is
made when there exists no binding relation between the payor, who has no duty to pay,
and the person who received the payment; and (2) the payment is made through mistake,
and not through liberality or some other cause. 32 We have held that the principle of
solutio indebiti applies in case of erroneous payment of undue interest. 33
IcCATD

It was duly established that respondent paid interest to petitioner. Respondent

was under no duty to make such payment because there was no express stipulation in
writing to that effect. There was no binding relation between petitioner and respondent
as regards the payment of interest. The payment was clearly a mistake. Since petitioner
received something when there was no right to demand it, he has an obligation to return
it.

We shall now determine the propriety of the monetary award and damages
imposed by the RTC and the Court of Appeals.
Records show that respondent received a loan amounting to P540,000.00 from
petitioner. 34 Respondent issued two checks with a total worth of P700,000.00 in favor
of petitioner as payment of the loan. 35 These checks were subsequently encashed by
petitioner. 36 Obviously, there was an excess of P160,000.00 in the payment for the
loan. Petitioner claims that the excess of P160,000.00 serves as interest on the loan to
which he was entitled. Aside from issuing the said two checks, respondent also paid
cash in the total amount of P175,000.00 to petitioner as interest. 37 Although no receipts
reflecting the same were presented because petitioner refused to issue such to
respondent, petitioner, nonetheless, admitted in his Reply-Affidavit 38 in the Batas
Pambansa Blg. 22 cases that respondent paid him a total amount of P175,000.00 cash
in addition to the two checks. Section 26, Rule 130 of the Rules of Evidence provides
that the declaration of a party as to a relevant fact may be given in evidence against
him. Aside from the amounts of P160,000.00 and P175,000.00 paid as interest, no other
proof of additional payment as interest was presented by respondent. Since we have
previously found that petitioner is not entitled to payment of interest and that the
principle of solutio indebiti applies to the instant case, petitioner should return to
respondent the excess amount of P160,000.00 and P175,000.00 or the total amount of
P335,000.00. Accordingly, the reimbursable amount to respondent fixed by the RTC
and the Court of Appeals should be reduced from P660,000.00 to P335,000.00.
As earlier stated, petitioner filed five (5) criminal cases for violation of Batas
Pambansa Blg. 22 against respondent. In the said cases, the MeTC found respondent
guilty of violating Batas Pambansa Blg. 22 for issuing five dishonored checks to
petitioner. Nonetheless, respondent's conviction therein does not affect our ruling in the
instant case. The two checks, subject matter of this case, totaling P700,000.00 which
respondent claimed as payment of the P540,000.00 worth of loan, were not among the
five checks found to be dishonored or bounced in the five criminal cases. Further, the
MeTC found that respondent made an overpayment of the loan by reason of the interest
which the latter paid to petitioner. 39
Article 2217 of the Civil Code provides that moral damages may be recovered
if the party underwent physical suffering, mental anguish, fright, serious anxiety,
besmirched reputation, wounded feelings, moral shock, social humiliation and similar
injury. Respondent testified that she experienced sleepless nights and wounded feelings
when petitioner refused to return the amount paid as interest despite her repeated
demands. Hence, the award of moral damages is justified. However, its corresponding
amount of P300,000.00, as fixed by the RTC and the Court of Appeals, is exorbitant
and should be equitably reduced. Article 2216 of the Civil Code instructs that
assessment of damages is left to the discretion of the court according to the
circumstances of each case. This discretion is limited by the principle that the amount
awarded should not be palpably excessive as to indicate that it was the result of
prejudice or corruption on the part of the trial court. 40 To our mind, the amount of

P150,000.00 as moral damages is fair, reasonable, and proportionate to the injury

suffered by respondent.
SACHcD

Article 2232 of the Civil Code states that in a quasi-contract, such as solutio
indebiti, exemplary damages may be imposed if the defendant acted in an oppressive
manner. Petitioner acted oppressively when he pestered respondent to pay interest and
threatened to block her transactions with the PNO if she would not pay interest. This
forced respondent to pay interest despite lack of agreement thereto. Thus, the award of
exemplary damages is appropriate. The amount of P50,000.00 imposed as exemplary
damages by the RTC and the Court is fitting so as to deter petitioner and other lenders
from committing similar and other serious wrongdoings. 41
Jurisprudence instructs that in awarding attorney's fees, the trial court must state
the factual, legal or equitable justification for awarding the same. 42 In the case under
consideration, the RTC stated in its Decision that the award of attorney's fees equivalent
to 25% of the amount paid as interest by respondent to petitioner is reasonable and
moderate considering the extent of work rendered by respondent's lawyer in the instant
case and the fact that it dragged on for several years. 43 Further, respondent testified
that she agreed to compensate her lawyer handling the instant case such amount. 44 The
award, therefore, of attorney's fees and its amount equivalent to 25% of the amount paid
as interest by respondent to petitioner is proper.
Finally, the RTC and the Court of Appeals imposed a 12% rate of legal interest
on the amount refundable to respondent computed from 3 March 1998 until its full
payment. This is erroneous.
We held in Eastern Shipping Lines, Inc. v. Court of Appeals, 45 that when an
obligation, not constituting a loan or forbearance of money is breached, an interest on
the amount of damages awarded may be imposed at the rate of 6% per annum. We
further declared that when the judgment of the court awarding a sum of money becomes
final and executory, the rate of legal interest, whether it is a loan/forbearance of money
or not, shall be 12% per annum from such finality until its satisfaction, this interim
period being deemed equivalent to a forbearance of credit.
aCTcDS

In the present case, petitioner's obligation arose from a quasi-contract of solutio

indebiti and not from a loan or forbearance of money. Thus, an interest of 6% per annum
should be imposed on the amount to be refunded as well as on the damages awarded
and on the attorney's fees, to be computed from the time of the extra-judicial demand
on 3 March 1998, 46 up to the finality of this Decision. In addition, the interest shall
become 12% per annum from the finality of this Decision up to its satisfaction.
WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 71814,
dated 16 December 2005, is hereby AFFIRMED with the following
MODIFICATIONS: (1) the amount of P660,000.00 as refundable amount of interest is
reduced to THREE HUNDRED THIRTY FIVE THOUSAND PESOS (P335,000.00);

(2) the amount of P300,000.00 imposed as moral damages is reduced to ONE

HUNDRED FIFTY THOUSAND PESOS (P150,000.00); (3) an interest of 6% per
annum is imposed on the P335,000.00, on the damages awarded and on the attorney's
fees to be computed from the time of the extra-judicial demand on 3 March 1998 up to
the finality of this Decision; and (4) an interest of 12% per annum is also imposed from
the finality of this Decision up to its satisfaction. Costs against petitioner.
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Nachura and Leonardo-de Castro, * JJ., concur.
|||

(Siga-an v. Villanueva, G.R. No. 173227, [January 20, 2009], 596 PHIL 760-777)

THIRD DIVISION
[G.R. No. 138814. April 16, 2009.]
MAKATI STOCK EXCHANGE, INC., MA. VIVIAN YUCHENGCO,
ADOLFO M. DUARTE, MYRON C. PAPA, NORBERTO C.
NAZARENO, GEORGE UY-TIOCO, ANTONIO A. LOPA, RAMON
B. ARNAIZ, LUIS J.L. VIRATA, and ANTONIO GARCIA, JR.
petitioners, vs. MIGUEL V. CAMPOS, substituted by JULIA
ORTIGAS VDA. DE CAMPOS, 1 respondent.

DECISION

CHICO-NAZARIO, J :
p

This is a Petition for Review on Certiorari under Rule 45 seeking the reversal
of the Decision 2 dated 11 February 1997 and Resolution dated 18 May 1999 of the
Court of Appeals in CA-G.R. SP No. 38455.
ADCIca

The facts of the case are as follows:

SEC Case No. 02-94-4678 was instituted on 10 February 1994 by respondent
Miguel V. Campos, who filed with the Securities, Investigation and Clearing
Department (SICD) of the Securities and Exchange Commission (SEC), a Petition
against herein petitioners Makati Stock Exchange, Inc. (MKSE) and MKSE directors,
Ma. Vivian Yuchengco, Adolfo M. Duarte, Myron C. Papa, Norberto C. Nazareno,
George Uy-Tioco, Antonio A, Lopa, Ramon B. Arnaiz, Luis J.L. Virata, and Antonio
Garcia, Jr. Respondent, in said Petition, sought: (1) the nullification of the Resolution
dated 3 June 1993 of the MKSE Board of Directors, which allegedly deprived him of
his right to participate equally in the allocation of Initial Public Offerings (IPO) of
corporations registered with MKSE; (2) the delivery of the IPO shares he was allegedly
deprived of, for which he would pay IPO prices; and (3) the payment of P2 million as
moral damages, P1 million as exemplary damages, and P500,000.00 as attorney's fees
and litigation expenses.
On 14 February 1994, the SICD issued an Order granting respondent's prayer
for the issuance of a Temporary Restraining Order to enjoin petitioners from
implementing or enforcing the 3 June 1993 Resolution of the MKSE Board of
Directors.
The SICD subsequently issued another Order on 10 March 1994 granting
respondent's application for a Writ of Preliminary Injunction, to continuously enjoin,
during the pendency of SEC Case No. 02-94-4678, the implementation or enforcement

of the MKSE Board Resolution in question. Petitioners assailed this SICD Order dated
10 March 1994 in a Petition for Certiorari filed with the SEC en banc, docketed as
SEC-EB No. 393.
On 11 March 1994, petitioners filed a Motion to Dismiss respondent's Petition
in SEC Case No. 02-94-4678, based on the following grounds: (1) the Petition became
moot due to the cancellation of the license of MKSE; (2) the SICD had no jurisdiction
over the Petition; and (3) the Petition failed to state a cause of action.
The SICD denied petitioner's Motion to Dismiss in an Order dated 4 May 1994.
Petitioners again challenged the 4 May 1994 Order of SICD before the SEC en banc
through another Petition for Certiorari, docketed as SEC-EB No. 403.
In an Order dated 31 May 1995 in SEC-EB No. 393, the SEC en banc nullified
the 10 March 1994 Order of SICD in SEC Case No. 02-94-4678 granting a Writ of
Preliminary Injunction in favor of respondent. Likewise, in an Order dated 14 August
1995 in SEC-EB No. 403, the SEC en banc annulled the 4 May 1994 Order of SICD in
SEC Case No. 02-94-4678 denying petitioners' Motion to Dismiss, and accordingly
ordered the dismissal of respondent's Petition before the SICD.
aDcEIH

Respondent filed a Petition for Certiorari with the Court of Appeals assailing
the Orders of the SEC en banc dated 31 May 1995 and 14 August 1995 in SEC-EB No.
393 and SEC-EB No. 403, respectively. Respondent's Petition before the appellate court
was docketed as CA-G.R. SP No. 38455.
On 11 February 1997, the Court of Appeals promulgated its Decision in CAG.R. SP No. 38455, granting respondent's Petition for Certiorari, thus:
WHEREFORE, the petition in so far as it prays for annulment of the Orders dated
May 31, 1995 and August 14, 1995 in SEC-EB Case Nos. 393 and 403 is
GRANTED. The said orders are hereby rendered null and void and set aside.

Petitioners filed a Motion for Reconsideration of the foregoing Decision but it

was denied by the Court of Appeals in a Resolution dated 18 May 1999.
Hence, the present Petition for Review raising the following arguments:
I.
THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF DISCRETION
AMOUNTING TO LACK OR EXCESS OF JURISDICTION WHEN IT
DISMISSED THE PETITION FILED BY RESPONDENT BECAUSE ON ITS
FACE, IT FAILED TO STATE A CAUSE OF ACTION.
II.

THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF RESPONDENT

WAS A MERE ACCOMMODATION GIVEN TO HIM BY THE BOARD OF
[DIRECTORS] OF THE MAKATI STOCK EXCHANGE, INC.
III.
THE COURT OF APPEALS ERRED IN HOLDING THAT THE SEC EN
BANC COMMITTED GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION WHEN IT MADE AN EXTENDED
INQUIRY AND PROCEEDED TO MAKE A DETERMINATION AS TO THE
TRUTH OF RESPONDENT'S ALLEGATIONS IN HIS PETITION AND USED
AS BASIS THE EVIDENCE ADDUCED DURING THE HEARING ON THE
APPLICATION FOR THE WRIT OF PRELIMINARY INJUNCTION TO
DETERMINE THE EXISTENCE OR VALIDITY OF A STATED CAUSE OF
ACTION.
DaIACS

IV.
IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO BE BOUGHT
BY THE BROKERS FOR THEMSELVES BUT ARE TO BE DISTRIBUTED
TO THE INVESTING PUBLIC. HENCE, RESPONDENT'S CLAIM FOR
DAMAGES IS ILLUSORY AND HIS PETITION A NUISANCE SUIT. 3

On 18 September 2001, counsel for respondent manifested to this Court that his
client died on 7 May 2001. In a Resolution dated 24 October 2001, the Court directed
the substitution of respondent by his surviving spouse, Julia Ortigas vda. de Campos.
Petitioners want this Court to affirm the dismissal by the SEC en banc of
respondent's Petition in SEC Case No. 02-94-4678 for failure to state a cause of action.
On the other hand, respondent insists on the sufficiency of his Petition and seeks the
continuation of the proceedings before the SICD.
A cause of action is the act or omission by which a party violates a right of
another. 4 A complaint states a cause of action where it contains three essential elements
of a cause of action, namely: (1) the legal right of the plaintiff, (2) the correlative
obligation of the defendant, and (3) the act or omission of the defendant in violation of
said legal right. If these elements are absent, the complaint becomes vulnerable to
dismissal on the ground of failure to state a cause of action.
If a defendant moves to dismiss the complaint on the ground of lack of cause of
action, he is regarded as having hypothetically admitted all the averments thereof. The
test of sufficiency of the facts found in a complaint as constituting a cause of action is
whether or not admitting the facts alleged, the court can render a valid judgment upon
the same in accordance with the prayer thereof. The hypothetical admission extends to
the relevant and material facts well pleaded in the complaint and inferences fairly
deducible therefrom. Hence, if the allegations in the complaint furnish sufficient basis

by which the complaint can be maintained, the same should not be dismissed regardless
of the defense that may be assessed by the defendant. 5
Given the foregoing, the issue of whether respondent's Petition in SEC Case No.
02-94-4678 sufficiently states a cause of action may be alternatively stated as whether,
hypothetically admitting to be true the allegations in respondent's Petition in SEC Case
No. 02-94-4678, the SICD may render a valid judgment in accordance with the prayer
of said Petition.
A reading of the exact text of respondent's Petition in SEC Case No. 02-94-4678
is, therefore, unavoidable. Pertinent portions of the said Petition reads:
aEIADT

7. In recognition of petitioner's invaluable services, the general membership of

respondent corporation [MKSE] passed a resolution sometime in 1989 amending
its Articles of Incorporation, to include the following provision therein:
"ELEVENTH WHEREAS, Mr. Miguel Campos is the only surviving
incorporator of the Makati Stock Exchange, Inc. who has maintained his
membership;
"WHEREAS, he has unselfishly served the Exchange in various
capacities, as governor from 1977 to the present and as President from
1972 to 1976 and again as President from 1988 to the present;
"WHEREAS, such dedicated service and leadership which has
contributed to the advancement and well being not only of the Exchange
and its members but also to the Securities industry, needs to be recognized
and appreciated;
"WHEREAS, as such, the Board of Governors in its meeting held on
February 09, 1989 has correspondingly adopted a resolution recognizing
his valuable service to the Exchange, reward the same, and preserve for
posterity such recognition by proposing a resolution to the membership
body which would make him as Chairman Emeritus for life and install in
the Exchange premises a commemorative bronze plaque in his honor;
"NOW, THEREFORE, for and in consideration of the above premises,
the position of the "Chairman Emeritus" to be occupied by Mr. Miguel
Campos during his lifetime and irregardless of his continued membership
in the Exchange with the Privilege to attend all membership meetings as
well as the meetings of the Board of Governors of the Exchange, is hereby
created."
8. Hence, to this day, petitioner is not only an active member of the respondent
corporation, but its Chairman Emeritus as well.

9. Correspondingly, at all times material to this petition, as an active member and

Chairman Emeritus of respondent corporation, petitioner has always enjoyed the
right given to all the other members to participate equally in the Initial Public
Offerings (IPOs for brevity) of corporations.
10. IPOs are shares of corporations offered for sale to the public, prior to the
listing in the trading floor of the country's two stock exchanges. Normally,
Twenty Five Percent (25%) of these shares are divided equally between the two
stock exchanges which in turn divide these equally among their members, who
pay therefor at the offering price.
TcIaHC

11. However, on June 3, 1993, during a meeting of the Board of Directors of

respondent-corporation, individual respondents passed a resolution to stop giving
petitioner the IPOs he is entitled to, based on the ground that these shares were
allegedly benefiting Gerardo O. Lanuza, Jr., who these individual respondents
wanted to get even with, for having filed cases before the Securities and Exchange

* (SEC) for their disqualification as member of the Board of Directors of

respondent corporation.
12. Hence, from June 3, 1993 up to the present time, petitioner has been deprived
of his right to subscribe to the IPOs of corporations listing in the stock market at
their offering prices.
13. The collective act of the individual respondents in depriving petitioner of his
right to a share in the IPOs for the aforementioned reason, is unjust, dishonest and
done in bad faith, causing petitioner substantial financial damage. 6

There is no question that the Petition in SEC Case No. 02-94-4678 asserts a right
in favor of respondent, particularly, respondent's alleged right to subscribe to the IPOs
of corporations listed in the stock market at their offering prices; and stipulates the
correlative obligation of petitioners to respect respondent's right, specifically, by
continuing to allow respondent to subscribe to the IPOs of corporations listed in the
stock market at their offering prices.
However, the terms right and obligation in respondent's Petition are not magic
words that would automatically lead to the conclusion that such Petition sufficiently
states a cause of action. Right and obligation are legal terms with specific legal
meaning. A right is a claim or title to an interest in anything whatsoever that is
enforceable by law. 7 An obligation is defined in the Civil Code as a juridical necessity
to give, to do or not to do. 8 For every right enjoyed by any person, there is a
corresponding obligation on the part of another person to respect such right. Thus,
Justice J.B.L. Reyes offers 9 the definition given by Arias Ramos as a more complete
definition:

An obligation is a juridical relation whereby a person (called the creditor) may

demand from another (called the debtor) the observance of a determinative
conduct (the giving, doing or not doing), and in case of breach, may demand
satisfaction from the assets of the latter.

The Civil Code enumerates the sources of obligations:

Art. 1157. Obligations arise from:
(1) Law;
(2) Contracts;
(3) Quasi-contracts;
(4) Acts or omissions punished by law; and
(5) Quasi-delicts.

cTAaDC

Therefore, an obligation imposed on a person, and the corresponding right

granted to another, must be rooted in at least one of these five sources. The mere
assertion of a right and claim of an obligation in an initiatory pleading, whether a
Complaint or Petition, without identifying the basis or source thereof, is merely a
conclusion of fact and law. A pleading should state the ultimate facts essential to the
rights of action or defense asserted, as distinguished from mere conclusions of fact or
conclusions of law. 10 Thus, a Complaint or Petition filed by a person claiming a right
to the Office of the President of this Republic, but without stating the source of his
purported right, cannot be said to have sufficiently stated a cause of action. Also, a
person claiming to be the owner of a parcel of land cannot merely state that he has a
right to the ownership thereof, but must likewise assert in the Complaint either a mode
of acquisition of ownership or at least a certificate of title in his name.
In the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege
respondent's right to subscribe to the IPOs of corporations listed in the stock market at
their offering prices, and petitioners' obligation to continue respecting and observing
such right, the Petition utterly failed to lay down the source or basis of respondent's
right and/or petitioners' obligation.
Respondent merely quoted in his Petition the MKSE Board Resolution, passed
sometime in 1989, granting him the position of Chairman Emeritus of MKSE for life.
However, there is nothing in the said Petition from which the Court can deduce that
respondent, by virtue of his position as Chairman Emeritus of MKSE, was granted by
law, contract, or any other legal source, the right to subscribe to the IPOs of corporations
listed in the stock market at their offering prices.

A meticulous review of the Petition reveals that the allocation of IPO shares was
merely alleged to have been done in accord with a practice normally observed by the
members of the stock exchange, to wit:
IPOs are shares of corporations offered for sale to the public, prior to their listing
in the trading floor of the country's two stock exchanges. Normally, TwentyFive Percent (25%) of these shares are divided equally between the two stock
exchanges which in turn divide these equally among their members, who pay
therefor at the offering price. 11 (Emphasis supplied)

A practice or custom is, as a general rule, not a source of a legally demandable

or enforceable right. 12 Indeed, in labor cases, benefits which were voluntarily given
by the employer, and which have ripened into company practice, are considered as
rights that cannot be diminished by the employer. 13 Nevertheless, even in such cases,
the source of the employees' right is not custom, but ultimately, the law, since Article
100 of the Labor Code explicitly prohibits elimination or diminution of benefits.
SEIcAD

There is no such law in this case that converts the practice of allocating IPO
shares to MKSE members, for subscription at their offering prices, into an enforceable
or demandable right. Thus, even if it is hypothetically admitted that normally, twenty
five percent (25%) of the IPOs are divided equally between the two stock exchanges
which, in turn, divide their respective allocation equally among their members,
including the Chairman Emeritus, who pay for IPO shares at the offering price the
Court cannot grant respondent's prayer for damages which allegedly resulted from the
MKSE Board Resolution dated 3 June 1993 deviating from said practice by no longer
allocating any shares to respondent.
Accordingly, the instant Petition should be granted. The Petition in SEC Case
No. 02-94-4678 should be dismissed for failure to state a cause of action. It does not
matter that the SEC en banc, in its Order dated 14 August 1995 in SEC-EB No. 403,
overstepped its bounds by not limiting itself to the issue of whether respondent's
Petition before the SICD sufficiently stated a cause of action. The SEC en banc may
have been mistaken in considering extraneous evidence in granting petitioners' Motion
to Dismiss, but its discussion thereof are merely superfluous and obiter dictum. In the
main, the SEC en banc did correctly dismiss the Petition in SEC Case No. 02-94-4678
for its failure to state the basis for respondent's alleged right, to wit:
Private respondent Campos has failed to establish the basis or authority for his
alleged right to participate equally in the IPO allocations of the Exchange. He
cited paragraph 11 of the amended articles of incorporation of the Exchange in
support of his position but a careful reading of the said provision shows nothing
therein that would bear out his claim. The provision merely created the position
of chairman emeritus of the Exchange but it mentioned nothing about conferring
upon the occupant thereof the right to receive IPO allocations. 14

With the dismissal of respondent's Petition in SEC Case No. 02-94-4678, there
is no more need for this Court to resolve the propriety of the issuance by SCID of a writ
of preliminary injunction in said case.
WHEREFORE, the Petition is GRANTED. The Decision of the Court of
Appeals dated 11 February 1997 and its Resolution dated 18 May 1999 in CA-G.R. SP
No. 38455 are REVERSED and SET ASIDE. The Orders dated 31 May 1995 and 14
August 1995 of the Securities and Exchange Commission en banc in SEC-EB Case No.
393 and No. 403, respectively, are hereby reinstated. No pronouncement as to costs.
SO ORDERED.
Ynares-Santiago, Austria-Martinez, Nachura and Peralta, JJ., concur.
(Makati Stock Exchange, Inc. v. Campos, G.R. No. 138814, [April 16, 2009], 603 PHIL
121-134)
|||

SECOND DIVISION
[G.R. No. 163271. January 15, 2010.]
SPOUSES PATRICIO and MYRNA BERNALES, petitioners, vs.
HEIRS OF JULIAN SAMBAAN, namely: EMMA S. FELICILDA,
ANITA S. SAMBAAN, VIOLETA S. DADSANAN, ABSALON S.
SAMBAAN, AGUSTINE S. SAMBAAN, EDITHA S. MANGUIRAN,
GRACE S. NITCHA, CLODUALDO S. SAMBAAN, GINA S.
SAMBAAN and FE S. YAP, respondents.

DECISION

DEL CASTILLO, J :
p

A legal tussle among children is a nightmare for their parents. Sometimes, this
happens when pecuniary interests takes precedence over family relationship. In the
instant case, we are at the forefront of a family squabble over a disputed land situated
in Cagayan de Oro City which was purportedly conveyed to the eldest child through a
Deed of Absolute Sale. 1
jurcda

Branch 18 of the Regional Trial Court (RTC) of Misamis Oriental 2 rendered

judgment in favor of the herein respondents, which was affirmed in toto by the Court
of Appeals 3 (CA). Alleging that the CA Decision 4 is not in accordance with law and
jurisprudence, as well as the evidence on record, petitioners now come to us via the
instant Petition for Review on Certiorari. 5
Factual Antecedents
Julian Sambaan (Julian), married to Guillerma Saarenas-Sambaan (Guillerma),
was the registered owner of a property located at Bulua, Cagayan de Oro City. The lot
was covered by Transfer Certificate of Title (TCT) No. T-14202 6 issued on March 8,
1972, and more particularly described as follows:
A parcel of land (Lot No. 5947-A of the Subdivision Plan (LRC) Psd-138019,
being a portion of Lot No. 5947, Cagayan Cadastre, LRC Cad. Rec. No. 1572)
situated in the Barrio of Bulua, City of Cagayan de Oro, Island of Mindanao . . .
containing an area of THREE THOUSAND SIX HUNDRED FORTY THREE
(3,643) SQUARE METERS, more or less.

The respondents herein and the petitioner Myrna Bernales (Myrna) are the
children of Julian and Guillerma. Myrna, who is the eldest of the siblings, is the present
owner and possessor of the property in question.

Sometime in 1975, Julian was ambushed at Merayon, Talakad, Bukidnon, and

was hospitalized due to a gunshot wound. On April 11, 1975, Julian allegedly requested
his children to gather so that he could make his last two wishes. Julian's first wish was
for the children to redeem the subject property which was mortgaged to Myrna and her
husband Patricio Bernales (Patricio), while his second wish was for his remains not to
be brought to the house of Myrna at Nazareth, Cagayan de Oro City. Thus, in 1982,
respondent Absalon Sambaan (Absalon), one of Julian's children, offered to redeem the
property but the petitioners refused because they were allegedly using the property as
tethering place for their cattle.
In January 1991, respondents received information that the property covered by
TCT No. T-14202 was already transferred to petitioners' name. Whereupon, they
secured a copy of the Deed of Absolute Sale dated December 7, 1970 which bore the
signatures of their parents and had it examined by the National Bureau of Investigation
(NBI). The result of the examination revealed that the signatures of their parents, Julian
and Guillerma, were forged.
Proceedings before the Regional Trial Court
Thus, on April 13, 1993, the respondents, together with their mother Guillerma,
filed a Complaint for Annulment of Deed of Absolute Sale and Cancellation of Transfer
Certificate of Title No. T-14204 with Damages and Writ of Preliminary Injunction 7
against herein petitioners. They alleged that in spite of the forged signature of their
parents, the petitioners were able to register the Deed of Absolute Sale with the Registry
of Deeds of Cagayan de Oro City and secure TCT No. T-14204 8 on March 8, 1972.
They prayed for an injunctive relief in order to prevent the petitioners from selling,
disposing, or mortgaging said property. They further prayed that (i) the Deed of
Absolute Sale and TCT No. T-14204 be annulled; (ii) they be declared the absolute
owners of the property; (iii) all documents executed, made and entered into relative to
the said title be declared void; and, (iv) the petitioners be ordered to pay them
P300,000.00 as moral and exemplary damages, and P50,000.00 as attorney's fees plus
P1,000.00 as appearance fee.
On May 6, 1992, petitioners filed their Answer, 9 alleging that the subject
property (Lot No. 5947-A) used to be a portion of Lot No. 5947, which was originally
owned by Clodualdo Sambaan (Clodualdo) and Gliceria Dacer (Gliceria). Lot No. 5947
is more particularly described as follows:
A parcel of land (Lot No. 5947 of the Cadastral Survey of Cagayan) situated at
Bulua, Cagayan de Oro City. Bounded on the NE., by Lot No. 5984 and 5948; E.,
by Lot Nos. 5948 and 5946, SW., by Lot No. 5946; and on the NW., by Lot No.
5984, containing an area of 7,286 square meters, more or less, under Tax
Declaration No. 21421 and covered by Original Certificate of Title No. 7921
issued on September 23, 1940.

After the death of Clodualdo and Gliceria in 1949, their heirs, namely, Alicia Lago,
wife of Pedro Gacusan; Bernardo Lago (single); Gloria Lago, wife of Jimmy Angco;
Dionesia Lago, married to Paulino Unat; Prysbetero Sambaan, married to Rosario
Zaragosa; Juanito Sambaan, married to Renerio Galos; Leo Sambaan, married to
Adeloisa Tambulian; Renato Sambaan, married to Adelina Ablon; Aida Sambaan
(single); Julian Sambaan, married to Guillerma Saarenas; Paz Sambaan, wife of
Rufinito Lago; and, Bernie Sambaan, married to Alicia Sabuero, executed an Extra
Judicial Settlement and Sale 10 dated April 10, 1970 involving the abovementioned
land covered by Original Certificate of Title (OCT) No. 7921.
It appears, however, that Juanito, Aida and Renato sold their share to a certain
Domingo Ebarrat (Ebarrat). Hence, a portion of the property belonged to Julian while
another portion belonged to Ebarrat. In view of the co-ownership between Ebarrat and
Julian, the former and the latter executed a Deed of Partition 11 dated September 8,
1970 whereby Lot No. 5947 was divided. The eastern half with an area of 3,643 square
meters was assigned to Julian, while the western half with the same area went to
Ebarrat.
CcAIDa

Petitioners claimed that Julian subsequently sold his share to them by virtue of
a Deed of Absolute Sale 12 dated December 7, 1970. The said property is described as
follows:
A Parcel of land (Lot No. 5947-A, being a portion of Lot No. 5947, Cadastral
Survey of Cagayan) situated at Bulua, Cagayan de Oro City. Bounded on the
North by Lot Nos. 5947-B and 5948, Cad. 237; South by Lot Nos. 5946, Cad237; East by Lot Nos. 5948 and 5946, Cad. 237; and West by Lot No. 5947-B,
containing an area of 3643 square meters, more or less, covered by OCT No. 7921
(now TCT No. T-14202) of the Registry of Deeds of Cagayan de Oro City.

Thereafter, on December 10, 1970, Ebarrat and Patricio executed an Agreement

13 wherein Ebarrat acknowledged that petitioners are the owners of the 18 coconut trees
planted in Ebarrat's property and even made Julian as a witness to the said Agreement.
In addition, petitioners alleged that the imputation of falsification of the
signatures of Julian and Guillerma is a product of respondents' inflamed imagination
because the latter envy them for they have been successful in managing their properties.
Petitioners thus prayed that judgment be rendered dismissing the complaint; affirming
their title over the controverted property and ordering respondents to pay them
P500,000.00 as moral damages; P300,000.00 as exemplary damages; P50,000.00 as
attorney's fees and costs of litigation.
On July 27, 1992, petitioners filed a Motion for Production and Inspection of
Document 14 to compel respondents to produce and permit them to inspect and to copy
or photograph the Deed of Absolute Sale subject matter of said examination. Thereafter,
the trial court issued an Order 15 dated August 14, 1992 granting the motion and

directing the Regional Office of the NBI to bring the document to court so that the same
may be properly examined.
On August 11, 1992, Guillerma died in Cagayan de Oro City and was
accordingly dropped as co-plaintiff.
After trial on the merits, the trial court rendered its Decision 16 dated August 2,
2001 ruling in favor of the respondents, the dispositive portion of which reads:
WHEREFORE, in view of the foregoing, the plaintiffs were able to establish a
strong preponderance of evidence in their favor. Accordingly, Transfer
Certificate of Title No. T-14204 is hereby declared NULL AND VOID, and is
hereby CANCELLED. Let another title be issued in the name of the late Julian
Sambaan. The defendants are jointly and severally directed to pay the plaintiffs
the sum of P20,000.00 as moral damages, P20,000.00 as attorney's fees and
P1,671.00 representing actual expenses. 17

Proceedings before the Court of Appeals

Petitioners, alleging among others that the trial court erred in finding that the
signature of Julian on the assailed document was a forgery, went to the CA by way of
ordinary appeal. On August 20, 2003, the CA rendered a Decision affirming the
findings of the trial court, the dispositive portion of which reads:
WHEREFORE, premises considered, the appealed Decision dated August 2,
2001 of the Regional Trial Court of Cagayan de Oro City, Branch 18, in Civil
Case no. 92-179 is hereby AFFIRMED in toto. Costs against appellants. 18

Petitioners filed a Motion for Reconsideration 19 which was denied by the CA

in its Resolution 20 dated March 17, 2004.
Issues
In this Petition for Review on Certiorari, petitioners assail the Decision of the
CA on the following grounds:
A. THE COURT OF APPEALS ERRED WHEN IT RULED THAT
PRESCRIPTION DID NOT BAR RESPONDENTS' ACTION TO RECOVER
OWNERSHIP OF THE SUBJECT PROPERTY.
B. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED SETTLED
PRINCIPLES ON THE ADMISSIBILITY AND APPRECIATION OF
OPINIONS OF EXPERT WITNESSES IN ITS BLANKET ACCEPTANCE OF
THE INADEQUATE TESTIMONY OF THE DOCUMENT EXAMINER WHO
WAS COMMISSIONED BY RESPONDENTS PRIOR TO THE
COMMENCEMENT OF CIVIL CASE NO. 92-179.

C. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED THE

RULES OF EVIDENCE IN ARRIVING AT THE CONCLUSION THAT THE
DEED OF ABSOLUTE SALE WAS A FORGED DOCUMENT ON THE
BASIS OF SPECIMEN SIGNATURES THE GENUINENESS OF WHICH
WERE NEVER ESTABLISHED.
D. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED LEGAL
PRINCIPLES ON HANDWRITING COMPARISON IN USING SPECIMEN
SIGNATURES OF GUILLERMA SAMBAAN THAT WERE MADE AT THE
TIME AND FOR THE SPECIFIC PURPOSE OF THE HANDWRITING
ANALYSIS OF THE DEED OF ABSOLUTE SALE.
IEHScT

E. THE COURT OF APPEALS ERRED WHEN IT DISREGARDED

JURISPRUDENCE ON THE PROOF REQUIRED TO ESTABLISH
FORGERY IN ARRIVING AT THE CONCLUSION THAT THE SIGNATURE
OF JULIAN SAMBAAN ON THE DEED OF ABSOLUTE SALE WAS
FORGED BECAUSE IT BELIEVED THAT GUILLERMA SAMBAAN'S
SIGNATURE WAS ALSO FORGED.
F. THE COURT OF APPEALS CONTRAVENED THE LEGAL RULES
GOVERNING THE APPRECIATION OF DOCUMENTS IN RULING
AGAINST THE VALIDITY OF JULIAN SAMBAAN'S SALE OF THE
SUBJECT PROPERTY TO PETITIONERS DESPITE THE EXISTENCE OF
THE AGREEMENT DATED 10 DECEMBER 1970 CONFIRMING THE
SALE.
G. THE COURT OF APPEALS ERRED IN AFFIRMING THE TRIAL
COURT'S AWARD OF DAMAGES IN FAVOR OF RESPONDENTS AND IN
DISMISSING PETITIONERS' COUNTERCLAIMS FOR DAMAGES.

Our Ruling
The core issue to be resolved in the present controversy is the authenticity of the
Deed of Absolute Sale which is a question of fact rather than of law. In Manila Bay
Club Corporation v. Court of Appeals, 21 we held that for a question to be one of law,
it must involve no examination of the probative value of the evidence presented by the
litigants or any of them. There is a question of law when the doubt or difference arises
as to what the law is pertaining to a certain state of facts. On the other hand, there is a
question of fact when the doubt arises as to the truth or the falsity of alleged facts. 22
In the case at bench, the issues raised by the petitioners are essentially factual
matters, the determination of which are best left to the courts below. Well-settled is the
rule that the Supreme Court is not a trier of facts. Factual findings of the lower courts
are entitled to great weight and respect on appeal, and in fact accorded finality when
supported by substantial evidence on the record. 23 Substantial evidence is more than
a mere scintilla of evidence. It is that amount of relevant evidence that a reasonable

mind might accept as adequate to support a conclusion, 24 even if other minds, equally
reasonable, might conceivably opine otherwise. 25 But to erase any doubt on the
correctness of the assailed ruling, we have carefully perused the records and,
nonetheless, arrived at the same conclusion. We find that there is substantial evidence
on record to support the Court of Appeals and trial court's conclusion that the signatures
of Julian and Guillerma in the Deed of Absolute Sale were forged.
The
examination
NBI
disclosed
Guillerma's signatures were forged.

conducted
that

by
Julian

the
and

We find that both the trial court and the Court of Appeals correctly gave
probative value to the testimony of the NBI Senior Document Examiner Caroline
Moldez Pitoy, who categorically testified that the signatures of Julian and Guillerma in
the Deed of Absolute Sale were forged, viz.: 26
Atty. Dalisay:
As Senior Document Examiner of the National Bureau of Investigation, do [sic]
you have [the] occasion of examining [sic] the signatures of Julian
Sambaan and Guillerma Saarenas by virtue of the case of the Regional
Director, Regional Office of the National Bureau of Investigation,
Cagayan de Oro City?
A: Yes sir.
xxx xxx xxx
Q: What was the result of the findings on the signatures of Julian Sambaan and
Guillerma Saarenas Sambaan appearing on the Deed of Sale dated
December 12, 1990.
A: After [conducting] comparative examinations . . . on the standard specimen
signatures of Julian Sambaan [and Guillerma Sambaan] as well as the . . .
questioned . . . signatures . . . we found out that [they were] not written by
one and the same person. 27
xxx xxx xxx
Q: What was the procedure which you have taken x x x in examining the
authenticity of the signatures of Guillerma Saarenas Sambaan?
A: Per Standard Operating Procedures, the first thing we did upon receipt of the
documents submitted to us is to check . . . the documents attached to the
basic letter-request and then the questioned and standard documents were
classified as to the sufficiency and appropriateness of the standards, and

then these were evaluated, after which, they were marked accordingly,
then we go to examining all the standard/specimens first, to determine
whether the handwriting is done by one and the same person before
comparing with the questioned and standard signatures. . . . After they
were found to be written by one and the same person, before comparing
with the questioned documents, the handwriting characteristics were
properly observed in these two (2) sheets of photographs, then, the final
evaluation is made, after which, a written report is made as a result of the
examination, then the same is forwarded to the Document Examiner for
re-examination and this Examiner affixes his signature and submits the
same to the Chief of the Division for approval and the said report passes
to the office of the Regional Director for final approval.
CETIDH

Petitioners
failed
evidence
to
rebut
NBI handwriting expert.

to
the

present
findings

any
the

of

Moreover, the findings of the NBI document examiner were corroborated by the
trial court's own observation, as affirmed by the CA, that "even a cursory examination
of Guillerma's questioned signature from her specimen signatures in the enlarged
photographs (Exhibits 'F' and 'F-1') would show that it needs no expert witness to notice
the wide difference in stroke, as well as the writing style in capital 'G'." 28 What is
more, Emma S. Felicilda, the daughter of then deceased Guillerma, likewise testified
that "in fact my mother was the one who filed the complaint in this instant case because
according to her, she did not sign the said document". 29
The
fact
that
the
commissioned
by
did not make said examination null and void.

examination
the

was
respondents

It is of no moment that the examination of the Deed of Absolute Sale was

commissioned by the respondents. In the end, it is the court which has the discretion
and authority on whether to give probative value to the results of the examination. As
held in Sali v. Abubakar, 30 the fact that the NBI conducted the examination of certain
contested documents upon the request of a private litigant does not necessarily nullify
the examination thus made:
. . . Its purpose is, presumably, to assist the court having jurisdiction over said
litigations, in the performance of its duty to settle correctly the issue relative to
said documents. Even a non-expert private individual may examine the same, if
there are facts within his knowledge which may help the courts in the
determination of said issue. Such examination, which may properly be
undertaken by a non-expert private individual, does not, certainly, become null
and void when the examiner is an expert and/or an officer of the NBI.

Indeed, any person, expert or not, either in his private or in his official capacity,
may testify in court on matters, within his personal knowledge, which are relevant
to a suit, subject to the judicial authority to determine the credibility of said
testimony and the weight thereof. [On] the other hand, the question whether a
public official may or shall be ordered or permitted by his superior to examine
documents and testify thereon in a given case, is one mainly administrative in
character, which is within the competence of said superior officer, or the Bureau
Director or Head of the Office, or the corresponding department head to decide,
and is independent of the validity of the examination thus made or of the credence
and weight to be given by the Court to the conclusions reached, in consequence
of said examination, by the official who made it.

The
procedures
taken
document
examiner
Section 22, Rule 132 of the Rules of Court.

by

the

did

not

NBI
violate

We are not swayed by petitioners' allegation that the comparisons made by the
document examiner, the CA and the trial court, of Guillerma's signature in the Deed of
Absolute Sale and her specimen signatures, violated Section 22, Rule 132 31 of the
Rules of Court on the authentication of private documents. It should be borne in mind
that in this case respondents were not presenting evidence to authenticate a private
document. On the contrary, they are challenging the signatures appearing in the Deed
of Absolute Sale.
The
confluence
circumstances
preponderance
of
Deed of Absolute Sale was forged.

of
prove
evidence

the
that

following
by
the

Records show that Julian was unaware of any absolute conveyance of his rights
over the subject property in favor of petitioners. As found by the trial court and affirmed
by the CA, Julian even requested his children to redeem subject property from the
petitioners. In furtherance of his father's request, Absalon offered to redeem the subject
property from the petitioners in 1982, however, the latter refused because they were
allegedly using the same as tethering place for their cattle. 32
The caretaker of the subject property, Eufronio Abrea, also testified on crossexamination that there were times when the brothers and sisters of Myrna went to the
land and asked for coconuts. 33 Petitioners take this to imply that the respondents
"never owned the subject property because they had to ask for coconuts from
petitioners, who were the real owners of the property." 34 We disagree with this
interpretation. Harvesting of coconuts requires specialized skills; an ordinary person
who does not know how to climb necessarily has to ask the caretaker to get the coconuts
for him or her.
In addition, Myrna admitted that she was not present when her parents signed
the assailed Deed of Absolute Sale. 35 Neither was she cognizant of who the witnesses

were to the said deed. 36 Interestingly, Guillerma, one of the alleged signatories, would
have been privy to the transaction that involved her husband. Yet, she joined herein
respondents in filing an action for the Annulment of the Deed of Absolute Sale on the
ground of forgery.
HIAESC

Lastly, the trial court and the CA were one in proclaiming that considering that
the subject property belongs to Julian's capital, the execution of the assailed Deed of
Absolute Sale could be validly made by Julian even without his wife's signature. 37 As
a matter of fact, the wife's name was not typed in the assailed deed and her purported
signature merely appears next to the supposed signature of Julian. This only confirms
that the person who prepared the deed knew that her signature was unnecessary for the
assailed document.
The trial court and the CA further concluded:
. . . If such was the case, we are in a query why the signature of GUILLERMA
must have to be forged when her consent, as spouse of JULIAN, is not necessary
to the execution of the Deed of Absolute Sale? The answer to this is simple:
JULIAN never executed the assailed Deed of Absolute Sale in favor of MYRNA
and such deed conveys no ownership in favor of the appellants. 38

Conclusions and findings of fact by the trial court are entitled to great weight on
appeal and should not be disturbed unless for strong and cogent reasons because the
trial court is in a better position to examine real evidence, as well as to observe the
demeanor of the witnesses while testifying in the case. 39 The fact that the CA adopted
the findings of fact of the trial court makes the same binding upon this court. 40 In
Philippine Airlines, Inc. v. Court of Appeals, 41 we held that factual findings of the CA
which are supported by substantial evidence are binding, final and conclusive upon the
Supreme Court. A departure from this rule may be warranted where the findings of fact
of the CA are contrary to the findings and conclusions of the trial court, 42 or when the
same is unsupported by the evidence on record. 43 There is no ground to apply the
exception in the instant case, however, because the findings and conclusions of the CA
are in full accord with those of the trial court.
The
forged
null and conveys no title.

Deed

of

Absolute

Sale

is

Having affirmed the findings of fact of both the CA and the trial court that the
signatures of Julian and Guillerma are forgeries, we now come to the question of the
validity of the transfer of title to the petitioners.
In Sps. Solivel v. Judge Francisco, 44 we held that:
. . . in order that the holder of a certificate for value issued by virtue of the
registration of a voluntary instrument may be considered a holder in good faith
for value, the instrument registered should not be forged. When the instrument
presented is forged, even if accompanied by the owner's duplicate certificate of

title, the registered owner does not thereby lose his title, and neither does the
assignee in the forged deed acquire any right or title to the property.
. . . The innocent purchaser for value protected by law is one who purchases a
titled land by virtue of a deed executed by the registered owner himself, not by a
forged deed, as the law expressly states. . . .

In Instrade, Inc. v. Court of Appeals, 45 we reiterated the said ruling maintaining

that "[A]s early as Joaquin v. Madrid, . . ., we said that in order that the holder of a
certificate for value issued by virtue of the registration of a voluntary instrument may
be considered a holder in good faith and for value, the instrument registered should not
be forged". Indubitably, therefore, the questioned Deed of Absolute Sale did not convey
any title to herein petitioners. Consequently, they cannot take refuge in the protection
accorded by the Torrens system on titled lands.
Thus, we hold that with the presentation of the forged deed, even if accompanied
by the owner's duplicate certificate of title, the registered owner did not thereby lose his
title, and neither does the assignee in the forged deed acquire any right or title to the
said property. The CA has aptly arrived at the same conclusion in its August 20, 2003
Decision affirming in toto the August 2, 2001 Decision of the RTC of Cagayan de Oro
City ratiocinating that:
It is significant to stress that the main thrust in the case at bench is the regularity
and validity of the assailed Deed of Absolute Sale dated December 7, 1970
(Record p. 374, Exhibit "3") allegedly executed by JULIAN in favor of the
appellants. As such, we must not confuse the issue at hand by averring that other
documents should be considered in determining the validity of the deed of
absolute sale. The reason is simple: the valid execution of the Deed of Absolute
Sale will convey and transfer ownership in favor of appellants title based on the
rule that by the contract of sale one of the contracting parties obligates himself to
transfer ownership of and to deliver a determinate thing, and the other to pay
therefor a sum certain in money or its equivalent (Coronel vs. Court of Appeals,
263 SCRA 15). The fact that the assailed Deed was not signed by JULIAN and
the signatures of JULIAN and GUILLERMA were forged per findings of the NBI
Senior Document Examiner, it can therefore be inferred that the subsequent
issuance of Transfer Certificate of Title No. T-14204 has no basis at all since
ownership was not conveyed to appellants by reason of the forged Deed.
SEHaDI

In addition, as to the issue that the Agreement dated December 10, 1970 (Record
p. 375, Exhibit "4") executed between DOMINGO and PATRICIO were
excluded, we believe there is no need to delve on the said Agreement since the
same will not in any way give justification to the forgery committed in the Deed
of Absolute Sale. As explained by the court a quo, to which we concur, appellees
should not be faulted because they are not lawyers, and as such they may not be
able to appreciate the legal logic between Exhibits "3" and "4". 46

Prescription
did
respondents'
action
ownership of the subject property.

not
to

bar
recover

Citing Article 1454 47 of the Civil Code, petitioners assert that since the
respondents admit that there was a mortgage transaction between Julian and herein
petitioners involving the subject property there is no dispute that an implied trust was
created by operation of law. In which case, respondents' right to reconveyance had
already prescribed when they filed the annulment case on April 3, 1992, or more than
10 years after petitioners repudiated such implied trust.
On the other hand, respondents assert that the element of consent is totally
wanting in the assailed Deed of Absolute Sale because the signatures of Julian and
Guillerma, which is equivalent to their consent, were forged by the petitioners. 48 They
maintain that the absence of consent made the said document null and void. 49 Hence,
this case falls under the purview of Article 1410 of the Civil Code which provides that
an action to declare the inexistence of void contracts does not prescribe. 50
We agree with the respondents. The supposed vendor's signature having been
proved to be a forgery, the instrument is totally void or inexistent as "absolutely
simulated or fictitious" under Article 1409 of the Civil Code. 51 According to Article
1410, "the action or defense for the declaration of the inexistence of a contract does not
prescribe". The inexistence of a contract is permanent and incurable which cannot be
cured either by ratification or by prescription. 52
The
award
attorney's fees is proper.

of

moral

damages

and

On this aspect, we must consider the blood relations among the parties. One of
the respondents, Emma S. Felicilda, testified on cross examination that they had high
regard for Myrna, their eldest sister. 53 The same was echoed by respondent Anita
Sambaan on cross examination. 54 They could not believe that Myrna would keep and
appropriate the land for herself and transfer the title exclusively to her name. 55 On
direct examination, respondent Emma S. Felicilda likewise testified that the forgery
caused them anger and bad emotions. 56
Moreover, it was Julian's dying wish for the property to be redeemed from the
petitioners. 57 Hence, it is not unexpected that the sentimental significance of the
property and the anger and emotions caused by the unlawful transfer of the same have
moved the respondents to recover the same through the instant action. We therefore
hold that the award of P20,000.00 as moral damages is proper.
In addition, in view of the complexity of the instant case and the multiple levels
of appeal that this case had gone through, we also affirm the award of attorney's fees of
P20,000.00 as well as the actual damages of P1,671.00 incurred by the prevailing party
which was substantiated during trial.

On a final note, it bears stressing that the arguments raised by the petitioners are
essentially the same issues they put forward before the CA which have been duly passed
upon and considered by the appellate court in affirming the RTC Decision in toto.
EDATSI

WHEREFORE, the petition is DENIED.

SO ORDERED.
Carpio, Brion, Abad and Perez, JJ., concur.
(Spouses Bernales v. Heirs of Sambaan, G.R. No. 163271, [January 15, 2010], 624
PHIL 88-108)
|||

SECOND DIVISION
[G.R. No. 181560. November 15, 2010.]
VITARICH CORPORATION, petitioner, vs. CHONA LOSIN,
respondent.

DECISION

MENDOZA, J :
p

This is a petition for review under Rule 45 of the Rules of Court seeking to
reverse and set aside the November 26, 2007 Decision 1 of the Court of Appeals,
Cagayan de Oro (CA-CDO), in CA G.R. CV No. 73726, 2 which reversed the August
9, 2001 Decision of the Regional Trial Court, Branch 23, General Santos City (RTC),
in Civil Case No. 6287, in favor of petitioner Vitarich Corporation (Vitarich).
THE FACTS:
Respondent Chona Losin (Losin) was in the fastfood and catering services
business named Glamours Chicken House, with address at Parang Road, Cotabato City.
Since 1993, Vitarich, particularly its Davao Branch, had been her supplier of poultry
meat. 3 In 1995, however, her account was transferred to the newly opened Vitarich
branch in General Santos City.
In the months of July to November 1996, Losin's orders of dressed chicken and
other meat products allegedly amounted to P921,083.10. During this said period,
Losin's poultry meat needs for her business were being serviced by Rodrigo Directo
(Directo) and Allan Rosa (Rosa), both salesmen and authorized collectors of Vitarich,
and Arnold Baybay (Baybay), a supervisor of said corporation. Unfortunately, it was
also during the same period that her account started to experience problems because of
the fact that Directo delivered stocks to her even without prior booking which is the
customary process of doing business with her. 4
On August 24, 1996, Directo's services were terminated by Vitarich without
Losin's knowledge. He left without turning over some supporting invoices covering the
orders of Losin. Rosa and Baybay, on the other hand, resigned on November 30, 1996
and December 30, 1996, respectively. Just like Directo, they did not also turn over
pertinent invoices covering Losin's account. 5
On February 12, 1997, demand letters were sent to Losin covering her alleged
unpaid account amounting to P921,083.10. Because of said demands, she checked her
records and discovered that she had an overpayment to Vitarich in the amount of

P500,000.00. She relayed this fact to Vitarich and further informed the latter that checks
were issued and the same were collected by Directo. 6
It appears that Losin had issued three (3) checks amounting to P288,463.30
which were dishonored either for reasons Drawn Against Insufficient Funds (DAIF)
or Stop Payment. 7
TcHDIA

On March 2, 1998, Vitarich filed a complaint for Sum of Money against Losin,
Directo, Rosa, and Baybay before the RTC.
On August 9, 2001, the RTC rendered its Decision 8 in favor of Vitarich, the
dispositive portion of which reads:
WHEREFORE, judgment is hereby rendered in favor of plaintiff, ordering
defendant Chona Losin to pay plaintiff the following:
1. P297,462.50 representing the three checks which had been stopped
payment with interest at 12% per annum from the date of this
Decision until the whole amount is fully paid;
2. P101,450.20 representing the unpaid sales (Exhibits 'L' and 'M') with
interest at 12% from date of this Decision until the whole amount
is fully paid;
3. P20,000.00 in concept of attorney's fees; and
4. The cost of suit.
As to the complaint against defendant Allan Rosa and Arnold Baybay, the same
is dismissed. The complaint against Rodrigo Directo still remains and is hereby
ordered archived until he could be served with summons.
SO ORDERED. 9

Not satisfied with the RTC decision, Losin appealed to the CA presenting the
following:
ASSIGNMENT OF ERRORS:
I. THE LOWER COURT ERRED IN NOT APPRECIATING THE
OVERPAYMENT MADE BY DEFENDANT-APPELLANT TO
VITARICH CORPORATION;
II. THE LOWER COURT ERRED IN ORDERING THE PAYMENT OF
THE THREE (3) CHECKS WITH STOP PAYMENT ORDERS
AND WITHOUT ANY ANTECEDENT DOCUMENTARY

EVIDENCES FOR THE TWO (2) CHECKS, NAMELY: RCBC

CHECK NO. CX 046324 AND RCBC CHECK NO. CX 046327; AND
III. THE LOWER COURT ERRED IN NOT FINDING VITARICH
CORPORATION NEGLIGENT IN THE SELECTION OF ITS
EMPLOYEES AND NEITHER FINDING THE CORPORATION
LIABLE FOR DAMAGES A CLEAR VIOLATION OF ARTICLE
2180 OF THE CIVIL CODE. 10

On November 26, 2007, the CA rendered the assailed decision in favor of Losin.
Pertinently, the said decision reads:
It is axiomatic that we should not interfere with the judgment of the trial court in
determining the credibility of witnesses, unless there appears in the record some
fact or circumstances of weight and influence which has been overlooked or the
significance of which has been misinterpreted. The reason is that the trial court is
in a better position to determine questions involving credibility having heard the
witnesses and having observed their deportment and manner of testifying during
the trial unless there is showing that the findings of the lower court are totally
devoid of support or glaringly erroneous as to constitute palpable error or grave
abuse of discretion. This is such an instance.
caIACE

By the contract of agency, a person binds himself to render some service or to do

something in representation or on behalf of another, with the consent or authority
of the latter. Thus, the elements of agency are (i) consent, express or implied, of
the parties to establish the relationship; (ii) the object is the execution of a
juridical act in relation to a third person; (iii) the agent acts as a representative
and not for himself; and (iv) the agent acts within the scope of his authority.
The Civil Code defines a contract of agency as follows:
"Art. 1868. By the contract of agency, a person binds himself to render
some service or to do something in representation or on behalf of another,
with the consent or authority of the latter."
As far as Losin is concerned, Directo was a duly authorized agent of Vitarich
Corporation. As such, it fell upon Directo to place her orders of dressed chicken
and other related products to their General Santos City branch. All such orders
were taken from the Vitarich bodega by Directo as testified by Alona Calinawan,
then bookkeeper of Vitarich from March 1995 to September 1998, who was
responsible for all the customers' accounts, receivables and withdrawals of
dressed chicken from their bodega.
A perusal of the records would show that Vitarich included in their list of
collectibles from Losin several amounts that were not supported by their Charge
Sales Invoices such as P44,987.70, P3,300.00; P28,855.40; P98,166.20;

P73,806.00; and P93,888.80 and which form part of their total claim of
P912,083.10. Furthermore, Vitarich also submitted Charge Sales Invoices
showing the amount of P70,000.00, P41,792.40, P104,137.40 and P158,522.80
as part of their exhibits but which amounts are not included in its summary
statement of collectibles against Losin.
It is noted that the dressed chicken and other related products as manifested by
the Charge Sales Invoices, were taken out of the bodega and received by Directo,
who is now 'at large.' There was no evidence presented by Vitarich to prove that
aforesaid stocks were delivered to Losin. Contrary to what Vitarich claimed that
Directo resigned on August 24, 1996, exhibit 'X' shows that he was 'terminated.'
The fact can not be put aside that Directo was the salesman and authorized
collector and by law, the agent of Vitarich. Criminal acts committed by Directo
by his non-remittance of the proceeds of the checks given by Losin, is his separate
accountability with Vitarich and should not be imputed to their client, Losin. In
fact, defendant Directo absconded when plaintiff-appellee started to question his
'collectibles.' The totality of Directo's acts clearly indicated a deliberate attempt
to escape liability.
The Civil Code provides:
"Art. 1921. If the agency has been entrusted for the purpose of contracting
with specified persons, its revocation shall not prejudice the latter if
they were not given notice thereof."
"Art. 1922. If the agent had general powers, revocation of the agency does
not prejudice third persons who acted in good faith and without
knowledge of the revocation. Notice of the revocation in a newspaper of
general circulation is a sufficient warning to third persons." (Emphasis
Ours)
The reason for the law is obvious. Since the third persons have been made to
believe by the principal that the agent is authorized to deal with them, they have
the right to presume that the representation continues to exist in the absence of
notification by the principal.
TcDIaA

Nowhere in the records can it be found that Losin was notified of the fact that
Directo was no longer representing the interest of Vitarich and that the latter has
terminated Directo's services. There is also an absence of any proof to show that
Directo's termination has been published in a newspaper of general circulation.
It is well settled that a question of fact is to be determined by the evidence offered
to support the particular contention. In defendant-appellant's 'Statement of
Payments Made to Vitarich,' prepared and signed by Losin's bookkeeper, Imelda
S. Cinco, all the checks enumerated therein coincides with the bank statements
submitted by RCBC, thus corroborating Losin's claim that she has paid Vitarich.

Vitarich's contention that 'defendant Baybay tried very hard to hide his
accountabilities to the plaintiff . . . but failed to explain why the account remained
unpaid,' confirms its belief that their own agents as such, are accountable for
transactions made with third persons. "As a Sales Supervisor, he is principally
liable for the behavior of his subordinates (Directo & Rosa) and for the
enforcement of company rules" which may have gone beyond their authority to
do such acts.
Anent the third assigned error that the lower court erred in not finding Vitarich
negligent in the selection of its employees thereby making the former liable for
damages under Article 2180 of the Civil Code, We find the same to be without
basis as said article explicitly holds that:
"ART. 2180. The obligation imposed by Article 2176 is demandable not
only for one's own acts or omissions, but also for those of persons for
whom one is responsible.
xxx xxx xxx
Employers shall be liable for the damages caused by their employees
and household helpers acting within the scope of their assigned tasks,
even though the former are not engaged in any business or industry.
xxx xxx xxx."
Pursuant to Article 2180 of the Civil Code, that vicarious liability attaches only
to an employer when the tortuous conduct of the employee relates to, or is in the
course of, his employment. The question to ask should be whether at the time of
the damage or injury, the employee is engaged in the affairs or concerns of the
employer or, independently, in that of his own? Vitarich incurred no liability
when Directo's conduct, act or omission went beyond the range of his
employment.
Section 1, Rule 133 of the Rules of Court provides:
"SECTION 1. Preponderance of evidence, how determined. In civil
cases, the party having the burden of proof must establish his case by a
preponderance of evidence. In determining where the preponderance or
superior weight of evidence on the issues involved lies, the court may
consider all the facts and circumstances of the case, the witnesses' manner
of testifying, their intelligence, their means and opportunity of knowing
the facts to which they are testifying, the nature of the facts to which they
testify, the probability or improbability of their testimony, their interest or
want of interest, and also their personal credibility so far as the same may
legitimately appear upon the trial. The court may also consider the number

of witnesses, though the preponderance is not necessarily with the greater

number."
HaTAEc

"Preponderance of evidence' is the weight, credit, and value of the aggregate

evidence on either side and is usually considered to be synonymous with the term
'greater weight of the evidence' or greater weight of the credible evidence." It is
evidence which is more convincing to the court as worthy of belief than that
which is offered in opposition thereto.
xxx xxx xxx
We reviewed the factual and legal issues of this case in light of the general rules
of evidence and the burden of proof in civil cases, as explained by the Supreme
Court in Jison v. Court of Appeals:
". . . Simply put, he who alleges the affirmative of the issue has the burden
of proof, and upon the plaintiff in a civil case, the burden of proof never
parts. However, in the course of trial in a civil case, once plaintiff makes
out a prima facie case in his favour, the duty or the burden of evidence
shifts to defendant to controvert plaintiff's prima facie case, otherwise, a
verdict must be returned in favour of plaintiff. Moreover, in civil cases,
the party having the burden of proof must produce a preponderance of
evidence thereon, with plaintiff having to rely on the strength of his own
evidence and not upon the weakness of the defendants. The concept of
'preponderance of evidence' refers to evidence which is of greater weight,
or more convincing, that which is offered in opposition to it; at bottom, it
means probability of truth."
Hence, Vitarich who has the burden of proof must produce such quantum of
evidence, with the former having to rely on the strength of its own evidence and
not on the weakness of the defendant-appellant Losin's.
In this light, we have meticulously perused the records of this case and [found]
that the court a quo had erred in appreciating the evidence presented.
In deciding this appeal, the Court relies on the rule that a party who has the burden
of proof in a civil case must establish his cause of action by a preponderance of
evidence. When the evidence of the parties is in equipoise, or when there is a
doubt as to where the preponderance of evidence lies, the party with the burden
of proof fails and the petition/complaint must thus be denied. We find that
plaintiff-appellee Vitarich failed to prove that the goods were ever delivered and
received by Losin, said charge sales invoices being undated and unsigned by
Losin being the consignee of the goods.

On the other hand, Losin could not also prove that she has overpaid Vitarich.
Hence, her contention that she has overpaid Vitarich and her prayer for refund of
the alleged overpaid amount, must necessarily fail.
ACCORDINGLY, the instant appeal is hereby GRANTED and the appealed
judgment is hereby SET ASIDE and VACATED. No pronouncement as to cost.
SO ORDERED. 11

Hence, this petition for review alleging that

AS THE FINDINGS OF FACTS OF THE COURT OF APPEALS
SQUARELY CONTRADICTS THAT OF THE TRIAL COURT,
PETITIONER HUMBLY REQUESTS THE SUPREME COURT TO
INQUIRE INTO THE ERRONEOUS CONCLUSIONS OF FACTS MADE
BY THE COURT OF APPEALS. 12

As a general rule, a petition for review under Rule 45 of the Rules of Court
covers questions of law only. Questions of fact are not reviewable and passed upon by
this Court in its exercise of judicial review. The distinction between questions of law
and questions of fact has been well defined. A question of law exists when the doubt
or difference centers on what the law is on a certain state of facts. A question of fact,
on the other hand, exists if the doubt centers on the truth or falsity of the alleged facts.
13
HSaIDc

The rule, however, admits of exceptions, namely: (1) when the findings are
grounded entirely on speculations, surmises, or conjectures; (2) when the inference
made is manifestly mistaken, absurd, or impossible; (3) when there is a grave abuse of
discretion; (4) when the judgment is based on misappreciation of facts; (5) when the
findings of fact are conflicting; (6) when in making its findings, the same are contrary
to the admissions of both appellant and appellee; (7) when the findings are contrary
to those of the trial court; (8) when the findings are conclusions without citation of
specific evidence on which they are based; (9) when the facts set forth in the petition as
well as in the petitioner's main and reply briefs are not disputed by the respondent; and
(10) when the findings of fact are premised on the supposed absence of evidence and
contradicted by the evidence on record. 14
The aforementioned exceptions, particularly the seventh exception, finds
relevance in the case at bench since the findings of the CA are clearly in conflict with
that of the trial court. For this reason, the Court is constrained to reevaluate the evidence
adduced by both parties to resolve the issues which boil down to whether or not Losin
is liable to Vitarich and, if so, to what extent.
The Court resolves the issues partly in favor of Vitarich.

Initially, Vitarich claims a total of P921,083.10 from respondent Losin, Directo,

Rosa and Baybay (defendants in Civil Case No. 6287 for Sum of Money). According to
Vitarich, "[t]he successive and sudden resignations of defendants Directo, Baybay and
Rosa and the sudden change of mind of defendant Losin after previously
acknowledging her accounts are part of an elaborate and sinister scheme of defendants,
acting singly or collectively, in conspiracy or not, in defrauding plaintiff corporation .
. . ." 15
The RTC ruled in favor of Vitarich, ordering Losin to pay the following: (1)
P297,462.50 representing the three (3) checks, the payment for which was stopped, with
corresponding interest at 12% per annum from the date of the RTC decision until fully
paid; (2) P101,450.20 for the unpaid sales also with interest at 12% per annum from the
date of the RTC decision until fully paid; (3) P20,000.00 for attorney's fees; and (4)
cost of suit. 16 It appears that Vitarich did not challenge this part of the RTC decision
anymore. 17
After Losin obtained a favorable RTC decision, Vitarich now seeks relief from
this Court through this petition for review.
After an assessment of the evidentiary records, the Court opines and so holds
that the CA erred in reversing the RTC decision. Losin is clearly liable to Vitarich.
Records bear out that Losin transacted with Vitarich's representative Directo. 18
Vitarich presented several charge sales invoices 19 and statement of account 20 to
support Losin's accountability for the products delivered to her. A total of P921,083.10
was initially charged to her. Losin, on the other hand, presented a copy of the list of
checks allegedly issued to Vitarich through its agent Directo, 21 and a Statement of
Payments Made to Vitarich 22 to support her allegation of payment.
It is worth noting that both Vitarich and Losin failed to make a proper recording
and documentation of their transactions making it difficult to reconcile the evidence
presented by the parties to establish their respective claims.
TIEHDC

As a general rule, one who pleads payment has the burden of proving it. In
Jimenez v. NLRC, 23 the Court ruled that the burden rests on the debtor to prove
payment, rather than on the creditor to prove non-payment. The debtor has the burden
of showing with legal certainty that the obligation has been discharged by payment.
True, the law requires in civil cases that the party who alleges a fact has the
burden of proving it. Section 1, Rule 131 of the Rules of Court 24 provides that the
burden of proof is the duty of a party to prove the truth of his claim or defense, or any
fact in issue by the amount of evidence required by law. In this case, however, the
burden of proof is on Losin because she alleges an affirmative defense, namely,
payment. Losin failed to discharge that burden.
After examination of the evidence presented, this Court is of the opinion that
Losin failed to present a single official receipt to prove payment. 25 This is contrary to
the well-settled rule that a receipt, which is a written and signed acknowledgment that

money and goods have been delivered, is the best evidence of the fact of payment
although not exclusive. 26 All she presented were copies of the list of checks allegedly
issued to Vitarich through its agent Directo, 27 a Statement of Payments Made to
Vitarich, 28 and apparently copies of the pertinent history of her checking account with
Rizal Commercial Banking Corporation (RCBC). At best, these may only serve as
documentary records of her business dealings with Vitarich to keep track of the
payments made but these are not enough to prove payment.
Article 1249, paragraph 2 of the Civil Code provides:
The delivery of promissory notes payable to order, or bills of exchange or other
mercantile documents shall produce the effect of payment only when they have
been cashed, or when through the fault of the creditor they have been impaired.
[Emphasis supplied]

In the case at bar, no cash payment was proved. It was neither confirmed that the
checks issued by Losin were actually encashed by Vitarich. Thus, the Court cannot
consider that payment, much less overpayment, made by Losin.
Now, the Court ascertains the extent of Losin's liability. A perusal of the records
shows that Vitarich included in its list of collectibles, 29 several amounts that were not
properly supported by Charge Sales Invoice, to wit, (1) P44,987.70; (2) P3,300.00; (3)
P28,855.40; (4) P98,166.20; (5) P73,806.00; and (6) P93,888.80. 30 It bears noting that
the Charge Sales Invoices presented for the amounts listed as collectibles were undated
and unsigned by Losin, the supposed consignee of the goods (except Exh. L). Of the
six amounts, the Court particularly considered the P93,888.80 as it was the amount of
one of the checks issued by Losin. Indeed, the Court cannot disregard the fact that Losin
issued a corresponding check for the following amounts: (1) P93,888.96 (dated August
27, 1996); 31 (2) P50,265.00 (dated August 30, 1996); 32 and (3) P144,309.50 (dated
August 31, 1996). 33 The Court believes that Losin would not have issued those checks
had she not received the goods so delivered to her. The first two (2) checks were
apparently received by the Vitarich but were not encashed because of Losin's
instruction to RCBC. Thus, Losin is liable to Vitarich but not for the total amount of
the three (3) mentioned checks but only for the amount of P93,888.96 and P50,265.00
corresponding to the first two (2) checks. Losin cannot be held liable for the amount of
the third check P144,309.50 because Vitarich did not claim for this amount. The amount
of P144,309.50 for some reason, was not among those listed in the list of collectibles
of Vitarich. 34
HSaEAD

Aside from the earlier mentioned liabilities, the Court also holds Losin liable for
the amount of P78,281.00 which was also among those listed as collectible by Vitarich.
Although the Charge Sales Invoice 35 bearing this amount was undated, it nevertheless,
appears that the goods corresponding to this amount were actually received by Losin's
mother. This was even testified to by Rosa 36 and confirmed by Losin herself. 37 With
the exception of the amounts corresponding to the two (2) checks discussed above and

the amount of P18,281.00 as appearing in Exh. L, the other amounts appearing on the
rest of the Charge Sales Invoice and on the Statement of Account presented by Vitarich
cannot be charged on Losin for failure of Vitarich to prove that these amounts are
chargeable to her. Vitarich even failed to prove that the rest of the goods as appearing
on the other Charge Sales Invoices were actually delivered and received by her or her
representative since these Charge Sales Invoices were undated and unsigned. Thus,
Losin is liable to pay Vitarich the amounts of P93,888.96, P50,265.00 and P78,281.00
or a total of P222,434.96 only.
Inasmuch as the case at bar involves an obligation not arising from a loan or
forbearance of money, but consists in the payment of a sum of money, the legal rate of
interest is 6% per annum of the amount demanded. 38 Interest shall continue to run
from February 12, 1997, the date when Vitarich demanded payment of the sum
amounting to P921,083.10 from Losin (and not from the time of the filing of the
Complaint) until finality of the Decision (not until fully paid). The rate of interest shall
increase to 12% per annum only from such finality until its satisfaction, the interim
period being deemed to be equivalent to a forbearance of credit. 39
Regarding the grant of attorney's fees, the Court agrees with the RTC that said
award is justified. Losin refused to pay Vitarich despite the latter's repeated demands.
It was left with no recourse but to litigate and protect its interest. We, however, opt to
reduce the same to P10,000.00 from P20,000.00.
The claims against Rosa and Baybay who allegedly did not fully account for
their sales transactions have not been substantially proven by evidence. In fact, it
appears that Rosa and Baybay resigned. Resignation would not have been possible
unless accountabilities with Vitarich had been settled first. It was only the services of
Directo that was apparently terminated by Vitarich. 40 Summons, however, was not
served on him, so he could not be made to account for the shortages of collection.
WHEREFORE, the November 26, 2007 Decision of the Court of Appeals is
REVERSED and SET ASIDE. The August 9, 2001 Decision of the Regional Trial
Court of General Santos City, Branch 23, is REINSTATED subject to
MODIFICATIONS. Thus, the dispositive portion should read as follows:
WHEREFORE, judgment is hereby rendered ordering Chona Losin to pay
Vitarich Corporation the following:
(1) P222,434.96 representing the two checks, with Check Nos. CX
046324 dated August 27, 1996 and CX 046325 dated August 30,
1996 which had been stopped payment and the amount as
appearing in Charge Sales Invoice marked as Exhibit 'L' subject to
an interest rate of 6% per annum from February 12, 1997, the date
when Vitarich demanded payment of the sum amounting to
P921,083.10 from Losin until finality of the Decision. The rate of
interest shall increase to 12% per annum only from such finality

until its satisfaction, the interim period being deemed to be

equivalent to a forbearance of credit;
(2) P10,000.00 representing attorney's fees; and
(3) Cost of suit.
The complaint against Allan Rosa and Arnold Baybay is dismissed. The
complaint against Rodrigo Directo is ordered archived until he could be served
with summons.

SO ORDERED.

DTAESI

Carpio, Nachura, Peralta and Abad, JJ., concur.

(Vitarich Corporation v. Losin, G.R. No. 181560, [November 15, 2010], 649 PHIL 164181)
|||

FIRST DIVISION
[G.R. Nos. 193383-84. January 14, 2015.]
CBK POWER COMPANY LIMITED, petitioner, vs.
COMMISSIONER OF INTERNAL REVENUE, respondent.
[G.R. Nos. 193407-08. January 14, 2015.]
COMMISSIONER OF INTERNAL REVENUE, petitioner, vs. CBK
POWER COMPANY LIMITED, respondent.

DECISION

PERLAS-BERNABE, J :
p

Assailed in these consolidated petitions for review on certiorari 1 are the Decision 2 dated
March 29, 2010 and the Resolution 3 dated August 16, 2010 of the Court of Tax Appeals
(CTA) En Banc in C.T.A. E.B. Nos. 469 and 494, which affirmed the Decision 4 dated
August 28, 2008, the Amended Decision 5 dated February 12, 2009, and the Resolution 6
dated May 7, 2009 of the CTA First Division in CTA Case Nos. 6699, 6884, and 7166
granting CBK Power Company Limited (CBK Power) a refund of its excess final
withholding tax for the taxable years 2001 to 2003.
The Facts
CBK Power is a limited partnership duly organized and existing under the laws of the
Philippines, and primarily engaged in the development and operation of the Caliraya,
Botocan, and Kalayaan hydroelectric power generating plants in Laguna (CBK Project). It
is registered with the Board of Investments (BOI) as engaged in a preferred pioneer area
of investment under the Omnibus Investment Code of 1987. 7
To finance the CBK Project, CBK Power obtained in August 2000 a syndicated loan from
several foreign banks, 8 i.e., BNP Paribas, Dai-ichi Kangyo Bank, Limited, Industrial Bank
of Japan, Limited, and Societe General (original lenders), acting through an Inter-Creditor
Agent, Dai-ichi Kangyo Bank, a Japanese bank that subsequently merged with the
Industrial Bank of Japan, Limited (Industrial Bank of Japan) and the Fuji Bank, Limited
(Fuji Bank), with the merged entity being named as Mizuho Corporate Bank (Mizuho
Bank). One of the merged banks, Fuji Bank, had a branch in the Philippines, which became
a branch of Mizuho Bank as a result of the merger. The Industrial Bank of Japan and

Mizuho Bank are residents of Japan for purposes of income taxation, and recognized as
such under the relevant provisions of the income tax treaties between the Philippines and
Japan. 9
Certain portions of the loan were subsequently assigned by the original lenders to various
other banks, including Fortis Bank (Nederland) N.V. (Fortis-Netherlands) and Raiffesen
Zentral Bank Osterreich AG (Raiffesen Bank). Fortis-Netherlands, in turn, assigned its
portion of the loan to Fortis Bank S.A./N.V. (Fords-Belgium), a resident of Belgium.
Fortis-Netherlands and Raiffesen Bank, on the other hand, are residents of Netherlands and
Austria, respectively. 10
In February 2001, CBK Power borrowed money from Industrial Bank of Japan, FortisNetherlands, Raiffesen Bank, Fortis-Belgium, and Mizuho Bank for which it remitted
interest payments from May 2001 to May 2003. 11 It allegedly withheld final taxes from
said payments based on the following rates, and paid the same to the Revenue District
Office No. 55 of the Bureau of Internal Revenue (BIR): (a) fifteen percent (15%) for FortisBelgium, Fortis-Netherlands, and Raiffesen Bank; and (b) twenty percent (20%) for
Industrial Bank of Japan and Mizuho Bank. 12
aIcETS

However, according to CBK Power, under the relevant tax treaties between the
Philippines and the respective countries in which each of the banks is a resident, the interest
income derived by the aforementioned banks are subject only to a preferential tax rate of
10%, viz.: 13
BANK

COUNTRY OF
RESIDENCE

PREFERENTIAL RATE
UNDER THE RELEVANT
TAX TREATY

Fortis Bank S.A./N.V.

Belgium

10% (Article 11 [1],

RP-Belgium Tax Treaty)

Industrial Bank of
Japan

Japan

10% (Article 11 [3],

RP-Japan Tax Treaty)

Raiffesen Zentral Bank

Osterreich AG

Austria

10% (Article 11 [3],

RP-Austria Tax Treaty)

Mizuho Corporate Bank

Japan

10% (Article 11 [3],

RP-Japan Tax Treaty)

Accordingly, on April 14, 2003, CBK Power filed a claim for refund of its excess final
withholding taxes allegedly erroneously withheld and collected for the years 2001 and
2002 with the BIR Revenue Region No. 9. The claim for refund of excess final withholding
taxes in 2003 was subsequently filed on March 4, 2005. 14
The Commissioner of Internal Revenue's (Commissioner) inaction on said claims
prompted CBK Power to file petitions for review before the CTA, viz.: 15
(1) CTA Case No. 6699 was filed by CBK Power on June 6, 2003 seeking the
refund of excess final withholding tax in the total amount PhP6,393,267.20
covering the year 2001 with respect to interest income derived by [FortisBelgium], Industrial Bank of Japan, and [Raiffesen Bank]. An Answer was filed
by the Commissioner on July 25, 2003.
(2) CTA Case No. 6884 was filed by CBK Power on March 5, 2004 seeking for
the refund of the amount of PhP8,136,174.31 covering [the] year 2002 with
respect to interest income derived by [Fortis-Belgium], Industrial Bank of Japan,
[Mizuho Bank], and [Raiffesen Bank]. The Commissioner filed his Answer on
May 7, 2004.
xxx xxx xxx
(3) CTA Case No. 7166 was filed by CBK [Power] on March 9, 2005 seeking
for the refund of [the amount of] PhP1,143,517.21 covering [the] year 2003 with
respect to interest income derived by [Fortis-Belgium], and [Raiffesen Bank].
The Commissioner filed his Answer on May 9, 2005. (Emphases supplied)

CTA Case Nos. 6699 and 6884 were consolidated first on June 18, 2004. Subsequently,
however, all three cases CTA Case Nos. 6699, 6884, and 7166 were consolidated in
a Resolution dated August 3, 2005. 16
The CTA First Division Rulings
In a Decision 17 dated August 28, 2008, the CTA First Division granted the petitions and
ordered the refund of the amount of PhP15,672,958.42 upon a finding that the relevant tax
treaties were applicable to the case. 18 It cited DA-ITAD Ruling No. 099-03 19 dated July
16, 2003, issued by the BIR, confirming CBK Power's claim that the interest payments it
made to Industrial Bank of Japan and Raiffesen Bank were subject to a final withholding
tax rate of only 10% of the gross amount of interest, pursuant to Article 11 of the Republic
of the Philippines (RP)-Austria and RP-Japan tax treaties. However, in DA-ITAD Ruling
No. 126-03 20 dated August 18, 2003, also issued by the BIR, interest payments to FortisBelgium were likewise subjected to the same rate pursuant to the Protocol Amending the
RP-Belgium Tax Treaty, the provisions of which apply on income derived or which
accrued beginning January 1, 2000. With respect to interest payments made to Fortis-

Netherlands before it assigned its portion of the loan to Fortis-Belgium, the CTA First
Division likewise granted the preferential rate. 21
CAcDTI

The CTA First Division categorically declared in the August 28, 2008 Decision that the
required International Tax Affairs Division (ITAD) ruling was not a condition sine qua
non for the entitlement of the tax relief sought by CBK Power, 22 however, upon motion
for reconsideration 23 filed by the Commissioner, the CTA First Division amended its
earlier decision by reducing the amount of the refund from PhP15,672,958.42 to
PhP14,835,720.39 on the ground that CBK Power failed to obtain an ITAD ruling with
respect to its transactions with Fortis-Netherlands. 24 In its Amended Decision 25 dated
February 12, 2009, the CTA First Division adopted 26 the ruling in the case of Mirant
(Philippines) Operations Corporation (formerly: Southern Energy Asia-Pacific
Operations [Phils.], Inc.) v. Commissioner of Internal Revenue (Mirant), 27 cited by the
Commissioner in his motion for reconsideration, where the Court categorically pronounced
in its Resolution dated February 18, 2008 that an ITAD ruling must be obtained prior to
availing a preferential tax rate.
CBK Power moved for the reconsideration 28 of the Amended Decision dated February
12, 2009, arguing in the main that the Mirant case, which was resolved in a minute
resolution, did not establish a legal precedent. The motion was denied, however, in a
Resolution 29 dated May 7, 2009 for lack of merit.
Undaunted, CBK Power elevated the matter to the CTA En Banc on petition for review,
30 docketed as C.T.A E.B. No. 494. The Commissioner likewise filed his own petition for
review, 31 which was docketed as C.T.A. E.B. No. 469. Said petitions were subsequently
consolidated. 32
CBK Power raised the lone issue of whether or not an ITAD ruling is required before it
can avail of the preferential tax rate. On the other hand, the Commissioner claimed that
CBK Power failed to exhaust administrative remedies when it filed its petitions before the
CTA First Division, and that said petitions were not filed within the two-year prescriptive
period for initiating judicial claims for refund. 33
The CTA En Banc Ruling
In a Decision 34 dated March 29, 2010, the CTA En Banc affirmed the ruling of the CTA
First Division that a prior application with the ITAD is indeed required by Revenue
Memorandum Order (RMO) 1-2000, 35 which administrative issuance has the force and
effect of law and is just as binding as a tax treaty. The CTA En Banc declared the Mirant
case as without any binding effect on CBK Power, having been resolved by this Court
merely through minute resolutions, and relied instead on the mandatory wording of RMO
1-2000, as follows: 36

III. Policies:
xxx xxx xxx
2. Any availment of the tax treaty relief shall be preceded by an
application by filing BIR Form No. 0901 (Application for Relief
from Double Taxation) with ITAD at least 15 days before the
transaction i.e., payment of dividends, royalties, etc., accompanied
by supporting documents justifying the relief. . . . .

The CTA En Banc further held that CBK Power's petitions for review were filed within the
two-year prescriptive period provided under Section 229 37 of the National Internal
Revenue Code of 1997 38 (NIRC),and that it was proper for CBK Power to have filed said
petitions without awaiting the final resolution of its administrative claims for refund before
the BIR; otherwise, it would have completely lost its right to seek judicial recourse if the
two-year prescriptive period lapsed with no judicial claim filed.
CBK Power's motion for partial reconsideration and the Commissioner's motion for
reconsideration of the foregoing Decision were both denied in a Resolution 39 dated
August 16, 2010 for lack of merit; hence, the present consolidated petitions.
The Issues Before the Court
In G.R. Nos. 193383-84, CBK Power submits the sole legal issue of whether the BIR may
add a requirement prior application for an ITAD ruling that is not found in the income
tax treaties signed by the Philippines before a taxpayer can avail of preferential tax rates
under said treaties. 40
On the other hand, in G.R. Nos. 193407-08, the Commissioner maintains that CBK Power
is not entitled to a refund in the amount of PhP1,143,517.21 for the period covering taxable
year 2003 as it allegedly failed to exhaust administrative remedies before seeking judicial
redress. 41
The Court's Ruling
The Court resolves the foregoing in seriatim.
A. G.R. Nos. 193383-84
The Philippine Constitution provides for adherence to the general principles of
international law as part of the law of the land. The time-honored international principle of
pacta sunt servanda demands the performance in good faith of treaty obligations on the
part of the states that enter into the agreement. In this jurisdiction, treaties have the force
and effect of law. 42
SAHaTc

The issue of whether the failure to strictly comply with RMO No. 1-2000 will deprive
persons or corporations of the benefit of a tax treaty was squarely addressed in the recent
case of Deutsche Bank AG Manila Branch v. Commissioner of Internal Revenue 43
(Deutsche Bank), where the Court emphasized that the obligation to comply with a tax
treaty must take precedence over the objective of RMO No. 1-2000, viz.:
We recognize the clear intention of the BIR in implementing RMO No. 1-2000,
but the CTA's outright denial of a tax treaty relief for failure to strictly comply
with the prescribed period is not in harmony with the objectives of the
contracting state to ensure that the benefits granted under tax treaties are
enjoyed by duly entitled persons or corporations.
Bearing in mind the rationale of tax treaties, the period of application for the
availment of tax treaty relief as required by RMO No. 1-2000 should not operate
to divest entitlement to the relief as it would constitute a violation of the duty
required by good faith in complying with a tax treaty. The denial of the availment
of tax relief for the failure of a taxpayer to apply within the prescribed period
under the administrative issuance would impair the value of the tax treaty. At
most, the application for a tax treaty relief from the BIR should merely operate
to confirm the entitlement of the taxpayer to the relief.
The obligation to comply with a tax treaty must take precedence over the
objective of RMO No. 1-2000. Logically, noncompliance with tax treaties has
negative implications on international relations, and unduly discourages foreign
investors. While the consequences sought to be prevented by RMO No. 1-2000
involve an administrative procedure, these may be remedied through other system
management processes, e.g., the imposition of a fine or penalty. But we cannot
totally deprive those who are entitled to the benefit of a treaty for failure to
strictly comply with an administrative issuance requiring prior application
for tax treaty relief. 44 (Emphases and underscoring supplied)

The objective of RMO No. 1-2000 in requiring the application for treaty relief with the
ITAD before a party's availment of the preferential rate under a tax treaty is to avert the
consequences of any erroneous interpretation and/or application of treaty provisions, such
as claims for refund/credit for overpayment of taxes, or deficiency tax liabilities for
underpayment. 45 However, as pointed out in Deutsche Bank, the underlying principle of
prior application with the BIR becomes moot in refund cases as in the present case
where the very basis of the claim is erroneous or there is excessive payment arising from
the non-availment of a tax treaty relief at the first instance. Just as Deutsche Bank was not
faulted by the Court for not complying with RMO No. 1-2000 prior to the transaction, 46
so should CBK Power. In parallel, CBK Power could not have applied for a tax treaty relief
15 days prior to its payment of the final withholding tax on the interest paid to its lenders
precisely because it erroneously paid said tax on the basis of the regular rate as
prescribed by the NIRC,and not on the preferential tax rate provided under the different

treaties. As stressed by the Court, the prior application requirement under RMO No. 12000 then becomes illogical. 47
Not only is the requirement illogical, but it is also an imposition that is not found at all in
the applicable tax treaties. In Deutsche Bank, the Court categorically held that the BIR
should not impose additional requirements that would negate the availment of the reliefs
provided for under international agreements, especially since said tax treaties do not
provide for any prerequisite at all for the availment of the benefits under said agreements.
48

It bears reiterating that the application for a tax treaty relief from the BIR should merely
operate to confirm the entitlement of the taxpayer to the relief. 49 Since CBK Power had
requested for confirmation from the ITAD on June 8, 2001 and October 28, 2002 50 before
it filed on April 14, 2003 its administrative claim for refund of its excess final withholding
taxes, the same should be deemed substantial compliance with RMO No. 1-2000, as in
Deutsche Bank. To rule otherwise would defeat the purpose of Section 229 of the NIRC in
providing the taxpayer a remedy for erroneously paid tax solely on the ground of failure to
make prior application for tax treaty relief. 51 As the Court exhorted in Republic v. GST
Philippines, Inc., 52 while the taxpayer has an obligation to honestly pay the right taxes,
the government has a corollary duty to implement tax laws in good faith; to discharge its
duty to collect what is due to it; and to justly return what has been erroneously and
excessively given to it. 53
AHaETS

In view of the foregoing, the Court holds that the CTA En Banc committed reversible error
in affirming the reduction of the amount of refund to CBK Power from PhP15,672,958.42
to PhP14,835,720.39 to exclude its transactions with Fortis-Netherlands for which no
ITAD ruling was obtained. 54 CBK Power's petition in G.R. Nos. 193383-84 is therefore
granted.
The opposite conclusion is, however, reached with respect to the Commissioner's petition
in G.R. Nos. 193407-08.
B. G.R. Nos. 193407-08
The Commissioner laments 55 that he was deprived of the opportunity to act on the
administrative claim for refund of excess final withholding taxes covering taxable year
2003 which CBK Power filed on March 4, 2005, a Friday, then the following Wednesday,
March 9, 2005, the latter hastily elevated the case on petition for review before the CTA.
He argues 56 that the failure on the part of CBK Power to give him a reasonable time to
act on said claim is violative of the doctrines of exhaustion of administrative remedies and
of primary jurisdiction.

For its part, CBK Power maintains 57 that it would be prejudicial to wait for the
Commissioner's ruling before it files its judicial claim since it only has 2 years from the
payment of the tax within which to file both its administrative and judicial claims.
The Court rules for CBK Power.
Sections 204 and 229 of the NIRC pertain to the refund of erroneously or illegally
collected taxes. Section 204 applies to administrative claims for refund, while Section 229
to judicial claims for refund. In both instances, the taxpayer's claim must be filed within
two (2) years from the date of payment of the tax or penalty. However, Section 229 of the
NIRC further states the condition that a judicial claim for refund may not be maintained
until a claim for refund or credit has been duly filed with the Commissioner. These
provisions respectively read:
SEC. 204. Authority of the Commissioner to Compromise, Abate and Refund
or Credit Taxes. The Commissioner may
xxx xxx xxx
(C) Credit or refund taxes erroneously or illegally received or penalties
imposed without authority, refund the value of internal revenue stamps when
they are returned in good condition by the purchaser, and, in his discretion,
redeem or change unused stamps that have been rendered unfit for use and
refund their value upon proof of destruction. No credit or refund of taxes or
penalties shall be allowed unless the taxpayer files in writing with the
Commissioner a claim for credit or refund within two (2) years after the
payment of the tax or penalty: Provided, however, That a return filed showing
an overpayment shall be considered as a written claim for credit or refund.
xxx xxx xxx
SEC. 229. Recovery of Tax Erroneously or Illegally Collected. No suit or
proceeding shall be maintained in any court for the recovery of any national
internal revenue tax hereafter alleged to have been erroneously or illegally
assessed or collected, or of any penalty claimed to have been collected without
authority, of any sum alleged to have been excessively or in any manner
wrongfully collected without authority, or of any sum alleged to have been
excessively or in any manner wrongfully collected, until a claim for refund or
credit has been duly filed with the Commissioner; but such suit or proceeding
may be maintained, whether or not such tax, penalty, or sum has been paid
under protest or duress.
In any case, no such suit or proceeding shall be filed after the expiration of
two (2) years from the date of payment of the tax or penalty regardless of

any supervening cause that may arise after payment: . . . . (Emphases and
underscoring supplied)

Indubitably, CBK Power's administrative and judicial claims for refund of its excess final
withholding taxes covering taxable year 2003 were filed within the two-year prescriptive
period, as shown by the table below: 58
WHEN FINAL
INCOME
TAXES WERE
WITHHELD

WHEN
REMITTANCE
RETURN
FILED

LAST DAY OF
THE 2-YEAR
PRESCRIPTIVE
PERIOD

WHEN
ADMINISTRATIVE
CLAIM WAS FILED

WHEN PETITION
FOR REVIEW
WAS FILED

February 2003
May 2003

03/10/03
06/10/03

03/10/05
06/10/05

March 4, 2005
March 4, 2005

03/09/05
03/09/05

With respect to the remittance filed on March 10, 2003, the Court agrees with the
ratiocination of the CTA En Banc in debunking the alleged failure to exhaust administrative
remedies. Had CBK Power awaited the action of the Commissioner on its claim for refund
prior to taking court action knowing fully well that the prescriptive period was about to
end, it would have lost not only its right to seek judicial recourse but its right to recover
the final withholding taxes it erroneously paid to the government thereby suffering
irreparable damage. 59
SEHDIC

Also, while it may be argued that, for the remittance filed on June 10, 2003 that was to
prescribe on June 10, 2005, CBK Power could have waited for, at the most, three (3)
months from the filing of the administrative claim on March 4, 2005 until the last day of
the two-year prescriptive period ending June 10, 2005, that is, if only to give the BIR at the
administrative level an opportunity to act on said claim, the Court cannot, on that basis
alone, deny a legitimate claim that was, for all intents and purposes, timely filed in
accordance with Section 229 of the NIRC. There was no violation of Section 229 since the
law, as worded, only requires that an administrative claim be priorly filed.
In the foregoing instances, attention must be drawn to the Court's ruling in P.J. Kiener Co.,
Ltd. v. David 60 (Kiener), wherein it was held that in no wise does the law, i.e., Section
306 of the old Tax Code (now, Section 229 of the NIRC), imply that the Collector of
Internal Revenue first act upon the taxpayer's claim, and that the taxpayer shall not go to
court before he is notified of the Collector's action. In Kiener, the Court went on to say that
the claim with the Collector of Internal Revenue was intended primarily as a notice of
warning that unless the tax or penalty alleged to have been collected erroneously or
illegally is refunded, court action will follow, viz.:

The controversy centers on the construction of the aforementioned section of the

Tax Code which reads:
SEC. 306. Recovery of tax erroneously or illegally collected. No suit
or proceeding shall be maintained in any court for the recovery of any
national internal revenue tax hereafter alleged to have been erroneously
or illegally assessed or collected, or of any penalty claimed to have been
collected without authority, or of any sum alleged to have been excessive
or in any manner wrongfully collected, until a claim for refund or credit
has been duly filed with the Collector of Internal Revenue; but such suit
or proceeding may be maintained, whether or not such tax, penalty, or
sum has been paid under protest or duress. In any case, no such suit or
proceeding shall be begun after the expiration of two years from the date
of payment of the tax or penalty.
The preceding provisions seem at first blush conflicting. It will be noticed that,
whereas the first sentence requires a claim to be filed with the Collector of
Internal Revenue before any suit is commenced, the last makes imperative the
bringing of such suit within two years from the date of collection. But the conflict
is only apparent and the two provisions easily yield to reconciliation, which it is
the office of statutory construction to effectuate, where possible, to give effect to
the entire enactment.
To this end, and bearing in mind that the Legislature is presumed to have
understood the language it used and to have acted with full idea of what it wanted
to accomplish, it is fair and reasonable to say without doing violence to the
context or either of the two provisions, that by the first is meant simply that the
Collector of Internal Revenue shall be given an opportunity to consider his
mistake, if mistake has been committed, before he is sued, but not, as the appellant
contends that pending consideration of the claim, the period of two years provided
in the last clause shall be deemed interrupted. Nowhere and in no wise does the
law imply that the Collector of Internal Revenue must act upon the claim, or
that the taxpayer shall not go to court before he is notified of the Collector's
action. . . . . We understand the filing of the claim with the Collector of
Internal Revenue to be intended primarily as a notice of warning that unless
the tax or penalty alleged to have been collected erroneously or illegally is
refunded, court action will follow. . . . . 61 (Emphases supplied)

That being said, the foregoing refund claims of CBK Power should all be granted, and, the
petition of the Commissioner in G.R. Nos. 193407-08 be denied for lack of merit.
WHEREFORE, the petition in G.R. Nos. 193383-84 is GRANTED. The Decision dated
March 29, 2010 and the Resolution dated August 16, 2010 of the Court of Tax Appeals
(CTA) En Banc in C.T.A. E.B. Nos. 469 and 494 are hereby REVERSED and SET
ASIDE and a new one entered REINSTATING the Decision of the CTA First Division
dated August 28, 2008 ordering the refund in favor of CBK Power Company Limited the

amount of P15,672,958.42 representing its excess final withholding taxes for the taxable
years 2001 to 2003. On the other hand, the petition in G.R. Nos. 193407-08 is DENIED
for lack of merit.
CAIHaE

SO ORDERED.
Sereno, C.J., Leonardo-de Castro, Bersamin and Perez, JJ., concur.
(CBK Power Company Ltd. v. Commissioner of Internal Revenue, G.R. Nos. 193383-84
& 193407-08, [January 14, 2015])
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